November 28th, 2022: Macy’s and Kohl’s Earnings, Gap looks to Amazon, Amazon releases new FBA pricing, and new Salesforce data

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It’s November 28, 2022  and this is the Watson Weekly - your essential eCommerce Digest!

Happy Cyber Monday!  

Today on our show:

• Macy’s and Kohl’s Earnings Show the Pressures on Department Stores

• Gap Looks to Amazon To Expand Its Sales

• Amazon Releases New FBA Pricing and Account Health Assurance

• Salesforce Data Shows Consumers Holding Out for Cyber Week Deals

- 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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BUT FIRST in our shopping cart full of news….

Macy’s and Kohl’s Earnings Show the Pressures on Department Stores

Last week both Macy’s and Kohl’s reported earnings, and it really shows a tale of two companies with a lot of apparel exposure and how they are combating traffic and margin issues.  

For Macy’s

Year over year comparable sales are down 3.1%

Gross margin sits at 38.7%

With 2% net income

Overall Inventory increased 4% to last year

Very disciplined with inventory and Macy’s is being creative with ways to get shoppers in the door with new initiatives like its Toys R Us partnership.

As far as Kohl’s is concerned

They saw comparable sales decline 6.9%

With an operating margin of 4.7%

Sephora is a standout performer of the firm which I’m sure contributed to that.

Unlike Macy’s which has controlled inventory, Kohl’s Inventory increased 34% year over year

While Macy’s is down, this was expected due to apparel exposure and consumer priorities.  Kohl’s on the other hand had worse declines and is in worse shape overall.

Why?  The company just unexpectedly lost its CEO during the quarter.  Strangely the department store said it wasn’t looking for someone to change its strategy, just to continue to execute.  With this kind of execution, one wonders what is in store for the company in the medium term.  This is the kind of environment where you most need a stable management team.

[References:]

• https://www.fool.com/earnings/call-transcripts/2022/11/17/macys-m-q3-2022-earnings-call-transcript/

• https://www.macysinc.com/_assets/_733bbdffa64039b0fda842caf08a2b26/macysinc/news/2022-11-17_Macy_s_Inc_Reports_Third_Quarter_2022_1798.pdf

• https://www.fool.com/earnings/call-transcripts/2022/11/17/kohls-kss-q3-2022-earnings-call-transcript/

• https://s26.q4cdn.com/950703131/files/doc_financials/2022/q3/Q3_EarningsDeck_VFinal.pdf

Our Second Story

Gap Looks to Amazon To Expand Its Sales

Specialty retailer Gap has announced that it has started selling hundreds of items on Amazon in its own brand store on Amazon Fashion.

The company is struggling on all fronts, and is really grasping at straws at this point.  The CEO abruptly resigned in July and here we sit in November with no replacement.

For Amazon?  This is a win.  Why wouldn’t you want more selection in Amazon Fashion, which has had mixed success attracting major brands.

For Gap?  A new sales channel is not a strategy.  It’s not going to solve the 3 key challenges facing the company:

First,  consumers don’t seem to want its products.

Second, it has no management team.

Third, we are in an economy where you can’t sell full-priced apparel so there is no clear path to profitability and growth.

While this announcement is being trumpeted by some, the smart money is betting against this move as not addressing the root cause.  I’m reminded of Kohl’s announcing it was going to accept Amazon returns back in 2019 in all stores.  If the best way to get customers in your stores is to give back an unwanted Amazon item, it says a lot about your company.

[References:]

• https://community.rmwcommerce.com/t/gap-finally-turns-to-amazon-to-expand-sales/269/2?u=rickwatson

• https://www.amazon.com/stores/GAP/page/24BB2C96-D999-4A3D-A127-9B0AF9691CBF?ref_=ast_bln

• https://www.wsj.com/articles/gaps-amazon-partnership-is-a-desperate-look-11668183509

Our Third Story

Amazon Releases New FBA Pricing and Account Health Assurance

Dharmesh Mehta, Vice President, Amazon Worldwide Selling Partner Services, has announced a few major updates in the past week.  First, is a whole set of FBA pricing updates, and the other is a new benefit for sellers called Account Health Assurance.  Let’s dive into each of them.

Let’s talk about the new FBA pricing first.

A few callouts:

• Temporary fuel surcharges are gone, but rates are going up. So … not temporary?

• They are really pushing on storage fees, particularly in cases where items are not selling for a long period.  There are a lot of sellers with unoptimized inventory. So they are increasing storage costs for both peak and non-peak times of the year. Older stored inventory is most affected.

• Amazon is lowering fees for its FBA New Selection program by 5-10%. This program, if you're not familiar with it, gives fee discounts for items that are new to FBA in order to encourage sellers to continually add new selection there.

• Amazon is increasing the item price threshold needed to qualify for its small and light program from $10 to $12, allowing lower fees for a wider range of inventory than exists today.

Another new program that Amazon is rolling out is called Amazon Health Assurance, or AHA.  The program builds on top of another recently released seller rating called the Account Health Rating, or AHR.

The top three metrics for this rating and their benchmarks are as follows:

• Order defect rate < 1%

• (Pre-fulfillment) cancel rate < 2.5%

• Late dispatch rate < 4%

If your Account Health Rating is above 250 for the last 6 months and you have a valid emergency contact information on file, Amazon will reach out to you and 

If you don’t meet these criteria, you are not eligible.

Personally I like this idea and it is a nice way for Amazon to encourage great behavior and not feel bad about shutting bad sellers down.

I remember when I was running Barnes & Noble’s marketplace I would shut down bad sellers every day where it was obvious there was fraud being committed.  Of the hundreds of sellers I shut down personally, I never heard from even one of them.  So I like the fact that Amazon is prioritizing its highest performing sellers for this program.

It’s very easy to be cynical about Amazon.  There is a good reason for it and a lot of examples and history to back up the fact that you can be shut down at any time for any reason, even mistakes.

In the final assessment, Amazon is a marketplace and you are just a tenant there of a fickle landlord.  

A good friend of mine Todd Lutwak who was a long-time eBay senior executive, always used to say that marketplaces are governed by a set of carrots and sticks designed to encourage certain behavior and discourage others.  Amazon is definitely adding both rebates and fee increases here in order to incent the behavior it’s looking for and sellers would be wise to pay attention to the implications.

>> closer

[References:]

• https://community.rmwcommerce.com/t/amazon-updates-its-fulfillment-by-amazon-fba-fees/338

• https://channelx.world/2022/11/new-amazon-account-health-assurance

• https://www.aboutamazon.com/news/company-news/an-update-to-our-us-referral-and-fba-fees

• https://sellercentral.amazon.com/help/hub/reference/external/G6JNRB2KP2KWT4RA

• https://sellercentral.amazon.com/help/hub/reference/external/G201411300

• https://sellercentral.amazon.com/forums/t/account-health-assurance-helps-you-address-issues-without-account-deactivation/1404381

• https://www.sellerapp.com/blog/amazon-account-health-checkup/

[PAUSE]

And Our Last Story

Salesforce Data Shows Consumers Holding Out for Cyber Week Deals

The publication Chain Store Age reported about the upcoming season, which will have mostly passed by the time you listen to this podcast, and here is the take.  You’ll have to wait until the weeks after to give my review of Cyber Week and some early thoughts on 2022.

A few highlights stood out to me:

• Retailers are discounting the greatest across general merchandise categories like apparel, home appliances, luggage, and beauty.

• Cyber Week is expected to be especially concentrated this year as consumers hold out for the absolute best discounts.  If you have unique inventory that is not extremely replaceable, this might give you the chance to make back some margin.  However, if you are in apparel and don’t discount, then you might be passed over for another brand in this gift giving season.

• Buy Online Pickup in Stores business could surge as much as two times during Thanksgiving and Black Friday.

The category discounts definitely match the general discretionary trends.  It looks like generally demand is soft even with these discounts.  Beauty is another story however.  With beauty, while items are discounted, demand is still strong relative to other categories.

Overall, even factoring in discounts, average selling prices  went up 8% in the US from 2 years ago and so consumers are paying more for items even considering the discounts. The bad news for retailers and brands is that their costs are rising faster than consumers are willing to pay.

As part of this report, in an environment like this, Salesforce recommends that retailers should look to find areas for cost savings across the business, and I for one definitely agree with them.

[References:]

• https://chainstoreage.com/salesforce-online-holiday-shoppers-are-waiting-cyber-week

• https://retailwire.com/discussion/are-department-store-shoppers-getting-a-late-start-on-christmas-or-taking-a-pass/

[PAUSE]

It’s That Time Friends, for our Investor Minute.  We have 5 items on the menu today.

First

McKinsey acquires supply chain consulting firm SCM Connections

It definitely feels like the larger consulting firms are investing in eCommerce lately.  Accenture acquired the Stable eCommerce agency this year as part of its Accenture Song division.  Now McKinsey is getting deeper into supply chain with the acquisition of SCM Connections to deepen its focus on agility and demand planning.

Link: https://www.mckinsey.com/about-us/new-at-mckinsey-blog/mckinsey-acquires-scm-connections

Second

Startup Dropit raises a Series C to unify online and in-store inventories

The technology connects inventory management and order management systems across multiple channels and integrates them with all your consumer touchpoints.

Link: https://techcrunch.com/2022/11/03/dropit-picks-up-25m-to-unify-retailers-inventories-and-digitize-brick-and-mortar-stores/

Third

Supply chain visibility platform project 44 Raises 80 million to reach almost a 3 Billion dollar valuation

The company claims to be working with 1,200 companies and tracks more than 44 billion shipments per year across ocean, freight, intermodal, rail, and last-mile.  Supply chain visibility is definitely a growing space and helping companies across a number of industries.

Link: https://www.project44.com/press-releases/project44-raises-80-million-valuing-company-at-2-7-billion-up-12-from-january-despite-widespread-downturn-in-b2b-saas-valuations

Fourth

Treet raises $3.5M to help modern brands grow responsibly with branded resale

The company was funded by First Round Capital and helps build a turnkey marketplace for brands.  Interestingly, the company was recently signed by Chinese brand Shein to manage their resale program.

Link: https://www.treet.co/post/treet-firstround-announcement

AND FINALLY …

App PhotoRoom raises $19 million as it continues to take off

Anyone who has ever struggled to edit product detail page images should consider checking out Photoroom.  The product helps you edit photos quickly, remove backgrounds, and retouch all your images in bulk.  The company claims its app has been downloaded over 40 million times.

Link: https://techcrunch.com/2022/11/07/after-40-million-app-downloads-photoroom-raises-19-million/

https://community.rmwcommerce.com/t/photoroom-anyone-wow/153

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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.  Want to discuss the topics on the show?  Head on over to community.rmwcommerce.com to connect with other listeners!

Our production partner for the series is CitizenRacecar. The show is produced by Alex Brouwer; 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.