October 23rd, 2023: The growing battle between TikTok, Shopify, and Amazon, VF Corp gets a new activist investor, Flexport CEO says it’s not going public, and what should brands do about TikTok shop?
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s October 23rd, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
My Comments on TikTok, Shopify, and Amazon
VF Corp Gets a New Activist Investor
Flexport CEO Says Its Not Going Public
What Should Brands Do About TikTok Shop?
- 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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Just a reminder to stay tuned until the end for my Final Word for the week.
BUT FIRST in our shopping cart full of news….
TikTok, Amazon, and Shopify: The Interplay That Will Define The Next Five Years
The forces that shape eCommerce are ever-changing, and are often based on the actions of the major platforms in the market.
I thought I might spend some time today reviewing TikTok, Amazon, and Shopify - and how their efforts affect each other.
TikTok is looking to train the next generation of eCommerce creators and influencers on its platform. And it's not making the same mistakes as other players in the past.
Let’s talk about TikTok and Shopify first.
If you play out the trends over the next 5 years, Shopify could need TikTok more than the other way around. For a few reasons:
* TikTok already has the consumer's attention. Shopify is still in experimentation mode with Shop App and Shop Cash. Make no mistake, this is what Shopify is trying to recreate with these efforts.
* TikTok is creating its own app and fulfillment ecosystem independent of Shopify, not content to rely on other parties.
* TikTok understands it's the influencers that are the key to the whole game, and has built its own on-platform affiliate program to feed its flywheel.
* TikTok is not repeating the same mistakes as Meta, and is instead appying the Douyin playbook to create events and discount incentives.
How about Amazon and Shopify?
* To expand Prime off-Amazon, I've said many times that Amazon needs Shopify a great deal.
* On Amazon itself, Amazon is under pressure from Walmart at the low-end of the market, "Prime saturation/fatigue" at the high end of the market, and product quality issues across the board.
* To be clear, these are all "high-class" problems for Amazon who is not going anywhere for a while.
* The primary reasons for these Amazon issues I feel are:
-- Over-reliance of Amazon on third-parties.
-- Relative lack of listing and product quality enforcement.
-- Relative rise of fulfillment capabilities in the market.
To be clear, I think Amazon's primary problem is product and price-related, not fulfillment-related. That to me points to more first-party sales going forward.
* In Amazon’s favor, however are AWS and Advertising. These are high-margin businesses for Amazon that Shopify just has no equivalent of. Most of Shopify’s recent monetization efforts including payments, capital, and the ill-fated logistics business were always low margin.
I would expect Shopify to both increase its Shopify Plus pricing in 2024, as well as monetize its Advertising offering outside of Shopify Plus.
Let’s Discussion Amazon and TikTok For a Moment
To continue to attract the next generation of consumer, it's possible Amazon could need TikTok more than the other way around also. Indeed, even Amazon has published in the past about the success of its TikTok influencers.
I feel those gates are closing.
* To expand Amazon to the next generation, it needs to understand how to get in front of them better.
Like Google's own social efforts, Amazon has not progressed beyond its Amazon affiliate program into the video realm in a serious way.
* TikTok is looking to capitalized on its next-generation discovery and consideration advantage by closing off its purchases off-platform.
* This means Amazon desperately needs its own scaled video property in order to compete for the next generation of consumer attention. The trends are working against it rather than for it.
If you review all these players, you might be surprised to learn that TikTok actually has the most momentum in the market if it plays it’s cards right. Between Shopify and Amazon, both have something that the other wants.
Shopify has a great relationship with merchants, and Amazon has a great advertising and fulfillment business.
[References:]
Our Second Story
VF Corp Gets a New Activist Investor
VF Corp, the parent company of brands like North Face and Vans, has seen a new activist investor,and one with a totally non-ironic name Engaged Capital. Engaged Capital released a 26 page presentation. Here are a few highlights of the Engaged Capital presentation:
* First, there is a searing indictment of the previous CEO Steve Rendle and the succession process used to select him.
* Second, the company pursued an ill-advised and overpriced acquisition of Supreme. The investors want the company to commit to no new acquisitions until the company’s debt is paid down.
* Third, Engaged Capital says there is about $300 million in cost reductions available and referred to the previous CEO’s reorganization as a Death Star. The investors plan to reinvest about a third of those $80 million savings into the business to accelerate innovation and restore brand autonomy.
* Fourth, the company should replace virtually the entire existing Board with a slate of new members.
My Take?
One word - OUCH.
* First, it’s never a good look to have your corporate structure compared to a planet-killing Death Star which destroyed millions of Alderaan citizens.
* Second, this is somewhat of an indictment of the holding company brand model? VF Corp tried to make itself look like a holding company and similar to Ann Taylor with Ascena, the sum of the parts seemed to be less than parts themselves.
VF Corp stock is up sharply on the news, which is almost never a good sign for the company because it indicates the market also believes that serious changes need to be made at the firm.
I can’t say I’m surprised, and I for one would vote for any plan which puts the brand and their customers first, rather than surrendering to a corporate parent.
[References:]
Our Third Story
Flexport Not Going Public: Ya Think?
Last week, the Flexport CEO was interviewed by WSJ who set out a few ambitious milestones for the company:
* Profitability by end of 2024 or early 2025, but with no specific plans.
* No plans to sell Flexport, ever.
* It eventually wants to be a Wall Street darling and throw off cash.
First of all -- early 2025? Might be the "first half of never" in this economy, where profitability is at a premium.
Second, where does this leave the Flexport fulfillment business acquired from Deliverr?
Reliable fulfillment takes infrastructure and investment. Investment requires either growth and a healthy cap table, or the ability to throw off profit -- neither of which Flexport has.
It seems to me that the likelihood of Flexport returning to profitable growth and potentially existing in the public markets is extremely low. Here's why:
* If you have a logistics business, you have logistics margins. If you primarily have a software business, you have software margins. If you have a lending business, you have margins based on prevailing interest rates.
From Flexport’s public pronouncements, it seems that the company’s future is as a lender. Which means to me that there is no place inside a restructuring Flexport to incubate and revitalize a flagging fulfillment business.
* Also, can we say the quiet part out loud for a moment? Shopify didn't sell Deliverr because its services were growing and successful. Full stop.
If the Deliverr part of Flexport is ever going to succeed - which, didn't Flexport CEO just say it was the future of the company? - it needs a founder's ability to edit, or it needs to be sold off, or both.
Either way, there is just about zero case for a failing Shopify cast-off fulfillment business succeeding inside of a shrinking Flexport anytime soon. With or without Shopify's endorsement.
The sooner Flexport comes to terms with this, the faster it can improve or restructure. For Shopify's part, despite Shopify CEO's endorsement of the Flexport CEO, it may be time to cut the cord on the partnership and move to a more marketplace-based approach.
Let me write the headline for Shopify: “Hey guys, we tried to pick one platform that worked for all of our merchants. That didn’t work out. Instead, we are building a next-generation Supply Chain App Store on Shopify, and we want the best providers in the world to sign up.”
Such a Shopify Supply Chain App Store would be an industry first, defensible, and attractive to Shopify’s partners.
[References:]
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And Our Last Story
TikTok Shop May Not Work, But You Should Still Be There Soon
The fact that many consumers are getting the same slate of strange viral TikTok products is actually good news for brands. Especially those willing to experiment. Why is that? Well, no one would really deny these two things:
* TikTok's personalization and matching algorithm is great and scary all at the same time.
* The fact that so many consumers are getting the same viral products is a symptom of undersupply, due to a new program with inexperienced brands.
Add this up and I believe that TikTok Shop could be the most underinvested eCommerce "test and learn" opportunity to come along in the next 3 years. Number two could end up being Shein Marketplace, if they play their cards right.
Both have great risks, but also huge potential. This is the perfect kind of investment for a challenger brand.
It's likely most of TikTok eCommerce transaction volume will come from influencers and not brands. This is still not widely understood in the market, and many brands will not take TikTok's silly micro-creators seriously.
That would be a mistake.
Here's some specific advice for merchants to keep in mind:
* Most mainstream brands would not be well-served to create their own videos. The corporate environment often does not lend itself to the level of creativity and whimsy needed for the medium.
* TikTok is clearly boosting videos that contain products right now, and has announced it will be subsidizing deals on an ongoing basis. This means, these videos will have outsized algorithmic importance while TikTok tries to build the program.
What's the Downside?
If the whole thing fails in a couple of years, the only thing you have done is gained your product more exposure, and learned something about what entertains and informs the next generation of consumers.
In a channel with increasing relevance and influence, but few sales, the brands that invest and learn will be the winners. Going where your established competition is often a winning strategy, even if it doesn’t always work out — which of course is an existential risk.
Even if the whole thing is shuttered in a few years, those influencer relationships and brand equity on a growing channel could be valuable however. That alone could make it worth your while.
[References:]
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Hey, Watsonians, did you know that the FTC and States have filed a lawsuit against Amazon? If you were in our online community, you would! To stay on top of what’s going on in eCommerce and join the conversation, visit community.rmwcommerce.com today.
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Consumer Brand Accelerator SuperOrdinary Raise $58M Series B
SuperOrdinary raised $58M in Series B funding, valued at over $800M, to invest in global live-streaming capabilities, Amazon account management, brand protection services, and creator monetization platform.
Link: https://techcrunch.com/2023/10/05/superordinary/
Second
Apax Funds Acquires Bazooka Candy Brands
Apax Funds has acquired Bazooka Candy Brands from Tornante and Madison Dearborn Partners for an undisclosed amount. The company will focus on distribution growth, product innovation, geographic expansion, and the strategic acquisition of brands in complementary categories.
I’m actually kinda glad that the amount to acquire Bazooka is undisclosed. If Apax Funds paid a lot for Bazooka bubble gum, it would make me upset because it was always the most difficult gum to chew.
Link: https://www.apax.com/news-views/apax-funds-acquire-bazooka-candy-brands/
Third
Peer-to-peer Fashion Rental Marketplace Pickle Raises $8M In Seed Funding
Pickle, a peer-to-peer fashion rental marketplace, has raised $8 million in seed funding. The new funding will be used to expand into new categories, new U.S. markets, and retail. Think of Pickle as Rent The Runway without a subscription, which… it seems like we have not proven profitability in this model yet.
Link: https://techcrunch.com/2023/10/11/peer-to-peer-fashion-rental-marketplace-pickle-picks-up-8-million/
Fourth
Showfields Files for Bankruptcy
Do you remember Showfields, the immersive retail location for direct-to-customer brands? They have filed for bankruptcy protection. This is just another reminder that retail and commerce is complex.
Link: https://www.businessoffashion.com/news/retail/showfields-files-for-bankruptcy/
AND FINALLY …
Blue Yonder To Acquire First and Last-Mile Logistics Provider Doddle
Blue Yonder plans to acquire UK-based returns specialist Doddle for an undisclosed sum, providing its customers with an end-to-end supply chain solution with returns visibility.
Today’s final word for the week: SHUTDOWN. It looks like TJ Maxx just announced they are shutting down their eCommerce site. Is this really the right move?
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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 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.