April 29th, 2024: Paypal’s coming battle with Shopify, Nike’s failures highlight leadership issues, UPS Q1 2024 earnings shows continued decline, and SaaS growth down from 2022 highs
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s April 29, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Paypal’s Coming Battle with Shopify
Nike’s Failures Highlight Leadership Issues
UPS Q1 2024 Earnings Shows Continued Decline
SaaS Growth Down From 2022 Highs
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
Paypal’s Coming Battle with Shopify
It's important to watch the payments space because it is the monetization engine of most eCommerce platforms. That's why Paypal partnering with Commercetools this week (announced at the CT Elevate event) makes you pay attention.
Stop me if you've heard of a product like this before:
* transforms the guest checkout experience
* confirms buyer payment data with an SMS code
* consumers save their information with as little as one tap
This Paypal "innovation" (which was launched January 2024) is called Paypal Fastlane, and it is a legit straight copy of Shop Pay. And in turn, this gives Commercetools a widely distributed "guest checkout accelerator" (which is essentially what Shop Pay is).
Since the introduction of Shop Pay in 2017, it only stands to reason that the percentage of Paypal adoption on the Shopify platform has been declining, and that decline continues to accelerate.
With the announcement of the "Shop Pay component" for Enterprise, Shopify officially entered the Enterprise market, sure. But what they REALLY did was enter Paypal's primary market. This allowed Shopify to take Paypal's share of large accounts (not just Shopify).
The announcement of Paypal Fastlane in January was a defensive move by Paypal: how do we stop the bleeding? Short answer is to copy Shop Pay, using Paypal resources.
This development is actually great for merchants.
* Price competition between Shopify and Paypal should reduce prices.
* Service levels could go up for everyone as Paypal realizes they need to up their game.
What's next for Paypal? Ensuring the Shop App does not also rise. The Paypal app is becoming copies of many of the features of Shopify's Shop App:
* cashback offers in the Paypal app
* helping consumers what to buy next
* smart receipts to track purchases
sound familiar?
The bad news for Shopify in this case is that Paypal has more history working with consumers than Shopify does. Paypal has many more merchant relationships than Shopify.
The good news for Shopify is that from a merchant point of view, Paypal is an extremely difficult company to work with from literally dozens/hundreds of conversations I've had over my career. The merchant tools are hard to use, limiting, have a dizzying array of changing rules, and your funds can be kept at any time if you leave it there. Paypal is legit almost as hard to work with as Amazon.
This is Shopify's advantage as a known merchant-friendly company, and could be helpful to them in the coming payment wars. The bad news for Shopify is the number of relationships they have.
I believe in the next two years, expanding merchant relationships could prompt Shopify to merge with Stripe -- perhaps even as part of Stripe's eventual IPO. Two companies fighting Paypal, even in a coordinated manner, would not be as efficient as one together. Eventually, Shopify cannot leave their primary monetization engine to chance.
[References:]
Our Second Story
Nike’s Failures Highlight Leadership Issues
What is the role of technology in your organization? Silver bullet solution to every problem? Or enabler to the core assets of the brand? Based on two recent WSJ articles on both Nike (Donahoe missteps) and Ferrari (Vigna turnaround), it's clear which is which.
Ferrari:
* Started with a focus on people, and a great product that meets the needs of its enthusiasts.
* Flattened extra management layers with the express goal of getting leaders closer to direct customer feedback and improvement.
* "Imagine an onion, the center is the people, the next layer is product, and the final layer is process." - nice quote which fits this business well.
* Moved to a small team structure where the test drivers are the "customers" and equal to the engineers, rather than nested under the engineers.
* Eschewed consultants in helping it choose its vision, instead trusting its top employees feedback. CEO directly collected feedback and developed a point of view.
Nike:
* Neglected the core of its product: innovation, instead it rested on its laurels. How many times have we said here "what does Nike stand for anymore?"
* Cut out its retail partners in an attempt to "own the customer" thinking this was the biggest asset.
* Took on more inventory at exactly the wrong time.
* Invested in technology for its own sake.
* Followed Silicon Valley fad to cut staff for its own sake. It didn't help.
In truth, Phil Knight and the former CEO (current Exec Chair) had the wrong goal.
The goal is not to "own" the customer. The goal is to "serve" the customer. It's a matter of priority.
If your goal is only ownership and not service, you will own very few customers looking for discounts and your business will decline.
If your primary goal is service, and then ownership, you will own your most important customers for life, and recognize that your retail partners can service many of your customers in a healthy, growing business.
After all, if we are not in service of the customer... then our businesses are not long for this world. No matter how great your legacy brand is.
[References:]
Our Third Story
UPS Q1 2024 Earnings Shows Continued Decline
UPS is focusing on profitability in the face of declining volume, because, what else can you do? UPS consolidated revenues were down over 5% year over year, to $21.7B now. In this US the decline was down 5% driven by a 3% decrease in average daily volume.
UPS claimed after the Teamsters agreement was signed, it was a simple matter for them to reclaim small parcel volume. That has not worked out well. Since September of 2022 when volume peaked, revenues have been on a steady decline since then.
In essence, UPS volume continues to decline even further. So much for that narrative right?
What’s worse, adjusted net income fell over 30%.
So where is UPS now? Look, let’s be honest. While I personally think UPS has a better plan than FedEx because they are able to describe which segments like healthcare they would like to grow faster in, they are still in trouble because they cannot expect hardly any Amazon volume going forward. The company also won a $1.5 billion contract from FedEx for its air cargo. While the business was not profitable for FedEx, UPS is promising that it will be more efficient than FedEx was due to its integrated network.
Both Walmart and Amazon will continue to grow fast, and pull all their fulfillment in-house. This means who will get the parcel volume? The growth will have to be from the smaller shippers who are harder to access and can be extremely price sensitive due to the increasing competitiveness of offerings like USPS Ground Advantage.
[References:]
[PAUSE]
And Our Last Story
SaaS Growth Down From 2022 Highs
There are a lot of Software as a Service founders wondering what the license plate number is of the truck that hit them. I am hearing from a lot of founders that growth rates are down, like way down. Down from 70+% a few years ago, to now often up 20% to even flat.
Jason Lemkin from SaaStr published some numbers recently of 9 SaaS category leaders whose average growth rate in 2022 was 67% - these are leaders across all software categories - not just eCommerce - like Snowflake and Crowdstrike and Datadog. What are their growth rates now? On average down to 23%.
If your growth is flat, don’t fret. You are probably doing better than even some of your peers. Ask your customers, is it that we are less valuable, or you are cutting back spend, or what is the issue?
If you stopped adding new accounts, would your business take a nosedive? If so, you are filling a leaky bucket which is an expensive way to run a business.
Ask yourself if you have an ideal customer profile issue, or a product value issue?
Do you have funding runway visibility beyond the end of 2025? If not, I would get some soon. Low interest rates do not seem to be coming soon and better to be a doomsday prepper with some supplies in reserve than to YOLO your way through 2024 and then be forced to raise money early in 2025 with limited runway.
[References:]
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Protein Snack Maker WILDE Raises $20M
Protein snack maker WILDE has raised a $20M Series A extension. The new funding will help the company grow brand awareness, conduct demonstrations in retailers, and sponsor sporting events.
Second
FTC Blocks Merger of Tapestry and Capri Holdings
Normally we talk about acquisitions here, but in this case we have the opposite. The Federal Trade Commission has sued to block Tapestry's $8.5 billion acquisition of Capri Holdings, which would combine competitors Coach, Kate Spade, and Michael Kors and develop a dominant share of the accessible luxury handbag sector.
Third
Bambuser Acquires Virtual Shopping Business Hero from Klarna
Video commerce platform Bambuser has partnered with payment and shopping service Klarna and acquired Hero, a virtual shopping solution from the company. Simple question - describe Klarna in a few words. Seems to me that Klarna took a little bath on this purchase - acquiring it for $160 million and selling it for $1.3 million euro. Just think about that for a moment.
Link: https://www.finextra.com/newsarticle/44013/klarna-sells-virtual-shopping-business-hero
https://www.modernretail.co/retailers/we-dont-want-to-be-seen-as-a-payments-company-only-klarna-unveils-virtual-shopping-offering/
Fourth
Billy Reid Merges with Knot Standard
Men's and women's apparel direct-to-customer brand Knot Standard has merged with Billy Reid. Billy Reid will take over Knot Standard stores and use its AI-based made-to-measure software in all locations.
AND FINALLY …
Unilever to Split Off its Ice Cream Unit
Unilever plans to separate its Ice Cream business from its core holdings and operate four business groups: beauty and well-being, personal care, home care, and nutrition. Focus is an important part of business. Time to get some Ben & Jerry’s Phish Food everyone!
Today’s final word for the week is Saks. The luxury retailer’s online presence Saks.com has secured funding to bolster its financial position. The company is speaking about a challenging macro environment. Recall that in the boom of the pandemic, Saks.com split into an independent company because .com valuations were higher than retail valuations. Well, it turns out it’s a challenge to operate an online business profitably - who would have thought? I’m sitting here wondering, what does an online retailer do with $60 million dollars in additional funding? Sounds like a big restructuring is coming soon and it needs to de-risk that outcome.
[PAUSE]
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.....
[PAUSE]
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.
