Retail Chronicles | 13.04.2021
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.
❓ What is Amazon Turning Into?
Amazon has always been about insane consumer focus. In this 1999 interview, Jeff Bezos is crystal clear about that : “Selection, ease of use, low prices, more information to make purchase decisions with… plus great customer service”, “in the long term there is never any misalignment between customer interest and shareholder interest”…
But there are signs that this consumer focus is eroding. It would be an exaggeration to say, as some critics do, that Amazon is turning into Wish. Still, we can’t ignore the accumulation of forces pushing Amazon away from the consumer.
Obviously, Amazon Web Services is an astounding success. One of Bezos’ strokes of management genius has been to make sure internal services would stay under pressure by forcing them to compete with the outer world. In 2020, AWS generated $45.4Bn revenue for $13.5Bn operating income. Yet, AWS is not a consumer business, it’s an enterprise infrastructure play. This huge part of Amazon is just not consumer-facing.
📣 Amazon ads
Much has been said about Amazon’s advertising business. It’s hard to pinpoint the exact numbers as Amazon reports ads revenue merged with “others” and ads profitability merged with North America and International non-AWS business. Most analysts estimate that in 2020, ads represented roughly $20Bn in revenue and $10Bn in operating income. Of course, Amazon is not the first retailer to generate ads revenue, retail media has been a business for decades (and is currently seeing exciting developments). Still, incumbent retailers are being disrupted by Amazon, and emulating them is not necessarily the right move. Also, while AWS is neutral for consumers, Amazon Ads is arguably harmful to them as it directly prevents from improving product discovery.
At the end of the day, AWS and Ads, two non-consumer-facing businesses, together represent 100%+ of Amazon’s $23Bn operating income. This is no longer just a distraction. Consumers have gone from being Amazon’s customers to being Amazon’s product, ie. what Amazon is selling to its real customers.
🚫 Preventing consumer-seller interactions
This perception is reinforced by Amazon’s recent decision to sever all links between third-party vendors on FBA (Fulfilled by Amazon) and consumers. Once again, all marketplaces struggle against attempts to bypass them, and Amazon is perfectly in its right when it wants to prevent that. Still, this move has no obvious benefit for consumers and has some obvious downsides for them such as a reduced opportunity to get product information or no feedback loop for vendors.
⭐ Reviews and counterfeits
While we’re talking about product information, Amazon has been struggling with the issue of fake reviews. In October 2019, they allowed shoppers to leave a star review without any written review, in an attempt to dilute fake reviews under sheer numbers. It’s unclear if the move was a success, more like an admission of failure. On another front, 75% of new Amazon merchants come from China (and they’re doing everything in their power to increase that share). Those are harder to control and police. This also translates into increased counterfeiting issues, which are very hard to solve. To address those complaints, Amazon has set up a service similar to social media harassment reports. But it’s being gamed by malicious sellers preemptively reporting the legitimate trademark holders in much the same way trolls on Twitter preemptively report their victims.
🔗 Is Amazon Prime a double-edged sword?
Amazon Prime is a tremendously successful program. It gives customers free delivery plus an array of services against a monthly or yearly subscription. In December 2020, Amazon Prime had 142m subscribers in the US (more than the number of US households) of which 52% had an annual membership. In most ecommerce, shipping costs between $5 and $10. Having shipping de facto taken care of by an annual subscription is a huge cost advantage for Amazon.
Amazon Prime is the mother of all moats. It has entrenched Amazon as the default ecommerce vendor for 142m Americans. In our view, Prime gives Amazon such a powerful competing advantage that paradoxically it could become a major issue for them.
First, it allows them to take the consumers for granted, which is never a good thing in the long term. How many of the issues we mentioned above would have been solved if Amazon still had to fight for consumers?
Second, it’s a major invitation for regulatory intervention.
🚀 Will Amazon’s 2020s be like Microsoft’s 2000s?
Amazon today presents eery parallels with Microsoft in the early 2000s.
Jeff Bezos is being replaced as CEO by Andy Jassy, the current head of AWS. Steve Ballmer took the CEO seat from Bill Gates in January 2000.
Amazon has an inescapable grip on ecommerce with Prime. Microsoft had an inescapable grip on personal computing with Windows.
Amazon is aggressively leveraging its competitive advantage and has started to take customers for granted. As did Microsoft in the 2000s.
If history repeats itself, this decade could see Amazon’s profits increase tremendously while it becomes complacent, gets entangled in countless antitrust lawsuits, and turns into just another incumbent.
💨 The Quick-Commerce Battle Royale in Paris
Quick-commerce is a promise of delivery times under 10 or 20 mn. The market is blazingly hot these days in Paris. Not a week passes without someone announcing a new initiative.
After Frichti and Kol, Cajoo launched in February 21 after a €6m fundraising; market rumors say they are in the process of raising another €20-30m.
Those Frenchies have been joined by European players, Flink, Gorillas and Glovo, which raised a whopping €450m in April 2021. And it’s not over : Dija, Zapp, Weezy, Getir are currently hiring!
Since they could start with their existing stores instead of having to invest in new dark stores, incumbents launched early, generally by finding a partner for the last-mile delivery : Monoprix works with Amazon Prime Now, Carrefour with Ubereats and Deliveroo, Casino with Ubereats…
Besides, they found another way to leverage their local footprint. Leclerc, Monoprix or Auchan have launched “pedestrian drives” which, beyond the oxymoron, render the same service : your groceries, in minutes.
We’re closely monitoring this space but haven’t made a move yet. Our takes so far:
Even more so than other delivery plays, quick-commerce is essentially about logistics;
Quick-commerce logistics is very specific, being optimized for speed; mutualizing capex across other logistics models is difficult;
Density is central to performance, this explains why Paris, Europe’s densest capital city is attractive; it also means that the biggest player will earn an economic advantage;
The market might not be as large as expected, as speed often ranks below reliability or accuracy in customers’ polls.
In a Battle Royale, there can only be one survivor. Or zero.
Before the name of the lucky winner is known, we might experience a massive transfer of purchasing power from VCs to consumers.
🍸 Cocktail Ecommerce
Our friend Julien Fontaine founder of OpenString writes a fascinating case study (in French) about Sourced Craft Cocktails, a US startup that had been selling cocktails online since 2015. Prior to the Covid crisis, Sourced Craft essentially worked for corporate events. Like most companies in that field, they saw their business disappear overnight when covid shut down most events.
In just 3 days, Tim Angelillo, the CEO, pivoted to B2C. He identified both the demand of locked-down consumers and the opportunity of thousands of unemployed baristas. He ended up growing 800% during the pandemic and delivering cocktails to 2000 customers a week.
Sourced Craft Cocktails is the archetypal startup success story, with all the ingredients
Drama: nothing beats losing all your business overnight
Resilience: if life gives you lemons, make margaritas
Insane reactivity: yes, you can launch a new offer in 72h
Tech stack: it’s no magic, it runs on SaaS tools
Dancing with regulators: selling alcohol in the US is VERY constrained
Opening new markets : DTC omnichannel is the new normal
Well worth a read.
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Spring Invest is a French investment fund dedicated to companies that are shaping the future of commerce. 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.