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#80 – Amazon mall deliveries, Best Buy micro-stores, & skyrocketing ad revenue

by | Aug 2, 2022 | Recent Newsletters

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If you missed my e-mail this past Wednesday, I had some big news to share with you. Shopifreaks has entered into a one year agreement with BigCommerce to sponsor our newsletter! I'm excited to work with their team and continue to grow the newsletter with their backing. Thank you Patrick Quinn for making this partnership happen. 

Long before we had any sponsorship deals in the works, the folks at BigCommerce have been avid supporters of my newsletter. It was through their readership and our open lines of communication regarding e-commerce news that this sponsorship came about.

Given our overlapping audiences and mutually shared values of openness and transparency, I feel that they are a perfect fit for Shopifreaks as our sponsor, and I appreciate them joining the newsletter. Read the announcement for more info about the sponsorship. 

In this week's 80th edition of the Shopifreaks E-commerce Newsletter, I dive into how Amazon is slowly exiting direct retail and focusing on the backend. I also share stories about popular messaging apps adding payment functionality, big box retailers opening micro-stores, subscriptions taking over (and getting more expensive), and the future of B2B commerce. 

All this and more in this week's edition. Thanks for being a subscriber! Feel free to forward my newsletters to people in your network if you think they'd get value from it. 

PS: I've been recently connecting with readers on LinkedIn. Thanks for accepting my invite. I want to make sure that communication of the news is a two-way street and not just me dispensing, so I'm looking for ways to follow along with your updates as well. LinkedIn seems to be where the conversations are happening in our industry, so I'll see you there!

Stat of the Week

The average social media user spends 894 hours and 15 minutes on social media in a year. That equates to over 5 weeks. — According to Datareportal

This means that Americans spend more time in a year on social media than they do on vacation!

Share this week's stat on Twitter & LinkedIn

1. Amazon to offer same day deliveries for mall retailers

Amazon is partnering with select stores including PacSun, GNC, Superdry, and Diesel to offer same-day Prime deliveries in Atlanta, Chicago, Dallas, Las Vegas, Miami, Phoenix, Scottsdale, Seattle, and Washington D.C. 

In April, I reported that Amazon announced Buy with Prime, a new feature that allows select Amazon merchants to sell their products directly from their own websites, while still offering Prime shopping benefits like fast, free shipping, quick checkout with Amazon Pay, and free returns. 

Now Amazon is allowing brick-and-mortar retail stores to piggy-back off its fulfillment services. In addition to same-day deliveries, Amazon is also offering Prime members free, same-day pickup from certain stores.

I read an article on Retail Dive last week by Daphne Howland that posed the question, “As consumers return to stores, why would Amazon shut the door?”

In the article, she highlights how Amazon closed all of its bookstores, 4-star stores, and pop-ups, and wonders if the company could be forfeiting sales in some categories.

Later though, she talks about how Amazon's business is centered around logistics, technology, and advertising — not retail. Delivering product for local stores is a perfect example of that in action. Why should Amazon take risk with inventory and managing retail stores when it can get a piece of the backend instead?

Last September I reported on Amazon launching a POS system that can handle both online and offline transactions and link to other Amazon services including Prime membership, biometric payment solutions, and fulfillment services. That's another perfect example of how Amazon will have its hand in retail backend.

The company is basically becoming a retail facilitator as opposed to a marketplace or direct retailer. Soon Amazon will be able to power a retail business's point-of-sale, payments, website (via hosting on AWS and commerce capabilities through Buy with Prime), as well as handle their fulfillment and last-mile delivery. 

Earlier this year, Amazon opened their first clothing store in Glendale, CA called Amazon Style, which offers a very tech-heavy shopping experience including the ability for customers to scan an item's QR code, view product ratings, use their app to have additional items brought to their fitting rooms, and more.

While Amazon could scale that retail model across the world, why would they when they can instead offer that technology to existing retailers and get a piece of the backend instead? In other words, a smaller piece of a much bigger pie by essentially offering a brick-and-mortar retail operating system, while the retailers take on inventory risks and store management responsibilities instead of Amazon. 

Earlier this week I posted an article on r/Shopifreaks about how most items on Amazon are sold through its marketplace by 3rd party merchants, which means Amazon doesn't have to buy or hold the inventory. Instead, they charge a fee to store, fulfill, and remove it if it doesn't sell. So while Walmart, Target, and Best Buy have been unloading excess inventory during the past few months with heavy discounting, Amazon is has been sitting pretty, even while their 3rd party merchants took a hit.

This model of inventory-less retail has worked well for Amazon online. They've profited from their technology, logistics, advertising, and expansive customer reach, while 3rd party merchants took on all the inventory risk. They should stick to their core focus offline as well. (And it appears that they are.)

Forget the retail… it's all about the backend. 

2. Ad revenue on the rise at Walmart and Amazon

Speaking of getting a piece of the backend, one area where Amazon, Walmart, and other retailers are shining is through ad revenue.

Amazon reported $8.7B in ad revenue for the most recent quarter, up 18% from the same period last year. This makes Amazon the third largest digital ads network, after Google and Facebook.

Isn't it amazing, that an arm of their business, which only accounts for around 7% of their revenue, makes Amazon the third largest ad network in the world? Meanwhile, advertising accounts for 80% of Google's and 97% of Facebook's revenue.

And Amazon is just getting started. It's even begun experimenting with extending its ad network offline, through digital signage and screens on shopping carts in its Amazon Fresh stores. Not to mention the product placement ads its got in the works on Amazon Prime. 

Walmart is currently playing catch up. It brought in $2.1B revenue from advertising last year, but reported a 30% uptick in ad revenue last quarter. 

Other retailers are not far behind them in their quest to earn more ad revenue. Marketing Brew reported that nine of the top 10 largest retailers in the US have started their own media networks over the past couple of years including Target, Kroger, Lowe’s, Walgreens, and Albertsons.

In last week's newsletter, my Stat of the Week was that brands are losing on average $29 for every new customer acquired today, compared to $9 in 2013, as a result of higher customer acquisition costs, which have outpaced inflation by 8x in the same time period. 

While marketplaces, platforms, and ad networks are earning more revenue than ever through their advertising, merchants and retailers are getting squeezed in every direction. 

3. Shopify cuts 10% of its workforce

As I'm sure you've heard by now from your friends at Shopify, the company has cut 10% of its workforce, or roughly 1000 employees. Most layoffs will occur in the recruiting, support, and sales units.

I'm sorry to read that news, and I know that the layoffs have personally affected readers of this newsletter. If there's anything I can do to help you find a new job — making an introduction / connection, recommending a company that might be hiring — shoot me an e-mail and I'll do my best.

One non-traditional place to look for jobs is actually in the Seed Rounds, IPOs, & Acquisitions section of this newsletter. I regularly cover e-commerce companies that have just brought in capital investment and are looking to expand their teams. You might be able to make a connection and fill a role before it's even advertised. Good luck to you all with whatever comes next in your lives. 

CEO Tobi Lütke took responsibility for the layoffs, attributing them to a miscalculated bet that the e-commerce industry would continue to grow beyond the COVID-19 pandemic. He wrote in a letter to employees, “Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that.”

Impacted employees will receive 16 weeks of severance pay, plus one added week for every year at the company. Shopify is also providing career coaching and a kickstart allowance to replace company laptops, as well as removing any equity cliffs and extending medical benefits.

Amazon has also been cutting staff this past year, however the company has been relying on attrition to reduce its staff versus layoffs. Since Amazon has such high labor turnover — more than 100% a year for warehouse workers — it didn’t take very long to reduce headcount. The company now has about 100,000 fewer employees than in the previous quarter, and down about 180,000 from its peak in the first quarter.

Shopify, on the other hand, has been reported to have a less than a 1% employee attrition rate (which might change now that they've entered fulfillment), so waiting for employees to leave to reduce headcount wasn't an option. 

4. Best Buy to open RadioShack-esque micro stores

Best Buy unveiled its first “digital-first, small format” store — a 5,000 sq.ft. retail space that offers a curated showroom of products across popular categories. So, RadioShack? (Well, before RadioShack became some weird crypto exchange.)

The first Best Buy location piloting this new format will open in Monroe, North Carolina, with a second more experiential-focused store opening shortly after in Charlotte. 

The new stores are much smaller than their 38,500 sq.ft. usual big box stores and will not carry full-size home appliances like their big stores.

The tiny stores will have a Geek Squad area where customers can get consultation and setup services, and the stores will be set up to receive online orders either in-store of via pickup lockers that will be available after store hours.

This isn't Best Buy's first attempt at offering a smaller retail format. They previously had Best Buy Mobile stores setup inside malls to compete with wireless carrier stores, but they closed them all down in 2021.

I remember when RadioShack advertised (way back in the day) that there was a RadioShack store within 5 minutes of 95% of America's population. They had a huge geographic footprint and an incredible reputation with their extremely loyal customers. I remember twenty years ago having a conversation with someone about how RadioShack should focus on growing their Internet presence. If they had played their cards right, they could have been one of the biggest electronics retailers in the country, but even twenty years ago it was too late for them. They were too old, a slave to their backwards thinking shareholders, and couldn't see the handwriting on the wall. 

Meanwhile though, their failure as a retailer have left a void in brick-and-mortar electronics retail that has yet to be filled. Will Best Buy be the ones to fill it with their micro stores? 

5. Viber launches a payments service

Viber, the messaging app owned by Rakuten, is launching Payments on Viber, a new service that will let users set up digital wallets tied to their Viber accounts.

The new Payments wallets link to bank accounts and Visa / Mastercard cards and can be used to make bill payments, buy products, and transfer money between users. Peer-to-peer transfers will be free, and payments to businesses will have some fees attached.

Are you familiar with Viber? It's a messaging app that competes with WhatsApp worldwide with about 1.2B registered users, compared to WhatsApp's over 2B users. I've personally only used Viber while in the Philippines, but everyone who had it also had WhatsApp, so I gravitated towards using that instead. I've found that neither messaging app is that popular in USA and are mainly used amongst my traveler friends who use it to communicate with their international friends and family abroad, and not with other Americans. 

The new Viber Payments service is being launched first in Germany and Greece, and then will be extended to the rest of Europe, followed by the other 180 countries that Viber operates it by 2023.

Will it be enough to compete with Meta, WeChat, Apple, Google, and other messaging services that are launching / have launched peer-to-peer payments? Or is Viber too late at entering the scene? Hit reply and let me know your thoughts. 

6. Wix launches a new AI-powered editor

Wix launched a new AI-powered editor that simplifies the design process for DIYers and professional web developers.

The new builder combines Wix Artificial Design Intelligence (ADI) features with its classic Wix Editor, offering new themes, section layout suggestions for design optimization, as well as a faster edit tool for content management.

The new AI features of the editor guide the creation and design elements of website building. “More margin!”

The new Editor also comes with full-width customizable building blocks that allow users to divide the page into separate content pieces, to help web designers navigate content within the page and work on one section at a time.

Last week I reported that Squarespace launched a new design platform called Fluid Engine that offers majorly improved drag-and-drop technology — the first big update to the company’s website builder in over ten years.

Who's going to be the next DIY website builder to launch a new editor? Place your bets…

7. B2B websites are terrible and everyone knows it

A new study by Logik.io evaluated the effectiveness of 250 e-commerce shopping channels built by B2B manufacturers. Here are some of its key findings:

  • 12% of companies offer a guided selling experience on their website
  • 57% of platforms take shoppers three or more steps to find a product detail page
  • 86% offer no upselling, cross-selling, add-ons, or complementary products
  • 74% of shoppers struggle with using the platform their first time
  • 24% provide upfront pricing for products
  • 19% offer a product configuration experience
  • 20% offer buyers the ability to purchase products from their site
  • 80% of users say the website was not easy to buy through (LOL, maybe because they couldn't buy through it. See stat above.)

B2B marketplaces have notoriously been horrible in terms of UI and functionality, but now B2B buyers are expecting the same ease-of-use when shopping for their business as they do when shopping for their home. In recent years, multiple companies are rising to the occasion to streamline the B2B shopping experience and carve out a slice of the growing B2B pie. 

If you've followed this newsletter long enough, you've seen me cover a lot of platforms and startups enter the space. Here are just a few examples of action in the sector during the past 12 months: 

B2B is the next big e-commerce area to tackle and everyone wants a head start. It'll be interesting to look back in 5 years and see which platforms remain.

8. Amazon is raising Prime prices in EU

Amazon is raising the price of its Prime subscription across Europe in September by up to 43% a year. 

  • UK: 20% increase from £79 to £95
  • France: 43% increase from €49 per year to €69.90
  • Spain: 39% increase from €36 to €49.90
  • Italy: 39% increase from €36 to €49.90
  • Germany: 30% increase from €69 to €89.90

This is the first Amazon Prime increase in the UK since 2014. The United Kingdom is Amazon's third-largest market (behind USA and Germany) of which 50% of households have a subscription.

This fee increase in Europe comes a few months after Prime in the US rose to $139 per year up from $119.

Amazon cited “increased inflation and operating costs” as well as adding faster delivery and  more streaming content as its reasons for the price increase. 

9. Other e-commerce news of interest this week

  • Roku is launching a new app that will allow Shopify merchants to build, buy, and measure TV streaming advertising campaigns, making it the first app available in the Shopify App Store that will allow SMBs to access TV advertising. In June, I reported that Walmart and Roku teamed up to connect Roku’s 61.3M subscribers with Walmart’s more than 120k products and allow viewers to purchase items with their remotes while streaming on Roku devices.
  • Amazon is shutting down its personal file storage service to focus on photo and video storage. Amazon Drive customers will have until Dec 31, 2023 to save their stored files elsewhere. Their photos and videos will automatically transfer to Amazon Photos.
  • Adobe believes that Amazon Prime Day sales will become a benchmark for spending during the remainder of the year. This year's Prime Day event generated a total of $34.3B across two days, of which about 42% were for orders less than $20. 
  • osCommerce, one of the original open source shopping carts founded in 2000 in Germany, released a new v4 after many years of neglect. The new version is based on True Loaded, software owned by the Holbi Group who acquired osCommerce last year, and includes new design templates, multiple sales channels, a visual editor, CMS, advanced stock and product management features, and an open API. 
  • Amazon Prime launched localized versions of its streaming service in Indonesia, Thailand, and The Philippines, in an attempt to boost its subscriber base in the three key Southeast Asian markets. The company will be increasing its investment in local production, releasing original slates for each territory, and giving customers special offers like seven-day free trials and discounts.
  • Apple subscription services were up 12% to more than $19B as demand for content across news, fitness, and gaming boost revenues. There are now 860M paid subscriptions in place, up more than 160M across the last 12 months.
  • Virgin Money, the UK-based bank founded by Richard Branson in 1995, is entering the BNPL space with a new offering called Virgin Money Slyce, a credit card that allows customers to spread payments over a few months, with installment fees added if they repay in nine months or longer. The product is is fully regulated and can be used to build credit scores and spend in different currencies abroad with no foreign exchange fee or extra charges.

BigCommerce News (Sponsored)

  • BigCommerce has once again received high honors as a top solution in both the 2022 Paradigm B2B Combine (Midmarket Edition) and 2022 Paradigm B2B Combine (Enterprise Edition) with 22 out of 24 total medals, exceeding last year’s analyst evaluations by six medals and surpassing previous analyst evaluations for the third consecutive year. In addition to its gold medal rating for total cost of ownership, BigCommerce was awarded the gold for its partner ecosystem, promotions management and channel and sales enablement.
  • Reminder to register free for the Make it Big Conference, a two-day virtual event featuring panels, workshops, and interviews about cryptocurrency, NFTs, Web3, metaverse, headless commerce, and more. Level up your e-commerce knowledge and explore the latest retail trends at BigCommerce's free, virtual conference on September 13-14, 2022. I'll be there!

10. This week in seed rounds, IPOs, & acquisitions….

  • Single, a music commerce app that handles merch and record sales, sales reporting, ticketing, and livestream concert hosting for over 3,000 artists and labels, secured an investment from Shopify for an undisclosed amount. Along with the investment, Single is adding token-gated commerce and content for musicians that can be pushed to Shopify stores to be purchased by fans alongside their other merch. 
  • Vinted, a Lithuania-based secondhand fashion marketplace, offered €30.2M to acquire Rebelle, a competitor which went public at the start of the year. The company wants to own over 90% of Rebelle as part of the deal. The offer received a positive response from Rebelle, who recognized the need for consolidation, mergers, and acquisitions in its future. 
  • Bonik, an e-commerce platform for small merchants in emerging economies who mainly run their businesses through Facebook and Instagram pages, raised $47k in a pre-seed investment from Mohammad Maaz. The company will use the funds to build more functionality into their product and a better user experience. 
  • SuperOrdinary, a marketplace that connects brands, creators, and consumers, acquired Fanfix, a content monetization platform for creators, for an undisclosed amount estimated to be in the eight-figures. The merger will allow Fanfix to plug in to SuperOrdinary's 140 brands to create new monetization options for their creators. 
  • Portage, a Tontonto-based liquidity provider, is putting together a $1B structured equity fund focusing on backing late-stage fintechs that are wary about taking a hit on their valuation as the market declines. Adam Felesky, the company's co-founder and CEO, wants to invest in securities that meld debt and equity features and don't force startups to lock in a valuation the way they would with traditional equity fundraising. 
  • Qwili, a South African startup that provides a hybrid sales product to micro and small merchants, raised $1.2M in seed funding after closing an undisclosed pre-seed round led by E4E Africa. The company will use the funds for app development, new hires, and hardware production including their NFC-enabled smartphone called Qwili Pula that allows merchants to send and receive payments.
  • Frontegg, a user management service for developers who build B2B SaaS apps, raised $40M in a Series B round led by Stripes and Insight Partners, bringing their total amount raised to $70M. The company will use the funds to expand its product offerings, invest in its infrastructure, and scale its R&D and go-to-market teams in Tel Aviv and San Francisco Bay Area.
  • Balance Payments Inc, a platform that makes it easier for B2B merchants to process payments by creating self-service checkout pages, raised $56M in a Series B round led by Forerunner Ventures, valuing the company at $356M. The company will use the funds to accelerate customer acquisition efforts and expand its engineering, sales, customer success, and product teams, growing its 70-person workforce to around 100. 
  • Nash, a delivery platform that plugs into third-party delivery APIs from DoorDash, Lyft, Uber and other partners and allows businesses to manage and track local same-day deliveries, raised $20M in a Series A round led by Andreesen Horowitz, bringing their total amount raised to $27.8M. The funding will be used to double down on hiring in engineering, operations, sales, and other areas as they plan to 3x their 25-employee headcount by the end of the year. 
  • Pogo, a cashback and rewards app for real-world purchases, raised $14.8M in venture capital, with $12.3M from a seed round led by Josh Buckley and $2.5M in a pre-seed round. After joining the app and sharing their data, the app shows aggregated rewards for purchases or recommendations to act on to save money. Remember Foursquare? I feel like they could've been crushing this area for a while now.
  • Cordial, a cross-channel marketing and data management platform that brings together data from multiple sources like cloud storage and rest APIs to create AI models that automate campaigns, raised $50M in a Series C round led by NewSpring, bringing its total amount raised to $85M. The company currently has 130 employees and plans to grow to around 200 by the end of the year.
  • The Fashion Kingdom, an Egyptian e-commerce marketplace for fashion, beauty, and home accessories that offers selling services for their brands including virtual fitting rooms, raised $2.6M in a seed funding round led by CVentures. The company will use the funds to accelerate its growth, build scalable tech and grow its team, which is comprised of 43% female employees including 50% of their management. 
  • Altruistiq, a London-based platform that helps companies measure and reduce their carbon emissions, raised £15M in a round led by Molten Ventures. Altruistiq's platform connects to an organization's finance software and other internal applications to collect data about its carbon footprint, which it then uses to map out their environmental impact.

What'd I miss?

Shopifreaks is a community effort and I appreciate your contributions to help keep the rest of our readers in the know with the latest happenings in e-commerce. Whenever you have news to share, you can e-mail [email protected] or hit reply to any of my newsletters.

You can also mention @shopifreaks on Twitter or submit posts to r/Shopifreaks on Reddit, and I'll curate the best submissions each week for inclusion in the newsletter. 

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See you next Monday!

PAUL

Paul E. Drecksler
www.shopifreaks.com
[email protected]

PS: Where do rainbows go when they break the law? … Prism. It's a light sentence.

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