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Harley Finkelstein, Shopify chief platform officer. (DAVE CHAN FOR THE GLOBE AND MAIL)
Harley Finkelstein, Shopify chief platform officer. (DAVE CHAN FOR THE GLOBE AND MAIL)

Shopify leaping from Web to storefront as startups dream big Add to ...

Shopify Inc., which became one of Canada’s hottest startups by helping retailers set up online storefronts and running their shopping cart systems, now wants to become a force in bricks-and-mortar retail as well.

The Ottawa-based company is launching a comprehensive system that allows retailers to run their entire operation, from cash register to inventory management to online storefront, from an iPad. Shopify attracted tens of thousands of retailers by offering a system that allows users to set up web-based store fronts in minutes.

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“The distinction between online, mobile and bricks-and-mortar retailing shouldn’t exist,” Shopify chief platform officer Harley Finkelstein said of Shopify POS, which launches Wednesday. “Our view of the future of retail is that it’s the consumer’s choice, how, where and what you want to buy. In five years, this will be the norm.”

It’s a bold stand for a company that started out as an online snowboard retailer, Snowdevil.ca, seven years ago, but Shopify is just one of several Canadian startups thinking big. In the shadow of Canada’s two fallen tech giants, Nortel Networks and BlackBerry, these companies are not only creating buzz across the Canadian tech scene, but getting noticed south of the border as well.

This summer, Vancouver-based social media firm HootSuite announced the biggest-ever venture financing of a Canadian company, raising $165-million from investors led by U.S. venture capital firm Insight Venture Partners. Waterloo’s Thalmic Labs, which makes wearable gesture-control devices, in June scored $14.5-million in financing led by two U.S. VC firms. American VCs have figured prominently in recent financial backing of Waterloo instant messaging firm Kik, Montreal online retailer Beyond the Rack and Kitchener’s cloud-based education firm Desire2Learn.

The number of new ventures this year in the Waterloo area alone should jump to 500, up from 150 three years ago, said Iain Klugman, CEO of Waterloo-based Communitech, a Waterloo-based startup support organization. “The tech scene in Canada is really starting to build momentum,” he said.

Still, many Canadian startups face a lack of financing once they begin to grow. “If there’s a big gap, it’s still in later-stage, big-cheque Canadian investors,” said John Ruffolo, CEO of OMERS Ventures, the venture capital arm of the Ontario pension plan which has invested in HootSuite and Desire2Learn.

For Shopify, which has raised $22-million, financing is not a concern. The fast-growing company is believed to have revenues in the mid-eight-figure range. It had about 40,000 online store customers at the start of the year and expects to double that by year’s end.

The company’s POS system marries its experience running online commerce portals primarily for small online retailers to widely available hardware. “We thought, what if we removed every complexity that never should have existed in the first place in the shopping process and made it seamless and integrated,” Mr. Finkelstein said.

An Apple iPad, mounted into a swivelling steel stand, is the core piece of hardware. Powered by Shopify software, it becomes a cash register once a simple card-swipe reader is mounted into its headphone jack. This setup is connected to a standard cash drawer and receipt printer. The Shopify system enables users to manage all of the point-of-sale functions and inventory control, giving retailers real-time views of when online orders come in. The system also links to the retailer’s reporting system – all through remote cloud servers.

The approach merges what are usually two separate systems maintained for online and physical stores. “We thought the intelligence of your business should sit on the Internet, with everything else integrated into it,” said Tobi Lutke, Shopify’s CEO.

Shopify sells the whole set-up kit for $499, plus a $49 monthly fee (its basic online retail store costs users as little as $14 a month). That’s thousands of dollars less per year than retailers typically pay now, said Michael Packer, founder of Packer Shoes, a Teaneck, N.J.-based bricks-and-mortar and online sneaker retailer who has been testing the Shopify system this summer. “As a merchant, you want everything under one platform,” he said. “This is clean, easy to use and an intuitive-type system.”

Shopify has several competitors online, while others are challenging established in-store systems with new digital technology, including Square, a U.S. startup conceived by Twitter co-founder Jack Dorsey. By marrying online and in-store retail systems, Shopify aims to vault to the forefront of “omni-channel” retailing, whereby merchants approach all of their customer interactions seamlessly across multiple channels.

But the company is under no illusions that any advantages it has will hold for long. “I have no doubt this will be copied,” said Jeremy Levine, a partner with Bessemer Venture Partners, a U.S. VC firm that has invested in Shopify. “But it will take a while.”

With a file from reporter Omar El Akkad

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