New DTC toolkit   //   November 8, 2019

‘Almost a scam’: As DTC brands grow, Shopify is struggling to keep up

Two weeks ago, YouTubers Jeffree Star and Shane Dawson were trying to hit the e-commerce big leagues. The two had collaborated on a makeup line they would sell online. Combined, they have nearly 40 million YouTube subscribers — they have rabid fans longing for cosmetic advice, so a joint product launch was almost certain to be a success.

It was, to a degree.

The rollout caused so much fervor that Shopify, the e-commerce platform underpinning Jeffree Star Cosmetics, crashed. “I’m so sorry,” Dawson tweeted, in response to the barrage of messages he received from angry fans who tried to buy the products but were given an error message. He later confirmed, “it’s Shopify. been confirmed. they are working on it with us now.”

Platforms are certainly prone to break — especially when hit with a quick influx of traffic — but this highlighted an ongoing tension on the Shopify ecosystem: The e-commerce company has been actively trying to bring in bigger profile, often enterprise, customers, but the infrastructure has had difficulty keeping up with demand. This is certainly a problem nearly every growing platform faces, but for Shopify it’s increasingly one that impacts its core users — once-small digitally native brands.

Shopify has more than 1 million merchants on its platform. It brought in more than $390 million this past quarter, a 45% increase from the quarter the previous year. It’s been widely said to be a quiet competitor to Amazon — instead of controlling the marketplace and merchandise, it powers an ever-growing network of decentralized vendors.

Despite the fact that the company has been around since 2004, the last few years have been Shopify’s real moment of growth — both in dollars and mindshare. Its rise has been concomitant with the direct-to-consumer brand boom; as more digitally native companies launched with standalone online stores, they’ve looked toward platforms like Shopify — and Magento and WooCommerce and Squarespace — for technical solutions. What Shopify offered customers was a cheap, turnkey platform — customers could click a few boxes and essentially have a ready-made online marketplace. But as these DTC brands have grown, so too has Shopify. It launched Shopify Plus in 2014, offering enterprise solutions for a much heftier price tag. And it’s been able to nab some big names to use the enterprise software — including Staples Canada and Victoria Beckham.

But recently, some companies have felt their Shopify experience to be lacking. The platform sometimes has bugs, or entire system hiccups — as the Star/Dawson saga illustrates. Other times, the easy functionality ingrained in the platform comes at the expense of business complexities. Brands have had difficulties cross-listing items because of the way Shopify implements tagging; Subscription pricing is a big headache, as is customizing the checkout process.

In an emailed statement to Modern Retail, a Shopify spokesperson wrote: “Shopify prides itself on building the right solutions for the right customers at the right time. While we aren’t able to comment on specific merchants, we offer business owners tools to help them drive omni-channel growth and go from managing their stores, to managing their entire business.”

Shopify has branded itself as a DTC-friendly counterpart to giants like Magento and Adobe, but as it’s grown up with the once-smaller businesses it’s helped launch, it has had difficulties keeping up with demand. As a result, some brands are migrating off of the platform to competitors — others are cobbling together bespoke solutions to make up for Shopify’s pitfalls. At the heart of the issue is Shopify’s core principle: an easy, templated and App Store-driven solution that provides an easy point of entry, yet for businesses trying to grow and diversify revenue, it turns into a locked-down and rigid platform.

Omnichannel woes
During a discussion between around 30 retailers at the Modern Retail Summit in October, Shopify came up. “How do we go omnichannel with Shopify?” asked one brand, who had begun DTC, but as both assortment and channels increased, the business has been more difficult to manage. “[Shopify] breaks about once a month, in small ways,” they said. “It releases changes to the API without notice.” Others nodded in agreement.

This was certainly a gripe session, but it elucidated a growing pain point for e-commerce businesses. Many grew their once-small businesses on Shopify because it was cheap and extremely easy to implement. But now these companies have new revenue channels — wholesale, brick and mortar, Amazon — and they’ve had difficulties keeping track of it all using Shopify.

The vp of growth at a fast-growing DTC brand, who wished to remain anonymous, has slowly been scaling back the company’s reliance on Shopify precisely because of this. When the business decided to redesign the website — which was originally, completely built atop Shopify — it slowly moved everything but the order management system off of the platform. “We wanted to make sure we had control of the way we tell the story of our brand on our website,” the vp said. First, the company redid product pages, then it had to evolve the checkout process because Shopify had some problem integrating the kind of subscription service the brand wanted. “We needed more customization, more complex flows,” the vp said. “And Shopify doesn’t support that.”

“The question is,” the executive said. “Is the cost of having Shopify — the value that we’re getting — is it really justifying the investment with them as a partner? That is an ongoing discussion here.”

This is certainly a pressing problem for small brands trying to grow their businesses, but it’s not a unique one. Shopify is in the midst of growing from a small platform player to a commerce giant. It’s been able to ride a business wave of digitally-native brands mostly looking for similar software solutions. As these DTC businesses have grown, so too has Shopify. It’s been scaling its business — adding new offerings, services, and product tiers — to stay competitive and mature with its clients. But in keeping with its product ethos, Shopify has hit some snags.

When asked about how it plans to improve the robustness of the platform, a Shopify spokesperson wrote: “What large and fast-growing businesses need is a platform that solves for specialization, complexity, and scale. That’s why this year we announced the all-new Shopify Plus experience aimed at removing the complexities associated with scaling a business.”

The problem of scale
Agencies, too, have been increasingly noticing Shopify’s pitfalls. “It’s a great platform for DTC brands to start on,” said Mark Lewis, founder and CTO of the e-commerce agency Netalico. “The problem is, when [brands] start to scale — from both a performance standpoint and an enterprise e-commerce architecture standing,” things get more difficult.

The biggest issue online companies face is streamlining myriad inputs into one place — shipping, taxes, logistics. “Your e-commerce platform is talking to so many services,” said Lewis. No two companies are the same, and so growing brands often can’t rely on ready-made products. “Shopify is extremely limiting from a developing standpoint,” he said. While it does offer APIs and an App Store clients can use to add services atop the platform, it’s all done in Shopify’s own walled garden.

With other platforms — like Magento and WooCommerce — “you have complete control over all the code,” said Lewis. With Shopify, he said, “You get a box and Shopify says you can stay in this box and do these functions, and if you want to do other functions — maybe you can work around it and do some dirty coding.” The tradeoff is usually that it will hurt the performance of your store. “There are a series of compromises, particularly as you scale,” said Lewis.

Theoretically, Shopify Plus is the company’s answer to this issue of fast growth. But Lewis isn’t sure there’s a huge difference between low-tier Shopify and Plus — beyond the many thousands of dollars in monthly fees. “It’s not different services… they just hamstrung their platform and a few features,” he said. “Shopify Plus is a joke — it’s almost a scam.”

Another e-commerce agency CEO, who wished to remain anonymous since they work frequently with Shopify, concurred. “There’s a big gap with what [Shopify’s] enterprise offering is and other enterprise offerings out there,” the CEO said. “It’s definitely not true enterprise.”

“Once you’re doing $10 million to $20 million online and once you have a certain amount of complexity, it becomes very difficult to scale on Shopify,” they said. Clients need bespoke solutions to very specific problems. “Shopify is very locked down — the APIs don’t give you access to everything.” As a result, the agency has had a few clients migrate over to Magento, which is more complicated to implement but gives the businesses more developer freedoms.

Looking toward the future
While brands that have been on Shopify since the beginning may be considering going elsewhere, the platform is still actively wooing new companies to buy its enterprise services. Currently, Shopify Plus represents 27% of the company’s monthly recurring revenue. At a call with investors, Shopify COO Harley Finkelstein said, “Shopify Plus is becoming the most relevant platform globally for both iconic, as well as the fastest-growing modern retail brands.”

The company’s pitch to investors, and promise of fast growth, is predicated on building a software suite that can support businesses of any size. “They now rely on Shopify Plus for a big segment of their business,” the agency CEO said. “And a lot of companies need something that is more enterprise than what they’re offering.”

What Shopify Plus does offer is a more user-friendly platform for fast-growing companies. One DTC apparel company switched over to Shopify Plus this year because of its ease of use. “We don’t have in-house developers,” the brand’s head of e-commerce told Modern Retail. The idea was that by implementing a more turnkey solution, as opposed to the developer-heavy Magento, the brand could be less dependent on technical contractors. “Our dependence for agency developers has not gone away,” they said. “We absolutely have needed every single one of the hours on our contract.”

“All of the integrations Shopify has are much easier to get off the ground,” said the e-commerce head. “It’s not [customized to] what we’re looking for.”

For these growing brands, Shopify presents a cost-benefit conundrum. They’ve been pitched on a platform that’s easy to implement and offers templated solutions. While that’s certainly true, the businesses have very specific needs that require working outside of Shopify’s parameters — and perhaps at the detriment to customer experience or site performance.

For some brands, it may reach a tipping point and cause them to build everything in-house or migrate to another solution. Others still see an overall net positive. “At the end of the day, if someone came to me and said, ‘We’re thinking of migrating to Shopify, what should we do?’ I would still say yes,” said the apparel brand’s e-commerce head.