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Retail Chronicles | 07.02.2022
Emerging trends in retail and new commerce.
Hello, it’s Alexandre from Spring Invest, a European investment fund that is shaping the future of commerce. Welcome to the latest edition of Retail Chronicles, our newsletter about emerging trends in (e-)retail, brands, and new commerce.
🛍️ French e-commerce in 10 numbers
Total spend on ecommerce in 2021 : 129bn€ (+15,1% vs. 2020).
Growth is driven by services (+24% vs. 2020) vs. products (+7% vs. 2020).
Online commerce represents 14,1% of total commerce (vs. 13,4% in 2020).
Total number of transactions in 2021 : 2,1 billion (5,7 million a day).
Average basket remains stable at 61€ in 2021 (-0,8% vs. 2020, +1,8% vs. 2019).
Transaction frequency is accelerating : 51 transactions in a year (almost one every week!) vs. 44 in 2020, 43 in 2019.
Average spend per buyer is at 3 089 € (vs. 2 694 € in 2020, 2.577 € in 2019).
Active e-commerce websites: 200k (vs. 180k in 2020, 163k in 2019).
Top 5 most active product categories (number of e-shoppers who made at least 1 transaction in that category) : fashion (60%), gaming (47%), toys (45%), shoes (45%), beauty (43%).
Top 5 e-commerce websites (by monthly unique visitors) : Amazon (37 million), Le Bon Coin (27 million), CDiscount (23 million), Fnac (19 million), Vinted (17 million).
Read more from the FEVAD here.
⚔️ Big players (SHOP, AMZN, FB) vs. Startups
"The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation." Alex Rampell (a16z)
When something new is emerging in an industry, most of the value created is not necessarily captured by early-stage startups. Sometimes it just makes sense that established players do it, and do it better (because of their historical model, user base, infrastructure, distribution deals, technology, or whatever). Commerce is no exception, that’s why we are closely following what big commerce players are up to and try to understand how it impacts what early-stage startups are building and how they would win (or not). Here is a quick update :
➡️ Building the ecosystem : Shopify announced two major partnerships, one with JD.com (here) to make it easier for Shopify merchants to sell into that platform and one with Stripe (here) to offer its merchants dedicated bank accounts. It’s clear that the company is trying to strengthen its ecosystem, create network effects, and moats to move beyond the pure software provider model. That’s also why they have recently increased incentives for developers to build Shopify apps and shop themes as developers will now pay 0% revenue share for the first 1m$ they earn annually (down from 20%). As $ incentives grow (lower commission) and barriers to entry lower (simplified API, open-source app models,…), it has created an intense competition on the Shopify store for apps that now range from simple cart design apps built by one developer as a side project to full-stack marketing tools built by extremely ambitious startups. Therefore, whereas the 2015-2020 era was mostly driven by the quality of apps shipped (reviews, organic growth, search in the store…), 2020-2025 is clearly going to be driven by the quality of distribution. At Spring, we are seeing more and more Shopify-enablers startups and while the product remains important, distribution is the key : how do you build a profitable acquisition machine while selling a 10-300$/month tool ?
➡️ Moving closer to brick&mortar : It’s a clear trend that most indie and DTC brands are moving closer to the offline commerce world whether by operating their own stores or by dealing with wholesalers. Following their client’s needs, Shopify is now providing a set of solutions for brick&mortar (Shopify PoS, dedicated hardware, payment solutions, retail staff permission, unified CRM, Click&collect,…) putting pressure on independent SaaS providers in each space. Last month, Shopify filed a patent (here) for a system of sensors that can measure traffic in retail stores, density and behavior of shoppers. By building a complete brick&mortar offer, Shopify is pushing to be the most relevant solution for omnichannel merchants. However, it does not mean it will be relevant enough for brick&mortar-only merchants (as they don’t see the “unified” value of the tools). Besides, there is also competition from all verticalized SaaS-enabled marketplaces offering everything to run a business (back-office, calendar, payment, CRM, marketing, staff planning, etc.), while also solving the acquisition problem by building a user-facing marketplace on top to generate demand for merchants. A lot of verticals have been well addressed for the past 5-7 years (real estate, education, services, construction, health,…), but interestingly retail has lagged a bit. It’s becoming more clear now that a new generation of brick&mortar-only merchants (restaurants, independent grocery stores, hairdressers, bakeries, concept stores, retail franchises,…) is looking for full-stack enabling tools. We are ready to back entrepreneurs in that space.
➡️ Reorganizing logistics : After more than 2 years of testing (Shopify Fulfillment was launched in 2019 with a 1bn$ investment announcement for the next 5 years to build the network), Shopify announced it was terminating or reducing contracts with warehouses and fulfillment partners. Rumors say that Shopify may be moving away from its initial "asset-light" approach and making more aggressive moves in fulfillment soon, whether that means acquiring 3rd-party logistics companies or moving to operate warehouses on its own. Such a move would be surprising as the challenge seems huge and immensely transformative for a (software) company. It would take billions and years to build anything close to what Amazon has built for the past decades. As a reminder from Shopify’s CEO Tobi Lütke himself (2020), "Logistics is hard, you will hear it from everyone in the industry”.
➡️ Pricing power : Amazon is raising the price of its annual Prime membership (200 million members worldwide) to 139$ from 119$. The company’s last hiked the price of Prime in 2018, when it increased to 119$ from 99$. Four years before that, it raised the subscription fee to 99$ from 79$. If you are looking for an example when discussing the hot topic of pricing power in our inflation times, here it is.
➡️ Ad power : "Advertising is the price you pay for having an unremarkable product or service” famously said Jeff Bezos. Well, 10 years later, Amazon is one of the fastest-growing advertising businesses in the world. Indeed, it has just disclosed its ads revenues for 2021 : 31bn$ (+48% vs. 2020 at 21bn$). As a comparison, Google ads business is generating more than 200bn$ of revenues (80% of its total revenues), while Meta stands at 115bn$ (98% of their revenues). All together they accounted for 74% of global digital ad spend (and 47% of all ad spend - not only digital) in 2021. However, all $ are not being equal. Indeed, as Amazon's ad business is tied to search (and not social media), it's not as vulnerable to anyone’s will and certainly not to Apple's privacy changes that are having a big impact on Meta's ad business. What’s interesting is that Amazon has proven once and for all the power of the ad revenue channel for marketplaces. Knowing that (i) marketplace is the first distribution channel with 62% share of total e-commerce in the world and that (ii) most of them are not equipped with an ad bidding system, the opportunity for entrepreneurs to build a retail media solution for marketplaces is becoming quite clear. We are ready to back them.
➡️ Powering creators : A few months after announcing that Instagram is no longer a photo-sharing app (here) as now “the number one reason that people say they use Instagram, in research, is to be entertained”, the head of Instagram announced two weeks ago the launch of the “Subscriptions” feature (here), helping creators/influencers to monetize their audience as fans will pay them a monthly subscription to have access to private and exclusive content. If it turns out to be the new standard, it’s still unclear how this would impact the relationship between brands and creators/influencers. We would probably switch from a purely transactional relationship (brand pays X to the influencer to get Y reach on social media) to a more collaborative one (brands provide everything they can - products, context, high-value content, storytelling - so the influencer does the best to satisfy a paying fan). Interests seem more aligned to provide value to customers. More generally, the (re)emergence of social commerce is an opportunity for businesses to take back control of their brands in digital channels, especially in a product-centered marketplace world (first distribution channel with a 62% share of total e-commerce) in which brand identity is largely overlooked.
➡️ Stock crash : The company’s stock plunged 26% on the back of disappointing earnings results, losing more than 250bn$ in market value. That’s the biggest wipeout in market value for any U.S. company ever (interestingly, the day after, Amazon gained around 190bn$ in market value, being the greatest ever one-day increase in value). A lot has been written about Meta, here is an excellent summary. RIP.
🚢 About freight costs
You have probably read a lot about supply chain issues for the last 24 months : congested ports, extended lead times, freight costs. Sometimes a picture is worth a thousand words, especially to keep in mind the order of magnitude of this problem in economic terms. To make it clear : this is not a 30% problem, this is a 5x problem.
And consequences are quite dramatic for merchants that are heavily exposed to Asian importations. In terms of P&L impact, we are talking about a reduction of 1 to 5 points of gross margin. When you know that these same merchants are already fighting on the acquisition costs front, 2022 is going to be decisive…
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Spring Invest is a European investment fund dedicated to companies that are shaping the future of commerce. We champion doers who build innovative companies making commerce better, from enabling technologies to new commerce models and everything in between. More info about our investment thesis 👉 here.