EP209 - Moosejaw CEO Eoin Comerford
In this interview with Eoin we discuss Moosejaw's unique positioning as "The most fun outdoor retailer on the planet" and some of the innovative marketing campaigns Moosejaw has developed. We also explore their omni-channel strategy, rewards program, owned products, and some of the systemic headwinds facing the apparel industry.
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Episode 209 of the Jason & Scot show was recorded live from the Etail West tradeshow in Palm Desert on Tuesday, February 25th, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott show this is episode 209 being recorded live from the Ito West trade show in Sunny Palm Desert,
on Tuesday February 25th 2020 I'm your host Jason retailgeek Goldberg
and unfortunately Scott was unable to join us this week so you get twice the Json for half the usual price
but as always when Scott ditches me we make up for it by having a particularly awesome guest so I'm thrilled to welcome to the show Owen Comfort who's the CEO of Moose Jaw.
[1:01] Thank you thank you for having me.
[1:03] I'm super excited to have you I feel like I'm somewhat familiar with Moose Jaw and we can maybe get into that later but the for our audience that isn't familiar can you give us the snapshot on who most joyous.
[1:17] Sure Musha is the most fun outdoor retailer on the planet,
according to our moms we have actually been around for almost 30 years started in brick-and-mortar retail but now we're one of the top online players and outdoor retail so hiking camping apparel equipment all that great stuff,
we have it we sell it and we actually still a brick-and-mortar retail we're in four states 11 soon-to-be 12 stores and we were purchased by Walmart a few years ago to help them grow their online presence when we're not calm.
[1:46] That's awesome and so I would assume that in addition to being the world's most fun outdoor retailer you're also the most fun Walmart that's I.
[1:53] Oh by far yes in fact there is if you if I look at the zoom meetings the number of Moose Jaw bumper stickers versus even Walmart bumper stickers I see on laptops is huge.
[2:06] That is awesome you're dominating the spark.
[2:09] Dominating this park.
[2:10] Okay and you guys started in Michigan so all my in-laws are from Michigan so they like they grew up as a multi-generational Moose Jaw family.
[2:19] Awesome thank you for their business.
[2:20] And then yeah and then we moved to Chicago and you were accommodating enough to then open a store.
[2:28] We we follow you wherever you go.
[2:30] And so if I put in a move I'll let you know I'll try not to do Hawaii or something super expensive.
[2:35] Maybe I.
maybe I take that back and before we jump in with any more listeners always like to know a little bit about the background of our guests like how did you come to be the CEO of the world's funniest outdoor retailer.
[2:50] Well I've been in e-commerce for about 20 years which I just realized which is.
[2:55] So you started when you're like 5 years old.
[2:57] Examine oh it is I was yes I was amazing as a five-year-old but no it's been it's been a wild ride actually I started out as a mechanical engineer which makes total sense because
we're all about numbers in this business I that's what I love about this business it's absolutely a numbers game but now I get into Consulting and then
I got into an incubator a new business incubator at Ford Motor Company in beautiful Detroit started a company there so that got into Moosejaw,
really my background is more in marketing and Tech and then took over the CEO gig about 8 years ago.
[3:34] Very cool so you're literally off probation now even.
[3:36] Yeah I think so I hope so.
[3:38] That's awesome and I feel like Moosejaw is particularly well known for their Innovative marketing campaigns and you came up through the marketing organization basically.
[3:48] Yes absolutely it's definitely my first love I mean it's what we're all about it's what sets us apart it's part of what makes this the most fun retailer so yeah we just get to you know that,
we get to do things that other other retailers don't information to do quite frankly just because of who we are and we did we just have fun with it.
[4:09] Instead of give listeners an idea I'd love to hear some of your favorite campaigns but I remember you opening a new store at one point and I want to say you hired a shepherd with a flock of sheep.
[4:21] That sounds like something that we would do yes we've done all sorts of things we've had fortune tellers at breakdancers was a personal favorite,
yes a little retro but retro cool I would like to thank yeah we do all kinds of crazy stunts and stuff one of my favorites was the most real breakup service,
which we did a number of years ago where we actually we said to Consumers hey we know that a lot of you are chickens out there,
and maybe in relationships you don't want to be in so just send us your your Lover's cell phone number and your name their name why you're breaking up and then three nice things about them so we can cushion the blow.
And so we sent this out,
and we got hundreds of responses back and some and we did we called all these people now some of them are gags you know friends gagging friends,
but a number of them quite a few of them were real and awkwardly so actually if you go on YouTube and search on mr. breakup service you'll see some of the videos of those calls and it's pretty funny.
[5:23] Wow I wonder if there was an opportunity for a spin-off business that you missed apparently there's pent-up demand.
[5:30] Well you know we've actually had a couple of those we were there was talk at one point we were going to do an app called spot a hottie.
Okay and basically what this was was it was you would take a picture and like it see you around town in a city or whatever and so you take a picture of a hottie and then.
Basically then you as a consumer can see like a graph of the haughty factors around the city so here's a hottie hotspot etcetera and ran into some legal issues with that one so it never came to fruition but that was,
an example of the kinds of stupid things we do.
[6:04] Wow it suddenly Dawns on me knowing the campaigns that you actually did do it somewhat frightening to think of the ones that you weren't allowed.
[6:13] We actually actually today in catalog ones and it was going to be called so we were maybe a you know we were a little bit more about being naked back when that was cool it's not cool to be naked anymore I don't know if you know that.
[6:26] My wife has mentioned that to me.
[6:29] Mine too so but but so we had so we had done the no-pants catalog which was a raging success and so then.
You got to take it to the next level so we did naked plain naked yet and so so the story was we were it was supposed to be you know everything was going so well that we just were riding around in Jets right,
I'm just totally totally stupid and I happen to know a guy who was a pilot for some rich people who had a Jet right and they said yeah hey it's in the hangar you know go use it for this photo shoot so we go to the photo shoot I.
Proofs of who the first day I'm like oh we can't do this week.
I just I just I just can't take that phone call from the head of name the outdoor brand so they said okay we'll have to go back and do a bit of a reshoot,
meanwhile the jet gets taken away somebody does need it to fly to Aspen so oh crap so now we shot the rest of the shoes in the hangar empty and so the whole cattle was called morass was that catalog because it was a complete disaster.
[7:35] That's that so somewhere in an Indiana Jones Warehouse is a pallet of those.
[7:41] Louisa we sent out the catalog.
[7:43] And I won you did do that I used to use as a demo all the time you had this x-ray concept,
so you publish a great catalog with lots of beautiful photography of people doing adventurous things in outerwear,
and then you add one of the first virtual reality or augmented reality apps and you aim the augmented reality camera at the catalog and suddenly you see all the models in their underwear.
[8:15] That is correct yes.
[8:16] And I would just like to point out I used it as a demo because it was early good execution of a are not because I'm a perv that likes to look at people in their underwear,
that's also true but that wasn't the primary.
[8:28] In fairness we were equal opportunity it was both men and women in their underwear
that was a really fun one and it I think it that one actually touched a nerve we get so much media about that I've been in million-plus downloads back when that was a lot
yeah hundreds of views of the video about the app know it was that was crazy I think it touched a nerve back to like the X-ray specs from the back of Comedy screwing over something but it was it was really fun.
[8:55] Yeah so.
[8:56] And nothing to do with selling clothes in fact you would use the app to not see the clothes that we sold.
[9:01] Yes ironically to make the clothes go away.
Um but that does bring up a great point so you like I feel like your whole brand is based on these sort of clever fun things that people love to put on YouTube and talk about.
Is it a foregone conclusion to you that that translates into brand loyalty and customer value is that like I mean,
like it feels like that's a big part of your differentiation from other outdoor retailers.
[9:31] Absolutely and you know I see all of the feedback that we get into Mister out through our feedback emails and we constantly getting most people just say I love what you do or I read your order confirmation email,
and I just laughed off the chair and now I read every email that you send me so I think I think it just engages the customer more so that we can communicate and it's not viewed as intrusive,
and there are definitely people who will buy from us you know I just got an email I talked about in my presentation in August from a guy who sent an email saying I'm sorry I cheated on you I bought from somebody else I'm sorry it won't happen again
I mean most retailers don't get those emails so I think it does Drive loyalty I think I also had gives us,
permission to you know that even if we do occasionally mess up that you know we're very authentic and we apologize and we make it right,
and I'm actually have seen some great loyalty from that I think it shows our net promoter score we're over 80% regularly and,
underscore 88% most recently or Q4 so we really do focus on it and building that customer engagement.
[10:47] I may have to have you think up some campaigns for the podcast because I feel like we could use that.
[10:52] We'll see what we can do sure hey no problem.
[10:53] Yeah just a side hustle for you no big deal and speaking of loyalty I feel like you also have a very vibrant Rich Affinity program.
[11:05] Yes mr. towards yeah and that's changed a little bit over the years so going in the way back it was more of a point Space Program,
and you would save up your points and then you could only use them on this separate website and you couldn't combine points with dollars so it could take you a while to get enough points to buy anything of real value right,
because you get 10% back in points,
and so over time we've transitioned that to be a little bit more user-friendly to where it's moves to a dollars and you can actually apply those dollars against any order on moocchile.com so I think it's easier to use,
but you know it's not quite as different as it used to be I would say.
[11:48] Okay but like in general Affinity programs are interesting to me because I feel like it's one of those things there's not a clear answer like we can point to retailers where the Affinity program is,
cord to the business and killing it I think 95% of all the revenue from Sephora is from beauty insiders for example right,
but there's also like all these independent studies though I know everyone has Affinity fatigue and they're you know there's too many cards in their wallet and,
like it just it just attracts though I bottom-feeding value seeking customers and and it isn't really it's ironically not really creating loyalty so I'm curious you guys had a program for a long time,
the fact that you are a brand that tends to have stronger engagement with your customers does that give you sort of permission to have a loyalty program that kind of acts as a,
Catalyst for that and accelerates it is like.
[12:52] I think so also what it comes down to is with Moose Jaw it we're selling you know outdoor equipment and apparel generally speaking you know the average time between purchase isn't you know weeks and days like in the grocery business.
It's months or years potentially I mean if you buy a tent are the last thing you need is another tent,
so where the where it tends to work best is with,
our core customers that the real outdoor users who once this evening bag and the backpack and the and the end so for them it's critical,
but I think for more the flyby Shoppers it just doesn't resonate right if you're looking for you know a great price on a North Face jacket okay great but.
You're a fly by right so it was interesting we just did a we do big we do a certain customer surveys it three times a year and it's actually tied into a little promo so 10 bucks take a survey we'll get,
forty fifty thousand responses to these surveys and we change the subject all the time,
but most recently we really used it to help us drive where we want to spend our time prioritization so the big question was okay of these nine things,
Force rank them for us which is actually tough to ask people to do but they did it and you know.
[14:12] Not to bury the lead here but price was number one shocking I know right but somewhat disappointingly for us loyalty program was.
By far the lowest on the list say it was behind fast and free shipping behind,
side speed product info did it I mean you name it returns policy it was it was the very bottom of the list,
which is funny because we felt that we had a rather differentiated offer there and then we asked people okay if these are all of the top things and how they're ordered how does Moose Jaw Stack Up versus the competition.
And really what we got was and you know we were it was generally good on a scale of you know one to five we were kind of in the fours but but our loyalty program which is industry-leading.
Was a 4.2 people just didn't really so you know I think ultimately what people are saying is hey I don't want to jump through hoops.
Give me the best possible deal and get it to me as quickly as possible not you know when you put on your customer had it makes sense.
[15:19] Sure sure and in a way like,
often people talk about loyalty programs and what they actually mean is like a frequency program because I would argue,
like some other things elements of your brand are as much or more important to that building of loyalty very early on you guys started giving customers the summit Flags,
and so to me that's a like in this was this sort of hard to acquire Moose Jaw branded item that customers coveted and frequently shared photos of on social media again,
like generally from the tops of mountains and pretty crazy places.
[15:58] Or their weddings in some cases yes no.
[16:02] Their wedding on top of a mountain yeah.
[16:05] Yeah and so what we've been thinking back on it too in terms of probably the most.
Successful loyalty programs would be Airline logic programs right I mean it as a frequent traveler which I'm sure you are as I am right I mean,
it gets to like a maniacal stage in terms of like you know you're but it to me you know it's less about the points and way more about the perks right and so,
we're trying to think more in that term in terms of okay,
what makes it special so for example now if you're we call it the high-altitude program if you're part of the high outside you program you get a custom T-shirt every year that's only for you,
nobody else can have it special special customer support on and on and on right those are the things that we really feel will set it apart and make it special.
[16:57] Yeah and obviously other Moose Jaw loyalists recognize that item and they know that you're also cool or have too much discretionary income.
[17:05] Yes exactly.
[17:06] Because you mentioned frequency of purchase in outdoor apparel can be a challenge I grew up in Southern California and I'm I think the irony is,
I'm convinced that like 95% of all the Expedition where that was like design to survive the top of K2 is actually owned by housewives in Southern California.
And I think they buy a new jacket every year.
[17:29] That is quite possible yes.
[17:31] So yeah so those things are all super interesting you mentioned that you have a is it 11 stores now.
[17:43] Eleven City B12.
[17:44] Okay what's tell us about the 12th store.
[17:47] So you know.
As retail changes right experience and the draw of that experience becomes more and more important for brick-and-mortar right you know I think it's never become harder to get people's ass off the couch,
right so you have to give people a reason to come and so the R12 store actually is in partnership with the Climbing Gym
so this is the kind of main gym in the Kansas City area that we had partnered with Allah Justin events and other things great bunch of guys and so they said a word,
we're building a new Climbing Gym the best gym in the world please be part of it so it's opening in a litha Kansas next month and,
amazing Climbing Gym there's also be an amazing coffee shop that also serves alcohol and food and then a beautiful news toaster.
[18:34] And so it is sort of that Affinity frequency model right bringing those people back obviously there'll be a membership program between us and the,
Us in the gym but really it's getting those enthusiasts into a place where where they want to come on a regular basis because you know I think one of the things we,
we went through a time of opening stores in 2012,
where the thought process is more well let's let's go after where the traffic is right so so will pay for Premium Retail will go after the you know it's a higher rents but higher reward,
and really at the end of the day it didn't work because there was a lot of traffic but just not qualified traffic there's there's only a certain number of people that want to spend,
$400 for a shell or $300 for a two-man tent okay and you know those people that are walking by a store in a high-traffic mall not so much so it's really more about destination and bringing people in and bringing,
those enthusiasts into the space.
[19:37] I do feel like one downside of opening with the climbing gym is your stores all have this highly regarded pull-up contest.
And so you can be the King of the Hill and be the record holder for pull-ups and I'm going to assume that the climbing gym store is going to be a high record.
[19:56] I think that's fair that's fair what.
[19:58] Going to be even harder for me to finally get I've been I've set a goal to get on that list yeah and I started my goal was to be able to do to pull ups and I'm not halfway there yet so I have I have a little weird.
[20:13] Okay well you know I will dream dream Ma.
[20:16] It's important to have a dream but when I go to the store or something like as far as I remember you were one of the first retailers to have a mobile point-of-sale,
and so Associates were out on the floor helping customers and I feel like you guys have always had this great 360 degree,
view of the customer so you buy ski boots online one season and you come in the next season and you want that same size like the person in the store knows what size,
I bought online last year I feel like those things are starting to be requirements and all retail but you guys are really had them for a long time.
[20:52] Yeah I mean really going back to as long as I've been with Moosejaw such as an age,
and really it's a core tenet of what we do at moves to raise the is that you got to be customer driven I know that stright and people say it but it's amazing how many times we actually don't follow it in retailgeek,
rise and so from us it's like you know put on your customer hat,
if you walk into a store you expect it to be exactly the same as the experience online if I bought it online yeah of course I have to be able to return it in the store right if I saw a price online,
yeah I expect to pay the same price in the store it's not rocket science right it's what people expect and so we really set up our it infrastructure to support that,
from the very GetGo and then more omni-channel stuff big part of it is is endless aisle so we've been doing endless aisle,
endlessly I mean four years it's 20% of some of our stores volume is actually a product that they don't stock,
but that we will ship to you for free in two days and you know it's you know it's obviously a more consultative sales process if you're buying a tent or a backpack so,
you know our stores are 4,000 square feet we're not going to have all the tents but we can show you the two men and then send you the format.
So all fabulous stuff I do want to it's not all unicorns and rainbows we on this show talk a lot about,
sort of distressed apparel retailers right and so obviously there's all these department stores that predominantly rely on apparel sales that are kind of sucking wind,
there's a bunch of retailers that are ma based apparel retailers mostly that have a at the beginning of their name and and they all seem to be struggling and one of the hypothesis is that,
people just aren't spending as much on their closet as they once did so,
people are more into experiences they have fewer wardrobes at home and you know good clothes are,
like less expensive to acquire than they once did in your category I could imagine it's almost worse because.
Intrinsically your customers do like experiences like so it is that a trend you guys see an outdoor like are people spending Less on apparel.
[23:21] Actually no I think I think where we kind of bucked the trend because of the fact that our apparel is built for experiences and for supporting those experiences most of the apparel that we sell is,
it certainly isn't this poseable apparel right it's actually product that is built to last almost every.
Apparel brand that we sell has a warranty program where they will fix that product for you rather than replace it I just,
I just got had my Arc'teryx jacket fixed you know I could obviously get Arc'teryx jackets all the time but I send it away they fixed my zipper and we're back in business with.
[23:58] I feel like they should have a dude that comes to your office and fixes it for you.
[24:01] You would think but not afraid not but actually but Osprey I mean you name all these brands most of them have lifetime guarantees and so,
the trend actually plays to us in that especially with younger folks they are looking to.
Invest in apparel right invest in product and,
we have investment grade stuff and it is about experiences and supporting those experiences as well.
[24:29] Interesting is there like do the products continue to I mean I know there's a lot of like it's a more technical category of apparel to I are there,
did does the technical Innovation help your buying cycle like is there better you know water repellent attributes this year than last year and therefore I need a new jacket even though my old one is working perfectly.
[24:53] Sure I mean attack is a huge.
Driver within the outdoor space more so I would say in the gear category then in apparel but it's still a big deal you know there there are always people that want to have the latest and greatest North Face just came out with a new tech,
call Future life that's all about a very flexible rainproof outer material so there's constant Tech,
and that's that's driving the business and driving you know what people want to do so they can have a higher,
higher performance experience and a better experience at doors.
[25:29] God shaped I feel like a product Innovation we need is a reminder feature in the apparel so you mentioned how long the apparel Lass,
every time I visit my in-laws in Detroit I forget to bring a hat,
so I feel like I go to the Gross Point Moose Jaw on Kercheval every single time I visit my mother in law to buy a new hat.
[25:51] With that that's working for us why would you want to remind you to bring the Hedge.
[25:55] Yeah see I feel like because you're the funnest most customer-centric retailgeek.
[26:01] That is fair okay you got me there.
[26:04] Okay just just something to think about so,
I'm always curious you've been in the space a long time you guys have been on the Forefront of a lot of experiences if we if you and I and there's a visual I know you've been craving if you and I get in the hot tub time machine together.
Yeah and zip forward 5 or 10 years is the outdoor apparel.
Shopping experience will likely to be the same as it is now is there just well the coffee just have CBD in it and that's the gist of it or like how do you think how would you like to see that that shopping experience evolve.
[26:48] So you know I think online obviously the big pushes towards customer convenience right I mean for us so the short term so if we just go forward you know a few months in the time machine we're looking at.
[27:02] Taking Omni to the next level just to in terms of.
Delivery timing promise States all of those things those those expectations have just changed so dramatically even in the last 12 months that if you're not keeping up here to get left behind.
Customers you know in that priority ranking that we did that was number two.
Fasten free number to right so it's the entree to the game and if the customer can get it for the same price and get it a day sooner,
they're going to get it,
so that that I think is the Big Driver within the outdoor space I think what's different is you know that consumers are very focused on the environment and the Environmental,
and so certainly things like,
there's going to be a bigger push and it's already starting into used right and refurbs and doing that not as a way to save money but as a way to save the environment and so I think we're going to start to see more,
Patagonia is doing at the Warren where North Face is getting into this as well so I think we're going to see a lot more with that and there's still a role for retailgeek,
in those pieces but it's not just a it's not just a thrift store approach.
[28:19] Yeah I want to say I saw a Shark Tank Episode where there were some guys that like their business model was we singe your ski kit.
To the resort for you to rent so not the skis and boots that you typically can rent.
All the expensive outerwear that you need for your three young kids that outgrow it like right away.
[28:42] And that could certainly be part of the model to I think it really depends upon the,
just has specific and Specialty and item is you know I certainly in the ski industry obviously rental is a big part of the equation I don't think I would rent base layer for example.
But but yeah a very very specialty piece of equipment for for climbing a mountain potentially yeah.
[29:07] Yeah I don't know that's another area where I might want to know that that Carabiner is at full strength.
[29:14] Yeah so there's a reason why we don't accept returns climbing equipment yeah it's a safety issue.
[29:21] That seems fair a fascinating thing to me you mentioned the like speed of delivery a fascinating thing to me is the Ever Changing customer expectations so you'll probably remember,
I remember Moose Jaw doing a really early pilot in like same day or next day delivery and at the time I thought oh this is super cool Nobody Does this,
and I remember talking to the the VIN CEO and him saying like yeah it like,
it really didn't get big adoption like customers really didn't leverage it and the fascinating thing was when we started offering next day delivery.
Customers opted into our two-day delivery much more often than they used to so is like the.
That it kind of created anchoring it made the two-day delivery seem like a better deal when you had this more expensive one day delivery but customers at that time didn't necessarily crave one day whereas,
today when I can get my paper towels delivered in one day.
Yeah it or a cup of coffee in Shanghai and in 15 minutes it changes expectations for everything.
[30:34] It absolutely does you know I think the flip side though is interesting so for example Timberland is just coming out where they're offering to to plant a tree.
If you accept slower delivery.
And so and it might be specific to the outdoor industry and the fact that we're so eco-friendly but I think there is an element to that which is to say okay.
Yes we want it fast but is it really free when it's free right and what is the what is the bigger environmental impact and,
maybe we maybe maybe there maybe there's a bit of a trade-off maybe it isn't hey I want it every you know I want to order the paper towels and then this and then that maybe there is some batching involved maybe there's a way for us to.
Attack it in a slightly more eco-friendly way.
[31:23] Yeah that's actually interesting because you know obviously there's a number of retailers that have tried some like small Financial incentive to.
For more economical shipping and often that that Financial incentive isn't persuasive enough.
[31:38] Write a dollar who.
[31:39] Yeah or a free video downloader something that maybe a few like you won't use and so it's not persuasive enough to change Behavior but the social Consciousness offer.
Could potentially out punch its weight in terms of persuading people to opt-in when they really don't need that that's super fast delivery so that's pretty clever.
Well and I really enjoyed speaking with you but it has happened again we've used up all our allotted time so in the event that,
listeners had a burning question that we didn't get to or have a comment about something we talked about on the show you're welcome to jump onto our Facebook page or Twitter feed,
and we can continue the dialogue there as always if this was the show that finally put you over the edge we sure would appreciate it if you jump on iTunes,
and give us that five star review if you didn't enjoy it today show we'd appreciate it if you just called though indirectly on his home not home line.
[32:41] But I really appreciate you taking time out of e-tail the speak with us really enjoyed it. Until next time happy commercing.
EP208 - Elliot CEO and Founder, Sergio Villasenor
Sergio Villasenor (@sir_gee_ohhhhh) is the CEO and Founder of Elliot. Elliot is a modern, mobile first e-commerce platform that describes itself as: "The easiest way to sell there, there, there too, yes there & yes all the way over there. No-code e-commerce platform for every there & where you want to sell."
In this interview with Sergio, we get a great overview of Elliot's features, what sets it apart, and what their vision for the first is. Sergio also breaks some news about the platform. As of April 1st, they will offer a free SaaS version (except for payment processing fees), and will open source the entire platform.
You can join Elliots WhatsApp group by sending a message to 347-715-0728, and get early access to new features.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 208 of the Jason & Scot show was recorded on Thursday, February 20th, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott show this is episode 208 being recorded on Thursday February 20th 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners well listeners we have a real treat for you today in today's show we are going to explore one of the big new trends and e-commerce platforms
called headless Commerce or
no / low / 0 code please welcome to the Jason Scott show Sergio Villasenor who is founder of Elliott welcome,
[1:04] Hey guys happy to be on the show.
[1:06] Sergio we are thrilled to have you and I feel like Scott May of potentially even inadvertently introduced controversy
already just in the description and the intro so
I do I do want to jump to that but before we do listeners always like to know just a little bit about the background of our guests so could you tell us what led you to your current role as CEO at Elliot.
[1:31] Yeah happy too happy to give that background,
I spent the last 10 years in e-commerce coming more from the engineering side of things working with mid to large Market Brands predominantly at agencies or software companies,
most notably One-Stop internet which was a PC back agency that worked with Brands like Lululemon John Varvatos dragon bone J Brand,
and over that time had built kind of my own blueprint and flavor of tech that allowed Brands to stand up e-commerce stores or supply chain technology that help them either streamlined how they sold online or offline or just across borders.
[2:07] That's awesome and did I hear a rumor you also played college football.
[2:11] I did I played at the University of Nevada Reno I played free safety there.
[2:16] Awesome so that makes you the like debatably the fastest guy on this podcast.
[2:22] Depending on what we're racing against yes I would say I asked this.
[2:24] I don't know if you've ever seen Scott her I run but at the bar is very well.
[2:29] Unless it's a Starbucks Jason can haul ass for a Starbucks.
[2:33] I was about to say for the right Frappuccino y'all might be.
[2:37] But potentially true.
[2:39] All good.
[2:41] So give listeners and let's start at the 30,000 foot level because I follow you on Twitter and it can go deep very quickly what how do you describe Elliot at like a cocktail party kind of scenario.
[2:55] Yep Elliot is just a new Commerce platform that allows sellers to stand up storefronts
that can accept payments and shipped globally instantly without writing a single line of code adding an app or Plugin you don't even need to use your credit card you can just come on Elliot launch of store sell and less than 5 minutes.
[3:15] Got it okay so when people hear that I'm sure the Shopify and Bigcommerce and some of this what I would think of as the software as a service type platforms probably come up how do you guys compared to something like that.
[3:31] Great question I would say that outwardly most people would perceive us as being a,
SAS e-commerce competitor to a Bigcommerce the Shopify and other incumbents in the space however Elliott's very different in the sense that we,
part of the payment processor and Merchant of record on every transaction so we're more like a Marketplace except as most people in the United States and Western Society no marketplaces don't necessarily provide the most brand new experience,
we provide immediate global distribution but in a very branded way
where you can create different websites looks and fill that are all properly conveying your brand message and tone on the URL that's yours and owning the customer data except we just provide access to a payment processor
and Merchant of record service that allows you to sell in chip.
[4:20] Just a quick question on that Sergio so.
I feel like an obvious analogy to you guys is going to be Shopify and in the Shopify echo system,
there's a you can choose to use a Shopify payment processor or you could use a third-party payment processor.
Is Shopify with their own native payment system is that most similar to you guys is that fair or is there still a distinction in your status as seller of record versus theirs.
[4:55] There is still a distinction between the two if you opt in to shop pay it's still your brand on let's say the bank statement whereas when you come on and sell on Elliot Elliot would be seen on the bank statement very much like square or another Marketplace,
so that's where we differentiate.
Between Jack and fire Delia.
[5:14] Got it okay totally fair,
and I know you guys got some private funding last year just went or,
early last year just went live middle of last year so they do I have those dates kind of right and and be if you got any traction do you have any clients that are using the platform that our listeners would have heard of.
[5:39] Yes a bunch of questions there so I'll take them I won we are we are venture-backed to date we have raised a little over five point two million dollars,
most notably from sus Adventures SV Angel pentland Ventures which is the Venture arm of pentland Brands who owns Brands like Lacoste and track Smith and Speedo,
and yes today since launching the storefront platform that everyone now just more enthralled with on October 17th of last year,
we have on-boarded over 1,700 Merchants from 92 countries some of those Merchants include predominantly Shopify shop for five plus Brands like rooted goddess dough Mifflin and others as well as other startup brands,
they're kind of coming into the scene like a shotgun and next which is actually actually Aladdin,
Etsy style Marketplace or even co-working spaces here in Brooklyn like at those club that uses Elliott as their cash flows point of sale systems.
[6:35] Frankel your reference Team all do you guys have a front door that Aggregates all this
kind of I don't know if you think of them as stores but all the all the brands that are selling on the platform or does each brand kind of have its own front door.
[6:51] Each brand has their own front door it's very much their brand we haven't set up Elliot as a Marketplace as you would know it today were if you went to Team all or Amazon or Lazada or zalando,
it would be very much those Brands shopping experience,
if anything down the road will roll out Marketplace features that other connect Brands and consumers in our own unique way and fashion in flavor but that is still to be unveiled.
[7:17] Got it and then because you're kind of speaking my language of marketplace is here let's say I come and I want to set up Scott's shoe store
and then I want to invite other third parties in it seems like you'd be uniquely positioned to do that because you're already kind of just be like another another,
another flavor another kind of seller on my own site is is that a capability you guys have today.
[7:40] Correct yeah if you actually go to shop Latin x.com that's actually a multi-vendor Elliott storefront so as a user of Elliot,
Hugh Scott wanted to create a Marketplace and add bankers and have variable commission rates with split orders and payments you would be able to do that just out of the box.
[7:57] Okay very cool so in a way you're competing with Miracle on that side of things because that's part of their value proposition is helping people kind of add a Marketplace to their storefront.
Is that a fair comparison.
[8:12] Correct yeah when we look at the competitive landscape that Elliot,
erupting really were disrupting a 600 billion dollar ecosystem of software spending e-commerce platforms headless Finance product in order Management Systems cross-border tools,
multi-channel software fulfillment software single sign on One Tap check out,
if anything what we're implying and striving to do is a lot like what Apple did in the 80s for personal Computing which is just completely reimagine and re-architect the entire category and come out with,
entirely different way of thinking about how to sell and buy products.
[8:48] This is awesome so there's a ton of follow-ups I'm dying to ask but I feel like I should get one more precursor question in because I also don't know the answer to it how did you come up with the name Elliot.
[9:00] Well despite being an athlete I am a nerd so the double out and is typically an operator for or so when we initially launched Elliott the Elliott logo was fouled out Elliot with period,
so it was e-commerce or iot we just believe that this generation of Commerce began and ended with Ellie.
[9:20] That is definitely a more geeky answer than I was expecting.
[9:25] Alternatively though on my more hood side and you know when we took it to Google and we searched the Elliot Urban Dictionary came up and it had 20 very vulgar definitions of why Elliot was an awesome name and I was like reinforcements done.
[9:44] Rami Malek did a great job of Bohemian Rhapsody so I would not mind that comparison need.
[9:50] Where does where's the cow come from.
[9:55] The cow is a tribute to my grandmother so you know I came from very humble beginnings my parents would work one to two what
two or three jobs each I get dropped off at Grandma's house at six picked up at seven eight she was a crazy Cuban woman that
lived and died by all her beliefs one of those was drinking a whole glass of milk at every meal so she passed away last Christmas as I was kind of,
getting Elliott's and market and it was a very simple way of tributing someone that had a huge impact on my life in a very simple way that meant a lot.
[10:26] That is terrific so let's jump into the product a little bit before I go into the specific questions I'm kind of curious what,
what you perceived as the sort of Gap like in my mind there's there's a dearth of platforms out there there's,
big establish ones that are kind of long and the teeth there's you know new ones that have gone a lot of traction lately like you know you got to one of the e-commerce shows and you throw a rock and hit 10 of them
what what do you feel was missing from the ecosystem or what did you guys expect to do better they caused you to launch Elliot.
[11:05] Yeah that's a great question I think ultimately what we saw at a very macro level was 5G and smart most 5G and smartphone,
proliferation continuing to rise globally,
as consumers and Brands became hyper-connected I think the thing that was lacking was access to tools that allowed creators of products to actually not just say hey I have a store but actually be able to connect and ship to,
consumers around the world typically that toolkit from across border fulfillment perspective and an on-site cross-border UI ux 1,
it always been a very Enterprise tool kit specifically either flow or globally or for free now Pitney Bowes.
[11:47] And the reality is that there is not Financial inclusion in the world and creators of products come in all various shapes and sizes so.
If anything we saw people becoming more connected to Brands being able to connect with them instantly you know if you're in New Brand today you're building an audience that is by default global,
we believe that you should have access to tools to tap into that and maximize the opportunity that you're already building on the gate and four more established brands,
just sell and,
any more of like a click of a button I don't want to have to go back to engineering and say oh six eight months build shit the the moment in pop culture that was trying to capitalize just passed so forget it and if anything it's just making it easy streamlining sailing,
and equipping non-technical operators with the tools to compete globally because the reality is that consumer Demand only increases,
consumers say hey if I find your brand online I expect the same level of service from you if you're a new brand as I do Nike and it's tough to compete.
[12:50] So tell me more about the cross-border stuff so so we'll go with Scott shoe store
I want that to be a cross-border store so there's there's several elements to that there's the shipping and then there's also you know is this going to create a DOT co uk
got ya got it Etc and is it going to translate the language for me and all that or what to what level do you go on the cross quarter side.
[13:18] Let's touch a lot of levels of granularity here let's just take the basic storefront,
every store comes with i18n you can serve up one site for a global audience no subdomains need,
each of these storefronts comes with multi-currency multi-language duties presented at the time of check out paid DDP with local payment and shipping options mind you all that's just out of the box so if you're a first-time seller,
every storefront that you have on Elliott just comes with that,
with that being said there's a lot of things that also come with that there's the Fulfillment side what happens post purchase and transaction,
since the duties are paid GDP we provide commercial invoices customs declaration forms the whole nine let's say I don't have HS codes for proper duties and taxes as long as you have a product image you upload it
for able to assign an HTS code with a 97 percent great with our image processing services to ensure that the duties are properly calculated as well and my new,
all this is just out of the box.
[14:16] Yes about you guys being Merchant of record it kind of
this is the huge benefit right because you can kind of umbrella everybody in this one you know by being able to implement this cross-border functionality and have everyone underneath it
and then how about the shipping so so let's say I'm going to ship an order you know to the UK do you guys do like a borderfree cross ship where I ship to an address in Miami and it gets reshipped there or
or are you let allowing me to set up with the career of my choice of how to ship internationally.
[14:49] If your store had a UK Shopper when they go to check out they would see Royal Mail and we would do some type of her smile consolidation.
The same if that consumer was in China they would be the same type of first mile consolidation with SF Express so typically that first mile consolidation would go to a major airport of either LAX O'Hare or jail.
cool and then so I get how this is codeless do you guys sit in there's a big movement in e-commerce is headless where you can kind of take some of the services underlying an e-commerce platform
and if I already have some kind of a front-end I can drop those in as is that a part of the market you guys deal with our you're doing much more of this kind of self-service really small business that,
doesn't want to do any coding at all.
[15:41] You know will work with major Holdings companies we already do and which is why we developed a headless Jam stack for an end right out of the gate that will become publicly available,
April first however there's already Brands using it,
the benefit to having this Jam stack front end is that you can create more robust friend and shopping experiences.
With the same cross-border infrastructure so unlike other pwas in the jams X space.
This store that you deploy as a developer can already accept payments it can already ship cross-border through the LED API and key already available to you in your admin,
it already has a multi currency multi-language i18n baked in natively it has local payment and shipping options that is inherited,
and it's round graphql API it's completely serverless so it's kind of this move from monolithic to micro service to serverless it's extremely fast it runs across five clouds for redundancy,
it has a Geo partition table database so you don't need to stand up an instance of Magento to be EU compliant for gdpr anything you can sell from a single command center for the Superfast front end that you can serve up statically across five cdns worldwide.
[16:55] So I grabbed everything you said there but I'm not sure every listener will let's unpack it a little bit what's a jam stack and does it involve peanut butter as well as the gym.
[17:10] Clay it involves a little bit more it would.
The peanut butter the jelly and the toast.
[17:15] Yes sir Jason I know what a jam stacking a PW is but you know again cocktail party level or let's say you were talking to the business person at a brand how would you kind of unpack the that and help them understand.
[17:30] Yeah that's a that's a great question,
I would say that we allow you to run a highly scalable application that super fast that never goes down,
that's accessible worldwide and that you can recruit for a very cost-effective way developers to build on top of on top of that,
it's not platform dependent so as you move from platform to platform.
You can you know D riskier investment have a friend in that you can live with the next five to six years and sell a lot of products there.
[18:05] Got it cool and then when you say serverless across five clouds are you talking about AWS zones or that's more it will work on Azure Google and AWS are all debuff.
[18:20] All of the above including tencent Ali Cloud select Allen Russia and gcp.
[18:25] Oh nice so you can surf or China you can be behind the great firewall of China with with that model.
[18:32] You have to love the ability a tunnel across cloud.
[18:42] And so when you were when you say code with what I'm hearing is,
no development required everything you need out of the box so click buttons instead of write scripts is that.
Sort of what you're getting at.
[19:03] Yeah and I would say that to that point Ellie is very much a start to scale platform meaning that.
The idea that we're going through is that Elliot you don't have to graduate from like let's say I start a business on Shopify and then I moved to like demandware sfcc.
With Elliot you're able to start no code you're able to evolve and grow your business and go to low code so we have a motto at Elliot that we Champion called Nolo which is really the movement from starting a business using a visual Builder,
to your point not coding anything,
but as you grow and scale we have the front and flexibility to for you to create more robust front and experiences that better blend content and commerce and all the things that we see more mature Brands and needing as they grow their.
[19:53] Okay so and you correct me if I have the wrong notion.
In my mind like I see a big difference but I also see a similarity again going back to the shop of I analogy the one of the things that seems like particularly strong and cool about you guys is,
your lack of dependency on plugins right so.
Like you can argue as a strength or a weakness for Shopify but a lot of the functionality you need to run your business is available in the Shopify Echo System but it's provided by a third party and so the,
the downside of that is you have to turn on these these 20 plugins that each provide this this point solution and that introduces a lot of,
potential slowness security risk stability issues there's a lot of baggage that comes with,
turning on all these random plugins and their interoperability with each other and what I think I'm hearing from you is we try to avoid the requirements of all those plugins by providing all the native functionality for all the main features that,
stored underneath do I have that right.
[21:10] Yeah you have yes you have the gist of correct.
Specifically we provide the payment and fulfillment infrastructure we are working with developers to better integrate marketing tools on site however,
as an approach being a start-up we are focusing on kind of categories like beauty and fashion and lifestyle specifically small Home Goods,
where purchase intent has typically already been established at the by the consumer on a third-party channel so if anything,
we can remove a lot of the what is quote unquote traditional on-site plugins and apps because in the next generation of Commerce we see them as being irrelevant,
because there's no need for ugc on a website when you live in an Instagram and Snapchat world the ugc has already been presented to the consumer on,
the tag IG posts there's no need for reviews because half the reviews are you know Wise or,
misconstrued or you know as a consumer I've already kind of read the reviews that's all my favorite influencer saying oh my God look at that makeup look at that glow kit like a lot of the on-site dependencies are removed in certain categories and we're aligning our go-to-market strategy around that belief.
[22:19] Jason has a two-hour talk he gives on the importance of social proof and you just blew that talk up.
[22:28] Yeah I feel like that is that's I get the sentiment behind that,
I'm not sure we're at a world yet wherever you sell or real I can rely on adjacent UD U GC instead of ugc right at the point of purchase but.
[22:44] I 100% agree with you and just to level set we are building a company that's going to be around for the next three decades and.
We have to make decisions and bet on verticals and be strategic and Nimble and that's just one that we're betting on.
[23:00] Sure fair enough I was going to go to a happier example first and it was like like the for example this got already brought up if I'm on almost any other platform and I want to offer Marketplace functionality
I'm gonna go get a third-party you like miracle and and
plug them into my platform and do a complicated integration in your providing out-of-the-box Marketplace functionality because you've decided,
early on that that's an important feature set for for future sellers.
[23:29] Correctly believe that.
For future salaries that was for things that they had to do they had to create landing pages specifically One Tap check out product landing pages stores,
cash this point of sale,
and marketplaces all of which are the store types that you can create with our we call experienced builder in Delhi.
[23:49] Yep and so and we didn't touch on this but before you launch the storefront you actually launched a sort of a single page One Click by experience that seems like,
like perfectly suited for,
you know products that you're driving interest on on Instagram or Whatsapp or any of those sorts of platforms.
[24:12] Correct and that that payment page had all of the cross-border tooling and fulfillment that we're discussing here,
if anything it was a very strategic way that I can align our investment team and backers and team internally.
Just be like hey like here's the vision we can simplify the checkout final purchase intent is being established on third parties it works great for painted pages,
and the Assumption when we launch that product was,
we believed that store owners that used us specifically then in advertising channels on social media SMS email.
That they would love the Simplicity and they did they saw a 10x increase in checkout conversion and the sentiment was.
If you guys make a very lightweight storefront version of this we believe very firmly as customers of you,
that you guys can compete in unseat some incumbents so that was always the broader Vision it was just nice to hear it from the initial adopters and I think when you have an investment team it's nice to go through those milestones and get the feedback like that.
[25:16] Sure so so we start with the payment page migrate to the store front and then you also just mentioned cashew spos so is that something that's currently available is that something you're working on
and I'm assuming that's the sort of omni-channel piece of this that you would imagine a seller that has both a store and sells online.
[25:41] Correct So within Elliot when you create experiences and just to let everyone know what experiences are.
Elliot admin unlike Bigcommerce and Shopify you don't need multiple admin panels to run multiple stores you can create multiple shopping experiences and merchandise merchandise the product within them from a single point.
With that being said,
within an experience cashless POS is just one thing that you can create as a part of our experience Builder it is already available that allows you to shorten the checkout flow,
on top of that you can also further checkout you can also further shorted,
the cast is point-of-sale solution to have a very Apple like shopping experience its QR code based and already available within the admin.
[26:27] Dodgers so it supports sort of a mobile POS solution that runs on on handheld Hardware,
yep and then you're specifically saying cashless which again kind of like bypassing ugc I can imagine it's super easy to see that the future is going to be a retailers cash West.
They're like there are a bunch of municipalities where it's kind of illegal to have a cashless store right now.
[26:53] That's fine you know doing bad things usually resulted in good next steps.
[26:59] Okay and then you you highlighted it hey one of your very first insights that cause you to build this whole platform was was the trend towards 5G and ubiquitous smartphones
um you alluded to pwas so,
is that your framework for the mobile experience you get when I hit a an Eliot storefront from a mobile device.
[27:28] That's correct yeah it's a progressive web application using server-side rendering specifically next JS and if anything we're expanding that,
for a multitude of reasons but come April 1st you will be able to as a developer you know grab that front end build more robust,
shopping experiences and will continue to build on top of that belief system over the next year or two.
[27:52] That's awesome though and so the out-of-the-box experience is is pwa the mobile web experience that you provide is is pwa based which our friends in Canada do not support very well.
[28:07] I can see why they would.
[28:13] So talk a little bit about the fees how does your fee structure.
[28:20] Yep I'm gonna give you guys a jam so on April 1st we're actually announcing that the self-service site of Elliot will be completely free no additional commissions on top of the standard stripe pass through cost for payment processing.
That's just that on the Enterprise side we have a commission rate based structure with a cap that goes between one by percent.
And that varies based on the level of service that you need but come April first anyone will be able to sign up uses Elliot for free.
[28:52] Okay so I have to poke around at this little bit so April 1st you know everyone's Radars up are you sure sure about this this is not an April Fool's kind of setup is.
[29:04] Actually a part of a campaign called April fools but no the pricing that I.
Your percent going live April first.
[29:13] Okay because I know you're a bit of a jokester so I just want to make sure that we're I'm nailing you down a bit here and then.
[29:19] I like to clown around but when.
People's money I take it pretty serious.
[29:23] And then there's no subscription or anything there or if I find a Kardashian and I do,
300 million on the self-service not that it's still free except for the underlying payment fees.
[29:39] That's correct long as you use our payment processor and Merchants records services for fulfilling and domestic and international it's free.
[29:47] Got it,
and then it wouldn't be a Jason and Scot show if we didn't talk a little bit about Amazon how do you do you guys you know so the CEO of Shopify is kind of like gotten into this mode where he's kind of the.
We're arming the rebels to take on on the you know the Empire of the death star of Amazon do you guys view yourselves in that kind of a light or how do you think about Amazon.
[30:14] I wouldn't describe myself as the Death Star I think that they only fired once or twice right.
[30:21] If you are the death start make sure you put a grill on your exhaust vent.
[30:25] Now in this metaphor your ear Luke Skywalker not.
[30:29] Amazon's the Duster.
[30:30] Reading at the very least right come on.
[30:34] No but in all seriousness I don't know guys like we're just creating our own lane of Commerce,
like we're doing things very differently I can't say that we are going to be like Amazon are going to be like Shopify we're just going to be like Elliot ultimately,
the difference between both of the narratives for both Amazon and Shopify is they have their own marketing jargon that speaks x y and z,
ultimately what I'm more interested in is providing Financial inclusion for the next generation of entrepreneurs not requiring an abundance of apps that high total cost of ownership,
and I promised everyone that that's always going to be what it is so I will not just arm the rebels I will fight alongside them.
[31:18] What if someone reaction is that Amazon could take to this as they already have this whole AWS stack and they could kind of unbundle parts of Amazon and put it out there on AWS
now they haven't done that but that could be an obvious reaction if they did that what's your reaction to them doing something like that.
[31:41] I believe it's like fundamentally we would fill that,
directionally in terms of product Vision that were on the right path and you know if anything will be doing something similar,
because already underlying Services specifically around HS code classification image processing invoking serverless functions at will likely be doing the same so if anything it will be validating for us.
[32:05] Always a good answer and then on the fee structure so let's say I go to your self service product and I set up my own little sneaker marketplace,
do I have flexibility to set up the and I want it to be you know where I collect,
twenty percent or something like that it you guys will handle do I have flexibility there how does all that work.
[32:34] Trick question yes you have flexibility to Define your commission your sellers commission you can have variable commission rates so you can have more than one seller with a different commission rate depending on your business agreement with them.
[32:46] And then do you give me some Frameworks for that or do I need to kind of come up with T's and C's on that cider or are they effectively kind of signing up underneath the the Elliot T's and C's.
[32:58] You can actually add your own TNC when you invite what we call an Eliot line of Endor they'll be opting into your and are tncs.
[33:08] How many how many folks are running these kind of marketplaces on the platform.
[33:15] Two dozen now are running them they span everything from Barry,
culturally specific Market places like shop land next to leave or launching like Papa brochure and like the marketing like the grocery space so
they're diverse they span multiple verticals with anywhere between 20 and 200 vendors.
[33:37] Yeah yeah that's a you're going to cause an explosion of marketplaces I like that.
[33:44] I do too and I love.
[33:49] Let's talk about the opposite side of that that Scott might not love as much though so so you got this great stack for helping me I have a brand and I want to sell my product direct and I'm using your stack,
but increasingly people want to sell Direct on a
on a brand-new experience that they own which could be Elliott and they also want to sell on marketplaces right so when you added the.
The product catalog to launch a storefront did you guys think about any tools,
for helping Elliott sellers Syndicate on the other marketplaces.
[34:31] We did so we began to release those based on the uploading of our community,
most notably starting with print on Demand with prettify however over the next 12 months we will allow Brands and sellers on Elliot,
to participate in multi-channel selling so yes it is a big belief of ours too and this kind of goes back to the initial narrative which is we want to create an admin panel were sellers can participate in the more unified approach to selling.
That includes selling on third-party channels and if anything we believe that the product in order management system that we have currently will be able to support that.
[35:13] Awesome and one of the things that always comes up so you you have a,
a very cool architecture you have a bunch of cool and the Box features you have a super appealing onboarding experience and if it's not obvious to listeners yet one of the cool things is,
there's no barrier to signing up and setting up a store and it is kind of to me absurd how fast you can get to a,
functioning store so so instead of listeners taking our word for it you should you should jump over to Elliot dot store and fire one up and see it for yourself,
so I feel like that's all awesome and to be applauded and I can imagine you winning a bunch of customers
on that set of benefits but I didn't work with a bunch of Enterprise clients and their a royal pain in the neck mostly because of edge cases,
and so they have a million reasons good or bad why,
the out-of-the-box Shopify experience doesn't work or demandware experience doesn't work or or you know frankly to the extent that.
[36:24] Oracle ACL sapr have out-of-the-box experiences why those don't even work right and every client has some new promotion that no promotion engine has ever seen before
or some new you know shipping model or some new attributes for the catalog is.
Like and so I feel like the more customers you want to capture the more and more you have to have some answer to those edge cases like
is the is the answer for you guys sorry we don't some if that truly is a deal-breaker we don't support it is that we support that through third-party Integrations is it,
we supported through our Jam stack and you develop your own Edge case Solutions like what how do you guys think about that.
[37:12] You're really making me give you guys all the gems today.
I haven't said this anywhere literally only two of our investors go.
About this but come April first Elliot's core platform will be completely open sourced and there's a couple reasons why we're doing this,
number one we're providing cross-border infrastructure from an on-site through our Jam stack technology which initially is going to live with next JS but we'll be going to Gatsby and nuts.
We also provide cross-border fulfillment that's what we do as a company we allow you to transact process payments and shipped globally instantly.
We are offloading and open sourcing our admin panel and the shopping experience is with the one exception being the checkout function specifically what processes of payment and creates a compliment.
With that being said you'll have all the unified approaches to selling on Elliot.
Except for the more Enterprise customer you'll be able to clone the admin you'll be able to work with leaving agencies like you know Accenture and Deloitte and sapien,
and it's completely selfless and that's our answer to it.
[38:37] Very cool so April 1st is a big day for you I feel like we're.
[38:41] The big difference.
[38:42] I feel like we're taking time between now and your first time getting a little stressed out just being on the podcast.
[38:45] I am looking I'm looking at her to lead engineers and they're looking at me look at you look at me you look at.
Looking at me like you asshole you really just said that on.
[38:57] I'm super nervous on April 1st that I'm like fall for some dumb prank on Twitter and I feel like you have reason to be a little bit more nervous.
[39:05] I have a lot of reasons to be nervous yes but I promise you that the April Fool's marketing campaign will not be a joke on you and the only person that could potentially be is on me for over promising but I doubt that will do that.
[39:18] Cool let's so thanks for sharing that with our listeners we appreciate any kind of breaking news on the podcast that's,
I've been following you on Twitter for a while and I'm a Serial entrepreneur been at this game for a while no tons of entrepreneurs you have a kind of a real fun style and very
transparent way of building the company share a little bit about your thoughts on that and you know what
as a leader how you think about things in your company and now you want it to be thought of you've said you've given us some hints you want this to be around for three decades and things like that
tireless there's a little bit more about your vision there.
[40:00] Ground the company or.
[40:02] Vision culture you have you know you're doing a lot of fun kind of interesting stuff that I'd love to try to capture some of that if we could.
[40:11] Yeah that means it's to kind of focus on one culture making a big believer of mine is transparency like radical candor.
I believe a lot of us like to think that we can do that there's very few that actually employ that train of thought,
if anything when I think about creating a highly scalable and fast moving company.
You have to instill very early on radical Candor but in a very respectful way so bending how I act on social media is providing transparency,
speaking my mind not being afraid to,
you know put my money where my mouth is and I would love for that culture to resonate through Elliot which specifically is having great governance.
Being able to be challenging being able to talk through ideas and more importantly being confident and Resolute in your decision whatever that may be.
[41:06] Cool it let's talk about kind of radical transparency one of the things Mark Lori did a jet is everyone and I don't know the method here but everyone knew what everyone else made it was like very public and you know talking to him there was a good sight of that and kind of a distracting side of that do you go to that level of
[41:28] We do not we do not say how much someone makes but we do allow people to do is come in have an opinion,
create a platform for them to feel confident in speaking that opinion removing the bias that comes with opinion based on gender and race and all the Nuance that comes with the world we live in.
With regard to pay I don't know if whoever just do that maybe we will maybe we won't I know I joke and Ali with team members because I am actually the lowest paid person that Elliot I make $19,000 a year so maybe it starts there but for me.
The bigger issues are ensuring that people that do come in feel like they have a platform and a structure to speak their mind.
Do it respectfully and be able to invoke change where they see it necessary.
[42:17] And then as you were saying that I was immediately going to Tony how do you say his name Jason Tony hsieh is that right,
yeah founder of Zappos he does there need deeper neck deep into holacracy and then Sergio don't know if you seen this or not but he publishes an Evernote of what he does every day and there's all these people that have built
he's a certain format and there's all these people that built stuff on top of there which is kind of a fun thing to think about have you studied some of that kind of stuff and how do you structure the company it seems like
you're going to have a really different way of structuring the company.
[42:57] I haven't studied any of that total transparency I just behave how I behave just instinctively I can't say that I've read a lot of books so I've studied a lot of people I just kind of am this way.
It is what it is man I don't know how to I don't know how to put it in any other words and then what was the other question.
[43:21] So sorry for Matt do you have an org chart are you like the CEO and there's like a box with your name on there and then there's a line down to the CTO and or how have you organized the company.
[43:33] That's a great question so we have not created that vertical hierarchy I think of.
Creating a company in pods so building blueprints that you can deploy across ideas I markets opportunities,
so if anything were a flat organization we operate as a pod we have a blueprint that we know works and we'll use that blueprint to replicate product lines build into opportunities and go into new markets with.
[44:01] So pod is like a little functional unit that may take Elliott and go after I don't know the you know the office office furniture vertical or something like that.
So so more kind of like a little little teams that can go tackle something that are relatively independent you should read a book on her locker so you're basically kind of
yep you've got in there naturally but you may find something beneficial for him at or you may want to just stay on your own path but yeah the way you're describing it sounds a lot like this interesting new way of doing things called holacracy that you may find interesting.
[44:40] I will check that out.
[44:42] Dude you have a lot to get done before April first I recommend you not read any books.
[44:46] April 2nd I'll send you as a as a thank you for being on the podcast I'll send you a bunch of books on April 2nd no distractions until then.
[44:52] I appreciate that okay for sure.
[44:58] You know one thing we didn't cover when we're talking about George structure can you give a super rough idea of how big the company has become in terms of number of inputs.
[45:09] Yeah between full-time employees and contractors or now over 25,
that spans everything from product marketing growth sales Str saec SMS which is crazy when I look back,
and October 17th when we actually launched the platform that were talking about because it was literally myself and the two lead Engineers I'm looking at right now polynomial fa.
And that was it so that's the team size now and from where we came in October.
[45:40] And let the record show we're recording this show pretty late at night so it's alarming that you're staring at your two developer still that kind of implies you have long days.
[45:54] I would say yeah we do have long days and.
It is tough but ultimately the dates are fine they're challenging.
And if anything I appreciate that they are here accompanying me while doing this podcast and.
Them trying to make all the crazy shit that I just talked about reality.
[46:15] Yeah well it sounds like you've already built some pretty cool crazy shit and props,
ABS to those guys I hope you keep it rolling and that's going to be a perfect place for us to leave it because once again we've used up all the allotted time for the show
so if listeners want to continue the conversation you can jump on our Facebook page and ask questions or you can hit us up on Twitter and Sergio if folks want to get in touch with you I'll certainly put a link to the Elliott website in the show notes but how could someone get in touch with you personally.
[46:52] Link in the show notes is great one thing that we've actually done for those that tune in find us on podcast like this feel free to join our WhatsApp group you can text me at three four seven,
seven one five zero seven two eight,
actually add you to our WhatsApp group and you actually get exclusive drops access to functionality exclusive merge and invites to our own Ellie experiences that we actually don't make up.
[47:19] That's awesome and presumably you could also call that number if they want to talk to you.
[47:23] You can give me a call anytime I will literally pick up.
[47:27] I sort of believe that.
[47:29] How it is and that's real.
[47:31] Yeah and if you just want to follow sir Zhu and not chat with him I strongly recommend his Twitter its Sergio won't you take a shot at explaining this.
[47:41] It is 3000 with five agent.
[47:45] Angie will put in the sun it's a little hard to spell,
Sergio we appreciate you being on the show he with this kind of deadline of April first looming and congrats on what you guys have built we look forward to seeing what you build over the next 30 Years.
[48:03] Awesome I appreciate the time guys thank you.
[48:06] Great talking to you Sergio and until next time happy commercing.
EP207 - "Billion Dollar Brand Club" author Lawrence Ingrassia h
Lawrence Ingrassia (firstname.lastname@example.org) is the author of "Billion Dollar Brand Club: How Dollar Shave Club, Warby Parker, and Other Disruptors Are Remaking What We Buy". (Amazon Affiliate Link)
In this interview with Larry, we discuss many of the brands covered in the book including Dollar Shave Club, Warby Parker, eSalon, Mohawk, Anker and Tuft & Needle, as well as many of the ecosystem companies that developed to enable the DTC movement including Facebook, Quiet Logistics and Locus Robotics.
We discuss the trends of DTC companies turning to brick and mortar. New ways to leverage data to identify product niche (what Larry called the "money-balling of DTC), and what the future may hold for DTC.
We also cover events that happened after the book was published, including the FTC's blocking the Harry's acquisition, Caspers IPO, management challenges at Away.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 207 of the Jason & Scot show was recorded on Tuesday, February 11th, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scott show this is episode 207 being recorded on Tuesday February 11th
20/20 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:40] Hey Jason and welcome back Jason Scott show listeners Jason as you all know one of our favorite topics here on the show is the big move where brands are going direct to consumer
and of course we spend a lot of time talking about digitally native vertical brands also known as DMV bees
today on the show we are really excited to welcome Lawrence and Gracia.
Larry has been a business journalist at top Publications including Wall Street Journal New York Times and LA Times Larry is the author of the book
billion dollar brand Club how Dollar Shave Club Warby Parker and other disruptors are remaking what we buy
the book was just published in January and we are really excited to have Larry on the show Welcome Larry.
[1:20] Thank you guys.
[1:22] Very we are excited to have you in the topic of your book is
super relevant and pertinent to our audience so before we jump into it can you share with our audience a little bit about your background and how,
you know you sort of came up to the point where you wanted to write a book.
[1:41] Yeah you know I worked at newspapers for many years I was the senior editor really loved it retired a few years ago and when I retired and I wanted to delve deeply into something that I thought was interesting and I've been fascinated by the world of,
entrepreneurs and startups and.
I actually had a kernel of an idea when I retired so and it goes back to 2011 and that was before most people actually at even,
I thought of the idea of direct to Consumer Brands and back then I heard about a company.
Dollar Shave Club it was actually before it had the name Dollar Shave Club it was an idea of a friend of my daughters.
Now I had been business journalists as as you guys noted for long time and eating had covered Gillette at one point.
It is one of the most powerful Brands not just in the US but the world has great products as great advertising,
and it's maintained a 70 percent market share for decades I think that's worth repeating because that's just unheard of in any consumer product 70%,
market share in the US for decades and so I didn't tell Michael Dubin who was the founder of Dollar Shave Club but I thought to myself,
this is the dumbest business idea I have ever heard.
[3:03] You're going to compete with Gillette by selling razors and Blades online like really.
So then you know kind of fast forward to 2016 I'm driving to work at 7:00 a.m. I'm listening to NPR,
and there's a story about Unilever buying Dollar Shave Club for 1 billion dollars.
[3:24] And after grabbing the steering wheel tightly to keep from swerving into the lane next to me I said to myself out loud he did it Michael,
expletive deleted did it and I had two thoughts quickly first,
oh my gosh was I wrong not just me but lots of so-called smart people who scoffed at the idea you know Venture Capital investors who turned him down competitors including Gillette that had ignored and dismissed him.
And second in this is where really the idea kind of grew was how did this happen how did The Impossible or what most of us thought impossible become possible,
because nobody thought that the razor business could be disruptive in fact after my book was published I got a I got an email from an executive at a big consulting firm who does Consumer products and he said if somebody had told me that.
Ten years ago that the razor business is going to be disrupted told them that they were crazy so it was the same reaction that I had.
And you know what it was disrupted gillette's market share fell too low 50% range within about four or five years just unbelievable.
[4:33] And so as I started reporting I quickly realized that the Dollar Shave Club story well while amazing was really part of a much bigger story it was a story about,
Revolution that has changed what we're buying and how we buy things and it's not just razors its eyeglasses mattresses bras contact lenses sneakers luggage cosmetics.
Dog food vitamins hearing aids you know you've named it and you can buy a new brand and often several new brands that have been launched online and so that was kind of where I got going is a let me kind of find out about this world and why this was happening.
[5:09] Rico we're glad you you wrote the book on it so it's been great so so you do spend a lot of time in the book on Dollar Shave Club.
What do you think was the magic there you know they had the viral-video the subscription model with what do you think was the lightning in the bottle that they capture.
[5:28] Yeah so let me you know kind of pan up to it like 5,000 feet and then go back to Dollar Shave Club so you know a couple things that these companies.
Had in common but I found early on you know first of all the main formula for Success was actually quite simple.
These entrepreneurs and their young and trumpeters mostly in their 20s and 30s spotted a problem and figured out a way to fix it.
[5:58] But by offering a lower price or better value or improving the customer experience or just eliminating the hassle.
You know these problems now may seem blindingly obvious but the big companies had never fix them.
[6:12] And the second thing that is really interesting about most of these companies is that the founders knew little or nothing about the products that they were introducing them when they actually started their business.
How can that be well actually you know kind of it turned out to be an advantage rather than this advantage and the reason for that is that they.
We're thinking outside the box,
you know kind of thing they were constrained by oh we can't do this or that or the other thing because you know that's not how the way things are done in our business,
conventional wisdom can be a real problem for companies.
So Michael Dubin was an out-of-work internet marketing guy was looking for his next thing but he thought razors were ridiculously expensive and frustrating to buy because they're often locked behind a glass case so his solution raises it to half the price shipped right to your home with the monthly.
And often it's not one thing it's often several things that lead to the success and you mentioned the video which went viral.
Which you know kind of our blades are blanking great.
Shot for about $5,000 1 minute and 30 seconds I've had Marketing Executives and marketing professors tell me that they've watched it so many times it's taken basically recited by line.
[7:31] I've quoted a lot of it to him which he finds really annoying.
[7:35] To Michael.
[7:39] Yeah every time I see him my first sentence is I'm good at tennis.
[7:43] That's right and that you know kind of but if you look at this Warby Parker to you know this was the pioneering online eyeglass company that was started as a class project.
For students who are getting an MBA degree at the University of Pennsylvania's Wharton Business School.
And you know kind of a figured well if it doesn't become a business at least we'll get class credit for it but they wondered as many people,
probably have why does a pair of glasses cost,
$700 so their solution was classes for his littlest $95 with five frames shipped to you at home so you could try them on before buying them.
Again kind of in retrospect a very easy solution in a simple solution to a problem that a lot of people had but it was people outside the business that thought of it.
And then you have the founders of all these mattress companies including tough to needle which actually was the first one it was before Casper.
[8:43] These guys were software Engineers who got tired of working for software companies and one of them had bought a mattress and you know what as I'm sure,
both of you guys would agree at everybody I talked to buying a mattress going into a mattress store is a truly miserable experience your stock by a Salesman,
tries to steer you to the most expensive mattress you lie down on it for 30 or 60 Seconds,
get it home and realize you don't really like it your back is killing you and so you call the stories they can I return it and they say yeah.
20% restocking fee plus a hundred dollars shipping and at that point you can't go out maybe I'll keep it so you know kind of their idea was a foam bed in a box,
reasonable price free shipping and if you don't like it free return after 30 to 60 days if you don't like it so you know kind of,
all these startups the most successful ones spotted a problem,
so I need and pink the way to fill it and I think that's what was the Real Genius of Dollar Shave Club and then of course they have to figure out a way to Market it to get attention which Michael Dubin did with his video,
it helped in his case that you had a giant that was in Gillette that was a bit.
[9:57] Complacent even arrogant.
Pick one of the tidbits in my book is that early on one of Dollar Shave Club investors called Joel and said hey would you guys be interested maybe in making an investment in Dollar Shave Club and they were dismissed out of here.
It was like nope you know didn't even take a meeting.
Well that came back to kind of be kind of what they ruled that day because for five years later to let did.
With a hood nobody can remember it having done it lowered its prices because it was losing so much market share and again it's because,
Michael Dubin saw that they were vulnerable and then attacked it on his terms rather than competing on gillette's terms.
[10:40] Cool the haven't seen a lot of people talk about the exit and detail were you able to get any details of you know why they sold win and was there a bidding war or anything around.
[10:51] He had taught he had talked to a few people but I think that Unilever came up with you know kind of this outrageous number and it was kind of like yeah right I'll take it,
you know kind of I wondered if they overpaid I think they were buying you know a growing business,
I think they were buying on an entrepreneur who might help them think about how,
e-commerce is changing the way that products are being sold so there is a combination of those things.
[11:22] Yeah it's interesting because you know something like six to twelve months later P&G had an activist in their really disrupting things because they didn't buy Dollar Shave Club so it kind of made me feel like
maybe they'd either totally missed the boat or they had kind of low-balled it ended up not winning.
[11:38] Probably at that you know at that point probably PNG couldn't have bought Dollar Shave Club for any trust purposes it might have been able to invest in them you know kind of the first year to because it was so small but you know kind of by the time Dollar Shave Club had
you know ten percent market share in volume you know kind of or maybe even a little bit more
it might have been very hard for that to pass muster with antitrust regulators.
[12:04] Yeah and we may get an opportunity to talk a little deeper into the antitrust issue because there's there's been some recent developments there but one of the things I really enjoyed about the booklet is I sort of feel like,
it would have been sufficient.
To just have like some great biographies of these d2c companies that have caught our attention and we're all talking about and and you certainly do have,
some nice biographies of the you know the origin stories for some of these these Brands and in you know.
Most I would is I was already familiar with but for almost every one of them you you know you uncovered some interesting tidbits or had some,
some good background that was news to me so it was it was fun to read those biographies and I particularly like you you sort of introduced a framework for these companies I you highlighted the fact that,
you know some of them really entered the market by trying to have a better experience than their predecessor so you know Dollar Shave Club being an easier way to get razors then,
go to the store.
[13:09] Not just priced yes.
[13:10] Yeah defeat product jail like some of these like we're about price you know and you know Finding finding Windows of opportunity,
somewhere about like dramatically improving a the product from what was previously available
and then someone about using data to uncover sort of an unmet need.
[13:33] Yeah that's that's a really good point so when I started looking at the book I didn't want the book to be like one chapter after that kind of telling the story of this company that company other company I wanted to to matically,
slow and and you know getting back to that moment when I was sitting in the car and said to myself oh maybe there's something here,
and then kind of why is this happening you know kind of and why now and the answer I quickly Learned was technology.
[14:03] Technology had leveled the playing field and made possible what had not been possible you know 10 or 15 years ago so if you go back to I mean all these,
problems that these entrepreneurs all had long existed I mean mattress stores have been kind of ridiculous places for a long time Gillette has long you know added you know kind of little features and so that they can justify increasing the price,
but it was very the barriers to entry were much much higher,
10 or 15 years ago especially if you wanted to create a brand that was a national brand so you know kind of 2005 even up to about 2010 you want to introduce a new brand you know kind of you have to go to a retail store you have to say mr. Walmart or Ms Walgreen,
you know can will you carry my product and they like why I don't need to carry your product first of all have limited shelf space and save all have all these other brands that are doing quite well you know kinda is a pretty cozy relationship so,
dinner that comes along and that means that you know can e-commerce allows companies to introduce products introduced new brands in ways that would have been really difficult before,
the internet has unlimited shelf space you know kind of your website is yourself space.
[15:20] And then second okay so you've got that she'll straight how do you get anybody to notice you again go back to you know kind of 10 or 15 years ago and you would need a multimillion-dollar,
advertising campaign really you know kind of tens of millions of dollars advertising campaign on TV you know kind of radio newspapers if you wanted to get any attention,
Gillette spends hundreds of millions of dollars a year but all of a sudden you know kind of Technology first with Google but then most importantly with social media,
like Facebook allows a company to spend your thousands or tens of thousands of dollars to Target those customers who.
Are most likely to buy your products.
And because you have this relationship online and you're kind of selling all your products on lied you're learning a lot about your customers Behavior,
and you can keep fine-tuning the product the message whatever.
Again so and the final technology that really you know that Leap Forward that really made all this possible was in logistics so.
[16:25] It's hard to remember but in the early days of e-commerce you ordered something and you know you were happy to get it in a week or two right and thanks because thanks to Amazon,
push the envelope and forced everybody else it got to the point where you could order something it's something within it two days or even one day.
And again the convenience factor of getting something going on and getting something made possible,
this revolution is taken in front in front of our eyes so you had kind of Technology changes and it's going to continue changing,
is made you know these.
Companies these startups possible and enabled them to challenge much bigger much more deep-pocketed companies in ways that would have been unimaginable.
[17:12] Yeah I agree what you think about so there's been a lot written I've written a couple books and I realized that a lot has happened since you probably put the book to bed but.
[17:24] Yeah when you're when you're writing something when it's live and it's actually kind of evolving you know kind of it's really you know interesting interesting challenge.
[17:33] Yeah so a lot has been written and I think Andy done at bonobos to set a lot around you can get these businesses up to 100 maybe 200 million and then the conventional wisdom has kind of fallen over that you need to open stores so so we've seen away as open stores sometimes they're called guide shops but they're essentially
stores to go experience.
[17:53] Warby Parker.
[17:54] Warby has it cetera.
[17:56] Third love is dabbled in it tough to needle and Casper both have as well
yeah and so when I started seriously working on the book two years ago I think you know basically there was Warby Parker,
with stores and you know kind of,
one or two others it was kind of really small and as I got into the reporting and more open it up I said you know what I have to write have to have a chapter on retail and where does retail fit in this I mean it was something that you know that that clearly was becoming,
a trend among some of these startups and for just the reasons that you say so a couple things were happening,
one social media marketing was so successful.
Everybody started doing it so it became a bit more expensive now it's still one of the most effective ways to acquire customers.
[18:56] But it's more expensive than it was in the past so the cost of that is going out
second you have you know kind of the type of people who are most likely to buy online and to respond to a social media ad you're getting to saturation point now that may be a little bit of an exaggeration but a lot of the people are most likely to do it I've done it.
And finally then you get to like that eighty to ninety percent of retail in this country is still done in physical stores.
[19:24] And some categories is even higher,
Neil Blumenthal one of the cofounders of Warby Parker told me it's like 95% in eyeglasses so there's no surprise that they were one of the first,
startups actually go to physical retail so the new thing that you hear a lot of is multi-channel,
that yes you can build you know kind of a brand it might be depending on the product that might be 20 million it might be 50 million it might be a hundred million sales but to scale it up you're probably going to have to be,
multichannel I think most of these Brands still have more than fifty percent of their sales online and over time I think you know
the percentage overall of retail that online is going to continue to increase but that's why these brands have moved their oh and the final thing is that you had a lot of traditional retailers having problems and going out of business
so guess what retail space became a lot cheaper.
So you know a company could kind of test retail in a way that was it going to cost them an arm or a leg they can see how it worked without really kind of going all in.
[20:31] Yeah and you know it's interesting you mentioned the the evolution of Facebook and that that you know emerged as a new tool that allowed more efficient marketing,
there was one of the in a blurs for a lot of these companies but you also covered a lot of other aspects of this sort of,
product development through you know go-to-market ecosystem that that sort of evolved to create this this opportunity so you covered some of the.
[21:02] The infrastructure as it were right.
[21:03] Yeah yeah exactly so I.
[21:05] The things that people don't see very often I you know as a business journalist I got really fascinated by that stuff.
You know kind of the company that you know kind of figured out that you know face could,
Facebook could really be a way to reach Target audiences and of ampush,
based in San Francisco found by kind of three College friends roommates who went to Wall Street and got bored I'm doing Wall Street and said hey let's start a company and they figure that out you know kind of done very well.
And then there's you know the logistics companies which I found extraordinary fastening go into a modern warehouse and it's not like what you would have seen.
Five or 10 years ago certainly not 10 years ago,
where are you know kind of a lot of forklifts and people carrying things around and racing around you know a lot of their automated to a large extent they're a lot of robots there people there and they tend to tend to do the things that robots aren't yet good at.
But the amount of innovation that's going on there to make that.
Product that you quick on and then get it within 24 to 48 hours is amazing it's kind of cool it's actually kind of cool.
[22:16] For sure and so you you had some interesting stories in there so like one of the companies you profiled in that ecosystem quiet Logistics I was familiar with them but I didn't really know the back story,
they were early adopter of these first robots for automating warehouses in the robot they adopted was this Kiva systems robot.
And then you tell the story of how they were subsequently he though.
[22:41] So keep your hat size yes so this is is I love that story coming Kiba was acquired by Amazon,
in Amazon you know kind of not long after acquiring Kiba said to the people that keep it been selling to is like basically we're not going to support we're not going to you know after a few years we're going to stop,
you know kind of servicing the robots that you have and these guys at quiet Logistics who had built the nice business who had spotted the e-commerce,
Revolution coming and built a business totally on having an automated Warehouse they've been in the warehouse business for years and it sold a another warehouse company they had built up a decade earlier but they say hey this is a new opportunity they're like.
What you're not going to surface the robots anymore what are we gonna do you know kind of that's our own business model and so they had the idea,
why don't we build our own robots and so they went about kind of hiring,
engineers and higher robotics experts so they built their own robots and lo and behold that business is so successful that they spun it off and it's now sewing robots,
two other Warehouse companies and two ups and all over the world.
[23:57] Yeah that that was funny and I'm trying to remember Scott were you an early investor in Kiba.
[24:03] Thanks Big thanks for watching that.
Had the opportunity and at that point it was just random pitched it was described as ant algorithms in a warehouse full of robots and it didn't make sense to me but I was wrong.
[24:19] Dab to teasing you you at least four on the list of people they called.
So that was a great story Larry another one that I think is in some ways one of the most important Trends in the whole book is you described a number of entrepreneurs that,
really leverage data that previously probably didn't exist.
To help Define the products that they offer so I'm thinking like E Salon or Mohawk or or anchor could you talk a little bit about one of those.
[24:50] Yeah so I think this is one of the things when you have a disadvantage when you're competing against a bigger rival.
You need to have some other Advantage you need to play by different rules and actually you know kind of you guys remember the the book and in the movie Moneyball by Micheal Lewis.
So Moneyball basically was about how.
A small-market baseball team the Oakland Athletics.
Couldn't compete with big Market teams like the Yankees who are rich in could you know kind of pay for more Talent so they had to figure out how we going to compete and they came up with the idea of data analytics to find players who were undervalued.
And within a few years after embracing data analytics they became highly competitive.
And and you know kind of vague were you know going toe-to-toe with the Yankees in many ways so.
To me what is happening in retail in the creation of Brands is kind of the Moneyball.
[26:04] These companies in addition to seeing a problem in looking for a way to fix it also recognized that you could use data.
Technology barley but also data to spot opportunities to improve your products to connect with your customers so a lot of people call it this is direct to Consumer businesses also say it's connect to Consumer businesses,
so early on before they get big enough that they decide they need to offer you know kind of have retail stores as well.
These companies are doing all their business with people online.
[26:39] People are coming to the website they know everything where did you come from how much time did you spend on the website what are you looking at.
What are you ordering how many times you come back before you order they can just gather a lot of data to learn about their customers and to improve their products.
[26:58] In some cases one of the things that some of these brands of do he's having more customized products and that's where he's Lon as come on E Salon offers customized are coloring.
That is you know just about as good as Salon but what more expensive but better than the off the shelf.
Hair coloring that you would get from one of the big name brands and how does it do this its Gathering data all the time from its users has a questionnaire.
It's using AI to analyze that data when we mix this for these for the woman who answers the question are this way.
This is what she like sometimes we will tweak it and give her a slightly different than what she thinks that she wants because our experience has shown over hundreds of thousands millions of people answering the questions and of this is what is going to work best.
And so their product is like 20 or 25 bucks depending on what kind of subscription you have and you know it's a lot less than you might spend at a hair salon and it's and it's a very good product again that would not be possible.
[28:08] Without being able to collect the data and you know kind of fine tune.
It's a product but also it's the marketing it's the pitch kind of to see somebody comes to your website you know kind of how long you're going to stay there.
Every you know kind of incremental Improvement in each step along the way.
[28:28] Means that you're going to have more customers and more customers stay with you so initially they started I think they told me like you know fifty percent of their customers were coming back because they were still trying to figure out the formulation and now 70%.
Come back after the first purchase they get people past their third purchase they know they're going to have until 8:00 purchases if they get past their 8 purchases they're going to have them like just about forever again and they know this because they're measuring every bit of data.
[28:56] Yeah I mean one of the examples in the book that really struck me was when a woman ask for the lightest possible blond they know that she actually doesn't want the light as possible blond and that she maybe want something with a slight bit of blue tint in it.
[29:11] Yes because because I know from people who've gotten the lightest possible Dom who fit the profile that she fits that they have a lower kind of Second Coming Back conversion rate than they do when they kind of tweaked it a little bit,
it's you know kind of it really is a type of rocket science put it into a computer for retail purposes.
[29:32] But I like that metaphor so you could almost think of them sort of anchor money bald Belkin right like the the you know the traditional accessory providers.
[29:44] Yeah well one of the challenges I think for some of the startups is that you know,
what happens when the Yankees starting you could start using data analytics right they got money and data analytics.
So now you know having said that I think the Oakland A's are year in year out Fielding better teams.
Did they ever did before data analytics going to watch.
So so even though it may be harder now that everybody is using the same tactics and I think a lot of the big companies are starting to learn some of them are buying some of these companies,
some of them are buying expertise,
so so that's going to make it a bit more challenging for companies but still you know I think that there's a lot of potential because you have the technology out there that makes it easy to introduce a.
[30:39] Yeah and you know what you know finding that metal part maybe just one step further that's a great point you make that
when the Oakland A's are the only ones using the Moneyball system they were they were suddenly identifying valuable players that other teams didn't want because they didn't know they were valuable,
so they had this competitive Advantage but once the whole world adopted this this Quantum metric,
system suddenly everyone knew those value and so it was it was harder to gain an advantage from that and then in some ways it feels like.
DDOS is playing out very similar when you were the only ones leveraging this like targeted audiences on Facebook.
You had this great competitive Advantage but now that everyone's using it they you know bit up the prices and it's it's less of an advantage than it was for that first mover.
[31:29] Right right there's no doubt about that there's no doubt about that.
[31:33] Cool one one thing I wanted to talk about is so a way has been interesting and this probably happened,
post publication of the book so they've had one thing that's interesting is so so Amazon is kind of cloned their model so there's an Amazon basic suitcase
Target just announced Their Own Line of suitcases that look very away ish and then they had their own kind of implosion with the CEO,
sending some unsavory slack messages internally kind of kicking yourself upstairs and then re kicking yourself back downstairs what do you make of the tumultuous times there.
[32:10] Yeah so I think implosion is probably to stronger word clearly embarrassing for the CEO
to be berating her,
employees the way that she did in a very demeaning way and I think that she has said she's embarrassed but you know one thing I would point out.
These are startups most of these people have not run companies,
and often you have you know entrepreneurs who aren't great managers you know witness Steve Jobs at Apple,
right or Elon Musk at Tesla I mean both of these executives.
Were incredibly incredibly difficult to work with and the second thing I would say is that you know,
especially when you're in the mode that away is in you know competing first of all with other startups which it ended up as the leading,
new luggage company and now competing against other existing players trying to get into its pace and copy what it's doing,
you know it's a life-or-death situation for a company and so you know sometimes emotions boil over I think the big question there is.
[33:30] Will that bad publicity affect ways image overall and you know you go on social media and you see people saying oh I'm never going to buy it anymore and oh I wish I hadn't bought it and.
You know what week later those same people are outraged by something else.
So I'm not sure I mean I think time will tell how much it's going to affect them but,
you know they have a good product at a at a good price it's a value price right it's not the most expensive and it's not the best product but it is you know a good product at a good price,
and I think it could end up being one of the winners only time will tell but I think it could be.
[34:07] Yeah yeah another one you know I feel like demonstrating how liquid all this is like obviously you you
you know the you mentioned our shave club was sort of one of your your first interest in this space and their well covered in the book and you alluded earlier to gillette's prodigious market share
so like the the interesting news from last week and this week as last week the FTC filed the complaint and said that they were actually going to oppose,
Harry's acquisition by Edge well because they felt like number to March it.
[34:45] Which own chick.
[34:47] Yeah exactly so Schick number to acquiring Harry's which some people think is number four behind our Shave Club I actually have some data that looks like Harry's may have a bigger market share today than Dollar Shave Club.
So calm three or four number two by his number three or four and the FTC was concerned that that would dramatically a road,
price competition so they they block the merger and and then this week Edge well announced that they weren't going to fight it so there are.
[35:17] To the consternation of Harry's well you know like I'm not sure what the most recent data is the data that I got from an independent source,
that tracks sales said that Dollar Shave Club sales and market share was quite a bit bigger than Harry's but separate from that,
I think it was an interesting decision I'm not a little bit of a puzzling decision you know kind of the FTC is letting Sprint,
and T-Mobile merge.
And put not Harry's and sik or Edge well merge the barriers to entry in Mobile.
[35:54] Communication is much higher than the barriers to entry in razors and actually one of the things I think you know getting back to the whole point about how easy it is to introduce a new brand we let's say that Harry's,
you know starts raising its prices and starts doing business more like chicken Gillette had long done it that cozy relationship,
to me that would prevent a you know kind of two things would happen because of the way that the world has changed one dollar she would help Dollar Shave Club being in there as you know kind of offering this alternative view of the world.
it's quite possible that another brand would come in and say Hey you know kind of these guys you know kind of are leaving their customers behind they're not being true to what they were and obviously there is a market for what they were doing.
[36:42] And I think that's one of the kind of long-term getting back to the Money Ball issue kind of one of the long-term benefits of what's happened is that
we as consumers have more choice and
likely will have more choice in most consumer products going forward because it is so easy to introduce a new brand there's been a democratization which leads
how did the fragmentation I don't think we'll ever see a prey on that you know kind of like Gillette has 70% market share in the future but that's good you know that's not bad,
you know I kind of finally I think part of the reason that that edge well sik backed out was it paid I thought the price that it offered was quite a rich price it was like 1.3 billion was even more than Unilever paid for Dollar Shave Club,
so although there was an awfully Rich price maybe they kind of at the end got cold feet and said oh maybe we're paying too much for it you know kind of let's let's let that.
[37:36] The I think the investors must have agreed with you because I feel like Edge well stock is up since the merger was called off.
[37:43] Right right,
but long-term long-term sik Edge well is going to have to figure out how to better service its customers right because it was distant distant distant you know kind of number two to Gillette forever and it had,
combined combined Harry's and Dollar Shave Club I think had more market share than Schick so that says something about the way they were doing business before the way they need to think about doing business going ahead.
[38:10] Oh for sure and like I mean two things,
hey like it's going to be interesting to watch it because you know in many respects when they announced this merger they said and we're going to put the Harry's guys in tired of our strategic plan going forward so they sort of announced to the world,
that we don't have any good ideas and we're trusting them to take the brand forward and so now what do you do when you don't have those guys.
[38:34] Right I mean you know you maybe you try to hire that talent but sometimes that entrepreneurial talent and that just kind of feel for what the customer wants is not so easy to duplicate in focus groups and such.
[38:44] No but so I'll admit very personally selfishly I'm disappointed that they're not going to litigate with the FTC because per your point,
in the ftc's complaint they made a lot of interesting claims and one of the claims was that,
Harry's was able to capture significant market share and become a relevant player but they sucked up all the opportunity to do that and that it would be much more difficult for anyone to follow in Harry's,
footsteps and therefore it was important not to allow this merger and like well as we discussed already in some ways it probably is harder to be the third or fourth mover,
in other ways,
like the the friction is considerably less like and it's hard to imagine that Amazon couldn't be a significant player or Target couldn't invent a razor.
You can play or so.
[39:44] Well Amazon as you noted earlier I think you mentioned it with.
[39:48] Yeah they're already in the space.
[39:49] In the space but they have there are at least 200 new brands at Amazon has introduced,
over the last few years and I mentioned this in my book that are there have amazonbasics Brands but this is separate from that these are brands that you don't know her necessary Amazon Brands unless you really drill down,
they actually have a shoe brand called I think it's called Collective 206 kind of crazy name for a shoe brand but anyway they introduced a knockoff of all birds,
wool Runner Shoes recently and all birds took a shot of them and say oh your stuff is not sustainable materials and but in some ways Walmart is I mean she's me Amazon is validating.
What all birds is doing and it's somebody's it's giving a threat so you're going to have,
all sorts I mean the opportunity to introduce new products new brands is you know kind of higher than ever before and then getting back to my point if Harry's changed the way it did business.
So that it charged higher prices and and you know kind of acted more like chick that would create an opportunity for somebody else in the marketplace I truly believe that.
[41:04] Yes can be interesting to see
you know if more of this gets blocked and what's going to happen one one other topic I wanted to just touch on quickly that happened kind of post the book is the Casper IPO so you know I think Casper raised money as a private company at around
one to 1.2 billion and then they really struggled price in the IPO the kind of,
we're talking about a 15 to 17 range and a pricing it at 12 its trading off of that
it's interesting because I've seen a lot of people argue that these brands should get kind of one times revenue and then other folks have argued that a lot of these brands
because they're more efficient they should get
two three four times so this one ended up kind of going right in I think they're trailing 12 months Revenue are about 400 million and now their market cap is right around 400 million so they.
[41:55] Or 500 or something like that but pretty close to it.
[41:58] Get a pretty quickly zeroed in on that one X do you think that's going to throw kind of a wet blanket on things or do you think that that I.
[42:04] So yes but with a caveat so let's look at the mattress space overall and how disrupted that has been.
So if you go back five years I met mattress business retail mattress business in the u.s. is about 15 or 16 billion dollars a year.
If you go back five years about 50 million dollars was done direct-to-consumer the bed in the Box friends.
[42:30] Last year it was two billion dollars and if the.
Barriers to entry fell in a lot of categories the barriers to entry in the mattress.
Category collapsed because it's so easy to make a mattress and sell a mattress you get somebody to sell you foam you know you get somebody
just to so the bits together the top together and then you kind of get a machine that crams it down and puts it in a box and send it you had dozens does is I've actually heard hundreds but you know dozens of doesn't serious serious players and I think that they're probably going to be,
you know kind of maybe a half-dozen that emerge so in this in this you know kind of,
fiercely competitive free-for-all bare Knuckles free for all the way I described in the book Casper raises a lot of money and,
besides that it has to spend a lot of money to try to knock the others out of the box and become the leading and and I think that.
They made a strategic mistake I think they spent so much that it validated the whole category,
right so when you went and searched for mattresses online you found Casper but you also found tough to needle and purple and others,
and the second thing I think that they thought maybe that you know is like a network effect you know we spend moral kind of get others you know kind of have to drop out it hasn't you know kind of those others have thrive,
so if you guys heard much about purple innovation.
[44:00] Okay so purple is a public company it stock is traded.
It came it actually didn't start selling mattresses until like 2016.
Its stock has doubled in the past year it's market cap is now 700 800 million I think it's sales are 4,500 roughly the same as as Casper and tough to needle,
which was sold about a year and a half to go to Sur to Simmons for four to five hundred million dollars we started as I mentioned by these kind of too.
Software Engineers who just decided they wanted to make a product they raised virtually no money they had no Venture Capital Mike they had to be profitable from the start.
And they were and they sold the company they each together they had 90% of the company so you know kind of both of them did very very well
so I think that Casper you know kind of rather than being a poster child for all DTC companies is more of a poster child for,
kind of format a poorly managed DCTC.
You know I mean we're going to see time will tell but when you have profitable companies in that space and their unprofitable then you know kind of it says that somebody doing something right compared with them.
[45:20] Yeah it's it's a funny so a number of these guys have been on the podcast so Joe Mega bow who's the CEO of purple has been on in JT Marino has been on and one of the cool stories JT told us was,
um that yeah you know that you know he mentioned that he hadn't raised any money that you know some of these these
Venture funds that we're starting this emerge specializing in data see all wanted to invest and they didn't take the money and that his his version of the story was Casper was specifically created as a,
alternative to tough to needle that could be Venture funding.
[46:01] Right right yeah though I I talked to him too as you know in the book and he told me that same thing but he was you know can it again they were high they had to be very disciplined.
Right because of the way they spent.
[46:14] Yeah no I really admire that.
[46:16] And I think that that Casper was undisciplined now that you know the final thing I would say about it is that you got you ever heard of a company called Tesla.
So a year ago.
[46:27] Single-handedly is keeping them afloat.
[46:29] So year ago.
Tesla was like almost given up for dead right oh we can't get the production right you know kind of they have they can't get you know kind of mass production of cars right it's you know kind of he's running out of cash you know he's got so much debt and now it's stock is at all-time high.
And they're making money and why because they fix their fundamental problem which was you know they had a great brand name and a great product but they were kind of Highly inefficient the way they made it
but they appear to have gotten that under control Casper's has still has a great branding I don't know if they can pull off a Tesla.
But you know sometimes the the rigor and the discipline imposed On You by public markets can focus the mind and make you be a lot more efficient than you were and we'll see but I wouldn't count them out quite yet.
[47:18] No I think that's that's certainly fair so,
you had this front row seat to all of these interesting Evolutions obviously so you know most of them are still sort of playing out like if,
if you had to put your prognostication hat on like how is all this going to play out like is are these got companies a blip on the radar and Joe Ed and p and g are going to keep on tickin for for another hundred years or you know like are we seeing the start of a.
[47:48] Great question so I think that there will be billion dollar brands.
That have you know market cap or kind of they go public and there will be a billion dollar brand so they Corby Parker probably wants to go public you know kind of I don't know that they're making money but I think they're a lot closer to it than for example Casper,
there will be other brands that will be you know kind of modestly successful.
And then there will be other brands that will be Niche brands that will be successful and niches have you guys ever heard of a company called lens simple.
This is one of my favorite one so so if you have a pair of eyeglass frames.
[48:29] That you really like maybe what a couple pair of designer frames a couple years ago and you need a new prescription and you kind of go back to the,
optician and you say hey can you know can I got a new prescription just put new lenses in my frames they look at you like you're crazy I don't know we want to sell you another pair of frames,
this company you send them the frames and they put in your new prescription they send it back to you.
So I think that they're going to be a lot of Niche players like this and then they're going to be companies that fail in the in the luggage space you know kind of away emerged as the leader among the startups and there were a couple of companies rate in and blue smart that ended up going out of business.
So you're going to have you know kind of a whole array of this but I think the the ability to you know getting back to it bent or bury the ability to introduce Brands means that you know kind of.
Things have changed forever just like Moneyball started with baseball and now data analytics is used in every sport.
So you know can a big companies will fight back none of those companies are going to disappear but if unless they figure out a way to connect to Consumer better,
they're going to have lower market shares and you know again I don't think that's a bad thing actually maybe as an investor in those companies that's a bad thing but for consumers.
That's a good thing because in the end more choice is better it keeps the big companies honest it makes them he's like Gillette lowering its.
[49:58] Prices by an average of 12 to 15.
A couple years ago I mean unheard of that never would have happened without Dollar Shave Club at Harry's coming along City.
So we kind of we're in the early stages of this Revolution and I think the revolution like all revolutions you're not exactly sure where it's going to end up but you are pretty sure that it's not it's going to look quite a bit different than where we started.
[50:26] Yeah no I would totally agree with that and I feel like we're lucky to be sort of in the in the front row at a time when we are going through this revolution because it's it's not the status quo.
[50:38] Yeah very fun to very fun to watch.
[50:41] Yeah for sure and so until you write the sequel that's going to be a great place for us to leave it tonight because we've once again used up all our a lot of time but in the event that listeners have questions or want to continue the dialogue
we always encourage you to jump on Twitter and send us a note or leave us a message on our Facebook page
I'll be sure to put a link to Larry's book in the show notes so that listeners can find that without doing anything dangerous while driving.
[51:08] And and you can send me an email to my email address is on my wedge page web page which is www Larry ingrassia.com so.
[51:18] I will I will put that in the show notes Larry thanks very much for being on the show tonight we really enjoyed our conversation.
[51:25] Guys Jason Scott very fun thank you so much for having me.
[51:29] Thanks I appreciate you taking time to fill us in on your book and hope everyone orders a copy ASAP.
[51:35] And until next time happy commercing.
EP206 - Amazon Q4 2019 Earnings Deep Dive
Amazon released their Q4 2020 earnings on Thursday Jan 30th. In a holiday quarter that has proved to be challenging for many retailers, Amazon soundly beat analyst expectations, and raised their governance for Q1 2020, driving their stock up. Amazon's market cap is currently larger than the next six largest retailers combined, and their competitive advantage may be even greater.
In this weeks episode we do a deep dive into all the details of the earning report. We look at top line results, AWS, ads, physical retail, and Logistics. We break down what it all means, and leave you with our conclusions.
Episode 206 of the Jason & Scot show was recorded on Friday, January 31st, 2020.
Google Automated Transcription of the show
[0:24] Welcome to the Jason and Scot show this is episode 206 being recorded on Friday January 31st 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners
it's exciting times in the world of retail and e-commerce Amazon reported their fourth quarter results back from 2018 feels like a
a year ago even though we're still in January of 2020 and they were so impressive and important to I think everyone in the ecosystem not only retail but e-commerce and shipping that were really going to focus to do it
dive in this episode
on really understanding and unpacking these results probably in a deeper way than we've ever done so look forward to taking you on that journey and love any feedback you have on that before we do that Jason you in a couple short weeks are going to be representing the podcast sadly I can't make it
but you will be in each OS tell us about that.
[1:27] Yeah I'm very mixed feelings I'm super excited to go to Palm Springs Palm Desert area in February which is a much warmer than it is in Chicago as you.
You may know and we have a bunch of I think pretty interesting guests lined up for podcast so so stay tuned for that but of course it's always sad
to be an industry event without you and I always feel like I'm cheating when I record a.
Show without you but obviously there is a segment of fans who feel those are the best shows in their favorites.
[2:00] Yeah your mom and it's pretty much pretty much it.
[2:04] I'm pretty sure she's not in that segment.
[2:06] Boom Cooper I look forward to seeing who you can rope into doing some interviews those are always really good but that is coming up in let's talk about Amazon.
[2:23] News new your margin is their opportunity.
we're kind of mixing it up as I mentioned at the top of the show this was such a big quarter that we think it's really important to spend a fair amount of time on it so so we're going to break this into three parts so we're gonna talk about the setup going into kind of holiday and what we learned before Amazon announced
I'm going to go through the highlights of the results there we can spend the bulk of the show on an analysis really kind of picking apart what's this mean for the industry
so Jason want to take us through the setup going into Amazon's.
[3:05] Yeah so obviously Q4 is a super important quarter for all of retail and it's been a little checkered coming into this Amazon announcement so MasterCard which
has a panel of all people that shop with a MasterCard had reported that retail sales for the quarter were decent I think they said
total sales were up three point five percent which is average to good.
Growth rate for total retail and they said e-commerce was up 18% and so that,
in and of itself didn't seem so surprising but then individual retailer started reporting.
[3:51] And the folks that you you might have expected to be distressed we're generally more distressed than expected in the people that you might have expected to do well also seemed down so it's been this odd thing where MasterCard said hey overall
it was kind of an average quarter and then the overwhelming majority of people that were reporting
we're reporting a pretty disappointing quarter so you know that that created extra anticipation coming into.
The two biggest retailers which were Amazon last night and then Walmart is on a really goofy fiscal year and so they won't be reporting toll February 18th,
if I have it my memory serves but so.
You know you wouldn't expect JCPenney's to kill it but they were down like 7.5% Cole's was down which has off-price retailer had traditionally
been more resilient bunch of the apparel companies were down Macy's was down L Brands was down even some like value stores like five below
which is in that dollar category those guys were down and Target was up but they were way below their guidance.
[5:06] In general you know reading into this quarter it's felt like a pretty depressing quarter we've also seen a lot of evidence that the quarter was way more promotional
in any quarter ever which means profits are likely going to be down and we've heard anecdotally from a bunch of these retailers that manufacturers,
have way more inventory than they usually have this time of year and so there's a lot of distress inventory that manufacturers are trying to
pump through the retail Channel right now so all sort of bad indications leading up to
Amazon's announcement last night so Scott can you tell us how that what what how it transpired.
[5:48] Yeah I would say that it was Wall Street was was
extremely surprised pleasantly surprised in the world of public companies you have this kind of you know what what's the current period expectation and then what's the forward period expectation so the current period and this conversation of fourth quarter of 2019
the forward quarter would be q1 of 2020 so this is what's called in Wall Street lingo a classic beat so they beat the fourth quarter of 19's expectations and then they raised the q1 2020 expectations.
When you do that you frequently.
I'm have a pretty immediate and exciting stock action and that was certainly the case here so Amazon stock surged today Friday to 2008
that's a price not not a year which is a over 7% one day increase if you follow small stocks you know that may not seem like a big deal but this is a trillion dollar stock so 7% is
seventy billion dollars of market cap that was created so I don't know how that compares this probably like 20 JCPenney's or something something like.
[6:56] Yeah so I did look at it and it's fluctuated a little today it actually like as we're recording this show it's.
Slightly nominally under a trillion dollars but,
it's the equivalent of the next six largest retailers in the market so Amazon's market cap is the same as Walmart plus Home Depot + Costco + lows + CV s + T.J.Maxx.
[7:20] Yeah but even just the 74 billion created today is larger than many individual retailers.
[7:25] Oh yeah the 74 billion today is a larger market cap than TJ Maxx or Target it's.
[7:32] Wow so you talked about it but that put some work just shy of the trillion dollar Club I think they're going to get there and we'll talk about what Wall Street thinks that's going.
Shoot Em Up There,
but just for folks that are tracking this apple is ahead at one point three five trillion and Microsoft's 1.3 trillion so Amazon's flirted with the trillion market cap club and I
you know I think it's pretty safe to assume here that they're going to get there pretty quickly and stay there for the rest of 2020
so let's talk about the highlights that caused this this exciting and peeled onion a bit so you know,
one thing that's not customary for Amazon is talking about how many prime users they have so in they're releasing on the call they talked about having a hundred fifty million Prime users and in the fourth quarter they sold more Prime memberships than they ever have before in any other period
that's pretty material because you would think maybe Prime day would beat fourth quarter but you know that's not the case so so fourth quarter compared 30.
Prime days in third quarter so so they must have sold more Prime memberships from the holiday sales than they did from Prime day.
[8:39] Last time they announced this it was for the calendar year 2017 they announced it in 2018 and they said they had a hundred million so they have added 50 million Prime subscribers over a two-year period essentially so that's pretty impressive
from that there's a line item that counts that revenue and that's called subscription services that accelerated to 32 percent growth again kind of supporting that,
that that kind of more vague statement that those more sign ups than ever before those pretty material acceleration of that metric and then another nice thing is that's that's five billion dollars just for the quarter so that's essentially.
Customers giving Amazon money in the future for you know fast kind of quote unquote free services that you know helps Amazon's cash flows which is pretty amazing I don't think we ever see anything
quite like that it's kind of like prepaying for products on this you we see subscriptions but you don't see kind of like almost.
Soccer is a service type prepayment so then.
[9:42] The third party unit share came in at 53 percent of overall units meaning first party was 47% that was steady now what,
what that doesn't capture is and I'll talk about this in our deeper analysis is unit volume is not the same as gmv and we'll talk about,
so the transactional dollars you could have unit volume
kind of flat quarter-on-quarter but you could have a huge surge in the dollar volume because the average order value could go up in three p down in one p there's a lot of things that can change that.
The revenue from what they call 3rd party seller services this is largely what they charge sellers use FBA That Grew 31 percent year-over-year and surged,
I almost wonder.
If they're having a problem keeping up with this demand because they're building out fulfillment capabilities at about a fifteen to twenty percent clip and if the demand for FBA is growing at 30% you know that that's.
It's going to be interesting and it will talk about fulfillment side in a second
I talked about this being a beat so Revenue came in 2% above the top line which is a I would say a moderate beat but what really surprised everybody was.
The operating income it came in 34 percent above the high end of where Wall Street would think so
what happened here we'll talk about this in the gnosis so.
[11:02] Amazon so this was obviously a big question in Amazon said you know it was overall adoption of the Prime platform due to the new prime one day offering
so if you remember in Q2 they started offering one day Prime and this isn't available on every product they're working to get it on more and more products all the time but increasingly you will find products that are available to come in one day.
Versus used have to pay a fee for one day delivery anywhere between like three and ten dollars it always varied based on what I saw the.
[11:36] Um inside of that Revenue grew 21% year over year to 87 point four billion paid units grew 22%.
This gets Wall Street really excited because.
Because Amazon has you'll talk about this the cloud computing which is Amazon web services or AWS the ad business you know those things kind of.
Could be used to prop up growth and The Core Business which is we would think of as retail could be growing slower.
Paid units takes those things out so when paid units accelerates and is growing you know I think you talked about the high-end Mastercard at 18% this is growing faster than kind of what we thought was pretty
you know aggressive number that is a really big signal that something has changed and most Wall Street analysts kind of view that as the signal that prime one day has really been a game changer.
[12:27] Within their North America grew 22% year over year and International Group 15% another thing that's interesting is North America's well over two thirds of the business now Internationals about one-third so that's how you can have you don't take those numbers and average them North America as growth is able to swap
the growth on International incidentally both those were above wall Street's expectations and then you know you and I speak a lot and we always hear that Amazon is not profitable.
Well operating income came in at 3.9 billion so that is pretty darn profitable by my calculations
Jason you dug into the cloud computing stuff how did that go.
[13:06] Yeah so first caveat you talked about the the rumor that you know people out the talking point that Amazon is not profitable if they don't have that talking point they have this talking point that.
Amazon is profitable but exclusively because of AWS which is also annoying and not true
but that being said AWS is a darn good business and so they had another good quarter of growth revenue for the quarter was to nine point nine billion which was up 34% from the corridor
they're by far the market leader so when you're the market leader and you're growing at 34% that's a pretty good story and it did beat Wall Street expectation.
However it is part it is a clear deceleration of the growth so.
You know from as far back as i q 1 2017.
This this business has been growing 40% or better every single quarter and then Q 2 of this year for the first time at dip below 40 it was 37 percent growth last quarter 35 percent growth
this quarter 34 percent growth so it does feel like.
The law of large numbers is starting to kick in and and this crazy growth rate is slowing down a little bit but like for any business.
This is still great growth in its great growth.
[14:34] On a big number and it is highly profitable business and then the other you know thing to keep in mind about this whole AWS service is.
The bulk of the the Computing world is still not yet on the cloud right so there's a lot of estimates that you know it's maybe ten to fifteen percent of all compute is on the cloud right now so the.
Potential future market for these Services is very large and you know it is.
Certainly a challenge for their biggest competitors Google and Microsoft.
Interestingly Microsoft reported today and you know they have a competing product called azure
and as your you know on a much smaller base is growing much faster so they they dramatically beat Wall Street expectations.
Who are Juliana Azure 62 percent growth which also made some news so it's a pretty competitive.
Hot cycle but Amazon continues to do a lot to maintain their lead and I think they also rolled out something like a hundred new AWS services this quarter.
[15:46] Yeah there's there's one argument and this is not our purview so I'm not an expert on this but
that Microsoft's kind of stuff in The Ballot Box because I think they put Office 365 another cloud computing there's simply kind of taking the office build it kind of license converting it over to cloud and then kind of counting it in that as your number if I understand right.
[16:07] Yeah I think that is potentially true but I'm not actually sure that is stuffing The Ballot Box because of you you know if you think about they.
Previously they had to sell those customers on office every.
Year and often people didn't upgrade right and so if they're successfully able to migrate all you know a big chunk of customers to Assassin model and they're delivering that from the cloud like
that that actually is indicated of of them growing the business so I you know I'm not sure I would call that super nefarious but for sure it helps to have some super popular products like that to Goose your Cloud business.
[16:45] It's not a nefarious it's apples and oranges will agree to disagree.
[16:49] Fair enough okay yeah as as per usual.
[16:51] But you're on how about the ads business Jason.
[16:58] Yeah so this was another I mean I feel like we shouldn't be saying another bright spot because they all seemed like bright spots
but so Amazon has this segment of Revenue they call other which is not exclusively but mostly this the advertising business and it was another huge quarter for that the other segment of group 41% to 4.8 billion
so you know they were on a run rate to do 10 billion in 2019
and I think with this number they're actually going to have an added it up but I think this actually puts them at like 11 or 12 billion for 2019.
[17:41] Are they I think last time I looked they were passing Snapchat and had a bead on Twitter set that kind of.
[17:47] Nope they passed them both.
[17:49] Okay yep so they just have.
[17:51] They're the third largest digital advertising platform in North America.
[17:56] Yeah those Facebook and Google are so big it's gonna.
[17:59] Yeah yeah we'll talk about that a little bit more in the in the analysis but definitely a good quarter for ads and it's having a ripple effect on the rest of the retail industry.
[18:11] Cope about physical stores.
[18:12] Yeah so this is a new category Amazon had to add after they acquired Whole Foods.
And this is down 1% it's about the only thing in the whole earnings report that was down and it was down 1% to 4.4 billion it was also down 1% last quarter.
So this is almost exclusively Whole Foods that I think there's like 80 other stores besides the 500 Whole Food stores.
[18:42] And it is interesting that it's down again you know normally brick-and-mortar retailers growing at like three or four percent you know Amazon's doing a bunch of interesting things in the whole food stores and and their stores that cater to a relatively affluent customers.
Which is you know a segment that has been more resilient so you'd you would kind of expect it to be up.
Um and the thing that really kind of skus this number and makes it not all that useful for me is Amazon has aggressively converted those Whole Food stores to home delivery stores so.
You know they launched a delivery service out of Whole Foods and they used to charge per delivery or they would.
Sell a separate membership they did away with all of that and so you now can get free two-hour delivery from a whole food store
and they haven't disclosed how many customers have are regularly using that service but if you use that service you're in their e-commerce sales not in there.
They're physical retail sales because they they.
[19:45] Attributed based on on where the order is collected and those orders are collected on the web so I suspected we knew what the.
The sort of bow purpose and home delivery number was from Whole Foods and added it to this like you know I'm not saying it would be a huge growth but it probably wouldn't be negative but
as it is you know they're they're slightly declining in a market with where other Grocers are slightly growing.
[20:12] Yeah that it's interesting too because they've opened up so many of these kind of little bookstores and four-star stores and all that jazz you think that inorganic growth would help this number so it must.
Either it's like seriously declining in there having trouble just treading water or to your point there we categorizing it and we there's a one piece of data we can't see to really understand what's going on.
[20:33] Yeah and probably very likely a little of both.
wrinkle so then that was that captures kind of the highlights of fourth quarter 2019 now let's look forward again a Wall Street thing is you give guidance so companies give a range of how they think things are going to go.
And they did a beat and raised on guidance so revenue for the first quarter of 2020 was guided to above analysts and.
Amazon says 73 billion at a
a midpoint if they get that would be twenty two percent growth they're essentially saying look The New Normal is 22 percent growth so buckle up.
So that's going to be interesting there in Amazon's historically somewhat conservative so there could almost be I won't see ya shot that
maybe like 25% I don't know you get the sense that they are seeing something in the data from prime one day and that is a game changer and really.
Almost changing the business.
But that being said it was a little mixed because margins were muted and guidance and they were very careful to call out exactly why in all.
Pick that apart when we go into the analysis side Wall Street brush that off they effectively said look,
you guys have shown us that this is paying off this investment in prime one day we're comfortable with you continuing to do that and in Amazon's got really good about articulating.
[21:59] How much they're spending where it's going and what's really interesting about it is it's kind of forever dollars which is nice so effectively capex investing into new things that will be used for years and years so.
So then another area of investment that they specifically called out as India there's a lot of press Jeff Bezos was in India you've probably seen the pictures of him wearing
kind of a funky jacket and doing like a lots of fun things in India it's a huge market for them and announced they're going to invest a billion dollars,
don't think they put a time frame on this I kind of mentally.
Wrapped it up to 2020 but it could go beyond that certainly not going to be 1/4 that's a according to emarketer that's a two hundred billion dollar a year in five years area that's growing really rapidly and then Amazon again
kind of in a uncustomary way they.
[22:50] Put out some data around that market they said they have 550,000 sellers now sixty thousand of those export products and then they've created 700,000 jobs kind of amongst their three peas in India there there
exclusively third party so they don't have a first party kind of business and they've created those 700,000 jobs since their 2013 launch.
They did announce a huge investment fulfillment centers will talk about in the end
now section and then based on all this data and the results of Q4 analysts nudge their price range is up
between 2275 and 2500 I saw some a little bit higher than that but that seems to be kind of where everyone's clustering in that that section so again they kind of ended the day at 2008 I think they only have to get up to
2100 to be in the trillion dollar Club so and I'll start expecting that they will get there and stay there.
[23:44] So those are the results we did the set up heading into this this announcement the highlights now let's really dig into what
this means and do it dig that deep dive on it I wanted to spend some time talking about this prime one day so so one way to think about Amazon is it's a capital intensive business because of fulfillment center parts of it.
Unlike eBay so eBay is a pure digital business they don't have fulfillment centers or delivery trucks or anything like that they may have some office space but other than that it's pure digital business
and what's interesting is Amazon has now
kind of shown to Wall Street look we're gonna go into these invest modes and we're going to invest heavily against something that we think is going to work but then we're going to have a harvest mode and that's what gets Wall Street really excited because when they have these Harvest modes Wall Street is
perpetually surprised where I surprised investment works and then they're surprised by how much profitability comes out of that Harvest so I would characterize that is what's going on here so Amazon again started in Q2.
And what they did is they said they announced prime one day they said we're going to announce 800 million in that quarter and then in Q3 announced about a billion and then in Q4
they've now announced that they spent one and a half billion all on prime one day.
[25:03] So you throw all that together and you get about a four to five billion dollar investment in this new initiative that seems
that's a really big number and it's very easy to be skeptical on that but now we're seeing that 22%
paid units number accelerate nicely so
Rin that entering that Harvest mode and what Wall Street analysts are thinking is once we kind of lap Q2 that those investments will taper off
the infrastructure for Prime Monday will have largely been built they'll still be some more but maybe it's going to be like 500 million kind of
level of investing and then we're going to hit this really big Harvest Motes that's what's got everyone excited.
[25:43] Where does that dollars goes when we say four to five billion dollars where does it go it's all in shipping infrastructure
so it's more fulfillment centers one of the big things about so if you think about this supply chain the end of the supply chain the the start I guess in the supply chain is the Fulfillment center so the products being there for consumers then a then that then you have the consumers
primarily a residence so in the middle the two important pieces where I think the
bulk of investment are going is sortation centers so to be able to ship all this stuff one day you have to sort it into
not only zip codes but zip plus 4 so that you can get it on a truck that's going to do a very tight route and be super efficient so Amazon's invested
heavily in that so used to be they didn't have any like five years ago they had very few sortation centers there were relying on the USPS FedEx and UPS for that function so now they've built out that
and then they've also built out the trucks I go to work every morning I have about a 30-minute commute and I probably see 30 Amazon Prime trucks on one of the major highways here in this area so.
[26:45] And those are just trucks following you to deliver.
[26:47] Yeah like slow down we're trying to give you all your packages so you know.
So again this amazing amount of investment and then what's also interesting is they build these things but then they you know.
They're going to last for very long time you know fulfillment centers last for presumably 10 plus years they the insides frequently have to be updated but you know the big kind of the pad the walls all that stuff in the sortation centers I think
that technology lasting longer and of course trucks last a relatively long time so so what they're building is they already had more infrastructure than anyone else and they are just kind of like.
Quadrupling down on that infrastructure so so.
That's kind of what prime one day means and then you know my other point on it is consumers love it so consumers are buying more and more frequently and signing up for Prime because they love the one
prime one day feature.
[27:46] Yeah and I mean I the way I think about it like that faster delivery service does mean they win more orders against other eCommerce sites so
you know maybe you ordered something from Amazon instead of Walmart because it will arrive faster but also it just entices households to
order more stuff online that they previously might have ordered or purchased in a store and so like it you know they're not just stealing share from competitors like they're actually like increasing.
They're addressable market so.
[28:23] Yeah good point.
[28:26] So that that is very strong the.
Question I get asked a lot about Amazon lately when I visit other retailers is around the ads the.
[28:41] You know as we've already highlighted a little and we'll talk about more Amazon has this Rich echo system and everything feeds on everything else and so you know increasingly Amazon has this great Diversified Revenue.
[28:55] Echo System right and all these different places they make money and you know all the all these Services they make money on that support the retail business like FBA
fulfillment all these new things if you're a traditional retailer that you know is
just has e-commerce with all those other services it's really difficult to be profitable.
And so in general when we look at you know a omni-channel retailer that you know they generally have separate accounting for their e-commerce business and that e-commerce business generally isn't profitable or certainly.
It's less profitable than their brick-and-mortar business and so you know most retailers are looking for ways,
to improve profitability and then you see wait a minute you know Amazon's building this huge highly profitable advertising business,
on top of the retail business.
So estimates are right now that that Amazon's ad business is about 9% of All Digital ads.
And so to put that in perspective Google is currently I'm sorry Facebook is currently at.
22% and Google is it 36 percent so Amazon's already the second largest Advertiser the forecasts are of course for Amazon to gonna grow much faster than those other so.
So the 20:23 forecast is.
[30:19] Amazon at 14% Facebook at 20% and Google at 31 percent so that you know they're potentially getting much closer to the size of these other.
Big guys and they have a ton of other revenue streams that these other big guys don't have in General ad sales is highly profitable because.
The cost of goods sold is almost negligible.
And so if you're Walmart or Target or any retailer in you're struggling for profitability on e-commerce and you look at Amazon you go man
I need to get some of that lucrative advertising business to supplement my business as well and so we've actually seen a bunch of other retailers.
Invest more effort in their own sight monetization efforts or their own retail media efforts and,
Walmart used to Outsource ad sales to a company called Triad and they fired Triad and and built an internal team
they have now launched a bunch of Their Own Self Service apis so that you can programmatically by ads on Walmart.
Target you know double down on.
They're their ad sales team and they now call it R and L Kroger bought a division of dum-dum humby and rebranded and they have this hole.
Precision marketing thing but I'll be honest at the moment.
[31:42] Like obviously none of these these retailers have close to the traffic or eyeballs that Amazon does so they're you know they're certainly not getting the same kind of share and at the moment all the dollars that every other retailer is getting in their ad program.
[31:57] Um are what I call Trade dollars which means sort of your the.
Frito-Lay sales team at Walmart and Walmart agrees to buy you know a billion dollars of free delay and Fritos and part of the trade agreement when Walmart agrees to buy all this Fritos is that Frito-Lay will kick in.
Some advertising dollars and historically those dollars might have been used in a store circular or an in cap or some kind of sampling program in the store and increasingly,
those trade dollars are getting used for digital ads on Walmart.com
but those dollars are all being paid by the sales team you know that sells stuff at Walmart and what's unique about Amazon's ad sales is
they're not just getting trade dollars there's a lot of Chief marketing officers that have a budget to build their brand and they're deciding to take dollars that they used to invest in Google and Facebook
and put those dollars in into Amazon because there's a lot of eyeballs there with a lot of high buying intent and so at the moment,
it feels like.
Like a huge Advantage for Amazon that they're getting these these incremental dollars and other retailers are are trying but really not being successful to sort of follow suit.
[33:17] Yeah it's interesting I get your point on there being no cost of goods I would say I've had more random people that aren't in our industry
complain about the searchability and findability on Amazon lately and I think it's the ads kind of you know so I think there is a quote-unquote cost of goods maybe maybe a better call it a cost of
consume user experience or something.
I do worry that it feels like we may have crossed over a point where the ad load is too high and it's kind of confused the buying experience and then you know there's been a lot of negative press around counterfeits Bad actors
those folks are going to be very aggressive on the ads because they you know they presumably have
better margins than anyone because they're selling a product that is counterfeit thus doesn't have the normal.
Price structure of a real good so it's gonna be interesting to see is there a point where.
Windows Amazon say hmm your customer experience is suffering from the ad load.
[34:17] Yeah no for sure if you're a business that just sells ads so you know that's
almost the exclusive revenue of Google or Facebook you know there's this,
this like familiar pattern they like create some organic benefit that gets a bunch of eyeballs to come and they trick people in a building an audience there by giving them free eyeballs and then they increasingly take away all the organic visibility and make you pay for visibility right so used to be you could have funny interesting content on Facebook and people would see it
now you know nobody's going to see anything on Facebook unless you pay an ad for it and that that's not the world's greatest customer experience but it
it kind of works if you're exclusively an ad platform but in Amazon's case where they're trying to provide all these other customer benefits you're exactly right it absolutely
roads the customer experience as more and more of the pixels on the first page of search results are paid for pixels instead of organic pixels and a lot of people point to that as
the most obvious deviation from Amazon's stated goal of being the most customer-centric company on the planet
is you know when
you asked for Duracell batteries in you use and you get an ad you know that takes up half the screen for for amazonbasics Batteries like you're clearly not being customer-centric.
[35:40] Yeah yeah it's gonna be interesting to see and then another interesting thing is whenever I talk to folks and say well we're a shopping target comes up a lot so I don't know if there's something about the Target demographic that really
doesn't like those those add load but you know in my mind this is like maybe the I don't know if I'd call it an Achilles heel it's like a little tiny microscopic.
Spot on a hill.
[36:01] And Mark Lori did an interview at the code Commerce show asked her which would have been like September
and he specifically called it out he's like look we're gonna
lean heavily in the ad sales and we want to improve our our site monetization Revenue but we aren't going to do is compromise the customer experience the way
some other people did and he didn't he didn't name them but it was pretty obvious he was talking about Amazon.
[36:26] Some large book stores in Seattle.
One of my favorite topics is gross merchandise value or gmv longtime listeners will be aware of this but bear with me so when Amazon reports their revenue
it includes only their revenue their derivative revenue or their take rate
from the third party sales so if Jason sells $100 Star Wars toy on the third-party Marketplace Amazons
Blended take rate is about 15% so Amazon so while Jason you know sold a hundred dollar widget
and presumably Target and Walmart lost out on that hundred dollar widget Amazon's revenue is only $15 from that
so so there's this hidden transactional value in Amazon that makes Amazon actually larger than you would think it is
so let's do put some numbers on this Amazon's revenue for 2019 was 280 billion.
Of that 87 billion was in the fourth quarter
I used to have my own analysis of this and thankfully the Wall Street analysts do this now so I'm going to quote Ron Josie who's an analyst at JMP Securities Amazon now gives you enough data to kind of back into this number where I had to
you some assumptions so the.
[37:45] So when you unpack the gmv fourth quarter total gmv was a hundred and eighty billion so just shy of about 2X and then the annual gmv was 569 billion again compared to revenue of 280 billion
so what happens in there is 28 billion of that 280 is third party that you have to gross it up about.
Eight times to actually get the DMV this is important because I think that's the Apples to Apples comparison for how Amazon's doing in our industry
revenues important and.
And whatnot but to really so when Macy's or Walmart or any other retailer reports Revenue it's a hundred percent DMV.
[38:26] Asterix and let's have a Marketplace and they're going to do the same thing but they don't have marketplaces that are 53 percent of their business so there there is a little bit of space under that Iceberg but Amazon's is massive it's almost twice as large so
so I think that 569 billion number for 2019 is the right number that's the transactional value that went through
Amazon this excludes AWS excludes ads Etc so Amazon's impact is twice what you think it is
and that gmv actually grew faster it grew at 26%.
And that's because I think the physical stores and so that other stuff kind of ways on that growth metric if we if we you and I kind of share a chart I guess I forget which was actually created so we'll split it split the baby where we show
a lot of people feel like Amazon's not as big as Walmart
well if you that look at GM V again Amazon's 2019 gmv 569 billion Walmart
trailing 12 is about five hundred twenty billion so I would argue that Amazon is now ten percent larger than Walmart on an apples-to-apples basis.
[39:31] One more tidbit there and then we'll dig into the Fulfillment center is first party is growing pretty slow
at about ten percent year-over-year again this is dollars not unit so it's really interesting because
the doll at the gmv from 3p is going very slow but the units are holding steady and what I think is happening is you have a lot of these kind of Kindle units in Amazon music units just kind of like these
one and two dollar kinds of things whereas in the 3p you're seeing big screen TVs and really big kind of priced items so so we don't see it in the unit volume but we are seeing it in the gmv mix
third-party grew gmv grew 26 percent year-over-year in the fourth quarter so.
So you know any thoughts on that Jays agree disagree.
[40:15] Yeah no I generally agree and I think
like not only is that that 3p Marketplace a big deal it's like a again intrinsically it,
it's going to be more profitable than a 1p business because
once again you don't have cost of goods right and so there's way less risk against your capital and and they never reported profitability separate from their 3p sales if they did.
It's totally viable that this looks like a Better profitability Business than AWS would and these days they even have a huge accelerator like not only is the
the 3p huge and growing.
A bunch of the services that Amazon is wildly profitable delivering their primarily delivering to 3p sellers so you know
the FBA premium Analytics
like all of the advertising like they're all tools to help 3p sellers be more successful and they make money on all those services so it's a.
Um you know even if you took AWS completely out of Amazon they're you know they're still is this.
Secret highly profitable business model within the Retail Group segment and it's the biggest part of the retail sales.
[41:44] Wrinkle about any thoughts on fulfillment.
[41:48] Yeah so in my mind like.
The two overwhelming moats that Amazon has these two huge competitive advantages that are extremely difficult for any retailer to overcome is.
The Prime membership and that whole flywheel and the other is this insurmountable investment they've made in fulfillment centers and you talked about this a lot in the
in the prime one-day section
but you know they announced that they're going to build something like why.
47 new fulfillment centers in.
Again it's hard to talk about logistics buildings anymore because they have so many different types right like they have these huge cavernous fulfillment centers which are the most expensive thing and as you mentioned
increasingly they have all these these various hubs and sortation centers and delivery stations and things they add on top of that but.
Super oversimplify if we just talked about fulfillment centers Amazon has a hundred and sixty six of those in North America that are operating right now.
[42:58] The next biggest Ecommerce provider if you count super generously you might say Walmart has 20.
So like they're they're an order of magnitude fewer fewer centers and then you know Amazon plans to build 47 more which is.
You know more than double what anyone else even has and so you know to me it's they've been taking all the cash.
That they generate from this business and they've been making these Investments and as you point out these are investments that are going to pay dividends.
For ten plus years and they make it totally viable for Amazon to increase the quality of their services right
so that you know the most obvious example is they could promise customers much faster deliveries and you know they had.
To make some investments in that they kind of missed their guidance last quarter primarily because of the these unforeseen costs and so I like to talk about you know one day delivery was hard for Amazon and and they gave themselves a cold by doing it but they gave
the all of their competitors the coronavirus because.
Nobody else was in a position to do to do ever anything like one day and you know it's much more expensive and much more difficult and so you know we've seen retards like.
[44:20] Walmart or Target kind of promised one day to match it but there are really only matching it on a tiny percentage of the skews that that Amazon offers so this is a super important super powerful.
[44:37] They do spend an awful lot of money delivering stuff to people so you know a line item they do have in in their earnings report is that that.
Fulfillment costs and it was up 43%.
Year over year so they this quarter they spent twelve point nine billion dollars on delivery it was up huge last quarter to it was up 46% so this is the fastest growing cost they have.
But you know increasingly that that investment is.
In making things more optimal by delivering themselves rather than relying on you ups and u.s. post office.
So you know there was that Morgan Stanley report that came out late last year and it had two pretty impressive factoids in it number one it said.
That Amazon may already be delivering more than fifty percent of its own volume
um so instead of relying on USPS and and UPS more than half the packages they ship you know are now being delivered by their own Amazon Logistics which is.
Part of the only way they could they could do that one day delivery and the Morgan Stanley report says you know you game this out and you forecast by 2022 Amazon will be delivering more Parcels than UPS or FedEx.
[45:56] So this is a you know just another huge huge moat that Amazon has against every other.
Competitor and you know it's it's having a material impact now on the traditional carriers like FedEx and UPS.
[46:15] Yet the Fed Ex gave FedEx CEO Fred Smith he's kind of legendary entrepreneur he's been at this for like 50 years something like that since he was in his 20s
they had an interview with him and I saw a lot of people kind of online.
Mocking his approach and I think they were misreading it so what he said was effectively my read on it was the they had to pick sides right so they realized the Amazon was going to be a competitor.
They chose to not not kind of continue to do business with competitor but now they're more aligned with omnichannel retailers and he feels like.
[46:52] That's going to be a winning strategy and that they will be able to get back on track and become larger than ups and,
better than their he didn't say it outright is that because UPS has chosen other path of continuing to partner with Amazon at some point Amazon will yank that volume,
in these networks live on volume right because if you can build all this infrastructure you got to keep it busy and utilize and then.
That will allow them to catapult forward there is some evidence to support this I saw a lot of people say oh you know FedEx is going to save them all that's ridiculous well I think it's pretty clear.
[47:24] What do you think of which omni-channel guys need FedEx either in a partnership or even,
in an MMA to your point about Walmart having 24 filament centers FedEx could help them keep up with and maybe even pass Amazon's capabilities I don't I don't have that broken down like
like you know
we talked about there with Amazon's fulfillment centers but you know they have a substantial infrastructure across from fulfillment centers for Tatian centers both in ground and air and then obviously trucks and planes so
I think that's kind of what he was talking about is really more partnering with a Target and Walmart maybe both of those guys and providing an alternative to Amazon.
If I'm FedEx UPS I kind of personally think that's the right strategy because you know you partner with Amazon clearly is going to be
race to death I think maybe they'll give you some volume the least profitable stuff but I just don't see it as a winning
winning strategy what are your thoughts and I know you you kind of Drew straws and I got FedEx and you got UPS I'd love to hear what you're thinking what you.
[48:28] So they just just to pile on the FedEx thing like there are some ridiculous things that Fred Smith has said in the past about this base like you know two or three years ago I think he called the notion that Amazon could be a meaningful.
Logistics company Fantastical and I you know I think he's pretty clearly wrong there but I agree with you you know.
This year their plan to sort of you know move completely away from Amazon like is not a bad move because both.
FedEx and UPS have constrained capacity like they sell all the trips that they can make.
And there are more e-commerce is growing faster than their capacity is growing so when you have a constraint supply of something you want to get the most money you possibly can for that.
And the way you get the most money is not go to the biggest customer that has the most elaborate and negotiates the lowest rates right so FedEx can you know better maximize its capacity by partnering with these people.
That need it more than Amazon needs it so that like that seems like entirely.
Smart strategy on FedEx's part I would I would say and then there was this little I don't know how much of it was real versus Tit for Tat but you know there's this small service that's.
People talk about but it's not very large yet and I you're going to remind me what the vernacular is but vendor fulfilled Prime.
[49:55] Yes seller fulfilled Prime and then in their the seller can choose which.
[49:59] Yeah so in that scenario you don't put your goods in.
[50:04] In Amazon's fulfillment Network you keep your goods in your own warehouse and you promised Amazon that you're going to deliver them within the terms of prime shipping and Amazon has to certify you for this
and around holiday this year they said hey if you want to stay certified for so fulfilled Prime you can't ship your packages via FedEx.
[50:26] FedEx on time delivery rate is too low
for to meet our high standards and so they turned off at X in the peak of holiday and then they they turned it back on and they alleged that that's a data-driven decision but it certainly got a lot of Buzz
so slightly contrasting this like UPS has continued to be a big partner
of Amazon's and you know they are the third largest provider to Amazon so of Amazon's the biggest second biggest is the post office third-biggest is UPS
and the you know the thing you have to remember about UPS and FedEx is they both built their businesses
primarily to deliver stuff to offices right so you drive a truck to an office and you get to drop off 30 boxes when you drive a truck to a house and only get to drop off one box it's way less efficient so FedEx and UPS although they're trying to improve
were built for commercial deliveries not residential deliveries and that's where the US Post Office really comes in as they're good at these residential deliveries.
[51:35] And for your point as Amazon builds out more of their own capability that more and more of their likely you know taking the the efficient deliveries themselves that they can make the most money on and giving the the bad deliveries too.
To the their partners and you know their Partners like price their services based on and having them profitable mix and so like that's another way that.
[51:59] That this whole business probably hurts hurts the UPS is of the world but we are seeing UPS.
Add some interesting e-commerce friendly services so I've noticed three big announcements this this month UPS is going to a seven-day-a-week delivery and they're adding a ton of weekend delivery capacity which again when you were.
Primarily delivering you know contracts to businesses.
Businesses weren't open on the weekend so weekends weren't important but now that you're doing e-commerce the weekends are potentially the most important delivery days.
They are UPS is also making a big investment in rural delivery infrastructure which you know we just mentioned is something Amazon's are likely to need.
More help with for longer and then they also this week announced this new technology that they're rolling out that they called Dynamic routes.
And essentially what that means is they're using AI every morning to decide.
Where that that truck driver goes right so that driver you know in one shift is likely going to stop at a hundred locations to do deliveries.
And in the old world like they you know do ever do the hunt same hundred locations in the same order every day and now that's going to be.
Sort of optimized using artificial intelligence to save gas and optimize the amount of deliveries they can.
[53:24] So we are seeing them try to do more e-commerce Centric stuff.
[53:30] You know I would point out and argue if you're Walmart and you get make a huge partnership with FedEx and Amazon is primarily now relying on their own delivery infrastructure.
[53:43] That is still a huge advantage to Amazon because.
By the fact that they own it it's much easier for them to change and improve their own service so if.
Amazon decides customers really like being able to track the driver and know that the drivers half an hour away from your house
they can do that if Amazon finds out the customers really want a picture of the box when it's delivered so they can see where in their building it is
that they can do that they can add all kinds of customer-friendly services if Amazon wants that driver to pick up returns they can do that but if you're
Walmart in you're paying FedEx to provide all these Services you have a lot less control over sort of Designing and improving your own product so.
Again yet another big big Edge to our friends in Seattle.
[54:34] Two last things on fulfillment here in and we're spending time on this because we think you'll see when we do this kind of
put the bow on things why we think this is so important but number one FedEx has a market cap of thirty four point seven billion Walmart is 30
324 so it's.
It would be a big one but it's not outside the realm of possibility it's not like they're equals UPS is 88 billion so that one's kind of out of the realm for someone like a Walmart or Target to acquire.
[55:04] And I think that's kind of where this is going to have to go maybe you know there's there's a corporate strategy there's a whole thing why buy a cow if you just have the milk so maybe there's no need for them to buy these things but.
And maybe some Walmart I'm okay as long as you're not doing Amazon I'm okay sharing that infrastructure with Target effectively so that's gonna be interesting to watch the other thing I wanted to bring up
is the challenge that the carriers have this is the same for UPS FedEx and USPS is residential deliveries they've tried for kind of each individually 20-plus years with the smartest route optimization and sortation.
To get the stops per truck up and there have been range bound to between 70 and 80 stops a day
so so that's kind of the capacity of the system is really driven by how many stops in a residential delivery can a truck make here's how Amazon solves that,
we mentioned at the top a hundred and fifty Prime subscribers now a hundred million of those are you in the United States there's something like 200 million households so the way to get the stops for truck up
is if you're stopping at every other house right because you know I don't know the data but I imagine you know you could probably.
[56:18] 4X that stops so I bet these Prime trucks are making you know certainly double that if not triple that so they could be making 200 stops
in fact I bet that it has changed the dynamic and it's really just how much each truck can hold.
Because I think the stops have gone so high because they've got the Loyalty program where they're delivering stuff to every house every other house essentially not every day but it's enough that it really dramatically solves this this routings.
Stops per truck problem.
[56:49] Yeah all true I will say well you know we talked about there being like a slight negative that other people could attack the one incremental headache that Amazon inherits by having their own Logistics
delivery capability is you know they're now getting a lot of negative press for like you know having all these.
You know there's this high pressure on all these drivers to maximize their deliveries and get everywhere as quick as they can and so there's a bunch of,
Amazon employees and independent contractors working on Amazon's behalf,
driving unsafely on the roads and you know potentially hitting people and causing accidents and even deaths and I think it was disclosed.
Not too recently that like this happened a while ago but the the first CFO of Amazon apparently was.
Actually killed walking across the street and he was hit,
via Amazon delivery driver so the company literally killed their first CFO.
[57:55] I think that was a woman.
[57:57] It was a woman you're right.
[57:59] Jennifer something yeah.
[58:00] Yeah it's super sad story but so they're going to have to deal with that like I you know I don't know people remember but in the 90s all the pizza delivery companies used a promise 30-minute deliveries and you know that created the
the same problem and they sort of figured out how to manage it so I kind of suspect Amazon will as well.
[58:18] Cool so we've gone through the setup we went through the results and then our analysis now we're going to conclude by kind of giving you an action item so so we're trying to say all right we're going to put ourselves in our listeners shoes
a lot of this may seem a little scary if you're a retailer even if you're a brand what do you think about this so
so here's my take my conclusion is prime one day is a complete Game Changer and it
took his kind of a year to figure this out but it's really showing up now number one customers love it.
Number two it's a knockout punch to competitors you talked about it increasing the addressable Market which is great but people are you know competitors already can't do two day Prime now they're up against one day Prime
what's next same day Prime you know I think this infrastructure can largely be used for all that stuff to the number 3 it is effectively.
Kind of already paying for all this shipping and structure so so again I think it's paying for itself right now and it's gonna be around for four five to ten years plus
[59:20] Also Amazon it's offered on a small number of skus so I think there's going to be two to three years where they're going to be able to expand the number of skus that are there available in prime one day and then that will
get them 20% plus growth for two or three years long enough to find the next Catalyst for an acceleration maybe that same day Prime maybe they figure out growth
tree Alexa ads they have so many so many irons in the fire they have a really good chance of finding that next big thing so the action item is I think retailers need to really.
Kind of take action on this for this holiday holiday of 2020 we have a lot of time thinking this and really start figuring out.
Can you partner with UPS or FedEx to offer one day and what's that going to be like and.
How do you build that out because it's clear consumers love it and it's clear Amazon has invested massively in this and will continue to do so based on the results
Jason what was your conclusion and action items.
[1:00:17] Yeah so I mean I think at the highest level they've they've established these two dominant modes Prime and
they're their fulfillment capability and I think this point no retailer strategy should try to be to catch up with him and go head-to-head with him on either of those two things I think just the idea of trying to be in everything store and ship
hundreds of millions of products and the in the same day to any us consumer in competition with Amazon is a lost cause at this point and so you know if you're a retailer you need to think about the white space
that that Amazon's decisions has created for you right and so you know that you've got to think about.
[1:01:02] Products and services that benefit from the fact that you have this brick-and-mortar footprint right and I see
Target in particular doing a really good job of leveraging the store I know I talk about grocery a lot but groceries a perfect example
you know groceries never you know bananas are never going to live in all these giant fulfillment centers and get delivered through the sort ations a center and all that to the consumer there
probably always going to get delivered from a store or micro fulfillment center so you know if I'm
Walmart in particular but any big retailer you know groceries one of the categories I want to try to win from Walmart I really want to think about
services that customers want that might make the Fulfillment centers obsolete right so
you know what's not very good if you're if you own 200 fulfillment centers that have billions of dollars of inventory in it is if consumers stop buying
off-the-rack products and start ordering products that have to be made to order or personalized to order suddenly all that fulfillment infrastructure isn't so valuable so if I'm any other retailer
I might be winning in a personalized products if a lot of these products shift to Auto fulfillment
the ability to ship really fast and quickly may not be quite so important so if I'm another retailer I'm leaning into that
and you know for sure I'm doing things like.
[1:02:29] Thinking about using my customer base to design my own products and sell stuff that Amazon can't sell because you know competing with Amazon by selling other people's stuff I think is just going to be.
Increasingly unviable for almost anyone and that's my shtick.
[1:02:51] I totally agree.
[1:02:52] Awesome well it has happened again we've gotten slightly over our allotted time but I feel like this is a.
Particularly important event in our year and it's well worth the time that listeners spent sort of get their arms around
all the various things that are going on in Amazon and as usual if you have any questions or comments.
Hit us up on Twitter or visit our Facebook page and you know it's time to get some fresh five star reviews so I know I say this every time.
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[1:03:42] Except when we hope you enjoyed this new kind of format for an Amazon quarterly result where we do have a little bit deeper and if you have any feedback positive or negative we'd love to hear.
[1:03:53] And until next time happy commercing.