EP246 - Q3 Results
The US Census Bureau published its retail monthly data and quarterly e-commerce data this week. We also saw earnings reports from Target, Walmart, Lowes, Home Depot, Walgreens, and Kohls.
We also discuss Amazon’s entry into pharmacy.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Join your hosts Jason "Retailgeek" Goldberg, 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.
Episode 246 of the Jason & Scot show was recorded live on Thursday, November 20th 2020.
[0:24] Welcome to the Jason and Scott show this is episode 246 being recorded on Thursday November 19th 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 and Scot show listeners.
Jason it’s getting to be holiday and I don’t know about you but I am constantly being pummeled with.
Carrier pigeons direct messages tweets linkedin’s friend stirs just messages from every possible venue and guess what they’re asking.
[1:05] They are asking you to buy early from their store.
[1:10] I know that yes I am getting this but what I’m getting from our listeners are people saying Scott what can I get you guys have given us so much pleasure over the year through this podcast what can we do in return.
And my answer is all Jason I want for the holidays this year is your 5 star review.
So if you can hit pause real quick and this is best in your app that you’re using if you’re on the iPhone it’s pretty simple kind of need to do it in the podcast app,
believe that five-star review that would that would be really great and that would make our your for us here at the Jason’s got show we’d really appreciate that so whatever app you’re in go in there leave us that five star review that really helps us a lot.
Keeps us at the very tippy top of the e-commerce podcast realm so we would really appreciate that.
[2:04] So alright welcome back hopefully you did pause and leave us that five star review we appreciate it.
Jason we are T minus seven days until turkey day and this is the time of the year where we really start to feel it you know kind of that nervous energy.
Here in the Commerce retail e-commerce world,
everyone holds their breaths and they been working all year planning for this they’ve got all the server’s lined up all the clouds clouding,
and just hoping that the next 20 days are super awesome but they’re also scary for everybody so.
And then this year with covid everything is going to be cranked up to an 11 we’ve talked a lot about ship again we’re going to do an update on that so we thought the days show we would.
Kind of stay on news because there is a lot going on and first of all I thought we could hit some of the really interesting Amazon news.
[3:05] Amazon news new your margin is their opportunity.
[3:17] Jason you have I think you’ve been I can’t remember where it’s been all cheer now I can’t remember if you predicted this but you’ve been really
kind of keeping an eye on Amazon’s aspirations to get into the pharmacy world and if I remember they bought that pihl company was at pillpack and then there was some news this week update us on what happened and what you’re thinking what’s your
what’s your point of view is it time to stop going to Walgreens and CVS.
[3:46] Yeah so side note I was actually revisiting that prediction Show recently because I was trying to cheat and edit in that I predicted a global pandemic.
[3:57] No that’s not fair no cheating.
[3:58] No I would never cheat but if you happen to notice that there I must have in fact predicted it.
But yeah so we’ve talked a lot about this we’ve talked a lot about Amazon and Walmart’s General aspirations around Healthcare,
and for sure I think for the last several years I can’t even remember which year we first predicted it but like we predicted in the past that Amazon would get into Pharmacy.
And we we’ve seen sort of three previous Healthcare actions,
they actually applied for and received a number of their own Pharmacy licenses so you have to be a pharmacy you have to be licensed in every state they got licensed in a bunch of states for medical equipment so that’s not actually the,
the the medications that’s things like.
[4:48] Pulse ox monitors and glucose meters and and orthopedic equipment and prescribed equipment that customers might want to buy so so they kind of.
[4:59] Did their first step in getting some pharmacy license has a lot of us speculated that that could be a precursor to getting a medical dispensing pharmacy license.
So then they bought pill pack which is a pharmacist and online pharmacy that already had a bunch of Pharmacy licenses so they kind of got.
If memory serves something like half the country covered just by buying pillpack and for listeners that aren’t familiar pillpack has kind of a unique value proposition,
they’re a mail order pharmacy that mail your your prescriptions to you but instead of giving you all 60 of your doses of Lipitor in a bottle,
individually packaged your pills for each day so if you’re taking three conch medications you get a little plastic.
Vacuum-sealed bag with the three pills you need to take each day so make it make it super easy to take each day’s thing and so they bought pillpack they’ve been continuing to operate pillpack they’ve even done some pretty extensive,
marketing and advertising for pillpack.
And then right around the beginning of this year they bought a medical technology company that does like.
Telemedicine medical triage it’s kind of like artificial intelligence for what are your symptoms and I’ll tell you what likely is wrong with you kind of stuff.
[6:23] And then they’ve used a lot of those Technologies.
To roll out some for some health care clinics but the health care clinics are not for the general public at the moment there for Amazon employees in specific cities like.
They’ve opened a number of clinics near.
Near some of the FCS and they’ve opened a clinic near their corporate headquarters in Seattle and they I think they even develop their own covid testing.
Capability that they use in those clinics to test employees.
[6:51] Yeah when we went in our deep dive I remember them saying they were doing you know tens of thousands of daily testing so pretty pretty substantial just internal testing effort which was pretty interesting.
[7:03] So that’s all the history of Amazon and Healthcare and what we’ve been waiting for is when do they do something that strikes fear into Walgreens and CVS and the answer is probably this.
[7:16] Yeah saw the stock I’m not a big tracker of those stocks but I saw CVS was down from like the mid 70s and mid 60’s so kind of a 10% drop in I imagine Walgreens with similar.
[7:28] Yeah and I think they one or both of them had earnings calls recently and.
Somewhat counter-intuitively and maybe sometimes we get into this the those pharmacies are not.
Beneficiary major beneficiaries of covid in fact like their comps are down.
So so they are ready we’re kind of a little soft and then this Amazon announcement they all had an impact.
We’re still trying to figure all the details out but a so Amazon has announced that you can now there a nationwide Pharmacy and you can buy your your prescriptions from Amazon and you’re not.
My my understanding is you can now get like a normal person gription from Amazon it doesn’t have to be the pillpack configuration.
And it’s available Nationwide but what they really focused on they didn’t give a lot of details about that about how you would order your your traditional prescriptions,
if you had Insurance because what they really focused on is they had done a partnership.
With a I think the company is called The Insider RX to dispense prescriptions to people that don’t have insurance and give them the best possible price.
[8:50] So it feels like this first segment that they’re targeting for their kind of Nationwide Pharmacy offering are uninsured customers or underinsured customers,
and help them get affordable access to a prescription,
outside of the insurance system and there’s a variety of reasons that are probably doing that it turns out there’s.
A lot of exclusive deals in the insurance networks and so it’s probably really hard for Amazon to,
say hey Scott order your prescriptions from me and will submit it to whoever your insurance is and will get reimbursed.
[9:29] Do you think when I go to my doctor soon I’ll be you know they always say what’s your favorite drugstore I’ll be able to see Amazon Pharmacy and then that’ll connect those things are as that a naive the other.
[9:37] So that that is petition clear because here’s going to be the problem say you have some new medical problem and the doctor wants to prescribe some a one-time thing for you,
they’re going to they’re going to write the script and most insurance company your insurance company is going to pay no matter where you feel it so they your doctor can probably send that to Amazon and a big part of this on Amazon offering is 2-day delivery so if it’s.
If it’s something you need you know that you can start taking two days from now that could totally work.
Often when the doctor writes a prescription for some acute problem in the office you’re going to stop on your way home from the doctor’s office to fill that prescription.
And so Amazon’s not super competitive at that,
but in most cases that first prescription the most credible insurance companies are obligated to compensate the dispenser for that so there’s not a lot of controversy about that,
what gets controversial is,
if you have some chronic condition that means you’re going to take some medication for the rest of your life like the most popular which is like a Statin for high cholesterol.
Right so a lot of insurance companies now say.
Hey we don’t want you to buy that every 30 days from a retail pharmacy and pay the highest price we want you to use our Pharmacy and they’re going to send you a 90-day Supply and will only cover this under insurance if you get it from us.
[11:04] And so the NAT those mail-order pharmacies are often operated by Rite Aid and CVS and Walgreens so they all they all have you know CVS Caremark for example,
the do that mail order on behalf of insurance companies but there’s a lot of exclusives there and that’s the.
The part of the the pharmacy business that I don’t know for a fact but I would imagine is harder for Amazon to crack because they would literally have to go to these,
these insurers and get them to too.
Except Amazon is a dispensary and they have to negotiate pricing rates and they probably already have an exclusive deal with another for provider.
[11:46] So if your Amazon you’re trying to grill and Pharmacy you go oh the these ad hoc prescriptions is one place I could grow but really I need to do like one hour fulfillment for those which Amazon did not announce here.
And then the other category is a huge chunk of prescriptions are sold without insurance and so it seems like that’s where I Amazon’s really focusing and so that’s actually not the.
The bread and butter of Walgreens and CVS there are third parties that provide,
discounts and promotions to those retail pharmacies so these are companies you’ve now seen television ads for good RX and.
Shoot what’s the one with Martin Sheen something care.
It’ll it’ll come to me later but there’s a couple companies out there that are kind of in the business of,
aggregating coupons and letting customers get a cheaper price when they have to get a prescription from Walgreens without a,
a prescription and that is basically what Amazon is offering so the well Walgreens and Rite Aid like took a little bit of a value hit like who really took a value hit was good RX.
Because it seems like Amazon’s competing directly with them.
[13:07] Single care.
[13:08] Single Care thank you I knew it was something here.
[13:11] One of our one of our interns were handed over to you.
[13:13] Yeah so like the the kind of Market.
Whiplash action like really hit those guys and I’ve seen the number of analysts that follow the industry pretty close and they’re like you know what there’s a bunch of nuances,
Amazon is not going to be able to to kind of immediately impact those those businesses and the in the trade agreements are kind of complicated so,
my sense is that some of the stocks have already rebounded from this initial kind of.
you know every so I mean kind of we’re getting a little in the weeds but rolling all this up there’s there’s a theory why everyone shouldn’t be afraid of Amazon but of course you and I know as a general premise everyone,
should be afraid of Amazon so this first offering may not be you know the one that that,
dramatically impacts any of the existing players businesses but it certainly reaffirms Amazon’s interest and intent in disrupting this industry.
[14:17] Yeah and whatever you do if you’re an executive at one of these companies never ever say that you’re going to Canvas ons but or you’re not worried about them or they can’t do your your business.
[14:28] Yeah I the exact phrase you probably shouldn’t utter is Amazon’s great at selling X but our business is uniquely complicated and difficult.
Much different than all the businesses Amazon successful and therefore Amazon has no chance of succeeding.
[14:46] Another one you probably shouldn’t utter is we’re a hundred percent Amazon proof.
[14:52] Exactly we’re Amazon’s partner not there their competitor yeah so I feel like and besides Amazon’s never made a profit so there’s that.
[15:01] That is so true so true you and I have that till the cows come home.
Course that’s a little Amazon update and we’re going to keep an eye on this Pharmacy very closely because we do think it’s going to be this could be a billion dollar pillar if you know this is a nibble and you know this kind of the second Noble after pill pack I would kind of say,
but it’s clear Amazon has their sights set on this one just General Health Care and so does Walmart so it’s pretty interesting Battlefield coming up,
let’s pivot over to ship a getting one of our favorite topics so,
because you and I are the ship again guys we are getting hit with all the ship again news and in fact,
if folks have hair dryers they’re taking a while to get to them or let’s see iPads or anything you and I to know about it so that’s part of the fun of being the ship again guys.
[15:50] I like being the ship again and Guy exactly.
[15:52] I do too I’ve learned a ton so let’s go through what kind of do a lightning around here,
first thing I’ll apologize listeners I talked about putting a model out in the last show and my day job has been kind of busy so I have not had chance to work on that I’m hoping to work on that this weekend,
so stay tuned.
The speaking of Amazon they had an article today where they are telling folks and I think this is I mentioned at the top but you know we should say,
it does look like we’re having that that V or swishy shape at least from a covid perspective so cases are hitting all times Highs hospitalizations are at all-time highs,
so we’ve got kind of the second wave of the pandemic and I think what Amazon is saying is if they have to go back into kind of that March centrioles only mode.
If that climbs the holiday it could be kind of cataclysmic so so I would say,
you know if we were keeping track of some kind of a scorecard of ship again every week since we’ve introduced it I think the chance of it getting worse than you and I even predicted are increasing.
Let me pause there and see if you agree on that.
[17:04] Yeah no totally and I think to try to mitigate this a lot of people try to entice customers to shop early and I my sense is that that mostly hasn’t been successful so.
[17:17] So Amazon came out and said hey you know you got
really really seriously you need to shop early this year because even we won’t may not be able to get you what you need so that was pretty interesting for them to being there
of course people kind of are like sure they want to shop early so there’s it’s going to be saying there’s going to be a segment of consumers that
I kind of think it’s fake news if you will and they do not take advantage of this and you know the Doomsday scenario is Amazon gets
and you know swamped and has to move into Central kind of stuff stores go through shutdowns in certain areas I think California actually is doing it in Chicago or are your store shut down.
[18:00] Yeah so we’re on a advisory which is like the softer language of a shutdown and it basically meant stores.
That were previously allowed to be at 50% maximum occupancy or now a 25% so they haven’t closed them but they’ve more severely constrained the traffic that’s allowed in.
[18:19] Yes that’s one news item and then,
several folks have reported to us drop buying products directly from Apple that most of those products are showing a inability to get anything by Christmas and this is before Thanksgiving started so.
If anyone in your you know if any of your holiday gifts are going to be of the apple variety you need to really look at that closely and then,
um I’ve had I had this exact same situation and I found you can go to Best Buy and some of the other kind of apple Outlets if you will and they,
they have little bit more inventory than Apple interestingly enough.
[18:59] And then friend of the show Erik Heller he saw an Amazon van and this is kind of part of this DSP Network I don’t think Amazon directly to this but it was clearly a UPS van that had been painted with the Amazon Prime on it so,
so I think a very clever Amazon DSP partner,
you know there’s this problem that new Vans are just all spoken for for for six months and I know this from my day job,
and so people are going out and finding anything they can so there’s the used market for delivery vehicles these are things that are like.
[19:33] 10 to 20 years old at this point there are basically taking anything you know that runs imagine someday we’ll see,
some old yellow school buses painted with prime paint and stuff with packages and they’re putting them out into the fleet I’ve little Battlestar Galactica kind of a fleet that that’s going on out there.
And in addition to that I’m getting a lot of interesting pictures of what I would call Super janky vans that,
that are being used to deliver packages now so yeah I saw one that was looked like it had been maybe in Beirut and it had like as part of the FedEx ground which is a 1099 Network kind of like the DSP program,
and then add like the tiniest of FedEx stickers on it is really funny it was like a nine by nine square it was like FedEx Ground in this like sea of denser along the side of the packet the truck so.
That is the ship again news did you see anything else that was interesting.
[20:31] No I think you you covered most of it it just a reminder that,
this is by far the most acute version of the van problem member but they’re like a version of that plays out every holiday,
um you know FedEx and UPS maybe aren’t trying to acquire a ton of new Vans but they would like to have more Vans available so they go out and rent a bunch of vans.
And then we end up with this porch piracy problem.
People see like an unmarked rental van like pull up and some you know none uniform Guy come out with a bunch of packages and they often it’s a legit.
Delivery person and they get reported to the police as a potential porch pirate so I imagine all these Jinky Vans are going to make that even more cute.
And then I just want to plug this one side note in my market here in Chicago Amazon key for business has been going door-to-door to all the buildings,
and they’re offering to install like the secure access system so my I live in a little 12 unit Condo building and we just installed the Amazon key so now all the Amazon drivers.
Can open my front door without without having to call us on the call box and drop our packages off.
[21:45] The front door to your interior door or the building door.
[21:49] Building doors so they get in they can now get access to our mail room to drop off packages.
Which is interesting because Amazon can do it and it’s all Wireless and it’s it’s access controlled so they can only deliver.
You know during appropriate hours and and there’s a log but like FedEx and UPS can’t do that.
[22:18] Yeah and then I know you’re on pins and needles to jump into this there was a data drop that you want to tell listeners about.
[22:26] Yeah it’s a datapalooza week I’ve been super excited.
So this is a fun week for me on Tuesday of this week the US Department of Commerce the US Census Bureau.
Drops their monthly retail sales data so we got that data on Tuesday and then once a quarter every three months,
they drop this supplemental e-commerce report so on Thursday we got the Q3 supplemental e-commerce report.
So both of those.
Are kind of fun and in general and in particular in covid times when things are changing so much it’s super interesting to get fresh data about what’s going on in our Marketplace.
[23:11] Yeah and if listeners are interested we had a full show on this the episode
so number escapes me while you’re talking I’ll get one of the interns to work on it but but yeah so I always kind of because I don’t live in this data like you do I always have to go refresh myself but but walk us through
that data and what was exciting.
[23:31] Yep so first of all that was episode 239 which was back in the beginning of October that we had to Paul and Scott on from the US Census Bureau to talk about how they prepare this data and kind of,
talk about some best practices and how to use it,
um so the first data set to come out is the monthly data and in basically every retailer in America fills out the surveys.
And what they sold in a given month in the US Census Bureau Aggregates it all up and so you know about 19 days into November or 17 days in November we find out what sales were like in October.
So retail sales in October where up.
Eight point five percent year-over-year so that means.
October 20 20 in the middle of covid we sold 8.5% more stuff than we did October 2019 which is very healthy.
Like that cat.
[24:32] Pretty crazy like last year we were going like everyone was excited like 3% Yeehaw it’s crazy crazy Tom.
[24:40] Exactly and so we can get into in a second into why retail sales are so up there’s some good reasons for that covid is.
Stop spending in some non-retail categories and it’s actually shifted that spending into retail categories so,
you used to go to restaurants which are not retailgeek,
and instead you’re going to grocery stores now which is retail and you used to fly in airplanes and stay in hotels which is not retail and instead you’re buying stuff to fix up your house which is retailgeek.
[25:13] Some would say it if you charted it looks kind of like a v-shaped recovery.
[25:18] Yeah in West you look at all the categories in that V and those people would now say as a w-shaped recovery for the record because it’s.
Like probably because of covered right now it’s going the wrong way so we’re probably going to get two v’s right next to each other but that that aside the so eight point eight point five percent,
year of your growth is awesome again you could take categories out of that there’s a category in that that’s called non store sales which is kind of our proxy for e-commerce,
it was up 29% so almost thirty percent which is interesting,
if you pull some of the categories out that aren’t traditionally very e-commerce e like if you pull auto and gas out of the retail number then you’re over your sales were even up better they were up like 10.8%,
so Healthy Growth interestingly a lot of the reporting on the data was negative because what they mostly looked at is the change in sales from September to October,
and the growth from September to October was very modest it was 0.3%.
[26:34] And so a lot of people interpreted that as,
kind of the recovery petering out and Scott being wrong and it not being v-shaped but In fairness to Scott I’m going to say.
I don’t actually care about month-to-month growth because,
every month has a different set of shopping intense attached to it and it’s,
it’s just like the month-to-month changes just aren’t traditionally that linear and they change every year depending on the number of days,
um you know weekend days versus weekdays and all these other factors so I just in general I care a lot more about seeing Healthy year-over-year Growth than I do the month to month growth but the people that worked at the month-to-month growth were like oh,
things are slowing down.
[27:27] Got it yeah you’re over yours Waco.
[27:30] Yeah and so yeah and so in general if you then break it down into categories there were category like building materials is up 20 percent from the same month last year.
E-commerce I mentioned was up 29%.
What else is a big cars or up big like 11%.
[27:55] Yeah the Auto industry is on fire right now.
[27:59] Yeah well yeah dip their two sides of the audio and Industry that you would know better than me right like the guy selling vehicles are doing great the guy selling gas are not doing well.
[28:08] People are buying cars and then promptly not driving them which doesn’t make a ton of sense.
[28:14] I need a new car that I’m not going to drive.
[28:16] Yeah and then grocery is up like 10% so those are the categories that had like like frankly like huge tail winds from,
from covid you didn’t go on a vacation and you got a stimulus check so you bought that new car and you’re thinking your your vacation this year is going to be a car trip right so you bought that new car,
you’re not going to restaurant so you’re buying more groceries you’re you know you’re not traveling as much so you improve your house right so those categories were the big head winds and then exactly as you would expect,
there’s a categories that were big losers gas is down 14% people aren’t driving to work right apparel is down thirteen percent you know people aren’t wearing as much clothes department stores are down 12%,
and restaurants are down 15% so,
that that’s kind of how the the monthly data played out and I would say these were all trends that we saw in September and they continued through to October and so I didn’t see any like.
Dramatic changes of Direction this was this is all pretty what we would expect at this.
[29:27] Yeah and what I peeked at the data one thing that jumped at me is it looked like,
you know the pork kind of fashion industry is just taking it on the chin and it seems like it’s getting worse is that is that your read on it like it’s decelerating even more.
[29:44] Well so yeah it depends on how you worked it got really decelerated early in covid when people weren’t going to stores and going to malls,
and then it started to recover a little bit like there is a hypothesis that like.
You might need some warmer clothes even if you’re not going anywhere and one more clothes are more expensive than summer clothes and so like,
in general you want you expect to see a little bit of a lift in Winter I don’t think we’ve seen a lot of that and it’s just this triple whammy like apparel had a bunch of head winds before covid-19,
there’s they have more head wins in covid and the majority of places where people buy clothes separately have a bunch of head winds from covid so it’s a.
Triple whammy against the apparel industry and and I would say just in general,
ten years ago you spent six percent of your income on close today you spend three percent of your income on clothes so it’s just like there’s no there’s no good news in the apparel space.
[30:47] Yeah so I’m an e-commerce guy and I like the simple version of this so this data said and Q2 Commerce group 45%,
this data drop isn’t the one that really pinpoints e-commerce right that’s the one.
[31:02] Two days later we had that one drop right so last quarter exactly you said 45% e-commerce growth and so this quarter was lower it was 36% e-commerce growth 36.7%.
[31:16] Okay so that has dropped okay yeah so the non-store being 29 isn’t just e-commerce they do this other drop that just e-commerce and that was higher than that 29.
[31:25] Exactly exactly and and the that 2019 was a monthly number the the 36.7 percent is a quarterly number.
[31:34] Okay good alright.
And then but that’s interesting because Amazon came in at 37% but that’s,
total Amazon North America was 39 and then if you took out physical stores which I think is the best comp they were at like 40 percent.
[31:57] Close to this 37% right like so they they tracked last quarter so Amazon last quarter was 43 percent and the industry average was for the quarter was 45%,
this quarter Amazon’s 39 percent in the US and the 44 your point if you want to take out the stores and the industry average is 37 so they’re there,
they’re right in line and not shockingly Amazon is a reasonable.
Surrogate for this quarterly data now another thing you get to see in the quarterly data is what percentage of all retail e-commerce is.
And so last quarter to two retail was like e-commerce was like sixteen percent of all retail including all the categories that.
The US Census Bureau includes in retail which does include like gas and restaurants,
I’m sorry not restaurants but it does include gas in cars so so last quarter was sixteen percent of all sales this quarter it’s dropped down to fourteen percent of all sales so what.
This is totally intuitive but what could have happened is for part of Q2 brick-and-mortar retail was closed or less accessible and so e-commerce was the only alternative right so as we moved into Q3.
[33:11] People are continuing to lean on e-commerce e-commerce is still super important it’s the fastest-growing way for people to shop and new people that learned how to shop that way are continuing to use it but.
People do have better access to brick-and-mortar stores in Q2 and so in Q3 than they did in Q2 and so the brick-and-mortar sales came back a little bit more which means the ratio of e-commerce to Brick and Mortar drop down a little bit.
[33:39] Does that make sense and that’s also frankly why I mean 29 percent is or I’m sorry 36 percent is still unprecedented growth white compared to a normal year.
Yeah but so the reason it didn’t grow quite as big as because you didn’t have this you know hey all the clothing stores are closed and I need socks.
[33:58] So one way to read this is if we kind of draw a line from Q2 at 45% and now we have Q3 at 36 percent you could say Q4 continue to decelerate be like you know low 30s right
or you know I guess what I’ve been thinking is we’re going to see a pickup again where it’s going to kind of.
I think the more likely scenario is it will stay at this elevated kind of high 30s and there’s a chance it could go up into the 40’s like we saw you too especially if we have this covid situation and I’m specifically talking e-commerce here.
Does that do you agree with that or did you come to a different conclusion now you’ve seen the data.
[34:38] It’s hard because I’ll call it like the five-factor model right like so if Q4 was just another quarter like you’d probably predict like a linear Trend here and so the rate of growth would probably slowed a little bit more,
um but Q4 isn’t a normal quarter it’s a quarter that has accelerated consumption overall and accelerated spending and so in a world win a disproportionately high percentage of that spending is online that should actually.
Accelerate the rate of e-commerce right so that’s that you know the second Factor the third factor is that the.
Fourth quarter like was already an uncharacteristically high quarter for e-commerce why people have already learned a shop online more for gifts than they do for their day-to-day needs,
so that would it’s hard to grow from the bigger number so the fact that Q4 is the biggest number of last year means the rate should slow down a little bit and then we have the ship again in factors like,
do retailers have enough inventory do they have enough shipping capacity so you kind of apply all,
you know some some estimate for all five of those things and like I think we’re going to end it a super healthy number I kind of put that 33% out there is like where we’ll probably land so that’s,
so I D celebration from this quarter but still you know very healthy by historic standards.
[36:01] Yeah cool and then there’s also so on top of this data there was a plethora of folks we covered Amazon and really dive here but we we’ve had a good more than a handful of retailers
push out their results what were some of the highlights you saw there.
[36:19] Yeah so yeah it was a good week for earnings so Cole’s announced this week in their comps are down,
it’s so funny how Wall Street works by the way right like so cold like Cole cells apparel apparel sucks their comps were down 13 percent but because the expectation was that they would do even worse that was actually favorable to their stock right,
e-commerce for Cole’s was up 25% which compared to all the other categories we’re talking about isn’t that healthy but for Cole’s where e-commerce has been a challenge for a variety of reasons like that’s pretty Healthy Growth,
it’s a dramatic deceleration like coals had 45% e-commerce growth in Q2 they’re having 25% e-commerce growth in in Q3,
and so that’s interesting right.
The next retailer that announce earnings this week was Walgreens and they announce earnings before this Amazon news by the way so I don’t think this Amazon news head.
[37:19] I mean I didn’t have any impact on their earnings so their us comps were up three percent I think they’re Global comps their their their parent company owns boots and UK
I think overall complement of actually been down so I’ll your flat but us comps were up three percent which is kind of traditional grown on covid growth,
e-commerce was up 39 percent and what’s interesting and Walgreens was a little bit of an outlier their e-commerce was up 39 percent in in Q3,
30 commerce was only up 23% in Q2 so they’re one of the few companies we’re going to be talking about today.
Who’s e-commerce is actually accelerating which of course bucks the industry trend.
[38:02] Yeah I wonder why.
[38:04] Yeah I don’t know the real answer part of it could be that none of these companies were.
Awesome and e-commerce before covid and so you could imagine that like hey as they suddenly had a lot more demand for e-commerce they scrambled.
Improve their e-commerce amenities and stabilize their site and do all these things and that they got better operationally in Q3 but I don’t know if that’s actually true.
[38:31] Yeah or they rolled out curbside and that gave him an attribution her.
[38:34] They for sure did roll out curbside in the middle of all this yes.
[38:37] Yeah yeah that helps yeah or speaking from anecdotal evidence they now have hand sanitizer so maybe that drove it.
[38:46] Anybody that has hand sanitizer you would totally want to to be betting on right now,
so that the next two people that do earnings where the do-it-yourself stores Lowe’s and Home Depot and reminder they’re one of the huge winners in covid people people are spending way more money on their home as a result of covid-19,
and solos comps were up 30 percent which is nosebleed like that’s amazing.
Why do you spend your whole career in retail and you never have a 30% like comp for the entire network that’s crazy their e-commerce was up a hundred and six percent.
E-commerce is very significant is the stores but as a percentage of total sales it tends to be kind of below because they sell a lot of items that aren’t that convenient to ship.
So as curbside picks up like e-commerce gets unlocked for a lot of these guys but hundred 6% is way above the industry average and then to compare that and cute,
to Lowe’s was 135 right so they had a huge e-commerce quarter last quarter and there.
They had another big one but their rate of acceleration has grown but man a lot of people walked in the store and spent a lot of money.
[40:04] And then Home Depot also like very impressive like just doesn’t smell quite as good as well as their us comps were up 24-point 16% which again is amazing,
unless your your direct competitors up 30 their e-commerce for the quarter was up 80%.
I’m trying to remember they were a hundred percent last quarter so same same kind of story they went down from a hundred percent Q2 e-commerce to 80 percent growth Q3 e-commerce,
and then they also announced which I like to keep keep an eye on 60% of other e-commerce got fulfilled from the store so either it was a store pickup or they ship the products direct from a store.
[40:47] So that’s the do-it-yourself guys and then the last guys are too big General Merchants Target and Walmart both announced this week,
and let’s do Walmart first Walmart had,
very good comps on a very big number right so there comes where 6.4 percent which doesn’t sound as impressive as the home-improvement companies.
[41:10] You know if you consider the Walmart is the largest retailer in the world like growing 6.4% is.
Ginormous we meaningful to Walmart,
their Q3 e-commerce was up 79 percent versus they were up 97 percent for Q2.
So so though that was widely considered like super solid numbers across the board and well above expectations for Walmart so they had a good.
Good earnings call Walmart owns a separate retailer Sam’s Club which also had good comps they were their comps were up 11.1%.
They’re the club e-commerce isn’t quite as big a deal so Club e-commerce for Sam’s was up 41%,
and Sam’s announced that they had 10% membership growth as these club guys are all membership-based so 10.4% membership growth so so both Walmart and Sam’s Clubs did well,
the what’s interesting though is.
Hard yet which is much more than Walmart but you know probably the most direct analogous competitor to Walmart,
and Target like in my mind may have the most phenomenal performance of all these companies so their comp growth was 20.7%.
[42:32] Which for a general Merchant with as big as they are that 20.7% is huge,
they’re they’re digital drums was a hundred and fifty five percent which is way down from last quarter’s a hundred and ninety-five percent right so so but unlike where we were talking about these big numbers in the Home Improvement guys,
Target is one of the biggest e-commerce sites in the US so the fact that they’re like growing at this pace is super impressive and of course.
[43:05] Target is excellent at Boba so they own the shipped vendor and they a lot of their e-commerce is,
same day at stores so they’re they’re same day delivery sales were up to hundred and Seventeen percent so people are,
totally taking advantage of those amenities,
and in to me this is an inside baseball step but it’s one of the most eye-popping things of all 95% of all of targets orders are fulfilled from stores so target has amazingly said,
we’re not going to build a network of fulfillment centers and have all this fragmented inventory and,
rely on FedEx to get our stuff to you we’re mostly going to sell our store assortment to people and make it really easy to come and get it or will drive it to your house as a last mile solution and that’s working phenomenally well for.
[44:10] Yeah you do like after this year probably want to retire those places because you probably don’t want to be comping against all this the I will also say just some interesting like inside stats and Target.
[44:23] I’ve seen similar stats in the past from Walmart but so targets ticket went up pretty considerably like the average orders up 15.6 percent.
[44:33] Which means that traffic was only up 4.5% right so,
like people are going to the store less and they’re buying more when they go to the store like Walmart version of that’s even more extreme like their traffic might actually be down in their average ticket might be even higher,
so Walmart and Target are beneficiaries of this right and for a variety of reasons,
um at the moment you want to be a retailer that sells a lot of different stuff because if consumers want to visit fewer stores they’re going to go to the stores that have all the stuff they want right so,
Target and Walmart win on assortment you for sure want to have essential good so that you’re not forced to close at any point when the covid spikes and Target and Walmart both.
Both meet that criteria and for a variety of reasons
you want to be a big company with a robust supply chain and leverage over vendors so that you can get products on your shelf to be able to sell,
and so covid is disproportionately benefiting big healthy chains over small independent retailers and Target and Walmart are both big healthy chains so,
that’s that’s basically what’s happening in unrelated news that I totally don’t understand but I’ll just mention it while we’re talking about Target Target also announced that they’re cancelling their subscription program which totally surprised me.
[45:55] Because like subscribe and save it at Amazon is a very successful very important program and it’s a bunch of vendors toy lean into it there’s a lot of reasons to say that consumers,
are really interested in these auto-replenishment Solutions like subscriptions,
and so you know you’re seeing a lot of retailers that don’t have robust subscription programs trying to add them,
Target canceled there’s and what they said was,
customers like our same-day pick up so much that what’s happening is they they don’t want to be on auto-replenishment they just want to know that like as soon as they realize they need something they can get in an hour with home delivery or store pickup.
I believe Target’s good at one-hour delivery through these same day Services I totally get that and I get like that therefore,
their utilization of subscription might be less than some other retailers but I just I would have imagined there was still a loyal cohort that preferred subscription,
and and didn’t you know it just surprised me that they had something they turned off I guess.
[47:04] Yeah well maybe yeah they listened to our customers got it.
[47:08] Yeah yeah I mean I trust that they know what they’re doing and their results kind of speak for themselves so that it I just found it interesting so that was kind of the,
the stick on earning so that was a ton of super exciting stuff I did see just a couple other little news news bits.
[47:27] It does always make me scratch my head though because you know all those were significantly greater well there’s this attribution problem but I think I think the attributions about the same if I remember,
the the guys so if all these guys were a hundred percent Amazon grew in line who grew is zero or negative I guess you have like JC pinions here’s like the.
[47:49] So you notice there were no in this hat week there happened to be no department stores that reported right and so all those department stores are going to be soft,
there was one apparel retailer it was Kohl’s and they were significantly negative right but if this had been an earnings week where we had 20 apparel retailers.
White might you know you you would have expected all or the vast majority of them to have negative comps right,
so we do have Gap I think is coming up next week like that will be an interesting one to watch from an apparel standpoint,
we also have a Best Buy and dicks and they’re going to be more interesting to me because I can like I’m sure the expectation is the gaps going to have pretty severe e- comps,
Best Buy and dicks are boat like so sporting good stores are kind of another beneficiary of covid so you’d expect them to have really good cop.
And slightly surprisingly.
Electronics has been mostly like a minor beneficiary of covid so it’s been a bump but not a very big one.
[48:57] Yeah so a couple of things so we’ve got some new iPhones so that could surprise us and then the gaming consoles I don’t know if you track this but the the new Xbox and the PlayStation are sold out everywhere and there’s a,
just unmitigated frenzy for those unlike I don’t think I can remember,
maybe when the we came out it was like this but I haven’t seen quite such a frenzy for those two units as we’re seeing right now so the problem is no one has them so so I don’t know if they’re going to be able to be in your your.
[49:28] Well that’s like I’m assuming they wouldn’t be in Q3 comps anyway I’m assuming like they’re like even if you did it took a pre-order in Q3 I don’t think you recognize the revenue until you can fulfill it.
[49:38] Yeah iPhone Pro was right 12 Pro 12 and.
[49:41] Some a subset of the Apple stuff started to be in Q3 but the bulk of its going to be in Q4,
the the video game platforms are going to be in Q4 I totally agree I like there’s a lot more Tailwind e stuff for consumer electronics and Q4 just like,
there was a lot of tail in windy stuff for electronics in the very beginning of Q2 like when you first went home.
Everybody upgraded their home office right so everyone bought a monitor and they bought a laptop for their kid to do school at home and you know so there was this covid Spike for electronics it just wasn’t sustained you didn’t you just
you didn’t keep buying new electronics over the last six months and for your point.
There’s going to be a lot of people like you know treating themselves Q4 and so you know I it won’t surprise me at all if,
if Best Buy has a good Q4 but I’m kind of not expecting them to have a very spectacular Q3 but I’m not a stock analyst so we’ll see.
[50:40] Yeah be interesting to keep an eye on it.
[50:44] Yeah and then any of that surprised you Scott or do you feel like.
[50:51] These numbers are just like so high it makes me a little suspicious like yeah I think so I think Walmart continues to benefit from grocery Target doesn’t sell that much grocery do they.
[51:03] They’re leaning pretty heavily in the grocery and so it’s they’re not as good at grocery as Walmart but it’s a much more meaningful part then it was even six months ago.
[51:12] Yeah I wish we could peer inside of there and like you know kind of like the department of the Census Bureau level of category data I think what we would find is it’s kind of interesting but.
[51:22] And so I should say one side no non-target well they are selling a lot of grocery and they’ve dramatically improved their merchandising and offering and grocery what they haven’t had until just now is,
e-commerce for grocery so all that curbside pickup and same-day stuff it has not has been for general merchandise not fresh,
and like I think only as of like four weeks ago or they now starting to really sell fresh through that stuff so I suspect that will be another,
another bump for them when they get that up to scale.
[51:54] Yeah it’s going to be interesting to watch The Apparel guys I think that’s where we’re going to see the big loss is coming from and you know I think they’re they’re suffering and we’ll see how that doesn’t further closings are not going to do well for me.
[52:07] No I agree I think the department store guys in the apparel guys it’s going to be pretty rough.
And then like just to slight news Tibbetts I’ll just throw out there for those of you that want to go read up on your own the I just thought interest were interesting one of the trends I talk a lot about is,
um Brands going direct so you know major well-known Brands going direct to Consumer we’ve talked about PepsiCo has a direct to Consumer site,
so fun fact there it seems like they’ve refreshed that site so snacks.com,
seems like it has a lot of new content but the new one this week is Coors Molson,
launch the direct-to-consumer site and nobody would have had that on their bingo card right like delivering alcohol like a major Brewery delivering alcohol to home,
why is a pretty interesting pilot that I hadn’t heard a lot of people talking about now it’s in UK it’s called the Revel I don’t know a ton about it but that I just that was an interesting thing that I have on my.
[53:13] My notes to learn more about and then obviously I follow digital grocery a lot it’s super important Trend in this whole covid thing ahold,
just bought fresh direct which is a native digital Grocer in New York and it’s super interesting to me because,
Fresh Direct is a hold in very high regard their their small grocer that was born digital I would argue they have a much
more mature Richard digital grocery shopping experience than almost anyone in the u.s. because they’ve been doing it better and longer but they’re their promise scale like they,
don’t serve a lot of customers you know they’re in there in one geography,
a hold is a much larger Global grocer but has kind of a modest footprint of stores in the US until recently a whole don’t.
[54:05] Like the best fresh direct competitor which would have been Peapod here in Chicago and so what’s what’s odd to me is like the month before covid ahold got divested themselves shutdown Peapod.
Which was bad timing,
but and now you know fast forward six months they’re buying something that looks like a better version of Peapod although smaller Market,
in infrastructure so that’s super interesting,
the one thing I’d say is I think it was a real Miss from some of the bigger more traditional Grocers they should have bought fresh direct has an echo higher because they,
you know Kroger Walmart and Target all need to learn how to sell better better groceries online.
But so that that’s interesting little acquisition in the space.
[54:52] Yeah absolutely.
[54:54] And Scott I feel like we finished a little early so as a Thanksgiving treat I think this is the last show we’re going to record before Thanksgiving,
I thought as a Thanksgiving treat that we might finish up a little early and give our listeners back some some free time to plan their Thanksgiving meals.
[55:15] Yeah yeah Happy Thanksgiving everyone we are thankful for our listeners listening to the show and giving us all the feedback that we get and we really appreciate our little Community here on the Jason Scott show and hope everyone has a
safe restful and filling and filling Thanksgiving.
[55:33] Yeah I will Echo all those sentiments I hope everyone has an awesome Thanksgiving and stay safe and until next time happy commering.
EP245 - Shipageddon DeepDive
On October 3rd, we published episode 238 and coined the term “Shipageddon.” We were talking about the likely e-commerce peak we expected from the holiday, on top of the e-commerce peak we were already seeing do to Covid-19, and we felt like retailers were likely to run into shipping capacity issues. The term (and concept) have gained a lot of traction, being featured print in the NY Times Brace for Holiday ‘Shipageddon’ Forbes, Bloomberg, and on the Today Show, NBC News, and many others.
In the subsequent 45 days, it’s become clear that we will have a last-mile capacity problem, with all major carriers implementing quotas, turning away new clients, and retailers struggling to entice earlier orders from consumers. Worse, we’re also seeing a lack of freight capacity to restock retailers with limited inventory, and a strong resurgence of Covid-19 threatens to generate even more e-commerce demand.
In this episode, we do a deep dive into the curate state of Shipageddon, the likely impact on holiday shopping, and best practices for brands and retailers to minimize the effect.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 245 of the Jason & Scot show was recorded live on Thursday, Nobember 12th 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 a 245 being recorded on Thursday November 12th 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 way back on October 3rd and episode 238 we introduce the world.
Galaxy to the potential coming perfect shipping storm that we coined shipageddon.
And since then a lot of our folks that that are really following this closely you may have noticed that shipageddon has gone mainstream.
It has been featured in print in full and Publications like the New York Times Bloomberg businessweek.
And and video on The Today Show as well as NBC Nightly News and much more.
That’s actually the term shipageddon the theme has really taken off so you know you can can’t really open a retail themed publication or tweet or anything like that without hearing about shipageddon.
So we’re 45 days after we made that call and we thought this would be a good time to do a deep dive on what we’re seeing because we’re right on the cusp of,
go time for Holiday 2020 also there’s a lot going on with the pandemic pandemic the damn pandemic that you know that that I think actually is going to be impactful.
Jason what are you thinking.
[1:58] Yeah you made me nostalgic right there I remember back in October 3rd that was a simpler easier time as far as I’m concerned.
[2:06] In pandemics days it feels actually like it was six months ago so there’s these pandemic time frame is very strange.
[2:12] Well yeah because I feel like it does both simultaneously like I feel like time is going really fast in one way and time is going really slow in another way someone’s going to best to me like this is the world’s worst version of Groundhog Day.
[2:26] Yeah absolutely yeah not a lot of getting out and doing different stuff so so yeah
so one of the things that has changed in the last 45 days and I’m curious to hear your take because you have access to all kinds of
scientist that I don’t have access to but you know the pandemic is kind of in a search mode right now we’re at near-record cases in hospitalizations there’s lots of areas talking about shutdowns I saw Chicago you’re not allowed to have Thanksgiving
so I’m sorry to hear that so if you want to fly North Carolina having Thanksgiving with us you’re welcome to but anyway you know if we do go into more lockdowns that’s going to cause more
online shipping which which could actually worse than the problem that you and I have been talking about.
[3:10] Yeah no the mayor I’m not even sure you’ve heard this yet but the mayor of Chicago just imposed a full lockdown on Chicago effective Monday.
[3:19] Okay I did not hear that I knew that they were guiding that you weren’t supposed to have Thanksgiving guests and stuff like that but it was a full lockdown.
[3:27] Yeah I think they’ve they’re coming out with an alternative phrase to lock down like advisory or something but it basically is the same thing yeah so it’s,
it’s very much a Debbie Downer and it’s funny because you know I’ve been doing a lot of briefings on covid now for a long time like literally over 300 briefings,
and early on we brought in this really smart epidemiologist to sort of advise us on.
The ways this could play out.
[3:58] His his name is Michael Oster home he he famously wrote a book kind of perfectly predicting covid in like 2017.
Which unfortunately has all come true and he’s been like.
As far as I’m concerned totally spot-on through this whole pandemic so far and as a result of him we’ve given some really good advice to clients that’s.
Worked out as well as it could so the reason I bring him up now is two interesting things have happened this week.
Joe Biden has appointed him to his covid task force so I lost my epidemiologist to the president-elect,
depending on how you count and,
then he made news like literally today because he Michael did a press conference and he said yeah I probably think we should have a national lock down for six weeks which.
[4:54] Like the rest of the Biden team quickly disavowed because you know nobody wants to be attached to that kind of extreme.
Extreme measure but it really struck me because dr. oh snowman home has been I would say very middle of the road like he’s definitely not a we should just focus on on.
Health and close everything down and not worry about the account why he’s very focused on.
The cost reward of every activity and he has like you know some really smart thinking about.
When you should close schools and when you should open them and he’s not a big like blanket.
Shut down kind of person and so for him to call for that despite the fact that it.
It didn’t have any good Optics is like frankly it’s a little concerning because he’s been pretty pretty accurate so far.
[5:48] Yeah yeah so so maybe this is good time folks are just learning about shipageddon to go through the setup if you want to kind of walk through the the premise of why we raised the alert way back in October 3rd and,
if anything I think you and I both agree that it’s even more likely to be a problem that we’re going to walk through some of the math on that.
[6:10] Nice I love it when you do math.
[6:12] Do you want to do the setup and then I’ll do the math.
[6:16] Sure so add its most simplistic because of covid people have been selling a lot more stuff online and so we’ve had this e-commerce Peak,
that started in March and for a lot of e-commerce sites they’ve been doing.
Cyber five level sales volumes every day since March so way you know higher volume than we would ordinarily have and now we’re coming into the actual cyber five which ordinarily has this very high peak,
and so the way to think about this is.
One would expect a pecan Peak for this holiday you know so unprecedented high levels of e-commerce sales.
[7:01] And that was really even before we had a full appreciation for how South the pandemic my turn right so now that the pandemic is really kind of re-emerging in a in a pretty severe way,
that would in theory Drive even more people the e-commerce oh so you know the the simple-minded.
Um model might be oh we’re going to sell a lot less stuff in store and we’re going to sell a lot more stuff online that we have to ship to home,
and the huge fallacy in that thinking is,
that there is an unlimited shipping capacity to ship stuff to people’s homes and as we frequently talked about on this show,
UPS and FedEx don’t have enough capacity to handle the organic growth that happens every year on holiday.
E-commerce tends to grow at like in Old Times like 15 to 20 percent holiday micro 25%.
And shipping capacity is Max shipping capacity is growing at like eight percent so we already have this misalignment.
Now in the covid year you’ve got this pecan Peak there’s just simply no way the US Post Office you at FedEx and UPS,
can ship all the additional packages that people would want so so we’ve called that problem shipageddon that there’s going to be a lot of demand for online sales and there’s not going to be the capacity to fill it.
[8:24] Yeah and if we you know if this is always hard on our podcast but if we can draw a chart in your mind you know normally so in Q 1 of this year e-commerce was chugging along at 15% which was great and then it accelerated to like 40
now in Q3 we don’t have the gold standard data yet which is the Census Bureau who’s also been on the podcast puts that out,
and if I’m remembering that comes out next week right.
[8:52] It’s a week from today it’s there a next Thursday.
[8:54] Yes and Jason gets pretty giddy at this time of the quarter when the data comes out so you’ll have some sleepless nights between now and then and they don’t call him retailgeek for nothing,
and but we do have Amazon which which I kind of you as if those things aren’t lying than something’s wrong so Amazon came in at about 37 percent.
A little bit higher if you take out their offline component so so kind of
thirty-nine percent maybe even kind of low 40s so I think that exceeded I think a lot of people were expecting it to come down to more low 30s
but Amazon at least saw high 30s so there’s there’s a bracket there for Q3 where the your growth is somewhere between I’m guessing 30 to 40 percent.
And then the big question is what are we going to see in the 4th quarter well a lot of the models that we’ve talked about on the show like emarketer and,
a bunch of these they’re showing kind of.
You know loathe low to mid 30s so we could actually you know I think the data from Q3 May indicate that that’s conservative and then also
if the pandemic is resurgent that’s going to definitely prove those to be conservative so
you know so even that like even if it at 30 to 35 percent it was a problem and it’s going to become a much more severe peaky Peak Peak.
If we get kind of 35 to 40 percent bracket have you have you adjusted your thoughts for fourth quarter at all.
[10:24] Yeah so you know again it’s the you’ve hit two of the main factors there to other ones right so.
E-commerce demand is going to go up.
Overall consumer demand is likely to be pretty healthy it’s going to be in different categories than it ordinarily would so we’re going to sell less apparel,
um we’re going to sell less less luggage than we ordinarily would on a holiday but we’re going to sell way more groceries than we ordinarily would because people aren’t going to go to restaurants and we’re selling a lot more Home Goods,
then we usually do because people are spending their vacation money on improving their,
their homes and then we do have this once every three or four years cycle that’s happening this year with Sony and Microsoft post for Leasing.
Major Video Game platforms which is really going to give a goose to the to the sort of Digital entertainment category so consumer demand.
We’ve always said is going to be pretty healthy in spite of the pandemic that still seems like it’s holding.
You’ve got finite capacity to ship to them a lot of retailers have dramatically improved their ability to fulfill e-commerce orders from stores so that’s going to.
Help them but then the last problem is retailers also have.
[11:42] Less inventory than they would like they both their financially conservative and bought less and now where we have really constrained.
Capacity to ship stuff from China like all the ships and boats are full and you can’t book partial,
containers right now and when you do find a way to ship stuff it’s really expensive so a lot of retailers are just worried that they’re not going to have a big enough supply for demand which is going to.
Is another artificial constraint on what sales are so you you bundle all that up and it’s it’s there’s more uncertainty in this holiday period than we’ve ever had but I still think it’s going to net out to be a pretty healthy holiday.
[12:24] Okay so anything else on the set up or you ready.
[12:30] Think we’ve beaten it to death I want to hear the math.
[12:33] Well one other thing I did forget to mention there is Amazon very again this is if you haven’t tracked this so Amazon very cleverly,
I think it’s 18 months ago maybe two years now,
they realize this they could see the lines were going to cross right they could see that even they were set they were eating up enough capacity with mostly ups and USPS a little bit of FedEx that they were going to,
they were not gonna be able to ship packages because of that,
so they developed their own direct-to-consumer delivery mechanism through this DSP program which is delivery service provider so.
So if we kind of do the math on that Amazon can Flex that and in my day job I actually have some kind of insight into this where we are seeing dsps adding trucks at a tremendous pace,
even unbranded kind of wacky stuff like.
Just random minivans and anything that will hold a bunch of packages right now so Amazon controls their own destiny so I think they’re actually going to be the least impacted and then you and I differ a little bit on this so I’m curious where your where you are now that we’re 45 days into this.
[13:42] I kind of feel like the what I would call the larger direct folks so let’s let’s think of.
I don’t know what’s a good example Walmart you know walmart.com forget the store part of Walmart for a second that will be a stopgap a release valve also but even walmart.com they can go by capacity from I don’t know if they use FedEx or UPS.
[14:06] Yeah or chewy I just saw a FedEx truck full of chewy stuff the other day so they can do is they can kind of this is called a quota so they can just go and say I’m going to go pre buy a bunch of capacity from you.
And even though the rates have gone up.
So so I think they’ll be okay and then if you’re omni-channel you’ll be okay because you have stores so in my mind the ones the folks that are going to suffer the most from this are going to be the smaller Merchants they rely heavily on USPS because the USPS.
I don’t I don’t think they’re adding capacity at all if anything I would guess they’re losing capacity.
And you know so that in my mind is the eBay sellers the Etsy Sellers and the Shopify audience they largely do
they are the biggest users of USPS in the data I’ve seen and I think that they would be kind of most at risk because they don’t have the heft to go out and.
A USPS doesn’t have a quota like thing where you can go buy some capacity and then be they many times don’t really use FedEx or UPS so so I kind of think that’s the segment that’s going to be the hardest by shipageddon have you you changed your thoughts on
who’s going to have the most impact.
[15:11] Yeah so I sort of Saw differently than you and I still do although I feel like it’s it’s.
Dissipated slightly so the hundred percent agree with you the big shippers like all signed up for a quota right in the in FedEx went to Walmart and said hey,
here’s how much you shipped last year here’s how much we can offer you this year do you want to buy it right and of course Walmart and everyone said yes,
um but that that compat quota that they signed up for was essentially a peak it wasn’t a peak on a peek.
And so my hypothesis is Walmart is going to have much more demand than the quota they were able to buy and the Ant,
Walmart’s not going to get offered the ability to deliver more packages than that quota like FedEx is what are you going to say no.
[16:01] FedEx doesn’t want to be the Scrooge that misses Christmas for a bunch of these packages so my,
my original premise back in October was,
the big companies that have all the traffic the Amazons the Walmarts the targets they’re going to get first bite at all the consumers and they’re going to sell all they can but once they hit their quota and they have to start turning away customers,
that those customers are then going to turn to less traditional e-commerce providers that maybe haven’t consumed their entire quota so you might go to a,
an eBay or Bed Bath & Beyond or a Party City or some someone that maybe wouldn’t have been your first provider but you’re now looking for someone that has capacity after Walmart’s run out of capacity,
and so I thought it was actually going to favor them a little bit and once you get under a certain size.
FedEx doesn’t have the bandwidth to sell you a quota so the small shippers actually don’t have a quota and so I thought that would be an advantage and so when you think about.
[17:03] Non FBA sales on Amazon and you think about all sales on eBay.
It’s not a battleship of shipping it’s a bunch of little rowboats of shipping that each have their own you know amount of capacity and so I kind of thought that that was.
A nice redundancy that you know they would get a nice kiss from this but two things would happen the shippers are smarter than I thought and they’re constraining the small guys to number one,
back in like July they stop signing up accounts with small guys so if you didn’t have an account you couldn’t start a business and start shipping,
um they are limiting the amount of packages they take from those guys they are pushing their cut-offs for shipping way earlier on those guys and,
another big difference between the little guy and the big guy is a lot of the big guys are okay if historically been okay not.
[17:58] Making a huge profit on e-commerce yet right and so a lot of the big guys shipping is Express Ship 2-day delivery which is very expensive.
The smaller sellers all have to have better profitability in unit unit economics so they either use US Post Office like you mentioned or they use what I call in injection shipping method which is like a hybrid where,
um maybe it flies on a FedEx plane and then gets delivered by USPS driver.
And so those are the most economical shipping things they’re also the slowest and are going to be impacted by the earliest cut-offs so.
[18:39] Well I think for those systemic reasons the little guy isn’t going to get as much of a kiss as I originally thought so I feel like the pain is going to be more evenly distributed.
[18:50] It says it’s a really long way of saying that you’re wrong.
[18:53] I’m it was actually my long way of saying I’m less wrong than you but okay.
[18:56] If I was this all right we’ll see we’ll have to look at the the shipageddon wreckage and see what we can learn from it and do a post-mortem.
[19:09] There’s going to be a bunch of great artificial reefs as a result of shipageddon.
[19:12] Okay so one of the things that I’ve been working on and shout out to our friends at e marker specifically Andrew lips semen,
so the I think you can actually do a model of this and I’ve been working on this and will provide this to listeners through all the social media early next week.
So but I want to talk everyone through through my thinking here to just kind of put some numbers on this kind of conceptual thing we’ve been talking about.
And just to boil it down when I’ve modeled this the problem really comes down to the Cyber five and,
let me walk you through that so if we look at e marketers model they have over that five day period they’re projecting 39 billion and gmv and that’s about 40 percent year over year than last year.
Um so that’s that’s pretty good you could argue that it’s high but you know I think they have that actually you and I have looked in that pencils with a lot of other things that are out there.
The peak day is Cyber Monday still and it’s a big one and it’s you know you can kind of think of it as.
Amongst the Cyber five yet Black Friday having a pretty big blip and that’s going to be actually think they’re probably underestimating that because I think Black Friday will be bigger because all the stores are closing on Black Friday and then we have these lockdowns so I don’t know what that’s going to do but.
[20:34] So I think this could actually be worse but but bare with me we’ll just stick to their numbers and then you have Cyber Monday as they’re really big a kind of over 12 billion going out that day.
Okay so roll those up together you got about 40 billion just to use a loose number if we assume an average order value of,
you know how many how do we get from boxes from dollars to boxes or packages we use a range of 50 to a hundred dollars I think Dentistry standard 75 right at the midpoint but I kind of like to do a book and on these these models.
[21:05] So with those bookends you effectively from cyber five are going to have 392 780 million packages so think of that that’s our supply.
That we have to put through the supply chain to get out to customers now let’s look at this this pipe we’re putting things through or the capacity.
If you look at the reported capacity from UPS FedEx FedEx has to networks they have air and ground and then the USPS and then Amazon.
When I roll that up you have kind of standard capacity 44 million packages a day.
But then they all do go into a search mode for the holiday so that UPS CEO was on for example and she was on Mad Money it was actually a shipageddon type segment which was kind of interesting,
and you know she was talking about a bunch of new sortation machines trucks all this kind of stuff.
There is a surge Sousa Q3 is an affair comp so I’ve read a bunch of these reports and they all kind of mentioned it in their Q3 reports and I dug into their.
You want to do the math on that the best I can tell and I’m being super generous here is that you know on average they have a 44 million a day capacity and I think that surges up to 75 million so that would be a seventy percent surge,
I think that’s an aggressive number I’m not.
[22:24] You know I feel good about Amazon being able to do that I’m a little skeptical it’s hard for me to tell about USPS I think they could bring it down to more like 50% but will will be generous so so so there you go so keep that number in your head 75 million packages.
So we just do the simple math and we’ve got this bracket of the supply of 392 780 we’re dividing by 75.
You essentially can see the Cyber five in the best case scenario will take about six days to clear through the system.
Um in the worst case scenario I it’s not the worst worse but a near worst case scenario.
If it’s 780 million packages then that’s 10 days so there’s this kind of five to ten day.
[23:05] Now the now the the trick here is that’s the simple model I wanted to walk you through just kind of your head around it so but.
The reality is we’re going to start the Cyber five and the pipes already going to have some water in it right so if we use this kind of mental image of there’s this pipe out there and I’m trying to jam you know all these packages into their the pipe already has.
Limited capacity does not have a hundred percent capacity because there’s already packages that will be coming in it through the ordering that happens before Thanksgiving if.
You know it this is where I haven’t spent as much time modeling but if we’re kind of yeah my best guess is we’re going to be somewhere between 30 to 50 percent of that capacity will already be being kind of consumed so it just ends up pushing things out another three or four days.
So when I boil all that together I see a scenario where the Cyber five which ends on Cyber Monday the 30th it could take until December 5th to clear that out and that’s being I think pretty optimistic.
Take as long as December 10th clear all that out and even like December 12th so and then you know what makes this worse is.
[24:16] People aren’t going to stop ordering on Cyber Monday right there’s there’s going to be the next Tuesday and and whatnot in so,
the analogy I like to use in this is maybe something from the southeast is there’s this whole snake Kaneda Pig but it’s going to take it a while to digest it so,
so I’m really worried the Cyber fight when I’m bottle this out I’m worried the Cyber five puts jams into the supply chain this 10-day.
You know amount of volume that’s going to take a long time to get to the system and it’s just going to make it that much harder to clear out so.
[24:50] Yes so that’s I’m going to be putting out a more detailed model happy to share that and get the you know all the folks in the social media World kind of poking holes in this but that’s kind of where I’ve come out on the model.
What do you think about that does that pass the Jason sniff test.
[25:07] It does prove your point like there’s you know some of that capacity is going to be full before it starts and is going to continue to fill after ends and what’s interesting about that is if you play it out in your scenario
you you’ve worked through that that pig if you will like.
Around the week of the 10th through the 15th and guess what all the carrier’s cut-offs are for holiday this year.
[25:34] I’m going to guess the 10th to 15th.
[25:36] Exactly so you’re really flirting with like packages that come in at the back end of that that cyber five,
missing holiday and for sure you’re flirting with everything that gets you know ordered after that missing holiday.
Yeah it’s going to be interesting and if we have a bunch of store closures where we have been kind of assuming there would be a stopgap there,
you know if we go back to the the worst part of the pandemic the only things that were really open where Walmart and Target right because if I recall
Best Buy was totally closed for a while so and it’s because they had grocery right so it’s all but grocery
yes so that could be if we get to that type of scenario even if it’s going to be kind of regionalized to like some major metros like like La San Francisco New York and Chicago
Zach be pretty cataclysmic because I’ve been kind of assuming by online both this and and curbside would,
would be a stopgap for this and if those things aren’t available that could play a pretty big role in this as well.
[26:45] Yeah although I will say even in the first shut down a lot of Opus was able to stay open so I Best Buy shut down but but curbside was still running.
Um during that shut down and it,
it does feel like even if things get really bad in the pandemic it it’s going to be a more surgical version of a shutdown that would play out this time so I like I do think a lot of that release valve is still going to exist.
[27:09] What other so you spend all your days hours and hours and sometimes way into the night with our friends in Australia and other countries talking about this what what are you hearing from the retail digerati out there.
[27:22] Yeah well retailers are super nervous they still are not you know comfortable that they have good visibility to have this as all going to play out like obviously,
and we’ve talked about this on past shows in many ways you know retailers have started promoting and trying to drive holiday,
um in October somewhat triggered by Prime day being in October and a very common theme we’re seeing is every retailer communicating some flavor of shipageddon to their customers,
and begging their customers to order early and while that.
Those messages are getting a lot of play and UI gets getting covered a lot on the major news programs and all these things,
um I would say that so far indications are that consumers are not buying it.
So we’re seeing some earlier ordering but we are not seeing enough earlier ordering that it’s going to dramatically change the shape of holiday so so you know this is.
It’s looking like it’s going to play out in a challenging situation like some some kind of random Trends stuff that we’ve we’ve been seeing is you know,
tons of retailers are communicating their cut-offs and they’re telling people that they’re going to have more.
Um that they’re going to need to order earlier this year and that they need to be you know order earlier they want to be safe I think one of the most extreme versions We saw was Abercrombie & Fitch put out December 4th as their holiday cut off.
[28:50] So that’s super early and way before the carriers have worked through their their cyber five,
surge in your model,
um we mentioned earlier you know that most of the carriers have a slightly earlier cut off this year than they have previous years so,
it does vary depending on shipping product and which carrier you’re talking about but in general you can think of ground shipping cut off as being about the 15th of December,
um if you are using one of those Hybrid models like sure post or you know when it’s a combination of air carrier and a grand carrier,
that cutoff date becomes like December 9th and those two products ground shipping and injection shipping are the cost effective ones,
if you’re using a 3pl to ship that 3pl wants,
a buffer before they get it to the carrier so most 3pls are telling their clients hey your cutoff for taking orders needs to be about the 6th,
and that’s where you get.
[29:53] Cut offs like the fourth the Abercrombie is is pitching and then there’s been a bunch of other industry interesting things that have happened,
um so FedEx has added an extra day to a lot of their ground service levels meaning it takes a day longer to deliver,
and that has a lot of ramifications one of which is it know a bunch of zones that you could ship FedEx and qualify for self-fulfilled prime.
[30:22] No longer qualify for self-fulfilled Prime so there’s a lot of Amazon Shoppers that try to use it.
[30:28] SFP and they may have relied on FedEx ground for these you know one and two Zone shipping,
um and now you know starting in November that that is no longer eligible for Prime so that’s a big deal,
um not only did the quote the shippers all go to the their customers and say hey you have a maximum quota you can ship they also said and we’re going to charge you more right so on average the average parcel is about two bucks more expensive to ship than it was before,
um so you know that puts a real strain on margins,
we talked about a lot about the shipping constraining stuff but the other thing here that’s that’s increasingly scary to me is the lean inventory levels that a bunch of retailers have had,
Doug McMillan’s done several interviews where he said there’s a bunch of categories were Walmarts not going to have the inventory that they’d like to have going in the holiday,
um Jeffrey’s one of the analysts that we follow pretty closely you know kind of.
[31:23] Issued a report and the title of the report was empty shelves and rated store rooms and they’re saying that you know it’s going to affect a lot more categories than just grocery over holiday,
the international shippers are all saying that like hey basically all the capacity from China is gone so that you know there no more boats there no more containers,
if you don’t have enough inventory on your shelves right now you’re not going to get restocked or replenish.
And then you’ve got you know the two biggest retailers out there Walmart and Amazon that are kind of uniquely position with some of their own capacity Amazon you know for their own home delivery,
and Walmart with their you know a large Fleet of stores they can deliver from.
[32:08] To put that in perspective one of the things Walmart announced this week was that they’re opening 42 more what they call pop-up fulfillment centers.
And the way they’re able to do this is Walmart has a lot of store fulfillment centers centers that are designed to ship pallets to stores,
and what they’ve done is they’ve written a bunch of software to put a bunch of new hardware and they’re converting a corner of a lot of those store fulfillment centers to be,
consumer fulfillment centers that ship each is instead of pallets so they’re dramatically bolstering their fulfillment capability in their ability to Leverage,
ground shipping and and u.s. Postal shipping and then you know you mentioned Amazon made a big investment.
Last year Amazon added 15% more capacity fulfillment center capacity than they did in 2018.
This year they’re adding 50% more fulfillment capacity so they’re doubling the size of their Network which was already vastly bigger than anyone else’s Network.
They spent nine billion dollars in capex just in Q2 on fulfillment and that’s all paying off now so,
we’re going into this holiday with Walmart and Amazon having a lot more capacity than everyone else so it’s you know there’s a lot going on right now it’s going to be really complicated holiday.
[33:27] Yeah yeah so so that’s the set up the model and what we’re seeing retailers do from a communication standpoint and then
because we originated this you in are getting a lot of questions of okay I’m a retailer how do I get this and you’ve hit on some of these but I think it
it kind of bears I always like to instead of just ringing the alarm Bell here I think.
It behooves us to give people some advice on how to handle this shipageddon situation so,
you know the Doomsday scenario is you have a bunch of people that order something on 1220 and this is that.
That’s this is the Hallmark gift for their kid or or whatnot and it doesn’t arrive right so that’s what you want too.
That that’s a very unhappy customer situation and should be avoided at all costs it’s much better.
To say I’m sorry you missed the shipping cut off then into you know over promise and under deliver so-so.
[34:35] But to your point Jason there’s not a lot of data on this so one of our commitments is we’re going to be keeping it pretty close eye on this.
Another two other things just to inject here before we go into mitigation strategies.
Would you have this virus coming out or vaccine for the virus not clear what supply chain it’s going through or if it’s going to be an impact a lot of people have raised that as a potential issue I don’t I kind of.
Handicap that pretty low so like sub 10% impact but one thing we are seeing is.
People aren’t going to be seeing as many relatives and going through their normal I’m gonna go see my aunts and uncles and all this kind of thing so there is going to be extra capacity in the system even above and beyond what we’re talking about from people shipping gifts around that.
Yeah you wouldn’t have before so that’s a wild card actually score that one pretty high it’s going to eat up some capacity I don’t think it’s gonna be like Cyber Monday levels or in it.
Without you know the the biggest ones that I’ve been telling folks is you know.
[35:38] There’s this game of chicken with the consumer where we’ve trained them since Cyber Monday was coined that that’s going to be our best deal and we all hold that deal back for Cyber Monday and Black Friday somewhere in there.
Um so if you can and I know we’re up against limited time here but to the extent you can say to them this is going to be our best deal and be honest about that I think that helps,
I’m on the board of one company that’s tried this and they are having pretty good success with it they’ve had to kind of message it three times for it to land,
because again you know you build in these behaviors over years and it’s hard to dislodge them,
so that’s that’s one and then if you are using cyber five as your best deal I would communicate that again just so people don’t think,
okay and then any kind of you know Communications you can have that are very open and crystal clear with folks you don’t want to overdo it but,
you know if you do learn that that window is closing in the more Communications we’ve seen like the Abercrombie is a really nice Banner that that is pretty highlighted this doesn’t have to all be email marketing and that kind of thing.
[36:45] Another one is you know I order a ton online I just got like a new Wi-Fi router and it came in this giant box I was like what.
Did I order and open the box and you know it’s like 98 percent are two percent item,
so this is the time to get really smart about putting more stuff in your boxes.
Running any kind of promotion where you know if you if you don’t have a free shipping that makes this hard obviously but if you do charge for shipping,
some kind of a threshold get that average order value up get more stuff in the box that’s going to be a smart thing to do,
um I know a cello visor this is kind of like 10 years ago.
We started offering for our customers kind of this window or we could look in our software and we would actually see it wasn’t it wasn’t huge but it wasn’t also nonzero something like 5% if we kind of looked across a 24-hour window,
consumers would order multiple things and then but they put them in separate orders so if you could kind of do Consolidated shipping across a window,
and kind of see that and say hmmm Jason just ordered two things from me in the span of eight hours I’m going to put those into one box little stuff like that can can start to move the needle here.
What are what are the things that you are recommending out there Jason.
[38:02] Yeah well there’s a lot of tactics but I’m not throw one strategy out first which is hard for some people to hear,
In a previous year we acted as if we had unlimited capacity so you tried to collect as many orders as you can most retailers are going to max out their fulfillment capacity this holiday the big ones are for sure,
and so what that means is you should treat your sales wildly different like if you only have a finite number of slots,
you want to sell those slots to the customers that are most profitable right and so what that means is instead of offering everyone free shipping,
you only want to offer free shipping to the most profitable order so this is the one holiday where,
um you know you really.
I do want to think about things like raising your shipping cut-offs and like having a higher threshold for free shipping for sure.
The you want to be more careful about getting really marginal erosive with your promotions I could just doesn’t make sense to,
race to the bottom with a super low doorbuster deal just to get the order,
when you know you’re not going to be able to make that up later because you only have a finite number of slots so from a strategic standpoint I’d say,
like really think hard about your pricing and your promotion strategy.
[39:31] Under this new paradigm that you only that you are not going to sell as many items as you would you would like to ordinarily are going to be able to.
[39:40] Via these channels so that’s the strategy you you mentioned,
the the messaging and the most important thing here is not to surprise customers and so we want to be as consistent and transparent and overt as we can about the messaging so you mentioned banners you definitely want to have,
some persistent messaging on your website that you know it’s your version of the due to increased shipping demands delivery times are longer than expected please allow X number of days for delivery right like that,
that needs to be part of your user experience and it needs to show up.
Not just one place on your website because you have to remember not everyone starts at your home page a lot of people parachute into a product detail page from Google or a category page so this really needs to be ban or messaging that shows up.
Across all the different page Types on your site.
[40:35] Everybody’s doing early Black Friday to try to spread out that demand one frequent listener the show Andy a key smart like I got his,
email is probably one of 40 in my box right now that are running early Black Friday messages and I’ll just give you an idea of what the tone is.
[40:51] They’re you know they make this cool keychain product and they’ve sent an email hey we’re starting our early Black Friday sales now we’re expecting a huge surge in demand for Christmas,
and since a lot of physical retailers are closed and the postal system is really jammed up with e-commerce packages right now we want to make sure you have as much time as possible to shop and get your gifts so here’s our Black Friday deals,
on Tuesday November 10th right and so they’re they’re doing everything they can to pull in that,
there’s orders there cut their explicitly labeling It Black Friday deals and that’s to try to combat this psychology that if you just say it’s a sale then people still assume there’s going to be a better Black Friday sale,
later but if you call it your Black Friday sale now it helps land that message that this is your best deal.
[41:44] You know once you start getting into the order funnel,
it becomes super important to have custom messaging right so if they’re known customer and you know where your shipping,
you want to give them really accurate information about not when you’re going to ship it or what shipping method you’re going to use you want to give them really accurate information about when they’re going to get it if they complete this order today,
and so you know you start thinking about this whole discipline that we call delivery experience management,
and you know that it would really be huuu to have a subject an employee dedicated to crafting the delivery experience,
that you guys offer around holiday there are now a bunch of vendors that specialize in helping retailers with this so I think of companies like.
[42:33] Navarre as a delivery experience management platform or even a,
a more modern like cooler one would be like convey which is get convey.com these are companies that do have a couple of things,
they customize the messages that show up on site and in all your transactional emails to tell customers,
when they’re going to get things they help you pick.
All the different shipping methods and carriers to optimize them for each customer and then most importantly they use,
aggregate data from all their customers to predict when the carriers are going to deliver on time and when they’re not and they,
they can use that predictive model to pad the delivery and Chip have earlier cut-offs when that’s appropriate,
and when the products already been sold and they predict that stuff isn’t going to arrive on time,
they can message it for customers and so the what can happen there is you proactively tell a customer that something is going to arrive late but it’s still going to arrive before Christmas,
you can dramatically reduce what we call the Wim oh calls which is the where’s my order calls which are super expensive problem for customer service when stuff doesn’t show up when it ships.
[43:51] For sure you need to message all this on the checkout pages and the order confirmation page and then you need,
a ton of transactional emails that message all this right so you’re going to email a shipping confirmation when you ship it you you should if you’re not you should be thinking about emailing delivery confirmations when it gets delivered,
if there’s a lag between when they order it and when they’re going to get it you might think about some interim emails where you’re communicating the ownership experience to the customer so you’re telling you know you’re giving them some install instructions or some Pro tips or things,
find some other reason to communicate with him remind them when to expect the package this is the time to over communicate all this stuff,
you for sure want to think about offering helping customers sign up for the carrier’s shipping tracking services so they get you know this real granular data on shipping from the customers.
All of this stuff you really need to be thinking about to maximize.
Customer Comfort levels minimize surprises and really reduce return costs and customer service costs so.
[44:56] That’s for each individual order in terms of promoting products on your site you want to think about this kind of,
cascading fall back plan right like,
in November we can be offering free shipping and we know we can ship that stuff really cost-effectively a via ground or US Post Office,
once we start getting in early December we need to shift all our messaging to be promoting our express shipping options right because after that about December 10th,
the only way we’re going to get there on time is to day air shipping so our messages should change our pricing promotion should all change to reflect selling stuff that’s going to ship via express shipping.
Once we get close to that last week,
we want to shift to exclusively focus on promoting stuff that you can pick up in stores right so you know you want a bunch of promotional messages around Opus because you want to stop collecting orders that you’re going to put in USPS,
or in FedEx when you’re getting close to your shipping quota with FedEx and then,
you know for all those late gift-givers that are logging on on you know the Night Before Christmas hoping to get a package to someone,
what you need to have messaging there selling digital stuff selling like digital downloads gift card stuff like that that you can deliver digitally so you can still capitalize on.
On all that demand so those are some of the things I would be thinking about to mitigate shipageddon this year.
[46:21] Recoil I haven’t even heard of we know so I like it.
[46:26] Yeah it’s a you know customer service is super important and expensive service and everything’s constrain this year right so if you if you have been dramatically flexed your call center and you suddenly sell way more stuff via e-commerce.
E-commerce orders get more customer service calls right and when.
Shipping gets weight they get even more calls and so we need to mitigate all that stuff and we’re not even talking about the next front we’re going to have next month which is going to be the Returns on all this stuff.
[46:54] Coming soon returns yeah so you don’t want to have fomo with a WeMo so use your purpose did I use enough acronyms in that sense.
[47:04] Exactly and and if you can just get the world to buy Starbucks gift cards like Starbucks does that’s probably the best situation.
[47:12] Yeah it helps to have an addictive.
[47:15] Absolutely Wilco so hopefully you have found this deep dive on shipageddon helpful.
[47:23] Yeah it’s again this is going to be a really interesting holiday season to watch so we’ll certainly be talking about it again and I wish everyone every success,
um hopefully things end up being a little more moderate than we’re we’re predicting but better to prepare for the.
The the worst and exceed those expectations,
so thanks everyone for listening as always if you have any comments or questions we’d love it if you jump on Facebook or Twitter and give us your feedback,
and of course if one of these pieces of advice helps you survive the holiday the way you can pay us for that is to jump on iTunes and give us that five star review.
[48:04] Thanks everybody.
[48:06] And until next time happy commercing.
EP244 - Upfront Ventures Greg Bettinelli
Greg Bettinelli (@gregbettinelli) is a partner at Upfront Ventures. Greg was previously the CMO for LA-based HauteLook, a leading online flash-sale retailer (acquired by Nordstrom). Upfronts portfolio includes ThredUp, Parachute Home, Adore Me, Skylar, Verishop Goat, Happy Returns, Invia Robotics, ChowNow, Verishop and in transportation Fair, Bird, and SureSale.
We discuss DNVBs, Marketplaces, Shipageddon, and much more.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 244 of the Jason & Scot show was recorded live on Thursday, October 28th 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 244 being recorded on Wednesday October 28th 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 showed listeners we are recording this days before Halloween,
and also the release of the next season 2 of the Mandalorian so unfortunately on the podcast you can’t see it but Jason is wearing full Mandalorian gear for this episode so that’s exciting.
And since since it’s coming up on Halloween and we’re heading into the busy holiday season.
And before we get into that chaos we thought it would be good to go up to 30,000 feet for a little bit and look around and have someone here on the show help us think about some of the bigger trends,
around digital and e-commerce from the West Coast so we’re really excited to have on the show Greg bettinelli he is partner at upfront Ventures,
upfront portfolio includes this is just a small sampling,
some Brands I think you’ll recognize such as thredup parachute home Adore Me Skylar Vera shop goat happy returns in Via robotics Channel Vera shop,
I said that one twice so that that.
[1:45] You can tell which is Scott’s favorite.
[1:47] Yeah yeah shout out to Imran and then and then little gratuitous plug for some of the transportation Investments Fair bird and sure sale Greg welcome to the show.
[1:59] Hey guys great to be here appreciate the invite I sure hope the first 243 guests were average and I will come over the top and we’ll have a great discussion.
[2:08] Yeah we feel like those 243 rehearsals are going to pay off tonight.
[2:12] Exactly I’ve been practicing that listen to it a lot.
[2:15] Yeah well you know Greg one of the things we learned from those shows is the guest always like to be grounded a little bit in the background of our guests so can you introduce yourself and maybe talk to us about how you came into your current role.
[2:28] Yeah absolutely and Scott and I go way back from early days at eBay or was called mid-years at eBay but it’s really where I got my start in and around e-commerce and marketplaces I join.
EBay in early 2003 which is really the second wave of eBay when auctions were at its peak.
[2:51] And anyway I had some pretty exciting roles and it’s what I think is some interesting things and so back then we had a very robust category management team and the North America business.
And I was lucky enough to really the one of the first people at eBay to recognize.
A lot of interest in categories like ticketing I also ran the entertainment business eBay which back then we sold DVDs and textbooks and video games on top of entertainment memorabilia and things like that,
it also played a big role in what we did with sports whether it was on the collectible side on the,
the jersey and apparel side and so got to really work with some interesting businesses there but I was I was at eBay for 5 years and all everyone really knows me for is the guy who said we should buy StubHub.
And we bought StubHub for I think about 285 million dollars in 2007.
And as you both know eBay just sold that business for four billion dollars about a month before the pandemic which turned out to be the greatest transaction of all time,
because now I love that brand I’m not sure it’s a great time to be in the ticketing business but from there from eBay I spent some time in StubHub.
[4:06] And eventually moved down to Los Angeles I have been in the Bay area for a while and went to work for a company called Live Nation for period of time,
whereas on the executive team recruiter at eBay to kind of help build a competitor to Ticket Master of all things.
And if you go back into 2008 2009 the economy first in 2009 was not great and Ticketmaster and Live Nation ended up merging,
which was not a place I wanted to be having spent most of my career at eBay competing against Ticketmaster and and candidly receiving a lot of cease and desist letters from Ticketmaster,
for the work we were doing it either in StubHub it was not something for me so I ended up leaving and,
I went to a that point a very young company in Los Angeles called HauteLook,
which was a fashion e-commerce business more of an island online sample sale business at that time there was a couple companies similar to us Gil group Andrew Lala in particular and eventually Zulily which ended up being the best of the bunch.
But I was a chief marketing officer at HauteLook and was there for two years.
I’m actually before we sold the business to Nordstrom for about 300 million dollars.
[5:18] I like to call it a you know it’s a solid RBI double it was a great outcome in a short period of time and very good for me personally and professionally,
but also helped me you know I had a couple of years left of my best staying post that acquisition so I was able to spend a lot of time working with the Nordstrom team.
Thinking about what they were doing around e-commerce what they were doing on mobile in particular and what to do with kind of the full price and off-price brand so I was I was there through 2013 and then eventually left in 2013 and,
made my way into Venture Capital because everybody wants to be a venture capitalist because it’s super easy and so I hopped on board in 2013 if you go back,
there wasn’t a lot going on in Los Angeles at that time and K a little bit before and.
I knew there was you know huge opportunities having spent time in Silicon Valley,
but also making home Los Angeles it’s where the most creative people in the world live.
[6:17] We’re very powerful on things like Commerce and communication and content and Community you know companies now we think about like Snapchat which is now 40 billion dollar company,
companies like good RX which is a 20 billion dollar company companies like Riot games which is a leader that the maker of League of lemon Legion League of Legends,
a lot of super interesting things you know Tinder was invented in Los Angeles and I’ve always been Bullis almost Angeles and coin the phrase long Allah which is just a,
assign that you know there’s a lot of exciting things happening in Los Angeles and I really bet my career that I could be a part of that ecosystem helping to fund new companies so I joined,
from Ventures and for the past seven or so years I’ve been a series a investor and early-stage technology companies,
I work in businesses from direct to Consumer businesses to marketplaces in managed marketplaces businesses marketing Services business is I do work around what I call Commerce Innovation so,
identifying companies at the very earliest stage where they’re working to solve friction points that exist in Commerce.
And it’s really I do other things as well like consumer fintech and the like but I edited my core I’m a Commerce guy.
[7:36] And I’ve been doing that for a long time and enjoy it I have trade on certain instincts throughout consumer Behavior I recognized I think I can see around some corners and things that a lot of people in the marketplace can’t see,
and I think I’ve done pretty well I don’t we as a firm we do broader investing upfront Ventures will probably look at us as the,
the first or second check into a very early stage business that we do across a wide discipline of investment opportunities from software businesses to,
Healthcare technology to food Tech and AG Tech in digital media but I do really over index on the Commerce.
In consumer size of the investment opportunity.
[8:16] And it’s fair to say that Commerce is the coolest part of the portfolio anyway right.
[8:22] Yeah as far as you know I communicate to my partners for sure it’s definitely the thing that is easiest for coffee talk I’ve I’ve been very lucky,
I always seem to work for companies that people know and have experienced before and you know it’s something I really like I can’t even remember the earliest days of eBay,
where you would hear you know I could go to my Aunt Marilyn’s house for Thanksgiving and,
I tell them I work at eBay and everyone there knows what eBay was in this is in the early 2000s and there aren’t a lot of jobs like that so I’ve always liked kind of being around and something about working more consumer and commerce plays,
people have more understanding of what you do versus if you’re selling some enterprise software solution or something like that with you can’t explain to your Uncle George what it actually is.
[9:08] I think my wife happened to ask who the guest was tonight and I was pointing out all the products around our household that you guys were in right so you.
[9:18] Great anyone in any favorite any fan favorites or.
[9:21] She’s actually a big fan of these ritual vitamins I feel like might be her her go-to you may have exited from that already I can’t remember oh oh.
[9:29] No we haven’t but it’s part of.
[9:32] Yeah you have you just don’t know it yet I’m just.
[9:34] Yes yeah not that I am busy I know but that we were the first check into that business.
And I had worked for a long time and just identifying these d2c direct consumer opportunities,
which there was candidly no brand leadership with reoccurring purchasing characters.
I like the same smart but it’s not that sophisticated but in categories like vitamins if I were to ask you to name the leading vitamin manufacturer you wouldn’t be able to do so because no consumer actually can,
and at the same time there is replenishment and as you know with.
Replenishment I especially things that you can put in a small box like those are very attractive e-commerce business High margins reoccurring and no Grand leadership.
And so I’ve actually had a few of those and we as affirmative a few of those and it’s a simple strategy but I think it’s turned out to be pretty well.
[10:27] I also have always think the thought about attacking categories where there’s only one brand leader and so you talked about Adore Me,
you know they’re at the time that a dorm we started it was kind of Victoria’s Secret and that was it a door me does sells Intimates in in soft goods for women,
and it tends to be when you’re competing against those single Brands who are leaders think of luxottica and worry Parker,
you know they’re as vulnerable as most companies because they don’t think anyone’s coming up their heels and then a couple years later they wake up and you have a pretty big business in your hand so,
you know like I said I don’t like to overthink things but there are some pretty compelling opportunities that I think.
[11:06] Yeah yeah I think we also we do have some Adore Me products and parachute product there’s some bird scooters parked in front of my condo and I actually wanted to talk to you about that later but.
I’m just I’m teasing yeah so that’s awesome and because you challenge me the largest vitamin manufacturer in the u.s. is aligner Healthcare products and they make private label vitamins for Walmart and Walgreens.
Um yeah I’m the the one guy you probably don’t want to.
But that that is all awesome and then I happened and I mean timing is everything but you’ve worked for a bunch of companies that were great while you were there but we’re not covid-19 very friendly to I feel like,
the whole ticket and sporting goods and then it’s also not that fun to be selling apparel through a department store right about now.
[11:56] No and it’s weird unless you’re in the off-price side which.
Lisa has a now those stocks have you know if you look at TJX and Ross and Burlington.
Their stocks are really only off 20 maybe 20% from the peak pre covid Peaks which is amazing.
Considering they have zero e-commerce and I’m guessing they’re selling it 50 this 30 to 50 percent capacity freak event but I think there’s a big bet that the consumers are going to gravitate towards off price,
long-term and most likely most of the department stores that we grew up with are going to be at a business with the.
[12:33] Yeah yeah and there’s going to be a lot more inventory for those off price guys the you did mentioned how fabulous the StubHub timing was the opposite end of that might have been Burlington which decided to turn off its e-commerce site a month before covid-19.
[12:47] Yeah do you really think they would have been able to handle the demand had they been live.
[12:53] Hi Joe I mean it’s it just sounds funny and I do think it’s a mistake I think there’s a way to do digital for for off price and I think.
Did digital is an important shopping amenity for off price so I think there’s I hated to see them pull back but economically I doubt it hurt him I don’t think they would have liked.
Driven a lot of Revenue dollars and then in their space the unit economics of e-commerce are would be tricky.
[13:23] Yeah well if you talk to the leadership teams that Ross Burlington obviously in TJX TJ Maxx Advanced TJ Maxx and Marshalls they don’t think e-commerce moves the needle for the,
and they’ve already emphasized I think TJ Maxx is made Acquisitions they’ve hired good people who aren’t there anymore and their view is the return on capital is just better off.
Putting money into stores and continue to perfect the buying experience but I did have my one of my good covid experiences was I was I think I was pretty early and I went on like we all won the hand sanitizer see I’m Journeys.
And I pounded Dollar Tree online when they still had an online store and they had like a case of those two ounce bottles of hand sanitizer.
And three weeks later I received my hand sanitizer actually 15 business days which as you know sounds like two weeks but it’s really three
and that’s a marketing trick and yeah so that was my first and only time I’ve ever bought from a dollar store was in search of the hand sanitizer because I can find it anywhere else.
[14:30] Yeah Amazon Prime has a spoiled whenever something takes more than 4 days you’re like you assume it’s just been lost forever.
[14:36] Right exactly.
[14:38] Dia so on The Upfront side you said you guys are one of the first checks in is that kind of give us like the little kind of the VC spilled are you is that like seed series a and
in La vernacular and then like what’s kind of the average check size and where you guys how assets under management that kind of thing.
[14:57] Yeah so look at us as I would say late seed to series a so our typical average first check is about 4 million dollars.
And we are active lead investors so were most likely leading around,
I’m taking a board seat really helping to formulate a company and be a truly added value investor.
We will make out of a fund which right now we’re investing at about 400 million dollar fund it’s our sixth fund upfront 6,
but will make 30 to 35 what we call platform Investments so those are lead Investments and unlike a lot of from we reserved a significant amount of capital for follow-on investment so use that for million-dollar example,
if you do 4 times 30 that’s a hundred and twenty we have a 400 million-dollar fun so we’re clear reserving upwards of two thirds of our capital for follow-on and that’s both because look a lot of great companies take a long time to build.
And in addition in our world who wanted to play Capital against our best companies over a long period of time so we like those we say back up the truck against companies that,
do you need new capital for growth but we want to invest in those because they’re moving there’s an optimal time to wait for optimal opportunity for returns.
So we really play in that space of you know it’s really maybe you know the late seed series a stage.
[16:17] This is a little bit outside of our wheelhouse but I was kind of curious what you think so this may be a Silicon Valley thing so it was a big Trend in Silicon Valley to not go public for as long as possible going Publix evil and terrible and whatnot so so you had like uber and Airbnb these companies wait till they got to this really really big scale
but then it seems like the pendulum has swung swinging really hard the other way where now we have this hole
kind of spak craziness where a lot of the Silicon Valley guys are going out and getting these these vehicles that can take a company public through this kind of different way what’s your feeling about
that that turn.
[16:55] Yeah for sure especially like I think this pack is relevant to businesses by which there’s this perception that there’s this Robin Hood type of investor,
so any company that a Robin Hood Trader would have heard of should be public right so DraftKings really started it,
you know it’s Robin the technically hasn’t gone public yet but this so you’re seeing,
a lot of conversation about more consumer type of transactional businesses I think the reason why this happening is nobody went public for a long time and so there was really just
a dearth of opportunities to invest in fast-growing companies especially on the consumer side now the SAS businesses have been doing extremely well for a long period of time,
and the public markets and those there are SPAC opportunities there but those have been,
you know a lot of great performance right companies that have gone public over the past five years and candidly a tremendous amount of shareholder value created after their public just look at Shopify as like the great example right,
is I think that went public at.
$12 a share or something like that maybe we traded like 30 and now it’s over a thousand and that was only five years ago roughly so how many hundred you know a hundred plus billion dollars in value created as a public company.
And so yeah so there are so that’s example yeah and I think look the reality is.
The public markets are strong right now I think there was about a six-week period between March 12 in May first.
[18:23] Where people were nervous I was nervous everybody was nervous a lot of our companies made very hard choices.
[18:30] Around organizations around marketing spend and I think there was a sigh of relief I think it was prompted by the a lot of.
The checks went out that money wasn’t all spent on rent it was spent and compelled a lot especially in the consumer side.
I think it also enabled a recognition that software is eating the world as Marc Andreessen would say.
And just the gravitation to anything that was you know.
[18:58] Is code based or Commerce based that doesn’t doesn’t touch bricks and mortar or doesn’t touch Legacy businesses and I think the markets of just NASDAQ in particular just responded in the way and I think the public markets are now feeding that,
I’m frenzy personally I hope it lasts forever it probably won’t,
but I think you’re seeing that play out and even the companies that you know I think of like the Casper IPO as a use it example I think they even they are trading,
where they were about to say it wasn’t an overwhelming successful IPO but you know they’re about where they were pre Koga.
And so but there’s been a lot of you know I track all have although my on my iPhone all those companies from revolve to.
Real real and posture Mart or not Poshmark Stitch fix and others and they’ve all you know.
Bounce back 3 to 4X since even their lows which was usually no pain about April 1st or so but it’s been it’s been crazy for lack of a better term for sure.
[20:01] Yeah I think that’s a good backdrop so you know I think it’s really interesting because as a VC what a lot of people probably don’t realize you know I think most people kind of think of shark tank is kind of their their their perspective and maybe you know,
The Social Network kind of as how these work,
but you guys have to your kind of betting on a 10-year forward basis right and that seems like it’s going to be tricky so I thought we’d hit on some of the themes where you have some clustering in your portfolio,
one of the ones that you and I share is our love of marketplaces obviously you were at eBay and get to see the birth of one of the bigger Market places,
um and then in your portfolio one of the ones that we wanted to talk about was goat,
I am not a sneakerhead but but you know I love I love that category I think it’s really wild to watch what’s going on there so I wanted to get on that and then my favorite one that you have is some of my best investments have been Collectibles so,
so I’m a comic book guy and Star Wars guy and you know if I compare those to even things like the Google IPO,
the Collectibles Market has been just white-hot and its really accelerated during covid,
I love rally because it allows me to look at it as an investment class thing and invest in Collectibles I normally wouldn’t and even some that would be you know Out Of Reach like.
The first appearance of Spider-Man or something like that maybe maybe give listeners a rundown of rally with was that your investment apart.
[21:30] Yep yep all those are mine let me try and put them all together because I think there’s you made a couple of points in you first talked about kind of time Horizons.
[21:40] And like you know Venture Capital it takes a long time to build a great company.
The reality is you know sometimes you get Super Lucky Nick everything goes up into the right but the reality is building businesses is extremely challenging and one thing I’ve learned in as an investor,
it’s just the amount of work in,
pride in everything that goes into these teams were both of these companies and for example I’m goat I think I wasn’t even at upfront Ventures when they team invested,
in what the company that became goes I think we made our first investment in May of 2012 so we are now eight,
and a half years into that investment can get some perspective and goat is about a four year four and a half year old business now,
so they spent three and a half years Treading Water trying to find something that works,
it was originally an app that was trying to connect people with like interests in physical setting so if you and I all like comic books.
We would go and set up a dinner and we talked comic books and we didn’t know each other but we would build a community online Offline that we initiated online.
And the reality is you know people don’t like to meet people they don’t know so it was a tough business.
[23:02] Especially comic book collectors.
[23:03] Right exactly yeah a little bit of an introverted crowd and so when I got to when I got to the front.
That was kind of one of my first projects was hey we have this very talented team they just haven’t found product Market fit.
And the story of and it’s been written about it it’s been but Eddie and Dyson who are the founders daishon was a sneakerhead.
And when they were brainstorming ideas about what to do with the million dollars they have left in the bank.
And I asked them how come there’s not StubHub for sneakers.
[23:35] Because I as a consumer investor I spend time you know maybe not a covid world but Saturday mornings I have to go shopping and when there’s all these kids lined up outside a store on a Saturday morning.
I want to know what’s going on inside there because that’s not normal whenever you see a cue that’s a signal of either something is very good or something is very bad but in the Venture world that means something is happening they need to pay attention to,
and so from there was born goat which I didn’t even know what good stood for and when they said that’s what we’re naming the company,
and they took some of their money which wasn’t a lot they bought a bunch of sneakers on eBay and Flight Club and put it in seed in the marketplace and I remember the first month of goat they might have done.
You know thirty thousand dollars was the GM V and I you know I can’t say specifically but we’re doing north of a hundred million dollars a month in GMB now,
and that wasn’t that long ago and we’re selling sneakers or they’re selling sneakers right and I think what’s interesting about that category is they had identified.
[24:39] Two things one and this is an investment they might have is you look for areas where they’re very active communities,
passion LED communities where people spend a lot of time and a lot of money but you catch them right before they go mainstream.
And if you can catch especially the marketplace a a niche business like sneakers secondary Seekers but there’s a catalyst to it going mainstream and you become the market and for sneakers canele was,
the release of the easy the Kanye West easy from Adidas.
[25:10] Really Propel the secondary Market because they had an artificial shortage they purposely didn’t release a lot of sneakers and a lot of people wanted them and go was kind of the only place to go get it at the time other than eBay and as we’ve talked about our as I’ve talked about before,
and while love eBay and I know a lot my career is owed to eBay I’ll compete against than any day.
And that was just an example where this community was already existence and they were just looking for a well-lit playing field.
Which is an expression we used to use it eBay all the time and they were looking for that and it provided and it turned out that the key to that category was,
the perception of Fraud and that that type of customer or that kind of a buyer and seller didn’t trust each other,
and so goat came in and said we’re going to guarantee authenticity in fact you send them to us we’ll make sure they’re real and we’ll send them,
so this idea of a managed Marketplace and that was what responded but you know it kind of ties to Rally which is think of it as a stock market for Collectibles where,
you can actually trade individual shares of an asset but both of those businesses rely on scarcity,
scarcity is a very powerful thing consumers retirement respond as care consumers respond to scarcity businesses responded scarcity and if you have a space scarce asset,
whether it’s Talent or a tangible good.
[26:34] Markets go crazy and I think a lot of the great Marketplace businesses trade on scarcity and the commonality between tickets,
between sneakers between streetwear and now Collectibles as you point is white hot,
is there all scarce items again I’d not that smart but it’s obvious to me that when you have something that only there aren’t a lot of them and everybody wants them it’s a pretty good thing to trade,
and so they The Coincidence around what’s happening with collectibles,
is it was already happening pre covid but especially on the sports side there’s just a Nostalgia that developed in March,
where I’m sure you all odds un’s with people in high school they hadn’t talked before and you’re spending a lot more time with text groups with your sister and your brother and your mom and your dad I think we just came back to recognize that simple things matter and when it comes to collectibles
whether it’s comic books or baseball cards or.
You know video games that we just felt it was our comfort zone it was our safe space and it felt good to be able to talk and trade about things that made us comfortable.
And that was a key part of what happened.
With Collectibles But the irony or okay it’s coincidence is I originally thought sneakers were the baseball card of gen Z.
[27:52] And it turns out that baseball cards are relevant to gen Z and it’s actually basketball cards they’re not really into baseball cards but they’re definitely in the basketball cards and that has now created you know caught fire and it’s you know I think.
[28:05] My guess is you know.
[28:07] The collectible assets are training at two to three times what they were a year ago it’s now it’s now being determined as a you know an asset class and it suddenly becomes an asset class with rallies perspective.
Is you know you can be the market maker for things that historically were illiquid and again back to the marketplace theme if you can make it liquid markets liquid,
you can dramatically grow the addressable markets and if you can draw the addressable markets and you can get a piece of that growth from those markets and think of great Marketplace businesses,
like eBay like uber like Airbnb every investor who passed on it will say the Tans were too small the total addressable markets were too small,
eBay was how big is the pawnshop market right Airbnb is how big is the hotel Market boober was how big was the taxi murder.
The reality is they all created substantially greater addressable markets because the marketplace enabled it StubHub was the same way you know how big is that market and you don’t ask those questions anymore because the secondary Market,
has really become such a powerful thing in those markets and I think that’s what’s happened with sneakers and other categories.
[29:15] If listeners get one thing from this hole
244 episodes that we’ve done go to your closets find your Pokemon cards and then if you have any of the NBA cards I think the isn’t it LeBron rookie cards are going for like 8 million,
there’s a specific one yeah yeah.
[29:33] Now specifically if you have your 1999 Pokemon cards and specifically there is one card I think it’s the Charizard is a how you say I don’t know my Pokemon it’s the nine oh it’s number four.
But that card is I think just traded for a hundred and twenty thousand dollars yes but it is and don’t don’t touch the card though.
The biggest thing you you is.
Really learned I learned today that a majority of cards that are wrapped in packs have already not.
Rated to a 9 or 10 scale like they came up they come off the printing press as not.
And that’s you know just because there’s a lot of those a lot of interest in Cardin authenticators and Grading right now but it’s just crazy what’s happened with some of the end wasn’t didn’t Jake Paul or someone just by he bought that car done talking about.
[30:32] Yeah and LeBron said oh I’ve got like 10 of these.
[30:36] There’s a lot of talk about athletes who are now you know as part of their deals there they’re going to the card manufacturers and asking.
Well I want some of these two historically they would just sign things but now they only know part of their negotiation with those card companies is they want to be able to put those directly in their safes as well because why should someone else profit from,
from their likeness if they’re not going to so it’s super compelling.
[31:03] I feel like you you helped answer a question Scott’s wife had sent me a question asking if rally was just a scam to enable Scott to buy more Star Wars memorabilia but apparently it’s legit.
[31:15] Yeah and hopefully it’s up I’m guessing depending on we’ve done we’ve done I don’t have I don’t think we’ve done Star Wars we’ve done like Hulk we’ve done a lot of comic books.
And we did Teenage Mutant Ninja Turtles we did yeah.
[31:33] I do it to diversify like I would never own an exotic but I can get like a slice of some of that and the first one I played around and I made like 40% is like and it happened very quickly someone came in with a very high offer and I guess they liquidated.
[31:47] Yeah I know it’s great I’m I’m was I grew up in San Francisco or in the in a place called Petaluma which is north of San Francisco and I was safe to go Giants fan and one of the first,
rally started off doing cars it was called Rally Road and so collectible cars was really the first couple years of the business then we moved it more into broader Collectibles but there was a Willie Mays Jersey,
with this kind of tobacco stain on the front of it and it was a great it’s just a great looking Jersey it’s this kind of giants gray with the orange,
San Francisco ran across and that was you know
you know as I never really got to see maze play I’m too young for that but I would hear my dad and my grandpa talked about Willie Mays and so back to the the emotion parts of the Collectibles categories that was you know I own you know $80 worth of that Jersey,
but I tell you know it’s not the first time told the story and so you just get kind of the benefits of the way and it really enables a whole new,
type of investor customers to participate in markets that historically they couldn’t and I think those can make for exciting businesses for sure.
[32:47] Oh definitely one other small little fun fact about goat you mentioned that they authenticate all the the merchandise so there’s a role for authenticator and one of their primary tactics is,
they smell the shoe.
To identify the fake glues versus the authentic glue so I’m just I’m chuckling at these folks that got this good job and went home to tell their families that they’re now officially a sneaker sniffer.
[33:18] Yes yes and look these are you know let’s just say the original authenticators where do you think they came from they know these were these are kids who were working at Foot Locker.
Right over kids who were kind of trading Jordans and you know who knew that we could be no pay them no money we pay and look we weigh them,
we checked the colors we smell them,
you make sure there’s not two left’s two rights make sure there’s in a lot of different things and you can tell a lot about authentic identity of a shoe by how much it weighs and where there was manufactured and,
and things like that because you know again like we talked about.
Authenticity matters and if Marketplace as any hints of things not being authentic it won’t work and you know I think that was a big challenge that the eBay had in his and I think it’s a challenge to Canada and the Amazon has now.
That it’s very hard for that business to play at the high end.
Watches or handbags or pie in sneakers or golf clubs they don’t work very well on Amazon and I think the perception of a 3rd party seller could do.
A buyer is real and even Amazon worth when they were trillion plus dollars now hasn’t figured that part out.
[34:29] Yeah and I think we may get to that I do want to Pivot though to talk about another class of investment that I know you have some whole things in Andy Dunn’s digitally native vertical brands.
And just to set the table my my sense is sort of pre
it felt like the narrative was that hey you know considering how many of these there are out there that not a lot of them had had a particularly good exit or any exit at all and I had a lot of people in the media calling this a hay is
is D&B be dead I talked with a lot of clients about how much more successful
like Target was it launching Brands then DMV bees but,
now that you know everyone’s back into the the Commerce base as a result of covid I’m curious what was it ever true the DMV be was not a good investment and what’s the perspective now.
[35:28] Yeah like I think it’s hogwash right if you you can even argue like Dollar Shave Club which was the first one to exit I think did so at a billion dollars plus,
right I think.
You know there’s been a lot of worry Parker Hager haters over time but that business that business could be worth twenty billion dollars some day it may take a while but you had no I think companies like glossy a,
hymns Roman even pre covid that they were they were trapped away although clue they may be on the wrong side of the trend just want to travel like these companies were.
For on their way to doing some great things I think of like you know the all birds what’s Raffi’s was headed as a trend has been a myth momentum we talked about Casper.
[36:13] So maybe but I’m always been I think it’s been important I think what maybe gotta whack was valuations.
And this happened with a few companies like a stance or their others well these are very good brands but they were valued like software companies and they’re still at the end of the day there are consumer brands,
and so when those businesses Trade It,
5 to 10 times revenue and they stop growing or the burning a lot of money then there’s kind of investor sentiment is like,
I don’t think consumer sentiment ever goes that way because the consumer is not asking what your U-turn economics look like when they’re buying are engaging in your product your brand but investors were just kind of fluctuate in and out relative to the predictability.
[36:57] And scale related to software enterprise software businesses so I think that’s kind of interesting I think what’s also happened is a lot of businesses that really weren’t Tech businesses were,
you know like a lot of food businesses for example our drink beverage businesses which have done or jerky businesses like they’ve done great but those really aren’t traditional Venture businesses but then you had you know like Blue Bottle Coffee have a huge outcome than that the Nestle,
which is a venture back business so I don’t think they ever came out of favor I think what kind of what was out of favor and should have been as this that these companies were burning too much capital,
relative to their growth rates and eventually if you’re not increasing your margins,
while growing at rapid rates you’re just going to not be worth as much as I think some Venture Capital thought they could be and then that creates friction and the relationship and the eventual outcome of the business for sure.
[37:52] But you know I think that earlier is is I have a relatively simple view of direct to Consumer businesses is I just like things that have,
margin from high gross margin perspective I’m not afraid of retailgeek,
but I think you have to be to see first you have to have a team that has the DNA of going directly.
You have to be able to understand the importance of brand and brand development you want to have something that’s got some the community associated with it,
you looking for things that are you know candidly economically economical the ship if it’s digital he’s even better but if it is a product that it fits in a something the size of a shoebox like an even bigger than that gets a little tougher to be honest.
And you want something that you know,
either has natural reoccurring characteristic or such loyalty that people keep coming back to buy you talked about parachute home is example you know I started out really doing sheets and duvet covers,
and now you can get you know all sorts of products for altars of soft good products for the home and kitchen right and what people just fallen in love with that brand,
and they’ll buy anything from that brand that Services their home and so it you know you can’t release a hundred skus at once on day one but over time you build that loyalty and you extend your product reach into categories that you really your customers are,
are pushing you to go to and I think a lot of companies have had some success with that for sure.
[39:17] Very cool so we’ve covered marketplaces in DMV be another one that I’m tracking really closely and goat is kind of in here but we haven’t talked about thredup so so there are really good kind of poster child for this one is,
it’s this kind of Consignment and then a big Trend in fashion was this fast fashion kind of concept where you would buy lots of lower price Goods.
But then there’s been kind of backlash against that from the millennial the younger generation to the Zoomers or gen Z and millennials.
Because they’re really acutely aware of what’s going on with environment and whatnot in fast-fashion generates a lot of fast fast landfill I guess I would say so thread UPS really interesting it’s kind of part of this you know upcycling and.
Instead of wearing these things three or four times and throwing away how do we get more people to use these products is thread up one of your Investments and maybe give us an overview of how they’re doing.
[40:13] Yeah throw tips and threads think I invested in 2014 and they’ve done tremendously well great team and right as you know I grew up or grow up I spent a lot of time working in off price.
Right and recognize that consumers gravitate to brands at value and.
At the same time if you just open up your closet you know even if you trimmed it during covid there still 75% of stuff in your closet you’re never going to wear again.
Men and women threat of really focuses on women and kids but you know there is value in everyone’s closet and.
Really taken advantage of a lot of the stuff is good product now probably half the stuff that goes to thread up doesn’t end up in the marketplace because it’s just,
like a car house everyone thinks their products worth more than it might actually be but the reality is there is a market for that and importantly for threatens business there is an unlimited amount of supply.
[41:11] And so you know we are just begun to make a dent in the amount of inventory that consumers own and so threat it really takes you know I was built an incredibly robust.
Infrastructure and multiple warehouses in multiple cities where we ingest Millions upon millions of items.
Are able to recognize using technology.
Which ones are worth something which ones not and try and create an economic model that that pays the seller without having to bend to do anything other than put some stuff in a polka dot bag.
Growing again back to my eBay is the biggest problem was it was a pain in the ass to sell on eBay.
I’m so you really only wanted to sell the stuff that you knew was going to sell for something of Great Value and it wasn’t worth your time for something that was 15 bucks.
Or 10 bucks and thredup is kind of sibling will take it we may not pay you 15 what you’re going to get more than you would get if you wanted to just drop it off in the thrift shop and just will send you the bags put in there send it back to us and we’ll send you a check.
[42:18] It’s you know it’s kind of modified from there but this idea of these managed marketplaces and the and both similar is we use technology and we built a lot of infrastructure do the hard work.
And if we can do the hard work that make the value proposition very easy for Sellers and very valuable for buyers it can create a pretty powerful and really differentiated businesses scale.
And what’s interesting about threat up is you know there have more product on hangers than any company in the world,
so if you were to go to their distribution centers and like Harrisburg or Phoenix or Lanta they’re just running three four stories of Hangers On conveyor belt.
And that’s how they’re picking ingesting and then picking inventory we have millions upon millions of products on hangers.
And it would be almost impossible for anyone to build something at that scale in a short period.
Including you know someday the T.J.Maxx is in Ross’s are going to have to sell online.
And I have to think that they’re going to look at businesses like thredup assuming I wonder if we could put our new product in there.
[43:20] News product world and think of all the money and time we could save and I don’t know when that happens I’ve been waiting six years it hasn’t happened yet but I do think like you know for that happen to like.
I’ve done some everything I am not a big peer-to-peer Marketplace investor and again this is my eBay.
Kind of learning is I tend to gravitate more towards the managed marketplaces because there you can just buy or take rates.
The peer-to-peer marketplaces are much more competitive from a price perspective and can delete just not I don’t believe peer-to-peer works at eventually everything gravitates towards more of the power seller,
and so I kind of skip its data and look for those businesses where we jump right into some more of that powers our or just provide a great value where the the traditional,
the regular person just put the stuff in a bag and and business is taking.
[44:13] Here’s convenience factor on one side of the marketplace and a value on the other.
[44:15] Yeah exactly something it yes.
[44:17] I think it’s a I think I saw thredup is actually entered into some story relationships where their inventory will be at like I think there’s a Macy’s one and there was a JC Penney one when JC Penney was.
[44:28] Yeah and a lot of anaconda and a lot of Brands themselves who want to be talked about the social conscious or the eco-friendly nature,
I think brands are conscious conscious of the fact that that does matter to Consumers so by working with red up and creating a trade in trade up formula,
just creates another reason for a customer to be happy with a,
and if it dries a little bit more loyalty and more than pays for itself and from threats perspective we get access to Great customers and in great inventory.
Clearly certain brands will Lululemon sells better than Gap it’s just a matter of supply and demand.
And so you know from various perspectives are not just great marketing and Business Development opportunities but we do get access to inventory that work is likely to sell faster and higher prices on them.
[45:18] Yeah we actually had Anthony Marino on the show asked you’re like episode 170 I want to say and I was telling him if I chuckle because Allah
some of my clients are those discount apparel retailers that are not very bullish on e-commerce and,
one of the main reasons they say they’re not bullish as oh man our inventory is too thin and dynamic.
To work on e-commerce and I you know I always like to point out to those CEOs have you seen thread up and real real I mean.
They totally figured out how to do it,
I am concerned about time that I want to cover a couple other topics as you know one we’ve talked a lot about on the show recently is this idea of ship again and that that everyone’s counting on e-commerce to make up for all the
the diminished or traffic this holiday season but there really isn’t enough shipping capacity for e-commerce to save the day.
Is that a concern for your portfolio companies do you have a hypothesis for how holidays going to play out and I guess follow-up question.
Do you worry about that systemically Beyond this year like you worry about the fact that,
that e-commerce is just going to get artificially limited by these these constraining factors in the last mile.
[46:38] Am I allowed to swear on his podcast.
[46:40] You are I just have to check the right box when I upload the podcast but wet.
[46:43] Yeah no I think I think after the election.
Kind of coming around let’s assume everyone pushes their because of this they’re going to push their Thanksgiving Day promotions forward.
Earlier in the calendar to avoid you know so you think you’re going to see my instinct is once we get through election assuming everything’s regards to wins.
Yeah things are kind of back to normal covid-19 mall so let’s say November 15th.
Maybe right after Veterans Day it’s going to be you can see a lot of promo start them and it’s going to be a total shit show it’s going to show for probably six weeks and then it’s going to be reverse Logistics it show when everything comes back.
And the reality is what concerns me is the fact that.
[47:31] The shippers that UPS is and FedEx’s are going to these retailers or Commerce partner with quotas saying you can do as much as you did last year but if you expect your business to grow a hundred percent a year that’s not going to work.
So I’m worried more about I think they’ll deliver the probably they’re under promising but they’re going to justify a substantial surcharge on things above your quote-unquote quota.
And so I think it’s going to be very expensive I think,
again if you’re well that’s or Venture perspective you build a justify why your shipping expense in Q4 of 2020 was more than you expected,
I think that will be universally accepted I think you know if your more traditional public company under,
anticipating that it’s going to be you know not great because you’re going to see more expense and I think we’re going to have a lot of unhappy customers I think hopefully the customer will,
kind of you know a lot of impact the election were encouraged to send our ballots in early maybe we’ll shop earlier I think you know I would expect I don’t know if you seen my expect.
[48:32] 30 25 to 30 percent growth year over year in Q4.
And we’d been historically 12 to 15 in the last couple years I think that’s clearly going to double if not more,
and I think the Fed Ex is and UPS is USPS know what’s coming and they’ve done all they can for the past 6 months to get ready but we’re still going to get caught short handed.
I do think it catches up at the end because you just look at the stock price of FedEx and UPS its doubled like they’re going to figure out a way to add capacity they are smart people they’re both going to increase prices that are going to you know do all the things they do.
But I think it’ll work itself out I don’t think there’s enough slack from the startups I guess Amazon conceivably could take them as like but there isn’t any,
company that is has raised venture capital and suddenly going to make it dense and there’s they might put it in their pitch decks but the volumes of velocities that the big three plus Amazon carry it just dwarfs anything else that’s out there.
So I think it’s going to be a problem then we’ve talked about like I’m super excited about returns I’ve been bullish on returns as a business since I worked at.
And back to company that solely focuses on trying to figure out how to lower costs and create better experiences around returns a company called happy returns and I can’t wait to talk about that business in.
Like it’s going to be amazing.
[49:53] No I think you’re a hundred percent agree for all the Today Show producers that are listening to this podcast you know we’ve been talking about ship again in but arguably the bigger story is going to be returned to get in because
you know when you buy a pair of from a brick-and-mortar store you return it about ten percent of the time
when you buy it online returns are over thirty percent so you know this quarter where we are artificially selling everything online
if we follow past Trends there’s going to be an enormous amount of returns and reverse Logistics is way harder and has way more constrained capacity than,
outgoing Logistics and so I you know.
[50:35] Well look the with the bigger headache is two things one is in this is the big contrarian but I think people haven’t been spending money on soft goods meaning like clothes and apparel relative to other categories,
so there’s going to be a lot of gifting around things like that that aren’t you know comfy pants so sweaters and more traditional clothes so those are returned to higher rates right Christmas gifts and holiday gifts tend to be higher asps,
so hire a ESPYs is a correlation to returns and importantly the biggest friction with returns for consumers is how long it takes you to get your money back,
under the credit card or the order the gift card in return and so if there is a if right now it takes 5 business days or seven business days to get your credit back.
In a world of congestion you may not it may be a month or six weeks before you get your money back by the time all that stuff gets processed in warehouses better,
people are working half shifts because of covid and so I think it’s going to be as much people yelling,
not like where’s my money where’s my credit as much as it is just the time it takes to get the items back so I don’t think retailers are accomplished for even thinking about that yet but I guarantee you.
[51:45] No I agree and I specially like there could be a lot of stress in the subprime
portion of consumer credit come come January and so yeah that that’s a huge play one super funny premise I heard well maybe it’s true but in addition you know they’re all these arguments like hey winter people are going to need warm clothes even if they haven’t bought a lot of apparel
one funny one is almost no one that’s that’s sheltered in place has the same size they were at the beginning of the pandemic and so that could potentially Drive,
more apparel sales and more more returns.
[52:23] Now you either lost a bunch of weight or gained a bunch of weight right yeah.
[52:27] The covid-19 is this
yeah one quick one I wanted to hit on just because I like to talk about robots is you guys have invested in a robot
automation system called in Via inv I a reminiscent of Kiva and then Amazon bought Kiva and then obviously kind of
kept it to themselves the only other customer I think that had it was a pose and then they bought them to so
that’s a pretty interesting one is Imagine demand for that kind of a thing is skyrocketing with with covid obviously having less people running around warehouses good too.
[53:04] Yeah look I think there’s and there’s another was a Envy as number one competitor was a company called six river which was acquired by Shopify,
a few about probably about a year ago now so look I think the reality is that was original I’m going to get my numbers wrong but I think there’s 15 million people who work in Commerce fulfillment warehouses in the US.
And pre covid you know you couldn’t labor was exceptionally tight and they’re just you know,
it wasn’t about robots replacing jobs is about driving more efficiency and efficacy in a warehouse and you know these businesses like India are as much software as they are Hardware there really warehouse management systems,
that utilize Automation and robotic technology to really pick bins and bring the bins to the pickers who can because robots can’t really pick yet,
but they can deliver the bins and they can return the bins to the the staging location in Oakland replenish the bins and so like I think it’s a super interesting business that’s really trying to use.
The whole premise on that was candidly.
[54:11] Retailers need to get closer to their customer and in the old days you would park a million square foot Warehouse in Iowa.
For Kentucky because that way you could take advantage of the shipping rates across the zones 1 2 3 4,
and you can get to California or New York in three days turns out the Amazon figure it out that the closer you are to the customer the more the happier they are.
So now a Commerce provider has to have 10 100 square foot.
Facilities instead of 1 million square foot facility turns out you can’t spend as much money on Automation in 10 locations as you can in one is you have to spread your budgets out to be 1/10,
so you’re looking for more cost-effective automation Solutions and that’s really the thesis around,
via is that we can provide a relatively low cost variable cost automation system to help with the smaller warehouses that are more likely,
and to be used in certain local markets and clearly now post covid when you can have half as many people in a warehouse,
robots are good partners they don’t complain they don’t yell they don’t breathe they don’t cough they don’t sneeze all you got to do is they don’t pee I gotta do is change their batteries,
you know once every 12 hours.
[55:24] Back in time and wipe out the human race however.
[55:26] Yes yes,
these ones don’t talk,
but yeah so that’s a super like those are you know again a friction point the reality is you know even without code code would Converse online is going to grow 10 to 15% for at least the next 10 to 15 years,
and I don’t think we’re ever going to have more than 20 million people working in warehouses and you got to the only way that we’re going to be able to deliver all that product to meet the expectations of the consumer is we’re going to have Automation and.
It’s a little bit of I have no doubt it’s going to happen it’s going to be when it happens the scale that I hope for.
We’ll look back in 20 years and it’ll be a rounding error about what year this became mainstream but in 20 years there’s not going to be more people in warehouses that are on there are now and I would bet any amount of money on that and so,
I’m super excited about whatever is this thing goes well.
[56:18] Yeah there’s been a lot of talk about Amazon monitoring employee Communications for talk of unionization so robots also don’t form from unions which is
I guess the I wanted to I know we’re up against time I wanted to rap and just kind of talk about eBay so so you I met at eBay a lot of the there’s like this eBay Mafia folks like yourself that have gone on to do a bunch of stuff,
we run into them in the vehicle Auto segment all the time which is kind of interesting like wasn’t one of the fair guys an eBay person.
[56:50] Yeah there’s what it was Scott painter was fair and he was actually true car.
[56:54] Two car yet you get.
[56:55] No but the eBay Auto guy is the founder of happy returns is a former eBay Motors guy.
Rob Chesney who was the CEO of eBay Motors was the CEO of Trunk Club.
He’s now a venture capitalist in Chicago Simon Rothman I think was one of the first Tesla investors he went on to be an investor at Greylock.
[57:18] And then there’s a few there’s a lot of the eBay Motors guys know there’s a lot like eBay,
had a lot of tremendously smart people both in the operation side and the Really the finance side legal side and now like my old boss is now the CEO,
and so Jamie Ione worked side-by-side with him for a lot of years and you know I’ve talked to him a few times since he took his job we had a,
kind of had an eBay reunions right the day that he got announced to be CEO and we probably had 20 people
bunch of old category you know people like didn’t Ash and George Latimer and Todd let whack and those people that I know you knew really well and we were all given we’re pitching Jamie our ideas and all the things that have been screwed up with eBay for the past 10 years when all of us were gone.
[58:04] And I think you know he’s done.
You know they sold StubHub they sold the PayPal business they sold the class of a business so there’s really only two if Korea in the north of and the US.
And European Marketplace businesses and I think he’s getting back to the core and recognizing what eBay was good at,
which is search and discovery of unique items are great values and I think they’re spending a lot of resources protecting,
businesses that are doing very well like they’re collectibles businesses that’s the one category that hasn’t been disrupted on eBay and I think Jamie and Jordan.
Sweet man are recognized that I’m making Investments and doing things that we would never have done with Meg and John and regime or the boss when I was there 15 years ago.
[58:51] Yeah yeah I’m excited I think the world is a better place with a strong eBay so I’m hoping they can turn it around and definitely cheering from the sidelines over here so so hopefully I’m doing my part to drive gmv by buying some Collectibles during code.
[59:08] Awesome we’ll listen guys that is going to be a great place to leave it because once again we’ve used up all our allotted time
but if there was something we should have brought up and didn’t or you have a burning question feel free to hit us up on
Twitter or Facebook and we’re happy to continue the conversation as always if you enjoyed the show sure appreciate it if you could jump on iTunes and give us that five star review.
[59:31] Greg if folks want to find you online where are the best places to find you.
[59:35] Yeah easiest my emails is Greg at upfront.com.
50/50 I’ll get back to you but that’s it pretty simple you can go to LinkedIn as well,
I have a fancy little drawing of me as a picture and you want to send me a message that way and then at Twitter just at Greg bettinelli and my venmo is the same so if you want to send me money you can do that as well.
[1:00:00] I’m not sure you fully comprehend how the investment role is supposed to work.
[1:00:03] Oh right it goes the other way so you want to send me the Paypal invoice you can do that as well no yeah.
[1:00:09] Cool thanks Greg we really appreciate you taking time to share some of these macro themes that you’re looking at I think it’s super helpful as we head in the holiday to be thinking about the long-term before we get wrapped up into the short-term.
[1:00:23] Yeah great and you know congratulations on 244 and also hope you and the family are well and healthy I know this isn’t easy for anybody and at least this is add a little levity which I think you know hopefully will get back to normal someday and,
I know we will see better when but hopefully the two of you remain a good health in the same period fan.
[1:00:41] Thank you very much great again and right back at you and and to everyone listening until next time happy commercing.