April 10th, 2023: Macy’s CEO steps aside, FedEx’s new announcement, American Eagle Outfitters’ logistics leader, and Walmart’s investor community meeting
It’s April 10, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Macy’s CEO Jeff Gennette Steps Aside
FedEx Announces Integration of Express and Ground
American Eagle Outfitters Removes its Logistics Leader
Walmart’s 2023 Investor Community Meeting
- 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….
Macy's CEO Jeff Gennette Steps Aside
The CEO of Macy’s announced his retirement for early next year and Macy’s named Bloomingdale’s CEO Tony Spring as his successor.
The move feels like good timing for Gennette for a few reasons.
First, Macy’s has outperformed several other apparel and general merchandise retailers since the end of the pandemic. How likely is it that his merchandising and finance team will continue to forecast and order as well as they have been?
His tenure has pushed Macy’s to close underperforming stores and the company has taken steps to modernize its technology infrastructure, even recently launching a third-party marketplace.
Jeff has been CEO of Macy’s for the last 7 years and his career seems to mirror that of Tony Spring’s at Bloomingdales, both spending over three decades at their respective firms working their way up through the ranks.
Overall, I think there are two lessons here. For the CEOs in the audience, know when to go out on top. Assuming we are entering some kind of recession, who wants to be held responsible for that?
Second, and this is for young people… I know startups are very fashionable, but it’s not the only path in business. Working your way up through a larger corporation can be a great way to learn, as long as you are prepared to be patient. Jeff Gennette and Tony Spring are perfect examples.
I am a little bit puzzled as to why Macy’s would wait a full year on this transition; it seems like a long time.
[References:]
Our Second Story
FedEx Announces Integration of Express and Ground
Recently on the podcast, we covered the FedEx earnings call and in particular the DRIVE program. Phase 1 was closing facilities, and parking planes. It seems like FedEx’s transformation has entered a bold new Phase 2 which is more fundamental than the previous one.
This past week FedEx announced that it will be combining its Ground and Express networks. For those who haven’t followed the history of FedEx closely, over its history the company has been a tremendous innovator and one of the great American success stories. Over the past 10 years, however, the company seems to have lost more and more talent, and it has become increasingly apparent that major leadership changes need to take place.
FedEx became more than an air network in 1998 when it acquired Caliber and then rebranded its Caliber RPS service as FedEx Ground.
Since then, FedEx has largely operated as two independent companies, meaning that its ground hubs did not get handoffs from its air networks. This leads to a lot of duplication in both costs and services. This duplicate structure has been criticized over the years, but the old pilot Fred Smith stuck with it. It does not look like an accident that a few years after Fred Smith stepped down as CEO, changes were made.
Of course there are bigger things at play now. The integration of ground and air will not only have the benefits of reducing costs like employee and hub duplication, but additionally, when the networks are integrated, customers will enjoy better service.
While I think this is a good move for FedEx, the big question is are we over 10 years too late here? FedEx is being forced to make fairly substantial cost cuts and using that as a way to streamline the business rather than getting ahead of the needs of customers, as UPS has done.
It is interesting to note that the two Smiths, one the son of former CEO Fred Smith and the other not, are both getting increased responsibilities as part of this change. Wonder who will take charge after the integration? We have another year to speculate as the full implementation is not going to be completed until June 2024.
[References:]
Our Third Story
American Eagle Outfitters Removes Its Logistics Leader
After a year of positive press, acquisition and build-up, it seems like the leader of AEO Logistics, Shekar Natarajan, is out.
What happened here? Let’s review. AEO acquired automated 3PL Quiet Logistics as well as AirTerra to help the company stitch together a nationwide carrier network made up of multiple providers.
The original logic was straightforward and exciting for AEO:
Provide an alternative narrative to Amazon's dominance of logistics
Take advantage of the growth of eCommerce
Stay as asset-light as possible
Build using partners rather than attempting the messy work of vertically integrating your supply chain stack
Of course this approach has problems, too.
In logistics, anything you add to the base level of transportation, equipment, and labor is overhead.
Customers take a long time to switch logistics providers, meaning payback takes a long time.
If you don't own equipment end to end, your margin on your providers is also overhead. You won't be price competitive selling to a larger enterprise customer. You can be more flexible, but what percentage of volume will you get?
The only thing lower margin than operating a retailer is running a logistics business. Leaders should prefer to invest in higher margin businesses than their current one. Why? The cost of mistakes becomes much less. If you're investing down the margin chain, invest slowly and don't try and scale it too quickly.
Overall, the simple explanation seems to be that AEO tried to do too much too soon, and costs got ahead of investor expectations. This is a good lesson and cautionary tale for business leaders to stay very close to their financial sponsors bringing them along at each step of the journey.
In case you hadn’t gotten the memo, the era of free money is over.
[References:]
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And Our Last Story
Notes from Walmart's 2023 Investor Community Meeting
Walmart held a 2023 Investor Community Day, and it seemed to me to be a great example of a company firing on all cylinders. Great strategy and great execution yielding top-line and bottom-line results.
To be honest, Walmart’s earnings call reminded me of Target earnings call from 5-6 years ago before the economic environment changed. Or Amazon’s in its heyday.
Which tells me everything about Walmart’s priorities for the past 3 years leading up to this point – those priorities have been good ones. Let’s get back to the basics of how Sam Walton built a great business in the first place – but modernize it.
A quick review of some of the highlights from the meeting:
Walmart’s five-year plan shows profitability is growing faster than sales. Top-line sales growth was in the 4% range. A 4% compound annual growth rate will add another $130 billion on top of Walmart’s existing $600 billion business.
Walmart’s alternative and high margin revenue streams continue to grow. The group of services included in this bucket inclued: Sams membership, Walmart Plus Membership, Advertising, Data Services, and Fulfillment Services. All of these revenue streams had 40% compounded annual growth rate in the past three years, reaching over $3 billion last year. This higher margin growth engine gives Walmart significant tailwinds for their margins going forward.
Walmart’s Pickup & Delivery volume grew 40% in the last few years. Walmart revealed on the call that these customers spend $1,000 more per year than traditional customers, and 50% of Walmart+ signups come from this group, which makes them useful for other reasons as well.
As far as the Walmart US business, Walmart online has more than 400 million SKUs today, with half of these SKUs in apparel, and 60 million in home. Marketplace is a key driver of growth going forward, and the company is focused on adding high-quality items and sellers while at the same time monetizing fulfillment and advertising.
I was also impressed with Walmart’s own brands, or private label business. On the call, Walmart revealed that Walmart US now has 22 brands with over $1 billion in sales, with 8 of them in food and consumables.
What is the difference between Target and Walmart right now?
Both Target and Walmart are extremely well-run retailers. However, in the past 12 months, one is doing much better than the other. A few things stand out:
1 - The economic environment favors Walmart. Everyday Low Prices in an inflationary climate is the superior message.
Target has needed to discount heavily to keep customers walking in the door at the same rate.
2 - Walmart has much more exposure to grocery than Target does. In an environment everyone is trying to save on groceries, Walmart looks like the place where everyone migrates to.
3 - Walmart has done more than Target to develop higher-margin alternative revenue streams to retail.
The flywheel effects of Marketplace have started to kick in at Walmart after over a decade of patient improvements, false starts, and frustration on the part of sellers that things were not proceeding quickly enough.
Even now, Walmart's Marketplace is much smaller than Amazon's marketplace. But the trajectory is better now.
Marketplace revenue has tailwind effects on the company's other new revenue streams: fulfillment and advertising. Tricks the company learned from Amazon.
[References:]
https://community.rmwcommerce.com/t/notes-from-walmarts-2023-investor-community-meeting/910/1
https://corporate.walmart.com/newsroom/events/2023-investment-community-meeting
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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!
Join the community to learn and give your thoughts on what’s going on in eCommerce and Retail today. Miles Thomas and Edward Scott-Finnegan have been recently debating the place and future of free shipping in eCommerce.
You can join them and contribute to the conversation at community.rmwcommerce.com.
It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Payments provider Stripe raised over $6 billion to pay down debt.
One of the downsides to Stripe not being public yet is the inability to provide liquidity to current and former employees, as well as pay down some significant tax obligations that have accumulated because of outstanding equity.
At some point you have to think such a large company would want to go public, and that seems likely to happen in 2024.
Link: https://techcrunch.com/2023/03/15/stripe-now-valued-at-50b-following-6-5b-raise/
Second
Robotic 3PL service Nimble Robotics raised $65 million in a Series B.
The company is looking to build out a nationwide network of autonomous 3PL centers. I predict the next generation of fulfillment centers will definitely put more pressure on existing 3PLs, but the question is how much customization can such an automated facility handle? This key question will determine which brands are able to use the solution.
Third
Marketing automation provider Prescient AI raised a $4.5 million seed round.
Prescient AI is attempting to reinvent attribution for a world that is now driven by privacy but the pixel technology everyone relies on was really invented in an era when last-click attribution was good enough.
Fourth
Consumer electronics reseller Reebelo raised a Series A to support US expansion.
Reebelo has found that consumers really bought into the circular economy and enjoy the lower prices of refurbished electronics like phones, laptops, and tablets.
Link: https://techcrunch.com/2023/03/20/consumer-electronics-reseller-reebelo-series-a/
AND FINALLY …
B2B eCommerce payment company Two raised a Series A.
Two offers a B2B checkout and the ability for brands to easily offer a trade account for its dealers. There is a huge opportunity here because over 94% of B2B transactions offer offline on credit, terms and invoices. There is no doubt that venture capital is going to keep investing into B2B payments to keep peeling this B2B payment onion. Investors are hoping they don’t end up crying.
Link: https://www.two.inc/post/two-secures-series-a-funding
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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.
