April 25th, 2022: USPS’ New Mail Plan, the Buy Now, Pay Later Industry, Walmart Adds PayPal’s CFO, and Andy Jassy’s First Shareholder Letter
It’s April 25, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
The United States Postal Service Released its Mail Plan For America
Is The Buy Now Pay Later Industry Fundamentally Flawed?
Walmart’s Digital Services Growth Gets Another Boost By Adding Paypal’s CFO
Amazon CEO Andy Jassy Released his First Shareholder Letter
- 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….
The United States Postal Service Released Its Mail Plan for America
Within the last few weeks, the United States Postal Service released its Mail Plan for America. I thought I would capture a few points from the document for readers here since most eCommerce businesses still work with USPS in some way or another.
The first point to mention is really the tremendous drop in mail volumes. At this point, there is no one on the planet who doesn’t know that mail volumes are declining over the past 20 years. The problem for the USPS is that has been the bulk of their revenue for over 100 years, and unlike a normal company, they can’t just pivot quickly.
Meanwhile, their parcel volume has been exploding.
Second, the middle mile of the Postal Service is completely out of their control and dependent on external air carriers. Some people might not know this, but the US Postal Service doesn’t own any planes.
Even prior to the pandemic, their air carrier partners were very unreliable. With COVID, that deteriorated dramatically.
Third, the number of rural delivery points keeps expanding each year by more than a million. Unfortunately for the USPS, these are the most unprofitable routes in the entire portfolio.
Imagine if your sales team could not refuse your most unprofitable customers and target the most lucrative ones? The USPS is forced to run literally the reverse strategy to Amazon Logistics.
To combat these trends The Postal Service has launched the USPS Connect program which contains Same Day and Next day Local and Regional services to make better use of their processing facilities.
A key strategy for the USPS is to shift away from air in the middle mile for First-Class Package delivery and rely instead more on ground and rail transportation. While this has recently increased their published delivery times, it has the effect of greatly reducing the delivery time variability for their customer.
While I am encouraged that the USPS is trying to find a way out of their issues, this plan still paints a dire picture for the organization. The company is operating with one arm tied behind their back with the combination of Universal Delivery requirements, public Pensions, as well as ongoing labor and network issues.
[References:]
Our Second Story
Is The Buy Now Pay Later Industry Fundamentally Flawed?
Just because something is new doesn't make it sustainable, particularly as losses keep piling up.
While debit and deferred payment products continue to grow, profitability is not following.
The first warning sign I saw was when financial services companies like AfterPay and Klarna added advertising networks -- I just thought it was curious. What, printing money is not high margin enough?
Apparently not when you don't know who to lend to. While I don't like betting against Max Levchin ultimately too smart their losses are increasing also. The big question is will companies like Affirm be forced to rely on the same predatory practices as the credit card industry with things like late fees.
The net for me is this: the economy will keep inventing ways to lend money to people. It doesn't mean those things are particularly sustainable or that there is a real defensible moat.
At any time if these businesses are profitable, any of the major financial services firms could either buy or replicate them. The only thing that would prevent them from doing so would be regulation, which could be quite ironic because big tech companies don't seem to be subject to much regulation but old school companies are.
If you lend money and it's not repaid, then most banks would be killed by their shareholders. Many of the VC-backed businesses don't need to operate this way because they are trying to find a business model and get enough escape velocity to change the industry.
This industry despite its growth feels more like one whose major elements will be incorporated into existing financial services providers rather than remain independent.
In other contexts, you would call this a "feature" and not a "company."
[References:]
https://www.skynews.com.au/opinion/ross-greenwood/afterpay-reveals-significant-losses/video/807b806d0215863165bb299d5ee61747?utm_source=pocket_mylist
https://www.yahoo.com/video/affirm-stock-suffer-profitability-woes-103058082.html
Our Third Story
Walmart’s Digital Services Growth Gets Another Boost By Adding Paypal’s CFO
In the last week, Paypal’s CFO recently decided to move to Walmart in what was an interesting move to track. The analogy I use for this move is John Donahoe joining Nike. What is the former CEO of eBay, a technology company and marketplace doing running a shoe company?
The simple answer is that the future is digital, and the business needed more digital operators who understood that direct to consumer is the future.
Since the beginning of retail, financial products have multiplied and that trend has only accelerated with the "financialization" of Direct to Consumer eCommerce in the past 5 years. payments
Walmart's biggest profit dollar potential in the next 10 years is not selling goods that it manufactures or resells. It's in services -- financial, advertising, and health. Logistics services will be an service to offer of course, but not as important as these other options. Put another way, Walmart doesn't need more financial analysts who understand real estate, inventory financing, or supplier terms negotiation. They already got that covered.
When you think about innovation, you often think about doing something totally new, in a totally new way. Well, that is expensive to do. Walmart has already demonstrated it can continue to grow by doing things many other companies are doing, in similar ways, but at greater scale.
That greater scale gives them significant advantages over the competitors that detractors say they are "copying" from and "not being innovative."
Well, that doesn't mean it doesn't work.
On the other side of the coin, Paypal has run out of ideas and out of steam. For how smug the Paypal team was about leaving eBay and throwing shade on eBay's growth rate, they certainly haven't done anything interesting since that time.
Amazon, Walmart and Alibaba should smell blood in the water. Similar to logistics, the winner in payments will eventually be the company that controls the consumer.
Stripe, for all its efforts and scale, does not have a consumer brand. It would be extremely tricky for that to change, given how high-profile some of their customers are and their ambitions (see: Shop Pay).
Affirm is the biggest beneficiary of Paypal's missteps, as Max Levchin is a payment innovator and Paypal co-Founder.
Think he doesn't know their playbook?
[References:]
And Our Last Story
Amazon CEO Andy Jassy Released his First Shareholder Letter
The new CEO of Amazon Andy Jassy just released his first shareholder letter in 2021, and it was a doozy at almost 5,000 words. I guess like Mark Twain said he didn’t have time to write us a shorter letter so he wrote us a long one instead.
The letter began with a discussion of the last few years of the pandemic, and moved on to some of the important leadership principles that are central to Amazon.
I thought I would mention a few interesting points from the letter:
First
Amazon achieved approximately 3 years of growth in about 15 months, from the beginning of 2020 until Q1 of 2021. This is an interesting number to hear since we more commonly hear 10 years of growth in 10 weeks, but I think all of those numbers were not necessarily at Amazon scale.
The CEO noted that in late Q2 2021 things changed and life in the world started going back to a little more normal.
Second
I thought it was interesting that Andy pointed out that the company was “average” in safety for its supply chain workers primarily and wanted to be best in the world there. He highlighted that there were about 100 top employee experience pain points that they were relentlessly working through.
Third
Amazon has a principle to have autonomous single-threaded teams which have permission to move fast and make changes, particularly when those changes can later be reversed — so-called two-way door decisions.
Fourth
One of the biggest hidden gems in the entire article was tucked in there, and it was when Andy Jassy mentioned the difficulty of giving new projects to mature teams.
The problem is mature teams have a particular business model and way of doing things already, and the organization has been built around that. You almost automatically have an innovator’s dilemma type situation where you give a new wild idea project to a mature team, and who knows maybe that project has the potential to be bigger than the entire existing business. The problem is, it’s very hard to give that new project the attention it deserves because the business is reliant on the revenue targets and performance of the existing business. It’s much more likely that a startup focused on the task will bring it to fruition.
Finally, in case anyone had any doubt whether Jeff found the right successor, this letter removed all doubt. Unlike transitions at other big companies like Apple where Steve Jobs the inventor was succeeded by Tim Cook in operations, Amazon found someone who was cut from the same cloth for sure.
Amazon continues to reinforce its leadership principles and I think we will find that it is one of the most enduring legacies of Amazon.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Crypto Startup Wyre Being Acquired by Payments Company Bolt for $1.5 Billion
Wyre seems to be like it’s trying to be the Stripe for the crypto-payments stack.
This amounts to a pretty big pivot for Bolt who was previously focused only on the checkout business. Very large and risky bet for them.
Bolt may wish it had this money in another year if Wyre isn't kicking off cash, which I cannot imagine it is.
Second
Productsup a Feed Management provider for marketplace sellers raises $70M
ProductsUp looks like a hybrid of a product information management system and a feed management provider for marketplaces. This area of eCommerce software has been raising a lot of money recently.
Third
The Folklore Group pivots to a B2B wholesale marketplace securing $1.7 million in funding
This is the first concept I've seen like this. Will be interesting to watch as I think Africa is an untapped and long-term opportunity.
Fourth
Creator-focused eCommerce platform SamCart Raises $82M in Series B
This is one area that Shopify is somewhat vulnerable to low-end disruption. Recent Shopify acquisitions in the space including Linkpop and Dovetale shows Shopify is at least watching however.
AND FINALLY …
eCommerce sales enabler Lucky is helping brands help its customers pickup items in stores quickly
The company monitors local inventory of a brand’s items in top retailers, and helps direct consumers to purchase and pickup those items immediately. This sounds to me like the evolution those “Where to Buy” tools that have been around forever.
https://techcrunch.com/2022/04/08/lucky-brands-retailers-product-merchandising/
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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.