Harley Finkelstein, president, Shopify Inc.

Harley Finkelstein, Shopify’s president, said on a Q4 and  year-end earnings call this week that the vendor’s B2B gross merchandise volume doubled last year. He added that, in the fourth quarter, Shopify’s business with B2B companies “was up nearly 150% year over year.”

Shopify did not immediately reply to a request for specific figures on B2B-related revenue and GMV, but executives said on the earnings call that that they see the B2B market playing an increasingly vital role in Shopify’s growth plans.

An ‘exciting’ B2B growth opportunity

Finkelstein — referring to B2B as a “big and exciting growth opportunity” — said Shopify is experiencing B2B market growth with two types of companies: existing Shopify retail merchants adding a B2B channel, such as The Home Depot, home furnishings retailer Lulu and Georgia, and jewelry retailer BaubleBar; and newcomers to Shopify like Carrier, a global manufacturer of heating and cooling and other building-management systems.

He added that getting a client company like Carrier, which signed on as a client in Q4, was “opening the door to a whole new opportunity of industries we previously didn’t serve.”

Jeff Hoffmeister, Shopify’s chief financial officer, added that Shopify is seeing more demand from large enterprise B2B companies for the vendor’s multiple technology offerings, including Shopify Plus, international B2B sales, online payments, and physical store point-of-sale systems that integrate with Shopify’s ecommerce platform.

“All those things are the growth engines for the future,” he said.

Shopify says its store point-of-sale terminal is designed to integrate with the Shopify ecommerce platform and support “over 1,000 physical stores.” Referring the POS systems as new “on-ramps or entry points into Shopify,” Finkelstein said they “substantiate our role as the unified commerce operating system for merchants, whether they come to us to sell online, off-line, or anywhere in-between.”

He added, “We are building on our commitment to help merchants sell to all of their customers from a single, unified commerce platform, with upgrades to our B2B offering, including headless B2B storefronts and support for sales reps.”

Among other new features, the ecommerce technology company has also launched for merchants on the Shopify platform:

• Shopify Bill Pay, an expense management tool that lets merchants pay their vendors directly from their Shopify administrative application.
• Shopify Credit, a “pay-in-full” business credit card designed to help manage monthly cashflow and earn cashback savings without paying interest or fees.
• Shopify Collective, an application that enables merchants to source products from other companies on Shopify and have them shipped directly to customers.

Perks of unified commerce and integrated POS

A unified commerce environment, including integrated POS systems, can play a vital role for B2B companies trying to keep up with omnichannel commerce that extends to their physical branches and other outlets, B2B industry experts say.

“Key aspects such as ERP integration, branch-selling, and tools that aid the end customer in their job are crucial for a successful B2B platform,” says Justin King, managing partner of advisory firm B2X Partners. “Shopify’s acknowledgment and incorporation of these elements, along with their significant growth in B2B GMV and the acquisition of B2B-only merchants, position them as a potentially formidable player in the B2B e-commerce technology sector. Their commitment to providing a unified commerce platform for both online and offline B2B transactions further solidifies their intent to capture and expand their market share in this domain.”

Jay Schneider, the founder of digital advisory firm B2BSquared, adds that the Shopify platform still needs to show that it can handle complex online B2B interactions, such as those involving displays, configurations and quoting of products with extensive lists of attributes and complex pricing.

Finkelstein said that Shopify generated $441 million last year from its offline offerings, including POS hardware, “more than five times what our offline revenue was just four years ago.” Shopify estimates its total addressable market for offline and B2B business at “over $450 billion,” he said, adding, “We have barely scratched the surface of this opportunity and expect it to be a key growth driver in 2024.”

Paul Demery is a Digital Commerce 360 contributing editor covering B2B digital commerce technology and strategy. paul@digitalcommerce360.com.

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Full-year sales grew 12% to $574.8 billion in 2023, up from $514.0 billion in 2022.

Amazon ranks No. 1 in the Top 1000, Digital Commerce 360’s ranking of the largest North American online retailers. Amazon is also No. 3 in Digital Commerce 360’s Global Online Marketplaces Database, which ranks the 100 largest such marketplaces by 2023 third-party GMV. Digital Commerce 360 has published the latest analysis of the industry as a whole within the 2023 Global Online Marketplaces Report.

How much did Amazon make in Q4 sales?

North American sales made up the bulk of revenue in the fourth quarter, growing 13% year over year to $105.5 billion. International sales, however, grew at a faster clip. The segment increased 17% year over year to account for $40.2 billion in sales. Sales from Amazon Web Services (AWS) grew 13% to $24.2 billion.

Operating income also grew in the quarter. It reached $13.2 billion in the fourth quarter, nearly five times the $2.7 billion in operating income Amazon recorded in the year-ago period. Net income totaled $30.4 billion, up from a net loss of $2.7 billion in Q4 2022.

Amazon records a successful holiday season

“This Q4 was a record-breaking holiday shopping season and closed out a robust 2023 for Amazon,” CEO Andy Jassy said in a statement. The online retailer said customers purchased more items on Amazon during the 2023 holiday season than in any previous season, culminating in a record-breaking Black Friday and Cyber Monday. 

Amazon customers ordered more than 1 billion items during the holidays, with 500 million of those orders coming from third-party sellers, it said.

During the same period, millions of new consumers signed up for an Amazon Prime Membership. Amazon has 176 million Prime members as of December 2023, according to research from Consumer Intelligence Research Partners (CIRP). That’s the highest level ever recorded by CIRP, which has monitored Prime membership since 2013. Membership is up about 5% from 168 million in December 2022, per CIRP. Those estimates are for Amazon customers with Prime membership, not households.

Amazon fulfillment improvements 

Ahead of the earnings release, Amazon announced results of fulfillment advancements in 2023 and plans to continue growing the area in 2024.

“The regionalization of our U.S. fulfillment network led to our fastest-ever delivery speeds for Prime members while also lowering our cost to serve,” Jassy said in a statement.

The ecommerce giant delivered 7 billion units by same-day or next-day delivery to Prime members in 2023. More than 4 billion of those deliveries took place in the U.S., and more than 2 billion were in Europe.

The number of items delivered on the same day or overnight grew 65% year over year in the U.S. in 2023, Amazon said. More than 70% of Prime orders in the U.K. arrived the same day or next day in the fourth quarter of 2023. Amazon celebrated its billionth same-day delivery in the U.S. in December.

“We’ve challenged every closely held belief for our fulfillment network and reevaluated every part of it, and found several areas where we believe we can lower costs while also delivering faster for customers. Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there’s more upside for us,” Jassy told investors on Feb. 1.

Amazon will add incremental fulfillment capacity going forward, based on demand for same-day delivery sites and automation, said Brian Olsavsky, chief financial officer.

Amazon on generative AI

The company discussed its advances in generative artificial intelligence (AI) across the company in its earnings presentation, too. 

It announced the beta test of Rufus, a new generative AI shopping assistant trained on Amazon’s product catalog. So far, the assistant is available to a small subset of U.S. customers to answer shopping questions and make recommendations, Amazon said. It will roll out to all U.S. customers in a few weeks.

The retailer also introduced a generative AI tool that will allow brands to produce lifestyle imagery for advertisements, it said. 

Amazon also added generative AI capacity to Amazon Connect, the AWS cloud contact center, it said. Generative AI will give customer service agents suggestions on how to help customers and generate summaries of conversations, it said.

“2023 also was a very significant year of delivery and customer trial for generative AI or Gen AI in AWS,” Jassy said. “Customers are also excited about our approach to generative AI. Still relatively early days, but the revenues are accelerating rapidly across all three layers, and our approach to democratizing AI is resonating well with our customers. We have seen significant interest from our customers wanting to run generative AI applications and build large language models and foundation models, all with the privacy, reliability and security they have grown accustomed to with AWS.”

How did Amazon do financially in 2023?

For the fiscal fourth quarter ended Dec. 31, Amazon.com Inc. reported:

• Sales increased 14% to $170.0 billion, from $149.2 billion in the year-ago period.
• Amazon Q4 North America sales grew 13% to $105.5 billion.
• International sales grew 17% year over year to $40.2 billion.
• AWS sales reached $24.2 billion, growing 13%.

For the 12 months ended Dec. 31, Amazon reported:

• Amazon sales grew 12% to $574.8 billion, from $514.0 billion in 2022.
• Operating income reached $36.9 billion, increasing from $12.2 billion in 2022.
• AWS sales grew 13% to $90.8 billion.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s Amazon earnings article.

How big is Amazon’s total ecommerce business?

Amazon.com is the largest ecommerce retail company in the world with $412.1 billion in annual web sales (excluding all marketplaces and B2B companies such as Alibaba). Amazon’s business model is multifaceted, as it is one of the world’s largest marketplaces (No. 3) with over $650 billion in total GMV and over $400 billion in third-party sales. Its AWS unit climbed over $90 billion in sales in 2023, and its advertising sector brought in another $46.9 billion the same year.\

During 2020, Amazon grew its ecommerce business by over $54 billion. That’s nearly 10 times the size of Nordstrom’s annual ecommerce revenue.

Amazon’s first-party sales (online store)

If we split out Amazon’s online store sales, removing subscription services and its third-party seller fees, Amazon would still be the largest ecommerce player in the world by over $100 billion, as China’s JD.com (second largest, excludes Alibaba) sells over $125 billion annually. Those who follow Amazon.com closely can easily see the growing sectors of the ecommerce giant’s business. Its online store is not among them anymore. In fact, Amazon’s first-party sales are the slowest growing business arm with a 3-year CAGR of only 5.5%. Meanwhile, its third-party seller fees have a 16.4% 3-year CAGR, Amazon’s advertising services have a 22.7% CAGR, and its subscription services have a 12.5% 3-year CAGR.

How big is Amazon Prime Membership revenue?

Amazon makes over $40 billion annually just from its subscription services. To put that into perspective, if Amazon sold nothing else — without a single first-party product on its site, and all it sold was subscription services — Amazon.com would rank as the third-largest online retailer in North America. That would still make it larger than Apple (No. 3 with $35 billion in 2022 web sales) and Home Depot (No. 4 with $22.4 billion in 2022 web sales). Moreover, even comparing it to the combined total revenues from Nike (No. 9), Costco (No. 6) and Chewy (No. 13), Amazon’s subscription services alone would still be greater.

How large is Amazon’s advertising business?

Amazon’s annual advertising revenue sits at $46.9 billion. This is equivalent to more than half of Walmart’s entire ecommerce operation and more than twice the size of Target’s online revenue. 

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Holden Lewis, senior executive vice president and chief financial officer, Fastenal Co.

At the same time, Fastenal will use the data it compiles through digital channels to improve its ability to serve customers and operate more efficiently, Fastenal said yesterday in announcing its fourth quarter and full-year financial performance.

“The data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers,” the company said yesterday in announcing its fourth-quarter and full-year 2023 financial performance.

It added: “As a result, we believe our opportunity to grow our business will be enhanced through the continued development and expansion of our digital capabilities.”

Fastenal digital channels

In a Q4 and year-end earnings call yesterday, Fastenal executives elaborated on the value of each of its digital channels — including its FASTVend vending devices and FASTBin product bins, each of which Fastenal embeds with digital technology to track product sales; and what Fastenal defines as ecommerce, including self-service online purchasing via Fastenal.com and electronic transactions conducted through EDI.

They also clarified during a Q&A period with investment analysts that the FASTVend and FASTBin services do not cannibalize Fastenal’s self-service ecommerce sales.

“The customers are looking for a range of solutions to solve different [purchasing] issues,” said senior executive vice president and chief financial officer Holden Lewis.

Fastenal Q4 and year-end results

Daniel Florness, president and CEO, Fastenal Co.

Dan Florness, president and CEO, noted that ecommerce sales have steadily climbed as a percentage of total sales, rising to about 25% in 2023 from about 5% several years ago.

For the fourth quarter, Fastenal said that all digital sales, including ecommerce and the FASTVend and FASTBin transactions — which in aggregate make up what Fastenal calls its “digital footprint” — accounted for 58.1%, or $1.02 billion, of $1.76 billion in total net sales. That’ s up  from 52% a year earlier. Fastenal didn’t break out total digital sales for all of 2023.

Fastenal also said that its digital purchasing options play a vital role at its Onsite vendor-managed inventory locations, which it manages at or near customers’ facilities. The company said it increased its number of Onsite locations by 12.3% last year to end 2023 with 1,822 active sites.

“We arm that Onsite with all the tools we have in place, whether it be vending machines or technology-embedded bins … it’s just a much more efficient way to operate,” Florness said on the earnings call.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s Fastenal Co. report.

Paul Demery is a Digital Commerce 360 contributing editor covering B2B digital commerce technology and strategy. paul@digitalcommerce360.com.

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High inflation, cutbacks in business spending and supply chain problems are major culprits responsible for flat B2B sales in 2023.

In December, manufacturers and distributors finished out the year with combined sales that dipped slightly to $1.217 trillion compared with sales of $1.229 trillion in December 2022. But even if B2B sales did hit the deep freeze in 2023, one area where manufacturers and distributors ramped up productivity was generating more ecommerce.

B2B manufacturer, distributor ecommerce sales remain prominent in Q4 2023

Just over 50% of B2B buyers make a digital purchase of a good or service for their organization daily, according to the 2023 B2B buyer’s survey from Digital Commerce 360 and Forrester Research. That includes nearly one-third, 32%, who make a business purchase several times per day. In comparison, 23% of survey respondents make weekly purchases. Meanwhile, 17% do so every 30 days.

B2B buyers also do their homework before ordering online. For example, 57% of B2B buyers list a manufacturer’s ecommerce site as their first choice, compared with consumer site (45%), Amazon Business (43%), search engine (40%) and distributor ecommerce site (33%).

For many buyers, a better user experience means the seller’s ecommerce site has the products, pricing, and related product selections they need to make an informed purchasing decision and then the ecommerce and order management tools to make placing the order fast, easy, and convenient.

More Charts & Data Stories

Check back soon for more Charts & Data Stories, like our weekly B2B infographics. Here’s last week’s. We add new content regularly. 

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The company, which generates more than $50 billion in annual sales and ships more than 1.5 billion units each year, has launched an updated mobile app. The distributor’s new Mirrors Xvantage app is now ready for customers to download in the Canda, India and the U.S.

Ingram Micro’s new app

“Our new Xvantage mobile app provides another option for our customers to enjoy a B2C experience in a B2B environment,” says Ingram Micro chief digital officer and executive vice president Sanjib Sahoo. “We will continue to provide the IT channel with an innovative experience and more ways to better serve their customers.”

The new app, available for Apple or Android devices, lets users order lists and product details, use product filters to search by text and voice, and remove items from the shopping cart and order and receive order quotes or track claims.

“The app removes friction by placing nearly everything channel partners need to grow their business and better serve their customers at their fingertips,” says CEO Paul Bay. “Xvantage is simplifying and accelerating the sales cycle, bringing transparency

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Affiliated Distributors and The Edge Group announced their intent to merge on Dec. 13 and completed the merger effective Jan. 1. The upcoming merger will bring distributors to AD’s Electrical – U.S. division, AE says.

Affiliated Distributor is a trade group that says it represents more than 5,000 branches from 850-plus independently owned distributors. Its distributors are in industries including:

• Bearings and power transmissions
• Decorative
• Electrical
• Gypsum
• Heating, ventilation, air conditioning (HVAC)
• Industrial and safety
• Plumbing and pipes, valves and fittings (PVF)
• Safety

The Edge Group, based in Houston, is a buyer’s group that connects independent distributors and manufacturers. It sells to industries including:

• Datacom
• Security
• Low voltage
• Audio/video
• Electronic MRO
• Electronic OEM

The Edge Group has grown to represent over 50 supplier lines and supports more than 70 independent distributors with over 1,200 locations.

Affiliated Distributor and The Edge Group merger

“AD and Edge’s shared values became immediately clear,” says AE CEO Bill Weisberg. “Both groups have rich histories of supporting independents by helping them grow, retain market share, and make a difference in their communities. We know everyone involved will see the value and benefits of this new relationship.”

Terms of the deal were not released. In July, AD reported that member sales in the first six months of 2023 reached $37.8 billion. That’s a 5% increase across 14 divisions and three countries. Purchases by member companies from AD suppliers reached $9.7 billion. Net distributions to members grew 5% to a record $673.9 million.

AD member same-store sales grew 8% through the first six months of 2023. Same-store sales in the U.S. were up 9%, while those for companies headquartered in Canada and Mexico were up 5% in CAD and 7% in MXN, respectively.

AD’s strongest same-store performers, by division, were Bearings & Power Transmission (+15%), U.S. Industrial (+14%), U.S. Safety (+14%) and U.S. Electrical (+11%), the association.

AE is based in Wayne, Penn.

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The company, mdf commerce Inc., formerly known as Mediagrif Interactive Technologies, is based in Longueuil, Quebec. It develops e-procurement, marketplace and supply chain collaboration software-as-a-service (SaaS) applications for manufacturers, distributors and public agencies. Those customers can be found in Canada, the United States, Denmark, Ukraine and China.

Q2 2024 results

In the second quarter of fiscal 2024 ended Sept.30, 2023, mdf commerce generated revenue of $30.7 million compared to $33.2 million in Q2 fiscal 2023. That drop represents a decrease of $2.5 million or 7.4%.

In addition, the company finished 2023 with several new public e-procurement projects including for Hawaii.

As a result, the state will use mdf’s e-procurement technology to operate a shared marketplace. Ultimately, it will be open to all school districts, cities and local municipalities throughout Hawaii. Hawaii has 18 state departments and five counties.

Details of the cost and length of the Hawaiian deal were not released. What is known is that the multi-year agreement will give state and local agencies access to e-procurement technology.

Public sector e-procurement opportunities in Hawaii

“Our solutions will enable the state’s digital transformation strategy by streamlining their end-to-end procurement process with our full suite of products, including our source, contract, procure, connect, and shop modules,” mdf commerce president and CEO Luc Filiatreaul told analysts on a recent earnings call. “Hawaii is a transaction model agreement where funding will come from supplier paid convenience fees. This model has proven to align well with the U.S. public sector context and needs.”

In the second quarter, mdf commerce also signed contracts with the Texas Comptroller of Public Accounts and Rockland, Chemung, Orange, and Ulster counties in New York State for a marketplace to shop for available cooperative contracts. “This is a record number of new mid-market customer wins over a six-months period,” Filiatreaul said.

Overall, approximately 6,500 public sector buying organizations are using mdf commerce, according to the company.

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1. Ecommerce cannot always save the day.
2. Do not count on putting your eggs in one basket.

Ferguson sales Q1

Ferguson is based in the United Kingdom but does more than 95% of its B2B and B2C business in the United States. It reported sales of $7.708 billion in the first quarter of the 2024 fiscal year ended Oct. 31, 2023. That is a decrease of about 3% from Q1 fiscal 2023 sales of $7.931 billion.

In the U.S., sales declined 2.7% to $7.329 billion from $7.532 billion in Q1 fiscal 2023. For all of Ferguson, operating profit was $773 million compared with $864 million in the prior year.

“Residential trends have remained broadly consistent with the prior quarter, with markets impacted by the slowdown in new residential construction, an area serving the project-minded consumer,” CEO Kevin Murphy told analysts on a recent earnings call, based on a transcript from SeekingAlpha.com. “Repair, maintenance and improvement has seen greater resilience, particularly with our core trade professionals and in high-end remodel.”

Ferguson, which operates 1,549 branches and 10 distribution centers in the U.S., does not break out specific ecommerce figures. But online business for its residential channel was down significantly.

“Residential digital commerce declined by 14% as weaker consumer demand has persisted,” Murphy told analysts.

Ferguson does business evenly across its B2B and B2C sales channels. Residential is about 52% of sales compared with about 48% for commercial, the company says.

It is that sales diversity that Ferguson will count on as it looks to sustain business in the year ahead, Murphy said.

“As we look forward, despite the current challenging macroeconomic environment, we are well positioned with a balanced business mix between residential and non-residential, new construction and repair maintenance and improvement,” he told analysts.

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Patrick McGovern

At Bowery Capital, we have spent years studying industry-focused B2B marketplaces and have been actively investing in these businesses for the last decade. Like all early-stage investors, we look towards public comparables to get a sense of how the companies we are evaluating will be valued at scale.

Reviewing public outcomes helps us to better underwrite which marketplaces we should back when evaluating seed-stage investment opportunities. Looking across the landscape of publicly traded marketplaces, there are three that tend to be viewed as comparables for today’s startup B2B marketplaces looking to raise venture dollars: ACV Auctions, Xometry, and Freightos.

• ACV Auctions is a marketplace for automotive transactions that matches wholesale buyers and sellers of used automobiles (think of them as a modern alternative to in-person auto auctions).
• Xometry is a marketplace for on-demand specialty manufacturing; they connect companies that need certain items manufactured on short notice — typically prototypes — with a vast network of SMB manufacturing shops with which Xometry has vetted and established relationships.
• Freightos is a marketplace for air cargo that matches shippers (typically freight forwarders) with airlines selling cargo capacity. These airlines are a mix of specialized cargo carriers and well-known passenger airlines with a side business focused on cargo.

Marketplaces are typically valued on a multiple of net revenue —  this is because it is very difficult to value them on gross merchandise volume systematically, as take rates (the amount of money a marketplace makes for enabling online sales transactions) can vary wildly from marketplace to marketplace, which means the same GMV figure may result in wildly different net revenue outcomes.

PUBIC VERTICAL B2B MARKETPLACES

The current generation of vertical B2B marketplaces trade at an average EV/Net Revenue (enterprise value divided by net revenue) of ~6.5x. I would caution this multiple was closer to ~5.2x when I ran this same exercise a few weeks ago for internal purposes, so we may be taking a snapshot at a particularly generous point in time in terms of valuation.

But assuming this 6.5x EV/Net Revenue multiple holds, what does this mean for founders who want to go the venture route to scale their B2B marketplace? My biggest takeaway is that if you want to raise VC dollars to supercharge growth, you need to go after a really, really big end-market to have a shot at a successful ‘venture scale’ exit — let’s call this something in the $500 million – $750 million EV range for argument’s sake.

As an investor, I have seen B2B marketplaces with take rates ranging from less than 1% to just south of 30%. These take rates tend to vary based on how managed a marketplace is and what that particular industry will tolerate giving up to a middleman. Most startups we see raising venture dollars claim that they will be able to command a take rate around the 8-12% range at a steady state. For simplicity, let’s just say 10%.

10% Take Rate B2B Marketplace Outcomes

Assuming a 10% take rate and today’s EV/Net Revenue multiple of 6.5x:

• At $500 million in GMV and $50 million in net revenue, your marketplace would be valued at $325 million EV.
• At $1 billion in GMV — no small feat — and $100 million in net revenue, your marketplace would be valued at $650 million. Given the amount of paid-in capital that is likely required to reach this $1 billion GMV mark, this valuation is on the low end for a venture-backed outcome.
• To achieve a $1 billion EV at exit, a B2B marketplace with a 10% take rate would need $1.5 billion in annualized GMV at today’s multiples.

However, let’s also note that 10% is a higher take rate than two of the three public marketplace comparables put forward in this piece. ACV and Freightos have an implied take rate of approximately 5% and 3%, respectively. Xometry’s implied take rate is much higher largely due to how much more managed it is than either ACV or Freightos.

So, let’s re-run these same calculations, assuming a 4% take rate at scale.

4% Take Rate B2B Marketplace Outcomes

Assuming a 4% take rate and today’s EV/Net Revenue multiple of 6.5x:

• At $500 million in GMV and $20 million in net revenue, your marketplace would be valued at $130 million EV.
• At $1 billion in GMV and $40 million in net revenue, your marketplace would be valued at $260 million EV.
• And to reach a unicorn exit, your marketplace would need a whopping $3.85 billion in GMV.

These different scenarios illustrate the importance of commanding a healthy take rate; otherwise, the GMV required for a big outcome can be almost prohibitive in some sectors.

So what are some lessons for founders from this valuation exercise?

• Make sure the vertical you target is large enough to reach a few billion dollars in GMV. At Bowery, we have recently been gravitating towards marketplaces in large global markets, investing in a chemicals marketplace (SourceForce), a heavy equipment marketplace (Spectinga), and a steel marketplace (Reibus). There are many valid reasons B2B buyers/sellers will avoid a marketplace model, so you will never capture all of the transaction activity in a given segment. Given this reality, you need to build your marketplace in a large category where you can be doing billions of dollars in GMV even if you are not the primary way industry participants transact. If you are building a marketplace for a sector like chemicals or steel, this growth strategy is doable, but if you are too verticalized you will never get to the kind of GMV numbers required to reach a venture-scale outcome.
• B2B marketplaces that serve categories responsible for several percent of GDP are ideal for a venture-backed approach. This is why so many trucking marketplaces have been able to scale up; freight is a huge part of the U.S. economy, and you can get to a GMV figure north of $500 million while still being a relatively small player in the overall category. The most common reason we pass on marketplaces is the size of the sector they serve — many founders make the mistake of going after too narrow a vertical, where GMV will never be large enough to get to a >$100 million net revenue figure.
• You want to build in a category with average order values (AOVs) are on the high side. There is why we see so many B2B marketplaces in sectors like automotive and heavy equipment — it is much easier to reach $500 million or $1 billion in GMV selling $20,000 tractors or $30,000 cars than it is by cobbling together tens of thousands of $500 transactions.

About the author:

Patrick McGovern is a senior associate at Bowery Capital, a venture capital firm that specializes in business software. Prior to Bowery, McGovern worked as an independent consultant advising early-stage B2B SaaS and marketplace businesses. He can be reached at patrick.mcgovern@bowerycap.com.

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Consumers are already up and at it. U.S. online retail sales totaled $63.2 billion from Nov. 1-20, a 5% increase from the same period last year. That’s driven by heavy discounting, says Adobe Analytics, part of technology company Adobe Inc., in such categories as:

• Electronics
• Toys
• Apparel
• TVs

Adobe predicts shoppers will purchase an additional $37.2 billion online from Thanksgiving Day through next Monday, widely known as Cyber Monday, a 5.4% year-over-year increase. Sales during the five-day period from Thanksgiving through Cyber Monday, referred to as the Cyber 5, grew 4% year over year in 2022.

Real-time Thanksgiving shopping data

In the early going on Thanksgiving morning, real-time data tracking from Signifyd reveals that daily holiday web shopping thus far is running about 6% higher than last year. Meanwhile, Cyber 5 gross merchandise volume (GMV) is running about 5% higher than the previous 12 months. The average order value is about 1% higher.

Retailers both online and offline are out early and often to acquire and retain holiday shoppers. Just in time for Thanksgiving, Black Friday and Cyber Monday, Amazon introduced deal “events” with promotions offering up to 50% on select and featured merchandise categories. New deals also will drop as often as every five minutes during select periods throughout weekend deal events, Amazon says.

Best Buy makes a holiday shopping push

Most retailers have been pushing holiday shopping deals well before the Cyber 5 shopping days. But for retailers such as Best Buy, which just posted a weak third quarter, this year’s holiday shopping season is all about driving higher and more consistent sales.

Best Buy is No. 7 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers.

“For added ease of shopping and peace of mind, we’ve extended both our store hours and our product return policy for the holiday season,” CEO Corie Barry told analysts during a third-quarter earnings call. “And this year, for the first time, we also extended that our shoppers could connect directly with one of our virtual sales experts to get help with their holiday shopping. We’re also offering free next-day delivery on thousands of items in addition to convenience store and curbside pickup options. Most orders placed on BestBuy.com or through the Best Buy app are ready for store pickup within one hour. Same-day delivery is also available on most products for a small fee.”

Best Buy Co. Inc. reported domestic online sales declined 9.3% in the third quarter of its fiscal 2024 ended Oct. 28. Furthermore, Best Buy online sales made up 30.6% of total domestic revenue. That compares with 31.0% in the year-ago period. Total domestic revenue also declined, although slightly less than online revenue. It decreased 8.2% to $9.0 billion, driven by a 7.3% decline in comparable sales, Best Buy said.

“We are preparing for a customer who is very deal focused,” Barry told analysts. “We expect shopping patterns will look even more similar to historical holiday periods than they did last year with customer shopping activity concentrated on Black Friday week, Cyber Monday, and the last two weeks of December.”

Visa holiday shopping data

In general, web merchants will find a cautious consumer who will spend about 4% more than last Thanksgiving and Cyber 5 shopping season, Visa says. But web merchants will have to it online shoppers early and often if they expect more spending.

“With holiday spending returning to its core drivers of consumer credit and real income growth, we see holiday sales rising 4.1% year over year this season,” Visa says. “While this is likely to be the slowest year for holiday sales since 2019, it would still be higher than the average growth in sales during the last expansion (2010-2019) of 3.7%.”

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The post Web merchants reach out early and often this Cyber 5 shopping season appeared first on Digital Commerce 360.