December 11th, 2023: Shopify Investor Day recap, replatforming has slowed down significantly, Amazon restructures its seller fees, and Neiman Marcus rejects Saks takeover bid
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s December 11, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify Investor Day Recap
Replatforming Has Slowed Down Significantly
Amazon Restructures Its Seller Fees
Neiman Marcus Rejects Saks Takeover Bid
- 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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BUT FIRST in our shopping cart full of news….
Shopify Investor Day Recap
Investor days are like a dog and pony show. Investor relations teams try and convince new analysts to cover the stock or improve its ratings. Ratings are then used by hedge funds, pension funds, etc, to decide to include the stock in the portfolio.
It doesn't matter what happens on the day - except that it reveals company strategy, management philosophy, and long-term guidance. The tenor of the call reveals that the company feels that analysts worry most about TAM, attach rate, and free cash flow. Here are a few key points I took away.
1 - The "Intel Inside" of Shopify is still Stripe in the US, and other payment providers elsewhere
At least for now, Shopify has no plans to build its own payments stack or even acquire one of the players. Management reveals that "market fit" is the primary criterion to determine the buy/build/partner approach for payments in each market, not some overriding philosophy that they must never do one thing or the other. (This observer notes that Apple eventually built its own silicon and Amazon built its own logistics network)
Although other businesses are growing, Shopify's margins and revenues will be primarily animated by the gross margins of the payments business long-term, despite the fact that other businesses and revenue sources (like subscriptions) are growing.
SMB, Enterprise, Capital, Balance, POS, B2B, Country Expansion -- it's payments that generates the revenue.
2 - Gross Margins Do Have Some Headwinds
Despite the growth of POS, B2B, Enterprise, and International, the news is not all rosy. These GMV sources all have lower attach rates to revenue than their existing business. This provides mild downward pressure on gross margins. The company has other businesses, but pay attention to payments to discover the financials.
Shopify is currently about growth and upsell, not gross margin expansion.
3 - Artificial Intelligence Used Broadly in the Company To Control Costs
The CFO and COO said that as we grow, we aren't going to be hiring a lot. We will get leverage through software and AI. The promise is that the company has found how to generate free cash flow, and won't be returning to its old ways.
4 - Advertising Remains a Hobby
Advertising did not get much play, except for a few revealing comments. I wrote down one: "Our job is to teach merchants how to fish, not bring them fish."
This line shows the divide between a company like Amazon (who wants to bring fish, but not before taking half that same fish) and one like Shopify. Shopify is a tool-builder, not a traffic generator. This could indicate that Advertising and Shop App is still just a hobby, and no one should expect it to significantly impact the company's financials or most merchant's lives anytime soon.
[References:]
Our Second Story
Replatforming Has Slowed Down Significantly
Does it seem to anyone else that the number of Enterprise replatform projects has slowed down significantl? If you are SMB and lower mid-market, the risk is lower. But in Enterprise? The stakes are so high. Who can blame CEOs for inaction?
Just look at this litany of issues with any replatform:
* Your requirements could be wrong.
* You could pick the wrong software.
* You might not have the team to execute it and
* You might execute the plan poorly
A major eCommerce replatform effort is like walking a tightrope, over a pit stocked with alligators, while 3,000 feet above the pit. While juggling chainsaws.
I recently looked at some data on platform choice by major brands and retailers, even 10 years later. 10 years later, most of those sites look like they did on launch day, with no signs of change on the horizon.
The ones that have changed, many got even worse than they were before. Mostly because they distrusted their vendor and moved to an in-house solution managed by the only agency in the world who knows that platform.
Nevertheless, they persisted.
The simple facts on the ground indicate that the devil you know always seems to be preferred to the devil you don't.
[References:]
Our Third Story
Amazon Restructures Its Seller Fees
Most Watsonians know that Amazon in the past year has reallocated how it stores its inventory, separating the country into different regions where inventory is stored locally.
Geekwire has a new report out that Amazon is changing its fee structure slightly. In the future, if you send your inventory to multiple locations, Amazon will waive its inbound placement fees. The way Amazon is doing this is previously this wasn’t a fee, so now if you only send to one warehouse, there is a new fee. Kind of a back-handed way of taxing behavior it doesn’t want.
Amazon will also discount its fees slightly if you let them ship in your original packaging, rather than forcing them to repackage them. Here is a list of other fees the company is changing:
Referral fees for apparel priced under $15 will decrease from 17% to 5%, and fees for apparel priced $15-20 will decrease from 17% to 10%, starting in January.
Non-peak monthly storage fees will be reduced for standard items.
A returns processing fee will also be expanded to apply to high return-rate products in all categories excluding apparel/shoes, starting in June. The fee is said to apply only to products that have the highest return rates in their category.
My take on these apparel fee adjustments is that Amazon is feeling the pressure. The fact that low-priced apparel is specifically targeted just screams the fact that Amazon is trying to be more competitive with Shein and Temu.
[References:]
https://www.geekwire.com/2023/amazon-restructures-seller-fees-to-match-its-regional-fulfillment-strategy-amid-ongoing-ftc-lawsuit/?utm_source=pocket_saves
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And Our Last Story
Neiman Marcus Rejects Saks Takeover Bid
The Wall Street Journal reported this week that Neiman Marcus has rejected a $3 billion dollar takeover bid from fellow luxury retailer Saks. Sounds like Saks may have smelled blood in the water. Just to review some recent news in the last year.
* A few months ago, Wells Fargo bought out the huge Neiman Marcus space at Hudson Yards in New York City for half a billion dollars.
* Last year, Neiman Marcus received $200 million in investment from Farfetch.
* Just last week, Farfetch canceled its earnings call and is rumored to be about to collapse.
Meanwhile, the CEO of Neimans is out there on the street saying that company is profitable and can stay independent for a while.
Let me let you in on a little secret. This company is in big trouble, and is most definitely for sale. It sounds like all we are doing is negotiating the price. I suspect that Saks will wait this one out and eventually get its price.
[References:]
https://www.wsj.com/business/deals/chasing-neiman-marcus-sakss-latest-merger-bid-is-rejected-0dada67f?utm_source=pocket_reader
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Hey, Watsonians, did you know that Shopify had an investor day? 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
SKKY Partners Invest in TRUFF
Kim Kardashian's private equity fund, SKKY Partners, has acquired a significant minority stake in TRUFF, a premium sauce and condiments brand. I never thought that a Kardashian reference would make it on my podcast.
Second
Birdseye Raises $3M In Seed Funding
Birdseye, a digital marketing automation platform, has secured $3M in seed funding to expand its operations, showcasing AI startups' growing interest in personalized marketing automation. When do these digital marketing solutions start offering this AI baked-in?
Third
Rover to be Acquired by Blackstone in $2.3B Deal
Blackstone-managed private equity funds will acquire pet-sitting marketplace Rover for $2.3 billion, offering shareholders a 61% premium after struggling in the past 12 months after listing via a SPAC.
Fourth
Tech-enabled warehousing startup Huboo raises another $36.6M amid continued e-commerce growth
AND FINALLY …
PFSbrands acquires Mid-Missouri grocer Moser’s Foods
PFSbrands, which offers food service solutions, has acquired Mid-Missouri grocer Moser’s Foods for an undisclosed price. This is interesting. Why would a food service company feel the need to acquire eight grocery stores?
Today’s final word for the week of December 11th 2023 is Infinity. One funny part of the Shopify investor day was when they tried to bust 4 myths about Shopify to the audience. Two of the myths are ones you might expect they want to harp on, which include the fact that Shopify is just for entrepreneurs, and that Shopify can’t’ help retail stores. The last myth they tried to bust was pretty funny at least to me, that Shopify has a finite total addressable market. Maybe they don’t understand what finite means? What are we supposed to believe that Shopify has an unlimited addressable market?
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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.
