October 11th, 2021: Amazon and Target get a head start on the holidays, Google updates its eCommerce strategy, Home Depot signs up with Walmart GoLocal, and Rent the Runway files for IPO
It’s October 11, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Holidays Starting Early This Year at Amazon and Target
Google Looking to Update Its eCommerce Strategy, But is it Enough?
Home Depot Signs Up with Walmart GoLocal for Same Day Delivery
Rent the Runway Files for IPO, but the Road Ahead Looks Difficult
- 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….
Holidays Starting Early This Year at Target and Amazon
Two of the country’s largest retailers are starting holiday deals in the first two weeks of October this year, rather than waiting until early November, as is more typical holiday practice.
The primary reason for doing this is simple - supply chain and inventory issues. In a world where you can’t predict demand, and you aren’t sure when supply might arrive, better to sell it whenever you can deliver it in the next few months and hope like hell that buyers listen to you.
Despite this year’s supply chain issues, this is not the first or even the second year of this.
The big question for me with this continuing trend is — where do you go from here? Post-Labor Day Holiday Deals? If the second half of the retail calendar truly becomes “everyday low value,” where is the motivation for consumers to buy now?
When one of the big players moves, the “fear of missing out” is extremely difficult to resist.
Top retailers know this is not a sustainable trend despite the fear. In future years, I anticipate that holiday deals will get back to a more predictable calendar, that is if next year’s supply chain returns to normal. But what if the opposite happens?
With Nike and others reducing forecasts because of stock levels, most retailers are just scrambling to find something to sell. The winner this holiday will be those retailers with inventory.
One way to combat this and ensure you have stock all season? Raise prices to smooth out the demand. With ongoing worries about stock levels, could that lead to price inflation at the checkout register?
References:
Our Second Story
Google Looks to Update Its eCommerce Strategy, But is it Enough?
A recent Wall Street Journal article highlighted changes to Google’s search results to show more of an image-heavy product listing page, rather than a simple list of text and links. These changes allow consumers to more quickly see styles of brands.
This news unexpectedly kicked up a huge firestorm in my LinkedIn comment stream, and there’s a simple reason.
For the past 20 years, Google has been unable to blunt the rise of Amazon in retail search queries, and now Amazon is leveraging that to take down Google’s crown jewel - its ad business.
The issue is that tweaking Google’s search results will result in only incremental improvements. The company needs more innovative retail ideas for consumers to get excited about.
On one hand, Google is not going to make it more convenient to browse a brand’s own inventory than a company like Shopify.
On the other hand, Google has repeatedly proven it has no idea how to blunt Amazon’s continuously increasing share in product searches.
Which leaves me wondering — what exactly is Google’s primary value proposition in retail? I still find it noticeably absent. These changes highlight how Google still hasn’t learned how to improve the experience for its retail consumers.
So what SHOULD BE next for Google?
While there aren’t any silver bullets here, there are two areas I would be exploring.
First, Google should focus on YouTube — in particular, enhancing brand and consumer engagement. YouTube, unlike its own search, is a discovery engine and a perfect place to drive continued partnerships with brands looking to meet new consumers.
Second, Google should surface local inventory through its Maps product. Consumers already go there to find stores around them. If the interface evolved to become more product-oriented rather than store-oriented based on the search terms, Google would be onto something. The one stumbling block might be local inventory accuracy — but there are simply too many companies with a vested interest in solving this issue for it to remain unsolved forever.
If you see Google’s President of Commerce Bill Ready taking over Maps and YouTube, you’ll know where this is headed.
References:
Our Third Story
Home Depot Signs Up with Walmart GoLocal for Same-Day Delivery
Walmart announced a big new customer for its recently introduced GoLocal service, and in doing so, the supply chain space has become even more muddled. Here’s what we know:
CNBC reports it’s for paint, tools, and other supplies that can fit into a car.
It reportedly helps Home Depot achieve same-day or next-day service for 90% of the population.
Home Depot reports that half of online orders are being delivered through stores, which is solid progress in its eCommerce journey.
A few points about the deal.
First, this is not exclusive. There is nothing here about Walmart powering the entire same-day experience. Likely, what it’s getting is the ability to compete and perhaps even bid in real-time for Home Depot customers’ business at the time of shipment.
Second, there is a complicated story here in which Home Depot had invested in same-day delivery startup Roadie, which was recently acquired by UPS; however, I don’t get any indication that Home Depot is dropping Roadie as a carrier option.
Third, I’ll be interested to see if this deal with GoLocal will be promoted inside Home Depot stores. If it is, it is a much more serious partnership than what is initially apparent. If it is not pushed inside the stores, then we will have to wait and see how much volume is driven here.
Finally, if anything, I think this puts FedEx on notice. FedEx is dealing with a perfect storm of issues in its traditional network right now due to staffing, margin and SLA issues. Home Depot wants same-day or next-day ground capabilities for 90% of the nation – as does every nationwide retailer – but FedEx is not well-positioned to respond to this.
Despite the space’s low margins, expect that FedEx could be forced to follow UPS in acquiring a same-day delivery provider sometime in the next year.
References:
And Our Last Story
Rent the Runway Files for IPO, but the Road Ahead Looks Difficult
Last week, rental pioneer and America’s best dry cleaner Rent the Runway filed to go public and released a ton of new data on its operations. Here are a few facts I pulled out of the company’s S1.
First:
Rent the Runway reported a net loss of $85 million on $80 million in revenue in the six months ended July this year. That compared to a $88 million loss on $88.5 million in revenue the same period a year ago.
So ultimately the company is not making any money. Worse than this, the company was forced to lay off a third of its staff during the pandemic.
Second:
The company claims 88% of customers were acquired organically and that customer acquisition costs are $55.
Without any context of customer lifetime value, these are essentially nonsense numbers and only designed to create a hype story for investors rather than communicate any meaningful information.
Third:
The average customer wears Rent the Runway items 83 days per year, which is a higher number than I thought it would be.
The company also reported that 40% of its styles turn for three or more years, which also seems like a good sign.
Fourth:
Acquisition of inventory through consignment has grown from 26% in 2019 to 54% in Fiscal Year 2021. This means that Rent the Runway doesn’t need to acquire this inventory wholesale up-front.
So that’s what the S1 told us. In order to analyze the company’s future, you need to think not just about the company’s own results, but the competing alternatives for brands and consumers as well.
Here are a few of my worries about the company’s future prospects:
One - Fashion resale marketplaces like Poshmark, Thredup and Depop are on fire.
If you can buy a used item you want and the market is liquid enough for you to resell it, why do you need to rent at all?
In short, consumers have a lot of choices.
Two - Higher-end brands are launching their own rental and resale experiences.
When Rent the Runway first launched, it wasn’t as easy for brands to offer their own resale or rental experiences. Now, not only are there other white label rental providers brands can use, but there are also white label resale marketplace solutions that brands can adopt.
In other words, brands also have options, including those in which they own the customer.
Finally, Rent the Runway’s model is not as capital-efficient as a consignment marketplace.
Reading through the company’s financials is more challenging than you might think because you simply can’t find basic things like item cost of goods in the company’s gross margin. Instead, Rent the Runway depreciates its apparel inventory as a capital expenditure like a normal company might treat a building or infrastructure investment.
Other marketplaces do not have to worry about these sorts of issues because they never had to acquire inventory to begin with.
Additionally, Rent the Runway’s new consignment model essentially turns its brand partners into inventory financiers, given the company expects to return the wholesale cost of any consigned item back to the brand after one year.
With such a unique model, my final worry for the company is who the natural acquirers are. A large apparel retailer like Macy’s? A consignment marketplace like TheRealReal?
Rent the Runway’s financials may make them too unique and unattractive for a potential suitor looking for something quick and easy to expand its model. In fact, I might even go so far as to predict that if they are eventually acquired by a marketplace, it might be simply a supply acquisition play and the rest of the operations would be shut down due to ongoing capital and complexity concerns.
References:
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It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Fanatics’ new Trading Card venture just raised $350 million in a deal that values it over $10 billion.
Back in August, in a move that outmaneuvered everyone in the trading card business, Fanatics CEO Michael Rubin struck exclusive rights agreements with the NFL, NBA and MLB players unions.
This means Fanatics has access to the original rights holders and can create a better direct-to-consumer experience than everyone else in both the first sale, and resale businesses due to access to higher quality data.
Second
Doordash led the investment in German grocery delivery firm Flink at a $2.1 billion valuation.
DoorDash, the biggest food-delivery company in the U.S., has been hunting for targets in Europe with a focus on grocery deliveries.
Third
The founder of Amazon Air has launched a new startup called Pandion which raised $30 million.
Pandion claims to have innovated on the journey a package takes from the origin point to the consumer’s doorstep, allowing the intermediate nodes to be dynamically selected during the journey rather than being predetermined.
https://www.cnbc.com/2021/10/05/amazon-air-founders-start-up-pandion-raises-30-million.html
Fourth
EXO Freight closed on an undisclosed seed round for its so-called open-deck shipments marketplace.
As opposed to shipments via vans and trailers, open-deck shipments need to be loaded by the top or side –things like construction materials. The founder of EXO Freight thought a marketplace serving this particular segment with its unique constraints was not being addressed by players like Uber Freight.
https://www.yahoo.com/now/startup-exo-freight-tackles-lack-141930422.html
AND FINALLY …
eCommerce and marketplace partner Pattern announced a $225 million investment from Knox Lane.
Pattern can be described as a technology-enabled services business. The company itself buys inventory from its brands at a discount off wholesale, betting that it can turn a profit when it takes goods to marketplaces.
This is setting up quite a battle between the Amazon aggregator model which buys brands, and the accelerator model which only buys inventory. Given the billions of dollars of capital flowing into this space, I have my popcorn out for this fight.
https://pattern.com/news/pattern-secures-225m-growth-equity-investment-led-by-knox-lane/
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That’s all for this week! ‘Til 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 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.
