FROM THE DESK OF DEBORAH WEINSWIG

Open Letter to Department Stores: Don‘t Give in Lightly to Pressure To Spin Off Your E‑Commerce Businesses  They’re back: activist investors are again approaching department stores’ boards of directors to spin off their e-commerce businesses. Just this week, Engine Capital sent a letter to the board of Kohl’s (it owns 1% of the company’s shares), lamenting the negative performance of the company’s stock over the last three years. The letter outlined two potential remedies—firstly, separating the physical retail and e-commerce businesses and secondly, selling the company outright. In October 2021, Macy’s received a similar letter from activist investor Jana Partners, advocating that it should spin off its e-commerce business. Spinning off e-commerce goes against optimal retail management and is contrary to long-term trends, in our view. We believe that retailers benefit greatly from owning both physical and online stores, which enables them to possess a holistic view of their inventory—offering benefits in efficiency, pricing and most importantly, customer satisfaction. Pandemic-related restrictions accelerated the need for retailers to manage online and offline holistically, as inventory trapped in closed stores had to be sold online to be sold at all. Comprehensive omnichannel insights also enable retailers to meet demand for faster shipping and collection services for goods ordered online to enable consumers to avoid entering physical stores. Separating out e-commerce businesses represents a step backward to managing separate pools of inventory, which creates new challenges and logistical issues. We understand the rationale behind investors’ desire to own a faster-growing e-commerce business rather than a traditional, flow-growing retailer, which may operate in a challenging segment. Companies with a combination of slow-growing and fast-growing businesses typically receive a “conglomerate discount” in their stock prices, which do not fully appreciate both parts. Take, for example, the difference in valuation multiples between a physical and e-commerce retailer: Amazon.com stock is currently trading at a total enterprise value (TEV—market capitalization, plus cash, minus debt) of 3.3 times its estimated 2022E sales, whereas Macy’s stock is selling at 0.6 times next year’s expected sales, according to Capital IQ. This indicates a huge disparity in their valuation multiples. In Macy’s 2021 third quarter, digital represented 33% of the company’s net sales, and this sizable business could receive a more Amazon-like multiple if separated from the parent. Another spin-off argument is that the standalone e-commerce business would be freed from the slow pace of corporate decision making to deploy capital more effectively. Spinning off its e-commerce business seems to have worked wonders for Saks, the e-commerce business of Saks Fifth Avenue. Parent company HBC spun off its e-commerce as Saks in March 2021, receiving $500 million from investor Insight Partners. Since then, its gross marketplace value has increased by 80%, the number of styles sold has increased by 40% and the number of brands carried has increased by 30%, according to a November 2021 interview with Saks CEO Marc Metrick (who also transitioned from the parent company.) Metrick characterized the e-commerce business before the spin-off as an “or” company, meaning that the company only had enough resources to invest in either physical retail or e-commerce, but not both. With the new investment, Saks is an “and” company, able to invest in physical retail and e-commerce. Nevertheless, spinning off e-commerce brings confusion for retailers and consumers. How would separate online and offline businesses handle shipping from store, trying on apparel and BOPIS (buy online pick up in store)? In addition, industry groups have documented the “halo effect,” in which the existence of online and offline businesses is symbiotic, boosting each one. The pandemic has demonstrated that e-commerce is essential to store-focused retailers, and with the boundaries between physical and online continuing to blur, we view e-commerce as an essential part of retail—one that will only grow in importance over time. Retailers need to consider their specific situation and be prepared to stand up to pressure from investors, who may be looking at the separation purely from a financial engineering perspective, rather than investing in the long-term health of an integrated retailer.

US RETAIL AND TECH HEADLINES 

DoorDash Launches Ultrafast Delivery in New York City   (December 6) Company press release

• DoorDash has launched a 10–15 minutes ultrafast grocery delivery service in New York City from its DashMart convenience store in Chelsea, with more locations to be added over the next few months.
• The company offers around 2,000 fresh and frozen grocery items, household essentials and pantry staples for ultrafast delivery. It will rely on full-time delivery riders working set schedules and has established a new entity, DashCorps, to employ them.

Giant Food Launches Ship2Me Digital Marketplace (December 7) Company press release

• Ahold Delhaize-owned Giant Food has launched a digital marketplace named Ship2Me within GiantFood.com. Beyond traditional grocery, Ship2Me offers health and beauty, home décor, kitchen and dining, outdoor, panty and pet products categories.
• The online assortment will be available in Delaware, Maryland, Virginia and Washington, D.C. The company stated that its online offerings have skyrocketed in popularity in the last 12 months, with more than 3 million online orders fulfilled to date.

Serve Robotics Raises $13 Million To Expand Its Sidewalk Delivery Fleet  (December 6) Company press release

• Autonomous sidewalk delivery company Serve Robotics has announced that it has raised $13 million in a seed funding round, backed by 7-Eleven’s 7-Ventures, Delivery Hero’s DX Ventures, Uber Technologies and Wavemaker Partners.
• The company stated that it will use the capital to accelerate its fleet expansion, geographic growth and product development. It also stated that its self-driving robots have completed tens of thousands of deliveries across Los Angeles and San Francisco to date. The company was founded in 2017 as the robotics division of food delivery company Postmates and spun off as an independent company in February 2021.

Stitch Fix Cuts Full-Year Revenue Outlook Amid Loss in First Quarter   (December 6) Company press release

• Stitch Fix has reported total revenue of $581.2 million, up 19% year over year, for its fiscal quarter ended October 30, 2021. It reported a net loss of $1.83 million, compared with net income of $9.54 million one year earlier.
• The company has cut its revenue outlook for the current fiscal year, citing supply chain pressures. It stated that it is currently in a transitional period as it brings on new users. The company expects revenue to grow by high single digits for the full fiscal year, down from its prior growth outlook of 15% or more.

True Fit Raises $30 Million with 85% Sales Growth   (December 6) Company press release

• Boston-based apparel and footwear personalization platform True Fit has raised $30 million in a funding round led by fintech company Georgian. True Fit intends to use the funds to aid its expansion and innovation in both customer experience and datasets for 2022.
• True Fit’s annual recurring revenue grew 85%, while customer adoption rose 109% across its network—driven by the rapid online shift of the apparel market during the pandemic. The company now serves 82 million active members.

EUROPE RETAIL AND TECH HEADLINES 

The Central Bank of Norway Acquires Stake in Boohoo (Dec 7) RetailGazette.co.uk

• Norway’s central bank,Norges Bank, has purchased a 3.1% stake in UK-based online fashion retailer Boohoo, making it the company’s fifth largest institutional investor.
• Co-Founder Mahmud Kamani remains the largest single shareholder in Boohoo, followed by investment management firm T. Rowe Price International.

Klarna Expands Its European Footprint with Marqeta (Dec 7) Retail-Insight-Network.com

• Swedish fintech company Klarna has expanded its relationship with card issuance platform Marqeta to 13 additional European countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Poland, Spain and the UK.
• The launch of Klarna’s UK shopping app in May 2021 marked the beginning of the company’s European collaboration with Marqeta. Klarna’s expansion in the US and Asia Pacific was also previously backed by Marqeta.

MINISO Strengthens Its Footprint in Italy as Its Popularity Grows (Dec 6) PRNewswire.com 

• Japanese-inspired lifestyle retailer MINISO has reported a successful year in Italy, opening 10 locations since its launch in the country in April 2021.
• The company opened its flagship store in October and has four more openings planned for December, as well as openings scheduled for 2022 in Milan. MINISO’s Italy attributes strong sales to its collaboration with 20 local influencers on product reviews and store visits.

Scotch & Soda To Replace 1 Million Plastic Bags with Biodegradable Alternative (Dec 7) TheRetailBulletin.com

• Amsterdam-based apparel company Scotch & Soda has announced a collaboration with sustainable packaging products firm Tipa to move away from traditional plastic bags within its supply chain for all product categories by 2025.
• The fashion house plans to replace 1 million polybags with Tipa bioplastic bags by mid-2022. Tipa bags will account for 21% of its total product packaging in its spring and summer collections.

Tesco Risks Stock Shortage This Christmas Amid Potential Strikes  (Dec 6) TheGuardian.com

• UK-based supermarket chain Tesco is facing risks of staff walkouts at more than half of its 22 distribution centers, as union members of Unite and Usdaw are planning industrial action.
• Workers at these warehouses plan to go on strike from December 20 until Christmas Eve on December 24 if their pay requests are not met, according to the unions. The strike in the run-up to Christmas could cause stock shortages at the retailers’ stores, Usdaw warned.

ASIA RETAIL AND TECH HEADLINES

Alibaba Group Appoints New CFO and Reorganizes E-Commerce Business (December 6) Company press release

• Alibaba Group has announced the appointment of Toby Xu as its new Chief Financial Officer, effective April 1, 2022. Xu will succeed Maggie Wu, who will continue as an Executive Director on Alibaba’s Board.
• The company also announced a reorganization of its business with two new units—China Digital Commerce and International Digital Commerce—to drive growth and agility. The International Digital Commerce unit will include the group’s retail and wholesale businesses in foreign markets, including Alibaba.com, AliExpress and Lazada, and will be led by Jiang Fan. China Digital Commerce will comprise its domestic e-commerce business and will be headed by Trudy Dai, a founding member of Alibaba.

FabIndia Plans To Raise $500 Million in IPO (December 7) EconomicTimes.IndiaTimes.com

• India-based clothing and furniture retailer FabIndia reportedly plans to raise $500 million from an initial public offering (IPO) in early 2022.
• The company is seeking a valuation of approximately $2 billion—although the actual size and the schedule of the IPO may still be revised.

Shopee and Colgate-Palmolive Partner on Digital Commerce  (December 7) TechinAsia.com

• US-based consumer products company Colgate-Palmolive has partnered with Singapore-based e-commerce platform Shopee to increase its e-commerce penetration across Southeast Asia via Shopee’s platform—in categories including oral care, personal care and home care.
• Colgate-Palmolive will also join Shopee’s Regional Champion Brands Program in 2022, which aims to accelerate the expansion of its brand partners on local and regional levels. In order to connect with consumers, Colgate-Palmolive and Shopee will use data-driven approaches to create tailored and curated brand content.

Snapbizz Partners with Boost To Expand Its Services in Indonesia (December 7) LiveMint.com 

• India-based grocery retail-tech firm Snapbizz has partnered with Boost, the fintech arm of Indonesian financial services firm Axiata Digital, to address the digital financial needs of small retail stores in Indonesia.
• The two companies plan to boost financial inclusion among entrepreneurs in Indonesia. Snapbizz plans to expand its digital financial services to additional Southeast Asian countries in 2022.

Vedant Fashions Plans To Double Its Retail Floor Space  (December 6) Business-Standard.com

• Vedant Fashions, owner of ethnic and occasionwear brands Manyavar, Mebaz and Mohey, plans to double its retail floor space over the next few years to 2 million square feet from its current footprint of 1.1 million square feet.
• Over 60% of the company’s retail space is located in Tier 2 and Tier 3 cities and the company plans to maintain this 40:60 ratio between Tier 1 cities and smaller locations in terms of retail space distribution.