November 15th, 2021: Saks eCommerce split, Square and the future of currency and payment, the status of livestreaming in the U.S., and American Eagle Outfitters acquires logistics capabilities
It’s November 15th, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Saks eCommerce Split Sounds Worse Every Day: What Makes It So Bad?
Square Stakes Its Claim on the Future of Currency and Payments
What’s the Status of Livestreaming in the United States?
Retailer American Eagle Outfitters Continues to Acquire Logistics Capabilities - Should Other Retailers Be Paying Attention?
- 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….
Saks eCommerce Split Sounds Worse Every Day: What Makes It So Bad?
In a recent interview with Womens’ Wear Daily, Saks CEO Marc Metrick conducted an interview that, in my opinion, he put out as a way to justify and trumpet the company’s approach. However, it came across primarily as an example of what not to do.
The interview starts out innocuous enough. Becoming the consumer destination for all things luxury is the goal. OK, this makes sense.
Key to the transaction is a $500 million investment in the digital business by Insight Partners. But where does this leave the stores’ fleet? Sounds like off on its own. The CEO mentioned that for years it was an organization that needed to choose between digital and physical, instead of investing in both. I left with the impression that Stores won’t get much investment going forward.
Other companies have found a different path, even large companies – Target being the best-known example that made stores the centerpiece of its digital strategy.
The worst part of the interview came very simply, and it’s best if I quote it for you in its entirety because otherwise you would think I’m making this up.
QUOTE
“Metrick said more than 300 operating service agreements are in place “to make sure the consumer is having an omnichannel experience. We split for purposes of our investment and our focus and our strategy, but we are holding the omnichannel experience together for the consumer through these operating service agreements to make sure the ecosystem of Saks Fifth Avenue remains omnichannel.”
END QUOTE
To which I say, HUH?
This is the biggest pile of corporate BS wrapped in a thank you to a new investor that I’ve ever seen. 300 operating service agreements? Sounds like $1 million of the $500 million was spent in legal fees just negotiating those.
How many KPIs do you need to track in those 300 operating service agreements? How do employees keep up with changes in 300 operating agreements? What are the penalties for violating those agreements?
The fact that Metrick can even repeat this with a straight face tells you everything you need to know about how this will end up. Marc wants to play like he is the CEO of a tech company. He is essentially admitting that the stores won’t be revamped. Basically, Saks is going back to the bad old days of single-channel siloed decision-making.
Listeners might ask, “Rick, why are you covering this again?” Well, this trend is not going away. In fact, if anything, this disease will spread internationally into the UK and Europe as well, based on what I am reading.
Worse, the new money invested will make it seem like a good idea in the short-term. In fact, you will likely see Saks eCommerce accelerate like never before as all that new capital goes to work.
>> The big reminder here is, know who your investors are. Do you have the right ones for your journey? It’s more critical than you think. Jeff Bezos in his first letter to shareholders was a masterclass in managing and attracting the right investors. From the beginning he said he would be misunderstood and that Amazon might never make money, but that the companywould relentlessly focus on customers. Bezos said, quote, “Investing with me isn’t for everyone.”
What Saks is doing here instead is effectively cutting loose its stores, though Metrick may not realize it yet, which represents the key to Saks’ eCommerce profitability going forward. What happens when that day arrives?
[References:]
Our Second Story
Square Stakes Its Claim on the Future of Currency and Payments
Square recently reported earnings and with them made the case for how it is moving further into digital eCommerce territory every day. Here are a few points from the call:
First, despite starting with the smallest businesses, Square now counts the mid-market as its largest and fastest growing segment.
The big worry I have for Shopify relative to Square is that its Shopify Plus business is not growing faster than its core business. That means it still does not understand the needs of its larger customers, or is still finding product/market fit there. If Square’s mid-market business is growing faster than its SMB segment, that is a disturbing trend if I’m Shopify.
Square reports that its biggest focuses are omnichannel and moving up-market. When most digital platforms talk about omnichannel, it’s because they are focused on store experiences. For Square, that means more digital experiences because of where the company comes from.
In the post-COVID reality, doesn’t that mean Square could be particularly well-suited to this curbside pickup world we are now living in? Square seems to me like it can be a full-stack provider to these retailers if Square increases its digital eCommerce presence and ecosystem.
In my opinion, the biggest battle will be between Square and Stripe, however. When Stripe goes public, it will be an absolute monster of a company, and could even rival the size of Shopify.
Another reason to believe these companies are in active competition? Square acquired the assets of Tidal, and Shopify is now partnering with Spotify to accelerate commerce and monetization for artists.
Which makes me wonder — is it the payments companies that will be winners in the end? There is a strong case to be made that the hardest things in this whole stack are a full-stack payments solution and these omnichannel customer experiences. Stripe has payments but not other parts. Shopify has the eCommerce platform, but most of the omnichannel components are outsourced to partners. Square has both of these, but not a mid-market eCommerce offering. The question is not if these companies will start competing for the exact same business one day, but more a matter of when. I’m forced to admit that Square is the closest to being the Apple in this market - meaning they are the most vertically integrated provider out there.
[References:]
Our Third Story
What’s the Status of Livestreaming in the United States?
With the holidays approaching, a few different companies are releasing updates on their livestreaming efforts.
If you are going to talk about livestreaming, you have to first talk about Taobao. In the lead-up to Singles Day, the company sold $3 billion worth of product in under 12 hours - an extraordinary amount, even more so when you realize these are the results of just two celebrity streamers.
Pinterest recently launched its PinterestTV offering shoppable shows from creators. While I can see some commerce happening here, I don’t believe this is where the bulk of transactions will come from. As a non-video native platform, it could be a problem for Pinterest to be a big player in this market going forward.
Saks and Macy’s have also launched their own livestream events but based on what I’ve seen, I don’t expect them to go anywhere.
For similar reasons, I am not bullish on most livestream startups until they can prove that they can either create or attract the top YouTube and Tiktok celebrities.
Facebook is the early leader in the US and has been investing in this opportunity the most with plans to continue its events this fall.
YouTube is planning a week-long live shopping event beginning November 15th as it starts to ramp up its own efforts.
Let me capture what I think are the fundamental elements of livestreaming at the highest level.
First, you need a celebrity to attract attention. Your staff can get some training, but you will not get enough meaningful traffic unless you are able to pull from other audiences. For most people, this type of traction will come from the marketplaces as the average new brand will likely not be able to hire its own celebrity.
Second, you need unique and interesting product. Again, what’s the draw? Something limited edition. Imagine a product or service that’s noteworthy enough to talk about on the evening news, and you have some idea what I’m getting at here.
Third, you need practice, repetition and a regular schedule. It’s a new medium and not easy to get right overnight.
Fourth, you need the ability to buy with one one-click directly from a video stream. If there is any ounce of friction – for example, it’s a shopping episode and the viewer then must open a new window and fill out steps – you will lose the audience.
Which companies do I think are best positioned to take advantage of these opportunities? The reality is only two. YouTube and Tiktok meet all the criteria. It’s not that Facebook isn’t investing here, but it’s not where the younger generation is spending their time. In the short to medium term, I think most brands should be investing behind these platforms.
The #1 reason I favor these platforms is that it’s easier to bring commerce to an engaged audience platform than it is to bring an audience to a high-converting eCommerce platform. You might ask “why not Facebook?” and the simple answer is that both Facebook’s user demographics and trust are going in the wrong direction.
Personally, I think Step 1 in the United States would have to be akin to something like Kim Kardashian partnering with YouTube on the morning of Black Friday. That would attract an audience and allow the platform to develop personalities. In order for the US to approach the success of China, it needs to be a cultural phenomenon, not just another retail channel.
And by the way, I’m covering this not because I believe it’s a priority for everyone now, but because I think it will be a meaningful channel for early adopters within the next 5 years. All that said, livestreaming in the United States is still not even in the first inning. To continue this baseball analogy, the pitcher is still warming up and fans are just being let into the stadium.
[References:]
https://newsroom.pinterest.com/en/post/introducing-pinterest-tv
https://www.retaildive.com/news/saks-debuts-holiday-livestream-shopping-shows/609382
https://www.retaildive.com/news/pinterest-debuts-livestream-shopping-through-pinterest-tv/609296
And Our Last Story
Retailer American Eagle Outfitters Continues to Acquire Logistics Capabilities - Should Other Retailers Be Paying Attention?
Retailers stood up and took notice as retailer American Eagle acquired mid-market logistics firm Quiet Logistics, which has historically serviced top apparel retailers such as Rue La La in automated facilities.
The question on the mind of many retailers out there: “should I be thinking about the same thing?”
Before we get to that, let’s talk about the valuation of these 3PLs. The consistent number I am hearing and seeing in acquisitions is something like 2-3x revenue, which jibes with Quiet Logistics revenue of over $100 million and a purchase price of $350 million.
Given the automated nature of Quiet Logistics facilities, it’s not surprising the company would come in at the high end of the 2-3x range.
This is a good market comparable for both investors and other third-party logistics firms that might be looking for an exit.
I think there are a few reasons that American Eagle went looking for more help. First, buying new facilities on its own is quite capital intensive. Instead, the retailer is taking a page out of Amazon’s playbook to not only invest in a new capability, but also to add new services revenue to the business.
The second main reason is to eliminate capacity and labor constraints as the company grows.
The big worry is if American Eagle allows the Quiet Logistics team enough freedom to continue its own growth. At about a $4 billion market cap and a little over $3 billionB in revenue, the market seems to value American Eagle a little over 1-1. One has to hope that American Eagle won’t drag down Quiet’s valuation due to association.
The bigger question is - is this the start of a larger trend, to which I say, it’s simply the continuation of a trend in large retailers to get better at logistics. Even before Amazon came on the scene, Walmart was known as one of the best logistics companies in the world. Amazon is one of the largest providers in the market right now as a top retailer. Target has famously transformed its own supply chain to become more reliant on its stores, fueled by several of its own acquisitions of logistics startups.
What type of retailers is this for? Well, I would say most retailers less than $1 billion don’t need to be looking in this direction because they don’t need this level of scale, and a new line of business is likely a distraction. As you start to approach $5 billion to $10 billion, it starts to make more sense. Those at the lower end can look to startups in order to add key capabilities and operational efficiencies.
Much larger retailers are instead looking at an entirely new line of business, much like Target’s acquisition of Shipt - which, despite being in a different corner of supply chain, reminds me of this acquisition in that the acquirer will stay a big customer of the acquired company, but continue to offer services to other customers as well.
Another thing this says? Retail is extremely difficult in a market where the largest retailers like Target and Walmart are capturing most of the growth. Mid-market retailers need reinvention and perhaps diversification to improve their profitability.
[References:]
[PAUSE]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
In aggregator news, Elevate Brands raised $55 million and Berlin’s Razor Group raised $125 million at a $1 billion valuation. Elevate is acquiring third-party Amazon sellers.
Razor Group, while flying a little bit under the radar of Thrasio, has nonetheless been praised for disciplined execution, being very selective in who they acquire so they can take these brands off Amazon, which could serve them well in the long-term.
Second
Walmart acquired technology provider Botmock, which advances its conversational and voice commerce efforts.
Driven by equal parts accessibility and convenience, voice commerce is an undeniable growing trend, so this is an interesting area for Walmart to keep tabs on given its major competitor Amazon essentially invented the space with its Alexa products.
Third
Autonomous delivery vehicle maker Nuro added $600 million to its bank account, funded by Tiger Global Management.
Notably, Google and Kroger were also investors.
Something like this makes me wonder where Kroger is getting all the cash for its recent R&D and operations spending sprees. I know the company had formed a brand incubator but wasn’t aware that it was also investing in technology companies.
https://www.grocerydive.com/news/nuro-raises-600m-from-investors-including-kroger-and-google/609470/
Fourth
Inclusive direct-to-consumer beauty retailer Thirteen Lune raised $3 million in funding from Fearless Fund, a venture firm led by women of color.
From a pure dollars and cents point of view, this is a historically underserved market in beauty so there is a lot of room to run here. It also seems like a brand many people could get behind.
AND FINALLY …
Subscription provider MilkRun raised $6 million in Series A funding to connect local consumers to weekly grocery staples provided by farmers.
The idea of farm fresh groceries combined with subscriptions seems like a good one, but you might also question why consumers couldn’t just buy from one of the more than 8,000 existing local farmers markets in the US.
https://techcrunch.com/2021/11/05/milkrun-lands-new-capital-to-deliver-farm-fresh-groceries/
[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 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.
