Walmart has overtaken Apple to become the No. 3 online retailer in the U.S., according to a report this week from eMarketer. While Amazon still leads by a wide margin, accounting for 48 percent of e-commerce sales in 2018, Walmart – including also Sam’s Club and Jet.com – is poised to capture 4 percent of all online retail spending in the U.S. by year-end, totaling $20.91 billion.
The company had beat Wall St.’s expectations in its fiscal third quarter, with $1.08 earnings per share instead of the expected $1.01. However, it fell short on revenue with $124.89 billion versus the $125.55 billion expected, due to currency complications, it said.
eMarketer had estimated in July that Walmart would capture a 3.7 percent e-commerce share in the U.S. this year, but increased that to 4 percent based on its quickly growing online sales.
This year, Walmart’s online sales will grow by 39.4 percent – just slightly behind the growth rate for online furniture and home goods retailer Wayfair, which is expected to see sales grow by 40.1 percent, the firm also noted.
Apple, meanwhile, will grow just over 18 percent in 2018 – a slowdown related to slowing domestic sales for smartphones and other devices. Its portion of the e-commerce market is relatively unchanged from 2017 to 2018, going from 3.8 percent to 3.9 percent.
Walmart, by comparison, is increasing its share from 3.3 percent to 4.0 percent.
But both are behind eBay, now at 7.2 percent. And they’re both vastly outranked by Amazon, which will account for a whopping 48 percent of the U.S. e-commerce market in 2018, up from 43.1 percent last year.
Amazon will take in more than $252.10 billion domestically this year, eMarketer said.
“Walmart’s e-commerce business has been firing on all cylinders lately,” said eMarketer principal analyst Andrew Lipsman, said in a statement. “The retail giant continues to make smart acquisitions to extend its e-commerce portfolio and attract younger and more affluent shoppers. But more than anything, Walmart has caught its stride with a fast-growing online grocery business, which is helped in large part by the massive consumer adoption of click-and-collect.”
The arms race to build the future of grocery stores is heating up in China. To no one’s surprise, the main contestants are the country’s ecommerce titans Alibaba and JD.com, which are turning offline for growth.
Online retail has flourished in China, but it still accounts for less than 20 percent of the nation’s overall consumption, according to the Ministry of Commerce. The goal of internet players is not to steal business from the offline counterparts, but to digitize old-fashioned merchants.
Entrance to 7Fresh, which stands for “fresh seven days a week” / Credit: TechCrunch
JD, of course, conjured up its own digital-first grocery store called 7Fresh. The supermarket opened this January and has since added three more locations, though JD’s founder and CEO Richard Liu had an ambition for 30 by the end of 2018. I recently visited one of them in Beijing and, as it turned out, it shares a lot of similarities with its opponent but also diverges in some aspects.
Unlike most supermarkets in China, the 7Fresh store I visited sits in a low-density community away from lively residential neighborhoods. You will need to drive or hail a taxi there, or do what JD.com wants you to — order online.
Upon arrival, you will immediately notice some of the Whole Foods rustic chic. An array of fruits, vegetables, fishes, meats, artisan bread, imported drinks lie graciously on wooden shelves, punctuated by 7Fresh’s dark green brand color.
Well, perhaps slightly more futuristic than its American counterpart.
The a-ha moment comes when you get to the fruit section, which lets you scan barcodes on meticulously wrapped items. Details of the fruit then pop up on a screen above your head, showing where it comes from, how sweet it is, and et cetera.
Scan to get details on your fruits. / Credit: TechCrunch
It says this particular pear I have comes from China’s northeastern Liaoning province, with a sugar level at 8 to 12 percent, and is recommended by 99 percent of the customers who bought and reviewed it on the 7Fresh app.
Yes, to shop at 7Fresh, you must download its app and register an account. Hema exercises the same mandate. The implication is that shoppers will help themselves at checkouts, although there is still human staff on hand to assist the less digital savvy. The drill won’t be new to most Chinese people as millions of them already shop online and pay offline with their smartphones every day.
When done with scanning products, you pay with JD’s digital wallet or the more popular WeChat Pay, the payment solution linked to Tencent, a major shareholder in JD.
Human staff assist the less digital savvy at self-checkouts. / Credit: TechCrunch
The 7Fresh app, of course, also lets you buy what’s in-store remotely. Customers who are less than three kilometers away can buy online with 30-minute delivery. In other words, the supermarkets are not stuck with store visit conversions.
“Customer conversions now take place anywhere within the three-kilometer range on people’s handsets. It’s all happening invisibly,” Zhao Heshan, a Shanghai-based farm produce supplier for several major Chinese ecommerce platforms, told TechCrunch.
Like Hema, 7Fresh doubles as a warehouse and distribution hub, and so is larger than the old-fashioned grocers, which focus on capturing in-store traffic.
The most forward-looking device in the store is arguably its ceiling conveyor belt – though it still requires human help. Once a customer places an order online, an in-store fulfillment staff packs it up in a bag and loads it onto the conveyor belt. The item then zooms across the store over your head to a nearby delivery center, a system that also powers Hema.
As such, Hema and 7Fresh are going after users online and trying to digitize those who used to shop at brick-and-mortars. As of September, online sales account for more than 60 percent for Hema stores that are 1.5 years or older, Alibaba says.
With the addition of physical footprints, ecommerce players gain a deeper understanding of how people shop and can thus optimize logistics efficiency.
Jack Ma came up with the catchphrase “new retail” to describe this online-and-offline retailing integration, and Richard Liu’s equivalent is “borderless retail.”
Ceiling conveyor belt at Alibaba Hema. / Credit: Alibaba
Besides the much-coveted customer insights, Alibaba and JD are going offline for cheaper user acquisition. “The golden age of cheap internet traffic is gone. Now it’s the opposite. Customer acquisition is much cheaper offline,” suggested Zhao.
Both Alibaba and JD have continued their old playbooks at physical stores, with the former running a marketplace model that takes a cut from merchants, and the latter staying consistent with direct sales. That holds true to how the rivals handle deliveries. While Alibaba relies on a network of third-party logistics services, JD has its own in-house fleet, which could be costly to operate.
An offline push, however, could boost revenues for the online retailer. “Richard Liu often talks about feeding JD’s one million or so delivery staff. Growing online orders from 7Fresh could help him fulfill that promise,” Zhao observed.
Two of the U.S.’s largest brick-and-mortar retailers, Walmart and Target, are launching new mobile checkout systems in their stores to accommodate the influx of shoppers expected during the 2018 holiday season. Walmart says it’s expanding its “Check Out With Me” service to every Supercenter by Black Friday, while Target’s recently launched “Skip the Line” mobile checkout service is available nationwide and will have extra staff throughout the store during the busier shopping days.
Walmart first began testing Check Out With Me in April this year across hundreds of U.S. stores.
The system involves store staff wearing a small carrying case equipped with a Bluetooth receipt printer, and a cellular device that works as both a barcode scanner and credit card swiper for transactions.
Initially, Walmart tested the solution in its Lawn & Garden centers across 350 stores, where there’s more need for a mobile checkout solution.
Instead of customers having to lug heavy items – like bags of mulch and potted plants – to a checkout station, a Walmart team member could instead just scan the item on the shelf, so it can be loaded directly into the customer’s car afterwards.
Now that checkout system will make its way to Walmart’s over 3,000 Supercenters across the U.S. Starting on Black Friday, store associates will be positioned in the busiest areas of the stores, including not only the garden center as before, but also in other high-traffic areas like electronics and “action alley” – the areas featuring special promotions in the aisles.
“Associates will help customers pay and go by simply swiping their credit card and providing them with a paper or electronic receipt for their purchase,” the retailer explained.
The expansion of mobile checkout was one of several holiday plans Walmart announced, including also an expanded assortment of brands, digital maps inside the Walmart app, the updated Walmart.com website, free two-day shipping from marketplace sellers, and more.
Meanwhile, Target is recently said it’s launching mobile checkout in its stores in time for the holidays, as well.
The company had begun testing its “Skip the Line” mobile checkout experience in select stores in February 2018, but has expanded that as of last month to all Target stores nationwide.
Similar to Walmart, Target’s solution includes equipping store staff with special handheld devices they can use to scan merchandise and process payments. From this same device, staff can also help customers place online orders if the store doesn’t carry an item they want.
During peak events – like Thanksgiving, Black Friday and others – team members will be positioned in the busiest areas of the store, including at the front-of-the-store and in the electronics department, the retailer says.
Today, more consumers are turning to e-commerce – and particularly to Amazon – for their holiday shopping needs out of convenience.
Now, those customers are looking for similar conveniences when they shop brick-and-mortar retailers, too. Stores are now catering to customer demand for faster, easier shopping by offering services like ship-to-store for online order pickup, same day order pickup (and driveup), and more.
With mobile checkout, retailers can address one of the remaining challenges of shopping in-store – those long checkout lines – without having to invest in expensive Amazon Go-like technology like camera systems and shelf sensors for a cashier-less experience.
A new startup called Italic says it’s already received more than 100,000 signups for a marketplace where you can buy handbags, eyewear and other luxury products directly from the manufacturers who work with the world’s best-known brands.
The marketplace is officially launching today. Italic is also announcing that it’s raised $13 million in funding from Comcast Ventures, Global Founders Capital, Index Ventures, Ludlow Ventures and others.
Founder and CEO Jeremy Cai previously co-founded the Y Combinator-backed hiring startup OnboardIQ (now known as Fountain.com), so this sounds like a pretty big change. However, Cai said he comes from a family in the manufacturing business, so he was acutely aware of the challenges facing manufacturers.
“The history of manufacturing has been about margins,” he said. “Even though they make the final product, they barely make a profit.”
Under the traditional model, it’s the brands that buy the goods from the manufacturers and make the real profit by marking up prices. So Cai saw an opportunity to remove the brands from the equation — Italic handles the consumer-facing side of the business, like product design and marketing, but it doesn’t actually buy anything. Instead, it operates more like a marketplace, connecting consumers and manufacturers.
This also means the manufacturers are assuming more of the risk around the initial cost of creating the products, but Cai said that in return, they get much more of the upside. And apparently, Italic’s initial partners “jumped at the opportunity”: “They’ve been waiting for an option like this to get to get direct-to-consumer.”
Under the Italic model, the manufacturers remain anonymous, but the company says customers will be able to purchase handbags and leather goods from factories that work with Prada, Christian Louboutin and Givenchy; eyewear from a factory that works with EssilorLuxottica; bedding factories that work with Ritz Carlton and Four Seasons; and leather jackets from the same factory as J Brand.
Cai said this model also means consumers will pay significantly less than they would for luxury goods — most of the handbags will cost less than $300, the prescription eyewear will cost less than $100, leather jackets will be around $425 and bedding will be priced between $80 and $120. You’ll certainly be able to find cheaper products elsewhere, but the idea is sell to “the middle 40 percent” of consumers who are interested in high-quality products but want to be “a lot more frugal and smart with their dollars.”
And while Cai declined to specify the commission that Italic is charging manufacturers, he did say it differs from industry to industry, and added, “Our manufacturers make several multiples more than they make with their current brand clients.”
During our conversation, Cai repeatedly emphasized the difference between Italic and many of the new direct-to-consumer brands that have emerged online (such as Warby Parker and Casper).
When I wondered whether the marketplace vs. brand distinction will be lost on most consumers, he replied, “On the design side, we’re extremely intentional. We’re designing it with the messaging that we operate differently, you’re buying from a merchant who is an anonymous manufacturer. The sole intention is that when someone asks you, ‘Where did you get that handbag?’ you say, ‘I got this handbag from Italic, on Italic.’ The goal is to operate more like a retailer without any brands.”
At the same time, he acknowledged that Italic is itself a sort of brand, albeit with a unique business model.
“At the end of the day, it’s impossible to say we aren’t building a brand,” he said. “But the brand of Italic [should be that] we can consistently bring you high quality products at an incredible price point.”
Italic will operate on a membership model, which Cai said will allow the company to control demand, since quantities are limited. It also allows the company to solicit product feedback from members, and there could be other benefits like shipping discounts. Members who signup initially will get a year for free, but it will eventually cost $120 annually.
The Amazon Go store requires hundreds of cameras to detect who’s picking up what items. Standard Cognition needs just 27 to go after the $27 trillion market of equipping regular shops with autonomous retail technology.
Walk into one of its partners’ stores and overhead cameras identify you by shape and movement, not facial recognition. Open up its iOS or Android app and a special light pattern flashes, allowing the cameras to tie you to your account and payment method. Grab whatever you want, and just walk out. Standard Cognition will bill you. It even works without an app. Shop like normal and then walk up to kiosk screen, the cameras tell it what items you nabbed, and you can pay with cash or credit card. That means Standard Cognition stores never exclude anyone, unlike Amazon Go.
“Our tagline has been ‘rehumanizing retail’” co-founder Michael Suswal tells me. “We’re removing the machines that are between people: conveyor belts, cash registers, scanners…”
The potential to help worried merchants compete with Amazon has drawn a new $40 million Series A funding round to Standard Cognition, led by Alexis Ohanian and Garry Tan’s Initialized Capital. CRV, Y Combinator, and Draper Associates joined the round that builds on the startup’s $11 million in seed funding. Just a year old, Standard Cognition already has 40 employees, but plans to hire 70 to 80 more over the next 6 months so it can speed up deployment to more partners. Suswal wouldn’t reveal Standard Cognition’s valuation but said the round was roughly in line with the traditional percentage startups sell in an A round, That’s usually about 20 to 25 percent, indicating the startup could be valued around $160 million to $200 million pre-money.
Instead of some lofty tech solution that requires a whole new store to be built around it, Standard Cognition gets retailers to pay for the capital expenditures to install its low number of ceiling cameras and a computer to run them. They can even alter their store layout without working with an engineer as they pay a monthly SAAS fee based on their store’s size, SKUs, and product changes.
Standard Cognition’s founding team
Amazon Go uses thousands of cameras to track what you pick up
Suswal tells me “Retailers’ two biggest complaints are long lines and poor customer service.” Standard Cognition lets stores eliminate the lines and reassign cashiers to become concierges who make sure customers find the perfect products. “It’s already fun to shop, but I think it’s going to become a lot more fun in the future” Suswal predicts.
Having seven co-founders is pretty atypical for startups, but it’s helped Standard Cognition move quickly. The crew came together while all working at the SEC. They’d meet up as part of a technology research group, discussing the latest findings on computer vision and machine learning. Suswal recalls that “After about a year, we said ‘if we were going to productize this somehow, what would we do?” They settled on retail, and narrowed it down to autonomous checkout. Then a bombshell dropped. Amazon Go, the first truly signficant cashierless store, was announced.
“We initially thought ‘oh no, this is bad.’ And then we quickly came to our senses that this was the best thing that could happen” Suswal explains. Retailers would be desperate for assistance to fight off Amazon. So the squad quit their jobs and started Standard Cognition.
In September, Standard Cognition opened a 1,900 sq ft flagship test store on Market St in San Francisco, besting Amazon to the punch. Customers can stuff items in their bags, reconsider and put some back, and stroll out of the store with no stop at the cashier. Standard Cognition claims its camera system is 99 percent accurate, and is trained to identify the suspicious movements and behavior of shoplifters.
The store is part of a sudden wave of autonomous retail startups including Zippen that opened the first one in SF, fellow Y Combinator startup Inokyo that launched a bare-bones pop-up in Mountain View, and Trigo Vision which is partnering with Israeli an grocery chain for more than 200 stores.
Now with plenty of capital and eager customers, Standard Cognition is equipping stores for its first four partners — all public companies. Three refuse to be named but include US grocery, drug store, and convenience store businesses. The fourth is Japan’s pharmacy chain Yakuodo. Standard Cognition is already working on its store mapping for its cameras and will begin camera installation next month, though it will be a little while until it opens.
Japan is the perfect market for Standard Cognition because their aging population has produced a labor shortage. “They literally can’t find people to work in their stores” Suswal explains. Autonomous checkout could keep Japanese retailers growing. And because 70 percent of transactions in Japan are cash-based, it also forced the startup to learn how to handle payments outside of its app. That could make Standard Cognition appealing for retailers that want to embrace the future without abandoning the past.
Getting long-running retail businesses to invest in evolving may be the startup’s biggest challenge. Since they have to pay up front for the installation, they’re gambling that the system will reliably increase sales or at least decrease labor costs. But if it makes their stores too confusing, they could see an exodus of customers instead of an influx.
As for Standard Cognition’s impact on the labor class, Suswal admits that “the major chains will have some reduction . . . no one is going to get fired but fewer people will get hired.” He believes his tech could actually save some jobs too. “I was walking around NYC talking to (small chains and mom-and-pop) retailers about problems they face, and an alarming number of them told me ‘we’re closing in a year. We’re closing in 6 months.’ And it was all tied to the next minimum wage hike” Suswal tells me.
Reducing labor costs could keep those shops viable. “These stores can stay open with a reduction of labor so people are keeping their jobs, not losing them” he claims. Whether that proves true will take some time, but at least Standard Cognition’s tech could incentivize merchants to retrain their clerks for more fulfilling roles as concierges.