Online shopping seems to decline in the ongoing year 2022 as merchant growth on Shopify saw a drastic drop as compared to the years passed by. News agency Reuters quoted a research conducted by YipitData, claiming that only 71,000 net merchants were added to Shopify in the first half of 2022. In the COVID-hit 2020, as many as 6,80,000 businesses joined Shopify, followed by 3,14,000 new merchants in 2021.
Why this slowdown?
The reason for this fall in merchant growth on Shopify could be rising operational costs and declining consumer spending. Remember! Shopify quoted the same reason for the sacking of its 10 percent workforce.
“When the Covid pandemic set in, almost all retail shifted online because of shelter-in-place orders. Demand for Shopify skyrocketed. To help merchants, we threw away our roadmaps and shipped everything that could possibly be helpful. It was hard, but we know for a fact that more merchants’ businesses survived the pandemic because of the work we did in this time and that’s exactly what our mission is about,” Shopify CEO Tobi Lutke had said while announcing the layoffs.
However, the bet didn’t pay off and Shopify had to incur losses and about 10 percent of its employees lost their jobs.
How does Shopify earn?
While helping merchants set up online stores, Shopify provides them with a range of tools to ensure safe payment systems and quick delivery. This service helps the Canada-based company earn a minimum monthly fee of $29 for the basic plan. However, Shopify has most of its hopes pin on the Plus subscriptions, which provides advanced tools to merchants for a minimum monthly fee of $2,000.
According to the data experts, the road ahead is even more difficult for Shopify as it needs to add double the first half merchants in the year’s second half to avoid major losses.
“Unless Shopify adds roughly twice as many merchants in the second half of 2022 as the first half, we estimate they could be on pace for the lowest net merchant additions in a year since at least 2018,” the YipitData study said.
GlobalData analyst Neil Saunders emphasized on the growth of Plus subscriptions to ensure a smooth run in the coming quarters. “You have to get people at the top of the funnel … If you’re not getting the members in today it will probably affect your Plus conversions in the next quarter or quarters ahead,” he said.
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Plus is the hope
According to the data experts, the non-Plus merchants cause the slowdown in revenue growth, thanks to their small size and rising interest rates. Plus merchants, on the other hand, primarily drives the gross merchandise volume of Shopify. Non-Plus merchants can also upgrade to Plus subscriptions.
Reuters quoted Shopify President Harley Finkelstein saying that brands like ASICS and Hewlett Packard have migrated to Shopify Plus along with some other “homegrown success stories” that were started on a basic plan.
