April 15th, 2024: AllBirds gets Nasdaq delisting warning, Revenue and profit at TikTok’s ownership growing, Andy Jassy annual shareholder letter, and Inventory and cashflow key to the future of retail
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s April 15, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
AllBirds Gets Nasdaq Delisting Warning
Revenue and Profit at TikTok’s Ownership Growing
Andy Jassy Releases Annual Shareholder Letter
Inventory and Cashflow Key to the Future of Retail
- 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….
AllBirds Gets Nasdaq Delisting Warning
This story is in the pour out some liquor department. For years I wore Allbirds because they were comfortable and interesting. They were never really the coolest shoe, but they had a niche in the market. Somewhere along the way, AllBirds lost its way.
First, it seems like they got outside of their lane. They manufactured a whole bunch of wool apparently see-through leggings in 2021. They had to discontinue the product a year later because it didn’t work.
The company’s sustainability message failed to catch on in the long-term, as some of the materials caused product quality issues which diminished the brand value.
As the company tried to appeal to a broader set of runners, other companies like Hoka and On beat them with technical features and reliability at the same time, and became their own movement.
On the other hand, AllBirds pretty much everything they did after they created their first main shoe did not spin to gold. They tried to go after too many customers with too many product lines, all without a new hit product. Meanwhile, their existing product had quality issues. In an industry where you need hits to survive, this is the recipe for disaster.
A company with confused messaging and struggling with cashflow who is also holding a lot of inventory that they can’t sell. Sounds like a warning to other hot brands if you ask me.
So where does the company go from here? Well, in my mind, don’t be surprised if AllBirds in the next year or so joins the ranks of brands in the waiting arms of brand licensing firms like ABG and WHP Global. These firms love to capitalize years of other people’s brand equity and then create international collaborations and line extensions to drive value.
If that happens, don’t be surprised if AllBirds loses its sustainability edge entirely and becomes just another shoe brand.
[References:]
https://www.businessinsider.com/what-happened-to-allbirds-rise-fall-2023-4
https://www.wsj.com/articles/how-allbirds-lost-its-way-a44d5415
Our Second Story
Revenue and Profit at TikTok’s Ownership Growing
An article out of Bloomberg I believe is a story worth watching, from TikTok’s parent company ByteDance.
The report is that ByteDance experienced a lot of growth in 2023, and a 60% jump in profit.
In fact, compared to a 2022 profit of $25 billion, their profits rose to $40 billion in 2023. This is on sales of about $120 billion. That is some serious operating profit if those numbers are correct.
On the back of this, the question is really, what does TikTok do next? Well, the reports here are interesting too. The company previously set out to create a $17.5 billion dollar business this year with TikTok Shops, and while a lot of that is going to be the cheap schlock you often find on TikTok, there are going to be some legit brands who figure out how to do business here as well.
Despite all this, when it comes to TikTok, the big question of the moment is, will they be allowed to stay in the US market at all? And who the heck knows is the answer to that question. I can’t read the political tea leaves better than anyone else.
But if you want to bet on the United States Congress actually getting something done, you can pretty much make a living betting against any real progress happening, in other words betting the under. If the Congress wants reforms, chances are ByteDance is willing to share interest in TikTok with foreign investors in exchange for staying power in important markets like North America.
Even for the US, there is too much money to ignore by allowing them to stay in the market, and as a social media platform, it’s not like they are dumping as much products as Temu or Shein, so it would be kind of nonsensical to ban them from that point of view.
If you follow the money, chances are TikTok is going to stick around is the bet I would make if someone forced me to make a call on this.
[References:]
Our Third Story
Amazon Releases Annual Shareholder Letter
Amazon’s CEO Andy Jassy recently released the company’s annual letter to shareholder letter. There were a number of exciting and interesting topics we want to unpack here.
* An Increasing Focus on Lower ASP Items
It's well known that in the 1P and 3P businesses, Amazon over last decade has culled its catalog to remove items where it cannot realize a profit, whether offered from the merchant or Amazon itself. It's clear that Amazon is thinking about this the opposite way now. How can we be structurally profitable for more items?
From my view, Amazon saw the potential threat from cheap items from Asia.
> It drew a straight line from here to transportation costs.
> The straight line continued from a national fulfillment center to a regionalized one.
> This straight line continued from a regionalized center to doubling its same-day facilities.
A few stats: same-day/overnight items increased 70% y/y. they consider this the key to everyday essentials growing 20% y/y.
Look out corner store, and look out neighborhood pharmacies.
> All of this putting products closer has reduced costs to serve $0.45 per unit YoY. It strikes me that Amazon is continuing to focus on this.
* Cost to serve and low ASP items called out explicitly
I hadn't seen Amazon mention cost to serve in an annual letter before? I think there is a clear reason why.
It's clear to me that Amazon is worried about getting "reverse-flywheeled" and in the last few years has taken steps to get ahead of this trend. A reverse flywheel might have been:
* cost to serve too high
* amazon removes or craps items it can't serve profitably
* those items migrate to Chinese marketplaces
* consumers follow
* Chinese marketplaces now can go up-market because they have the consumer now, too.
Amazon wants to fix "root cause" here, and they determined that an important multi-year priority was reducing cost to serve, and 2023 was the first year (not the last IMO) that they saw the fruits of their labor.
Reducing costs to serve and improving their same-day logistics, also helps with a few other goals:
* Growth in free cash flow and operating margin. Operating income in 2023 improved 201% YoY from $12.2B (an operating margin of 2.4%) to $36.9B (an operating margin of 6.4%).
* Re-thinking grocery. I noticed grocery finally got a mention with a thought-provoking question:
"What if we used our same-day facilities to enable customers to easily add milk, eggs, or other perishable items to any Amazon order and get same day? It might change how people think of splitting up their weekly grocery shopping, and make perishable shopping as convenient as non-perishable shopping already is."
It still doesn't solve Amazon Fresh stores, but to understand that Amazon is thinking hard about perishables in addition to Temu - more on this later.
Finally, if you follow AWS, it's built on a core of developer primitives. Jassy thinks about all of Amazon this way. More to write here too.
[References:]
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And Our Last Story
Inventory and Cash Flow Key to the Future of Retail
The more eCommerce businesses I see, the more patterns I see. Lately the pattern has been about inventory and cash. But more specifically, it's about survival.
How you use cash and turn inventory is changing in eCommerce and rapidly. The game used to be about distribution. Getting inventory close to the customer and then figuring out how to sell it. That works for extremely high-demand products. Very few can execute this. For everyone else, we must adjust.
Just to go allllll the way back to the beginning of the PC revolution. 40 years ago.
Dell was founded in 1984 in a dorm room in Austin, TX on a simple idea: Keep inventory nearby but don't own it. Instead, assemble to order and ship it direct only once after assembly, right to the consumer.
In 2024, eCommerce is going to the same simple idea: Keep raw materials nearby, but don't use them until there is demand. Instead, manufacture as few pieces as possible for the actual demand, right to the consumer.
If this model works in your category, your category will go there. Margins will demand it.
The below buckets are not "all or nothing" so you will need to discover where each apply in your product line.
Every merchant must find pockets to operate in Option 1 and 2, and get out of Tier 4 unless they have extremely high margins. Retail (Option 3 here) still has a place, but you better have low inventory commitments and high traffic or be able to sell into partners who have the same.
Otherwise if you are in Option 4, one of these other models will outcompete you.
Option 1: Consumer to Manufacture
Start with a network of manufacturers who take low MOQs.
Use demand signals on your website and advertising funnel to gain insight into customer preferences.
Use those preferences to manufacture the smallest MOQs possible.
Ship directly to the consumer from as close to the factory as possible.
Does not (yet) work for heavy products.
Option 2: Marketplace Model
Own nothing. You generate the demand, someone else fulfills it. Retail is only the vehicle.
High-margin services like advertising, subscriptions, fulfillment, and insurance are your revenue model.
Option 3: High-Traffic Retail
Good retail is still valuable. Consumers need help making decisions and value experience and great service. You better have brand names, or be able to develop your own brand names. You better have low inventory levels and be able to reorder quickly, or use one of these other Option 1 or Option 2 models to manufacture in small batches.
If you can't create the foot traffic, however, you are dead.
Option 4: Buy and Pray DTC
You guess what the consumer might want.
You guess how many to manufacture.
You put the product on a boat.
You store it locally.
Pray you can create enough demand
In this option, your gross merchandise margins better start with an 8.
Otherwise, no amount of AI-based forecasting will help you.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Vermont Flannel Acquires Vermont Teddy Bear
Vermont Flannel, part of USA Brands, has acquired Vermont Teddy Bear's assets for an undisclosed amount. Vermont Teddy Bear sold Pajamagram, Pajamajeans, and the 1 for U to an affiliate of Lionel Capital. Adding a teddy bear to pajamas makes sense. Hopefully they got acquired for more than the stuffing inside the bear.
Link: https://vermontbiz.com/news/2024/april/05/vermont-flannel-owners-acquire-vermont-teddy-bear
Second
Stord Acquires ProPack Logistics
Fulfillment provider Stord has acquired ProPack Logistics, formerly known as Integrated Fulfillment Management Services (IFMS). The acquisition broadens Stord’s fulfillment capabilities for omnichannel brands and widens its network in the US and Canada, particularly with regards to temperature controlled facilities.
Link: https://www.stord.com/newsroom/stord-acquires-propack-fulfillment-across-north-america
Third
FullBeauty Brands Acquires Dia & Co. Marketplace
FullBeauty Brands has acquired Dia & Co, a size-inclusive marketplace, for an undisclosed amount. This is FullBeauty Brand's third acquisition in the size-inclusive sector in the past 12 months. The fact that they amount was undisclosed is usually a good indication that Dia & Company was not a going concern and so they needed an acquisition to rescue the business.
Link: https://www.retaildive.com/news/fullbeauty-brands-size-inclusive-marketplace-dia-acquisition/712259/
Fourth
Gather AI Raises $17 Million in Series A-1 Funding
Gather AI, an AI-powered warehouse inventory monitoring solution, has raised $17M in Series A-1 funding to invest in its technology to attract new customers. The technology is designed to use drones inside of warehouses in order to track inventory.
Link: https://www.pillsburylaw.com/en/news-and-insights/gather-ai-17m-series-a-1-funding-round.html
AND FINALLY …
Shopping Social Network Flip Raises $144M In Series C Funding
Social shopping network Flip raised $144M in Series C funding and partnered with AppLovin to relaunch its brand marketing solution. Is this another marketing platform camouflaged as a social shopping network? Either way, shopping and social media combined seems like something that TikTok Shop is designed to kill.
Today’s final word for the week is “Cashflow”: Meaning, you either manage your cashflow or you are dead. If you have too much tied up in inventory, it’s time to let it go. It’s time for a lot of companies to transform and it begins and ends with your balance sheet. Stop thinking about how to market the inventory you happen to have, and start thinking about how to buy smarter against your demand instead.
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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.