April 22nd, 2024: Confusing economic signals in 2024, Shein faces new class action lawsuit, GoPuff partners with Shopify to help CPG brands, and Macy’s kicks off its store closings
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s April 22, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Confusing Economic Signals in 2024
Shein Faces New Class Action Lawsuit
GoPuff Partners with Shopify To Help CPG Brands
Macy’s Kicks Off Its Store Closings
- 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….
Confusing Economic Signals in 2024
A set of new data came up recently
Here are the bull items:
* The US Commerce Department released new economic data last week that indicated in the month of March, total retail sales were up 5% year over year, led by general merchandise sales being up 10% year over year. So- called non-store sales, or eCommerce, is up 6% year over year. Clothing and accessories were up a bit more modestly at 3%. Even if you take out inflation, this is better news than in 2023.
In fact, a senior Bankrate analyst confirmed that analysis.
Here are the bear items:
* While many categories were up, not all were. Furniture and Home categories were down 8% year over year in March according to the US Commerce Department.
* The NRF, which uses credit card data to talk about retail trends, had a little bit different take on retail which matched Amazon’s take. In other words, despite buying more, consumers are focused on value. Retailers as a result are having to keep prices as low as possible.
* As if to reinforce the NRF data, Andy Jassy appeared on CNBC and gave several what I consider consumer warnings. It sounded like we were in an early 2023 timewarp where he was saying many of the same things about the consumer trading down to cheaper options when it’s available. He was clear to emphasize the consumer was spending, but what they are spending on is changing significantly.
What do I think about all this?
First, inflation is not tamed. That much is clear. If inflation is not tamed, the interest rates are not moving. As long as interest rates are not moving, then the housing market is not moving too fast, which hurts the entire home goods and home improvement sector.
Furthermore, higher housing costs means that people’s pocketbooks are being squeezed. I would pay attention to Andy Jassy’s comments on the state of the consumer in this sense — after all, who has more economic data about eCommerce buyers than Amazon?
[References:]
Our Second Story
Shein Faces New Class Action Lawsuit
A story from Retail Touchpoints indicates that the ultra fast-fashion retailer Shein is facing a new class action lawsuit. The circumstances of the lawsuit are interesting.
The plaintiff is an artist and designer who has made a living in the last 30 years licensing his work to products. Well, apparently not to Shein! The man had a painting which is the subject of this lawsuit that Shein has copied his art designs and placed them onto clothing without his permission. The designs certainly look extremely similar to his.
Lawyers, smelling blood in the water, have turned this into a class action lawsuit saying that the number of people this has affected number in the tens of thousands. The lawsuit calls it an industrial scale scheme of digital copyright infringement.
I mean, the question is not if this lawsuit is correct, because… almost how could this not be correct? Shein turns out thousands of designs daily, and where do these designs come from? Likely artistic work created by someone else found online or elsewhere. The lawsuit goes on to claim that Shein has the cost of these copyright infringement lawsuits built into its business model, and so it doesn’t appear that the practice will end anytime soon.
The real question is how can this kind of practice be stopped ever now that the genie is out of the bottle?
[References:]
Our Third Story
GoPuff Partners with Shopify To Help CPG Brands
GoPuff has announced that it has launched a storefronts program to help the brands in its fulfillment network launch their own DTC sites, fulfilled by GoPuff.
In a practical sense, if the brand is not already selling on GoPuff, it is not likely to attract a ton of new interest.
For large CPG brands, the benefits are simple even if the DTC volume overall won't make up a significant percentage of overall sales. Small does not always mean unimportant. Here are the benefits:
* Get more customer data
* Test unique / promotional merchandise,
* Do something special/bespoke for events -- even if the DTC volume overall won't make up a significant percentage.
* Low commitment level for the brand
For Shopify, this does a few things:
* Creates a new relationship with a CPG brand, likely at a large holding company like Unilever, PNG, etc. This relationship gives them
* As near as I can tell, this is one of the first examples of a reseller-type partnership for Shopify. Clearly something that design/dev agencies and even consultancies do all the time.
* Creates a new type of fulfillment partner, and sets a model for the "how" of logistics they should have been doing all along -- integrating with every type of logistics provider there is. Because logistics is unique, category-dependent and low-margin -- not universal, generic, and high-margin like software.
* Demonstrates an "instant store" use case for Enterprise which is a fit for their capabilities. And away from silly, costly Enterprise sales cycles which the Shopify organization will find more difficult to penetrate.
For GoPuff, unfortunately, it's interesting but not transformative:
* This is an incremental capability for new custom. Perhaps makes their app a little stickier for brands.
* After raising $3+ billion, GoPuff is still a niche player relative to Instacart, Doordash, and Uber. There isn't any room for another player in the market. Growth has likely stalled, and this is not going to reignite growth.
* GoPuff partnering with Shopify is STILL a better approach than Instacart acquring Unata and trying to run someone's grocery eCommerce site, however. GoPuff sticks to logistics, Shopify sticks to eCommerce.
* The new Shopify store - unlike a true bespoke store - would likely encourage their CPG brands to add in Instacart, Doordash or Uber integrations to this new store too, right? All this would be good for Shopify. Not so good for GoPuff. There is no notion that this Shopify / GoPuff partnership is exclusive to GoPuff. And remember who is on the Board of Directos of Shopify itself? That’s right, the CEO of Instacart.
All told, for Shopify reinforces the narrative that Shopify works super-well for quick little storefronts you need that are fit for purpose.
The fact that this is for "Enterprise brands" lets them make sideways claims about penetrating Enterprise.
For GoPuff, this is no savior. The most likely outcome for them is still acquisition or merger with Instacart, Doordash or Uber in the long-run. Keep in mind, the company raised over 3 billion dollars. Do you think that there is even one dollar of true EBIT profitability in GoPuff?
Me neither. Investors are going to need more than this to be made whole. As a result, my thought is if there is a winner here, it's still Shopify and not GoPuff.
[References:]
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And Our Last Story
Macy’s Kicks Off Its Store Closings
It like the activist investors ended up winning at Macy’s. Let me give you some clue, most of the time they do unless the company is extremely well-run or prepared well in advance, such as in companies like Meta and Shopify where the founders have super-majority shares.
A report from the RetailDive indicated that of the 150 Macy’s stores that are going to close, 50 of those closings will happen in 2024. Macy’s is being fairly aggressive with these closings as their CEO Tony Spring has said that even some cash-flow positive stores are closing. In other words, it sounds to me like if Macy’s can’t generate more cash from the real estate than another tenant occupying the same space, then Macy’s will exit that space.
This kind of metric sounds like a warning shot across the bow of retailers across America if you ask me. Real estate investors want a return on their retail investments, and even a big name like Macy’s is not going to save you.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Saks.com Receives Liquidity From Lenders
Saks.com has secured funding from Pathlight, Bank of America, and STORY3 Capital Partners to enhance its liquidity and maintain low debt levels. Three years after investing in private equity, they receive funding from lenders.
Second
Amify Acquired By Cart.com
Cart.com has acquired Amazon agency Amify for an undisclosed amount. This will enable Cart.com to grow its managed services business and target midmarket and enterprise brands that sell on Amazon. It seems likely that this agency was looking for a home, and Cart.com is looking to grow it’s Seller Fulfilled Prime business since the company has such a logistics focus.
Third
Delivery Collective Raises $3.8M
Delivery infrastructure marketplace Delivery Collective has raised $3.8M, which will be used to expand operations. Helping restaurants offer delivery directly to their customers enables better profitability and retention.
Fourth
G2 Reverse Logistics raises $9.6 million in Seed Funding
End-to-end reverse logistics platform G2 Reverse Logistics has raised $9.6M in Seed funding, which will increase sales, marketing, and headcount. Founders already exited with Genco, a returns management platform acquired in 2015 by FedEx for $1.6 billion. Does the world need another returns provider at this stage with the market consolidating?
Link: https://www.bizjournals.com/pittsburgh/inno/stories/fundings/2024/03/19/g2rl-sed-funding.html
AND FINALLY …
mdf commerce Acquired by KKR And to be Taken Private
Canadian public procurement services company mdf commerce has been acquired by KKR for C$255M (US$189M) and will be taken private subject to shareholder approval, mdf commerce is expected to be optimized in the next 12 months.
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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.
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Today’s final word for the week is Trading Down. I wanted to relate a personal story about trading down. In the past 5 or 6 years I have been a big fan of Bombas wearing them almost exclusively for business and personal use. Well, I was searching for running socks on there and got to the checkout and was frozen in my tracks. 6 freaking socks for $74.
What in the actual hell? Hell to the no I am not going to be 6 pairs of $12 socks. What do I do next? Of course go on Amazon. Quick search, 6 socks for $14 dollars. Amazon Prime 1 day, thank you very much.
For the Bombas price, I would donate 6 pairs of socks myself for every one pair that Bombas donates. Let this be a warning for other direct to consumer brands that have gotten ahead of themselves. Sure it’s a great product, but let’s not get carried away. It’s still just socks.
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.