April 24th, 2023: Amazon’s shareholder letter, the recent retails sales report, the Shopify collaboration, and David’s Bridal enters bankruptcy
It’s April 24, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon’s 2022 Shareholder Letter
Understanding the Recent Retail Sales Report
Could Amazon Seller’s Expansion Give Reason for Shopify Collaboration?
Retailer David’s Bridal Entering Bankruptcy
- and finally, The Investor Minute, which contains 7 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
Amazon’s 2022 Shareholder Letter
Andy Jassy wrote at the beginning of the letter to Amazon shareholders that the company is facing an “unusual number of simultaneous challenges.” Wow. What a way to start a letter.
In many ways, this shareholder letter was Andy Jassy resetting his control over the company and reminding everyone that Amazon invests for the long-term on its own calculus. That said, I did learn a few new things:
First, Amazon’s lack of grocery progress is continuing to stand out. CEO Andy Jassy said the company has been experimenting for 3 years with Amazon Fresh, Amazon’s mass-market grocery concept.
Amazon did not say it is making progress, or that the company has figured it out. Is this lack of progress all we have for all that new leadership from Tony Hoggett at Tesco coming into to run grocery at Amazon?
It felt to me like Jassy stopped writing in this section out of disgust for the company’s grocery progress.
Second, Amazon has switched from a national fulfillment model to more of a regional hub and spoke model.
This was the biggest news by far of the letter and the only element cited by Andy as a "critical challenge" -- how does the company reduce its fulfillment costs to serve?
In order to do so, Amazon revealed that it divided the country into 8 regions where inventory is primarily located in that region and shipments will come at worst from that closest regional facility. Of course, Amazon will still have the ability to ship nationally as well if needed.
It sounds like previously, if the item wasn't available from a same-day facility for a buyer, it could ship from literally anywhere in the country.
Which makes you think about Amazon’s supply chain chaos in the last year. Amazon has rebalanced its entire inventory footprint and developed a new supply chain operating model. That's quite a job.
Third, Buy with Prime and Marketplace were mentioned.
In this section, we got an update on the Marketplace Third Party Seller Unit Account and it is 60%. Which means the other 40% of the units are from first-party vendors.
Also, the Buy With Prime team will be happy to have gotten a mention. Jassy mentioned that there are two theses for Buy With Prime:
The first is that DTC brands are now able to offer products to Prime members.
The second is that DTC brands have a problem with conversion rates, and using Amazon to fulfill raises that by 25%.
Here’s the issue with these statements. First, yes, DTC does have a conversion problem. But is the average DTC brand looking to hand off all of their operations to Amazon? Not likely.
Second, while I can agree that conversion is an issue for many brands, a much bigger issue is traffic. And Buy With Prime is not currently addressing this for brands.
My main worry at the moment about Buy With Prime is not that Amazon can’t fulfill quickly or build technology, it’s that the target customer for Buy With Prime is murky and as a result, Amazon may not be targeting these customers with the right messages to attract them to the program in the first place.
[References:]
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Our Second Story
Understanding the Recent Retail Sales Report
Americans are definitely spending more cautiously.
Spending declined for the second straight month, albeit by 1% in March. Retail, restaurants, and gas are all included in this pullback, according to data reported by the Commerce Department in a recent WSJ article.
Hiring has also eased and manufacturing output slightly declined. Online has slowed, but still outpaces retail sales, which were in decline.
Some additional categories affected by decline in March as compared to February: electronics & appliances, home improvement, furniture, and automobiles.
What does this mean for brands and retailers?
Overall, it seems to mean that things are getting incrementally worse regarding consumer spending. In my opinion, this is how a recession really starts. Interest rates seem to have affected the consumer's willingness to borrow money to pay for purchases in general.
Recall for the past 10 years, it was very easy to get zero percent financing. Those days are ending... and if they are not, the penalties for not paying off the balance at the end of the period are higher than ever. I just checked a $2k stainless steel refrigerator at Best Buy. No interest for 18 months, but after that?
30% APR. Oof! It's no wonder large electronics, appliances, and auto sales are off.
There are two other economic tidbits to keep in mind as we go forward:
First, large retailers like Walmart predicted that unit sales would be slightly less in the second half of the year than the first half.
Second, most economic reports -- including those used by Walmart, the S&P Global Economic Outlook -- counted on the end of the Ukraine war by mid-year. Does that seem likely to anyone?
Sometimes old news is new news. Online remains strong, but it's likely because we are talking about smaller purchases as compared to retail. The overall picture still remains a category-by-category story at the moment.
[References:]
Our Third Story
Could Amazon Sellers’ Expansion Give Reason for Shopify Collaboration?
JungleScout released its 2023 State of the Amazon Seller report, and I thought one of their first points made for an exciting discussion.
The number of Amazon SMB sellers exploring other platforms is up to 52% from 30% the previous year. Here’s the list of platforms they are exploring:
eBay is top at 24%, but declining interest down 14% year-over-year. eBay has a huge historical head start.
Shopify at 16% , grew 6% year-over-year.
Walmart at 15% is growing the fastest. It grew 28% year-over-year.
While it's not surprising that eBay is declining, Walmart growing so fast is interesting. Of all the US marketplaces, Walmart is the most like Amazon, meaning it's easiest for sellers to try.
In 2021, MarketplacePulse mentioned about 6 million Amazon sellers, with 3 million in North America. In the same year, only 60,000 were over $1 million in sales.
This 2.4 million under $1 million in sales overlaps almost 100% with the JungleScout group (which polled 2,000 brands under $2 million in sales).
There are a few interesting points from this analysis:
1 - 40% of Amazon sellers are not trying other channels. That is a strong group, particularly since being on multiple channels reduces risk.
2 - By any metric, Shopify would want to attract a greater percentage of those 2.4 million merchants. Many are not large sellers: in theory, Shopify's sweet spot.
The problem with attracting these merchants is traffic. Shopify cannot offer this to merchants, and Amazon can. Not to mention Prime fulfillment.
3 - You could look at the Shopify numbers another way. Of the 60% exploring other channels, only 16% look to Shopify, but numbers are only flat to slightly up (growing less than eCommerce). This speaks to the fact that the overlap between Shopify and Amazon is not as strong as you might think.
Which goes back to Tobi's original point when Amazon Buy With Prime was announced and he said, "I don't think there is as much overlap as people think." He wasn't wrong.
But is that Shopify's "fault" or "opportunity"?
4 - If Shopify does want to create a home for "multichannel-curious" Amazon sellers, it's not doing a good job. It has flexed on Buy With Prime, and this after Shopify retired its own Amazon Connector in 2021.
Wouldn't you want to capture GMV faster than Walmart, eBay and Etsy from Amazon sellers as the next best option? It could point to an opening for collaboration.
5 - When considering Shopify's growth opportunities, there are 3.
a: Growing GMV attach rate (POS, payments, fulfillment)
b: Expanding TAM (more full-featured Plus, and commerce components)
c: Shop App, whatever you want to call this that's not the "M Word"
Wouldn't Amazon sellers be another nice slice of TAM? They could need Amazon's help on that integration. Part of the BWP deal?
6 - This speaks to the progress of Walmart Marketplace in the past few years that interest is rising so quickly.
[References:]
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And Our Last Story
Retailer David’s Bridal Entering Bankruptcy
Well, that was fast. After a few years of digital expansion, it seems like the debt payments for David’s Bridal have caught up with the company. Retail Dive reported that the company is looking for a buyer as part of its bankruptcy filing. Rather than try and re-emerge from bankruptcy, it seems like it is prepared to liquidate if it can’t find a buyer.
The company hired Gordon Brothers to wind down business operations and liquidate all inventory in its stores.
For those who haven’t been tracking the firm, this comes on the heels of the company laying off 9,000 employees, in other words, most of them.
While you would think weddings are a somewhat recession-proof business, what’s not recession-proof in a high-interest rate economy is a $70 million debt, which David’s Bridal took on in 2021 after it re-emerged from its last bankruptcy in 2018.
If the company does rise from the ashes this time, it will be with a much smaller fleet of stores, and it will likely try to negotiate down some of that debt.
This could be a big opportunity for other players to grab a piece of that business, similar to what happened when Toys R Us closed all its stores.
[References:]
https://www.retaildive.com/news/davids-bridal-may-liquidate-no-buyer/647921
https://www.retaildive.com/news/davids-bridal-layoffs-nine-thousand-workers-sale/647721/?
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Hey, Watsonians, this is Rick. Want to get my take on a burning question and have me answer on this podcast? You can start a topic on the RMW Commerce Community and just ask!
The Community is full of eCommerce diehards just like you talking about important eCommerce issues. Recently we’ve been discussing the Amazon shareholder letter and if Amazon has any hope of a future in grocery.
You can contribute to the conversation at community.rmwcommerce.com.
It’s That Time Friends, for our Investor Minute. We have 7 items on the menu today.
First
Talpa closed a 15 million Euro Series B to boost industrial intelligence.
Digitizing these older industries like industrial technology is a huge opportunity everywhere, and Talpa Solutions is focused on monitoring assets in mining, construction, and logistics. This is also similar to an opportunity offered by what’s called IOT or Internet of Things. Owners of industrial equipment can get real-time information and insights on the activities being performed, failure prediction, and a source of truth regarding their assets.
Link: https://www.publicnow.com/view/651F553A96F7D9B0D73043ADC549443CF71E0088?1679985923
Second
Enterprise content management platform Hygraph raised a Series B to create a federated content platform.
I hadn’t heard of Hygraph before, and instead of federated content, I have heard this also called digital experience composition. The company is squarely in the composable front-end market which focuses on a use case where the company’s data and experience capabilities are distributed in a variety of sources that need to be brought together and orchestrated to create a unified solution for buyers.
Link: https://hygraph.com/blog/series-b
Third
Merchandising experience platform Edited raised $15 million.
The London-based company provides insights necessary for brands to set the right price across channels as well as get market insights across channels. Some of the messaging reminds me of what CommerceIQ offers in the market, a kind of digital shelf optimization software.
Link: https://tech.eu/2023/03/28/edited-raises-15-million-to-accelerate-merchandising-experience-platform/
Fourth
Bluestar Alliance acquired fashion brand Scotch & Soda.
BlueStar is a brand management firm that owns Hurley, Justice, Brookstone, and other brands. Licensing and international expansion seems to be the primary focus.
True story, a Scotch & Soda moved across the street from my apartment in New York City a few years back and I was excited because I thought it was a new bar to check out! It wouldn’t surprise anyone to know that Scotch & Soda has been on the rocks lately; it had filed for bankruptcy prior to this acquisition.
Fifth
Fashinza AI-driven global fashion supply chain company raised $30 million in debt from Mars Growth Capital and Liquidity Group.
Fashinza is an Indian-based marketplace in which brands find and use new textile suppliers. The company claims to use technology to match the brand with vetted suppliers, provide a platform for managing supplier relationships, and offer a 45-day turnaround on designs. It’s unclear what percentage of the funding is equity, but likely a small part given the focus on lending by the funders.
Sixth
B2B digital consultancy Zaelab received investment from Superstep Capital.
While digital agencies aren’t as big an opportunity for funding as technology, they do occasionally get outside capital. Zaelab has forged partnerships with companies like Salesforce, SAP, and Commercetools to help brands and retailers deliver B2B digital experiences.
This mirrors funding that digital agency Orium, formerly Myplanet, received last year from Tercera.
Link: https://www.finsmes.com/2023/03/zaelab-receives-growth-investment-from-superstep-capital.html
AND FINALLY …
Shoppable video startup Videowise raised a seed round from Slack Fund.
Videowise provides on-site shoppable videos, shoppable video marketing, and video analytics solutions for growing brands on Salesforce or Shopify.
From the information available, it looks like it entered a market that, before now, companies like Firework pioneered on the high-end of shoppable video for websites.
Link: https://techcrunch.com/2023/03/27/slack-videowise-shoppable-video-commerce/
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That’s all for this week! Till next time Watsonians.....
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Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.