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December 19, 2019

DTC MODELS - Behind the Scenes Opportunities

MHT Partners  | Consumer Investment Bank

Nike’s recent decision to part ways with Amazon is not just two titans parting ways.  Nike’s move speaks to a larger phenomenon within the e-commerce ecosphere.   The decision to end its wholesale relationship with Amazon was related to its desire to fully control their customer relationship, data and experience.  And while Nike certainly has the resources to execute on scores of strategic initiatives, their movement also speaks to a broader trend regarding the proliferation of options online vendors have for back-end service providers.

In the past, part of Amazon’s immense appeal to smaller players was that, in addition to access to the world’s largest pool of customers, Amazon made it tremendously easy for smaller brands to perform all things on the back end (from payment processing to pick-and-pack order processing to shipping and returns).  While Amazon remains incredibly facile at these activities, a universe of other back-end enablers have sprung up and are providing smaller brands a choice when it comes to partnering with Amazon.  While many pros still exist for utilizing Amazon’s platform, in a world where the power of big tech is increasingly scrutinized (and more specifically in a world of carnivorous Amazon Basics), back-end online service players provide a powerful counterweight for smaller players to compete with Amazon, and in and of themselves present attractive investment opportunities.

Shopify is an easy company to point to as the e-Commerce engine that powers more than a million customers,    In fact, Shopifyalso moved into the physical distribution services space in 2019, and now boasts 7 fulfillment centers, largely enabled by the acquisition of 6 River Systems, a warehouse automation and management technology developer. Smaller, lesser-known companies such as Glew (analytics), ShipBob (warehousing and shipping), Affirm (provider of POS loans to online customers), HootSuite (social media coordination), Darkstore (same-day shipping), HubSpot (marketing, lead conversion), and Returnly (you can probably guess what they do) are, among others, at the vanguard of this movement.

All of this points to the democratization of a competitive back-end playing field that has been massively pitched towards Seattle.  As daring denizens of my fair city, San Francisco, discovered 170 years ago, selling pick axes to the gold rushers can be quite rewarding – Woo(Commerce)!

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