April 18th, 2022: Etsy Strike Fizzles, the New eCommerce Site, Target and ThredUp, Shopify’s Succession Plan
It’s April 18, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Etsy Strike Fizzles Out Before It Begins
Kroger and Bed Bath & Beyond launch eCommerce site
Target Tiptoes Back Into Resale with New ThredUp Partnership
Shopify Makes a Succession Plan for CEO Tobi Lutke, Among Other Human Resources Changes
- and finally, The Investor Minute, which contains 6 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….
Etsy Strike Fizzles Out Before It Begins
Etsy recently told its customers and shared with investors that it is raising its fees from 5% to 6.5% and specified that it will pour this money into marketing and other improvements to the business.
From the point of view of those operating the company, this is not really going to be putting any money back into the business. It’s more about growth and investment.
In the wake of Etsy planning a fee raise, there are petitions gathering and a kind of online strike has been organized.
In this hyper-news cycle where investors are listening carefully when CNBC or Bloomberg runs everything, suddenly it becomes a story.
The problem is the narrative is misguided if you know anything about marketplaces.
The job of a marketplace is to bring new customers, and most sellers will tolerate almost anything as long as that's still happening.
Even before I saw the metrics, I knew it wouldn't amount to anything. Nothing has fundamentally changed about Etsy's value proposition over time. Social media amplifies everything, investors are sometimes listening "too hard" in an attempt to generate alpha, be first, or some other reason.
It's still a great business.
It's still a business that's tough to scale, because unique items are tough to scale.
It's likely a business that still needs to keep acquiring vertical-specific marketplaces to continue to drive growth.
Consider eBay's marketplace maturity in the 2000s; to say it had a vocal community is an understatement. As one of the first online marketplaces, eBayhad to invent new rules as it went along.
Each new policy or fee hike brought on a mini-revolution.The only potential threat to the business was when the site went down continuously over and over for months, prior to eBay’s CTO stabilizing and helping rebuild the platform. The fact that even the platform going down didn't kill the business tells you a lot.
This isn't to say I don't care about the little guy or that it doesn't affect entrepreneurs who are selling on Etsy at all. I simply find it to be entirely overblown in this activist/unionization environment right now. A strike sounds newsworthy.
It's not. There are any number of things sellers can do to respond.
- bundle items to increase AOV
- raise your own prices
- remove lower-profit items from the website
- find new whitespace in the marketplace that isn’t as competitive
- lower costs or find new suppliers
- streamline processes
Or a combination of all those things. Let’s put this another way: If Etsy is raising its prices, it should tel you a few things.
One, Etsy thinks it can keep growing its business by investing in it. As a seller, you should take that information and do something with it. Think carefully about the types of sellers and products that are likely to benefit from this kind of environment.
As far as trying to predict what sellers will do, it’s pretty simple. The only metrics to pay attention to are active buyers, repeat buyers, transaction velocity, GMV, multi-category buying, AOV, etc.
When the buyers leave, the sellers are gone. Until then, marketplaces serve a purpose that is not going away, regardless of fee hikes.
[References:]
https://s22.q4cdn.com/941741262/files/doc_financials/2021/q4/Exhibit-99.1-12.31.2021.pdf
https://www.theguardian.com/technology/2022/apr/12/thousands-etsy-sellers-strike-fees-online-shops
Our Second Story
Kroger and Bed Bath & Beyond Launch eCommerce site
Kroger recently announced an expanded tie-up with Bed, Bath and Beyond on the Kroger website with the addition of Home & Baby categories to its e-marketplace.
There are at least a few stories happening here.
One, grocery is getting more competitive. Walmart continues to expand its capabilities in grocery and its omnichannel capabilities are growing.
Target is expanding its food offerings in a big way in order to incent more return trips. And it's working. Costco is also a monster not going away anytime soon. I predict its share is the most durable; I’ve seen data noting them as high as 5% of the US grocery market. To compare,I have seen Walmart at 21% and Kroger at apprximately 10% of the market. But I suspect that Kroger's numbers are not on the rise. I would love to have that data. Kroger can't sit still and expect to survive.
Second, Bed Bath and Beyond needs more distribution mostly for its private label brands. It's not like Kroger couldn't source the major brands directly.
Third, it is likely that there is a high degree of overlap between the customers of both Bed Bath and Beyond and Kroger. Recall that this is not the first time these companies have partnered — last year they launched an in-store pilot together.
Marketplaces tend to work well in broad categories like home. The baby category is another matter because trust is so important there, but obviously there are many families baby shopping in the grocery aisles.
The convenience factor is big.
Will this be a difference maker compared to Walmart?
Unfortunately, I do not think so. Walmart can still do all of this, on its own, and at higher margin.
Target can also sit back and pluck the best ideas for itself. It is already a huge player in all these categories today.
[References:]
Target Tiptoes Back into Resale with New ThredUp Partnership
Like any large retailer, Target has a gigantic returns problem that cannot be solved with just one strategy.
Many companies are used to overseas, donations, jobbers, landfills, and off-price. Resale will get you higher returns on the same amount of inventory as opposed to selling to jobbers, while at the same time being more environmentally friendly than landfills.
This is what piqued my interest in Target’s recent marketplace test with ThredUp. From what I can tell, Target has taken 400,000 of its gently used items and put them on a curated page on ThredUp’s site — unfortunately I wasn’t able to find a copy of the page to review.
There were obviously some Target items on ThredUp’s site already, and they were all in Good or Excellent condition, which means gently used.
My thoughts on this are pretty straightforward:
First, this isn’t really a money-making venture. Resale is hard and by the time an item is sold, you’re not talking about a significant net, taking into account fees and shipping in both directions. Instead, this is more of a test as to what the sellthrough could be like and determining the percentage its returns portfolio could flow through these channels.
Second, there are 5 billion pounds of returned goods that end up in landfills each year. Any amount of reusing product rather than trashing is is a good thing.
This also highlights good marketing value for Target.
Lastly, if this isn’t a huge miss for eBay I don’t know what is. For years I’ve watchedbrands avoid eBay because of its flea market image. On the contrary, used items should be viewed as a sweet spot.
If you are on the eBay partnership team, please wake up and make things easier for brands that want to sell on your site.
[References:]
https://www.cnbc.com/2022/04/08/target-tiptoes-back-into-resale-with-new-thredup-deal.html
https://www.linkedin.com/feed/update/urn:li:activity:6919298413926764545/
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And Finally Our Focus Story This Week
Shopify Makes a Succession Plan for CEO Tobi Lutke, Among Other Human Resources Changes
Shopify has recently made a number of changes related to Human Resources and company succession.
Let’s look at the Human Resources changes first.
These include updating Shopify pay policies to combat the recent decline in the company’s share price.
Shopify also hired a Chief Talent Officer – Tia Silas formerly of Wells Fargo, IBM, and Pitney Bowes. This is a role left vacant when Brittany Forsyth left the company in May 2021; she had been with the company since the beginning.
Big company culture and startup growth don’t often mix but let’s give the benefit of the doubt.
Second, starting in July Shopify offered all employees a blanket raise as well as a choice regarding compensation enhancements – more salary or more stock. This is a smart move. Having been an employee at ChannelAdvisor in the early days when valuations fluctuated, I always appreciated options that I weighed with my personal risk tolerance. Of course I always chose the stock.
Shopify’s Board recently proposed a few resolutions to be passed at the next shareholder meeting (these things tend to be rubber-stamped).
It was proposed that Tobi gets Founder Shares, which give him 40% voting power in the company, effectively giving him iron-clad control of Shopify, even if he moves on from his current CEO role.
The two roles mentioned are "consultant" to the company (whereby Shopify is the primary customer), or Board Member. This effectively secures Tobi's control in the event of succession moves.
Why is this relevant?
Well, from time to time Tobi muses about his fitness to be CEO and has even openly pondered moving on from the role if he finds there is a better person to lead the firm.
The proposed expanded voting rights reminds me of the control that Mark Zuckerberg has over the future of Meta and serves a few purposes.
First, Tobi can think about his own next steps and not be clouded by the thought of losing control of Shopify’s direction.
Second, it is pre-emptive activist defense. Simply put, the time to prepare for an activist is before there is one.
It's not lost on the Board that in a world where someone like Elon Musk or Ryan Cohen could buy a few shares, tweet, and massively affect Shopify's stock price or Board composition, it pays to be extra cautious. The company would change in an afternoon.
This could mean that the company wants to keep making risky bets (Shopify Fulfillment Network could be one example, will there be others?) without worrying that an activist could say the company is misallocating resources.
One last thing here is that Shopify's stock is splitting 10 for 1. Not much comment, as this tends to happen. Could this trigger another run-up? Even though stock splits mean nothing, investors don't always see it that way.
[References:]
https://www.businessinsider.com/shopify-hires-new-chief-talent-officer-amid-pay-overhaul-2022-4
https://d18rn0p25nwr6d.cloudfront.net/CIK-0001594805/e9ac78e4-2e9c-42e0-aae7-675fb5deafae.pdf
It’s that time, friends, for our Investor Minute. We have 6 items on the menu today.
First
South Korean eCommerce aggregator Wholesum raised a $50 million Series A to roll up third-party sellers on eCommerce platforms in Asia.
The aggregator trend is alive and well in Korea apparently. I don't expect it will work too well there, either.
Second
Live video shopping marketplace ShopThing raised $10 million to scale its efforts. The company is focused on luxury brands in particular.
Live shopping is still a phenomenon that has not yet significantly caught on in the US. If there is a place it could work, however, it may be luxury events designed to promote exclusivity, generate excitement, and take advantage of how powerful social signaling is.
Third
Shopify analytics platform Triple Whale raised $27.7 million to develop a default eCommerce operating system for Shopify brands. The company seems to be focused on analytics and operating metrics.
Looking forward to seeing how this evolves as this analytics-focused Shopify space has recently gotten extremely competitive with other companies like Daasity. The big problem with companies that want to be the operating system for Shopify is that Shopify wants to be the operating system for Shopify.
Fourth
Machine learning prediction company Black Crow AI raised $25 million in Series A financing.
The company predicts the value of a website visitor in real-time so that the experience can be personalized and monetized. Think of the opportunities if you were to know within three clicks of someone’s visit whether or not they were going to convert or not – how might your site change? That gives you some idea what the company is up to.
Fifth
Shopify acquired startup Dovetale in an effort to intensify its focus on creators.
While the company is definitely late to this party, that doesn’t mean it won’t be successful. It’s just an already competitive market.
I’ve often said that at this point in its life, Shopify is more vulnerable to low-end disruption with creators focused on social media first and foremost, and direct to consumer is secondary.
In these situations, Shopify and its gigantic App Store start to seem more and more complex. At the very least, this tells me Shopify sees the same thing and is looking to stay even with the trend.
https://dovetale.com/
AND FINALLY …
Online Asian food and essentials marketplace Yami raised $50 million to continue expansion.
The company is a direct to consumer marketplace and the CPG specialty could be an interesting way for new brands to break into the American market. I like this kind of niche marketlace because it has a clear focus, even if the potential is limited by that focus.
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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.
