During Pandemic, Shopify Woos A Wave Of Small Businesses Eager To Get Online – ForbeseCommerce
When the pandemic forced Jan Buerge to shut down World’s Window, the Kansas City clothing and accessories store she opened 35 years ago, she jumped into crisis mode.
“We just started putting things online as quickly as we could,” says Buerge, 68, who enlisted her husband and a nephew to create a new website, snap photos and write descriptions for more than 1,000 of the 18,000 items for sale in the store.
In three days she was live on Shopify, the online sales platform that—unlike Amazon—gives small businesses the ability to create and manage their own sites for a monthly fee, while keeping virtually all of the sales they make. To help spur demand until she can reopen her doors, she sends out a newsletter every morning to 4,400 customers that highlights an item from a particular region. On April 21, it was baskets woven out of telephone wire in South Africa.
“I’ve never sold so many telephone wire baskets in my life,” says Buerge of the newfound lifeline. “It’s totally driven sales. It wouldn’t sustain our rent, but it’s certainly more than if we were just sitting at home thinking woe is us.”
Buerge is one of thousands of mom-and-pop shops who have turned to the online sales platform since the pandemic closed their doors, sending the number of new Shopify-powered stores soaring 62% between March 13 and April 24. These outlets, along with the one million merchants already using Shopify, boosted gross merchandise volume 46% to $17.4 billion in the first three months of the year.
The boom in new sellers was the high point of Shopify’s first-quarter results released this week, which easily surpassed expectations. Shares rose 7% on Wednesday, making it Canada’s most valuable company, and their 118% gain during the pandemic closures have more than doubled the fortune of cofounder and CEO Tobi Lütke to $6.2 billion. With the stock at record highs, Shopify is taking the opportunity to issue 1.85 million new shares.
“They are democratizing e-commerce for independent businesses by offering an arsenal of tools they couldn’t necessarily afford to build on their own,” says Richard Tse, an analyst at the National Bank of Canada.
Started in 2004, Shopify offered small businesses the ability to set up their online stores, place advertisements, process payments, fulfill orders, manage inventory and more, available for a small monthly fee between $29 and $299, plus credit card processing fees—in short, less expensive than hiring a software developer and potentially a more profitable alternative to Amazon, which takes a chunk of every sale. (Shopify has also introduced a plan for large companies, which takes a cut of sales.)
Shopify is now used by more than over one million retailers—including fast-rising brands like Kylie Cosmetics and Allbirds, plus established companies like KitchenAid, Heinz and Staples—and is primed to capitalize on the rush of small businesses looking to establish an online presence.
“Before Shopify, if you were a small, independent brand and you wanted to be online, you very much needed Amazon,” says Ygal Arounian, an analyst with Wedbush. “That doesn’t mean that most brands aren’t still selling on Amazon, but now they can also build their own website and connect with customers directly.”
There’s a growing appetite to sell directly to consumers, which affords brands a direct link to customers and frees them from the whims and changing policies of marketplaces. Amazon caused a stir when it enacted a temporary policy during the height of pandemic panic-buying that prohibited sellers from sending non-essential items to its fulfillment centers for several weeks—an effort to prioritize the delivery of critical goods, but which also sidelined sellers that had sold all their inventory and couldn’t restock.
Another grouse with Amazon is that it uses data from its third-party sellers to inform the development for its own competing products, according to an investigation by the Wall Street Journal. Amazon has refuted the findings, with a spokesperson telling Forbes that it “strictly prohibits employees from using non-public, seller-specific data to determine which private label products to launch.” The company also noted that while it doesn’t believe the claims are accurate, it takes them “very seriously” and has launched an internal investigation.
StockX, an online sneaker marketplace, saw an outcry after it added a 3% processing fee for buyers, on top of existing fees for sellers. Etsy, an online marketplace for handcrafted goods, has faced backlash for a policy that required some sellers to participate in an advertising push that they would be charged for, but had no say in.
“Marketplaces are generally a love hate relationship,” says Mike Cassidy, CEO of BVAccel, a digital commerce agency that helps merchants with their online strategy. “Even when you use it, you still probably hate it more than you love it. And when you hate it, you really hate it.”
Marketplaces provide eyeballs, though, so most sellers continue to depend on Amazon and others while also setting up their own websites and trying to encourage consumers to buy directly from them. Amazon remains the biggest player in e-commerce by a landslide, with 58% of its gross merchandise volume coming from third-party sellers, almost double a decade ago.
Before the pandemic, online spending only represented about a tenth of all retail sales in the U.S., but that is changing. Online grocery sales surged 37% in April, prompting delivery companies like Instacart to hire over 300,000 workers. The amount of merchandise sold on Amazon jumped 22% to $34 billion in its latest quarter, with other online platforms like Etsy also recording double-digit gains.
The question is how much spending will remain online once stores open back up. Shopify said the number of consumers who bought something from a merchant they had never shopped at before has spiked 45%, suggesting that many people are discovering new online stores and could become repeat customers. It also said brick-and-mortar stores have been able to replace 94% of their in-store sales online.
Shopify has introduced a number of tools to help small businesses during the pandemic, like making gift cards available to all sellers, as well as facilitating curbside pickups and extending $162 million in cash advances and loans. It introduced a consumer-facing app last week that offers a spin on the Amazon marketplace, allowing shoppers to search for retailers they’re interested in, follow them and then track orders that they’ve placed.
“We are working as fast as we can to support our merchants by re-tooling our products to help them adapt to this new reality,” said Lütke in a statement. “Our goal is that, because Shopify exists, more entrepreneurs and small businesses will get through this.”