May 9th, 2022: Shopify’s Deliverr Acquisition, The Warehouse Market in Flux, Walmart’s New Activewear Line, Thrasio’s Layoffs and New CEO, and the State of the Economy
It’s May 9th, 2022, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify Finalizes Its $2.1 billion Deliverr acquisition
Warehouse Market in Flux Could Mean Opportunities for Amazon
Walmart Invests in Apparel with Launch of New Private Label Activewear Line
Amazon Aggregator Thrasio Starts Layoffs and Names New CEO
What the Heck is the Economy Doing Right Now?
- and finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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[PAUSE]
BUT FIRST in our shopping cart full of news….
Shopify Finalizes Its $2.1 billion Deliverr acquisition
A few points:
1 - This 80% cash deal makes me worry a little that the staff will stick around to see this through to realizing value for Shopify.
2 - By my records, this is the largest single acquisition for Shopify since its acquisition of 6 River Systems for $450 Million.
Personally I would have liked to see them have a Chief Supply Chain Officer in place before making such a large commitment, but we will see if it works out any better this time with this new approach.
3 - As some in the audience know, Deliverr doesn't own any infrastructure. The asset-light approach is likely a much better match for Shopify than an asset-heavy one like ShipBob, I worry that this solution could disadvantage Shopify merchants long-term.
The reason is there is only so much control that an asset-light network has over the facilities that are part of its network, despite the appearances of operational and technology standard.
In Amazon's dream scenario, this becomes training wheels for merchants eventually migrating to a world-class fulfillment network in Fulfillment by Amazon.
https://obj.ca/article/deals-year-tech-shopify-feeling-fulfilled-450m-acquisition
Warehouse Market in Flux Could Mean Opportunities for Amazon
The simultaneous doubling of its warehouse space in the last 18 months and the slowing economic demand would spell doom for most companies. But I don't see that as the case for Amazon.
First, Amazon is likely about three years behind its non-Amazon parcel carrier plans (due to the pandemic) and now with extra capacity it is just better positioned to look to take share in this market.
Ship with Prime is just the start – that is primarily consumer-focused for those parcels to fill Amazon facilities.
I expect to see several business-focused initiatives in which the "Amazon carrier" (first/middle/last-mile) portion is decoupled from the payment and fulfillment (storage and ship from Amazon facility).
Take note that Amazon runs a "Ship with Amazon" service in the UK and tested it in California prior to the pandemic before canceling it due to pandemic focus.
I expect that to return.
Yes, it is entirely possible that Amazon decuded there was no reason to run "head to head" in the US market, but I highly doubt that will be the company’s ultimate conclusion for a few reasons:
- First, utilization is king. if the trucks are on the road and the facilities need to be filled, the company is not going to throw money away.
- Second, USPS will keep losing share. Its network is not materially improving, despite the new services being offered. It's the middle mile where Amazon is going to win against USPS over and over.
- Third, because Amazon has the most vehicles on the road now and the largest number of facilities, it has pricing power due to excess capacity that SMBs are willing to soak up.
- Fourth, there is still a warehouse shortage in the US, as vacancies are only at 3.5% nationwide (that is according to a recent Prologis earnings call). That combined with historically high construction and land costs means Amazon already has all this cost built up. Now it just needs to deploy growth channels to activate these assets.
Despite the unexpected drop in revenue at Amazon, SMB eCommerce is still growing like a weed and - as they say - that margin is Amazon's opportunity.
Our Second Story
Walmart Invests in Apparel with Launch of New Private Label Activewear Line
It looks like Walmart is learning its apparel lessons and is not content to let Amazon be the leading seller of apparel in the United States. Walmart launched Love and Sports, a new activewear brand.
Here are a few points about the launch:
Activewear continues to grow as a category, up around 37% last year according to the NPD Group. You might even say that activewear is the only apparel category left anymore, and the trend doesn’t seem to be diminishing anytime soon.
The line, which features 121 lower-priced activewear and swim items, was created in collaboration with fashion designer Michelle Smith and beloved SoulCycle fitness instructor Stacey Griffith.
This move from Walmart is encouraging to me. First, activewear is a great category.
Second, it shows that Walmart is willing to take risks with interesting design collaborators and stay true to its customers’ value price points.
Finally, there is definitely room in this category for more private labels. Private label apparel accounts for over 44% of the apparel category, according to NPD. Target has crossed over $1 billion with its own All In Motion brand, and Lululemon shows no signs of slowing down.
The biggest question in my mind is what do these new activewear brands do for DTC brands like Rhone and Vuori that have, in some cases, invested hundreds of millions to build a brand. If consumers get more price sensitive and Walmart and Target can nail comfort, it could create downward pressure here.
[References:]
Our Third Story
Amazon Aggregator Thrasio Starts Layoffs and Names New CEO
Well, the SPAC ultimately never materialized at Thrasio and the reaper has come to take its pound of flesh.
Here’s what we know:
Last year the company was valued around $10 billion dollars.
In the last two years, the company lost both of its original co-founders and now there is a new CEO in-seat – Greg Greeley, who has an 18-year Amazon history. So that’s something.
At its peak Thrasio was buying two to three Amazon businesses every week and had hundreds of brands in its portfolio. Just think about that for a minute.
My take on this news is pretty simple. This is not about taking the company to new heights.
No, my friends, that train left the station a long time ago.
This is about the adults coming into the room to determine what, if any, value is left at all. After a three to six month assessment, expect another tremendous restructuring and sales of assets.
Perhaps some shell of the company may live to fight another day, but it will not be anything like what Thrasio was supposed to be at the beginning.
[References:]
https://techcrunch.com/2022/05/02/amazon-aggregator-thrasio-begins-layoffs-names-new-ceo
https://www.businessinsider.com/thrasio-layoffs-new-ceo-amazon-aggregator-2022-5
And Our Last Story
What the Heck is Going on with the Economy Right Now?
You saw it in Peloton in a petri dish. Hot product on the market faces historical existential demand shock, leading to massive over-ordering, leading to inevitable reversion to mean, resulting in over-allocation. Still a good product, but hard to survive.
Right now it feels that the entire world is in the grips of this effect and is not sure what to do about it. Coming into January, forecasts predicted that the first half of the year would be tough, but the second half was very hopeful. That is completely out the window now, and people are starting to worry about 2023 as well.
Just look at all these things:
- China, a country that controls a third of the world's manufacturing, is shutting down entire cities and locking down its own residents. Manufacturers and retailers simply don't know when or what percentage – if any – of orders they are going to receive
- The Western Hemisphere is not positioned to take on a significant share of manufacturing. Western manufacturers are not well-positioned to be as efficient as China, leading most brands to conclude it's better to "muddle through" the current situation than switch to something with obviously worse service, costs, turnarounds, etc.
Executives are concluding "if this affects everyone, I can't be fired for it."
- There is destabilization and uncertainty in growth markets for big players. Both Amazon and Shopify's biggest growth markets should be Europe and Asia going forward. Name markets more affected by the war in Ukraine? Russia is a huge player in those spheres.
- Cancel culture is sneaking into retail merchandising. Many suppliers have shared with me that their retail partners’ forecasts keep dropping, and this has led, not just to minor edits to orders, but major orders at major retailers like TJX being canceled.
- Consumers are asked to pay a premium above sticker price to reserve a place in a queue for a car. Want to buy a car? Forget about it! It's a complete disaster. No inventory, high prices, no cars to test drive, salespeople playing cards on the showroom floor.
- Even products on the shelves cost more and you get less. For example, take my friend who has bought plants for his garden from Costco every spring for the past ten years. The flowers there last weekend were worse quality, 15% smaller and 20% more expensive. This friendbought them all anyway. If this is the best Costco's famously amazing merchandising team can do, what hope do other retailers have?
- Consumer costs are rising and foot traffic is reportedly off. People are more value-oriented. If you are in a job and get a raise, raises seem about 5%. Which is great, until you realize prices are up 8% to 10%. Many employees are throwing up their hands.
Some are loudly predicting that inflation will dissipate. It won't matter. It's not like we are "recovering from COVID" and waiting for a return to normal. The system is still being actively disrupted by new threats, seemingly weekly.
Strap in.
[PAUSE]
It’s that time, friends, for our Investor Minute. We have 5 items on the menu today.
First
eCommerce fulfillment provider ShipFusion recently announced a $40 million funding round leg by Kanye Partners, but not that Kanye.
The company manages and operates warehouses and pairs that with technology designed to help with order fulfillment and operations. Almost like what Shopify Fulfillment wants to do one day but hasn’t been able to.
Second
Amazon aggregator Society Brands raised $204 million in order to rollup some more Amazon brands.
It’s a strange time in the aggregator universe, and Society Brands’ timing is pretty poor. Although, consider the fact that so many aggregators are unable to deploy capital right now, maybe I’m wrong and the timing is actually good.
Still, the aggregator space has its challenges and new funding isn’t going to change that.
Third
Advertising automation provider Sellics was acquired by Ascential.
Sellics has 90 employees and is based out of Germany. It’s not said what the price was, but hopefully this was a good exit for them!
Link: https://ukinvestormagazine.co.uk/sellics-signs-agreement-with-ascential/
Fourth
Channel management provider Lengow just acquired eCommerce intelligence startup Netrivals.
The company traditionally focuses on tracking the price of your products across a number of competitors. This type of software is surprisingly difficult to get right.
Link: https://techcrunch.com/2022/04/26/lengow-acquires-e-commerce-intelligence-startup-netrivals/
AND FINALLY …
eCommerce reseller platform Flyp received $10 million in capital in order to pair a liquidation company with a network of power online resellers that are able to extract the maximum value from that inventory.
The company works with channels like ThredUp, TheRealReal and eBay. I’m a little worried about this model, primarily because the quality of inventory has to be in question if it’s going to some kind of matching marketplace. High-quality inventory doesn’t need this kind of service because it’s worth the effort for whoever has it to sell it themselves.
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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 show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
