August 7th, 2023: TikTok Shop aspires to become fourth most important channel, Etsy marketplace boycott, Amazon resets its grocery strategy, and Shopify reports Q2 2023 earnings
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s August 7, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
TikTok Shop Aspires Become Fourth Most Important Channel
Etsy Marketplace Boycott
Amazon Resets Its Grocery Strategy
Shopify Reports Q2 2023 Earnings
- and finally, The Investor Minute which contains 7 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….
TikTok Shop Aspires Become Fourth Most Important Channel
You can forgive most brands if they are skeptical about social eCommerce, but they have heard the hype and been burned before. Mostly by Meta, and then continued analyst reports that Livestream and Social Commerce will take over US eCommerce.
Many North American mid-market and Enterprise brands have the following brand priorities in terms of revenue (in no particular order - due to differences in companies/position)
Retail, Amazon, and Direct-to-Consumer
You do see a different mix of channels among a lot of brands. For some brands, they are revising the Amazon bucket into "Amazon + Walmart Marketplace online," indicating the growing importance of Walmart.
Enterprise brands usually have the highest proportion of Retail. The two and three spots can sometimes flip between DTC and Amazon, depending on how "brand-forward" the firm is (there are a lot of categories [think: home improvement where many supplies are essentially white goods]). More brand-forward? DTC important. Less so? Amazon more important.
Up-and-coming brands usually have a higher proportion of DTC, but as they progress from emerging into the mid-market they are adding retail distribution in Walmart, Target, and then category-specific retailers at a more rapid clip than DTC
There is still a large segment of "marketplace-first" brands that grew up on Amazon that are always looking to grow their DTC businesses (you rarely see these brands end up in retail - folks like Anker being the rare exception).
The big question, then is, where are the next opportunities? The candidates are as follows:
* Tiktok: Livestreaming and Social Commerce: Will the hype finally realize?
(there are a few other livestream candidates out there as well, but none with as much potential as Tiktok for obvious reasons)
A while ago, we thought traditional US and European brands would dominate Social Commerce. The rise of Shein makes everyone wonder if Chinese influencers could run the show in North America instead. The recruiting has begun on the TikTok side.
* Shein: Any discussion of the next most important channel needs to discuss the growth of Shein. Regardless of what you think about the business model, labor practices, they are a force to be reckoned with and have captured a lot of younger consumer attention and sentiment. The launch of Shein's third-party marketplace must be mentioned.
Temu gets a mention, but more like Wish 2.0 then Amazon 2.0.
* Shop App: The channel doesn't deserve mention here. Yet. While the inventory is interesting, the shopping experience doesn't match Tiktok in consumer interest, Amazon in efficiency, or Shein/Temu in scale/reach.
That said, the biggest question to Shopify is how it will attract consumer imagination without competing with its own brand's marketing efforts.
Currently, seems destined to become Etsy 2.0 if anything.
* What about the Metaverse? Sorry, try again in 10 years.
[References:]
Our Second Story
Etsy Marketplace Boycott
Headlines look great until you put them into context. "Hundreds" of Etsy sellers are boycotting Etsy. OK that sounds bad.
How many Etsy sellers are there?
Joe from Marketplace Pulse mentions 5.9 million -- is this really a story?
The BBC reported that hundreds of sellers had 75% of their funds held for 45 days. The reasons are reportedly not revealed. It's not just Etsy. Every Amazon seller on the platform for at least 5 years has their own version of a "funds held" or a "delisted or suppressed item" story.
The risks are real.
The only way to avoid marketplace risks is to avoid dependencies. Get into retail. Have your own website. Be present on other marketplaces.
Logically, any single channel with more than 40% concentration is a tremendous risk to your well-being as a small business owner. If you liken it to the stock market, it would be like betting 50% of your net worth on a single stock rather than buying a broad index fund that distributes your risk.
While I'm not defending Etsy's actions here, usually big marketplace can be restrictive and onerous for a few reasons:
* One, they can get away with it.
* Two, you aren't their primary customer. The buyers are. You're "just a vendor" to a lot of marketplaces. And a somewhat easily replaceable one, at that.
* Three, they get targeted. People talk a lot about buyer fraud, but the reality is that seller fraud is the most insidious form of fraud on a marketplace. Buyer fraud can only target a single transaction at a time. Seller fraud can defraud hundreds or thousands of buyers before someone finds out.
The marketplace itself is out money in this case, and you have many more upset buyers.
This risk of seller fraud is the reason why marketplaces are so restrictive with seller funds and policies.
I try not to pay too much attention to reports about marketplace boycotts. It detracts from the main goal: doing business. I was always told: God helps those who help themselves.
The way to help yourself as a seller?
Get your sales in a couple more baskets, especially if you cannot afford the risk.
Otherwise, I really like Warren Buffett's advice too - especially if you have enough cushion to take risks: put all your eggs in one basket, and then watch that basket ;-)
Of course that’s easy for Warren Buffett to say than for the average small seller to do!
Well, wow folks. In some breaking news, it seems like Etsy has relented!
Guess I really have no idea what I’m talking about here. I think there is a little bit different climate now if you look at kind of the whole Reddit moderator strikes out there, Etsy was worried that more sellers would shut off their stores.
It looks like Etsy has reconsidered their position and will end up removing its reserves. So maybe something of a happy ending for these Etsy sellers
[References:]
Our Third Story
Amazon Resets Its Grocery Strategy
Last week, Bloomberg reported that Tony Hoggett, SVP for Amazon Worldwide Grocery Stores, revealed a few major upcoming changes for Amazon's grocery strategy. Here are a few of the items mentioned:
1 - Unified online cart for Amazon, Amazon Fresh, and Whole Foods.
2 - Starting today, Amazon Fresh will begin inviting people to order from it even if you are not a Prime Member (although I'm sure it may not be the same discounts/benefits, etc -- TBD)
3 - Revamping stores putting doughnuts (!) in the front, adding 1,500 items, and updating the stores to be more bright/fresh.
This marks the first public notice of a "step forward" in Amazon's plans, following consistent retrenchment/closings in the past year.
A few comments on the approach:
* You can almost write this Amazon 6-pager yourself. "Our stores are too exclusive, confusing, tired. Our digital experience is not open enough, our assortment is disjointed and poor, and we make customers jump through too many hoops. This needs to change."
* The company seems determined to fix its online grocery business first, while still more slowly investing into physical retail. This makes sense given Amazon's strengths. Amazon seems to be investing in specific markets to test its approach: Illinois, Southern California, Northern Virginia and Washington state.
* Hallelujah on the unified carts for grocery! Talk about an annoyance from presumably a high-tech company. What was the point of 3 carts to begin with?
Conway's Law is the answer. These changes recognize that Amazon's internal organization structure did not match their desired customer experience. Kudos to Amazon for recognizing that, most organizations are blind to it.
* Left unsaid are the packaging and delivery improvements still needed for online grocery. As someone who has tried Amazon Fresh/Whole Foods delivery in NYC for years, Amazon is still far behind Fresh Direct in how it cares for and packages its online grocery orders. They did mention they are adding refrigerated sections to their urban warehouses - another step forward.
* Amazon is somewhat throwing their "Just Walk Out" technology under the bus a bit. Self-checkout lines are being added. Leaving "Just Walk Out" it in stores, but admitting it is "very new" and may not be for everyone. To me, this is just the first in a long line of admissions on this technology that it's not ready for wide adoption by the public.
In summary, Amazon Fresh stores will look like .... somewhat regular grocery stores, backed by the power of Amazon online distribution. At least it's a step in the right direction.
[References:]
[PAUSE]
And Our Last Story
Shopify Reports Q2 2023 Earnings
Last week, Shopify reported its quarterly earnings and as a quick summary it seems to me that Shopify is not having to play defense almost at all, their current base seems well-defended and Shopify is playing offense across several new sectors.
Gross Merchandise Volume, Revenue, and Free cash flow all accelerating relative to last year/quarter, which is all positive. Europe growing faster than US, and Point of Sale growing faster than Online. Plus continues growing faster than Standard versions, and Commerce Components has opened up new Enterprise conversations.
Q2 Highlights
* GMV accelerated 17% y/y (compared to 15% Q1)
* Revenue increased 31% y/y to $1.7 billion (compared to 25% Q1)
* Merchant solutions up 35% (compared to 31% Q1) - half of this is due to GMV growth
* Subscription solutions up 21% y/y (compared to 11% from Q1) showing effects of price increases.
* Monthly Recurring Revenue increased 30% to to $139 million (Q1 Monthly Recurring Revenue3 ("MRR") as of March 31, 2023 increased 10% to $116 million compared to the prior year)
* $1.6 billion operating loss due to accelerating stock options related to logistics business ($1.7B one-time acceleration of stock-based compensation related to the sale, including severance) (Q1 Operating loss was $193 million, or 13% of revenue,) == 5.8% operating profit if we assume it’s $100 million
As far as Shopify’s Q3 2023 Outlook
* Revenue to grow at a low 20s rate.
* Gross margin to be 2-3 percentage points higher than 2Q
* Operating expenses flat to slightly up.
* Accelerating FCF profitability greater in second half than firsf half.
Commentary:
* CFO said Shopify has returned its previous margin profile it had before the logistics adventure.
(Fire-) sale of logistics is completed. $1.3B impairment due to logistics sale, $165M in stock-based comp acceleration, and $148M loss due to write-off.
You can see clearly why they wanted to offload this boat anchor / drag on their business model so quickly, despite their previous sunny rhetoric about logistics.
* AI is the new “shiny object” on the call to replace logistics, but harder for analysts to understand since it can’t currently be attached to hard numbers.
* Going to be doing increased brand marketing offline like TV, audio, direct mail etc. Historically Shopify has not liked this, but they have quantified the ROI here.
* I could only laugh at least a little to hear management discuss new sales methodologies impacting sales, brought in by Bobby Morrison... Only to say, Shopify has always been about product-led growth, and this sounds decidedly more Enterprise-level. At least some of the rebels are growing up!
[References:]
[PAUSE]
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 5 listeners like Miles Thomas were talking about Fanatics recent launch of Live Shopping.
You can join the conversation now at community.rmwcommerce.com.
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at www.commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 7 items on the menu today.
First
Bread Beauty Haircare Raises Seed Round from Fearless Fund
Bread Beauty Supply is focused particularly on textured and curly hair. The company is already selling through Ulta and Sephora, in addition to its own DTC website. I wonder if the Watsonians think that Bread Beauty might be a fit for this host.
Link: https://www.retaildive.com/news/bread-beauty-supply-closes-on-seed-funding-round/687984/
Second
Multichannel Software Polar Analytics raises $9M Series A
The company is looking to bring all of a Shopify’s channel and marketing data into one place, which is a crowded category in the Shopify world. The company plans to use the funding to add to its research and development teams and grow from 2,000 merchants today to 10,000 merchants in the future.
Link: https://techcrunch.com/2023/07/18/polar-analytics-9m-shopify-brands-ecommerce/
Third
Kim Kardashian’s Skims Raises $270 million Series C to hit a $4 billion valuation
In case you don’t have enough Kim Kardashian news in your life, her brand Skims just raised a lot of money to continue to expand its global presence. The company plans to use the funding to expand into new product categories as well as its presence in physical retail. I also hadn’t realized they were making their first steps into the UK market with a pop-up shop trial with Selfridges.
Link: https://www.retaildive.com/news/kim-kardashian-skims-reaches-4-billion-valuation-dtc/688400/?:%202023-07-20%20Retail%20Dive%20Newsletter%20%5Bissue:52797%5D
Fourth
Digital Goods Marketplace Whop Raises $17 million Series A
Whop is a marketplace for people who are selling access to digital products. And when I say digital products, to this podcaster the products on there look sketchy as they are all based in daytrading, automated checkout apps to defeat sneaker company drops, and crypto. I guess there is a market for grift?
Link: https://techcrunch.com/2023/07/20/whop-an-online-marketplace-for-digital-goods-raises-17m/
Fifth
Shopify App Aggregator and Developer AppHub Raises $95 million
AppHub currently owns about 25 Shopify apps today and claims over 150,000 merchants are using apps owned by AppHub. It looks to me that AppHub is not just a traditional aggregator but a developer of its own apps as well.
Link: https://www.businessinsider.com/shopify-app-platform-apphub-raises-95-million-build-buy-apps-2023-7
Sixth
Authentic Brands Group acquires Rockport out of bankruptcy
Authentic Brands Group is the largest player in the brand licensing industry and continues to grow by raising money and acquiring new brand properties. Brand licensing firms tend to rescue good brands in bad situations and expand into new categories and countries, collecting marketing royalties as they go. Rockport definitely falls into their typical portfolio.
AND FINALLY …
Fintech Platform Croissant Launches with $24 Million in Seed Funding
$24 million by Croissant is a large seed round you might think, but it looks like Croissant is owned by a large financial institution which uses its portfolio as a kind of marker into investing in alternative asset classes. In particular, Croissant is partnered with fashion and luxury brands and offers consumers a QUOTE guaranteed buyback price at checkout time, in case a consumer might want to resell the product later. Which I guess would be great, except if you read the fine print where it says that the guaranteed buyback price is more of a suggestion than a guarantee. Isn’t this a dark pattern posing as a business model?
Given this, I would expect that all of this funding is not venture capital, but perhaps is structured more like a debt facility.
I mean, go ahead and try to Google croissant, I dare you. What goes into the decisions to name a brand after something else well known? Perhaps they were just excited to acquire the croissant.com domain.
Link: https://www.businesswire.com/news/home/20230727737763/en/Fintech-Platform-Croissant-Launches-with-24-Million-in-Initial-Funding-and-a-Mission-to-Change-the-Future-of-Commerce
[PAUSE]
That’s all for this week! Till next time Watsonians.....
[PAUSE]
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.