September 13th, 2021: Disney’s Retail Locations, Companies on a Potential Collision Course, Amazon’s Growing Interest in Planes, and the Future of Instacart
It’s September 13, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Are Square, Paypal and Shopify on a collision course?
Amazon Keeps Investing More and More in Planes, and
Is Instacart Nervous About Its Future?
- and finally, The Investor Minute contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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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BUT FIRST in our shopping cart full of news….
Disney is Closing Virtually All Of Its Retail Locations
Recent reports from Entrepreneur magazine show that Disney has announced it’s closing 75% of its retail locations – or more than 60 stores — moving 2,000 employees from California to the Orlando area. For its part, Disney is receiving $600 million from the state of Florida to make the move.
Can I rant for just a second? At least half of these employees will not make the move to Florida - making this effectively a massive layoff, but in the meantime the company pockets half a billion dollars in incentives and tax credits over time. Did I get that right?
All in-store corporate employees – including designers, merchandisers, buyers, vice presidents — all these people now need new jobs. In many cases, this is digital and retail talent that most companies would kill to recruit.
The shift to eCommerce and the pandemic greatly accelerated the decline of these stores, unfortunately. Or did it?
At the same time, Disney is opening over 100 shops inside of Target stores, which indicates that it’s not retail that’s dead, just Disney’s retail cost structure.
In the meantime, Disney is getting what I’m sure are hefty brand licensing fees from Target, on top of the fact that now it doesn’t need to carry the expenses of operating the stores. Unfortunately, this does put the brand farther from the consumer relationship, a definite downside.
Stepping back from Disney for a moment, many retailers have a host of issues:
1 - They have too many stores, and not enough traffic in those stores due to the pandemic, particularly in any store that is not driven primarily by weekly replenishables.
2 - Their costs of real estate are too high, and they can’t get people to show up to work in retail jobs.
3 - The cost to revamp the stores and put in technology to offer better experiences is just too high.
Target has been doing this the past 7 years, so all those costs are already baked in for the retailer. What about all these specialty retailers? Are they going to make their own investments in micro-fulfillment, curbside, and store pickup? Those investments are complex and expensive.
This is an advantage for companies like Target and Walmart.
>> The biggest question in my mind — does Disney’s failure signal a broader decline in specialty retail experiences, or is this just Disney reshuffling its balance sheet? I’m sure a lot of retail executives are wondering that right now.
References:
- https://www.entrepreneur.com/article/382536
Our Second Story
Are Square, PayPal and Shopify on a collision course?
Recent market events highlight an increasing competitive trend between the players:
Shopify’s Shop Pay continues to make consumer investments that encroach on Paypal’s territory with inroads into Facebook Marketplace, Google Shopping, and TikTok.
2 years ago, Square acquired website builder Weebly and recently acquired buy-now-pay-later leader AfterPay. These moves put it more into competition with Shopify in the SMB market.
PayPal recently acquired Japanese Pay Later provider Paidy and in the last few months also introduced a POS solution called Zettle - based on its acquisition 4 years ago of iZettle. This moves PayPal squarely into Square’s territory (pardon the pun).
The commonality appears to be a trinity of services required to compete: A consumer-facing payment provider, a robust cloud-based eCommerce platform, and a Retail Point of Sale (or POS) solution.
On top of this is a network of robust application developers required to cover all of the other functions that growing merchants need, such as marketing, conversion enhancement, and operations.
So, what does this mean for each player?
PayPal is the most asleep at the switch. The Paidy acquisition in Japan confirms to me that the company won second prize in the Buy-Now-Pay-Later sweepstakes. Possible next moves for the firm include acquiring a solid cloud-based eCommerce platform.
Square, despite its previous acquisition of Weebly, doesn’t have the serious eCommerce platform needed if it wants to move up-market. That could also put it in the market for an eCommerce platform with a strong developer ecosystem.
Shopify - while the best positioned here - has a weaker point of sale system than Square. Even the company’s own sales team doesn’t recommend its solution for businesses with more than 10 stores. Overall, the company wants to build rather than acquire, and so it may view its current innovation capabilities as good enough to propel its growth. I expect Shopify to stand pat here, especially given that the CEO said in the last earnings call that the company is quite happy with its current POS system, which is on its third or fourth rewrite.
Now, where’s Amazon in all this? Not to be left out, there is breaking news from Business Insider that Amazon also plans to introduce a POS solution for merchants. Listen to this quote and tell me that Amazon doesn’t have both Shopify and Square envy:
QUOTE
This will allow our small business … customers to unify their online and offline channel management including inventory, offer … contactless recognition and payment, and offer a customizable loyalty program that can utilize Prime benefits ...
END QUOTE
My take? I think the part about “Prime” benefits betrays their intention here. Despite the language about small businesses, this is a trojan horse for expanding and promoting Prime into every small retailer in America. The issue? Amazon has tried this move before, shutting down its previous POS solution called the Local Register program in 2015.
>> In this coming battle, the advantage in the short-term goes to Shopify due to the depth and breadth of its developer community - the discoverability of their App Store is second to none in the market, and there is still no other platform that commands as much agency and developer attention.
References:
- https://www.rmwcommerce.com/blog/shopifys-pressure
- https://www.reuters.com/business/paypal-buy-japan-based-paidy-27-bln-deal-2021-09-08/
Our Third Story
Amazon Keeps Investing More and More in Planes
A new research report from DePaul University tracks Amazon’s continued airline expansion. In case you missed it, Amazon has established a network of 42 airports located within 100 miles of more than 70% of the U.S population. Notably, Amazon Air is now up to over 160 flights per day.
What does it all mean?
First, 100 miles is an important distance. Amazon is now less than a two-hour drive from over 200 million people. The company is inching closer to filling out the important middle-mile portion of its fast delivery network.
Second, Amazon has been able to achieve next day delivery mostly through forward deployment of inventory. These airline developments could improve its next day reliability even if the inventory is not positioned near the consumer. With overseas container delays and warehouse space shortages in the US - including at Amazon’s own Fulfillment service, FBA - this is an important capability.
Third, while more routes improve service, there is also the risk of not filling up those planes, which only makes it more likely that Amazon will soon offer third-party packages in its network to fill gaps in its own demand. Morgan Stanley has predicted that Amazon could launch this service in the US as early as this year, but it will take some time for them to prepare for a proper third-party rollout, and likely they will want to wait until both pandemic and space constraints are in the rear-view mirror.
>> It’s impossible not to notice that Amazon is building its network differently than FedEx has, which famously runs most of its volume through its gigantic Memphis hub.
Instead, Amazon seems to be taking a bit more decentralized approach to its network, which is better suited to its goals of maximizing service, flexibility and reliability, compared to FedEx’s traditional goal of optimizing its own costs.
References:
- https://drive.google.com/file/d/1777cIMWs9Rzf3nPbqHS0QFSffMP3zVUj/view
- https://www.freightwaves.com/news/report-amazon-air-puts-70-of-us-population-within-next-day-reach
And Our Last Story
Is Instacart Nervous About Its Future?
Recent news from Business Insider on Instacart is not encouraging.
Apparently nervous about the company’s valuation coming out of the pandemic, former Instacart CEO Apoorv Mehta reached out to both Doordash and Uber’s CEO about a merger.
Both sets of talks failed and Mehta pulled out of them. At one point he restarted talks a few weeks later, even dragging in the incoming CEO, Fidji Simo. Talk about a recipe for disaster.
It looks bad for outgoing CEO Apoorv Mehta, who appears to have mismanaged this process terribly. For Instacart’s Board, whose own credibility is now on the line, why didn’t they hire an investment banker and run a proper process? Or file a confidential IPO, like RentTheRunway recently did to give themselves time to shop the business around and improve its fundamentals at the same time?
To add insult to injury, this failed merger attempt, which shook up the delivery space (read Doordash and Uber), led to a half-hearted attempt to partner with upcoming competitor Gopuff. Sadly, Gopuff had already picked its dance partner – Uber.
Instacart seems to be suffering from the worst form of short-term strategic thinking, namely that comparable sales coming out of COVID are bad, growth is slowing, and so it needs to do something dramatic to pump up valuations going into its IPO.
Rather than thinking about the long-term fundamentals of the business, the discussion seems to be dominated by the needs of investors - never a good sign.
Furthermore, the incoming CEO seems to think that a Facebook-like app and advertising program is going to win this market, instead of executing on the fundamentals of a great grocery experience.
>> Which brings me to my final point. Instacart is sadly mistaken if it thinks it can accelerate its growth without also innovating on its core consumer proposition. After all, advertising only works if the actual grocery experience is one consumers want to come back to. And with reports that Walmart has already cornered more than 25% of the US grocery eCommerce market, I think there is serious cause for concern.
References:
- https://www.businessinsider.com/instacart-unsuccessful-dealmaking-with-uber-doordash-2021-9
https://www.emarketer.com/content/walmart-has-cornered-more-than-25-of-us-grocery-ecommerce-market
It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Startup OneRail raised $9 million to scale its last-mile delivery software. Unlike other players, the company’s approach is actually a kind of marketplace for an array of last-mile companies.
https://www.freightwaves.com/news/onerail-raises-9m-series-a-to-scale-last-mile-delivery-network
Second
Refundid, a company designed to eliminate waiting times for consumer refunds, raised $3 million from AfterPay’s venture fund. This continues a trend started by other returns financing companies in the past, like Returnly and Loop, but for any kind of refund, not just returns. The investor question to consider here is whether a returns-oriented company or a payments-oriented company will be the winner in this segment.
https://www.smartcompany.com.au/startupsmart/news/afterpay-refunds-refundid-bnpl/
Third
There have been a few new developments in the Amazon aggregator space.
US aggregator Forum Brands raised $100 million in debt financing.
Bain is said to be near a deal to acquire Berlin Brands Group for $1.2 billion dollars in one of the first big exits in the space.
Lastly, UK-based Heroes raised $200 million to buy up more Amazon merchants in its own rollup play.
Fourth
Startup Snipcart was acquired by website builder and WordPress competitor Duda. This allows an API-first eCommerce platform to join a growing content management system, which seems like an interesting fit.
https://techcrunch.com/2021/09/01/web-building-platform-duda-snaps-up-e-commerce-cart-tool-snipcart/
AND FINALLY …
I ran across an interesting app last week called Amazon After, which proves that sometimes the simplest ideas really are the best. The new app by Amron allows you to Sell, Donate, or Recycle items you’ve previously purchased from Amazon by connecting to your personal Amazon order history. Why didn’t I think of this?
https://www.amronexperimental.com/AmazonAfter.html
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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 show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
