The Reason Shopify Is One Of the Biggest Pandemic Winners

As millions of small businesses are forced to go online to survive, Shopify is providing the ecommerce platform that enables them to so. JL

Inti Pacheco reports in the Wall Street Journal:

The pandemic has forced many small businesses to finally open online stores—and turned e-commerce software provider Shopify into one of the biggest winners of the retail shakeout. Small businesses have had to adapt (when) online sales jumped to levels that weren’t expected for years. Shopify’s software lets merchants create an online storefront and mobile application. Merchants upload images and details on their products and organize their inventory. Shopify’s software processes payments and calculates shipping. Shopify also offers services where merchants can store and ship items.

The coronavirus pandemic has forced many small businesses to finally open online stores—and turned e-commerce software provider Shopify Inc. SHOP -2.61% into one of the biggest winners of the retail shakeout.

When Troy Geddes had to close his doors in March, he knew that after 23 years in business he would have to go online to survive. In April, he launched a web version of Comicopolis, his comic-book and game store in Santa Cruz, Calif.

“It wasn’t really super necessary, so we slacked it off,” said Mr. Geddes, 56 years old. “This was like the kick in the butt. It was like, ‘If we don’t do this we could be in serious trouble.’ ”

Larger brands such as Kylie Cosmetics have long used Shopify to reach customers.

PHOTO: DAVID DEE DELGADO/GETTY IMAGES

Millions of small businesses have had to adapt to a world where online sales abruptly jumped to levels that weren’t expected for years. U.S. e-commerce sales surged 37% to $200 billion in the second quarter, according to the Commerce Department.

Shopify’s software lets merchants choose a theme to create an online storefront and mobile application. Merchants have to upload images and details on their products and organize their inventory. Shopify’s software processes payments and calculates shipping rates. Sellers typically ship items directly to buyers, but Shopify also offers fulfillment services where merchants can store and ship items.

Big brands such as Vera Bradley, Kylie Cosmetics and Allbirds have long used Shopify’s technology to sell directly to consumers. During the pandemic, it has been small-business owners like Mr. Geddes, looking to quickly set up e-commerce sites, that have given the company a boost.

E-commerce Equation

Shopify’s stock-market value has tripled from its March low and is worth more than 13 large retailers combined.

Market capitalization of Shopify compared with a group of selected retailers*

SHOPIFY $116.9 BILLION

OTHER RETAILERS $115.3B

eBay

$36.8B

Etsy

$13.4B

L Brands

$8.4B

Gap

$6.5B

Dick's

Sporting

Goods

$4.9B

Best Buy

$27.5B

Kohl's

$3.5B

Urban

Outfitters

$2.6B

Nordstrom

$2.4B

Foot

Locker

$3.4B

Macy's

$2.4B

Bed Bath &

Beyond

$1.5B

American Eagle

Outfitters

$2.1B

*As of Sept. 4

Source: FactSet

Shopify charges sellers a monthly fee and takes a percentage of every transaction on its platform. Its revenue nearly doubled to $714.3 million in the second quarter as the number of new stores created on Shopify increased 71% compared with the previous quarter.

The company’s share price nearly tripled from its March lows and crossed above $1,000 in August. Even after last week’s selloff, Shopify’s market value of roughly $117 billion is bigger than eBay Inc. and Target Corp. combined, even though Shopify has a fraction of their sales or profits.

Back in October 2019, almost 15 years after it was founded, Shopify announced its one-millionth merchant. By this July, it had some 1.3 million merchants, according to analysts at Baird, an investment bank.

Other tech suppliers have taken off in the current environment. Crafts marketplace Etsy Inc. has become a top destination for buyers and sellers of cloth face masks, adding 4 million new users in April alone. The amount of money stored in payment processor Square Inc.’s app reached $1.7 billion in the second quarter, 3.5 times the same period last year.

Many small merchants also sell through Amazon.com Inc., which provides fulfillment services and remains the top online shopping destination. But Baird analyst Colin Sebastian said competition to sell the tools that small businesses need to operate online “is surprisingly limited given how large the market opportunity is.”

Many small businesses still don’t have e-commerce capabilities. A Census Bureau survey of small-business owners in the last week of August found 36% of the respondents who work in the retail trade didn’t have an online platform to sell their products.

Shopify’s chief operating officer, Harley Finkelstein, said the Ottawa-based company threw out all of its 2020 plans when the pandemic hit. “The entire company simply pivoted as quickly as we could to focus on, ‘How do we help small businesses?’,” he said in an interview.

Since March, Shopify has introduced a 90-day free trial for new subscribers, gift-card options, online tipping, a curbside pickup option and a new Shop application, where customers can search for products within the Shopify universe. The company also expanded its financing program to other countries and is planning to launch Shopify Balance, which will serve as a business account for merchants.

“We play a much more strategic and central role in the day-to-day businesses of our merchants, far more than any software company traditionally would,” Mr. Finkelstein said.

Still, analysts say there are concerns about how many small U.S. businesses will survive the economic crisis and whether giants such as Walmart Inc. and Amazon will continue to capture more of Americans’ retail spending.

Michael Rainy Chief and his husband opened their indigenous apparel and home-decor store 49 Dzine on Shopify in May 2017. It now has nearly $1 million in annual sales and seven employees.

Mr. Rainy Chief said he was worried about the pandemic and started selling off assets because he was concerned about a likely decrease in sales. “But it actually had the opposite effect. We had record sales, immediately,” he said. His store’s average daily sales have doubled from what they were last year.

Borrowing through Shopify’s financing program, Mr. Rainy Chief took an unusual step in August. He decided to open a physical store in Calgary, Canada.