Its stock down, ChannelAdvisor briefs Wall Street on plans to adapt ecommerce strategy

RESEARCH TRIANGLE PARK – With its stock trading near a 52-week low, ChannelAdvisor is focusing its efforts on working with larger brands, indirect sales channels, and logistics going forward, CEO David Spitz told the Raymond James 2018 Technology Investors Conference in New York City on Wednesday.

The Triangle firm’s stock (NYSE: ECOM) has been up-and-down this year, falling as of Tuesday to $9.93 – just above its low of $8.38 a year ago. Its high for the last 12 months is $15.62.

While the company currently supports about 100 marketplaces, helping them be competitive in ecommerce, the its strategy has evolved over the last few years, Spitz said.

“Three or four years ago,” he said, “most of our new customers were relatively small. But we were losing money because we had to spend 60 to 65 percent on marketing.”

He added that the smaller companies’ “churn-factor,” meant they were not good long term businesses. “We’re still burning off smaller customers, but about three years ago we began focusing on larger customers.”

David Spitz

While that continues to drive improvement indirect sales for the company, it also slowed its growth rate, Spitz said. The next growth area for the company has to be indirect sales. “That’s a growth opportunity more leverageable than direct sales.”

Indirect sales opportunities he noted include referral-type-deals and “the big prize,” bonafide resellers. To that end, the company has spent a lot of time making its product, which is robust and stable but complex, easier to use.

“If we can take our product and make it easier to resell, we see a lot of interesting prospects for us. With no cost of customer acquisition, it’s attractive to us.”

The other major shift ChannelAdvisor sees is brands shifting to digital marketplaces. Currently, Spitz said, brands are still on the Blockbuster model of selling through brick and mortal outlets, but they know the “new world looks more like Netflix.”

Right now, “Brands are about 20 percent of our business, but they’re growing at 30 percent,” while its business with smaller clients are only growing at single-digit rates. “It’s a big industry shift,” Spitz notes.

Brands are a much more attractive space to ChannelAdvisor for a number of reasons. Spitz cites “Stickiness, revenue retention, a unit economic perspective and the growth opportunity. The faster we shift over to brands the better off we’ll be.”

Targeting fulfillment

Of the forces disrupting the ecommerce space, including the rise of Amazon and mobile, another important area the company sees as a focus is logistics and fullfilment.

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“We know if a company is not good at logistics and fullfilment, it won’t hold onto its customers,” Spitz said. ChannelAdvisor has started building native shipping into its platform, which also opens up revenue sharing opportunities with carriers.

“We’ve established relationships with FedEx, UPS, and others. “That lays the foundation for indirect sales relationships. Anyone who delivers packages likes ChannelAdvisor,” said Spitz.

The competition the company encounters is most often from a “Do-it-yourself posture. We see a default posture of ‘why shouldn’t we do it ourselves,” Spitz said. Well, because “It’s really hard,” he explains.

Giving just one example, he pointed to ChannelAdvisors repricing facility, which uses machine learning to reprice items hundreds of millions of times a day. “That’s ultimately hard to do in-house,” he said.

What kind of a threat is Amazon’s growing ecommerce dominance? “We think we can continue to create value in a world where Amazon continues to increase share,” Spitz said. “Walmart continues to grow. There are new entrants.” Google and Instagram have created marketplaces for instance.

Also, he said, “Step outside of the U.S. Southeast Asia, China, and others and Amazon begins to diminish. We just announced a deal with Interpark in Korea.”

Tough slogging in China

He admits, however, that “China was tough for us this year. We have a big presence in Europe, which has done nicely for us, and in Australia.” What Spitz called “internal issues” dampened ChannelAdvisor’s business in China in 2018, though. “I think we’ll start to see an improvement in that next year. China is too big a market to ignore.”

Most of ChannelAdvisor’s business with China, he noted, is export. “We help the Chinese sell in Western markets.” That entails some potential tailwinds due to tariffs and other considerations. But a third of Amazon’s sellers globally are Chinese.

“You can’t ignore China in anything to do with ecommerce,” Spitz said. “We’re bullish about our prospects there and in Southeast Asia. There is a lot of opportunity for us there.