October 3rd, 2022: Prime Early Access event, Gucci and Burberry join second hand trend, Amazon Air grows, and Macy’s new marketplace
It’s October 3, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Prime Early Access Event Helps Amazon Kick Off the Holiday Season
Gucci and Burberry Join Secondhand Luxury Trend
Amazon Air Continues to Grow According to New Study
Macy’s New Marketplace Aims at Selection and Profitability
- and finally, The Investor Minute contains five items this week from the world of venture capital, acquisitions, and IPOs.
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BUUUUUUT FIRST in our shopping cart full of news….
Prime Early Access Event Helps Amazon Kick Off the Holiday Season
Last week, Amazon confirmed rumors that have swirled for several weeks by unveiling its mid-October Prime Early Access Sale on October 11th and 12th. This shows you that even Amazon isn’t immune to what’s happening in the broad consumer market and may give us something to learn from.
Here’s the situation we seem to be in at the moment.
First, It seems unlikely that inflation in grocery and real estate will subside before the holiday season, and the price of debt is going up such that consumers with loans may still be penalized even if inflation goes down.
Second, traffic is off for many websites out there because consumers are reprioritizing their spending habits.
Third, the spending that is happening is extremely price-sensitive. This means the closer we get to the holidays, the more promotional shopping behavior becomes.
Based on the experts I read every day and analysis I follow, it seems to me that the best case scenario for the broader market this holiday is flat year over year, and that is with increased promotional activity. This means that margins will be reduced and many retailers will not be profitable this year at all, even if they manage to have similar unit volumes.
After all, it’s called Black Friday because it was traditionally the date as a retailer that your P&L would move into the black. If you are making less per unit due to promotional activity, do you even hit profitability this year if you have too much inventory left on your books?
There aren’t great solutions to excess inventory problems if you are a retailer or brand in a general merchandise category. The big exception seems to be retailers prioritizing having incredibly unique selection. It’s one reason that eBay has always been a relatively recession-proof business.
Amazon is not immune to consumers reprioritizing their spending. For Amazon, Prime Day 2 will essentially serve as their kickoff to the holiday season, a way to jumpstart sales ahead of other retailers. Another important point is these sales will help clear out warehouse space and allow Amazon to continue to receive new merchandise throughout the holiday period.
Amazon has a lot of advantages in the market, but at their scale, they need to be sure they are holding the right inventory to maximize their sales potential.
[References:]
Our Second Story
Gucci and Burberry Join Secondhand Luxury Trend
A recent WSJ article discussed the different approaches between brands and resale sites. In particular, Gucci and Burberry have started reselling secondhand items through resale marketplaces that they buy through their channels.
This contrasts sharply with what some higher-end brands Hermes and Chanel feel towards resale outlets.
The reality is once your brand becomes attractive and coveted enough, your price premiums start to work against you, and your outlets start feeding the resale market. Even members of my own family has found a line of people out the door at Gucci Outlets in the major suburbs, buying products for resale. If the limit is 8 to 10 bags, then this line of people buys 8 to 10 bags each consistently.
Ultimately, as a brand you want some control of your channel. But your supply chain can be your enemy on these marketplaces. Your product will often find its way to buyers, somehow, someway.
The Kering Group - Gucci's owner - has partnered with Vestiaire and TheRealReal in exchange for investment or a cut of sales. If I were to explore for a second what these sites could do further, it would be this — help brands advertise in these channels and even have access to customer data to sell them new merchandise in the future.
Shop Premium Outlets does exactly this by sharing customer data directly with the brand owner on its online marketplace, but because Simon Properties own it, it has a stake in the future of the brand’s outlet real estate as well.
In other words, it’s trying to be accretive and not a parasite.
I have seen brands even in the second and third tier taking control with solutions like Trove, Rent the Runway, and Caastle. While this gives brands more control, it doesn’t necessarily take items off these resale marketplaces.
If I were a luxury brand, I think there is still a win-win resale marketplace solution if they are willing to engage and think creatively about their long-term customer relationships.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:6980499452633485312/
https://www.wsj.com/articles/gucci-burberry-join-booming-secondhand-luxury-trade-11664011980
Our Third Story
Amazon Air Continues to Grow According to New Study
Last year I came across a group of researchers at Depaul University that have been tracking Amazon’s progress becoming its airline. It appears that they released another data update last week and thought it provided a good snapshot on the state of Amazon’s own airline. Keep in mind these are not insiders so their research is often somewhere in between estimates and speculation. Here are the important points:
The strategy seems to be coalescing around a similar situation to what FedEx has in Memphis or UPS in Louisville. The group mentions that the needs of Buy With Prime are also factored into the network's continued growth.
Here are the important points:
* The primary Amazon Airport in North America, Cincinnati CVG has expanded 71% this year. All indications are that this airport is the nerve center of Amazon’s air network.
* Expansion beyond CVG however, has slowed to only about 4% growth.
* Amazon is up to about 88 planes overall, but Amazon doesn’t own these planes they are leased. And Amazon does not employ pilots; its pilots are contractors.
* There are now 73% of the US population within 100 miles of an airport served by Amazon Air.
A few notes from me about this:
* Amazon’s new Buy With Prime service is trying to get long tail items from sellers, not just faster-Prime items that have traditionally been in Amazon’s fulfillment warehouses.
As Buy With Prime expands, Amazon will be left with more inventory farther away from customers that need to have a low, date-definite promise date. The reason is that these items are not moving as quickly so Amazon will not be able to afford to position these items close to customers.
* One important thing to note about Amazon’s Logistics network is that it is primarily designed for businesses sending things to consumers, unlike FedEx or UPS’ networks.
For others like AEO and Shopify that are putting together logistics networks without planes, there is an extremely different process going on here.
AEO Quiet Platforms had $7M in Capex in the first half of the year. That would buy the facility toilet paper in Amazon's network. A network without planes puts extreme pressure on inventory location close to customers to meet a 2 day promise. If slow-inventory is in the Northeast and needs to go to Seattle, the plane comes in the late afternoon, and goes out after midnight to arrive the next afternoon, it may need another day to get through sort centers and last mile. (Some of this routing information is from the report)
Shopify hopes to enable a "good enough" capability that does not require hardly any capital investment. Their announced $1B is about one-tenth what you need to create one of Amazon's single large automated facilities. It's a similar strategy for AEO, although they have the 7 Quiet facilities, and the rest is stitched together from other networks.
The only problem with this strategy is the best it can hope to deliver in many scenarios is a 3-day promise.
[References:]
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And Our Last Story
Macy’s New Marketplace Aims at Selection and Profitability
Following a few months of speculation and buildup, Macy’s has now formally announced its online marketplace, developed in partnership with leading service provider Mirakl.
In terms of categories, the focus is on Baby, Beauty, Electronics, Gifts, Home, Pets and Toys. Some of these categories in particular beauty, baby, home and toys are great candidates for a marketplace because there is a lot of innovation in these categories and a large vendor community which can supply a lot of inventory.
Josh Janos, the VP of Marketplace at Macy’s led the launch of Target’s Plus marketplace, so he is no stranger to curated marketplaces. Likely he saw the challenges with Target developing its own solution rather than partnering a third-party provider.
What’s marketplace mean for Macy’s which already has a robust dropship business with CommerceHub? In particular, Macy’s used what I think is a codeword called a curated marketplace.
From my own work with retailers advising them on marketplace planning and strategy,, this means a few things:
One, most categories will remain gated and subject to merchandising approval. It’s not like Amazon where anyone can signup.
Two, EDI is pretty much not an option here. I don’t care what kind of toolset you have, EDI usually means at least a month of integration time just from a human factor point of view. Marketplaces can cut that in half.
Three, as a retailer, you prioritize freshness and launching new brands. New brands keeps shoppers coming back. This topic I performed a market research study on this exact topic with Supplier Enablement platform Convictional earlier this year. If a brand has a cloud-based storefront, the reality is it’s much easier to onboard them to a marketplace storefront than it is a traditional dropship program.
As part of this launch, Macy’s has a few opportunities ahead of it.
One, Macys.com has a lot of traffic, and more than enough visitors to support a robust marketplace.
Two, a marketplace can be an enabler for an even more lucrative retail media business which brands can use to drive traffic to marketplace listings. In Macy’s case, their retail media partner is Criteo.
A marketplace paired with a retail media solution can make your online presence more profitable over time compared to only selling items you buy at wholesale or dropship.
Look, it's easy to be cynical about #Macys, but I don't care who you are, standing up a marketplace platform is a many months long project to plan, implement, test and launch. IT projects fail more than they succeed, so something is going right here. Congrats to that team for their execution.
Now, the real work begins. Success will depend on:
- stock for the right assortment shoppers are looking for
- continuing to keep onboarding times low, and
- shipping excellence on behalf of the sellers.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Fashion complete the look vendor FindMine raises $8.2 Million to grow its marketshare
The company is solving a tough problem for consumers. Most retailers show all their products separately and don’t show entire outfit suggestions for inspiration. That means putting a complete outfit together for the shopper.
Second
Cashback App Fondue raises $10 Million to Fund New Product Offerings
Fondue has an interesting solution for brands who have traditionally used email and SMS signup to give 15-25% off. Fondue takes a different approach and uses purchase cashback instead that can be redeemed in a number of ways. This is an interesting idea precisely because coupon codes can make their way all over the Internet and significantly lower your margins.
Link: https://www.pymnts.com/news/ecommerce/2022/fondue-cashback-app-raises-10m-for-products-expansion/
Third
Vancouver-based luggage manufacturer Monos raises $30 Million to open new stores and expand its product line
Wow, this is a glutted category. I’ll be honest Watsonians, I really have no idea why the world needs another luggage company. With my apologies to what I’m sure are fine good people at Monos.
Link: https://biv.com/article/2022/09/vancouver-luggage-retailer-monos-lands-us30m-investment
Fourth
Shopify aggregator OpenStore raises $32 million which raises its valuation to almost $1 billion
Unlike many aggregators in the market, being Keith Rabois is likely a very good thing as the traditional valuation rules don’t necessarily apply to you due to your track record. The big question I have is your valuation is this high, why do you need to raise only $32 million dollars? In this case, it seems the CEO wanted to work with a particular investor. Unlike other aggregators, OpenStore has always put a big emphasis on its automated diligence process.
Link: https://techcrunch.com/2022/09/22/keith-rabois-openstore-valuation-970m/
AND FINALLY …
Brightflow AI Raises $15 Million To Lend Money to Small eCommerce Businesses
Speaking of glutted categories, lending money is an extremely glutted category in eCommerce right now. Unlike other lending solutions, Brightflow has a little bit different approach. Instead of just providing cash, they also provide intelligence tools that allow cash forecasting and profitability visibility in addition to financing.
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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.