September 25th, 2023: TikTok Shop in the US, Shopify’s Company Operating Principles, Klaviyo and Instacart IPOs, and the Holidays Kick Off in October
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s September 25th, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
TikTok Shop Launches in the US
Shopify CEO Outlines Company Operating Principles
Klaviyo and Instacart IPOs Mark Their Debut
Holiday Season Kicks Off In October With Big Retailers
- 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….
TikTok Shop Launches in the US
TikTok increasingly is coming for a number of companies at the same time:
* Amazon (TikTok has allocated $500M in promotional credits this year to fund their own Black Friday deals, and are partnering to build their fulfillment infrastructure)
* Shopify (TikTok is Building Storefronts for entrepreneurs that cannot link to off-platform stores, their own shopping destination which Shop App would have loved to become)
* Google (adding Wikipedia links into its feed, and increasing usage as general purpose search)
And even eBay is in the cross-hairs as TikTok Shop UK has added a refurbished phones business, indicating that TikTok is starting to think like a more traditional marketplace with a video discovery front-end.
Shopify continues to discuss its previous partnership with TikTok in the past month, but I feel there is more tension there than is being let on.
TikTok is such an asymmetrical competitor that most observers are not even sure how to classify them. Meanwhile, their discovery algorithm continues to pull away from the competition. For users, it is about attention. I think the only one who sees this coming is Elon, who is desperately trying to do what TikTok is doing: which is to Become the Everything App
If there was one app that monopolized most user attention, it could increasingly command higher revenues from partners to appear in its feed, charge brands and retailers higher advertising rates, and become a shopping destination.
TikTok’s latest move with Black Friday deals is interesting, here are a few notes on it:
* Subsidizing up to 50% discounts starting October 27th
* Going to be funding deals throughout Black Friday and Cyber Monday
Very soon, #tiktokmademebuyit will not be something you think is on Amazon. TikTok Shop rolled out in the US last week, I wrote about recently.
Increasingly, TikTok is setting up a virtuous circle:
* Ways for creators to sell directly (TikTok Shop), and an ecosystem of app partners to connect to software (TikTok App Store)
* Ways for influencers to get paid for referring other TIkTok creators, rather than general-purpose websites (self-referring affiliates)
* Enabling creators to fulfill if they need this assistance.
* Funding great discounts on online, encouraging consumers to shop.
* Increasing user minutes spent
* Continuously improving discovery algorithm
Indeed, the North American market may not have seen anything like this at scale.
The reason it could all work? TikTok is not chasing attention — their attention minutes are growing. And for a marketplace business, that’s the foundation of success - providing services to fulfill that demand.
[References:]
Our Second Story
Shopify CEO Outlines Company Operating Principles
Recently, Tobi Lutke traveled to California to be interviewed by the hosts of the All In Podcast, which I thought turned out to be a good discussion.
Personally, I'm an on-again, off-again fan of the All-In podcast. Sometimes I think it's the most brilliant thing I ever heard, sometimes, I can't get through 5 minutes of it. The fact that I find it good about 60% of the time is good enough to keep it in my feed.
While Tobi spoke about a number of interesting topics, I wanted to cover the end of his talk here which really focused on the core operating principles of Shopify.
Principle 1 - Be great for crafters.
Anyone who has read more than a paragraph from Tobi understands that he sees himself first and foremost as a crafter, understands that without them there is no value to promote. So the top priority always needs to be to retain the talent of the builders.
Bill Gates had a famous quote I remember. I can never find it.... but... even after Microsoft had over 100k employees: "If the top 100 quality people at Microsoft ever leave, we would be a completely different company."
That always stuck with me.
Principle 2 - Anti-Status Quo Bias
The goal is to be less terrible than all the other companies. Anyone who has evaluated an eCommerce platform understands that sometimes this is what you are doing
If you aren't unhappy with the status quo and constantly improving customers' lives, you don't deserve to keep their money.
Principle 3 - Subtraction
Tobi has a theory that only founders can subtract from a company's offering because they are the only ones with the social capital to make those kinds of tough decisions. Everyone else gums up the works with more people, features, and everything customers eventually stop valuing. (think about what Steve Jobs did when he returned to Apple - a core principle was that all the products should fit on one table.)
This last subtraction point is also a core element of Clayton Christensen's theory of low-end disruption [the incumbent never knows when to stop building], and is also a kind of agile principle generally (meaning, you aren't going to need it)
If you ask me who these principles are most like, I would say a combination of Bill Gates, Jeff Bezos, and Steve Jobs. The emphasis on the craft from Bill Gates, the divinely discontent focus on customers from Bezos, and the subtraction capability of Steve Jobs.
I've always admired that Lutke is a student of previous great entrepreneurs and this interview really crystallized this as well.
If you put together Tobi’s subtraction principle, his upset email when they had to chuck the logistics business, I get the sense that getting rid of the logistics business at Shopify was a deeply unpopular decision within the company and one that only Tobi thought he could make, because anyone else would have justified how to fix the mess they had gotten themselves into.
As someone who wondered why they ever bet so big on 6 River robots and Deliverr tech-enabled logistics in the first place, I applaud Tobi’s thought process for getting out of a bad situation quickly by subtracting.
[References:]
Our Third Story
Klaviyo and Instcart IPOs Mark Their Debut
Last week on the program, we previewed the upcoming Klaviyo and Instacart IPOs, which happened in the last week. Here are a few key points on each of them.
Let’s go with Instacart first.
Instacart’s stock opened up 12% on its opening day debut last Tuesday, and in doing so the digital advertising company posing as a grocer snapped up a nice NASDAQ ticker symbol C-A-R-T.
On the first day of closing, Instacart was valued at around $11 Billion, which is up from what I thought was an initially low valuation of $9 billion it was going to go out with previously.
One of the funnest facts that the Instacart IPO revealed is that the real name of Instacart is actually MapleBear, which is a tribute to the Canadian heritage of the founder Apoorva Mehta, and the California bear.
Now Klaviyo.
Klaviyo’s shares opened up 20% higher on its market debut last Wednesday.
The e-mail software and marketing automation company has over 130,000 companies, approximately $320M in revenue in the first half of the year, and a profit of $15 million over the same period.
At the end of 2022, Klaviyo had around $575M in ARR, and is now worth about $10 billion dollars. On a backwards looking basis, that gives it about a 17 times ARR, which is quite a healthy number and good for SaaS vendors in the audience.
Of course I could make a few worrisome comments here, but I going to forego that today to focus on the bright side. Overall, I’m certainly happy that the eCommerce industry is seeing IPOs again, and obviously successful ones. Here’s to more weeks like this.
[References:]
https://www.wsj.com/finance/stocks/instacart-stock-cart-trading-nasdaq-2e0c060e
https://www.wsj.com/finance/stocks/klaviyo-shares-surge-in-trading-debut-6928fff2
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And Our Last Story
Holiday Season Kicks Off in October For Big Retailers
This past week, in what is starting to become a kickoff to the holiday season, Amazon announced the official date of its Prime Big Deal Days, which will run for 48 hours beginning October 10th.
Predictably, Walmart and Target have followed suit with their own holiday kickoffs. Walmart has announced a Holiday Deals Kickoff between October 9th and 12th, while Target is going to front-run Amazon with a Target Circle week of October 1st through 7th. This little cat and mouse game of who starts holiday season discounts whenhas started to become an ongoing game with the big three retailers.
Speaking of holiday season, I wanted to pass along a little trick I use to determine how large each retailer expects the holiday season: how many temporary workers they plan to hire to handle the fulfillment demand. Now, these figures can be skewed because the more automated a retailer is, the fewer workers it can hire, but at some point, you still need to hire workers, so it’s a good relative judge of volume.
Let’s compare the temporary workforce hiring for each major retailer to 2019.
Amazon, for its part is hiring 250,000 temporary workers for the holiday season, which is greatly up from the 150,000 it hired in 2022, and 200,000 it hired in 2019. The fact that Amazon’s numbers are above both last year and 2019 give you some idea that Amazon continues to grow steadily despite uncertainty.
Target is in a little bit different position. In 2019, Target hired 130,000 temporary workers for the holiday season. In 2022 and 2023, both of these numbers were flat at 100,000. This would seem to indicate that Target is still struggling to recapture some of its previous demand in this economy and is in for a lighter holiday season as well — perhaps flat to last year.
Walmart, for its part has not released its holiday hiring numbers. It tends to higher fewer employees, as it hired about 40,000 in both 2019 and 2022. Its numbers for 2023 have not yet been released publicly.
What does this say about the upcoming holiday? While it’s difficult to say without Walmart’s numbers, it is encouraging to see Amazon hiring ahead of last year’s demand. I think that bodes well for Amazon sellers this holiday season, so any sellers in the audience should be prepared to start your engines.
[References:]
https://www.retaildive.com/news/walmart-target-amazon-early-october-holiday-sales/694094
https://www.retaildive.com/news/amazon-october-prime-sale/693949/?utm_source=pocket_reader
[PAUSE]
Hey, Watsonians, did you know that Amazon has released a tool based on artificial intelligence to help sellers create product content? The large platforms are driving the AI bus currently.
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
Rapid Grocery Delivery Service, Getir To Raise $500M in New Funding
According to the Financial Times, on-demand grocery service Getir is raising $500M at a $2.5b valuation. Consumers are less interested in the convenience and discounts offered by Getir who have exited markets in Europe and seen its valuation decrease by over $9b since March 2022.
Second
J.M. Smucker Company To Acquire Hostess Brands
J.M. Smucker Company will acquire Twinky maker, Hostess Brands via a cash and stock deal worth $5.6 billion. Smucker continues to acquire brands optimized by private equity as Hostess adds additional revenue and earnings upside.
Third
ShipEase Raises $1M in Pre-Series A Funding
ShipEase, an Indian-based SaaS-based 3PL that offers automated shipping, has raised $1M in Pre-Series A. The new funding will be used to hire staff, invest in marketing, and build new features.
Fourth
WHP Global Acquires Majority Interest in G-Star Raw
WHP Global has acquired a majority stake in apparel brand G-Star Raw for an undisclosed amount. WHP Global continues to acquire brands that consumers love, and now with investment, has expansion and growth opportunities.
Link: https://wwd.com/business-news/financial/whp-global-majority-stake-gstar-raw-1235785585/
AND FINALLY …
Skinnydipped Raises $12M Series A Funding
SkinnyDipped, which makes healthy snacks, raised a $12m Series A from investors, including celebrities, athletes, and entertainers. The new funding will be used to enter new categories, product development, and further expansion into retailers.
AND NOW…… for today’s final word for the week of September 25th: Liquidity.
The word liquidity references not only the recent Instacart and Klaviyo IPOs, it also represents a warning to venture-backed companies in the audience. You see, most people are still predicting that interest rates will remain high through at least the first half of 2024, which will likely mean that easy fundraising is also not going to return anytime soon. The next six to nine months is going to be very tense for a lot of venture-backed companies. Personally, I would urge every founder either to be very comfortable they can raise money, or to have about 2 years or runway. Having 24 months of runway instead of 12 to 15 months gives you options. You can of course raise money in advance, but you can also raise money on your own terms, rather than when you are forced to. Desperation never helps a fundraising or acquisition pitch.
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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.