Amazon vs Shopify: Who Is Winning The Online Competition?
The Covid-19 pandemic has made a long-lasting impact on consumer behavior. Nationwide lockdowns forced customers to shop online instead, some making their first-ever e-commerce purchases.
New shopping habits have emerged, 75% of consumers have tried new shopping methods since the pandemic, according to consumer research by McKinsey. This has largely benefitted the e-commerce growth.
With vaccines now widely available, retailers are trying to figure out the post-pandemic shopping habits of their customers. The future is uncertain, and it is hard to predict what exactly will happen in the next few years in terms of consumer preferences.
Two of the biggest winners in terms of growth have been e-commerce platforms Amazon and Shopify. Very different by nature, but fulfil the same aim: provide a platform to independent sellers to offer products directly to the end consumer.
Amazon enables third-party suppliers to sell through their platform, whereas Shopify enables independent retailers to create their own online presence. Several well-known brands are using Shopify stores to power their e-commerce shops.
As of February 2021, Amazon was holding a 40% e-commerce market sales in the US.
Shopify, in comparison, accounted for around 8% sales share. The gap is still big, however, independent retailers are starting to take advantage of solutions offered to them.
Let’s see how each platform competes against the other, how e-commerce growth had a positive effect during the pandemic and what the future of e-commerce looks like.
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Shift to online: will the e-commerce boom last?
E-commerce grew dramatically during the height of the pandemic, with growth rates at 76% Year-over-Year in June 2020. Fast-forward to 2021, these extreme numbers are leveling out. In the first two months of 2021 – January to February, consumers spent 34% more online, compared to the previous year, according to the Digital Economy Index by Adobe.
As a pre-pandemic comparison, e-commerce grew around 20% globally Year-over-Year in 2019, according to eMarketer.
Even though the growth rates are expected to decrease, the sales shares are increasing. E-commerce sales in the US grew by 32.4% Year-over-Year in 2020, whereas retail sales grew only by 6%, according to data by Digitalcommerce360.
Both Amazon, as well as Shopify, have benefited from the pandemic, as shoppers flocked to online stores instead of physical retail. Moreover, the first company has the Amazon FBA option which allows sellers to ship faster and more effectively making the whole process more effective.
It seems like the success they experienced during the Covid-19 crisis is likely to continue in the post-pandemic world. This article will explore the success of major e-commerce platforms Amazon and Shopify, and who is going to appear as a winner in the long-term.
Consumer shopping preferences during the height of the pandemic
The novel virus that took over the world within months has paved the way for e-commerce adoption around the world, bringing a huge sales increase to some retailers. Consumers started to prefer larger online marketplaces, such as Amazon or Walmart.
According to Digitalcommerce360 research “Top 500 largest online retailers”, top 100 companies experienced the highest growth rates in 2020, whereas in 2019, it was the exact opposite, with the bottom 100 growing the fastest.
It could be down to several factors, but mostly the convenience. Larger retailers were better equipped to deal with supply chain disruptions, offer a wider assortment range, have a better product availability and better delivery conditions (buy-online-pick-up-in-store, buy-online-return-in-store, curbside pick-up etc.). Customers turned to who they trust would deliver.
But as things are starting to normalize, there has also been a shift to small and medium-sized, independent businesses. It seems like, during lockdowns, many were skeptical about experimenting and purchasing from independent brands. But there have been several signs that this is changing, now in 2021 and in the future.
Additionally, the new research indicated that retailers in every industry must pay attention to their evolving customers’ needs. And they must respond with agility by investing in the feature-rich delivery platform and most importantly addressing culture in order to deal with the pandemic smartly.
Shopify’s growth is expected to slow down, however, will stay above the pre-pandemic levels
Shopify, as one of the top 3 e-commerce platforms, has unlocked growth for several new and independent e-commerce stores, democratizing the business of online shopping.
Shopify’s (SHOP) market cap stood at a whopping $183.04 billion in 2020, shooting past large corporations like UPS (UPS), Wells Fargo (WFC) and McDonald’s (MCD), according to data by the HelpCenter.
Shopify’s unprecedented growth has been driven by the disruptive retail economy in the past couple of years. Shopify reported a 96% increase in revenues in Q3 2020, compared to the same period last year, according to Yahoo Finance.
What drove the sales during the height of the pandemic?
As businesses had to shut their doors, thousands were forced to accelerate their online operations by setting up e-commerce stores within months or even weeks. Shopify became the go-to platform for independent retailers to easily connect their online and offline operations.
Shopify allows retailers, small or large, physical or online, to set up their own online stores and sell directly to end consumers around the world. Through thousands of free and paid Shopify wholesale apps, provides all-in-one solutions from inventory management to customer service at an affordable cost.
In their full-year 2020 financial results, Shopify reported a 54% year-over-year increase in purchases from its new merchants, compared to 38% the year before in 2019, showing clear signs of heightened consumer interest in online shopping.
Over 80% of Shopify merchants are expecting revenue growth in 2021, shows a survey conducted by the HelpCenter app.
The financial report from 2021 forecasted that Shopify’s growth will slow down a little bit compared to 2020, however, won’t drop back to the pre-pandemic levels. Revenues grew by 57% Year-over-Year in Q2 2021 compared to 2020, and are expected to keep around this rate.
The 2020 growth was driven by new merchants signing up with the platform through subscription services. The past years have provided uncertainty for small and independent businesses, and now that retail and e-commerce are merging, Shopify is giving merchants around the world the opportunity to grow and scale.
Amazon’s growth is expected to go back to pre-pandemic levels
Amazon in terms of market share is the top online retailer, which flourished during the pandemic. With physical stores selling non-essential goods temporarily shut, the easiest way to find any products, from groceries to clothing, to cleaning supplies to home gym equipment, was Amazon.
Amazon’s revenues doubled compared to pre-pandemic levels with 40% growth, up from 20% growth prior to the pandemic. This outstanding performance continued throughout 2020, until the first quarter of 2021, according to APNews.
What drove the sales during the height of the pandemic?
56% of Amazon’s sales come from third-party sellers, according to Statista. In terms of product groups, the e-commerce giant offers nearly everything from electronics, clothing & footwear to kitchen appliances, groceries, camping equipment, and personal care products.
The winner categories in 2021 were Home & Kitchen with 40% of sales share, Sports & Outdoors with 21%. With Toys & Games and Personal Care products holding the third place with 19% sales, according to Junglescout.
Gyms closed and people stayed home more, this explains the shift to home improvement tools and home sports items. But of course, as gyms open and people go back to the offices, it is likely that the sales will go back to normality.
Amazon’s Year-over-Year revenue increase has been slowing down, with growth figures expected to drop to around 10% – 16% in Q4 2021, however two-year CAGR is still assessed to remain around the 25% – 30% range.
Customers want to shop for independent brands
Shopify’s Future of E-Commerce report from 2021 has discovered that people are increasingly looking to spend more money on niche brands, support independent businesses and prefer them over large online marketplaces.
By examining data provided by their merchants, trends have emerged that smaller independent retailers could form a new alliance against the likes of Amazon or eBay.
Hosted e-commerce platform provider Shopify, offers omnichannel solutions for brands across the world. With an end-to-end solution, Shopify enables independent brands to step up against dominant market players, who are increasingly tightening their control over smaller businesses.
Younger consumers, Millennials, and Gen-Z, who make up the highest number of online shoppers with a 64% share, have said to prefer to discover brands through social media. In fact, Shopify’s social media channel integration saw a 36% uplift in monthly users via Instagram and Facebook.
What is more, younger generations have said they prefer sustainable products, and want to support independently-owned businesses.
But this pattern is yet to be reflected in the actual shopping behaviors. The convenience of large marketplaces like Amazon is hard to beat. Millennials make up the highest share, 27% of Amazon Prime users, according to Adbadger’s report.
However, there are some promising signs.
According to the same report, Gen-Z makes up a mere 7% of Amazon shoppers. What is more, 62% who purchased on marketplaces since the pandemic have said they will change their behavior in the future and shop more from new independent brands.
It seems like Gen-Z is the generation most likely to change future shopping habits.
Almost one in five of 16-24-year-olds have said to consider brand ethics and choose another retailer instead of Amazon, according to Wunderman Thompson Future of E-Commerce report.
As consumer confidence grows, people are more willing to experiment
With several uncertainties still ongoing, it is hard to predict whether Shopify with the army of smaller independent businesses has a chance to take over large market players like Amazon.
New e-commerce companies have a chance to take advantage of this situation as well. As consumer confidence grows, people will be more willing to experiment more and purchase from new niche online retailers. Perhaps they will rely less heavily on the large companies who have taken the lead.