The Future of Ecommerce Fulfillment: How to Avoid Platform Lock-in

Manish Chowdhary

August 25, 2022

Why did Amazon go from a severe lack of warehouse space to overstaffed and looking to sublease their warehouses in a span of just four months? Major changes are happening in the fulfillment landscape among the biggest ecommerce players, and they have big implications for sellers.

Marketplaces Accelerate Fulfillment Strategies

In Amazon’s April ‘22 earnings call, CFO Brian Olsavsky’s admission about warehouse capacity, “We quickly transitioned from being understaffed to being overstaffed”, caught many by surprise. The statement went along with another announcement that flew under the radar in the press, but is much more important for the future of ecommerce. On April 21st, Amazon launched a new service: Buy with Prime, which will enable direct-to-consumer (DTC) merchants to offer Prime checkout & shipping on their websites.

Shopify saw the shot across its bow, and it didn’t take them long to respond in a big way. In May, they announced their own big move: they’re acquiring Deliverr, a 3PL network, and plan to launch Shop Promise, a new service that will offer Shopify merchants one- and two-day delivery options.

Not to be outdone, Walmart is pushing hard to grow their own ecommerce delivery network, Walmart Fulfillment Services. In June, they announced that they’re building four “next generation fulfillment centers” to modernize their ecommerce supply chain. They explain, “Today we use our 31 dedicated ecommerce fulfillment centers and 4,700 stores located within 10 miles of 90% of the U.S. population to fulfill online orders at exceptional speed. But we’re not stopping there.”

Why are the three titans of ecommerce all hitting the accelerator on fulfillment? What does it mean for you?

It Isn’t Just About Fulfillment: It’s Also About Locking Merchants to Platforms

Amazon Prime is the service that hundreds of millions use to get online delivery in two days or fewer, so Buy with Prime must be about fulfillment, right? Only on the surface.

Here’s how Buy with Prime will work: for a fee, the service will let third-party ecommerce merchants use Amazon’s fulfillment network for orders from their own sites. In addition, Buy with Prime will put the Prime badge on DTC websites next to items eligible for free 2-day and 3-day shipping. Last, the whole checkout experience will be powered by Amazon Pay.

The last part has gone overlooked, but it explains much of where ecommerce is heading.

The key is in the relative profitability of different pieces of ecommerce: online retail, logistics, and fulfillment all have fairly small margins. In contrast, payments are extremely lucrative.

Who is getting that lucrative payments profit on direct-to-consumer websites right now? Shopify, not Amazon. Shopify’s Merchant Solutions revenue, which notably includes revenue from Shop Pay, is growing much more quickly than their Subscription Solutions revenue. In their Q1 ‘22 earnings guidance, Shopify noted that Merchant Solutions grew to make up 71% of their total revenue, dwarfing Subscription Solutions’ 29%. The numbers show it clearly: payments are Shopify’s lifeblood.

Amazon, Walmart, and Shopify are all ecommerce “landlords” that want to charge rent to their “tenants”, ecommerce merchants, everywhere they can. They’re locked in a race to provide ever-more-compelling platforms to merchants not only to capture more of the merchants’ GMV, but especially for all of the extra services that they can bolt on top. Not to mention, the payment processor gets access to first-party data, the lifeblood of modern digital advertising.

Amazon Buy with Prime ratchets up the pressure on Shopify to help its sellers offer fast delivery. If Shopify had done nothing, they risked defection to Buy with Prime, and then they would have lost much of their massive payments revenue. Shopify had no choice - they had to come out with a bold upgrade to their own platform, which they did with the Deliverr acquisition.

Properly understood, the flurry of fulfillment announcements from Amazon, Shopify, and Walmart are more about keeping sellers happy and on their platforms, where their other services rake in the profit.

You Need One-to-Many Solutions

Some see the fulfillment competition between Amazon, Walmart, and Shopify as a good thing – in trying to one-up one another, they’re continually improving the options that merchants have at their fingertips. And it would be a positive development, except for one key issue: they’re tying their ecommerce order fulfillment networks to their own platforms. Here’s the downsides.

Yes, sellers can use Fulfillment by Amazon for their DTC site with Amazon Multi-Channel Fulfillment and Buy with Prime; but MCF is >50% more expensive, and it shares inventory limits with Amazon volume. On top of that, DTC orders come in Amazon branding, and many marketplaces like Walmart don’t allow FBA at all.

Walmart is even less flexible: Walmart Fulfillment Services only fulfills orders sold on Walmart.com.

Meanwhile, Deliverr is quickly pivoting to prioritize Shopify. Shopify introduced Shopify Fulfillment Network (SFN) just three years ago in mid-2019, and it never grew past an invite-only platform available only to Shopify sellers. In fact, earlier this year they looked to be giving up on SFN when they announced that they were cutting fulfillment locations. Given the relative small size of SFN and Deliverr, we’re not surprised that Deliverr’s recent product release announcements have been mostly tailored for Shopify sellers.

As more sellers expand to additional channels to boost growth, the realization that their current fulfillment strategy can’t support them throws cold water on their growth plans. Having many fulfillment providers adds complexity and failure points, and more importantly it also adds costs in the form of duplicated inventory. Sellers want to consolidate as much as possible to enjoy economies of scale, but Amazon, Walmart, and Shopify are doing everything they can to deny one-to-many solutions.

Faced with this threat to their profitability, sellers must move past convenient, but un-scalable solutions. Amazon wants you on FBA, Walmart wants you on Walmart Fulfillment Services, and Shopify wants you on Shopify Fulfillment Network. You need a flexible one-to-many fulfillment service (like Cahoot!) that powers Amazon-like speed and cost no matter the channel. Don’t let the ecommerce giants force you into their boxes – keep your growth opportunities open and enjoy economies of scale with a channel-agnostic partner.

Contributing Author: Manish Chowdhary, Founder & CEO at Cahoot (World's 1st Peer-to-Peer Fulfillment Network for Brands & Retailers)

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Slowing Inflation is Music to Consumers’ Ears
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Slowing Inflation is Music to Consumers’ Ears

**Instrument Pricing Changes Tune Amid Record Inflation** Compared to 2022, consumers should expect to pay more for musical instruments, but the rate of inflation shows signs of slowing. **The backstory:** America’s most popular musical instruments saw a notable price increase in 2022 compared to 2021, but the rate of inflation eased in Q4 ’22. **Why it matters:** Slowing inflation within this product category could indicate economic pressures like increased demand, rising labor costs, and supply chain disruptions are easing across the consumer landscape. **What we’re seeing:** The average cost of musical instruments increased 7.5% from 2021 – 2022; however, when analyzing individual increases year over year, some instruments saw price increases as high as 21%. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-02Lwk" src="https://datawrapper.dwcdn.net/02Lwk/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones experienced a 21.73% increase compared to 2021 * Trumpets +20.08% * Flutes +18.6% * Recorders +16.13% * Saxophones +13.63% * Clarinets +10.55% * Drums +5.41% * Ukuleles +5.17% **However:** Inflation among these same instruments was significantly less in Q4 ’22 compared to Q4 ’21. In some cases, prices decreased from Q4 ’21 – Q4 ‘22: <iframe title="Price Change for Instruments — Q4 2022 vs. Q4 2021" aria-label="Bar Chart" id="datawrapper-chart-6X6GZ" src="https://datawrapper.dwcdn.net/6X6GZ/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones +11.23% * Flutes +10.41% * Saxophones +5.94% * Clarinets +5.59% * Trumpets +3.10% * Recorders +2.85% * Drums -2.59% * Ukuleles -8.46% **Moreover:** Certain instruments saw inflation reverse in 2022. On average, prices for melodicas, guitars, and violas saw their prices decrease by 4.41%, 3.19%, and 0.97%, respectively. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-0Tefk" src="https://datawrapper.dwcdn.net/0Tefk/3/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="259" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> **Diving Deeper:** Inflation was more significant when comparing Q4 ’21 to Q4 ’20 than when comparing Q4 ’22 to Q4 ’21, indicating a slowing down of price increases for consumers. <iframe title="YOY Q4 Price Change for Instruments — 2020 – 2022" aria-label="Stacked Bars" id="datawrapper-chart-p6iqt" src="https://datawrapper.dwcdn.net/p6iqt/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="206" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * In Q4 ’21, average prices for all instruments were up 8.89% compared to Q4 ’20. * When comparing Q4 ’22 to Q4 ’21, the average price for all instruments only increased by 2.65%. **The takeaway:** While consumers should expect to pay higher prices for instruments this year, overall inflation impact within this product category appears to be slowing down. With National Ukulele Day coming up on February 2, now is a great time for ecommerce brands to take advantage of slowing economic worries and reach new consumers. * Want Pattern’s data science team to power your brand with consumer insights like these? Contact us to [request more information](https://pattern.com/contact-us/) today.

Slowing Inflation? What Musical Instrument Pricing Tells Us
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Slowing Inflation? What Musical Instrument Pricing Tells Us

It’s safe to say consumers and brands alike are eager for a change to the pattern of rising inflation, steadily increasing in many ecommerce categories . Pattern’s internal team’s data scientists analysis of instrument pricing shows a glimmer of hope that inflation may be slowing, which would be great news for brands selling online.

At Pattern, we’re interested in and monitoring trends and news related to pricing since price is a key factor in a brand’s profitability (as explained in the Ecommerce Equation). When brands are able to optimize their price, conversions, and traffic, they can optimize their profitability. And profitability leads to better allocation of resources, better brand control, and gives leaders the ability to expand their presence to new markets worldwide.

YoY Instrument Pricing Increased at a Slower Pace

When analyzing the pricing changes of instruments from 2021 to 2022, our teams found that prices increased, but at a slower rate than from 2020 to 2021.

As shown below, the year over year Q4 changes show quite a lower rate of increase.

Inflation Improvements Raise Profitability

Because inflation impacts online shopping behaviors, lower inflation can lead to better overall profitability for brands. This idea, of course, is nuanced, but Pattern’s Ecommerce Equation can help illustrate the general principle.

When inflation rises, consumers change their spending habits. Shoppers spend more time researching products, forego premium, higher-priced brands, and buy more in bulk. Brands tend to see a loss of loyalty as they’re forced to raise prices.

Price is a key variable in the Ecommerce Equation: price x conversion x traffic = profitability. As inflation lowers, brands can expect better performance in all of these areas—more traffic as spending habits return to normal, higher conversion from returning customers, and price that better fits consumer demand. As inflation lowers and these variables stabilize, brands will see profitability increase.

Raise Your Profitability with Pattern

As an ecommerce accelerator, Pattern is obsessed with gathering data that helps our brand partners succeed. We’ve created best-in-class technology, models, and analytics to understand changes on the horizon and inform our decisions. With an incredible team of data obsessed Pattern employees, we see what makes the difference in truly great ecommerce performance and apply those learnings for brand partners. 

Ready to improve your profitability? Contact us here.

Inflation hits LEGO, but lighter than you’d suspect
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Inflation hits LEGO, but lighter than you’d suspect

**Some sets get more expensive, while others become cheaper** In June 2022, LEGO announced it would be increasing the prices of their sets. Ever since, consumers anticipated their favorite plastic construction toy prices to increase [by as much as 25%](https://9to5toys.com/2022/06/02/lego-officially-confirms-price-increases-coming-to-most-sets-later-this-fall/). **Why it matters:** Consumers are feeling the sting of inflation in all areas of their lives, from groceries and gas to entertainment. With LEGO Day right around the corner (January 28th), fans may wonder whether it’s a good time to purchase a set. **What we’re seeing:** While inflation continues to ravage the economy, consumers are seeing a small reprieve when it comes to the pricing of LEGO sets. Despite the anticipated 25% price increase, average prices among the top LEGO sets only increased by 4.7% year over year when comparing Q4 2022 to Q4 2021. <iframe title="YOY Price Change for All LEGO Sets – 2022 vs. 2021" aria-label="Interactive line chart" id="datawrapper-chart-3gn9L" src="https://datawrapper.dwcdn.net/3gn9L/3/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="393" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * During this same period, annual prices for some of the most popular LEGO sets were up as much as 23%. <iframe title="U.S. Price Change for LEGO Sets – Q4 22 vs. Q4 21" aria-label="Split Bars" id="datawrapper-chart-vh7B2" src="https://datawrapper.dwcdn.net/vh7B2/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="708" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> **Yes, but:** Prices of other popular sets were down by as much as -12% during this same period. Depending on the kit, consumers might actually find some popular LEGO sets have gotten less expensive since 2021: * LEGO Star Wars Imperial Probe Droid was down -6% in Q4 2022 vs. Q4 2021 * LEGO Creator Tuk Tuk was down -7% * LEGO Star Wars Ultimate Millennium Falcon was down -10% * LEGO Ideas Tree House Business Kit was down -12% **However:** Even for the sets that experienced a price decrease, the decrease was less significant in Q4 2022 as set prices increased across the board following the June 2022 announcement. <iframe title="YOY Price Change for Individual LEGO Sets – 2022 vs. 2021" aria-label="Interactive line chart" id="datawrapper-chart-KjSXz" src="https://datawrapper.dwcdn.net/KjSXz/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="400" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> **The takeaway:** While prices didn’t increase as much as consumers anticipated, inflation still had an effect on the cost of LEGO sets. As ecommerce brands prepare for increased demand ahead of LEGO Day, they could increase customer interest in all sets by promoting the sets that have seen a price decrease. * Pattern’s data science team analyzes consumer demand on Amazon to understand how economic forces impact pricing and shopping behavior. If you’re interested in using insights like these to propel your ecommerce strategy forward, [contact our team today. ](https://pattern.com/contact-us/)

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