October 21st, 2024: Optimization will be the watchword in 2025, OpenStore pivoting into Helpdesk Software, Walmart appoints Seth Dellaire as CGO, and new report shows Unicorns lack exit options
It’s October 21, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Optimization Will be the Watchword in 2025
OpenStore Pivoting into Helpdesk Software
Walmart Appoints Seth Dellaire As Chief Growth Officer
New Report Shows Unicorns Lack Exit Options
- 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….
Optimization Will Be the Watchword of 2025
Often when trying to make a business more profitable, it can seem daunting to decide what to keep and what to throw out.
Generally because there is not a clear business plan. Without a growth strategy, the CFO or CEO will just start at the highest line item expenses and start chopping.
In cases like this, the devil is really in the details. Jamie Hancox today talked about the trend towards consolidating eCommerce stacks. Which I agree is definitely a trend I am seeing. However, today I wanted to talk a little bit about what I think is causing this trend, and not the trend itself.
The cause of this stack consolidation is most often poor growth or inefficient growth causing a re-look at expenses. The root cause of this is difficulty in getting new investor money. For many people consolidating technology stacks now, these decisions should have honestly been made last year.
For technology vendors, it can mean moving from: Best of breed -> Best for me now.
Still, we are having the wrong conversation. The stack is a means to an end. Don't be surprised if growth keeps plummeting the more you cut. If you haven't both identified and prioritized your most important growth customer segments from the beginning and build everything in your business around that, you won't know what is nonessential later while you're cutting.
At RMW Commerce here is how planning begins with our top customers. First decide where your customer growth is going to come from. Why do they come to you?
Next, decide where your channel growth will come from? Where will they come from and how much will it cost to acquire them?
Next, are your people and process optimized around these growth plans? What can be made more efficient or reorganized? This step is often entirely skipped in a rush to reduce technology spending.
Finally, you can start to make technology decisions. For a more profitable business you might need to be happier with a longer-range growth plan as long as your top-line is still increasing.
People and process aligned in service of your growth plan.
Technology aligned to service your people and processes.
Better alignment can create growth while saving.
In this environment, even modest growth can still mean you are gaining share vs your peers.
[References:]
Our Second Story
OpenStore Pivoting Into Helpdesk Software
I don't know much about OpenStore, except these facts:
* One of the first "Shopify aggregators".
* Raised $150M and was reportedly at almost $1B valuation at one point.
* It has acquired over 50 brands.
* In 2022, his number one goal was to acquire "ten times more" companies with a goal of "acquiring a business a day."
* It "automated" the offer process more than most other aggregators.
* In 2022, the company said "eventually" it plans to move merchants to a single platform.
And here are some other facts about these previous facts:
* Most startups become worthless, because they are startups.
* Most acquisitions fail because the acquired business is not worth much.
* Most acquisition synergies even between two great businesses are never realized without destroying what made one or both special.
* Automating a bad business process (acquiring bad startups) tends to accelerate failure.
Now the company releases some new facts in an updated interview:
* The company now says it needs to make very few acquisitions because it now "wants to pick only the winners." (duh)
* The company is releasing its internal customer service software to the world, because "it's good enough for us." Of course, it's based on AI. (duh)
Let's review:
* We used to want to acquire a company a day. We built a lot of automation to do that.
* Now we want to acquire almost no companies.
* Our biggest opportunity is now in software.
* But we are not going to build software that generates any revenue, instead we are just going to shave a few pennies from outsourced reps in Phillipines (?) by moving to AI.
Don't call it a pivot -- instead, call it a reboot. I wouldn't think Gorgias or Zendesk are too concerned. The company is aiming lower than this in the market. Instead of building automations for their own customers who apparently are not succeeding ... they are going to sell to other brands below $1M in sales most of which are also not going to succeed.
The churn in this tier of the software market is unreal. That said, the new business sounds better than the old one!
Still, I ask simply: who is going to trust OpenStore to run their software stack?
[References:]
Our Third Story
Walmart Appoints Seth Dellaire As Chief Growth Officer
Seth Dellaire has had a long career in the advertising industry.
He has been leading Walmart Connect - the advertising business. Walmart Data Ventures, and Walmart+ which has experienced a lot of growth under his watch after some early ramp-up period.
It's no surprise that Seth has been promoted to Chief Growth Officer at Walmart. In short, retail is hard -- digital services are easier and higher margin -- it's the way of things right now. In this role, Seth will have full reign over omnichannel product, design, and marketing teams.
Usually I find when someone with a business/sales focus like Seth adds responsibility for things like product and design, the company has found that he has a good pulse on what the customer needs and there are even more services that Walmart plans to announce and improve... and Walmart does not want to wait for the rest of the organization to align with Seth's progress and vision.
It's also a truism that the Amazon execs are taking over at Walmart.
- Manish Joneja SVP Marketplace spent 3 years at Amazon after spending 6 years at eBay.
- Suresh Kumar CTO Walmart spend 8 years at Amazon.
- Seth Dellaire spent almost 15 years at Amazon.
- David Glick, SVP Enterprise Business Services. Almost 20 years former Amazon logistics leader!!
Gone are the days where to be a senior Walmart executive you had to spent 25 years living in Bentonville, Arkansas.
Finally, despite the expanded responsibilities you can't expect an advertising-focused leader not to continue to drive advertising and other data services deeply into the omnichannel experience at Walmart for its brand and marketplace partners. This will likely give Seth a larger perch to do so.
[References:]
https://www.linkedin.com/posts/ecommercestrategyconsulting_walmart-invests-in-its-digital-future-with-activity-7252641162312781825-keDD/?utm_source=share&utm_medium=member_desktop
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And Our Last Story
New Report Shows Unicorns Lack Exit Options
Pitchbook and NVCA just released a report that highlighted a few trends in the VC world which definitely ring true to me right now. A few of the callouts:
* Lack of large M&A and IPOs continue to affect the market in a number of interesting ways. One is the number and age and size of unicorns. Unicorns account for $2.5T in value, which seems good until you understand that 40% of these have been held in a portfolio for 9 years.
Something has to give. Recent reports from the Apollo CEO have indicated it may just become the new normal to stay private indefinitely, and have distributions to earlier investors done through private equity instead.
Sign of the times.
* The total number of investors making a deal is just 45% of the total from 2021.
To me this means that rookie investors are sitting on the sidelines, and existing investors are doing bridge rounds instead to support their existing bets. And to perhaps hide declining valuations. The age of the "party round" is over.
* Diligence is up, and deals are taking longer to close. At the same time, the number of total venture deals is not increasing. This is causing existing startups to prioritize efficiency, cash and profitability over growth.
It's not helped by the fact that I've seen net revenue retention down for eCommerce SaaS companies all over the place, particularly in smaller customer segments. The great trade-down continues.
All told, venture companies are staying private longer, and are faced with no IPO prospects and limited M&A opportunities. In this case, you might say old startups don't die they just fade away.
No 50 basis point rate cut is going to change this dynamic until we start seeing some big AI IPOs out there.
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
True Value Hardware files for Chapter 11
True Value seeks Chapter 11 bankruptcy protection to sell itself to rival Do it Best for $153M via a stalking horse bid, using cash collateral and Do it Best's investment if needed. A 75-year-old retailer joins a list of retailers who have failed to stay relevant. Sadly, we will see more of this.
Second
B. Riley Financial to Establish Partnership with Oaktree in the Great American Group Businesses
B. Riley Financial and Oaktree Capital Management have announced a partnership in Great American Group businesses. The company will reorganize and contribute all of its interests in Great American Group to Great American NewCo. B. Riley receives $203M in cash at a valuation of $386M, while Oaktree is provided with the upside of Great American Group. This seems complicated!
Third
Descartes Acquires Sellercloud For $110M
Descartes Systems Group announced the acquisition of inventory and order management platform Sellercloud for $110M, which includes up to an additional $20M performance-based earnout based on revenue-based targets in the next two years post-acquisition. This is the fifth acquisition that Descartes has made in 2024, as the company has added additional e-commerce logistics solutions to its offering. This continues the long line of a Descartes trend.
Fourth
Mytheresa Acquires Yoox Net-a-Porter For $608M
Luxury e-commerce platform Mytheresa has acquired Yoox Net-a-Porter for €555M ($608M) from Richemont, who will receive a 33% equity stake in Mytheresa. Richemont will also be able to nominate a member to the Mytheresa board and grant a six-year revolving credit of €100 million to assist with YNAP's general expenses. The luxury sector seeing consolidation is a sign of the times, right?
Link: https://fashionista.com/2024/10/mytheresa-aquires-yoox-net-a-porter-richemont
AND FINALLY …
The Watches of Switzerland Group Acquires Hodinkee
The Watches of Switzerland Group has acquired Hodinkee, an editorial watch website, for an undisclosed amount. Why is this news? This is another example of a business that peaked during the pandemic and then struggled to regain its original identity. Who would have thought that editorial content for watches is a business?
Today’s final word for the week of October 21, 2024 is Optimization. This is a theme that we will start to explore more here in the podcast, as I have it marked as a key trend and theme for 2025. Consumers will keep trading down, but another word for this on the consumer side is optimization also. Optimization of consumer budgets that is. It’s not that the economy is getting a ton worse, but the costs of the largest part of household budgets are also not going down. How high is optimization on your mind for 2025?
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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.