eCommerce Strategy Consultant - Rick Watson - RMW Commerce Consulting

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Amazon’s Q4 Earnings, Maersk sees global trade contracting, Fanatics and Livestream shopping, and Warehouse construction in North America

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It’s February 13, 2023 and this is the Watson Weekly - your essential eCommerce Digest!

Today on our show:

  • Amazon Reports Q4 2022 Earnings

  • Maersk Sees Global Trade Contracting in 2023

  • Fanatics Makes Push into Livestream Shopping

  • Warehouse Construction in North America Slowing

- and finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.

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To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.

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BUT FIRST in our shopping cart full of news….

Amazon Reports Q4 2022 Earnings

Amazon recently reported earnings and overall the results were not good.  

* $513 billion in net sales

* Negative $2.7 billion in operating income

If I saw these numbers on the screen during an episode of the TV show Breaking Bad, I would say “Another great business model setup by Saul Goodman!”

Half a billion dollars and no profit?

Let’s start with just the straight numbers:

In Q4 2022, net sales increased 9% year over year, with North America coming in at 14%, weighed down by an international drop of 8% year over year.  Amazon Web Services operating income was down 10% year over year from $5.3 billion to $5.2 billion.

For the full year 2022, net sales increased 9%, led by North America at 13% growth.  Amazon Web Services sales increased 29% year over year.

Beyond that, after listening to the entire call I wanted to point out a few disturbing trends I took from it:

First, Amazon did not forecast beyond Q1 2023, which made investors nervous.  

Second, the golden goose Amazon Web Services is getting less profitable as investments continue, mostly because its customers are trying to reduce their IT spend.

* Revenue from Amazon Sellers grew 24%!  However, Amazon’s net sales grew only 2%. Sellers are paying fees that are growing 20 times faster than net sales growth. That’s not a trend that can continue very long.

I can tell you from first-hand experience, there have never been more sellers in my personal network rooting for the success of Walmart.  Walmart, people!  The OG evil empire for suppliers is now the cool kid at the dance.

* Amazon’s Subscription Services or revenue from Prime subscriptions grew 17% year over year on a quarterly basis. This sounds good until you realize prices increased earlier this year by about 17%.

An important question I have is, did Prime membership do a lot of running in place last year? The company invested billions in Lord of the Rings and NFL Thursday Night. You would think that these properties would increase growth at a faster rate.

Instead, I think what is probably happening is that customers are using these properties as excuses not to cancel Prime.

* Amazon is not planning to expand Amazon Fresh significantly in 2023 because the company has not yet found product/market fit at the right economics. This statement came from Andy Jassy himself.

Whew.  So those were the disturbing trends. Let’s talk about a few highlights:

* Amazon had the biggest Cyber Week ever.  

* Amazon’s advertising business continues to do well, and grew 23% year over year based on Q4 numbers.

* One metric that many analysts track is what percentage of Amazon’s units are provided by third-party sellers. Amazon released that in Q4 this number was 59% of total units.

Look, Amazon doesn’t really need me to point out that its costs are too high. Management is well aware of it. The more disturbing trends to me overall include the slowing growth of Prime, increasing video investments, the short-term headwinds for Amazon Web services, and rising seller fees.  

This is not a recipe for a great 2023 for Amazon.


[References:]


Our Second Story

Maersk Sees Global Trade Contracting in 2023

A Bloomberg report shows that Maersk believes that global shipping container volume will be in a range from approximately flat to down about 2.5% this year over last year.

There are a few reasons why:

* One, demand is contracting after a period of high peaks, and now the supply chain bottlenecks have settled back down.

* Two, brands still have too much inventory which reduces the reasons to order more.

* Third, volumes from the Maersk ocean segment dropped 14% year over year in Q4 of last year, which could say something about the inventory levels needed for the first half of 2023.

These are important numbers to listen to because Maersk controls about one-sixth of global shipping container trade. In addition to Maersk, the other player that this will affect is global logistics technology provider Flexport, which recently paired up with Shopify.  

This doesn’t bode well for the short-term value of Shopify’s investment.


[References:]

Our Third Story

Fanatics Makes a Push Into Livestream Shopping

The Wall Street Journal reported last week that Fanatics hired a senior Google executive to head up a new livestream shopping division. Here are some details on the move:

* Nick Bell, formerly a product leader at Google, was named CEO of the new initiative. Nick was previously Head of Content at Snap and other digital content properties such as News Corp.

* Fanatics has a database of 90 million sports fans and will focus on creating content and community for creators who sell trading cards.

* The initial content will focus on breaking new boxes of trading cards, and selling them to followers.  This is a great idea, because this idea is already popular on Youtube.

After years of the industry wondering if livestream shopping would ever succeed in the US, is this the coming out party?

Sadly, this is not the case. That doesn’t mean it won’t be valuable for Fanatics, however. Here’s why:

* Fanatics has an extremely focused audience and doesn’t have to appeal to every type of person.

* Great organic content, including video, is one of the best acquisition strategies for any kind of content creator at the moment.

* Fanatics can follow the lead of Youtube and Tiktok. The more unique content Fanatics can put on its website, the more engagement it will have.

It’s important to note here that when you have an engaged audience, the best thing you can do is to keep creating higher and higher quality content to delight them. This is great advice for any modern brand. Figure out who those fans are, and constantly experiment with what content they will love.

The Watson Weekly podcast itself is an example of building content for eCommerce fans - it’s not going to change the world by itself, but if it’s creating more engagement then it should be an area of increased investment.

[References:]


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And Our Last Story

Warehouse Construction in North America Slowing

Warehouse developers like Prologis are slowing the build-outs of new warehouses, according to a new report by analysts interviewed by the Wall Street Journal.

Here are a few stats which highlight the trend:

* New US industrial construction starts fell by 24% in Q4. Given that most warehouses take about 12 months to complete, this could mean that as we exit the year and get into 2024 the amount of new space coming online could slow.

* Reports indicate that developers margins are under pressure from two sides - one from falling lease prices, and the other side being higher building costs due to labor and materials.

* Lastly, retailers have slowed their leasing, which has caused builders to slow their building. This is literally the definition of a bullwhip effect. In this case, current uncertainty is causing delays or cancellations of things that would produce results in 12 to 16 months from now.

Despite the fact that the labor market is strong and the consumer is not overleveraged, no one really trusts what might happen if something goes wrong with the economy. It’s like we’re all waiting for some kind of new existential shock because isn’t that what our lives have become in the last few years?  


[References:]


[PAUSE]

Hey Watsonians, this is Rick.  If you’re looking to discuss eCommerce topics with other listeners, you can find it all at the RMW Commerce Community. There, you’ll find a trusted group of listeners just like you who are passionate learners of eCommerce. So don’t delay, just visit community.rmwcommerce.com to sign up for free.

It’s That Time, Friends, for our Investor Minute.  We have 5 items on the menu today.

First

Triple Whale raised $25 million for its Shopify data and reporting app.

The company plans to use its cash to expand into the advertising space.

Triple Whale is a very popular app for Shopify small businesses, and it’s notable that Shopify participated in the fundraising round. Triple Whale has become almost like a meme app in the Shopify community, and I think it highlights one of Shopfy’s core positioning issues.

Shopify, which market is more important to you - the small business or the enterprise? No enterprise would ever use this app, and the fact that Shopify has to invest in another app for small businesses to get basic reporting to its merchants is not a good look either.

Link:  https://www.bloomberg.com/news/articles/2023-01-31/ariana-grande-to-buy-r-e-m-brand-from-for-15-million-from-morphe-owner



Second

Vertical farming company Plenty secured $400 million in funding and partnered with Walmart.

Plenty is an indoor farming company that claims to be able to grow plants closer to where they’re eaten. Which is fine, but I think the question is can they make enough product to serve the demand?

Link:  https://www.thepacker.com/news/industry/plenty-partners-walmart-secures-400m-funding



Third

Optilogic secured a new investment to transform supply chain design.

OptiLogic is a supply chain design software company that has raised $13 million from MK Capital.  The software is designed to help people plan and grow their global supply chains.

Link:  https://www.prnewswire.com/news-releases/optilogic-secures-new-investment-to-transform-supply-chain-design-301734840.html


Fourth

Supply chain visibility platform Craft raised $32 million in Series B funding.

Craft provides a dashboard for all your suppliers with risk analysis, prediction, collaboration, and intelligence functions.

Investor BAM Elevate led the round.

Link:  https://siliconangle.com/2023/02/01/supply-chain-visibility-platform-craft-raises-32m-series-b-funding/


AND FINALLY …

B.I.G. Logistics secured growth and acquisition financing from Serengeti Asset Management.

B.I.G. Logistics is a third-party logistics platform that focuses on international logistics throughout Texas and Mexico. The new capital will be used to accelerate its mergers and acquisitions strategy.

I do have one question though. If you were running B.I.G. Logistics, wouldn’t you make the tagline “More Parcels More Problems?”

Link:  https://www.yahoo.com/now/b-g-logistics-secures-growth-133500762.html


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That’s all for this week! Till next time Watsonians.....

[PAUSE]

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.