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.
[19:02] 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,
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.
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.
[1:02:24] 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.
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.
EP0105 - Stitch Fix IPO Hot Take
This episode is a hot take of the Stitch Fix IPO Filing:
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.
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.
[8:05] 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 diapers.com 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.
[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.
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 show.com 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!
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,
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 shop.org 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,
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:
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.
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.
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.
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.
EP103 - Amazon Private Label Deep Dive
This episode is a deep dive into Amazon's Private Label activities:
Special thanks to Samir Bhavnani and Tim Wilson from 1010data. for providing their data and insight for this episode.
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.
[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.
A retailer that no one shot from before so I certainly think there's opportunities to improve your your digital merchandise saying that leverage your your core strengths in.
In doing all this I think it's super important that you have a direct-to-consumer.
[20:29] Portion of your business so if you already selling direct-to-consumer you ought to be using that channel as your learning lab you ought to be doing constant s and evolution and different.
Content in in.
Different presentations to really nail how people want to shop for your product digitally if you're not in direct to consumer.
It's time that you start doing some direct-to-consumer pilots and I'm not saying that because you're going to sell a huge amount of direct to consumer product and make a fortune in most cases your not but you need.
When you sent through those wholesalers in those retailers you're basically disintermediated from your consumer and in this new digital world,
you need a direct relationship with this consumers to understand how they're shopping for your product and what is resonating with them and what's not so you need a direct-to-consumer channel if for no other reason than to be,
a learning lab as you figure out the best practices for for all of these things and then lastly I'd say hey while you're losing sleep about your customer shopping digitally and buying the Amazon version of everything,
don't forget about the other thing you should be losing sleep on you know which is this is coming wave of Auto replenishment and just fundamental changes to the way people buy stuff and there's tons of stuff that consumers Buy.
[21:44] Explicitly today when they run out of toilet paper do they run out of dish soap that they're very likely to get implicitly tomorrow either because there's a sensor in there their toilet paper roll or a camera in there kitchen or,
microprocessor in their in their dishwasher and you really need to be thinking about,
how you're going to preserve your current market share and hopefully grow it in a world of Auto replenishment when a lot more of those decisions become.
Implicit instead of explicit so that's a lot to chew on.
Scot & Guests:
[22:17] Yeah and maybe taking it up even another level I found there's like this a rational thing,
Amazon causes so much fear it causes a rational illogical,
thinking in a weird way I'm so serious what I mean so a lot of times people say I'm not selling a brand will stay within the framework you outlined of we were talking about here on Amazon because of the,
Yep they're just going to take my data and create a private label but then I'll say maybe it's a cpg company I'll say well you're in Target Walmart,
grocery stores and Costco and your products right next to a private label it why why does it bother you so much on Amazon when you've lived in a private label land for a while but what's your,
do you run into that in like what's your how do you why are they why are there not able to rationalize heads.
[23:08] Yeah I do and again it's a devil they know versus the devil they don't I totally agree with you that it's irrational and and when you call him on it you know they have trouble articulating why it is different.
[23:22] The other one that that comes up a lot that's in that that same boat is like.
You know I always ask clients when they say hey I don't want to sell on Amazon cuz I don't want to get them my data if.
[23:33] If you're in the diaper business and you're saying you don't want to sell an Amazon because you don't want Amazon to get your diaper do you believe that Amazon's not getting a very queer to look at the overall diaper Market without you like.
You have to be a really large part of.
[23:48] Of the market to feel like you're somehow keeping Amazon from Market visibility by staying off the platform like in most cases that.
You know you're you're doing yourself more harm than you are Amazon there they're going to figure out all of those consumer categories whether you're there or not and so you know if,
you probably need to be there again if your consumer Products Company.
Amazon has 240 million consumers in the US there are 240 million households in the US.
So that's a pretty big Market to be overlooking that's like saying a bank robber and I don't want to rob banks because I don't like them.
[24:30] It's where the money is right now and so for most brands you need to be there you do need to understand that you are potentially enabling a competitor and you need to do it in a smart way,
but I think most people that are staying away do so you know partly for irrational reasons.
Scot & Guests:
[24:48] Yeah and the other one is I've given these talks about this stuff and then after someone always comes up and they say we're actually,
it's either the horses out of the barn door it's like about to leave the barn in those say don't tell anyone but Amazon's approaches to be the private label manufacturer for axe or we're actually the guys that makes a battery and how do you feel about that in,
I don't know how to answer that I can kind of see both arguments I'm curious I'll reveal kind of how I think about it but I want to hear how you think about it first.
[25:18] Tricky make me answer first.
Yeah so that's one where I generally and again there's exceptions and every Market but in general I would say no don't do that in the reason I would say that it is,
because manufacturing private label products for other retailers is increasingly becoming a race to the bottom,
you are just going to be a commodity manufacturer and your Expediting Amazon's ability to build their own customer base and test the value props,
for themselves and the best you can ever hope for is to be in a bidding war against everyone else in the world that can manufacture that product once Amazon's won all the customers and so in general.
Well well there is short-term gain and you know you can protect some of your manufacturing capacity to cut other about wise be at risk by by partnering to be the private label manufacturer that's not a way to win long-term I mean you really need to think about the shift that's happening,
every retailer is turning into a brand every brand is turning into a retailer,
and in that world if you are making products for someone else that owns the relationship with the customer,
you are never going to be in a position to control your own destiny you're always going to be you know in a super price competitive situation and it's it's just,
not something that I generally recommend for both most brands.
Scot & Guests:
[26:46] So the counter argument that I've heard from Branson in this is it's interesting is well we're going to we're going to.
Go ahead and make that because,
we want to it's a hedge little bit we want to see how successful they are and we want to learn from what they do and this is the only way we'll see sales of that item is if we're actually making it so,
there's there's something Buddy there that's kind of part of that short-term wind that I think you're talking about but then I do think that they.
Then they always say you know like.
[27:21] Amazon won't be able to visit outside of batteries but like lingerie I've had someone say well you know where the number.
Two lingerie manufacturer Amazon can't do this. They can't possibly do it and I'm kind of taking over 15 to 20 years I've heard that Amazon can ever do this thing alive,
yeah it is turned out not to be the case every single time so,
that does make me a little concerned when they kind of had the bravado that there are going people that can make this thing this widget.
[27:52] In general in this isn't universally true but like in Moses Brands you end up with two big brands that I bought a market share of number 1 and number 2 and in most markets there's an unknown number 3 that is really the private label manufacturer in in in some markets that.
That number one very often has hasn't made a decision that they're not going to manufacture private label for anyone and so you certainly see like PNG you know publicly say that they don't manufacture for folks,
the most often that number three ends up being the private label manufacturer and they do so be the reason that they're there.
Doing it instead of the number two is because they're just willing to do it for less money,
do you know if it ends up being a commodity manufacturing service that you're providing and this notion that you had some technical proprietary manage and that you know anyone else isn't going to be able to make what you make or or Amazon in particular isn't a meal of the deal with the complications in your category like,
every one of these categories has great complications and there are Technical differentiators and there are IP differentiators.
But what you say to all those barriers are lower barriers than they've ever been before and they're only going to get lower over time so that you know relying on that to be your mote um is pretty risky.
Scot & Guests:
[29:17] Yeah and um just help blisters kind of put a little bit of math on this so if I am one of those Commodities manufactures what is that like a 5% margin business certain kind of single-digit.
[29:29] Depends on the category but in most cases yeah you're thrilled to make 5%.
Scot & Guests:
[29:34] And then if I am a if I'm a brand and I'm selling through retail then that's 15 to 20% kind of a margin type business.
[29:44] Most typically exactly.
Scot & Guests:
[29:46] Identify my grandson direct now I'm taking all that margin that get you all that that Mark up that retail enjoys which is usually somewhere between 30 and 50% I'm adding it to my 15 and,
that's kind of like now I'm Into You know if this 60 - 2.
[30:03] Maybe 50 to 65% margin on this is what I kind of think about that model this is why Amazon is doing it right I mean they can they can they can get a lot more margin that can pass,
two thirds a third of it on the consumer have a lower price keep 2/3 and no action on a per-unit basis be ahead of the game versus being a retailer so that that's why,
private label exist in an Amazon. The first one to discover this they just have the data to kind of go about it very quickly.
Scot & Guests:
[30:33] And then the last question before we get to our guests so we also have a lot of retailers to listen to the podcast what book should they do if they're not doing private labels that something the Explorer should they take the opposite,
all in and kind of take a page out of the P&G Playbook and say we're not going to do private label will have just Brands only here at our retail shop.
[30:55] I'm looking forward to seeing that retailer that would be fun to watch but in general yeah,
I think it's going to be increasingly difficult to make a living selling other people's stuff and when we will get successful retailers across the board there are already selling a ton of Their Own.
you know we talked a lot about Walmart being the biggest retailer in the world like the second biggest retailer in United States is Costco Costco has less than 10% of the number of stores Walmart has any other the second largest retailer,
in the usn there's a variety of reasons behind that.
One of them is that the majority of what they sell is is private label product that Kirkland product in a few other brands represent the majority of of stuff that they sell in they they executed,
very well they have that really interesting methodology of partnering with national Brands to launch new products and deciding if and when they'll they'll launch a house version of.
Of those products in and they they've mastered that process along before Amazon got into the space when you look at the most terrifying grocery retailers that are entering the us right now and scaring the bejesus out of the traditional.
Grocery retailers there their businesses that are predicated on on selling Almost 100% private label products,
me know you got the one that us consumers will be most familiar with already is Trader Joe's in that space you look at traditional wholesalers like in in categories like Office Products or or consumer electronics and Best Buy has a stated strategy to have over 50% of their stuff be.
[32:42] Be brands that they own it just very clear to to be a successful retailer moving forward,
you mostly are going to have to sell your own stuff that you know.
All the Amazons going to continue to be an aggregator of everything it seems likely that Walmart's going to continue to be a meaningful player and aggregators of everything but outside of those two players.
There's not a lot more room for.
Wholesale aggregators of products in so your long-term play your long-term viability is probably at least partially predicated on your ability to build brand that consumers want,
and it will cause them to select you versus someone else and then I would.
I would reiterate that that same Auto replenishment conversation I talked about with the brands if you're a retailer and you know.
A bunch of the products that drive trips to your store or.
Those things in the middle of the store that are going to become you know Auto replenishment products you need to think about how you're going to survive in a world in which,
no one comes to your store to buy toilet paper or dish soap anymore,
you need to think about a water world in which you know when people are shopping predominately opolis it's much harder to sell impulse purchases and so there's a whole set of,
new business problems you need to be thinking about as a retailer in in particular in this Grocery and food category and cpg we're seeing the tsunami of curbside pickup buy online pickup in-store digital order ahead however you want to look at it there is overwhelming evidence that that's going to be a rapidly adopted model in North America and you know that fundamental.
[34:20] Lead changes a bunch of the value props and so have your retailer you need to be thinking about how you win in a world in which curbside pickup is a meaningful part of your,
Scot & Guests:
[34:31] Jason one of the big bang moments and Amazon private label happened back in May when Mary Meeker had a slide about Amazon private label in her annual internet update,
that's why I'd showed some sharks that had Amazon baby wipes and Battery offerings and that they had become top sellers so this is behind Brands like.
Duracell Energizer in Panasonic where they were they were out selling you know kind of the name brands not the battery story and I know now that it came out in May with the Meeker presentation I've seen it,
either tens or hundreds of times out there and I really think of it as the shot heard round the world for Amazon Private Label Amazon have been doing private label for a long time,
but that that one kind of data point or especially around the batteries has come up in a probably with me,
30 40 50 times with brands that they were just really shocked by all that and you know if you look at that slide and look at the,
bottom attribution you'll see that that data is attributed to 1010data,
and to join us in our conversation about Amazon private label works cited to have Sameer bhavnani and Tim Wilson from 1010data and they're going to help us peel the onion on this welcome to the show guys.
[35:41] Well thank you hey guys thanks for having us very excited to be talking about Robby Thompson shot heard around the world.
[35:51] Exactly but that that is a big-time right I would I would imagine if you're in the date of publishing business and Mary Meeker quote you that's that's about as good as you can get.
Scot & Guests:
[36:03] That's basically summoning the mountain right there this is good as you can get it's also a very moment because you realize very quickly,
who actually knows Mary Meeker is excited for you and who like my mother has looks at you like what are you talking about but.
For me it's inside it was very exciting.
[36:24] That that's a tough one to explain to Mom I totally get it in for those of you that haven't seen her presentations they're usually like one or two slides and maybe like one data point in it so if you're that one data point it's huge because you're the only thing she's talking about.
[36:40] Plus or minus about 300 slides in a 30 minute presentation.
[36:46] But she makes it work.
So before we jump into all that though there's always like to get a sense for how you guys came to our awesome industry can you give us kind of the lowdown about your your careers and how you ended up at 10:10.
Scot & Guests:
[37:02] Sure guess so this is Sameer I'll stop. If you don't mind and the bulk of my career was spent at a research house called MPD.
[37:12] And after spending I'd say almost almost 10 years that's as an industry analyst over at MPD I move more into the business side.
And then a couple of years later my friend Tim who's with me today call me often told me he was starting a company.
Who is focus was going to be on tracking what consumers are buying online and he wanted to know if I wanted to join him and I said yes and I'm going to let him see the history from their my history is I started.
Investigating what people do online little over a decade ago at compete who is required by TNS and then kantar.
Today I believe it's known as millward brown digital and I was so frustrated with the fact that a lot of our our studies.
While they were great it was always just a little short with understanding the lower funnel and exactly you know what it is that people were buying so myself along with Aaron Mendez.
Started the company in Quantico focused on what people buy online and we did this back in 2013 thought maybe we're a little behind the curve turns out we're a little ahead of the Curve.
And during my first call was with Sam and so we we broke one Co-op and then eventually joined the 1010data family.
Help round out their assets around the consumer purchase activity so today we have extreme email receipts.
Credit card data debit card data.
[38:44] We use all those behavioral Deus Ex to get a clear picture really but you're able to paint a pretty good Mosaic of what's going on.
Both online and in-store and in that consumer purchase data is really the Crux of what were me Sam and the rest of the team are working on commercializing and bring it to the market.
[39:04] And if you're unfamiliar.
Internet were headquartered out of New York City and essentially what we are is an out-of-the-box inside right so we we help companies manage data.
And we also help companies understand where consumers are spending their money.
[39:29] Awesome and you alluded to it a little bit but in terms of how you get your Insight I tend to think of you as sort of a large panel that then augments that panel with third-party data,
[39:45] So that the panel is sort of the quick stream in the email receipts and then your your augmenting it with some some third-party data is that why that right or can you explain to us.
How you get your your data.
Scot & Guests:
Yeah absolutely so we have we have multiple inputs you know really one of the things that I've learned from doing a while is that there's there's no such thing as a perfect date is that they all have holes.
They all have diocese etcetera so it's really about the more different the more information you can collect the more confident you can really be with what's happening so.
We have we are actively scouring the internet or third-party data listening to analyst calls for any you know publicly traded companies we have,
and we use all of the information that's available to us as part of our data methodologies for the projection of our estimates.
However you know we do have our limitations in end you know we use our panel.
[40:49] The way every other handle this company does I wouldn't say that we augment it necessary with with other third-party did a research but I would say that you know third-party inputs are an influence or an ingredient and the date of methodology. Does that make sense.
[41:07] Here's a great here's a great way to kind of think about it so there's been a huge shift,
in the measurement in the measurement world in the measurement of consumer behavior and that shit is essentially has been traditionally if you have a panel,
what that means is consumers are opting into some kind of panel and they're going to get coins in exchange for answering survey questions of some nature,
and that has been Houser the research base is really kind of measured consumer sentiment for decades and decades and there's one kind of fatal flaw in that.
Methodology through well and that's very simply is that people forget so if you ask me where I had dinner with my wife Last Friday Night.
There's a good chance I might not remember the exact name of the restaurant right McDonald's,
and so what what has happened now is that the industry has shifted and because of.
Sort of the move two words digital we're now able to measure actual behavioral data right we're actually able to actually measure what people are actually doing.
Not not what people are telling us they think they're doing or what they want to be doing.
[42:25] Sure and into II like to attend to call that like sort of.
Observed Behavior instead of stated Behavior so like you're not asking people where they shopped you're you're getting access to email boxes and you're actually seeing order confirmations for example.
[42:42] Things like that.
Scot & Guests:
[42:42] Correct correct.
[42:45] And in general like we're going to talk a little bit tonight particular about.
Your insights on behaviour on Amazon and I tend to think of their being sort of,
two approaches to getting insight into how people shopping Amazon they're sort of starting in the consumer and working backwards which it you know you're going to see all the consumers behavior on all their sites and,
and because a lot of consumer shop on Amazon you're going to see a lot of their behavior on Amazon and I,
I think of you guys in that space and then there's another set of entities that try to,
scrape all the Amazon pages and data that's on the Amazon pages and sort of reverse engineer.
Consumer behavior from the Amazon site itself is is that a affair taxonomy to be thinking about her.
[43:36] You guys do both.
Scot & Guests:
[43:36] I think you said that you said that pretty much perfect yeah we do the former we can certainly our focus on the former.
[43:42] Awesome well I think that gives us a pretty clear basis to to dig into the reason we're all here tonight which is talk about Amazon private label.
Scot & Guests:
[43:53] Yeah it in Atlanta one quick follow-up are your guys customers retailers Brands both any any kind of.
You know sizes at like 5 kind of companies or is it run the Spectrum in any kind of guidance to help our listeners can understand who your customers are.
The bulk of our customer sponsor into a few buckets one is on,
when I would say is well sort of well-known Merchants Tire retailers II is consumer brands.
And the third would be financial institutions that since the makeup most most of our Revenue.
[44:40] Got it so retailers are kind of using it for market share and Allison and selection analysis or assortment is that is that these case retailers.
[44:50] Yeah so the primary use case for Merch are retailers would be around assortment right people are buying they they want to know what they should be out there shortly.
[45:03] And then Brands is probably a market share game so you know how am I doing against my competitors on Amazon overall do you guys do,
is this purely online data or is there an offline component kind of like I know the NPD guys have an offline piece as well.
[45:20] There's their stuff there's booking online as well as an offline component.
Certainly the the weaning that we have is this more towards sort of a digital art e-commerce piece of things and what brands,
surprising how little Brands know about the size of markets and the growth of markets are categories within e-commerce so what we've been doing over the last couple years really has been.
Give me brands of blueprint blocking and tackling how big is my category how fast is it growing.
Which retailers are winning in which categories and Amaya tanning a fair share of that total pie,
that's a really good Segway into Amazon private label which is essentially a brand let's start it kind of the what I called that shot heard round the world take us through the wiping battery data and that data you know if it was in,
makers deck in May for all I know it could be a year old and I don't think it had the Lincoln time on it so if you have any new data on there that would love to hear kind of an update as well.
[46:28] Shirt so just I'm going to take a shower real quick staff a try just to talk about just to talk about private label cuz you know some people really get it and some people really don't get it right answer private label has been.
A real affordable price point high quality products for decades and decades Right grocery store chains have been doing it for you know.
what's been happening lately is Amazon Amazon first four actually into private label began with its reading device right with the Kindle in consumer electronics,
and from there Amazon expanded into,
they had like for example the Fire tablet they did a streaming TV stick and then they did the Amazon Echo right which is a revolutionary type of device that everybody's playing catch up,
and then the success that they started having in electronics LED them to start looking at more traditional.
Let's let's call it household essentials type of products where you know they look at where is Walmart on the wicked Side Great Value brand.
I'm so Amazon came out with two lines one one was once called amazonbasics and the other is called Amazon elements and those.
Those Brands essentially well what I would say.
[47:59] First start to cause fear with with some of the brand partners that Amazon had had and basically.
If you look at something as essential as a battery it's been dominated by basically three branch right you know Energizer or Duracell Panasonic.
And what Amazon is able to do is there a little look at you know years and years.
Batteries or something that every single household has to buy on a very frequent and regular Cadence and they came out with their battery brand and there were three able to do that actually advertise that sell it for a little bit cheaper than the brand name.
Are offering and categories like.
Baby wipes or batteries and I think consumers tend to think that they have for the relative same quality yeah they do and mean.
[48:56] One of the things that's interesting when you start thinking about the Amazon private label approach right they have they have ruled out in many different brands since then.
Amazonbasics brand is.
The largest by far right by our data they're on track to do about 500 million this year in us alone all online sales for amazonbasics and amazonbasics brand launched quite a long time ago.
Right now I think of sometime around 2009 and.
[49:27] Today with amazonbasics brand is really lot of the electronic or household Basic Essentials where you don't give me.
care too much about what it is he put in for example Amazon essentials as well the closer or what they did with the diapers cetera.
Any amazonbasics category they have really mastered exactly what it is the customer wants you can look at the date of one of the things that's interesting to me.
[49:59] When I look at.
Example that the battery category would be you just look at the number of skus that are carried and when you look at it the traditional battery players that are out there they carry literally hundreds of skews.
On Amazon whether that's through the marketplace which may or may not be under control depending on how there but the strategy is.
Amazon Basics battery count I think they have something in the neighborhood of 20 skews right and they're getting the great majority of their sales from just a couple of them so they really been able to.
Mega sniper based approach.
YouTube watching these products and they're starting to gain more more confidence you can see that as a start to roll out not just with household essentials but going into,
Health going into apparel and no surprise that they see me rolling out private label and what appears to be all the biggest categories on mine the only category.
Really huge online and growing quickly but they have not entered yet.
Would be path right which is interesting because the 90s.
If I'm a pet food manufacturer frankly if I'm any consumer product manufacturer start to wonder if if they're not competing with me right now what are they.
You know I would not be surprised at all if it was some type of pet food that was rolled out here just because of the size of the category to go straight there.
[51:28] Cool and then on batteries in the chart I saw showed something like Amazon basic battery is like 30% share and the Duracell was 20% and Panasonic was was like 12% etcetera,
that date is still holding and,
another kind of corollary so so I agree Amazon uses data too kind of come out with a better offering and a price point and packaging and stuff but then,
you know the other thing do you guys have any point of view on the search experience in it how they're kind of service in their products versus competing ones.
[52:04] Batteries is a good Battleground to talk about I guess yes 01 1 comment right.
When we put out the dead a few months ago was I think I was 30% or so they've grown it so close to 40% so they're certainly trending upwards.
In terms of an Amazon batteries selling compared to Duracell Panasonic and Energizer in and the rest you see the client everywhere.
At some point though right there right at some point people are going to buy the brand name rice like my wife will.
She buys she buys Tide laundry detergent or she won't buy a generic brand or any other brands always got to be tied and so in many ways.
A portion of that business is always going to exist.
And Amazon will sort of like 10 Mustang right will take a sniper based approach to figure out what the what categories are growing and how can I do something that's different and cheaper at the same quality.
[53:03] I didn't do you so batteries or I Amazon's at 40% how about wipes I think you had them,
they were number 3 in the last time I saw the data and their Huggies and Pampers were ahead in the Amazon was that kind of a 15 16% of day if they displaced either of those guys at this point.
[53:19] They're still growing,
but they're at they have it they haven't they haven't displaced the market leader.
[53:34] Yeah until you've had your filter 615 there's guys at work then right now I can't even can't remember their names I don't have 3 so I can I can keep it all straight are there any other category.
Are there any other categories like batteries were you look at it and Amazon his kind of created an a leading position with without a lot of people knowing about it that that jump out at you.
[54:00] So those are those are by far the biggest ones and.
You know if you take if you look outside of Industry we talked about Electronics in the beginning.
Amazon is completely basically owning the home speaker space right now with the with the ECHO line of products whether it's the weather it's the portable Bluetooth speaker the dock or the.
The show or the actual traditional Echo and if you look at tablet space right which is one apple Amazon's gone in there with a a lower price,
good enough auction and not lower price by.
10 or 20% but lower price for like 60 70 80 per-cent and so they've really offended consumer electronics sales through the point which is fascinating that companies like Best Buy.
Bed Bath & Beyond Target cetera are starting to starting to have been selling Amazon branded consumer technology products.
[55:02] Yeah which is super interesting when you think about it that that those competitors are then willing to carry cell that you know are viewable trojan horse for all of Amazon's other products.
Scot & Guests:
[55:13] Best Buy and they buy an echo and then that person takes their house and what do they do with it themselves Amazon batteries.
Yeah and that's it you know that's what made it so it gets me so excited.
I'm getting into the home there is the Walmart Google partnership and the Google at home.
I'm very excited to see what the shopping experience is like for all of us 5 years now because I don't know exactly what's going to be today.
Voice searches is a new Pioneer at and I expect up the Google Walmart partnership to be.
[55:59] People people we talk a lot about Amazon and for good reason. You know they spend more on R&D spend something in the neighborhood of ten billion dollars a year.
Justin research which it's amazing what you can learn how to.
[56:15] Yes they're massive yes they're huge let's also remember we know from the public earnings there roughly 95 billion in sales here in the US.
One third of the size of Walmart $20.
Will Amazon and Walmart growing you know High single digits.
So it some point those lines will really start to converge but I do think it's important to get super excited and for good reason with all the Innovative approaches of Amazon brings it still good to remember there.
A third of Walmart in Walmart has within the last year I think we would all agree started to take online very seriously and invest heavily in the channel.
Won't we'll see if those Investments pay dividends but it seems like 2016 is one Walmart kind of said alright these guys are for real let's do something about it.
[57:22] Yep yep I want to unpack briefly the.
[57:30] The size of it Walmart vs. Amazon as is somewhat debatable depending on the lens you look through so so for sure when you look at the earnings you guys had it exactly right but I think most people would would actually talk when they're comparing him with think about.
How much goods Walmart selling versus how much good the Amazon selling and then you'd be looking at Amazon.
Gross merchandise value versus their their revenue and I know Scott was probably biting his tongue cuz he's a guru in all this but,
if you if you actually take Amazon's gmv and compare it to Walmart's gmv and you take grocery out of Walmart's DMV.
Because until very recently.
[58:11] Amazon didn't have much grocery Amazon's probably bigger than Walmart right now in non-grocery gmv but.
[58:23] Be that as it may it's it's for sure for sure super interesting and that good.
Scot & Guests:
[58:30] I think the key point right is that.
Whomp Walmart's Walmart's one of their retailers that's not that's not resting on its Laurels and then actually trying to go on the offense to better compete for the long-term with Amazon on like a handful of other retailers.
[58:47] For sure I think there's tons of evidence there and we recently talked about a lot on this show it's this year that was the they were calling at the Godzilla versus King Kong battle.
Most of the rest of the world just trying not to be a destroyed build in that in that fight.
So it's going to it's going to be fun to watch but before we got into that you were shifted a little bit to the echo versus for example of the Amazon batteries,
into me the actor was interesting because in my mind that's.
[59:25] The echo has jumped this really scary Paradigm that that it doesn't seem like a lot of other Amazon products have yet.
[59:33] It may have started out Life as a private label home speaker but it's not private label anymore it's the aspirational brand and it has a unique selling proposition and features and functions that the.
[59:46] The rest of the market is struggling to to match and I certainly think of your product manager at Sony you're not talking about the echo as the.
[59:55] As the private label version of your product your.
[59:58] Trying to figure out how you get a piece of that the Amazon Alexa market share for child you guys agree with that like that seems like the difference between batteries wear.
[1:00:08] Hey there just trying to let you know they're not trying to create the world's most desirable battery although I'm sure you know in some circles they've they've done that they're just trying to fulfill a bunch of demand.
[1:00:18] With a a battery that's it at the right place at the right price with the right delivery vehicle whereas the the speaker is really created this aspirational brand that people seek out and give preference to.
Scot & Guests:
[1:00:32] Yes I'm going to I'm going to make you feel real good I think you're spot on there and if you think about companies like Google and Sonos there now in other now essentially licensing the echo technology to put into their own products.
[1:00:45] Writing so what happened like when I go into the spaces it was it was highly disruptive and one of the things the brands.
Didn't know because Amazon doesn't divulge right bulbs for example Echo sails they won't they won't tell you how many Echoes they sold in a given year. Is it really didn't,
know what it hit him until they got hit with a tsunami.
And they sought writing this on Masters with a flattening of the crimes in a space that up until the echo had launched had been growing like gangbusters for themselves.
[1:01:22] Yeah answer that I guess that's the perfect question we love to know if you have any insight I eat everyone's always speculating about how big the the echo businesses have you guys tried to size that.
Scot & Guests:
[1:01:34] Yeah echo echo through the first half of the year was about sinkholes about 150 million dollars and.
If you look out right and this is just just kind of red conjecture and sort of a rough gas based on kind of market knowledge,
estimated going to end up end up being in the 350 to 400 range by the end of the year calendar 2017.
Imagine part of it comes down to what you even count is that going to cuz it's your point if they're not licensing technology to Sonos and I was at CES last year and it was in you know hundreds of products like you.
[1:02:15] Like that the overall revenue from that that that property for Amazon could even be much larger than there their own direct sales.
Scot & Guests:
[1:02:23] Yeah it's whatever 25-year career it's one of the most Innovative called inventions that have ever seen.
[1:02:35] Yeah so here's the magic question.
Scot & Guests:
[1:02:39] The revenue.
And they shouldn't.
[1:02:56] Yep so.
Any other products in the Amazon Echo System particularly the Amazon private label products for threatening to to sort of you know a game that same status are you like.
Are you seeing any early indications from from anything else or there any product you you are keeping an eye on because they're there early fast Runners what's the.
Scot & Guests:
[1:03:21] Within a coordinate.
[1:03:22] No with other Amazon products to achieve the kind of breakout success the echo hats.
Scot & Guests:
[1:03:28] One of the other things the moving away from technology that Amazon is about to disrupt.
Is basically help health and wellness and so Amazon.
I seen a few things like protein powder or any kind of supplements.
There's there's a lot of question in terms of consumer healthy consumer safety and consider most important consumer transparency right like what's actually in here where does this product.
And if anyone listening has not seen the page for the Amazon tumeric product.
You've got to go check it out it's besides the fact that it's gorgeous you look at this and they're taking something like tumeric right and they're basically saying here's here's where it comes from.
Hear the benefits from it and it's one of the most transparent product detail pages that I've ever seen in my entire life.
[1:04:28] And that's just sort of like their first foray into that right and that's that's something that's you know it's not as boring as you know if they have battery or pot and pan right if it's something that you're actually actually ingesting putting your body.
[1:04:42] Yeah for sure and it makes perfect sense that you'd say that to a category that Amazon's focusing on cuz if anyone has seen a picture of Jeff Bezos lately will see that he's getting totally jacked.
Scot & Guests:
[1:04:54] And you're absolutely right I don't know if it's the tumeric or the CrossFit.
[1:04:59] Yeah so any like any early data on any of those health and wellness products I got it was it was vitamin E the first.
[1:05:08] The first supplement in that family or you know and is that like catching any meaningful market share away from the the big player.
Scot & Guests:
[1:05:16] Yeah I think so I think it was we haven't published anything yet just cuz they're sort of.
Just starting I think I think we still need it I think we still need several more months of data,
affordable to do that but I can I could almost be a picture conversation we're having with our marketing seems like first half of next year we got to call the state on how Amazon Student Health and Wellness.
[1:05:38] Yeah it is a good day also started off very slow roll out right like the last time they enter.
That's an answer something I was broke this personal was when they lost their first version of the Amazon elements diaper.
Right back in 2014 15 so they're being cautious in what other category think about an additional help which is booming and they're being very cautious with their approach to be a little more aggressive and not quite as shy.
But their approach into fashion where they watched several different brands and in fact they're at their fastest growing private label brand is actually.
Clothing line name Scout and Roe which is up nearly 6X this year.
[1:06:22] So big they are going after all the high-growth categories online and in some categories like apparel they're being extremely aggressive,
watching a lot of lines.
Depending on the type of apparel line you're talking about its they're giving a different names of people can feel like they're connected to it in a little bit of a different way.
And in areas like health and wellness where it is.
You know something that I'm ingesting it's certainly very much more personal than something is a piece of clothing they're being very slow and deliberate with their approach which is the same way that they approached.
So I have no doubt that,
even the tsunami you see with an elk and wellness sector online Amazon elements will be there soon and I'm also curious to see what happens.
Right I mean that the Gap CEO.
Nike just another one to be watching.
Yeah that quick follow up on health and wellness what what is the brand they're using their is it a Amazon element sir.
Amazon elements you mentioned Prime exclusives do you guys to your data can can you get an idea of how many folks are Amazon Prime.
[1:07:48] Yeah we we have an indication I don't have it don't have all of that data to the sort of sitting in front of me we've done analysis in the past on.
You know on Amazon Prime members what's happening now is an Amazon Prime is being coming a pretty a fairly significant portion of of the marketplace because.
The offerings make it an absolute legitimate no-brainer for.
Anyhow you don't need any kind of like middle-income in a bob sort of families if you're not a prime number I kind of don't know what you're thinking.
I love it's the contact I'm a huge fan of man in the High Castle.
One of the ways that we all know we read many articles about how important my membership is to the Amazon strategy.
I was very surprised and we had to go back and double-check was very surprised to see that.
Almost half of Whole Food Shoppers and not Prime members and.
I thought I was like who would be that way and then I realized in my family I have to Avid two siblings.
Tapping into half and Whole Foods Basin members which is only.
Because we can see that if you're a Prime member and you shop at Whole Foods you spend over $300 more per year at Whole Foods.
[1:09:25] The non Prime members non-prime.
Non Prime members shop at Whole Foods spend $1,000 a year at Whole Foods and cry members stands close to $1,400.
That's why they call it whole paycheck.
[1:09:47] Old paycheck I went to Whole Foods soon after the right right after the acquisition and things like that,
yeah they still have a lot of room to go on that.
Cool and then you said on the on the,
fashion apparel side Scout and row is up 6X how about another one that I thought was interesting was button to down and then they also have,
goodthreads a couple others any other of those apparel items really breaking out or is really mostly discount.
[1:10:30] You know it's it's it's really a scoundrel there's also a lark and Ro but you know we see that argument.
[1:10:37] About 90% 85 90% Cowan Road beating up 6X there's no one else really more than doubling.
[1:10:46] Franklin and Franklin.
[1:10:56] Any ship can you give us a number like Amazon's private-label apparel items are doing 100 million or were they included in that like 500 million dollar number you said of the top of the show.
[1:11:08] They're included in that 500 million dollar number at 500 million number isn't just Basics it's kind of the whole family of Amazon private labels but doesn't include Echo Out imagine or Does it include.
[1:11:21] It doesn't kudaka right another way to say it may be more sensationally would be Amazon yeah does that include Kindle.
[1:11:37] Yes I got it that's cool Jason Aldean.
[1:11:44] Hey you think so like obviously.
If you're a cpg brand you certainly you know should be taking notice of all of this stuff or really any any sort of national brand that the Amazon is going to play in like.
You need any thoughts about what brand should be doing in response to Amazon private label strategy do you guys,
have discussions with with Brands about what they're with their sort of defensive tactics are or should be.
Scot & Guests:
[1:12:14] Yeah this is probably the most popular topic of 2017 that we have that we have with all of these with all of these Brands whether it's actually PG or consumer electronics,
Navin even outside of that there's other specials of the word about what's happening over there.
You obviously continue,
right there give you continue what you're doing at Amazon and you continue to spend money with Amazon you continue to get your customers buying products from Amazon because Amazon controls such a gigantic portion of the market right you got to fish where the fish are,
and the fish the Fisher in Amazon's Pond right now with the second piece and this is the part that.
Some brands are not going to be able to be successful in doing and that is to form a team and understand.
What is are outside of Amazon strategy going to be and that's a very difficult question for a lot of Brands to answer so.
[1:13:19] One alternative is to not sell your products on Amazon at all and then,
you're giving up on Amazon right you're giving up on all of that all of that traffic that they're generating for you and then we start looking at will where else can we go right so it's a one-off in is.
A direct-to-consumer play and the reality of direct-to-consumer is that it's going to end up.
Not even hot like like nice data points from customers that really like your brand already anyways.
I was very very few exceptions direct-to-consumer is not going to be a significant portion of your business what we do about the rest of the market.
And what you have to do is start figuring out what other Merchants do I focus my efforts and my best people on.
To start growing my salesman to start understanding a world where ultimately.
Amazon especially if they enter into my category is going to take a bigger and bigger piece of that category every single year.
[1:14:26] Southern Tier brands are basically Hostess salvation.
It sounded like that but no threat brand-mark Rendon are absolutely not host that I gave that example earlier there's always going to be a.
[1:14:44] There's a portion of the market that no matter what isn't going to buy a private label brand right and that's,
that's one of the predominant reasons right lie Amazon like if you go to the Amazon page you might see an advertisement for rock and roll actual consumers may never actually know that,
so if it's something like a slab Amazon is the ultimate definition of a frenemy for these brands.
[1:15:10] For sure and that just does feel like the new world is every everybody has a lot of Frenemies out there and we all have to figure out new business practices.
[1:15:21] You know one thing I failed to ask I would bring it up on time but I do want to see if I can squeeze this in so when I look at at Amazon private label success I actually think.
We're bundling two things together number one.
Amazon is a great operator they have you know this access to a huge amount of consumer data the levers that data to figure out what.
Products and prices to offer at and they're great at producing their their private label and and you know increasingly National brands,
but they also are a terrific online seller and we are just seeing a lot of shift from in-store purchases to online purchases and I have a theory that.
You don't even at Amazon offered no private label products you know we still would see that a lot of the best sellers.
Digitally and in particular on Amazon are not necessarily the the brands that,
have one shelf space in retail store so I guess I'm I'm curious if you have any data either either validate that promise and you know any examples of.
Brands that are doing pretty well and digital or out punching their weight from brick-and-mortar or am I completely wrong in that.
Scot & Guests:
[1:16:37] Now you're your spidey sense there is a spot on it in one of the it there's no matter what industry we talk to.
Whether you're a retailer or your Merchant.
Ultimate Warrior manufacturer one of the few things that is a constant with online is that your competition online is it different than it is in store.
There are a lot of Brands launch online there's a lot of fragmentation that's created.
And these brands of lunch online tend to be pretty Nimble you know for a while they're actually even remember Taste of the Wild used to be the number one brand for dog food online until.
Brick-and-mortar well-known Brands kind of woke up and someone like you both look on it to go over but we definitely see.
These little pockets of small Brands within toothpaste and you seen,
Brands like Marvis shoot up and then shoot down we've seen another brand that pops up to mine right now that is right show me a company called,
RX bar which.
Dina basically started online and had and it's just grown absolute gangbusters and then you think about companies servicing about the protein spider space which is a gigantic space companies like Vega,
had to go to a lot of their their energy to focusing on line and they've really capitalize on the palm the plant protein Trend which like a Vitamin Shoppe or GNC has been what I would say.
[1:18:14] Enough glacially slow to adopt.
[1:18:19] Interesting well it certainly has become a more complex and dynamic space I think it,
it can be a real challenge but the the foot side is it's kind of fun because the Playbook isn't written and we're all,
we're all sort of trying to figure it out but we certainly appreciate you guys spending some time with us tonight to put a data plans on on some of these interesting Trends and where it's raining a lot more conversations about them in an upcoming podcast but that's going to be a great place to wrap for tonight because it's happen again we've wasted a perfectly good hour of our listeners X Samir and Tim super appreciative for you coming tonight and sharing the 1010data set with us as we try to decode Amazon private label.
Scot & Guests:
[1:19:09] Thank you very much guys was great thank you just got thanks a lot man thanks. Tim and good luck with 1010 have a good night.
EP102 - Code Commerce, Shop.org, and News
Code Commerce (the first stand alone commerce event from Recode) was Sept 13 and 14 in New York City.
Shop.org was September 25-27 in Los Angeles, CA.
- Walmart buys Parcel - NY same day deliveries
- Plated acquired by Albertsons - Meal Kits heat up
- Ikea acquires TaskRabbit - Help deliver and assemble Ikea products
- Jet launching private label "everyday essentials" line
- Wish $30m NBA sponsorship
- Holiday Forecasts - Ranging from 3.5% - 4% (Jason thinks that might be optimistic unless we get highly promotional)
Episode 102 of the Jason & Scot show was recorded on Wednesday October 4th, 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 102 being recorded on Wednesday October 4th 2017 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host of lingo.
[0:39] Hey Jason and welcome back Jason Scott show listeners.
[0:43] Jason fall is go time in retail and I was looking in.
[0:49] You know it's going by so quickly that you and I've been so busy,
we did our listener appreciation event we had indochino and it turns out we have not done e-commerce news and Analysis since early September so here in episode 102 going to be kind of a quick hit of some of the news that's come out in the last 30 days,
I so kind of mid to late September that we thought.
Maybe many listeners are experiencing the fall like we are where are your so heads down getting ready for that critical holiday season you'd want us to help our Steven and figure out what are the Nuggets of what has come out in the last 15 or 20 days,
alright so we're going to focus on those two of the nuggets are really trip reports and on both of these.
I have to admit Mia Copa to our listeners.
[1:42] Epic fail really I did not make it to either these events and I plan to go to both so the first was recode and that was in New York and the second one was shop.org in Los Angeles.
And I have righty of things so hurricane kind of kept me from the first one then on the second one to scheduling conflicts between you and I and in a couple of.
Things on the on my other day job side kept me from going there so I am on the edge of my chair to hear from you how those two events went.
[2:11] Yeah and let me first start by saying for the listeners that were participating in the pool Scott played the hurricane card at 1 minute 40 seconds end of the episode so,
so can graduation to whoever one that,
and yeah there's so much going on I feel like we're going to have to go faster this is probably a 20 lb in the 10 lb bag episode let's jump right into Rico door code Commerce more more technically so for listeners that don't know,
recode is great publication they have a very famous show on the west coast every year called code,
and more recently they've launched a series of events that were specific to Commerce and most of those events lived on top of another Commerce event so they would have a dinner and a few speakers at,
a shoptalkshow or in a RAV4 when one of those sorts of events and they've all been great events,
so this was their first effort to turn it into a standalone event it was a day and a half.
I'm just dedicated to speakers that they lined up in New York and for a first-year show I think it was really successful they had a pretty good turnout all the logistics seem to work out pretty well and.
As is usually the calling card for these coat events they were able to get some pretty impressive speakers that you know I was interested to listen to.
So because your time we're not going to be able to cover all of them but.
[3:42] But really quickly a guy always look forward to hearing from his Andy Dunn who's the founder of bonobos there purchased this year by Walmart so he had a good good conversation with Jason Del Rey,
you know a lot of it the usual ground was covered talking about like digitally native Brands and how Belushi Andy is on those and talking about how life is living inside of Walmart and,
the cultural challenges that exist there andy is a guy that.
Is is very bullish on the omni-channel experience and so living inside of Walmart and having access to their stores was.
He felt like nothing that was a pretty big advantage and so you know I thought like he was well worth listening to.
A little later in day one we had the CEO of William Sonoma water helper.
You know a great brand great CEO I was a little disappointed at in her comments at a digital show she did not come off.
Super digitally-savvy if I'm being frank and it's interesting because William Sonoma is a.
Traditional retailer always relied on the catalog they Embrace digital early,
and Gina today more than half of their sales are online and she spent the whole time talking about how stores were a differentiator and how how important the in-store experience was.
[5:13] And how you know they sold a lot of categories that they felt like people just didn't want to buy online.
And I think Furniture was specifically one in wow like I absolutely think there's a huge competitive advantages to a store experience and I think it's super important to honor.
The stores it it sounded like a little bit like one of the old CEOs defending their investment in stores against the onslaught of Amazon.
And that just seems surprising coming from the CEO of a a retailer that's been so successful in digital I would have thought she would maybe be a little more.
Maura balanced and nuanced and she just seemed to be a strong advocate for the stores.
So at the end of that day one it was kind of interesting joint presentation with Adam Silver who's the NBA commissioner and.
The famous calendar industry Mike Rubin who's the executive chairman of Fanatics he also happens to be one of the owners of the 76ers and.
[6:17] Famously started a number of successful companies in our space including GSI.
And ShopRunner and I think was even on an episode of Undercover Boss.
So my group has won the most successful guys in e-commerce so it's always super interesting hear from him you know you talking about Fanatics which is made to order.
Jersey's online I think that's a super interesting category because I do think.
Personalization is a a big up-and-coming play in.
[6:49] Digital Inn in retail I think we're to see you a lot more products personalized and you know I think there's a lot we can learn from an early player like fanatics.
It was a little funny seeing the two of them on stage together.
Because you know my grooming is very anti Amazon and talking about how to compete against Amazon he mentioned that that Amazon tried to do the custom jerseys for the NBA before Fanatics took it over and.
Wasn't successful and an implication being that was too hard for Amazon but Fanatics was able to make it it it work at scale.
[7:25] And let you know I think there's there's a lot of interesting insights there and.
You know he's sitting next to the commissioner of the NBA who sang Hey Amazon the super important partner and we're going to let you buy any of the jerseys you want customized on Amazon and essentially Amazon is going to be an affiliate for a fanatic so you know,
what while Michael was talking about half and addicts had a differentiated experience from Amazon Adam Silver with saying,
but if you prefer Amazon or your Prime member you can you can get anything that's been at Excel straight you know that's licensed by us straight from.
From the Amazon and we understand that we need to be there because their big player and the the fall under that is,
you know Amazon out punches their weight as a retailer in terms of mine share with with folks like Adam Silver the NBA commissioner because you know there's there's a realization that,
Amazon is the content publisher and you know one day could own,
the rights to broadcast NBA games and you know already has the rights to broadcast some some NFL games now and in so you know it's an interesting Dynamic talking about like.
The retailer and the content publisher and you're sitting there next to Michael Ruben who's a retailer and an NBA owner so it was kind of a.
Convoluted set of of interrelated issues but but I found it fascinating.
[8:45] Cool that's definitely a whirlwind tour of the did you get to stock and done much at all.
[8:55] I did not I left him alone,
I will say props to Jason Del Rey Athena this is the reporter at at Rica that specializes in Commerce so this is really his event he I thought he did a bunch of interviews day one but I think yours also getting kind of,
unfortunately he was under the weather so I think he was a trooper and most impressively he's a huge,
long-suffering Knicks van and I sort of expected him to just have a lot of mixed questions for Brad I'm sober and he totally refrain from any personal comments so so Props to,
previous guests on her show Jason Delray for doing a good job even shorter updates,
Tim Kendall is a present at a Pinterest was on I thought he was really smart and it was interesting like you know he talked about how he thinks,
a small minority of people on the Pinterest platform want to conduct a Commerce transaction on his platform and that's fascinating because most people would talk about Pinterest having the highest buying intent of any of the social networks and he's flat out saying most people don't want to see a buy button,
on Pinterest he's right you know we have shoppable pins their increasingly successful but in most cases,
what customers want is to get inspiration on Pinterest and then they want to go to the e-commerce site to actually consummate the purchase and so that that was interesting,
you know there for many years there's been a lot of folks out there talking about how you know.
[10:26] Traditional e-commerce sites might not even exist as all the purchases move to Facebook and Google and in Pinterest and here's the president of of,
the one that supposed to be most successful and he's saying hey you know that doesn't seem to be what our customers want to do,
so I thought that was super interesting and then they too they move the venue to Hudson yard which is a.
[10:50] A really interesting new multi-use development going up in New York that's going to put a lot of retail can I have an Amazon bookstore,
and they did a bunch of on-site opportunity so you could go to her the the newest Nike Town you could visit a couple digital startups,
and one of the options was to visit an Amazon Prime now for filming Center that it's in Manhattan on 34th Street.
And so I'm sad to say I did not get to go on the tour it signed it booked up really quick but I did hear from a few folks that went on them,
and you know the reminder is is Scott reminded me right before the show there's 45 of these Prime now facilities.
I'm out there and they're they're designed to hold the smaller sort of stuff that people wanted in one day and they do the one or two hour delivery,
I said it's one in Manhattan is right in the heart of Midtown is on 34th Street which of the story retail street it's across the street from the Empire State Building it's on the same.
Street is the largest Macy's in the world and what a lot of people were surprised by when they walk in this facility is,
there are bunch of Pickers running around pulling stuff out of bins and there was almost no automation.
In that the facility at all and I and you know most of the attendees expected to see a bunch of Kiva robots or,
you know at least some sort of out of me to picking system and what apparently they were told is,
that at the moment like every one of these facilities is a different configuration and that it's still too early in the evolution of this concept.
[12:24] For Amazon to cost-effectively Skillet with automation,
and so I I just found it interesting that they already got 45 of them out there and in their world that that's not enough yet to automate it and that that,
you know these things you know I have a lot of clients that have automated fulfillment centers for e-commerce that that looked a lot more advanced than apparently this Thing 2.
[12:49] Did I surprise you at all.
[12:50] I think even know where that.
Offering isn't its life cycle it doesn't suit so Amazon always going to start some the customer works the way back and what that means is,
you're okay being inefficient on the back end as long as you can still deliver a great customer experience or I would say they probably put the.
The bulk of their effort like 70% or effort into the front end and the front end is getting better all the time and you can tell they're just like really iterating that super quickly for example when they close the whole food food steel that stuff was in there a day one and in that kind of thing so it does fit in with the,
the Amazon DNA to to hide sometime hamsters in the background going on there.
[13:35] Yeah well and sure enough you are correct so then you can barely get home from that show do a little bit of client work and then back on the plane to Los Angeles for shop.org.
[13:50] Yep and so fun Jason fact you truly are the retailgeek you met your wife for the first time seven years ago was that Dallas.
[14:01] Did she see you kick a I remember that one vividly because we got to go to the the Cowboys stadium in kick field goals did your wife like see you kick a field goal and say if that's the man I'm going to marry is that kind of how it went.
[14:13] So partly I did go to that event with my now wife she did in fact see me kick a field goal and it's highly unlikely that that.
Favorably influence her in any way and it's equally unlikely that she she at that point realize that she would one day marry me I took a little more work.
[14:35] A lot more feel quotes.
[14:37] Exactly yeah it is true that my right leg maybe one of my my best assets but it's still not that good.
[14:46] Okay well congrats to you on seven years meeting go meeting your wife just shows you that shop.org anything can kind of happen when you're there.
[14:55] Exactly I remind people you know I want talks about you know how important the networking is if he shows and you know I certainly agree with that.
[15:03] Cool suicide from relationship status changes what was going on at shop.org this year.
[15:10] It was an interesting year a lot of changes in,
you know what what to me is that I could sort of the one of the quintessential shows in our industry,
I said that she was in Los Angeles at the Los Angeles Convention Center,
the show is in Las Vegas next year the shows always moved but after next year they haven't answered it's permanently going to be in Los Angeles so this is kind of the new home of the show of the Las Vegas Convention Center is is,
is a great facility it's very large in the whole downtown area around the convention center that used to not.
I have any amenities and you know frankly wasn't very nice and,
are you leave wasn't very safe has been heavily gentrified and it was a super interesting Vibrant Community that's kind of.
Popped up and in a most importantly for the professional trade show attendees amongst us there a lot of good hotels now to stay out there,
so I like the venue the production values of the show where you know felt like they were like you know Franklin upgrade from past years and I suspect that you know what some of the newer shows like shoptalk out there that they can raise the bar for everyone and it felt like,
like shop kind of followed suit,
the Treaty of Paris interesting because the what they now down as they've taken all the content and put it in like auditoriums,
all around the trade show for so the trigger for a sort of the Hub in the whole event they set up this really comfortable garden with like casual seating and free drinks in the middle of the trade show for so people could kind of loiter.
[16:49] I know there's a lot of concern about like,
noise pollution from from all the the content being around the trade show floor and I would say that stuff all worked out really well,
if anything the convention center was so spacious that even though the the booth space was apparently a sell-out it just felt really roomy,
In-N-Out on the good news that felt really comfortable on the bad news it made the show feel less busy.
Because the tiles just weren't as crowded as you you might be used to from previous years,
but they did have this new section on the floor that I really like it's sort of the technology Pavilion so it's a bunch of small or newer exhibitors in many cases a lot of exhibitors from other countries and instead of being extravagant boost that you had like pods in this area and so there was a lot of the the cool Innovation stuff was in that section,
I think it was like an expanded version of something we saw at in a rough this year so I like to see that Trend continue,
and then I did not get to catch all the content I unfortunately had a pesky client that,
wanted to meet in the middle of shop.org in another city so I actually had to fly in for the last day.
So I didn't get to catch all of the presenters Wednesday was a good day.
The Adam Grant is a professor at NYU and wrote a great book called The Originals he's actually a.
An organizational psychologist that sort of helps figure out the most successful organizational structures he gave us.
[18:21] A really good presentation in the morning and you know one of the key themes that I that he talked about is.
[18:32] What a negative effect of the wrong people in an organization or in the wrong roll or on the wrong team can have any organization so he had to start a quote that resonated with me.
It's nice that the right people on the bus but it's much more important to keep the wrong people off the bus and he was he was talking about how that's a common organizational mistake.
I just liked his presentation because I really feel like.
Organizational change management is one of the most important things for any any retailer or brand in surviving digital disruption.
And it's kind of one that people don't think about it very much so it's interesting to see an academic that's exclusively thinking about that.
[19:08] And then his the presentation right before him is a Scott Galloway who's super well-known in our industry.
Professor at NYU does very funny does a lot of really.
Thought-provoking controversial humorous content and so for the most part I hate him because he's generally just like a better version of me.
[19:33] Funny are better-looking right more often kind of thing and he has a book that just got published yesterday.
And the book is called the four and it talks a lot about the that these the sort of you know four horsemen.
That are in his mind Google Facebook Amazon and Apple.
And he has this notion that each of them in a sort of appeals to a particular brain part part of the body so.
Google you know it appeals to the brain and is really associated with our rational self.
Facebook is not associated with the heart and is associated with our emotional sale.
Amazon is associated with the gotten really in a deals with our sustenance and needs and Apple has by far the best position they're associated with RR reproductive organism.
And and it sort of associated with sex in so you know I think Professor Galloway like.
Basically would say an is on it or apple is likely to be the most successful most profitable of the four companies as a result of of there,
you know picking the right organ to go after but he had a lot of interesting,
content if I have a criticism of Professor Galloway he repeats a lot of content and he's so popular that like most of his stuff is on YouTube so I,
frankly if you are a close fall of hers I'm not sure of his I'm not sure you saw a ton of new stuff at.
[21:06] Shop.org but if you're not super familiar with him you know I think it all is really interesting stuff that that would definitely makes you think,
I have already purchased this book and I'm looking forward to reading it I got one book ahead of it in my queue.
But I was glad to see him there and you know we probably should break down and have him on the show at some point even though I am kind of jealous of him.
[21:31] He seems to have it in for Amazon lately like everything I read he's kind of saying they don't pay enough taxes they should be split up.
[21:41] It's kind of interesting he seems to Canada if I have a an anti Amazon bias in the last like month and a half or so.
[21:48] So he didn't interview with Tara Swisher on recoat a couple weeks before Amazon bought Whole Foods and he,
he mentioned that Amazon could easily get in a brick-and-mortar that you know I'd be simple matter for them to buy someone like Whole Foods and so he he's gone a lot of credit for correctly predicting Amazon's acquisition of Whole Foods which I think it's Toy Fair again I fall in lot closer than most people and I I know he just makes a lot of unlikely predictions,
and some of them come true and his kind of and as you get it would expect a lot of them don't come true in most of us forget about those and,
you know one of the funny ones that he he sort of makes fun of himself is,
about two years ago he predicted that Amazon had reached its peak and was likely to fail and that their lack of stores was a,
an Achilles heel that they couldn't overcome,
International in his presentations he he likes shows a graph of their stock price in the last 2 years and he started marks that point when he predicted they would fail and of course they're the.
Fastest growing stock on on.
The market since he predicted they would fail so I think that may make him slightly negative on Amazon but I think you know she I think his position is.
[23:02] Doterra bad things for society about all four of these companies and that their you know are matters of great concern I keep you know he.
He talks a lot about the.
Facebook's influence on the election and that you know because Facebook to leadership is so young they probably don't fully appreciate the thread that Russia is to us I think he talks a lot about.
Some of the downsides of all the power that's aggregated in Google I think you definitely likes apple the most of any of these companies and you're exactly right he's talked a lot about,
the fact that you know for every dollar of Revenue Amazon generates they employ half as many people as a brick-and-mortar retailer used to so he thinks knitting at the really bad for jobs and because you know,
they've been really successful in his mind it not earning a profit like he definitely believes they're very profitable company that manage their R&D to make sure that they don't,
book a significant profit every year which I think he agrees is a smart play but that that's resulted in them not having to pay a lot of taxes and so it you know he shows a graph of.
Amazon and Walmart over the last 10 years and Walmart is.
Has paid 84 billion dollars in taxes in those 10 years in Amazon's paid 1 billion dollars in taxes and of course the market is rewarded Amazon you know with with.
Vastly more market cap growth in those 10 years than it has.
Walmart and I thank you rightly points out you know there's some of these Trends there they continue you know have some.
Meaningful social impact so I'm looking forward to hearing more about that when I read his book but you know he definitely the guy with strong povs and and he generally has a.
[24:43] A pissy way of sharing them.
[24:47] Cool any so that's good any broader Trends you picked up on has this machine learning thing kind of have we gotten past that or is that still everyone's banging that drum.
[24:58] Nope that is the drum,
like the big train that all the presenters are talking about it both shows that you know a boy Tori got had to get stamped on every booth at shop.org is the whole deep learning cognitive Computing thing,
and you know we've done a couple deep dies on that so I'm not going to rehash all that territory right now.
[25:23] It is a super important Trend butt,
like in my mind a lot of its importance is getting diminished by the fact that it just being treated as a throwaway buzzword by so many people in our industry for so many different purposes.
[25:39] That it on shop.org.
[25:41] Well the one and I did not get to see this line but I got to watch a recording so Mark of Lori did an interview Mark does not do a ton of public speaking and so that like there's a great gift for shop.org so you get,
Andy done at Rico Dandy reports to Mark market reports to Doug mcmillon the CEO of Walmart.
You know which I imagine has to be a funny Dynamic cuz you know Marcus is probably worth multi billion dollars between.
Selling of Quincy to Amazon and selling of Jetta Walmart it was kind of the one-year anniversary of the sale and it was just it was interesting to hear his his POV on the Acquisitions he talked a lot about another,
all the Acquisitions that he's made and when he's continuing to make find a kind of falling into two camps so he would say he purchased a bunch of these companies.
Just for their merchandising chops and their access to product lines that Walmart didn't have access to so you by ShoeDazzle to get more shoe expertise and to get more shoe lines that the relationships with the vendors and and smart merchants,
alone make that sort of an immediate Roi acquisition for Walmart and then he would talk about their acquisition of the digitally native Brands like bonobos and ModCloth,
being a much longer term strategic play and,
you know this this goes to a a show that I think we're going to do next week about private label an Amazon private label in particular Walmart and most big retailers have a big strategy to.
[27:15] Build more important house brands that you know used to call private label but in some cases these far surpass.
Private label and it seems clear that you know part of Walmart strategy to build this portfolio of valuable brands of consumer want that you can't get on Amazon is through acquisition and so you know he I think you would categorize ModCloth in Bona BOCES.
The first of of presumably more Acquisitions in that space so it just kind of interesting to hear his framework for the acquisitions.
[27:47] Awesome any other shop.org updates.
[27:51] I think in the time we have that's probably going to have to cover it because I feel like we,
you know it's been a busy just news months since we last did news and I know there's a ton of the Amazon news and some other industry news we want to jump into that.
[28:09] Yeah and it wouldn't be a Jason and Scott show without.
[28:27] So the first big piece of Amazon news is what is commonly referred to as hq2,
so on September 7th that Amazon I just kind of randomly put out this announcement that they were accepting.
Rfps for their second headquarter City and these are peas and courage cities to be.
Aggressive they had to kind of till the end of October to submit their bids and and it also is very detailed.
Unlisted what Amazon was looking for in a city and important things and and how to highlight your city and whatnot then that is really just dominated the the the.
The new cycle for for the last 30 days so probably actually be glad when they make their announcement some kind of will tired of talking about HQ to be honest.
[29:18] What it was now so I kind of felt like Austin was a good one because the biologic is Amazon.
The retail business is Amazon is relatively mature and really got a core density.
Both in Seattle and then the most number of employees for retail are in the phone at centers so it seems like you're going to open another headquarters level kind of operation is mostly going to be.
The the newer generation Amazon things I'm sure they'll be some retail folks there but it'll be the minority let's say 10% so they're going to hire.
[29:54] 8000 people maybe 800 will be kind of retail random people and then the people that are in HQ around retail tend to be buyers and and developers of the site.
[30:03] So then you're left with like who else is going to be in there and where I kind of come out is the echo family the AWS family and these kinds of folks and,
when you look at Amazon's R&D budget I think that ends up being a lot of Engineers so so I think you're going to let you know if I,
if I kind of play that out Amazon near needs to be near an engineering Hub and.
Austin's really good one we have one here in Raleigh-Durham Boston's another area and then, like that Carnegie Mellon quarter there so.
The Northeast has a lot of negatives that so I don't really think it hits a lot of things they want to do there so I coulda ended up with Austin it's kind of his is where I think it is so did you give it a lot of thought to this one Jason.
[30:44] A little bit like there's been a lot of interesting talk since they want us if it's a scam if they already have a location and that in that this is just a big PR stunt that.
Did they ran soda.
Be interesting the people speculating that all think that the the foregone conclusion is a different city so they're not unanimous in that which is funny.
[31:07] Austin certainly seems like it's in the running I jumped on Twitter early on in this and you know trying to make it out of the box call Houston it just been hit by the hurricane and I I really think the whatever City wins is going to have to pay a fortune in Economic Development funds to Amazon to get them there so there's going to be,
huge concessions Amazons not going to pay any,
property taxes for for 20 years and whatever this headquarters is and it's it's frankly probably going to be an economically bad deal for whatever city does it,
it's a little bit like bidding for the Olympics,
and so it has to be a city that has a bunch of money to waste on that and I informed that criteria I think Austin might struggle to come up with a package and it occurred to me,
Houston's going to get a bunch of federal money they're going to need to rebuild the whole city they have proximity to a lot of the same universities that Austin does and so I thought it could be interesting that could be a way you know a great PR move for Amazon to help,
rebuild that you know the hurricane damage City and in Houston I haven't heard anyone else jump on that bandwagon so if I'm,
if I'm right that'll be great but the lack of people that agree with me has me a little nervous about that prediction you know the.
The sort of emotional favorite for me would be you know they really want to win the pr bad all they had to go to Detroit and Revitalize Detroit and Detroit actually does meet a bunch of there.
Their criteria so it's going to be interesting to see how it all plays out like you know I don't know.
[32:44] Yeah yeah I don't think Detroit has enough engineering people there so we'll see.
[32:49] University of Michigan though.
[32:57] So that I did see some interesting press releases about a potential new Amazon device which was a wearable they were glasses that had Amazon Alexa built into them in so that,
when you first see what about glasses you think about a.
Yeah heads up display and Google Glass and all that it was actually the glasses were. Convenient way to deliver the earbuds to your ear,
and the idea was to have a in a persistent access to this always-on digital assistant in Alexa and so it'll it'll be interesting to.
To see if that product ever meets the light of day as we record this Google just just made their big announcement for the new pixel phone and one of the accessories they announced was I said that your butt,
that are specifically designed to put the Google assistant in your ear at all time so it seems like like that.
Yeah I could be an interesting battle grams of you know what year based personal assistance.
[34:01] Yeah and that's my big ass cuz I know,
dresses listening so mr. besos the big ask I have for a new platform for Echo Alexa is wireless earbuds so I have airpods in the Syrian or face is just terrible I can never get it to play music on Spotify or anything else but Apple music.
So would love for you guys to salt that for me.
What it was I was excited about so it shall advise over the years I've gotten a lot of these folks that sell refurbished product and there is there's a big set of consumers that love the option to trade down to this kind of product to that has been.
Retail certified that it is it is I've been.
[34:44] Yukon to a process usually by the manufacturer certified that it's like new and it has a warranty,
I also know this refurbished so Amazon's had kind of weird policy on this that kind of let it you do it but then they don't give you the tools as of that kind of seller to be successful and is it not really meeting the customer's kind of needs so.
[35:04] They announced that a new kind of marketplace area called renewed and that that's exciting cuz I think.
[35:11] That's a really big area Amazon hasn't nailed yet and it's going to be good for a lot of the larger sellers to do that.
This is just kind of like super not sexy but it's really important because this is where Amazon is really kind of.
Dominating your woman that's first phone is in her build out so just kind of looking at some that we haven't talked about on the show quickly and just starting kind of.
Towards the end of August to August 28th announced a million-square-foot Facility in Oregon in the Salem area.
And then they also at about the same time the Ohio so organized Ohio in those are about a million each and then they are doing their first fulfillment center in New York and that's going to be in Staten Island that's 855.
Thousand square feet then on the 14th of September the announcements again with a million 3rd or 4th in Michigan.
And then in the day it's kind of funny like a literally 20 days after they announced the second fulfillment center in Oregon they announce the third and this is going to be in Portland and it's going to be a million square feet.
Something's going on in Oregon's so there's there's a lot of Amazon love in Oregon right now on their building fullness centers as fast as they can just kind of find land.
And then the kind of in that Vein on the 18th they announce that yet another Ohio one this one's and Euclid so it was kind of.
[36:36] Smaller is 600000 square feet which is kind of a.
[36:39] Effort by Amazon Sanders and some microphone the center that must have been some function of the land I checked and it still a normal FC it's not up sortation Center or prime now or anything like that the other one is.
[36:52] The Washington Wizards was kind of talking about the Indian e-commerce market and just kind of.
[36:58] Dropped the Amazon now has 44th element centers in India this is priced me because I don't think they would announce a lot of new filling centers in India that I've seen this is pretty well researched I thought they had like 10 so.
Does a little surprising to me.
[37:14] Pretty sure the Cialis would not say that without having fat checked it six ways so I think that's a new data point that's pretty interesting that that indicates that the the level investment.
Amazon's making India who sings her hundred million bucks to build out so that that kind of feels like.
I was surprised 3 to 4 billion dollars there which frame signs effectively nothing but you're pretty interesting that that India is releasing stupid wrap up as well.
[37:44] That is crazy I wonder is there a way to make money on the stock market I feel like tons of investors forget that Amazon is going to spend a fortune every Q,
3 opening a bunch of fulfillment centers to get ready for the holiday season and just seems like there's always that's always going to be a negative profits quarter for them as they say is they.
Spend all this capex on these fulfillment centers in I might surprise by people being surprised by it.
[38:09] Yeah what it does is it kind of likes all these ones that are now it's still kind of a crew and they won't hit the piano until they launch they opened is my understanding how the accounting work.
Listening to your point it's like they take this really big non-cash hit the Dave I've been doing out the cash overtime and it will create this kind of you know negative accounting thing on there their typical leave it on this one of the reasons,
they really like to focus on free cash flow and versus because you have cash cash is cash and accounting rules don't change the cash coming in and going out and so,
when your building dis many phone as soon as you can imagine that the accounting rules really start to add up on you.
[38:48] Yeah I can only imagine I maybe should have mentioned in the shop.org announcement that,
that are recapped it was a surprise event that Amazon put on Indian asked a bunch of new Alexa devices and the first thing I found interesting about that was unlike Apple or Google it like,
you don't announce the event several weeks in advance and build up a lot of anticipation.
As far as I know Amazon didn't give anyone any morning they sent out an email in the morning saying hey we're having a press event in Seattle in 4 hours.
[39:21] Which which means you know there's a bunch of reporters that now have to live in Seattle and they announced a significant refresh of the whole.
Alexa line in so we mostly driving cost down so.
[39:38] They took what used to be the bass Alexa and they shave $50 off of that they improve the speaker improve the Aesthetics a little bit.
They they put a new product in the line at the the price of the old or Oxo that now includes a home hub so the ability to control a lot of home automation devices without a third party hub.
And so what that means is.
You you don't even need the Philips Hue White kit you can just buy individual bulbs and you can control them direct from your Alexa and so you know clearly one of the things Amazon that has has.
Noticed is that setting up.
[40:17] That configuring home automation is still too difficult and plugging in and getting interoperability between all these products is difficult so it seems like they're trying to address that problem directly and make it.
Easier to unboard new products and add new products to your smart home.
[40:33] So that'll be interesting and in the goofiest product that they watched in this thing is a set of buttons that are designed for family games and I think particularly designed for like a version of.
Of a trivia in Jeopardy that that you can play on the Alexa where each family member has a button and you hit your particular button to buzz in and get a chance to.
[40:56] To answer a question that Alexa asked so like I thought it was Goofy but I'm sure I'll order it said about them.
[41:03] I'm surprised you haven't preorder this.
[41:06] And I guess I forgot one important when I have pre-ordered some of the products in advance I can't even remember which ones are pre-ordered there's a new version of the echo. That has a screen on it.
And this looks like it's predominantly made to work as an alarm clock so.
You know it's a small form-factor device with a smaller screen than the.
The Echo Show and it seems like much better ergonomics and it's designed to sit next to your bed and you know I can have a persistent clock face and do all these different things.
You know that you I know we both have lunch echoes in her house the you're my wife and I each have a clock next to our side of the bed like the last thing I'd want to do is add two more Echoes to my bedroom and I feel like they'd all be competing here are commands.
[41:51] Yeah yeah that's what I guess.
[41:56] The did you see that there are another car OEM at Alexa at the BMW they're going to have the Alexa capability.
[42:05] Yep and that seems like a pretty cool car to have the Alexa in you know voice interface makes sense in a lot of places,
but for sure you know one of the places that makes the most sense is in the car cars of Ed,
natural language interfaces for a while and they all hip hugely sucked in so you know.
Seems like a pretty big competitive Advantage for for BMW to have what everyone you know feels like is the you note for this along digital personal assistant and the best natural language interface,
in their vehicles.
The book side is if you're any retailer other than then Amazon you know it sure sucks to keep seeing Echo win all these OEM deals,
you know if anyone ever needs to do any add any products to their shopping list or do any auto reordering or any of those kinds of things while they're driving,
you know Amazon certainly going to be in pole position for all the all those orders which is not good news if your Kroger or Walmart or Target or any of those guys.
[43:11] Yep I the most controversial Amazon news he recently was Cole's announcing they're going to take Amazon returns about half the folks I kind of saw a comment on it said this is genius this is going to drive foot traffic to Kohl's you know people come into Kohl's they'll drop off their Amazon returns in the shop and that that's a genius thing the other half said,
this is a deal with the devil they are going to know the coals is simply paying to to run Amazon return center sport where they fall out on that one.
[43:44] I think it's really smart,
and the reason I say that is you like there's all kinds of opportunities to partner with Anna's on their front of me and almost always,
there's some huge downside to partnering with Amazon you're exposing them to a bunch of data that they're going to use to compete with you you're giving him a bunch of Revenue that they're going to use to compete with you you know all these Frenemy Arrangements.
by definition have have something in it and it's pretty unappetizing but the Kohl's deal as far as I can tell the super one-sided.
[44:19] Kohl's isn't giving up any data about their customers they're not sharing anything proprietary with Amazon they're creating a reason for a bunch of of digital Shoppers to walk in the cold store,
during holiday season and there's going to be an opportunity for serendipitous Discovery there it just seems like.
You know when one of the the most favorable deals I seen someone do with Amazon in quite a while so I thought it was smart what what.
[44:46] What do you see as the potential downside.
[44:50] Well that's good take a broom in the store so I imagined me an Amazon Locker kind of thing so it's not entirely clear how many.
Ask me up a minute so you know if it's an Amazon Locker then that's essentially having a big amazon ad in your store.
And then who's to say that people can't order stuff and pick it up there so that I don't know there's a trade-off there and if you have to staff at that's even kind of a little stranger so we'll see.
[45:19] I don't think we've seen the details yet so that's fair enough it's funny when I say that if you shop at Kohl's so they set up a bunch of extra customer service centers during holiday so that you know you can,
do returns and and a half after checkout and.
[45:36] You know things like that and so I just sort of assumed that I would be an extra function you could do it any of those return terminals in the.
[45:43] In the store in Holiday would be to return your Amazon packages.
[45:47] Could be we'll see.
[45:48] It's been over a month since the Amazon took over Whole Foods and we're starting to see some interesting.
Recaps on the how that's played out you know.
Everyone of course made a lot of buzz when it look like Amazon was lowering a lot of prices,
on day one when they took that over and you know Amazon got huge amount of PR credit for that which you know,
probably negatively impacted market cap on how much other grocery stores but it's been interesting we're now starting to see some.
Evidence that that.
Does price reductions dramatically improve traffic in the stores and they drove a bunch more bodies into the store we certainly saw evidence that there they're selling a lot of the Amazon private label 365,
on Amazon platform and maybe even sold out of a bunch of problem products and created some supply chain problems,
but I've also seen some interesting analysis that,
did all of the price Cuts early on were pretty strategic and that a month in it doesn't look like it's really cheaper to shop for a basket of 100 items at Amazon Whole Foods,
then it was before the acquisition and so you know the way they've lowered some some prices that they actually raised some other prices and that you know it,
it looked a lot more like a perception change than a fundamental pricing strategy change.
[47:17] Yep the one of them.
[47:20] More interesting reports was from Foursquare where they actually kind of can measure store traffic if they look at at check-in translate they believe that the traffic was up 25% since the acquisition so,
whatever they're doing seems to be driving more people into the stores which which is I think the desired go there.
[47:36] I was also surprised in a day when they did something really impressive to me they had a car displays in all the stores,
which is non-trivial to execute but a month in it looks like a bunch of those displays were even temporary and so it does not appear that they're going to be permanently merchandise saying Alexa and all the Whole Food stores at least.
[47:56] There's a bunch of interesting m&a so it was just kind of go through the sand and talk about it come out in a package so Walmart acquired parcel.
Plated was acquired by Albertsons Ikea Acquired taskrabbit and there's kind of a definitely a delivery on demand theme there what do you think about those acquisitions.
[48:21] Yeah I mean that they all certainly make sense Walmart had already announced that they were looking to do same-day deliveries in New York I think that's primarily for Jet and so parcel is a,
you know presumably the vehicle that used to do that you know meal kits are exploding category and in grocery home delivery of meal kits has a bunch of cause problems as we seen in,
Blue Apron so so Distributing them through a you no pick up in grocery store makes a lot of sense so I thought that was an interesting play by Albertsons and then the taskrabbit one is kind of most interesting,
one of the big big at impediments to Ikea stuff is Ikeas are in inconvenient locations with giant parking lots,
and you know it's often not not appealing to drive out to and a Kia and then you get something that you have to assemble at home and so I don't know what percentage of taskrabbit tasks are actually buying in assembling Ikea furniture but,
you know it potentially address is like you know a pretty big impediment to a key expanding their market so that could be really clever.
[49:29] Young speaking of m&a we're celebrating the one-year anniversary of Jet and Walmart so congrats to all those guys and when this happened there was enough.
Kind of like the Kohl's return thing there was about half the folks thought this was genius another half thought this is going to fail this marketplaces tiny Walmart's just going to let you know not be able to grow it and yeah I think the results look promising so far as to certainly the stock like,
stock market likes it so Walmart stock has reacted really well over that that. And then you know e-commerce has grown I think the last quarter they announce is about 63% growth so,
I know that that's all pretty good news do you think it was a is it time to call it a success.
[50:17] Yeah well I'm not sure that one year is a short of time to,
to make that determination on a three billion dollar acquisition but I actually think the first year was successful it clearly drove some cultural change at Walmart they did a bunch of other Acquisitions that it's doubtful they would have done,
without my glory being there so that that certainly seems to add a lot of value in a Walmart just needed a good story to talk to the market about Heather competing with Amazon and,
the jet acquisition certainly gave them that in and they've had this,
terrific performance and I do think some of that is definitely related to to Mark in the new team in the directions they're setting but I also think,
a lot of that growth is coming from Walmart's expansion in a digital grocery which is probably something that was underway,
before Mark got there and so I'm not sure you can contribute all of the phenomenal e-commerce growth Walmart and last year to jet,
but that the.
The progress that they made that in many ways is most impressive to me is in the year that since that acquisition,
they've expanded form like 10 million skews online to 57 million skus online which is,
largely through the marketplace which I know you know something about but that seemed like,
you know a pretty significant change and is apparently driven a lot of their success as the larger assortment and the the shift to focus on everyday essentials so.
[51:51] Add all that up and I certainly don't think anyone has indigestion about the acquisition it at Walmart at this point.
[51:59] Yeah yeah I'm a big fan of the selection stretchy nothing.
Mark you mentioned it at the top of the show from the shop.org interview acquiring this Brands a lot of people look at that like it's crazy but I think you get access to anything that you can make exclusive like like the cost of for bonobos or any of those kinds of things that's a huge in this kind of selection battle and and,
Alec Mark Clearly understands that and it's starting to play the game kind of at the same level Amazon has been so I think it would be fun to watch.
[52:29] For sure and speaking of that there was some new news like just this week which was the jet is launching its own private label grocery brand.
[52:39] Yeah this is so kind of a little teaser here,
private label is a huge topic Laden's kicked off Mary Meeker had this presentation that she does every year and she talked about.
Private label in the context of Amazon and showed the batteries Amazon private label battery is kind of taking a risk than one spot so since that and I kind of the spring,
private label is really flared up and we're going to do a deep dive in our next episode so,
I definitely stay tuned for that that topic will be specific to the Amazon private label offerings Sofer as as relates to judge you think.
That's a smart plan or what what's going on there.
[53:18] I think it's a really smart plan for all of Walmart to own some successful private labels and I think relative to some of their competition that's been one of the area that they are areas that they haven't made as much progress as they like so I certainly you know I'm interested to see them try it like I don't know enough about the program to know the nuances of the brand is it actually branded yet or is it just something they're testing in jet first and,
eventually go to Walmart like I think those are all going to be interesting things,
things to watch but I certainly think in the long run Walmart in jet need to own some exclusive Brands and going to cpg space is certainly going to get a lot more,
competitive before it's all said and done.
[54:08] Yeah and I know we're getting tight on time so going to kind of the lightning round the holiday forecast for coming on in RF always does it at shop.org and they said all in its going to be 3.624% this holiday which,
it seems to be pretty darn bush,
and I think in that call it at you implies that non-acidic caught non store Commerce is like they're kind of coded word for e-commerce you stay so I prefer e-commerce and I think they said 15% for the holiday. PWC is out with theirs and,
they are showing that she didn't put a.
[54:46] Number they said people going to spend 6% more this year than they did last year and I don't know if that means like.
[54:53] The forecast is 6% because you got kind of like at all I guess you could assume more people will shop for less people show up an endowed chair that number.
So and then does not like.
Around 90% said they're going to shop in stores so I guess that makes sense with about 10 to 12% of sales online so.
All good but I guess 84% said they also shop online so I guess this proves omni-channel is a thing.
[55:20] I think you might be right I think it is a thing yeah I feel like a number of the holiday for Castle come in and for stores they're all in that like 3 and 1/2 - 4%.
And then you don't you see, Miss 15% like I'm sort of Ebenezer Scrooge on these things in a way it's a silly thing to predict because.
That the growth is so dependent on the pricing in the promotions like you can grow much bigger by by selling stuff cheaper and losing more money in so pretty thing the growth without also predicting the the promotion levels is.
Not super useful to me.
But these guys are all burden by like data and scientific methodologies and You Know It dance mathematics and all that sort of stuff I don't have any of that stuff and so to me it seems like.
[56:08] Aren't you don't think your holiday season is going to be as rosy as these guys are all painting like I think if we get the 4% growth in all of retail,
it'll be because it was a hugely Promotional and unprofitable holiday. I think we just have way less doors and so there's going to be blessed up in the pipeline which means manufacturers are going to,
I sold the last stuff through I don't think it's going to be a bad holiday season and you know any hugely negative comps but,
4% feels a little Rosy to me and I actually think the account number could be higher but a huge caveat there,
even though it's 15% you know Walmart's grown 60% the last two quarters,
a lot of that from grocery and groceries opening super fast at Walmart so they're going to have way more grocery for this holiday so they could do 60% for this holiday and Amazon's going to do 25 or 30% for this holiday which essentially means the rest of e-commerce is down.
[57:07] If that whole industry only grows 15%.
[57:10] Yep yep I think.
Abortion e-commerce said I think we're going to see kind of a high teens number from I think it's going to really be a year of acceleration on that one controversial speaking promotions promotion that's out there is the Marketplace Marketplace that focuses on bringing really super cheap Chinese Goods into the us there now says 30 million dollar NBA sponsorship and a lot of the NBA jerseys now feature the wish look up so it'll be interesting to see if that.
That is very kind of in-your-face kind of promotion for an e-commerce company that we haven't seen before.
[57:45] Yeah and I mean it makes perfect sense cuz when I'm watching basketball something to happen to me all the time as I suddenly realize I need a particular color fidget spinner and only 6 weeks and so I think now it's going to remind me where I can get that.
[58:00] You have an emergency.
[58:03] A six-week emergency.
[58:05] I think it's totally interesting that they're making the investment and and like in a bylaw demetric switches making.
You know it is an is a meaningful player like I do I'm not a big fan of the customer experience of 6 week delivery I think that like.
[58:22] Has got a limited appeal in in this world and which were we're getting to minute delivery from from our friends in Amazon.
[58:32] But I think that's probably a great final word luckily I didn't invite anyone from wish to have a counter perspective,
and we have used all that a lot of time so,
hopefully Wizards where will the stick with us through the fire hose treatment and got some interesting stuff as always weeding courage you to continue the dialogue on Facebook if you disagree with any of our positions we'd love to hear about it there's anything we didn't cover that you like to hear about suggestions are always appreciated,
of course if you really enjoyed the show,
we love you to go to iTunes and give us that five star review if you hated the show you know don't feel it necessary to leave a review at all.
And thanks everyone for listening.
[59:19] If you need to show you can call Jason on his home phone number which is just getting thanks everyone for joining us and happy Commercing.