October 17th, 2022: Shopify API enhancements, Walmart’s new acquisition, TikTok hiring to build global fulfillment network, and Amazon’s cost-cutting
It’s October 17, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Upcoming Shopify API Enhancements Bring Both Potential and Pain
Walmart Goes All-In on Microfulfillment with New Acquisition
Tiktok Hiring To Build Global Fulfillment Network For Its Creators
Amazon Cost-Cutting Could Give Us Preview of 2023
- and finally, The Investor Minute 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….
Upcoming Shopify API Enhancements Bring Both Potential and Pain
Significant updates are coming to Shopify's APIs that will shake up the app ecosystem. These are not "newly announced" (some I recall at Unite last year) but are getting closer.
What's happening? 3 Things.
1 - Checkout Customization.
This is a way to brand checkout (Branding API) and use Functions and Apps to add custom functionality to checkouts.
This completely bypasses having to edit checkout.liquid files, which only developers could do.
These new capabilities can only be installed on Plus Stores.
2 - Some privacy enhancements for apps surrounding customer data.
The instructions are detailed and difficult. It protects all data that identifies a particular customer's transaction: events, customer records, order records, fulfillment, shipping rates, store comments (could this mean UGC?), gift cards + payments.
There are even more restrictions if you want name, address, phone, e-mail.
Your app will need rewrites if it's impacted. And extra approvals.
Deadlines? New apps April 2023.
Existing Apps July 2023.
Third, Shopify is proposing a complete reimagination of how pixels work.
A pixel is a piece of Javascript code which has the ability to track user and page activity throughout a website.
These proposed pixel changes will affect any app that attempts to track customer behavior. Which is to say, pretty much all of them?
Essentially, Shopify is going to become its own data manager (like a Segment), which will govern the behavior of pixels including what events you can publish and subscribe to. You will have to register your requests with Shopify. This will affect what events and Javascript functions you can access during the execution of a page.
These updates are controversial. Some developers will give up and stop. Others will see this as an opportunity.
API changes are like that.
Why would Shopify do something like this?
I think the reasoning is more straightforward than you think.
Let’s start with the fact that Shop Pay is essential to Shopify’s entire business. Add to that, Shopify’s checkout must become more customizable for a whole host of reasons, not the least of which is all the new B2B scenarios that they want to enable in the future.
If you customize a checkout, by definition at some point these potentially thousands of third-party applications will by definition have access to a brand’s sensitive customer data.
Post Facebook and Cambridge Analytica, there is really no major software company that can afford to give access to customer data without privacy being a top concern.
I actually applaud Shopify for getting ahead of the narrative here. If you think about it, the downside risk for Shopify is much worse than the upside of making it easier for developers.
For the upset developers and merchants, I encourage you to read and re-read a copy of "Who Moved My Cheese?" and think about the ecosystem you want to be in.
[References:]
Our Second Story
Walmart Goes All-In on Microfulfillment with New Acquisition
In a widely predicted move, Walmart has acquired micro-fulfillment provider Alert Innovation, according to a recent press release and reporting from Grocery Dive. The goal for the company is to help make their stores and local fulfillment centers more efficient through the use of automation and robotics.
What is micro-fulfillment? Essentially, exactly what the name says. Rather than having a million square feet of automated warehouse facility, microfulfillment attempts to modernize the backoffice of an existing retail storefront or dark store by reducing the cost per piece to get individual packages out the door for the purposes of store or curbside pickup and local delivery.
Walmart has a long history working with Alert after a multi-year pilot process. If you’ve watched Walmart’s fulfillment moves closely, they have really upgraded their teams and approach for building out fulfillment services and carefully those their partner here.
What scenarios will it be used for?
Primarily grocery. One of the advantages of the technology is that it can work across multiple temperature zones, and the company claims it can pick a 40 item order in less than 6 minutes. The automated workflow will then assemble and deliver orders to waiting associates will will then interact with customers.
Why the acquisition? A few reasons.
One, Walmart as the leader in grocery in the United States has the footprint to make this acquisition worth its investment.
Second, Walmart hears footsteps from Kroger and Amazon. Amazon is continuing to invest in robotics and is planning to build more automated Amazon Fresh stores. It’s not well known if Amazon has a for microfulfillment. Kroger the number two player in the spce has a number of automation initiatives in the works as well.
Viewed through this lens, Walmart’s acquisition of Alert is as much defensive manuever to prevent this technology from reaching competitors as it is offensive to help improve it’s efficiency and customer experience.
[References:]
Our Third Story
TikTok Building "App Store for Logistics" For Its International Creators
Axios scooped a story that said they are connecting the Tiktok eCommerce Shop experience in the US to a Fulfillment Network. I verified the same job listings, particularly Trust & Safety roles, Merchant product onboarding, inventory visibility and placement, demand forecasting, connectivity with logistics providers, customs clearance and warehouses, and performance monitoring.
In short, I think Bytedance is following Alibaba's lead with how a popular marketplace helps its brands handle promotional demand. If an American brand wants a promotion on Singles Day in China, you must have forward-deployed inventory in Cainiao warehouses.
The motivation? Social networks can do much damage and can be havens for fraud, counterfeits, and international rule-breaking (who can sell what/where legally). If consumers don't have a great experience, they lose trust, and creators can't monetize effectively. It's about their coveted influencer and advertiser audience.
The workflow will be like this. An internationally famous creator has established a major following on the network and is now partnered with manufacturers and wants to give exclusive drops to their fans worldwide. These creators are not necessarily international retailers but need to act like them.
I came up with a basic set of questions that Tiktok executives must be able to answer reliably and efficiently:
1 - How much traffic and interest will this offer generate?
2 - What will the conversion rate be by country?
3 - How much inventory should I secure for this promotion?
4 - What countries can I legally sell this to?
5 - What is the most efficient way to clear customs into each country I need to deploy inventory?
6 - Where should inventory be deployed in each country based on demand patterns?
7 - How much inventory should I put in each location?
8 - Which supply chain providers should I work with to make this happen?
If Tiktok is the best in the world at answering these questions, it's a flywheel for their business. This is a boon for logistics providers and infrastructure startups in those markets.
Tiktok will need to set standards and build connectivity to all players -- including Amazon Logistics, Shopify Logistics, Maersk, Flexport, and many others.
Call it the Tiktok App Store for Logistics that creators can choose from. Its information flows seamlessly into the creator's portal and a governance mechanism to keep the system legal and performant.
The question remains, will social commerce on this scale work? History tells us yes. The top platforms are different, and Tiktok has a definite chance of succeeding whether others like Meta have struggled.
[References:]
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And Our Last Story
Amazon Cost-Cutting Could Give Us Preview of 2023
Everyone famously heard this year that Amazon doubled the capacity in the past two years of a fulfillment network that took 20 years to build. What you may not have heard is recent news that Andy Jassy, the CEO of Amazon, is instructing employees to
QUOTE double down on frugality.
This is according to reporting from Eugene Kim at Business Insider.
This is in stark contrast to Amazon’s history which has focused much more on growth than profitability. What’s interesting about these new moves from Amazon is that the company is not typically known for this kind of behavior, and employes over 150 PhD economists. Which is interesting because the Federal Reserve is thought to have over 400 PhD economists, and they are running the entire US economy.
Some specific callouts from the slides include:
* Maintain cash balances and liquidity
* Adjust inventory levels to meet demand
* Reduce discretionary costs not tied to customers
* Prioritize customer experience over new initiatives
No one can predict the future here, but when one of the largest, well-funded retailers of the world is starting to prioritize cash, improving efficiencies and reducing inventory levels then it would be wise for everyone to take notice.
What does this mean for Amazon brands? I think these kinds of strategies will have an impact on first-party Amazon businesses well into next year. If you’re new to the Amazon world, first-party sales is managed through an interface called Vendor Central and consists of inventory that Amazon buys and resells on its own. Third-party sales is managed through an interface called Seller Central where each seller ships products directly to the consumer either from Amazon’s warehouses, or from its own. Amazon never takes possession of the inventory.
Concerning Amazon and how difficult the problem is, it is pretty well known at this point that the default forecasting algorithm that Amazon uses to determine how much inventory of each SKU to buy is hot garbage. If the dial is turned down on that algorithm, then purchase order volumes will decline for first-party Amazon sales.
In response to this, I recommend brands that have high exposure to Amazon first-party to do two things in response heading into the next year:
First, ensure that the cases you build for your Amazon vendor manager are better than the ones you have built in the past. Your data needs to be obvious. Show them the demand will be there, and there are many examples of Amazon vendor managers changing their minds and getting approval for purchase orders they denied initially.
If you haven’t already, start to talk to your Vendor Manager about starting a Seller Central account. This will at least give you the green light to go ahead, and create a win-win for Amazon because their website gets to keep the selection rather than you pulling it down.
If these types of trends play out, it could definitely test the famous statement that on Amazon First-Party Sales are for price, and Third-Party sales are there for selection.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Non-Toxic Kitchenware Brand Caraway Raises Money to Add New Products and Expand Its Retail
McCarthy Capital is a private equity firm that made the $35M investment. In addition to supporting its new retail footprint, the new investment will allow the company to keep bringing new products to market.
Second
Grubmarket Raises $120 Million from General Mills and Others to Transform Supply Chain For Food
Grub Market is a technology company which connects farmers and other food suppliers to business customers like restaurants and groceries. The company also has a consumer offering, which provides the same services directly to consumers. If you ask me, this part of the offering may be a bridge too far.
The interesting thing here is the strategic investment from General Mills. It’s not hard to see how this could turn General Mills from a company making your Cinnamon Toast Crunch to the company providing the payments and supply chain infrastructure to power a large part of CPG.
The investment values GrubMarket at more than $2 Billion.
Third
Inclusive Beauty Company The Lip Bar Raises $6.7 Million to Expand Options
The company’s origin story is quite interesting. The founder Melissa Butler started the company on her kitchen table when she realized that the beauty industry simply did not have a product that represented women of color that was not full of chemicals.
Link: https://thelipbar.com/blogs/main/the-lip-bar-fundraise-announcement
Fourth
E-commerce software aggregator Carbon6 Technologies grabs $66M in equity and debt
The company has already acquired over 16 companies in the Amazon software ecosystem and are focused on the needs of professional sellers, which they say number about 200,000 in the United States.
Their competitors in the space include companies like Assembly.
Link: https://techcrunch.com/2022/10/04/carbon6-technologies-e-commerce-software/
AND FINALLY …
Canned Water Company Liquid Death Now Worth $700 Million after a new $70 Million investment.
Literally it’s just water in a can. That’s the whole story.
Link: https://www.cnn.com/2022/10/04/business/liquid-death-water-valuation/index.html
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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 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.