February 24, 2020

Digital. A New Land Rush!

The Digital Land Rush - Zachary Lovelady

To digitize or not…Is that the question? COVID is shaking things up in the retail world. This year, digital startups may look like frantic Irish immigrants planting their stakes in the e-commerce land grab. Like Tom Cruise in Far and Away, companies will be expanding market share. 



Who can enter? Really anyone! Meet one competitor in the e-commerce coatings race, Rebecca Berger. MBA turned entrepreneur extraordinaire. This scrappy little lady owns a company called WeatherWash Coatings, an earth-friendly reactive stain that turns raw wood into barnwood by using tannic acid inside the lumber to achieve a specific color. Her product has no pigments or dies. No VOC’s. She invented the most earth-friendly product on the market. If you check Home Depot online, her reviews are 4-5 stars. Recently her product launched through Lowes online, and from day one sold as much as ten brick and mortar stores. How is that possible? 

Rebecca has a strong foothold on Instagram with 22,000 followers. Type “wood stain” on Instagram’s search, and she’s often ranked #1. She has over 10,000 followers on Facebook. An impressive portfolio. Support videos. Chat support. Phone support. A blog. An app and an algorithm. She doesn’t even have a brick and mortar store. She doesn’t want or need a storefront. 100% of her sales are e-commerce. She started with stains because it’s niche, and the most significant competitor, Minwax, lost distribution with Home Depot after Sherwin Williams acquired the lagging brand for an eye-popping $11.3B. 
         
“Since stain sales were in decline, I thought, this is exactly what Jeff Bezos did with books. He started niche and expanded. I started in stain, and I’m in the process of expanding into the paint.” Speaking to hyper-growth she claims, “I’m a big fan of Jeff Bezos ‘fly-wheel of growth,’ which relies heavily on Amazon’s 2-day shipping model and a simple website. Storefronts are closed for twelve hours. Even when they’re open, COVID has made it so clients can’t enter a Sherwin Williams store. My products can be delivered right to your door once you order them from my website. Also consider that if harmful emissions can be reduced, the coatings industry is going to have to reformulate. The majority of VOC off letting happens in this industry. So, innovators like me are going to have to make every effort to save the planet instead of ‘cover the earth’.”       
         
The largest entrants in the digital marketspace race are undoubtedly Walmart and Home Depot; Walmart is the world’s largest economy. Depot is the world’s second-largest economy. Four years ago, in their 2017, 10-K report, Depot revealed they plan to compete with Amazon by spending $11B on “store, supply chain, digital experience, and people.” With that kind of funding, the retailer known as the eight-hundred-pound gorilla expects to be on equal footing with Amazon’s 1-click, 2-day order fulfillment by the end of 2020. Can Depot achieve the “flywheel of success” by buying success? Maybe? It should be duly noted that part of Bezo’s high growth strategy is attributable to acquisitions like Zappos, Petco, and Whole Foods. But Depot is not in acquisition mode, so most likely not.
         
In 2001, Home Depot opened its online store. Nineteen years later, they are still nowhere near Amazon’s e-commerce platform. According to Depot’s 2019 10-K, their ambition is to be a “One Home Depot experience.” However, that vision is not clearly defined. What is clear is that Depot’s initial $5.4B investment in e-commerce is taking longer to recoup than expected. Why? There are many reasons, but one major obstacle is that 90% of developed software will not be utilized. Not to mention when the software is finally available, the hardware used to write the software is outdated. More software development questions will buzz around like murder hornets, “What is our hardware budget? What should we expect to pay for software development? How long will it take? Why isn’t it working? Can we outsource development?” Bezos has already answered ALL of these questions, and he did it about nineteen years ago. 

Bezos developed a sturdy platform from HTML source code to the back-end JavaScript. He also custom built the hardware so soundly, he is one of the few companies that survived the dot com bust. He then expanded Amazon by investing in more hardware and software. Bezos owns AWS and an undisclosed share in Google, meaning that large retailers relying on Google’s SEO or Amazon’s AWS services will compete with Amazon on Amazon’s hardware/software. The end game may be what happened to mom-and-pop bookshops, here today, gone tomorrow. 

Competition is also ramping up. E-commerce is a different game than retailers are used to playing. Historically, retailers had to battle for sales in newspapers, radio, and TV ads. Suppliers were never a threat. Each retailer competed on price, product, and availability. Now retailers could lose sales to suppliers. A cheetah gazelle relationship is developing between the two. So, who is the cheetah, retailers or suppliers? That’s hard to answer because suppliers like Sherwin Williams are building websites that sell directly to end consumers while simultaneously maintaining 4,106 brick and mortar stores. But they aren’t the only ones building websites. Inventors like Rebecca, mom-and-pop shops, Walmart, Depot, Sherwin, Ace, and Amazon all have websites. The cheetah is whoever gets to the Do-It-Yourself or Do-It-For-Me e-commerce consumer first, captures the gazelle, stakes their claim, expands their fences, and grows market share. 

Amazon will maintain a steady lead once it grows into hardware and paint because the e-commerce onboarding process for Depot and Lowes can take up to a year and costs suppliers several thousands of dollars, which means lots of suppliers won’t even make it to Depot/Lowe’s online e-commerce platform. Not only that, but Depot is marking suppliers’ products up 100% even though they aren’t shelving suppliers’ products, picking, packing, or shipping. The value seems to be the brand. Lowe’s onboarding process is equivalent to Depot’s. Sherwin doesn’t even have a process for onboarding suppliers. They have an email that they don’t reply to. Most of these overlooked suppliers will go straight to Amazon for no other reason than it only takes fifteen minutes for suppliers to onboard, giving Amazon a favorable lead. Of course, a faster cheetah i.e., inventor, could sprint to the lead by leveraging platforms like social media, a professional website, and leveraging relationships with established e-commerce brands. Still, these contenders are often acquired early on, so finishing the race becomes questionable. 

In a nutshell, Mr. Bezos may have fired the first shot for the digital marketspace land grab, took his place on the start line, and quickly sprinted off with the competitors. Time will tell who captures the gazelle and carves out their claim. Will it be retail brands? Suppliers? Inventors? Mom & pop? or Amazon?

Zack Lovelady

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