March 28th, 2022: Guggenheim Partners’ Research, Amazon Roll Up Companies, FedEx’s Recent Earnings Call, and Google’s Last Mile Fleet Solution
It’s March 28, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Before I kick off the show, I want to mention that I am at Shoptalk in Las Vegas this week, so hit me up on LinkedIn if you want to get together. Always happy to meet new people.
Today on our show:
Guggenheim Partners Research Highlights Recent eCommerce Trends to Notice
Is This the Beginning of the End For a Lot of Amazon Rollup Companies?
FedEx Strategy and Execution Issues on Full Display at Recent Earnings Call
Google Enters Last Mile Supply Chain Space with its Last Mile Fleet Solution
- and finally, The Investor Minute, which contains 7 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….
Guggenheim Partners Research Highlights Recent eCommerce Trends to Notice
I recently reviewed research from Guggenheim Partners tracking a few trends that brands and service providers should pay attention to. While I can’t distribute the research, I thought I would share a few takeaways from the analysis which covers digital companies like Amazon, Etsy, Farfetch and ThredUp.
First, despite the fact that the pandemic is easing up, these analysts do not necessarily think this is a net negative for eCommerce. After a unique period of declining share gains, eCommerce is poised to reaccelerate throughout the middle and end of this year as a lot of the “it’s the end of the pandemic, let’s start going back to stores instead of buying online” is already baked in. The analysts believe this means that eCommerce will revert to the previous mean of increasing share gains.
Second, while consumers are already returning to prior mobility trends, it does appear that shorter trips are advantaged here. More time away from home has not yet been fully realized; people are still staying closer to home than before the pandemic.
As a small example from my world, the New York City subway has returned to 60% of its previous ridership.
This means that if more and more people start returning to offices, it will be good for convenience stores. But shorter trips also benefit those retailers with a great curbside experience.
Hello, Target!
Third, additional data actually corroborates the subway data: office occupancy is only back to 40% of pre-pandemic levels. I really don’t think this is returning to more than two-thirds of previous levels anytime soon.
Right now, any CEO who posts on Twitter that everyone is returning to the office immediately finds their employees targeted by recruiters with more flexible work from home policies.
Finally, it’s interesting that the Guggenheim Partners research attributes the growth in eCommerce sales to remote work. I can see the absence of commuter fees as well as more free time resulting in more purchases online.
eCommerce will definitely continue to grow, especially through sites like Amazon and Etsy, due to an assortment of options, convenience, and faster shipping.
Our Second Story
Is This the Beginning of the End For a Lot of Amazon Rollup Companies?
Mark Di Stefano from The Information recently did a deep dive on a few of the Amazon rollup companies and uncovered some things I’ve been saying for a long time.
It’s not an easy business to be in, and only a few of the rollup companies are likely to survive.
The ones that will likely have two key properties:
First, they have a narrow category focus.
Second, their leadership has deep operational experience running Amazon brands.
The challenge is many of these companies have raised a lot of money acquiring brands all over the spectrum and have never sold a thing on Amazon before starting an aggregator. In fact, many of the typical backgrounds are financial not retail operators.
Personally, I also think a focus on the smaller end of the brand spectrum is always the greatest opportunity. It's not about building the most tech orbeing the biggest.
Sometimes being large only means that you leave a bigger hole in the ground when you crash.
The Information article highlighted a few areas:
- The more companies you acquire, the harder it is to integrate and run them.
- Several of these companies have bought high and sold low from a valuation point of view, due to the pandemic.
- It's easier to get booted off Amazon than you think .
- As an industry, these companies took about $4 in debt for every $1 in equity. Debt of course needs to be repaid with cash flow. Sometimes cash flow is hard to come by, particularly if you are overinvesting. Many of these aggregators incorrectly thought they were tech companies. By the way, so did WeWork, which is now WeCrashed.
- The industry took on about $14 billion in funding, which means that only $3.8 billion in equity and $11.2 billion in debt. That is a crushing amount of debt to take on.
Sounds to me like the creditors (finance as picks and shovels?) won this round.
Before the pandemic, larger sellers were buying smaller sellers. Right before and during the pandemic, investors raised money to simply aggregate growth and EBIT with no real differentiation.
The counter-narrative is simple:
- Small to medium-size sellers are under optimized in so many ways (primarily people, advertising and supplychain).
- Amazon 3P still growing fast.
The main problem is that this counter-narrative does not solve for cash flow. Another huge problem is any cost savings are being eaten up by rising supply chain costs, materials and labor inflation.
It's about cash flow. Trust me, the most successful sellers on Amazon do not want you to hear about them.
Ever.
They want to remain hidden and keep throwing off cash to their owners.
[References:]
Our Third Story
FedEx Strategy and Execution Issues On Full Display at Recent Earnings Call
In discussion with a fellow eCommerce consultant last week about FedEx’s performance in the last few years, we wondered why we even go on FedEx investor earnings calls anymore.
Let's look at a few talking points from the FY Q3 2022 call last week:
- There was softer volume last quarter than expected due to Omicron.
- Calendar year 2022 US economic forecasts are being revised down.
- The company is planning on mid to high single digits growth for next three to four years.
The future looks like:
1 - improved european results (TNT acquisition)
2 - improved "collaboration and efficiency"
3 - digital innovation
First, there is no strategy here, just taglines. Europe is the only notable play, and it will make them more efficient, but that's an acquisition. If FedEx has decided it can't take share natively, then it is already dead.
Fred Smith decided long ago to fight the battle in the news media and the courts over Amazon, rather than in the marketplace, to the detriment of his formerly amazing company, because that drives out all the innovators.
Listening to UPS management and in particular CEO Carol Tomé compared with this cast of characters named Smith at FedEx (seriously?!) and the differences are night and day.
UPS is giving specific strategies and innovations they are introducing every call, then demonstrating how much upside they have to continue to drive in their financial performance based on their innovation pipeline. That is how a modern company runs.
The killer question in the call was simple:
"FedEx used to be better than UPS from profitability and growth, now it's worse. What is the plan?"
The answer was a non-answer. Just look at the scoreboard. If you have to ask the question, you already know the answer.
My take?
Where is the innovation?
Where is the plan to take share? From who?
FedEx is not taking share from Amazon and UPS is simply executing and innovating faster, growing faster, and getting more profitable at the same time.
FedEx needs to be combined with another company at this point. I don't see a lot of great options, except another transportation company. I have seen people mention Walmart. With all due respect, that's the dumbest thing I ever heard. No retailer makes any sense.
FedEx is becoming more irrelevant in the US, which is why it is hoping Europe is the lifeline. If it's not, the company will soon be sold for parts.
Worse, on the call the FedEx team said they are going after direct brand relationships, and not platforms. At the same time, they are supposedly laser-focused on SMB. Those two things make no sense together. SMBs rely on platforms because things are integrated, easy, and they can access rates and services that let them punch above their weight.
And Our Last Story
Google Enters Last Mile Supply Chain Space with its Last Mile Fleet Solution
I was a bit surprised last week when I read an article about Google investing in mapping, address, and other services for last-mile.
However, the services are not consumer-facing. Instead, Google is leveraging a few important assets it has while at the same time encouraging adoption of Google Cloud.
Some of the services include improved address entry (preventing mis-deliveries), turn-by-turn navigation guides, and full day route-planning for delivery companies.
The offering is called Google Last Mile Fleet Solution. From a strategic point of view, it is Google’s way of winning the last mile no matter who is actually providing the service itself.
In particular:
- Google has some of the best routing and maps infrastructure in the world.
- Any future last-mile customers would likely only continue to improve the accuracy of this service.
- If you listen to any Amazon Flex driver and one of their primary complaints is about route, maps, etc. indicating that map quality and ownership of that data is potentially a key advantage going forward.
These B2B solutions from Google are firmly on the side of "providing picks and shovels" for continuing improvements in last-mile delivery, still one of the most expensive parts of fulfillment by far.
[References:]
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It’s That Time, Friends, for our Investor Minute. We have 7 items on the menu today. I guess we have hit fundraising season.
First
Advertising platform Topsort is now worth over $100 million dollars after receiving $8 million from Pear Ventures.
Retail media is a huge and growing trend in eCommerce that allows brands to get access to a retailer’s first party data and introduce their products to more customers.
Second
Product information provider Akeneo raised $135 million in a Series D to continue its growth trajectory.
Akeneo competes with players like Salsify in the Product Information Management category, which is traditionally a tough category with only a few players in it.
The CEO Fred de Gombert has been at it a long time, so this should allow the company to keep investing.
Third
Instant delivery provider Getir is worth nearly $12 billion dollars after raising another $768 million.
The instant delivery startups like GoPuff and Getir are raising money at huge valuations, the problem is the cash flow of these companies will never match these valuations. It’s a space that most people should be worried about unless these are regional players.
Fourth
Headless content management system Amplience raised $100 million dollars from Farview Equity Partners to help improve content workflow and customer experiences.
The company is competing with players like Adobe and Contentful.
My old friend Rob Walter is the Chief Revenue Officer here, so congrats to him and the entire team at Amplience!
Fifth
Paris-based fashion resale platform Vestiaire Collective recently acquired US-based Tradesy in a rollup of resale platforms.
I’ll be honest, I am a little surprised Tradesy was still in business and I suspect this was an acquihire since the amount was not disclosed.
Sixth
Canadian-based cross-border payment processing and localization provider Reach recently raised $30 million led by Vistara Growth.
Reach solves complex problems in the cross-border payment space that helps companies increase their revenue, reduce payment declines, and decrease currency conversion rates.
Congrats to a friend, fellow Watsonian CEO Sam Ranieri.
https://www.pymnts.com/news/investment-tracker/2022/reach-snags-30m-to-boost-ecommerce-payments/
AND FINALLY …
Mobility-based eCommerce platform Mavi.io secured $1.7 million in seed funding in order to fund what’s being called OnMyWay Commerce. In short, Mavi is a marketplace that connects drivers and offline stores that could help consumers save time and consolidate trips. Convenience stores, fast food and fast casual restaurants can then drop items in your car on the way home.
My good friend Cynthia Hollen is the CEO, so I’m happy to see the company launch successfully with partners like BurgerFI and Harman Audio.
Congrats, Cynthia!
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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 show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.