Memo: Walmart-Friendly Inventory

As retailers face down a holiday season that will be impacted by a looming recession in the United States and ongoing global supply chain challenges, they’re doing everything that they can in order to get in front of potential inventory issues.

A lot rides on the holiday shopping season for retailers to meet their annual forecasts. And since the start of the pandemic, the holidays have become increasingly challenging to navigate. Big-box retailers like Target and Walmart are putting new measures in place in order to make sure they have what they need in stock from brand partners, and that their supply chains don’t break down when orders increase.

Last week, Walmart laid out its plans in a corporate communications blog post for navigating around supply chain problems this season, framed as an update for customers about how the retailer intended to fulfill demand with its “stable and strong” supply chain. That a company is sending out supply chain-centered messaging to customers is in itself a sign of the times – previously, people could just assume all was working as it should behind the scenes. That’s not the case anymore. Walmart listed all of the steps it’s taken to ensure its supply chain is ready for the holidays. These include:

  • Closely working with carriers and optimizing the supply chain for in-stock items.
  • Store fulfillment from Walmart’s 4,700 locations, which it notes are located within 10 miles of 90% of the population. It also promotes its express delivery, next-day and two-day shipping and store pickup options.
  • Delivery through its Spark Driver platform, a local delivery service that can reach 84% of households.
  • An extended return policy including curbside returns.
  • In-home Delivery and return pick-up from home for Walmart+ members.
  • Expanded DroneUp delivery network, which delivers packages via zone, currently available in 34 locations, plus its autonomous and electric vehicles.
  • Four new fulfillment centers that will be build over the next three years. These next-gen centers put automation at the forefront. Automated technology will also be rolling out across distribution centers.
  • And finally, hiring an additional 40,000 seasonal employees including supply chain associates and an additional 1,500 drivers.

These are the measures being taken to get in front of supply chain issues. Walmart’s investment in employees, technology, delivery and pickup options and more are this season’s customer sell: buy with us, and you won’t have to worry about out of stock notifications or delayed orders. That’s an advantage that only a few retailers have – in addition to Walmart, Target and Amazon are competing by throwing resources behind the looming supply chain problem and recession. Customers are more likely to buy with competitively priced companies. The pressure is on.

The pressure is also on brands who sell in these stores to not miss their own delivery windows. As 2PM has written about before, Walmart and Amazon are now attractive retail partners for all the reasons listed above in Walmart’s pre-holiday measures. They have the deep pockets to brace for impact.

Brands that are unable to meet their delivery windows will be hit with fines from retailers like Walmart and Target as they do whatever they can to keep products in stock. It’s an end to the leniency normalized earlier in the pandemic; now, if brands can’t make their orders, the retailers are hitting back. It marks a power dynamic shift. For years, brands have foregone retailers, and have become more selective about where they choose to sell, and have looked for more amenable terms in their contracts with retailers. Now, retailers have the upper hand again as external forces like inflation, the recession and supply chain tangles have made brands once again reliant on stores for max volume.

As Bloomberg reported today, Walmart and Target are cracking down on brands:

Walmart is telling suppliers that their shelf space will be reviewed more frequently than in the past, a person familiar said, and that vendors with persistent out of stocks could see their products quickly replaced. The retailer also is looking to capitalize on trends, including those sparked by social media, by quickly swapping items in and out.

Anything less than exact compliance can result in penalties from fines to losing shelf space when contract negotiations come up – a particular challenge for small brands that often have limited resources to scrutinize shipments.

The brands have become more replaceable while the retailers have become more selective. Walmart, with its vast store network and supply chain capabilities, could become the dominant marketplace this holiday season and beyond. Brands are recognizing that they need the mass retailer to survive. In a September report, we wrote:

Utility, not trendy exclusivity, has helped Walmart become a magnet for direct-to-consumer brands that previously resisted its gravitational pull. It seems that the company needn’t imitate Amazon or Target at all to get to this point. There are a few reasons: Walmart is recession-proof and it drives profitable sales (at volume) to the most important consumer audience – the American middle-class. It has the size and reach, even if it doesn’t quite have the sexiness of other retailers. With brands focused more on the bottom line, Walmart is an attractive partner to turn on the proverbial sales spigot to gain new customers.

As we head into the end of the year, the power shift will continue. It’s no longer up to the brands to decide Walmart is now worthy of their presence – they will have to prove their worth to Walmart as well. It has the control of its supply chain to tightly manage everything that’s coming in and being sold off of its shelves. This holiday season could set a new standard for the retailer-brand relationship, one that tips the scales back to mass retail’s favor. And Walmart is positioned to win over the rest.

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

Memo: Apple’s BNPL Ambitions

There are two classes of buy now, pay later services being formed. Klarna, Affirm, and others are competing for the masses. In a time of economic distress, those masses are relying upon BNPL more than ever. According to Credit Karma, 60% of debt users are more likely to use BNPL because of inflation. Apple is taking a different approach for a different kind of customer and it may have something to do with recent news from the Cupertino hardware and software giant.

Apple Pay Later is missing from iOS 16, delaying the company’s entrance into the buy now, pay later market. Reports have swirled that technical and engineering issues were the reason for the delay. Here’s our take. Apple could also be hitting pause after surveying the current economic landscape and the state of other BNPL competitors.

As Bloomberg points out in its iPhone 14 review, there’s no set time frame for when Apple Pay Later will be available – it could be in the spring with the iOS 16.4 update or it could be sometime this fall. Apple is likely waiting until its feature is perfect but there’s reason to believe it’s waiting until the current inflationary period passes in order to get in front of the right customer. To understand where Apple Pay Later fits into the market, it’s important to look at what’s happening in the broader BNPL space.

On Friday, Klarna announced that it will be undergoing a restructuring that will include layoffs and a focus on profitability over growth, Bloomberg reported. About 10% of the company’s 7,000 employees would be cut under COO Camilla Giesecke’s vision for the path forward. This comes as Klarna’s losses have mounted, it’s been hurt by macroeconomic forces like the war in Ukraine, America’s 9+% inflation, and recession. Private market investors have grown wary of companies that aren’t profitable. From Bloomberg:

Klarna’s losses tripled in the first half of the year. [CEO Sebastian] Siemiatkowski has said that Klarna can’t afford to be “as forward leaning” while investors are becoming more cautious on the industry, and said he aimed to bring the business back to profitability. The company’s model makes it vulnerable to rising costs that might force customers to cut spending or affect their ability to repay their loans.

Klarna, which has become a leader in the BNPL space, extended out “over its skis” as it looked for ways to grow beyond “just” payment solutions. In past coverage, Klarna has said to have goals of becoming the power platform behind the online shopping mall.

Affirm, meanwhile, announced a new partnership with Amazon on Monday to expand on the retailer’s platform in Canada. By deepening its relationship with Amazon, Affirm is attaching itself to a massive partner who can help it stretch into new areas without the cost typically associated with expansion. In a similar move, Afterpay parent Square also said this week that it will launch Afterpay in Canada to get its BNPL services in front of more customers.

Affirm and Afterpay are eyeing untapped landscapes as Klarna stumbles and Apple Pay Later looms: it’s likely a winner-takes-all for the remaining players after Apple launches its own offering. At least for traditional consumers, Apple’s BNPL strategy may differ from the rest. Like the Apple Card (backed by Goldman Sachs), Apple may be focusing on wealthier credit clients. More on this in a moment.

All of this is happening as inflation remains high in the US. Klarna and its peers are vulnerable to tighter budgeting, shorter household cash flows, and limited spending. With many people experiencing tougher times, they are more likely to default on payments, opening the model up to risks.

However, in a US survey, 60% of people were found to be more likely to use BNPL because of inflation, and 53% were using BNPL out of necessity. Forty-five percent said they were were most likely to use BNPL when their finances are tight. That means that Klarna’s troubles aren’t to be blamed on a decline in interest on BNPL. But rather, a more tenuous financial outlook makes people more reliant on services like BNPL. For many, it’s a way to make purchases now without taking on credit card debt. It’s a dangerously unregulated substitute for traditional debt.

That raises questions about Apple’s own service and how it wants to differentiate itself from others in the market. Apple is likely looking for a more premium BNPL user, one that it can link to and turn into an Apple Card owner. Apple Pay Later purchases were previously said to be capped at $1,000, meaning Apple is positioning smaller-ticket purchases for APL, while Apple Card would be used for bigger investments. Apple Pay Later is a convenient alternative to credit for people who have the option – it’s not a necessity. Apple Card also gives perks like cashback, which APL doesn’t, but if it’s an entrypoint to Apple Card, it’s a step in that rewards direction. Apple Pay is also already a trusted service, so Apple could get the sign-off from customers who may be wary of other BNPL services. It’s also a convenience factor: Apple stores all information about upcoming payments in the Apple Wallet, keeping payment trackers and reminders in one place.

That could help Apple Pay Later succeed where other BNPLs falter. Klarna’s most recent announcement follows a year of disruption, which we reported on in June:

What is the main culprit causing Klarna’s valuation to tank after such soaring heights? Is it being in the sights of Apple’s next ground capture? Or PayPal developing its own competitive products? Is it the regulations emerging in the UK against Klarna and its peers over predatory practices appealing to young customers? Or is it the sobering up of venture capitalists as we loom on the brink of a recession? It’s likely a combination of the above.

Apple has the ability to withstand obstacles like regulations and a recession in ways that Klarna and its peers may not – at least not to the same degree. Apple’s advantage may grow against AfterPay, Affirm, Klarna, and others. Apple’s payment systems are native to its operating system and hardware, an advantage that other financial technology companies do not seem to share.

Regulations have begun to ramp up. After undergoing scrutiny in the UK for practices that lure young customers into incurring debt, BNPLs are finding themselves facing regulations in the US by the Consumer Financial Protection Bureau, Fox Business reported on Monday. The agency does not currently oversee BNPLs, but new guidance would apply the same standards for credit cards to the sector. If Apple only lends to Apple Card holders, this regulation would benefit them.

BNPL lenders would be subject to “supervisory examinations”, like credit cards, Fox Business reported. Risks assessed by the agency include user privacy and data protection – something that Apple, which already runs Apple Wallet and Apple Card using security measures like Face ID, has an advantage in. At the same time, the CFPB is wary of a monopoly that would consolidate market power, “reducing long-term innovation, choice and price competition” while giving a few big players access to an outsized amount of consumer data.

In BNPLs, competition is a positive, the CFPB posits. From the Fox Business report:“In the United States, we have generally had a separation between banking and commerce,” [CFPB Director Rohit] Chopra said. “But, as Big Tech-style business practices are adopted in the payments and financial services arena, that separation goes out the door.”

With all of that being said, Apple Pay Later is still mysteriously delayed. When you look at the BNPL landscape, the company could be waiting until the right time to release its own entrant into the market. Once competitors start building back up, Apple could come in and disrupt the entire category. But for now, it’s waiting – for the right product, the right customer and the right conditions.

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

Memo: Instacart’s Omnichannel OS

Instacart is on its way to becoming the Shopify of Grocery on the way to its initial public offering. A suite of new omnichannel merchant tools is laying the groundwork for its refreshed identity, one built around democratizing the access to online marketplaces for merchants – big and small. Sound familiar?

We believe the future of grocery won’t be about choosing between shopping online and in-store – consumers are going to do both,” Fidji Simo, CEO of Instacart

The rollout of the new technology platform, called Connected Stores, is the latest move in a busy month for Instacart, which made two key tech purchases earlier in September that underpinned its independent grocery ambitions. We outlined the acquisitions of Rosie, a grocery eCommerce and mobile commerce platform, and Eversight, an intelligent pricing and promotions platform, and how they fit into Instacart’s long-term plans to connect physical and online grocery retail and advertising into a thriving flywheel for the digital age. From September 9’s Notes on Grocery:

Success online and in retail stores is connected, particularly when it comes to digital advertising. Digital ads and online visibility is necessary to drive awareness, particularly for emerging DTC brands that need to attract new customers. But physical stores are where most people buy CPG products. From Insider Intelligence, nearly 95% of food and beverage sales and 90% of total grocery sales take place in-store.

Instacart’s approach isn’t to try to replace in-store grocery sales with eCommerce sales, but to power both physical and digital purchases in a way that connects them to each other seamlessly. If successful, it will be the platform responsible for flipping the online switch for small, independent grocery companies that have so far struggled to translate their retail businesses to digital ones. The goal is to bring small, independent grocers online with as much capability and tech prowess powering them as Whole Foods has an Amazon-owned company.

It’s an ambitious plan, but Instacart has proven in the past three weeks that it’s prepared to invest heavily in the technology to do it.

Under the Connected Stores umbrella, the company is rolling out six new Instacart Platform technologies. According to the press release, the technologies will help “grocers bring together the best of online ordering and in-store shopping for consumers. Connected Stores create a unified, personalized experience for customers by enabling them to move seamlessly between a retailer’s app or website and its physical, in-store experience.”

The six new technologies are:

Caper Cart: This is an AI-powered smart cart that lets customers automatically scan items for pricing and more information as they shop in store using scales and sensors and equipped with a touchscreen and computer vision. This is Instacart’s version of the smart shopping carts, teased by grocery tech for years and most prominently executed by Amazon but still largely nonexistent in everyday stores.

Scan & Pay: Scan & Pay turns phones into scanners so customers can automatically check themselves out as they shop and skip lines. They’ll need to be logged in to Instacart, which will also save items to online shopping accounts to make future purchases easier.

Lists: Lists gives customers the ability to sync shopping lists from their Instacart app or grocery stores’ Instacart-powered apps to a Caper Cart via QR code. The Caper Cart’s touchscreen will then make it easier to locate items from the shopping list in the store and check them off as they’re added to the cart.

Carrot Tags: Carrot Tags are electronic shelf labels that can be uploaded to the Instacart platform, giving labels more functionality for shoppers and associates. Carrot Tags essentially turn traditional labels into smart labels and can let associates choose what information they want to display about an item in store. It also makes it easier for customers to match online products with in-store items by making shelf labels scannable.

FoodStorm Department Orders: FoodStorm is an order management system connected to the prepared food departments, like bakery and deli, and the new Department Orders functionality connects across departments so that they can all have one customer’s order ready at the same time.

Out of Stock Insights: This API gives retailers real-time alerts when items are nearing out of stock or have fully run out, making it easier for stores to plan ahead with inventory management, avoiding out-of-stock notices.

Together, these technologies are positioned to enable a smarter, independent grocery store. Instacart is also partnering with Good Food Holdings to build the first Connected Store at a Bristol Farms grocery store in Irvine, California. Instacart’s new services will power the store with all six Connect Stores technologies, including new checkout options and smart discovery tools. It’s not unlike Amazon’s strategy of building retail stores to show off its own retail tech, but Instacart is skipping the Instacart-branded store and going straight to the retail partners to demonstrate compatibility. It has no plans to own a branded storefront, it simply wants to enable others. Neil Stern, CEO of Good Food Holdings, on incorporating the Connected Store model:

At Good Food Holdings, we’re proud to provide our customers with a personalized shopping experience – whether they’re opting to build their baskets online or joining us in-store. As customers have adopted delivery and pickup over the past year, we’ve found it increasingly important to evolve our business with omnichannel customers at the forefront. As we look to the next decade of grocery, we want to make sure that we’re providing an inspirational shopping trip for our customers – and this starts by building a Connected Store. In partnership with Instacart, we’re excited to introduce multiple ways to checkout with Caper Cart and scan & pay, while driving inspiration through Lists and Carrot Tags. Instacart is an innovator in grocery technology, and we’re thrilled to be their partner and debut the first-ever Connected Store at Bristol Farms this year.

The partnership between Instacart and Good Food Holdings will show at large that grocery, long the last digital frontier for retail, is coming into a new era of commerce. While the majority of sales are likely to remain in-person, retail media networks and online ordering capabilities will drive business and make it more intelligent at the same time. Instacart is amassing power by giving smaller grocers a way to grow online without sacrificing physical stores. It’s the Shopify approach to grocery retail, and like Shopify, it views Amazon as its competition.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy