May 1st, 2023: Bed Bath & Beyond, UPS Q1 earnings, Amazon’s anti-counterfeit exchange, and Shopify’s bill-pay service
It’s May 1, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Bed Bath & Beyond Bankruptcy
UPS Q1 Earnings Call Results
Amazon’s New Anti-Counterfeit Exchange
Shopify Announces a Bill Pay Service
- and finally, The Investor Minute, which contains 7 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….
Bed Bath & Beyond Files for Bankruptcy
It looks like the inevitable has finally happened, Bed Bath & Beyond has filed for bankruptcy.
Here we have a tale of a group of activist investors who wanted to take over a company and found out that operating a company isn’t as easy as it looks.
CEO Mark Tritton's turnaround was doomed from the beginning.
* First, the investors were focused on bringing in the right management team to execute a specific strategy -- private-label brands -- rather than learning how to reinvent the firm without shocking the system.
Incidentally, I almost consider the fact that the company’s Buy Buy Baby brand was never part of the reinvention plan to be criminal negligence.
* Next, management never experimented enough to build a "scalable concept" which could then be used to retrofit the rest of their store fleet. They came in with the answer already filled in by investors.
* Share buybacks likely didn't help them either. A Yahoo News report mentioned that $11.7 billion in cash was spent to buy back the company's own stock. Talk about manipulation and paying yourself bonuses.
Think they miss that $11.7 billion now? Vendors are only owed about $17 million, for example. Smells like a lawsuit.
* Of course, even prior to the pandemic It was probably too late for its online business when new leadership took over. You're not going to compete with Amazon, Walmart and Target, which are all much stronger than they were 10 years ago, which means for online profitability to work you need to leverage your stores.
Investors would never give them time to execute on this. Plenty of experts marveled at Mark Tritton's team of Retail Avengers, and indeed it would have been a remarkable feat to pull off. There’s a reason turnarounds are so difficult.
Finally, the number one reason I didn't ever think this turnaround was going to work was simple: humility.
I listened to plenty of interviews with the management team and never heard one simple admission: "We're not sure of the best customer segment to focus on. That is job one. Once we discover that, we will ramp up our resource investments." If I had heard that, I would have known the team was willing to tell the investors it was wrong in its thesis, and was going to find its own path to success.
Instead, what we have here is just another example of using other people's money to fund a boondoggle adventure, proving it isn't just venture capital that can waste time and resources chasing a bad concept.
If you’re wondering what I would have done in this situation, it’s pretty simple. I think Bed Bath & Beyond neglected to realize that the Home category didn’t need a retail store-based categorykiller with the rise of Amazon online.
I would have gone in between Bed Bath & Beyond and Buy Buy Baby... How’s this name for you: Bed Bath & Baby .
Between those two assets, you can make one great retailer if you narrow the focus.
How many of you realized that Bed Bath was still operating a brand called Christmas Tree Shops? I would shut down all their ancillary brands like Harmon Face Value and Cost Plus World Market.
As far as a customer focus, to me the key is to focus on the needs of growing families above all. These consumers value convenience, time savings, trust and curation. If you can’t service these needs as a store retailer, you don’t deserve to exist.
Bed Bath should have skipped the cheap college student market altogether, because you can't “outcheap” the discounters and trying to serve them ruins the brand for everyone else.
If the company would have shrunk down to fit this concept, I think it would have had a chance.
[References:]
Our Second Story
UPS 2023 Earnings Outlook Shows Conservative Planning the Only Choice in this Market
The first earnings of 2023 are upon us, and they does not seem great for eCommerce and supply chain.
First the good news: UPS had a solid forecast range for 2023. A bull case with flat average daily volumes, and a bear case with approximately 5% average daily volume declines forecasted.
Now the bad news:
It’s the bears that have it and the company’s guidance for 2023 has reaffirmed that the more negative outlook for the year is the one that investors should go with. As supply chain watchers know, it’s a volume business. Declining volumes provide less operating leverage to clear the fixed costs of running the business — meaning you lose operating margin just by watching volume decline.
UPS appears to be in the mode of “let’s not dismantle what we have,” which reminds me more of Target’s approach right now. Both firms are not going to make any rash actions in the face of economic softness.
FedEx is taking a different approach because it has been slow to transform, and it’s turning out that 2023 is not a bad year to transform its network into something that better meets the needs of the market.
As far as the numbers, the company achieved $22.9 billion in revenue, down 6% year over year. That doesn’t sound so bad until you learn that consolidated operating profit was down 21.8% year over year to $2.5 billion.
Profit declining faster than revenue is declining is the opposite of what you want to see. Remember Walmart’s earnings? Profit rising faster than revenue. That is the formula for 2023.
The US domestic business revenue was slightly off – down 0.9% year over year, with a 9.8% net operating margin, compared to 11% last year at this time.
This revenue reduction was driven by a 5.4% decrease in average daily volume, which was nearly offset by a 4.8% increase in revenue per piece.
For 2023, UPS expects full-year revenue guidance to be at the low-end of its previous guidance. 2023 full-year financial targets are:
Consolidated revenue of around $97.0 billion
Consolidated adjusted operating margin of around 12.8%
Capital expenditures of approximately $5.3 billion
Look, UPS is still a profitable business. Itsapproach is solid and the company can afford to wait it out. That doesn't describe many other companies that took too much free money in the last few years, however.
"Control what you can control" is a good motto, as long as things don't stay like this indefinitely.
[References:]
Our Third Story
Amazon Anti-Counterfeiting Exchange Necessary But Not Sufficient
Since there were marketplaces, there have been counterfeiters and thieves trying to make a quick buck from them due to the liquidity they enable.
Recently Amazon launched an Anti-Counterfeiting Exchange (ACX) in order to help share information between brands, retailers, and distributors on counterfeiters acting in the marketplace across multiple players. The hope is that through coordinated information sharing, more patterns can emerge and counterfeit actors that might have been in the shadows before can be taken down more quickly.
Look, anyone who has sold on Amazon for more than 5 minutes realizes there is counterfeit, fraudulent, and stolen merchandise in every category.
In fairness, Amazon does take things down but it can be extremely painful at best and "too little too late" at worst. There are also times when Amazon can't win because a competitor reports you as counterfeit and a legitimate business gets taken down. False positives can be almost as bad as false negatives.
Ultimately, retail theft and counterfeiting is not new. That said, with the ease and automation of online, it's turbocharged. An endless game of whack-a-mole where there are millions of fraudsters and only the algorithms to learn patterns to keep up. (Humans play a part, but can only do so much at the scale we are at.)
The cynical read on the situation says that Amazon got the memo when the Department of Homeland Security said in 2020 that private industry needs to do more about counterfeiters. Better to get ahead of the Federal Government targeting Amazon in its crosshairs for enabling counterfeiters without established leadership in industry-wide information sharing. Although, it follows the launch of the Counterfeit Crimes Unit at Amazon in the past few years -- Amazon does these programs to get ahead of the legal and PR narrative. No question.
The positive read is what else are we going to do? Better to eliminate the information silos than not; the industry could use a place to start; and the information will help Amazon.
This Exchange is the 2.0 version of the Counterfeit Crimes Unit and reads to me almost like a "tipster" line for that unit as well. How do we get faster at this? More data, more inputs, better pattern-matching, better results.
Every brand has a reason to partner with Amazon on this program, simply because Amazon is the most liquid market: your goods will end up there, period.
From a brand-owner point of view, here's hoping this is helpful.
[References:]
[PAUSE]
And Our Last Story
Shopify Announces a Bill Pay Service
Shopify, the company that uses its eCommerce platform as a hook for its payment and financial services, continues its march into financial services with the launch of a new Bill Pay Service.
It did not develop this service from scratch; it is actually partnering with third-party provider Melio. Incidentally, this is the same provider that Intuit is using for its service.
Essentially, Shopify is reselling Melio’s services here and trying to make it easier for its merchants to pay their business bills directly in the Shopify administrator interface, without leaving Shopify. The new Bill Pay service is integrated with Shopify’s Balance product, which gives merchants a bird’s eye view of their finances and expenses.
Is it just me or has Shopify been leaping into Intuit’s territory recently? When was the last time you saw a press release around a new logistics capability, yet we see Shopify rolling out all manner of financial products.
Has Shopify forgotten it owns a fulfillment business?
I understand it’s easy to white-label third-party functionality, but this is not exactly innovation here.
Shopify’s trick will need to be how to unify all of these various services into a whole which will provide greater value than the sum of its parts.
How soon until Shopify launches an eCommerce-centric accounting application to compete head on with Quickbooks?
[References:]
[PAUSE]
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 this last week Miles Thomas and Vinny O’Brien were talking about World Pay’s Access Program for Digital Commerce, if you can help with that, you might want to check that out.
You can contribute to the conversation at community.rmwcommerce.com.
It’s That Time, Friends, for our Investor Minute. We have 7 items on the menu today.
First
Birdseye raised a pre-seed round to help brands generate reviews and referrals faster.
The pre-seed round is half a million dollars and the company is funded by Drive Capital. The company seems to have a wide-range of marketing solutions and is going after primarily the smal-l and medium-size business market, which is a crowded marketing space.
Second
eCommerce firm Boxed filed for bankruptcy.
Well, Watsonians, this is the opposite of what we normally cover here in our Investor Minute. Boxed started in 2013 as a kind of mobile wholesale club, but without a membership. The company raised more than $350 million dollars over its history, and pivoted into more than one business model. It just seems to me the company never fully understood who its customers were.
Third
L’Oréal acquired natural body care manufacturer Aesop for $2.5 billion.
Aesop is a hot brand, so this is probably going to be a good acquisition for L’Oréal. Aesop was founded in Australia and made its way worldwide. It has traditionally focused on plant and vegan formulas for its beauty products, so it will be interesting to see if that stays the same under the L’Oréal banner, or if that expands.
Fourth
Robotics warehouse automation provider Covariant raised a $75 million Series C.
The company supports picking for robots in warehouse applications. Some of these warehouse automation applications include robotic putwalls from bins, induction from bins, kitting, and depalletizing. I must say that the website videos for Covariant are amazing.
Fifth
Fanatics signed a deal to run the online stores of sports eCommerce firm EPI.
Fanatics is a specialist in the sports eCommerce market, and as part of this deal the company takes on running the online stores of AC Milan, Inter Milan, Fiorentina, and Bologna.
link: https://www.reuters.com/markets/deals/fanatics-bets-italian-soccer-with-epi-deal-2023-04-05/
Sixth
Workflow automation software Jitterbit acquired no-code development platform Zudy.
Jitterbit is a workflow automation tool that connects to various platforms like eCommerce, Human Resources and ERP. Zudy allows Jitterbit to move from a space that requires heavier integration to one that can streamline integrations with a low or no-code tool.
AND FINALLY …
eCommerce software aggregator Staytuned raised $34 million in mostly debt.
The company buys and owns different Shopify apps, and the funding is $9 million in venture capital and $24 million in debt that must be repaid. An aggregator taking on debt to run a software company is something I would worry about.
link: https://staytuned.digital/blog/staytuned-funding/
[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.
