Hello, it’s Alexandre from Spring Invest, a French investment fund dedicated to RetailTech. Welcome to the latest edition of Retail Chronicles, our bi-monthly newsletter about emerging trends in retail and new commerce.
❓ The DTC party is over, what happens next?
For a while, the DTC playbook was golden: Start with a commodity product, something like dish soap or underpants. Give it a modern design and wrap it in minimalist packaging. Include a pastel background in the impeccably staged product photos, which splash across a Shopify-powered e-commerce site flanked by sans-serif fonts, punchy copy and a message about the company’s alignment with a social cause.
BUT… founders are deviating from the DTC playbook in one important regard: they are committed to being profitable. In this excellent article, Built In explains the two main reasons why the DTC model is falling apart :
Growth tactics hit a ceiling: ten years ago, running ads on Facebook and Instagram worked too well, creating a massive gold rush, but this movement drove up the cost of advertising and for many brands, it is no longer cost-effective to saturate social feeds.
Poor unit economics come home to roost: too many DTC brands are struggling to square their high production and shipping costs with the average order size of their customers, not to mention the generous coupon policies and the no-questions-asked return policies. This problem is even exacerbated if the company’s flagship product is a one-time purchase.
At Spring, we also believe the DTC (more specifically the DNVB) model has been the victim of its own success. That is precisely why we are seeing a new model emerging: ONVB (Omnichannel Native Vertical Brand), as we wrote in our latest article.
🔝 Supply Chain at the top of C-level’s agenda
The COVID-19 pandemic has revealed how fragile lengthy, complex supply chains can be - and how much society has riding on their continued smooth functioning. For that reason, CEOs and other leaders are pushing supply-chain resilience to the top of their agendas.
Since 2000, the value of intermediate goods traded globally has tripled to more than $10 trillion. During the same period, indicators of supply-chain efficiency—inventory levels, on-time, in-full deliveries, and lead times—improved for those businesses that created lean, global networks. But just because a supply chain is efficient and cost-effective doesn’t mean it will be resilient, as shown by global disruptions ranging from Japan’s 2011 earthquake to this year’s pandemic. In each of the past several years, at least one company in 20 has suffered a supply-chain disruption that cost at least $100 million. The bottom line is that building flexibility and resilience into operations has become business-critical, and so organizations need a new approach to managing supply-chain risk.
McKinsey recently surveyed 60 senior supply-chain executives about the pandemic’s impact and their next steps. Nearly all of them said the crisis had revealed weaknesses - in production and distribution, with their suppliers, and from inefficient digital technologies - that they’re working to address…
Thankfully, more and more technology solutions are coming to the market to address those issues as for the past 18 months, supply chain & logistics startups have received more than $20Bn in funding (worldwide) in more than 1100 transactions (CB Insights, Retail Report H1 2020).
📱 Retailers are seeing app downloads surge
As customers continue to do more of their shopping online, retailers are also seeing huge increases in the number of customers downloading their apps. Aside from the fact that people are shopping more online, retail app usage is also increasing because of a few other shifts in shopping behavior :
The coronavirus has led more shoppers to try out services like curbside pickup, and many retailers encourage shoppers to view status alerts for these types of orders through their mobile apps.
Retailers (like Nike) have also tried to encourage shoppers to use their apps more for things like contactless payment in-store, or to learn more about a product without having to come into close contact with a store employee.
The retailers who will get the most out of the current increase of app downloads are the ones who offer enough unique services through it that will convince shoppers to use it regularly. More here.
⚔️ Walmart is launching its membership program
Walmart unveiled its new membership program, Walmart+, which ties together unlimited free delivery from stores (4700, of which 2700 offers delivery as fast as the same day) and other benefits. The service costs $98 a year, or $12.95 a month, with a free trial period.
The comparisons between Walmart+ and Amazon's Prime membership service is obvious: they both trade upfront fees for costless delivery per order, potentially making customers stickier to the retailer through the subscription.
Historically, Walmart has highlighted its lack of a subscription fee in its marketing as it was a potential competitive advantage over Amazon that consumers could receive free shipping on orders over $35.
The problem is that Walmart has still a long way to go if it truly aims to build a direct competitor to Prime. Part of the latter's value to customers is access to video and music content, along with other assorted perks and services. For a single fee, Prime customers get both an e-commerce and media service.
This is precisely why Walmart added additional services along with the unlimited delivery, including fuel discounts (up to 5 cents a gallon at nearly 2,000 fuel stations) and a Scan & Go checkout option for in-store shoppers (using the Walmart app, customers can scan items as they shop and pay using Walmart Pay).
Will it be enough? More here.
💰 The Playbook to raise a Series A
As there are more and more entrepreneurs reading this newsletter, we wanted to dedicate the last (but not least) section to them with an excellent article from Lenny Rachitsky who has recently built its playbook to raise Series A.
If you wonder if you are ready for a Series A, think about it as to whether you’ve proven your product-market fit or not. If so, you can apply Lenny’s excellent recommendations about the fundraising process :
Navigating the process
Partner meetings + closing
As you will see, the article is quite long and well documented but if you need to remember one thing from it, read this :
Ultimately, fundraising is an exercise in building trust.
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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 CPG companies, and Disrupters creating new models of distribution. Our investment approach relies on strong relationships with 50+ European Retailers 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.