EP220 - Retail Earnings News
Episode 220 covers a variety of retail earnings reports and news.
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Episode 220 of the Jason & Scot show was recorded live on Wednesday, May 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.
[0:24] Welcome to the Jason and Scot show
this is episode 220 being recorded on Wednesday May 20th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:41] A Jason and welcome back Jason Scott should listeners,
well everyone there’s been a lot of news that we want to cover in this episode so this is going to be kind of a news topical one hopefully you’re doing something fun for Memorial Day and listening to this song maybe a commute or
treadmill or whatever it is you’re doing before we jump into the news Jason what’s new with you house all the Sheltering in place going.
[1:04] It I have a new challenge this week Scott I’m having.
[1:10] Starbucks has reopened.
[1:12] No they have reopened so that’s a that’s just a blessing not a challenge the but my my Peloton finally got delivered after a five-week wait list.
[1:25] Oh and this is the baikonur the treadmill.
[1:28] The bike they’re not selling the treadmills right now because they’re too heavy they require like three people to deliver so they’re only doing bikes so I got my bike.
[1:34] I thought as the chief digital retail officer you may have had some inside track there.
[1:40] Not really as just a dude trying to keep his wife happy I just waited in line with everyone else and but now I’m having to do this this podcast tonight standing up because it’s too sore to sit down right now.
[1:53] Have you who’s your favorite trainer have you seen enough videos to find a your favorite.
[2:01] I have not I’m so far I’m striking out like the it’s great actually it like it so far it’s a met expectations which were high but all the trainers are a little too peppy and motivational for me.
[2:16] You need like the angry old Muppet trainer guys.
[2:19] Yes I’m hoping that I’ll eventually find some creamed onions that I can I can jam with but.
[2:26] If not you can quit our podcasts and become a curmudgeon Peloton trainer.
[2:31] That would be hysterical I would be the most awesome guest guest trainer ever and it’s no relation but the guy that invented the spinning bike is this guy Johnny Goldberg so like.
Yeah I could be his nephew or something.
[2:47] Nice have you mounted on the pot on some cup holder so you can have your two vintage drinks your to Venti Starbucks says here.
[2:54] It does it comes with cup holder so it didn’t have to do that I did Mount the iPhone holder so that I could you know keep chatting with you while I’m well I’m working out at least for the two minute warm up until I can no longer talk.
[3:07] I have a bunch of funny Peloton stories I’ll tell you some other time.
[3:14] Next yeah maybe we won’t share those with all the listeners and then.
I feel like the fun thing I mean not you know it’s mostly sad stuff but one of the fun things about the shelter in place is I feel like I’m doing as many events as I used to do but each event used to take like 3 days with travel and everything and now the events just take.
A day so I in a way I feel like I’m doing a lot more events and yet I’m less busy.
[3:40] Yes let’s let’s pretend we’re normal and let’s give us a road trip report on these events you quote-unquote attended.
[3:46] Yeah so this week the fun event I did was the second iteration of an event called Commerce live.
In this is put on by profiteer oh which is a.
Vendor in the e-commerce space that do a lot of digital shelf monitoring on Amazon.
And they partnered with Peck view which may be familiar to some listeners because that is Melissa’s company who’s been on the show.
Three times I think if I have my counts right,
and so they were very clever you know the pain right is the shelter in place holders kicked in we were all supposed to go to shop talk so shoptalk got canceled,
they decided to host their own virtual event that was you know frankly kind of last minute and add hawkish but they put together really good content and they got several thousand people to log in for the first event.
And they were desperate enough for moderators that they had me do one of the pant moderate one of their panels and then.
They had their second event yesterday so I got moderate a panel about grocery.
The keynote speaker right before me was Gary Vander check.
So we got to chat a little bit about the Jets and what a good red wine is to drink early in the morning during a virtual event.
[5:13] How about where your pulse hunting did you what pairs well with the Peloton.
[5:17] Haven’t haven’t figured that out I feel like I would be spilling too much I think yeah.
[5:23] Bad for the carpet how long into his talk did he get before he dropped a an F-bomb.
[5:30] Yeah disappointingly he didn’t at all so he was he had apparently was on extra good behavior.
[5:36] Yeah they had to pay extra for that.
[5:37] Yeah side note you know he started a media company a while ago and this month he launched a Commerce practice within that Media company so Vander check Media or Vander check Commerce,
which is focused on on helping you know challenge Our Brands and d2c Brands and all those guys,
execute their Commerce strategies so he’s one of us now.
[6:03] Yeah he always has been is a wine thing was doing
Commerce and clubs way before yeah and then didn’t he do something like some some obnoxiously large number of Super Bowl commercials went to him and he kind of helped either craft them or shape them or something isn’t that,
I saw something where he had he had worked with a lot of really large brands on their Super Bowl commercials so he’s coming he’s coming after your parent company,
he’s an enemy dude I don’t know why you’re.
[6:31] He there’s room for all of us we’re all friendlies I’m a fan I’ve been an early Wine Library consumer so.
Yeah I’m cool with it but we’ll have to have him on the show now that he’s like totally focused on the Commerce space.
[6:48] But so my panel was on Grocery and I had really good panelist so I had these three women that each run Commerce for big consumer brand so I had Elizabeth Bennet whose the
VP of global economy for Kraft Heinz I had Laura Hyland who’s the VP of e-commerce at Hinkle and then Kelly Olynyk who’s the head of global e-commerce at General Mills.
[7:13] Cool is it the single that’s the knife brand right in there always pooping on Amazon.
[7:17] No same name that would have also been interesting but Hinkle is a cpg brand that has like.
Lot of fabric care products like laundry detergents things like that they have.
I think a bunch of pet products.
So I got a pair isil is one of their brands Purex Dial soap.
Stuff like that so they are German like the knife manufacturer that yeah they’re not the knife guys that.
SQ Amazon at all cost Hinkle infect cells cells to Amazon.
[7:59] It’s confusing this should fix that over in Germany they should set that straight so that.
[8:03] If you were paying more attention during the rehearsal you would have known that.
[8:20] Yes and no so economically no because they’re like they are all seeing a nice uptick in sales /
Not necessarily very profitable uptick but what they are all doing cartwheels about which is kind of funny is.
You know these are all experienced women that like you know I think two of them you know came from Amazon at one point and,
basically they all replace the interns at the cpgs right like the cpgs like oh there’s this thing called e-commerce let’s put the intern in charge of that and then when it got too important for the intern
they hired an outsider who in these two cases
you know is these three women and their Ico e-commerce is going to be super important to our brand and like you know you’re going to be a part of the leadership team and it’s this big deal and then they arrived there
and you know they probably had the office for this from the CEO and probably like,
never got invited to the big meetings and so now of course the CEOs are sitting in their office all day long.
So digital and e-commerce has suddenly become super important and relevant to all of these consumer packaged Goods Brands as will be apparent in a few minutes when we talk about retail earnings reports.
[9:38] Like Kelly’s title head of global e-commerce acceleration at General Mills with a title like that you know if you’re ever down your rear that’s going to be a to be a rough day.
[9:48] Well so I asked her on the panel if she had a counterpart that owns all the deceleration because that doesn’t sound like as good a job.
[9:56] Head of global brick-and-mortar deceleration classic.
[10:02] Exactly yeah but so it was a it was a really good event it was fun listening Gary talked about Commerce I had an hour-long conversation with with the three panelists and got good feedback that people besides me enjoyed it so.
So within the covid dream for another week.
[10:19] Awesome well let’s jump into the news we got a lot to talk about and of course it wouldn’t be at Jason and Scot show without.
Amazon news your margin is there opportunity.
[10:42] So Amazon
in a continues to we had the Deep dive into their q1 earnings and since then the stock has been just bumping right up against new highs I think it hit a new high today I wasn’t sure if it close there or not,
one thing I like to keep track of is the trillion dollar horse race here which were well into,
pass the trillion dollar mark But Amazon’s actually third in this horse rate at one point two trillion dollar market cap,
and then you have apple at one point three eight and then Microsoft has been the Dark Horse it always,
you kind of frequently Falls to Third and then comes out and crushes it and there at one point four trillion,
one of these companies is going to be the first one and a half trillion dollar company and that’s going to be really interesting to watch that play out,
so that was interesting and then just a couple little things so Amazon has extended its work from home for its employees to October that’s one of the first ones I’ve seen with exception of Twitter that just basically said.
You all just work from home forever and then Jack went to Africa or something
the there’s a lot of rumors about Amazon so first one was that they were going to buy a MC and then the second one was that they would by JC Penney I’m curious your thoughts Jason let me hear your thoughts and then I’ll turn mine in there I don’t want to taint your.
[12:01] Yeah I don’t think they’re going to buy either I think Amazon has a very good track record and it’s very smart practice that like anytime,
there there’s a company out there in the space that that is interested in potentially being acquired or liquidated
Amazon’s going to talk to them and kick the tires because,
they like to learn stuff and you can learn a lot talking to a potential acquiree so if you know JCPenney’s is filing bankruptcy and is is on the market,
Amazon’s going to go talk to them I don’t think there’s a lot of value in JCPenney to Amazon so I actually don’t think.
That that acquisition is very real but it won’t wouldn’t surprise me at all if they food some people out to Dallas to talk to them,
in the end the same with AMC I feel like like.
The the the movie The in movie theater industry was already struggling before covid and now you know we have all these movie studios that are having these positive experiences with direct,
direct-to-consumer releases and bypassing the movie theaters and I just it just seems like,
like the value of both of those businesses are permanently eroded and in like I don’t personally see some value to Amazon and picking either one up.
[13:28] Yeah I agree the only thing I can tell we’ve been doing this podcast together for two and 20 episodes because I would have said exactly you did but.
[13:36] You would have said it better.
[13:37] Of course the only thing I could see them buying in JCPenney is doesn’t JCPenney own some Brands like a bunch of apparel Brands like the own like.
Something Tommy something they own some stuff.
[13:52] Some yeah.
[13:52] Yeah camera what there so you know there’s there’s probably you know there’s some value there but someone with a smiley face don’t they on that,
it’s got like this yellow smiley face I don’t know I don’t know the apparel world as well as you do it was funny though to watch on Twitter all the speculation so some people were like they’re going to buy all the JC Penney’s and turned them into you know.
You called them dark stores I called them Cloud fulfillment centers that doesn’t make any sense because you know if you’re gonna spend that money on that you would,
these are in malls which have high super high rents you don’t you’ll put a warehouse in a super high Renteria that wouldn’t make any sense.
[14:33] Yeah nah until the mall goes out of business and it gets rezoned.
[14:36] Yeah yeah so so yeah I don’t think any of those things aren’t going to come to fruition what other news have you been watching.
[14:47] Well we’ve had a bunch of retail earnings in the last couple days so yesterday right before my panel kicked up Walmart did their earnings and these are all like I think all the earnings are going to be eye-popping numbers
that we’re just not used to talking about so Walmart e-commerce was up 74 percent.
[15:08] I said put that in perspective like over the last two years Walmart has been one of the best performing fastest-growing e-commerce
um practices like they’ve averaged about 40 percent growth of quarter last quarter I want to say they were 35% growth
so jumping up to seventy four percent is Monster growth away more eye-popping number though is same-store sales were up 10%
so like Walmart is that a great
growth trajectory they had a bunch of consecutive quarters of growth but like usual same store sales growth for a retailer is like one or two percent is great and so
10% same-store sales growth on
Walmart’s number which is the biggest number in the world is huge 74% e-commerce growth is huge.
[15:55] And if that was the end of the story like it would be a great story of course.
Expenses were way up and profitability therefore was way down and so a lot of the retailers are going to talk about kind of missed their earnings governance because of that in Walmart’s case they said they had 900 million dollars in
extraordinary expenses related to covid
so for a retailer like Wal-Mart a lot of that is bonuses that they paid to employees to keep them at work and and you know extra safety procedures and things like that and then the news they slipped into that earnings thing which is kind of interesting
to all of us is that they also announced that they are shutting down jet.com so I I know that’s a little sad for you that’s one less Marketplace in the world.
[16:41] It is sad I’ve really enjoyed watching Jet and I know Mark really well and his early pitch was kind of so,
audacious it is kind of like almost insane and then dang if you didn’t pull it off so kudos to Mark it’s funny I saw a lot of the folks were saying you know
Walmart back basically Aqua hired Mark for three billion dollars and then some other people on the other side of the debate were saying well okay yeah if you assume.
They got this new digital DNA from from Mark and his team it’s added like a hundred and eighty billion to the Marcia caps was actually pretty good Roi.
[17:19] Yeah know exactly like it you know
correlation and causation we don’t know but market cap has done quite well since the acquisition and I would just argue that like the basic fundamentals of e-commerce have done like they were
about 12 billion dollars in Revenue they had like a million skus in their catalog
and they were growing at ten percent which is slower than the industry average when they acquire Jet and since that acquisition they’ve averaged 40% I think they’re up to like 40 million skews so.
40 times growth of their catalog mostly thanks to Marketplace and you know they’re well north of 20 billion dollars in e-commerce Revenue so,
You know despite the fact that they’re shutting that brand down which makes a lot of sense because Walmart is such a powerful brand there are not very many communities where
jet is going to have more brand recognition than walmart.com,
but I’d I personally feel like Walmart got their money’s worth out of the acquisition and certainly when Doug mcmillon the CEO of Walmart was asked about that after the earnings report he said we would absolutely do it again we’re happy with how it worked out,
but you may tell me that you can’t be a CEO of a public company and and say it was a bad acquisition.
[18:38] No he’s such a straight shooter I think he would actually say that but I think he’s you know you can’t argue with the fact it’s injected a lot of energy into their e-commerce of the 74 percent how do you dug into,
you’ve kind of had this running theory that a lot of this is coming from grocery was there any breakdown of that 74 percent.
[18:55] Yeah there was in grocery was a big contributor but it’s not exclusively so there are like
Electronics did really well Home and Garden did really well and then there are categories that are just generally genomic ginormous losers in the whole covid era so I
apparel being the poster child apparel was significantly down in e-commerce for for Walmart so.
You know it’s mostly Essentials categories and stuff that you use when you’re locked in your house.
[19:33] Seems like a perils down everywhere you know we don’t we don’t have it in our show notes but I saw that Cole’s took a whooping.
earnings we wanted to go through our Target I saw not to be out done with that amazing 74% climb their e-commerce was a hundred forty-one percent boom take that Walmart we’re almost going w i saw another thing on Twitter where it showed like these growth rates and then it showed like the absolute numbers and like Amazon is like you know
such a big chunk that all these growth rates are to give you this impression that there’s there’s something,
people are catching up the amazon but Amazon so far ahead and growing it you know its own twenty-five to thirty percent clip none of these amazing results are really going to
change the inevitable outcome of Amazon’s dominance but,
we’ll see the same store sales were up 10.8% it’s always you know it’s a little bit unfair that these guys got to be open and everyone else is closed but when that happens man people really come to their stores and they
earnings were 500 million was that top liner.
[20:43] No no that was 500 million in covid expenses so.
[20:46] I didn’t reach the next one.
[20:47] Little more than half of what Walmart said they the yeah we have a sophisticated thing in the show notes called a wine wrap.
[20:56] Yeah I’m not familiar with that but
think you got to tell me about this new technology then the other thing that I saw that was really interesting was same day curbside pickup was up like two hundred and seventy eight percent which is just nuts,
it’s a great experience though so it’s essentially kind of.
Valet to your car kind of thing so customers obviously liking that during the covid impact what else.
[21:23] So that.
[21:24] And Target did you find interesting.
[21:25] Yeah a few things so Target broke down their e-commerce growth by month
and so the ramp up is pretty like eye-popping lie funny so you you said hey the top line for the three months was 141 will January was up 33 percent which is pretty covid that’s kind of there
that would have been a good month for them right that’s above their average and above the industry average
February was up a hundred percent so that’s eye-popping and then March was up to hundred and eighty-two percent.
Or I just said all three of those wrong that’s February March and April not not January February March,
so April was up to 82 so it’s going to be interesting to see if we can maintain that in May because there’s a lot of evidence that like there’s all this aggressive stock up and shopping that kind of declined a little bit,
and there’s a lot of stimulus check spending in those numbers so it’s it’s definitely not a foregone conclusion that numbers are going to stay.
That high but certainly e-commerce is going to continue to stay high,
Target also disclosed that their basket size is up 12% which that kind of mirrors every retailer I’m talking to is Shoppers are shopping less they’re doing fewer trips but they’re getting more stuff in each trip.
[22:42] And then along with that 278 percent growth in curbside.
In this is a number that tells you a target for a while 80% of all Targets e-commerce gets fulfilled from stores so they’ve really invested in being efficient at picking and shipping or picking and curbside pickup are picking and delivering.
From stores and to me that’s a fundamental difference between a retailer like Target and retailers like Wal-Mart like Walmart trying to sell 40 million items.
They only have a hundred thirty thousand items in the store Target is really trying to sell their in-store assortment online and so it’s you know two different philosophies.
At the moment are both working.
[23:26] Very cool what else is going on in Big Box land.
[23:29] Yeah so then the two home improvement stores of Lowe’s and Home Depot both reported.
Lowe’s had slightly better numbers but probably on a worse base per year,
your comments earlier solos was up 11.2 percent in same store sales that’s globally in the u.s. that are up even a little bit more 12.3% Andy calm was up 80%.
Is westerners might remember the CEO it was is Marvin Ellison who you know left JC Penney last year to join low so,
increasingly seeming like a smart move
and then Home Depot was up 7.1% in Stamps or sales and their e-commerce up 79% so both the home improvement stores also did quite well in
the first month of covid.
[24:23] The did you want to talk about Best Buy.
[24:27] They haven’t reported yet we’re recording this about six or seven hours before they’re going to report so tomorrow morning.
[24:32] Oh okay teaser
the other news that I found really interesting I wanted to kind of pick your brain on was Facebook it continues to get more and more serious about e-commerce so they announced Facebook Shop full disclosure company I’m on the board of and started Channel advisor
is one of the partners in this I have no knowledge about any of the super secret stuff that goes on there that so
this is pretty interesting to Market really love this Facebook hit an all time high today and they’ve been kind of you know.
[25:04] Depressed I think their quarterly report surprised everyone because there’s been all this news that
that kind of display advertising is down Facebook seems have weathered that and then the market really liked their their increased move into the e-commerce kind of
retail side of things so the seems like a consolidate so it’s
they’re making it essentially free quote unquote free to put a shop on your your business page and then to have kind of a single way of advertising on both Facebook your Facebook page your
your Instagram Etc it was a little confusing to me so I would definitely want to pick your brain on some of the stuff so so they had
Mark Zuckerberg and Toby from Shopify had this big Love Fest so there’s a lot of people online that say Shopify is powering this thing and I think,
I’m a little confused where how does all this fit how the payments work give us unpack this for us has the guts work on this thing.
[26:04] Yeah and so I’ll tell you my understanding and I’ll be honest like there is enough ambiguity that I’m not.
Certain that my understanding is correct either so,
you know we’ll continue to watch it and give westerners updates but basically they’ve added the ability to send product feeds,
to Facebook that that at the moment can show up as a shopping experience and Facebook and later are going to be available in some other new ad units across Facebook.
[26:37] Instagram and we’ll talk about this in a minute but also on the chat platforms like Facebook messenger and WhatsApp
so they’re getting feeds
and I think that’s exactly where Channel advisor and Shopify play in they like if you’re a channel advisor customer your syndicating feeds to a bunch of marketplaces you can now send the Kate your feeds to Facebook
if you’re selling on Shopify and you have your product catalog and Shopify you can now check a box and send the Kate your your Shopify catalog
to Facebook the experience,
if you want to buy there’s kind of two paths it can refer you to your own.com site so you can see the product information on Facebook
click through your go to your own site and conduct a transaction on your own site or you can have a native checkout experience on Facebook.
[27:32] But the native checkout experience on Facebook is,
it’s called Facebook check out and it’s basically powered by the technology that they built,
for Instagram shopping last year that was called Instagram check out and so at the moment,
um that’s not ubiquitously available I think they may have opened that up to more more Brands along with this announcement
but so you kind of have the choice you can either do Native check out on Facebook in which case The Shopper never doesn’t have to leave the Facebook platform so it’s lower friction it’s likely going to be higher conversion but there’s a bunch of compromises you give up for that and the
the payment is being passed through Facebook which has all kinds of ramifications or it can be a referral experience and then
it’s higher friction you’re going to lose more traffic but the traffic you get are going to be you know your native customers paying through your payment platform,
on your Ecommerce platform.
[28:33] And it seems like Shopify is really kind of flexing right now to use language the hipsters would use here so they’re they’re also a hitting 52 weeks high that got a huge valuation
someone say that if you invested when they went public you’d have 45 times your money so that’s,
pretty decent so they had their reunite show virtually it canceled the physical event they had it virtually and they rolled out a lot of really interesting things so they rolled out Shopify balance which is they’re effectively becoming a bank so there
the kind of the kings of vertical integration very much like Amazon has done so they’re using some of those playbooks so that’s interesting and they also have an installment payment plan,
as the as the checkout payments guy I wanted to come back to that one second,
they rolled out a fulfillment program and that’s coming out of beta with five fulfillment centers it’s never clear to me if they actually own those are fits on top of the 3pl,
do you know the answer to that.
[29:31] My understanding is they’re partnering with 3pls but I won’t I won’t be shocked if there also is some plans to open some of their own up sees.
[29:39] Yeah and then one that the super nerdy folks that listen will like is they’ve actually announced that they’re working on some robotics I think their first one’s name is Chuck and it looks like a,
cart on wheels kind of a robot and it had some cool image technology so they announce that they’re working on Warehouse automation technology and investing a bunch of R&D into that
and then they’re also rolling out a pilot for local delivery so so you know
have you had a chance to look at this Shopify balance and what do you think about it is it a threat to I don’t know QuickBooks or any of the other payment,
systems out there are is it kind of a replacing a firm on this installment plan what’s going on there.
[30:24] Yeah no I think it mine are saying is it’s much more directly like replacing a firm and these these
alternative credit check out options like affirm our,
hit we’re growing in popularity before covid pretty significantly so they were getting used on more sites they were more significant now like that we’re in the throes of the covid pandemic.
We’re almost certainly going to be in a pretty deep recession there’s going to be a bunch of consumers that you know.
We’re going to have constrain credit or they’re going to default on their credit and not have credit most e-commerce experiences require a credit card so,
almost certainly these kind of alternative credit methods are going to become much more popular over the next year or two and so I think it’s super smart of Shopify to have their own that’s that’s.
Potentially a high margin business so that that’s super interesting more retailers are going to use it like to put things in perspective and this is not economically sound in my mind but like.
Sephora is now offering installment plans for makeup and like in general.
Thinking about paying on an installment basis for a consumable does not seem like a fiscally prudent moved to me.
[31:44] Well they pay these influencers and then I come out with our pallets and they’re expensive I’ve actually taken a look at these things and we I may need some payment plans on the various pallets that are flowing into house of Wingo here.
[31:56] Yeah yeah for sure but so I just I think you know that being in that space makes a lot of sense the whole digital wallet and contactless payment space had been kind of.
Slow to catch on in the US and now because of,
fear of traditional payment means contact us payment as wildly up at every retailer PayPal just launched a QR code payment so you know that’s going to make it,
a lot lower friction for brick-and-mortar retailers to accept Paypal as a contact list,
payment system so I think those are all smart plays on Shopify stand part.
You know as they as they’re getting a lot of traction they’re getting more sellers they’re getting more significant gmv.
Smart smart to be taking a meaningful piece of the of the payment transactions for themselves.
[32:54] Absolutely now watch with entrance interest as Pepsi launched a couple of D to see things I’ve heard a lot of negative feedback about this from the digital era T and you know I
I’d be remiss if I didn’t ask the chief digital retail direct-to-consumer instigator your what he thought about this.
[33:15] Yeah so the in my little corner of the world it’s getting a lot of Buzz Sofrito a which is a Pepsi brand launched or e-commerce site called snack.com,
where you can buy Frito-Lay products so you can get your freedos in your Cheetos and all euros,
um by the bag on snack.com they also launched a site called Pantry shop.com which is kind of bundles of snacks.
[33:43] And the reason this is interesting is because a big controversy is should all these big consumer packaged Goods companies be selling direct to Consumer like should they be competing with the the Challenger brands that sell direct to Consumer and the conventional wisdom was.
No because the unit economics for selling a you know two dollar bag of chips via e-commerce suck and that you know consumers in general don’t want to buy,
just their bag of chips you know disaggregated from all their other groceries and stuff from a different vendor so there you know there was a lot of,
skepticism about whether the traditional cpgs could have a direct-to-consumer play and so seeing.
Pepsi and Frito-Lay kind of jump into this is a super interesting we’re all watching it carefully I actually think there are a lot of good reasons,
for a cpg to do that so I applaud them for doing it it’s not Pepsi’s first direct-to-consumer effort like the a lot of Gatorade products they sell direct to consumer,
um the executions are kind of mediocre too bad.
[34:52] And so I guess I don’t know that this happened but I have a feeling that this might have been a project that was,
in the funnel at
Frito-Lay before covid and then you know the huge shift to digital in the huge spike in sales that’s happening online like prompted them to kind of,
get a minimum viable product out to Market faster and cause them to launch these two so I definitely wouldn’t hold out the show The Shopper experience or the you know kind of e-commerce best practices,
on either of these sites as a as a gold example but it’s just super interesting that that a company the size of free later PepsiCo is.
Is doing this at all.
[35:38] So you don’t think it was some covid thing it was you think it was already in the works.
[35:42] Yeah I’m pretty sure the Pepsi hid used like a.
Their own front end sitting on top of a symphony Commerce which is a.
Microservices headless e-commerce platform for several Brands and I don’t know this to be the case but I suspect that both of these platforms are,
based on that and you know by our standards they’re kind of rudimentary like theirs,
you can’t use Apple pay or PayPal that check out there’s not product recommendations or up sells,
like why do you have one URL for buying bundles of product and another URL for buying individual products.
Make a heck of a lot of sense but one thing that is interesting is the offer the minimum order is $15 and then it’s free shipping.
So that’s you know not a huge order of you think about you know some of the.
The previous efforts in this space of like selling low-cost goods online like a brand less like they actually required a lot more products to in your cart to get free shipping then then free to weigh is expecting.
[36:57] Nursing so you think they’re going to iterate away at it or you think it was just kind of a one-time experiment.
[37:01] I hope they do we’ll see if they don’t iterate like I don’t think it’ll be a huge success because I think there’s,
a lot of friction there right now but you know I’m certainly going to be watching it closely.
And then I know you know your favorite topic is to talk about the retail apocalypse and like we’re you know we’re certainly seeing a new acceleration of that right so we’re starting to see.
Some significant retail bankruptcies and announcement of closures for stores.
There aren’t going bankrupt so pre covid pure one went bankrupt and they you know we’re hoping to enter a plan for restructuring.
And one of the wrinkles of bankruptcy right now is.
That it’s difficult to declare bankruptcy like the lawyers you know offices aren’t always open the courts aren’t always open and you know a lot of the plays that you normally run in a reorganization are things like liquidating all your inventory,
and you know pure one wasn’t able to hold any liquidation sales so,
they declared bankruptcy right before covid now 660 Days Later they’re saying yeah you know we don’t think there’s a path for us to continue operation so we’re probably.
Just going to close down and liquidate all the stores so you know if you if you are a fan of wicker you know your choices are probably significantly diminished.
[38:31] Post covid JC Penney had been rumored to be close to bankruptcy for a long time and so they have now filed,
I think it’s part of that they put out a plan to close like 250 more stores,
you know they’re going to try to reorganize and there’s a bunch of value there they had a bunch of debt so reorganizing without some of that debt will probably put them in a.
A better position but you really got to think about the Ripple.
[38:59] Closing those 200 stores is going to have on a bunch of malls like they were the anchor tenant in a bunch of malls they close that triggers a lot of co-tenant Clauses and other tenants in the mall that like,
they now you know will pay reduced rent or not pay their rent for a certain period of time or all these things are going to happen that’s going to put a ton of stress on a ton of retailers.
[39:21] Neiman Marcus had been you know obviously has huge debt from a previous leveraged buyout they had been rumored to go.
Bankruptcy bankrupt and they filed chapter 11 in the last couple weeks so so we’re starting to see,
the the real bankruptcies reminder sometimes that means the restructuring re-emerge sometimes it means they won’t they won’t and all the stores will close but in any case there for sure going to close a bunch of stores as part of the process,
and then we’re also hearing,
retailers that have more healthy balance sheets like a Macy’s or for sure a Nordstrom are also announcing store closure so Macy’s announced like a hundred and twenty five stores would close,
Nordstrom which is kind of the maybe we’ll call him the tallest dwarf like they’re the best performing of the distress department stores,
they’re closing 16 Mainline Nordstrom store Flagship Nordstrom stores so that’s about 20 20 percent of their Fleet,
and I think that’s just going to be a normal thing I think a bunch of these retailers that have you know are going to take a financial hit from covid are going to use this opportunity to right-size their store inventory and close a bunch of stores,
I’m predicting that like literally 25% of all the retail stores in the US might never open again because of covid.
[40:43] The 16 Nordstrom’s that’s that’s actually pretty material percentage right.
[40:48] It’s about 20% of the mainline stores so that skews them more towards their off-price stores.
[40:55] Yet so so help me understand what these stores were not profitable like why I saw some of the places they were and it seemed like they were in like you know.
California and Sacramento and areas where you think would be highly profitable do you how do you end up with 20% of your stores needing to be closed.
[41:14] Yeah well controversial so the first thing is there’s this this concept that I don’t super believe in called for wall profitability right and a lot of retailers will say
when they’re justifying not closing the stores they’ll say these doors are all four while profitable meaning like that this store by itself is a profitable store.
Um and so why would we close it why would Macy’s close these hundred twenty five stores that are all four while profitable why would Nordstrom’s close these 16 stores therefore while profitable well.
It’s because it totally depends on how you do your math about profitable and how you amortize all these fixed costs against these stores but for sure it’s the case that if you have a hundred stores
there are 10 that are doing.
[42:00] Exceeding your average you’ve got 80 in the middle that are doing about average and you’ve got 10 that are really poorly performing at the back end and
depending on how you do your math those there’s 10 poor performers make quote-unquote still be profitable,
but they’re there them the money tied into those stories is not working near as hard as the money tied up in the other stores is working,
the inventory in those stores isn’t working as hard,
and so closing those stores creates liquidity it creates Financial opportunity to invest in all of these better investment,
and the problem is particularly in public companies there’s a disincentive for retailers to close those.
[42:47] Poor performing stores right because,
they’re having a report comps every year they opened a bunch of stores last year so they don’t open a bunch of stores this year then then the cops don’t look as good,
and at some point in that rat race you start opening stores in less optimal real estate and then the other thing that happens is.
Ten years ago you opened a store in a great market and then a bunch of the consumers moved away from that market or migrated back to a city center and that suburb died and you still have that store open there,
um and so like there’s a lot of the guarantees of being a public company that caused.
These retailers to sometime open stores and not perfect locations and sometimes keep stores open longer than make sense,
and now frankly every retailer in America has this financial Nest incentive and a get-out-of-jail-free card too.
Fix this one-time opportunity and so that’s why I think we’re going to see a ton of retailers.
Clothes stores even you know relatively healthy retailers do you buy that.
[43:59] For wall thing I don’t buy people moving away like people aren’t moving away from the cities they.
[44:09] Well no but they are like so affluent people are migrating or pre covid,
we’re migrating from suburbs back to City centers it was more popular to live in downtown Manhattan than it used to be it’s more popular to live in downtown Chicago than it used to be and so wealth in those City Centre you know originally,
all the retailers in the city centres and then all the rich people move to the suburbs and the retailer has chased him there and opened up stores in all these Regional malls,
now the rich people are moving back to the city centers and so the affluence in the suburbs was declining.
We may see another Trend covid may be pushing people back out to the suburbs by the way.
[44:52] Yeah I think we Nordstrom I think the real reason is they got to look at them all right so you know they probably have really good data on the mall traffic as well as the profitability in the trends and I think the mall probably.
The mall they’re kind of like attached to probably is a bigger Factor than they would say.
[45:10] But I mean you do like so I QBs did a report last year there like there’s 1,200 Regional malls in the US and the market can probably justify about 300 of them.
[45:20] Yeah yeah if you know some of these malls Maybe.
[45:21] Ride so so again if you were Nordstrom’s and you wanted to keep growing at some point you had to open a store in a mall that wasn’t one of those.
[45:30] Yeah yeah and maybe now you look and it’s got a anchor of a JC Penney and Macy’s that’s closing and you’re like well there goes that mall there’s you know might as well cut our losses in this.
[45:42] Yeah and so again traffic was down anyway and then when you lose them all you know there’s a bunch of L Brands Victoria Secret is you know closing hundreds of stores.
You know that the malls are increasingly just have less less draw so.
It’s a big fundamental challenge now here’s the thing I always like to remind people we’re so over stored in the u.s. right like your remember my old story.
24 square feet of Mall retail space in the US for every person versus.
12 in Canada or four in Europe so we could close 25% of our square footage and we still have more retail space per person than anywhere else in the world.
[46:26] Yeah yep so so 16 is good start so you’re predicting all the Nordstrom’s are not closed.
[46:32] Not not exactly one wrinkle I will say that could make me wildly wrong at least in the short-term on some of these store closures,
um so hey I’m not alone in predicting this right like or sides predicting 25,000 stores are closed this year UBS is predicting a hundred thousand stores closed over the next four years,
one reason that might slow down store closures is the fact that due to health concerns.
We may not be allowed to have as many customers in any given store as we’re used to write so every store maybe just less profitable for the next 18 months to two years,
as we’re artificially constraining how many people are allowed in the store at any given time,
and so in that climate one of the things you would do to have more revenue is you’d have more stores,
and so you know one one fear of closing stores right now is if that if you want to close the 20% of your bed stores and keep the 80% you’re good stores.
The traffic is likely to be way down in the good stores for the next one to two years as a result of.
Regulations keeping people out of stores and fear keeping people at the store.
[47:45] Yeah or maybe what you do is you say to people hey because we can only let so many folks in here we really only want to let people in they’re going to really buy stuff so so.
[47:57] But that’s exactly what’s happening right in the old world,
the way retail stores worked as you try to get as many people in there as you could and you tried to keep them in there as long as you could write because the longer they were in there the more likely they would be to discover something that they wanted to buy,
um so now,
I don’t want people in my stores the way to maximize profit is get as many people as possible to buy stuff from me online and do curbside pickup and not tie up one of those valuable slots in my store,
and if I get you in my store I want to get you out as quickly as possible so the next customer can come in right and so.
This whole thing like instead of,
like traffic you now want better conversion you only want to let people in that are going to buy and so you know frankly a bunch of retailers are opening on appointment only basis right now like you you’re only going in the,
the Best Buy store if you have an appointment in advance and and it’s going to be a lot more see assisted selling in that store and you know they’re going to try to maximize conversion and cart size for each customer because.
You know it just it’s less profitable though the riffraff like just roam in your store when when those slots are constrained.
[49:11] Yeah you could say you know if you’re a forget the Nordstrom loyalty program but if you’re a Nordstrom card holder whatever maybe you get special shopping hours or if you plan to pay with your Macy’s card maybe we’ll let you.
[49:22] And yeah and so think of it as Disney fast pass right like you can go to a store and you can stand in line and wait your turn to go in the store or you can be an affinity member and get in the express line and get in sooner.
[49:34] Yeah very cool it’ll be interesting to watch this develop.
[49:38] Yeah it’s a bunch of Novel new Concepts that retailers are having to figure out and so if it wasn’t for the tragic impact it’s having on the people that you know we’re working in these stores it’s it’s intellectually really fascinating and it’s you know,
we’re going to be running a lot of experiments over the next six months to see what works and what doesn’t.
All right well then that is going to do it we have used up the time that we allocated for today as always if we got something wrong or we prompted a conversation feel free to hit us up on Twitter or Facebook.
And please please please jump on iTunes and give us that five star review we’ve been begging for.
[50:17] Thanks for joining us everyone.
[50:18] And until next time happy commercing
EP219- Live Listener Questions
Episode 219 is a live show featuring live audience questions. Jason & Scot get to interact with listeners live. It's also a rare chance to watch the podcast, as the episode was recorded with video, watch it on YouTube.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 219 of the Jason & Scot show was recorded live on Wednesday, May 7th, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scott show this is episode 219 being recorded live on Wednesday May 6 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-hosts God Wingo.
Scot And Guests:
[0:40] Hello cats and kittens.
Oh sorry wrong shh hey Jason and welcome back Jason Scott show us nurse about two months ago we had our first live live live listener event and it was so popular.
That we had a lot of requests to do again we had we couldn’t get to all the questions so we have a backlog of questions from that Jason before we jump in I see we’ve got some QA going on here.
One housekeeping thing is if you do want to ask a question we would love to do it live where we’ll have you your audio come in and you can ask it.
Using the audio so that when people listen to the podcast they have a little Variety in what they hear but before we do that Jason any road trips Irani report on or any news you want to go through.
[1:24] I have done amazing road trips in the last two months I’ve been to Russia I’ve been to Europe
you know ordinarily like I booked all these gigs and I have to reserve like three or four days travel time to get to them and now I can do like three gigs in different continents in the same day so it’s a
embarrassingly more efficient and I feel like I see more credible when I’m further away on a screen than I do when people get me in person so so yeah.
Scot And Guests:
[1:57] You got in your joke timing down I found on the zoom it’s little bit harder to kind of like judge the audience with your tongue.
[2:03] Yeah I just assume I have my own laugh track I play for my own benefit and so I just I’m just assuming that that works.
Scot And Guests:
[2:12] You had time to do a laugh track but not our theme song I’m hurt.
[2:15] I’m prioritizing yeah I apologize to all the live listeners you didn’t get to hear the show music that ordinarily gets added in post but if I were a more diligent audio engineer I would have arranged a way to play it for all of you to get in the mood for tonight.
My bad Scott Moore.
Scot And Guests:
[2:33] One thing I want good.
[2:34] I was just going to say like this is a three-day Streak For Me of goodness like May the force be with you Day always a super important holiday is you know I have a young son that’s.
Like completely fixated on Star Wars so he’s decided that that’s the greatest holiday ever.
And with utter fear on his face he asked me first thing in the morning on May 4th dad do Jewish people celebrate May fourth day.
And he was thrilled.
Yeah he was thrilled to find out that it’s a non-denominational holiday and then we transition seamlessly into Cinco de Mayo and I did a lot of customer gigs with margaritas.
Scot And Guests:
[3:18] The correct Star Wars holiday there is a competition is returned to the fifth.
[3:24] Yeah I got you I did.
Scot And Guests:
[3:26] Revenge of the fifth yeah sorry.
[3:28] I could have could have stretched it out to two days I had no no idea.
Scot And Guests:
[3:34] And then today was you get to podcast So Good Times.
[3:39] Exactly I feel like and special honor we’re already being Zoom bombed in in the chat.
Scot And Guests:
[3:47] Yeah Olivia we got to bring Olivia into the live discussion.
[3:53] Yeah yeah are you oh Egypt person that’s having fun with us or are you a troublemaker that I have to boot.
Scot And Guests:
[3:59] A troublemaker.
[4:00] Seems like Olivia should get booted.
Scot And Guests:
[4:03] Yeah I vote the boot.
[4:05] Yeah alright bye Olivia it was good knowing you.
Scot And Guests:
[4:09] Well you’re booting alyvia one of the things I want to talk about is there’s been some more earnings since our last podcast last week last week we really focused on the Amazon q1 results which were
pretty stellar and then since then we’ve had
Etsy this afternoon this morning was Shopify it was yesterday was Wayfarer and then this afternoon square and PayPal
and I would say the the overwhelming theme has been you know everyone has seen this surge of activity due to the pandemic.
The PayPal CEO said he feels like digital payments have moved three years ahead into the future square as well.
One thing I didn’t understand about square is they blew away the top line but the bottom line had a huge impact I don’t know if that’s because when they sign up new customers to get some really good rate or something
and then Etsy was interesting they they have become the go-to place for handmade masks which is there have been quite a moment so they’ve sold something like I think.
[5:08] Three to eight million mask on their platform which was an amazing you know handmade face mask and then Shopify
just kind of crushed expectations and the one analyst I follow their Collins Bastion he may be on he raised their price Target from 475 to 820 and it’s currently at 7:30
so whoever asked for stock recommendations that may be an interesting one to look at because
it’s kind of one of those you know playing the the guys selling the pickaxes and shovels versus the actual folks doing the mining so Shopify stock I think it’s going to rip pretty good.
And then you have tried it about Peloton they crushed estimates as well and after hours I saw they were trading up pretty substantially
and they haven’t even been able to launch their new treadmill because it has this white glove in-house delivery that is not social distance friendly so
those are some interesting things going on in the stock side that have an e-commerce digital time.
[6:09] Yeah are we jumping into the stock question or were you just you were that was just kind of a pre-analysis.
Um yeah so a like I’m the world’s worst at stock advice and and what what I have learned is.
It turns out it’s not all that helpful to predict what companies are going to do well and not do well like what’s more important and is to understand.
[6:32] What sin or not in the existing price if you want to make money.
[6:37] So so with that huge caveat that I’m usually wrong I’m going all in on the pics at pickaxe and shovels and I’m going to suggest some stocks like.
some of the micro fulfillment centers that that grocery stores are now buying right like so my premise is digital grocery before covid-19 was 3% of
grocery sales and there was a prediction that they might get to five percent by 2022 digital groceries at 10% right now.
So basically we’ve jumped forward at least five years in the future of digital Grocery and huge caveat and digital grocery it’s wildly unprofitable so when the retailer has to pay
for all the grocery picking and the grocery delivery grocery delivery doesn’t make any money so the way retailers are going to ultimately make money on this digital grocery is.
Get you to pick up your own groceries via curbside pickup and use a robot to pick the order instead of paying a
human being to pick the order in the store and so these
these robots for grocery stores are called micro fulfillment centers and there’s at least three of them out there that have big Pilots with Grocers right now and they all have reported more than double digit.
[7:57] Um sales growth since the beginning of the pandemic and so it was super early in their evolution and so the the fact that there.
[8:08] Already seeing this this spike in demand like bodes probably really well for them so that’s companies like alphabat and take away and I’ll think of a couple others I’ll put in the show notes tonight.
Scot And Guests:
[8:23] Should we hit the audience up for some questions.
[8:36] If anyone wants a child but I think at the little hand raised there.
[8:40] Yeah should we start with a while we wait for some reason our hand should we start with.
Scot And Guests:
[8:48] Here’s Michelle let’s hope this isn’t a crazy Zoom bomber let’s see what we got.
[8:52] Oh I see it hang on Michelle we’re turning you on.
[9:09] We’re we’re excited for you to be here for the rest of the listeners you are a past guest on the show when you were with your monitor and you’ve actually started a new gig recently with Salesforce.
Scot And Guests:
[9:22] Yes I am I now work at Salesforce I started in early March there’s one place to start working at during a pandemic Salesforce is definitely it’s a great company and I’m really enjoying my time here.
[9:37] Yeah and it seems like there so go ahead Scott.
Scot And Guests:
[9:40] Have you met Marc benioff not yeah but it’s definitely on my to do list how about the top of the Salesforce Tower.
Also on top of my to-do list once it’s reopened I’m also excited about our new tower that’s coming in Chicago the top floor will be open service I hope.
Host quite a few events once it’s built in three years nice.
Yeah my question is are there any topics or themes or issues in the retail that aren’t getting enough attention.
That you think that we should be aware of.
[10:25] Good one I have a few opinions but Scott did you have something you wanted to say.
Scot And Guests:
[10:31] I would say one of the so you go to these conferences right and there’s all the talk in the front of the house and then there’s this,
back of the house talk I would say the back of the house talk I hear the most in e-commerce it’s kind of bubbling out now
is the sustainability sustainability and scalability of this kind of direct to digital brands so does DMV be have legs can you build something over a hundred million or some of these things anomalies like Dollar Shave Club and some of those or,
you earned is this kind of giant Gold Rush of these digitally native for cool Brands going to will sustain or will it die in a big fire pit of people that don’t make it through
so so I think that’s really interesting to Think Through.
The same time whenever I’m watching TV I’m seeing a lot of ads for these things now added ad rates have come down because traditional
advertisers are kind of on pause so you’re seeing a lot of these kind of calm or direct response kind of ads on TV so it’s an interesting topic that I don’t think is getting enough probably coverage out there.
[11:35] Yeah and again it depends on what echo-chamber you’re in and what you hear in terms of what you think might be covered or not covered but I’ll tell you in.
[11:45] In conversations with retailers I’m still somewhat shocked how unrealistic a lot of retailers seem to be about.
The likely duration of the impact of all of this so you know we like we talked to lots of retailers that have like this three stage plan or this four stage plan
but the the final stage of their plan is almost always back to normal and binormal they mean,
pre covid-19 and back to normal is almost always the end of 2020 or maybe.
The middle of 2021 and I’ll be honest both of those things somewhat surprised me like I don’t think we ever go back to,
pre covid-19 I think there’s enough things that are permanently going to change the retail and Commerce in the US are going to be wildly different.
In the future and so I think just the notion of going back is is.
Sort of quaint and you know frankly like we you know we’ve actually brought in some epidemiologists and some immunologist to sort of help us scenario plan and
it just doesn’t seem like you talk to any credible expert that really sees this ending.
[13:06] Or you know going back to the kind of things where we all get to go in person to a trade show or or you know go to these big mass group things or frankly have unlimited traffic in a retail store.
[13:21] Until we have a full-blown and widely distributed cure.
Um for the virus and realistically the fastest
of a vaccines ever been produced in the history of the world is five years so let’s imagine that with the crazy resources marshaled we do it way faster than that and we do it in 18 months
you still got to find a way to get 7 billion doses.
Out into the world and get everyone to take it and oh by the way a lot of vaccines require more than one dose like there’s all this negative news.
That makes me think that we’re going to return to a lot of our old activities but in a significantly modified way.
For probably two years and I like
don’t hear that a lot when I talk to people thinking about their plans when I talked to retailers that are forecasting their sales
like none of them are thinking that like for the foreseeable future they’re not going to be allowed to let an unlimited number of customers in their storm like that’s that you know they think of that as a very short term.
Thing and I you know I hope to be wrong but I think they’re missing it what about you Michelle his there anything that that’s that you feel like people aren’t talking about enough.
Scot And Guests:
[14:36] Well I am particularly curious about returns because we see all of these you know we see all the metrics to digital Commerce Commerce Rising
but you know obviously there’s a high return rate associated with.
It was e-commerce particularly in clothing and Footwear so I’m I haven’t seen too much around the returns issue and has return rates you know have that have they drop down because people you know are.
I’m buying what they don’t need they’re not necessarily buying three items only keep one or.
Our return retooling steady sort of a the shift in consumer behavior and then be we are seeing a little bit more around the actual Logistics.
Doing the returns how do you keep the merchandise clean and safe and audio process it but yeah I’m really curious about the return issue and.
How that’s factoring in into the situation.
[15:37] Yeah yeah it’s a great topic and in my observation at the moment has been like the categories that are most up in e-commerce are
not the categories that traditionally had super high return rates right so all,
digital generally always has a higher return rate than in store but in a parallel for example it’s
much more acute and
you know apparel Sales Online have been pretty soft right now and so then you know then the retailers that are really booming have temporarily
Cancel their their return policies and so so like if anything there’s a slight extra kiss right now in profitability that that a lot of these retailers are seeing lower returns because either they’re not accepting returns or
there’s extra friction on the part of the customer to do returns and so they’re just not doing it so.
Sales of the high return items seem way down but return seem way down.
[16:39] Honestly though in my mind that’s getting overwhelmed there are all these other costs of e-commerce sales that are artificially high right now that you know are more than eating up the margin
the that retailers are gaining by by this you know what I presume is a temporary
abatement of returns and so to me like the top-line story that we’ve heard in a ton of their earnings is hey good news e-commerce is up it’s not up enough to make up for all those sales we lost in the store and those sales are way less profitable than they would have been if they were in the store and so margins are super
super challenged so.
Scot And Guests:
[17:24] When I follow the startups in the return space and it’s interesting that I’ve been at this like 20 or 30 years and
you know they always fall into two categories there’s ones that have like some digital solution where they don’t touch anything at the end of the day they’re kind of like issuing an RMA and doing some tracking
look every retailer already has that so I don’t understand understand how that
it solves anything or they go super heavy and they’re like going to build a whole infrastructure and touch every product and graded and resell it in some way and I’ve never found a company that has some kind of like solution in the middle that helps
companies handle the logistics I remember in the late 90s like this kind of.
Two to four time frame there’s a company called return by
and they raised like 30 million dollars and they went and built this big returns facility and I did a tour of it was amazing and I had all these conveyor belts and things would go upstairs and go through the sorting system and I was there in the hole I was like on the 30-minute tour and I was there for.
[18:24] You know I saw five packages go by and some of them were
the little ovens like the Barbie ovens but they couldn’t resell those because the food inside had gone bad and then there was one Barbie with without a head and that I was kind of like all right I’ve been here 30 minutes I’ve seen five products that probably can’t be sold online
what how is this business sustainable at all so returns are really hard because there’s no you know there’s probably some benefit of scale
and if there is Amazon’s going to win because they’re going to have the internal in-house scale that no one else is going to be able to get to.
[19:01] Yeah in the the related question like so like we have these kind of problems with like how do we make
stuff that gets returned safe to resell or to get some some monetization from
for the apparel guys if win at the store is ever reopen and customers are allowed back in the stores a big question is how you make dressing room safe like both
of you know how do you keep the room itself safe but what do you do with the clothes that a customer tried on and didn’t buy and so their interesting questions there
do you have to disinfect that stuff and you do it in a way that doesn’t harm or damage the products you know one one idea we’ve seen a lot in China so far is the close that customers Tryon get quarantined.
And so literally you know customer tries on a dress doesn’t buy it and they have to put that dress in a quarantined area for two days before they bring it back out.
So I think there’s going to be a lot of interesting new things that you wouldn’t necessarily think about it first blush.
Scot And Guests:
[20:06] Thanks for the question oh you’re welcome thanks for taking it good luck in your new role and Sinister softly with Marc benioff yes I will I’m gonna garfi first with Rob.
[20:18] That I feel like the garfi is easier but I do think it’s a funny time to start a new job because like you probably haven’t seen the lower half of any of your co-workers yet.
Scot And Guests:
[20:28] I haven’t I haven’t met any of them in person since I started so.
[20:32] Yeah that’s odd.
Awesome well thank you much Michelle I will safely remove you from participating so you don’t have to worry about making noise.
Scot And Guests:
[20:48] Anyone else have a question raise your hand don’t take Olivia or penny.
[20:53] Yep they’re both God.
Scot And Guests:
[20:53] The Bad actors okay we do have a right one right in when here let’s tackle that Christopher ask what brick-and-mortar retailers are going to come out of this stronger and why.
Jason took a four shot at it.
[21:08] Yeah well your friend Jim Cramer on Mad Money had a rant a couple weeks ago where he said like
we’re trending towards the world when there’s only three retailers left in the United States and in his mind they were Amazon Walmart and Costco.
I do think all of those retailers are super well situated.
[21:31] You know obviously selling Essentials is a very helpful right now having already leaned into digital and particularly omni-channel retail is super helpful right now so so those read in those particular three retailers.
Probably had the best balance sheets in retail going into.
The pandemic so so those are the kind of retailers that are going to do super well I didn’t say this to Michelle but another one of the things I don’t think is talked about enough is.
How many retailers are likely to go out of business because of this and so these healthy retailers are going to grab up that share.
The in get even bigger so we’re going to see some huge consolidation at the top but even the retailers that don’t go out of business.
Are likely going to right-size The brick-and-mortar Fleets and so I we saw the first announcement it was either today or yesterday but Nordstrom is closing 16 Mainline stores which is about 14% of its
Mainline stores and people were talking about being surprised by that I actually think that’s a light I think
a significant number of relatively healthy retailers are going to close something like 25% of their stores.
Scot And Guests:
[22:47] I didn’t see at Nordstrom’s news.
[22:49] Yeah I’m here for you.
Scot And Guests:
[22:49] So do you think so so no one’s about apparel during this time and you know one Theory would be people you know they have all this you know
if they’ve survived this and have the means there’s going to be a big kind of bump in buying apparel items you don’t think Nordstrom benefits for that or you’re just not sure they make it through to that point.
[23:09] No well so I can but I think there’s a bunch of headwinds against a pair of so there is this premise
there’s all this delayed gratification and and you know in China they talked about when they reopen stores they were really hoping for Revenge shopping is what they called it which I thought was pretty funny and this this notion that there was all this pent-up demand for consumerism and they hope can customers would go out and help Goose the economy by by aggressive spending
in general like whether there are some occasions of that particular in luxury like there’s some luxury retailers that set records the first day they opened up
in general we haven’t seen that kind of Revenge shopping and part of the reason is is because
there’s huge economic uncertainty almost every Market is exiting from this quarantine period of the pandemic in a.
[23:57] A super deep and sudden recession and so consumer confidence is super low.
And so in the apparel space you just have all of these problems you had a perishable inventory that’s sitting in all those Nordstrom stores that they couldn’t sell
even though Nordstrom is pretty better than most it online the majority of their inventory was locked in stores that were locked in mall so they couldn’t sell that inventory.
It was perishable so it’s not
it’s not fashionable or desirable when they can reopen those stores most of their stores are at malls and there’s a lot of evidence that customers are more afraid of going back to the mall than they are to freestanding stores.
Nordstrom didn’t know what to do and I don’t mean Nordstrom particularly apparel retailers haven’t known what to do when they could reopen when they’re beat a man for their goods again so they’ve.
Their supply chains are all screwed up and they haven’t ordered the next season stuff.
And you know a lot of occasions that people buy apparel for.
[24:58] Are now gone like you didn’t need to buy a prom dress this year you didn’t need to buy an Easter dress this year you didn’t you’re not going back to school shopping at the moment and so.
Like even if there’s a little pent-up demand and they get a little bump when they reopen stores there’s enough long-term negativity in that apparel category that I think in any apparel every retailer is really smart
maximize their liquidity right now and get their balance sheet in the best shape they can but but particularly in a parallel you.
You really need to buckle up for a pretty rough ride because it’s not going to be pleasant.
Scot And Guests:
[25:34] When the I think it’s going to do well is Apple so I’ve had like
ten instances where I wish I could go just run to the Apple store and grab a widget or something and then you had to either wait or
I know several people at work have gotten broken computers they want to take in to have fixed and and you know if the Geek Squad or whatever that is called is broken no Geniuses to be had.
How about you didn’t say grocery.
Obviously those are going to do really well and then we have I think the drug stores have done pretty well I’ve kind of wandered into a couple of drugstores and they’ve been pretty busy and one here in town got some hand sanitizer it was like.
[26:14] No exciting.
Scot And Guests:
[26:15] Very very exciting so caused a pretty big set of demand from them.
[26:20] That in your in Raleigh that could be a huge event even before the pandemic but yeah.
Scot And Guests:
[26:26] We get excited about little stuff.
[26:27] Yeah yeah grocery is like obviously the shift to digital groceries really exciting so if you’re someone that’s in the digital grocery space in particular like there’s a huge Boom for you for traditional grocer it’s a mixed bag because
um the the shift to the digital channel
is hugely problematic from a profit standpoint and there’s other bad stuff that’s happening simultaneously consumers are buying bigger packs of stuff which are less profitable the the Grocer’s cost right now or
skyrocketing they’re paying employees more they have all these extra cleaning processes companies like get spiffy charge them a fortune to come in and and
Queen their facilities in the morning before they open they have restricted hours they can’t let as many people in so they’re like.
It is good there is higher demand for grocery there’s a lot of operational
challenges with profitability I think in the long term those gets solved but it’s not going to be an overnight thing and and then like really for grocery for it truly to be a win
there’s a behavior that’s happening right now that has to stick and and this is the most interesting thing to me about the pandemic as I talk about these kind of six different categories of consumer behaviors and which ones might be permanent versus which ones will regress after the
the quarantine at the moment.
[27:53] There’s an enormous shift from consuming meals in restaurants to consuming meals at home and if that if a version of that behavior sticks like it’s clearly not going to stick to the level we’re at now
but but if the new normal is more skewed towards consuming at home that that obviously is a
increases the Tam for grocery but if the consumption goes back to the exact same levels and it’s just a shift from in-store sales to digital sales that’s probably not an economic windfall for the
traditional Grocers it might be an economic windfall for the instacart sand fresh directs of the world and a big Debbie Downer for the pea pods of the world that turned off their e-commerce right before the pandemic.
Scot And Guests:
[28:38] Oops looks like a Christopher has question let’s see what he has to say.
[28:42] Christopher let me find you here and you are on hi Christopher.
Scot And Guests:
[28:48] Hey guys you guys actually just answer my question.
[28:51] Tell us what it was so we again take credit.
Scot And Guests:
[28:54] So it was the I was asking the question that you just answered about what brick-and-mortar retailers are going to earn a come out of this stronger I’ve got I’ve got a backup.
Yeah it’s a backup question you know are there how are retailers handling training their Frontline staff.
Specifically kind of best practices with covid and and I ask the questions obviously right like the two stores that I’ve been in.
In the last month CVS has one way aisles that their employees seem to disregard.
And and Target you know kind of has this as this buy online pick up in store option but the they haven’t made the pivot of moving their their pickup area.
From away from the cash wrap and so what it does is it sort of creates this bottleneck of people.
So I don’t know if there’s sort of any examples of companies that you guys have found that you know are really kind of thinking about sort of how to address kind of a post covid or in covid kind of environment in a better better way.
Do I take it first Jason or.
so both hey I was sort of quoted in the Wall Street Journal article this week with the exact same observation that like Milo’s local grocer has one way Isles and all the employees and professional Pickers in the store totally ignore it right so it and you know
training customers for new behavior in the store
requires like a significant effort and a significant amount of messaging and reinforcement none of which is happening right now so that that particular example totally agree with you inside note.
Totally controversial and not good evidence that one way aisles are safer
right like so that the notion behind One Way Isles is you don’t have to walk.
Cross someone in these narrow aisles where their droplet spray is almost certainly going to hit you if they’re not wearing a mask a the science on the on the droplet spread like
your droplets are staying in the air long enough that that you’re walking through the droplets of the person in front of you even though you’re both walking in the same direction so
that’s kind of a bummer but the bigger problem is if one way Isles make you spend thirty percent more time in the store to complete your shopping list.
You’re actually walking by more people and getting exposed to more risk and exposing more people to risk.
Because of the one-way Isles then you’re actually reducing risk because the one way also that particular ones controversial.
[31:29] Direct answer to your question to me the best retail operators in the world there are killing it right now or some of the regional grocery stores
so to me an absolute hero of this is a chibi which is a regional grocery store in Texas.
Drake backstory these guys identified the potential impact of the pandemic in January sent their whole executive team to China
to talk to the the grocers in China that were being impacted by this they came back they put a plan in place in February they totally revamped their supply chain.
[32:02] They instituted all these touchless processes in the store
and they have a great engaged employee base that they really made him bass Udders for all these changes so I going to a regional like a chibi or hi v– and Iowa
those guys are executing really well if you step up to a big National grocer
um like to me Kroger has taken an interesting leadership position because not only if they rolled out a lot of best practices
they actually published all their best practices launched a website and are giving away all of their employee training materials and assets to any other retailer that wants them.
So if you’re a smaller grocer that like need signs explaining to customers what new policies are or you need audio messages to play over the PA system or you need a new addendum near employee handbook and training for employees
Kroger is giving all that away and so like it you know there was an extra level of diligence and creating that that created the materials good enough not only for their own use but to share with the rest of the world so so prop
props to them.
Scot And Guests:
[33:14] Yeah I would say you know the 30,000 foot level there’s.
You know every consumer has fear uncertainty and doubt so it’s your job to try to give them peace of mind and everyone has different response to this there’s some people that are pretty Cavalier.
And then there’s other people that are like super freaked out right so the more options you can give people then they can kind of use the risk-taking kind of.
[33:38] Choose their own risk path if you will one of my best experiences during the pandemic was Best Buy they have curbside delivery so I did a normal boat this so I did a buy online pick up in store I needed to get some batteries for
for a nest camera kind of thing and.
Then you know in the app it kind of geo-fenced and it said hey looks like you’re near the store are you ready for your curbside delivery I said yes so it did some smart things using the app and then
I’ve done a lot of curbside delivery with some of the food and stuff this one is like almost instantaneous you know the runner came out then the runner like stayed pretty far from the car
and they went to the passenger side and they actually asked and they were wearing PPE and they asked you know can I set you know can I want me to hand this to you or just set it in the seat next to you so there was like a lot of awareness on the on their side about kind of seeing where my risk level is.
I’m pretty high risk I just kind of smile
normal mode of operation but it’s really interesting that they were really sensitive to that so that was one experience I think I think table Stakes is you got to have PPE for all your staff you can’t
that has to be.
Definitely gloves and a mask you know the the more medical the mask looks I feel better as a consumer so some of these like cloth ones just kind of like you know they have like a brand on them I appreciate the brand,
you know as an entrepreneur but like the fabric Thing is a little dodgy touchless payments you know I’ve been in a lot of these I’ve tried using a lot of them and it really.
Jason you’re like this one went to a grocery store it’s called Fresh Market.
[35:06] And I used my Apple I did touchless with Apple pay and then she said I want to see the credit card why do you have a physical Apple card but she’s looking for the digits right.
[35:16] Plus the thing generates random digits is my understanding right it generates a one use credit card I tried to explain that to her and not so then so then I had to switch to ATM and then I was like well while I’m here I’ll get some cash back.
And then you know I put in like $50 cash back she’s like well the maximums 40 but then the terminal had a fifty dollar.
Cash back button and then and then I was like you know the third time I was like well maybe this one you know maybe third time’s a charm and she was like.
She’s really even Flinch because I guess it happens all the time that have these things so so do the touchless stuff but make sure you know I would have a some of the managers go through the experience to make sure it’s really working flawlessly.
That was one other thing I have found grocery shopping is I’m like the only non instacart person in there by instacart I mean
Postmates and all the other shift and whatnot so I feel like those people need some other workflow or something like their own registers or something like that because they are you know they take a lot of time to shop because they’re kind of like looking at the app and they’re kind of like you know and then they’re scanning something.
I feel like it’d be interesting to have some other alternative way maybe there’s like one store that is designated just for them or something I don’t know the answer to that but it’s kind of weird because I’m kind of like
I’m very transactional and are clogging up the aisles there’s literally like eight of them on an aisle and I’m trying to like juggle through them to get through the store.
[36:40] Yeah and there is the that’s that was a problem when only 3% of grocery was online and so now that we’re a 10 like there’s a lot more of those professional Shoppers in the aisle and and there are a lot more of those conflicts
like there are you know efforts around dark stores and those Choppers
shopping from the dart stores that some retailers are doing interesting things like they’re having professional hours and Shopper hours so both Costco and Whole Foods are for the most part not letting professional shoppers
shop the store at the same time as customers they’ve they’ve narrowed the hours that throw up in a customers and they have dedicated hours early in the morning and late at night for the professional Shoppers so
all of this has allocation problems like you know you can just sell less.
[37:31] Curbside orders if you’re limiting the hours that the pickers can pick but but since they all have artificial caps on their density in the store at the moment
it makes more sense to have the Shoppers in some hours in the customers in other hours so you’re seeing a lot of that
definitely touched your lips payment is way up in the thing that’s going to be interesting there is
you know there’s a lot of self-service POS in retail particular and grocery that I’ll have touch screens which are now
super icky right and so you can imagine
there’s a rush to retrofit all of those and the non-touchscreen solution for all those is going to be that your mobile phone interfaces with the terminal and use the
the interface on your own mobile phone and so that’s going to be a new Behavior we’re going to see rolled out and have to educate customers about but I think you know
going to those touch POS systems scanning go with some retailers it experimented with.
Is is definitely going to be bigger so so I guess some of those things are interesting.
Scot And Guests:
[38:36] What they wanted and they had put a thick mylar bag over the terminal and it was so thick I could hardly press the buttons I guess they must met you know they must take that off and clean it or something or it may may be just as.
[38:46] Yeah we just want you to believe that exactly great questions thanks very much Christopher.
Scot And Guests:
[38:52] Thanks Christopher yeah thanks guys all right we got Ricardo and Scott Waiting by Let’s see we got here.
[38:59] Okay Ricardo we are you are live hey.
Scot And Guests:
[39:05] Hey hi guys we are done here reporting to you from San Francisco they kind of a show.
Thanks for calling in what’s what’s what’s on your mind I’m curious if you can talk a little bit about like the p&l office seller obviously differentiate in the u.s. versus in China you know like a referral fees the same I was just because the same.
I think I’m really curious you know I know China is as a percentage of retail e-commerce a lot more and I think it’s maybe because they don’t have a lot of the physical stores that,
we got in the west but still when you compare with other developing nations still so much more ahead so I’m just creating your thoughts on that thanks.
[39:44] Yeah well good question Ricardo a couple of things so the dominant
marketplaces in the u.s. tend to be different than in China so obviously Amazon’s the
the dominant Market Place in the US and Amazon has a singer Lehigh take rate so they charge like a.
[40:02] Like compared to most other marketplaces a very high commission for each transaction Ali Baba’s Team all which would be the most analogous to,
to Amazon and China has a way lower take rate so first thing is the unit economics of the actual sale are more profitable for the seller because you’re paying a lower commission but that’s a little bit of a
artificial economy because Team all is even in China is even much bigger than Amazon Marketplace is here
and so visibility and discovery of your product listings is non-existent like there’s so many listings and so many products your product just isn’t organically going to be found in China and so
Ali Baba has a really low take rate because,
they charge you extra for all of the marketing services and search visibility services so what you end up doing is having to pay a lot more to the to Ali Baba’s marketing arm which is called Ali Mama to have your stuff show up and
and if you kind of compare apples to apples like the the general economics of the business end up.
Netting out to be similar by the time you pay your Amazon marketing services in your take rate in the US or your only Mama services and your take grade in the China those are similar.
But digital Commerce is way more penetrated in China and.
[41:28] You know they’ve LeapFrog brick-and-mortar as you implied so pre covid.
[41:34] Depending on how you Define retail I’ll go with the forester definition 16% of Commerce in the US was e-commerce the rest was brick-and-mortar in China it was 38% before covid.
So u.s. today in April 16 percent goes to 25%.
In February in China at the peak of the quarantine.
38% went to north of 50% so.
Digitally you’re going to sell a lot more goods and then one other economic thing that’s wildly different in China than the US the cost of delivery is.
Way lower in China so because there’s so much inexpensive labor
you you can pay someone a very low rate to deliver anything in an hour or two a in a five-kilometer radius of your store and so it enables you to offer all kinds of
cheap delivery of goods that would the unit economics would never work in the US and frankly that driver
like those guys delivering all those things I say driver but a lot of times it’s a bike or something else those delivery guys
that’s a middle-class wage in most Tier 1 and tier 2 cities in China so it the economics all around workout much better in China because of that
Scot anything I botched there.
Scot And Guests:
[42:57] Let’s get the payments I think is a little bit lower so we’re used to kind of a two percent take right I think there’s a lot cheaper.
And then the payment is to Ally pay a lot of times and then the other thing I would say is most Chinese sellers are embedded in a factory so that they’re like.
They’re very very close to where the product is made.
And that gives them an edge where you know if you’re a saint it’s awesome when you hear that works for an auto parts company so if you’re at an Autoparts retailer there’s a distributor
there’s all these manufacturers some of them maybe there’s another layer where they took it from China and then the parts from China and then added something so you can be kind of you got seven people you know two to seven people dipping into the margin stack there whereas in China you’re typically
Factory to right into the marketplace essentially maybe through a seller so because of that also it also creates this very fast feedback loop
so you’ll see like this really interesting things happen where they can you know they’ll iterate very very quickly because they have the factory tied to the marketplace and then this this feedback loop accelerates.
[44:06] Nothing if you stacked the another challenge for the Chinese seller is the same widget if you take currency and try to normalize it is selling for thirty to forty percent less in China
so the good news is in the US for the same same item and if you looked at the currency rates you’re probably get 30 percent more for that in the United States than in China because it’s so competitive and people are.
Very value-oriented the China so you have more more P to put in more margin to kind of put into things in the u.s. so those are some of the interesting differences.
Because of that you know most Chinese sellers their strategy they actually make a lot more money selling out of China so the song to Russia they’ll sell into.
Mercado Libre Brazil South America they’ll sell what the most popular destinations is the marketplaces in Australia and then obviously the US and Europe.
That’s where pre-pandemic companies like wish and all the express were making a ton selling these kind of Hot Products coming direct from China.
[45:08] Good points great question Ricardo thanks very much.
Scot And Guests:
[45:12] You guys have a good one thanks.
[45:17] Should we go to Scott Landry next or do you want to take some of the typed in question Scott.
Scot And Guests:
[45:22] Let’s do let’s just got in the will hit the typed in once.
[45:25] Awesome Scott you welcome to the show I feel outnumbered by the Scots now.
Scot And Guests:
[45:33] You are yeah I’m good treaties between us yeah exactly and I’m also here in will just outside of Raleigh I’m in Morrisville North North Carolina.
[45:44] I heard Morrisville is much cooler than Raleigh.
Scot And Guests:
[45:47] It is much cooler it is much cooler and I’m a longtime listener first-time caller I a few weeks ago you guys had on Scott
another Scott on the show and he talked about this being with time to not sit back and cut costs but to actually invest in companies
invest for company owners to invest in their companies saying that those failing to prepare prepare to fail.
We’ve also seen a lot of non-essential Amazon Seller struggle during the first few weeks of this pandemic.
You know a lot of come back strong since then but and you know these companies had to Pivot and develop a multi-channel approach to their business
so this sets up my very fun question do you know of a software that would that you would recommend to all your listeners that would help them with managing a multi-channel approach that includes.
Maybe a single user interface to manage all their e-commerce operations such as I don’t know content inventory orders marketing advertising product content feeds.
Scot Jason do you know of anything like that John A blank over here Jason guy Nick.
[46:51] I thought you were going to a channel advisor.
Scot And Guests:
[46:52] Scot full disclosure Scott’s an account manager over at John visor so he’s seeing up the old Channel advisor what we do there.
But all right yeah a lot of people start you know
to be fair a lot of people especially smaller sellers they’ll start with a Shopify Bigcommerce woocommerce Magento
one of those offerings and then they’ll have a little bit of an ability to sell and other marketplaces sometimes their shipping software will get them a connection to another Marketplace but then ultimately they’ll grow out of that and that’s kind of what we’ve built for.
[47:28] Yeah so certainly like I think there’s different answers it different
tiers of business and maturity of businesses like I’ll be honest I don’t generally think of there being.
Complete unified Suites that are super successful for a broad range of customers there definitely are
unified Suites in particular Niche markets that really focus on a vertical so you can find a unified suite for a Furniture retail or for a
quick serve food restaurant that are that are pretty comprehensive
it like Shopify is inching towards being a unified sweet they’re adding more and more of those services and if I were a betting person I would say like they’re eventually going to get to a
pretty comprehensive unified Suite that seems to be an important part of their strategy
and hopefully they spend their money there instead of the stupid Shop app that we could talk about later the there
at certain niches there there are some interesting unified sweet so I Oracle owns a product called netsuite which actually has like a pretty comprehensive set of e-commerce order management Channel management.
[48:37] And outside of those you end up there are some some tools that cover a lot of what you just discussed so there there are Pimm’s that are expanding into.
Feed management content management and starting to you know do more of those kinds of things so I think of like a salsify you know as becoming more comprehensive
for those kinds of things but but like honestly there’s no dominant player like the Enterprise level,
the Enterprise players are mostly pretty sucky at it like bye
by far the best in terms of a unified sweet amongst the Enterprise guys now would be Salesforce so Michelle that was on earlier could talk to you about that.
Scot And Guests:
[49:28] Thanks guys appreciate it just I was just kind of tearing up the channel advisor commercial.
[49:34] Yeah yeah yeah I can’t believe Scott didn’t send me one to play.
Scot And Guests:
[49:42] Cool alright so over in QA Kelly ask has anyone done any good research showing the correlation between retailers being owned by private equity and their subsequent and ability to react to covid.
Seems that PE ownership equals under investment in Tech equals poor ability to respond to changes in business climate but it’d be great to see some research
yeah so if you know seems like Kelly’s pretty.
Read up on this whole topic but there are this this tier of investor called private Equity firms we call him PE firms in the industry
and they essentially go do buyouts and what drives their thinking a lot of times there’s a like anything there’s a broad spectrum of PE firms they’re not all like this but a lot I would say 80 or 90 percent are in the genre
of they do some financial interest in engineering so they’ll go look at a business like a retailer they’ll see that it has a certain ibadah and cash flow
and then on the other side of the equation they have super cheap access to cash so what they’ll do is they’ll go they’ll go by that retailer they’ll use that cash flow to go by debt.
[50:44] And you know because they’ve got this cheap access to debt they can usually get a lot of debt so they can go and say this retailers making a hundred million they can put a billion dollars where the debt because the
whoever is providing this dead is just looking for
pretty small amount of cash flow to cover a large debt they do all that and then when they when they do that they effectively have extracted the future value of that retailers cash flow out and and that is what drives their
their calculations so it’s kind of like running the business through a spreadsheet based on this these kind of metrics of this current view of cash flow
the downside of that is what it does is you know it makes the company essentially a hundred percent not bulletproof so you have a recession you have something that impacts that cash flow
and then suddenly the cash flows here the debt is like 80% of cash flow cash flow dips to 30% and now the company
is essentially if it has something on its balance sheet it will burn to that relatively quickly and then go bankrupt so this is ultimately what led to the demise of
Toys R Us India Circuit City I believe had a large private Equity component here in the Southeast Belk cut by a private Equity Firm before pandemic and I’m kind of interested to see if
if they make it through pretty much most of the large retailers with the exception of Nordstrom Walmart.
[52:13] Costco the drug stores don’t have private Equity but many of the mall based retailers have except Apple
are have a big private Equity component and I think they’re at risk so I haven’t seen a study but I would say the correlations very high just because of the nature of the Beast it’s like saying how many slow
gazelle get eaten by lions beautiful pretty much all of them so I would say the correlation would be you know almost a hundred percent correlated Jason.
[52:43] Yeah I would agree with your hypothesis I have not seen the study and it is a smart interesting question if there is a steady because
the ones you disproportionately hear about are these leveraged buyouts and they of course have you know really challenging balance sheets and therefore are super,
I’m vulnerable to covid right and you know Scott mentioned the Toys R Us in certain cities of the world like Nieman is a poster child for that situation right now
the unit I can economics at Neiman Marcus are pretty favorable it’s a totally viable retailer with a unmanageable amount of debt so
right you know sorry to my friends at Neiman covid is probably putting you out of you know into a reorganization at best.
[53:27] But I don’t actually know statistically how much of the private Equity debt in retail is.
Um leveraged buyout this we hear about the over-leveraged ones the most and there’s another kind of private Equity debt which you know tends to also under invest
like the super risky early private Equity debt which is the Venture debt like those guys you know tend to not be making huge infrastructure Investments and
and that that’s
going to tighten up at the moment but there are mezzanine level private Equity firms that do invest in retailers
they don’t tend to leverage those transactions and and as negatively impact the debt so so for sure.
[54:16] All the poster child’s we hear about about private Equity investors are going to be the negative ones that are killing retail and look at Scott with his Advanced Audio Video right there but I
I’ll be honest I do think there are some private Equity firms that are much more beneficial to retailers that we just don’t hear about as much and what I don’t have a good sense for is as a total percentage proportion of all retail
like is are those there’s good private Equity firms a unicorn or they 50% and we just don’t hear about them don’t know.
Scot And Guests:
[54:49] And I don’t know Kelly if you can see the screen here but I did find this article and Retail wire it’s pretty current so July of last year so you know obviously covid is going to tick this up but they found 10 out of 14 companies that filed bankruptcy had been acquired by pe companies
they actually pay get to 1.3 million workers lost their job
there’s a classic movie called Wall Street it is pretty interesting to watch it because the whole premise of Wall Street is effectively a PE lbo
and you know this one guy has to decide the moral implication of
the spreadsheet World it looks great and then he realizes like all these people I think there’s a familial relationship
his dad worked with are going to lose their jobs so It’s oddly one of those weird things that has stood the test of time because it’s been the strategy for
30 or 40 years you get to see very young Michael Douglas as well this report I have on the screen references what looks to be a more even
kind of detailed report on this so that so you know I would Google this this kind of Jim Baker private Equity stake holder project and you could probably a lot of times you’ll see this kind of
puffy article about one of these things then you go find the underlying paper and there’s a lot more really interesting data and you can see some actual data that feeds these studies.
Next question is from do we have a lost the ability to see the hand raised.
[56:14] Yep so we have two more and we are coming up on time so we probably want to just go to speed round a little bit.
Scot And Guests:
[56:22] All right lightning round.
Um hopefully I said your name right there do you think the market for our demand for refurbished products are secondhand e-commerce go down due to the pandemic.
You know I think it definitely will you know Jason mentioned returns you know I’m not going really want use clothes and that kind of thing I think there’s you know just like I said before
I think what you could do though is if I was the seller
I would talk about how I have used you know anti microbials disinfectants sanitization I’m becoming an expert on this oddly enough I’m a computer science guy but I’ve had,
have a crash course in this so there is a there is actually an EPA website that you can go to and see which chemicals are covid effective in can bear that claim.
So imagine your seller what I would do is I would say you know I have formed these actions on this product and I know the best my knowledge it is been sanitized and disinfected and very safe for reuse so
that’s interesting we did have CEO of I always get this wrong the used person-to-person Marketplace.
[57:32] Offer up offer up.
Scot And Guests:
[57:34] I always want to I use the apparel one yeah and he said they’ve actually seen you know a huge spikes so you know we’ve seen these macro trends of home gym home office and they saw in their kind of local platform a lot of
activity going on there.
[57:51] Yeah I would say like like most things there’s conflicting Trends here right like people are more concerned because of the health ramifications
but we’re also people are like super economically conservative and value oriented and so previously owned is likely to have a pretty nice Spike and if I were a guessing man I would say it’s net-net going to be favorable
um to refurbished in previously owned because I actually like of all the health risks the virus spreading through
items that are several days old frankly like it is.
Probably in overestimated Risk in most people’s mind there are ways to make those things safe and even in the virus still exists on something
that’s a day old it likely isn’t very virulent and it’s less likely to infect you so
I have a few over time we’re going to find out that.
You’re probably not likely to catch it from a set of weight you bought from someone else that sat in your garage for four days before you use them.
But you know I think those things are going to sell a lot more so we’ll have to follow that one.
[59:00] And then Daniel Goldman with what probably is going to shape up to be our last question.
He referenced so just for those that didn’t know Jason intrigued by your comment in the last podcast that if someone offered you Amazon web services as a business I wouldn’t say no
but I kind of made the point that Amazon Marketplace is.
[59:26] Extremely profitable as well but since it’s not separately broken out on Amazon’s earning statements people don’t tend to realize how profitable it is and so my point
in last week’s show was everyone talks about Amazon web services being the prophet driver of Amazon I was saying
the percent the proportion of Amazon’s retail business that’s a Marketplace is probably as good or Better Business than Amazon web services so he’s asking why I said that and I may have just inadvertently explained it the that to me a market like it is hard to lose money on a Marketplace
the you lose money if you don’t make the marketplace work so if you can’t get enough sellers or buyers that’s how you lose money on a two-sided Market places you don’t get enough of
of both sides of the marketplace but if you have both sides to Amazon
there’s no economic risk on the marketplace there’s no carrying costs of goods there’s no inventory there’s no cost of returns there are none of those things and you take a commission on the successful transaction so it’s it’s.
[1:00:29] A hundred percent profit with extraordinarily low overhead and very little cash burden and so
like the unit economics of that are even better than AWS AWS is highly profitable but it’s actually pretty capital-intensive
and so in my mind the marketplace just scales even more profitably than AWS and I would argue the marketplaces
bigger than AWS so that was my Y and then he the smartest part of his whole question he left for last who cares what Jason thinks what would Scott think about that same question.
Scot And Guests:
[1:01:08] So the surprise surprise you because I was surprised Jason just chose Marketplace in the it’s hard to answer a theoretical question because.
It’s so theoretical but this scenario I’m imagining I’m I have the offer to either maybe buy or get AWS or the marketplace not actually take AWS because the marketplace in the retail business and Amazon are in next trip
young what makes it work also is the fact you have the Amazon offer interlinked there and then you can actually beat Amazon.
That’s what makes part of what makes the magic of the hybrid Marketplace at Amazon work really well Amazon keeps the marketplace honest the marketplace keeps Amazon honest.
Now you know there’s a lot of noise or there was there was a little bit of a scandal last week we talked about where there’s you know they always talked about this Chinese wall there ain’t no Chinese wall they’re actually using that data allegedly did.
Out what’s going on shocking so it would actually.
You know I’m kind of reminded of the eBay PayPal split that actually happened and it wasn’t too painful but I always still pay with PayPal and eBay so that was like you know those economically,
terrible I think for me to get rid of the whole payment system and then.
Now it’s getting all this value from other places so so you know the short answer is AWS is much more extractable and could have Amazon as a customer without any impact kind of like PayPal ended up being
the marketplace because of lives and is integrated so deeply with the retail experiences inextricable and if you if you pulled it apart I think the value would go down significantly.
[1:02:38] There you go and if you look.
Scot And Guests:
[1:02:39] The first thing Amazon would do is buy a Marketplace in the be with you and I don’t think you want to be in that.
[1:02:54] One thing one last thing we wanted to do is do a shout-out to Jamie Dooley he could not join us tonight because it’s his birthday
happy birthday Jamie hope you’re having some delicious cake or something probably not eating out I would guess but hopefully you’re having a fun pandemic themed birthday sorry you could make it tonight.
[1:03:12] Yeah and and happy May 4 Theta J belated me for Theta Jamie who is another big Star Wars fan.
Scot we’ve blown through our our once again our and nine minutes so super grateful for all those listeners that stuck it out with us for the whole time that was very kind of you and these are super fun and it’s great to see everyone thanks very much for supporting the show and
please be safe out there and until next time happy commercing.
EP218 - Amazon Q1 2020 Earnings and Covid News
Episode 218 covers some Covid-19 related e-commerce news, and provides an analysis of Amazon’s Q1 2020 Earnings.
Next weeks show will be a live listener question show. Join our Zoom webinar on May 6th at 9pm ET, and you can watch us make a show, and ask your own questions.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 218 of the Jason & Scot show was recorded live on Thursday, April 30th, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scott show this is episode 218 being recorded on Thursday April 30th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners Jason 40 jump into it we do have a pretty exciting announcement we tested about a month ago now we tested a live event
so with listeners and that went really well we had a lot of folks on and got a lot of really good questions and engagement from
the community out there so next week we are going to do another one of those
you zoom so I think everyone’s pretty familiar with zoom at this point so put May 6th at 9 p.m. Eastern
that’s 8 p.m. central 7 p.m. mountain
6 plus 6 p.m. Pacific on your calendar in this episode show notes you’ll find a link to that Zoom
and we’ll be sharing the link on Twitter
LinkedIn and Facebook all the socials so we hope you’re able to join us and just kind of hang out talk e-commerce see each other we can’t
get together at conferences right now so it’ll be a lot of fun and we’ll talk about whatever topics everyone’s interested in talking about.
[1:41] Yeah and if you have any questions feel free to send them to us in advance.
[1:45] Jason how are you doing this is probably the longest period of time you haven’t been on a plane in 40 years.
[1:53] Yeah some maybe not quite that long but yes I like to say I’m living the covid dream I just wish I could wake up from it.
[2:03] Are you frantically checking your tickets to make sure you don’t have a flight tomorrow or you you’re out of the.
[2:10] No but there are still some like cruel reminders like there’s you and I were supposed to be in Arizona if I’m not mistaken doing a gig together this week which I was very much looking forward to.
And so like a reminder on my calendar will pop up for the check in at the Marriott Inner in Flagstaff or whatever and I’ll be kind of sad.
But I feel like the bigger question is how is my family doing if he guess they’re not used to quite so much Jason.
[2:45] Yeah and a little behind inside baseball your son and I had a little mini Star Wars podcast before this sucks one.
[2:52] Yeah he’s been planning that all day he was super excited he found out that you and I had a podcast and so he wanted to start a Star Wars one with you beforehand so that was super nice of you.
[3:02] He I’ll give you he asked what is he 5 6.
[3:06] For four and a half.
[3:07] He asked kind of like 8 to 10 year old Star Wars questions so you’re doing some good parenting.
[3:13] Yeah I will.
[3:14] A plus five stars on parenting.
[3:17] Yeah in the morning I’ll walk by and he’s having like morning meeting with his kindergartener teacher on zoom and he’s like explaining the nuances of how Anakin got turned to the dark side by Palpatine and that
Palpatine was actually tricking him.
[3:33] He’s like forget the alphabet let me tell you about Anakin.
[3:37] Exactly yeah I feel like he’s going to be illiterate but super well-versed in the Star Wars universe.
[3:43] He’ll do fine I that’s how I got here.
[3:44] Yeah it’s all it’s all a trade-off how are you guys doing in the pandemic.
[3:51] It has been a bit of a roller coaster over at spiffy on the personal side fine no no no issues North Carolina has been,
pretty mild from a,
pandemic perspective so but we’re still Sheltering in place and following all the good rules and all that good stuff but on the business side it’s been a bit of a roller coaster the I don’t know if you saw it or not but we had
ABC they do a show called pandemic what you need to know and they did a four minute episode on us this week about.
They called the pandemic pivot so we’ve had to
so a big segment of our zits if you was rental car companies and they’re obviously feeling pain because folks like you aren’t out running cars
and then another big segment of ours is office Parks so that was those two big hits that we took so we’ve been diversifying as rapidly as possible
and the ABC show highlighted we’ve moved into disinfecting vehicles but then also one of our Fleet customers asked if we would disinfect the facility we said sure so we’ve added that as a pretty fast growing product line.
[4:58] Yeah I so I’ma get spiffy Fanboy so I’ve course I saw the ABC segment and I will put a link in it in the show notes I think have to put a link to like the Twitter post because,
the link on the website isn’t Perpetual but that I thought that was a totally cool story it seem like you both,
expanded you’re offering I wouldn’t call like disinfecting Vehicles necessarily a pivot for you but then the facility’s thing I thought was very agile and clever of you.
[5:30] Yeah when desperate times call for desperate measures so we we put it out there and then
you know the other benefit is being on national TV is very good promotion so we have had a surge of activity this week so that’s we’re kind of we’ve been down the roller coaster and now we’re kind of heading back up in here.
[5:48] Yeah I if you watch that that segment and then you click through you have a facilities disinfecting landing page
on your website now and it’s super fun because there is a dude with a disinfecting cannon that seems like he can blast like
seems like he could like disinfect an entire Costco from like one location with that thing.
[6:10] Yeah we’ve invested in all these spray misters and all kinds of cool disinfecting technology.
[6:17] Yeah I’ll bet you you have learned some things you you didn’t necessarily think you would ever learn.
[6:23] It’s true as the software guy I get over my skis a little bit on chemistry but hey I can I can at least say the works.
[6:31] That yeah Bill Gates I feel like as a software guy that’s pretty credibly giving the pandemic talk so if he could do it you could do it.
[6:42] Have you are you keeping one foot in retail are you following the catastrophe that is covid news in retail or maybe we’ll get to that in a minute should we do.
[6:53] Yeah and we thought tonight we’d go through a little bit of news just kind of catch up on some things we haven’t been able to insert or talking to guests with the the big news tonight that we want to really get to and spend a fair amount of time on is the Amazon results
or what I would also call hey shareholders take a seat so that was kind of a we’ll get to what that means here in a minute.
[7:14] I like this I like the cliffhanger.
[7:17] So two before you to Amazon we wanted to spend 5 to 10 minutes on some of the other things going on
and I’ve been dying to chat with you all week about these two and I really just want to see it up to here your your thoughts so the two big things and I kind of put these both in
and kind of newish marketplace news so number one Google shopping announced that they’re bringing back free listings didn’t announce it this way that’s a,
that’s my my framing but remember I think it was 2012 so it started to be as this thing called Frugal that was just free then they
changed it to Google shopping branding wise and then that was paid and free and then in like 2012 it became paid only then they had a brief kind of a
flirtation with kind of shopping kind of aggregate doing their own fulfillment kind of a thing
and then kind of like it’s a good Postmates like a Postmates kind of a business model they get rid of that and then now so then it was just,
paid listings and then now they’re adding back in the unpaid listings they talked about you know pandemic had accelerated their thinking and wanting to help.
[8:31] Small businesses so that was one news I kind of think what’s going on there,
is they’ve been investing a lot in this Marketplace when your revenue from retail is way down that’s the best place to launch a Marketplace because you can’t really cannibalize you’ve already cannibalized the ad Revenue that’s always been the big hurdle for them becoming a Marketplace
also during the pandemic their shopping experience really really suffered so I tried to buy some paper towels and it was like going through.
[8:58] The darkest alleys of Internet kind of up in the Dual shopping there,
another one I wanted to ask you about a Shopify so they had this little app they moved their their notification of shipping to an app whose name arrival arrived I can remember name of
and then they just.
[9:17] That’s the former name and then they just kind of change the name of arrived arrival to shop and then they put a little bit of a front end on it and everyone’s always been kind of wondering you know
what if Shopify became a Marketplace
so I know the Strategic Regice your teacher a guy talks about this all the time Ben Thompson he was like losing his mind he was so excited so
but you know
and there’s there’s a lot of different ways to look at it I kind of think they’re going to be a front door they’re going to kind of get into the discovery game the challenge of that is when you have all these merchants.
There’s a data problem in a don’t want to I don’t want to step on your toes you may be wanting to talk about this but how do you feel about those two things and we can kind of like chat about it more.
[10:04] Yeah it depends on how you look at both of them so I think in and of there’s the themselves both of those pieces of news are like,
kind of nothing Burgers right like they like neither one dramatically change their experience or improved things in a
in a way that is likely to be very meaningful to real consumers and so that was the only thing you were ever going to see from Google about Commerce or the only thing you were ever going to see from Shopify about marketplaces I would say it was totally silly
what’s what’s potentially interesting and exciting about both is that you know they could be sort of first initial steps into,
much more significant Commerce activities right so that that’s what would be exciting to me as if Google really invented,
a new experience around marketplaces on their platform or if Shopify really leaned in but but.
These two steps by themselves are like not very significant in my view.
[11:07] Do you think they lead to something significant.
[11:10] I think we’re going to see other efforts I think the jury is going to be out it’s interesting they both suffer from similar problems in my mind like the messaging about both is pretty muddled so I start with Google shopping.
You know Google is an amazing company and so it’s always been totally shopping to me shocking to me that they’re they’re shopping offering like The Branding is always super.
Confusing and their naming conventions are constantly changing and it’s like my job to keep up on this stuff and I can’t keep up so I have no idea.
How average consumers are but so for example hey you know they did a press release with this white grandiose headline.
Group listings on Google shopping is now free.
It’s now free to list your products on Google right and so there’s a lot of people that were like paying a lot of money to list their products on Google and they’re like wait do I so now everything I was paying for I get for free which is of course.
[12:15] Not the case whatsoever essentially what they’ve done is they like if you pay for a what used to be called a product listing add or you know you you do a Google shopping listing.
You that add shows up in the shopping tab in Google but it also shows up in Blended search results in a bunch of other places.
And essentially what they’ve said is we’re going to bring back organic listings but only in the Google shopping Tab and only below the the.
The paid ads and so and they’ve never disclosed anything about what kind of traffic that tab gets and spoiler alert when someone like Google won’t tell you how much traffic something’s getting it’s because it’s not getting any traffic.
[13:02] So like having an organic listing and that tab probably isn’t going to get seen by anyone.
And so in and of itself that doesn’t seem like a very big change and there’s like something that I’m still unclear about there’s a separate thing that used to be called Google shopping actions which is.
The actual ability to complete a transaction within your ad unit as opposed to just referring you to the Commerce site to complete that the transaction and it’s unclear to me whether these.
Free listings are enabled for Google shopping actions or not and if that’s voluntary for example right so I potentially,
the listing is free but then they’re going to try to conduct a transaction that they’re going to charge you a commission fee on for example.
[13:56] That’s called a Marketplace and that’s what’s exciting I’m tingly all over.
[13:59] Yeah so yeah but it’s like I haven’t no one’s been able to articulate to me whether why is that the case with all those listings can you opt into that on a voluntary basis is that not an option that’s available.
[14:13] It’s the funnel you got to you got to bring these free people in get them addicted to a little traffic and then you flip them into the marketplace.
[14:18] Yeah it’s a great model it certainly worked for the rest of Google and Facebook so so that one again like.
Kind of muddled kind of overhyped if you just look at what it is now but you know they it is a.
A possible step towards a more significant Marketplace for five months ago they did hire this guy Bill ready he was the CEO at PayPal
so you know maybe this is like one of his first initiatives to as president of Commerce to kind of get the Commerce ecosystem Juiced and you know,
for sure Dougal wants to have relevant search results when you search for products and like increasingly they were losing that that search to Amazon and if the only results you could get from Google are from advertisers that paid.
Like you’re just not going to have a complete product catalog so to me this feels like the biggest benefit of this is to Google which is to collect more product data to enable you to have better search results that you can then monetize.
And then Shopify I’m I’m kind of concerned that I’m burning a bridge on Shopify because.
[15:36] Toby’s going to kick your butt.
[15:37] Yeah I feel like I had some negative comments on Twitter and in the press and I wasn’t smart enough to like not see see Toby on those comments so I feel like my.
My Shopify Fanboy status might get revoked.
[15:53] They’re Canadian they’re super nice and forgiving.
[15:55] That’s that’s what I’m banking on.
And again I would be interested in Shopify leaning into a Marketplace I think there there there would be some challenges for that but there would be some intriguing things about that.
This is not that right so here’s what here’s why I was pretty negative is because six hours before this announcement I was on Twitter in the middle of the night as one does,
following shopify’s Chief product officer who made a tweet that like in the next few hours we’re going to announce our most significant product release ever.
[16:31] And I’m like oh that’s interesting like that’s a pretty grandiose statement I’m pretty excited to see what they launch and,
you know I’m every couple hours I’m waking up and I’m refreshing my feed to see what they announced and then they announced this exciting new mobile shopping app right.
And at first I’m like okay so this is going to be,
you know we’ve complained for a while that Shopify actually isn’t very good at mobile right so if you want your Shopify site your,
desktop browser experience is likely going to be way better than your mobile browser experience your mobile browser experience does not have awesome performance.
And Shopify has mostly ignored,
some newer web development standards that I think are pretty important for mobile like Progressive web apps Toby’s not a big fan.
So I thought oh so their solution to mobile web is I mean mobile shopping is they’re going to launch a new app that you can shop from.
So a that was a wrong assumption.
[17:30] That’s called it’s called shop it’s right there in the.
[17:32] Exactly it’s called shop so so jump on this thing and I’m like alright let’s see what the shopping experience is.
Spoiler there is not a shopping experience as you mentioned they rebranded a app for tracking shipments.
Which I’ll come to in a minute is kind of an oily space.
Um and then in addition to tracking shipments it lets you favorite some of your Shopify merchants and it will promote.
Some items from the Shopify Merchants which you would then click to their website in order to browse or by the individual items.
And it has a super limited experience for helping you discover some new merchants.
So so a couple of things first of all if I download an app to track my shipping status.
And it suddenly changes its name to shopping and is suddenly about Merchants Discovery like I’m I am probably annoyed.
And you know everyone was arguing with me on Twitter the right no it’s genius like they built in 18 million user user base from day one by repurposing this existing thing and I’m like oh well they should have bought like The Words With Friends app.
That had a hundred million users and made that the Shopify shopping app if that’s like you know there it’s not the same audience.
[18:58] You can’t track packages worth word from Friends.
[19:01] Yeah so side note there’s a bunch of apps exist in the world to help you track your packages and what they mostly want to do is scrape all of your e-commerce purchases from your Gmail
and sell that data to evil marketers like publicist.
So that’s that’s what most show shipping tracking apps exist for and the the Shopify app it’s really weird because nobody,
shops or buys from Shopify right like you buy from beardbrand or Kylie Jenner and you have no idea what platform.
They used to sell those goods to you so a like aggregating shipping information for all Shopify merchants.
[19:49] Makes no sense because that’s not a context anyone understands and then,
they don’t tell you this but they do scrape your Gmail
and I and highlight all of your Amazon and apple purchases for example so
with whom that’s potentially interesting and then the whole,
so I’m like what this feels a little bit like bait and switch it doesn’t feel very Sharpie it’s not a very like revolutionary experience and it’s really just a bookmark to e-commerce stores to jump you to an e-commerce site and
you know a bunch of Shopify Defenders than jump in on Twitter and they’re like no you have this all wrong I’m Toby’s personal friend
and this is all about the post-purchase experience this is all about providing better customer service
and driving greater lifetime value it’s not about the first time shopping experience and so then I’m like alright well question one.
Why do you have a post-purchase experience called shop that seems kind of dumb to me it seems like.
[21:08] Because you just shopped it’s obvious Chase.
[21:11] Yeah yeah you get it more than me that’s the problem and then customer lifetime value for whom right like if I’m beardbrand which is a great,
direct to Consumer brand that happens to sell on Shopify and I get it
at market and get a bunch of customers that are customers of beardbrand and I want to provide them a great customer experience to know when their packages are going to arrive and all this stuff like,
I don’t want to send them to a third party not beardbrand branded experience
that then is going to Market other shops with competitive products to mine like it makes it makes no sense if it’s a lifetime value play it’s a lifetime value for Shopify not for the merchants and
heretofore one of shopify’s biggest strength has been their position that unlike Amazon
there they their completely altruistic in terms of benefiting the merchants and this does not feel like it particularly benefits the merchants.
[22:16] Doubles I’ll give a devil’s advocate.
[22:17] Yeah save me.
[22:18] He gives Merchants everything they need to be successful online but if you kind of compared it next to Amazon or any Marketplace.
Place their most deficient is.
Aggregating demand so Kylie is fine she doesn’t need help but if you set up Jason’s Star Wars store no one’s going to find you on the internet except for like R5 podcast look.
[22:46] Yeah you and Stephen.
[22:47] Cast listeners Stephen and I and maybe like five of the people that listen to this hobby that we have and so you know,
yes they’ll give you tools to go spend money but what if they could say look.
You can opt into this Marketplace and we will you will now show up in this front door that we’ve built so I think I think they will build a friend or because they’re going to use it as a way that’s what you get with Amazon you simply say.
I’m tapping into these hundreds of millions of people that you have captive there so I think they’re building that but then also
you know another if we kind of line those things up another area where they’re deficient and we know they’re investing a lot here is not only fulfillment but a fulfillment subscription program so I think that’s that could be,
you know between tracking packages and a front end is a big step I think there’s probably a middle step there where they say to folks hey.
Yeah and they have this checkout flow where they could say to people hey we use this thing called Shopify would you like to join the Shopify shipping program and get free 2-day for one day shipping,
kind of like so they can be successful we’re like shop Runner wasn’t because they’ll have a much better aggregation point in this app and in the checkouts of their aggregated merchants.
So that’s how I would do it I would start at the end like they’ve done they’ve got a they’ve got however many users of this happen now visit 80 million or something now you.
18 so now that’s pretty good that’s more than shop Runner I think shop on her head like.
[24:14] 475,000 of which have already written a review for the app by the way that launched yesterday.
[24:24] And then then put that it you have to admit that gives you a platform to launch a prime Shopify Prime.
[24:33] Yeah totally get it and I think we’re basically an alignment like.
Turn my original comment if this isn’t a first step like there could be some really cool steps that fall on and
in my mind the biggest mistake if Shopify made a mistake
is just overhyping this right like if they just said like hey we’ve got some super exciting aspiration and like you know given the situation in the world right now like we’re gonna like
you know release fast and iterate and here’s our first little step like I feel like the reception would have been.
Universally favorable but I feel like they over sold,
that this first step and yeah we’ll see how it all plays that I’m I have nothing against him I’m rooting for him.
[25:18] Toby actually apologize I can’t find it now but he essentially said yeah we had to put this out fast so we had to strip down a lot of the functionality.
[25:28] Yeah yeah I’m sure and I’m sure they have some cool stuff in the in the works to make it more better
I like I totally get it like the one thing that Shopify doesn’t provide is traffic and this is a you know a a much more mature version of this could potentially be a traffic driver for those merchants and that could be a,
a great trade-off right so if that’s what happens totally cool I would just
like to me Shopify and Amazon are not direct competitors they’re totally synergistic that like Amazon the thing they do better than anything is get give you eyeballs and Shopify you know gives you the infrastructure to have your own presence on the web
if covid-19 has taught Amazon sellers anything it’s that they shouldn’t be,
single sourced on Amazon like they should have their own presence in addition to being on Amazon so you know frankly if I was.
[26:23] This is why they’re rushing it out to compete with him I think they view themselves as.
[26:26] Yeah I would be leaning into man we love Amazon to but in addition Amazon like you you should have a Shopify presence to have your own brand and yeah instead like there.
[26:38] I’m not following your argument so your you don’t think they compete but then you do think they can be and then you don’t think they’re helping Merchants but they are helping rich.
[26:45] Yeah basically yeah I think you summarized.
[26:48] Did your cabin fever has messed up your logic.
[26:51] Yeah yeah I just I think their strengths don’t overlap I think their future is much more likely to overlap but today yeah anyway.
[26:59] Take it that was our 30 minute 10 minute segments so on to covid impact generally.
[27:07] Yeah so while you’ve been saving the world get spiffy I mean Liam giving these briefings on the likely impacts of covid to all of our clients.
And I feel like my new job is done on the Grim Reaper.
[27:23] That’s why you’re in kind of a bad.
[27:26] Yeah yeah maybe so.
[27:29] So how bad is it to say.
[27:30] Yeah it’s pretty bad so I’m not going to give everyone the whole Debbie Downer our briefing but like some highlights to kind of.
Frame the impact this is having on retail.
Right now there’s about 630,000 retail businesses that have closed since March so that’s about 61 percent of all retail square footage in the United States so.
A huge swath is just closed.
Like obviously you know a bunch of that is is Big National chains but a lot of it is also independent sole proprietor retailers and on average that sole proprietor retailer had 19 days of cash on hand so.
The fact that they’re now being forced to have zero revenue for 30 or 60 days is pretty economically.
Bunch of those retail stores are never going to be able to reopen.
[28:30] Forrester I did a pretty good analysis on the US Department of Commerce data that came out.
For March and they said the basically hey before covid 16% of all King e-commerce was online as.
[28:47] Forrester defines retail sixteen percent of all retail was online.
April we project that 25 percent of all retail spending is going to be online so a huge jump that likely would have taken 5 to 10 years.
Just happened in one month in terms of digital transition that if you you do some fancy math
that means that about 70% of all purchase decisions are primarily digitally influenced like even of you do curbside pickup or pick it up in the store you still use digital for the majority of your.
Your shopping Journey so there’s a huge,
Boone to digital shopping before covid about 3% of groceries in the US were purchased digitally right now 10% of all groceries are being purchased digitally,
so that is kind of appealing the problem is that that digital shopping behavior isn’t close to enough to overcome the loss of brick-and-mortar shopping Behavior so.
has this retail chain index that kind of tries to show retail sales amongst National chains and they said that April they’re all retail sales are going to be down by about 20 percent.
Which to put things in perspective in normal times like.
[30:13] Plus or minus like one to three percent is what you’re used to seeing so twenty percent down is several orders of magnitude worse than we’re used to,
Shopper track which is this company that sells traffic monitoring equipment to a lot of chains and they aggregate their data they said all retail traffic is down by 48 percent.
So that right there is the.
[30:34] It seems like to me do you think that’s light like should I be like 90%.
[30:37] Yeah and so well so.
Part of the problem is Shopper Trek cells meters to some particularly big chains that.
In general tend to be classified as essential right so they’re skewed by like Walmart and Target but but even in those stores.
That like are their sales comps are way up at Target and Walmart even in those stores
traffic is down but fewer people want to go to the store but what they had to do pretty early in this pandemic is there actually throttling traffic and not letting as many people come in at the stores
and probably don’t have time to Deep dive on that but that’s probably going to be the new normal in retail for like 18 months.
[31:23] So a huge problem it for retailers with the brick-and-mortar fleet is
you know you had some economic model where you were you know nominally profitable with the amount of traffic you could entice to come in your stores for the foreseeable future you’re going to have like half the traffic in your stores that you’re used to and
it’s in there for you know profits are going to be super challenge so most most retailers in America even if they’re allowed to open,
I really going to have to lean into digital sales and curbside pickup to augment.
Very soft brick and mortar sales because we’re just not going to be allowed to have the density in the store.
So add all that up and a bunch of retailers are going out of business right so like the ones that are already being talked about in the media there’s rumors that J.Crew could file this weekend,
Neiman Marcus has like skipped a bunch of their interest payments and and is talking to lawyers.
JC Penney is skipping payments and talking to lawyers they’re smaller chain but Tuesday morning is a dallas-based value-oriented chain that’s apparently talking to lawyers,
Warden Taylor was acquired by.
[32:43] The Footwear guys and now that looks like that they’re going to have to go in a bankruptcy again confounding all these bankruptcies is that it’s kind of pointless and difficult to file bankruptcy right now.
Like ordinarily you’d file bankruptcy you do some kind of liquidation sale try to get some value for your assets and see if you could restructure.
And at the moment you can’t do a liquidation sale so.
[33:06] And I bet the courts are jammed up because there’s a lot of you know got all these restaurants filing bankruptcies and traditions like a lot of business churn right now.
[33:16] Yeah and the dockets are just moving slower because the courts aren’t business as usual right now so so for so it’s a very weird time but there’s a bunch of retards that are at risk.
There’s this company if you ever want to invest in a company that does well in bad retail times it’s this company called Gordon brothers so they’re the guys.
Execute all these liquidation sales for all these retailers and they have come out and said hey we think 25,000 retail stores and a hundred thousand restaurants are likely to permanently close this year.
So an ordinary year for retail would be like 5,000 retail stores closing a badger for retail would be like 8,000 closing.
And and you know some closing is healthy because there’s this churn but 25,000 would be pretty unprecedented and then the restaurants are almost unimaginable.
And then a different spin on that same premise.
Is that UBS they kind of looked at this and said hey this is going to facilitate a permanent shift to e-commerce o we think.
That would permanently going to see this shift from 15% e-commerce penetration a 25% e-commerce penetration.
And that’s going to force a bunch of stores to close to keep the equilibrium and they did the math and said basically that means we need to close a hundred thousand retail stores by 2025.
[34:43] So that means you’re in that 15 to 20,000 stores going a business closing every year for the next seven years.
[34:54] Yeah so that is the super Doom and Gloom.
Portion of my normal briefing I like to always end on a slightly happy note and so the.
[35:10] I was going to ask you get invited.
[35:11] Yeah yeah well like if you pay me you get the second half of the story which is what I think you should do to survive and thrive in that Clement.
[35:20] Okay cool.
[35:21] Even if you don’t pay me the one happy Trend and all this is you can no longer adopt a pet because all the pets have been.
Adopted from all the shelter so lots of deserving furry friends have a new home which in and of itself is super happy.
Yeah there’s a bunch of metrics to look at to talk about this but one simple one is search volume on Google for Adopt-A-Pet is up three hundred thirty five percent.
The fun ramification of that is we now have the the largest cohort of new pet owners in the United States of America that we’ve ever had and of course they all learned how to get their pet food and cat litter and all their supplies via e-commerce so if you’re a
you know and Ecommerce in the pets base or pet adjacent you know you probably have a pretty bright future at the moment.
[36:18] Cool what a couple other kind of what I would call Green shoots in the
from I’ve had a lot of time to watch CNBC so a couple of things interesting their Apple and Google results were not as bad as expected and you may think what’s that have to do with anything but Apple actually
it’s going to start opening their stores here and
that will be good and then people were expecting gloom and doom from these two folks and it wasn’t as bad as expected so so there that indicates that you know.
Maybe this mix of things isn’t quite as bad and we’re going to kind of come through this faster on the other side Simon properties announced a plan to open a bunch of malls and then I had a question for you everyone talks about,
dopest and now there’s curbside delivery but the is and Opus is in store right so.
I propose we come up with a new term just to be clear so we have both this what we had,
go pack buy online pick up at Curb do you like that.
[37:18] I do unfortunately I have to tell you I believe you independently invented that but you are not the only one to have invented that.
[37:25] Shucks about in the UK they have click and collect how about clicking curb.
[37:30] You are the first person I’ve heard to invent that I’ll add one to that vernacular though
like we talked a lot about curbside pickup and that like if you’re a store with a parking lot curbside makes a lot of sense but a lot of stores don’t have their own parking lot if you’re in a mall or you’re in an urban center you might not have your own parking lot and so curbside pickup may not work and so,
I’ve heard a lot of stores that have launched a door side pick up.
Meaning we don’t let customers in the store but come to our front door with your your quick your QR code and we’ll deliver your order to you in a touch u.s. way.
[38:09] I propose we call that bow pad bulbous bow pack and moped.
[38:11] Yeah absolutely yeah can’t have enough good acronym.
[38:17] Trademark Jason discussion.
[38:20] Inside note like based on
how things were covered from SARS in China and in 2003 when we had kind of a this kind of quarantine and what we’re seeing in China right now which is maybe two months ahead of us,
you want to learn those acronyms because,
curbside pickup or door side pickup are going to be a super important part of the retail shopping experience for the foreseeable future and,
like probably has customers weren’t how to do it and retailers get better at it like probably forever.
[38:56] Yeah so another interesting kind of thing to keep an eye on is in this is again from watching CNBC in the first weeks of the pandemic and we’ll talk about a v-shaped recovery and then it was kind of like a you and now it’s like a long L but if you
there’s enough data out of China that it looks like it’s been a very sharp V recovery there so another kind of thing to be slightly optimistic
I don’t want to burst your death bubble but something to be slightly optimistic about.
[39:21] Yeah so so I like so what I’ve actually like when you dive into it what’s interesting is some segments
some categories of product had been very v-shaped in China and other segments have been very u-shaped so it has not like not everything has come back at the same,
rate which is interesting and not necessarily what you’d predict so there was a there was a theory in China that there would be a ton of Revenge shopping like that as soon as you’re allowed back in the store
everyone would have rushed back to their old vices and in some cases that has happened and then another cases,
it’s recovering very slowly like primarily because both in China and here consumer confidence is it all time low people are super concerned about the economy.
Pretty obvious that we’re going to come out of this in a deep recession and so all of those things tend to make the recovery slower.
The the most terrifying letter that I’m hearing is not U or V or L it’s w.
And that is because there are a lot of places where they thought they were through the worst open back up and then saw.
Re-emergence as of the virus and now and in the height of irony foreign Travelers are traveling back to China and bringing the virus back,
to China with them and so like the worst thing to happen here is this w-shaped recovery where sales start to recover and then get knocked back down.
[40:50] Yeah yeah I’m optimistic it’s going to be I’m going with a sharp V I’m going to be The Optimist on this show.
[40:57] I I think that’s smart positioning and I admire you for it.
[41:02] Let’s jump into Amazon results so
so it was interesting setup coming in this because eBay actually had a really good quarter they got a new CEO so you guys got a little momentum in the e-commerce world you had this kind of,
super dark clouds like Jason highlighted there
and then we had Amazon results tonight so I want to walk you through those just kind of frame this up this is Amazon’s q1 results so covers January February and March we’re recording this.
You know very late April so we have kind of a whole nother month of knowledge based on what happened in that quarter but just kind of you know time is,
getting really warped oddly at least for me and this pandemic state so just kind of put some dates out there California was one of the earliest dates to do shelter in place
/ quarantine whatever you want to call it and they did March 19th in the New York XX and another States kind of came in there all the way through as late as April 1 I think Alaska was the latest it like April 3rd or something like that so
so you really only had you know call it,
20 days out of the 90-day quarter so whatever 2/9 is from a math standpoint so so it’s really only kind of 15 to 20% of the quarter was
impacted by the pandemic and it happened so fast it wasn’t like this kind of slope into it really.
[42:27] So that being said the results are a little mixed so clear beat on the revenue side and I think 2 2 is just going to be,
tremendous if they only had 20 days of this in q1 and they had him significant bq2 is just going to be there just going to destroy Q2
see how that goes but the the- was to achieve that they had to do really heavy spending on fulfillment and my guess is what happened here is Amazon,
it is a stream a well-run company and one of the downsides of being extremely well done is you have the impact of like Cyber Monday in,
and you know
for 10 days at the end of March the system wasn’t planning for that and prepared for it so it probably took it a while to flex and know what you have to do is you have to say well we weren’t really ready for that so we’re gonna have to eat some shipping fees we’re going to have to
run a bunch of extra shifts we didn’t have people for
Grant to eat some overtime you know those are the kinds of things that just ramp cost way up because they are probably really good at predicting this is what revenue is going to be this is exact number of people we need in trucks and fulfillment centers all that and then when Revenue kind of surges 30%
it can kind of blow that up and take you a while to catch up so that was kind of the mixed part of it
let’s see another thing so that also kind of flowed through margins in the bottom line and we’ll get into specifics.
[43:52] We’ll talk about AWS that was interesting a lot of people think the stock trades more on AWS even than all the other parts I’m a little skeptical about that
but you know just kind of the early read and we’ll know more about this when the podcast lands but here tonight the stock was down 5% and you always see these news reports Amazon mrs. bottom line stock down 5% well the stocks been up 30 percent year-to-date nose actually up
five percent during the day to day so it just kind of like went back down to the price before takes people a while to just these things and see what’s going on.
So we are going to dig so that’s the high level so we’re going to dig into the corridor go through some of the results and then we’ll have
detailed and super intellectual analysis so Jason run us through the headlines on revenue and profits.
[44:39] Yeah happy to I’m just hoping
you’re signed up for the super intellectual part of the end Revenue was a happy story so Global Revenue came in at seventy five point five billion
which is up 27 percent year-over-year once you take out currency fluctuation
and that’s actually a faster rate of growth than Q4 which was a 21 percent growth so 27 percent Revenue growth,
in this in this quarter that is you explained is kind of only,
partly influenced by covid is a happy story Wall Street was looking for 70 3.7 billion so that’s a Beat,
and the high end of Amazon guidance for the quarter was 73 billion so so like from Wall Street perspective the revenue was a great story and then as you alluded to
the down side of the story was profitability right so gross margin for the quarter was,
41.3% which was below wall Street’s consensus expectation of 42.5 percent so that’s a myth,
largely for all the reasons you talked about like they just incurred a bunch of extra cost and.
[45:55] Therefore like didn’t hit their margin goals so that means operating income came in a little bit below their goal I think it was like,
it’s right around four billion dollars so I think it actually came in at 3.9 billion.
Versus a goal of 4.1 billion and shipping costs which always grow rapidly for Amazon grew.
Like at a an accelerated rate so shipping costs were up 49 percent year-over-year previous quarters we saw like 43 percent up so
faster shipping went up even faster they’re still a hangover effect you know remember it’s not that long ago than Amazon really leaned into one day delivery and so cost kind of went up for that as well so,
a perfect storm of negativity on the profit side.
[46:45] Yeah and when you dig into that revenue and Amazon used to have a lot more color here now they really only give you the kind of the Geo split so North American Revenue came in at forty six point 1 billion
that was a 29 percent year-over-year growth so again I haven’t seen numbers during the pandemic but coming into this e-commerce was growing,
twelve to fifteen percent is that kind of what you’ve seen Jason.
[47:08] Yeah I think like US Department of Commerce our comscore would say like yeah right in the fifteen percent right now.
[47:14] Yeah so yeah so here you have you know Amazon accelerating up to 29% and and acceleration the way it is if you look at the year-over-year growth from queue for their at 22% so then they ramped up to 29 percent so that’s that’s a.
More than a third increase in the acceleration of growth which is just it’s just really hard to put that into.
It’s hard to wrap your head around it because I know we’re talking about 22 to 29 wow big deal but this is this is that a 46 billion dollar quarterly rate you know and those accelerations there just like I did the math one time and they were gobbling up like 10 JC Penney’s.
A point of grow that I don’t know what that math is now but just kind of amazing.
[47:58] That’s the problem like you you hear that those kind of growth rates all the time but you hear them from the smallest companies in the industry like not from the overwhelmingly you are just company in the industry.
[48:10] Yeah there’s the rule of large numbers that Amazon seems to be able to defy which is which is pretty amazing
International revenues came in at 19 Point 1 billion that’s 20% growth all the numbers I stayed are in constant FX or what they call XFX taking out the fluctuations of financial are,
currency fluctuations so the so International Group at 20% that was also a material tick up in fourth quarter the international growth wait rate was 15%
one of the units of measure everyone looks at with Amazon that’s interesting is called the unit growth rate that accelerated,
just 32 percent year-over-year and then fourth quarter it was a 22 percent so that’s kind of the fastest-growing metric here that went from 22 to 32 so what’s interesting is.
[49:02] That accelerated more than revenue and what that indicates is asp
came down and Amazon talked about that a little bit I think they said yeah the mix really shifted a lot this Corridor to essential Goods so you can imagine
toilet paper paper towels face mask know all these kinds of things they have a lower ASP than buying
please digital camera or something like that so so that was interesting aspect of the quarter on the prime side,
this is one of the growth rates that didn’t accelerate materially it grew 29 percent this is tucked into a
footnote called subscription Services Revenue it includes some other things but it’s mostly Prime so that grew 29 percent and then in fourth quarter that was 32%
what you have to realize is the fourth quarter usually almost doubles so I think like if you looked at the third quarter it was like sixteen percent and then
because of the holiday you have all these people signing up for Prime so then it surges and then it usually goes back down to kind of like about half the rate of Q for so it actually kind of hovered at that cue for a rate so while it’s not an acceleration
it’s pretty much signing up Prime members at a Holiday pace so that that’s you know I think that.
[50:15] Probably the most material metric in here that just kind of.
This is brought all these new Prime people in they’re going to get addicted to the Amazon experience post pandemic and they’re just going to kind of raise the.
The sea level of so to use your setup that you said at the top of the show you know if we do get to that 25% of sales are our online Amazon’s going to get a disproportionate.
Chunk of that because I’m get everyone addicted to Prime.
[50:44] Third-party Marketplace the mix there has been hovering around 50 to 53 percent so even with all this going on still a lot of activity on the third party Marketplace 52% of units were from that
one of the one of the big amazon things I wanted to kind of inject here not not specifically related to the quarter is there is a lot of noise so there was a congressional hearing and some ex amazonians and then some current ones gut
got asked a lot of tough questions about Amazon’s private label business and in there and I haven’t read the specific thing maybe you have Jason that the kind of let.
[51:21] The kind of quote-unquote let slip that they absolutely do look at third party data to come up with all these products so that was kind of.
Blew Up in a New York Times article that you know Amazon is set for years they don’t do this now there’s proof that they do then you know.
One of the Amazon lawyers was like yeah but you can’t know what’s in our heart or something like that and that that caused it to get even more negative PR that they kind of like they didn’t intend to but it just kind of happened so that that didn’t sound very.
Very apologetic tickets so so there’s there you know it’s kind of tucked into politics little bit so this then this whole thing like kind of rolls into some politics going on but that was interesting because you know Amazon has said for a long time
don’t look at that data I think everyone kind of knows practical standpoint you know how do you how do you go researcher so let’s say we were in charge of.
Amazon private label batteries I mean you’re not going to look at Amazon’s data you’re going to look at,
Walmart’s and Best Buy’s but not your own that just doesn’t seem practical for a lot of different things what did you think about that article.
[52:27] Yeah so again like Amazon has.
A number of PR challenges and that certainly one and they testified to Congress that they weren’t doing that so that that like create some legitimate concerns for them like there’s part of me that’s like.
This is nothing new that hasn’t been going on in retail for 60 years right and and,
I mean private label and lately exclusive products like Target is wildly successful at creating their own products and there’s nobody that doesn’t think targets not using,
the sales data they get from National Brands to influence what what products they make so it’s a little bit weird.
The Amazon gets singled out for this like I you know I feel like a lot of other retailers are benefiting from Amazon being in the boogeyman now like even when they.
They all engage in a similar practice so to me like I don’t look at that as a super nefarious thing but I certainly understand why.
You probably shouldn’t testify in front of Congress that you’re not doing something that you are I guess.
[53:38] I did want to like once white piece of color onto the other things like just talking about the the revenue growth that you talked about,
one of the things that’s impressive in that is once covid kicked in there’s a lot of evidence that Amazon was doing everything they could to slow down sales right so you know they certainly reduce their shipping promises for non-essential Goods,
but the more interesting thing is they turned off all of these like suggestive selling features and recommendations and it really seems like when you buy stuff from Amazon right now a lot of the the successful tools they use to try to increase your basket size.
[54:13] They’re intentionally not doing right now so that Revenue growth all the more impressive considering they probably didn’t use their full arsenal.
and then the thing that’s interesting to me on Prime is going to be there now is this event every year that really Goose has Prime Membership which is prime day and nobody knows what’s going to happen with prime Day this year like most of us believe,
at best it’s going to get postponed I think it’s on unofficially already been announced that it’s going to get postponed,
but you know you wonder what’s going to happen with that this year so interesting stuff to watch
as you know the category of Revenue that I like to always pay attention to is the
super excitingly labeled other revenue and the the the reason I’m interested in other is because other is primarily Amazon’s advertising business so the ads
the revenue they generate selling ads on their platform that that was the fastest growing piece of the revenue That’s That Grew at 44 percent which is a significant its acceleration
that amount of to like 5.56 billion dollars for the quarter.
[55:34] You know it’s it needs to be seasonally adjusted but if that’s a
a twenty billion dollar advertising run rate to put that in perspective Google does like 41 billion in advertising so,
that that they’re becoming a significant number three advertising platform behind Google and Facebook.
[55:58] And I I’m spacing in my head is Google that Google does like 41 billion a quarter right.
Yeah yeah so so 20 billion versus 120 billion so
you know still not still far away but by far the third largest advertising platform out there
so that makes them much bigger than like a snap or a Twitter or some of those folks and it’s way higher margin than all these other services.
[56:28] Yeah the growth rates are pretty interesting so Google’s growing it Google and Facebook are growing kind of mid teens so call it 13 and 17 percent so the Amazons
continue to grow kind of in this 40% so yeah your chart it out they’ll eventually catch up it’s going to take a while but
yeah you and I are saying that about Walmart for like five years and then like sure enough five years later they did that that’s the amazing thing about that Amazon is day you know.
You can kind of set these trajectories at five and ten year cycles and you know I’ve been at this long enough that you’re like crap it they just kind of did it you know if they got there.
[57:03] Yeah and so this is a place where the law of large numbers probably is working right in the much slower growth of those bigger players but,
like what’s also interesting not only is Amazon potentially catching them but Amazon is catching them with a mixed Revenue model where they have Diversified set of Revenue which is way better than being exclusive exclusively
single Source on the advertising Revenue model which is essentially the position that
the Google and Facebook are in so if Amazon ever caught them they would caught they would catch them with a much.
More robust business model than,
the Facebook’s and Google’s of the world so that is is super interesting and it has all kinds of ramifications every other retailers trying to figure out how
like this is another you like huge competitive Advantage for Amazon you can operate on a lower retail margins when you’re supplementing that Revenue with all this ad revenue and so if.
Amazon’s retail competitors you’re trying to figure out how do you get your share of that and it’s very difficult.
The other piece of Revenue that everyone totally totally follows that I tend to think is overhyped you alluded to earlier is the AWS business and AWS is an awesome business there’s no question about that.
[58:22] Revenue for this quarter native us was ten point two billion which is 33 percent growth which is.
A slight deceleration I think I think they were right 34% last quarter but but it’s been consistently.
It’s growing but but at a slower rate which again is probably the.
The law of large numbers now what is interesting this quarter is margins.
Um we’re considerably up for AWS so they’re up to Thirty point one percent versus 26 percent last quarter so that’s a.
Meaningful increase the the reason I say overhyped despite the fact that AWS has this great business it’s a great business that’s.
Segmented in the earning statement so you can see it by itself and so everyone tends to look at that and go oh that’s where all the profit is an Amazon and the retail business for example isn’t profitable,
and as you and I know and as we always try to teach listeners on this show.
You really can’t think of the retail business as one business there’s a bunch of business models in there and some of those business models,
are probably even more profitable than AWS so you know I think of for example the three piece out of Amazon’s business as being.
A much larger piece of Revenue than AWS at similar gross margins so.
[59:45] Like I would not turn down the AWS business if someone offered it to me but it’s not the only jewel in Amazon.
[59:56] They obviously in their earnings hyped up a lot of the ways the AWS is being helpful in the fight against covid-19 and you know there’s a lot of Educational Tools that they’re giving away free to teachers.
They’re providing a lot of data and processing power to researchers all over the world to help fight covid which is interesting.
The other Revenue class that I’m always interested in is Brick and Mortar retail.
[1:00:22] Um and so brick and mortar retail this quarter for Amazon was up eight percent which is super interesting because the last,
quarter and for the last several quarters brick and mortar retail had actually shrunk at Amazon so it was down 1% last quarter this quarter it’s up 8%.
And that’s actually remarkable because.
There’s a super important piece of covid friendly Revenue that isn’t in that number,
so if you think of all the people that are now having Whole Foods delivered at home and you go oh Jason yeah Whole Foods is selling way more stuff as a result of covid-19 and that’s why brick-and-mortar retail revenues up.
That would make total sense except that in Amazon’s world if you place the order for those groceries online and then pick it up curbside or have it delivered to your house.
That’s not considered brick-and-mortar Revenue so this 8% is actually people that paid at a cash register,
in a whole food store and so interesting that that jump so much this quarter,
and potentially bodes well for Amazon given that they kind of had lost ground there and and historically what they’ve said is oh yeah we lost ground because we shifted a bunch of people to digital,
so this quarter more people than ever shifted to digital and they were still able to grow brick-and-mortar Revenue which is interesting and and along those lines.
[1:01:46] I forget the count but I want to say there are like 340 Whole Food stores in the country.
They’re only delivering groceries out of 80 of them when this whole thing started and so like well.
It gets a lot of Buzz the amount of groceries Whole Foods delivers versus like a Walmart is is Tiny and what is interesting is that.
Being the great operators that they were they were able to expand from 80 stores delivering groceries to 150 stores,
delivering groceries during covid so they added a lot of infrastructure very quickly to sort of beef up their their curbside pickup and grocery delivery presents,
and a little fun fact,
I’ve been talking for a while about this new grocery concept that Amazon was working on and getting ready to open in LA and it probably was scheduled to open during this and did not open but what’s interesting is that that store in Woodland Hills has a,
unique technology in it for optimizing grocery packing and it’s called the micro fulfillment centers kind of a robotic e-commerce site that’s inside of a grocery store for
for filling grocery orders and what they’ve done with that story they haven’t opened it but they’re using it as a dark store on there delivering groceries,
out of that that store which is kind of cool so.
[1:03:08] Hipsters way we call this Cloud store like a cloud kitchen cloud storage.
[1:03:13] Sure sure that’s a few like dark store already existed but yeah I’ll go Cloud store for you.
[1:03:19] We could call it a buy online ship from cloud bop bop fluke I need to work on that I’m trying.
[1:03:26] Yeah be careful when you Wing those those acronyms like during the show you’re going to come up with some profanity.
[1:03:34] I know that’s it keeps listeners on edge they love.
[1:03:39] Is Scott gonna mess up.
[1:03:40] Exactly so that was kind of the story on retailgeek.
[1:03:44] Yes I know we’re bumping up against time so I’ll jump through this pretty quick
you know in wall Street’s mind it’s kind of like what have you done for me lately so you one’s over tell us about Q2 so Amazon did put out guidance for Q2 which is interesting because a lot of companies have just essentially said they’ve got done what’s called quote-unquote withdrawn guidance meaning
hey so much going on I have you I don’t even know what to tell you so you know
well we’ll see how the quarter shapes up Amazon did put guidance out there and they said Q2 is going to come in at seventy five to ninety 1 billion and just kind of as a reminder at the top of the show Jason said we did 75 billion so
so kind of you know at least as good as q1 but with a fair amount of upside to that 91 billion number.
[1:04:34] Amazon has had a history of kind of coming in at or above the top end of their guidance at the midpoint there that would be 23%
your growth and you come again we’re kind of grown at 27% here so I do I feel like they’re sandbagging a little bit there and they’re going to come in at the highwomen
Part of That Wall Street was at 78 billion so kind of in line with what they were thinking they’ve been creeping that up as the pandemic stuffs happened
big surprise to Wall Street and this may be why Amazon noise goes to these invest in Harvest Cycles this was a signal that hey
we are going into the mother of all invest cycles and they essentially said hey Q2 bottom line is going to be a range of minus one and a half billion to positive one and a half billion so kind of 3 billion range there.
[1:05:19] That doesn’t sound crazy but what Wall Street was expecting was more like four billion so they effectively said to Wall Street
I know you were thinking we’re going to make four billion next quarter but we’re actually going to possibly spend all that and another one and a half billion and essentially invest five and a half billion dollars that quarter
so in that kind of takes us to the analysis color commentary so in the note to shareholders
it’s usually a lot of fluff in there but there was this really interesting line where Bezos said and I’m going to quote this quote if you’re a shareholder an Amazon you may want to take a seat because we are not thinking small so.
[1:05:57] You know I don’t know what that means but it kind of says to me everyone interpreted it different it says to me that they have,
they see the surge they think it’s going to stick and they’re going to just like
invest like we’ve never seen before into that that invest mode so that’s going to be really interesting to look at they specifically called out in Q2 they’re going to make over 4 billion dollar investment that
called it into covid related activities and you’re going to break that down for us
so let’s see so it’s gonna be interesting how much of this do they spend on covid related stuff how much is and shipping and fulfillment centers that you know
they’ve talked a lot about how they’re going to hire hundreds of thousands of folks so so that’s interesting.
Jason went what did you pick apart from some of the color there.
[1:06:52] Yeah well first of all like just thinking about that Top Line like I was terrified when I read that and the reason I was terrified is because
um you know they’re a bunch of retailers that are going to go out of business and Amazon’s going to spend a fortune grabbing all of that share and a bunch of retards that don’t go out of business are going to implement
like extreme austerity measures and spend no money so I like their share of voice their customer awareness all that stuff’s going to go down and like every dollar amazon is able to invest right now is going to work harder,
then it would any other time like so the fact that they’re like preparing investors for a major investment cycle,
is terrifying because they’re like nobody is going to be in a position to sort of match those kind of Moves In This climate,
so that’s going to be going to be you know I suspect like they’re in the long run very successful for Amazon so if you’re a long-term investor like probably don’t lose too much sleep over the lack of profitability in the short-term,
the they did say that they expected that the covid related expenses here are going to be like 4 billion dollars.
And they broke some of that out like one of the most interesting things that they broke out was that they’re spending about three hundred million dollars to open their own covid-19 Testing Lab.
[1:08:20] And this is a interesting play.
Other retailers are partnering with the labs and trying to like acquire more testing capacity but Amazon is the only one that’s trying to like build their own supply chain for testing,
and the stated reason they need this is they need to be able to test all their employees so they can,
quarantine ones that are positive and let all the other ones know that they’re safe.
[1:08:47] And so in terms of keeping their their Workforce working and and healthy,
they need this extensive testing capacity so they’re they’re mostly building this capacity for their own employees,
but then they do kind of say and if we have any left over capacity maybe we would sell that to someone else.
And if that sounds familiar to you that would be because that was the sort of.
Germ behind the launching of AWS and fulfillment by Amazon and you know potentially a bunch of,
other services and so you quite Are We Now facing some future when like.
Amazon is going to be the largest like healthcare provider in the in the world as a result of like all this infrastructure there originally building for their own internal needs.
[1:09:41] You can imagine here’s your package Json stick out your tongue swab thanks have a good day boom.
[1:09:46] Yeah and so again that’s a cost but that’s a cost that could have a significant return there are a bunch of other covid costs that are like are pure costs,
so a big one is they’ve just said hey fulfillment centers are going to have to be less efficient because,
you know Amazon is historically super aggressive about optimizing efficiency and so what they’d want is,
the workers to walk the shortest distance from the product to shipping and you know they really optimize every minute of Labor in that warehouse,
but those practices are not very social distancing friendly and so they’re now having to like intentionally space employees out more for safety and that means they’re not going to be as efficient so there’s.
[1:10:30] Hard costs associated with that,
they’re going to provide personal protective equipment for all of their employees and that has a significant cost.
They’re gonna you know they’ve invested in a arsenal of like,
thermal cameras for taking temperature to monitor the temperature of all their employees and stuff like that so there are a bunch of these,
extraneous cost that they wouldn’t otherwise need but that they’re going to incur because covid and so they’re saying along with the testing that that might all roll up to four billion dollars in expenses but they’re also hiring a heck of a lot more folks
that’s another potential long-term advantage of their able to hang on to those folks they’re paying people more a really interesting you know piece of speculation is.
[1:11:17] Like are these increase our he’s going to end up being permanent or are you know are they eventually going to build the drop down to the lower salaries,
time will tell on that one.
Like you know the query there’s going to be a lot more shift to digital shopping and Amazon is better position than anyone else to grab a disproportionate share of that so it’s gonna you know buckle up it’s going to be an interesting ride.
[1:11:44] Absolutely there so in conclusion you know the way I would characterize it is,
short-term there’s going to be some gyrations in the stock and you’re going to need some headlines that make it seem negative but you know
Amazon just kind of so the tired of all online just Rose to 25 Amazon’s been tune away at half of that and I think they’re going to make a move here to get above half of that you’re going to see more drivers more
more of the same stuff and that the scale they’re at they can invest these amounts and you said and you know everyone else is on.
Dust or it really feels like.
There’s this old political adage don’t waste a crisis if it seems like Amazon is using this this crisis that the obviously they didn’t have a role in but they’re going to use it to to increase.
To increase their share of this hugely Rising tide.
[1:12:36] Yeah and I feel like I can summarize up everything in one terrifying statement you know there was apparently like
prior to this Jeff Bezos said do I delegate it a lot more operation of the company and was kind of you know disentangling him sitting himself from sort of the micromanagement that,
he sort of was originally famous for and as a result of covid he’s like came back into the CEO seat and put both hands on the wheel
and and I think that you know I think we you can see those fingerprints and a lot of these moves.
[1:13:10] Good news for you Jason is once you get kind of the crowd punched up with all the bad news then this could be like that knock and then you can be like and let me tell you about Amazon’s first quarter boom knockout punch.
[1:13:23] Exactly I’m not a thousand percent sure how that’s good news but I’ll roll with it I’ll take anything at this point.
[1:13:29] It’s more bad news you’re just going to like you know you got a tear them down before you build them back.
[1:13:34] Yeah you know I mean there’s a bunch of Doom and Gloom in the personal cost to all this stuff is like just heart-wrenching,
but you know every forest fire like creates new growth and every time we’ve seen an economic downturn amazing new companies of and entrepreneurs of emerged and I you know,
this this totally sucks but I’m sure we’re going to see all those things again and,
you know hopefully everyone is able to weather through it,
and that’s about the most optimism I can muster as we have gone way over time if you stuck with this little time I totally appreciate it in the highly unlikely event that you
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[1:14:34] Absolutely thanks for joining us everyone.
[1:14:36] Until next time happy commercing!