February 12th, 2024: Our recap of January 2024 eCommerce news, Amazon releases their Q4 2023 earnings report, footwear brand New Balance adds a resale marketplace and RMW Commerce’s 2024 Outlook
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s February 12th, 2024 and this is the Watson Weekly - your essential eCommerce Digest! I’m back, did ya miss me?
Today on our show:
Our Recap of January 2024 eCommerce News
Amazon Releases Their Q4 2023 Earnings Report
Footwear Brand New Balance Adds a Resale Marketplace
RMW Commerce’s 2024 Outlook
- and finally, The Investor Minute which contains 5 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]
Just a reminder to stay tuned until the end for my Final Word for the week.
BUT FIRST in our shopping cart full of news….
Our Recap of January 2024 News
Lost in the fog of diapers and bottles, I'm officially back in action and ready to hit 2024 running. Taking any time off is difficult as I've never done anything like this in my career ever, but I'm also terribly sad to miss the new little one during the day.
Here are a few updates I saw in the last month, even from afar.
First to Shopify. Another day, another Editions. This year, saw a huge focus on AI, B2B, and Enterprise. Is it just me or is Shopfiy slowly rebuilding the foundation of the product over time. There’s a lot more I want to cover here as I’ve recently dug more into Enterprise Editions, but that is for another time.
Something I liked from an Enterprise point of view are the new partnerships with Mirakl and Manhattan Associates. Particularly Manhattan is a vendor whose warehouse management system and order management system has been one of the standard applications needed by large retailers in the modern era. To see Shopify in the mix here just speaks to the slow overall industry migration away from Salesforce and Adobe Magento into the Shopify universe.
Oh, and did you think I forgot about Flexport? Not a chance.
Here’s what happened: Shopify invested $250 million in Flexport in an uncapped round. Which means two things. One is that they have no idea what Flexport is worth. You and me both, Shopify. You and me both.
Second, no one else was willing to put any serious money in. That makes Shopify quite literally the lender of last resort. Almost like they are too big to fail for Shopify. I wonder if other Shopify investments in Klaviyo and Yotpo would get similar treatment if it came to this?
Finally, will you trust anything the Flexport founder ever said again? Why raise $250 million if you have a quote FORTRESS balance sheet?
Who knows.
Next up we seem to be in layoff season. A get asked this question a lot, how can the economy be so good with so many layoffs. Here is my answer. First, many of these layoffs are limited to technology companies, so they are not affecting the broader economy as much. Second, my opinion is that we are starting to see the first salvo of companies starting to leverage AI, or at least thinking they can leverage AI. Who knows whether it will work out, but all these sidekick AI assistants are mostly there to side kick their support department out the door first and foremost. Good luck getting the sidekick to grow revenue.
Finally, Wall Street seems to love layoffs, so many of these boost stock prices. Good luck out there.
Next up, we saw an interview with the Authentic Brands CEO Jamie Salter, owner of Forever 21, who said that Forever 21 was worst purchase they ever made. This on the heels of Chinese marketplace Shein investing in one-third of Sparc group, which is owned by Authentic Brands. Mr. Salter stated in the interview that Shein’s supply chain is unmatched and essentially said if you can’t beat them you better join them. In what I am sure is entirely unrelated news, the CEO of fashion retailer H&M Helene Helmersson unexpectedly stepped down. Sounds like a warning for fast-fashion specifically but I think the entire fashion industry better sit up and take notice too.
There’s always more to say but we try to keep things pithy here on this podcast, but here is a good start on January.
[References:]
Our Second Story
Amazon Releases Their 2024 Earnings Report
Amazon reported its earnings last week and with it, served notice to the retail industry that its profitability challenges in 2022 were fully in the rear view mirror. Investors loved what they had to say, and in a huge turn of events, started wondering what Amazon would do with its growing pile of cash. As the great poet Ferris Bueller once said, life moves pretty fast, if you don’t stop and look around once in a while you could miss it.
Let's get into Fiscal year 2023 first:
* Net sales increased 12% to $574.8 billion in 2023, compared with $514.0 billion in 2022.
* Operating income increased to $36.9 billion in 2023, compared with $12.2 billion in 2022. Tripled operating income.
And now for the eye-popping turnaround:
- North American operating income was $14.9 billion, compared with an operating loss of $2.8 billion in 2022.
* Net income was $30.4 billion in 2023, compared with a net loss of $2.7 billion, in 2022.
In terms of Q4 2023:
* Net sales increased 14% to $170.0 billion in the fourth quarter, compared with $149.2 billion in fourth quarter 2022. (stable to Q3 growth)
- North American increased 13% (growth up), International increased 17%
- The company’s cloud division AWS increased 13% year-over-year to $24.2 billion. (vs Q3 12%)
* Operating income increased to $13.2 billion in the fourth quarter, compared with $2.7 billion in fourth quarter 2022.
- North American operating income was $6.5 billion, compared with an operating loss of $0.2 billion in fourth quarter 2022. ($4.3B in Q3)
Clearly the company has remembered how to make money. How’s that? Put inventory closer to the consumer and reduce transportation costs.
* Net income increased to $10.6 billion in the fourth quarter, up from 9.9 billion in Q3 2023.
Two important segments that we track here also reported their Q4 results:
* Seller Services: Third party Revenue was up 19% y/y (+20% yearly) (which amounted to full year revenue at 139.9B)
* Advertising: $14.6B, up 26% y/y, (2023 FY revenue 46.7B). Let me just pause on that for a second. Amazon’s advertising business grew 26% year over year.
Pay to play much?
The company did offer some light guidance on the first quarter of 2024:
* Net sales are expected to be between $138.0 billion and $143.5 billion, or to grow between 8% and 13% compared with first quarter 2023.
* Operating income is expected to be between $8.0 billion and $12.0 billion, compared with $4.8 billion in first quarter 2023.
A few tidbits I pulled away from the question and answer portion of earnings include:
* The number of same day or overnight items was up 65% y/y
* A stat that many track - 3P Seller Unit Mix - was up to 61% last year from 60%
* Amazon announced Rufus, a new generative AI-powered conversational shopping experience. This one could go south fast. Seriously I am reserving judgment here after its Alexa division has failed to generate any revenue, and was recently the target of massive layoffs. I guess you can’t fire a robot dog.
As a side note, why do I think Rufus is like an AI dog? Perhaps the name Rufus just sounds like a dog to me. Pun intended.
To wrap up, you know i had to comment on grocery. And that would be one more comment on grocery than Andy Jassy gave in his one hour earnings call. OUCH. Willing to be misunderstood much?
[References:]
Our Third Story
Footwear Brand New Balance Adds a Resale Marketplace
Ok, let’s level set for a moment. New Balance is a mid-market sneaker brand. Does a mid-market sneaker brand needs its own resale marketplace? If the shoes were worth anything, they would be selling on GOAT or StockX, and while they are there, there is not much to this.
The marketplace is powered by Archive which powers a resale platform for brands. Other clients include DVF and North Face. Pardon the pun here, but how can this be a sustainable business model.
Finally, I have to go off on a little bit of a rant here, so please excuse this diversion. Just listen to this quote from the brand:
QUOTE
Pre-owned shoes, consumer returns and “cosmetically imperfect footwear that cannot be sold as new,” but have been “cleaned as needed”.
This is all stuff that you used to find at off-price brands like TJ Maxx which for the record I’m sure is not shaking in their boots over this one.
Also, did I hear that correctly? pre-owned shoes that are cleaned AS NEEDED?? Needed by who? If the shoes are used, all of them need cleaning
[References:]
[PAUSE]
And Our Last Story
RMW Commerce’s 2024 Outlook
While there is still a lot of uncertainty in the economy, consumer sentiment, and worries about debt, there is still a lot to look forward to.
Here are a few points for your consideration:
* Almost economic revisions in the last 6 months have been up.
* Unemployment is still at relatively low levels.
* Supply chain has normalized to a large extent, though this does mean that many have still overbuilt.
* It looks like a virtual certainty (!!) that there will be two or more interest rate cuts this year.
* Growth is expected to continue, and (what's more) the universal efforts undertaken to improve profitability in the last 12 months should produce more profit dollars in 2024 than 2023.
This seems almost universally positive to this observer. Bring out the rose-colored glasses. 👓
What you need to ignore this year - more than the last several years - is people's perceptions of the economy. Perceptions in an election year are colored by politics and agendas. Even more so than the typical year: perception is not very helpful and is instead political positioning.
Instead, look to how people are actually spending. And Amazon (in their recent earnings call) did provide several indications that businesses have stopped looking at their bottom lines and holding tight, and are starting to bring new workloads to the cloud.
Last year, Amazon said that its customers performed "optimization" - meaning cutting cloud workloads. They indicated on the call that this has mostly tapered off and customers are bringing newer workloads to the cloud again and not just cutting back. AWS growth accelerated to 13%, and Amazon mentioned that these trends should continue into 2024.
This is a great leading indicator of investment. Which, of course we need! Why?
2023 was one of the more difficult years in software as a service businesses, not only from a sales point of view but also fundraising. Oh, did I mention exits and valuations? Those slowed down as well.
Last year at the beginning of the year I advised most of the companies I work with to adopt their most conservative forecast, and only chase incremental upside later on. For most companies, this turned out to be extremely solid advice.
This year, I am more in the midpoint range. Unlike last year, you should dust off those aggressive forecasts, because you will need them. I still don't think it makes sense to adopt them, but are going to need it to develop your midpoint.
Pick up your head, folks. The world is looking brighter.☀️
[References:]
[PAUSE]
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 commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Logicbroker Acquires Cortina
Logicbroker, a K1 Investment Management portfolio company, has acquired marketplace and dropship solutions platform Cortina for an undisclosed sum, adding the platform and its customers to its network. Logicbroker and its K1 investor partners have recently added many executives from the old Syndigo product data team, which famously executed a rollup strategy in the last few years. Expect more acquisitions from Logicbroker as a result.
Link: https://www.logicbroker.com/press-release/logicbroker-acquires-cortina/
Second
Amazon’s $1B Industrial Innovation Fund Expands Investment Focus
Amazon's $1 billion Industrial Innovation Fund is diversifying its investment portfolio to include transportation, autonomous vehicles, last-mile technologies, robotics, fulfillment, and logistics. Is this a sign that Amazon believes its initial focus areas are no longer areas of startup innovation or not?
Third
Amazon Terminates iRobot Acquisition
Amazon and IRobot have terminated their pending acquisition due to European Union regulatory approval issues, leading to Roomba's layoff of 350 staff and CEO resignation. Usually there is investment news here, but this is divestiture. Sucks for Amazon, but overall Amazon probably has enough robotics innovation anyway I’m guessing.
Fourth
Sway Raises $19.5M Series A
Sway, formerly Returnmates, has raised $19.5M Series A to develop customer-focused delivery and returns. Is this a gig-working platform that offers two-way communication, enabling package delivery and returns?
Link: https://techcrunch.com/2024/01/11/returnmates-sway-19-5m-e-commerce-returns/
AND FINALLY …
Patchworks Receives £2M to Boost e-Commerce Integration Services
UK-based integration platform. Patchworks has received £2M in new funding that will be used to develop new features and expand internationally. Patchworks is a popular integration platform provider in Europe and so it’s exciting to see their continued progress.
Link: https://tech.eu/2024/01/08/patchworks-receives-ps2m-to-boost-e-commerce-integration-services/
Today’s final word for the week of February 12, 2024 is: TUMULTUOUS.
And don’t just take it from me, this was Amazon’s word of the week during their earnings calls. Tumultuous was how they described the past 3 years, in particular doubling their fulfillment network, tanking their profitability, and now coming out the other side smelling like roses. Let’s hope you are feeling the same way, and thank you for listening.
[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.
