Potential Amazon and Shopify Partnership: Analyst Explores Implications and Opportunities

Wedbush analyst Scott Devitt has a call today with eCommerce expert Rick Watson (Founder, RMW Commerce Consulting) to discuss the competitive dynamics in eCommerce Thursday. The call was the third event in his Amazon Advisor Call Series. 

The grocery category is strategically vital for Amazon.Com, Inc AMZN, given its share of total retail and the implications that the type presents for long-term fulfillment cost optimization. Amazon's infrastructure and massive scale are critical to low marginal fulfillment costs. 

Unlocking additional volume within the grocery category could further reduce marginal fulfillment costs and strengthen Amazon's logistics moat. However, the company is yet to scale an original grocery concept and is still investing toward a long-term omnichannel strategy. 

Buy with Prime has the potential to unlock more fulfillment volume for Amazon and may be a catalyst for an agreement between Amazon and Shopify Inc SHOP. 

Shopify recently divested its logistics business to Flexport as its strategy has shifted away from developing in-house logistics solutions. 

However, the likelihood and ultimate terms of a potential deal between the two remain uncertain, given the implications for checkout/ payments, which are vital to Shopify's business model. 

Shopify's POS product is a potential source of upside as the company can cross-sell to omnichannel retailers. The recently introduced Shopify Components unbundles Shopify's services and allows enterprises to leverage specific Shopify features, including Shop Pay. 

The expansion of Shop Pay to non-Shopify merchants brings Shopify into more direct competition with payments/fintech companies like PayPal. 

Social commerce growth has historically lagged behind investor expectations in Western markets. 

However, TikTok presents an exciting opportunity given the degree of user engagement and its content's viral nature, which may create eCommerce success stories that other merchants/brands will seek to emulate. 

The rapid growth of Shein and Temu reflects improvements in global logistics that have reduced delivery times for products manufactured and shipped from China. 

Shein leverages a wealth of data and trends in consumer habits to inform product manufacturing and selection, amounting to supply chain improvements that bring new and trending products to market faster than competitors. 

Applications of traditional AI/ML techniques will continue to drive efficiencies in retail/eCommerce through better prediction, forecasting, and allocation tools that can optimize product and fulfillment decisions.

Price Action: AMZN shares traded higher by 0.43% at $134.88 on the last check Friday.