Shopify to cut contracts with warehouses in order to expand its own fulfilment network

Shopify is deciding to tear up its contracts with warehouses in the US amid a shift in strategy to build on its two-year old Shopify Fulfilment Network to compete with Amazon.

The move will mean that the ecommerce platform will essentially half its fulfilment capacity and significantly impact its ability to pack and ship orders for its merchants.

Shopify executives at four of the company’s fulfilment companies revealed the news to Business Insider.

“They were going to make a fortune on fulfillment. It was going to be all these things that fulfillment has never been,” a partner said about Shopify‘s pitch to independent fulfilment businesses.

Experts however expect Shopify to invest heavily in its fulfilment network, with Deutsche Bank analysts writing that it believed that in order to insource its fulfilment network it would require “a period of intense investment” from the ecommerce giant.

Shopify launched its Shopify Fulfilment Network (SFN) in 2019, with the company announcing it would invest $1 billion over the next five years.

READ MORE: Shopify partners with JD to help US merchants sell in China

The network was advertised as a way that Shopify could speed up its delivery service and lower the cost of doing so, with a large amount of Wall Street analysts agreeing, saying it would help the company compete with Amazon’s vast fulfilment operation in the US.

Since its inception in 2019, it hasn’t appeared to move on from the “product-market fit” phase, which has prompted number of the pioneers of the network to leave the company.

“Things haven’t inflected upwards — which, for a company of Shopify’s stature and the expectations that come along with it, is viewed as a disappointment,” Guggenheim Securities analyst Ken Wong told Business Insider.

A spokesperson for Shopify said it would share more details on its plans for SFN in February.

“Our fulfillment and warehouse partners are a key part of how we’re building our coast-to-coast network,” the spokesperson told Business Insider.

“We will continue to optimize our network and services as needed, allowing us to provide our merchants and their customers the best possible delivery experiences.”

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