November 27th, 2023: Walmart earning updates, OpenAI explodes, Thrasio’s bankruptcy, and what I’m thankful for!
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s November 27, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Walmart Earnings Update
OpenAI Explodes On Itself
Thrasio Prepares for Bankruptcy
What I’m Thankful For
- 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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Just a reminder to stay tuned until the end for my Final Word for the week.
BUT FIRST in our shopping cart full of news….
Unpacking Walmart’s FY2024 Q3 Earnings
Here are a few quick takeaways from Walmart’s earnings that have relevance for everyone.
1 - Deflation is in our future. Prices on general merchandise continue to come down, even as food inflation is somewhat persistent. On a two-year stack, food inflation is up ~15%.
How much of those declining costs are you going to book as margin is one question you will have to decide in 2024?
The answer might depend on how strong the consumer is. The “bullwhip effect” continues to whip. :horse_racing:
2 - Consumer Is Highly Promotional
Walmart discovered end of October that the consumer will wait for big purchases. Volume slowed down significantly second half of October, and they can’t attribute it to anything except the consumer waiting for discounts on big purchases.
If this continues, it’s a worrying trend that consumers are starting to get very comfortable with.
As always, here is your earnings recap:
4.9% Walmart US comp sales growth y/y. Ironically, this is the opposite of Target just a day earlier who dealt with -4.9% comp sales growth. A tale of two retailers.
Gross margin up 32bps
US eCommerce up 24% y/y on the quarter, a strong result. :muscle:
Advertising up 20% globally, and 26% in the US (Walmart Connect)
Operating income grew 22% y/y.
General expenses are higher due to increased number of store remodels, and higher labor costs.
20% increase in marketplace sellers.
For the supply chain fanatics:
Walmart US increased the number of digital items shipped from stores by 800 bps y/y.
Walmart’s spark driver platform lowered store-to-home delivery costs by 15%
“Densifying the last mile” seemed to be a new word. The word densify enters the lexicon. :exploding_head:
Introduced their third next-generation eCommerce fulfillment facilities.
In the micro-fulfillment world, there will be 7 stores live with MFCs by the end of the month. (this is automated fulifllment attached to stores) :robot:
Walmart Fulfillment Services adoption up 55% y/y.
In short, Walmart continues its momentum. And it’s defying the prevailing narrative that eCommerce is not a good channel for a store-based retailer that companies like HomeGoods, Kohl’s and Target are all pushing right now.
[References:]
Our Second Story
OpenAI Exploded On Itself
While you are not likely to see such a strange corporate drama play out so publicly again, it is still a good reminder for everyone that Boards of Directors and corporation bylaws are important -- particularly for you as a CEO, and for investors.
* Normally as a CEO, you can help decide the Board by negotiating at the time of your start for people loyal to you, or a specific structure.
* Most CEOs also negotiate a healthy equity incentive package for raising the stock or value of the company.
* Many tech companies like Meta, Shopify, and others have adopted dual-class voting shares where the Founder can maintain control over their company, while still holding a minority share.
OpenAI had none of these. Sam Altman did not directly own any equity in the firm or have any special voting rights.
If you're Google and Amazon at this stage, you are excited about the chaos. Do you think Microsoft or anyone would invest new billions into OpenAI again, without renegotiating corporate structure? Not likely.
Don't you think Amazon is happier with its Anthropic investment today than it was last week? Highly likely.
As a CEO or investor, the time to negotiate these types of things is at the time of the event. That's when you have the most leverage. If something seems fishy, probably better to trust your gut. There is always another opportunity out there.
Of course the peculiarities of OpenAI, its quest for safe AGI all played a role in getting to this point -- in your situation, it's likely a little more straightforward. After all, we are not all being asked to become CEO of a generational company.
It definitely seems to me that with the Founder out who was pushing for faster innovation, this move benefits its growing list of competitors.
[References:]
Our Third Story
Thrasio Prepares for Bankruptcy
The Wall Street Journal last week published an interesting article about the Amazon aggregator Thrasio. Well, this is totally not surprising.
That said, here are a few notes from the article that you can use or lose:
* Thrasio has been working with turnaround expert AlixPartners for the past few years apparently trying to figure out what to do next. Does it take that long to indicate that your management team has inexperienced operators and your core operating premise is flawed?
* In 2021 the company has raised 3.4 billion dollars. The same year, the company was valued at 5 to 10 billion dollars. Just let that sink in for a moment.
Like my dad used to say… At this point, it’s all over but the crying. You have a lot of assets that are not worth near what you paid for them, and you built technology for a lot of things that you should not have built.
Easily Thrasio goes next to Wework in the pantheon of venture capital mistakes. I mean, it’s not 22b raised but 3 billion is pretty difficult to flush down the toilet as well.
[References:]
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And Our Last Story
What I’m Thankful For
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Hey, Watsonians, did you know that Amazon has partnered with various social networks like Pinterest, Meta, and Snap? If you were in our online community, you would! To stay on top of what’s going on in eCommerce and join the conversation, visit community.rmwcommerce.com today.
Now a word from our sponsor Commercetools:
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Zelig Raises $15M Series A
Zelig, a virtual try-on and styling technology solution, has raised a $15M Series A funding round, with the proceeds to be invested in further technology development.
Link: https://techcrunch.com/2023/11/06/luxury-clothing-virtual-try-on-100m-valuation-e-commerce/
Second
UPS Completes Acquisition of MNX Global Logistics
UPS has completed its acquisition of MNX Logistics, a company specializing in delivering temperature-sensitive and specialty pharmaceutical products. More revenues coming from pharmaceutical logistics for UPS.
Third
ReturnGO Announce Growth Capital and Amazon Partnership
ReturnGO has announced $4.8M in new growth capital and a strategic partnership with Amazon's third-party logistics solution Multi-Channel Fulfillment. Is it just me, or is Amazon partnering with more startups?
Link: https://techcrunch.com/2023/11/07/returngo-5m-amazon-fulfillment-e-commerce/
Fourth
GreyScout Brand Protection Platform Raises €890K
GreyScout, a grey market and brand protection solution, has raised €890K in venture funding, raising its total capital in 2023 to over €4M. Finding good and economic brand protection is hard.
Link: https://businessplus.ie/ma/funding/greyscout-investors/
AND FINALLY …
Fillogic Raises $13M in Series A Funding
Fillogic, a local logistics provider, has secured a $13M Series A funding round for product development and nationwide logistics ecosystem expansion. The company is focusing on taking underutilized retail space and making it into retail hubs so that it can be sorted to the right carriers. Another week, another logistics funding. Perhaps the supply chain funding momentum is back!
Today’s final word for the week of November 27th, 2023 is Cyber!
If you are listening to this podcast, I’ll be honest, cut it out!!! Shut off this podcast this instant! You should be shipping out product and answering customer service questions. Get back to work slacker!
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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 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.