March 6th, 2023: Target’s cautious earnings, ThredUp’s apparel resale store, BigCommerce releases earnings, and Amazon closes more warehouses
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It’s March 6, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Target Releases Cautious Earnings and Outlook
ThredUp Launches Apparel Resale Store
BigCommerce Releases Earnings and Trims Costs
Amazon Closes More Warehouses
- and finally, The Investor Minute, which contains 5 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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BUT FIRST in our shopping cart full of news….
Target Releases Cautious Earnings and Outlook
I have been a big Target booster over the years on this podcast and LinkedIn as the company’s store-based fulfillment and great merchandising team have been huge assets for the company in the last 10 years.
Well, Target has come crashing down to earth in the past year and in the words of James Carville, “It’s the economy, stupid.”
What are the factors working against Target, as opposed to someone like Walmart?
While Target does have exposure to many categories, Walmart has just as many.
The most notable factor working against Target is its reputation as being slightly up-market of Walmart, and not practicing everyday value pricing.
As consumers have reprioritized spending with persistent grocery inflation, this is squeezing many discretionary mass merchandise categories that Target has exposure to.
Target also has been used to net operating margins in the 6 to 8% range, whereas Walmart typically plays in the 4 to 5% range and is used to thinner margins. This means that any extra discounting and markdowns has a huge impact on Target’s cash flow relative to a normal quarter.
This is another way of saying that while Target traffic to their stores remains steady, the company has done this only with the help of heavy markdowns and discounts, particularly in Q4.
In summary, while Target is still a great retailer with great merchandise, the big problem is that no one seems to want the merchandise in this inflationary economy.
Here are a few highlights and Walmart comparables:
* Target’s Q4 comparable store sales grew only 0.7%, whereas Walmart came in here at about 8.3%.
* In Q4, Walmart’s digital sales declined 3.6%, whereas Walmart ran away with about 17% eCommerce sales growth in the United States in Q4 of last year.
* The Target Plus Marketplace is missing in action, and I have been really trying to figure out why. Ultimately, where I come down in this is that it’s difficult to make a material difference at a scaled retailer with a curated marketplace strategy. At Target’s size, it needs to go big or go home. While a few merchants have enjoyed outsized success on Target, the initiative has been underwhelming. I’m almost wondering if the answer is to shutter this marketplace rather than invest to come back.
* In Q4, Target’s operating income was down 44% year over year.
* Target’s gross margin came in at 23%, compared with 26% in 2021 caused by an array of challenges including clearance, markdown, and inventory shrink.
* In some bright news, inventory at the end of the quarter was 3%lower than in 2021, despite an increase in early receipts compared with last year. Target reported that inventory was 13% lower in discretionary categories, balanced by more inventory in higher frequency categories.
As far as outlook, it doesn’t sound better. Here are some of the words that Target’s management team used to talk about 2023: “very challenging environment,” “conservative approach,” and “cautious outlook.”
As I have said before, it’s not like Target’s management team is getting worse by the day. It’s just that the economy is tough to manage when you rely primarily on first-party inventory and guessing right with forecasting. Retailers in discretionary categories need discounts to keep customers walking in the door right now, and Target is no exception.
Target is also hurt somewhat by not having a scaled marketplace and ads business to contribute basis points back to their net operating margin. Walmart has a growing marketplace and ads business that makes it easier for them to hold the line on their profitability.
[References:]
Our Second Story
ThredUp Launches Apparel Resale Store
Melissa Daniels from Modern Retail has reported on the recent opening of an apparel resale store by ThredUp, which has not yet been officially announced.
The site’s name is 777Thrift and contains a second-hand shop filled with items all priced $7 and under. Incidentally, the shop is powered by Shopify on the back-end.
The types of merchandise included in the store include items for Women, Boys, and Girls, and some interesting brands including Loft, Zara, Old Navy, JCrew, Banana Republic and American Eagle.
Does anyone wonder what these brands think about their clothing being offered for less than $7? Maybe that’s why the site hasn’t been announced yet.
Perhaps ThredUp won’t appreciate its thrift site launch being broadcast on a popular eCommerce podcast to all the Watsonians!
Of course, I do imagine that this Thredup thrift site could be an outlet for these brands that are likely facing huge overstock situations, and is an alternative to off-price retailers like TJ Maxx.
I can imagine that kids’ clothes could be the most interesting part of this because most parents think their kids either destroy their clothing or get minimal wear out of certain pieces.
[References:]
Our Third Story
BigCommerce Releases Earnings and Trims Costs
BigCommerce released its Q4 and full year 2022 earnings, and it definitely seems like a company that has gotten the message on profitability as it not only recently pared back on its staff in Q4 of last year, it also has fairly limited hiring plans going forward.
In terms of the eCommerce race between BIgCommerce and Shopify, well, let’s just say it’s not really a race. The two companies are not in the same market.
Shopify has traditionally focused on much smaller brands, and has recently decided to take its platform up-market by releasing Commerce Components for Shopify. Not to mention, that most of Shopify’s growth is actually from Merchant Services, not subscriptions. The bulk of Merchant Services revenue likely comes from payments in one form or another.
BigCommerce, on the other hand, is managed like a traditional SaaS company, which says it is going after Enterprise merchants, but its average yearly contract value of around $38,000 does not suggest Enterprise software. In any event, BigCommerce’s open message is also under attack from Shopify, which is starting to allow more customization than it had previously — that is, as long as you don’t want to replace Shop Pay and Checkout.
In terms of Q4 for BigCommerce:
* Total revenue is up 12% year over year, with a gross margin of 74%.
* The company’s GAAP operating loss was $34.7 million, compared to $33.8 million in the fourth quarter of 2021. So operating loss is flat on revenue growth which is good, especially when you realize that expenses were cut during Q4 as part of layoffs, which should narrow losses in 2023.
For Full Year 2022:
* Total revenue was $279.1 million, or 27%.
* At the same time, BigCommerce’s total Annual Recurring Revenue was up 16% to $311 million, which is about one-fourth of Shopify’s Annual Recurring Revenue of $1.3 billion.
For 2023, BigCommerce is definitely planning to move up its profitability to the end of the year, but its growth will decelerate from 27% last year to about 8% this year.
What worries analysts, I’m sure, is that the company is predicting modest order and GMV deceleration this year, which is not a great trend for the company, but also should give the rest of us some pause on our current economic climate.
[References:]
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And Our Last Story
Amazon Closing More Warehouses
RetailDive recently reported on some MWPVL data showing that Amazon is not done cutting its fulfillment costs in 2023, which is also evidenced by the fact that Amazon Stores CEO Doug Herrington identified reducing costs as one of the company’s top priorities.
Here’s what’s going on:
Amazon has deferred or canceled at least 99 facilities. Of course Amazon disputes these numbers somewhat, but it’s a good baseline to watch regardless.
An Amazon spokesperson didn’t disagree that these closures and delays were happening, though, which does lend credence to the report.
Given that the analyst firm MWPVL tracks about 2,300 facilities in the world, and over 1,200 in the United States, only 99 facilities would not be a significant percentage of the entire network even if these numbers are accurate.
Overall, this information does give us some insight into Amazon’s moves, however, and it’s useful to keep an eye on Amazon’s cost-cutting trends, which have included extensive and escalating layoffs, canceling UK distributor relationships, and continued delay or cancellation of their fulfillment center commitments.
Given Amazon’s most recent earnings call, cost-cutting needs to remain a priority for Amazon to get its costs in line with its current revenue growth.
[References:]
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Hey Watsonians, this is Rick. If you’re looking to discuss eCommerce topics with other listeners, you can find it all at the RMW Commerce Community. There, you’ll find a trusted group of fans just like you who are passionate learners of eCommerce. So don’t delay, just visit community.rmwcommerce.com to sign up for free.
It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Scan Global Logistics was bought by CVC Capital Partners.
The Danish firm Scan Global Logistics provides multi-modal transport services including ocean, air, and rail across the globe, and is a competitor to Maersk and others. CVC Capital Partners acquired the share which was previously owned by another private equity firm AEA, valuing the company at $1.5 billion.
Link: https://theloadstar.com/top-pe-investor-buys-up-majority-of-ambitious-scan-global-logistics/
Second
Logistics technology provider Descartes acquired final mile carrier solution GroundCloud.
Descartes has been acquisitive in the market recently and is taking GroundCloud off the table for $138 million in cash, and another earn-out on top of that. This sounds like a pretty great exit for GroundCloud.
GroundCloud provides safety, compliance, and transportation software for final mile providers.
Third
Payments software provider Ledge raised an $8 million seed round.
The funding was led by NEA.
Ledge is providing payments visibility and reconciliation for all types of businesses that accept payments, and is built for finance teams. I have to say, this kind of visibility and reconciliation to bank accounts is badly needed, so I can see why there is investor interest.
Link: https://www.calcalistech.com/ctechnews/article/h1o1i5sts
Fourth
Amazon led a $20 million investment round in Superplastic, a company creating synthetic celebrities.
What’s a synthetic celebrity, you ask? Almost like a comic-book character that exists only in social media videos.
I can imagine this will be a big overlap with Amazon’s Twitch audience, but the company also mentioned a tie-in with Whole Foods, which my brain cannot even comprehend.
AND FINALLY …
Smartrr (S-M-A-R-T-R-R) raised $10 million to improve the customer experience for eCommerce subscriptions.
The company works with Shopify brands and unlike other subscription providers, does not just initially setup a subscription, but also allows consumers to manage the subscription after the sale.
Subscription software is a crowded space dominated by Recharge at the low-end, as well as Order Groove, so it will be interesting to see how they progress.
Link: https://techcrunch.com/2023/02/15/smartrr-e-commerce-subscriptions-series-a/
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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.