29 July 2022
5 stats that stood out from Q2 ecommerce earnings
Ecommerce platforms offered a look at how they're navigating shifts in the economy and consumer behavior.
Ecommerce platforms offered a look at how they're navigating shifts in the economy and consumer behavior.
Many of the companies that run the platforms powering the ecommerce landscape reported earnings from the second quarter of 2022 this week.
The results came on a week when the macro picture got cloudier, as the latest GDP report showed the second straight quarter of contraction in the economy, while the Federal Reserve raised interest rates to cool demand. While all of the executives acknowledged “headwinds” from inflation and higher gas prices, as well as a concern about a pullback in consumer spending as the economy tightens, the results were not uniform across the board.
Here’s a look at key numbers that illustrate how each of the retail channels are faring:
That’s the year-over-year sales growth posted by the largest ecommerce company in a second quarter that was seen as an improvement over Q1 results. Though Amazon as a whole reported its second straight quarterly loss of $2 billion, Wall Street was cheered by the increase in revenue, as well as bigger projected third quarter sales growth of 13% to 17%. As always with Amazon, there was lots of fascinating data reflecting not only performance across its many business lines, but also the scale at which the company operates. Here are a few more that particularly stood out.
That’s how much Walmart said its profit would drop in the second quarter. While the company doesn’t report earnings until August, its Monday evening move to pre-emptively warn the market about dipping profits made waves this week, given what it highlighted about consumer behavior amid inflation.
Walmart said it was seeing customers spending more on food and fuel. As a result, there was less spending on general merchandise items, which are more profitable. It will be more heavily discounting that general merchandise, namely clothing, to move inventory. So, lower profits.
This comes at a time when Walmart was already offering markdowns on many items in the categories that were popular in the pandemic, but showed up after demand for them dipped as a result of supply chain issues.
The real headline stat of the week from Shopify was 1,000, or 10%. That’s the number of people that were laid off by the software company as a result of what CEO Tobi Lütke said was a misplaced bet on pandemic growth continuing at early pandemic rates. Read more here.
During its earnings call on the day after the layoff announcement, Shopify reported that its gross merchandise value for offline commerce grew 47% year-over-year, helping revenue grow to $1.3 billion. This category includes the point-of-sale systems Shopify offers to power operations at merchants’ brick-and-mortar stores.
The growth in this area comes amid a return to more in-store shopping as pandemic restrictions lifted in 2022. Executives said the company added thousands of new merchants onto the POS in the quarter, and saw existing ecommerce customers add the hardware for brick-and-mortar, as well.
Executives said that building out the in-store system was another bet it made on building early in the pandemic. Now, it’s showing signs of paying off.
Overall, Shopify reported revenue growth of 16% year over year for the second quarter, reaching $1.3 billion. It also reported a net loss of $1.2 billion.
That’s how many new buyers the Etsy marketplace added in the second quarter across its marketplaces. It’s a “meaningfully elevated” rate of new customer acquisition when compared to pre-pandemic levels, indicating that the growth of the last two years isn't subsiding at all ecommerce platforms. Reported alongside second-quarter revenue growth of 10% year-over-year that beat Wall Street expectations, shares in the company surged following the earnings report, CNBC reported.
On Etsy's earnings call, CFO Rachel Glaser also provided a deeper look at movement in various categories of goods on the platform. From the Seeking Alpha transcript:
Reopening headwinds have specifically pressured the home and living and craft supply categories, which collectively represented over 40% of our second quarter GMS and were meaningful beneficiaries of stay at home related consumer purchasing trends during the pandemic. Trends remain positive in paper and party and apparel categories, as consumers continue to shift to in-person events and activities. Demand was also strong for travel related needs, including luggage tags, travel wallets, and fanny packs. Weddings and parties remained bright spots, especially wedding favors as larger in-person weddings resumed.
That’s how much profit the ecommerce home and furniture retailer reported in the second quarter. Even though Overstock’s revenue declined 34% year-over-year, this stands out because many other platforms are posting losses this year. The company completed its transition to a singular focus on home furnishings and furniture in June, and is now seeing home improvement items outpace other categories.
“While we cannot control the macro environment and the impact of high gas prices, increasing interest rates, record inflation and uncertainty surrounding geopolitical events has on a consumer’s sentiment and competitor's behavior, we can control and have controlled many elements of our business. In fact, our asset-light business model is highly advantageous during times like these. We don't have expensive logistics operations with a high fixed cost base or significant owned inventory on our balance sheet,” CEO Jonanthan Johnson told analysts.
Accurate inventory is now essential for Amazon FBA sellers, writes Emplicit's Evan Sherman.
Amazon used to be a lot more laissez faire about how Fulfilled By Amazon (FBA) sellers used their fulfillment centers. Sellers could send in inventory, and, while the space wasn’t unlimited, if their sales were not as forecasted they would simply pay long-term storage fees. Sure, if a seller’s inventory management was poor enough they would have their inventory storage limits reduced and pay higher storage fees, but this was just an incentive not to let things slide too much.
However, in 2022 Amazon reduced storage limits overall to the point where some FBA sellers had sales and catalog size impacted, and in March 2023 Amazon revised their inventory system. There is now an incentive for FBA sellers to be highly accurate with inventory management because Amazon will reward them with increased storage limits. Precision is a carrot now, rather than a stick.
In this article, we provide five strategic methods that sellers can utilize to optimize inventory management on Amazon.
Achieving successful inventory management on Amazon requires a profound understanding of past demand patterns and the capacity to accurately forecast future demand. Seasonality, market trends, historical sales figures, competitor activity and planned promotions all play a crucial role in determining the trajectory of sales.
At Emplicit, we advocate for the analysis of multiple historical data points, encompassing previous 7, 30, 60, and 90-day sales figures. Our logistics experts factor in internal factors such as stock availability, marketing spend, promotions, and sales and margin targets, and external factors such as seasonality, Amazon trends, new category restrictions and market entrants. A comprehensive review of shipments in working, shipped, or receiving status is also beneficial. Striking a balance between what has been sold, what is available, and what's en route to an Amazon fulfillment center is key to precise forecasting.
Inventory management isn’t a static task; it requires constant vigilance and flexibility. FBA sellers should regularly review and modify their demand forecasts, adjust their replenishment suggestions based on demand shifts, and update their minimum reorder points as required.
Sellers should review sales daily, plan replenishment frequencies to suit their needs, and maintain appropriate inventory levels at Amazon. Weekly replenishments can help keep a seller’s inbound pipeline full, minimize out-of-stock instances, and account for unforeseen supply chain disruptions.
Amazon’s organic and paid algorithms prioritize products with high sell-through rates. This means best selling products end up selling better. Focusing on high-performing items allows FBA sellers to reduce monthly storage costs, avoid aged inventory and the associated fees that Amazon imposes, and curtail the need for costly removal orders. And sales velocity is the quickest way to get Amazon to increase your storage limits. Concentrate on the 20% of items that generate 80% of sales.
At the same time, sellers should prune their catalogs by removing slow-selling items. These items negatively affect Amazon’s Inventory Performance Index (IPI) score, which directly influences the space Amazon allocates to a seller’s inventory in their fulfillment centers.
If sellers are tight on inventory space, as well as the best-selling products, they should prioritize products with higher margins until Amazon provides additional storage, and they should reduce marketing spend accordingly – something which necessitates a close relationship between inventory and marketing.
Ranking products by sales and margins, and calculating the storage space each product takes up will go a long way towards understanding and anticipating demand on Amazon.
Amazon’s capacity management system is a new system for allocating inventory limits to FBA sellers and allowing sellers to gauge their inventory capacity at Amazon’s fulfillment centers. It also enables sellers to bid on increases to their inventory limits.
Previously, Amazon had restock limits which were updated weekly based on the seller’s previous 90-day sales. Restock limits were determined by Inventory Performance Index (IPI) metrics such as sell-through, excess inventory, and stranded inventory. However, because the restock limits were updated weekly, it was challenging to plan accordingly, especially heading into a peak season or if a seller was about to run a promotion.
With Amazon’s Capacity Monitor program, sellers are given a monthly capacity outlook based on the cubic feet of space occupied by their products in Amazon’s fulfillment centers and their IPI metrics. Amazon not only provides a current month outlook on available space; they provide an estimate for the next three months which can aid in the inventory planning process.
To take advantage of the new system, it’s imperative FBA sellers understand their product's physical footprint in relation to the allotted space Amazon provides (Amazon does still provide unit estimates). Knowing a product’s cubic feet and the product tier designation allows for effective planning of inventory replenishment. Exceeding space limits means overage fees from Amazon, however, if a seller knows they have a peak in sales coming up they can bid for additional capacity (in cubic feet). However, selling-through this additional inventory means Amazon waives those fees, so it’s a win-win.
At Emplicit, we have seen the capacity monitor program benefit our clients, with many clients seeing an increase in the amount of inventory they can ship in – likely due to healthy sell-through velocity and other IPI metrics. The program has fundamentally changed the way we approach managing our inventory on Amazon, so everything sellers do regarding inventory planning should be within the context of Amazon’s capacity monitor program.
Smart sellers should already be considering the impact of their product packaging on their FBA fulfillment fees. If the actual product size allows, sellers can generate significant savings by reducing the size of their packaging. Amazon’s Small Standard rates are 15-20% cheaper than Large Standard rates depending on weight, and Amazon’s Small & Light rates are 15-27% cheaper still than Small Standard rates. However, fulfillment cost savings are not the only reason to reduce packaging size, smaller packaging can significantly increase Amazon inventory cost-efficiencies.
With Amazon’s capacity management system providing inventory space based on cubic feet rather than number of units, the space each product takes up is now more important than ever. While larger packaging sizes can sometimes improve sales in brick and mortar retail, sellers should consider developing smaller Amazon-only packaging. This will not only reduce fulfillment costs, but allow more units to be stored in the same inventory space. The combined savings can more than offset the cost of a redesign and second packaging print run.
Additionally, smaller packaging may qualify sellers for Amazon’s Compact By Design badge. This helps brands stand out, and increases click-throughs and conversions. (We suspect there are algorithm tweaks for brands with certain badges too, but it’s difficult to prove.) Amazon-specific packaging can help with Transparency (anti-counterfeiters) and help combat unauthorized resellers.
While it might seem like a significant investment and not something the inventory team typically gets involved with, reducing packaging size is a long-term way for FBA sellers to optimize inventory management.
Amazon Global Logistics (AGL) offers a streamlined solution for sellers whose products are manufactured in China. AGL eliminates the need to use freight forwarders who would usually receive a shipment from China, then split up that shipment and forward on to multiple Amazon fulfillment centers per the standard FBA process. Instead, sellers can book shipments directly with Amazon, complete the necessary export/import documentation, and ship directly to US, UK or European fulfillment centers – sending the entire shipment to a single fulfillment center.
If leveraged properly, AGL can save sellers thousands of dollars in warehouse and 3PL fees and reduce the need for inventory to be processed multiple times before it arrives at Amazon’s fulfillment center, meaning inventory gets where it needs to be quicker.
AGL offers two shipping options – Standard Ocean Freight and Fast Ocean Freight – with the standard option giving sellers the opportunity to either ship via a full container load (FCL) or less than container load (LCL). Shipping partial container loads with Amazon doesn’t slow shipments down versus other carriers because of Amazon’s scale. Amazon’s economies of scale mean that AGL can offer shipping prices from mainland China and Hong Kong that most sellers are unable to match. And Amazon’s expert customs brokers get products cleared through customs quickly because Amazon has a vested interest in shortening the time to market.
This one-step international shipping direct to Amazon was actually something we pioneered before the advent of this service from AGL – working with our client Shapermint and their manufacturers in China and logistics team to ensure packaging and shipments were FBA compliant. However, now AGL offers this service, it’s an even easier solution to a common challenge. We suspect AGL will roll out in other international manufacturing markets, but Amazon is tight-lipped for now.
Amazon inventory management is complex and needs constant attention. Sellers can hire a fractional inventory specialist because this is not something that should be trusted to an Amazon generalist. If sellers get inventory right, it will keep pace with sales. But if they get it wrong, their inventory can become the main thing holding them back.
Evan Sherman is the director of logistics at Emplicit.