Shopify's $4bn Loan Book and the Winter of Discounts | The Ostrich Report Live

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Welcome to the Ostrich Report Live. I am Vinny O'Brien. With me as always is Hendrik Lobster. It's Friday, and Hendrik, do you know what I learned just this morning? It is 126 days till Christmas. Let the fun and games begin. How does that sit with you?

Um, Vinny, firstly, hello, nice to see you. It's been a while. 126 days. Um, where did 2026 go? Asking for a friend.

It's, uh, dog years, as we said. Um, yeah, the summer's been pretty crazy. A lot of things going on. You're just off earnings season, so you're probably full of great wisdom, which is why I wanted to get you on and talk to people, even though there's probably no one listening to this version. They'll get it all on the repeat on Monday. But, uh, it's been a pretty spectacular summer here in Ireland. Climate change aside, we'll take one year of decent weather where we all look healthy and tan and everyone is, uh, happy to not be at the World Cup. How's things in Cape Town?

So your comment about, um, the, the weather, um, yeah, it's totally wrong. Excuse me.

Um, Yeah, you've got El Niño to come for the winter, right? Or the summer?

So it's already here. Um, we are supposed to be getting gallons and gallons and gallons of rain. Not so much. I've been wearing t-shirts and walking the dog. No raindrops in sight.

Wow, that's, uh, pretty crazy. You look at places like the south of Italy, they're getting floods. Same in Scotland. And if you're to believe all those weather stories, we're going to have a very interesting winter, which will compound some of the things that are happening in the geopolitical world. I'm going to jump in and talk to you. You're off the back of the earnings calls. And quick poll, if you don't mind. We are told for 3 years now we have a very resilient consumer. I want to know, do we have a resilient consumer Or do we have a persistent banking system willing to give us some credit? What's your view?

The resilient customer. The resilient, for me, is word of 2026 in the sense that I've heard that word so many times it's lost its meaning, number one. Number two, I think your point about Credit and banking system is spot on. I am very, very concerned about Q4 from everything that I'm hearing and reading and hearing yesterday. I always say if Walmart tells me it's not going good, then it's button batten down the hatches and and hold on hope that it's gonna get better. Otherwise. Yeah, but I think, you know, I think the point that I made to an analyst this week is, Vinny, it's not just North America, it's not just Europe, it's global. Everybody's under pressure because of black swan events that basically just not going away, like what's happening in the Middle East.

Well, look, let's have a look at that consumer debt. I wanted to have a look at it. It currently stands in the US, you talked about it there, it's at $18.7 trillion.

Mm-hmm.

Right. So we talk a little bit about our resilient consumer. Credit card debt, just let me pull up my notes here, has grown. And I know this is only a snapshot and we're not proper market analysts, but they're interesting numbers to look at all the same. Credit card debt has grown by 73% over the last 10 years, almost doubling in size. This doesn't include buy now, pay later because the mechanism doesn't allow for that to happen. But look at mortgage rates there, and mortgage debt has really shot through the roof as well. Auto loans up, credit cards up, student loans. They're the future of the economy, the people who can't pay back their debt. So they're our future consumer already burdened. We have Auto loans included in there. So the way that we're looking into the winter, as you said, Walmart have reported that it's going to be the winter of discount tents. How do you prepare for that as a retailer? What are the things that you're hearing people are doing? Supply chain has been under pressure, and we talked earlier this summer that all the supply chain squeeze is going to come in Q4. What's that mean for us? Are we going to see super discounting or prolonged discounting? Or both?

I, I, I think both. Um, so I think for me the biggest takeaway from this week was that tariff refunds in the US, uh, basically played a big role with, uh, earnings. Um, companies getting hundreds of millions of dollars going back into their bank accounts. Um, I, I think we are going to continuously see Target Amazon, Walmart, any large retailer in any part of the market, they're going to go to discounting mode to draw people into the store. I just think that's how this is, because if this is not there, Vinny, then who's going to buy anything? It's just people are watching their pennies.

How are they going to— like, how are merchants going to pay for this? I was trying to get research done on Shopify as well, and Shopify Capital It's reported in 2 ways. That's something that was new to me. I don't know if you knew this, but they split it out in merchant cash advances and actual loans, banking loans. And they're 2 very different numbers. And they report on the loan number, not on the cash advances. And it presents a very different picture. I think in 2025, or 2024, 2025, they gave out $4 billion in loans and merchant cash acquisitions. And that was following $3 billion the year before. And that's a growing number again this year. And as we talked about a little, a number of months ago, the default rate on that is starting to increase. Now, it's not so much, it's not such a big rate that the analysts will notice, but where you look at where Shopify sit in the market now, they're not targeting enterprise customers. They're looking at the SME market, SMB market. That's going to be a struggle, turning cash into stock. Or turning stock into cash is a particular challenge right now. Can I ask a kind of a follow-on question to that? There's a pretext that's been around for a while, which is profitability is king. And we know that, that's how we all get to sleep at night. But there's no mechanism around now to suggest to me that profitability is possible through retail and commerce right now because of single-digit margins, increasing cost base, profitability as A mantra is something that's going to slowly fall back into the kind of cosmos, I feel a little bit. And it has really diluted in the last 6 months, people talking about profitability. Where do you see it sitting in terms of priorities for people over the next 12 months?

So this is a question that I've been dealing with, I'd say the last 2 quarters. I think what we are beginning to see is, and this sounds so obvious, but it's sometimes so hilarious when you see this. When you don't market for certain brands, there's no traffic, which means there's no sales.

Yeah.

So I believe what we are going to see is that we are going to see heavy marketing spend. We are going to see heavy Losses. I think the number of brands being able to be profitable in this next 12 months will be single digits, if that much. And I think to your earlier question is, I think a lot of this is going to be— this is going to be made to look like marketing spend, but it's actually going to be survival spend. In the sense that if these brands don't spend, I've seen multiple brands that have this problem. And, you know, you say this to C-level execs and they look at you like you are a madman. The challenge is that you are standing on this precipice of large change. Hello, agentic, whatever. But you have the basics that are in some cases not being done. The best example that I can think of off the top of my head is Something that I was shocked to see is, you know, running ad campaigns on products where there's no inventory. And then I asked, but what are we doing? Yeah, but we don't have enough people. So to answer your question, I think profitability is going to go out the window. There's going to be lots of brands that close doors, sadly. And I also think that we need to just briefly talk about Europe's one market rule and how that's going to be changing things in Europe. I've actually got an image for you to help paint that picture.

So looking forward to digging into that one. But it's something we've talked about before, legislation and regulation becoming the next major force that we have to deal with outside of geopolitics. There'll be local politics. Local politics means more tariffs, means more costs being put onto retailers and brands. And it comes to an interesting point, and we'll maybe get into it a little bit later, but in the US, you've got the NRF who lobby on behalf of retailers. Now, I wonder what type of lobbying that they do. I'm not privy to that, but we need an equivalent group in Europe to start representing retail better. It strikes me that the retail sector is poorly represented right across the EU. It's almost It's almost like a second-tier citizen when it comes to the way that it's treated. And then it's so important in terms of GDP output, job creation, and everything else that goes with it. But I'm going to go back a little bit there because you said something. You mentioned agentic. We're, what are we, 20 minutes into this thing? 10? Oh my God. Sorry for boring people. You talked about it. I've been knees deep in an agentic type project. That's the best way I'll describe it to you. But for want of a better description. It didn't start out that way. But what I came to realize early in the project was we talk about data readiness and all the platforms, all the software firms, all the SaaS companies talk about data readiness. We talk about agentic surfaces. The actual way that I've started framing it with clients and started building this out is we need to rethink the architecture of the way this business model is put together. And that allows you to think about policy creation. So policy creation is linked directly to customer experience, which is linked directly to process, which allows you to unpack all those things. So you think about your proposition really clearly. I'm going to get into the weeds for a minute and let me hear your response. I'm kind of keen to hear it. I'm working in an echo chamber, which is never a good thing. But you talk about policies. Policies dictate how you handle the customer experience and all those great things. So it's Just a really helpful way for us to frame everything up. And for me, you go through all those different steps, it's about reshaping the way the business thinks about itself, not data readiness per se, but how that data travels through the business, how you need it to travel through the business, and all those amazing things, which is really, really helpful. So when I think about it and I think about the sort of projects that we are undertaking, and I think about agentic, it gives you an opportunity to rethink the way that the business itself handles its own business model. So when I think now about AI projects and I think about efficiency gains versus, you know, marketing opportunity, it's actually a chance to rethink the model and say, how do we support a different type of model with a stronger type of architecture? Because we can move quicker, we can interrogate quicker. And I would say that I'm getting to weeks' worth of work in hours and minutes, if not like that. That's probably the quickest timeframe I can get to. How does my frame sound to you?

That's the most concrete plan strategy that I have heard year to date.

What?

I think the biggest challenge is that what you've just described doesn't happen at scale in most companies. We all know how this goes. E-commerce is the stepchild of most brands or most organizations. AI is now the shiny tool that gets all the attention, but it's most probably not being given to ops. It's most probably being given to development or developers or technology. I come back to a simple thought process, idea, concept. I think agentic is just another channel. I cannot not go down that route. Yes, it changes everything. But I think the one thing that you said that got my attention, which I genuinely don't think brands understand, or have the impact to understand what impact it has is that the traveling of data inside businesses. Yes, we all know, you know, the clichés, there are silos and these, but with, with agentic, you need data to be able to move in various directions in many, in, in many situations in order to lead to a conversion. because there's just less available data that's been given by these models. So, I read your LinkedIn post that you described this whole odyssey that you were on.

Pretty long.

It is, but I think it's if you're a practitioner or somebody that is in commerce. One, I've not seen so many of these posts. I think we are in this experimentation stage at the moment where brands really don't know what to do because they need to do something. But I thought your lens about how you did it and how you explain it, for me, Mike, as I said, it's the, it's the most, most sense that I've read this year to date with agentic. And I'm not saying this because you're my friend or we co-host a podcast, but I just generally, I genuinely see when I, when I, when I speak with brands, when I speak with boards, when I speak with C-level execs, A gentek must save everything, but nobody knows what to do. That's for me the Taiko Wave 2026. This is this great savior, but we don't know what to do with it. So can you give me— can you help us? Can you give me an idea?

It's difficult, and thanks for that. I know you're as supportive as you are a critic, and I mean that in the most positive sense of what a friend can do for someone, but The whole thing about it is you get access to information so quickly and that can be overwhelming. So it also means that you can uncover something really quickly and then you start talking out with the business. The immediate response is, let's do more of this quickly. And that's typically what you get with brands. I'm lucky enough that the brand I'm working with right now are conservative, to the right point. And everything that we produce requires a human response. So there's no— we haven't got a full loop to say, here's an agent, take on this piece of work that we have uncovered, run with it, and don't come back. But what it's done for me is I've gone through the biggest learning phase of my career in the last 10 years in the last 4 months. It's forced me to rethink my own lens for all of this, it creates a huge anxiety because now you've got a much shorter window through which, at least in your head, and that's what I think the trap you can fall into to make a decision. When in fact, if you flip that and say, now I have the information I need to really sit down and think about things, and it's the idea of thinking time now becomes really important to us. So instead of every minute being productive, You've got this opportunity to sit down and say to yourself, what does this actually mean? What am I learning? What am I uncovering for the business? And then trying to frame it up into some sort of useful scenario. Now, the architecture piece, I think, becomes really important. And I've mentioned on my post that Kelly Gotch has been instrumental in helping me shape my thinking. I'd encourage people to read his LinkedIn posts because he talks in great detail about How his organization, Pipe17, handle the technology side of it. He talks about the standards that they now adhere to, but he also talks about the culture that he's trying to foster within his organization. And I think it's really important because you've now got to get to a stage where you're thinking about, one, you've got a responsibility around this, and then it allows you to start going, okay, well, if I was rebuilding this from the ground up, what are the things I do? Documentation is so important. You've got to feed your, whatever, your agentic surface as much contextual information as you possibly can.

Correct.

That's why I said policies are really, really a solid way for you to do something, because it becomes a rule to say, if it doesn't follow the rule, kick it back to someone to make a decision. And if it falls outside of process, that tells you the direction of your data. So if your process and your policy says this, this is the way your data should flow. And if it doesn't, then that's a systems failure and you can identify that problem and solve it at root and get your agent to fix that for you because it knows the direction of travel that it needs to go in. So I think policy documentation becomes really important. Rules become important. Feeding information in and starting to work backwards from there. And this is before you start thinking about agents at all. What you find quite quickly is that you can start developing scenarios for yourself and saying, what are all the outliers here? So I talked 2 weeks ago about this idea of compounding growth. And compounding growth to me is not— I'm going back to this idea of profitability, and this is where I think brands can do well over the next few months and years. Compounding growth is saying, I'm going to win this one little victory for myself. So I want to get 3 more sales per day. I want to reduce errors by 20% over 6 months, and I want to reduce contact into my team by 40% over that period. The compound effects of all of that gives you a greater chance of being more profitable in the time when profitability is hard to get to. So it might minimize your loss, it might maximize opportunity. And you do all that through that line. So that's really what it's throwing up to me, Hendrik. Again, there's loads more I could go into visually. Then we can actually use the best of what we have seen. You can feed in experiences that you've had. You can start thinking about all the great apps that are sticky on your phone and why it is that you like them. And instead of saying, recreate this for me, you can say to your LLM, Help me understand why this feels useful to me, and ask them to explain the architecture. And I think the ability to become a good architect will be what determines really good experiences that leverage AI well versus the people who don't. And I think that's the difference between AI slop, as it's called, and the really interesting use cases for where we can leverage these for better versions of the commerce that we have today. Bit of a ramble. What do you think?

So I don't think it's a ramble. I think it's a genuine explanation in its totality about what's currently— I think the biggest challenge that people have at the moment is understanding Where they are with all of this, I will also echo that Kelly Gooch from Pipe 17. He's a really good read daily. His thought processes about this is for me arguably the most developed that shares with the sector. But I'm not surprised. That's just who he is.

Yeah.

But but my my I think for me the biggest thing that I heard from you in this. This ramble of yours supposedly is that I think the biggest thing that brands don't understand is that these models, you know, which people pay a shedload of money for, you need to provide it with, with, with rules and context. If you don't have both, then you have absolute chaos. I know I'm stating the obvious, but for me, that was one of the biggest takeaways reading your, your whole Your take about what you've done is that, and I think once you understand the, you know, the fact that you need to provide as much context data, you know, instructions, rules, whatever you want to call it, to these LLMs, it leads to beneficial experiences, whether it's you using Claude daily or insert whatever model name or If it's, you know, doing, you know, agentic or, you know, operating better or running marketing more effective or whatever. But I think, I think the biggest anxiety that I think people feel, especially executives, are, you know, if you're not using AI, you feel like you are behind, number one. Number two, you then use it, but then you suddenly understand, but, you know, what am I doing? You know, there's not really any good information out there about what you should be doing. So, it's a process of self-discovery. So, yes, I think finding the thought leaders in sectors like Kelly Gooch and others helps brands and executives understand on how to think. Because let's be honest, Yvonne.

Yeah.

This is new for everybody.

It is, but it's not gone away, Hendrik.

No, no, no.

The opportunity is there for us to rethink. And that's what I said to Kelly. I shared a message with them yesterday. It's that ability to now rethink the way that we do things. And I kind of feel like his posting gave me the permission to do this. And the anxiety now that I feel is, an anxiety of responsibility because you now have this great toolset at your disposal and the expectation that goes with that is really high. And I just want to read out one sentence that I wrote. I'm just trying to find the exact wording of it because it helped me think about the SaaS world was really quick to go to market with AI because they had to develop products for it. And I kind of get that. But on the brand side, We've been a little bit slower to do that. The line that I kind of summarize it with and just pulling up. Yes, Alexis, I'd happily do that. I got a message from Alexis saying she'd love to do LinkedIn Live with us maybe next Friday if you're up for that. Let me just read out the sentence while I can.

Do do do.

Sorry, this will be worth it, Hendrik. I promise you. Brands. There we go. Oops, we're hitting silence now, so I need to keep moving on this. Anyway, look, I'll find it and share it in the aftermath of all of this. But it was— oh, Hendrik has just gone. So what I would say to everybody here is that for the SaaS world, it felt like they had this kind of onus on them to get out to market and to talk about products that were going to change the world. And on the brand side, we had to prove it first. And I think that's the real anxiety that I have arrived on. I use it because it's a genuine expression of how I feel about these things. And the anxiety is born out of responsibility. 2 other things that we were going to talk about, and Hendrik has gone, was the increasing force of regulation. Hendrik didn't know we were going to talk about it because we don't really plan this. So it's just me wrapping up now. So the 2 areas, I suppose, that are changing right now, the EU is bringing in increased cost bases for retailers who are trying to do business. One is new packaging implications and regulations are going in. There's also talk of a new additional charge of €2 on parcels for cross-border trade as well, which are going to be really impactful. So we might break them down for you next Friday. In light of it being Friday, I'm going to let you guys get back to whatever it is you're doing. Thanks for tuning into The Ostrich Report Live. Hope there was something in there for you. We've had really interesting viewership, which is not something I was expecting. And if you're looking at this on the Monday repeat, hello, hope your week goes well. And if you ever want to get involved, jump on and share some time with us, let us know, DM me, and we can arrange something as well. And do please send in your questions. We're happy to talk about them. We're going to be doing this every Friday for Q3 and Q4. Stick with us. We're amateurs at this. Have a great weekend.

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