2PM - No. 745: The DTC Comeback

The best breakdown 👉🏽 WWD: Affirm Holdings Inc., the growing payment system with accommodating conditions for consumers, will soon be widely available to consumers shopping on Amazon.com. The publicly held, San Francisco-based Affirm said Friday afternoon that it's in a testing mode with Amazon and that in the coming months Amazon will make the Affirm payment system broadly available.

Short Analysis: On Friday, Amazon announced a new partnership with Affirm that brings the company’s buy now, pay later services to the retail giant for the first time in the US market.  Affirm’s payment services will be available for purchases of $50 or more and, when approved, customers will be entered into monthly pay installment programs that bypass hidden and late fees, according to the company. The service is for now being tested among select customers, the New York Times reports, and will roll out to more users in the future. Amazon Fresh and Whole Foods purchases will be omitted as well as some digital purchases. The impact on BNPL will be pretty significant, as we've projected below. Affirm stands to receive the entirety of the volume upside: 

The deal elevates Affirm’s standing in the BNPL tech arms race, where it’s faced off against competitors including Afterpay and Klarna, as well as more legacy companies including PayPal. These companies have raised hefty funding amounts and made big entrances onto the public market, targeting online customers who are wary of traditional credit cards. Each company has been making aggressive moves to expand its services both to more customers and outside of the realm of BNPL. Most recently, Square announced a $29 billion acquisition of Afterpay.

In the past three years, Affirm has seen its market share and category dominance decline thanks to that competition. Now, it’s clawing its way back. Affirm is now the sole BNPL service provider for Amazon as well as Shopify, who partnered with Affirm last summer to bring its services to Shop Pay transactions. Amazon is Affirm’s biggest break, arguably, and the move is also one of the biggest breakthroughs for the overall BNPL market.

There could be a halo effect from Amazon’s entrance, where customers begin to recognize the convenience of BNPL through Amazon first – where consumer habits are known to form – which then prompts them to more readily use the service on other sites, even from other providers. But it’s unclear just how much competition the category can withstand. Multiple payments become messy and harder to organize when they’re spread across a number of providers. Bet on more consolidation here, but Affirm’s positioning is looking solid.

Hilary Milnes and Web Smith

How to make fashion pre-orders work

Negative Cash Conversion Cycles / Vogue Business: Pre-order means less risk for retailers and helps to minimise the financial investment for an emerging designer. “Retailers can buy more easily into your brand because they don’t actually have to buy and deal with physical stock, which we also don’t have to create,” says Petsa. “Placing a £15,000 order on an emerging brand could be a risk for buyers, but with a pre-order model, they essentially don’t have to pay for anything. They just have to invest into getting you onto their platform and help with marketing your brand.”

Operator Insight / Nate Poulin: The benefit of a short or negative cash conversion cycle is that inventory becomes a **source** of cash rather than a **use** of cash. This creates leverage in the business because working capital is not "trapped" and margin can be quickly reinvested in growth. I'd add that GymShark mastered the negative cash conversion cycle and should be studied in detail. 

Meta...verse

Metaverse / Professor Galloway: Interesting excerpt here in what appears to be one of the best things that Scott Galloway has written in years. He's probably still wrong about it but for once, you don't want him to be. 

"The metaverse, a technologist’s dream, is Facebook’s nightmare. It would essentially render the social network irrelevant. Facebook’s most valuable asset is its social graph, its dataset of users, links between users, and their shared content. In a metaverse future, we’ll all have identities on the metaverse, and anyone can open a virtual space for sharing photos of your 10-year-old’s birthday party or arguing over vaccines.

Getting back to business

Modern Retail / Harvard Business Review: Forecasts anticipate a return to pre-Covid shopping patterns, but five new books take a hard look at the retail landscape. Did Covid-19 destroy in-store shopping? Can retailers revitalize the brick-and-mortar experience to lure customers back to physical locations? The books explore lessons learned during the pandemic to demonstrate how successful stores and brands are tackling these challenges.

Editor's Note: Props to Steve Dennis for this feature. He knows his stuff. 

Updated August 30: Shein remains No. 1 for the seventh week. Outdoor Voices finally breaks the top 20. Fenty Beauty leaps from No. 40 to No. 7. And thredUP from No. 38 to No. 10. Ministry, Mizzen + Main, and Rhone each near the top 100.

Amazon's future is in flux under new CEO Andy Jassy

eCommerce / Business insider: Here's a rundown of the must-know news at Amazon, including the latest hires and exits, as well as deep dives on the AWS cloud business, new robot and drone projects, and the company's controversial performance-improvement plans.

Brands must tokenize their loyalty and rewards programs

Loyalty / Cointelegraph: A branded stablecoin is a price-stable digital asset issued and supported by specific — or groups of — brands, enterprises or institutions. Branded stablecoins, which can be embedded directly into consumer-facing applications, offer brands a novel way of connecting directly with customers and acquiring insights to regain market share from competitors. 

On the fall of the SPAC market and digital media companies

Financing / CNBC: This confused market, with many SPACs still hunting for deals but very few new SPACs forming and a clear skepticism pervading transactions, has caused some digital media companies to hang on to the SPAC dream while others are rejecting the blank-check companies as merely a fad. There are three broad camps among digital media executives right now: SPAC believers, SPAC considerers, and SPAC rejecters.

Retail weather realities

A. Supply Chain Focus / WWD: The weather's gone extreme — Hurricane Ida and its dangerous strike on the Gulf Coast is just the latest stark example. From a record start to hurricane season, extreme heat and massive fires to major flooding and big freezes, fashion and businesses of all stripes are having to get used to a certain level of catastrophe.

FedEx Ground delivery becomes a road to riches for contractors

B. Logistics / Bloomberg: Patton has carved out a niche doling out advice to entrepreneurs looking to make it big as contractors for FedEx Ground, the package-delivery service that’s been booming amid a surge in online shopping during the pandemic. “This is like buying Apple at $1 a share — that’s what we’re doing here,” Patton told rapt attendees packed into the presidential chamber at the Gaylord Hotel. “We’re at the tip of the spear in an asset class that no one knows about.”

In 2020, OpenSea, the world’s biggest NFT marketplace, recorded $21 million in transaction volume. On August 8, 2021 alone, it transacted $79 million. Countless articles have been written to highlight what’s now known as the “digital flex”. Market forces are converging in ways that will impact consumerism for years to come. The global supply chain is crumbling, our online time has peaked, and the American consumer is bifurcating at the fastest pace in history. There is a coming wave of the newly rich, bolstered by the NFT trade. What happens when H.E.N.R.Y. becomes rich?

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