Shopify releases commerce components, Nike’s earnings, Meta acquires smart lensmaker, and Chewy plans expansion.
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It’s January 9, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify Releases Commerce Components to Create a Path to its Composable Future
Nike Earnings Top Estimates But Inventory and Costs Rise
Meta Acquires a Smart Lensmaker to Bring Augmented Reality to Market
Chewy Plans Expansion of Automated Fulfillment
- and finally, The Investor Minute, which contains 8 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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BUT FIRST in our shopping cart full of news….
Shopify Releases Commerce Components to Create a Path to its Composable Future
Last week Shopify announced that it is now focusing part of its strategy on enterprises with the release of Commerce Components, a subscription product which reportedly allows an enterprise organization with over $500 milion in sales per year to select the components from Shopify it wants in a custom plan.
For the past two years Shopify has been pursuing an "everything, everywhere, all at once" strategy” – simple for entrepreneurs, configurable for growing stores, and ... Shopify Plus, is, well, Plus. I mean, it is more, but historically it has not been THAT much more than standard Shopify.
When I ask why a company chose Plus, 9 out of 10 times the answer is dedicated "account management".
Shopify Commerce Components slots in ... well, somewhere in here, but is designed for this audience above Shopify's Plus offering (from what I can tell).
A few takes:
First — In true Shopify form, a lot of this is marketing – repackaging existing things Shopoify has like Hydrogen, along with a new set of non-rate limited APIs.
Second — This is essential for Shopify’s (new) global consulting partners like Accenture (TheStable) and Deloitte. Otherwise Shopify probably won’t be able to seriously develop these partners. The standard Shopify playbook for the last 5 years of continually declining agency project sizes doesn't fly in the enterprise customization world.
Third – The whole space that other than simple cloud-based software is very difficult to understand from a marketing point of view. The difference between commerce tools, commerce components, headless, composable, and organizations like MACH is very difficult for the average person to grasp.
Fourth –Really I think this is about checkout. By far, Shopify's biggest advantage in this space is its checkout, which is world-class. And the company knows it given its focus in its release on checkout. In some ways this is needed to make Shopify Checkout relevant to this up-market segment and to stop people from moving on from Shopify when they outgrow other parts of the stack. Enterprises aren't looking for one platform; they are looking for best in class across a range of components.
This is needed in some respects so that Shopify gives its checkout a chance to run.
Finally – One thing I have observed at the high-end of the enterprise world in the last year is the beginning of a consolidation around CommerceTools in this segment in the composable commerce realm. Speaking of marketing, CommerceTools' introduction of the MACH alliance in 2020 continues to be one of the more brilliant marketing coups in the sector in recent memory.
While CommerceTools is not the only company pushing this vision, this should be a big vote of confidence and validation for its approach.
The last word is this. I don’t think this is a big focus for Shopify. I really think the company has enough interest from large enterprise integrators that are asking for an answer to headless, and Tobi and the developers at Shopify finally got fed up enough to offer them a first look at a solution. Beyond that, I think Shopify will keep most of its focus on entrepreneurs.
Even so, this is the opening of a conversation with a world that Shopify is not familiar dealing with, with a go-to-market approach that is completely foreign to the organization. In this case, I think Shopify is not going to win any easy battles here and has a lot to prove to enterprise retailers that already have many options to choose from.
[References:]
Our Second Story
Nike Earnings and Revenue Top Estimates, But Inventories and Costs Rise
Nike recently reported quarterly results that easily topped Wall Street's expectations, but rising inventory and costs squeezed the company's margins.
Let’s dive into what happened as reported by CNBC:
1 - Nike achieved $13.32 billion revenue, up 17% from $11.36 billion a year earlier. Nike's inventory levels were up 43% to $9.3 billion in the quarter, compared to last year, and led to aggressive markdowns, which reduced Nike's gross margin to 43% from 46% a year ago.
2 - The company's selling and administrative expenses increased by 10% year-over-year to $4.1 billion. Nike Direct sales were up 16% and digital sales were up 25%.
3 - Nike's inventory grew 65% over the last year in North America alone, so the company enacted an aggressive promotional strategy to liquidate the merchandise and make way for new products. This is what had an impact on the company’s gross margin. No doubt this is affected by its move away from wholesale in the past year and more towards Direct.
My take on this is generally positive. 17% growth year-over-year is nothing to sneeze at, and everyone is struggling with inventory at the moment, particularly in apparel.
Overall, Nike, Amazon, and Walmart seem like the bellwethers in this retail economy generally. If Nike’s not doing well, we really all are doomed. Even if your numbers don’t match these, it gives you some benchmark for the growth and challenges of a top fashion brand out there in today’s market.
[References:]
Our Third Story
Meta Acquires a Smart Lensmaker to Bring Augmented Reality to Market
If there’s one thing you can say about Mark Zuckerberg it’s that he has full control over Meta’s destiny, and he is determined to go in this direction. He has just thrown more money into the metaverse with the acquisition of Luxexcel, a Netherlands-based company that specializes in 3D-printing prescription lenses for smart glasses.
For its part, Meta has been investing in both AR and VR and this definitely fits into the former category.
The company Luxexcel was founded in 2009 has patented a lens with a transparent display technology to create augmented reality experiences on regular glasses.
This is what I’m talking about, people! Who wants to wear a goofy headset? We would much rather be like Google Glass and the generation of glassholes who tried out this technology in 2013. Who even remembers these now?
Meta’s mortal enemy Apple is moving into the Augmented Reality space but has its current mobile platform to defend. Having an existing platform to defend has its advantages in that you can leverage a user’s existing investments to move into a new realm. It has downsides too, however. Namely, if the old world is not helpful in the new one you could end up creating something not as useful because you are afraid to take bigger risks. I am not really worried about this with Apple especially since it has proven it can innovate.
Zuck definitely has conviction here and is investing like a venture capital firm. He is determined to not be like Microsoft, which missed a major platform transition like the Internet.
Meta has tried for years to create its own platform in different ways and none of them have worked out. Who remembers the Facebook Phone called the First?
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And Our Last Story
Chewy Plans Expansion of Automated Fulfillment
An article in the Wall Street Journal discussed Chewy investing in at least two more automated fulfillment centers in 2023 with the goal of improving safety, margin, and capacity.
Automated facilities are obviously needed because of labor issues in this space. There are not enough people who want to work in a warehouse; even if there were, you couldn't pay them enough over easier alternative careers.
A few simple facts out there now that indicate this trend toward automation could be persistent:
* There are more jobs than people in America now and in the foreseeable future (it's not dropping rapidly across all sectors).
* The Fed may not be able to kill enough jobs and lower unemployment enough due to the government's actions (yes, the Fed is tightening, but the government is still putting a lot of new money into the economy this year - $1 trillion in infrastructure and more defense funding, and immigration is still not fully valued).
Simply put, any company not thinking about automation within its warehouse facilities is in one of two situations:
Either the company doesn't need automation because its volume is stable and not capacity constrained.
Or the company is likely slowly losing margin (first) and later market share to its competitors and doesn't realize it (i.e., the company is leaving an opportunity on the table).
How is it possible that a 3PL is losing market share? The 3PL business is highly fragmented and there are hundreds of providers, most of which are still in the "dusty four walls and teams of muscle" mode of fulfillment.
There are other simple facts involved, including that experience is necessary to successfully implement automation. Giving typewriters to a thousand monkeys does not produce Shakespeare any more than RFID alone revolutionizes supply chains. It takes people and processes to make it all work.
Not all 3PLs have this experience.
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It’s that time, friends, for our Investor Minute. We have 8 items on the menu today.
First
Amplio raised a $6 million seed round to help manufacturers source electronics components.
The system both predicts and tracks electronics parts shortages. Not only this, but it identifies alternative suppliers for the riskier parts of the supply chain. I like the narrow focus on a specific industry and set of problems.
Second
Sephora selected 7 new beauty brands for its accelerator program.
The beauty retailer started its accelerator program in 2016 and some of the latest cohort are brands like Range Beauty and Glosshood. If you’re a startup and targeting beauty brands, it pays to look and see if a big retailer you are interested in selling to has a venture program. Other companies like Dick’s Sporting Goods have one as well.
Third
A new investment round gave sports retailer Fanatics a $31 billion valuation.
Fanatics continues to defy general market and valuation trends with a $700 million fundraise led by Clearlake Capital. I do not have much to say about Fanatics except reiterating my core belief: never bet against Michael Rubin.
Fourth
Maergo raised $20 million to fill excess capacity on commercial aircraft to speed up the middle mile.
The fact that this is using commercial aircraft means that the reliability could be affected especially if airline travel continues its challenges. I should also note here that Amazon is starting to sell excess capacity on its planes as well to other shippers.
Fifth
Pixyle AI raised a 1 million pound seed round to automate visual image tagging for retailers.
This startup was founded by a doctorate in AI and computer vision. Anyone with a varied design heavy catalog understands the problem with visual search. Tagging images properly is a key to discovery and has been the focus of AI from Google which can plug into Enterprise search platforms like Algolia or native visual search solutions like Syte.
Link: https://techcrunch.com/2022/12/07/pixyle-ai/
Sixth
WPP acquired Canadian commerce agency Diff to enhance its Shopify capabilities.
Agency consolidation continues particularly at the high end of the Shopify Plus agency partner place. You recently saw Accenture Song acquire Shopify agency The Stable, and now multinational agency WPP has acquired Diff to bulk up its Shopify expertise.
Seventh
Sports card trading platform Arena Club announced a $10 million Series A.
There are a number of new sports card trading platforms, including digital ones so I’m skeptical if this is a fertile area for VC investment in the short-term, especially since this is a vertical area of investment for eBay. This one has the advantage of being promoted by Derek Jeter, but that doesn’t guarantee success.
Link: https://boardroom.tv/arena-club-derek-jeter-series-a/
AND FINALLY…
Brand licensing firm WHP Global invested $260 million into Express and acquired 7.4 percent
WHP Global, the firm that owns a controlling stake in Toys R Us, has invested in Express in order to expand the firm’s product lines into new categories and geographies. I’m bullish on this partnership for WHP Global as the Express brand name still means something and there is likely a lot of money to be made here if this is done right.
Link: https://wwd.com/business-news/mergers-acquisitions/whp-global-express-partnership-1235442972/
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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. Want to discuss the topics on the show? Head on over to community.rmwcommerce.com to connect with other listeners!
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.