Lately, Shopify’s Chief Financial Officer Jeff Hoffmeister said that the integration of Deliverr, an e-commerce fulfillment and order storage provider, will help Shopify build cost-effective fulfillment capabilities for merchants. Hoffmeister was speaking at Morgan Stanley’s Technology, Media and Telecom Conference held in the second week of March.
The inclusion of Deliverr aims to offer Shopify with an asset-light network of warehouse partners besides carriers and last-mile providers. According to Hoffmeister, partners can assist core hub operations and areas where inventory is situated “on the edge of the network.”
With Deliverr, what they’re bringing is a network and fulfillment management software layer, which helps to predict demand and place inventory at a point that is closest to that demand. And by doing that, we believe that we can decrease the time to which we can get a product to the end customer, and thereby reduce cost as well.
Ana Raman, Senior Manager, Investor Relations
Avoiding Problems Faced by Amazon
Recently Amazon struggled with rising operating costs and excess capacity across its logistics network. Commenting on the same, Hoffmeister said, “Some of the technology we got from Deliverr allows us to do this in a distributed way, and then tackle some things which Amazon and others have in terms of problems we don’t have.”
Creating a fulfillment network that meets both the needs of merchants’ and consumers’ delivery expectations is not only a protracted but also an expensive undertaking. However, Shopify executives believe that the purchase of Deliverr is helping to speed up progress in that area as it aims to offer services to e-commerce merchants throughout the supply chain.
At a separate conference, Senior Manager of Investor Relations Ana Raman said, “With Deliverr, what they’re bringing is a network and fulfillment management software layer, which helps to predict demand and place inventory at a point that is closest to that demand. And by doing that, we believe that we can decrease the time to which we can get a product to the end customer, and thereby reduce cost as well.”
Though rival Amazon’s fulfillment network is still unmatched in the e-commerce industry, the company has grappled the fixed costs. During the e-commerce boom, Amazon swiftly expanded its distribution network, however, when the pace of growth slowed during 2022, it resulted in inefficiencies and excess warehouse capacity.
Shopify’s Fulfillment Network
According to President Harley Finkelstein, the fulfillment network that Shopify is building is different from other companies. “What we’re trying to build instead is, what if we created a lot of small networks with 20 SKUs, like Allbirds for example. You can pick a hoodie, a pair of sneakers and a pair of sandals. That is a much easier thing for us to do and it’s a lot less capital intensive,” Finkelstein said as quoted by retaildive.com.
Deliverr offering access to “elastic warehouse capacity” will help Shopify’s fulfillment network vision. However, at the same time, Shopify has to wait to fully reap the benefits of the acquisition. At present, Deliverr users comprise “a very, very small percentage” of Shopify’s total merchant base. Once the integration gets completed, Shopify aims to change this, said Hoffmeister.
“Part of the opportunity for us is once we do have Deliverr fully integrated to ramp that and get more and more of our merchants using Deliverr,” Hoffmeister added.
Acquisition Of Deliverr
On May 5, 2022, Shopify announced the acquisition of Deliverr. The e-commerce giant acquired the leading fulfillment technology provider for $2.1B. The acquisition of Deliverr got completed in the first week of July. Shopify Fulfillment Network (SFN) with the help of Deliverr’s talent, data, scale and software aims to provide merchants with a one-stop shop for all their logistics requirements. Thus, allowing merchants to have better control of their inventory across all the sales channels. From initial receipt of inventory to efficient distribution, quick delivery and smooth returns, all the tasks will be managed so that merchants can focus on their business growth.
Irrespective of the merchant’s presence on the Shopify platform, it can reduce logistics costs and eliminate the hassle of managing complex supply chains. The benefits include multichannel inventory management, better alignment between inventory supply and demand along with independent and flexible logistics services. Shopify Fulfillment Network, 6 River Systems, and Deliverr have together formed a broader logistics unit within Shopify led by Aaron Brown, CEO of Shopify’s logistics group.
Independent Businesses
“Our goal is to not only level the playing field for independent businesses but tilt it in their favor—turning their size and agility into their superpower. Together with Deliverr, Shopify Fulfillment Network will give millions of growing businesses access to a simple, powerful logistics platform that will allow them to make their customers happy over and over again,” said Tobi Lütke, founder and CEO of Shopify said.
“Our technology and expertise in inventory management, inventory placement, and demand chain combine perfectly with Shopify’s roadmap, enabling us to now build an end-to-end logistics platform together,” Deliverr co-founder and CEO Harish Abbott said in a statement.
“Shopify has been building the future of merchant-first fulfillment solutions, and our team has a track record of helping businesses of all sizes streamline their operations. We’re excited to join Shopify in their mission to make commerce better for everyone while democratizing shipping and fulfillment for independent entrepreneurs,” he added.
As per the acquisition agreement, Shopify promised to pay approximately 80% of the price in cash ($1.68 billion) and the rest 20% ($420 million) in Shopify Class A shares. Deliverr was co-founded in 2017 by Abbott and Michael Krakaris, ex-colleagues of Symphony Commerce. The company had raised $490.9 million in the capital before being acquired by Shopify.
