August 28th, 2023: How can Artificial Intelligence help eCommerce? Walmart reports Q2 2024 earnings, Amazon launches a new US shipping program, and TikTok takes another firm step towards a marketplace
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s August 28, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
How Can Artificial Intelligence Help ECommerce?
Walmart Reports Q2 2024 Earnings
Amazon Launches a New US Shipping Program
TikTok Takes Another Firm Step Towards a Marketplace
- and finally, The Investor Minute which contains 7 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….
How Can Artificial Intelligence Help ECommerce?
As venture capital money pours into AI, many people are asking the same question. What is the analogy of AI to generations that have come before it?
I'm here to tell you that AI is not a Web 3 or Web 4 type moment.
Instead, the for AI right now is quite simple: AI is automation.
* AI can help you sell better or more through your existing channels.
* AI can help you deliver better or more efficiently through your existing delivery mechanisms.
It does not match the revolutionary breakthrough in even these past tidal waves of innovation:
* Internet: A family of protocols that enabled communication on a vast scale.
* Web: A new specific protocol which led to a new sales channel (marketplaces and DTC).
* Social: A new way to communicate with your friends and business partners which became a new sales channel (social media marketing).
* Mobile: A new form factor for communications which not only led to a new sales channel (SMS) but also the application of Moore's law to computers in your pocket. Headsets will be in this same bucket, when they are ready (could take another decade or two before you think of this like mobile).
What is AI? Well, even if you don't know the answer, you know what it is not. It is not like any of the above waves. Venture capitalists pouring into the trend should worry about that.
In eCommerce, two things are breakthroughs:
* An entirely new channel of business. This is a new way to reach your customers, like the web or social media.
* An entirely new delivery mechanism which changes the cost equation by an order of magnitude: think of what Kindle is to the books category.
What's the best analogy I have for AI right now? Something like Cloud Computing.
Big and important, yes.
Incrementally great for everyone? Yes.
Revolutionary in the same manner as the other revolutions? Let's tap the brakes here.
Getting your AI to answer questions for you in a SaaS App... sure it's helpful, but the true generation winner in AI will come from a few areas:
* The compute and platforms that power the models.
* The compute and platforms that power the apps built on top of the models.
* New communication, sales or support channels built on AI negotiation that were not possible before. (Don't think AI negotiation is coming? You must not be an Amazon 1P vendor 😀)
This last point is what most people are focused on right now - mostly from a support or client management point of view, but it really needs to move to being a way to sell or deliver, and not a way to support.
In my ideal future, there is an army of robot buyers which represent a distinct channel than human buyers. Marketing to this new army of robot buyers will become a new thing too.
Sadly, I think in fulfillment and delivery we are talking about incremental improvements until we invent teleportation.
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Our Second Story
Walmart Reports Q2 2024 Earnings
Last week Walmart reported their Q2 Fiscal 2024 Year Earnings, and t’s hard to overstate how much Walmart crushed this quarter. Here are a few datapoints, including raised guidance. Simply, they are doing what they said and the business is better than their previous expectations, and upside is great. This reminds me of listening to a Target earnings call 4 years ago.
OVERALL Q2 Results
* Consolidated revenue of $161.6 billion, up 5.7%
* Consolidated operating income up $0.5 billion, or 6.7%
* Global advertising business grew approximately 35%; # advertisers grew 60% y/y
* The company is pulling forward ROI improvements from FY 2025 into FY 2024.
US BUSINESS Q2 results include:
* Walmart U.S. comparable sales up 6.4%
* eCommerce up 24%, led by pickup & delivery
* Operating margin 5.5%, up from 5.4% last year
* Walmart is now shipping more than 50% of its digital orders from Stores. The fact that Target ships over 90% of its orders from its stores is a potential tailwind and expansion opportunity for Walmart.
* Walmart Connect advertising sales grew 36%. Walmart has doubled its advertising business in 2 years.
* Walmart’s Marketplace increased its item count over 4 times since last year. The number of # Marketplace customers increased 14% in Q2, and Fulfillment Services adoption is up 50% since last year.
* Walmart online experienced strong traffic demonstrated by their weekly active digital users being up to 20%.
As far as the category breakdown
- General merchandise declined mid-single digits
- Grocery inflation moderated 700bps y/y and 400bps q/q, but is still 20% up on 2-year stack. In my mind, this means consumers are still being affected.
On the operations side:
* US inventory declined 8% with higher in-stock levels
* 15% of stores are now served by an automated regional facility. These facilities are efficient by 30% on a units per hour basis. Huge upside here given the penetration is at 15% now.
On the grocery front, Walmart disclosed that its gaining share from other competitors, which should worry companies like Amazon that are still trying to figure out grocery. Private label grocery products were up 9% year over year as Walmart reported customers trading down to private labels.
Many people ask me all the time, what’s the state of the consumer in the US as it pertains to retail?
* Consumer spend seems to be shifting from other categories to grocery and health/wellness.
* Consumers not compromising on holiday seasons. Back to Schools started strong, which is a holiday predictor.
* Walmart is growing its category share across all demographics, continuing a trend for the past 5 or 6 quarters.
* Discretionary and household budgets pressured. There is a drawdown in consumer savings.
* I did think it was interesting that Walmart noted its Canadian customers were feeling pinch in interest rates faster than United States, primarily because of lower mortgage durations
UPDATED FY 2024 GUIDANCE
* Walmart increased its full-year guidance and sales expectations, which is a great achievement in this economy, but overall the company remains cautious.
* Walmart predicts net sales growth of 4.5% and operating income growth of 7.5%
* Inflation does seem slightly lower than last year, but is definitely stubborn.
Wrapping up this segment, here are a few takeaways
* First, Amazon should be terrified of Walmart in Grocery. It’s the leader in US grocery versus the gang that can’t shoot straight.
* Inflation still elevated, but moderated. Cautious outlooks for second-half smart in discretionary.
* In the second half of the year, Walmart and off-price formats will likely continue to make significant share gains.
* Results speak for themselves. Sometimes all you need to do is point to the scoreboard to see how a company is performing, and this was one of thoe quarters.
[References:]
Our Third Story
Amazon Launches a US Shipping Program
Business Insider and WSJ report that Amazon is (re-starting) an independent multichannel shipping service that competes with both FedEx and UPS.
Some details:
* Within the US, will not include US outbound.
* Sellers who ship from their own warehouse can choose Amazon as a carrier.
* Amazon had previously started this service in 2018 as a beta, and then during the lockdown, but given the surge in pandemic volume, this experiment was put on pause.
* This marks 6 countries now where Amazon has an independent shipping service -- including France, Spain, India, UK, Italy and now the United States.
Anytime Amazon does something in the market, it pays to take note of it. The competitive dynamics are tough in the market now. There is more supply than demand, there are more facilities than demand, and services than demand.
To me, this speaks to a market consolidation that could happen where bigger players gain share. Remember, Amazon doesn't operate a truly independent shipping service. It's a retail marketplace with guaranteed volume that operates a shipping service, of which it is able to offer infrastructure to others at marginal cost.
This still sounds like a long-term winning formula to me.
The elephant in the room with Amazon from a transportation point of view is always trust, however, want to know what the antidote to trust is?
Rates, Service Levels, and Patience.
Three things that many companies don't have, Amazon generally has in abundance. Don't trust Amazon today? They are usually content to "keep doing what they are doing" and wait it out.
In truth, I expect more from Amazon in supply chain services. A lot more. I expect Amazon to sell every level of its transportation network - end to end, middle mile, and last-mile. That's just what you do with fixed assets, and it's been Amazon's playbook for 20 years now since they opened their marketplace.
The trust question is a trickier one, but I do believe there is a long-term solution here.
[References:]
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And Our Last Story
TikTok Takes Another Firm Step Towards a Marketplace
If you have been syndicating your products to TikTok and have the TikTok pixel installed on your storefront, you must make some changes by mid-September because TikTok has sunset its Storefront offering
If TikTok Storefront is not familiar to you, then let me explain. TikTok Storefront is a service which previously allowed you to put your eCommerce product catalog on TikTok so you could reference it in your videos, but the buyer would purchase by clicking through to your eCommerce site. Now, after September 13th this will be sunset in favor of TikTok’s Shop which requires the buyer to checkout on the TikTok app itself.
In news I originally missed, TikTok has decided to go a different way than Meta in eCommerce. Historically, social media sites like Instagram have offered two ways for creators/influencers to sell products through their social media platforms.
The traditional way is for creators to link back to their eCommerce storefronts. This requires the installation of a pixel at checkout time for the social media site to understand if the initial click resulted in a sale.
The second way is to push buyers to checkout through a Shop like Instagram Shop or TikTok Shop which is on-platform. Notably, the TikTok Shop payment methods include Apple Pay, Paypal, Klarna, and regular credit cards (via Stripe).
First, let's get this out of the way. This is not about TikTok competing with Shopify (despite the lack of Shop Pay, which I'm sure Shopify would love to remedy ASAP). There will be many ways (at least two I can find without much trouble) to connect TikTok Shop to Shopify to import your orders into your current Shopify eCommerce store.
Shopify is not threatened by the launch of a new marketplace, except perhaps in the smallest entrepreneur segment. To suggest otherwise would predict the demise of DTC eCommerce, which is still growing 2-3x faster than retail store volume. Let's tap the brakes here.
This is more about removing all purchase friction on TikTok such that it can follow the ByteDance GMV growth trajectory in China, which The Information has reported is growing 80% and reached over $200 billion in the last year.
Essentially, what I see happening here is a bold move from TikTok. The reason it's bold is that Meta never had the commitment, guts, whatever, to implement this on their properties -- preferring to give creators the option to either link off or transact on-site.
As a business move, I like TikTok's approach because it creates a "burn the boats" moment. If there is buyer friction, there are no excuses and the product team is forced to iterate and improve -- rather than tell people to link off. This should lead to more eCommerce innovation from TikTok going forward.
Given the influence of TikTok on other retailers like Amazon (check out Prime Day), this might be something to keep an eye on. Make no mistake, TikTok is courting Chinese influencers and sellers to American consumers (around 40-70% of Amazon sellers depending on who you listen to). This also explains TikTok's logistics plans: it's likely more for foreign than domestic sellers.
[References:]
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Hey, Watsonians, this is Rick. If you haven’t joined other listeners in our online community, you’re only getting half the value from this podcast. Our community contains members from all around the world discussing the most interesting topics we cover on the show. Just last week over [X] listeners like [y] were talking about [cross-border deminimis changes in the United States, and how it might affect Chinese marketplaces selling into the US market].
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It’s That Time Friends, for our Investor Minute. We have 7 items on the menu today.
First
Tapestry to acquire Fashion Holding Company Capri Holdings for $8.5 billion
Tapestry now becomes a viable competitor for LVMH and Kering as it becomes the largest fashion conglomerate in the US for US brands (sorry, PVH, you are now in second place in the US fashion market).
Link: https://www.cnbc.com/2023/08/10/coach-owner-tapestry-to-acquire-capri-holdings-in-8point5-billion-deal.html
Second
Resale-as-a-Service platform Trove Secures $30M Series E
Trove powers branded resale and trade-in for Canada Goose, Carhartt, lululemon, Patagonia, REI, Levi’s, Arc’teryx, Allbirds, and more secured additional capital by raising a Series E. The new funding will be used for logistics expansion and to add new brands and verticals.
Third
Fashion Sourcing Platform In-Seam Secures $2M
In-Seam, a fashion sourcing platform for stylists and personal shoppers, has raised $2m in pre-seed funding, which will be used. to hire staff and to further build its technology. This sector looks like an opportunity, yet multiple startups have launched and quietly closed..
Link: https://www.businessoffashion.com/news/retail/personal-shopping-platform-in-seam-secures-2-million-in-funding/
Fourth
Hero Digital Merges With Avionos
Hero Digital has acquired Avionos to create a Salesforce and Adobe powerhouse that helps enterprise customers and brands in the B2C and B2B sectors.
Link: https://herodigital.com/insights/avionos-acquisition/
Fifth
MikMak Acquires ChannelAdvisor’s Shoppable Media and Brand Analytics From CommerceHub
MikMak, a commerce enabler for product manufacturers and CPG companies, has acquired ChannelAdvisor's shoppable media and analytics platform from CommerceHub. CommerceHub is streamlining ChannelAdvisor and has signed a strategic partnership agreement with MikMak.
Sixth
Grove Collaborative Raises $10M and Announces Management Changes
Grove Collaborative, a Certified B Corp that sells sustainable consumer products raised $10m and has hired a new CEO and added a new independent director.
AND FINALLY …
3PL and Fulfillment Solution Platform ShipCalm Receives $2M
ShipCalm, a 3PL and third-party operations analytics platform, has received $2m from Montage Capital which will be used to enter new markets, add new customers, and hire more staff.
Link: https://www.businesswire.com/news/home/20230816763022/en/ShipCalm-Receives-2-Million-Financing-Round
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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 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.
