January 30th, 2023: The fall of U.S. retail sales, Shopify raises its prices, Walmart’s small business program, and AmazonSmile charity program
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It’s January 30, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
US Retail Sales Fell in December
Shopify Raises Its Prices
Walmart Launches its Small Business Program
Amazon Cancels its Amazon Smile Charity Program
- 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….
U.S. Retail Sales Fell in December
The Wall Street Journal reported on some recently released data from the Federal Reserve stating that economic activity in December last year was slightly down 1.1% across retail, restaurants, and online. Furthermore, the report says that sales have fallen in three of the last four months and that previous numbers have been adjusted down.
Incidentally, the NRF also said that holiday sales were below expectations at 5.3% growth, before inflation, compared to expectations of between 6% and 8%.
This data is the first from the past few months, and so we will need to see if future reporting confirms these numbers.
[References:]
Our Second Story
Shopify Raises its Prices
Last week, before it announced its earnings date, Shopify increased the prices of its Basic, Shopify, and Advanced tiers by approximately 30%. Frankly speaking, this was well-executed. Here are a few takes on the move:
First, while there will be many complaints, almost everyone will stay. That's just the way price increases work in SaaS. The reason investors like SaaS is that customers are sticky, even in the face of price increases. Most alternatives are still not at the price/performance ratio of Shopify. (When I was at ChannelAdvisor in the early days, we started charging for a product that two years prior we had literally said was “free forever” and we had 90%+ retention.)
Second, it kind of took Shopify long enough, right? Why the company hasn’t increased prices before now is likely something that Kaz and the new CFO sought to correct almost immediately. It's been many years. This was entirely predictable (by the way, I’m waiting for a large increase from BigCommerce soon).
Third, the fact that Shopify Plus is largely unaffected is revealing. Why? It shows that Shopify thinks more about the upgrade from Advanced than it does about comparisons to other Cloud platforms like Salesforce.
Just to give you some idea, prior to 4 years ago I never saw Salesforce in $5-$10 million deals that Shopify was in -- it was too small for them. Salesforce has yearly GMV commits which can put yearly costs into six figures without much trouble, even for its lower-end stores. By this metric, Plus has a lot of room to run.
This reinforces the fact that Shopify sees Plus as the "slight upgrade" to its existing plan. (Loren Padelford famously used to call Plus "stretching” up-market rather than "going” up-market -- I still think that's true.)
If Shopify raised Plus prices and saw (a) more attrition and (b) fewer upgrades from Advanced, it could hurt the business significantly. Plus has more competition than the lower tiers of Shopify, in my opinion.
The fact that Shopify kept it similar cements the positioning of Plus as "not up-market". I still expect Shopify to release a tier above Plus at some point, and then layer Components on top of that.... but that will have to wait.
Fourth, this change kills a few birds with one stone from a Wall Street point of view. Lower-tier customers now must sign up for Annual to lock-in their prices. Why wouldn't they? This has a couple key benefits: (a) it increases the CLV of these customers and (b) churn goes down for those who upgrade, which are going to be the people who appreciate the service.
With respect to merchants everywhere, the most price-sensitive merchants are the riskiest and most likely to churn. That's just the reality.
In summary, while it's of course easy to be cynical about price increases, from a business POV there is a lot to like about this move. That's not to say that Shopify doesn't have a lot to work ahead of it – as I've written about previously – but more than anything this was predictable.
[References:]
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Our Third Story
Walmart Launches its Small Business Program
Bloomberg recently released a report that indicates Walmart will be expanding its program for small businesses and non-profits so they can benefit from Walmart’s everyday low-pricing.
Some highlights include:
* The initial assortment will be limited to 100,000 products. There is no mention of marketplace here, so it will only include products that Walmart will stock.
* Membership pricing will be $98 per year.
* Benefits include 2% back on orders above $250, and 5% back on products that the business subscribes to.
Walmart launching a program for small businesses and non-profits really tells me one thing. Walmart plans to use this program to take marketshare from Staples, Office Depot, Amazon Business, Costco (Sam's like other wholesale clubs has been on a tear and more office offerings could be helpful). It could work.
Walmart has traditionally lagged Amazon innovation in an approach as a slow-follower (never heard this term but I can't describe it any other way).
Usually companies take one of two routes:
One is an innovation-first approach. This is very expensive, risky, and incredibly rewarding if done correctly. The upside is you get here first; the downside is that it's often difficult for the first-mover to operationalize a disruptive innovation correctly.
The other is what's called a "fast-follower" approach. Wait for the big wins to become known, and then add those to your playbook. Avoid the messy innovation process. Easier said than done, but that's the strategy.
Walmart seems to be a slow-follower, however. Consider that Walmart launched its marketplace nine years after Amazon; its logistics program 14 years after Amazon; its membership program 15 years after Amazon; and its advertising program three years after Amazon.
Amazon Business itself launched in 2015 after launching AmazonSupply in 2012. Walmart Business first saw the light of day at the end of 2022, and now the company is looking to scale it up.
Speaking of the value of first-to-market, it’s expensive to be Amazon and the company is consistently break-even at best and unprofitable at worst. Walmart’s slow and steady approach has produced results that are hard to argue with. Walmart consistently achieves 5% net margins, even as we exit the pandemic.
I'm bullish on the Walmart Business idea, and it's a natural fit for a physical retailer to win in office supplies, particularly bulky items, which describes a lot of the category.
Anyone who has tried to buy an office chair on Amazon knows it's almost impossible. Physical retail still works.
What's next then? Walmart Datacenter? Coming soon to a slow-follower near you.
[References:]
And Our Last Story
Amazon Cancels its Amazon Smile Charity Program
This week Amazon canceled the Amazon Smile charity donation program. It's a bit like the Grinch canceling Christmas. I don’t like this move at all.
Except for some of its commercials, Amazon tends to avoid aspirational brand-building. Instead, it views ruthless efficiency as the way to consumers’ hearts.
The approach has served the company well. In fact, in the past few years, brand surveys found Amazon more trusted than the police department, Disney, and Apple.
It feels like the efficiency strategy has finally flown into a mountain as Amazon canceled one of the only programs that allowed customers to feel better about their Amazon purchases.
Maybe it’s just me, but isn’t the entire purpose of a brand to trade something with low value (i.e., the letters of your name on a product), for something of high value (a premium price)?
The goodwill the company got from Amazon Smile and its 0.5% donation was tremendous, far outpacing whatever costs or efficiencies the company will claim to be saving here.
Perhaps management should have remembered Jeff's famous words:
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"If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the Internet, they can each tell 6,000.”
END QUOTE
And that's what is happening this week. Here are just a few of the ways Amazon got it wrong:
First, Amazon released a terrible psychobabble PR email closing the program. The worst line in this email was Amazon saying that the program had only a small impact. This added insult to injury by diminishing the impact of the work of millions of small charities that participated in the program for years.
Second, as if the email didn’t indicate this, closing the program reinforces Amazon’s selfish priorities. If the goal were to truly create a bigger impact, Amazon would have swapped the program for a more effective one rather than canceling.
Don't expect a replacement coming soon. And even if it does, Amazon has already poisoned the well.
Third, the end of Amazon Smile reveals that Amazon's cost-cutting is more relentless and urgent than you may have thought. I suspect that too many human workers were required for verification and compliance of the charities, and in the face of diminished profits, Amazon will always value efficiency.
Finally, closing the Amazon Smile program reinforces the fact that Amazon is the opposite of the traditional brand that tries to virtue-signal and make you feel good about your purchase.
Consider programs like Bombas Socks’ one for one program where for every sock you buy, Bombas donates one to a charity. Can you comprehend the operational overhead of that program for a brand like Bombas?
Yet it continues. And Bombas benefits tremendously from the goodwill it builds.
In case you can’t tell, I am not a fan of this move at all. And furthermore, if you ever wonder why real fashion will not succeed on Amazon, this is it: Amazon doesn't understand the value of its own brand so how can it be expected to understand the value of yours?
[References:]
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Hey, Watsonians, this is Rick. If you’re looking to discuss eCommerce topics with other listeners, you can find it all at community.rmwcommerce.com. There you’ll find a trusted group of listeners and followers just like you who are passionate about eCommerce. So don’t delay, just visit community.rmwcommere.com to sign up for free.
It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Evigence raised a Series B to expand its freshness management systems for the supply chain.
Check this out, because this sounds like some science fiction stuff right here.
The company uses sensors and data analytics to judge the freshness of produce at the item level. It sounds very interesting but does it squeeze the melons and avocados to determine ripeness?
Second
Thirteen Lune closed a $3 million funding round led by Fearless Fund.
Thirteen Lune produces a set of inclusive beauty products. The funding will go towards developing its retail channels as well as improving its eCommerce business.
In a nod to where the industry is at the moment, the company claims it will be profitable in 2023.
Link: https://www.beautyindependent.com/thirteen-lune-closes-3m-funding-round-led-fearless-fund/
Third
Automated fulfillment provider Photoneo announced a $21 million Series B and a new division.
The company, which provides sensor and automation technology for warehouses, included in this announcement a new division called Brightpick. Brightpick is a fully automated robotic picking solution that is able to operate autonomously in a warehouse.
Link: https://www.therobotreport.com/photoneo-announces-brightpick-and-21-million-in-funding/
Fourth
Fashion giant Shein is in talks to raise $3 billion at a reduced valuation.
Valuations are coming down all over eCommerce and there are no exceptions, even for the leaders. Shein has been one of the runaway success stories in eCommerce in the past five years, and one of the worst examples of our “throwaway society” in recent memory at the same time.
Link: https://www.yahoo.com/lifestyle/1-shein-talks-raise-funds-165640884.html
AND FINALLY …
Open source B2B eCommerce platform Oro raised $13 million.
The company was originally founded by Yoav Kutner, one of the co-creators of Magento, and appears to be sticking with the Magento playbook. Yoav is one of the OGs in the eCommerce industry. I wish him all the success in the world.
Link: https://techcrunch.com/2023/01/19/oro-an-open-source-ecommerce-platform-for-b2b-raises-13m/
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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 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.