July 18th, 2022: Coatue’s view of the market, glut of goods at Target and Walmart, Victoria’s Secret restructures its management team, and an Amazon Prime Day recap
It’s July 18, 2022, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Coatue’s View of the Market is Cautious But Still Optimistic About Good Firms Long-Term
Glut of Goods at Target and Walmart is Good for Liquidators
Victoria’s Secret Restructures its Management Team and Executes Layoffs
Amazon Prime Day Recap: Always Crazy But Still Great for Amazon
- 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….
Coatue’s View of the Market is Cautious But Still Optimistic About Good Firms Long-Term
A report from Coatue ran across my desk recently and I thought it would be interesting to those looking for another view of the economic situation. If you haven’t heard of Coatue, it is a global investment fund manager that managed about $73 billion last year.
Coatue’s take is as follows:
First, the market can give off false positives pretty often on the way down, so don’t be fooled.
Second, just because overvalued tech startups are the first to feel the pain in a downturn, it doesn’t mean that when these companies flush out that the downturn is over. There is probably more to come just behind this.
Third, the market is still failing to differentiate between good and bad companies. I find this point in particular to be interesting and means that we may barely be at the beginning of this downturn.
One data point that made me laugh a little bit is that Coatue compared Wayfair to Shopify, saying that Wayfair stock is off 84% off its high, but its revenue declined 20% year over year, and Shopify stock is off 79% off its high but has over 20% growth and is profitable. How do both of those make sense in the same market?
Coatue’s point is that everyone is just trading on macro-trends, not on individual stocks.
Fourth, Coatue feels that about $1 trillion in value could go missing from the startup and IPO market. This contradicts the statement from some other players out there that VCs are sitting on a lot of cash just waiting to deploy.
Coatue outlines the three potential paths forward for the economy. Let’s play them through here:
One path is an optimistic V-shaped recovery. The firm assigns a very low likelihood to this outcome primarily because the run-up was based on a surplus of money and overinflated earnings multiples across the market.
With inflation still red hot in last week’s report, this seems unlikely.
Another path is a soft landing. This is certainly possible. This view holds that the Fed is on the right track and this is potentially transitory, but things will not return to the previous normal.
With inflation rising 9.1% in June, it seems almost a foregone conclusion that the Fed will raise interest rates another 75 basis points. In that case, it could definitely lead us into this direction. What happens after that is the big question.
The final path Coatue outlines is what they call a hard landing. Coatue gives this the highest probability. If high inflation is sustained, it will cause a lot of damage to the consumer. On top of this, if geopolitical risks escalate and the Fed overshoots by raising interest rates too high, this could be a simple recipe for a recession.
To wrap up, I am most encouraged by the data that the market seems to be trading mostly on macro-trends and not individual stocks. This means if your fundamentals are good, things could bounce back for you in the next year once investors come back to their senses and there is a flight to safer companies.
References:
Our Second Story
Glut of Goods at Target, Walmart is a Boon for Liquidators
I’m sure you’ve heard by now that major retailers like Target and Walmart are dealing with excess inventory. While this will likely depress margins for these retailers for the rest of the year, this distressed inventory is also a huge boon for liquidators.
The Wall Street Journal reports that Home Buys, a Columbus, Ohio- based off-price retailer is selling name-brand washers and dryers at 40% off the regular price. Also, large discounters like TJ Maxx and Ross are benefiting as well.
While the hard goods makes sense, and seems to line up with what Costco is saying, the article also mentions that outdoor furniture is an issue too, which Costco does not corroborate. Likely the explanation for this is the difference between having inventory at the wrong time, instead of the entire category not doing well with consumers.
The summer is usually not a great time for liquidations because a lot of excess would have been cleared out post-holiday, but this year is a huge exception. Further evidence of this trend can also be seen by the fact that major retailers like Target, Kohl’s and Bed Bath and Beyond also hopped on Prime Day and used it as a liquidation opportunity.
As a consumer, too much inventory is also affecting the returns process. Keep in mind, while the average retailer makes about 5 cents out of every dollar when they sell an item, it could take 15 cents to process a return. This is an expensive way to run a business.
News outlets also report that while shoppers returning clothing to stores are getting refunds, they are sometimes told to keep the items anyway because the retailers don’t have the space to put the excess stock. Obviously this is affecting profitability.
[References:]
https://www.wsj.com/articles/glut-of-goods-at-target-walmart-is-a-boon-for-liquidators-11656927184
https://www.cbsnews.com/miami/news/big-chain-stores-too-much-inventory-customers-keep-returns/
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Our Third Story
Victoria’s Secret Restructures its Management Team and Executes Layoffs
Daphne Howland from Retail Dive and others are reporting some major changes that just happened at Victoria’s Secret. Let’s review what’s going on:
First, the company is merging its Victoria’s Secret, Pink, and beauty brands into one streamlined organization after having separated them out in the past.
Second, the company is laying off about 5% of its home office workforce — this does not include things like retail stores and supply chain, just corporate.
Third, there’s a major management change whereas Chris Rupp, the former Chief Customer and Digital Officer at grocer Albertson’s and former Amazon technology leader, has joined the company as the Chief Customer Officer at the company, and is joined by Greg Unis, who was previously over beauty and is now the Chief Growth Officer of the business.
After building the world’s largest lingerie business over multiple decades, the brand has fallen on hard times in the past several years. Recall that its previous owner, L Brands, closed over 50 stores back in 2019 before trying to sell its majority stake in 2020 to Sycamore Partners. That deal ultimately fell through and the company later went public in 2021.
From my perspective, the company needed major changes. The Pink brand has been off recently, so some major brand restructuring was needed in order to revitalize the company.
Bringing in Chris Rupp, who managed Fulfillment by Amazon and launched the first Amazon Prime Day, is interesting. I expect this highlights the importance of both digital and supply chain investments needed to transform the iconic brand going forward.
[References:]
https://www.retaildive.com/news/victorias-secret-merges-pink-corporate-layoffs/627155
https://www.thelist.com/151899/the-real-reason-victorias-secret-is-closing-so-many-stores/
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And Our Last Story
Amazon Prime Day Recap: Always Crazy But Still Great for Amazon
Of course it wouldn’t be the Watson Weekly without some mention of Prime Day, which just happened on July 12th and 13th.
I always appreciate the merchandising madness that shows up on Prime Day. It's the one day when all the crazy products and deals come up and are all merchandised on the same page. Here are a few points I noticed throughout:
* CPG seemed like it had a strong performance, as people look for discounts on household staples.
Data sources I'm close to seem to indicate a slight pullback in non-essential consumer goods, which would be consistent with the focus on "needs" rather than "wants" this Prime Day.
* On home items that I personally was stocking up on, discounts seemed solid - at least 35% seemed to be pretty common. Some were in Lightning Deals, which indicates to me that these promotional vehicles are getting broad usage, especially by the major players looking to drive volume.
* Amazon-branded products were prominently displayed everywhere I turned, especially things like Amazon Fire TVs.
* There’s a huge plus and use of Amazon advertising across the board, and it continues the growth of that channel.
Some of Kiri Masters’ sources are reporting that this is the top eCommerce sales day so far this year, which would make obvious sense.
* I checked in on a few of the Live Video streams and came away with two thoughts. If live streaming is going to work, Amazon is the one to do it, yet I also feel Amazon still hasn't nailed the format. On mobile I couldn't buy on the livestream, I had to go to a product page, which takes me off the video.
While the format did allow me to flip through many livestreams, when I get captivated by one, doesn’t Amazon want to keep me on this page and give me a one-click buying experience? That wasn't easy.
* MarketplacePulse reported that beta Buy With Prime merchants also participated in Prime Day promotions on their websites, making it clear that Amazon is not just about fulfillment and a buy button; it's also about pushing promotions directly to the storefront. That is an angle that I didn't quite anticipate but makes a lot of sense.
I’m looking forward to seeing if there is another Prime Day later this year in October as has been rumored. October is not too far off, and I imagine the idea is to give a strong kick-start to the holiday season, especially in a time when inventory levels are still high.
Finally, the most common report I have seen states that Amazon Prime Day is about 5x the typical day. Hey, I’ll take that. While I think it’s difficult for Amazon to execute something like this every quarter, I wouldn’t be surprised if there’s a move to two consistent Prime Days a year at strategic points going forward.
And this makes sense, right? If there’s one thing that’s critical for Amazon to maintain, it’s the number of consumers who have Prime memberships - particularly among Amazon’s moderate to heavy users.
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
Flexe raised $119 million to help enterprises affordably expand their logistics footprints.
In this market, any kind of up-round is good to see and has to be based on solid growth.
Congrats to my friend David Glick, the CTO of Flexe and the CEO on the $1 billion valuation milestone in a tough market!
Second
DoorDash is closing robotics company Chowbotics, which it had acquired in February 2021.
Usually we talk about acquisitions here, but we need to discuss shutdowns too. The concept was that robots would make you salads in unattended kiosks. The idea that you can put healthy, perishable food in an unattended kiosk is probably not the smartest one.
I have to be honest, I included this news item here just to use the word Chowbotics.
Link: https://www.businessinsider.com/doordash-closes-chowbotics-and-lays-off-35-employees-2022-7
Third
Online retailer Verishop raised a $40 million series B round led by Lion Capital.
Verishop came on the market several years ago and, unlike many others, explicitly said it was not going to be a marketplace and was going to buy inventory. That changed pretty quickly as they added a marketplace model, and now that seems to be central to the model.
Link: https://www.axios.com/2022/07/12/verishop-raises-funding-luxury
Fourth
Cult cookie company Last Crumb just raised a $3 million seed round.
The company ships limited quantity drops of cookies to consumers nationwide who have to join a waitlist just to get access to the box.
The business model worries me because it seems like someone put an NFT in a cookie. What happens when the cookie is out of fashion?
Link: https://www.foodbusinessnews.net/articles/21727-last-crumb-closes-3-million-seed-round
AND FINALLY …
Aggregator Pattern Brands just raised another $25 million to continue its brand-building.
Compared with most aggregators, the limited fundraising round really stands out. The company is more likely focused on long-term brand building than trying to flip brands quickly. Building new online-only brands is difficult in this market unless you have some kind of customer acquisition edge, so we’ll see how this develops. It’s possible this family of brands could become a digital lab for a much larger entity in the future if it remains capital efficient.
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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. Garrett Tiedemann is our producer; Alex Brower 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.
