INSUBCONTINENT EXCLUSIVE:
Sujay Seetharaman
Contributor
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Sujay Seetharaman is a Customer Success
Manager and a Market Analyst at eCommerce market intelligence firm PipeCandy
As competition between Walmart and Amazon intensifies,
the acquisition of Shopify merchant marketplace may be the boost that the Walton family juggernaut needs to move ahead.
In May this year,
Amazon published itssmall business impact report,in which it disclosed there are 20,000 small and medium-sized businesses that make a
million dollars or more in sales on its platform.
Amazon boasts about5 million third-party sellerson its marketplace today, with an
estimated 100,000 sellers hopping on-board every month.
At 100,000 sellers a month over the next five years, there could be an estimated 11
million sellers on Amazon marketplace by 2023.
E-commerce intelligence firm Marketplace Pulse estimates Amazon gross merchandise volume, or
GMV, for 2018 at $280 billion, set to triple over a five-year period, concluding that the marketplace contribution to Amazon GMV would
surpass 70 percent by 2023.
Combined with Prime and FBA, this high-level picture sounds like Amazon can afford to not worry about its
But an uneasy trend seems to simmer within its 5 million cohort
Looking atFeedvisor survey of Amazon marketplace merchants from 2017 and 2018 and some interesting trends surface.
Marketplace merchants are
looking to keep their advertising costs low and are worried about rising fees on the Seattle-based company e-commerce platform
They&re also concerned about competition coming from Amazon as it continues to launch its own brands
Indeed, 60 percent of merchants told Feedvisor in 2017 that they planned to diversify to other channels.Walmartemerged as the most preferred
channel, followed very closely by Shopify and eBay.
About 10 percent of those surveyed in 2017 were making a million dollars or more in
A year on, this figure is up to 19 percent
One can tell where these first-time millionaires are heading when we see that Walmart today supports 9 percent more Amazon merchants than it
did in 2017.
In its pursuit for parity with Amazon, Walmart has clearly overtaken eBay in merchant preference
The latter supports 12 percent fewer Amazon merchants today than it did in 2017, and is closely trailed by Shopify and Jet.com.
Shopify is
one of Canada biggest tech success stories
Can Walmart afford to be conservative
Walmart marketplace has 18,000 sellers, 36 percent of whom
make at least $2 million in sales —all of whom sell on Amazon!
With its e-commerce business struggling to see gains since 2016, when it
acquired Jet.com, Walmart has recently been making the waves with its string of partnerships and acquisitions
In May, it announced that it was partnering with Postmates and DoorDash for expanding its last-mile delivery of online groceries.
In what
seemed to be a rebuttal to Amazon private label push, Walmart acquired Bonobos, Shoebuy, ModCloth and Moosejaw
It also announced in May that it was adding four fashion brands to its kitty.
While it continues to be hard-fisted about who sells on its
marketplace, atrendseems to be emerging wherein Walmart is not just competing with Amazon but is also striving to bring reputed
retailbrandsunder its banner and is attempting to re-shape consumer perception of it being low-price and inexpensive.
Walmart may be second
in line to Amazon, but it has its cons
Its process toqualify a third-party seller is more stringent
Sellers need to request an invitation to join and must fulfill certain quality requirements pertaining to product mix, price point and
fulfillment.
Unable to differentiate among millions of sellers on Amazon and faced with rigorous screening from Walmart, the best bet for
Amazon third-party sellers to diversify seems to be to set up their own store.
They can either create their own website or set up a store on
an e-commerce platform like Magento or Shopify .
Shopify — the network is bigger than the software
Shopify, the e-commerce platform for
small and medium-sized businesses, isn&t too far behind eBay and Walmart in merchant preference.
A seller can set up her own store on
Shopify basic version for as little as $29 a month
It also has a premium version (for a $2,000 monthly fee) called Shopify Plus aimed at enterprise-level sellers and wholesalers
An estimated 3,600 merchants have already bought into Shopify Plus; among them are popular logos such as Tesla, Kylie Cosmetics and
Budweiser.
Shopify has an estimated 600,000 merchants on its e-commerce platform and has seen its merchant base grow annuallyin excess of
100 percent since 2014.
What particularly makes Shopify attractive — and gives it anupper handover marketplaces like Walmart — is its
third-party network of developers, photographers, digital marketers and designers that merchants can leverage for their business
Shopify today is a more turnkey platform than Walmart!Of all digital commerce revenues in 2017 — totaling $2.3 trillion —Shopify
sellers& GMV was 1 percent,worth $26 billion, which shows just how important Shopify is next to Walmart.
Analysts arebetting bigfor the next
10 years despite its recent volatility in stock price.
Around the same time, when Amazon published its small business impact report, Shopify
announced that it would open abrick-and-mortar storein the U.S
by the end of summer this year to provide in-person advice and consulting services to its customers.
Such a showroom would also provide
Shopify the opportunity to cross-sell itshardware productsto merchants who are lookingto go brick-and-mortar.
For these reasons, Shopify
will continue to attract more merchants and will become more important in the days to come and, as it does, it will get noticed by the big
players — Amazon and Walmart.
Shopify and Amazon share history
Shopify partnered with Amazon in 2015 as its preferred migration partner
Many Shopify merchants already sell on Amazon; they have the option to use Amazon FBA and Payment gateway
And more than 50 percent of Shopify 3,600-odd &Plus& merchants sell on Amazon, as opposed to less than 1 percent who sell on
Walmart.
Clearly, the preference for Walmart.com is abysmal among Shopify merchants.
At a market cap of $17 billion, Shopify can be acquired
by Amazon without much hassle
While this may not be in Amazon cards considering the call it took four years ago to shut its webstore business and the ease with which it
gets inbound interest from the long-tail e-commerce companies (which forms 90 percent of the independent e-commerce companies base), Walmart
should start figuring Shopify into its strategic plans.
When your competition is Amazon, nothing is enough
In its SEC filings forthe fiscal
year ended January 2018, Walmart said that it is looking to increase investments in grocery and technology
Much of Walmart moves in these spaces continue to come across as reactive responses to Amazon:
Recently, in its overseas battle against
Amazon, Walmart acquired a 77 percent stake in India Flipkart for $16 billion.
In what could be seen as a long overdue answer to AWS, it
revealed itsown cloud network.
It has also kickstartedefforts to take on Amazon Go
With FBA and Prime seeming invincible, Walmart will never be able to catch up to the giant
But, it can prove to be a serious rival if it decides to acquire Shopify.
(Photo by Joe Raedle/Getty Images)
Why Shopify
The non-Amazon
destination
Today, eBay has more Amazon merchants on its platform than Walmart does
However, Walmart is picking up pace and is evidently becoming more attractive.
Between 2017 and 2018, the percentage of Amazon sellers on
eBay reduced from 65 percent to 52 percent
At the same time, Walmart and Jet.com combined saw an increase from 17 percent to 25 percent.
Given 2018 stats, if Shopify were to become
Walmart-owned, about 42 percent of Amazon sellers today, would be selling via either Walmart, Jet or Shopify
This would bring the difference between eBay and Walmart (Jet and Shopify included) down to 10 percent, in turn narrowing the competition
gap between Walmart and Amazon.
Interestingly, there were rumors in 2017 that eBay was planning to acquire Shopify
The stocks reacted positively but there were no signs that eBay was interested in such an acquisition.
The perfect complement
The
fundamental difference between Walmart and Shopify is that the former is a marketplace while the latter is an e-commerce platform.
It is
hard for a seller with no distinct brand identity to differentiate herself on a marketplace unlike on a platform
As revenue channels, they are both necessary for a merchant omnichannel strategy.
While Amazon will rule the roost in the marketplace arena
for a long time to come, merchants should start betting on Shopify
This acquisition will be an opportunity for Walmart to write its story in a market that Amazon tried and quit.
Shopify does not get you
shoppers and Walmart does not get you the support services
As a combined entity, their value proposition becomes very compelling.
The apparent weakness is an actual strength
Shopify is not without
As with all e-commerce platforms, the majority of their e-commerce merchants are long-tail with little to no revenue
But critics, including Andrew Left of Citron Research, fail to understand that long-tail is sort of a deal pipeline to identify sellers who
are likely to grow and contribute significantly to the revenue.
A study of Shopify marketplace will validate their claim that the merchants
are there for the value of a &one-stop platform and extended services& and not just for Facebook data of their shoppers.
As Brian Stoffel
put it in hisarticle, &The moat is strong and growing, even as recent protests have tested the company.&
Shopify long-tail merchant base
It the pipeline that Walmart should value
It could be Walmart answer to Amazon merchant acquisition spree.
The neighborhood store is actually a Shopify Store
Shopify is an
e-commerce platform provider but that no reason to dismiss it as a competitive threat to Walmart
Both target merchants are focused on making them sell online, albeit differently.
Walmart handpicks merchants
Shopify doesn&t.
Walmart is a legacy brand and has a perception problem in the market
Shopify is a born millennial, like Jet.
Walmart is competing with Amazon on multiple fronts
Amazon closed its webstore business and switched to an integration with Shopify!
Walmart has no equivalent to FBA
Shopify merchants can opt to have their merchandise fulfilled by Amazon.
Brett Andress of KeyBanc Capital Markets drives home the importance
of Shopify — &Emerging brands on Shopify are getting larger, and more established brands are gravitating to Shopify to be more
nimble.&
While Walmart continues to shop for private label brands in a bid to throw a new spin on its brand identity, it needs to look a few
There are 600,000 of them
Either Walmart could hope for them to come list on its marketplace someday or make itself the very technology that powers their
business.
Shopify is known for its ability to attract e-commerce merchants
Its tools — like the name generator, domain name generator, to name a few — are subtle retention hacks to get intending sellers hooked
Should a seller decide to sell her business, Shopify has an exchange on which she can list her store for sale
On thepartner front, developers, marketers and designers have helped create many success stories, while writing their own
Overall, it seems like the stickiness is here to stay.
With e-commerce still 12 percent of global retail trade and with anexpected growth
rate of 47 percent over the next three years, Shopify is well-positioned to capture a lot of the e-commerce upside
The neighborhood grocer is now more likely to open on Shopify or sell on Amazon than at the neighborhood
This is also why it makes sense for Walmart to acquire one of the two default portals of entry into e-commerce.
To compete with Amazon, it
needs to make moves that shift the ground beneath the foot and a Shopify acquisition could be one of those bets still open.
Can Walmart
afford it
The retail analysts& consensus is that Walmart needs to expand its e-commerce base, as the default for the younger demographic
Walmart marketplace strategy, so far, hasn&t been about becoming that default.
Shopify is a credible option to expand its e-commerce
base.Shopify was recently chided by activist investors like Andrew Left for being over-reliant on the top 10 percent of the merchant
base.
There are about 4,500 e-commerce companies with $100 million-plus revenue out there and Shopify entry into the enterprise commerce
market is a reactionary response to the inherent weakness in its own business model (of over-reliance on mid-market and long-tail e-commerce
The problem for Shopify and to an equal extent Magento, BigCommerce, WooCommerce and PrestaShop is that the enterprise e-commerce is the
territory of Hybris, Demandware, NetSuite etc.
The tough phase for Shopify would be when its mid-market cash cow customers migrate to
Hybris or WebSphere or Demandware
It has to backfill from its growing long tail unless it competes head-on with IBM, Adobe, Oracle NetSuite, Demandware or Hybris
This is one of the reasons Magento aligned with Adobe.
The problem for Walmart in making this acquisition though is Wall Street view that it
a mature business with steady returns
Amazon, on the other hand, continues to treat e-commerce as a business which is in its Day 1.
You could observe the pressures Walmart has
It took Walmart over two years to finally pull the lever on the Flipkart deal, which is going to drain billions from its cash reserves
(notwithstanding the revolving credit of $5 billion it has raised to fund the deal).
With the current market cap of $17 billion, Shopify
But for reasons mentioned above, Shopify growth will be tested
Expanding GMV of existing merchants is easier than conquering the enterprise market, especially if it aligns with Walmart.
Walmart cash
reserves are less than $10 billion, making it a relatively expensive pursuit likely needing a leveraged buyout, and the market isn&t new to
Amazon, on the other hand, has $265 billion to deploy, but it a buy that it doesn&t need
And that sums up Walmart predicament as a challenger to Amazon.
