Shopify has a growing problem with customer retention, Globe data study shows
By Chris Hannay, Temur Durrani, Mahima Singh

The Shopify office in Toronto on Feb. 12, 2020
CHRIS DONOVAN/THE GLOBE AND MAIL

Stores on Shopify Inc. SHOP-T -0.98%decrease shut down or left the e-commerce platform at an increasing rate in each of the past three years, with just 34 per cent of stores surviving a full year on average, according to a Globe and Mail analysis, showing the company is facing a growing problem with customer retention.

Ottawa-based Shopify provides tools to set up and operate online stores, and has quickly become the leader in its field. Shopify is one of the easiest platforms on which to launch an e-commerce business, and the company attracts a high volume of new store sign-ups. That has helped to boost Shopify’s business, but analysts have long noted it obscures the underlying long-term success rate of the company’s customer base.

Shopify has faced criticism over the years for a suspected high rate of customer losses – or churn – but it has never publicly disclosed survival rates of its stores.

The surge in the company’s store volume became even more pronounced during the COVID-19pandemic. The number of Shopify stores exploded as lockdowns drove many traditional small businesses to pivot to online sales, and wider economic shocks powered a wave of budding entrepreneurs to try e-commerce ventures for the first time.

But new data show many of those stores did not last.

The Globe analyzed data from more than five million online stores that used Shopify’s technology and looked at how long they used the platform. Among the findings is that the average store that opened in 2021 lasted just 143 days, down from 220 days in 2019, meaning stores shut down or left Shopify at an increasing pace over that time. Merchants who paid for a Shopify Plus account – an enterprise option with more features – had a substantially higher survival rate.

The data support the wider view, acknowledged by Shopify leaders themselves, that the e-commerce boom that exploded in the first two years of the pandemic has proven to be unsustainable. Hundreds of thousands of would-be entrepreneurs discovered that setting up an online business is the easy part. Keeping it going and making money is much harder.

The data also show Shopify’s customer survival rate is substantially lower than its rivals, raising questions about how it can maintain its long-term dominance in the crowded e-commerce industry.

“One of the core things Shopify does is both a blessing and a curse,” said Rick Watson, chief executive of RMW Commerce Consulting, an e-commerce consultancy firm based in New York. “Because while it keeps the cost of entrepreneurship down, doing so doesn’t mean that the quality of merchants is going up.”

Read the complete article at The Globe and Mail..