Today I've got for you one of the best editions that I've published in a while. Some weeks there are simply more exciting news stories than others! And this is one of those weeks.
In today's edition I share stories about Amazon getting hit from China with a page from their own playbook, the U.S. government attempting to even the playing field with Chinese marketplaces, and Google offloading a division it launched in 2014.
I also cover an Amazon driver strike, Google's new virtual try-on tech, and Amazon reopening its Seller Fulfilled Prime program.
All this and more in this week's 126th Edition of Shopifreaks. Thanks for subscribing and sharing!
Stat of the Week 📈
Humans can only identify AI-generated content about 55% of the time. Study participants 18-24 years old answered correctly 61% of the time, compared to 51% of 45-54 year olds. — According to Nexcess
Share this week's stat on Twitter & LinkedIn.
1. U.S. to end Chinese tariff exemptions
U.S. lawmakers are looking to introduce a bill called “The Import Security and Fairness Act” to eliminate a tariff exemption used by Chinese e-commerce sellers to bypass paying import taxes on goods shipped to U.S. customers.
The exemption, known as the minimis rule, exempts import taxes on all shipments valued at less than $800, and is widely used by companies such as Shein, Temu, and AliExpress in their daily shipments.
Minimis rule is criticized for giving Chinese companies an unfair advantage over U.S. manufacturers and retailers, because many companies exploit the rule by simply under-reporting the value of goods sent, or splitting large shipments into many small packages to evade the tariffs.
Senator Mark Rubio said, “China exploits our capital markets and uses slave labor to undercut American businesses. It is bad for our country to let China flood our country with duty-free packages using the de minimis exception. The Import Security and Fairness Act will close this loophole and take another critical step to stop China from cheating on trade.”
Under the bill, countries other than China and Russia could keep the exemption by adopting the $800 threshold for their own tariff-free imports. The bill would only allow private shippers like FedEx, UPS, and DHL to transport de minimis packages and would exclude postal services.
We've tried this once before.
A separate but similar bill by Democratic Representative Earl Blumenauer, who is also spearheading this one, failed to pass Congress last year, and this one may not get much traction either.
It's not just happening in the U.S.
In April I reported that Brazil's government was ending a similar tax exemption that it had in place for international orders up to $50. The country's revenue service said that the exemption never applied to e-commerce, but only to shipments from individual to individual, and had been “widely and fraudulently used for sales made by foreign companies.”
Moving forward in Brazil, there will no longer be any distinction in treatment between legal entities and individuals when it comes to shipments, with all international orders subject to the existing 60% taxation on their value.
What are your thoughts on ending the tariff exemption in the U.S.? Should we follow in Brazil's footsteps? Hit reply and let me know.
2. Google sells its domain business
Squarespace is set to acquire approximately 10M domains from Google, which is selling its Google Domains division that it launched in 2014. The $180M acquisition is set to close in Q3 2023.
Squarespace promised that it would honor Google's domain pricing for at least 12 months before jacking up its renewal fee. As a point of reference, “.com” domains at Google renew at $12/year versus $20/year at Squarespace.
Once the deal closes, Squarespace will become the exclusive partner for anyone looking to purchase a domain alongside their Google Workspace subscription. Squarespace will also provide customer support for existing customers who've already purchased domains through Google Domains, but eventually those customers will have to migrate to Squarespace's billing system when it comes time to renew.
One question you might be asking about this deal is — why sell?
Google's VP of Merchant Shopping Matt Madrigal said in a press release that the sale is part of an effort to “sharpen” Google’s focus.
However I think, and this is purely speculative, that Google hates customer service, and domain registration is a very customer service-centric business. Just ask any domain owner who's ever had to edit their DNS records.
Domain registration is also an extremely low margin business. Registrars don't actually make much on the domains themselves, which are more like loss leaders (like milk and eggs at the grocery store) designed to get you into the door and then spend more money on their hosting and e-mail packages.
In fact, domain registration is so unprofitable, Cloudflare doesn't even try to directly monetize it and simply charges customers the exact amount they pay as a wholesaler. The goal, of course, is to get customers subscribed to their more advanced CDN and security features.
So why would Google get out of the business? Don't they have products to upsell?
Yes, they do. But as Google probably discovered — businesses and consumers are going to use Google products whether they bought the domain through Google or not. There's really not much upside for Google to deal with the customer service involved with domain registration when folks gravitate straight to their services anyway after buying a domain elsewhere.
Squarespace, on the other hand, has a LOT of incentive to get more domains under their belt, with a whole suite of products for consumers and SMBs, and even more in their pipeline.
The moral of the story for domain owners — transfer your domains to Cloudflare before your renewal price doubles at Squarespace next year.
In other Google graveyard news, the company is shuttering its Album Archive service, which no-one has ever heard of before, but apparently we all have photos stored. In my Google Archive there was only a picture of me with a crew cut from like 2008, and a logo from a Blogspot blog from 2006. Users are recommended to use Google Takeout to download a copy of their album archive data before July 19, 2023.
3. Amazon reopens Seller Fulfilled Prime
Amazon is planning to reopen registration for its program that allows third-party sellers to offer Prime shipping on their products without using FBA.
Seller Fulfilled Prime (SFP) was launched in 2015, but Amazon paused the program for new sellers in 2019 after the company realized that “SFP was not providing the same high-quality experience that customers expect from Prime.”
It was discovered that year that less than 16% of SFP orders in the U.S. were meeting Amazon's two-day shipping promise.
Several years later, after working out the kinks with existing sellers, Amazon is reopening enrollment in the program. The move coincides with the recent rollout of Amazon's Buy with Prime program, which I reported on extensively in January.
It wasn't just Amazon who was disappointed with the program back in the day though. Sellers noted that unless you had fulfillment centers located across various regions of the country, the two-day shipping requirement was too expensive and burdensome to take on.
As one seller commented on Amazon's announcement, “We did SFP when we could choose what areas we ship to. We are located in Florida so we chose the south east part of the country. Amazon decided that this was not good enough and wanted us to guarantee two day shipping to the entire county. We had to cancel ourselves from the program as the expedited shipping cost to go to the West Coast ate up all the profits.”
The consensus among sellers is that SFP simply does not work for single warehouse businesses without incredibly huge margins, and even then, the upside may not be worth the expense.
However some of those concerns may be alleviated with the re-launch of SFP. Amazon, which has been pulling back on its warehouse expansion plans lately, has a lot of incentive for SFP to work, as it could potentially help the company offload some of the fulfillment work to individual sellers.
Amazon said that the new seller enrollment for SFP will begin later this year, and launched a new website with more details about the program and a link to join the waitlist.
Sellers who join SFP will have to pass a trial period to demonstrate they are able to meet the program's requirements, which include shipping over 99% of their orders on time, having an order cancellation rate of less than 0.5%, and meeting the one and two-day delivery targets.
Rick Watson made an interesting comment on LinkedIn about the return of SFP. He wrote:
“I always thought there would be 3PLs who want to dropship on behalf of Amazon customers who should be able to be ‘SFP-certified' — this would allow the certification to pass to the fulfillment provider itself (i.e., the one doing the hard work) as compared to the brand (i.e., the one who is paying the bill).”
Absolutely that should be the case, and Amazon isn't ignorant to that. It was shared with me privately by the head of a 3PL that this type of warehouse-wide certification is in fact on Amazon's radar, and the two companies have discussed it previously.
4. Virtual try-on with Google
Google released a new virtual try-on tool that uses generative AI to help consumers visualize how garments look on models of a similar size and body shape.
Shoppers can select products with a “Try On” badge to select a model ranging in size from XXS to 4XL with different skin tones, body shapes, and hair types.
Currently the feature is only available for women's apparel from brands like H&M, Loft, Everlane, and Anthropologie. However Google plans to launch a virtual try-on tool for men’s apparel, including tops, later this year.
Last year in March, I reported that Walmart launched a similar try-on feature on its website that allowed customers to select a model that best matches their own appearance and body type. The tech was from a virtual clothing try-on startup called Zeekit that Walmart acquired in May 2021.
At the time I had rated that feature as — just okay. My expectation was that they'd offer more of an avatar experience (like creating a player on PGA Tour 2k21 and then dressing it), but in actuality, Walmart was simply taking pictures of clothes on a variety of models of different sizes and dynamically displaying those images on the product listings. It was cool, but not the high tech or sophisticated “virtual try-on” that most people would imagine when AR enters the chat.
Then in Sep 2022, Walmart launched a “Be Your Own Model” feature, which took us closer to an actual AR try-on reality. The feature lets customers test out what a shirt, dress, pants, or blouse looks like on their own bodies by taking a picture of themselves and telling the app how tall they are. From there the app uses AI to form a topographical map of their bodies, which it then uses to create realistic images of how the fabric would follow their particular curves.
Google's latest try-on feature is more like the Walmart news from March 2022 — in that customers are selecting from a preexisting set of models. It's cool, and a step in the right direction in terms of inclusion, but not quite there yet for me. Talk to me when I can create my own personal avatar and 3D render clothes on myself!
5. Amazon says Temu doesn't count
According to Amazon, the Chinese marketplace Temu, which launched in September, does not meet its strict qualification requirements for Amazon's fair pricing policy.
Amazon's pricing algorithm routinely checks if products sold on its platform are competitive with rivals, but now it's excluding Temu from its checks because it simply can't compete with the Chinese retailer on price.
To be fair though — does it have to? Amazon vs Temu has turned into a battle of Now vs Later.
While Amazon may not be able to compete on price with Temu, the products usually come within 1-2 days. Whereas with Temu, orders can take up to 2 weeks to arrive.
So which do you need more — a better price or faster delivery?
Given the breakout success of Temu since it launched in the U.S. last year, there seems to be room in the market for both UVPs.
Amazon is spinning the exclusion as a reputation play, claiming that Temu doesn't meet its qualification standards, and as a “questionable marketplace”, it may include products that may be counterfeit.
Well isn't that just the pot calling the kettle black! On marketplaces of this size, there are always counterfeit goods for sale. Fighting counterfeit goods is an ongoing battle with a moving target.
However if anything, Temu may have less counterfeit goods on its platform because it sources products directly from the manufacturers themselves, instead of working with millions of middlemen sellers.
The reality is that Amazon and Temu are getting a lot of their products from the same places, but Temu is willing to lose more money on the sale. Earlier this month I reported that Temu is losing an average of $30 per order as it throws money at trying to break into the American market.
The company is currently losing between $588M and $954M a year on its quest to obtain the patronage of US consumers, while at the same time squeezing manufacturers in China with price cuts to levels that make it almost impossible to turn a profit.
This is the exact same play that Amazon used to break into many markets in the U.S. decades ago — only now on a country-wide marketplace vs marketplace basis.
Remember what Amazon did to Diapers.com, Zappos, and practically every bookstore in America? Amazon has consistently engaged in predatory pricing — selling products below cost to kill off competitors and expand its market share — and now the shoe is on the other foot with Temu.
Whereas Amazon could afford to pick off industries at a time, China can afford to pick off ENTIRE MARKETPLACES at a time when it comes to pricing. Which is why the U.S. may be concurrently reinvigorating its pursuit of ending the minimis ruletariff exemption for Chinese companies (see story #1 above). Let's not pretend like there isn't some lobbying involved by Amazon over this matter.
If I sound snarky about this, it's not that I feel we shouldn't end the minimis rule, because I do think that it at least needs reform; it's just ironic to see Amazon falling victim to the same plays it's used in the past.
The truth is that both what Amazon did to U.S. retail and what China is attempting to do to U.S. retail is a lose-lose for our country. In my lifetime, I've seen practically our entire retail economy get eaten by the bigger fish, and now, the biggest fish is swimming in from another ocean!
Remember when everyone hated Best Buy, and Barnes & Noble for “putting the little guys out of business”? Flash forward to the 2010s and 2020s and those retail sharks became the little fish!
Is Amazon becoming the little fish in the global retail marketplace? If Chinese marketplaces have their say in the matter — yes they will.
6. Meta AI talks the talk
Meta introduced a generative AI model that performs speech-generation tasks. The new Voicebox can help with tasks like audio editing, sampling, and styling, and produce high-quality clips while removing background noises like car horns or dogs barking.
The model is also multilingual and can produce speech in six languages including English, Spanish, French, German, Polish, and Portuguese.
Meta gave example use cases for the new tool which could include:
- Giving natural sounding voices to VAs and non-player characters in the metaverse
- Allowing visually impaired people to hear written messages in the voices of their friends
- Creating and editing audio tracks
- Helping people communicate in other languages in their own voice
- Relating to e-commerce, Voicebox can also bring brands' customer service and sales to the next horizon, offering advice and helping customers complete transactions.
Meta has big plans in the AI space, but they're struggling to keep the talent to get there. Since OpenAI launched ChatGPT in November, Meta has lost a third of its published AI researchers, who have left the company citing burnout and lack of confidence in Meta's direction as primary reasons for leaving.
7. Drivers for Amazon, not Amazon drivers
Amazon wants to make it very clear to the public that the drivers on strike are “drivers delivering for Amazon” and not actually “Amazon drivers.”
If that sounds ridiculous, you're not alone. Here's what went down…
This past Thursday, 84 Amazon drivers in Palmdale, California went on strike in an attempt to get Amazon to negotiate over better working conditions. Only here's the thing, Amazon says they don't actually work for Amazon; the drivers work for a third-party contractor called Battle-Tested Strategies — so Amazon refuses to negotiate.
Amazon calls the contractor a “Delivery Service Partner”, even though it employs drivers who exclusively deliver packages for Amazon, drive vehicles with big Amazon logos, and wear Amazon uniforms.
The thin line of separation between working directly for Amazon and working for a contractor that works directly for Amazon (and only for Amazon), is a legal distinction that Amazon really wants you to understand.
Last year, after a summer with a crazy heat wave, malfunctioning air conditioners, and impossibly high package counts, BTS drivers began organizing and eventually formed a union with the Teamsters, marking the first Amazon drivers in the U.S. to ratify a union contract.
After news organizations reported on the strike, Amazon took issue with a Motherboard headline that read “Amazon Delivery Drivers Walk Out in First-Ever Driver Strike.” A company spokesperson asked that the headline be changed to instead refer to them as “Drivers delivering for Amazon.”
Part of the reason for Amazon being a stickler for verbiage may be all the stories from the past few years about poor working conditions endured by “drivers delivering for Amazon”, and the company is trying to avoid the responsibility of dealing directly with the workers.
However at the end of the day, whether “Amazon drivers” or “drivers delivering for Amazon” — someone's not delivering packages! And that's an Amazon problem.
8. TikTok to spend billions in SEA
TikTok's CEO announced that the company plans to pour billions of dollars into Southeast Asia in the coming years, where it's gained a substantial market share in the region just a year after its launch.
Shou Zi Chew told a forum in Jakarta, “We're going to invest billions of dollars in Indonesia and Southeast Asia over the next few years. From a humble team of about 100 people, we now have nearly 8,000 employees in Southeast Asia.”
Chew did not provide a detailed breakdown of the spending plan, but said the company would invest in training, advertising and supporting small vendors looking to join its e-commerce platform TikTok Shop.
Indonesia and SEA are huge markets for TikTok.
Of TikTok's 325M SEA users, Indonesians account for over 125M, and more than 2M sell products on TikTok Shop in Indonesia.
While TikTok lags against older market leading rivals in the region like Shopee and Lazada, TikTok Shop posted the fastest growth rates, expanding its GMV sevenfold from just $600k to $4.4B in 2021.
Overall, the GMV of the SEA's nine top e-commerce platforms was valued at almost $100Bin 2022, up 14% YoY.
Indonesia remains SEA's largest e-commerce market, accounting for 52% of the region's total GMV.
9. Other e-commerce news of interest
The FTC tweeted a message informing consumers that they can now get information about marketplace sellers and report questionable activity thanks to a new law called the INFORM Act, which I reported on extensively in December. The tweet linked to a page on the FTC website where it explained more about the law.
Brands that left Twitter after Elon took over are now returning to the platform with Linda Yaccarino at the helm, who generated more than $100B in ad sales for NBC Universal during her 11-year term at the company. However screenshots of ads for Disney, Adobe, and Microsoft pictured next to neo-Nazi propaganda posts have some experts concerned that Twitter is not yet a safe place for brands.
French activists are urging for legislative and regulatory measures against Shein, concerned about its impact on the planet. The activists claim that synthetic clothing produced by the company results in large quantities of microplastic fibers contaminating the oceans, and if left unchecked, could skyrocket global greenhouse gas emissions in the next two decades.
Amazon Alexa described Apple as an “oligopoly” and claimed that Google violates privacy rights, but responded with “Hmm, I don't know that one” when asked if Amazon is a monopoly. Looks like they forgot to add the safeguards for their fellow monopolies!
Meta experienced a platform-wide outage on Friday that affected more than 20k uses across Facebook, Instagram, and WhatsApp users. The company resolved the issues within three hours, but did not reveal a cause for the problem.
Amazon also experienced a major outage at its AWS on Tuesday, affecting websites of the NY Metropolitan Transportation Authority and Boston Globe among others. The outage extended to AWS's own down detector webpage, which at one point failed to load.
The Indian government is asking e-commerce firms like Amazon, Flipkart, Swiggy, and Zomato to create a self-regulatory framework during the next two months designed to stop dark patterns. Consumer Affairs Secretary Rohit Singh informed companies that if dark pattern practices continue even after awareness and creation of a self-regulatory framework, the government will look to regulate the matter.
Social Snowball introduced Safelinks, an affiliate technology designed to solve the problem of coupon code leakage and misattribution. When a customer clicks on an affiliate's Safelink, a popup appears acknowledging the affiliate's referral and allows the customer to generate a one-time-use coupon code from within the pop-up.
ShipBob expanded to the Netherlands with the launch of a fulfillment center, marking the company's fifth European location. The firm expects to start shipping parcels from the new location in July.
Amazon is facing accusations of exploiting small businesses by raising fees and advertising costs for sellers. According to a report from The Guardian, Amazon tripled its earnings from fees charged to independent sellers in Europe from 2017 to 2022, surpassing the growth in sales, which only doubled during the same period.
Shopify and Volt, a UK-based fintech startup, will soon offer open banking capabilities, which Canadians currently aren't able to take advantage of due to delays in implementing the framework within the country. As part of the partnership, Shopify merchants across Europe and Brazil can offer Volt's pay-by-bank checkout solution, which allows customers to settle funds instantly with real-time account-to-account payments.
Amazon Prime members in India will now receive a 5% cashback on rides when they use Amazon Pay as their payment method for Uber, which will be divided into 4% Uber credit and 1% Amazon Pay cashback. The collaboration was first announced in 2022 where Uber and Amazon provided Prime members with access to UberPremier at the price of UberGo, and now the two companies are taking their relationship to the next level and opening a joint back account.
Some footwear and apparel factory owners say they are starting to see big drops in U.S. retailers' holiday orders as companies became cautious about consumers' budgets, a sign that sales will see a sharp decline during the next several quarters. The quantity of apparel imports fell 31% in the first four months of the year versus a year earlier, while retailers focus on whittling down the piles of merchandise they accumulated in 2022.
Shopify promoted Deann Evans to EMEA managing director, from her current position of director of EMEA expansion and partnerships, which she has held since Aug 2021. In her new position, Evans will be responsible for expanding regional growth by supporting and developing merchants and entrepreneurs, growing the partner ecosystem, and leading the team culture within Shopify's EMEA market.
The WooCommerce Stripe payment gateway plugin used by 900k stores was discovered to have a vulnerability that allows an attacker to steal customers' personally identifiable information. It's recommended that plugin users immediately update to the latest version 7.4.1 to avoid further issue.
Chinese e-commerce platforms are in a fierce competition for market share during this year's 618 festival, which runs from late May until June 18th, offering steep discounts to entice cash strapped consumers. JD.com, Tmall, Pinduoduo and others are investing billions in subsidies to keep gross sales growing, in what's turning into a national race to the price bottom.
Alibaba is expanding its Tmall e-commerce site to Europe, reflecting a significant shift in strategy for the company's international operations. The platform is currently conducting a pilot project in Spain which is set to expand across the continent this year.
Shipt appointed Katie Stratton, a former Meta exec, as its first chief growth officer to expedite the company's growth in CPG and retail. Stratton will oversea its new growth team which includes business development, business capabilities, CPG, partner success, innovation, site merchandising, and catalog operations.
Amazon recently sued more than 90 fake review brokers and 10k Facebook group admins around the world for facilitating the posting of fake reviews in exchange for money or free product, and now the company is asking governments for more support in legislation and enforcement. It's also asking for collaboration within the industry to share information on fake review tactics and techniques to better, and better controls for services that facilitate the solicitation of fake reviews. I sense an over-correction coming.
In 2022, online returns cost retailers $816B in lost sales, nearly as much as the U.S. spent on public schools and twice the cost of returns in 2020. The return process, including transportation and packaging, generated about 24M metric tons of planet-warming carbon dioxide emissions last year.
10. Seed rounds, IPOs, & acquisitions
Indifi Technologies, an Indian startup offering digital loans to SMBs, raised $35M in a Series E round led by ICICI Venture, bringing its total amount raised to $81M. So far the lender has disbursed over 73k loans totaling $497M across 400 cities, growing 100% in value of loans disbursed in the last 12 months.
Flowspace, a logistics and fulfillment company whose software centralizes order management, inventory planning, and network optimization for omnichannel brands, acquired RetailOps, a San Diego-based software company that enables brands to manage their supply chain operations. Flowspace will incorporate RetailOps' tech into its fulfillment platform and all of its team members, including the founders, into the company, and launch a refreshed brand identity to reflect the alignment of the two services.
Auctane, a shipping and fulfillment software holding company that owns Stamps.com, ShipStation, ShipEngine, and others, acquired Return Rabbit, a returns management platform that helps retailer retain revenue through exchanges, for an undisclosed amount. This was the first acquisition by the new CEO, Albert Ko, who took the reigns three weeks ago.
Eze, a B2B marketplace that connects electronic wholesalers and suppliers with retailers, raised $3.7M in a round. The platform claims to provide real-time market prices and eliminate transaction risk by standardizing the grading process to check authenticity and functionality of devices.
The UK's antitrust regulator approved Amazon's acquisition of iRobot, concluding that the acquisition would not raise any competition concerns in the UK. The European Commission is currently evaluating
What'd I miss?
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See you next Monday,
PAUL
Paul E. Drecksler
www.shopifreaks.com
[email protected]
PS: The difference between grey and gray is that one is a color and the other is a colour.
the deal and will make a decision by July 6, either clearing the deal or initiating a full-scale investigation.