May 27th, 2024: Target earnings indicate big trouble, Macy’s provides preview into restructuring, Salesforce unveils new Einstein features, and Walmart earnings stand out
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s May 27, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Target Earnings Indicate Big Trouble
Macy’s Provides Preview Into Restructuring
Salesforce Unveils New Einstein Features
Walmart Earnings Stand Out
- 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 Earnings Indicate Big Trouble
Management Team Has Overstayed Their Welcome
Target is truly missing that “easy money” consumer.
You knew when Target dropped the price on 1,500 items 2 days before earnings that bad news was coming. Now bad news has arrived. You know how bad when Target is still comparing its comp sales to 2019. Most retailers stopped doing that two years ago.
Here is the story from Walmart and Target:
* On price cuts:
- Walmart: rollbacks all the time, and everyday low prices.
- Target: 1,500 price cuts now, thousands more this summer.
Why so slow? This is a five alarm fire 👩🚒 🔥 🚒
* On eCommerce:
- Walmart: Up 22% y/y
- Target: Up 1.4%
Houston, we have a problem. Our digital formula is broken.
* Overall sales trends:
- Walmart: Up 3.8%
- Target: Down 3.8%
Can you say, share losses? If this pace continues, Target becomes a specialty retailer.
* On discretionary items:
- Walmart: Home and general merchandise items are growing 20% y/y in our marketplace.
- Target: Discretionary is soft.
* On grocery:
- Walmart: Consumers are eating out less, even at McDonald’s and we are seeing more consumers buying groceries.
- Target: Consumers are buying fewer groceries.
What they mean is "fewer of our groceries".
In summary, why is Walmart winning right now? Greater assortment, lower prices. In short, you cannot private label brand your way out of this, i.e. Target’s “dealworthy”.
In the past, Target could get away with carrying national brands, and introduce a number of unique and interesting own brands which were innovative and atypical. It’s not clear the consumer is supporting this.
What’s worse, what does this say about Target’s cost structure? When you walk into the average grocery store, the house brand is simply a knockoff made in the same factory. Target goes beyond, but that costs.
To the extent the consumer does not support this extra cost, this means that Target is carrying an unsustainable cost structure relative to its peers. Layoffs would not be surprising to see in its brand organizations get consolidated and streamlined.
Target is not easily distracted, but the other side of this coin is that it takes a while to move. High cost structure, and slow changes is a formula for decline.
Bright spots:
* 1M Target Circle members added in the quarter.
* Beauty is a “standout” with low single digits growth. Yeah, it’s fucking bad.
* Roundel is the fastest growing business. It’s about time.
Dark spots:
* Have you been reading?
* Continued rise of drive-up sales actually hurts their stores. This is really digital sales and I’d love to hear the basket size of these orders vs stores, and typical digital orders.
In summary, it’s not good. My view is that management has vastly overstayed their welcome and is ill-equipped to adapt quickly enough to the new world . When Jeff Bezos went out, it’s possible Brian Cornell should have done the same.
This company is simply too damn slow.
[References:]
Our Second Story
Macy’s Provides Preview Into Restructuring
Daphne Howland at RetailDive covered the recent Macy’s investor calls and earnings and I thought I would provide an update on their transformation.
Recall that Macy’s is closing 150 of over 500 stores due to lagging performance which is a big chunk.
Here are a few takeaways.
Macy’s has started breaking out their earnings between stores that they are keeping, and stores they are shutting down. But even the go-forward stores are not great.
* Same-store comps are up only 0.1%
* Net income dropped 60%
What’s worrisome to me is that they are starting to highlight how great their top 50 stores are as opposed to all their 350 stores. Which seems to me that there may be a lot more dead weight to cut from their store inventory than they are letting on.
Just to give you some idea, the net promoter score at the top stores are only 500 basis points better than the average of all the stores. It would seem to me that until they figure out how to make a much more dramatic impact on customer satisfaction which results in growth, they should not yet invest in overhauling all the remaining stores?
From where I sit, it looks like Macy’s still needs a new formula. A growth strategy needs a growth plan to work. Cutting stores is not a growth plan
[References:]
Our Third Story
Salesforce Unveils New Einstein Features
Salesforce has released a few new AI-related features and copilots to its functionality. Let me summarize the message that Salesforce is sending the market. They are telling existing customers to please renew your 3-year subscription next time it comes up.
It’s not clear to me that these features are attracting anyone new.
Here are a few items I picked up:
* Einstein Copilot for Marketing to simplify the campaign creation process, because no one could eer figure it out before.
* Einstein Copilot for Merchants allows you to streamline promotion setup and personalize promotions. Really? We are just now talking about personalization? What modern eCommerce merchant does not already have a personalization solution?
The most interesting point I heard was regarding Data Cloud for Commerce. This product unifies customer journey data with product, inventory and transactional information that can then be used to power experiences. While some customers have been building CDP solutions, these have not seen wide adoption to this point. The challenge will be, how easy is this solution to adopt and if you adopt it, it will just further bury you into the Salesforce ecosystem rather than giving yourself flexibility to pick any vendor for this function.
Other than Data Cloud, a lot of this sounds like GPT-washing for me. And if you are a vendor in a similar situation that is considering adopting a strategy like this, let me warn you directly. it’s not going to work.
It’s much better to spend the time streamlining your user interface so it’s easier to understand in the first place.
And for my final take, Salesforce is going to need much more than a cute Einstein character to take share in a competitive eCommerce platform market
[References:]
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And Our Last Story
Walmart Earnings Stand Out
Walmart reporting Q1 FY2025 earnings and in doing so, flexed on the market. Overall their message over the past year has been consistent: grow operating income faster than earnings.
Their performance and forward guidance reflected this as well.
Quarterly results:
* Comparable store sales up 3.8%
* Consolidated operating income grew 12.9% constant currency
* Strong eCommerce growth of 22% (pretty much best in class)
Here are a few takeaways:
* one-third of operating income improvement came from newer businesses: ads, membership, data. Walmart+ Membership grew double-digits.
* these new business opportunities are 12% net margin, 3x normal business.
* 40% reduction in ecommerce losses y/y. likely due to fulfillment / ship from store improvements mostly, but also ad revenue, etc.
* Marketplace 36% more sellers on platform y/y, with 28% using walmart fulfillment services.
* 50% of Walmart advertiser growth came from Marketplace sellers. (!!)
Pay to play coming to a new marketplace near you.
* Marketplace sales in furniture, sporting goods, kids apparel, and home grew more than 20%.
Full year guidance:
* projecting 5% top-line growth and 8% operating income growth. should be at higher end or (likely) above full year guidance.
Here are some lessons for everyone from Walmart’s performance in the past few years.
* If you are going to invest, prefer to invest in higher margin activities than your current business. Advertising, Memberships, Data are all higher margin activities. Too many companies I see their second and third products are lower margins than their original ones. The marginal use of your employee's time diminishes this way, and it's often a road to abandoning those plans: see Facebook and eCommerce, Shopify and logistics. Even Klaviyo and SMS has me worried about their margin profile -- even if they "win" they lose.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Freight Orchestration and Procurement Platform GoodShip Secures $8M Series A
Freight network orchestration and procurement platform GoodShip has raised $8M in a Series A funding round. The new funding will be utilized to hire, invest in technology, and support current customers. Is funding supply chain startups cool again?
Second
Insurance Distribution Platform Cover Genius Raises $80M in Series E Funding
Insurance distribution platform Cover Genius has raised $80M in a Series E funding round. The new funding will be invested in marketing and technology to enable e-commerce companies to protect their customers. Some of their customers include eBay and Amazon.
Link: https://finance.yahoo.com/news/cover-genius-closes-80m-funding-115710752.html
Third
Customer Experience Platform Gorgias Raises $29M In Series C-2 Funding
Customer experience platform Gorgias has raised $29M in Series C-2 funding, which will be used to invest in its technology, especially its AI suite.
Link: https://www.finsmes.com/2024/05/gorgias-raises-29m-in-new-funding.html
Fourth
Retail Planning Platform Invent Analytics Raises $17M In Series B Funding
Retail planning platform Invent Analytics raised $17M in Series B funding to invest in its technology and partnerships and hire additional talent. Forecasting is another sector that AI will impact, right?
Link: https://finance.yahoo.com/news/invent-analytics-raises-17m-help-123000412.html
AND FINALLY …
E-commerce Agency Color More Lines Announces Merger with The Master Agency
E-commerce agency Color More Lines has merged with The Master Agency, an Amazon agency. What is a relatively new practice in e-commerce - agency roll-ups. Yes, I said it.
Today’s final word for the week of May 27th is Simplify:
I’ve been spending a lot of times speaking with very large retailers about what their business needs to do to transform. Each one of them is in a declining business. Each of them is saddled with a platform chosen over 15 years ago.
I see some of these retailers choosing to replace a monolithic complex platform they can no longer innovate on with a composable complex platform that they can not afford.
Let this be a reminder to everyone. If your transformation is just a technology exercise, then you are going to overspend in tech and underinvest in your consumer. Any transformation must begin instead with what customer you are serving, and how you can serve them better. Not just with different technology.
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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.
