September 20th, 2021: Shopify, Big Boxes, Malls, and Mailchimp
It’s September 20, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify invests in marketing provider Yotpo
Top Amazon Seller Packable Looks to Go Public Via Reverse Merger
Are Walmart and Target the biggest beneficiaries of the decline of malls in America?
Intuit’s Acquisition of Marketing Provider Mailchimp Continues Its Move into eCommerce
- 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….
Shopify invests in marketing provider Yotpo
Last week Shopify signed a partnership with review and loyalty provider Yotpo.
Did I say partner? What I meant to say was Shopify invested.
The two companies followed up with a webinar on Tuesday last week, but co-founder Tomer Tagrin would not reveal any future plans.
With this partnership, Shopify is attempting to grow its developer ecosystem and accelerate its business flywheel. Wondering what that term flywheel means in this context?
Shopify is a platform designed to facilitate direct-to-consumer eCommerce sales. Merchants on the platform need applications to plug into Shopify to run their business effectively. The more and better applications on the platform, the more attractive the platform becomes. The more attractive the platform becomes, the more merchants are drawn to it. While this self-reinforcing cycle is difficult to build up, it’s very hard to stop once it’s gained momentum.
Shopify has a history of investing in similar deals that match these criteria — namely pre-IPO, growing, popular software-as-a-service businesses. Examples of similar investments include global-E, Affirm, Loop, and others.
But there are two sides to this story.
On one hand, if you are not affected by the decision, this is a huge positive for the ecosystem. Developers in other application categories are attracted by the possibility of a future Shopify investment, and might steer their developments toward the platform. Yotpo is super-happy and investors around the world are cheering.
On the other hand, what about the other review and marketing providers? Imagine if you were the owner of the Gap in a mall that also had Abercrombie and Fitch. One day the mall owner puts a sign in front of the Abercrombie store that says “This one is better, go here.”
As the owner of the Gap, you would be really upset and rightfully so since you are paying rent to that landlord — but you might not leave the mall immediately if there is a lot of traffic there. Other clothing brands in that mall might be more than a little worried about it.
So which is more likely? Will this help or hurt Shopify?
Ultimately some of both, but the news is more positive than negative for Shopify in its competitive battle with companies like Salesforce and Adobe. In the short-term, this is not going to diminish Shopify’s ecosystem - it has too much momentum already. In the long-run, however, your reputation is based on your decisions, and in this case Shopify is showing it may care more about the short- and medium-term needs of its own flywheel than about creating a fair and level playing field for its partners.
References:
-https://finance.yahoo.com/news/yotpo-shopify-enter-multi-platform-120000309.html
-https://www.businessinsider.com/shopify-invests-in-startups-making-e-commerce-eaiser-2021-6
-https://www.timesofisrael.com/shopify-invests-in-israeli-e-commerce-marketing-firm-yotpo/
Our Second Story
Top Amazon Seller Packable Looks to Go Public Via Reverse Merger
The health and beauty retailer that operates Pharmapacks is merging with SPAC Highland Transcend Partners in one of the best examples of the market placing a high value on third-party marketplace businesses.
As an aside, if you’ve not heard the term SPAC before it stands for special purpose acquisition company, which is essentially a shell company that is already public and then merges with an existing private company in order to raise money from stock market listings.
This particular merger is a great valuation datapoint for those investing in eCommerce. For instance, valuation multiples placed on Amazon and other first-party wholesale business is correlated with revenue one to one. Brands selling through third-party marketplaces like Amazon are getting higher investor valuation multiples, in the 3-5 times revenue range in my experience, as long as growth exceeds 25% yearly. Valuation ranges only go up from there if the growth rate is higher.
In the context of Packable, the company went from $373M in 2020 to an estimated $456M in revenue expected in 2021, and the total equity value of this deal is $1.9B, which puts the valuation somewhere between 4 and 5 times revenue.
What will they do with the proceeds? Expand of course — the company plans to move beyond health and beauty products and into shelf-stable food and pets.
There’s another reason this particular development should make retail operators happy — Pharmapack was originally founded as a brick and mortar retailer in 2010, proving that if you have the right transformation strategy it really is possible to scale a business with eCommerce.
References:
Our Third Story
Are Walmart and Target the biggest beneficiaries of the decline of malls in America?
There is a lot of talk about the effects of the decline of malls on the anchor tenants, namely the mid-market department stores. This leaves out what’s happening with brands that used to occupy the middle of the mall.
What are those brands doing?
In last week’s episode, I discussed Disney closing 60 of its own stores and opening in 100 Target stores.
Disney’s choice is just the latest in a long string of examples in the past couple of years:
The Gap closed hundreds of stores and launched its Gap Home brand in Walmart Stores.
Ulta closed 19 stores and is opening in 100 Target stores.
Levi’s is increasing its coverage from 140 to 500 Target stores.
Struggling tween brand Justice closed over 900 stores and is now available in 2,400 Walmart stores.
If you put these trends together, things become a little clearer. On one side you have malls – declining traffic, poor experience, rising costs, and labor shortages.
On the other you have nationwide retailers like Target and Walmart – lower cost structure, rising traffic, no labor requirements, and better experiences.
Which better matches the consumer’s wants?
Put that way, it’s a no-brainer for brands that can’t support the economics of their own stores– or at least not as many as they used to.
The bottom line here is that Target and Walmart are functioning for these brands as the physical equivalent of an online marketplace — meeting consumers where they are and providing a great, convenient experience.
All isn’t roses for these brands, however. By jumping into the welcoming arms of these retailers, they give up one critical thing in return - a direct relationship with the end customer, which is so essential to the long-term success of a growing brand.
References:
And Our Last Story
Intuit’s Acquisition of Marketing Provider Mailchimp Continues Its Move into eCommerce
By far the biggest news of the week is the confirmation of Intuit’s $12 billion acquisition of bootstrapped marketing provider Mailchimp, one of the world’s largest providers of email and marketing software.
What assets does Intuit get with this acquisition?
- Popular email software
- The ability to create simple websites, similar to Squarespace, including a newly launched Online Store offering
- An appointment scheduler which is helpful for service businesses and
- The ability to create and run digital advertising campaigns on Facebook and Google
In short, almost everything needed to start an online business.
Intuit has been investing in eCommerce even before this acquisition.
Last year, Intuit acquired inventory management platform Tradegecko and rebranded it Quickbooks Commerce, creating a larger bundle for its customers including inventory and order management - not to mention a B2B online storefront.
In short, Intuit now has both front-office and back-office capabilities with Mailchimp and its new Quickbooks Commerce product.
Furthermore, prior to the BigCommerce IPO last year, there were reports that Intuit offered $1.5B for the company (which incidentally is worth $4B today). BigCommerce is one of Shopify’s competitors. That on its own was a pretty strong signal that Intuit is looking to make a major push into Shopify’s turf.
Mailchimp itself has its own sorted history with Shopify. In 2019, Mailchimp unceremoniously removed itself from the Shopify App marketplace over the company’s data sharing standards - mostly this was about Shopify wanting to exert control over its ecosystem. Shopify demands any data you collect must be shared back with the company if you want to be part of its App Store.
From a strategic point of view, what is Intuit thinking?
It’s pretty simple. Intuit’s Quickbooks product used to be the center of the universe. Every small business application wanted to integrate it. With the rise of digital commerce platforms like Shopify, the center of gravity has shifted to digital channels like eCommerce.
So what’s Intuit to do? Acquire its own eCommerce functionality.
While I don’t see Mailchimp’s Online Store posing any serious threat to Shopify, I also don’t think that Intuit is done here. BigCommerce may still be in play for the company — after all, despite the meteoric rise of eCommerce, BigCommerce stock is headed in the opposite direction as compared with Shopify.
In fact I increasingly view BigCommerce as a future tuck-in acquisition to one of the major players in the space.
If you were to ask me today, who are Shopify’s biggest competitors? My answer is simple: Square and Intuit. These are two companies with the resources and assets to create independent ecosystems, not to mention the fact that Shopify and its merchants can’t ignore these products because they are so ubiquitous.
References:
https://www.businesswire.com/news/home/20210913005806/en/Intuit-to-Acquire-Mailchimp
https://www.axios.com/intuit-buy-mailchimp-12-billion-85feba65-e142-4756-8fa6-b8af63988902.html
https://techcrunch.com/2019/03/22/mailchimp-and-shopify-break-up/
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
UPS acquires last-mile delivery provider Roadie
Last-mile refers to the most expensive segment in the supply chain between the last hop in a delivery network and the consumer’s home. Roadie solves this problem with gig workers. With a heavily unionized labor force, UPS has said it would not integrate these networks. Which makes me wonder how accretive the acquisition can actually be.
https://www.supplychaindive.com/news/ups-same-day-delivery-roadie-crowdsource-gig-parcel/606389/
https://multichannelmerchant.com/operations/ups-buys-way-into-last-mile-with-roadie/
Second
In Amazon Aggregator News
Thrasio acquires 3 brands in excess of $100M including Wise Owl Outfitters, Danger Linens, and SafeRest.
In case you’re wondering what an aggregator is, Amazon aggregators are essentially part investment companies and part brand operators that acquire brands that have focused on Amazon in the hopes of scaling them up. Thrasio has raised the most money in this segment - over $1.5B.
Third
CommerceTools, the API-first eCommerce provider based in Germany, just raised $140M, which catapults it to a $2B valuation in its Series C.
The company’s main focus is on retailers with more than $100M in annual revenue.
https://ca.movies.yahoo.com/commercetools-raises-140m-1-9b-105044984.html
Fourth
There are a few news items in the Buy Now Pay Later payments space
In a twist I hadn’t seen before, Wisetack raised $45M to bring the idea of installment payments to in-person home services.
Additionally, European company Scalapay raised $155M in a Series A, which is remarkable for the fact that the company is only 2 years old.
These payment providers function like consumer loans but any amounts owed are split into monthly installments tied to a specific consumer purchase, which often accelerates both eCommerce conversion rates and average order value.
And FINALLY
Environmentally Friendly Direct to Consumer Toilet Paper Startup just raised $30M in the last week - their name?
“Who Gives a Crap”
Proof that you can be cheeky (no pun intended) and raise money at the same time.
https://www.businessinsider.com/toilet-paper-startup-who-gives-a-crap-raises-30-million-2021-9
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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.
