Have you heard about the SaltWire News app?
Want to become a member? Check out the benefits here.
SaltWire Selects: Weekend picks
Get the latest summer forecast and weather knowledge from Cindy Day
SaltWire's cartoonists bring heart and humour to the news.
What you need to know about COVID-19: August 14, 2020
Amazon and Shopify occupy very different ends of the electronic commerce universe yet both have seen their businesses turbocharged by the coronavirus.
Seattle-based Amazon operates a vast logistics network through which it sells and delivers products of its own and those offered by third parties. Shopify, headquartered in Ottawa, sells online entrepreneurs the tools for marketing their goods to customers directly.
This week we saw an even more profound distinction between the two firms — that of scale. Amazon on Tuesday revealed it had broken ground on a 2.8 million square foot fulfillment centre in Barrhaven, to complement the 1.0 million square foot operation on Boundary Road in the city’s east end. Combined, these Amazon centres — both Broccolini projects — will be roughly double the size of the headquarters for the Department of National Defence.
These warehouses, large by Ottawa standards, are but a tiny fraction of Amazon’s overall operation. The Seattle firm last year spent $40 billion (all figures U.S.) running its fulfillment network which, including Barrhaven, will number 14 warehouses in Canada. There are 161 more worldwide. Amazon generated revenues of $280 billion last year and employed 800,000 at yearend. The coronavirus-inspired surge in online sales prompted Amazon to hire another 175,000.
Shopify, too, has experienced a rush of new customers eager to use its technology to set up online storefronts, process payments, and track sales and inventories. It also bought Boston-based 6 River Systems last fall to help it set up fulfillment centres of its own — allowing Shopify’s online merchants to store products closer to their customers, thus expediting deliveries.
However, Shopify is still trying to find its comfort level. It had been planning to spend $200 million annually over a number of years to build its Shopify Fulfillment Network, a timeline the firm said recently it would accelerate, notably in the U.S., even if that effort cut into company profits. Although Shopify is doing some research & development locally, it is not expected to set up its first fulfillment centre in Ottawa until later in the year.
This deliberate approach is in keeping with Shopify’s innate caution. The company’s founders — led by CEO Tobi Lütke — took their time building a rock-solid dashboard for its online merchants, one capable of supporting a wide range of software apps, and was easy to use. Shopify was also careful to partner with multiple firms through which its online merchants could sell their products — including Facebook, Instagram, eBay and, yes, Amazon (which makes the Seattle firm both a competitor and partner, at least for now).
In the past few years, Shopify has hired aggressively in Toronto, Vancouver and other cities rich in high-tech talent. The result is that fewer than one-quarter of the company’s 5,000 plus employees currently work in Ottawa.
Nothing wrong with that. That’s how it goes with successful multinationals. But such is Amazon’s scale, even its relatively minor expansion into the capital region will result in the following anomaly: by yearend 2021, it will almost certainly employ more workers locally than Shopify. Yes, many of these will be $16-per hour warehouse employees — each earning less than half the salaries pulled down by the average Shopify worker.
Yet, post-pandemic, it may well turn out warehouse employment will be in high demand for those who once worked in hospitality or bricks-and-mortar retailing.
One thing Amazon and Shopify do have in common post COVID-19 is extravagant market values. Both had been aggressively building enterprises that aimed to take advantage of the steady shift in peoples’ buying habits from stores built with bricks to those constructed by software. When the coronavirus forced governments to lock down the economy, that shift became a sudden wave.
The demand for products from Amazon and Shopify soared nearly instantly to where the firms thought it would be several years from now. The result was to make a short-term mess of supply chains, especially at Amazon. But investors seemed to pay it no mind. The companies’ share prices have come along for the ride, despite the huge extra costs involved in trying to meet the new demand.
While share prices generally are still more than 10 per cent below the pre-pandemic peak, Amazon was up 32 per cent at Thursday’s close of $2,890.30 per share while Shopify was up a stunning 92 per cent to C$1,397.61 per share on the TSX. Their respective market values: $1.44 trillion and C$166.9 billion. This puts Amazon’s market value at nearly five times the company’s annual revenues while the comparable ratio at Shopify is nearly 70 to one. Even in the world of high-tech, a ten to one ratio is usually considered expensive.
Essentially, these are bets that Amazon and Shopify will rule their respective worlds.
Perhaps, then, we should be happy they both have a strong physical presence in Ottawa. Even in the likely event their share prices tumble, the bricks and mortar will remain.
Copyright Postmedia Network Inc., 2020