Walmart and Shopify

A few days ago, Walmart and Shopify announced a strategic partnership that would allow Shopify merchants to list products on Walmart website and still manage their stores through the Canadian company’s system. Below is what Walmart said in their press release

The U.S. eCommerce business grew 74% in total last quarter, and growth in marketplace outpaced the overall business even as first-party sales were strong. As we launch this integration with Shopify, we are focused on U.S.-based small and medium businesses whose assortment complements ours and have a track record of exceeding customers’ expectations.

We’re excited to be able offer customers an expanded assortment while also giving small businesses access to the surging traffic on Walmart.com. Shopify powers a dynamic portfolio of third-party sellers who are interested in growing their business through new, trusted channels. This integration will allow approved Shopify sellers to seamlessly list their items on Walmart.com, which gives Walmart customers access to a broader assortment.

Growing our Marketplace is a strategic priority, and we are going to be smart as we grow. We will start integrating new sellers now and expect to add 1,200 Shopify sellers this year. Shopify has a long history of helping small businesses leverage scale, and we’re proud to be part of the solution that is helping customers and other retailers.

Source: Walmart

What does Shopify do? Why may it benefit from Walmart?

While Walmart is a household name in the US, Shopify is much less known as its business is typically behind-the-scenes. Shopify offers solutions that help individuals and businesses launch their online presence. Shopify services range from apps that build an actual online store, payments, marketing, fulfillment, shipping and order management. Essentially, Shopify can give you all back-end services you need to start an online business tomorrow. Shopify customers pay a monthly subscription to have access to its offerings and extra fees whenever the customers want to use additional services.

Although the company didn’t make money from its operations as of 2019 yet, its revenue doubled compared to 2018.

Investors seem to have confidence in the outlook of the company, especially when e-Commerce gained traction amid the Covid-19 crisis. For the past year, Shopify stock has grown by almost 185% from $300 to $869 as of this writing. Despite Shopify’s growth, it is still a long way to go to unseat Amazon as the king of eCommerce in the US. According to eMarketer, Shopify had only 5.9% market share compared to Amazon’s 37%.

Shopify’s business model puts it in a direct collision course with Amazon’s own 3rd party marketplace. Individuals and small businesses can list their products on both Amazon and Shopify. Although it’s unclear which option is more financially beneficial to merchants, one thing is clear: Amazon has a lot more traffic to its site. Amazon reported that its US site has 150 million unique visitors alone. What small business can hope to compete with that kind of website traffic? Merchants, when thinking about which marketplace they should be on, definitely have to take into account the traffic that Amazon brings.

If merchants sign up with Amazon’s 3rd party marketplace, that’s business lost for Shopify. Hence, recent partnerships, with Facebook, Pinterest and Walmart, are aimed to help merchants reach a bigger potential client base without merchants having to stretch operationally further. As a business owner, you don’t want to run your store on three different systems, do you? The executive from Shopify even said as much.

“Few companies in the world match the sheer size and scale of Walmart,” said Satish Kanwar, Shopify’s vice president of product. The deal opens the door for small and medium-sized businesses “to access the 120 million customers who visit Walmart.com every month.”

Source: Financial Post

To new businesses, sudden exposure to 120 million customers a month is absolutely a huge draw. For comparison, Amazon reported that its US website attracted 150 million visitors a month. This partnership, along with others such as those with Facebook and Pinterest, catapults Shopify into a respectable contender in empowering merchants.

Plus, it may not have to worry about losing potential customers to Walmart’s own marketplace. It was reported that Walmart’s marketplace tool wasn’t popular among merchants on the market. Hence, Shopify can pitch to potential customers the prospect of reaching millions of customers while using its well-built tools. I think this move is more about appealing to new merchants and keeping the current customers from jumping ship to Amazon than poaching merchants from Amazon. I doubt that merchants which are well established on Amazon’s platform will be interested in disruption to their business and leaving the most popular marketplace for anything else.

Additionally, I suspect this partnership is focused on the US market alone. Walmart is as American a brand as it can get, and US is its strongest market. Meanwhile, 68% of Shopify’s revenue came from the US market. Stretching resources further to compete with Amazon overseas doesn’t really make sense.

What may Walmart gain from this partnership?

In addition to its stores, Walmart also has a marketplace.

When it first launched in 2009, it had fewer than 1 million SKUs available online. Today, the retailer’s total e-commerce presence represents more than 75 million. In 2019, Walmart added 10,000 new sellers to its marketplace, bringing the total last November to over 32,000

Source: Modern Retail

Despite the progress, Walmart is still clearly behind Amazon in the eCommerce space as the Arkansas-based company only had 4.7% market share, compared to Amazon’s 37%. Industry long-time watchers said that Walmart’s marketplace tools weren’t as good as Amazon’s and that merchants didn’t buy in the appeal of Walmart (Source: Modern Retail). Plus, I suspect that Amazon carries a lot more SKUs and merchants, making it a better choice for shoppers than Walmart.

To compete with Amazon, Walmart needs to scale its assortment fast, efficiently and overcome its own inferior internal system.

By leveraging the highly received tools from Shopify, Walmart will allow merchants to be on Walmart’s website without having to use its own internal tools, effectively eliminating any friction that can scare sellers away. On Walmart’s side, it won’t have to spend resources on acquiring thousands of new merchants. Moreover, more merchants and products will make Walmart’s website more appealing and enable it to woo shoppers from Amazon.

In short, with this partnership, Walmart can bring more merchants onboard efficiently in a short amount of time while Shopify can bring its merchants to a potential bigger customer base and hopefully attract more future business. While there is still a long way to go to unseat Amazon, I think this collaboration has a great deal of potential and I am excited to see how it will unfold in the future.

What do you think? Leave a comment to share your thoughts.