Sent Items #171: Sunday, December 1, 2024

Happy BFCM Weekend! Happy December! I hope everyone enjoyed their Thanksgiving weeks.

Early results (link) are very positive for e-commerce. According to Adobe Analytics, U.S. online sales on Black Friday hit $10.8 billion, up 10.2% over last year. That is the record amount of Black Friday spending clocked by Adobe Analytics since it began tracking online sales. In-person shopping was down 8%.

Here’s a fun meme that a friend shared:

I love the visual that Shopify always produces this weekend (link) - a live tally of sales and orders by minute across the globe. Here’s what it is at this moment in time (7:16am CST) - the peak so far was Friday at 12:01 EST…makes sense:

"WE MUST COMPETE WITH AMAZON 2-DAY SHIPPING" are famous words around the e-commerce sphere. Meanwhile, Amazon is over here offering 4-day shipping during Christmas 2024! Their speed and reliability has won our loyalty, it’s why we are willing to wait 4 days for air freshener instead of taking a 3 minute drive to a Walgreens.

Warehouse boom pits farmers against developers in South Jersey (link)

• Deep-pocketed warehouse developers in the last several years have helped transform Salem County into a logistics hub, standing up 5.1 million square feet of warehouse space for retailers, such as Amazon, since 2020.

• But not every landowner has jumped at the opportunity. This article tells the story of one has turned down multiple offers to purchase his 130 acres of land. “A guy from Wall, New Jersey, called me up and said, ‘I got somebody interested in your farm. I’d like to bring him down to talk to you.’ And I said, ‘Let me give you a piece of advice: Don’t waste your gas, because I’m not interested.’”

• Sparks said he has encouraged other farmers to do the same and pointed them toward resources such as the New Jersey Farmland Preservation Program, which purchases the development rights to farmland and preserves it for agricultural use. The difficulty in making this case is that developers are offering more money per square foot than the state is, according to Sparks, which has left the future of Salem County as an agricultural community in the hands of individual farmers.

• The Stage Agricultural Development Committee has taken steps to even the scales, as it explores a new formula designed to bring the value of preservation closer to full-market values, but these efforts are still ongoing. In the meantime, the math is pretty straightforward, according to Grant Harris, fourth-generation owner of the Cowtown Farmers Market and rodeo in Pilesgrove, who has turned down offers in the range of $40 million.

• Municipalities can wield their zoning laws to dictate which kinds of development takes place within their borders. However, the state’s current approach of letting individual municipalities decide these issues has led to a lack of coordination. It’s a home rule state, and so because of that, it creates some of these challenges. Home rule means each town administers and collects its own taxes, leading to mixed incentives depending on their economic makeup and budgetary needs. In Salem County, that’s resulted in sometimes competing prerogatives between more populous townships such as Carneys Point and less populous townships such as Pilesgrove and Oldsman.

Here’s a pragmatic take from Izzy Rosenzweig, CEO and Founder of Portless, on the potential impact of Trump’s proposed tariffs (link)

Probably the #1 question I’ve received since the recent US election has been, “what is going to happen with all the ecom brands that manufacture in China?”.

I’m not a political expert and don’t claim to predict what President-elect Trump will actually implement once he takes office.  However, let’s do some math to predict what may happen.

For purposes of this analysis, we will assume the worst-case scenario based on his stated policy preferences:

60% tariffs on any goods coming out of China; and
20% tariffs on good from all other countries
 
Under these circumstances, brands would have three options:
1: Onshore their production back to the US;
2: Move production to lower-tariff countries; or
3: Stay in China

I’ve spoken with dozens of our merchants to see what would happen assuming the above scenario.  This is what I think would likely play out:

1:Outside of highly sensitive industries like telecom equipment or AI chips, very few brands would move their production back to the US.  For most ecom-focused industries, the US simply doesn’t have access to the raw materials, specialized equipment, experienced but affordable labor force, etc. necessary to produce goods in a cost-effective manner at scale.  As a great example, read this WSJ article (link in comments) about how Craftsman tried to onshore production of their wrenches but couldn’t.  Wrenches!!

2:Simple products - particularly low-cost apparel and simple electronics - would move to lower-tariff countries.  The brands we service out of our Vietnam facility are in apparel and electronics, and were able to find local factories that meet their quality standards (mostly run by Chinese conglomerates…).  Many of the raw materials and equipment comes from China, but the actual production is done in Vietnam or other low-cost countries.

3: Most production, particularly for more complex products that require extensive supply chains or high skill to produce, would remain in China.  It is a common misconception that brands manufacture in China due to cost; in fact, by now other nearby countries have cheaper labor forces.  Rather, brands manufacture there because the supply chain ecosystem is so incredibly strong.  Factories need raw materials, skilled labor, skilled management, specialized equipment, financing options, transportation options, etc.  No other country comes close to having as well-developed an ecosystem.

In scenarios 2- and 3-, the brand would be forced to pay the tariff.  However, most of our brands live in the $5-$10 COGS range, so the tariffs are painful but don’t fundamentally change their economics.  20% on a $5 COGS is only $1, while even 60% is still only $3.  Ultimately, we believe that these tariffs will get passed across to US consumers as a higher retail price; the T-shirt that formerly retailed for $24.99 will now retail for $29.99.

Macy’s says employee hid up to $154 million in expenses, delaying Q3 earnings (link)

• Macy’s reported stronger-than-expected sales for the third quarter and said it’s delaying the release of its full quarterly results after it discovered an employee intentionally hid up to $154 million of expenses over several years.

• Macy’s said that it identified an issue related to delivery expenses in one of its accrual accounts earlier this month. An independent investigation and forensic analysis found that a single employee with responsibility for small package delivery expense accounting intentionally made erroneous accounting accrual entries to hide roughly $132 million to $154 million of expenses from the fourth quarter of 2021 through the fiscal quarter ended November 2.

• The company recognized about $4.36 billion of delivery expenses during the same time period.

Trump Pledges Tariffs on Mexico, Canada and China (link)

• Trump said that on the first day of his presidency he will charge Mexico and Canada a 25% tariff on all products coming into the U.S. He would also impose an additional 10% tariff on all products that come into the U.S. from China, though he didn’t specify whether that levy would come on his first day in office. Such a tariff would come on top of existing tariffs the U.S. has already imposed on Chinese goods.

• Doing so would likely upend the trade agreement that Trump negotiated with the two neighboring countries in his first term, known as USMCA. U.S. goods and services traded utilizing that trade agreement totaled an estimated $1.8 trillion in 2022, according to the office of the U.S. Trade Representative.

• Canada’s government said that it buys more from the U.S. than China, Japan, France and the U.K. combined, and provides about 60% of all the oil the U.S. imports from foreign countries.

• Mexico, China and Canada are the nation’s top three suppliers of imported goods, accounting for about 42% of imports to the U.S. this year through September, according to census data. Canada and Mexico send about 80% of their exports to the U.S., and an across-the-board tariff would hurt their economies.

Have a great week!

- Matt

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