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This week we look at the recent trend shared amongst all eCommerce companies during Q2, the great slowdown has begun. While a slowdown can be challenging, the eCommerce companies discussed how their business models will or will not be adaptable as things progress, especially with the rising cases of the Delta variant. We analyze everything three big eCommerce companies this week and analyze the future implications.
And as always, download my 130 slide consumer research deck looking at the future consumer in 2021, It’s a ton of primary research, and you can download it for free.
3 Stories
Amazon Q2 revenue falls short of estimates, Q3 forecasts disappoint - Yahoo Finance
In Q4 2020, Amazon had its first-ever $100B quarter, and for Q2 it registered $113B but missed its $115B revenue target. Amazon exceeded its earnings per share $15.12 versus $12.22 expected, which is a byproduct of growth in its better margin businesses, but also its expansion of private label products. As Amazon became a critical piece of infrastructure for so much of America during the pandemic, any trends coming towards Amazon are a greater indicator of the overall eCommerce ecosystem. The big drop did not come from just the missed revenue of Q2, but due to their future guidance indicating that Q3’s revenue will not exceed the $113B they could generate in Q2. This eCommerce slowdown spooked the market as it shows that the eCommerce slowdown is here.
Wayfair makes a profit as Q2 sales spike 84% - Retaildive
Wayfair’s stock improved the greater story is that demand for Wayfair also saw a slowdown. But once again it’s all about the narrative as Wayfair saw revenue fall 10% year over year and didn’t meet expectations, however, they could beat their earnings per share by 64% showing that Wayfair’s been able to find a profitable way to sell home goods online. Slowing visits to the site because of the shift in demand from the pandemic saw a 26.5% decrease year over year. Another troubling concern is that orders from repeat customers decreased 17.6% year over year. The pandemic helped Wayfair gain 18 million new customers over 2020, but Wayfair will need to keep those customers coming back for more.
Etsy CEO touts fashion resale app Depop acquisition, opportunity to reach young shoppers - CNBC
Etsy barely exceeded both revenue and earnings forecasts but laid bare the true future of the platform. Etsy’s recent M&A buying spree indicates that despite any eCommerce slowdown, Etsy has a far more robust future ahead. By owning Depop, Reverb, and Elo7, Etsy is owning a variety of audiences segments, as Depop holds relevance with Gen Z, Reverb holds relevance with musicians and Elo7 for the South American outfit. So ignore the stock price drop, and the slowing eCommerce demand, Etsy’s M&A strategy has allowed them to diversify their GMV and weather any eCommerce slowdowns.
2 Takeaways
The eCommerce slowdown is here
Last week, Amazon reported their Q2 revenue and showed that the rapid growth in online shopping during the pandemic may slow down, and it dragged down the entire eCommerce sector. Earnings from Etsy and Wayfair also confirmed that insight, as both reported revenue slowdowns. The bump from the pandemic drove eCommerce habits as in Q1 2021, we saw eCommerce make up 13.6 percent of US retail spending up from 10.2 percent in the same period in 2019. When Amazon executives talk about a slowdown in the space, because of lockdown restrictions and demand for normalcy again, it is worth heeding. Even though growth has slowed, eCommerce is still growing, and for many consumers who have changed their habits, many eCommerce merchants will not be giving back market share to brick-and-mortar alternatives. These merchants just won’t be on a one-way trip to the moon.
eCommerce companies that used the pandemic bump to diversify their business model will continue to see sustained success
Leading companies always knew the slowdown was coming. The ones that will make it out on the other side created a vision that allowed them to maintain that longevity. The eCommerce bump we saw in 2020 is slowing down, which doesn’t mean that eCommerce companies are in an inferior position. Instead, the leading eCommerce companies used the bump from the pandemic to diversify and strengthen their revenue. Retail now only comprises 50% of Amazon’s revenue, the other 50% of its revenue comes from their services business (AWS, Prime, marketplace, and advertising). Now retail fuels a lot of those additional services, and is the fuel for its flywheel, but Amazon is no longer as dependent upon the success of its retail business. We see Etsy do the same thing over the years as it acquired Depop, Reverb, and Elo7, all businesses that have diversified Etsy and have grown its GMV as the main site saw a slowdown. Being able to sell different items to different consumers is the guaranteed recipe of growth for any peer-to-peer commerce site, Etsy, through its long-term vision is betting that these acquisitions will enable them to continue growing in the future despite any slowdown from returning to normalcy. Everyone talks about the growing concern of delta every day, but we know another global lockdown is not in the cards. eCommerce merchants/companies need to navigate the changing needs of the consumer through diverse offerings. This type of long-term vision will become a requirement rather than just a benefit.
1nsight
With the new normal of pandemics, e-commerce needs to focus on building better habits with their consumers
One of the common themes across all the eCommerce news is that topline revenue has been behind forecasts, however, earnings have beaten most forecasts and estimates. This reflects the consumer behavior change as users are now either purchasing items more frequently or are purchasing more expensive items through eCommerce than ever before.
The consistent 100% or more QoQ or YoY revenue growth for eCommerce companies has subsided as vaccines continue to get deployed and consumer habits have permanently changed. But that doesn’t mean that businesses should dismiss any changes made to attract or acquire customers should, instead, the next frontier will learn how to activate all those customers that were acquired during the pandemic. Standing home office desks, new televisions, or new Sonos speakers can only happen so often, and as businesses adapt to their consumer’s new behaviors, they’ll need to activate them across their consumer journey and need to have a wide enough variety of products to meet those needs.
Every marketer or retailer often time talks about Gen Z, but what everyone cannot recognize is that the pandemic affected millennials far more than any other cohort. For so long, everyone has used the standard definition of experience seeking, city-dwelling, and carefree twenty-something consumers when referring to the millennials. That narrative misses the larger opportunity that exists, which is millennial parents. The oldest Millennials are now in their early 40s, while the sub-25 set has seen its population decline over the last five years. Millennials are now in their late 20s, 30s, and 40s, and their priorities have shifted. The pandemic only sped up some of those trends. Renting is out, homeownership is in, time and money spent on first dates have now become babysitter and plant or animal expenses, and closing down the bar transitions into quieting the baby at 3:00 am. As well, millennials have more flexible careers. They’ll be able to continue working from home and with that have different needs and live in different family systems, nuclear families, nannies, home-school pods, etc. As well, millennial parents’ fitness habits, entertainment consumption, and social media usage will continue to change. Finding brands or products that are appealing to the entire family will be a consistent theme for this cohort. This 100M cohort and the changes they make will soon dominate every companies product roadmap.
As this segment goes thru their transition from experience-seeking, music festival loving, and YOLOing consumers to the grill dad or mom baus, companies can now leverage eCommerce habits to help win and keep this consumer as they dramatically overhaul their lives, trading in their metro pass for keys to an electric sedan.