Ep 549: The Future of Unified Commerce with Shopify's Head of Retail, Ray Reddy

0:00Ray Reddy:It's really difficult to build every single workflow that every single merchant in every country, across every category, across every size of business needs. And so the platform starts to look a lot like an operating system. When merchants wish to Shopify, the thing that really surprises me is like, not only is it a big upgrade in experience and capability, it tends to be a game changer in terms of cost. Shop allows you to pick up where you left off. If you're looking at a store or have something in your cart and you abandon that cart and you're in the shop app tracking a package, it's very easy to resume.

0:36Ray Reddy:Why could the retail experience not feel the same? It's 1995. You've seen a glimpse of the Internet. You know it's going to change everything, but you don't really understand how. We're in that moment right now.

0:54Welcome to the D2C podcast. We almost always talk about D2C topics. Today, we are expanding to actually have our first ever guest from Shopify to talk POS, not just D2C, we're talking point of sale with Ray Reddy, VP of retail from Shopify. Welcome to the D2C podcast. How are you doing?

1:12Ray Reddy:Eric, I'm doing great. Thanks for having me on. Fantastic. So the first thing I wanted to start with, I say POS, point of sale, but I think in our pre-interview, you alerted me to the fact that that's kind of a limited... Why is POS maybe a limited phrase for what you're attempting to do, what you're doing with Shopify point of sale? Yeah, it's a great question. I think a few years ago, we started talking about this as an operating system. I think the reason for that is Shopify's breadth of merchants online doesn't typically look like the way. Think about a POS. There tends to be hundreds of POS vendors across the world.

1:53They tend to specialize in markets or verticals.

1:57Ray Reddy:Many of them will either focus just on restaurants and coffee shops or health and beauty and fitness studios, etc. So there's hundreds of POS vendors. And Shopify online operates across 170 countries. It's everyone, it's verticals like selling cars and automotive parts to selling coffee beans and everything in between. And it's everything from the smallest casual seller that may not even have a store to the largest enterprises that have thousands of stores that now use Shopify. So it's every size of merchant. So I think when you start to think about literally the world of commerce, it's really difficult to build every single workflow that every single merchant in every country, across every category, across every size of business needs.

2:48Ray Reddy:And so I think the platform starts to look a lot more, if you think about just like the Shopify ecosystem, it starts to look a lot like an operating system where there's the core Shopify platform that has actually deep APIs and extensibility and the ability to customize and build on top of it. you've got a thriving developer ecosystem, probably one of the most successful app stores outside of maybe the core operating systems. And just like a big ecosystem of enablers, agency partners and developers that ultimately help customize Shopify to make it work for merchants. And so I think when you think about it like that, it looks more like an operating system than a POS, right?

3:34Ray Reddy:It's the thing that you run your entire business on, not not the way you just check out customers um at a point of sale so that's we're calling it and commerce operating a cause i it's not a pos it's a cos i mean we haven't we haven't we haven't coined that term but i think i would say it's closer to that than than a pos yes talk to me about because it's funny my brother was involved early my brother has worked for shopper for a long time. And he was involved, I think, in some POS stuff around the cannabis industry many years ago. So I know you guys have been working on point of sale systems for a while.

4:12Maybe what's evolved about your approach with point of sale versus maybe back then and whatever that was like 2017?

4:19Ray Reddy:I mean, a lot. We do these twice a year editions and announce a whole host of upgrades and features. So over the last few years, I would say probably the biggest thing is that POS went from an add-on. So typically the customers who would be buying POS, you said four years ago, five years ago, they tended to be... POS actually is a startup within Shopify. It was incubated about 10 years ago. And I think when it first started out, it was really meant to be a companion to the online store. And it was primarily used by online first businesses who derived the majority of their GMV and revenue from DTC and also wanted a store to showcase products maybe.

5:10Ray Reddy:And that tended to be the primary customer. But he's fast forward to today. I'll share some interesting stats. Like a double digit percentage of POS customers get all of their GMV from in-store. That's wild, yeah. That's a big deal. The vast majority of POS customers get the vast majority of their GMB from in-store, not online. It's another thing that is like, you know, retail merchants are retail first. And I think why that matters is it is not enough to be kind of mediocre on POS. Like, it's okay to be mediocre when the customer derives all of their GMB and revenue from online. and this is like a nice add-on, you know, that shape of product works.

5:57Ray Reddy:But when the vast majority of your revenue comes from in-store, people don't want to, you know, it's not enough to say, well, we have a great online platform. They want to know, you know, there's things that matter in terms of how they run all the way from compliance requirements that are mandatory in certain European countries to things like cash management that don't actually even apply to online, but are like a very big deal in terms of how, you know, of physical stores, just the reality of physical stores and dealing with cash and things like that. So there's all kinds of things like that.

6:28Ray Reddy:Typically, when you're running an online business, you don't have like hundreds of staff that need to have access to the product, you know, with complex permissioning schemes and whatnot. So that's another example of, I would say it's a very different shape of problem and also a really complicated problem. You know, the one nice thing, because online kind of came about many, many, I don't know, decades or centuries into the commerce journey. It kind of got simplified. Here's an example. There tends to be, when you think about tax or even compliance, it tends to be at a country level for online.

7:07But the tax and

7:09Ray Reddy:compliance actually work at a county level for in-store transactions. So it's not even about But there are examples where it is literally 10 times more complicated to solve the same things in the physical world than it is online. And so the point is, it is a big undertaking to do a nice job of this. And that's what's changed in the last few years. This went from being an add-on product to a legitimately great product for retail customers. and the markets i you know we we talked in the pre-chat it's always good to frame the discussion in the fact that over 80 percent of sales still happen in store so it's a huge huge opportunity for a company like shopify to to take pieces of that yeah totally and look that stat sometimes you know it can it can maybe it's slightly it is a true stat it might be a bit of an exaggeration in the sense that there are some categories that are clearly very much offline you know with apparel It might not be 80, it might be 60.

8:16Ray Reddy:But the point is that the vast majority of commerce still does happen offline, or at least the majority does. And so in almost every vertical, in every country. And so I think that there's clearly, you know, a very, very big opportunity. So when it comes to all these diverse front ends that you mentioned, all the different ways that people, different industries use POSs and what they require, is how much of that are you building into the platform? And how much of that is accessed through your developer network, through apps? I mean, it's truly, you know, we have this philosophy at Shopify, where we say it's most merchants most of the time.

8:57Ray Reddy:So what we try to do is things that most merchants need most of the time, we try to build those things in a first party way. But here's another example, though. Let's look at tax. Tax is one of those things where it's very, very complex. Managing tax across hundreds of countries is not a simple thing. And it's a solved problem. There's companies who specialize in doing this. So I think it's a good example of, yes, it's all merchants need, obviously, to solve tax. But our conclusion was we would rather partner with a few companies who have solved this problem and focus on integrating this so well into the product that it feels like it's been built into the, you know, it feels like Shopify built it.

9:44Ray Reddy:It's the power to buy thing, right? So I think we have many different, we actually have many different versions of what it looks like to partner with apps. In some examples, it's not a secret, for example, that Stripe powers Shopify payments. So when you think about something even as core as payments, I think that Shopify has done a nice job of saying, well, let's focus on investing our resources in things that only we can do to bring value and to really add value. Or areas where it really matters that we invest in this. But then there's other areas where we might partner with someone, but it doesn't change the fact that the end result has to be a good experience for customers.

10:31Ray Reddy:And so we try to focus more on that. So regardless of whether we build it ourselves or partner with someone else, it doesn't change the quality bar of what a customer expects, especially for things like tax, compliance, things where customers just expect Shopify to stand behind these things. And so I think we have many different partner models with app developers. What I talked about was maybe a very integrated model. On the other end of the spectrum is an app store where you can go discover apps, download them, pay for them, and run them. And in fact, many apps are apps of one customer, which is just that the merchant built an app to solve the thing that they needed to do.

11:17So that's also very widely used.

11:20Ray Reddy:So yeah, I would say a range of different partnership models with the app ecosystem. So Shopify has enabled so much e-commerce for so many brands and so much data that becomes available. And so many new ways of thinking about e-commerce have emerged out of just having a platform like Shopify. So I'm curious on the point of sale side and the physical retail side, what kind of data is unlocked by having this sort of unified approach to your online and offline sales? It's a great question. Um, I think, I think unified has become a, uh, a really weird term. It's the new omni-channel. I didn't even know that by the way, till I do this every day.

12:02And you, you, you, in our pre-interview, you told me that unified is the new omni-channel, but that unified is outdated. And I'm like, I didn't even know it. I'm still an omni-channel. Well, it's not, I don't know.

12:11Ray Reddy:I don't know if it's outdated. You can actually, you know, you can actually go back and look at the Google search, um, this Google search history of that keyword. and I think it spiked about two years ago was when it kind of really came into the lexicon and I think it's meant to replace Omnichannel. I think the challenge is that everyone has jumped on the quote-unquote unified bandwagon and I think you talk to almost any PLS company, it's almost like it's become such an important term that everyone just has to put it on their collateral because you can't not. And so I think unified has come to mean lots of different things for different people.

12:45I would say at its weakest, it is that these solutions are all offered by the same company.

12:53Ray Reddy:It's the same brand across these things. Clearly, that is not unified in the sense that there are some companies who have taken an approach of acquiring a whole bunch. They've had regional growth by acquiring lots of regional players, and they rolled them all up and put one brand, slap a brand on top of it. Well, these things don't work together. They were built by different companies. So I think at its worst, that is one version of Unified. I think on the other end of the spectrum, you have something like Shopify that has taken almost a purest view of every single line of code in this platform was written by a Shopify employee.

13:36Ray Reddy:Even if a company was acquired, it was all rewritten directly into the code base. And I think that Shopify was built with this idea that there is a single data model that needs to span all the ways that a merchant might want to sell, whether that is at a farmer's market, a physical brick and mortar store, online, even B2B and wholesaling. And so I think that the difference there is that it is not about jamming some solutions to try to make them work together, which tends to be what most merchants need to do. They need to get an online store from here and an inventory solution from there and a POS from here and maybe a self-serve kiosk from somewhere else and try to make all these things work together.

14:22Ray Reddy:And that's how you end up with a large IT team and all this frittleness. And I think this has now become almost like the nightmare scenario of a lot of retailers It's amazing. When Merchant Searches and Shopify, the thing that really surprises me is not only is it a big upgrade in experience and capability, it tends to be a game changer in terms of cost. mainly because they don't need to have a massive team of IT staff making sure that all these systems all talk together. And you can start to put people into much better use than fixing brittleness of systems that were never meant to work together.

15:02Ray Reddy:That tends to be, it's all the duct tape and band-aids. So I think that it's a really weird value proposition where you have a leap forward in capability and experience and a massive reduction in cost. And so, you know, I mean, it feels like a no-brainer, I think, for most merchants. But there's, you know, the reality of switching costs. And what I mean by that is just like migrating is a thing, especially when you're coming out of a legacy PLS that may not have like great APIs and all of those. So I think that tends to be like the biggest problem. But the benefits of Unified are, you know, I mean, I'll give one very concrete example.

15:43Ray Reddy:online you know every single customer that transacts with you you have to be able to send them a receipt therefore you know who they are you know if you rewind back like maybe 50 years ago that tended to be what the retail experience was you know you could imagine your neighborhood store you'd walk in it was it was community driven the store it was it might be the store owner who's often there they build long-term relationships with customers they may not even know who you are when you walk in and it's and they can be helpful genuinely helpful i think over the last many years retail has become this weird anonymous experience you know staff changes every six months high churn customers are completely anonymous you don't know who they are they're trying to fix that with loyalty programs and collecting emails and offering all these incentives but there's only so many people who are going to you know recite do the whole recital at checkout the benefit of having one unified model is because Shopify has a footprint of, I don't know, over 200 million ShopPay users who've checked out with Shop.

16:46Ray Reddy:I think it's something like one in six people on the internet have checked out from Shopify store. So it's a very significant number of people and growing that Shopify has identified and have created a profile on Shopify. When these people, well, when these customers transact in store, we know who they are. And so this is an example of something. The feature is called Live Lookup. What it does is it allows merchants to identify over 50%, approaching 60 % of every customer who transacts with them. And it's so game-changing because now your marketing team that is able to run all of these campaigns to your online customers and increase lifetime value and do all of those things, they were completely hamstrung on retail.

17:34Ray Reddy:They just had no ability to talk to people. Well, now they can. So I think there's almost this convergence of being able to treat retail and have that visibility into customers in the same way as you did with online. And that's really, really powerful. It means you can measure. It means you can experiment. It means you can talk to your customers after they leave the store. It's so many things. So it's a small thing, but it's a really big thing, being able to identify customers. And it's not just that side of it, right? That makes it sound like this is all for merchants. But the best things are ones that help both sides, right?

18:10Ray Reddy:So the way we think about it is, how do we make the buyer experience and store better, such that it is a benefit for merchants as well? and shop is a increasingly a really a really big deal uh you know it's many tens of millions of users uh now he's he's a product and there are a whole host of uh you know if you think about online uh today shop allows you to you know pick up where you left off if you're looking at a store or have something in your cart and you abandon that cart and you're in the shop app tracking a package, it's very easy to resume and a meaningful amount of purchases now happen that are just like really a customer continuing on where they left off, right?

18:58Well, like, why could the retail

19:00Ray Reddy:experience not feel the same? You know, the way that I at least think about the future of retail is why customers love retail stores still, you know, why is the majority of commerce still offline. I think it's because people really like the tangibleness of retail, the ability to touch and feel and see and try on and all of those things. The problem is that it's quite inconvenient. Inconvenient in the sense of we are maybe in some ways spoiled by the convenience of online. Everything's at a fingertip. You want to know what size is, click a button. Want to know the closest store or whatever style that has this thing, everything's accessible, right?

19:44Ray Reddy:Payment happens in one click and with ShopPay, it just happens with one phone number text. So I think that it's so convenient online that it's like, how do you bring that level of convenience in store? And like a good example, I'll say an example outside of the Shopify ecosystem that I think is just a demonstration at this point. It's like not so long ago, you would go into a big box store and the most painful thing about going into a big box store was having to find the aisle that the thing was in. You would spend 10 minutes hunting down Home Depot associate trying to find which aisle is the thing at.

20:30Ray Reddy:And that was, I would say, a low value. It was low value all around. It was frustrating for the customer. It was not a great use of time for the store associate. They're just like a router telling you where to go. And with one simple thing of exposing local inventory on websites, which is now very common for most big box stores, it's game changing. I know exactly where I need to go as soon as I walk into a store. I often see people now, it's almost like a companion app. I see people loading up the website in-store, looking for things, finding recommendations. It's almost become this companion in-store.

21:13Ray Reddy:And I think the best part of that is when I watch what store associates at a place like Home Depot are doing, they're actually being helpful. The conversations they're having with customers are no longer, hey, the hammer is in aisle four. They're actually engaging with them on how to do their project. and they're helpful consultants, right? So to me, that's kind of how I think about the future of retail. It is, there's a lot of low value interaction that happens in store that I actually think that people would prefer to just self-server. I would much rather just be able to get the answer on my phone than need to track down someone to do it.

21:55Ray Reddy:And I think what that does is that it creates room for a much higher value interaction that actually builds customer loyalty, that actually is a memorable experience and what you want in a human interaction. That's the future that I think we want to build towards. I'm curious too, like you go to a store regularly, you kind of input your payment details and then is it something where they could be like, oh, well, actually it turns out that this is your fourth product this year or something. So here's the bonus gift that you get or something like that to add surprise and delight in that situation?

22:31Ray Reddy:The way I look at it is our job is not to be prescriptive exactly on how stores should deliver a great customer experience. I think our job is to provide the tools and the capability. Our job is to, I would say, I think one transformative thing would be if in-store shopping, with all of the right opt-ins and everything else, went from being this anonymous experience to this personalized experience where both sides knew who the other was. And the nice thing about something like that is if you can just provide that on lock, you can let stores innovate on that and make it their own and do things that we could not have even dreamed of and build an amazing customer experience.

23:17Ray Reddy:So that's kind of how I think about it is it's not about building the – I mean, maybe some of these things are just so obvious and clear that you should have them be available out of the box. I think we really think about the capability and we call them the platform primitives at Shopify, meaning the core capabilities that the platform needs to support. And then you have the ability to build your own apps and extend the platform to make it your own. One interesting thing is Shopify doesn't have a loyalty program, but we have all of the primitives needed to build a loyalty program on Shopify. So a huge number of Shopify stores have loyalty programs running, just not just we built the platform to allow them to do that as opposed to building the loyalty program.