As the world has become more digital and connected, e-commerce has exploded in growth. In 2000, U.S. retail e-commerce sales were just above $27 billion. In 2022, sales crossed the trillion-dollar mark.

One of the biggest beneficiaries of this growth in the earlier years is, unsurprisingly, Amazon (NASDAQ: AMZN). You could argue that it’s largely to thank for it. However, Shopify (NYSE: SHOP) has emerged as a formidable force in the industry, easing access to e-commerce for smaller retailers. Its role in e-commerce shouldn’t be undermined.

Despite Shopify’s vital role in e-commerce because of its platform, I would lean toward Amazon heading into 2024 because it’s in a position to leverage its logistics network to benefit from e-commerce growth from multiple angles, not just as a retailer.

The move to regional fulfillment networks

Amazon has always had a vast, intricate logistics and distribution network, but it hasn’t always been the most efficient. One way that Amazon has addressed this is by switching its operations from a single national fulfillment network to eight self-sufficient regional ones: Northwest, Southwest, Texas, Great lakes, Southeast, Midwest, Mid-Atlantic, and Northeast.

This move was critical because logistics became increasingly complicated as Amazon’s fulfillment centers (FCs) grew — particularly in 2020 with pandemic-fueled demand. FCs served local and national orders, pushing the limits of the two-day shipping Amazon Prime built its reputation on. Here’s how Amazon explained the problem and follow-up solution:

Imagine you had to deliver 10,000 products nationwide, quickly, to 100 distant locations, from 10 FCs across the country. You could have each FC dispatch 100 trucks, each carrying 10 items, to each of the locations. That’s 1,000 long-haul trucks and a lot of rubber on the road — clearly an unsustainable idea on all fronts.

Now imagine that you could partition the 100 customer locations into 10 regions of 10 locations apiece, with each region served by a dedicated FC. In this scenario, each region’s FC can dispatch 10 trucks, each carrying 100 packages a piece. That would require just 100 trucks nationwide, driving much shorter distances.

Shopify can personally attest to how complicated the logistics business can be, having offloaded its logistics segment to Flexport after things didn’t quite go as planned. This move to regional fulfillment networks should streamline Amazon’s logistics and save resources and time.

Using logistics and distribution for the greater good

Shopify’s business model is straightforward — it makes money from subscriptions and merchants’ services. Amazon’s business has a lot more moving parts, from e-commerce to cloud services to advertising and more. Regarding e-commerce, Amazon has generally made money from Prime memberships, selling products, and third-party sellers on its marketplace.

Looking at the latter, Amazon is planning to take more advantage of its logistics network by offering Supply Chain by Amazon, an automated end-to-end set of supply chain services sellers can use. The service can pick up inventory from manufacturing facilities, store them in Amazon distribution centers (and keep track of inventory), fulfill customer orders, and ship products around the world.

Supply Chain by Amazon is a noticeable step up from its past offerings, offering a well-built-out ecosystem. According to Amazon, Supply Chain by Amazon can save sellers 51% on standard-size storage units during non-holiday times and 82% during the holiday season.

If the new supply chain service works like Amazon anticipates, that should give it another avenue to take advantage of broader e-commerce growth. It strengthens Amazon’s value proposition to sellers and adds additional ways to make money from its logistics network that’s already built out.

Don’t let recent gains distract from long-term potential

Shopify’s stock has outperformed Amazon’s since its May 2015 initial public offering, but the past few years have shown just how volatile its stock can be. Amazon’s stock hasn’t been exempt from high volatility, but going forward, I trust it to be more stable than Spotify’s in the long term.

SHOP data by YCharts.

Amazon has the technical expertise and physical logistics and distribution networks to benefit from e-commerce’s growth more broadly. That should provide a more reliable foundation for growth over the long haul.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original: AMZN Feed: 1 E-Commerce Stock to Choose Over Shopify Heading Into 2024