We conduct a Shopify SWOT analysis to investigate what internal and external factors impact the e-commerce company and how Shopify managed to grow this big.
Today's article is a treat for people who are related to the e-commerce industry since this article will discuss one of the top e-commerce companies that provides a platform for online stores to operate.
You must be thinking about what e-commerce platform we are talking about. So, let us drop a hint to make guessing a bit easier for you. So, today's article is about an e-commerce platform created by two guys from Canada who were trying to develop an online store to sell snowboarding equipment.
This hint must have helped you guess that this article is about Shopify. This e-commerce platform facilitates millions of online stores across the globe. In addition, Shopify has made it a lot easier to sell and purchase products for people online by using convenient means of payment and shipping.
Shopify has been operating in the market for over a decade now and has managed to grab a large share of the e-commerce industry. Therefore, the growth of Shopify is commendable.
However, to see how Shopify managed to grow this big from scratch and what internal and external factors impact the e-commerce company, we will conduct a Shopify SWOT Analysis in this article.
Before we proceed with the SWOT analysis, let's look at Shopify's history and current operations.
The foundations of Shopify were laid by two Canadians in 2006 who were interested in opening an online store where they could retail snowboarding equipment. However, as Lütke, the founder of Shopify, looked deep into the e-commerce industry, he decided to create an e-commerce platform.
The purpose of Shopify was to bridge the gap between online buyers and sellers by providing a platform to buyers where millions of products are just one click away from them and making it easy for sellers to open an online store through which they can sell their products to no matter what part of the world.
Within a year, $100 million worth of sales were made through Shopify. In addition, the e-commerce platform launched an App store and API in 2009, which helped the developers create applications for Shopify's online stores. This helped the company in gaining more users.
Over the years, the e-commerce platform kept raising capital through financing, which helped the company operate. In addition, Shopify spread its operations by acquiring a mobile software developing company named Select Start Studios lnc. In 2013.
The same year, the company launched a payment system that made merchants accept credit cards without the third-party payment gateway. Later in 2015, Amazon announced the adoption of Shopify as a migration provider, due to which Shopify's shares increased by more than 20%.
Besides that, Shopify went public in 2015, which helped it in raising more than $131 million. Later, Shopify further integrated its operations with Amazon by making it possible for merchants to sell on Amazon through Shopify stores.
Such incentives helped the company to grow further. As a result, currently, Shopify operates in more than 175 countries, supporting around 5 million jobs. Moreover, the e-commerce company has been reported to generate economic activity worth $444 billion.
In 2022, Shopify generated revenue of $5.24 billion. Moreover, it was listed among Canada's top 20 publicly traded companies by market capitalization, as its market cap is $46.80 billion.
Now that we have shed light on Shopify's history and current operations let's move ahead and carry out a SWOT analysis. However, before doing that, let us make you aware of what SWOT analysis is.
SWOT analysis is the technique business analysts use to highlight the internal and external factors affecting an organization. A SWOT analysis template looks at the organization's strengths, weaknesses, opportunities, and threats.
Now that you are aware of the SWOT analysis let's proceed further and see what external and internal factors affect the operations of Shopify.
Strengths of Shopify
Organizations are always looking to maximize their strengths so they can compete well in the market. Possessing strength really matters for organizations since it provides them with a competitive edge. This section of the SWOT analysis will analyze the strengths of Shopify.
1. Incentives for Merchants
There are multiple companies in the e-commerce industry that facilitate the business between buyers and sellers. However, not many industries give incentives to merchants the way Shopify does.
Shopify uses the latest technology to provide the latest tools to merchants through which they can market, manage and sell their products more efficiently. Besides that, merchants on Shopify get their own websites, unlike Amazon and Alibaba. This provides an incentive to merchants to leave other e-commerce platforms and sign-up at Shopify.
Moreover, merchants can also use data on Shopify to form strategies. Using data helps merchants in making the right decisions which leads to an increase in profits of merchants.
All these incentives provided by Shopify attract merchants to open their stores by using Shopify. This results in an increase in the number of users of Shopify. As a result, the revenue of the company increases.
2. Users From All Over The World
Businesses dream of operating across the globe so that they can penetrate different markets. Shopify is one platform with users from all over the world. The e-commerce platform provides services in more than 175 countries.
Such a large scale of operations helps Shopify penetrate new untapped markets. Moreover, operating in so many countries helps Shopify increase its customer base, which causes the e-commerce industry to generate more revenue.
3. Skilled Workforce
Every organization requires skilled workers to improve its performance and maximize profits. However, only some organizations can develop a skilled workforce due to various factors. Shopify is one of the companies that possess a highly skilled workforce, making it possible for it to run an e-commerce platform.
Shopify provides technical training to its employees to stay aware of the latest technologies. Recently, it also launched a re-training program to increase the productivity of its employees who took long leaves.
All these programs that add value to the employees help Shopify to form a skilled workforce that ensures the smooth running of the company.
Weaknesses of Shopify
Weaknesses are the shortcomings of any organization that hinders its growth. Therefore, where organizations possess some strengths, they also possess some weaknesses. Previously we discussed some of the strengths that Shopify possesses. Now, let's look at some of the weaknesses of Shopify.
1. Low R&D Spending
R&D is very important for businesses as it helps develop and adopt the latest techniques that are beneficial for the business. This is why businesses spend millions and billions of dollars on R&D.
R&D is essential for businesses operating in any industry. However, companies in the e-commerce industry have to spend the most on R&D due to the nature of the industry.
Since Shopify is an e-commerce company, it spends on R&D. However, Shopify's current R&D expenditure is negligible compared to other e-commerce companies such as Amazon. For example, in 2021, Shopify spent $1.3 billion on R&D. Conversely, Amazon spent $56 billion on R&D in the same year.
Shopify has to increase its R&D spending to increase its market share and lead the e-commerce industry.
2. Financial Losses
Every business is looking to maximize its profits. However, businesses sometimes fail to make profits and end up in losses. This affects the operations of a business negatively since it causes financial problems.
Recently, Shopify experienced a loss of $345.4 million in its 3rd quarter. This loss has weakened the company's position as it created liquidity problems for Shopify. So now, the brand is looking for ways to cut its expenses.
3. Poor Job Security
The primary objective of any employee is job security. This is why job security is directly linked to an employee's performance. If an employee is provided job security, that employee's performance increases drastically.
However, not every company provides job security to its employees. Shopify is one of the companies where employees are not confident about their future, especially after the recent incident where Shopify laid off 10% of its workforce over an email.
This incident has affected the workforce's morale and created dissatisfaction among the employees, which can further result in inefficiencies in work and losses.
Opportunities For Shopify
Every organization gets the opportunity to grow big in some part of its life. However, it is an organization's job to identify and pursue the opportunities on time provided to it. So let's look at some of the opportunities that lie ahead of Shopify.
1. Moving Operations To Developing Economies
Businesses are always looking for opportunities to minimize operational costs and maximize profits. One of the ways to reduce costs is to cut labor costs. However, that is not possible while operating in developed economies.
Since Shopify is a business that observed a huge loss in its previous quarter, it has an opportunity to cut its labor cost by employing a workforce from developing economies.
For example, suppose Shopify hires workers from Pakistan, India, or any other developing economy. In that case, it'll have to pay less since the exchange rate of developing economies is mostly depreciated compared to Canada.
2. Growth In The E-Commerce Industry
The e-commerce Industry is growing rapidly as buyers and sellers prefer to interact online instead of the conventional way. Besides other factors, COVID-19 significantly helped the e-commerce industry to grow.
In 2021, sales in the e-commerce industry grew by 17.1%. Such a significant increase in the sales of the e-commerce industry acts as an opportunity for Shopify since it operates in the eCommerce industry. The e-commerce industry sales are predicted to grow at 8% through 2024.
This growth means more buyers and sellers will enter the industry. Shopify can attract these buyers and sellers and increase its market share.
3. Mergers and Acquisitions
Businesses are always looking to expand so that they can maximize their profits. There are multiple ways through which businesses can expand. However, one of the best ways to penetrate markets is through mergers and acquisitions.
Shopify can increase its market share by forming mergers with big companies. Moreover, it can acquire smaller companies in the e-commerce industry to increase its customer base and market share.
Threats Faced by Shopify
Every business faces threats from the external environment. This section of the SWOT analysis will identify the threats faced by Shopify.
1. Lawsuits In the Future
Lawsuits are always damaging for businesses since they damage a brand's image, which results in a fall in the brand's market share. For example, Shopify was recently sued by some publishers, claiming that the e-commerce platform had committed copyright violations.
Such lawsuits can damage the reputation of Shopify and cause the market share of Shopify to fall. As a result, the company will observe severe financial losses.
2. New Entrants In The E-Commerce Industry
The e-commerce industry is growing rapidly. After looking at the boom of the e-commerce industry, companies are entering the industry daily. This acts as a threat to Shopify since the existence of a lot of companies will cause division in the market share of Shopify. This will cause the revenue of Shopify to fall.
Moreover, if there are a lot of companies, the competition in the e-commerce industry will be high. To compete in a highly saturated market, Shopify will need to spend more on R&D, which will increase the company's operational costs.
3. Russia-Ukraine War
The conflict between Russia and Ukraine is a threat to Shopify since the e-commerce company suspended its operations in Russia after it invaded Ukraine. This caused financial damage to Shopify since it lost many users after deciding not to operate in Russia.
Shopify will continue to experience losses till the war continues. This acts as a threat for Shopify since no one knows how much loss the company will bear.
Shopify SWOT Analysis: Final Word
Shopify is one of the most renowned companies in the e-commerce Industry. It facilitates the business between buyers and sellers by providing them with an online platform. In this article, we discussed the operations and history of Shopify.
Moreover, we discussed that SWOT analysis is a business technique that analyses the internal and external factors that impact any organization. So, after making you guys aware of the SWOT analysis, we carried out a Shopify SWOT Analysis.
The Shopify SWOT Matrix highlighted the strengths, weaknesses, opportunities, and threats faced by Shopify. Now that we have concluded this article, we assume that you are fully aware of how to conduct a SWOT analysis. However, if you want to learn more about SWOT analysis, look at some more examples.
