The Jason & Scot Show - E-Commerce And Retail News

Join hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder & Executive Chairman at Channel Advisor, as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
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Feb 17, 2018

EP117 - Listener Questions

Amazon launches"Ship with Amazon"

Listener Questions

Q1: Amit Agarwal- Thanks for the amazing podcast. What is the future trend in pricing ? EDLP or coupon based pricing?

<Jason> Most new retailers will adopts EDLP, promotions aren't as effective in the age of transparency, but it's very hard for existing promotional retailer to switch.  Eventually we'll get to more dynamic, personalzied pricing.  Every Nanosecond Low Pricing #ENLP!

Q2: Kiri MastersWhat are the coolest or smartest things that brands and retailers are doing with voice commerce? And, what is within reach for smaller brands who don't have a $200k+ budget to drop on developing skills, etc. Where are we on the maturity curve?

<Jason> Transactions are limited to recurring and replenishment purchases, so Pizza places and Starbucks have the early lead.  Brands like Patron and Tide have made good use of voice skills for top of funnel marketing.  Small brands should think about voice for on-site search, and voice SEO on search engines.  It's VERY early in the maturity curve.

Q3: Patrick ParolineHi guys I love the podcast listen to it every week. When the numbers say that e-commerce revenue is up 17% does that include Amazon? If so what would be the e-commerce industry revenue increase if you took out Amazon? I believe you guys said that growing and 60% and Amazon at 30%. Would this mean if you removed these two companies then e-commerce as a whole is contracting

<Scot> Good question!  If you take the top 3 retailers out, e-commerce growth is very modest:

  2017 GMV 2018 GMV 2018 Share YoY Growth
Amazon $177 $230 49% 30%
eBay $35 $37 8% 5%
Walmart $15 $24 5% 60%
Other $173 $177 38% 2%
Total $400 $468   17%

Most e-commerce data is based on or correlated to the US Commerce Dept data, which is somewhat suspect.  Jason and I both believe the total market is probably a bigger, which means "Other" is probably bigger, and growing faster than 2% but still much slower than Amazon/Walmart.

Q4: Ari Nahmani - Mobile payments in 2018 - can we hear more about Android Pay / Google Payments API, Apple Pay, W3C Payment Request API, etc? Do we have any data that shows that when implemented properly, these things truly reduce the 'mobile gap'?

<Jason> Apple Pay and GooglePay have loyal but small user bases.  Paypal and Pay With Amazon have proven that digital wallets do improve conversion.  W3C Payment Request is great, easy to implement and likely to improve conversion, most sites should have it on their roadmap to implement.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 117 of the Jason & Scot show was recorded on Thursday February 15, 2018.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show at this is episode 117 being recorded on Thursday February 15th 2018 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo.

[0:40] PJ's women walking back Justin Scott show listeners,
will Jason's covellite Newsweek to our couple things want to cover before we jump into listener news we warmed up the old Facebook page which,
is my responsibility and I have to have a met a couple that I have not been very active posting to our listeners there so one of my New Year's resolutions I know it's so late for those here.
Late February is to try to be more active on there and then gauge hook so we are going to be able to handle on some pretty great listener questions so we got today.
I before you jump into that you have a new gadget on here about.

[1:19] I did I'm a very romantic guy so for Valentine's Day I got my wife a apple home pod.

[1:25] Wow nice that will last longer than a dozen roses.

[1:30] Yeah it will although I don't think it was a big hit I think she appreciated the gesture and my super artistic wrapping you can you can't even imagine how impressive that was.
But the homepod itself I wasn't personally very excited about like I had read a bunch of mediocre reviews as we talked a lot about on the show I have a house full of Alexa devices.
Extra Alexa devices at the moment.

[2:01] Into the really wasn't anything I was looking forward to in a homepod but my wife is heavily steeped in the Apple Echo System she had mentioned it a few times.
And she is very heavy Apple music user so I figured okay well you know what I mean it's present for her she's been talking about so we'll we'll go ahead and get one and I'll surprise her.
And I'm sorry to report that all of the mediocre reviews we sort of experience first-hand right I guess.

[2:33] Like I don't think Siri is as useful as as Alexa in general and the version of Siri on the the.
Homepod is kind of a dumb down version of Siri so it was kind of annoying it seems to understand us a less than.

[2:49] Then the Alexa does I will say the audio Fidelity is great like the audio it's definitely a higher-quality speaker than any of my Alexa devices which are all Amazon first-party ones I don't have any of the.

[3:00] The third party speakers sounds great but the voice interface sucks and it's it's just not compelling to have this.

[3:09] Extra Gadget in your house just to play One music service.

[3:16] And so I think even my wife whose Apple fangirl and kind of disposed to like their stuff I don't think she likes it enough to keep.

[3:25] Man do you have the so I've read a lot of people that compare it to the Sonos Sofia what their name is for the one with Alexa.

[3:32] I think it's the soonest one that has Alexa in it and I played with it.
I haven't had it in my house and I think those are mixed bag so I could this has really good audio quality in general I actually have a bunch of Sonos speakers.

[3:49] And people are saying that it's comprable audio Fidelity to the homepod if anything it's maybe,
a hair lower-quality there's some pretty sophisticated auto-tuning in the Apple speaker that I'm not sure the Sonos matches but that sentence is a hundred bucks of alas,
you know it's it's debatable whether it has worse audio Fidelity and it supports Alexa and there soon going to add Google Assistant to it as well so way better value way more utility the only reason I even bought one.

[4:23] Is it actually Amazon slightly neuters all the third party speakers so,
the only music service that the third party speakers. Port is Amazon music which is mostly what we use in my family on the Alexa devices but if you're a Spotify or Pandora user and you know there's a very good.
Spotify experience on the on the indigenous Alexis I think I think that might be what you use if I remember right.

[4:52] Spotify got yep good sapientrazorfish clients so we certainly like Spotify.

[4:59] But they're the the.

[5:04] Amazon doesn't currently make that available on the 3rd party speakers that have Alexa in it which isn't like clearly an intentional way to disadvantage the speakers.

[5:14] Directions to Sonos I have also a Sonos system and it's pretty agnostic you know so I can like being Spotify to it XM radio I think it'll do Apple music.

[5:26] I think it will and.

[5:29] Just weird that that one is going to be like almost a step back for them.

[5:33] Well so whistler's check me on this but I think the actual case the Sonos one speaker is a Sonos speaker and so it actually runs the Sonos firmware and you can use the Sonos app so so you can run Spotify.
Using the Sonos app on your Sonos one speaker what you can't do is use Alexa voice commands to play,
Sonos to play Spotify music on that Sonos one.

[5:58] Look up a lot about the speaker Market here and then I've seen reports that the homepod is leaving white rings on Aaron's furniture did did it also damage your furniture.

[6:11] So it is not where we have it on Formica desk so it may be a little safer but so it's not on like a nice piece of wood furniture but I have seen the same report it is,
the speakers both slightly smaller than I expected it to be I mean it's it's it's about the same height as my Alexa's and it's a little fatter and I expected it to be.

[6:33] Maybe taller but it's it's super heavy for its eyes like it's very it's very dancing it's because it has this big subwoofer in the bottom then I guess it's just now putting so much low.
Low energy that it's moving around a little bit and it has like this white rubberized.
Donut on the bottom of it and apparently when that thing moves around it it's leaving a mark.

[6:59] So you're just about the same size as the old the original XO kind of the cylinder or more like the little one that has like a felt kind of filter.

[7:07] Yeah I know so it's the same height,
patches I'm staring at them side-by-side it's it's like a touch shorter than an original of Alexa cylinder it's much it's much better than Alexa in fact it's it's.

[7:25] Diameter is probably like at least twice twice the diameter of the Alexa.

[7:31] Well.

[7:32] And it does have a weird it it it's also covered in fabric but what's it weird it freaked me out the first time I picked it up it almost feels like you can Dent it it almost feels like it squishes in a little bit.

[7:44] And then it seems like it it restores it's ya.

[7:48] Yeah that makes you were either going to punch her thumb through the thing you don't want to do that.
Cool thanks for that Gadget experience report it wouldn't be a Jason Scott show without some.
Amazon news new your margin.

[8:15] Okay this one dropped it was bad timing for us from a podcast perspective cuz we recorded our show last Thursday,
Idol episode 116 and then sure enough Friday morning so big amazon news dropped and this is Amazon you know.
It's not clear if it was,
leader what happened but yeah they've been working with some third-party sellers for this full-on delivery service that's called ship with Amazon so it's going to Pilot in La it looks like and articles I read said.
It's going to roll out in 240 cities pretty quickly and the reason that makes sense is prime now is in 40 cities and Prime now built this super like.
299 car delivery Network called Flex So reading those tea leaves you know what I'm thinking is happening here is.

[9:05] Amazon started Flex to work with their 40 Prime now the foeman centers which are a different footprint than their normal.
Fulfillment centers then they started doing some deliveries out of traditional fulfillment centers with their own network of flex drivers and also.
Actually Amazon employees and whatnot and then now it looks like they will offer to third-party sellers the ability to ship with Amazon where if you were a third party and La let's say you were.
I'll pick on my friend Jackson who's I-84 city has a big Warehouse in LA and someone in La bought one of those products they could get that product in 2 hours and an Amazon driver would come to his Warehouse.
Pick this up and take it to the customer and so that would Leverage The flexnetwork so.

[9:52] That's pretty nursing and you know I we've been talking a lot on the show it was my 2017 prediction that I react for this year that Amazon will get more into dolak Direct Delivery and here you see yeah it's it's not.

[10:06] That hard to jump from that part of the Venn diagram to hey you.
Retail RX Nordstrom's here's your fulfillment centers we can help you deliver as well and then you can even adjust that product into the.
Burgeoning Amazon Fulfillment system network with airplanes and everything and effectively have a full-on FedEx UPS competitor.

[10:31] Yeah and I think that's something that that you in particular but we've we've discussed on the show a number of times that that that seems like a likely play for Amazon to make.

[10:44] Yeah it is there since internet retailer and I'll put in there this cuz I know you how I feel about surveys but they did a survey of I think it was 200 retailers and when I looked at, the size of sellers you know,
you know and it but then like a good a third of them were more larger retailers and I are 500 types awesome like 70% said they would,
it was either strongly try or are we.

[11:10] Only 30% said they wouldn't use an Amazon shipping service in the 70% said half of that 70% said it would have to be a bit cheaper than current offerings and I think it's very very interesting.

[11:22] This holiday,
probably not because usually impacted but next year's come you're very interesting because I know you said when you draw the lines of the amount of shipping needed out there and what's available Amazon will it consumed most of it and you know seems like Amazon's read those tea leaves and is finding a release valve with this new ship with Amazon program.

[11:44] Exactly and you know a couple of things kind of come to mind,
the day before and a podcast we we had talked about some of their seller fulfilled FBA programs and including a new program where they were putting their own software and customers warehouses in,
clearly like those two pieces of news are at least partially related you can imagine if a bunch of.
Shippers are running Amazon software to manage their shipment and you know that that,
Doppler could take that shipping method and and you don't have sort of a biased towards Amazon shipping service.

[12:27] Yeah yeah it's good if it's going to be interesting to see how this plays out and then you know a lot of people will say,
well you know this route is unprofitable that routes and profitable I was kind of stuff but you don't have me watch Amazon kind of decompose other markets pretty quickly they were the prophet is so don't go and you know it there.
Their profit is your profit is their opportunity right so they're going to go and they're going to find the routes that are most profitable for third-party shippers and they're going to pull those in the house cuz it'll by Logic if it's.
Probable for for the shipper it will be.
Amazon will have the best savings by cutting that Loop out so so so we really interesting to see what happens when they start doing this you know you can only look at it from a low Amazon just overdid 1.1% of volume because that .1% of volume could be like,
8% of margin of the deal that people have one with Amazon supposed to be really interesting to watch the positioning here.

[13:26] Exactly I think like they think they don't have to completely match,
UPS and FedEx is Network to disrupt them right if they just take some of those most profitable deliveries and bring those in-house you know that that can create enough of an inflection point that causes some new unique paying for UPS and FedEx and I think,
I don't think Amazon wakes up in the morning and goes how can we ruin UPS is life and I think they're more thinking about how they can make their own lives better you know this,
saw some of their their Peak demand problems that solves like controlling one of their fastest growing expensive lines which is shipping and in the long run you could imagine then building all kinds of.
Reverse Logistics services that UPS and FedEx just might not be that interested in but that are.
Really important customer experiences for e-commerce right like so easier returns.
You know you you hypothesized that hey there's a bunch of warehouses that are all all the Feeling by Amazon and they all have Amazon software in there like Amazon could have literally trade a new Marketplace.
For warehouse capacity and sort of flex store Amazon Goods in other people's warehouses that are running their software you know you in a two-sided Marketplace exactly.
Like they do for for 3rd party selling so so lots of interesting new things that could evolve from here that make the super interesting.

[14:55] A couple of things like that that I had to point out,
I do feel like you have been talking about this for an awfully long time I know calling Sebastian was one of the first analyst to talk about this but I did have to chuckle a little bit like I feel like the entire all of Twitter broke their arms congratulating themselves.
Predicting this.

[15:14] And I'm not sure like that you know it you had to be the cleverest person in the world to predict this 3 months ago that Amazon would eventually try to monetize this like you have given that that's the model they've.
They followed with so many other things so I did I do think it's funny I may be made a joke that like the only person on the planet that didn't fully predict this is the CEO of of ups that kind of had a.
Last year that we don't believe that there is for Amazon strategy is to do it themselves and the reason we believe that is is we have this huge infrastructure we're investing in technology we have a great Mutual relationship with Amazon.
Like you don't obviously that was a bad day at UPS when when Amazon when SWA week.
And coincidentally enough this is the month when our friends at FedEx and UPS do their annual rate increases and so this year if you're a shipper.
You're the base UPS and FedEx rate went up by 4.9% so that's a huge.

[16:17] Operating expense for most e-commerce business is to absorb mini which are struggling to be profitable already.
Now they're their operating costs are 5% more and oh by the way most of the shipping went up even higher because.
FedEx and UPS are really design for business-to-business shipping so they're highly optimized for taking package it Parcels 2.
Businesses their least efficient at deliver at residential deliveries and so a number of years ago they introduced a surcharge.
For residential deliveries to kind of compensate them for the for the the greater expensive this home deliveries and those surcharges went up its kind of,
on a sliding scale so it's there's not an exact number but the surcharges went up like 8%.

[17:05] So very meaningful increases from FedEx and UPS and it's cool you know they're there.
Maxed out on capacity they're not growing as fast as demand is growing and so they're trying to you know maximize the value of the capacity they have by charging more.

[17:21] Yeah yeah and a couple other interesting facts so FedEx says no one customers more than 3% of their volume so that you know a lot of people read that and say that's kind of where Amazon is Amazon definitely sends,
you know the most between faxing UPS to UPS and UPS says Amazon's about 10% of their volume so it's not cataclysmic for any of these guys.

[17:45] To go to go to lose some of the Amazon business what would I think everyone underestimates though is Amazon just kind of you know.

[17:53] Picking these very profitable businesses and offering them even if it doesn't involve Amazon it all eventually and then that's going to be your just like cloud computing you can you can host Netflix host you know on 8th and it's like.

[18:06] Competitor using their Cloud infrastructure which is the old world off on the world doesn't make any sense at all,
but enough for Netflix economically are so attractive they're willing to do that and you don't so what if I don't know,
I don't Walmart would never do it but what if Macy's start Cent shipping ring what Apple started doing deliveries using Amazon Network you know that starts to get.

[18:29] Pretty interesting and mind-bending of what some implications are.

[18:33] The apps absolutely I will look like,
minor props like UPS and FedEx are well-run companies like there's they're smart to be making the most they can on the capacity they have and props to them for not having a huge customer concentration problem is that in most B2B business as you you have a much bigger concentration problem then your largest customer being 3% of your business.

[18:57] Yeah cool so that was the big news let's make sure we will make sure we cover these listener questions so let's jump into him.

[19:10] Questions questionnaire questionnaire questionnaire questions Jason we got for really meaty questions,
and it was good news for me three of them were really in your alley and one is mine so let's ask you the first question so this is from admit Agarwal and he says thanks amazing podcast so clearly am it has impeccable taste,
and and is awesome to begin with and he wants to know what's the future Trend in pricing everyday low pricing or coupon base.
Pricing?? So maybe.
You know I know your ninja live on this but maybe give us a 101 on What is edlp what's it mean online and then where do you think kind of retail pricing goes in and eCommerce pricing.

[20:00] Yeah,
so so edlp is an acronym for everyday low prices in the retail Echo System the retailer that then most.
Support cdlp unit it literally is sort of kind of their their core value proposition is Walmart so in in general they they very aggressively try to get,
prices on all their goods as low as possible and in general the pricing does not fluctuate a lot based on sales and promotions.

[20:30] The idea is the consumer doesn't have to worry that they're getting low price they just kind of know and and all automatically roll it back if if target has toothpaste at a buck you know you can count on Walmart to do a quick roll back and I'll be at like $0.99 so.

[20:45] NN light they don't make as big a deal about it being their cultural diversity different reason Costco is a great example of edlp like they,
Costco literally has hard rules for the merchant about,
the maximum margin they can take on a product so when the price to them goes down they they are literally mandated to pass that price on to the,
the customer and so you know and you don't answer I walk through Costco looking for sales you your condition that everything in prayer and Costco is a.
Consistent like you know good deal based on volume and and all these things and in so.
Those are the kind of retailers that are on the edlp side of the spectrum for a long time JCPenney was the poster child for promotional pricing and they still are very promotional but what made in the poster child is.
When the former retail Guru from Apple Ron Johnson went to JCPenney he tried to change them from their highly promotional pricing strategy.
To essentially edlp and said that that really raise the profile of how promotional.

[21:53] JCPenney had been before but you know I would argue Macy is very is very promotional.
And you know frankly most of retailers is pretty promotional said that the outliers are there.
They're the largest retailers in in North America are the edlp retailers these new hyper aggressive grocery stores like Aldi and Lidl are also a deal.

[22:20] So what's the future.
I think the future is edlp like a if you just do a survey of the most successful retailers.
They're edlp another and this is straining the definition of edlp slightly but another hyper successful retailer that edlp is Apple.

[22:40] Like not not very promotional like the low price isn't particularly low.

[22:46] You know it's very rare that they have deals and when they have deals they're not very deep.
Very very consistent pricing and you've never seen a sale sign has never popped up anywhere in an Apple Store.
So you work at all this successful retailers they're all edlp you look at a lot of the struggling retailers there more promotional.

[23:08] You know I'm not sure that's that's a complete causation vs. correlation the reason I say that you DLP is the future pricing is.
Because of digital disruption right like thanks to all the research we now do online and you know are huge access to information and the fact.

[23:28] That you know there are no more secrets in the world anymore we've shifted from this world of what I call Price office gation where you essentially.
Only saw the prices the retailer wanted you to see and when they did this kind of like fake is was pricing where they show you a low price high price Market out and show you a low price.
You have no way to know that that high price wasn't really the price that was offered yesterday.
Until you would believe the retailer today you read some app or some blog or you get some some.
Email newsletter,
and you you know exactly what retailers are playing what games with pricing until you we now have work this emerging world of perfect transparency.
And in the world a perfect transparency promotions just aren't as effective.
As they they used to be a lot of the the promotions rely on the psychological tricks that don't work as well when the customer is fully armed with all the information and who has a better deal.
And how much more or less you're paying than the best deal in all these sorts of things so I sort of feel in general that transparency is.
Forcing the world to edlp the most successful retailers are edlp and then I have to throw a huge caveat out there as.
Both Macy's in the distant past in JCPenney more recently have proven to us.
It's next to impossible to transition from being a promotional retailer to and edlp retailer.

[24:58] So when customers are accustomed to those promotions they punish you when you try to make that transition and no return that I'm aware of his been willing to stick with.
That transition long enough to make it work,
so they all have tried taking an early hit and kind of reverted to the original pricing model in the same things are the plays out every holiday season when retailers,
rely on promotions to sell more over the holidays and to comp against last year when they were also promotional in so we like most retailers that like.
Have a history of promotions become addicted to those promotions and so far it's proven to be a almost unkinkable addiction so,
don't expect to see a bunch of retards Sayo Goldberg said edlp beats promotional pricing so we're going to switch,
I think you're going to have to wait for those business models to those retailers though to sort of expire or turn out and you'll see the majority of new retailers emerging and it's really all the Disney DeBrands adopting.
Much more edlp pricing strategies and then the one big caveat on all of this is the new replacement for promotions in this edlp world because,
personalized Dynamic pricing right so we're just starting to see this but in lieu of a one-size-fits-all 30% off on these deals.

[26:29] Are all the custom offers you're going to get when you abandon something in your car that's based on,
your unique shopping behavior in your past purchases and all the evil data that the marketers have collected about you and so you know I think Amazon's a perfect example of a highly dynamic edlp,

[26:52] Yeah yeah the it's interesting because someone asked me Walmart,
Cyprus NASA you know how do you think about Amazon in a DLP DLP world and I think of it as like every nanosecond low pricing right so full disclosure one of our futures at Channel advisor is every pricing engine and worship to these things and this is a very popular functionality for sellers cuz once you get to scale,
you literally cannot keep up with the marketplace it's effectively a stock market for products on Amazon every,
every sin is constantly repricing and sometimes it's up sometimes it's down.
So this is why you know the Amazon bookstore doesn't have prices because they may find the,
book that you're looking at 5 minutes ago lowered his price somewhere and they want to lower that price in a physical world you you can't change prices that quickly because the infrastructure just not really quite there yet so.

[27:49] What is that do so.

[27:52] Select Plus use Walmart to pick on them so they're they're edlp but then online they're going to be competing with Amazon so do you have these periods of time where your online prices are are very kind of more dynamic in your storage cuz of the,
the nature of the the store being slow to be able to change prices.

[28:09] Exactly that is the common practice right now is that very few really Progressive retailers have adopted what I call Universal pricing which means.
They are for the same price to you regardless of Channel.
Because they're edlp in the stores and they are there more to your point that you know there more Dynamic then daily online and then in the case of.

[28:38] Walmart specifically like you can even think about the you know as as they sort of Jetta fi the value propositions at Walmart right,
where you know jet will give you a custom discount based on your purchase as you're buying a bunch of stuff from this particular fulfillment center,
so I'm going to make other purchases from that fulfillment center cheaper,
or you're buying products from this particular vendor on the make other purchases from that vendor cheaper or you know that you opt out of some of the optional cost.
And those sorts of things a big version of Walmart adopting that strategy more more globally is when you order something online from Walmart.
And you're willing to have that item shipped to the store instead of to your home.
Walmart has a very efficient delivery vehicle for delivering items to store and so.
You're some of that savings that they're getting by not having to use UPS there now passing on to the customer and so the the ramifications of that.
Greater Dynamic pricing online and then the definite ramifications of the personalized pricing online that your Point University retards have tried to do.
Personal product pricing in in store.
Has resulted in there being some unfortunate price fragmentation where you know there are now.
Multiple prices at at Walmart right and I I feel like that's a imperfect compromise that Walmart has to deal with because.

[30:07] Technically part of edlp should be it's the same low price everywhere.
But because they're trying to offer this Dynamic pricing in this personalized offer system the pricing is different and.

[30:20] Frankly getting more complicated not less because if you order online groceries and you're going to do curbside pickup.

[30:28] Should you pay the same price for someone to walk around that store and pick all those items for you as someone that bought them in the store and did the work them self like you could you could you don't argue.
That there should be a different price for curbside pickup in a different price for delivery and in general we've learned from the psychology of consumers that they don't like paying fees so they'd rather those cost be.
Built into the the product prices but then that means wait a minute there's an online price at Walmart on a grocery pick-up price at Walmart and an in-store price at Walmart and you know that it flies in the face of the,
original Sam Walton edlp premise so it's a it's a tricky clean world at the moment in the long run,
I think stores figure out how to get more dynamic in the store and then we get back to more Universal pricing in the same offer everywhere and,
you know that my colleagues are laughing at their wissen to this right now because I'm famous for every year pretty thing that this is going to be the year when we start to see much greater adoption of electronic price tags in electronic bag tags.
Because retailers need to get more dynamic in the store and daily repricing is no longer Dynamic enough in these electronic back tags are the way to do that and every year I predicted in it it never seems to happen.

[31:50] 101 interesting outcropping of this that I find really fascinating and if we run into this a lot of Channel visor is.
All this this topics that we talked about create and efficiencies in the system and when you have in efficiencies they can get to be pretty wide you have.
Product like all product arbitrageurs so for you it was classic example is.
The arbitraging between offline and online so someone will become an expert at something like a lot of these guys are involved in the sneaker world so that they'll have a really good idea of what you know.
Every line of Nikes and Adidas and whatnot are worth more than they know that like Footlocker and the the stores they do their markdowns on Thursdays.

[32:34] So the lineup at the campout look at there and they will literally load up car loads of these things.
Take him to Warehouse sell them on eBay and Amazon for like 30% milk.
I brought that because you know the store is inefficiently running this algorithm and there's these people that that are taking advantage of their their you know.

[32:54] Whatever I would argue it's inefficient because they're they're arbitraging and getting the value from that in efficiencies.
And then you know it gets even more crazy because there's people that will look at the inefficiency between Market places like eBay Amazon and Walmart and no actually take still discover a product on,
what's a eBay bid selling for 30% more on Amazon that it does for eBay for whatever reason maybe eBay search engines kind of wonky or something there's a variety of reasons these things happen,
that should take that product list on Amazon never touch it and then someone buys on Amazon and they'll go then go buy it on eBay and then ship it.
To the Amazon consumer so it's like a zero inventory Arbitrage that you can do and then they are.

[33:43] Adult for this kind of thing so most people build custom soccer for that but I've run into folks they're doing hundreds of millions of dollars in gmv,
and you know what you take fees out and stuff it's not usually look at it but they can maybe make five to 10 points if they pick their arbitrageurs right so these are these are $109 businesses usually without any employees that are run by robots that sit there and and do Wall Street level arbitration on products between stores Market places and things like that it's pretty,
pretty wild funny when you think about it.

[34:16] That's I think that the crazy high-volume version of that below volume version I think it is pretty common it's a common side hustle for college kids,
to do the online or offline to online Arbitrage there now I like three or four mobile apps that you can literally install on your phone,
go scanning go skin skus that are on sale in these retail stores or even better go to stores that are having bankruptcy liquidation sales and apple tell you in real-time what products are profitable,
to buy from that store and go list on the marketplaces in the App Store,
darn polished and sophisticated they factor in like all the FBA handling and return rates and everything is pretty sweater.

[35:02] Scream isn't,
well we could go on for pricing for the whole show but we have more questions this will probably be a short ones that's hope so but will first of all thanks for that awesome question that was great hopefully we kind of dug into the the Rita we're looking for question number to this one's also for you Jason what are the coolest or smartest things that brand retailers are doing with voice Commerce,
and what's Within Reach for smaller Brands who don't have a hundreds of thousands of dollar budget to drop on developing skills and in that kind of thing and where are we on the maturity curve so it's kind of three questions in there so so I guess question number one is what are some cool skills you've seen that the show what brands are doing with the,
The Voice Commerce guys.

[35:43] I'm not that I want to answer your question but I want to take one step back and sort of highlight like a lot of times when people talk about,
voice Commerce they're talking about actually doing transactions you know so like you know Alexa order batteries type.
Type of experiences and that certainly is one element of voice Commerce like I would point out there's a lot of other parts of voice Commerce there are.
Marketing tools and so a lot of the skills in the Alexa echo system that are skills that are published by a brand are actually more marketing tools.

[36:19] Primarily trying to drive more interactions with the brands and more brand awareness and more brand Affinity than they are sell a specific product like you know immediately and so,
when you say What brands are doing the really smart things I actually think,
voice voice transactions are relatively nascent so it's pretty small like in general we think there's probably 30 million of these devices and in North America right now so it's you know addressable Market compared to the,
190 million households online is smaller you know 8.

[36:57] Small majority so maybe more than 50% of those those devices,
have ever been used for a voice transaction and that certainly isn't the most common way that those households do transaction so the total number of transactions on voice there's no good data out there but,
but our guesstimate sorry that it's pretty low and so I'm not sure I point to any brand other than Amazon and say hey good job,
selling a bunch of stuff directly from your voice interface so that the,
the ways that voicing most interesting are from one of these marketing things and so,
there are clever things Patron has a great skill for helping people explore in the stuff discover new cocktails that all conveniently enough.
Can be made with Patron tequila,
but it's a relatively sticky skill that has like a high,
active user rate that helps Patron build a brand once once that skill you know gets into the Zeitgeist of those homes it's hard for another brand to come in,
you know with an alternative Bartender app right and like to me one of the Marquee examples of this is the tide stain app which is kind of clever,
you know you if you spill some pomegranate seeds on your table cloth and now you've got this pomegranate stain and what's the best way to get that stain out is it.
Vinegar as a club soda how should you pretreat away what should you do so this app gives you advice on how to to treat all the different stains.

[38:34] That you might come across and it's branded by tide and remind you to use,
tide products to help laundry all this thing so I think some of those kind of brand Affinity apps are the smartest apps then you know there are a few categories were voice,
transactions are more common so I think the the Pizza Hut app is a good example of a highly recurring,
transaction that people tend to do obviously in my personal Echo System the the Starbucks voice ordering app would be most useful,
because I travel so much I go to so many different Starbucks that it's actually not super useful in my household but,
for many people I'm sure that the the Alexa app to trigger a Starbucks mobile order in and pay is is,
a relatively high volume app so I think those are awesome good ideas I would also remind users that,
there's a significant amount of voice search going on so Microsoft has 20% of all Bing searches are boys I don't know what the Google percentages is probably not as high because it's not built in the Everett.
Every Google device but every laptop is running Google but.
It also is probably as a meaningful number and then more more e-commerce sites are building voice as an interface into their own website so if you're,
a brand that has Shoppers shopping on your own e-commerce site and they're heavily mobile users it off and is easier to say a search query then to type it on a mobile phone.

[40:09] And so you know we're starting to see some meaningful adoption.
From voice search on your site and so when you say like hey I'm a smaller brand I can't afford the investment the patron or Procter & Gamble made in there.
They're Alexa skills.
And I would highlight is that she not that expensive to build a skill it's pretty expensive to market the scale which both patronen and Procter & Gamble do quite a bit of.
Some of the the lower-cost ways to implement Voice or it's it's pretty inexpensive to have a third-party partner add voice search to your existing,
e-commerce search platform and it's super low cost to start doing some voice SEO to start optimizing your keywords for the things people say,
into being instead of the way the things people type so I think it's still super early days I think voice is.
A more useful tool for marketing than it is for actual transactions I think in the long run we're going to see boys shoes for a lot of transactions but it's going to be a specific type of transaction which are those.
Replenishment Auto fulfillment type orders I think you can use voice a lot to add and delete things from.
Your regular shopping list so you're going to say Alexa cancel this week's groceries because I'm going to Mom's house for Thanksgiving.
You're going to see a lot of those kind of things but I don't think you're going to order brand name dresses in specific sizes with particular Prince from,
you know your favorite dress designer via voice cuz I just think saying all those attributes and knowing the.

[41:44] The unique brand terms for each each designer is is super unlikely.

[41:52] I saw this reminds me of a funny cartoon I saw the other day where someone says to the Alexa Alexa order me a Kleenex and it says ordering Amazon basic tissues and their said they spell out Kleenex and Alexa again says tissues and then they're like,
Amazon Kleenex and it's like I don't understand what you're saying.

[42:11] I think that that ironically that could drive pups to be the second best selling facial tissue online because.

[42:20] Little problem with the synonyms at the moment but yeah it's and it's it's going to be for that replenishment stuff there's going to be huge fights to be the default brand and lots of interesting stuff but that's probably a whole separate show on voice Commerce that we should do sometime.
I want to get to our third question which is from Patrick per line.
And Patrick says hi guys I love the podcast to listen to it every week thanks very much Patrick I do too when the numbers say that he Commerce revenues up 17% does that include Amazon.

[42:54] If so what would be the e-commerce industry Revenue increase if you took out Amazon I believe you guys said that is growing it at 60% and Amazon at 30%.
Would this mean that if you remove those two companies then e-commerce is a whole is contracted.

[43:11] Oh yeah thanks.

[43:12] Can I have that has math in it so I'm proposing you answer that one.

[43:15] Yeah thanks Patrick for the question that it is a very good question and this is one that I've spent a fair amount pondering so let me let me talk to you.
Talk you through some of it I'm go this pretty quickly will will put some stuff in the show notes if I lose you anywhere so first of all.
You know what what's interesting is there's a lot of sources for the data so that's one of the big variabilities in this whole thing so you have the four sources I track and I'm sure there's more but the the four main ones are comscore US Census Bureau,
Forster and emarketer.
What are things you always notice is the comscore US Census in Forester tendo line with each other they'll be in the ballpark so silver example they'll say.
2017 e-commerce the United States was around anywhere between 380 and 420 billion but any marketable say 800.
And to emarketer is very inclusive of everything so I think they actually put cars in their tickets grocery.

[44:16] You know Events maybe even hotels or something so so you know when you're looking at these data sources it's important to understand what's in there and what's not,
I tend to like the comscore the Census Bureau in the forest one because they they do not throw the kitchen sink in there and it makes kind of thinking about this a lot easier,
what I did is I took the Census Bureau data and I'm and if you look at 2016 they say us e-commerce was 359 billion and if you look at 2017 415 but I'm such a difference of 56 billion and to your point,
you're 16% growth so so.

[44:55] That's it that's an important number so 56 billion increase your rear in the United States was 16% growth now let's look at Amazon.
Amazon's 2016 Revenue was 135 billion.
And in 2017 was 177 billion that's the global number so you have to Amazon's pretty much right down the middle of domestic and non-domestic,
and she have to give it a chops and it half and we do that you get the US is 68 billion in 2016 and 2017 88 million that's a difference of 20 billion or 30% growth which you correctly called,
and so you'll get that number that 20 billion and we had our 56 billion for overall Commerce then that means Amazon drove 36% of that growth.

[45:41] Then if you took if you took Amazon out then the remaining piece crew 10%.
So that's interesting number.

[45:51] But this is the common thing that I think happened to allies numbers longtime listeners will know that Amazon's revenues are essentially,
Banner reported cuz the third-party Marketplace and so we at the Jason Scott should like to look at the DMV so it's kind of Handy is I took the.
Total Amazon numbers and I cut them in half to get to the US will you can effectively just kind of double them again to get ballpark GMB it's little bit more than that but this will this will make you feel a little bit better because it under reports Amazon app,
I believe so when we do that we're back to kind of you know.
Amazon's gmv in the u.s. for 2016 being a hundred and thirty six billion then 2017 was 177 billion for difference of 41 billion okay so I think that's the real number that we look at for Amazon and again.
E-commerce grew 56 billion Amazon Groove 41 billion now you have all you're left with is 15 billion coming from other places or 4%.
So so you're kind of left you know what that tells us is that and learn if he Amazon grew 30% then the rest of world group had to grow 4%.

[47:03] Just kind of fact check that when you look at eBay they just reported their 2017 numbers they grew kind of around 4 to 5% in the US so kind of lines up right,
do we have Walmart at in there I think they're growing at 60% and then they want to go to 40% Jason you can fact check me on that one.

[47:21] Yeah I think it's like last week orders were like 60 62 and then 50.

[47:26] Yes now what I think is going on is Walmart's actually pretty tiny in the world were talking about that you know of eCommerce so you have something like three or four percent of Walmart sales are online which is there for near Blaine dollar.
Global retailer so there's really not moving the needle quite fast is fastest of the other things were talking about so it's what's going on here.
The way I like to think about it is let's build a pie chart and and this pie chart is a $400 pie chart that's the 2017,
yo i e Commerce so of that Amazon's 177 billion or 44% of the pie growing 30% eBay is 35 billion that's their us GMD.
X autos and that's 9% the pie growing 4%,
Walmart is 15 billion ish growing or 3% the pie growing 60% actually put the pool table will put in the show notes and where you left with isn't other bucket,
that is about 173 billion which is a pretty big slice of Titans looking like 40% of the pie but it's only growing if you do the calculus.
It can it has to be flat to effectively 2% because of the growth that has been soaked,
now what are things that doesn't jive with that is you have Target growing pretty fast while the omni-channel guys are going fast even some of the e-commerce platforms the report like Shopify.
They're growing their igmp like 20 or 30%,
now they don't report a sings Versailles so that that's a little tricky so they're they're actually kind of getting new customers in there and it's not apples to oranges but you know what's interesting is when I talk to all these data providers and I say.

[49:04] Two things are going on here the the you know there's someone is really losing a lot of Cher and I do think you have that going on so a lot of these stores you know we had more stores close last year than ever before.
And the dirty secret of closing stores is when you close doors and let's say you're you're serious you know when they've closed.
. 1000 stores decorative had one Fury Commerce business and the same is true for all these other folks that have clothes stores and whatnot so that's where a lot of the loss is coming from but it still doesn't a hundred percent at up,
I'm so there's there is a group of folks a lot of them work for the state of companies and what would they believe is happening is the US Commerce data.
Under reports vastly the size of e-commerce and the growth of it and then what happens is.
Comscore and Forrester correlate to that data so there's this Theory out there at and I'm not the guy to solve this is a kind of.
Delete it because it doesn't add up for me when I when I use the numbers I just got to watch you through it just doesn't add up so someone would have to be losing like you know that tree down like 60% year-over-year e-commerce businesses aren't big enough to really.
With a needle on what we're talking about here so so that's that's kind of.

[50:16] The most prevailing Theory amongst people and it's not really talk about much just kind of funny it's like this dirty behind the scenes secret of e-commerce there when talks about that shows and things but they don't really write about it and,
it would they believe is the US Department of Commerce data Vasily under represents the size and growth of the e-commerce market so,
there you go. That is an interesting Theory I have no way of proving or disproving it but it it's kind of I end up Landing there because I can't make the math work.

[50:46] Yep and I I-10 the split that baby so I would say I do agree and strongly suspect the US Census Data under report e-commerce and like,
you know just a couple datapoint Spitzer to be aware of the methodology that you have senses uses is pretty underwhelming and just they just weren't designed to track e-commerce into essentially they're sending surveys to a bunch of businesses,
and asking them what their,
the revenue was and those businesses decide whether they respond to the survey in the same businesses don't respond every time and then the US Census uses a bunch of Black Box math that they don't disclose,
to convert you know the percentage of respondents into.
AAA National number and oh by the way the US Census doesn't even report e-commerce they report what they called non store sales which was originally,
catalog sales which are still in this number,
but essentially it's it's what they call everything that's not in a store and nobody gives the people responding to the survey any official definition so you know if Target is shipping 70% of their e-commerce orders from the store,
they may report all of those sales and their their store sales versus non store sales there's there's all kinds of room for,
messiness in the methodology and I will tell you that some reasonably credible Economist have looked at the US Census Data over time,
and flat-out found some glaring inconsistencies and they've written to the US Census asking for clarification and not got very satisfactory answers back and so these guys would say.

[52:27] That there's just too much Black Box math it's impossible to reverse engineer in the US Census there's some funny stuff going on,
and so it's it's easy for me to believe and by the way we should have them on the show one one time to defend themselves but,
it's easy for me to believe their numbers are perfect and SharePoint everyone wants to index to US Census Data so a lot of the other day two sources are based on US Census Data so I tend to believe e-commerce is growing,
is a little bigger Pi then then what a lot of these data sources say and I also believe that directionally your pie chart is still right,
that that Amazon has a Lion's Share of that that growth and so you know you factor out the the three or four biggest players in the e-commerce Market,
and the rest of e-commerce is not growing particularly fast and I have this recurring conversation with all these specialty retailers they're talking about their online and they're you know saying how how dare you know,
trailing the industry average and how concerned they are for their jobs and I'm pointing out that they're actually dramatically outperforming their peers.

[53:35] One last question that we may not have time for a detailed answer but I think we can probably give the high-level answer and then maybe we'll revisit it.

[53:44] This one is very much in your wheelhouse and I feel like this is going to take you an hour to answer so let's see how this goes.

[53:52] A challenge I like it.

[53:53] Okay so this is from Ari and he says mobile payments in 2018 can I'd like to hear more about Android pay.
Google payments day. I guess Apple pay w3c payment request API and etcetera do you have any data that shows that when implemented properly these things truly reduce the mobile Gap.

[54:13] And so it is the short answer. We'll do it deeper dive in upcoming show on mobile payments in general there's no,
great public data to show the conversion rate from,
true mobile wallets like Android and Google pay him now merge so we'll just call Google pay and Apple pay,
they're the number of people that use it as a small percentage of total transactions it does appear that that that highly loyal user base do have a much higher mobile conversion rate but there's an argument correlation or causation,
you know one of the rare users that using Apple pay online because you had the strong Affinity with apple and you're buying a lot of stuff from Apple probably and so is it you know,
is it higher conversion rate because you're using Apple pay or are using Apple pay because you're super loyal frequent purchaser,
that was Apple right so it's at the moment those are lower friction experiences there's some evidence that they have better conversion rate but it's all an adult and it's not a huge piece of the whole payment pie.
The there is absolutely some reasonably credible data out there that conversion rate is better with PayPal than without PayPal that's the most ubiquitous.
Digital wallet in North America and you know it's a lower friction checkout experience and so I think we have lots of evidence that every time we take the fields and steps out of checking out,
convergence better when those customers are already in the PayPal ecosystem and that's offered as a payment option conversion goes up.

[55:51] That makes sense to me and we we see it in the date of a lot of her private clients so that makes me think all these mobile wallets have a future or they can get enough users,
and then the one thing you listed that I'm most optimistic about of all of this is there's one thing that's not an actual payment while it's a payment technology and you rightly called it out as the w3c payment request API,
this is an open standard that they the HTML consorcia and essentially published that says,
let's have some better functionality in the browser to safely enter payment information on behalf of customers when they shop and let's let's tokenizing letting you know not store it as.
As some sort of insecure text on the on the PC and some way but let's make it really easy to fill out this form fields for payment.
And they've gotten really good adoption on that API it's now rolled out to all the browsers and so we're starting to see a lot more retailers adopted and.
Two good things happen when a retailer uses this API for their checkout experience,
in particularly there mobile checkout experience number one that checkout experience becomes more consistent and follows a standard convention from site to site so if all Sites use the exact same check out flow and gooey,
users get better at checking out and they're more comfortable with it and so it it actually reduces friction it increases what we call for dents,
and and you see better conversion rate and.

[57:24] That because this this a p i can store all the information that gets entered in that field & Auto in Iraq for you it essentially dramatically reduces the time needed to check out and so once you've used it once,
it becomes much faster and easier to check out on any e-commerce site anyone in the web that leverages.
This API so it's it's one of the things I highly recommend the clients and said easy implementation and everyone should be implementing that that payment request API and their,
in their checkout experience in particular their mobile checkout experience so.
I'll leave it at that for now but like the at the high-level there's not a great public data source.
To show the mobile wallets work but,
you can take my word for it that I've seen it in my individual clients that in general at it does have a measurable effect and for sure if you're interested in improving your mobile conversion rate you absolutely out of look at that WC3 payment request API and implement.

[58:27] And with that it is happen again we perfectly wasted an hour of our listeners time,
so now that Scott has redoubled his efforts on Facebook we highly encourage you to keep the dialogue going on Facebook again all these questions came from Facebook which was awesome so.
If we said some stuff is wildly wrong which I suspect Scott did and I didn't be great great to discuss that on Facebook we'll see you over on that page.
You can obviously find a spoof on Twitter were pretty active there and as always if you enjoy the show or learned anything or it's helped help you,
you're triggering anyway the way you can repairs for all that hard work as you can jump on the iTunes give us a 5-star review,
it's really one of the the primary drivers of SEO and I'll help other people discover our podcast and it makes us feel good about ourselves so.
With that I will leave it until next time.

[59:26] Thanks everyone for joining us.

[59:28] And until next time happy commercing.

Feb 9, 2018

EP116 - Industry News, Geek Week


SuperBowl News

Amazon News

  • SpaceX successfully launched it’s first Falcon heavy rocket, and recovered two of the boosters.  The photos and video of the Tesla in space were amazing.  And there appears to be a thawing of relations between Jeff Bezos and Elan Musk.
  • Prime Now delivery from Whole Foods stores
  • Expansion of FBA On-Site
  • Amazon expands it’s airport plans from 900 acres, to 1100 acres
  • The Spheres launched at HQ1
  • Private label continues to get traction especially premium denim “Hale and Denim Crush”
  • Amazon Go store opened to the public
  • Amazon is the largest spender on R&D, much larger than any other retailer

Walmart News

  • Walmart acquired Spatialand out of Store 8 for VR Capability
  • Coming to US
  • Walmart – Rakuten partnership ads digital books to

Drug News

Helena Foulkes becomes new CEO of HBC (from CVS) replacing Jerry Storch

Deliv launched DelivRX home delivery pharmacy service

Upcoming Events

  • Etail west 2/26 – 3/1 Palm Desert
  • Path to Purchase Summit – March 12-14 – Chicago
  • IBM Think 3/19-22 Las Vegas
  • ShopTalk 3/18-21 Las Vegas
  • Adobe 3/25-3/29 Las Vegas
  • NPD Idea 5/15-17 Austin
  • SAP Sapphire June 5-7, Orlando

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 116 of the Jason & Scot show was recorded on Thursday, February 8th 2018.

Join your hosts Jason “Retailgeek” Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.


Feb 2, 2018


EP115 - Amazon Q4 2017 Earnings Hot Take

This episode is a hot take of the Amazon Q4 2017 earnings

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 115 of the Jason & Scot show was recorded on Thursday, February 1st 2018.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:


[0:25] Welcome to the Jason and Scott show this is episode 115 being recorded on Thursday February 1st 2018 I'm your host Jason retailgeek Goldberg and as usual are you with your co-host Scott Wingo.

[0:40] Hey Jason and welcome back Jason Scott Sugar Sisters.
Well Jason her here we are on the first day of February 2018 is zipping by and today was interesting because it's kind of like the Super Bowl of two companies.
Well yesterday we had eBay in Facebook announced and then today we have the Three A's Amazon alphabet / Google,
and Apple so a lot of news coming out of those results and the all these companies are announcing how their fourth quarter of 2017 went which is.
Exciting in the world of retail cuz that's the,
the biggest quarter so tonight we're going to really focus in on Amazon on this episode and I were to have a hot take on some of the dialysis of their fourth quarter 2017 results and then at the end we have some time we are going to hit a couple other highlights of some of the other quarterly announcements.
So long tail lizards know this but it's always important to refresh Aaron's memory when you look at these different results it's important kind of think about the Baseline out there and as an industry were growing looks like.
The holiday Ecommerce came in at 16 dating percent retail came in at like 4% Jason is that kind of what it's been.

[1:54] Yep yep maybe even a little higher like for 4.5%.

[1:57] Go to those are those are kind of the benchmarks and you know I think the the the way I view the world is,
if you're going faster than those are gaining sure if you're growing slower you're losing sure if you're not growing you're.
You're pretty much toast to the role of e-commerce in retail so let's start outside with some big picture things so Jason I thought for you first we talked a lot about.
Conversational Commerce and all.
Echo ecosystem and this is this is probably the most strong bases code I've ever seen in any of Amazon's quarterly press releases for the last 20 years,
read it in its entirety so Bezos said quote our 2017 projections for Alexa were very optimistic and we far exceeded them,
we don't see positive surprises of this magnitude very often expect us to double down so that was pretty interesting and kind of like a,
you know if you have to read that while you look at that picture of Jeff Bezos where he was like you seen the me where he was like super geeky on one side now he's all ripped,
so you have to you have to imagine the rips of Jeff Bezos list of some kind of saying that one they sold tens of millions of Echoes In the.

[3:12] Precious is the issue is not over 50 bullets I would say a good quarter of them were around Echo.

[3:21] Anything you want to add around Echo.

[3:23] Yeah it wasn't just funny because I remember it wasn't very long ago maybe even 2 years ago.
Echo was just trying to get some traction and I think you mentioned to a reporter that you thought that it potentially could be the next billion-dollar business from Amazon and that was a,
shocking surprising prediction that the people were asking you to back up and you know.

[3:48] Tens of millions of of a echo devices get you pretty close to there.

[3:54] Yeah yeah yeah yeah if we assume so I guess the lowest you spend is like 40.
Four. And then you're the most you can spend is like 150 so I imagine the average is a hundred bucks.

[4:10] That would even sending it a hundred bucks each either so that's that.

[4:17] Exactly so as per usual you you were right and then you know I think it's one of the scariest as I keep seeing about this is.
What you did now the top two selling products on Amazon. Like are that that Echo. And the fire stick.

[4:33] Yeah and since we're on the topic over on the Google side they were asked when they're going to start monetizing it and they're CR sudar.
Which I think is how you say he said that they're really just focused on the user experience and nailing that and monetization is very far away so that was interesting that you know that date.
Why do people read that quote is in committing their little bit behind and they can't really worry about monetizing until they catch up with where Alexa / Echo are.

[5:03] Cool so continue with the big picture Amazon's total revenue in another footnote is if he heard me say some numbers that may be a little bit out of line with what you read and special leases or are seen in the news.
I always take the voice two sets of Amazon numbers there's the ones that are just the wrong numbers and then there's the ones that taken to the consideration,
the effects of foreign currencies in Wall Street sign that's XFX set of the excluding the foreign exchange changes so if a British pound oscillates 20 or 30%.
That will just your earnings so if you strip that out it kind of is more apples to apples so I was going with the Apples to Apples numbers so that being said Amazon's revenue accelerated in the fourth quarter 36%.

[5:48] And that's up from a 34% growth rate in Q3 and they came in with a 60.5 billion dollar Revenue number which is not too shabby and you know every.
Every quarter public companies tend to give guidance in this was very much at the top of Amazon's guidance Wall Street was expecting.
Let's see.

[6:11] Yes so this was also above wall Street's expectations are expecting 59.8 and so does exceeded by it looks like .7 which doesn't feel like a big deal but that's like $709 so.
That's that's pretty pretty nice beat the key drivers of the quarter were amazon-web-services Wishes the cloud computing and then they have this,
tricky category called other Revenue,
and moose while shooting let's agree the biggest Chunk in there is ADS so that business we talked about a lot on the show which would include the AWS and AMS and AMG businesses,
That Grew that also accelerated growth and it grew 60% versus 58% the last quarter.
Amazon had a very high probability and prove pretty dramatically in the quarter Marjorie gross margin sticked up last quarter they were 35.2 and they took up the 36.4 so that's what you would call a hundred basis points kind of move which is.
Pretty substantial at these levels on the conference call to see if I owe attributed it to the North America business and Retail doing really well at scale eight of us contributed to that as did he actually caught the ad business is starting to kind of.
News the needle on Gross margins here which which I think is pretty interesting because it's actually pretty small I think it's.

[7:32] 6 billion annualized so that would be like.
Maybe 2 billion at this point in the fourth quarter so it must be just pure margin feel to move the gross margins of the larger 60 billion dollar business.
Not any meaningful way enough for the CFO to call it out so a lot of folks are reading the tea leaves there and saying that it that ad business is really starting to.

[7:54] Can I show up in ways it hasn't before.

[7:58] And hopefully they'll be a day when it gets to be big enough that they have to carve it out like today w x and they crawl curious is really see what's going on inside of their.

[8:06] Let's see about that.

[8:10] They also made kind of another one of these kind of things you have to parse where they said more new members joined Prime in 2017 than ever before which I think you know when your growing.

[8:19] The rate you're going you would assume that's the case.
But then most estimates out there Amazon does not disclose the number of prime memberships out there most folks kind of put it in about 60 million us households out of.
250 us households so it really good penetration there some surveys as you go up into the upper upper income levels you get north of 50% penetration and they did say 5 billion items shipped with prime over the year.

[8:47] That puts Amazon and I just put that in perspective not even half of Walmart when you look at it this way,
so that's interesting but you know Walmart I don't think they've announced yet but they did typically have been growing kind of you know their eCommerce is growing pretty strongly now overall they've been growing low single-digits I I would be surprised if they don't,
youngest Walmart comes in above maybe 5% growth All In.

[9:17] Doesn't it was a nice surprise is this is the first quarter we're prophets of come in over a billion no you and I talked a lot to people that the number one thing.
That you hear when you talk to Executives about Amazon is,
oh well she's giving a pastor unprofitable there a money-losing kind of business the only thing inside of their that makes money is the cloud computing etcetera etcetera know those things are true so if you took cloud computing out the whole interview at Amazon still makes money I even if it took ads out I'm sure now it is true that you carve out the retail business that show you a p&l for North America,
and international North America is quite profitable and then International is still losing money but that's because they're building enough they're investing like you know,
two billion dollars in India there still investing in China they just watch Australia you know there's something going on down in Latin America Brazil so so,
it's just because that investing pretty heavily there so.

[10:15] Not only did prophets come topically dollars for the first time in a quarter that came in at 1.9 billion this is really big surprise for Wall Street cuz I think they're expecting more like 500 million now it was so that is one time so Amazon did say that about 800 million of that 1.9 billion,
I was from the new tax plan that rolled out so they're decrease in the corporate tax rate in United States helped out Amazon pretty immensely.

[10:40] But you know what's interesting is you not talked about this but but it really doesn't care about profits which sounds weird and the reason they don't is when you're public company it it's almost impossible to.

[10:52] Grow profits in a way that makes sense because of the way accounting treatment happens,
yeah your Revenue gets spread out your cost gets spread out and all these things happen so Amazon believes a better measure of how the business is doing is free cash flow and that was 3.3 billion so a lot of cash getting generated Amazon even though they continue to invest in a torrid pace and fulfillment centers in those kinds of things.
So that's the big picture Jason you want to look at the retail side.

[11:22] Yeah and I just one sort of thing that I always chuckle about like there's a number of people that feel like,
to some extent Amazon manages their Investments to make sure that they don't have a significant profit,
inside like under that Siri you can imagine that they were like mildly annoyed at the the tax savings that kind of came in with this big lump profit at the end of the year.

[11:46] Yeah they didn't say that on the cob but it's possible.

[11:52] Inter on the the retail side of the business and we will break this down when you get into the marketplace but from a pure Revenue side North American revenues we're at 37.3 billion for the quarter which is up 42% year-over-year growth so again,
you know you can tear that to the the kind of.
Ecommerce industry growth at 16% and you know they're they're continuing to eat up a market share at a,
a pretty scary place so I can I really only know of one retailer with meaningful volume that's,
potentially going faster than then that's that's Walmart and obviously they're growing a much smaller number and cheer Point International grew slower at 22%,
and you know that's that someone interesting like obviously they're still in in the early investment stage in a bunch of these markets but the but they're,
they're sharing a lot of those markets is much smaller so you know it it's actually easier to grow much faster and so that,
to me that that highlights the fact that they still have their work cut out for them to to win and be a meaningful player in some of those big big International markets particularly India that there,
they are in a knife fight in.

[13:04] Yep absolutely and then I will be in the marketplace which is where I spend a lot of my time so the way I think about it is if there is a,
the pie chart of Amazon or our kind of a diagram,
you have AWS and other if you pull those out your left with the retail business and the retail business has two pieces what we call one p which is the traditional wholesale model in 3p which is the marketplace model Amazon is always historically been pretty.

[13:31] Kind of Silent about giving details about the marketplace the one the two things I do talk about our unit growth so overall in the entire retail entity unit growth was 23%.
Pretty interesting and it makes you kind of say all right if the retail business if you kind of look at the the midpoint of that 42 and 32 the retail this is probably true kind of mid-30s unit growth,
you 23% how did they grow mid-thirties,
and that's just selling that's an increase in average order value essentially so you know the value per unit that goes through is gone up so everyone gets a lot of nice multipliers in their model up because the scale they're at so how these to talk about.
The number of users that requiring that slow down pretty dramatically and but then Revenue itself accelerated that's another indication that the revenue per active user was really.
Growing because of prime the other metric they disclosed is they talked about a unit mix between 1 p + 3 P that is now 51%,
that's not a high water mark I think she wanted you to as a 51% and Q3 a dip to 50% because of all the echo,
Prime Day Day stuff and it came back here to 51% for the holiday quarter so long was long time ago she was the show know that this is,
Marketplace peace is really important because you know to really understand the impact of Amazon there's their associate iceberg,
and we really only see the tip of the iceberg and that that big kind of mass underneath the water at Amazon is the marketplace so here's how it works on the canal walk you through the mail so if we round numbers they did $60 in Revenue.

[15:10] 5 billion of that was eight of us so you take that out and now you have essentially 55 billion in retail there's like a billion or two of ads in there but let's keep,
math simple at 55 billion now.

[15:23] Well it says 51% of units were three p that doesn't mean that you take that 55 in / 1/2 because the way Amazon a recognizes revenue for each this,
pieces of business is different in the 1p world Revenue equals sales so I saw hundred-dollar widget.
My road is $100 easy reptile rooms used to doing it but in the 3p World they County Road SE,
when a third-party let's say we have I don't know Jason's audio shop and you know he has all this awesome audio equipment he sells $100 mixer on there a Amazon collect $10 as the commission so now what happens is you have the revenue is actually the $10,
and the transaction value of the item sold as what we called gmv or gross merchandise value in the world of Market places so you have this kind of.
Weird thing that happens where the actual transaction the volume is not Revenue anymore it's a small percentage that Amazon takes his commission or we used were taking it so.

[16:23] If you take that 55 billion for the quarter,
and when I do my analysis on this about 47 billion of that is first party so that leaves caught,
but that 8 billion for third-party is really just the commission rate and.
I argued if you want apples to apples this to other retailers you have to gross that back up.
Because when someone bought the audio device from Jason store on Amazon vs Best Buy,
Best Buy lost $100 even though Amazon only made $10 if that makes sense to the transactional value is the Zero Sum game out in the world of retail,
so if we take that 8 billion that's the revenue for third-party,
and we assume just going to keep it easy to take rate of 10% you have to effectively * 10 and you get 80 billion so first party was 47 billion and then third party is about 80 billion,
so you're by my math when you had this up the total gmv for the quarter would include 1 p + 3 p is 129 billion.

[17:32] This is all a very long way of saying essentially Amazon's Choice as big as people think it is and when you look at that context you know if that's what they're doing it accordingly rate.
20 billion multiply that by four you get 480 billion then an Amazon Apples to Apples is as big if not bigger than Walmart at this point we actually look at the transactional implications.
So did the other natural question is so if I'm saying 47 billion first party.
80 billion third party this kind of like 1/3 2/3 out of the total why is that unit number 51%,
and do you know the number gets very skewed the the bulk of one p units and Amazon her books and digital items they even include like if you bought a 99-cent app on your,
you know you're your fire your Kindle kind of device that counts in there so.
It seems have a much lower aov compared to 3p so so.
But that's the unit mix is 51% but the GMB mcscuse higher towards third party so usually kind of like how to get the ends up being like 62% this year versus 38 on the other side so.

[18:46] Now.
Other there's other ways to calculate this an Amazon is is gives when they release their quarterly The Q's which is there SEC document state day damn it. The annual one.

[18:57] They'll be some numbers in there that give us another view of that and when you look at while she puts out there in the ballpark might my way of doing it tends to come out a little bit high so I'm kind of in the other 129.
And I've seen some of the analyst kind of looking more at like the 1:20 so we'll see you don't no matter how you slice it though.
Pretty huge Amazon's bigger than people think it is and this whole entity is growing at in a 38 36% year-over-year and they're really just kind of.

[19:30] Destroying Shear I'm sure we'll start to see articles coming out where you know I seen Art summer day where they got half of the e-commerce growth but I think it's probably actually be bigger than that and I think they they definitely took up a lot of the overall retail growth when you looking at the scale these numbers.
Another last thing is,
you're one of my favorite things every year is the Bezos annual letter that doesn't come out until they do their final SEC documents in this works little Insider baseball on your public company you put out this quarterly reports and you do a very quick audit on that,
with Auditors to put them out but then when you do your annual and you have to go back and kind of do a forensic audit of the entire year so that'll go on and then usually in the first week of April is when Amazon publishes,
their annual numbers to the SEC which will include an annual report and that will have the business letter so we have to wait in Fortune until April to read that.

[20:25] Yep and that definitely will be worth waiting for I mean great great breakdown I know there's a lot of detail there for folks that are newer,
that gmv point Scott makes a super important I just like to think of that as that's how much money consumers gave Amazon in exchange for goods or how much of a consumer's wallet Amazon got and so that's why,
when you're comparing any other retailer that the really important thing is what share of the consumer spending did Walmart get versus Amazon versus Target or anyone else and so if you're up,
a retailer that doesn't have a Marketplace like Target and you say you you sold 50 billion dollars for the quarter.
That's how much of the consumers dollars you got 50 billion bucks and then in Amazon case they said they they got.

[21:13] 43 billion in Revenue but that actually equals 82 billion of consumer spending and so obviously.

[21:21] There they are out there killing it now Walmart also has a Marketplace it's a much smaller percent of their total revenue but so Walmart is another retailer where did you want to look at him really closely you also would try to back into a.
GMB number versus Revenue.

[21:39] So moving forward Amazon doesn't think they're slowing down either so they they set their their q1 guidance in that.
47.8 billion to 50.8 billion so that would be somewhere between a 34 and 42% year-over-year growth so.

[22:03] You know it so middle that's 38% which again growing much faster than the overall industry.
Second biggest player in the industries Walmart they are growing even faster than than Amazon in e-commerce at the moment and so when you.
You talk about the 16% average there on a heck of a lot of retailers that are growing at 16% and most other e-commerce sites are actually.
Doing much worse than that because the two guys at the very top of the echo system are are growing so fast.

[22:34] You know it's it's crazy to see the biggest players in the industry growing this this fast.

[22:43] So you know the interesting to see what sort of numbers the Wall Street analyst put out in terms of their projections for the 2018 and 2019 models but I don't think they they do the these disclose to their names cause that writes got.

[22:58] Yeah I saw one guy updated this model and he said 20 18 lb 234 billion and 2019 lb 284 billion so.
Still still really big numbers one of the things that was you know making some of the Wall Street guys a little skittish is.
The revenue guidance like you said is pretty solid at kind of like a 38% growth point at the midpoint,
evidence of used Amazon coming at the height side there was kind of thinking it'll be 40% so we'll see but then their bottom line guidance was pretty light so it's kind of like 300 million to a billion which kind of either is conservatism or Amazon saying.
Hey we're going to,
we had a great fourth quarter we're going to go to another investment cycle so the Wall Street folks that that Paul Amazon the kind of live in fear of these kind of Amazon ghost these Harvest. Swear they'll Harvest a bunch of investment state made this this year is very much a harvest year so you're really good bottom line.
Probably under spent on capex from an entry no overachieved on the bottom line as well and then,
Aaron lives in fear that they're going to wake up one day and say alright we're going to best.
Three-blade dollars in original content or you know a you know our whole load fulfillment system with trucks and everything or,
so that's just kind of things ratchet up there the worry.
Turn off the wall of worry gets higher and this is the one kind of negative that I saw everyone call out was you know what.

[24:28] What could they be spending that much money on that's like an incremental billion and a half of spend and they're going to Wawa color on that and,
they're kind of elusive on the phone call about giving any details what's going on there so it's going to be a wait and see you through the first quarter one thing I always watches the announcements around number of fulfillment centers so that's what we'll keep an eye on that,
add to my knowledge I didn't see them announce any in January which is kind of unusual they may have been in a quiet. So maybe we'll see a little bit of a raft of those coming out now they've announced earnings.

[25:01] And there's a whole you know there's there's a big crop of openings that they try to get done before holiday obviously so it it makes little sense it would slow down.

[25:11] Yeah they they I'm sure they need a month just kind of breathe.

[25:16] Yeah so one other piece of interesting Amazon news that's come across my desk this month is not directly related to the earnings but I still think is exciting is it appears a lot of.
1p sellers on Amazon are getting new options for what content they get to put on their product detail pages.
I'm so historically there's basic content that you provide to Amazon and Amazon you know puts on that PDP for free and then there are like richer media options that would let you do things like.
You know have some product comparison charts are some some animated tutorials explaining your product or videos or things like that.
And those are often called a A+ content and they're super important to.
The the engagement and conversion rate on those on those pages but they're you know they generally have been a premium thing that Amazon has as charged for.
And this quarter we're seeing Amazon start.
To give away a bunch of what were the traditional a plus content options so making them free to any seller and they're adding even more exotic.
Options that you can pay for it so it's essentially a lot of sellers are getting the option to customize their pdp's to a far greater extent than they.
Ever been able to before and you have given an Amazon has become such an important distribution point for so many products.

[26:47] That that's really important to a lot of sellers so it's interesting to me that they they continue to evolve that pretty rapidly.

[26:54] Could you know there's always this kind of it's hard to keep track of these things are available to 1 p and summer 3p and summer both do you know.
Is this is an on both sides or is it just for brands or is it is it also third-party sellers.

[27:10] Yep so I have primarily seen this exclusively on the one p I can't definitively say that it's not available on the 3p but like one of the things you have to think about it's it's hard for Amazon to sell.
Actual like extra product attribute opportunities on the 3p side because all the seller share.
The same PDP into essentially.
You know one one seller would be paying for that extra content and then all the the other people piggybacking on that listing would be riding along for free.

[27:43] So like for the most part I see that these opportunities at the PDP level are exclusively to one piece hours but but Amazon isn't quite frankly they're not very good at life.
Publishing open price West and saying hey here's all the programs we have in here's how much they cost and they're the same for everybody you know what it feels like for the most part of the offer everything and negotiate everything on a.
Need your account by account basis and so like not not every Star tends to get the same options for the same deal.

[28:22] Cool so that's kind of some good Roundup of Amazon's quarter any other interesting Amazon news before we kind of widen the lens look at other companies.

[28:33] I think I think that's an interesting conflicting rumors out there about Amazon's effort to monetize ads on the Alexa echo system.

[28:46] Gulfport what are you here.

[28:48] So they're there had been some rumors at the beginning of the year that a few big sellers had been offered a.

[28:57] Promotional opportunity.
2 baht to be the recommended product via voice Commerce when someone's ordering a product for the first time so so is that sounds more complicated than it is so you say Alexa to order batteries and you bought a bunch of batteries before,
Amazon going to use your purchase history to try to predict what batteries are talking about,
but if you've never buy batteries before Amazon is going to come back and say I have a Amazon elements 8 pack of double a batteries is that what you want in you,
can say yes or no in so there was there was some rumor that like Brands were given the opportunity to be that that Amazon Choice product and then last week Amazon sort of came out publicly and said no no no,
you know we we've looked at at adding adds to the the Amazon Echo System and we just don't think that makes sense and we think it's disruptive to the user experience when so they,
they sort of explicitly said that they're not doing that so so,
the stuff you heard about Google like that could be that we don't see ads from any one invoice which I don't think any of us are going to feel very bad about.

[30:13] Yeah one thing that was interesting that there was a lot of talk about is so a lot of the the business and world leaders were at Davos and I need to use that platform to announce that this kind of interesting contortion of,
Amazon Berkshire Hathaway and JPMorgan Chase are going to pull their efforts and work on Healthcare and is very nebulous they're going to start a company,
it's not clear who's going to owner run this company and it's kind of going to be dog food in whatever this is they build for their own employees sounds like what they're doing,
but you know this causes ripples throughout the world because that we talked on the show there's been Talk of the Amazon opening kind of a pharmacy online and then you start to say.
Amazon nursing pieces that kind of think about your Amazon.
Using the cloud services to kind of have health services so,
yo a nice portal for employees the ability to manage all the healthcare programs and then Berkshire Hathaway has a big division that does insurance so they could kind of provide that.
Then you would also need some kind of a you know a financial service piece around that too so that's give me something to really watch but that's good.

[31:27] This kind of thing could disrupt the entire insurance industry or you know all the HR systems out there so or it could be a big nothing Burger so I have to kind of see where it goes it's kind of a,
free nebulous right now but it was all the Talking Heads could talk about for for quite a while.

[31:44] Yeah yeah and your point like it it you know if it's them trying to aggravate their buying power across those three Enterprises that's,
probably not a very meaningful so you know did the three of them together don't employ as many people as Walmart so they're probably not,
going to let you know make dramatic changes to healthcare system but if Warren Buffett and Jeff Bezos and Jamie dimon are trying to collaborate and figure out a,
a new product or a new a new way to solve the healthcare problem for employees that you know.
Is there a free smart guys that have a broken paradigms before so that potentially could be interesting and exciting.

[32:20] Another piece of non Amazon news that has has everyone buzzing is.
Early in the year I think the first week of this year the Supreme Court announced that they were going to hear a case which is I believe South Carolina versus Overstock.

[32:41] Dot-com and so this is a case about sales tax.

[32:46] At the moment there's a the Supreme Court has ruled on one sales tack case which is.
North Carolina versus quill and in that ruling essentially they said that in order to be required to collect sales tax.
You have to have a physical presence or a Nexus in in each state in so if you have no presence in that state you're not obligated to collect text a lot of lawyers were really surprised by that that ruling.
Because there are a lot of other occasions where your required to comply with the States laws even though you're not physically in that state.

[33:24] But be that as it may that's been a lot of land and e-commerce texting for a long time is.
If you have a if you have a physical presence in a state you have to collect tax if you don't have a physical presence in that state you don't.

[33:37] So again most of the omni-channel retailers with brick-and-mortar stores in every state.
There they've always had to collect tax Amazon has has slowly negotiated into paying taxes in in essentially every state as they've opened more.
More of fulfillment centers in distribution centers and so today Amazon Flex tax in every state that has a state tax oh.
A couple states don't don't have sales tax like a Portland Oregon and in the maybe Nevada or Florida.
But sit there collecting tax everywhere said they're not really affected but if the Supreme Court rules in favor of South Carolina South Dakota in this.
This new case the which they could you know here in a I want to say March of this year that suddenly obligates all other online sellers to start collecting tax.

[34:30] And there a couple interesting things that happened then.
Number one like you potentially have to calculate a different tax to collect for every municipality which potentially could be more than a thousand different tax districts in the US.
So that becomes a huge burden for small companies that are selling online to have to figure out all these taxes.
It's probably a huge Boom for the commercial tax companies that will sell services to all these guys so you can you can you know that's an extra fee for all those like you know small Shopify sellers.

[35:03] And in my mind the biggest entity out there not collecting sales tax.
Is actually Amazon 3-piece sellers Sowell Amazon collect tax on other one piece sales they leave it up to the individual 3-piece sellers what whether they have an obligation to collect sales tax or not and overwhelming majority.

[35:22] Don't except for in the state they're doing business in and so if the Supreme Court ruling goes against Overstock it could have a very pronounced effect on three-piece selling on Amazon.

[35:35] Yeah and it's pretty complicated to because there's a bunch of scenarios right there's there's a scenario where I'm I'm a seller on Amazon,
and I have Nexus in North Carolina which is where my warehouses and I'm shipping all of the country so that's one so what most sellers do there is they say they collect the sales tax for North Carolina and Amazon has settings for this so say it up 7% in North Carolina I will collect that but the other states I don't have a Nexus etcetera,
maybe you're more sophisticated Celerity out to our houses so that gives you 2 points in Nexus but and.
Amazon doesn't really open on this Amazon says you're responsible for figuring out your own texting.
So so Amazon's listen to saying we're not going to your lawyers here we're not going to accept any liability for you collecting you're not collecting that you tell us what you want to do and then they actually give you some,
they rolled out some nicer apis that give you kind of that you know this this tax software used to be hundreds of thousands of dollars and now Amazon's rolled out whatever they use sellers can have access to it for you still pay for it but not really at the scale it's it's pretty reasonable,
but then it gets complicated right because I'm using FBA.
And you don't there's a PA is pretty much in Most states I think like 40 States and you,
it's not very easy to get from Amazon where your product is once it gets kind of into that cloud of warehouses it gets distributed out and you also don't.
You don't have a lot of control over today selling Amazon hey please don't put my product in Illinois cuz I really don't want to pay state sales tax there that's not really how the.

[37:11] The phone network works so.
What most sellers do is they just kind of say well you know I'll I'm small business how can I take the risk on that so this this could be you know.
Can I kind of clothes McPherson these guys that you know they may I end up having them a relatively complex set of States they need to figure out and,
not a lot of great infrastructure for figuring out where their products are the release valve on that would be so perfect Prime and there was a release a press release Amazon's investing more and more around giving sellers that are kind of larger scale the bility to have their products Prime enabled meeting their Prime eligible and are primed as they like to say and,
and then using their own warehouses to get them to the consumers and two days that could be,
you know it's interesting Amazon's doing a lot more around there obviously I think it's primarily cuz they want more Prime eligible product but you could see it as a,
a way of kind of if sellers were freaked out about this and wanted to have more control over Nexus that that's the answer essentially.

[38:10] Yeah yeah I can imagine there that Amazon is it is potentially rooting for South Dakota in this case because,
a lot of the 3p sellers feel like one of the reasons they can be competitive in one of the reasons they can they can sell their goods even when Amazon is also selling their saying Goods is because of that tax advantage right and so potentially if they don't have that tax advantage to two good things happen for Amazon.
The one that Amazon 1p product wins the buy box more often.

[38:41] And number too it's hurting and suddenly forces everyone in the Amazon Echo System 2.
Comply completely with with the law and it eliminates all this gray area of who's collecting what tax on FBA.
And so that you can imagine in some ways Amazon would say hey in the long run that's cleaner now in the short run that could mean three PCL slow down on Amazon which is you know one of them are profitable elements so.
So who knows one thing I would point out.
Is the Supreme Court rules in favor of South Dakota so now everyone's obligated to collect tax everywhere it's very likely.
The Congress doesn't just sit Pat right so there was a lot of of work on legislation about at what kind of sales tax internet sales company should be collecting.
A number of years ago and there was this thing called The Marketplace Fairness Act in.
The the main notion in Marketplace Fairness Act is hey every online so I should be collecting tax but which should be a simplified tax so we don't have all this.
This complicated math and so instead of having a thousand different tax rates maybe we agree that all online sellers pay one simplified tax rate.
And so you can imagine of the Supreme Court rules in South Dakota's favor that might be the impetus.
To Congress to pass some sort of like that and.

[40:13] Conversely if Overstock wins there's like 8 more cases from other states that that are also in the queue and potentially could get to the Supreme Court later so it's not like.
Even if if the Supreme Court rules in favor of Overstock that this is over so it's the interesting thing to follow.

[40:31] Moving on to a couple ass little news news Clips UPS also had their earnings call.
Yesterday or today and one interesting thing that came up they had a good quarter as well.

[40:48] But the.
They there they beat their estimates in their stock still took a little hit largely because they announced that they're capex spending for next year was going to be much higher.
Then it had been in any previous year and the explanation for that was that they're being forced to invest a lot more in sorting centers and airplanes.
To make all the the residential deliveries that they're doing for Amazon more profitable and so you know that the sort of pithy had a headline is that UPS has an Amazon problem.
They're having that invest a lot to to deliver what they're already delivering to Amazon and of course.
Amazon's needs are only going to grow you know potentially 38% more.

[41:34] Yeah and the other two could be a bit of a trap here where,
they're having a grow their infrastructure to support Amazon and Amazon is growing in structure outside of UPS so it's some point you know if your UPS you have to kind of start to wonder how far ahead of your skis can you get on that before it gets kind of risky.

[41:51] Exactly if this was a video podcast we'd be playing Admiral Ackbar saying it's a trap right now.

[41:59] Reference I threw in there just for Scott in the last earnings that jumped out at me from this week eBay had their earnings called yesterday,
and I I think they the like met or slightly better beat their earnings but the,
the big drama was in there called they announced that they're.
Mandatory partnership with PayPal whom is a reminder that used to own and and spun off as a separate company when they spend them off,
the spin-off included in agreement that eBay we keep using PayPal for a certain period of time so that. Of time is now expiring and eBay has announced that they plan to shift payment providers from PayPal to a big European payment processor called Aiden,
and so that,
they probably has some implications on eBay but it has potential huge implications on PayPal because I think eBay is something like 18% of PayPal's Revenue.

[43:04] Yeah they the CFO of.
PayPal is on CNBC any shows 18% but it was like their slowest growing peace there's little shade there's something going on between those two companies are definitely got to get zika nomics driving it but it seems like there's some more kind of,
they are not really getting along very well right now.

[43:22] Yeah and it's like I would like to cenarios I you can totally imagine that this is an actual break up,
and if so that is interesting that says something about how competitive in the marketplace PayPal is if eBay really feels like there's a meaningful savings to be had by shifting to this,
to another payment processor that,
you know potentially said something negative about PayPal's competitiveness but you could also Imagine the eBay and PayPal are negotiating their first,
fees agreement since they're they're sort of mandatory partnership expired and all of this could.
Potentially be somewhat posturing is there sort of negotiating with each other so you could think of it a little bit like the showtime having a break up with Time Warner or while they you know.

[44:08] Weather negotiating how much the cable company should pay for free HBO or Showtime or something.

[44:15] And with that we have Perfectly Used up the allotted 45 minutes we had for today as we're trying to get the shows a little bit shorter for our listeners so we greatly appreciate.
Your participation in the show today and if you have any questions or thoughts as always we love to hear from you on our Facebook page or on Twitter we we have a couple of good good questions that came through this this weekend fact on Facebook.
So I think I have some answers there in fact.
And of course if you enjoy the show we would very greatly appreciate you taking just a second jumping over to iTunes and giving us that 5-star review,
we don't we don't charge anything we don't run any ads on the show so that way you can you can pay us for all the time we put in that show as right as a nice review on iTunes.

[45:06] Yep thanks Wilson there buddy.

[45:08] Until next time happy you comercing.

Jan 26, 2018

EP114 - Great Retail Bifurcation, Kasey Lobaugh of Deloitte

Kasey Lobaugh is a Principal and Chief Retail Innovation Officer at Deloitte Consulting LLP, he first appeared on episode 68.  You can follow him on twitter at @klobaugh.  Kasey and his team publish some of the most useful research in the industry including The New Digital Divide which helps quantify the effect of digital on in-store purchases, and the Deloitte Retail Volatility Index which measures disruption in the retail industry.  Kasey sat down for an interview live from the NRF Big Show, to discuss some new research he'll be publishing in March at ShopTalk.  Kasey is giving our listeners an exclusive first preview.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 114 of the Jason & Scot show was recorded on Monday, January 15th, 2018.

New beta feature – Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this episode is being recorded on Monday January 15th 2018 I'm your host Jason retailgeek Goldberg and as usual I'm here with your Tahoe Scott Wingo.

[0:38] Good morning Jason and welcome back Jason Scott.

[0:42] Well Jason one of our most popular shows of 2017 much to our surprise was when we had our mutual friend Casey lobaugh on from Deloitte to share what they're singing retail Casey is Chief retail Innovation officer and a principal.
For the retail practice at Deloitte Casey welcome back to the show.

[1:00] Thanks I'm I'm happy to be back.

[1:02] Don't worry we're excited to have you on we're all here live together so that's exciting too we rarely get to see our guest so I just want to say your hair looks amazing today good you're having a really good hair day.

[1:12] I was up all morning.

[1:13] Yeah okay good good spot a product in there.

[1:17] Having the best hair amongst the three of us is not is a very well bar.

[1:21] Welcome to the super rarefied air of the multi time guests honored to have you last time on the show you give us your.

[1:30] Your full background but like obviously the the shows expanding exponentially so there's a lot of listeners that may not have heard your first episode so can you remind us just a little bit about how you came to your role at delay.

[1:41] Sure thing and worse all thank you guys for having me back thrilled to be here long time listener how about that.
Set my background I've been with the lawyer a long time in the fact is I think about the number of years it's a bit scary I've been I'm approaching 22 years with the lawyer in our retail practice.

[1:58] And you were the first teenage party.

[1:59] That's right that's right I do.

[2:00] Doogie Howser ability.

[2:02] Early on you know early on with with the letter i really focused on e-commerce so we're talkin your 99 2000 2001 time frame you're helping retailers,
Enrique's launch e-commerce figure out what it meant to to operate.
The other operations in place and then we went through a period of time where we were helping retailer scale and it was really all about maturing business processes you had a new technologies that they gave more sophistication around e-commerce.
After that I did a bit of a pivot and started working on this thing that it's time we were calling multi-channel,
omni-channel helping retailers figure out how the channels work together and did a lot of work around on the channel strategy and then more recently I spent a lot of time on the future of retail like where is it going next how should we think about it,
what are the implications how do we create in a winning strategies against a very fast evolving retail environment.

[2:57] Cool awesome let's start with, taxable? Sitting here it's January 15th the dust is still setting settling on holiday 17 what what do you think about what are some of the insights that you drew from holiday 17 come in early look of of what you got song.

[3:11] Great question you know so an interesting enough we do we do a report for our clients we don't publish it,
Alba we do share with her with our clients about what we saw us we just put the wraps on that last night at the highest level I'd say it was a good holiday obviously we believe it's the best holiday you and many many years now.
For retailers on upper upper around 5% 4.95% so clearly a good holiday and then,
no surprise e-commerce in a put up about 50% of the holiday growth but that also means that there's some gross that's coming from brick-and-mortar when you look at it and pure.
Dollar amounts it's about a 60/40 split 60% of the gross you know coming from an e-commerce standpoint 40% of the growth dollars coming from brick and mortar and maybe that's a surprise because we sort of look at it.
Brick and mortars growing up 1.71 .9% somewhere through there but when you do the math it's actually a big amount of dollars.

[4:09] Yeah that was the 1% against 85 to 90% so so the number that squirts out speaker.

[4:14] We lose track of the number of dollars that come along and that's one of the things we try and highlight the second thing I'd point out is so you know meaning of are the retailers in the marketplace I I like to stay there.
They're celebrating but in many cases that you sort of have to look at that someone skeptically the markets at 5% so if you're up.
2% if you're up 1% that means you may have had positive results but you're losing market share relative to the market so we sort of always have to think about these things.
Yeah from a relative standpoint so if you are as strong as the market.
But if you're stronger than the market great if you're not as strong as the market that actually shows that you still have weakness relative to you know what's going on with the consumer and so I wouldn't take too many Victory laps too soon and that's part of what are our findings or reveal here.

[5:02] Obviously we're doing this show from the internet Big Show in New York City I know you guys haven't had a chance to get to the show yet any like expectations going in what it what do you think the big topics are going to be this year at the shop.

[5:17] Yeah so that that's a good questions I think about the show one of the things I've heard a grown,
and I even tweeted about this earlier in the week was I'm always anxious to see what the new buzzword is the vendor seem like they're in this this arms race to figure out who's going to coin the.
The next bus word whether it's.
Cognitive Commerce I saw you know seamless we know from years past multi-channel on Beach and I threw out those buzzwords lot around personalization a lot around blockchain and so there's a lot of vendors who really trying to coin the buzzwords,
the interesting part is Buick historically the buzz words have never been the answer.
The right there if you think about it did you go back to we've done the study where you go okay back let's go back 5 7 years wear on me Channel.
Was Devo's new safe who were the ones that retailers that were winning around on me Channel and when you look at it you go they were winning because they had capability.
At the end of the day they're actually we're not the winners,
and so you still have to tear that apart and look at it and and be skeptical and I encourage everybody be skeptical of the buzz words and Sarah challenge whether or not those are are are really winning strategy so that's why I go to the floor I'm really looking at,
what are the new Buzz words and what's being said by the industry and how should we think about it.

[6:34] So I guess you're not all in on cryptocurrencies not going to do at KCI Co.

[6:39] I don't know though if we just added Bitcoin to the show here you're at your Stockwood Skyrock.

[6:46] Yeah we we are going to do a Jason Scott Coyne so just to let you know later in the year we'll talk about that.

[6:52] I don't want to disclose too much too early.

[6:55] But I actually what I was at CES last week and like turn-up Kota to like literally launched us a cyber currency and got got some ridiculous kissing their evaluation.

[7:08] That's awesome by the way I believe in the power of blockchain and I think it's going to be revolutionary but that's different than the hype around cryptocurrencies this currently going on.

[7:18] But then the show doesn't want to talk about future stuff but,
what are the reasons you're here on the show is you guys have a new report coming out in March and I think it debuted at shop talk so we'll be excited to watch that and we're really excited cuz you have offered to give our listeners an exclusive early look at the report here on the Jason Scott show.
The report is called the Great retail bifurcation this is a topic near and dear to my heart my full-time gig right now is on demand Car Wash what's 50.
And I talked about this all the time because people say and I talked to some folks and they say why would someone pay for a service like this why don't they just go to a $3 Car Wash so I,
bring up the bifurcation so you guys have been a great resource in there,
old report and I'm excited to see this new report coming out so let's dig in the report let's start out with you know you guys have,
come up you can write about a lot of different topics why the bifurcation and what's the Genesis of the report.

[8:15] So one of the things we try and do as we try and look at what's going on in the industry what's conventional wisdom.
And you know honestly one of the things I always try and do it take on conventional wisdom about,
what's going on and if you look historically you know we had done a big report that we called the digital divide that looked at how mobile devices were being used,
and we thought the industry wasn't thinking about it correctly,
because they were thinking the industry largely at the time was thinking about Mobile in in into the degree it was generating transactions and we said,
we actually think we have to look at it differently and let's look at how it's influencing in store sales if you work all that reports,
that was sort of conventional wisdom first that we took on and then subsequently we wrote a report called the retail volatility index when you know a lot of retailers at the time were you thinking about,
and instill today about you know the big online retailer and to the degree that they're affecting,
retail and so we took that on this a while there's something else going on here and if you guys are call it was really the fragmentation of share that was happening that was happening at nearly the same Pace as we were seeing consolidation.
And so from that you know we started scratching her head about it.
The conventional wisdom today and we hear words like digital transfer retailers need to do a digital transformation or.
Yeah that the idea that there's this retail apocalypse going on right now.

[9:47] Call Ed Mulligan.

[9:48] You have Molly getting nervous you know that somehow the industry is being young traumatically just dropped in and by the way that's usually put in the context of people shopping online and not shopping in stores anymore we also heard that is a narrative that,
so it's the millennial the Millennials ruining but he got to see the list of all the things the Millennials are ruining right.

[10:07] If they're killing everything.

[10:08] Everything including retail.

[10:10] Fabric softener.

[10:10] So we decided this or that start big and clearly what are those.

[10:16] But not avocado toast their they're putting all their money and avocado toast.

[10:20] The new things that the tide.

[10:22] Tide Pods yeah they're it while they're eating those.

[10:24] They're eating that's right.
So so we started to take on this conventional wisdom so we said so let's figure out is any of this true and which parts are true and which parts might not be true.
So that was that was really impetus this her to take on the research at the time we didn't know what we were looking for we just knew this was the conventional wisdom and we wanted to start tearing it apart.
So we started looking at by the way this this research has been going on for about 16 months now so we started looking at the economy first now.
At the time we were started as we started to dig into the economy we started the recognized actually strong,
now you know even if you clearly a lot of people to recognize today the strengthen the economy go back 16 months and all the signs were there that the economy was strong you know the unemployment rate is at near historic low,
you know already,
and that the home price indexes have Rick of the index has rebounded and it's actually now got your the highest home prices we've ever had so record-breaking home prices consumer sentiments gone through the rough we know that and the median income.
You know for the for the consumer has now exceeded where it was in 2007 so by all.
Citations you going to go wait a minute we have we have a strong economy so how can we be having the retail apocalypse if if the economy stats.

[11:44] The good news is unlike the Great Recession of 08 it's not on the back of it so people actually saving during this kind of unit boom cycle so so it feels like it's Cena doesn't mean it won't go down but it's definitely better set up then we had kind of liking o 6:07.

[11:59] That's right I mean really if you think about that in the last year this idea about the retail apocalypse is really taking on a ton of momentum at the same time the economy and you know the consumer.
You know it's strong right now only that but then you look see.
Markets gone through the roof right so we've got more you know more value on the balance sheet of our consumer and then even when you go over and you look at.
Retail industry the retail industry is actually showing strength and it's been showing strength for some time.
You know one of the things we've looked at is the correlation between GDP and retail sales and there's always been a strong correlation and in fact if you look back over the last 18 months retail has been outperforming the GP,
it you know at a pretty significant clip right so in 2017 we saw three and a half percent retail sales growth.
And at the same time we saw GDP about 1.7%.
If you look at the projections for this year gtp's supposed to be strong last couple of quarters has been 3% or so and and of course the holiday we've seen good results there as well.
In our own survey we did a bit of a survey around the great retail bifurcation and ask people hey did you spend more in the last 12 months and what we found was 44% of people we surveyed said I spent more 41% said I spent about the same so,
is 80% spent the same or more okay that all lines up as well even when we look at.
Retail by categories we find strength now it may not be in all of the categories you know from time to time the categories are different but we saw that we've seen Home Improvement.

[13:37] 5.2% of beauty cosmetics and fragrance at 5% Home Furnishings 3.3 apparel seem softness,
about 1% by the way we've done a deep dive into apparel and one of the interesting thing was we found there is is a real deflationary pressure around prices that we've seen units of apparel growing faster,
but then with a deflationary pressure on prices and we'll get a little bit into.

[14:03] You think that's private label cousin on her.

[14:04] It yeah so as we think about the great retail bifurcations you hear me as we tear this apart one of the things we see you know has to do with with the consumer and their.
Available dollars to spend so if you did a couple that idea with our previous your report the talked about fragmentation of Cher let's Bears entry we've seen.
Competitive forces really driving deflationary pressure so you're off price you know fast fashion and a lot of these pressures for the build-up and they're causing for deflationary pressure.

[14:39] So you know what's that paint I just painted the picture that says.
The economy's strong right relatively speaking and retails actually doing well write 3.5% who can complain about that so then that you know cause you to think further about okay.
Well then what's going on what what what are we missing especially if you look at the headlines and headlines across the board you know from.
From the Press repeat this really you know they have painted this really bad picture about retail that means to me that.
There's something missing so what we did is we said well let's let's keep digging deeper.
And there's a there's a quote I was love Sarah finding the right quotes to think about situations and Albert Einstein said you don't have to know everything you just have to know where to look.
Okay so we took that we thought about that and in retail what where do you look like you look at the consumer right but consumer tells us.
You know what's really going on so he said okay let's take all of that and let's dig deeper you know into the consumer so can we don't know what we're looking for.
So we looked at generational differences we looked at Regional differences with hypothesis hypotheses around Urban vs rural,
gender we really started trying to rip this apart and we did our own survey to support this we looked at publicly available data through all these dimensions and.
One of the things that started to reveal to us was when we looked at it through the consumers economic lens right.

[16:13] That's where we started to see differences I'm going to talk to a little bit later about the idea about millennials,
the reality is we did not see dramatic changes generationally right we didn't see dramatic difference is urban versus rural cuz I had some hypotheses around that it was really when we looked at it through this consumer economics lens.
That we you know we're able to start to see some things so what we did we took.
We took the consumer and sort of broke them out into three cohorts and we use.
That the government's classification around this around low-income middle-income in high-income starting to try and figure out how they behaving different how are they shopping different you know are they.
Your do they have the available money where they pressured right now those are the kinds of questions we looked at so the low income consumer you know has income below 50,000.
The middle-income 50 to a hundred thousand high-income is a hundred thousand or more and you know sweetheart to look at that interesting part it's like a 40 40.
20% split so 40% of population low 40% mental 20% high and of course if you look at something simple like home ownership clearly you see that's cute with 49% of low-income only homes + 83 + percent,
High income owning homes as we ever is reporting that we looked at income while how they performing from an income standpoint we looked at.
Non-discretionary expenses right cuz we no income minus non-discretionary leaves discretionary or disposable and really that's the amount that.

[17:46] Really drives retail so we thought let's rip that Apartments understand net worth difference is xcetera and here's where we saw.

[17:55] A profound.
Difference here's where this was the aha moment this is when we dug into this this is for us what what the find that the research report when we started to see how drastic the difference is worth and for me personally I would tell you you know Apollo retail.
I listen to that Jason Scott show I do everything I possibly can to understand what's going on and for me this would really wasn't haha MoMA.
So I know when we probably all know we've heard about the bifurcation of income between the income and low income we probably heard that for a long time but the degree to which it has happened you know in the last 10 years for me was shocking.
The degree to which event is happening last 10 years.
And so when we start to look at that the fascinating part about this like if you look from 2007 to 2015.
What we find is that over 100% of all income gains went to the top 20%.
Over 100% that means the other 80% of the population.
Didn't do so well you know -2 flat fast for 80% of the population right so think about that in some ways I called this the last decade.
And for meeting of our consumers by the way it was I talk to my own colleagues I talk to the executives across retail like to remind everybody where where we fit where you fit as an individual within that because you have to keep in mind.

[19:23] You know you know that that you're you're doing favorably in this income it are in this environment if you're an executive if you're you know technology vendors many of the listeners of your shows and unlikely the owner of a car wash.

[19:39] That's right the owner of a spiffy car wash.

[19:42] Regular listeners that the show will know that Scott travels with his own gold Throne that he's actually sitting on right now is he's doing the.

[19:49] Yes and I wear my unlike snoke I wear my gold robe.

[19:52] I'd say over over 20% of all income gains went the sky apparently right.

[19:57] Show me where this this was really profound I would say in 2016 continue to be in some income games and some of those games actually were spread out more than they've been in the past to where at least at this point.
In a SS 2007 low income has actually gone positive slightly but they're you know that you see some some gain here.
The problem is income isn't the only component here that matters right so I've heard this like why the stock market stock markets up right well the problem is is that.
The top 20% own 93% of the stocks so any depreciation in stock.
Is all almost flowing to the same top 20% who have gotten the income games,
and by the way I don't have the facts behind this but it was my own personal belief that when we talk about digital disruption we talk about technology technology is fueling.
This is bifurcation of the income where you know if you think about the available jobs today read some of the other day that said there are now more.
Open positions that are going unfilled than ever in the history of our economy.
And you think okay why is that will unemployment rate slow while there's a lot of people though that.
Positions that have gone off of the unemployment rosters there no longer speaking and it's I believe it's a mismatch between the available jobs which you know are more technology-oriented and available skill sets.

[21:28] Olympics Girl Scout on the 80/20 so so that's a population so if there's 300 million people in the US 80% are in that haven't kept up in 20% or a head.
Does the wallet split preview it seems like the wallet because the 20% or so affluent it seems like they would almost be like.

[21:45] 90% the wallet 5% or 10 on the wallet sideways backflip.

[21:49] That you're absolutely right right right so there's a small percentage of population that's really can controlling it a big part of that that you cannot expend.
So the interesting part though is you dig deeper as I dig deeper this only gets more pronounced because all we've talked about so far as we talked a little bit about balance sheet,
stocks we talking about income when we then look at non-discretionary spending this gets more pronounced in that non-discretionary expenses of skyrocketing.
And as they've skyrocketed the effect of the lowest income has been the most traumatic I mean think about Healthcare is during that same time. 2007-2016 up 66%.
Education up 41% food housing Transportation 1810 + 3.
Do you put all that together and you put that against a flat to decreasing income and what that does is it puts pressure on to disposable income or discretionary spending.
In fact when we look at when we look at that proportional impact it really becomes pronounced it that the non-discretionary expenditures for the lowest income of a 22%.
So again zero to negative and an 22% increase in non-discretionary spending.

[23:04] The only relief is gas prices are down from that time frame.

[23:08] That's right that's right so there's some there's some there's some.

[23:09] It's not offsetting what the increases.

[23:11] Hello it is funny I mean we're talking about how these macroeconomic things affect consumers gas prices to me is always one that I think of is a little bit of a red herring.

[23:24] Close attention to it and follow it super closely but it's it's not a big chunk of that.

[23:30] Non discretionary budget for for the average household so it's it almost seems like people sort of overweight at like we're at their Healthcare is taking 30% of your not discretionary money in gas is taking 2%.

[23:45] Doesn't matter the gas is cheaper.

[23:47] Right right you have to sort of look at it in aggregate that's what we tried to do is look at 9 discretionary and aggregate knowing that there's no shifts occurring and what was it was fascinating as I talk to her about deflationary prices.
And apparel and slice of a Factory CD player Sherry prices in certain areas we see inflationary prices,
I haven't been able to tear this apart to figure out know what tribes that deflationary pressures what drives inflationary pressures.
I have my own hypothesis again this is not a proven fact yet at least that I've been able to prove out but I believe that those areas where technology has been able to make more inroads and more impact,
drives the deflationary pressures those areas where it's slower to adopt.
Alesso so freezing by talks about Healthcare you know being an industry that I personally believe is still tons of opportunity and technology is not made as many in Road maybe it has an inner in other areas.

[24:48] So okay well let's dig deeper okay this gracious let's talk about the scratch the discretionary share of wallet then,
what's the consumer left with the fascinating part here is low income has had a negative 16%.
Change in discretionary wallet in fact they've gone negative.
I ain't 2015 their discretionary well it went went negative a dramatic change from 2007.
And if you go up the only the only cohort that had any increase in discretionary is the high income.
4% increase in a 4% may not seem like a dramatic increase but when you put it against the the amount of dollars that are you know coming in.

[25:34] $100,000 plus you.

[25:35] It's a significant amount of additional money so when I start to think about that in fact you what we show is going to low-income.
Now has a net change in discretionary income of nearly $3,000 negative.
While the the highest income is up around $32,000 net change in their discretionary income so we got one consumer that has money.
Money to spend in one consumer who is more pressure than ever around.
Therefore you got to think about price sensitivity of the bottom 80% versus available dollars of the of the top 20%.

[26:17] You talk about low medium high at the very beginning now your time got two buckets what happened to the medium guys.

[26:23] Why I start a group those together I'm sorry so I start a group together when I talk about the 80 right who are doing not as well.

[26:31] Exact more like the low then.

[26:33] That's right so I started just divide it like the top 20% doing well the other 80% is pressure.

[26:41] Okay so then I started thinking further about this idea about what retailers are really competing for discretionary income there two competing for disposable but we also know over the last 10 years something else has changed and that's,
new categories of disposable and specifically we look just at 1 devices devices and data plans so if you went back to 2007 you know who was spending money on devices and data plans,
due 2016 of spinning at Force what we now know is all income.
Cohorts are spending on devices and data plans and if you looked at digital spin.
As a percentage of income digital meaning on the device for the low-income category except 3.6% just in the last year.
And high incomes only at .71% as a as a percentage of their dollars going towards this category okay so what was to say that.
For that low and middle-income categories that used to spend on certain retail you know items and spin.
There their discretionary disposable is squeezed and another portion of that is going to new categories or spend that maybe they weren't too in 2007 just shows more and more pressure building up and for us we sort of you that is,
increasing the price sensitivity that those categories have right so that for us was sort of really interesting about.
Tearing apart the consumer because at the macro level the economy is doing well let's not doing well for everybody okay at the at the macro-level you think retails doing well.

[28:20] Let's dig deeper and figure out what what's going on so what we started to do is to say okay well if that's occurring how might that be manifesting itself on the retail industry itself.
And you know there's another quote that I like to quote often is follow the customers they change.
We change and that was from the Tesco former CEO we talked about like evolving the value proposition of the retailer in accordance with what the customer actually wants crazy philosophy right.

[28:48] That seems super and Kim.

[28:49] That's right it does so how can we look at retailers in the context of what I just discovered here.
And so we took retailers you guys know me I was like to think about Frameworks to measure performance of the industry in the aggregate we put together a framework to look at the value proposition.
Every Taylor's simple-framework on one end of the spectrum we looked at price.
On the other end of the spectrum let's think about it in terms of Premium premium products or services.
So if you're a top price retailer you're getting plotted in a to the left if you're a Premier Service or product exclusive product your plotted farther to the right now.
How about called is a subjective plotting right because we're just sort of making an assessment of where.
Retailers are relative to each other but we thought it was a helpful and by the way there's a ton of debate.
Kind of debate myself my colleagues working through fighting and there was a lot of really in arguments about these relative placement.
A single dimension on a value proposition probably isn't fair it's more complex than that.
We use the framework to look at the foreman so as we planted everybody out we came up with three categories right if you're on the far left let's call that price based retailers if you're on the far right.
Lascala's Premier retailers and in the middle that's calling balanced right so if there's a retailer that doesn't necessarily offer exclusive.
Really exclusive products or extremely exclusive experiences but they're not cheapest either they a nice mix of Prada.

[30:24] And promotion in a Serta falls in the middle so those are sort of the three categories so we said okay we got three categories now let's look at the performance of those categories.
And this again was another huge aha moment for us is when you look at the five-year Revenue growth of of those retailers for a price-based you actually find they've been incredibly well.
Insight over a five-year. The growth is north of 30%.
If you're up earlier base retailer we also find their growth has been incredibly good in fact we find that north of 60% that we see.
His last drink there now the problem is and I gave you you may have noticed that I overlooked in that it is those Balance retailers over the same five-year. We're seeing about 2%.
Growth of those okay so it's really,
bifurcation of where the strength is in the industry and again if you were late that back to a consumer one consumer who is incredibly price-sensitive because of a constrained discretionary spending and another consumer actually has.
More money to make more decisions the questions are they buying more stuff.
Where they buy more premier stuff are they buying more Premiere plus Services you know oriented by the way you'll hear a lot you know in the industry by all people want experiences not stuffing,
yeah I challenge you to look through the same lens is that all consumers want experiences not stuff,
I think there's a lot of consumers who are just trying to get by you know with with squeeze dollars.
To figure out how to buy the stuff I need just to get by there is a consumer though who has more than enough money to spend on more experiential things than maybe they think they might.

[32:01] An inconvenience is a huge factor form to that's what the whole car wash things about like yeah they're they're so busy because to make over that under K you can't just you know you're working 60 80 hour weeks the convenience factor for those premium retailers is a big.
Big part of it as well white why they're choosing that retailer.

[32:19] I think that absolutely makes sense is that there's an element here that says at some point you're willing to change it trade dollars for time.
Hey has to do it while I have extra dollars I don't have extra time right I'm willing to do that so anyway as you dig deeper by the way if you look just in the last year that same exact framework what we find is in last year except if your price based your up north of 6%.
If your Premier based your up 8% or so and if your balanced if you're the balance retail your negative so weak that that cohort for us is negative 2% or so.
So by the way I would call out that not everybody in the cohort.

[32:58] Forms like the cohort rights and every cohort there's an Amelie's where there's a price-based that's negative and there's a premier that's negative in there someone balance is doing a little bit better than others so that that's absolutely there.
In aggregate but we find a strength and weakness and that's really what we were trying to identify.

[33:14] Yeah I need this is what hurts the mall base retailer because I'm all is neither you don't go to the mall saying.
Oh my God I'm going to save so much money right you go to the dollar store the club and does usually Arnot Mall.
Y'all so don't go to the mall saying oh my gosh this can be so convenient because you know if the park over here it's busy hike over here and so some malls I think kind of end up being in that Wasteland in the middle right now.

[33:36] Yeah I met many of the companies that are warm all based absolutely fall they're not although but many of them apps.

[33:42] But the Apple Stores obviously bucking that Trend but.

[33:44] By the way one of the things I did point out his this is a lens to look at the industry there are other lenses that also have a credibility you know the idea about are you off mall are you off you know re Mall based might be another lens to look at this.

[33:58] I would also just point out.

[33:59] All of these definitions shift overtime which is funny because there was a gyro in which you would have Define the mall as convenient.

[34:08] Like we put all the stores together in one place and surrounding them with a bunch of parking that was much more convenient than having to drive 15 miles to the store and today that same structure feels like.

[34:20] The inconvenient shopping experience because what are our expectations have just.

[34:26] That's right that's right.
I'm right by the way we looked at this then performance along a lot of Dimensions we looked at return on assets return on Equity we looked at PE ratio we're looking at everything we can look at that they would help us understand,
performance of these cohorts in an across-the-board on every one of those Dimensions you'll see the exact same.
You know if you looked at yet when you look at the graph in the report visually looks the same with strength on in the off price strength in the Premier and weakness you know in those that are in the middle.

[34:59] Even if you looked at here's there there's my other favorite conventional wisdom store closings.
This is closing stores the whole industry were closing stores closing brick and mortar stores that are being closed there's actually if you if you need it out there's more stores opening than there are closing.
Further if you then look at it via the same categories that I put forth you see the exact same thing occur you know price face retailers they're opening up stores in fact they're opening up stores like crazy.
Premier bass retailers also opening up stores and it's that the balance retailers were the vast majority of the store closing you know is occurring.

[35:35] So there's like 7000 closures last year I think is like the number that a lot of people put out there so you're you're saying that there was more than enough more than 7,000 openings around the the value side and the other side took character.

[35:50] What we did we went out and we studied at 10 Case press releases we tried to collect the everywhere we could and we use theirs there's varying reports that include and don't include some.
Certain companies but we were able to get everything we could see and what are what what are study found is that there were more opening in the work clothes.

[36:09] We also looked at net promoter scores,
long the same three dimensions and we find the exact same thing where you know consumers are 22% more likely to recommend price-based retailers than they are these balance based retailers their hundred 10% more likely to recommend Premier retailers than their balance.
Retail so we find the exact same thing that really has to do with what's the consumer want.
This is the simple idea about how is the consumer changing how are the pressures on the consumer changing and then how are you as a retailer you know evolving and meeting those those changing to man.
By the way the interesting part here is if you look at digital through this lens right what we find is the vast majority of price-based retailers are physical with very little,
digital presence very little digital offering of course it once you get to the premier side you find digital matters a lot more as it pertains to Premiere but I was like to look at this through that lens of life.
If you looked at ticket take a price-based retailer who's had signs of success over last 10 years and you look at them in and tell them they need to do a digital transformation or,
or go back 10 years time and tell them the way of the world is e-commerce,
they would have missed if they done either one of those things that she was opportunity they've had in the last 10 years the amount of value that they've generated,
you know my entire career has been about digital in retail and I certainly believe that the future of retail is predicated on digit.

[37:40] However I don't think being digital is the only strategy I don't think being digital is a sufficient strategy right.

[37:49] It's not much of a differentiated.

[37:50] How much are the temperature like retailers need to have digital and Technology fundamentally sort of ingrained in what they do but how that manifests itself and how they create value propositions around that needs to be that's the Strategic question.
So anyway that that's sort of the Highlight you know you think about this great retail bifurcation says look on one side we've got income that's really changing their for the consumers changing and therefore,
if we look at retailers in success or weakness it actually corresponds and I'm fairly well with what's happening at the consumer at the wallet love.

[38:24] So if I made from value and Premier I kind of know what I need to do I'm in good shape but I'm balanced what do I do.

[38:32] Actually.
I'm not sure that anybody knows what they need to do I think that's the that's the hardest question because the world is evolving and Retail environment consumers evolving so quickly.
That how you think about that consumer and how you think about creating value propositions one of the things we believe is it is increasingly granular.
You know Aunt in the value proposition actually is also increasingly modular so instead of having the big you know.
Monolithic value proposition that you're going to offer up to the consumer what we see is.
Fragmentation fragmentation not only of the market but fragmentation about how I approach the market if somebody call this personalization.
Right beside you that I talk to you different than I talk to you the next Consumer what we actually take that idea further.
And this idea that says no not just how I talk to you that's a marketing thing but how I approach you how I serve you my value proposition 1 assortment I bring to you we got to take all those things and safe.
That has to come become increasingly granular granular and modular how I take that out the market that's what's happening to the competitive base and frankly that's happened that's what's happening to the consumer as well.

[39:44] So so some of the.
So like Nordstrom and tax and I don't talk about the Retailer's but when I look at Nordstrom's and Saks the kind of have two phases of the consumers they have the the luxury side and then.
You know then they also have the price side so that you know that Nordstrom Rack and Off Saks so that's it seems to be an example, like what you're talking about.

[40:03] Yeah what was that without a doubt that's an example and in fact if you if you if You Pull A Part the vast majority of big strategic moves that any retailers have made recently they really do line up with this idea about some cases there.
They're different brands some cases their Acquisitions of brands that you'd go while that doesn't make sense with.
You with your customer base and if you looked at it through the Senate lens you got all that makes absolute sense less that's a choir a brand that actually lets me approach you know and and capitalize on a different customer in my customer base.

[40:37] Well there's tons of talk about Millennials word where do they fall into this mix.

[40:41] Yeah you know that's that's a great question cuz I was another thing we took head on this conventional wisdom that says this is all the money all the Millennials destroying all of this.
And what we found was.
Well I'm some ways that's true but the reality is it's more intricate than that so at the highest level when you average all Millennials together we actually find in our study we find.
They behave differently they behave in many ways that you might expect a shop online more often they go to the store last off,
you know those things but here's what really is fastening when we when we separated the Millennials by the same income cohorts here's where the big aha was as it pertains to millennials.
It's only the high in Cumberland you that actually really skews the entire collection towards the behaviors that you would expect.
The low-income Millennial actually behaves very much in line with the low-income consumer so we looked at propensity the shop online and what we found is a low-income Millennial shops online roughly the same way a low-income person does.
Meeting Tom middle-income Millennial does the same way also looked at whether or not they shop at discount stores and we found the same thing very much in line with the high in Cumberland Hill though.
Is is skewed dramatically towards behaviors and therefore they as a subset,
of the Millennials actually skew the entire collection of Millennials that way so when you pull it apart and then it becomes really obvious now the issue that you have is when you look at the high income Millennial you find out that's about 6%.

[42:13] The population or so it's a small portion of the population that really behaves differently one of the things we counseling and caution is to sort of think that the millennial is a group.
Now is that consumer we actually have to play the part we also looked at an interesting question is fragmentation of spin when you do shopping stores how many Shores at stores do you shop at when you do stop and shop online how many.
How many different places to shop online and what we found was high-income across-the-board skews hired a fragment or spend across more retailers.
The millennial online shopper skews.
Almost off the charts in terms of the number of different retailers that they're willing to shop shop with online that's very interesting insight.

[42:58] The shop at a lot of very few.

[43:01] The highway promiscuous in the.

[43:03] That's right that's right that's right.

[43:04] Does a user than play this but just to save it stated explicitly like so all Court cohorts.

[43:10] Gain wealth as they get older right so the older the color is the more wealthy 10 aggregate but one of the things that's been unique about Millennials is they've gained wealth much more slowly.

[43:22] Then previous cohort So when you say hey there's a a high-income group in a low-income group.

[43:28] That hiding from group is actually much smaller as a percentage of their total population then was true for Gen xers.

[43:36] Yeah that that's a great point cuz we all like to imagine when we said around as retail experts that we are and we imagine you know a millennial and how they shot,
you know what there their they're probably wearing yoga pants they've got 3 smartphones they probably avocado toast I think you mentioned that,
you know we got the idea of a millennial that the problem is that idea is a very small portion of the millennial one in five Millennials live in poverty.
2/3 of Millennials didn't go to college don't have a degree and the older Millennials 26 and 34 are the cohort with the highest rate.
Of uninsured medical incidents are the incidents that most frequent lead people into poverty so there's many people who are millennials today who are not doing so well they really fall into categories that we don't often think about when we talk about money.

[44:25] Yeah it's fascinating and I run into some retail all the time is just.

[44:29] Our industry was born based on these kind of urban legends in the you know this kind of word of mouth like oh this is who our customer is this is what their economic situation is in in you know you're you're bringing us another example of.
When you really look at the data the urban legend off and doesn't hold up but I used always chuckle.

[44:50] Personas are big thing for retailers he's going to need to return to have this Persona who their customer is and I have this premise that on average every retailers Persona is 10 years younger than their average.

[45:03] Because I want imagine that they have this like young hip Shopper and yet that that usually isn't who shopping in their stores.

[45:10] Something about this cuz I just I just shared data that most of it is you're looking in the rear right we're looking for looking back think about you know here we are interesting about the,
the buzzwords I'm in route back to this idea of the buzz words that were the big buzz words here at dinner after last 10 years.
In what I just showed was that there was something going on in the marketplace that none of the buzz words were.
Where anywhere clear to close to write were talking omni-channel retails the future in Mobile link.
Important in that they weren't good and that if you did them right they wouldn't be productive but there's a whole collection of retailers that that went a Direction.
Around the cut off price you know that was incredibly lucrative over the last 10 years that none of the buzz words.

[46:00] That opportunity and when was thinking about business with him. RetailMeNot retail strategy we got to keep in mind that this is about finding opportunity.
Finding where those pockets are of of demand or pressure or needs that we we can figure out how to capitalize on those in and serve those and provide to those right,
and if we look into the future we have to figure out,
where are those evolving opportunities where they coming from next and how do we think about those too often and Retail we think about capability we think of mobile.
The capability when we don't think about is is this idea of need right and the changing competitive environment and how our competitors are thinking about unlocking those opportunities so you know I got passion about this idea about.
You know Zig when everybody else zags write the passion about this idea about thinking in more granular ways about where there's opportunity and being skeptical.
I'm a bender let me be clear I'm a vendor but be skeptical of us off of us vendors who who you know show up with the buzz words and show up with these simple ideas that are conventional wisdom about what success looks like.

[47:12] With the very rare exception of Jason and Casey be very skeptical of the vendors.

[47:16] That's right you want to be skeptical of Scott.

[47:20] Scot used to be a vendor now he just helps make our life better by having our.

[47:25] Agnostic vendor so what channel does being somewhere so choose your own strategy.

[47:30] You guys now that that's those are the highlights of the great retail bifurcation in the report you will be launching in.
The March will be sharing with few of our clients between now and then but in March we're going to be in a launching it and you will see it will make sure we push it out to the market.

[47:46] Did you guys projected Ford like as it's only going to get worse or so like some of the tax cuts and we're seeing some people raise minimum wages for retail employees was trying to see some movement at that lower level I don't know if it's me and you don't fit.
WD projector for door.

[48:01] There's no projection on it but we certainly have had,
plenty of conversations of course this is it gets wrapped up it gets wrapped up very quickly and threw a political positions and thinking and and how you believe these things that are happening now policy changes made manifest themselves.
You know I would share my own personal view point would be that.
In a meeting of the changes that have occurred recently including the continued growth in the stock market skews towards one end of the Continuum you look at the tax cuts and you have to decide whether or not you believe.
The trick is trickle-down effect will.
You know ultimately find its way to the lower lower ends of the income Spectrum I'll refrain from providing will have to have more conversations over a beer about whether or not we believe one way or another.

[48:51] We don't get into Kenzie in economics here at the end of the show.

[48:53] That's right it is it's a great question about whether or not you know the things that are occurring from a policy standpoint or only going to accelerate this or whether or not they're going to solve this.

[49:02] Cool Whip between now and when the reports out what should should listeners they're interested in this topic where would you point them like maybe your Twitter feed or.

[49:11] Yeah so it will certainly in the Twitter feed will continue to offer more things out but I thought I would share this look we're sharing with our clients you know that the initial findings I'd be happy to share you knowing conversation with anybody in a prior to our official,
no more States and reach out to me via email or Twitter LinkedIn any of those ways I'll be happy to know begin sharing some of this there's nothing super secret here,
let me thrilled to share this with anybody that thinks this would be helpful.

[49:40] Awesome and then what's your Twitter handle.

[49:42] Caleb.

[49:43] Caliber.

[49:44] And we'll put that in the show notes so you just have to click the link.

[49:47] Go to last topic so you spend a lot of time thinking about the future you you're heavily involved The Singularity University and and you know we always have this fun topics around Ray Kurzweil and stuff what anything would we think about the next 10 years what does it hold for.

[50:01] And I always like to say you know if you think that you've seen disruption you know you ain't seen nothing yet.
Cuz the reality is if you don't we study this in the retail volatility index when you when you really think about okay is the industry being disrupted today I think pretty much people would say yes being disrupted but if you say.
Artificial intelligence isn't disrupting and I can't come up with an example this is all this is Ben and blockchain isn't disrupting and driverless cars aren't disrupting and you know advances and in human health.
So the vast majority of the the Technologies even that will see over it at interrupt.
Disrupting today the destruction that were talking about today is really after 20 years of first and maybe second year second generation internet Technologies.
Web IP protocol mobile devices you know so and we start celebrating him.
Of those and you know I look at it and go boy this next Generation that are just now coming online,
are going to make that pale in comparison but I finally I comes back to the exponential curve of advancing Technologies in the impact of those Technologies where we're now starting to feel the acceleration of that.
And I think things like I think things like blockchain and its ability to.
Open up the marketplace are really going to have a profound effect once once we figure out what and how do you use blockchain to open up Trading.

[51:34] Inventory providers and customers and you know there are retailers today that play The Ledger.
In between suppliers and customers today what happens when you don't need a company.
The place at Rolex that do I think I'm pretty bullish on that it'll take awhile for that to you know evolve and unlock the advances in artificial intelligence there's a great presentation of singularity,
on the advancements in what what like why now why are we talking about it now when you see that presentation about well here's how far it's coming The Last 5 Years it's mind-blowing,
about how far it's gotten so I'm confident that in the next five to seven years that will have a profound effect though you know I guess I tell people you ain't seen nothing yet that's my view.

[52:21] It's funny one of the things I've learned from from Singularity is the human brain just isn't wired to sort of.

[52:29] Project these exponential changes and so we have this tendency to think linearly and you go home and there's been a bunch of change we're probably.

[52:36] Most of the way through that change when in reality I wholeheartedly agree that like the overwhelming majority of disruption were likely to see his still.

[52:45] Still in front of us which is great news for the three of us at this table because there's going to be a great role for our businesses and more importantly the Jason and Scott Show podcast.

[52:54] The interesting part I'll add one more common is that it's not usually the technology itself the technology gets all the attention it's the changing.
Competitive Dynamics it's the changing barriers-to-entry it's the changing idea about what it means to compete.
That we lose sight upright weight we want to think about our competitive model as it stands and will attack on whatever technology is and in largely will be the same but the disruption comes from the changing.
Competitive environment that's what changes not just that a you know my competitor now has a mobile app I need a mobile app to know.
That's not it it's like I talked to her earlier about deflationary pressures on prices and apparel it's those sort of changes that come from the technology that we miss when we don't double click and triple click into what are the implications.

[53:43] And the consumer changing more rapidly than we can react to him to your point about the the quote they have.

[53:48] One of the things we're saying this is back to buzzword right this are buzzword we're saying this isn't the retail apocalypse it's more like the retail Renaissance,
brightest idea that there's a spirit of change that's occurring we sort of put it into the to the Renaissance. Where technology became important in science became important and the question is whether or not you can evolve.
You know during the Renaissance.
And that's really what we're at because the industry isn't week the industry has strength there are winners and losers it's happening at a faster Pace than ever but it's not the apocalypse.
You know and it in its demise it's actually in its you know when someone gets in at a day here as we as we figure out how do we compete in a new environment.

[54:34] Well that is great news and that is a great place to leave it today because it is happen again,
we've used up all our a lot of time so we certainly appreciate your time Casey is a reminder if you enjoyed the Today Show we certainly appreciate a 5-star review on iTunes if you like to continue the conversation you're welcome to.

[54:52] Click on over to our Facebook page and leave us a comma.

[54:56] Yep and a kind of a fun thing is you get to play you are in a rock band so you have in your your your night gig are night gig is podcasting in yours is playing a bass guitar so there's a big a jam session at the Retailer's get together at the soap look forward to seeing you rock out tonight.

[55:12] And I look forward to it.

[55:13] Until next time happy commercing.

Jan 15, 2018

EP113 - NRF Preview

Episode 113 is preview of the NRF Big Show 2018.

  • Recap of CES 2018
  • Preview of NRF Big Show 2018
  • Retail News

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Episode 113 of the Jason & Scot show was recorded on Sunday, January 15th, 2018.

New beta feature - Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this is episode 113 being recorded on Sunday January 14th 2018 I'm your host Jason retailgeek Goldberg and as usual I'm here with your host Scot Wingo.

[0:39] Hey Jason and welcome back Jason Scott show listeners Jason this is one of those are very rare times over the course of the Year where we are actually not only in the same town but in the same room at the same time.

[0:53] I know it's awesome we make eye contact while we're talking this is very weird for me.

[0:58] Yeah it's very weird I'm usually just staring deeply into the the computer.

[1:02] I'm staring deeply into a photo of you I have over my computer.

[1:05] Are there candles.

[1:07] We don't need to get in any more specific.

[1:08] Call Sue.

[1:12] Why are we here Together Scott.

[1:13] We are here at Big Beautiful New York City for NRS Big Show.
It's that time of year again where were you here making the Trek down to the Javits Center no snow on the ground this year I think that's the thing the last three in RFC I've been trudging through snow but this one's pretty dry.

[1:30] There's no snow yet but the mean in RF weather tradition is the blizzard that comes in during the show and makes it impossible to go home after the show and if I'm if I'm remembering correctly there is it forecast for snow during the show so we'll have to see.

[1:45] We may be doing a lot of podcast from the the podcast you here in New York.

[1:49] Exactly are our misery could be our listeners benefit.

[1:53] And what's up we definitely want to do a little preview of some of the things that were already hearing about it in RF but you are fresh out of Vegas where you were at CES I want to hear all about your CS6 transfer.
Exciting things I saw the Tweet about but I'm sure there's more color you can share.

[2:10] Yeah so there's an annual tradition for me is you know you celebrate New Years and then you'll get on a plane and fly to Las Vegas with,
180000 of your closest friends to see the latest,
new Innovations in electronics and then you go straight from there to New York for the blizzard and the big interrupt retail shop and I go to CES,
almost every year I think this is my 32nd 2-year CES largely to see,
new trends that might affect our our clients on our Industries.

[2:48] Now that he's become Dex and CS remember and you probably go if we're talking 32 years they used to be separate shows then it kind of merged and now you can hardly see a computer anywhere at at CVS.

[3:01] Yeah so they were competing shows context was in November CES is in January they both briefly also tried to have second shows in Chicago at another time of year was that that wasn't very successful,
condex went out of business some of those exhibitors then moved over to CES and over history at various times they've been industries that.
UCS is an important part of their business and then moved on so I can the video games used to all exhibit at CES they outgrew it and launch their own show which is he three computers are not a,
super robust part of the Consumer Electronics ecosystem at the moment they're pretty flat.
Although there is a big push people are feeling like the Esports and the high-end gaming is.
Starting to drive a meaningful niche of these high-performance laptop sales.

[3:53] One category that is CS now is Auto City Autos used to be kind of at their show which is called a Syma and then another part of SEMA Ace.

[4:03] Cosima is the auto parts show that's in Las Vegas there there's a course of the Detroit Auto Show is going on right now in Detroit which is where all the.
Karma you typically see car manufacturers in Detroit launching their new Mustangs and those are two things and you'd get the like.
Tire guys in the the oil filter guys and all that at SEMA and for many years one of the big pieces of the consumer electronic show was the aftermarket.
Car audio industry which is of course almost completely dead.

[4:34] Yeah and then we had GPS is for a while they were big now actually Autumn acres are there in a pretty big way right.

[4:40] Exactly so they have taken over the hall that used to have the car stereo equipment in it and they're largely showing car tech in so you know they're they're typically not launching their new vehicles.
It in Las Vegas they're typically showing the new in-dash platform their new automation things the new wireless Services they're offering and what's what's a little funny is you you go to all the car boots and you.
You might say you'll see some cars but you see a lot more like.
Check components from the cars and then you go to all the other Halls where you see the the major ingredient tech companies like Bosch and Intel and Qualcomm that make alot of the parts in the car.
And they are of course have fancy complete cars and they're both so you go to the tech show to see the cars in the car show to see the tech.

[5:31] So what's new in cars is it is there still a big battle for the Smart Car platform already moved on to self driving cuz I know Intel's bigger than that what were some of the big things and Auto.

[5:41] Dazzled by far the big Trend in the the car boots this year is Automation and particular the self-driving Vehicles they have this system.
This ranking system from.
Animated level 1 through 5 so I go level 1 car has tools that help you drive better like a flashing light that tells you that the car in front of you stops and two can kind of assist you and certain things.
Like like a break for you when there's a car in front of you three can let you have your hands off the wheel for tonight you have your eyes off the wheel in five doesn't have a wheel,
inside there a lot of now level 3 cars being shown at the at the show and a lot of the,
the tech Innovation was around like these these autonomous vehicles and then to a lesser extent.
Electric vehicles in new charging Technologies and things like that Qualcomm has a thing called Halo which is wireless charging for your car so you have a plate in your garage and you.
You just parked the car over the plate and it charges it overnight free.

[6:51] This may seem Irrelevant for retail but I saw on CNBC Ford,
you announced they're very excited about driverless cars but they really kind of they don't believe that they'll be kind of a fleet kind of a thing like an Uber there really more into package delivery so I think that it's going to last mile.
Absolution. That was kind of interesting that the others there's a major auto manufacturer that really thinks it's going to be really more for delivery and he specifically talked about new from stores to do consumers.
Actually competing with FedEx Amazon ups and all those kind of folks.

[7:26] Yeah yeah I mean there's another time we can talk about from that the show is Robotics and so it's kind of a combination of Robotics and automation there's a lot of interesting potential,
new helping that last mile but the Ford booth at CES is kind of interesting they really focused on.
Their vision for what a city looks like in a world in which most of the vehicles are autonomous and so one of the big questions that they they were trying to answer in their Booth is.
How do pedestrians interact with autonomous vehicles right like to,
often when you're crossing a busy street and there's a crosswalk you may go out of your way to make eye contact with a driver before you just make a leap of faith in Jump front of the vehicle so what do passengers expect to do.
When an autonomous car is coming up to a crosswalk or those kinds of things,
in one of the things that they did to study this is they really did this big research study on future cities but they actually invented a costume that looks like a car seat.
And so they say they dress the guy up to make him look like the empty seat of the car and sat him down in the car so it was a fake autonomous vehicle.
I'm just thinking that that's a funny job to go home and tell your parents you just got is your portraying a car seat.

[8:41] Or when you have time to go to Starbucks I must look really weird it's like here comes a Walkin car seat.

[8:45] Exactly so they videotaped all these consumer reactions and they have this notion around like we'll probably have to have some Universal standards for like a lighting system in the car that you know as pedestrians know that they're being seen or those kinds of things.

[8:59] When ironic when is the new there's a Netflix series that started in the BBC and then got picked up but it's called Black Mirror and in this they just released season 4 I don't know if you watch it or not I think you're behind on everything.

[9:12] I am kind of on most of the stuff you give me Groupon so that's that's next on my list.

[9:17] No spoilers but one of the episodes it has this kind of plot device where there is a driverless vehicle that delivers pizzas and it kind of.
Knock some of this guy and it's not really part of the whole thing but the looking shape of it was really interesting like you just wanted to know a lot of time thinking about how this look and then I saw that CS.
Pizza Hut or.

[9:37] Toyota and Pizza Hut add a had a partnership for an autonomous pizza deliver.

[9:40] And it was just like it was exactly like the thing on dark mirror so I was really really very strange and then I saw an article about it and there was no coordination or anything it was just.

[9:51] I wonder who inspired who think they're cleaning independent invention and then.

[9:57] It's kind of has to be because well if the show had known about pizza thing it could have been but the shows literally been out for like that came out December.
Like 30th or something so there's no way they could have designed a prototype that fast but it's kind of really Tales from the future kind of a thing to happen there.
Okay so that's Autos then as I was sitting watching remotely and not fighting for calves with a hundred and eighty thousand other people I saw,
a lot of Twitter traffic in stories were around the the home automation and then also kind of the battle of the smart speakers and intelligent thing so so last year report from cs1,
this year it looks like Google is really stepping it up don't give us an update on what you saw there.

[10:41] Jump to that last year we didn't necessarily expect partsmart,
speakers to be a big part of CES but you went to the show and Amazon with embedded in like over 400 devices at the show and you know I seem to be ubiquitous in Amazon didn't have a,
their own presents at the show yet they were getting on the bus,
a big part of why I say yes existed to generate PR to drive future sales and so most people declare the Amazon the winter that show they didn't take a booth and yet they had this great,
present so this year we are all curious to see if they would.
Double down on that or if any of their competitors would make up any ground and it really clearly has emerged a two-horse race with Amazon and Google so this was probably the death knell for Cortana Cortana was the first born,
on the PC is part of the Windows operating system and even all the Windows laptop manufacturers are now shipping laptops that are Alexa enabled,
not Cortana enabled.

[11:40] No it's a Samsung when I can't remember its name.

[11:42] Bixby in Samsung is definitely has an interesting strategy overall theme of the show is.
The traditional product you expect to see the show we're not very improved from last year it was a very irritable year and what the exhibitors were more focused on was.
The platform of how all these products work together rather than their individual features so.
LG and Samsung and I'll have Smart refrigerator smart washer smart kitchen is all these different tools and instead of showing you how much better the refrigerator is this year than last year there were more focused on how much better to the house works when all these,
devices talk together so that.

[12:21] That's a lot of mocked-up houses in this kind of thing.

[12:24] Yeah I like vignettes and in these use cases like a you just bake lasagna in your Smart Oven your dishwasher knows you just.
Bake the pan and so it's setting the dishwasher to the the pan scrubbing mode rather than the echo mode because it's got to get the the big done she's off the pan.

[12:43] Does anyone have a nest camera for looking in my refrigerator so when I'm at work and I can't remember if I have milk or not.

[12:48] Yeah it that's one of the most popular features in a smart refrigerators are these these webcam.

[12:53] The ones on the outside where I can see inside isn't it I need like seeing.

[12:56] Inside so that when you're at work you can at the store you can see if you need eggs or milk or those kinds of things.

[13:02] The fair when I saw her was at sokoler came out with a pretty much any any kind of Plumbing fixture in your house can now be Alexa enabled so.
They had the suitcase for the guys holding a baby with both hands.
And he says Alexa turn on the sink and then he like takes a hand and he liked holds bottle and put it under and it's kind of like why can't you just take his hand in like turn on the sink and then they have a toilet did you did you get to check out the toy.

[13:27] I did I did not actually test the toilet but I did observe the the Alexa enabled toilet and yeah that was in bed and everything it's not clear.
That you want or would benefit from voice embedded in all these products and the what was interesting about the whole voice battle.
This year was you know the Google had a much bigger presence than last year they both took a very big boost themselves which will come back to you in a second Amazon actually stepped out the size of their boots so they actually had.
Immodest Alexa Echo System booth.
Last year they had the treasure truck so they should have had the treasure truck and these examples of all the third-party products that work on the Alexa Echo System Google built this big Booth with they want some new hardware at the show so they have.
Through Partners they're making what I would call Echo work type product to a Google home product with the screen.
In a very familiar form factor that people that.
I have that the echo look and today he wants to Booth to demonstrate all those things unfortunately that the booth is super extravagant and was designed for big parts of it to be outdoors.
And for the first time in a hundred 15 days it rained in Las Vegas and so literally the the Google Booth was rained out on the first day which I imagine is a multimillion-dollar mistake.

[14:48] I saw I had a slide did you get a chance to sit down the side.

[14:51] It it did I did not get a chance to sit down inside their Booth was so crowded that they literally had like wait time management for all the various things so you are.
It's 15 minutes to go to the roof and go down the slide and I just didn't have the time.

[15:08] Yeah I did back on the color thing I heard that the deluxe integration with the toilet was kind of crappy.

[15:15] I'll add the drum roll and post no no I won't listen.
It's ok Google like did everything presents they were embedded in in more products but what they really did as they spent a fortune on Advertising so,
so Google bought all the outdoor ads they had as on a ton of the taxis they wrap the Las Vegas Metro in in Google sign in.

[15:38] Stairs I was under the stairs.

[15:40] Yeah they I don't specifically remember some.

[15:42] Escalators are like an escalator.

[15:43] Yeah so they they spent a lot of money on outdoor advertising which is ironic I guess given that they're primarily an advertising platform.

[15:50] Should ask him how they measured the ethics.

[15:52] Yeah I don't think there is one.
They definitely got more mindshare as a result of spending all that money and it certainly shows that there Devin Ernest interest in winning the space it feels like.
They're still pretty far behind from an integration standpoint there certainly far behind from a skills perspective as well as we've talked about.
But it's really emerging as a two-horse race and lots of retailers have a vested interest in Amazon not owning.
The the home automation voice space and so you know there's a lot of people that that you know I'm rooting for Google because they're the.
Potential foil to Amazon.

[16:34] The Google Talk anything about the business model and how ads are in a work and they're just kind of like charging in and we'll figure it out later.

[16:42] Yeah they really didn't like obviously wasn't they didn't talk a lot about it but there was a big announcement to me last quarter when both Target and Walmart and some other retailers started sharing first-party data with Google so that.
If you if you're in the Google echo system in your shop at Walmart and you say order more peanut butter Google has access to your peanut butter purchase history from Walmart's to fulfill their.
The the most likely peanut butter better you'd want right in that was historically abused competitive Advantage for Amazon is there artificial intelligence system had all this historical data on consumer purchases and since Google doesn't sell anything.
They're pretty disadvantaged in.

[17:21] Just Walmart and Target both share their data with Google and you say or did you just say order more peanut butter will Google know a Jason buys the most.
Jeff from Walmart and allergic from Walmart like what use that to discern between retailers.

[17:37] Yeah although it's it's the last that it's deciding like you opt-in so in the Google home Echo System you say I want my fulfillment partner to be Walmart and then that.
That Ops you into Walmart sharing your data with Google.
And then you're likely to get Jeff if you primarily order Jeff there that is an advertising opportunity so when you're a freaking purchaser of Jeff.
They're likely going to sell you the Jeff you frequently purchased but if you say order peanut butter and your not a frequent purchaser of Jeff they need to.
Suggest something to you and they typically pick one brand historically that's been this Amazon Choice program on the Amazon platform so they Amazon Choice products,
usually ends up being the recommended product in in the Alexa Echo System but we're seeing some strong indications that Amazon is actually selling.
The that.
First recommended spot for new purchasers to a lot of Brands and so that it's sort of ironic like we've always talked about Google is primarily in a driven business,
doesn't have a way to monetize voice Amazon obviously makes money selling stuff and so if voice makes you buy more stuff Amazon food,
monetize much better than Google and then irony of ironies it appears that.
Amazon is ahead of Google in terms of figuring out good advertising models for voice or at least acceptable ones.

[19:03] Yeah okay a couple more serious than what was the worst or the wackiest thing you saw.

[19:09] Yeah every year there's some goofy products there's that you know the.
Bluetooth for car something like that something that jumped out of me is completely wacky there's a ton of new smart Health Tech and particularly a ton of sleep Tech in some of that seems.
Somewhat silly right so,
aromatherapy and video systems you know help you get 4 hours of sleep in a 20-minute power nap for example so there's a lot of that and then one product we thought there was kind of interesting I think you could both be the wackiest product or the biggest commercial hit.
Is this the 3D printing for presumably young girls finger nails so you can.

[19:50] Does chocolate last year too in my room.

[19:52] There their they're definitely in some 3D chocolate printer.

[19:55] I thought you're going to say chocolate.

[19:56] For a while yeah but to me that would not be silly at all.

[19:58] You need to light a printer.

[20:05] Well it's.

[20:07] Did you see that Samsung wall around what there's a lot of Buzz around the Samsung.

[20:10] Yeah so every year there's a big competition around what's the newest most amazing television that could be invented and a lot of these two televisions are ones that never get commercial adoption there there.
You know concept televisions that they they build very similar to a concept car.
And so they keep getting bigger and bigger or thinner and thinner LG at a television that you would like an 88 inch 8K television that you would literally roll up.

[20:38] I saw that it comes in like a little tube and it kind of rolls up so it could be a very small footprint.

[20:42] Exactly and there is this actual practical problem that a lot of people struggle to self install TVs on the wall so there's a lot of TVs that are damaged shortly after their bought when they fall off the wall and these these you know.
LG TVs that are now like 6mm thin like they're literally mounted to the wall with tape so that that is kind of cool and interesting the Samsung.
Wall TV is just impressive for its high resolution and enormousness they didn't give us a spec for exactly how many inches it is but it's well over 200 in I'm so that was just a.
A very cool piece of glass.
There you know there are a couple of the new car manufacturers can't afford to go to Detroit Auto Show that they watched new cars from.
Companies that don't have a history in the outer space tender launch at CES and so there's this new electric autonomous vehicle called the Bryant which is science.
Which you know it may or may not ever see the light of day but the concept car looked very cool and it had a what they call a pillar to pillar.
Digital screen so the the entire Dash it a 4-foot wide Ash is all one big big Monitor and if I own this vehicle I would spend most of my time just sitting in the garage gaming because it's so it would be the best green I own.

[22:00] Okay let's what let's bring it back to retail what was the the most interesting Commerce stuff for our kind of give us a tour of who who was talking Commerce.

[22:14] Yeah so it really isn't a retail show I'm a bunch of retail people go to the show because all the manufacturers are building displays to introduce their products to.
Two people at the show very similar to have a retail would merchandise the products in the store so out of the merchandising team for retailers go to look and see how LG and Samsung and Sony are presenting their new products,
addition of the show Ali Baba had a big boost that a booth last year,
they went even bigger this year but what's interesting it really didn't focus on e-commerce or their Marketplace at all it really focused on.
Actual Alibaba branded products that Ali Baba's inventing so they have a smart speaker for example and it was really promoting a lot of there.
Services many of which will feel very Amazon alike.
To westerners so they have a equivalent to AWS into a big part of the booth was committed to their services they have a meeting chat.
Telepresence so I can go to meeting or Zoom or a blue jean depending on what region of the country you're in and those.
You know they're there demonstrating those things in the booth they did have a baba has an interest that used to own ant Financial which is all the payment stuff.
I'm so they had.
Ali pay and pay with a smile so that this voice recognition that pay face recognition that pays when you smile that lockers Dropbox Whoppers that you unlock with your face and things like that.

[23:47] I saw you were in a cabin you can actually pay with Ally pay in your.

[23:49] Most of the Las Vegas cabs take Ali pay and you correctly guessed wise cuz there's a huge amount of Chinese tourism in Las Vegas.
I lied to you and said I paid with all you pay like you have to have a Chinese bank account to get a wepay account so it turns out to be non-trivial to get one I tried.

[24:05] I figured figured if you don't have Apple pay there's no you have.

[24:08] I do have Apple pay and if anyone doesn't believe me you like send some cash to Jason Goldberg on Apple pay right now and see if it goes through.
The battle is the Chinese search engine that's sort of the Chinese equivalent of Google and they had a big boost they had never been there before they also are getting in there.
The Consumer Electronics space with some smart speakers and some some other products they have their own device operating system that they're pushing.
I'm there was a retail Tech Pavilion at CES but it was.
Yeah I think that retail Tech vendors were all getting ready for this weekend in a rest of the the vendors at CES were you know probably not the Marquee.
Vendors there's a kind of typical digital signage vendors that we see everywhere like perched that was in the retail Tech Pavilion.
And then in the emerging technology section there are a lot of vendors using computer vision for retail applications so a bunch of these Tech guys that don't know retail really well.
Are envisioning that every retailer is going to want to face recognition to track every customer and recognize every customer when they go in so that's a super comment.
Use case that these Israeli security companies set up set up boosted to pichai unless convinced that retailers want that.
But then what what makes perfect sense that there's a lot of is.
Companies with expertise in computer vision using that computer vision to create a Amazon go experience for self checkout or for inventory management so they were a bunch of.
Companies talking about that one in particular that got some good Buzz is called a ipoly and they they were demonstrating some.

[25:47] Some pretty sophisticated use cases of just using cameras of there being Shoppers to the kid very clearly differentiate which product of Chopper and picked up off a shelf.

[25:56] So they were like sad mock-ups of stores with ever showing this technology.

[26:01] Yeah they would claim that we have a complete amazongo equivalent solution and really like.
They have sophisticated computer vision technology that identify what the Shoppers doing but you know there's a bunch of other pieces that are required for go I.

[26:20] That I'm not sure of the startup companies have invested in solving for a retailer.

[26:26] So while ago it may even last year there's that there's a really big company in China xiaomi that they were going to launch phones here and I think they've got a whole family of gadgets now that seems to disappear were they there.

[26:39] I didn't see them now this CS is not a huge phone show because in February is a huge is the worldwide phone show in Barcelona the Mobile World Congress,
you're right there are some Chinese manufacturers that tried to penetrate the US market and maybe the interesting one and I,
I never know how to pronounce their name properly is a Chinese company so I'm not going to try on the podcast,
is there a big Chinese consumer electronics manufacturer that makes a lot of Premium smartphones in China and they were making a big splash that they were going to,
enter the US market and they actually cut a deal with AT&T to sell their phones,
in all the AT&T stores until right before CES that was the big announcement and they had a huge booth at CES well.
The US government claims that there you know owned by the Chinese government and that their technology isn't secure,
and that apparently they the government rattle their saber enough to AT&T backed out on this.
The steel in Ogden not to sell this Chinese Hardware.
You know if you if you go super nefarious that the Chinese government could somehow have access to these these camera phones and speakers and all these.
A consumer stands in the US.

[27:59] Alright last CS topic anything exciting on the in the world of drones and then they are VR.

[28:06] So there is a ton of drones I would say it was a slow year and evolution DJI really dominates the consumer drone space they wants one last year around Siesta became super popular the mavic pro,
they've since launched a smaller one in so what you mostly sides he has his everyone else knocking off the.
The mavic pro this year so there was a lot of that what was new at CES this year was it was definitely the first year when the robots were very ubiquitous there robots in.
All the big boots and then he really range the Spectrum from some that are like practical and have achieved some consumer 6s like like tomorrow vacuum cleaner.
Rumah type stuff to some very absurd robot so there are a lot of LG was showing shopping robots that.
Drive to shopping cart to follow you around the store so you don't have to push the cart there a bunch of robots that drag your suitcase through the airport for you so you don't have to do that it was like a $35,000 robot that folds your clothes when they come out of the.

[29:06] Oh I saw that was exciting.

[29:08] So maybe that is an application in a retailer folding clothes at the Gap or something like that but I'm not sure a lot of consumers are just like folding up to.

[29:17] To draw a crowd to come see the the folding robot I saw a CS but a Boeing a released a prototype type of a drone that can carry 500 lb.
I'm it was interesting it's not a military application I think they've taken the military stuff in Skillet down but the article suitably talked about it being an interesting way you could like load balance between fulfillment centers with that kind of weight load that's kind of interesting you know.
Here's a corner of stuff I don't need in Ohio have the Drone carry it to I don't know how far this thing can go but to to another fulfillment center.

[29:49] They're definitely scaling up the Drone technology so they were at least two passenger drones are three passenger jet drones at the at the show so these are like autonomous vehicles that take,
passengers in that notion is that that could be a sky taxi in some cases there's an all electric one that Intel is partnering in we were kind of joking about.
Yeah probably not perfect timing to have.
Autonomous drone with no pilot in it that carries passenger that's being powered by this Intel chip the now is vulnerable to the Meltdown,
I'm back I'm not sure I'd want to be directly under that that that drone but they definitely had some big capacities I think even the Bell the big helicopter manufacturer was there with.
With some ground so definitely possible and then a lot of the robots are good at moving that stuff around in the last mile to so Hyundai had a bunch of industrial robots obviously the Kiva is.
A robot that than Amazon now owns and you joked about the military uses but I will say just superficially a bunch of these drones did look like they.
We're just disarmed right before.

[30:56] Yeah it kind of freaks me out the speaking of Black Mirror episode recommend for listeners.
All the episodes are independent so you can just like skip around watch the one called heavy metal that when they gave me some good night nurses pretty,
okay that's a cool thanks for that CS review that's awesome let's do it quick in RF preview so,
I think the thing we're really excited about it is there's a Apple event that we got invited to and that's me tomorrow and.
It's we don't know anything about it we just know your typical Apple format limitation has we have something that says we have something in store for you there's a picture of a bag,
so seems like apple is doing something around retail technology what you have any speculation what's going on.

[31:43] Yeah I don't have any real insight I am in the dark as much as you it it definitely seems like apple is poised to launch some retail product or service.
They never have a booth at CES they want to see us this year but they have a big meeting space it's heavily apple-branded at interrupt this year which I found interesting and so you can buy in that with,
ass getting invited to this secret event that they they wouldn't tell us the nature of.
I might like the most likely thing is that they're watching some new thing in the payments ecosystem so maybe like the next version of Apple pay or a POS or a you know everything the Apple OS 4.
You know commercial retail tack like you know tablet enable meant that kind of stuff.

[32:31] A lot of retailers use the tablet as a retailing thing so maybe it's just more around that or maybe it's just a set of back that's practices doesn't feel like they would do an event and a meeting room for just like hey here's how people are using our technology seems like there must be more.

[32:44] No eyes I think they're going to want something that's apple-branded that that is targeted at the retail industry so I could be super fun we don't don't that many surprises from Apple these days.

[32:54] I know it's over here and if it's if it's Earth shattering we will put out a quick podcast just to kind of lay down our thoughts after we see whatever the amazing thing is I just hope Tim Cook there I've been dying for attempt.
I need a good Tim Cook an emoji selfie and be good to do unicorn or I don't know.

[33:15] You said one of the products I bought at CES this year is a 360 camera and so I feel like.

[33:22] 360 song.

[33:23] 360 selfie.

[33:24] Nice.
Nothing that we're excited about is we have Casey from Deloitte on the show so we will be putting out.
I left some new research that we're going to be talking to Casey for the first time here on the show we have our digital council meeting so that's good.
I saw they have a speaker I did not read the details did you.

[33:47] Yeah I think it is a friend of yours we from Alibaba.

[33:51] Oh yeah I do remember now awesome so we'll get to hear all about singles day so that'll be good and how much better it is then Cyber Monday let's see anything else around interested we want to talk about.

[34:04] So there are a number of,
interesting private events that are great networking opportunities and you know hopefully we'll we'll get some people inebriated and get them to inappropriately share with us on the podcast for those of you that don't know Scott and I super well,
we are not the guys that get invited to all the private,
parties in our in our youth so this is this this weird once-in-a-lifetime opportunity where we get the invites to the the cool parties.

[34:33] Yeah yeah the Geeks shall inherit the earth.
Well we have so that's it on shows let's bang out a little bit of Commerce retail news from this last week so it wouldn't be a Jason Scott showed without.

[34:58] Not a ton of Amazon news this week despite the lightest Amazon news for a while.
And I'm ending this cuz the company is in a quiet. So I will your public company there's this kind of. Of time where you know how your results were and you can't really say much about them and,
I'm excited cuz they did announce when they are going to release.
The fourth quarter earnings and that will be on February 1st so we will do a special version of the show where we will cover those will cover will put it down the night of the first and then we'll hopefully get it out on the 2nd if her audio team can,
jump on that we've been talking a while about all the rumors around Amazon going into the drug business drug stores,
I am now there's a loud drum beat about beauty so I don't know exactly what is King it run off of that but,
you know it's pretty clear in the retail World Alton's for doing really well so I think Amazon is kind of turning their guns that way so it'll be interesting to see how that's going.
And when I've been dying to ask you about Jason is Kohl's there is this kind of news item that Kohl's is really wanting to work closely with grocers that didn't make a lot of sense to me cuz I'm thinking all right,
blue jeans and broccoli what's what's the connection film.

[36:15] That one of you eat a lot of broccoli you can buy small are better-looking bridging.

[36:19] Duncan's are in celery when you tell her you you actually.

[36:22] Net positive or negative calorie intake I guess I think that's not true and.

[36:29] Dang it.

[36:31] Yeah sorry to be the one to.

[36:32] All that celery.

[36:33] Exactly so I think what's Happening Here.
Is no retailers have a particular footprint and they buy all the real estate around that footprint so you know what Kohl's store I don't know the exact size but I think they're probably like 60 or 70 thousand square foot store.
The something in that range and you don't that's based on a certain merchandising assortment in that's in that store,
so overtime categories that you were storkland carry become less successful and you move out of categories or you add new categories and there are times when retailers find that they have more square footage than they can.
Profitably manage and so a common play particularly when you're not performing as well as you'd like is how can I downsize by handing some of the the rent responsibility to us too.
Subway Surf right so,
that the example as you like uses Best Buy like you know they used to sell CDs and video games and music and then of the store that's that's all digital delivered but they can't just shrink their leases in their store,
I'm so that they rent space to a lot of their manufacturers Samsung Microsoft.
I'm we'll all have shopping shops and so I think Kohl's is in a situation where they had excess base for what they think is their Optimum inventory and so you go looking and say.
Who can I profitably Reese this pace to and ideally it should be someone that's going to bring extra traffic to my store that might buy stuff.
So in the old days that was always the coffee shop you went looking into to add a Starbucks.

[38:09] Because of Cole's real estate proximity there in strip malls that could be convenient places to grocery shop and so it sounds like they've just come up with this notion that.
Man is if there is someone only wants to expand in our footprint Subway some of our space people shopping grocery much more frequent so it could be a great traffic driver to the stores and they could benefit from that so well.
To see if that idea plays out and if they're able to get some some folks to take them up on that but I think that's what's going on.

[38:40] Yeah and that was Ron Johnson's vision of retail right it would be this kind of we had Omar Asad the analyst on and I forget what he called it but it's kind of like you know a bizarre.

[38:51] Yeah we often called a retail bizarre and it's actually the common,
merchandising way in a lot of places in the world sew-in in the USA department store owns all the space and they decide what brands are in it and they they merchandise the brands in Europe most of the department stores are.
Simply landlords that rent individual shelves in the store to individual brands.

[39:13] Boots.

[39:16] Just another other news that there's a e-commerce your player that focuses on the club.
Experiences in those large format box that we've had on the show.
The there are rumors that they are a potential acquisition Target and I think a Consortium of grocery stores was mentioned as a potential buyer like Kroger.

[39:39] Yeah the number that stuck out to me was 500 million so fingers crossed for a friend's at box on that one.

[39:44] And that is that that's close to their last round right so that would mean the the early folks will do really well and the the last investors probably won't do so well that if that ends up being the number and it happens.

[39:57] Sometimes it works tops for that cuz the last investors get these really nice preference tax.

[40:03] Gotcha cool see you that's why I have you here to make sure that my.
My Angel Investing is fruitful one near and dear to my heart Circuit City is relaunching.
So folks some of you young ones on the shelf that is that was a specialty retailer that that kind of grew up and competed with Best Buy they went bankrupt,
a number of years ago I want to say formally like 2008,
the the brand changed hands in bankruptcy court a few times so they're actually was this company in Florida TigerDirect that bought the the brand and they launched relaunch the Circuit City website for a few years.

[40:49] And at CompUSA.

[40:50] Yeah they wait about CompUSA they.
If I'm remembering there's some drama there too I think they're there was some like weird finances and the owner and some.
There could be some some interesting backstory their bets of the brand changed hands again and you know frankly when I heard that someone bought the the brand out of bankruptcy unlike someone else's like.
Trying to Leverage The Nostalgia and they're going to watch another.
Another you know reskinned website and it's actually more than that like that they have a new ownership that there intending to open retail stores.
And so this would both be a website and some number of new stores it's it's interesting cuz I'm not sure you would look at the Consumer Electronics base and say what we really need in consumer electronics is.
Is more stores and another brand to buy that place but you know we'll have to see what their unique value proposition is they bring to the table.

[41:47] That one you talked about called.
Yeah yeah, some Vision like a cool like a smaller footprint showroom thing cuz I use gadgets you want to touch him and feel him and you know her shoes for four people to care about shoes.
Best Buy refills at 4 meal at times I'll go look at stuff and then order it on to another retailer.

[42:14] And I I would say you like one of the weather problems with all the trees retail consolidation there used to be this phone to see you could be a geek,
and walk into the store and you discover something new every single time you walked in that store that you didn't know exist that you wanted and one of the things that all the digital transparency is created and like all the consolidation of the stores is created you know really,
you working on Apple Store and you never see something.
You didn't know was available before you walked in the store and you know how I feel like that's going to happen to be the case it at even Best Buy now is well and so it would be interesting to see if there.
You know that they're going to provide that sort of fun jolt of discovery.

[42:53] Yeah kind of on the opposite side of the spectrum my wife was shocked she showed me this the other day,
she likes this designer named Ella moss and they have some kind of annual sale and she went to the website to check out the annual sale,
and announced they're closing their website and it said say goodbye to but say hello to us in our stores and they just pointing people to Nordstrom in a variety of other stores where their items are found so I thought that was.
Certainly opposite trend of what we've seen out there but they must have.
Musta Had A Good Reason baby was too expensive to run the website maybe maybe they get pressure from their Channel partners that kind of said we don't like you offering this track. I don't know what it is just have a really interesting use kids haven't seen.

[43:38] It's bugging the trend I suspect there is some serious distressed underlines for that but I applaud them putting Silver Lining trying to put it out there favorably.

[43:51] Last topic one hit on we're about 14 days into January so we have about half of the Retailer's the brick and mortar guys,
I report monthly same for sale so we're getting up kind of a,
early read on holiday and then once we have that Amazon report in early February and then kind of by mid February we should have a pretty good read on how how they came in but did you notice any of the or some interesting holiday things you saw that have come out so far.

[44:18] That's what's interesting like obviously overall it was a very good holiday like probably the best one since,
2010 2011 the most most,
retailers like you know either announced that they performed at that sort of average growth or even outperform the industry and there are a few outliers that we saw.
Be significantly down and so you know it's about a rising tide raises all boats when you're the boat that sinking in that Rising tide,
that's a particularly you know owner assign so we seventies Sears did not benefit from the,
renewed spending they were down significantly I think like 16% and I think it announced another round of store closures I mentioned on the I did mention but in the store predictions bet,
certainly feels like a year of major retailer.
Go away and I think Sears would be unfortunately a good candidate for that.

[45:15] Yeah when it's surprise out of folks this is kind of one of those bury the lede so Walmart had a positive news that they are,
because of the the tax act that was passed the raising the minimum wage for employees to $11 an hour I think it was and several other people did this there was only one that's on retail the same time that kind of tucked in they are the closing $0.60 stores,
I'm really bummed because the Sam's near my office where we actually got our office enough snacks and stuff is going to close so that's going to be inconvenient and then.
I saw a Wall Street analyst kind of did this analysis and the 60 Sam's stores that are closing they are some number of miles from a Costco store so ones are keeping open don't seem to have much competition but the ones,
they're closing you know the list the target clickbait title of this was like Costco's crushing Sam's so they went to an analysis so I thought that was.
Pretty interesting that you know Walmart's not used to losing so if they are losing to Costco that that's pretty fascinating.

[46:21] Yeah for sure and it I mean.
I think Sam's Club stores can do very well but but Costco is almost a unicorn in their retail performance I mean Walmart the largest retailer in the US they have like over 4,000 stores in the US,
Costco to the second largest retailer in the US they have like 200 stores.
Did that yesterday they really have that model down like and I'm not sure that the average Costco I mean it has ever underperform the average Sam's Club store which doesn't mean Sam's doesn't do well but.
But your point like they're probably not doing well in the the head-to-head battles.

[46:59] I don't know enough about the cause for maybe we can have a an analyst on. Kind of Enlighten us on that cuz I wonder how cuz there's BJ's as well right.
I think I've seen the same for sales for BJ's are doing pretty well so.
I believe in this report said Sam's same-store sales are doing well but it must be kind of A Tale of Two Cities the ones that could be with Costco or doing poorly in the ones that aren't are doing well for them to close these it would close them if they're doing awesome.

[47:23] Yeah but I do think it's part of this way speaker thing we're over stored in the u.s. populations are moving so you open the store.
And you know it to cater to a Suburban population and then those folks move in the suburbs back to the city centers and where your store should be should be different so it's it,
clothing stores is not on is often a sign of a healthy retailer and I think Walmart's the perfect example like,
diprimas clicking on all cylinders checking all the boxes and so it's you know it's it's unpleasant for those employees but it's probably a good time for investors to see someone having a good financial performance and still.
Being willing Nicole that hurt and kind of move away from some of the most profitable pieces of the Enterprise,
I think another one that.
We it was interesting that she was Target in one of the stats we saw their this is been progressively bigger stat.
We seen every year but Target is not saying it's 70% of all their online orders are being the film in some way from the store so we talked about this for a long time it's when the best ways are brick-and-mortar retailers can compete with Amazon is,
you should from that store you get to ship USPS and get it there in one day for much cheaper rate than you pay UPS or FedEx from.

[48:39] Yeah I think target actually exceeded expectations and raised so that's good at the stocks been doing well.
I'm in that same vein we mentioned earlier around that grocery store topic but Kohl's they came out with 7% same-store sales for holiday and is reminder to listeners we had Kevin Manziel on the show year ago now is it wasn't so it must be.

[48:59] What was the shop talk.

[49:00] Shop talk so about 8 months ago and he was talking about their strategy and it looks like it played out pretty well and he's announced his resigning and handing over the reins to a new CEO and.
She will start I think in July August time frame so always good to have a really nice hand over there when things are going well.

[49:19] Absolutely I think another one that sort of was not rising in a,
in a rising tide is unfortunately Macy so I think they were down in the like two and a half percent and they've announced another big round of store closures so I think they're closing like another hundred stores.

[49:38] In the last one I saw it is Lululemon they were up 13% this interesting cuz everyone is is gunning for these guys to everyone has come out with their own athleisure line,
babe copied everything Lululemon's doing and they cannot seem to slow these guys down there they're so.
The brand has an affinity with folks especially Millennial females they have that experience with yoga classes in the store and none of the other athletes are guys are really able to keep up with them,
and I think this is I'm not an expert on Nike and Under Armour but they're both under pressure,
things that Turtle Dave Dave kind of gone all in on some of this athleisure stuff specifically around yoga thinking they could take okasa market share from Lululemon but Lululemon's hanging in there.
Interesting example of a david-and-goliath where where David is winning.

[50:30] Exactly and in some ways maybe starting to look more like glass.
Yeah so it's going to be an interesting one to watch people have been kind of predicting the end of this athleisure trend for a long time.
Never seems to come so it'll be interesting to see whether.
Whether you know it is a cycle that gets broken and and is athleisure Trend ever doesn't it'll be super interesting and see if Lululemon can leverage all that.
Great customer intimacy they have to pick up on the next train or whether they're there at least you're only,
it's got one of my New Year's resolution was to do a little shorter shows and so it is happen again we've used up all our a lot of time we certainly are grateful for her listeners taking the time to listen to the show,
if you enjoyed it we really appreciate a 5-star review on iTunes I mention that we're going to be visiting Apple this weekend they could they could be very angry with us so we need to get lots of review so they,
saying they're good racist and if you want to have any conversation about any of the topics on today shows we'd love to hear from you on Facebook.

[51:35] Yep thanks I wanted to join us.

[51:37] Until next time happy commercing.

Jan 13, 2018

EP112 - Annual Predictions for 2018


2017 Recap – Predictions made on episode 64


  1. Retailers truly embrace Omni-channel  (Attribution/Inventory/promotion/pricing – YES
  2. A/I – Bots for Customer Service but probably not for transactions, lots of buzz on big data AI but no game changing new experience – No
  3. Personalization – to eliminate friction, not drive new demand.  Data integration not some new product or touchpoint –No
  4. Laggard categories will discover digital (Grocery, Luxury, QSR) – Yes
  5. Microservices – 50% of new platform implementations will be cloud, and Micro-service based solutions will start to emerge – Partial

Jason 2017 Score 2.5/5


  1. The IPO market is going to be open, but the e-commerce companies will get crowded out by the big tech unicorns like Uber, Snap, pinterest, airbnb, spotify and the like – Partial
  2. Amazon will start to chip away at the Fedex and UPS’s of the world with a service like this in the US.  – No
  3. Machine learning is the new ‘network effect’ – everyone has caught onto the power and competitive moats available from ML and that’s going to be a big theme.  Every vendor you work with from carts to images to upsells to recommendations to search engine results to whatever is going to HAVE to have a ML capability to stay current and keep YOU competitive. – Yes
  4. We’re going to see e-commerce growth accelerate pretty materially in 2017.  We’ve been in this 15% band and I think we will see there was a move up in 2H16 to high teens and we could see 20’s in 2017 – Yes
  5. eBay – it’s a do or die year for ebay, they could potential partner with Alibaba. – No

Scot 2017 Score 2.5/5

2018 Predictions


  1. Mallageddon 2.0 – We saw 7000 stores close in 2017, I think this accelerates in 2018 as the 30-40% of weak malls fail and we end up with 9000 closures.
  2. Amazon will NOT buy another offline retailer, triples down on private label.
  3. I’m going to re-up on my Amazon logistics prediction, I think I was just a bit too early on that one, but I’ll make it bolder, that Amazon will squarely get in the last mile business in 2018 and compete with FedEx and UPS.Amazon’s ad group will get so large that they have to break out details about it and everyone will be shocked at how large it has gotten so quickly
  4. Walmart will make a big M+A – top candidates would be Instacart, postmates and eBay.
  5. Somebody acquires magento, or they go public.

Bonus – Amazon comes out with alexa powered wireless earbuds – because I want them.


  1. Grocery gets disrupted by digital (led by curbside pickup).  Digital grocery doubles in US, at least one delivery firm peters out.
  2. Drug gets disrupted by digital.
  3. AI Gap – biggest trend of 2018
  4. Voice – Huge but not for commerce.
  5. Payments – Retail digital wallets die (except Starbucks/Walmart/Amazon).  Bitcoin tanks.

Bonus – Amazon launches a wearable.

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 112 of the Jason & Scot show was recorded on Wednesday, January 3rd, 2018.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature – Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this is episode 112 being recorded on Wednesday January 3rd 2018 I’m your host Jason retailgeek Goldberg and as usual I’m here with your Tahoe Scott Wingo.

[0:40] Happy New Year Jason and happy New Year to Jason and Scott show listeners Welcome to our first show recorded in 2018.

[0:50] It’s very cool I’m excited to start the new year I feel like it’s going to be another action packed one in our in our jonra.

[0:59] Yeah that’s the fun thing about retail I feel like we could do a daily podcast weekly is even hard to catch all the news that’s going on.

[1:07] That is true but then I feel like there’s a lot of fans begging that me not to do any more than I already do but that was might just be me and not.

[1:17] Cool.
What’s up long-time listeners will know that it is a regular feature of our show that the first episode of January is our annual prediction show so this is our third shot at this Jason.
So pretty exciting so let’s take it off by looking at last year’s predictions and seeing how we did Jason was start with you.

[1:45] This is the part of the show I hate.

[1:47] So if listeners are really really want to learn more about these things you can go back to episode 64 that was the last year’s preview show and I and you can listen to that and see how we did and 16 compared to 17 in here the 17 predictions you don’t have to do that there were going to summarize them for you here but if you really are curious about anything we bring up and want more color,
you can go back to episode 64.
Okay Jason last year you and the way we did this as we had 5 predictions and a bonus so effectively 6 predictions so let’s go through them last year your.
Top prediction was that retailers will truly Embrace omni-channel and you talked about attribution inventory promotions and pricing.
How do you feel that prediction did through 2017.

[2:33] Yep. So I generally feel good about that prediction I’m calling that went to win there a bunch of things that happened last year that were,
probably hard for people to observe,
but but most retailers did get more sophisticated about their omni-channel attribution models we saw a ton of retailers move to Universal inventory we saw a lot more Universal pricing and then some of the the highly visible things we saw were like Target made two major Acquisitions in shipped and,
Grand Junction to improve their omni-channel Wal-Mart rolled out of town of omni-channel initiatives with the pickup towers and express returns and discounted ship-to-store,
Kroger and Costco both rolled out curbside pickup so I think across-the-board I’m giving that one true.

[3:26] Yeah but when I go to Best Buy they still can’t look up my rewards number and if I do an online order they have no idea what happened to the cash register traffic crazy but I’ll still give you this one.

[3:37] I think there are still a lot lots of gaps but I would argue in your specific example that’s Alessa not embracing on me channel cuz I would argue,
Best Buy does embrace quite a bit about me channel it’s a date I’ll retailer still have a ton of data silos regardless of Channel and sew-in your point like,
rewards just aren’t willing a greater to the store and that’s a shame.

[3:59] 4 meter Omni channel is breaking out of this data silos.

[4:03] I only want to live in your happy world I do.

[4:06] Cool alright so so far that’s one win and 0 losses.

[4:12] Feel free to stop here if we want.

[4:14] And that’s it well unfortunately we’ve wasted another 5 minutes of your time.
But seriously your second prediction was calling for Bots for customer service but not transactions lots of buzz on big data and AI but no game-changing new experiences.

[4:35] Yep so even though I kind of Madhuri to the prediction by saying more buzzed than game-changing experiences I’m still giving myself a false on this one because I think it was,
even more hype and the last tangible stuff then I was predicting so I think you don’t right out of the gate,
there’s a new chat services and there was a lot of hype about new customer service,
offerings on those chat services but they were universally stupid and none of them got embraced by customers and you know after that initial hype I just don’t think we saw a lot of a lot of traction so I’m giving the whole the whole box thing in 2017 did not happen.

[5:19] Even Facebook seems to not be talking about it as much and didn’t one of their big Partners kind of shut down the bar that was it 800-Flowers or everlane or one of those like one of the launch Partners kind of said yeah we’re not doing this anymore.

[5:33] Yeah I think that was everlane 800-Flowers is famous or notorious for being one of the first adopters of everything and so it’s almost.
It’s not predictive of something being successful the fact that 800-Flowers is one Embraces it cuz they they like to be the first mover.

[5:51] Shut it off though.

[5:53] Yeah no absolute.

[5:54] Tahlequah this is like it’s either hard to maintain or actually bad customer experience or something I don’t know.
Third is one of your favorite topics personalization,
so you said to eliminate friction but not really Drive new to me and data integration not some new product or touch point I don’t know what any of that means so maybe recap what you were thinking there.

[6:17] Yeah so I hate talking about personalization because it’s a amorphous sort of thing,
and so what would I said what would I try to say in the prediction was that I think we’re going to see a lot of better personalization but that doesn’t equal like some magic new widget on the web website that just automatically more personalized than the old widget,
what I was really expecting to see is retailers merge a lot of their Silo data to provide,
more seamless experiences and eliminate friction across the board and you unfortunately already alluded to a perfect example of that not happening,
that you you went into Best Buy and they couldn’t couldn’t figure out your year membership Rewards.
Status with Best Buy and that’s because all those their systems are siloed at Best Buy,
and so in my mind. My prediction was that a lot of those eyelids would get eliminated in 2017 and while I could point to a couple of retailers that had made some progress in eliminating those silos,
I still think there’s a ton of silos and I think we all at Shoppers put up with a lot of ridiculous friction that we don’t even realize,
because of how at retailers of organize their their systems in their data and I I just don’t think we made near as much,
progresses I optimistically hope for 2017 so I’m I’m giving myself a fail on this one as well.

[7:48] Wright’s that’s one win to faience your 4th prediction this was a good one ladder categories will discover digital and you mentioned to grocery luxury and Quick Serve restaurants.

[8:01] Yep and I feel like this was going to get me back to even I I gave this prediction a true,
for those of you that follow the grocery category you may have heard of the Amazon made an acquisition in the space in the whole food so that was certainly.
A grocery retailer discovering digital we also saw a huge investment from Kroger and Walmart and grocery,
that US are as a Quick Serve restaurants and they all Embrace digital in a big way in 2017 so both McDonald’s and Taco Bell rolled out,
Order ahead of course the the Weider a farm before last year and in this was Starbucks but most of the traditional to SRS,
Nina played significant catch up in 2017 and then also a lot of the luxury Brands got more serious about digital for a long time then they over it we said that,
digital was eroding to their their brands and that they they wanted the experience to be in the dressing room and not online and you know all of those old luxury houses that used to say that launched,
direct-to-consumer e-commerce sites in 2017 some of them even started started,
toe dipping on some of the the marketplaces and and so again you know I think across-the-board grocery Luxury Inn Key West are where three categories that made big strides forward in digital in 2017 so I call that trip.

[9:30] I agree that even better than the order had at McDonald’s have you had one of the touchscreen kind of order things those are pretty cool.

[9:37] Yep absolutely.

[9:39] Less errors on your order.

[9:41] To management that you and I are a couple dialogues on,
I know twittering about some of the bad G Management in traditional retail seems like you got a lot of bad physical retail experience is rightly and those those kiosks are all part of the wait time management system at at McDonald’s which is very clever.

[10:00] Alright so let’s see we are at 2 and 2 now and so your V addiction,
was extremely retailgeek e microservices 50% of new platform implementations will be cloud and microservice based Solutions will start to emerge.

[10:18] Yep and so for those of you that that aren’t Super retailgeek E like this is the notion that most people that run the e-commerce site,
own the software and run it on a server that they own like either on their their services are in a Datacenter that they rent in so this this prediction was really that like half of all the new platforms,
would instead be in the cloud so you know Amazon web services or Google Cloud platform or Microsoft azure,
and that most of them instead of being this big monolithic piece of software would be these newer platforms that are kind of a collection of little api’s or little services,
that you got most think of his Legos that you snap together to create your experiences and.

[11:05] I think these are both super important Trends if you talk to the CIO at any retailer like they’re their the trends that they’re falling and it’s what they hope to add a brace in the future.
But in 2017 at all amounted to more talk than action so.
We we actually didn’t see a lot of rhe platforming in 2017 impact in many ways I’d say it was one of the slowest years in The Last 5 Years in RI platforming.
So it’s hard to call this trend a complete win when there just weren’t that many new platforms.
It is true that of the new platforms the overwhelming majority were on the cloud so I kind of get myself credit for that.
Never retailers like Nordstrom that was on this podcast last year and they talked about migrating everything from an on-premise solution to a cloud-based solution.
We we’ve had a billy May on that on the show who now run is the CEO at Sur La Table and they’re in the process of moving to a cloud-based solution but,
they just weren’t a ton of replat for Mains and the micro service-based architectures while everyone loves talking about.
They had fewer wins in 2017 than I anticipated so I kind of gave myself a half credit on this one Cloud yes microservices know.

[12:26] Yeah I think I learned from last year to be less for Bose in my my predictions gives you more chances to be,
so then your bonus was around payments to another one your favorite topics and you said kind of on the topic of digital wallets that something other than PayPal Amazon will achieve 10% of us e-commerce transactions excluding Amazon such as Chase Walmart Apple pay,
Apple sound Safari or the w3c web payment standards could gain traction so give us an update on how you did on that one.

[13:06] Yeah so that one would be a mixed one that’s another example of not writing very smart predictions,
it turns out I don’t have a way to measure whether or not specifically say that we did I will say like that Walmart pay actually got more traction and Buzz than I certainly was expecting,
but of course nowhere near 10% of all non Amazon transactions,
and in the one that that I haven’t seen any data about consumer adoption on,
but has gotten a lot of adoption with e-commerce platform supporting it is is the thing I reference there the w3c,
web payment standard and so this is a a super quick recap for listeners this is he,
a new standard for typing your credit card into a web browser it’s an open standard that’s embraced by the 8th the the standards community that publish HTML,
it’s now been implemented by Google so it’s in all the Chrome browsers,
it is in the Microsoft browser it’s it’s not an apple browser yet,
but it makes it dramatically easier to store your credit card on your local machine and safely.
Automatically enter it in in websites when you make payments and so.

[14:39] Again like all the Shopify site supported all the demandware site supported a lot of the big e-commerce sites have added support for it,
so on the one hand.
More than 10% of the top 500 websites probably support it but we don’t know yet whether whether consumers are leveraging it or not so.
It was a bonus so maybe the score doesn’t matter but it definitely felt like a poorly worded prediction and you don’t mix results.

[15:08] Yeah I don’t know I wonder if do you think that stripe in Braintree have gotten over 10% cuz they’re doing the majority of Mobile payment.

[15:17] They are but I am not sure I consider stripe or Braintree a wallet,
so as a payment processor like they’re they’re like stripe in particular is killing it on the long tail,
Braintree is a little more focused on the mid-market or Enterprise,
companies that let you know there’s some Visa owns a company called cybersource which does great on the on the Enterprise side they all have big market share but they what they don’t let you do is store your credit card once,
and then leverage it across multiple sites that you shop and so they don’t like,
remove a ton of friction from the e-commerce experience because they let you reuse your payment information over and over again.

[16:02] When when a side I know you know this but Apple pay rolled out their cash peace and they have been pushing it super hard I can’t,
you know I buy phone alerts me every 5 seconds I need to set up Apple pay now and I’ve actually it’s kind of sad story I’ve given up on Apple pay because I’ve had to set it up so many times between my watch and Os installation like I finally give up on the the the juice wasn’t worth the squeeze on that one but it’s interesting that now that I’m out of it that it really suddenly aggressively wants me to set it up so they must Apple kind of is woken up,
Bond Apple pay stub.

[16:37] Yeah that like my my like brief editorial on that like that they have a very good experience,
under certain circumstances,
and they’re they’re doing a good job of expanding those circumstances so this year they want to the ability to to use Apple pay in a browser which was a huge deal and it in late in the year they watch ability to do peer to peer payments with Apple pay in that potentially huge deal,
but the problem the fundamental problem with the Apple pay is,
you know at best and only works for the subset of the world that are that are in the Apple echo system,
and some of these painted things require even a much narrower subset like only on the latest Hardware that has a particular chip in it or only on the very latest version of the operating system in the latest version of the Safari browser,
and so it just,
it it’s not apples goal to be a world dominant ubiquitous payment system right I get it really is just a utility for for Apple users.
And I think that that limits its its broad appeal.

[17:43] So I just kind of keeping score there I think you got a solid 2 to 3 out of your 6 predictions so it will give you a kind of 50%.

[17:51] Yeah that was basically my performance in college so I’m okay with it.

[17:55] I think it’s a baseball baseball you be here.

[17:58] Yeah that would be much better hitter than I was a student hi Scott you I think of is much more cerebral than me so let’s see how you did.

[18:09] I like setting the table. You’re super smart and you’re always like really really prescient about your prediction so,
I’m sure you nailed it I think your first prediction was about the IPO markets and that there was going to be a lot more,
action in the IPO Market in 2017 but the e-commerce companies might get crowded out of the space as of these big Uber snap Pinterest Airbnb spotify’s in the like all do their IPOs side note did I hear a rumor that Spotify,
maybe Miss 2017 and just just filed this year.

[18:44] I know why why could they not do it earlier but I don’t know where is an Uber would have filed if they didn’t have to go to there.
Poop show that they’re Lawton right now that with the name cian all snap made it out and.
Actually did pretty poorly and effectively close the idea window for the big guys and then they all have their own issues so I mentioned Uber kind of imploded on some things there I don’t airbnb’s is prior.
Great candidate for next year Pinterest I don’t know.
Were there on the revenue they change their Chief Revenue people a lot which makes me nervous. And then as you mentioned spotify’s filed the.
You’re kind of the thing I got wrong here is Stitch fix made it out we talked about a lot of the show and I’m super happy for them,
another one that was frequently mentioned as a possible IPO can it was chewy and they got Acquired and then Casper is always been kind of out there as as Dollar Shave Club Dollar Shave Club good acquired to also I’m so.
You know I think the IPOs to watch for next year and e-commerce world are going to be.
Casper and then some watches his big guys and how they perform so.
It’s worded the wording on the sun makes it hard to know so the window did open so I get credit for that but I was kind of wrong on the mix of companies that got out so I gave my car myself half credit on that.

[20:07] That seems fair so your second prediction I was when we talked about a lot on the show,
Amazon will start to chip away at FedEx and UPS,
are logistic services in the US and you convoluted we made it a 2018 prediction you said hey and 2818 Amazon could even expand into peer-to-peer in River suggest X.

[20:32] Yeah they I’m going to get myself a fail on this one when we talk about new predictions I want to talk about it again but when things.
The trend that we talked about on the show but I think it’s good to summarize it here the amount of consumers that want.
Things over to them is outpacing the investment that FedEx and UPS are making and also USPS so there something has to give and it some point.
Amazon being the largest I’d I’m fully.
Going to committed that they’re going to build their own capability was flexing what would happen in 2017 is flex was started influxes an Uber light delivery system eating 1099 drivers they have an app.
Amazon signals to them and then they come and make deliveries they started this for Prime now and increasingly through 2017 we saw Amazon using Flex the driver system for just normal deliveries as well.
And even in the holiday ever heard a lot of reports of a mixture so flex and then actually fulfillment center employees doing deliveries and all kinds of things so I think.
I think some of this happened behind the scenes but it wasn’t kind of to the degree I was thinking in this year so it’s something’s going to give so we’ll see.
Thought I’ll get myself a fail this year.

[21:48] Tough grader but I like it,
your third prediction was about machine learning and you you said that was going to be the new network effect that everyone’s trying to recognize the power and competitive mode that are available for machine learning and it’s going to be a dick theme,
every vendor you work with some Cars 2 images recommendations engines you know search engines are all going to have to have machine one and capability.
Test a current then and keep keep their customers competitive.

[22:18] Yeah again I should have been less wordy on that one but.
I’m going to say when you when you look at kind of the cloud vendors out there so I’ll I’ll say Amazon for sure is all in on machine learning.
As part of their Cloud conference which is called AWS reinvent.
It was all machine learning all the time pretty much most of the new Innovations they talked about over there is multiple tracks but the biggest track was machine learning Google this year at their annual conference the kind of said we went from.
You know search first it’s a mobile first to machine learning first and they they’re putting.
You all their resources into Ai and machine learning and then if we if we can look at the the.
E-commerce endures you can’t throw a stick it in these trade shows without hitting a machine learning or AI vendors to everyone that I run into every vendor is now fully is probably even.
Little bit bubbly you know so it seems hard that all this can live up to the hype at this point.
But you know what I look at the platform guys you certainly know more about this than I do but but Salesforce is done a lot of really interesting things we had Rob on the show.
I kind of talked about this a little bit so they have Einstein is there a machine learning platform and weeding Dad into the platform previously known as demand where is pretty interesting and I think very indicative of what we’re going to be here I’m as as goes even deeper.
So I’m giving myself a yes on this one.

[23:48] .. I think that’s fair I think you nailed it that the the vendors were all embracing it and I and I think there’s a rain everyone did embrace it exactly you said the big vendors I think we’re all in with like,
a huge amount of effort and then I think the long tail vendors,
certainly added machine learning to their marketing and nothing else so I certainly think you nailed it there I’m not sure if there was,
ubiquitous progress in terms of the actual retailers and customers embracing all those vendors Solutions in in 2017 Infiniti that’s what you predicted.

[24:22] Yeah at least separate data silos you talk about to be a problem you know so if you don’t have the single view of the customer machine learning can’t really get it.
How’s it going because it’s going to see little pieces what’s happening there so so that this can be an impediment to so he’s Advanced Technologies with the traditional omni-channel multi-data Silo retailer.

[24:42] Yep so then you’re 4th prediction,
was what I think we’re all rooting for we’re going to see e-commerce growth accelerate material in 2017 and so you were saying hey it’s been at 15% the last couple years,
will see you move up in the second half of 2016 in the high teens and we we could even see the 20% sin 2017.

[25:08] Yeah what I learned about this one was I should have thought something that I would know by the time the next show world around so we the jury is out on this one cuz we just don’t know how the year ended up.
Receive data out of MasterCard comscore a couple those folks that are pointing to iTunes and I’m seeing 1819 % the one Dana Point I want to see is Amazon.
I think it’s pretty sure that Amazon is going to come in north of 20% but I think there’s a shot and released just talking about.
The strength of prime and your 5 billion Prime things and I don’t know.
Nursing Amazon kind of leaning into it like there right now so it makes me feel like.

[25:53] Maybe their Q4 came in more towards 30% and that would make me feel a lot better that that Savannah’s on comes in kind of north of 25 then I think the whole holiday for everyone came in.
20% something myself yes based on the data available and kind of the body language coming out of Amazon right now.

[26:10] I think that’s fair,
incident in your V prediction was about eBay in you you basically said it was a big infection year for eBay assorted do or die and then they could even potentially do a partnership with someone like Alibaba.

[26:29] Yeah yeah that didn’t happen so I guess it wasn’t a do-or-die you’re so you know on the negative side they lost how Lawton who it was so great leader there.
Friend of both of ours is over at Macy’s now so it’s a win for Macy’s but you don’t know company is one person so you may is doing a lot of great things are getting more structured data from sellers their category tent is.
Things to do while they are improving their relationships with sellers they’re improving buyer.
Programs that are implementing a prime like program so they’re doing a lot of good stuff it just seems like when you when you look at this kind of Battle of Titans that goes on there and you’ve got.
You know the the Google’s the Amazons the Walmart this guy’s just have so many resources compared to eBay now eBay’s kind of.
Small in that world it just feels like they have more leverage is part of something else but I called it wrong so I’m going to get myself a big fat zero on that.

[27:26] Fair enough and then your bonus prediction was awesomely bold Amazon will release another phone.

[27:34] Yeah this is Phil I kind of thought it would be interesting to have internet to have Alexa to swing back and visit the phone and make it a kind of an Alexa oriented phone didn’t do it so I was wrong.

[27:48] I like the prediction nevertheless and if I’m doing my math right that put you also at,
about two and a half out of 5 so we sort of sort of both finish the same I don’t want to say tide because it wasn’t a contest.

[28:04] Yeah but together we had a hundred percent that’s why piece of people listen to the show.

[28:11] But enough about the past let’s talk about what’s going to happen in 2018.

[28:18] Yep so so I had some predictions to walk us through here so first of all I am reading a lot of articles that say.
Retail is on the upswing and everything’s great.
You have that happens every Q4 and I think it’s going to be short-lived I think we’re going to see Mama getting to oh this year last year we saw 7,000 stores close.
And I think you sent me more than that they close this year so I’m saying you know,
I still think there’s 30 to 40% malls out there that are very weak and failing and I’m going to say the store closure goes up and I just kind of picked a number because I learn to be more specific I sent from last year’s predictions,
I meant to say we have 9,000 or higher closures by the end of 2018 so it will be an even worse year than 2017.
I get a lot of tweets from these kinds of predictions.
I want stores be open but I just think it’s the reality that things are going a little bit worse in the the physical.
Store World especially malls before they get better I do think this is not an official prediction but I think you know 2018 oh probably be the low point then we’ll we’ll come back out of it.

[29:30] Yeah I’m going to pile on your prediction in just say that,
both are true like retail could do better in 2018 we have so many stores in us that 9000 Source could close and retail sales could still go up,
so so that the two aren’t necessarily completely related but for sure seems like there’s still a bunch of vulnerable malls and vulnerable department stores in it,
frankly it wouldn’t surprise me if this is the year we see Sears close its doors.

[30:00] The second one in this was kind of.
I was going to make this anyway but today in the press a friend of ours Gene Munster was out saying hey I think Amazon is going to buy Target and and he had kind of some interesting reasons behind that.
Scott Galloway is been kind of pounding his chest that they’re going to buy either Macy’s or Nordstrom’s or something like that I’m going to go out and say I think Amazon’s plate is full with Whole Foods they did that very specifically for grocery,
and they’re not going to buy another on.
Online retailer of size I think they’ll still open their own book stores will Pisces some more of that as grocery go kind of things and that kind of thing but I just don’t see them buying another brick and mortar retailer,
Chicago long with that I think that they had huge success with private label and they’re going to Triple down on that so kind of a double Amazon prediction there.

[30:56] Nice I like it I like you being contrarian.

[31:01] Write number three for me is I’m going to go back to my Amazon Logistics prediction because I think this is inevitable because of the you know what he charged this out the lines have to cross at some point at some point the number of packages,
to be delivered even by Amazon alone exceed the capacity to be delivered out there Amazon I’m sure he’s aware of that and you know if I’m down my I’m kind of.

[31:24] Planning for that eventuality so so again I think that in 2018 that.
You know that they are going to essentially do a lot more with Last Mile and effectively compete with FedEx and UPS certainly for their own packages and maybe for others.

[31:41] Number for TSO on this one we haven’t talked about Walmart in the prediction so I wanted to throw something in there for them I think I think Mark Lori is not done and I think they’ve done a lot there and I think she is just.
Starting to get swinging and you know I think the Walmart Wall Street likes this kind of really aggressive posture that they’ve adopted and I think that gives them a lot of flexibility so as I think will win what’s next on is.
Play I think they do a big m&a and you know part of me you would know better than that.
Groceries in wrestling I don’t think they buy another grocery store though so I can’t think what would it look like like Trader Joe’s or something.
Yeah so.
You know now that Target is bought shipped I could see Walmart taken out instacart or Postmates and then eBay is still kind of out there and I think.
Would be very powerful as a Marketplace partner for Walmart so I kind of put them in that bucket as well.

[32:51] Cool cool.

[32:52] Then any comments on them.

[32:56] No I mean I feel like they’ve been rewarded for all the Acquisitions that they made in the last 18 months are there probably in Bolton so I would certainly be surprised,
Ted not see some acquisition activity in in.
2018 your your prediction seem to be around capability and infrastructure which could totally be a lot of their Acquisitions that’s far have been.
Actual Brands and so it’ll,
it just that out that’ll be interesting to see how that you know where where the focus is in 2018 and I suspect it could be opportunistic as much as strategic in terms of who’s available at the right price.

[33:36] Yeah it kind of ties back to last year’s Casper thing.
You know that’s a nice scaled-up brand that once it starts down diepio path you have kind of this one time shot to go buy them I think that’s probably why she got taken out I think they were kind of,
Abdul pathan when you start filing for an IPO and having m&a talks so that could not throw that one in there to Casper could be a candidate.
My V prediction here is and I’m kind of getting into your world a little bit just cuz I wanted to see your reaction or anything.
Platform guy but you know the one platform that seems kind of out there alone is Magento so they were part of eBay they spun out that private Equity that means the Tock the clock is ticking,
it’s a great platform I think that they kind of do this tool path that they start down the going public and then they probably get acquired,
I’m not sure who acquires them seems like maybe a lot of the.
Cloud guide a lot of big guys have their Cloud solution nailed at this point.
Maybe Oracle maybe sap maybe IBM.
And so now you have more insight into the to the possible choir is it still learn to be less specific I’m not going to be specific on a choir so I think so kind of gets added into a larger Cloud offering.

[35:01] Interesting yeah so it’s it was a weird year in platforms as far as I’m concerned like for a long time,
you got a lot of retailers that had no platform and said you know every year a bunch of retailers were buying a platform to start selling direct to sell digital am so you had to want a platform sales every year or you had a bunch of retailers it invested early and we’re in some outdated platform and so there you know every every like 3 to 5 years retailers were rhe platforming as the technology got dramatically better,
and so you ended up with these three huge Enterprises sap IBM in Oracle.
That were you know making a fortune on all these reply for meetings you had demandware now I’m by Salesforce to the big cloud one.
For long-time Magento dominated the long tail and then you know more recently Shopify sort of a cloud SAS version of.
Avalon tail has his emerged in course there’s a lot of other platforms but was weird that 2017 is.
No the Enterprise ones did particularly well I feel like the pace of RI platforming dramatically slowed down.
You’re hard-pressed to find someone that doesn’t already have a platform so there’s less new customers entering the market so it’s more replat forming and it feels like people.
Sort of the come to the realization that you don’t dramatically get better customer experiences just by replat for me and so it seems like a lot more people just invested in.
New tools are new plugins or new customer experiences for their existing platforms rather than reply for me.

[36:35] And I feel like that was an economic challenge for all these big companies that were used to.
A lot of expense every platforming happening every year and then you add insult to injury.
They’re able to charge a lot more or are certainly recognize a lot more revenue for selling a big expensive on Primm.
Perpetual software license then they are for selling s a service and so I think,
all the big guys had this double whammy of the economic model shifted that wasn’t favorable in terms of a gaap reporting in the customer slow down and so that you might find in a way that puts those,
does kind of Legacy guys that might have snapped at Magento for their customer base in the less of a acquisition posture so,
I would personally be a little surprised if one of those big 3 Snapchat Magento Magento still is an interesting asset and that they have tons of users,
in some ways there are more modern platform and something a lot of the other ones we talked about because they have kind of free architected more recently.

[37:39] There,
there may be a step closer to cloud and some of these other guys but they’re not pure Cloud their step closer to microservices but they’re not pure microservices so,
there I don’t know if they’re there an interesting I said they’ve got a bunch of users there maybe a half-step more modern and then so you know could could someone want to accelerate their own plan by by acquiring what Magento has,
you you could totally see it but it definitely isn’t a slam dunk.

[38:11] And then assess my main 5 and then my bonus at this is really because I want it to be true,
and I know Jeff Bezos listen to the show so I have airpods which I really like but the Siri on them really stinks so what I want is Amazon to come out with Alexa powered wireless earbuds kind of an airpod competitor but with Alexa because I just want to sit there and have a conversation with Alexa what while I have little white things in my ears or whatever color the potty black or something so so my prediction is that Amazon will come out with that in 2018 and I have my fingers and toes crossed.

[38:51] I like it the other way that can happen is Amazon and apple could just merge I don’t think either could acquire each other.
So so they could just merge and then they could put they could replace Siri with Alexa and then the airpods what’s your point of great Hardware could just have Alexa in the world would be a happy place.

[39:10] My prediction is more likely than yours but I encourage you to make your prediction in your section.

[39:16] No no no no I’m leaving that one firmly in your section alright,
well let’s run down my 5 so we we talk a little bit about grocery it was a prediction that they would wake up to digital last year I think this is the year that they totally get disrupted by digital and I think the thing that’s going to,
mainly drive that is curbside pickup,
so I actually think the digital grocery revenue is going to double in 2018 / 2017 we’re going to see a bunch of retards,
roll out a lot more capability to take digital orders for grocery.
And I think some of these delivery services could be the odd man out a lot of people have invested in building is delivery services like instacart.
And I actually think if if we see huge momentum for curbside pickup that we could see you know at least one of those delivery services get too stressed and have to do some kind of.
Disadvantaged transaction and that that that could include instacart as far as I’m concerned.

[40:22] So that’s my first prediction is a lot more of us will be shopping for groceries digitally in 2018.

[40:30] You think curbside not not full on delivery.

[40:33] Yeah I mean I think there’s some rich rich neighborhoods that are highly dense that the delivery will make a lot of sense.
And you know that might disproportionately be people that listen to the show but I think for the average American it’s going to be picking up your groceries on your way home from soccer practice.
I think that’s a.
Winning experience it’s 1% of sales in the US at 6% of sales in the UK it’s like 12% of sales in South Korea.
I think the early Pilots of all been so successful in the US that we’re just going to see sea rabbit adoption which by the way is going to mean that the retailers like Kroger and Walmart are going to report.
Much higher than industry average e-commerce sales in 28 growth in 2018 because they’re there the guys that are going to most benefit from.
From this grocery disruption I think an Amazon’s case it means we’re going to see Amazon roll out some kind of national capability for curbside pickup whether that means leveraging Whole Foods are building more of the.
Amazonfresh pickup locations or acquiring some other other business.
Opportunistic Lee that’s you know distressed in that the Amazon can get a really good deal on to give them more of these pick up Depot location.

[41:55] Cool what’s number two.

[41:56] Number 2 is a after grocery gets disrupted Pharmacy / prescription drugs are going to get disrupted by digital in in 2018.
So we we’ve seen some some early moves from Amazon that they might be getting into medical equipment.
And it wouldn’t surprise me of Amazon is the big drug disrupter in 2018 I know you predicted that they wouldn’t do a retail acquisition in 2018.
Well I kind of agree that they’re probably not strategically looking to acquire another big retailer I think I prefer Amazon has a lot of cash in there totally opportunistic so if the right deal fell into their laps I think they would do it.
And I actually think digital could so distressed the drug business that the drug retailers become.
A very economical acquisition or we can see some of the drug guys move out of the retail business and into the the insurance business more and then just want to spin off the retail and sell it cheap.
Here’s the thing to know about drug 60% of all their sales are traffic that came in to fill a prescription so if consumers start for filling their prescriptions VIA mail at home.
Or ordering stuff online and having it delivered to home then those retail stores don’t work if there’s not enough traffic in there to dry them.
They’re they’re not price competitive they tend to sell stuff at full pop retail and there’s too many of them so you add all that up and it would not take a huge amount of digital success to totally disrupt the drug business.

[43:37] And then you got the fact that the scariest business retailer in the world Amazon is is looking pretty carefully at the space.
And I think one way or another it’s a safe bet that drug gets heavily disrupted in 28.

[43:48] Go to could help me with my 9000 stores I need.

[43:51] Yeah absolutely and I I mean I also think just the changes in the insurance.
Industries in the US in the government Healthcare and all those other things are are potentially favorable consumers are learning that you have to shop for prices on your prescription meds just like you do.
You know any any other consumer expense and I think that that’s going to further open the door for that stuff so I hopefully it does help you out.

[44:16] So my third prediction is that the.
What I’m calling the the machine winning Gap is going to be the biggest trend for 2018 so you already said in a pretty last year that all the vendors would Embrace machine learning in a big way I think that totally happened.
I mentioned I didn’t think a lot of retailers that necessarily.
Fully Embrace machine learning and in 2017 I think they’re only a few examples.
In 2018 I think we’re going to see some retailers dramatically Embrace machine learning.
And we’re going to see a bunch of other retailers not embrace it does not have the resources or just you know be superficial and you know pay lip service or buy some.
Some small product that leverages it and so I think we’re going to see a big gap I think we’re going to see some retailers that are really good at machine learning and have.
Have them built it into their culture and a breaking down all those data silos and they’re just looking for every opportunity to train a logarithm is with all this customer data and use it to.
Deliver way better customer experiences and we’re going to see a bunch of other retailers that either don’t do anything or a very superficial and I think we’re going to see a big gap and customer experiences between those two camps.
I think you know obviously the the folks in Embrace machine learning we are going to be well positioned for the future in the sweater or doctors are going to get left behind.

[45:39] I don’t know how will measure that exactly so number for,
is voice I get asked that voice all the time that speak about natural language processing in boys Commerce I’m actually think 2018 is going to be a huge year for voice,
I go to CES this weekend I’m expecting we’re going to see you way more,
voice interfaces than ever before and I do think there’s going to be a lot more adoption of them in 2018 then there has been so far which I think 2017 was a big year but I actually don’t think.
A very big use case for all of these voice interfaces is going to be Commerce so my my prediction is,
voice continues to be a big deal for for interfaces for home automation for stuff like that but that it’s not going to be a big.
Use case for ordering products and the one exception to that is going to be the sort of Auto replenishment and using.
Using voice to add things to your auto replenishment list and kind of pause your list and modified and do those kind of think so I think with the exception of that one category where your.
You’re adjusting your consumable orders I think voices overhyped for Commerce is that a Debbie Downer for you.

[46:59] You’re such a voice guy I’m so processing it I’m in shock.

[47:03] I do like the sound of my own voice that is true.

[47:07] My fist it wouldn’t be a Jason and Scott prediction show if I didn’t talk about payments.

[47:17] So there’s a big Trend towards every retailer launching their own digital wallets Target is launching a digital while at right now in my big prediction is none of these retail brand of digital wallets are going to work.
I think there’s only room in the world the North American market for three digital wallets I think that’s going to be Starbucks Walmart Amazon so I don’t think other retailers are are going down the right path by,
by trying to implement that,
and I would heavily advised folks to 2 or I wouldn’t advise anyone now that I think about it but I think big point is going to take this year so I know there’s been a lot of Buzz and hide about Bitcoin,
super optimistic about blockchain and cyber cyber currencies in general but I just I don’t think Bitcoins going to be.
The viable currency to to emerge out of all this.

[48:09] The okay so does that include blockchain and other coins or are just pick one.

[48:17] So I don’t think we’re going to see a legal currency.
That the Cyber currency in 2018 I think we’re going to see blockchain becoming a super important technology for,
storing value for for Franklin sharing a lot of data and doing interesting things and a lot of Industry so I I certainly think blockchain is a super important and valuable,
technology but I don’t think we’re going to see you,
a branded currency emerge as a meaningful competitor to $2 and in 2018,
and I think the coin is going to be considerably less valuable on December 31st then it was December 31st of this year.

[49:00] It’s too bad you didn’t make that prediction last year.

[49:03] Yep.

[49:04] That’s a good on Jack tonight we had many listeners ask for a deep dive on crypto and blockchain,
that is on our list for 2018 so we plan on doing a deep dive on that just so I do think and do some Sherby agree I think it’s important for folks in retail and e-commerce to have a pretty,
be a basic understanding of this technology and especially the blockchain cuz I think it’s going to be one of those things that there is reality there and it survives the hype and is pretty interesting,

[49:38] Totally I’m looking forward to that jump,
and then I did also do a bonus and I arguably we have the same bonus prediction so I tried not to overlap with you on any of the,
irregular predictions but I’m I feel like I’m comfortable space on the bonus I wisely decided to make my version slightly broader than yours so I have a better chance of being right,
I think we see Amazon watch some kind of wearable in 2018 and so the earbuds is a,
total good guess but some other kind of wearable speaker like I think some way to take the the,
Alexa technology with you is is something that Amazon’s going to figure out how to offer in 2018.

[50:28] Cool I hope you’re right and I hope it’s your butts.

[50:31] Yeah we should have to see that is the beauty TuneIn the episode 211.

[50:40] Scot that is all the time we allotted for tonight show or trying to get the shows a little shorter in 2018 so I predict were only moderately successful.
But I super appreciate everyone listening we will put all these predictions in the show notes so that they’re there memorialized and you can make fun of acid their dramatically wrong at the end of 2018.
If you have any thoughts about any of these predictions well for you to jump on Facebook and share your thoughts and if you enjoy their our show and enjoy this episode we certainly appreciate that five star review.
On iTunes.

[51:18] Thanks everyone for joining us have a great 2018.

[51:22] And until next time happy commercing.

Jan 3, 2018

EP111- End of year news.

Holiday Recap

  • E-Commerce up approx 18%, total retail up 4.8%
  • UPS Woes

Amazon News

Other News

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 111 of the Jason & Scot show was recorded on Friday, December 29th 2017.  Last show of 2017, happy new year everyone!  Tune in next week for our much anticipated annual predictions episode.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing

New beta feature – Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this is episode 111 being recorded on Friday December 29th 2017 I’m your host Jason retailgeek Goldberg and as usual I’m here with your hoes Scot Wingo.

[0:39] Hey Jason and welcome back Jason Scott shirtless after a long Jason Scott holiday decided to have you back.

[0:52] Yeah yeah we had to kind of this perfect storm where you had a bunch of travel ahead travel that offset from your travel and it has been 30 days since we laid down a Jason Scott show.

[1:06] Yes the first of all the most important question have you seen Star Wars yet.

[1:09] I have I have made good use of our time off and I feel I got caught up on all the media that you’ve been frustrated that you haven’t been able to talk to me about so I got to see the Star Wars probably a week after you but.
Totally enjoyed it and I’ll see what I can do any spoilers but I feel like I was I was pleased and enjoyed it.

[1:32] Yep yeah I loved it there there’s a pretty good second a fan of that hates it though so it’s been I know Chris.
Over at he was previously at Puma now at Izod is very upset about Star Wars we have to get him on the shoulder after more people have seen it took to hear his thoughts on it.

[1:50] Yeah although we might have to reserve that for the e-commerce Star Wars fan spin off podcast.

[1:56] Yeah yeah.

[1:58] Slightly more nutrients.

[2:01] But for hours.

[2:03] But I feel like this is useful information only to you and not to any of our listeners that I have done some hard work in this month I’ve totally caught up on mr. robot and I was like over a season behind you on that.
And I feel like I’m almost completely caught up on all the The Avengers Netflix series so I’m I’m excited.
Chat in the in our pre-show prep sometime.

[2:28] The content is really coming out rapidly though so have you seen you got to watch Discovery so Star Trek Discovery is good and then the new Will Smith movie on Netflix is really good I think you’d like it.

[2:38] Not so I am cut up on Discovery and I agree I’ve been telling joining it other than the irritation of having to subscribe to.

[2:47] The yet another service for one show that’s the CBS Show Network.

[2:54] So I’m also watching the good fight just because we used to watch The Good Wife and we weren’t interested in striving just to watch the spin-off series but since we bought it for Star Wars we’ve been watching that as well.
Yeah lots of lots of good content and it is sort of merging with the Commerce world as many of our our friends than that, space it become the major content Publishers in the New World.

[3:17] Yeah I guess pretty wild.
So weed since it’s been a month since we had a show we have a lot to cover and let’s jump into it so first we’re going to do some trip reports and then we’ll cover some news,
and the Scooby the last show 2017 so,
in next week’s episode what should be the first show of 2018 we that would be our annual prediction show where will review those predictions we made was it Jason episode 64 I think.

[3:45] Summer back then we made some bold predictions and we’re going to ask ourselves on those and then lay down our 2018 bold predictions for what’s going to happen in all things Commerce,
so that why don’t you could have told me you tell me about some of the nursing retail you saw as you were traveling around in December.

[4:04] Yeah so I did do a bunch of trips in December I think ironically you may have gone to visit more new stores then I had but I did.
Mention and I hope a lot of people see it now I would I got to visit one of the very first Amazon pop ups in Whole Foods so there’s now a bunch of Whole Food stores that have these dedicated Amazon pop ups and they.
Have all the the Amazon branded gadgets and a few third-party Gadgets in the store so my local Whole Foods has one.
Nothing super surprising their inventory is really good though so like they had the the security cameras when they first came out I was able to get some of the.
The echo buttons for my Ferrari Alexis here at the house so we can play Jeopardy and do that sort of stuff.
And you course heard heard my device in the background responding to to our podcast cuz I forgot to hit mute.

[5:08] What interesting thing about the Amazon pop-up store it was interesting to me the point-of-sale that they’re running in the pop-up store is clover which is a super popular.
Small-business POS system I find it humorous because.
If you go into an actual Amazon bookstore it’s kind of painted check out because they make you use the Amazon app and they don’t accept cash.
And so somewhat ironic that these Amazon owned pop-ups inside of Whole Foods which is owned by Amazon.
Take credit cards through the clover but won’t let you pay with your Amazon account.

[5:44] So very very different retail philosophy than the Apple the Amazon book stores where they don’t show prices and.
Make use the Amazon app and all that sort of stuff but I have a feeling that has more to do with a expedience than any particular strategy.

[6:01] Yeah I’m sure someone in the bowels of Amazon is working on it PLS for a Kindle what kind of a tablet I’m sure that’s in the works.

[6:09] Yeah absolutely.
I also got to visit the Google pop-up store so this is an annual pop-up they do in New York it was in.
Tribeca last year and I think it’s in the Flatiron District which is just a little further north.

[6:25] This year and I would say was a little disappointing last year it was a net new retail concept that used it to give live demos of all the new Amazon Google Hardware.
And you know last year the home had just launched that is your first can see that the pixel it just launched they were showing the first VR headset since there’s a lot of like.
New hardware and it was kind of a cool experience in retail environment in this year.
Everything’s very incremental like it’s it’s basically the same retail environment as last year but with the newer Hardware in it and.
You know Google doesn’t have a lot of net new hardware this year it’s mostly.
Evolutions of the hardware they showed last year so you know Google home is better than a couple permeations now that the pixel 2 which is course better to have more apps on the Google VR but like there really wasn’t any.

[7:16] Marquee thing to see your experience in the the store this year that you would have done last year so I guess.

[7:26] If you looked at it on its own it was probably a good showroom by the way you can’t buy anything that’s inside of their showroom but if you compared it to last year it was it was pretty darn incremental.
And then I did last month have a trip to Amsterdam.
There’s not a ton of super interesting retail that would be relevant to this audience.
But one of the Novelties they have a very large Apple Store it was one of the European Flagship stores.
It’s now about 5 years old but it still has the distinction of being the the world’s largest Genius bar so it has this huge Genius Bar and the only reason I bring it up is its.
It’s kind of shocking to walk in the store to huge two-story store in addition to the Super One Genius Bar.
They have tons of project tables for various services that they provide and it’s it’s really a stark contrast to the fact that like.

[8:26] 75% of the of the floor space of this Apple Store is really dedicated to Services verses.

[8:34] Selling Apple retail products and I do feel this is a large evolution of the Apple stores that you know they have.
They’ve done produced that their party products that they carry you know they’re there more focus on Apple products than ever before but that the real role of the store has shifted from.
Introducing Apple products and selling Apple product to providing service for Apple products.

[9:01] Yara are local Apple Store upgraded to that new kind of what are they call it Town Hall.

[9:07] Jars the growth and yeah I was surprised the number of skews they carry went way down on the third-party side like the whole speaker display went away in a bunch of that stuff and it is very much more of a service kind of an orientation which is which is very interesting.

[9:21] Yeah and of course is Apple’s bottom or third-party unit products and made them first party products it makes it less appealing for them to carry the competitors.
Products of that that’s the only part of it but it it you know there is it gyro when you would have gone,
anytime you went by the Apple Store you pop in because you be likely to see something new if it wasn’t a new Apple product it would be some new accessories and you know now like,
you know if you’re very techy it’s not very likely you’re going to walk into an Apple store and and you know.
Have the excitement of discovering something new thing you haven’t heard of.

[9:55] Yeah,
cool so I was in New York for a personal trip and we went up to see the tree in a couple shows and whatnot and hit a lot of retail and as we were kind of wandering around the city I had a list of things to check off for SUP was the Amazon store down by Empire State Building I had not been in that one yet so I wanted to see that and were the first people I see there is Jason Del Rey one of our friends the Jason Scott shows that was kind of a,
funny coincidence in the city of what is an 8 to 10 million people I run into Jason at the Amazon store.

[10:27] No way was he working there is that his night job or was he.

[10:30] No he was actually he in a fellow colleague had actually done at or behind that store is the prime now hub for I guess South Manhattan and they have done a tour of that as kind of precedent and your this was.
December 19th or 20th now that’s.
Yeah yeah somewhere in there so it’s going to peak season I guess they did got a tour during peak season is of President and he was exiting through the store just kind of have a look and ran into.

[11:00] Yeah and I knew that wasn’t his side hustle I just want to make fun of them.

[11:06] And then.
The it’s been about 18 months since I’ve been an Amazon store and I felt like the adenta lot of cool new stuff about having to act better integrated and the checkout was you could chuck check out anywhere which is kind of neat you didn’t have to go to check out a lot of cool things they’ve done there.

[11:22] Yep and is there a coffee shop in that one that’s a little bit on the smaller side right ok Google.

[11:26] It has a coffee shop yeah yeah I couldn’t tell we didn’t have time to stop by I could tell if they actually operate or if it’s a third-party it wasn’t Brandon Starbucks or any other brand or anything so it’s kind of Nursing.

[11:39] And that is,
that’s on 34th Street in New York which is one of the more stories retail streets in the world that’s the largest Macy’s and a ton of retail flagships open up on that store so it’s pretty important retail real estate.

[11:56] Yeah that’s what yeah we literally walk from there to Macy’s in like dinner a box or something wasn’t bad at all.
That was cool and it’s good to see Jason and then I stopped a lot of brand stores know we talk a lot on the the show about digitally native vertical Brands opening the store so I wanted to see some of them went to everlane which was in her everything’s kind of,
unisex Basics and the store was jam-packed that was does interesting he can actually buy stuff out of that stores there’s a lot going on there.
My favorite when I stumbled on it hadn’t planned to go is I read a lot about these sneakers called All Birds and,
there’s always described his slippers plus sneakers equals all birds and look at this really kind of wool soft kind of thing in the upper and then have a soft Rubber Sole.
I answered went there try those on those really fast and because that place was humming I mean it was like.
6 people deep try on shoes or when was walking out with boxes so you could tell there was a lot of energy around that store.
The most crowded one is a Skate brand called Supreme I’ve never had all these articles about this place where people wait overnight and.
Part of the whole thing is they only let like 15 people in this world of time cuz it’s really small so so went there sure enough there was a line literally around a New York City Block and it’s kind of funny the line breaks because.
Passes of all these other stores they get angry when that line go so you see the light you know she’s breaks in the line so.
People that don’t know how the line works all these International people trying to get in line they’ll just kind of hop in the line.

[13:26] They have all these bouncers to the line and they’re very Surly in this part of the whole experience for there, like you know this is not the end of the line go over here that’s in the line of their kind of mean to you so it’s funny to watch that.
Repeating the Supreme store and it’s literally like 60 skews in there and people were buying as much as they can get their hands on it also read that it’s.
Demand-supply so tightly most people that shop in there take all that stuff and sell it on eBay and Amazon so it’s really kind of a become a.

[13:54] People just got to camp out and get the stuff and sell it online to firstfield with looks so that was interesting.

[14:01] Yep then if you’re in the retail world you getting your gift run by story so I went by there they were quite busy and then there’s a couple new down in SoHo Adidas and Nike have some cool new stuff so I got to experience that.
All very good and then the one that was kind of thing is a e American Eagle I guess it is they have the say eStudio where is this whole concept that’s in Union Square.
Say it’s a denim shop in a laundromat and it’s kind of funny the laundromat was really more of a prop like no one was there using it,
looks like there are six machines that it almost never been choose there like these giant dustrial stainless steel machines this is I read several articles this is going to be kind of,
how to get Millennials back into the store with this this.

[14:47] Going to come get your laundry they’re going to shop while they do it the Millennials I was with can I give it a thumbs down they didn’t like that store the other things that you would have appreciated is every.
Every pair of denim had a tablet there they were too high and iPads.
But they were just sitting there plant looping a video there is no kind of integration with reviews and it’s got to start having been to the Amazon store where they pull everything from online into the store and then this one which is just like this.
Kind of looping video and spend all this money on these tablets for they were interactive at all I thought was kind of a big mess for those guys so good to experience a lot of retail on my truck which was fun.

[15:23] Yeah it’s perfect that you were you got a chance to do that I was you went pretty fast.
Is the everlane store did you see anything digital in that store because unlike a lot of those other brands everlane really is the one that like,
started off as a digital Brandon and added retail and of course online they’re really well known for having Rich product information on there,
on their website and are super transparent like they showed up building materials for all the the products you know the real pricing for everything today have any of that in the store.

[15:56] Not that I saw it felt like.

[15:59] It felt like a small Gap you know kind of the same kind of just Basics or like yours a sweater in four colors here is pants and five colors on a table there weren’t any I didn’t see any digital displays or any of that kind of stuff in the store.

[16:13] Yeah that was my impression from earlier as well so it it’s interesting and disappointing a little bit that even when it’s an important part of your brand online that that.
A lot of these guys that are opening it just a few stores aren’t figuring out how to carry that through to their physical presence as well.

[16:30] Yeah yeah, you need to walk over to the Amazon store and see how it’s done.

[16:35] Exactly although Apple Amazon probably has some room to improve there too so hopefully next year will be talking about some of them cooler retailers that that are getting it right maybe that that should be a prediction for next year.

[16:49] Yep yep you can always aren’t you so that’s the truth before it’s let’s start it, mac review of news how do you.
How do you feel the the holiday it’s too early to call it but we we should have a pretty good read here since we’re doing this after Christmas how do you think holiday went for 2017.

[17:09] Yeah I am pleasantly surprised I’ll even go so far as to say that my slightly pessimistic Outlook going into holiday.
It has not proven to be the case so you know there were lots of Rosy predictions going in the holiday ever are almost every year by the way.
And I had mentioned on the earlier show that often times when you have a better than average year in sales it’s because you got.
Super Promotional and you know very marginal rosian so you.
You see all these great articles in December about have a good holiday sales were and then you’d see all these badass quarterly reports in January from all these companies that talked about how they didn’t make any money.
And so that still could happen but the.
Early indications are that we had pretty rough but better than usual growth in e-commerce we definitely had better than usual growth in brick-and-mortar Commerce and that it wasn’t.
A hyper promotional holiday where where you know we just got there by by dramatically cutting costs and starting some crazy.
Arms race so so that all looks pretty encourage.

[18:22] Yeah yeah I’m seeing the same things I’m really interested in hearing how Amazon did so I’m on pins and needles until their fourth quarter of you because.
If if e-commerce accelerated kind of the 18 maybe 20% level and I think we could see a.
Amazon 30% Q4 which day did Jeremy slow down in the 4th quarter state.
Because it’s just such a big order for them it’s it’s hard comp to do well on so if they did High twenties R30 that that just means he just soaked up an amazing amount of of share so I’m curious to see what they were.

[18:58] And that I mean we’ve already seen some predictions I think there’s a Barron’s article that that.
Said they like 50% of all holiday sale sales work was Amazon so that that would certainly boutwell of that proves to be true.
You know what one of the data sources we follow pretty close to use the MasterCard data and they’re they’re calling it a 18% growth in December for e-commerce and 4.8% for retail which is.
A big jump that would be the biggest growth since 2011 for a brick-and-mortar retail so that super exciting and then one cautionary Tale.
Maybe with a slight astrix there’s a couple firms that track.
UPS and FedEx on time shipping and it does appear that we ran into some capacity problems particularly with UPS.
So they’re reporting that UPS had a 89% on-time shipping over cyber 5 that’s obviously like.
You know one of the the biggest Peaks.
UPS is of course trying to be ready for that Peak but you know 89% on time is is pretty low that’s that’s what is lower than historic.
And then even in the first week in December they were 91% on time and that you know computers pretty unfavorably was like last year where they were at 97%.
On time for that same week FedEx which is used a lot less in the overall scheme of things for e-commerce is it like 99% on time.

[20:33] But these numbers are accurate which UPS dispute you might imagine the.

[20:42] It is a signal you know that that’s totally in line with this trend we’ve been talking about about these carriers just aren’t growing as fast as e-commerce and so we were perpetually having a bigger capacity problem every year.
For these Peaks and so you know UPS grew about.
8% capacity this year but we just said that the e-commerce might have been around 18 or 20% and that the result is that they’re having to put all kinds of extra strength and construction zone retailers about,
what does ship Win 4 for retailers in it you know you could predict project this trend out a couple years and it certainly seems that whatever retailer Zone,
their own last-mile capacity.
There’s only one are going to have a pretty big advantage over over the the rest of the industry as,
you know the industry continues to grow faster than then the UPS can can fulfill.

[21:43] Yeah yeah the good news though is we didn’t have a debacle like was a 2015 and a 2015 is that one year we’re like 3 million packages gutensohn the system and it couldn’t keep up so.

[21:55] And a lot of it just miss Christmas shipment which is the course the worst.

[21:58] Yeah yes a lot of stress on the system but it did kind of held up it looks like you know what kind of mentioned Amazon in there but let’s make it official it wouldn’t be a Jason Scott show without talking about.

[22:27] So first let’s talk about Amazon does it come in manual pressure release the week after Christmas and I will put a link to it in the show notes but.
This is about me massive it’s like.
Literally 120 bullets of of highlights I pulled out a couple that I thought listeners would find interesting the most specific one is they actually said 4 million people.
Child Prime during the holidays which decimal specific number they’ve ever used about Prime,
and it’s a big number so you know most people kind of Peg Prime at maybe 60 million,
but if you have 4 million people just come in trial for the holiday that’s pretty amazing.

[23:13] You know if if if half of those stick that’s like a 5% bump right there and just Prime books they said the top selling item was the Echo. And then.
Add Amazon Alexa has been the top.
Download in the IOS app store which I’m sure Apple loves to see which is kind of nursing they also said tens of millions of Alexa enabled devices were sold.

[23:35] So I guess is range of 10 to 99 million devices what do you use to lower that range 10 in a lot of people have talked about.
These things aren’t that saturated there’s not many people using these devices you know that’s that’s it with 300 million consumers 10 million is.
Pretty much cereal I think that’s probably Global number too so interesting to see they’re pushing a lot of Alexa enabled devices out there.
There’s some tidbits around the marketplace they said a billion items were sold over the holiday season didn’t know Define the holiday season I’m going to guess they probably call it November one forward and I think they’re talking about.

[24:14] Thanksgiving for it at cuz they take a coffee run promotions earlier,
three-way abdulian items were sold in the Dover the Cyber 5 which is Thanksgiving the Cyber Monday they said third-party sold 140 million items on the Fulfillment side they highlighted the 10 performance centers had a million item days,
that’s a lot of items shipping out of the film It Center in this is kind of an interesting kind of flexing of their data science muscles I thought,
I thought you would appreciate they said these Coast has more holiday spirit than the West Coast because Alexa was asked play holiday music 2 and 1/2 times as frequently on the East Coast vs West Coast,
I really weird tidbit for them to pull out and it just kind of showed you know how these trends that are able to see through all the devices and machine learning capability that they have.

[25:03] Yeah it’s it’s almost scary to think about like some of the insights they can get in human behavior was from all of that data.

[25:11] Yeah they said like the most requested recipe was chocolate chip cookies the most requested song was Jingle Bells today I got a couple interesting things there.
When Amazon article I wanted to ask you about it said that these ad agencies and image of wpp Omnicom and pupusas.
Did they are spending 800 million in 2018 for ads on Amazon which is a 40 to 50% increase year-over-year I thought that was.
Interesting that the ad agencies are really waking up to Amazon as a an advertising video but then also I’m curious like we’re who’s losing the,
you know the the 400 million or whatever that Delta is in there is a coming from TVs coming from Google what what do you think about that.

[26:04] Yeah it is super interesting that I mean Amazon is a great advertising platform for a variety of reasons and so I think we’re going to.
Continue to see them get more relevant at the moment you know what these are,
wildly rough estimates of third parties so I can’t get into talking exactly about what what pupusas suspend is with Amazon for example.
Directionally what I think you’re seeing at the moment is a ton of spending,
from brands on Amazon but it’s pending it’s coming out of the Brand’s trade budgets versus their marketing budget so when you you think about a.
A Big Brand a cpg like Procter & Gamble or an apparel brand or whatever like they’re likely is a CMO that has a marketing budget to build brand Affinity in his his KP eyes are things like unassisted brand recall.
He’s the one buying the Super Bowl ads and those guys I don’t think are spending a big trance are not shifting a lot of spin to Amazon yet.
But in addition to those guys there’s the sales person that owns.
All the sales that happened with Walmart or Target or Costco and those guys that have a budget,
to buy ads or promotional opportunities with those retailers to help sell products for that particular retail so traditionally.

[27:35] That could be coupons that they they co-published with that retailer order could be in-store advertising it could be an incap to make the product more visible order or these kinds of things and so now.
Amazon has become a major retailer for all these Brands and so it has an account team just like all these other brands,
and it has a trade budget just like all those other brands but instead of buying in store point-of-purchase displays or coupons,
they’re they’re spending that those dollars with a am at G and and you know most often AMS,
on Amazon platform and so if anything that those dollars are really shifting,
from other retailers that are getting smaller as Amazon’s getting bigger and the trade budget goes along with the sales,
on Amazon so you know that those dollars are probably coming out of Target more than they are coming out of network television advertising at this point.

[28:36] Yeah I haven’t seen a circular in a long time but I’ve stopped getting the paper long time ago too so I imagine there’s there’s not a lot of opportunities to spend money on the circulars in those kinds of things.

[28:46] OSHA disappointingly most retailers still have those programs and you absolutely can spend money on them and you know there’s a lot of sacred cows there so shifting dollars off of those things,
probably harder than it logically should be but but it’s certainly starting to happen and once those dogs get shifted to Amazon they become.
Way more measurable and.
Frankly most cases more effective in so you know once once that Ship Happens that becomes a great case study and I suspect a lot of seeing those are looking at those things.
You know I won’t be surprised if we see the the Big Marketing budget start to follow some of those trade budgets onto Amazon.

[29:28] Another Super interesting thing to me in this last month that we didn’t get a chance to talk about.
Is there have been a number of interesting signs about Amazon entering the.
The prescription drug market so that they actually got Pharmacy licenses in about 13 states.
And there are various kinds of Pharmacy licenses and this is not a license to dispense medications it’s a license to.
Dispense medical equipment so that could be the stuff you use for getting oxygen in your home or Walkers are all this this various medical equipment that Amazon that has a license to sell in like 12 or 13 states.
But when those licenses were disclosed you know that it became news Amazon’s looking at the the pharmacy business and you know whether it was coincidental or not.
We we saw CVS make a big announcement about a potential merger acquisition with Aetna,
that would sort of be emphasized CVS’s retail business,
of course Walgreens in the middle of a merger we’re seeing the big Pharmacy companies kind of,
try to diversify themselves and not be as as focused on retail at the same time that we’re seeing a number of interesting indications that Amazon might be getting into the the pharmacy business.

[30:58] Yeah yeah the CVS setting the stuff was quite popular on CNBC is a way to kind of have an Integrated Health platform and should be interesting to see you.

[31:10] What stops Amazon from doing the same thing you know they could open up their own health insurance armor something there’s there’s no business I don’t think he was on would get into so to be a nurse in the seat.

[31:20] Yeah I normally.

[31:21] How that how it plays out.

[31:22] When when you know Amazon gets in any new business like their quickly are people that run up and go well here’s why that business is different than other ones Amazon’s been successful and here’s why Amazon won’t be able to be successful here right like in in general,
all those barriers proved to not be very big barriers in Pharmacy one of those big barriers is that,
you know you really have to have a partnership in agreement with the insurance companies,
to enable the the folks that are insured by those companies to get their prescription meds from you and since that the traditional pharmacies of locked up a lot of those deals,
you know people have speculated it would be hard for Amazon to answer without a a insurance partnership.
And what’s what’s interesting is there’s a huge chunk of people that are now buying,
their prescription meds out of pocket and not using Insurance either because they’re underinsured or don’t have insurance or because they’re they’re finding that you can in many cases,
get better rates on the prescriptions than the negotiated race that the insurance company has locked them into in so you know one one piece of speculation is the Amazon could really be focusing on,
Pharmacy products for people that are paying out-of-pocket versus,
you know being a big part of the the insurance industry and of course it’s not outside the realm of possibility Amazon could buy a big insurance company pretty easily in the same way they bought Whole Foods.

[32:54] Yeah yeah absolutely another kind of kind of.

[32:59] It’s going a little bit outside of Amazon but are our friends at recode. Jason had a interesting scoop where,
hi he had heard this kind of the cowboy rumors that Home Depot was looking at acquiring there are Logistics partner which is XPO XPO Logistics is.
A company that focuses on The Last Mile logistics for heavy items so if you’ve ever gotten something delivered from a Home Depot like Appliance or a set of cabinets or,
I furniture and that kind of thing XTO is well known for that and you know what what he was reporting is that.
Amazon’s looked at the company and if amp it as part of their Furniture efforts to Amazon’s doing a pretty big push into Furniture I’m sure Wayfair use XPO also but that I haven’t seen anything specific to that,
but if you have a pretty good lock on this kind of heavy stuff being delivered so you know what.
What’s interesting is Amazon sniff somewhere and other retailers really wake up and are starting to make pretty big news this would be like a 9 billion dollar acquisition so this isn’t just kind of a small,
defensive plays on these things that are happening here based on what Amazon’s doing so it’ll be interesting to keep an eye on that one to see what happens.

[34:10] Yeah but you can you can easy to imagine you know you’re in one of these businesses that predominately deliver big heavy stuff like Home Depot or Furniture Company in Hugo hey what would happen to us if Amazon bought our fulfillment.

[34:23] Yeah yeah seems like the best antidote for that is to start building up that kind of capability like like Amazon is doing so interested to see if,
retailers do that and what it would cost him,
Cheryl or she will be on board with that when I could dine ask you about that was announced during our break there was Target acquired shipt s h i p t there’s all these companies name,
Chris plays on the word ship this is D grocery delivery company I think they’re out of Alabama are some somewhere unusual they’re not a Bay Area delivery company,
Target acquired before between 500 and 600 million depending on how they’re not works and stuff so kind of furthering this kind of grocery delivery battle with what do you think about that.

[35:05] Yeah it was so for clarification this is not the company that Kmart uses to ship your pants right so that’s an old e-commerce.

[35:17] For those of you that used to watch that the Kmart original e-commerce ads that were pretty funny will put a link to those in the show but yeah that was a big acquisition and and actually,
Target 2nd and condition this year in the Fulfillment Channel.

[35:35] And it’s interesting to for folks that aren’t familiar with shipped you can kind of think of them as like an instacart they they have a big network of.
1099 employees.
That they send to the store to pick up goods and deliver them same day to Consumers and so they they do some fresh grocery deliveries and they do a lot of General Merchant deliveries.
I need the have been doing some work for Target but they also do Kroger and Costco I think and so if you’re Target.
You’re buying this company that that a bunch of your competitors are using right now for same-day delivery and that’s a little bit dicey like target has said in the short run we’re not going to change them at all we’re going to.
Continue to use them and.
It’s a little tricky you you pay shipping $99 membership fee to be able to get deliveries from them and then you get deliveries from any of the retailers in their Network,
and obviously the more retailers they have in their Network the more valuable they are in the more likely they are to be able to get people to pay.
These $99 membership fees so if Target was investing in shipped hoping shipped would just grow as a separate entity.
It’s a scary investment because if your Costco.
You might not want to use shift anymore now that they’re owned by one of your competitors Target right and so.

[37:08] Potentially the company becomes West valuable when one of their customers buys it you know especially when they’re banking on this networking effective.
Of having more retailers in getting more customers.
The the other side of this would be to say hey Target just needs more capacity for doing same day delivery themselves and they’re buying ship for that that capability in there eventually going to,
ship them away from the separate business model towards just being a resource for Target.
And you know that would make a lot more sense but then they probably overpaid for it right because they probably paid a valuation based on.
On this growth projection that ship has it as a separate entity so it’s a little bit of a catch-22 how how Target will use them.
But it certainly makes sense that that retailers need to be thinking and investing in,
their own last-mile capabilities like particular you’re going to be in the fresh category you want to think about how you’re going to do home fulfillment on Fresh which is point to point.
So I think there’s some interesting things I’m glad to see Target making investments in here like this is potentially a risky investment.
Given that that you know Target’s claiming that they’re going to let them run as a standalone company in there there you know now potentially tainted as a standalone company given the throne by Target.

[38:37] Yes they have to think the value is if we roll out same delivery to ask Target stores we generate y sales and it’s worth $500 to get why sales so I sales must be like in the billions of dollars which makes sense to me.

[38:51] Yeah and Target you know which is doing well at e-commerce over 50% of all Targets e-commerce is fulfill from spores in so this is really,
Expediting that that’s for fulfillment and since target has a store close to someone that many consumers,
same day can be you know potentially cheaper than shipping and in many cases so you know it it is leveraging Target strength which is this this big network of stores that are close to Consumer so big picture I like it you know I hard to say whether they pay the right price for it or not.

[39:29] We’ll save it for the prediction show but I’m curious if you think this causes Postmates an instacart to kind of if those pens fall as well from this acquisition so we’ll save it for next year.

[39:42] I want to report on is Stitch fix we talked about when they’re S1 was filed we spent a fair amount of time going through that and explain that model will since that show they went public and,
that is kind of a lukewarm reception so when you go public you put this range out there.
There ain’t nothing was 16 to $18 the price a little bit below that range at 15 which is an indicator that you know if people were concerned a bad the.
Have a negative backdrop blue apron had missed a quarterly number as.
Stitch fix was out on the road which is terrible timing these things happen so so they could do it you know that.
Google subscription models even though once food and wants apparel and we know on the show that’s vastly different problems to solve it but I think investors kind of said.
This is this is a challenging segment let’s punish but let’s let’s.
Not punishment put on more risk around the stitches thing get 15 but then was really interesting is,
there’s I want to go public there’s a about a six-month of three to six-month window before you announce your earnings,
so they didn’t have any news or anything.
People as they got familiar with the model I don’t know exactly what happened but it got up as high as 28-29 then they announced their quarter in December 19th and,
you know there there’s kind of Tale of Two Cities there I think they did really well on the quarterly results compared.

[41:13] Going forward they did talk about there should be some pressure on margins and having to spend a fair amount on sales and marketing to acquire customers some folks reacted negatively and then it came back from them so I would say it’s been a successful IPO there,
last I looked there in a market cap of about two and a half billion which is,
pretty good and you know so I think there are there out there doing really well and you know I think this investment is going to be with people watch to see can they really turn that into active.
Subscriber system.

[41:44] Yeah and it’s not automatically a bit I know the higher price you get in that IPO you know the more money that is for the company in the short run but in the long run,
it’s not necessarily a horrible thing that you you have some room post-ipo for that kind of bump right in that bike,
certainly you know create some advantages in terms of equity for employees and and all that sort of thing right.

[42:12] Yeah yeah there’s.

[42:15] Target also depends on who’s selling IPO so do you have primary source and secondary shares so if your investors are selling in diepio and they get a low price that’s going too bad because they are looking for a high return,
what is the company selling shares you know there is an argument to be made kind of Goldilocks it be somewhat conservative other people tell you no.
Did Equity you’re selling you should maximize the value of that and do what you can so I think it’s a.
Nothing and I was just one mile marker on this very long road and it’s really kind of start of a New Journey so so I think it’s good that they’ve done well and and people are following them and there’s been some turning there still there.
Base of shareholders but it seems to have gotten sticky and people that are believing it or are there now know there are a lot of naysayers that kind of talk about it.

[43:07] They don’t believe that it’s kind of an algorithm company and it is it is hard when they also say they have something like 3,000 stylus them company with 3000 stylish set up so people are still trying to figure that out.

[43:22] Yeah and that you know they truly are an interesting company that they’re certainly claiming a lot of interesting successes or an artificial intelligence and you know both,
gopher merchandising for for you know deciding what goes in that that fix that box and,
you know how sticky those products are two customers how many they keep but also they’re starting to use that artificial intelligence to Define new products and and sticks Stitch fix his kind of shifted from,
predominantly being a reseller of other people’s apparel tub to producing their own products based on this artificial intelligence data now that they have.
This big critical mass I think it’s we’ve talked about on the show before the chief data scientist there is that Chief data scientist from Netflix so,
pretty credible team on the artificial intelligence stuff and in many ways these guys are the poster child for artificial intelligence research retail so if.
It’s cool that they’re public in there.
You know disclosing more information and we’re getting a c under the under the covers a little bit more so certainly someone to to follow closely.
For that also interesting that you know it’s a female run company and I say that because the the next piece of news we have is about another new weed female run company which is Colts.

[44:41] Yes yes a Kohl’s promoted their Chief digital officer to CEO so we actually had Kevin on the show Kevin Manziel and,
this is this is really not official yet I mean they’ve announced it but it doesn’t happen until I think May of next year but there’s been a lot of Articles kind of talking about how she’s going to save the company.

[45:01] Yeah I’m always excited about this because Michelle is the latest in a sort of class of the.
Digital Executives becoming the chief executive of the company and you know that we’re really just starting to see the first wave of those so am I mean like one of the very first ones.
Was Art Peck who’s now who is the VP of e-commerce at Gap and is not running Gap.
Billy Mays been on the show Huey Ren e-commerce for Abercrombie & Fitch she’s now the CEO at surlatable.
How often is is a guy we know well in the industry that ran digital it at Home Depot and then became a senior executive at eBay and he’s not the president at Macy’s.
And so you know Michelle is is the latest in in this class and I’ll be really interesting to see what she does at Kohl’s which is.
Particularly interesting Lee position so it’ll be another in some ways there like the department stores that are.
Really struggling right now and are looking for some reinvention and in some ways they have some.
Unique advantages around pricing and treasure hunting and you know things that have traditionally been hard to do digitally so it’s certainly going to be interesting to follow.

[46:20] Did you see that article about so Walmart has this incubator called store number 8 and they’re working on some pretty cool stuff I figured you’d be work to speed on it than I am.

[46:29] Yeah they they’ve name this incubator store 8 which is a based off of a Walmart store 8 which was the Prototype store and they are.
Like both have a bunch of internal projects and are investing another projects.
The they’ve announced a couple projects recently one that that is potentially a competitor to the Amazon go which.
Will probably be talking soon as I have done a deep dive in the past will probably be talking about again the future because I I strongly suspect pretty soon that Amazon go stores going to open to the public.

[47:05] Walmart store 8 his has announced a bunch a bunch of initiatives around VR so this one Katie Flanagan who runs that the incubator for Walmart.
And she’s very bullish on the future of VR Commerce and so they they recently had a big guy with the Huffington Post and they should a bunch of.
Of tech startups that are doing.
You know there is interesting things with VR increasing when you with Walmart brand so they showed I got a mod clown cloth be our concept in.
A bona bus VR concept and I have to say there’s a ton of interesting stuff coming out of the incubator I have great respect for the.
The team at Walmart but I am not personally as a bullish on VR Commerce in the next couple years as it feels like they are I think it’s.
You know it’s an interesting technology but like in many ways it’s it’s it’s to sort of awkward and intrusive.
To really be a convenient shopping experience and you know most cases you know the shopping experiences that are winning are the ones that are lower friction than anything before.
And you know throwing on all this awkward VR equipment to go shopping.
Doesn’t feel super super exciting to me like if anything I’m I’m more optimistic on the sort of a our experiences than the VR experiences.

[48:34] Why does minor people than me at Walmart so it’ll be interesting to see how that all plays out.

[48:39] But you know predicting the future is exactly what we’re going to do on our next show so assertively TuneIn.
2 2 episode 1 12 or we’ll recap the Bold predictions we made from last year,
Anna Scott and I will both share what we think are some of the surprising things that are going to happen in 2018.
And with that I’m happy to report that it’s happening again we’ve used all our a lot of time.
So we certainly appreciate all of our listeners sticking with us if you enjoy the show we’d love to get that 5 star review on iTunes weed encourage you to leave feedback on our Facebook page and continue the dialogue.

[49:20] Thanks everyone for joining us and have a Happy New Year.

[49:23] Until next time happy commercing!

Dec 18, 2017

EP110 - Holiday 17 Hot Take with Rob Garf of

Rob Garf (@retailrobgarf), is the VP of Industry Strategy and insights at Salesforce Commerce Cloud.  His team has access to insights from all the Salesforce Commerce Cloud clients (formerly Demandware).  We have a broad ranging conversation about what he's seeing this holiday season and trends he expects for next year.

You can read more about his teams insights here:

Salesforce Reveals Black Friday Was the Busiest Digital Shopping Day of the Holiday Season

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 110 of the Jason & Scot show was recorded on November 30th 2017.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this is episode 110 being recorded on Thursday November 30th 2017 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot & Rob:
[0:40] Hey Jason and a welcome back Jason and Scott show listeners.
Jason R series that is a hot take on holiday 17 continues here in episode 110 we're excited to have the first time to the show someone you and I've known both for a long time and I've been trying to get on the show and we finally made it work,
Rob Garf rub is the VP of Industry strategy and insights at Salesforce Commerce Cloud welcome to the show Rob.

[1:06] Thanks gentlemen it's great to be here I feel honored to be amongst digital Commerce loyalty I feel like I'm obliged to say first time long time.

[1:17] Appreciate it you know one thing we always like to do on this show is give listeners a little bit of context about how you came into your your control,
I'm in what what the scope of the current role is so I know,
like ourselves I know you've been kicking around the industry for a little while can you you talk to us about your career matriculation and what you're doing at Salesforce today.

Scot & Rob:
[1:44] Yeah yeah absolutely literally retail is in my blood my father actually was at a supply chain a bunch of different retailers around the country when I was growing up and I didn't have any,
prettiest aspirations of getting into retail but I did grow up working in his distribution centers and working in some stores at.
Ricky work for in retailers that he worked for and really really cut my teeth in a genuine way in headquarters,
right around 99 2004 Lids the specialty hat retailer,
where I live Ecommerce and at the time we're doing some really fun things like buy online pickup store we had an endless aisle app we didn't know,
really what we're doing and put it together you know I shoestring budget but it worked and it was a lot of fun,
and tell you guys probably are the only ones on the show that will remember that we ran into world back almost 20 years ago of course they're long gone as a,
e-commerce platform but anyways from there.
Certainly continue to kick around was industry analysts at AMR research leaving retail practice moved to lead retail strategy to IBM when I was in fortunate to land at demandware.
Which took me about 5 years in when we got Acquired and summer 2016 by Salesforce,
what is known as the Commerce cloud my role it's really fun I get to kind of put all the hats on that I've worn over the last 20 25 years and I lead a team called Industries for insights and really.

[3:22] In short it's it's our job to stay in the market,
understand where the industry's going would you that primarily through research and then we turn that back over to the industry,
our customers and we use that to better understand where we should bring our company products so it's been a lot of fun over last coming up on 7 years for the last year-and-a-half as part of Salesforce.

[3:44] Very cool and then another one of the reasons you wanted to get you into this series is you guys have been releasing some holiday data and I don't I don't recall you doing much of that,
demandware tell us about what's going on there and for listeners that don't know let's let's kind of help them understand the scope of the day that you guys would have and kind of where it comes from.

[4:06] Sure yeah I think that's going to start some good contacts on the conversation I'm sure we're about to have so even wear a cloud platform that enables retailers and Brands to connect,
to their consumers across the Myriad of different channels whether that's personally online or through mobile store.
Social even the increasingly iot invoice devices we collect a lot of data in fact on a monthly basis we have 500 million Shoppers Traverse City.
Rousey ultimately buying,
AR platform across around 3000 sites and not representing retailers in 53 country so we take that information we aggregated up and very thoughtful and secure way and it really helps us,
gauge meter Digital Trends and then again we as part of our perky turn that back over or consumers help them Benchmark I'm sorry.
Back over to our customers retail Brands and allows them to better Benchmark the business and then broadly it allows us to see you know where where the industry's going what are some of the major Trends and we've been doing,
what are we reporting for some time but we really double down on the holiday this year to turn it into some interesting insights as to what we predict and then be what we're seeing.

[5:27] Cool so if we if we kind of start at 30,000 ft view did you have any forecast for holiday or you're not in the forecast visiting just kind of looking at insights.
Yeah so week we had some predictions based on the data from the platform,
what we see in the past quarter past years and we also did some primary research as well,
so yes and I get right into it tell him which I talk to you about kind of what we saw a little bit and get back yeah,
you know like how did you guys did you think holiday would be 15% that came in at 20 and then you have any other kind of macro stuff and we'll get into some of the individual days in a minute but the the big picture what do you think.

[6:09] The big picture yeah so you know back in September October we release them prediction information or three key points that we among many others that we hold in on and in one piece was,
wow discounts were going to be abundance as they normally are creeping earlier and earlier in the year we felt like the holiday season would smooth out,
a bit in terms of actual demand and that's in fact what we saw by the end of.
Monday Cyber Monday only 35% of digital shopping was completely,
and so there's still a lot of Runway to go there the second piece that we saw is that 40% of.
Statically Millennials will be doing a lot of research and Discovery through voice assistance in.
Alexis in the world in the Google homes and Sirius of the world and we don't have data yet to back it up.
Quantitatively button talking to our customers there they're definitely testing and.
Playing with poison in Lexington circular craving some skills around shipping notifications and,
order status which I think is a nice step forward on the convenience play of the of the three.
Last one was in this really started last year.

[7:38] Black Friday becoming more and more of a digital day you know we score screw up all of us here Scott Jason you know with.
Black Friday more of a store based way doorbusters and getting out of the,
Thanksgiving craziness at family and getting some the stores and works we're seeing a real uptick both and we predicted and we in fact saw it as a really big,
really big digital day as well so I can dive in all of this in particular but those are some of the variations Rahsaan and how they kind of played out over the last.
789 days I would say.

[8:15] Awesome but just want to get an idea of how Granny or the data use you see is your the the actual platform that that all these retailers are are using for their, so I'm assuming you get,
pretty granular data so you you mentioned for example discounting like are you are you able to to see the actual sort of.

[8:35] Is was pricing that that is offered by your customers and are you guys sharing any data about like how promotional this holiday.

[8:44] Season has been versus past holiday season.

Scot & Rob:
[8:47] Yeah yeah absolutely so you know one of the things we saw as I mentioned discounts starting earlier and earlier we're calling it.
You know game of discount chicken right it's like the retailers are moving it more and more,
towards the beginning of November opening hoping that the consumers will by and by the way though we all know,
what happened but in terms of the rates and yeah we're seeing across the,
the Cyber week starting on the Tuesday 2 days before American Thanksgiving and then going through through Cyber Monday,
we saw an average at 28%.
Discount rate so there's some really nice discounts really teaching on Cyber Monday will see a little bit of a wall and then once again we anticipate another Spike,
around December 11th and for few days further when,
consumers are starting to feel the crunch of the shipping window starting to close and retailers taking advantage of that kind of emotional oh gosh I need to get it now or I'm not going to be able to get that deliver to my doorstep.
I'll put the other interesting part if I could be on just discounts is what we saw a round free shipping.
And so across the week as I defined a moment ago we saw 84% of orders,
that were free shipping in fact on Cyber Monday alone it actually spiked up and was the highest 89% so in what was seen as a really nice to have in past years really the expectations the consumer is.

[10:30] We want it free or not at all and so as a consumer if you're on and listening,
definitely look for those free shipping and if your retailer you got to get the game if you're not already.

[10:44] Yeah yeah and I did just maybe put that in a little bit of context comes Gore would say that that year-round about 65% of all e-commerce sales are with free shipping so when you see a spike up to 85 to almost 90% that's,
a version of a promotion that retailers are running and it just turns out free shipping is the most effective promotion you can run if you if you don't already offer it because,
it seems like consumers are really weary to make any purchases that that where they have to pay for shipping.

Scot & Rob:
[11:16] Yeah that's right and that's why I talked about in the context of.
Discount since you know a lot of our customers are in the luxury and apparel space where they want to try to us from Apperception perspective hold onto price Integrity but free shipping is a nice way as you mention to essentially give,
it total cost of ownership if you will discounts on getting that a product you on.

[11:39] For sure you also mentioned Black Friday becoming a little bit more of a digital holiday and that that's only seems like a trend that we've seen as well,
are you starting to see you mention that a lot of deals are peaking on Cyber Monday are you starting to see a spike of.
Online deals on Black Friday as well or do you feel like like as a consumer you're going to get better deals on Monday then you can get on Friday.

Scot & Rob:
[12:03] Yeah I mean it's it's just to get really deep we saw a 27% discount rates on Black Friday compared to 29% on Cyber Monday.

[12:16] Negative Outlets closed right but generally speaking when I step back we're seeing that,
deals have really in demand in fact has been smooth over across,
the seven days of cyber week where in the past it was for consumers got to get the deal on Friday in the store or Monday.
I'm online and I'm finding both based on a research and helping a sample size of one and doing a bit of shopping myself is that retailers are becoming a lot more transparent about the length.

[12:53] In the duration of their promotions and there's not as much of a.
Gosh I got to get it on Friday or I'm going to lose out so yeah I know that's my roundabout way of saying there's a spike Cyber Monday at 29%.
We see 27% but overall we're seeing deal smooth out through the entire week.

[13:17] Yeah that that is interesting that is that's one of the challenges with promotions right is that the promotions are going to be most effective,
if there's almost some scarcity to them like if consumers believe that that deal is going to end on Friday and that's the best deal I'm ever going to get if.
It we're promoting stuff on Friday and all the consumers have a a real belief that there's going to be an even better deal on Monday then the.
Promotions tendon not have the desired effect into your point in the old world the consumer attended the only know what we tell them right so we said hey big sale on Friday that's the only information the consumer has not had but today.
The consumer knows everything and they have.
Perfect transparency and oh by the way there's probably 50 websites that are designed to telling them what what deals are the best each day and what did the historical,
best time to buy all these products are so it's hard to hard to get away with any of those those promotional games anymore.

Scot & Rob:
[14:13] It's really good point I think it's a really good point in the fact that.
Retail for finally listening you know what I mean in terms of their acknowledging that consumers have a lot more control in Access than ever before and why not be a little bit more,
transparent around the pricing in motion so that while you are giving a little bit away on the scarcity side you're giving a little bit more away saying I don't.
Each go to another retailer cuz I think I missed that window right.

[14:44] Put it makes me I know Salesforce is really big on the AI in it you guys call York or a Einstein if you guys do any exploration of kind of could you plug that in there and try to have the AI out smart smart the consumers on this whole,
pricing game of chicken thing,
yes and we are doing that in fact we actually have some interesting data around artificial intelligence and how that has actually influenced a lot of the,
the sales when it comes down to it so what we found across again these sample set that we have is that.

[15:21] And I'll pick on Black Friday so on Black Friday 6%,
Shoppers engage or clicked on a product recommendation that was powered by artificial intelligence so that recommendation was based on the shopping Behavior.
Either a known consumer in the various digital profile and preferences that have been accumulated or an unknown based on the clicks that.
They did either on-site or off-site and while it was only 6% its Rove 32%,
of the revenue so huge impact when retailers can turn this data into intelligence and get it in front of the consumers in a meaningful way throughout the journey.

[16:14] That that's fascinating I'm always curious like how how are you defining artificial intelligence for the recommendation and in that case cuz it you know obviously you know there's there's multiple definitions of artificial intelligence but I have a feeling all the the vendors that are in the the Salesforce Commerce Cloud link exchange that have been doing,
recommendations for for 5 or 10 years would probably call their engines artificial intelligence wouldn't they are.

Scot & Rob:
[16:40] Yeah they likely will and so yeah we're at the very core it's.
From machine learning that is taking in all of the data that's,
being generated on the platform by that retailer and allowing the algorithm to continually learn and in an automated way.
Dr. Relevant interaction LG interesting part is that,
artificial intelligence Einstein is both making the merchant in marketer the retailer smarter so they're just getting more fishing around planning,
their pricing in there but then it's also Autumn eating a lot of manual rules-based type of Assortment,
that the consumer will interact with on the site cool,
yes it's need to see you and you're always Acquisitions talk about synergies sounds like there's already a rich set of capabilities over on the sales for side that you guys are tapping into.

[17:41] For sure yeah I mean particularly on the Einstein front given the fact that on this across across the entire company so yet while we have a date,
with in Commerce Cloud we are we are definitely leveraging,
all of the Innovation that's happening back at San Francisco from machine learning to visual,
intelligence to voice intelligence to natural language processing so it's it is really exciting where as we came,
India the Acquisitions with some pretty cool.

[18:20] Artificial intelligence were able to now look to our colleagues and really amp it up quite a bit and again. The fun part about this is It's really baked into the plan.
So it snow in the same console that a marching will do their promotions in their assortments and figuring out the promotional calendar so they don't have to talk between different screen so you know going back to data.
It's really showing while you know small,
portion of consumers are coming across these product recommendations and stay clicking on then it's driving a lot of Revenue and I assume at some point we'll talk about mobile but,
in a very small form factor world that we're living in now making sure where you might have one if two products that are made available getting those right ones,
in front of the consumer makes all the difference in the world yeah real estate is definitely the premium,
just want to talk about mobile one quick thing that you just kind of made me think about so early are you talking about skills being kind of a prediction you guys as part of the platform can you just kind of turn on for a new beer Merchants an Alexa skill or or.

[19:36] You know you're watching what's happening there before you do something like that.

[19:40] Yeah so you know Boyce in general is something we're looking at our customers given our open platform already testing some out there finding it just the way they're not necessarily seeing.
You're clicking the bottle like it's not really clicking or tapping are you but you know having to buy happen but it's more on some of the purple,
research Discovery or on the other side service but that's more happening for your partners or independently given again are open platform our customers are able to innovate and extend vrep eyes,
Darius didn't ask Dex like order and customer and price and,
so on and so forth I figured I would keep your interest though given I know it's a Hot Topic around these parts so obviously what you're seeing on The Voice side it's typically around this holiday anything.
Pop up for you and your discussions,
I always check the specials that the Amazon has there and just interesting to see what they're choosing to push that way I think.
Retailers that are doing it our way out on the Edge at this point we haven't heard a ton Jason have you heard anything.

[20:53] In general I think even though the most dominant voice players would say nobody really expects voice to be a primary interface for Commerce I mean there's there's just a bunch of.
Deficiencies like most things you buy have a bunch of variance you pick a color and a size and potentially a brand and like,
getting interrogated for all of those details to place a a Commerce order via voice.

[21:16] Actually isn't a super elegant experience so while they're there certain products that lend themselves to voice Commerce and there certainly are people that are engaging in voice Commerce.

[21:26] It's not like oh man that's the better user interface in the whole world is going to shift to voice.
For Commerce I think it's really obvious that voice is going to be a major you user interface overall and I think we're going to see voice being used a lot too.
Manage and modify order so you know once you start buying all your groceries online for example and you have an auto replenishment order.
You probably using voice to say hey I'm going to Grandma's for Thanksgiving you know let's cancel this week's grocery order or hey I need to make a pumpkin pie for Thanksgiving,
let's let's add these ingredients to my.

[22:04] My normal list but I really think that's going to be the the primary role of a voice in Commerce more so than it is.

[22:15] Product Discovery or you know first time order types.

Scot & Rob:
[22:19] So it's super interesting to me is incorporating voice for on-site search right so you're still looking at,
the screen but you're able to search using voice and then layering on top artificial intelligence or putting artificial it's on the bottom whichever way you want to look at it architectural e in any case but being able to really help.
Again really cut down the time between inspiration and ultimately getting to the product that.
The customer wants but I hear what you're saying in terms of perhaps you know on site to eat navigation versus doing it by.
Talking to a device saying I want this product that I've never seen before.

[23:02] And I think the use case you mentioned makes all the sense in the world in particularly on mobile we already see you like that voice as a user interface in Mobile has huge adoption in China are ready and so I think that's inevitable.
Here and in there are some fascinating nuances that happened there right because when customers type into our search box with a keyboard.
We've taught them all how to type to how to do keyword searches right so two people type the words that they think.

[23:34] Are are most likely to come up with that results but when people speak to a voice interface they tend to speak in full sentences and so what's what's interesting is.
There's voice search as we get 10 to have a lot more contacts.
Then that type searches and that actually enables us to give more relevant results.
Which is which is interesting but you do have to think about your indexing and your your if your you know a content creator on this product detail Pages you need to think about your SEO strategies and things differently when a meaningful percentage of your.

[24:08] Your customers are are searching via voice so I would certainly agree with that and I think.

[24:13] I'm not sure that that's a huge piece of the market this year but I would suspect by next year.

[24:19] It's a much bigger part I guess weather thing that slightly interesting is to the extent that you are going to shop via voice obviously Alexis the dominant voice platform out there.
And you know they predominantly want you to buy from from Amazon although you know they recently made an announcement of a partnership with.

[24:36] Best Buy to enable you to do Commerce through Best Buy.

[24:41] You know that you have to add a few extra words to that search but what's interesting is so everyone that wants to compete with Amazon has the problem of not having a product catalog like Amazon has and not having all the sales data that Amazon has to help.

[24:54] Sort of determine what what brand you probably want when you ask for batteries and so we're seeing like Google in particular.
Go out and start to do these Partnerships with retailers where the retailers are sharing their first party data with Google to make search more more context really relevant on.
Google home with those retailers and it occurs to me that they'd be really smart to partner with a platform like you to enable that for all of your clients not.

[25:25] How to give away any future product strategy but yeah.

Scot & Rob:
[25:27] Your way into much but I can say that certainly you know we're always looking at ways to extend our platform and I'm realizing that.

[25:38] More and more Commerce is happening off property right and so you know our whole business model from the beginning of time was.
Consumers go to a Retailer's website and buy and the reality is more and more of that happening off property so.
Retail RC to push their brand or the consumers are we want to help them we want to help them do that and if that's you know again partner in to make that happen.
Definitely looking at those Avenues Cooper Ford Jason continues to,
can you know an uncontrolled Corner about future product releases this pivot to mobile,
so I remember the early days of demand where you guys were in this wacky thing called the cloud and and some of the earliest successes were convincing people to let you run their mobile site because you guys were really good at responsive and all that and then,
pretty quickly earned the entire site so you guys have been kind of mobile Pioneers from from as early as I can remember I've seen a lot of your.
Quotes of been around mobile give us what what do you see in as far as mobile Trends and and how did that meet your expectations.

[26:50] Yeah so.
Willie we think the headline or one of the key headlines for the holiday this year so far is Mobile in the continued adoption.

[27:04] By consumers not just to browse but to actually buy and if you remember mention one of the three predictions was Thanksgiving being a really big digital.
Holiday and we take the major driver to that is mobile.
You know cuz really in the past it was consumers had to wait either well going to the way back time machine to 2005 one day to get to a high speed internet connection but even at home.
On Thanksgiving or Black Friday oh gosh I got to open my computer I got to put in my username and password I got to bring up a browser I got up,
yeah there are a lot of steps there's a lot of friction and really it do the day the mobile phone is the remote control of our daily lives right it's tether to us so,
it's really just creating instant access like it does any time of the year.
During Thanksgiving during Black Friday through the entire cyber week for consumers just to take out their phone.
And in brows but what's happened you know the last couple years is.
Most retailers have really stub their toes around their their mobile strategy didn't really make it easier so why you kept on seeing traffic creep up.
They were still that friction Aaron consumers ultimately like either wait until they get to a computer or weighted went to the store to buy but again.

[28:38] Consumers are pulling out their phone on Thanksgiving on Black Friday and actually buying so just some of that we think are some,
mind blowing status is. Some I guess I'll give it to you for the Cyber week we saw Mobile Share,
traffic at 61% to 61% of the traffic was coming from Mobile by the way we to find Mobile as home,
.. Tablets are a separate category there but what I think is even more interesting is that,
mobile Sheriff orders for the week was 41% and that was up by the way from 34% for the week.

[29:21] Your prior so the idea.
And we can talk about and I love your perspectives on this like what are retail can talk about what a retailers doing to make it easier but that's that's the bottom line they're really breaking down the friction between inspiration and purchase and not.
Part of what's contributed again to Black Friday being a big digital day in the smoothing out in general of demand across the entire 7 Days of cyber week so it's really,
if I could say inflection points a big shift that we've been seeing for quite some time and it's actually coming through to fruition.

[29:59] Yeah I I think it's it's really fascinating we talked about it it'll a lot on the show we called the mobile Gap and essentially that's that.
That you know the fact that.

[30:11] Increasingly traffic is all shifting to mobile but the conversion rate on mobile tends to be a lot lower than desktop and so on these big holiday days when.
It's in a mobile traffic by Stephen Moore.
Like you know there's there's a potential catastrophe of 61% of my my traffic is on mobile in that unit converts it you know 1/3 or 1/4 the desktop traffic used to convert I'm actually going to lose money on the site and Zoe.
That the fact that you're seeing that mobile Gap Nero like obviously.
Is 61% of traffic and only 41% of the sales are happening there still is a gap but that you know that's a lot better than when it's 60% of the traffic and only 25% of the sales.

[30:53] So interesting to think about the series y that Gap is near Owings I certainly have some I'd be curious to hear if you have any thoughts but.
It is equally interesting question is.

[31:09] Whitney Rose is it just narrowing because of something that you need to Holiday. And so once we get through holiday.
We're going to revert back to that you know same old nasty mobile Gap we've been living with for the last couple years or have we systemically figure you know improve the mobile experience enough that we're actually starting to see a permanent shift,
tomorrow mobile purchases.

Scot & Rob:
[31:31] Yeah so I think the flywheel has started and it's not going to slow down and so one other interesting data point and then I'll give you a couple of my.
Hypotheses as to why no.
Why this is happening but I hate this part of the conversation by the way so if we do the mask on Thanksgiving.
For the first time mobile order share bypass computer order share so that's like.
Big deal right so 46% of orders on Thanksgiving were Mobile in 45 we're on computer now actually reverted back for the rest of the week but it just shows you like.
Okay computer is continue to.
Creep down and finally mobilize that Stout I think that's going to continue to a degree you know going to the point around why you no like I contributed it.

[32:31] Put it on two things one we talked about a bit or more than a bit which is a I so applying to buy to the small form factor.
That's huge benefits cuz they get that you mention it so little real estate figuring out what that it goes back to the what has no right product Right Price Right Time there it is,
and then the other one that were tracking is around the check out because it was not terrible was an awesome but it wasn't terrible and so I was terrible.
We all missed the rookie still are in terms of okay now I can put my name okay now I send put my address and credit card and whatever else the.

[33:15] Adoption of integrated payments like Apple pay and Android pay in PayPal for that matter.
We should not really helping in fact we anticipate nearly 10% of iOS orders will be by Apple pay and so that's just making it.
Easy and so I think it will go higher as more and more consumers use Apple pay,
and I'm part of the reason why isn't hires because more more people are using it yet but it's on again one of these things so that you know I'm a man and I do think it's one of these things work,
consumers kids are getting this experience they're going to have more confidence where they didn't before that it will then.

[34:01] Come make its way into the other 360 ish whatever many days you want to say year.

[34:07] Yeah for sure and I'm going to.
Drill down into those in just a sec but I do want to ask one of the data point if you happen to have it so,
you're one of the problems we always have with mobile as is conversion rates lower right so that's what we've been talking about but another typical problem with mobile is,
people tend to use mobile to buy fewer items per cart so you know the average order items per cart you know is a lot closer to 1 on a mobile device than it is on a desktop so I'd be curious when using these like nice bikes in Mobile / holiday.
Are you tracking the items per order and are you seeing that Spike up as well.

Scot & Rob:
[34:48] So we track it I don't work all of that data is,
and the next episode or we can sweat it out at some point right let's do that because that stuff ice we definitely track it and we know what it is generally but I don't know what it is comparatively for this time of year between mobile,
shopping cart so let's let's get that with W nice cheese or let's get that out today.

[35:10] Perfect.

[35:12] If I do surgery with you like I tend to think that there's kind of a systemic thing that's improving about mobile that hopefully makes for a permanent change in Mobile Gap and then there is a.
Kind of tertiary thing that improves mobile around holiday right like to this system a thing to me I totally agree with you it's improving the checkout experience and reducing friction in the checkout experience.
And integrated payments is the easiest way to do that there also are just.

[35:41] Better best practices in user experience there's things like using you know the Google Maps API or someone's Alice's API to enter.

[35:50] Addresses with waywest clicks then the traditional Fifield thing the the Apple pay.

[35:59] Those things are interesting but for example this year Google launched this thing called the payment request API.
Which is a 8 method built into their browsers in their mobile browsers that makes it way easier to store payment information on your phone.
Once and auto and security auto fill all those forms from from every retailer that supports it and so once retailers start supporting that that pin request API.
Check out becomes much lower friction there and we're starting to see see some pretty significant deployment so I think they're a bunch of things working in favor of.
Reducing checkout friction and I I suspected hope that that's going to.
Eagle a permanent reduction in the mobile Gap and that's super important to me because Scott and I actually had a debate about whether that mobile Gap was going to go away or not last year and I think I said it was so if it doesn't I'm going to I'm going to lose that fat.

Scot & Rob:
[37:00] What happens when it goes away. What are you talking about well I guess you got plenty of topics.

[37:04] Yeah yeah I mean by quick weave shortage of topics has never been Scott and eyes problems.

[37:12] The but the other thing that I do think just works in Mobile favor over holiday is what I'll call buying intent right that.

[37:22] There's a lot of reasons a consumer would go to a Retailer's website.

[37:26] So you know I used to use the phone book to get the phone number and find out if there's a product in stock.

[37:33] Today I'll go to the website and look up online whether the product in stock before I drive to the store.
I used to use the newspaper circular to see if the store has a sale today I'll go to the website and look and see if they're having a sale.
I used to use the Yellow Pages to see where the store nearest me was today I'll go to the store locator on the site to see where that the store was all all so they're all these.

[37:56] Visits that happened to a retailer site where no one ever intended to buy anything they intended to get information off and that they're going to use to visit a store.

[38:07] And so all of those things are actually happy things that you unscrewed that consumers are doing but they have the unintended consequence of making conversion rate look lower.

[38:16] Inside out during holiday when a higher percentage of the overall traffic are coming to the site with the specific intent to buy something.

[38:26] That that affects gets diluted and so I think it's.
It it's just a natural thing that as traffic goes up on these on these days when people are mostly trying to buy online.
That we're going to see the mobile Gap near a little bit but I do also think that the the the longer-term happier reason is.
It is just getting easier and easier to,
to check out and send Chopper stuff into your point as artificial intelligence gets better so the right product show up in front of you quicker and as we know it. Things like boys interfaces that are easier and faster than,
typing you know complicated searches and a search engine that I got that just all going to work in mobiles paper.

Scot & Rob:
[39:09] For sure I'd like to find you some we actually track that throughout the year and that's a that's a nice leading indicator as to what consumers are thinking so I'd like that like that apply to the mobile in Holiday.

[39:22] Any talk about some of the key days hear anything else on mobile that that you want to.

[39:32] Again I think the key piece of it is it's it's helping to a bit smooth out the the demand because the consumers have that access and control in Tazewell.
Reference before that transparency and and it's in it showed.
As as consumers just continue to go to that as their mechanism to connect with the retailers.

[39:57] About a Multi-Device because you guys are running,
go towards the side against after you logged in effectively but anything anything interesting their arguments people I say as well people are on their phone and they're doing research and they throw something in the cart and then they go to the desktop and check out now,
I've never been a big believer of that but haven't had enough data to either agree or dispute.

[40:23] Yeah for sure I mean that is happening and we're seeing the data because we're able to give an arm.
Persistent cart were able to see that consumer through most of the digital if not all of the digital Journey right and we are seeing fact that there are multiple digital touch points before.
The buy button which is of course just driving retailers absolutely Baddie because most of them can't attribute know where the demand is coming from and where else only they're buying and kind of needing it all together but we're finding that.
For sure to be the case and that we're seeing it even,
more so during the holiday time when if you can believe it or not,
consumers are even more time starved and distracted so they are starting their shopping journey in one stage for One Touch point and then.
Consummating in another so yeah that's it that's a big Dynamic that's happening and also they're using in many cases the,
you know the shopping cart if you will as a registry or a wish list and allowing them to also do a lot of research for not only,
gifting to others but self-gifting is well will self-gifting on,
the start digging into so many ski days and you hit on some of them is as we,
been going over the broader topics but what was pick November kind of first which is I guess the kickoff there through Thanksgiving but not including Thanksgiving.

[41:54] Anything have you guys been watching that. And as I feel like it is accelerated compared to last year a lot of retailers are kind of now calling it you know a month of black Friday's and they're trying to get consumers to ACT earlier or any anything by that kind of.
Early holiday. Talk about.

[42:11] Yeah for sure I mean it goes back to this game of discount chicken and it's not only between the retailer and a consumer it but it's between or among all.
The retailers and there were some that just went out of the gate really strong right on November 1st and if retailers didn't.
Already planned for that we saw that there were several that actually scramble to to make it happen but.
Are TV shows that wow the discounts continue to.
He brought forward the consumer is still in control and it might have helped with.
Brand recognition and certainly to get a jump on the preference of the shop where and when but.
Only 35% and I say only cuz it still needs a lot of Runway will occur of digital shopping by.

[43:09] This month is not Monday what we also stopped by the way just to kind of give you a broader sense of When shopping will be complete we anticipate we,
predict that 50% of the digital shopping will be complete by December 3rd so that's right up on us and then 80% by December 15th right again right around.

[43:28] That what I would say nautical shipping windoware.
People even though they might be promise to get the product in a certain amount of time or it's starting to get a little worried about that but that's my long way of saying yeah we're definitely tracking this the discount keys.

[43:45] And other promotional activities what we started to see to I don't know if it was purposely plan for.
This time of year or not but more more subscriptions.
That are being launched a subscription Services right so stance as an example just launching their there.

[44:09] Their subscription for socks or Fruit of the Loom so I wonder if that has a little to do with hey this is an interesting gift to get this time of year that last throughout the entire year.

[44:21] That is totally interested I haven't noticed that transfer I will redouble my Maya observations and follow that,
as we move from that kind of pre pre Thanksgiving. And start looking at it's a big 5 days what what are you guys seeing in terms of Thanksgiving Black Friday,
that the weekend and then Cyber Monday.

Scot & Rob:
[44:43] Yeah absolutely yes sir we saw just actually across the seven days to.
Throw it out there we saw a 26% / All Digital growth and we saw.
Really high spike in Black Friday and it actually based on our data was the biggest digital shopping day.
Of the holiday season but we also saw Thanksgiving being.
Significant growth as well so people aren't again aren't waiting and so you know across the board we're seeing some really really nice growth as we anticipated because of the strong digital growth that we saw.
In our shopping index in Q3 we anticipated it but it was really really interesting to see you again particularly on Black Friday.

[45:36] Very interesting in just a clarification some vendors like see a subset of all the the.
E-commerce traction transactions and they they use a statistical model to try to extrapolate that and say.
And here's you know here's what we think happened in a hundred percent of the industry in your case.
I think you're being a little more straightforward right like when you say 26% grilled you're talking about like all the Salesforce Cloud customers I sent you a saw 26% growth in so that that may or may not perfectly mirror the entire.
E-commerce industry or the entire internet 500 or something like that do I do I have that right or are you trying to do a.

Scot & Rob:
[46:19] That is.

[46:21] That is totally fair and so we do have a great cross-section of retailers and branded manufacturers of every size,
but that is in fact the case we do not apply Cisco model on top of we have here we just used the R3000 sites across 53 countries as as the sample set,
and that's another important the 6th and I think is ours is global we can and do subsequently slice it by.
Size and by geography and by segments phenotype.
A retailer but in this case we are providing Global numbers across all of the segments.
Awesome so we're running up against time and appreciate you recording this in the evening preciate you taking time out of your end of your busy day here I was going to get out of holiday mode towards the end here and,
you've already been super helpful with some of the voice Commerce stuff that we left talk about in an AI,
any interesting non-holiday trends that that you can share as you look kind of towards the next year or even three to five years out.

[47:33] Yeah you don't want friend where fracking really closely and it's I would say in the context of AI is.
Actually putting the consumer or.
The consumer data back in the consumer experience near a hypothesis is that we've been talking about putting the customer incentive everything you do for the last 10 15 20 years I remember.
Writing reports on it as an analyst but with.
The increasing importance of AI there's increasing importance on actually figuring out how to better manage and.
Operationalize your consumer data physically because it's just scattered in many cases all across the difference operational systems and so,
really interesting Theory Focus over the next 12 months on the data which isn't that,
sexy honestly but it's something we need to do so we think there's going to be a lot of investment there were looking at that closely from the my team and a research perspective and what that's going to look like.

[48:37] We also you know given.

[48:41] Now part of Salesforce for the last year-and-a-half certainly looking at what does a platform look like.
That helps manage the journey from all the way up the final at you know as you know,
Discovery research coming through Commerce and fulfillment and service and advocacy and that's what's really getting us excited as you know with the densities coming together.
Salesforce applying artificial intelligence to it we think there's this great value to be had by by retailers Brands to and rethink their front end systems,
animal holistic of unified way.

[49:30] I do think that's an interesting opportunity I actually think there's two Trends are somewhat related in that like one of the problems we had start they have a data is that there's a ton of of.
Data within an Enterprise but it's all trapped into these you know the spirit silos so there's like.
The personalization engine on top of your eCommerce engine that knows something in your analytics for e-commerce know something else and your customer service guys know something else and you know that to that consumer that doesn't look at those two separate Services they're like.
Man I sure did all this information about myself and they should go to use that to have way more relevant interactions with me and reduced you know a lot of friction and they shouldn't be asking me all these questions they already know about me.
But for the retailer to solve those.
They got to break down all those silos and integrate all that that data so I actually think the leveraging AI to get better experiences and kind of you know.
Doing a better job of integrating all of your systems are are closely related.

Scot & Rob:
[50:32] Yeah for sure no I think you articulated that really well if they all kind of playoff each other I guess the other point to is what can send you to see,
your Brand's going Direct on and become even more vertically integrated in retailers,
certainly going back for this life-changing and creating unique differentiated through products and services and so forth but you know really where you'll become interesting is.
How Brands and retailers as a reference before moves Beyond just their property which is,
really uncomfortable for many of these organizations because since the beginning of time it was about pulling the consumer to their property and owning them and not sharing them and now needs to be more of,
pushing their brands where the consumers are and that might be in various Partners or third parties that you know,
that's where the demand is being created so be asking to see I'm more of whatever you call it distributed Commerce or conversational Commerce property,
Daiquiris retailers outside your comfort zone from a technical perspective much as you know operational perspective as well to go where the consumers are.

[51:53] I totally agree and in fact I'll even give a little Club to your architecture that's sort of beneficial for all those those things.

[52:03] The challenges you know that all of these new opportunities are launched it's hard to know which ones are going to be huge successes and which ones are are just kind of.

[52:14] Buzzy and there's potentially a significant amount of effort to implement the technology to try these things so Pinterest launches shoppable pins.
Hey is that going to be a huge thing or is that a novelty Apple pay makes itself available through a web browser is that you know the most important thing I could do my inside or not and if you're.

[52:36] If you're a site with a non-friend Connor solution that you sort of own.
And you got a bunch of developers that have to implement each of these things you have to make big strategic bets about which ones you're going to chase and which ones you're going to try to be a fast or follower on.
But when one of the awesome things about your cloud-based solution is.

[52:59] You guys tend to do those implementations and then you know the customers wake up to the new version of the platform and it and just all of those those things are available and often like super easy and low friction to turn on and try.
And you know I do think.
That your your customers you know tend to be in a better position to implement and try some some of those new features and learn which ones are going to work and which ones aren't much quicker then.
Then maybe some of the the more Legacy on-prem Solutions.

Scot & Rob:
[53:32] Yeah well I appreciate that and certainly the consumers are moving really quickly in,
stating the terms to a large degree and so yeah I mean gone are the days of 12 months implementations to get a mobile site up or even you know a month to get Apple pay going it's Let's test the stuff if it works awesome,
it doesn't let's move on but let's not invest too much time and energy and put too much risk on the business oh yeah I'm in the cloud model continual innovation.
Certainly agility we're seeing our customers take advantage that weather we're putting.
The innovation in the platform of their innovating but themselves or third-party say I appreciate it specially coming from you the recognition of that and you know Cloud certainly as a key enabler.

[54:20] Well Rob that's why she can be a great place to leave it because it does happen again,
we have burn through our a lot of time but definitely one thank you for taking time out during what I know is a super busy season for you and sharing what the Salesforce.

Scot & Rob:
[54:38] Thanks so much helmets absolute pleasure and happy holidays to everybody thanks Rob.


[54:43] Until next time happy commercing.

Dec 5, 2017

Tamara Gaffney is the Director of the Strategic Insights Engagement Group at Adobe.  Tamera joins us to discuss the holiday e-commerce results from Black Friday through Cyber Monday (Cyber 5).  Tamera has access to anonymous, and aggregated data from more than 5,000 companies worldwide that use the Adobe Digital Marketing Cloud (including Adobe Analytics formerly known as Omniture), which represents one of the largest samples of the overall e-commerce industry available.  Her team publishes useful insights based on that data throughout the year.

Adobe 2017 Holiday Forecast and Realtime Holiday Dashboard

Adobe Digital Insights

Adobe Digital Price Index

Long time listeners will remember that Tamara first appeared on Episode 60 with Holiday Predictions for 2016.

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 107 of the Jason & Scot show was recorded on Thursday November 30, 2017.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature – Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this is episode 109 being recorded on Thursday November 30th 2017 I’m your host Jason retailgeek Goldberg and as always I’m here with your co-host Scot Wingo.

Scot & Tamara:
[0:40] Jason and welcome back Jason Scott shirtless nurse,
podcast Jason you know but maybe audience doesn’t that one of our most popular episodes last year was the infamous episode 60 which was our holiday preview that feature adobe’s,
Tamara Gaffney and today we are excited to announce that tomorrow is back with us and we thought I’d be even cooler that instead of doing a preview,
if we could carve out just a little bit of her time even though she’s super busy being the date of wizard out there to give us a read kind of hot take on what’s going on after the Cyber 5 so we’re really excited to have tomorrow back with us she is too strategic insights engagement rings director at Adobe welcome tomorrow.

[1:23] Hi thanks for having me back on it’s been. I got to well it’s been a year,
I think this year will be even more exciting because we’re going to get some instead of previews will actually get reviews so excited to hear wake me up set.
Yeah we’re right in the thick of things aren’t we weave just just crossed over 50 billion dollars in online spending so it’s a big big year.

[1:48] And most of that is just got so that’s pretty impressive too.

Scot & Tamara:
[1:51] Yeah but 10% is not not Scot at my I think I wanted to have your job.

[2:03] I think Scott has to have multiple jobs to support his Star Wars have it.

Scot & Tamara:
[2:07] Yes yes I’m sure if you look in the data what will have a Star Wars? Okay.

[2:11] Tomorrow before we get into it can you refresh our listeners as to how it is that you know so much about what’s happening with holiday spending can you talk about the the dataset you’re working a little bit.

Scot & Tamara:
[2:26] Yeah let me start there because most everybody who is listening in its thinking Adobe and they’re thinking Photoshop I thinking acrobat not syncing data analysis.
Unless they were listening last year.

[2:41] Adobe Audition.

Scot & Tamara:
[2:43] But we actually have a.
Technology for marketing that we called experience cloud and inside that we have some baby clouds in an a particular the analytics Cloud which is running the collection mechanism for getting all of the information for a vast majority of online retailers,
as well as the Nvidia Titan and tonic the first most of the web is using Adobe analytics to track,
information for themselves and and we have the keys to Fort Knox in our team in Adobe Digital insights where we’re allowed to go in and look at the aggregate of all of,
the clients in the cloud so what you’re seeing or hearing today off of this data is coming out of shopping carts and the actual tracking of what is going in and out of shopping carts how much getting fat. What kind of device is buying it,
all kinds of information that’s tracked inside of adobe analytics and we aggregate points add up into massive numbers.

[3:52] Got you in for really old school listeners the Adobe analytics Cloud was at one point on the charger.

Scot & Tamara:
[4:00] That’s right yeah it’s in fact when you login if your client when you login it still says that and who are also.

[4:08] Let’s say I didn’t want I don’t have to use the product manager who’s I know we’ve totally normalized all the new names but yeah the URL still on the chair.

Scot & Tamara:
[4:15] Right it’s been 7 years now that we’ve been an adobe analytics and everyone still remember said that old Brandon so that’s that must be the Hallmark of a good brand right there.

[4:27] I absolutely in and soul to soul recap like their other vendors,
out there that give holiday data based on their customer bases but they’re you know most most vendors have you can have every real best business in and steal your customers might represent 5 or 10% of the market and.
That depending on your product it sort of self-select for a particular type of of customer in so you know there can be a lot of sort of inherent bias is in a lot of those data sets that that vendors that aren’t really in the analytic space have when they,
try to share some of that their holiday insights but in your case it’s it’s the same tool that that many retailers are using the tractor,
their own progress and I think you’re going to tell me that you have a pretty big representative sample of the overall e-commerce industry.

Scot & Tamara:
[5:18] Yeah we do and to be fair to everyone we all have a sample,
we just happen to have a drink normally huge sample which makes it frankly a little bit easy to predict what’s going to happen there isn’t that much out there that I’m trying to.
Figure out but but yeah we’re covering 80% of the top 100 retailers web retailers and we are.
Covering about $7.50 out of every $10 spent on line inside of the Adobe analytics and Adobe experience Cloud platform so,
the date of that we’re looking at is very very big we’re talking about trillions of visits and billions of a shopping carts purchased During the period of time that our predictive model is looking at,
data to,
give estimates about where we should be and then of course he know we’re tracking the actuals and if you were watching the news over the holiday weekend you probably heard adobe’s,
recorded because we had over 9,000 press articles in the last 5 days so it’s been a really great for us to get the word out,
that’s awesome congrats on the so much sense I hope you get paid by mention.

[6:34] I wish that’s what we do track it in analytics just like you know everything else that was up 18% and are kpi so we’re happy.
Awesome yes it’s he said that at the top of the show 50 billion that feels good.

[6:49] Maybe we can start time at thirty thousand foot level what was your thinking coming into the holiday and your how are we tracking against that thinking,
knee revision to the back end up or down think that they are seen.
Take a giant step back and talk about our prediction that we put out the very very beginning of November and the predicted model this year we were,
down to the studs and rebuilt it completely and it took us we started February and it took us all this time to get it get it redone and the reason why we had to do that if we were starting to watch how our model was working against,
behavioral patterns that we’re seeing in the market we noticed that that these big shopping days we’re stealing.

[7:42] Feeling shopping stealing revenue from other days and and that caused the model which had some assumptions in it about some constant growth.
In various levels of e-commerce spend to really start to become.
Not the right way to measure things so because we are never satisfied with what we used to do we decided that we needed to have a specific growth rate,
estimate for everyday of the year and and that it has changed our Outlook and it changed a little bit of r model from the.
Back so we did some revising of the past but not too big and and then we put out our prediction which was 107.4 billion dollars and that is a 13.8% growth rate last year was a 14.4% growth rate based on our revised,
I data in our models and so you can see that the growth rate is starting to decline but the actual total difference in spending is,
and and groceries are very difficult to conceptualize number because as a base gets bigger and bigger a grocery and actually goes down so so do not enter,
the lower growth rate the last year as a negative sign because e-commerce is still alive and well and in fact if you’ve been watching the news it’s it’s all the same as it ever was talking about. How much more is going online.

[9:11] Yeah I think in the offline world where things are going to happen 4% will take.
14 or 18 in is probably fine like I said we are seeing that retailers pricing promotions are causing.
The consumers to wait,
And Delay spending so some of this growth that we see big spiky growth in days like Cyber Monday, the expense of the beginning of November.
Which is strange considering that,
if you’re watching your email box or paying attention to what retailers are doing you see them talking about Black Friday earlier and earlier and you think well the sales must be really ramping up earlier than it used to but that is not an,
not in fact true.
Consumers has become online shopping ninjas and they know that the best prices are not until the Thanksgiving holiday weekend it’s okay,
it’s not always good for retailers,
but they’re waiting but they’re competing with each other and they it’s such a competitive Marketplace that they can’t afford to not have the lowest prices and everything else does,
so so that’s why you’re seeing the concentration of the holiday spending becoming Tighter and Tighter over the course of time.

[10:35] Interesting in I want to go down in that just a little bit more because when you when you think about.
More spending over the holiday. Like there’s a couple reasons that could be right like so you don’t want is people are just getting more good than they got last year or a bigger percentage of their goods online and offline it work if we’re just looking at the online number but another one is,
the time frame can be different right because we don’t have the same number of days every year and holiday and if I’m not mistaken this year we have one more day than we had last year so do we.

[11:07] You try to account for that in your model when you talk about the growth percentage or is it just there’s a small amount of the growth percentage that we should just expect because we have one more shopping day.

Scot & Tamara:
[11:18] Yes or model really looks at the two months of November and December and doesn’t,
pacifically look at when Thanksgiving starts although you’re absolutely right to point that out in previous analysis we had measured the impact of a shortened season because we’re.
Climbing backup in terms of days after a couple years ago we got to the shortest window between Thanksgiving and Christmas and.
And now you know every year we get one extra day which is great for retailers in the past when we look at what happens when you get a short season it was five six hundred million dollars a day and lost Revenue,
and that was because people don’t really start.
Shopping until Thanksgiving Black Friday time. And then they shop for as many days as they have left.
So when you have fewer days left you just don’t get as far out in your shopping and terms of the nice to have gifts as you would have if you had more time,
having said that though the counterbalance to all of it has been over the past two years and to even greater,
greatest here we have the Advent of click-and-collect shopping,
cell that has links in the season that and the fact that we have longer.
Periods of time that we can wait before shipping free shipping stops and.
Before the shipper say they can’t get stuff to us that’s because of.

[12:50] Really Improvement in logistics and data analysis on the part of the shippers themselves so we have a lengthened online shopping season compared to 5 years ago because of those factors,
and that helps online but the shortened season in general hurts all shopping.
And and all of that is it is a part of the model but not as specifically as you know looking at the number of days between.
Thanksgiving and Christmas.

[13:21] That that’s actually a great point so if you get back in that time machine and and Scott and I’ve been doing this for a long time like an old days you had this one thing you have a cutoff date right and that was the last day you can hand something ups and still have it delivered,
via ground to it to a consumer in so.
Emotionally you were selling stuff online until that cut off date and once you got past that cut update your strategy was to sell gift cards.
Like something you could deliver electronically and like you know over the last 10 years,
we have multiple cut-off dates because there’s that ground cut off date and now you know a lot of shippers are a lot of consumers hurt you know getting express delivery weather you know that’s bundled for free or weather,
they’re paying a premium for that to your point because updates just are shorter because the shippers are better at it and then you know the the big Advent is you is you rightly mentioned is now instead of promoting gift cards for those last two days were saying,
click and collect buy it online and you can drive in curbside and pick it up or coming in the store and pick it up.

Scot & Tamara:
[14:25] Yeah and the end.
In places like you know Amazon for example in certain cities they have same day delivery because they’ve got warehouses located in those titties themselves,
so some of it is for the positioning of goods around the country and where where they are I remember a couple years ago watching UPS backup into a Nike store and take online orders out a physical store and deliver them in a local area so there’s all kinds of strategies that have come into place in The Last 5 Years to get Goods,
out of sight out of the computer and into your porch without it having to be a cut off so early.

[15:05] For sure and and now it’s in the porch soon it’s going to be in the refrigerator but because.

Scot & Tamara:
[15:11] I heard that.

[15:12] Are going to have the keys to our house.
But before we get there the other thing you mentioned which I think is potentially even bigger deal is it’s it’s I think it’s always dangerous to talk about growth without talking about dressed Ricky Powell.
Discounting the reason I say that is sort of twofold.
Whip and Seasons when retailers aggressively discount earlier in the season like you know it’s possible that they’re just shifting more sales early so we can see big growth over this kind of cyber 5mm really all we’ve done is like we’ve given away margin to pull those heels earlier into the season,
I’m in in their other Seasons where they aggressively discount throughout the season and they do drive more sales but of course I can have a hugely negative impact on on profitability in so you can have a season where I V,
we all Drew really well oh bummer we all lost more money than ever before.
Until I’m I’m always curious to track permit the promotional activity in one of the things that’s always exciting to me about your data set is I think you actually see,
the price consumers are paying in the level of discounting so are you able to talk about that what time you’re sitting there at all.

Scot & Tamara:
[16:24] Yeah I actually am because it again going back to how we collect the data we’re looking at a line item a product going into a shopping cart for pretty,
price and then we’re looking at the totals,
and you know what kind of credit card with use all that stuff is stored in Adobe analytics and so would we go in and do that we’ve created actually by the,
by the way every month we were Lisa digital price index which is a corollary to the Consumer Price Index and it allows everyone to track,
online price changes so so we use that type of information that we’ve built up in the digital price index to help understand what kind of discounting is happening during the holiday season and the interesting things this year for me was that,
the discount rate,
for the biggest discounts tend to be on items like televisions and computers and the electronic category has a much bigger discounts than other categories,
so last year we hit 25% discounts on televisions at tablets this year we hit 24,
so not a super big difference but not as much discount as we had before,
the little trick there though to keep in mind is that I’m calculating a discount rate meaning there was a price and then it got you know kind of lowered,
they’re actually could be that the prices came into the season lower and therefore the discount rate still got you out the door for less money.

[17:56] Then you would have even know there was a smaller discount so I’m so keep that in mind but some of the categories that we were tracking,
did not have this as Hyatt discounts this year as last year last year seemed to be a huge huge discount here and this one is a,
Sporting Goods with about 11% off and I actually saw an article about people buying guns which was interesting cuz that’s in the sporting good category apparel about 15% computers 15%,
and you know the.
Toy category itself is holding it about 19% discounts at the the real big.
Problem with side with pricing is that the times when things actually get their lowest is already the time when a lot of the hottest products are sold out,
so retailers don’t necessarily give you their lowest price on something that’s about to sell out until after they get through knowing whether or not,
they have enough inventory and optimizing pretty well using a lot of data mining to do that,
the other thing that I’ll tell you is that the shopping carts themselves were a little bit,
bigger than they were last year and the data that’s coming in after I prediction it’s showing us that the season is going to be a little a little bit bigger than a predictive model,
could touch 100 V 110 billion possibly so we’re going to have to see if.

[19:32] If the big Cyber Monday that we just came off of,
does feel some of the shopping center from the rest the back half of the season I don’t think it will though based on looking at the state of for 5 years people seem to shop as much as they have time for.

[19:49] Very cool and.
So you did touch one thing that I haven’t fully considered but I’ll bet you is it a newer challenge so you see discounts in terms of sort of is was pricing right like this price was this in an hour I’ll bring it at this n o n a lot of retailers are heavily promotional so that’s their their motor cyber on die,
but increasingly like there’s a there’s a huge everyday low price retailer out there and Walmart that really doesn’t.
Quote on quote discount but they certainly adjust there,
their offer price and more more we’re starting to see this Dynamic pricing where retailers change pricing all the time based on,
on market conditions and obviously Amazon famous for that,
I’m assuming you can see that is was promotions but you really don’t have a great way to call out the fact when a retard just gets more aggressive on their base price during a particular. Particular there a dynamic processor.

Scot & Tamara:
[20:49] So this particular analysis that gives you the discount rates.
Doesn’t have that but the digital price index where were looking at the price index by category of product does.
So if we’re starting to see things trending down or we seem deflation in a certain category.
It’s showing up an additional price index so in January probably around the 5th or so we will put out the December digital price index and it will have,
more of a trend around how much how much does everyday low prices are we seeing hit the mark,
versus the discount rate which is we going to Jack’s prices up and then discounted make you feel like you got a good deal.

[21:35] Awesome and it not to do it from the overall message we’re seeing a healthy growth rate and potentially slightly less promotional than last year which is probably good good news for profitability.

Scot & Tamara:
[21:49] Yeah it does seem like it it is also feels like Americans are feeling jolly and that they want to I’ll go out and spend we,
never have I seen before and this is the intangible in anybody’s model not just ours but a stock market High the day before Thanksgiving.
You know an all-time high and so so there’s that that question lingering how much is the economy and the stock market positive overhang going,
this holiday season in ways that the model couldn’t have predicted because we’ve never had data to feed into the model with this kind of economy.
In it it feels like we got a really no tail lens there any other Bitcoin hitting 10,000 which I’m sure all the US consumers are excited about.
Well you know a lot of people nowadays do have something in in the market in the retirement or wherever and so it does seem like it creates a certain sense of willingness to,
send when when when that Mark is going well.

[23:00] Chocolate with shift gears a little bit and I know you guys do some really interesting research and tracking around the device Trends what are we seeing as far as mobile vs. desktop in anything interesting there that you seen the shirt.

[23:14] Yeah let’s talk about that because when I’ve been asked what the biggest surprise was this year for me.

[23:24] It comes into the mobile device area which you would think nothing would surprise me about mobile anymore because I talked about it now every single year as if it’s you know the most important thing but the problem that I seen in Mobile is that.
Traffic is switching from desktop to mobile over the course in the last 2 years and traffic at people’s buying habits are consolidating and two fewer fewer websites to the actual traffic to websites.

[23:52] In general at in retail that also everywhere is declining.
Play Lee and and its increasing dramatically in the smartphone.
And at the expense of the desktop and the tablets declining a little bit.
So the problem with smartphone traffic is it doesn’t convert well it’s people don’t hit the buy button when they’re on their smartphone nearly as often and the.
Average order size on a smartphone is lower so from a retail perspective it becomes really difficult if more people shop on their smartphones.
We were calling this year for smartphone traffic to surpass 50% to hit 54% and it is.

[24:44] Is a general going to be true that statement the first couple weeks of the year were a little bit lower in Mobile Traffic,
when we started getting into Thanksgiving we went through the roof on on mobile traffic and in particular smartphone traffic it got up to over 60% of visits to retailer website,
add some of those big holiday days and what I was fearing would happen would that would be that the revenue would take a hit,
as a result and it and it didn’t and that’s the big surprise for me so we had about a 40% growth rate,
in Revenue coming off of smartphones and in particular on Cyber Monday we had mobile Revenue which is a smartphone plus tablet.
2 billion dollars on that day alone are very first two billion dollar day,
mobile standing and so what what I’ve noticed is that the conversion rate and the shopping cart size on the smartphone has grown much faster than we were expecting.
Which is me a perfect timing really because it could have been a disaster the reason why.
I believe has to do with our ability to autofill forms and autofilter credit card and use our fingerprint,
on a mobile device,
it was just so much easier for me personally to shop on my smartphone this year than it was last year now last year I had it and iPhone 6 plus this year I have a Samsung Galaxy S8 Plus.

[26:26] I don’t know how much of it has to do and see no switching from Apple to Samsung are or just the general improvements in the smartphone or the Improvement of the website and being able to use the smartphone but it was.
Tremendously easier for me and I think that’s part of the reason why we saw so much more Revenue coming from smartphones this year that was my big big surprise.
At the season.

[26:51] Interesting that that’s really great news and we shall we often talk about that that lower mobile conversion rate is the Serta mobile Gap.

[27:00] And in general I would even say historically you we see the mobile Gap close a little bit on shopping days with a high purchase intense right like so.
And in that kind of makes sense if you’re shopping on a mobile device on a regular day and you’re in line at the bank and it’s too hard to check out and you run out of time.

[27:19] You just don’t complete the transaction but if you’re you know you’re shopping for a gift that you need for your nephew next week.
You’re you’re more motivated to complete the transaction even if that that phone number is all that payment information is harder to enter on your phone.

[27:36] And we we sometimes also talked about.

[27:41] Unit conversion rate not being a perfect metric right like so you know most sites when they talk about the conversion rate it’s all the traffic to the site and what percentage of that complete upper chest.
But of course if you’re not any channel retailer lot of people are coming to your site to get your store address or your store hours or check the you know lots of other tasks besides shopping and on these high shopping days.
Higher percentage of the traffic is going to the.
The purchase pages instead of the you know the informational pages that might be on your site and so.

[28:12] I guess I would expect it to be a little narrower but but.
It’s really exciting to see that the Gap closing if your premises right that it’s because there’s less payment friction though we should see the maintain those better conversion rates even after holiday is that right.

Scot & Tamara:
[28:29] I would think so we’ll have to watch and see how how well we do at.
The revenue coming from smartphones and how well were trending I did notice that in the past that we had seen some games and it was getting better,
the overall amount of smartphone Revenue at the percentage is around 21% we hit 27%,
on Thanksgiving Day and Black Friday and 20% of Revenue so well over a quarter of the revenue is coming from a smartphone not just a mobile device so I agree with you though all good points.
It’s going to be one of those things that retailers have to figure out how to how to,
the momentum because the desktop traffic for the first 27 days of the season was,
Ware County for 70% of the purchases so as it goes more smartphone definitely that mobile Gap is is.
Big worry and if they can’t find ways to improve the conversion rate for we’re going to see their revenue take a hit eventually.

[29:35] For sure in and one thing that I would just encourage people to keep an eye on.
For sure it’s true that the shopping experience on a mobile device is more miserable than a desktop device in terms of.
Entering payment information and in some other usability things and then we are seeing lots of the improvements get made that you know hopefully we become permanent and and help help a bait that that mobile Gap but there’s one particular technology that I personally am excited about that’s called the,
payment API the Google is deployed so you may be benefiting from in your Samsung phone so it’s in Chrome right now and it.
It dramatically makes it easier to autofill all those to Safeway auto fill all those payment fields,
on a mobile check out and so that that’s in a bunch of the browsers at this point but only a small subset of retailers have have implemented in their site yet and so.

[30:36] If that technology gets broadly adopted by next year you know that it can dramatically reduce the checkout friction and in a week we look at the average mobile checkout at something like 27 fields that you have to fill out in this this potentially reduces you down to,
eight or nine Clicks in order to to make a purchase so so pretty meaningful difference if a lot of retailers end up adopting it.

Scot & Tamara:
[31:00] Yeah I don’t actually know where my phone gets that stuff to put in I just observe it as a.
Consumer and love it and you know when you when you have an awesome digital experience like for example the first time I.
Checked into a hotel room using my phone to open the door you know you kind of remember those things like how well how something just changed my world is rock and it takes a really long time for everyone to adopt,
when you see it then it becomes your new Norm for what you expect and that’s one of the things that we talked about a lot here is is the,
Haitian gap between what’s possible and we know we can do it because we’ve done it on one retailer site,
and and then everyone else very quickly have to follow or as consumers we don’t have a lot of patience for it to be anything lower than the best possible digital experience we’ve ever seen.
And that that that makes it kind of tough.
One of the things that we looked at for mobile that I think is worth pointing out is the conversion rate on small businesses those who are making $10 a year or less in total.
Online Revenue was almost two times higher than it was for large large companies and,
on smartphone and so one of the things that I think it’s fascinating is this idea that we are gravitating towards the super large product catalog shopping environment where we can go there and buy everything from you know I’ve been cleaner to diamond rings.

[32:36] And it’s just easier we got everything set up and we go there and up and down.
Counterbalance of this Boutique experience where I don’t have to go in and type in silver.

[32:56] Silver bracelets and get a thousand pages on my smartphone,
and that that’s something that I think it’s really interesting Dynamic for retailing going forward assist,
decapitation of the big retailers as we’ll watch them try to figure out how to make themselves more consumable on a smartphone.
And how to create this identity that people who have particular Styles will,
well enjoy I think that the small retailers have a little bit of a benefit there I think they also have a little bit of a benefit in that they’re forced out of it because I can’t afford it so they’re into Instagram and places like that where they have a chance to stand out,
and to get some of this holiday shopping headed their Direction.

[33:46] Interesting I want to unpack that just slightly your original point that hey one return offers a much better experience and then that becomes the new expectation and no one else’s Force to match it.
I totally agree with that that you know that that’s helpful to the oil industry that.
That open your hotel room with your smartphone experience I do have a pet pee with that one though and that’s it most of the hotels that support that still make you use your key to go up the elevator.

[34:12] Which defeats the purpose to me but I digress.
The mobile conversion rate being higher for small businesses is super fast in the I hadn’t really thought about that before and.
For sure you could be right like part of that can be the Paradox of choice that they that you know they have a much more curated assortment and you know so maybe some of this white catalog shopping as.

[34:35] Particularly arduous on a mobile phone and it’s hurting conversion a little bit when you’ve got.

[34:40] Amazon with 100 million skus in Walmart with 70 million skus I could totally see that I could.

[34:49] Totally see your other point that hey is way harder for the small site to get traffic and so the traffic they get is likely to have much higher purchase intent.
So you know that the organic search on Google is going to get one by that big.
Big site and it’s going to send you to a page that might not be totally relevant to the keyword you know and they’re the ones they’re going to buy ads that you click on and those sorts of things but the people that find those small sites like probably had to do some work to get to that site and that means they probably.
I knew they wanted something there to other sort of yeah I guess one other interesting premise.
But another interesting thing about all those small businesses is.
The 10 to rent their e-commerce platform form from a big provider right like so you know these days it’s most likely Shopify and those big provider do a pretty good job of.

[35:40] Upgrading all the best practices all the time so you have a pretty modern mobile checkout experience on Shopify and you know if your small business in your on that site like and,
and something like this Google payment API comes up like you just automatically get it very fast where is on the on the really big sites that have sort of custom-built themselves.
Interesting Lee they have a harder time adapt adopting all the new ux stuff.
As fast and sew-in in some small ways like there’s actually a user experience benefit too many of these smaller sites that have to Outsource their e-commerce platforms versus some of the the big site to do it themselves so I wonder if that has.
Has some small role in it.

Scot & Tamara:
[36:21] Yeah I think.
I agree I think that’s a really good point most people assume that just because they were small businesses they couldn’t have as good a mobile experience in our data is saying that that assumption is is,
past you know it’s way old and it is very well could be due to these types of platforms that provide small businesses with in particular small retailers with all the same mobile capacity,
as I access the big guys so now we’re now we’re talking about,
how is the world going to become more personalized in these Big B catalogs I don’t think they’re going to standby,
and let small business kind of go back and get an advantage and they certainly do have a lot of resources to deploy a trying to find ways to make themselves look,
it just seems like that’s going to be,
a trend that will watch you happen I’m not sure if it’ll work though because we’re now selling more and more to Millennials and even genze which I like to call Crafters cuz I don’t like,
Jen actions you think,
boring but anyway I eyes I believe that those folks just turned 22 and entered the workforce this year so we’re now sorry to Pivot our conversation on to be on Millennials into this newer generation which,
is even more.
Interested in doing things like looking at influencers on Instagram to decide where they want to buy Apparel in jewelry and.

[37:55] Sporting goods and things like that from.
Pretty cool too so that’s been a really good tour of the macro Trends what was talked about a couple that’s the city days and you put on some tidbits near but I want to make sure we drill in Autumn let’s start with Thanksgiving and Black Friday,
the last 3 or 4 years as retailers have kind of started moving.
Black Friday deals around a Thanksgiving we’ve seen time and acceleration of Thanksgiving in a Slowdown of Black Friday is that Zack.
Something you saw this year and any other insights on those two days would be interested.

[38:30] Yeah so we had predicted Thanksgiving day to be a 2.79 billion dollar day came in at 2.87 billion 18.3% growth rate,
so yes it grew a little faster however the Black Friday total we predict,
to be 5.0 1 billion it came in at 5.03 billion and so so we’re still a little bit higher on Black Friday then or predictive models,
did and add the 16.9% growth rate so as we talked about this floor,
the percentage growth rate on a much bigger number is harder to achieve.
Thanksgiving day is quote-unquote growing faster but it’s on a smaller base and a Black Friday just crossed the five billion dollar Mark which is pretty impressive we also had out of every single day up until.
Cyber Monday was more than a billion dollar day online last year two of the days fell below a billion dollars so we’re now at a point where.
Everything to billion dollar day we’re going to have 18 We Believe corn for model 18 to billion dollar day,
2 + $3 days,
in the season so so that’s that’s kind of what happened on Black Friday and Thanksgiving Day then we got into small business Saturday and Sunday where we were just a tiny bit above projection these were like 10% gross days and then we hit Cyber Monday we.

[40:04] Got to be 6.58 billion dollars came in at 6.5 $90 so I knew bottles working out pretty well but that’s a 16.8% so the biggest gross day was.
The biggest day which is in front of the 10-6 perspective it’s very impressive and we all saw it.
Cyber Monday was starting to become irrelevant and it turns out it’s more relevant than ever.

[40:30] Which was surprising but Thanksgiving 18% but your.
You’re saying Cyber Monday grow faster because it like added more dollars it’s not the price of the percentage.
In spending on Cyber Monday versus last year you said that start as soon probably earlier than that like.
When we started tracking on November 1st we we we saw Billion Dollar Days Every day since then.
And every day in the season will probably be a billion dollar day plus and 18 will be more than 2 billion.

[41:16] Just one day to point it at televisor we saw on Thanksgiving was Arpita mobile day we saw traffic at 81%.
So yeah I was always imagine people in the store first and they can’t find me to look for the house on their phone to check the real time in the three other stores or two.
And try to get that one TV there after where are the stud that the phones become almost burnt the doorbuster fun there.
I call it shopping under the table that’s when you bring your cell phone to the Thanksgiving table and you know he’s kind of looking down,
doing your thing hoping grandma doesn’t bust you for praying this phone to the table.
You know you saw it you see a spike in store location look up sore or ship from store or any of that kind of stuff.

[42:08] Bill with trillions of transactions in as trying to get data out three times during that day we didn’t look into that,
we look into those types of things in January when we do a wrap-up report and and that’s really usually time for the NRF.
Need a timing in January to go talk about how people are using mobile devices for retail more generally.

[42:33] And we will certainly be looking forward to hearing about that in January it’s interesting with all these days because I feel like we’re just making this transition from utility the convention right like that.
Thursday is obviously a high mobile shopping day because.
You’re not at home in front of your desk so you know even if you were someone that would predominantly shop on on your computer you just have fewer hours on your computer you’re more likely event at a family member’s house in your on your phone and then of course.

[43:05] Friday was was a prominent lea-ann in store day and Monday was predominantly in online day because in the early days.

[43:14] You didn’t have that good internet access or computer at home so you know when you got to work on Monday that was your first opportunity.

[43:20] To shop online like I feel like all of those those things are dramatically less true like you know we’re sort of ubiquitously online like we certainly have good internet access at home but then they turned into these.
The shopping conventions in and now you know retailers have as a completely separate promotional strategy for Cyber Monday than they did Black Friday and then you know they’re driving.

[43:46] More sales on Cyber Monday not because that the first time the customer had access to a computer but because they got a whole fresh list of offers and if they felt like they missed some of the Thanksgiving offers because they were with family like this is.
They’re sort of second bite at the Apple at the perceived good good pricing.

Scot & Tamara:
[44:04] Yeah I think I’m.
I haven’t I have another serious well I agree with you but there’s one other piece of data that surprised me on February and a because I just kept thinking to myself why is Monday such as you know why is it still so big and,
D we looked at the shopping patterns by hour and the peak shopping hours on Cyber Monday or 8 p.m. to midnight.
Not during the middle of the day when you’re at work,
so us so it’s really this last ditch effort to get the lowest prices it seems to drive Cyber Monday and I have a Siri that there are people.
Need to press the buy button is dependent on whether they think something will go out of stock or whether they think the price will go up and.
And there are many things that we’ve put into shopping carts that we maybe haven’t finished.
With yet we get to the last hours of Cyber Monday and realize we better finish our shopping because if we wait past midnight the prices will most certainly go up until I think that there’s a little bit of the.
The bucket of Unfinished shopping hits Monday.
Especially the last hours of Monday and that causes I reminded to grow as much as it is.

[45:29] That makes total sense.

Scot & Tamara:
[45:32] Cool in the flag gets ass pretty caught up I guess so we we had the you know we were recording this on Thursday probably not much of note during since Cyber Monday,
we look forward to your 18 greater than 2 billion dollar days so in your forecast,
you know we usually talk about green Monday which is that second Monday in December which is the 11th this year,
and then there’s this free shipping day which is like the last day to get free shipping outside of Amazon and yes I’d say on 12:15 and then as you kind of,
look at the ones cause they’re in and see what you think about those days yeah so.
You’re right those are in the to go over 2 billion dollar days Mondays traditionally are big shopping days because we got our shopping list done for the weekend we go in and and do our shopping on Mondays.
Is there a there are probably more bigger high-growth days coming after.

[46:38] Time. We used to see the big growth days because of the click and collect and the extended shopping season so for example Christmas Eve last year was like a 25% gross day.
Because of Click and Clack.
It’s really funny when you look at that.

[46:59] Pictures of the gifts we ordered for them.

Scot & Tamara:
[47:01] Yeah that’s right you when you look at the jewelry category pricing it’s like starts to really Peak right there at the very end because of you guys.
They got your number is nobody.

[47:21] Went one thing just a historical like anomaly always found interesting is that perceives that Cyber Monday was always the biggest shopping day of the year and I think in toll.
Five or six years ago that green Monday was actually a bigger online day then Cyber Monday so it it.

[47:39] It hasn’t always been that Cyber Monday. Just have fun.

Scot & Tamara:
[47:42] Well I actually think that retailer should change their date from Cyber Monday to the Monday around Veterans Day I get this whole season started faster and you know it it all it would take is for Amazon to decide that was the day,
and we couldn’t,
Cyber Monday could be a thing of the past like instantly because Prime day has only been around for two years came out of nothing and it was an almost 10%,
what does average gross Day last year for what we measured so I just think it’s interesting that,
they wait too long to have these load low price days when they could actually kick the season off faster and change Cyber Monday to something much earlier in November.

[48:25] Yeah so that’s interesting for two reasons right like in brick and mortar which is been selling stuff for much longer than we have digitally like.
We see a very similar phenomenon right like there’s.
There’s this race to open earlier and earlier you know because everyone wants to be like they know that the consumers in general are trending towards visiting fewer stores and so it’s it’s it becomes a bigger imperative.
That you be the first door they visit right in so you know retailers used to open on.
Early in the morning on Friday and now you know they’re opening earlier and earlier and now they start to open on Thursday and they’re opening earlier and earlier it’s surprising that we haven’t seen that same sort of.
Progression with with online promotions and then you mentioned Veterans Day like there’s already a word for shopping holiday on Veterans Day and it’s called.

[49:16] Single day right likes in in China 11 11 is when the ball gets rolling and that’s that super convenient right like there’s there’s been a lot of talk about.
You know when and if Alibaba wood would successfully make single dad thing here and I I’m not optimistic that they ever will.

[49:39] But but to your point like if it seems like there’s.
There’s enough permission in the market now for for a retailer and I’ll be an Amazon would be an obvious one to do it just sort of embrace.
Starting you know that that 11:11 time. As the starting of the official promotions in it and I guess to a limited extent we did see that this year right because then they start with 10 days of promotion.

[50:03] Running up to Black Friday.

Scot & Tamara:
[50:05] Yeah deep well everyone did but the problem was at the truly lowest prices were not.
We’re not then maybe on certain point products they were but in general they weren’t and I was watching free sample and email is watching discount coupons come from various sites that I track and I was kidding,
you know the progressively a couple percent more off as,
time past until I hit Cyber Monday when I got a 20% coupon when it’s only at 12% so I think I think that the problem is that.
Consumers recognize when the lowest price time is and it’s till then and until it truly is a different day our Behavior won’t change and you can promote,
as much as you want to but we’re we’re smart enough Shoppers to know when things are over the lowest price we watch our email boxes we know,
unless were the procrastinator convenience shop in which case we don’t really care so I just don’t understand why we haven’t had Cyber Monday you know leap in front of Black Friday yet.

[51:10] Givens why why give why give brick-and-mortar the The Edge to get the shopping started first doesn’t make sense to me.

[51:17] I agree it’s interesting like I mean there’s a bunch of reasons I would hope it it potentially doesn’t happen but but from a.

[51:27] Perma pure sale standpoint it like you know you would you would think there’s someone that would if for no other reason than to grab that first-mover advantage and grab a chunk of wallet share you know while I want Elsa standing flat-footed you you might almost expect that in.
Yeah you know what to see what happens next year.
But I know we’re running out of time sort of final question like is there anything in particular that you’d be looking out for or that you think might surprise us as the rest of the holiday season plays out like is there.
You know you know make a break stuff around the end of the shipping cutoff sir or you know inventory levels or anything like that that you think people have been keeping an eye on.

Scot & Tamara:
[52:10] No I don’t think so I think the the question that I’m starting to ask myself is how much more can the shippers handle without having a breakdown.
Especially because things have gotten so Consolidated and the amount of packages so we we also tracked that the total number of units.
In a package is increasing us old people are buying lower-priced things and more of them which is probably meeting even more boxes than ever and last year when I was.
It was I was giving Tuesday I was in.
Manhattan and I’m walking around and the streets were literally 7 8 feet high of boxes everywhere.
And I’m just kind of wondering last year we didn’t have a major snowstorm happen during the holiday season 2 to slow down and pay the shipping this year.
It doesn’t seem like there’s too much to worry about it hurts the weather yet but at some point,
those boxes are going to get stuck and one thing we saw a couple years ago we had a little bit of edge of a problem with delivery and.
People lost.
Samsung trust in online and then an impacted online the next year so these our area today.
We we can’t really.
4C but I’m certainly interested in tracking if you see anything major happen with shipping or with storms or something like that it could be could be interesting.

[53:46] Have it have it down stream up at impact.

[53:49] For sure that like certainly one that we look out for his weather like you know talking about going in we are talking a lot about the hurricane affecting you know what kind of effect that had on retailers in.
In big chunks of the country is there reporting or Q3 numbers.

[54:06] The the shipping thing is is super interesting / scary we we talk a lot about it on the podcast and of course there’s a lot of news you know that Amazon has.
As aggressively built their own Last Mile fulfillment capacity in a course now they own a free two planes and pay a lot of their own employees to deliver packages.
The the interesting thing there is no.

[54:31] People you know including us are kind of speculating like hey maybe they’ll become a carrier one day but I point out.
Amazon we need to be doing this even if they’d never want to sell capacity that just UPS and FedEx are adding 8% capacity every year and you just told us that we’re going to be up by like 14% this holiday and so if you do the math.
UPS isn’t growing fast enough to keep up with.
The growth in our industry inside the smart retailers are saying hey how am I going to keep growing at these rates even when.
Shipping capacity is increasingly becoming.
A constraining factor and so are you know I think I think the the shipping Logistics are getting increasingly vulnerable so that is certainly something.
I’ll be watching closely this holiday the other thing and I hope it doesn’t become a thing to every year there’s some external Factor you worry about like there been.
Labor issues with some of the ports that you have been scary in the past there been labor issues with the carriers that have been scary in the past last year we had a very novel election happening over Holiday Inn and you know I think.

Scot & Tamara:
[55:37] Yeah that did.

[55:38] We certainly saw that affect it until you know the one thing in that elk that could come to play this year is a lot of the consumer confidence in a lot of the spending is probably predicated on the fact that most of us are sending we’re getting a tax break.
And so if something happens with that like that you know it wouldn’t shock me to see that create some kind of.
Glitch in the in the spending patterns as well.

Scot & Tamara:
[56:05] Fascinating stuff we could talk about it for another hour but but yeah you will.

[56:14] Exactly and maybe we will all have fun but but it has a course happen again that we’ve used up out a lot of time and I know we have you in the middle of the day so I want to make sure we get you out on time,
but we certainly appreciated talking to you and thanks for getting us all updated on the holiday season.

Scot & Tamara:
[56:33] My pleasure as always thanks for having me on okay bye bye.

[56:38] Until next time happy commercing.

Nov 11, 2017

EP107- Listener Questions


Listener Questions

Q1: Brands selling direct on their own site

Shawn Cheng What do u think about a brand to run their own brand store, not through market place such as eBay, Amazon or Alibaba?

Jamie Dooley Hi Scot & Jason: Have you heard of any brands seeing true success building a D2C E-Comm business through their own websites? (On a path to do 10-20% of sales and/or 8-9 figures in annual sales?). D2C seems like D2C was a big trend a year ago but I am not hearing about success stories where sales justified significant spend.

Scott Silverman Do you think a new brand without an e-commerce site or digital presence could be built by selling on Amazon? Secondarily, should manufacturers selling on their own e-comm sites, shut them down and just sell via retailers?

Q2 Mobile Conversion Gap

Ari Nahmani Mobile conversion rate... retailers are getting more and more of their web traffic from mobile, but those users are half or a third as likely to convert. They don’t seem to be coming back on desktop. So what’s happening? We see across the board where YoY traffic is flat, revenue is down due to the device mix over-indexing on mobile YoY. How do we explain this behavior? Where are those users purchasing if ecommerce growth is up?  I’m seeing his trend on several client sites and I recall one of your shows that this trend was discussed.

Q3: Omni-Channel Fulfillment

Alexandro Volakis order sourcing in an omnichannel network. how do you decide where its best to ship from?

Q4: Singles Day in the US

Julia Ptock How do you think about Singles Day (11.11.)? Are there some retailers who take part at this event in the USA? Amazon is focusing on Cyber Week (Cyber Monday & Black Friday) but doesn't show interest in Single Day. Do you have an idea why?

Q5: Toys R Us impact on Holiday Promotions

Melissa Burdick How will the bankruptcy of Toys R Us impact Amazon this Holiday? Is it going to be a bloodbath in pricing this Holiday with TRU stores cutting prices and Amazon price matching (and then closing stores shortly after holiday)?

Amazon News

Amazon Private Label articles:

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 107 of the Jason & Scot show was recorded on Thursday November 9, 2017.

New beta feature - Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this is episode 107 being recorded on Thursday November 9th 2017 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 how you doing.

[0:46] I'm doing terrific Scott if you like there's a number of exciting things I've been eager to talk to you about.

[0:53] Let's talk about the Chicago weather first.

[0:55] It's sad I feel like we've had a super mild winter so far but this week it turned cold so we've been in the forties and tomorrow it's,
can a potentially drop it on the twenties in snow so I've had to visit a portion of my closet I haven't seen in awhile.

[1:15] What about Raleigh is it beautiful and sunny still.

[1:18] It wasn't beautiful but it is still like in the 50s so I enjoy hearing about your snow stories.

[1:24] I am always happy to help you feel better about your life by hearing about mine.

[1:29] Thanks man.

[1:30] I would imagine that you're feeling some extra warmth because I feel like there's been some exciting Star Wars announcements later that keep you up warm and comfy.

[1:39] Yes it is a great time to be a Star Wars fan we went through kind of.
Salmon there for a long time and I know we have the prequel trilogy which is exciting and then we didn't know what the future would hold and then with the Disney acquisition the announcements coming Fast and Furious so we have first of all we have.
2 Star Wars movies just right in the pipeline right behind each other which is exciting as we record this 35 days until the last Jedi 34 if you go on the.
Actual opening on the 14th 196 days for the Solo movie so excited about that little Star Wars story and then the big news is at the.
conference call at Bob Iger announce to Star Wars things so Ryan Johnson the guy thats directing Last Jedi they loved working with him so much they've given him his own Trilogy so it's going to be some,
three part story in the Star Wars universe but not part of the normal Saga and then they're also.
I'm sure you seen this but they're doing a streaming, thing at Disney that this is all the rage everyone's unbundling and now will pay,
8 times as much for all the content but anyway they're doing a Disney streaming Channel and they announced a Star Wars live show will be on that so.
Lot of great new Star Wars content con.

[2:56] Yeah yeah yeah the TV show super exciting I'm with you I've been annoyed by all this unbundling like I,
I suspect you and I both had to buy the CBS subscription to get Star Trek I probably would have already had to give the Disney one due to my son so maybe like in that case I'm not as upset but.

[3:16] And you and I both been walking around with her iPhone 10s for almost 2 weeks now so what's what's the verdict for you.

[3:23] It's awesome it is a great phone the.

[3:28] Notches not a big deal the face ID is really cool I really like it it's very handy to buy stuff it is a little unusual to Skylake pick up your phone and look at it,
but you get used to it,
I have an Android phone that is the same feel as iPhone and everyone will take it out of my pocket and look at it and then I feel really ridiculous cuz it doesn't look back at me.

[3:50] Just kind of like what you think I'm an iPhone and then I would put my phone and it unlocks to the face ID thing is pretty cool how do you like yours.

[4:00] I can agree on how you're looking your Android phone is how my son looks at everything that isn't like an echo like he expects All Electronics to be able to talk to him.

[4:11] But I have been super happy with the 10 I'm with you everything has worked pretty smooth.
Uniden it I have is without the button there's not an obvious way to feel with the right orientation of the phone at so I now fine I put out of my pocket upside down or backwards more than I.
I used to.

[4:33] Get a feel for the camera bump.

[4:35] Yeah I have.

[4:37] About should be on your right index finger.

[4:39] That that I would do you answers part of me that doesn't want to like get a bunch of smudgy fingerprints on the camera now that I'm not OCD.

[4:48] That's why I put the camera there.

[4:50] Gotcha I'm think I did put the leather case on it the kid cancer got the phone a lot so I felt like I needed some protection and so now I what I feel for is the.

[5:02] There's no weather in the bottom of the phone so that's how you can tell.

[5:06] Yeah so that's worked out well and what's killing me is I do use an iPad a fair amount and the muscle memory now to go back and forth between I feel like I've gotten used to the all the gestures.

[5:20] Answer that the button still being on my iPad is killing me so I feel like I'm going to have to get a new iPad when they come out just to have them all work the same.

[5:28] Yeah I like the new gestures I don't like swipe down from upper right to get to the control panel because I frequently hold it.
One handed and like that's pretty weird gesture to do single-handed.

[5:41] So I kind of don't like that and I did hear there's a rumor of their members on the.
Apple Hardware sides today or I read a rumor they're working on a high-end iPad that will have face ID in a bunch of other cool stuff and then there's a lot of rumors going around about a r Hardware that they're working on which is kind of interesting.

[6:00] Yeah man you know in some ways.

[6:04] There's not new AR Hardware in this device but this is the first device with the horsepower to Sephora support the the new AR software kit and so there are some cool.

[6:16] New AR apps that you can run on this phone that you couldn't run on other phones which is pretty cool we make that make him up in one of the listener question.

[6:24] Yep and that this is nursing one of these kind of these designers kind of tries to pontificate what the future looks like these things that this interesting observation that the sensors that are in the notch on the 10.
Are really everything you need for a r glasses today they took essentially kind of the the look and feel of the 10 and they put that not kind of on bridge of glasses and then they,
they made glasses come around them which is kind of an interesting I have never thought of it but it is kind of interesting.
Because it's doing the face ID in all the pieces you need to do that is exactly what you need to turn that around and be able look out at the world with with ar glasses so.

[7:03] That could be kind of part of what they're thinking about.

[7:05] So an interesting thing in this comes into play in some in-store retail environments the Microsoft Kinect has been the the cheapest ubiquitous sort of.

[7:17] 3D camera with.

[7:19] Infrared distance measuring that was out there until there were tons of little Nitch applications that hacked some solution using that.

[7:27] Does Microsoft Kinect camera so there's lots of these like 3D body scanners that you could potentially use for.

[7:35] Uploading your avatar to your favorite e-commerce site or or made to order clothing or measuring rooms for furniture and all all these different things in there a bunch of in-store applications where are these.
Is Microsoft Kinect camera got hacked in Microsoft just announced that they're discontinuing the Kinect and so that's going to go away and of course the.
Everything that was in that big camera module is now you know there's a better version in this little notch on the on the iPhone and so I think we're going to start to see a bunch of.
Interesting apps and use cases where they're essentially using an iPhone just for that that sensor array and in a bunch of.
I fixed installations in which I think would be cool you know the bummer at the moment is there going to be hard to Source in there going to be expensive for a while.

[8:27] And I sure wish they had them on the back as well cuz I feel like.

[8:30] Retail uses it would be very handy to have that sense of Ray pointing out so that we could use it for some other uses.

[8:38] Vehicle in the other exciting gadgets tree portal.

[8:42] Well I know you got a new one that I'm eager to hear about when we'll get to that in a minute the other thing I'm just over over all excited for this week,
so we recording this Thursday night which is Friday morning in China so it's the day before singles day we'll talk about that like that would be an exciting event on the show just anyway but it's extra exciting because,
our very first show was a recap of singles day which tells me that the next should we do will be our our anniversary show.

[9:14] Yeah if you're coming in on two years who knew.

[9:17] Exactly I do think you put up with me for that one.

[9:20] It's been a struggle but I managed to figure it out.

[9:25] I appreciate it I'm I can't speak for the listeners that II.

[9:28] Speed of a source of it's been awhile since we did a question episode,
way back to episode 96 actually so put put a call out this morning and we actually got a very strong response our listeners have a lot of questions,
so let's jump into someone's no questions.

[9:59] Questions first one is not really questions more of a statement it's from Natalie Bowman and she says hello.

[10:07] Hey Natalie thanks for responding to the questions.

[10:11] Hi Natalie okay and then next question is kind of interesting three people.
Who's similar nuances of the same kind of a topic so the first flavor of this was from Shawn ching and.
I said what do you think about a brand to run their own Brand store not to a Marketplace such as eBay Amazon or Alibaba.
So you should have ran have their own e-commerce site is kind of the flavor there and then are a good friend of the show Jamie Dooley asked hey Scott Jason have you heard of any brand seeing true success Building address.
Consumer e-commerce business through their own website so should you do it and then have we seen anyone that's had success.
I in any kind of adds a Nuance you know it seem like it was a big trend of year ago but I'm not hearing about success stories and then another friend of the show Scott's ornament he said what do you think about it there's a new brand.

[11:10] That doesn't have any Commerce site should they just start on Amazon or Marketplace like that.
And then should manufacturers be selling all their own e-commerce sites are just shutting down and Salvia retailers so.

[11:23] Interesting flavor kind of in this topic of Brands going direct that we've hit on.
Probably at least every other week if not every week but what's your advice when a brand comes to you with with those flavored questions.

[11:35] Yeah so I agree they're all related to Sean and Scott's to me are almost identical right like the two spins on the exact same thing which is.
Do you need to have your own branded site in addition to selling on the marketplaces are you can you get by with just having a presence on the market places in my strong advice to anyone,
it's trying to build a long-term sustainable company is I would I would definitely encourage you to have your own.
Site in addition to you know whatever efforts make sense for you on Market places in.
The reason I say that is a couple in most cases you're not going to do the kind of volume on your own site that you're going to do on the marketplaces I get it in so it you know it maybe.
Your first effort might be your presence on the marketplaces and it may not be that appealing to invest a ton in your own site.
But the thing is.
We are all essentially digital sharecroppers on the the marketplaces platforms right like.

[12:41] They can change their terms and conditions at any time they could be horribly under favorable the.
We could intentionally or unintentionally run a fall of any of their their policies or.

[12:56] He perceived to run afoul of them and get cut out of those Marketplace it there all kinds of bad things that can happen on the marketplaces.
And it didn't given time you look at it and say hey yeah I know there were some Old Market places that change the rules all the time but Amazon has been much more consistent or.
Alibaba is much more consistent or whatever the case is.

[13:16] Overtime that can just shift so it's just really risky to have a hundred percent of your.
Brand presence be on this site that you don't own and you don't control and that your landlord can essentially.
Raise your lease and change that your terms or kick you out in anytime and so I do think it it absolutely makes sense to have your own destination on the web that you own and you absolutely can.
And to the extent that your brand can drive any organic traffic that you can build any of your own falling.
It just makes more sense and it's more profitable to send those customers to your own site instead of.
To the marketplace you can avoid the take rate you can still in most cases for Phil through you know whatever fulfillment vehicle you're using on the marketplace.
And you know as you get to know some of those customers into the relationship with his customers like this gets a little dicey but you know there certainly is a,
percentage of your customers you can shift to be direct on your own site and you just you know on those marketplaces you're totally disintermediated from the customer,
and so you did you know even if it's only a small percentage of your customer base,
you want a direct relationship with some customers if only to get feedback to be able to understand what kind of content is selling and not selling and to build to run a B test and do all sorts of other things so for those reasons,
I would say you absolutely have to invest in your own site,
and I'll you know I'll give you a caveat that it maybe isn't the first investment you make are the biggest investment you make that that fair to you Scott.

[14:54] Yeah and a lot of it depends where you're coming from too so you know there's there's many buckets of Brands these days and it's.
It's becoming increasingly easy to create a new brand when we were growing up,
new brands had this like huge hurdle to launch them yet to do a TV campaign and all this kind of stuff and now we're just seeing an explosion of brand so so I would use a framework where there's kind of Legacy Brands and then,
new kind of born recently kind of Brands and.
Do I cycle I see with newly-born Brands is if we take and there's kind of two segments there but let's just take.
More Scrappy auction real ones they to Sean's Point Sean ass this year they.
They start on marketplaces soap to marketplaces a great place to start a colony e-commerce training wheels because they have these incumbent.

[15:51] Consumers already there so just like riding a bike with training wheels it's hard to steer pedal and balance so training wheels takes balance out of the equation starting a direct-to-consumer business you know it's hard to acquire customers.
Gold products can get the products to the consumers and and all that so I Marketplace simply gives you the training wheels by giving you a customer sand,
I wanting them to you to your pointer sharecropping of whatever whatever analogy is there and but you know to your point.
Next product life cycle needs to be maybe start on Amazon you go multi Marketplace but the sooner you can kind of create your own presents on the internet where you can control the brand at the better,
and then there's a lot of tools to Jamie's Point kind of weave that in the companies that have had a substantial kind of was caught materials over 10% of their sales on their website,
there's a lot of tricks that utilize to do that and what are the simplest ones is offering something special to your website customers.
You could think about special pricing but that actually kind of creates this.

[17:04] The problem so that's usually not what brands do but usually special products so for example Under Armour I don't know if their website is out there.
To talk about this publicly I don't know if their websites 10% of their sales I doubt it is cuz they have that huge wholesale component yeah.
But you're one of the clever things they do on their site and it did I know is successful is if you're an atheist of their brand that's where they launched a lot of new stuff so that's kind of like the exclusive Channel 4 new stuff and then there's this waterfall maybe the new stuff there for.

[17:38] A month in an account waterfalls into retail and then it waterfalls down into a Marketplace or something like that that's interesting kind of thing a lot people do exclusives on different channels the mattresses and why electronic guys are King.
the digitally native vertical Brands what's interesting about kind of those is they start really with a website and then we seen many of them.
Going to realize you can only get so far with that approach so it's almost kind of speaks to the store location is the right strategy so they are diversifying into offline a lot of them are exploring Marketplace is a lot of exploring Retail Partners those kinds of think so.
So I think the best strategy is a balanced kind of from a risk and a channel perspective is to have a portfolio of channels and that includes having website.

[18:24] Yeah tonight I would totally agree in like just to tell you more explicitly answer Jamie's question,
I bet you hit it like all those digital need a vertical brands,
all you know hit the eight or nine figures in in direct e-commerce sales so that's in a bona Bose ModCloth Warby Parker Casper,
you know all of those guys certainly do it there's some some pretty big brands that we don't hear about as much for e-commerce but you know I think the surprise people when you see how big they are but like revolve clothing I think is a big one and then of course stitchfix which arguably started out as a multi,
vendor retailer but but is Shifting to a branded,
to be more of a man with her own products I mean obviously you know got got pretty darn near a billion dollars.
Predominantly through their own website so I think I think Jamie's right that the hype,
was there before and I absolutely don't think it's one of these things were you build it in your guaranteed success so you know I think,
to to Jamie's point there was probably a light-year a couple years ago when I went. I love I just want to website you I called you know I'll be.

[19:41] Entitled to these sort of eight or nine figure,
run rates and you know we certainly seen a lot of people fail but they're absolutely have been and continue to be some successful sites sites in that space.

[19:56] It was talking about just failure for some kind of like what brands do wrong the number one thing I see is,
the brands of everyone loves this map pricing concept and many Brands Don't Force It so it will do is still set for website and all,
yeah they're their there.
I have my pricing so they adhere to that obviously because they believed in the policy and they're selling stuff directly there and then they will have absolutely no kind of understanding of consumer.
Expectations around shipping cost and time so they'll have you know a $50 widget for $10 shipping and,
you know you can upgrade to 3 days for $40 and you know the $10 shipping is the equivalent of USPS.
Yo week.
Week plus you 7 to 10 day type of delivery without tracking and then they're shocked when they don't sell a lot because you know why we put up this website and you know we have all this traffic and no one's buying things why is that.
Did he have to have that kind of discussion about well you're the single.
Most expensive place to buy your products on the Internet is your website your shipping and you know the cost or just way off base with what consumers want and then another funny one is a lot of Brands and you know.
To go to the legal department and all the stuff and they end up like not doing the basics like user-generated reviews and things like that because.

[21:27] How to get really wrapped around the axle like what if someone leaves a bad review should we go delete that or what should we do and you know should we should we go after them with a cease-and-desist letter and it's kind of funny to have this discussion because.
There are people reviewing their products right there on Amazon but it just shows you're somebody's Legacy companies have such a hard time wrapping your head around this digital world there's some the things I see that happen all the time or these Brands really get off base with her web store.

[21:56] Yeah I know told you I've had all those conversations.
That you another there is just a lot of back of house stuff that people tend to overlook when they're you know I used to wholesale model and they're going direct to Consumer for the first time so it's your point like,
they generally wolfley underestimate fulfillment know where they are selling charging too much for 4,
crappy level of service but it's probably also a side job for the wholesale fulfillment guys instead of stuff probably sits in the warehouse for 5 days after you place the order,
before it even gets into the the the shipper system,
answer their those issues and then like you know there's a customer service guy and they that that guy quickly gets overwhelmed with calls so they're all those kinds of things and,
if you survive the infant mortality like if you survived all those mistakes the next big steak mistake we see everyone making is that there's,
every Branford,
whatever the brand attributes are whatever Niche it's in how well it's known there's some certain amount of sort of organic traffic that's relatively easy for each branch require in for some Brands that's.
Three significant amount of traffic for some Brands that's not very significant but there always is some threshold where if you do the fundamentals right you get to a certain level and it then you hit a wall and it suddenly becomes much harder to grow inside the.

[23:26] The real test for the sustainable direct-to-consumer business is are,
you know what once you get over that that first tranche of easy to get customers can you,
still be profitable and successful in growing beyond that original based,
or you just met being a cop out and you get stuck there or do you start spending way too much on customer acquisition and I think that's a mistake we see a lot so,
so they're there are definitely lots of pitfalls and there's some good examples of of companies that have been able to steer clear of them.

[23:59] Let's jump in turn next question and then we can kind of Go Lightning round on a couple days maybe we'll see.

[24:08] Wait that wasn't Lightning Run.

[24:09] How's Jason Scott lightning room,
okay second question this is from RE nahmani he is the CEO of an israel-based digital agency,
and he says I'd like to talk about mobile conversion rate retailers are getting more and more of their web traffic from mobile yes but those users are 1/2 or 1/3 is likely to convert,
they don't seem to be coming back on desktop so what's happening we see this across-the-board we're year-over-year traffic flat revenues down due to the vice mix over indexing on mobile how do we think about this Behavior.
Where are the users buying stuff e-commerce is growing let me see okay so yes.

[24:53] And then I'll take that over to you cuz you have a clever name for it.

[24:56] So we've talked about that on a couple episodes I call it the mobile Gap and it it's it's very real you know most sides are seeing,
their Mobile Traffic grow much faster than their desktop traffic so they often would characterize that as,
there traffic is shifting from desktop to mobile and the conversion rate on that mobile traffic is much lower than it was on desktop and so you go gosh,
Potentially not a very favorable Trend and we we for sure talk with that with the are friends from Adobe around the holiday episode but I think I think it's coming up on a couple shows and I was actually surprised to find out that we haven't done a deep dive so maybe that something will.
Will do it at future show but I know you and I have done a number of live presentations were weave weave debated the Mobil gas.

[25:44] And I guess what I would say to Arya a couple of things.

[25:52] Most clients if you looked you mentally at your desktop and your Mobile Traffic your traffic probably supposed to go inside look up there traffic isn't flat there traffic is actually increasing.
It's a one of the things that's happening is some of those mobile visits that don't convert well are incremental visits.
And of course there's a because it's so much harder to buy something on a mobile device there's a lot more friction to check out.
There's way you know West support for plugins in your browser so your payment information is less likely to be.
Be stored in there and we joke a lot about a taking three hands to check out on a mobile device right one told the phone one that tap the virtual keyboard and 1/3 to hold your credit card.

[26:36] The that that friction you know makes it less likely that people check out people also on mobile devices are are generally in a more micro moment context.
They might be at the red light in the light turns green or they might be in line at the bank and get to the front of the bank or you know they might be doing something.
Weather going to get interrupted in the much shorter. Of time so all that friction leads to too much more abandonment and so.
We are seeing things where we're at experiences that reduce the friction improve the mobile Gap they don't make it go away but they you know if you look at the best mobile checkouts they have our mobile free mobile apps then.
Then the traditional bad mobile checkouts have also a percentage of that is.

[27:25] Not real inserted incorrectly measuring conversion so so most sides you know.
Back to the simple formula conversion how many people bought versus how many people visited the site and of course mobile gives people a bunch of new reasons to visit your site so a bunch of mobile customers are coming to find out your store hours or if you have something in stock.
Or what store is near than those are all things that used to do with the Yellow Pages in the in the analog phone.
And with the newspaper in those visits are not coming to your site that customer had no intention to buy online they're ultimately going to go to your store.
It does look like non-converting Mobile customer so so some of its an attribution problem and then the last thing we talked about is this Multi-Device attribution problem where.
Because it is harder to check out on a mobile phone a lot of people will build their list do their pulmonary shopping on mobile.
And then they'll ultimately consummate the purchased on their they're desktop browser where they you know are more likely to have payment information stored or or use a keyboard.

[28:28] A password Plug-In or something like that that that makes it easier to pay.
And because of the way that because we use cookies when you come back on your desktop you don't mess in your not authenticated as much users are.
You look like a different visitor than the visitor that came on mobile so instead of it looking like got window came to my site twice and bought on the second visit it looks like.
Got Wingo number one came to my side and mobile and didn't buy and some unrelated Scot Wingo came to my site later on a desktop and did by the.
Yeah I don't think that's the the dominant mode but that absolutely is a mode and interesting Lee it at Publix this week we built this database with that now has over 2 billion device IDs in it.
That we can map back to individual users and sure enough view you see if there still is a pretty substantial.
A chunk of Christ of a shopping happening on a bunch of these e-commerce site so.
All of that is interesting but here's the real bad news.
You asked the great question at the end if that's the trend then how is e-commerce growing e-commerce should be shrinking everyone's moving a mobile and mobile doesn't come out as well why is he Commerce not drinking.
And the bad reason for that is because not every site suffers from the mobile Gap.
And the sites that don't suffer from the mobile Gap are you and the biggest most dominant sites in the markets right so.

[29:59] Well no sides have a very low percentage of authenticated users Amazon has a very high percentage of authenticated users,
and by all accounts has a very healthy mobile conversion rate right and so you have some of those sites at the top of the echo system that have a disproportionate Cent percent of the traffic and sales also way outperform the industry averages in Mobile and that is driving a lot of the e-commerce growth.

[30:27] Yeah yeah we could probably do a whole show on this so I'll just kick it the next question before I get into a controversial topic that we have to go back.

[30:36] So are you saying that was not a good lightning round answer.

[30:39] That was very good and I'm not going to ruin it by it by adding on third question is from Alexandra volakis.
I said it's about omni-channel so this is another one that squarely in your Wheelhouse in a centrally.
And I'm kind of tripping this little bit how do you decide where it's best to ship from so I think what what L Alexander Andrew is kind of thinking about is you get an online order you've got ship from store or you've got a moment Center.

[31:10] You probably have some complexity there you probably have you know Boosie's on each other guys have hundreds if not thousands of stores that could ship the product and then you have like let's say you have 5 phone at centers.

[31:21] What's the what's the logic you would kind of work with a retailer to think about that do you just kind of go.
Product is closer to the consumer here or ship from there or do you kind of is it cheaper to ship from the store or is it more expensive and how should people think about that.

[31:37] Yep that's a great question and most retailers that have gotten successful with pretty complicated,
fulfillment channels where they have a lot of different choices,
either because they're feeling from store have a lot of different fulfillment centers there they're all using pretty sophisticated software sometimes that even uses machine learning to build a model for deciding how to do for filma and so normally we we call those the solutions of order Management Systems,
the big Enterprise ones all have like very robust logic in them,
but at the end of the day that the way you're implementing that logic for most cases is you're actually thinking about three big factors you're thinking about the cost of a fill so you want to optimize the lowest cost to fulfill,
you're optimizing for the customer experience in the customer experiences is generally two big factors one is how fast you can get it to that customer so you want to get to him as quickly as possible obviously and another is,
you want to get multi-item orders to the customer together so you'd rather ship everything in one box,
not only is that more economical many cases but it's also just a better customer experience then split shipping from multiple fulfillment centers and the third is this this notion of inventory potential.
And that that can get a little more complicated but essentially what it amounts to is.

[33:12] Whatever fulfillment vehicle you fulfill for this order is going to leave inventory in the other for film of vehicles and what is the likelihood of there being further demand for,
that next piece of inventory so when you're getting really sophisticated you you may.
Choose a film that vehicle that isn't your cheapest because,
it's likely to be the only demand in that particular fulfillment set of vehicle and there's likely to be other demand in the other fulfillment channels that's even lower cost for the rest of your goods,
so I'm not sure I explain that super clearly,
but like at at one level or another you basically are are putting together an analogue Rhythm that that optimizes for that customer experience that potential the cell and that that cost of fulfillment and,
you know there are both a number of Enterprise off-the-shelf tools that do that in there a lot of the custom software that a lot of retards have,
built over time to do it.

[34:16] I will kind of dispute one thing so I actually like it when when Amazon since we split orders and they send them to me that when the stress available at I think that's a better customer experience I don't think it's a better.
It's cheaper,
for the retailer but you kind of implied it's better customer experience get all your stuff together that assumes that all would come together but I think most times you're having to choose you know do your hold up so it's one of the least common denominator problem.

[34:42] So great potential Nuance like I would certainly agree,
that to a certain extent like if if I'm an option to get two things faster than the other things and I and then option is overtly presented to me and I choose to get them as fast as possible I agree with you I'm a shopper that appreciates that and so,
best customer experience for each customer is probably defined differently one problem with that experience is it can get very complicated right,
and until I always use the Amazon versus Jet analogy and Amazon tends to make all those decisions for you but they tell you what they are and Jet you know is,
is it sort of in the middle of giving you the choice of all those decisions and letting you choose for yourself as it split shipping actually both companies kind of let you choose for yourself but,
what that the more friction that's in that choice like you actually see conversion go down,
but the bigger issue is you and I are the least typically e-commerce Shoppers in the world and so for the overwhelming majority of people that buy stuff online they don't understand any of the nuances of fulfillment they don't understand that there are multiple fulfillment center that have some of these goods and so for most users they simply believe that when they order three things that they're using together in a project,
that that those three things are all coming from the same source and so when the the the seller chooses to split ship or even just drop ship from one of the items from a manufacturer and it arrives on a different day what we see is.

[36:17] A huge influx in customer service calls so customer service calls on switch shipments are way higher because customers just think.
Something got left off the order they ordered,
shoes and running shorts and a running shirt and they're using all three to go for a run and only to arrive you must have forgotten to ship me the 3rd and they don't understand that the third is coming direct from the manufacturer or from a different Warehouse or from the store and so,
you know for those customers it's a bad customer experience to split ship but for sure,
I'll totally agree with you and there's an elegant way to offer that to the customer make them understand then the best customer experience reach customers whatever they choose.

[36:57] Yeah and then another thing all Throne of this is I think the omni-channel dirty secret is this ship from store and buy online pickup in-store,
usually kind of sucks because I don't think stores know what's in the store like past half the time so so you know.
Show me my worst online shopping experiences have been shipped from store and buy online pickup in-store and you know the ship from store stuff goes wrong because they're stock-outs where they thought they had the widget that happens you know.
Lot more than a fulfillment center they also have you know they always say well just walking around the store in someone's cart we don't know where it is but I think their inventory is just really really bad at in stores and then the other thing is wrong kind of having.

[37:45] Stuff cuz you got this salesperson there and they're trying to you know.
Imagine you're in the shoe department at one of these retailers and you have to know about the shoes and then some on my order comes in and there's got to be part of your day where now you're.

[38:00] Pick Pack ship person so we get a fair I would say the things we actually get that are in stock.
You know a pretty material 5 10% there's usually some kind of error like we've been sent someone else's stuff or they did leave something out or you know if that kind of thing so.
I know there's this kind of glassy omni-channel all your problems are solved but I found that most people really just don't do this for a while what are there any industry stats that you see her on that or.

[38:31] Oh yeah so you're for sure right then did most people when they first do it totally suck at it in the one thing I would say is that there is a maturity curve there and when people get over that curve and get good at it,
the customer satisfaction with the experiences very high so I would say like the.
The benefit of being excellent at both of those experiences at at ship from store or buy online pickup in-store.
But the potential upside is is true and very high, it's.
It's easy to do it poorly and most people start out doing poorly so first actor.
You're you nail that in-store inventory is a huge problem industry-wide and retailers never.
Like the primary impetus to have super accurate inventory was.
Was really your balance sheet for the most part like people don't even like purchase based on their inventory levels in in many retail stores in the old days.
Inside like these experiences are the first ones to really put pressure on inventory accuracy in the store.

[39:37] Inventory accuracy is getting way better there's both both machine learning and newer inventory systems have made it much.
Easier for stores to get better at store inventory most of the big retailers now both Target and Walmart have robots running around the store taking pictures of shelves.
And they're taking inventory based on this picture so they've actually taking people out of the equation,
we're starting to see some new store concept that have intelligent shells so they can actually the shells take their own inventory and no right when there's out of stocks and things like that so the future of inventory accuracy is getting better,
but at the end of the day almost every retailer I've ever worked with it started as a ship from store program started out with horrific metrics and so you know usually you have this,
this error code item not found and you have this you don't sort of,
percentage fulfillment like of all the orders I sent to a store what what percentage got filled and it's,
totally common to see 50% of in-store orders be item not found or you know only be able to have a 50% fill rate when you first start shipping from store for,
because of the inventory issues in the Employee Staffing and incompetency issues and I'll and the customers having the inventory and their Card issues all those things you can have huge failure rates in there and that creates a hideous customer experience,
I've seen 90% item not found or 10% fill rates in some customers when they first want ship from store.

[41:09] But if you many of the same customers I worked with it started out at 50% fill rates are now it like 94 96% fill rates,
so over time they're able to put systems in places and process in place and be smarter about when they send the order to the store and trying not to fulfill when they have really thin inventory and only one in stock,
and by implementing all those things the fill rate goes way up and you can today absolutely look at a Target and Best Buy and see that they're generating a meaningful economic advantage against Amazon,
by being able to ship at a significant portion of their e-commerce but business from the store one zone get it to customers fast and cheap.

[41:54] I'm learning a lot from this we should get that list of questions for Julia.
Guitar chorus is the P silent or talk how do you think about singles day are there some retailers who take part of the vent in the US Amazon focuses more on Cyber week,
and doesn't really do anything on single stay why is that.

[42:20] So great question will be talking more about this I am not bullish on Singles day becoming a global holiday that's.
Heavily the big factor here in the US and then there's a variety of reasons for that it already is a holiday in the u.s. is Veterans Day which is,
somewhat problematic for turning it into a high-volume shopping day Alibaba just doesn't have a significant presence here at the moment,
you know said they were they were years when when,
Alibaba was having huge success in China and they're making noise about next year is going to be a much bigger Western holiday and.
What that's morphed into in my mind and perhaps we'll have them on the show here in the near future to defend themselves is,
they're they're making it a much bigger deal for us Brands largely to sell to,
Eastern consume customers that are celebrating singles day so I think it's because singles to become a huge event for a lot of my clients for example,
but it's because they're selling to customers in other markets it's not because they're selling in the US,
all that being said you know I think it is possible to to create a new holiday here certainly Prime day is it is,
a great example in the in the west but you know another interesting one is,
Cyber Monday has become a very big holiday in Europe and as most of our listeners are probably aware.

[43:57] They're not celebrating Thanksgiving in Europe so it is possible to create these shopping holidays I just think the dynamic of trying to create a holiday on Veterans Day a couple weeks before a very traditional shopping.
you know for non-income and Company is is a rolling a rock up a pretty big hill.

[44:21] And I will be a little facetious and Amazon does participate in.
I'm single stamp but they do it in China so Amazon runs T-Mobile store in China and they saw other devices there and it just shows.
China's interesting to me we talked about Amazon all on the show cuz it's the one area where Amazon has not been dominant then you argue with either the number three or four player in China.
And it's because Alibaba has really kind of dominated with a.
Different local way of doing things that that Amazon I wasn't able to replicate so because of that you have some really weird things that must be kind of painful for Amazon tap to do but example as they do sell Auntie mall now and then,
they do accept Ali pay so this is the one.
Region where you know Amazon doesn't control the entire payment world so I can the US they don't take Paypal because they have the power to kind of say no we want all that to flow through our system so.
Little car fun fact for you if you didn't know that.

[45:23] I did not know that the only part that's pretty funny.

[45:28] And then the last question so Melissa Burdick another kind of friend of the show.
How is the bankruptcy of Toys R Us going to impact Amazon this holiday is it going to be a bloodbath and pricing with,
Toys R Us cutting prices at the stores because the bankruptcy in an Amazon matching and then this kind of Race To The Bottom.

[45:49] So interesting question unless confident in my answer here but I think there's two,
two issues is this holiday. Going to be a bloodbath of discount pricing number like regardless of Toys R Us like are a bunch of retards going to start you know early and aggressive discounts and is that going to drive.
Pricing down for the whole holiday. I think it's an open question and frankly I'm very nervous about that like all of the the early forecast for Holiday are for,
for pretty significant growth and robust sales and the unspoken truth in a lot of those is most years we have that kind of growth it's because,
we sold stuff really cheap and discounted really deeply and potentially because we had too high of an inventory position and then you don't have to Discount more deeply,
so I think the fact that there been a bunch of bankruptcies and More Store closures than usual this year and more distressed inventory his,
has flooded the market and that that's cause more inventory full price inventory to get abandon on the shelves so I do think we're going to go into this holiday season with retailers in a little bigger inventory position than they'd like.
And so I'm just frankly concerned overall,
that then it's going to be heavily promotional holiday. What we already seen some early indication that it was going to start their sales super early,
so all of those things could just turn it into a bloodbath not because of Toys R Us current current bankruptcy status.

[47:19] Actually think.
The Toys R Us in the current status has a disincentive to aggressively promote like the stores have to operate profitably over a holiday,
and so I think they're not going to be the first one to drop their drawers on price like I think if they become really aggressive and promotions it's going to be later in the season,
as they see how the the holiday is is shaking up but I think the.
At this point they're not looking to liquidate inventory or those kinds of things like I think that's,
you know if they decide they have to close 300 stores and they hire Gordon Brothers 2 to come in and liquidate inventory like that that potentially create a bloodbath but I don't think that's going to happen until 2018,
so I kind of suspect toys is not going to be the the fuse that lights the.
The the discounting fuse but I'm not sure that we we aren't going to see a bloodbath nonetheless.

[48:24] Yeah. I would just add I'm an e-commerce software guy and I've learned a lot about retail over the years that I didn't know and I know Melissa used to work at Amazon so she.
Definitely got kind of a similar kind of DNA on the digital side.
And does really good Bloomberg article that will link to in the show notes that talks about how all these retailers these traditional retailers have really loaded up on debt,
and you know what what happens is they get acquired by private Equity Firm and part of their model is to take the Assets in leverage them pretty highly meaning piling on a fair amount of debt.
And what does this done is left.
The entire segment pretty exposed to a Destructor like Amazon because in in Toys R Us has a good case study that you brought up,
so Toys R Us has something like four or five billion dollars in debt and this debt comes in these tranches so you have all that dead out there and I'll have maturity dates and,
Toys R Us couldn't actually deal with about 400 million of that which is what pushed him into bankruptcy so what happens is when you yo so Amazon has no debt and you a lot of retailers argue that she doesn't even care they don't make a profit.
Talk about down the show but what what happens if you have a competitor like that.
Come in and make a pretty small impact on you so maybe you'd lose five or 10% of sales doesn't feel like that would really.
Australia upside down.
What's Insidious is Amazon it knows everyone's margin because they have all this data and you may lose 5 or 10% of sales but that's probably your most profitable stuff and maybe lose 15 or 20% of a profit.

[50:02] Are Eva. And that's what this debt is all priced against is.

[50:07] 1015 years ago when this debt was piled on everyone assumed that your profit margin would be the same.

[50:14] And then you have a new competitor, long.
And they're able to Chisel a enough profit that it really tips you over so this article doesn't really good job of kind of,
because really in-depth and looks at at that which is pretty interesting and has a whole map that shows kind of the hot areas and the whole point of the article.
Apocalypse is just getting started to date when will you get from a debt perspective it looks like we're just at the beginning of a bloodbath the thing I've learned in this was too I guess we had on the show is.
These at the mall level Aldi's anchor tenants effectively don't pay much in rent and there are because the word anchor they're there to draw other people in,
what happens if so let's say you're a small mob a store and one of the anchors goes out of business usually is written in the lease that.
Because you were drawn there by an anchor if an anchor leaves you.
You are now free from your lease so these balls are unwinding at a pretty incredible pace and.
There is a I don't follow it that closely but there's a lot of rumors that some of them are going to be sold and the mall for large Mall reach because they are in such a stress situation so.
So so this kind of gets Amplified didn't did these things are not mutually exclusive so now you have stores at malls that are anchors and have huge debt and if it's caused this kind of death spiral that's happening there.
At the mall level is kind of what I called Mulligan so interesting things that I wouldn't have learned about until the podcasting and try to understand what is going on out there.

[51:47] That's why everyone should start a podcast.

[51:49] Absolutely or listeners last question so this is from James lecourt how do you see augmented reality playing a role in e-commerce and when do you think it will be mainstream and accessible to the smaller retailers.

[52:04] Another interesting question James we've done aviare are deep dive and I think Scott and I are sort of an alignment like VR is,
truly interesting for some other reasons but I actually don't think it's it in the near-term very relevant to e-commerce I think augmented reality is potentially.
Way more relevant but it's I think most of the use cases in Commerce are actually digital in-store use cases.

[52:33] So warning more about getting more of the digital content to learn about products when you're in a physical store augmented reality in e-commerce the big use cases you think about are things like.
How will that art look in my house will that furniture fit in my house what.
You know what would this clothes look like on a a virtual representation of me or me and this me or these kinds of things.
And what's interesting the.
Rudimentary version of that technology is all out there oh I should mention the like virtual makeup stuff when beauty stuff which is has become quite good.
So that the technology is all out there it's involving very quickly and so both Google and apple have really robust.
New AR kits building in the latest version of their operating systems.
And you look at the kind of experiences you can have on those those devices these latest devices that are using these they are kids.
And you go man that's really compelling so if you have an iPhone 8 or an iPhone 10 I'd highly recommend you download this app called House craft.
And how scrap uses AR to place Furniture in your house and it's it's amazing it's much better than some of the rudimentary stuff you've seen from.
Some of the retailers Warby Parker has already leverage the AR kit in their app.

[54:07] For virtual try-on of sunglasses and so you think about the face recognition technology that's in the iPhone 10 and the hundreds of measurements it's taking your face.
Warby Parker take out of the AR kid all of those measurements put them into a deep Learning System,
in recommend sunglass frames to you that are best suited to your face,
and it creates an amazing AR experience and so you look at those things and you go man that is the future that that really is going to become mainstream,
but then there's a big Debbie Downer in terms of how fast it's all going to happen,
does AR kids only work on a small percentage of the hardware that real people own right so it it only runs on the the latest and greatest Hardware,
so we have to wait for a couple upgrade Cycles to everyone,
I want to get up to that that hardware and then at the moment those best experiences are really only deliverable through apps,
and we've talked about this a lot on the show as well but for most retailers in for sure for small shops,
it's next to impossible to get a a meaningful volume of customers to download and use your Mobile app and so what we really need is this robust AR capability to to be available in the web browser,
not in the app and it is coming it's just still probably a couple years away so I think right now we're at the point where.

[55:40] On the Best Hardware in an app customers are seeing experiences that really can drive conversion and sell more stuff and I think we're going to see more examples like the Warby Parker app that are going to be very very persuasive but it's probably another 3 years before,
the majority of consumers have that capability in a web browser and that's when it becomes really meaningful for those medium and small size shops.

[56:03] Yeah and I would add another challenge for a small size shop is the 3D models so,
to put your products into this 3D World you have to have models of them and this is not a trivial skill set for folks to have and there's not a great solution for just kind of imagine you ran I don't know,
sports store and you wanted to put everything into a virtual world there's no really good off-the-shelf solution for kind of scanning that stuff that,
a mere mortal can handle and build the models so that's another one is like how do you partner with this assume your retailer multi-brand retailer you're going to partner with your Brands and they're going to have to have a level of sophistication where you call and say hey I really need 3D models for all your stuff they're going to have to know what you're talking about how many brand struggle just to get you the.
Current tenant to the digital assets so that that's going to be an interesting challenge to see who solves that because you could end up in this scenario,
because worst laws applying all these other things that pretty quickly we get the hardware as Jason mentioned all that stuff solved and it's pretty easy for you to have a platform but you just don't have the assets.

[57:11] Yep and although I would point out just got you take that the that iPhone 10 sensor array in the Notch and you put it on the turntable and you suddenly have a pretty darn good cheap 3D scanner in so,
you know,
you you could imagine that the ability to to 3D scan and very high-quality at very well cost is something that Moore's Law is also going to deliver to us over the next two or three years.

[57:38] Cooper we really appreciate it when asking the questions there and we have about 5 or 10 minutes to catch up on news and it wouldn't be a Jason Scott show without Amazon news.

[58:03] Jason you had let's kick it off of you you walked into your Whole Foods was that today or yesterday and you had an interesting situation tell us about it.

[58:15] Yeah that was today so there's a nice,
two-story Whole Foods in my neighborhood downstairs is a very fancy coffee shop upstairs at the store and when I walked in the store today a big chunk of the coffee shop has been taken up by these.
Temporary walls with all this Amazon signage and it looked like they were implying some kind of shopping experience was coming and that I got a chance to talk to some of the,
the employees that we're doing it and it turns out they are this is a permanent installation.
It's going into a bunch of Amazon stores in Chicago and it it basically is a Amazon device store,
it's going into Whole Foods so another you know men's staffed place where you can go and get a echo demo or a Kindle demo or a fire.
Demo and it sounds like they're going to have inventory for sale in the store and in ready to go.

[59:14] Cool Sorry Amazon bookstore has that like little apple like section so you're kind of fishing it'll be like that couple tables.

[59:21] Yeah and in fact I got to see the pictures and they look like they're straight out of the Amazon store.

[59:26] And then there's also a nursing news where I forget who broke this but,
Amazon is doing the nursing thing so if your third-party seller and Amazon to text that your price is a competitive what they'll do is they'll actually discount it and it says,
sold by the third party seller but then discount provided by Amazon so,
you know Amazon is pretty well known in history that they monitor prices across the internet in near real-time so I think what's happening there is they probably realize they were expensive in a couple areas especially that,
part of the curve where they rely on third parties to sell things someone exclusively and they decided they.
Wanted to not be disadvantaged there so they're actually funding that and it's a nursing so you had on average are going to pay as a third-party seller you pay Amazon 10% but then they kind of are selectively say you're effectively In-N-Out.
The ones I've seen have been under 10% but they couldn't hear you actually go beyond that and say that we want to be competitive enough here that will fund even pass what the third-party is selling to us.

[1:00:37] Actually figure out how to do a Google Search and Google Nexus Amazon.
Pretty much real time and I found about 3000 items that that had this set so this is out of Amazon's like four or five hundred million this is not a huge thing at this point but the thing I thought you would find interesting is.
Everyone I can I did look at all three thousand but I page through pretty quick they were all in the beauty category.

[1:01:01] Yeah it it was super interesting and clever so obviously is as most of the regulars that showed no Amazon has a pretty sophisticated pricing I'll grab them on their 1p product,
and you know when they sense a competitive situation they're they're very likely to be a fast follower,
and they they see a lot of advantage in overall customer lifetime value even if they have to sell something at very narrow margins or even negative margins in the short term and you know the liability traditionally of the marketplaces you,
Amazon doesn't have control over the pricing of that 3p product and so then you think about hey what are some categories that Amazon doesn't compete in in 1 p,
but would really like to control prices in the 3p and you know there's certain kinds of products that that are tougher Amazon,
and one of them would be like private label Cosmetics that have no interest in selling on Amazon but they want a third parties and gray marketers will by and and list on the Amazon market so that could actually be like,
Ulta products.
That should be exclusive to Ulta that's on the Amazon Channel and this tool gives them an opportunity to gives Amazon an opportunity to get really price competitive on that and,
you know and in many cases that grey market product.
Like the sellers are relying on selling because of convenience and so they often aren't super price competitive so this is a way for for Amazon to offer a competitive price in those categories were.

[1:02:32] It wants to compete in the long run so that that's pretty clever but was interesting is there's a bunch of.

[1:02:39] Not obvious unintended consequences of this program and it it's going to be funny to watch them all play out so there's all these things you wouldn't think of that initially but I'm sure Amazon stock through.
When is something like returns so you know the seller offered offered a cosmetic 450 bucks Amazon discounted at 2:40 bucks.
The consumer only paid 40 when you return it.
You know Amazon has to refund part of your money and that seller has to refund its at all that stuff has to work out.
But another big one is some of those sellers.
Either have the other authorized sellers of a product they very likely have you know are complying with some some pricing requirements from.
From their supplier so they they might have agreed to offer prices.
Only at map price minimum advertised price in Amazon potentially could be discounting below that minimum advertised price so even though the seller is complying with their their pricing agreements.
They're involuntarily out of compliance with that agreement because of this Amazon discount and I think another scenario is.
Sellers that a promise to offer the same price to multiple marketplaces and then Amazon discounts at so effectively they're no longer complying with that agreement and so.
You know those are all going to be some some that potentially sticky situations it's going to be interesting to see if any manufacturers come go after their sellers.

[1:04:16] As a result of Amazon's price Judo.

[1:04:21] Yeah yes, interesting to see how this plays out their solutions to these things so if you know you can imagine that if you don't want Amazon to do this there could be a knocked-out kind of thing and they've done that with a bunch of other programs,
all the things are solvable but it is pretty interesting to see Amazon do this and you're there must have been some pressure in the beauty category that cause them to think about doing this.

[1:04:45] What other things maybe is an opportunity for someone out there like maybe Channel advisor should do it but if you were a seller that used to be selling that good at,
50 bucks and you were competing against guys that were selling it at 60 and you suddenly see that Amazon is dropping their price 245,
there there's a strategy of optimizing,
your price in order to entice Amazon to discount it as opposed to trying to compete for the buy box yourself.

[1:05:15] Yeah I don't even know if you as a third-party seller know when this is going on I don't think you get notified other than by seeing it on the site.

[1:05:22] I think you have to have a side scraper that would do that for you so I'd it's a complicated sonar.

[1:05:27] Yeah and Amazon to really good at shutting this down or so I've been told the so.
In one of the biggest things in the news this week that was really interesting was Amazon private label and on episode 103 we did a deep dive in Amazon private label and what's exciting this week is the Deep dive.
1 things that inspired us to do it was there was some rumors that they were going to be competing with Nike and UnderArmour in the kind of athleisure and apparel.
Sports apparel segment.
True Amazon fashion some of those actually watch this week so it's kind of funny I think these things hit the Press like either Amazon just incredibly fast or are they only get wind of it right as it's at the end of its cycle.
So so this week there's these things get discovered too so you can actually go watch when Amazon files the.
The trademarks for one of these in the news somewhere lawyers and a lot of investigative reporters that dig into this so the two Brands and will put links to these in the show notes can we do that.
Jason are these two wacky to put insurance.

[1:06:37] No I can't I put them in the show notes.

[1:06:39] So so the first one is so there's three in the Sporting Goods category Rebel Canyon.

[1:06:46] Two words Peak velocity two words and good sport one word and I mentioned it in the show.
How do you how do you know and when you consider these to be officially a private label and when it has its own kind of logo and a fair number skews I do it all these meet that criteria,
ceramic Canyon is a mix of prime exclusive and it has some nine Prime exclusive,
divide 131 items and it's mostly men so it's men's sweatpants shorts and sweatshirts and these are on the inexpensive side so these are kind of like,
$30 kind of competing with that champion level of sportswear and then Amazon describes it as a way of life in a stallion,
we're on the regular.

[1:07:31] Or Scott and I call them work clothes.

[1:07:33] I called Misses catch.

[1:07:38] So it has a little bit of women's to velocity is.
You can touch more experiment is prime exclusive there's only 7 skews and then this is kind of higher in sweat.
Scot stuff so there's like an $80 hooded fleece jacket so I have some more fleece in higher in kind of quality.
And then it also has moisture wicking in breathability who does that sound like.

[1:08:04] Yeah that those keys are exactly in Under Armour wheelhouse.

[1:08:09] I've seen people kind of actually find the corresponding Under Armour and Nike shoes and the similarity is Eerie another one is called good sport and this is the one that's all together one word goodsports does have humpback.
Capitalization these are prime exclusive there's 32 screws out there as of this recording this is quote-unquote men's and women's moisture wicking your athletic wear so very interesting and.
You know some of these folks on Wall Street a pretty interesting they actually can kind of figure out the supply chain and what.
I read an article that said that these are coming from Taiwan and they're using a manufacturer called make a lot industrial and.
Eclat textile and these are two of the largest producers for Nike and UnderArmour so.
Yeah this kind of Outsourcing things to China in a way as is kind of.

[1:09:05] Backfiring a lot of Brands because the same factories are working directly with the Amazon cutting out.
The middleman which in this example are the brands themselves in selling these things with an Amazon brand on them.
Two quick other ones so another thing that was interesting is and I didn't know about this when I saw Wayfarer stock go down like 5% one day and I was kind of like that why.
What's going on there and what happened is people found that Amazon also has launched to Furniture private label brands of the first ones called rivet and this one is.
Pretty robust so has over 800 skews and it's called stylish and versatile mid-century modern furniture and decor this is very much out of my wheelhouse so I don't,
I don't know I'm not an extra on this at wear sweatpants is very much in my wheelhouse these are the kind of talk about being exclusive on Amazon free 30-day returns in a one year warranty so that's pretty interesting just called rivet.
It has an interesting little logo Amazon usually just use the word and kind of an interesting way it's called Stone and beam this is furniture for comfort and durability let's see the.
When will she analyst talk about you know the the compared sofas rivethead kind of $700 sofa and Stony being was more like $1,000 so far is kind of way to compare those installing a beam has A3 year warranty wears rabbit has one so.
Interesting as I was poking around on these things I was I was actually trying to replicate that finding the same.
S'mores kind of skew with Nike and UnderArmour so I was searching a fair amount for Nike you know how I Amazon they have the whole.

[1:10:45] Frequently searched people that search for this brand frequently search for these so I was searching for Nike and they said people that search for Nike Free going to look for pink philosophy Rebel Canyon and good sport has come like a man that's kind of scary.

[1:10:58] And especially since it's impossible that people are frequently.

[1:11:01] Yeah I have a feeling they're not.
And then last little piece on this I guess two little things so Amazon puts out a little bit of a holiday gift guide and,
very high especially at the Fashion section of that gift guide are all the private label Brands so you flip through there and there's a lark and Ro which is the women's fashion lovely tote which is their handbag to fix witches shoes and accessories in an Amazon essentials on the basics are really highlighted in there,
and in the Fashion World this is got Brands pretty much all twisted up I I don't.
All the second hand from some articles but it seems like it's really got people agitated.
The last one in the private label stack is cpg you and I have covered this Amazon put a diaper out there and then they yanked it off the market,
quickly they weren't happy with the quality and got some bad reviews there now put the relaunch diapers and,
the article I read actually went and said it kind of names the old manufacturer I don't remember and then the new one is like Kimberly-Clark which is evidently a manufacturer a lot of these these diapers so,
inner ear shows Amazon is really focusing on this private label area and they're willing to be patient and grind it out and find the right products and keep just kind of chewing with this.
Seems to be pretty strategic form.

[1:12:25] Exactly and baby geek is wearing MamaBear diapers right now so we'll be looking for the the full review of that in a week or two.

[1:12:32] You're fast on that man.

[1:12:36] I think you can't just order them yet I think you have to it's a prime exclusive and you have to request it and my wife was nice enough to do that for a test market so we have a box of them here now.

[1:12:48] Cool.

[1:12:50] Well Scott it has happened again we've used up slightly more than are a lot of time but great conversations I particularly like all the questions from listeners and we'd love to keep a dialogue going on her Facebook page so if you have any,
thoughts are follow-up questions about today show or questions you'd like answered on the future show we'd love to,
meet you on Facebook and and let us know what you're thinking of course if you enjoyed Today Show we greatly appreciate you taking that couple minutes to jump over to iTunes and give us that 5-star review if you didn't enjoy Today Show you're welcome to call Scott and give him your opinion in person.

[1:13:29] Thanks everyone we really appreciate this questions and I look forward to keeping the conversation going.

[1:13:35] And until next time happy commercing.

Oct 31, 2017

EP106 - Amazon's Q3 Results Hot Take

This episode is a hot take of the Amazon Q3 Results as well as a few misc pieces of news

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 106 of the Jason & Scot show was recorded on Sunday, October 29th 2017.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:


[0:25] Welcome to the Jason and Scott show this is episode 106 being recorded on Sunday October 29th 2017 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo.

[0:40] Jason and welcome back Jason Scott show listeners wow what an interesting week it was in the world of retail and e-commerce.
It really showed this tale two cities that we've been talking about Jason you had JCPenney pronounce a miss and their stock took a 15% haircut.
And put pressure on all the other department store stocks.
Not news you want to have heading into the critical fourth-quarter then over in this that's the analog side of the story so does that say.
One of our cities in another cities which I called digital City it had we had Google Microsoft and Amazon and it's really weird but this.
This quarter they lined up their announcements all on Thursday,
and each one of them really handle a blue away expectations so Friday Amazon Spike $228 and its about $1,000 stock before then and now its about 8.
$1,200 stock that's a 13% jump in one day which is the most of that group of folks that that announce Google.
In Microsoft and Amazon.
You know what happens is there was an acceleration in the third quarter of both growth and margins that stunned many Amazon Watchers.
But for our listeners it probably wasn't a surprise because we have really been seeing some bold moves from Amazon especially since Prime day at this quarter.
So in fact Amazon usually Falls within this guidance that they accept the quarter before and they really blew that away by about 5% this time in this episode we are going to do a quick take in.

[2:13] Dig into the reasons why.

[2:29] So today we're going to spend the bulk of the show digging into Amazon's 3rd quarter cuz I think it's really important for everyone in the industry to understand the Dynamics that are setting up in both the online and offline world as we head into the fourth quarter.
Jason how are you doing.

[2:45] I am doing it was exciting week with all these announcements going on and I'm a little sleep-deprived cuz I had to get up at 3 a.m. in New York to get my iPhone orders in.

[2:57] I did the same thing how did it. I know about half the people I know they did the that within the set of people that did 3 a.m. only about a half got an order off were you able to get an order in.

[3:08] I did I would give it a I was 142 so I I was intending to order a phone for myself and my wife and I should mention.
In my wife's case it's kind of part of her birthday package so it was somewhat more critical and my wife and I are both in there.
Annual upgrade program which like frankly the main reason we're in that program is because you're supposed to get priority.
For that the new phones so we have both pre-qualified for the next phone earlier in the week so we did like half the the ordering process.

[3:44] How you do a week in advance got up at 3,
was not able to order my wife's because it turns out you have to do it through the store and the app did not like me changing Apple IDs on my phone to her Apple ID to place her order so,
kind of suckly I had to use my Apple ID and place my order which went super smooth and I have my phone coming out on Friday.

[4:12] And then I had to call my wife who is sound asleep and wake her up and talk her through placing the order on her phone and she was also successful but she got like 2 to 3 weeks to every window so now I'm I'm dreading the fact that.

[4:27] My phone's going to come on Friday and her birthday phone is like going to come a week or two after that.

[4:33] Yeah it's interesting I was able to get I had to order for so I've got all of my phones have been waiting for the 10 so,
I got to off on Verizon pretty quickly and then to on Apple I'll be interesting they all say Friday so we'll see who can live up to those expectations,
it's funny I'm not in that program and those two people I know that are in that Apple program had a trouble with or treating her so excited before he let me put it in my car and it's already I just have to press a button.

[5:03] Yeah to their credit I will say in past bones it actually has worked out in our vanity but I I would 10 degrees right now it did not feel like it was expedited deal this time around.

[5:14] It seems like usually using the store work better cuz they would bring up the API is that the stories is fast and then the website was second with the seems like this time they switch those for some reason another weird observation there.

[5:27] Yes I tend to be hitting Refresh on both just too Archie had two iOS devices when logged in with my wife when I logged in as me and then and then the web browser and it we ended up using the store app in both cases.

[5:42] Yeah I need the cloud guy. The iCloud is so yeah it's tricky weak weaker sit daily.

[5:48] Speaking of Apple before we jump in the Amazon you did I saw on the twitterverse you did a really cool visit to the the new flagship store there in Chicago.

[5:58] Yeah just just last week they open their their new store in Chicago they've always had a big store on Michigan Avenue and so they move the store few blocks and opened.
The new the new Apple Store concept was it called the Town Square concept so they're there been a few of these I want to say.
The first one might have been in Memphis there definitely is one in San Francisco and all the new stores that are open or are based on this.
This this New Concept but this is the first one in the Midwest and it supposed to be there Midwest Flagship and that it is it is very impressive store the differences between the traditional Apple store in East Town Square stores,
I'm going to call it subtle.
You know this is largely the reimagining of the Apple Store under Angela Earnhardt who used to be the CEO of Burberry.
She came over to Apple.
And this is why Julie her concept and so the big thing is hey we're not just a retail store where at ounce where where where like the center space where people come to meet there's some controversy about them trying to own that.
That positioning a lot of City centers don't don't particularly agree that apple is the center of their towns.
Dave made the stores more organic so the genius bars go away and they literally have trees green trees in the store and it's called the Genius grow and so you know.
You used to hang out under the trees and meet your Genius who then takes you to a to a table to to help resolve your issue in the wet.

[7:36] You and I might have called shelves they not called The Avenues and have upgraded the displays for some of the the Apple products.
So I can the old days they wouldn't have a very elegant display for headphones and how to have these like beautiful white.
Wooden mannequin heads in the headphones are on mannequins they have wood grain modeled.

[8:00] IPhones that the cases are mounted to so you can see them the actual cases mounted on the on the shape of the phone you know stuff like that.
The the biggest new thing they've done those they have a big seating area in every store this kind of meant for just ad hoc meeting.
It has some interesting like saw sitting there like bean bags that are under stools.
And they have a a giant beautiful large format display and it's actually 6K resolution so super high resolution.
And they have community events and stuff there so so in this.
This new Apple Store what they did is they moved it from the middle of Michigan Avenue to sort of the the end of the shopping strip in Michigan Avenue right on the the river in Chicago.
And so they now the whole front of the store is a glass window facing the river at super beautiful they had concerts going all all weekend for the grand opening.
I'm in there you know doing graphics on the big screen and they had a band in front of the screen.
And tell Buzz there's actual wait to get in the store most of the weekend as people are coming to check it out and.

[9:10] When humorous but potentially sad unintended consequence.
Is these giant glass windows right on the river apparently were confusing the birds and so they started finding.

[9:22] Dead or injured birds that had tried to fly into the Apple Store and so now they're apparently.

[9:27] Making some adjustments to the lighting to try to help the birds figure out that they shouldn't try to fly into the store.

[9:34] Ouch that it was Town Square but not for the birds I guess.

[9:39] Exactly yeah so so.
You know you will get all this stuff and it's the merchandising is a little better again they they do spend a fortune on some premium materials there's like actual Limestone and there's.
There's a marble that comes from a single query in Italy and the amazing glass architecture that they do for all these stores.

[10:07] Interesting that's all part of the the brand experience which is a super important part of why Apple has the stores.
I have not seen any announcements about how the this model store compared to the previous model store and they actually.
Make any substantial changes in the financial metrics of the store.
It's not obvious that there's like dramatically higher converting experiences like it's a very incremental upgrade in in most cases and.
Specific to the Chicago store the Michigan Avenue store was never convenient right it's a huge tourist destination it's a huge shopping street but if you.
You know it's a really difficult or to drive to and certainly there's no parking there and now they moved it to a place where do I go there literally is almost no Road access so it's a very pedestrian access door.
If your interest in your walking Michigan Avenue it's easy to get to but like.
If you are a resident that would be the store you would most avoid because it's the logistics are super complicated and normally in retail.
You would you would you know desperately try to avoid those.
Does transportation Logistics problems but I think Annapolis case that that store is just really designed for the out-of-town visitors that are on Michigan Avenue and it is a it is a cool historic site that used to be at.
A young Courthouse vet but more importantly it was it was the site of the first settlers in Chicago so the first kind of cabin that got set up for it by a permanent resident of Chicago.

[11:38] Is now this this big guy Apple Town Square store.

[11:42] Can I get a smartphone.

[11:44] Exactly push me over the edge I ordered a bunch of iPhone tens although I Kyle met in my head I keep saying iPhone x.

[11:53] I have a problem that to you have this Xbox to do that and think over the years.
And then this is a nice Segway into our Amazon coverage you we were talking about this podcast to go where you were,
doing something on Amazon and it kept hitting you in saying don't you want to come to this pickup store you explored that further and tell us what you discovered.

[12:16] Yeah so I've been at this a literally happened while recording a show that I was you were explaining something and I was falling along on the Amazon website and I put something in my cart and it offered me this new.
Pick up an Amazon location option that I had never seen before.

[12:33] And that's because Amazon had his just opens to Dedicated pick up locations in Chicago and so.
Tired of these locations they had something very similar on a lot of college campuses they had these college pickup locations.
And these these stores are very clearly a close cousin of those locations and effect.

[12:56] If you look at some of the URL patterns that's it seems like they're kind of the exact same URL pattern as the the campus pickup locations but.
You don't need a school ID on these and then they tend to not be on campus so one of them is just in a high-traffic area in Chicago that happens to be.

[13:13] A little less than a mile from me and the other is right outside of DePaul University so accessible to the public but presumably also useful to DePaul student.
And I sent you the value property or is this is a Amanda location.
So it has specific hours with a bunch of lockers in side the location and so you can place an order on Amazon and have anything delivered to the lockers as opposed to.
Your home and you can also take your returns to that location and so you might be saying hey Jason Amazon already has a lockers all over the place including this whole food stores.

[13:49] How is it different to open a new a new location with Lockers in side in the big answer is most of the Amazon lockers that are unattended.
Will only hold your package for 3 days so you have to pick it up within 3 days of delivery or they take it back that's obviously cuz they have a finite number of lockers and they don't want stuff just sitting in them for a month.
I'm so at this pickup location near your.
Items can stay in the locker for for a little more than two weeks for 15 days and the reason they do that is because the items aren't actually in the lockers the lockers.

[14:23] Don't have backs.
And behind all of the lockers is a Amazon little mini Amazon storage fulfillment center so all your order is it shipped there held in this fulfillment center and when you walk in the store and scan your barcode saying that you want to pick up your order.
A human picture order from that that little storage area and put it in one of these lockers so your products tend to live in that Locker for 2 minutes.
Before the front opens and went in the front opens you can actually see through the locker to all the the storage stuff.
So in that way they don't tie up on the lockers they can accommodate a lot more packages a lot more different size packages but it does require labor.
And said to me that's a a little bit of a trade-off the unattended lockers you generally have 24/7 access to them.
These Walker's you can only get two in the stores open the stores open like 9 and 9 during the week and noon to 9 on the weekends.
So I actually did try my first pick up at like 10 a.m. on a Saturday and couldn't get it but it is it is interesting that the pickup.

[15:27] Is a significant part of the e-commerce experience it's become a big Battleground and we've seen lots of other Innovations around pick up.
Amazon's also rolling out these lockers that they call Hub lockers which they're providing two buildings.

[15:44] To allow package deliveries in the buildings and you know the Hub lockers don't just take Amazon packages they also take us in UPS and FedEx so they're kind of a utility for the building machine Amazon Footlocker's in all their Whole Foods.
Some sort of interesting side note on that a lot of the whole foods are in malls and a lot of the other stores in malls have contracts with them all that.

[16:07] Only certain that certain kind of product can't be sold by other retailer so.

[16:11] There now ain't like Target is enforcing those small contracts to not allow Whole Foods to have lockers that would receive products that are restricted from other sellers in the in the mall so that's been kind of a.

[16:24] A funny little thing we're seeing fly fight out and then of course this last week we've seen Amazon launch Amazon key which is.
Amazon having access to a Smart Lock that they provide so that a delivery person can actually come into your home and drop off your package and you can monitor them over an Amazon Cloud cam which is kind of their version of Amazon Nest cam.
And interesting Lee Walmart had announced about a week before that they had a partnership with August smart locks and they were doing.
Doing service similar programs or seeing all these guys make a bunch of new plays in new pickup models too kind of you know accommodate all the edge cases for people that don't have coming in.

[17:04] At their home or office and at least pickup location certainly seem like one of those and then of course the pickup locations also provide.
Four very easy returns so when you have a return you can bring the product in an open box or a no box.
You you can log into terminal in the store see your history order history so you want to return something.
And just throw the box in the print you a code right in that that store you throw your return into a poly bag you put your label on top of the polybag.
Drop it in the slot and generally within 10 minutes they'll have received that return you'll get a credit right away instead of you know waiting.
To mail it back to a fulfillment center you don't have to do any shipping or packing or any of those sorts of things.
Until the return Logistics feels like another area where we're starting to see a big e-commerce Battle Ground and once again the course Walmart announce these this mobile Express returns.
Which is sort of a similar experience you don't need a box you don't need to wait in line to return anything at a Walmart store so this seems like the the the new areas for fighting or are pick up an anniversary Justice.

[18:17] About how big was the Amazon pickup store.

[18:20] It's not a huge door I'd say it's about 1500 square feet.
I haven't been to both in Chicago yet so I've only I've only been to the one and you know there's definitely some like a couple motivated employees in there that are like trying to spread the word and I brought home a bunch of.
Amazon swag that was custom labeled with the address of this this location.

[18:43] Do they sell Echoes or anything like that I was just just lockers and drop off.

[18:48] Yeah I know no said no product merchandising whatsoever they weren't selling anything that none of the terminals in the store could be used to like browse the inventory or purchase anything so it's purely a post-purchase experience either pick up or return.

[19:01] Russia.

[19:02] At least for now I would say they a service they were heavily promoting and they actually had,
sidewalk signs and all these things is in Chicago we have a somewhat of a unique offering that I think Amazon starting to roll out to more places but we have same day delivery that is not Amazon Prime now.

[19:20] I'm still at work close enough to a number of fulfillment centers that a lot of items in Chicago you can order by noon and have delivered by 9 p.m. and the sets actually delivered by a fleet of WW2 Amazon employee so it's not the w.
It's not the Amazon Flex delivery people it's not UPS it's guys that work for the Fulfillment center driving stuff up from Indiana fulfillment center did it to deliver it to customers in Chicago,
and so they're kind of leveraging that same day service with these lockers to say same day pick-up in the locker right so you can,
you know order something before noon so like the locker for delivery and then 3:00 picking up that same day I actually found that to be a little bit annoying would actually like 5 hours from the main fulfillment center that most most goods come from from.
From Amazon and said that,
you know most same-day deliveries do end up getting delivered right around 9 sometimes 10 and the store closes at 9 so in my case,
I ordered a I did a test order at like 10 a.m. promise for same-day delivery and I got a notification at 10:15 p.m. that I could pick it up same day if the locker but of course the locker have been closed for now.

[20:35] We found a bug.

[20:37] Yeah yeah yeah so I Growing Pains.

[20:42] I wonder if they're working on stopping that 24/7 there's kind of working up to work to it.

[20:47] You would think it would certainly like you can imagine them adjusting those hours as they see demand and there are newer fulfillment centers that have open closer to Chicago so I'm somewhat curious if,
there is a plan in Works to shift some of that same day delivery volume to the the light closer Wisconsin fulfillment centers.

[21:08] They must love you guys cuz they're trying so much the stuff there so I'm sure they'll figure it out.

[21:12] Yeah or there's some senior Logistics exact that has an apartment here or something.

[21:18] We are just such a big Prime user they're doing it all for you.

[21:21] They're just trying to get off early mentions on the Jason and Scott show that's why they did.

[21:25] Just just listens and priming the pump.

[21:30] Masters of PR.

[21:32] Cool. Thanks for those those reports from the field always interesting to see what's going on there in the big city is shy town.

[21:39] Yeah hey I know we have a lot to cover but I did mention the Amazon key would you ever trust Amazon to have access to your front door.

[21:46] Don't think so I like the ones that give you access to your card like that doesn't really bother me at all like people putting stuff in my trunk but you know access to the house is just a whole nother thing.

[21:58] Yeah. I think that's that's been an interesting conversation is you know you know the trust issue has come up a lot and in many metrics Amazon is one of the most trusted,
companies out there and yet that still feels a little scary to folks and it'll it'll be interesting I actually saw me because,
just wave as people are using it but I actually saw the less blowback when Walmart announced it than I did when I was on an esta.

[22:24] Yeah yeah I don't know if the Walmart thing was as widely distributed.

[22:30] Know that I mean.

[22:31] May have been part of it.

[22:32] But even that being the case you got to give Walmart some credit like you know,
I feel like it's a moral Victory these days when you're launching customer experiences ahead of Amazon I mean it like Amazon may have gotten much more buzzed but they did have to announce a week after Walmart.

[22:51] Glory is.
I think he's really good at reading these tea leaves and getting in front of them I do want to try the Walmart quick return experience because it felt like an oxymoron when I was reading it cuz I've never had a quick return I've never had a quick customer service anything at Walmart.
It's getting worse like I got on my Walmart and I swear they've cut the number of cash registers down by half there's this like 56 Bank of cash registers and there's two people working at I don't know if it's just when I go to Walmart or something but it's crazy.

[23:19] Interstate yeah I can speak to that I know I was Eliza Express Returns part of the solution you do have to get to a person in so they have an express lane.
In customer service dedicated just to the end in my experience that can be super helpful but that can also have.
Unintended consequences right to my analogy is if you think of them TSA Pre at the airport so when it first launched in only a few insiders had TSA Pre.
You can fly through pre and it was awesome now you got two most airports and us and it's not uncommon to see the pre line being much longer than the regular line because everybody.
Is in the know right and so you know it'll it'll be interesting of if that Walmart Express return is heavily leveraged.
Well Walmart scale the lanes to support that or will it eventually get gummed up.
I will tell you just simple things amuse me but when they launched the service they had a bunch of videos showing the experience,
and in all the videos like a different Shopper you know gets in this fast line skips all the people standing in the slow lane and get their service,
and I I watch those videos and I'm laughing cuz I'm like wait all those annoyed customers in the slow lane or Walmart customers to and it's almost like 100 making fun of their their customers and best of all they,
they hired different actors to be the stars of each of these videos but the,
annoyed customer in the slow lane is the same customer in all four videos so I'm thinking that's the most crude Walmart customer of all time.

[24:52] And you know what's going to happen is when people see people he's not lying they're going to get in it and argue and be like well why can't I be in the Express on I don't know if it's not clear who gets to you.

[25:04] I'm the guy standing in the back of the line at Starbucks that then pulls out his phone and does mobile order and pay cuz I realize it would be faster than thought you could you can imagine some of that in Walmart too.

[25:14] Yep you and I.
Cool well we definitely want to save a big chunk of the show for Amazon's third quarter results and there's so much to cover we can probably go for three hours so I thought the best way to carve this up would look at some of our favorite.
Platforms if you will. Amazon has yours five areas we want to cover,
Court Commerce which includes the marketplace is the big one there's some interesting Wholefoods updates would be the second one,
wilted bits around the ad platform we want to cover that which is number 3 in the number for would-be Alexa and conversational Commerce some really interesting topics there and then fits his little bit of a catch-all just been resting other.
Nuggets that we kind of got out of the release so to be able to cover this and not have to go.
Define everything over and over again we do point you to a couple of our other episodes if you want to if we say anything in this.
Part of the show that doesn't make any sense to you then I would recommend going back to episode 24 which was our Amazon Deep dive we recovered a lot of these these topics and then.

[26:18] Episode 89 we did a deep dive on the Whole Foods acquisition and what we thought was going on there. And then also Prime day when I talk a little bit about that today but you can get Fuller coverage by going to episode 93.
So that at the high-level Amazon's revenues came in at 43.7 billion that's be billion which is 34% year-over-year growth and that beat the top end of Wall Street estimates by 2%.
Jason way this works is companies come out and whenever they release a quarter they tell you what they think the next quarter is going to look like that's called guidance they usually give arranged historically I think like 9 out of 11 times in the last cut off,
of those quarters Amazon is coming within the range sent you to give a renter Q3,
and historically there's like almost a 90% chance they'll fall in there this time that they actually came in way above their own guidance so,
Wall Street loves it when this happens that's called a beat and then with the company then gives forward guidance for that next quarter if that exceeds what everyone's thinking that's called a beat in a Race So This is a classic,
beating raised you know it's kind of a You Know Not only was it a beaten raise but it would kind of trounce both numbers top-line and bottom-line forward current all that stuff.

[27:33] You and I talked about this a lot there's a common misperception that Amazon is not profitable operating income beat expectations at 347 million Amazon doesn't really focus on the operating income is a metric they look at free cash flow and in that,
performed very well during the quarter as well as we look at it as we drill into the core Commerce peace.
Commerce retail grew 28% year-over-year growth,
so just kind of a line folks e-commerce is reported by Consular that's my favorite metric at about 15 to 17% year-over-year growth so Amazon the retail part of Amazon is growing twice the rate of e-commerce which is pretty impressive.
Books on Wall Street loved is in the second quarter a crew 23% see how this kind of 5% quarter-on-quarter acceleration so you know if we were charging this out there would be one. At 23%,
YouTube and another died at 28% for Q3 so a pretty material acceleration of the business from second quarter to the third quarter.

[28:36] So as you and I talk a lot that's the revenue for the core Commerce peace and that hides the underlying gmv so.
GMB is when he's confusing things let me give kind of a little background before I go into some specifics,
the the way it works is think about Amazon is to businesses you have the first party business which is a typical retail piano they get things from manufacturers mark them up.
That's cause what they pay the manufacturer and then sales is what they saw them to the consumer so $50 which is marked up $200 revenue is $100.
Easy peasy what complicates things is Amazon has this thing called The Marketplace or what we slang and Industry call the 3p and what happens there is I take that exact same widget at $100 and now because the accounting rules this is not.
I get a lot of people to think Amazon's doing something 2 Furious it's just the the Gap accounting rules would Amazon sells $100 widgets through a third party.
The they can only recognize their commission which is about 10% or an issue call this their take rate so that same widget that if it moves from one penis 3p now Amazon only gets $10 worth of Revenue.
Just has the unintended consequence of hiding a lot of the impact of Amazon.
It would call that transactional value of that third-party that hundred dollars not the $10 commission which is revenue we call that gross merchandise value in the world of marketplaces all of eBay.
Got revenue is derived from transactional gmv a portion of Amazon's comes from 1p which where are GM vehicles Revenue in a portion comes from the third-party marketplace where Revenue equals.

[30:18] 10% of gmv because that take red so with that being said the.
What's frustrates people on this is Amazon doesn't really sees numbers and historically all Amazon would tell you was the percentage of units that come from third-party last quarter for example that was 51% that went down to 50% this quarter because you had one p got all the Whole Foods,
first-party sales in there so it cut it for the first time you saw things kind of go from 3p to 1 P from a growth rate but it's cuz of that acquisition.

[30:51] So starting in 2012 at Channel advisor we came up with estimates on GMB because we wanted to help retailers really understand this and and at least put a number out there that we thought was an educated guess.
So we go to the calculus of figuring all that out.

[31:08] What were you would end up with for example last year our estimate was about 277 billion just kind of put a number out there for for a rough estimate.
Then at the end of 2016 Amazon change their financial disclosures and finally started to release.
Did something called 3-piece seller service revenues and.
The trick there though is that includes revenue from the marketplace but it also includes all third-party revenues from performing.
And didn't really tell you how to split that up so there's this really wide range of gases that come out of there so so Wall Street now kind of takes that number and backs into it,
and they come up with an estimate of 200 250 billion for that same time. So.
The my way of doing it ends up at 277 they end up at 200 to 250 so you see these varying numbers to make it even more complicated.
In that metric Amazon doesn't count books as one p they move them to 3p if the publisher counts it that way so it has this weird.
Dynamic of of I I would not count that one of the reasons were off is they put a lot of the books over in.
3p and I think they should be over one paper anyways for the purpose of the discussion what was just think of it as you.
Between 200 around 250 billion last year just kind of put a number out there that the agrees with both systems of doing this so.

[32:37] That being said when you when you look at this what's interesting is historically first party has grown about 20% and third party has grown twice that pace at 43% maybe think about that for a second,
to me that's the part that really competes with both retailers so so you have.
Amazon's overall is growing 34% if you take out AWS it's growing at.

[32:58] The Commerce peace is growing at about 30% but then when you look at the.
The marketplace is growing at 43% so so really kind of interesting and something that retailers need to be aware of.

[33:11] But what's happening is it's kind of an iceberg situation so what we see in Amazon's quarterly numbers is the tip of the iceberg which is their revenue you have to unpack that to get to the third party DMV.
Add it to the first party DMV to get the total gmv and I think that's what matters because when Amazon third-party sells $100 widget.
Walmart loses $100 didn't lose $10 on in the same is true for grocery and everything like that so so the total gmv is what really matters isn't how we should be sizing Amazon.
So if we if we now look at the third quarter by my calculations of that 43.7 billion in the quarter,
about 4.6 was from AWS so we take that out so it's clearly not in this bucket and that gives us there's some other Revenue but it's really relatively small and doesn't change the calculation so essentially 39 billion dollars on this from the retail part of the business.
Of that 33 and a half is the first party which Lee's 5.6 billion dollars front for the third party so.
So when you look at it that way third-party is actually a pretty small percent of revenues you about 20%.
But then you have to take the 5.6 billion from third-party and x 10.
Because of the the 10% thing so now you have 56 billion in GMD from third-party 33 billion ish from first-party you had those together and you effectively get 89 and a half billion in GMB for the third quarter so.
By my calculations Amazon is effectively add in 90 billion dollar quarterly run rate from DMV that represents about a 360 billion-dollar average.

[34:51] Annual run-rate.
The u.s. is the United States 60% of Amazon so if you just want to look at to you as soon as I'm out of that 360 billion it's about 55 billion for the us and that gives the u.s. business a 215 billion run.
So so just let me kind of put that in terms that.
That makes sense so last year if you look at the third quarter on you end up with about 13 and 1/2 billion in June be so effectively Amazon Grew From 13 billion.

[35:27] You make sure I get this right you should have JC Penney who I mentioned at the top of the show there at 12 and a half billion dollar retailer with with.
1100 stores so Amazon affectively grew your ear if you look at the DMV between Q3 last year and this year at JCPenney plus an extra billion dollars.
The entire JCPenney not just online sales.

[35:51] And then what's interesting at the Q3 2014 billion run rate it's going to be effectively a 50% growth so.

[36:01] Joe Young Thug what it means is that Amazon will have if you look at the u.s. revenue.
E-commerce which I want to look at a couple of the numbers like for sure they have 400 billion in the US at this kind of run rate Amazon will take him about half of the.
Total online sales when you want to unpack the DMV and it's good because we're starting to see emarketer had some date out that started include the TMV a lot of people have if not really.
Done this the right way I think in the now more than where you're starting to see people unpack that which is good.
So going forward on Amazon put out fourth-quarter guidance.
Between 56 and 60.5 billion again that really kind of was way above what Wall Street was asking for the fourth quarter this implies that the low range a 28% growth rate in the high range 38% growth range,
32 at the midpoint.
You take that midpoint and you seem something similar to three metrics you're effectively get to gmv of about 110 hundred twenty billion,
45 of that comes from first-party 75 from third-party so.
You look at that you're of your growth what happens in fourth quarter for Amazon as they just really search and,
start to just take mass of share in the fourth quarter and then it kind of sustains going in the next year so effectively if you look at Q4,
last year verses where they're projecting just a midpoint of next year it's effectively two and a half JCPenney is that the effect.

[37:33] Gobble up in market share so and that's just at the midpoint if they come into the top range it's like three or four JCPenney's so I know I went to a lot of math,
the punchline is Amazon is growing is about.
Now it's more than twice as big as people think it is because of this hidden DMV under the surface.

[37:53] And it's important like I can't overemphasize half the media that covers Amazon.
Still get this wrong right and they still just the use Amazon's reported revenue and talk about Amazon size and it's like just fundamentally wrong.

[38:11] Yeah I wish Amazon would just give it to him being number but the interesting thing haven't watched Amazon for 20 years now.
Is one of Jeff Bezos his favorite classes was game theory in Game Theory you never want.
Anyone really know what you're up to and until you absolutely have to tell them,
there's a lot of case studies over the history of Amazon where they don't disclose things and they always play kind of funny games with math where they'll say so so for example we don't know how many prime subscribers there are they don't disclose the DMV should go back and do things but they got rid of some of my favorite ones that used to break down,
the difference between media and electronics and General Merchandise so we had an idea for how those two categories are going as a switch some of these new metrics they got rid of those so,
it's always this game of of kind of,
why people think it's in the Furious but what Amazon's doing is in my experience when they when they think they have a strategic Advantage then they try not to tell people what's going on in that part of the business stuff because they want to protect,
The Secret of that strategic management and I'll definitely put this market place as one of the top ones that they.
3 purposely do not disclose what's going on here because they don't want people to know how big this is.

[39:24] Yep and is it you sort of implied it but it may be as worth also stating that well it's possible to be profitable or not profitable in one piece else it's almost impossible to not be profitable in 3-piece house.

[39:39] Yeah if you the best proxy is Alibaba and eBay which are pure kind of marketplaces and those companies have like,
85 to 90% gross margins and then like 30 40% kind of net margins so you know a very profitable business of posited that the marketplace has been kind of cash cow that's really fueled started in 2006 all the way for the last 12 years that's what's fueled all the build-out in,
Prime wellness centers all that because it's a hugely profitable kind of a line that the Amazon his pets humble down.

[40:14] Yep and your point because they don't have to break it out they don't show The Profit just from the marketplace and so you you get a lot of the this narrative where they they have to share the profits from from AWS in there they're fabulous and so you get a lot of people talking about well,
AWS is the,
the the profitable component that carries Amazon and in reality this this Marketplace is almost certainly a much bigger and more equivalently profitable.
Business that that just say they don't have to disclose his ass as overtly.

[40:48] Yeah one of the one of the folks that really gets this is Mark Lori so he don't know the whole reason I started yet was effectually to go after this cash cow and then obviously Walmart has bought into that night,
after imagine he spends a lot of time internally kind of helping educate folks there that this is going on because if you're a traditional retailer in my experience there are even more kind of.
Blind but have a harder time getting their head around it because there's no offline analogy you know you can't point to something and say We'll look over there that's how that works cuz it's such a weird anomaly of the online business Amazon.

[41:23] Yep yep me you mentioned Prime members anything else we should cover on the the marketplace before we jumped.

[41:33] Quicken International really accelerated so it grew.

[41:38] North America grew 35% International Group 29 International a couple points due to the impact of currency exchange of so everything I say takes that out,
but I think the last quarter grew 26% so nice kind of quarter-on-quarter 26 to 29 per cent in the management team,
I specifically called out International AWS and Prime / Prime day is as the the key reasons that they beat their expectations so I'll kick it over you do for some prime coverage.

[42:11] Yep and that you did trigger I guess it one last piece of editorial on the on the growth of the marketplace so if you add up that hole general merchandise value and I think you said that that you got that.
Empire growth is somewhere between 28 and 38% so we call it let's call it 32% growth the.

[42:33] The second largest e-commerce site which is way smaller than Amazon in the u.s. is Walmart they last cup of quarters have grown even.
Much faster than that on iMac or so much more bass in so you think about,
man Amazon which is arguably half of e-commerce are ready and they're growing at 32% and yet the industry average for growth is about 15% and so the reality is.
There has not been a heck of a lot of growth for the rest of the e-commerce industry outside of Amazon.

[43:05] Yeah yeah I think small folks really struggle you seem eBay announce the results we didn't cover it specifically I think they're GMB grew five or six percent you know I think some folks had a surge kind of as they they played catch up but I think a lot of them are really starting to slow down as they they run into the Amazon buzzsaw.

[43:26] Yeah for sure and so as we talk about besides let's talk about prime prime is another one of those things that Amazon does not disclose as you mentioned in so it's left a lot of third parties to sort of,
estimate what the prime memberships are in there was a lot of Buzz and a lot of articles,
earlier this month I want to see around October 18th of the consumer intelligence research Partners released their updated estimate they've been doing an annual estimate for I think,
two or three years now and this year they're estimating that there are 90 million Prime subscribers,
which is up 25 million from their previous estimate right so they were,
what was that 65 Million last year and 90 million now answer that that generated a ton of buzz but I think you and I have taken that with a grain of salt because,
I'm not sure 90 million Prime subscribers really passes the smell test to me what about you.

[44:26] Yeah an enhanced again to it that's a u.s. number and there's the Census Bureau says there's 125 million households so that that would be like you know 60 to 70% coverage which feel tie,
now there's not I've seen studies that show that kind of coverage at the high-end so you don't,
got more affluent homes over index on Prime and they get up into the 67% but I think that's pretty aggressive to look at the whole us when,
what I read the Wall Street research things were Amazon Street clever and they say we have tens of millions of subscribers and then they always everything is always relative like.
It was our biggest day or we saw a 2X increase in sign on state they never give you a number when I,
there's a fair number Wall Street folks that run surveys Witcher are always tricky but they're going into the you have tens of thousands of people in the survey sand,
they they effectively kind of get to 60 million in the US and then another 30 internationally Prime hasn't been out in as many countries they're just really rolling it out to India for example most people.
The metric size C say 90 million total 60 us and 13 on us so that would make this number pretty aggressive because I think you would have to have another.
30 on to that that 94 International so you it would be like 120 million all in so I think it's it's an over.
Overstatement no one of the other things is.

[45:58] All the Wall Street people are looking at paid Prime there are some free Prime program so there is prime for students and Prime for moms so maybe that adds another 5 or 10 unpaid Prime members and their but he and I have a hard time getting that 90 million in the u.s. number.

[46:12] Prime for government assistance as well not to.

[46:16] Yeah and I I-10 and greet like just a couple of kind of benchmarks you can use to to just sort of check this,
which tell you that 90 million is potentially possible but highly optimistic so so one thing to know is the analog equivalent of prime memberships is probably Costco membership so I think it was by far the most successful,
membership base retailer out there and they have been phenomenally financially successful for a long time predicated almost exclusively on the revenue they generate from their memberships and Costco has 90 million,
members so,
you say hey if Costco could do it Amazon certainly could get there but it's doubtful there are ready there a particular you reconsider what,
percentage of the u.s. population have embraced digital shopping versus the the percent that have have shopped in brick-and-mortar right and that brings me to,
the second metric I like to look at the these Prime studies are not very big like this eirp thing I want to say was it a few thousand.
Respondents in my memory might like what's even say generously 10,000 there's a much bigger studies that study,
retail buyer penetration into the the the retailer in America that has seen the most us consumers is Walmart 95% of the u.s.
Coshocton Walmart,
89% of the USA shop in McDonalds. You drop down to like 85% at Target and then you get to some of these these retards that are ubiquitous but Target more fluent Shoppers like Starbucks has reached only 48% of the US.

[48:00] Despite how many Starbucks we see out there and those Studies have an Amazon is about 42 to 45% of the US have shopped Amazon so,
there's a good news bad news thing there if your Amazon you go man we're performing terrifically and we've only reached 45% of us so we have a lot of growth left but if they only reach 45% of the US there's no way they could have 90 million Prime subscribers.

[48:24] Yeah and they're so there's two metrics there's 300 people in the US and then 125 million households so I think it's the one you just said would be against the 300,
45 yet should be like a hundred fifty million people have shocked Amazon see what expect you to be hard for.
More than half of those two really be primary I'd be shocked so.

[48:45] Yeah nevertheless it was a interesting in the the Q&A after the,
the announcement that the CFO had to answer a number of questions and you don't want it one of the questions is,
hey how come you guys like see the guidance like what went better than expected and interesting Lee the cfo's answer was largely that Prime memberships,
outperform their expectations expectations and specifically that Prime day,
was driving a lot more Prime subscribers than expected and that,
that that was having a carryover effect throughout the the corners so that Dad is super interesting wheat of course in our Prime Day episode we've talked a lot about the real gold Prime day being to get more Prime subscribers and here we have some some evidence from the horse's mouth that that's,
exactly what it's what it's a exceed succeeding and doing.

[49:45] Yet even tired that International acceleration to Prime day being strong globally and getting a lot of global signups on Prime so the flywheel is Prime and Prime day is a way to remind people that it's out there,
getting pulled in that flywheel in and get the flywheel going even faster.

[50:04] Yeah and I might take away from that that's terrifying is just,
you'd expect that you know is Amazon girls they get more Prime subscribers at some point you hit this equilibrium where you've captured all the easy,
Prime subscribers and it becomes much harder to acquire new ones and here's the CFO saying hey we've had pretty consistent Prime growth,
and now we're seeing it accelerate and beat our expectations that that tells you that there's a lot of gas still left in this this growth tank.

[50:33] Yeah the other clue in the financials around us and again it's a little squishy but there is a line item called subscriber Revenue,
and this is another way Wall Street kind of takes that in in the inside subscriber you have the revenue that comes from Prime.
Which comes in many flavors now you have people prepaying annual you at like 99 bucks and you have monthlies go through here but then they have a number of other subscriber program so you have Amazon Prime music you have.
The book program I think audible kind of falls into hear some parts of Ottawa so it's a little again it's so hard to pick a part.
But what they said is the expression Revenue grew 59%.
Not your rear and that was an acceleration it was I think 53% in the last quarter so again that kind of correlates to what's going on there and then they talked also about.

[51:30] The echo so they said let's see.
Within subscription Services music especially is working really well with Echo we're seeing a lot of growth in that area as we increase the number of Echoes so you and I are both examples of this where you have to pay a little bit of an upcharge you get,
you get Prime music for free that were with your Prime subscription but to access it to your Echo you have to pay that $5 extra month this is one of those things you just kind of forget.

[51:58] A couple programs yeah you can pay 5 bucks a month to get it on a single Echo and they call this.
Prime music unlimited so it's a bigger category library and you can have it available in a single Echo for five bucks a month or they have a family plan which makes it available to,
on the mobile phones are five of your family members and to all the Echoes you own in in one household for 9 bucks a month,
so I suspect you and I are paying nine bucks a month.

[52:27] I suspect that's true yes I remember I started with the first one and then like everyone want to listen to different music and it would specifically tell her she can't do that and then I was annoying so we upgrade it is very effective.

[52:39] In the in the last quarter they also added a feature to to the echo that enables multi-room music for the first time so now you can,
you can email that same song to a bunch of different echoes in the same time or different music in each room it is become.

[52:55] Pretty cool in terms of music playing device.

[52:59] You're very so no seeing that capability to shoot music to where we want to but at a fraction of the cost.

[53:04] Absolutely and I'm sure it was not Material in these reporting but there's actually one news source of what I assume is going to go into the subscription revenue for the first time they have added a.
In-app purchase option for one of the echo skills.

[53:23] See you now can pay a premium if you're using the Jeopardy skills to get access to more jeopardy games.

[53:32] So I am not a big Jeopardy player on Echo apparently that's a big thing that I've totally missed,
but I guess by default on the free app you can play 6 rounds are Jeopardy a day and you can only play that days Jeopardy so,
now they blunch the service where you can pay extra,
to get access to as many games of Jeopardy as you want every day and that in and of itself may or may not be interesting to you but to me what's interesting about that is,
that means they put the mechanism in there to have,
in-app purchase revenue for Echo skills and when you look at the other app ecosystems out there like at the iTunes Store the Google Play Store all the big money is in these.
Free to download and an in-app.
Purchase options in so that that potentially is a whole new economic ecosystem that's getting added to the Amazon juggernaut.

[54:26] Yeah it's interesting there there's a big tie in when you're watching Jeopardy and always fast forward to the commercial said it,
makes you stop because it looks like you're back on Jeopardy but then it's an,
a 30-second Amazon Echo Jeopardy tie and Commercial and then a big fan of mr. robot and they're doing a really big,
think they're where you can the robots about this this devastating thing that happens on 59 so you can say Alexa what's the five nine news and it kind of like gives you news from the dystopian future so I don't know if there's any in-app purchase there but they're doing some really clever tie-ins with TV and then NFL and all that stuff's all tied together with the streaming part of what they do is just really getting to be pretty interested in an integrated with what they're doing there.

[55:12] And in The Coincidence Department it this week is actually the seven year anniversary of Watson winning that Jeopardy tournament and it it's funny to think,
back then they had to rent the building next to the Jeopardy Studio because the IBM Watson computer that that,
played in that that tournament was the size of the house and now of course there's a similar amount of processing power in the the new Google home Mini.

[55:41] Cool about Switching gears to your favorite topic grocery would what did you pick out early surround Grocery and Whole Foods.

[55:49] Yeah so a couple interesting takeaways it was only mentioned in the earnings.

[55:56] They eat a lot of people are asking questions and we're interested in the future plans and Amazon did not disclose very much about the their future plans for Whole Foods.

[56:07] Which going back to your point I think they like to play their cards close to their best when they can what was super exciting for the omni-channel nerds in the room is.
Did they did add a new line item to the revenue reporting so for the first time they have offline Revenue line.
And that the revenue in there for this first quarter was 1.3 billion.
Which is a predominantly their Whole Foods revenue and that's from a partial quarter so I think that's only about 30 days of the quarter that the Whole Foods was in the Amazon number in so I assume that's.
That's a new flavor of one Pier Avenue that shows up on this this separate line for physical stores the book store revenue is in that number I assume.
Amazon has some kiosks and pop-ups and other things I assume all those things are in that number as well but I think they essentially said that all those things combined are somewhat in material.

[57:03] In that number and sort of dwarfed by the the Whole Foods number so.
Let you know this this first quarter that's not a particularly interesting number but I think it's going to be interesting to watch it grow and.
I think enough quarters where Amazon makes big investments in growing the book stores which there are a lot of bookstore scheduled to open and maybe where we don't see a lot of growth that Whole Foods it'll be interesting to see whether that number moves at all.

[57:28] You know if it's exciting for me that that number is going to be in there in the future.
I didn't necessarily learn anything from this one it is interesting they are defining.

[57:41] Physical stores as when the customer selects the item in the store so if you.
Purchase something pick something out online and you schedule it for delivery to A Whole Foods.
Locker for example or to one of those pick up locations that I talked about earlier.

[57:59] That would that would still be considered an online purchase and that someone interesting because there is some variation in terms of different retailers,
omni-channel reporting what what order do they consider an in-store purchase versus an online purchase so Amazon is clearly said.
Brass it depends on where you select the item not words for Phil.

[58:21] The same day they always called the revenue net sales and now they call it online sale so so for the e-commerce people that's kind of exciting so now they have online sales and physical sales so pretty.
What is a Wall Street analyst kind of said well you know what what else can you tell us now you've had Whole Foods on your belt for a Whole 30 days about the future.
You're the CFO.
Again plays a pretty close to that said nothing to announce but I think over time you'll see more cooperation and working together between fresh Prime now at Whole Foods and,
we certainly seen that with the private label and it'll be interesting to see if if they leverage your for example we we speculated that that Prime now ability to do same-day delivery would be really nice,
you know Whole Foods has partnered with instacart it doesn't make sense for Amazon to.
Your fuel competitor they're effectively and use the prime now Network just called Flex to do same-day delivery so that was my read on that one I may be reading too much into it but.
But interesting to see what they're going to do now that had the integrated for 30 days.

[59:31] Another one that was too quick when I know we're Up Against Time the Amazon doesn't break out the ad business and we have talked a lot on the show about when we talked to brands,
especially especially manufacturers removing dollars from Google advertising over to Amazon and.
You'll see if I did give a little hint there so this lives inside of the quote on quote other line Amazon is specifically historically said advertising is the largest component of that there's a lot of dogs and cats in there I think there's some.
I'm so the audible stuff that's not a subscription ends up in there and you know what you actually look Amazon doing like 80 different businesses and a bunch of them kind of live inside of here if it doesn't kind of the revenue.

[1:00:15] IPhone to the previous categories.

[1:00:19] But this line grew 58% in the CFO explicitly said advertising grew faster than other itself which means greater than 58%.

[1:00:30] I'd be shocked if advertising wasn't growing north of 100% year-over-year based on annual anecdotally when I talk to folks this is the one area that.
Everyone is really excited and seeing really good efficacy and then inside of Amazon everyone's moving over to these teams which is always an indicator the hot teams to be on it Amazon are Echo,
private label and ads so you know I'd be surprised if it's not going well north of 100% so.
I look forward to the day when it grows so big that Amazon has to break it out, see how big it is I think it's going to shock people I think this is going to be this kind of you know next multibillion-dollar business in this could be,
really really really really bad for for definitely Google maybe in Facebook as Facebook gets to be a certain size.
Yeah there's going to be a fight for one of the largest groups that spends money in and that's Brands and Retail and it's going interesting to see who wins this advertising Dollar Battle.

[1:01:28] Yeah I will say it's I have a feeling in the short run is going to be a mixed bag because that the estimates I've seen our kind of already in that 1 billion to 2 billion size business and in,
I'm I'm sure you're right that that Google and Facebook,
hate seeing a third player have a meaningful presents there but in some small way like again let's go let's be generous and caught two billion that that's still pretty small compared to Google's 90 billion,
so for now it's not a hugely material competitor and I have a feeling with some of the antitrust conversations that are likely to come up in the the next couple years at Google and Facebook,
don't be surprised if that the people making the strongest case for how big amazon are are Google and Facebook as they tried to demonstrate that they aren't monopolies.

[1:02:20] Absolutely.

[1:02:24] So this next one I know you have a lot of passion about because I feel like I saw you fighting about it on Twitter how many Echoes are out there.

[1:02:34] Yesu sisters interesting so the specific comment on the call was this was actually in the Jeff Bezos quote so if you're interested in the Amazon I definitely recommend either reading the transcript or listen to these calls out but also Amazon puts out a very lengthy press release,
a lot of its kind of far away it's bullet points of everything they've announced in the last quarter which you know if you listen to show you already are well-versed in of course but I will skip right to the Jeff Bezos quotes kind of gives you an idea of what they want to focus on,
I'm in the second piece of that quote I think the first piece was about prime day and.
AWS and how awesome they were this is the quote so.
Customers of purchase tens of millions of Alexa enabled devices so that was kind of interesting choice of words given Echo devices.
Over 100,000 5 Star reviews and active customers are at more than 5 x since the same time last year and they talked about another explosion of skills and that kind of thing.

[1:03:38] So I was thinking so I put a tweet out there that said wow 5x is pretty impressive and I was thinking they probably went from 6 million to 30 million maybe 7 240 million.
I don't think Echo would be half of prime at the fields aggressive so I was thinking somewhere in that range,
and a guy John Wilson I think he's a listener he kind of said what I said.

[1:04:07] I think it was actually smaller I think,
yeah I read it was 20 million I was like that's really weird because they didn't disclose that what happened to someone took this the kind of felony Amazon strap that took this tens of millions Nate their logic was well they wouldn't say tens of millions and lessons at the very bottom of that range so let's say,
you effectively 20 so I kind of came out with the number 20 because that's kind of how they read that math and then they said well,
it must have been four million to 20 million so I just kind of thought it was interesting that.

[1:04:37] Someone in his point was at Lex has a lot of hype and now lot of reality if it's just barely getting to 20 million users so I think it's kind of funny that you know when people fall into these Amazon traps that they've set.
I read these things and I kind of think who would they say tens of millions is actually probably towards the higher and higher into that there,
they're definitely the first thing I think is something big is here and they're hiding something and then the second thing I I tend to lean towards more of the middle of the range towards the height of those kind of a fun kind of argument to get in with John there and he agreed at the end that,
this article kind of took a lot of Liberty with that quote.

[1:05:13] Yep that's a tricky you got to get into the Amazon mindset and not the the traditional mindset that a lot of folks are used to one slight tangent I totally apologize cuz I know where it was,
going to be way over time for this this episode but you mentioned the Highlight section of the press release my favorite antidote is there this long list of highlights one of the Highlight bullets is,
completed the 13 billion dollar acquisition of Whole Foods and another one of the Highlight bullets is that they successfully had bring your daughter to work day.

[1:05:43] Yeah it's really of a potpourri of what happened last quarter.

[1:05:46] Exactly so pretty pretty broad range of accomplishments is all.

[1:05:49] Yep yeah they don't really order them anyway I have a musty chronological order so we have never understood how they're ordered in there that's kind of random.

[1:05:59] But I'm guessing that bring your daughter to work day has to be a lot more daughters because there's some interesting information about how the the headcount is grown in Amazon.

[1:06:09] Yes sir one one analyst said hey if I do the math your head count is up 77% year-over-year and it doesn't take a rocket scientist to say alright if your revenues are going 34% in your head counts episode 87 percent that's.
That's a lot of.
That's a lot of expensive added on not as much revenue Sony unpack it actually a big chunk of that came from the two Acquisitions so they now include the entire Whole Foods employee base and then,
acquired that Marketplace out of the Middle East called souk I think I'm saying that right souq and if you take those out then it was 47% year-over-year and what.
The reason that is higher than Revenue growth is they've already started to.
Kind of get in front of the seasonal hiring so they previously announced there are hiring 120000 seasonal workers for fulfillment centers primarily so they kind of intimated that they've made a fair amount of progress on that.
But it's pretty crazy so as as someone who the biggest company I've dealt has about 700 people in it and that's a lot of people to connect.
Understand and manage and keep your head around what it was doing Amazon has 542000 people.
So I was kind of Blown Away by that that's like over half a million people working for Amazon,
so then I got checked in to see if we'll how many does Walmart have Walmart has shoot point 1 million people in the US alone so that 500 Cash number is global in Walmart's at 2.1 million so.

[1:07:43] I guess I I didn't feel so bad about Amazon's headcount after I looked that number.

[1:07:48] Yeah although it is interesting to see those those men trucks that are growing faster than Revenue I know another one you and I briefly talked about is shipping costs which are,
we're up by 39% this quarter and that's a huge line item that keeps rapidly going up faster than.
The net revenue in most cases.

[1:08:09] Yeah and all these Wall Street reports allege red 15 to 20 of them is kind of do pros and cons and cons the number one thing they have all picked out this fulfillment cost are rising now it's hard to pick that apart because.
Amazon has two buckets in their constant moving around what's in these buckets again kind of makes you wonder what's going on.
They're building so many fulfillment centers United you and I talked about it and you know when we go to the news I always kind of rattle off three or four new fulfillment centers there's some sleep building out 30% growth in square footage of fulfillment centers in.
Do that a lot of that's fronted loaded and they have to Door County rules make him take some of it up front and so it spread out sir.

[1:08:50] Some of that does get distorted by the county rules around building where things but at the end of the day they're just shipping a massive amount of free product in and that's getting more more expensive so I do think they have that's another reason I kind of continue to think they'll.

[1:09:04] Continue to.
Chabot at that by doing Direct Delivery I think a lot of that goes into the pockets of UPS I think they're like 3/4 ups a quarter.
Other which is FedEx and USPS I think they chip away at that overtime pretty aggressive.

[1:09:20] Yes but for sure and that that's going to be an interesting one to continue to follow again expenses are going up at their Investments are just.
Huge and nobody's keeping Pace there and you can assume everyone else that's growing their costs are going up to but they they may have less of a long-term solution than Amazon does with all those Investments.

[1:09:44] Two two cookies and then turned over you for the last,
who wanted to hit on so quickly and cloud services which is called AWS so first of all but Google and Microsoft are doing really well on cloud it's turned into a three-horse race I don't hear IBM come a lot and cloud computing so I think.
They're getting kind of left in the dust you may have a different opinion of that.
Curious to hear it by Amazon web services grew 41% year-over-year and is now as an 18 billion dollar business the margins on this Roi like this Marketplace.

[1:10:16] Pure.
Very high gross margins very high net margins it was impressive is this is a kind of way subscription kind of business is the annual run rate kind of scales up and doesn't have seasonality like we do and in a retail business last quarter it was a 16 billion dollars a year,
and you'll run right now this quarter it grew so much is an 18 billion dollar in your room so this is this is wildly successful,
and part of the margin beat was thanks to AWS.
Another kind of update a couple things we've talked about on the show number one is Jeff Bezos being the richest man and as I've mentioned before that kind of hits this point he crosses.
Gates at $1,000 so whenever Amazon. Goes above that it happens so it is search now up to kind of this 1100 and.
Aside from Sun unforeseen thing happening I think it'll stay about there for a while and and therefore he is the richest.
Person again said congrats Jeff on that so hopefully we can buy more rockets and stuff like that,
the thing is really there's this interesting kind of race to the first train dollar market cap company so after the announcement here's kind of the current order as of the recording of the show,
I'll do it in reverse order David Letterman style number 5 we have Facebook at a 516 billion dollar market cap so little over halfway there to the trillion number for we have Amazon which was the last and is now left,
in front of Facebook at 530 billion.

[1:11:45] Next you have Microsoft is 646 billion the third largest market cap company and then number to you have Google which is now called alphabet at 715 billion and then number one drum roll.
People at 842 million apples.
Entire chances of getting there really rely on the iPhone 10 so I'm glad you were able to get your orders in because.
If they have this is kind of been called a monster upgrade quarter for them and if it comes in the way everyone thinks it will then they may actually get there before Amazon will see it,
it would take about a 20% jump in their stock to get them to train dollars so it all hinges on how this new iPhone does the,
the counter argument to that is they remember they only made three or four million of which is why everyone had a hard time getting him in those first 15 minutes so and,
and there's components there are that are hard to get too so we'll see it's going to be interesting we'll update you on this race to a trillion dollars and and how it goes and then.
Did the last thing you wanted to cover was it really tied to the third quarter came out right before then it was some shocking news around something new that Amazon.

[1:12:54] Yeah at a reporter uncovered that Amazon had been issued a.
Mail-order prescription license in at least 12 States in so that's some pretty strong evidence that Amazon is getting into the prescription pharmaceutical business in,
quick side note prescription Pharmaceuticals includes both drugs but also there's a lot of them.
Prescription medical equipment that that potential is in that market as well and so as we've seen in a bunch of other Industries lately where when you get that first indication,
the Amazons entering the category we saw all the traditional player stocks take a quick dump.
I'm so they are down like four to six percent for Walmart Rite Aid CVS and serendipitously we saw CBS.
Announce this potential acquisition of Aetna.
And we thought we talked about like Whole Foods is a big acquisition this and the acquisition would be something on the order of magnitude of 60 billion dollars but there's.
There's something very interesting about so it in the same week seeing.

[1:14:06] Amazon become a potential Pharmacy and that same week seeing CVS try to get out of the pharmacy business and become an insurance company.
That that could go down as one of the smarter moves of the the the decade we will have to see but then.
I really think this this retail drug industry is at a huge inflection point in potentially in great Jeopardy cuz these.
All these doors are our stores that primarily sell merchandise out of convenience they selling that generally the highest price points and the way they're able to do that is 60% of the traffic and all their stores.
Are coming in to pick up that that prescription in the back of the store,
and while they're in there they serendipitous we discover other items and buy them for convenience or whatever else so if,
Amazon or anyone else is able to take a meaningful chunk out of that walk in prescription business via digital ordering an in home delivery of prescriptions,
it's very hard to imagine how any of those drug stores continue to operate or at least I operate looking anything like the way they look today,
and I would just add you know Amazon's the scariest competitor you could possibly have in your space,
but they're already are a bunch of digital startups in these other states that maybe only have a license in one state but I think of the company like capsule in New York which is doing a terrific job of disrupting the the experience for prescription drugs in New York and you go man of the Amazon can scale that out to all states.

[1:15:40] I'm I'm not sure what that looks like for the the future of of your Corner Drug Store.

[1:15:46] Yeah and another,
news story in that vein at Walgreens and Rite Aid or merging and as part of that the identified 600 stores are going to close,
I think all those Ruby Rite Aids and interest 2000 Rite Aid so,
that's like you know I want me to come out there at 6:20 to 3:10 30% of the stores are going to close so I can see a lot of stores closing is that as these guys kind of consolidate and get ready for for the oncoming Amazon Onslaught so we'll see,
do you are we over drugstore does there I know you talk a lot about being over over retailed is there are we over drug stores at to the same degree.

[1:16:26] That's a good question I have not seen any stats on the like drugs or density per capita relative,
two other geography so I I don't know I I'm going to go to a search right after the show and see if there's any data sets out there,
but it is you know to the extent that the drug stores,
overlap outside of prescriptions they overlap a lot of other store types right like you you can get your your toothpaste at a drugstore or,
grocery store or a super store they certainly fall into that you know that that big bucket of being over stored and you know in the same way you can think about.
When a bunch of the Sporting Goods specialty retailers in the u.s. closed that that had a particularly profound effect on vendors like Under Armour that didn't have a lot of direct-to-consumer distribution.
There's a ton of products that are primarily distributed through these drug stores and your point like a bunch of the stores throat.
Closed because of consolidation or because of consolidation and Amazon competition or any of these things,
you know there there's a ton of private providers that are suddenly going to be left without the level of distribution that they're used to and that's going to dramatically affect their financial fortunes as well.

[1:17:45] Yes Sue another industry potentially being disrupted by Amazon want to see how it plays out.

[1:17:53] Cool thanks for joining us for this quick take on Amazon's third-quarter results if we were going to summarize it I would say this is what we would call a clean beat and race so this really sets up Amazon for a huge 4th quarter,
I mention to the updated guidance there that has a 32% growth rate at the midpoint,
I'm just coming after Amazon blew away the previous guidance so you could even see getting north of 36% if if they repeat that Amazon cited.
The growth and Prime subscribers do the prime day,
International acceleration and then some of the growth in other areas like ads and amazon-web-services and then they really highlighted what's going on with Echo / Alexa and the whole conversation.
I'll Commerce to these are some of our favorite topics and we will continue to keep you updated on them at the Jason Scott show.

[1:18:41] Absolutely and because Amazon blew away their guidance so much we felt empowered,
to blow away our our budget as well so I apologize for the slightly extended edition of the show but we think it's all super interesting and hopefully potentially useful to you in your day job so if you like to continue the conversation we had,
let me to join us on Facebook and of course,
as always if you enjoy Today Show we really appreciate you jumping on the iTunes and giving us that five star review if you didn't Love Today Show you we certainly encourage you to send a private email to Scott and with that we want to thank everyone very much for listening.

[1:19:20] Until next time happy commercing.

Oct 24, 2017

EP0105 - Stitch Fix IPO Hot Take

This episode is a hot take of the Stitch Fix IPO Filing:

  • How IPO's Work / Jobs Act
  • $1B Exits in E-Commerce
    • Zappos - $850m 2009
    • Quidsi/diapers - $545m -2010
    • Kiva - $775b 2012
    • Trunk Club - $350m 2014
    • - $4b  8/16
    • Dollar Shave club - $1b 7/16
    • - $3b 4/17
    • Zulily - went public with $2.7b
  • Stitch Fix Background
    • Offering
    • History
    • Financing History
  • Stitch Fix financial performance
  • Stitch Fix Customer Value / Churn
  • Personalization and Machine Learning
  • Company size and roles
  • Conclusion

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 105 of the Jason & Scot show was recorded on Sunday, October 22nd 2017.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:


[0:25] Welcome to the Jason and Scott show this is episode 105 being recorded on Sunday October 22nd 2017 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 Sanders,
we started working on a little new show this week and as we got into it real realize that the big news that is dominating the retail and e-commerce world is one event.
stitch fixes S14 their IPO so as we got into it.
And started working on this week we realized that the stitch fix IPO is really a platform that we can use to talk about some of our favorite topics here on Jason Scott show,
it's a little bit of everything Jason it's got,
Ikea's venture capital and exit e-commerce subscription Commerce which we talked about one of your favorite topics personalization machine learning and AI.
There's an Amazon undertone where you know this is one of the few companies that's made it out hopefully knock on wood and then Amazon dominated world how are they doing that,
and for all our e-commerce retail us there's this really interesting KP eyes are key performance indicators here like the cost to acquire customers at lifetime value turn,
and one of our other favorite topics is private label and digital native vertical Branch so stitch fix IPO covers everything.

[1:52] It's like our last hundred and four episodes all rolled into one it's amazing.

[1:56] Yes clearly Katrina over there with says must be a big lesson her because she's kind of wrapped it all into one company which we appreciate.

[2:06] To a lot of the distance, interesting stories so we were at code Commerce now we reported this on the podcast for those either that follow this so in March there was shot talk and Jason Delray the Commerce and had the founder of stitch fix Katrina up there and,
she kind of baited her and said that his sources are saying that there are over 500 million in Revenue side I think a lot of people in the street didn't really believe there are that large,
and then she said I can't talk about it but we aren't a billion dollars yet so that was really interesting cuz she.
Not only was a denial about 500 it actually kind of put a bracket on it that simply said.
I'm not going to deny 500 I'm going to say we're less than a billion so then it gave us kind of the sliding scale of somewhere between 500 million and 2 billion is kind of where they were so speculation was running rampant with that and then they hired a.
CFO of the Hennessey low change and y La here we go boom the you know they're actually.
977 Million Dollar business this year which is.
Pretty darn impressive there you're just as runs August to August I believe which is why they can talk about 2017 it's not over yet.
So you know I think it's really interesting that here is this.
Pretty big company like I'm in the billion-dollar Revenue Club here and then another thing that's interesting as it's pretty Capital efficient so it's profitable which is good and then also they raise between 40 and $59 in venture capital in a lot of these other billion dollar companies have raised hundreds of millions of dollars of capital so.

[3:41] Really interesting case study they also talked about at the code conference that,
you know they're there watching and other categories so they've launched men in that business in six months is where it took three and a half years for women and they watch plus and it's already doing it more in its first month,
students first year so we had a lot of nice kind of little data points from that conference and then,
you know the the s-1 launching has been pretty exciting to read through that but Jason I've read through it with a fine-tooth comb and are.
Job in this hot take / deep dive is to pick up that you see parts for you guys and walk you through it.

[4:22] For sure and we're super lucky as a regular listeners will know Scott is the financial markets Guru amongst the two of us,
partly because I'm completely inapt and partly because of you you actually took your own company successfully public and presumably learned a few things along the way so I'm hoping you can get things started by giving us all a primer in the IPO process,
and I'm going to start you off with a question and I may have misread this but I had had to pick up a couple places that they may have filed.
Earlier in the year confidentially and then there's all this talk this month about this them doing the s-1 filing was that a red herring is this in a new filing or are we just seeing what they filed back in.
In July or August.

[5:13] Yeah the.

[5:16] So what happened is the way IPOs worked before 2012 was you filed your S1 and everyone could see it and the super annoying because.
That's ones go through usually like 10 or 20 drafts so you submit it and then the SEC is the government body that regulates these things will come back to you and I'll say,
Jason what did you mean by that sending you don't answer and then I'll be like okay it while you need to tell potential investors that so there's this like back and forth also.
You may not you may not know it's really the kind of a.
Nonlinear risk point where you decide to file this one because you've really hung yourself out there and maybe have a bad court maybe you're talking to the SEC for 6 months it usually takes and yeah the back corner in there or,
markets turn South so to help companies go public in 2012 they passed the jobs act which.
Which does Stanford jobs but it actually stands for Jumpstart our business startups and what that allows you to do is date they separate the the filing so.
As a startup and they're certain definitions around this you can choose to have a confidential filing so.
We did ours we were totally confidential but I think stitch fix action now it's just that they had filed confidentially was just a signal.
The car says it was their choice you can you can do that or not there's probably some reason they decided to do it.

[6:44] So in July they announced that they had filed confidentially so would that allowed them to do is to work with their Bankers work with SEC get a quarter kind of under their belts and,
then you expand I also let you see how other IPOs so in that time frame they were able to see how Blue Apron did for example or United Snapchat had gone public by then but they,
I could see kind of how it worked so that that kind of.
It's really nice because it gives you the ability if you want to you can actually kind of yank the filing and not go public financing of the kind of put themselves out there but it does help with this whole process so that's what that was all about.

[7:27] So
So yes it so we went public at Channel visor in 2013 did this whole process we did the confidential filing work with SEC and,
actually use the same Bankers in the same banking team that song stitches could just,
sent them a note and they said yep we're working on stitch excite I know exactly the kind of hell what's going to happen there it's going public is a very very exciting kind of a thing that sucks with lots of stress kind of power concert.
Pretty interesting times and excited for for this company to get out we we haven't had a lot of IPOs in the market and in quite a while.

[8:03] So

[8:05] You know this is just one of the most-watched IPOs in a long time because we really haven't had a lot of e-commerce IPOs and then I posed that we've had kind of a dud larger digital world,
how can I put two out there Snapchat they went public at a $30 price point in its now 15 and a blue apron when,
public at 10 and is now five those are not really successful IPOs so so it should have come.
Bad Dana Point out there then we have this company that I'm surprised everyone with the scale that it's at and there's this kind of.
Waiting group of e-commerce and digital companies that are not be watching this and really closely and if this IPO can go off not only price well but staying well for for a year or two I think it means good things for this does not cohort of companies that are.
Are probably ready to go so in there are the ones that that I kind of think about our you have wish which is the marketplace with largely Chinese Goods box Pinterest house Flipkart stripe.
Fanatics instacart Warby Parker in Casper and Kendra Scott Kendra Scott's like more old school but I thought I'd throw it in there because it's kind of interesting.
Most of these are unicorns which means they have received a billion-dollar private company valuation and you know any kind of thinks through the scale that they have to be at to do that.

[9:27] Your bus is companies can have Revenue that are are very much north of a hundred million if not kind of closing in on 500 million in a billion dollars so they're definitely in that kind of class of companies that have the scale the growth brand to be able to go public.
Also it's it's interesting cuz we don't have a lot of data on public e-commerce,
that's because a lot of the ones that get ready to go public get snapped up by Amazon that's actually you know not out of the question that maybe Citrix doesn't actually make it public there's there still this is kind of the.

[9:58] The about halfway point of that six-month process imagine before the end of the year though price and go out.

[10:04] But a lot of times he's S1 stimulate buyers to come out kind of say this is my one time I have to buy this before it becomes public.

[10:13] Can I take a new bladder so so why keep an eye on that.
The the public companies that are out there there's only three so you have CafePress and Overstock and those are kind of.
Micro Capstar kind of sub billion dollars the most successful public e-commerce company so around is Wayfair it has a six billion dollar market cap that's about two times its revenues I think.
If you were going to hold my feet to the fire on stitch fix at a billion dollar Revenue.
Growing 30% I think it probably is what's a 325 x multiple so I think we're going to see a a market cap.
You know it does three to five billion range so much better multiple because it is much more subscription kind of recurring Revenue than you Seattle airfare which kind of has to sell.
Everything each time so she Furniture you know I don't think you know in your life when you need furniture and then then you can out of the furniture business for a while.

[11:13] Yeah yeah they're definitely you know just a different model but yet a lot lot better gross margins and net margins.
And another thing I look at when I see these s ones from IPS perspective is what is the banking Syndicate the the blues to Blue Chip Banks are Goldman Sachs and Morgan,
and what you do is when you look at the page and it actually put a digital copy of it even in the PDF or on the s-1 over with sec.
There's different positions they mean different things the lead Banker gets this position is a larger font. There's all this kind of History around this that we can't going to but it's pretty interesting and.
You guys look at the left first and the largest upper left is called lead left is Goldman Sachs and this example so Goldman Sachs is the The Bluest of Blue Chips.
Yeah you know Jim Cramer calls them golden sacks slacks and another good company is they rarely do things with with Morgan Stanley those two kind of go head-to-head it's kind of like.

[12:13] Oh I don't know Canton gun LG your two sports teams that are bitter rival State they look they usually don't do well together.

[12:23] There you go there you and then.
So you don't have Morgan Stanley on this week if you have JP Morgan which is very good bank and then you have Barclays RBC Stiefel Piper Jeffrey and William Blair and what will you do here is your thinking short and long-term sign,
to the bank's you pick you want a great firm that's going to help you sell your IPO so they have relationships with the buyers of IPOs which are institutional buyers which tend to be hedge funds and mutual funds and.
All these banks have that and they will do a great job selling this company.
But then the secondary consideration is longer-term what you're trying to do is get a great internet analyst that are are great analyst this is called a cell site analyst dick in.
Advanced buy-side analyst that your company is awesome and in public about it and you're in the show we talked a lot about you know these analyst we've had several on the show talking about the things that they report on and.
Goldman Sachs you have all these guys have really good analyst and,
many of them may be familiar with socks on the show so it will be interesting to see so he's Terry is the big guy e-commerce guy over Goldman Sachs I imagine that's who will cover it and,
all down the line there there's some really good unless she wants to go public there's this waiting. And you have the analyst cover it and and it's good as a company to have.
People that really understand your business out there banging the drum so that that's kind of what you do when you do the banking process last couple little points on the public market.
Thinks there's ticker symbol is going to be S fix and they're going to raise $100 this is really just a placeholder what you do is you put out this initial draft and then you start to get reaction from.

[14:04] From buyers are early reaction and then,
as you see how the markets going you raise more and then you come up with your pricing and that kind of thing they're using their guitars to public market so you go on the New York Stock Exchange that's what we did at Chow visor they have chosen to go with the NASDAQ it's kind of a,
six to one half dozen the other I do like the another aspect of an IPO it's a raising money kind of a thing and then it's a pyramid.
And I do like the pr aspect of the New York Stock Exchange you get on CNBC get to ring the bell you're right there New York NASDAQ you just go and press a button at the NASDAQ Market Center in Times Square if so that's exciting in in grandiose,
New York Stock Exchange.
22 is what we're going to run to hear is called the prospectus and that's the s-1 which is to the technical number given to these documents by the SEC.
And it's only one.
People read these aren't familiar with them they get really bogged down at the top the first 50 pages of an s-1 are really cya it's a bunch of lawyer stuff to keep people from suing so.
Pass that stuff and don't get wrinkled up and it feels like this kind of effort lawyers called a parade of Horrors it's like literally a list of all the things,
the wrong it is a really weird way to collect unit tell people about your company but it's just kind of the way it's done so.
You know it's like everything that could possibly go wrong with your company and then you're like an end here's here's why we're so excited,
it's really strange strange way to do it but it's done to reduce risk of litigation so skip to that and go right to the management discussion and usually there's a letter from the CEO so.

[15:39] Yeah we'll put a link to this over on the SEC in the show notes or or like to download the PDF and use your fine function and go right to management discussion.

[15:50] Awesome tip let the record show channel advisor got to wake or ticker symbol then then the stitch fix it.

[15:59] Xperia S fix SF 49959,
another thing that is good about this is we haven't had a lot of Billy dollar exits and e-commerce so if if my math right you again this could be hopefully north of Two And in that 325 range depending on how it prices.

[16:25] There hasn't been a lot of VC investment in the e-commerce industry because we haven't had a lot of exits ovc dollars chase the exits,
and exits are commonly referred to as liquidity events at the two most popular are acquisition or m&a and an IPO so just,
quick history here.
If some of the bigger one so we had in 2009 we had Zappos at i850 million Quincy it 545 million that's Mark Laurie 1.0,
and then we had Keva at 775 I don't know if I can count that as e-commerce but but I know this guy saw us let's talk about it 2012 Trunk Club which is very relevant to this one was acquired by Nordstrom for 350 million in 2014,
that's not in the billion-dollar kind of close to Club but I thought I'd include it because of the proximity to stitch fix,
and then. Mark Lori 2.0 soljet to Walmart for 4 billion on August 16th that guy had like a five five billion and just suck the last 4 years.
It's pretty good. Shave club was acquired by Unilever for a billion and then Chewy was recently acquired by PetSmart for 3 billion,
Zulily was an interesting one that kind of got the the double whammy so they went public I had about a three billion dollar valuation and then work wired that IPO didn't do well over time that's fatigue with our customer base,
hot and then it was acquired by QVC for 2 and 1/2 2.4 billion in August of 2015.
Seems like a lot when I say it like that but but since 2009 we've really had like 9 kind of exits 6 or so that are over that billion dollars.

[18:03] And three of them were in the last 18 months this is an industry we really need a lot more of these kind of exits to keep venture capitalist investing so this is really important for industry I think we all are all need to be great for this to do really well and in kind of.
Bring people back to the e-commerce fold-in Amazon his cast of pretty dark shadow when you talk to people that I know that are trying to raise money,
you know they say it's Amazon question that really stops am at you every BC wants to know how is your five or ten million dollar company to go to survive in an Amazon world than now if this does well people and say well so I'm sure we can.
That's some of the implications at a macro level.
Jason why don't you would kind of gone a pretty long way without actually saying what's just fixed us why don't you bring people to speed on that.

[18:53] Yeah for sure so stitch fix is.
You can think of is an apparel retailer they were founded in 2011 and they had what.
I believe it was a novel concept back in 2011.
They would sure ate a box of items for a customer and initially this was targeted just at women and so you would do a subscription and you can in that subscription you would get a box.
Of 5 items of apparel and accessories and you could.

[19:25] Cheap all some or none of the items in that box so essentially you paid $20 up front.
Which was that sort of a styling fee the first time you use the service you fill out a survey so that the The Stylist can get your preferences they stitch fix picks five items they think you'll like and want to keep,
they send them to you if you like him you pay for him if you keep all five you get a 25% discount if you just want to keep some of them you pay for him and send back what you don't want,
if you like none of them you can send the whole box back and you're just out the $20 styling fee and I should mention the styling fee is waived if you keep any of the items.

[20:04] I'm so back in 2011 this is the founder of Katrina Lake like literally.
Getting customers to pay her for a box she would go shopping at Nordstroms by things know what the return policy was at Nordstrom's.
Send them to the customer and the customer and keep them she would return them to the the retailers that she bought them from so she's.
She's managing all these sort of return she's almost like a personal concierge,
for the Shoppers and she turn this into a very significant Automated Business so over time that that business model is sort of evolved.
Initially it was subscription-only and you could kind of pic.
The frequency of the subscription you can get a box every month every other month every six months you know I'm a different set of periods.
They they.

[20:54] Shifted to a model where you can still can have that subscription but you can also just order a fix on demand so you since you don't have the pressure of a box showing up when you don't need one and whenever you feel like you just need to refresh your wardrobe.
I want something new to you you can go online hit the fix button then and I'll send you a new box.
Originally they were all selling other people's products,
and they they started to develop their own Brands what they they call it exclusive Brands and so now portion of the,
the products in the Box are coming from stitch fix which will talk more about it later they also added men's much more recently in Ascot mentioned the men's products scaled-up much more rapidly they've also offered plus size boxes,
and I think the newest offering is maternity boxes and so all of this from a CEO Katrina Lake who's now.
34 years old which is pretty impressive.
You know we're talking about the rare of 1 billion dollar e-commerce exits in the the relatively small number of of e-commerce companies that successfully doing lipo when you talk about those companies that are led by a woman CEO.
It's it's like even extremely more rare which is I think exciting and and pretty awesome so you.
If you were to read her letter in the s-1 she kind of highlights.

[22:26] The Three core principles of the business right the first one is that they're always customer-centric that they're always focusing first on the needs of their customer.
Number two,
personalization is the future we'll be talking a lot about that and number three they think they have this unique combinations of humans and data and they have made some very substantial investments in AI which will be talking about and they think that unique combination of humans and data are better together than either.
Human stylist or artificial intelligence is by itself so that.
In a nutshell is the business order effects get these byproducts keep what you want.
Send back what you don't and I would argue that it spawned a large industry of similar competitors.
In the same category as in an other categories like Children's Apparel for example before we go too much further,
do you want to dive into how they they were funded by once they got beontra Tina's original Nordstrom's credit card.

[23:32] Yeah yeah and she used to work at Poly where I don't know if you ever met her back when she was there at the podium for founder is an ex eBay guy that I've met several times and so she was she was kind of early on in this this whole industry to start with c.
Pretty pretty neat that sheep spun out of that and it's.
Effectively lap them I think at this point so I share your enthusiasm for female Founders and see is I think it's great the only other guy was kind of what he said that the only one I could think of.
Was Meg Whitman at eBay I can't think of another you know kind of a the CEO female CEO kind of in our industry.

[24:10] Yeah the IPO level so they are capital efficient and you.
The sky saying they only raise 45 million you know it is interesting because 45 million is no no that's not chump change but you know it takes a lot of capital to build a business like this and I think.
How many billion dollar businesses have soaked up your I said it before but 100 200 300 million to build a good almost take.
500 million pop service is very impressive and so the funding history.
In 2011 Lightspeed Ventures did a seed round.

[24:52] 2013 two headed around from Baseline and then very quickly on top of that and and,
so I was in February 13th and then in October 13th at a 12-9 Darby with Benchmark and then Benchmark is the company is one of the Blue Chip VC's in the Bay Area,
girly a bill girly is on their board from their heat that that's one of the firms that did eBay and Yahoo in the early days,
I also an outspoken Uber investor and then they did a series C.
In the sea 24 in 14th 6,
teen ceduna 14 and then dated a top off kind of in 2017 of 12 million and,
I just called a mezzanine round so ABC and mezzanine for those who that haven't raised Venture Capital with the way it works is in an IPO the same way you.
You issue new shares so each time that kind of value the company at a pretty money you added this Capital you get a post money and then you get diluted I mention this because I saw a lot of conversations on Twitter when you look at the ownership.
You end up with Baseline at 28% Benchmark 25% light speed at 11% and then Katrina Lake the founder at 16%,
there's obviously a case there that says that's not fair Katrina should own 80% of this as a founder of you,
we are doing is kind of making this bet on your is Venture Capital you get you get more than just Capital but just kind of keep it to that conversation you're making this.

[26:27] To you when I take this 45 million and give up you know 85% of the company there should be a bigger outcome then if I didn't do that and.
You're clearly these kind of cases you take her 16% you multiply it by that that 3 billion you get like 450 million kind of evaluation of her ownership,
I probably the right choice but you don't you never know the other side of the outcome you know maybe if she'd bootstrapped this and waited 5 more years it would actually she could own 80% of it and have just a bigot as an outcome in fast-moving markets where you have,
companies like Amazon swimming around its speed that is definitely something that that takes is probably a good choice to raise capital for.
And then sink that covers.
Big pieces so we don't want to get too bogged down in the financial stuff but Jason do you want to hit some of their revenue highlights.

[27:23] Yeah so they've had an ice hockey stick which is I think one of the things that that has caught a lot of folks attention 2014,
they they reported 73 million dollars in Revenue,
2015 the ramped up to three hundred forty-two million dollars in Revenue 2016 they they doubled at 2 730 million dollars in revenue and in their fiscal year 2017 which is over as you mentioned they were just under a billion dollars at 7977 million dollars which.
Parenthetically has to has to kill them that they didn't quite get over that.
That be so so it's been a pretty good ramp up and,
several of those years were profitable it looks like they they ramped up some expenses in 2017 and maybe weren't as profitable.

[28:17] Yeah and then the growth rates to just look at the growth rate between 14 and 15 like almost 400% growth so crazy but that was exciting time to be there and then from 15 to 1613 per cent growth death definitely Torrid but not as crazy as 400%,
and then between 16 and 1734 per cent and in this is where you know what I'm imagining happened is that kind of said.
Yeah should we go raise a $59 in turn around or should we just slow the growth rate get profitable and prove the model.
This is interesting decision because what most pundits would tell you is while she loves growth so if they could have.
I have gone public at 100% growth rate that probably would have been a different outcome than 34% but you know I think in hindsight it may actually.

[29:09] Better that they're growing a little bit slower and more profitable because with the.
I mentioned it the the Snapchat problems and questions around their ability to get profitable and then Blue Apron kind of hitting the skids.
I think this is this ends up being a nice balance between growth and profitability of so so it will have to kind of see how it prices and then you know.
What I'm engine is if they.
Delray's over north of $100 that gives you a quite a bit of jet fuel to get that that engine going back up so I bet very quickly they'll try to get back to triple-digit growth building unnoticed looking at some of the numbers they don't.

[29:47] The NEP now they don't specifically breakout sales and marketing or art effectively,
marketing but I do kind of wrap it up into a number that has gnats GM and that is actually growing a good bit faster than Revenue so,
between in 2016 840 per cent versus Revenue at 1:13 and then in 2017 and grew 55% versus 34% in.
What you will you see inside a subscription models is in the early days you know it's you can you find your early adopters and it's pretty inexpensive too.
Get to them but then as you grow your having spend more and more and more on the acquisition of of customers are the metric commonly known as cat that cost to acquire customer.
Did you see any other metrics around that Jason.

[30:35] Yeah it was like I was the one of the really interesting things is are they.
Capturing repeat customers and what's the lifetime value of those those customers,
so they they did share a couple of things to give us some insight into that they they reported what they called this repeat rate which is.
The percentage of customers from the previous year that purchase in the subsequent year and so they're sitting in in.

[31:05] 2016 that was 83% and in 2017 that was 86% which sound pretty good,
they also did this kind of convoluted cohort analysis that I'm going to rely on you to try to decode if anyone is cuz I I frankly didn't follow it it didn't seem quite as an.

[31:28] As straightforward as I might have expected on one hand but on the flip side I guess I was pleasantly surprised that they tried to get some disability to that at all.

[31:39] Yeah and what you're trying to do coordinate a Caesar are very confusing because,
we're trying to do think of it like a graduating class so teach your graduating class let's say you had a bunch of seniors that graduated in 2017 from high school,
and then you followed him through college and the rest your life and you kind of saw what happened to those people that's a cohort analysis secret you lock in time this group of customers acquired from a certain. And you see what happens to them.
The first thing to do in the cohort analysis is they they look at a 2014 cohort and they show the value from that Court was 639.

[32:19] And then the value of its dollar so than the value of a 2015 cohort with 718 so I think it is a fault this 14 people.

[32:28] From 14 15 16 17 and they said those guys generated 639 / user / that life.

[32:36] And they followed him and they said that.
That actually went up pretty nicely you know about I will see what is that 10% in so that's good that shows inside of that cohort what you have is a lot of factors you have to learn so it's people that say.
I tried this I'm no longer going to use it.
It's more complicated in these models that do you have the on-demand like when does someone turn maybe they're on an annual plan you have to wait a whole year to see if they've turned maybe they're there every two years they want to get a fix or no.
If someone moves from a monthly to accordingly that's not really churn so you.
It gets really hard to measure turn so inside of that 10% increase you have some customers they're leaving but then you also have some customers that are buying more.
So what their kind of saying here is the customers that end up buying more.
Hope you're over Road by about 10% economically.
The factors of turnt that's what's the story they're trying to tell I'd it's interesting I bet you know we don't have privy to this but I bet if we looked at the initial as when they filed this wasn't here and this is a reaction to Blue Nile to Napoli now but Blue Apron.
Yeah I just felt like my at yeah it felt very much like a oh crap we have to really kind of figure out explain to people what's going on here.
Then if you take that data point then they kind of looks and looks like the 16 cohort came down a bit and then they start looking at some of the first half's and what you see there and they had a little blurb in their hair that said.

[34:07] The call in first half of a year so it's kinda like the six months.

[34:13] Piece of the second six months they show you some of that and it's really fun and loaded so what happens is people by a fair amount in the first six months and then it kind of declines there,
they talk about it as an opportunity it's also kind of weakness but it's not fair to do for them to get better with the data science this mirrors personal my wife.
That was a stitch fix user had it for about four or five months and you have by the end of their had had.

[34:41] Acquired enough clothes in it was kind of burned out by the processor forgetting to return it and getting fees and all this kind of stuff so hopefully something a little bit of yellow flag something they need to work on when I do my mask.

[34:54] They give you just enough kind of figure this out so this is the first half of 2016 is 3:35 but then the total was like an essay.
5061 FM 506 so that when you do the math in the second half is 154 if so.

[35:10] Literally dropped by half over at the pier to be here so let's see what that be 2/3 would be in the front half and then a third on the back half so interesting kind of.
Trend air it's not clear how much that Stern and I got two people saying I don't want to box it all or how much is you filled up their wardrobe in their closet they're good to go.

[35:31] Yep and I I guess I should have mentioned another potential way to think about this is we did not mention the growth interactive customer base but,
the back in 2014 when they did 73 million and sales they had 261,000 active customers with their defining as.
Someone that bought a box in the latter the received the box in the last 12 months and if you look at their growth of active customers.

[35:56] At the end of 2017 they are like almost 2.2 million active customers so the the growth has been.
Year-over-year it is always the same order of magnitude as their revenue growth but it it has been slower.
Then the revenue growth so that the the fact that they're the revenue is growing faster than active customers.

[36:21] The week like on the surface looks like a good thing because it that that implies that they're they're driving greater Revenue per customer as as they get a a bigger and more mature customer base.

[36:31] Yeah yeah yeah I agree in,
I have a feeling that as they do their Roadshow so wanting to keep an eye out for if if this is topics interesting for you,
when you do your road show you actually have to record it and it's part of the SEC rules that anyone can watch the road show so it's on Retail Road show if you go to Retail Road you will find that,
don't be a window of time in any sings expire pretty quickly so but Jason I will treat when it's up in what you have there probably is Katrina and probably the CF oh and maybe someone else maybe the cool actually walking you through the Roadshow and I.
Bats that they have to peel out a little bit more information cuz I think investors are going to be very keenly tied into this and trying to understand really what I think.
I think that's the one piece missing hearing and people don't want to know that so it's me an option to see if they have to disclose that.

[37:28] When are there fun tidbits when you were talking about this this sales and marketing spend they did mention in the ass one that they actually hired miller-brown to do this aided awareness study so essentially in like May of are in December 2016,
they went out and interviewed a bunch of women that were in their target market which are women are making over $50,000 a year that live in us and said,
are you familiar with stitch fix and 28% of the women that they surveyed said yes in,
in December of 2016 so then in May of 2017 after they sort of double that adds fan that aided awareness went up to 41%.

[38:11] Like I would take it away Ernest with a pretty large grain of salt.
Cuz you're you're asking someone if they remember if they're from they were something in a lot of people will just frankly lie because they don't want to say,
they're not friendly with something but if it's true that that 41% of their target market are now from there with them.
Like that implies that the the next big tranche of growth is probably harder to achieve than the.
The last one was cuz it's it's a heck of a lot easier to go from 20% to 41% then it is to go from 41% to 75%.

[38:50] Absolutely yeah yeah and then I Delray had an interesting article about talking about how you know it's really kind of a non Coastal audience I don't know,
is data that really supported that but I think when you get too many people you have to kind of be spreading out to the Midwest and what not so interesting.

[39:06] Yeah and I think part of it is just that their price points are like these are not like,
super premium price points and you know in general these are not Designer level Apparel in so it's,
you know it's it's meant for sort of a more modest consumers and I think there was even I can't remember was in the interview or something that Katrina said recently but she talked about that they at one point had a pretty bad.
Inventory glitch where they weigh over bought and the,
the root cause of over buying the wrong inventory was it they were buying sort of on-trend stylish stuff and their customers were we're responding that they didn't keep any of the items because they were inappropriate to wear at the PTA meeting for example or that you know,
the the the sort of everyday occasions that their customers were we're hoping to use the products for it so I think that that helped Define the.
The Target in the use case for Katrina.

[40:08] Yeah that and that's a really good kind of transition to the AI machine learning in the personalization it's this is kind of a it's really interesting weed from that perspective I've never,
you seen anything quite like it so and I know you spend some time on it so it should take us to that.

[40:23] Yeah yeah it so it's it's almost hard to talk about machine learning and personalization separately Katrina and her in her letter talked about those.
Tubing Big premises personalization is super important and then machine learning plus humans you know being the secret sauce,
and the reason it's hard to talk about separately is because largely what you're doing with machine learning is.

[40:47] More personalizing the the offer in case the actual products to each customer.

[40:55] So I do want to start by talking a little bit about this how they use AI overall,
so you fill out a 60 question survey and then they want to pick the five items that you are most likely to keep and they said they don't have a standard starter box so it's not like they're sending the same box to everyone.
Everyone's box is going to be different based on current trends.
Seasons what they have in inventory right now and the the answers to the 60 Questions that they know about you and so one way to do that is have a stylus that.
Read your 60 questions and then have him or her go pick the five items in another way to do it is to to use some sort of algorithm to pick those items in so initially,
the the model at stitch fix was let's establish a computer algorithm to pick those items and then lets it let the stylist.

[41:54] Override it so we know what will pull up a list of candidate items for The Stylist and maybe you know that has eight items in it and you let the stylus pick the final five or maybe that the algorithm shows the first.
5 in the stylus can say yay or nay but interesting Lee.
Early on they hire this guy Eric Olsen to be their Chief algorithm officer and build this Audrey them to figure out what you you send in that first box based on the answers to your survey and.
Eric is an interesting guy because he was literally the VP of data science at Netflix which we all use as one of the best examples of.
AI driven businesses I think he was also a data scientist a Yahoo to a super credible guy that's been working at stitch fix on the this interesting answer to this question.
How do I pick the five right things to send to this first customer so that sticky so that she buy some of them so that you're she's profitable but also said that she keeps using the service,
cuz it does first five items are wrong your your odds of getting another chance or dramatically lower.
So then they're also going to use a I once you.

[43:06] Pick some of those first items and don't pick some of those first items they're going to use that data to refine the items they send you in subsequent boxes and that's where they start getting this really valuable contextual data that's both implicit and explicit like they,
implicitly know you return something and they can make inferences about why you returned it but there's also an option for customers to tell.
The Stylist why they didn't like something until they get this explicit information the him was too long it didn't fit me well.
All all of these sorts of things and so very early on situation was a believer in leveraging deep learning.
As the merchant instead of heading human sort of dictate what styles customers would get exposed to which Tamiya super interesting.
But then in more recent times it actually taking it to the next level so we mentioned.
That they started watching their own products and I'm not sure we said this but if it sounds like about 20% of all their sales are from what they call Exclusive Brands which are predominantly.
Brands that they created and they're actually using AI to design the products they offer and so what they'll do is they'll say hey.
We have a big segment of customers that don't like a neckline lower than.
8 cm and the majority of product we buy from third parties have this 10cm neckline and so we're going to design your own product and it's going to have a 7cm neckline and said they're actually using their they broke each.

[44:45] Each piece of apparel into 60 different attributes and they're using a guy to define the attributes that their customers would want that might not exist in that Marketplace in so they're using that too to dictate what what new products.

[44:59] The build which is super cool they had not that I have seen disclose any.
Hard data about how successful that AI is or how successful that AI versus a human is but another in RF event there the interest x on it in San Diego this year and one of the speakers was this woman Megan Rose,
and Megan is the founder of a a smaller company that in some ways is stitch fix for jewelry it's called Rockbox and.
Very similar to stitch fix you get a box of five pieces of jewelry to keep what you want you buy it.
You return what you don't want the others extra model where you can kind of rent The Jewelry by just keeping it for as long as you want until you want a new piece,
but they also are leveraging aai's their stylist and what I found interesting is Megan shared some of the statistics that when they transitioned,
from Human curators to machine learning the purchase rate on the first box increase by 300% so that that computer was.
3 times more likely to pick items that that customer would keep they were able to improve their inventory efficiency by 85% when they went to the the AI BAE Systems and they they still cheap stylist but they have the.
The way I am.

[46:20] Inform the stylist exactly like stitch fix is doing and that enabled them to reduce their stylist cost by 30% so.
stitch fix is getting anything like those results that's super substantial.

[46:34] Improvement via this machine learning and what's terrifying about it and cool at the same time is.

[46:42] If you had a great stylist a great person picking all these products,
and she kept doing it and should get better over time and the first time she reads a survey she gets it you know I'm kind of right but by the,
thousand times she's read a survey she's much better at it right like this the person wouldn't learn over time and her hit rate would keep getting better but then when you hire the next person.

[47:04] They would start at zero just like the first person did right and the magic thing about this that this machine learning algorithm is.

[47:13] It has learned from all two point,
two million customers of stitch fix and it keeps getting better and better and so it it's scales much better and we worms much faster than a human can come in so you don't potentially the more customers in the more time in service all these things get in the better of the algorithms get,
the the the profitability metrics on this business potentially keep going up.
Much faster because the conversion rate just gets better over time whereas a lot of other things we do tend to regress to this mean and you kind of keep the same.
Same conversion rate over time so it's going to be super interesting to see you know if the actual performance of the company kind of bear out.
Does hypothesis is but for sure a hypotheses I always say that wrong for sure.
Ate a significant angle of stitch fix is.
Personalizing the offer based on this machine learning I think they said they have over 75 data scientist on staff now.
We used to joke because every time Katrina would speaking an event the number of data scientist she claimed,
had that double then it it almost didn't sound credible but now that we see the the.
Numbers behind the business it it turns out that we probably should have been joking cuz it seems like they're all sort of credible number isn't in line with the the revenue growth that they've they've been experiencing.

[48:44] Yeah one of those things I thought was interesting as they also have a section in there that talks about.
Their usage of data science and the obvious one is you went through all this The Styling algorithm,
and then they also talked about nustyle development and then what you covered another one is so they have something like how many was it was 3,400 Stylistics.

[49:08] Yeah there's a human stylist so,
actually have the kannada matchmaking algorithm and so this data science will actually kind of say you know maybe,
maybe some The Stylist our new moms and I'll map you up with other new moms so I don't know what day they're looking at but that that's kind of cool and then these 3400 Silas,
many of them are part-time so I don't know how the interface works I've seen Amazon. Do this with customer care,
you do the thing where you can kind of check-in check-out and and then there's an online your face where you can kind of do whatever style posting things they do did they talk about an application in the s-1 about,
I thought that was interesting kind of a matchmaking is how to use data science that use a lot of demand forecasting so you know.

[49:56] This is is interesting because they send all these products out right so the return rate is pretty important and it's not entirely clear to me what happens to all the stuff.
The comes back out of it goes in other people's boxes or what happens but there's some demand forecasting that has to happen there,
and then there's merchandising optimization which is.
Understanding how to order what size color and style kind of information and even talked about they use a lot of data science in the filming centers in a used one example they have five fulfillment centers so there's a matching of,
which people go to which data which fulfillment center and then also they optimize inside the Fulfillment center using the data science for pick path optimization so I thought it was interesting that they've,
this YouTube Don't this engine and they're using it in like I bought this at like 7 or 8 different,
parts of the business so there's really good scale from those 75 data scientist.

[50:53] Yep and we should mention I think they filed a number of patents as a result of all this right like they have something like eight eight pending patent application.

[51:01] Yeah I also thought it's interesting day they love data science but they also talk about there's a human kind of check elements I guess you know.
I guess maybe something has arrived at these things sometimes like it want everyone thinks they need purple socks or something that don't have humans to catch them.

[51:19] Yeah I interpret that is twofold like that there is sort of the final check but I also think that they have decided that customers respond better.
To a human interaction so I think,
the reason that that one of those core principles is AI plus humans is you know there's a lot of businesses where they would just try to get the AI really right and have a very impersonal experience,
and you know just have to let the customer know the computer is selecting these items for you I think the stitch fix model is.
That they would like you to build a relationship with that stylist and rely on that stylist as a person,
and if you're going to fight or stitch fix I think they want you to feel like you're firing your friend Susan who's your stylist not just fire firing some.

[52:06] Some computer that's that using math to pick out that's for you and so I think the human element both has a practical element but I also think it has a strong marketing branding element for them as well.

[52:19] Yet they get this really interesting case study and then we can move on from machine learning they said one example or Delila embroidery neckline knit top is purchased 52% of the time,
and then what's interesting is are algorithms,
I can determine How likely a client is up to 80% to purchase the item if we include it in that's in her specific fix them so they can kind of show the power of the you know if you just blast it out to everyone you get 52% but if you can like use the machine learning.
Machine engine you get like a order of magnitude higher conversion rate which is pretty neat to your point on the,
what they're saying about the machine learning stuff is it used to be in that venture capitalist would look for your eyes looking for a company that has a bit of an unfair advantage and that unfair Advantage used to be Network effects,
you like marketplaces are the kings of this like eBay or buyers Springs more sellers is this network effect LinkedIn the more people social.

[53:19] That works out this too but now it's interesting is those that data on 2 million clients and think about all the.
The transactional data there's there's probably I don't know zillions of Dana Point's there.
Any company even an Amazon that has to compute these guys that they're going to have to climb that mountain so it makes it really really hard for a startup to catch up,
you pretty quickly dwindle down the number of Cups companies that,
eat here too but maybe three or four you can have maybe a Macy's and end their advantage would be they have more customers so they can get to that two million pretty quickly so.
Pretty interesting application of machine learning and I think this will be the first machine learning IPO that I've I'm aware of so that'll be another kind of neat thing and that it's also in our space of e-commerce.

[54:06] Until I mean two things I would just highlight there that.

[54:11] I think they're trying to generate you know a version of a virtuous cycle here or an Amazon flywheel that they.

[54:19] Significantly invested in their own machine learning Tech and so that they have that capability that we just covered but they also have a business model that just gets them more.
Valuable data right so if you think about it and most apparel manufacturers are totally disintermediated from the customer so they get.
No data from their actual customers and even if you're a retailer or even if you're a vertically integrated retailer your the Gap and you make all this stuff and you sell it through your stores once it leaves your store for the most part it's gone and you don't you have a return rate you wanted to be as low as possible,
but you really you know this this try-before-you-buy send them five things get back what they don't love.
Get you a much more valuable data source so the fact that they both.
Have this more valuable data and then they have proprietary technology to act on that that data is a potential flywheel for them.

[55:19] Oh, I still think it's interesting and somewhat controversial the amount of investment they made in the the.

[55:29] The core machine learning technology right like so I could imagine when they they say.
Started this in 2011 and I assume that machine learning came in a couple years after that 2013 you could look at it the state of what was out in the market and say if I'm going to be good at this have to build it myself and if I wanted to be a core competency I need to.
To build it myself and for sure you need your own experts but.

[55:52] The last five years have seen such a huge Improvement and evolution of the off-the-shelf tools that it almost certainly has to be the case that.
These guys have spent a bunch of money building their own machine learning tools that are frankly probably inferior to the the version of tensorflow the Google gives you for free today and so it.
It is they may have been a little early in the curve having expertise about their data and about the the.
Applying machine learning models to their data and having a unique data set seems like a huge competitive Advantage I imagine some smart people could debate about how valuable their their investment in their own.

[56:40] Machine learning technology was versus leveraging some of the the amazing technology that's coming on the market now but but I'm not sure whatever know the real answer there.

[56:49] Yeah, tell if a competitor can get there with a lot less and catch up then it was worth it get a couple of anything else on machinery.

[57:04] A couple other, miscellaneous little tidbits they talk a lot about being a good brand partner in this one so they they talk about they have over 700 brand partners and some of those brand selected to provide some exclusives in in the stitch fix this and then as Jason mentioned they do have their own private label and they call that exclusive brands,
I am Jason Howard debating my reed was 20% of fish stitch fix his exclusive Brands were were privately,
20% of everything was their own private label but you kind of red it is 20% could be kind of including those non stitch fix brand Partners exclusive thanks.

[57:44] Yeah they did mention that that some third-party Brands give them exclusive products and so like I'm quite aware that 20% of stuff that stitch fix design or a combination of stuff that's only sold by stitch fix.

[57:56] Yeah and this reminds me of our Amazon private label discussion where where.
Part of Amazon's private label strategy is there their data science is saying look we need a widget like this and no one's doing it you know we need batteries that come.
24 to a box and not in a packaging that you can open and quantity 8 so interesting to see that.
Another little tidbit is so they talked about Outsourcing the manufacturing of that private label called exclusive brands,
but in 2017 they actually acquired a pretty large thing as 20,000 square-foot facility that's actually an apparel making.
The equipment and & Company in Pennsylvania somewhere so it it felt like they were going to go all the way over to clean the grading and start actually making their own things and United States which is pretty interesting.

[58:45] Yeah although I do think in the s-1 they they made it very clear that the right you should not expect them like to actually fabricate in the US that they wanted some capability in the US for experimenting purposes but the like.

[58:59] You should not invest in them based on the premise that they were going to become a US manufacturer.

[59:04] Yeah and then people wise they have.
Pretty impressive 5800 people total 86% identify as female so that it is,
pretty amazing what you put 55% of the management team to have 5 helmet centers / 1.5 million-square-foot 1,500 employees in the Fulfillment centers,
3400 Silas 200 client experience Associates million customers that's like what does that 1 / 100 no a thousand.
Yeah so that's good ratio there did you dream team is actually pretty small I was surprised 95 Engineers so that's.

[59:44] Pretty lean mean for kind of scale they're at and Sadie I guess the 75 data scientist get it closer to effectively.
150 which is closer to what I would think it would be so that's how the people break out largest chunk is the stylist and then the Fulfillment center employees followed by.
You know the client experience Associates and then a relatively small Engineering in data science team.

[1:00:09] Yep and this was not surprising I suspect to you or I but I still talk to a lot of people that aspired to be a billion dollar e-commerce business and they still imagine that they're doing that out of a single fulfillment center.

[1:00:24] Yeah no.

[1:00:26] And I at yeah I mean yeah.
Not very possible and I'm like this is a perfect example of what you know again at their they're not at a billion dollars yet and there and they they have a customer-facing business where humans interacting with every customer and yet still the largest portion of their,
their workforces you know that are close to the the second largest piece of those Workforce it as all those fulfillment employees.

[1:00:51] Yeah I wanted more information on,
fulfillment centers just because again I imagine that that almost every box comes back with something so imagine the it's the reverse supply chain that I'll Eat You Alive on the stuff so.

[1:01:09] Reverse Logistics are much more,
challenging than I mean things are very hard to reverse Logistics are in order of magnitude harder in your right like that's cooked into this model is there's always going to be a high level of reverse Logistics so that that would be an interesting area to have some unique competitive advantages and if they do they they haven't pitched them very hard.

[1:01:30] Yeah and the day of science didn't necessarily cover that and you know,
Gillett Wisconsin to it so what cities send out of too many customers let's say every month they send out a million boxes will probably less a900.
Thousand come back with at least one item coming back so I'm have all of them but you know that's hard someone needs to go through there and figure out all that out you kind of know but you have to match it up happens to it. I don't,
do the brands allow them to kind of like put it back,
or do you have to liquidate it and then does each of these fulfillment centers have an outbound peace and an inbound if they put it back on a shelf that's like a whole it's really super inefficient to like open a bunch of boxes and put all that stuff on shelves that doesn't seem logical that I have a lot of kind of questions around that I bet.
probably the Harry part of this thing.

[1:02:21] And there is like so I think this is more rumor than real problems but so all of these industries are plagued with a little bit of the like.

[1:02:30] Oh wait a minute is this close stuff that already got returned from some other retailer right and that.
The fuel gets playing there several of these services and I think including stitchfix have at some point shipped products that arrived at a customer's location with another retailers price tag on it.

[1:02:50] Right and that you know puts all kinds of questions in the in the mind of the consumer and you start wondering like waiter is this a TJ Max kind of play where they're getting the.
The leftover stuff from some some retard where they couldn't sell and then their there they're selling it at at you know predominantly with price which is part of the reason I have such good margins.
And and the explanation that that stitch fix gave and I think you know this is blown over several years ago now was no no no no we're not getting anything.
Back from a retailer that were selling a customer but sometimes we buy something from a brand and we've had a brand make a mistake and send this inventory that was pre labeled.
With another retailers labels on it before and so that you know then then created that whole set of conversation.

[1:03:38] Do you feel like the brands would let them return the stuff.

[1:03:41] I think you could I thought I do think Brands would let them take returns and resell it I doubt any brands are getting them stock balancing you know you like.

[1:03:53] There's very little stock balancing in a pair of these days where you can actually just return stuff that doesn't sell you know they're there often can be some sort of negotiated terms where that the inventory doesn't turn gets.

[1:04:06] Gets tossed reduced overtime and you get some price concessions and things that way but yet no I think.

[1:04:15] That that stitch fix probably feels like a pretty traditional retailer in,
having a match their supply to demand as well as they can and then having how to start a smart strategy for liquidating the inventory that they're not able to sell.
So I thought you know I think the date they pay some of the same Challenges ever no spaces there I did there's one other.

[1:04:41] I think that the s-1 reminded us up but we but we could have known before this stitch fix is running on an Amazon web services.

[1:04:49] Yeah yeah it sucks so does Netflix and always makes me wonder like do they sleep at night we're going to Amazon can you.

[1:04:57] I don't think Amazon would ever do this but there's the potential for someone to Cana,
take a little peek in there and see what's going on under the hood so that that would it's like one of those very very tricky situations there's not really a great Alternatives that I have found two but you know you're kind of your funding and your competitor and your competitor has potential access to your your secret sauce.

[1:05:20] Yeah and even if they had no access even if they're completely aboveboard and they would never look at the data you are you're still funding your competitor.

[1:05:30] Absolent yep so that's Amazon wins no matter what.

[1:05:36] I would prefer the record I would say like I mean AWS is a great service there's lots of reasons to use it it does to me feel like Microsoft with Azure in Google with Google Cloud platform like have some pretty competitive offerings these days.

[1:05:50] Yeah yeah once you kind of get married in the one who sings it's a little bit of a roach motel it's hard hard to check out.

[1:05:56] Degree architecture at some level that you have to do so Jason was kind of.
Land plane here with what do you think so we've gone through a lot of highlights and some impressive scale on Revenue growth slowed in a little bit,
can't look like it's going up a little bit I'll TV hard to call with the cohort analysis looks like it's a little challenged on the back half of the first year,
what's your conclusion Justice IPO mean that the subscription Commerce is the future or or or what do we look like your.

[1:06:26] Yeah well said to me that's a that's a funny question the.

[1:06:32] Yeah we should have we should have mentioned earlier when you talked about it to some of these previous companies there there have.

[1:06:38] In the past been these tranches where there was some trendy fatty thing in a bunch of companies had an exit based on that fad right and said the most most obvious recent one would be flash sales you know everyone got up.
Advanced evaluation and a bunch of flash flash sale companies had.
Had favorable exits in the beginning and less favorable exits at the end and you know today it's pretty clear that there's not a very exciting market for Standalone flash sales that you don't potentially that.
A tactic that a retailer would have but it certainly isn't of itself a business model and so when I look at these guys if.

[1:07:17] If you're evaluating them on the basis of subscription being the winning model.
I think subscription is more likely to be a trend like flash sales I think it's a super valuable tactic.
That retailers are smart to use but I don't think that the winning formula in e-commerce is just to go all in on subscriptions and part of the reason I think that is.
Most of the companies we think of as subscription model businesses have.
Why do they had to abandon their subscription model in order to be successful right and so you know stitch fix.
Is a very Soft Cell on the subscription model like they started out subscription-only today like when you go sign up you'll you'll see in a giant.
Text next to all the frequency option option saying or just get one whenever you want.

[1:08:11] Right into their they're really not hard selling the subscription and they don't tell us what the breakdown is but I would be really curious to know what percentage of.
Obstetrics customers are on an auto replenishment program versus just ordering ad hoc because I feel like in the the actual subscription model businesses,
we we very frequently see this subscription fatigue so your wife wasn't early stitch fix customer before they add the ad hoc model and you mentioned she got fatigue I think that's the fundamental problem with all the the meal kits that are subscription-only as they sort of.

[1:08:46] For economics have to be subscription-based and everyone gets.
Subscription fatigue and you eventually feel guilty that you're not cooking the meals every week or you eventually feel like your closets full of clothes or jewelry or your kid has too much clothes or whatever the case is I think.

[1:09:02] Basing the business on Purely on subscriptions is probably a not very sustainable,
but I think if you forget the fact that stitch fix even has a subscription model and you just look at their fundamentals and you look at the revenue growth over 5 years you look at their operating margins look at their customer acquisition cost.
You know I wouldn't say it's a slam dunk but like.
It it certainly to me looks like there's a solid business they're like is it a good investment as an IPO.
Qualified person on this podcast to say but this is a solid business that that could have largely,
grow from you know based on its own cash flows,
so again I like the business fundamentals I'm not super Amorous of the subscription service being the secret sauce.
That makes sense.

[1:09:59] Again and we're not we don't give a Vespa advice here on the Jason Scott she is so not going to say go by this IP or not but you know the one thing I think wall Street's going to scratch your head a bit on is the growth rate so.
32% and a world of e-commerce growing 15 may not be exciting enough so.
I think that could be a platform for them to actually exceed expectations right so if they get priced at let's say.
2x because of that 30% growth rate the razor $100 and you're able to accelerate that then everyone loves a accelerator accelerating Revenue growth so that you know.
That could be interesting in an with any IPO,
you have to wait at least a year 18 months to really see how the company does as a public company so we'll be watching that really closely here at the Jason and Scott show and Reporting after their first public order and in as part of a normal news coverage will let you know how this IPO goes.

[1:11:01] Yep and Scott question for you let's let's say they get a good price at the initial offering and it's well before the year we don't know how things are going to settle out should we all expect to see a ton of other.
Sort of a style box models like come and try to get a exit and you don't plan on that hype even before we know whether this this really works long-term or not.

[1:11:27] I'll say no so I don't think this opens the door for other ones so for example when box went public could actually feel at times when the first company to goes out it kind of close the door so Dropbox couldn't get out Xbox got out so.
You know I think what will happen though is if the IPO goes well on prices well you will see some other companies I mentioned,
maybe take a run at filing so you know the market background couldn't be better right now we're heading you know the Dow has hit you thousand Mark like.
20000 21 22 23 in the last year or so if anything is probably the biggest risk is that yeah there's going to be working.

[1:12:08] Things are always go up to so there could be a correction at some point and so,
that's kind of that I think would close the window on if stitch fix goes out and we have some these other unicorns kind of waiting by I think everyone's going to be rushing for the exits and I'll be interested to see what the window closes so will Lori port on that as well.

[1:12:28] Gotcha and then I guess just just one other sort of competitive thing that's somewhat interesting you mention trunk, being a sort of similar business model and sold the Nordstrom for 300 million,
I wonder if that comes up at all in in this offering that Nordstrom then had to take a 200 million dollar write down on that on that acquisition right like so that.
That that's a business with a very similar model targeted a different customer base that.
Economically at least did not do well and then of course.
There are 30 or 40 competitors out there with somewhat similar models and certainly not with as much traction is digs fixed but the the competitor that that,
you don't have to concern investors the most is that recently Amazon is of course the announcer product in this space and that's the Amazon Prime wardrobe and Amazon has announced some new unique reverse Logistics to go is Amazon Prime wardrobe that seem like it could be a competitive Advantage for them.

[1:13:27] Yeah and you know us with 300 million customers to push this to you know that that is scary so what seek you know investors will vote with their wallets in and we'll see how it comes out.

[1:13:40] Awesome well that is probably a great place to leave it cuz it's happen again we have used all our allotted time,
we certainly appreciate everyone a listening in for this extended episode and hope you enjoy this deep dive in the stitch fix let's keep the conversation going on Facebook and as always if you enjoy today's episode we sure would appreciate that five star review on iTunes.

[1:14:02] Thanks Everyone.

[1:14:04] Until next time happy commercing!

Oct 19, 2017

An interview with Bryon Colby (@bcolby6), SVP of Digital Commerce at Cornerstone Brands. Cornerstone Brands is a billion-dollar omni-channel retailer comprised of multiple leading home and apparel brands including Frontgate, Ballard Designs, Garnet Hill, Chasing Fireflies, Grandin Road, Improvements, and TravelSmith. Cornerstone is a business unit of HSN, Inc.

We spoke with Bryon about his background, where digital commerce sits in the Cornerstone organization structure, how Cornerstone benefits from it's catalog heritage, the challenges and opportunities of customized products, and the future of personalization.

Bryon mentioned a custom product configurator for furniture on Ballard Designs, which can be found here.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 104 of the Jason & Scot show was recorded on Wednesday, October 11th 2017.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:


[0:25] Welcome to the Jason and Scott show this is episode 104 being recorded on Wednesday October 11th 2017 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo.

Scot & Bryon: 
[0:40] Hey Jason and welcome back Jason Scott show listeners,
in this week's episode where excited Futura guess that we have literally been trying to get on the show for over a year due to scheduling conflicts between the three of us that has been hard to do but today the stars have finally aligned and we are very excited to Welcome to the Jason Scott show,
Bryon Colby SVP of digital Commerce at Cornerstone brands welcome brand.

[1:09] Where are you located in the world today in the home base of Cincinnati Ohio.
Like being over usually on the road like you guys but I see your point stars align.

[1:23] And just to be clear Brian it hasn't taken a year because you've been doing a lot of other shows right you've been saving yourself for us.

Scot & Bryon: 
[1:29] Whatever makes you feel good then go for a Jason.
Cook and I'm excited to see if I understand you have a Tesla now so we are in the Tesla owners the electric vehicle club together at this point.
Loving it you know can't say enough good things about it I actually thought that was going to be at your giveaway 400 shall I was hoping to get a guest on that one but it was like Tesla's free to your listeners,
yeah we we tried that and we ended up with some stickers that Jason printed on his LaserJet they're so close but we were quite able to get it to that level.

[2:09] It is a premium LaserJet though.

Scot & Bryon: 
[2:11] Is premium gas to color so it's pretty exciting.

[2:18] I feel like you guys have have a lot in common you both had the fancy cars and you both spell your first names unconventionally.

Scot & Bryon: 
[2:26] Yes it's one of those things that makes you very Google Bowl which is a double edged sword.

[2:32] I love you find that bread.
So far 3 other people that spell it my you know my way you know one guy at the local.
Movie theater that selling a popcorn was amazed to see his name tags felt the same way and he's the one there actually is a Facebook group for you know Brian's that's valid Bryon and this guy was it when it started.
I don't know. If you ever need. You ever meet anyone else,
I have met a couple other people there's a lot of Scott wings with two T's so there's that and then there's the hero of a popular novel,
it is at his got Scotland 20 sets and wrestling.
Yeah I run into like two or three every five years or so so so kind of price solar distribution I did I don't know if we have a Facebook group or not I might have to explore the Cradle.
We left a check there about 5 of us on itself but that was a couple years ago is that Super Active like you guys just guy talk about.
I'll leave it at that.

[3:48] And I think there's one other important piece of business we have to get out of the way before we we jump into Cornerstone big movie trailer came out this week.

Scot & Bryon: 
[3:59] Yeah yep the know some some people are keeping themselves spoiler-free so I have nothing to talk about it but I,
where I draw the line is I try not to read rumor sites or anything like that but I do watch the trailers and this trailer was awesome. I'm very excited for the Last Jedi,
tickets are purchased 7 p.m. showing December 14th through the Wingo Clan is locked and loaded for Last Jedi.

[4:23] That's awesome.

Scot & Bryon: 
[4:24] Scotty tractor your dress up you and your family for it.
We don't we usually say that for Halloween and we're usually a bunch of Star Wars characters for Halloween but we're not cause players just never not not my scene but I'm more of a collector toys that canister.

[4:44] It's been interesting that there was some controversy coming up to the trailer about whether the director was excited or not about it but I feel like all the reviews of the trailer I've read even from people that are not like huge Star Wars fans are like it's one of the best.
Made trailers of all times.

Scot & Bryon: 
[5:02] Yeah it's a misunderstanding so it's Ryan Johnson and he he was just kind of tweeting that if you want to stay spoiler-free don't watch the trailer and then a lot of people misread that to say,
the trailer is not good or something so I don't know so then later he was like all caps watch the trailer people it's great I'm excited up moving.

[5:20] Heck yeah that was an odd thing to have had thought he said so that I'm glad you were able to clarify Force awesome,
well with that Brian let's jump into the topic of the day we want to talk a little bit about about your business and what you're doing now but before we get to that it's always nice to hear about how you got there and what you're you're sort of digital background is.

Scot & Bryon: 
[5:46] Sure you know just thinking through it's been amazing and I've been involved so I guess any Commerce incident of 1996,
where are you know it's part of the great team that we actually helped build some of the initial pay for Content sites football number Publishers including USA Today times-mirror the Usos,
Associated Press this is where they had don't you know the publisher that don't websites had no idea how to monetize it and we're looking to monetize some of their archives they're all content people coming in search for so we had that.
Company was called in Fanatics had you know had a technology Riri,
purpose from our consumer consumer product that was out there in the marketplace and turned around handle the customer service the billing,
you know all this is way back when in about 1996-1997 for these customers,
since then you know what has really held the number of different you know a hats in the space but all focused on transactions including are running a digital marketing Consulting Group.
I'm heading out by you know you asked operations of an SMS Commerce startup which was fascinating just about,
it's Wednesday in the year about 2000-2001 so just slightly ahead of its time being able to buy things via SMS was also a managing director at fry and another you know,
kind of Legacy in e-commerce space.

[7:17] Fantastic also group of e-commerce if we're all veterans right now that we had our own not digital eCommerce platform and we helped run some of the online businesses and Technology,
multiple retailers across some.
Different categories including Ann Taylor a good diver craft PC Richards and many others so you know after that for a while and actually said okay looking to jump over,
to the.
Pure retail side so you know the strong desire to actually own the project from start to finish so when I joined Marc Ecko.
I was an apparel company and then of Last Stand and currently as he said at Cornerstone brands.

[8:08] Awesome and the fried that always brings a smile to my heart that I think there's still a few fry sites living in the world then it's obviously been defunct for quite a while.

Scot & Bryon: 
[8:21] Yep yeah they got you know purchase by Microcenter and of course mikroskop purchase so there still are some out there and it is that's all you go to you know you got any other conferences,
it's one of those amazing get-togethers cuz you see people that you know of work with way you know way back when I just are now you know leaves and heads at all,
under the different colors are other e-commerce companies out there.

[8:47] Yeah so let's talk about Cornerstone Cornerstone might not be a familiar name to some listeners because it's a,
it's a house of Brands and then it has a familiar parents so can you tell us a little bit about about a Cornerstone and who you are.

Scot & Bryon: 
[9:04] Sure Cornerstone wasn't even familiar to me when I joined the head corner,
Cornerstone brands it's a billion-dollar plus retailer it's comprised of a portfolio of different aspirational home and apparel brands that include Frankie Ballard Designs,
Garnet Hill Grandin Road and improvements in overtime with awesome different companies with divested different companies we have a strong catalog heritage,
that's our background but now we're at a point where over 70% of our overall demands is transacted via digital channels with an opening up some new retail store.
So you know where as a whole it's again most people won't know Cornerstone but the brands very well-thought-of Rhymes doing very well.
Well parent company is hsni which of course the other Division if they own besides Cornerstone is HSN which is more 2 Legacy broadcast.
You know broadcast Commerce company that has course has also evolved into a strong digital Anthony.

[10:16] Very cool and one of the things that I was interested me about Cornerstone is the.

[10:23] Sort of portfolio is is interesting Lee diverse not so much in terms of.
The offering a consumers although that's the first two but act like I think some of the Brand's don't have stores do I have it right into their pure digital some of the brands,
have stores,
some of the brand sell products that aren't super convenient to ship until I I sort of think about the whole portfolio and I go man there's a lot of unique.
Different business cases for each of the brands is do I have that right or is it all pretty much the same thing.

Scot & Bryon: 
[10:59] No you're totally right on The Mark with it and it's to the point where it's at extended differentiation extends to the products or the the product photography.
How to get out of quality or of the paper that the catalogs are printed on.
People are usually amazing like oh yeah you know I never even knew that Ballard Designs in front they were quote related,
what part of the same as the wall you know part of the model is and we really we do have a hybrid model here so I we share a digital platform,
fat and other back and operation such as call center and supply chain areas where we would really get operational leverage but then.
The majority of all the customer-facing aspects such as creative product pricing merchandising.
That's all at the Brand level and the strategies for those are really formed at the Brand level so we may have some may say stores are the best,
way for us to connect with our customers others may go with a different private label credit card and all of that ensures that you know,
really strong Believers and keeping a unique DNA of each brand so while we are for a portfolio,
we want to gain leverage everywhere we really focus on not wanting to lose what makes each brand special and their connection to the customer cuz what we normally hear when people come in and saying hey you know what we could save x amount.
I may be consolidating,
you know all the photos shot so you know all the models of the photo shots into one area and it's really ghetto people resisted overtime and you know it's actually been the right call is what we're learning.

[12:36] So I can practice walk us to how your piece works so let's see you have a front gate Ballard at cetera,
you guys can operate as an agency that supports what they're doing or do you do help them with strategy and they have their own groups so so let's just use something kind of practical that that everyone doesn't e-commerce like like,
I see my Google AdWords do you have a group that kind of like centralized does that say for the various brands or do they do it themselves and you guys,
I had an evil strategy for the.

[13:08] It's really the latter each brand does have right now just for this specific example and it changes of course what you're talking about but for something like sem each brand has their own marketing department.
Then their own people on the ground in a managing their ass Leon campaign.
Where are the cross brand leverage and where my team myself and my team's role will come into play is one in Short helping to ensure,
at all the brands are using the best technology.
More info or let's say I see I'm dead management as well as you know making sure we're leveraging our relationships with our third-party Partners so okay this interests you know again where Billion Dollar Plus,
I'm as a whole but if it was each individual they're going out there as a snow still larger but smaller entities so a lot of that is managed from a central location.
As well as helmets Europe what you mentioned helping a form what maybe some of our strategy should be in the space,
like okay you know it's part of letting you know the shifter increase mobile spend helping to highlight the importance of that and digging into the data so a lot of that is a partnership,
other aspects of you know my team's role here that are shared services where R you know request.
LeBron saying hey this is a project we need to do for our business. On the other hand it could come from a side you know my team and I resent the corporate level to say hey this may be a good strategy for the entity as a whole.

[14:45] Around where things are really pushed off down at the partnership model where the give and take on both sides.
My specific role is again heading up the digital Commerce at the corporate level so it impacts you know what the overall digital strategy should be,
as well as a day-to-day operations and management,
digital platform and technology that is shared among the brands as well as you know what the team here driving learnings and leverage across the portfolio but if it's touching that and you deserve like I said before.
Back in from the brand side so you know an overtime this model has evolved and you know we've looked at all the different,
ways you can actually do this that there you know some organizations that say you know everything should be centralized some saves everything should be at the brands.
We again it's a hybrid model is how we trying to tend to operate some things we didn't my team will get more involved in other times it's where the brands about it.

[15:48] Interesting you had mentioned that a lot of the the brand on the cornerstone portfolio had started as catalog doors and I wanted to touch on that for a minute cuz I think that's super interesting.
Personalized was handled Walmart earnings report this week and Mark Lori mentioned something that I hadn't thought about before but he's like.
Hey we've all been shipping products to Consumers homes for a hundred plus years that's not really the the new thing in that the e-commerce bring for the party.
What e-commerce really changing the party is the the front end merchandising a product that essentially you know the whole delivery thing,
it's something I've been doing for a long time and that you know cataloguers in particular have been doing and the new thing we've all had to learn how to do is use digital to merchandise products in so it like.
Is that true at Cornerstone that you inherited.
Good Supply chains and and facilities for shipping and that sort of thing because of your catalog Heritage or weather like a lot of.

[16:54] Sort of traditional methods that had to be had to be dramatically changed to accommodate your e-commerce growth.

Scot & Bryon: 
[17:02] Wiz.
Cataloguers one of the inmates things I think would see know when I took on the role that I quickly saw was an advantage was that the wreck Market in skill set.
Cuz it's a very different business in terms of prospecting customers and reaching out the customers and it maybe from Hyder having bread,
and mortar stores or whether you're just starting a secure play without that direct marketing background so,
you know a lot of our operations with always been selling direct the customers and ship into them there from the supply chain from a customer call center,
that's always been in place I mean right now we have a small retail store for friends and that you know I'm like a lot of other companies,
that was kind of a you know later stage move that we move that we went forward with so you know and have some of this goes back to.
You know what you at you know your man crush Andy Dunn marriage a sin in terms of you know you're quoted him a number of times that a lot of these think eCommerce pure plays and I'm a big fan of eventually hit a wall.
Because of stacking up with you in the fact of customer acquisition at the right price.
Just so you know you you actually start to say okay we have to get other channels to go after customers but it starts are going to retail in the everyone now it's time to go in the catalogs and the thing is kind of hard work really well,
you know you need that direct marketing skill set but the good part is once you actually have it.

[18:34] Working friends and now I'm really excited because I feel that a lot of digital channels are starting to catch up I mean you look at what Facebook is now offering what Google's offering me know and I've got in a little trouble,
in the news recently just buy,
how well you're able to Target in or if you're from Russia that you can actually buy specific keywords now on it and do respect of look-alike mod,
look like modeling but now with you know you could have specially take what we've been doing for catalogs for a while and go out there and do it digitally.
And the other part with catalogs is that fascinates me is you think okay on the filming of,
you know you guys also we go at that we check our mailbox every day but there really isn't too much in it now and catalogs get a lot of the attention so.
You know digital you. People have also asked well as digital going to kill catalogs and all that but the goal is actually to do a martyr sentence.
Like okay Mel books a lot smarter and integrated with digital and that's what was doing so that's why all the back you know when you say a lot of the back office activities,
you know we of course need to Reno and want to improve on it in terms of speed of delivery in terms of customer interactions but that's been there since day one.

[19:58] For sure so first of all tell me that wouldn't be a great selling book is the kgb's guide to Facebook marketing.

[20:07] She like we should write that right now the.

[20:12] Like so is it true like that you you have catalogs it like that are continuing to be good performers and that you've you've sort of evolved them to to fit better in the digital world that they're still a significant acquisition channel for you.

Scot & Bryon: 
[20:25] Yes they are you know that Nicole is always you whenever you you know if your mailing a lot of catalogs it's a.
Numbers game where are you know a high percentage of them are not going to generate sales the ones that hit well generate you know you know I do a lot of sales so it's over time figuring out more and more.
How to reduce the number of mountains that you do or else reduce unproductive maling.
The Golan is to take some of those Savings reinvested in digital and with digital actually you know have different contact points for the customer.
That is you know right now baby they real catalogs work well they do or the challenge of course is that they tend to be expensive.
They tend to be some things that are out of your control you know what would a long-term you have cost of paper you have postage and all that,
it's you know why won't you know what the start while I was saying you over 70% of our transactions happen digitally you know Catalina.
Catalog for major marketing channel for us.

[21:29] It and it's interesting because you see it going both ways there there you know famous traditional cataloguers that has kind of gotten out of the catalog so you know I'm I obviously think it like a Sears or.
Victoria's Secret and I think even come in your face Crate & Barrel me over Tire their catalog at one point but then at the same time you see a lot of.
Companies including digital native Brands adopting.
Catalogs as a marketing channel and so it you almost have wonder if some of those Legacy cataloguers missed the boat by turning them off when you know maybe there was just a way to to evolve them.

[22:08] I'd be.

Scot & Bryon: 
[22:09] And we started when you started keeping track of it where you know where the 90-day. Exactly you had some major companies such as Victoria's Secret they were out of catalog.
Other companies saying we reinvent you know we're investing in and doing more so there really you don't normally you say okay there's a herd mentality one way this is where it's you know the really isn't,
people argue no finding their own past but Summer Valley more summer mailing a lot less.

[22:35] And Scott do I have it right isn't Amazon even doing some catalogs and some categories.

Scot & Bryon: 
[22:42] Yeah yeah I've seen them experiment usually do a holiday catalog now which is kind of highlighting some offerings that are good gifts.

[22:49] Yep in Bryan I be curious the so when you talk about.

[22:55] Digitally infusing the catalogs I think of sort of two things.
Obviously in a digital let us know our audience a lot better and Target are audio so I better so I can imagine using digital to you no have a higher hit rate and get more of those printed catalogs in the hands of the right people and fewer.
In the hands of the wrong people but I also would be curious about sort of Prince.
Two digital interactions like either their features you built into the print catalogs now to make it.
Easier for someone to to make the jump from the printed page to the the product detail page or or is that not important.

Scot & Bryon: 
[23:36] But it's definitely important I mean we've you know over the past couple years we've tried out a lot of things you know we've done some basic you know,
when I call you now.
Barcodes what not you know when you have the codes in there that okay those were going to be the next stop where you can actually just Decor scan it and have the reader and instantly go to the website.
We've also had different experiments in this some of these were great learning where you could pick your phone hold it over the catalog and actually the product reviews with Sprint.
You can see the product reviews or if we had a couch in Ocala lots of limited space so let's save your show the couch and two colors you can hold your phone up to that page and it instantly scan and the other couches you could get,
so it's done that you know and we'll try some other experiments.

[24:29] I really think we've reached a point where you don't need the coach people saying okay you have this physical catalog then here's what you need to do to get online or here's what you need to do if your phone people are at a point where they're doing it anyway.
So in terms of actively trying to dry them online with kind of said hey you know what we're not trying to drive consumer behavior when I ride in that way.

[24:54] Michael O'Brien listener the show in any kind of heard us,
talk a lot about the Amazon impact out there and,
what is the best way to defend yourself from that is to make your own products you haven't heard it yet but the episode before this one was a deep dive on private label which is a strategy that that everyone's really employing a lot of people feel like even Amazon Whole Foods acquisition was driven by a desire to have a deeper private label offering and grocery so you guys are in an interesting position if I understand it correctly I think,
bus your brands of Lee the manufacturer and the brand the seller of the brand it is is that correct.

[25:35] That's correct but the majority of what we sell all proprietary Goods.
No we do still at the big differentiate or I personally believe this in that you know it.
It gives us now more permission to generate brand Authority and connect with our customers so it also allows us to do a lot more with either you know product customization because it's all under our control,
so it's something you know that we've been firm Believers in and I personally believe it that you know the worst thing you could do is become commoditized.
So I'm doing our proprietary product and then I'm looking forward to listening to your next you know that the cell before this when it comes out but is,
one of the ways that okay if you're looking to compete against Amazon or any of you know any of the other you know larger big boys out there think it's key,
so these brands have been around since the catalog era has if you guys done explicit things with digital to kind of,
accelerate that Loop because some of the newer generations of Brands like a Casper of bonobos Indochina you're one of the nice things about being born digital is you get that real kind of customer feedback very quickly because there's more of a,
put it out quick and get feedback Rose I can imagine the catalog world you know what let's say 15 years ago it would be more of a you know,
some of the product to do testing put it in the catalog and then probably takes 12 to 18 months to get any feedback is that something that you guys have felt in your brands that that your.

[27:10] You're able to close at Loop faster and innovate faster I mean that it's a great that you know part of the challenge always are catalogs is the lead time.
actually got things in there so one of the things of course is scaling back okay the knock knock the number about the types of promotions you put in catalogs cuz you talk about being responsive to,
the market needs and business needs a little tough you're putting an offer in a book that you know may go out okay 3 months from now that's going to be off.
Doesn't mean it's not done so that's one thing where you can you know we're gaining more flexibility on mine as well as in the product reviews and then you know that.
From Prague reviews from product feedback from customers even though I may be in the book we're taking that and wearing you know where it integrating work or messaging on the side about the Prada.
So you know we still have again at Heritage we're okay it's still going out there ahead of time but we already know part of it is gaining learning from what some of the digital natives are doing and you know it's family.

[28:15] Yeah, see it flipping where,
and I bet now you could probably you know let's see you have a catalog coming out next spring you're probably planning that one you do a bunch of digital quick things to test that out now and then you know maybe take the winners and put them in the catalog that is that is that kind of inverted with with the evolution of e-commerce.
It's definitely something that we're exploring and yes it is I mean that's where it's great we're okay you could still.
You could still have the print medium that has that lead time but you're able to accept feedback before it goes in there and it's involved in some of the older models,
that had a catalogs get put together and you know what needs to be in them it's really I mean.
That and I really trick it's the shift you know for merchandising as handsome as a whole.
I know that's come up you know I'm different episode and you know the kind of merchant you know the merchandising Prince roll that that's a ball,
now become much more data-driven and you know you use much more real-time feedback and all that are aspects that we.

[29:22] Interesting and you had mentioned that some of the products that you guys make our our customizer personalized for the individual consumer do I have that right.

Scot & Bryon: 
[29:32] Yeah yeah we've been we've been doing it for a number of years and we you know of the past couple years has really been expanding it you know,
because the point earlier about okay if you're going to differentiate one how to differentiate it from Amazon but I know also how to fit the needs of the consumers,
in the consumers really enjoy you know have a lot of trust in Our Brands and in and enjoy them but they also like,
feeling that heavy I have the ability to make it my own Stafford's ample at Ballard Designs which has,
very strong ties to the I'm designer Community with built-in house configurator and this configurator and you know you reviews,
be able to build it where you can have a chair and maybe put the seat collar now you feel that you know you could configure on some,
found my chairs at the 12 different configurations now heads this color.
Alexis color of the you know the chair front and back the welts the seat skirt the chick I'm kick plate you can have all of that customized to it so one of the things we learned as hell you know.

[30:41] People are fat enough fascinated by using a stool or actually able to also expand the use of it in our store so that every Ballard store in their Design Services Center the configurator gets a lot of play You & Me now this is cat time,
really taking it to the nth degree cuz of course knowing one thing by the way you learned at least I learned from this as I can make some really ugly chairs so not everything,
you know how to volunteer to have me come in and do it and waited the three of us have a competition one of these days and it tool who can make the worst looking one but you know we also take a step back and we do a lot even just the basics of product monogramming.
Across all of our all of our Brands we ask you know we do it all in-house there are really strong.
Personalization Center within our DC and we also been expanded to it they stores that within some of the Ballard stores.
Now you could also in-store monogramming.
You could buy a tote there and then go and instantly get it monogrammed with what you want and we were able to turn around like with the recent Star of course hurricane,
you know the first I hate you stand we went in and within 24 hours I mean two teams here that a fantastic job,
wrabel to create customized totes saying okay this is you know it towed for Texas program purchase the toad x amount goes to,
helping a local areas that were in pack,
and you know what that was from a combination of having that monogram and personalization capabilities as well as a team that's always thinking okay how can we pick up products to the next level.

[32:17] That's very cool that we talked several times on the show about that that person was a ship being one of the good ways to to combat Amazon in particular you know it's probably not a perfect note forever but but certainly like.
You know that.
Customizing the product before you ship it to a customer negates a lot of the advantages that Amazon has with the the huge number of fulfillment centers that don't have personalization capabilities.

Scot & Bryon: 
[32:45] Yep and it's also I mean customers you know you still want to get it there as quickly as possible.
Johnny Maddox fan of a custom shower at least this week maybe I'll change in another 2 weeks they're not expecting it to be delivered in 2 hours.

[33:00] Yep.

Scot & Bryon: 
[33:01] Because they recognize what goes into it and they're all so you know there's different price flexibility you have with that.
So you know I know and I'm sure it's going to shift over time I was joking before that there will be no hiding expectations.
Dodge customization is Major strategy for us.

[33:19] Cut in migraines customer expectations rarely ever get lower they do it's not for a good reason.
The the other great thing about precise product though is you probably don't accept returns on that right there turn right it's probably zero.

Scot & Bryon: 
[33:35] Exactly I mean they're always circumstances but no matter what your name is for mothers out there almost customized products the return rate drops tremendously on it whether you allow it or not.

[33:48] Sure I totally get that and I mean.
But I do feel like people sometimes underestimate what a big part of the economic equation returns are in most e-commerce businesses so even when you just.
Dramatically curtail returns that that is a huge economic impact on you know if and when a company can get your profitable in e-commerce oh I certainly like that.
That Trend overall I wanted this sort of flip.
The personalization question for a second though with most people we talked about personalization we're not so much talking about,
personalizing the actual product we're talking about personalizing the user experience of shopping for the products and we talked a little bit about that in the discussion,
but where where do you guys sit in the whole spectrum of personalization are you doing some interesting things is it soda on your road map.

[34:45] You think it's worth it.

Scot & Bryon: 
[34:46] Yeah actually doing doing personalization for a while and you know we,
we've been doing it in and what always fascinates me about is that if a company is doing it really correctly a lot of times,
individual doesn't you know why they don't realize it it just hard to tell personalization unless you know what I do in my spare time if you have enough five different browsers open keep on hitting different categories On fight to doing different things and see if the sites about,
what your behaviors are but we you know it,
different brands of the brands we have you know on the website you go to the home so you can go to the homepage and after a couple visits it actually,
call Paige Cadet personalized that we break it up into dista sites broken up into different if you know whether you called Widgets or different components,
where Venice is you know some of this is basic wear if you're coming from you know a Colder Weather climate,
we're going to show you different products but then that also could extend into what content you see at the ideally if you doing this right where we're also shooting,
if you want to extend that until k then the kind of messages and personalization of people get on the back end if they're calling in to the call center.
Or if they are also you know what day I'm outbound marketing materials that they got.
So we've been doing a lot of that you know the way I usually say it is we've gone a lot better.

[36:18] Personalizing the individual The Experience excuse me at that point in time for that individual in one channel,
where we see the evolution of that is okay then recognizing them on their mobile phone and doing the same as I said when I called to the call center they should have that same experience.
Part of it is you know that challenge with personalization enough spoken to a lot of others about it is actually.
One prioritizing what you want to do but then also had a scallop.
You know it does require more creative resources they have to make an investment in it and it and you know it.

[36:58] It's rare you do personalization in something that you know your metrics just jump off in your the man jumps up it's a lot of singles and doubles.
So you need to do a lot of them and they're you know and just hit a lot of the users to send you know in jail personalized ways and air companies out there,
you know do a great job Zulily does a strong job with it where are you know,
babe I forgot the exact number about how many you know personalized home pages of personalized emails get created every day and I do feel that again it is also the interact with the end-user customers going to start it's going to become table Stakes.
Companies are going to expect that personalization it's just that I think it kind of got over height.
You know really hasn't lived up to its potential yet but you know well of course we haven't spoken about it you know AI machine learning I think that's going to lead to really be the next.
One of the next Generations of what e-commerce is and I'll be around personalization.

[37:57] Yeah it certainly I mean a basic premise is that that machine learning is the way you can you can you can scale personalization particularly when you even get into a I doing content creation.

Scot & Bryon: 
[38:12] It's at if that's true point.

[38:14] It it's interesting like the.

[38:17] Because personalization is such a big word like they're such a broad spectrum right like you could say hey we did a personalization on our site.
And in that could mean you set up a data Lake and collected way more information about all your customers than you ever had before and produced you know thousands of a torn to pieces of content in are giving everyone a bespoke experience or I can also say.
You know you added the words welcome Brian to the homepage right like.

[38:43] And so it's it's it's hard when people talk about having done a project at you and what was the ROI like there's not.

[38:49] It's not a binary thing like I didn't have ratings and reviews and now I do or you know I didn't have 360-degree Prada quotations and now I do,
and you can you know it turn it on and measure the effectiveness.
Personalization is it in my mind is a spectrum minute it's therefore much harder to measure the the ROI of personalization overall although.
You can sometimes do it for individual tactics.

Scot & Bryon: 
[39:16] Right exactly knows individual tactics and normally do singles and doubles and you know I've written a number of round tables with all the retailers on personalization,
you know it always fascinated me because you'll read whether it's our star Gardner you know any of the you know anyone that's doing their annual summations you know.
Top areas that people wanted want to develop in the future next year we're going to spend money and personalization is usually up there but then when you get them,
with the retailers you know on the ground sit around the table and you ask a question okay on a scale of 1 to 10 where is your company,
you know on that where you view where on the road map of personalization I've never had anyone say higher than A3.

[40:03] Yeah.

Scot & Bryon: 
[40:04] And I'm sure you see that all the time when you're with clients that one it's a definition but there's just a lot of dish in there but it hasn't really taken flight yet.

[40:16] Yeah and I guess I would also even say that there are people that have like achieved a meaningful amount of personalization and it increasingly.
Personalization just for personalization sake doesn't automatically win right and so the fact that you communicated uniquely with me.
In and of itself isn't compelling it's if the communication with me made the communication more relevant to me.
Then it's compelling right and sometimes the most relevant communication is exactly the same for a million consumers and when it is.

[40:53] That that's perfectly fine but the the fact that like.

[40:59] You said that a million different emails if it does it's something that's different in those emails doesn't make them.
Resonate better with the audience is kind of a wasted effort and with you know sometimes we see people doing personalization as sort of a checkbox exercise where there you know.
They're hell-bent on doing some personalization so they do something and you know they they can claim that it's more personalized but they haven't necessarily you know solve the problem for their customer.

Scot & Bryon: 
[41:27] I know tire and part of it is then tearing at personalization in an ongoing way and that's why you know the person could sue the email goes to the landing page and it could be personalized to them but then when they're throughout the rest of this site may not be.
And that's where the whole experience you know it's not Barren you know maybe I'm older optimistic on it I think it we are going to get there.

[41:50] Again that's going to be in next week for.

[41:52] Yep I'll tell you one that drives me nuts and I'll pick on a company that's probably generally well-known for personalization that are,
our friends at Adobe right so so that you know they do personalized retargeting advertising like like a lot of B2B companies and and you know so there I'm sure there's a marketing person there that would say hey we have a really effective personalized advertising campaign.

[42:13] And.
So I get personalized ads on YouTube from Adobe and on the one hand that's pretty impressive but on the other hand most of those add show up when my two-year-old son is watching a.m.
Like some kind of cartoon video on YouTube and.
You go hey you know what they yes they personalized that that has something unique for me in it but they completely missed the contacts like why are they buying an ad trying to sell me Adobe marketing cloud in the middle of content design for 2 year olds.

Scot & Bryon: 
[42:46] And that's by that's good trivia it's tough.

[42:50] Yeah yeah I'm bi I'm not making fun of it because that was it you know any easy easy solved but I just I feel like that the state we're in right now is it still early days and getting all this stuff right.
I do want to go back I'm neglected one question we are talking about the personalization of products and you mention the the the configurator that use a ballad for the chairs,
did you have to build something unique that you guys use or were you able to buy some sort of off-the-shelf.
Configuration package and then adapt it to your your products.

Scot & Bryon: 
[43:23] We we we looked at a number or item number of either off-the-shelf products are working with a third-party to build it and I've done some of this again earlier Mike we can figure Raiders and one of learning,
back then was the toughest part about building a configurator is an ongoing support.
As products change read so you know your systems change how you actually keep keep it running so based on that when we looked you know for the Ballard Designs one we decided to actually build it ourselves.
Cuz you wanted specific ties and sir are back in systems who wanted a specific URI for it and for ongoing maintenance.
That was to know something for you third parties for but that was a team here to felt.

[44:11] Cool one of the I saw one of your exact speak at a conference and they're talking about,
kind of you know omni-channel in and store experiences and the digital native,
Brands as you mentioned her are kind of catching on to this and the latest kind of catchphrases o + O which is online and offline and I feel like you guys have had stores for a while but if I call you're doing a lot more of these pop-up experiences,
tallest Tuscan of the little bit of history of of the stores monster Brands and then some of the things that you're experimenting with around other,
online offline interactions.
Some reason retail footprint a small one though for a number of years that actually no predated my company but the majority of them.
In all honesty we're not good and the customer experiences that some of them were,
outlet stores which are fine but they were they look like outlet stores with you no products dumped all over the place and again they didn't really capture the essence of the brands and it wasn't any one person's doing it's just wives.
You know a part of the business that most people did not pay attention to so a couple years ago though,
when from doing surveys and talking to a customer's we start to experiment and Ballard Designs is one of the first this it wasn't a pop up but with a new design you know a new store concept.
Focused on Design Services and you know one of the stories that.

[45:43] You know which is accurate that the present in the Ballard Designs frequently tells is that when we would go and you know we met with a lot of that people that design stores and they're well all I called Design Services that should be in the back corner of the store.
You know what I go through out of the line of sight and you know the people at Ballard this is and this is why again that.
You know the individual bran were the people that helped design the store cuz they are closest to the customer and they understood that it wasn't necessarily a corporate initiative to know that Design Services of watching porn.
African what makes us different so they put that in the middle of the store and you know since then,
and what we also want to look at his okay when we open the store what happens to the business overall and we're seeing in the surrounding you know msas are digital business also takes a little less.
Pics of Bomb Pop,
so you know Ballard that's open some stores in Roosevelt Field mall New York King of Prussia Mall Tysons Corner and we brought on you know some additional I people inside to actually run the retail business operations and,
Hickenbottom doing a great job now.
pain in front gate also by the way which it worth now testing it was Frankie just open the store and in Plano Texas brand new design concept cuz,
Macatawa green our point of view of a beer at the Rack business and cataloger to grow you know Furniture businesses at the,
now that I've grown Frankie Ballard improvements grandinroad without allowing people or giving people the opportunity to feel and touch it.

[47:18] And we Sunday our experiments and all that where it really isn't the same it's good of being there in the store that this seemed like the next and it was the next logical step.
Garnet Hill what you were referring to his they did a great mobile Boutique.
Today is kind of retrofitted a container and drove it around in South Street Seaport New York as well as about the Exeter New Hampshire and opened up the container and it was a mini on a store,
it would help educate people to what the brand wise you know we,
so when the container that we had over $5,000 to it we have local celebrity chefs we have book signings so we can Max an experiment doesn't mean we necessarily going to do it again but we also tried different you know Frontgate had different pop-up stores,
it's a lot of issues learning.
And we learn that customers definitely in a one it's amazing when you're at the store openings that people that have you know only bought from but they are mine.
We actually are in the store it is just a log fast that open and you know you invite some of the top customers in your people discovering the store and just speaking to them about what the brand means to Diamond Phoenix physical location.

[48:31] They call it the show when you said you were traveling a lot is that because you're driving that that container around.

Scot & Bryon: 
[48:37] Exactly. That's fine that's my side stand.

[48:43] Other duties as a.

Scot & Bryon: 
[48:44] My responsibilities exactly so.

[48:50] Impressive impressive.

Scot & Bryon: 
[48:51] Kids dead call at your side hustle that's your side Hustle and I know who to clean a call of course. If I need it cleaned so that we're all set.

[49:01] That's a great time to mention not only if you need it cleaned but if you need it so oil changed mobile one.

Scot & Bryon: 
[49:08] Yeah yeah yeah we we announced a partnership with Exxon today so pretty excited about that.

[49:16] Scot doesn't feel like I follow him but I totally do.

Scot & Bryon: 
[49:20] Thin line between stock and follow their Jason.

[49:24] Yeah yeah but luckily he has a several State buffer to keep him keep him safe.

[49:29] Bryon like I know in your role you get pitched a lot from a bunch of different vendors and you got all these different brands that want to,
try different things and different business users in each of those things and then like you know Scott and I are at a lot of the industry events hearing about the new things.
Help us help us create a little bit like are there any sort of new Trans or up-and-coming practices or technologies that.
That you're particularly interested in or excited about.

Scot & Bryon: 
[50:01] I've been seeing a lot more where.

[50:07] Companies that can and you know their name and some the specific ones that have traditionally come to the table and said,
hey you know we could help you with email on drip campaigns are trigger campaigns or that even we could help you or personalization that becoming a lot more data-driven.
Which excites me and now you know using data and you know new,
that would say in different ways but really trying to maximize in and they're also Focus now on how they're going to tie into your photo ecosystem which goes fast and that's been the biggest challenge you know that if we had one company that did personalization,
an email and one company that made them personalization on the site and they're not talking to each other.
It's a fragmented experience but there's a lot more of that overall I mean for the overall where I seen the future and where companies are doing a lot more if that's why I said it before.
You know I'm one hand I hate it because you know you said we go to all these different industry advance and now you know you it's rare I guess,
Eddie pitched it doesn't mention some kind of machine learning where but I do think it's going to go over that high curves sometime soon but how we intelligently going to recognize,
and I promoted and personalized experiences whether it's emotions Smyrna tractions inventory pricing,
a lot of companies that are doing that now and it's still in its beginning stages but in that way I space.

[51:38] Very interested in and you know just looking around that okay you know.
For Cornerstone in for Our Brands what is the right way to do that immediately I don't think we're at a point yet where I would recommend going to go all in on that.
That you know would want to definitely test it first then that's what I also love it at the portfolio model here is that you know what we are normal,
standard operating procedure is doing a new initiative or finding a new company like you were mentioning earlier its try it on one brand prove it out,
and then actually roll it out to others.
So I mean that other aspects are augmented reality we really haven't spoken a lot about but you know I mentioned it earlier that's not the same as being in the physical store but you know we launched and try with ad,
I've got about a year ago now and the technology finally has reached a point where are you know beyond just Apple adopted it,
states where you don't need markers anymore I mean you got to make this as easy as possible and just holding up the phone and it working is great so.
That's the one area I guess.
The last one if you know I got a whole other our discussion on and this is what I mean we don't have that sell for I'm not even going to pretend to myself that I do it's just.

[53:00] I look at it like okay.
Five years are even ten years out it's so much and you've spoken about the somewhat about what you mean you know that there's going to be disintermediation in that things are going to be come between our brand message and the customer.
We're going to lose some control of that contact and we're going to lose it to you know voice space services such as you know how to sign in Alexa Google Facebook.
Yeah you at all so I no mention on an earlier podcast about you know what Scott Galloway talking about the four.
They're going to control it it's going to have a fundamental impact on Brad's and.

[53:39] Companies that are I think they're going to start to ignore you know partners and vendors as they start to learn to how to solve an address those that was going to be really interested in.

[53:49] Yeah that that certainly is a a big disruption I'd be slightly curious so so we've done a rvr deep dive and I.
At a high level.
Like I think we feel like we are super interesting in the entertainment industry in the gaming industry but it's certainly overhyped for e-commerce.
That you know a r has some really interesting in Store applications and in-home application but almost.
Every vendor in the air VR space for Commerce,
the demo use case that their nana laying is your products right like it's it's the sort of Home Products and Decor products in in you know products that are customized and require some visualization.
Like does it feel like even in your space it's sounding like you're saying it's maybe even still a little earlier and we're just starting to get to the point where it might truly be viable.

[54:44] Is that.

Scot & Bryon: 
[54:45] Oh I think that I think the technology and I mean.

[54:48] Technology is Rihanna's is there in 2 years ago where I was at you no talking at companies that would provide a our services and I like always easy to use the customer just go to the website and imprint.

[55:05] Pay back page for the wall and the phone of that page and then I'll be able to see it and I'm like you talked about friction.

[55:14] We've eliminated the Scotch tape from the process now.

Scot & Bryon: 
[55:17] So exactly from now and that's what it was yet to see steps and size you know and when,
we went out with you know partner with a company and launched it and it was just really signed out it was really fascinating to me because we would test it out with users and we're going to our stores and show it to them and what really frustrated people as they kept on,
wanted to take their fingers you know when do the pinch move on the product cuz they're like hey I'm trying to get it to fit in the space and it won't fit so I want to grow it and shrink it,
the doll notion you can sure you know it's size on purpose to see if they can fit in so you know you were trying manipulated which just didn't work but.

[55:59] You know it gets a we found them you know what others are fine and I think you got a lot of you know customer interaction with it but you know and I do we did actually see them more customers to know what he'll conversion rate.
You know there's a lot more testing to be done because okay I didn't know those customers were going to convert anyway cuz they were highly engaged so I think that.
It's definitely there and you see all the way you know every really every home goods company now is coming out with it that.
You know what even I mean house did it you know what I think it's great cuz that is multi again multi products in it I I think that and you know what I agree that VR is going to be you know it.
Love Stocker Thrift we have here and everything it's all great but free Commerce application still a heart to you.
The ones that I've actually experimented it that would be are a little wild on the road but they are is going to be here I think sooner than people think.

[56:56] Yeah and one thing that has changed since the Deep dive is both Apple and Google have released these very robust.

[57:06] Trap eyes in their operating system in so it's a good news bad news thing it actually makes it a lot easier to develop.
AR applications in there much cooler cuz the programmer doesn't have to do all the.
The heavy lifting they just have to Define their products and stuff like that so I feel like that's what it's going to be a huge enabler for AR the downside is from the time that Apple and Google like released.
Stuff in their newest technology it still takes a long time before it's in every consumers hands right so you know.
Apple gets most people to upgrade the operating system but it only works on the the phones that are one year older or newer and Google like nobody ever upgrade the operating system and said they're not getting.
The Google AR kit until they replace their phone so it if you like we still might be an upgrade cycle or two away from from those.
Does kids being Broadway to play but when they are it's going to be much easier and cheaper for developers to add those those kinds of features and I feel like that could really be a.
Enabler a lot of this technology for for at least 4 retail applications.

Scot & Bryon: 
[58:14] Yeah I feel the same way me before it was honestly was a novelty.
Oh cool you could do it but it was more people could use it it's going to start to grow with your point when the and I just.
Okay with the adoption rate of the newer you know phones that it's going to be there but it's just easier to use the friction is much more minimum wage now.

[58:36] Yep and I think we know from almost all experiences that when she get that freaking out it makes a big difference in an adoption so,
so hopefully we'll see some interesting stuff there in the future but Brian that is going to be a great place to leave it because it's happening again we've wasted a perfectly good hour of our listeners time,
so I really want to thank you for joining us you know it's it's been a long time coming but.
Totally worthwhile and we wish you all the best with Cornerstone and look forward to following your success I want to remind listeners that they're always welcome to continue the dialogue on our Facebook page and O'Brien hangs out there all the time so if you have any questions we can cajole him into participating as well,
and of course if you love the show we desperately need that 5 star review on iTunes if you hated the show don't don't feel the need to write an interview at all.

Scot & Bryon: 
[59:29] Crack guys thanks so much again I really really really enjoyed it.

[59:34] Thanks Brian we really appreciate your patience on scheduling this so what kind of used grit and gutter done and really appreciate you taking time out of your busy day to share your digital experience with our listeners.

[59:48] Until next time happy commercing.

Oct 12, 2017

EP103 - Amazon Private Label Deep Dive

This episode is a deep dive into Amazon's Private Label activities:

  • Framework for Amazon Private Label Brands
  • Amazon's History in Private Label
  • Advice for Brands and Retailers
  • Update on Amazon Private Label Marketshare from 1010data

Special thanks to Samir Bhavnani and Tim Wilson from 1010data. for providing their data and insight for this episode.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 103 of the Jason & Scot show was recorded on Wednesday October 4, 2017.

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:


[0:25] Welcome to the Jason and Scott show this is episode 103 being recorded on Wednesday October 4th I'm your host Jason retailgeek Goldberg as usual I'm here with your co-host Scott Wingo.

Scot & Guests: 
[0:38] Hey Jason and welcome back Jason and Scott show listeners.

[0:55] Today we're going to continue our very popular deep dive series,
and jump into something that has really caught on in the last 6 months there's been a lot of excitement around this so it was sparked by Mary Meeker really kind of putting a bright Spotlight on this,
and that is the topic of Amazon private label,
Jason I know you have thought a lot about Amazon private label and I think the the real meat and potatoes is know what what I'm hearing from brances there's a couple of questions there,
really grappling with and we're going to answer this questions and give listeners some new data that,
this the first time you'll hear this data thanks to a gas it's going to be on the show but before we jump into that I know you spent a lot of time thinking about this help give our listeners kind of framework for for how to think about these private label offerings are so many now it can be kind of confusing so as to how do you kind of sort them in and organize them.

[1:52] Yeah Scott well I don't think there is one perfect framework at the moment so I'm using a number of different dimensions to sort of think about these and slicing and dicing in different ways and so there's there's sort of for big.
Big Dimensions II think about their 5 depending how you count the the first one is,
Prime exclusive versus non-exclusive product so there's a subset of these brands at Amazon's offering that you have to be a Prime member to get sew-in apparel that something like button-down or good threads in in cpg that something like Mama Bear or wickedly prime or happy belly,
and so you know here.
Obviously there they're partly training use these private labels as an extra inducement to sign up for Prime and.
And more and adding more value the prime memberships the II framework is is.
What we call Amazon branded versus non-branded right in so of this ecosystem of.

[3:00] You know now over 50 50 different brands that Amazon has has invented a handful of those five of those.
You can look at them and immediately know it's an Amazon product because they they would either have Amazon in the name are there so closely associated with Amazon.
And heavily advertised by Amazon that is very Queer as an Amazon product so that's.

[3:21] Amazonbasics that's Echo that's fire that's Amazon elements in Amazon essentials.
I'm but the overwhelming majority of these Brands and Amazon's creating.

[3:33] It seems that they're they're going to reason with extensive links to not make it obvious that it's an Amazon brand and have it feel potentially like.

[3:41] A standalone National brand in sew-in Apparel in particular they've created a bunch of these brands.
And this is things like Scout and Ro James and Erin Waterton Road those those sorts of of brands.

[3:58] So the 3rd framework will uses is to think about them in the different categories and this is the the normal product taxonomy like in a lot of these products fit any Electronics category their increasingly are products in cpg.
There's there's definitely products targeted specifically a baby.
There's a bunch of apparel and now there's some health and fitness and Home and Garden.
And in each of those categories you're you're seeing some of the Amazon branded product and sum of the unbranded product.

[4:31] You pointed out a couple to me that that we're new to me.
You know like there may be even sub-brand so in fashion you're not answering to see like outdoor a fashion like Denali as a specific sub brand in the in the fashion category.
In the last category framework that we use is what I called basic versus luxury and said there are a lot of these products where their biggest value proposition is.
That they're at and appealing price point for a good quality product the matches the product you're used to using.
In tow light apparel is the easiest way to think about this these are the that you know,
the standard uniform button down shirts that we wear in their in their case would rename button down these are like the basic t-shirts and all all these sorts of things and as you talked about on a couple Brands like.
Amazon sort of gives you three tiers of quality you can get a.
An unfamiliar you know typically like offshore products from China at a super low price point.
You can get a amazonbasics product at a low price point,
or you can get a luxury branded version of a product at a higher price point in so a lot of the Amazon products are playing in this sort of basic category but increasingly we're seeing Amazon,
to get products that are moving up market and have their own value propositions that are driving their own demand and they're not just a.

[6:10] Value proposition you know for the same feature set that you can get from a national brand some case they're there differentiated quality and certainly like Amazon Echo would be the.
The prime example of a of a luxury product that's sort of the the category leader with its own unique feature so.
You know you can come use any of those Frameworks to slice and dice all of these different brands and as as time permits what you know we probably need to create some sort of the infographic to put in the show note to make that more clear.

Scot & Guests: 
[6:43] Yes funny you mention that way you actually have to if we happen to have one so just a little history that makes that framework I think that's super helpful.
The background on Amazon private label,
probably the first one that I can find documentation of is when Amazon watch Kendall that was the first time they came out with a product and its really funny because prior to Kendall,
Amazon was notoriously famous for not running TV ads day back in like,
03 they ran a series of TV ads called the sweater women wear these guys singing this people singing Christmas carols by a fire.
Stop doing that when someone ask Jeff Bezos why he said we want to take every marketing dollar and put it into,
free shipping and lowering prices so so then kind of for literally 5 years they didn't really run any TV until they came out the candle they started to do TV and more.

[7:39] Typical brand advertising it was interesting in 09 I was so I blocked I've been to this Amazon gig before it was his hip and.

[7:52] Weighted hip now.

Scot & Guests: 
[7:53] I guess I guess so well there's podcast now so there you go before Matt and I found this product called pins on and I couldn't.
You don't figure out what's going on and it was supposed to go today on Amazon so they're kind of pushing it as likewise Amazon pushing the spins on thing so then I kind of went into the bowels of the trademark Registry and figured out it was owned by Amazon,
oh my God this is a new private label so I just worked out a quick blog and then it actually got picked up by lot of press and then I,
I kind of using that same method I found there was a list of six Brands three of them were actually just calling to reserve so they were trademarked but had never been utilized the other three were Strathmore in Denali,
so I kind of stumbled on and then over the years I've watched this pretty closely so so for me and there's actually a lot of Articles coming out now about this or people using that same system in so there was one in court so they're like you know Amazon has,
800 private labels waiting in the wings and so that's a little tricky because,
to me you don't I don't think we talked about it as a private label unless it is on the site and live and there's more than one product for sale another kind of checkbox for me is does it have kind of a logo,
since that point just kind of notes,
over the years they've done more of this and what we hear from Amazon insiders is this private label group kind of outside of,
Kindle an echo is one of the hottest groups inside of Amazon so they're hiring massively they have plans to ramp up private label in pretty much every care.

[9:30] Category so so here's the private labels we know today and I'm going to start with a,
The Matrix taxonomy so so Jason you introduce some slow start,
the ones are good too so we'll go through Prime exclusive first and then not prime exclusive or are generally available and then category so it would start with the things that are prime exclusive and,
that the most they have in the prime exclusive bucket is fashion so they have Amazon essentials,
blessings likes men's shorts at highly recommend those things of that nature. Kind of Basics but down you mentioned,
Ella Moon good threads James and Erin is 22 of them have Row in the name Lark and Ro and Scout and Ro.
May which is Mae and I think that's lingerie only the UK north 11 and Paris Sunday.
There's a new one that's out called the fix and I believe that is prime exclusive,
then the other bucket of prime exclusive private labels are in cpg there you have Amazon elements and I was getting elements and essential elements is fashion,
she did it already Essentials is fashion elements to cpg happy belly Presto Mama Bear and wickedly Prime,
then in the broader categories so these are just generally private label that are not prime exclusive amazonbasics which is the popular accessories to start as Electronics accessories and we've seen,
you know things like a bocce ball sets and their stickers Amazon Basics is exploded past that the simplest kind of things.

[11:07] Denali what you mentioned two dice funny so a lot of time still you can tell they test these things so $2 in strathwood of the ones I've been following the longest stressful it's been pretty true to doing kind of outdoor furniture kind of stuff,
it only started this tools so it's kind of a Black & Decker competitor and tool sets and it's kind of pivoted you mentioned it to function and kind of outdoor.
Pinzon has been there that's a home,
Home Goods kind of sheets and those kinds of things Pike Street actually had one they retired that was a coffee brand it had Pike in the name as well I'm glad he's our have a nod to Seattle and they're so like Molly the mountain you see in Seattle Pike Street obviously,
and then the journey available not prime exclusive fashion private labels are Franklin and Freeman Franklin Taylor.
Iris Lilly that's a weird cuz everyone else has and and up down just two words together Iris Lily and that's exclusive to London and Society New York.
And those are kind of it will put a graphic in the show notes that's part of this Amazon scape I did where I tried to kind of organized these things and capture the ones that are actually the kind of meat,
criteria of you can prove its Amazon,
through the trademark Registry there's actually something more than one SKU for sale and there tends to be a logo associated with it so it seems like at that kind of.
Raises the bar on on what we included here but I think it's the right way to do it.
So it would be great if Amazon told us exactly what their sales all these things are but.

[12:38] Amazon satorius Lee secretive and they disclosed nothing about this there are two data sources out there though that we watch Pretty closely,
and you're the instruction I've talked there's all kinds of different ways these companies collect data and,
so one of them is one click retail and I believe it one click retail does is they have some ability with Amazon either directly or through their brand Partners to get into the,
that the data that's available to vendors and the aggregate that anonymize it and then look at some insights from it,
so according to them just recently here and the first week of October they have said that they believe Amazon private label has has done 300 million so far this year so if you feel kind of through the first nine months of the year in e-commerce and you've done,
300 million then it's probably safe to almost double that so because of holidays and call it 500 to $609.

[13:34] They don't Unfortunately they don't tell us which of private-label is in or not in that but there are they do kind of didn't break down the top categories and in this category as they don't include.
Kindle an echo so I'm kind of assuming that that 300 million number is does not include Kindle an echo so that's the the ones I rattled off but not kind of the devices that Amazon makes and manufactures.
So and then later in the show we're at little teaser here to make it worth your while to stay around we are going to have the second date of Ender on the show as a guest for the Steep dive to help us kind of really,
drill into this in and see if they can shed some more light on it.

[14:14] Yeah and I know Scott it's been a labor of love for you to keep the,
the infographic perfectly updated of course a lot of listeners will will know that Amazon very famous we added a new private label in the last month which is the Whole Foods private label so that's whole 365 from Whole Foods is now being.
Seemingly someone successfully sold on Amazon as a new Amazon private label.
And I think there was a recent retail dive article that essentially said they they sold 16 million of the 365 in the first month and you know it sent you a reply chain problems and sold out of a lot of their guts.

Scot & Guests: 
[15:00] Yeah I think there's some data I'm not a grocery expert like yourself but isn't there data that that that actually for Whole Foods it's a pretty material part of their sales I think I've seen anywhere between 20 and 30%.

[15:15] Yeah yeah and I'm not exactly certain what the breakdown of Whole Foods is the.

[15:22] Like at the top end of a grocery stores there's there's folks like all the annelida land and Trader Joe's that are like 60 to 90% private label,
when you work at a traditional grocery store like a Kroger or Walmart you know they're there somewhere in the twenties and so you know I think Whole Foods is a little higher than a traditional store but but not in the in the Aldi's base yet.

Scot & Guests: 
[15:47] Okay cool before we got our guests on I think the questions that come up the most I just want to kind of,
pink I'm off you just to get the conversation going here so a lot of this gets started because of that,
battery data that's out there that shows that Amazon essentially came out with a private label battery this is like you know,
typical household batteries like double a triple a CD in that kind of thing and it quickly became the number one seller,
so it's a really kind of Sheriff from Duracell and Energizer in those kind of guys so if your brand out there,
and your help as we talk on the show brands are in a different variety of of their current Amazon strategies summer taking a deep I want to do everything so we had for example dorel juvenile while there,
they are doing everything they can on Amazon so that's kind of that I'm going to jump jump into the deep end of the pool and then we have folks dipping their toe and then we have folks there just kind of sitting out on the sidelines when it comes to private label what's your advice you offer to France.
Wooden Amazon.

[16:52] Yeah well so busy brands of the super broad term.
You know I'm I'm answering in terms of the kind of categories were talking about on the show tonight so food and cpg and health and.
Mostly the basic sides of a parallel so you know if if you're talking about Gucci is a brand my answer might be a little different.
But but in general brands have two problems have the problem they know about in the problem they don't know about with Amazon right like the probably know about is.
Amazon is a super-powerful fast-growing platform it's now gotten in their space and making products that compete with him right so so Amazon being a private label competitor or a.
Or you know I often talk to them about being at 8.

[17:44] Brandy manufacturer competitor as opposed to a private label because many of these these products that have a much higher value prop than just a private label.

[17:53] You have to address that the problem that a lot of Brands aren't aware of him and certainly should be aware of is.

[18:00] People just shop different digitally in digitally has fundamentally changed how people shut up and huge.

[18:07] Proportion of of North American consumers.
Are using digital to help them make purchase decisions and so you know Amazon scary both because they're good at Selling Stuff digitally and they're making their own stuff to sell and in so in general when I talk to her and I say hey.

[18:25] First thing you need to learn how to do is be great at selling digitally and you should use Amazon as an example right and so you know in almost any category you can pull up the.
The Amazon label version of their pdp's and compared against you know who you think of is a market-leading national brand.
And you'll just see how much richer and better executed in much better content is on the Amazon PDP so those are really.
Templates for how to sell digitally.
And if you're Brandon most of these categories were talking about I do believe you need to be on the Amazon platform that's where telling the consumers are that's where bunch of the money is.
You know depending on how many Prime members you believe Amazon has does in the most locked in consumers in the marketplace and you're only going to reach him.
If you're on the Amazon platform so even though animal Amazon's a friend of me in general.
I think you need to be on that platform and I think you need to be using that platform to build your chops around digital merchandising and digital selling.
And so I think that certainly a key you know part of consumer shopping different digitally.
You know you need to be thinking differently about how you differentiate your products in in the store it was about the point of purchase.
Packaging in the displays in your promotion strategy International television campaigns.
In the digital world it's a lot more about trust transparency social proof there's a lot of new currencies that you need to start developing and there are things.

[19:57] That you have competitive advantages on because you're this well-known will use National brand so it should be easier for you to collect ratings and reviews and develop social proof then it is for a net new brand launched by a.