Shopify Makes $1B Bet on Warehouses, 2-Day Delivery as eComm Growth Slows

With a candid — if not obvious — acknowledgement that the COVID-era’s two-year torrid growth rates, fueled by stimulus checks, lockdowns, and an unprecedented digital shift, were set to decelerate in 2022, Shopify on Wednesday (Feb. 16) became the latest large cap eCommerce player to take a brutal market beating.

Although the Canadian-based digital commerce platform’s trailing Q4 and full-year results were ahead of expectations, its clear-eyed but cautious outlook for the next few months was not well received by investors, who pushed the stock to a 20-month low that has now cut Shopify’s value in half in just three months.

“Against these bigger picture secular and economic assumptions, our financial outlook anticipates revenue growth for the full year 2022 that is lower than the 57% revenue growth achieved in 2021, but still rapid and outpacing the growth of ecommerce,” CEO Harley Finkelstein told analysts and investors.

Far from a dying business, Shopify said it planned to use numerous growth levers to bring website building business and eCommerce platform to “more merchants in more geographies.”

The $1 Billion Bet

Even after its recent market declines, Shopify is still worth close to $90 billion, and has the wherewithal to  reinvest into the business, including more than $1 billion that’s been earmarked to build a larger fulfillment network that will cut down delivery times for a vast majority of its merchants’ customers.

“We are excited to update you today on what we’ve learned, how far we’ve come, and especially on where we’re heading as we move out of the prototype phase and into the build phase,” Finkelstein said in a conference call, as he detailed plans to consolidate the firm’s network into larger facilities and unify warehouse management that it’s been building and testing over the past 18 months.

Finkelstein said these changes will enable Shopify to deliver packages in two days or less to more than 90% of the U.S. population, adding that fulfillment is only something that merchants think about when it isn’t working.

In short, although Wall Street is pricing slowing growth rates at fire-sale levels, actual eCommerce businesses such as Shopify are still fully expecting and planning for additional growth.

“If volumes are what we expect them to be, we need to have enough capacity,” Finkelstein said. “That’s really important, but also the capacity has to be of a very high quality and that is what we’re preparing for. We run larger hubs as a backbone, but we’re also taking advantage of partners.”

Finkelstein said the network of centers won’t be entirely Shopify owned, but the goal is to match Shopify warehouses with partner warehouses. That way quality will increase and capacity will increase because of these changes.

It’s part of a strategy, the company said, to ride the evolution of digitally empowered eCommerce, ranging from new ways for merchants to improve buyer discovery and loyalty, to new commercial opportunities on social channels, to a data-enabled revolution in shipping and logistics.

That includes hiring more engineers than in 2021 along with an expansion of the sales staff, initiating a new offline performance marketing program and stepping up marketing efforts internationally.

The New, But Slightly Slower, Era

Chief Financial Officer Amy Shapiro said the company is moving forward with its investments because the wave of eCommerce during the pandemic has pushed the need to improve the technology.

“Now that we have turned the page to this new era of eCommerce, the road in front of us is teeming with opportunities that we must act on to add more momentum to our flywheel,” Shapiro said, promising a “full steam ahead” commitment to build upon its commerce infrastructure and foundation.

“That will further power our base of merchants to expand, become stronger and succeed now and on the other side of this digital commerce transformation,” Shapiro added.

One such investment being touted is the Shopify Point of Sale system for brick-and-mortar retailers which she said are seeing a rise in walk-in customers as the pandemic wanes.

“In-person selling is one of the best opportunities for merchants to deepen relationships with buyers through experiences, services, and often a shared community,” Shapiro said. “As there is still a huge opportunity ahead of us to bring our leading omni channel capabilities to more retail businesses, we will increase our investments to put Shopify POS into the hands of more brick and mortar merchants in more geographies.”