July 26th, 2021: Grocery Giants, The Future of Malls, a Confidential IPO, eCommerce Meets Construction
It’s July 26, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on the show:
- New research from JLL and Coresight points to where malls are headed
- Circular economy company Rent The Runway confidentially files for IPO
- The Coming eCommerce Boom in the Construction Industry, and
- Finally, the #2 grocer Kroger is making investments, but are they headed in the right direction?
BUT FIRST in our shopping cart full of news….
Albertson’s continues making moves in the grocery delivery space, adding Uber to its list of marketplaces
Albertsons - the #3 grocer in the US after Walmart and Kroger, is in a fight for its life. This is despite the fact that Albertson’s has been very forward-thinking in its technology approach, even launching a $50M investment fund with noted venture capital firm Greycroft, and signing with marketplace platform provider Mirakl, among other investments.
With the increasing role of eCommerce, Albertson’s can’t be content with it’s #3 position, or else it could get squeezed. They have been piloting micro-fulfillment centers or MFCs from Takeoff Technologies in the last couple of years — these MFC investments are similar to what Walmart is putting in its own stores. If you’re wondering what an MFC is, it’s essentially a mini automated warehouse inside of an existing structure in the “back office” like a retail store.
This is in direct contrast to Kroger’s approach of using many $55M Ocado fulfilment centers not connected to their stores. I think Albertson’s has wisely chosen to keep investing in its stores which leverages its existing distribution network.
But back to the Uber discussion. Albertson’s started with Instacart over 4 years ago with a few thousand stores. They finally expanded to Doordash last month, and now Uber Eats has added over 1,200 Albertson’s stores.
If you are following other additions by Doordash and Uber, almost every partnership announced by one of them seems to have been matched by the others. On the retailer side, this is a savvy move because you don’t want to be locked into one platform, as well as the fact that all consumers are not on all platforms always. Most have some kind of preference.
So what’s the differentiator here? Customer relationships and advertising.
I predict Instacart will have an edge in this marketplace corner of the market due to its unique data assets and strong advertising and targeting technology. The big competitive question for Uber is, despite the fact that the Uber CEO has said that delivering things is a much bigger market opportunity than delivering people - can it invest enough to keep pace?
Another big question — does that mean that Uber will eventually be forced to sell its unprofitable taxi business to keep up with Instacart?
References:
https://www.grocerydive.com/news/albertsons-adds-uber-delivery-to-1200-stores/603549
Our second story — In the “I thought retail was dead” department...
Does New Data from JLL Retail and Coresight Research point to where malls are headed?
An enterprising listener pointed me at a recent report from JLL Retail about the future of retail and malls. Here are a few tidbits from the research:
1 - “If you have dollar in your name, you are growing. Otherwise, eh, not so much.”
Roughly 45% of the 3,500+ store openings in 2021 were from Dollar General, Dollar Tree and Family Dollar, according to Coresight Research.
2 - Smaller, Grocery-anchored centers have fewer vacancies than other malls.
This makes sense because there is less space to fill and people have an incentive to show up and replenish. The study indicates that the vacancy rate of these smaller grocery-anchored spaces is about half of larger neighborhood centers.
I think what this shows more than anything is the continuing split in the market between discount, necessity and luxury, with the middle falling out.
What does that say about retailers like Macy’s? Likely that they need to completely reinvent themselves to stay ahead of the grim reaper. I would not be surprised in the least if they try to follow Saks into the financial engineering Hall of Fame by splitting off its eCommerce asset into another entity, leaving the Head of Retail at Macy’s holding a very empty shopping bag.
References:
https://www.us.jll.com/content/dam/jll-com/documents/pdf/research/jll-us-retail-outlook-q1-2021.pdf
Our third story
In news that is not fooling anyone Rent the Runway has confidentially filed for an IPO
Why file for IPO confidentially? They are likely for sale. A confidential filing allows potential buyers to get information ahead of others in the market for the next few months and kept from competitors like StitchFix, TheRealReal, and ThredUp.
To recap, Rent the Runway raised $125M at a $1B+ valuation in 2019. The business was absolutely decimated in 2020, with some reports I’ve seen that it fell as much as 80%.
The news outlet PYMNTS reports A DOWN funding round last year which put their valuation at $750M.
Since then they had to shutter the few stores they had opened. Fortune magazine reported that CEO Jen Hyman said those stores are about last mile (people picking up their subscription) and not about fashion discovery.
This is actually not a good thing. It means they weren’t acquiring net new customers from retail.
Recently Rent the Runway jumped into the resale apparel market and moved ever so slightly away from their rental message.
I do not predict any success in this venture. In a world where fast-fashion has become faster with Shein and the circular economy gaining steam, there would seem to be a better case for the original model than a resale model.
Also I think Etsy’s recent acquisition of Gen-Z friendly DePop looks a lot smarter in this environment.
What might happen, however? RentTheRunway is reborn as a fashion marketplace. Perhaps that is a likely acquirer of the company.
But with “rental” in their name, it sounds like that would need to change something pretty substantial. I wonder if any Watson Weekly listeners out there are brand makeover experts?
https://fortune.com/2020/12/24/the-pandemic-cramped-rent-the-runways-style-but-heres-how-the-company-is-fashioning-a-comeback-in-2021/
https://www.pymnts.com/news/retail/2021/rent-the-runway-talks-with-banks-as-it-eyes-ipo/
Our fourth story...
The Coming Commerce Boom in the Construction Industry
I’ve noticed three separate data points in this industry the last few weeks.
First, I don’t care where you are, but there is a new housing shortage in the United States with houses being bid up beyond all reasonable levels in almost every suburban market across the country.
Second, the consistent evidence is that 3d-printed and prefab construction market is booming with no signs of abating in the near future.
Global Industry Analysts just released a report saying that the pre-fab building market will reach over $153B by 2026, a meteoric rise.
Third, the construction industry is simply ripe for disruption. The previous generation of industry leaders is aging - most are over 55 - and as the new digitally native generation comes online, it’s safe to say that archaic technology systems and paper-based inventory systems, and ways of doing business are on the way out.
This is going to create opportunities for at least 5 different types of players in this industry:
Direct to Consumer Brands,
Marketplaces,
Commerce Platforms,
Payments and Financing, and
Supply Chain.
A few additional comments about a few of these sectors.
First, on the topic of Direct to Consumer — who will be the Dollar Shave Club of construction supplies and equipment?
Next, any industry where supply is fragmented like building and construction supply materials is a low-hanging fruit opportunity for a marketplace. Unique supply is hard to come by, and the player that is able to rollup the supply first in each niche category will receive outsized advantages.
In construction marketplace news, Recently, French marketplace and eCommerce platform Manomano raised $355M to tackle the supply and platform problem.
Payments and Financing has also seen innovation. Recently an Austin-based startup called Billd raised $30M to solve supplier financing once and for all for this industry.
One way or another, disruption comes for everyone.
References:
https://www.builtinaustin.com/2021/07/13/billd-raises-30m-austin-hiring
And our Final Story:
Kroger is making investments in grocery, but are they headed in the right direction?
TV’s “The Today Show” recently got an exclusive video tour of not only the new Kroger Ocado facilities but also tried out their drone delivery system. If you recall, the #2 grocer in the US hired Ocado - a supply chain robotics and automation firm - to the tune of several hundred million dollars for many facilities to deliver to consumers same day within a 90 mile radius.
On the drone side, it’s piloting delivery within 1 mile of a test store.
Let’s take drones first. I am still not buying that these drones will be everywhere and not crashing. Feels like an accident waiting to happen hitting power lines, and then what? Is this truly more efficient than a dense local route? No it is not.
The drone pilots will start with certain bundles like “movie night bundles” with popcorn, candy, etc. I feel a little bit like the newscaster for this Today Show segment said -- wake me up when they can deliver a case of beer.
First on Ocado. A $55M facility that can only deliver within 90 miles? Doesn’t seem like a lot.
Second. Kroger operates over 2,000 stores in North America. Many of which are aging. Which means, it will need to expend capital to upgrade those stores in terms of pickup from store, and curbside from store as well.
Now it is introducing an entirely new distribution model enabled by expensive centralized Ocado locations which also need to be replenished?
On grocery store margins?
Let’s look at how this compares to three players that Kroger is competing with. Walmart, goPuff, and Instacart.
First up is Walmart, the #1 grocer in America.
They are investing in micro-fulfillment centers within or attached to their existing stores, which allows them to replenish the same facility from their existing regional distribution centers. Seems like a more efficient cost model.
Advantage? Walmart.
Second, goPuff. Hyper-local small distribution centers optimized for 15-30 minute delivery. Now reports are they are not hitting this target, but that’s the goal. The big problem is selection. Kroger likely has the advantage here. But if goPuff can scale much faster, selection is something they can solve later. It’s much harder to scale across the country than within one facility.
Advantage? goPuff.
Third, Instacart. This is a four-sided marketplace business between grocery stores, consumers, brands, and gig workers. Extremely capital efficient and advertising-oriented. In the short term, Instacart has taken the early lead in the online grocery market with its share rising to 30% of that market in the last year, while Walmart’s share of online grocery is going in the other direction: from 40% to 30% as of May 2021, in a confidential Walmart memo obtained by industry publication Recode.
The big problem with Instacart is the grocers themselves they have attached themselves to - some might say like a parasite, others might say like a symbiont - are these grocers actually optimized for faster or more efficient picking. I think not. Does that become an Achilles heel?
Though today in widely predicted news, Instacart just signed a multi-year deal with robotics and supply chain company Fabric to offer its own version of automated fulfillment. It remains to be seen if retailers will trust it, or even able to afford it.
Reminds of me Amazon asking if they can run your own Direct to Consumer website for you - that didn’t work out well for Target or Toys R Us.
Bottom line, each major firm has placed its bets, and anyone can win. I see Walmart and Instacart continuing to take share from Kroger.
goPuff? We wait and see how quickly they rollout across America and expand their selection.
If Kroger isn’t careful, their opportunity in this market could fly away like one of their drones.
That’s it for this week! Till next time.
References:
https://www.vox.com/recode/22423706/walmart-memo-retail-amazon-target-instacart
https://www.grocerydive.com/news/instacart-teams-with-fabric-on-automated-fulfillment-service/603744
