Amazon (AMZN -0.88%) and Shopify (SHOP -5.29%) have been locked in a battle for e-commerce supremacy in North America for years.
Amazon pioneered e-commerce in the U.S., launching its website at the dawn of the World Wide Web, while Shopify came on the scene later, seizing an opportunity to provide an easy-to-use platform for e-commerce sellers.
Shopify hasn't shied away from the battle with Amazon, either. CEO Tobi Lütke regularly refers to his company as "arming the rebels," a clear reference to Amazon.
In recent years, logistics has taken center stage in the battle between the two e-commerce companies. Shopify made a splashy $2.1 billion acquisition of Deliverr last year, only to sell the e-commerce fulfillment company to Flexport less than a year later, forging a strategic partnership and growing its stake in the logistics company in the process.
Amazon, meanwhile, expanded its "Shopify killer" to all interested merchants earlier last year, offering its Buy with Prime program, which allows sellers on non-Amazon platforms like Shopify to take advantage of Prime's free shipping and returns and cater to Prime members.
Now, Shopify looks like it just registered the latest score in this tit-for-tat battle.
Image source: Amazon.
Amazon's new seller fees
According to a report from Bloomberg, Amazon is preparing to charge some of its online sellers who don't use Fulfillment by Amazon (FBA) and instead ship items themselves.
In October, Amazon will begin charging thousands of sellers on its Seller Fulfilled Prime program a 2% fee for each sale. The move is the latest example of the e-commerce giant cutting costs and driving profitability.
Under CEO Andy Jassy, Amazon laid off 27,000 corporate workers, shuttered dozens of stores, closed its Amazon Care healthcare business, and abandoned its Scout home delivery robot. The company is also reportedly scrutinizing spending at Amazon Prime Video, where it spends roughly $15 billion a year in order to drive Prime membership sign-ups and retention.
In that light, Amazon's new fee on Seller Fulfilled Prime sellers, who are able to have their items labeled with the Prime badge, might make sense. After all, shipping is one of the company's biggest expense line items, costing it more than $20 billion in the second quarter.
However, it's likely to be a sticking point for those sellers, many of whom are already operating on narrow margins and already pay Amazon a commission, typically 15%. The move will either force them to raise prices or sell on other platforms like Shopify, where they can even take advantage of the Buy with Prime program without paying the expenses required to sell on Amazon.
Amazon, meanwhile, sounded pleased with the early results from Buy with Prime, saying that it increases shopper conversion by 25% for merchants in early trials, meaning that shoppers who visit a page were 25% more likely to buy the item.
What it means for investors
In addition to the direct implications of the new fees, including making Amazon prices less competitive and potentially pushing Amazon sellers to other platforms like Shopify, there are also regulatory implications for the move as the Federal Trade Commission (FTC) is already preparing to file an antitrust lawsuit against Amazon, and charging sellers for not using a service seems clearly coercive.
Both Shopify and Amazon have performed well this year and, in fact, have delivered nearly identical returns year to date, up 49% and 56%, respectively.
Shopify continues to outgrow Amazon on the top line, with Shopify's revenue up 31% in the second quarter, compared to 11% growth at Amazon. However, Shopify is still unprofitable on a generally accepted accounting principles (GAAP) basis.
Both Amazon and Shopify can continue to be winners in e-commerce, but investors should be paying attention to the rollout of the new fee in October as it could create an opportunity for Shopify to take market share from Amazon.
Additionally, the FTC investigation remains a significant risk for Amazon, and a regulatory crackdown could benefit Shopify as well.
