Shopify focuses on growing merchant solutions revenues to offset slowing GMV growth

The trend: Shopify is doubling down on merchant services as it seeks to offset slowing ecommerce sales.

  • While the platform’s gross merchandise volume (GMV) increased by 11% year-over-year in Q3, merchant solutions revenues rose 26%, per its earnings statement.
  • Significantly, merchant solutions revenues as a percentage of GMV rose to 2.14%—a company record, and a sign that Shopify’s extensive toolkit is resonating with sellers.

Everything but the kitchen sink: In just the last few weeks, Shopify announced:

  • A partnership with Ernst & Young’s parent company EY to help enterprises scale their ecommerce operations and stay compliant when selling regulated products like alcohol or pharmaceuticals
  • The acquisition of Remix, an open-source web framework, to help merchants build fast, custom storefronts
  • Shopify Forms, a free, customizable email capture function that lets merchants offer discounts or other promotions in exchange for email sign-ups

That’s in addition to the over 100 tools the company added in late June once it became apparent ecommerce growth was slowing.

Financial assistance: As conditions get more difficult for ecommerce merchants, Shopify is ramping up its revenue-based financing program to keep sellers solvent and make it easier for first-time sellers to get started on the platform.

  • Shopify Capital handed out $507.6 million in loans and cash advances to merchants in Q3, a 29% YoY increase. While these money-lending services may be extremely attractive to merchants struggling with soaring procurement and fulfillment costs, diminishing ecommerce demand could hamper their ability to pay back the loans.
  • And as with everything else it does, Shopify faces competition from Amazon, which announced last week it would give sellers access to loans ranging from $500 to $10 million via a partnership with capital provider Parafin in an expansion of its existing merchant financing tools.

A cause for concern: Shopify’s appeal is predicated on its ability to offer sellers the tools they need to build a successful ecommerce business. But an investigation by The Globe and Mail found that just 34% of Shopify stores survive for longer than a year. The average store in 2021 lasted just 143 days, down considerably from 220 days in 2019.

Shopify disputes these figures, but they are illustrative of its biggest problem—while the company depends on a steady influx of small businesses to drive GMV growth, many of these sellers lack the resources to upgrade to premium features (which make up the backbone of Shopify’s revenues) and are unable to survive long enough to make a lasting contribution to sales volumes.

Signs for optimism: Still, despite its struggles, the sheer quantity of tools available to sellers will enable Shopify to appeal to a broad variety of sellers, both small and enterprise, which will help shore up its business as inflation slows consumer spending.

  • Its Shop Promise fulfillment service gives the company a considerable competitive advantage over BigCommerce, WooCommerce, and other ecommerce platforms, and could keep merchants from jumping ship to Amazon.
  • Shopify’s efforts to woo enterprise clients appear to be paying off. Roughly one-third of its monthly recurring revenues in Q3 came from Shopify Plus, its enterprise-level offering. The company successfully onboarded Glossier and Cole Haan to its platform in Q3, while partnerships with EY and KPMG are expected to help Shopify make further inroads with businesses with greater GMVs.

Go further: For more on Shopify's growth prospects, read our Spotlight report.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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