September 7th, 2021: The Buy Now, Pay Later Space, CPG Brands are Testing eCommerce, The State of the Global Supply Chain, and The Investor Minute!
It’s September, 7, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Confirmed Stories (No more than 4):
- The Buy Now ,Pay Later Space Continues to Heat Up with Affirm and Afterpay News
- Two leading CPG brands are testing eCommerce,
- The Entire Global Supply Chain is in the Trash Can, but
- That Trash Is Actually A Treasure for Off-Price Retail.
Finally, we have The Investor Minute which contains 5 items this week from the world of venture capital, private equity, and IPOs.
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BUT FIRST in our shopping cart full of news….
The Buy Now, Pay Later Space Continues to Heat Up with Affirm and Afterpay News.
I didn’t think it possible for the payments space to get more interesting, but it is. There were recently two big developments just in the Buy Now, Pay Later portion of the market.
The first is that the provider Affirm nabbed the biggest eCommerce customer of them all — Amazon. To me this says three things:
Amazon’s payment innovation in the past decade has been anemic, both on the website and Amazon payments itself. This is a functionality that was established almost a decade ago and Amazon is just adding it.
Amazon has historically been partial to building vs buying or partnering when adding new capabilities. Is this new partnership with Affirm a signal of a shift in approach by new Amazon leadership, or just coincidence?
Never bet against Max Levchin. Not only is he the founder of Affirm, but he is also a member of the famous “Paypal Mafia” as a Paypal co-founder.
The second news item in this segment is that provider AfterPay introduced an ads platform to go with its shopping portal.
It might sound confusing that a payments company would introduce an ads platform, but it makes sense if you think about the approach that AfterPay and Klarna have taken in the market.
AfterPay was founded as a two-sided marketplace between merchants and consumers. Instead of just providing a payment capability, AfterPay built a shopping portal and marketed it directly to consumers to drive more sales. This is a critical differentiator.
New merchants who sign up with these services routinely get traffic and sales through this network, along with placement and advertising money.
With the introduction of its ad network, AfterPay is allowing merchants to buy placement on these portals on an ongoing basis. This is a great idea for the company because it’s high margin and should further improve its profitability. Particularly if they already got “hooked” on this traffic source during their initial launch on the network.
>> It remains to be seen if AfterPay merchants will welcome the move or just view it as increased dependence on a third-party. If a high percentage of sales starts to come from third parties, most brand owners get nervous.
References:
https://www.adweek.com/commerce/buy-now-pay-later-platform-afterpay-in-app-ads-deals/
https://www.nytimes.com/2021/08/28/business/amazon-affirm.html
Our Second Story
Two leading CPG brands are testing eCommerce.
Articles this week talk about new developments from two leading CPG companies - Kellogg’s and General Mills.
Let’s talk Kellogg’s first. The company launched a new website for its Cheez-It brand as part of its 100-year anniversary at shop.cheezit.com.
What will you find there?
New flavors of the traditional product as well as merchandise exclusive to the channel, including a Cheez-It wine tumbler and an absolutely wild Cheez-It fanny pack. These products may seem like gimmicks, but when raving fans post them on social media, the traffic and buzz generated is legit.
Incidentally, I checked the return policy and you can’t return the Cheez-Its. Probably a good move.
General Mills is taking a slightly more limited approach with its Cinnamon Toast Crunch brand. While the article mentioned eCommerce, I can’t find the website and only contests were referred to. Sorry but there is a difference between contests and eCommerce, people.
Newsflash: If you want results when entering the market, your approach matters.
Despite the swing and miss by General Mills here, the trend is undeniable. The key to success here is the ability to test demand prior to selling through retail, and in a way that retail channels are not afraid of.
>> Where could this go? Well, imagine the Cheez-It website becomes to snacks what Chinese manufacturer Shein is to fashion – being able to test crazy new flavors in response to consumer trends and receiving almost instantaneous feedback.
References:
-https://www.chainstoreage.com/two-cpg-food-brands-bite-e-commerce
Our Third Story
The eCommerce Supply Chain Not Predicted to Recover Soon.
I couldn’t have a single eCommerce conversation in the past few months without eventually diverting to supply chain challenges. There are several independent variables affecting each other at the same time, and analysts don’t predict this will normalize completely until at least the middle of next year.
Let’s start at manufacturing, and then follow the chain back to a warehouse in the United States:
First, there are still spotty reports of manufacturing shortages out of China, Vietnam, and other places due to COVID-related outbreaks and restrictions.
Outbound ports from China and elsewhere have labor shortages due to COVID.
Containers are in short supply, which has driven up the cost not only of containers, but also of air freight. There are also reports that trains from China to Europe – part of China’s Belt and Road initiative – are also overbooked.
US Inbound ports are completely backlogged, particularly on the West Coast, where Business Insider reported that over 45 ships were waiting in line to get into a California port.
Warehouses in the US are filled to the brim with inventory.
I for one find it completely ironic that supply is constrained while warehouses are full, but it’s not so counterintuitive. Full warehouses are buffers against months of disruptions further up the supply chain, and hedge against the rising costs of materials and containers.
The upshot for most consumers is that this will cause the continued increase of component and product prices for the foreseeable future. Just to give you some idea, the cost to get a single container of products from China to the US used to average less than $4,000. For these same products, that cost is now upward of $20,000 – and still rising.
To add insult to injury, while every shipping company has been investing, only one of them - Amazon - is actually investing tens of billions each year in extra capacity. So what are UPS and FedEx doing to combat this chaos?
Raising prices, of course! I’ll be honest, these two companies should be embarrassed. Is this the best strategic move to help brand and retail customers? I am sure FedEx and UPS will forgive customers when they welcome Amazon’s future third-party shipping solutions with open arms.
>> The best summary of this whole mess comes from the Deputy Chairman of the Federation of Hong Kong Industries who said:
QUOTE
“I wish when shoppers see our product [this Christmas] they give it a KISS when they realize how difficult it was just to get it to the shelf.”
References:
And Our Last Story
Supply Chain is in the Trash, But Off-Price Retail Sees Treasure.
A recent article in RetailDive had a quote from the CEO of TJ Maxx that caught my attention:
QUOTE
“The best thing for our business for the next couple of years is to continue to grab this … market share opportunity ... Here is the ironic thing. I believe the disruption in the supply chain is going to create a future buying opportunity for us.”
END QUOTE
The big question is: Why does TJ Maxx CEO view this as a buying opportunity?
Let’s back up and talk about the mission of off-price for a moment. The off-price retail format typically sells two types of products:
1 - Those manufactured by brands purposefully for off-price outlets, and
2 - Products that are retail mistakes.
It’s this second bucket that we are interested in.
Retail mistakes can take a few forms:
- A retail buyer could buy more than they could sell-through, or
- The product was mis-merchandised or mispriced, or
- It was the right product, but it was received into inventory at the wrong time.
Wrong time is the key phrase here. We just learned there are several reasons for supply chain interruptions. Those can take the form of "wrong time," but they might also contribute to "wrong price" if a brand can't absorb those costs. So the brand raises prices, which consumers get upset… and upset consumers can lead to unsold inventory.
All these things can result in opportunity buys for off-price retailers.
>> In a world where inventory IS marketing - something I coined last year at the start of COVID - I predict these opportunity buys for the off-price retail will continue to be a boon for the sector, especially when full-price retailers literally cannot make effective buying decisions in this uncertain environment.
References:
And It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First -
eCommerce Account Software Snyder wants to automate eCommerce bookkeeping and raised $2M to do so. The trick here is getting accountants to use software other than Quickbooks.
Second -
Social Commerce company Flip raised $28M to enable creators to make more money from products they promote from their content. The founder describes the company as what would happen if Tiktok and Amazon had a baby.
https://techcrunch.com/2021/08/30/flip-bags-28m-to-turn-beauty-wellness-social-commerce-on-its-head/
Third -
B2B Amazon Marketplace sellers are now getting the Amazon FBA aggregator treatment. London-based Olsam Group just raised $165M in a combination of equity and debt financing.
Fourth -
Zebra Technologies - the maker of scanners and label printers seen in every warehouse in America - is on an acquisition spree. It’s acquired three technology companies in the past two years. In order of most recent:
1) Antuit.ai was acquired in August. It is an AI-based forecasting and merchandising tool to help retailers predict their stock levels.
2) Fetch Robotics, acquired in July, provides collaborative warehouse robots.
3) Zebra’s earlier acquisition of Adaptive Vision in May added machine vision capabilities in the warehouse.
Did I mention it’s a great time to be in supply chain technology?
https://www.businessinsider.com/zebra-technologies-acquires-antuitai-amazon-supplier-2021-8
https://www.vision-systems.com/blogs/article/14203656/zebra-technologies-acquires-adaptive-vision
AND FINALLY …
AllBirds has filed its S1 in preparation for its IPO.
The good-for-the-environment shoe company is clocking in at 50% gross margins and 30% yearly growth. This is a little higher than where I thought they would be. The company is also losing quite a bit of money and announced plans to keep losing money for the foreseeable future, but hopefully not forever?
https://www.sec.gov/Archives/edgar/data/1653909/000162828021017824/allbirdss-1.htm
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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 show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
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