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Retail Chronicles | 01.03.2021
Emerging trends in retail and new commerce.
Hello, it’s Xavier from Spring Invest, a French investment fund that is shaping the future of commerce. Welcome to the latest edition of Retail Chronicles, our bi-monthly newsletter about emerging trends in (e-)retail, brands, and new commerce.
🎆 The Shopify Moment
The 2020 numbers have been released, Shopify has processed $120Bn of GMV, doubling its performance from 2019. As a comparison, Amazon’s 3rd party merchants drove $300Bn GMV in 2020, up from $200Bn in 2019.
Of course, these numbers are not directly comparable since Amazon Marketplace actually sells products while Shopify is “just” a tool helping merchants to create and operate their e-shops.
Shopify is surfing the DTC wave. Everybody buys on Amazon but no one shops there. Established brands and newcomers see that they are commoditized on Amazon. Only one in five amazon searches includes a brand name. They need an ecommerce channel allowing them to differentiate their products and to offer a compelling shopping experience. Many are choosing direct as one of their channels.
Shopify is adding customer acquisition. They have partnered with the main social media (first Facebook and Instagram, then TikTok) to allow Shopify customers to seamlessly create and deploy ad campaigns on those networks.
Shopify is adding payment integration. They have integrated their payment processor, Shop Pay, into Facebook, allowing consumers to buy without leaving Facebook or Instagram. No doubt, their next step is to extend this integration to other social media.
Shopify is scaling fulfillment. This week they raised $1.5Bn capital and they’ve been pretty explicit that a good chunk of that money will go toward building-up Shopify Fulfilment Network.
All in all, Shopify is growing to be a major member, if not the cornerstone, of what Ben Thompson calls the “Anti-Amazon Alliance”. Granted, they capture a far smaller bit of each purchase than Amazon, but they are very aggressively adding value and stickiness to their offer.
Now, lest you believe that we’ve turned into blind Shopify cheerleaders, I’ll end with an assertive take by China ecommerce expert Tanya Van Gastel on why she thinks Shopify’s partnership with Alipay will ultimately fail in China. Tanya’s main points:
Shopify’s merchants mainly reach consumers through social media, but Chinese social media don’t do targeted ads, and untargeted ads are horribly expensive
China’s main social media is WeChat and it will be hard for Shopify to draw traffic away from their own WeChat shops
The Chinese consumers shop through apps, not a web browser
💥 Amazon at a crossroads
🏝️ Jeff Bezos is stepping down
After founding Amazon and heading the company for 27 years, Jeff Bezos just announced that he’ll take some distance and cede the CEO position to Andy Jassy, the current head of AWS.
This is a big deal. Jeff Bezos is a giant. He grew Amazon to 1.3 million employees and half a trillion GMV. He’s also a management genius. He kept the whole company fit by forcing each major division (Amazon Marketplace, Amazon Web Services, Fulfillment By Amazon, …) to competitively sell its services to the outside world.
Amazon is more powerful than ever but is facing increasing pressure from all sides: regulators, foreign competition (in Asia), or domestic competition whether from incumbents who’ve raised their game (Walmart…) or the “Anti-Amazon alliance” of Facebook and Shopify.
❓ Is Amazon targeting direct-to-consumer businesses ?
Speaking (again) of Shopify, Amazon just confirmed they have acquired Selz, a Shopify competitor. Selz is tiny, the Australian company has 50 employees and only raised $11m. Interestingly, Amazon used to have an in-house Shopify-like product called Amazon Webstore, which they closed in 2015.
It’s unclear why Amazon did purchase Selz, its customer base is insignificant, and there’s no hint that they hold a particularly outstanding technology.
Many doubt that Amazon is seriously considering launching a direct competitor to Shopify. Most ecommerce players already have a strong dependency on Amazon (unless it’s their biggest competitor) and they’ll think twice before giving them a strategic part of their infrastructure (this has been a major argument of Azure salespeople in ecommerce). Besides, as Amazon seller Molson Hart said on Twitter, “Tobi [Lutke, Shopify’s CEO]’s 1st priority will prevail over Jassy [Amazon’s new CEO]’s 49th.”
Our take is that Amazon mainly wants to better understand Shopify. As Benedict Evans says, entrenched players are seldom displaced by head-on competition but more frequently by a newcomer addressing “an underlying customer need in another way”
At the most basic level, Amazon and Shopify don’t serve the same customers. Amazon’s customers are the consumers while Shopify’s are the merchants. This translates into fundamental differences: Shopify, for instance, will never increase competition between its merchants by aggregating product listings for consumers. Amazon wants to better understand Shopify’s strengths and weaknesses.
📢 Amazon’s advertising business
Juozas Kaziukénas at Marketplace Pulse talks about Amazon’s ad business. Amazon’s pages used to recommend products based on algorithms designed to optimize customer interest. But these recommendations have recently been replaced by ads.
Over the past year, “Sponsored products related to this item,” “Four stars and above” and “Brands related to this category on Amazon” advertising sections have all but replaced organic “Customers who bought this item also bought” and “Customers who viewed this item also viewed” suggestions.
Amazon’s ad business has grown to $20Bn in 2020 and it’s probably insanely profitable, at least $10Bn. But ads breach Amazon’s commitment to the consumer. As Juozas puts it :
Advertising clouds the retailer’s ability to innovate on discovery, personalization, and any form of interactive shopping. At a certain point, every decision to improve the experience competes with lost revenue from advertising it would replace.
One possible reaction by Amazon to Shopify’s growth would be to double down on its commitment to consumers. But will they forfeit $20Bn in revenue?
🧱 Amazon’s latest investments
Back to Amazon’s acquisitions, Modern Retail has combed through their recent takeovers and investments and inferred some strategic priorities:
Fulfillment services: One Vim, SpartanNash, Aurora, Deliveroo, Rivian, Zoox and France’s Colis Privé…
Customer Service: Twilio, Qdigi…
Sleep: Endel, Hatch Baby…
Connected Home: Ring, Scout Alarm, HouseJoy, Garageio, August, SmartRent, Prefab…
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Spring Invest is a French investment fund dedicated to companies that are shaping the future of retail. We invest both in Enablers, B2B companies providing innovative solutions to (e)retailers and brands, and Disrupters creating new models of distribution. Our investment approach relies on strong relationships with 50+ European Retailers and Brands in order to provide sales acceleration to our portfolio. We also provide operational support with a dedicated team of Venture Partners working with our portfolio on sales, communication, HR, and internationalization.