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January Twenty


This midweek Fix goes deeper on everything retail - DTC / DNVB/ O2O/ Omnichannel  etc and we aim to give everyone involved in this vibrant new economy insight and tips that help make your business more efficient. Tell me how we can make this better  - hit reply.

Iconic Merchants - Argos is a little low key compared to some of the stores we have featured but they pioneered local delivery and this store was the sweet spot in their Accenture digital transformation

Lifetime Value
 
All the metrics that drive the Merchant economy need more scrutiny than they often get. The idea of one ‘average’ customer acquisition cost doesn't make any sense - as this VC analysis demonstrates
 
But the one we always question is Lifetime Value. This is a lagging metric, but everyone has to estimate it, not least to justify the customer acquisition cost.
 
So sometimes this can be wishful thinking. The key issues we have seen are around measuring and forecasting churn and understanding the real cost of returns.
 
The Common Thread team have interesting thinking about using Cash Multiplier as an alternative. And our friends at Nozzle have a neat way of approaching LTV for Amazon sellers - definitely worth a look

Action? Are you confident all your key metrics are robust?

Returns
 
Returns are a structural fault in ecommerce. Free returns are now table stakes but if you don’t handle the process well it can really damage you; annoying customers and costing you real money. Especially now that so many people treat returns as part of the buying process - buy a selection knowing you will return those that don't fit, you don't like or decide you can't afford. Managing the process is a hassle too - get the parcel back, check for damage, handle the refund and decide whether the goods can go back on sale and what preparation is needed.
 
Some big firms are testing a new approach - refunds without having to return. Amazon and Walmart will give a refund and let some customers keep items they don’t want . You could argue that Casper started this - they pioneered free returns, after as much as 100 days - but often manage the returns through local charities rather than actually taking the surplus mattress back.

Action? What is the gold standard for returns in your sector? How do you compare?

Churn
 
Netflix is a great example of pioneering a DTC model - and we usually cover it within our thinking about newTV, but there is good learning here for Merchants.
 
The new Netflix numbers (for Q4 2020) are impressive - subscribers now number over 200m and ARPU is up to just over $11. At the start of 2018 they had 118m subscribers and ARPU was just under $10. 
 
But much of the growth was outside the US - just 17% of the years’ growth was in the US. So is the competitive heat driving some churn in the US? As ever the shareholder letter is a must read.
 
This good Bloomberg argues that some churn is inevitable - and talks of Hoppers; people taking out a subscription for a month and bingeing content, then cancelling and moving to a competitor to do the same.
 
This will be exacerbated by a new law in New York from next month that requires any service which auto renews to notify its clients that the renewal is due - and make the signing up clearer. Given the efforts of Amazon etc with dark patterns - now getting the attention of regulators - we can see this type of consumer protection spreading.
 
To be fair this is not an issue for Netflix - as they announced in their Q2 shareholder letter last year they automatically stop billing people who have stopped watching;
 

A very small percentage of our members have not watched anything for the last two years and although we make it easy for people to cancel their subscriptions with just a few clicks, they have not taken advantage of that ability. So we decided to stop billing them and will do so for members meeting the same criteria going forward. Like all of our former members, they can easily restart their membership in the future. While this change resulted in a slight hit to revenue, we believe that pro-consumer policies like this are the right thing to do and that the long term benefits will outweigh the short term costs. In a world where consumers have many subscriptions, auto-pause on billing after an extended period of non-use should be how leading services operate
 

The lesson for any DTC business; look after your customers and they will look after you

Action? How do you identify customers at risk of churn? Could you test ways to reactivate them?

Social 
 
Back in November we covered the launch of the Snap Spotlight service and highlighted their focus on Creation;
 

Snap have a new feature called Spotlight where they encourage people to publicly post videos - with a $1 million a day handed to the creators of the best ones. Clearly an attempt to get more TikTok like content, but with the safety net of incentives to keep the quality of the content high. One issue we hear about TikTok is that there is a lot of dodgy content  - to be fair this tends to be from light / new users where the algorithm possibly hasn’t quite sussed them yet. Snap have also acquired Voisey - a UK app that lets people add their own vocals to music. Yes that does sound quite like Musically, the app TikTok was born from.
 
As the app features blend, what differentiates them? This piece argues that it is about the network, but also making the point that Snap is still all about creation;
 
TikTok and Instagram open straight to the feed — and in fact, Instagram recently moved the post creation button out of the main toolbar altogether — but Snapchat still opens to the camera.

 
Already Spotlight is paying $millions to Creators - one has been paid over $3m over the last few weeks. We guess that the math also works for Snap here - they sell eyeballs to advertisers, so more eyeballs is good. 
 
The New York Times ran this story under the banner of The Influencer Economy. And new moves on TikTok underline this term - many creators are monetizing through Amazon Product recommendations.
 
We are fascinated by MSCHF but they keep a low profile so any coverage is interesting - and this video investigation is worth watching.
 
Last Mile 
 
I watched a good Founder Forum webinar with the CEO and co founder of Delivery Hero this week, talking about Quick Commerce. They aim for 15 minute delivery and often achieve 11/12 minutes. So customer expectations are high. There are lots of startups in this space and the infrastructure - like warehousing - is driving investment.
 
Amazon
 
The marketing infrastructure at Amazon continues to grow. The Amazon Marketing Cloud (beta) looks really promising. 
 
An Amazon seller shares some insight into their business over the last year - looking at selling on Walmart and eBay too.
 
And there are lots of people - and capital - focused on buying Amazon sellers businesses. Thrasio is probably the highest profile
 
Plus+
 
Really interesting thinking from a Hedge Fund arguing that the death of retail has been overstated
 
Why the Cost of Shipping Goods From China Is Suddenly Soaring
 
Catalogues are back (online) - check out The Fascination and read more on them here 
 
Variety on the Netflix Q4 figures
 
Foreign Amazon sites named in US 'notorious markets' list for counterfeit goods
 
China Is Dominating Ecommerce
 
How personalization is transforming the luxury industry
 
Why VC funding is falling out of favor with top D2C brands - time to update my Bonsai Brands thinking?
 
Fastest-growing direct-to-consumer (DTC) startups 2020

And in case you missed any of our coverage of Merchant issues

Reprise - Merchant - December 11

In our deep dive on Wednesday we covered CPG & DTC / Luxury / High Street / Live Streaming (with UK examples) and Grocery Food & Delivery. Catch up here.
 
The distance between ads on Instagram and buying is shrinking. The latest example is the UK small business shoppable catalogue. Curated by creators, the catalogue is full of products from small brands that these creators rate. The form factor is intriguing - a PDF with clickable links.
 
L’Oreal are one of the most forward thinking CPG firms and walk the walk better than most. Their investment in AR firm ModiFace has been really effective - their app sits on a number of retailer sites - including Amazon - enabling people to try L’Oreal products. Now they have invested in Replika -  a social commerce platform. This quote from their CDO shows their ambition;
 
The rise of social commerce is a great opportunity for our brands to reinvent the consumer beauty experience worldwide. We are very excited to partner with Replika Software, a pioneer in the field, to create social commerce at scale. Our ambition is to crack this new channel and create a healthy and dynamic ecosystem of social sellers for the beauty category”

Reprise - Merchant - December 18
Still more momentum for Live streaming. Walmart is bringing live streaming to TikTok. The new A16Z report on this space is a must read. Shopatainment: Video Shopping as Entertainment. And Modern Retail look Inside Walmart's army of employee TikTok influencers
 
Smart DTC brands know the right retail partnerships can boost their growth - Function of Beauty have a one year distribution deal with Target and are translating their customised range to work on the shelves.
 
Good thinking from 2pm on how the DoorDash model can grow to be a local powerhouse

Reprise - Merchant - January 8
As Grocery delivery goes mainstream, the idea of outsourcing to someone like Instacart is being questioned. But others are dropping their own delivery service to use third parties
 
I think this is part of a bigger issue around the last mile. It is crucial for ecommerce and for food delivery and success or failure largely depends on utilisation; do you have enough deliveries to amortise across your labour costs? I think we will see consolidation, but a sector that depends on minimum wage employees on zero hours contracts may worry some customers. 
 
So does that leave the door open for someone to vertically integrate the store (or restaurant) with the delivery - accepting the loss on delivery as a (sort of) customer acquisition cost?
 
A Fix friend touches on these issues in a brilliant essay on the evolution of the meal, which goes into the continuum from a grocery store trip to a take out delivery 

Many of the categories used to pigeon hole Merchants are dissolving - Walmart is becoming an essential partner for many DTC brands. Can exclusive access to niche DTC brands play out like exclusive podcast content does for Spotify? Does brand discovery become part of a retailers repertoire, leading to their ad business becoming a significant revenue stream - like Amazon have achieved? This report looks at the potential of retailer ad platforms.
 
The discovery model used to be fulfilled by catalogues - older readers may remember flicking through hundred of pages of choices, then buying through a postal form. The smarter firms involved in this business have evolved to be leaders in home shopping - and innovations like Klarna are inspired by their business models. 
 
But now Instagram TikTok and Pinterest are racing to reimagine and redefine catalogues - what they are, what they do and what they enable
 
The Economist looks at how Chinese apps are to 21st-century shopping what American malls were to last century’s; The great mall of China - The next big thing in retail comes with Chinese characteristics

Reprise - Merchant - January 15
There are two big pieces on Trends in commerce that merit attention. The annual Shopify Future of Commerce is full of insight and lots of intra country comparisons. I think it’s very telling that one of their 5 themes is around Modern Finance. We hear that the traditional banks can be hard work for Merchants and we know that new ways of paying can have a real impact on sales. Making Klarna, Cash App etc work for you can be really effective/
 
And Faceboook have a content partnership with the FT to promote their Discovery Commerce concept. 
 
Surprisingly neither make a big thing of Live Streaming but the headlines continue. This Fortune opinion piece saying Live Stream is the next big thing has weight, as the author is the CEO of the company behind both QVC and Home Shopping Network.
 
A Fix friend @BionicBusiness shared this great story of one of their customers embracing livestreaming - a Buxton homeware store that books appointments on Facebook for a guided tour of the store - and purchases are mailed out the same day. 
 
The battle over the Last Mile continues. The FT looks at how today’s ecommerce companies are building logistics networks that will last for decades. 
 
Pointing to the success of the Doordash IPO, they make a comparison with the Dotcom bubble driving huge investment in the fibre optic cabling that makes broadband so accessible these days. Now building a logistics chain based on railway arches and minimum wage cyclists isn't quite as sexy, but it is equally forward thinking. They say;
 
Amazon recently struck a deal with the City of London to turn 39 underground car parking spaces close to the FT’s offices into a “last mile logistics hub”. Parcels will be dropped off at the hub, then ferried to their final destination by electric cargo bikes or on foot.
 
This need for a local solution has to influence what happens next to the UK supermarket chains. With the Asda Sainsbury merger now off the table Walmart still seem to want rid of Asda and Bloomberg believes PE firms are looking at Sainsburys. The logic for consolidation in the sector persists, but the need for Last Mile makes the high street stores even more attractive. And Sainsbury own Argos, who wrote the book on making local delivery work.
 
One key element of Last Mile are the food delivery businesses and JustEat have declared war on Deliveroo and Uber in London. They now have their own delivery service called Scoober and have been boosted by McDonalds and Greggs using their service. 
Action? There is so much opportunity for smart Merchants right now - I have expertise, experience and an extensive network. Let's talk about how I might help you - hit reply
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