Shopify’s (NYSE: SHOP) stock recently popped after it secured a new partnership with retail giant Walmart (NYSE: WMT). Shopify’s merchant clients can now directly sell their products on Walmart’s third-party marketplace, and Walmart plans to onboard 1,200 new sellers this year.
This partnership could benefit both companies and strengthen their defenses against Amazon (NASDAQ: AMZN), which is increasingly relying on third-party sellers to drive the growth of its online marketplace.
How can Walmart help Shopify?
Shopify has helped more than a million merchants quickly establish an online presence with e-commerce websites, payment services, marketing tools, and other services.
Its growing base of merchants made it the second-largest e-commerce platform in the U.S. last year, according to eMarketer. It accounted for 5.9% of all U.S. retail e-commerce sales, compared to Amazon’s 37.3% share.
Shopify mainly operates from behind the scenes, but it recently launched Shop, a consumer-facing app that lets shoppers search a unified feed of products from its merchants. The shop is integrated with the package-tracking features of its Arrive app for merchants, as well as its Shop Pay checkout service — which makes it a potential challenger to Amazon’s main app.
Tethering its ecosystem to Walmart, which alone accounted for 4.7% of U.S. e-commerce sales last year, complements that long-term strategy and gives Shopify’s merchants a significant boost to their visibility.
Shopify’s revenue rose 73% in 2017, 59% in 2018, and 47% in 2019, and Wall Street expects its revenue to rise another 37% this year. Its growth remains robust, but getting its merchants’ wares in front of more customers via Walmart’s platform could silence the bearish concerns regarding its decelerating growth.
How can Shopify help Walmart?
Walmart invested heavily in growing its e-commerce ecosystem, offering a broader selection of products, adding better delivery and pickup options, and improving its shopping app in recent years.
Parcels on a conveyor belt.
As a result, Walmart’s U.S. e-commerce sales rose 37% in its fiscal 2020, which ended on Jan. 31, and accelerated to 74% growth in the first quarter of its fiscal 2021 as the COVID-19 pandemic struck the country and forced most people to largely stay at home.
Amid that impressive growth, Walmart also shut down Jet.com, the e-commerce website it acquired in 2016 for $3.3 billion. Walmart had already absorbed a large portion of Jet’s staff into its main e-commerce business, which was being run by Jet co-founder Marc Lore — so maintaining Jet’s separate marketplace seemed superfluous.
Expanding its third-party marketplace by bringing in Shopify’s merchants is a smarter strategy. It will not only expand Walmart’s reach but could also improve the overall quality of its third-party offerings with established domestic and local merchants — as opposed to unvetted foreign merchants from countries like China.
Could this alliance spell trouble for Amazon?
Unlike Walmart, which bundles the results for its first and third-party marketplace businesses together under the heading of its broader e-commerce business, Amazon regularly discloses its third-party marketplace revenues. Last quarter, those grew 30% annually to $14.5 billion, or 19% of its total revenues. By comparison, its online store revenues rose 24% to $36.7 billion, or 49% of its revenues.
The faster growth rate for Amazon’s third-party marketplace is troubling because the company is under increased scrutiny from U.S. regulators over the rising percentage of low-quality and counterfeit goods on its platform coming from Chinese sellers. If regulators bar Chinese sellers from selling products on Amazon, its third-party revenues could slide just as it’s facing fresh competition from Shopify and Walmart.
The key takeaways
This alliance is a win-win deal for both companies: Shopify’s merchants gain access to Walmart’s massive customer base, and Walmart gains higher-quality third-party merchants.
If more shoppers get frustrated with Amazon’s third-party quality-control issues, they could flock to other marketplaces. The Walmart and Shopify alliance doesn’t represent a near-term threat to Amazon — but it could become a long-term one if the e-commerce leader drops the ball.
10 Top Stocks we like better than Wal-Mart Stores, Inc.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, they have consistently beaten the market for over 25 years!
David and Tom just revealed what they believe are their ten Top Stocks for investors to buy right now… and Wal-Mart Stores, Inc. wasn’t one of them! That’s right — they think these 10 stocks maybe even better buys.