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Shopifreaks has grown in size! Not just in terms of readership, but in regards to the LENGTH of the e-mails. Since launching the newsletter almost two years ago, the stories have gotten longer (and there are more of them), I've added new sections like the Poll of the Week & Stat of the Week, there's a sponsored section by BigCommerce, and of course there's the new Rewards Program which takes up some space in the e-mails.
To make reading easier on your eyes and to help distinguish between stories and sections, I've redesigned the newsletter with a bigger font size and line height, alternating shaded backgrounds for the stories, and line breaks instead of bullet points on the headlines. Plus a few other changes that you'll see below.
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Intro: This week in e-commerce, TikTok is building its own U.S. fulfillment center, Shopify's taxing tax collection, Apple's offering high-yield savings accounts, and Amazon's dealing with walkouts and strikes.
I also cover stories about Gen Z spending habits, employee compensation, and product moderation.
All this and more in this week's 91st edition of Shopifreaks. Thanks for subscribing and sharing!
Poll of the Week 🗳️
“Do you want DRONES flying through the air and delivering packages in your city?”
Last Weeks Poll Results: 87% of respondents believe that Facebook will NOT be the largest social media platform in the world in 5 years. [View Poll]
Stat of the Week 📈
40% of US consumers plan on paying for gifts with BNPL this holiday season. – According to Bluedot
Last year because of supply chain issues, I joked that the holidays would be celebrated in February. This year, it appears that the holidays will be on time, but due to record inflation, we'll be paying for them in 4 installments.
1. TikTok's building fulfillment centers
According to the LinkedIn job postings, TikTok is planning to build an “international e-commerce fulfillment system” that will include warehousing, customs clearings and supply chain systems that support domestic e-commerce efforts in the U.S. and cross-border e-commerce efforts.
Job openings include a business solutions and merchant development manager who would be responsible for the company's e-commerce logistics in the U.S.
A company spokesperson declined to comment.
They should just buy an existing 3PL instead.
Learn from Shopify's journey into logistics and fulfillment and realize that it's a long road ahead to start from scratch. Simply buy an existing 3PL company and integrate their tech. Speed to market is the move here.
Fortune and other publications are positioning the move as TikTok competing with Amazon and Walmart, to which Wedbush analyst Michael Pachter said, “It's idiotic! They have no chance of competing and it is a complete waste of money and time.”
However I disagree. They won't be competing with Amazon and Walmart. TikTok will be putting Amazon and Walmart in a position where they have to compete with them. There's a reason why Amazon has been testing a TikTok-esque feed on its own app recently. They see the handwriting on the wall and understand that where consumers START their product discovery is half the battle of gaining market share.
Remember, this isn't the kind of shopping experience you're familiar with on Amazon, Target, or eBay. If TikTok suddenly put out a product marketplace that offered search tools and a product directory to browse, I'd agree that they were trying to compete with Amazon. But in this case, it seems that TikTok is merely looking to offer an in-house fulfillment solution for the e-commerce demand that already exists on its platform.
Insider Intelligence projects about 23.7M U.S. shoppers will make at least one purchase through TikTok this year via affiliated links or by conducting a transaction on the platform itself. Why send all those sales to Amazon?
If TikTok can pull off a fulfillment center, and create an e-commerce environment where users feel comfortable and secure purchasing on their app, they will have created a full solution product discovery, commerce, and fulfillment platform unlike anything we've ever seen.
Basically what Pinterest should've done years ago with images, but with video.
2. Shopify's new tax on tax collection
Shopify added a new tax tool to its offerings to help simplify the sales tax collection and remittance process for U.S. merchants.
Shopify Tax includes features that:
- Decipher the 11,000+ U.S. sales tax jurisdictions so merchants don't have to
- Highlight when a business is liable
- Collect the right amount of tax based on customer's zip code
- Provide sales tax insights to give merchants a clear view of their current and upcoming tax calculations
- Notify merchants of significant changes in the tax world
- Advise merchants on the best action to move forward
- Categorize products to help merchants collect the right tax rates
Technically they did a lot of that before. As far back as I can remember, Shopify offered default tax rates in the Settings for each jurisdiction. They always said that the merchant was ultimately responsible for their sales tax, but they've always offered a little rate guidance.
So effectively, they're pretty much saying that they're going to do a slightly better job of what they did before, but for a fee.
Shopify wrote, “Maintaining this system is expensive, so Shopify charges a small fee in order to continue providing the most accurate tax calculations for our merchants.”
The sales tax tools is free for online store owners' first $100k in sales each year, and after that, there's a 0.35% transaction fee (0.25% for Plus merchants) that will apply per order when taxes are collected.
Shopify merchants on Reddit were bewildered and upset about this new mandatory fee, and wondered if they could still use the old free system — which yes you can, but you're now responsible for keeping it up-to-date.
Several merchants voiced their concerns about this new tax on tax collection and felt that this necessary part of commerce should be built-in to the platform at no additional cost to merchants.
However tax compliance is a complicated and expensive arena. Just ask Avalara, a 3rd party service that offers similar tax guidance, but costs a business $100+ per month to use. An incremental model like Shopify's 0.35% transaction fee, works better for most small retailers.
(Shopify and Avalara work together to power Shopify Markets tax compliance, but I couldn't find any information about whether or not Avalara was powering Shopify Tax.)
What are “marketplace facilitators”?
New laws for marketplaces introduced over the past few years have changed platforms' responsibilities regarding sales tax.
Amazon, Etsy, and Walmart (among others) are now considered “marketplace facilitators”, which means that they are responsible for collecting and remitting sales tax when applicable.
It makes sense for the marketplaces to facilitate sales tax across the platform, as opposed to putting the responsibility on each independent seller.
However Shopify is considered a subscription “web application” that helps sellers run their business, which means remitting sales tax is left up to the merchants.
What does this mean for the future?
I'm wondering if this new Shopify Tax feature is foreshadowing a marketplace that's to come. Will Shopify branch into the world of “marketplace facilitator” in the future?
Also, does this set the stage for new incremental fees within Shopify? Will every new feature upgrade come with new transaction fees on top of it? “Maintaining this system is expensive, so Shopify charges a small fee in order to continue providing ____________ for our merchants.”
I wrote more about Shopify Tax on this Reddit post today.
3. BigCommerce News (Sponsored)
BigCommerce announced the launch of British cycling lifestyle brand Kostüme on its platform to sell innovative, limited-edition cycling apparel and accessories. BigCommerce’s headless technology equips Kostüme with the flexibility to rapidly transform its online storefronts to exhibit exclusive, small-batch seasonal apparel created with exclusive artist collaborations that combine performance, comfort and utility.
BigCommerce announced the launch of The Wine Flyer, a venture from a newly formed subsidiary of IAG Loyalty (IAGL). With this new online store, the millions of members of the British Airways Executive Club can earn Avios, IAGL’s global loyalty currency, by purchasing wine and redeem Avios for wine, on the BigCommerce platform. The site features more than 140 varieties of wine, many of which are premium brands that have long been available on British Airways flights.
At Groceryshop 2022, a four day event that attracted more than 4,000 leaders from consumer goods space, grocery retailers, drug stores, and more, BigCommerce emulated a grocery booth which offered a front counter, branded merchandise, and multiple activations. Check out their booth here!
4. Gen Z spending habits
A recent survey indicated that Gen Z spending is on the rise, with the generation spending more across the board in 2022.
Piper Sandler's 44th annual “Taking Stock with Teens” survey is based on a sample of 14,500 US teens surveyed from August 21 to September 23, 2022.
Here's what they found:
- Self-reported spending for teens jumped 3% YoY
- 39% of respondents work a part-time job, up slightly from last year
- 47% have purchased items secondhand and 58% have sold goods in the secondhand market.
- Female teens led the increase in teen spending with a 10% YoY increase
- Skincare was the biggest category for beauty spending, followed by cosmetics and hair care
- 18% said their favorite restaurant was Chick Fil A
- Starbucks was a close second at 17%
- 52% favored shopping on Amazon
- TikTok was their favorite platform, followed by Snapchat and Instagram
- Upper-income males spent the most on food, while females spent the most on clothing
- Both groups have pivoted towards discount shopping
5. Amazon walkouts & strikes
Amazon is facing a wave of walkouts and strikes as it heads into the holiday season this year. Workers are demanding better treatment, pay, and an end to retaliatory behavior.
The Verge recapped recent events:
- On Wednesday, workers in Albany, NY started voting on whether to unionize
- Another fulfillment center in Moreno Valley, CA has also filed to hold a vote.
- Workers at Inland Empire air cargo facility in San Bernardino, CA have vowed to go on strike if their $5 per hour pay raise and better working condition demands aren't met.
- Buford, GA workers are also threatening a strike
- Illinois workers are demanding protections against violence, injury, and sexual harassment.
Will Amazon cater to these demands or fight back?
The Verge noted that it doesn't appear that Amazon customers have noticed shipping delays as a result of the walkouts and strikes — but who knows if that could change during the holiday season?
Now would be the time for warehouse workers to act (and it seems that they are), as they have the most leverage this time of year.
6. Apple's high yield savings account
Apple will soon allow iPhone users to put their Daily Cash rewards from their Apple Card and additional funds from separate bank accounts into an interest-yielding savings account administered by Goldman Sachs.
The feature is expected to launch in the “coming months” according to Apple's press release. Apple did not say exactly what the rate would be, other than to say that it'll be “competitive”.
Goldman Sachs already offers savings accounts through its Marcus brand that have a 2.15% APY, PayPal offers 2.45%, and Robinhood is currently offering Gold members a 3% APY. So I'd imagine that Apple would be at least there.
Apple won’t require accounts to have minimum balances and won’t charge fees.
Plus there's no limit to the amount of Daily Cash users can receive. Currently, Apple Card users get:
- 3% rewards on purchases made with Apple and select merchants, including Uber and Uber Eats, Walgreens, Nike, Panera Bread, T-Mobile, ExxonMobil, and Ace Hardware
- 2% rewards when they use Apple Pay at other merchants
- 1% on all other purchases
Last month I reported that Apple had postponed the launch of its BNPL service. Richard Crone, a principal with Crone Consulting, told American Banker, “It looks like it was a strategic move to announce the coming of a savings account before rolling out Apple Pay Later, because these features will work seamlessly together.”
He went on to say, “Banks have their work cut out keeping up with Apple's cash-back rewards strategy here, because consumers want direct access to cash and this is going to be a fast way to build up value versus other types of rewards that in some cases — like airline points — may be losing value with the current inflation rate.”
7. Who's happiest with their pay?
Comparably published their 2022 list of Top 100 Companies with Best Compensation. The list is based on anonymous employee feedback to a variety of questions regarding an employee’s overall satisfaction with their compensation package including salary, raises, bonuses, stock/equity if applicable, and benefits.
There were quite a few big name e-commerce companies on the list, but also a few others that were noticeably missing.
- Adobe #1
- Meta #3
- Microsoft #4
- Google #5
- Snap #11
- Squarespace #13
- ShipBob #52
- Visa #59
- Uber #74 (I'm guessing not the drivers, LOL)
Beyond pay itself, workers noted that they appreciate pay transparency from their employer. Companies with transparent pay structures can create an environment where workers feel comfortable vocalizing dissatisfaction without fear of retaliation, and with an expectation that their leaders will actually address it.
Companies in our industry better keep up if they want to attract the best talent!
Last week, Shopify asked employees a series of 60 questions about its workplace culture, worker productivity, and competition in industry.
Called “Pulse” internally, the survey is sent out twice a year, but this particular survey comes at a time when Shopify is facing unprecedented upheaval after recently laying off 10% of its workforce.
Employees were asked questions about whether they felt proud of their work, aligned with Shopify's overall mission, and if they trusted leadership. In one question, employees were asked to agree or disagree with the statement “When Amazon grows, it leaves less for Shopify.”
8. How do platforms moderate items?
E-commerce marketplaces and platforms like Amazon, Shopify, AliExpress, and Etsy allow merchants to quickly and easily upload items for sale without much interference or manual approval on a per-item basis. This is great for efficiency and speed to market, but it inevitably leads to issues.
For example, last week I reported that parents are suing Amazon for allegedly selling “suicide kits” to teenagers on their platform. And of course you remember the Textbook Mafia lawsuit, where 5 major publishers claimed that Shopify allowed and profited from the sale of pirated textbooks and test materials on their platform (which was recently settled).
Magdalena Konkiewicz, who runs About Data Blog where she shares Data Science and Machine Learning knowledge, wrote a case study on how AliExpress uses a combination of classification, product labeling, and human annotation to moderate items on their platform.
Here's a short recap of her case study:
- AliExpress classifies items into OK, Restricted, Adult, Prohibited, and Suspect of Fraud.
- Local laws add a layer of complexity to this classification system.
- Cultural differences also play a factor when deciding if an item is appropriate.
- The moderation pipeline starts with machine learning predicting classes with an associated confidence.
- If that confidence level is too low, the product goes to human evaluation, which is done by crowdsourcing through Toloka.
- Each item is sent to three annotators who have to judge the product.
- If there's a clear majority, the item is classified.
- Items without consensus are forwarded to a second level of human intervention.
Do these platforms do a good job of product moderation? That's for you to judge. However given that Amazon has over 350M products listed on their marketplace worldwide, I'd say that despite a few bad Apples getting through, they do a pretty good job.
9. Other e-commerce news of interest
Walmart is eliminating 1,458 jobs at its Atlanta fulfillment center as it restructures the facility. The company is assisting affected workers with finding new jobs or other roles at Walmart, including within the 40k seasonal positions it's adding for the holiday season.
eBay inserted a video ad for its eBay Vault alongside a seller's photos on the listing page. Typically sellers are in control of the digital real estate within their own listings, but the seller was unable to remove the ad.
Affirm expects that only 42% of Americans will buy gifts for co-workers this year, down from 79% last year, as they begin to dial back their spending. The press release stated that consumers will prioritize gifts for their significant others and immediate family members this year.
Target is rolling out the ability for customers to pay online with their SNAP benefits when shopping for groceries. The payment method has long been accepted in stores, but now it'll be available for Target's curbside pickup and delivery programs.
Amazon's president of hardware research and development group, Gregg Zehr, and Tom Taylor, senior VP of Amazon Alexa, are retiring after over a decade each with the company. For CEO Andy Jassy, it marks the latest high-profile exit at a time when Amazon is facing a multitude of challenges.
Speaking of losing people, Squarespace poached Nathan Gooden from Amazon to serve as their new CFO. Gooden most recently served as CFO of Amazon's Alexa and Echo units since 2017.
Amazon is shutting down Amazon Explore, a virtual tour product launched during the pandemic where users could pay for guided tours of destinations around the world. I guess there's little reason to travel virtually anymore when you can experience the real thing.
Zoetop, which owns fast-fashion brands Shein and Romwe, will fork out $1.9M after account data belonging to 46M customers was stolen in 2018. The payout shouldn't affect the privately-owned business, whose Shein brand alone is valued at $100B.
Google will start allowing some customers to pay for cloud services with cryptocurrency early next year. The company will use Coinbase Prime, a service for storing and trading cryptocurrencies, to power the transactions.
OpenSea has launched natively on the Avalanche blockchain. All existing Avalanche-based NFT collections will be featured on OpenSea, and more will be rolled out over time.
Shopify is expanding its ERP program, introduced a year ago, to enable European partners to join and build direct integrations to its platform. ERP partners interested in joining can build a Shopify app that meets the company’s development requirements and connect their ERP to Shopify.
E-commerce brands in the UK are reining in generous return policies ahead of the holiday season. 25% of UK brands, including Zara and Boohoo, now demand customers pay for returning unwanted goods, a 14% YoY increase.
Marvel launched a lifestyle catalog app for Shopify merchants, which enables them to offer officially licensed Marvel products to their customers. Marvel is the first major entertainment company to curate a drop ship product catalog like this.
Global e-commerce fraud loss is estimated to reach over $41B by the end of 2022. North America is the largest target for cybercriminals, accounting for over 42% of global fraud.
Adobe predicts 2.5% growth in online sales this holiday season. One significant factor affecting its forecast is Amazon's Prime Early Access Sale, which enticed shoppers to start shopping early, before Nov 1, which is the date Adobe considers to be the start of the holiday shopping period.
The amount of online shoppers in India will increase from 190M in 2021 to 450M by 2027, when the industry is estimated to be valued at over $150B. It is estimated that India will beat USA, the world's second largest e-commerce shopper base, in the next two years.
Starting in 2023, Shopify will no longer send order-related SMS on behalf of merchants to customers. Merchants who wish to continue sending SMS notifications will have to work with one of their SMS partners through the Shopify App Store.
U.K.-based food delivery service Deliveroo is now offering BNPL via Klarna for customers to pay for their lunch in multiple installments. Consumers are given the option to pay for meals in three installments over 60 days.
10. Seed rounds, IPOs, & acquisitions
Veeve, a battery-powered cart with a built-in produce scale and touchscreen that allows shoppers to add items to their cart and pay at the end, raised $6.7M in a round co-led by Foothill Ventures and Creative Ventures, bringing its total amount raised to $8.9M. The company doubled its revenue from last year and expects that to grow to 4x or 5x that for next year.
Katana, an ERP for small and medium-sized manufactures that offers prebuilt integrations for common tools, raised €35M in a Series B round, just one year after its $16M Series A. The company said its now well financed and will use the funds to roll out more advanced accounting integrations.
Cabify, a Madrid-based ride-hailing service that does most of its business in Latin America, is investing $20M into its new logistics business unit. Cabify Logistics will oversee the company's storage and delivery functions.
Mondu, a Germany-based B2B payments company, raised €20M in debt financing from German bank Vereinigte Volksbank Raiffeisenbank. The company will use the funds to open a new office in the Netherlands, hire local personnel, and invest in local marketing activities.
Telda, an Egyptian consumer money app that was the first of its kind to receive the license needed to be called a digital bank, raised $20M in a round led by Sequoia Capital and Global Founders Capital. The company finally started operations last month with its app and Mastercard-powered card.
OatFi, a New York-based company that provides working capital infrastructure for B2B payments platforms, raised $8M in a round led by QED Investors, bringing its total amount raised to $11.25M. The company also raised a $50M credit facility from Architect Capital.
Elenas, a Colombia-based social commerce platform that encourages more Latin American women to sell online, raised $20M in a Series B round, bringing its total amount raised to $28M. The platform claims 11M Latin American women engaged in direct sales via catalogs and door-to-door tactics and hopes to digitize the traditional independent sales process.
aCommerce Group, a Thai e-commerce platform, will be pushing back its IPO due to market feedback not meeting the lead bank's expectations. The company had already started the IPO process with plans to list on the Stock Exchange of Thailand, but delayed proceedings until 2023.
Piktina, a Vietnamese online marketplace for secondhand clothes, raised $1M in seed funding from Touchstone Partners. The company's mission is to raise awareness of overconsumption and instill sustainability values in the community to reduce fashion waste and carbon emissions, and conserve the environment.
Konvy, a Thailand-based online beauty retailer that boasts more than 20K SKUs from more than 1000 brands, raised $10M in a Series A round from Insignia Ventures Partners. The company will use the funding to fuel its expansion plan in Southeast Asia, including opening physical stores.
Airwallex, a Hong Kong / Australia-based startup that provides cross-border banking and financial services for businesses, raised $100M in a Series E extension. It will use the funds to continue expanding its business operationally, geographically, and with new products in areas like credit and expense management.
Trendsi, a platform that connects sellers with suppliers while managing the back-end supply chain for its customer base, raised $25M in a Series A round led by Lightspeed Venture Partners, bringing its total amount raised to $30M. The new funds will be put toward investments in data infrastructure, supply chain technology, new merchandise categories and international expansion.
InsiteAI, a platform for consumer packaged goods companies that uses AI to provide recommendations on how to price, distribute, and promote their products in physical stores, launched out of stealth with a $19M Series A round led by NewRoad Capital and M12, Microsoft's corporate venture arm. The platform aims to help brands make product and inventory assortment and pricing decisions across retail stores, using data derived from different retailers, sales, supply chains, and market segments.
Rye, a startup by Twitch co-founder Justin Khan, that aims to build Shopify for web3, raised $14M in a round led by Andreessen Horowitz’s web3 venture arm, A16z Crypto. Rye will provide a one-click interface that will allow merchants to display some or all of their items on the new web3 marketplace, and use a native token $RYE to help lower e-commerce transactions on its platform.
SmartCommerce a provider of data-centric AI-assisted SaaS solutions for Consumer Packaged Goods, acquired Basketful, a provider of in-context e-commerce optimization tools. This is the second acquisition completed by the company, following its recent acquisition of Myxx, Inc.
Kanye West agreed to buy Parler, a conservative social media app, after Twitter and Instagram suspended him over anti-Semitic posts. Financial terms of the deal weren't announced, however, the company previously said it had raised $56M in funding from outside investors.
What'd I miss?
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See you next Monday,
Paul E. Drecksler
PS: Why is coffee so poor? Because he's always being mugged.