March 11th, 2024: Key learnings on Temu from recent report, Klaviyo launches a professional services offering, Amazon launching mini Whole Foods in New York City, and Target reports Q4 earnings
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s March 11, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Key Learnings on Temu From Recent Report
Klaviyo Launches a Professional Services Offering
Amazon Launching Mini Whole Foods in New York City
Target Reports Q4 Earnings
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
Key Learnings on Temu From Recent Report
The company Earnest Analytics has published a report on Temu recently, and I thought I would compile a few takeaways from it. Many of these stats are counterintuitive and buck accepted wisdom. One of them being, rich people shop at Temu.
* Temu sales grew 840% between January 2023 and 2024, topping 1100% during the holiday 2023 season.
* Temu's sales in the US have already almost completely replaced AliExpress and Wish.
* Super Bowl ads did not move the needle. Like, at all.
* After being in business for 12 months, the company's Customer Lifetime Value was higher than Walmart's, but still trails Amazon. In fact, after 6 months, customers become more valuable each month. This leads me to believe the quality to value ratio is "good enough".
* Temu's customer base trends towards middle-high income, despite the price points. These last two trends should be worrying for any of the incumbents in the US market.
* Temu continues growing up-market. Temu's sales among customers earning $190k grew faster than any other segment, and customers earnings $55k or less grew the slowest. 40% of the company's customers are making above $130k per year.
All things told, it looks like Temu has been "the ultimate trade-down" the last two years, even among income classes that most would consider rich.
* Dollar Stores have virtually stopped growing, and many think it is from Temu. From last few years to this one, Dollar General went from mid-single digit growth to flat.
One final stat for you: Over 96% Temu's customers shop at Walmart and Amazon. This means they are comparing like for like Chinese suppliers, in many cases. There is also a high overlap with dollar stores and Etsy.
To me, this means that Etsy is in trouble. Not only has it lost its soul, it may lose its heart.
The fact that these customers could be savvy about supply is worrying indeed for Amazon. To me, that indicates its cost to serve is not the only thing that Amazon should be worried about -- differentiation needs to be a close second.
The report indicates that it has yet to take significant share from either Amazon or Walmart (dollar stores, however, are another question), but that both companies do have their eye on the firm. That seems wise to me.
[References:]
Our Second Story
Klaviyo Launches a Professional Services Offering
The world seemed to freak out, unnecessarily, last week when Klaviyo sent an email to its agency partners that it was starting a professional services arm and that in some cases would not be sending particular customers to agencies.
Based on yesterday's reaction you would have thought Klaviyo canceled their agency partner program. They did not.
It started out with the Future Commerce (which I love)"emergency podcast" and then just continued on throughout the day with a huge number of overreactions.
Let's start with a few simple truths:
* Every sufficiently large software company which is going up-market needs Professional Services. Fact.
* Klaviyo is following Shopify's recent playbook having done the same thing in the past year and a half. Fact.
* Klaviyo is signaling that for some large customers, their product is not yet ready. Fact.
* Klaviyo is now tracking # of customers which pay it over $50k. In 3 years, they will begin tracking # of customers that pay it over $100k. And then $250k. In 5 years, you will see it track $1M customers.
This is where Klaviyo is headed. The part that the product is not ready is just true. How could it be? You'd like to target the mid-market and upper mid-market and Enterprise, and you have no Professional Services offering?
As they said in Succession, large clients would conclude: "These are not serious people". No. Klaviyo needs Professional Services to get fine-grained information of the huge gaps that they know must exist in their platform.
So they can improve.
So let's unpack the hubbub about the moves. Here's what did not happen:
* Klaviyo abandoning its partners.
* Klaviyo targeting SMBs with this.
* Klaviyo made a mistake in overcharging for its services
* Professional services does not equate to an agency.
The "what if" Klaviyo went after our business is a waste of energy. Just stop. And if you are that concerned, I can give only one piece of advice: Take a deep breath, diversify your revenue, and get on with your life.
Read the business book: "Who Moved My Cheese?".
An agency is a third-party collects a retainer over a period of time to manage and improve a client's business. I think many don't even know what Professional Services is about.
Professional services, instead, has 4 purposes:
* Make feature improvements and fixes to the product in real time for customers.
* Build and host custom client software in the company's datacenter, when architecture requires it be built this way.
* Provide high-level strategic and architectural advice based on knowledge only employees have about the product's implementation, particularly in high-volume or complex use cases.
* In many other software businesses, agencies interact regularly with a platform's Professional Services because they are the "power users" of the product.
All told, let's get back to winning on behalf of clients and stop worrying about our true partners moving our cheese. They will, of course, keep moving that cheese a little bit. But you can always adjust.
[References:]
Our Third Story
Amazon Launching Mini Whole Foods in New York City
Bloomberg reported last week that after only closing stores for the past couple of years, Amazon is making investments, and Whole Foods is the brand they have chosen to invest in. The stores will be called Whole Foods Market Daily Shop, and will be the size of the an average convenience store - 7,000 - 14,000 sqft - but will be filled with a grocery-like assortment. No buffet bars or meat counter, but there will be fresh produce and packaged foods.
There are plans for 5 stores to open in New York City with the first one to open on the Upper East Side in the fall.
My big question on this of course is about logistics. I’m assuming that these are obvious return centers in New York City, but will this also help Amazon with New York City same-day delivery? I actually find that Amazon same-day in Manhattan is limited even compared to someone like Target.
[References:]
[PAUSE]
And Our Last Story
Target Reports 2023 Full Year Earnings
I do have to hand it to Target in one sense. They know who they are, and they are going to execute that playbook. The company does not look for silver bullets.
The formula is:
- designing better products
- with sharper pricing
- and a better Stores experience
- and an improving delivery & loyalty experience
The situation is:
* declining traffic, marketshare, and thus, share of wallet.
* negative store comps (-4.4% comp sales, and -5.4% store comp sales)
* negative digital comp sales (-0.7%)
* Strong profitability 5.8% operating income margin: 56% higher than Q4 2022.
* Same day services up only 8%. This is super-worrisome as this was previously growing much faster.
Against this backdrop, Target’s formula looks like the turtle and the market (Amazon, Walmart) is the hare. They might win the race in the long run, but you have to believe a lot of things, and in the meantime it’s going to suck. A lot.
Target’s answer is essentially is new merchandise, and an improved loyalty program. We’ll see if it’s enough.
For 2024, Target expects a 0 to 2% sales growth, which is about half Walmart’s growth. In this economy, I’m sure they will take it. In fact, this is similar to Walmart’s formula - grow profits faster than sales. It’s just that Target is growing profits faster than Walmart but growing much slower.
That is a formula for Walmart and Amazon pulling away at the top of retail, while Target niches down to their own brands. In one sense, Target has become a CPG company that happens to be a retailer.
Viewed through that lens, is it only a matter of time before these own brands show up in Walmart and Amazon? Either it is the stupidest idea alive, or spinning out "Target the CPG holdco" is the most brilliant business idea of the next decade.
[References:]
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
B2B eCommerce platform Catalog Raises $3.3M in Venture Funding
Catalog, a French B2B Software-as-a-Service (SaaS) startup, has raised $3.3M in venture funding. The company serves small to medium-sized businesses and is focused on the B2B segment - is this long-term sustainable and does the world need another platform?
Link: https://techcrunch.com/2024/03/04/catalog-is-building-the-b2b-commerce-platform-for-small-companies/
Second
OpenAI Unveils Sora
OpenAI unveiled its latest text-to-video generative model that creates realistic videos. While not publicly available, Sora will decrease the costs of video creation through a single prompt. The results of this have simply been mindblowing. I just thought I would mention it here if you haven’t seen it. Check out Sora.
Third
Topsort Raises $20M in Series A Funding
Topsort, an API-first advertising startup, has raised $20M in Series A funding to increase marketplaces' revenues by enabling retail media adoption via easy plug-and-play integration.
Link: https://techcrunch.com/2024/03/04/topsort-150m-e-commerce-ads/
Fourth
Amazon Aggregator Razor Group Acquires Perch and Raises Series D Funding
Berlin-based marketplace brand acquirer Razor Group has acquired Amazon brand aggregator Perch for an undisclosed amount and raised around $100M in a Series D funding round. It’s safe to say 2024 is the year of aggregator consolidation.
AND FINALLY …
Bridgepoint to Acquire RoC Skincare
Private Equity fund Bridgepoint has acquired RoC Skincare for an undisclosed sum, continuing its acquisition strategy of dermatology businesses that can leverage its European presence.
Today’s final word for the week is FreakOut. As in, the Klaviyo agency universe completely lost its mind over Klaviyo’s email to its agency partners. Look, everyone involved take a deep breath. The overlap between professional services and the agency world is much less than you think. My prediction is you won’t even remember that Klaviyo did this in 3 months time.
[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.