Heather Perry made a bold bet before last year's holiday rush: switch all e-commerce operations of her family-owned roastery, Klatch Coffee, to Shopify.
The 42-year-old small business CEO from Southern California was drawn to the Canadian company's artificial intelligence-based services that automate routine tasks such as generating discounts and product descriptions, its improved customization tools and a broader suite of apps.
"Running the business from scratch during the holiday season? I can't even imagine," Perry, who migrated to Shopify (SHOP.TO) in July, told Reuters.
"Shopify allows us to make really quick changes. Honestly, I can't imagine doing it manually." She declined to name the platform she was on before making the shift.
Perry is among hundreds of merchants in North America who have migrated to Shopify to build online stores and manage retail businesses, according to data from internet analytics firm BuiltWith and Reuters interviews with a dozen sellers.
The company's AI suite, "Shopify Magic", is reshaping the e-commerce landscape by equipping small businesses with automation tools once exclusive to retail giants, fueling growth in a challenging retail environment.
Shopify generates revenue largely from subscription fees and cuts on transactions on the platform. Its revenue is expected to jump 27.3% — the fastest growth in six quarters — when the company reports its holiday quarter results on Tuesday, according to data compiled by LSEG.
The growth is also faster than that of the industry. Global e-commerce sales are estimated to have risen 8.4% to $6.091 trillion in 2024, according to forecasts from eMarketer. In comparison, Shopify's revenue is expected to have climbed 24.6% during the same period, according to LSEG.
The move is also putting Shopify on a firmer footing after a post-pandemic slowdown. Revenue had soared more than 90% for four straight quarters during the COVID-19 lockdowns as homebound consumers flocked to online shopping. Growth sputtered as restrictions eased.
Now, the store count is climbing again. BuiltWith data shows the number of stores registered on Shopify increased by 20% in the July-September quarter, a crucial period of planning for businesses.
Shopify is "attracting a large volume of sellers" at a pace approaching COVID-era growth rates, said Ken Wong, an analyst with Oppenheimer.
'GAME-CHANGER'
The company's subscription plans range from $39 per month for a basic package to $2,000 for the enterprise-focused Shopify Plus. All plans come with some "Shopify Magic" features that automate tasks such as generating images, writing product descriptions, tracking sales and setting up discounts.
"From day one, we used Shopify's AI personalization. It's a game-changer," said Jackson Mlawer, product management director at Daily Harvest, an organic meal and snack brand that launched on Shopify in July.
AI tools have helped the team save more than 20 hours a month on testing and cut packaging sizes for 15% of orders, Daily Harvest said. They also boosted page views by 40%, the company added.
About 50% of the merchants the company surveyed intended to use AI tools for content generation, while 33% planned to apply them in marketing, boosting website visibility and customer targeting, it said in September.
"By introducing AI features, Shopify is giving these merchants, who are usually small, tools that are very sophisticated," D.A. Davidson analyst Gil Luria said.
FULL CONTROL
A major pull for merchants is the consolidation of services, including inventory management, shipping, payments and taxes, on the platform.
"Shopify's core customer base ... is just not the most tech-savvy," Wong said. "The more capabilities Shopify can present on a single stack just makes it extremely simplistic for a non-tech-oriented user."
At least seven merchants said they first launched on smaller rivals but switched due to technical challenges.
Shopify's streamlined setup, enhanced tools to help boost website visibility and e-commerce-focused templates give it an edge, according to the merchants.
"I started on another platform and kept hitting roadblocks," said Jill Dobson, owner of leather goods brand Jill's Homestead in Iowa. "So, I migrated to Shopify in spring 2020."
Shopify's payment processing simplified operations for her small team by replacing a patchwork of external payment apps. She has also cut costs, replacing a $250 monthly professional photoshoot with AI-generated images.
Still, the investments in new technology and features have turned the spotlight on margin growth.
After more than doubling its profit through most of 2023, Shopify posted a 45% rise to $459 million in the July-September quarter. Analysts expect profit to slow further in the fourth quarter, rising just 28%.
Shopify's payment partnerships with companies such as PayPal (PYPL.O) pose a risk, analysts have said, as they could generate lower transaction fees.
"You can only trend up by that magnitude for so long. There's definitely a flattening and so there's definitely going to be a little investor anxiety that we're somewhat capped on margins," Wong said.
