September 26th, 2022: Andy Jassy reveals innovation questions, the state of apparel retailers sustainability and diversity at supply chain management event, what the results of back-to-school tell us
It’s September 26, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon CEO Andy Jassy at Recode Reveals Core Innovation Questions
How are Apparel Retailers Trying to Navigate Shifts in Consumer Demand?
Sustainability and Diversity a Major Theme at Association for Supply Chain Management Event
Brands and Retailers Ignoring Back to School Results: Are We In For a Tough Holiday?
- 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….
Amazon CEO Andy Jassy at Recode Reveals Core Innovation Questions
CEO Andy Jassy sat down with Kara Swisher for an hour, and in many ways was not that surprising what he had to say. There were two elements, however, that I thought were interesting.
The first was an off-hand comment, "All these businesses are very decentralized."
In this one statement, Jassy described what a lot of people may not be aware of at Amazon, and I think is a big contributor to its success. The idea of the single-threaded leader. Each major area at Amazon has essentially its own leader who -- unless they are doing something extremely risky or worrisome -- does not have to answer to some kind of senior leadership team. Even this simple idea is one that most other companies even half Amazon's size have not been able to figure out.
The second was Amazon's core investment questions. In order to decide to go into a new line of business (Alexa, Healthcare, etc.), Amazon asks itself 4 key questions:
1 - If we invest, could this be big and move the needle? (total addressable market)
2 - Is it being served well today? (problems compelling)
3 - Do we have a differentiated approach? (our strategy matters)
4 - Do we have a competence there, and if not, can we acquire it quickly? (ability to win)
I think these 4 questions are really interesting ones for any startup. Number 3 I would like to call out in particular.
So many startups ask number 1, their answer for number 2 is weak, and number 3 while the answer is, yes we are technically different, the answer to that difference does not matter to the customer.
Let me give you one example. eBay used to say, we are different than Amazon because we will never compete with you.
Is it different? Yes.
Is it meaningful to the seller? History would tell us no, unless you are primarily interested in PR (what people tell you) versus behavior (how people act).
The history of the last 20 years would tell us that sellers migrate to the platform where buyers are getting the widest selection in the most convenient way possible, which is what really tends to matter in the long-term.
It may seem like a small point but it's not, and likely in whatever sector of the ecommerce market you cover there is a lesson here as well.
Differentiation is table stakes, yes. But to have the right long-term vision, that the points of differentiation you choose as the focal points of your strategy also need to be the most important factors to your customer, and you need to work on improving those factors over a long period of time.
>> closer
[References:]
Our Second Story
How are Apparel Retailers Trying to Navigate Shifts in Consumer Demand?
An interesting article appeared in Glossier last week which talked about how fashion brands are navigating the current environment. Let’s be clear on what’s happening first.
One, in case you haven’t noticed, consumers have reprioritized spending because of rising grocery and gas prices which has caused a ripple effect on the rest of budgets.
Second, if you talk to most brands out there, traffic is off unless they have extremely unique inventory or they are part of essential spending.
Apparel brands are the worst off in this environment. Not only is traffic down, but full-price apparel seems to be one of the most affected categories out there. So what are these apparel retailers doing?
Well, there are really only two primary approaches.
The first is to write down and liquidate this inventory. Target famously did this earlier in the year when it took the huge hit to its profitability. There are a few reasons this is a great idea. First, you gain space in your stock rooms, warehouses, and show floor. Second, the inventory isn’t selling anyway, so you get the inventory off your books and free up capital. This frees up space to reset your buying strategy and acquire products that are selling in this environment.
The second solution to this problem is to severely discount this inventory. I think you are going to see a tremendous amount of discounting this holiday season because most brand and retailers are stuck with inventory that isn’t selling. A wise retail soul Stuart Spiegel always told me the first markdown is the best markdown, so expect some of these products to be discounted more than 50% the first time, rather than starting at a traditional markdown of 50%. Companies like Macy’s and Nordstrom could be affected by this which have a high exposure to apparel. Needless to say this isn’t an ideal approach.
The final solution to this problem is a strategy called pack and hold. Pack and hold I generally tend to think is the worst answer for this issue. Essentially you take this season’s merchandise, you pack it in a box and you put it on a shelf until next season.
Now just think about this for a moment. As the economy changes and consumer tastes change, you are going to automatically be off-trend for this merchandise, yet you are going to present it as new? Consumers aren’t fooled so easily. Gap and Kohl’s are two retailers that have announced they are going to be using this strategy.
The reality is, many retailers are using a combination of these strategies all at once particularly in a changing economic environment.
[References:]
Our Third Story
Sustainability and Diversity a Major Theme at Association for Supply Chain Management Event
Last week I traveled to Chicago to speak at a major organization in the Supply Chain universe the non-profit ASCM. The event featured speakers helping supply chain professionals, many of which were not in eCommerce, improve their craft in the areas of operations, inventory, risk management, supply chain relationships and more.
Actually, I spoke twice at this event. The first was a podcast hosted with David Glick, CTO of Flexe, and Tom Raftery, an evangelist for SAP. This full-house presentation a lot on the major trends driving the supply chain industry, including global climate legislation and making supply chain a more diverse and inclusive place. The Question and Answer format led by ASCM CEO Abe Eshkenazi and Bob Treblicock was quite interesting and the podcast was notable for its diverse crowd.
But the real reason David Glick and I were there was to talk about Amazon. Later the same day we gave an exclusive view inside of Amazon’s Logistics progress in the last year. We gave a related talk the year before, but virtually. This year, we both went in-person and recapped all the major investment themes from Amazon.
As you might imagine, this talk kept changing right up until we gave the presentation and we had to add Buy With Prime and Amazon Warehousing and Distribution in the weeks leading up to the talk itself. Some of the most interesting takes were on how Amazon innovates, invests for the long-term, and how their efforts will impact the major US carriers like the Postal Service, UPS, and FedEx.
Thanks to ASCM Senior Content Manager Helli Hendesi for having us at the event. If you’re interested in a speaker for your own event, drop me a note on LinkedIn!
[References:]
And Our Last Story
Brands and Retailers Ignoring Back to School Results: Are We In For a Tough Holiday?
Well the early results for Back to School are in from NPD and why does no one seem to be talking about this?
As far as I’m concerned, Back to School is a shot across the bow of the holiday season because they reveal what consumers are thinking. So far the results seem to be these three things.
One, we are spending less than last year and it’s getting worse.
In the first 7 weeks of the back to school season, school-related spending was down year over year at retailers.
The one segment that did well? Dollar stores. The consumer behavior is not hard to imagine. CNN says that the average American is spending $460 per month more on groceries at this time than at the same time last year.
This means they need to allocate their spending on the rest of everything and they are listing out their priorities, and starting at the bottom. Just think about yourself for the moment.
Can I defer this purchase?
Can I reuse this item from a friend, relative, or can my existing item like a school backpack last another season?
Can I buy this in bulk at a dollar store, wholesale club, or a price leader like Walmart?
Only when the consumer has gone through this prioritization exercise do they look at full-price retail.
If this trend continues, the holiday season could look strange indeed. While you may not go through this exercise with your partner, husband or wife, couldn’t you go through this exercise with gifts for more distant friends and relatives?
Two, unemployment continues to slowly rise. It’s not hard to see new reports of companies like the Gap, Compass, and others starting to layoff in the range of 5 to 10% of workers as they anticipate the downward trend. However, if the downward trend intensifies, this is only the beginning. The Fed in its recent interest rate hike noted that the median unemployment rate is up to 4.4% from the 3.7% today, which is about 13% higher than the 3.9% the Fed had predicted.
Of course you saw that the Fed just raised interest rates another 75 basis points, and signaled that it will keep raising rates until prices come down. Well that might work for real estate, but will that help groceries and gas? It’s unclear.
Of course all of these statistics have implications not only for brands, but also for shippers. All signs point to the fact that the holiday season will be down this year. The projections I have seen range from up 1-3%, to flat, to down 2-5%. Walmart and Target seem like they are preparing as well. Target is hiring 100,000 seasonal workers, the same number as last year. Walmart is warning the world, however and only hiring 40,000 seasonal workers compared to 150,000 last year.
[References:]
https://www.cnn.com/2022/09/21/economy/fed-rate-hike-september/index.html
https://www.barrons.com/articles/inflation-back-to-school-shopping-51662235955
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Retailer Misfits Market to acquire Imperfect Foods
Count me in as someone hoping this company does well, especially considering the amount of food waste in America today. I read that 40% of food in America is wasted. Viewed from this lens, this seems like a good fit, rather than a misfit if you ask me.
Second
Warehouse automation continues to heat up with Amazon buying Cloostermans, a mechatronics specialist in Belgium.
Cloosterman’s which already counted Amazon as a customer, has been building technology to move and stack heavy pallets, unlike Kiva robots which are focused on moving lighter totes and shelves. It remains to be seen if Cloosterman’s will be forced to divest itself of other customers like when Kiva was acquired by Amazon.
Third
Asset Management firm BlackRock leads $100 Million round in Cap Hill Brands.
Cap Hill Brands is a vehicle designed to acquire consumer-based CPG brands and grow them. I’m a little surprised these types of businesses are being funded in this economy but I expect that likely half to two-thirds of this $100 Million is actually debt and not equity. The company is hiring a lot of experienced executive operators, so we will see what happens with them going forward.
Fourth
Prediko raises Seed Capital to Build Forecasting Software to Help Brands Stay in Stock
If you ask any brand what one of the hardest problems in retail is, forecasting is never far down the list.
Link: https://techcrunch.com/2022/09/14/with-prediko-online-brands-should-never-run-out-of-stock/
AND FINALLY …
Marketplace Accelerator Spreetail Acquires Amazon Marketing Agency Buy Box Experts
It may just be me but I thought Buy Box Experts was already acquired before. If my friend James Thomson has achieved the rare double dip, well then congratulations are in order!
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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 Alex Brouwer; 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.
