Amazon Search Favors Amazon, ThirdLove Has an Image Problem, and Another Trade War Looms

Get the Oxford Morning Report every day. Click here for a free subscription.

E-COMMERCE

The Wall Street Journal reports that Amazon changed its search algorithm in a way that benefits its own products: “The adjustment, which the world’s biggest online retailer hasn’t publicized, followed a yearslong battle between executives who run Amazon’s retail businesses in Seattle and the company’s search team, dubbed A9, in Palo Alto, Calif., which opposed the move, the people said. Any tweak to Amazon’s search system has broad implications because the giant’s rankings can make or break a product. The site’s search bar is the most common way for US shoppers to find items online, and most purchases stem from the first page of search results, according to marketing analytics firm Jumpshot.

“The issue is particularly sensitive because the US and the European Union are examining Amazon’s dual role—as marketplace operator and seller of its own branded products. An algorithm skewed toward profitability could steer customers toward thousands of Amazon’s in-house products that deliver higher profit margins than competing listings on the site. Amazon’s lawyers rejected an initial proposal for how to add profit directly into the algorithm, saying it represented a change that could create trouble with antitrust regulators, one of the people familiar with the project said. The Amazon search team’s view was that the profitability push violated the company’s principle of doing what is best for the customer, the people familiar with the project said.”

HUMAN RESOURCES

Striking auto workers say it was their sacrifices during the recession that allowed GM to return to profitability: “The bitter medicine helped reinvigorate the automaker, and for the last several years it has been reaping record profits. Along the way, it has pared its United States payrolls, closed several plants and moved more work to Mexico. Now nearly 50,000 workers have walked off the job at more than 50 GM plants and other locations across the Midwest and South, striking to get what they see as their fair share of the company’s hefty returns and block further erosion of their ranks. ‘We have given away so many concessions over the last eight-plus years, and this company has been ridiculously profitable over that time,’ said Chaz Akers, 24, an assembler at GM’s Detroit-Hamtramck plant, which is set to close in January unless the labor talks can win a reprieve.”

The strike could slash GM profits: “Auto-industry analysts estimate that the walkout—which began Monday and involves roughly 46,000 full-time workers in more than 30 factories across 10 states—could dent GM’s profit by between $50 million and $100 million daily. Stalled production could slash more than a tenth of GM’s expected third-quarter operating profit of about $3.5 billion by the weekend, though GM could make up some lost production once workers return, analysts say.”

The bra company ThirdLove markets itself to potential employees as a progressive workspace for women, but several employees disagree: “Many women saw ThirdLove’s marketing and believed it was a ‘different’ type of startup. Several employees who joined in recent years said they did so because they believed ThirdLove was a female-run company with an important mission and an empowering environment. When they arrived, they were surprised to find [Heidi] Zak’s husband and co-CEO, David Spector, highly involved in their day-to-day work, with a management style described as ‘condescending’ and ‘bullying.’ This about-face was compounded by company norms—don’t negotiate your salary, don’t leave before 6:00 p.m., don’t work from home, don’t skip a happy hour—that felt out of sync with the brand’s external image. … The co-CEO’s behavior during this period, described as intimidating and dismissive, precipitated the exodus of the two teams managing ThirdLove’s image: the brand team and the brand marketing team. Now, an employee says, ‘People are warned against disagreeing with him publicly ‘cause it’s like, look what happened to the brand team.’”

If you were forwarded this newsletter, click here for a free subscription. 

STARTUPS

The Wing is like WeWork, except it’s for women and it plans to make money: “The Wing is often compared with WeWork, which in nine years has opened more than 525 locations and signed up 500,000 membersand which managed to lose $1.9 billion in 2018. That was all in a growth economy; what happens when the next downturn ripples through the real estate and job markets remains to be seen for WeWork and its ilkas WeWork warned in its August IPO filing. [Wing founder Audrey] Gelman contends that her plan ‘is not about blitz-scaling. It’s about creating quality and meaning and doing everything with real intention.’ That’s why, she says, each Wing location so far is profitable. But reaching the next level of growth—and sustaining it in shaky timesrequires a whole new flight plan. The Wing doesn’t rent white-box real estate in random office towers; instead, it leases the likes of its new Manhattan headquarters, a four-story neo-Italian Renaissance building that once housed a women’s hospital wing.”

Several companies are tackling the toilet paper industry because the dominant forces aren’t innovating: “Their strategies include using more sustainable materials, eschewing plastic wrap, improving texture, and perhaps most importantly, designing rolls that look beautiful enough to double as bathroom decor. In exchange, they’re charging more than their old-school competitors, which generally sell a standard roll for under $1. Though Who Gives A Crap has prices starting at $1 a pop, Peach charges as much as $3. … Today’s startups are betting that consumers will pay more for a higher-end version of a commodified product. It’s an approach that’s been wildly successful for some lifestyle brands, like the razor startup Harry’s, and Away, which did this with suitcases.”

Beeflow, an Argentine startup, says it can make better bees: “The beekeepers who help pollinate some 70 percent of the world’s crops charge $435 million for their services each year in the US alone. One way farmers can increase their return on investment is to hire better bees. Argentine startup Beeflow says it has more than doubled its tiny workers’ pollen-carrying capacity by feeding them custom compounds. The nutrients enhance the bees’ immune systems to handle colder conditions and also increase their attraction to the particular flower the farmer wants them to pollinate—blueberries, raspberries, or the all-important almonds. The two-year-old company tested its insect fuel this season in the fields of a major California almond farmer and on raspberry crops for Driscoll’s, America’s largest berry grower. On deck: cherries and avocados.”

TRADE

There’s another trade war brewing, and it could take a huge bite out of European food importers: “The newest round of pending food tariffs is an unfortunate byproduct of an arcane dispute originally brought to the World Trade Organization in 2004 over charges that the European Union supported Netherlands-based Airbus’ airplanes at the expense of Boeing and concluded that the US could impose countermeasures … Last summer, at the urging of American representatives, the WTO deliberated on how the US could retaliate appropriately. In April the US trade representative presented a long list of EU goods that would be subject to 100 percent tariffs.

“Many of the 14,000 specialty-food retail stores in the US are small or medium-size businesses that now would have to pay $200,000 upfront for a $100,000 container of olive oil—half for the product and half for the tariffs. ‘That’s hardest on smaller companies,’ said Joseph Profaci, executive director of the North American Olive Oil Association. ‘That can create a cash-flow problem that will put them out of business.’ The uncertainty is prompting firms to dedicate time and resources to contingency plans, reminding them that imports are always subject to political pressures, said Steve Millard, senior vice president of merchandising and operations at Murray’s Cheese. No one knows when or whether the tariffs will go into effect, or how high they will be, Millard said, noting that Murray’s cannot stockpile cheese because it is perishable.”

OXFORD STRATEGIC ADVISORY DEALS OF THE DAY  

Spy Optic, a designer, marketer and distributor of premium sunglasses has been acquired by Bollé Brands, a manufacturer of sunglasses, goggles, and helmets for active sports. This move is to help expand Bollé Brand’s reach into the North American market.  

SemGroup, a provider of gathering, transportation, storage, distribution, marketing, and other midstream services to producers, was acquired by Energy Transfer Partners, the owner and operator of a natural gas pipeline. The company was acquired for $5 billion, 2x revenue and 14x EBITDA.

Blowing Rock Investment Properties, an operator of a residential brokerage firm, was acquired by Allen Tate, a real estate agency. 

GOING PUBLIC

The We Company is pumping the brakes on its public offering: “Last week, the company amended its prospectus to include the appointment of an independent lead director. It also slashed the strength of Class B and Class C shares so [CEO and co-founder Adam] Neumann would not have 20 times the voting power of other shareholders, and removed Neumann’s wife from succession planning at the company. Even these steps were not enough to comfort Wall Street investors, apparently.”

RETAIL

The Marshall Retail Group’s business model involves creating specialty shops for well-known brands in touristy areas: “While many who pass by its stores may not know the Marshall Retail Group name, they’ve likely been in or at least near one. The company leases space at touristy places such as airports and casinos and creates specialty shops for brands, including Lego, Harley-Davidson and Misura. It operates 170 stores in 16 states, with its newest ‘Welcome to Las Vegas’ store at the Miracle Mile Shops at Planet Hollywood, which opened in August. In all, Marshall Retail has more than 20 ‘Welcome to Las Vegas’ shops in the Valley. ‘We create retail concepts for the traveling customer,’ [COO David] Charles said. ‘What the customer wants, it’s constantly evolving. You won’t find us in general strip malls, that’s not our shtick. We develop concepts, do the design and construction, source the product and staff the store.’”

And that’s what’s ahead.

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com

BECOME AN OXFORD MEMBER