Today on our show:

• The end of the free shipping era is greatly exaggerated
• Software as a service keeps getting harder
• American Eagle’s logistics capitulation ends the pandemic logistics fever dream
• Shopify at Morgan Stanley tech conference 2024 takeaways

And finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.

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It's March 18, 2024,

and this is the Watson

Weekly your essential ecommerce

digest today on our show,

the end of the free shipping era is greatly

exaggerated. Software as a service

keeps getting harder. American

Eagles Logistics Capitulation ends the pandemic's

logistics fever dream Shopify

at Morgan Stanley Tech Conference 2024

takeaways and

finally, the investor minute, which contains

five items this week from the world of venture capital,

acquisitions and IPOs. Look out for our brand

new podcast this week from RMW Commerce the

Watson weekend just in time for shop Talk

2024.

First, in our shopping cart full of news, the end

of the free shipping area is greatly exaggerated.

With margins getting tighter across retailers,

you sometimes see reports about the end of free shipping.

While that may be true for merchants who are struggling to afford

subsidizing shipping, that doesn't mean the consumers don't

want it. A recent survey from payments and

Adobe highlights a simple truth.

66% of consumers consider free shipping

key to customer loyalty. In short,

larger retailers still must figure out a way to subsidize

free shipping if they want to grow. The changes

to Walmart plus in the last couple of years and the recent

revamp of Target's loyalty program points to one

thing. Consumers are still willing to pay for

shipping loyalty, at least when there is a wide assortment and

fast delivery involved. With the decline of

retailer based private label credit cards, other

sources of revenue like loyalty membership,

retail media programs and for the big

players, fulfillment services are the most logical way to

subsidize this. Extended warranties factor

in, too, providing some retailers critical margin

dollars. Can anyone else buy an airline ticket

without being forced to unselect third party purchase

protection? Do Boeing's plane doors keep falling

off because they keep declining this coverage? Inquiring

minds want to know. Another interesting point

about the difference between brand and retailer shopping behaviors

was also mentioned. The youngest generation

survey, Gen Z, expressed a 43%

preference for a brand than a retailer, whereas the

average of other generations was at 28%.

Still, the majority of even that generation,

57% prefer marketplaces and

retailers. Why? Well, uh, the answer

is simple. Competitive prices and wide

selection. Again, that pesky Amazon

formula which keeps showing up, Walmart does a

good job here too. It's almost like we keep trying to

reinvent a new way to attract consumers to shop, but keep

ending up at the starting point we found 20 years ago.

What was that starting point? Well, back in the stone

age of ecommerce, when dinosaurs roamed the earth,

ebay ruled the roost. One analyst even called

it indestructible thinking. Auctions were the future

of all online purchases. Because of efficient price

discovery, Amazon and even eBay's

own internal teams discovered a new generation of

buyers coming onto the Internet. Ebay even

had a fancy MBA style name for it,

cobs or convenience oriented

buyers. The problem ebay had? They could not

figure out what the heck to do about them.

Amazon, of course, had no such problem. Jeff

Bezos bet that low prices and unlimited selection was

the key to the whole equation, which repelled the

growth. Prime in 2005 gave him a

consumer subsidy for shipping, but more importantly,

loyalty. The market still has not caught up

with Amazon's execution of this formula, and in

some ways, this report just confirms what you already think

about why everyone shops at Amazon. The report

also highlights that if you prefer shopping at brands, trust

is the primary reason, which has always

been the issue with wide selection and marketplace. This

contains a lesson for brands in the audience. If you can tell in

reviews that marketplace customers are having a tough time in

Amazon, I would use that information on your product detail

pages.

Our second story software as a service

keeps getting harder. Firm Tidal Wave

Research published a report recently that I thought might have some

relevance for software as a service. Founders and the ecommerce

industry the broad theme is that the last 15

years have been great for SaaS, but the next ten

years gains could be harder to come by.

The gains in the last decade have attracted more

competition and new entrants. There will

be an inevitable shakeout in the next five years, and

the failure rate of startups could be even higher than the

historical average due to that increased competition.

The report has a few pieces of advice for founders on their

journey from my point of view. First, building a

software startup is not just about technology. If you

don't have an interesting and sticky go to market strategy, you

will struggle. Technology in the age of AI

is easily replicated and those hard won customers

could easily choose a competitor, which means moats

are getting thinner. Second,

speaking of moats, the report indicates that most

companies don't have one. Just because you have a good

retention doesn't mean you actually have a moat. It

just means that you have not yet been disrupted, and all it

takes is, uh, a well financed entrant to the market.

You see it all the time in the Shopify ecosystem in

particular, which has been one of the more competitive e commerce

software environments I've seen in a while.

Third, there has been a significant decline in

investment returns from what the authors call vanilla

SaaS, meaning just subscription oriented

software that does a job with no other angles.

This is particularly true because these vanilla platforms are not

mission critical systems of record for their customers.

Instead, they are simply the icing on the cake and offer

features like better intelligence, better intelligence

on top of someone else's system of record. Sounds like a house of

cards and more like a feature waiting to be copied or

acquired from a real business. Sadly,

the ecommerce world contains so many products like this

that are just waiting to be disrupted by the prime mover

in their ecosystem, and usually that's the main platform

provider they depend on. If this sounds like you,

I would encourage you to diversify into other providers and

find new problems you can solve for your customers.

American Eagle's logistics capitulation ends the

pandemic logistics fever dream American

Eagle Outfitter got caught up when everything is going

up and to the right faster than it ever has before, everyone, of course,

thinks it's going to continue going up and to the right. In

2021, the company bought Quiet Logistics, a, uh, venerable

automated three PL network for apparel merchants started by

Bruce Welty. This same year, the company acquired

a ten month old startup, Air Terra, when it was convinced the

startup could democratize shipping rates and capabilities for small

to medium shippers in 2022. The

company launched a nationwide shipping network in

2023, just one year later, AEO had

second thoughts about its logistics ambitions and forced out the

head of its logistics unit due to profitability

concerns. Sounds like another well known

logistics company, Flexport, whose founder gave a

new executive even less Runway than a year.

Now, news reports have american eagle

refocusing away from being a general purpose carrier

and instead focusing more on its own brands and a few key

customers. It's tough to fight the king,

apparently. Logistics even more difficult and even

lower margin than people thought. Let me break it down

for everyone. The list of retailers who should be

logistics company is varying, small and getting

smaller. The list in the United States may be down to

two, Walmart and Amazon. Either way,

these trends are clear. In North America, space

is abundant and consolidation is on the horizon as three

PL providers can't fill their spaces with declining

volumes, mostly because those bigger, bulky

items were moving quickly during the pandemic.

Now smaller items are moving and most of the growth

is due to parcels being injected into the US network from

overseas like timu and xien

hardlines and big purchases are down. General

merchandise is barely predicted to recover year over year.

It's not that supply chain is becoming less interesting or

sexy. It's more that supply chain is becoming less interesting

or sexy to those who shouldn't be attempting to be supply chain

players at all. Which leaves more innovation and

interesting work for the dedicated folks who understood from the

beginning, no matter how sexy it might

sound, logistics is low margin and

efficiency gains are hard won. Invest

accordingly

and our last story Shopify at Morgan

Stanley Tech conference 2024 takeaways

Harley and Jeff spoke with Keith Weiss at the Morgan

Stanley Tech conference last week. A few things

stood out to me. First is headcount.

Last year Shopify was at 14,000 people.

Now that they're at 8000, that's a hugely

different number. And they are committed to staying at or

around that number, even the face of enterprise sales team

growth. So if you're a Shopify VP,

all those open wrecks canceled. That's what

Jeff says. The reason that Shopify can do well

in this current climate is that they have the brands that people love

and want. That's what they say. The company thinks that

consumer spending is pretty decent from their point of view, which

matches their recent Q four performance.

Also, the two noted it was just a year ago that they

were being asked about Shopify fulfillment network. How

happy are they that this is in the rear view mirror? At least

now they only have to throw a few hundred million at Flexport every year

till they get to actually default alive. And that's very

different than trying to build it themselves, which would have cost them many

more billions. The two Shopify leaders were

also pointing out that Shopify is the second biggest

checkout in the United States and how that gives them the

advantages of scale. Who's the first biggest

checkout? Well, Amazon, of course. It's an

impressive stat, and I would shout about that too.

There is some question about gross margin pressures. The

CFO revealed that stripe Adyen and PayPal

contracts will renew in the next few years. It

sounds like the cost of accessing those payment processors and

networks could increase and put more downward pressure on

gross margins. What about a Shopify

marketplace? I think Harley's answer was actually

kind of too cute by half. Listen to this

quote. But right now we're still sort of in the model of

teaching our merchants how to fish and helping them find better

customers in terms of giving them the fish and giving them the

customers. That may be something we do in the future. We're not

doing that just yet.

Emphasis mine. Teaching to fish, from my

point of view is helping people with advertising. Giving

them fish is a marketplace. It sounds like they

may not do it yet, but of course yet is not

never. Toby a few years ago said they

will not do the obvious thing which most people believe. He was

talking about a marketplace. With regard to shop app,

I think what Harley really means here, from my point of view, is that the

Shop app is a thing today, but there's not much scale

there. When there is scale, we'll talk about it.

Second, I also feel he's saying that they aren't explicitly

trying to build something like an Amazon, they want it to end up

in a different place. All told, Shopify is

in a place where most of its cash generation will come from keeping

its expenses mainly headcount

low and driving top line growth rather

than acceleration of known margin expanding

products. Their advertising and other products are just

so subscale relative to the payments business. Don't

expect meaningful contribution for a number of

years. Personally, I counted more margin

headwinds than tailwinds in the call. If I didn't know

any better, I would say that famous 3% attach

rate is actually under attack by upcoming payment

renewals.

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It's that time, friends, for our Investor

Minute We have five items on the menu today.

First, three Colts acquires marketplace

Pulse Amazon software aggregator

Three Colts has acquired industry publication

Marketplace Pulse for undisclosed amount

was marketplace Pulse for sale the worst kept secret in

ecommerce media? And what will happen with it next?

Best of luck to Joe on the sale, but my guess is the property

may never be the same again.

Second, carid.com raises

35 million in funding post restructuring

car parts and accessories. Platform Car ID has

raised 35 million in funding post chapter eleven

restructuring. The funding will be used to invest in

technology, marketing and widening of, uh, product

selection. This looks like another SPAC

casualty going to bounce back.

Third, the body Shop shuts down US

operations and closes dozens of stores in

Canada. The body shop is filed for chapter seven

bankruptcy in the US after its UK parent filed for

administration in February. In November

2023, it was acquired by the private equity fund

Aurelius for $257,000,000.

Remember when we all used to go to the mall?

Fourth, Cap Hill Brands merges with

Juvo plus brand aggregator Cap

Hill Brands has merged with product developer Juvo plus in

an undisclosed all stock deal to create infinite

commerce. The brand roll up aggregator sector is

in the middle of consolidation, and consolidation is coming

to a lot of these brand holding companies.

And finally, software

platform treat raises 10 million in Series A

funding resell platform treat has raised 10

million in series A. The company uses a peertopeer

approach that matches brands with people buying and selling its

styles. How many resale platforms are there that are

profitable in that scale? I think not many.

And today's word of the week for March 18,

2024 is Kate, as in

Kate Middleton, that is. But if you don't know,

Catherine, Princess of Wales, is a renowned

Photoshop expert. Be careful what you post out

there, folks. The Internet is watching. And apparently, who knew it was

filled with conspiracy theorists. Did you know that

RMW Commerce has a brand new podcast? Check out the

Watson weekend for an unfiltered and lively e commerce

chat each week with me, Rick Watson, my

co host Jess Le Seski, and an array of interesting

guests and topics all focused on e commerce.

That's all for this week. Till next time,

Watsonians.

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 Gabrielle Montequin. To

hear new episodes of the show every Monday morning, subscribe

now at rmwcommerce m.com /

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