September 11th, 2023: Our discussion about Holiday season preparation, Gap develops sleepwear line with Macy’s, Google’s CEO releases 25-year update, and Amazon’s Buy with Prime partners with Shopify
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s September 11, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Our Discussion About Holiday Season Preparation
Gap Develops Exclusive Sleepwear Line with Macy’s
Google’s CEO Releases 25-Year Update
Amazon’s Buy With Prime Partners with Shopify
- 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….
Our Discussion About Holiday Season Preparation
I thought it was a good time to start talking about the holiday season, particularly as one of the most common questions I get from brands is: "What is the consumer doing right now, and how should it affect my decision-making?" A few recent articles discuss the outlook for the year's second half based on retail earnings and other data points.
I thought I would capture the sentiment from analysts and other data out there:
1 - Continuing a trend of the past two years, consumers are still careful about how they spend. Great value or perceived importance (i.e. non-discretionary) is at the forefront of consumers’ minds. If items like apparel, fashion, electronics are not deemed important or if there is a cheaper alternative, consumers are trading down.
2 - Demand is weakening for do-it-yourself customers in the home improvement categories, reflecting increasing consumer worry. Big ticket items in particular are under pressure. Even off-price outlets are noticing reduced ticket sizes, although traffic remains strong there.
You know it's bad when even off-price retail is struggling to maintain AOVs.
3 - Credit card delinquencies are at a level not seen in 10 years (since 2012), according to St. Louis Fed Data. That is a significant data point, and there seems to be no signs of this slowing down. Last year, consumers were in a mode of worrying about the future. This year, the worries are about the present.
The key takeaway for brands and retailers this holiday season? Watch your opening price points, and prepare for more discount hunters.
Consumers are expecting significant values this season, and especially in a gifting time of the year, your replacement alternatives are not your typical competition – they can be in any other category. If consumers can spend $150 and get gifts for four people instead of two, they are going to do it.
A particular action item I would have for merchants in the audience is to ensure that you have a “best value gifts” section of your site this season, and keep refreshing it. Ensure that you have higher margin items featured alongside these lower price point items so that you can try and make up for any discounting you are doing at the same time.
[References:]
Our Second Story
Gap Develops Exclusive Sleepwear Line for Macy’s
Recent news reports tell us that Gap, Macy's, and licensing firm IMG are partnering on an exclusive Gap-branded sleepwear brand with Macy's.
There was once a time when Gap was a specialty brand, one that cared about what it was offering. But it's clear something shifted in the past year, with the success of Authentic Brands Group, WHP Global, and others, and that seems to be Gap turning into a licensing business. Investors and stakeholders smell money.
A licensing business leverages a usually venerable brand name and creates distribution partnerships and line extensions to generate guaranteed minimum revenue from licensees. In this case, the licensing agency is IMG which works with many brands. IMG then uses its relationship with Centric Brands to manufacture the sleepwear line. Of course, Centric manufactures products for many other brands, too.
Licensing firms are about marketing and connections. I suspect that IMG shares a portion of its licensing revenue with Gap.
The story is about the licensing agreement, which necessitates the distribution relationship with Walmart for home goods and now Macy's for sleepwear.
It's unclear what the inevitable result of this will be. If licensing is the future direction of Gap, then one of the larger licensing companies could acquire an interest in Gap, or Gap could be sold to private equity, which already has licensing capabilities. After all, why pay a third-party margin for something that could be in-house?
This could say negative things about Macy's as well. Wasn't Macy's recommitting itself to private label? If sleepwear is such a good category, wouldn't this be something that Macy's is entering directly?
But the stakes are lower for Macy's; it is a department store, so variety even from a potentially failed experiment is less risky. Next season, Macy’s could try something new.
For Gap, the stakes are higher. More ink than I can read has been spilled about how Gap has lost its way and, with it, the soul of its brand. While line extension via licensing is not a way to recapture your soul, it is a way to generate high-margin revenue in the face of declining sales. But it seems more like a death spiral for the brand than a springboard for future relevance.
Next stop for Gap could be off-price if line extension continues to be the trend. After all, if these new partnerships don't drive sales that's where it will end up anyway.
[References:]
Our Third Story
Google’s CEO Releases 25 Year Company Update Memo
Google’s CEO Sundai Pichai recently released a memo celebrating the company’s 25-year history. While some may not think these memos reveal anything useful, sometimes a few nuggets come out, given the fact that employees, investors, and partners all read something like this. Here are a few things that indicate where Google is headed in the next 25 years:
* Google still sees its search business as core to its mission, and that it is a long runway here.
* Google’s Android now powers 3 billion devices around the world, a stark warning for companies like Apple that, while important in the US market, make one wonder how long that can continue without the power of Steve Jobs.
Of course it wouldn’t be a Google update without a mention of AI. Throughout this memo the CEO phrased what Google does in terms of a series of questions. When talking about the future, Pichai included a few questions that caught my attention.
The first was:
“How could every student have access to a personal tutor, in any language, and on any topic?”
This sounds like Google feels it might be able to disrupt the education space.
Another was:
“What tools could we invent to help people design and create new products and grow new businesses?”
This sounds like Google could start a new kind of eCommerce incubator.
No matter what Google decides to do next, the company has always had an extraordinary array of capabilities, and AI only adds to this. Given how much influence the company has, it definitely makes sense to pay attention to what they are thinking about working on.
[References:]
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And Our Last Story
Amazon’s Buy With Prime Partners with Shopify
This past week, Shopify and Amazon did what they have hinted at for the past 6 months – signed a partnership agreement with each other. The agreement settles what has been a contentious relationship between Amazon and Shopify whereby Shopify displayed a Javascript security warning to merchants installing Buy With Prime on their eCommerce platforms.
Because this is really the deal that Amazon pursued, I thought I would highlight a few points from the Amazon side:
* Amazon gains the ability to advertise Buy With Prime on the product’s detail page, which then links into Shopify’s checkout.
* Shoppers will select a payment method from their Amazon wallet.
* Merchants will be able to install an app from the Shopify App Store for Buy With Prime. As part of the installation, merchants’ Amazon inventory will be linked to their Shopify items, allowing Amazon to display the Buy With Prime button and complete the transaction successfully.
From the Shopify side, management was quick to declare victory with the deal saying that all payments run through Shopify payments rails.
Additionally, Shopify brand owners will continue to own all the data about their customers.
As far as my take on it, I still have a few questions:
* Once a buyer clicks through the product detail page, will the checkout be pre-selected for Amazon Pay, and how exactly is Amazon Fulfillment enabled by default?
* Does this enable multi-item carts for Buy With Prime, or are these still single-item carts like Buy With Prime has been so far?
In terms of analyzing the deal:
* I have written here that Amazon needed this deal more than Shopify, and I think that's true. Viewing BWP featured websites, all case studies and deal participants (Prime Day, for example) were Shopify merchants.Without official Shopify support, there is almost not a real Buy With Prime program.
* This partnership still does not solve the core Amazon problem of Buy With Prime: trust and merchant incentives. Buy With Prime has gone to market with a "checkout conversion" message that Shopify already has. OK, now what?
This has not yet been discussed.
* Lost in this news is that BigCommerce announced this in January, so merchants who want a more "unvarnished Buy With Prime experience" also have options. BWP can be implemented on any website with a little work from a system integrator.
Finally.... from Amazon's Point of view, Buy With Prime has always been about leveraging what Amazon does best: logistics. In other words, how do we get more volume through the fulfillment network in a way that also increases the value of Prime?
And while Shopify was quick to declare victory on this one… not so fast. Once the fox is in the henhouse, the farmer is not surprised when one of the chickens ends up missing.
Shopify has now enabled a competitor to its preferred Shopify Fulfillment Network solution, which is powered by its preferred partner Flexport.
The main risk to Shopify is that Amazon becomes the default fulfillment rails for Shopify in the future. However unlikely the outcome, if that day ever does come, this deal will look very different in hindsight .
[References:]
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Hey, Watsonians, did you know that delivery robot robberies are on the rise? Seriously, did no-one ever think that these sidewalk robots would become an easy target for criminals?
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.
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Pet Food Company, Jinx, Secured Series B Financing.
Jinx manufactures dog food from natural and patented ingredients and has raised a $17.85 million Series B funding round. The new funding will expand mass-market retail and investment into talent and merchandising, marketing and product development.
Second
B2B Marketplace Ghost Raised a $30 million Series B.
Ghost is a member-only B2B excess inventory marketplace. Excess inventory is a $1 trillion problem for brands that want to protect their brand equity without selling products at below-cost pricing.
Third
Amazon Automation Platform Workflow Labs Raised a $1.3 million Seed Round.
The new funding for the Seattle-based Workflow Labs will enable Amazon sellers and vendors to automate ticketing, cataloging, and case management tasks. No mention of AI but rather a combination of software and human expertise.
Link: https://www.geekwire.com/2023/startup-helps-amazon-sellers/
Fourth
Unicomer Group Acquired RadioShack.
Unicomer Group acquired RadioShack's worldwide intellectual property and domains for 70 countries. Can this new owner enable partners to access inventory and rebuild its online store continuously?
AND FINALLY …
BNPL Vendor Splitit Will Delist on Proposed PE Funding.
Splitit, which offers merchant-branded Installments-as-a-Service, plans to go private after raising $50 million from Motive Partners. Based on stringent conditions, this new capital will enable Splitit to generate long term shareholder value in a capital intensive sector.
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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.