Los Angeles — Shopify Inc. has a place in downtown Los Angeles that adheres to the nondescript tech-space aesthetic pioneered by Apple stores: clean white walls, blonde wood accents, brightly lit.
Situated on the ground floor of an old warehouse building in a revitalized district full of boutique shops and eateries, just a few blocks from skid row, the apparent storefront looks like it’s ready to sell, well, something. But on first glance, there are no products available for purchase.
This lack makes a bit more sense when you discover the place isn’t actually a store. According to Cody DeBacker, who has managed the Shopify LA project since it opened last October, it is really more like a gym, more specifically a gym for entrepreneurship: a place where merchants can come in, improve their business fitness, share notes and get stronger.
The little Los Angeles place also represents the most clear and concrete example of Shopify’s business strategy to reshape commerce by giving all the little guys — not to mention the Ottawa-based company itself — a chance to change the prevailing mood that Amazon.com Inc. is the only future of retail.
“There’s an inherent danger that we all need to be aware of here,” Shopify chief operating officer Harley Finkelstein said ominously last spring during the keynote presentation at the company’s annual partner conference.
“The danger is that if we’re not careful, and we’re not focused, then the future of commerce will be held in the hands of a few monolithic players who will decide when, where and how commerce takes place. And for the future of commerce to not only survive, but to thrive, it needs to be in the hands of the many, not the few.”
Finkelstein didn’t mention Amazon by name, which makes sense because Shopify has a complicated relationship with the giant e-tailer. They are competitors, but also partners since Shopify’s e-commerce software integrates with the Amazon Marketplace to allow merchants to sell their products on Amazon.
But with net sales of US$232.8 billion last year, Amazon is undeniably the biggest of the “monolithic players” in e-commerce.
“Amazon is the 800-pound gorilla, and a lot of the things that customers have come to expect and crave were originated with Amazon,” said Penny Gillespie, an analyst focusing on digital commerce at Gartner.
For example, when Amazon offered two-day shipping or inventory tracking, Gillespie said online merchants of all shapes and sizes needed to quickly figure out how to implement the same logistics to remain competitive.
These types of situations are exactly where Shopify wants to step in. As a fast-growing player in the e-commerce space, Shopify’s platform serves more than 800,000 merchants, and those merchants in 2018 collectively sold $41.1-billion worth of products and services.
That kind of growth, along with an expansion into overseas markets, makes Shopify a serious player in the retail landscape despite being currently dwarfed by Amazon.
Shopify is usually described as an e-commerce service provider, which is true, but it doesn’t capture the full picture.
Yes, the company takes care of online shopping functionality for 800,000 customers, but its software platform also serves as a kind of merchant dashboard that allows a business operator to manage a whole range of functions. Via an app store, customers can access thousands of third-party developer apps that handle things such as social media advertising, shipping, product reviews and upselling.
The company also has a services marketplace that connects merchants with photographers, web designers and marketing professionals.
Shopify executives say the company’s whole raison d’être is about empowering entrepreneurs. Even its employees are encouraged to start side-hustle businesses for themselves on the platform.
But to realize its vision, Shopify needs to foster the entrepreneurial spirit in many more people, and it needs to support those fledgling merchants as they try to get a business off the ground. This is what the company aims to do in Los Angeles.
Inside Shopify LA there’s a little amphitheatre where a few dozen people can sit in on workshops covering such topics as marketing, product photography, shipping and more.
Tucked away in a corner there’s a small boardroom where Shopify experts can do one-on-one sessions with merchants. In the back is a lightbox for merchants to photograph their products and even a direct-to-garment printer.
On one night in late February, Shopify hosted a Black History Month event, with Black merchants showcasing their products in the space, and an evening panel discussion about the challenges and experiences of Black entrepreneurship.
For manager DeBacker, the place is more than just tech support or a business incubator.
“As much as this can be seen as a sales tool, I don’t think that’s the intention with this space,” he said. “We believe that everyone in the world who wants to become an entrepreneur can, with the right tools. I believe a space like this provides some of those tools.”
Although there’s a Shopify logo on the wall, DeBacker and others said you don’t need to be a customer to come in for workshops or consultations. And the company’s effort to encourage people to embrace their entrepreneurial spirit goes beyond just Los Angeles.
Chief executive Tobi Lütke recently announced the launch of Shopify Studios, a multimedia division to make content such as podcasts and artfully produced YouTube videos highlighting entrepreneurs. The division is headquartered in Toronto and has operations in New York and Los Angeles.
Just like at the space in Los Angeles, the Shopify logo takes a back seat in the YouTube videos, leaving the limelight for individual stories: “This woman turns ski poles into toilet plungers,” or “How a denim company is helping fuel Detroit’s comeback.”
But if you push past the bouncy videos and the friendly staff at the LA outpost, critics question just how much of the Shopify ecosystem is real.
Shopify stated in its first-quarter financials that it “currently powers over 800,000 businesses in approximately 175 countries,” but it doesn’t disclose how many of those users are actively making sales or growing.
The company also doesn’t disclose churn, so it’s not clear if those 800,000 stores are mostly healthy, or if they represent a lot of people dabbling in e-commerce for a few months before giving up.
And Shopify has been at the centre of stories by The Atlantic and Reply All, a popular technology podcast, that looked at a particularly flimsy sort of business called “drop shipping,” where merchants buy social media ads to sell products from Chinese wholesale site Aliexpress.
Without ever holding any inventory, a merchant can take orders, pass along the information to the Chinese supplier, and pocket a hefty markup for cheaply manufactured goods.
There’s even a thriving cottage industry on YouTube where videos promise tips and guidance on how to use Shopify, making it seem like a get rich quick scheme. (In many cases, the videos are just enticements for expensive one-on-one consulting services from self-styled drop-shipping gurus.)
These same issues attracted the attention of noted short seller Andrew Left. Through his U.S. firm, Citron Research, Left took aim at Shopify in 2017 and 2018, suggesting that many of the hundreds of thousands of entrepreneurs on the platform probably aren’t real businesses.
Citron also raised questions about the “unholy alliance” between Facebook Inc. and Shopify, which appears to be a key element in driving growth.
The reports have not done much to blunt investor enthusiasm, though. Two years ago, Shopify was trading at $69 on the Toronto Stock Exchange; today it’s trading at more than $200, high enough to give it a market cap of about $30 billion (Amazon’s market cap, by comparison, is close to US$1 trillion).
And the partner ecosystem is healthy enough that venture capitalists in January saw fit to invest $22 million in Bold Commerce, a Winnipeg-based company that employs close to 300 people dedicated to writing apps for the Shopify ecosystem.
“Really what Shopify is doing is they’re giving the smaller shops a way to compete against the Amazons,” Bold Commerce co-founder and chief executive Yvan Boisjoli said. “There is a scary future if only Amazon exists, and that’s what Shopify is trying to avoid.”
There’s no doubt the prospects of a scary future are pushing many small merchants into the Shopify ecosystem.
Pasquale Angelucci is in the fourth generation of a family jewelry business in Los Angeles, and he’s become a regular visitor at the LA entrepreneur space since it opened last fall.
In the jewelry business, Angelucci said Blue Nile is the big monolithic player, and by the tone of his voice, it’s clear that Blue Nile is scary enough that he has no choice but to embrace online commerce.
“Years ago, Blue Nile, which is the Uber of the retail jewelry world, gosh, it was four per cent of the market, now it’s 20 per cent,” Angelucci said. “They did $400 million in business last year. If I can just get a tiny slice of that pie, I’ll be doing good.”
Angelucci is like many merchants visiting Shopify in Los Angeles who are trying to find their way in the internet age.
There’s the guy who has come in for a marketing workshop because he’s selling CBD dog treats, but Facebook won’t let him advertise anything related to cannabis.
There’s the woman who started a scented candle company as a side hustle, but turned it into a career when she lost her full-time job.
There’s the poet with five kids who is also a high school history teacher making handmade wood jewelry for a bit of extra cash.
These people embody the entrepreneurial spirit that Shopify glorifies, and for good reason since the company’s success depends on their drive being powerful enough that even giants such as Amazon can’t stifle their growth.
Atlee Clark, director of the Shopify’s App and Partner Platform, said the unstoppable power of entrepreneurship is what will ultimately drive the company’s continued growth.
“All the money in the world can’t beat that kind of aspiration, and that kind of enthusiasm. Entrepreneurship is hard. It’s not the easy path. So even within the Shopify ecosystem, it’s hundreds and hundreds of thousands of people who have chosen that harder path,” she said. “If you have people who believe in that, my philosophical view is that wins, because those people don’t give up easy.”