How much is too much to spend on acquiring a new customers in the US? Can Chinese companies afford to play ball here?
Why are some subscriptions so darn hard to cancel, and is there anything we can do about it?
Are products displayed in online advertisements about to look nothing like what you're going to receive through the use of generative AI?
What are the most trusted brands in America? How about most reputable?
Is BNPL a credit product and should it be treated as such?
Answers to these questions and more in this week's 123rd Edition of Shopifreaks. Thanks for subscribing and sharing!
Stat of the Week 📈
70% of e-commerce shoppers experienced shipping delays without any reason provided by the business for the delay. – According to Koerber
Faced with that experience, 90% of respondents said they are less likely to buy from a brand again after a poor online shopping experience, while 29% say they are increasingly willing to share a negative review online.
1. The US market is pricey to enter
If some of Temu's deals appear too good to be true — it's because they are!
An analysis of the company's supply chain costs by WIRED shows 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.
An anonymous Chinese seller who started selling pet products on the platform soon after it launched said, “We are working for Temu for free so that Temu can attract more American customers.”
Spending big on customer acquisition to build market share has already worked well in China for Pinduoduo, the parent company of Temu, which launched into the local economy in 2015. Pinduoduo at the time differentiated itself from competitors like Taobao and JD.com by selling cut-price white-labeled goods, and targeting people in lower-income rural areas.
Flash forward to 2023 and Pinduoduo is reporting a 58% YoY jump in revenue, from $3.75B in Q1 2022 to $5.48B a year later. Net income for the first quarter also more than doubled to $1.17B from $410M.
The strategy has proven to work in China, but will it work in the US?
In the US, most of Temu's subsidies are in the form of free international shipping, with even a small package costing the company around $14 to ship to the US (although it offers the shipping for free). When adding in the additional product discounts and cash coupons that Temu gives to customers, the average loss per order jumps to $30.
The company's long term goals are for Americans to purchase 30 times per year from Temu, with an average order size of $50, meaning each customer spends $1500/year. (The average order size is currently $25.)
Tough luck with that one! I've shopped on Temu a couple of times now, but only for random gifts where I felt like getting a lot of bang for my buck while purchasing a random assortment of treasures for kids. I had a positive experience with both purchases, but I can't imagine using Temu 3x a month for normal household goods.
Temu's sellers back East are becoming frustrated with the company, which keeps putting more and more demands on them such as sharing the cost of shipping to their warehouse in Guangzhou and the cost of processing returns, as well as asking sellers to lower their prices AFTER they've already produced the bulk order of goods. Many sellers have said they're finished with Temu because of it.
Which will break first — Temu's budget to subsidize the cost of selling at rock bottom prices in the US or sellers' patience for making no money on the platform?
Without drastically raising the prices of products on its platform (which is the antithesis of what it offers US consumers), Temu has a big hole to dig themselves out of — a hole that's growing larger from every corner.
2. New FTC rules on subscriptions
The FTC has proposed new rules in the US called “click to cancel” that will impact e-commerce subscriptions — but in a good way for consumers!
The rules would require any business selling subscriptions to add a simple cancel mechanism on the same website as the initial transaction, and include the same number of steps.
In other words, a “one click subscription” would require a “one click cancelation.”
This “click to cancel” rule is part of the FTC's proposed changes to its 1973 Negative Option Rule, which establishes how subscription sellers must communicate offers, ensure consent, manage billing, and simplify cancellation.
If adopted, click-to-cancel rules would impact e-commerce in the following ways:
- Easy Cancellation – stores will have to add a simple cancel button
- Operations – the rules would require annual notices for non-physical products and would restrict offers attempting to change a shopper's mind about cancelling.
- Marketing – businesses could expect a higher cancellation rate, and therefore would have to recalculate the LTV of each new subscriber.
I support #1 Easy Cancellation because companies have gotten out of hand with their retention tactics. However at first glance I'd think that #2 Operations would benefit from a happy medium when it comes to retention strategies.
For example, can we agree that ONE discount offer to prevent cancellation is allowed? The point is to avoid bullshit like this from happening any longer, not necessarily to prevent customers from getting discounts or companies from retaining their subscribers.
One single offer or retention attempt before cancellation feels like a solid happy medium. What do you think?
3. BigCommerce Announces Leadership Changes (Sponsored)
BigCommerce announced the appointment of Daniel Lentz as the company’s Chief Financial Officer, effective July 1, who will replace longtime CFO Robert Alvarez, who is retiring.
Lentz takes over as CFO after nearly five years overseeing finance and investor relations as the company’s Senior VP of Finance and Investor Relations. As a member of BigCommerce's senior leadership team, he has had responsibility for the financial activity of the company, including external financial guidance, capital markets and investor relations activities. His responsibilities have included all financial forecasting, planning, pricing, sales compensation and financial operations.
The company also announced the appointment of:
- Chuck Cassidy as its General Counsel, effective June 2, who will replace Chief Legal Officer Jeff Mengoli, who is retiring.
Cassidy’s promotion to General Counsel follows nearly six years at BigCommerce, most recently as VP and Associate General Counsel. He has broad experience representing growth-stage software and technology companies and previously practiced corporate and transactional law at Vinson & Elkins, L.L.P.
- Hubert Ban as the company’s Chief Accounting Officer, effective June 8, who is replacing VP of Accounting and Principal Accounting Officer Thomas Aylor, who left BigCommerce May 19. Alvarez will serve as BigCommerce’s principal accounting officer until then.
Ban joins BigCommerce from Salesforce, where he has worked since 2008 and served as Senior Vice President of SEC Reporting and Technical Accounting since 2020. He has managed SEC, international statutory, board of directors and ESG reporting and technical and equity accounting. He has been involved in the acquisitions of Mulesoft, Tableau and Slack. Prior to joining Salesforce, he worked in accounting and reporting roles for companies such as Morgan Stanley, Ernst & Young and Deloitte.
BigCommerce CEO Brent Bellm said in a statement, “On behalf of everyone at BigCommerce, I want to thank RA, Jeff and Thomas for their leadership and enormous contributions to BigCommerce over many years and congratulate Daniel, Chuck and Hubert on their new roles.”
“RA in particular has been my close partner, advisor and friend since I joined the company. More than anyone else, RA deserves credit for building BigCommerce from an early-stage startup into a successful public company. I’m particularly grateful for his extraordinary cultural leadership and charting our path toward sustained long-term growth and profitability.”
4. Google debuts generative AI ad tools
Google is launching Product Studio, a new tool that allows Shopping merchants to quickly edit and customize their product images for free using generative AI.
According to Google's data, product listings with more than one image typically see a 76% increase in impressions and a 32% increase in clicks compared to listings with a single image.
With the new generative AI tool, text prompts can be used within Product Studio to quickly make visual adjustments to product images, such as generating new backgrounds for seasonal campaigns. The tool also allows sellers to instantly remove the existing background of an image if they need a blank backdrop, and increase the quality of small or low resolution images.
Several desktop and mobile apps have already launched similar tools that use generative AI to personalize product shots:
- PhotoRoom's Magic Studio offers similar features
- Meta recently announced their AI Sandbox
- Canva and Adobe recently released AI-powered features for removing backgrounds and generating objects
Google is rolling out its simplified Merchant Center Next platform, which will eventually replace Merchant Center, to US sellers in the next few months.
5. Most trusted & reputable brands in the US
Morning Consult published their annual report of Most Trusted Brands for 2023. The survey ranks roughly 1,500 brands in the US, most of which were dominated by big, well-established names.
Before clicking, can you guess the top 10 most trusted brands in the US? Hit reply and send me your guesses, then click the link below to view the actual results.
Axios, in collaboration with market research firm Harris Poll, also ran a recent survey to determine the Most Reputable Brands in the US. The results were very different from Morning Consult's most trusted brands. Only one company overlapped in the top 10.
Top 10 Most Reputable Brands in US
3. John Deere
4. Trader Joe's
And the bottom 10 most reputable brands for 2023:
90. Family Dollar
95. Spirit Airlines
96. Facebook (Meta)
98. Fox Corp.
100. The Trump Organization
Musk's other brand Tesla also fell 50 spots to #62 on the list.
6. Higher-end retailers are feeling the pinch
The latest data from PYMNTS shows that high earners are feeling the pinch of credit card debt and that their wages aren't keeping up with inflation. This is resulting in higher-end retailers who depend on wealthier households feeling the pinch as well.
The data shows a number of correlations including:
- Paycheck-to-paycheck consumers tend to live in more urban areas.
- 36% of high-income consumers live in urban areas, outpacing the mid-teens percentage rates seen in other income brackets.
- For households earning more than $100k annually, 42% were living paycheck-to-paycheck in April 2022. That number has crept up to over 49% this past year.
- 82% of urban consumers carry outstanding credit card balances, which represent more than half of available savings.
- 71% of respondents living in urban areas reported that wage increases have not matched inflation.
Despite adjusting at least some spending habits, high earners are having to stretch to make ends meet in the current state of affairs.
7. I want love, but it's impossible
Netflix must have forgotten what love is since 2017 when it made its famous tweet that “Love is sharing a password.”
The company has finally launched its ill-awaited crackdown on password sharing in the US and the UK. The new rules state that subscribers are permitted to share their account with members of their own household, which Netflix defines as “you and the people you live with.”
Netflix will begin using a variety of tools, such as IP checking, to spot when people are using another household’s account and prevent them from doing so, or give them the option of adding a household for $7.99/month. The company expects cancellations, but optimistically (or idiotically) predicts that those same people will come back again, which will overall lead to more people paying for subscriptions.
Now to be fair, when Netflix made that iconic tweet more than 6 years ago, they were relatively uncontested in the streaming space. Since then they've seen Disney+, ESPN+, Warner Bros Discovery, Paramount+, Apple TV+, Peacock, and countless other smaller streaming services enter the playing field.
However what's wild is that even though so many competitors have entered the space, and even though Netflix reported its first decline in subscriber count in Q1 2022 in over 10 years, the company still holds the title for most subscribed streaming platform in the world.
It also remains the most popular streaming service in the US for total minutes watched, surpassing YouTube and Hulu.
So why upset the apple card? The world has naturally found an equilibrium between how much we're willing to spend on Netflix and how many people we're willing to share our accounts with. If the result is the creation and sustentation of the world's largest streaming service, is it really necessary to try and squeeze more revenue from their currently satiated subscribers?
The reality is that streamers have not only watched the price of a Netflix subscription double in the past decade, but also saw the platform's selection of titles drop over 50% since 2012, as the company shifted to making original content and partners dropped off to launch their own streaming services.
With both price and content selection working against the company, and competitors coming at them from every angle, you'd think that Netflix would do everything in their power to keep customers happy.
Netflix's Password Crackdown History
Last fall, Netflix first announced its plans to crack down on password sharing worldwide, estimating that over 100M households shared their account password with someone. However in February, after much backlash from the announcement, Netflix backpedaled and said that it would NOT be enforcing those rules in the US right now, and that they'd only be applicable to Chile, Costa Rica, and Peru. Flashforward a few months later, now that they think the Internet outrage has died down, and the rules are back for the US.
Snip, snap, snip, snap, snip, snap. You have no idea the physical toll that these password sharing rules have on a person! (Is that too many Office references for one newsletter?)
Competitors took their jabs at Netflix's announcement:
Blockbuster (which still exists) tweeted, “A friendly reminder that when you used to rent videos from us. We didn’t care who you shared it with… As long as you returned it on time. @netflix”
(Yeah, well Netflix doesn't care if I rewind it.)
Amazon Prime UK tweeted, “Who's watching?” alongside an image of Netflix's account page with profiles named “Everyone, Who, Has, Our, Password.”
Cast your predictions: will this password crackdown negatively impact Netflix's subscriber count in the US and UK? Hit reply and let me know.
8. Australia reclassifies BNPL as credit
Laws are changing in Australia to treat BNPL as a credit product. Finally!
When was it NOT a form of credit? BNPL should have been recognized as a credit product the day the first BNPL company put up a coming soon landing page.
Australia’s Assistant Treasurer and Minister for Financial Services Stephen Jones said that a litany of issues reported to the Australia Securities and Investments Commission have added up to “unacceptable levels of unaffordable lending occurring, largely concentrated amongst low-income borrowers.”
He added that “BNPL looks like credit, it acts like credit, it carries the risks of credit.”
Jones promised draft legislation in the coming months and the introduction of a final bill to the Australian Parliament by the end of the year, which will include the need for BNPL firms to:
- Hold Australian Credit Licenses
- Comply with Responsible Lending Obligations
- Meet statutory dispute resolution and hardship requirements
- Comply with statutory product disclosure and other information obligations
- Abide by existing restrictions on unacceptable marketing
- Meet a range of other minimum standards concerning their conduct and about their products.
Australia-based BNPL provider Zip says it welcomes the regulatory form and has been an advocate for fit-for-purpose regulation for their industry since 2019. Zip has had an Australian Credit License since inception in 2013 and their Zip Money product is fully regulated under the NCCPA. These new regulations in Australia would put other BNPL firms in the country on an even playing field, who have profited from the advantage of not needing to obtain licensing (since it wasn't required).
Other countries are hopping on the BNPL regulation train too.
The UK has also began implementing new regulation on BNPL companies this year, starting with differentiating short-term interest-free credit (STIFC) loans from BNPL and drafting legislation granting the FCA new enforcement powers to address what it deems irresponsible or misleading BNPL marketing and issuance.
Getting ahead of the regulatory changes, Klarna announced that it has launched the UK's first voluntary credit “opt-out”, a tool within the app that helps consumers pre-decide not to use credit, perhaps while saving for a specific life event or sticking to a strict budget.
Meanwhile in the United States, the Consumer Financial Protection Bureau began looking into BNPL in 2021, and in March of this year released a study revealing what everyone already knew — that the people most likely to use BNPL are the same folks who shouldn't be using unregulated credit products.
However knowing the US, in typical US fashion, they'll wait until the BNPL problem has gotten out of hand and millions of consumers are underwater before reforming the rules. (Or are we already there?)
Anything to keep consumers spending, right?
9. Other e-commerce news of interest
Bill Gates said that AI could kill Google Search and Amazon as we know them, and that the technology could radically alter user behaviors, resulting in people never needing to visit a search website again or use certain productivity or shopping tools. Gates remarked that the first company to develop it will have a leg up on competitors.
A recent study conducted by Lloyds Banking Group revealed that a UK consumer falls victim to a purchasing scam that originates on Facebook or Instagram every seven minutes, resulting in a cost of over £500k per week. (That man is Michael Scott.) The banking group is now urging Meta and other tech giants to take responsibility and contribute to refunding innocent victims of scams.
Analysts at Bernstein project that Reliance Industries is poised to outpace Amazon and Flipkart in the race for India's $150M e-commerce market, citing the conglomerate's robust retail network, mobile network, and home field advantage as its biggest assets. Reliance already operates the country's largest retail chain with over 18k stores and is leveraging its presence to form partnerships with Meta, Shein, and other companies as a strategic advantage against its competitors.
Shopify is introducing its POS hardware to the Canadian market. Its mobile selling device, the POS Go, which is built to run Shopify’s POS software, was first rolled out to retailers in the US in 2022.
Meta announced that ads in Instagram search results will now be available through the Instagram Marketing API, allowing third-party social-management platforms to offer a new Instagram ad-placement type in their apps. Meta began testing the placement in March and are now opening it up to all brands.
Shein is exploring plans to build a factory in Mexico as one of its manufacturing hubs outside China, which could shorten shipping time and cut distribution costs for customers in Latin America and USA. Earlier this month I reported that Shein is creating a hub in Brazil.
Amazon opened the first phase of its Metropolitan Park on Monday, its long-awaited second headquarters in Arlington, Virginia that can hold up to 8k employees. However not all Amazon employees are excited about the new office location (or any office location). At least 1,000 office workers are planning a walkout this Wednesday to take a stand against the company's return-to-office mandate.
The Vietnamese government is putting pressure on TikTok to police its content and remove videos that fall short of the state’s standards, or risk a ban. Eight government departments are targeting toxic content deemed “to pose a threat to the country’s youth, culture and tradition” — including videos that simply criticize college degrees.
eBay unveiled generative AI on its mobile app to help sellers list new items for sale, however the company forgot to inform sellers and didn't label the icon. When clicked, the icon replaced sellers' entire product descriptions with AI generated text, with no way to recover the original description.
Boozt AB, a Sweden-based online fashion retailer, blocked 42,000 customers for returning too many items, calling their actions too costly for the company and the environment. The company said that these particular customers represented less than 2% of their 3M customers, but around 25% of the total return volume.
Twitter withdrew from an agreement with the EU to cut down misinformation on its social network, which the company joined alongside other tech companies in 2018. Thierry Breton, the EU internal market commissioner, noted that fighting disinformation will be a legal obligation from August 25th, due to the EU's Digital Services Act, so the agreement would become irrelevant.
Jeff Bezos is ripped now! The Amazon founder started working with personal trainer, Wes Okerson, who's also trained Tom Cruise and Gerard Butler, and now he's gotten super buff. This is about the least e-commerce specific news you'll ever see me share in this newsletter, but the Jeff Bezos before / after photo is kind of wild!
Amazon will close its official app store in China on July 17, which launched in 2011 as an alternative to the Google Play Store. Amazon noted that its marketplaces and AWS services will remain operational in China.
However while it may be leaving China, the Amazon App Store will soon be bringing more Android apps to the Windows ecosystem. The expanded partnership will allow Windows users to access a wider range of Android apps seamlessly.
Google updated the badges some merchants display for their product listings in Google Search to say “Top Quality Store” instead of the original “Trusted Store” badge. Google said this is just a name and title change and won't have any impact on search rank or performance.
Auctane, an e-commerce shipping specialist that operates brands such as Metapack, ShipStation, Packlink, ShipEngine, Stamps.com, and others, appointed Albert Ko as its new CEO, who previously served as CEO of EWS, which is best known for the Zelle payments network. Current CEO Nathan Jones will join the company's Board of Directors.
eCampus.com, a website that sells textbooks and course materials, announced that it would keep offering textbook rentals, even though its retail partner Amazon was exiting the business. The company had been powering the program behind the scenes for Amazon since 2012, and plans to keep it going through its own website.
Walmart is partnering with Pawp, a veterinary telehealth provider, to offer Walmart+ subscribers free access to virtual veterinarians for a year, starting this week. Currently Pawp charges $99 for an annual membership.
Alibaba Group said that it aims to hire 15,000 people this year, dismissing rumors circulating that the company planned to cut 20% of its staff. They also mentioned that more than 3,000 of those hires would be newly-graduated students.
10. Seed rounds, IPOs, & acquisitions
8fig, a startup previously focused on providing lending and supply chain management tools to e-commerce businesses, raised $140M in equity and debt in a Series B round led by Koch Disruptive Technologies, bringing its total amount raised to $196.5M. The company will use the funds to build out a C-suite for e-commerce companies beginning with an AI CFO to provide cash flow planning.
Episode Six, an Austin-based payments and banking infrastructure provider designed to streamline various payments processes while reducing costs, raised $48M in a Series C round led by Avenir. The company will use the funds to expand its go-to-market efforts and scale its business as it looks to drive digital transformation journeys for banks and payment companies.
Venipak, an international delivery company, acquired Strenghold Entertainment BV, a Netherlands-based e-commerce wholesaler active throughout Europe. The deal will allow Strenghold to gain moment to expand its B2B operations internationally and start activities in the B2C space, while forming the basis for the expansion of Venipak's e-fulfillment in Europe.
Checkmate, an iPhone app that pulls all available discounts into one place from both your e-mails and the Internet, raised $15M in a Series A round led by Google Ventures. The app also offers live order updates, package tracking, and notifications of new sales.
Datasembly, a Virginia-based startup that provides retailers and CPG companies with big data-based analytics and insights on product pricing, promotions, and assortment, raised $16M in a Series B round led by Noro-Moseley Partners. The company will use the funds to invest in more measurements demanded by its customers and to expand their customer base.
Memcyco, a Tel-Aviv-based startup that provides businesses with tools to guard against website impersonation, raised $10M in a round led by Capri Ventures and Venture Guides. The company provides businesses with a digital watermark to display on their websites to ensure visitors that they are visiting a legitimate online store, plus back-end tools for businesses to monitor and protect their digital assets against brand impersonations.
Hopscotch, an Indian brand offering fashion apparel and accessories for kids, raised $20M in a Series E round led by Amazon, bringing its total amount raised to $71M. The company plans on using the funds to expand its offerings and reach the latest trends in the kids' fashion category.
Laced, a UK-based resale marketplace for authenticated sneakers, raised $12M in a Series A round led by Talis Capital. The company is focused exclusively on the UK and claims to have a unique authentication process that uses pattern identification alongside a huge database of variables to identify authentic sneakers against counterfeits.
Rakuten Group, a Japanese e-commerce fintech conglomerate, plans to raise $2.18B by issuing new shares, as it works to offset the financial impact of losses at its mobile business. Rakuten set the price at 566 yen ($4.03) per share with the offer to launch May 31st.
Evermos, Indonesia's largest social commerce platform, raised $39M in a Series C round led by the International Finance Corporation, a member of the World Bank Group. The company plans to use the funds to pursue its mission of elevating local MSMEs to make a positive impact on the national economy.
What'd I miss?
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See you next Monday,
Paul E. Drecksler
PS: What do you get if you cross and elephant with a rhino? … Elephino!