March 27th, 2023: Walmart launches Clean Beauty, FedEx’s earnings, Foot Locker retrenching, and Amazon layoffs
It’s March 27, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Welcome to Shoptalk!
Today on our show:
Clean Beauty at Walmart Launches
FedEx Earnings Reveal Cost-Cutting
Foot Locker Retrenching Brand and Stores
Amazon Layoffs Signal Further Challenges
- 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….
Clean Beauty at Walmart Launches
The new “Clean Beauty at Walmart” launched on the retailer’s website, where most products are under $10. What’s “clean beauty” you ask? Essentially they are beauty products certified to be free of the 1,200 ingredients that Walmart deems “unclean”. RetailDive reports that Walmart features more than 900 products in this section.
I think this is a good idea overall.
First, Beauty as a category has performed well through the economic slowdown even in the face of inflation. Target sees the same trend and has benefited too, having invested in ULTA beauty in its stores with plans for over 800 shop-in-shops.
Second, the target market for this shopper also matches Walmart’s image — value-conscious consumers. The combination of value- and health-conscious shoppers seems like a healthy segment to me.
Third, this is a shot across the bow of the Amazon marketplace. Does anyone shop for beauty items on Amazon for face products? It can be a crapshoot with fakes, counterfeits and knockoffs – not to mention those with potentially risky ingredients .
I visited the program on Walmart’s website, and it’s easy to find in the sites’s navigation. A focused Clean Beauty landing page probably has some SEO benefit to it as well.
[References:]
https://www.retaildive.com/news/walmart-clean-beauty-platform-sustainability/645320/
https://community.rmwcommerce.com/t/walmart-clean-beauty-program-launch-makes-sense-to-me/842
Our Second Story
FedEx Earnings Reveal Cost-Cutting
Let me break it down for you like a 5-year-old what happened on this earnings call. I won’t pretend to be the FedEx CEO, who literally has the best radio voice I’ve ever heard, but here we go:
Our volumes went down.
Our costs went down.
We raised our prices, and we have a new dynamic plan for raising prices in the future.
But our customers are not going up.
Of course, our costs went down a little faster than predicted, so we are crushing it. Why are we crushing it?
Let me tell you all about it!
At FedEx we introduced this great new program called DRIVE. When Fortune 500 companies name an initiative it always succeeds! Like the famous Wile-E-Coyote - this is going to catapult us into the future!
Let us tell you about DRIVE:
* We are closing sort centers.
* We are closing other facilities.
* We have parked 9 planes so far and are parking 6 more.
* We are selling equipment and reducing vendor utilization.
* We have mothballed delivery vehicles.
This is what DRIVE is all about. Actually, our first thought was to call it PARK because all our vehicles are really parked -- it would be more accurate -- but our investor relations team advised against it.
OK with that out of the way, here are a few other tidbits from the earnings call:
* FedEx Express, Ground, and Freight volumes all declined by 12% across all segments.
Just for comparison, UPS volume declined 3% in Q4 for B2C shipments and 5% for freight.
* FedEx Ground increased its revenue per parcel by 11% and reduced costs.
* The FedEx Express business is still declining, and flight hours were reduced by 8% so far to compensate. Adjusted operating income declined 81%. You know it's bad when the adjusted number is down 81%.
What’s more telling is what FedEx did not address:
* What are the profitable customer segments the company is targeting and growing?
* How will FedEx gain volume share?
* Are there any new products, services or partnerships in the pipeline?
* How will the company operate in this environment, which could continue another 2 years?
Here’s what we know — FedEx is getting smaller, losing share, and investors are cheering. Those things together aren’t the ideal operating playbook for any business.
[References:]
Our Third Story
Foot Locker Retrenching Brand and Stores
Four things are going on with Foot Locker:
1 - The partnership with Nike was revitalized and Nike merchandise should start reappearing in Foot Locker stores around Christmas.
2 - Foot Locker is closing the Lady Foot Locker, Footaction and Eastbay brands in North America.
3 - Foot Locker is closing 400 stores in class C and D malls.
4 - The company is focused on developing a store of the future concept, which will launch in New York City in 2024.
My take on this?
First, I wasn’t aware that Lady Foot Locker and Footaction were still viable brands in North America to begin with. What were they still doing around?
As far as the lower-end malls are concerned, same thing. It's like Nike executives woke up from their slumber over the last 15 years and said: "crap, indoor-only malls with declining anchors doesn't seem like a great business model anymore."
Next, a Foot Locker launch in New York City? How is that a scalable “store of the future”? NYC is such a unique market compared to the rest of America. Maybe there is an answer here, but I don’t have it.
Also, is it now clear that Nike's push into DTC was "overdone?" This is a lesson to brands: you can't escape where consumers go!
If Apple is in Target, Nike should be anywhere people are shopping for running or sporting goods.
In the long-term, I worry a little about Foot Locker and think it could get more pressure from players like Dick’s Sporting Goods in particular, which now seems like a better-run company to me.
[References:]
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And Our Last Story
Amazon Layoffs Signal Further Challenges
Geekwire and CNBC reported on both the layoffs at Amazon as well as the struggles that Andy Jassy has following Jeff Bezos.
Let’s think about some recent corporate transitions.
Microsoft: Bill Gates to Steve Ballmer, and then Steve Ballmer to Satya Nadella.
Apple: Steve Jobs to Tim Cook.
Amazon: Jeff Bezos to Andy Jassy.
This Amazon transition doesn’t feel like any of these other major transitions, it feels like something totally new. By all reports, Andy Jassy was the most like Jeff Bezos of all the remaining executives, and he had built AWS into a juggernaut, which is no small feat.
Let’s look at what Andy is up against right now:
First, all these expense challenges. Coming off COVID, Amazon increased its spending to a huge degree and is now paying for a fulfillment infrastructure that it can’t seem to grow into right now. The company’s playbook seems more similar to FedEx than it does UPS, and that is not good.
Second and related are all these layoffs. In addition to the 18,000 layoffs just 2 months ago, Amazon just laid off another 9,000 workers — primarily in AWS, PXT, Advertising and Twitch.
Let’s start with PXT or the People Experience Technology team. This group was hit hard by the last layoffs too, but what do they even do? The name alone screams corporate boondoggle.
Advertising and AWS are the biggest worries. Shouldn’t these be large growth opportunities for Amazon? It kind of shows you just how far over its skis Amazon was in hiring.
Amazon does not compare favorably to Walmart and Target right now from a profitability point of view, and the company seems to have lost some of the mojo it had under Jeff Bezos.
Third, the outlet Politico reported that the government is looking to start a number of new lawsuits and investigations against the company.
I thought the FTC had forgotten about this, but it is looking at challenging the iRobot acquisition. Then there are two privacy investigations, one against Ring and the other against Alexa. Not to mention a new lawsuit in New York City against facial recognition in Amazon’s Go Stores.
Finally, there is a large lawsuit brewing about the Prime Retail business and its use of internal data to gain an advantage over its vendors.
Given the consistent rise of third-party on Amazon, if Amazon does have a data advantage I would tend to say that it doesn’t use that advantage too well.
So it looks like the walls are closing in on Amazon. What’s needed now? Well, right now Amazon is in the FedEx trap where investors won’t be happy unless the company keeps cutting costs.
This isn’t going to get Amazon out of this mess. Instead, Amazon needs to grow its way out of its problems. There are two ways to do this.
One approach is the one taken by Carol Tomé of UPS. She outlined a strategy for a “Better Not Bigger” UPS with a focus on profitable growth segments — in other words, a slightly smaller but higher quality business..
The other is the Satya Nadella of Microsoft approach. Within a few months of joining Microsoft, he was preaching about a new Microsoft vision of mobile, cloud and AI.
The big worry is who now holds the vision of Amazon? What does Andy Jassy believe about the future of Amazon other than that he will try to keep improving what’s already there?
My real worry is if he hasn’t articulated a new vision, maybe there isn’t one?
[References:]
https://community.rmwcommerce.com/t/andy-jassy-is-under-pressure-and-he-is-no-bezos/858/2
https://www.politico.com/news/2023/03/20/ftc-amazon-irobot-antitrust-00087711
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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 was Instacart adding ChatGPT technology to its app. Hendrik and I thought they were grasping at straws, but Miles Thomas threw some cold water on us by saying this technology could also help consumers save money.
What do you think? 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
Behavioral marketing platform Wunderkind raised a $76M Series C.
I remember when Wunderkind was called BounceXchange, which at the time was one of the more innovative product ideas I’d seen for a while. The theory was simple: if someone was trying to leave your site, give them a product offer or content to incite them to stay.
Link: https://techcrunch.com/2023/03/02/behavioral-marketing-platform-wunderkind-nabs-76m/
Second
eCommerce integration platform Patchworks Raised £4 million.
Is it me, or has there been another wave of investing in the integration space? I’m a bit worried that there is not enough to justify so many venture capital outcomes in this corner of the market. Which means many of them are likely to get acquired by a platform in need of a connector strategy.
Third
Threecolts raised $90 million to grow its cloud software for Amazon businesses.
The company is trying to build a one-stop shop for Amazon sellers. From what I can tell, Threecolts software doesn’t help you list items on Amazon; it’s more for things like feedback, cost recovery, analytics, and customer service. In this respect, it has quite a number of software apps, which can help save time, identity issues, and recover costs.
Fourth
Plus One Robotics raised $50 million for its parcel robotics vision systems.
The most common applications for its robotics platform include depalletizing and parcel induction. All of these applications involve vision, sortation, and robotic arms, which are extremely interesting for labor-saving in a warehouse.
Link: https://techcrunch.com/2023/03/07/plusone-raises-50m-for-its-parcel-robotics-vision-systems/
AND FINALLY …
L Catterton acquired a controlling interest in French clothing brand A.P.C.
Another day, another private equity acquisition. A.P.C. was founded in France in 1987 but has over 80% of its sales outside France, which makes it a good target for a global private equity operator. It looks like the existing management team will continue to be heavily involved in the project, which you don’t always see.
Pursue-global-expansion-building-on-the-brands-distinctive-dna-301760487.html
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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.
