January 2nd, 2023: Happy New Year!
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It’s January 2, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Happy New Year!
Today on our show I wanted to do a little bit different format for you, what were my top 3 stories from 2022, as well as 8 items from our Investor Minute.
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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.
Let’s count down, our first story got over 55,000 views on LinkedIn.
Dollar General Adding 1,050 Stores: Is it Wise?
"Make hay while the sun shines" is not only a proverb of life but of business. Roughly it means taking advantage of a particular situation while it exists because it may not be around forever.
Through this lens, I analyze an Axios article where Dollar General will add 1,050 stores to its 19,000-store fleet.
(Just for comparison, Walmart's figures put Walmart Stores at nearly 5,000 stores in the US.)
Making hay while the sun shines sounds great, in theory. The challenge is simple -- once you build a store, it's more or less built "forever." And that includes while the sun is shining, when it's raining or snowing, and at night when the sun is hidden.
Dollar General takes advantage of two huge short-term and long-term trends.
The short-term trend is inflation and the upcoming slowing of the economy, encouraging shoppers to "trade down" and shop more at the discounter. Even if you don't think we are in a recession right now and "everything is fine," it doesn't mean that "many things are different" is not also true at the same time. Particularly if you look at category-by-category data (which you need to understand what's happening).
The second trend benefiting Dollar General is the much longer-term trend in the United States: the middle and lower classes are losing economic clout compared to the top 1% since the 80s. This tends to give a value chain like Dollar General a tailwind.
Dollar General is doing one smart thing for sure -- adding fresh groceries. Fresh and replenishable items encourage repeat visits, which can lift the entire store's sales over the long term. It also means that Dollar General could be attempting a broad low-end disruption of Wal-Mart. Something that I'm sure is not lost on the firm.
The big challenge is -- how much hay is too much? What if it over-reaches the supply of horses consuming the hay? Or the workers shoveling the hay?
In this case, the management team seems to realize this with its category expansion and is using that as a hedge to keep consumers coming back, even as it expands.
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Our next story got over 72,000 views on LinkedIn.
Shopify Changes Its COO and CFO - Stock Price Likely an Important Reason
Shopify today made some major leadership shake ups and in doing so, revealed its priorities.
The biggest news is CFO Amy Shapero is moving on and Jeff Hoffmeister is coming to Shopify, after spending his career at Morgan Stanley, and leading the IPO from the other side of the table.
The CFO could have been someone who had been at large, Enterprise or SaaS companies their entire career. That is not what just happened. That selection would indicate a focus on SaaS fundamentals like ACV, attrition, and growth.
Jeff Hoffmeister has never worked at a software company as a financial operator. This tells me their focus is not necessarily on typical software company CFO tasks. It's more about managing Wall Street, and having Shopify "look like" a company that Wall Street will keep investing in.
In other words, what is the most important question on Jeff's mind at the moment?
"What the hell is happening to the stock?"
Of course that's the same question that Shopify investors are asking who are "buying the dip" and are learning it might be a falling knife instead - at least in this market.
Shopify also made a change at COO, promoting VP Product, Merchant Services, Kaz Nejatian.
One way to think about the role of COO at a software company is the connection between Revenue (Marketing, Sales) and Delivery (Product, Service. Technology). Previously, Kaz was Head of Product Management at Shopify, so he likely knows exactly what he is getting into here and Tobi trusts him with product roadmap decisions. It appears Kaz's scope expands from just Merchant Services (payments, capital, etc) to Subscription Services as well.
COO is kind of a hybrid role, and Kaz brings more Product-thinking to the function rather than previous COO Toby Shannan who was previously on the Revenue side of the equation.
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Just some commentary on this one, if you look at the last 6 months, Shopify’s stock has actually stabilized and is up 9% in the last 6 months. Hard to tell what is causing this exactly as the fundamentals of the business aren’t getting better from a profitability standpoint at the moment. Still, the stock is down 73% on the year and I’m sure that is something which is squarely in the CFO’s radar as we go forward here.
[PAUSE]
And our last story gained over 100,000 LInkedIn views ….
Could Amazon Cost-Cutting Moves Give Us a Preview of 2023?
Everyone famously heard this year that Amazon doubled the capacity in the past two years of a fulfillment network that took 20 years to build. What you may not have heard is recent news that Andy Jassy, the CEO of Amazon, is instructing employees to
QUOTE double down on frugality.
This is according to reporting from Eugene Kim at Business Insider.
This is in stark contrast to Amazon’s history which has focused much more on growth than profitability. What’s interesting about these new moves from Amazon is that the company is not typically known for this kind of behavior and employs over 150 PhD economists. This is interesting because the Federal Reserve is thought to have over 400 PhD economists, and they are running the entire US economy.
Some specific callouts from the slides include:
* Maintain cash balances and liquidity
* Adjust inventory levels to meet demand
* Reduce discretionary costs not tied to customers
* Prioritize customer experience over new initiatives
No one can predict the future here, but when one of the largest, well-funded retailers of the world is starting to prioritize cash, improving efficiencies and reducing inventory levels then it would be wise for everyone to take notice.
What does this mean for Amazon brands? I think these kinds of strategies will have an impact on first-party Amazon businesses well into next year. If you’re new to the Amazon world, first-party sales is managed through an interface called Vendor Central and consists of inventory that Amazon buys and resells on its own. Third-party sales is managed through an interface called Seller Central where each seller ships products directly to the consumer either from Amazon’s warehouses, or from its own. Amazon never takes possession of the inventory.
With respect to Amazon and how difficult the problem is, it is pretty well known at this point that the default forecasting algorithm that Amazon uses to determine how much inventory of each SKU to buy is hot garbage. If the dial is turned down on that algorithm, then purchase order volumes will decline for first-party Amazon sales.
In response to this, I recommend brands that have high exposure to Amazon first-party to do two things in response heading into the next year:
First, ensure that the cases you build for your Amazon vendor manager are better than the ones you have built in the past. Your data needs to be clear and obvious. Show them the demand will be there, and there are many examples of Amazon vendor managers changing their mind and getting approval for purchase orders they denied initially.
Second, think about preparing your supply chain infrastructure for shipping pieces, not just pallets. This is a foundational capability that you will need not just for Amazon third-party sales but also for your own direct-to-consumer offering.
It’s That Time Friends, for our Investor Minute. We have 8 items on the menu today.
First
Software as a Service buyer Relay Commerce raises $27 million to continue acquiring more companies
Obviously at this level of funding it can’t acquire very large companies but it could be someone to keep an eye on. The company has already acquired 3 companies at undisclosed prices. Other players in this space include Assembly and Carbon6.
Link: https://www.axios.com/2022/11/15/relay-commerce-raises-27-million-to-acquire-more-e-commerce-tools
Second
Salesforce Solution Provider OSF Digital Acquires UK-based Oegen
OSF Digital has been on somewhat of an acquisition spree in the last year acquiring FitForCommerce, Aarin, Paladin Group, Kolekto and Netonomics. It’s a pretty well-understood playbook for agencies to increase their valuation by rolling up smaller players to increase their revenue size. The reason is much larger consultancies and private equity players pay a higher revenue multiple premium for the same company once it clears $10 million in revenue.
Link: https://www.finsmes.com/2022/11/osf-digital-acquires-oegen.html
Third
No code commerce platform Popup raises $3.5M seed to personalize online storefronts
The company was founded by two ex-Shopify developers who see a simple way for people to create new storefronts without a lot of complexity. It’s notable that these founders see more opportunity for innovation outside of Shopify than within it even at the low-end of the market.
Link: https://techcrunch.com/2022/11/22/popup-merchants-no-code-storefront/
Fourth
The Rounds, A Sustainable Household Restocking Services, Raises a Series A
The company delivers refills and picks up the empties at the same time on a weekly schedule. While the service is designed for people who don’t want waste, how large is the market for people who value convenience enough to need someone to deliver these replenishables to them but are not sustainable enough to go to the store in the first place to get a real bulk discount?
Seems like a tough needle to thread.
Link: https://www.goodwinlaw.com/news/2022/11/11_23-redpoint-ventures-and-adreessen-horowitz
Fifth
Incubator and Logistics Provider Saltbox Raises a $35M Series B Round
Saltbox is best described as a 3PL merged with a WeWork. While this is a unique concept, it seems more suited to a different area when venture capitalists were funding more eCommerce companies than they are today.
Link: https://www.globest.com/2022/11/30/shared-logistics-firm-saltbox-gets-35m-from-a-series-b-round/
Sixth
Software and Payments Provider ClearCourse Acquires eCommerce Agency Sellerdeck
Clearcourse is a company that I hadn’t heard about before but it seems like they are something like a holding company for a variety of eCommerce software and service brands I’ve never heard of before. One example is Swan Retail POS. Anyone heard of this? Bueller?
Link: https://www.clearcourse.co.uk/clearcourse-acquires-e-commerce-platform-provider-sellerdeck
Seventh
Real-time Competitive Intelligence Vendor Netail Closes $5M Seed round
Price discovery is an important capability for any retailer or brand so there could be a market here. Most existing solutions in the market start by identifying a list of your competition. Netail claims to automatically discover your competition likely using keywords aggregating social media and other signals.
funding-round-for-new-retail-startup-netail-301691439.html
And Finally …
Shopping App Sortd S-O-R-T-D raises $1.2 M pre-seed to comparison shop across various website
The service allows you to create a wishlist of items across many different sites. It sounds to me like the primary use case is what Pinterest has gotten traction on but really failed to nail as an online shopping companion.
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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.
