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Shopify’s explosive Q2 results show how retailers have adapted to COVID-19 pandemic

Shopify CEO Tobias Lutke says entrepreneurship has "never been more important" amid the novel coronavirus pandemic.
Shopify CEO Tobias Lutke says entrepreneurship has "never been more important" amid the novel coronavirus pandemic. THE CANADIAN PRESS/Justin Tang

Lockdowns stemming from the novel coronavirus pandemic not only kneecapped brick-and-mortar retailers, but also drove them further into the waiting arms of Shopify, as the Canadian tech giant rushed to help thousands of independent businesses embrace e-commerce.

The Ottawa-based company, which makes online storefront software for more than one million merchants around the world, reported its second-quarter results on Wednesday morning.

Analysts were expecting the company to record a loss in the quarter, but Shopify shattered projections, reporting US$36 million in profits for the period covering April to June.

Revenues for the three months nearly doubled from the same quarter in 2019, coming in at $714.3 million.

The company’s executives trace the explosive growth to new demands and opportunities stemming from the novel coronavirus pandemic.

Helping The Danforth economy recover
Helping The Danforth economy recover

Harley Finkelstein, Shopify’s chief operating officer, told analysts on the company’s Q2 conference call Wednesday morning that the tech firm has seen the pandemic “fundamentally shift” both buyer behaviour and the environment retailers are operating in.

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For brick-and-mortar retailers, many of which were forced to temporarily close across Canada amid coronavirus lockdown orders, the pandemic has been an adapt-or-die scenario.

As such, the number of new stores created on the company’s platform grew 71 per cent in the quarter.

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Shopify pushed out numerous features for its online stores to keep up with the sudden demand, including gift card capabilities, online tipping and curbside pickup options.

Nearly 40 per cent of Shopify’s merchants in English-speaking markets adopted some form of delivery or curbside or in-store pickup options during the second quarter, Finkelstein said.

Selling to neighbours became even more integral to survival for many businesses during the pandemic, with Shopify seeing a growing number of local customers per shop in the quarter.

But the pandemic also forced many traditional retailers to realize the global potential of e-commerce, according to Shopify execs.

The proportion of Shopify merchants using more than one channel to sell to their customers also increased quarter-to-quarter “in an effort to reach broader audiences,” Finkelstein said.

As a result, Shopify merchants set new records during the pandemic for gross merchandise volume (GMV), the total amount of goods sold across the platform.

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Finkelstein said Shopify users sold 1.5 times more in GMV this past quarter than they did in the fourth quarter of 2019 — the busy holiday shopping season.

CEO Tobi Lutke said Wednesday that he expects these new trends to last.

Grassroots initiative to revive small businesses
Grassroots initiative to revive small businesses

In his view, the pandemic shifted the 2030 retail environment forward by a decade.

Every decade or so, Lutke explained, the tech world realizes that the software that solved problems 10 years ago no longer suits the problems of today.

With the pandemic, 10 years seemingly passed in a matter of weeks, as Shopify and its retailers were forced to rapidly adopt and push out new solutions to stay afloat.

Lutke said that the barriers that held back mom-and-pop shops from jumping online — the “perceived complexity” of e-commerce and general inertia around change — have been knocked down in the pandemic.

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He expects merchants will continue to cling to the technologies that kept their shops in business during the most difficult times.

COVID has accelerated this thing that was already going on,” he said.​

Shopify itself has been transformed in the past quarter, with Lutke announcing in May the company plans to go digital-by-default with a majority of its employees remaining remote even after the pandemic subsides.

Read more: Will coronavirus kill the traditional office as we know it?

While the company will save money as it decreases its office footprint in the years ahead and presses pause on planned leasehold improvements — resulting in a one-time $31.6-million impairment charge this past quarter — chief financial officer Amy Shapero said Wednesday that the company will see increased costs as well as it adapts remaining workplaces for physical-distancing requirements and spends more cash to help workers outfit their home setups.

Shopify’s stock on the Toronto Stock Exchange spiked after it released its results on Wednesday morning.

Shares of the company were trading at C$1,467.55, an increase of more than 12 per cent from the previous day’s close, as of 11:30 a.m.

— With files from Canadian Press.

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