Shopify Fulfillment Network aims to help U.S. merchants handle logistics pain points

Ottawa-based Shopify, a multi-channel commerce platform, said this week it has introduced a fulfillment network, entitled the Shopify Fulfillment Network.

Company officials said that this network “will provide United States-base merchants with a network of distributed fulfillment centers, coupled with machine learning to ensure timely deliveries and lower shipping costs, putting their brand and customer experience front and center.”

Shopify Director of Product Thomas Epting said in an interview that this offering is geared towards merchants handle their logistics pain points.

“For a long time, Shopify has been working to bend down the curve of entrepreneurship to make it more simple to succeed at scaling their business,” he said. “Most merchants in our network are great creative, marketers, and brand storytellers…and create new and exciting products, with some disrupting entire product categories and breaking the rules of retail to create new brand experiences. We want them focused on scaling their business and winning on what they know to do best. But any one of them lack a few specific things to be able to be great at logistics.”

Among those things is scale, which Epting said they lack, in order to get great pricing either from 3PL and transportation providers. And he added that these merchants also lack enough data to build something truly meaningful from a machine-learning perspective, which is an area where Shopify can help to make a difference.

“Depending on how you measure this, 5%-10% of all e-commerce sales in North America is flowing through Shopify today,” said Epting. “We have this massive data set that almost nobody else has access to…to dig deep into a merchant’s business, with detailed information on things like SKUs, how fast inventory is turning, where their customers are located and what they are buying. The current set of providers serving Shopify merchants today also lack this data in this capacity.”

Another driver for the Shopify Fulfillment Network, cited by Epting, was specific frustrations from Shopify merchants related to things like complex and convoluted pricing and contracts.

From a competitive perspective, while buyers want to order something and receive it within two days, Epting said that what Amazon realized a path to growth was that customers really did not want to pay for shipping.

“Amazon is obviously doing this differently than we are,” he said. “We want our merchants to own a direct relationship with their customers, and we believe the customer data is theirs. Some marketplaces try to obscure that and retain that relationship…we believe the branding should be theirs and should arrive in their boxes and not cloaked in some other marketplace’s box. We also believe Shopify should only empower merchants and should not compete with them. They want to thrive and grow and need a simpler solution from a pricing perspective.”

What’s more, Epting said Shopify is solving a different problem for merchants than Amazon, in that Amazon is really a large supply chain company, working with commodity products, with a keen focus on time to delivery.

But Shopify is not competing with Amazon on same-hour delivery, as that is not a Shopify merchant need, he said. Instead, he said a way to be market competitive, as an example, is if something ordered on a Wednesday arrives on a Friday ahead of the weekend, can increase conversion for Shopify merchants at checkout and also scale their businesses more effectively.

“If we take the burden of fulfillment away from them, they can just focus on scaling their business, coming up with the next product ideas and categories, and retail experiences,” he said. “And we can enable that to happen for them.”

In terms of how a merchant uses the Shopify Fulfillment Network, Epting presented an example with a merchant looking to scale up and needs help with logistics.

“The merchant would reach out to the Shopify Fulfillment Network, and we would run the merchant’s store through our machine-learning model,” he said. “And we come back and look at the merchant’s SKU portfolio…and say the merchant is selling 100 SKUs, we look at the fast-turning SKUs and say these five or ten things you are selling need to go into multiple network nodes to be close to end customers. Then maybe the middle 20 or 30 SKUs will be put on the East Coast and West Coast…and then everything else would be in a single fulfillment center network node closest to your node customer, as it would be irresponsible to bloat costs on hand and ask to put [them] everywhere. Our machine learning does all of that, and we then [marry] that merchant up with a fulfillment success manager who helps the merchant on-board into the Shopify Fulfillment Network and helps send products to the right place, consults on the right next moves for scaling the business from a logistics perspective and remain in contact with the merchant. If things change with the business over time, we will help to adjust their strategy and ultimately provide a lower cost and faster delivery for the merchant’s buyers.”

John Haber, founder and CEO of Atlanta-based Spend Management Experts, said that it makes sense for Shopify to go down this path.

“[T]here is so much competition entering into this space, that Shopify needs to offer this solution to position themselves for the future,” he explained. “Not only are niche technology solution providers moving into this fulfillment space, but the big logistics firms like XPO, UPS and FedEx are rolling out new solutions to offer a ‘one-stop solution’ for the customer. It offers a solution for retailers to try and keep up with Amazon, but the ultimate success will be determined by how well they, Shopify and the logistics partners Shopify brings in can execute on the operations and inventory side as well as the technology integration.”

With the fulfillment space getting fairly saturated, Jerry Hempstead, president of parcel consultancy Hempstead Consulting, noted that some vendors in the Amazon network are struggling with the cost of Amazon’s fulfillment and are open and receptive to less expensive solutions.

But Amazon has such critical mass and such a head start that they are difficult to compete with,” he said. Fulfillment is part of the chain and just as UPS and FedEx are into the game, Amazon is into transportation. Shopify is a software solution provider that is cobbling together some of the missing pieces to the puzzle. They have to.”