Thursday, December 1 2022

A slower-than-expected shift to e-commerce and decades-high inflation are among the headwinds slowing Shopify’s growth, but experts say these trends also have a big impact on the future of retail itself. same.

“We don’t get the future 100% of the time,” Shopify President Harley Finkelstein told investors and analysts during the company’s earnings call Wednesday morning.

He was referring to a big bet the Ottawa-based company made during the COVID-19 pandemic, when shutdowns forced physical stores to go online: that the global transition to e-commerce would continue its rapid acceleration once the reopened economy.

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Shopify, best known for its online store software, saw a huge sales boom during the height of the pandemic as it responded to increased demand. As a result, he has grown his team – the company has effectively doubled to 10,000 employees at the start of this year, from around 5,000 in March 2020.

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On Tuesday, the company announced that its big bet on accelerating retail’s digital transition was misguided as e-commerce adoption regains its pre-pandemic pace.

The company said it was laying off 10% of its workforce as a result, or about 1,000 employees.

“In short, we exceeded our forecasts,” Finkelstein conceded on Wednesday.

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Is the digital future of retail guaranteed?

Shopify, which has reigned as Canada’s most valuable company for much of the pandemic, has long been a champion of the digital future of retail.

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The missed mark for the company, which posted a net loss of US$1.2 billion on Wednesday and signaled further losses are to come this year, therefore raises questions about the overall trajectory of e-commerce post-pandemic.

Statistics Canada data shows that 4% of total spending in 2019 was made online, a figure that jumped to 11% at the height of the pandemic in April 2020. That figure has since dropped to just 5%, however, as in-person shopping is making a comeback.

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Bruce Winder, retail analyst and book author RETAIL Before, during and after COVID-19tells Global News that e-commerce has “fallen to earth,” but that doesn’t mean it’s going nowhere.

“He was growing up long before the pandemic. The pandemic turbocharged it and Shopify’s valuation followed that,” he says.

Now, he expects e-commerce to grow at a more modest pace — and Shopify likely will too, he adds.

“E-commerce is not going away. He does not back down. He does not fit into his shell. It will probably grow at a more normal rate.

Technology in general, like the food delivery apps that have grown in popularity during the pandemic, will remain popular as consumers cling to conveniences, Winder says.

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Ted Mallett, director of economic forecasting at The Conference Board of Canada, notes that the difference between 4% and 5% of online spending may seem small, but it’s an overall 25% increase in total spending in the segment. .

This affinity with e-commerce is unlikely to go away as shoppers have grown accustomed to creating accounts and paying online while stuck at home in isolation, Mallett told Global News.

“That’s the lasting legacy of the pandemic, it’s ushered people into the 21st century of shopping,” he says. “The pandemic has not changed the future. What he did was bring it to us faster.

Winder adds that the current return to brick-and-mortar retail as pandemic restrictions lift and consumers take advantage of warmer weather marks something of a “honeymoon.”

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Finkelstein argued in his comments Wednesday that Shopify had anticipated some of the resurgence in in-person shopping. He said the company had invested in its point-of-sale technology for retailers during the pandemic to “futureproof” the company’s merchants against future market ebbs.

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“We believe the future of retail is retail everywhere,” he said.

Inflation hurts both physical stores and e-commerce

Shopify isn’t the only retail player to warn of significant industry headwinds this week.

Walmart said Tuesday it was cutting its profit forecast for the rest of the year and cited high inflation as a major drag on bottom line.

Consumers are cutting back on discretionary spending, the mega-retailer noted, avoiding high-margin items like clothing and instead spending more of their budget on basics like food and gasoline.

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This is also bad news for Shopify. The “majority” of what Shopify merchants sell on the platform are discretionary items such as clothing and makeup, the company’s chief financial officer, Amy Shapero, said Wednesday.

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She said Shopify expects the “softness” in consumer spending to “persist” through the end of the year.

Winder agrees and says the fall and first half of 2023 is going to be “a bit challenging for retailers, both e-commerce and brick-and-mortar,” as consumers rein in spending in an environment of biting inflation and fear of a possible recession.

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Where does retail grow from here?

According to experts, some segments of the industry are poised to continue growing even in the face of a downturn.

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Growing retail models such as thrift stores will remain popular post-pandemic, Winder predicts, as younger generations have embraced secondhand clothing as affordable, chic and more environmentally friendly.

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Mallett pointed to the future of virtual reality, which has emerged in the gaming and tourism spheres, as something that has yet to break through into retail as VR headsets are not yet ubiquitous in homes. . He sees this as a “longer-term” trend, he says.

Shopify CEO Tobi Lütke told analysts on the call on Wednesday that he thinks it’s a “very, very easy bet” that retail will remain a fundamental aspect of human life in the future. coming.

“That’s how we make our decisions,” he said. “Each of them is such a bet. Some of them fail.

“I would be very bored to be invested in a company that is not sometimes failing. Because that just means they’re not very ambitious, I would say.

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© 2022 Global News, a division of Corus Entertainment Inc.


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