Word from the Publisher:
?Since we last caught up, a few trends have started to proliferate around the most recent UPS Q2 Earnings report. I’d define those trends as follows:
Lower revenue per piece driven by a shift to slower moving delivery services.
- SurePost for the insiders
SHEIN and TEMU driving the majority of net new volume growth.
- not directly stated but who else could be ‘two large China to US sellers’
Amazon maintaining its size despite headwinds across US retail
- So if ecommerce is up and B2B is down, then Amazon’s dominance holds steady
The result was increased volume but lower profits, sending industry commentators into a frenzy. A proverbial dancing on the grave of the “Better not Bigger” strategy of 2020.?
But what if this strategy is still intact? What if the trends above are a short term headache that will subside and reveal the core brilliance of this strategy?
If you don’t think so, then let’s work through some questions that would prove the strategy wrong, with my quick thoughts:
Do you believe that consumer expectations will change from 2-day delivery to 5/10/15+ day delivery long-term?
- Absolutely not. Aldous Huxley’s Brave New World illustrates that instant gratification is a driving force for humanity. Certainly at this time consumers are willing to put off their gratification because of the potential cost savings (thanks inflation). But the data is clear that 2-day delivery reduces friction and drives more frequent ordering and sales. Overtime as price becomes less top of mind and experience is in fashion again, expect this near-term acceptance of 5-day delivery to return to 2-day, next day and 1-hour.
Quick, anecdote, I never felt more empowered than when I ordered a flash drive on Amazon and it arrived 2 hours later. The genie left the bottle and no one has shown me how to put a genie back in one.
Can TEMU and SHEIN sustainably continue growing on the backs of $2 hoodies and $9 Cole Haan dupes?
- Maybe, but certainly their network of manufacturers, suppliers and logistics carriers cannot award these razor thin margins long-term. It’s like a game of chicken. SHEIN and TEMU need access to US consumers for future plans of dominance and, their suppliers need volume to reduce the cost of their fixed assets. Eventually priorities will evolve and one of them will have focus on profitability. If suppliers blink first, then TEMU and SHEIN may be capped at how much volume they can push to the US without investing in their own planes, customs brokers and manufacturing facilities. If SHEIN and TEMU blink first, expect their newly higher prices to create an opening for local US brands to better compete with their now comparatively affordable offerings.
Will Amazon always be this dominant?
- Yes. No notes here. We all know it, they’ve won. Stop trying to beat them and just join the marketplace already.
So given the above, what is my opinion on the “Better not Bigger” strategy and overall implications for ecommerce retailers and providers?
Ecommerce volume is a means to an end and not the story.
Imagine this; in the mid-term, a future a supply chain of majority ecommerce apparel and durable goods volumes with a mix of higher margin healthcare and industrial products flowing as follows:
- Manufacturing: Semi-automated manufacturers that take in small and large orders and quickly turns raw materials into a selection of end products for pick up.
- First Mile Freight: Semi-automated trucks and planes that load the finished goods and travel to the end country or distribution center.
- Sortation and Distribution: Fully automated sorts that scan and push the goods into the relevant end zip code destinations.
- Middle Mile Freight: Return of semi-automated trucks that bring goods to their final warehouses for home delivery.
- eCommerce Last Mile: separation of low cost ecommerce goods into a network of crowdsourced drivers or small drones that offer consistent quality and low cost service using technology.
- Highly Profitable Last Mile: delineation of high cost healthcare or industrial products that flow through highly skilled full time drivers and experts using regulated and quality solutions.
In this view, global supply chains would be ‘Better’. Using the convenience and quantity of ecommerce volume to breakeven on hard assets while building the unique and margin accretive capabilities for other segments that can utilize a majority of the same network as the ecommerce volume.
UPS and FedEx seem highly aware of this midterm future. So maybe we hold off on the grave dancing.
*Disclosure: I’m an ex-UPSer who still bleeds Brown so take from that what you will.
And now, the newsletter. . .
Trading Down, a price elastic economy
- Driven by nearly 50% of purchases made on a mobile device and equal split of sales across both days, Amazon proves once again that Prime Dat is the go to shopping event of the summer.
- ?Private brands reached record highs in unit and dollar share in the first half of 2024, outperforming national brands in growth, with store brand revenue potentially surpassing a quarter trillion dollars for the year, according to Circana and PLMA data.
- Temu, owned by PDD Holdings, achieved a GMV of $20 billion in the first half of this year, surpassing its total 2023 sales of $18 billion, driven by significant growth in overseas markets, particularly the US, and reaching this milestone faster than competitors Shein and TikTok Shop.
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This year in Supply Chain
- Retailers with extensive global sourcing are likely to experience delays, higher costs, and potential shortages due to Red Sea conflict, whereas those relying on domestic sources, such as Home Depot and Lowe’s, remain unaffected.
- J.B. Hunt Transport Services reported a 6% year-over-year intermodal volume growth in Q4, driven by an unexpected peak season, despite a 7% revenue decline, and sees potential for further growth through new premium services and U.S.-Mexico partnerships with BNSF.?
eCommerce Evolutions
- U.S. online retail sales are forecast to grow 9.8% to $1.2 trillion in 2024, with e-commerce capturing 22.7% of the retail market, highlighting a shift towards omnichannel integration and technological innovation as businesses adapt to changing consumer demands.
- ParcelLab's new "Trending Late AI" feature leverages artificial intelligence to predict potential delivery delays, enabling e-commerce retailers to proactively manage customer expectations, reduce service inquiries, improve call handling times, and increase customer loyalty.
- Temu is shifting towards a U.S.-based supply chain to reduce risks and offer faster shipping, while Amazon is adopting Temu's low-cost, direct-from-China supply model to compete on price, reflecting a strategic convergence and divergence between the two e-commerce giants.
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