Shopper Experience
02 June 2023
Shopify rolls out cash rewards program for Shop app
Can Shop Cash entice more users to use the app for browsing and buying?
(Photo via Shopify)
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Shopify is launching a new rewards program for items purchased through its checkout system.
Shop Cash will provide the opportunity for consumers to earn 1% back on purchases made through Shop Pay.
The feature includes a direct tie-in with the Shop app. Users can check their balance through the app, and the rewards are redeemable for future purchases through Shop, as well.
“This is a coming of age moment for Shop. It’s become an incredible app that allows shoppers to discover great brands, check out with one tap, and track orders in real time,” said Harley Finkelstein, president of Shopify, in a statement. “Shop Cash represents the next evolution of Shop, connecting independent brands to more shoppers, and rewarding those shoppers for being loyal fans.”
The launch falls on Shopify’s 17th birthday, so the ecommerce software company is giving away Shop Cash to celebrate. For Shop Day, Shopify partnered with dozens of merchants, including Trixie Cosmetics, MrBeast and Monday Swimwear. They’ll share custom links across channels that offer cash to spend on the Shop app. In all, Shopify will give away more than $1,000,000. Brands will also be running exclusive Shop Cash offers throughout the day.
The rewards program marks a new way that Shopify is aiming to transform Shop into more of a shopping app where users can discover new items, extending beyond its initial use for post-purchase order tracking and management at launch in 2020.
Shopify has been making moves over the last year to provide more opportunities to browse and buy recommended products, as well as giving brands more tools to showcase storefronts and tell their stories. With Shop Pay, the app offers one-click checkout. There are signs that it is all inspiring users to seek out the app. Shopify said 35% of the orders on the Shop app are repeat purchases.
With more brands joining the app and infrastructure for the shopper experience and checkout in place, rewards can help make the app stickier for consumers. The opportunity to earn cash, redeem it and even check a rewards balance are all reasons to keep returning to the app, and make it a destination to shop.
Shopify has long been known as the infrastructure layer of commerce, as it provided the tools for brands to run and manage an online store under their own name. With the Shop app, it is aiming to make Shopify itself a destination for shopping. It remains a nascent effort, even as more brands have taken advantage of the new features to enhance storefronts.
This comes as marketplaces continue to rise across ecommerce, and giants like Amazon and Walmart experiment with tools that do more to boost discovery of new products.
Social media has long been the engine of discovery in ecommerce, especially in the direct-to-consumer realm that Shopify has owned. Users found products on Facebook or Instagram, then finished checkout on a brand's phase. With the push toward privacy making performance marketing more difficult and customer acquisition costs rising, the ecommerce platforms are attempting to take that power into their own hands. With advertising placed close to the point of sale through retail media and the ability to check out on the same page where a user sees a product, marketplaces and Shop are realizing new opportunities to attract, convert and deliver for users within one app. For Shop, the trick is to attract more shoppers to the app. Rewards like Shop Cash are a carrot to do just that.
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Operations
26 May 2023
Shopify and AEO acquired their way into logistics. It didn't go as planned
The reversals offer a cautionary tale for executives weighing a classic dilemma: Build or buy?
(Photo via Shopify)
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.
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