Electric Thoughts in a Digital Era

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  • Noon.com is going to struggle in MENA ecommerce

    Noon.com is going to battle to grow market share in the Middle East ecommerce market. Amazon purchasing Souq.com might be one of their more prudent acquisitions and have huge long term upside for Amazon and Middle East customers. Noon.com is yet to launch and seemingly are going to struggle to catch up to Souq.com.

    Troubles at Noon.com

    In hindsight one can now understand why Emaar Malls bid $800 million to acquire Souq in the midst of the Amazon acquisition talks. As a mall operator that has a dominant business in the Middle East and online platform like Souq could have negative future impact for eMaar Malls. What Emaar Malls did not bargain on is that the shareholders of Souq.com would ultimately sell to Amazon for $580 million. One of the most underrated elements of Amazon’s impact on global ecommerce is their ability to negotiate fair pricing for the businesses they acquire.

    Souq, led by its founder, Syrian entrepreneur Ronaldo Mouchawar, fills an important geographic gap for Amazon. The e-commerce company sells nearly 2 million products — books, electronics, toys, home products, and more — to customers in countries such as United Arab Emirates, Egypt, and Saudi Arabia.

    The domain experience that the Souq team has is not to be undervalued and thus it is obvious to see why eMaar Malls would want to purchase the business at a significantly higher price.

    Joining the Amazon family will enable us to drive further growth, benefit from their technological investment, offer an even wider product selection through worldwide sourcing, deliver an enhanced customer service experience, as well as continue Amazon’s great track record of empowering sellers locally and globally.

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  • 7 Thoughts on Direct to Customer ecommerce businesses

    In March I was part of a community conversation about what makes a Direct to Customer (DTC) business. Web Smith of  2PM was kind enough to feature this in his newsletter Issue 197 (which is a must read and subscribe).

    These businesses go by different names depending on your opinion about the industry. Andy Dunn calls them DNVBs (Digital Native Vertical Brands), M. Paul Munford refers to them as MLC’s (Modern Luxury Companies), I see them as Direct to Customer (DTC) as I believe that is the most important part of their brand power.

    1. How do DNVB’s succeed in an economy that places premiums on horizontal eCommerce (Walmart, Amazon, Target)? They enter new spaces and establish consumer loyalty. The consumer relationship can be just as important as the product itself.
    2. There is no middle of the eCommerce market in any vertical. Either you’re great or you’re gone. Amazon destroys “middle” by using their financial muscle to drive said business into the ground.
    3. So how are the DNVB’s doing as a whole? A lot of the supposed winners are cash hungry, burning platforms of doom. I am not going to name anyone, but ask yourself one question — why are certain brands constantly in publications such as Recode, TechCrunch, or Fortune? Fashion public relations is often a cost-center disguised as a profit-center.
    4. Consumer Packaged Goods startups (Harry’s, Walker and Co., Dollar Shave Club) have a lot of upside as publicly-traded incumbents are in need of millennials for continued growth. There is a premium on CPG-specific DNVB’s for this reason.
    5. For DNVB’s to survive they must be both vertical and specific. What do they possess? (1) A limited selection of products with marketing and operations optimized for long term margin growth and (2) an authentic story. Tracksmith, Tuft and Needle, and M.Gemi have stayed true to their roots, are cash efficient, and are run by driven entrepreneurs. They have solved customer retention woes by using tech, clever brand-differentiation, and the sourcing of excellent products.
    6. The sudden growth of the vitamin and supplement category has long term growth prospects. As health becomes a global driver of decisions these direct to customer businesses are able to access educated customers with a new breed of products that are cost effective and have repeat purchase implications.
    7. For DNVB’s to be sustainable — LTV (customer life time value), retention costs, and unit economics need to be the priority on day one. The brands that succeed have to operate like they’ve raised little to no money at all.

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  • Why Farfetch and JD.com need one another

    It is clear to me now that in hindsight the partnership between Farfetch and JD.com is beneficial to both parties for different reasons. As Farfetch is on the road to go public they will face increasing skepticism about their growth versus Yoox-Net-A-Porter.  JD.com is increasingly to position itself as the premium destination for luxury brands in China. The problem for JD.com is that Alibaba is growing faster than them and that Alibaba is using their New Retail concept to provide access to Chinese larger customers.

    Farfetch, announced that JD.com invested $397 million in the business and that JD.com CEO Richard Liu would be joining their board. Farfetch has been making strategic moves to ensure that they can go public with many opportunities and experience in their board and business.  Farfetch will also leverage JD.com’s platform to create a Chinese path for customers to purchase fashion products.

    By investing almost $400 million into Farfetch, JD.com gets a hedge against their own future. Battling Alibaba in China leads to investments into logistics and advertising to ensure that JD.com can grow against a giant marketplace.

    JD.com & Farfetch

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  • Should Amazon be doing more regarding Tax Nexus in the US?

    Let me start off by saying that I am not an accountant nor a financial professional but I believe that there is a story that has been developing that can impede Amazon’s dominance in the US. Amazon is a hybrid marketplace in the US as it is both a retailer and allows third parties to sell to their customers to ensure that they can be the “Everything Store” that has virtual shopping isles that has an infinite length.  Amazon has inadvertently created a situation in which sellers are generating sales to States without them knowing the location of their products due to them using Fulfillment by Amazon (FBA). As Amazon moves products to warehouses all over continental US these sellers are generating Tax Nexus in States that could lead to an increase in tax to certain States.

    Amazon has been seen by many and a certain leader as not paying tax and thus negatively impact retailers in the US. Amazon has started collecting taxes in most states to ensure that they can build logistics facilities closer to customers in various US States.

    According to CNBC, after 1 April, the only states in which Amazon won’t collect taxes are Alaska, Delaware, Oregon, Montana and New Hampshire. These five states don’t have sales levies.

    Map of US State Sales Tax Collection

    Amazon has over the years made it clear that they are not responsible for the products that are sold on their marketplace nor are they required to enforce the collection of sales tax by third party sellers.

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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

    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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