April 17th, 2023: Amazon adds fees, Dollar General’s new partner, Inventory glut and supply chain costs, and changes in consumer shipping preferences
It’s April 17, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon Adds Fees to Reduce Return Costs
Dollar General Partners with a Beauty Incubator
Inventory Glut Increasing Supply Chain Costs
Consumer Shipping Preferences Changing
- and finally, The Investor Minute contains 7 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….
Amazon Adds Fees to Reduce Return Costs
I’ve been a student of marketplace dynamics for a long time, and one of the key components of any marketplace at scale is a set of carrots and sticks. One of my friends, Todd Lutwak, formerly of eBay, taught me this long ago.
The carrots are designed to incent specific behavior in the marketplace, and the sticks are designed to penalize or discourage other behavior.
It’s through this lens that I analyze a new report from The Information that Amazon is going to charge one dollar for certain types of returns made through the UPS Store.
This extra fee will only apply when there is an equivalent Amazon-sponsored dropoff location like a Whole Foods or Kohl’s the same distance from the customer as the UPS Store.
What do I think about this?
Overall, I feel this kind of thing is inevitable with Amazon, and if Amazon reduces its massive returns costs, that’s great.
I suspect Amazon feels since this fee is on the back-end of the process, it is not likely to cut down on new item purchases. Over a long enough time, however, this assumption could fall apart as consumers factor this into the decision of where to shop.
I also don’t think Amazon is considering the total customer workflow here. Just because a UPS Store is as close as a Whole Foods, penalizing the customer for going to the UPS Store might be unduly punishing for the customer. What if the customer has other business at the UPS Store and doesn’t want to make two trips?
What does it mean about Amazon?
Previously, Amazon used to be in a mode where the more convenient the company could make it for the customer, the better. Well, forcing the customer to choose the option to avoid penalties does not make it more convenient.
Jeff used to say it’s always Day 1 invention or Day 2 eventual decline. We are well into Week 1 at Amazon because now the optimizers have taken over from the builders.
[References:]
Our Second Story
Dollar General Taps Incubators to Bolster Beauty Offerings
While other retailers seek partnerships with beauty retailers to secure high-end beauty brands and attract high-income earners, Dollar General is taking a different approach by focusing on what it does best — offering customers exceptional value, even in the beauty space.
This is a growing trend – retailers either have a venture arm, or partnering with one.
In this case, the beauty incubator is Maesa.
Dollar General is smart to do this in order to find value beauty brands, whereas other retailers are only looking for higher-end brands.
One example named Believe Beauty has a wide range of beauty products all priced under $5 including cosmetics, skincare, fragrance, nail care, and haircare. With its affordable pricing strategy, the Believe Beauty brand resonates with Dollar General customers.
If you are bringing a new beauty brand to market at affordable prices, this could be something to check out.
[References:]
Our Third Story
Inventory Glut Increasing Supply Chain Costs
CNBC reports that supply chain leaders are predicting that inventory gluts are here to stay and may not normalize into 2024. How are leaders dealing with this? Discounting is one way for sure.
Selling on the secondary market is another way, Companies like American Eagle have partnered with ThredUp, joining more than 40 other apparel companies doing so.
Of course, it’s tough on a retailer’s balance sheet to hold inventory on the books. But adding insult to injury are the storage costs of keeping that extra inventory in warehouses combined with the labor to manage that extra inventory.
Many Wall Street analysts are worried about this affecting Q2 earnings and logistics experts say that about 20% of the excess inventory is not seasonal.
These fees are not just hitting retailers. Almost half of CNBC survey respondents said they are passing at least half of their new costs along to customers.
Global supply chain usage continues to be off its previous levels because of two reasons:
First, there is slack in the supply chain and transit times are not elevated. This means that unlike during the pandemic, if you need something in a couple of months, you can be reasonably sure you can get it.
Second, retailers would prefer to sell off their existing inventory before ordering more, which means that manufacturing orders are also slightly off.
Elevated orders last year and during the pandemic, combined with a slight decline this year, actually create something that looks more similar to pre-pandemic levels.
A lot of eyes will be on the next quarter’s earnings calls for consumer demand and inventory levels to see how consumers feel about the current environment.
[References:]
And Our Last Story
Consumer Shipping Preferences Changing
A recent report from the Wall Street Journal discusses the changes in consumer preferences away from super-fast shipping.
Here are a few points from the article:
In a survey conducted by Shippo, fewer eCommerce shoppers preferred same- or next-day delivery in a recent survey than a year earlier, down to 10% from 18%.
The pandemic seemed to teach consumers that sometimes things can take a little bit longer, and that’s OK too.
In the battle between price and speed, price has always seemed to be a higher priority for people.
What do I think?
First, what people say about their shipping preferences differs from what people do. A lot of people still like Prime.
Second, rather than trying to paint all of eCommerce with one brush, it’s better to think of things on a category or a need basis.
There is a need for fast, date-definite delivery that is not free. This is what Prime pioneered.
There is also a place for free or cheap slow delivery, particularly hard-to-find or low-value items.
There is also a growing need for date-definite delivery which is not necessarily blazing fast. These are for things that you don’t need tomorrow, you just want them to come sometime in the next week. If you can get incentivized to combine boxes, which saves supply chain expenses, all the better. I order a lot to arrive on Amazon Day to get one box rather than 20.
This is also what Shopify is trying to offer with its Shop Promise badge, date-definite shipping. We will see how well Shopify performs with this feature as it rolls out more broadly.
[References:]
https://www.wsj.com/articles/online-shoppings-fast-delivery-race-is-slowing-down-73d4c68
https://community.rmwcommerce.com/t/consumers-valuing-certainty-more-than-speed-in-shipping/931/1
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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!
The Community is full of eCommerce diehards just like you talking about important eCommerce issues. Just last week Vinny O’Brien added a topic about the UK retailer ASOS and whether their turnaround strategy will work. The consensus from commenters seems to be that the company is circling the drain.
You can contribute to this and other conversations at community.rmwcommerce.com.
It’s That Time, Friends, for our Investor Minute. We have 7 items on the menu today.
First
Maersk Growth invested in a Series A for supply chain visibility firm 7bridges.
We surely have reached the peak of supply chain technology and visibility, haven’t we? At some point, we are adding technology onto fundamentally a low-margin business, which means that there will probably be one big winner at the end, and the rest of the players will be competed out of the market.
automate-logistics-supply-chains-using-ai/
Second
Open source eCommerce front-end Vue Storefront raised a $20 million Series A.
Vue is a legitimate competitor in the space and has some traction here. It is part of this headless or composable commerce trend today where large retailers and brands are putting together commerce stacks not all provided by the same vendor. Headless eCommerce comes with a lot of flexibility, but sometimes higher maintenance costs due to unbundling all the various components.
its-open-source-based-frontend-as-a-service-e-commerce-toolkit-and-platform/
Third
Global insurance partner Cover Genius acquired mid-market eCommerce player Clyde.
The insurance space has gotten more interesting, particularly as retail margins shrink. Retailers are scrambling to cover increasing supply chain costs and higher inventory levels with new high margin revenue streams. Insurance fits the bill. Cover Genius is used by Amazon, eBay and other large companies. More mid-market brands use Clyde, which includes plugins to Adobe, Salesforce, Shopify and Salesforce.
Link: https://www.lifeinsuranceinternational.com/news/cover-genius-clyde-purchase/
Fourth
Momofuku spinout Momofuku Goods raised a Series A to focus on pantry essentials.
Best known for its Momofuku Noodle Bar in New York City and other major North American cities, Momofuku has found where the real money is made: MOICH-ANDISING (said like Mel Brooks) ! This is an excellent idea as the Momofuku brand has a certain cachet. It could be popular with chefs around the world. The company already has a growing direct-to-consumer business and sells through Whole Foods and Target.
Fifth
Venti Technologies announced Series A funding to automate global ports.
Another day, another fundraising for global supply chain logistics. In this case, the firm is not just selling a pretty user interface; the company has full-blown industrial automation and mobility solutions to streamline the flow of goods in ports. Some of the solutions include fleet management and autonomous driving systems and vehicle movement and parking. I always like people who are trying to solve some of the root cause problems for inefficiencies in transportation.
Sixth
Global advertising and PR firm WPP bought social influencer and marketing firm Obviously.
Obviously is a full-service influencer marketing agency based in New York City. Agency rollups are relatively common occurrences so obviously this was going to happen at some point.
And Finally
Cleverly-named returns solution Two Boxes raised $4.5 million in seed funding.
The company uses software to help brands and 3PLs gather more data from returns, improve sustainability, and make things like inventory disposition decisions more objectively. It’s unclear how the company does any of these things, which I guess is the point of this funding — the company doesn’t yet either!
funding-two-boxes-launches-returns-for-the-better-301778763.html
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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.