August 22nd, 2022: Amazon reorganizes grocery business, ThredUp and Tommy Hilfiger, DoorDash and Facebook Marketplace, and Walmart and Target earnings
It’s August 22, 2022, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon Reorganizes its Grocery Business
ThredUp Working with Tommy Hilfiger to Introduce New Brand Customers
DoorDash Will Start Delivering Your Facebook Marketplace Purchases, too
Walmart and Target Earnings Shed Light on Economic Worries
- 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….
Amazon Reorganizes its Grocery Business
Business Insider reported on a leaked e-mail from Amazon about the reorganization of its grocery business. Here are a few of the changes:
By far the biggest news is that the "technology" part of the business is moving to the AWS group, represented by VP Retail & Tech Dilip Kumar now reporting to AWS CEO Adam Selipsky.
Other big news is that functions in Amazon Fresh, Go, and Whole Foods are being consolidated in a single leadership structure, in particular areas like Marketing and Communications, Real Estate, and Growth.
So big moves for Amazon in the space, what could this mean?
First, I think the new leader is saying that the organization was previously unfocused. The same leader was trying to sell grocery technology to third-parties, as well as trying to run an actual grocery store. That's difficult to do, and let's streamline.
Oh, and hello there!
AWS is moving into grocery tech! THAT’S pretty damn cool. Where’s Microsoft on that one?
Second, Amazon is also saying that its brand offerings and strategy between Go, Fresh, and Whole Foods need to be clearer and more coordinated. Five years after buying Whole Foods, they can't continue to operate like independent entities.
If that’s what Amazon is in fact saying, then I tend to agree with the premise behind these changes. Whether or not they will work out will of course depend on execution, but it does give these leaders a chance to build a focused organization.
Regardless, Tony Hoggett, who started in January and spent the last 30 years at Tesco in the UK and China, is unafraid to come in and put his own stamp on the organization. Singularity of purpose and a clear direction is often the best thing for any kind of organization.
Of course, someone who knows more about the grocery industry than I do may disagree with the particular strategy, but HOW you go about innovating and changing is sometimes more important than WHAT you are doing as long as the right people are executing it.
This is another way of saying,
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if culture does indeed eat strategy for breakfast, then Amazon may be on the right path here with these decisive moves.
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Our Second Story
ThredUp Working with Tommy Hilfiger to Introduce New Brand Customers
Men’s clothing brand Tommy Hilfiger has entered the circular economy with this new collaboration. The inspiration for this seems to be a concept that ThredUp started previously with the Madewell brand.
According to ChainStoreAge, Tommy Hilfiger and ThredUp are partnering on a new shopping portal.
What do you find there?
First, you can buy gently- used Tommy items on the portal. But the more interesting part is that you can return used items of any brand, and Tommy men's items for credits towards purchases.
Then, any credits for new purchases can be used either online or in-store.
I like this collab for a few reasons:
First, it encourages use of your old purchases and helps the brand in an area that consumers care about.
Second, it could potentially reactivate old or lapsed customers to buy new in-line merchandise, which would be a benefit to customer acquisition.
As much as I like the mechanics of the problem, where Tommy could potentially get in trouble is authenticity. Is this part of a larger program? Is this concept necessary and strategic for the brand, or a "me too" offering?
Unlike brands such as REI and Patagonia, there isn't an obvious fit to me between the Tommy brand and sustainability.
As for ThredUp, it needs official brand partners, and for ThredUp it's a customer acquisition strategy as well. It's not like these resale fashion marketplaces have been very profitable, and many of them are at serious risk of running out of money. If you call this initiative ThredUp as a service, it might just be the most profitable thing they do.
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Our Third Story
DoorDash Will Start Delivering Your Facebook Marketplace Purchases, Too
A recent report from The Verge talked about a new partnership between Facebook Marketplace and Doordash, which I have a pretty positive view on in this sector of the market.
While many brands don’t think much about Facebook Marketplace, consumer to consumer purchases power a significant part of the economy, starting from the old guard like Craigslist and eBay. Facebook Marketplace, while is also a source of fraud and scams, is almost impossible to ignore as a source of eCommerce volume at the same time.
How does Doordash fit in?
Well, Facebook Marketplace today has a partnership with a company called Dolly for bulky items, but has no solution other than seller shipments for small items. Doordash allows any seller to deliver to any buyer up to 15 miles away when the item can be delivered in the trunk of a car. Drivers are expected to make the delivery within 48 hours.
That’s a very interesting and impressive service. But perhaps we shouldn’t be too surprised. In January this year, Tony Xu the CEO of Doordash, joined Meta’s Board of Directors. Sounds predictive to me.
Know another Board relationship that also happened earlier this year? Instacart CEO Fidji Simo joined Shopify’s Board of Directors. Could this partnership also be coming soon by the same logic?
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And Our Last Story
Walmart and Target Earnings Shed Light on Economic Worries
I listened to the recent earnings calls from two of the industry’s top retailers – Walmart and Target – last week, and didn’t exactly come away with warm fuzzies for the year.
In short, Walmart is pretty much custom-built for this economy in which consumer essentials are the priority, and Target’s store-based fulfillment model can get jammed up by slow inventory turns since the model relies on fast-movers. In other words, we are all living in a Walmart world right now.
Let’s start with what I heard that was consistent across both retailers. But first some math.
I tell new founders in eCommerce all the time that one of the reasons I love eCommerce is that it’s just math in the end.
Number of sessions on your website times conversion rate times average order value equals gross revenue.
Let’s keep that in mind as we talk about this. What Walmart and Target told us were that units per transaction were down slightly and average retail pricing was up slightly due to inflation. Assuming you hold conversion rate constant for a moment, that means any difference in revenue at the moment is essentially determined by what consumers are looking for, or traffic. That’s because the two components of average order value – units per transaction and average unit retail – are counterbalancing each other right now.
Let’s talk about traffic then for a moment. What are consumers looking for? The CEOs of Walmart and Target are directly telling us on earnings calls that consumer confidence in their finances is declining, and households are focused on optimizing their budgets.
To get specific from a category point of view: grocery, food, home essentials and private label items are all up. This really helped Walmart this quarter a great deal .
The down categories are things like apparel, electronics, home, hardlines and general merchandise overall. While these are important for Walmart too, they are doubly so for Target, which is a higher margin retailer.
Essentially what happened so far this year is that these two retailers have canceled literally billions of dollars in orders in certain categories that were designed to be received in the fall in time for the biggest Holiday season.
This means these retailers are telling you that, overall, this is going to be a muted holiday season relative to previous years — the inventory will just not be available to support tremendous year over year growth, even if the consumer demand is there.
In order to counteract consumers worried about their finances, retailers are discounting more frequently and more deeply. Target cleared a tremendous amount of inventory off its books in order to ensure that its stores are not cluttered and unfocused.
For Target in particular, this decimated its gross margins, which are normally in the 32% range, and they plummeted to around 23%. This essentially had a direct impact on Target’s historically great operating margins. Instead of seeing operating margins from Target like 8 or 9, Target instead saw 1% operating margins. This is closer to Amazon-level performance, in case you were wondering.
What about Walmart?
Finally, on the advertising front, Target’s Roundel advertising business increased 12% while Walmart’s Connect advertising business rose 30% year over year. Walmart’s ad business, while is much smaller than Amazon’s, is much bigger than Target’s, so this is more impressive even though Flipkart contributes here too.
Given that retail isn’t the path to profit dollars, it’s important for us to continue to watch the advertising business at these retailers as retail media continues to expand led by Amazon.
While Target wrote down a bunch of inventory this last quarter, it isn’t done cutting and it will still see some impact in Q3. Plus, what happens if something similar happens again? Does Target write down another batch of inventory?
Better to be Walmart in this story.
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It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Shypyard (with a Y) raised $3 million to automate inventory forecasting and replenishment
Accurate forecasting is important to brands, so I can see the market problem it is trying to solve. The big question is, is this analytics solution enough to power an entire company?
Second
Cloud-based eCommerce and marketing platform Maropost acquired search and merchandising solution Findify.
I hadn’t heard of Maropost in the past, and it looks to me like it is trying to copy the Salesforce playbook, bundling e-mail marketing and eCommerce for smaller merchants. Findify offers search, merchandising and personalization, which is a difficult space to survive in long-term. I expect that Findify was likely looking for a platform exit.
Third
Deals Finder Vetted raised $15 million for AI that helps shoppers find top products and deals.
Whereas Honey was acquired by Paypal and was more about promotions and pricing, Vetted is more about aggregating reviews across the Internet and surfacing a product’s price history, similar to one of those old school comparison shopping engines like Shopzilla.
Didn’t think you’d hear about Shopzilla on this podcast, did you? What’s old is new again I guess.
Fourth
Klaviyo received a $100 million investment from Shopify, validating its market position for Shopify Plus.
Shopify continues investing in its ecosystem partners to strengthen its connections to the platform. I get the sense that there are a couple reasons for these types of deals.
First, it ensures developer partners that Shopify gets their first attention.
Second, the deal encourages new entrepreneurs to build apps for Shopify.
In theory, it also gives Shopify skin in the game for an upcoming lucrative IPO, but this hasn’t always been the case with its investments.
Link: https://www.klaviyo.com/blog/shopify-strategic-partnership
AND FINALLY …
Grocery store inventory is the target of a $10 million raise by startup Vori.
The elements of the supply chain targeted by Vori include store replenishment, price management, and inventory control. While there are still a lot of undigitized elements of the grocery industry, it’s mostly with mom and pops, which is I guess where Vori will attempt to focus.
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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.