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Shopify Enjoying Early Success With Its Fulfillment Business

By Will Healy – Oct 12, 2020 at 5:50PM

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Volumes have surged for the Shopify Fulfillment Network because of the coronavirus.

Many know Shopify (SHOP -2.57%) as a provider of platforms for small and medium-size businesses that want to operate e-commerce sites. But the Shopify Fulfillment Network (SFN), its new logistics arm, has seen rapid growth, according to a report today.

This network offers branding, order management, inventory management, selling, and fulfillment services to Shopify clients. Under terms of the service, clients also control the data generated by the orders that SFN processes. This is important because merchants seek to protect internal data to safeguard competitive advantages.

The Shopify Fulfillment Network complements its better-known e-commerce site by managing and shipping goods. Thomas Epting, the director of the network, told The Wall Street Journal today that it had enrolled an increasing number of merchants and increased its volume by two-and-one-half times from Q1.

COVID-19 has spurred this business. Sites like Shopify's have become crucial as shoppers avoid brick-and-mortar stores during the pandemic. Also, merchants who dealt with increased volumes had to outsource many of these processes.

Man and woman staring at a digital tablet as they manage boxes inside a warehouse.

Image source: Getty Images

Epting said that the coronavirus pushed SFN's development forward by 10 years, and that its goal is to have merchants ready for the "future of commerce." This is quite a feat for a business that has existed only since June 2019.

SFN also claims to have built the "most advanced robotics-driven warehouses in the world." Though not nearly as expansive as Amazon, it offers an alternative logistics operation that can manage a significant level of e-commerce volumes. This makes it a competitor of Amazon, as many smaller merchants previously had to turn to the e-commerce giant for these logistical services.

Demand should remain strong for the foreseeable future. According to Armstrong & Associates, third-party logistics providers earned $43.4 billion in e-commerce revenue in 2019. Armstrong also forecasts 28% growth for this industry in 2020.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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