August 23rd, 2021: Wish.com, Walmart and Target’s Q2 Earnings, Instacart, and introducing The Investor Minute!
It’s August 23th, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on the show:
- Walmart’s Q2 earnings highlight the continued growth of digital & eCommerce,
- Target’s shows leverage in its model in its own Q2 earnings call, including faster growth than Walmart,
- What’s happening at Instacart — something special, or do they need help?
- and finally, a new segment on the show, The Investor Minute.
This spot highlights all the news in venture capital, acquisitions, and IPOs in the North American eCommerce universe.
BUT FIRST in our shopping cart full of news….
Is the Wish.com marketplace in a death spiral?
Wish.com, the Chinese goods deals-oriented marketplace released earnings recently and it was not good. Reports reveal a grim future for the company, which to me always seemed like one big scam waiting to happen. The company is dismayed by the fact that they invested in logistics, but then retention rates didn’t improve.
This caused them to miss revenues.
To make up for this, they then cut digital marketing spend which reduced their future earnings guidance. This tanked their stock.
This is the textbook definition of a death spiral and makes this site sound more like a pump and dump scheme than a legitimate business.
I am not a financial analyst but from a strategic point of view, you essentially admitted a number of bad things all at the same time:
1 - You don’t understand your user base and what they value.
2 - You may not understand what “better” means in terms of logistics for the average user.
3 - You show no signs of improving the actual quality of the products you’re selling.
While you will always hear me talk about the importance of logistics and operations, it can’t come before the quality of your products.
>> Apparently getting junk faster doesn’t make you want more of it? The company has literally become a better internet meme than an eCommerce marketplace.
References:
Our Next Story
Walmart’s earnings highlight the continued growth of digital commerce
Walmart released Q2 earnings this morning, with eCommerce growing 6% year over year and putting it on a doubling pace in 2 years. They are now up to $75B in eCommerce sales.
Here are a few highlights from the call:
1 - Walmart Connect, their advertising platform, grew 95% year over year, which is an important high-margin business component for them going forward. The number of active advertisers on the platform was up 170% year over year as well.
To be clear, Walmart isn’t doing anything unique here. They are just following the playbook of Amazon’s advertising business which is creeping up on a $35-40B run-rate from my estimates.
Seems like a good idea.
2 - Walmart grocery appeared to gain share with 6% year over year growth and a reference to a recent Nielsen report about marketshare gains. The company mentioned that the bulk of this growth was due to keeping products in stock better, and reducing clutter and improving merchandising in stores.
In this competitive market, not losing share is a winning formula for Walmart as they are already the leader. If they are taking share, I’d be interested to know where it’s coming from? Perhaps Kroger.
3 - One of the benefits Walmart has is that it can use international as an incubator. I thought about this idea when I saw that the company introduced the Walmart Pass in Mexico. Walmart Pass is an “all you can eat” free shipping subscription, but the products have to be shipped from stores.
This immediately made me jump to Target, who has famously invested in its store network to the tune of handling 95% of the firms eCommerce shipments. Shipments coming from stores are also significantly cheaper - something like 30-60% cheaper depending on if it’s ship to home, or driveup - than shipping them from a central facility because the products are already close to the consumer.
Seems like a good leader to follow.
Looking back 6 years ago, Walmart famously paid $3.3B for Jet.com in what seems like a small number in retrospect. After several years of failed experiments, it seems like Walmart has found its footing, namely:
- defending grocery and following amazon’s playbook.
With regards to grocery, this is one area where I think they could actually innovate because they are #1 already and have assets that few companies have - digital technology chops and massive store assets,
With regards to following amazon’s playbook — this refers to expanding advertising opportunities on their website through their Walmart Connect retail media platform, expanding its marketplace, and offering new fulfillment services
A final word on Walmart.
Walmart’s CEO mentioned the need to not care so much about the “what” they invest in so much as “how” they do things - in particular, saying they value speed in their execution.
>> To me that means, Walmart may be leaning more towards the fast-follower model (like what Burger King is to McDonald’s) than a true innovator’s model, which is likely much more capital-friendly than a lot of the failed experiments that Amazon’s model requires.
References:
Our Next Story
Target’s earnings highlight continued leverage in its model, including faster growth than Walmart
The day after Walmart reported earnings, Target reported them as well, and it was a case study in contrasts.
What you hear from Walmart is growth in marketplace and advertising. What you hear from Target is growth in stores and continued fulfillment operating leverage. Let’s jump into it.
First the statistics:
Sales grew 8.9% and Digital Sales grew 10% year over year in Q2 on top of 195% growth the previous Q2.
Same Day Digital Delivery Services - in other words — buy online pick up in-store, curbside pickup, and its Shipt home delivery business grew an astonishing 55%, on top of 270% growth the previous year. Incredible.
More than 95% of Target’s 2Q Digital sales were fulfilled by its stores which is consistent with the past couple of years.
Second, the company continues to invest in its store network. They are on track to open an additional 30 new small-format stores this year - these are little fulfillment centers for the company, they have opened 19 of them so far this year.
Additionally, there are 2 new sortation centers on the near-term horizon — these centers sit in between a group of nearby stores and the customer’s homes in dense markets to facilitate same-day efficiency. This is based on technology that they acquired from Grand Junction.
This is a good sign for the company as it means that some of their store efficiency improvements are baked in and they are moving further down the value chain. (This is tech they acquired from GrandJunction)
Another super-interesting note is that Target Circle - which is their membership and loyalty program - has grown to one hundred million members.
Compared to Amazon’s one hundred and fifty million Prime Members, this is great performance. I wasn’t aware their program was so large.
Makes me wonder what Walmart is doing with Walmart+? In the Q1 earnings last quarter, they said it was not a focus. Really?
The bottom line here is Target continues to operate with efficiency.
>> One question I get a lot is why isn’t Target investing more in its Target+ marketplace? Unlike Walmart which is playing follow the leader, Target likely doesn’t see it as differentiated to dropship orders slowly to consumers.
Unless it can figure out how to plug its marketplace partners into drive-up or same day, I expect it to be slow going here. It just doesn’t fit their model as well as Walmart.
References:
https://www.linkedin.com/posts/rickwatsonecommerce_target-walmart-activity-6833744177998774272-IOJp
And Our Last Story
What’s happening at Instacart — something special, or do they need help?
A new report from Edison Trends is out that’s referenced in the Indiana Gazette. It reports that Instacart is the undisputed owner of the grocery collection and delivery business with 67% market share, Amazon having 22%, to Uber Eats and DoorDash having 1% each.
Unfortunately, I didn’t see the full report which surely contains Walmart, Albertson’s, and Kroger somewhere in these numbers?? I can’t imagine these 3 players only have 9% of the remaining market share. Perhaps they are excluded because they are a pure retailer? Then what is Amazon? Seems like an issue.
So that’s the good news for Instacart.
Here’s the flip side, and some I’ve touched on before. Both the CEO and President of Instacart recently departed their operational roles at the company in the last month. Both were replaced by high-ranking Facebook executives, in a nod to advertising and the importance of building an engaging mobile app experience.
In another story, there are reports that Instacart and Doordash were in discussions about a merger between the two businesses. If you look at Instacart, which is not likely to penetrate restaurants, and Doordash, which is not likely to penetrate grocery and advertising, this is perhaps a good idea.
A few points on this:
Taken separately, you might not think something is amiss here. However, I like to connect the dots.
First, if you were the CEO and President of Instacart, why would you depart BEFORE an IPO?
The only answer is that investors are unhappy with your behavior. You don’t depart for the good of the world.
Second, hello! Instacart is for sale. Why is no one talking about this?
I expect that as part of their IPO process, the Board is considering all strategic options like acquisition and merger opportunities, in addition to - you know - replacing the CEO and President in rapid succession.
This leads me to my final point,
Now even though the rumor is that the discussions fell apart due to antitrust concerns. I have to wonder — is there causality here? Now the following is all speculation on my part.
Apoorv Mehta is the founder of Instacart, and founders don’t like to give up their babies, which Instacart is the company he built.
If he slow-played or sabotaged the Doordash deal in some way, it is totally possible that the Board didn’t take too kindly to that development and wanted to nip that in the bud before the rest of their strategic options process was completed. And they had to move quickly because they want to IPO soon if it doesn’t work out.
The timing of his departure at CEO and the surprise news of a failed Doordash merger are too close for my comfort.
>> Would this put Fidji Simo the new CEO in the role of finding a new buyer through her Silicon Valley connections?
References:
https://pennsylvanianewstoday.com/delivery-apps-extend-reach-to-meet-customer-demands-news/199429/
Now it’s time for a new segment on the show, The Investor Minute …
eCommerce platform company Shopistry raised $2M to build a modular cloud-based eCommerce platform. Kind of feels they want to recreate Shopify, but make the partner network a little more open.
Ad-tech provider Moloco raised $150M to help launch its own retail media platform. This is on the back of other retail media news recently with the acquisition of CitrusAd by Publicis, which I’m sure helped them win that lucrative Walmart advertising contract.
Xentral (with an X), a German-based ERP platform for small and medium businesses raised a $75M Series B to help them tackle the eCommerce market. ERP in this segment is so tricky but I feel like it’s a gap that Quickbooks still is not filling for people and many are not a fit for Netsuite which is too big and expensive.
CommentSold which has turned a business based on selling from social media comments into a livestreaming platform, just received an unspecified investment from Permira, which likely amounts to taking over the venture. This livestreaming commerce space - buying something based on a live video feed which is popular in China - is still nascent in the US.
That’s it for this week! Till next time.
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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.
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