This week at the 2019 Shopify Unite Conference, Shopify announced the launch of its new fulfillment network.
Not to beat around the bush, Shopify's two goals in launching this service are to: A) capture and monetize more of the e-commerce supply chain; and B) stay competitive with Amazon, which is continually growing its market share of the e-commerce industry, particularly through its Fulfillment By Amazon (ie, Amazon Prime) offering.
Whatever their motives, good on Shopify for trying to compete with Amazon! Having run my own product offerings on both Shopify and Amazon, I can tell you that fulfillment is hard for small-to-midsize businesses. As an entrepreneur offering a new product, your time should be spent on marketing and business development. Getting caught up in fulfilling orders yourselves, or managing relationships with local/regional fulfillment houses can be a time sink.
Top 3 BENEFITS We See for Businesses Considering the New Shopify Fulfillment Network:
1. Less Clutter
Let's face it, if you're doing fulfillment from your own office (or even your home, if you're in start-up mode), maintaining an area, supplies, and routine for fulfilling your own orders can be a real hassle. And heck, if you take a day off or you miss a day of fulfilling orders — you're in trouble in terms of meeting customer expectations for prompt shipment.
2. Reduced Fulfillment Costs (Potentially)
I've not yet seen pricing information on Shopify's Fulfillment Network. But given their relationships with major players in the shipping industry, I image that the shipping costs could be lower than what small-scale brands can negotiate on their own. Moreover, with warehouse locations all across the country, depending up which Shopify warehouse(s) you use and where your customers are located, you could benefit from lower shipping costs due to shorter shipping distances.
That said, Shopify will obviously include picking and packing costs, and potentially storage costs, just like Amazon. We'll have to wait and see how economically competitive the service is in full.
3. Better Customer Experiences — Particularly for Subscription Customers
Related to the point above, reduced shipping time is paramount to customer experience. Particularly for customers on a monthly subscription, you want the window between the customer's credit card being billed and them receiving an order to be as short as possible. (In fact, many subscription offers ship product before billing takes place, so that the product reaches the customer the same day they are billed.)
Potential Challenges with the Shopify Fulfillment Network
As suggested above, we anticipate that businesses could encounter some speed bumps along the way in adopting the Shopify Fulfillment Network. Here is a list of potential issues:
Potentially Cost Prohibitive
We have no way of knowing what the costs might be for a business like yours to leverage this new Shopify Fulfillment Network. But it ain't just gonna be the cost of shipping labels. And for smaller brands with limited inventory and lower monthly sales, or businesses that ship fragile or large products, you have to consider the cost of getting your product shipped to Shopify's warehouse, in addition to Shopify's fees.
For example, I personally just shipped 144 units of product to Amazon's warehouses and it cost me $25. That adds $0.17/unit to my cost of goods sold. On smaller, less expensive products, costs like that can really add up.
Potential Logistical Hurdles
If you've ever shipped your product to Amazon's fulfillment centers, you know that there can be a lot of hoops to jump through, particularly if you're selling food-related or cosmetic products. There are hazardous goods safety forms to submit, certificates of analysis forms to track down, etc. Sometimes, it can take weeks to get a product approved for the Fulfillment by Amazon program. We anticipate similar challenges with Shopify's program.
Customizing the "Unboxing Experience"
Again, if you're offering a monthly subscription service, or if you're offering product trials, or discounted first-time orders that encourage long-term customer engagement, the customer's unboxing experience is critical. With any fulfillment service, it's hard to guarantee that products are packed intentionally. And if you need a fulfillment service (Shopify or otherwise) to include inserts, stickers, etc, the cost for that work can add up quickly.
Stepping Back, Will Shopify's Fulfillment Network Really Compete with Fulfillment By Amazon?
Honestly, probably not. For the products that I've personally sold on Amazon, I can tell you that the primary reason that I've used Fulfillment By Amazon was to get the "Amazon Prime" badge. It's really hard to convince shoppers on Amazon to purchase products that aren't listed on Prime — even if you offer your own free shipping. (Technically, you can get the Amazon Prime badge by enrolling in the "Seller Fulfilled Amazon Prime" program, but that program isn't currently accepting new vendors.)
Apart from potentially shorter shipping times, the Shopify Fulfillment Network won't offer any benefits directly to your customer. That's a huge differentiation between Fullfillment By Amazon and the Shopify Fulfillment Network.
If Shopify Unite teaches us anything year-after-year, it's that things are moving fast at Shopify. They are an incredibly innovative company. But like any innovative company, they have launched their share of initiatives that have failed.
We'll have to wait and see how things develop with the Shopify Fulfillment Network. In the meantime, if you're curious about the program, I suggest that you consider applying for early access now.