August 30th, 2021: Macy's Turnaround Strategy, Walmart’s Delivery Service, Urban Outfitters, Amazon’s Investment in Department Stores, and the Investor Minute!
It’s August 30, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on the show:
Is Macy’s turnaround strategy working?
Walmart is launching a local delivery service
Urban Outfitters is launching a second-hand clothing marketplace,
and our last story
Why is Amazon Investing in Department Stores?
Finally, we finish the show with our Investor Minute which contains 6 items this week from the world of venture capital, private equity, and IPOs.
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BUT FIRST in our shopping cart full of news….
Is Macy’s Turnaround Strategy Working?
Early February 2020, Macy’s announced a new strategy they named Polaris designed to turnaround the business.
This is a multi-prong strategy mostly focused on:
- An improved loyalty program
- Plans to build 4 separate Billion Dollar private label brands
- Moving Macys.com Headquarters from San Francisco to NY
- And of course the obligatory — reorganization and shuttering of stores
The big headline here is private label, nothing else is all that interesting.
What happened after their strategy announcement? Well in the unfortunate world we live in, the pandemic hit and in March they put the whole thing on pause.
In February this year, Macy’s updated its Polaris strategy — mostly moving the goalposts. Polaris is now about expanding digital and its Backstage business.
Macy’s did announce that about 25% of its sales in Q4 2020 were fulfilled by stores.
I predict they will struggle to make the kind of changes Target made to move their stores from 30% to 95%.
So what’s an embattled company to do after muddling through the pandemic??
In August 2021, Macy’s now says that Polaris is working!
Well of course digital is accelerating everywhere.
This hides the simple fact that Macy’s stores are still losing marketshare according to retail analysts. As a department store business, no amount of digital acceleration will change the fact that if Macy’s does not completely reinvent its store experience, it will not succeed. Macy’s cannot out-Amazon Amazon online.
Oh, and one more thing. Most of Macy’s changes are designed to improve its cashflow position by paying down debt early and accelerating dropshipping. Dropshipping is the practice of allowing suppliers to ship to consumers instead of Macy’s. However, dropshipping does not always promote the best customer experience — who wants to get separate boxes from 3 different vendors for a single order?
At the same time, Macy’s has reduced its commitments to buy products in bulk from its suppliers - instead, settling on a smaller buy model - with the rest dropshipped.
Well, if Macy’s isn’t going to invest in brands, those same brands may as well invest in themselves.
Remembers, brands prefer the sale occurs on their own website anyway because the sale is about 5 times more valuable from a valuation and a customer ownership perspective.
Which leads me to think…. How ironic would it be that Macy’s may be unwittingly accelerating the direct to consumer revolution as a byproduct of easing its own cash flow challenges??
References:
Macy’s Updates Polaris Strategy
Feb 2021
Macy’s Mostly Sticks to Polaris Strategy
Feb 2021
Macy’s Says Polaris is Working
Aug 2021
https://www.retaildive.com/news/macys-says-its-polaris-turnaround-is-working/605280/
Our Second Story
Walmart is launching a local delivery service
Walmart’s investment strategy continues as it announced a new delivery service called GoLocal. Here are some facts from their press release:
Walmart wants to deliver everything locally from baked goods to auto parts as the company says.
It mentions the use of drones and autonomous vehicles.
Apparently the program is already in testing with several merchants.
Here are a few points and comments:
1 - It kind of feels like they took the Target acquisition of Shipt - 4 years ago by the way - and buzzworded up the release.
Not to mention if you put baked goods and auto parts in the same truck together, both will end up ruined.
2 - What is Walmart doing differently than other companies?
It’s certainly not autonomous vehicles and drones. Unfortunately I didn’t see a unique selling proposition mentioned in the release.
I sat thinking about this for some time, and here is the best I could come up with:
- According to data I’ve read, 90% of the United States population is within 10 miles of a Walmart Store
- If local delivery routes are already running, Walmart is able to offer last-mile services at lower marginal cost than most other providers, perhaps with better service.
- plus if the the service is not Walmart-branded (sometimes known as white-label), the brand may get to own the customer as opposed to Instacart.
Why didn’t Walmart just say that in the release?
Which brings me to my final point.
With a billion plus in venture capital flowing into supply chain solutions, what is the investment thesis that prompted Walmart to say:
“Ohhhhhh, fulfillment services. Low margin, capital-intensive, but also hyper-competitive!
Give me more of that Red Ocean strategy. Blue oceans are for losers.”
References:
https://one.walmart.com/content/go-local/home-page.html
Our Third Story
Urban Outfitters is launching a second-hand clothing marketplace
News reports say that the company is expanding on its Nuuly concept which originally launched as a subscription clothing rental service in 2019.
This new venture - which they are calling Nuuly Thrift - takes advantage of a few facts:
One, second-hand clothing and the circular economy are exploding with investments including the growth of marketplaces like Poshmark and thredUp, not to mention Etsy’s new acquisition Depop.
Second - The Urban Outfitters customer is shopping at these sites anyway, so why not participate in the space?
The original Nuuly rental service declined of course in COVID but reports say they have recovered to higher than pre-COVID numbers, which means the brand definitely has legs.
Third - I couldn’t help but notice that, unlike other companies, the President of Nuuly is actually Urban Outfitter’s Chief Technology Officer. This is quite unique. As a credit to the company, Urban Outfitters seems to build technology better than 90% of retailers.
So what’s the red flag? Execution. My chief concern - if there is one - is that in-house innovation within a retailer is notoriously difficult and often talent and cash-strapped relative to a separately funded venture. That could lead to shortcuts in the consumer experience. With so many market alternatives, that experience needs to be silky smooth for Nuuly to gain traction.
References:
And Our Last Story
Why is Amazon Investing in Department Stores?
By far the biggest news in the past two weeks has been the Wall Street Journal article that Amazon is opening new department stores in Ohio and California, among other areas.
Quoted sources highlight three reasons for the expansion:
One. Amazon will be able to showcase its own products and brands, including private label apparel, electronics, and household items.
Two. Consumers will get instant gratification because they won’t have to wait for products to ship.
Three. Amazon will be able to glean new types of consumer data and innovate on the physical retail experience.
So that’s what they are up to. Why are they doing this?
Consumer Data is the first major reason.
When you walk into one of Amazon’s stores you will be walking into a giant fishbowl where you are the fish and Amazon is watching from behind the glass.
What are they watching exactly? How you shop, your response to their merchandising, promotions, what you pick up, and pretty much anything else you can look at (because they can actually track your gaze).
Why would Amazon need such a volume of data?
Not only will it help make their private label brands successful, it will also help their growing advertising business.
The foundation of any advertising business is a complex data model of the consumer and their behavior. Amazon has been building this for some time with your purchase behavior online. However, it’s getting harder and harder to track users online.
If Amazon wants to ultimately challenge Facebook and Google in the advertising space, it needs unique data that these companies can’t access.
Another reason to open new stores is Returns.
Ease of returns and getting a replacement item has always been one source of friction in making an online purchase in the first place, and is one of the reasons Zappos thrived in the early years with its liberal return policies, which prompted Amazon to acquire them.
Returns is also one area where Amazon traditionally has had a huge disadvantage, and here’s why. 90% of the US population lives within 10 miles of a Walmart store. 75% of the US population lives within 10 miles of a Target store.
If you want to return something in person, you will also likely pick up a replacement for that item, in addition to several more items. No matter how good your online post-purchase experience is, it’s not as good as being in a store because your chance to upsell is much greater.
And that’s before we get to waste and the circular economy. I’ll admit, I can’t comprehend Amazon scale. But let’s do some quick math.
Google just told me that Amazon ships 2.5 billion parcels a year. It also told me Amazon’s return rates average between 5 and 15 percent, although higher in some categories. Even using 10 percent, that’s one hundred and fifty million new parcels going back in the other direction each year — packaging, trucks, drivers and pollution. Amazon scale shipping creates Amazon scale waste.
Stores could eliminate most of that by streamlining returns.
Now let’s talk about Fulfillment.
Target has really led the way in the US, showing the world how to properly fulfill from stores. 95% of their digital orders flow through their Store network, either through gig workers, home delivery, curbside pickup, or pickup in store.
More importantly, an item picked up in store or shipped from store is 30 to 60% cheaper than shipping from a central facility, because the inventory is already closer to the consumer. This is savings that Amazon cannot take advantage of today.
Now you might think Amazon might have to learn all sorts of new things to restock a store that might be different than what it does for its online business today. I don’t believe so. Amazon - with one of the largest distribution networks in the US - routinely not only ships individual parcels to consumers, but also ships pallets of merchandise around between facilities in order to forward-position product closer to the consumer.
Which makes me think - Amazon is used to being the LEADER. Isn’t it ironic to know that Amazon is following in the footsteps of a retailer like Target by adding these new stores as nodes to its fulfillment network? This is one time where Amazon may actually be playing catch-up.
References:
https://www.wsj.com/articles/amazon-retail-department-stores-11629330842
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It’s That Time Friends, for our Investor Minute. We have 6 items on the menu today.
Item 1.
eCommerce Content Management provider Webiny raised $3.5M from Microsoft’s venture fund. Content management systems organize and power all marketing and creative assets for promotions and other content on a website.
Item 2.
Headless eCommerce platform Nacelle raised $50M to take on the market. Wondering what headless commerce is? The proverbial head of the website is the user experience on the front-end which is disconnected from the content and operations engine for the website, which I guess would be the tail? A headless approach attempts to create flexibility for brands as they built out their infrastructure.
Item 3.
D1 Brands is the newest Amazon aggregator to raise $123 million dollars. These Amazon aggregators are a new phenomenon in the last couple of years. They attempt to gain scale by leveraging cost savings due to operational and marketing efficiencies, all while taking advantage of the Amazon real estate a brand theoretically owns but actually rents from a notoriously fickle landlord. There are well over 100 aggregators now so this is a massive trend.
Item 4.
Brand holding company AKA Brands filed for their S1 to take itself public. What they do is buy and grow direct to consumer fashion brands, like an Amazon aggregator but only for D2C businesses. This is another way investors are taking advantage of the growth in eCommerce.
Item 5.
Last-mile robotic delivery firm Coco raised $36M to support its goals.
The company is currently operating in LA but plans to expand to several additional cities with this new funding.
Their robots frankly look like little Yeti coolers on wheels.
My advice to you if your cooler starts moving, leave the area immediately.
https://techcrunch.com/2021/08/25/last-mile-robotic-delivery-firm-coco-raises-36m/
AND FINALLY….. Warby Parker filed its own S1 towards an eventual IPO today.
Hooray! One of the original D2C brands is going public! Looking at their S1, you pull out a quick fact that 2/3rds of their pre-covid sales were actually from stores. Take that eCommerce!
https://www.sec.gov/Archives/edgar/data/1504776/000162828021017546/warbyparkerincs-1.htm
https://www.linkedin.com/posts/danielmcc_customerbasedcorporatevaluation-activity-6836032709890981888-AhFA
One more thing, some listeners may know that I am also prolific on LinkedIn. I wanted to relay a hilarious LinkedIn comment I received this week:
Ben Nowlan wrote:
You are literally only person on Linkedin that writes anything of interest. Please don't post a picture of your dog, post a survey or write inspirational post using an image of a wolf pack — just keep doing what you're doing
Ben - thanks for your comment and I think you have zero worries about me posting a picture of a wolfpack anytime soon.
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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 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.
