EP214 - Stifel Managing Director Scott Devitt on Covid-19
Episode 214 is an interview with Scott Devitt, Managing Director of Internet Equity Research at Stifel, in which we discuss the potential economic impacts of Covid-19.
In this interview, we discuss the travel, hospitality, and e-commerce industries, with a deep dive into some of the factors that will impact Amazon.
To receive Scotts research and analysis, send an email to him firstname.lastname@example.org and ask to be added to his distribution list.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 214 of the Jason & Scot show was recorded live on Thursday, April 2nd, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scott show this is episode 214 being recorded on Thursday April 2nd 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scot show listeners hopefully everyone is surviving their quarantining and shelter in place
and Jason and Times of Crisis like this I find I get really down in the weeds it’s kind of just pulled out plow through everyday grind it out
but sometimes it’s helpful to talk to folks that work at a higher level they’re seeing a broader spectrum of not only
companies but Industries and then the macro environment and the best place to look for that is Wall Street So to that end we are excited to have one of the top internet analysts on the show Scot debit
Scot is managing director of Internet equity research at stifel welcome to the show Scott.
[1:21] Hey guys thanks for having me.
[1:23] We are thrilled to have you Scott other than the fact that I am now feeling outnumbered to Scotts to only one Jason.
[1:30] Yes the between the three of us we have two of us we have three teas.
[1:34] Yes the S is are also popular so it’s got a tradition on the show we always like to start getting a little background about the guests so could you tell us a little bit about your background and then what your your area of focus or your role is its default.
[1:47] Sure sell-side analysts and cover the consumer internet sector.
Mostly u.s. space companies and the sub sectors include e-commerce you know so Amazon
that’s see Peloton the real Railway fare Stitch fix but we also cover Alibaba and JD in China and then their digital names include Netflix and alphabet we also Cover online travel and the ride-sharing companies as well.
[2:20] That’s awesome and have you always been a cell size analyst or how did you how did you come to the veal.
[2:27] Sure I worked in industry for a few years mostly at Dell after graduate school and then for the better part of the past 20 years I’ve been
I’ve been in this role started out as an associate analyst working for a senior analyst back in 2000 and then it kind of worked my way into the
into the role shortly thereafter we cover my team covers about 35 companies in total us internet.
[2:56] Pickle so your Universe for kind of folks on the phone so on the e-commerce side you have Amazon Ali Baba at see everywhere you put Peloton there’s that e-commerce you think of it I guess I think of it as a digital native brand.
Real real Wayfarer Stitch fix and then you also cover Netflix you mentioned all that Google.
JD JD on your list.
[3:21] GD GD booking Expedia Uber Lyft yes.
[3:25] Yep and we’re looking cool let’s start at the big picture and then we’ll kind of peel the onion as we go as it were.
So clearly this pandemic were as a recording this the jobless claims came out six million new jobless we’re going to clearly,
but the economy into a bit of a tailspin here what’s y’all’s big picture on kind of the how this plays out is this a v-shaped recovery is this 18 one thing a six-month and give us give us an overview of kind of the
the big picture.
[3:54] Yeah I can.
I can give you my personal view of that from just a macro overlay standpoint I mean I think I track the data every day as does everybody else and
it’s pretty rough out there right now
but you know but hopefully we do kind of get to the other side of the virus and you know the underpinnings of the economy going into this we’re quite strong
their stimulus behind us so you know I think my base case you know that then influences
my coverage and and modeling of internet companies would be something between like a V and a U-shaped recovery on the back of this and in as it relates to.
[4:42] Internet specifically we expect the advertising business to be down
ten to fifteen percent that’s roughly in line with what it was down in the o89 crisis certainly at the bottom
you know it could be worse but but that’s a good starting point until we start to hear these companies actually talk about current conditions e-commerce interestingly
right now is running above Trend because of the mix shift the Staples and groceries so overall recently Trends have accelerated according
third-party services like Adobe data today to 20% plus but
you have certain categories that are down as much as fifty percent in grocery that’s up as much as a hundred percent so very much depends on the products that one is selling within travel.
[5:32] And and and ride sharing which is tied to travel you know conditions are quite weak down 50% or more very much tied to the
the airline and hotel industry so that gives you a broad kind of picture of like the base case it’s now built into our models if I had to guess you know I would guess
are numbers you know probably going down further before they go up.
[5:58] Yeah yeah and so if we can think about how this will play out people report q1.
The quarter just ended so we’re going to have kind of 45 days of that and then you know they’re only going to have kind of a 15 to 20 day view of how things were right well the time they report that may be able to shed some more color so just feels like we’re gonna have a lot
you’re probably three to six months of bad news before we can kind of get to the good news of if I think through the way that all plays out.
[6:27] It’s probably in the best interest of companies to
just remove you know any any formal guidance for remained other year and you know potentially give qualitative assessments of current conditions but beyond that
just wait until more information is available and I think that’s probably the the best approach that corporate could take right now and some companies have begun to do that
Twitter data at the few other companies did it outside of our my coverage universe but you know a simple related company Shopify did it overnight so I assumed that
any company that does within my coverage give guidance is probably going to pull it back when they report.
[7:09] Yeah absolutely so let’s start at the the most heavily hits this travel industry you know I saw something that said like Travelers or down 92%
Jason’s are most frequent traveler and I have he hasn’t traveled in like four weeks so he must be just chomping at the bit.
[7:26] The I did something last week that I haven’t done in about 4 years I put my suitcase suitcase away.
I mean it sounds silly but it felt very weird.
[7:40] So so for that to come back Scott what do you think they have two you think we’re going to like change the configuration of planes so that we’re six feet apart going forward or like what what do you think it takes to kind of build confidence back in that industry.
[7:55] I think it will be a slow rebuild it’s hard to kind of determine.
[8:00] You know consumer Behavior coming coming back out of this and you know how corporations like say the airline industry you know will need to operate for a period of time
it’s probably too early to guess but but
but spaces in between seats is an option initially that’s not something you know that’s in place now but the flights are so empty that it doesn’t really matter
and you know I think I think in the end.
[8:34] The airplane configurations will likely be consistent with what they were historically but as we come out of this and consumers you know again
we gain confidence and things like
traveling you know that you could have instances like that and you know our expectations for the online business which is you know directly tied to Airline bookings and hotel stays is not down
you know as low as like the occupancy levels that you hear some of the hoteliers talk about what your 10
yeah roughly 10 15 percent but that’s just because we have built-in expectations of you know recovery starting
you know this summer which may prove to be
optimistic so are you know the bottom of our estimates get down to you know closer to fifty percent versus the 80% because month by month we actually begin to assume that things recover and that’s like I said
a few minutes ago you know in many cases I think as we update things you know our expectations will slowly grind lower you know as we get more information.
[9:34] Yeah I haven’t been I’ve been so focused on my own stuff I haven’t really looked at the ride sharing group have they been hit as hard as the travel industry or people still using ride-sharing in a pandemic scenario.
[9:48] No it’s about the same.
And it’s it’s very much tied to that but even even with the lockdowns that are occurring you know where you don’t have trips that are directly tied to travel
you know those are down meaningfully like like in some cases close to a hundred percent our estimate for to queue for ride sharing is down 50.
And and if the lockdowns hold through June you know then that will prove to be.
And aggressive estimate numbers will be lower than that.
So you have to look at these companies you know to the extent that your your listeners focus on things like this you have to look at these companies and look at balance sheet you know and things of that nature because some of these companies are going through a period right now
where if they don’t have solid balance sheets they could run into some considerable troubles.
[10:41] Yeah absolutely yeah it’s a lot of people didn’t have Pandemic in their crisis planning.
So you talked about within e-commerce obviously grocery is kind of over indexing and whatnot and then he said some categories are down as much as 50% what are what are some of the categories that aren’t doing well in e-commerce.
[11:02] Let’s see fashion down 51 percent according to one of the data sources that we look at.
Luxury retail down over a third e-commerce you know in aggregate
outside of Staples and grocery down almost 50% so anything that is.
Really consumer discretionary with a few exceptions
or down because you have you know offsetting that you have some of the stay-at-home benefit like
things like fitness equipment and you know other categories that are holding up better because PCS are doing quite well because people are rebuilding offices at home
and you know but the biggest driver right now of this growth this kind of 20th percent growth is just a mix shift
to grocery which is you know lower margin category but from a volume standpoint you can definitely see it in like Amazon’s hiring plans.
[12:07] Yeah you know it’s been funny like there’s there’s categories that that are up that are intuitively obvious like you mentioned that you know everyone’s buying the equipment for their work at home setups or their teach at home setups I’m always fascinated by the sort of.
Less obvious trends that start to emerge so across a bunch of my clients a product category that’s wildly up that makes sense but I would have never thought of is adult puzzles.
You know step stuff I got his people.
[12:37] That doesn’t make sense after you bring it up.
[12:39] Yeah once you see it you’re like oh yeah of course but those are the kinds of things and and you know what we’re starting to see what we didn’t see in the first two weeks but we’re starting to see now is all the at home.
Beauty care right so you know set everyone realize they’re not going to get to their salon and have their hair recolored or their nails done or their haircut and so suddenly everyone’s on YouTube learning how to trim their own hair with clippers and everyone’s buying.
Clippers and at-home hair kits and things like that.
[13:10] Yeah what’s most interesting you know that I found
in going through other other down Cycles whether it was you know mm or 108 o9 is that some you know is monitoring these changes in consumer habits
And trying to assess those that don’t revert bat because from an investor standpoint you know I think the internet generally speaking tends to be a
a significant market share Gainer
on the back end of down periods and and those consumer habits that change to something that is
better than what they were doing before under normal conditions consumers are very slow to change but in periods like this
they have to out of necessity and so that tends to drive you know significant kind of investment opportunities when you do get to the other side that benefit names like.
Amazon and an alphabet and and and and maybe even a Facebook but also something like a Peloton you know that a cover where there is an underlying Trend underway to Fitness in the home
that you know potentially is accelerated by this and it really doesn’t slow down on the back end of it.
[14:25] Yeah it that that is fascinating and difficult to figure out right because there’s some categories where you go it’s pretty obvious it’s not going to revert so if you bought a Peloton your.
You’re probably not joining the gym in three months or at least your you’re less likely to because you have that.
Capex now that you’ve invested in at home fitness but if you were having your groceries delivered.
[14:53] It’s a completely open question whether you’ll keep having your grocery delivered after the pandemic or whether you’ll go back to.
To shopping in the grocery store and I bring up the grocery one in particular because they’re it feels like there’s any even extra Paradox there like obviously with everyone Sheltering and home we’ve got.
Way more people trying at home grocery delivery or trips had grocery delivery than ever before which which the digital groceries are thrilled with.
But the experience that’s being delivered is the worst possible version right so.
You know every delivery is late every delivery is missing a bunch of items and has a bunch of you know weird inappropriate substitutions and then all these things and so there.
You know amongst the folks I’m talking to it’s a super open question like they’re getting way more Trials of their service than they ever had and could ever imagine but many of those customers aren’t having a great experience and are using it out of necessity so once.
Once this sort of pandemic a baits like it feels like a really unknown.
How much are those those behaviors stick or how many of those customers they lose because the experience was some up you have any like how do you even think about that but.
[16:04] Well you know everything is a hypothesis right now and.
Giving given where we are you know my with I totally agree with it with everything that you said in terms of it’s not necessarily a better experience you know groceries been slow to transition for reasons Beyond just consumer
the pace of consumer habit change because going to the grocery store is actually still quite convenient what may come of this is I think in the case of grocery you will you will very likely get a reversion back to
going to the store to get groceries because it’s still quite efficient and cost-effective but that you may have consumers more willing to,
supplement the experience with you know certain.
Categories whether it’s whether its buying the dishwashing detergent and things that hadn’t come to mind that that the consumers now realized that is readily available to get delivered to the home that could have an impact on overall trips
but you know it’s a it’s not one where I think you’re going to have a full-scale transition
over to direct distribution of grocery they’ll be some benefit it won’t be near what you’re seeing at the moment.
[17:19] Yeah I wanted to go back to something else you had said earlier like obviously you know they’re all these categories that are.
Wildly down and you know they’re mostly implementing austerity measures and trying to you know figure out how they can weather this and and you know we’re all trying to figure out.
How whether it’s a v-shaped recovery or a U-shaped recovering what that looks like.
I wonder if there’s a difference though like some of the categories you’re talking about like airlines are hotels I know I know there’s an occasional debate but like I think in general.
It’s known that there are nominally profitable models or at least the unit economics are favorable and they you know Airlines and hotels have demonstrated that they can deliver their services profitably and so.
When when they’re thinking about a recovery they’re trying to get back to where they were before but you know there’s a bunch of these businesses like Rideshare and Uber where.
Like nobody’s demonstrated that the unit Economics work so when they like lose all their revenue it just means they’re burning through their investor were War chest faster than ever before.
Like is it our those companies are less likely to have a recovery than companies that have a viable unit economic model or or.
You know do you feel like that Uber is going to be in the same shape afterwards that they would have that they were in before.
[18:43] It’s a great question on one hand Uber and Lyft or much less levered,
but they’re not they weren’t profitable businesses going in the way that the Airlines and hotels were but they’re certainly much less levered
then the airline industry so if you were to this is something that boobers said publicly if you were to run bookings down 60 to 80% for the rest of the year,
Uber still ends the year with four billion dollars of cash and and access to a two billion dollar revolver left in fact doesn’t have any debt so you know there
they you know that seems like a
pretty close to a worst-case scenario in terms of that we stay down here for the rest of the year so I’m comfortable thinking that neither of those companies has balance sheet risk but to your question whereas in the airline industry
certainly without the the.
The federal government providing funds that whole industry potentially you know would go away before the end of.
3Q if not to Q because of the leverage in the model and.
[19:53] And so I think you know we still have to prove the unit economics of ride sharing any other side but to the extent that travel does recover you know I think that both companies sit in.
In relatively strong positions and the question for everyone involved in that industry hoteliers.
Airlines in ride-sharing is what do volumes look like
Under The New Normal on the other side to Scotts earlier question of what have Airline configurations look like how do people travel what a conferences look like and how many are done virtually Etc all those things that we don’t yet know yet we’re going to have you know
potential long-term ramifications on on the trends across that industry I’m you know of the view that we will get back to
normal at some point in terms of people traveling the way that they once did but that could be much longer than other Industries in their past back to normality.
[20:51] Yeah so one other question I know Scott super eager to get to Amazon and I promise we will in a second but one other question to benefit all the CEOs listening to the show this week
a pre-pandemic a common conversation I would have with a retail CEO is.
This challenge around making strategic Investments because there’s lots of strategic Investments that like the CEO
knows that they need to implement for the long-term benefit of their company but many of them have adverse effects on short-term revenue and profitability and you know
frankly like most CEOs feel very locked into.
Performing against their comps and so while there’s a ton of negative stuff about this pandemic.
Like I have a hypothesis that like one small Silver Lining is like a lot of businesses are going to be off the hook for comping this year and they’re like they’re they’re me you know maybe a one time opportunity for.
Companies to sort of reset expectations with their investors and make some more forward-looking Investments since.
Like for most businesses there’s just there’s no hope that they’re going to favorably comp against last year given this like.
Am I thinking about that right or is that is that just Whimsical thinking on my part.
[22:12] I think it depends on the depends on the the impact you know.
Current conditions at any individual business in terms of like the first thing to address our current conditions to the extent that one can address current conditions and still have the flexibility to think about strategic,
options that are deeper into the future and have a capital position which they can deploy Capital then I think your
your scenario in a makes sense because no one’s really going to be looking at at numbers in the near term in terms of profitability outside
just flat-out solvency so I think every situation is quite unique to what that Corporation is dealing with.
[23:00] Coppola wouldn’t be adjacent Scott show if we didn’t dig into Amazon a little bit what’s your what’s your macro thoughts on the impact of the corner virus on Amazon.
[23:11] Well from an e-commerce standpoint you know I think that Amazon is is.
Doing quite well you know mix shift certainly to cpg grocery,
you know could have margin implications I’m sure there’s costs Logistics wise and hiring wives to deal with this you know that.
[23:40] Could have impacts on profitability they’re seeing a mix shift you know away from FBA right now because of the way that they prioritize
Essentials and that has a negative impact on 3pf be a yes so there’s there’s Justice
kind of the minutiae if you will that you know has a net negative impact on the margin profile of the business but I think the
power the strength of this company within e-commerce is more evident today than it’s ever been and Amazon’s of pure example of when we do come out of this a company that will be in a stronger position because
if the government doesn’t seem to be focused anyway on saving the retail industry
and so you had a companies that were on potentially week paths before this
which those paths have been accelerated on you know Macy’s in is an example that’s been in the news in the past week and that happened during the oh 809 crisis and a lot of that share gets reallocated among
the strong company is the same thing will happen again so e-commerce wise I think never been stronger
really and and this is the shines a light on
I think the power of Amazon’s model within their Cloud business you know you’ve seen some data points out of Microsoft that also showed that the way that the economy has transitioned
you know in some ways at least is beneficial to the cloud business Amazon’s like.
[25:03] Spin as it relates to investment ideas probably the most Rock Solid company in fact it’s the off the checklist but I think it may be the only company that I cover that was up.
Year-to-date through 1q the stock is actually up in 1q.
[25:20] So the cloud I could almost argue that they could have some challenges are because it’s a lot of startups using the cloud and we’re gonna probably have less the failure of startups is going to spike for sure and less new starts but
the same time you could argue these larger companies are going their workloads are all going to continue to move to the cloud I guess do you think Amazon’s delivery.
Capability I was thinking through this someone’s so that there is they did that one day walk out and then they fired that guy,
and they said he wouldn’t keep social distancing and I’ve been doing Amazon warehouse before and people are like shoulder-to-shoulder at some of these pick lines I wonder if it’s reduced their Cape their capacity just having to do implement
social distancing and procedures like that at the warehouses have you seen any data on that.
[26:11] I’ve not but I but I think that is.
That is likely yeah that may have an impact on overall efficiency yeah I mean.
[26:21] To your margin point.
[26:23] Yeah that you know have an impact on margin and of course you’re seeing you’re seeing I’m sure in your personal life changes in delivery times and things of that nature but that’s more related to this
favoring of Essentials than anything else but as it relates to efficiency I’d be surprised if it’s not down.
[26:40] Yeah it’s interesting when I talk to Merchants you know to your FB a point there there actually,
you know a lot of people have a hybrid model where they’ll have some stuff in FBA and some stuff out there for the first time ever the stuff that’s not an FBA is getting much higher pull through than the stuffs an FBA because it seems like Amazon is putting these really long delivery times on the
the non-essential FBA stuff so then I think we’re also seeing that spill over into the other e-commerce providers that people normally.
Wouldn’t start out like a Walmart or Target I know they’re not in your coverage University think you think they take a little share from Amazon here or,
the share is really the way to think about it is the Commerce guys take a ton from the offline guys that are closed and that’s how to think about it.
[27:27] And and you’re speaking to like Walmart’s Marketplace business or just Walmart in general.
[27:34] Just just I guess more their e-commerce business you know I’m seeing more people online anecdotally saying you know gosh I’m ordering from Walmart and Target now because the delivery times on Amazon of gotten so long.
[27:45] Yeah yeah certainly I think that Walmart.
Costco come to mind less familiar with the activity at Target right now but I would assume they’re getting a bump in their business as well so.
[28:02] All four of those companies I don’t cover three of them but it’s safe to assume they’re all seeing lifting their business as it relates to like share shift within e-commerce you know potentially
there could be some of that because of the way that Amazon’s D emphasizing FBA but but I think they’re probably doing well.
Holding their own and you know and doing quite well in terms of delivery guarantees on
the essential side which is where all the growth is right now I’ve just anecdotally you know we I think we’ve probably had 15 Costco boxes in the last you know two weeks show up and you know it started out on time
then before you knew it you know the delivery times were backed up a good five days we had a Wegmans order
you know that it took five days to wait to go pick it up at the Wegmans by the time that 5th day came up they canceled the order so I think you know many companies are
we’re having issues you know and I think Amazon’s probably relatively well positioned versus even those bigger traditional
General merchandisers as well but you know we’ll see I mean earning season it’s going to be the craziest earnings season
since you know I’ve been doing this in 20 years and probably I think some that have been doing this even longer than that I’m not sure how far you have to go back to to have something that’s comparable
you know to this but we have a lot more information within the next two to four weeks as companies speak for the first time about current conditions.
[29:31] You know I feel like Amazon’s investment in their own delivery network is
they obviously didn’t know this was coming but it was very very smart because now they don’t have to fight over that one FedEx truck that’s making it to my neighborhood every week they have six Prime vans.
Spin around and doing that so I think that’s been a huge Advantage for them to own the full vertical ization of that supply chain.
[29:57] I totally agree and having so many different
distribution centers as well I mean they haven’t been impacted in the way that some of them my smaller coverage has like like the real real as an example
they have to fulfillment centers in the US they both been shut down for different reasons you know so so the fact that Amazon is so distribute in the way that they are
there haven’t been any noticeable issues that have made it into the media but even to the extent that they do run into
issues at certain places they can reroute you know and still deliver to the consumer.
[30:31] Are you in the camp that Amazon ultimately competes with FedEx ups with her fulfillment or do you think they keep it as an internal capability primarily.
[30:42] I’ve I’ve always had the view that their competition with FedEx and UPS is more about pulling.
Product off of that grid and into their ecosystem so effectively FBA.
And in combination with an increasing percentage of the fleet being Amazon trucks is the way that they.
Ultimately compete with UPS and FedEx versus the more think creative out-of-the-box thought that they that they ultimately provide
similar services to those I think they’re already having an impact in terms of just simply the way that the.
That the size of Amazon’s network is growing that it’s pulling product outside of UPS and FedEx and that’s kind of been my.
My base case for the direction that they’re heading that’s all that they’ve shown to the outside world
you know to date and if that changes you get more visibility to something more distinct than you know change my view there but I’m not I’m not over the view that they’re building
UPS and FedEx internally.
[31:49] Are you following and worried at all about what happens to USPS and all this because it like is you probably know.
The post office is Amazon second.
Biggest delivery partner after themselves and for most of the rest of e-commerce it’s the biggest delivery partner and they’re in serious financial distress they you know weren’t included in the stimulus package so it’s
it seems like their future is uncertain.
[32:18] That’s a problem,
I did see that they weren’t included in the package and and you know there have been other rumors around as well in terms of their operations during this crisis so I mean that’s just going to be something.
It’s an important partner of Amazon so you know it’s definitely going to be something that could be a problem to the extent that their activities you know slow during this period or
or even you know beyond this period that the Postal Service struggles to operate I again in this area My Views been that.
The government will ultimately keep the Postal Service.
Running because it’s necessary you’ve seen some political.
Kind of calisthenics around this topic and that Amazon is not paying enough but
but without Amazon them in the you the Postal Service would be an even worse position so it’s kind of an interesting debate and one that will continue on but but I don’t think the Postal Service you know we’ll just we’ll just go away it will get funding
even if it comes at the last minute.
[33:30] Yep yeah I certainly hope so it’s hard to imagine a world without it what one thing you know you talked about.
E-commerce in the mix being you know shifting much more to Essentials and so there’s there’s sort of winners and losers in that.
One thing that I imagine is a bit of a bummer for even the winners is it feels like this new mix is fundamentally less profitable right so you know I know you don’t follow Target but like targets an example where
they’re ordinary mix with skewed heavily towards non grocery Grocery was a much smaller piece of their total mix than Walmart or Costco.
And so now that you know they’re mix is skewing heavily towards grocery that.
Grocery is systemically less profitable and then the way that all these guys are having to deliver grocery right now all the extra hoops and supply chain challenges.
It feels like it’s less profitable than ever.
[34:25] I agree the only one that doesn’t have quite the same impact so that would that would have an impact on the Amazon Walmart and Target left so Costco because of their markup model Costco you know
Garner’s a higher margin on their Kirkland brand you know which is probably not doing well at the moment
relatively speaking in terms of
product mix so that they have a little bit of a wait there but they’re markups across their business outside of Kirkland or quite consistent so they’d be the only one I’d say that
that wouldn’t see a meaningful margin impact outside of Kirkland mix the other three
certainly you know will have a lower margin impact benefit of mix but but the downside is percentage margin.
[35:13] Yeah and that you the those retail exclusive Brands is another interesting one on following pretty closely because.
There was already a strong Trend consumer preference with shifting to these exclusive Brands and they are better for the retailer and there’s a lot of good economics attached to them.
But my hypothesis is another secondary impact of this pandemic is.
Consumers are much more open to substitution and they’re trying many more new brands than ever before so if you were super loyal to Charmin toilet paper.
Right now you’re just thrilled to get any toilet paper right so the toilet paper you get is Presto brand from Amazon.
How many consumers will decide that Presto is good enough and not go back to Sharma.
[35:57] Time will tell and you know the throw another wrench into things when you get when we do get to the other side of this you know,
if one thought that China supply chain.
Was you know a risk to retailers prior to this I’d have to think that these things are only going to get more difficult
on the other side without going into into depth in that area a you know I do think that the possibilities of nationalism protectionism and things like that certainly could emerge out of this and have impacts on the retail industry.
[36:39] Yeah so like thinking specifically about some of these ecomp layers that you follow argue you mentioned Stitch fix real real.
You know what is going to happen with those I think of Stitch fix in particular is like.
The largely been the the direct to Consumer internet darling but then you know their last earnings were slightly soft and now they’re in this category apparel that’s that you know has a ton of potential head winds as a result of the pandemic.
[37:13] Yeah so let me quickly hit on the others for that stand out that are you know kind of that
small mid-cap e-commerce company Stitch fix is on that list and the Stitch fix customer one of the.
More meaningful use cases for the product is.
Dressing for work it’s not many people you know are doing at the moment other than those that have cameras in their house and are on news channels and so I think that you know Stitch fix his business while
it’s one that certainly has the potential.
[37:48] And and I think was was executing on becoming a leader in in soft lines in this new world of distribution there
they indicated you know some potential weakness in the coming quarter and I would imagine that that.
[38:04] Is is likely happening if not even worse the real real I mentioned
you know which is used luxury items they long-term I think their business model is sound short term
they are not shipping product out of their facilities now because of not being an essential business
in California New Jersey where where those states are on lockdown so you know they’re operating but they’re not they’re not currently shipping out of the facilities
wafer is in the furniture and Home Goods business wafer is not a profitable business and it’s one that it tapped been tapping the debt markets and so you know that lack of profitability is something that
concerns investors especially when one has Leverage.
[38:51] You’re comfortable thinking that that they will be that their brand will resonate you know similar on the way out of this as it did on the way in but I think that’s a company that
in terms of the stock itself it trades more like a leopard business like an airline you know than it does an e-commerce company at the moment because it’s the one that has the most
that of these names in the final one would be at Sea which is just a discretionary item Marketplace business which there
operating at a very high level but
I would assume demand for their products is down considerably right now so you know their numbers will likely be week as well and I put them on one side of the grid is Staples and Grocery and
and the other side is everything else you know at see each one of these companies falls in the other everything else which is down 2250.
[39:42] That’s how I could almost talked myself into a contrarian view because you know Jason talked about adult gaming and
playing puzzles and stuff you can almost think if people are stuck at home it may be a good time to pick up a craft and maybe they benefit from that some degree but I guess the macroeconomic would probably swamp that.
[40:00] Yeah well I yeah I I could talk myself into anything right now and I think that’s the it’s certainly.
Certainly possible and I think you know they will probably whether it better than you know than eBay across their broad set of categories for that reason you know but,
I just don’t know you know there’s not a data source that I can point to that that fully confirms that but I think that anecdotally you know I’ve heard similar things in that category.
[40:32] Let’s talk a little bit about eBay I actually.
[40:35] Before we go to eBay Scott one other thing I was just curious on Etsy like the so it does seem like in the short term they might get more sellers right as people get laid off and.
Turn to Etsy but I like another long-term potential benefit for Etsy is I’m growing increasingly concerned about what holiday is going to look like for everyone because of supply chain disruptions right so ordinarily.
The big retailers would be planning and executing their holiday supply chain right now which you know is much more difficult and.
Like basically a hundred percent of the toys that everyone buys for holiday come from a Chinese supply chain that’s pretty heavily disrupted like there’s a there’s a contrarian view of my mind that.
People might be getting a lot more Etsy gifts for Holiday than ever before because the traditional options might be diminished.
[41:28] That’s possible offsetting that they have you know a good bit of business that’s event-driven.
Weddings and things like that and so you know it’s hard to tell but I think you know I.
That’s it to me is a very Sound business it’s well-managed it’s not levered you know and as a Securities analyst you’re thinking of stocks like that’s the type of business that.
I would want to be building a position in knowing that at some point we’re going to get to the other side but I probably wouldn’t be building a full position with the amount of uncertainty with where we are in the process right now if that makes sense.
[42:04] Makes sense so on eBay I haven’t been following very closely in the last two years I know I know the CEO left and kind of a prompt manner what’s going on with eBay these days.
[42:20] Well I mean the closest StubHub deal that was a in hindsight a Herculean effort business effectively.
Shut down shortly thereafter in terms of business operations and so the fact that they were able to get that deal done was Quite a feat
I wouldn’t feel good to be on the other side of that transaction you know at the moment but um but as it relates to that’s just you know financials and gives them access to Capital to
continue to buy back stock over time as they’ve been doing you know the underlying kind of fundamentals of the business.
[42:57] I think can before covid-19 through and on the other side and continue to be week I mean I think it best.
EBay gmv is a GDP plus a couple points you know business and and at worst it’s GDP or point less and that isn’t
is not something that I think is hugely problematic for the stock because it’s kind of priced for that.
As the way they you know we all tend to think of the world in terms of growth assets it’s just it’s not a growth asset and more and I think that’s the way that you think of it in terms of the way it’s impacting them right now
given the categories that they’re in in the fact that they’re not in the areas that have all the growth is that their numbers will be weaker than that that Trend you know near-term and more consistent with,
with overall e-commerce Trends and then when we get back to run Ray you know this business will be growing two three four.
Best case five percent again and that’s eBay.
[44:06] Yeah yeah do you think they get acquired or they just kind of muddle along it kind of to 3% for the first syllable teacher.
[44:15] Well the list of buyers isn’t particularly long but.
You know so so Ali Baba doing something and.
Even before this with the current Administration was near impossible to the extent that they ever even had an interest you know the one that’s most stood out to me.
In terms of not saying it would be a fitness area but in terms of the perception that it would be a fit would be Walmart you know but
but you know outside of that like I said I mean list isn’t particularly long and you know I don’t have a strong view in that area in terms of whether they get consolidate or just kind of slowly but surely
privatize the company through generating cash and buying back stock.
[45:05] One other thing you mentioned at the top of the show that you know you’re going to you just paying a fair amount of softness on the advertising side in my day-to-day it spiffy we do a relatively.
For us a large amount but it’s very small compared to other folks but the efficacy has gotten way better on digital advertising Jason may have a point of view on this to because it just seems like there’s a lot less competition out there for
which you know it’s an auction so it drives the bidding so so we’re actually seeing very positive things on Google and Facebook for example
what say little bit more about what your hear what you’re thinking about Google and Facebook and how they’re going to fare through the next three to six months.
[45:49] Yeah well that’s great I mean I think that one thing to consider with the advertising you know marketplaces is travel as is you know
roughly fifteen percent of the industry and so
if that’s down 50 to 80 you know you get as much as 10 percentage points of drag just alone from travel and then you have.
You know the the mix shift in terms of towards Grocery and Staples that really I think right now.
Those that are Distributing those products have less of a need to actively market and then you have everything else which I think is you know where you’re talking about whereas if you have product that selling
the efficiency of the advertising right now is probably higher
then it’s been since going back to Oedo 9 when news of what smaller businesses if you had a product that was selling but everything else you know that’s down their ad budgets are down commensurate
with their revenue so the fashion industry fashion e-commerce you know down 50 they’re not spending on on advertising and so there’s a whole like mix of
the aggregate advertising industry numbers and that’s why in aggregate you get these numbers that are down 10 you know worst-case down as much as 20 but if you have a product that sells.
You know right now I would imagine that your rates are as effective as they’ve been in years.
It’s interesting it’s I think you’ve hit the nail on the head it’s complicated because there are like Windows of opportunity there but there’s some you know pretty big scary macro Trends as well.
Someone that whose salary is largely paid from advertising on I’m trying to follow it closely but I have no idea how it’s going to play out.
I want to do sort of.
Pivot to thinking about the big picture long-term just a little bit as we kind of get close to wrapping up here the first thing that strikes me in a bunch of these segments even if the segments down are the categories down it seems like we’re.
There’s a lot of acceleration of winners and losers so I know you mentioned a perils heavily down there’s a ton of challenges in a pair at all.
Nikes probably better position than a lot of their competitors to whether that down Ness and emerge with.
Greater share versus their competition for example right and Walmart and Costco my you know are likely to emerge from the retail category stronger than some of their traditional competitors like.
Big picture does that does that just eat mean consolidation and to fewer stronger Brands and retailers and as like.
You know does that create investment opportunities or is that like fundamentally bad at like you see it playing out like that.
[48:37] I absolutely do I mean I think that to try and put it succinctly Darwinism you know is accelerated during times like now and so.
You more so than ever want to own leaders and leaders will win on the other side I mean this is a
horrible period in human history but but humans are resilient and you know it’s highly likely we’re going to get to the other side of this hopefully sooner rather than later and you know this is why companies
the best companies do the best through all environments and you mentioned Nike there’s a good list of very high quality
Brands retailers and otherwise that when we do start coming up will be significant share gainers unfortunately,
either either in a very weak.
[49:31] Categories in terms of like department stores where the world is just moving away from that generally you can still be a great operator but it’s the power of the the industry that’s dragging you know the business down or you could just not have a
great business those won’t recover and you know and I think you saw to know 809 you’re going to see it again here
if you’re building a portfolio of Securities you know and your and you think about the safety of,
of your positions versus being lever to recovery I think a lot of those blue Championship names are the names that you want to be building positions in
right now Amazon you know on that list and certainly at the top of it but Google
you know as well you mentioned you know others that that I don’t cover but there’s a long list of other names as well.
I bet Mike you would wish that they were maybe selling through Amazon at the moment but that’s a different different topic maybe maybe they will.
Some resolution there although I doubt it that would be interesting because that would help for the time being.
[50:34] So you know what’s funny about that so.
I do want to double click on that one because it is it’s coming up a ton I have a feeling there’s a lot of people that weren’t selling on Amazon that wish they were and you just hit Nike but the.
It is also interesting there are a lot of people that were single sourced on Amazon so they looked at Amazon as their primary path to Market.
Um and a bunch of those sellers.
Are really taking it in the shorts right now particularly their non-essential category so if you are a business that was built exclusively on Amazon FBA.
You are and you think you’re going to have a future at all you are right now planning a future where you’re no longer a single Source on Amazon right so you’re either talking to Walmart about being on their Marketplace or at the very least your.
You’re thinking about applying for you no vendor fulfilled.
Prime or you know augmenting Amazon with some 3pl services like is there like clearly the macro Trends are going to favor Amazon but I wonder if they lose a little bit of Market
please share as as their Partners try to diversify themselves a little bit.
[51:45] It could happen under the service is so strong when tied in with prime under
99.99% of operating conditions you know excluding this moment in time that I think that you may have you know vendors that build emergency capabilities in or
being able to Source themselves or even layering in additional marketplaces but for the most part FBA will you know
what will likely go back to right where it was
when this ends I mean that’s just that’s my view because of the power of the product but but in the meantime I think what you’re saying is you know is absolutely accurate in terms of that there
going to be contingency plans put in place it’s just a matter of how active those will be once we get through this.
[52:38] Yeah and how it isn’t Heather if they’re economically meaningful at all that farpoint like
is prime certainly is very strong hey so let’s let’s wrap up on a slightly more positive question like appropriately like there’s a lot of Doom and Gloom right now totally get it but when I’ve been looking through history at some of the.
The the near analogies to this situation like a the first thing is there is no Perfect Analogy to this situation.
But when you look at something like SARS and and its impact in China One of the interesting things to me is you mentioned you follow Ali Baba and JD.
Arguable that JD.com was founded because of SARS and for sure.
Ali Baba was dramatically accelerated as a result of SARS and today you know those are two of the biggest e-commerce players of all time.
Like is our when we look back on covid-19 and we’re telling our grandkids about this this time when we had to home-school them are they are we going to be talking about some new companies we’re not even thinking about today that.
Become giant players because of this sort of disruption.
[53:49] Very possible it certainly we’re going to be talking about the strength of existing companies you know that are that are beneficiaries of this no doubt and and then I do.
I believe that it’s very possible that you have a whole new grouping of companies that emerge from this as well and you know if you look at we have
been through as a global Society various crises over many many
decades if you just simply pull up an S&P 500 chart you know that goes back to the year 1900 I mean I think you can comfortably without getting into the weeds of the our current crisis
assume that this too shall pass you know the questions that remain are more around depth.
And duration at some point
there will be treatment for this at some point there will be a vaccine for this you know it’s just a matter of how long do we have to bridge to get to the other side and I’m as optimistic as I’ve ever been in terms of that good companies will prosper you know on the back end of this we have a period of a month to you know
a number of months to see
where we bought them before we get there and I think we’re at the still towards the front end of that as has been indicated by you know by the government and the various stay-at-home initiatives are in place in the US.
[55:08] Yeah that that that is very well said and that’s a great place to leave its God because it’s happened again we’ve used up our allotted time but really appreciate the conversation and you’re inside thing I know it’s crazy right now so thank you very much for
taking the time to sit down and talk with us.
[55:26] Thanks so much Jason and Scott really appreciate it.
[55:28] If folks want to follow you online is there a centralized place where where you publish or anything like that.
[55:35] We don’t publish actively online but you can follow me on LinkedIn you can also email me at Devitt sdev itts,
stifel.com STI Fel and we can add you to our distribution list.
[55:51] Yeah I strongly recommend that so I read pretty much everything Scott puts out its really good read and you can tell he gets kind of punny with some of the subjects it’s always fun to try to decode what is puns are on those.
[56:04] Thanks a lot guys.
[56:07] Awesome and if folks enjoyed the show we love a five star review if you’re sitting at home with nothing to do great time to write the review if you’re trying to home-school a toddler
don’t stress it don’t bother reading review just survive the next few weeks.
And so with that thanks again Scott and Scott and until next time happy commercing.
EP213 - Deloitte's Kasey Lobaugh Recessions and the Future of Retail
Episode 213 is an interview with Kasey Lobaugh, Principal and Chief Retail Innovation Officer for Deloitte. This time we discuss a report Deloitte published last year "Boom, gloom, or doom? What the next recession might mean for consumer companies" which is suddenly very relevant to retailers facing the Covid-19 epidemic.
Kasey also gives a sneak preview of new report exploring the history of predictions around "The Future of Retail". Look for announcement about that research on Kasey's twitter feed @klobaugh
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scot show this is episode 213 being recorded on Thursday March 19th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners Jason one of our most popular annual Traditions now
second only to our annual predictions is when we have our friend Casey lobaugh on from Deloitte and he is systemically been able to share with us some really cool insights what’s going on with retail and consumer Behavior.
Personal favorite and I talk about this all the time in my pitches is the bifurcation difference between the convenience working to consumer in the valuing consumer
so that’s all Chestnut for me so I’m really excited to have Casey back on the show.
Tonight’s an extra special Casey appearance first of all he canceled his fancy Australian vacation to be on the show so we appreciate them doing that
and then second of all he was set to reveal some pretty interesting to research around the shop talk conference but that was moved due to this pandemic
thing that we’re dealing with so we twisted his arm and got Casey to to agree to reveal This research on our show tonight so we’re really excited welcome back Casey.
[1:44] Thank you I’m thrilled to be here.
[1:46] Yep and you you have a very interesting title so let me get to see if I can nail this Casey is Chief retail Innovation officer and a principal for the retail and consumer products practice at Deloitte
and you know that’s pretty worthy title and it makes soup Jason super jealous because he’s tried to jam as many words in there and I think he’s only got a quarter of what you have.
[2:08] That’s that’s the correct title this week who knows what it’ll be next week.
[2:13] Yeah and for the record of all the things I’m jealous of about you Casey that your title isn’t even in the top 10.
[2:20] Well thank you I’m plenty plenty jealous of you for all the things that you do as well.
[2:28] That I don’t know what those could be but I’m I’m I appreciate the praise know and accept the praise nonetheless.
[2:35] I’m starting to feel like the awkward third wheel over here I’ll I’ll go on mute while you guys do whatever it is you do.
[2:42] No but.
[2:44] Jason Jason III really really think highly of you and Scott you’re here as well.
[2:53] Kasey I share Scott’s enthusiasm about having you on the show because I desperately need Scott to get a new Chestnut so I feel like.
He’s reading your last Chestnut for like several years and we got to get him some new material I was hoping he wouldn’t bring up our annual prediction show though because spoiler alert later in the show you’re going to totally debunked.
[3:17] Right right we’re going to talk about some of the research we’ve done.
[3:20] Yeah but that being said I know you’ve been on the show a number of time so our most loyal listeners are pretty familiar with your background by now but as you may know
we have a massive new audience that’s growing all the time so can you kind of give us the highlights of your career and.
What all those words in your title mean at Deloitte.
[3:43] Oh I’m happy to do that so and I I think I’m losing count now but I’ve been with Deloitte in our retail practice now I think it’s going on 20 23 or 24 years
and in that capacity really during that time I’ve I’ve served the vast majority of the world’s largest retailers.
Mostly you know helping those retailers sort of grapple with with whatever was on the horizon so you know early on in my career I was helping retailers
with you know moving online so I did a lot of work with just the the.com portion of retailers
you know early on when I did a lot of work around you know omni-channel and how the channels come together how we need to think about inventory differently and and these days are really thinking a lot about where retail goes next
how do we pay attention to the signs and how do we read those signs and how do we help our clients sort of navigate through that so that’s really the quick flyby of my career with Deloitte.
[4:46] Cool so we covered the pandemic last week so don’t want to go back into that and frankly it with a good our job is to distract people from from all this stuff going on
but you know one thing I think we all agree is that this kind of
crisis has created dramatically increased the recession that will fasts will face the recession here
part of the research you guys have out there one segment is this is kind of I guess
pretty good prediction you had said that there’s probably a recession on the horizon and then you guys were talking about what that could mean for Consumer Behavior retailers consumer product goods let’s dive into that give us give us some highlights of that research.
[5:28] Yeah sure thing now first of all this this research at this point is probably about 8 months old and about 8 months 9 months ago you know
of course if you’re around the industry long enough you’ve seen you know the economic cycle is about eight or nine months ago there were signs that started to say that
the economy was starting to weaken and so we had gotten organized around that and done a piece that we call are you ready for the next Consumer recession.
And the signs that we were seeing at the time where you know several first of all you know we know that the US has faced a recession every on average about 6.1 years and it has been
nearly 10 years since the last recession so that in and of itself led us to believe that you know at some point we would be facing a downturn in the economy.
But more importantly and probably more ominously the the yield curve actually not only flattened but then inverted.
[6:23] And for you know those those of us that sort of follow economics and.
You know think about those things the yield curve is really where you know short-term interest rates you know are inverted with with long-term interest rates and it’s it’s known as sort of the number one
a recession no it’s not it’s not completely foolproof I think they say it predicted nine of the last seven inversion of the yield curve predicted nine of the last seven economic downturns
so we saw that occur you know roughly a year ago we also saw tightening monetary policy we saw Rising asset prices and really ultra low unemployment you know which which.
[7:05] Can and did and was starting to result in in Rising wages and inflationary pressure though the inflationary pressure really hadn’t appeared to the extent that we thought it was going to but those are just the ominous clouds and and of course you know.
One of the things I say about this is that this is like to use an analogy it’s like.
California comes out and says look we don’t want you burning bonfires because.
[7:31] It’s really windy and it’s really dry and conditions are ripe for for economic downturn
and so really that the clouds that I’m talking about these ominous clouds were really those signs that said we’re not sure what the spark will be
but we do know that the conditions really are starting to set themselves up for for this downturn and by the way you know any any spark that you’ve ever seen whether it was 9/11 or any other you know economic
event that’s occurred you know often times you can look at that and say boy that was.
You know how would you have predicted that that would have been the spark that really pushed us into you know into whatever economic position we get pushed into
so you know we weren’t trying to predict what the spark was we were just saying the conditions were starting to get ripe and there’s a there’s a quote that are I work closely with Danny Bachmann who’s our delete US economic forecaster.
[8:26] And he’s got a quote that I like he says I can predict with a hundred percent accuracy that the US economy will face another recession.
And then in small print he would say I just can’t predict when so we kind of knew you know something was coming we knew that the
potential is out there but of course we’re we weren’t even attempting to predict what that was
so then we said okay if you know knowing that that’s the case let’s look at previous recessions specific to retail and consumer products and ask ourselves you know what can we learn from those.
So we looked at the last two recessions the.com burst and then of course the Great Recession in 2008 and when you look at those recessions and you look at the,
the the market impact the impact.
And the recession themselves were different right the cause of.com burst was over Valley tech stocks and then the Great Recession was the housing market crash.
If you looked at corporate profits you saw two very different recessions as well.com burst corporate profits dropped only by 0.2% and meanwhile during the Great Recession they drop by 13.5%.
And the same on wages and salaries the impacts were very different as well the differences were in the labor market.
So we don’t know exactly how the next recession will play itself out but when it happens.
[9:49] It’ll likely have a significant impact on the consumer and the consumer companies that that’s what we we sort of highlighted so then we said okay well if those things are different.
You know where there are things that were.
Common where the things that we can actually pull away from those and and he’s actually become really important as we think about our situation today but we came up with three things that became very clear.
Happened the first was the growth in digitally and e-commerce.
Now of course we knew that e-commerce was growing but when you look at the numbers you look at it comparatively to brick-and-mortar we actually saw in both cases and acceleration.
Of e-commerce During the period of economic downturn now overall like retail you know showed weakness but when you pulled it apart what you actually saw was acceleration of e-commerce.
[10:42] In addition to that what we saw was.
The rise of new competitive entrance now this is really interesting because you know something was happening at the same time you know barriers to entry were coming down because technology was changing but also Capital was becoming increasingly,
cheap right as as the FED move to increase liquidity interest rates came down what we actually found was there as.
It’s this combination of barriers to entry falling and and available cash was actually allowing new competitors to enter the market at increasing rates during
and right after the economic downturn this included not only
you know new small digital native startups but we also saw European retailers
you know aggressively accelerating their growth in the u.s. marketplace we also saw consumer products accelerating their direct-to-consumer efforts so all those things together where this this new competitive entrance that that really,
were fueled during the downturns.
[11:43] And then finally and this is sort of relates to the bifurcation that you talked about Scott Lee saw the rise of discount players consumers really materially shifted to the discount players and they were experiencing average growth rates of about 6%,
while the rest of the retail industry was declining about 5% in particular during the Great Recession and after the Great Recession discount maintain that growth rate.
That they had you know obtained during the downturn so the consumer learned of a new Behavior consumer found a new channel of course that channel ended up with a flood of.
You know of quality because the traditional retailers were really trying to liquidate product so it really sort of added to the to the mix so if you think about those things as we said here today you have to ask yourselves.
You know how will those play themselves out you know we believe that we’ll see an acceleration of digital and e-commerce will we see.
Discount and an off price you know accelerate as well.
[12:48] In addition to this we see something happen with the consumer the consumer based fundamentally changed.
Due to the uneven economic recovery it happened after the first downturn of the.com.
Bubble bursting and also happened after the toothache 2008 recession if you looked at discretionary income changes during the.com cycle.
And the Great Recession cycle they were very uneven so for example if talk about the Great Recession from 2007 2017 if you were in the low-income bracket you actually ended up,
decreasing your discretionary income by three thousand dollars at the same time if you’re in the high income bracket up.
$18,000 so it was real uneven recovery and a largely that came from that came from.
[13:39] Well many facets but one facet was availability of capital so.
Liquidity slated to the market if you had good credit ratings you could Access Capital at very low interest rates.
The problem is at the same time that liquidity became available because the housing bubble you know led to the downturn we actually raised.
The regulations and raised the criteria by which we would give people loans so if you were in the high enough income bracket you could easily secure a very low interest rate loan,
the lowary off you were the less accessible that Capital was to you.
[14:18] So coming out of all of that then what was interesting this is a this is something we highlighted this year ago was this idea that if you looked at the industry of retail there was something going on you know even a year ago that was really
a little interesting and maybe a little disturbing and I was a substantial decrease in the return on assets.
That the industry was was showing and if you go back over the last 20 years 30 years what you’d find is during times of,
I’ve strength the industry would have growing increasing return on assets and only during economic downturns with the return on assets start to slip and go you know move in the opposite direction.
The problem is for retailers starting in 2012 even though we were in strong Economic Times and we were coming out of a downturn we were in the recovery starting in 2012 we actually started to see a negative.
Yeah yeah impact on returning that on assets we started seeing return on assets moving down all the way through 2017 as if the economy was actually not doing well in fact it was,
and that sort of leads to the question of what happens to an industry that is operating in
in a relatively healthy economy but they’re showing signs of weakness when it actually gets weak so I know that’s a lot of information about the research it was pretty fascinating and go through it and of course it’s more interesting to me now to look back on the research given where we’re at today.
Does that make sense.
[15:44] It totally makes sense and just to augment that one point you made like you talked about the acceleration of digital through these.
These recessions that you track.
That that’s even more surprising because you kind of looked at a couple specific recessions and one of them was the.com bubble right and so there you go,
you know man did it people overvalue dot-coms did they also sort of overvalue the utility of dot-coms and so you might have expected.
Digital shopping to decelerate when a.com bubble threw us into a recession and even there you saw digital grow.
[16:26] Yeah interesting that the way we looked at it was
and on a relative basis because of course you saw you like right in 2008 we actually saw you know retail softens sort of overall but when you looked at it relatively speaking and said okay when someone is shopping retail you know
which way are they shopping,
so you have to look at it that way to understand the acceleration because the acceleration actually occurred during a period where it looks soft and it looked like the market was softening but when you looked at it relative to brick-and-mortar that’s where you really see the acceleration.
[17:01] Yeah no that makes perfect sense so I read I got thank you for reminding me about that research I read it when you published it but then it was.
Prescient to kind of re read it right now in my big takeaway is like that there’s demonstrable evidence that these recession events exacerbate bifurcation right both of businesses.
It seems like there’s a chunk of businesses.
The do better in the recession than other businesses that there’s a gap that opens up and also as you would have to recently.
It exacerbates bifurcation of consumers and you talked about the Gap in real earnings but you’re in your report you also talked like.
Literally life expectancy there’s a big gap between affluent consumers and non-employment consumers.
[17:52] Yeah the idea of economic bifurcation is so prevalent when you really start to use that as a lens and you’ll hear me talk about this on every one of our research reports because it just.
Constantly comes back up is the whole Market wants to be fixated on age.
You know as a driver of behaviors but over and over again what we find is it’s this it’s the economics and this economic bifurcation that dramatically is more important.
To how consumers are behaving than ages so po what I say is people behave like their income.
Not like their age and I’ve got so many data points so many different lenses that we’ve used to prove that time and time again.
[18:36] Yeah Amen on that I feel like the age was actually never that,
never correlated that well but it just that was the attribute we knew about our audiences right and so like that was the attribute that everyone used but so when I will get your research and I say hey,
what can I business leader that’s contemplating like you know all the.
Current events you know there’s there’s a very real chance that throws us into a recession or at least recession like economy what are some takeaways for how best to.
Sort of be one of the winners in that bifurcation and I there a couple things that jumped out at me but like do you have sort of a top level 4.
Wait what’s the general advice you give to someone about thinking about the kind of Investments they should make and the.
The kind of financial moves they should be making like when they find themselves in a.
[19:35] Yeah well actually the advice is better about how to think about it before the recession think about it before you find yourself in in really difficult times.
What we’re finding increasing as you can’t fall back on the old Playbook you know compressing vendors cutting sg&a reducing headcount feeling Back Store labor and just going promotional if you look back at who the winners and losers were coming out of both of the previous recessions
what’d you find out was those are not the playbooks that that led to healthy successful outcome what we found was,
for those retailers that increasingly really focused on why they matter and I know that’s an easy thing to say but but what you find is is that.
I must say it’s like being.
[20:23] Knowing what it is that your consumers really value about you and then being Unapologetic about investing into that so if you’re an off-price retailer you know know that and then invest into that,
if you’re you know if your product is supreme the know that in invest into that and what we found is that during these times and you falling back on the old Playbook we.
You know our retailers in the marketplace consumer products companies you know often times focus on the Playbook and they lose sight of that
we also said build a war chest to invest in the growth cuz it’s during these times that those companies that found themselves you know investing into
the structural change that’s happening during the downturn are the ones that are best positioned for what’s about to occur coming out now,
if you find yourself in the recession and you haven’t invested into the war chest that allows you to invest into that growth you really find yourself in difficult position because you can begin to see the market.
You know come back together get healthy and start to thrive again but you haven’t you you know you don’t have the resources that allow you to you know aggressively invest into that we also know that embracing technology automation
to increase your leverage during the times of growth.
[21:39] And then looking outside your four walls to embrace new Partnerships those are the things that really came out when we looked at who won and who approached you know the growth coming out of downturns.
Differently as opposed to the old old Playbook I I love this quote that Benjamin Franklin.
[21:57] Had we said by failing to prepare you are preparing to fail.
And that’s why we wrote that’s why we did the research because you know eight months ago was the time when we were you know trying to get our clients that sort of recognize that the risk was increasing and that they really needed to you know begin to take it seriously and begin to prepare.
[22:18] Yeah it is I think that’s fascinating in that I had an early Mentor who was a very very successful retailer Wayne huizenga and he used to constantly heart on this philosophy that.
In economically good times that’s exactly when you should most be focusing on cost reduction and cost controls and in economic down times that’s exactly when you should be investing because your your.
Capital actually works harder and gives you a higher return in those economically distressed times than it does when everybody is pretty flush.
[22:56] Yeah I think that’s that’s that’s easy to say it’s really hard yeah I always like to put my practical like as
insulting it’s easy for me to say here’s what you need to do but I was trying to put my practical hat on and recognize how difficult that really is to do
that said when you look at who the winners and losers were coming out of the previous recessions that’s exactly what they did.
[23:17] Yeah I briefly tried to learn how to ride a jet ski once and counter-intuitively when you’re about to fall off the jet ski and it’s unstable
the correct thing to do is give it more gas and go faster because that’s what makes you stable but it’s not what your brain wants to do.
[23:34] That’s a great analogy.
[23:38] Well that is awesome one last question on sort of learnings from recessions do you have any point of view like.
So you’ve got a consumer that go through a recession you know consumer confidence goes down you know eventually those recessions in.
Do we tend to see consumers behaviors rebound and do they act exactly like they did before the rebound or do these recessions tend to have sort of a hangover effect on consumer Behavior even when the economy turns around.
Without a doubt our research research tells us that the consumer adopts new behaviors during the down times that they maintain coming up.
So I I would expect a lot of the behaviors a lot of the things we see going on even today with people adopting new behaviors that that those are going.
Accelerate those are going to become prominent and I don’t expect those to fully bounce back I I would expect some behaviors to you know to bounce back somewhat,
however I think predominantly I’d say the people are learning new behaviors as they do they stick with those new behaviors.
[24:51] Michael hopefully on-demand car washes one of those papers,
all right well now that we have all that kind of Downer recession pandemic talk behind us let’s dig into the new research Casey what’s the high level of how you guys came up with this and what you’re revealing on the show tonight.
[25:10] Yeah sure thing
you know here we are its 2020 and we are the number one request for getting from our clients is it tell us about the future.
Of the industry tell us about the future of retail or we get you know the future of the store and of course that seems to be a topic that that that is hot with our clients but it’s also you know very well published out there so we looked at it and just said,
okay you know how would we think about it how would we approach that topic and how do we do it in a different way than maybe you know has already been done and that’s really what what got us to dig into this this research that,
you know that we call retail and consumer products 2020.
[25:54] Cut it and you were kind enough to give us a little bit of a sneak preview of the research and I have to say I really enjoyed it and looking forward to when you publish the final version
in there you kind of talk about seven Trends you know of what this retail 20/20 looks like
I thought they were all really good so maybe give us a high level overview and then Jason and I want to tease apart a couple of.
[26:17] Yeah before I do that let me give you a little of the Segway that gets us to the seven trends.
In in the research one of the things we did before we started our own research as went back and said,
you know how good is the industry at this idea of predicting the future so we went back and spend time over the last 20 years of research is trying to assess.
How good are we as an industry and there’s great you know Publications a lot of great you know commentary that’s out there but what you find when you summarize it all together is,
we’re really not that good as an industry.
Professing the future and then the question is well okay well if we’re not that good as an industry we haven’t been that good at it for 20 years what makes us think that you know that we had Deloitte and the way we’re going to research this is any different.
[27:09] And it’s really the findings that relate to his kind of that backwards view that gets us to how to think about this problem differently and the way I like to call it is let’s move away from prophecy.
And let’s actually get practical okay because what you’ll discover is most of the future of pieces are just.
Prophetic there’s just people sort of imagining pie-in-the-sky with the future will be like
and and the Saving Grace by the way generally is they never tell us when the future will be here so it’s potential that all those predictions they make will
you know will be true at some point however the vast majority of the predictions that have been made over the last 20 years actually as we sit here today are not true.
[27:50] Okay so if prophesizing doesn’t work then if I look back in history how would I have known,
we’re we would have ended up as an industry and the interesting part is it’s actually there
it’s actually there in the data if we’re actually paying attention to what’s going on in the data we can actually play out trends that lead us to where we’re at today
so that’s the Segway and that’s sort of the the approach that we said okay so if we’re not going to prophesize about the future let’s go look at the data.
And so we looked at our we’ve got a group with that we call our Center for Consumer insights that has phenomenal data,
a lot of different sources of traffic and sales and consumer behaviors Etc and we said
well what’s the data tell us about the future and that’s where through working with the center for Consumer insights we came up with the seven trends that we see that are broadly
shaping the future of retail and consumer products,
no by the way you got to recognize it retail and consumer products is a really broad industry said everything from apparel fashion luxury goods to grocery you know consumer products tables Etc so these are really Broad
you know in their application but I’ll go through what those seven are that the data tell us the first one is commoditization and premium ization
[29:15] And I’ll talk a little bit more about what’s going on there but we also have digital success is growing even more elusive that’s the second Trend the third Trend pertains to physical retail.
And the third trend is smaller and closer I’ll talk about the data that we’ve got there as well the next train is new models become material.
And the interesting part here is not when I see new models things like rental things like resale you know in the apparel world or or,
yo ghost kitchens in the restaurant industry those sorts of things are all new models,
and in and of themselves are not that interesting in terms of size or scale but when you put all the new models together they actually start to become material in terms of how they’re eating into share.
[30:07] The next train we identified was convenience.
As the new Battleground so again I talked earlier about the idea in the industry that says everything’s experiential and we’d actually say convenience as an element of The Human Experience in particular
is what’s driving the new Battleground the next train is health and sustainability for some.
And we talked about that Jason the bifurcation is that when you dig into health and sustainability it actually is not a broadly applicable trend is actually really applicable the higher income you go the lower income you go you actually find
reverse Trends in play.
[30:46] And then the last point is it builds upon research we had done previously and it’s fragmentation and consolidation of market share we actually see some really interesting Divergence happening
in terms of how market share is is consolidating where it once was fragmenting or fragmenting where it once was consolidating,
so those are those are the big seven forces that we go deep on and use data to support how those are shaping the future.
[31:13] That’s awesome and I let’s jump into a couple of those I do want to say I suspect you’re being slightly kind because you talked about this this ocean of retail prophecies and how you know most of them are just kind of.
Prophecies are opinions and I suspect there is a huge chunk of those in fact I just did a Google search on future of retail and there’s.
Seven million two hundred thousand results.
[31:41] And and I had a team that actually had.
Through those 7 million two hundred results and we’ve got them all categorized and we’ve gone through them so we really stared at him and said you know what are they telling us and in our research paper we really go deep into it so that you can sort of see
what the flaw is that that’s behind a lot of the approach to sort of thinking about the future.
[32:03] Yeah and so to your team and they’re listening I’d like to apologize for the 500 of them that were me but I think there’s another big chunk of prophecies in there which are the self-serving ones right which is like the the.
Computer speech vendor predicting the future of retail is computer speech.
[32:22] That’s right that’s right there there’s plenty of those in some of those are commissioned so they’re they’re commissioned by you know vendor
you know I something that does research but when you dig into them you can go okay this makes sense you’ve commissioned this study.
[32:38] Yeah so moving on from the the.
The grand setting to the sort of seven trends that you guys notice that we’re sort of grounded in your,
your consumer data set what the first one that jumped out to me is actually the first one on your list because it’s a topic I talk a lot about but that’s the commoditization and
premium ization which I feel like I’ve said that before but I never thought it was an official word until I saw the what use.
[33:07] That’s right now you can use it officially yeah you know when you look at products in particular and you look at what’s going on you know you certainly see this again and you’ll hear me talk a lot about reduction in barriers to entry,
that that consumers have access to technology that gives them visibility in a way you know that they didn’t previously have and then it also gives
you know anybody selling a product they’ve got Avenues to you so
you know if you’re buying a particular brand of something like mac and cheese you’ve literally got thousands of options to buy that very same product.
And what happens when that occurs when you know we’ve got you know slowly you’ve got margins that are being eaten into as one after another tries to out price
you know the other so we’ve got a lot of great research about how you know margins on products are being eaten away,
and that’s the commoditization at the same time you have this explosion of choice,
so you if you looked at a traditional grocery store and you looked at 1990 they’d have you know roughly 7,000 items
would be available in a grocery store in 2018 it’s 35,000 items so just an explosion you know of options that the consumer has available to them.
[34:24] At the same time we’ve seen this growth of private label in fact from 2015 to 2019 there’s been a considerable you know,
growth with you know with retailers who are coming out with their own private label product growing from about a hundred and thirty billion to about a hundred and forty three billion over a period of about four years.
[34:46] And at the same time that we’ve got private-label happening we’ve got a premium ization of private label so in 2016,
of that private label product about 15% of those products or the dollar amount would have you know been categorized as a premium,
private label product and go to 2019 and it’s grown to about eighteen percent so not only do we have private label which was once really a value play
we’ve now got private label that’s now more of a premium play so really this opportunity for differentiation really becomes you know.
The the critical component to think about in a world that’s both commoditizing and premium I guess I can’t say premium icing.
Unless I just made up yet a new.
[35:34] You can say it.
[35:35] You did sure weird.
[35:37] Thank you Jason said Jason says I could.
[35:39] #premium izing well well I kind of out of those seven I wanted to dig in on convenience as the new Battleground so tell us more about what you guys saw there as you looked at the data.
[35:55] Well first of all when we when we
talk to Consumers and you find out why they shop where they shop what we find is the convenience is the number one reason a consumer selects a particular retailer so you have to start there and by the way there’s nothing you know
I knew about that that’s not a new age consumer sort of thing in fact we as we studied this what matters most idea you know over the last 10 years we found that convenience,
continually comes in first as the most important thing so you start their second of all then we said okay well let’s go look at where the growth is in the industry.
And what we did is we took you know a look at categories where
convenience or particular retailers where convenience is a major or a primary element of the value proposition and when you categorize that way we find about 67 percent of retail growth from 2016 to 2019
comes from retailers that that prioritize convenience as part of their value proposition
in addition that you can certainly see a lot of the growth that’s happening let’s say with mass retailers their initiatives that they’re undertaking like curbside
or delivery things like that but also relate to convenience.
[37:08] And of course grocery in particular is the most desired area for convenience
but we also see things like this like what’s so fascinating about the future of predictions is there things occurring in the industry that nobody was predicting
so for example we see you know solid Healthy Growth in convenience stores.
And nobody’s nobody in you know in any of the predictions did we see someone talking about the rise of convenience stores as an important you know,
attribute are– element in the marketplace.
So across the board we see a lot of different ways you can look at it and what we see is convenience you know is really becoming this new competitive Battleground you know much more so than say,
experience like entertainment sort of elements that you might bring into the store.
[37:56] Yeah that was super fascinating it’s funny to me because I sometimes wonder like.
If convenience is even an unfortunate word to describe a category of store these days because they’re often are so many more convenient ways to.
To get a product then then those convenience stores and yet they continue to thrive and grow.
[38:19] This idea of convenience shows up in in in like when we looked at what’s really going on with physical retail it shows up very prominent there as well.
[38:29] Yeah another one of the trends that got me excited because,
embedded in this trend you talk about one of my favorite sawhorse is what I call the mobile Gap as this like shift to mobile devices but aov and conversion rate or not.
Equivalent of mobile devices to what they were on desktop so but your macro Trend was digital success grows elusive,
and explain a little bit what you mean to our to our listeners about that.
[39:01] Yeah yeah first of all certainly we know that digital continues to drive a significant amount of the of growth in the marketplace it’s roughly driving 50% of of the growth just last year.
You know in retail and it’s growing at about 14.9% sort of depending on what you know what source you look at when we look at it.
You know the u.s. figures that come from the government and we’re seeing about 14.9 percent growth rate however,
we’re seeing this dramatic shift.
To Mobile so now mobile represents about 45 percent of online sales and that’s growing fast you know Mobile sales grew at about 36 percent kegger since
2014 versus only six percent for other digital channels so you seeing this shift occur but there’s a problem when that shift occurs and you mention it and it’s that the conversion rate
on mobile is actually dramatically lower than the conversion rate on desktop dropping from about four percent on average down to about 1.7 percent on average
at the same time the average order value is dropping from about a hundred and twenty seven down to 86 percent so as your as many retailers and many consumer products companies are paying for traffic
to show up at digital that that conversion is converting to dollars at a slower rate and the amount of dollars that is converting or actually lower.
[40:24] So that’s problem number one that makes digital success more more elusive however when you then add to it this idea about ad spending
because we’re certainly seeing you know an increase spending
that shift is happening towards digital advertising and we look at the increase on digital advertising or advertising overall Because by the way as you shift to digital advertising we actually not seeing a commensurate
decrease in traditional advertising which means overall advertising is actually increasing at a fairly good clip
when retail sales themselves are not you know increasing at the same rate.
[41:01] At the same time the cost for digital spend or the digital advertising is increasing and digital ad spending per person is going up again meanwhile TV is staying.
Roughly the same if not increasing slightly so that sets up a world where we have to pay for traffic
right we’re buying traffic effectively you know as we’re investing in different you know traffic programs that traffic is showing up and is converting at a lower rate driving that traffic through advertising is more expensive than ever and then on top of that shipping rate
you know I have an increase from 2010 to 2020 ground shipping is increased 76% and are 80% so,
not only not only is it like advertising but its fulfillment as well and of course wages for warehouse workers have also gone up
you know considerably all those things put together those Trends lead us to believe that going forward of course digital is an important.
You know aspect of growth but that growth is becoming either less and less profitable or in some cases it’s got a deteriorating effect on margins for four major retailers so that’s only going to become more of a problem
as we move forward.
[42:16] Yeah I liked all that except the part where you dissed on Advertising because I think that pays my salary.
[42:22] I take back anything that pays Jason salad.
[42:26] No no no but like just I mean
to kind of highlight how real it is like in your in your data set you show in like 2011 Brands were spinning considerably more on television than digital and in 2017
the television spending was about the same but now the spend on digital was much higher than the televisions been so it’s.
That that inflection point has really been passed.
And yet all the digital advertising and I say this as a digital Advertiser still kind of sucks like I’m super disappointed.
With all the events this week that we like you haven’t seen more more advertisers like curtail their advertising for what is at the moment in a relevant product or service.
But I digress.
[43:13] Yeah no no it’s a good point I mean advertising is becoming you know less effective more expensive.
[43:20] Yeah so that was that’s just going to depress me so I don’t want to spend too much time on that I do want to try to squeeze one more in because this was fascinating to me VII Tran fragmentation and consolidation and Tower westerners with that man.
[43:35] Yeah if you follow the research that we do out of the the industry sector you’ll you’ll know this term because several years back we were trying to assess.
[43:46] What the heck disruption meant everybody was saying it but we don’t know how to measure it we didn’t know,
you know there’s got to be if it’s occurring there’s got to be a way to understand what it is and to quantify it and then measure is it decreasing or increasing or you know
what’s going on with it we came up with a way to think about it you can argue that this is the right way but this is how we came up with a way to think about it when an industry is being disrupted
you know new entrants are coming in and in doing so they’re disrupting the market share
most likely they’re stealing market share where you’ve got the losers or those that you know you got you got the companies that are donating market share and you’ve got new entrance that have shown up with a new better mousetrap
better offering and they’re stealing market share so we would assume that in a market that’s being disrupted you would have increased you know turn over,
of market share so we’d be able to we’d be able to understand that by studying what was going on with market share you know and in that came the first term II called it turnover but it’s volatility you know how volatile
the market share is for an industry is a measurement that we came up with on how to study disruption and then once you study whether or not it’s volatile.
[45:05] The next question is is it volatile because it’s fragmenting or is it volatile because it’s consolidated.
[45:13] And you know as we’ve studied that what we saw you know it was roughly 2016 when we study the first time for retail in particular what we found was the volatility was increasing
as new smaller players came into the market and not only that but fragmentation what is what was driving that volatility
so now you fast forward and we looked at it again to say what’s going on now in retail what we found was the opposite and this is really sort of interesting to think about is that volatility of market share in retail is actually going down,
over from 2016 to 2019 and meanwhile what we saw was it was concentration.
That was driving that volatility so in other words the big players were getting bigger as opposed to the small players were stealing enough market share
to you know stealing it from the big players which we saw occurring roughly in 2016 so it’s interesting just to think about how the Dynamics of competition have changed and therefore how the nature of whatever disruption we see is starting to change.
Now if you jump over cuz we studied it also as it pertains to packaged goods and we actually saw the exact opposite.
[46:21] Occurring what we really saw for packaged food companies is the fragment by the way with packaged Foods you have to look at it by brand not by
aggregate company because of course a big you know.
Branded company will have many many brands that they’ll hold so we actually have to break it down and say let’s look at this by Brand level and when you look at it by Brand level what you find is
the smaller brands are really weather driving the volatility
and you see dramatic fragmentation happening in the packaged food area so just ways for us to think about disruption
and to understand the Dynamics of competition and how that’s changing and therefore you know what do we think maybe you know shaping the future.
[47:04] Yeah and like to sort of sum that up like super briefly.
So retailer power is concentrating into a few big players and cpg power is getting fragmented into more entrance and so like obviously there’s a,
shift in leverage in the whole retailer brand.
Dynamic there when that happens so that’s an interesting thing to think about when when you know both tons of companies are plotting their future.
[47:36] And when you begin to put that together with we talked earlier about premium ization you know a product and and and private label all of that plays together to think about how the consumer is shaping their view of.
What they want to buy and where they want to buy it.
[47:54] Very cool so in the paper you go into quite a bit of depth on these Trends and there’s some really good data in there and then you kind of then springboard forward and you say well let’s let’s kind of look forward and see if you
you know what you should be doing maybe give us some highlights of that for looking kind of.
[48:14] Yeah sure thing yeah I know it’s it’s sort of difficult.
To lay out I mean one of the things that comes out of this it’s difficult to say the future of.
The industry is X because what history would tell us is that the future you know plays itself out differently for different companies and different segments for different customers selling different products so there is no
no singular future and in fact as much as one companies is Iggs
and has success that actually creates opportunity for another company to zag and have success so
you know as one company finds that online retail works and other company finds that physical discount retail works and they’re they’re not at all the same future however they do certainly coexist,
and that’s really important to sort of think about you know how you think about.
[49:09] You know your company how you think about setting strategy what we say is like think about opportunity through the lens of data,
you know for every data point that tells us something is occurring you got to look at the converse and say is opportunity being created on the back sides of this you know for
like we talked about Health and Wellness
you know we can say oh man the market is being driven by health and wellness you go it is for certain consumers but there’s opportunity for for other consumers who maybe are an economic constraints and maybe don’t have the luxury of.
You know buying the high-end health and wellness product maybe they still care but maybe they’re under different constraints
so what we try and do is we help our clients sort of think about how do you scenario plan around this how do we use our you know Center for Consumer insights to really think deeply about your consumer and identify where there’s pockets of opportunity you know and generally I’d say look you can read
the predictions about the future that are that are prophecies and you know read them as.
As input but I certainly wouldn’t be you know in certain would be encouraging my clients to make big Broad
bats you know based on Prophecy what I be saying is let’s make that you know based on a deep understanding of our consumer a deep understanding of what opportunities will exist given the the changing competitive landscape.
[50:29] But if you are going to make future bets based on Prophecy they should be mine.
[50:33] They should be Jason’s that’s for sure.
[50:37] Well I feel like that’s the perfect place to leave it because we have once again used up all our a lot of time but Casey this is super fascinating thanks so much for sharing the research and I know you’re going to figure out in the weeks to come where this gets published and we’ll make sure
westerners know how to find it but thank you very much for your time tonight.
[50:57] No it’s always thank you guys for allowing me to share what we’ve been up to.
[51:02] Kasey if folks want to find you online what are you a are you Snapchatting with a client’s or what’s your.
To get in touch with her buddy.
[51:11] So of course that you can find me Casey lobaugh I’m on LinkedIn I also M @k lob aaugh on Twitter where we publish a lot of our research and our findings we do a lot of speaks at what we’re up to there as well.
[51:26] Thanks for joining us and until next time happy commercing.
[51:31] All right thanks guys.
EP212- Jason & Scot Show Live Listener Questions About Covid-19 Impact On Commerce
Episode 212 is a live show featuring audience questions about Covid-19 and it's potential long term impact on retail. Jason & Scot get to interact with listeners live. It's also a rare chance to watch the podcast, as the episode was recorded with video, watch it on YouTube.
Subscribe to the audio version of the podcast at: http://jasonandscot.com. (or wherever you listen to podcasts)
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
EP211 - ThirdLove Co-Founder David Spector
David Spector is the Co-Founder of ThirdLove, a digitally native direct to consumer women's intimates brand. Dave founded the company with his wife Heidi Zak.
In this interview with Dave, we discuss the origin of the company, their data driven approach to designing products, the challenges with scaling a DTC company, and the potential role of omni-channel. We also discuss their public feud with Victoria Secret.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 211 of the Jason & Scot show was recorded live from the Etail West tradeshow in Palm Desert on Wednesday, February 26th, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott Show this episode is being recorded live from the ETail West Trade show in Sunny Palm Desert on Wednesday, February 26th 2020.
I'm your host, Jason Retail G. Goldberg And unfortunately, Scott was unable to join us today.
So as usual, when we have a good show, we kind of bump Scott from the agenda, and we make up for it by having a particularly awesome guest S O for today's show.
Please welcome David Specter, the CEO or co CEO, an important distinction and co founder of Third Love.
[1:00] It's great to be here, Jason. Thanks so much. Although.
[1:01] We are thrilled to have you all, though I kind of feel it's true that you're the least important co CEO at Third Love.
[1:10] I'm probably the least important person at third love. Uh, yeah, but it doesn't mean that your podcast is any more or less important just because I'm here. Yeah.
[1:10] I'm probably the least important person,
that makes us feel special on the podcast.
[1:22] I feel like we're arguably the second best podcast in the space compared to which everyone your wife is doing today.
[1:29] Fortunately for my company, she's back at home, actually running the place, adding value. And I'm here sitting with you, Jason. A detail. So which one's more important? I'm not entirely sure, but I'm still honored to be here with you.
[1:29] Unfortunately for my company, adding adding, adding value.
[1:39] I That's why I like the double bandwidth from a power couple is so useful for a company.
[1:46] Dividing conquers what we like to say. So here I am, a detail and it's and it's an honor to be sitting with you. You've got a great podcast. Enjoy listening to you guys. So thanks so much excited Thio chat about what we're doing at their love.
[1:48] Exactly. I like it.
[1:53] So thanks so much excited about what?
Gotcha. Uh, that's ah flattering to say. And flattery will, of course, get you, like, mostly anything you want.
[2:03] Most anything you want if you want to know.
[2:04] If you want me to avoid the tough questions, Uh, that's that's a smart way to play it.
[2:08] But will it get me more sales online? That's the question, Jason.
[2:11] Yeah, we're gonna have to talk about that. But before we jump into that, listeners are always super interested in the background of our guests and particularly if you like.
We have a lot of listeners at home that aspire to be you one day. So can you share, um, sort of your your path to your current role?
[2:28] So my path is is quite different than most founders. In some ways, I was at Google.
[2:28] So my path is is quite different than most.
So I What's that? Google. I've heard of them there. Ah ah, an up and comer and I think is there for years.
[2:36] I've heard of them. They're nothing. Come, right.
I was there for a couple of years. From 2007 to 2010 after business school on business school, I met my my wife and better half and business partner Heidi.
[2:45] Business. Why, then my wife,
arguably the best reason to go to business school. You don't s so I've been told. Yes, I actually met my wife at one of these trade shows.
[2:52] And, you know, from experience, Jason.
[3:00] Oh, so trade shows air a lot less expensive than going to business school, though.
[3:03] And less work, frankly.
[3:04] Yeah, take a lot less time. So I think you actually ended up in a better place. And I did. And that way it saved in save less money.
[3:06] So I think you actually ended up in the better. Okay, I don't know. I've caused both winners.
[3:13] Uh, save more money. So Well, anyway, so we, um, was a Google for a couple of years on then, while I was that Google was recruited by Sequoia Capital to join them, I never wanted to be a venture capitalist was never on my radar. I am a builder.
I enjoy managing people building teams. I was never thought of myself as an investor whatsoever.
And so I took the opportunity, joined them.
I was based in Silicon Valley and started investing in startups in 2010 and it was really interesting time because the Internet and sort of Web to die, though three dado however you want to define it.
Jason was really starting to get prevalent on was growing quickly, and so we were sort of at the beginning and forefront of that.
And brands online were really just starting.
Prime. I'm not entirely prime did exist, but nowhere near to where it was two today, and retail was still popular that the Mullens were successful.
The death of retail sort of. That narrative didn't exist then, And so when we got started in 2010 investing, nobody was really thinking about consumer brands in the same way I took it.
A cz an initiative myself as a new investor because I thought it was something that could be big toe, actually get started on start looking at brands and where e commerce was going and so ended up investing in a company named Stella and dot.
[4:39] Back when I was at Sequoia was quite involved in the business.
As much as an investor on the sidelines can be, but got very interested in broadly female base commerce.
[4:49] And so, in other words, women that were building brands online to serve other women.
And because the percentage of women founders is so low, generally it's higher now, and we're lucky that it is higher now.
But it was even lower then, and there was a lack of our dearth of the number of female focus brands that we were seeing online. And so what we decided to do is make it an initiative to actually find those businesses and brands.
And in many ways, as it was at Sequoia and was thinking about what we were looking for as investors.
[5:25] Hide and I were talking about the intimate apparel space, and it was a category that I had never thought of.
Uh, certainly thematically, it was never on our radar again. I was thinking of sort of female based commerce, commerce, new sort of web, 2.0, base brands.
DdC wasn't a term then, on sort of where the Internet was going from a commerce perspective, and she was thinking about intimate apparel,
and sort of in our living room at night, just like many businesses that air started, we started conceiving of of what then was called something else.
But what is now third love and we started to get really sort of excited about what we could build online and where we thought this industry was gonna go over the next decade.
And that was really the beginnings of third love on our living room in our living room, on our dining room table, laying things out before we took the sort of bold leap that every entrepreneur takes in this country and quit her job.
[6:22] That is awesome. And ah, I suspect a majority of our listeners are already familiar with third Love. But for those that aren't can you gonna give us the elevator pitch? About what you doing? What you're you're unique value properties.
[6:36] Absolutely so we set out and and have executed on today, really three things.
One was to build a brand which is authentic and highly inclusive, too. Was architect away to buy abroad that doesn't require a fitting room or visit to a store.
And three was not designed and manufactured better product.
Using the latest in material science and data science to absolutely nail fit and comfort two areas fit in comfort that really have never been a part of the narrative. Previously in this category you know women for the most part, which was very interesting to me as we were looking at the category.
Nobody really likes their bra. Nobody has a strong attachment to the brand that they wear.
It's fine. It does the job. They have to wear it.
It sort of part of what they need to do every day. But they don't really enjoy the experience shopping for it, nor do they like the product very much. And so we thought there was a huge opportunity Oh, to do those three things.
But look in summary, we wanted to change the status quo and how comfortable abroad can be and wanted to build a brand that was for every woman, regardless of size, shape or ethnicity.
[7:41] That that is awesome. And it's it's shocking in hindsight.
Ah, but But, you know, you really think about the successful players in the space prior to your entry, and it frankly feels like they were mostly focused on marketing two men, Um,
so somewhat shocking that there was, like, such a white space tow both market, too, and,
like focus on product attributes specifically for the users of the product.
[8:07] Yeah, you know, that was really surprising to me. I I like you, Jason.
Have been on the other end of that marketing as a man by this gift for your spouse or something along those lines.
And I was always really surprised that the marketing, as I started to think, sort of outside the box of me as just a consumer.
Why the marketing was always so focused on me when this was a category where the vast majority of purchases in it our focus on women but our focus on their needs and focus on them as,
as moms, as them as business executives, as them as doctors, as nurses, et cetera.
And so I was really surprised that the vast majority of marketing prior to Third Love was focused on that.
And so what we set out to do, which again was quite counterintuitive given that the largest player in the space was peaked at a $30 billion market cap in 2015 I was doing very, very well with very high margins,
that we would think that we wanted to do something completely opposite of what they had done.
So from a sort of building a startup perspective.
It seems pretty crazy on and funny enough, the investors that we pitched mostly thought we were crazy.
[9:21] Yeah. Uh, you tell me This is true for you, but a in talking to female entrepreneurs, Um, there's a common story that it's really hard to pitch your business to V.
C's because they the tender not have empathy and see the market opportunity for products that have, ah, value Prop two women less so than the men.
So they tend to not understand a woman's problems, and therefore the opportunity is strongly.
[9:49] Yeah, And you know, I had somewhat of a leg up because I sat on the other side of the table.
[9:54] Yeah, I'm sure.
[9:56] And the leg up, though, that I had was when I started to think about how we needed to pitch third love to a mostly male audience.
I had been in that audience previously, so I had the opportunity to think through what we needed to do differently and what the people on the other end of the table who are not, for the most part, are not sexist at all.
And the end of the day, whether it's widgets, bras or the next great you know, Social Media platform, they ultimately don't care.
Veces wanted back great entrepreneurs going after large markets, building riel sustainable businesses, and so and they don't care what it could be.
Uh, and so when I thought through what we needed to do differently in this category, we really needed to sort of change the narrative of what we were gonna build and how we were going to do it.
Uh, and that was really what helped us get off the ground and helped us appeal to what was a mostly male audience when we were pitching. As you said earlier, a mostly female oriented business.
[11:01] Um, so fast forward to today. Ah, couple weeks ago, we had wary Ingrassia on the show s o. He's the author of $1,000,000,000 brands.
And as I I assume, you know, uh, you are one of the prominently featured brands that he writes about in the book.
Um and so am curious. Ah, like, I assume you've at least read that chapter. Does it feel like he captured? Ah, an accurate representation of your story, Or is there any quibbles you'd like to take? Well, he's not here to defend himself.
[11:34] You know, we were honored to be in Larry's book and to be sort of one of the the company's defining the direct to consumer New Age brand generation.
And he did a very good job of capturing this story of Third Love and how we got to where we are today. And you know where we are today. It was, you know, it's seven years in, so we're on, sort of not even really on first base yet. We're just getting started.
Uh, but how we got here to almost first base if we if we put it that way, is a story in itself and one of perseverance.
Many, many, many challenges.
[12:11] Lots of late nights. I and a lot of failures on a lot of mistakes to Heidi and I have always been one to admit our mistakes and to try toe try to spend time thinking about what we would have done differently.
And fortunately for us, Way made numerous near fatal mistakes in the early days of the business.
[12:33] Example was manufacturing in Mexico on trying to build a maid on demand supply chain the broad industry interesting Thio.
Most men or women have no idea about this Broad's one of the most complex garments to produce.
There's 30 components in a bra, even with automation today in manufacturing things air mostly hand cut in hand sewn and being outsiders in the industry.
We looked at that, and then in the by the way to that point, the amount of time it takes to develop a new size and a new style is very, very cumbersome and laborious.
It takes a long time, and so s so you need to have a large wallet and you need to have a big company to develop it.
Which is in part, why the largest competitor in the space has gotten so big on the untold story of them is really supply chain.
And there's a lot that they did in the supply chain that we have a tremendous amount of respect for, because getting supply chain dominance to be able to produce product at that kind of scale is really hard to dio.
And so we looked at that as young founders and we said, What do we want to do? Different how we flip this pretty backwards process that's been the same for five decades?
[13:45] Flip it on its head and just do things differently.
How can we use technology to build something that's fundamentally different?
And so we conceived of a new way of manufacturing that we that enabled us to get into the supply chain.
People wouldn't have taken our call if we just said We want to make a better bra in China.
[14:03] Uh, and so they took our call and, by the way, didn't take our call because we had no volume.
We didn't have money to spend. And there's a lot of money required on the manufacturing side, the manufacturer side to get a new company up and running with new sizes and new styles.
And so nobody wants to work with a new company because of the amount of cap access required to get them started in R and D.
And so we had a pitch that was very, very unique around made on demand, and they don't demand while it didn't work, and it was a near fatal mistake.
That mistake, like many things in it start up, is what enabled us to be successful today in the supply chain in a fairly short amount of time because of that learning that we had with this mate on demand supply chain,
in Mexico that enabled us to get a foothold into the supply chain, that we were then able to pivot to Asia and start getting started.
T get started building what is fundamentally a better bra with entirely novel raw materials.
Better fit half sizes. And we're the only company in the world that offers half size bras, 34 B and 1/2 C and 1/2 et cetera.
We couldn't have done that without some of those early mistakes.
[15:10] That is awesome, and I wantto poke on the half sizes.
But before I d'oh if I were toe grossly oversimplify, wear his breakdown Of all the companies in the book, uh, he kind of talked about.
There's these these three different ways digitally native brand, um, might seek to gain advantage, right?
Like there's there's companies that take cost out of the chain so they can sell a lower price product. Warby Parker, for example.
There's companies that reduce the friction to acquire the product.
They make the buying process easier. So bed in a box versus having to go to a traditional mattress store, which could be a miserable experience on.
There's companies with, like, unique product innovation that in some way, uh, invent a better mousetrap. And most of the companies he talks about 10 to primarily have one of those three.
Advantage is one of the things that ah, as an outsider I admire about your company, is,
it seems like you're really leveraging all three advantages, so it feels like you focused on a unique product that's better than what was available.
You have, ah, lower friction way of acquiring it, and because you're direct um I'm not sure you're necessary competing directly on price, but you're able to offer Ah.
Ah, very strong value proposition.
[16:32] Yeah, And again, I This is, I think, in order to build a successful director consumer business and by no means every successful we have so much more work to D'oh!
[16:32] Yeah, And again, I I in order to build a successful,
I don't mean to be successful.
[16:44] You have Thio Well said Jason.
[16:45] You're 13 years away from being overnight success.
[16:51] Um, yeah. I mean, look, we I don't think that having just one of those things allows you to be successful having just lower price,
and the website doesn't work because everybody does that.
An Amazon does that Amazon does that and can compete with you all day long and get it to you a lot faster with better customer service and way more selection.
So you have to have a combination of many, many things.
[17:21] Our category is one where price is important, but it's not one of the most important factors to it.
Uh, and what we said was, we don't want to compete on that, because what we offer is fundamentally better.
Now we may not be an overnight success and grow to $100 million in a year because we offer something for $35 right?
Or the same prices. You could buy it at Wal Mart or target even lower in some cases.
[17:48] No, what we said was, Let's just fundamentally focus on the core differentiations for the category, which is much better product more sizes,
better brand that resonates with women of all sizes, shapes and sit in shades and then, lastly, await a shop that you don't have to go into a retail store on.
That was a key differentiation for us in something uniquely unique to our category.
Women don't enjoy shopping for this product in store.
It's not something I do socially with their friends. It's not a fun experience and what we want.
And also there's women everywhere eyes, women all over the country and in states that don't have any crossed yours, Uh, and so in small towns that are, you know, 500 miles from the closest mall.
And we want to be able to reach all those women and offer them something just as great as the woman in New York City or San Francisco.
And so the way we do that today is through a great website experience that's highly personalized and through something called fish Finder that we conceived of Fit Finder.
[18:53] Through a variety of questions allows you to get, you know, for the most part the perfect fit down to the half cup size to date.
We're very proud and sort of another kind of pinch me moment. Given that, you know, we still view ourselves a start up.
17 million women have taken Fit finder.
[19:10] That's amazing. Uh, one of the things I really like about your story is it's always interesting to look at someone's original hypothesis for their business and how it has to evolve.
Um, and I feel like you've had a bunch of evolution, like so as I understand it, when you originally launched the company, you had this hypothesis that,
like the original broad buying experience, sucked, um, and that you know, this some version of this fit finder could be, ah, much more enjoyable way to find the perfect fit bra.
But in the process of building that, you found out that bras in general don't tend to fit a significant segment of women.
And so the half size thing was less your original hypothesis. But something that you discovered is you got to know customers in your space.
Um, you found a great a great white space to address.
[20:02] Well and 25% of our sales we have 80 plus size is 25% of our sales are in half sizes,
on we estimate through our data, and we have one of the most comprehensive data sets in the world on this because of what we do and how we fit people.
[20:22] 30% of women are should be in half cup size, right?
And so it's that data. It's it's it's the holes in the data that we saw where our machine learning our other algorithms would say to us recommend to this woman,
machine Learning would say this recommend to this woman 1/2 size.
We kept seeing that over and over and over again before we came up with half sizes. And again, this was data that nobody had ever seen before.
If you shopped him all, um, there is no data.
I mean, maybe there's your credit card data and some some foot traffic data, but that's it.
You don't data on her preferences in her size and body type etcetera.
So we have this massive data set that kept growing. We kept seeing the holes in the data and kept scratching her head because the the algorithms would spit out errors and save us.
We don't know what size to recommend to this customer. Help us train me.
And we kept seeing this pattern over and over again and we said, Wow, there is as you said, a white space here.
There's a large percentage of at least our customers which,
as it grew, we started to realize was more, uh, you know, mapped closely to the United States who are 1/2 size who are in between cup that we should address in sort of one of our tag lines.
Now his shoes of half sizes. Why shouldn't bras?
And that just boils down the fundamental problem.
[21:49] Why shouldn't we give customers what they want? Well, the reason why nobody had before and the reason why nobody else has been able to do it. It's twofold. One.
You can't develop 1/2 cup size without the data set that we have. It's not about just splitting a B and A C in half.
There's more nuances to it, and you need a fit model to be able to fit it on and develop product off of.
We don't you know, for the most part, we don't use fit models at third Love.
Secondly, in a retail base business you already constrained by footprint, you're already constrained by a stock room, right?
Where for our category, there is a lot of inventory already.
Let's say you have 30 sizes. You have 30 sizes in every style color variant, which requires a large stock room just to stock that in retail because you don't want somebody to walk out, you don't have their style, style or size preference.
Um, in our case, reused warehouses.
We have the Internet, so we can stock, you know, depending upon inventory costs, in holding costs and in warehouse space, we can stock almost an unlimited number of sizes.
If we needed to, we won't. But we could, and so is your supplier exactly.
[22:54] In case your supply chain guys are listening, You can relax now.
[22:58] But the point is, we can do things that are important and are requested whether she's requesting it directly or indirectly by her data for the customer, we could give her what she wants.
Instead of pushing her into a size that we have in a retail store, we could give her what we want and developed product way, way faster and new sizes because of that data set, and so that ability to do that with the Internet.
The ability to use data in a really, really smart, powerful way is really what has allowed us to address a much larger portion of the market as an example.
One of the largest companies out there, they only go up Thio. I think maybe a double D cup in store, right.
That's because they're constrained by that by the shore we can offer.
And so they can't go after a larger woman. They can't go after a larger and a larger part of the market, the larger part of the total addressable market or the TAM we can because of the Internet, because of warehousing because of our ability to use data.
[23:55] I love it. And so that that customer intimacy in that direct customer data, um, enabled you to discover this opportunity and half sizes.
Conversely, it sounds like when you started the company, you have a hypothesis that the camera, phone and computer vision would be, ah, revolutionary way for women to help fit themselves.
Um, and it seems like today the fit guide is working phenomenally, but it's it's largely not a computer.
Vision based was I'm curious. Like, Was there a learning that that that wasn't the right approach for women?
Is that still the future? And it's just too early in the technology curve. What? You're your p O V on that?
[24:37] Yeah. I mean, so you're right. I mean, we, uh That record.
[24:37] Yeah. So,
right, E let the record show I'm right.
[24:47] Computervision and using a smartphone app to get fit was very, very novel for when we did it, we were operating off of a chipset.
I phoned 45 That was probably 1/4 of the speed of what we operate today. Maybe even 1/10. And I don't know exactly with a with a camera camera optics that are far, far, far less powerful.
Furthermore, open TV, which is an open source library for computer vision that we were also utilizing was nowhere near as advances it is. Now.
We're building all of this in house again. We wanted toe always find a way to bridge the gap.
So a woman didn't have to go into a store so we could reach a woman in Barrow, Alaska. For all those Barrow Alaska fans that are listening to this.
[25:33] It's a big audience for us.
[25:35] Barrow, Alaska is on the north slope of Alaska. And that's an example because there are, of course, amazing, amazing women that are there, and we want to be able to reach them.
We want to be able to reach women everywhere in this country and prior to third love you needed to go into a store to do that.
And, of course, all women over a certain age need to be wearing a bra or should be wearing a broad for the most part.
So, um, we want to be able t o reach everyone that we possibly could.
And so this smartphone app that we developed and a lot of technology, and today we have a number of patents on it, all of which have been granted on.
The technology that we developed was really, really novel. But the problem was, the conversion process wasn't as simple as it needed to be.
You couldn't be sitting on a bus to work and using the APP you couldn't be laying on the couch watching TV.
Using that you could be laying in bed, doing it to be in front of a mirror, wearing wearing a tight fitting tank top, pulling your hair, pull your hair back, take your smart take the smartphone cover off, and then through the use of two photos and the smartphone itself was the reference object into the mirror.
[26:42] We use the gyroscope for calibration. We use the flash. Recalibration was really, really novel we had hundreds of thousands of people that use it.
We were Editor's choice in the APP store way. Want a lot of accolades and awards for it. We were very proud of but didn't work because the conversion process was too long and when it worked for people, it worked incredibly well, and women loved the experience.
But we weren't growing as quickly as we needed Thio. We learned a lesson about conversion.
Now that Data said, without those early mistakes, without building that app, we couldn't have used that initial data set to then Pivot and I talked about pivots earlier because they've been really important in our on our history and in our growth.
We couldn't have pivoted into fit finder today. So those initial learnings about conversion, that initial data that we had,
went into powering what is fit finder today, we never would have able to get those algorithms off the ground without that initial data set.
[27:34] No, I totally see that. The, uh I am a hypothesis. Usually I'm wrong.
Um, but the a lot of the smartphones now have actual distance measuring capability. Like, you know, it was on the front camera for facial I D.
And so I keep waiting for the the version of that to be built into the back of the cameras. And I think when we get that, we'll get hyper accurate measurement, and I feel like for a lot of fit mint categories, that's gonna be a game changer.
[28:02] Yeah, Jason, you're right. It's the true depth camera on the front of of of the latest versions of the iPhone is coming to the back.
I had the technologists and very, very excited about that.
And what we need to do as retailers or retailers is find ways to make it easy for her to shop from home and to not have to return a product.
Our return rate is is incredibly low for the industry, but it's still hi, um uh, and higher than we would like it to be.
And at the end of the day, for us, putting customers first is our is our most important core value internally at the company.
And if we think of it through that lens, putting customers first, nobody likes have to return. Nobody likes to get a product that doesn't that doesn't work for them.
Fit Finder while, while it is very accurate, doesn't work for everybody.
And so someday we will take some of those new advancements on smartphones, pivot R i. P, including our patents, and build out what will be the next version of being able to get fit from home using a smartphone. It's very exciting.
[29:03] Very cool. I will be looking forward to that. I do want to touch on the date a little bit. You referenced it a lot. And to me, it's one of the most important competitive advantages of the D to C model.
Is that direct customer intimacy and the the competitive data you can gather about how your meeting customer needs air?
Not so you know, you mentioned that that the first versions of that fit finder gave you a data set that taught you that the standard sizes didn't fit.
I advise a lot of big established brands and a super calmer common conversation is should we have a direct to consumer model and my my general advices, your issue is less about whether you sell direct to consumers versus cell through wholesale.
You're your problem is you need the customer data that those direct to consumer companies air generating. So if you're a traditional bra manufacturer, you sell. You brought a walmart and WalMart sells it to a consumer.
You have no idea whether that customer was happy with the bra or ah, whether that that bra particularly well fit.
And so the fact that you do have that data gives you ah, huge, defensible advantage versus the traditional apparel manufacturers.
[30:15] Yeah, and I and I think, Look, everybody is in the data arms rates race today.
Whether you're a traditional retailer, whether you sell car parts, everybody is focused on data on the one thing that we did differently. 1/3 love is we built this company from the ground up with a focus on data.
Right. So we had the advantage that we had while we didn't have the resources, We don't have the capital of a large company.
We had the start of hustle, and we had the foundation that we started from the ground up, which would be very hard to change if we were a well established business that was focused on using zeros and ones to our advantage.
[30:50] Yeah. So let's let's pivot a little bit and talk about one of the big challenges I generally see with digitally native brands.
So, um, in the modern era, uh, particularly with the advent of Facebook and Google and digital marketing, it's become much easier and cheaper to launch a company and have some initial success.
So we look out there and there's a ton of of digital native brands, Um, that get out of the gate fast and, you know, grow to some size by cost, effectively advertising on Facebook.
But in general ah, bunch of those D d C company's sort of plateau like they're they're hits a point where the next of eyeballs on Facebook or even more expensive than the ones you bought, um, and it becomes hard to profitably grow.
So when we look at all the the D to see companies that get talked about a lot, a lot of them kind of hit this plateau, and it's been really hard for them to continue to grow.
And I'm curious if a if you're worried about that at Third Love.
If you've hit that plateau, um, if you have ah strategy to continue to get new customers and grow, you know, even as the the ad buying on Facebook gets more expensive and more competitive.
[32:05] Sure. Well, we're always thinking about the challenges of scaling acquisition marketing on. We have a really great leader on our team now that spends all over time thinking about that.
[32:18] We have a couple, uh, advantages, though one. We have very high gross margins.
Uh, and it didn't used to be that way. In fact, our course Martin just be a lot lower.
And we've been able to scale gross margins dramatically through improvements in our supply chain.
And again. Supply chain is a huge differentiator in our category. It's the untold story of the large, successful businesses in the space is their dominance and supply chain.
And so we've done a great job of scaling that which allow us A you know of the you know, when you buy a bra were able to spend that money,
on the Delta from in gross margin of profit on things like marketing on things like data science and data engineering.
So we can create a better experience, and that really provides us an advantage.
Furthermore, the other advantage, which is an advantage for everybody in this space on no different for us is this is a highly recurring high repeat business.
When a woman finds a bra that fits, even if she doesn't even like the brand, uh, she tends to stick with it for a long time.
[33:21] And so from Analects standpoint, do you guys tend to look a customer lifetime value, like is that important?
[33:22] You guys value customer. LTV is incredibly important to our business. We measure that, uh, it's unlike some of these other categories that you mentioned.
It's not a one time purchase, right? If we do our job, and I'd like to think that we do our job 90 plus percent of the time I delivering a great product that fits in a really phenomenal customer experience, she will be our customer.
I hope for a decade or more on that's inherent to the category, right? It just There's no reason to switch if you find something that fits, especially 1/2 size, obviously we have a distinct advantage of half sizes to nobody else offers that outside of half sizes.
If we provide something that really is phenomenal, that exceeds all expectations that she loves, we provide a brand that she that resonates with her that speaks to her, not that speaks to her husband.
We can really, hopefully keep her for a very long time, and that's our job, and that's what we're focused on. Eso.
There's two sides, really our marketing strategy. One is acquiring new customers and having purchased us purchased with us before, and the second half is providing a great experience to our repeat recurring revenue customers.
[34:34] That's awesome. Ah, I also I noticed that you want to pop up store, brick and mortar store in New York this year, and I think you also have a partnership with Bloomingdale's. If I'm not mistaken is, ah, brick and mortar, part of the the expansion strategy.
[34:48] Well, we we haven't had a partnership with any other retailers in two years, so we don't the only place to buy third. Love is through third love, so we're we're fully direct in terms of our retail store.
[35:02] We, uh, unlike other director consumer players that built stores very quickly after they got started.
We waited almost seven years before we launch our first store, and we wanted to prove a number of things out before we went into retail one.
We operate in a category that women don't want to shop in a retail store for generally right. It's unlike other county, unlike apparel.
Unlike a number of other direct markets where the experience just is better, you know you're dealing with the fit of pants or the fit of a blouse.
These are things that, frankly, it's a lot easier to try and a couple sizes in a couple outfits and figure out what works for you in store. I have to deal with the return.
We operate in a category that's not that way. So we really wanted to prove out a great customer experience to put all of our resources, all of our energy into creating that customer experience.
The challenge with retail is it is very, very labor intensive and very time intensive.
It requires an entirely new skill set, and we're in the early days for learning that skill Set 1/3 love.
But so far, the learnings in our one concept store in Soho haven't really successful. We're really, really happy with what we've learned in that store, and that will prove on that will be a part of our strategy going forward what we've built out there.
But it's not gonna be the strategy of blanketing the entire country with as many stories as we can.
We want to create an experience that is a creative to the overall online business. That's our objective.
[36:24] That is faring well before the watching the continue evolution of that strategy.
Um, I want to pivot for a second and and, ah, talk about the controversial topic from this week.
So you you referenced your big competitor a number of times and we're all friends here.
That's l brands Victoria Secret.
And if I have the story right, you guys sort of ended up inadvertently in a feud with Victoria's Secret. I feel like, ah, one time CMO. They're sort of like shockingly called you guys out and you got into a little bit of a public dialogue.
Fast forward to this week. I feel like you guys definitively one that because I L brands is selling Victoria Secret at evaluation much lower than their peak.
And the narrative about this decline of Victoria's Secret is largely that they lost their audience and weren't weren't appealing to customers.
And when brands like third Love that talk directly to women emerge that it became impossible for them to compete.
So congrats on crushing Ah ah, formidable competitors. Do I have that story right?
[37:35] Well, you know, Jason, you said earlier that we've definitively one that, and I don't agree.
We will when? When every woman in America is wearing something that fits her and wears a brand that resonates with her and speaks to her,
and that she's not ashamed of wearing or receiving the catalog from a brand that her six year old daughter I have a six and 1/2 year old daughter,
or her 12 year old teenager who's getting into her first bra isn't ashamed to be shopping on in,
or wearing Ah, brand that she doesn't hide the catalog or hide the pretty pink sparkly bag because she's too embarrasses. Have anybody at work see that she was shopping there?
That's when we'll win. So again, we're really just at the beginning.
We've got so much more work to do In order to do that, I wouldn't necessarily say that we are in a feud with that company.
[38:36] We are building something that's really different. We're building something that really is the antithesis of what they built in every way. Online verse offline.
The brand is very, very different. Everyone knows that. Who is familiar with with what we're doing.
The number of sizes we offer is 2 to 3 acts larger than theirs.
So inherently we can go after a much larger portion of the market I.
[38:59] And we offer a a really data based experience that that enables me to shop from the comfort of home so sort of securely uncomfortably, and that's that's very different.
And so we have so much more work to do there. I think that L brands has created there many of their own problems on, and I don't think that we deserve the credit for it.
Actually, we deserve credit for changing the narrative out there, but we don't deserve credit for their downfall. And, um, you know, I hope that, you know, competition's a good thing, and that's what makes America great on.
I look forward to hopefully that them emerging as a stronger competitors because having some competition is good and them changing their narrative, changing their brand, changing the types of models that they show is a really good thing for the world on.
They have a large voice, so I'm hopeful that they can and I look forward to competing with them in the future.
I think they've got a lot of work to do. They were bought by private equity for those that don't know and bought by a private equity firm known for sort of taking a cleaver knife and chopping things apart.
I hope for all of the amazing women that work there, and I'm sure there are.
I know there are many amazing women that work there that too many jobs aren't lost, so I'm hopeful of that.
But third, love is hiring so well stated, very magnanimous of you.
[40:18] Very cool. Well, that's ah. Very well. Say, did. In very magnanimous of you, I do know that we can both agree to the extent that third love does deserve credit. Is Heidi and not you.
[40:21] I do know that we can both agree to extend that love does.
It's not, you know, 100%.
[40:29] In case she's listening. I just wanted to make sure. Um So listen, we're coming up on time.
I do want to get one other question before we do one at a time.
Um, if you and I get in that time traveling DeLorean and fire up the flux capacitor and jump sort of five years in the future from today, do you have a vision for how the shopping experience might change?
I mean, is our store's gonna be gone, and we're all gonna be buying her stuff from direct to consumer. Like what?
What's the consumer landscape looked like five years from now? Mr. Fancy MBA xvc successful entrepreneur.
[41:07] Well, I unfortunately, based upon inexpensive education, that probably wasn't really worth very much. I still can't predict the future.
Uh, so I think that where we're headed is a world that is truly on the channel, where there is a lot less retail, and the retail that wins is retail, that is differentiated.
That looks very different from it. It looks today that has a digital experience built into the retail store.
Experiences are what people want.
They are looking for more than just product. They can get that same product online, the exact same product you can buy in a store today you can always buy online.
I don't know of any examples that you can't are very few examples.
And so I think that the world in the world of commerce online in the future doesn't look all that different than it looks today.
I think we will see sort of the evolution of the smartphones that we all carry around as processing power grows and optics get a lot smarter and the camera on the front.
[42:16] Those sorts of things will enable technology companies like ours to actually be able to create really great at home experiences to bridge the gap.
But retail still won't go anywhere. And the retail that wins the retail that would be highly differentiated and creates a great experience in store that again is a creative to that online experience.
But the Allman Experience has to lead because that's what consumers want.
[42:37] That is a great advice, and that's gonna be a great place to leave it, because it's happened again. We've used up our allotted time.
[42:38] Great advice, a great place to be because it's happening. We've used up our A lot of times.
[42:44] Um, you did mention that you were hiring It turns out there's a bunch of great e commerce pros and digital marketers that was in the podcast. Is that a particular geography that you're looking for talent in our.
[42:45] You did mention that you were hiring It turns out there's a bunch of great commerce frozen digital marketers.
Listen, podcast, is that a particular geography that you're looking for?
Third love is we're about 300 people, and we're headquartered in San Francisco.
We are hiring mostly in San Francisco for the digital marketing pros that you mentioned, so please reach out to us. We're at careers dot third love dot com on dhe.
Let us know kind of what you're looking for. If you see any jobs that sparked your interest, whether you're in the Bay Area or somewhere else, we're certainly open to having people relocate to the barrier.
[43:23] Awesome. We will put that link in the show notes. So no need to write that down of your driving. David's been a real pleasure. I've really enjoyed our conversation. Thanks very much.
[43:30] Thistles. Superfund, Jason, thanks so much. And thank you to all the listeners out there and thank you to all the customers of Third Love and the future customers.
[43:35] The customers and the future. Absolute. Look forward to having human down. Thank you so much for your support of our business.
[43:38] So we look forward to having you and thank you so much for your support of our business. We are just getting started.
[43:45] That is awesome. And until next time, happy commercing.
EP210 - Amazon Grocery and News
Episode 210 is a recap of the weeks news, including eTailWest recap, Amazon Go Grocery, Walmart new programs, impact of Coronavirus, and retailer earnings reports.
eTail West recap
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 210 of the Jason & Scot show was recorded on Wednesday, March 4th, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scot show this episode being recorded on Wednesday March 4th 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:37] Hey Jason and welcome back Jason Scott show listeners there has been a ton going on in the world of retail.
Amazon and e-commerce so tonight we are going to focus on the news for we do that Jason you before coronavirus hit you had done a little bit of traveling and now I think your wings are probably clipped a little bit.
But you were a Tito West.
[1:01] I was it was a tough duty to go to Palm Desert in the middle of a Chicago Street snow storm.
[1:08] Toughen did you bring the family or you left them back there to deal with that while you were your sunbathing.
[1:15] I did the the family did stay at home they they were certainly welcome to attend
but I think they chose are my four and a half year old certainly did not choose to stay home but my wife chose to stay in Chicago,
for her work in life apparently are kind of a big deal.
[1:38] Yeah cool how is this.
[1:38] I have some big news for you with my son those God I'm kind of depressed.
I feel like my son my four and a half year old son is turning to the dark side of the force.
[1:51] Everyone goes through a face there's a the the dark side is there's a big draw there.
[1:59] That yeah I he's begging for like Darth Vader and kylo ren action figures and I drove him to school this morning and we had to sing Imperial March theme song over and over again.
[2:13] Nice that's some quality parenting.
[2:15] Yeah he totally has it down.
[2:17] As long as he's in the universe and not you're not talking All-Star Trekkie then he can be on the dark side.
[2:22] To my knowledge he does not know that Star Trek exist yet.
[2:26] Good good.
[2:27] But so yeah so that aside I did get to go to e-tail West last week which was a pleasure listeners may already know that because we already published one of the shows from e-tail
I got to do an interview with Owen Comerford who's the CEO of Moose Jaw.
Smooth jazz a great outdoor apparel retailer that was oddly purchased by Walmart a couple years ago.
[2:56] Cool and he's stayed on to run de.
[2:58] Yeah it's Moosa is famous for their clever and quirky marketing and oh and is actually the,
the owner of that marketing so for a long time Owen was the CMO and was responsible for a lot of the campaign's that made him famous and then Owens boss the the CEO of left to go.
Run Blue Nile and Owen was promoted to CEO so.
Doing a good job there a Moose Jaw and then he has a side hustle Walmart also made him the sort of general merchandise manager for outdoor for all of Walmart.
Yeah so that was a good conversation and they do clever marketing campaigns like if you're afraid to break up with your boyfriend or girlfriend call us and we'll break up with him for you.
[3:51] Yeah never rabid kind of audience that rates things and is really into the outdoor stuff and and really engaged right.
[4:02] Yeah yeah they're super smart about engaging their customers and they behind the scenes they have a really powerful 360 degree view of the customer and all that all that good stuff so.
They definitely have a bunch of best practices.
Somewhat aided by the fact that they're relatively small prior to other Walmart acquisition yeah so that was a.
Great conversation he gave one of the Keynotes and then we got him in a conversation and then probably next week we'll publish a conversation I had with Dave Spector who's one of the cofounders of third love which is a.
Highly successful direct to consumer or women's lingerie primarily bra.
Manufacturer and reseller and we'll probably talk a little bit more about third love in part of the new segment later but so that's a,
a teaser for now.
[4:55] And then you know there's a lot of content a t-tail there's actually multiple tracks going on so you kind of can't go to everything.
And I did have some duties.
To record some podcasts and some other things while we're there so I didn't get to see everything but a couple of the just quick standouts for me,
there was a guy who I hadn't seen before who I'm I'm afraid I'm gonna mispronounce his name Robert petrich.
Who's in Industry the retail industry manager for Facebook.
[5:28] And so he was talking a lot about Instagram check out which is a topic of interest to me so he kind of had this interesting framework he said hey Facebook,
we think about these three main phases of the customer Journey the discovery phase the purchase phase and the post-purchase phase.
And essentially between Facebook and Instagram we feel like we dominate it Discovery and we're doing well and have a lot of good products in there,
but we really think I were deficient in the purchase phase and the post-purchase phase and so that's a major focus of.
His effort and so like through that framework Instagram check out is.
There you know biggest but still early initiative in purchase,
and so he kind of gave a Nike case study of Instagram check out where Nike partnered with this,
fear of God brand and they launched a new shoe for Cyber Monday and they sold completely sold out of the shoe and in one minute,
um and he sort of highlighted that that a number of primarily Street Wear Brands women's fashion brands and Beauty Brands are having a very high degree of success using Instagram check out and he announced that,
in the process of expanding that program which was.
[6:47] Interesting to me because they've been in this beta for a long time and they haven't allowed new new brands into the program so it was good to hear that there.
Expanding that program and then he also pitched something I guess I'm a little more skeptical of but you know he had at least one good case study using Facebook Messenger as a post purchase tool.
So the case study there with Sephora has sort of natural language appointment booking through Facebook Messenger so if you want to,
book an appointment with a beauty consultant you can kind of do it using natural language on Facebook messenger and he in his case study he was saying that
they have an 11% higher booking rate on Facebook Messenger than they do the Sephora website or any other support of touch points.
So he was kind of pitching it for that I to me like.
There's so many Communication channel channels now that they're sort of a signal to noise problem across all these channels but.
[7:52] That that was kind of interesting I got to host a couple panels so I did a direct-to-consumer panel on how brands are.
Able to capture customer data and improve their products and services and so there were three kind of interesting execs on that panel Megan Whitman who's the chief digital officer Campari Beauty,
Kyle Hoff who is the CEO of a direct-to-consumer furniture company called Floyd which is kind of the
the online Akia if you will and on kit Patel who's the VP of merchandising at boxed and I was super sad that you weren't there because I know
boxed plays a major role In Stocking The get spiffy snack Shelf.
[8:38] Absolutely yeah.
[8:39] And so they had some sort of interesting insights on cat talked a lot about,
boxed own private label and how they're able to leverage the other customer data they get and feedback they get to sort of shape the the offering for.
For their private label products so that was interesting and then I did kind of a.
Predict the future panel with with two guys Mike apostille who's a co-founder and CEO of a.
Emil company called factor which is surprisingly big much bigger than I realize they sell a hundred thousand meals a week so these are.
Just reheat any meals at home for whatever whatever your nutritional information you know interest or Diet is.
And they it's super interesting because they do a bunch of post-meal surveys,
they get a really high response rate and so they do a lot of like Micro Data about which meals customers who liked and what they liked and didn't like and they really use that to shape there.
Their future meal planning and then Bob Bennett who's the VP and General Merchandise general manager of consumer engagement at Petco.
and Bob had some interesting insights but I'm also super nice to Bob because Petco's based in San Diego and so have an eye towards my retirement job being some kind of e-commerce gig in San Diego.
[10:08] Yes hopefully Bob's listening.
[10:11] Yeah exactly and then I got to give a keynote on direct-to-consumer on the third day and so I took the opportunity to totally poo poo the direct-to-consumer channel.
So I want I want I want recap the whole thing it was a short presentation
but you know they're all these these direct to Consumer presenters and there's all these case studies about these direct consumer companies so I kind of highlighted the fact that hey,
there are all these different companies that track direct-to-consumer companies so I picked one the interactive advertising Bureau so it's a,
Trade Organization of digital advertisers called,
usually they go by IAB and IAB publishes this list called the IAB 250 which is.
Their opinion in the 250 most important direct to Consumer companies to watch so I pulled all 250 companies and said hey how many of those companies have sold at least a hundred million dollars a year,
ever and how many of the 250 would you guess are over a hundred million in sales.
[11:22] I warned you in rehearsal that you'd have to guess 25 toy reasonable guess but way too high seven of the 250 companies have sold over a hundred million dollars a year.
[11:30] Holy cow.
[11:31] Yeah and only two have sold a billion dollars a year and those two by the way are Stitch fix and chewy,
both of whom primarily sell other people's stuff so they are technically direct-to-consumer and they do both have their own brand but they mostly are,
and online wholesaler not a vertically integrated direct-to-consumer company and one of them chewy is.
Hugely successful on the revenue side but while the unprofitable so of these hundred and fifty companies one company that sells a billion dollars a year profitably and you know a bunch of these companies are,
unicorns from the private Equity valuation standpoint but but
very few of them have have meaningful market share at the moment not to say they won't ever but it like it's sometimes easy to get caught up in the in the hype and sort of overvalue where they're at right now.
[12:27] Did you know that chewy and Stitch fix sell other people's stuff direct-to-consumer.
[12:34] I did know that but so does Walmart.
[12:36] It's right there it's right there it is still direct-to-consumer.
[12:40] Yeah I mean isn't every retailer direct-to-consumer.
[12:42] Yeah Staples has a B2B piece.
[12:48] This is true but director business.
[12:52] Cool seems like you were kind of running the show over there you're going to be like the you're going to be on putting together the whole thing here before we know it.
[13:00] Yeah if they're listening winter events in Palm Desert I'm in.
[13:04] Said the Chicago.
Cool sounds like it was a fun trip and you get to flex the old speaking muscles which is always good it wouldn't be adjacent Scotch oh if we didn't kick off with a little bit of Amazon news.
[13:25] Design news your margin is their opportunity.
[13:34] So let's start with your favorite topic Jason which is grocery there's been I've seen a lot of interesting topics around Grocery and I saw you actually wrote an article about this in Forbes so
give us an update on what's going on in the Amazon grocery line.
[13:49] Yeah yeah this is awesome week for grocery so a couple of things came out,
last week right before e-tail Amazon opened a new Amazon go format in Seattle this called Amazon GO Grocery and so.
Traditional Amazon go stores are these just walk out stores,
you go in you take your products you walk out and Amazon uses cameras to track you and charge you for what you took I've always said that well well their disguises convenience stores that Amazon ghost orders are really,
restaurants because they're primarily selling Ready-to-Eat food for business people to have for lunch
and in fact secretly if you dive in all of Amazon's propaganda for go like they call them restaurants so this is a new format that uses that same just walk out technology
for an actual grocery store so it's quite a bit larger it's five times larger than a ghost or so it goes stores about
five is exaggeration a ghost or is about 1,500 to 2,000 square foot this is a 5,000 square foot store this this store has about 10,000 skews so five times as many skus as a
a ghost or had and the skus include things like,
a butcher shop with with meats and organic produce.
[15:19] The go didn't have and that you know potentially are harder for the camera to recognize.
So a big evolution in the Amazon Go technology and a new grocery concept for Amazon so that alone would have been super exciting
and I would put just one caveat on that while it's a lot bigger than a traditional ghost or it actually still is small by grocery store standards
so that's not a huge amount of skus and that's not a big footprint for an American grocery store that's about the size of it the typical European Grocery Store.
And I was super curious how they were going to do things like sell bulk items like how do you sell Apples by the pound.
Um using the just walk out technology in the answer is you don't they're they're selling everything by the Aegis so,
yeah so you pay per apple or / banana rather than by weight so it's so interesting.
Like a shift they obviously did for their convenience not the customers but it'll be interesting to see if customers like that alternative model or not.
[16:26] Some chatter were some guy said he defeated the camera did you see that.
[16:30] Yeah and I almost wondered if he's a podcast listener so a ton of journalists got invited to the grand opening,
and one of the things that I always pointed out about a one of the problems in scaling Amazon go is there's things you can't do in this camera-based or like have a public restroom.
And the reason you can't is because you can't put cameras in the restroom and so then you have a problem someone scans their way into the store
using the mobile app and so you know who they are and then you're tracking them around the store with a cameras and you keep track of what they bought and then you know when they walk out you charge them for those purchases will if you let them walk into a public restroom in the middle of that shopping trip,
you lose that your identification Mark for that customer and so
you know one of the problems you have is go to a bigger store and it's more a higher expectation that you're going to a restroom
so turns out this Amazon go store does have a restroom and so this clever journalist figured out yeah I'll walk into the restroom I'll see I'll carry two jackets with me and so I'll change jackets in the restroom so I come out with a different color jacket and sure enough by doing that he was able to steal all his items and wasn't charged for them.
[17:45] Was he arrested.
[17:46] No no I mean oh well at least not at the time of publishing his article.
I always thought that I always assume the solution would be that you have to leave the store to use the restroom and then you have to scan your way back in with your phone.
Yeah but so that's an interesting little little Edge case another Edge case that seems like they're trying to solve is in a ghost or you can only shop alone,
so if you walk in with your family they each have to have a.
Their own app or have a separate cart and now with this go grocery store you can actually scan in multiple people and then any items taken by any of those people.
You get charged for and group shopping actually is a big deal so it makes sense.
[18:35] So the jacket thing can't they use eventually face recognition would do that or is there a reason they're not doing faces for for privacy reasons.
[18:44] The real answer is I don't know they're you know,
you could imagine that like I imagine they are using face and then they're like hashing it and you know just using it for that that session so they're not storing it or doing anything with it but.
They just don't force you to give like a face profile like you know what I mean like you're naturally walking through the store so they have to be able to track you from multiple angles and so I imagine they use a lot of attributes of your appearance to track you and obviously
if your back is to all the cameras the facial recognition wouldn't work so they can't exclusively rely on facial recognition.
[19:22] But you scan your app it's logged in so they know if let's say they do scan your face they knew who Jason is and your kind of assuming they don't store it but maybe they do and I don't know.
[19:35] Yeah I don't know these are all educated again you can imagine ways they could solve it right so it's
it's not a deal-breaker it's just harder but so Props on Amazon they're moving the concept for further when they originally invented the idea of just walk out store they had a grocery store in mind and with the technology available at the time it was too hard,
so now it's become easier they also said that they've,
significantly reduce the cost I imagine it still super expensive but I believe them that the cost is going down
but I was almost more excited about a much lower profile.
Revelation that came out this last week at Amazon we've been talking about Amazon opening a.
A alternative grocery store that's not a Whole Foods grocery store that's a full-size grocery store in Los Angeles and it's been under construction for a while people have walked by and then.
Um I want to say Bloomberg got access to the store and got to visit the store before it opened and the big surprise to everyone is oh there's not a lot of digital Innovations and it mostly is a very traditional grocery store layout.
[20:53] Um so this is a 33,000 square foot store so that's a legitimate Us full supermarket.
And it was kind of interesting that it was you know didn't have a lot of digital shopping Innovations in it,
I have assumed for a long time that it was going to be lower price point groceries and targeted it more value oriented customers than.
Then Whole Foods but a clever blog called Hungry TV h n gr y TV,
um sort of track down the architectural plans for this store and they uncovered something super interesting that 7,200 square feet of this 33,000 square foot store.
Are dedicated to a micro fulfillment center so what this is is.
[21:50] Robotic grocery picking machine and like the brand name is even on the floor plan so this is a Michigan company called de mantequilla.
Which which make micro fulfillment centers for grocery stores and so very clearly this new Amazon concept is going to have a lot of groceries stored in this robotic system that then automatically picks them for the customer,
and so we don't know exactly how this will work yet but one model is customers go to the grocery store do their own shopping and take home their groceries.
[22:24] For deliveries they use this automated picking system to more cost effectively pick the orders and deliver them to you.
And that alone would be interesting that that is a huge Trend in grocery but another alternative would be.
You shop for certain items yourself in the grocery store where like individual selections important so you want to pick your own,
pork chops and you want to pick your own fresh produce,
but you really just want a bag of Oreos and all the bags Oreos are the same so there's no reason to push a cart by Oreo Island grab Oreos,
when you can just like build a list on your phone and have the robot fill the cart for you so,
the fact that this this micro fulfillment center is built into this new Amazon store is very interesting and that to me does make it.
Much more revolutionary grocery store than maybe the Bloomberg journalists realized when they they got the walkthrough so I'm,
and that sort is likely going to open imminently so I'm super excited about that,
and that kind of prompted me to write this article in Forbes about the the great grocery Wars and how Amazon Walmart and Kroger are sort of battling for the hearts and mind of,
digital grocery Shoppers in the US so I'll put a link to my article in the show notes of anyone wants to Deep dive into what's going on in digital grocery right now.
[23:49] Very cool and another Amazon news we're going to talk about coronavirus but since we're talking about Amazon they did have a big travel freeze which was which was interesting and then a lot of companies have
pre announced that they're going to have a rough q1 due to the virus so for example apple and
Microsoft both pre announced that they probably would miss their numbers due to supply chain issues and then I don't know why Microsoft would.
That was kind of weird when I guess how about any other Amazon news that you've been tracking.
[24:24] Yeah a few things
so there's a lot of Buzz yesterday about another new store format that at Amazon opened journalists found a pop-up store in Seattle that was focused on Amazon Basics bedding.
So this is like their version of the Casper mattress.
And like that is interesting to me I actually think the journalist kind of misinterpreted what they were seeing so there actually have been I want to say.
Five Amazon pop-up stores that have opened in the last three months and Amazon used to have hundreds of pop-up stores.
They famously closed them all and then they quietly reopen six of them and five or six of them and they all have these rotating themes so one month the popups might have been about,
audible books and the next month they might have been about,
mama bear food and the current month's theme for these pop-up stores is amazonbasics bedding and so what I think is new is they added a seventh.
Location for the pop-up which is.
[25:37] So that's kind of interesting one that is more interesting to me and I know you being a fulfillment geek would be excited about is,
they also announced that they had opened a new kind of fulfillment center and I want to say they've opened four of these,
and this is Kyle call it a tweener fulfillment center.
This is a fulfillment center that holds a hundred thousand items,
closer to population centers so a true Amazon fulfillment center is like a million square feet and holds,
millions of products this is a hundred thousand square foot store that holds a hundred thousand items and as a result of these things they're able to guarantee 5 hour delivery on a bunch of product so it's kind of like.
Amazon Prime now on steroids and they've opened them in Phoenix Philadelphia Dallas in Orlando.
[26:36] Very cool yeah Prime now are very small so that I have.
[26:40] Like 20 thousand items.
[26:41] Yeah 5,000 square feet interesting so you know.
It almost feels like the next phase of prime one day is prime same day so feels like they're they're laying the groundwork for that under the guise of it that'd be the ultimate kind of a head fake is you know.
Tell Wall Street they're continuing with prime one day and then at becomes Prime same day without a huge amount of new investment that would be interesting.
[27:08] Yeah and part of me and I may have this wrong but I sort of imagined there that those two things are almost synergistic that essentially they said like hey.
To honor our one day we need to stay you know it's more cost-effective to Stage the most popular items closer to the customer and so they they sort of design these new fulfillment centers to too,
increase profitability and service level for the,
Amazon Prime one day and then as they did that they go oh and by the way there's a subset of customers that we can have an even better service level now that we've done this right and so why wouldn't we offer,
you know faster same day delivery to customers whom we.
[27:52] Yeah very cool.
[27:54] So yeah those are I guess where my last little Amazon tidbits.
[27:59] I brought up the coronavirus let's let's kind of talk about that because it's an unpleasant topic but we need to kind of think about how is this going to impact everything for our listeners here so first of all kind of this is kind of
coming in waves if you will so when we first heard about this
the main concern was supply chain so and you know that Apple pronouncements when it really kind of caught onto my radar it was pretty early there
and that's because the virus initiated in China and if you have a lot of Chinese components than it's going to impact you
my initial thought was there's a lot of Chinese stuff sold on Amazon I wonder how they're going to get impacted one of my
one of my favorite analyst con Sebastian he actually kind of said you know because they have this Marketplace there's always multiple offers from those products so it's almost kind of like,
yeah you don't really have a single source so so by having the marketplace model Amazon in an interesting way is almost kind of,
D single point of failure did supply chain whereas an apple conversely has because of
the components and controlling complete vertical ization of everything they have a lot of single points of failure in China so that was interesting and then he also mentioned.
[29:20] You actually kind of came out and came out with a list of companies who would be hit the most from this but then what I want to talk about is the ones that would do best in Amazon was on that list it was very
counterintuitive to what I was thinking
and his argument was also on there was like Peloton Netflix obviously Zoom some of those you kind of thought about but his whole idea is that based on what we've seen in other countries when there is a large outbreak,
people go into he calls it cocoon mode so that's an interesting theory is you know if people are having to kind of self quarantine on their houses to avoid being in crowds what does that mean,
and his whole point is real you're going to still need stuff you're not going to want to go to the grocery store where presumably,
people have been in there touching all the products and things you're going to want a cleaner supply chain to your house which means or e-commerce which is benefits Amazon so I thought that was an interesting take.
[30:14] Yeah no for sure and I feel like the the most like,
direct example is yeah so it's great for Peloton and it's bad for SoulCycle right like you don't want to go to a physical place and take a class with 30 other people but you'd rather
workout at home and in that case once you buy a Peloton you're locked into the Peloton so it's not like,
you just for God you know you skip something for a month and then you're going to go back to it after the,
the the virus updates,
you know if you're you you in many cases go through a one-way door to make some purchase decision to do something at home versus out in public and so like it could have some long-term impacts,
and they're just all these angles to this but like I'm with you the the first announcements
coronavirus started showing up in a bunch of earnings reports and it wasn't retailers it was manufacturers and the interesting thing was it was ones that obviously have supply chain dependencies like
like apple that makes a lot of the product in in China,
but it was also like companies that make their product in the US are still dependent on ingredients from China so I want it was like Coca-Cola has made in the US but it uses aspartame that's made in China and so,
you know not surprising in the global economy.
[31:44] We the the world supply chain is very dependent on China so potentially impact there and uh you know just a ton of factories.
Shut down they're actually starting to open up again but I think the interesting thing is this kind of juxtaposition that,
some business like in some ways this benefits businesses right so in the u.s. right now,
um where the the fear probably outpaces the real risk you have a lot of quote aggressive shopping unquote and all these retailers are selling four times as much
paper towels and disinfecting wipes and hand sanitizer is they ever had before in some retailers have now said that the,
the sales increases there will be material.
[32:34] Which is interesting, they all have lean Supply chains and they're all running out of that stuff and so I kind of feel like like.
[32:43] There's a pro and a con to that.
But then our friends at coresight did a survey and ask a bunch of customers if their shopping behaviors might change as a result of.
Concerns over coronavirus and not shockingly a significant percentage of customers
said like 25% said they already are avoiding going to public places and fifty percent said that they definitely would have things got worse and so you know the premise is,
if you're a mall owner you know this this is certainly bad for you a bunch of retards that said they've already started to see,
um persistent traffic declines if you're a retailer at an airport you've already been decimated because air travels way down and so the traffic to those airport stores.
[33:40] Is way down but then again the cocooning could potentially be an upside for some businesses so if you're launching a digital grocery service,
and your biggest problem is that a significant portion of the US consumers haven't tried ordering their groceries online yet.
You know it probably is pretty appealing if you're afraid to go to the supermarket because of all the people there it's probably pretty appealing to try your first delivery order and if that is a good experience for you.
You you might be inclined to use that service regularly and Scot I don't know if you knew this but there's kind of a precedent for that.
[34:23] Um so.
The second largest e-commerce site in China is of course JD.com JD.com basically exists because of the SARS epidemic in China so,
so prior to SARS.
Jingdong Trading Company is selling CD-ROM drives at electronics bazaars and Shanghai and when SARS hit,
all these bazaars closed and the founder of jingdong trading had a bunch of inventory of the CD-ROM drives it couldn't sell and so because there was this kind of prolonged quarantine,
he started trying to sell the CD-ROM drives on bulletin boards and was so successful in doing that that he launched a website JD.com,
and they of course become one of the biggest e-commerce players in the world.
[35:16] I did not know that.
[35:17] Yeah so who knows potentially there will be some new.
Businesses emerging from this sort of temporary cocooning and the the other category that I feel like is gonna like potentially be decimated by this.
The on-premise restaurant business because they've already been under a lot of stress consumers are consuming a lot more restaurant meals off-premise they're mostly getting delivered by these.
These delivery marketplaces and the the economics for the restaurants themselves are horrible when this happens.
But now if people are cocooning more and going out less they're likely to order even more meals for home delivery and that's that's going to be a disaster for the on-prem restaurant business.
[36:04] Cool how about I know you were bummed that some of the events were canceled too.
[36:09] Yeah there's a little controversy there so like that.
For those of us in the industry like this is a busy event time of the year and so there you know a number of big events have been canceled Google and Facebook both canceled their developer conferences,
Adobe just canceled their big customer conference in Las Vegas,
and we're about two weeks away from shoptalk which is a you know one of the best shows in our industry,
is still scheduled to go on in Las Vegas and I'll be honest I'm grateful I'm not one of the event organizers and I'm super curious what they're going to do because.
It's increasingly looking like it's not going to be viable to have this show like tons of attendees and speakers work for companies that are that are limiting you know non-essential travel.
And I'm sure a lot of people just have concerns over you know traveling to a big event in Las Vegas so it's going to be.
Interesting to see whether we have a shop talk this year or not.
[37:11] Yeah we will see are you going.
[37:16] If they have it I probably will go you know we have to see like.
It is funny if you remember shoptalk sold this year so.
The fact the founder of shop talk already seemed super smart right like he had flipped a couple trade shows he sold shop talk for a particularly good valuation.
And you know he built a great show they did a really good job they grew rapidly for three years and then he sold it and that already looked brilliant now it looks.
[37:51] Because the new owner that paid like a pretty rich premium for the show is now stuck in this position like.
Do we give all of our exhibitors their money back or do we try to have a show that you know potentially is going to be the worst year ever for the show as you may remember
they're doing a novel thing for the show they're having only female speakers and so from my perspective,
it will be a tragedy to have only female speakers than have no one show up because everyone's afraid of the coronavirus so I just I just think there's a lot of.
Issues Tangled Up In whether or not not they at whether or not they have the show and I'm glad it's not my call.
[38:30] Yeah wonder how so you know a channel visor we do a show and you commit you know,
years in advance and you you spend a lot on the show and you have to guarantee hotel room so I wonder I wonder if a viral outbreak is kind of a reason to be able to get out of that.
[38:48] Yet so I don't know if they're contractually obligated to but from a Goodwill standpoint most companies are having to let customers out of their commitment so
the I mean I had a non-refundable room for for Adobe and they refunded that like
Adobe basically sells out the Venetian and the Palazzo and so I imagine those hotels are going to be empty now,
because they you know they weren't marketing rooms to other people for that week and I'm sure shoptalk would be the same problem at Mandalay Bay,
United Airlines just announced that you know they're waiving all change and cancellation fees and they're actually cutting back their schedule so all these travel and hospitality companies
you know are really bearing the brunt of the cost for this so it's a it's a mess.
[39:38] Yeah yeah it's can be interesting the we don't really talk about travel on the show but it will kind of
Ripple to our world because Google has pretty high concentration of travel advertisers social media guys I think are pretty small at I would guess I think Google is like the 15 to 20% range they have kind of four or five verticals that are each 20%,
retail being one of them maybe politics there's kind of a weird thing that it actually could be okay that it's a political year maybe that'll help them.
It's gonna be interesting to see how these things were blowout and other places.
[40:15] Yeah yeah for sure and obviously not not something that people plant or budgeted for.
[40:20] Cool another news item I wanted to get your opinion this our resident Walmart guy is this Walmart plus kind of Amazon Prime killer
I can't tell feels underwhelming but I wanted to see if there's something on this there.
[40:36] Yeah so side now you're calling me the Walmart guy but you're the one that camps out overnight to get the new Star Wars toys at Walmart.
[40:45] Yeah but I've been to Bentonville once how many times have you been.
[40:49] Yeah more than once Fair Point yeah so Walmart had a number of interesting announcements in the last two weeks so you're right
Walmart did not announce a new
Amazon Prime competitor but some news apparently leaked and so I think originally Vox recode had an article and now a bunch of other people at articles and Walmart kind of confirmed that the,
the basic details of the article where accurate,
but the news was that Walmart was adding a monthly subscription program that sounds somewhat like.
Amazon Prime and in fact it's called Amazon or Walmart plus and so,
again one more didn't do a real announcements we don't really know what's in Walmart plus yet the speculation was at a minimum that they had sort of free home grocery delivery.
[41:51] And there was like some speculation that there are a bunch of other potential Services Walmart could be bundling in that in a separate announcement Walmart opened a number of health clinics.
Which is a new major Initiative for Walmart and so there is some speculation that Health Services could be bundled in this we don't know yet so it'll be interesting like I guess I'm on the bubble.
I think it's really smart for a retailer to evolve into an echo system and have a sticky membership program and obviously Prime is the,
the most economically successful membership program in the history of Earth,
but another retailer Costco has you know pretty close to the second most successful,
membership program so you know it's smart for Walmart to want to have a really successful program so in that sense like I'm encouraged that they're doing something.
[42:46] It's hard to imagine what it could be that that's going to stack up favorably to Amazon Prime so I guess that's my fear like I'm going to reserve judgment until I see what's in it,
but I hope what they do is something very different than Prime instead of just trying to do a me to version of prime because I kind of feel like that would.
But they did bundle in that same week some other news came out so I thought you might be more excited Walmart a t-tail Walmart officially launched Walmart fulfillment service so they call that a wfs,
which is their version of Amazon's FBA,
and this very much sounds like a me to offering compared to Amazon but I would argue here it's a smart unnecessary one Walmart has.
You know pretty open about its aspirations to to develop a serious successful Marketplace,
and to me it feels like like table Stakes for a really successful Marketplace is.
You have to help all those sellers with fulfillment so that you can have a high service level and you can kind of match Amazon Prime one day and and the only way you're going to do that is if you fulfill the goods for.
For the sellers and so this this was not shocking news but but like a pretty important evolution in the marketplace at Walmart do you.
[44:15] You sort of agrees God or you think it's not necessary the this point.
[44:20] I do you know when you don't have when you have kind of a what I call hybrid marketplace with one p n 3p
and the 1p experience is just typically so much better than the 3p experience because
third parties generally are smaller businesses they don't have the same shipping infrastructure so
so having that fulfillment by or the this example Walmart fulfillment Services as this Middle Ground
you know I'd say it brings the customer experience that much closer and that's what you want to have a vibrant Marketplace you want it
you want it so similar that the customer doesn't pause and say oh this is from a third party that's going to take a lot longer or come in a weird box or.
The last one I got was all destroyed or came to a carrier I don't like whatever it is that there's those things kind of chew away at the overall customer experience so I think it'll be good.
[45:11] Ya know and then you know Walmart has already accepts returns for 3p sales in their stores and so I don't think they announced anything but you could imagine
Walmart leveraging their network of stores like they could potentially stage some popular 3p products they're like there's all kinds of interesting.
Twists on the Walmart fulfillment Services if you if you layer in the 5000 super centers as well as the the Walmart's fulfillment centers.
So that's interesting and then they did also announced kind of the next step in a reorganization,
like over the last couple months they had merged several departments between walmart.com and Walmart so instead of having separate teams and Bentonville and San Bruno
they had shared responsibilities but one big function that was still separate was
there are separate Merchants buying stuff for the web site in San Bruno and Merchants buying stuff for the stores and Bentonville and so this month they announced that they're merging the merchandising organizations and having one so this is all
to me like positive steps in breaking down the silos and having a single omni-channel organization.
[46:27] Very cool speaking of omni-channel a lot going on in the world of Mulligan so
you know it seems like there's a lot of chaos out there you mentioned so malls are shaky just kind of coming out of queue for still
and then here we are in q1 with this this whole thing the traffic's gonna be down to grown up due to coronavirus what are you seeing going on in some of the mall retailers.
[46:54] Yeah well I think there's a bunch of news like obviously it's retail earning season and so like you can look at all the mall retailers there but some sort of stand adds to me
Hudson Bay Company which owns Saks Fifth Avenue didn't have a very good earnings call and
word came out this week that the CEO Helena falx is stepping down she was a highly regarded CEO she was
like the CMO of a CVS I think it was if I'm remembering right before she stepped into this role and she she fixed a lot of
sort of institutional problems that sex and frankly got rid of a lot of the,
the ancillary businesses that they were in a really you know put the focus on sex so now she's leaving and,
like one of the investors whose primarily a real estate guy who's been sitting on the board is taking over as CEO and you know from.
Retail practitioner standpoint.
[47:59] That doesn't feel like a very forward-looking move that you have the successful retail operator leaving and you're replacing them with an investor real estate type.
Type person you know usually those aren't the people that.
Grow traffic and and profitability and Retail organizations so I liked that potentially a bad sign for force.
[48:27] And then in other leadership shakeups Nordstrom which I sometimes call the the best of the bad performing department stores,
they were actually up in terms of same-store sales so they were up 1% if the full at the Nordstrom stores and they were up 1.8 percent at the rack stores.
Which was below their guidance and is not very exciting growth and it's below and you know the retail industry average for growth,
but compared to most department stores which are shrinking being up you know is better.
[49:05] A standout thing for me and their earnings is their digital was up nine percent which is way below the industry average so like you don't see that very often.
We joked that the industry average has to be wrong because it seems like every retail on the planet claims to have bigger growth than the,
14% that US Department of Commerce says so in order from case they're saying hey we only grew nine percent that's pretty surprising for someone that we think of is a,
kind of best-in-class digital department store and I don't know what the full story is but part of it I'm sure is.
That Nordstrom is more digitally mature and they do you know have 35% of all their sales are digital so you know it's maybe it's a little bit of a lot of big numbers that it's.
Hard to grow as fast when you already have significant digital sales
but out of that earnings call they announced a little bit of a leadership change they had two CEOs a co-ceo thing they had the to Nordstrom Brothers Pete and Eric and and they announced this week that Eric would be this the sole CEO and
Pete would act as president and chief brand officer so you know apparently someone pick their favorite child.
[50:18] Interesting yeah I'm sure those complicated behind the scenes to figure that out and you know they had tried to go private for a while and just couldn't get it done it.
[50:30] Yeah yeah the family tried to bring it private and they yeah you're right they couldn't come up with a sweet enough deal apparently.
And then the one that was like the I would call the biggest news is Victoria Secret which is their parent company is L brands.
The they have a storied CEO less wax where who's like arguably responsible for
the success of Abercrombie & Fitch
Express for a long time and he's been the CEO of Victoria's Secret for 50 year or of L brands for 50 years
they announced that they were selling Victoria's Secret,
to a private Equity Firm or 55% of the equity to Sycamore Partners at a surprisingly low valuation so 1.1 billion dollars.
And you know so based on Revenue there was a.
[51:37] You know in expectation that the valuation might be considerably higher you know Victoria Secrets really struggled lately because they you know their whole marketing stick is this,
aspirational perfect image of beauty and they mostly were selling like discount bras in stores that were really designed to cater to men,
and increasingly they're all these new you know bra companies and direct-to-consumer companies that were like way more focused on.
Meeting the needs of the women that actually use the products and it had more sort of inclusive marketing strategies and you know that they had a particularly dumb CMO it,
Victoria Secret that you know famously said they would never have any models that weren't perfect because.
[52:21] That's not what women want to think of themselves as and so the whole like Victoria Secret Beauty show and.
Fashion show and all those things kind of once we're strong marketing tactics had really sort of started to work against them,
and so you know the it's interesting they had to sell at a pretty low valuation there was probably a period in the,
mm when they would have you know valued Victoria Secret at like 6 or 10 billion dollars somewhere in that range to only sell it one.
Is a pretty big admission of defeat,
and I mentioned that next week we'll have an interview with Dave Spector was one of the founders of third love,
like arguably third love is one of the accelerators of this Victoria Secret decline,
and they accidentally got in a fight with Victoria Secret so they're the small direct-to-consumer company that no one had ever heard of and that same stupid CMO at Victoria Secret that
you know mentioned that they would never have any flawed models also said that they were they were never going to be anybody's third love they were always going to be everyone's first love.
[53:35] And and that kind of you know prompt this this public spat and you know third was continuing to do really well and and Victoria Secret just,
sold in a fire sale in the last week's or had to step down so kind of interesting that kind of the whole female image thing mask the fact that they also had a bunch of stores in bad malls,
that are just dying and they're primarily sold everything at thirty to forty percent off so just a bunch of traditional model based apparel challenges in addition to their.
Positioning Challenge and I guess the one thing I would point out is well,
you know it sucks to have a company that was super valuable in you only sold it for 1.1 billion dollars I will point out that albanians bought Victoria's Secret for 1 million dollars in 1982 so
if you just look at where you started and where you ended it's actually a pretty good story.
[54:29] Low basis if all kind of tie it all together with a little bow here if Neil from shoptalk head owned Victoria Secret he would have sold at the top.
[54:41] And congratulations to an eel / let me know if you need any help carrying your bags to your vacation home.
[54:48] In San Diego.
[54:48] Exactly I bet you he's vacationing at even cooler places.
But Scott that's gonna be an awkward and perfect place to end it because it's happened again we've used up all our listeners time but as always if we struck a chord or you want to continue the conversation we encourage you to jump on our Facebook page
or hit us up on Twitter and as always we really would appreciate that five star review on iTunes a ton of listeners have been super generous and written great reviews but most of you have been listening for so long that we don't get as many new reviews as we used to and
part of Apple's algorithm is freshness so we need we need some of you longtime listeners to give us the 30 seconds in jump over to iTunes and write that review.
[55:34] Yeah thanks for listening and also longtime listeners recruit a new listener and have them leave a review.
[55:40] Even better and until next time happy commercing.
EP209 - Moosejaw CEO Eoin Comerford
In this interview with Eoin we discuss Moosejaw's unique positioning as "The most fun outdoor retailer on the planet" and some of the innovative marketing campaigns Moosejaw has developed. We also explore their omni-channel strategy, rewards program, owned products, and some of the systemic headwinds facing the apparel industry.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 209 of the Jason & Scot show was recorded live from the Etail West tradeshow in Palm Desert on Tuesday, February 25th, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott show this is episode 209 being recorded live from the Ito West trade show in Sunny Palm Desert,
on Tuesday February 25th 2020 I'm your host Jason retailgeek Goldberg
and unfortunately Scott was unable to join us this week so you get twice the Json for half the usual price
but as always when Scott ditches me we make up for it by having a particularly awesome guest so I'm thrilled to welcome to the show Owen Comfort who's the CEO of Moose Jaw.
[1:01] Thank you thank you for having me.
[1:03] I'm super excited to have you I feel like I'm somewhat familiar with Moose Jaw and we can maybe get into that later but the for our audience that isn't familiar can you give us the snapshot on who most joyous.
[1:17] Sure Musha is the most fun outdoor retailer on the planet,
according to our moms we have actually been around for almost 30 years started in brick-and-mortar retail but now we're one of the top online players and outdoor retail so hiking camping apparel equipment all that great stuff,
we have it we sell it and we actually still a brick-and-mortar retail we're in four states 11 soon-to-be 12 stores and we were purchased by Walmart a few years ago to help them grow their online presence when we're not calm.
[1:46] That's awesome and so I would assume that in addition to being the world's most fun outdoor retailer you're also the most fun Walmart that's I.
[1:53] Oh by far yes in fact there is if you if I look at the zoom meetings the number of Moose Jaw bumper stickers versus even Walmart bumper stickers I see on laptops is huge.
[2:06] That is awesome you're dominating the spark.
[2:09] Dominating this park.
[2:10] Okay and you guys started in Michigan so all my in-laws are from Michigan so they like they grew up as a multi-generational Moose Jaw family.
[2:19] Awesome thank you for their business.
[2:20] And then yeah and then we moved to Chicago and you were accommodating enough to then open a store.
[2:28] We we follow you wherever you go.
[2:30] And so if I put in a move I'll let you know I'll try not to do Hawaii or something super expensive.
[2:35] Maybe I.
maybe I take that back and before we jump in with any more listeners always like to know a little bit about the background of our guests like how did you come to be the CEO of the world's funniest outdoor retailer.
[2:50] Well I've been in e-commerce for about 20 years which I just realized which is.
[2:55] So you started when you're like 5 years old.
[2:57] Examine oh it is I was yes I was amazing as a five-year-old but no it's been it's been a wild ride actually I started out as a mechanical engineer which makes total sense because
we're all about numbers in this business I that's what I love about this business it's absolutely a numbers game but now I get into Consulting and then
I got into an incubator a new business incubator at Ford Motor Company in beautiful Detroit started a company there so that got into Moosejaw,
really my background is more in marketing and Tech and then took over the CEO gig about 8 years ago.
[3:34] Very cool so you're literally off probation now even.
[3:36] Yeah I think so I hope so.
[3:38] That's awesome and I feel like Moosejaw is particularly well known for their Innovative marketing campaigns and you came up through the marketing organization basically.
[3:48] Yes absolutely it's definitely my first love I mean it's what we're all about it's what sets us apart it's part of what makes this the most fun retailer so yeah we just get to you know that,
we get to do things that other other retailers don't information to do quite frankly just because of who we are and we did we just have fun with it.
[4:09] Instead of give listeners an idea I'd love to hear some of your favorite campaigns but I remember you opening a new store at one point and I want to say you hired a shepherd with a flock of sheep.
[4:21] That sounds like something that we would do yes we've done all sorts of things we've had fortune tellers at breakdancers was a personal favorite,
yes a little retro but retro cool I would like to thank yeah we do all kinds of crazy stunts and stuff one of my favorites was the most real breakup service,
which we did a number of years ago where we actually we said to Consumers hey we know that a lot of you are chickens out there,
and maybe in relationships you don't want to be in so just send us your your Lover's cell phone number and your name their name why you're breaking up and then three nice things about them so we can cushion the blow.
And so we sent this out,
and we got hundreds of responses back and some and we did we called all these people now some of them are gags you know friends gagging friends,
but a number of them quite a few of them were real and awkwardly so actually if you go on YouTube and search on mr. breakup service you'll see some of the videos of those calls and it's pretty funny.
[5:23] Wow I wonder if there was an opportunity for a spin-off business that you missed apparently there's pent-up demand.
[5:30] Well you know we've actually had a couple of those we were there was talk at one point we were going to do an app called spot a hottie.
Okay and basically what this was was it was you would take a picture and like it see you around town in a city or whatever and so you take a picture of a hottie and then.
Basically then you as a consumer can see like a graph of the haughty factors around the city so here's a hottie hotspot etcetera and ran into some legal issues with that one so it never came to fruition but that was,
an example of the kinds of stupid things we do.
[6:04] Wow it suddenly Dawns on me knowing the campaigns that you actually did do it somewhat frightening to think of the ones that you weren't allowed.
[6:13] We actually actually today in catalog ones and it was going to be called so we were maybe a you know we were a little bit more about being naked back when that was cool it's not cool to be naked anymore I don't know if you know that.
[6:26] My wife has mentioned that to me.
[6:29] Mine too so but but so we had so we had done the no-pants catalog which was a raging success and so then.
You got to take it to the next level so we did naked plain naked yet and so so the story was we were it was supposed to be you know everything was going so well that we just were riding around in Jets right,
I'm just totally totally stupid and I happen to know a guy who was a pilot for some rich people who had a Jet right and they said yeah hey it's in the hangar you know go use it for this photo shoot so we go to the photo shoot I.
Proofs of who the first day I'm like oh we can't do this week.
I just I just I just can't take that phone call from the head of name the outdoor brand so they said okay we'll have to go back and do a bit of a reshoot,
meanwhile the jet gets taken away somebody does need it to fly to Aspen so oh crap so now we shot the rest of the shoes in the hangar empty and so the whole cattle was called morass was that catalog because it was a complete disaster.
[7:35] That's that so somewhere in an Indiana Jones Warehouse is a pallet of those.
[7:41] Louisa we sent out the catalog.
[7:43] And I won you did do that I used to use as a demo all the time you had this x-ray concept,
so you publish a great catalog with lots of beautiful photography of people doing adventurous things in outerwear,
and then you add one of the first virtual reality or augmented reality apps and you aim the augmented reality camera at the catalog and suddenly you see all the models in their underwear.
[8:15] That is correct yes.
[8:16] And I would just like to point out I used it as a demo because it was early good execution of a are not because I'm a perv that likes to look at people in their underwear,
that's also true but that wasn't the primary.
[8:28] In fairness we were equal opportunity it was both men and women in their underwear
that was a really fun one and it I think it that one actually touched a nerve we get so much media about that I've been in million-plus downloads back when that was a lot
yeah hundreds of views of the video about the app know it was that was crazy I think it touched a nerve back to like the X-ray specs from the back of Comedy screwing over something but it was it was really fun.
[8:55] Yeah so.
[8:56] And nothing to do with selling clothes in fact you would use the app to not see the clothes that we sold.
[9:01] Yes ironically to make the clothes go away.
Um but that does bring up a great point so you like I feel like your whole brand is based on these sort of clever fun things that people love to put on YouTube and talk about.
Is it a foregone conclusion to you that that translates into brand loyalty and customer value is that like I mean,
like it feels like that's a big part of your differentiation from other outdoor retailers.
[9:31] Absolutely and you know I see all of the feedback that we get into Mister out through our feedback emails and we constantly getting most people just say I love what you do or I read your order confirmation email,
and I just laughed off the chair and now I read every email that you send me so I think I think it just engages the customer more so that we can communicate and it's not viewed as intrusive,
and there are definitely people who will buy from us you know I just got an email I talked about in my presentation in August from a guy who sent an email saying I'm sorry I cheated on you I bought from somebody else I'm sorry it won't happen again
I mean most retailers don't get those emails so I think it does Drive loyalty I think I also had gives us,
permission to you know that even if we do occasionally mess up that you know we're very authentic and we apologize and we make it right,
and I'm actually have seen some great loyalty from that I think it shows our net promoter score we're over 80% regularly and,
underscore 88% most recently or Q4 so we really do focus on it and building that customer engagement.
[10:47] I may have to have you think up some campaigns for the podcast because I feel like we could use that.
[10:52] We'll see what we can do sure hey no problem.
[10:53] Yeah just a side hustle for you no big deal and speaking of loyalty I feel like you also have a very vibrant Rich Affinity program.
[11:05] Yes mr. towards yeah and that's changed a little bit over the years so going in the way back it was more of a point Space Program,
and you would save up your points and then you could only use them on this separate website and you couldn't combine points with dollars so it could take you a while to get enough points to buy anything of real value right,
because you get 10% back in points,
and so over time we've transitioned that to be a little bit more user-friendly to where it's moves to a dollars and you can actually apply those dollars against any order on moocchile.com so I think it's easier to use,
but you know it's not quite as different as it used to be I would say.
[11:48] Okay but like in general Affinity programs are interesting to me because I feel like it's one of those things there's not a clear answer like we can point to retailers where the Affinity program is,
cord to the business and killing it I think 95% of all the revenue from Sephora is from beauty insiders for example right,
but there's also like all these independent studies though I know everyone has Affinity fatigue and they're you know there's too many cards in their wallet and,
like it just it just attracts though I bottom-feeding value seeking customers and and it isn't really it's ironically not really creating loyalty so I'm curious you guys had a program for a long time,
the fact that you are a brand that tends to have stronger engagement with your customers does that give you sort of permission to have a loyalty program that kind of acts as a,
Catalyst for that and accelerates it is like.
[12:52] I think so also what it comes down to is with Moose Jaw it we're selling you know outdoor equipment and apparel generally speaking you know the average time between purchase isn't you know weeks and days like in the grocery business.
It's months or years potentially I mean if you buy a tent are the last thing you need is another tent,
so where the where it tends to work best is with,
our core customers that the real outdoor users who once this evening bag and the backpack and the and the end so for them it's critical,
but I think for more the flyby Shoppers it just doesn't resonate right if you're looking for you know a great price on a North Face jacket okay great but.
You're a fly by right so it was interesting we just did a we do big we do a certain customer surveys it three times a year and it's actually tied into a little promo so 10 bucks take a survey we'll get,
forty fifty thousand responses to these surveys and we change the subject all the time,
but most recently we really used it to help us drive where we want to spend our time prioritization so the big question was okay of these nine things,
Force rank them for us which is actually tough to ask people to do but they did it and you know.
[14:12] Not to bury the lead here but price was number one shocking I know right but somewhat disappointingly for us loyalty program was.
By far the lowest on the list say it was behind fast and free shipping behind,
side speed product info did it I mean you name it returns policy it was it was the very bottom of the list,
which is funny because we felt that we had a rather differentiated offer there and then we asked people okay if these are all of the top things and how they're ordered how does Moose Jaw Stack Up versus the competition.
And really what we got was and you know we were it was generally good on a scale of you know one to five we were kind of in the fours but but our loyalty program which is industry-leading.
Was a 4.2 people just didn't really so you know I think ultimately what people are saying is hey I don't want to jump through hoops.
Give me the best possible deal and get it to me as quickly as possible not you know when you put on your customer had it makes sense.
[15:19] Sure sure and in a way like,
often people talk about loyalty programs and what they actually mean is like a frequency program because I would argue,
like some other things elements of your brand are as much or more important to that building of loyalty very early on you guys started giving customers the summit Flags,
and so to me that's a like in this was this sort of hard to acquire Moose Jaw branded item that customers coveted and frequently shared photos of on social media again,
like generally from the tops of mountains and pretty crazy places.
[15:58] Or their weddings in some cases yes no.
[16:02] Their wedding on top of a mountain yeah.
[16:05] Yeah and so what we've been thinking back on it too in terms of probably the most.
Successful loyalty programs would be Airline logic programs right I mean it as a frequent traveler which I'm sure you are as I am right I mean,
it gets to like a maniacal stage in terms of like you know you're but it to me you know it's less about the points and way more about the perks right and so,
we're trying to think more in that term in terms of okay,
what makes it special so for example now if you're we call it the high-altitude program if you're part of the high outside you program you get a custom T-shirt every year that's only for you,
nobody else can have it special special customer support on and on and on right those are the things that we really feel will set it apart and make it special.
[16:57] Yeah and obviously other Moose Jaw loyalists recognize that item and they know that you're also cool or have too much discretionary income.
[17:05] Yes exactly.
[17:06] Because you mentioned frequency of purchase in outdoor apparel can be a challenge I grew up in Southern California and I'm I think the irony is,
I'm convinced that like 95% of all the Expedition where that was like design to survive the top of K2 is actually owned by housewives in Southern California.
And I think they buy a new jacket every year.
[17:29] That is quite possible yes.
[17:31] So yeah so those things are all super interesting you mentioned that you have a is it 11 stores now.
[17:43] Eleven City B12.
[17:44] Okay what's tell us about the 12th store.
[17:47] So you know.
As retail changes right experience and the draw of that experience becomes more and more important for brick-and-mortar right you know I think it's never become harder to get people's ass off the couch,
right so you have to give people a reason to come and so the R12 store actually is in partnership with the Climbing Gym
so this is the kind of main gym in the Kansas City area that we had partnered with Allah Justin events and other things great bunch of guys and so they said a word,
we're building a new Climbing Gym the best gym in the world please be part of it so it's opening in a litha Kansas next month and,
amazing Climbing Gym there's also be an amazing coffee shop that also serves alcohol and food and then a beautiful news toaster.
[18:34] And so it is sort of that Affinity frequency model right bringing those people back obviously there'll be a membership program between us and the,
Us in the gym but really it's getting those enthusiasts into a place where where they want to come on a regular basis because you know I think one of the things we,
we went through a time of opening stores in 2012,
where the thought process is more well let's let's go after where the traffic is right so so will pay for Premium Retail will go after the you know it's a higher rents but higher reward,
and really at the end of the day it didn't work because there was a lot of traffic but just not qualified traffic there's there's only a certain number of people that want to spend,
$400 for a shell or $300 for a two-man tent okay and you know those people that are walking by a store in a high-traffic mall not so much so it's really more about destination and bringing people in and bringing,
those enthusiasts into the space.
[19:37] I do feel like one downside of opening with the climbing gym is your stores all have this highly regarded pull-up contest.
And so you can be the King of the Hill and be the record holder for pull-ups and I'm going to assume that the climbing gym store is going to be a high record.
[19:56] I think that's fair that's fair what.
[19:58] Going to be even harder for me to finally get I've been I've set a goal to get on that list yeah and I started my goal was to be able to do to pull ups and I'm not halfway there yet so I have I have a little weird.
[20:13] Okay well you know I will dream dream Ma.
[20:16] It's important to have a dream but when I go to the store or something like as far as I remember you were one of the first retailers to have a mobile point-of-sale,
and so Associates were out on the floor helping customers and I feel like you guys have always had this great 360 degree,
view of the customer so you buy ski boots online one season and you come in the next season and you want that same size like the person in the store knows what size,
I bought online last year I feel like those things are starting to be requirements and all retail but you guys are really had them for a long time.
[20:52] Yeah I mean really going back to as long as I've been with Moosejaw such as an age,
and really it's a core tenet of what we do at moves to raise the is that you got to be customer driven I know that stright and people say it but it's amazing how many times we actually don't follow it in retailgeek,
rise and so from us it's like you know put on your customer hat,
if you walk into a store you expect it to be exactly the same as the experience online if I bought it online yeah of course I have to be able to return it in the store right if I saw a price online,
yeah I expect to pay the same price in the store it's not rocket science right it's what people expect and so we really set up our it infrastructure to support that,
from the very GetGo and then more omni-channel stuff big part of it is is endless aisle so we've been doing endless aisle,
endlessly I mean four years it's 20% of some of our stores volume is actually a product that they don't stock,
but that we will ship to you for free in two days and you know it's you know it's obviously a more consultative sales process if you're buying a tent or a backpack so,
you know our stores are 4,000 square feet we're not going to have all the tents but we can show you the two men and then send you the format.
So all fabulous stuff I do want to it's not all unicorns and rainbows we on this show talk a lot about,
sort of distressed apparel retailers right and so obviously there's all these department stores that predominantly rely on apparel sales that are kind of sucking wind,
there's a bunch of retailers that are ma based apparel retailers mostly that have a at the beginning of their name and and they all seem to be struggling and one of the hypothesis is that,
people just aren't spending as much on their closet as they once did so,
people are more into experiences they have fewer wardrobes at home and you know good clothes are,
like less expensive to acquire than they once did in your category I could imagine it's almost worse because.
Intrinsically your customers do like experiences like so it is that a trend you guys see an outdoor like are people spending Less on apparel.
[23:21] Actually no I think I think where we kind of bucked the trend because of the fact that our apparel is built for experiences and for supporting those experiences most of the apparel that we sell is,
it certainly isn't this poseable apparel right it's actually product that is built to last almost every.
Apparel brand that we sell has a warranty program where they will fix that product for you rather than replace it I just,
I just got had my Arc'teryx jacket fixed you know I could obviously get Arc'teryx jackets all the time but I send it away they fixed my zipper and we're back in business with.
[23:58] I feel like they should have a dude that comes to your office and fixes it for you.
[24:01] You would think but not afraid not but actually but Osprey I mean you name all these brands most of them have lifetime guarantees and so,
the trend actually plays to us in that especially with younger folks they are looking to.
Invest in apparel right invest in product and,
we have investment grade stuff and it is about experiences and supporting those experiences as well.
[24:29] Interesting is there like do the products continue to I mean I know there's a lot of like it's a more technical category of apparel to I are there,
did does the technical Innovation help your buying cycle like is there better you know water repellent attributes this year than last year and therefore I need a new jacket even though my old one is working perfectly.
[24:53] Sure I mean attack is a huge.
Driver within the outdoor space more so I would say in the gear category then in apparel but it's still a big deal you know there there are always people that want to have the latest and greatest North Face just came out with a new tech,
call Future life that's all about a very flexible rainproof outer material so there's constant Tech,
and that's that's driving the business and driving you know what people want to do so they can have a higher,
higher performance experience and a better experience at doors.
[25:29] God shaped I feel like a product Innovation we need is a reminder feature in the apparel so you mentioned how long the apparel Lass,
every time I visit my in-laws in Detroit I forget to bring a hat,
so I feel like I go to the Gross Point Moose Jaw on Kercheval every single time I visit my mother in law to buy a new hat.
[25:51] With that that's working for us why would you want to remind you to bring the Hedge.
[25:55] Yeah see I feel like because you're the funnest most customer-centric retailgeek.
[26:01] That is fair okay you got me there.
[26:04] Okay just just something to think about so,
I'm always curious you've been in the space a long time you guys have been on the Forefront of a lot of experiences if we if you and I and there's a visual I know you've been craving if you and I get in the hot tub time machine together.
Yeah and zip forward 5 or 10 years is the outdoor apparel.
Shopping experience will likely to be the same as it is now is there just well the coffee just have CBD in it and that's the gist of it or like how do you think how would you like to see that that shopping experience evolve.
[26:48] So you know I think online obviously the big pushes towards customer convenience right I mean for us so the short term so if we just go forward you know a few months in the time machine we're looking at.
[27:02] Taking Omni to the next level just to in terms of.
Delivery timing promise States all of those things those those expectations have just changed so dramatically even in the last 12 months that if you're not keeping up here to get left behind.
Customers you know in that priority ranking that we did that was number two.
Fasten free number to right so it's the entree to the game and if the customer can get it for the same price and get it a day sooner,
they're going to get it,
so that that I think is the Big Driver within the outdoor space I think what's different is you know that consumers are very focused on the environment and the Environmental,
and so certainly things like,
there's going to be a bigger push and it's already starting into used right and refurbs and doing that not as a way to save money but as a way to save the environment and so I think we're going to start to see more,
Patagonia is doing at the Warren where North Face is getting into this as well so I think we're going to see a lot more with that and there's still a role for retailgeek,
in those pieces but it's not just a it's not just a thrift store approach.
[28:19] Yeah I want to say I saw a Shark Tank Episode where there were some guys that like their business model was we singe your ski kit.
To the resort for you to rent so not the skis and boots that you typically can rent.
All the expensive outerwear that you need for your three young kids that outgrow it like right away.
[28:42] And that could certainly be part of the model to I think it really depends upon the,
just has specific and Specialty and item is you know I certainly in the ski industry obviously rental is a big part of the equation I don't think I would rent base layer for example.
But but yeah a very very specialty piece of equipment for for climbing a mountain potentially yeah.
[29:07] Yeah I don't know that's another area where I might want to know that that Carabiner is at full strength.
[29:14] Yeah so there's a reason why we don't accept returns climbing equipment yeah it's a safety issue.
[29:21] That seems fair a fascinating thing to me you mentioned the like speed of delivery a fascinating thing to me is the Ever Changing customer expectations so you'll probably remember,
I remember Moose Jaw doing a really early pilot in like same day or next day delivery and at the time I thought oh this is super cool Nobody Does this,
and I remember talking to the the VIN CEO and him saying like yeah it like,
it really didn't get big adoption like customers really didn't leverage it and the fascinating thing was when we started offering next day delivery.
Customers opted into our two-day delivery much more often than they used to so is like the.
That it kind of created anchoring it made the two-day delivery seem like a better deal when you had this more expensive one day delivery but customers at that time didn't necessarily crave one day whereas,
today when I can get my paper towels delivered in one day.
Yeah it or a cup of coffee in Shanghai and in 15 minutes it changes expectations for everything.
[30:34] It absolutely does you know I think the flip side though is interesting so for example Timberland is just coming out where they're offering to to plant a tree.
If you accept slower delivery.
And so and it might be specific to the outdoor industry and the fact that we're so eco-friendly but I think there is an element to that which is to say okay.
Yes we want it fast but is it really free when it's free right and what is the what is the bigger environmental impact and,
maybe we maybe maybe there maybe there's a bit of a trade-off maybe it isn't hey I want it every you know I want to order the paper towels and then this and then that maybe there is some batching involved maybe there's a way for us to.
Attack it in a slightly more eco-friendly way.
[31:23] Yeah that's actually interesting because you know obviously there's a number of retailers that have tried some like small Financial incentive to.
For more economical shipping and often that that Financial incentive isn't persuasive enough.
[31:38] Write a dollar who.
[31:39] Yeah or a free video downloader something that maybe a few like you won't use and so it's not persuasive enough to change Behavior but the social Consciousness offer.
Could potentially out punch its weight in terms of persuading people to opt-in when they really don't need that that's super fast delivery so that's pretty clever.
Well and I really enjoyed speaking with you but it has happened again we've used up all our allotted time so in the event that,
listeners had a burning question that we didn't get to or have a comment about something we talked about on the show you're welcome to jump onto our Facebook page or Twitter feed,
and we can continue the dialogue there as always if this was the show that finally put you over the edge we sure would appreciate it if you jump on iTunes,
and give us that five star review if you didn't enjoy it today show we'd appreciate it if you just called though indirectly on his home not home line.
[32:41] But I really appreciate you taking time out of e-tail the speak with us really enjoyed it. Until next time happy commercing.
EP208 - Elliot CEO and Founder, Sergio Villasenor
Sergio Villasenor (@sir_gee_ohhhhh) is the CEO and Founder of Elliot. Elliot is a modern, mobile first e-commerce platform that describes itself as: "The easiest way to sell there, there, there too, yes there & yes all the way over there. No-code e-commerce platform for every there & where you want to sell."
In this interview with Sergio, we get a great overview of Elliot's features, what sets it apart, and what their vision for the first is. Sergio also breaks some news about the platform. As of April 1st, they will offer a free SaaS version (except for payment processing fees), and will open source the entire platform.
You can join Elliots WhatsApp group by sending a message to 347-715-0728, and get early access to new features.
Episode 208 of the Jason & Scot show was recorded on Thursday, February 20th, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott show this is episode 208 being recorded on Thursday February 20th 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners well listeners we have a real treat for you today in today's show we are going to explore one of the big new trends and e-commerce platforms
called headless Commerce or
no / low / 0 code please welcome to the Jason Scott show Sergio Villasenor who is founder of Elliott welcome,
[1:04] Hey guys happy to be on the show.
[1:06] Sergio we are thrilled to have you and I feel like Scott May of potentially even inadvertently introduced controversy
already just in the description and the intro so
I do I do want to jump to that but before we do listeners always like to know just a little bit about the background of our guests so could you tell us what led you to your current role as CEO at Elliot.
[1:31] Yeah happy too happy to give that background,
I spent the last 10 years in e-commerce coming more from the engineering side of things working with mid to large Market Brands predominantly at agencies or software companies,
most notably One-Stop internet which was a PC back agency that worked with Brands like Lululemon John Varvatos dragon bone J Brand,
and over that time had built kind of my own blueprint and flavor of tech that allowed Brands to stand up e-commerce stores or supply chain technology that help them either streamlined how they sold online or offline or just across borders.
[2:07] That's awesome and did I hear a rumor you also played college football.
[2:11] I did I played at the University of Nevada Reno I played free safety there.
[2:16] Awesome so that makes you the like debatably the fastest guy on this podcast.
[2:22] Depending on what we're racing against yes I would say I asked this.
[2:24] I don't know if you've ever seen Scott her I run but at the bar is very well.
[2:29] Unless it's a Starbucks Jason can haul ass for a Starbucks.
[2:33] I was about to say for the right Frappuccino y'all might be.
[2:37] But potentially true.
[2:39] All good.
[2:41] So give listeners and let's start at the 30,000 foot level because I follow you on Twitter and it can go deep very quickly what how do you describe Elliot at like a cocktail party kind of scenario.
[2:55] Yep Elliot is just a new Commerce platform that allows sellers to stand up storefronts
that can accept payments and shipped globally instantly without writing a single line of code adding an app or Plugin you don't even need to use your credit card you can just come on Elliot launch of store sell and less than 5 minutes.
[3:15] Got it okay so when people hear that I'm sure the Shopify and Bigcommerce and some of this what I would think of as the software as a service type platforms probably come up how do you guys compared to something like that.
[3:31] Great question I would say that outwardly most people would perceive us as being a,
SAS e-commerce competitor to a Bigcommerce the Shopify and other incumbents in the space however Elliott's very different in the sense that we,
part of the payment processor and Merchant of record on every transaction so we're more like a Marketplace except as most people in the United States and Western Society no marketplaces don't necessarily provide the most brand new experience,
we provide immediate global distribution but in a very branded way
where you can create different websites looks and fill that are all properly conveying your brand message and tone on the URL that's yours and owning the customer data except we just provide access to a payment processor
and Merchant of record service that allows you to sell in chip.
[4:20] Just a quick question on that Sergio so.
I feel like an obvious analogy to you guys is going to be Shopify and in the Shopify echo system,
there's a you can choose to use a Shopify payment processor or you could use a third-party payment processor.
Is Shopify with their own native payment system is that most similar to you guys is that fair or is there still a distinction in your status as seller of record versus theirs.
[4:55] There is still a distinction between the two if you opt in to shop pay it's still your brand on let's say the bank statement whereas when you come on and sell on Elliot Elliot would be seen on the bank statement very much like square or another Marketplace,
so that's where we differentiate.
Between Jack and fire Delia.
[5:14] Got it okay totally fair,
and I know you guys got some private funding last year just went or,
early last year just went live middle of last year so they do I have those dates kind of right and and be if you got any traction do you have any clients that are using the platform that our listeners would have heard of.
[5:39] Yes a bunch of questions there so I'll take them I won we are we are venture-backed to date we have raised a little over five point two million dollars,
most notably from sus Adventures SV Angel pentland Ventures which is the Venture arm of pentland Brands who owns Brands like Lacoste and track Smith and Speedo,
and yes today since launching the storefront platform that everyone now just more enthralled with on October 17th of last year,
we have on-boarded over 1,700 Merchants from 92 countries some of those Merchants include predominantly Shopify shop for five plus Brands like rooted goddess dough Mifflin and others as well as other startup brands,
they're kind of coming into the scene like a shotgun and next which is actually actually Aladdin,
Etsy style Marketplace or even co-working spaces here in Brooklyn like at those club that uses Elliott as their cash flows point of sale systems.
[6:35] Frankel your reference Team all do you guys have a front door that Aggregates all this
kind of I don't know if you think of them as stores but all the all the brands that are selling on the platform or does each brand kind of have its own front door.
[6:51] Each brand has their own front door it's very much their brand we haven't set up Elliot as a Marketplace as you would know it today were if you went to Team all or Amazon or Lazada or zalando,
it would be very much those Brands shopping experience,
if anything down the road will roll out Marketplace features that other connect Brands and consumers in our own unique way and fashion in flavor but that is still to be unveiled.
[7:17] Got it and then because you're kind of speaking my language of marketplace is here let's say I come and I want to set up Scott's shoe store
and then I want to invite other third parties in it seems like you'd be uniquely positioned to do that because you're already kind of just be like another another,
another flavor another kind of seller on my own site is is that a capability you guys have today.
[7:40] Correct yeah if you actually go to shop Latin x.com that's actually a multi-vendor Elliott storefront so as a user of Elliot,
Hugh Scott wanted to create a Marketplace and add bankers and have variable commission rates with split orders and payments you would be able to do that just out of the box.
[7:57] Okay very cool so in a way you're competing with Miracle on that side of things because that's part of their value proposition is helping people kind of add a Marketplace to their storefront.
Is that a fair comparison.
[8:12] Correct yeah when we look at the competitive landscape that Elliot,
erupting really were disrupting a 600 billion dollar ecosystem of software spending e-commerce platforms headless Finance product in order Management Systems cross-border tools,
multi-channel software fulfillment software single sign on One Tap check out,
if anything what we're implying and striving to do is a lot like what Apple did in the 80s for personal Computing which is just completely reimagine and re-architect the entire category and come out with,
entirely different way of thinking about how to sell and buy products.
[8:48] This is awesome so there's a ton of follow-ups I'm dying to ask but I feel like I should get one more precursor question in because I also don't know the answer to it how did you come up with the name Elliot.
[9:00] Well despite being an athlete I am a nerd so the double out and is typically an operator for or so when we initially launched Elliott the Elliott logo was fouled out Elliot with period,
so it was e-commerce or iot we just believe that this generation of Commerce began and ended with Ellie.
[9:20] That is definitely a more geeky answer than I was expecting.
[9:25] Alternatively though on my more hood side and you know when we took it to Google and we searched the Elliot Urban Dictionary came up and it had 20 very vulgar definitions of why Elliot was an awesome name and I was like reinforcements done.
[9:44] Rami Malek did a great job of Bohemian Rhapsody so I would not mind that comparison need.
[9:50] Where does where's the cow come from.
[9:55] The cow is a tribute to my grandmother so you know I came from very humble beginnings my parents would work one to two what
two or three jobs each I get dropped off at Grandma's house at six picked up at seven eight she was a crazy Cuban woman that
lived and died by all her beliefs one of those was drinking a whole glass of milk at every meal so she passed away last Christmas as I was kind of,
getting Elliott's and market and it was a very simple way of tributing someone that had a huge impact on my life in a very simple way that meant a lot.
[10:26] That is terrific so let's jump into the product a little bit before I go into the specific questions I'm kind of curious what,
what you perceived as the sort of Gap like in my mind there's there's a dearth of platforms out there there's,
big establish ones that are kind of long and the teeth there's you know new ones that have gone a lot of traction lately like you know you got to one of the e-commerce shows and you throw a rock and hit 10 of them
what what do you feel was missing from the ecosystem or what did you guys expect to do better they caused you to launch Elliot.
[11:05] Yeah that's a great question I think ultimately what we saw at a very macro level was 5G and smart most 5G and smartphone,
proliferation continuing to rise globally,
as consumers and Brands became hyper-connected I think the thing that was lacking was access to tools that allowed creators of products to actually not just say hey I have a store but actually be able to connect and ship to,
consumers around the world typically that toolkit from across border fulfillment perspective and an on-site cross-border UI ux 1,
it always been a very Enterprise tool kit specifically either flow or globally or for free now Pitney Bowes.
[11:47] And the reality is that there is not Financial inclusion in the world and creators of products come in all various shapes and sizes so.
If anything we saw people becoming more connected to Brands being able to connect with them instantly you know if you're in New Brand today you're building an audience that is by default global,
we believe that you should have access to tools to tap into that and maximize the opportunity that you're already building on the gate and four more established brands,
just sell and,
any more of like a click of a button I don't want to have to go back to engineering and say oh six eight months build shit the the moment in pop culture that was trying to capitalize just passed so forget it and if anything it's just making it easy streamlining sailing,
and equipping non-technical operators with the tools to compete globally because the reality is that consumer Demand only increases,
consumers say hey if I find your brand online I expect the same level of service from you if you're a new brand as I do Nike and it's tough to compete.
[12:50] So tell me more about the cross-border stuff so so we'll go with Scott shoe store
I want that to be a cross-border store so there's there's several elements to that there's the shipping and then there's also you know is this going to create a DOT co uk
got ya got it Etc and is it going to translate the language for me and all that or what to what level do you go on the cross quarter side.
[13:18] Let's touch a lot of levels of granularity here let's just take the basic storefront,
every store comes with i18n you can serve up one site for a global audience no subdomains need,
each of these storefronts comes with multi-currency multi-language duties presented at the time of check out paid DDP with local payment and shipping options mind you all that's just out of the box so if you're a first-time seller,
every storefront that you have on Elliott just comes with that,
with that being said there's a lot of things that also come with that there's the Fulfillment side what happens post purchase and transaction,
since the duties are paid GDP we provide commercial invoices customs declaration forms the whole nine let's say I don't have HS codes for proper duties and taxes as long as you have a product image you upload it
for able to assign an HTS code with a 97 percent great with our image processing services to ensure that the duties are properly calculated as well and my new,
all this is just out of the box.
[14:16] Yes about you guys being Merchant of record it kind of
this is the huge benefit right because you can kind of umbrella everybody in this one you know by being able to implement this cross-border functionality and have everyone underneath it
and then how about the shipping so so let's say I'm going to ship an order you know to the UK do you guys do like a borderfree cross ship where I ship to an address in Miami and it gets reshipped there or
or are you let allowing me to set up with the career of my choice of how to ship internationally.
[14:49] If your store had a UK Shopper when they go to check out they would see Royal Mail and we would do some type of her smile consolidation.
The same if that consumer was in China they would be the same type of first mile consolidation with SF Express so typically that first mile consolidation would go to a major airport of either LAX O'Hare or jail.
cool and then so I get how this is codeless do you guys sit in there's a big movement in e-commerce is headless where you can kind of take some of the services underlying an e-commerce platform
and if I already have some kind of a front-end I can drop those in as is that a part of the market you guys deal with our you're doing much more of this kind of self-service really small business that,
doesn't want to do any coding at all.
[15:41] You know will work with major Holdings companies we already do and which is why we developed a headless Jam stack for an end right out of the gate that will become publicly available,
April first however there's already Brands using it,
the benefit to having this Jam stack front end is that you can create more robust friend and shopping experiences.
With the same cross-border infrastructure so unlike other pwas in the jams X space.
This store that you deploy as a developer can already accept payments it can already ship cross-border through the LED API and key already available to you in your admin,
it already has a multi currency multi-language i18n baked in natively it has local payment and shipping options that is inherited,
and it's round graphql API it's completely serverless so it's kind of this move from monolithic to micro service to serverless it's extremely fast it runs across five clouds for redundancy,
it has a Geo partition table database so you don't need to stand up an instance of Magento to be EU compliant for gdpr anything you can sell from a single command center for the Superfast front end that you can serve up statically across five cdns worldwide.
[16:55] So I grabbed everything you said there but I'm not sure every listener will let's unpack it a little bit what's a jam stack and does it involve peanut butter as well as the gym.
[17:10] Clay it involves a little bit more it would.
The peanut butter the jelly and the toast.
[17:15] Yes sir Jason I know what a jam stacking a PW is but you know again cocktail party level or let's say you were talking to the business person at a brand how would you kind of unpack the that and help them understand.
[17:30] Yeah that's a that's a great question,
I would say that we allow you to run a highly scalable application that super fast that never goes down,
that's accessible worldwide and that you can recruit for a very cost-effective way developers to build on top of on top of that,
it's not platform dependent so as you move from platform to platform.
You can you know D riskier investment have a friend in that you can live with the next five to six years and sell a lot of products there.
[18:05] Got it cool and then when you say serverless across five clouds are you talking about AWS zones or that's more it will work on Azure Google and AWS are all debuff.
[18:20] All of the above including tencent Ali Cloud select Allen Russia and gcp.
[18:25] Oh nice so you can surf or China you can be behind the great firewall of China with with that model.
[18:32] You have to love the ability a tunnel across cloud.
[18:42] And so when you were when you say code with what I'm hearing is,
no development required everything you need out of the box so click buttons instead of write scripts is that.
Sort of what you're getting at.
[19:03] Yeah and I would say that to that point Ellie is very much a start to scale platform meaning that.
The idea that we're going through is that Elliot you don't have to graduate from like let's say I start a business on Shopify and then I moved to like demandware sfcc.
With Elliot you're able to start no code you're able to evolve and grow your business and go to low code so we have a motto at Elliot that we Champion called Nolo which is really the movement from starting a business using a visual Builder,
to your point not coding anything,
but as you grow and scale we have the front and flexibility to for you to create more robust front and experiences that better blend content and commerce and all the things that we see more mature Brands and needing as they grow their.
[19:53] Okay so and you correct me if I have the wrong notion.
In my mind like I see a big difference but I also see a similarity again going back to the shop of I analogy the one of the things that seems like particularly strong and cool about you guys is,
your lack of dependency on plugins right so.
Like you can argue as a strength or a weakness for Shopify but a lot of the functionality you need to run your business is available in the Shopify Echo System but it's provided by a third party and so the,
the downside of that is you have to turn on these these 20 plugins that each provide this this point solution and that introduces a lot of,
potential slowness security risk stability issues there's a lot of baggage that comes with,
turning on all these random plugins and their interoperability with each other and what I think I'm hearing from you is we try to avoid the requirements of all those plugins by providing all the native functionality for all the main features that,
stored underneath do I have that right.
[21:10] Yeah you have yes you have the gist of correct.
Specifically we provide the payment and fulfillment infrastructure we are working with developers to better integrate marketing tools on site however,
as an approach being a start-up we are focusing on kind of categories like beauty and fashion and lifestyle specifically small Home Goods,
where purchase intent has typically already been established at the by the consumer on a third-party channel so if anything,
we can remove a lot of the what is quote unquote traditional on-site plugins and apps because in the next generation of Commerce we see them as being irrelevant,
because there's no need for ugc on a website when you live in an Instagram and Snapchat world the ugc has already been presented to the consumer on,
the tag IG posts there's no need for reviews because half the reviews are you know Wise or,
misconstrued or you know as a consumer I've already kind of read the reviews that's all my favorite influencer saying oh my God look at that makeup look at that glow kit like a lot of the on-site dependencies are removed in certain categories and we're aligning our go-to-market strategy around that belief.
[22:19] Jason has a two-hour talk he gives on the importance of social proof and you just blew that talk up.
[22:28] Yeah I feel like that is that's I get the sentiment behind that,
I'm not sure we're at a world yet wherever you sell or real I can rely on adjacent UD U GC instead of ugc right at the point of purchase but.
[22:44] I 100% agree with you and just to level set we are building a company that's going to be around for the next three decades and.
We have to make decisions and bet on verticals and be strategic and Nimble and that's just one that we're betting on.
[23:00] Sure fair enough I was going to go to a happier example first and it was like like the for example this got already brought up if I'm on almost any other platform and I want to offer Marketplace functionality
I'm gonna go get a third-party you like miracle and and
plug them into my platform and do a complicated integration in your providing out-of-the-box Marketplace functionality because you've decided,
early on that that's an important feature set for for future sellers.
[23:29] Correctly believe that.
For future salaries that was for things that they had to do they had to create landing pages specifically One Tap check out product landing pages stores,
cash this point of sale,
and marketplaces all of which are the store types that you can create with our we call experienced builder in Delhi.
[23:49] Yep and so and we didn't touch on this but before you launch the storefront you actually launched a sort of a single page One Click by experience that seems like,
like perfectly suited for,
you know products that you're driving interest on on Instagram or Whatsapp or any of those sorts of platforms.
[24:12] Correct and that that payment page had all of the cross-border tooling and fulfillment that we're discussing here,
if anything it was a very strategic way that I can align our investment team and backers and team internally.
Just be like hey like here's the vision we can simplify the checkout final purchase intent is being established on third parties it works great for painted pages,
and the Assumption when we launch that product was,
we believed that store owners that used us specifically then in advertising channels on social media SMS email.
That they would love the Simplicity and they did they saw a 10x increase in checkout conversion and the sentiment was.
If you guys make a very lightweight storefront version of this we believe very firmly as customers of you,
that you guys can compete in unseat some incumbents so that was always the broader Vision it was just nice to hear it from the initial adopters and I think when you have an investment team it's nice to go through those milestones and get the feedback like that.
[25:16] Sure so so we start with the payment page migrate to the store front and then you also just mentioned cashew spos so is that something that's currently available is that something you're working on
and I'm assuming that's the sort of omni-channel piece of this that you would imagine a seller that has both a store and sells online.
[25:41] Correct So within Elliot when you create experiences and just to let everyone know what experiences are.
Elliot admin unlike Bigcommerce and Shopify you don't need multiple admin panels to run multiple stores you can create multiple shopping experiences and merchandise merchandise the product within them from a single point.
With that being said,
within an experience cashless POS is just one thing that you can create as a part of our experience Builder it is already available that allows you to shorten the checkout flow,
on top of that you can also further checkout you can also further shorted,
the cast is point-of-sale solution to have a very Apple like shopping experience its QR code based and already available within the admin.
[26:27] Dodgers so it supports sort of a mobile POS solution that runs on on handheld Hardware,
yep and then you're specifically saying cashless which again kind of like bypassing ugc I can imagine it's super easy to see that the future is going to be a retailers cash West.
They're like there are a bunch of municipalities where it's kind of illegal to have a cashless store right now.
[26:53] That's fine you know doing bad things usually resulted in good next steps.
[26:59] Okay and then you you highlighted it hey one of your very first insights that cause you to build this whole platform was was the trend towards 5G and ubiquitous smartphones
um you alluded to pwas so,
is that your framework for the mobile experience you get when I hit a an Eliot storefront from a mobile device.
[27:28] That's correct yeah it's a progressive web application using server-side rendering specifically next JS and if anything we're expanding that,
for a multitude of reasons but come April 1st you will be able to as a developer you know grab that front end build more robust,
shopping experiences and will continue to build on top of that belief system over the next year or two.
[27:52] That's awesome though and so the out-of-the-box experience is is pwa the mobile web experience that you provide is is pwa based which our friends in Canada do not support very well.
[28:07] I can see why they would.
[28:13] So talk a little bit about the fees how does your fee structure.
[28:20] Yep I'm gonna give you guys a jam so on April 1st we're actually announcing that the self-service site of Elliot will be completely free no additional commissions on top of the standard stripe pass through cost for payment processing.
That's just that on the Enterprise side we have a commission rate based structure with a cap that goes between one by percent.
And that varies based on the level of service that you need but come April first anyone will be able to sign up uses Elliot for free.
[28:52] Okay so I have to poke around at this little bit so April 1st you know everyone's Radars up are you sure sure about this this is not an April Fool's kind of setup is.
[29:04] Actually a part of a campaign called April fools but no the pricing that I.
Your percent going live April first.
[29:13] Okay because I know you're a bit of a jokester so I just want to make sure that we're I'm nailing you down a bit here and then.
[29:19] I like to clown around but when.
People's money I take it pretty serious.
[29:23] And then there's no subscription or anything there or if I find a Kardashian and I do,
300 million on the self-service not that it's still free except for the underlying payment fees.
[29:39] That's correct long as you use our payment processor and Merchants records services for fulfilling and domestic and international it's free.
[29:47] Got it,
and then it wouldn't be a Jason and Scot show if we didn't talk a little bit about Amazon how do you do you guys you know so the CEO of Shopify is kind of like gotten into this mode where he's kind of the.
We're arming the rebels to take on on the you know the Empire of the death star of Amazon do you guys view yourselves in that kind of a light or how do you think about Amazon.
[30:14] I wouldn't describe myself as the Death Star I think that they only fired once or twice right.
[30:21] If you are the death start make sure you put a grill on your exhaust vent.
[30:25] Now in this metaphor your ear Luke Skywalker not.
[30:29] Amazon's the Duster.
[30:30] Reading at the very least right come on.
[30:34] No but in all seriousness I don't know guys like we're just creating our own lane of Commerce,
like we're doing things very differently I can't say that we are going to be like Amazon are going to be like Shopify we're just going to be like Elliot ultimately,
the difference between both of the narratives for both Amazon and Shopify is they have their own marketing jargon that speaks x y and z,
ultimately what I'm more interested in is providing Financial inclusion for the next generation of entrepreneurs not requiring an abundance of apps that high total cost of ownership,
and I promised everyone that that's always going to be what it is so I will not just arm the rebels I will fight alongside them.
[31:18] What if someone reaction is that Amazon could take to this as they already have this whole AWS stack and they could kind of unbundle parts of Amazon and put it out there on AWS
now they haven't done that but that could be an obvious reaction if they did that what's your reaction to them doing something like that.
[31:41] I believe it's like fundamentally we would fill that,
directionally in terms of product Vision that were on the right path and you know if anything will be doing something similar,
because already underlying Services specifically around HS code classification image processing invoking serverless functions at will likely be doing the same so if anything it will be validating for us.
[32:05] Always a good answer and then on the fee structure so let's say I go to your self service product and I set up my own little sneaker marketplace,
do I have flexibility to set up the and I want it to be you know where I collect,
twenty percent or something like that it you guys will handle do I have flexibility there how does all that work.
[32:34] Trick question yes you have flexibility to Define your commission your sellers commission you can have variable commission rates so you can have more than one seller with a different commission rate depending on your business agreement with them.
[32:46] And then do you give me some Frameworks for that or do I need to kind of come up with T's and C's on that cider or are they effectively kind of signing up underneath the the Elliot T's and C's.
[32:58] You can actually add your own TNC when you invite what we call an Eliot line of Endor they'll be opting into your and are tncs.
[33:08] How many how many folks are running these kind of marketplaces on the platform.
[33:15] Two dozen now are running them they span everything from Barry,
culturally specific Market places like shop land next to leave or launching like Papa brochure and like the marketing like the grocery space so
they're diverse they span multiple verticals with anywhere between 20 and 200 vendors.
[33:37] Yeah yeah that's a you're going to cause an explosion of marketplaces I like that.
[33:44] I do too and I love.
[33:49] Let's talk about the opposite side of that that Scott might not love as much though so so you got this great stack for helping me I have a brand and I want to sell my product direct and I'm using your stack,
but increasingly people want to sell Direct on a
on a brand-new experience that they own which could be Elliott and they also want to sell on marketplaces right so when you added the.
The product catalog to launch a storefront did you guys think about any tools,
for helping Elliott sellers Syndicate on the other marketplaces.
[34:31] We did so we began to release those based on the uploading of our community,
most notably starting with print on Demand with prettify however over the next 12 months we will allow Brands and sellers on Elliot,
to participate in multi-channel selling so yes it is a big belief of ours too and this kind of goes back to the initial narrative which is we want to create an admin panel were sellers can participate in the more unified approach to selling.
That includes selling on third-party channels and if anything we believe that the product in order management system that we have currently will be able to support that.
[35:13] Awesome and one of the things that always comes up so you you have a,
a very cool architecture you have a bunch of cool and the Box features you have a super appealing onboarding experience and if it's not obvious to listeners yet one of the cool things is,
there's no barrier to signing up and setting up a store and it is kind of to me absurd how fast you can get to a,
functioning store so so instead of listeners taking our word for it you should you should jump over to Elliot dot store and fire one up and see it for yourself,
so I feel like that's all awesome and to be applauded and I can imagine you winning a bunch of customers
on that set of benefits but I didn't work with a bunch of Enterprise clients and their a royal pain in the neck mostly because of edge cases,
and so they have a million reasons good or bad why,
the out-of-the-box Shopify experience doesn't work or demandware experience doesn't work or or you know frankly to the extent that.
[36:24] Oracle ACL sapr have out-of-the-box experiences why those don't even work right and every client has some new promotion that no promotion engine has ever seen before
or some new you know shipping model or some new attributes for the catalog is.
Like and so I feel like the more customers you want to capture the more and more you have to have some answer to those edge cases like
is the is the answer for you guys sorry we don't some if that truly is a deal-breaker we don't support it is that we support that through third-party Integrations is it,
we supported through our Jam stack and you develop your own Edge case Solutions like what how do you guys think about that.
[37:12] You're really making me give you guys all the gems today.
I haven't said this anywhere literally only two of our investors go.
About this but come April first Elliot's core platform will be completely open sourced and there's a couple reasons why we're doing this,
number one we're providing cross-border infrastructure from an on-site through our Jam stack technology which initially is going to live with next JS but we'll be going to Gatsby and nuts.
We also provide cross-border fulfillment that's what we do as a company we allow you to transact process payments and shipped globally instantly.
We are offloading and open sourcing our admin panel and the shopping experience is with the one exception being the checkout function specifically what processes of payment and creates a compliment.
With that being said you'll have all the unified approaches to selling on Elliot.
Except for the more Enterprise customer you'll be able to clone the admin you'll be able to work with leaving agencies like you know Accenture and Deloitte and sapien,
and it's completely selfless and that's our answer to it.
[38:37] Very cool so April 1st is a big day for you I feel like we're.
[38:41] The big difference.
[38:42] I feel like we're taking time between now and your first time getting a little stressed out just being on the podcast.
[38:45] I am looking I'm looking at her to lead engineers and they're looking at me look at you look at me you look at.
Looking at me like you asshole you really just said that on.
[38:57] I'm super nervous on April 1st that I'm like fall for some dumb prank on Twitter and I feel like you have reason to be a little bit more nervous.
[39:05] I have a lot of reasons to be nervous yes but I promise you that the April Fool's marketing campaign will not be a joke on you and the only person that could potentially be is on me for over promising but I doubt that will do that.
[39:18] Cool let's so thanks for sharing that with our listeners we appreciate any kind of breaking news on the podcast that's,
I've been following you on Twitter for a while and I'm a Serial entrepreneur been at this game for a while no tons of entrepreneurs you have a kind of a real fun style and very
transparent way of building the company share a little bit about your thoughts on that and you know what
as a leader how you think about things in your company and now you want it to be thought of you've said you've given us some hints you want this to be around for three decades and things like that
tireless there's a little bit more about your vision there.
[40:00] Ground the company or.
[40:02] Vision culture you have you know you're doing a lot of fun kind of interesting stuff that I'd love to try to capture some of that if we could.
[40:11] Yeah that means it's to kind of focus on one culture making a big believer of mine is transparency like radical candor.
I believe a lot of us like to think that we can do that there's very few that actually employ that train of thought,
if anything when I think about creating a highly scalable and fast moving company.
You have to instill very early on radical Candor but in a very respectful way so bending how I act on social media is providing transparency,
speaking my mind not being afraid to,
you know put my money where my mouth is and I would love for that culture to resonate through Elliot which specifically is having great governance.
Being able to be challenging being able to talk through ideas and more importantly being confident and Resolute in your decision whatever that may be.
[41:06] Cool it let's talk about kind of radical transparency one of the things Mark Lori did a jet is everyone and I don't know the method here but everyone knew what everyone else made it was like very public and you know talking to him there was a good sight of that and kind of a distracting side of that do you go to that level of
[41:28] We do not we do not say how much someone makes but we do allow people to do is come in have an opinion,
create a platform for them to feel confident in speaking that opinion removing the bias that comes with opinion based on gender and race and all the Nuance that comes with the world we live in.
With regard to pay I don't know if whoever just do that maybe we will maybe we won't I know I joke and Ali with team members because I am actually the lowest paid person that Elliot I make $19,000 a year so maybe it starts there but for me.
The bigger issues are ensuring that people that do come in feel like they have a platform and a structure to speak their mind.
Do it respectfully and be able to invoke change where they see it necessary.
[42:17] And then as you were saying that I was immediately going to Tony how do you say his name Jason Tony hsieh is that right,
yeah founder of Zappos he does there need deeper neck deep into holacracy and then Sergio don't know if you seen this or not but he publishes an Evernote of what he does every day and there's all these people that have built
he's a certain format and there's all these people that built stuff on top of there which is kind of a fun thing to think about have you studied some of that kind of stuff and how do you structure the company it seems like
you're going to have a really different way of structuring the company.
[42:57] I haven't studied any of that total transparency I just behave how I behave just instinctively I can't say that I've read a lot of books so I've studied a lot of people I just kind of am this way.
It is what it is man I don't know how to I don't know how to put it in any other words and then what was the other question.
[43:21] So sorry for Matt do you have an org chart are you like the CEO and there's like a box with your name on there and then there's a line down to the CTO and or how have you organized the company.
[43:33] That's a great question so we have not created that vertical hierarchy I think of.
Creating a company in pods so building blueprints that you can deploy across ideas I markets opportunities,
so if anything were a flat organization we operate as a pod we have a blueprint that we know works and we'll use that blueprint to replicate product lines build into opportunities and go into new markets with.
[44:01] So pod is like a little functional unit that may take Elliott and go after I don't know the you know the office office furniture vertical or something like that.
So so more kind of like a little little teams that can go tackle something that are relatively independent you should read a book on her locker so you're basically kind of
yep you've got in there naturally but you may find something beneficial for him at or you may want to just stay on your own path but yeah the way you're describing it sounds a lot like this interesting new way of doing things called holacracy that you may find interesting.
[44:40] I will check that out.
[44:42] Dude you have a lot to get done before April first I recommend you not read any books.
[44:46] April 2nd I'll send you as a as a thank you for being on the podcast I'll send you a bunch of books on April 2nd no distractions until then.
[44:52] I appreciate that okay for sure.
[44:58] You know one thing we didn't cover when we're talking about George structure can you give a super rough idea of how big the company has become in terms of number of inputs.
[45:09] Yeah between full-time employees and contractors or now over 25,
that spans everything from product marketing growth sales Str saec SMS which is crazy when I look back,
and October 17th when we actually launched the platform that were talking about because it was literally myself and the two lead Engineers I'm looking at right now polynomial fa.
And that was it so that's the team size now and from where we came in October.
[45:40] And let the record show we're recording this show pretty late at night so it's alarming that you're staring at your two developer still that kind of implies you have long days.
[45:54] I would say yeah we do have long days and.
It is tough but ultimately the dates are fine they're challenging.
And if anything I appreciate that they are here accompanying me while doing this podcast and.
Them trying to make all the crazy shit that I just talked about reality.
[46:15] Yeah well it sounds like you've already built some pretty cool crazy shit and props,
ABS to those guys I hope you keep it rolling and that's going to be a perfect place for us to leave it because once again we've used up all the allotted time for the show
so if listeners want to continue the conversation you can jump on our Facebook page and ask questions or you can hit us up on Twitter and Sergio if folks want to get in touch with you I'll certainly put a link to the Elliott website in the show notes but how could someone get in touch with you personally.
[46:52] Link in the show notes is great one thing that we've actually done for those that tune in find us on podcast like this feel free to join our WhatsApp group you can text me at three four seven,
seven one five zero seven two eight,
actually add you to our WhatsApp group and you actually get exclusive drops access to functionality exclusive merge and invites to our own Ellie experiences that we actually don't make up.
[47:19] That's awesome and presumably you could also call that number if they want to talk to you.
[47:23] You can give me a call anytime I will literally pick up.
[47:27] I sort of believe that.
[47:29] How it is and that's real.
[47:31] Yeah and if you just want to follow sir Zhu and not chat with him I strongly recommend his Twitter its Sergio won't you take a shot at explaining this.
[47:41] It is 3000 with five agent.
[47:45] Angie will put in the sun it's a little hard to spell,
Sergio we appreciate you being on the show he with this kind of deadline of April first looming and congrats on what you guys have built we look forward to seeing what you build over the next 30 Years.
[48:03] Awesome I appreciate the time guys thank you.
[48:06] Great talking to you Sergio and until next time happy commercing.
EP207 - "Billion Dollar Brand Club" author Lawrence Ingrassia h
Lawrence Ingrassia (email@example.com) is the author of "Billion Dollar Brand Club: How Dollar Shave Club, Warby Parker, and Other Disruptors Are Remaking What We Buy". (Amazon Affiliate Link)
In this interview with Larry, we discuss many of the brands covered in the book including Dollar Shave Club, Warby Parker, eSalon, Mohawk, Anker and Tuft & Needle, as well as many of the ecosystem companies that developed to enable the DTC movement including Facebook, Quiet Logistics and Locus Robotics.
We discuss the trends of DTC companies turning to brick and mortar. New ways to leverage data to identify product niche (what Larry called the "money-balling of DTC), and what the future may hold for DTC.
We also cover events that happened after the book was published, including the FTC's blocking the Harry's acquisition, Caspers IPO, management challenges at Away.
Episode 207 of the Jason & Scot show was recorded on Tuesday, February 11th, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott show this is episode 207 being recorded on Tuesday February 11th
20/20 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:40] Hey Jason and welcome back Jason Scott show listeners Jason as you all know one of our favorite topics here on the show is the big move where brands are going direct to consumer
and of course we spend a lot of time talking about digitally native vertical brands also known as DMV bees
today on the show we are really excited to welcome Lawrence and Gracia.
Larry has been a business journalist at top Publications including Wall Street Journal New York Times and LA Times Larry is the author of the book
billion dollar brand Club how Dollar Shave Club Warby Parker and other disruptors are remaking what we buy
the book was just published in January and we are really excited to have Larry on the show Welcome Larry.
[1:20] Thank you guys.
[1:22] Very we are excited to have you in the topic of your book is
super relevant and pertinent to our audience so before we jump into it can you share with our audience a little bit about your background and how,
you know you sort of came up to the point where you wanted to write a book.
[1:41] Yeah you know I worked at newspapers for many years I was the senior editor really loved it retired a few years ago and when I retired and I wanted to delve deeply into something that I thought was interesting and I've been fascinated by the world of,
entrepreneurs and startups and.
I actually had a kernel of an idea when I retired so and it goes back to 2011 and that was before most people actually at even,
I thought of the idea of direct to Consumer Brands and back then I heard about a company.
Dollar Shave Club it was actually before it had the name Dollar Shave Club it was an idea of a friend of my daughters.
Now I had been business journalists as as you guys noted for long time and eating had covered Gillette at one point.
It is one of the most powerful Brands not just in the US but the world has great products as great advertising,
and it's maintained a 70 percent market share for decades I think that's worth repeating because that's just unheard of in any consumer product 70%,
market share in the US for decades and so I didn't tell Michael Dubin who was the founder of Dollar Shave Club but I thought to myself,
this is the dumbest business idea I have ever heard.
[3:03] You're going to compete with Gillette by selling razors and Blades online like really.
So then you know kind of fast forward to 2016 I'm driving to work at 7:00 a.m. I'm listening to NPR,
and there's a story about Unilever buying Dollar Shave Club for 1 billion dollars.
[3:24] And after grabbing the steering wheel tightly to keep from swerving into the lane next to me I said to myself out loud he did it Michael,
expletive deleted did it and I had two thoughts quickly first,
oh my gosh was I wrong not just me but lots of so-called smart people who scoffed at the idea you know Venture Capital investors who turned him down competitors including Gillette that had ignored and dismissed him.
And second in this is where really the idea kind of grew was how did this happen how did The Impossible or what most of us thought impossible become possible,
because nobody thought that the razor business could be disruptive in fact after my book was published I got a I got an email from an executive at a big consulting firm who does Consumer products and he said if somebody had told me that.
Ten years ago that the razor business is going to be disrupted told them that they were crazy so it was the same reaction that I had.
And you know what it was disrupted gillette's market share fell too low 50% range within about four or five years just unbelievable.
[4:33] And so as I started reporting I quickly realized that the Dollar Shave Club story well while amazing was really part of a much bigger story it was a story about,
Revolution that has changed what we're buying and how we buy things and it's not just razors its eyeglasses mattresses bras contact lenses sneakers luggage cosmetics.
Dog food vitamins hearing aids you know you've named it and you can buy a new brand and often several new brands that have been launched online and so that was kind of where I got going is a let me kind of find out about this world and why this was happening.
[5:09] Rico we're glad you you wrote the book on it so it's been great so so you do spend a lot of time in the book on Dollar Shave Club.
What do you think was the magic there you know they had the viral-video the subscription model with what do you think was the lightning in the bottle that they capture.
[5:28] Yeah so let me you know kind of pan up to it like 5,000 feet and then go back to Dollar Shave Club so you know a couple things that these companies.
Had in common but I found early on you know first of all the main formula for Success was actually quite simple.
These entrepreneurs and their young and trumpeters mostly in their 20s and 30s spotted a problem and figured out a way to fix it.
[5:58] But by offering a lower price or better value or improving the customer experience or just eliminating the hassle.
You know these problems now may seem blindingly obvious but the big companies had never fix them.
[6:12] And the second thing that is really interesting about most of these companies is that the founders knew little or nothing about the products that they were introducing them when they actually started their business.
How can that be well actually you know kind of it turned out to be an advantage rather than this advantage and the reason for that is that they.
We're thinking outside the box,
you know kind of thing they were constrained by oh we can't do this or that or the other thing because you know that's not how the way things are done in our business,
conventional wisdom can be a real problem for companies.
So Michael Dubin was an out-of-work internet marketing guy was looking for his next thing but he thought razors were ridiculously expensive and frustrating to buy because they're often locked behind a glass case so his solution raises it to half the price shipped right to your home with the monthly.
And often it's not one thing it's often several things that lead to the success and you mentioned the video which went viral.
Which you know kind of our blades are blanking great.
Shot for about $5,000 1 minute and 30 seconds I've had Marketing Executives and marketing professors tell me that they've watched it so many times it's taken basically recited by line.
[7:31] I've quoted a lot of it to him which he finds really annoying.
[7:35] To Michael.
[7:39] Yeah every time I see him my first sentence is I'm good at tennis.
[7:43] That's right and that you know kind of but if you look at this Warby Parker to you know this was the pioneering online eyeglass company that was started as a class project.
For students who are getting an MBA degree at the University of Pennsylvania's Wharton Business School.
And you know kind of a figured well if it doesn't become a business at least we'll get class credit for it but they wondered as many people,
probably have why does a pair of glasses cost,
$700 so their solution was classes for his littlest $95 with five frames shipped to you at home so you could try them on before buying them.
Again kind of in retrospect a very easy solution in a simple solution to a problem that a lot of people had but it was people outside the business that thought of it.
And then you have the founders of all these mattress companies including tough to needle which actually was the first one it was before Casper.
[8:43] These guys were software Engineers who got tired of working for software companies and one of them had bought a mattress and you know what as I'm sure,
both of you guys would agree at everybody I talked to buying a mattress going into a mattress store is a truly miserable experience your stock by a Salesman,
tries to steer you to the most expensive mattress you lie down on it for 30 or 60 Seconds,
get it home and realize you don't really like it your back is killing you and so you call the stories they can I return it and they say yeah.
20% restocking fee plus a hundred dollars shipping and at that point you can't go out maybe I'll keep it so you know kind of their idea was a foam bed in a box,
reasonable price free shipping and if you don't like it free return after 30 to 60 days if you don't like it so you know kind of,
all these startups the most successful ones spotted a problem,
so I need and pink the way to fill it and I think that's what was the Real Genius of Dollar Shave Club and then of course they have to figure out a way to Market it to get attention which Michael Dubin did with his video,
it helped in his case that you had a giant that was in Gillette that was a bit.
[9:57] Complacent even arrogant.
Pick one of the tidbits in my book is that early on one of Dollar Shave Club investors called Joel and said hey would you guys be interested maybe in making an investment in Dollar Shave Club and they were dismissed out of here.
It was like nope you know didn't even take a meeting.
Well that came back to kind of be kind of what they ruled that day because for five years later to let did.
With a hood nobody can remember it having done it lowered its prices because it was losing so much market share and again it's because,
Michael Dubin saw that they were vulnerable and then attacked it on his terms rather than competing on gillette's terms.
[10:40] Cool the haven't seen a lot of people talk about the exit and detail were you able to get any details of you know why they sold win and was there a bidding war or anything around.
[10:51] He had taught he had talked to a few people but I think that Unilever came up with you know kind of this outrageous number and it was kind of like yeah right I'll take it,
you know kind of I wondered if they overpaid I think they were buying you know a growing business,
I think they were buying on an entrepreneur who might help them think about how,
e-commerce is changing the way that products are being sold so there is a combination of those things.
[11:22] Yeah it's interesting because you know something like six to twelve months later P&G had an activist in their really disrupting things because they didn't buy Dollar Shave Club so it kind of made me feel like
maybe they'd either totally missed the boat or they had kind of low-balled it ended up not winning.
[11:38] Probably at that you know at that point probably PNG couldn't have bought Dollar Shave Club for any trust purposes it might have been able to invest in them you know kind of the first year to because it was so small but you know kind of by the time Dollar Shave Club had
you know ten percent market share in volume you know kind of or maybe even a little bit more
it might have been very hard for that to pass muster with antitrust regulators.
[12:04] Yeah and we may get an opportunity to talk a little deeper into the antitrust issue because there's there's been some recent developments there but one of the things I really enjoyed about the booklet is I sort of feel like,
it would have been sufficient.
To just have like some great biographies of these d2c companies that have caught our attention and we're all talking about and and you certainly do have,
some nice biographies of the you know the origin stories for some of these these Brands and in you know.
Most I would is I was already familiar with but for almost every one of them you you know you uncovered some interesting tidbits or had some,
some good background that was news to me so it was it was fun to read those biographies and I particularly like you you sort of introduced a framework for these companies I you highlighted the fact that,
you know some of them really entered the market by trying to have a better experience than their predecessor so you know Dollar Shave Club being an easier way to get razors then,
go to the store.
[13:09] Not just priced yes.
[13:10] Yeah defeat product jail like some of these like we're about price you know and you know Finding finding Windows of opportunity,
somewhere about like dramatically improving a the product from what was previously available
and then someone about using data to uncover sort of an unmet need.
[13:33] Yeah that's that's a really good point so when I started looking at the book I didn't want the book to be like one chapter after that kind of telling the story of this company that company other company I wanted to to matically,
slow and and you know getting back to that moment when I was sitting in the car and said to myself oh maybe there's something here,
and then kind of why is this happening you know kind of and why now and the answer I quickly Learned was technology.
[14:03] Technology had leveled the playing field and made possible what had not been possible you know 10 or 15 years ago so if you go back to I mean all these,
problems that these entrepreneurs all had long existed I mean mattress stores have been kind of ridiculous places for a long time Gillette has long you know added you know kind of little features and so that they can justify increasing the price,
but it was very the barriers to entry were much much higher,
10 or 15 years ago especially if you wanted to create a brand that was a national brand so you know kind of 2005 even up to about 2010 you want to introduce a new brand you know kind of you have to go to a retail store you have to say mr. Walmart or Ms Walgreen,
you know can will you carry my product and they like why I don't need to carry your product first of all have limited shelf space and save all have all these other brands that are doing quite well you know kinda is a pretty cozy relationship so,
dinner that comes along and that means that you know can e-commerce allows companies to introduce products introduced new brands in ways that would have been really difficult before,
the internet has unlimited shelf space you know kind of your website is yourself space.
[15:20] And then second okay so you've got that she'll straight how do you get anybody to notice you again go back to you know kind of 10 or 15 years ago and you would need a multimillion-dollar,
advertising campaign really you know kind of tens of millions of dollars advertising campaign on TV you know kind of radio newspapers if you wanted to get any attention,
Gillette spends hundreds of millions of dollars a year but all of a sudden you know kind of Technology first with Google but then most importantly with social media,
like Facebook allows a company to spend your thousands or tens of thousands of dollars to Target those customers who.
Are most likely to buy your products.
And because you have this relationship online and you're kind of selling all your products on lied you're learning a lot about your customers Behavior,
and you can keep fine-tuning the product the message whatever.
Again so and the final technology that really you know that Leap Forward that really made all this possible was in logistics so.
[16:25] It's hard to remember but in the early days of e-commerce you ordered something and you know you were happy to get it in a week or two right and thanks because thanks to Amazon,
push the envelope and forced everybody else it got to the point where you could order something it's something within it two days or even one day.
And again the convenience factor of getting something going on and getting something made possible,
this revolution is taken in front in front of our eyes so you had kind of Technology changes and it's going to continue changing,
is made you know these.
Companies these startups possible and enabled them to challenge much bigger much more deep-pocketed companies in ways that would have been unimaginable.
[17:12] Yeah I agree what you think about so there's been a lot written I've written a couple books and I realized that a lot has happened since you probably put the book to bed but.
[17:24] Yeah when you're when you're writing something when it's live and it's actually kind of evolving you know kind of it's really you know interesting interesting challenge.
[17:33] Yeah so a lot has been written and I think Andy done at bonobos to set a lot around you can get these businesses up to 100 maybe 200 million and then the conventional wisdom has kind of fallen over that you need to open stores so so we've seen away as open stores sometimes they're called guide shops but they're essentially
stores to go experience.
[17:53] Warby Parker.
[17:54] Warby has it cetera.
[17:56] Third love is dabbled in it tough to needle and Casper both have as well
yeah and so when I started seriously working on the book two years ago I think you know basically there was Warby Parker,
with stores and you know kind of,
one or two others it was kind of really small and as I got into the reporting and more open it up I said you know what I have to write have to have a chapter on retail and where does retail fit in this I mean it was something that you know that that clearly was becoming,
a trend among some of these startups and for just the reasons that you say so a couple things were happening,
one social media marketing was so successful.
Everybody started doing it so it became a bit more expensive now it's still one of the most effective ways to acquire customers.
[18:56] But it's more expensive than it was in the past so the cost of that is going out
second you have you know kind of the type of people who are most likely to buy online and to respond to a social media ad you're getting to saturation point now that may be a little bit of an exaggeration but a lot of the people are most likely to do it I've done it.
And finally then you get to like that eighty to ninety percent of retail in this country is still done in physical stores.
[19:24] And some categories is even higher,
Neil Blumenthal one of the cofounders of Warby Parker told me it's like 95% in eyeglasses so there's no surprise that they were one of the first,
startups actually go to physical retail so the new thing that you hear a lot of is multi-channel,
that yes you can build you know kind of a brand it might be depending on the product that might be 20 million it might be 50 million it might be a hundred million sales but to scale it up you're probably going to have to be,
multichannel I think most of these Brands still have more than fifty percent of their sales online and over time I think you know
the percentage overall of retail that online is going to continue to increase but that's why these brands have moved their oh and the final thing is that you had a lot of traditional retailers having problems and going out of business
so guess what retail space became a lot cheaper.
So you know a company could kind of test retail in a way that was it going to cost them an arm or a leg they can see how it worked without really kind of going all in.
[20:31] Yeah and you know it's interesting you mentioned the the evolution of Facebook and that that you know emerged as a new tool that allowed more efficient marketing,
there was one of the in a blurs for a lot of these companies but you also covered a lot of other aspects of this sort of,
product development through you know go-to-market ecosystem that that sort of evolved to create this this opportunity so you covered some of the.
[21:02] The infrastructure as it were right.
[21:03] Yeah yeah exactly so I.
[21:05] The things that people don't see very often I you know as a business journalist I got really fascinated by that stuff.
You know kind of the company that you know kind of figured out that you know face could,
Facebook could really be a way to reach Target audiences and of ampush,
based in San Francisco found by kind of three College friends roommates who went to Wall Street and got bored I'm doing Wall Street and said hey let's start a company and they figure that out you know kind of done very well.
And then there's you know the logistics companies which I found extraordinary fastening go into a modern warehouse and it's not like what you would have seen.
Five or 10 years ago certainly not 10 years ago,
where are you know kind of a lot of forklifts and people carrying things around and racing around you know a lot of their automated to a large extent they're a lot of robots there people there and they tend to tend to do the things that robots aren't yet good at.
But the amount of innovation that's going on there to make that.
Product that you quick on and then get it within 24 to 48 hours is amazing it's kind of cool it's actually kind of cool.
[22:16] For sure and so you you had some interesting stories in there so like one of the companies you profiled in that ecosystem quiet Logistics I was familiar with them but I didn't really know the back story,
they were early adopter of these first robots for automating warehouses in the robot they adopted was this Kiva systems robot.
And then you tell the story of how they were subsequently he though.
[22:41] So keep your hat size yes so this is is I love that story coming Kiba was acquired by Amazon,
in Amazon you know kind of not long after acquiring Kiba said to the people that keep it been selling to is like basically we're not going to support we're not going to you know after a few years we're going to stop,
you know kind of servicing the robots that you have and these guys at quiet Logistics who had built the nice business who had spotted the e-commerce,
Revolution coming and built a business totally on having an automated Warehouse they've been in the warehouse business for years and it sold a another warehouse company they had built up a decade earlier but they say hey this is a new opportunity they're like.
What you're not going to surface the robots anymore what are we gonna do you know kind of that's our own business model and so they had the idea,
why don't we build our own robots and so they went about kind of hiring,
engineers and higher robotics experts so they built their own robots and lo and behold that business is so successful that they spun it off and it's now sewing robots,
two other Warehouse companies and two ups and all over the world.
[23:57] Yeah that that was funny and I'm trying to remember Scott were you an early investor in Kiba.
[24:03] Thanks Big thanks for watching that.
Had the opportunity and at that point it was just random pitched it was described as ant algorithms in a warehouse full of robots and it didn't make sense to me but I was wrong.
[24:19] Dab to teasing you you at least four on the list of people they called.
So that was a great story Larry another one that I think is in some ways one of the most important Trends in the whole book is you described a number of entrepreneurs that,
really leverage data that previously probably didn't exist.
To help Define the products that they offer so I'm thinking like E Salon or Mohawk or or anchor could you talk a little bit about one of those.
[24:50] Yeah so I think this is one of the things when you have a disadvantage when you're competing against a bigger rival.
You need to have some other Advantage you need to play by different rules and actually you know kind of you guys remember the the book and in the movie Moneyball by Micheal Lewis.
So Moneyball basically was about how.
A small-market baseball team the Oakland Athletics.
Couldn't compete with big Market teams like the Yankees who are rich in could you know kind of pay for more Talent so they had to figure out how we going to compete and they came up with the idea of data analytics to find players who were undervalued.
And within a few years after embracing data analytics they became highly competitive.
And and you know kind of vague were you know going toe-to-toe with the Yankees in many ways so.
To me what is happening in retail in the creation of Brands is kind of the Moneyball.
[26:04] These companies in addition to seeing a problem in looking for a way to fix it also recognized that you could use data.
Technology barley but also data to spot opportunities to improve your products to connect with your customers so a lot of people call it this is direct to Consumer businesses also say it's connect to Consumer businesses,
so early on before they get big enough that they decide they need to offer you know kind of have retail stores as well.
These companies are doing all their business with people online.
[26:39] People are coming to the website they know everything where did you come from how much time did you spend on the website what are you looking at.
What are you ordering how many times you come back before you order they can just gather a lot of data to learn about their customers and to improve their products.
[26:58] In some cases one of the things that some of these brands of do he's having more customized products and that's where he's Lon as come on E Salon offers customized are coloring.
That is you know just about as good as Salon but what more expensive but better than the off the shelf.
Hair coloring that you would get from one of the big name brands and how does it do this its Gathering data all the time from its users has a questionnaire.
It's using AI to analyze that data when we mix this for these for the woman who answers the question are this way.
This is what she like sometimes we will tweak it and give her a slightly different than what she thinks that she wants because our experience has shown over hundreds of thousands millions of people answering the questions and of this is what is going to work best.
And so their product is like 20 or 25 bucks depending on what kind of subscription you have and you know it's a lot less than you might spend at a hair salon and it's and it's a very good product again that would not be possible.
[28:08] Without being able to collect the data and you know kind of fine tune.
It's a product but also it's the marketing it's the pitch kind of to see somebody comes to your website you know kind of how long you're going to stay there.
Every you know kind of incremental Improvement in each step along the way.
[28:28] Means that you're going to have more customers and more customers stay with you so initially they started I think they told me like you know fifty percent of their customers were coming back because they were still trying to figure out the formulation and now 70%.
Come back after the first purchase they get people past their third purchase they know they're going to have until 8:00 purchases if they get past their 8 purchases they're going to have them like just about forever again and they know this because they're measuring every bit of data.
[28:56] Yeah I mean one of the examples in the book that really struck me was when a woman ask for the lightest possible blond they know that she actually doesn't want the light as possible blond and that she maybe want something with a slight bit of blue tint in it.
[29:11] Yes because because I know from people who've gotten the lightest possible Dom who fit the profile that she fits that they have a lower kind of Second Coming Back conversion rate than they do when they kind of tweaked it a little bit,
it's you know kind of it really is a type of rocket science put it into a computer for retail purposes.
[29:32] But I like that metaphor so you could almost think of them sort of anchor money bald Belkin right like the the you know the traditional accessory providers.
[29:44] Yeah well one of the challenges I think for some of the startups is that you know,
what happens when the Yankees starting you could start using data analytics right they got money and data analytics.
So now you know having said that I think the Oakland A's are year in year out Fielding better teams.
Did they ever did before data analytics going to watch.
So so even though it may be harder now that everybody is using the same tactics and I think a lot of the big companies are starting to learn some of them are buying some of these companies,
some of them are buying expertise,
so so that's going to make it a bit more challenging for companies but still you know I think that there's a lot of potential because you have the technology out there that makes it easy to introduce a.
[30:39] Yeah and you know what you know finding that metal part maybe just one step further that's a great point you make that
when the Oakland A's are the only ones using the Moneyball system they were they were suddenly identifying valuable players that other teams didn't want because they didn't know they were valuable,
so they had this competitive Advantage but once the whole world adopted this this Quantum metric,
system suddenly everyone knew those value and so it was it was harder to gain an advantage from that and then in some ways it feels like.
DDOS is playing out very similar when you were the only ones leveraging this like targeted audiences on Facebook.
You had this great competitive Advantage but now that everyone's using it they you know bit up the prices and it's it's less of an advantage than it was for that first mover.
[31:29] Right right there's no doubt about that there's no doubt about that.
[31:33] Cool one one thing I wanted to talk about is so a way has been interesting and this probably happened,
post publication of the book so they've had one thing that's interesting is so so Amazon is kind of cloned their model so there's an Amazon basic suitcase
Target just announced Their Own Line of suitcases that look very away ish and then they had their own kind of implosion with the CEO,
sending some unsavory slack messages internally kind of kicking yourself upstairs and then re kicking yourself back downstairs what do you make of the tumultuous times there.
[32:10] Yeah so I think implosion is probably to stronger word clearly embarrassing for the CEO
to be berating her,
employees the way that she did in a very demeaning way and I think that she has said she's embarrassed but you know one thing I would point out.
These are startups most of these people have not run companies,
and often you have you know entrepreneurs who aren't great managers you know witness Steve Jobs at Apple,
right or Elon Musk at Tesla I mean both of these executives.
Were incredibly incredibly difficult to work with and the second thing I would say is that you know,
especially when you're in the mode that away is in you know competing first of all with other startups which it ended up as the leading,
new luggage company and now competing against other existing players trying to get into its pace and copy what it's doing,
you know it's a life-or-death situation for a company and so you know sometimes emotions boil over I think the big question there is.
[33:30] Will that bad publicity affect ways image overall and you know you go on social media and you see people saying oh I'm never going to buy it anymore and oh I wish I hadn't bought it and.
You know what week later those same people are outraged by something else.
So I'm not sure I mean I think time will tell how much it's going to affect them but,
you know they have a good product at a at a good price it's a value price right it's not the most expensive and it's not the best product but it is you know a good product at a good price,
and I think it could end up being one of the winners only time will tell but I think it could be.
[34:07] Yeah yeah another one you know I feel like demonstrating how liquid all this is like obviously you you
you know the you mentioned our shave club was sort of one of your your first interest in this space and their well covered in the book and you alluded earlier to gillette's prodigious market share
so like the the interesting news from last week and this week as last week the FTC filed the complaint and said that they were actually going to oppose,
Harry's acquisition by Edge well because they felt like number to March it.
[34:45] Which own chick.
[34:47] Yeah exactly so Schick number to acquiring Harry's which some people think is number four behind our Shave Club I actually have some data that looks like Harry's may have a bigger market share today than Dollar Shave Club.
So calm three or four number two by his number three or four and the FTC was concerned that that would dramatically a road,
price competition so they they block the merger and and then this week Edge well announced that they weren't going to fight it so there are.
[35:17] To the consternation of Harry's well you know like I'm not sure what the most recent data is the data that I got from an independent source,
that tracks sales said that Dollar Shave Club sales and market share was quite a bit bigger than Harry's but separate from that,
I think it was an interesting decision I'm not a little bit of a puzzling decision you know kind of the FTC is letting Sprint,
and T-Mobile merge.
And put not Harry's and sik or Edge well merge the barriers to entry in Mobile.
[35:54] Communication is much higher than the barriers to entry in razors and actually one of the things I think you know getting back to the whole point about how easy it is to introduce a new brand we let's say that Harry's,
you know starts raising its prices and starts doing business more like chicken Gillette had long done it that cozy relationship,
to me that would prevent a you know kind of two things would happen because of the way that the world has changed one dollar she would help Dollar Shave Club being in there as you know kind of offering this alternative view of the world.
it's quite possible that another brand would come in and say Hey you know kind of these guys you know kind of are leaving their customers behind they're not being true to what they were and obviously there is a market for what they were doing.
[36:42] And I think that's one of the kind of long-term getting back to the Money Ball issue kind of one of the long-term benefits of what's happened is that
we as consumers have more choice and
likely will have more choice in most consumer products going forward because it is so easy to introduce a new brand there's been a democratization which leads
how did the fragmentation I don't think we'll ever see a prey on that you know kind of like Gillette has 70% market share in the future but that's good you know that's not bad,
you know I kind of finally I think part of the reason that that edge well sik backed out was it paid I thought the price that it offered was quite a rich price it was like 1.3 billion was even more than Unilever paid for Dollar Shave Club,
so although there was an awfully Rich price maybe they kind of at the end got cold feet and said oh maybe we're paying too much for it you know kind of let's let's let that.
[37:36] The I think the investors must have agreed with you because I feel like Edge well stock is up since the merger was called off.
[37:43] Right right,
but long-term long-term sik Edge well is going to have to figure out how to better service its customers right because it was distant distant distant you know kind of number two to Gillette forever and it had,
combined combined Harry's and Dollar Shave Club I think had more market share than Schick so that says something about the way they were doing business before the way they need to think about doing business going ahead.
[38:10] Oh for sure and like I mean two things,
hey like it's going to be interesting to watch it because you know in many respects when they announced this merger they said and we're going to put the Harry's guys in tired of our strategic plan going forward so they sort of announced to the world,
that we don't have any good ideas and we're trusting them to take the brand forward and so now what do you do when you don't have those guys.
[38:34] Right I mean you know you maybe you try to hire that talent but sometimes that entrepreneurial talent and that just kind of feel for what the customer wants is not so easy to duplicate in focus groups and such.
[38:44] No but so I'll admit very personally selfishly I'm disappointed that they're not going to litigate with the FTC because per your point,
in the ftc's complaint they made a lot of interesting claims and one of the claims was that,
Harry's was able to capture significant market share and become a relevant player but they sucked up all the opportunity to do that and that it would be much more difficult for anyone to follow in Harry's,
footsteps and therefore it was important not to allow this merger and like well as we discussed already in some ways it probably is harder to be the third or fourth mover,
in other ways,
like the the friction is considerably less like and it's hard to imagine that Amazon couldn't be a significant player or Target couldn't invent a razor.
You can play or so.
[39:44] Well Amazon as you noted earlier I think you mentioned it with.
[39:48] Yeah they're already in the space.
[39:49] In the space but they have there are at least 200 new brands at Amazon has introduced,
over the last few years and I mentioned this in my book that are there have amazonbasics Brands but this is separate from that these are brands that you don't know her necessary Amazon Brands unless you really drill down,
they actually have a shoe brand called I think it's called Collective 206 kind of crazy name for a shoe brand but anyway they introduced a knockoff of all birds,
wool Runner Shoes recently and all birds took a shot of them and say oh your stuff is not sustainable materials and but in some ways Walmart is I mean she's me Amazon is validating.
What all birds is doing and it's somebody's it's giving a threat so you're going to have,
all sorts I mean the opportunity to introduce new products new brands is you know kind of higher than ever before and then getting back to my point if Harry's changed the way it did business.
So that it charged higher prices and and you know kind of acted more like chick that would create an opportunity for somebody else in the marketplace I truly believe that.
[41:04] Yes can be interesting to see
you know if more of this gets blocked and what's going to happen one one other topic I wanted to just touch on quickly that happened kind of post the book is the Casper IPO so you know I think Casper raised money as a private company at around
one to 1.2 billion and then they really struggled price in the IPO the kind of,
we're talking about a 15 to 17 range and a pricing it at 12 its trading off of that
it's interesting because I've seen a lot of people argue that these brands should get kind of one times revenue and then other folks have argued that a lot of these brands
because they're more efficient they should get
two three four times so this one ended up kind of going right in I think they're trailing 12 months Revenue are about 400 million and now their market cap is right around 400 million so they.
[41:55] Or 500 or something like that but pretty close to it.
[41:58] Get a pretty quickly zeroed in on that one X do you think that's going to throw kind of a wet blanket on things or do you think that that I.
[42:04] So yes but with a caveat so let's look at the mattress space overall and how disrupted that has been.
So if you go back five years I met mattress business retail mattress business in the u.s. is about 15 or 16 billion dollars a year.
If you go back five years about 50 million dollars was done direct-to-consumer the bed in the Box friends.
[42:30] Last year it was two billion dollars and if the.
Barriers to entry fell in a lot of categories the barriers to entry in the mattress.
Category collapsed because it's so easy to make a mattress and sell a mattress you get somebody to sell you foam you know you get somebody
just to so the bits together the top together and then you kind of get a machine that crams it down and puts it in a box and send it you had dozens does is I've actually heard hundreds but you know dozens of doesn't serious serious players and I think that they're probably going to be,
you know kind of maybe a half-dozen that emerge so in this in this you know kind of,
fiercely competitive free-for-all bare Knuckles free for all the way I described in the book Casper raises a lot of money and,
besides that it has to spend a lot of money to try to knock the others out of the box and become the leading and and I think that.
They made a strategic mistake I think they spent so much that it validated the whole category,
right so when you went and searched for mattresses online you found Casper but you also found tough to needle and purple and others,
and the second thing I think that they thought maybe that you know is like a network effect you know we spend moral kind of get others you know kind of have to drop out it hasn't you know kind of those others have thrive,
so if you guys heard much about purple innovation.
[44:00] Okay so purple is a public company it stock is traded.
It came it actually didn't start selling mattresses until like 2016.
Its stock has doubled in the past year it's market cap is now 700 800 million I think it's sales are 4,500 roughly the same as as Casper and tough to needle,
which was sold about a year and a half to go to Sur to Simmons for four to five hundred million dollars we started as I mentioned by these kind of too.
Software Engineers who just decided they wanted to make a product they raised virtually no money they had no Venture Capital Mike they had to be profitable from the start.
And they were and they sold the company they each together they had 90% of the company so you know kind of both of them did very very well
so I think that Casper you know kind of rather than being a poster child for all DTC companies is more of a poster child for,
kind of format a poorly managed DCTC.
You know I mean we're going to see time will tell but when you have profitable companies in that space and their unprofitable then you know kind of it says that somebody doing something right compared with them.
[45:20] Yeah it's it's a funny so a number of these guys have been on the podcast so Joe Mega bow who's the CEO of purple has been on in JT Marino has been on and one of the cool stories JT told us was,
um that yeah you know that you know he mentioned that he hadn't raised any money that you know some of these these
Venture funds that we're starting this emerge specializing in data see all wanted to invest and they didn't take the money and that his his version of the story was Casper was specifically created as a,
alternative to tough to needle that could be Venture funding.
[46:01] Right right yeah though I I talked to him too as you know in the book and he told me that same thing but he was you know can it again they were high they had to be very disciplined.
Right because of the way they spent.
[46:14] Yeah no I really admire that.
[46:16] And I think that that Casper was undisciplined now that you know the final thing I would say about it is that you got you ever heard of a company called Tesla.
So a year ago.
[46:27] Single-handedly is keeping them afloat.
[46:29] So year ago.
Tesla was like almost given up for dead right oh we can't get the production right you know kind of they have they can't get you know kind of mass production of cars right it's you know kind of he's running out of cash you know he's got so much debt and now it's stock is at all-time high.
And they're making money and why because they fix their fundamental problem which was you know they had a great brand name and a great product but they were kind of Highly inefficient the way they made it
but they appear to have gotten that under control Casper's has still has a great branding I don't know if they can pull off a Tesla.
But you know sometimes the the rigor and the discipline imposed On You by public markets can focus the mind and make you be a lot more efficient than you were and we'll see but I wouldn't count them out quite yet.
[47:18] No I think that's that's certainly fair so,
you had this front row seat to all of these interesting Evolutions obviously so you know most of them are still sort of playing out like if,
if you had to put your prognostication hat on like how is all this going to play out like is are these got companies a blip on the radar and Joe Ed and p and g are going to keep on tickin for for another hundred years or you know like are we seeing the start of a.
[47:48] Great question so I think that there will be billion dollar brands.
That have you know market cap or kind of they go public and there will be a billion dollar brand so they Corby Parker probably wants to go public you know kind of I don't know that they're making money but I think they're a lot closer to it than for example Casper,
there will be other brands that will be you know kind of modestly successful.
And then there will be other brands that will be Niche brands that will be successful and niches have you guys ever heard of a company called lens simple.
This is one of my favorite one so so if you have a pair of eyeglass frames.
[48:29] That you really like maybe what a couple pair of designer frames a couple years ago and you need a new prescription and you kind of go back to the,
optician and you say hey can you know can I got a new prescription just put new lenses in my frames they look at you like you're crazy I don't know we want to sell you another pair of frames,
this company you send them the frames and they put in your new prescription they send it back to you.
So I think that they're going to be a lot of Niche players like this and then they're going to be companies that fail in the in the luggage space you know kind of away emerged as the leader among the startups and there were a couple of companies rate in and blue smart that ended up going out of business.
So you're going to have you know kind of a whole array of this but I think the the ability to you know getting back to it bent or bury the ability to introduce Brands means that you know kind of.
Things have changed forever just like Moneyball started with baseball and now data analytics is used in every sport.
So you know can a big companies will fight back none of those companies are going to disappear but if unless they figure out a way to connect to Consumer better,
they're going to have lower market shares and you know again I don't think that's a bad thing actually maybe as an investor in those companies that's a bad thing but for consumers.
That's a good thing because in the end more choice is better it keeps the big companies honest it makes them he's like Gillette lowering its.
[49:58] Prices by an average of 12 to 15.
A couple years ago I mean unheard of that never would have happened without Dollar Shave Club at Harry's coming along City.
So we kind of we're in the early stages of this Revolution and I think the revolution like all revolutions you're not exactly sure where it's going to end up but you are pretty sure that it's not it's going to look quite a bit different than where we started.
[50:26] Yeah no I would totally agree with that and I feel like we're lucky to be sort of in the in the front row at a time when we are going through this revolution because it's it's not the status quo.
[50:38] Yeah very fun to very fun to watch.
[50:41] Yeah for sure and so until you write the sequel that's going to be a great place for us to leave it tonight because we've once again used up all our a lot of time but in the event that listeners have questions or want to continue the dialogue
we always encourage you to jump on Twitter and send us a note or leave us a message on our Facebook page
I'll be sure to put a link to Larry's book in the show notes so that listeners can find that without doing anything dangerous while driving.
[51:08] And and you can send me an email to my email address is on my wedge page web page which is www Larry ingrassia.com so.
[51:18] I will I will put that in the show notes Larry thanks very much for being on the show tonight we really enjoyed our conversation.
[51:25] Guys Jason Scott very fun thank you so much for having me.
[51:29] Thanks I appreciate you taking time to fill us in on your book and hope everyone orders a copy ASAP.
[51:35] And until next time happy commercing.
EP206 - Amazon Q4 2019 Earnings Deep Dive
Amazon released their Q4 2020 earnings on Thursday Jan 30th. In a holiday quarter that has proved to be challenging for many retailers, Amazon soundly beat analyst expectations, and raised their governance for Q1 2020, driving their stock up. Amazon's market cap is currently larger than the next six largest retailers combined, and their competitive advantage may be even greater.
In this weeks episode we do a deep dive into all the details of the earning report. We look at top line results, AWS, ads, physical retail, and Logistics. We break down what it all means, and leave you with our conclusions.
Episode 206 of the Jason & Scot show was recorded on Friday, January 31st, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scot show this is episode 206 being recorded on Friday January 31st 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners
it's exciting times in the world of retail and e-commerce Amazon reported their fourth quarter results back from 2018 feels like a
a year ago even though we're still in January of 2020 and they were so impressive and important to I think everyone in the ecosystem not only retail but e-commerce and shipping that were really going to focus to do it
dive in this episode
on really understanding and unpacking these results probably in a deeper way than we've ever done so look forward to taking you on that journey and love any feedback you have on that before we do that Jason you in a couple short weeks are going to be representing the podcast sadly I can't make it
but you will be in each OS tell us about that.
[1:27] Yeah I'm very mixed feelings I'm super excited to go to Palm Springs Palm Desert area in February which is a much warmer than it is in Chicago as you.
You may know and we have a bunch of I think pretty interesting guests lined up for podcast so so stay tuned for that but of course it's always sad
to be an industry event without you and I always feel like I'm cheating when I record a.
Show without you but obviously there is a segment of fans who feel those are the best shows in their favorites.
[2:00] Yeah your mom and it's pretty much pretty much it.
[2:04] I'm pretty sure she's not in that segment.
[2:06] Boom Cooper I look forward to seeing who you can rope into doing some interviews those are always really good but that is coming up in let's talk about Amazon.
[2:23] News new your margin is their opportunity.
we're kind of mixing it up as I mentioned at the top of the show this was such a big quarter that we think it's really important to spend a fair amount of time on it so so we're going to break this into three parts so we're gonna talk about the setup going into kind of holiday and what we learned before Amazon announced
I'm going to go through the highlights of the results there we can spend the bulk of the show on an analysis really kind of picking apart what's this mean for the industry
so Jason want to take us through the setup going into Amazon's.
[3:05] Yeah so obviously Q4 is a super important quarter for all of retail and it's been a little checkered coming into this Amazon announcement so MasterCard which
has a panel of all people that shop with a MasterCard had reported that retail sales for the quarter were decent I think they said
total sales were up three point five percent which is average to good.
Growth rate for total retail and they said e-commerce was up 18% and so that,
in and of itself didn't seem so surprising but then individual retailer started reporting.
[3:51] And the folks that you you might have expected to be distressed we're generally more distressed than expected in the people that you might have expected to do well also seemed down so it's been this odd thing where MasterCard said hey overall
it was kind of an average quarter and then the overwhelming majority of people that were reporting
we're reporting a pretty disappointing quarter so you know that that created extra anticipation coming into.
The two biggest retailers which were Amazon last night and then Walmart is on a really goofy fiscal year and so they won't be reporting toll February 18th,
if I have it my memory serves but so.
You know you wouldn't expect JCPenney's to kill it but they were down like 7.5% Cole's was down which has off-price retailer had traditionally
been more resilient bunch of the apparel companies were down Macy's was down L Brands was down even some like value stores like five below
which is in that dollar category those guys were down and Target was up but they were way below their guidance.
[5:06] In general you know reading into this quarter it's felt like a pretty depressing quarter we've also seen a lot of evidence that the quarter was way more promotional
in any quarter ever which means profits are likely going to be down and we've heard anecdotally from a bunch of these retailers that manufacturers,
have way more inventory than they usually have this time of year and so there's a lot of distress inventory that manufacturers are trying to
pump through the retail Channel right now so all sort of bad indications leading up to
Amazon's announcement last night so Scott can you tell us how that what what how it transpired.
[5:48] Yeah I would say that it was Wall Street was was
extremely surprised pleasantly surprised in the world of public companies you have this kind of you know what what's the current period expectation and then what's the forward period expectation so the current period and this conversation of fourth quarter of 2019
the forward quarter would be q1 of 2020 so this is what's called in Wall Street lingo a classic beat so they beat the fourth quarter of 19's expectations and then they raised the q1 2020 expectations.
When you do that you frequently.
I'm have a pretty immediate and exciting stock action and that was certainly the case here so Amazon stock surged today Friday to 2008
that's a price not not a year which is a over 7% one day increase if you follow small stocks you know that may not seem like a big deal but this is a trillion dollar stock so 7% is
seventy billion dollars of market cap that was created so I don't know how that compares this probably like 20 JCPenney's or something something like.
[6:56] Yeah so I did look at it and it's fluctuated a little today it actually like as we're recording this show it's.
Slightly nominally under a trillion dollars but,
it's the equivalent of the next six largest retailers in the market so Amazon's market cap is the same as Walmart plus Home Depot + Costco + lows + CV s + T.J.Maxx.
[7:20] Yeah but even just the 74 billion created today is larger than many individual retailers.
[7:25] Oh yeah the 74 billion today is a larger market cap than TJ Maxx or Target it's.
[7:32] Wow so you talked about it but that put some work just shy of the trillion dollar Club I think they're going to get there and we'll talk about what Wall Street thinks that's going.
Shoot Em Up There,
but just for folks that are tracking this apple is ahead at one point three five trillion and Microsoft's 1.3 trillion so Amazon's flirted with the trillion market cap club and I
you know I think it's pretty safe to assume here that they're going to get there pretty quickly and stay there for the rest of 2020
so let's talk about the highlights that caused this this exciting and peeled onion a bit so you know,
one thing that's not customary for Amazon is talking about how many prime users they have so in they're releasing on the call they talked about having a hundred fifty million Prime users and in the fourth quarter they sold more Prime memberships than they ever have before in any other period
that's pretty material because you would think maybe Prime day would beat fourth quarter but you know that's not the case so so fourth quarter compared 30.
Prime days in third quarter so so they must have sold more Prime memberships from the holiday sales than they did from Prime day.
[8:39] Last time they announced this it was for the calendar year 2017 they announced it in 2018 and they said they had a hundred million so they have added 50 million Prime subscribers over a two-year period essentially so that's pretty impressive
from that there's a line item that counts that revenue and that's called subscription services that accelerated to 32 percent growth again kind of supporting that,
that that kind of more vague statement that those more sign ups than ever before those pretty material acceleration of that metric and then another nice thing is that's that's five billion dollars just for the quarter so that's essentially.
Customers giving Amazon money in the future for you know fast kind of quote unquote free services that you know helps Amazon's cash flows which is pretty amazing I don't think we ever see anything
quite like that it's kind of like prepaying for products on this you we see subscriptions but you don't see kind of like almost.
Soccer is a service type prepayment so then.
[9:42] The third party unit share came in at 53 percent of overall units meaning first party was 47% that was steady now what,
what that doesn't capture is and I'll talk about this in our deeper analysis is unit volume is not the same as gmv and we'll talk about,
so the transactional dollars you could have unit volume
kind of flat quarter-on-quarter but you could have a huge surge in the dollar volume because the average order value could go up in three p down in one p there's a lot of things that can change that.
The revenue from what they call 3rd party seller services this is largely what they charge sellers use FBA That Grew 31 percent year-over-year and surged,
I almost wonder.
If they're having a problem keeping up with this demand because they're building out fulfillment capabilities at about a fifteen to twenty percent clip and if the demand for FBA is growing at 30% you know that that's.
It's going to be interesting and it will talk about fulfillment side in a second
I talked about this being a beat so Revenue came in 2% above the top line which is a I would say a moderate beat but what really surprised everybody was.
The operating income it came in 34 percent above the high end of where Wall Street would think so
what happened here we'll talk about this in the gnosis so.
[11:02] Amazon so this was obviously a big question in Amazon said you know it was overall adoption of the Prime platform due to the new prime one day offering
so if you remember in Q2 they started offering one day Prime and this isn't available on every product they're working to get it on more and more products all the time but increasingly you will find products that are available to come in one day.
Versus used have to pay a fee for one day delivery anywhere between like three and ten dollars it always varied based on what I saw the.
[11:36] Um inside of that Revenue grew 21% year over year to 87 point four billion paid units grew 22%.
This gets Wall Street really excited because.
Because Amazon has you'll talk about this the cloud computing which is Amazon web services or AWS the ad business you know those things kind of.
Could be used to prop up growth and The Core Business which is we would think of as retail could be growing slower.
Paid units takes those things out so when paid units accelerates and is growing you know I think you talked about the high-end Mastercard at 18% this is growing faster than kind of what we thought was pretty
you know aggressive number that is a really big signal that something has changed and most Wall Street analysts kind of view that as the signal that prime one day has really been a game changer.
[12:27] Within their North America grew 22% year over year and International Group 15% another thing that's interesting is North America's well over two thirds of the business now Internationals about one-third so that's how you can have you don't take those numbers and average them North America as growth is able to swap
the growth on International incidentally both those were above wall Street's expectations and then you know you and I speak a lot and we always hear that Amazon is not profitable.
Well operating income came in at 3.9 billion so that is pretty darn profitable by my calculations
Jason you dug into the cloud computing stuff how did that go.
[13:06] Yeah so first caveat you talked about the the rumor that you know people out the talking point that Amazon is not profitable if they don't have that talking point they have this talking point that.
Amazon is profitable but exclusively because of AWS which is also annoying and not true
but that being said AWS is a darn good business and so they had another good quarter of growth revenue for the quarter was to nine point nine billion which was up 34% from the corridor
they're by far the market leader so when you're the market leader and you're growing at 34% that's a pretty good story and it did beat Wall Street expectation.
However it is part it is a clear deceleration of the growth so.
You know from as far back as i q 1 2017.
This this business has been growing 40% or better every single quarter and then Q 2 of this year for the first time at dip below 40 it was 37 percent growth last quarter 35 percent growth
this quarter 34 percent growth so it does feel like.
The law of large numbers is starting to kick in and and this crazy growth rate is slowing down a little bit but like for any business.
This is still great growth in its great growth.
[14:34] On a big number and it is highly profitable business and then the other you know thing to keep in mind about this whole AWS service is.
The bulk of the the Computing world is still not yet on the cloud right so there's a lot of estimates that you know it's maybe ten to fifteen percent of all compute is on the cloud right now so the.
Potential future market for these Services is very large and you know it is.
Certainly a challenge for their biggest competitors Google and Microsoft.
Interestingly Microsoft reported today and you know they have a competing product called azure
and as your you know on a much smaller base is growing much faster so they they dramatically beat Wall Street expectations.
Who are Juliana Azure 62 percent growth which also made some news so it's a pretty competitive.
Hot cycle but Amazon continues to do a lot to maintain their lead and I think they also rolled out something like a hundred new AWS services this quarter.
[15:46] Yeah there's there's one argument and this is not our purview so I'm not an expert on this but
that Microsoft's kind of stuff in The Ballot Box because I think they put Office 365 another cloud computing there's simply kind of taking the office build it kind of license converting it over to cloud and then kind of counting it in that as your number if I understand right.
[16:07] Yeah I think that is potentially true but I'm not actually sure that is stuffing The Ballot Box because of you you know if you think about they.
Previously they had to sell those customers on office every.
Year and often people didn't upgrade right and so if they're successfully able to migrate all you know a big chunk of customers to Assassin model and they're delivering that from the cloud like
that that actually is indicated of of them growing the business so I you know I'm not sure I would call that super nefarious but for sure it helps to have some super popular products like that to Goose your Cloud business.
[16:45] It's not a nefarious it's apples and oranges will agree to disagree.
[16:49] Fair enough okay yeah as as per usual.
[16:51] But you're on how about the ads business Jason.
[16:58] Yeah so this was another I mean I feel like we shouldn't be saying another bright spot because they all seemed like bright spots
but so Amazon has this segment of Revenue they call other which is not exclusively but mostly this the advertising business and it was another huge quarter for that the other segment of group 41% to 4.8 billion
so you know they were on a run rate to do 10 billion in 2019
and I think with this number they're actually going to have an added it up but I think this actually puts them at like 11 or 12 billion for 2019.
[17:41] Are they I think last time I looked they were passing Snapchat and had a bead on Twitter set that kind of.
[17:47] Nope they passed them both.
[17:49] Okay yep so they just have.
[17:51] They're the third largest digital advertising platform in North America.
[17:56] Yeah those Facebook and Google are so big it's gonna.
[17:59] Yeah yeah we'll talk about that a little bit more in the in the analysis but definitely a good quarter for ads and it's having a ripple effect on the rest of the retail industry.
[18:11] Cope about physical stores.
[18:12] Yeah so this is a new category Amazon had to add after they acquired Whole Foods.
And this is down 1% it's about the only thing in the whole earnings report that was down and it was down 1% to 4.4 billion it was also down 1% last quarter.
So this is almost exclusively Whole Foods that I think there's like 80 other stores besides the 500 Whole Food stores.
[18:42] And it is interesting that it's down again you know normally brick-and-mortar retailers growing at like three or four percent you know Amazon's doing a bunch of interesting things in the whole food stores and and their stores that cater to a relatively affluent customers.
Which is you know a segment that has been more resilient so you'd you would kind of expect it to be up.
Um and the thing that really kind of skus this number and makes it not all that useful for me is Amazon has aggressively converted those Whole Food stores to home delivery stores so.
You know they launched a delivery service out of Whole Foods and they used to charge per delivery or they would.
Sell a separate membership they did away with all of that and so you now can get free two-hour delivery from a whole food store
and they haven't disclosed how many customers have are regularly using that service but if you use that service you're in their e-commerce sales not in there.
They're physical retail sales because they they.
[19:45] Attributed based on on where the order is collected and those orders are collected on the web so I suspected we knew what the.
The sort of bow purpose and home delivery number was from Whole Foods and added it to this like you know I'm not saying it would be a huge growth but it probably wouldn't be negative but
as it is you know they're they're slightly declining in a market with where other Grocers are slightly growing.
[20:12] Yeah that it's interesting too because they've opened up so many of these kind of little bookstores and four-star stores and all that jazz you think that inorganic growth would help this number so it must.
Either it's like seriously declining in there having trouble just treading water or to your point there we categorizing it and we there's a one piece of data we can't see to really understand what's going on.
[20:33] Yeah and probably very likely a little of both.
wrinkle so then that was that captures kind of the highlights of fourth quarter 2019 now let's look forward again a Wall Street thing is you give guidance so companies give a range of how they think things are going to go.
And they did a beat and raised on guidance so revenue for the first quarter of 2020 was guided to above analysts and.
Amazon says 73 billion at a
a midpoint if they get that would be twenty two percent growth they're essentially saying look The New Normal is 22 percent growth so buckle up.
So that's going to be interesting there in Amazon's historically somewhat conservative so there could almost be I won't see ya shot that
maybe like 25% I don't know you get the sense that they are seeing something in the data from prime one day and that is a game changer and really.
Almost changing the business.
But that being said it was a little mixed because margins were muted and guidance and they were very careful to call out exactly why in all.
Pick that apart when we go into the analysis side Wall Street brush that off they effectively said look,
you guys have shown us that this is paying off this investment in prime one day we're comfortable with you continuing to do that and in Amazon's got really good about articulating.
[21:59] How much they're spending where it's going and what's really interesting about it is it's kind of forever dollars which is nice so effectively capex investing into new things that will be used for years and years so.
So then another area of investment that they specifically called out as India there's a lot of press Jeff Bezos was in India you've probably seen the pictures of him wearing
kind of a funky jacket and doing like a lots of fun things in India it's a huge market for them and announced they're going to invest a billion dollars,
don't think they put a time frame on this I kind of mentally.
Wrapped it up to 2020 but it could go beyond that certainly not going to be 1/4 that's a according to emarketer that's a two hundred billion dollar a year in five years area that's growing really rapidly and then Amazon again
kind of in a uncustomary way they.
[22:50] Put out some data around that market they said they have 550,000 sellers now sixty thousand of those export products and then they've created 700,000 jobs kind of amongst their three peas in India there there
exclusively third party so they don't have a first party kind of business and they've created those 700,000 jobs since their 2013 launch.
They did announce a huge investment fulfillment centers will talk about in the end
now section and then based on all this data and the results of Q4 analysts nudge their price range is up
between 2275 and 2500 I saw some a little bit higher than that but that seems to be kind of where everyone's clustering in that that section so again they kind of ended the day at 2008 I think they only have to get up to
2100 to be in the trillion dollar Club so and I'll start expecting that they will get there and stay there.
[23:44] So those are the results we did the set up heading into this this announcement the highlights now let's really dig into what
this means and do it dig that deep dive on it I wanted to spend some time talking about this prime one day so so one way to think about Amazon is it's a capital intensive business because of fulfillment center parts of it.
Unlike eBay so eBay is a pure digital business they don't have fulfillment centers or delivery trucks or anything like that they may have some office space but other than that it's pure digital business
and what's interesting is Amazon has now
kind of shown to Wall Street look we're gonna go into these invest modes and we're going to invest heavily against something that we think is going to work but then we're going to have a harvest mode and that's what gets Wall Street really excited because when they have these Harvest modes Wall Street is
perpetually surprised where I surprised investment works and then they're surprised by how much profitability comes out of that Harvest so I would characterize that is what's going on here so Amazon again started in Q2.
And what they did is they said they announced prime one day they said we're going to announce 800 million in that quarter and then in Q3 announced about a billion and then in Q4
they've now announced that they spent one and a half billion all on prime one day.
[25:03] So you throw all that together and you get about a four to five billion dollar investment in this new initiative that seems
that's a really big number and it's very easy to be skeptical on that but now we're seeing that 22%
paid units number accelerate nicely so
Rin that entering that Harvest mode and what Wall Street analysts are thinking is once we kind of lap Q2 that those investments will taper off
the infrastructure for Prime Monday will have largely been built they'll still be some more but maybe it's going to be like 500 million kind of
level of investing and then we're going to hit this really big Harvest Motes that's what's got everyone excited.
[25:43] Where does that dollars goes when we say four to five billion dollars where does it go it's all in shipping infrastructure
so it's more fulfillment centers one of the big things about so if you think about this supply chain the end of the supply chain the the start I guess in the supply chain is the Fulfillment center so the products being there for consumers then a then that then you have the consumers
primarily a residence so in the middle the two important pieces where I think the
bulk of investment are going is sortation centers so to be able to ship all this stuff one day you have to sort it into
not only zip codes but zip plus 4 so that you can get it on a truck that's going to do a very tight route and be super efficient so Amazon's invested
heavily in that so used to be they didn't have any like five years ago they had very few sortation centers there were relying on the USPS FedEx and UPS for that function so now they've built out that
and then they've also built out the trucks I go to work every morning I have about a 30-minute commute and I probably see 30 Amazon Prime trucks on one of the major highways here in this area so.
[26:45] And those are just trucks following you to deliver.
[26:47] Yeah like slow down we're trying to give you all your packages so you know.
So again this amazing amount of investment and then what's also interesting is they build these things but then they you know.
They're going to last for very long time you know fulfillment centers last for presumably 10 plus years they the insides frequently have to be updated but you know the big kind of the pad the walls all that stuff in the sortation centers I think
that technology lasting longer and of course trucks last a relatively long time so so what they're building is they already had more infrastructure than anyone else and they are just kind of like.
Quadrupling down on that infrastructure so so.
That's kind of what prime one day means and then you know my other point on it is consumers love it so consumers are buying more and more frequently and signing up for Prime because they love the one
prime one day feature.
[27:46] Yeah and I mean I the way I think about it like that faster delivery service does mean they win more orders against other eCommerce sites so
you know maybe you ordered something from Amazon instead of Walmart because it will arrive faster but also it just entices households to
order more stuff online that they previously might have ordered or purchased in a store and so like it you know they're not just stealing share from competitors like they're actually like increasing.
They're addressable market so.
[28:23] Yeah good point.
[28:26] So that that is very strong the.
Question I get asked a lot about Amazon lately when I visit other retailers is around the ads the.
[28:41] You know as we've already highlighted a little and we'll talk about more Amazon has this Rich echo system and everything feeds on everything else and so you know increasingly Amazon has this great Diversified Revenue.
[28:55] Echo System right and all these different places they make money and you know all the all these Services they make money on that support the retail business like FBA
fulfillment all these new things if you're a traditional retailer that you know is
just has e-commerce with all those other services it's really difficult to be profitable.
And so in general when we look at you know a omni-channel retailer that you know they generally have separate accounting for their e-commerce business and that e-commerce business generally isn't profitable or certainly.
It's less profitable than their brick-and-mortar business and so you know most retailers are looking for ways,
to improve profitability and then you see wait a minute you know Amazon's building this huge highly profitable advertising business,
on top of the retail business.
So estimates are right now that that Amazon's ad business is about 9% of All Digital ads.
And so to put that in perspective Google is currently I'm sorry Facebook is currently at.
22% and Google is it 36 percent so Amazon's already the second largest Advertiser the forecasts are of course for Amazon to gonna grow much faster than those other so.
So the 20:23 forecast is.
[30:19] Amazon at 14% Facebook at 20% and Google at 31 percent so that you know they're potentially getting much closer to the size of these other.
Big guys and they have a ton of other revenue streams that these other big guys don't have in General ad sales is highly profitable because.
The cost of goods sold is almost negligible.
And so if you're Walmart or Target or any retailer in you're struggling for profitability on e-commerce and you look at Amazon you go man
I need to get some of that lucrative advertising business to supplement my business as well and so we've actually seen a bunch of other retailers.
Invest more effort in their own sight monetization efforts or their own retail media efforts and,
Walmart used to Outsource ad sales to a company called Triad and they fired Triad and and built an internal team
they have now launched a bunch of Their Own Self Service apis so that you can programmatically by ads on Walmart.
Target you know double down on.
They're their ad sales team and they now call it R and L Kroger bought a division of dum-dum humby and rebranded and they have this hole.
Precision marketing thing but I'll be honest at the moment.
[31:42] Like obviously none of these these retailers have close to the traffic or eyeballs that Amazon does so they're you know they're certainly not getting the same kind of share and at the moment all the dollars that every other retailer is getting in their ad program.
[31:57] Um are what I call Trade dollars which means sort of your the.
Frito-Lay sales team at Walmart and Walmart agrees to buy you know a billion dollars of free delay and Fritos and part of the trade agreement when Walmart agrees to buy all this Fritos is that Frito-Lay will kick in.
Some advertising dollars and historically those dollars might have been used in a store circular or an in cap or some kind of sampling program in the store and increasingly,
those trade dollars are getting used for digital ads on Walmart.com
but those dollars are all being paid by the sales team you know that sells stuff at Walmart and what's unique about Amazon's ad sales is
they're not just getting trade dollars there's a lot of Chief marketing officers that have a budget to build their brand and they're deciding to take dollars that they used to invest in Google and Facebook
and put those dollars in into Amazon because there's a lot of eyeballs there with a lot of high buying intent and so at the moment,
it feels like.
Like a huge Advantage for Amazon that they're getting these these incremental dollars and other retailers are are trying but really not being successful to sort of follow suit.
[33:17] Yeah it's interesting I get your point on there being no cost of goods I would say I've had more random people that aren't in our industry
complain about the searchability and findability on Amazon lately and I think it's the ads kind of you know so I think there is a quote-unquote cost of goods maybe maybe a better call it a cost of
consume user experience or something.
I do worry that it feels like we may have crossed over a point where the ad load is too high and it's kind of confused the buying experience and then you know there's been a lot of negative press around counterfeits Bad actors
those folks are going to be very aggressive on the ads because they you know they presumably have
better margins than anyone because they're selling a product that is counterfeit thus doesn't have the normal.
Price structure of a real good so it's gonna be interesting to see is there a point where.
Windows Amazon say hmm your customer experience is suffering from the ad load.
[34:17] Yeah no for sure if you're a business that just sells ads so you know that's
almost the exclusive revenue of Google or Facebook you know there's this,
this like familiar pattern they like create some organic benefit that gets a bunch of eyeballs to come and they trick people in a building an audience there by giving them free eyeballs and then they increasingly take away all the organic visibility and make you pay for visibility right so used to be you could have funny interesting content on Facebook and people would see it
now you know nobody's going to see anything on Facebook unless you pay an ad for it and that that's not the world's greatest customer experience but it
it kind of works if you're exclusively an ad platform but in Amazon's case where they're trying to provide all these other customer benefits you're exactly right it absolutely
roads the customer experience as more and more of the pixels on the first page of search results are paid for pixels instead of organic pixels and a lot of people point to that as
the most obvious deviation from Amazon's stated goal of being the most customer-centric company on the planet
is you know when
you asked for Duracell batteries in you use and you get an ad you know that takes up half the screen for for amazonbasics Batteries like you're clearly not being customer-centric.
[35:40] Yeah yeah it's gonna be interesting to see and then another interesting thing is whenever I talk to folks and say well we're a shopping target comes up a lot so I don't know if there's something about the Target demographic that really
doesn't like those those add load but you know in my mind this is like maybe the I don't know if I'd call it an Achilles heel it's like a little tiny microscopic.
Spot on a hill.
[36:01] And Mark Lori did an interview at the code Commerce show asked her which would have been like September
and he specifically called it out he's like look we're gonna
lean heavily in the ad sales and we want to improve our our site monetization Revenue but we aren't going to do is compromise the customer experience the way
some other people did and he didn't he didn't name them but it was pretty obvious he was talking about Amazon.
[36:26] Some large book stores in Seattle.
One of my favorite topics is gross merchandise value or gmv longtime listeners will be aware of this but bear with me so when Amazon reports their revenue
it includes only their revenue their derivative revenue or their take rate
from the third party sales so if Jason sells $100 Star Wars toy on the third-party Marketplace Amazons
Blended take rate is about 15% so Amazon so while Jason you know sold a hundred dollar widget
and presumably Target and Walmart lost out on that hundred dollar widget Amazon's revenue is only $15 from that
so so there's this hidden transactional value in Amazon that makes Amazon actually larger than you would think it is
so let's do put some numbers on this Amazon's revenue for 2019 was 280 billion.
Of that 87 billion was in the fourth quarter
I used to have my own analysis of this and thankfully the Wall Street analysts do this now so I'm going to quote Ron Josie who's an analyst at JMP Securities Amazon now gives you enough data to kind of back into this number where I had to
you some assumptions so the.
[37:45] So when you unpack the gmv fourth quarter total gmv was a hundred and eighty billion so just shy of about 2X and then the annual gmv was 569 billion again compared to revenue of 280 billion
so what happens in there is 28 billion of that 280 is third party that you have to gross it up about.
Eight times to actually get the DMV this is important because I think that's the Apples to Apples comparison for how Amazon's doing in our industry
revenues important and.
And whatnot but to really so when Macy's or Walmart or any other retailer reports Revenue it's a hundred percent DMV.
[38:26] Asterix and let's have a Marketplace and they're going to do the same thing but they don't have marketplaces that are 53 percent of their business so there there is a little bit of space under that Iceberg but Amazon's is massive it's almost twice as large so
so I think that 569 billion number for 2019 is the right number that's the transactional value that went through
Amazon this excludes AWS excludes ads Etc so Amazon's impact is twice what you think it is
and that gmv actually grew faster it grew at 26%.
And that's because I think the physical stores and so that other stuff kind of ways on that growth metric if we if we you and I kind of share a chart I guess I forget which was actually created so we'll split it split the baby where we show
a lot of people feel like Amazon's not as big as Walmart
well if you that look at GM V again Amazon's 2019 gmv 569 billion Walmart
trailing 12 is about five hundred twenty billion so I would argue that Amazon is now ten percent larger than Walmart on an apples-to-apples basis.
[39:31] One more tidbit there and then we'll dig into the Fulfillment center is first party is growing pretty slow
at about ten percent year-over-year again this is dollars not unit so it's really interesting because
the doll at the gmv from 3p is going very slow but the units are holding steady and what I think is happening is you have a lot of these kind of Kindle units in Amazon music units just kind of like these
one and two dollar kinds of things whereas in the 3p you're seeing big screen TVs and really big kind of priced items so so we don't see it in the unit volume but we are seeing it in the gmv mix
third-party grew gmv grew 26 percent year-over-year in the fourth quarter so.
So you know any thoughts on that Jays agree disagree.
[40:15] Yeah no I generally agree and I think
like not only is that that 3p Marketplace a big deal it's like a again intrinsically it,
it's going to be more profitable than a 1p business because
once again you don't have cost of goods right and so there's way less risk against your capital and and they never reported profitability separate from their 3p sales if they did.
It's totally viable that this looks like a Better profitability Business than AWS would and these days they even have a huge accelerator like not only is the
the 3p huge and growing.
A bunch of the services that Amazon is wildly profitable delivering their primarily delivering to 3p sellers so you know
the FBA premium Analytics
like all of the advertising like they're all tools to help 3p sellers be more successful and they make money on all those services so it's a.
Um you know even if you took AWS completely out of Amazon they're you know they're still is this.
Secret highly profitable business model within the Retail Group segment and it's the biggest part of the retail sales.
[41:44] Wrinkle about any thoughts on fulfillment.
[41:48] Yeah so in my mind like.
The two overwhelming moats that Amazon has these two huge competitive advantages that are extremely difficult for any retailer to overcome is.
The Prime membership and that whole flywheel and the other is this insurmountable investment they've made in fulfillment centers and you talked about this a lot in the
in the prime one-day section
but you know they announced that they're going to build something like why.
47 new fulfillment centers in.
Again it's hard to talk about logistics buildings anymore because they have so many different types right like they have these huge cavernous fulfillment centers which are the most expensive thing and as you mentioned
increasingly they have all these these various hubs and sortation centers and delivery stations and things they add on top of that but.
Super oversimplify if we just talked about fulfillment centers Amazon has a hundred and sixty six of those in North America that are operating right now.
[42:58] The next biggest Ecommerce provider if you count super generously you might say Walmart has 20.
So like they're they're an order of magnitude fewer fewer centers and then you know Amazon plans to build 47 more which is.
You know more than double what anyone else even has and so you know to me it's they've been taking all the cash.
That they generate from this business and they've been making these Investments and as you point out these are investments that are going to pay dividends.
For ten plus years and they make it totally viable for Amazon to increase the quality of their services right
so that you know the most obvious example is they could promise customers much faster deliveries and you know they had.
To make some investments in that they kind of missed their guidance last quarter primarily because of the these unforeseen costs and so I like to talk about you know one day delivery was hard for Amazon and and they gave themselves a cold by doing it but they gave
the all of their competitors the coronavirus because.
Nobody else was in a position to do to do ever anything like one day and you know it's much more expensive and much more difficult and so you know we've seen retards like.
[44:20] Walmart or Target kind of promised one day to match it but there are really only matching it on a tiny percentage of the skews that that Amazon offers so this is a super important super powerful.
[44:37] They do spend an awful lot of money delivering stuff to people so you know a line item they do have in in their earnings report is that that.
Fulfillment costs and it was up 43%.
Year over year so they this quarter they spent twelve point nine billion dollars on delivery it was up huge last quarter to it was up 46% so this is the fastest growing cost they have.
But you know increasingly that that investment is.
In making things more optimal by delivering themselves rather than relying on you ups and u.s. post office.
So you know there was that Morgan Stanley report that came out late last year and it had two pretty impressive factoids in it number one it said.
That Amazon may already be delivering more than fifty percent of its own volume
um so instead of relying on USPS and and UPS more than half the packages they ship you know are now being delivered by their own Amazon Logistics which is.
Part of the only way they could they could do that one day delivery and the Morgan Stanley report says you know you game this out and you forecast by 2022 Amazon will be delivering more Parcels than UPS or FedEx.
[45:56] So this is a you know just another huge huge moat that Amazon has against every other.
Competitor and you know it's it's having a material impact now on the traditional carriers like FedEx and UPS.
[46:15] Yet the Fed Ex gave FedEx CEO Fred Smith he's kind of legendary entrepreneur he's been at this for like 50 years something like that since he was in his 20s
they had an interview with him and I saw a lot of people kind of online.
Mocking his approach and I think they were misreading it so what he said was effectively my read on it was the they had to pick sides right so they realized the Amazon was going to be a competitor.
They chose to not not kind of continue to do business with competitor but now they're more aligned with omnichannel retailers and he feels like.
[46:52] That's going to be a winning strategy and that they will be able to get back on track and become larger than ups and,
better than their he didn't say it outright is that because UPS has chosen other path of continuing to partner with Amazon at some point Amazon will yank that volume,
in these networks live on volume right because if you can build all this infrastructure you got to keep it busy and utilize and then.
That will allow them to catapult forward there is some evidence to support this I saw a lot of people say oh you know FedEx is going to save them all that's ridiculous well I think it's pretty clear.
[47:24] What do you think of which omni-channel guys need FedEx either in a partnership or even,
in an MMA to your point about Walmart having 24 filament centers FedEx could help them keep up with and maybe even pass Amazon's capabilities I don't I don't have that broken down like
like you know
we talked about there with Amazon's fulfillment centers but you know they have a substantial infrastructure across from fulfillment centers for Tatian centers both in ground and air and then obviously trucks and planes so
I think that's kind of what he was talking about is really more partnering with a Target and Walmart maybe both of those guys and providing an alternative to Amazon.
If I'm FedEx UPS I kind of personally think that's the right strategy because you know you partner with Amazon clearly is going to be
race to death I think maybe they'll give you some volume the least profitable stuff but I just don't see it as a winning
winning strategy what are your thoughts and I know you you kind of Drew straws and I got FedEx and you got UPS I'd love to hear what you're thinking what you.
[48:28] So they just just to pile on the FedEx thing like there are some ridiculous things that Fred Smith has said in the past about this base like you know two or three years ago I think he called the notion that Amazon could be a meaningful.
Logistics company Fantastical and I you know I think he's pretty clearly wrong there but I agree with you you know.
This year their plan to sort of you know move completely away from Amazon like is not a bad move because both.
FedEx and UPS have constrained capacity like they sell all the trips that they can make.
And there are more e-commerce is growing faster than their capacity is growing so when you have a constraint supply of something you want to get the most money you possibly can for that.
And the way you get the most money is not go to the biggest customer that has the most elaborate and negotiates the lowest rates right so FedEx can you know better maximize its capacity by partnering with these people.
That need it more than Amazon needs it so that like that seems like entirely.
Smart strategy on FedEx's part I would I would say and then there was this little I don't know how much of it was real versus Tit for Tat but you know there's this small service that's.
People talk about but it's not very large yet and I you're going to remind me what the vernacular is but vendor fulfilled Prime.
[49:55] Yes seller fulfilled Prime and then in their the seller can choose which.
[49:59] Yeah so in that scenario you don't put your goods in.
[50:04] In Amazon's fulfillment Network you keep your goods in your own warehouse and you promised Amazon that you're going to deliver them within the terms of prime shipping and Amazon has to certify you for this
and around holiday this year they said hey if you want to stay certified for so fulfilled Prime you can't ship your packages via FedEx.
[50:26] FedEx on time delivery rate is too low
for to meet our high standards and so they turned off at X in the peak of holiday and then they they turned it back on and they alleged that that's a data-driven decision but it certainly got a lot of Buzz
so slightly contrasting this like UPS has continued to be a big partner
of Amazon's and you know they are the third largest provider to Amazon so of Amazon's the biggest second biggest is the post office third-biggest is UPS
and the you know the thing you have to remember about UPS and FedEx is they both built their businesses
primarily to deliver stuff to offices right so you drive a truck to an office and you get to drop off 30 boxes when you drive a truck to a house and only get to drop off one box it's way less efficient so FedEx and UPS although they're trying to improve
were built for commercial deliveries not residential deliveries and that's where the US Post Office really comes in as they're good at these residential deliveries.
[51:35] And for your point as Amazon builds out more of their own capability that more and more of their likely you know taking the the efficient deliveries themselves that they can make the most money on and giving the the bad deliveries too.
To the their partners and you know their Partners like price their services based on and having them profitable mix and so like that's another way that.
[51:59] That this whole business probably hurts hurts the UPS is of the world but we are seeing UPS.
Add some interesting e-commerce friendly services so I've noticed three big announcements this this month UPS is going to a seven-day-a-week delivery and they're adding a ton of weekend delivery capacity which again when you were.
Primarily delivering you know contracts to businesses.
Businesses weren't open on the weekend so weekends weren't important but now that you're doing e-commerce the weekends are potentially the most important delivery days.
They are UPS is also making a big investment in rural delivery infrastructure which you know we just mentioned is something Amazon's are likely to need.
More help with for longer and then they also this week announced this new technology that they're rolling out that they called Dynamic routes.
And essentially what that means is they're using AI every morning to decide.
Where that that truck driver goes right so that driver you know in one shift is likely going to stop at a hundred locations to do deliveries.
And in the old world like they you know do ever do the hunt same hundred locations in the same order every day and now that's going to be.
Sort of optimized using artificial intelligence to save gas and optimize the amount of deliveries they can.
[53:24] So we are seeing them try to do more e-commerce Centric stuff.
[53:30] You know I would point out and argue if you're Walmart and you get make a huge partnership with FedEx and Amazon is primarily now relying on their own delivery infrastructure.
[53:43] That is still a huge advantage to Amazon because.
By the fact that they own it it's much easier for them to change and improve their own service so if.
Amazon decides customers really like being able to track the driver and know that the drivers half an hour away from your house
they can do that if Amazon finds out the customers really want a picture of the box when it's delivered so they can see where in their building it is
that they can do that they can add all kinds of customer-friendly services if Amazon wants that driver to pick up returns they can do that but if you're
Walmart in you're paying FedEx to provide all these Services you have a lot less control over sort of Designing and improving your own product so.
Again yet another big big Edge to our friends in Seattle.
[54:34] Two last things on fulfillment here in and we're spending time on this because we think you'll see when we do this kind of
put the bow on things why we think this is so important but number one FedEx has a market cap of thirty four point seven billion Walmart is 30
324 so it's.
It would be a big one but it's not outside the realm of possibility it's not like they're equals UPS is 88 billion so that one's kind of out of the realm for someone like a Walmart or Target to acquire.
[55:04] And I think that's kind of where this is going to have to go maybe you know there's there's a corporate strategy there's a whole thing why buy a cow if you just have the milk so maybe there's no need for them to buy these things but.
And maybe some Walmart I'm okay as long as you're not doing Amazon I'm okay sharing that infrastructure with Target effectively so that's gonna be interesting to watch the other thing I wanted to bring up
is the challenge that the carriers have this is the same for UPS FedEx and USPS is residential deliveries they've tried for kind of each individually 20-plus years with the smartest route optimization and sortation.
To get the stops per truck up and there have been range bound to between 70 and 80 stops a day
so so that's kind of the capacity of the system is really driven by how many stops in a residential delivery can a truck make here's how Amazon solves that,
we mentioned at the top a hundred and fifty Prime subscribers now a hundred million of those are you in the United States there's something like 200 million households so the way to get the stops for truck up
is if you're stopping at every other house right because you know I don't know the data but I imagine you know you could probably.
[56:18] 4X that stops so I bet these Prime trucks are making you know certainly double that if not triple that so they could be making 200 stops
in fact I bet that it has changed the dynamic and it's really just how much each truck can hold.
Because I think the stops have gone so high because they've got the Loyalty program where they're delivering stuff to every house every other house essentially not every day but it's enough that it really dramatically solves this this routings.
Stops per truck problem.
[56:49] Yeah all true I will say well you know we talked about there being like a slight negative that other people could attack the one incremental headache that Amazon inherits by having their own Logistics
delivery capability is you know they're now getting a lot of negative press for like you know having all these.
You know there's this high pressure on all these drivers to maximize their deliveries and get everywhere as quick as they can and so there's a bunch of,
Amazon employees and independent contractors working on Amazon's behalf,
driving unsafely on the roads and you know potentially hitting people and causing accidents and even deaths and I think it was disclosed.
Not too recently that like this happened a while ago but the the first CFO of Amazon apparently was.
Actually killed walking across the street and he was hit,
via Amazon delivery driver so the company literally killed their first CFO.
[57:55] I think that was a woman.
[57:57] It was a woman you're right.
[57:59] Jennifer something yeah.
[58:00] Yeah it's super sad story but so they're going to have to deal with that like I you know I don't know people remember but in the 90s all the pizza delivery companies used a promise 30-minute deliveries and you know that created the
the same problem and they sort of figured out how to manage it so I kind of suspect Amazon will as well.
[58:18] Cool so we've gone through the setup we went through the results and then our analysis now we're going to conclude by kind of giving you an action item so so we're trying to say all right we're going to put ourselves in our listeners shoes
a lot of this may seem a little scary if you're a retailer even if you're a brand what do you think about this so
so here's my take my conclusion is prime one day is a complete Game Changer and it
took his kind of a year to figure this out but it's really showing up now number one customers love it.
Number two it's a knockout punch to competitors you talked about it increasing the addressable Market which is great but people are you know competitors already can't do two day Prime now they're up against one day Prime
what's next same day Prime you know I think this infrastructure can largely be used for all that stuff to the number 3 it is effectively.
Kind of already paying for all this shipping and structure so so again I think it's paying for itself right now and it's gonna be around for four five to ten years plus
[59:20] Also Amazon it's offered on a small number of skus so I think there's going to be two to three years where they're going to be able to expand the number of skus that are there available in prime one day and then that will
get them 20% plus growth for two or three years long enough to find the next Catalyst for an acceleration maybe that same day Prime maybe they figure out growth
tree Alexa ads they have so many so many irons in the fire they have a really good chance of finding that next big thing so the action item is I think retailers need to really.
Kind of take action on this for this holiday holiday of 2020 we have a lot of time thinking this and really start figuring out.
Can you partner with UPS or FedEx to offer one day and what's that going to be like and.
How do you build that out because it's clear consumers love it and it's clear Amazon has invested massively in this and will continue to do so based on the results
Jason what was your conclusion and action items.
[1:00:17] Yeah so I mean I think at the highest level they've they've established these two dominant modes Prime and
they're their fulfillment capability and I think this point no retailer strategy should try to be to catch up with him and go head-to-head with him on either of those two things I think just the idea of trying to be in everything store and ship
hundreds of millions of products and the in the same day to any us consumer in competition with Amazon is a lost cause at this point and so you know if you're a retailer you need to think about the white space
that that Amazon's decisions has created for you right and so you know that you've got to think about.
[1:01:02] Products and services that benefit from the fact that you have this brick-and-mortar footprint right and I see
Target in particular doing a really good job of leveraging the store I know I talk about grocery a lot but groceries a perfect example
you know groceries never you know bananas are never going to live in all these giant fulfillment centers and get delivered through the sort ations a center and all that to the consumer there
probably always going to get delivered from a store or micro fulfillment center so you know if I'm
Walmart in particular but any big retailer you know groceries one of the categories I want to try to win from Walmart I really want to think about
services that customers want that might make the Fulfillment centers obsolete right so
you know what's not very good if you're if you own 200 fulfillment centers that have billions of dollars of inventory in it is if consumers stop buying
off-the-rack products and start ordering products that have to be made to order or personalized to order suddenly all that fulfillment infrastructure isn't so valuable so if I'm any other retailer
I might be winning in a personalized products if a lot of these products shift to Auto fulfillment
the ability to ship really fast and quickly may not be quite so important so if I'm another retailer I'm leaning into that
and you know for sure I'm doing things like.
[1:02:29] Thinking about using my customer base to design my own products and sell stuff that Amazon can't sell because you know competing with Amazon by selling other people's stuff I think is just going to be.
Increasingly unviable for almost anyone and that's my shtick.
[1:02:51] I totally agree.
[1:02:52] Awesome well it has happened again we've gotten slightly over our allotted time but I feel like this is a.
Particularly important event in our year and it's well worth the time that listeners spent sort of get their arms around
all the various things that are going on in Amazon and as usual if you have any questions or comments.
Hit us up on Twitter or visit our Facebook page and you know it's time to get some fresh five star reviews so I know I say this every time.
But seriously it'll take you ten seconds jump over to iTunes and give us that that five-star review because we need we need some 20/20 reviews not those those older views from those of you that have been with us for a long time so appreciate you doing that.
[1:03:42] Except when we hope you enjoyed this new kind of format for an Amazon quarterly result where we do have a little bit deeper and if you have any feedback positive or negative we'd love to hear.
[1:03:53] And until next time happy commercing.
EP205 - CES and NRF 2020 Recap
CES 2020 was in Las Vegas Jan 7th - Jan 10th.
NRF Big Show 2020 was in New York Jan 11-14th.
Scott Galloway (ProfG) hosting a 2020 Tech Prediction lecture the evening of Jan 14th.
PSFK Future of Retail 2020 event on January 15th.
We recap them all with a lens on what's relevant to retailers and digital shopper marketers.
Episode 205 of the Jason & Scot show was recorded on Wednesday, January 23nd, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scot show this is Episode 205 being recorded on Wednesday January 22nd 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:39] Hey Jason and welcome back Jason Scott show listeners well those of you that are regular listeners have probably realized we has been a little while since we put out a show
and the reason why is my colleague Jason here has been traveling like a crazy man.
[0:55] This is true I have my annual fun start to the year with the whole CES in RF Marathon which I just got back from.
[1:06] I thought this year you weren't doing CS what what what happened we had a client call and Russia.
[1:11] Did end up yes having to go for a shorter than usual stay at CES but I did end up having to make an appearance.
[1:18] What happens when you're the chief digital retail e-commerce strategist goes goes that way.
[1:25] Yes when you yes it's true when you have that many words in your title like unplanned trips are part of the bargain.
[1:33] Coco we thought would use most the show to kind of catch up on that and then try to work some news in there too let's start at CES in the first of all big question did you get any new gadgets.
[1:45] You know a disappointing year for me personally and part of that may be because it was a shorter trip the,
the stuff like the stuff I tend to discover that like I personally want is maybe deeper in the CES catalog and I maybe didn't get to all of those booths this year I kind of had to hit the main.
Main Milestone booths so yeah nothing super excited I got I maybe have a little.
Personal problem hoarding Chargers and cables and so there are some nice new,
um third-party chargers for the Macbook so I did get a new anchor and the new hyper juice hundred watt charging systems.
Yeah no no super important purpose but yes I have some new Chargers that I have to hide from my wife I don't think she even cares about the spending I think she just cares about all the space that the unused.
Chargers take up in our life.
[2:50] Yeah there's a drawer there where they all could live.
[2:52] Yeah in my workshop it's more of a a system of drawers for.
[3:01] They buy hcf like the 1985.
[3:05] I mean people people laugh at me but then we need to find a 30 pin Mac charger for iPhone 3 I have one.
[3:14] Boom I got it yeah.
[3:18] Yeah so yeah got some new Chargers and I did this is kind of CES adjacent but I did get all new
networking hardware for my home office so I think you and I both did internet connection upgrades.
For the holidays and I added a fancy new firewall router access point and switch.
[3:44] Furcal are you gigabit.
[3:46] I am so so Comcast just add a gigabit in my neighborhood so we upgraded to gigabit and then I'm using,
this cool new device called the unify dream machine,
which is from I want to say it's a Ubiquiti networks and they do a lot of.
Commercial Wi-Fi equipment for like schools and institutions and things and so this is a a.
A Wi-Fi access point a firewall and and said a managed switches that are all controlled from their commercial software.
Way overkill for a home network but fun for tinkering.
[4:35] Yeah I think I've seen one of those is it a it looks like a little cylinder.
[4:39] It exactly so historically like they met they mostly make rack-mounted equipment and this is the first time they've,
they've made an all-in-one that that is supported by their sort of,
business level software and it looks like a cylinder and in fact it reminds people a lot of,
discontinued Apple Wi-Fi access point and so there's some people from that we're big fans of that,
that I forget what that was called like they are.
[5:11] I had one I can't remember it's called him.
[5:16] So yeah so people people think it's the spiritual successor to the Apple.
[5:23] Cool what else any interesting Commerce news is he yes.
[5:27] Yeah I actually thought it was a reasonably important year for Commerce,
like the Super Readers Digest version on this show it's the consumer electronic show I personally have been attending for 32 years it's the largest trade show in the u.s. like 200,000 people,
many years ago it was a buying show where people from retailers would go to figure out what they're going to carry for the year now it's mainly a PR show where they try to generate Buzz for new products to,
sell more new technologies but it's where a lot of consumer Technologies where watch for the first time so like the DVD player and the if you go back far enough the VHS.
[6:10] Tape system in the whole VHS beta War played out at CES,
and stuff like that in the Apple the Apple iPhone was famously launched during CES but not at CES as a Steve Jobs sort of did some clever counter-programming,
so people go,
both to like sort of do trend-spotting and see if there's any major new consumer electronics platforms that are coming down the path and from that standpoint I would like there's one big one that had the buzz I'll save for the end,
but there was a lot of smaller more tactical stuff that I think is going to have a meaningful impact on,
retail in particular digital merchandising it retailgeek.
So most of the listeners of this show are probably familiar with e-ink if you ever had a currently have a Kindle book reader it uses e-ink,
and it's a it's an important digital display technology because it's Dynamic you can change the image that's on it,
it's reflective so it works in super bright sunlight and it basically takes no power to display an image so you need electricity to change the image but once the image has changed.
It literally is moving ink around on the display and then you could turn off the power in the ink stays where.
[7:26] Where it was and so it's great for for not using a lot of power in an electronic book reader it,
great for having high visibility even in bright sunlight but a very common retail use case is it's the main display technology that used for all the digital fact tags that I talk about all the time.
[7:45] And one of the big drawbacks of e ink has historically been that it's only black and white or only black red and white or only black yellow and white so very limited,
color palette and so you couldn't do really pretty,
just blaze you couldn't use it for really pretty signs and this was the first year that they were showing full color E Ink that look very vibrant and High Fidelity and so.
You know we'll see you that.
You know maybe we'll have some color book readers in the near future and I suspect we'll see it trickled down to a new generation of electronic.
Price labels and fact tags for retail stores.
So that was an interesting technology and a way cooler display technology was released by Delta Airlines of all people.
And and so this is a new technology to sort of replace a.
Video monitor in a public area and it's called parallel reality and so Delta Airlines found this technology and invested in the company and they've announced that the first commercial deployment will be.
In the Delta lounges at the Detroit airport later this year.
And what this technology does is it lets a hundred people stand in front of a TV screen and have each of them get a different Custom Image that they see.
so very precisely depending on where you stand you see a completely different image so the use case for Delta in this Lounge is all the customers stare at the flight status display and they all,
see a display that only has their flight information or prominently highlights their flight information.
[9:32] Okay how does it know who's looking and we're there.
[9:36] So first of all as soon as you describe this to someone they're like this sounds like it's going to be some kludgy gimmick and I was super skeptical so two halves of this problem the first half is,
can you really display an image that that is high fidelity and looks like discrete for each person,
and I went in with very low expectations and I was kind of Blown Away like it it totally works,
the the demo they had their like there's like the pixels weren't tiny so you could kind of see the pixels and,
the display is made up of a bunch of.
Of multiple smaller displays so you could kind of see the frame the internal frames so I'd say it wasn't,
but they were super open to saying yeah we know those are the visual flaws like we already have more advanced prototypes that solve those problems and what we deploy in Detroit later this year is going to.
Not have any of those those visual artifacts but basically what it's using is,
beamforming where they're essentially like each pixel is a projector and they can fire different color lights at different angles so by knowing exactly where your eyeballs are relative to the screen,
they can send you an image that's different from everyone else so that's the display technology as it's kind of like a projector inside of a television or.
[10:57] Thousands of projectors inside of a television and it works remarkably well and then you're very,
pertinent question how do they know who and where those eyeballs are to decide what to show each person and the answer to that is,
a combination of Wi-Fi RFID and your mobile phone so this is not,
this won't work for an anonymous use case in the Delta model the reason they're doing it in the lounge is everyone has to check into the lounge and show that they're a member so when you walk into the front desk,
you scan your mobile app they're using cameras similar to an Amazon go set up to track where you are in the lounge,
and they know who you are because you were holding a mobile phone with your unique ID on it to check in and then they're able to deliver your your unique flight information to you so it.
It's a kind of a combination of Amazon go for the identifying the person and their location and this new parallel reality display technology for,
for beaming the different messages and so it.
[12:07] It works better than I expected it seems pretty darn close to real we'll see if they're really able to get this in a while,
lateral out in an airport this year but like if it all works it's pretty easy to imagine a number of use cases for public displays and checkout systems and things like that and retailgeek,
what it would be really handy to be able to show different images to different customers on the same monitor.
[12:30] Very cool was this the big one we're waiting for or know there's more to come.
[12:36] No no more to come so the another interesting technology that like was kind of spooky as Samsung was showing this.
These avatars did they call neon life into these artificial humans,
and so you walk up to all these five or six foot tall monitors and if there's like a person in each Monitor and they can talk to you interact you with you and they look like.
[13:04] Completely real people like in so you would assume this was a video but these are computer generated people that are extremely lifelike,
and so the idea is that you could potentially walk into a retail store and you know there might be a artificial intelligence help agent.
That looks like a real sales associate that you're basically looking at through a glass window that can talk to you in,
and be more human that was the kind of use case that Samsung was pitching the the more interesting use case to me is like an you,
render different shapes and sizes of people and put apparel on them so you know could you could this be kind of like,
a digital mannequin scenario for retail stores and.
It was scary life like in the one thing I would say is they would call this an advanced science project so these avatars apparently took a super long time to build and they say that this technology is still three or four years away from being completely.
[14:09] They have natural language parsing like kids or talk to them and.
[14:12] They did but that wasn't part of the the magic so they were using that were using other Samsung artificial intelligence like in fact Bigsby is their artificial intelligent agent too
like decide what the Avatar was saying and to interpret what you were saying and so they weren't claiming any like.
You know new new Evolution there what was new about this neon life,
technology was how lifelike they could make the visual representation of a person and essentially you know it's,
it's like the next step to like not paying actors to be in the movie and instead having these these digital avatars that.
That will be acting in all the movies and stuff.
But I you know if it gets commercialized I can imagine a retail use case for that the next product that really caught my eye in this got a lot of Buzz at the show and I think this was a,
a darn impressive product came from L'Oreal and it's called perso,
Scot you may have followed this because I know you try to stay close to the beauty and cosmetics base.
[15:24] I do.
[15:25] But so the idea here is,