By Nivedita Balu

(Reuters) -Shopify Inc said on Monday proposed changes to its fulfillment network would help merchants on its ecommerce platform compete better with big retailers and would not reduce capacity, fueling a sharp recovery in its shares.

Shares of the Canadian company rose as much as 9.6% in afternoon trading following the statement. The stock fell nearly 9% to an 18-month low, weighed down by a report https://www.businessinsider.com/shopify-overhauls-fulfillment-strategy-as-it-challenges-amazon-2022-1?IR=T last week that Shopify was terminating or reducing contracts with warehouses and fulfillment partners and a global tech selloff.

“We will be making changes to (Shopify Fulfillment Network) to help merchants compete with big-box retailers, such as prioritizing two-day shipping at affordable prices and access to easy returns for U.S. shoppers,” the company said on Monday.

Shares of Shopify have had a roller coaster ride since the COVID-19 outbreak. They surged as much as 178% in 2020, boosted by a broader adoption of e-commerce by retailers, food brands and other mom-and-pop businesses. That helped the company to dethrone Royal Bank of Canada as the most valuable Canadian firm.

Shopify shares have slumped over 30% since the start of the year.

The company said it had informed warehouse partners and merchants that capacity would not be reduced due to the proposed changes.

Wall Street had raised concerns that the changes could mean big investments into Shopify’s fulfillment network and moving from a capital-light model to owning distribution centers, something investors will likely question in the current market environment.

“Shopify is nowhere close to building a type of fulfillment operation at the scale of Amazon, and investors should not expect anything like that in the near term,” said Wedbush analyst Ygal Arounian.

Shopify said on Monday it had sufficient capacity to meet the fulfillment needs of its merchants using the Shopify Fulfillment Network, essentially a network of fulfillment centers that allow merchants to ensure timely deliveries and low shipping costs.

“Capacity will not be reduced, and we do not anticipate disruptions to our merchants’ fulfillment,” the company added.

The company said it would have more details on its fulfillment network during its fourth-quarter earnings announcement.

(Reporting by Nivedita Balu in Bengaluru; Additional reporting by Chavi Mehta, Editing by Krishna Chandra Eluri and Sriraj Kalluvila)