Shopify launches fulfillment network

This is huge.

• Shopify on Wednesday unveiled a series of new products aimed at its core small to medium business customers, including a fulfillment network.

• The new machine-learning tech "predicts the closest fulfillment centers and optimal inventory quantities per location to ensure fast, low-cost delivery," according to a company blog post. The tool swings into action once a customer completes checkout, Shopify said.

• The company also announced "Shopify Plus" for larger, fast-growing retailers, giving them a "single view" of all their stores for better integration of their operations. And Shopify is also previewing an upgrade to their point-of-sale systems.

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Shopify has been steadily improving its core offering to the small and medium size businesses that make up its target base and aren't likely to access the kinds of massive POS systems employed by larger retailers. But competition is fierce in that space, with the likes of Square, Clover, Toast, Stripe and others vying for business from small to medium stores and direct-to-consumer players. 

The fulfillment network announced this week is a rare differentiation among those rivals. "Shopify's addition of fulfillment capabilities is confirmation that we're addressing an important challenge in the market," Patrick Cadic, vice president of sales and marketing at UPS fulfillment platform Ware2Go, said. "As consumer expectations for both B2B and B2C are set by the biggest players in retail, small and mid-sized businesses are under more strain than ever. A data-driven logistics solution is a critical piece of the puzzle to level the playing field. Going forward, the leaders in this market will be those that give every business the independence to pave their own way."

Shopify's combined reach is poised to make it the third largest e-commerce site behind Amazon and eBay, according to Ryan Anderson, director of performance marketing & analytics at e-commerce agency FortyFour. "Shopify will connect merchants with third-party logistics providers who can fulfill packages in line with Amazon Prime, so this is potentially a challenge to Amazon," he told Retail Dive in an email. Plus "Shopify is plugged directly into your existing systems and is offering additional value adds like custom boxes that UPS and Amazon can't or won't currently deliver."

These options may also help retailers fortify their own customer relationships, something that Amazon does through its Prime perks like its streaming service and photo storage.

But Shopify hasn't listed pricing for its new fulfillment product, and it's not likely to be competitive with Fulfillment by Amazon in light of Amazon Prime now promising one-day or at least two-day shipping on many items, according to Ethan McAfee, CEO and founder of Amazon outsourcing partner​ Amify. Outside fulfillment costs are usually twice if not four times that of FBA, which is a de facto requirement for sellers that want to take advantage of the massive demand that Amazon Prime drives to them, he told Retail Dive in an interview.

The real value is smoothing the nightmare of inventory and fulfillment snafus that can occur because smaller sellers must work with third-party logistics providers that don't often have the level of control and transparency that Shopify is now offering, McAfee said.