EP255 - Instacart Chief Revenue Officer Seth Dallaire
Seth Dallaire is the Chief Revenue Officer at Instacart. In this interview, we cover his experience at Amazon, the challenges of operating Instacart’s 4-sided marketplace, key trends in the digital grocery space, and Instacarts evolution as a retail media network.
Episode 255 of the Jason & Scot show was recorded live on Wednesday, February 10th, 2021.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scot show
this is episode 254 being recorded on Wednesday February 10th 2021 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:40] Hey Jason and welcome back Jason and Scot show listeners.
Two of our topics we have really been Drilling in onto the last year our digital Grocery and the impact of covid on overall digital adoption.
One company sits squarely at the intersection of both of those Trends and we are really excited to have them on today’s show.
That company is instacart and we’re real thrilled to have on the show their Chief Revenue officer Seth Del are welcome to the show Seth.
[1:09] Hey thanks for having me nice to be here.
[1:12] Seth we’re thrilled to have you and as you may know from listening to the show we always like to start by giving the audience just a little bit of background about our guests and and you of course have a,
a very interesting e-commerce background so can you share it with our audience.
[1:30] Sure and again thanks for having me on the show so current title is Chief Revenue officer here at instacart and
really what I’m focused on and have been working on for the past
16 months since I joined the company is creating an advertising business and I come
at this opportunity after having spent just about eight years at Amazon.
Where I was in various leadership positions in the advertising sales and marketing teams over there,
I joined in February 2012 and prior to that I was at Yahoo prior to that.
At Microsoft and prior to that Amazon so the bulk of my business career has been in digital media both in terms of sales and buying,
and really the emphasis for the past.
Ten years at least has been on e-commerce and Retail so it’s really exciting to be here at instacart particularly in this moment when,
a consumer behavior is is tipping into.
Grocery shopping online and I’m able to use a lot of the experiences that I’ve had in my career too.
To help make it making ads business happen over here.
[2:56] That’s awesome and that the timing for having you on this show is terrific Scott obviously mentioned.
Covid in the intersection of digital and Grocery and I know instacart it’s even bigger than grocery so we’ll eventually talk about that,
um but a close second to digital and grocery that we’ve been talking about lately are all these retail media networks and you’re obviously squarely there as well,
so our last episode of the podcast we actually recovering Amazon’s earnings,
and to me one of the the standout features of their to as earnings was this that they’ve now surpassed 20 billion dollars in ad Revenue over the last 12 months.
I know you you were heavily involved in building that business,
I mean a is there any part of you that’s proud or sad to see the success now that you’re not there,
not implying it success because you’re not there,
but the related question I was interested to ask is in my mind it’s entirely possible that at 20 billion dollars in ad Revenue that the ad revenue is more profitable for Amazon and AWS is,
and I feel like that doesn’t get talked about a lot.
[4:15] Yeah so to answer the first part of the question definitely proud the experience that I have there
was a lot of fun it was a great learning experience and I was able to work with some very talented people and there aren’t many opportunities where you get
work on an entrepreneurial project,
within the safety or that has the resourcing of a large successful company and that was really what the experience was like for me.
[4:52] Getting in there in 2012 and really.
Helping build the business from a sales and marketing side for sure but then working shoulder-to-shoulder with some pretty talented people on the product side,
and watching that business move from what I would argue was an experiment,
into something that is a material contributor,
to the business and so those those earnings reports when they come out I actually I get excited about them for that team that’s still over there I think,
I think it’s pretty great what they’re able to do or have been able to do.
Even if I’m not there anymore and the reason why I say that 2 is not.
Because I enjoyed my time at at Amazon but the success that Amazon has in terms of creating.
[5:50] Any Commerce advertising capability or marketing discipline if you will is important for the industry in that it allows other,
businesses to to do something similar and you mentioned there’s a whole bunch of different retailgeek.
Ad networks that are starting up or or media networks whatever the term was that you over you referred to them but the reason why they’re popping up is because,
they’re durable pieces of business and the if I reflect back to.
[6:26] Early 2012 when I had arrived at Amazon to help set up the North American.
Ad sales team there was a lot of waiting around in the lobby at the agency a lot of explanations as to why Amazon even a dad’s like
why don’t you know why does why do they need to have advertising like where are the ads on Amazon you know just give us your data that’s what we want and.
That that was a difficult mentality to change and really we were successful in creating a.
And understanding that e-commerce as a marketing discipline is similar to the same sort of trajectory or life cycle if you will of paid search or social media that both of those.
[7:24] Practices if you will started because and they were new they started from scratch they required a lot of Education to the industry,
a lot of risk taking on both the publisher side and on the advertiser side the marketer side to to invest in those areas and.
Ultimately they became things that were overtime well understood and really performing,
pieces of advertising and marketing and.
I see a lot of those similar traits over here and instacart and,
while instacart is e-commerce
singularly focused on Grocery and.
[8:19] The opportunity in the grocery space is super compelling just because you have a couple things one
on The Advertiser side of the business you have not a lot of insight there’s a lot a lot of capacity in terms of what’s happening in the online grocery space,
and there are many in the grocery industry is still Regional in many cases it’s a one trillion dollar a year business in the United States alone that maybe has somewhere between 5 and 10%.
[8:52] Of an absolute dollars of that that business is being conducted online and
that looks different from Mass merchandiser general merchandise environments like an Amazon a Best Buy Walmart where they’re selling
you know all sorts of things hard Goods as well as as food,
but what’s exciting to me is that we’re able to work with brands that maybe haven’t been able to participate in e-commerce as much as they would like to because the transactional component just didn’t exist
our measurement of the transactional component was difficult to do and instacart sits in a unique place where we’re working with,
almost 600 different grocery banners now and have significant reach where we can help marketers understand how consumers are interacting with their brands and,
how much they’re buying online relative,
the behaviors that there they’ve been demonstrating historically through physical retail so,
that gets me super excited because those that grocery piece of the business even two years ago was,
it was very nascent now it still is today but as a result of covid it’s been an accelerant in terms of pushing consumers.
[10:16] Into trial of online grocery shopping and what we found is a lot of that,
trial is durable Behavior Analysis we’re continuing to wind our way through covid but it’s also.
Created a ton of opportunity for for for marketers as well.
[10:37] Maybe let’s let’s start at the top so I think everyone knows what instacart is but just in case like when you’re when you’re at a cocktail party describing instacart to someone that doesn’t know how do you describe it.
[10:50] I describe it as a so we are an online grocery delivery service and we.
Over 600 Grocers nationally in the in the US and well in North America really but.
[11:12] You know we allow consumers to shop for the fruit the food that they love.
And do it at the stores that they love.
[11:22] And get a whole bunch of time back that they can use to spend enjoying that food with their family and loved ones and.
That in very high level is how I describe instacart you know it in a more tactical level and certainly in these times.
We we talk more in focus more on the convenience and the safety,
of the service and that were allowing people to shelter in place to to have contact list delivery of the grocery items and help solve for trip occasions that normally they would be doing in person but
you know for for their own health or safety reasons they’ve elected to to find a way to have someone else do that for them.
And we do that really well and.
We’ve been delighting consumers with that service and and then we’re also you know offering retailers the opportunity to,
meet that consumer expectation that they can shop for groceries online and that’s another critical part of our.
Marketplaces the relationships that we have with retailers so you know we help retailers.
Offer online grocery shopping and delivery or pickup as well so.
[12:46] It’s a you know we’re not just about grocery delivery you know we also as a business you know solve.
Some provide opportunity for for retailers as well as well as consumer Solutions.
[13:02] Awesome and then I kind of think in the bombers world of it as a three-sided Marketplace I don’t know if you guys use that language or not so on one side you’ve got this grocery store component and you said,
over 600 and then you have to call them instacart errs or Shoppers or what do you call.
Shoppers okay and then then over on the other side you’ve got consumers do you guys talk about any scale of the Shoppers and consumer legs of that imagine thousands of Shoppers and millions of consumers.
[13:32] Yeah we that’s exactly right so you know millions of consumers hundreds of thousands of Shoppers and then the the other sort of component of that Marketplace a Time,
responsible for is the The Advertiser marketer component as well so they’re a new element to our Marketplace but we’re also working with those Brands to make sure that
they have an opportunity to promote their products to those consumers,
when they’re coming through the store to build a basket and shop and consumers have the expectation that they’ll be able to find products in our store fronts,
in our Marketplace that they would find if they were shopping at their favorite local grocery store so that’s the another component to our Marketplace that,
is newer but one we’re investing in heavily.
[14:27] Yeah I’m a full disclosure I’m a big instacart user and have been for.
Feels like three or four years so that early days and it’s been really impressive as a entrepreneur to watch you guys build it out and the early days you know it had all these it was hard to find things that are in stock and,
and then the experience just got better and better and better over time and then,
it’s been really impressive to watch you guys deal with the surge of covid I imagine that’s been pretty pretty crazy scale that you guys have had to work through as that’s it.
[15:00] Yeah first of all thank you for your business and glad that that’s the experience that you’ve had covid has been transformational in many ways for,
or business you know it’s forever changed the consumer shopping experience for sure it’s been an accelerant for online grocery shopping and and really led to.
A ton of trial in the beginning and you know when we were sort of in the the marsh last few weeks of March first few weeks of April where we saw the.
A wave of consumer demand come through that was unlike anything that we had really seen before and.
You know as the pandemic is we’re coming up on a year now.
[15:51] Sheltering in place and sort of how we’ve modified our own behaviors you know.
A lot of these these trials or things that consumers were trying certainly Within instacart.
Had become habitual their habit forming and because they’re their habit for me and providing value and convenience and utility or durable and that’s what we’re seeing across the business so we did,
learn a ton in terms of how to execute.
Against a huge wave of consumer demand and that’s really made us better prepared for.
The in the event that we see another sort of search like that we will we will be able to deliver the same level of efficiency and meet the same sort of standards that that you just mentioned.
For your own experiences and instacart consumer in the future so we’re really excited about that it was it was challenging for sure a lot of a lot of hard work went into execution not only from The Shopper side and.
And making sure that.
All the consumer demand was being met but then just the stress on the technical ends of the business and the technology and making sure that you know that we were able to.
[17:17] Function and and under all of that demand.
In provide the consumer experience of people were expecting was.
[17:28] It was remarkable and and it took quite a bit of time and energy from the teams here from partner teams with whom I work with every day so it was a great learning experience for us as a business and its really.
But it’s in a pretty good place for for how we scale going forward into the future.
[17:47] That’s awesome Seth and you you hit on a topic that comes up a lot in my work life I’m curious to hear your perspective at the beginning of covid-19.
Everyone’s talking about oh my gosh this is going to accelerate digital shopping immensely and you know Mackenzie famous we write came up with this.
Ten years of digital adoption in 10 minutes and they predicted that like 35 percent of all sales would be online and that didn’t really happen right for general merchandise.
E-commerce Grew From like 13% It price spiked it 19 and came back down to 16 which is,
still a significant acceleration and meaningful but it’s not it’s not 10 years of progress but,
I do think in grocery we may have experienced like 5 or 10 years worth of progress specifically because of covid and I know there’s a lot of different data sets out there but the the data set I use.
We were at like three percent digital grocery penetration before covid so I three out of every hundred dollars was spent online,
and now we’re probably sitting somewhere Slightly North of ten percent so that’s that’s enormous and you know whenever I talk about without a client with a client their first question is.
Is that permanent is some of that going to go back when people can go back to restaurants like what you know how do you see it playing out in the long run.
[19:14] Pretty simple so we’re looking at the same data sets that you just cited or or similar so you know the.
[19:22] Nice we’re wrong together at least.
[19:24] Well no the 10% that number is basically what we’re seeing and you know I guess like wrong in the best way and that everything I mean I’ll talk to my own personal experience about why,
in one of the decision criteria for me coming over to instacart to begin with what’s that I just I believed that over time.
[19:44] Consumers would become comfortable with shopping for groceries online that this is one of the last behaviors to tip into e-commerce.
With any scale and in fact everything that I thought would happen over three years happened over three weeks between the last the last week of March and the first two weeks of April and you know the estimates that we were using,
as a business for forecasting this point last year look more similar to probably the 3/2,
5% or it’s a wow that would be great if just that much consumer Behavior came into this gigantic us grocery market and in fact now those third parties are saying that it’s probably somewhere at 10% and,
you know that’s that’s a dramatic move and,
what were you know we can’t can’t cite specific numbers but what we have seen as much of the behavior both from a customer acquisition standpoint,
people who we acquired who are new to instacart,
but then also from a frequency standpoint so people who once acquired like are they ordering a second time the third time and using that as a measure of the durability.
[20:58] Those numbers are are I’ll just.
It’s a very positive without sharing any specific details so this is something that you know that we’re expecting to continue we aren’t,
there may be of course at some point like some variants and.
In consumer behavior that is a result of things you know hopefully going back to quote unquote normal that may impact the whole host of different,
behaviors that we had historically been measuring in some way in a pretty static form but from a grocery standpoint.
[21:40] Getting your food delivered.
Or being having the ability to solve for a trip occasion that was related to food when you can’t go out for dinner or you don’t have as many options to go out for dinner or you don’t feel safe shopping,
or you’ve been told to shelter in place like it had a dramatic impact on our business and industry.
It’s not just I mean instacart or other online grocery folks you know my former employer,
being one of them where you know they’re they’re seeing big grocery numbers as well so it’s that to me is just another sign of how durable this behavior is.
[22:20] Yeah no I would tend to agree you know your old boss used to talk about one way doors versus two-way doors,
and it sort of feels like you know when you get all these these items showing up at your house and you don’t have to do any work that that kind of feels like a one-way door that you’re not likely to walk back through.
Um the I do have a question though Scott and I are super old you’re a little more youthful.
But so we are around in the beginning of e-commerce and there’s kind of this common way in every category when it got disrupted by digital,
um the Legacy players weren’t very good at digital and there there was some third party that could really accelerate their digital capability right so,
um early on of course Target and Toys R Us famous we Outsource e-commerce to this startup called Amazon and that.
Like arguably was a smart decision for them to you know dip their toes in digital eventually they wanted to bring that in-house a lot of retailers Outsource their digital to this.
This digital facilitator back then called GSI Commerce.
Which in many ways I think of is kind of a an analogous company to to instacart.
[23:38] And and just like commerce was enormously successful the founder of GSI Commerce now is Mark Rubin and he owns the 76ers.
The but I am curious like is there a risk like yours you’re sort of an intermediary that helps all these retailers get really good at digital grocery really fast and solve a bunch of really complicated Harry problems.
But in the long run if digital grocery becomes 10% or more of all grocery sales do Grocers need to develop.
Native digital chops and does that make that it,
rescue likely that they would continue to stick with you Ike what do you think the the long-term ramifications are like you know does does instacart it’s roll need to evolve or you know can you kind of play this this intermediary role forever.
[24:26] Well we emphasize our Partnerships with retailers because we helped enable them like we don’t compete with them and.
That I think is one major distinction between the analogs that you drew with Amazon and.
And Target and Toys R Us and that in each of those cases.
Amazon was maybe not only helping Target or Toys R Us,
execute against an e-commerce strategy but they are also competing with them in some cases you know in the same sort of environment or using the same.
[25:08] You know are trying to attract the same audiences if you will and you know we are working with retailers.
Deliver a technology solution to Consumers who have an expectation that they can shop their neighborhood grocer or their National grocer.
Online and if the retailer is prefers to work with us because our technology is great and the service levels that we provide are great and the consumers love using.
The service then we think that’s that’s a great place to be
we’ve been very clear publicly about our position and enabling our Retail Partners and really servicing them
so we spend a ton of time and attention working with them every day to develop capability and improve
the capabilities that we provide them with and.
[26:13] So what we aren’t doing is competing with them or running our own grocery store you know right next door to their storefront which is more analogous I think to,
to what the situation you described what the Amazon was in the way back so I just see them as being totally different and.
Yeah there I’m certain that there will be some grocery stores or or retailers that decide to.
You know go it alone and at some point and that you know.
[26:49] But certainly their decision to make right now you know we’re focused on helping as many grocery stores as we can.
[26:57] Figure out how to help consumers shop online for groceries.
[27:03] Yeah and Jason could go as listeners know he could go another eight hours digging into the grocery industry but I am curious about your main role there you are selling you know ads and.
As an instant Curry user I’m guessing so occasionally you know I’ll have a brand it seems to be brands that will pop in there and say.
Hey you’ve got some granola bars in your cart would you like some Quaker Oats Oatmeal kind of thing and is that kind of the ad network is it is it mostly Brands you’re selling to maybe walk us through.
Who’s in this ad Network and what kind of AD units are you guys offering to him.
[27:46] Right now we are just selling ads within our owned and operated,
platform so we are not sort of working with what I would consider non-endemic partners,
you know all of the advertisers and we’re addressing have their products on the Shelf the grocery store
so that’s the presently that’s the addressable market for us so you know that is largely the domain of big cpg companies medium-sized cpg companies food a lot of food,
and household goods and things that you might find where you walk in the aisles of your brick-and-mortar grocery store and what we do is,
we help those Brands get in front of consumers when they’re coming in and shopping and the shopping behaviors that are consumers.
[28:43] Perform our take a couple different.
Forms of first one is that we may have someone come into the store and start using the search bar to build a basket very directed
self-selected search behaviors where they’re looking for a particular brand or they may be looking for a particular,
a commodity term for a type of product like milk for instance in which case we’ll,
we’ll work with Brands to to provide them some counsel on how to get their products up to the top of the Shelf if we if you will or the best placement on the Shelf which is are.
[29:19] What we call our featured product placements and those are paid paid search placements within within that type of,
consumer shopping experience then you know we have.
Other browse behaviors that consumers May perform or they come in and they start looking or shopping and browsing through a specific category or I’ll.
[29:42] We have standards that are graphical display units there that will allow Brands to create awareness about products or,
to could do consumers who are who are shopping and building their business or building their baskets that way and then we have a number of products that are
temporary price reduction tpr types of products so coupons for individual upc’s and products that might give,
a consumer some incentive to try a product or what we call delivery promotions which are,
incentives Brands may use to help a consumer build a basket and they may take the form of save five dollars when you buy $25 worth of product,
for a free delivery so in that’s really what we’re focused on right now is making sure that.
[30:39] The brands understand how to engage with consumers when they’re coming into our market place to shop,
and that the opportunities the advertising that we’re putting in front of the consumers is accretive to the shopping experience so we’re not doing things that are you know interruptive,
you know we’re and we’re also not running sort of non-endemic advertising in those placements we’re really focused on,
working with with those Brands and manufacturers whose products are on the Shelf at the grocery store.
[31:18] And it seems like in traditional grocery the Brand’s there’s like,
all these slotting fees there’s like getting in the end cap there’s couponing there’s the circular are you guys,
is that where the dollars are coming from are you guys pulling from like the digital side like the maybe Google AdWords or something like that.
[31:41] It’s situation dependent and it’s all over the place so we aren’t,
not right now focused on any one particular team within any one particular.
Enterprise or manufacturer we’re really focused on telling a story and a narrative we’re trying to educate.
[32:01] People within these big with any type of cpg manufacturer the medium size small startup e type of company or it could be a large
they they all have similar learning agendas for online grocery shopping because the behavior is so new so while there are some manufacturers who are really good and very
evolved in terms of their e-commerce strategies for.
Does let’s call them like general merchandise retail experiences when you’re talking about,
being able to Market Frozen Goods or non shelf stable,
items that’s a totally different type of behavior and marketing behavior and then a totally different type of data set that we’re working with that,
it just hasn’t existed before so it’s existed in a brick-and-mortar environment not an online and so we can show up and and talk,
about the performance of a particular investment that you’re making so if you’re buying paid search.
We can tell you.
[33:18] The the return on that ad spend if you will and those are the table Stakes that’s the beginning of the conversation it’s like okay how many sales.
Did you Jen did did I generate by giving you this dollar for promotion and we have a closed loop attribution those are first that’s first-party data that we’re observing so we’re not inferring what’s happening we’re actually seeing the transaction happen and then.
[33:43] Once in the irony here is that that sort of the table Stakes that today Annie calm yourself as know this,
it’s just ironic to me that’s the least interesting part of the conversation right now because everyone expects of course you’re going to give me that,
in you know 2012-2013 when when I was at Amazon and we were really working to bring e-commerce advertising to the industry that was not a well understood.
Output or measurement for for advertising and it took us a while to,
to talk about that and get engagement and acceptance from the industry for that particular.
[34:27] Metric and here we have it and it’s like okay great of course you’re going to give me that,
what I want to know in addition to that are any types of signals that you may see that are adjacent to that particular Behavior so yes I got,
you know six dollars back for every dollar in sales for every dollar that I gave you in in advertising.
But can you help me understand of those people who bought the products like is their behavior purchase frequency different than someone who came through an organic listing and didn’t click on an ad
is there something about that this particular cohort of
consumer that their basket composition for instance that might be different like is that I could say okay this is a trip occasion that is different from.
Something else or that another consumer may be performing the oftentimes when we show up we have.
Representatives from the digital investment team from the or ecomp team.
[35:31] We have some brand marketers we have the chief commercial officers in the sale side,
we we have really and the Shopper marketing teams to come in and with their pencils sharpened ready to talk about results and,
so the fun part about this is that we have an instacart has visibility and all sorts of different data signals that can help,
these manufacturers get smarter about promoting their products and how to speak to consumers in this in this new shopping environment,
the another part of the fun challenge here is that there are other,
e-commerce platforms out there that are doing a good job of providing that data and have been for years so that the sophistication of the people with whom we’re talking is quite high so we don’t have to do a lot of the work about this is,
let me talk with you about your return on ad spend or row as they’re already there they want to go to okay let’s
what’s the lifetime value of the customer can we look at basket decomposition can I define different consumer cohorts in ways that map back to things that I might be doing in other parts of the business,
so we’re aspiring to help the brands with whom we work with understand that.
[36:55] Yeah you know it’s funny like you guys have are tackling a really complicated space,
and so it makes all of these conversations more difficult than they are in some other categories but like one of the things I’m always curious about is
because as you and Scott mentioned the funding for an ad may be coming from the brand marketing department may be coming from a brand retail trade,
team or a shopper marketing team historically at a brand those kinds of teams had different success criterias right like that
The Shopper marketers might have been looking at actual cell through a product and those brand marketers might have been looking at.
At Impressions or brand recall or things like that so you’re you’re potentially getting funded by both and your the super complicated I would even argue four-sided Marketplace because you’ve got,
consumers Shoppers retailers and brands.
[37:56] Right are you able to have that kind of detailed.
Cohort analysis incrementality conversation with with all of your brand advertisers because part of me would be worried.
As a brand I might not even see myself through on instacart because,
it’s not actually my inventory and you’re not wholesaling my products right like your I sold the product to a retailer and then
the the consumer bought the product through you from that retailer so it seems complicated to track.
[38:29] Well the everyone wants to
everyone understands that there are new signals here from in all of the sides of the marketplace that you just described and we do see ourselves as a four sided marketplace with each of the constituents that you identified.
Each one of those has some type of data signal that would be helpful to the brand Advertiser and and so when we show up to talk about our offer.
We’re talking about tactically like here’s here’s where you can place your ads or your promotions and here is the,
Receipt if you will that will give you an exchange for that investment that talks about the things that are causal to that investment.
[39:22] It’s often the more sophisticated questions are coming in the things that are adjacent to and maybe not a direct cause of the ad spend so.
You know consumer behaviors it could be how often was a particular item that was added to the basket not found in the store for like out of stock it could be.
Something along the lines of,
you know content like and data feeds and the quality of the content that the the brand sees in in our Marketplace and like how they tune that up or put their best foot forward.
[40:14] There’s no lack of interest in what we’re trying to do and so I see that as a great learning opportunity for our business if we can understand how.
The brand or if we can end this applies not to every side of our Marketplace understand the brand understand the Shopper understand the consumer understand the retailer and if we can do that.
And then help each one of those people you know improve It Whatever the result that they’ve decided it’s important.
Part of it is the determinant of success if we can help them improve then.
[40:49] Then we will we will not have a lack of requests for meetings.
[40:54] Yep yeah no I get it and I know you get this but just just for our listeners like I would argue,
um the digital advertising in this category is even way more important than a lot of other categories because in a,
a traditional in store grocery shopping visit that shopper
makes a lot of unplanned purchases like they serendipitous we discover a lot of products they walked by a lot of products and they put a lot of products in their bag that were not on their shopping list and so when they they shop digitally
some of those opportunities are much more challenging right people I imagine tend to shop off of their list a lot more and so,
um brands have to work harder and and leverage tools like you’re providing to help introduce new products and sell new things to kind of break onto that list.
[41:46] Yeah and that’s a great challenge for us as a as a Marketplace like we we want to be able to.
Create those serendipitous moments in the decision journey and you know because consumers love that stuff.
You know they’re there they wouldn’t they’re not being forced to add a bag of Milano cookies to their basket when they’re walking through,
you know the physical grocery store because it’s in the end cap they’re doing it because they’re reminded like I love those cookies I’m going to buy them.
And those same types of behaviors happen within our Marketplace,
and what we’re seeing is that trip occasions may be different so we may be a consumer may be coming into our Marketplace and,
has a very specific trip occasion where this is a stock up or this is my sort of junk food run or whatever and so what we’re trying to do is help.
[42:48] Bring those data points and signals back to brands in a way that helps them get smarter about how consumers are shopping.
And then anything that we can do from a an ad product perspective that will make that.
Trip through our store that basket building experience accretive and more fun and and more convenient and more efficient we’re going to do that.
We’re just getting started there really so that that’s the fun part and I agree with you there.
There are many behaviors that happen in the brick and mortar store that would lend themselves to e-commerce then there’s a whole host of different things that are exclusively the domain of e-commerce that can be transformative for a business,
and then we’re just getting we’re just scratching the surface there.
[43:39] And to be clear those Milano cookies are on my shopping list I didn’t want to imply.
They weren’t but I do take your point and and speaking of cookies I wonder if that’s another thing
that’s maybe driving advertisers in here arms a little bit more right now like as as the third party cookies are getting depreciated and the mobile tracking you know dispute between Apple and Facebook
I could imagine that for a lot of these cpg Brands the,
their ability to Target and effectively advertise on their traditional digital media networks are
are eroding a little bit and so it is that another Trend that maybe you no favors people putting more dollars into the into retail media like instacart.
[44:23] I mean it could in certainly the landscape is is changing and everyone needs to be aware of the compliance obligations that we have so we’re taking a.
[44:36] We’re very cognizant of that and the fun part about being here it instacart,
right now or really for the past you know 16 months is that you know we’re building this from the ground up so we can in some ways try to anticipate some of those changes in the industry because things are happening right now,
that without the burden of a legacy of or technology or Tech debt that would put us in a much more precarious position,
so so yeah we’re like.
But I’m certain that over the course of time that you know the we will also have to be,
cognizant of those changes and you know it’s not something that we go out and you know I’m not talking about that it’s not a selling point.
Necessarily when we’re talking with sophisticated.
Programmatic advertisers you know what we are talking about and what we’re trying to focus on at this stage is just on the.
Amount of concern consumer adoption just the surge in online grocery shopping Behavior that’s sort of tipped into this everyday behavior for.
[45:52] It sort of gigantic you know part of part of the.
The grocery industry and focusing their first on the size of the opportunity in the size of the prize has the right place before.
[46:06] We’re start getting into some of the more Technical and legal components here like where.
That’s just that hasn’t that it hasn’t been our focus and you know most of our products are all within our owned and operated,
you know site right now too so we’ve we’ve,
I’ve been watching that and we’re paying attention to it for sure but it’s not a selling point that we’re pushing in the marketplace right now or in the industry.
[46:37] Yeah it’s gonna be interesting to see how that impacts folks that are crossing sites and with how they react to it.
The one and this is kind of a total newbie question of my side you guys are the ad Geniuses here I’m just a e-commerce guy trying to find my way in the world the where are you guys on,
you know like self-service tools so if I am starting Scott’s coconut water can I just go somewhere and run my own little search ad or are you not quite at that kind of.
Google / Amazon self-service Point yet.
[47:10] Well we launched a self-service offering and platform last year.
So we’re getting started there the and continuing to push more capability through that platform so we have a number of.
Of advertisers that are in agents who are using those self-service tools.
And you know we’re working with apis as well with some of those Partners too and some of them are big.
Companies some of them are small it’s really you know we’re going to map to however the advertiser wants to work with us self-service as one of those options so and it will I think continue to take on.
An increasing amount of importance for us as as the Brand’s get more comfortable with with buying their ads that by 2.
[48:01] Yet another thing I’ve seen I was kind of curious how this works so I’ve been on Brands sites like.
And I would call him bram’s that kind of usually go into something like a like a chicken or,
condiment or something like that and I’ve seen these recipes and you know the recipe you’ll have all the stuff and you can usually there’s a button and you can either you can kind of add it to your instacart.
Is that an ad unit or is that just you guys having some apis so that they can put those things into the cart on behalf of the consumer.
[48:30] Well the adding things to your basket across the site is.
We have many different ways that you can do that so there’s no single point of Ingress but we are you know we are looking to enable both the,
sort of adding just an ingredient for instance like very easy like making that super convenient and simple adding an entire recipe to your basket,
or allowing for promotion for the case of like a commodity item or if the recipe has branded ingredients allowing Brands to promote those items so it’s we’re coming at it in a whole host of different ways.
[49:16] Yeah and then I did notice you guys had started pronounce more traditional retailers I think it was fora and maybe Staples.
Is that and we’ve talked a lot about ship again and we actually coined that on the show here I don’t know if you know that and you know it’s kind of interesting because you could you could think of that as a release valve for you know.
The existing networks of e-commerce that are the last mile got really jammed up due to covid plus the holiday,
um is that how those retailers are utilizing you guys or is that different in some way.
[49:53] They’re so you’re right we have started working with some retailers that are not in grocery I will I will state though the grocery remains,
our foundation and focus for the company there’s so much opportunity for us there.
That that’s continues to be where we’re placing our emphasis but there are.
Instances and companies like some of whom you just cited who have very successfully calm businesses.
But would benefit from having instacart as a service to solve for that more immediate or urgent triplication.
[50:38] So the tziporah who you mentioned you know you could have a beauty occasion or emergency where.
You know we’re solving or bringing Cosmetics or beauty products to a consumer an hour or less would be.
[50:56] An awesome convenient service offering it’s really more about
awareness for our consumers when they coming into instacart are they aware that they can shop those those marketplaces or those storefronts with in our Marketplace and we’re just getting started there so it’s a great experiment for us.
and while we’re focused on grocery right now you could see where there would be other retail experiences for things that aren’t food that would benefit from our service the the example that
that I tend to site is as my 17 year old son so he has some expectation that he can find anything on his phone any type of content video content music content
podcast a book report instantaneously if he doesn’t he gets super frustrated
you can order a burrito online you know over his phone in an app you can get a Teriyaki Bowl you can order a ride somewhere all these things
show up in 30 minutes or less or an hour or less and the irony is that the Slowpoke and his.
Consumer experience are the companies that deliver things in two days and in his.
[52:23] Experience as he ages into a consumer who will be shopping for Home Goods or groceries I just don’t see his expectation for convenience lessening over time.
Right now instacart is great at groceries we have a ton of room to run in the grocery space but you could see where a company you know like Sephora would be like right we did you know having that,
Last Mile hour or less delivery with instacart bringing those products to the consumers doorstep or the trunk of the car,
for a pickup would be.
But hugely helpful and and may be expected in the future so this is a great opportunity for us to learn about the sum of the expectations for those retailers in and also from the consumer demand for them.
[53:19] Seth I don’t know if you realize this but you totally hit it on the head it’s a little known fact but Scott and I used to have so many 1 hour Beauty emergencies,
that’s actually why we decided to start a podcast.
[53:31] There you go.
[53:32] Yeah it’s just it’s it’s a lot easier than starting a YouTube channel so so I totally totally get that listen we are coming up on time so I do I do want to squeeze one last question in,
we talk so much about acceleration in this cone crazy covid year has made things go so fast,
if I jump back in the hot tub time machine and kind of jump forward a few more years in the future.
Do you have a vision for for how instacart has changed or evolved or there are there like.
Particular types of categories that you your interest that you think you guys might expand into or new types of products or services that you think you might offer anything you can reveal.
[54:17] No major reveals but if I’m looking into my crystal ball and thinking really about the ambition of what we’re doing.
I’m making a bet I’ve made this bet by coming here that in the next five years if that’s the time Horizon for the future,
that as much as 20 or 25% of all grocery shopping will be occurring online.
[54:44] And if that’s the case that’s a massive amount of consumer Behavior a massive amount of consumers,
looking for that are expecting a very specific type of shopping and delivery experience or pick up experience and,
all all of that are much of that from an advertising perspective is yet to be learned.
And we’re learning it right now so from a from an AB product perspective.
What we will deliver to the industry will be products that make the consumer shopping experience accretive for sure but then also are able to help.
The manufacturers get smarter about how the products are being purchased what what types of products are desired and.
I just see that as so much open territory for us and really for the industry to run it and.
That that is where my head is Alec where I’m focused for the next five years and I think a lot of those things.
Progressor e which you can argue as one of the most complex retail experiences to solve for because of the perishable nature of much of the product.
Many of those successes that will we have will lend themselves to other retail categories so I’m super excited about that.
[56:08] Yeah I I tend to agree I think it’s a super fun space to be in because it is.
So important and evolving so quickly but Seth that’s going to be a great place to leave it because it has happened again we’ve used up all our allotted time as always if you have any comments or questions about this episode feel free to
hit us up on our Facebook page or send us a question on Twitter.
Seth really enjoyed talking to you and thank you very much for sharing the instacart story with our listeners.
[56:39] Well thank you very much for having me I appreciate it stay safe.
[56:43] Until next time happy commercing.
Episode 254 is a breakdown of Walmart and Shopify Q4 2020 earnings reports, a recap of 2020 sales data from the US Dept Commerce, and Amazon News.
US Dept of Commerce released it’s retail data for December, which gives us a full picture of 2020, as well as the Q4 e-commerce data.
Episode 254 of the Jason & Scot show was recorded live on Thursday, February 19th, 2021.
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 254 being recorded on Thursday February 18th 2021
I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:40] Hey Jason and welcome back Jason Scott sir listeners will Jason today is a big day for science nerds we saw the perseverance Rover landed on Mars with an interplanetary helicopter how cool is that.
[0:55] That is the coolest part I was super excited I actually put a note on my calendar and stop working and watch The Landing it’s pretty amazing.
[1:04] Yeah I didn’t watch it how much could you see.
[1:07] Um well they had like a pretty detailed animation for the whole thing like like you you know they don’t have cameras of the Rover in the air but they but they,
they show like a 3D animation of it you know as a checks through all these detailed milestones and then pretty quickly after they confirmed it had touchdown you got the first.
Actual photo from from the Rover and there was still like dust everywhere from The Landing so it’s.
It’s pretty amazing to think that like we can launch shoot a drone 250 million miles away and landed on a planet that’s like yeah.
[1:45] Yes soon elon’s can be landing people there.
[1:48] Yeah yeah I know he’s close on their heels my favorite part though was the news guy like after they did their whole recap he’s like um and I feel compelled to remind people this actually is rocket science.
[2:04] Yeah yeah so it’s very cool I feel like I remember some of our very first podcast we’re like early in you know as SpaceX was knocking off all these milestones and we were we were talking about those a lot at the beginning of podcasts and.
Five years later we’re still doing it.
[2:20] Yeah now every other day they’re shooting off a mission it’s it SpaceX is pretty pretty amazing.
[2:25] Yeah yeah that’s that’s become totally routine I don’t know you watch Westworld right.
There’s actually scenes in Westworld we’re like just in the background they have SpaceX Style Rocket so I glanced because it’s so rude to you know they Envision it being so routine this cute.
[2:43] Yeah very cool but even bigger than that I know one of your favorite days of the year is when the US Department data of Commerce data comes out so yesterday I’m sure you were,
up and ready and you had all your Tableau and your data scientist lined up walk us through some of the data that came out yesterday.
[3:02] Yeah you I wish I could deny it but I kind of am super excited to get up on the mornings when this data comes out because I as you’re as you’re mocking me I did set up a bunch of automation over.
Over the winter break and now I get to use it and knock on wood two months in a row it hasn’t broken.
[3:20] You wouldn’t be retailgeek if you didn’t you can’t be a science geek can’t be space Kiki and me tell you you gotta gotta pick a lane.
[3:26] I have to keep my creds so what came out yesterday is a reminder for our listeners.
The January Advanced monthly sales data so this is a.
A simpler set snapshot of what happened in January and then we got the full data set for December and so the reason that that’s particularly exciting is that now let’s us roll up.
The complete 20 20 year and kind of work back to the whole year so so we got our first advance to look at what January is going to look like,
we got a detailed look at at December in the whole year for 2020 and then there is another data product that comes out quarterly that’s the e-commerce specific slice
and that actually comes out tomorrow morning but based on all the data we already have I’m pretty confident I already know what it’s going to say so we’ll talk a little bit about it.
Um but so let’s start with January.
And it’s interesting because my take on January was different than a lot of the media coverage in January so so Top Line.
Year over year this January sales were up 10.8% versus last year so that’s a that’s very healthy increase.
[4:48] The the one of the sectors in that data is non-store data which is kind of a.
The closest thing in the Advanced Data we have to 2,
e-commerce and that was up 28.7% so so if you look at this January versus last January very robust again last January wasn’t impacted by covid and anyway so we’re comparing a.
You know post covid with pretty covid.
[5:17] But what what got a lot of media attention was the that the January sales were 5.1% bigger than December so not year-over-year month over month,
and the reason people are excited about that is because.
[5:34] December sales were lower than November’s and November’s were lower than October so you kind of had two months of negative growth looking on a month-by-month basis and so this this 5.1%,
increase kind of reverse that monthly Trend and a lot of the analysts had predicted that we might grow 1.2% and so.
5.1% was a pretty big beat.
And so people were kind of giddy about that like oh it looks like we’re we’re coming out of the doldrums a little bit,
and you know one of the big reasons is there were some economic stimulus that went out early in January and almost all the retailers I work with like.
You can see to the day when customers start getting that that stimulus it’s a very obvious Spike and so that helped help January for a bunch of retailers but I would also point out this month over month data.
[6:30] Is not that important or valid and there’s a bunch of systemic reasons why months aren’t the same and Retail has a bunch of tent poles so I generally am a lot more interested from a trend standpoint in the year over year and,
year of a year it was a January with a stellar month but I will say there were a couple outliers in this January data,
department stores were up 23.5 percent from December so month-over-month,
department stores had their first increase in about 15 years and clothing which would has been decimated the last year was up five percent,
um but again to me.
[7:14] Month-over-month trans aren’t very relevant and especially in the middle of a holiday period and.
If you if you look at the year-over-year trends both those categories were still down from last January so department stores are down three percent from last January,
and clothing was down 11% from from last January both of those are,
slower rates of decline than we saw for most of last year so it’s it is a silver lining but you still wouldn’t want to be in either of those categories.
[7:45] If we just forget retail sales you know the headlines I saw on the financial sites were you know stunning retail sales 5.1 percent versus 1.2 estimate like why was why was that estimate so off.
[7:59] Yeah so I don’t I don’t know what goes into to the.
[8:03] Who made this the Department of Commerce doesn’t make it.
[8:06] No it’s not and and further it’s not like as rigorous as like stock public company earning CPS estimates for example like I don’t think there’s a.
Like an industry-standard estimate what what you do have you know again think about this December had a weird or shape than ever before it was way more e-commerce n trick.
December and all of those sales were front-loaded in the first half of the month because of ship again and the second half of the month so you so December was,
in you know large part was half a month and so January was a full month with economic stimulus,
dollars versus December and you also had all these like you know covid reasons that sales were slow and December right.
The cases were peeking people weren’t traveling with their family etc etc so for all of those reasons it’s not surprising to me at all that,
January was way better than December but to me a more valid you know perspective is what was this January versus last January because that’s more apples to apples.
[9:17] Um but I’ll be honest I’m was more interested in in looking at the 2020 data in aggregate because you know this was a.
A very unique year and it’s interesting to see how it played out you and I had all these debates early in the year,
is it a v-shaped recovery you know what would happen all these things you know people in April were writing these doomsday predictions about how far down retail was going to be in 2020 and,
and things like that so it’s interesting to see the real data,
so for all of 20 20 retail sold five point six trillion dollars in sales which is an all-time record by the way like that’s the the,
the highest retail sales in the US have ever been that’s twenty-seven percent of the GDP which is a little bigger share than it normally is it normally is around 25 percent of GDP is retailgeek,
so that’s huge GDP to go down this year I think people expected that because of covid.
[10:15] So that growth rate is three point four percent so retail grew at 3.4 percent.
And you could say hey Jason is 3.14 percent good,
well 2019 retailgeek rude 3.5% so it’s pretty typical it’s right like we normally years we expect to be in that three to four percent range when we fall below 3 we call it a down here and,
you know we haven’t seen very many years in recent history that were above for so.
So it’s right in The Sweet Spot of typical growth that you would expect if there was no covid-19.
Which is super interesting to me so you know but there’s a bunch of micro Trends in that Top Line and in the biggest trend is,
that a way bigger chunk of those sales were e-commerce than usual so so e-commerce Guru 25.3% for the year.
Which a normal year for e-commerce like 2019 we grew 12.9% so so almost yeah so it’s basically two years of growth in a year some.
[11:25] Wait I thought it was five years of growth in a week 10 knots to noon.
[11:27] Mackenzie said 10 yeah yeah they lied.
[11:32] Well why don’t you sidebar this so that everyone is on the same page so what what happened with that so I know Mackenzie put it out and it’s somehow wrong.
[11:41] Yeah well and I.
[11:42] Did they did they blow the year-over-year aspect or what where did they.
[11:46] So they did a couple a like they were roll up of a bunch of other data sources right so they took the same US Department of Commerce data we’re talking about,
but then they took some estimates from Bank of America and and a different definition of retail from Forrester and then they they did this thing that we used to do in e-commerce all the time they said hey let’s not talk about all of retailgeek,
because nobody buys food online so grocery in restaurants shouldn’t shouldn’t be in that number,
and nobody buys cars online so let’s take cars out and let’s invent this artificial definition of core retail and call it you know growth of core retail,
So so a there’s no way to check that because there are no actual numbers for that that arbitrary definition but I’m sure I’m sure if someone from Mackenzie won on the show right now they’d be saying hey Jason it was higher than your.
But I would also point out that the biggest growth in e-commerce were all those things that they took out right like tons of people were buying buying food online tons of people were buying cars online so I feel like those old.
Those old things of saying like hey there’s some categories of retail that don’t qualify for e-commerce has is no longer valid.
[13:05] But if we use this nice normalized data from US Department of Commerce we grew 25% normally years thirteen percent so that.
Is is awesome.
If you if you kind of think about the shape of the year last year 12.9% April peaked at 18.4% and then we finished the year at 15.7% right so.
But in terms of what percentage of retail the.
Is e-commerce so it never spiked up to the 33% that Mackenzie predicted in there 10 years of progress,
but there are certain categories which probably did have have five or ten years grocery probably it you know did hit our five-year forecast.
Overall e-commerce hit like our two-year forecast so it was a doubling not a 10 Xing.
[14:00] And for sure in that those retail sales you had clear winners and losers we’ve talked about this on a bunch of shows but.
The you know if you were a grocery store or a sporting good store or home hardware store you had a great year because of covid and if you were department store or an apparel store or gas station,
you had a really crappy your,
because of covid and one of the biggest Trends is this whole shift from services to products right so nobody spent money on travel and instead they bought.
Furniture and stuff for their house and mostly nobody went to restaurants and instead they bought more food from grocery stores and so those that Trend had the effect of pouring extra dollars.
Into retail and for sure it goosed e-commerce in those categories.
If you if you think specifically around food 2019 food was a 50/50 split between restaurants and grocery stores,
at the peak of covid it was like 70/30 that we were spending on on Grocery and ended up about 60/40.
So that’s an extra 200 billion dollars hundred ninety billion dollars in grocery store sales as a result of people going to restaurants OS.
[15:21] Restaurant as a whole industry were way down we’ve talked about that a lot but.
Full service restaurants in particular we’re totally creamed they were down like 92% so the whole end restaurant industry was down 15% because,
you know the Pizza Hut’s of the world and the the McDonald’s of the world like could actually do pretty well with drive-through and home delivery,
um but the full-service sit-down restaurants just got obliterated.
[15:48] And then the last thing that I will tell you I still haven’t totally figured out in surprise me is if you said hey Jason based on all those trends.
Would home furnishing stores be winners or losers and covid I would have said oh man there are a winner because instead of going on vacation I remodeled my house and I bought new dishes and new sheets and I did all these things from,
from William Sonoma and you know Lamps Plus and all those stores and I would have also said that because we were stuck at home and there was a new video game launched that electronic stores would have been way up.
And two categories that were down for the year we’re home furnishings and electronics which is interesting to me in a little surprising.
[16:32] Risk is a Wayfarer has really picked up nicely.
[16:36] Yeah there are there by in Best Buy would say they were up right so so where’s the electronics that’s down to offset best by being up,
and William Sonoma was up so what’s the home furnishings that’s down to offset that I,
it’s a little confusing to me in the overall scheme of things these are not categories that are huge numbers so you know.
There you know it would it’s totally possible for those numbers to be skewed or maybe even like not have a huge sample size in the US Department of Commerce survey data.
[17:13] And there could be Folks at only have physical stores that you know were not essential that haven’t opened yet solar something that don’t have e-commerce.
[17:20] Yeah yeah I’m certain that that is a big big part of it is they were more disrupted.
[17:26] Person will call anything else so a second I tie that back to the Amazon numbers but were there any how do we so if we think about that.
You know that I guess it was 25% so the growth the e-commerce growth ends up being what again.
[17:45] That’s the grass okay yeah so I think that is a new Baseline Amazon grew like 40 and change right like 46 47 oh that’s just cute for number your that’s a 25 as an annual number it.
[17:57] Yeah but if you if you think Amazon grew 43-39 40 so you could you know call it 40 41 percent.
[18:07] Yep so they over indexed eBay was a little bit under and then we’ll talk about Shopify a little bit but they were way over that.
Do if Walmart was over so it’s one of these things where everyone was over except eBay again how is that possible.
[18:26] Yeah the math generally doesn’t work out right like I so the answer is I don’t know like for the last two quarters Q2 and Q3,
Amazon was about exactly the same as the industry average so they they mirror this Department of Commerce data really closely cute,
Q2 Department of Commerce grew 4045 percent Amazon 43 Q3 Department of Commerce group 37 Amazon group 39 so that that.
[18:54] Correlation actually gives me confidence in the numbers to be honest.
The but almost everyone else put your point wildly outperform those you know William Sonoma was up 50%,
you know Walmart was up by Katie to a hundred percent Home Depot was up eighty to a hundred percent Target was up like a hundred and two hundred hundred fifty to two hundred percent.
BJ’s Albertsons Best Buy were well over two hundred percent so you look at all those big big companies that are up way more than the industry average in your like man a bunch of small companies.
Must have really gotten cream for this to be true,
um and I do think that is partially true I think covid-19 disproportionately hurt hurt smaller retailers,
um but it also underscores that there is not a terrific measurement methodology for this e-commerce data and the US Department of Commerce guys worked really hard to get this number accurate but there,
they’re dependent on the accuracy of these surveys that retailers fill out and send to them and I just I don’t have great confidence that retailers fill them out with,
with ultra care.
[20:06] Very cool did your automated cloud system survive all this thinking.
[20:14] It did it did it worked really well I found it really useful and I generated a bunch of what I think are reasonably attractive visualizations and so I’ll put a link in the show notes,
but I’ll publish a Forbes article tomorrow recapping all this data with some charts in case anyone wants to see him.
[20:31] Brickell cannot wait now I’m going to be all getting tomorrow waiting for that to show well Jason it would not be a Jason and Scot show without some Amazon news.
[20:55] This was a this was a weird week in that there was not very much Amazon news and in fact.
This one was really interesting so I think what happened here is there’s a start-up in Australia that has a Shopify competitor that companies called cells SEL Z.
And I I first heard about this because.
I saw conversation after I saw this one of the socials and people are like hey did Amazon by cells and what started this is the founder just kind of put a or someone put a nonchalant kind of like post.
I can remember is like on their blog or their about me page but it basically said hey we’re going to be shutting down soon or Amazon has bought us we’re not accepting new customers I think that’s what it said.
So it was really weird because it was super under the radar and then.
I posted it because I thought it was interesting I thought the conversation will have in a second list was the interesting part of it and then Del Rey Jason Del Rey Chase it down and gut verification from Amazon that it was true that they have acquired the company.
There’s a big online kerfuffle around you know some folks are saying oh it’s just a choir thing what is it.
And what I think is interesting is you know so we thought the news probably like what was it two months ago that Bezos was really engaged in Amazon and spend a lot of time thinking about what they do about Shopify.
[22:24] So but then now he’s effectively kind of kicked himself upstairs well that you know a lot of people are kind of like oh that must mean it’s not a priority but.
I don’t think that’s right.
Amazon’s watching these guys are really closely and they want to take our legs out and you know the interesting thing it’s a fun thought experiment for me to thank all right if you had Amazon’s resources and that’s the fun part of it right.
Sir so you know some someone.
[22:51] I would watch a space program oh wait.
[22:53] Amazon hires Jason Scott and they gave us a mission of like you know how do we take out you know or how do we slow the growth of Shopify or.
Um let’s say they’ve identified them as a threat which I think is a valid assumption what do you do there and so it’s really interesting and you know I think,
I think they’re going to take this pretty seriously and I think they’re going to go buy a bunch of things one school of thought would be you could.
You know you and I have talked about on the show a big Trend kind of a lot of people think the next generation of these platforms is going to be more headless so so microservices right.
So microservices would be a nice offering inside of AWS if you look at AWS they’ve got offerings for all kinds of crazy stuff from game development tons of machine learning.
Everything you can imagine now so imagine they could build a whole e-commerce stack inside of AWS that would be these microservices as an offering.
I think that’s going to be part of the strategy I think the cells company the cells company was known for making it very easy for people that had.
Started their e-commerce Adventures on marketplaces to then open a store.
And I think that’s really interesting to me because that would be another hook right so if you think about it Amazon need to disclose this down don’t they have like two million sellers is that a number I was at four and get two million us for globally.
[24:19] I think you’re that’s the order magnitude.
[24:21] Yes that’s I don’t know if that’s the exact right number and then Shopify is it like 300,000 that’s where they’re sorry yeah okay so.
So then you know.
There’s more there’s more people that could set up stores on Shopify than have and one strategy would be.
So if you have if you worked at Amazon and you had unlimited resources basically.
You don’t have to choose your strategy can just choose them all right so normally in business I’ve had to like really choose a strategy with a competitor and really go at it so
see typically you know kind of an a military strategy lingo you like go ahead on Adam like battle them feature for feature punch each other in the face kind of thing,
or you can try to outflank them and start to nibble away at the edges well if I’m if I’m in my thought experiment if I’m Amazon I do both right,
so I think this is a flanking maneuver this is kind of the all right let’s.
Let’s roll out a feature or set that says hey if you have a if you’re on the Amazon Marketplace we’re going to make it really easy for you to open a store I feel like that’s where this is going to go.
But then at the same time I think you would go right at with the microservices strategy so and I don’t think this is part of that but I think it’s you know I think at some point that’s going to be another shoe to drop in this because it just feels like
little bit obvious to me that they would do that so that was a really long intro I really wanted to hear your take on what you thought about.
[25:50] Yeah I think you’re wildly wrong and thinking about it wrong no.
[25:55] Okay that’s fair enough.
[25:56] Yeah so I think Amazon is taking Shopify super seriously I think Amazon’s a you know apex predator that that.
Doesn’t like to have any competition and I think they look really long term so I for sure think they’re they see the growth at the shopify’s of the world and say we don’t like that and need to have a response so I have.
No problem imagining that Jeff Bezos is like you know the first person in the conference room for the project Santos meetings to figure out what Amazon’s response to Shopify is and I think,
him as executive chairman not embroiled in day-to-day operations actually.
Makes it easier for him to focus on those kinds of projects so I’m toy down with all that I could easily see AWS base microservices and and super easy,
web store sales you know tied to the Amazon Marketplace being part of that answer and in fact in my annual.
[26:56] Annual predictions I think I predicted that they would have some kind of use fulfillment by Amazon 444,
you know owned web store sales as as part of the response to Shopify what I don’t think happened though is I don’t think Amazon bought seltzer.
Um for anything to do with project Santos or to have some Global answer to,
to Shopify Celta is a 35% company in Australia,
and my experience with Amazon is there one of one of the biggest not invented here egocentric technology companies around like they believe they can build.
Everything and they dissolved a Healthcare Partnership with Goldman Sachs and Berkshire Hathaway,
because those two companies were too slow so I sort of don’t think that Amazon says hey we need to compete with Shopify the way to do it is to buy the IP from these these 35 guys in Australia,
um it just it just doesn’t pencil out for me they like Jeff Bezos would put you know to Pizza team of super smart guys and they would knock it out themselves and probably are doing that right right now as we speak there’s probably a bunch of two Pizza teams working on it.
[28:11] I think the reason about cells is because Amazon’s a newer entrant into Australia,
and they’re finding that they’re not getting adoption as quickly as they have in some more mature markets and that they need,
to Goose their third their Australian third-party Sellers and I think they acquired cells because cells had a bunch of.
Australian third-party sellers so I think it was a local customer acquisition strategy in a emerging market for Amazon not part of some Global strategy and I it wouldn’t shock me at all if,
Jeff Bezos and Andy jassy and Company like weren’t involved in this acquisition at all.
[28:57] That okay we will see.
[28:59] Yeah I’m and side note I’m usually wrong.
[29:03] I don’t think it’s the foundation of their strategy I think it’s one of a hundred things they’re going to do and it’s going to be a.
[29:08] Yeah I mean if they’re you know it’d be more interesting if they had some unique IP or something like that but I just it doesn’t seem likely that they did.
[29:16] Yeah well let’s then answer this question so your Amazon how do you either stop or or hobble Shopify.
[29:25] Well you you leverage your platform advantage to say it’s way better to get my webstore platform from Amazon than it is anywhere else and the way you do that is you say,
hey if you guys want to use FBA and have Consolidated inventory between your webstore and Amazon,
then the way to do that is to use the,
you know Amazon Web Store 2.0 based on microservices hosted on the the greatest web service platform in the world,
um and that if you you want your web store on Shopify you’re going to have to figure out fulfillment yourself or you’re going to have to send some of your your.
[30:05] Your inventory to the the new Shopify fulfillment Network and you’re still going to want to leave some some of your inventory and our fulfillment Network because we have way more customers than you do,
and they’re just going to leverage their their network advantage to walk customers in,
two years ago I think they would have said oh man sellers should know they don’t need their own website they can just sell on our thing but I think they’ve lost that battle in the the,
Flagship example for me is Anchor like to me anchor is one of the greatest success stories,
that was sort of you know born because of Amazon right like their product company they exclusively sold through Amazon you couldn’t buy direct from anchor you couldn’t buy ink or anywhere else you could only buy it as a,
3p seller on on Amazon and and anchor went public last year for a with a ten billion dollar market cap,
based on that business but guess what anchor has today they have a direct website so if anchor has decided that,
hey you know what we need to own our own website in addition to selling on Amazon then it’s really hard for Amazon to credibly argue that no one else should be doing that and to me that means,
they have to get back in the web store business but like I bet you they do it organically.
[31:22] The the other interesting thing I thought about is and we’re going to go through Shopify earnings in a little bit so Shopify is fascinating because they actually don’t make,
that much money off of their their software as a service Revenue right so what they do is they basically
they almost give away the software and then the GMB flows through and then they skim off the GMB so they’re essentially you know they skim off the payments they skim off the shipping and handling they skim off
like a firm that’s part of payments you know so that so that’s
that’s interesting because it does make it hard for Amazon price against it right you can’t
you could offer a free offering but it’s almost free as it is you know it’s so so then how do you go at the gmv flow could you offer the Shopify Merchants a,
one and a half Point payment plan or something like that or you know could you because one way to look at it is,
shopify’s getting a lot of economic value off that gmv and not passing it on to the sellers could you build about business model this is what
Mark Lori did with jet this was kind of clever thing he did there is he kind of said well I’m going to take some of this and give it back to his example the buyers but here you give it back to the sellers I wonder if Amazon kind of come up with a different economic model that would
unwind shopify’s model.
[32:43] Yeah I mean I for sure,
it’s not fun and not a super appealing business to be the a longtail webstore SAS company right like Amazon was one right there was one before Amazon
it was John who web stores right and
Amazon launched Amazon web stores and took all the customers and I think what they discovered is that it’s a sucky business it’s not fun like you know collecting 30 bucks a month from these small businesses you know with 50% charm because they go out of business
and every one of them having.
[33:16] Different needs and desires and different things they want to see on your road map right so I think in 2015 Amazon just said the juice isn’t worth the squeeze here,
like we’re not getting any benefit from this let’s just get out of this space,
and per your point Shopify figure it out the the equation to make money it’s not to charge more for the web store because small businesses can’t afford it,
and it’s not make the unit economics you know super lucrative for charging a little for that web store it’s,
you know get a nice piece of all the gmv that flows through that web sort through this whole assortment of services,
and side note that’s Amazon’s main model for profitability to write like like Amazon’s Maine,
profit driver is not consumers buying from Amazon,
it’s third-party sellers selling on Amazon right and they sell 20 billion dollars worth of ads to those third-party Sellers and they sell,
you know I don’t know how many billions of dollars of FBA services and credit card processing services and sales tax calculation services so Amazon’s right in the middle of that that gmv stream,
and that’s the reason I think they,
they decide to get back in the web store business is that they can monetize it now with all those those incremental seller service revenue streams that they didn’t have in 2015.
[34:43] Yeah yeah let’s um I guess that’s a good place to pause and then let’s pick it back up and Shopify because then that’ll give us some numbers to do it before we do that let’s have a little appetizer of Walmart earnings.
[34:57] So they release their earnings this morning and it was interesting I read the top line numbers and I’m like man had a good quarter and a good year right,
and the market did not agree with me so so from an investor standpoint it was a Miss there their earnings per share came in at one point three nine,
they had a big adjustment in there they had a bunch of write-offs and stuff too but the
the Gap earnings per share was 1.39 and consistent consensus estimates was 1.51 so they.
Um and then compounding that miss their guidance for 2021 was not very optimistic and that this is a trend I think we’re going to see across every retailer,
is everybody is going to say,
20/20 was an exceptional year because of covid and we’re not going to come up very well against it right and so you know we have more covid costs and we’re going to probably see slowing,
consumer sentiment in 2020 so combination of the Miss and the low guidance Walmart stock took a pretty good hit I think they closed down 6.5 percent today.
[36:06] So if you’re an investor that was an interesting story that I didn’t toy so you coming,
um but if you just look at it from how did they do as a retailer their Q4 comps were up 8.6% so Amazon’s the lard or Walmart’s the largest retailer in the world,
and they grew 8.6 percent which is like more than double what you would ordinarily expect,
them to do right so that’s a fabulous quarter and then e-commerce growth was sixty-nine percent,
so again that’s a huge number if the,
industry average is 40 percent if if you consider Amazon the industry average or 25% if you look at the US Department of Commerce,
sixty-nine percent growth for the quarter is in e-commerce is great.
[36:58] What wasn’t so great in Q4 is their profitability they you know as Walmart’s mix shifts to e-commerce like they have challenging unit economics and profitability goes down,
they had some they raise their,
their labor rates last year and paid can their Associates more they paid hazardous hazardous duty pay and all these other,
other unique covid fees and so so fair enough profitability was was definitely a soft spot but from a customer demand standpoint.
I thought they had a great quarter they also announced that 20:21 was going to be a huge capex year for them they’re expecting to spend 14 billion in a.
[37:42] Normal big year for them is like 10 billion and by the way like those 10 billion dollar years were.
We’re like from the days when they were building out a lot of Supercenters and so to spend 14 billion in a year when you’re not going to do a lot of new store growth.
Um is a remarkable commitment to investment and what they said is a bunch of that Investments going to be in fulfillment and automated fulfillment and particularly,
grocery store micro fulfillment which should scare Scott because that was one of my predictions,
in our January show they’re making a big investment in health care and and services that go around retail in addition to retail which might sound familiar if you follow the the Amazon Playbook at all.
They also did announce that they’re going to increase their average wage to $15 an hour,
um average being an operative word their target and Amazon raised their minimum wage their starting salary to $15 an hour Walmart still not committing to that,
but they are committing to have an average wage of $15 an hour and I want to see which is a raise for like half a million folks and.
[38:56] The I want to say they’re starting salary is still like 11 11 bucks an hour so that’s going to be a big expense,
so and again this was Walmart’s last quarter of the year so you can now see their full year and so their full year they ended up with five hundred sixty billion dollars in Revenue,
which was up 7.7 percent on a constant currency basis,
u.s. comp sales were up 8.6 percent which is a phenomenal year e-commerce for the year grew 68 69 percent or I’m sorry seventy-nine percent eighty percent so that’s that’s,
very fast growth for the second largest e-commerce site in the United States and then kind of an interesting one,
in 2019 e-commerce was 2.5% of Walmart sales now e-commerce is 6.2 percent of their sales so it’s become digital is becoming real at Walmart.
[39:51] Brickell awesome and then anything else there.
[39:57] I know that you know it’s going again this is why you should take retail advice and not stock investment advice from Jason.
[40:07] It’s all about expectations yep speaking of expectations let’s talk about Shopify earnings like that transition.
They are they actually smashed expectations so Wall Street Hanna met a buck Twenty Eight on the EPS side and it came in a buck fifty eight so be by 30 cents.
But the stock went down and I think what you had there was.
You know a lot of runaway expectations so there’s there’s printed expectations which is kind of analysts consensus and then there’s kind of like quote-unquote whisper number and my sense is whisper number on Shopify everyone was kind of like Mmm Yeah.
Amazon came in pretty good and Saudi Bay and you know will they be able to continue this over a hundred percent growth in the answer was no so they Top Line grew at 94% which.
Is just amazing right for the fourth quarter but I think people had let their expectations run away that it could be higher because Q3 there were at a hundred nine percent and then back into to a hundred nineteen percent.
So it was a pretty good step down from from those growth trajectories.
[41:13] That’s a first world problem when your growth deceleration slows down a 94%.
[41:19] It is but hey it’s Wall Street they’re hard to please what have you done for me lately.
And then we’ll talk about in a second but I think also so Wall Street you kind of look at the print and then the forward-looking stuff so,
so so you know beat be current but then we’ll talk about the four projections,
for the year that puts them at 99% I know that was pretty frustrating to them I hate it when numbers do that to me can’t you just get that one more percent there to make it triple digits.
The revenue grew for 2020 full year 86% and the gmv grew 96%,
and then gmv for the fourth quarter was over 41 billion that puts them at a hundred twenty billion for 2020.
So if you line that up against Amazon’s third-party gmv that’s about,
40% and I think there are there are bigger than eBay Now by a good margin that number I think last I looked if you take Autos out of eBay I think there’s sub a hundred billion still.
[42:18] I’ll have to have one of the interns fact check me on that and then as we mentioned it’s really interesting if you take that slice of Revenue that they have there.
The subscribers subscription Services which is the soccer as a service Revenue the software licensing Revenue that was 280 million,
but then merchant services was 700 million,
so you can get the mix there that you know I think it’s 4060 so 40 percent of the revenue comes from software revenue and then 60 comes from quote-unquote merchant services and this is where they’re essentially,
charging a merchant two and a half points for payment and then you know passing through two and making a half point on that gmv that flows through there,
then they make laugh Point here so they effectively have at a crate like a Marketplace would but it’s against all the services and aggregate that there are consumers that there.
Their business customers are using and then yep,
so that Merchants Solutions actually grew a hundred sixteen percent so when,
you know which grew faster than govt which means they’re take rate went up effectively so there,
you know the their Merchants merchant service Revenue grew faster than gmv and overall Revenue so it took share from the software side of the business.
And then the take rate is going up so there you know whatever mix or things are happening there.
[43:47] Um so one of the things that I think shocked Wall Street a little bit is that they effectively said that they’re going to get very serious about the Us distribution Network and,
storing and shipping things I think they had one fulfillment center up in Canada where they’ve experimented with this and it sounds like they’re going to lean into it so that’s going to be interesting.
And then another thing that was announced around their earnings was that they are going to put their payment system on Facebook check out so I thought that was a little tidbit that I wanted as the payments guy wanted to get your feedback.
[44:18] Um so yeah so so if we if we tie that back to that Amazon acquisition you know.
This is definitely going to be on you know Amazon’s radar so they’re DMVs heading to 1/2.
It one way to look at is you all are selling things into this pool of people selling online now they’re going to be building their own F be a competitor,
so it’s going to get really interesting to see what’s going to happen here and then Ivan IV,
I thought it’s funny the Shopify and I don’t know if this is a corporate policy but there,
there are social media people there like poking the bear at at Amazon so when Bezos left they did a kind of an odd goodbye kind of a thing that I thought was kind of it was funny but.
It was definitely you know not I’m a pretty risky
kind of guy that was just kind of like I was just like oh my God I if I was to see a that’s that was a little bit of a step too far so so there’s there’s definitely going to be a really interesting story this year watching these two battle it out and I’m excited to watch it.
Watch the blows land.
[45:28] Yeah I’m hoping to launch a new television service which is going to be Toby and Jeff Bezos playing Starcraft so we’ll see you that.
Comes to fruition but seems my money would be on Toby actually in Starcraft but.
[45:44] Who has the coolest hat would be even better.
[45:46] Good point yeah they both have discovered some interesting foil later in life but yeah I mean.
It’s funny because I do I think shopify’s a phenomenal story that growth is Monumental in the fact that their 40 percent of Amazon’s third-party Marketplace like.
That that is serious right and they’re competing for the same wallet and so they’re absolutely competing for dollars,
and they’re both well resource to escalate the fight so it’s going to be exciting to watch,
the thing I like I try to remind people of is that they don’t actually have huge overlap in services today right like what Amazon does better than anything else is they acquire eyeballs,
and then they they rent those eyeballs to sellers through all of these services.
Shopify does exactly the opposite the one thing they don’t do is bring any eyeballs to to your product they exclusively sell you a bunch of services for you to monetize the eyeballs you already have and so,
for sure they’re gonna grow an overlap each other and you know we’re starting to see that with a fulfillment networks and and various things but they’re not starting from a.
[47:01] They’re competing for the same dollars but they’re competing from two opposite ends of the service spectrum and so it’s you know they’re going to meet in the middle somewhere,
and it’s going to be interesting to watch but like you know my big takeaway from your numbers are,
um not only is the is that g that Revenue that’s tied to gmv is much bigger than the revenue that’s tied to subscriptions it’s growing,
twice as fast right so it’s both,
they win when one of their existing customer sells more they win when they sign up a new customer they win when they find more services to sell to that same customer they win so that that is a nice Network,
um and you know let you let you see what investors are seeing in this in the Shopify model and you know I in the back of my mind I’m hearing that soundtrack,
you know your margin is my opportunity you know I have a feeling that that Jeff and project Santos are,
not gonna sit back idly while that happens.
[48:03] Yeah absolutely another thing that’s interesting got.
[48:08] Just on the shop pay thing them being on Facebook isn’t that interesting to me but it what it signals is right so.
It’s highly unlikely,
that there are new buyers that are going to go to look at the new Air Jordan shoe on Instagram and buy it because they can now pay with shop pay right like I you know I doubt there was anyone that said like who I really want that shoe I’m gonna buy it through Instagram check out.
But I’m not going to use PayPal only do they accept my shop pic,
um so I don’t think it brings any new eyeballs to the those products on Instagram like I don’t think it’s a big draw but,
if you already decide you want those shoes and you find out that checking out is going to be easier and lower friction because your payment information is already stored because they’ll accept your shop pay I do think it can improve conversion,
for the people that are already discovering that product so to me it’s.
[49:06] There’s it’s a smart play fun shopify’s part and Facebook’s part to offer it it’s probably not game-changing or super,
um at the moment but what’s super interesting about it to me is as far as I know it’s the first example of shop pay being accepted outside of the Shopify echo system,
um in this is another interesting you know potential Battleground you know the one of the biggest pieces of that of that gmv Revenue stream for Shopify is because you know they used to,
to Outsource credit card processing to stripe and others and now they’re doing it on themselves,
and if Shopify is going to become a legitimate digital wallet and offer their payment you know method available you know far and wide that that is kind of interesting,
Amazon is tried to do that and hasn’t had very much success because.
The Amazon brand is in direct competition with every other retailer the Shopify brand really isn’t right and so it is interesting.
If this first move to Facebook signifies you know Shopify deciding that one of their growth opportunities is,
is digital wallet that is an area where I think they’re strong and have a competitive advantage over Amazon so that that.
[50:26] Yeah and then
then there’s been a lot of speculation so then there’s a recruiter for Shopify that’s very he hangs out in the Twitter circles you and I frequent like the DTC and kind of area and the retail e-commerce group and then he put a.
Really interesting listing out there essentially saying we’re building a high growth team you need to be on the west coast and we’re looking for a lot of talent and kind of from the D in the,
DTC world so that and a lot of other hints have me thinking I think it was this one of my prediction said they’re going to build a Marketplace so so I feel like I feel like they’re going to go at the eyeball part of Amazon and it’s gonna be interesting to see how that goes for.
[51:10] They could like I think I’m less optimistic that they will then you and others are,
they totally could and you could interpret that job listing as,
as you know a Skunk Works to hire people to build that Marketplace but to be honest I give you look at through a different lens that same job listing could be for a team to help,
Sell Shop paid tune on Shopify Merchants right like so you know it could be other things it could be selling those fulfillment services to other Merchants it could it could be lots of things.
[51:43] Yeah but it’s DTC no those are all B2B this is a consumer team.
[51:48] Yeah yeah well we’ll have to see again A lot of people are speculating that they’re going to do it and they have the resources to try and I’m not even saying that they will fail but what I will say is.
They don’t have any proof points that they can attract eyeballs and attracting eyeballs is super hard and so just because they’ve been successful in these other businesses.
Um does not mean that they’re going to be able to create you know the hundreds of millions of consumers brand Affinity that that they would need to to compete with an Amazon.
That’s super hard to do it would be an impressive story if they they launching can do that and and the day they do that a bunch of the things that people like about them suddenly breaks,
so you know a lot of the reasons you do business with them is because they,
they don’t compete with you and they don’t compete for eyeballs and they don’t claim ownership of your customer in the same way Amazon does so as soon as you become a Marketplace,
you’re gonna start struggling threading the needle with all of those things so you know you can imagine ways to part we do it but but it it could get messy.
[53:04] All right so it’s going to be a really interesting 2021 with this battle of these two Tech Titans and it’s gonna be interesting to see how it plays out.
[53:12] Yeah I admire the heck out of both companies I’m glad they’re both there and I hope I hope they do compete in a bunch of services and make him all better for all of us so.
I think you know as non financially in observers I think it’s going to be super interesting to watch.
And Scott that’s probably a good place to leave it because we’ve
taken a short Newsweek and turned it into our full hour-long show as always if you have any thoughts or questions about any of the topics we discussed today you can totally hit us up on Facebook
and if you found this valuable you know if it got you excited about what’s going to happen in 2021 a great way to start off the year on the right foot is to jump onto iTunes and leave us that five star review.
[54:01] Thanks everyone for taking the time to leave that review and.
[54:05] Until next time happy commercing!
EP253 - Amazon Q4 2020 Earnings
Episode 253 of the Jason & Scot show was recorded live on Tuesday, February 2nd, 2021.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scot show this is episode 253 being recorded on Tuesday February 2nd 2021 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:41] Hey Jason and welcome back Jason Scott show listeners,
Jason get him any more bummed out today I was all excited to get the Amazon news
Q4 we’re going to see finally how holiday 2020 went this is like one of the first companies reporting this cycle so I was all excited for that
and then I got my legs taken out Jeff Bezos is announced that he is going to move from CEO he’s no longer be CEO of Amazon he’s moving to executive director so I’m a little sad about that we’ve seen,
a 27-year run he’s one of our biggest fans of the podcast so he’s probably listening right now so Jeff great 27 years is good run and sorry to see you go so I’m going to do I’m going to miss hearing him.
day one and all is management principles and all that stuff so but I’m sure he’ll go do some cool new stuff how are you feeling about it Jason.
[1:39] Yeah well at first I was excited because I was hoping I wouldn’t get all those like detailed notes that he sends after each episode about what he agreed and disagreed with
but then I was informed that he’s mostly stepping out of the the CEO Row in order to have more time to focus on our podcast so.
So I’m not sure how that’s going to play out but in all seriousness.
[1:59] Maybe we could co-host the Jason Scott and Jeff show.
[2:03] He keeps asking to come on we’re eventually going to have to relent and let him.
In all seriousness though I actually didn’t view this as very big news.
In my mind I feel like he had largely already stepped out of the operational CEO role.
Late last year early this year and then my understanding is he kind of became much more active and got re-engaged specifically because of covid and so I feel like.
He you know kind of sucked him back in and now that he feels like he’s worked through the at least the.
The big first wave he’s looking to take a step back again so I kind of view it as him kind of following in your footsteps and building a good company and then you know turning turning over the keys to other operators and.
I I think I mean he’s still going to own a bunch of stock he’s still gonna be involved in their strategic decisions I sort of don’t think he was getting.
The customer feedback the same way he was earlier in his career even before this so I’m not sure it’s a huge difference.
cool well couple highlights from the letter he sent out I won’t read the whole thing although it’s it’s a good read I definitely recommend everyone look at it so we’re just pick out a couple things here first paragraph I’m excited to announce that this Q3 all transition so he’s so this will happen in
third quarter to Executive chair of the Amazon board and Andy Jesse will become CEO that’s interesting because Jeff will key was for long long thought to be
The Heir Apparent and then he left recently so there’s seems like there may have been some kind of a.
Bit of a struggle secession battle behind the scenes I don’t know what drama there was there but Andy runs the AWS part which has been.
Wildly successful but he has he didn’t just come up through cloud computing he has done a little bit of everything at Amazon.
[4:06] It continues in the exact chair roll I intend to focus my energies intention on new products and early initiatives that’s interesting because it does leave the door you know we’ve had a lot of these articles about
I’m thinking a lot about Shopify so that kind of like leaves the door open there a little bit Andy is well known inside the company and has been an Amazon almost as long as I have he will be an outstanding leader blah blah
and then kind of skipping to the end he kind of talks about.
Yeah the last 27 years for the first five of the biggest question you got was what’s the internet that was kind of funny and then in conclusion he says as exact chair I will stay engaged and important Amazon dishes but also have the time energy I need to focus on the day One Fund
that’s his largely I think it’s focus on homelessness the Bezos Earth fund that’s ones obviously for,
climate change kind of stuff and blue origin that’s obviously going to space and the Washington Post which is his little
news letter that he has there and my other passions I’ve never had more energy and this isn’t about retiring I’m super passionate about the impact I think these organizations can have so you know I guess the the
the bittersweet Part of this is is sad to see believe Amazon but maybe he’ll kick into kind of like an eel on second gear here you know and.
Do some other really cool stuff so we’ll see blue origin is moderately interesting I feel like it’s so far behind SpaceX at this point that I don’t know it’s not I don’t follow it as closely as SpaceX.
So if anyone wants to read the letter will put a link to it in the show notes.
[5:35] Awesome yeah and it is a really well-written letter he’s a good communicator so I enjoyed the wetter and there were some funny parts but Scott I think we should put our emotions
back under the desk and we should jump into the Q4 results.
[5:53] Yep we don’t get to 253 episodes without being consummate professionals so I’m okay let’s go let’s do this thing.
[6:02] Good deal so let’s set the stage a little bit first of all if we think about the shape of the last year you know of course we get the the.
Data from the Department of Commerce on on e-commerce growth and so if we look at the last quarters of growth for the entire industry q1 e-commerce was growing at almost 15% 14.8%.
Amazon in q1 was growing much faster than that like 27% Q2
which was the main covid impacted quarter where a lot of retail was forced to close e-commerce jump from 14.8% to 44.5%
so you know one of the hugest growth in recent history and Amazon almost exactly mirrored that they jump from 27 percent growth.
To 41 percent growth Q3 the growth settled down a little bit still
twice its historical run rate but Q3 e-commerce industry grew at 37.7% Amazon grew exactly the same at 37%
so we don’t have the industry data from Q4 yet that actually,
um will get the raw version of that the monthly version on the 17th and then we’ll get the quarterly e-commerce roll up on the 19th so look for a show in the middle of the month from us to kind of recap what happened to the whole industry.
[7:31] Part of the reason I’ve been excited for Amazon’s earnings is they do mirror the industry so much that that it’s going to give us a pretty good hint of where.
Where the whole industry should come in at their guidance so what they told the Mark had to expect was around 38% so you know that would be similar to their Q3 growth.
And so that’s that’s kind of.
Where we were going in and then once the markets closed today they made their announcement and Q4 net sales growth was drumroll 44 percent so.
An acceleration above that guidance so I assume that makes,
the investors happy and interesting after the slight deceleration and Q3 that we saw tree accelerating Q4.
There would have been an argument that because Q4 is normally a heavy e-commerce quarter it’s harder to hit these really big growth numbers so that was impressive,
the number by the way was a hundred twenty five point six billion in sales which
versus 87 billion last year but what’s cool about that that is I believe that’s Amazon’s first hundred billion dollar quarter so that’s that’s pretty exciting.
[8:50] Yeah for the longest time,
we you and I would co-present this yeah Walmart was a quote unquote 400 billion dollar company and it really hasn’t I don’t know if it’s changed that much is it still kind of that 400 billion right it hasn’t cracked.
So a hundred billion quarter is kind of like how big you have to be to get to Walmart now you and I would make the argument that with third-party gmv they passed a hundred billion a long time ago from a GMB perspective so it’s this is like just pure Revenue which is,
pretty amazing so by gmv I have to do the numbers they’re pretty pretty honking big.
[9:25] Yeah I’m going to I’m looking forward to that and now I says it’s also interesting to me because of these rq-4 numbers you can now get like the snapshot for the whole year and so from from Amazon’s perspective for the year net sales grew 38%
so you know again we care more about gmv but but net sales were 386 billion for the year vs. 280 billion last year so that’s
thirty-eight percent growth or 37 percent growth under constant currency so not
not a bad year.
[10:02] Yeah and then that’s the top line so that’s what I would call a beat and then on the top line and then operating profit was expected to be 4.4 billion by Wall Street and came in at 6.8 billion so that’s you know.
A paltry 2.2 billion more than Wall Street,
I was expecting but remember Jason Amazon is not a profitable company so so in Wall Street parlance that was a top and bottom line Beat which is always good
free cash flow increased to 30 1 billion for the trailing 12 months compared to 25 for the previous period so that’s 20 percent increase in free cash flow this is all after you know they spent I didn’t see them call this out
but they had forecasted that they would spend like four billion on covid,
stuff you know various like testing and then also social distancing and partitions and I’m sure mask and all this kind of stuff so.
If they had done this without covid there would be another four billion dollars down here on the bottom line I I imagine which would have just been.
[11:09] Yeah although they also got a lot of extra demand from covid so it may be may be harder to.
[11:13] It was a fair trade yes fair trade.
And then if we look at that for the year net income increased to 21 billion compared to 11 from last year so in 83 percent,
your increase of net income and you know when just kind of your basic math is if you know
revenues increasing 30 or 40 percent or whatever it is and and your net income is increasing faster you’re getting more profitable so that’s pretty impressive to see an acceleration in your business and you’re increasing the.
Profitability of the business so lots of lots of,
the thesis for this for literally 27 years is at some point those things can get so big they just can’t spend enough money and the scale will kick in,
with things like hundreds of fulfillment centers and all this stuff and that’s turns out a hundred billion dollars is a quarter is really a big scale that you get a lot of efficiencies in a business like this.
[12:12] And then looking at the consolidated
you know what this means is looking at the segments inside so North America grew 40 percent and all this is without the impact of
constant currency so it’s X FX as they say and then International grew 50% and I have to go we have to the intern interns are off tonight
but I am pretty sure we haven’t seen International growth since like maybe 2017 when they started to really juice India,
so International usually is lagging the North America by.
Five percentage are some points or so so this is really interesting and will dig into a little bit more I need to kind of parse through the the
K in the queue when they come out they do have a little bit more country data inside of those than they have at this point but I’ll save that for a future show I’m intellectually curious like what’s going on in international cause that you know was it,
the covid bump was delayed internationally compared to the US or you know I don’t know why I’m really curious to dig into that international number.
[13:23] And then sets the quarterly View and then we look at the annual view Consolidated as you mentioned your your Amazon grew 38% North America was at 38% and that surge at the end
made International 40% just a hair more than then North America.
[13:45] Yeah and it’s interesting because you know North America is quite a bit larger than International still so you you’d almost expect International to be growing.
Faster so it’s going to be interesting to see if they provide any more detail like did covid have a bigger impact.
On Cue for internationally for some reason or or is it just you know that they open up more markets I don’t know.
But one of the interesting things is to kind of look how the revenue breaks down so if if you look at that net sales growth by segment
forty-six percent growth in online retail so that’s.
For them that’s one piece sales they do break down physical stores separately which only I’m interested in and continuing a trend physical stores is the only thing in history to ever go down for Amazon,
and it went down 8% which is pretty material right it’s mostly Whole Foods and 8% is a pretty big drop especially in grocery which.
You like on average went up 20% thanks to covid but what I think is happening here is for any other grocer.
Their sales went way up but it disproportionately skewed to e-commerce and Amazon when you order something online and it’s delivered from a whole food sale it.
[15:12] Shifts from being a store a physical store sale to a digital sale so I think.
Um that that that is kind of gumming up the works when you look at this negative eight number.
Third party sales you know we’re growing even faster which has been the trend lately so they’re growing at 57% subscriptions which is like Amazon Prime,
grew at 35 percent AWS is maybe the first business at Amazon that seems like it might.
Start to have some impact of large numbers because while it’s still growing very healthily it’s its rate of growth is slowing so it was at 28 percent and then to me,
the most surprising number and we’ll unpack this a little bit later but the.
The the biggest surprise in all this was what Amazon calls other which which we believe is mostly advertising revenue and it was the biggest growth of all it was 66 percent so that’s pretty remarkable and,
we’ll talk about that a little bit more later when you look at that mix it’s about 61 percent to North America 27% International and 12% AWS is kind of hot,
the revenue breaks down but don’t spend too much time thinking about that because if you if you refactor did it Jim via it would look a little different.
and then speaking my favorite topic third-party marketplaces that that growth of 57% made the unit mix of marketplace has hit a new high Watermark of 55% that’s the first time we’ve seen it
hit 55% it does typically tick up into the you know
high level in the fourth quarter because Amazon leans on its Army of entrepreneurs to help satisfy all that holiday demand so that’s as a third-party Marketplace guy.
I can remember when we were at like 33 percent and it’s pretty amazing to see it gets 55 I always felt like Amazon would balance it more at 50 so it’s interesting to see it kind of cross over there I wonder you know.
My bet is they have some data that makes them more comfortable increasing their sales from a customer experience standpoint like maybe the early days,
third-party sellers weren’t quite there as you know obviously have FBA but even then like maybe self-fulfilled Prime and that kind of stuff is is helping nudge that number because Amazon feels good about the customer experience.
[17:45] Yeah I think you know one of the the trends themes in Jeff’s letter was this thing that like when you invent something crazy new it seems.
Completely implausible at first and then if it’s a wild success it one day it seems routine and that’s the biggest compliment you can never get and I feel like third-party Marketplace is the perfect example of that that it was like hugely controversial and somewhat unlikely
when it was launched and now it’s just like oh ho hum it’s 55 percent of our sales.
[18:16] Yeah absolutely
so that’s kind of some of the highlights of the quarter will kind of from the marketplace retail side and then we’ll cover some of the other categories but it’s also interesting to look at the guidance so this is where Amazon tells Wall Street here’s kind of what we’re expecting for q1 of 2021
so I was this is always interesting because.
Yet factors in it at this point they’ve obviously seen most of January’s results internally so they have a third of the quarter kind of like under their belt and they can
make some predictions there so they said net sales are expected to be between a hundred and 106 billion which is
booked in growth of 33 to 40 percent so 36 at the midpoint so definitely a step down from that kind of 44 percent that they saw but they always they always kind of do this route this would be called quote conservative guidance.
[19:06] Or sandbagging.
[19:07] May possibly one of the things that is challenging I can speak from experience has you know everyone’s feels like,
we’re going to get a break in this whole covid thing but no one knows when it’s going to come you know you read some things that say maybe this summer and then you see other things this a we’re not going to return to normal ever so that makes it very hard to forecast.
[19:31] What to do a whole show on where you and I follow that
so before this announcement Wall Street was thinking q1 would be more like ninety to a hundred billion so they kind of have this is called raised beat so they beat the current quarter and then they raise the future quarter so this nudges the future quarter which is q1 2021,
to well beyond that,
previous Wall Street range so it’s going to be interesting there’s a lot of focus on the stock market with all the craziness going on with read it.
People in GameStop and all so you know the aside from that,
Amazon you’ve got you know this really smashing beat and raise kind of thing going on but then Jeff kind of quote unquote leaving so it’ll be interesting to see what the stock does I looked after market in there wasn’t really it was kind of flat which,
it’s interesting because I would have expected they beat expectations so I would have expected kind of like,
5% bump but so I think the headwind of of Jeff moving is put a wet blanket on that
looking at the forecast for the bottom line operating income is expected to be between three and six point five billion huge range there again kind of probably that covid uncertainty.
Um and then Wall Street had that at 5.4 so that one I would say is in line if does feel this one feels pretty thin baggy so I.
[20:54] Pretty easily beat that one and then they said approximately they’re forecasting about 2 billion of cost related to covid which is which is down and I think.
The part of that is some of these things you know are have to be replenished like testing where you’re constantly doing it but other things like any.
Changes they’ve made to the workstations at fulfillment centers or the driver schedules or any of those things are largely in the rearview and already Investments they have made.
[21:22] One other Tibbett I thought interesting is because sometimes we struggle you know at
my various companies to hire like five or ten people Amazon hired a hundred and seventy-five people in the quarter a hundred seventy five thousand people in the quarter.
So you know they have well over a million people right now and then that hundred and seventy-five thousand people that hired in Q4 is three times what they hired in the same period of 2019 so.
Just like just like imagine the infrastructure you’d have to have to hire a hundred and seventy-five thousand I can’t even.
Look how many recruiters do you have to have and you know HR sign up people.
They just must have these wildly it must be the recruiters must just be robots or something because I just don’t know how you scale something like that that’s just mind-boggling to me.
They do not break out how many of those are kind of more kind of corporate type folks versus Warehouse folks I do imagine a big chunk is warehouse but you know they are hiring corporate,
people at just a crazy clip as well so there’s there’s there’s nothing a mix of that in there also.
How about I know one of your favorite categories to look at is the ads / other business would you see there.
[22:38] Yeah so we talked about that it was up unexpectedly 66 I mean we all expected to grow but 66% certainly exceeded my expectations that means if you add up,
the ads tend to be sort of seasonal people spend more money on advertising and Q4 than other other quarters
but if you add up the last four quarters of Amazon’s other it was 21 and a half billion dollars and I can tell you that that is,
wildly above anyone’s aggressive estimates for Amazon’s advertising business in 2020 so it’s,
it’s really impressive you know we’ve already talked about the fact that they were the,
the third largest digital advertising Network behind Facebook and Google they are.
[23:30] Facebook also had a pretty good quarter but Amazon is doing remarkable to put it in perspective that’s about seven times like Twitter’s advertising Revenue.
And one of the things that’s interesting to me here is,
that there are actually some good Tailwinds for this business to grow even more for Amazon in the advertising industry one of the biggest news things and it’s getting a lot of ink right now is.
Apple is changing the way that that third parties can track mobile app a mobile user IDs in the apps,
they have to be more overt about it and a lot of a lot of apps are choosing not to do that a lot of the browsers are turning off this tracking mechanism that’s called third-party cookies,
in the cumulative effect of those two changes third party cookies and app mobile app IDs,
are that a lot of the advertising vehicles that that brands use to Target their ads and particularly those like retargeting ads are going away.
So if you were Procter & Gamble and you are used to being it being able to buy a highly targeted audience.
You have less tools to do that and one of the best workarounds is to have someone else run the ad for you.
Does have a bunch of first-party customer data and knows a lot of consumers and it turns out.
[24:56] Who would who would that be.
[24:57] That would be Amazon and so.
So increasingly that and I’ll bet you a big chunk of that 21 billion is not ads that show up on Amazon I’ll bet you a bunch of that is,
ads the Amazon places on places I Google using its first party data to Target on behalf of people that have bought ads from them.
And you know that that trend is not lost on other retailers one of the most common things we see in the world right now is retailers are launching their own media networks and so I mean Ulta,
has launched one CBS has launched one and the probably the biggest one besides Amazon is Walmart they rebranded there’s this week they it’s now called Walmart.
[25:43] They had already kind of brought it in house and put a lot of effort behind it.
The big thing they added this week is they did a partnership with a company called trading desk that.
Buys a lot of off-site media so now Walmart is trying to leverage that same Trend that I just mentioned with Amazon where.
You can buy you can pay amp Walmart to use their first party data which they have even more customers than Amazon.
And they’ll run those ads for you and in Walmart’s case in addition to off-site ads and ads on Walmart.com there now also selling through the same network ads,
on all the TVs in the Walmart store and all the self-checkout terminals so.
So the retail media Space is really heating up and Amazon is certainly.
The leader and poised to continue to be so.
[26:37] Sue AWS did you want to go there.
[26:42] Yeah oh and one other side note you know if you remember way back to episode 251 when we did our predictions one of my predictions was that that ad space would totally heat up so I’m feeling good about that prediction so in the first two weeks.
[26:56] Still too early to call.
[26:57] Yeah absolutely.
[26:58] It could totally slow down for the next 11 months.
[27:01] Exactly yeah it could turn out digital ads are a fad.
AWS Wall Street was expecting just under 13 billion twelve point eight billion and it came in I think right right at twelve point eight billion
we talked about that that 28 percent top-line growth the.
Annualize that means AWS is growing at about thirty percent which you know again it’s a
very profitable business and that’s growing really quickly I do believe that there big competitors Google Cloud platform and Microsoft are probably
um at or better than that growth rate although there they’re both considerably smaller than AWS so so maybe they’re starting to make up a little bit of ground.
[27:52] Cool and then so before we we wanted to spend a little bit of time on some other news that came out but before we do,
I felt like so this is gonna be interesting so we have this first data point kind of in the mid-40s you know historically you have this,
chart you have been publishing the kind of shows Amazon’s actually the middle of the pack right so we’re seeing like.
Historically Shopify has printed higher and even like BJ’s and Costco and so a lot of the omni-channel guys are seeing just this disorder to magnitude higher digital growth and Amazon because a lot of it is,
movement of analog to digital we’re what was your kind of gut reaction to the quarter that Amazon put up here.
[28:38] Yeah so it’s interesting like they’ve made impressive performance start to feel somewhat boring to me so they’re a little north of where I expected I was I guess I was expecting high 30s and so like for you know
44 seems pretty impressive but,
I don’t know in some ways I always expect there to be some some extra Easter eggs or some fun surprises and in,
Amazon earnings and they just they just made it look too easy.
[29:11] Let’s I’ll put elastics on there this International my spidey sense is tingling International I want to figure out what’s going on in there something’s up.
[29:18] One one thing I will say that just interesting to me Amazon has always been this company that defied the law of large numbers that despite the fact that they’re by far the largest e-commerce player.
They generally content we’re continuing to grow faster than most everyone else.
And that was certainly true even in q1 of this year like you know e-commerce group 15% and they grew at like twenty seven percent but covid seems to have.
Helped everyone else’s e-commerce you know.
Mildly catch up with Amazon right so Amazon still has had impressive growth but they’ve kind of Fallen to the industry average and a lot of these other big players are growing way faster than the industry average so you know Walmart which is the second biggest e-commerce site in the US,
drew it like a hundred percent and targeted at 170 to 200 percent and you mentioned like BJ’s at three hundred percent.
It’s going to be interesting to me is that a.
A spike because of covid and you know the fact that these guys are growing from much smaller numbers than Amazon and.
You know as the health concerns around covid abates do we,
do we see Amazon kind of move back to the front of the pack in terms of growth rates or is this the new normal that that you know they’re going to be the biggest but their Challengers are going to be growing a little faster than them it’s going to be interesting to watch.
[30:47] Yeah I agree there’s a case to be made that maybe their gains are going to be stickier because the omni-channel guys will just shift back to the store at some point or will that maybe they’ll stick to like you know there’s a lot of talk about Walmart’s Grocery and all that all that just so.
[31:02] One thing that I will say is all these other retailers that are now selling a bunch of stuff e-commerce are having the same profitability problems that earlier Amazon had right so one thing that these other retailers are not getting is the,
the unit economics of scale that Amazon has.
[31:18] Yes they’re they’re kind of on the other side of the mountain and kind of on the down slope of profitability in everyone else is like holy cow this is hard and there’s a there’s a big mountain in front of us to make this work.
[31:30] Exactly any other closing thoughts on Amazon anything that jumped surprised you or that you were particular excited to read.
[31:38] Not I know we’ve had some news out of one of the companies that was on the show so I want to hear your take on that.
[31:46] So two other kind of news tidbits I just wanted to mention first of all just because we were just talking about me dominating the predictions and retailers are struggling for e-commerce profitability
one interesting bit of news last week was that Walmart announced that they were going all in on these what are called micro fulfillment centers or what
Walmart calls lfccs local fulfillment centers so this is kind of putting.
Automated picking in a store,
to make that that online grocery pickup or that curbside pickup more cost-effective for the retailer and Grocers have all been
piloting these things but Walmart’s announced that they now have plans to deploy dozens of them this year and they actually said they’re partnering with three different technology providers so,
alert Innovations is who’s been doing Walmart Micro fulfillment up to now and then you know two other good industry competitors de Mantic and fabric,
are both apparently getting some of the Walmart business as well so that,
that is like one of the things you would do to improve the unit economics of digital Grocery and so it’s interesting to see Walmart being a leader there and it’s especially interesting because that was yet another of my annual prediction so I’m feeling good about two of my,
my prediction so far.
[33:12] Pin here CEST with the predictions this year how about is fabric is that fossils new company so the same fabric rather two Fabrics.
[33:20] No so I think you’re thinking of fabric as an Israeli Fulfillment company in fassl’s is an e-commerce platform.
[33:34] There are both called fabric rent.
[33:37] And then the other bit of news that you you referenced is previous guest on the show drizzly just got acquired by Uber
so that was a 1.1 billion dollar acquisition for four
folks that haven’t heard every episode of the show drizzly is the market leader in alcohol home delivery Last Mile for alcohol.
And that has been a.
A little micro segment that has totally exploded thanks to covid before covid the overwhelming majority of all alcohol was sold at.
now of course we’re all buying booze to drink it home and a lot of us want that delivered so so drizzly has been kind of a Marketplace that delivered alcohol orders on behalf of clients.
And now they’re getting rolled up to be part of buber,
you’ll remember Uber bought Postmates for like 2.6 billion last year so they seem to be taking some of the.
[34:38] That good Uber equity and trying to convert it into other interesting businesses.
And the alcohol one is interesting to me because it’s.
It grew at unlike 80 percent this year home delivery of alcohol grew like 80% it’s Fork it was literally only one percent of alcohol sales before covid it’s forecasted to be like eight percent of alcohol sales on there’s a couple of years so it.
It seems like it’s on a great trajectory in and would be a good investment,
the challenges that there’s a bunch of Regulation around alcohol distribution and a lot of the regulation got kind of loosened during covid and it’s an open question whether.
It’s going to take him back up at some point or whether it won’t and there’s also some speculation that some of these small start-up companies weren’t perfectly compliant with all the alcohol distribution laws but as they get bigger.
The the risk and cost of not being compliant is going to get higher so so I would say there’s some,
there’s some Regulatory and compliance risk about these businesses scaling so it’s going to be super interesting to watch.
[35:49] So will there be a day when you get an Uber and they offer you beer and wine is that what’s going to happen here.
[35:55] I think this is more of the ubereats division than the Uber but who knows.
[36:01] Uber select Uber mobile bar.
[36:07] Exactly when they merge with Airbnb it’ll they’ll be restocking all those mini bars that they put in people’s houses.
[36:14] Perfect I like where you’re going with this vertical integration around alcohol.
well look I know we wanted to get this show out quick because people are eager to hear our thoughts about that big Amazon earnings and
shout out to Jeff that was that 27 years was a good run and we’re excited to see now that you’re up to speed what you can really accomplish.
[36:40] Yeah thanks everyone and if you enjoyed.
This episode or any episode of our 253 we would love a five star review you do have to kind of go into your favorite podcast app if you’re using iTunes that’s probably the most helpful for us but if you’re on Spotify or any of those other
awesome recording our podcast listening Technologies we really appreciate a review you could be one of our first reviews of 2021 how about that.
[37:09] That is super exciting and until next time happy commercing!