Week 2 ~ Tokenized Shopify Stores
Just like at the racetrack, there’s a lot of horses. You’re better off backing Secretariat.
Overview
It’s no secret that dropshipping has spawned a multitude of success stories. Being able to transact products through an online store without even physically seeing (let alone, holding) the products? Sounds like a supply-chain enthusiast’s dream.
The structure is simple: outsource products, list them on your virtual store (likely through Shopify), route the orders to the supplier, and collect the difference in pricing (Your Price — Supplier Price).
Of course, most ideas look pretty on paper, but different in reality. The hidden factors in the dropshipping process include eCommerce fees (ex. eBay and Amazon fees, PayPal and Stripe fees), marketing expenses, fluctuating supplier prices, erroneous orders, and any lurking variables that throw a wrench in the gears.
For these reasons, margins on dropshipping can be extremely low — even unprofitable to newbies. The logistical and advertising experience necessary for an online store to thrive will cost in either money, energy, or (more likely) both.
Rather than adding to the thousands of 0% profit margin Shopify stores that pop up, all trying their hands at the dropshipping game, more value would be created through direct support of the scalable & more established Shopify owners.
Let’s take a look at the role that security tokens play in it — Tokenized Shopify Stores.
Value Adds
Shopify Store Owners (Token Issuers)
- Have the experience and customer base to scale their Shopify store(s) upwards
- Can use the lump-sum capital from token sale to expand their markets, negotiate better deals with suppliers, discuss more personalized plans with Shopify to improve customer experience (for example, increase to the Shopify Plus plan), and take their marketing/promotion to the next level
- Will be more effective and focused in running the store since any up-front & fixed costs can be covered through the token financing
Investors (Token Holders)
- Likely are interested in setting up their own dropshipping businesses but understand the underlying work to make stores profitable may not be worth the time investment
- Can access ownership to consistently profitable and scalable Shopify stores
- Will officially have skin in the dropshipping game without spending excess time and energy working through logistics, fees, and other variables
- Investment opportunity that may be uncorrelated with traditional markets
- Ability to buy into stores setup internationally for geographic diversification and trend capitalization
Since dropshippers usually don’t follow the typical model of “buy in bulk”, it can be difficult to structure meaningful deals with suppliers. This is why the underlying fees and expenses eat into profit margins, and can sometimes overtake the owner’s revenue as a whole.
Much like the phrase “everything that glitters ain’t gold,” the appealing element of dropshipping is the very element that dropshippers must conquer — the fact that no inventory is actually owned. There’s a cost to this lack of inventory, and it’s hidden in each individual transaction.
Unless you’re looking to pour enough time, energy, and capital into a Shopfiy store to really learn the ropes on product sourcing, marketing, and customer service, you’ll probably do better from an ROI standpoint investing in security tokens that provide you the right to distributions from stores that are already well-oiled machines.
Similarly to brick-and-mortar shops, a source of financing can enable the store owner to improve the business processes and generate even stronger returns in the future. This would be mutually beneficial, as future returns have the potential to outweigh any lost cash flow distributions that the owner gave up through the token rights. Further, as we know, security tokens can be structured in creative ways, and big-time Shopify owners can launch tokens however they see fit — retiring the tokens at a premium, making fixed-rate distributions, or simply traditional equity arrangements.
By the Numbers
As much as we want to believe that running a Shopify store is plug-and-play, the line between successful and failing stores is not a fine one.
- 95% of Shopify stores fail (source)
- As of 2019, there are over 1,000,000 Shopify stores, with 500,000+ deemed “active” (source)
- Total Global Platform Sales estimated at over $100 billion
- Shopify Plus Merchants have seen average YoY growth of 126%
Put yourself in the shoes of a venture capitalist and treat Shopify stores like hot startups. An overwhelming majority will fail while few have the potential to make up for all your failures, and then some.
Do your diligence, back your favorites, and play a role in growing the shop! After all, that security token you purchased now makes you a partial owner — the skin in the game that you were looking for.
More coming next Wednesday 1/27/21!
Disclaimer: This is not financial advice and should not be interpreted as such. Please do your own research on investments and financial decisions before partaking in any ideas or ventures depicted in this publication.
