Modern Retail Rundown: Shopify goes back to basics, 15-minute delivery consolidation & Peloton's revamped digital strategy

0:05Hello, and welcome to the Modern Retail Rundown. I'm your host, senior reporter Gabby Barco, and I'm here with editor-in-chief Kale Guthrie-Weisman. Good morning, Kale. How's it going, Gabby? It's going great. We have, as usual, so many topics to delve through. It's been a busy week in retail, but, you know, what else is new? I feel like we repeat ourselves every week. Yeah, never a dull moment, although sometimes we talk about the same companies. But we're going to shake it up, I promise. We will, we will. Okay, great. Well, this week we are going to be doing an update into Shopify's new focus on e-commerce, which is obviously it's bread and butter.

0:48So they're going back to basics. And then we'll be doing a check-in on 15-minute delivery apps. Remember those. And finally, Peloton is going all in on digital fitness and kind of scaling back on hardware or so it seems. So yeah, first up, why don't we talk about Shopify regrouping? Kale, what are your thoughts here? A lot going on. All right. So first, there's a bunch of news that was all jam-packed into press releases and earnings. So the big ones that everyone's talking about is that Shopify is selling off its logistics business. And so it's selling off, it sold it to Flexport, which is a really big logistics company.

1:35And then it also, and I need to double check this, there it is, it's also sold off one of its other businesses to Okado, which is the UK-based grocery delivery company. So Deliver, which is the sort of last mile delivery service, that's to Flexport, Six River Systems, another logistics company went to Okado. Anyway, it's a pretty big piece of news, if you ask me, because it just shows that Shopify no longer wants to be in that business. And with this came, unsurprisingly, layoffs. So Shopify is laying off 20 % of its workforce as a result of this. And it's pretty much, as you said in the intro, going back to basics.

2:16It's focusing on the thing that it does really well, which is being an e-commerce platform, working with brands and merchants and everyone like that to facilitate those types of sales. And it says it doesn't really want to get into the business of actually shipping items. Right. And the whole reason that they started doing that is because 2021, I feel like, was the peak of everybody wanting to invest, quote unquote, in supply chain and logistics and freight because business was good and everybody was ordering things. But we're seeing now a trend of companies offloading those acquisitions. That's true.

2:55And I mean, Shopify was doing this a little bit before. It first unveiled its Shopify fulfillment network in, I believe, 2019. And there was much fanfare associated with it when they made the announcement, but there were very few details. And so it was, what does it mean that you have a fulfillment network? And what I learned over the many months and years I tried to get details was it had very few companies that were beta testing it. I think it had maybe a couple or a few more fulfillment centers that it was working with. And it was just figuring out how Shopify as a business could get into the fulfillment and logistics business.

3:33And that it made updates via acquisitions over the last few years, like what you're referring to, you know, with Deliver and Six Rivers. But one of the things, and we have a story that came out late this week, is that Shopify never had a clear, like, thesis about how it was going to approach this business. So it often called itself a 4PL, which is, you know, in contrast to a 3PL. So instead of it owning the warehouses and, you know, doing all of that, it wanted to be the facilitator of working with 3PLs and the brands to help facilitate that. So to sort of be the tech layer that facilitates it.

4:14And from what it seems, this never really worked. And maybe on paper, it seems like it's not capital intensive if you don't own warehouses to be in the logistic system. But it actually is. It's a really, really difficult business to thrive in. And Shopify clearly never figured out the economics. Right. And I do think the number, just the figure of how big that this part of the business was, it's 13 % in stock that they sold off. That's not nothing. It's a pretty substantial number. So does that reflect, I guess, would you say, just how deep Shopify tried to go into this area? I mean, yes, in the sense that if you're selling off more than 5 % or 10 % of your company in stock, that means it represented a good chunk.

5:06But also, from what I understand, this experiment, and it was always referred to kind of as an experiment, never really went that far. And the merchants that I knew who tested it out never had the best of experience with it. And so I think it represented something that Shopify really wanted to get serious with and made a lot of investments in. And then it reached a point, and probably because of where we are right now economically, Shopify reached a point where it said, I can't go further with this because it isn't making sense economically for the business. And so we have to offload it. So I think, yes, they invested a lot of money in it.

5:46It clearly was a big ambition, but they also never seemed to take it as seriously as if it were just a pure logistics company would because it had so many other irons in the fire. Yeah, I think irons in the fire is a great way to put it because as the CEO put it, this was a side quest, which I think is kind of interesting to say in hindsight. Whereas building e-commerce tools and now for even bigger companies than just D2C brands or small businesses is their main quest. So do you want to maybe just expand on that a little bit, I guess? Sure. I mean, I think the side quest is exactly right. And it also shows how Shopify spent a lot of money, but maybe didn't take it as seriously as they should.

6:36I've always wondered, I wish I could be a fly on the wall at the team meetings. Who was it that really wanted this part of the business to be big? Who ultimately said no? What were the disagreements or conversations like? I imagine they were very heated because you really need to go all in to be a fulfillment and logistics leader. And if you're from the top down looking at it as a side quest, it probably isn't destined to be as successful as it could be. But I also, I was talking with someone last night, and they said something interesting that is obvious, but also I think really helpful in contextualizing where Shopify needs to invest, which is there are some things, some other quote unquote side quests with Shopify that are doing quite well and have much better margins.

7:24And so like Shopify's payments and fintech tools are doing quite well. ShopPay is one of the biggest payments, no-click, one-click payments apps out there. I think its app continues to grow. And these are all much lower lift and easier to get people to sign on to than it is for an entire fulfillment network. There are things like Shopify Capital. It seems like what Shopify has figured out is that there are these other quote-unquote side quests that they can add as a complementary part of the e-commerce business that require a little less investment and can have a better chance of becoming ubiquitous.

8:01And I think the payments and financial side of things is probably where Shopify sees the most area of growth. And from what I've talked with merchants and other people, it seems like they see that as a very successful part of the business and what will probably help grow it beyond its, you know, just baseline e-commerce platform. Right. And I think one other sort of throwaway comment in the release or blog post, whatever this came from, was that there's going to be now, like everybody else, a sort of AI tools, focused tools, I guess, taking precedence. And, you know, I think especially with this focus on software, that makes a lot of sense.

8:48That's kind of where things are going, especially with other tech platforms. So, yeah, I feel like they're really hinting at what the next decade is going to bring. Yeah. If you're a tech company that doesn't have a press release, that mentions AI. Are you even a tech company? I don't know. Exactly. Exactly. Okay, so next, this is a topic that Kayla and I are maybe a little obsessed with, actually. It's something we've been watching for a few years now, but it's 15-minute delivery apps, which were all the rage all the way back in, what was it, 2022, I think, or 2021 even. 2021, they're old now.

9:32They're over two years old. Yeah, it's very much like a fashion trend at this point, but they were everywhere, especially in major cities like New York, Boston, Chicago. And so there was a couple, well, there's a few players actually at the very beginning that have been slowly just, you know, falling by the wayside. And so the last one really standing has been Getir, but now it's kind of trying to, it looks like maybe establishing itself as the player that kind of came out on top for whatever market is left for this type of grocery shopping, I guess. Yeah. So the news that came out this week is that the Financial Times reports that Gatier is reportedly in talks to acquire Flink, which, as our amazing audio producer said when we were talking, that sounds like a fake headline out of like Succession or something like that.

10:29Gatier to acquire Flink. But Flink, which is a company I didn't really know much about, it's a German quick delivery platform. It's raised a fair amount of money. And supposedly it was doing pretty well. It gave some headlines a couple of months ago that said it had a path to profitability. We'll talk about this a little bit later. It had a fair amount of revenue coming in. Clearly it was trying to raise money from investors. Maybe that's not working. But anyway, Gatier is in talks to acquire it, is what the news is. And this would be the latest very big acquisition from Gatier because it had acquired somewhat recently Gorillaz for over a billion dollars, I'm pretty sure.

11:15Gorillaz was the one that was becoming pretty ubiquitous in New York City, but was also, same as Flink, German-based. And so Gatier clearly has its eyes on these German quick delivery startups. Yeah, the concept, you know, very European, very much reliant on these condensed populated areas. And I do remember, I won't say who, but one of them did tell me that it's very scalable to the suburbs. I'm not really sure how in the U.S., but clearly two years later, that's not really the case. But, you know, I think we should maybe talk a little bit about just how big the valuations got during the height of these launches, at least here in the U.S., because, you know, some of them were a little bit older and were operating overseas before this.

12:08I think Flink as a company, which again, I didn't know much about, but it raised in late 2021$750 million. And that got it at$2.1 billion valuation. And mind you, I don't have the numbers in front of me, but the ones that were based in the US also had pretty insane. I'm pretty sure GoPuff for a while had over a billion dollar valuation. Right, Gabby? Yeah. GoPuff. I think Joker also was just, yeah, raising money. A lot of, I mean, we're talking hundreds of millions. Yeah. And we should also point to the ones that, you know, we've mentioned how Gutierre is buying some, but there were some that just completely died.

12:51Like they didn't get bought. They just went bankrupt and liquidated. And so there's Joker, Fridge No More, Boik. Is that how you say it? bike? Bike, bike. Yeah, that one kind of suffered, I think, from it's Russia-based and, you know, at the onset of the war. Yeah, so there's a couple of different factors, but they all really very quickly, yeah, just pulled out of the U.S. market. I'm fascinated with this overall space, first, because it seems like a very American convenience, if you ask me. I lived in France for a year. And if I were told there was a service that would get me something delivered in less than 15 minutes, I would laugh in your face.

13:32Everything takes very long. Europeans love waiting in lines. And so the fact that the nexus point of this movement has been Europe, I find ultimately very fascinating. And also the fact that they all tried to expand to the US with the exception of GoPuff, which is a U.S. company, and pretty much failed, like are not doing very well. It just shows that this has been a weird anomaly of a market. And the big question that I've always had, and we can get into this later, but is there actually demand? Do you actually need something delivered in less than 15 minutes? Or do you need it consistently delivered in less than 15 minutes?

14:13Maybe one thing, but I don't know. I think it's a luxury without an actual use case. Right. Especially, I think it also maybe suffers from the everybody returning to in-store shopping, which a lot of analysts say is the reason e-commerce in general is really slowing down. And so with this, it's kind of like the lowest hanging fruit, right? I think most people can just, especially living in walkable cities, can get these products within 15 minutes anyway. Although they did make a case for unique assortments. They were working with a lot of cool startup brands for a while. But yeah, GoPuff really seems to be the last big one standing, at least in the US.

15:00But they are also kind of seems like they're shrinking a little bit, right? At least from a physical footprint point of view. Yeah, I was doing some research because the big question was, what's going on at GoPuff? I haven't heard very much about them recently. A couple of months ago, GoPuff laid off 2 % of its workforce. Also, it seems like GoPuff is facing somewhat of a delivery, worker shortage. One of the most recent headlines was about a partnership with Uber, which some thought was kind of surprising about sharing the resources so that people can get things delivered. And this was a company that a year or two ago would get headlines every week about new expansions.

15:42I don't know, about new money raised. It had so much fanfare and was growing so quickly. And now you hardly hear a peep about what's going on. So it does make me wonder how things are going over there. You know, I think I do remember this being an issue for them. a couple, even when they really were growing, which was merchandise and delivery workers, right? I mean, those are the two big things you really need. So anytime there is a shortage, it's kind of like, what do you do? And I do remember that headline about them having to use Instacart just to refill a lot of the products. Yeah, exactly.

16:21And so it makes you wonder, you know, Gutierre is buying all of these European-based startups. What makes you wonder, is there going to be more consolidation in this space. And if there is going to be more consolidation, who are the companies that are going to consolidate? And I don't know, but something to think about as time goes on. Well, next up, a lot of pivots today, but, you know, we love it. I want to talk a little bit about Peloton, which says it's relaunching its brand. So that was a little scary reading it at first sight. I was like, what does that mean? And then, you know, you read about it and it makes a little bit more sense, which is that there is this now focus on digital offerings and memberships, which I feel like quietly has been really in the last year or so because their hardware sales slowed down, obviously, with people going back to gyms and whatnot.

17:16And so with this, it sounds like it's really the only fast-growing area that they do have. Yeah, no, good for them for calling it a relaunch, I guess. But also, I think Peloton has been talking about its digital subscriptions for a little bit now. I remember when it opened up the app so that you could just have the app and pay whatever$10,$15 a month and use that. And that got a bit of fanfare. And so it seems like it's smart that they're calling this a relaunch because they want to jumpstart their business. But also, the writing has been on the wall that this is their path to growth for a little bit now.

17:55Yeah. So some of the numbers from just this past quarter, because they did release earnings this week, was that the subscription revenue surpassed hardware, which is bikes and treadmills, by$30 million. last quarter and 100 million this quarter. So it's almost tripled in size. I think that kind of just shows how maybe in demand the actual fitness app is, which is really interesting to me because it kind of felt like everybody had a fitness app at one point, but does Peloton have, I guess, that cachet that maybe is bringing in more people who aren't necessarily interested in buying a$2 ,000 bike, but do you want to train with the Peloton trainers, I guess?

18:42Yeah, I would say Peloton did some things smart at the beginning where you mentioned the Peloton trainers. There were Peloton trainers that became quote unquote influencers or there's like, is it Cody Rigsby? Yes, an icon now. Yeah, an icon. People knew his name. He was associated with Peloton. That kind of thing was smart because yes, you can buy a Peloton, but then also you can do a workout with this influencer personality. And I remember a couple of years ago when the app came out that you could just use, and even I used it, it was a smart way to have people uncouple the idea that you have to buy a$2 ,000 bike and can also do these workouts in another way.

19:28And so I think Peloton compared to the other hardware fitness players has laid the groundwork a lot better. But, you know, it's still a difficult business out there. Yeah. Why don't we talk a little bit about what they're calling unaided awareness? So again, they're saying that the non-bike products are at 5 % and Roe, their Roe product is at 4%. Guide, which is a camera-based training product, is at 1%. Yeah. And the first one is the app. So the app, which they're calling the most promising non-bike product. And so it shows that that's still really low, that there's a lot to go. But the app is what's clearly driving any non-bike growth.

20:20Yeah. And lastly, of course, as always, we love a trend. And this does come very, very shortly after Mirror also said it's releasing a digital-only subscription. So you don't need the actual Mirror to work out, I guess, which I'm not really sure why you would get that. But here we are. And I think that one is very contentious, at least to me, because Lululemon famously paid$500 million for this digital workout Mirror. And now it's basically threatening to sell it off by the summer, maybe. Yeah, I mean, it's wild that none of these executives considered what would happen when an economic downturn occurs.

21:07Like, if you're selling really, really expensive fitness equipment, it's difficult to continue growth. I don't know. We were in unprecedented times. People were at home. There were a lot of things going out. So it's, you know, all of these companies are trying to pivot and become more digital companies, more subscription-based companies. But still, there are only so many people who can afford these types of products. And there's only so much growth they can hit. And so it seems like we're at a real inflection point for a lot of these companies. And I think you're totally right that it's wild that Lululemon paid$500 million for this company and now suddenly is like, oh, no, I guess we have to sell it now.

21:48So, yeah. Yeah. And I mean, we're talking about Lululemon, they can basically grow anything. So I think it's very telling. But actually, the other day, a friend said that a lot of what we're seeing right now feels very much the result of emotional decisions made on the fly, right when these companies were exploding, which in hindsight makes sense. But like you said, I think when we were in it, it did feel like this was going to be the way everybody works out forever. Well, I think so many business decisions are emotional decisions that they try to back up with numbers. And I think this is a great example of that, where if something is doing amazingly, some subset of an industry is doing amazingly, that doesn't mean it'll do amazingly forever.

22:32And maybe you should look at the economic factors at play and the cultural factors at play. And there were a confluence of things that made hardware at home fitness hardware completely go crazy into 2020. And so, I don't know. It is interesting that there were so many pretty expensive decisions made that now are not reaping as good of benefits as I'm sure these executives thought. All right. Well, that's our show this week. You can rate and give us a review on Apple Podcasts, Spotify, or anywhere else you're listening. Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders every Thursday, hosted by Kale.

23:18Kale, do you want to give us a preview of who you have next week? Sure. I talk with the founder of, or the co-founder, I should say, of the air conditioner company, Windmill. And we talk about all things air conditioning. Yes, disrupting AC. Let's go. And of course, come back Saturdays for the Modern Retail Rundown. Thank you for listening.