A blog on eCommerce, Social Commerce, Comparative Shopping Engines & Business

By Hendrik Laubscher

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Why I am changing my thesis on Chinese ecommerce

Over the last 18 months, I have been reading, researching and talking to ecommerce investors about China. Why? I am fascinated by the market as Chinese ecommerce is both unique and a look to the future.

China is unique

GDP growth


source: tradingeconomics.com

Economically China in my mind is bordering on a miracle. 6% growth consistently over 25 years which some years growing even more. I have realized that China has moved from being a factory based economy to a market that is reliant on consumption. The consumption has lead to the creation of businesses that are huge economically and only focused on creating wealth for their shareholders and the Chinese population. These businesses have to toe the line with the Chinese government.

If the GDP growth slows, Chinese consumption would have grown $2.3 Trillion by 2020.

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My ecommerce predictions for 2017

Last year I had writers remorse. I never put my thoughts / predictions for the year in the public domain.  What do I expect for 2017?

TL;DR

Global ecommerce businesses will enter new markets, LVMH needs to make a big decision and capital efficient direct to customer ecommerce startups become highly sought after.

I believe that we are at the starting point of a battle between 2 behemoths who are driven by their markets to provide an unlimited selection for their customers. Alibaba and Amazon want to ensure that their sellers get maximum exposure and that they provide a selection so diverse that makes their local competitors irrelevant. Marketplace ecommerce has a gigantic elephant in the room – counterfeit products.

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9 Thoughts about ecommerce from 2016

Every year at this time I write a summary of the ecommerce year that has gone by. I can summarise the 9 thoughts in one word – unexpected. Globally the year saw a lot of unexpected mergers and acquisitions, new developments and businesses selling for way below their valuations.

The 9 thoughts in no particular order:

  1. Walmart spending $3.3 billion Dollars to acquire Jet.com. Walmart gained a new demographic (millennials) and most importantly Marc Lore is now the President & CEO of Walmart eCommerce and Founder & CEO of Jet. It is increasingly clear that Walmart has an ecommerce problem. The growth rate is slowing and Amazon is growing at a steady rate. This is something that could be a story line in 2017 as battling Amazon in the US will be long term battle.
  2. Alibaba acquiring Lazada in South East Asia. The latter part of 2016 indicated tough market conditions for investment into ecommerce. Increasingly it looks like sovereign funds and Chinese internet businesses are buying ecommerce businesses at below valuation rates.  Lazada was running out of funding and Alibaba acquiring it for a Billion Dollars makes all the sense in the world. Lazada has become the dominant marketplace in South East Asia through logistics and providing sellers access to the growing part of Asian ecommerce.  Alibaba through Lazada has also acquired Redmart to provide customers in South East Asia with the opportunity to purchase groceries. I suspect that this is a pre-emptive measure on the expected arrival of Amazon.
  3. eBay selling a large part of their MercadoLibre shares. In direct contrast to the entire ecommerce industry eBay made selling a large chunk of their MercadoLibre at a time in which the large ecommerce businesses have added assets to their businesses.  eBay is fighting for its future – that is clear to me. The sale of the shares in MercadoLibre is primarily to provide them with capital for investment into other more important verticals.
  4. 2016 will be remembered as the year in which Amazon made their logistics desires known. It is clear that currently they are in an investment mode. They have via their Chinese subsidiary acquired a shipping license to ensure that they can operate as a freight forwarder. In the US they have rented airplanes to ensure that they can move products between distribution centres. Amazon is also slowly rolling out their Flex programme to ensure that they can provide on demand employment for those wishing to deliver items for them on an hourly rate. As Amazon is famous for re-purposing capital expenditure I believe that in  late 2017 will be providing logistics services to their top tier sellers. If I was a shareholder in UPS, Fedex or any logistics firm I would be concerned.
  5.  Alibaba had a nightmare of a year. Yes, their global shopping festival smashed records but their counterfeit problem and quarterly reporting became issues. Barron’s wrote a hard hitting post regarding concerns over Alibaba’s reporting which was quickly rebuked by Alibaba management. By end of 2016 Taobao was placed back of the US trade representative list for counterfeit sales. Most of the product marketplaces had their issues with this in 2016 but Alibaba’s got way more coverage as the scale of it is larger.
  6. The fashion ecommerce space witnessed one of the largest mergers when Net-a-Porter and Yoox joined to form a new Italian based behemoth. The merger was a story line for me since middle of 2015. The combined business has not shown the same level of innovation but I believe that this merger has still to come full circle. Between Carmen Busquets and Natalie Massenets unhappy departure and the departure of some of the top staff of Net-a-Porter I believe that the fashion ecommerce space is still very much open for serious innovation.
  7. Zalando, a giant in European fashion ecommerce has been making the right noises in the last 9 months. Better margins, better financial performance has seen them become a more vocal part of a vertical looking for a market leader. Zalando has made their intentions clear – they want to become the largest fashion based marketplace and provide brands a place to sell to customers in which they can get more of the transaction. By allowing brands to ship directly to customers they can get products to customers faster and so defend their turf from Amazon.
  8. 2016 will be remembered as the year in which Rocket Internet’s growth stagnated and finding investment for their larger businesses was extremely tough. None of their largest ecommerce businesses are close to profitable, some their investments are holding of going public and their share price is down.
  9. Naspers, Tiger Global, eBay and most venture capital investors used 2016 as a way to ensure that their investments become more capital efficient. Whether it be by way of closure, merging or selling assets the amount of ecommerce startups with high valuations became less as investors became more concerned by burn rates, Amazon and valuations that were way too high.

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The Marketplace model is not for every ecommerce business

Earlier this week Crate and Barrel announced that they have added a marketplace to their business.

Home furnishings retailer Crate and Barrel today announced the launch of its new “Crate and Barrel Exclusive Marketplace”, a highly curated marketplace offering consumers a broader selection of products based on Crate and Barrel’s merchandising expertise. Available via the company’s e-commerce site, crateandbarrel.com, the marketplace now offers customers an extended aisle of unique product. Source

I understand the reasoning for adding a marketplace to any ecommerce business. It provides greater selection to customers. The sourcing of select brands can be done at a lower cost in comparison sourcing it directly from brands / manufacturers. Opportunities to create more revenue are created as your selection is increased.

This makes me think back to what Brian Walker mentioned about Amazon’s decision to add the marketplace:

When Jeff Bezos announced to his Amazon staff his concept for the Amazon Marketplace in November 2000, many people — inside and outside Amazon — thought he was crazy. Amazon was inviting in other sellers — individuals and merchants — to compete against Amazon’s owned inventory on Amazon.com.  As full price merchants were added in categories such as consumer electronics, apparel, and baby products in the early 2000s, the head shaking continued. To paraphrase, Jeff Bezos claimed this was about “the world of perfect information.” Customers are going to find the lowest price online if they really want to, and they should be trained to find it on Amazon. Maybe Amazon could grab a piece of the pie along the way. Forrester

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A few thoughts on the GGV Capital Evolving E Summit

A few weeks ago I had the privilege to attend GGV Capital’s Evolving E 16 Summit in San Francisco. I suspect that in the years ahead this event will become a must attend for anyone in commerce on the West Coast or for that matter the US.

Background

I came across GGV Capital 3 years ago when Amir Erfati from the information mentioned them to me in a conversation. There are plenty of commerce investors out there, but what makes GGV Capital special to me is that  they have a deeper understanding on global commerce than most investors I have researched. Their unique outlook if formed by having 2 offices (US and China) in their 2 markets of interest. They are on the ground and have deeper relationships with their markets and ecosystems than most investors I have come across.

GGV Capital has investments in Wish, Operator, Boxed, OfferUp, AirBNB. They are investors in marketplaces that connect their areas of operation.

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The Evolving E Summit was conceived to solve a weakness which they identified. There is not a good consumer commerce event in San Francisco that allows for startups, investors to mingle and share knowledge. It also supplements GGV’s other Summit that is in New York.

I found the one comment from the Summit to be quite refreshing and honest. “Startups that work in Atherton and San Francisco might not scale well in large global markets”. I have paraphrased that but that exemplifies what GGV Capital think and what their investment thesis is.  I should mention that the Evolving E Summit was done in partnership with Silicon Valley Bank which seems to be a longstanding partner of GGV Capital and their portfolio companies.

GGV Capital has been in operation for 16 years, has a team of 55 people across their 2 offices. GGV Capital has invested $300M into businesses that is generating between $10 – $15 Billion in GMV.

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