President of Shopify, Harley Finkelstein recently said, “The center of gravity for retail has flipped entirely—from physical stores to online.”
The numbers prove his point. Commerce is in the midst of a fundamental shift as consumers reallocate their spending from physical retail stores to online shops. The pandemic has accelerated this trend, pushing the ecommerce share of total retail sales to 21% in 2020 (from 6% in 2010) and by some estimates as high as 30% in some verticals.
The State of Retail: It’s Ecommerce
There are two major beneficiaries of this shift from retail to online: Amazon and Shopify.
The growth of these two players is being driven by an explosion of merchants selling goods through these services. As of Q1 2021 Amazon had over 2M marketplace sellers globally and Shopify was supporting over 1.7M merchants.
Though these companies are distinctly different, they both illustrate a section of the new ecommerce retail industry—platforms and aggregators. As defined by the Stratechery, “platforms are powerful because they facilitate a relationship between third-party suppliers and end users; aggregators, on the other hand, intermediate and control it.” Amazon is an aggregator while Shopify is a platform.
The fact that these two companies get stronger as more merchants and third-party applications plug into their framework is giving way to an entirely new ecosystem. The ecommerce industry is now not only made up of online merchants and platforms where they promote their products, there are an immense amount of support applications starting up, and gaining major traction.
The New Retail Tools: Marketplace Apps
As the number of ecommerce merchants has grown, so too has the number of third-party software tools that support their ecommerce operations. While Amazon continues to be the dominant ecommerce player in the US, commanding 31% of all ecommerce sales, many of these tools have been built on top of Shopify’s App Store (it’s a platform, and much more open). Per their 2020 annual report, Shopify had 6,000 apps available in the Shopify app store. Much of these are functionality associated with building a modern ecommerce business and can be built using best-in-class software tools built on Shopify.
There’s a New Kind of Seller: The Creator
The first wave of ecommerce enabling software businesses addressed core functionality and many of these businesses have scaled impressively with some even crossing the billion-dollar valuation threshold. But ecommerce as an industry continues to evolve.
There has been a marked proliferation in the number of channels through which commerce is taking place as well as a shift in the very nature of sellers who are selling goods. Sellers aren’t big retailers or corporations anymore, they are individuals, lean businesses, and creators. Simultaneously ecommerce isn’t static anymore, sellers have many tools and platforms to choose where and how they sell their products, services, and even content. This new flavor of merchant wants to sell directly to their customer, with no middlemen necessary.
Where Investment is Focused: Enabling Software Tools
Perhaps unsurprisingly, retail technology has been an area with high growth and high investment. Global funding to retail tech tripled year-over-year (YoY) in Q1 of 2021 and hit its highest quarterly level in five years. Funding to ecommerce tech specifically in Q1 2021 jumped 71% from the previous quarter.
At Black Jays Ventures it is our belief that as the nexus of commerce moves online, the channels through which commerce takes place expands, and the nature and number of sellers proliferates, a new generation of purpose-built software will emerge to service this new reality.
Early-stage investors who have traditionally focused on consumer products and services are increasingly turning their attention to enabling software tools that will underpin the tectonic shift taking place across the ecommerce landscape. The areas of this burgeoning industry that are most compelling include:
- Brand discovery marketplaces that help consumers navigate the plethora of new offerings coming to market.
- Cross-selling networks that help intelligently recommend new brands to consumers based on brands they have previously purchased from or interacted with.
- Streaming and video tools that deliver more immersive, interactive, or communal shopping experiences.
- Commerce enabling tools that help sellers sell via emerging channels (e.g. Messenger, Chat, DMs).
While brick-and-mortar stores aren’t going away anytime soon, this shift toward increased online shopping was tipped significantly by the COVID pandemic. As people were bound to local shopping only, most went online to source items they needed and desired. Without these environmental and global factors, ecommerce wouldn’t be growing at the rate it is today. Even with quarantine restrictions lifted, online shopping doesn’t appear to be dwindling at all either.
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