Electric Thoughts in a Digital Era

Category: eCommerce

  • You can’t out Amazon, Amazon

    After writing about the 12 months post Jet.com acquisition by Walmart I have been thinking about how Walmart can win against Amazon.  While researching to write the post, I kept coming back to “You cant out Amazon, Amazon” which is both telling and indicative of how I perceive how Walmart is trying to win the US ecommerce market.

    Amazon has their pillars – speed and convenience

    Amazon has over the last 20 years consistently been willing to cannibalize their own business to stay relevant. They have also invested into logistics like FedEx or DHL would have and  invested into technology like Shopify and others have. By creating these levers they are able to commoditize them and sell the costs to third parties. Fulfillment by Amazon and Amazon Web Services have become like highways to customers with competitors building their own infrastructure.

    Consumer wise, Amazon has focused on Speed and Convenience as being the drivers for consumer on boarding. Amazon Prime leverages both speed and convenience to ensure that customer spend heavily and create recurring revenue for Amazon. Customers have become accustomed to the convenience created by shopping on Amazon and searching with the Prime filter on.  That may seem one dimensional but in effect that is another touch point that Amazon has created a revenue generator by charging sellers to have their items delivered by Amazon.

    Amazon has created speed that they are able to commercialize akin to an Uber trip (Amazon Prime Now) in which time and distance traveled are used to calculate the cost for the utilization of the Amazon infrastructure. Instant pickup weaponizes the speed to aim at brands and competitors.

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  • A Review On Walmart’s Ecommerce Efforts Post Jet.com Acquisition

    I have purposefully not commented on Walmart’s ecommerce efforts after the retail giant acquired Jet.com. There were many immediate reactions to the acquisition but the simple truth is that no-one had any idea how it would end up. Let me be clear – the acquisition is a long term bet by Walmart on Marc Lore and his team to grow their ecommerce efforts. This is also a reflective post in which I am trying to be as objective as possible.

    The day Walmart & Jet.com shocked the entire ecommerce industry

    On 8 August 2016 Walmart shocked the ecommerce industry by announcing their acquisition of Jet.com for $3.3 billion.  $300 million will be paid via Walmart stock. The acquisition ensured that early Jet.com investors made large returns on their bet but no-one expected Walmart to be the ultimate end game for Jet.com as the company rapidly gained size via heavy spending on advertising, low pricing and buzz.

    The initial thinking was that Jet.com was acquired due to the business taking market share away from Sam’s club. Jet.com used bulk sales and technology to provide customers with low pricing. It is important to note that while Jet.com was a startup Marc Lore ensured that he never mentioned Jet.com as an Amazon competitor but rather it was described as online version of bulk retail operations seen at Sam’s Club and Costco. I also need to mention that once Jet.com launched publicly it initially was going to use a membership fee to subsidize the low pricing it would provide to consumers. In a space of 6 months Jet.com moved away from the membership fee as customers were not willing to pay another subscription to a retailer (I believe that this was aimed at Amazon Prime but Lore under estimated the impact that Prime has on customers.)

    I strongly believe that until the day of the Walmart acquisition, Jet.com did not have a business model that was sustainable nor clearly defined their future.

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  • Why Amazon Prime Now Is Another Trojan Horse

    Amazon has entered Singapore in a new fashion that should put new countries on alerts. As I wrote in my newsletter last night that this is potentially a very big future indicator. By using Prime Now Amazon is leveraging local assets (local logistics, staff) to enter Singapore.

    This past week Amazon entered Singapore via their on demand mobile app, Prime Now.  Amazon has used this country as its market entry into South East Asia. Singapore is not large and thus quicker market entry has been possible. Amazon has used 2 Singapore born staff to go run this new market. By appearing in Appstores instead of via a website Amazon has shown their secretive nature but also how they are going to go into new markets in Asia. This past week should provide more than enough evidence of the future battle that is going to appear more and more, Alibaba vs Amazon. Both have significant capital and desire to enlarge their businesses.

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  • Direct to customer startups partnering with Target, Nordstrom and Amazon?

    When I compiled my newsletter over the weekend – I added a new section to it. Direct to customer ecommerce is something that stumbled across and have over the last few months looked at in depth. However these direct to customer businesses are now using Target, Nordstrom and Amazon as a channel to reach new customers. This is a double sided agreement as the startups involved (Harry’s, Bevel and now Casper) are providing these older businesses with the opportunity to access a new customer base.

    Ecommerce is at a cross roads

    If your business is not called Amazon, ecommerce is increasingly becoming more complex as customers demand Amazon like experiences (shipping and customer service) and that requires investment both in people and capital. Investors are also more looking at these direct to customer startups as they are ultimately margin businesses at scale. Instead of spending X on a product and selling it via multiple channels that take their own commissions these business are going straight to the customer and passing on that savings directly to the customer.

    After Dollar Shave Club was acquired by Unilever for a billion dollars the signs were clear – niche specific startups with founders that have deep domain experience creating great products are reasonable prices are the future. There is only one giant that can slow down Amazon and that is Walmart due to its scale and potential to invest in providing customers with pricing similar to that seen on Amazon.

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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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