Shopify Offers Fulfillment, Amazon Tolerates Counterfeiters, and Delivery Services Squeeze Restaurants

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INNOVATION

Lonnie Johnson, the rocket scientist (and longtime Oxford member) who invented the Super Soaker, which was the best-selling toy in the world in 1992 and has been on the top 10 list every year since, is still working on big ideas: “Royalties from the Super Soaker and Nerf Blaster have enabled Johnson to pursue his dreams in a way he never imagined possible. Born nearly 70 years ago in the segregated South, the African-American inventor has had to prove himself as a talented and capable scientist. His parents picked cotton on his grandfather’s farm and Johnson attended an all-black high school. He graduated from Tuskegee University before joining the US Air Force as an engineer, then later working for NASA.

“While never intending to enter the toy business, Johnson has had the flexibility to move in new directions thanks to his inventions for children. These patents allowed him to start his own companies, Johnson Research and affiliates, and work on projects of his choosing. … Today, he is working on a solid-state ceramic battery that can store more energy than lithium ion batteries and the next-generation battery, lithium air, which can store 10 times the energy of current technology. ‘Imagine driving a car cross-country on a single charge,’ he says. ‘That’s what we hope to achieve with this technology.’”

REAL ESTATE

The future of housing might be found in the desert, specifically in Phoenix: “Residential real estate has long been a fragmented industry. Renting, buying and selling a house generally means dealing with an assortment of local real-estate agents and local landlords, and working with the schedules of everyone involved. Now companies such as Opendoor, among San Francisco’s flushest startups, aim to bring Wall Street-style efficiencies and Silicon Valley software to the housing business. …

“Big investors now own more than 22,000 rental houses in metro Phoenix, and deploy house-hunting algorithms sophisticated enough to spot a sunny kitchen in a good school district faster than a for-sale sign can be pounded into the yard.  … [Arizona] law welcomes risk-takers. Borrowers can walk away without recourse, amplifying busts. Mortgage lenders can repossess in as few as 120 days after missed payments without involving the courts. In March, Arizona’s governor signed a law that cuts red tape and fees for so-called proptech businesses, which could range from companies trying to transform how houses change hands to those that design high-tech home features.”

E-COMMERCE

Looking to compete with Amazon, Shopify is adding a fulfillment service: “Shopify said Wednesday that its new service uses machine learning to forecast demand, allocate inventory and route orders to the closest fulfillment centers. The company is working with logistics providers and software companies in Nevada, California, Texas, Georgia, New Jersey, Ohio and Pennsylvania. … The services are part of a growing array of operations that startups and traditional shipping companies have launched to compete with Amazon’s expanding distribution system, including a Fulfillment by Amazon business that ties its online marketplace for third-party sellers to its burgeoning network of distribution centers and transportation options.

“FedEx Corp. two years ago started a service called FedEx Fulfillment pitched at small and medium-size companies, and delivery giant United Parcel Service Inc. last year rolled out a warehouse platform, Ware2Go, that matches retailers with fulfillment providers. XPO Logistics Inc. launched a flexible distribution service last year that it expects to generate $1 billion in revenue over the next few years. Among startups, Flexe Inc., a Seattle-based online marketplace that connects warehouse operators with businesses in need of storage, has built a network of more than 1,000 warehouses across North America and customers that include Walmart Inc.”

Amazon’s domination of the book business offers a view into what happens when Amazon polices its own offerings: “The company sells substantially more than half of the books in the United States, including new and used physical volumes as well as digital and audio formats. Amazon is also a platform for third-party sellers, a publisher, a printer, a self-publisher, a review hub, a textbook supplier and a distributor that now runs its own chain of brick-and-mortar stores. But Amazon takes a hands-off approach to what goes on in its bookstore, never checking the authenticity, much less the quality, of what it sells. It does not oversee the sellers who have flocked to its site in any organized way.

“That has resulted in a kind of lawlessness. Publishers, writers and groups such as the Authors Guild said counterfeiting of books on Amazon had surged. The company has been reactive rather than proactive in dealing with the issue, they said, often taking action only when a buyer complains. Many times, they added, there is nowhere to appeal and their only recourse is to integrate even more closely with Amazon. The scope of counterfeiting across Amazon goes far beyond books.”

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REGULATION

Enforcement at the Consumer Financial Protection Bureau is down 80 percent from its 2015 peak: “President Trump’s promises to reverse the regulatory actions of the Obama administration have been stymied by court challenges, but his administration is achieving the goal another way: by not hiring people to do the work of enforcing rules that are on the books. At the Environmental Protection Agency, where staffing has fallen to Reagan-era levels, there were 10,600 inspections last fiscal year, down from nearly 21,300 at the height of President Obama’s second term, and less than 60 percent of the annual average since 2001. Civil penalties and criminal prosecutions have hit the lowest levels in decades. …

“Even so, there is growing dissatisfaction among business leaders over the administration’s pace of rolling back actual regulations. Until regulations are eliminated, industry operators still must be prepared for inspections, even if they are less likely. And if Democrats retake the White House in 2020, a new president could easily ramp the rules back up and enforce those that remain on the books.”

San Francisco is expected to become the first city in the US to ban e-cigarettes this week, a move that would pit the city against one of its fastest-growing startups, Juul Labs: “The ban won’t be permanent, [Shamann] Walton said, and will ultimately hinge on a Food and Drug Administration assessment of the health risks of e-cigarettes. Currently, the agency is giving Juul and other e-cigarette companies until 2022 to submit their products for a health review by the FDA. San Francisco’s move doesn’t affect the sale of cigarettes, which will remain legal.

“Juul has skyrocketed in popularity since launching its sleek vaporizers in 2015. In December Marlboro cigarettes parent company, Altria Group Inc., invested $12.8 billion in the company. Even as it comes under fire from regulators, educators and public health officials over the popularity of its products among children and teens, the company has been looking to expand. Last month, The Wall Street Journal reported that Juul is exploring plans to open its own US retail shops.”

STARTUPS

Backdrop is a direct-to-consumer paint brand with a unique user and shopping experience: “Backdrop sells three types of paint: Standard Finish (low-sheen, semi-matte), Semi-Gloss Finish, and Primer. The Standard wall paint is available in a curated collection of 50 colors, which have names like 36 Hours in Marrakesh (warm, earthy pink) and Skywalker (muted, light blue with green undertones).

“You won’t have to purchase a whole gallon ($49) immediately, though. Backdrop sells 12-inch-by-12-inch square adhesive samples, which cost two dollars each. While you typically have to spend $75 on the site in order to get free shipping, these samples are an exception and will ship for free. Once you’ve determined which colors you want, you can use the site’s Calculator to figure out how much paint and how many supplies you need. In addition to buckets of paint, Backdrop offers brushes, rollers, and other accessories to aid you in your room makeover. The 11-Piece Essentials Kit ($45) bundles them all together at a discounted price.”

Wyvern is a space startup using cube satellites (which are cheaper and easier to launch than traditional satellites) to make information about the health of our planet more accessible. Wyvern’s service provides “relatively low-cost access to hyperspectral imaging taken from low-Earth orbit, which is a method for capturing image data of Earth across many more bands than we’re able to see with our eyes or traditional optics. … [Wyvern’s] first target market, for instance, are farmers, who will be able to log into the commercial version of their product and get up-to-date hyperspectral imaging data of their fields, which can help them optimize yield, detect changes in soil makeup (which will tell them if they have too little nitrogen) or even help them spot invasive plants and insects.”

AGRICULTURE

Once-loyal farmers are facing a gut-wrenching decisionplant corn or file an insurance claim: “How much would they receive from the $14.5 billion of aid that Trump promised in May to offset their losses from China’s tariffs, and what crops would they have to plant to receive it? Some rural residents are growing increasingly frustrated with the ongoing trade feuds and wonder how long Trump will call upon farmers to make sacrifices as the country’s ‘patriots.’

“‘People are starting to say, I don’t know how we’re going to survive this,’  said Martinmaas, who voted for Trump in 2016, but says he’s open to a Democrat like Montana Gov. Steve Bullock this time. ‘You know, we’re the ones taking the brunt of it in all these negotiations, so they need to be kind of helping us out right now.’ …

“Martinmaas, whose family homesteaded this land in 1888, said his farm operation lost more than $700,000 last year. He’s had to put a moratorium on buying new equipment, and he’s stuck with grain bins full of soybeans, because China isn’t buying. Other farmers can’t pay their bills for the hay and grain they bought from him. Martinmaas, 69, says he’s skeptical that Trump’s aid package will help, given the uncertainty about how much individual farmers will receive and who will qualify.”

THE ECONOMY

While unemployment rates and Wall St. are posting record numbers, there is still concern for the national debt. “The most recent figure is $16.1 trillion. And under current law, that number will keep rising with no end in sight. … While economists debate the relative merits of tax cuts and spending increases to prop up a moribund economy, few criticize budget deficits during a time of high and rising unemployment. But the current budget deficit is not as easily justified. … In these circumstances the norm should be a small budget deficit, or even a surplus.”

OXFORD STRATEGIC ADVISORY DEAL OF THE DAY

Capital Confirmation, a provider of a confirmation platform intended to quickly and securely verify financial information, was acquired by Thompson Reuters Corporation, a mass media and information firm. “According to Thomson Reuters, the acquisition will expand on the company’s strategic objective to provide more software and cloud-based offerings; it will meet a growing market need for accounting professionals globally, aligning with Thomson Reuters’ focus on its core offerings in legal, tax, compliance and risk.”

VENTURE CAPITAL

Navigator, a developer of an AI autoboot that is a team assistant, raised $12 million in a Series A Round.

Procurify, an SaaS-based spend management solution, raised $20 million in Series B funding.

Rhumbix, a San Francisco-based mobile platform for smarter construction sites, raised $14.3 million in Series B funding.

FOOD AND BEVERAGE

Restaurants and restaurant chains are fighting back against the steep fees purported by food delivery companies like DoorDash and GrubHub: “Some restaurant executives say they were too quick to accept unfavorable terms from delivery companies, fearing they would otherwise meet the same fate as clothing stores and bookstores whose sales have been felled by online delivery. … Delivery can also complicate the economics of franchise-run restaurant chains, sometimes benefiting corporate owners who rake in additional revenue while franchisees shoulder the burden of paying commissions on their profits.

“For instance, McDonald’s franchisees have complained publicly that Uber Eats erodes their margins. McDonald’s, for whom delivery is a $3 billion annual business accounting for nearly three percent of global sales, in 2017 signed an exclusive contract with the Uber division in the US and other countries. Company executives have pledged to improve terms for franchisees.”

And that’s what’s ahead.

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

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