November 25th, 2024: How you should read the Gartner Quadrant, Wordpress is the Craigslist of website builders, Target reports terrible earnings, and Walmart reports great earnings
It’s November 25, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
How You Should Read the Gartner Quadrant
Wordpress is the Craigslist of Website Builders
Target Reports Terrible Earnings
Walmart Reports Great Earnings
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
How You Should Read the Gartner Quadrant
Gartner has a tough job. Summarize an entire industry in a quadrant. The "magic quadrant" (upper right) is not a software selection tool. It's a marketing tool to get vendors to pay it more. Stepping back from that, there is a lot of use in the quadrant.
There are two axes, one of which is more useful than the other:
Ability to Execute: Does what they will say. Can deliver. In the Age of Efficiency, this is all that matters.
Completeness of Vision: According to who? For your needs? This is fuzzy. Many companies can ignore this axis altogether. Another reason this is true: in a 20 year+ category, it's quite possible the platform category is over-built. Which means the most complete vision is also synonymous with Bloatware. You don't want to be all the way to the right of this quadrant.
The Apple iPhone is an example of a technology that would not be far to the right. Low-end disruption anyone?
From this lens, the Gartner Quadrant should almost not a quadrant, it should be a line based only on "Ability to Execute". Who can execute the best? From that lens, here is how to read the quadrant.
There are primarily three companies in the mix.
* Shopify: great at execution. Not bloatware.
* Salesforce: The incumbent. Can execute and lots of great brands do live here, and they can deliver. Could be heavier weight than you need.
* Commercetools: Can execute and cover a lot of use cases, but may not be for everyone.
The quadrant doesn't tell you how to pick between these 3 companies for your business. Budget? Ease of maintenance? No architect or dev team? How many customers are leaving one brand for another? Not on the chart at all.
From this lens, the lower right quadrant is death as far as I'm concerned. Very complete vision and low ability to execute.
From this lens, Spryker and perhaps even Adobe is the "Cool Story, Bro" of the Gartner Quadrant. Says a lot, may not actually do as much.
There are two players with more potential than the others and have proven their ability to execute more than "the rest" -- VTEX and BigCommerce.
After that, you have a whole bunch of platforms (Shopware, Kibo, ElasticPath, etc...) which fit a particular niche, and don't have quite as many proof points as the others. As things stand today, this feels right.
This is just one way to sort platforms. Other analysts have different sorting mechanisms.
Ultimately, vision as far as the Quadrant is concerned seems (to me) has rewarded companies that tack on acquisitions (Adobe/Salesforce) rather than platforms that work with a more ecosystem approach (Shopify or BigCommerce fall in this bucket to varying degrees).
The Gartner Line doesn't sound as magical as a magic quadrant, so here we are. Still, the sorting doesn't look far off from this point of view, according to those criteria. Which ... it should not be your primary decisionmaking tool, so what are we even talking about here?
[References:]
Our Second Story
Wordpress is the Craigslist of Website Builders
The fact that software exists out there as a virtually free way for anyone to build websites is both an issue and an opportunity. Note that when I say "free" I don't mean in a total cost of ownership way, but I mean it's a well-supported, and reasonably-priced way to do it. Not forever perhaps, but a way to get started. You don't need to look futher than the fact that Wordpress is 43% of all websites, and 60+% of the CMS market according to the Google.
This reminds me of Craiglist. Of course, Craigslist was disrupted by eBay, Airbnb, Amazon, Facebook Marketplace, LinkedIn, and hundreds of other small niches ... yet Craigslist itself has a large niche that is still going strong. Similar for Wordpress.
The technology behind Wordpress runs 162 times more websites than Shopify does. How many niches of websites is that? Quite a lot of niches. And many are not enabled for eCommerce, or if they are it's very basic and entire industries are only "Day 1".
There are 30+ million eCommerce enabled websites worldwide, which is 6x the Shopify number of ~5 million. Which is about the same number as I have seen for WooCommerce.
What does that mean for other providers? The delta between 30 million total eCommerce stores and the 10 million provided by the "big 2" providers is quite wide, and that is assuming most industries are digitized already (aka zero sum).
Of course that is ludicrous. How many doctors or lawyers or dentist offices have you walked into that were using green screens? Quite a lot.
Let's speak about a popular topic here - the future of BigCommerce. I think it can be very bright. And there will be plenty of places for many winners across all eCommerce. It just may not all be in the same segment.
Let's assume that BigCommerce powers less than 100k stores (the numbers I have seen are ~60k). This means to triple its website growth, BigCommerce has plenty of available blue ocean to tackle.
For any eCommerce professional, I would encourage you to look beyond the zero sum game of "direct to consumer fashion retail" because it seems like the hot thing. It's also the bloodiest red ocean that exists.
Want to find that next hundred-million dollar niche? I would encourage you to look to Wordpress for inspiration. All the answers are already there
[References:]
Our Third Story
Target Reports Terrible Earnings
You knew the Target earnings were terrible in the first five minutes of the call.
First, there were like six senior executives on the call... which well-run companies I find don't allocate this much effort to earnings calls.
Second, they mentioned growth in traffic as one of the first metrics out of the CEO's mouth. If you can't talk about profit, you talk about revenue. If you can't talk about revenue, you talk about nonsense metrics.
Here are a few key points from earnings outside of this.
1 - Consumers are spending cautiously in discretionary categories.
Brian Cornell forgot to add the phrase "at Target" to his statement. If you don't have a promotion or an everyday low price, the consumer is not cautious they are simply not motivated.
Like the movie Office Space, what we have here is a problem of motivation.
2 - A few key stats
* 20% growth in Drive-Up and same-day delivery
* 11% growth in the digital channel
* 15% growth in the ad business. From a small base, this is not great and the slowest growth of any of its peers.
3 - Target Bearish on Consumer Sentiment
* Consumer cautious in home and hardlines (Walmart did not report this)
* Consumers "tell us their budgets are stretched" yet the company is trying to replicate the Walmart everyday low price approach, but for fewer items and not as quickly.
In short, Target is losing share. A day after Walmart reported smashing earnings, this is a tale of two companies.
4 - Target Experienced Supply Chain Issues
The company was affected by East Coast and Gulf port strikes.
Again, I ask why? The only supply chain issues mentioned on Walmart's call was how much more efficient they are getting.
Like Avon Barksdale said in The Wire, Target always seems a little slow, or a little late. In this case, both. We are just seeing uneven performance.
Target is essentially a tremendous House of Brands at this point. And a good one at that. But as a retailer, they got 99 problems if we are sitting here talking about traffic.
In my mind, if you can't get consumers to walk into your Target store, you need to push those 10 $1B+ brands into any channel you might find a consumer. Sound crazy? What is the alternative?
Here we are. Traffic without revenue means Target's reason to exist is declining not growing, and their customer value prop is declining.
Finally, I will end with. Target management team, reinvent yourself. Fresh blood is needed. Target is looking for a CMO, but it could probably stand a new CEO as well. Mr. Cornell has had enough time to steer and adjust Target.
Whatever the plan (and I am not saying I have the answers), bolder action is warranted.
[References:]
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And Our Last Story
Walmart Earnings Shows Strong Growth in High-Income Consumers
Everyone wants to save money, and everyone wants to save time. Walmart is currently delivering growth, 75% of which is coming from high-income consumers making > $100k. This is not a new trend.
Why the Growth in Higher Income Consumers ?
* Broader assortment via Marketplace, Pickup and Delivery Convenience, Save Money
* In the battle between price and convenience, Walmart chooses "both"
A few stats are in order:
* US eCommerce sales growth 22% (globally 27%) [Amazon more like 7%]
* US Walmart Connect Ads up 26%, globally up 28% [Amazon up 19%]
* Overall sales grew 6%, Profit up ~10%
* Membership income up 22%
* 18% of the business is now eCommerce. (300bps up from last year)
Why the growth in operating income?
* Membership fees and advertising income drove more than half of the operating income improvement and about one-third of all Walmart operating income
Marketplace:
* Grew 42%, > 30% growth the last 5 quarters
* SKU count approaching 700M items
* Sales in beauty, toys, hardlines, and home grew > 20%
Supply chain:
* Store-fulfilled delivery up 50%, improving density as well
* 50% of fulfillment center volume now automated
* 40% reduction in cost per order
Synopsis:
* There's that phrase again - operating income growing faster than sales.
* Amazon is being attacked at the top by Walmart, and at the bottom by Temu. But both attacks are somewhat coming at the high-income consumer (everyone wants to save money). Temu is coming for the time-insensitive items, and Walmart is coming for the time-sensitive items.
* The consumer is "resilient" but still, there is low single-digit deflation in general merchandise on higher unit volumes. This kind of environment plays to WalMart's strengths and is forcing Amazon to adapt and improve its playbook.
* Economy has neither accelerated nor decelerated - it is steady.
* While Amazon is focused on parrying Temu, Walmart could drink its milkshake. The numbers above certainly give it more room to run.
But the biggest reason for Amazon to fear Walmart?
* The growth of Walmart+. The playbook is working, the selection is growing, and the pickup and delivery options are unparalleled.
The two titans are duking it out.
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Advance Auto Parts to Close 523 Corporate Stores And Exit 200 Independent Locations
Advance Auto Parts, an automotive parts retailer, is set to close over 700 locations and four distribution centers as part of a restructuring by mid-2025. The company estimates total costs of $350 million to $750 million from the closures. Earlier this month, Advance Auto Parts completed the sale of automotive parts wholesaler Worldpac to global investment firm Carlyle for $1.5 billion. Advance Auto Part believes it is on a journey to improve its adjusted operating income margin by more than 500 basis points through fiscal 2027.
Second
Orderful Raises $15M In Growth Funding
Orderful, a B2B integration platform for electronic data interchange (EDI), has raised $15M in growth funding that will be used to accelerate product development and expand its global reach. EDI is a painful problem for brands, 3PLs, and retailers and requires an API-based solution to make data transmission between platforms less painful.
Third
Buy-Now, Pay-Later Giant Klarna Files For IPO In The US
Klarna. a European-based fintech platform that offers customers short-term financing online and at retail checkout, has confidentially filed for an initial public offering with the Securities and Exchange Commission. The number of shares to be offered and the price range for the proposed offering haven’t yet been determined. The Swedish financial services provider, valued at $6.7 billion in 2022, wants to raise capital in its largest market, which it wants to expand further.
Link: https://www.businessinsider.com/klarna-ipo-us-files-buy-now-pay-later-2024-11
Fourth
Brightpick Raises $12M To Accelerate Rollout In The US
Slovakian warehouse automation startup Brightpick, a spin-off from Photoneo, 3D robotic vision sensors and intelligence platform, has raised $12M via equity and debt. The new funding will be used to deploy Brightpick robots in the US. Startups in the robotics sector continue to raise funding as warehouse and 3PL companies lower employment costs and provide efficiency at scale.
Link: https://brightpick.ai/brightpick-raises-12-million/
AND FINALLY …
Luzern eCommerce Announces Acquisition of Tambo
European marketplace agency Luzern eCommerce has acquired Tambo, a UK-based Amazon agency, for an undisclosed amount. The acquisition will enable Luzern to offer brands an end-to-end solution by combining Tambo's 1P solutions with Luzern's 3P capabilities. Over the past 12 months, we have seen agencies acquiring Amazon-specific agencies to offer brands deeper marketplace and marketing services.
Link: https://finance.yahoo.com/news/luzern-ecommerce-announces-strategic-acquisition-090000281.html
Today’s final word for Thanksgiving Week is CyberWeek.
OK maybe that’s two words, but our SuperBowl is here folks. What are you listening to this podcast for? Get out on the field and delight those customers
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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.