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eCommerce and the housing market / Wall Street Journal: Rather than a cash issue, Zillow is saying it experienced supply constraints having to do with on-the-ground workers and vendors. Leave it to a technology company to develop an algorithm to predict home values, but mismanage the human aspect of its business. To add insult to injury, Zillow’s biggest competitor seems to be handling high volumes just fine. Opendoor Technologies said it is “open for business and continues to scale and grow,” noting it has worked hard over the past seven years to ensure it can continue to deliver as it expands.
The Market Maker: The online retail industry is shaping our physical world in yet another way. Online real estate platform Zillow is hitting pause for now on home buying and flipping, Bloomberg reported Sunday. The timing is interesting. The company, which acquired 3,800 homes in the second quarter, said it is working through a backlog of homes that it bought through its automated pipeline that purchases and flips homes.
The company, it appears, over-indexed on automation and underestimated the need for human labor: it said on-the-ground worker constraints were to blame for the pause. However, builder confidence in single-family housing construction rose four points in October to 80 according to the National Association of Home Builders which presents a conflict to Zillow's claim. Elsewhere online, more seemed to be at play than a labor snag. A viral TikTok, now with more than 2 million views, explained to a prime demographic of consumers how iBuying works. You can read the thread here, though it's important to note that Zillow has denied any wrongdoing.
As 2PM reported in the memo Opendoor Policy, there are multiple players contributing to iBuying that, in a way, could act as levelers of the playing field for potential home buyers by making the home-buying process more fair. Zillow, Opendoor and Redfin are among them.
But when iBuying veers into market manipulation, and when the masses catch on, the practice looks more sinister. These practices can make it more difficult for first-time home buyers. Inflated costs tend to require cash-only purchases to fend off situations where homes do not appraise for their proposed value.
Improved comparables (or "comps") push markets higher. Zillow is said to be tracking user cookies, including those who use Zillow to browse neighborhoods and plan for potential future purchases but aren’t currently in the market, to determine what people in a certain area can afford and then price homes based on that projected demand, rather than pure market value. It’s a small operation compared to other firms like BlackRock, but Zillow has become a household name and scrolling pastime for a generation of future aspiring homeowners. Zillow’s now losing trust with that same market. It hurts more that this is becoming common knowledge in the midst of a housing crisis as more people feel far removed from the possibility of ever buying a home. From 2PM:
The path to middle-class home ownership is rife with unspoken obstacles and time-hardened customs. For immigrants and minorities, the obstacles can be even higher. Opendoor will find that there are more Americans who are deserving of the American dream than we believe … The future of the online market for housing is an Opendoor policy of fairness. [2PM.inc]
Whether or not Zillow’s move to pause home purchases stemmed from the backlash to the video, it’s clear there are two sides to the potential of iBuying. The practice could contribute to stacking the cards in favor of certain buyers or it could make for a fair system. It cannot accomplish both at once.
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Join the members-only edition with an average of 51+% opens and 10+% click throughs in each edition. College students, join here with an .edu address and once we verify the email, you will gain access to the entire membership outlined above.
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eCommerce / Business Insider: Shopify is integrating more B2B tools into its Shopify Plus platform. It's a "significant" move that could help Shopify attract and keep bigger online brands. It's also a sign that purely direct-to-consumer brands are on their way out. Shopify announced a new business-to-business offering during its Commerce+ event on Wednesday.
Shopify is also making its platform better for bigger businesses. While small-to-medium merchants have been the company’s bread and butter, Shopify Plus has long targeted larger sellers; ERP tools can help seal the deal. Finally, Shopify is investing more in cloud tools that can help it compete with Amazon – a long-standing necessity.
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eCommerce / Wall Street Journal: An IPO would be the second phase of a deal struck earlier this year that separated the eCommerce business from Saks’ slower-growing bricks-and-mortar retail operations. The move, meant to help fuel the digital unit’s growth, prompted an activist investor to call for Macy’s Inc. to do the same last week.
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Updated October 18: The DTC Power List has updated. It can be used as a CRM for industry comparables, industry developments, sales leads, or story leads. It grows more detailed by the week.
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Experiential Retail / CNBC: A trip to one of Camp’s stores is a unique experience in and of itself. The front of the shop looks like a traditional toy purveyor: Shelves of puzzles, Lego sets and L.O.L Surprise dolls, coupled with sweet treats. But behind another door, kids can roam around a sprawling playroom that features rotating and themed experiences, including a lava interaction and another sponsored by “Paw Patrol.”
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The Streaming Economy / Bloomberg: Squid Game stands out both for its popularity, and its relatively low cost. The South Korean show, about indebted people in a deadly contest for a cash prize, generated $891.1 million in impact value, a metric the company uses to assess the performance from individual shows. The show cost just $21.4 million to produce – about $2.4 million an episode. Those figures are just for the first season, and stem from a document that details Netflix’s performance metrics for the show.
By 2PM: if this interests you, read our take on the matter - Squid Game Effect
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DTC Brands / Modern Retail: The IPO timing is especially interesting, given that Winc’s footprint is still relatively small, even within the digital wine space. For instance, DTC competitor FirstLeaf currently has about 150,000 active members, according to the company. Winc said that as of June 30, 2021, it has about 120,000 club memberships.
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A growing number of stories on successful DTC exits are being covered in retail press, this explains the turnaround. There is new air, new optimism, new money, and great expectations.
Retail is an EBITDA sport. In 2019, at Shopify Plus’s New York conference, a relatively unknown, foreign brand espoused the importance of healthy growth and profitability. American brands received all of the attention back then, but it was Daily Paper founder and CEO Hussein Suleiman that won over a crowd of fawning American entrepreneurs. He and I spoke after his speech and he left me with a quote that nodded to The Social Network’s most remembered line:
A million dollars raised isn’t cool. You know what’s cool? A million dollars earned.
Member Brief (🔐)
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Economics / The Hustle: The average business class seat is just 30% more spacious than coach, yet costs $1,356 for a round-trip domestic flight vs. $426 for coach. International business class seats are typically $3.5k and up; the most premium seats can cost $10k+.
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Metaverse / AdAge: Conventional offline and online advertising methods such as flagship shops, large billboards and other types of traditional offline and internet advertising are becoming a thing of the past. Every age group, from the very young to the very old, is becoming engaged by new innovations, ranging from contextual targeted advertisements to Instagram influencers all the way up to platforms such as Twitch, TikTok, Fortnite and Roblox.
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Linear Commerce / AdWeek: This morning, First We Feast announced a new partnership with Walmart to distribute its newest product, Hot Ones Boneless Chicken Bites, a frozen food kit that lets fans of the popular YouTube series Hot Ones recreate its infamous challenge at home. “There are a lot of exciting things happening in the disruption of the food space, especially in the economy of influence,” said Chris Schonberger, general manager of First We Feast.
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Being a polymath: new normal for modern graduates (Business Standard). Kith x Curb Your Enthusiasm (Input). Alexandra Mondalek on the (insane) number of Basquiat collaborations (BoF). How fashion can lead on non-binary inclusion (Vogue Business). The first bitcoin ETF is coming (Fortune).
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NEW ESSAY: One venture capital firm, two investments: when Coinbase decided to invest in the development of an NFT marketplace for its estimated 70 million users, Andreessen-Horowitz’s competing investment was probably surprised. It’s rare for two portfolio companies to go head-to-head in such a manner. The numbers are in Coinbase’s favor, but the NFT trade is synonymous with OpenSea.
Read The Memo
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