Is the brand or the department store the destination? Amazon, Shopify, Walmart, and Facebook

With the COVID-19 global lockdowns, 2020 looks to be a banner year for e-commerce. Pretty much since the dot-com bust, there’s been a slow but steady growth in e-commerce. In fact, it’s become such a staple that you regularly hear people discussing as if it’s a monopoly. But in reality, it not only isn’t a monopoly, depending on what market you think it’s in, it’s not even particularly big. Amazon is far-and-away the leader in the e-commerce space, with projections indicating they’ll hold 38% market share in 2020. 38% is a really big market share, but that’s in e-commerce. E-commerce represented 11% of retail in 2019. COVID-19 has had a huge impact, but even growing by 32% year-over-year, that brings e-commerce to 14.5% of retail — which means that Amazon will have 5.5% of retail share. That’s a big number, but to put it in context, a 5.5% market share of the automotive industry would make you Honda. You’re bigger than Nissan, Chevy, or BMW, but smaller than Toyota, Volkswagen, or Ford. Certainly 5.5% share of a market is significant, but it doesn’t make you so strong that you don’t have to fear competition. Which brings us to the question of department stores vs. brands. is a department store. They’re Target, or Macy’s, or K-Mart. They sell lots of different things, from groceries to batteries, to camping gear; and when they see an opportunity, they create their own white-label products, and sell cheaper versions of some goods that directly compete with the brands (just like Target and everyone else in retail — if you’ve bought A New Day or Goodfellow clothing or any of about 40 other “brands” at a Target, you’re buying target white-label goods). But while Amazon may be an online department store, the Internet broke the model of shopping malls — and an independent store can have global reach. Enter Shopify. You may not have heard of Shopify, but they’re already the number two source for on-line sales in the US, only behind Amazon. So why haven’t you heard of them? Because they’re not a department store. They provide infrastructure that enables retailers to create their own, on-line stores — cheaply, quickly, and efficiently.

Already, about 1 million brands have built their stores on Shopify — and that includes big brand names like Pepsi, Heinz, and Heineken, but also a slew of upstart challenger brands that are only becoming household names because of Shopify (brands like Kylie Cosmetics, Jeffree Star, Gymshark, and Allbirds). This is why the announcement of the arrangement between Shopify and Walmart this week was significant. When I read just the headlines, I assumed it was going the other way — that Walmart was abandoning their foray into running their own e-commerce store, and moving to Shopify (which, indeed, would have been big news for Shopify) — but what this is actually about is providing a department store for Shopify’s brands. That is great news both for Shopify and for their millions of individual retailers. It’s another sales channel for their products. In other words, retailers with Shopify stores can now put their goods through Walmart’s on-line store.

Perhaps most interesting in all of this is Facebook’s play. About a month ago, Facebook launched Shops. If Shopify is enabling retail storefronts, and Amazon and Walmart are department stores, then Facebook has just announced the shopping mall. Back in the dot-com era, everyone was sure people were going to buy things on-line, but no one was sure how. Was there going to be the equivalent of the shopping mall? It turned out, “no” was the answer to that question. Shopping malls brought value to both consumers and retailers, but the model didn’t make any sense in the age of the Internet. There was no economy of scale, and no real value in discovery when you had the world-wide-web. But a lot of things that didn’t work in the past end up working at some point (think of the Newton and the iPhone). Timing matters. And Facebook is already a place where people go to spend time … kind of like teenagers in a mall. If they can get the discovery part of this right — surfacing individual storefronts to you, such that you find some of them interesting and go and buy something — then they just may be building the first successful Internet mall. And, of course, Shopify is there for you. Remember, Shopify is about making it easy for retailers to build an online storefront, and they’ve already released the tools to enable you to take that storefront to Facebook and Instagram via Shops. So, who’s going to win the next decade of transition in e-commerce? Individual retailers, department stores, or malls? Either way, if you’re a retailer or a small brand, it’s probably time to take a look at Shopify.

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