August 1st, 2022: Early reviews of Amazon’s Style Store, Bed Bath and Beyond, UPS innovating through downturn, and Shopify’s Q2 earnings call

August 1, 2022 Rick Watson

It’s August 1, 2022 and this is the Watson Weekly - your essential eCommerce Digest!

Today on our show:

Confirmed Stories:

Early Reviews of Amazon’s Style Store in Los Angeles Underwhelming
Can We Talk About What Happened To Bed Bath and Beyond?
UPS Innovating Through Downturn, Maintaining Margin and Revenue Targets
Shopify Q2 Earnings Call Shows Warnings Signs for the Company in 2022

- 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….

Early Reviews of Amazon’s Style Store in Los Angeles Underwhelming

In the past we’ve talked about some of the innovations coming in Amazon’s Style store which recently opened in Los Angeles in the last month. Well, the Guardian has written an article about it, and some in my own network have visited it, and the verdict so far is:

Underwhelming.

It’s not that the technology isn’t a neat idea, it’s more that the styles featured in the store itself seem pretty basic and it’s not clear why a shopper would walk into the door to see them.

It’s almost like Amazon had this idea for a store to develop it to test some technology. We don’t care if the store works, the real point of this is to sell this tech to other stores. I don’t know, what do you think? Let’s try to sell clothes.

The fact that they put it in a ritzy Los Angeles neighborhood also gives you the idea that they wanted other clothing stores in the neighborhood to notice it and perhaps their executives to wonder they they can’t have this Amazon technology in their own stores. Crazier things have happened.

If that is the case, this store could be successful if Amazon’s technology is adopted by other retailers.

If Amazon actually wants to start selling significant volumes of fashion and typical department store items, it might need to try harder.

[References:]

https://www.theguardian.com/technology/2022/jul/16/amazon-style-clothing-store-california

Our Second Story

Can We Talk About What Happened To Bed Bath and Beyond?

If you’ve been listening to me for any length of time, you have seen me follow Bed Bath and Beyond and I never really had that much affection for the company or its recent strategy, even after former Target executive Mark Tritton took over. In the past month, the Board has moved on from CEO Mark Tritton. It’s against this backdrop that I wanted to analyze a recent article from the Wall Street Journal from Suzanne Kapner entitled: “Bed Bath and Beyond executed a proven playbook and lost.”

Real talk for a moment.

First, when you get to be the CEO of a major corporation, and you haven't been CEO before, you have pretty much already succeeded. Your next employer will look at the success or failure through their own eyes.

Your next potential employer will say one of two things. Either "This person already made all the mistakes somewhere else, he won't repeat them here." or

"This person really turned things around."

Think about that, next time you take on a challenging role. There is a saying I've heard repeated often, "You only fail UP in Silicon Valley". And it is broadly true, I've found. The people out there taking risks are not afraid to fail, and that's why they do it.

Second, the article said Bed Bath and Beyond was executing a winning playbook and lost. I really shake my head at this comment.

I want to let you in on a little secret here.

Are you listening?

There is no such thing as a proven playbook for anything. If you are looking for generic advice, open a fortune cookie.

Let’s say you have two different people baking the same cake from a master chef’s recipe. Both are both executing a "proven playbook", but is the playbook the important thing?

Unfortunately for these two new chefs, ingredients matter, equipment matters, technique matters, and sequence matters.

Another thing that matters is knowing who your customer is and why they came to you.

Which brings me to my next point.

Third, Bed Bath and Beyond never really knew why it existed anymore.

The big players in the market have deep pockets and years of investment which set them up for a place where a certain set of strategies and tactics will work.

If you are executing a playbook from another company, it is highly unlikely that your company is in the same situation as them.

That's why you can't build a plan without assessing where things are.

You can't build the same cake in a 75 degree room as you can in a 90 degree room. You just can't.

You probably shouldn't make the same "proven cake" if you don't know the dietary tastes of your guests, or if they even want cake. Your proven playbook flies in the face of the obvious: "Why are we here?" question.

Finally, it was all doomed anyway.

Look, the company was declining. 10 years ago, a transformation may have mattered. They missed that onramp. Once consumers move on, it is 3x as hard to recover because you need to identify a new, profitable, growing segment of consumers that are likely NOT already your existing customers, and then you need to figure out how to serve them.

And if it's going to be economical to acquire these customers, you better hope they are not being served well by alternatives to your approach.

That does not describe the bed and bath category where Walmart, Target, and Amazon are dominant.

All this to say, pay attention to your context before you start building. Stop looking for the easy answers, and winning playbooks. Instead, clearly define who your customers are, and then learn why they would come to you.

I think the takeaway here is pretty straightforward. If it’s about your playbook and not about what or why your customer wants something, then you are on the wrong path. Sue Cove the new Interim CEO has not yet been made available for an interview, and the company seems to be looking for a permanent CEO.

Which is fine, I guess. But whoever this new CEO ends up being, the company is already on the skids and this could end up being a Toys R Us type situation, which incidentally is seeing something of a revival, helped by Macy’s.

Whenever Sue Cove does make herself available for an interview, there’s really only one thing I want to hear from her:

“Here is who our customer is, and why we still matter as a brand.” To be honest, I’d almost rather if she said the company didn’t know, and we are going back to the drawing board. That would be more honest.

[References:]

Our Third Story

UPS Innovating Through Downturn, Maintaining Margin and Revenue Targets

Last week I sat in on the UPS Second Quarter 2022 Earnings call.

First let me just get something off my chest. UPS has a strategy called “better not bigger”. Which ostensibly means that it doesn’t matter that Amazon is going to ship more parcels than them, they want higher quality revenue.

Overall, I think it's embarrassing and funny that "Better Not Bigger" is a differentiated business strategy, but it is in so many ways. So Kudos to UPS for charting their own path.

Here are a few callouts from the call.

* They are maintaining their full year revenue and profit forecasts, which is tough to do in this environment.

* They advise that US Second Half GDP is forecasted to be about 1.4% growth according to analyst IHS.

* While Average Daily Volume declined 4%, second quarter revenue was up 5.7% year over year, profit was up 9.3% year over year, and margins were up 40 basis points.

In the face of declining volume, often you see margins shrink because supply chain is a utilization business. The fact that that’s not the case here is a great sign for UPS’s execution.

* Half of average daily volume decline or about 2% was planned by UPS, either formally or informally, and was due to a "few customers", and "majority of that volume was residential" they said.

I took this to mean, Amazon continues to bring more and more last-mile in-house. This is well-known on our part, it's not good business anyway.

They went on to say that by the end of year, Amazon will be less than 11% total revenue.

Cost savings was obviously a big topic in this environment, and there is about $300 million in cost savings targeted in the second half of 2022. In particular a new major initiative called Total Service Plan to reduce wait times and improve driver and operator efficiencies.

Carol Tomé, the UPS CEO - who clearly loves operational details - mentioned that a 10 min improvement in service time across the network is worth $257M.

* Readers of mine know how much I like Target. Carol Tomé at UPS has become my second favorite listen. She is Another adult CEO in the industry with a specific, differentiated plan that can articulate the cost gains they are seeking, and the specific programs that will get them there. This is unfortunately rare in corporate America.

Another interesting tidbit I found was a reference to UPS integrating with popular order management software in a test designed to improve parcel route density by consolidating more than one order on the same route. I’ve heard that this has languished as an internal project at UPS for many years, and it looks like they have decided to work with third-parties instead to bring this to market.

The benefits of this could be huge because this is where the orders start. It just makes too much sense not to work.

My last bit on UPS.

The funniest part of the interview by far for me was a body blow thrown at FedEx who just announced last week they were going to try and integrate their air and ground networks, despite the fact that they acquired RPS in 1997.

To quote Carol Tome: "We already have an integrated network, our improvements are about running our network as it was designed." Ouch.

[References:]

And Our Last Story

Shopify Q2 Earnings Call Shows Warnings Signs for the Company in 2022

Shopify Q2 Earnings Call shows a few positives, but it also reveals tremendous challenges in a management team in unfamiliar territory.

A few positives before I jump in:

* Off-Shopify GMV growth of 47% is impressive, and frankly a lifeline. Their POS is nothing to write home about, but it's fine. And without it you would likely be seeing at least twice the layoffs right now.

* Shopify eCommerce GMV is also still growing faster than industry at 16% year over year, so there needs to be some perspective and that’s fine.

However, their recent note about their 10% layoffs, and their subsequent explanation of the failures that led to that I find extremely lacking.

Of course many large companies have been caught up in a whipsaw in the past few years, Peloton with supply chain and people,

Amazon overbuilt their fulfillment network,

Target and Walmart have too much inventory

I came out of the call and reading earnings with a few thoughts and comments:

First, 10% cuts will not be enough. I predict they will need to get to 20-25%. This is a big strategic mistake on Shopify's part because you want to cut once and deep, rather than dribble it out.

Why do I say this?

Well first of all, I have unfortunately a lot of experience in dealing with layoffs. I’ve been laid off before personally, I’ve been in the sad position of having to plan layoffs before also, more than once, and I’ve been at companies where there were many rounds of layoffs and I was not affected.

Let’s look at the facts and see if it means that more layoffs are likely to come.

Shopify lost money in Q2. Even in these operating losses, Deliverr was not included because it was not yet closed. Deliverr is a dilutive acquisition, which means that it is unprofitable on an earnings per share basis. That means Q3 will be a doozy.

As a result, they have announced they will lose a lot more in Q3, because most of the layoff expenses will be included there as well.

They have also announced that their Q4 loss is expected to be greater than the current Q2 loss, but less than the Q3 loss.

The economy is also not in a great situation. Inflation is not going to stop on a dime - except perhaps the housing market - regardless of what the Fed does, because it’s the price of labor and materials that are increasing. How does increasing the US interest rate reduce the prices that a foreign supplier is passing along to you?

Why is this relevant? Recent economic data from Guggenheim from others indicates that discretionary spending is being squeezed by inflation. Non-discretionary spending is more or less unaffected in its levels, it’s just that consumers’ dollars are not going as far. What that does obviously is puts more pressure on purchases you can defer, or what’s called non-discretionary spending. I would argue that the majority of Shopify merchants are discretionary spending. Just take a look at the Shopify homepage for 10 seconds if you don’t believe me.

There are also still global macro headwinds out there in supply chain, Russia, and China. I believe that the global supply chain issues are not temporary and there is a cyclical shift happening that will tend to de-globalize the world in some ways over the next 10 years, kind of the yang to the ying that Thomas Friedman wrote about years ago in “The World is Flat”. Well, the world is starting to become hilly and not flat.

Shopify CEO Tobi Lutke was asked directly why you did the layoff, and he answered directly that it was not a financial decision. Which is a nonsense answer, but it just makes my point for me.

Do you think that a company who self-admitted this layoff was not a financial decision cut exactly the right number?

There is likely another 10-15 % layoffs coming in the next 6 months for Shopify. I’ve already heard reports that even before last week, Shopify was slowly cutting staff under the radar.

But let’s get to the broader point here. Shopify is entering choppy waters, and its management team is not extremely experienced. CEO Tobi Lutke is self-admittedly not a corporate manager. President Harley Finkelstein is essentially in Public Relations, as far as I can tell. Who is making the hard priority calls that will be necessary to steer the Shopify ship through these choppy waters? Long-time Shopify watchers know that Tobi has openly mused about moving on when he feels he’s not the right person for the job. I feel like that time may have come for Tobi to move on from his CEO post. Or at the very least, I would not be surprised to see succession planning discussions starting at Shopify this year in the C-Suite.

[References:]

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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.

First

Emerald Holding Acquires Online Wholesale Marketplace Bulletin

Bulletin is a wholesale marketplace connecting retailers and brands, and Emerald is the organizer of a traditional NY-based retail wholesale market for retailers.

Essentially every old-school wholesale supplier conference will need software in the future.

Link: https://shop-eat-surf.com/2022/07/emerald-acquires-online-wholesale-marketplace-bulletin-inc/

Second

Accenture to Acquire agency The Stable to Bolster its Commerce Transformation Expertise in North America

This marks the second acquisition in a row for Zehner and BVA, and they have been absorbed into one of the largest agencies, Accenture.

Some of my network feels that the cost of talent could have something to do with the timing of this acquisition. The existing owners perhaps did not want to chase the talent rise upwards, and decided now was a good time to get off the ride.

It is not uncommon at all for agencies to keep getting acquired until they reach the largest agency size.

Link: https://www.businesswire.com/news/home/20220713005700/en/Accenture-to-Acquire-The-Stable-to-Bolster-its-Commerce-Transformation-Expertise-in-North-America

Third

AI inventory prediction software Syrup Tech raises 6.3 million from Google’s AI fund.

The main goal of the company is to help brands understand how much inventory they should have in all the various sizes and colors of their apparel stock, which is a tough prediction to make.

Link: https://syrup.tech/news/syrup-raises-usd6-3m-in-seed-funding-from-googles-ai-fund

Fourth

Hivery raises a $30 billion Series By round to automatically optimize product placement on store shelves

Another optimization startup, this one in growth mode. I like this idea as it is a huge industry with a complex problem to solve that is not as data-driven as it could be.

Link: https://techcrunch.com/2022/07/14/hivery-bags-new-money-to-automatically-optimize-product-placement-on-store-shelves

AND FINALLY …

Customer Reviews provider for Shopify merchants, Okendo has raised $26 million in Series A funding

Link: https://www.finsmes.com/2022/07/okendo-raises-26m-in-series-a-funding.html

The company collects, displays, and pushes customer reviews across your eCommerce storefront like Shopify and other channels like Google and Facebook. I have been hearing a lot more about Okendo from those in my network because of its affordable price.

Okendo competes with some of the solutions available from companies like Yotpo and Reviews.io.

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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 production partner for the series is CitizenRacecar. The show is produced by Alex Brouwer; 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.