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As Pinterest makes a push to expand in ecommerce, we’re on the lookout for hints of more shopping on the visual discovery platform. This month, Pinterest gave details recently on a new feature that’s designed to enable in-app purchases, and remove steps from checkout.
The news: Pinterest is debuting hosted checkout for Shopify merchants. This feature changes the process of making a purchase from a product Pin on Pinterest, allowing users to check out directly within the app, rather than having to navigate to a merchant or creator's website.
How it works: Pinterest shared the following about the shopping process with hosted checkout incorporated:
- When shopping from a product Pin, users pick the color and sizing of a product they want, right within the app.
- To purchase the item, users click Buy, then enter a hosted checkout experience via Shopify that is within Pinterest.
- Users complete shipping and payment within that hosted experience to finish the purchase.
- The fine print: At launch, the feature is only available to users who are in the Pinterest Verified Merchant Program and use Shopify to sell their products on Pinterest.
What does it mean for social commerce?
While this is a single component of a still-evolving experience on one of the social platforms, it’s worth paying attention to. The eventual success or failure of this wave of social commerce is going to be worked out in the execution of features like these, and the ability of teams to optimize as they observe shopper behavior. There won't be a fanfare that sounds when the future arrives. Rather, it will happen gradually. With that in mind, here are a few observations we noted while reviewing Pinterest’s announcement:
The lift: In-app checkout is seen as a key component of the transition to social commerce, where purchasing can take place on a social platform, rather than requiring a redirect to another store or marketplace. But while it is interesting to create a more seamless experience, one question looms over development: Will in-app purchases make people more likely to buy. Pinterest says yes, and offers some data on this front: The company said it saw a 3.9% lift in checkout propensity, or inclination toward checkout, and a 2.7% lift in checkouts per user.
Total control? Pinterest bills this feature as a way to own customer acquisition.
“You’ll receive all order and customer information, and will manage things like order status updates and support, the company states. "This gives your brand more control over the customer relationship and brand integrity throughout the sale”
While this appears to be a broadside against Amazon, Shopify has and will likely continue to make the same argument. It’s a reminder that if social commerce does take off, the social media platforms will become ecommerce platforms. Shopify has been inclined to partner, but there could be moments of tension as they seek to attract merchants. Nevertheless, Shopify is no stranger to this tension. It may in fact be an area where the two platforms can align to bring others over to their worldview. Along with arming the rebels, they must also win their hearts and minds.
Pinterest’s push: As mentioned, this is part of a wider ecommerce expansion that’s coming from Pinterest after a big buildup. The moves made in the middle part of 2022 are as follows: The company acquired AI-powered shopping platform The YES in June, and made its cofounder Julie Bornstein its head of shopping. Then, it hired former Google commerce head Bill Ready as its new CEO. Pinterest then rolled out a host of new features, including a shopping-focused API, product tagging on Pins and a shop tab on business profiles. Hosted checkout, then, is the latest step. On the company’s Q2 earnings call, Ready talked about how PInterest’s shopping initiative is at the heart of what brings people to Pinterest in the first place: Many users come to the platform for ideas, and to discover new things.
“From my perspective, we have an enormous opportunity to lean further into the significant intent and first-party signal that we have on the platform to help users bring the ideas and inspiration they found on Pinterest to life,” he said. “At the same time, I believe that Pinterest's unique use case appeals to advertisers of all shapes and sizes, and gives advertisers the opportunity to engage a crucial and highly valuable moments in the user's purchase journey when the user has clear intent, but is still determining what to buy.”
The plus for Shopify: Speaking of those partnerships, this is just the latest tie-up between Shopfiy and a social platform to make it easier for merchants to bring their stores directly into the social sphere. This summer alone, Shopify also announced deals with Twitter that created a new way to easily showcase products on the bird app, and a partnership with YouTube that allows creators and merchants to link a Shopfiy store and feature products in videos and livestreams. Given the subject of this post, it's worth noting that there were slightly different approaches: Twitter was not making in-app checkout available, while YouTube is allowing checkout within its app. Shopify, as it often does, is indicating a neutral stance on other platforms. Nevertheless, the act of extending the channels where discovery of a product can take place and making that process easier helps Shopify increase the likelihood of conversion for its merchants. Especially as those merchants face rising customer acquisition costs and the fallout from Apple’s App Tracking Transparency, going out and finding new ways for merchants to reach customers is one way to provide value. The fact that it’s an early mover with Pinterest and others indicates Shopify is taking a builder role with social commerce. Plus, Pinterest's shopping experience is likely to make lots of room for not only brands, but also individual creators. Shopify has been growing its offerings in this area, as well, so an expanded presence with Pinterest represents one more way it can serve a growing group that has characteristics of both influencers, merchants and entrepreneurs.
The bottom line: The primary features of this generation of social commerce are taking shape, and in-app checkout appears to be among them. Along with YouTube, Instagram recently introduced its own in-app payment via direct message. There are lots of implications. What does this mean for conversions when merchants are used to promoting additional items in the buy box? Can merchants build in loyalty programs, or offer links to post-purchase offerings. (Perhaps that's where Shopify's just-released Checkout Extensions is designed to come in). Moreover, are Shopify merchants asking Pinterest or Shopify to add features to this checkout experience? These are the questions that will have to be worked out if social commerce is to grow, with the answers likely appearing in the form of product updates. From there, Pinterest and others will layer on their own unique approaches to the experience. (Bornstein has hinted at a big role for personalization). Elements like checkout are the building blocks from which shoppable platforms grow.
Trending in Shopper Experience
The reversals offer a cautionary tale for executives weighing a classic dilemma: Build or buy?
There’s no doubt that the pandemic ecommerce boom brought massive operational growth across retail. The investment that retailers made to keep up with demand ushered in lasting transformation to fulfillment operations, as we’ve noted in this series.
Yet it’s also true that not everyone can be Amazon. Some of the big supply chain bets made during the pandemic didn’t pan out, especially when ecommerce growth returned to a more normalized trajectory in 2022.
In particular, Shopify and American Eagle Outfitters (AEO) made high-profile moves to scale logistics operations, and even made clear that they were setting out to take on the giants in doing so.
The companies occupy different parts of retail. Shopify is a software company that helps brands run ecommerce, while AEO is a brick-and-mortar-based apparel retailer better known as a mall staple than a digital innovator.
But during the wild ride of the pandemic years, both outfits made bets that they could build logistics operations that would attract small and medium-sized brands looking for an alternative to Amazon, and spent millions to acquire companies that would help them get there.
Alongside the investment, they talked like they wanted to got big.
As AEO COO Michael Rempell put it at Shoptalk in 2022, "There's a supply chain revolution happening and we want to lead it...We think it’s leveling the playing field and allowing like-minded companies to compete with Amazon, Walmart, Target – the biggest retailers in the world.”
In 2023, executives at both companies are singing a different tune. Shopify sold the $2 billion logistics acquisition Deliverr to Flexport. Meanwhile, AEO said its acquisition of Quiet Logistics wasn’t meeting expectations, and backed off an aggressive move to bring other retailers into the fold.
Together, these reversals represent a cautionary tale for retailers weighing how to scale ecommerce to keep up with future growth:
Buying your way into a market may provide a head start, but it’s still a long road to the top.
Let’s take a closer look at both deals to learn more:
Shopify can't Deliverr
Shopify has long been a leading software choice for brands looking to run the frontend of commerce. The tools built by the company and the apps available from its ecosystem of developers provide everything that’s needed to start and scale the demand generation and selling side of ecommerce.
But ecommerce is not just a matter of lining up the bits. It also requires moving atoms. As it sought to offer a more complete ecommerce platform, Shopify lacked its own tools for the backend of ecommerce such as processing goods and delivering them to customers.
There’s good reason for this. Operating fulfillment and delivery is a different business than building software. It requires warehouses and workers and boxes and trucks. Still, it’s an area where there’s a massive opportunity to make life easier for brands. Amazon’s FBA program showed how providing storage, fulfillment and delivery for third-party sellers could serve as a critical connecting point to deepen their ties to Amazon. These sellers may be independent, but the fact that they are reliant on Amazon’s facilities to provide the two-day shipping and free returns that customers expect make it an attractive and convenient way to sell there. Once you’re in, it’s tough to quit.
For its part, Shopify didn’t set out to build a sprawling logistics network. But it did make moves to provide full-service fulfillment. Initially, the Shopify Fulfillment Network had several warehouses. This stood to become supercharged when it acquired Deliverr for $2.1 billion in May 2022. The companies seemed to be a fit. While Deliverr owned warehouses, it had a software-centered approach to logistics that prized predictive analytics and placing inventory close to demand. Shopify executives talked about how it would be an “asset-light” network. Translation: We aren’t building an Amazon-like network, even as we compete with them.
But the move to acquire Deliverr was still expensive, clocking in at Shopify’s largest-ever deal. It also happened to arrive as ecommerce fortunes were shifting amid the return to stores and the weight of inflation on discretionary budgets. A couple of months after it made the acquisition, Shopify laid off 10% of its workforce as CEO Tobi Lutke admitted that the company’s bet on explosive growth for years ahead “didn’t pay off.”
This ultimately presaged a monthslong period of recalibration at the company. By May of 2023, it emerged with more layoffs, this time of 20% of the workforce. Executives spoke of a recommitment to priorities on the frontend of ecommerce, and Lutke disavowed “side quests.” Underscoring the fact that logistics fit into the latter category, Shopify sold Deliverr to Flexport just a year after buying it.
To be sure, Shopfiy will continue to benefit from the logistics network as the preferred partner of Flexport. And the fulfillment operation that Shopify started may still be built out to scale, especially with former Amazon commerce chief Dave Clark at the helm of Flexport. But the fact that Shopify turned away from this approach was ultimately another admission that the bet didn’t pay off. At the end of the day, Shopify runs a software company focused on the bits side of ecommerce. It will continue to leave the atoms side to others.
AEO goes Quiet
American Eagle was perhaps a more surprising entrant into the logistics arms race. But as it transformed its own supply chain to make ecommerce a more integrated part of its operation, the retailer saw an opportunity to provide logistics for other brands and retailers, as well.
In its own way, this was also a lesson from Amazon: Build a logistics operation, and it can be opened up to move from cost center to growth engine.
AEO did not lack in boldness and panache as it set out to apply these lessons. It acquired Quiet Logistics for $360 million as it set out to enable next-day and same-day shipping, and AirTerra in a move to aggregate packages.
AEO set out to own its supply chain, allowing it to make moves to save costs and implement omnichannel approaches that would bring store associates into the ecommerce mix, and add efficiency. Ultimately, the retailer decided that acquisitions would help to achieve the scale that was necessary during the pandemic.
In turn, this “hyperscale” would put it in a position to create a new kind of model, EVP and Chief Supply Chain Officer Shekar Natarajan argued. He spoke of creating a “frenemy network” where retailers banded together to create the large networks that the Amazons and Walmarts of the world could build on their own.
By April of 2023, Natarajan was no longer with the company. COO Michael Rempell told analysts that Quiet Logistics had grown at margins “below what we expected,” and the company planned to cut logistics costs.
AEO said the following in a statement to WWD:
“While Quiet’s third party business has grown nicely, it has not achieved the plans we envisioned. As a result, we must pull back on expenses to reset the business. This is necessary to improve profitability, particularly given prevailing macro headwinds….We are reducing the size of the Quiet workforce to be more in line with the current business trend….This decision was not made lightly, and we realize this will impact the lives of affected employees. We will provide them a variety of transition benefits.”
American Eagle Outfitters also stated that it is “committed to the continued transformation of our supply chain, and Quiet Platforms plays an important role in that strategy as we work to achieve increased profitability. Over the past few years Quiet has been tremendously beneficial to AEO, providing much needed distribution and fulfillment capacity to grow our industry-leading brands.”
AEO said Quiet was helping American Eagle’s business. But it restructured the third-party side of the platform that provided services to others, which included downsizing the workforce.
“We now have a leaner organization that will position us well for the future. We see opportunities to leverage Quiet's fulfillment capabilities to unlock even greater efficiencies in our operating model,” Rempell told analysts this week. “This includes optimizing inventory placement, buys, and replenishment as we work upstream through our supply chain.”
AEO did transform its own supply chain, but it appears that the frenemy network is not emerging at the same pace. The move indicates that AEO is sticking closer to the goal of bringing change to its own operations for omnichannel success. For now, that doesn’t mean it needs to provide those efficiencies for others, as well.
Build vs. buy
Each of the moves detailed above offer examples of companies that opted to scale by acquiring others.
That’s a distinct approach from the other companies we’ve covered in this series, including Amazon, Walmart, Target and Chewy. They all chose to build their own fulfillment operations for ecommerce, albeit in distinct ways.
We point this out not to suggest that acquisition is an automatic recipe for failure, but simply that build vs. buy is a choice that faces executives as they determine how to meet demand and continue growing ecommerce for a future that is still heading toward online shopping occupying a larger share of retail.
When it comes to the “build” camp, the size of the four major retailers listed above gives them an advantage. They have the resources to undertake ambitious, multiyear projects and they were able to direct even more energy into quickly scaling operations when the pandemic called for it. When the pandemic ended, they surveyed the landscape and made moves toward efficiency and sustainable profits.
The two companies in the “buy” category happened to make their acquisitions at a time when ecommerce was at its peak. Their plans involved creating a new network, rather than scaling up an existing one, and the roadmaps were likely altered drastically when the ecommerce trend line came back to Earth. Yet it’s worth noting that they also tried to add parts of their business that were completely new. It brings up an important question for any executive weighing options:
Do you want to be in the business that you’re acquiring for the long haul?
There’s no question that ecommerce companies will have to scale logistics and realize efficiencies that can maintain profitability. But as they do so, they need not forget who they are.