It’s November 21st, 2022 and this is the Watson Weekly - Your Essential eCommerce Digest!
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It’s November 21, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Target Releases Q3 Earnings And It’s Bad Ya’ll
Walmart Responds With Q3 Earnings That Show the Industry How Its Done
Tiktok Launches an In-App eCommerce Features in the US
Announcing the Launch of the RMW Commerce Community
- and finally, The Investor Minute which contains 5 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….
Target Releases Q3 Earnings And It’s Bad Ya’ll
Wow this is a complex and tricky environment for a multi-category retailer. Mixed is the operative word for the environment we’re in. Here are a few highlights from Target’s earnings.
* Same-store comparable sales are up 2.7% year over year.
* Digital comp sales 0.4%, despite strong curbside performance.
* The company only achieved a 3.9% operating margin due to theft and extra inventory issues. While this is better than the 1% achievement last quarter, investors are used to seeing Target closer to 8%. I have my doubts we will see that number for some time. Operating income declined 50% y/y in Q3.
Already you can tell this was not a great quarter for Target. What’s worse is while listening to the earnings call, I wrote down quite a number of phrases I could only write down as warnings for the world:
Things like:
-- "rapidly softening discretionary demand" across apparel/home/hardlines.
--"guests expecting more promotions than ever"
-- "elevated uncertainty"
-- "no 2023 guidance, we aren't focused on it yet"
-- "consumers increasingly stressed"
-- fuel costs are still double 2019 and globally shipping and container rates are still 3x 2019, though that declined by one-third in the quarter.
-- If you can believe it, Q3 got worse as it went along, softening increased and it persists into November. This was a big warning to me, Q4 is gonna suck too.
-- after Target / Amazon discounts early October, things decelerated
In case you are wondering about consumer trends, they are hard to come by. Some guests are opting for smaller pack sizes to save absolute dollars. Others are opting for large pack sizes for a greater unit value.
On the positive side:
* The company made unit share gains in all 5 core merchandise categories. Despite Target's challenges, they are winning against some other retailers. (though it seems not Walmart)
* Beauty and Food and Beverage were a particular bright spot with double-digit growth, which is sad to say only enough to match Walmart across its entire business.
* The company is looking to identify $2-3B in operational savings in the next few years (everyone is saying things like this now) - higher scale creates opportunities.
But the company even found bad news in the good news. You might think that container and global shipping rates going down by one-third in recent months is a good thing. But Target right now apparently can’t win for losing as that meant inventory arrived sooner than it thought, causing more problems and costs on its balance sheet and upstream in its supply chain.
Based on this news, it certainly looks to me like Target is announcing the business is decelerating into Q4. After the Target Deal Days in early October, the bottom dropped out and it has not returned yet.
But hey retail media is a bright spot though right? Well, not exactly. The Roundel ad business increased only 10% year over year, which is a tremendous underperformance relative to other retailers like Amazon and Walmart where this same number is growing 30-40% off a much higher base.
And if you ask me one area where Target has significantly underperformed, it’s this ad business and that’s the first advice I would give them from an investment perspective.
Most Watson Weekly listeners know I’m a Target fan, and no doubt they are a world-class retailer. That said, it remains to be seen if this environment is one they’ll thrive in. I really doubt Target wants to turn itself into Walmart because as soon as the economy recovers they are going to want that old operating margin back.
[References:]
Walmart Responds With Q3 Earnings That Show the Industry How Its Done
Whenever the economy has a downturn, everyone is happy there is a Walmart in their neighborhood. Basically that’s what is happening right now.
Last week I listened in on Walmart’s Q3 2022 earnings call and here’s what I found:
* eCommerce is up 16%, which is very solid. Overall US 8.2% comp sales growth, with improving average order value and transaction counts.
* Walmart Connect US Advertising up 40% y/y, which is great for them.
* On the operating income front, they reached 4.8% which is very solid in this environment.
* While global inventory levels are up 12.4% for Walmart US this quarter, this is significantly down from earlier this year. And a lot of this is inflation dollars, not additional units.
One cool thing that Walmart announced was that all new US Marketplace sellers will automatically be given self-service advertising accounts. That is a great idea, and I don’t know why anyone has not done this sooner.
And a few of my comments on earnings:
First, retail is a category-by-category dogfight at the moment. There are places to be aggressive and places to be cautious. A balanced four-quadrant approach to planning is needed.
Second, Walmart indicated that most of its inventory is in stores, not in supply chains at this point. This matches what Target said as well. Globally supply chains have largely recovered, even if we wish costs would come down further.
Third, troubled categories are in general merchandise: apparel, electronics, and home. These are offset by gains in categories like consumables and groceries.
The big exception is in beauty.
Lastly, Walmart highlighted on the call that depth of inventory is one of the most important decisions in retail right now. That is to say, inventory planning is cool again. Never thought you would hear that did you?
[References:]
Tiktok Launches an In-App eCommerce Features in the US
This past week Tiktok officially began testing eCommerce app features in the US. Previously this functionality was only available in the US and several Asian countries.
I wish I was more positive about this, but I don’t know how I can be. I really believe we already know how this will go. Social commerce as a mainstream activity has not worked out the way everyone thought mostly simply because of purchase intent. Livestream eCommerce will succeed in pockets, but I don’t believe anyone thinks it will become the default way to shop anywhere.
There’s really no reason to think that eCommerce in Tiktok will be any different than eCommerce on Youtube, Twitter, Facebook or Instagram. A few localized success stories, but nothing game-changing. Don’t get me wrong, build your audience on Tiktok, but don’t expect to convert them there.
After all, your audience opened Tiktok to be entertained, not to buy.
[References:]
[PAUSE]
And Our Last Story
Announcing the Launch of the RMW Commerce Community: Your Trusted Destination for eCommerce Discussion and Advice
The RMW Commerce Community is the trusted place for eCommerce professionals to discuss the industry, software, applications, supply chain, and more. The community will have the following attributes:
Trusted. Because the site only contains eCommerce professionals, you can trust the answers you get here. My job is to ensure the community is helpful to its members whether you are looking to discuss the industry, find the answer to a question or problem, or connect with your peers.
Independent. The site is not tied to any specific vendor, agency, platform, or approach to eCommerce.
Helpful. The goal is for members to learn and help each other with their eCommerce questions and problems.
Focused. We are 100% about eCommerce all the time. Retail & brand discussion, Amazon, eCommerce platforms and applications, supply chain, technology advice, digital marketing, investment news, and jobs.
Moderated. A trusted group of friends of RMW Commerce will be helping me moderate the discussions. This means no trolls or self-promotion, and a high signal-to-noise ratio.
Who is this for?
I envision this as a place for all seasoned eCommerce professionals, Watsonians and people new to eCommerce. Retailers, brands, software providers, agencies, marketplace sellers, and investors can all derive value from the community.
Why should I join?
There are four reasons you should join:
First, you can discuss the latest happenings in our industry with other professionals without the clutter of social media.
Second, you can get answers to your current eCommerce challenges and issues from other professionals.
Third, learning about eCommerce in the RMW Commerce Community is just easier than on LinkedIn. Why should you have to figure out who to follow or connect to? Just show up and participate because the topics are already there and if they aren’t, you can add them yourself. We’re listening!
You can also get a more personal audience with me there. Seriously, ask me anything! I’ll be hanging around.
Why did you create it?
I believe that any modern marketer who is not incorporating community into their approach is missing something. There are three reasons I created this community:
There are almost no independent, trusted sources of eCommerce discussion online. There are specific ones out there, but they are hidden.
I also find that social media like LinkedIn and chat rooms like Discord and Slack are too ephemeral. A message board serves as an archive, and the value of the forum increases over time because of the powerful search engine available.
While LinkedIn and my podcast are great ways to connect with industry professionals, each is limiting. With LinkedIn, ultimately, you accept their rules, and I often find myself sifting through too much noise to stay focused on eCommerce. I love producing the podcast, but it’s a broadcast channel, not a conversation.
This community will allow us to engage more deeply on a narrow set of topics than other places online.
Little known fact, when I first launched this podcast I envisioned a community attached to it, and finally after a year and a half I got to realize that vision.
What are the features of the site?
The RMW Commerce Community is based on Discourse, an open-source discussion forum. I have created several forums on various eCommerce topics. These will expand over time as the community grows.
eCommerce and Retail Talk
Supply Chain and Logistics
eCommerce Software and Apps
Digital Marketing
Amazon 3P and Marketplaces
Jobs
Watson Weekly Podcast
INdustry Events
What’s the future of this community?
There are so many directions I could take this community in the future. But in the beginning, my goal is to take it slow. Let the community evolve, grow, be useful, and gain the trust of its members. Without that, there is nothing.
Here are just a few of the ways.
Exclusive online events and webinars.
Trusted “market maps” of various eCommerce software sectors.
Webinars and online courses provided by the community and me.
Local events and meetups.
Jobs: Post a job or find one.
Hosted “Ask me Anything” chats with Rick Watson.
[References:]
[PAUSE]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
What’s App Team Inbox raises $23M from Tiger Global and Shopify
This is the company’s Series B funding for a tool which is designed for small and medium businesses of all types to communicate with their customers effectively using WhatsApp. The best way to describe it is like Zendesk for WhatsApp.
Link: https://www.techinasia.com/shopify-sea-startup-investment-whatsapp-crm-firms-23m
Second
Google acquires Twitter-backed AI avatar startup Alter for $100 million
It seems to me like this is going to bring technology like Apple iPhone has with Animoji to Google’s Android platform. With big tech companies proceeding with layoffs in the tens of thousands, does Google really need to drop 100 million dollars on virtual avatars?
Third
Victoria’s Secret Is Buying Lingerie Brand Adore Me for $400 Million
After struggling for the last few years, it appears to me Victoria’s Secret is on a mission to renew itself. Former Amazon executive Chris Rupp recently joined as Chief Customer Officer, and will likely attempt a transformation as she did at Albertsons. This acquisition is designed to help give Victoria’s Secret a new image reflecting body positivity and inclusive sizing rather than focused on supermodels.
Link: Victoria's Secret Acquisition
Fourth
Customer Experience Platform Emplifi Acquires Ratings and Reviews Platform Pixlee TurnTo
Emplifi helps companies manage their social media marketing and service and looks like they will want to use Pixlee TurnTo as another upsell into its customer base to display this social media content across their properties.
AND FINALLY …
Former ButcherBox execs leverage meat shipment expertise into new D2C startup
New Perishable Shipping Company Grip Hopes to Help Ship Temperature Controlled Items More Reliably
One of the founders is the former Head of Logistics at ill-fated startup ButcherBox. That’s what happens in Silicon Valley, one failed company sometimes rolls right into a newly reborn company with the same people and a few learnings along the way. The company just raised a $2M pre-seed round from Soma Capital and others.
Link: https://techcrunch.com/2022/11/03/butcherbox-shipping-grip-d2c/
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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. Want to discuss the topics on the show? Head on over to community.rmwcommerce.com to connect with other listeners!
Our production partner for the series is CitizenRacecar. The show is produced by Alex Brouwer; 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.
