February 10th, 2025: Trump eliminates the de minimis for China, AI won't solve all the problems, UPS Q4 2024 earnings, AI is not the new SEO. Brands could be in a marketplace without realizing it
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It’s February 10, 2025 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Trump Eliminates the Deminimus for China
AI Won't Solve All The Problems, But We Don't Realize It Yet
UPS Q4 2024 Earnings: Steering Towards Margin, Away From Amazon
AI Is Not the New SEO. Brands Could Be In a Marketplace Without Realizing It
- and finally, The Investor Minute which contains 5 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….
Trump Eliminates the Deminimus for China
It seems like eliminating the deminimis is the only thing the two political parties in the US agree on. Perhaps it will all be a dog's dream and prove to be a negotiating tactic, only to be cancelled by the President in another few days.
As for now, the recent elimination of de minimis with China by executive order plans to roil the entire world.
The losers will be, especially in the short-term:
* The international air freight market prices should drop and the revenue of these carriers will be hurt significantly.
* US consumers. Who have never really had to know or care about duties. They will soon know what the rest of the world already knows - it's not fun and limits selection.
* American companies that have used the rule similarly (Quince is one example but there are many others, including recently Amazon Haul)
* Supply chains, including -- air-freight providers who were swamped with de minimis volume, and first leg US providers in the United States who handled the volume coming in from overseas, connecting it often with the US Post Office.
* USPS who will lose some mid and late network injection traffic (although prices have gone up recently).
* Regional networks specializing in this kind of volume like Uniuni and SpeedX could be challenged as well in this new environment.
Last year, Amazon, Shein, Temu and Walmart captured most of eCommerce volume growth in the United States. The question is, will tailwinds accrue and to who?
But how much will it affect Temu and Shein? Given the explosion of deminimis shipments into the US over the past several years, it's clear this will peak and start to trail off. How quickly depends on pricing.
Supply chains could continue scramble to source from beyond China in response. Temu and Shein could continue to test whether more traditional bulk imports to the US, which would likely mean slightly "less fast" fashion would still propel growth. Temu in Europe for instance with a 150€ de minimis is still growing at a healthy clip (>68% at last measure I saw).
This could embolden Europe to take further action. This could even embolden the United States to penalize Europe for continuing to offer a higher than zero de minimis. Times are changing and quickly.
Next week this could all be rolled back, but for now, traditional US retailers and brands with a solid value prop should finally breathe a sigh of relief. The question is -- is your product good enough to benefit from the playing field changes? This could expose the pretenders even more if consumers don't respond.
In any event, the excuses are gone. What remains to be seen is the consumer behavior, and any administration walk-backs.
Still the most likely outcome however? Temu and Shein continue to grow unabated. Much like Amazon before Ecommerce itself was taxed. Ultimately an early advantage that disappears, still advantages that early mover. In this case our old friends Temu and Shein.
[References:]
Our Second Story
AI Won't Solve All The Problems, But We Don't Realize It Yet
Eternally optimistic technologists and the investors that love them are currently convince that AI can replace an entire workforce. Sadly, it seems like we are going to have to learn this hard way.
Listen, I have been studying AI since college. My Master's Thesis was on AI Expert Systems.
AI Can Do A Lot of Things:
* "Think" and perform tasks.
* Help you learn faster.
* Research, summarize, and create.
* Save you a few bucks.
But here are a few things AI cannot do:
* Build business relationships.
* Listen to your customers.
* Visit your customer's site.
* Go to a dinner with your best client.
* Have an intuition about the market or the business based on prior mistakes.
* Make your company fun to work at.
Amongst all the talk about technology, what must not be forgotten is that it is an optimistic, hopeful community of humans that make companies great places to be.
Listen to your customers. Trust your gut. Keep your north star.
[References:]
Our Third Story
UPS Q4 2024: Steering Towards Margin, Away From Amazon
Say what you want about UPS, they are steering the ship, however they are operating in rough waters. The rough waters are the slow growth of the US small parcel market ex-Amazon, USPS rate and service changes, and the company's dependence on Amazon for growth.
* UPS is steering away from Amazon. 50% of its volume from Amazon will reduce by the end of 2026.
A few interesting stats on the call related to UPS biggest customer:
** Amazon's contract came up this year, and it seems to me UPS was itching to change it. Carol Tome likely thought Amazon was taking advantage of UPS.
** Amazon is 20% of UPS volume but only 12% of revenue. I imagine profit is less than that, so it's a lot of song and dance for difficult output.
** As part of this glide-down in volume, UPS will also close about 10% of its facilities. These are real hard costs, which will reduce Capex, maintenance, and importantly labor costs -- all of which UPS has been focused on.
* Incidentally this glide down in volume from Amazon is 5x faster than their reduction in Amazon volumes in the last 4 years.
* USPS is steering its last-mile service to incent shippers to inject further upstream, and not just use USPS for its last mile services. This has caused UPS to drop USPS from SurePost entirely as of Jan 1, 2025.
The upshot of these changes? UPS is expecting to move US domestic operating margin from 10% to north of 12% by Q4 2026. Those are big moves. In order to do that, UPS had to give up on its revenue growth ambitions.
You read that correctly, UPS is giving 2026 margin guidance. That is a gutsy move.
In terms of Q4, delivery performance was good:
* Average on-time service led the industry by 470 basis points over our "closest competitor" (FedEx)
* Revenue per piece flipped positive, but on the back of pricing increases primarily.
This will make UPS a more resilient, more efficient, leaner company. At the expense of being the biggest. Where have I heard this before? Better Not Bigger was Carol Tome's strategy since she took over UPS -- seeing the writing on the wall that you can't out-Amazon Amazon.
Instead, UPS hopes to drive away price-sensitive customers and drive towards customers that will give them more pricing power. And that means stepping away from US domestic parcel volume growth, because the volume growth would have taken the investors into an ocean of red ink. And likely putting the company in a very unstable position.
Whether you like UPS performance or not, Carol Tome has a plan and is executing it. There have been missteps with Union contracts and USPS neogtiations, but there is a steady hand on the rudder here.
If you have the margin to devote to its reliability, UPS desperately wants your business, but it's going to cost. Price-sensitive customers need not apply and should trade down, constructing their own network from regional carriers, zone skipping, and inventory placement.
[References:]
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And Our Last Story
AI Is Not the New SEO. Brands Could Be In a Marketplace Without Realizing It
Brands want to be in AI, but be careful what you wish for. Things you could give up that are either already here, or are coming soon:
* Control over your user experience
* Control over what brands you are displayed next to
* Control over your shipping messaging
* Loss of opt-in or other marketing
* Your on-site personalization efforts ignored
How many hundreds of thousands of dollars of brand investments could fall by the wayside. Even your platform could be completely irrelevant.
Google tried to build a marketplace many times but could never execute.
AI does not care about building a marketplace, but you could be in one anyway.
Advice of the future could look like:
* Build a high-quality product.
* Build a relentless and high-quality content and media engine for your brand.
* Take care of customer service issues so your consumer sentiment doesn't bubble over.
* Deliver fast in the event AI starts testing this too.
* But ... Don't overspend on your eCommerce platform and UX apps.
Why don't overspend on yoru platform? Many consumers will never even see them. The consumer will be where they are, and they won't know or care if you are on Oracle, Shopify, BigCommerce, etc.
Disintermediation is coming. AI is in the driver's seat, but powered by the consumer's intent.
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Influencer Marketing Platform ShopMy Raises $77.5M in Series B Funding
Creator and influencer marketing platform ShopMy has announced that it has raised $77.5 million in Series B funding at a reported valuation of $410 million that will be used to hire talent and enter new sectors, including health & wellness, food and beverage, hospitality, and kids & family while deepening its position in fashion and beauty. ShopMy has turned influencer recommendations into performance-driven marketing, which offers brands opportunities to reach new audiences.
Second
Medical-Apparel Maker Figs Turns Down Story3 Offer
Healthcare apparel maker Figs has turned down Story3 Capital Partners' takeover offer to acquire all outstanding common shares at $6 a share for the Figs shares that it doesn’t already own which would value the company at over $1 billion. The company rejected the offer and is confident standalone plan and prospects according to a Securities and Exchange Commission filing. Figs is another company that boomed during the pandemic and is now under pressure generate profits and revenue.
Third
Consortium Brand Partners Acquire Home Décor Company Jonathan Adler
Consortium Brand Partners has acquired the iconic home decor, furniture, and lifestyle company Jonathan Adler through a strategic partnership with American Exchange Group. This is the third acquisition that Consortium Brand Partners has made in the last 18 months, and they have invested in Draper James and Outdoor Voices. This is an example of PE funds like Consortium Brand Partners investing in a theme or a sector to grow revenues and are constantly looking at targets.
Fourth
Bamboo Rose Acquires Verteego
Retail supply-chain management platform Bamboo Rose has acquired Verteego, an AI-based supply-chain automation solution, for an undisclosed amount. The combined entity empowers retailers' claims to automate complex decision-making and unlock the full potential of its data. Were these companies competitors?
AND FINALLY …
Advent Reaches Deal To Acquire Duke’s Mayo Owner Sauer Brands
Private Equity buyout fund Advent has acquired Sauer Brands. a platform of condiments and seasonings brands, at a reported valuation of $1.5 billion from Falfurrias Capital Partners for an undisclosed amount. Sauer Brands was acquired by Falfurrias Capital Partners in 2019 for reportedly around $300 million and will likely gain from Advents consumer brand experience..
Today’s final word for the week of <week>:
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Did you know that RMW Commerce has a brand new podcast? Check out The Watson Weekend for an unfiltered and lively eCommerce chat each week with me, Rick Watson, my co-host Jess Lesesky, and an array of interesting guests and topics. All focused on eCommerce. You can find the Watson Weekend by searching for it on iTunes, Spotify, or Youtube.
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.
