February 28th, 2022: Walmart enters new economic environment, USPS Connect, what Daniel Loeb sees in Amazon, and Macy’s isn’t breaking up.
It’s February 28, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Walmart Enters an Economic Environment That Plays to the Company’s Strengths
Postal Service Launches New Next-Day Local Shipping Service Called USPS Connect
Activist Investor Daniel Loeb Sees $1 Trillion Dollars of Untapped Value in Amazon
Macy’s Not Breaking Up But Still a Lot of Hard Work Ahead
- and finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
Walmart Enters an Economic Environment That Plays to the Company’s Strengths
Last week, Walmart reported Q4 2021 earnings and in doing so showed the world that its strengths should definitely not be underestimated.
Here’s why: during a time of uncertainty when we’re coming out of a pandemic, coupled with high inflation and rising costs of real estate, a company with a clear focus on value has an advantage over its rivals.
This could give Walmart a near-term advantage over Target and Amazon if consumers become more price-sensitive. "Value" is Walmart's middle name.
Walmart is super-interesting to track because if any company represents America, it is Walmart, and that applies to its management’s comments about the economy.
The CEO said that from an economy and results point of view, 2022 should start slow and finish more quickly. Something I forgot about was the fact that Q1 was the start of the stimulus last year.
Inflation was mentioned as a headwind, but given Walmart’s multiple growth levers including marketplace, ads, fulfillment and international, it could be good for them. Given the company’s broad international exposure, as opposed to its US-based competitors, who else has better experience managing inflation than Walmart?
Here are a few points on Walmart’s Q4 2021 earnings results:
First, Walmart as a business is becoming more digital, and those segments are growing faster than the traditional retail business. Walmart’s Connect advertising program advertising count grew 130% year over year. If I were Instacart, I would start to worry about Walmart’s advertising and fulfillment progress - it’s going to grow Walmart’s grocery business.
In news on its marketplace, Walmart plans to end 2022 with approximately 200 million items in eCommerce assortment, driven largely by its marketplace, which added 20,000 sellers in 2021 with plans to double that number of new sellers in 2022.
Walmart continues to leverage its stores as fulfillment centers. Ship From Store was up 170% year over year in 2021, on top of 500% in 2020. While curbside was not called out, I expect we will hear about that more as we go forward.
With regard to Walmart Fulfillment Services, Sam’s Club is now leveraging GoLocal. This is super-smart on Walmart’s part. The more volume Walmart can put through its network that the company has control over, the lower it can get the cost for other companies. The lower the cost for other companies, the more the service will grow.
Another crazy stat from Walmart on the call was how big its advertising business already is - $2 billion. It was a little surprising to me that Walmart released this given how early it is in its journey, which also communicates confidence.
Bottom line, get ready for a bumpy first half of the year if you take Walmart’s word for it, but the company is well-positioned to take share from the broader market.
[References:]
Our Second Story
Postal Service Expands its Next-Day Local Shipping Service Called USPS Connect
Max Garland from RetailDive brought this to my attention.
USPS recently introduced a local and a regional solution promising same-day or next-day deliveries to your customers in your own community or in the surrounding states. The key to this service is that USPS is bypassing a regional plant and doing processing instead at the local post offices, and handing directly off to other parts of its own network.
USPS also rebranded its Returns solution.
These solutions are aimed at micro-businesses all the way up to medium-sized businesses, but I expect that it is more likely that the medium-sized businesses are the ones that could be savvy enough to take advantage of the program.
Here is the inescapable truth about logistics:it requires expensive infrastructure. To gain profitability with that infrastructure, you need to run as much volume through that infrastructure as possible.
Who already has mail carriers and trucks on the road in every neighborhood in America, even more so than Amazon? The United States Postal Service.
This puts USPS in a unique position to offer some of the best service in the industry, if only it can get out of its own way. USPS has the volume to push through the network, which is key to offering low rates.
It doesn’t mean this particular service is yet in the position to compete at any level with major carriers, but there are important skills the US Postal Service has to offer if they want to deploy them.
Obviously a big if.
I also wanted to go back and connect this discussion to our recent coverage of Shopify and its fulfillment offerings. One of the things I’ve been critical about related to Shopify is that it has failed to clearly articulate its own strategy for fulfillment other than extremely broad messaging.
Outside of UPS, there is really no partner more aligned to the customer size of the average Shopify entrepreneur than the US Postal Service. The synergies make too much sense.
I understand this current program isn’t about providing nationwide service, but being able to put together a customized service for Shopify customers would be in the best interest of both companies.
[References:]
https://about.usps.com/newsroom/national-releases/2022/0222-postal-service-expands-next-day-delivery-options-for-businesses.htm
https://www.uspsconnect.com/
https://www.supplychaindive.com/news/usps-connect-local-small-medium-businesses-new-delivery-service/619143/?utm_source=pocket_mylist
Our Third Story
Activist Investor Daniel Loeb Sees Roughly $1 Trillion of Untapped Value in Amazon
A recent Wall Street Journal article indicated that Daniel Loeb sees approximately $1 trillion in untapped value in Amazon. I'm sure the new CEO Andy Jassy along with Jeff Bezos are happy to hear that, but I’m sure they think that number is on the low side.
Here are a few points from the article:
- Loeb places the value of Amazon's retail business at $1 trillion and Amazon Web Services at $1.5 trillion.
Just in case you missed what Amazon has accomplished in the past 15 years since the launch of AWS, according to this investor and many observers, Amazon created an entire other company worth more than the entire value of the previous company. Amazon is incredibly unique in the world.
- Of course one caveat applies here: it’s in Daniel Loeb’s interest to say that Amazon is worth a lot of money because he owns a large stake in the company. This is essentially him pumping up his own investment position.
- The investor also thinks it would be prudent for Amazon to spin off AWS to ease regulator concerns. I think Amazon is loath to do this and would only do so if it felt the timing was advantageous. This is one of those decisions that Amazon calls a “one way door.”
- Just to put it in perspective, if AWS was spun off, on its own it would be only behind Apple ($2.7 trillion), Microsoft ($2.1 trillion) and Google ($1.7 trillion) as one of the largest technology companies in the world.
- Furthermore, Oracle, Adobe and Salesforce combined are just $600 billion. According to these valuations, AWS would be more than double that.
It will be interesting to see how the broader market responds to this, but in the time being, I expect it to be much ado about nothing because these capabilities are too valuable to Amazon itself to split out and Amazon is world-class at managing its investor sentiment.
[References:]
And Our Last Story
Macy’s Not Breaking Up But Still a Lot of Hard Work Ahead
While Macy's claims to have become a transformed company, a difficult road still lies ahead of it. While I didn't attend the call directly, I want to call out a few notes from its presentation and reports:
- It is notable that Macy's spent a lot of its presentation time focused on the value of omnichannel and its performance.
- I believe this was meant to drive a stake through the heart of activists who in the past had claimed that the company should be broken up (it should not).
We are also in a different environment than Q1 last year. In early 2021, we had just lapped the worst stores year on record and the best eCommerce year on record. That piled on top of decreasing advertising effectiveness for Facebook for many brands may have given investors pause.
Notably, Jana Partners has recently decreased its ownership percentage of Macy's, which gives you the sense that it may have reconsidered things in this climate – supply chain still not completely sorted, COVID bumpiness, stores resurgence, looming Eastern European war – and perhaps concluded that there are easier ways to make money elsewhere.
And good on them for making this call. It's a serious, common sense, no-brainer in an operator's world, but common sense is not always common, as we all know.
However, that does not mean that its road ahead is any easier. Macy’s will add a marketplace next year. OK, fine, but it's not clear what value this will provide.
Also in the second half of next year is an expansion of Toys R Us stores inside of Macy’s, a notoriously difficult category which plays directly to Walmart and Target’s strengths. Four years ago, this would be a great idea, but now?
It seems like Macy’s is banking quite a bit on the second half of next year.
CNBC also reports that "According to data from M Science, Macy’s had 18.6% of department store market share as of January, trailing Kohl’s at 21.6% and Nordstrom at 33.6%.”
Clawing back half a point of share in a year isn't nothing, but taking share from seriously distressed Kohl's is also not necessarily the model of health.
I'm still left wondering, if I'm a shopper, why am I going to Macy's first?
[References:]
https://www.cnbc.com/2022/02/22/macys-m-reports-q4-2021-earnings.html
https://static.seekingalpha.com/uploads/sa_presentations/696/79696/original.pdf
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It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Flexport Raises $935 Million to Help Global Supply Chains.
Flexport is a monster in the space. The interesting piece here is that Shopify is now on the cap table. Yet another way it is trying to stay ahead of what Amazon is doing in this space with its own Global Logistics offering.
Second
Bringg Acquires Parcel Delivery Solution Zenkraft to Meet Growing Customer Demands for Diverse Choice of Delivery Offerings.
Bringg has been one of the patient investors in last-mile delivery solutions and has quite a number of blue-chip customers. Zenkraft is a multi-carrier integration solution, which is likely going to help Bringg expand its tracking solution. The curious thing to me is that Zenkraft is a big Salesforce partner; it’s hard to tell if that is an incidental part of the value here, or if it’s core to what Bringg was looking for due to its customer base.
Third
Software Provider Convictional Raises $40 Million in Order to Help Retailers Quickly Onboard More Brands.
I recently worked with Convictional on a research report related to retail strategy, so I’m happy to see the company make progress. Congrats, Roger and Chris!
Fourth
Minoan Experience Aims to Create a New Retail Category Called “Native Retail” with a $5 Million Raise from Accel.
The idea here is to help you buy the products used in short-term rentals around the world by allowing guests to scan QR codes on the products. Think of it almost like using the world’s homes as store locations.
AND FINALLY …
European Provider ID Logistics to Acquire Kane Logistics in the United States
Kane Logistics has a good reputation in the market, according to my close sources.
I think the third-party logistics space will continue to consolidate, and valuations have come down from last year. Which means it's a buyer's market
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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.
