April 11th, 2022: Farfetch invests in Neiman Marcus, the new CEO of FedEx, Macy’s expands supply chain operations, and Staten Island Amazon workers unionize
It’s April 11, 2022, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Cross-border Marketplace Farfetch Invests in Neiman Marcus Group
Raj Subramaniam is Promoted to President and CEO of FedEx
Macy’s, Inc. Expands Supply Chain Operations with New Fulfillment Center In North Carolina
Amazon Workers in Staten Island Voted to Unionize
- 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….
Cross-border Marketplace Farfetch Invests in Neiman Marcus Group
Last week Farfetch and Neiman Marcus announced a tie-up which covers a number of elements:
1 - Farfetch just invested $200 million in Neiman Marcus giving the venerable department store a financial shot in the arm.
I estimate that this gives Farfetch something like 4% to 6% ownership of the business, assuming that Neiman’s valuation is something like $4.5 billion, which approximates its 2019 sales, though they are off that pace now. But it's on the order of magnitude.
Obviously this is a significant amount. Coming off bankruptcy two years ago, Neimans continues to need partners that have similar vision for the luxury segment, but also deep pockets.
Getting a "strategic investor" that believes in the vision is a smart move for Neimans at this phase.
2 - Farfetch gets a new customer for its Luxury Crossborder Platform Services.
While the cross-border industry likes to talk about Global-E and ESW, there is another large player in the cross-border space and that is Farfetch. The comapny has slowly been putting together a global eCommerce platform stack incorporating inventory management, logistics, Chinese distribution, content management, and customer service – all focused on the luxury space.
Farfetch has a partnership with Alibaba, and had previously partnered with and received a large investment from JD. Put another way, JD is a small owner in NMG now.
Most of Farfetch digital revenue comes from third-party transactions on its marketplace.
While it’s obviously expensive to buy customers – and this isn’t a scalable customer acquisition technique – having the right customers on your platform while at the same time owning a stake in a company can have benefits. What happens next depends on too many factors to tease out immediately.
What does this move signal?
- The first thing is that Neimans needs capital to continue investing in transformation. Recall that the company is only two years removed from bankruptcy.
- Secondly, Farfetch needs to continue to build another major revenue stream in technology and services – and not just rely on fickle consumer tastes on its own marketplace – although it has a good position there.
- Finally, Neimans needs the ability to show fresh new international brands to its luxury shoppers, which Farfetch can provide. This point is more speculation on my part.
At the end of the day, whether or not this is a valuable partnership will have more to do with the growth and health of Neimans than anything else. If Neimans stumbles, Farfetch could be left holding a big bag of nothing. If Neimans grows and continues expanding, then Farfetch could have a good relationship with one of the few luxury retailers out there.
[References:]
Our Second Story
Raj Subramaniam is Promoted to President and CEO of FedEx - What Happens Next Is Anyone’s Guess
So the big news in the supply chain world in the past week is that FedEx’s Fred Smith has decided to step down from his role as CEO of FedEx, elevating to Executive Chairman only and promoting Raj Suramaniam to President and CEO.
In the history of CEO succession where an internal candidate is chosen, there are a few different paths. In this case, in choosing Raj, the message is that the company is looking for continuity.
In a competitive shipping market that needs innovation, this is an odd message. FedEx has been steadily declining in the past five years.
One possible explanation is that someone who is already close to the firm could set the company up for a quick restructuring and strategic review. The catch is, that would have to be announced very quickly and usually accompanied by an external CEO search.
Let’s be honest. There has been a huge and well-documented flight of talent from FedEx to Amazon, especially in the past 10 years, as Amazon has built out its worldwide logistics network.
My advice for Raj?
The first order of business is to fix the company’s talent issues. That’s number one.
Number two, it really does need a strategic review of its innovation processes — which include its technology and data infrastructure with an eye towards quick decision making. It doesn’t matter what is in the innovation pipeline if the innovation is coming too slowly. All you have is the company slowly dying and over relying on acquisitions for growth.
Number three, a portfolio review is probably in order as well. After all these years, why aren’t the networks fully integrated? Does FedEx have a serious place in the 3PL market? Which cross-border lanes are the most strategic going forward? How does an end-to-end high-end network compete in a specialized market with so many growing regional players? How do you specialize your revenue targets beyond simply saying you are focused on SMB?
This and more awaits Raj - we’ll see what happens next.
[References:]
Our Third Story
Macy’s, Inc. Expands Supply Chain Operations with New Fulfillment Center in North Carolina
A new release out of Macy's makes me wonder what is going on with its supply chain planning.
The reports are that Macy’s is planning to introduce a $584 million facility in North Carolina expected tol launch in 2024.
The new facility will serve 30% of Macy’s volume and ship nationwide. This is odd to me for a few reasons:
1 - That is a lot of cash to drop on a new fulfillment center. Is it totally necessary or is Macy’s playing financial games with tax breaks?
There are many providers for which you don't have to put that much cash up-front to establish large fulfillment centers. Instead that is converted to operational expenses.
Macy's does have the volume to justify it, but I am not hearing enough how this is part of an optimized supply chain strategy.
2 - The amount of money on this new facility is in the range of similar facilities from Amazon. Is the facility as efficient as Amazon?
Big question in my mind. And even if it is, will Macy’s be able to staff it? That is the million dollar question in the fulfillment space right now.
3 - Unlike Target, Macy's is not terribly focused on shipping directly from its stores,which are more often attached to declining malls and not stand-alone.
What then is the path to lower supply chain costs given that half Macy’s costs are in the last mile?
4 - UPS must be overjoyed since Macy's is a UPS customer. If you are shipping nationwide from North Carolina, you must be pretty comfortable using an end-to-end carrier rather than trying to use different partners or breaking up the fulfillment process into various components/legs of the journey.
"We ship nationwide from North Carolina," said almost no one.
5 - Half a billion dollars could probably have been used to upgrade and modernize the Macy’s store experience.
I still feel that despite the growth in its digital eCommerce business, Macy's cannot win on digital alone. If it wants to win, it needs to present a coherent plan for getting customers back into its stores consistently.
Which means retail stores remodeling, i.e. that half a billion in cash could have been put on concept stores that would help Macy’s physically transform .
Look, I get it. There’s such a thing as tax incentives and they can help subsidize or write off up to half of an investment like this. The big challenge is then delivering the experience your customers want, and how much leverage does this get you?
[References:]
https://www.macysinc.com/investors/news-events/press-releases/detail/1751/macys-inc-expands-supply-chain-operations-with-new
And Our Last Story
Amazon Workers in Staten Island Voted to Unionize
Amazon workers in New York's Staten Island just made history, becoming the first group to vote in favor of unionizing at a U.S. facility operated by the country's largest eCommerce company.
Obviously the headline is very splashy and there are a lot of people talking about it, so I thought I would outline what this is and what it is not.
Let’s start with the obvious. This is not Amazon unionizing across the board. This is one facility. And this only affects the warehouse workers in that facility; it doesn’t affect all the Amazon Delivery Service Partners who are franchisees or independent contractors.
Clearly this doesn’t have anything to do with corporate Amazon – people like software developers and data scientists and managers are usually not thinking about unionizing because they are in a hot market.
Second, there has been a lot of “the sky is falling” commentary that this will make unionization popular everywhere, which I don’t think is necessarily the case. The culture in each state is different, and so are the workers.
The most important point here is that people are talking about how workers will learn from this effort, but are completely discounting the fact that one of the best companies in the world at doing a post-mortem is Amazon. The company will have its own learnings from this, and the efforts of unionization will likely help, not hurt, in the long-run – despite Amazon’s efforts to stop it – because it will help retain some workers longer.
Third, I predict that Amazon could end up cutting some benefits for newly unionized employees in upcoming negotiations if its overall costs go up.
Analysts who have studied the situation have said that every 1% of Amazon’s front-line workforce that unionizes would lead to an incremental $150 million of annual operating expenses.
However, given the fact that Amazon has about $454 billion in annual operating expenses, in the short-term this is not going to be affecting Amazon very much.
Keep in mind, this effort became something of a personal vendetta after a senior vice president at Amazon hurled personal insults at the eventual successful union organizer.
The biggest lesson for Amazon of all in this whole situation is that Amazon executives may finally learn to keep their big mouths shut.
[References:]
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It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Mobile eCommerce Startup Via just raised $15 million in Series A funding after reaching $51 million in sales in its first six months.
The company feels to me more like Klaviyo for a mobile generation. Treating SMS as a way of doing business instead of just another way to blast marketing promotions at people.
Second
Brand connectivity platform Cymbio recently raised a $20 million round led by Paypal Ventures, which is its venture capital arm.
Cymbio’s various features include helping brands dropship efficiently into retailers and marketplaces, connecting products, inventory and orders seamlessly to trading partners.
Congrats to founders and friends of the show Roy Avidor and Mor Lavi!
Third
Amazon aggregator Society Brands acquires brand management firm OmniX.
Society Brands previously raised $200 million and agencies are usually not that expensive, so this may be a cheap pick-up for an aggregator that decided it was easy to acquire a business but very difficult to actually run an Amazon business.
Any aggregator without experienced operators at this point is in the danger zone.
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Fourth
One of my favorite websites, second-hand furniture marketplace Kaiyo.com (pronounced Kiyo) just raised $36 million to aid its expansion.
The company competes with firms like AptDeco, which make furniture buying easier than on sites like Craigslist. Just the furniture delivery service itself from these companies makes it worthwhile.
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AND FINALLY …
Styltics, a visual styling and outfitting solution, recently raised $80 million in a Series C from a private equity firm.
This seems like a lot of money for such a company and likely sets the bar pretty high for an exit.
https://finance.yahoo.com/news/stylitics-lands-80-million-series-120035910.html
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One more thing…
Here in our investor minute, we most often talk about the growth of new businesses, but obviously while some grow some, well, do not.
One of the big topics at Shoptalk was around the fact that Fast Checkout was in the process of potentially laying off hundreds of employees.
The confirmed news is now that Fast has completely shut down.
Look, most people’s takeaway from this story will be that you shouldn’t raise too much money at too high a valuation. That’s the wrong message. The true message is more about burn rate and runway. Valuation can be corrected by the market, companies have down rounds and survive.
The end of your financial runway? Not…so… much.
But I’m sure there are a lot of Watsonians out there who were at Fast who may need help processing all the thoughts they are feeling about the next step in their careers. If you need any help thinking through your next career move, don’t hesitate to reach out to me on LinkedIn.
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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.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.