November 4th, 2024: CEO merry-go-round continues, Paypal earnings report show progress and challenges, UPS releases Q3 earnings, and everyone in retail copying everyone else
Today’s episode of The Watson Weekly Podcast is sponsored by Mirakl
It’s November, 4, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
CEO Merry Go Round Continues
Paypal Earnings Report Show Progress and Challenges
UPS Releases Q3 Earnings
Everyone in Retail Copying Everyone Else
- 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….
Retail CEO Merry Go Round Continues
The Real Real Went Public in 2019. Since then, the company has had 4 CEOs, the founder Julie Wainright, Rati Sahi Levesque and Robert Julian as co-CEOs as they worked to find a successor, John Koryl, and now Rati Sahi Levesque solo.
This news follows the CEO of Boot Barn moving to Ross Stores, the firing of John Donahoe at Nike, a new Starbucks CEO, and the Head of Grocery at Amazon leaving to go to Wonder,
But to recap the Real Real:
* Turnover on the C-Suite means a troubled company on a number of levels. Only time will tell.
* The company is growing topline and GMV. Profitability is moving at least in the right direction.
What happens to John Koryl?
- It's possible there is some kind of malfeasance. Remember when the last ebay CEO resigned from eBay over "disagreements"? Turns out he left to avoid his own disgrace instead. Whoops.
- It's also possible there was just a large disagreement with the Board of Directors - he was terminated without cause and received 1 year salary as separation or about $600k. This could indicate the Board just wanted him to go away quickly.
What's next for the new CEO? Really, there are one of two directions this could take:
* one is the start of some kind of sales process. try and improve the business as much as possible while you find a buyer.
* another is some kind of long-term play. given the continued importance of profitability, it's possible more layoffs could be coming to settle in for a longer transformation.
All this to say, CEO turmoil is no bueno for the morale of any company, so the new CEO has her work cut out for her. Good news is, Levesque has been with the company so long she definitely knows where all the bodies are buried.
If it turns out that Levesque was doing all the hard work anyway under Koryl, you could see the path to profitability accelerate if it leads to greater focus.
Levesque has been there from the beginning so there could be some element of “Founder Mode”.
Does that mode help on a broken business model?
Asking for a friend.
Or... employee departures and layoffs could lead to a talent drain which could just make things more difficult.
All in the execution at this point.
[References:]
Our Second Story
Paypal Earnings Report Show Progress and Challenges
Paypal released their earnings this week, and I thought I would provide a few interesting notes from the conference call.
I’ll say at the start, I’ve been tough on Paypal, but it appears to me that the new CEO is the best Paypal CEO I’ve seen in the last 15 years. It’s a low bar, but hey they are not working on stupid things or running in circles like they have in the past. That’s something.
First, Paypal sees a resilient consumer. That is an interesting datapoint on its own right? This is based on early Q4 transaction volume data.
Second, Paypal Fastlane is now rolled out to over 1,000 merchants. A majority of those they indicated are tied to BigCommerce. Beyond this point, as we say, Houston we have a problem.
Paypal Fastlane has a distribution problem. Paypal and Shopify are the biggest frenemies at this point. Shopify needs Paypal, and Paypal needs Shopify. But both want to drink the other’s milkshake, which puts a natural limit on their ability to partner. Not only that, Shop Pay has instant penetration for all updates, whereas Paypal's merchants must upgrade on their own. Bad news for Fastlane.
Third, Braintree and Adyen are the biggest flashpoint by far in Enterprise payments for Shopify.
While Stripe is a popular payment platform, their Enterprise penetration is quite limited given their roots and historical focus. Especially for the largest brands, payment processing volume is dominated by offline sales — as even the most optimistic estimates for 2024 indicate about 20% penetration of eCommerce in the United States.
It doesn’t mean Shopify isn’t making some progress, but it’s a knife fight in a phone booth.
Mentioned on the call: Paypal plans to roll out a Adyen and Braintree version of Paypal Fastlane. Braintree obviously they own and control. Adyen not so much. But it is notable that a roadmap was mentioned on the call.
Words I have never heard (yet?) on a Shopify earnings call:
“Adyen version of Shop Pay” or “Braintree version of Shop Pay”.
The latter you would see over Paypal’s dead body, which I’m sure Shopify would be happy to arrange. Adyen, however, seems more possible.
The simple question is, while Stripe and Adyen are clearly competitors, and Stripe is preferred by Shopify, would Shopify partner with Adyen for Shop Pay? It could be a matter of negotiation. Shopify clearly has the distribution advantage, and similar to Amazon Buy With Prime, could be prepared to wait out Adyen, even if it slowed Shopify’s own Enterprise penetration in the short-term.
Finally, in the battle for guest checkout… Shopify’s Shop Pay mentions 200M+ shoppers. Paypal Fastlane mentions 170M+ shoppers. Distribution is king, so you could give the edge to Shopify here given their head start. Bill Gates used to be famously paranoid about competition as you don't want to let a small competitor (what Shopify used to be) become a big one.
Whoops. Too late.
[References:]
Our Third Story
UPS Releases Q3 Earnings
Here are four takeaways from UPS earnings that every eCommerce operator should know:
1 - "100 UPS customers represent 60% of the volume in their network, and 85% of the peak surge."
I hadn't heard these numbers before. But when you consider that UPS delivers parcels for 1.6 million shippers each day, only 100 truly matter.
If you ever wonder why logistics is a volume game, look no further. Volume and density are critical for profitability. Logistics companies targeting SMB cannot afford the infrastructure improvements to automate without impacting their customer's rates (cost more) or their own profitability (slimmer margins).
2 - Volume growth is up in the US since May, a lot from Temu and Shein
This is following 9 quarters of weaker demand. 6.5% volume growth in Q3 with a large portion from these two shippers. UPS has adjusted what it can - moving these SurePost parcels into their main network where possible to control the profitability damage on these late-injected short-haul parcels.
The influence of these two shippers has changed the dynamic from Air to more ground, and even more to SurePost -- 60% of which hands off to the USPS (this is their lowest-margin business).
UPS did make a curious comment that "online sales slowed" in the quarter, it doesn't mean declined y/y, however.
3 - Margins are up based on the actions the company is taking. Why?
* Wage inflation has come down from 12% y/y in 2Q to 5.2% in Q3 y/y, based on annualizing the union agreement.
* The company is shrinking its management teams as well as its network size, and increased the productivity of its automated hubs by 5%. These automated hubs handle 63% of domestic network volume -- so are a point of high leverage.
* Additionally, UPS completed 45 operational closures, contributing to an 8% improvement in pieces for workforce hour. This alone represents an offset in 50% of the costs of the union wage increase.
All things helping margin.
4 - Due to Compressed Period, Holiday Could Move More Into Physical Stores
* As everyone knows, this is the most compressed holiday shipping period since 2019 with only 17 shipping days. An interesting comment from UPS CEO:
"...because of the tightness of the shipping season that many customers will go into a store to complete their holiday purchase."
I had not heard such a prediction before, but it will be interesting to watch. No doubt, UPS received this information from its top shipping customers which represent most of their volume.
All in all, a cautiously optimistic holiday season with forecasts still all over the map. Peak periods are expected to be up, albeit nominally at 3%.
But keep this in mind: if AOVs are compressed due to pricing pressure, then a 3% increase in volume will not offset the decline in pricing. That means from a GMV perspective we could be looking at a flat to down season for many retailers from a top-line point of view.
[References:]
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And Our Last Story
Everyone in Retail Copying Everyone Else
A recent article in Retail Dive highlighted the fact that Target just cut prices on over 2,000 items. Constant rollbacks all year.
Sound familiar? In short, in the retail world, everyone is trying to be something they are not.
-> Amazon: Attempting to become Temu by lowering cost to serve and launching a Low Cost Store.
-> Temu: Attempting to become Amazon and get ahead of looming Section 321 restrictions by adding North American logistics.
-> Target: As I mentioned, they are moving to more of an "everyday low pricing" model like Walmart by recently cutting prices on 2,000 items and earlier this year launching a dealworthy house brand.
-> Paypal: Trying to make up for lost ground against both Klarna (affiliates/ads) and Shopify (Shop Pay guest checkout).
-> Shopify: Tobi mentioned on a recent podcast that he caught "ZIRP fever" during the pandemic (did a green mosquito bite him?) and it caused them to try to be a logistics company to compete with Amazon. Now they are trying to be the second coming of Demandware + Paypal before either Salesforce or Paypal learns how to innovate faster.
-> Salesforce: On a continuous acquisition spree in an attempt to become Oracle so that Benioff can outdo his former mentor Larry Ellison.
Of course in many cases, these are good moves and are all perfectly logical in their own way. In terms of planning your next act whether its as a brand or a software company, the calculus is straightforward, and Amazon's Andy Jassy previously outlined the four questions they use to frame innovation:
* Is it a large, meaningful opportunity?
* Is the problem compelling and underserved today?
* Do we have a differentiated approach?
* Do we have a competence in the space, or can we acquire it quickly?
If you look through the lens of all these players above, they all feel the answers are "yes" and so innovation makes a lot of sense. In some of these cases, I might question some of the differentiation or competence, but again with time and energy that can change.
Regardless.
Evolve or perish is going to be the phrase for 2025. If you don't keep your customers happy, someone else will. Happy Halloween Ya'll. Here's to a Spooky Holiday Season.
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Private B2B Marketplace Ghost Raises $40M in Series C Funding
Private B2B marketplace for surplus and wholesale inventory, Ghost has raised $40M in Series C funding. Brands want to sell surplus and wholesale inventory to new geographies and channels without losing channel control. A private marketplace where brands reach buyers ensures that excess inventory can be sold without worrying about creating additional conflicts and revenue impact.
Second
Automated Retail Intelligence Platform Simbe Raises $50M in Series C Funding
Automated retail shelf intelligence and robotics company Simbe has raised $50M in Series C funding to invest in its technology, partnerships, and new product/area development. Retail shelves are one of the last data collection and analytics opportunities directly impacting retailers' and brands' daily operations. First, it was the wisdom of the crowds, and it increasingly looks like robotics that will solve this challenge.
Link: https://www.grocerydive.com/news/simbe-raises-50-million-series-c/731116/
Third
Nimble Closes $106M Series C Funding Round
Nimble, a robotic third-party logistics platform, raised $105M in Series C funding that will be invested in robot manufacturing and its technology. FedEx entered into a commercial agreement to scale its FedEx Fulfillment service using Nimble's technology as part of its investment. FedEx testing Nimble is a case of an incumbent looking to future-proof its operations with new technology.
Fourth
Stripe Acquires Crypto Firm Bridge For $1.1B
Stripe, a payments infrastructure platform, has acquired stablecoin-based global finance platform Bridge for $1.1B. This deal provides liquidity for a variety of venture capital firms but, more importantly, provides an exit for the crypto sector, which is facing a lack of IPOs and acquisitions. Stripe also acquired a potential competitor that could disrupt in the future. Is this Stripe Becoming Block?
AND FINALLY …
eBay Expands Circular Fashion Fund To Invest $1.2M By End 2025
eBay has announced that it's expanding its Circular Fashion Fund to include the US and Germany after previously operating in the UK and Australia. The fund will invest $1.2M by the end of 2025 and offer 200 hours of mentoring and networking support to startups and small businesses to build and grow circular solutions. eBay investing in the recommence or circular fashion sector enables the business to find new growth opportunities and partnerships before competitors who are disrupting it.
Link: https://finance.yahoo.com/news/ebay-expands-circular-fashion-fund-070000460.html
Today’s final word for the week of November 4, 2024 is: Rocky.
As in, this election season is going to be rocky folks. Keep your head down and just put one foot in front of the other. We will all get through this, somehow, together.
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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.
