Amazon to acquire Souq, a Middle East clone once valued at $1B, for $650M – TechCrunch (Mar 23, 2017)
This would be one of Amazon’s biggest acquisitions to date, ranking fourth behind Zappos ($1.2 billion), Twitch ($970m), and Kiva Systems ($775m) if it goes ahead at the price reported here. And given how Amazon is competing with local competitors such as Flipkart in India and Alibaba in China, it’s interesting to see it absorbing a smaller one in a region where Amazon itself has no presence. Local infrastructure is critical to Amazon’s success elsewhere, and an acquisition like this potentially gives Amazon a huge head start in the region. I could definitely see it taking out more second-tier e-commerce players in other regions like this over the next few years as a way to accelerate its international growth.
I’m not sure if it’s admirable restraint not to mention Amazon once in this article, or if it’s denial. The retail apocalypse described here is clearly driven by growing e-commerce spending, and indeed a number of the specific companies cited are closing physical retail stores while maintaining an online presence. Amazon is of course not the only online retailer, but it’s a major force in both the growth of e-commerce in the US and in the decline of physical retail stores and demise of certain physical retail brands (Sears looks to be the next – and one of the biggest candidates for that category). Of course, though Amazon’s success is one cause, retailers’ own inability to transform their businesses to compete more effectively is another major one.
via Business Insider
I joked on Twitter earlier that this is basically Content ID for the physical world – Amazon is now allowing brands to register their intellectual property in physical goods, so that Amazon can more easily identify and remove from its listings any counterfeit goods. That’s important because the company has been increasingly criticized in recent months for selling knockoff items from counterfeiters without doing much about it, and in some cases those goods have even been dangerous (for example fake iPhone chargers and cables). This feels like a step in the right direction, but to draw another Google analogy, this is a bit like Google policing videos on YouTube – the raw scale here is impossible for human employees to monitor alone. In this case, Amazon needs customers and brands to flag counterfeit items, but at least this registry makes it easier to match those items to copyrighted originals and therefore to take them down more quickly.
It’s interesting to see Walmart dialing this kind of thing up, while Target recently discontinued several efforts along similar lines. Walmart’s approach certainly makes a lot more sense – retailers absolutely have to be innovating around the in-store experience if they’re to preserve and build whatever advantages physical retail has, and technology is going to be central to that effort. That’s not to say Walmart will succeed – arguably most of its past innovations have been about merchandizing rather than technology, but it’s certainly got the resources to invest significantly in figuring things out.
eBay: Yes, speedy shipping really is a thing with us – CNET (Mar 20, 2017)
eBay is announcing that it now offers guaranteed 3-day shipping on 20 million items, compared to Amazon Prime’s two-day shipping for over 50 million items. The difference in the range and timing here highlights another big difference: whereas Amazon increasingly controls its logistics infrastructure, eBay has very little control at all, which is why it’s been reluctant in the past to commit to delivery dates even though it says almost two thirds of its sales already reach customers in three days. That’s because eBay buyers are responsible for shipping their own goods, while Prime and Fulfillment by Amazon leverage the company’s massive distribution infrastructure including an increasingly deep investment in its own shipping. Yes, eBay is making progress here, but it’s going to be hard for customers not to notice both the difference in the number of items and the speed of delivery and spend their money accordingly.
Documents reveal ‘AmazonFresh Pickup’ as the tech giant’s next physical retail concept – GeekWire (Mar 14, 2017)
The concept here isn’t new, either for Amazon or in general. With regard to Amazon, it was one of several physical retail concepts discussed in an article last year, and looks like it’s now coming to fruition. But the concept of ordering groceries online and picking them up outside a store isn’t new either – my local Smith’s grocery store (part of the Kroger company) does this today. The big difference will be that this AmazonFresh Pickup store won’t be a regular grocery store, but just that pickup experience. This would fill a gap in the current AmazonFresh service for those who won’t be home (or don’t know when they’ll be home) when groceries might be delivered, but can schedule a stop at a grocery store on their way home. I think we’re going to continue to see Amazon experimenting with lots of physical retail models until they get the right mix to complement their online presence.
Groceries and clothing are two categories where I and others might once have assumed Amazon would never be a serious force, because they appear to lend themselves so poorly to online purchases. On the grocery side, Amazon still is a minor presence, but in clothing it’s now starting to make real inroads, especially among younger age groups. Of course, this data says nothing about total online purchases as a percentage of clothing purchases, and it’s likely that physical retail still dominates, but within e-commerce Amazon is now the biggest retailer among millennials, which is quite the achievement. It continues to feel like Amazon is methodically looking at those retail segments where it’s underrepresented and methodically breaking down the barriers to growth. And of course even in the groceries category it’s doing some interesting things.
There are some interesting numbers in here – notably that at its current growth rate, Amazon’s North American retail business could double in size in the next three years, or put another way, that it could suck the same amount of value out of the US retail market in that period as in its entire history to date. Realistically, growth is going to slow a bit, so it’ll take a little longer than that, but the broader point remains: Amazon is vacuuming up tens of billions of dollars of additional retail spend each year, and that has to come from somewhere. Given how small a share e-commerce still has of total retail spend in the US, that means it’s largely going to come from brick and mortar retailers, who have been suffering as a result. Some retailers have been able to recover a little lately in sales growth, but largely at the expense of margins, while one or two retailers have managed to find niches that seem somewhat immune to Amazon’s encroachment. We’re not going to see brick and mortar retailers take this all lying down, though, and one of the most interesting things to watch in the next couple of years will be how effectively these companies can pare Amazon’s growth back if they’re willing to be aggressive enough on margins. I suspect we saw a little of this in Q4, when Amazon’s growth rate dropped a few percentage points, but we might see more of it going forward.
Amazon just shared new numbers that give a clue about how many Prime members it has – Business Insider (Feb 15, 2017)
I had missed this earlier in the week, but we got some juicy new numbers from Amazon as part of its 10-K filing, and they’re quite illuminating when it comes to Prime. This article specifically talks about Prime subscriber numbers, but the same underlying figures from the 10-K can also be used to derive some other interesting conclusions about Prime revenues and so on. I put together an in-depth blog post just now on all this, which you might want to check out too (my subscriber numbers are a little different from Morgan Stanley’s).
via Business Insider
There’s a certain irony in a company which was a pioneer in its use of online retail falling back on brick and mortar stores as a way to shore up its business, but that’s what Xiaomi appears to be doing. It apparently wants to build 1000 stores in the next three years – roughly twice as many as Apple has globally, and 25 times as many as Apple has in China, by way of context. That’s a huge investment at a time when Xiaomi seems to be struggling, but physical retail is a good fit for the ecosystem of devices Xiaomi sells including both its own and its ecosystem devices for the home. Building its own chips is another big investment, and one that will likely take years to pay off – though it might establish some independence from current suppliers Qualcomm and MediaTek in the short term, the quality likely won’t be there from day one, so it’ll be interesting to see which of Xiaomi’s devices run its own chips – I’m guessing it’ll start by replacing MediaTek’s and work up from there. But it takes years to get really good in smartphone chips, and without an acquisition of existing talent here, I’m skeptical Xiaomi will do well anytime soon. Though Huawei is the local exemplar of this strategy, Apple and Samsung are still the gold standard for the make-your-own-chips strategy, and they’ve both been at it for years.
Facebook closing 200 Oculus VR Best Buy pop-ups due to poor store performance – Business Insider (Feb 8, 2017)
One of the biggest challenges VR faces at this point is suggestions that it’s somehow failing to take off despite a big push into the mainstream, and that’s a narrative Business Insider has pushed before. This is where narratives are dangerous – the fact here is that VR is that VR is still in its infancy as a mainstream technology – other than the mobile flavors, it’s expensive, requires other expensive hardware, and there’s not a ton of content there beyond gaming. But if the narrative instead becomes that it’s fizzling as it attempts to break into the mainstream, that is a lot more damaging than merely talking about a technology that has small but growing adoption. VR can, however, already be fairly compelling as a demo, which is why it’s a blow that Facebook is closing these Oculus demo stations, because VR is really impossible to grok without trying it in person. But those trying to sell VR have to be very careful not to oversell it to mainstream users – it still has quite a long way to go before it crosses the chasm, and making it seem bigger than it is feeds this dangerous narrative.
via Business Insider
This is an interesting but totally logical move from Netflix – I just listened to Disney’s earnings call earlier this afternoon, and was reminded once again of how big a chunk of revenue the company derives from merchandising (not to mention theme parks and other businesses which piggyback off characters from its movies and TV shows). I’ve already seen smaller tie-ins like King Julien showing up on my kids’ yogurt, and it sounds like Netflix has done some more direct merchandising with Hot Topic already too. So this is a very natural evolution, but it’s interesting to see Netflix describe this as mostly about marketing rather than driving a big new revenue stream. In time, it could certainly achieve both, and that’s another helpful way to offset some of the big spending on original content.
Target has stunned its employees by suddenly shutting down two big innovation projects – Recode (Feb 2, 2017)
Amazon got lots of attention around its Amazon Go store concept a few weeks back, though it’s still an extremely limited pilot program. Target, on the other hand, seems to have just killed off its own similar initiative out of nowhere. It’s obviously tempting to view this as some kind of response to Amazon’s moves, but given Amazon’s tiny presence in physical retail it seems far more likely Target simply felt the project wasn’t delivering meaningful results and its innovation budget was best spent elsewhere. Having said that, if physical retailers can’t at least attempt to compete with Amazon in innovating on their home turf, it doesn’t bode well for their ability to stand up to it more broadly.
Snapchat NYC Spectacles store is mostly empty – CNBC (Jan 26, 2017)
Snap’s foray into hardware coincided with its new company name, and the marketing strategy for the Spectacles was genius – very short supply combined with a sales model that made availability even narrow by focusing it on single vending machines that moved around, combined with a single permanent store in New York City. However, it’s becoming apparent now (if it wasn’t obvious from the start) that Spectacles aren’t going to be massive sellers. Yes, hundreds of people lined up early on to buy them, but the crowds have now disappeared. I’m somewhat surprised Snap hasn’t put Spectacles up for sale anywhere else yet – it’s still basically impossible to buy a brand new pair at list price unless you live in or visit NYC or happen to be in one of the other places where the moving machines have turned up. That suggests, though, that this move into hardware was more experimental than strategic, and raises the question of whether we’ll see more of this from Snap in future. There’s certainly potential for some interesting new functionality around AR in future versions, but there are few indications at this point that Snap has any big plans.
Target plans to introduce its own smartphone payment service in stores later this year – Recode (Jan 24, 2017)
The fragmentation of mobile payments continues – following in the footsteps of other big retailers, Target is going to roll out yet another proprietary mobile payment system in its stores, rather than merely supporting the two or three store-agnostic mobile payments systems that already have decent traction. The motivations are obvious – control the user experience, capture the data, and drive loyalty – but the user benefits are always minimal, and uptake has generally been minimal too. We’re still at an early stage in mobile payments with no obvious winners yet, but it’s already fairly clear that this kind of store-specific approach isn’t going to be part of the eventual solution.
This is Target’s preliminary press release for fourth quarter sales, which provides November/December comparable sales data in percentage growth terms, and the picture isn’t great. Comparable store sales were down 3% year on year for the last two months, and even though digital (online) sales were up 30%, that couldn’t make up the difference, and total transactions were flat while fourth quarter revenue will be down. The reason is that digital sales still make up only a tiny minority of Target’s overall sales – 5% in the 2015 holiday season, so a lower share than e-commerce’s overall share of US retail sales. That number will certainly be higher for 2016, but it highlights the challenge all big brick and mortar retailers have to face in Amazon: even if they’re able to match its strong growth in online sales, their physical retail operations still take an even bigger hit.
Every story about Walmart (or any other brick and mortar retailer) rejigging its e-commerce arm is bound to be seen in the context of Amazon’s dominance of the space, and Walmart has famously struggled in e-commerce despite its massive scale. At least two of these moves are about consolidating leadership of online and offline retail domains, which is a logical step (and one that Apple, for example, took a couple of years ago). Others reflect ongoing hiring from outside Walmart to strengthen its leadership team, and it looks like Jet is also being further integrated into the company, which was inevitable. Walmart won’t report its December quarter earnings until February 21st, but it will be well worth watching what impact, if any, Jet is said to have had on its performance.
Amazon to Launch Credit Card for Prime Members – WSJ (Jan 11, 2017)
This is yet another example of Amazon pursuing its flywheel strategy of reducing friction and providing incentives for people to spend more time and money on Amazon. The 5% cash back feature for Amazon purchases will be compelling for many people, since it’s basically free money for things many of them would already buy there, but since it’s a higher percentage than for purchases made elsewhere, it may also shift some buying to Amazon. This is a smart move and I’m curious to see how many people sign up for this (something we will of course have to rely on third parties to tell us).
Best Buy launches cord-cutting campaign with website & how-to video – Rich Greenfield (Jan 10, 2017)
This move by Best Buy is both notable and clever – notable because it swings one of the biggest consumer electronics retail brands behind cord-cutting, and clever because Best Buy is selling far more than just online subscriptions here. It’s using the cord-cutting umbrella to sell lots of gear too, from wireless routers to antennas, and even offering to help with installation through Geek Squad and how-to videos. Stuff like this is just going to accelerate cord-cutting even further, pushing it closer to a tipping point where it will cause enormous disruption in the TV industry.
This report from Baird’s retail analysts cites its own survey on several points around selection and Prime. It estimates that there are 55-60 million Prime households in the US, out of around 125m total households. Some of the biggest expansion categories in selection are apparel, office/industrial, and home/kitchen, where Amazon has historically been weaker. There are tons of other data points in the linked report, which is well worth a read.