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Some industries are more fragile than others – even if that’s not felt by the average consumer. Of the most fragile is eCommerce, something that people use everyday without thinking, but which depends on a weakened state of trade made all the more complex by a number of concurrent global conflicts. Of them, there are now two that have captured the American imagination, concern, and even involvement: the Russo-Ukrainian War and Israel’s growing conflict with Palestinian terrorist groups, a geo-political complexity that requires an understanding of the region’s history, religious factions, and divisive politics to begin to understand.

We are more aware of persisting war than ever before. We are also more aware of the interdependency between the nations that fight them. The idea that the two are dependent on one another is not new, however. The following is extracted from Commercial Traveller, written in December 1842 under the banner “War and Commerce”:

We are not writing as politicians, for, although we are not without a political creed, in our commercial capacity we are of no political party. We look upon war as the deadliest enemy of commerce, and of human industry in all its forms, and we believe that commerce and the arts are so far necessary to national prosperity, that no people can be great, prosperous, and happy without them.

Around 80 years later, Alvin Saunders Johnson wrote the following in the Political Science Quarterly (1914): “International trade, we are often told, is one of the most powerful of the influences making for universal peace.” The section was entitled, “Commerce and War.”

In an era of unparalleled global connectivity, the boundaries between geopolitics and commerce have become increasingly porous. This intertwining of worlds is most evident when a singular event, like the eruption of a geopolitical conflict, sends ripples through commercial hubs thousands of miles away. Here’s but one of many examples:

The Chinese e-commerce website Shein has stirred new controversy by calling off its campaigns with Israeli Instagram influencers after it was criticized for selling Palestinian flags — and not Israeli ones — following Hamas’ terror onslaught against Israel earlier this month.

As the recent Russo-Ukrainian War has shown, the resilience of the global eCommerce ecosystem is both a testament to its adaptability and a reflection of its vulnerabilities. For one, it’s highly dependent on a healthy middle class. This March 2022 quote by Christopher Smart of the Barings Investment Institute still stands:

There was an emerging middle class [in Russia] that is now going to be knocked back. It’s going to be isolated. It’s going to have a currency that doesn’t really hold any value outside the country.

In this delicate balance between progress and conflict, warring nations emerge as crucibles, illustrating the intricate dance of commerce in the shadow of geopolitics. Below is five ways that the conflict between Russia and Ukraine directly impacted global commerce.

Supply Chain Challenges:The ongoing war coupled with associated economic sanctions strained the global supply chain, which is still recovering from the pandemic’s effects. Many American brands might believe they are insulated from European disruptions, but many US manufacturers rely on components from Europe. Notably, over 300,000 US companies are intertwined with supply chains in Russia or Ukraine, according to Practical eCommerce. Considering Russia’s significant exports, ranging from fuel and wheat to precious metals, businesses in countries like China, Germany, and Italy may face prolonged procurement times.

Rising Shipping Costs: As the conflict intensified supply chain pressures, global gasoline prices soared. Gasoline prices in The Netherlands and the US have surged since 2022, leading to higher transportation costs. Major carriers, from UPS and FedEx to international shipping giants like Maersk, alerted businesses about potential fuel and “war risk” surcharges.

Dampened Consumer Spending: The war’s ripple effects on global economies curtailed consumer spending and confidence. A typical American consumer, grappling with increased gas prices, dwindling investments, and escalating food costs, is likely to limit discretionary purchases.

Increased Borrowing Costs: The Russo-Ukrainian War accelerated global inflation. With the US Federal Reserve hiking interest rates in response to rising prices, borrowing became costlier for both businesses and individuals.

Potential for Product Hoarding: Memories of pandemic-triggered shortages linger. The Ukrainian crisis spurred some consumers into panic buying. Online retailers were advised to assess whether their products were prone to such buying frenzies (which could potentially lead to stock issues).

Israel, Ukraine, and Russia are each critical to global trade. But when worlds of commerce, cultural derision, and military conflict collide, the ripple effects are unpredictable. The response to conflict is mostly predictable, though: when will it end?

Infrastructure and “Soft Power Diplomacy”

Online retail, which grew considerably during the pandemic, wasn’t spared when Russia invaded in Ukraine in 2022. From supply chain disruptions to increasing borrowing costs, businesses, no matter where located, were facing the realities of a war occurring continents away.

The Israel-Palestine conflict could have a more direct impact on the US. As of writing this, the U.S. has deployed several vessels from the U.S Navy’s fleet and ordered 2,000 military personnel to be ready for deployment.

With around the size and population as the state of New Jersey, Israel, is a small-yet-powerful nation with an outsized impact. To put this in context, India is projected to reach $165 billion in eCommerce revenue by 2025 with 1.41 billion residents. Israel, with its 9 million residents, is expected to reach $12 billion in eCommerce retail value by 2025. Israel will generate 7% of India’s projected 2025 eCommerce totals with .64% of India’s population. And to be fair, online retail is not its leading industry.

The country boasts the United States and China as its top two import partners according to data collected by the CIA. As the global pandemic’s restrictions eased, Israel exhibited a surge in private consumption, revealing a robust retail framework. According to the International Trade Organization, Israel has an 87% internet penetration and a 47% eCommerce penetration, representing 4 million of the 9 million in Israel. This number is expected to grow to 5 million users by 2025.

With giants like Shufersal leading the local scene, and international heavyweights such as IKEA and Apple marking their presence in country, the market seemed poised for accelerated growth. Israel also boasts industry stalwarts like Yotpo, Mixtiles, Freightos, and Jifiti. Still, Israel’s eCommerce sector lags behind global averages, suggesting vast untapped potential. Yet, as Israel contemplated leveraging this potential and as local retailers like Rami Levy and Shufersal pivoted towards online sales, the global landscape darkens with clouds of new wars.

For the Russo-Ukrainian War, the tangible impact of the war on commerce was evident in supply chain disruptions. Despite being an ocean away, businesses worldwide, including those in the United States, felt the shockwaves. Many, unbeknownst to them, relied on materials sourced from either Russia or Ukraine. Russia’s significant exports like fuel, oil, and metals form a crucial part of global manufacturing, and disruptions here inevitably rippled outwards. The resultant long lead times were an immediate concern for eCommerce platforms, many of whom thrived on efficiency.

This, combined with the spike in transportation costs, isn’t just a transient concern; it changes the fundamental economics of eCommerce, pushing businesses to reassess their strategies. Here’s an example from an August 2023 feature in WWD on Ukrainian eCommerce:

In what organizers described as “soft power diplomacy,” Ukrainian makers of all disciplines are carrying on with their businesses to the best of their abilities, despite the ongoing invasion by Russia.

The cost of Ukraine‘s recovery and rebuilding was estimated to be $411 billion in March, based on a Word Bank report. Millions have left Ukraine since the fighting began in February 2022, including many craftspeople and workers who had provided services for the Ukrainian designers and makers. Impressively, 80 percent of the team behind the project is based in Ukraine, and all of the vendors and brands are also there. Given that, whenever there is a heavy attack, plans change, deadlines move and whatever work is underway is reconsidered.

From a macroeconomic perspective, the Ukrainian-Russian War catalyzed global inflation. Central banks worldwide, like the US Federal Reserve, responded with interest rate hikes, inevitably affecting borrowing costs for both companies and consumers. For burgeoning eCommerce platforms, especially in evolving markets like Israel, this could mean reduced credit availability, directly influencing expansion plans and operations.

Despite the challenges, history has shown that commerce is resilient. During the pandemic, businesses globally adapted, innovating to cater to a homebound consumer base. Similarly, in the face of geopolitical tensions, eCommerce platforms can leverage strategies like stockpiling specific high-demand products or diversifying supply chains to minimize dependencies on conflict zones. But as these two wars continue to intensify, exposure will only grow.

The intricate dance between war and commerce is a testament to the interconnectedness of our global economy. As Israel and other nations navigate their conflicts, those conflicts become all of ours (though their costs are infinitely higher). The ability to adapt and evolve will define the future of global eCommerce. The balance between technological progress, market dynamics, and geopolitical tensions will continue to shape our world, underscoring the importance of preparedness, agility, and innovation in the face of adversity. International trade is one of the most powerful of the influences making for universal peace.

It appears as though international trade is not enough of an incentive. We’ve proven this again and again, spiting ourselves in the process.

By Web Smith | Editor: Hilary Milnes with art by Christina Williams and Alex Remy

Let’s revisit 2021’s Netflix Playbook 2.0, shall we?

In the above forecast, I laid out a three-phased projection for the streaming giant, timed to Josh Simon’s hire as VP of Consumer Products. The forecast revolved around Netflix’s eventual transition from a straightforward streaming platform to a brand with tangible, immersive physical experiences akin to Disney. After reading the recent Bloomberg article on Netflix’s physical retail plans, it’s clear several of these projections have come to pass. From Netflix Playbook 2.0:

Simon’s hire is as directional as it is functional. Earlier in the new VP of Consumer Product’s career, he spent time working at Nike. But it was his six years working for Walt Disney Studios and Blumhouse’s live experience business that will shape Netflix’s brand and audience strategy for consumer products. He’s tasked with “identifying and building plans across different lines of business in consumer products” according to a 2020 article by Variety.

Phase One: Original Brand Retail. In 2021, I speculated that Netflix’s endeavor into direct-to-consumer retail signaled more than just a commerce push. Their Shopify build was a clear indication of a strategic shift, targeting a younger, more vibrant demographic. The recent Bloomberg article notes that Netflix has hosted pop-up experiences around the globe, emphasizing its brand merchandising focus. Their earlier foray into licensing its popular show Stranger Things was a precursor to this broader retail approach. It showcased the latent potential of leveraging their vast intellectual property, which they’re now unlocking more systematically.

Phase Two: Live Events and Activations. I had pinpointed Netflix’s move towards live events, recognizing the crucial steps it had taken with the Stranger Things drive-thru experience in LA. This prediction was based on its demonstrated potential in creating a bridge between its digital content and physical events. Fast forward and this is no longer mere speculation. Netflix has introduced 40 pop-up fan experiences in 20 cities worldwide, as stated by Bloomberg. And according to PYMNTS:

Fans may find themselves enjoying a meal at a “Stranger Things” themed restaurant or tackling a “Squid Game” obstacle course. These experiences aim to enhance the overall enjoyment and create lasting memories.

Events such as The Queen’s Ball: A Bridgerton Experience emphasize Netflix’s active efforts to foster fan engagement through live activations.

Phase Three: The Netflix Universe. The most substantial realization of our earlier forecast was the solidifying of the Netflix Universe with a focus on retail. The forecast suggested that Netflix would transcend digital bounds and create physical locations for fans to engage with. Bloomberg confirms this with “Netflix House”. These permanent venues are set to offer a medley of retail, dining, and live experiences, echoing Netflix’s ambition to emulate companies like Disney in creating tangible worlds for its fans. Netflix’s strategy of transforming digital success into physical reality is now fully in motion. Their move aligns with earlier forecasts made about the company transitioning into a multi-faceted entertainment company, not just a content creator. As speculated, Netflix is tapping into its rich array of intellectual property to promote its brand, build communities, and enhance its marketing game. As was stated in 2021:

If the streaming giant proves that IP-fueled merch can sell, so might brick and mortar retail, pop-up experiences, and amusements. Don’t be surprised if Netflix’s digital experiments precede its venture into physical retail, events, and a permanent home for its beloved original properties. It’s created franchises that are valuable.

Netflix has proven that IP-fueled merch is a viable product for the company. Josh Simon’s words in the 2023 article confirms as such: “We’ve seen how much fans love to immerse themselves in the world of our movies and TV shows, and we’ve been thinking a lot about how we take that to the next level.” This sentiment was the crux of my thesis, emphasizing Netflix’s long-term strategy to evolve and grow in response to the changing media landscape.

The trajectory that Netflix is on was entirely predictable. The signs were there: its continuous push to innovate, its venture into DTC retail, its exploration of live fan experiences, and the quest to build tangible connections with its audience. Perhaps one day soon, this moonshot will also come to fruition: “It is unlikely that Netflix will ever find it suitable to acquire 25,000 acres of land like Disney before it, or even 415 acres like Universal Studios. But in nearly every metropolitan region in America, there is a dying mall – one that bustled in the era depicted by Stranger Things‘ fictional Starcourt Mall.” Netflix is just a few iterations short of taking over an entire mall and redeveloping into a single, national hub for its many retail and experiential tests.

As we move forward, it’ll be fascinating to watch this streaming titan continue to redefine its place in the global entertainment industry, morphing from a digital-first entity to a holistic cultural phenomenon.

作者：Web Smith | 编辑：Hilary Milnes，美术：Alex Remy 和 Christina Williams

Over nearly 20 years, the DTC brand landscape has seen an explosion and relative decline. These brands, known for their innovative marketing strategies and unique product offerings, captured the hearts of consumers, media groups, and investors alike. However, beneath the glossy surface of perfect branding, careful narratives, and paid marketing, the financial reality often trailed brand equity for the companies and their founders. Parade, a once-promising DTC intimates startup, is a poignant example of how even seemingly thriving brands can find themselves on the precipice of insolvency.

The superpower of the DTC industry has never been branding (that can be easily duplicated) or platform (Shopify and BigCommerce democratized eCommerce) or even the manufacturing of a novel product. The superpower has been the ability to identify arbitrage opportunity and capitalize on it. The superpower of DTC is getting there first. In this case, there is a geographical location.

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In Steady Brand vs. Cool Brand, I wrote about two brands who both lost sight of the hidden advantages of being an agile DTC brand:

But the constraints faced by the brand, including the product’s increasingly commoditized nature and shifting preferences in raw material usage, may limit its exit optionality.

Then, I published on a brand who seemed to exercise its understanding of its super power at every stage of its growth. Solo Brands began as Solo Stove, a quiet but profitable manufacturer of portable firepits. Few paid attention to the brand outside of its loyal customer base. The founders were near-anonymous; this was a byproduct of the brand being founded outside of the New York / Los Angeles / Miami brand bubble. I explained in the Solo Brands Novel Strategy:

A once-obscure brand just outside of Dallas, Texas evolved into a generational model for how business is done, brands are built, and liquidity is achieved for stakeholders. Founded in 2010 and trading today at $DTC with a market cap that hovers around $500 million, Solo Brands has an exceptional story.

While the two stories paint different pictures (stuck in pre-exit vs. post-exit), this essay is about what brands can do to make it easier on themselves by pursuing high value, lower risk arbitrage opportunities.

Arbitrage in this context refers to the strategic exploitation of discrepancies or gaps in the market, whether they pertain to technology, product branding techniques, or new marketing channels.

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Part One: The DTC Brand And The Unspoken Crisis

The purchase of Parade by lingerie manufacturer Ariela & Associates International in August was initially perceived as a standard acquisition, in line with the trend of larger companies snapping up promising digitally native brands. Yet, what unfolded was far from ordinary. Parade, once valued at around $200 million by investors, ended up in a last-ditch sale, resembling a bankruptcy liquidation process. What’s more, this sale obliterated the investments of all its shareholders, painting a grim picture of the brand’s financial health.

Behind the scenes, internal financial data revealed that Parade was teetering on the edge of insolvency. By the end of 2022, the company’s cash reserves had dwindled to $7.3 million, which was inadequate to sustain the brand’s operations, given its projected cash burn rate for 2023. The story of Parade serves as a stark reminder of the intense financial pressures that many DTC startups currently face, particularly those that pursue rapid growth through heavy investments in paid marketing:

Although the company cut its paid advertising costs to around 40% of net revenue in 2022, it still burned more than $33 million in cash last year. As of this spring, the company had forecast its cash balance would dip below zero by August of this year, according to the documents. (The Information)

The company’s success was further buoyed by high-profile collaborations with industry giants like Coca-Cola and Swarovski as well as a number of partnerships with celebrities and influencers. Parade’s net revenue exhibited impressive growth, more than doubling in 2021 and increasing by 50% to nearly $32 million in 2022. However, this growth came at a steep cost. Parade committed substantial resources to paid marketing, with advertising expenses devouring more than 60% of its net revenue in 2021. The brand expended significant sums to acquire new customers, with the cost of acquiring each new buyer roughly equivalent to the average order value (AOV).

The result was the drain on Parade’s cash reserves. Despite efforts to rein in advertising expenses in 2022, the company still hemorrhaged. The reported figures, in comparison to other DTC companies, were unsustainable and served as a warning of impending financial catastrophe.

While Parade scrambled to secure a buyer, it ultimately fell into the arms of Ariela & Associates International. It’s been noted that investors made nothing. This financial wipeout was largely attributed to Parade’s mounting debt, which stood at over $19 million in bank loans, convertible notes, and credit card debt as of May. Before the distress sale, Parade had raised a significant $56 million from investors, including Maveron, Lerer Hippeau, and Greycroft Partners.

The story of Parade highlights the vulnerability that many DTC brands currently face. While the DTC model offers unique advantages in terms of brand control and customer engagement, it also comes with significant financial risks. Parade’s rapid growth, fueled by aggressive marketing spending, ultimately led to its financial downfall. There are broader implications of Parade’s predicament and its connection to a larger movement toward insolvency in the DTC industry. Parade’s outcome is far from unique in this respect. In fact, the distress sale of DTC brands will seem more common than the conventional exit over the next 12-24 months.