Daily Consumer #21 - Peering Into the Supply Chain Gridlock
Plus video games are becoming the new malls with Adidas, Nike, Forever 21, Balenciaga, and the NFL all taking up space.
Peering Into the Supply Chain Gridlock
As consumers, it’s easy to take ecommerce for granted. Click a button and a product appears a little while later at your door. Behind the scenes, the product that we ordered changes hands up to 10 times before the item arrives. The complexity of making ecommerce happen is high.
The pandemic that we’ve experienced over the last 2 years has made these operations even more complex. A few key things occurred:
Consumer demand exploded. Prior to the pandemic, consumers would often go to stores to buy things and would also spend a lot of their money on services (think a massage, haircut, theme park visit, etc.). Due to the pandemic, consumers stayed in their homes which shifted all of their product spend to ecommerce and also increased their spending on products as a result of not leaving the home to visit service providers.
Labor tightened. Across the supply chain, labor was harder to procure as a result of the pandemic. Many manufacturers had to shut down due to Covid outbreaks and logistics firms found it hard to find labor to move goods. Also, stimulus checks disincentivized a certain percentage of workers from working low-paying jobs.
Logistics assets (trucks, ships, ports) became overwhelmed. Gridlock started forming as a result of an all-time high amount of goods being imported to meet the growing consumer demand. Ports began to be overwhelmed, as did trucking capacity to take containers from ports, and warehouse space to ingest those items. All of this built on itself to cause longer times to get goods through the chain (ex. with ships idling to unload goods at ports, there are now less ships to transport other goods).
So where do we go from here? A few predictions:
Fighting the backlog will continue. 2022 will continue to be a year of fighting through the gridlock. Companies like Flexport are finding innovative solutions to increase logistics capacity. However, we may not see much improvement if the Omicron variant drives another wave of shutdowns.
Automation will become a focus within warehouses. Labor is getting more expensive. And we already have technologies that can automate the movement of goods at various layers of the supply chain. For example, Vecna offers autonomous pallet jacks that can move pallets around warehouses with no human involvement and our portfolio company Covariant offers autonomous robotic arms that automates the process of picking and packing goods into boxes. Even if labor is cheaper, the reliability of robotics may lead to increased investment in the technology.
Domestic manufacturing may resurge. If you produce goods closer to your demand, you can eliminate a few steps from the supply chain (see the graphic above). The question though is whether the economics of moving manufacturing domestically makes sense given how expensive domestic labor is on a relative basis. The NY Times goes deeper on this.
Predictive inventory software will emerge. Brands today place orders with manufacturers in a relatively manual manner, largely involving Excel sheets and email. Often times, these orders don’t account for current transport times or demand patterns. I’m certainly on the lookout for software that can bring an added layer of intelligence to how brands think about what quantity of goods to order at what time. Some early examples are emerging which you can see in the ‘Software’ part of the Funding and Exits section below.
This post was inspired by a recently published interview with Ryan Petersen, the founder/CEO of Flexport. I think that’s worth a read as well. Lastly, if you have some hunches or views on the state of the supply chain, I’d love to hear them.
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Affiliate Marketing. Instagram is rolling out in-app affiliate shops in partnership with 100+ brands and retailers like Sephora, Charlotte Tilbury, BareMinerals, and Zara. Shots fired at LikeToKnowIt.
App Downloads. Shopee (203M downloads), Shein (190M), and Meesho (153M) bested Amazon in terms of global mobile app downloads.
B2B Commerce. JuniperMarket launches its B2B marketplace matching 3M products from 1.5K brands with 600K retailers. Is focused on home decor, gifts, furniture and apparel and offers net 60 day terms for buyers on the platform. Sounds a bit like Faire who I’d have my money on.
Collaborations. Zara is increasing its number of collabs, especially in emerging areas like activewear for which they partnered with TRX.
College Athlete Marketing. Student athletes are on track to make $580M in endorsements since regulations changed to allow them to monetize their image.
Crypto. Visa partners with 60 of the leading crypto platforms, like FTX, Blockfi, Crypto.com, Coinbase, and Binance, to launch card programs that make it easy for consumers to convert and spend digital currency. “At the end of the day, we want to serve as a bridge connecting the crypto ecosystem with our global network of 80M merchants and more than 15K financial institutions.”
DTC. Abercrombie is investing in its DTC ecommerce store. “Speed matters. How do we get the customer to the right product in the fastest amount of time possible?.. Our next step is augmented and mixed reality experiences so people get a better understanding of a 3D view of a pair of jeans or a t-shirt or a dress.”
Earnings Spotlight. Nike reported their fiscal Q2 earnings in late December for the period ending November 31st, 2021. Saw revenue grow 1% YoY to $11.4B. Growth was hindered by large manufacturing interruptions in Vietnam. DTC accounted for $4.7B revenue and grew 9% YoY. Nike plans to accelerate its investment in DTC in 2022. Net income grew 7% YoY to $1.3B. More recaps from other companies here.
Fast Fashion. A profile of Shein, the newly crowned global leader in fast fashion. “Comparisons to fast-fashion giants like H&M miss the point: it’s more like Amazon, operating a sprawling online marketplace that brings together around 6K Chinese clothing factories. It unites them with proprietary internal management software that collects near-instant feedback about which items are hits or misses, allowing Shein to order new inventory virtually on demand. To convince suppliers to join its system, Shein had to meet only a very basic bar: paying them on time. Receiving timely payments is a huge problem for factories in China.”
Food and Beverage.
Amazon now operates 23 physical Fresh grocery stores, which also contribute to their national grocery delivery service.
Amazon may be rolling out an Instacart-like service in the US and UK. “Prime subscribers in the UK can now use the Amazon app or website to order groceries from two major UK supermarkets, with same-day delivery fulfilled by Amazon Flex drivers.”
Headless Commerce. TotalRetail explains how they see the tradeoff of headless ecommerce architectures. “Would you prefer a tightly integrated solution that just works, at the expense of your ultimate creative expression?”
Holiday Shopping. Mastercard claims holiday sales rose 8.5% YoY, with in-store sales up 8.1% YoY and ecommerce up 11% YoY. Apparel and jewelry grew the fastest.
Inflation. IKEA is raising prices by 9% to offset increasing costs. “IKEA continues to face significant transport and raw material constraints driving up costs, with no anticipated break in the foreseeable future.”
Live Shopping. A quick primer on how live shopping works in China. It all centers around the streamers. “Top influencers develop their own popularity with shoppers as well as with brands.”
Working off the My Work feature piece, The Washington Post shares case studies on the rising logistics costs faced by brands.
Supply chain challenges extend to food as well. Farmers are finding it tough to find workers and transportation for their goods. One particularly constrained item is ketchup packets - Heinz was unprepared for a huge surge in demand as the restaurant industry shifted to takeout/delivery.
Walmart is hiring 3K drivers to expand its InHome service, which delivers groceries directly to customer’s refrigerators, to 30M US households in 2022.
Meituan, the Doordash of China, has used drones to deliver 19K meals to customers in Shenzhen over the past 2 years.
Marketplaces. A great “year in review” looking at the progress of Amazon, Ebay, Walmart, Wish, Target, Google in 2021. “Instead of expecting Target, Wish, Google, eBay, and many other companies that promised to be challengers to deliver, the opportunity arrived in the form of Shopify. The concept of an “Amazon seller” or a “marketplace seller” is the past. The now is sellers.”
68% of Gen Zs and 61% of Millennials consider themselves to be gamers. See slide 28 of the linked deck.
Forever 21 is partnering with Roblox and will let users own and manage their own virtual Forever 21 stores in a competitive game to become the top manager. “As Forever 21 releases new collections in its physical and ecommerce stores, Forever 21 Shop City will simultaneously offer the ability to add the same merchandise to each store or buy it for one's Roblox avatar, reflecting how shoppers increasingly jump between physical and digital realms in the journey to making a purchase.”
The NFL is partnering with Roblox and launching NFL Shop where users cans dress their Roblox avatars with NFL-branded helmets and jerseys.
Balenciaga is all-in on the metaverse, largely at the discretion of Demna Gvasalia, the brand’s chief designer. They recently released digital clothing in Fortnite and hosted a VR fashion show.
Adidas brought in $23M via their drop of 30K NFTs in December. The collection was conducted in collaboration with three big names in the space: Bored Ape Yacht Club, Punks Comic, and gmoney. “The NFT holders will get both physical and digital perks. On the physical side, holders will gain access to physical merchandise in 2022—the iconic adicolor Firebird tracksuit, a graphic hoodie, and gmoney’s classic orange beanie. On the digital side, holders will be able to attend virtual events in the metaverse throughout 2022 and beyond.”
More on Nike’s plans to experiment with NFTs after acquiring RTFKT.
Shopify started a beta program to allow brands to mint and sell their own NFTs.
Gamestop is building its own marketplace for NFTs which it plans to launch in Fall 2022.
Ferrari partners with Velas Network, a NFT company. Velas will be Ferrari’s exclusive partner to create digital content for Scuderia fans (Ferrari’s racing team).
Private Label. Target launches a private label home organization brand called Brightroom that features more than 450 products across bath, closet, decorative, kitchen, laundry and more.
Retail Media. Best Buy announces Best Buy Ads, an in-house media company that will sell ads on Best Buy properties. Now that Amazon has advertising revenue, all retailers want it.
Returns. Amazon now has thousands of locations where consumers can handover items for return without a box or label including UPS Stores, Kohl’s, Whole Foods, and Amazon-branded stores. Happy Returns, now part of Paypal, was the pioneer of this though.
The Information examines the rise of 15-minute delivery players and the profitability challenges they are running into. “Fridge No More has called itself the largest instant-delivery player in New York, with 20 dark stores as of September. But the firm at the time was losing cash on every order even for its first-established 11-month-old dark store.”
SkipTheDishes, the Doordash of Canada, is expanding into grocery delivery. “Will open 38 fulfillment centers by the middle of 2022. The new service delivers groceries and everyday essentials in 25 minutes or less.”
Search Engine. An argument that Google isn’t great for a lot of searches and that vertical-specific search engines will emerge. I totally agree and expect we’ll see one specific to the needs of ecommerce. My bet is on my portfolio company Lustre.
Shopify. An awesome profile of Shopify founder/CEO Tobi Lutke. He shares his management philosophies like the concept of a Trust Battery, his belief in remote work, why Shopify is investing in logistics, and a look into how Shopify acquired Webstore, a website builder tool owned by Amazon that had 80K brands using it, for a meager $1M!
64% of customers think brands should stand for something beyond profit. 32% of Gen Zs and 42% of Millennials will not buy from a brand if the brand doesn’t take a stance on important social issues. See slides 25 and 28 of the linked deck.
Figs donates 10K pulse oximeters to its first 10K customers, who are largely healthcare workers, who made an order after January 5th. “As we find ourselves in the middle of another surge of COVID-19, it is critical that everyone have access to all available tools to assist in protecting their health. An oximeter can be an early detection tool for respiratory problems, including from COVID-19.”
Instagram releases its first ever trends report. Predicts the rise of bold fashion, growth of digital thrifting, the emergence of native shopping on social apps, the rise of visual music experiences, continued clashes between teens and the historical conception of work, growing interest in cooking, games becoming the new malls, and the continued rise of social activism.
Instagram is testing 3 new versions of its home feed.
A good summary of social media trends for brands to be aware of. TLDR: micro-influencers, video, authentic over perfect, focused on diversity and inclusion, lean into collaborations, lean into using UGC for your marketing.
Spinoffs. Activist investors are taking the knife to retailers. After Saks decided to spinoff its ecommerce business, Nordstrom is now evaluating spinoff its Nordstrom Rack off-price business.
Levi’s is launches its trademark 501 jean in sustainable form, with the updated product featuring organic cotton, post-consumer recycled denim, and Circulose, a polymer made from a recycling process using renewable energy and no water.
Adidas and Allbirds release the Futurecraft Footprint shoe, a limited edition collaboration that resulted in both brands’ most sustainable product to date.
Chanel is launching its first clean beauty line, No. 1. The key ingredient is red camellia, a flower that the brand has been studying for 10 years. The packaging with be made from 80% recycled materials and certain products can be refilled in their glass packaging.
Amazon has a few valuable connected TV assets in Fire TV and Prime Video. Now it’s planning to make ads shown on these properties “one-click” shoppable.
Amazon claims to have sold >150M Fire TV streaming devices worldwide.
Disney+ is now the 3rd largest subscription video service after Netflix and Amazon Prime Video.
Funding and Exits
Apparel. Sean ‘Diddy’ Combs acquires Sean Jean, the fashion brand he started, for $7.5M and saved the brand from bankruptcy.
Fabric. H&M acquires an 11.5% stake in Renewcell, a public company that makes Circulose, a polymer made from used cotton and cellulose fibers that is sustainable and can be used to produce clothing. Levi’s used Circulose in a recent launch of their updated 501 jean (see News).
Food and Beverage.
Future Meat raises $347M from ADM Ventures for its cell-grown meat products. Plans to build a 13K-gallon production facility in the U.S.
Remilk raises $120M from Hanaco Ventures at a $325M valuation for its dairy-free milk that it claims to be indistinguishable from the animal-based originals.
Liquid Death raises $75M from Science for its canned water product. “Revenue reached nearly $45M last year, up from $3M in 2019 when the company sold its first can.”
Yumi raises $67M from Jazz Venture Partners for its nutrition-focused baby food brand. “Claims to feed 3% of all babies in the US. Expects nearly $100M in sales in 2022.”
Crocs acquires Hey Dude, a privately-owned comfort-focused footwear brand, for $2.5B. “Hey Dude does more than 40% of its business online and is expected to bring in roughly $570M in revenue in 2021.”
Alpargatas, the owner of Havaianas, acquires a 49.9% stake in Rothy’s, a sustainability focused footwear brand, for $475M. “Rothy’s brought in about $140M in net revenue in the year leading up to November and is meaningfully profitable.”
Outdoor. Vista Outdoor, a portfolio of outdoor brands like CamelBak and Remington, acquires Stone Glacier, a fast-growing hunting gear brand.
Packaging. Woola raises $2.8M from Future Ventures for its sheep wool based packaging that is replacing bubble wrap. “Sheep wool is an unused resource — more than 200K tons of wool is thrown away in Europe yearly. Woola says this is enough to fulfill 120% of the global bubble wrap demand.”
Skincare. P&G acquires Tula Skincare, a probiotic-based brand that was rumored to be on track to reach about $150M in revenue in 2021. “When we look at our beauty strategy, we want to win in beauty in the categories we choose to play in - skin, hair and personal care, categories where the clinical performance of the products makes a difference.”
Sunscreen. Blackstone acquires a majority stake in Supergoop at a rumored $600-700M valuation. “It’s a category that’s relevant 12 months a year.”
Trading Cards. Fanatics acquires Topps, the maker of licensed trading cards and collectibles, for $500M.
OfBusiness raises $325M from Alpha Wave Global, Tiger Global and SoftBank at a $5B valuation for its B2B marketplace connecting industrial goods suppliers to small businesses. “Our commerce business’ revenue grew by fourfold this year to $1.7B with a net profit of $42.5M.”
Bizongo raises $110M from Tiger Global at a $600M valuation for its B2B marketplace allowing customers to design, develop and procure packaging products. “Says its annual recurring revenue exceeded $250M. Altogether, it boasts more than 135 enterprise customers spread across industries including fashion, pharmaceuticals, consumer staples, home and personal care. Its network, meanwhile, has grown to cover more than 3K factories across India and elsewhere.”
Captain Fresh raises $40M from Tiger Global and Prosus Ventures at a $200M valuation for its India-focused marketplace connecting seafood suppliers with retailers. “Currently works with 2K businesses a month and retails about 1.2M kg of seafood every month.”
Tazah raises $6.5M from Fatima Gobi Ventures and Vibe Capital for its Pakistan-focused marketplace connected fresh produce suppliers with retailers. “Claims to have grown to an annualized GMV of $7M.”
Grocery. Kurly raises $210M from Anchor Equity Partners at a $3.3B valuation for its Korea-focused online grocery service. “Claims a total of 10M users and of that amount, more than 2.4M are MAU.”
Influencer Marketing. Nu Skin acquires Mavely, an affiliate-based marketplace matching creators with brands to promote. “Wants to supercharge social selling for millions of Nu Skin brand affiliates.”
OpenSea raises $300M from Paradigm and Coatue at a $13.3B valuation for its NFT marketplace. “OpenSea saw more than $2.4B in transaction volume in the past 30 days alone, hauling in some hundreds of millions in fees last year. Transaction volume increased over 600x last year.”
Rec Room raises $145M from Coatue at a $3.5B valuation for its social gaming platform that spans VR, mobile, and console. This is a portfolio company of mine should you be interested to talk to them!
Dunzo raises $240M from Reliance Retail at a $775M valuation for its India-focused 15-minute retail service that is live in 7 cities.
Zepto raises $100M from Y Combinator’s Continuity Fund for its India-focused 10-minute grocery delivery service. “Said its month-on-month buyer retention is 65% and has built a network of micro-warehouses, each of which has a capacity to do over 2.5K orders a day. Are now adding 100K new customers every week, with 60% of them women.”
Cars24 raises $400M from Alpha Wave Global at a $3.3B valuation for its India-focused, Carvana-like used car marketplace. “Has some 13M monthly visitors to its site and has sold over 400K vehicles to date.”
Carsome raises $300M from Temasek and QIA for its SE Asia-focused user car marketplace that works with 8K dealers and handles 100K transactions annually.
3D Scanning / Fitting.
Avataar raises $45M from Tiger Global for its 3D scanning software that helps India-based DTC brands and marketplaces better visualize their products digitally. “Given the camera is the homescreen, you see significantly higher engagement time and brands are witnessing more than 3.5x sales conversion.”
Volumental raises $13M from CNI for its 3D scanning software to simplify sizing. Is being used by “100 leading brands and retailers.”
Customer Data Platform. Blueconic raises an undisclosed amount from Vista Equity Partners for its customer data platform that creates a unified profile of a brand’s customers and is used by over 300 customers including Heineken and VF Corp.
Fraud Prevention. Bureau raises $12M from Quona Capital for its fraud/chargeback prevention software focused on serving businesses in India and SE Asia.
Sage Group acquires Brightpearl, an inventory management system and ERP for $360M. “Brightpearl is expected to bring in $27M in revenue for the year ending in December 2021. That represents around a 50% YoY growth.”
Focal Systems raises $26M from Point72 Ventures for its perpetual inventory software that leverages low-cost shelf cameras to digitize shelves and reduce out-of-stocks. Has 50K+ cameras deployed.
Cogsy raises $5M from Accel and Bain Capital Ventures for its inventory management software that automatically forecasts sales, creates recommended purchase orders, visualizes purchasing patterns, and turns out-of-stock products into revenue streams by facilitating backorder purchases while keeping the customer in the loop on expected shipping dates.
Preorders. Purple Dot raises $4M from Unusual Ventures for its software that helps fashion brands enable a waitlist and preorder for products.
Returns. Optoro raises $25M from Zebra Technologies for its returns software platform. “With an already fragile supply chain, retailers need solutions now to efficiently manage returns, and to get goods back to stock or secondary markets as quickly as possible.”
Search. Nosto acquires SearchNode, a cloud-based ecommerce search company. “In joining Nosto, we'll be able to pair SearchNode’s natural language processing search technology with Nosto’s market-leading personalization and merchandising capabilities to deliver not only the most relevant search results but also a unique and most advanced out of the box offering to optimize site-wide experiences.”
Subscriptions. Skio raises $3.7M from Adjacent to enable ecommerce brands to offer products on subscription.
Assent Compliance raises $350M from Vista Equity Partners at a $1B valuation for its supply chain sustainability management software. “Will cross $100M in ARR this year after growing ARR by over 50% in the past 12 months. Its customers include the likes of GE Appliances, Polaris, Stryker and Escatec.”
SupplyShift raises $10M from Buoyant Ventures for its software that helps brands quantify and manage their supply chain-related emissions.
B2B BNPL. Rupifi raises $25M from Tiger Global and Bessemer for its India-based, B2B-focused BNPL service to enable marketplaces like Walmart, Flipkart, and Jumbotail to offer financing to their business customers.
B2C BNPL. Addi raises $200M of debt and equity from Softbank and GIC at a $700M valuation for their Latam-focused BNPL service. “More than 500K customers and 1K retailers are using its system, compared to around 30K customers and 20 merchants a year ago.”
Lending. Ampla raises $40M of equity from VMG and Forerunner Ventures and $250M of debt to provide lines of credit to SMB brands to be used to finance inventory and marketing. “Has more than 200 customers, including Partake Foods, Bev, Good Planet Foods and Serenity Kids. Says that its monthly transaction volume has grown over 300% in the last 12 months.”
Neobanks. Petal raises $140M from Tarsadia Investments for its credit card product that helps users build credit and spend frugally. “Petal has tripled its user base in the last year and seen its monthly revenue quadruple.”
Payments. RazorPay raises $375M from Lone Pine Capital, Alkeon Capital and TCV at a $7.5B valuation for its Stripe-like payment platform focused on merchants in India and Southeast Asia. “Processes $60B in transactions annually, up from $5B in 2019. Says it has amassed over 8M businesses including Facebook, Swiggy, Cred, National Pension System and Indian Oil among its customers. Of the 42 startups that have become unicorns in India this year, 34 of them use Razorpay.”
Payment Orchestration. CellPoint Digital raises $25M from Toscafund and Penta Capital for its payment platform that allows online merchants to adopt a multi-acquirer payments model.
Cloud Kitchens. CloudKitchens is rumored to have raised $850M at a $15B valuation. “The company, founded by Uber co-founder Travis Kalanick, owns more than 50 active locations in the US and dozens more internationally, providing kitchen space that established restaurants and food startups alike can rent and prepare delivery-ready meals from. Customers include major brands like Chick-fil-A and Applebee's. Meanwhile, CloudKitchens' software product, Otter, aggregates online orders for both CloudKitchens customers and regular restaurants. One former employee estimated that Otter could be the fastest-growing US software company, though the company keeps specifics on revenue and other metrics close.”
Lineage Logistics raises $1.7B from BentallGreenOak, Cohen and Steers, D1 Capital Partners, and others for its temperature-controlled storage and fulfillment network. “Has 400 strategically located facilities totaling over 2B cubic feet of capacity which spans 19 countries.”
Whitebox raises $20M from Delta-v Capital for its fulfillment services business and marketing agency that works with brands like Ricola.
Last-Mile Delivery. Veho raises $125M from General Catalyst and Construct Capital for its tech-driven last-mile delivery service that is live in 14 US cities. “Giving package recipients greater insight and control, Veho lets them know the time in the day when they will receive their package, when the driver is en route, and enables real-time rescheduling, address changes, and personal delivery instructions. More than 7 in 10 recipients are choosing to interact with Veho about their package delivery, showing the company is meeting a need.”
Product of the Week
With NFTs all the rage, I thought I’d make the recently-dropped Adidas NFT the product of the week. Full transparency, I do not own one. Buy it here.