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

Join hosts Jason “Retailgeek” Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Founder and Executive Chairman of Channel Advisor, as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
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Jun 26, 2020

EP224 - Cohort Analysis and CLV with Daniel McCarthy 

Daniel McCarthy (@d_mccar) is an Assistant Professor of Marketing at Emory University – Goizueta Business School, he’s one of the industries top thought leaders in the field of customer lifetime value (CLV). In this episode we discuss how CLV and customer cohort analysis can be be used operationally within e-commerce companies, as well as how customer data can be used to calculate a companies true enterprise value, customer-based corporate valuation (CBCV).

Dan co-founded a predictive analytics company, Zodiac, which was later acquired by Nike. He’d made news several times by applying his CBCV to popular public companies using their public disclosures.

Listen to this episode just to hear Scot say “Goizueta.”

  • Dan’s personal website
  • Theta Equity Partners – Dan’s current firm, focused on CBCV
  • McCarthy, Daniel; Fader, Peter (2018). “Customer-Based Corporate Valuation for Publicly Traded Non-Contractual Firms”. Journal of Marketing Research, 55(5), 617-635. Link (download)
  • McCarthy, Daniel; Fader, Peter; Hardie, Bruce (2017). “Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data”. Journal of Marketing, 81(1), 17-35. Link (download).
  • McCarthy, Daniel; Fader, Peter (2020). “How to Value a Company by Analyzing Its Customers”. Harvard Business Review, 98 (1), 51-55. Link

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Episode 224 of the Jason & Scot show was recorded live on Thursday, June 25th, 2020.

Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.


[0:24] Welcome to the Jason and Scott show this is episode 224 being recorded on Thursday June 25th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.

[0:39] Hey Jason and welcome back Jason Scott show listeners well folks we have a really awesome treat for you today it’s so good that I want you go ahead and pause the show here and leave us a five star review and then come back.
All right welcome back,
today on the show Jason I have to admit we are kind of fanboying here so we’re going to try not to giggle too much during this interview we are excited to welcome one of the brightest Minds not only in e-commerce and Retail marketing
but just marketing overall
so please welcome Us in bringing Daniel McCarthy to the Jason Scott show Dan is the assistant professor of marketing at Emery’s Gazeta business school Dan welcome to the show.

[1:24] Thank you for having me Jason and Scott.

[1:26] Did I say that right.

[1:29] Pretty much.

[1:30] Glue is that a little bit more of a quiz that kind of thing in there.

[1:34] It’s like sweater but boy sweater.

[1:37] We sweater okay I got it all right thank you.

[1:40] That that is actually part of the screening process to get into the school there’s you have to be.

[1:45] Yes this is why I’m not a professor of marketing at that school whose name I’m not great at pronouncing.

[1:51] Let’s check number one for us.

[1:55] I think in Dan’s case there might also be a math requirement that you may not like.

[1:59] Yeah I saw you had some stats at his background there.

[2:02] Exactly so Dan before we jump into what we do like to give the listeners a little taste of how you came to your your current professorship in your your case can you tell us a little bit about your background.

[2:17] Yes I’d spent about 60 years working at a value-based hedge fund before coming back actually for a PhD in statistics at the Wharton School,
and in the middle of the Ph.D program I made a pivot into marketing and so I actually I finish the PHD in statistics but half my committee when marketing people and half works this six feet below,
and I ended up becoming an assistant professor of marketing at Emory University along the way I also was bitten by the entrepreneurial bug so in the,
leave us in a third year of the PHD myself and my adviser had co-founded a company called zodiac which was a predictive analytic software as a service firm you basically,
predictable customers we do and use that to help marketers it can acquisitions.

[3:08] We grew that and then sold that in March of 2018 to Nike and then the following month we had also,
co-founded a company called Theta Equity Partners which
pretty much does nothing but what was the topic of my dissertation which we now in the early call customer base corporate valuation or CP CV for short so yes I kind of.
Straddle Both Worlds and say 100%,
you’re kind of a Quant marketing academic but definitely we appreciate.
You know things that work in practice and and even participating in that myself.

[3:50] Very cool and I did want to touch on a couple of things in your bio super quick hey I love the fact that PhD in statistics wasn’t challenging enough so you you pivoted to the the super complicated world of marketing.

[4:04] Yeah it was a it was a tricky transition I would say on the plus side,
you basically is doing the same predictive modeling that I was as of you know I’m just going to get a stat PhD and become a stack Professor sort of thing but now it’s just predicting what customers will do instead of predicting you know.
Anything pretty much in stock prices or.
Various things about sports teams or whatever else it was that we were doing pre-marketing pivot.

[4:38] And I for sure want to compliment you I feel like you’re in the small percentage of people that did a dissertation on something that you could totally commercialize so I think that’s super smart and savvy.

[4:50] Yeah it was weird how it kind of ended up that way but I really think it was yeah I kind of view customer base corporate valuation is really being at the intersection of,
marketing finance and statistics like you really can’t crack that topic without going pretty deep into all three I think,
and I think one of the things that Drew me to it was the fact that it allowed me to kind of do everything that,
I just find it be fun so you had the buy-side hedge fund experience I could bring that in the statistics I can bring that in and then,
obviously pretty King with customers will do bring in the marketing to.

[5:27] Oh dear so why did you make that marketing pivot to was there you were in stats and you kind of like started to do something connected to marketing or what what was the connective tissue there.

[5:38] I blame Pete fader yeah he is that a name that comes up a lot with the sort of things that I do but someone who actually had worked out of the stats Department,
he said you know I think that you really get along with this to be fair guy and he’s a marketer but let’s not hold it against me.
So yeah I basically went up to the seventh floor which is where the marketing department is and Warden and yeah we really just kicked it off I just really enjoyed the problems that he was working on and yeah I like them enough that I just said I want to do this,
you know I want to do this all the time.

[6:16] Yeah,
very cool well you kind of raised us let’s jump into this so I’ve enjoyed your your analysis your analyses that you do on Twitter and your papers but let’s talk about CBC TV,
let’s talk about the origin of it and how you are applying it to think about valuations.

[6:38] Yes really yeah a lot of the early work that I had done was to use these marketing models to predict what customers will do in the future and use that to compute customer lifetime value and other related measures.
typically in marketing that’s where the exercise ends you say alright you know we predicted well they are completely I’m done and,
basically because of my work in valuation I was like we could take this a step further and use this to actually inform
view as to how companies doing his whole and obviously I won’t say that I’m the first one thing about this you Pete had done some work in this area and,
yes even some work going back to 2004 but it was mostly kind of proof of concept not super well validated models.
And it was really.
Yes saying let’s kind of peel back the onion a bit further with this and I think that’s really kind of one thing led to another and you know I now have,
three academic Publications and other two along the way on the topic and basically there’s just so many different facets of the problem that I designed to be completely fascinating.

[7:50] Well in my world of startups we think about valuations at a pretty simple kind of you know kind of multiples right so you have a revenue kind of calculation you have an ibadah kind of a calculation then it’s
I’ve gotten into Wall Street analyst you know they’ll do a variety of discounted cash flow projections and these kinds of things how is this different
like what what do you what is this take into consideration that those those kind of mechanisms don’t.

[8:16] Yeah that’s the beauty of it it can really be all of the above it can be used to do an enlightened version of to come up with an enlightened Revenue multiple ebitda multiple,
you know kind of straight up discounted cash flow valuation because ultimately if I were to kind of just summarized with cdcd is is it’s a way to,
make a more accurate Revenue projection by really exploiting the fact that all the revenue has to come from customers who have to be acquired,
retained make purchases and have spend associated with those practices and so a typical Wall Street analyst will,
look at historical revenues the bring in macro variables and use that to help inform of view as to what revenues will be in the future and ultimately that revenue forecast will drive the DCF model or the ebitda forecast.
And over saying is.
If the company has a lot or even even a little customer data that they’ve disclosed let’s bring that into and in marketing,
we spent so much time and energy building these predictive models for customers will do and it’s just basically saying it’s use those predictive models that are super well validated from within marketing.
You do that Revenue projection just a bit better and do it from the bottoms up instead of doing it purely from the top down.

[9:40] So you’re essentially bringing customers into the valuation discussion crazy,
it’s amazing sometimes don’t you wonder like why no one’s done this before no offense but like so he sings seems so obvious in hindsight but no one you know it just like not a common thing.

[9:55] Yeah that and this is video clip that will sometimes show of Jim Cramer talking about this work yet,
he brought up and spent a bunch of time on our way Fair analysis and he’s like what’s so special about this you know academic research where these academics doing well they they try to put a value on the customer,
and they compare how much you spend to acquire the customer to how much he get after the customers require you like.
Duh seems kind of sensible to me but but it hadn’t been done before and I think I think that was the real opportunity.

[10:30] Yeah I think the first time it hit my radar is you wrote a really good article about Blue Apron so they were one of the you know they have this huge valuation they had filed their S1 and then you put out you know I’ll use the word scathing but I think it was like,
that that may imply something that’s not there a surprising analysis around their unit economics is that kind of the first time that that that really hit the the radar.
For you.

[10:56] That’s the first time it really got mainstream attention.

[11:00] Yeah so for listeners that didn’t see that maybe give a brief summary of what you discovered when you kind of peeled onion on the customer metrics that were in this one.

[11:09] Yeah basically the company was growing really quickly and it’s something like a hundred percent Revenue growth you know year-on-year and,
they didn’t disclose a whole lot about customer churn and I was like huh that’s interesting for a subscription business you think they would put something about that in the filing and so,
the interesting what thing was that even though they didn’t put anything about customer churn they didn’t disclose a number of other scraps and so,
basically what I did was use the methodology that I just published and use that to kind of triangulate my way back into what the company’s retention curve Wise from all those different scraps that they put into their,
cipo prospectus and and you’re right near the conclusion was kind of damning that something like seventy percent of the customers churn after six months.
And you know obviously the implication being that they were acquiring a lot of customers I think on promotion and.

[12:08] And they just weren’t staying and and the other kind of,
even more damaging data point was that even though they were growing really quickly their marketing spend was growing even more quickly.
Then that and so essentially what I had inferred from the model was that their acquisition cost used to be something on the order of 60 dollars,
and it’s something like doubled you know in the run-up to the IPO.
So yeah they were buying Revenue growth so they showed strong top-line growth but the underlying fundamentals of the business that gotten significantly worse that they were actually,
reasonably profitable at you call it a $60 CAC but if you double that you know it just makes things a lot worse on a per customer profitability basis.

[12:58] Yep
losing money to acquire the customer and then making it up and scale is never you know I think we always call that the business model but somehow chewy got out of that we’ll talk about that later
so I think the finish the story I think I think
everyone said that you were crazy your analysis was dumb this is again me as a third party watching this from afar you know they had a huge IPO and then suddenly I don’t know how many quarters it took but suddenly
the Dynamics you had anticipated came true and that must have been kind of self must have been interesting to be proven right by that.

[13:35] Yeah it was kind of a surreal experience the most surreal was we were going on a vacation and I just remember looking at my phone you know we just were having lunch outside of a grocery store.
And that post had just gone viral it ended up getting like.
I don’t know we broadcasted whatever the term is unlike a hundred different websites and and,
of all of the bases all sorts of like LinkedIn comments and all sorts of other engagement measures they were all kind of hitting at the same time and I had never experienced anything like that before.

[14:16] Yeah so.

[14:18] You’re like maybe yeah awesome so so I’ll kick it over to Jason I’m sure you have some follow-ups on this.

[14:29] Yeah I’m always saying this tongue-in-cheek but like it turns out that the one flaw in your whole model is you didn’t factor covid into the blue apron.

[14:40] Yeah I know I always say if we were in January there’s nothing that we would have not predicted covid so it’s no Magic Bullet.

[14:53] But I do feel like they are one of those companies that has at least had a tertiary benefit from from the current climate.

[15:03] Yeah I think that one other fish related point is there’s a distinction between the predictions and the framework,
and I think at the end of the day no one can argue the framework has to be true.
And even the covid Boost that they’re getting I think the framework can be super helpful in thinking about that is it coming from repeaters who are just repeating more or is it coming from a whole bunch of new people that are going to stay.
So so the framework always has to be true it just provides this additional Dimension but our predictions that’s a function of the model of the data that’s available and obviously of,
things like covid happening.

[15:45] The thing that must be surreal is I got the like you I have a weird Hobby and that I love to read us once so I think I think the three of us kind of are probably only,
people that have that hobby but so I was reading to stitch fix that’s why I was like you know
I wonder what kind of churn they’re going to give and then they had all this cohort analysis detailed turn now since I was like wow the Blue Apron dude like totally has changed the disclosures around this stuff you know I don’t know if you viewed it positively or negative but it was like really fascinating where you can tell that people are like
all right people are going to look at these,
there’s no way for us to hide what’s going on in here so we might as well reveal at least what we think are the good aspects of these underlying metrics I thought it was pretty interesting that it felt like you had some role in kind of making that happen so I was pretty cool.

[16:33] Yeah they put a lot more in instead of definitely hats off to them I would have wished and so after they had filed their ass when I have acid was Point through that thing very carefully to
I wish that they had something like cohorted revenues over time if they put something in like that then,
for sure you would have seen an analysis from for me / just the reason we didn’t do one was because they there,
they’re non-subscription enough that I wouldn’t feel comfortable modeling them as a subscription business and and it wasn’t quite enough data,
to fully immuno account for all the facets of there being a non-subscription business.

[17:15] It’s probably funny so on the other side that’s probably what they’re going for they’re like how do we how do we do this so that Dan doesn’t write a paper on,
not not that would be negative or positive but you know there’s the the Blue Apron case study was not a on the other side of the table you probably wouldn’t want you know that happens.

[17:33] I flip it around and paper number three so you know
it is paper number one was all right let’s lay out the framework for subscription businesses so this nails down to telcos the Jim’s the blue aprons of the world the second one was all right let’s lay out the framework for non-subscription so these are all the e-commerce retailers,
and then the third one was let’s lay out a model for.
Businesses where we’re not only incorporating SEC disclosures like whatever we find in S1 but also,
credit card panel data which the hedge funds are all buying consuming voraciously and now that that their credit card panel data is wonderful for Stitch fix in particular its.
The panel seems to be quite representative of their customer base and in so,
I think that that’s kind of one of the emerging Frontiers for this whole area is it can we be able to incorporate other data sources to,
to be able to kind of do this exercise for more companies or you just have more confidence in the results because we have more data at our disposal.

[18:36] Yet the thing I found so I did an IPO of Channel advisor in the thing I found really weird is you go public and you know you’re going to be doing all this transparency but all your advisers are telling you
to be really careful with what you disclose because you know if you just there’s this feeling that all the stuff you disclosed and that’s one you’re going to have to disclose forever and there may be some reason where you want to wind down a business line or
pandemic hits and some of these metrics kind of Swing different ways so so in the operation side everyone’s giving you this advice to minimize what you disclose which I found as a you know,
as a private company it was oddly kind of the opposite of what I thought being public would be like so it’s interesting to be on the other side of the table from of that stuff.

[19:26] Yeah we’re starting here bit more of that too and certainly we’ve heard the same thing like anything can and will be used against you and so so there’s kind of this risk-reward asymmetry that incentivizes companies to try and discuss as little as possible,
so and certainly I think that there’s kind of a fine balance to be drawn where
you know I’ll be the first to say this is a certain line past which it is competitively sensitive and you don’t want to necessarily open up the kimono so all your competitors know
exactly what you’re doing but I think there is kind of a middle ground where there are measures that companies can put in that.
They’re very not competitively sensitive but super informative they tell investors a whole heck of a lot of information about you know how the companies doing.
And and there’s small in number so we’re not asking for you know a dozen different things you were just asking for like three things,
I think that hopefully is how we can help kind of move the conversation forward that that.
We put something out there but we make sure that it’s reasonable and it’s not overly costly to to the disclosure.

[20:38] And I do want to double click on that just a little bit like it does seem like so there’s a,
a fundamental part of your framework the customer cohort chart this III and it do I have this right like it does seem like some companies are starting to include C 3s in their disclosures.

[20:56] It shows up a lot more than I thought that it either it’s that it shows up a lot more than I thought that it did or that,
yeah maybe if you know we’ve had some small influence that more companies are disclosing because we’re yelling so loud maybe some combination of the two.
Actually Scott I think it goes back to one of the other points you raised I would love to see more companies disclosing that data and non S1 filings I feel like,
there is now at least a couple dozen companies that have put that in the S1,
as soon as they go public and they start filing the case in the queues OR investor presentations I stop seeing it it’s like two companies I know of it still disclose it.

[21:40] Yes so the advisors that give you all these case studies of where it has been companies in the but so classic ones Twitter right so so Facebook got out first and they started talking about it may use monthly active users so then Twitter launched and they just kind of went with that kpi
and then that kpi slow down on them very quickly whereas Facebook’s accelerated and everyone always uses that as you know if they hadn’t disclosed that
and then what happens is the other thing that I see that super surprise me first time going public was all the short hedge funds and some of the nasty tricks they do so they’ll take any of these metrics you put out there
that could be cast in a bad light and they’ll use them against you to create a short trap kind of a thing so so there’s all these case studies of that and then you know we’ve fallen into,
over the years you’re just shocked by the behavior that goes on with
with some of these these crazy firms I guess I was super naive that I thought it was more like VCS but at this whole super high level where everyone’s going to be like you know I’m Fidelity and I’m really on board with your company for the next 10 years there is that but it
you know right now it seems like it’s the minority versus the majority is a lot of these kind of long-short hedge funds that do all kinds of wacky stuff.

[22:50] Yeah yeah it’s nice.

[22:52] Yeah yeah.

[22:54] But so Dan you know what would be helpful for some of our listeners that may not be as familiar with clv analysis and some of your work can you like,
this is hard on a podcast can you paint us a word picture of what a cohort analysis is and what that C3 looks like.

[23:13] Yes of course the first Steve this may be the easier one is the C3 that’s simply saying you know if you if you open up a 10K,
it’s going to show annual sales year by year you know so 2015 16 17 18 19.

[23:30] This would be the same except it’s in a chart format where the height of the bar is the amount of total revenue.
But it’s tax that so you kind of brace it down by acquisition cohort so you know for a company that,
imagine it company was the first went public in 2016 and now we’re here in 2020,
they’re at here’s our sales in 2020,
here’s how much came from customers that were acquired in 2016 here’s how much came from customers and required 2017 2018 2019 and so on.
So it’s basically chopping up that Revenue bar into acquisition cohorts and showing that over time and what it allows investors to see is.
When a company acquires a group of users.
How much revenue is that company getting from those users in future years as it going up is it going down and if it’s a b2c business you kind of expect it to move move down.
And hope that is that doesn’t move down very much in other sectors like software as a service businesses typically if you’re seeing a C3 chart,
you probably seeing expansion over time they acquire a bunch of customers and then in future years to getting more revenue from those same customers than they did in the previous year.
So yes it is a whole lot of information you can get from a C3 in conjunction with everything else that does companies tend to provide.

[24:59] And it goes back to that I think to the first question of what is a proper cohort analysis and it really is just that it’s saying let’s look at let’s not just look at everything that happened in 2020.
Let’s look at things by acquisition cohort you know let’s eundel together all the people who are first acquired in 2016 and say,
how good were they and then let’s compare it to all the people that were required in 2017 you have good with a and if you repeat that exercise across all these years.
This whole new level of understanding of how healthy a businesses.

[25:37] So for like an e-commerce business where you’re not going to have a huge let’s take subscription e-commerce businesses out of it like let’s say a Macy’s or someone like that that has you know
just kind of a more transactional model what are you expecting that for your to look like like what’s a really good looking at wind what’s a terrible one.

[25:56] Yeah General generally in transactional business like Macy’s or any other you know B to C typically customers were melting Ice Cube and.
And so you’d be pretty happy if you know four years out you’re still getting,
twenty percent of the revenue that you had gotten when you first acquired those users.
But they’ll drop off pretty quick so you know so certainly.
My general Pryor is is that Revenue retention tends to be on the very low side unless you’re truly one of the exceptional retailers.

[26:38] Have you ever done it for Amazon.

[26:42] We have not because they have really Rain back there disclosures unfortunately.
The other yeah the other issue with them yeah so they disclose like active users but they disclosed nothing about the number of customers they’ve acquired in different years.
Obviously if we even if we did have the information probably right now it’s like zero because everyone’s been acquired but the other wrinkle with them is I think you many people would argue they’re making most of their cash flow from there,
from the cloud computing business and so.
Retail business is certainly it’s an important piece I think you know a lot of people short change it because they don’t take into account the you know- working Financial working capital position that they have.
But still there’s so much else to their business that it is a little bit tricky.

[27:39] And I like I do like obviously we’ve been focused on company valuations which is a super interesting use case and obviously quite important but.
Company valuation is far from the only reason you’d want to be doing a cohort analysis if your acquisition cohort analysis if you’re a company right like isn’t it,
even if you’re getting if you’re a private company and you’re not going to disclose anything it seems like there’s huge benefits to understanding the value you’re getting out of those Acquisitions and.
Helps you plan future Investments no.

[28:15] Oh tremendously so yeah and actually said for example the the marketing use cases I think are at least is compelling to marketers as
yes it is from a valuation perspective to the CFO yes I kind of I think of
this way of looking at the world is kind of like the the translator that allows marketers to speak with the finance people and have a common language between,
and I think it can allow marketers to communicate the value that they’re creating,
in a way that Finance people would would respect and understand.
And in Reverse yes I think you finance people can then you communicate that on to their investors which increasingly they’re having to so so suddenly I think,
as these ideas take hold a bit more it’s as if the CMO becomes a lot more powerful because they’re kind of the trusted advisor they can actually really explain.
What the heck is going on with the customer base in a way that the CFO is just not going to be able to but at the same time they’re going to be a lot more accountable because suddenly,
everyone is really obsessing over things like the retention curve which are probably a little high level for your typical CMO and they typically are thinking about.
More tactical measures.

[29:42] Yeah and I if you don’t mind I would like to double click on that a little bit just a side note for listeners it’s funny we often call those the visual cohort analysis we caught a wedding cake.
Um which I think is like a good mental image right like because you you see all these new new colored layers of.
Different acquisition cohort stacked on top of each other and if things are going well the layers get like thicker in the in the middle over time.
Is that is that an industry term or did I make that up.

[30:18] You know I had never heard of the term before.

[30:21] All right well I we use it with multiple clients so I don’t know yeah so you.

[30:26] I like it though.

[30:27] Dan you can have it for free but in exchange you can settle an age-old question for me customer lifetime value clv lifetime value LTV,
I hear people use those acronyms interchangeably like are they different and is there one that you officially prefer.

[30:47] I yeah I think that there is a lot of questions about you know what should be defined as what I’ve traditionally defined those is being equivalent to each other.
But distinction that I draw actually is one that I’ve I haven’t really heard other people draw which is COV or LTV versus the post acquisition value of a customer so.
To me I think the to two key components of a customer’s value or how much you spent to bring them in the door and that’s the CAC.
And then all the value that you get after the required and to me I call that the post acquisition value of the customer,
and so if you take the P AV and you subtract off the CAC.
That gets me the customer lifetime value but there’s just so many people who actually would say that clv is p AV and and they’ll have no definition for clv.
So so I think you have one of the first things that I’m really hoping that we can do it’s almost the simplest thing it’s just,
let’s agree on some common common definitions for these terms you know I think that everyone would benefit and to be a lot less confusion when we’re all talking about,
these terms and and potentially having different ideas in our heads as to what they actually mean.

[32:08] Yeah no I think that would be super helpful because that it is,
I you know in the virtue of my job I go into a lot of different clients in the vernacular is totally different and this you met your eyes may roll in the back of your head but I would even say like a monk my client base.

[32:29] Yeah one also clv I’ve so frequently see people Computing it just off of sales they’ll not even factor in causing.

[32:37] Yeah it’s Revenue it’s like customer lifetime Revenue not customer lifetime value right there.

[32:42] Yeah you know finite Horizon forecast and you know just the list goes on and still all the different ways you can kind of screw it up in my view.

[32:52] So I have this kind of simple mental picture of how this whole discipline involved and I’d love for you to confirm that I have it right or correct me if I’m wrong,
um but I sort of imagined that in the early days of thinking about COV that it was primarily a marketing kpi,
and then it feels to me like it evolved into being in really good mature companies it evolved into being a corporate kpi,
and then you know largely because of your your paper and and blue not Blue Apron going viral.
Now it’s become a corporate valuation tool like is that is that the matriculation then it sort of food through our time I’m making that up.

[33:34] I think it’s definitely the case that COV has been born and raised a marketing marketing kpi.
Yeah and I think now we are seeing a gradual progression that it’s showing up more in investor decks which has been super heartening to see.

[33:52] In terms of the link to cut the corporate valuation so our work will very frequently talk about customer lifetime value.
But usually it’s kind of a summarization of like the unit economic health of the firm it’s obviously a really important one.
But but actually we kind of focus on on this other thing that,
I think some people will call it customer Equity you know I’ll call it customer base corporate valuation was really drawn this distinction between,
you kind of a per customer measure of profitability and the overall value that’s being created and.
In Canada the example that I often give is if you wanted to maximize the clv of your business.
You should go after this super tiny Market where this is like a few super good customers in it and and they’ll all be great you know but there’s so few of them that you leaving money on the table you know so,
it’s kind of what we want to maximize this kind of like P times Q you know like the quality times the quantity and.
And so I’ll actually kind of have this notion of the five Horsemen of CBC TV.
And that’s actually you know what would companies should be striving to optimize.

[35:15] I love that and I I’m a big fan of those sort of false of using a metric as a kpi because per your point like you can just manipulate one of the variables and make it awesome.
I frequently help clients in Pre increase their conversion by just dramatically reducing their traffic to their best customers for example.
The so I and I do have a bone to pick with you and I’ve been really good about trying not to bring it up until now but I just can’t resist.
I primarily work with marketers and in my world like even LTV is a metric is.
A vastly superior metric to what a lot of my clients tend to live in like sadly like I have a lot of clients that.
You have tpi’s around things like Awards and return on ad spend which.
Find abhorrent right and so often we’re trying to move people towards more financial base,
measure right rui measurable quantifiable metrics and you mentioned in the intro that you you started this previous company zodiac,
which actually provided both tools and services that help companies,
make that progression and you don’t know this but I actually prescribed zodiac to a bunch of clients and then you went ahead and sold the company to Nike and they promptly fired all of my clients.

[36:39] Yeah that that was the most difficult part of the sale was honestly we.
We’re academics you know so we we almost feel like this semi-religious you no desire to get people to use customer lifetime value to be using these models and benefiting from them,
instead of kind of get these companies to buy in and then kind of you know have to we didn’t fire them we were forced to.

[37:08] Sure sure no I’m mostly nobody blames you for doing,
in your own best economic intro I’m teasing you but it was like it,
useful tool and I am curious and it’s fine if you want to pass on the question but there are some other companies that have emerged.
I wouldn’t say have the exact same offering that zodiac had but.
Some sort of overlapping value prop and so I think if companies like ambition data or dynamic action and I’m just curious if you’ve ever looked at them or or even better review you’ve come across any other companies that you think are doing a good job and that’s.

[37:45] Yeah thankfully a lot of them are friends of ours so so ambition data Allison heart cells the good friend
they do some good work there certainly I think they’re more tactically oriented and zodiac was but I think their philosophies are
you’re very consistent so both Peter fader and myself we’ve been on under podcast as well,
retina that AI is another one that I like with the what they do they basically have a version of a probabilistic model for how customers behave and,
and they’ll use that to help you know oftentimes marketing analytics departments you make acquisition retention decisions but I wouldn’t also leave out Theta so you clearly I’m not here to,
that’s a pitch the company but I’d say about half of our revenue is actually coming from corporates directly and in while we’re not helping the marketing department make those tactical acquisition retention decisions,
we do provide kind of the,
a lot of the Machinery that we use to make the predictions is very similar or even better than Zodiacs we use it to obviously summarize how the business is doing in terms of.

[39:02] Clv in CAC over time,
but then also slice that by you know things like acquisition Channel and so to the extent that you want those very highly validated predictions to,
to see where you’re getting the highest return on investment you say by acquisition Channel this would would give you that so.

[39:23] Very cool okay,
so and Scott’s chomping at the bit to get back into the conversation but I did want to I feel like I haven’t this limited window to learn some stuff.
Eight sometimes a knock on the like so one of the things about the customer base valuation is it,
it’s a very bottom of the funnel monetizing the customer and therefore this is how valuable that acquisition channel was or how they both companies or whatever else and,
the old-school CMOS I work with like when we start talking about those kinds of processes,
they quickly go to yeah Jason but that doesn’t really capture my long-term brand Equity like I’m building this value that doesn’t show up in that number,
and I’m imagining you you have to heard that before and debunk.

[40:15] Yeah I love that question because in general and this is where I will get a little bit controversial again all the revenue has to come from customers making purchases and so if you believe in that,
accounting identity which hopefully that’s completely uncontroversial then,
then you have to kind of buy into the notion that it all comes down to acquisition retention ordering and spend and then variable profits and so so sick to kind of flip it back on on the old-school CFO yeah I’d say.
If they’re spending on things that aren’t generating any measurable effect on those five Horsemen if CV CV,
then it’s worthless completely worthless but to then give you know a little hat tip to the old school or I think what what they may be trying to say is that.
I can make an investment today and I may not necessarily see the long term effect of that until three four years from now and that you know.
That the long-term retention of those customers will be better because of the investment that I’m making.
I think that’s a very important distinction because it’s saying that you can look at and just focus a hundred percent of your attention on the CB CB framework.
It’s just an empirical question of how we can be able to measure its effects rather than saying you know actually we need to focus on brand Equity to.

[41:44] Yeah and ironically like that cohort analysis is,
is validating like when you know when it’s done well it’s validating the Investments made in that long-term brand Equity right because they they show up in like subsequent years value for those cohorts.

[42:02] Exactly yep.

[42:03] The Indian one more totally wonky one so so again old school seeing those like me and where should we put our marketing dollars and in particularly like that we all have this debate.
What’s what should we be putting above the line IE what should we be spending to build brand Equity versus what you know should we be spending to drive actual activation.
Things got and I talked about all the time like e-commerce and those sort of things and like historically like I mean from the 1970s,
marketers use this media mix modeling which is pretty archaic and lately like as I work with all these ad agencies,
the the academics that come up constantly are these guys and I’ve never met them less Bennett and Peter feel they’ve are you even Vaguely Familiar with him.
They ever.

[42:56] No you’re not.

[42:58] Well then we’ll skip it but suffice it to say they did a quantitative analysis of a bunch of companies in found that in general the best like,
mix of investment was 60% brand 40% activation and therefore there are a ton of like quite large.
Marketing Enterprises with very large budgets that Loosely follow that parameter and it just seems,
too simple to be true to me so I was just curious but I’ll let you take a pass on that and I’ll let Scott jump back in.

[43:35] Yeah this is so just kind of
apply this to an interesting argument so two of my favorite followers on Twitter are web he’s been on the show and then this guy digitally native I forget his name he’s in Austin,
they’re constantly going back and forth over well first of all they really focus on the realm of digitally native vertical Brands so I don’t know if you’ve dug into that there and fortunately haven’t been a lot of,
IPOs in there so there may be a lack of data on it but the kind of go in the circular argument I’ll try to do my best of kind of
figuring it out so digitally native dude will say the one metric you should focus on as a digitally native or co-brand is gross margin
and then now then web comes in and says Nope
it’s got to be so first of all he doesn’t like it when companies raise Capital so it’s like it’s got to be bootstrapped and the only way to bootstrap it is cackle TV and then they then the kind of wheel spins around and goes back and forth back and forth do you have a point of view on that.

[44:39] Yeah I kind of go back to to me the ultimate goal is customer base corporate valuation now I would say that does kind of lean more towards cackle TV,
but I’m not sure that the distinction needs to be that you know that big because ultimately you know a higher gross margin is going to drive.
Higher lifetime value all else being equal so certainly.
But even their gross margin is not the only,
component of variable margin yeah I think that if you really binds the notion that lifetime value is important well the profit margin that you use in that calculation should be the effect of The fully-loaded effective variable,
profit margin and so you should be factoring in,
this is going to be probably very common knowledge to you both but you things like fulfillment expenses and merchant processing fees which often times they’re not included in cost of goods sold they’re included in.
In an operating expenses,
so we want to put those in as well but I’d also include effectively variable indirect expenses to so even things like.
This is going to sound totally brutal and conservative but even things like accounting expense.

[46:01] New companies as they grow they need to hire more accountants and even companies like Microsoft spend ten percent of their sales.
On expenses like that and so so what I want is I want that lifetime value figure to represent.
If it’s positive that means there’s a path to profitability and if it’s negative there is not a pilot at the profitability and you won’t get that if you’re using gross margin as your margin.

[46:29] So then so tactically how do I allocate that like I just divide by the number of customers acquired over that period and all my costs and that period.

[46:38] Yeah there’s a few different ways you could do it yeah let’s say the kludgy is simplest way would be take all of the expenses that are not direct expenses.
And in regress them against sales,
and with that can help you get a sense for is the relationship between those expenses and how they grow as you Revenue grows obviously if you’re inside the company though oftentimes companies especially if they’re young,
they’ll kind of pre build and so you may see operating expenses grow quickly then but it’s not because those expenses are variable they’re just kind of building for the future so that’s really where I think if,
if you’re an inside operator you have a much better view of that,
as an outsider I think conservatively most any company can simply at least at the very start just knock off five percent of sales and just say,
you know probably at least that much is going to be effectively variable indirect expense and.
And then just you know kind of continue to run the analysis is you may otherwise have done.

[47:47] Got it so sokak is easy to get your head around and then LTV you’re essentially saying LTV should almost be like cash flow.

[47:54] High LTV should be the net present value of all the future variable profits after a customer’s acquired yeah so yeah as having to kind of peel that one back but I know.

[48:08] I don’t think anyone’s calculating it that way that’s why it’s funny.

[48:11] This this is why I like Theta is b or zodiac is because they do it for you they provide the mathematical.

[48:19] And will you know we’re totally an open book you know will show you the academic papers so hopefully I’ve been kind of by into exactly how we’re going about the you know the calculations that were going about but,
yeah I mean at some point I think the math it’s a very hard prediction problem yes a to be able to have someone.
We’ve now done probably 250 different you know paid engagements on behalf of 250 different firms.
So you kind of develop that dirt under the fingernails that could be hard if you’re just a really smart operator who’s building a business and don’t don’t even have the budget necessarily for you know much or any data science team.

[49:02] Yeah I’m a big study of Amazon if you haven’t figured that out yet and it’s always funny because,
people always ask Jeff Bezos these things he always comes back to cash flow and I almost wonder if he kind of like intuitively got to a similar place where you have where you know one of his answers will be
customers you know I can’t take a gross margin to the bank you know I can’t take fifty percent to the bank
when in the early days when people accused him of being a super low margin business
and or like with Amazon Prime they thought he was crazy and I think he was thinking I think he was way ahead of the thinking here,
what do you think about do you agree with that.

[49:46] Yeah I think a lot of people they’ll look at these highly free cash flow negative digital companies often times,
and I’ll say well you know yeah but but Amazon and if you look back carefully at Amazon,
typically those comparisons are very bad you know that I think it was in the Amazon second year you know maybe it’s there that it was operating cash flow positive and,
it’s the even the even though it took them a while longer to become Gap profitable.
Who cares about Gap if you’re bringing in the cash flow you know that that’s ultimately what what drives the value of the firm and keeps the lights on so,
so I think they did a lot of things right that are still under appreciated and have still led to a lot of confusion with this emerging crop of,
fast-growing money-losing companies.

[50:42] That one random observation is you so I think you said in your bio you were at like a hedge fund doing analysis of things but Jeff Bezos was to write wasn’t that where you kind of started is there is there something that you think
cut came out of that where you both kind of saw this this kind of light bulb moment that you know this is the ultimate metric for for these kind of businesses.

[51:05] You know that I think it was a de Shaw and I forget what role he he was at the firm butt,
I would say there is something that actually this goes back to zodiac Theta,
Finance people we’ve often done in the questions that you find the comparison yet selling to a marketing person versus selling to a finance person and I’ll often say selling to the finance person is easier actually,
even though you’re presenting them with this Mark ostensibly marketing way of looking at the world ultimately its Net Present Value,
and they just live and breathe that you know they’ve been doing that for probably since they were an undergrad you know whereas marketing people sometimes have sometimes happen.
And it’s to a finance person I think they will get a lot of this and they’ll immediately see the analogy to project finance that project financing the you spend money on a project you’ve got this,
you know you think about payback periods you think about the net present value of the project you think about the internal rate of return,
that’s just how they think about their project and so if you just replace project with customer Suddenly It’s like a light bulb goes off and they say oh you know that that totally makes sense the customer is my project.
Yes I think that to them this is all quite natural,
to marketing people there could be more of an education that that’s required to kind of get them where they need to be.

[52:31] I will totally buy that I do have to point out early in the show I complimented you on monetizing your academic background but now that Scott’s comparing you to Jeff Bezos you probably have a little ground to make up.

[52:43] Definitely a loser there to him.

[52:47] Jason builds you up I tear you down it’s part of its are good cop bad company.

[52:52] Pivoting a little bit I’m curious like if you so a bunch of the company is in our space we talk about all the time,
and you know where there is some debate about how sound the unit economics are we talk a lot about companies like Shopify and,
Peloton and chewy why do you like look any of those companies do any of them provide enough data that you kind of formed an opinion.

[53:21] Yeah actually all three I haven’t done a formal customer base corporate valuation of Shopify but I’d love to and,
and they’re actually one of the firm’s where I’ve seen a customer cohort chart outside of the s-1 filing and as you can imagine.
As you were alluding to Scott when companies disclose these things it’s probably because it looks good and and I definitely was the case with Shopify that there there C3 looks amazing,
and in there an interesting case because you know they’re kind of a business in a box whatever the,
terminology is now they’ll have a lot of companies that,
yeah they go kaput they go out of business but they get so much incremental business from those who survived that they see very strong Revenue retention over time.
So you know I haven’t I’ll be the first to say I haven’t been out the math is to say what their marketing Roi is but but it must be quite good.

[54:31] You know I don’t know how like how close you father but like their CAC is actually quite low so that helps too.

[54:38] I don’t think they do any marketing that’s another thing that they’ve always said that they let the product do the marketing and yeah.

[54:44] Yeah so even better you know it’s really it’s it so I think you then it does become a question of valuation but even the valuation question you become some really hard I was actually just tweeting about this a couple days ago that.
If you have very strong Revenue retention presumably you’re earning a very high return on your marketing investment and,
and is a very strong analogy between marketing Roi and the return on invest the marginal return on invested Capital to business.
So for business like Shopify I be astounded if their marginal return on investment wasn’t,
at least an order of magnitude higher than their weighted average cost of capital like the required rate of return that investors demand of them to supply them with the capital that they have.
And in theory if you are if your return on invested capital,
is permanently above your whack there’s no you would deserve an infinite valuation.

[55:51] I think they’re getting there.

[55:52] Yeah it’s so so I’ll be the first to say that but I would say for Shopify there is a valuation question that we all know mean reversion is is a reality and so when,
you know when those economic start to kind of go back to levels that are more in line with competition.
You know that is that on that out and so I think that’s kind of the open question there so yeah valuation it’s.
It’s not purely a function of current period clv you know I wish it was that easy but but it’s not.

[56:33] It was super easy everyone would be doing it so where would the fun in that be.
Have you up to Peloton at all maybe free covid or assume post covid there now like the next trillion dollar.

[56:47] Yes I again yeah I’m kind of an s-1 geek like you both so when they drop the S one I looked at that one really carefully and especially because there was a lot of controversy I know if you are following this the time,
that that their churn rate was just about to spike and,
and they were timing the IPO it just at the point where a whole bunch of these,
prepaid you know customers are locked in for two three years boom you know now they IPL all those things are going to move to month-to-month contracts and a whole bunch of people are going to turn in there you know.
Average turn rates going to quadruple or even more and.

[57:32] Yes I felt obligated to kind of jump in to see what the heck was going on and it’s I posted this analysis on LinkedIn hints and fully transparent not even provided the spreadsheet showing all of the calculations just so that people could,
see or point out if I’m wrong and,
in the main conclusion that I came to was now you know they’re their turn seems pretty low and there’s no Smoking Gun it should probably stay low and.
And I would say even pre covid thankfully that seem to Bear out as being true.
So we didn’t go all the way to I didn’t go all the way to valuation but it certainly you have I’d run like hardcore statistical models on them.

[58:18] Gotcha and then I’m assuming about 400 billion dollars in value transferred from Jim’s to them as a result of the shelter in place orders.

[58:26] Yeah they definitely benefited so.

[58:28] It’s just a bike with an iPad strapped to it who would have thought.

[58:32] Yeah there’s still it’s amazing in this thing again it goes back to Blue Apron there they’re always the haters.
And and for Peloton there was still a whole bunch of people who argued that you know because of the economic contraction unemployment 15%.
Is this super expensive bike are people that are pay two thousand three hundred bucks for a bike you know.
And in that has I was on the opposite side of that trade yeah I was openly in webinar saying.
Don’t be surprised at how many how many wealthy people are retaining their jobs and buying peloton’s now and and yeah it seems like that that’s that’s played out as well.

[59:18] Oh yeah and and now they all those wealthy people have the capex invested in that bike and they’re presumably less likely to renew their gym membership when they’re able.

[59:29] Yeah yep and I think that’s one of the arguments for why why their turn should remain generally quite low you know is that people are paying $2,300 for a bike,
you know are they willing to Pony up the 30 bucks or whatever it is a month for the you know for the subscription.
Definitely you know they’ve huge sunk cost fallacy but you know still people fall for that that’s the oldest trick in the book.

[59:58] Yeah yeah I think that’s going to be our next podcast is all about those cognitive biases so that’ll be a perfect transition there and then chewy have you acted chewy at all.

[1:00:08] I have not looked at you we personally so I have it’s been nice to see they’re now more and more people are kind of doing their own cbcb analyses and so there was one super smart person who had.
Done some interesting analysis on them it ended up his conclusion was bearish that.
Things did not look good and I also I do agree that the way that they Define the proportion of people who are unlike auto-ship or whatever they call that program is is is very aggressive but.
But I actually I haven’t done a CBC analysis.

[1:00:48] Okay mildly interesting like they had their their first earnings call Post.
Covid and you know of course reminder like,
their revenue growth has been wildly awesome and they’re one of the few direct to Consumer companies that you know his vastly exceeded a billion dollars in sales they’re really struggling to be profitable,
the covid quarter was their first quarter where they had a profitable ibadah but earnings was still negative but which is why I was curious if you see,
like you know are they just on this Wayfarer style treadmill where they can never make money or or you know is there a model where they scale out of that but one of the things that was interesting they mentioned is,
me and 1.6 million new pet owners adopted a pet in covid and we think the covid cohort for us is worth 90 million dollars this quarter like I just that was it like it wasn’t so much I mean it was,
they were they didn’t provide data but they had a narrative around an acquisition based cohort in there there.

[1:01:54] Wow yeah I was about to say that they’re going to argue with all the pets parts of the world shut down that all that business is now increasingly going to the chewy but.

[1:02:05] Yeah well I think there’s some there is some data there right like pre covid 22% of,
of pet spending was e-commerce and you know in covid it’s like 35% so like all those new pet owners who I clearly you know were born digital,
you know suppliers for their pet food and all that stuff.

[1:02:25] Yeah that’s like a free gift that covid has given to these companies.

[1:02:28] Oh my gosh yeah there’s a lot of free gifts and a lot of free I don’t know what the right.

[1:02:34] Fold in the air colder in the star.

[1:02:36] Yeah exactly that have been like disproportionately handed out its kind of kind of brutal with the winners and losers.

[1:02:44] Not just disproportionate but in some sense random,
is that a lot of otherwise great companies and you know just so happens well you were a mobile gaming company so you will be a winner you were you were an underwear Stellar you will be a loser but you.

[1:03:01] Except if your underwear seller that also sells lettuce in which case you’re you’re a winner.
Like that those are the weird distinctions right like.

[1:03:10] Yeah the milk is to go back to Blue Apron.

[1:03:14] Yeah I feel like I saw you on one of the new shows talking about Wayfarer and covid did you like you want to recap your your thought process there.

[1:03:25] Yeah yes it’s obviously I’ve been falling Wayfarer for a while now and,
you know I’ve been probably as much press on them as with blue apron and.
And they had first finally it was as if the writing was finally on the wall they said they.
The CEO had even said we were growing too quickly and we’re going to now lay off a bunch of people and move to more you know sustainable growth.

[1:03:54] And then covid and basically you know I was speaking with someone from CNBC it’s ended up being featured in her article but it’s something like 86 percent of all home good sales,
had been brick and mortar and so suddenly covid you shut all that down and you know this little slice you know the other 14%.
Sunny they’re the only game in town and not only that.
Wayfarers biggest competitor with in HomeGoods had been Amazon and Amazon now is prioritizing essential Goods so there are not focusing a lot on HomeGoods.
So they’re not only kind of the only game in town when you compare them to the brick-and-mortar players but they’re also one of the only games in town even on online so so they’ve seen their growth go from something like.
20% or 25% to 90% And presumably that’s all,
I would imagine it’s quite profitable growth that there’s just a lot of people now who are organically coming to Wayfair and making the purchases are because they they want that new chair to put in their work from home office,
so yes they really they benefited on all sides from from covid which you know hats off to them I’m happy that it’s been.
It’s been good for them.

[1:05:20] Yeah it’s going to be in a mean I obviously we all wish all these companies the best it’s going to be interesting like,
hey they’ve got to be able to be get profitable on that on that revenue or like certainly it’s going to be scary and hopefully they can they can leverage all those new customers into a long-term viable.

[1:05:38] I think the long game is the big question that I have and still to me now it’s just an open question I feel like you thankfully.
Yeah I feel like our thesis was validated the stock actually fell to within our valuation range before you know things went crazy with covid so I feel like I don’t have a whole lot of skin in the game right now,
but I do still wonder those stores will eventually come back online some of them are closed permanently like Pier One is not a company called Tuesday they are liquidating you know so so that Supply is not coming back on the market but,
you know we will still see a lot of you know home goods stores reopening and then Amazon is going to reprioritize furniture and so,
I think there is a question of how much of the growth that we’re seeing Wayfarer how much if it’s going to stick.
And how much of it will go back to what we had seen before.
Yeah I kind of think it’s a question of how severe covid it’s going to be yeah they did a certain variables that I just don’t have a good sense for right now but I think that that will be a big part of the valuation story.

[1:06:46] No I think you’re right like I you know it’s going to be interesting because I feel like a lot more competition than we realize right now is going to go away like of the traditional competition because.
There’s a bunch of Independence that you know have become insolvent and we just don’t hear about them but I mean aggregate their 25% of the furniture market there’s a lot of regional chains that.
You know just haven’t bothered to file bankruptcy yet because they can’t run a liquidation sale right now it’s kind of hard to declare bankruptcy at the moment so that’s going to happen but then for your point,
Amazon and you know the most healthy well resource of the surviving retailers as you know are all going to want to grab that share nobody’s going to want to just advocated.
The Wayfarer so it’s going to be a,
interesting battle to watch play out but Dan that’s going to have to be a good place to leave it because we have slightly exceeded our allotted time but we were enjoying our conversation so much that.
You thought it was well worth it so we really appreciate you taking the time and really enjoy the.

[1:07:47] Yeah thanks thanks again so much for thinking of me and having me on the show this is this is a stuff I stay up to talk about this to anyone who’ll listen so so so thank you it’s been a lot of fun for me too.

[1:07:59] Thanks and we really appreciate it and I think you know my goal is to learn a couple things everyday I think I’ve filled up at least the rest of the month and maybe July so really appreciate it.

[1:08:11] Being too kind but thank you.

[1:08:12] And until next time happy commercing.

Jun 19, 2020

EP223 - Covid-19 Deep Dive

Jun 9, 2020

EP222 - RBC Mark Mahaney on Amazon

Episode 222 is an interview with Mark Mahaney, Managing Director at Royal Bank of Canada (RBC). RBC is Canada’s biggest bank, and one of the largest in the world based on market capitalization. Mark is one of the top internet analysts in the world, being ranked #1 by Institutional Investor Magazine numerous times. His research on the e-commerce space are all must reads.

In this interview, we discuss his new research note on Amazon, raising their price target to a Street-high $3,300 based on the impact of Covid-19 on it's business. In this broad ranging interview, we discuss Covid-19, Amazon's retail business, it's ad business, amazon web services, logistics, as well as competitors, Shopify, eBay, Etsy, and Chewy.

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 at 222 being recorded on Tuesday June 9th 2020 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

[0:39] Hey Jason and welcome back Jason Scott show listeners today on the show we are really excited to have someone that is ripped from the headlines.
While we were doing our little pre-show I Got a notification that Amazon had an all-time high right now at 2 5 5 2555
eight five five so that's interesting number and here we are in episode 2 2 2 I don't know what all that means I'm sure there's some some conspiracy theory in there
and that's because yesterday one of the top internet analysts put out a comprehensive internet Report with some really juicy survey data and as part of the outcome of that he raised his price Target to a street high of $3,300 for Amazon so we've been trying to get on the show and it worked out that
because of this report we were able to get him on here real quick so we're really excited to have rbc's managing director Mark mahaney as our guest welcome mark.

[1:31] Hey good to be here thank you Scott.

[1:33] Mark we're thrilled to have you and obviously Scott and I are both super familiar with you and and read all of your stuff but for some of our listeners that may not be as familiar with you can you give us the kind of.
The quick highlights of your career and what you do for RBC.

[1:50] Well I'm the oldest and longest lasting internet analysts on Wall Street I say that when I walk into Starbucks I still don't get a discount.
But it is true I started in 98 the first week was his company called the eBay
that called the office that where I worked at Morgan Stanley and was trying to get through to the lead analyst and they wanted somebody to understand and listen to the story and so I did my best to try to understand it way back then shortly thereafter.
I met Scott Wingo so you know both of those were key events in in my life and I've tried to understand.
Internet stocks for the last 20 20 22 years now.
So that's that includes the e-commerce giants like Amazon and eBay and some smaller named Stitch fix and chewy
online ad names like Google and Facebook Snapchat Pinterest and then a bunch of interesting one off so the travel names like booking in Expedia
Netflix Spotify like media subscription names like that so I've got a group of there six of us in San Francisco we do our best to stay
on top of each of these stocks it's a fascinating industry and that's what that's the day job.

[3:01] Fun fact understanding eBay is really difficult but understanding Scot Wingo is even more challenging.

[3:11] Yes.

[3:12] Yeah and he hasn't Mark you haven't aged at all.

[3:15] That's right same you and me we both actually look younger.

[3:18] Absolutely yeah I think we can agree on that so let's dig in this report you put out yesterday it was really fascinating I've kind of been through it several times the overarching theme was really kind of understanding covid
Trends so maybe we'll start there then of course we'll look at kind of the Amazon called that you got out of that what
What did the what did the survey kind of surface for you as it relates to kind of covid-19 and what's that doing for e-commerce short and long-term.

[3:43] Look I Eileen pretty heavily on consumer surveys most of the stocks companies I look at our
consumer-facing so you have to understand what consumers think about these companies and how their positions have evolved over time and this was our 8th Annual so we can do it for eight years.

[4:00] Amazon for 22 years but for the last eight years we've been surveying people we have a decent sized it's all
in the US which is that which is a limitation because obviously at least half of Amazon's
businesses overseas but we want to try to see what people think about Amazon whether their satisfaction is rising or falling intentions to purchase on Amazon what people are buying on Amazon how much they span are frequently and then we as you pointed out Scott like this isn't happening in a vacuum this year this is happening in.

[4:26] During that you know the hopefully the only pandemic of our lives and an event that's had dramatic implications I think is almost been like
like a huge billboard for online retail the necessities of purchasing products online the the benefits of purchasing products online too so we thought this the survey would show our assumption was that it would show an accelerated shift to e-commerce
it did there's plenty of data out there from the Department of Commerce from companies like I mean my phone is data point of a frankly of last month is that
eBay is now growing its gmv general merchandise volume or value I forget which one but it's growing it by 25% eBay hasn't grown at that level in over a decade
it says something about how much of a boost to e-commerce as covid crisis has been we all want to shop we all need to shop we just can't go out so we're shopping from home and anyway that's one of the things that came through in the.
The survey we saw record high levels of purchases online of frequency and spend and not by the way not just with Amazon but with other companies to.

[5:35] That's amazing I think one of the common conversations I've had with clients is.
You know we see that big spike and then you know the magic question is how much of that spike is permanent right like I would imagine you don't expect that eBay is going to be able to maintain that.
That 28 percent GMP growth for example.

[5:56] Yeah no I wouldn't expect it and I think spike is the right way to think about it I think it's a spike though within the trend and Scott knows this and you know this just as well Jason you know we've
we've we've gone through the last two decades watching a greater and greater percentage of our spend occurring through online channels we all know this we've all lived through it and so
we just had kind of an acceleration in this spend
it's almost as if you know every year we were going to bounce up a pointer to in terms of online retail share we're going to go from.
9% to 10% to 11% you know annually and instead what we have would happen with this crisis I think we just you know we just kind of did a leap year like we went from we probably gained 2 to 300 bits of of
up share shift from offline to online particularly in some of the more entrenched physical Store retail categories think groceries
I think Consumer Staples I think those have really gapped up I'm sure that the rate of your rear growth in online retail will
we'll add down we'll wave down a little bit but I think you know it's going to waive down from a higher level and so you know net-net we're going to just see this Rising accelerated adoption of online retail and companies that are in the middle of this
obviously Amazon
eBay to Shopify there's a couple of these platforms that are going to really benefit from this and you'll see it in their fundamentals and the market is already anticipated all this by bidding these stocks up to all-time highs that's true in the case of Shopify it's true in the case of Amazon.

[7:25] Yeah I like to talk about covid as kind of a time machine that you know may be warped as five years in the future and like five minutes.

[7:33] Yeah I like that.

[7:35] The in so cool so you know that's the opening opening premise of your report is me and we rapidly accelerated adoption of digital shopping and then you know the next big Insight is.
In Amazon is particularly for Prime to be the structural winner of this growth can you talk to us a little bit about that.

[7:57] Yeah you know you if you would ask anybody what you know who would be the winner off of a surgeon online retail 9 out of 10 people would have said Amazon anyway
and by the way that's pretty consistent with what we see in our survey results we have asked people for years which shopping sites do you use most often and.
Nine out of 10 times it's Amazon of the last six years the answer has been 90 percent eighty nine ninety three ninety ninety one ninety one I mean also all those are the
percentage of respondents who say they shop on Amazon now they've been some interesting fluctuations below that eBay used to have almost 40 percent of respondents say that it was a site that they commonly used that's
that's drifted down the 30% and in the meantime
Walmart and eBay really kind of switch places one more stop from 30% as an online site where people that people use most commonly up to now over 40% so very interesting turn there but with Amazon they say very consistently at the top we do see that they ranked highest in terms of
things like price selection and convenience
particularly notable though is the gap between them and their competitors in terms of selection and convenience based on our survey work there are there is one negative thing I know we're going to get to it in terms of satisfaction.

[9:11] But the general results here show increased frequency of purchase greater amount of purchase and then they've got this program called Amazon Prime which I imagine I'm sure the window family has been a long-standing member of.
And we saw penetration of that Gap up to record high levels and I reach 67 percent.
Amazon earlier this year disclosed that they had about a hundred and fifty million Global Prime subscribers based on the survey work
thinking about where the numbers could go we think that they are rapidly approaching they will rapidly approach 200 million by the end of this year that's a lot of people they're more loyal than regular Amazon customers they spend more they spend more frequently it's a it's a great
Customer Loyalty program it's a great Revenue loyalty program it's a great prophet loyalty program.

[10:01] And when you say 67 percent that's your survey data or your you okay so.

[10:04] Yes that's right 60 67 percent of it of the internet users that we surveyed our no I'm sorry of am of the people that we surveyed who said they were Amazon customers 67% of those said that they were Prime customers.

[10:19] Yeah yeah yeah I've seen some estimates that have 50 to 60 percent of households that kind of drives right in there.

[10:26] Yeah I know.
But I bet you it did Gap up Scott I bet you that's what's really happened you know in the last month or two I'm sure people's purchases on Amazon gapped up I mean we know that they did Amazon reported that in the March quarter and
and so I'm I guess is that people realize well if I'm going to be ordering I'm staying at home.
And I'm going to be ordering a lot of stuff on Amazon I might as well you know gin up for this Prime program I'm pretty certain that's what happened in that so that fifty six fifty to sixty percent that you see in other reports I mean those no I'm sure all those numbers went up I don't,
the truth is probably somewhere in between us all but you know that it definitely it definitely moved up and pretty materially during this crisis.

[11:04] And then as you said it wasn't all sunshine and Rainbows in the survey you saw some interesting feedback on Amazon's customer service satisfaction but would you would find there.

[11:14] Yeah and this is this is a stumper I got plenty of theories but you know it's hard to really know what's
what's going on but we do ask these questions about you know we give everybody response to the survey about 1,600 people give them a right variety of options are you extremely very moderately slightly or not at all satisfied and of course you would think that if there
you know if they're Amazon customers that probably not going to say they're not at all satisfied because then they wouldn't be Amazon customer so you would expect the skew you know towards the extremely in the very satisfied we've asked this question the same way
same you know relatively large sample size over the years and we've seen customer scores come down used to be 88
percent of customers back in 2013 Amazon Customer said they were extremely or very satisfied
that now it went down to 64 percent in 2020 and you know it dipped down in 2018 we noticed it
and then it just dip down again I think the reasons if our survey is right you know I think it's right you know we try to be pretty objective about this we've done the same question over the years so we do have a long time series here I think there's a bunch of things that are happening one is I'm sure there were some
quality issues during the covid crisis are still are it's just hard that for a while though they weren't stocking non-essential.

[12:33] Items and then there were delays in getting a lot of products so I'm sure that hurt their satisfaction secondly over the years they have increasingly included a lot of third-party Sellers and I think there may that may have increase the
the risk of quality control problems not so much in the delivery but in the actual quality of the product in any customer service around that the product if you if you you know the more sellers you put on that Network you add this selection there's almost always going to be a trade-off in terms of quality
32 company is so big that kind of gets embroiled positively or negatively in kind of local controversies labor regulations
taxes things like that so it's just it's become so big it's kind of hard for that stuff not to kind of come up fourth is
as they move into categories that are really tough to fulfill and groceries this is the top of the list I think that can create satisfaction problems are for one of one of those
people who had a hard time getting a slot for Amazon Fresh and I had one delivery that just didn't come through can't recall ever having that with any other Amazon product that.

[13:33] A lot so I think a couple of these things have kind of come together and maybe the ad units that they have in their the sponsored listings products Maybe
maybe putting a few too many of those you know in the Amazon shopping results is dinged satisfaction I don't know I just throw out five reasons and they're all just guesses on our part but we do know what the trend is based on our survey data that satisfaction is coming down and
this is a serious issue of the company needs to address it we think they can if they don't that will that will impact growth if they can solve it they'll be able to sustain the growth they have.

[14:06] But what do you think you think I'm full of baloney.

[14:10] I think you're right but I think I think they can recover I think that they they were not expecting from March 15 April 15 I think they got that 30-day window which is probably pretty
around when you did your survey the delivery times really spread out Jason our just
talking offline and he got up to three or four days I was out weeks here in North Carolina so we're back to normal now so I think they've added a ton of capacity they don't release numbers on this but I know they bought 20,000 delivery vans
I would bet they've doubled or tripled that just kind of anecdotally in my area.
Actually know where the center is and just the number of trucks in generally is huge now so I think I think they can recover Jason had some more quantitative data Jason what did you see.

[14:57] Yeah I was mentioning that Marketplace pulse monitors reviews of third-party sellers on Amazon so I you know how satisfied buyers where the bottom these third-party Sellers and.
In General on average.
There are about 400,000 negative reviews of sellers a month on Amazon that's kind of the Baseline and at the peak of covid those negative reviews went up above 800,000 so my premise there is.
Amazon totally curtailed FBA the service level for all these third-party sellers fulfillment went down and there were a lot of negative reviews.
And then they also speak with positive reviews of Sellers and in general ninety-four percent of all transactions result in a positive review for that cellar.
When people write reviews 94% are positive and during covid that 94% fell down to about 85% so like I think there's.
Numerous data points here that are all pointing to the same thing that like.
Consumers rush to digital the service level on digital dropped because we weren't prepared for that that level of Spike and that that created some negative.
My hypothesis certainly would be Amazon's way better suited than almost anyone else to address those capacity issues and recover from that negative.

[16:25] Okay super.

[16:31] So and like so clearly the retail business for Amazon's in a pretty good place like more people are shopping digitally and as you pointed out for variety of reasons Amazon Super well.
Well said it situated structurally the benefit from that transaction.
But you also talked a little bit about the other parts of Amazon's business in the mix and you know like from a revenue standpoint that's Amazon web services but increasingly that's.
Amazon marketing services like what how are you thinking about those when you when you think about Amazon's growth potential.

[17:08] We've referred to Amazon is the greatest mix shift story in technology
and what I mean by that what we mean by that is its fastest growing businesses are its highest margin businesses it's a great position to be in like from a business model perspective the opposite is kind of Google
they invented this thing which is probably the highest.
Margin business ever that search advertising and anything they went into after that would have lower margins and.
You know whether that's hardware or Cloud so for Amazon the makeshift story is they have this retail business that's got you know
to 3% operating margins growing at you know 15 to 20% year-over-year a faster now and.

[17:56] And then you've got these at this advertising business is just probably 30 percent margins that's growing kind of like fifty percent forty to fifty percent year-over-year
it is AWS business which is also got about 30% operating margins it's also growing about 40 percent Thirty to forty percent year-over-year so faster growth businesses higher margins means just your overall margins are going to rise so
that's kind of the business model so what
of of of Amazon that's why it's got will remember this back in 2014 when for the first time ever Amazon disclosed with the margins were like on its AWS business
the stock gapped up
the stock re-rated it's almost as if the ticker had been changed from amzn to AWS because the market was so surprised that what they what everybody thought including me
that the AWS was just a commodity low-margin business turned out it was a high margin business and that was fundamentally really positive for for Amazon because it suggested this mix shift and the idea that long term you're going to have a nice upward Trend in margins Amazon advertising and Amazon.

[19:00] Cloud services they're both you know sizable businesses now roughly 10 billion run rate for advertising little bit more than roughly 30 billion for AWS it's a little bit more than that and again highly profitable 8 m is M Asam is an advertising platform is the third largest generator of advertising
outside worldwide you know XX China and when we look at all of the ad platforms during this covid crisis and look to see all of them had material impacts on the revenue growth except one
that's Amazon Amazon's advertising Revenue looks like it's going to decelerate but just modestly compared to Facebook compared to Google compared to
the trade desk or Pinterest or Twitter or snap.

[19:46] So they that that they've got lightning in a bottle there and in AWS the cloud business is probably also a big beneficiary
it's probably a structure winner from the covid crisis because of the dramatic Ingham dramatically increased
capacity needs driven by work from home driven by remote Computing and there was a wonderful data point by this company called Zoom which has now become a household name or at least a business office name and zoom had eight 20x increase in usage
total amount of minutes used
unzoom went up 20 x like it's hard to Fathom any business dealing with that kind of surge in demand yet they were able to do it and the reason are able to do it is because their cloud provider is Amazon and Amazon allow them to
20x increase their capacity in order to handle that kind of volume increase I mean you couldn't come up with a better advertisement for the
for the durability the flexibility and the end the need for cloud services if zoom-zoom wasn't an AWS if they hadn't used AWS I guarantee you they would have had dramatic blackouts
they're start and and you know the follow-on less important but their stock wouldn't their stock could be half of where it is now something like that.

[21:13] Yeah it's interesting on the ad business in particular I wonder and part of the reason that it had a slight deceleration isn't even related to.
Potential demand for ads or opportunity platform I wonder if it's tied to the issue we talked about earlier that like.
Temporarily Amazon supply chain was constrained and they turned down the service level for all those 3-piece hours and fulfillment by Amazon like if if Amazon tells you you have a non-essential product and they're not going to accept new shipments in their warehouse of your product.
You're going to turn off the ads for that problem.
And I so you know it's not shocking that that the ad sales decelerated a little bit but I wonder if structurally.
Give a bigger percentage of customers are shifting online like Amazon competes with Google and Facebook for Ed dollars but Amazon also competes with.
Walmart and Target and billboard providers for ad dollars and I'll bet you know my feeling is permanently.
Demand for those ad dollars has has has is likely to permanently shift to Amazon so I think even on ad platforms this might be.
Like mostly favorable for them.

[22:25] That makes sense Jason that makes a lot of sense.

[22:30] Also some of your your analyst colleagues out there and I'll full disclosure I'll put myself in this camp at some point they feel like Amazon is going to effectively compete directly with FedEx and UPS meaning you could you know you're in San Francisco you could ship me a package on their Network in North Carolina for like maybe
four bucks a package versus the FedEx UPS eight to twelve dollars do you see that happening or you're not in that camp.

[22:57] No I think that's a probability we laid that out did a report a couple years ago called the fourth pillar try to figure out the next business that Amazon would go into
I think I got an email back from Seattle right after we published that report as long as something along the lines of you idiot why would you think we just have one more pillar.
A couple of things in mind we've written deep deep dive reports on their business to business opportunity you know
business supplies that sounds like Logistics to me and Amazon's pretty damn good at logistics for consumers so I not for businesses so I think that build that business is nicely building up I'm curious as to what they'll do in Pharmaceuticals he's physical
stores that are these.

[23:41] What do they call me every it's not the everything stores the go stores thank you the go stores I thought those aims on goes towards I think that's a really interesting really novel concept that actually solves something it
gives you more time well I what a wonderful what a wonderful gift that is and anyway so I think there's a lot of areas that I think they're investing in and you know Amazon shipping Services makes a ton of sense to me I did
pitch that to them as the title you know is the name for that segment they just they thought about it for a little bit they didn't like the acronym the thought that would be an odd Summit so they decided to go with something else
I think they went with shipping with Amazon SWA that's probably better than what I had thought of and my guess is that that building that that business builds up yeah this is like this strikes me just like Amazon building our physical capacity

[24:33] To ship goods and services you got excess capacity bring on third-party sellers Amazon built out all this compute on that work to manage its own large needs they have excess capacity
go ahead and Retail it as AWS Amazon builds out a distribution Network a fulfillment Network a series of trucks too
deliver its own products and then third party products sold on its site well why not do it for third-party products sold on on third-party sites it just seems like a natural extension it's kind of like Amazon is the fixed cost business
just they've got such bullish long-term views about how big online retail will be those use of been verified year in and year out
that what you want to do is you want to vertically integrate and fix those costs therefore you get super high incremental margins so I think it's you know I think it's inevitable I think they're actually darn close to the size of FedEx now in terms of in terms of units
and yeah I would imagine that they'll surpass you know UPS within the next five years in terms of raw shipping volume that include a lot of their own shipments but over time I would think they'd pass them in terms of other people's shipments to.

[25:45] Yeah I think Scott and I both agree even before they get there even before they like try to sell those Services I think.
A unsung challenge at the moment is with all this increase digital domain and you know most retailers are talking about like seeing volumes that are similar to their traditional Cyber Monday Black Friday volumes.
And who doesn't have capacity to fulfill that demand as FedEx and UPS and so you know Frank right.
They've all just tacked on a bunch of surcharges and so if you're any retailer besides Amazon.
You know one of the the negatives of all this increase digital demand is you don't really have the ability to fulfill all that demand or at least fulfill it cost effectively.
And so owning as much of their own fulfillment as Amazon does is I think another huge structural competitive Advantage it's going to help them take more than their fair share of the digital growth.

[26:39] And it's I agree with you Jason and Scott you ask the question you do you have the same answer that I would have that I just gave.

[26:47] Yeah I think I think they yeah there's some incremental costs yeah taking another packages is almost free at some point when they build out all the infrastructure so so yeah I think they get there it's a question of when I've had it on my annual prediction show for three years and then.
I'm sticking to it the one time I take it off is when it will happen so.

[27:08] I'll wait then.

[27:10] Yeah that's a great way to invest in it is wait till Scott get throws in the towel on the prediction show.

[27:15] The contrarian indicator I got it.

[27:17] Exactly I do want to Pivot like you have really seen this industry grow up and there's a lot of interesting non Amazon things going on right now when we talked about in our last show was.
Like all of these new Commerce initiatives at Facebook and you know are you falling that at all and what what do you think.
Is Facebook going to be a viable player in the Commerce base.

[27:43] I'll give you my opinion I'd love to hear yours we we do a survey of social media companies we've done this semi-annually.
I think we've done this for four years now and the last one we published just last week we asked people.

[28:04] About their usage of Facebook Marketplace and simple question we found a 51 percent of respondents had used Facebook Marketplace
back in November last time we ran it was only 33 percent so there's another e-commerce inflection point we ask how many of you
people on Instagram have made a purchase on Instagram 23 percent of users said they had six months ago that was.

[28:30] That was fifteen percent so you know this Spike that we've seen in e-commerce is also translated onto these social media networks I'm I'm.
I'm I think this is a fast fascinating area of to explore I don't know why they wouldn't be
they certainly the traffic now it's not it's not conscious traffic it's not
qualified traffic I don't want I want to shop I don't go to Facebook when I want to you know I don't go to Instagram but I happen to be on Instagram and Facebook a lot
you can put relevant ads in front of me I just may not be in the mood to shop I'm in the mood to shop when I'm on Amazon so there's always going to be limits but if they but with the traffic they have and if they can
get a little bit more of a picture of my commercial intent or not my intent my interest then there's a chance for them to tap into what do you call that impulse shopping and then you so you get that part and what we're seeing in this my raw data there
says that there are there is the opportunity to tap into impulse shopping on these sites now you got to go to the other side.

[29:39] You're not a vertically integrated Marketplace we are Marketplace bring you down vertically integrated so you better be careful not to put ads up there and.

[29:47] And then and then for a product where the inventory quickly sells out and then people are going to remember yeah I try to buy on Facebook and you know that
it didn't work so what they need to do is partner with somebody who can really help them with the Fulfillment with the design of the site and they need to make it seamless if I'm clicking on an ad and I got to click over and fill out the address and the credit card information that's friction friction friction
but if they can if they can if they can like the one thing I don't know what percentage of
people on Facebook have their credit card information stored with Facebook I'm guessing it's less than 1% so that's something that Facebook is going to try to have to incentivize people to give them a rationale a reason for putting a credit card data there that gets them closer to one click and then they need to work with a merchant partner like a Shopify which is what they're doing
that can make that that that flow seamless and just make sure you get a picture into the inventory such that you're not showing
you know the boots when you don't have them in inventory and can't get them you know with them three or four days to the consumer but I think all those pieces are coming together so yeah I'm increasingly bullish on this opportunity
and I think the pieces are coming together like I'm seeing the consumer intent in my survey work I'm seeing them work with the right Partners I haven't seen enough of the actual experience I get I've yet to have that mind-blowing.

[31:09] He's of sharp like
you know I'm checking out at the grocery store I just all I have to do is reach for the Snickers put it on the put it on the conveyor belt it's not that simple yet but if they get there that's they came make that
they won't surpass they won't supplant Amazon by God that won't happen but they'll be able to tap into impulse shopping dollars in a way they haven't before I'm very intrigued by it Scott what do you think.

[31:33] Yeah it's interesting because it kind of you have to kind of loop Shopify into the whole thing so there's there's one school of thought that shopify's essentially the shopping engine for Facebook
today in this latest announcement they kind of cut Shopify out a little bit like Facebook's kind of introducing their own check out so it's gonna be interesting to see there's almost kind of like a three-way War kind of here so there's like Shopify which is
the Battlestar Galactica ragtag group and then you have the social guys kind of going their own way and then you have the death star of Amazon.
I don't know you know it's always so hard for these people to compete with Amazon because of the shipping Logistics they have and the only company in those
that list that's investing in that is Shopify so it's going to be really interesting to watch this next leg of e-commerce to see can Shopify.
In this made it either on framing but the can Shopify the almost like a counter option to 3p Sellers and Brands against Amazon I think
you're seeing a lot of people kind of frame it that way kind of.
Famously been what's his name the Strategic review guy he's kind of like setting it up that way but other folks kind of say no it's just this that's not the right way to look at it how do you see Shopify fitting into the overall.
I think they've surprised everyone with the amount of growth and the gmv that they're producing so it's hard to count them out at this point.

[32:56] I I am I'm trying to count them in and it's a it's a company in a stock I've been ramping up on aggressively over the last six to nine months I'm very intrigued by what they're doing I like the way they think about.
Their business I certainly look at their take rate it's like 1.67 percent.
And it's like well wait a second you know that they if they can execute well that take great can double or triple that's a lot of growth in the future so I'm very intrigued by their opportunity
some of the things I think are maybe false starts their ability this this app that they have I.

[33:33] Just don't think I'm ever going to go to a shop app Shopify app to start my shopping I just and I don't know I signed up for it then I
realized I just don't need another notification of when my Amazon packages are coming I already got that by the way and you know Amazon will tell me and then Google will tell me to so I get it I don't like Shopify to tell me one of my Amazon packages are coming but
but I'm intrigued by the potential to chop has but probably not as a brand Central approach probably is just the
the the enabler of D to C of D to C you know Commerce activities they talked in this last
earnings call of of enabling I think was Hines and lint I think those are the two examples that they used to sell directly to Consumers.

[34:22] So okay that sounds interesting I just don't think I'm going to
go to when I want to buy catch up but I'm going to want to buy Hines and so but I'm not going to go to Shopify to find a place where I can buy
Heinz I think I know where to buy Hines so I don't know it there's an opportunity there but there's a lot of lot of lot of paths that could go the wrong way for them
but they seem to be like a very disciplined management team so I'm giving him the benefit of the doubt we have an out perform on that stock for what it's worth and yeah e-commerce opportunities inflicting up for them as it has for Amazon in this in this covid crisis.

[35:03] Yeah so so you kind of look at this big picture.
You have dramatic digital acceleration like it seems like it's you know Amazon and Shopify are both currently poised to benefit from that digital acceleration.
What about some of the other digital players like who else do you think ends up being a winner in this like you mentioned eBay had a.
Sort of unexpected Spike I also think of Stitch fix and chewy is to of though I.
Bigger play you know digital digital folks are they is this Rising tide that's going to lift all boats or.
Do you think that they're going to lose share to Amazon and this.

[35:44] Well near-term the rising tide will lift all boats achoo as a company they were Prince earnings after tonight I would think this is a company that dramatically benefits from the covid crisis I saw that Smuckers
which owns Believe It or Not owns a large array of pet food
products like Meow Mix is in there Kibbles and bits and all your other favorite cat food that they had 60 percent growth year over year
in online retail sales I mean you know jeez they're doing that I imagine to he's going to put up some pretty big numbers tonight now they better that stock is really gapped up dramatically but I think they will I think they'll put up I think they'll put up really good numbers you had two Trends there
and you know one is that people had to buy pet products and and food and supplies online the second one is just kind of tangential for pet owners like myself
there was a Dish been a dramatic move towards pet adoption
in the last two months because of shelter-in-place regulations that hadn't occurred to me right away but you know people when they're when they're forced to stay in.

[36:48] Indoors like that they look for companionship and that led to a lot of people to a lot of people adopting pets and of course you have to feed the things
and well you better you know the you've heard about this thing called chewy and so people signed up so I think they have like a two to three year
just accelerated adoption of their services and by the way unlike the rest of retail you know where it is interesting to go in and try out things in stores you know for fashion apparel and you know there's experiential shopping I don't think there's such a thing as pet food experiential shopping so I would think that that's a category that's just right for dramatic
acceleration online so I Chuy's the name Stitch fix to is just a couple of question marks we have.
Around it like I'm surprised the growth isn't better there but they should benefit Etsy clearly as benefited to and not just because of
people buying designer face masks my guess is that there they'll have a sustained acceleration but that's TBD.

[37:45] Yeah it's interesting it's funny like I have to do these briefings and I give all these negative Trends and you know the world is going to end and so the the palate cleanser I always throw in there.
Is every pet in every shelter has been adopted it's like the one one sort of feel good story and all this and you're exactly right like.
We have the largest cohort of new pet owners in the history of the US and none of them could get their pet food or cat litter or toys.
Promised or so.
We'll see but I'm expecting that this hats had to be super favorable for chewy and then of course Amazon is also a great competitor in the pets page.
Yeah so I think that's a great insight and that's actually going to be a great place to leave it because we've used up our allotted time.
But Mark super appreciate you taking time out I know you're in high demand right now and a lot going on and we really enjoyed you sharing some of your insights and your.

[38:42] Jason great talking with you Scott always a pleasure talking with you great to I've learned a lot from Scot Wingo over the last 20 years and I plan to learn a lot more of the next 20 years wish you both and your family's health and safety.

[38:54] It's becoming Mark we look forward to seeing you at a one of your shows when we can get back to traveling and back to normal.

[38:59] Absolutely see you buddy.

[39:01] Until next time.

[39:02] Happy commercing.

Jun 4, 2020

EP221 - E-Commerce Logistics Crunch

Episode 221 covers recent news including logistics moves from UPS, FedEx, and Amazon.

Past Events

Upcoming Events

  • NRF Global Trends from the Reopening of Stores June 8th, 11am ET.
    Hear from retail industry leaders Jason Goldberg, chief commerce officer of Publicis, and Sucharita Kodali, VP and principal analyst at Forrester, on what retailers are seeing as their global stores reopen post-COVID-19

Amazon News

  • Amazon adds 12 new planes (now has 80 on it’s way to 200).
  • Prime day moved to September, Summer Sales June 22nd.
  • Amazon Grocery Store coming to Chicago
  • Lowes- Same store sales up 11.2%, e-commerce up 80%

Other News

  • Gucci – Personalized Video Shopper
  • UPS/FedEx – Surcharges
  • Kylie Jenner – Inflated revenue ($177 million last year)
  • Instacart Media Network
  • Target Instagram Checkout
  • Shopify Marketcap $90B, IBM $114B
  • Lickable Screen – Norimaki Synthesizer

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

Episode 221 of the Jason & Scot show was recorded live on Wednesday, June 3rd, 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 221 being recorded on Wednesday June 3rd 2020, I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.

[0:40] Hey Jason and welcome back Jason Scott show listeners well given the tragic events this week we totally understand if Talking Shop isn’t really a top priority for you but we thought that some of our listeners may be in the mood for a little bit of a mental distraction we sure are,
and there is some interesting news happening in the world of Commerce so we thought we would bring you what’s been going on the last couple weeks with that Focus before we jump into the e-commerce retail payments news Jason what have you been up to.

[1:11] Yeah I have been just talking covid non-stop with clients which is exhausting and mostly depressing to be totally honest with you Scott.
But I get some point we should will probably do a deep dive on the show about all that but that is not tonight.
I did do a couple between all these talks I have done a couple of interviews recently so in the highly unlikely event,
you want even more Jason opinion there’s a couple new written things out there so I’ll put some links in the show notes but I got a chance to do an interview with the national retail Federation that they published last week,
and then a past guests on the show Chris Perry does these interviews on LinkedIn that he calls leaders of change and since he couldn’t find any leaders this week he interviewed me instead.

[2:04] I missed it in RF thing what was the overall topic on that.

[2:09] Well you know talking a lot a brief interview about the.
Adoption and transition to digital and commerce so stuff that,
maybe not very shocking to listeners on our show but to a lot of the more traditional brick-and-mortar retail side of in RF they still needs an evangelizing so.
So they wheeled me out to talk digital transformation.

[2:36] What’s digital how do payments work stuff like that what are these smartphones that people speak of.

[2:51] Well let’s tease the covid think so what are your clients thinking about are they thinking about kind of I keep hearing this new normal,
which is kind of maybe overdone but maybe that’s your favorite it’s actually faster Forsyth.
But you know so I think we all agree there’s going to be a lot of consumer Behavior changes is that kind of like what people want to know about her.

[3:11] That is part of,
Rashad tobacco Allah who was on our show a month or two ago I can’t I can’t keep track of time anymore he calls it the new abnormal which maybe feels more apropos to me,
but we are like a super interesting thing is there’s a bunch of.
New behaviors were seeing from consumer mostly As a result of shelter-in-place orders and so there’s there’s.
Really interesting questions about each of those behaviors.
Are they permanent new behavior is there going to be a counter Behavior as soon as the shelter-in-place orders of lift which like we are now starting to see,
shelter in place order is lifted is is there going to be a new behavior that some some place in between the old and the new the scenario planning about like which of these are permanent versus temporary shifting in shopping Behavior,
are super interesting so we have a lot of conversations about that,
but I’ll be honest a lot of my clients are looking on the slightly longer Horizon and you know what they’re really thinking a lot about now is,
kind of shifting into the recession Playbook and how they you know appeal the more value oriented consumers and you know how,
deep and along the recession is likely to be and what the potential recovery looks like.

[4:36] So a lot of kind of conversations about how how the recession will likely impact various businesses,
um one I bring up and we talked a lot with clients about is.
How the world changes because of the changes in the landscape so we’re seeing tons of stores closed we’re seeing tons of,
market share getting Consolidated into the biggest players in every category and so if you’re a brand as many of my clients are it’s a pretty big deal like the,
your top few customers are you know getting a lot more leverage over you than they had before and so you know the.
People have to think about operating in a different competitive landscape than.
Then they were thinking about pre covid and then II 10 we we have brought in like these epidemiologists and these economists and we’re you know trying to do the best job possible a painting a picture of.
Of like.
How what recovery looks like for this whole thing and it’s mostly super Debbie Downer news and it’s you know it’s mostly evidence that like there’s going to be repercussions from this that last for a considerable period of time so folks that were hoping,
that like this is really something they just have to worry about through the rest of 2020 or maybe even 20 21 or are unfortunately probably optimistic so so having a lot of conversations about consumers about why that might be.

[6:05] Wait at ease up an exciting Deep dive that we may put down next week that will depress the hell out of you.

[6:11] Yeah yeah exactly I do try to put some happy moments in there as bits of levity.

[6:19] Nice I’m sure that Lance roll know real well.

[6:22] Yeah yeah you were just channeling my wife right there by pointing out that I’m not as funny as I think I am.

[6:28] We have to keep keep your ego in check their Jason how about upcoming events anything on the horizon that’s interesting.

[6:39] Yeah there’s a few things booked but one that’s going to be fun is another internet thing they’re doing a live webinar about global Trends from the reopening of stores.
And they’ve asked Sue charita code I’m Al Peru.
Longtime friend of the show and myself too.
Kind of share some of the global trends that we’re seeing from markets that may be reopened sooner than the US has like in particular China,
and you know what we can learn from those those markets in terms of how things are likely to reopen here and I don’t want to spoil it but I think there’s going to be a,
third guest panelists that we can’t announce yet but hopefully.
As if surgery and I weren’t enough that will make it even more interesting so that’s a webinar on June 8 so if people are interested in registering for that I will put a link in the show notes for that as well.

[7:37] Registering right now I’m curious to find out who the mysterious third guest is.

[7:42] Yes I know that’s it’s what we call a teaser in the in the professional promotion business as I’m in.

[7:49] Nice and I spoiler alert it’s not me so boom that narrows it down to 300 million other potential guess I guess.

[7:58] Exactly most of which would not be as interesting as you yeah.

[8:02] Thank you okay people get enough of the the Jason Scott show we want to keep it exclusive here suture Rita can only have one of us on our shows at a time.
Awesome let’s jump into news it wouldn’t be a Jason Scott show without.

[8:19] Amazon news new your margin is their opportunity.

[8:33] So Jason I saw a couple interesting things going on with the Amazon so first of all let’s talk about logistics I don’t know about you but with kind of
pandemic and all the other stuff going on the Amazon Prime Vans have been humming here in my neighborhood and then I saw that Amazon is beefing up their plane Fleet
they have about 80 now they’ve added 12 recently and have plans to get to 200 planes
putting that in the comparison FedEx has 650 planes so still very small compared to FedEx and then,
I being in the fleet Fleet World here suddenly I’m very interested in the size of their Fleet
and it’s really interesting so Amazon rolled out their delivery service provider program and when they did that they announced they had a
acquired 20,000 Mercedes sprinters that is early nineteenth announce that
and then since then they’ve been really quiet about updating the number of vehicles in that Fleet and I feel like they probably are.

[9:36] Double if not triple that so another thing I’ve learned watching Amazon over the last 20 years is when they get really quiet about something that means.
There’s something going on there
so I feel like they’ve really grown that Fleet and then the other news on the Fleetside is they did place an order with ribbon who is the electric truck provider they ordered kind of a hundred thousand of those trucks that’s out there I think those are 20
2120 22 kind of thing and I’m sure it’s going to take years for Ruby and to produce that many vehicles
but that was interesting for those of you that keep up with that and then we reported on a previous new show that
there was rumors that Amazon was going to move Prime day from its home in June late June to September that was never confirmed or denied by Amazon.

[10:27] But they have announced that they are doing a June 22nd summer sale I’m doing air quotes for those of you that can’t see me which is everybody you know so it’s really interesting so it’s almost kind of like
they’re keeping the slot toning it down and then maybe they’ll do a September,
and they just essentially said kind of messaging was that they were doing this to jumpstart summer sales what do you think about the logistics moves and then this summer sale Jason.

[10:55] Yeah it’s complicated so the logistic moves ya like,
there’s going to be some other logistics news non Amazon news later in the show that kind of Dove two doves tails on this but it’s so smart in such a huge advantage,
to own more of your own fulfillment and Logistics capability and that’s like that’s going to be an increasing competitive Advantage so even if Amazon never does anything but use that capacity for their own internal needs,
um it’s a big deal and like when you’re comparing Amazon to any traditional retailer like saying you own a tea 737s.
Is like you know a pretty giant step ahead of Walmart or anyone else in terms of.
Of logistic capability and I haven’t heard anything about this but I’m partly wondering since like all the airlines the passenger Airlines aren’t using their planes are planes like can you get used planes just cheaper right now.
As they all downsize I don’t know.

[12:00] Absolutely yeah there’s got to be a used car markets crashing I’m sure the plane Market is tough too.

[12:05] Yeah so smart stuff there that just going to extend the the digital advantage that Amazon has,
more on that later and then the sale thing is really complicated Prime is so successful that a lot of my clients now try to counter.
Program against Prime day and so,
in unintended consequence of all this ambiguity about primed as it’s driving a bunch of other retailers nuts right because,
they like to plan some counter programming and they have no idea like win or what Amazon is going to do so that’s kind of interesting I think it’s really interesting if they’re going to land in a September date because,
um potentially September ends up being a better permanent date for that big tent post than.

[12:58] The traditional summer date does right because it it potentially just kicks off holiday even earlier,
and they can kind of maintain that momentum.
Like from September all the way through holiday that that could be interesting there’s some risk associated with that but they’re in a way they’re going to get a free test this year to see how it goes so so I’m going to be watching that that Prime day carefully.
And then this September date sliding this in is interesting and controversial a like vendors aren’t getting as much notice as they,
they normally would so in a way this is like the first Prime day where vendors got kind of.
You know are getting solicited at the last minute to see if they want to participate and what kind of deals they want to offer.

[13:48] And you know so in some ways it won’t be as comp it certainly won’t be as comprehensive as a traditional Prime day is,
the you know it’s debatable whether Amazon is like all the way back with their service levels and so.
You know adding a big demand spike in June is a little risky right like because if their.
If I look at customer SATs cores from Amazon they’ve dropped down there’s a lot more negative reviews for fulfillment from Amazon the last couple of months than there usually are,
and now you know they’re going to put more pressure on their system so it’s a little,
interesting that they feel confident enough to do a summer sale and then you know there’s always going to be detractors but there’s a lot of people talking about like is just the climate in the country.
Um right to be doing a big sale right now when there’s so much you know negative stuff going on.

[14:44] You know I don’t know that’s that’s tough tough to judge but you know I think one way or another,
the remainder of this year is going to be the mother of all liquidation sales as all the apparel companies try to,
you know sell that that stale inventory that’s been locked in their stores for the last three months and
you know everybody’s going to be downsizing tons of stores are closing and all that distress inventory is going to get liquidated through all these other channels so I think like,
you know the Amazon summer sale is going to be one of many price oriented promotions that consumers are just going to get flooded with it’s going to it’s going to be a really interesting consumer experiment but don’t pay full price for anything this year.

[15:27] I’ll take that advice to Heart.

[15:31] Yeah.

[15:31] So I saw that someone I forget who did the investigation on this but there was a there was a building sold in your neck of the woods and people have identified that Amazon’s up to something and that building.

[15:44] Yeah I have said this before and you know people are still skeptical but I’m convinced that Chicago is Amazon’s favorite Market,
almost every new cool thing they do they either do in Chicago first or they bring it to Chicago extremely quickly after they do it somewhere else first.
And so for listeners that follow Amazon closely.
There is a new Amazon grocery store that was scheduled to already be open in Woodland Hills California which is a suburb of Los Angeles.

[16:17] It’s about a 20 memory serves 22,000 square foot store,
it was scheduled to open already like reporters had gone by and it was pretty close to opening prior to covid,
and then as a result of covid the store didn’t open but it’s very clear that Amazon has been using it as a dark store to do grocery delivery so we’ve seen a bunch of delivery drivers in the parking lot shuttling orders,
back and forth and a lot of speculation this this store is not it’s a grocery store it’s not branded Whole Foods,
it’s much bigger than Amazon go Amazon went on record and said it’s not going to have the cashier OS self checkout system that that Amazon go stores have hashtag J Watson,
so it’s going to be a traditional grocery store under a different Banner than Whole Foods and then the big Revelation was,
that a significant chunk of this 22,000 square foot store is what we call an automated micro fulfillment center in the back of the store so this is a.

[17:25] In Auto picking robot that stores a lot of the groceries in different climate zones and you know when it gets an order it fills all the bags with all the products,
and so this is a brand new grocery concept from Amazon we’re super excited to see it if that that auto replenishment system is already running,
that’s a great tool to use for a dark store so that’s make sense why they’re doing this thing in LA
and so now they’ve announced a second store which is almost certainly going to be in the same Banner is that La store here in Chicago but it’s 43,000 square feet so that’s very large by grocery store standards,
to put things in perspective it’s a former Babies R Us store so it’s a.

[18:07] It’s a bigger than a whole food so Whole Foods feels like we have one that has like an extended.

[18:12] Yeah they range the biggest Whole Foods are in that 42 I think there might even be a 50,000 square-foot Whole Food store but but a lot of Whole Food stores are in the 20 to 30,000 square feet so 43 is on the big side for Whole Foods.
Like like a bigger Whole Foods this store like is reputed to have restaurants & dining service and things in it’s going to be interesting to see.
If those were pretty covid plans and how those plans change because of covid.
But I’m excited like even even if we’re not doing a lot of international travel sometime this summer the store supposed to open so I’ll get to go do a,
store visit and report on what Amazon sees the future of non Whole Foods Grocery looks like so it’s,
that is some exciting news.

[19:02] Is the robot thing on modified Qibla or is it a whole new you.

[19:05] No like so third party if you’re a general merchandise system like there’s a couple of these automated picking systems out there like perfect pick and auto store,
and how they mostly work as their bin based so products it in a bin and a Big Grid and then these like,
robots can Shuffle around the bins and so most of these micro fulfillment centers and these are companies like Fabric and take off Technologies Walmart has when they invested in called alphabat,
they’re these they’re kind of like the automated picking systems except the bins live in different temperature zones so usually they have a ambient temperature zone a refrigerated temperatures own and a frozen temperature zone,
so that when they get a grocery order they can you know grab the cereal from the ambient temperature and the,
the milk from the refrigerated and the frozen pizzas from the.
The Frozen aggregate those all in a shopping bag and then put them in your car for curbside pickup or put them in a delivery guys car for home delivery and,
my speculation is,
that’s also going to be used for in-store customers so I have a feeling you’re not going to be shopping for cereal in these stores and walking down an aisle of cereal I think you’re going to get your cereal bye.

[20:25] Placing an order on your mobile phone and the and,
the micro fulfillment center filling the bag with your cereal and I have a feeling the mean like physical things you’re going to do in this store our shop for things that you want to pick yourself like produce and meat and things like that but that’s entirely just my speculation at this point.
But those micro fulfillment centers are super important.

[20:47] It reduces the cost to pick a grocery order and remember a grocery order likely has sixty to a hundred twenty items in it versus a.
An apparel order is going to have like one to two items in it so the cost to pick that order the auto-replenishment micro fulfillment systems,
reduce that cost by about 90% so they’re they’re basically essential if we’re ever going to get the unit economics for digital grocery to make sense.

[21:15] Michael the and we’ll talk about that a little bit more later in the show how about any interesting Amazon news your non Amazon news retraction.

[21:23] Yeah yeah they’re a few random things I probably think this things more interesting than anyone else but Gucci has launched a pretty clever service.
In response to covid so they’re calling it a personalized video shopper,
and so essentially what they’ve done is they’ve set up a store in their customer service center and they have.
Customer service reps are like literally using a FaceTime like service,
to show you merchandise they that you’re thinking about buying so it’s kind of like a sales assisted experience our client telling experience,
over video conference so you’re thinking about buying a handbag like the a sales person that you’re talking live to can actually like.

[22:13] Grab that handbag off the shelf and show it to you for example and.
Like honestly I don’t care that much about that feature for Gucci but I actually think that that experience makes a lot of sense,
I don’t remember we’ve talked about on the show a lot but most of my appliances have died during covid and so I’ve had to like replace all my my laundry and kitchen appliances,
and we had to shop all those without going to the store right and it frankly would have been super helpful if a sales person could have.
Why gone on FaceTime and showed me you know some of the refrigerators they were recommending in person,
and I just think in this new world where less people are going to be allowed in a store and where you know they’re trying to amplify the effectiveness of human salespeople,
this idea of salespeople telepresence is going to going to be a bigger idea so I’m interested to see,
how customers take to this the Gucci version of that that experience would you want to Alive salesperson help you with your Gucci shopping Scott.

[23:18] I insist on it generally when I do my Gucci shopping I was at where was I,
I was in a foreign land I was in Italy and went to Louis Vuitton store and they were doing this
of course this is way before covid
and then it was interesting because there was two lines there was a Chinese line and then a non-chinese line and the Chinese line they had Chinese speakers that would come and meet the Chinese people that were in that line and then those folks
very frequently it seemed like they had been paid to come.

[23:58] Almost as a personal physical Shopper but then they would fire up a FaceTime and so you had a good not good cheap but a Louis Vuitton sales person a Chinese person and then they would be talking to someone on a FaceTime and showing
the wall of product and they would I watch this it would
each transaction was like a good 30 minutes they would pull down some bags someone on the FaceTime would say well show me that one over there and then they would pull it down and look inside of it so there it was clear the person on the FaceTime that was doing the shopping so so
it’s a maybe maybe Gucci kind of got this idea from some of their Chinese Shoppers watching how they’re doing it and then
yeah we’ve had I’m on the board of a non-profit
that helps homeless folks that are coming out of homelessness they frequently get into you know a residence,
like a habitat or something like that but they don’t have any furniture so this this company provides this really cool showroom where they can come pick up their Furniture right now they can’t come to the showroom so they’re doing the same thing they’re doing face times with the clients to show them here’s six different couches we have do you want this green one
what are the measurements that kind of thing so it’s interesting I think I think Innovation comes from these this necessity of we can’t be there what’s the next best thing.

[25:21] Yeah no it’s fascinating and you think about it like a pre covid problem is
you got a super busy store in Manhattan and then there’s a store in Iowa that’s not very busy,
why can’t you use those salespeople in Iowa to help customers and in that Manhattan store or vice versa depending on the time zones,
um in that makes a lot of sense and then you think about a highly sales assisted experience like a Neiman Marcus.
If you go to the website you don’t get any of that personalized service that you’re used to from the store and why is that right and as people are shifting to digital shopping more and more and are forced to because of covid.
You know it just makes sense that you’d want to replicate some of that high-touch sales assistant experience so I think we’re going to see more of this and you know in most ways covid is kind of a,
a time machine that’s accelerating things like this is the kind of experience,
people would have talked about for a long time but wouldn’t have done because it’s too much effort and it’s too low a priority to do but now because of covid,
there there you know quickly putting stuff out there and seeing if customers like it or not so I’m excited about those kinds of tests.

[26:34] It’s– earlier in the Amazon news that there was even more Logistics news so let’s jump right to that,
earlier or the end of last week UPS announced that they were going to start charging surcharges for big shippers.
And in this is the latest step in something that we’ve been seeing a lot of.

[26:57] UPS and FedEx are seeing shipping Demand right now for e-commerce that’s very comparable to what you would typically see over holiday,
and and you know traditionally,
UPS and FedEx scale up for holiday and they hire a bunch of seasonal labor and they do all these things to try to handle that holiday Peak so now they’re having.
Equivalent Peak that they were not you know that they had no ability to prepare for in any way and so what’s happening is their demand outpaces their capacity,
and so when you win you have a limited Supply and high demand what you do is you charge more for that supply and so,
early on like several weeks ago UPS you know notice this trend that like all these closed retailers were trying to use their stores as Dart stores and ship stuff from inventory from stores.
And that all required more UPS capacity so UPS put a surcharge on that,
now they’re putting a surcharge even on the Fulfillment centers because they’re just dramatically exceeding their forecast for shipping packages,
and then this week FedEx kind of match that surcharge and they’ve added some,
some enhanced charges as well and so you know you’re a retailer you’re not selling anything through your stores right now your only bright spot is e-commerce which is way up.

[28:18] Eight normal piece of bad news is that unit economics on that e-commerce order usually are worse than the in-store order was and now you get even worse news UPS and FedEx want to charge you more than usual the ship that stuff.
And it’s a real conundrum like if these shift to digital are permanent,
um then the costs are just going to go up because UPS and FedEx just don’t have that extra capacity.
And that’s why I was sort of alluding the fact that it’s a huge overwhelming advantage to Amazon that they can deliver a good chunk of their.
Um their packages themselves and then you know they’re the last leg in this stool of logistics.
That the United States Postal Service which most e-commerce businesses heavily rely on,
is in huge huge financial Jeopardy right now and nobody knows how that’s going to play out if they’re going to get bailed out or they’re going to be able to find some way.
To continue operations without getting bailed out or we’re going to see some.
Significantly diminished service from the US Post Office so it is a very tumultuous time in e-commerce Logistics.

[29:30] And these surcharges are in effect now are there talk about holiday.

[29:33] Nope they’re in effect now like you would expect so normally what what the shippers do is they ask for a forecast and they price,
your your services based on that forecast and then if you significantly exceed that forecast they charge you surcharges over holiday,
and you know three holidays when you normally are going to see the rate increases the kind of annual rate increases the shippers have but now they’re putting a surcharges in effect for summer.

[30:03] Wow crazy preparing for the summer sell I guess.

[30:07] Yeah yeah yeah so that’s going to be super interesting stuff to play out,
and that’s going to be another nail in the coffin for I know what your favorite e-commerce business which is Kylie Jenner cosmetics.

[30:24] OMG I love me some Kardashians tell me more.

[30:27] Yeah well so you know about a year ago there was all this press that Kylie Jenner has become the the the youngest self-made billionaire,
and that was largely as a result of you know her being an influencer like most members of our family but instead of Hawking other people’s stuff she launched her own Cosmetics brand,
and you know there are all these reports that it was wildly successful and,
like you know they were increasing estimates that that she had sold over a billion dollars in more than 500 million dollars a year and you know her,
right as we know now didn’t necessarily know what the time the her PR agency is like you know selling all these stories about how successful she is and how successful the Cosmetics industry is,
and you know frankly.

[31:20] This this e-commerce site is frequently cited as the biggest case study for Shopify like it’s supposedly the highest volume highest revenue,
store on Shopify featured prominently in in a shareholder meeting for,
for Shopify well last year that she sold half the business to a large Cosmetics company khadi and,
Cody rather and.
The financials their public company the financials just came out and it’s a significant business but it’s way smaller than.
Had been represented so so for the last 12 months they had a hundred and seventy seven million in sales so that that’s a decent.
Sort of midsize d2c brand but it’s nowhere close to the Unicorn that they were they were sort of claiming.

[32:18] Well that’s so Revenue they value in Revenue aren’t the same right.

[32:24] No no but they had claimed that like I want to say over like an 18-month period that they had achieved a billion in Revenue,
the now confusingly the valuation that that Cody paid was a like reported but you know never confirmed.
That that it was close to a billion dollar valuation now she only sold 50% of it and like who knows what sort of.
Incentives where you know performance incentives were tied to that but either,
if they paid like it was a billion dollar run rate than they wildly overpaid and I kind of I kind of doubt that,
like fraudulently represented Revenue in the sale so I have a feeling they just knew it was a smaller business than the pr folks had been pitching to Fortune Magazine.

[33:19] Yeah Anderson Well 5.

[33:20] Yeah so sad news Kylie is probably not a billionaire.

[33:24] Well there’s you know it’s growing fast it could get a five times I don’t know those like wildly profitable or there a subscription Revenue in there it’s not out of the realm of possibility.

[33:33] No it’s again it’s still a successful business and and like you know I think she’s objectively a successful entrepreneur I just it’s kind of funny when they’re like dramatically inflating their own success I guess.

[33:47] Yes I’m shocked.

[33:50] Yes yes I know shocked and disappointed so.
I don’t know why we put these stories in this order because it feels really incongruities that we have these these like random stories but another one that’s interesting to me is instacart has launched a self-service media Network so,
I don’t know what spend a ton of time on this I was not Super Bowl champs instacart going into covid like for a variety of reasons.
I kind of felt like they had you know serve their purpose but they were declining in in utility for their traditional market and that they were having a kind of Chase smaller Grocers and and kind of move down Market.
And covid.

[34:34] Totally boosted their prospects so they’ve had a cured quarter they become way more important for way more Grocers than I would have anticipated.
And one of the ramifications of that is they now have enough traffic on their site that they have.
Meaningfully large audience to sell advertisements to.
Um and you know every retailer is trying to model Amazon and launch their own advertising Network,
but a huge problem with most of these retailers of their traffic just isn’t big enough to have very good reach so if you’re if you’re Walmart you know you you have pretty big reach so you can you can credibly launch an ad Network.
But like you know even at like Target or Kroger size it’s a pretty Niche audience and so now like instacart because they aggregate Shoppers across so many different Grocers.
Instacart becomes the you know.

[35:30] Third or fourth largest potential retail media Network out there and then a world when people can’t go in stores to see in-store displays anymore,
brands are looking to invest a lot more in retail media networks than they were a quarter ago so,
this is another favorable Trend Instagram the that will be watching closely and Instagram has launched it with an API so you can actually do.
Self-service ads and programmatic ads so you can kind of you know buy stuff on an automated basis and have it show up in Instagram I’m sorry instacart.

[36:05] Yeah I see I’m a
unlike you I guess I’m a frequent instacart user and they’ll do a lot of clever things like you throw something in the cart and that brand will then come and say Hey will kind of cover your shipping if you throw two more of our things in the car and they’ll give you like,
then they’ll put you an experience where you just kind of picking from that Brands items that are available in that storm so is that is that kind of like a that an ad unit inside of there that they’re buying or.

[36:30] It was I would say the historically those have been more manual.

[36:35] So now they’ve kind of made a programmatic.

[36:36] Yeah now I mean the big news is they’ve added this programmatic aspect but I actually think you’re going to see a lot more of that like when instacart was doing it before it was kind of controversial because.
On the one hand you’re eroding conversion right like you’re making it more complicated to check out you put the stuff in you wanted and you just want to leave and now they’re trying to sell you a bunch of extra stuff.
Um there’s very high abandonment in e-commerce so so I by doing those offers your you’re hurting conversion and increasing abandonment.
But the flip side is,
there’s not a lot of unplanned purchases and impulse buys in digital e-commerce and so by having those offers you know close to check out or those Dynamic offers based on what’s already in your cart,
um they’re increasing the size of your basket and.
In the old world they were you know most grocery retailers were just happy to close the sale so they were loath to do a lot of that cart base promotions in the New World.
A much more significant chunk of their businesses now digital and they need that that bigger cart to make it profitable so I think you’re going to see a lot of retailers adopt more of those kinds of.
Dynamic marketing tactics in the car.

[37:58] I think half the time I talked about that instacart story I called instacart Instagram so apologize for that and perhaps that’s because the next news item is.
The that Target is the latest.
Brand to be leveraging the the native check out feature an Instagram in this is super interesting to me because.
You know they’ve had this Instagram check out for a while and they launched it with like 20 Brands and they’re all brands that make sense that would be trying to sell stuff on Instagram so they’re mostly Beauty Brands or fashion brands,
Nike has had some interesting successes on the platform but they were all like companies that with a small number of skus that you know we’re heavily like influence or driven categories,
and now target has put thousands of skus for sale on Instagram so that’s going to be an interesting.
Test and like a less obvious Testa me so I’ll be really curious to see if that gets any traction or how that plays out,
obviously Target does have some fashion and some home decor so maybe it’s going to be skewed in that direction but I’m,
I’m going to be following that that new pilot quickly but however you slice it it’s further proof that the social networks are really leaning into Commerce and especially as covid is kind of.
Accelerated digital Commerce they all want to be playing in that space.

[39:27] Very cool how about even watching shopify’s market caps or lately.

[39:34] Yeah so again like hey you see the trend for covid is that it’s shifting more people to shop digitally so who can you invest in to ride that wave one of the best investments has been Shopify,
and their market cap is now up to 90 billion.
And shockingly like that’s getting super close to IBM’s market cap at a hundred and fourteen billion and so it’s going to be super interesting if they keep going at their current to trajectories,
in the next quarter we could see Shopify have a larger market cap than all of IBM which is just mind-boggling to me.

[40:11] Yeah they should have dumped all the mainframes all the services and then put all the wood behind the websphere e-commerce engine and made it available Des embiez that who knew that was the strategy and don’t by Red Hat.

[40:26] Yeah it’s crazy.

[40:27] Cloud forget Cloud forget blockchain.

[40:30] Like like IBM has this huge portfolio products like one small product in that portfolio was at one time the world’s most successful commercial e-commerce platform IBM websphere Commerce,
and it literally had like the largest market share of Enterprise clients and you know the most big clients relying on it and then you have this like.
Startup platform that was you know exclusively catering to small businesses in Shopify and you you fast forward five years and,
IBM had to sell off that Commerce platform and now it’s owned by another integrator and Shopify is almost as big as all of IBM it’s just it’s a.
It’s really interesting.

[41:17] Yeah and remember Yahoo back when I started chela’s or we had to do a Yahoo store integration because it was the hot platform they totally squandered that that was that was a good platform and they just kept up with the times and mobile and everything that could have been

[41:32] No absolutely yeah and in fact like you know who else had a third-party Web Store platform for small businesses at one point was Amazon.

[41:41] Yeah.

[41:42] So they you know arguably like they could have leaned into that and you know not not ever created the opportunity for Shopify to exist.

[41:51] Yeah and it’s funny because Shopify is adding FBA and payments and all the stuff Amazon already has.

[41:59] Yeah yeah I mean a lot of people are are trying to position Shopify as the big amazon competitor I don’t particularly by that narrative I think they’re way more.
Complementary than they are competitive but like you know they are like you know slowly shifting into a more competitive posture with each other so that’s going to be interesting to see play out.
And then I’ve saved the most exciting news for last Scott.

[42:23] I saw this on Twitter go ahead and throw it out there.

[42:28] Yeah this is perhaps the most covid friendly invention of all times a scientist in Japan has invented a lickable screen,
and it can simulate like any any food flavor on your tongue when you lick this little portable device.

[42:49] Okay and what are these cases.

[42:52] Well it virtual shopping for food right like you you want to
decide which dishes to order from your your blue apron or your Factor whatever your meal service is or try the new flavor of Oreos before you go to the store,
you know in theory you could have one of these peripherals on your computer at home and,
you you could fry the Green Tea Oreos,
or the cherry blossom Starbucks latte at home before you make a trip to go buy one in in person.
You know I’m I’m slightly skeptical that it’s awesome just to talk about a lickable screen.

[43:39] Yeah there was a smell of vision thing you remember this there’s like some accessory that had like all these different there’s something like X number of things that mix together can make almost any smell or and someone had that it never really caught on and on.

[43:52] Yeah there are so there are a lot of commercial or a factory emitters,
and there are retailers that use them like there’s a lot of retailers that have a signature smell that they pipe into the store casinos are sort of famous for this.
And you know there’s there are experts that know what kind of smells like encourage people to dwell longer and spend more money and things like that so smell is a super important,
part of the experience and I totally get it but man you know.
Customers at the moment don’t even want to use a touchscreen much less a lick screen so I feel like the timing may not be.

[44:36] Yeah we’ll see I think you owe it to our listeners to buy one of these and then you can report on it.

[44:43] I for sure will inside note well I think the science is really tricky in a way taste is easier to do than smell because there is.
Like almost Limitless variety of all these Esters to make different smells,
but like taste is really like five different senses and so what these guys have figured out is,
we just need these five different gels that each trigger one of the five taste senses and by just you know delivering them in the right ratios we can simulate almost any any food flavor so it’s kind of interesting.
And we did promise a shorter later show this week so that is going to do it for this show as always if we screwed something up more than usual feel free to let us know on Twitter or Facebook,
please please please jump on iTunes and give us that five star review,
but we really appreciate everyone listening and you know I hope everyone is safe and doing as well is possible in these.
Unprecedented uncertain times that we’re living through right now.

[45:45] Thanks for joining us everyone and until next time.

[45:48] Happy commercing.