July 31st, 2023: Shopify releases its Summer editions, UPS agrees to terms with Teamsters, Boston Consulting Group’s latest supply chain benchmarking report, and what’s with all the rebranding lately?
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s July 31, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify Releases Its Summer Editions
UPS Agrees to Terms with Teamsters
Boston Consulting Group’s Latest Supply Chain Benchmarking Report
What’s With All the Rebranding Lately?
- and finally, The Investor Minute which contains 7 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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[PAUSE]
BUT FIRST in our shopping cart full of news….
Shopify Releases Its Summer Editions
This morning, Shopify published its bi-annual marketing release called Shopify Editions, which represents a few new announcements as well as a recap of the major updates in the past 6 months. A few surprises are lurking in here.
Earlier this year, I framed Shopify’s future in terms of 3 major directions.
1 - Shopify, the Entrepreneurship Company
2 - Shopify, the Payments and Services Company
3 - Shopify, the Enterprise Software Company
Right now, direction 1 - Entrepreneurship - is winning, and second place is still far away. This release only reinforces that focus.
There are three primary areas to discuss: Entrepreneurs, Platform, and Longer-term Bets
As far as features for Entrepreneurs in this release.
Let’s start with AI since that is definitely the headliner, including Sidekick and Magic. Sidekick is Shopify’s AI assistant that you can ask questions to and get things done with. Magic is Shopify’s way to help merchants with various tasks where you need to generate emails, titles, attributes, and other places in the UI where large language models can make your life a little easier.
I've written about Shopify Magic and Sidekick previously. The technology which powers it is incredible, and like everyone else, there is a lot to like about ChatGPT.
Ultimately, AI could end up being a double-edged sword for merchants, however.
Shopify views AI as a critical enabling technology. These are designed to make the life of the Shopify merchant faster and easier.
And it could. Just how much though? Well, the jury is still out. Notably absent from much of the discussion about AI are metrics about its efficacy in revenue improvement or cost reduction.
On one hand, the worst-case scenario for Shopify merchants is that these changes end up being a way for Shopify to lower its costs to serve customers by reducing its support and service teams.
I’ve read a report that a SaaS company in India has already replaced 90% of its support teams with generative AI chatbots. It's just beginning, folks, and it's a copycat world. (Those who don't feel that Shopify's management is influenced by what Twitter, Meta, and Google are doing are kidding themselves - even Sam Altman is talking about this topic).
Let's be clear: exactly zero Shopify merchants would look forward to hearing that the company's support and service coverage might trend downwards due to AI.
On the other hand, if generative AI is going to be a way for companies to improve their businesses faster, and Shopify is ahead of this curve, then merchants themselves could benefit.
Look, I don’t want to be too much of a downer here. But it’s hard not to think that some of the biggest benefits of generative AI will flow to Google, Amazon, and Meta. It does leave you wondering if SaaS providers generally will be able to benefit from the ChatGPT revolution in a meaningful way.
In addition to AI, another big splash in this release is what Shopify calls Marketplace Connect. This one surprised me, especially given Shopify's contentious history with Amazon. The feature allows merchants to integrate their products into marketplaces like Amazon, Walmart, eBay, and Etsy.
Under the covers, it definitely appears that Shopify didn't develop this themselves. If you read the Marketplace Connect page, it is powered by Codisto. Codisto is a third-party developer who had previously developed a connector between Shopify and Amazon.
But that's not all. There appears to be some kind of transition happening here, and a set of FAQs that this observer could easily interpret as an acquisition. The same seems to be indicated by Codisto's website. What's more, Marketplace Connect is now also present on Shopify's pricing page.
I put this in the section for entrepreneurs because there have been ways to connect to Amazon for the past 20 years — if you are a medium to larger merchant, you have options. This officially supported app (powered by Codisto) makes it a little bit easier.
Historically, most providers vastly underestimate what it takes to integrate with Amazon. I often find these kinds of apps provided by platforms and even the marketplaces themselves useful for only the smallest businesses.
Most growing merchants need something more dedicated; is Codisto able to keep up with larger industry players? That remains to be seen.
Lastly, while Shopify has cooperated with Facebook, Google, Tiktok, and others over its history, the relationship with Amazon has always been love-hate. This makes it clear that the Rebel Alliance and the Empire have officially recognized each other's diplomatic status and have exchanged ambassadors.
Another update that could be another source of revenue for Shopify is Shopify Credit. This is a business charge card that helps users organize expenses. Since Stripe released their Charge Card program for its Stripe Issuing product, it was only a matter of time before this came to Shopify. We talked about this about a month or so ago on this podcast. But again, this is more of a product for entrepreneurs and replaces functionality they could get with Intuit Quickbooks. I would continue to watch this space here because all Shopify needs to do is develop or acquire an accounting package to be an all-in-one competitor to Intuit.
Regarding the narrative I used to open this post, this item could be put in the "payments and financial services" bucket. That said, it's clear that with regards to Shopify's focus, its financial services products are in service of retail entrepreneurs.
Regarding the core platform, there are a few things to discuss. My favorite first: Bundles.
Bundles is one of my favorite new features and it allows you to group multiple SKUs or quantities of SKUs into a fixed bundle or a multipack.
People might wonder why bundles are essential -- let me tell you why. The core of any merchant's business is inventory. Suppose merchants need to create new SKUs and assign inventory to them; that limits their sales potential because those products may not be available to commit elsewhere. However, if a merchant or a consumer can create bundles from SKUs and variants, then the sales potential is increased. The implications of this feature extend throughout the entire platform because it is a foundational capability.
Bundles can also make it easier for customers to shop at an unfamiliar store by creating purchase options at different stages of a buyer's adoption journey.
There are B2B features in this release, but to me there are a few types of B2B companies. There are direct-to-consumer businesses that are trying to establish a B2B channel. Then there are manufacturers and distributors who are trying to use digital tools to become easier to do business with, lower their costs, and grow their sales. Private equity has especially been active in the B2B market over the past few years working to transform old-school businesses into digital ones.
Shopify’s new B2B features (volume pricing, quick order lists, quoting enabled by draft orders, among others) still seem centered around a Direct to Consumer-oriented business that wants to add a new channel. The pace of B2B innovation and flexibility does not yet match its competition -- all of whom have a head start on the company.
Checkout Extensions is another era where Shopify made some recent improvements.
The other significant feature in this release is Checkout Extensions which has reached general availability. Extensions are the way in the future for all merchants and developers to customize the Shopify checkout, now that checkout.liquid is being deprecated.
I won't belabor this one, but it's hard to overstate its importance in Shopify's Enterprise direction (other than some foundational platform elements mentioned here, did not get much press in this release). Checkout and Payments is the heart of Shopify's Enterprise strategy, so this kind of customizability is table stakes to the firm.
As far as longer-term bets I thought I would talk about Shop App a little here.
Shopify also released some updates to the stores within Shop App to make it easier for merchants to engage with customers. The jury is still out on Shop App; I just don’t see this being a material channel soon for the average merchant compared to social media (hello TikTok Shop), Amazon, or their Shopify store. For smaller merchants, I mean, why not be there? But, what about larger merchants? Those merchants would be better off with their own app, not within the 4 walls of Shop App.
I'm still trying to figure out what's really happening here. Each month I feel like I could just as easily wake up and see "Shopify ends Shop App experiment" as "Shopify doubles down on Shop App." We are undoubtedly in the messy middle of their investment plans with Shop App.
Wrapping Up, this Edition clarifies that despite payments and enterprise software being new initiatives for Shopify, home is where the heart is. And the heart of Shopify is with entrepreneurs. That’s not to say its financial solutions aren’t important (you might even say they are the entire business model), but they will never be quite as crucial as entrepreneurs are to the firm.
Even the casual observer can't help but notice the sheer volume of features being released. But therein lies the tension. Shopify is about simplicity. Yet, a relentless pace of new features brings complexity of organization, maintenance, not to mention merchant and partner adoption. Managing this type of complexity takes much more than the crafter-centric historical focus of Shopify. Being able to channel that complexity into something easy to adopt will remain an area to watch going forward.
[References:]
Our Second Story
UPS Agrees to Terms with Teamsters
You’ll have to forgive me Watsonians if I haven’t followed every detail of the Teamsters negotiations with UPS. Up until this point, it just seemed like a battle focused mostly on news reports and press releases. Here’s what I knew for sure going into this.
One, UPS CEO Carol Tome’ is one of the best executives you’ll find in a Fortune 500 company, like a real adult running a company which is hard to find sometimes. She came into UPS from the beginning with an attitude that was committed to finding a win for all sides.
Two, the Teamsters President Sean O’Brien and the entire Teamsters Union were very salty from the last UPS negotiations where it claimed. Sean O’Brien is a fourth generation Union man and as a new President was not going to back down until he got what he wanted from UPS, and in my opinion was willing to risk a strike to do it.
I don’t think it’s clear cut here who won and who lost. In terms of the agreement themselves, it would seem the Teamsters got everything they wanted out of UPS.
In this case the terms include:
* First this is a 5 year deal which will continue until the end of 2028. This may not seem like a long time, but 2028 is right around the corner.
* The deal includes pay raises for both full-time and hourly workers of up to $7.50 per hour over the next 5 years. Notably, existing part-time workers need to be moved up to $21 per hour which was a key point in the negotiations.
* This same $21 rate will apply for new part-time workers as well
* All delivery vehicles will now get air conditioning which surprisingly was another contentious part of the negotiations from all the reports.
Overall, it seems like it’s a deal the Union can really be happy about, which is great for UPS workers.
Of course that will have a big impact on UPS’ bottom line.
But in this case, it’s almost like being careful what you wish for. While UPS can guarantee benefits and pay for the workers that are there, this is not a government job situation where you can’t fire people. If you look at the arc of fulfillment, robotics and AI in the past 5 years, and into the next 10 years, let’s be honest it’s not looking good for humans.
The future of logistics is automation, and no Union contract can stop that tide. This observer feels that is what UPS’ calculation was in the long-term. Give the unions what they want to declare victory, but continue to optimize, streamline and automate the facilities and network in order to reduce the need for labor in the first place.
If Union jobs are slowly replaced by robot jobs, to offset all the cost increases that happened as part of this deal, it may not seem like such a big victory in 5 years.
This isn’t quite over yet as UPS employees still need to vote on it, but this seems like mission accomplished for both sides at the moment as both sides are likely to sign it, declare victory, and move on.
[References:]
https://www.supplychaindive.com/news/ups-teamsters-tentative-national-contract-agreement/684895
https://teamster.org/2023/07/weve-changed-the-game-teamsters-win-historic-ups-contract/
Our Third Story
Boston Consulting Group’s Latest Supply Chain Benchmarking Report
I was able to preview a copy of BCG’s recent report on the Consumer Packaged Goods Supply chain and I thought I would share some of the findings with you in the audience. This was published by the Food Industry Association. Here are my top takeaways from an analytics-dense report which contains a lot of statistical information and quartiles about in-stock, warehouse, and network performance
1 - Supply chain service should improve throughout the rest of 2023.
A lot of this is because of decreased demand. Lower demand creates more slack in the system which allows for faster transportation with fewer hiccups. Lower demand causes pressure on the system in a lot of other ways however, as we see in:
2 - Most retailers and suppliers are looking for cost optimizations
With the increasing investor and Wall Street focus on profitability, most supply chain leaders are still in cost optimization mode. This goes doubly for the industry after the latest Teamsters agreement promises to increase the costs of labor over the next 5 years.
This is a good reminder for technology and service businesses that are serving brands and retailers in the CPG sector. Of course you need to deliver a better customer experience, but if you can’t realize cost savings at the same time it could be a much harder sell.
Automation and accuracy are some of the greatest supply chain leverage points that will hold down cost increases and the need for additional labor.
What makes this worse is:
3 - CPGs continue to struggle with passing along cost increases.
48% of brands are able to pass through less than 40% of cost increases. 25% of brands are able to pass through at least 41-80% of cost increases and only 25% of brands are able to pass through more than 81% of cost increases to retailers and customers.
Retailers continue to push back on accepting price increases from suppliers which means that suppliers are continuously looking for cost improvements.
Ultimately, continued soft demand in CPG combined with the unwillingness of retailers to absorb cost increases means that consumers may not be suffering from inflation as much as before, but CPG brands that are supply retailers definitely are.
[References:]
https://www.fmi.org/forms/store/ProductFormPublic/2023-fmi-supply-chain-benchmarking
[PAUSE]
And Our Last Story
What’s With All the Rebranding Lately?
In the past few years we've had brands with a tremendous amount of equity being torn down without much forethought:
Facebook -> Meta
Twitter -> X
HBO -> Max
Oscar Mayer even rebranded the Weinermobile to the "All Beef Frank Mobile".
(seriously, look it up!)
Regardless of what you thought about the businesses themselves, one of the most difficult transitions in the life of a company is its name. It's one of those one-way door decisions identified by Jeff Bezos. (Just be glad he didn't actually name the company "Relentless")
If there's any Silicon Valley adage which I think has caused more damage to startups than any other, it's this (attributed to Zuck): "Move fast and break things."
Legions of startup founders interpreted this as taking risky and chaotic actions for all types of decisions just because "it's a big move". Sadly, these types of big moves are the decisions that need a greater degree of thought -- the one-way doors.
You just have to wonder at some of these companies - what is going during these decision-making processes? It is as simple as the Highest Paid Person's Opinion (HIPPO), or is there something deeper going on?
In case you haven't noticed, we are coming up on 2024 planning cycles for most companies. For most, early 2023 was a time of caution and the second half of 2023 looks rosier.
A few thoughts on thoughtfulness for your upcoming planning cycle:
* Maintaining optionality in your plans still seems like a great idea as a core principle. As long as interest rates remain high (they seem to be for the next 12 months, even if they are not rising), cost of capital will remain high, which will continue to put a greater focus on profitability.
You won't regret adding a few extra points to your gross margin or your net operating margin. In fact, it gives you more leverage in your business.
* Double-down on your customer knowledge. If you haven't visited customers in a while, get back out on the road and re-establish relationships. I have always deeply felt that winning companies are the ones with the best knowledge of how their customers make decisions
* Make a "kill list" of projects, even if you can't do them all now. We all have quite a few decisions we put in place during the pandemic (and before!) which probably have no place going forward. Try to kill a few of them to increase your focus in the next 6 months, and revisit the list occasionally, too.
Leaders often avoid making the tough call because they think employees will judge them for making a mistake. I cannot make this any more clear:
Your employees already know it's a failure. As a leader, you are the last one to see it.
But, back to rebranding... I can only hope that Shopify doesn't rename itself to Sidekick as part of the AI hype cycle. In that case, maybe the cute green bag becomes self-aware.
[References:]
[PAUSE]
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It’s That Time Friends, for our Investor Minute. We have 7 items on the menu today.
First
Digital Freight Automation Platform Raft Closes Series B
If there’s one sector which seems to have gotten a lot of love in the last several years, it’s supply chain, which of course to all you Watsonians out there is a great thing. The core of Raft seems to be unifying communications and tasks in one place for those dealing with freight, as well as streamlining things like accounts receivable and payable. The company recently rebranded from Vector, which… does it seem to anyone else there is a lot of rebranding going around?
Second
RFID Technology Provider RADAR Raises a $30 Million Series A
Maybe RFID is cool again? If there’s one technology that got way ahead of itself on the hype cycle, it’s RFID. RADAR is attempting to rectify that. Essentially, the goal of the company is to always allow a store to know where all their inventory is in real-time with the help of RFID. It also seems like the company is offering a kind of just walk out technology similar to what Amazon pioneered.
Third
Automated Shop the Look Provider Stylitics Acquires Visual Image Solution Wide Eyes
I’ve been able to watch Styltics from almost the beginning of the company and it’s been a pretty good ride so far. Styltics has made its name in providing Shop The Look features for fashion retailers. Wide Eyes is a visual image search provider and tagging provider, which might indicate that Stylitics is moving into the visual search space occupied by players like Algolia and Syte.
Fourth
SMS Platform Postscript acquires Cashback Provider Fondue
Postscript is one of the top providers in the mid-market to Enterprise SMS market and like Klaviyo and Yotpo, appears to be looking to expand. In fact, it increasingly looks like all of these players are competing with each other. Fondue which I haven’t tracked that closely is based around the idea that you should be giving out cash back to attract customers rather than providing coupon codes to audiences. Looks like audiences are responding because Fondue just found a a nice exit.
Link: https://www.getfondue.com/blog/fondue-has-been-acquired-by-postscript
Fifth
Incontinence Brand Attn: Grace Raises $2M in Seed Funding
Attn: Grace is female-founded and is a digital-native company. The company claims that over 19 million in the US suffer from incontinence which is a huge problem that no one seems to talk about. Attn: Grace is a Certified B corporation and recently got their productsd in over 1,600 Walmart stores.
Sixth
Arrive Recommerce Raises $16M Series A
The company works with Brands and 3PLs to allow them to offer their own certified resale channel. As part of the solution, Arrive provides a storefront, operational technology, and analytics. It does not appear that it’s a full-service solution as there is no outsourced labor.
Link: https://finance.yahoo.com/news/arrive-recommerce-inc-raises-16m-165000231.html
AND FINALLY …
Torch Dental Secures $28M to Digitize Dental Supply Chain
This is a Series B round for Torch Dental which provides practice management software for dentists which streamlines operations and helps with inventory and procurement.
Well, another day, another dental service provider gets funding, and I’m all out of tooth jokes that a third-grader might tell. Sorry Watsonians!
Well, maybe I do have one more. What do dentists call the x-rays they take of patients’ teeth?
Give up?
Tooth pics.
Link: https://www.pymnts.com/healthcare/2023/torch-dental-secures-28m-to-digitize-dental-supply-chain/
[PAUSE]
That’s all for this week! Till next time Watsonians.....
[PAUSE]
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 Jose Baez; 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.