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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
I have summarized the year into 9 bullet points and I am firmly aware that I did not mentioned certain events. Honorable mentions goes t0:
- Facebook trying ecommerce again through their marketplace. This will be interesting to follow.
- Rakuten took a lot of write downs for investments made in the middle of 2000’s and seemingly are working on a plan to profitability. They seem to have become more of an investor than a commerce business.
- Traditional FMCG powerhouses such as Proctor & Gamble, Unilever, Mondelez have started either investing in startups or are buying businesses such as Dollar Shave Club.
- Craigslist was a large driver of investment into mobile classifieds. OfferUp, Letgo and others got large checks from investors and time will tell if they will make an impact on Craigslist. OfferUp seems to be in the best position and have gotten traction.
- Buy buttons / Distributed commerce has struggled to become relevant for the industry. My own take is that distributed commerce is all about timing and location and at the moment customers are seeing purchases buttons in the wrong places.