October 9th, 2023: The Great Profitability Correction seems to be affecting everyone, TikTok Shop feeds dominated by Schlock, Toys “R” Us To open 24 new stores, and Holiday season retail predictions
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s October 9th, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
The Great Profitability Correction Seems to be Affecting Everyone
TikTok Shop Feeds Dominated by Schlock
Toys “R” Us To Open 24 New Stores
Holiday Season Retail Predictions
- 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….
The Great Profitability Correction Seems to Be Affecting Everyone
Has your company gotten the memo yet? Cost-cutting projects targeting tens of basis points of margin have become significant.
Last week, logistics company Flexe laid off 33% of its staff, LuluLemon shut down its Mirror division, Thrasio engaged a restructuring advisor, and Nike missed its revenue targets.
Which got me thinking. Here’s something I see in company after company right now:
* Soft traffic and revenue targets being missed.
* Extra discounting or marketing spend to recover some of the lost traffic.
* Supply chain costs rising, resulting in near constant prioritization, cost-cutting, targets, focus on inventory levels and carrier spend.
* Brands are now moving to second and third-order cost-cutting measures, primarily focused on identifying unprofitable consumer segments.
What’s the goal of all this? Hitting your profitability goal, even if there are challenges hitting your revenue goal. All of this affects startups particularly acutely because cash is the key to your runway. Let’s use this analysis as it applies another “flex”-based logistics company that has been the king of drama lately — Flexport.
One simple way to look at the entire saga is a sharp disagreement over when Flexport would need to raise money. Dave Clark, the former CEO of Flexport, was clearly comfortable raising money in 2024.
The entire Board seemed to think otherwise. The fact that the Board won means that restructuring advisors could show up here soon as well.
Almost regardless of your situation, if you are in a startup that has less than 12 months of financial runway and are burning cash, then difficult decisions will need to be made soon. First the hiring freezes, and then the layoffs.
Particularly in the retail world, after holiday peak it could get ugly.
If any of the Watsonians in the audience are at startups, my completely unprofessional financial advice is to increase your emergency savings from 6 to 12 months if your haven't already. Many job seekers I speak with report that it’s more difficult ot find a company fit, which is different than a year ago.
[References:]
Our Second Story
TikTok Shop Feeds Are Dominated By Shlock
Is everything schlock now? I have been watching the launch of TikTok Shop over the past few weeks and perhaps I am in the wrong algorithm.
Are Fast Push Games, Pop Darts and Shadow Work Journals really the best we have to offer?
Perhaps my algorithm only seems to find the shlock? While of course there is a ton of all this schlock on Amazon, in the short-term does this mean that TikTok Shop is really not cutting into it as much as it might cut into Wish and Temu?
This is not to say that brands or influencers can't succeed on TikTok Shop, but I am just laughing at the initial selection on the channel.
Some of my friends in the audience who spent time on Facebook’s marketplace I’m sure are watching and laughing a bit right now.
In the long-term, this too will pass. The key to this marketplace will be, which brands take advantage of influencers, and how good they are at promoting your products. If it doesn’t pass, we could be back here in a couple of years wondering why another social media site would ever try another eCommerce venture.
[References:]
Our Third Story
Toys "R" Us To Open 24 New Stores
Recent news has Toys "R" Us (TRU) making a comeback into the US retail market beyond the previous Macy's deal. It's a sad gap that we have just experienced since Toys R Us declared bankruptcy in 2017 and 2018, with the last US store closing in 2021.
What most people in the US do not realize is that the US was the exception, not the rule. Toys R Us has been operating continuously in many countries around the world despite the historical US difficulties, which most of the US difficulties have been caused by too much debt, a common problem in the US.
The controlling interest in Toys R Us is owned by a licensing firm named WHP Global, who acquired a controlling stake in Toys R Us in 2021. Since then, the biggest coup for WHP Global has been their agreement with Macy's who is funding and operating the toys category in all their stores.
The company Go! Retail has secured a license to operate 24 stores in the United States, starting in 2024.
Additionally, Toys R Us is coming to cruise ships and hotels -- I did not read who was operating these but I expect these to be very experiential, and definitely a draw for families if that's the case. Whether or not it works, it's worth it for WHP Global to try, right?
Just a note for listeners that I am on the Board of Advisors for WHP+, which is the digital arm of WHP Global.
For WHP Global itself, this is elementary. As the intellectual property owner of an extremely valuable global brand name, if WHP Global can invent a concept that someone agrees to operate for you, can you generate licensing revenue from it. If you're curious to understand licensing.... the simple way is to watch "Mr Wonderful" on Shark Tank, most of his deals work that way and he seems to make most of the money.
As part of this deal, WHP Global itself takes none of the inventory risk from any of this as its partners operate it all. Back to the consumer for a moment, however:
I think that Toys R Us stores do need to be a bit careful. In this economy right now, you have to be both premium and interesting to generate margins, but also value-oriented enough to generate consumer interest. For a retailer looking to break into the market, that is a tricky balance to strike for the new stores.
[References:]
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And Our Last Story
Holiday Season Retail Predictions
Many retailers are still focused on their bottom lines since it’s what they can actually control, and while doing their best to understand consumer behavior. It seems like it’s holiday data season, so I thought I would do a round-up of about 4 different articles from Yahoo, CNBC, the Wall Street Journal and RetailDive.
Here’s the bull case for the holiday season:
* Consumers seem to be in a mode where you only live once. Because interest rates are so high, many middle-class have given up saving for a house .. which is a challenge for many retailers because consumers are reallocating money to experiences like vacations, and luxury.
* Top retailers will likely be fine, in particular retailers like Amazon, Walmart, and Costco. Target seems to be repositioning down-market to get the consumer's attention again.
A friend of mine at a major brand recently said to me you are either Louis Vuitton are you are Walmart right now, there is not much middle, and . I agree with her.
* Mastercard says retail holiday spending will be up 3.7%, whereas Deloitte predicts around 4% upf from last year. eCommerce holiday spending predictions by Mastercard indicate about a 6% gain, while Deloitte predicts a midpoint of around 11% year over year growth. Of course small and medium businesses tend to do well even in worrisome times because eCommerce is still growing twice as fast as physical retail and the growth is on a smaller base.
Plus you are in gifting season which means consumers have to spend on something.
On the other hand, here is the bear case for the holiday season:
* Inventory levels are leaner across the board, which at some point limits the season's upside. However, I think retailers selling through their inventory and hitting their forecasts they would put in the "good problem" bucket.
* Apparel could be challenged according to Mastercard, meaning flat to down. GlobalData suggest home goods could struggle as well.
* Inflation is still not done climbing, and retail data has it up 0.6% month/month in August, which overall is up 3.7% since last year.
* Not to mention, that student loan repayments begin in October which is a huge wildcard in everyone’s data. No one quite knows how the consumer will respond to this.
All in all, another mixed season but there is still some hope depending on your category and price points. After all, people "need" to spend during holiday on their friends and family. You just need to be the type of product they can stretch their dollar with.
[References:]
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Hey, Watsonians, did you know that TikTok Shop has a few problems experienced by many large e-commerce businesses? 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
Mejuri Announces $100M In Total Funding And New Growth Initiatives
Canadian jewelry brand Mejuri announced that it has raised $100M in total funding and unveiled a new app, loyalty program, and plans for more retail locations. The direct-to-customer brand is currently not profitable but its affordable luxury jewelry business is growing.
Second
AI-powered Search Engine for E-commerce Deft Raises $1.8M Seed
Deft, an AI-powered product search engine, raised a $1.8m Seed round after exiting stealth. Currently focused on furniture and home decor, this feels like a 2023 version of an e-commerce portal, remember those?
Link: https://www.businessinsider.com/deft-ai-powered-e-commerce-search-engine-raises-vc-funding-2023-9
Third
Boxbot Raises $12M Series A
Boxbot has raised a $12M Series A. The company initially focused on autonomous last-mile delivery but pivoted to automated warehouse-based package sortation for last-mile carriers.
Link: https://techcrunch.com/2023/09/18/boxbot-pivots-for-last-mile-trucks-to-robotical-parcel-storage/
Fourth
Amazon partners with generative AI startup Anthropic
Amazon has partnered with AI startup Anthropic, an OpenAI competitor to accelerate the adoption of generative AI. Amazon will invest up to $4b in the startup, and Anthropic will become an exclusive user of Amazon Web Services and will make its software available to AWS clients.
Link: https://techcrunch.com/2023/09/25/amazon-to-invest-up-to-4-billion-in-ai-startup-anthropic/
AND FINALLY …
Series Raises $25M In Seed and Series A
Modular finance and operations platform Series has raised $25M to offer enterprises ERP-like features to manage their day-to-day better. Listeners, we have a new sector called "Enterprise Operating Systems" to aggregate the daily tasks done by operations and finance teams, is ERP no longer cool?
Link: https://techcrunch.com/2023/09/26/series-which-aims-to-replace-erp-systems-lands-25m/
Today’s final word for the week of October 9th is “NOTEBOOK”: I was at an event last week with a bunch of good friends in the eCommerce space and I got a fun mention on stage for taking notes in the front row! Seriously, it was the highlight of my week. If you were also at the are that the event I can’t name put on by the company that I can’t name, it was great being at the party everyone knows about and not being there with you!
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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.
