March 20th, 2023: Silicon Valley Bank, AllBirds’ Stock, Shopify’s investor meeting, and Amazon Buy with Prime
It’s March 20, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Thoughts on the Fallout of Silicon Valley Bank
AllBirds Stock Crashes
Shopify’s Latest Investor Meeting
Secret Shopping Amazon Buy With Prime
- 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….
Thoughts on the Fallout of Silicon Valley Bank
It’s been a week since the demise of Silicon Valley Bank and this debacle is still on everyone’s minds. Obviously the depositors have been secured by the government.
First, how could they not do this? To do otherwise would be like telling depositors that their $1 may not be worth $1. The banking system could never survive on that premise, otherwise everyone would essentially only bank with the government – the lender of last resort.
When it became fully clear that it was simply SVB risk mismanagement and not fraud, most of the funds were in fact available on a longer time horizon -- just not in the short time period needed. We could safely assume that something would happen to help depositors stay whole. Nothing else made sense.
Second, while I've talked here about the bullwhip effect, I'm going to keep doing that because in the next two years we are going to be in that mode. With everything from consumer behavior, inventory levels, supply chain, prices, corporate behavior, interest rates, etc.
Whether you think the next interest rate hike will be 25bps or 50bps, everyone agrees we are not done hiking. Then rates will stay higher for some time - how long no one knows.
At some point we will come down at least slightly. However you slice it, that means that in the next couple of years we will be dealing with some kind of bullwhip effect due to these changes in the system.
Cautious planning is going to continue to be the watchword until the war in Ukraine is over (because this impacts inflation) and rates stabilize for longer than 6 to 12 months.
You can't fix the banks, so don't try and overcorrect there. The government will keep regular banks safe. As long as valuation multiples are down and interest rates are elevated, you have to keep expecting that some new and unexpected part of the world will break every few months because we are still working our way through the pandemic and easy money, compounded by a war in Eastern Europe.
I do have a somewhat long view on the failure of startups having been through the 2001 DotCom bust in the first few years of my corporate career. This is going to pass; don't make wild bets and keep your company cash flow positive until the good times return.
If you do that, things will stay on the rails.
I still feel it's always a good time to start a company, but - relatively speaking - it is not a great time to start a company that needs a ton of capital without proof of results. If you are bootstrapped or not overfunded and are building something with integrity and quality, you will be OK.
One last thing, if anyone needs help or advice, let me know. My DMs are open. Relationships are what matter in this business, not the bits and bytes, and not the dollars in your bank account.
[References:]
Our Second Story
Allbirds Stock Crashes
The Direct to Consumer darling AllBirds stock has crashed based on a recent earnings report from the company. The details were provided by Business Insider, and here’s what you need to know:
The company reported a $101 million annual loss and a 13% drop in quarterly sales.
Shares dropped more than 47% shortly thereafter and as of this recording, the company’s stock was hovering around one dollar.
The company did announce more wholesale partners and a big plan to reduce its expenses.
As someone who has 3 pairs of AllBirds in his closet, I am a little sad at this news. However, I have a feeling that in this environment this is a death spiral that they will not be able to recover from. It could take years to recover investor confidence.
In the meantime, the clock is ticking. Despite the fact that the company is losing money, I don’t expect AllBirds to go out of business. Even though it is still relatively small.
That said, All Birds is doing something majorly wrong here. The company took in $300 million in revenue in 2022 and, despite this, an additional $100 million in losses hit the bottom line. That’s a brand with -33% net operating margin. If AllBirdsshut down its website and sold its inventory to jobbers, it would make more money.
My take is that AllBirds will be acquired, and that could be in the next 6 months. What do you think, Watsonians?
[References:]
Our Third Story
Shopify’s Latest Investor Meeting
Last week, Shopify’s president Harley Finkelstein and CFO Jeff Hoffmeister were at the Morgan Stanley TMT Conference where they provided updates on their new Enterprise solution, Commerce Components by Shopify, and its Fulfillment Business. Here are the top statements I took from the event:
- First, Shopify Fulfillment Network is really about Shop Promise. Harley said the company wanted to be able to display a badge to merchants and this badge has been proven to improve conversion rates by up to 25%.
Well, if this is true I actually feel sorry for Harley. I personally know at least three different companies that can predict shipment dates which would not have cost $2 billion dollars. Then you can buy a 3PL if you want for 1 times revenue.
What Harley should have instead said is that sure, we can provide a badge, but that badge is worthless without fulfillment excellence. Unfortunately, they gave analysts no idea how they will make that happen except to push more work to partners.
Can we just say it? You didn’t need to spend $2 billion on Deliverr to build a shipping badge. The $2 billion mistake only happened because Shopify doesn’t understand logistics to begin with.
- Second, Shopify expects between tens of thousands and millions of merchants to use Shopify Fulfillment Network.
While he didn’t use numbers, CFO Jeff Hoffmeister provided a kind of range that might predict logistics adoption at Shopify. He said that Shopify’s adoption of its tax software signed up tens of thousands of merchants on the one hand, and on the other hand, Shop Pay adoption as a percentage of its total gross merchandise volume is now at 56%.
Can we be real for a minute? Jeff is misinformed at best here and delusional at worst. Logistics adoption is not in between the range of these two terrible examples provided by the CFO. Logistics adoption is about ten times harder than changing a payment processor because it requires inventory movement.
- Third, Shopify now participates in RFPs.
Who knew? This is kind of cool, actually. Late last year, I actually witnessed this first-hand. I worked up a detailed RFP for a B2B eCommerce project, sent the document to Shopify and its product team told me which items were on the roadmap.
That’s cool, right?
- Fourth, Shopify refused to pick a single target market.
When Shopify was asked what its target market was, the answer essentially was “everyone”. Of course this is the answer the company would give, but it’s going to be problematic in the long-term. Investors want to see a focus, and I think in the long-term it’s not going to be intellectually honest.
The reason is that Shopify is no longer a company that makes most of its money on subscription software. It makes most of its money from payments.
- Fifth, Shopify says it will sign a deal with Amazon over Buy With Prime.
This one was surprising, but I guess the company has to keep answering this way because financial analysts are asking. Shopify could have just said the company is not inclined to sign, but essentially what the executives said is that a deal will get done with Amazon, but it will be on Shopify’s terms, leaving merchants in control over the customer, the data, and the back office experience.
One last thing? Harley basically admitted the compay would increae the price of Shopify Plus at some point, but not yet. That’s something to pay attention to for the brands and agencies listening.
[References:]
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And Our Last Story
Secret Shopping Amazon Buy With Prime
The analysts on our team at RMW Commerce have been working on a secret project. A secret shopper project that is.
What do I mean?
Well, I've been surprised that there have been so many people talking about Buy With Prime, but few of them actually have even ever looked at it, much less purchased from a seller with it. I decided to remedy that.
To make it easy on Amazon, and perhaps prove a point, I decided to throw the company a softball. Let's purchase from their case study accounts. Here's what I learned. In the comments, I have the full report and a link to sign-up to my newsletter which will release it this morning. (So sign up to get future content like this!)
Note when I say all of Amazon’s sellers I mean all the case study sellers.
1 - The sellers I shopped are using Fulfillment by Amazon rather than Amazon’s Multichannel Fulfillment product.
This means the packaging is bad, undifferentiated, and worse than any typical premium D2C experience.
2 - All the case study sellers on Buy With Prime are using Shopify.
If you wonder why Amazon needs to sign a deal with Shopify, look no further. In the sweet-spot of D2C small and medium businesses that Buy With Prime could help, anecdotally I find like 90% of these people are using Shopify.
So, yeah, Amazon must get a deal done.
3 - Buyers need to agree to Amazon's privacy policy as part of the purchase workflow.
This is not just about fast delivery then. (Which was fantastic!) This is about data-sharing.
Will this even work in Europe? It will be extremely complicated to pull off.
4 - I never got a branded email from a Shopify store.
When I was contacted during the purchase experience, all messages were from either Amazon itself, or "Amazon Pay" (to be honest, I am not sure why there is a difference the consumer should see).
Only one brand in all my purchases sent me a single email before I got the item, and it was to tell me the brand had created an account for me, and to reset my password for it.
Thanks for nothing?
5 - Returns were hard. Like super-hard.
Both Amazon customer service and the D2C brands I purchased from could barely find these orders in their databases, much less tell me how to process a return successfully.
I did not feel like I had an "A to Z Guarantee."
Suffice to say, if I were a buyer of a brand, there is zero advantage to buying with Buy With Prime for the same item that could be on Amazon. In fact, if the item is already on Amazon, Buy With Prime on a D2C website adds significant friction.
If the item is not on Amazon, then you lose the ease of your typical D2C experience. While it’s certainly possible that Amazon will get its act together here, I find it hard to believe that Amazon Buy With Prime will have a huge impact on Shopify or anyone else in 2023 based on this experience.
[References:]
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Hey, Watsonians, this is Rick. Want to get my take on a burning question and have me answer on this podcast? You can start a topic on the RMW Commerce Community and just ask!
The Community is full of eCommerce diehards just like you talking about important eCommerce issues. Just last week one of the popular topics added by Hendrik included that the eCommerce company Boxed may be preparing for bankruptcy. Ouch!
So don’t delay, just visit community.rmwcommerce.com to sign up and post for free.
It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
eCommerce firm Spreetail raised $208 million.
Spreetail is what the industry has come to call an eCommerce Marketplace accelerator firm. What’s an accelerator? It’s essentially a full-service agency that helps you sell on a marketplace, but instead of being just a normal agency it also issues purchase orders against your inventory. Pattern is another firm in this space.
I’m a little surprised to see this large of a raise, but I’d be even more surprised if I learned later that most of this raise was capital instead of debt.
Link: https://news.crunchbase.com/retail/spreetail-nebraska-e-commerce/
Second
Rebuy engine raised a Series A to tackle the personalization space.
Rebuy, which I remember more as a recommendation and upsell engine, has been expanding its services and now offers a wider suite of offerings. The company is raising a $14 million Series A and claims to power more than 10% of Shopify Plus merchants.
Link: https://techcrunch.com/2023/02/24/rebuy-commerce-personalization-series-a/
Third
No code EDI firm Crstl (C-R-S-T-L) raised a seed round to make EDI cool again.
To the extent that the VC community has gotten the memo that EDI is cool, we might have jumped the shark, haven’t we? This company aims to solve the problem ofa lot of direct to consumer brands that may go out of business if they don’t diversify into retail. Seems like a tough market to pick winners in - in terms of which brands will go out of business versus which ones will make it.
Link: https://www.crstl.so/post/introducing-crstl-no-code-edi-for-modern-brands
Fourth
E-commerce aggregator Una Brands raised $30 million in a follow-on to its last round.
Una Brands is an Asia-focused eCommerce aggregator, so it takes the same bad model that became popular in the United States and spread it all over the world.
Ugh.
AND FINALLY …
Automated Amazon vendor central refund company DimeTyd got acquired.
DimeTyd is one of the larger players in the Amazon screwup space. If you didn’t know, there’s a whole industry of companies that do nothing more than look for Amazon billing snafus, and then automatically file cases with Amazon on the consumer’s behalf to get money back.
Apparently this happens a lot because several of these companies have gotten acquired.
In the Fulfillment by Amazon screw-up world, GetIDA was acquired last year by private equity investors.
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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 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.