Shopify next aims at street-side retailers after an overly aggressive bet on e-commerce
With small businesses in various stages of closure, it may seem like an odd time to set up a pop-up shop. But after two-year pandemic, consumers are hungry for real-life experiences. And while they’ve gotten used to the convenience of shopping online, they miss feeling connected to brands (and to each other) in a physical environment.
Plus, the pandemic has resulted in a surplus of retail space and widespread commercial rent decreases, leading to a market ripe for retailers and brands interested in adding a physical presence to their business.
Canada’s largest e-commerce company Shopify Inc. announced Tuesday that it will start selling new hardware for traditional street-side retailers.
The device, called POS Go, resembles a smartphone and will allow retailers to provide wireless checkout anywhere in store, while also allowing merchants to view analytics and data on such things as sales, inventory and product information.
It’s one of Shopify’s most significant product announcements since firing one-tenth of its workforce (about 1,000 people) this summer after CEO and founder Tobias Lütke acknowledged that the outstanding performance of e-commerce during the pandemic had caused him to misjudge the growth trajectory of online sales.
The company also replaced members in the C-suite a couple weeks ago.
As health restrictions were lifted, it became clear that a significant number of consumers still wanted to shop at physical stores. For example, e-commerce represented 4.7 per cent of total retail sales in July, little changed from the same month a year earlier, Statistics Canada reported last week. It was a humbling moment for Shopify, which at one point during the pandemic had grown to become Canada’s largest company by market capitalization. The company’s stock price has since tumbled below its pre-pandemic value.
“Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust,” Lütke wrote in an email to staff on July 26.
Martin Toner, an analyst at ATB Financial, said Shopify has been increasing its “offline” offerings to leverage its millions of e-commerce merchants. “They are leaning into their POS solution,” said Toner, referring to point-of-sale technology that allows retailers to process transactions. “It sounds like it’s proving to be fairly successful and that’s helping boost growth a little bit here but not in a needle-moving way,” as the vast majority of Shopify’s revenue comes from e-commerce, he said.
hopify posted 57-per-cent revenue growth last year due to increased online shopping. But those numbers were influenced by the pandemic. As soon as economies re-opened, physical shopping rallied, as did the share of spending that goes to services such as travel and eating out. The company’s stock price has fallen some 80 per cent since it peaked in November.
The current reality is forcing Shopify to “right-size,” Toner said.
Shopify is also focusing on logistics and fulfillment as it reconfigures itself, closing a US$2.1-billion acquisition of logistics software company Deliverr Inc. in July.
Toner said Shopify’s overarching strategy hasn’t changed despite the layoffs and losses. In a press release, the company said in the first half of the year, sales made by merchants that used Shopify’s core POS product grew by 60 per cent.
“The needs of offline retailers are not entirely different than the needs of their merchants,” Toner said. “It’ll produce growth and likely profits over time.”
This article was reported by Financial Post.