shop assistantBy Ian McGugan. Autumn 2020
Shopify helps small online sellers to set up stall alongside the giants of retail. Gary Robinson, Baillie Gifford US Growth Trust joint manager, tells Toronto-based Ian McGugan how the Canadian company conquered the web
Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested.
This article originally featured in Baillie Gifford’s Autumn 2020 issue of Trust magazine.
One of the fastest-growing success stories in ecommerce remains tucked out of sight in Ottawa, our snowy and unglamorous capital city. Although familiar to us Canadians – in May 2020 it overtook the Royal Bank of Canada to become our most valuable company – its name barely registers on the hundreds of thousands of websites it helps to power. Most online shoppers have no idea they’re using its services.
Just don’t mistake anonymity for lack of ambition. Shopify, creator of a global platform for online trade, multiplied its revenue fourfold from 2016 to 2019, hitting $1.6bn in sales, and Gary Robinson, joint manager of Baillie Gifford US Growth Trust, thinks it’s poised for even bigger things.
“The scale and scope of the company is underappreciated,” he says. In the first three months of 2020, merchants sold $17bn of goods and services through sites powered by Shopify’s software – a 46 per cent increase from the same quarter a year earlier.
That is just a start, according to Robinson. He notes the transition online is at a far earlier stage than most appreciate. Just 16 per cent of retail sales in the US were online in 2019. The figure is even lower in many less-mature markets. As more businesses venture online, there’s a strong appetite for services that can simplify the shift from bricks-and-mortar to the web. Enter Shopify. Its core software offering makes it a snap for anyone to build an online store. An entrepreneur with no technical training can select from many templates, customise one to their liking, and become an e-merchant within hours. The merchant – not Shopify – controls the site and can build their business using Shopify’s advanced tools for tasks such as marketing, sales analysis and inventory management. They can do all of this for a monthly subscription fee of between $29 and $299.
“Tobi has said he wants to build a company that will last 100 years”
Tobi Lütke, founder of Shopify.
The US Growth Trust invested in Shopify in 2018, after canvassing the views of merchants. Online shopkeepers raved about its software. “I’ve never seen such a positive response from customers of any other company we’ve spoken to,” Robinson recalls. “It was universally positive. Clients had huge appreciation for the quality of the software, the ease of use, the value for money.”
Robinson sees Shopify’s mission as lowering barriers for entrepreneurs. It removes complexity by automating the chores of online retail. It also leverages its size to develop better tools and negotiate better services for better prices than users could arrange for themselves.
Robinson calls this “renting scale”, borrowing the term from venture capitalist Hemant Taneja. By using Shopify’s platform, a start-up retailer can enjoy the benefits of being a big business while maintaining independence. Shopify “exists to make other merchants look good”, as Robinson sums it up.
That put-others-first strategy distinguishes Shopify from its biggest rival. Merchants who do business on Amazon Marketplace subordinate their brand to that of the retail giant. By contrast, Shopify users retain control over their identity and destiny. For businesses that want to build their own brand, Shopify offers many advantages.
If its strategy pushes Shopify’s own brand into the background for now, so be it. Robinson notes that many businesses focus on a “fairly narrow view of capitalism” – one that emphasises maximising results over the next few quarters. Shopify’s founder, Tobi Lütke, takes a much longer view. “Tobi has said he wants to build a company that will last 100 years and I think he is authentic in that aim,” Robinson says.
Lütke is certainly not your standard-issue corporate boss. A German computer programmer, he moved to Canada at the age of 22 for the best of reasons – he’d fallen in love with a girl from Ottawa he’d met snowboarding. They would go on to marry and have three children.
Lütke’s move to Ottawa turned out to be productive in other ways too. In 2004, a couple of years after his arrival, he and a friend decided to set up a website to sell high-end snowboards. After concluding the ecommerce software then on the market was inadequate, Lütke built his own, to his own exacting standards. It soon became obvious that selling access to that software offered a better ticket to the future than peddling snowboards. Shopify was born.
The Covid-19 effect: Online Traffic
Source: ContentSquare. Global online traffic for week ending 14 June 2020 compared to 6 January to 16 February 2020; 1,400 sites; 7bn sessions.
As with his software, Lütke has designed his company to his own standards. He asserts that too much centralisation is the enemy of speed. To fight corporate inertia, Shopify preaches the mantra of being “highly aligned, loosely coupled”. This means setting common goals and standards, while entrusting proven people to choose tactics without requiring constant sign-off from head office.
“A lot of companies talk about freedom and transparency, but they find it very difficult to do in practice and become command-and-control organisations,” Robinson explains.
To make sure people are aligned on the big picture, Lütke shares information by running “ask me anything” sessions with employees and sharing his presentations with directors across the entire company. He constantly prods people to move outside of their comfort zones, seeking new challenges. The goal is to support what Robinson calls a “breathtaking pace of innovation”.
An early test was proving Shopify could appeal to larger companies as well as to small businesses. Consider that challenge met: Shopify Plus, a specialised platform for high-volume retailers, has signed major consumer brands such as Kraft Heinz, Lindt and Staples.
Shopify’s newest thrust aims to radically expand its range of services. Last year, it launched an order fulfilment network to simplify shipping and warehouse logistics for Shopify merchants. This year, it’s introducing Shopify Balance, a series of banking products designed to help small businesses pay bills, track expenses and manage cash flows.
Sceptics ask if Shopify has run ahead of itself and point to its lack of consistent profitability. Robinson argues those concerns are misplaced when a company has a growth opportunity of this magnitude.
Its platform is already used by more than a million businesses in 175 countries. Better still, it seems capable of expanding at double-digit rates for years to come. Opportunities to reap profits will multiply as it adds new services and tools. “This is one of the most interesting, exciting companies in the world,” Robinson adds. “I don’t see it slowing down any time soon.”
Shopify is also held by Scottish Mortgage Investment Trust and the Monks Investment Trust.
If you would like to register to receive Trust magazine please visit www.bailliegifford.com/trust
Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. The US Growth Trust’s exposure to a single market and currency may increase risk.
The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.
Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.
Baillie Gifford & Co Limited is wholly owned by Baillie Gifford & Co. Both companies are authorised and regulated by the Financial Conduct Authority and are based at: Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.
The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.
A Key Information Document is available by visiting www.bailliegifford.com
49207 IND WE 1799
Ian McGugan is a business reporter for The Globe and Mail and was founding editor of MoneySense, a Canadian personal finance magazine. He lives in Toronto.
YOU MAY ALSO LIKEInsights.Visit Baillie Gifford's Insights page.Investing during a pandemicJames Anderson, joint manager of Scottish Mortgage Investment Trust, looks back on how, amid all the coronavirus disruption, the case for growth stocks strengthened as the crisis unfoldedEmbracing the unpredictableThe ‘what if…?’ questions are the most important of all.Baillie Gifford China Growth Trust Manager Insights.Sophie Earnshaw, co-manager of the Baillie Gifford China Growth Trust, gives an update on the philosophy, positioning and performance of the portfolio since Baillie Gifford took over management of the trust in September 2020.