May 20th, 2024: Amazon AWS CEO to step down, Home Depot earnings disappoint, Shein rejected from NRF membership, and Shopify acquires Peel Analytics founders
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s May 20, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon AWS CEO to Step Down
Home Depot Earnings Disappoint
Shein Rejected from NRF Membership
Shopify Acquires Peel Analytics Founders
- 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….
Amazon AWS CEO to Step Down
Big news in the Amazon universe this last week as the CEO of Amazon Web Services Adam Selipsky stepped down. Recall that Adam went to Salesforce and then was recruited back to Amazon by Andy Jassy after becoming CEO.
The new AWS CEO is Matt Garman, who has been on the Sales side of AWS for several years, but also possesses a Product Management background, something that should make PMs across the world feel good about themselves.
There is a term in the Amazon employee universe called an “Amazon athlete” and once you hear it, you start to understand Amazon’s mentality. Amazon attracts a certain type of builder employee that likes solving problems. Engineers don’t run the company, general purpose businesspeople run Amazon - much in the original mold of Jeff Bezos who himself was not an engineer.
Matt Garman’s tenure at AWS comes at a turbulent time. While AWS has improved its growth trajectory year over year after lean times and customer cutbacks in 2023, the Artificial Intelligence space is still very much up for grabs. Microsoft and OpenAI have a distinct advantage, and while Amazon has set its three-layer AI architecture strategy, it has also placed a key bet in Anthropic.
The new few years will determine if Amazon is the odd-company out of the AI race, or one of the leaders.
[References:]
Our Second Story
Home Depot Earnings Disappoint
Home Depot missing their revenue is not news - the home sector is down and has been for over a year. Most times I don't listen to earnings calls for the backward-looking stuff, but instead I look for the forward-looking.
In this case, Home Depot recently announced that it would acquire SRS Distribution for $18B - the largest acquisition in its history - to tackle the home professionals market.
I saw it as a way to diversify away from consumers further. But management has revealed more -- the company is doubling down within certain niches of professionals. The lessons in this call apply to a wide array of businesses right now.
All this reflects the changing of retail. In the past, retailers could rely on private label credit cards and extended warranties to make an extra buck. While these days are not gone, top retailers need various alternative monetization tactics - often in addition to a private label card.
Here are some of them:
Amazon: Subscription membership, AWS, Advertising, Third-Party Seller Fees, Fulfillment
Walmart: See above (replace Prime with Walmart+) ^^
Target: Advertising, Experimenting with Selling Own Brands in Other Retailers
Costco: Subscription membership
Home Depot needed more. Like Lowes, they will have ads and recently announced the Orange Apron Media network. Moving further up the supply chain into fulfillment, distribution, and complex projectds follows similar investments in HD Supply, so this is not HD's first rodeo.
A few points I heard on the call:
* With SRS, Home Depot is niching down - pool contractor, roofer, and landscaping - seems like lucrative segments and reasons someone uses Home Depot.
* Gives Home Depot a way to serve the complex project occasion with a specialty trade pro customers.
* Any kind of project that needs financing - e.g., kitchen/bath remodels - are under pressure.
* The company has seen positive comps where they have been investing in supply chain teams.
* These complex pro capabilities will go from 17 markets by end of year to about 40 markets in the near future.
* Consumers are either not doing projects or deferring projects due to interest rates and inflation pressures. Even higher income consumers think rates might come down, which contributes to deferral.
* Addressing this market is not just about creating distribution centers. The marketing to professionals and attracting and serving those customers. Shows that Home Depot is not just in a "build it and they will come" mode. Goto-market motion is important when trying to gain share of wallet in a new market segment.
Here is another way to think about this. How does Home Depot survive the twin onslaught of Amazon and Walmart? De-emphasize the consumer market and start serving the professional. But not just any professional - get very specific and think about their entire value chain.
I feel this thinking could apply to a lot of different businesses.
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Our Third Story
Shein Rejected from NRF Membership
A new report out of CNBC made me look 👀 , sit up and take notice. Shein is working hard to become a member of the NRF. Apparently this is the new legitimacy standard for lawmakers. Good news for US retailers, the NRF has rejected this so far.
Perhaps this could be the key for dodging regulation, a wished-for IPO in the United States, and who knows what else. A veneer of legitimacy, perhaps.
Shein has been on a mission of plausible deniability and reputation-washing:
- issuing "good-sounding" statements about its supplier practices
- setting up warehouses in the United States.
- investing in SPARC Group, the operating arm of one of the largest IP licensing firms in the world
But I have a lot of questions, and not a lot of answers here. Not because I think Shein should or should not be let in (it seems like a very bad idea), but because the standards do not seem clear at all and the worry is -- what is the criteria that could be used to keep them out?
In a world where over half of Amazon units are likely driven by Chinese suppliers, where I am sure most of them are likely legitimate, the question is truly, what are the standards?
I have a set of questions for what Amazon knows about its Chinese suppliers (and supplies generally):
* What does Amazon know their labor practices?
* What does Amazon knows about their safety records?
* If the product had a poor safety record, what responsibility would Amazon take for it?
In short, in an era where Amazon is appearing on stage at NRF and in the official rollout of NRF reports, what is the difference? This is the company that taught the US about 3P Chinese brands under an Amazon legitimacy umbrella. Something that Shein and Temu have just taken one step further.
What exactly is different if Shein is a part-owner of SPARC Group?
Regarding Section 321 and duties/taxes:
If the worry is deminimis, how much duties and taxes are enough to pay to qualify?
What about the US companies who every day use these same rules for survival?
Is the concern an absolute number of duties, or a relative amount to the total number of imports?
Either way, outlining the criteria may just be a matter of holding back the tides. What standard could they not meet?
We did a whole show on this on the Watson Weekend.
Let's put the NRF to the side for a second, what should the standard for a US listing be?
Many other countries require joint ventures (including India/China) with a home country to operate within that country. Is that enough? Wouldn't the SPARC Group just IPO in that case instead, or they would just create another entity?
Wouldn't Shein easily be able to climb any wall put up?
As my friend Nick Kaplan said earlier on the Watson Weekend, when you go to the Shein Compliance office, when you get there on the door it says "compliance / marketing."
Apparently this compliance / marketing group is in full effect.
[References:]
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And Our Last Story
Shopify Acquires Peel Analytics Founders
If you missed it, Shopify made another acquisition in the last few months that is just starting to get some light shed on it. The company is called Peel Analytics, and it fits the mold of many of Shopify's smaller acquisition - it is a capability that it wishes to see in its platform. And if you look more closely, a few things happened at the same time. Shopify did an acqui-hire of the Peel Analytics employees, and the Peel Analytics software itself was acquired by a company called Relay Commerce.
First, let me get this out of the way. The fact that this software sold to a SaaS aggregator I had never heard of was probably not great for the standalone Peel Analytics business, and this was a Shopify rescue-type situation.
Overall, I do think that these capabilities reflect a larger shift in DTC. From customer file growth to customer file optimization and activation.
Although Shopify did not acquire the software, I do still think you will gain something by looking at a few of the capabilities that Peel Analytics provided for its customers:
* Filtering out any messy or junk data in-platform rather than off-platform
* Creating segmented audiences group (repeat purchasers, SKU and region filters), which then interface with Klaviyo and Attentive.
* Cohort reporting out of the box, in particular with regards to behavior of customers acquired via influencer discounts.
* Customizable reports including LTV calculations, CAC, LTV to CAC, returning orders and customers
While Klaviyo is building a CDP, I expect that Shopify feels these Audience features will be a standard part of DTC going forward, and so should not erode much from where Klaviyo is headed.
Also the elevation of Customers as a key concept within Shopify seems like one of their plans. Similar to the way Shopify has wanted to be the home of all checkouts and orders, I expect Shopify has started to feel that customer segmentation and analysis should happen on-platform rather off.
Who is to worry?
I don't think Shopify App Store companies have too much to worry about generally.
On the other hand, some reporting-centric companies like Daasity, Triplewhale, or Glew will likely have to move further up-market to continue to compete. The "Shopify reporting" space has gotten over-crowded in the last few years which is likely one of Shopify's signals that the base platform needed upgrades. I do think some of the lower-end subscription platforms could end up in the crosshairs also.
This is all assuming that Shopify actually applies the Peel team to reporting and analytics challenges.
How might this shape Shopify's Platform?
I think how this affects Shopify is somewhat unknown. If I had to pick an acquisition that this is most like, it would be something like Handshake was for B2B. The company got Glen Coates one of their product leaders in this acquisition, but nothing like the original Handshake product ever appeared in the Shopify platform, and to be honest after that acquisition Shopify seemed to ignore B2B for several years from my point of view.
It remains to be seen what happens here. The Peel Analytics CEO is now a Director of Product at Shopify. If Shopify’s technology infrastructure that these new product teams can paint new solutions, it could be good for Shopify. If analytics is ignored, then we will continue to wonder what’s going on
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
B2B Food Distribution Platform Pepper Raises $30M Series B
Pepper, a B2B e-commerce platform for small food distributors, has raised $30M in a Series B funding round. It operates in a competitive sector without a market leader as it gains momentum to even the playing field against Sysco and US Foods.
Link: https://techcrunch.com/2024/05/13/pepper-iconiq-startup-foodservice-ecommerce-30m/
Second
Squarespace to Go Private in $6.9B Private Equity Deal
Global Private Equity fund Permira has acquired website building and hosting platform Squarespace for $44 per share to take the company private. Is going private a growing trend? Yes, it is my friends.
Link: https://www.cnbc.com/2024/05/13/squarespace-to-go-private-in-7-billion-private-equity-deal.html
Third
Ted Baker's North American Bankruptcy Due to Overseas Failures
British apparel brand Ted Baker's North American bankruptcies were due to Authentic Brands Group's European operating partners' failure to pay suppliers. The global village has implications.
Link: https://www.retaildive.com/news/ted-baker-north-america-authentic-bankruptcy/715222/
Fourth
Atlan Raises $105M in Fundraising to Power Data and AI Governance
Atlan’s Series C is designed to further its mission of becoming a central nervous system for Data and AI. Really? Central nervous system? But seriously, Atlan has identified that a lot of corporate data is not ready for AI, and no platform enriches it with enough context and allows corporations to control what data is used in AI models or not.
Link: https://atlan.com/atlan-raises-105m-funding
AND FINALLY …
Swap Secures $9 Million of Funding to Launch its Global Product Offering
Swap’s offering allows companies to manage their Shopify operations tasks in one platform rather than through several disparate platforms. Has this not been done like 3k times?
Today’s final word for the week of May 20th 2024 is Temu.
There are reports that the high-flying Chinese marketplace Temu has started to cool on the US market after seeing the difficulty Shein is facing with its IPO plans, as well as the regulatory issues faced by Tiktok. The math looks like it is not in their favor as well. If Temu slows its US ad spending and looks for growth opportunities in other markets, it may find itself on the short end of the stick. The US remains the most robust market in the world and the company may find itself having wasted all those Superbowl advertising dollars with not much less to show for it but some half-broken merchandise and regulatory concerns.
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Did you know that RMW Commerce has a brand new podcast? Check out The Watson Weekend for an unfiltered and lively eCommerce chat each week with me, Rick Watson, my co-host Jess Lesesky, and an array of interesting guests and topics. All focused on eCommerce. You can find the Watson Weekend by searching for it on iTunes, Spotify, or Youtube.
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.
