No. 335: The Merchant Class


The rebuttal that you’ll typically hear is: “eCommerce is not blue collar.” It’s a refrain tweeted from the 20th floors of urban sprawls. On those floors, you’ll find dual-monitored workspaces adjacent to espresso machines and collagen bars. But for Jerry M. of Pickerington, Ohio, his opinion differs.

He’s been a four year member of Amazon’s third shift at its CMH2 facility. With his trusty Fitbit, he measures his nightly activity. His all-time goal is a little over 17,000 steps for the day, though the 57 year old typically falls around 12,000 – 13,000. An impressive number, his picking and packing statistics are even more impressive. On any given night, his fulfillment center is one of Central Ohio’s most prolific. And that’s saying quite a bit. Jerry’s no stranger to hard work, he is a former maintenance man who took the opportunity to grow with Amazon’s exploding logistics-side business. It paid far better.

Central Ohio is a bastion of third-party logistics centers and fulfillment warehouses. Name a digitally native brand and they will likely have a presence in the area. It was my first experience within the walls of one of those retailers that changed my perception of commerce altogether. At 26, I began in the marketing department of Rogue, a now-gargantuan online retailer that employs hundreds of machinists, warehouse workers, packaging engineers, and front office developers and executives. The employees and contractors now sit (or stand) within 900,000 square feet near Downtown Columbus. But on my first two days with the company, I passed the hours in the warehouse moving 40 pound boxes. On the second day, I wore comfortable shoes.

To the marketers, developers, and managers – they are online retail. They are what makes the engine move. And for a time, this was true. Commerce investments like recruiting engineering teams, advertising talent, server space, able creatives, and copywriting mavens rounded out the major spend. Leaders would spend heavily on the front-end, not the back-end. Commerce was pixels, not forklifts. But to those building packaging, operating forklifts, moving goods to trucks, they were commerce. To them, the front office folks were the replaceable ones.

Commoditization of the Front End

The front-end product side of online retail is quickly commoditizing. You have Shopify and Magento, of course. But then, there are solutions for every corner for the ecosystem; these innovations grow by the quarter. There are legacy partners like Fulfillment by Amazon (FBA), Adobe, BigCommerce, Square, Oracle, SalesForce, and WooCommerce. And there are new and innovative no-code options like Webflow Commerce and Storefronts by Elliot, a new plug and play product that launched to much fanfare on Product Hunt. With storefronts, you don’t need many of the front office folks that were required just eight years ago. The constraint is now warehouse logistics, and Shopify saw that before any of its competitors. The labor is the hard part.

The foresight by Shopify’s management team couldn’t have been better-timed.

Despite the front-end component of online retail commoditizing more and more each day, eCommerce is mainly discussed within the confines of code and pixels. But if you’ve ever had to build something, you’re just as grateful for the UPS employee as you are to the front-end developer. Online retail is a blue collar industry built on accessible tech. When Shopify launched into the third-party logistics (3PL) industry earlier this year, it raised eyebrows. Critics suggested that Shopify was losing its focus. Many of the questions centered around matters of optics: Can they maintain efficiency across hundreds of warehouses? Do they understand the difficulty? Will it lower their net promoter score? And don’t they know that they’re a software company?

Unpacking the next battle

It’s the third question that is at the crux of it all. Shopify has a decade-long history of enabling storefronts for tens of thousands of traditional and digitally native retailers. It has been, in effect, a publisher. Over that span of time, the company has added retail operations: omni-channel inventory tracking, point of sale hardware, and now shipping and logistics. The retailer’s primary user base (Shopify account holders) benefits from the company’s growing list of core competencies. [1]

Sitting with Shopify founder and CEO Tobi Lütke in his Ottawa office and one line of thought stood above the rest. I cared more about the enterprise names in commerce than he did. I found that to be confusing at first. Within the Shopify solar system, Plus is its own planet. It operates out of a different city. The cultures between offices are wildly different. One is low key, the other has a dash of braggadocio. But for Lütke, Shopify doesn’t exist for the sake of Shopify Plus. In fact, one could argue that it’s the other way around. Shopify Plus helps Shopify build more tools for the common merchant. To the Ottawa-based CEO, helping mom and pop shops and millennial side hustles is where the action is. Engineering is no longer the bottleneck, in this respect. There are a dozen options if a merchant would like to sell a product and accept payment.

Shopify plans to spend $1 billion on its fulfillment network through 2023, and Wong writes that his research shows that “there is enough merchant discontent with Amazon and sufficient inefficiencies in the logistics workflow to innovate upon, that Shopify could eventually compete against” the e-commerce giant. [2]

But it’s become abundantly clear that, at some point, Shopify’s business needed to shift from the theoretical to the practical – from bits to boxes. If every merchant can find a storefront, Shopify’s original vision is no longer enough. This week, Shopify officially closed acquisition of 6 River Systems for $450 million in a cash and stock deal.

By equipping independent warehouses and 3PLs with task-augmenting robotics, it frees up workforces to do more, faster.

Shopify expects this move to support on-site employees with their daily tasks, such as inventory replenishment, picking, sorting and packing, as well as increase the speed and reliability of its warehouse operations. [3]

This long-term investment was key to Shopify’s strategy. By improving efficiency through out hundreds of warehouses, Shopify is growing capacity at 3PLs. Not only does this lower the costs of shipping, it also increases success rates. Ask any top 3PL if they’d onboard a small business doing less than $300,000 per year; the answer will be “come back when you’ve grown.” If top 3PLs do accept small retailers like these, the costs are disproportionate. The concern and care is minimal. In an industry where top performing 3PLs gross $200 million or more, $100,000 accounts are a strain. But until recently, there was no efficient funnel to help small merchants attract the business of independently owned, small cap 3PLs like Ohio’s Ships-A-Lot.

The average DTC founder spends 20-30% of her time dealing with shipping concerns while managing scale and expectations. Lütke is democratizing third party logistics for all merchants, not just ones at the enterprise levels. By increasing optionality and making the investments into robotics and data systems to lower costs – more merchants, small retailers, and early-stage DTC brands may finally be able to utilize 3PL services earlier in their life cycles. In 2004, Shopify launched products that made founders reconsider hiring full-time engineers. With innovations like no-code platforms, online retail has come a long way since those days. Third-party logistics for smaller merchants is just the latest in the line of pain points that Shopify is well-positioned to address for the merchant class.

Some will argue that eCommerce isn’t blue collar, Shopify’s actions suggest otherwise. For employees like Jerry and the hundreds of thousands of other warehouse workers spread throughout the exurban office parks of America, they see themselves as the center of the eCommerce universe. And rightfully so. Products are picked, packed, and moved by hard-working, tireless people. Retail is the movement of physical goods that require enormous amounts of physical labor to arrive faster and faster to your doors. And so, eCommerce isn’t just a front office job anymore. Of course, many merchants will tell you that it never really was.

Report by Web Smith and edited by Tracey Wallace | About 2PM

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.