Shopify announced earlier this month that it would acquire California-based ecommerce fulfillment company Deliverr for $2.1 billion in cash and stock, representing the largest acquisition in Shopify’s history.
Founded in 2017, Deliverr leases warehouse space and uses the fulfillment departments of those warehouses to pick and pack ecommerce orders. Deliverr distributes more than a million orders a month, spread across UPS, FedEx, and USPS. With the acquisition, Shopify will add 400 employees to its headcount.
A strength of Deliverr is its use of predictive analytics to anticipate demand for products and pre-position them close to geographical areas of anticipated need, as well as to determine the best delivery method.
Shopify says that Deliverr will combine with Shopify Fulfillment Network (SFN), the company’s existing fulfillment service that merchants on its platform use to store inventory and fulfill orders.
Deliverr’s technology will also power Shop Promise, a new service that will provide customers with two-day and next-day delivery.
After the acquisition, Shopify will offer new inventory storage, freight, and returns handling capabilities accessible to merchants whether or not they use SFN.
Shopify says it will also roll out a warehouse management system across its facilities by the end of the second quarter.
In 2020, Shopify acquired 6 River Systems, a warehouse automation technology provider, which will integrate with Deliverr.
In a blog post, Shopify stated that the Deliverr acquisition would provide “simplified multichannel inventory management with a single place for merchants to ship their inventory for different sales channels. These include a merchant’s online store, brick-and-mortar locations, wholesale customers, marketplaces including Amazon, eBay, Etsy, and Walmart, and platforms like Google, Facebook, Instagram, and TikTok.”
Given the increasing dissatisfaction with Amazon FBA and its changing inventory rules and increased costs for sellers, Shopify has emerged as an alternative for merchants who prefer selling direct to consumers via their own websites.
Amazon somewhat blunted the advantage of Shopify’s Deliverr acquisition with the announcement of its Buy with Prime program earlier this month. This service lets a select group of FBA merchants offer Prime deliveries through their own online stores.
Amazon intends to expand the program to include merchants that don’t use its fulfillment service and eventually to those companies that don’t sell on its platform.
Shopify and Amazon will now compete for the same merchants, regardless of how and where they sell their products.
Deliverr emphasizes one of its advantages over Amazon FBA merchants — it does not limit the amount of inventory a merchant can store in its warehouses.
Also, with the acquisition of Deliverr, Shopify has narrowed Amazon’s competitive advantage since Shopify can now consistently deliver in a one or two-day timeframe.
While Shopify’s Q1 2022 revenue of $1.2 billion was 22% higher than the same period in 2021, it missed analysts’ estimates of roughly $1.25 billion.
Shopify’s net loss for the first quarter of 2022 was $1.5 billion, or $11.70 per share, compared with net income of $1.3 billion, or $9.94 per share, for the first quarter of 2021. As a result, Shopify’s stock fell 14.7% to $413.64 resulting in an overall 2022 decline of 70%.
With the acquisition of Deliverr, Shopify is banking on fulfillment to drive revenue and help it regain profitability.
Shopify’s guidance for 2022 predicts that year-over-year revenue growth will be minimal in the first half of the year and highest in the fourth quarter of 2022.
Almost all major ecommerce platform players have acknowledged that they will not be able to sustain the high growth rates they enjoyed at the pandemic’s peak.