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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Sept 27, 2022

Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)
Sept 20, 2022

Global Ecommerce Weekly News: 20th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon to raise pay and add extra work benefits for delivery drivers Following the rise in fuel prices and protests by Amazon workers, the ecommerce giant is raising its delivery drivers’ pay and adding more work benefits. Amazon has mentioned that it will be investing $450 million into rate increases along with an education program and a Delivery Service Partners program. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/14/amazon-to-raise-delivery-drivers-pay-and-add-more-work-benefits/) Amazon announces it will give away shipping software to merchants at no cost Amazon has recently announced that it will be giving ecommerce merchants free software to manage shopper orders on and off its platform as it extends its reach. The ecommerce giant will be ending monthly costs for sellers using Veeqo, a shipping software it recently acquired and instead offer to them a new, free shipping software. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/16/amazon-to-give-away-shipping-software-to-merchants/) --- Other Marketplace News --- Walmart unveils new virtual fitting rooms In an effort to drive clothing sales, Walmart has launched virtual fitting rooms while competitors reduce spending amid the cost of living crisis. The virtual try-on tool can be used by Walmart customers to virtually measure the clothing items and see how the products would look on them. Shoppers will now be able to see how over 270,000 clothing items on Walmart’s ecommerce site would look on their bodies. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/15/walmart-launches-virtual-fitting-rooms-to-drive-clothing-sales/?utmsource=Retail+Gazette+Subscribers&utmcampaign=2da7f0f8f8-EMAILCAMPAIGN202209150742&utmmedium=email&utmterm=0d23e2768b6-2da7f0f8f8-61040615) THG slashes sales and profit expectations The Hut Group has slashed its forecasts for 2022 as rising interest rates, inflation and energy costs take a toll on consumers. Previously, THG estimated its sales growth to be between 22-25% but after a recent evaluation, has lowered this prediction to between 10-15%. Initial predictions did not take into account the negative effects of ceasing sales in Russia and Ukraine along with the impact that the cost-of-living has had on consumer spending. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/15/thg-slashes-forecast-as-cost-of-living-crisis-hits-consumers-wallets/) --- Other Ecommerce News --- DHL and Post Office team up to provide click and collect services Through a partnership between delivery company, DHL and Post Office, a new click and collect service is to be tested at Post Offices before rolling out to over 1000 branches across the UK. Online shoppers will now have the option of choosing their local Post Office as a collection point, and DHL will fulfil the delivery aspect, opening up networks for both parties. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/14/post-office-partners-with-dhl-express-to-provide-click-and-collect-services/) US consumer watchdog plans to further regulate the BNPL sector The US Consumer Financial Protection Bureau (CFPB) has raised concerns regarding the collection of consumer data and the fast-growing nature of the BNPL sector, which includes companies such as Affirm and Klarna. The CFPB is worried that these companies could be negatively impacting consumers’ financial health and aims to put better regulations in place to ensure consumers are safe and empowered. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/16/us-consumer-watchdog-to-start-regulating-bnpl-sector/) Japanese ecommerce market estimated to grow by 6.9% in 2022 The ecommerce market in Japan, largely dominated by domestic online retailers including Reakuten and Mercari, is set to reach $194.3 billion USD in 2022, after seeing an annual compound growth rate of 5.2% between 2018 and 2021. This makes Japan the fourth leading ecommerce market globally, following China, the US, and the UK. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/13/japan-ecommerce-market-to-grow-by-6-9-in-2022/) Ecommerce brands are spending more on TikTok ads TikTok may soon be surpassing Facebook and Google as the most lucrative advertising channel, with ecommerce brands spending 60% more on TikTok ads in Q2. Facebook is still ahead as the top choice for ecommerce advertisers but only grew by 5.6% from Q1, while Google grew 20.5% in Q2, and Snap declined 10.8% in Q2. [Read more on SearchEngineLand](https://searchengineland.com/ecommerce-brands-spent-60-more-on-tiktok-ads-in-q2-387876)
Sept 13, 2022

Global Ecommerce Weekly News: 13th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon scales back on US warehouse facilities Amazon is shutting down two facilities with 300 employees, discarding plans for 42 facilities, and delaying plans to open a further 21 buildings across the US. The ecommerce giant is scaling back on hiring as well as the expansion of its vast delivery network, as it was left with an excess of space following its rapid expansion during the pandemic. [Read more on Business Insider](https://www.businessinsider.com/amazon-closes-2-facilities-scraps-plans-42-new-buildings-report-2022-9?r=US&IR=T) --- Other Marketplace News --- JD.com is ‘betting’ on ecommerce grocery market Amidst a slowing economy and a decline in ecommerce, Chinese ecommerce giant JD.com has increased its urgency to seek new growth engines. The company is looking to boost its online grocery business through offline partnerships and expansion into lower-tier cities, where it may be able to unleash more consumption power. [Read more on The Star](https://www.thestar.com.my/tech/tech-news/2022/09/08/chinese-ecommerce-giant-jdcom-bets-big-on-online-grocery-lower-tier-markets-amid-slowing-economy) Shopee shuts operations in Argentina, Chile, Colombia, and Mexico Sea’s ecommerce arm, Shopee, has shut local operations in some LATAM countries but will continue to maintain cross-border operations in a few markets. Latin America is Sea’s most important region following South-east Asia, accounting for close to 19% of its revenue in 2021. The move away from these countries is largely due to increased levels of macro uncertainty and rising interest and inflation rates, and rather putting a focus on its core operations. [Read more on Straits Times](https://www.straitstimes.com/business/companies-markets/seas-shopee-shuts-operations-in-argentina-chile-colombia-mexico-sources) --- Other Ecommerce News --- Instagram scales back in-stream shopping elements Instagram is re-examining its approach as it hasn’t been able to make ‘fetch’ happen. ‘Fetch’ in this context being the online shopping trends which have become all-consuming in China, and what Western social platforms have been hoping to add into their apps to make them more addictive and revenue-generating. Consumers have not been swayed by the latest shopping tools on TikTok and Instagram, leading to Instagram scaling back its in-stream shopping program. [Read more on SocialMediaToday](https://www.socialmediatoday.com/news/instagram-scales-back-in-stream-shopping-elements-as-it-re-examines-its-app/631276/) FedEx Express supporting the growth of cross border ecommerce FedEx express has expanded its international commerce shipping service to four more markets across the Asia Pacific, Middle East and Africa (AMEA) region in an effort to support the strong development of ecommerce in this region. Three of the fastest growing markets, the Philippines, Indonesia and Vietnam are leading Southeast Asia’s ecommerce sales, which is set to reach $100 billion by 2023. [Read more on Post & Parcel](https://postandparcel.info/149889/news/e-commerce/fedex-express-supports-the-growth-of-cross-border-e-commerce-within-the-amea-region/) India ramps up hiring as companies prepare for shoppers Ecommerce companies are getting ready for the festive season by rapidly expanding their temporary workforce. As ecommerce in India grows, the country is predicted to have 372 million online shoppers by the end of 2022. The festive season this year, running from October to December, is expected to see a two-fold increase in logistics and delivery alone. During this period, companies are predicted to add 20% more to their existing workforce base, with a 8-10% higher pay scale compared to last year. [Read more on Business Insider India](https://www.businessinsider.in/business/ecommerce/news/the-great-indian-festival-of-hiring-e-commerce-companies-gear-up-for-indias-shoppers/articleshow/94000346.cms)

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