April 4th, 2022: Recent Retail Earnings Call, The Digital Markets Act, SHEIN Solidifying Fast-Fashion Lead, and Target’s Transformation
It’s April 4, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Red Warning Lights Flashing on Economy from Recent Retail Earnings Calls
EU Passes Sweeping Privacy Legislation
eCommerce Brand Shein Solidifying Fast-Fashion Lead Over its Apparel Rivals
Target’s Transformation Powered by Data Science
- 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….
Red Warning Lights Flashing on Economy from Recent Retail Earnings Calls
I have a few concerns following the recent Restoration Hardware earnings call that I think are noteworthy for every operator out there.
The big news is on inflation. Both materials and personnel costs are rising and many executives don’t anticipate this trend abate anytime soon.
In housing it’s worse since both home purchase and rental costs are up 50% and indicates that providing guidance this quarter is one of the most difficult periods to provide guidance to investors since 2008.
That’s right, the Restoration Hardware CEO just mentioned 2008 which if this is the first time your eCommerce business has ever experienced recessionary times, it may be helpful you to speak with someone who has, or review the performance of peer companies in your space who have.
So what to do?
I think particularly in those categories that are driven by discretionary purchases or higher ticket items need to be concerned. If your products match both of these criteria, then starting to soften your guidance may not be a bad plan at all. If we do start entering that dreaded “R” word - recession, I always feel that being a little more cautious is often more prudent than being a little less cautious. If you have cash reserves, then you can always put your foot back on the gas and reaccelerate as things rebound.
[References:]
Our Second Story
EU Passes Sweeping Privacy Legislation Called Digital Markets Act
Privacy language is currently being finalized in Europe which is squarely targeted at the largest technology companies with at least 45 million monthly users.
Here are a few things I’ve noticed on this topic already:
First, Messaging software needs to be made interoperable across services. This affects apps like Telegram, Meta’s WhatsApp and Messenger, Apple’s iMessage and others. This ensures that basic messenger features need to work together across services.
Second, any pre-installed software in a platform needs to be able to be uninstalled later.
Third, there is already some worry that this legislation might have some conflicts with the Europe’s own GDPR or General Data Protection Regulation. Suffice to say that it will take months and years for anyone to be able to get a clear read on this.
Having been on some recent data transmission calls, most lawyers have thrown up their hands with regards to current regulations already, and are in more of a “best effort” than “full compliance” mindset. This approach tends to work if you’re a small business, but Enterprise businesses can often not afford to take this approach. Furthermore, the mid-market always seems to take the brunt of these because they are big enough to meet scrutiny, but not so big that they have enough capital to pay lawyers to make the problem go away.
And doesn’t it always seem like the lawyers make the most money in these types of situations?
[References:]
https://www.nytimes.com/2022/03/24/technology/eu-regulation-apple-meta-google.html
https://thestack.technology/the-digital-markets-act-what-you-need-to-know/
Our Third Story
Shein Solidifying Fast-Fashion Lead Over its Apparel Rivals
The world’s top apparel seller isn’t Amazon, AliExpress or Walmart. As of the latest PYMNTS Provider Ranking of Shopping Apps, SHEIN is number one, turning fashion trends into transactions faster than anyone.
Personally I think that Shein is one of the most interesting companies in the retail world right now. Their capabilities are getting to Amazon level scary.
In case you didn’t realize it, Shein is now just outside of the top 10 fashion brands in the world in terms of its 2021 revenue, yet it has no store locations. It just reached $10 Billion in revenue in 2021.
Here are a few points:
1 - The data capabilities of the company are tremendous in terms of what it tracks about influencer trends. It reminds me of Facebook style tracking capabilities.
2 - This data is analyzed and given directly to its suppliers who are manufacturing on-demand in a model that acs more like placing an Uber order than a traditional brand.
3 - The supply chain is run just in time, with as small batches as possible to get to market in 3-4 days total, from concept to manufacturing.
4 - All of this contributes to the fact that the company releases over 1,000 new styles every day. For a company that many consumers would not even recognize, it represents a tremendous threat to traditional retailers.
The way I would say it is this, this is a brand that acts like a retailer which can onboard new interesting brands at a tremendous rate. I have no doubt that Shein’s approach will be studied for some time in the future.
Shein of course has a ton of problems. Sustainability and labor practices first and foremost. But just imagine what might happen if you could apply their model to something more sustainable and in different sectors.
[References:]
https://www.vox.com/the-goods/22573682/shein-future-of-fast-fashion-explained
https://www.dukeandgrace.com/en/insights/articles/how-shein-is-revolutionizing-the-fashion-industry
https://www.notboring.co/p/shein-the-tiktok-of-ecommerce?s=r
And Our Last Story
Target’s Transformation Has Been Powered by Data Science
I often write here about how much the industry is still not talking enough about how Target continues to blow the doors of its retail competitors and position itself as a premium destination for brands like Disney and Apple to partner with.
A recent Forbes article from Peter High has an interview with their CIO that highlights a few interesting tidbits:
First, the company moved from a 73% outsourced IT model to a 92% insourced model. They understood without controlling their own technology destiny, they might never be able to innovate. While this may not be great advice for the average retailer, for a larger retailer that does not want to keep losing share to Amazon, that kind of capability is critical.
Most interesting is that the company now has over 400 data scientists and 200 mathematicians. This means the core lifeblood of the company is data and algorithms to process and act on that data.
Second, the company has moved more from a project orientation to a product orientation. I am glad you see a global CIO talk about this transition.
What does this mean? Well a project orientation has two fundamental issues. With a project orientation IT is waiting around for things rather than being proactive about what can drive the business, and second, a product orientation means as a business you have identified core capabilities that must be continuously optimized in order to serve your customer better. It’s a journey, not a destination.
The company has a couple of hundred products that release daily or weekly improvements. That is a few orders of magnitudes better than a typical Information Technology organization that resists change.
In case it wasn’t obvious already, this interview made me love Target even more as a business as it is incredibly well-positioned to continue growing at its current pace now and into the future.
[References:]
[PAUSE]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
eCommerce aggregator Moonshot Brands raised $30 Million in equity and about 5 times that in debt used at least in part to take advantage of other poor operators in the aggregator space.
I do feel like there is a big correction coming in the aggregator market and much of it is due to continued increases in manufacturing and supply chain costs.
Second
Startup Payrails launches with $6.4 Million in funding from andreessen horowitz. The company is a kind of payment operations platform which allows multiple different payment processors to plug in, giving operators visibility and control over the entire process.
I like this idea because the payments industry has continued to get more complex, and almost no one has a single payment processor anymore.
Third
Retail Media and digital shelf analytics platform CommerceIQ recently raised $115 Million dollars in funding from Softbank’s Vision Funder.
With the new money, the company plans to make acquisitions as well as expand aggressively into Europe and Asia.
https://techcrunch.com/2022/03/21/commerceiq-e-commerce-infrastructure/
Fourth
Indian retailer Reliance Retail has acquired a majority stake in direct-to-consumer apparel brand Clovia for $125 Million dollars.
Retailers have always tried to acquired brands from time to time, but it hasn’t always worked out well. Recall, Walmart famously acquired a number of retailers and brands in the Marc Lore era, and ended up having to shut most of them down. Retailers who don’t have the ability to reliably create new private label brands are often hamstring themselves.
https://techcrunch.com/2022/03/20/reliance-clovia/
AND FINALLY …
Low-Code Headless Provider Pack Digital Raises $3M
There has been an interesting split in the headless market recently. There are companies focusing on content management, but then there are also what you might call front-end integrators who are helping developers stitch together all the various front-end and back-end services required to create unique consumer experiences.
I think over time, these types of services will become part of the front-end of more and more eCommerce platforms themselves rather than being separate services.
https://packdigital.com/seed-fundraise
[PAUSE]
One more thing!
Last week I traveled to Shoptalk and was happy to see a lot of fans out there in the real world. A few points about Shoptalk.
First, I’m not a big person for most of these talks as I think they tend to function mostly as PR for big companies who have a particular agenda. It also has a useful recruiting function.
Second, and speaking of recruiting, if I had to pick out one topic that was on the minds of absolutely everyone on the show - even more than the economy - it was human resources. The cost of almost all but particularly Senior roles is rising in a completely unsustainable way for most companies.
What I am finding is that many companies have completely open hiring budgets because they are so far behind their goals. This will ultimately fuel further innovation in artificial intelligence because I don’t believe we are creating enough people with skills in this role fast enough.
At any rate, Shoptalk was a great reunion for everyone relieved we may be hopefully cross your fingers coming out of the pandemic, as well as functioned as one of the retail industry’s biggest job fairs.
Personally I hope to see more Watsonians at upcoming events like the Global eCommerce Leaders Forum, as well as the ChargeX event held by subscription provider Recharge in upcoming weeks.
[PAUSE]
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 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.