Shopify arms the rebels as e-commerce giants build empires

Canadian businessman and Shopify president Harley Finkelstein is taking on the giant tech platforms such as Amazon in a bid to democratise e-commerce.

Pandemic shutdowns caused a giant surge in online buying for Shopify merchants. Picture: Bloomberg

Canadian businessman and Shopify president Harley Finkelstein is taking on the giant tech platforms such as Amazon in a bid to democratise e-commerce.

“If you’re buying something on the internet and it’s a great experience, and it’s not in a marketplace like Amazon, there’s a very good chance it is being powered by Shopify,” says Finkelstein.

Speaking at The Australian’s E-commerce Summit on Thursday, Mr Finkelstein predicts that tighter regulation on data privacy for consumers will spur retailers into finding new ways to connect directly with their customers.

WATCH: You can join The Australian’s E-Commerce Summit live stream from 9am on Thursday here or below.

Shopify started life in 2004 as a business selling snowboards and is now a $120bn e-commerce giant.

Back then Finkelstein says there were only two options for online selling: the first was to sell on a marketplace such as eBay. “Although that was inexpensive it really didn’t allow you to build your own brand. You were sort of renting customers from the marketplace,” he says.

The other option was to pay a lot of money to a large software company to build an online store. Neither option appealed, so the founders wrote a piece of software themselves to sell the goods.

“About a year into selling snowboards it became very clear that while the snowboard business was a good idea, the software behind this newer business was a great idea,” Finkelstein says.

Eighteen years later, Shopify has two million stores in 175 countries building brands for entrepreneurs and retailers that can create their own store models, including names like JB Hi-Fi and Culture Kings.

Pandemic shutdowns caused a giant surge in online buying for Shopify merchants. In a keynote speech to the e-commerce summit, Australia Post chief executive Paul Graham says Australians spent $62.3bn on physical goods online last year. Online purchases were up 12.3 per cent over 2020 and up 70 per cent over 2019.

Moreover, as restrictions lifted, engagement with online has sustained at a much higher level with significant growth to come in the Australian market. The latest research from Australia Post shows shoppers are also shopping around. In 2019 the average shopper brought from nine retailers. In 2021 it was 15 and the number of categories they bought from online increased from six to eight. “When we think about the next phase of retail, customer retention will be critically important, and this needs to be top of mind for every business who is part of the retail supply chain,” Graham says.

The latest research from Australia Post shows shoppers are also shopping around. In 2019 the average shopper brought from nine retailers. In 2021 it was 15 and the number of categories they bought from online increased from six to eight.

Finkelstein says that at Shopify it became clear that the future was not online only or offline only, nor just social media. “It was going to be wherever the consumer wanted it to be,” he says.

Shopify has branched out well beyond e-commerce: there are point-of-sale products for in-store physical sales; integration with ­social channels such as TikTok, Facebook, Instagram and Spotify; and Shopify offers payments, shipping and even fulfilment.

Finkelstein says Shopify software has democratised retail distribution, enabling businesses that did not exist a few ago to grow quickly and become category leaders. Shopify’s direct-to-consumer model is used to cut out intermediaries and keep more profit margin. He rattles off brands like Allbirds, Bombas, FIGS and Gymshark, which today competes with Nike.

An entrepreneur by nature, it is no surprise that Finkelstein has a good pitch on him. At 17 he founded a T-shirt company at university, and in Canada he is a dragon on CBC’s Dragon’s Den – The Next Gen. He is also on the board of the CBC, the national broadcaster in Canada.

Traditionally, starting a business can mean risking the home, but he says the cost of failure is now trending towards zero: a $US29-a-month Shopify subscription allows retailers with a good product to sell, almost by default, to a global audience.

The relationship with Amazon is interesting because Shopify also connects its merchants to the Amazon marketplace.

“We like to say that while Amazon is trying to build the empire we are arming the rebels,” Finkelstein says.

He accepts that selling on a marketplace can be good to reach an audience, but says retailers don’t own their customers as they would in a direct-to-consumer model.

If Shopify’s merchants stores were aggregated, Finkelstein says it would be the second-largest online retailer in America after Amazon.

And by using that scale, Shopify has been able to lower better deals for its merchants, from payment processing to shipping and fulfilment. Shopify’s annual results in February underscored the pandemic shift to online activity. Gross merchandise value increased by 47 per cent to $US175.4bn ($231.7bn).

Total revenue for 2021 was $US4.6bn, up 57 per cent on 2020, and net income for 2021 was $US2.9bn.

Despite these heady numbers, shares fell 18 per cent on the results as revenue growth decelerated and guidance was lowered.

Shopify outperformed broader retail sales on the Black Friday to Cyber Monday weekend in the fourth quarter.

But Finkelstein says there is now a rebalancing as physical retail reopens. He points to Shopify’s resilience through other crises. “Whether online commerce or offline commerce, or if it’s the metaverse, we want to be the company that helps businesses sell in any single environment,” he says.

Another shift tech players face is concern over customer data privacy. Apple, Firefox and Brave have blocked third party cookies.

Finkelstein says privacy remains paramount but in any case at Shopify the merchant data belongs to the merchant.

However, he notes that the change now means the return on ad spend for companies is not the same as it was.

This presents opportunity for agile businesses, and already merchants are finding new ways to use social commerce with Instagram, TikTok and Spotify.