May 29th, 2023: Walmart releases its Q1 2023 earnings, TJ Maxx earnings indicate acceleration, Takeaways from Paypal’s recent investor event, and Shopify’s road ahead
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s May 29, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Walmart Releases its Q1 2023 Earnings
TJ Maxx Earnings Indicate Acceleration
Takeaways from Paypal’s Recent Investor Event
Shopify’s Road Ahead
- and finally, The Investor Minute, which contains 5 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….
Walmart Releases its Q1 2023 Earnings
It’s been a crazy week, folks, and I will be the first to admit I didn’t give my usual Watsonian treatment to Walmart’s Q1 2023 Earnings call. As reported by RetailDive, here are a few highlights from you. If you listen to this program, you probably suspected that Walmart might produce better results than both Target and Amazon, and you would be correct in that suspicion.
First quarter revenue for the company was up almost 8% and operating income gained over 17%. Comparable sales were up 7.4% in the US. Recall that Target comparable sales were literally flat, so the fact that Walmart is so strange is really a special kind of performance here.
In another strong point for Walmart, its advertising business showed stunning growth of 40% which is also contributing to the growth in Walmart’s operating income. Keep in mind that Amazon’s own ad growth was only about 23% off a much larger base, and Target’s ad growth is suspected to be in the 10% range on a much smaller base.
This is what you expect to see of a strong and growing advertising program from Walmart: faster growth than Amazon over the next couple of years.
One note I got out of the call was that Walmart recently moved its advertising exchange to a second-price auction capability which you would think would reduce Walmart’s advertising revenue when in fact it makes things more efficient from advertisers, allowing them to scale their spend more as they achieve greater ROI for the same ad spend.
In this economy, Walmart continues to move from strength to strength. The big question will be as the economy settles back down in 2024, will this momentum continue for Walmart or will the company revert back to its previous mean?
[References:]
Our Second Story
TJ Maxx Earnings Indicate Acceleration
As another signal of a flight away from higher-priced goods, TJ Maxx reported a banger of an earnings in Q1, as reported by RetailDive.
The company’s net sales grew 3.3% year-over-year to almost $12 billion. Of course it wasn’t all roses as HomeGoods sales fell 3.4%.
The juxtaposition was interesting because while consumers are looking for low-cost apparel, they are very much not looking for items for their homes relative to last year. We’ve seen these same trends in the results of other results.
A lot of the apparel results are due to the company’s better assortment of dressier styles for work.
But what is another thing happening here? TJ Maxx has buying opportunities all over the place. There has been a consistent drumbeat of an inventory glut in apparel in the past 6 months, and TJ Maxx is here for it!
Expect these trends to continue as we move forward into a rocky Q2.
[References:]
Our Third Story
Takeaways from Paypal’s Recent Investor Event
While I didn’t listen to the event live, I noticed that Shopify recently met with investors at an event hosted by Morgan Stanley. Reading through the transcript a few things stand out:
The first is that eCommerce’s start to 2023 - as reported by Paypal - has been ahead of expectations.
CEO Dan Schulman has seen its transaction processing volume TPV accelerate from Q4, and while Paypal expected eCommerce to be flat in 2023, in truth eCommerce’s baseline has been a low to mid-single digits growth. That’s something to get excited about, and to the extent you are above or below this baseline in your own business, it’s something to watch. Like we did here, Paypal’s CEO pointed out that Target was negative 3% in eCommerce, while Paypal’s own growth rate year-over-year was 6.5%.
Second, the company reports that digital wallets represent about 35% of all online sales right now and that relative to Apple Pay, Paypal is gaining share in the last 3 years after giving back a little share in the prior 2 years.
But that’s not why I wanted to talk about this because something even more important caught my attention. How did I totally forget that Paypal has been searching for a CEO the past few months?
The search has been slow and continues to get the attention of investors. It’s super-important for Paypal to get this right and define the next chapter for the business. With Shop Pay and Apple Pay nipping at the company’s heels, it’s probably the biggest decision the Board has ever made.
[References:]
[PAUSE]
And Our Last Story
Shopify’s Road Ahead
Some of you may have seen in the last week that I released a massive 6,000+ word article about Shopify’s current state, and its path forward. The crazy thing is that I could have written more. The company is important enough to deserve the treatment.
Here's a preview of the article which I have linked in the show notes.
Regardless of whether or not you think Shopify is about entrepreneurs, or mid-market, or Enterprise. Whether you believe it has a strength in creators, or financial services... one thing is clear.
How Shopify makes its money is simply GMV growth and services "attach rate" to that GMV. What is attach rate, you ask?
The formula is quite simple. What is Shopify's top-line revenue divided by its GMV. To the extent that number is greater than 1%, it means Shopify's other services are being adopted as its GMV grows.
Where are the types of other services revenue that Shopify would like to grow as a function of its GMV?
The percentage charged by Shopify Plus, Shop Pay, its app store revenue, capital, the conversion rate generated by Shop Promise, Bill Pay, and Advertising.
Why is this important? Put simply, Shopify's total addressable market becomes a function of all retail GMV instead of just a function of typical SaaS revenue which is limited by the number of merchants on the platform.
In its least earnings reports, Shopify's attach rate just crossed 3%, as I remember.
As one of the most successful e-commerce platforms, Shopify has experienced tremendous growth over its history. Shopify’s runup prior to the pandemic and especially during it has been one of the great eCommerce software success stories.
Shopify’s road ahead, however, depends on it navigating a number of challenges:
Pivoting successfully from a DTC-focused message to an omnichannel message
Firmly planting its flag in the middle-market and Enterprise space to accelerate GMV growth
Clearly articulating and executing on its Shop App “Marketplace”
Staving off challenges from headless eCommerce vendors looking to take its Shopify Plus customers, and Amazon’s New Buy With Prime offering looking to steal its payments and fulfillment business at the low-end
Rounding out its management team with a Chief Marketing Officer, and despite the Allan Leinwand experience (who left Shopify), a Chief Technology Officer or Enterprise market technology architect
Finding a higher margin revenue stream like advertising to add to its revenue mix. The steadily downward march of its gross margins is somewhat concerning.
With the “reversion to the mean” of eCommerce growth, Shopify is aggressively looking to expand its addressable market. Whether it works will depend on a few factors.
The bull case for Shopify is as follows:
Shopify will leverage its SMB dominance into both POS and Enterprise, given its excellence with eCommerce technology.
Shop Promise will accelerate GMV another 25% due to date-definite and speedy delivery, now provided by its partners at no capital expenditure risk to Shopify.
Shop App will find its footing and provide the consumer marketplace flywheel that Shopify needs to truly cement its place in eCommerce leadership for the long-term.
Shopify will keep experimenting in areas like advertising which will eventually add additional net operating margins to the business.
On the other hand, there is a Shopify bear case to be painted as well, including:
Shopify’s turn up-market makes the company take its eye off the ball in its core SMB market, leaving it vulnerable to low-end disruption.
Commerce Components by Shopify is not taken seriously by Enterprise brands due to Shopify’s brand history with SMBs.
Shopify Fulfillment shows management’s ability to be easily distracted by shiny objects. The company has never really come clean on how its decision making processes can improve, relying on game theory like side quests, while not taking the time to clarify why it ever considered it part of the main quest to begin with.
Shopify will let the Amazon fox in the hen house by partnering with Buy With Prime, ceding to Amazon’s biggest demands.
Shop App never develops far beyond its roots as a glorified shipment tracker for consumers.
Check out the show notes for the full report. While the answer is likely in-between one of these cases, it is definitely worth paying attention here given the importance of Shopify in the eCommerce world.
[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 last week one of the popular topics was Miles Thomas speaking about the launch of electronics brands like Anker on Shein’s third-party marketplace.
You can contribute to the conversation at community.rmwcommerce.com.
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at www.commercetools.com today.
It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Used sporting goods marketplace SidelineSwap raised money from eBay Ventures.
This is an interesting market for the success of Sideline Swap, which has been growing in what I think is one of the most interesting categories for marketplaces: used sporting goods. I met the founder, Brendan Candon, some time back and the Head of Partnerships, Doug Smith, has been involved in the eBay market since the early days of the best-named eBay seller ever, 3 Balls Golf.
Second
Transportation management technology vendor Pando raised a Series B.
The company provides software to unify Enterprise supply chain visibility, procurement, payment and planning for Enterprise customers. Some of the company’s customers include Proctor & Gamble, Nivea, and Johnson and Johnson.
Third
B2B deal-making software Aligned raised a $5.8 million seed round.
Aligned provides a streamlined deal-making room for B2B buyers and sellers online, shared project management for complex buying processes, file sharing, and buyer intelligence.
While this isn’t typical eCommerce B2B, for large SaaS purchases this could be an interesting evolution of sales collaboration software similar to how Seismic and others perform today.
Fourth
Broker and carrier analytics solution GoodShip raised a seed round.
Goodship is not its own transportation management system, but instead pulls data from existing software systems used by carriers and brokers for full truckload, rail, and intermodal shipments in the United States and Canada.
The company raised $7.4 million and is using it to accelerate its platform development.
Fifth
eCommerce financing company 8fig raised a Series B of equity and credit.
8fig has traditionally been a financing company for companies with cash constraints, but is starting to build out outsourced planning functions. One of its new features is called, and I’m not making this up, Artificial Intelligence CFO, which sounds like a dystopian nightmare character within Arthur C. Clarke’s Space Odyssey.
I’m sorry, Dave, we can’t afford that.
Link: https://techcrunch.com/2023/05/09/8fig-e-commerce-lending-supply-chain/
[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.