Amazon released their Q1 earnings for 2022 on Thursday April 29th. In this episode we do a deep dive into all the details.
Episode 291 of the Jason & Scot show was recorded on Thursday April 29, 2022.
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.
[0:23] Welcome to the Jason and Scot show
this is episode 291 being recorded on Thursday April 28 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:39] Hey Jason and welcome back Jason and Scot show listeners
it is a Thursday in April late April and that means it's Amazon results so we're going to take everyone through the results that came out today
talk a little macroeconomic and a little bit of ecom's if we have time
Jason I wanted your hot take on Ilan buying Twitter are you freaking out.
[1:04] I am not freaking out but I'm having to have a lot more conversations with people about it than I might have expected people are super interested in following it closely.
[1:14] Yeah I had.
I think I'm not freaking out but I think one because everyone is freaking out they may be looking over a little prick
little kind of idea I had which is if the logic path goes like this the dad model on Twitter hasn't worked
since they went public that hasn't really grown or do anything the subscription model is tricky and if you do have Elon doing this he obviously understands e-commerce really well with Aziz.
Help create PayPal yeah I think it could be an interesting experiment
to do a hybrid some kind of a subscription type program but also I think if anyone could take a run at actually doing e-commerce right inside of Twitter building on Marketplace of some kind I think that would be interesting to see him take a run at that
now we could have the whole if you don't go to a cocktail party to buy stuff
conversation but I do think there is something there where if you are a influencer and you know obviously Instagram is starting to figure this out all the live streams
I think there's something there that Twitter could monetize so we'll see that's kind of what I'm thinking more versus make you know.
That kind of losing my mind.
[2:34] I think if you're a traditional Advertiser that has for what like.
Who benefited from the advertising model like you're concerned because there's potential disruption but I'm with you I think there's the.
The rate of change is likely to increase it Twitter like Twitter had been you know somewhat stagnant for a while so like I'm always excited to see interesting new experiments and trials so
I suspect we'll see some.
Some clever new ideas at least attempted to be implemented in that and you know some of them I'm sure we'll be cool side note and I maybe shouldn't disclose this on the podcast.
I'm a pretty long term user of Twitter I was like in the first million users I'm pretty sure I've never seen an ad on Twitter.
[3:18] I see him all the time.
[3:19] So what I haven't figured out why it is I don't see them like I have a verified account and I don't know if there's some.
Oily status where like they don't show as many ads but I also primarily use Twitter through apps and it doesn't seem like any of the apps show ads do you use a web browser or do you use like.
[3:44] Phone I use that wealth the apps.
[3:48] Use the Twitter app.
[3:50] Yeah I use the Twitter app the old apps don't really work anymore because they limited them to like some they're all hobbled at this point.
[3:57] So except for tweetdeck which is owned by Twitter it's like an alternative a poem by Twitter that I stole.
[4:04] Okay I didn't know that still existed.
[4:07] Um yeah so I have like hesitated to Deep dive into why I don't see ads because I'm grateful that I owe but but.
[4:16] Show me Aunt as the chief digital ad officer you should be seeing ads though I do think that's pretty important.
[4:23] Every time I watch a TV show in my wife fast-forward through all the ads I'm like like I say you realize Those ads paid for this house right and.
[4:32] I'm sorry tell the advertisers listening.
[4:35] Well I saw on Twitter that you have been spending some time in the meadow verse what's that all about.
[4:40] I have its kind of fun I got invited to a conference that was put on by meta AKA Facebook and
the reason I was interested in it was not necessarily the topic
they were hosting this 800% event in the middle verse so they sent us all their latest headsets which is the.
Used to be called the Oculus quest to now it's called The Medic West too.
But I hadn't really looked at their Hardware since the first generation that you and I bought the Oculus Rift which required a,
pretty beefy computer and a bunch of sensors and cables and I was pleasantly surprised by The onboarding Experience like you just take this thing out of the box doesn't have any cables doesn't require any external sensors.
And it seems like it works way better and easier than the old Hardware so that was kind of fun and it was kind of fun to see,
the early iterations of how.
Facebook in Visions like 200 people having a virtual meeting in a in the metaverse I'm not sure.
It's a super exciting or that the experience has been nailed yet this is like very much a 1.0 kind of thing but it's fun to see you know people inventing new things.
[5:57] Cool yeah a lot of those things you just kind of like you fiddle with your avatar for a while then it's you're sitting there watching other people you're like what is going on because their hands are moving all weird as they're like typing or something.
[6:09] Yeah they have a very like accurate looking avatars and I'm like that's the last thing I want exactly.
[6:15] Yeah I want to be Brad Pitt for crying out loud number one reason to go in the meadow Reese's to look better.
[6:21] Indeed indeed well they apparently opted not to do that for this conference.
[6:26] Well we we had mentioned doing a web three deep dive and I got a lot of listeners that reach out and said they would really like to see that so we need to put that on our agenda.
[6:42] Yeah yeah yeah you know what I mean Dad request for us to do a podcast.
Your pedantic so you want to kick us off with the little view of what's going on the macro before we jump into some micro.
[7:01] Yeah so in general the macroeconomics are kind of a Debbie Downer and you know I am spending an awful lot of time talking with retailers and brands that are kind of planning for.
Wean sort of next 9 months as a result of that but kind of frame this up.
You know the Marquis - macro is inflation which there's a bunch of ways to measure it it's a wildly imperfect thing but the the most popular foot like General inflation number we use,
we're now at 8.5 4% which is a 40-year high so inflation is very high.
Another one we look at is like various credit worthiness and so like mortgage delinquencies is a good proxy for consumer health.
And mortgage delinquencies aren't alarmingly High yet but they're in the last quarter they ticked up.
And so that that is a potential early indicator.
A bigger indicator that we don't like is to see the savings rate Decline and so historically like for the last 10 years I would say.
[8:20] The average savings rate has been about eight percent so consumers save about eight percent of their income,
during the pandemic we had the highest savings rates ever because consumers got really conservative and they were gifted a lot of extra money in terms of economic stimulus so it like briefly pipe.
[8:38] Spiked over 20% but now it's back down below the it's at a 10-year low now so it's at 6.6 percent so that.
It says that all of that inflation has kind of sucked all the savings out of the the US consumer and we're starting to see more defaults,
I don't have data on it but one that I've heard is alarming is we're starting to see a high default rate on all those buy now pay later services that everyone you know has gotten attached to.
[9:07] I've been in the housing market lately and for those that don't know the you know mortgages are starting to to really shoot up so that the.
Traditional 30-year fixed mortgage rate is up at 5.1% now.
It was it that during the pandemic it was down below 3.
And then you know a particularly alarming one is GDP,
which you know we had been kind of growing in that that one to two percent a quarter and you know we just got the the.
[9:45] The Q I want to say I think it's just Q4,
GDP and it was expected to be up 1% and it was actually down 1.4 percent so the economy shrunk witch.
Was alarming and then you roll all that up.
And you and I have talked about this being a little bit of a mixed bag but there's these consumer confidence index has and the one I look at is the University of Michigan survey,
and so they have it kind of indexed against a hundred and so right now the the consumer confidence survey is that a five-year low so it's,
lower right now than at any point during the pandemic and it's it sixty five point seven and so often.
The consumer confidence our roads before the consumers actual Financial Health our roads but spending tends to correlate with consumer confidence more than.
Then actual economic macro so so that's a particularly alarming one to the retailers,
the one thing I would say is bright is as I've talked about before you know in general retailers did really well in the pandemic and and sales,
um we're quite a bit higher over the last two years,
and we haven't really seen them take down there the rate of growth has dramatically slowed so March retail sales versus a year ago was up 5.5 percent.
[11:14] You know that's up forty percent versus two years ago and q1 of this year was up 10.8 percent versus last year
it's up thirty percent versus two years ago so retail sales are still strong what you know some people would rightly point out however is what we what's hard to measure is how much of those.
Of those increases in retail sales and q1 were actually from that inflation right so you know unit sales could have been down significantly because prices were up so much.
[11:48] Yeah I just one of our interns handed me a note the GDP is a quarterly so that's the q1 result they do frequently update those kind of after the fact that they get more data and so but I don't
usually it's kind of fractional so I don't think it's going to swing to a positive sadly.
[12:07] Yeah so you roll all that up and let me just say like we went into two strong years in January and February a lot of people are planning a lot of aggressive.
Investments and I and it feels to me like people are like really curtailing those investment plans as and are starting to hunker down for for potentially rough economic year,
so we shall see.
[12:32] Are so when you're out there talking to clients or few people kind of saying because right now everyone's maybe they already done it maybe they're kind of making their fourth quarter planning decisions right so it's kind of like a very very,
cloudy crystal ball.
[12:49] Oh yeah I've I've already like finished a bunch of holiday campaign plans so I've been talking like Christmas toys Non-Stop,
three weeks which is a little weird but yeah and you know they're like they're there is a inflation layer to everybody's holiday plans right now,
you know hopefully we get to use the the optimistic version and not the pessimistic version but everyone's planning for you know potentially going into Q4 in not great shape.
[13:30] Yeah yeah but I mean you're going to tell me not to worry about any of that because Amazon made a bazillion dollars right.
[13:36] Well want want also not great news on the Amazon front so that part of the setup here is we are lapping q1 2021 where covid will a huge
Tailwind for for Amazon we were still we weren't shut shut in per se are locked down but there was still you know.
Very little air travel and people weren't out doing stuff and then also last year there was a prime day and q1 so that's not this year so that swings the number some to some degree
and then just a blanket statement whenever Jason I cover these things we always go with the data that excludes the,
any changes from Financial currencies what Wall Street would call X FX so so - is the X any any.
[14:25] Currency kind of changes so that neutralizes the currency stuff which is actually been oscillating quite a lot with the the whole Ukrainian Russian thing
so but we take that out so we try to get kind of a neutral currency view of what's going on
so it was really interesting earnings this year are this quarter because you know we had Netflix coming out and really kind of miss their number and,
you know there's a family of public companies that everyone thought there was a new normal but it was actually this kind of covid-19,
pull forward that is gone away so Zoom Peloton are in that camp and now it's looking like maybe Netflix's there.
[15:11] Yep Shopify shopify's well I think Shopify has a whole nother world of hurt we'll talk about here.
The other the other surprising thing of Netflix is just kind of randomly on the call we tasting the co kind of said oh and we're looking at an ad model and I think I'd like surprise
people inside the company hadn't even been briefed on this so that's good for you so so good news I think maybe an ad models coming to Netflix so more more ads for you to go sell and do your thing.
[15:39] Yeah but honestly I think no one heard that because he's right before that he said we're going to stop letting everybody share passwords I think that's.
[15:47] Yeah it was like what.
So yeah so you can tell they're they're scrambling to kind of they're opening their minds to things they never thought that they would look at before because the subscription actually had a loss of net subscribers
even when you take out the head turned off Russian subscribers don't even if you take that out it was negative and then Google was really interesting because you and I I think we're actually
pretty clearly some of the first people to talk about how worried we were about the IDF a some people call this a TT I do
I don't like to call that I call it the idea phase so the the blanket term will just use as the the Amazon the Apple privacy changes
and Google's results were interesting because Google has a lot of businesses inside of their Google core is immune from the Apple privacy changes because they are the search partner of Apple.
[16:43] So you just go right in there they have access to all the delicious cookies and all that kind of stuff and then also they you know search is nice because you get this intent in the form of the search term so you don't have to guess what someone's trying to do and use all this
add technology to figure it out that being said the YouTube part of the business we got hammered and
reading through because apples a big partner of theirs but also a competitor
you kind of like you had to parse their language really carefully but it seemed like YouTube was hurt hard enough that it really,
really kind of ended up.
[17:23] Putting pressure on the overall business even though the core search business was was pretty resilient through the changes so that was interesting and then you know what's going to.
[17:34] What's going to make this even worse just broadly is they are
pretty publicly stating they're going to bring a lot of those changes to the Android platform so it was kind of an Apple only platform problem but now Androids going to replicate,
many of those no tracking hiding your email all these kinds of things that.
Our overall good for consumers to some degree maybe they're going a little too far because there is some benefit for having.
[18:02] Good product recommendations in those kinds of things that are I think are going to get hurt from this but yeah so that is all getting worse,
so then Facebook so then I was like oh man
this is gonna be really bad for Facebook but I think what Facebook did is they kind of kitchen sink it last time and they basically said in fourth quarter wow this apple stuffs bad let's just go ahead and if we're gonna rip the Band-Aid let's rip that thing off.
Chest hair in off and they.
They they actually did less worse than everyone expected so that was a relief which is we're kind of in that market and so I think they had predicted that it would be really really terrible and it was only.
Terrible and then apples revenues were up 9 percent which was in this climate is when it's very low for Apple but a wind that brings us to Amazon results,
anything from those who wanted to opponent before we jump into Amazon.
[18:59] No just I think the apples Apple earnings were today and I would say they were surprisingly upbeat like both.
Like they talked about the macros but they you know what would what you would expect to be particularly acute concerning apple is supply chain given that a bunch of their factories are walk down and closed in China right now,
and Tim Cook seem like quite optimistic that they had a solid supply chain point and go forward so I hope he's right because I'm gonna want my new iPhone.
[19:30] If anyone would have a handle on that I would be Tim Cook so so.
[19:34] No I mean I.
He's credible I wasn't saying he was wrong I was just pleasantly surprised to hear I don't hear a lot of people talking about feeling like they have their hands arms around supply chain this year so that was an outlier to me.
[19:49] Well they talked about.
He was a year ago diversifying out of China into was it Singapore or Vietnam they may have been Vietnam so I think they've got a couple you know they have Diversified there,
they're manufacturing portfolio across multiple countries so maybe that that's part of the resilience that they're seeing there are maybe they think those cities that are locked down in China will get back to it but by the time they have some new iPhone or some.
[20:14] Yeah and I do think they have this privilege status where when their factories get walk down they get watered down with workers and them so there is that.
[20:22] So productivity is up yet for going to shelter in place you might as well do it on the assembly line making the Apple phones.
Okay so let's jump into Amazon results and start with Revenue
so the little bit of A Tale of Two Cities here so online product sales when - at minus 1% which obviously isn't good some Wall Street analysts did the math and they pulled out
to the Amazon Prime day and I think that made it basically neutral so not up or down but still you know not something you want to see here I guess if GDP is decreasing,
you know zero is the new wind but but not what you expect from Amazon and clearly one of the you know I would I need to go back and look at 08 and 09 it went - in those years.
[21:15] I was going to ask did it because I couldn't remember it going -
[21:18] It did yeah I have a chart in a presentation and it goes e-commerce went like - 20 and Amazon went negative 5
so it was better than always is tracked considerably better than the e-commerce data but it did go - for a period of quarter or two in 08 and 09 I want to say q 4 of 8 and he wanted nine is my memory but I'll fact.
[21:38] Conversely subscription Services were up 13% and and there is Prime and you know all the things associated with Prime
so that's interesting and then you had some commentary from the call that you heard around that that I'll say it for you unit sales were flat and in the commentary on the call they talked about that being due to inflation so you know they're they're starting to say
hey we're seeing the signs of inflation here and we're fuel is rising and supply chain and they're starting to kind of.
Throw a lot of these things out there that you know I think.
We're doing this the evening of the report so I think wall Street's not going to really like this whole body language coming on Amazon
overall growth when you stroll together all the Amazon business units you get to seven percent growth which is the slowest growth since the recession of 08 09 and if you compare that to Q4
of 21 which it's your of your growth of Q for 20 that was nine point five percent so a pretty material slow down quarter-on-quarter from the growth rates here that we're seeing,
they do split out a couple segments so North America was up.
[22:57] 7.6% all in and then where they felt a lot of pressure was International it was down six percent so it feels like you know.
Internationally known us has is actually kind of in a worse slide from a macroeconomic and we're starting to feel it here as well,
so that was that and then physical retail was up 16% that's an easy cop because you've got people weren't going to stores largely Whole Foods mix that up,
this is good time you and I haven't had a chance to talk about it but they did announce that they're closing a lot of their stores so here we had a was interesting we had just opened a 5-star store,
four star whatever that is and,
and then they closed it like it was literally open for like 45 days I didn't get a chance to go to it and they're closing a lot of those bookstores and whatnot and that's been attributed to the new Co Jassie,
saying hey we're not going to really pursue that strategy anymore.
[23:55] Yeah it was a little surprising because that you know there was a decent Fleet of the book stores they closed them all the five-star stores the,
the stores that were saved were the grocery store so obviously Whole Foods but also these Amazon Fresh has they added like six more so they're like 46 now if I'm,
I'm counting right and then they have announced a new fashion store that supposed to open this quarter in Los Angeles,
and as far as I know plans are still,
on to do that but yeah it was surprising that the bookstore here in my neighborhood closed as well.
[24:35] Cool and then you were watching The Profit side of Amazon what you see there.
[24:40] Yeah well the they you know they talked a lot about all of these macro pressures and you know,
those all having an impact on rising cost so labor costs were up fuel costs were up,
and you know overall supply chain was significantly more expensive they talked about shipping expenses reached 38 percent of revenues and like in comparison that normally is about 32%.
What you know fuel being a big factor and all other shipping costs and so roll all that in and they made three point six billion for the quarter which is like a 3.2 percent margin,
and I think the consensus estimate was.
[25:27] 4.6 so a meaningful Miss on the margins and it's interesting because.
You know normally these - macro things they it's they can have a weird effect because,
when the mat the inflation is high but consumer confidence is okay it actually,
increases demand because you sell the same amount of stuff and you sell it for a higher price,
but once consumer confidence starts dropping people start buying less right so you know Amazon you can see that demand dropping on the top line so that's a concern and then all of their costs go up because of all these macros and so the margins.
Take a bigger hit and so that's a big concern and then in their commentary there was this interesting,
um narrative around Amazon inadvertently ended up with too much capacity so primarily in there there with just X Network so.
[26:28] You know over the last two years they famously have doubled their their warehouse capacity which now I think in total is over 100 billion dollar investment.
They also hired a ton of people during covid they had a lot of people on covid we've said they backfield a lot of positions and then all those people came back and they apparently had too much labor so too many warehouses and too much labor equals,
a hit on margins as well and so a lot of their narrative was around,
they're they're expected focus on improving the efficiency of that supply chain this next quarter which.
Means they have to either get more Goods in their Network and do more stuff and I you know I think we're if we have time we'll talk about some new programs Amazon's rolling out that my do that and it'll be interesting to see if they.
Shrink or at least slow the rate of their labor force growth based on some of these comments as well.
[27:32] Yeah yeah and.
You know one Wall Street analyst kind of rolled all that together and kind of put a 6 billion dollar number on it which which is kind of yeah wow that's a
it's a lot of headwinds that they're facing there so it'll be interesting to see do do they read the tea leaves and take that capacity out or do you just kind of keep it in place for a holiday because the cops will get easier through the year right because
you have things were less crazy covid Wise from second half of last year.
[28:06] Yeah and I you know I mean they both rightly pointed out like Hey we're glad we made the Investments we did,
like they put us in a strong position you know as I don't don't pay too much attention to year-over-year comps because we're competing against such a weird year the way to think of this is,
That sales are way up in there mostly staying up right so that's kind of the the management spin on the circumstance but there for sure our head winds and I would say.
If Amazon is feeling head wins the vast majority of other retailers are feeling like a head storms because,
you know Amazon has more levers and more scale to insulate them from a lot of these challenges.
[28:54] Yeah so so rough spot on on the cost side how about usually the bright spot is AWS how did that.
[29:03] Yeah so that is exactly the opposite like,
I demand you know one of the things they talked about is like a lot of people rethought their their infrastructure needs as a result of covid and it's greatly accelerated.
People's migrations to the cloud so it had a good run during the pandemic and it continues to go gangbusters so it was up.
Um 37 percent year over year for Q4 I think it was up forty percent so that that's a.
A huge highly profitable business that's continuing to,
um to go well I you know I think their total revenue was like eighteen point for tea.
[29:48] Four billion which was above the consensus and you know I don't like a lot of the other businesses this is like a 35%.
Gross margin business so that substantially beat the expectations which were like I think just under 30%.
And it's interesting they didn't so much cover this in earnings but an indie jassi's shareholder letter,
he spent a lot of time talking about some of the,
amazing Innovations on silicone and the Amazons rolled out that have dramatically improved their their efficiency on AWS so it seems like they still have.
They feel like a lot of Headroom to keep driving their cars down even as demand for capacity is,
is growing really fast so AWS continues to be a good story I would say though I don't sleep on the ads and interestingly,
they didn't talk a lot about ads in earnings they didn't talk about ads in the,
the shareholder call but they sold seven point eight billion dollars worth of ads in q1 which is up 25% from last year q1 so not growing quite as fast as they WS.
[31:04] That does mean 30 their last 12 months they sold almost thirty three billion dollars worth of ads and so a couple things to bear in mind.
That's 33 billion dollars at like 75 percent gross margin so.
Pretty you know appealing business even compared to if you call a WS like 75 billion dollar business at a 35 percent gross margin and you know.
Thirty three billion dollars in ads Twitter just sold for forty four billion dollars and they sell less than 5 billion dollars a year in dance so so that that is a,
highly profitable and still strongly growing business.
[31:52] Yeah yet kind of doesn't get enough sunshine I think the how big this is getting.
[31:58] Yeah I will say every other retailer has noticed this even if no one's talking about it and so the if the number one conversation I have with retailers is about inflation right now the number to conversation I have is about retail media networks which is
code for like part of the way we'll deal with inflation as we'll get more money from the manufacturers.
[32:17] Yeah and again I kind of circle back to those apple changes when when Apple gets rid of all this tracking the companies that are best positioned to,
to benefit from that
have closed loop data which is retail retailers because they have that transactional data and you know I think that Apple change is one of the unintended consequences is going to make
Amazon's ad business huge at the detriment of Facebook and Snapchat and,
Twitter in those kind of companies but then also a Walmart and Target and anyone that has you know hundreds of millions of people coming in there and and doing closed-loop transactions now is in a better position to build in that ad Network than Facebook who was
so dominant for so long.
[33:07] 100% And if any of these social networks like you know really start to lose value because of these challenges like don't sleep on on seeing a retailer require them right because,
what you do is you swoop in with all that first party data in a choir that Network in China a lot of the big social networks are owned or aligned,
by big retailers and if you remember when B dance was going to have to sell tick-tock,
like it was a bunch of retailers lining up to to be involved in that transaction so yeah you know that,
first party data that the Retailer's own is very valuable and you can expect they're going to look for multiple ways to monetize that you did tease one other takeaway from the.
[33:55] The Q and A after the earnings were at least,
was Andy they mentioned that that the rate of prime memberships is is now growing faster than pre-pandemic.
Which that was a surprising bit of good news to me because I think they disclose their over 200 million Prime members now so you would.
Assume like 60 percent of that's in the US that's pretty good saturation,
in the US market you would expect the rate of growth to slow and then with all these macros and consumer confidence going down you would expect people to be cutting back on these.
You know kind of optional subscription services and so you know apparently Jack Reacher and The Marvelous Miss maisel are good enough that that Prime is continuing to kill it.
[34:47] Jack Reacher's Beyond good it was excellent.
[34:50] Absolutely I saw a few people that said their new use for for Twitter is just proposed changes to propose plots for Jack Reacher season 2 so I think that was funny.
[35:03] Cool and then with Wall Street it's always not what have you done for me today but what's the future look like and so all eyes were on Amazon's forward guidance which was kind of a this this quarter in Wall Street that kind of use this would you do this quarter and what's your projection and this would be
a missing lower kind of quarter which is like,
death quadrant of results so the forwarder forward guidance Wall Street had a consensus of 125 billion for the Top Line.
In Amazon's range came in well below that their range was 116 to 121 which let's see it
so 18 and a half kind of in the middle versus Wall Street was expecting 125 as kind of where they thought things would be and then
gaap operating income Amazon said will be minus a billion to 3 billion positive
and Wall Street had a consensus there of 6.7 billion so they basically took down the top line by a good seven,
billion ish and then the midpoint of operating income by another 4 billion so this could begin I've mentioned Facebook kind of kitchen sink to it in the fourth quarter if
if you're the CEO of Amazon and you're relatively new on the job.
[36:25] This is a good time if you're going to have a bad quarter you might as well lower expectations and make the rest of your easy for you and I feel like there's a little bit of that in there but but again you know maybe they also
they see all these things going on macro and it's also a good time to be really conservative on guidance because you don't want to
you don't want to be the one cheery voice out there and then then miss it and and that that's cataclysmic in the Wall Street world.
[36:50] No I think you're exactly right.
[36:52] Yes so having done I don't know how many ways we've been doing this for so we've probably done 20 to 30 of these kinds of shows and this is you know this is except for that you know that.
For as long as I've been watching Amazon except for those 08-09 years this is this is
this is kind of a rough one so it's going to be interesting to see how the market reacts tomorrow after hours things were down about nine percent and you know this is a 1.5 trillion dollar market cap company and when it's down 10% that's
150 billion dollars so it's like,
losing three shopify's kind of to put it in that context so it's interesting to see how the market reacts tomorrow and if it causes a broader concern Shopify hasn't reported yet we're going to talk a little bit about that and then
yeah so yeah it's going to be interesting to see how Wall Street reacts has.
[37:42] Indeed so what what other news did you want to talk about Scott.
[37:46] Yeah well it is interesting thing about Shopify because in this world with the Apple privacy.
You and I have talked a long time this may have to go back at my holiday predictions Shaka is in a really rough spot right now so they,
so on one side many of their Merchants were using Facebook to advertise and that was really efficient so that's been cut off now there's been articles talking about how Facebook really wants closed-loop data they don't have it,
so the best way to build it is to,
need to have that close look data is for Facebook to build out a shopping platform there's a lot of talk about friction between Shopify and Facebook.
You know if your Facebook buying Shopify just makes that easy but Shopify Toby at Shopify has kind of famously never wanted to sell the company and wants to stay independent.
So you could see a day where Shopify is best partner Facebook becomes their biggest competitor so that's that's kind of an interesting thing so that's one,
one attack front Shopify has kind of coming the other one is Amazon and you know I've talked on the podcast where for the longest time Shopify has been,
poking the bear at Amazon and you know,
I've been at this 27 years and anyone that has ever thumped Amazon on the nose has not really survive that and so so I think that's coming back to roost here because Amazon seems to have a lot of.
[39:13] Programs targeted at you.
[39:18] Taking the gmv back from from Shopify that's over there what are the ones I found most interesting is this idea of by with prime now a.
You know skeptic would say Amazon's tried these buy things for a long time they've never worked what they've lacked in my opinion is
as a merchant out there having a new payment thing you kind of famously have that NASCAR logo thing that you do and and you know it doesn't really move the needle at this point there's so many payment options and there's already by pay with Amazon,
and this this program isn't there so I'm kind of reading the tea leaves here a little bit.
But if I'm Amazon and I can go to a small Merchant and say all right if you add this by with Prime.
We are also going to add you into the discovery side and exposure to all of our prime numbers that starts to get really interesting because now you're bringing me new customers and I think,
I think that's where Amazon is going to go with this quote-unquote by with prime new thing and that.
That is a perfect this is a perfect time to offer that because if you've your Shopify merchants and you're reeling because you've lost all this Facebook traffic.
And then suddenly Amazon throws you a life preserver and you're going to take that life preserver even if Amazon is going to see some of your data and you know then it's really interesting because if your Shopify.
Do you block that like do you stop your Merchants from taking this and it's a it's a bit of a gordian knot that they've put them in here that it's going to be interesting to watch.
[40:46] One reaction to all this is we talked about it on the show last quarter Shopify announced they were going to spend a billion dollars to really beef up their delivery,
and I kind of mocked that because the Amazon spin.
Like 200 billion so so to think you're going to compete with Amazon and some material way with a billion dollars is kind of not serious they did acquire a company called deliver which has an extra are I don't know if how you say it deliver.
And you know that's interesting but and I think they paid like three billion so they are starting to get pretty serious about this.
[41:19] And I think they now see that Amazon is going to turn their Logistics Network on on them and leverage that side,
the delivery side and the supply side the traffic side to hammer them the thing that makes me nervous about this these networks that are just built on existing 3pl infrastructures out there they're not going to really solve a lot of problems because,
you know Amazon's got.
200-plus fulfillment centers and thousands of dsps doing last mile delivery and just building on existing old-school 3pl infrastructures even with a more friendly software
isn't going to solve the same economic problem that Amazon is yes you may be able to get two day shipping,
but it's going to be like $12 and Amazon's going to be at like three dollars at some point and they'll be able to offer that and they'll be able to Merchants and say the standards two days do you want to do this deliver Network you thing that shopify's doing for $12
or do you want to use our Network for three dollars and obviously you know.
The choice is obvious in that room so I think it's really fascinating to watch these really big,
Titans battling it out in a way that that is changing very rapidly and Amazon is really good using these these downdrafts to really Hammer a competitor and I think I think we're going to see this cure they're going to get,
Shopify in a vice and I be interesting to see if shop of I can get out of that.
[42:49] Yeah no I think your analysis is spot-on I do want to,
clarify or clean up a couple of things the last I heard they they actually haven't closed the deal with deliver like so,
you may have more recent information than me but I read like there a lot of reports that they're in talks and that there's like a,
a two billion dollar price on the table but I don't think they actually announced the acquisition yet so maybe you might have you may have called it first.
[43:18] It was just yet still rumors at this point I think they'll do it yeah I'm assuming they're going to do it.
[43:23] So just for listeners that may not be quite as in the deliver is a 3pl so you know you there.
Company you can hire to store your goods for you and ship them for you when you sell stuff and you know part of their value prop is they can,
ship stuff from orders you get anywhere so you get orders on Walmart marketplace they'll ship them you get orders on Amazon they'll ship them.
You get orders on your own Shopify special site they'll ship them and.
[43:52] You know if Shopify serious about building out the logistics Network they need some jump starts off he's,
3pl so an acquisition would make sense but to put things in perspective the very best 3pls can kind of match Amazon service levels,
and when they do they can be part of this program called,
vendor fulfilled Prime which essentially means we're going to ship just as fast as if we were in Amazon's Network and so Amazon's going to you know offer Prime benefits for that shipment.
Deliver is not a 3pl that has that status so,
like when you talk about even if Shopify acquires them this it's not going to put them in a position to compete with Amazon I would say you're absolutely right like not only are they weigh smaller in scale,
they don't have near you know they don't have the service level to even get Vineyard fulfilled Prime,
and like almost all 3pls they're dependent on the traditional parcel carriers to deliver the package and they're the they're forced to pay the market rates for those deliveries and.
[45:02] Amazon just has this huge Advantage from being able to deliver their own stuff so.
Not saying it's not smart for Shopify to acquire some 3pls and I'm sure they'll be able to leverage them but that definitely is not going to make a fair fight with.
With Amazon and then you were talking a little bit about Amazon's new offer but I'm not sure we said exactly what it is so last week Amazon announced this new service called by with,
and what essentially it is is it's taking app Amazon pay and bundling it with.
What Amazon would call fulfillment by Amazon.
[45:43] And I think technically it would be FB am which is it fulfilled by Amazon merchants,
um and so this is a program Amazon hasn't offered very often and doesn't offer widely where you put your goods in Amazon's fulfillment center and you and Amazon will ship goods for orders that didn't happen on Amazon.
[46:05] So Ernie early you can only put Goods in Amazon's Warehouse to fulfill orders that happen on Amazon so if you sell something on Shopify.
You have to store those goods somewhere else and you have to have kind of your inventory split but implied in this by with prime is they did this clever bundling of.
Hey we'll let you fulfill orders that happen elsewhere so that could be on Facebook or on Instagram or Tik-Tok,
or on Shopify and we'll bundle it with,
um the Apple pay I'm sorry Amazon pay and we'll give you the badging so it essentially if there's a Prime member shopping on your website
they'll see a thing saying hey get the same fast delivery you're used to you know same day delivery or next day or two day for free
don't have to type any of your payment information don't have to pick any of your shipping addresses because we have all that it's a dramatically lower friction check out and it's,
it's going to be super appealing for a bunch of sellers especially if you selling your own site and you sell on Amazon.
It's going to be really appealing and it's kind of a deal with the devil because you are giving more data to Amazon and you are making Amazon a stronger potential competitor.
[47:19] I think it's going to be hard for a lot of people to turn it down I think the only thing that makes it.
I think it's a death blow to a lot of 3pls out there the only thing that I think makes it not completely devastating is that they will only it will only work for Prime members so.
You couldn't for example launch your Shopify site and say by with prime is my only checkout flow.
Because you wouldn't you wouldn't be able to sell anything to non-prime members so you still need an alternative solution for non Prime members but if.
Amazon ever expanded this program like you know it that that would become.
Super devastating to a lot of the 3pls and and folks that are looking to compete with Amazon in the space and I just.
I think it's a super scary / clever way to both leverage that excess capacity that we just talked about and you know kind of.
Um pull up the ladder behind you know after that after they kind of use their their fulfillment as a competitive advantage to,
too kind of you know acquired 200 million Prime members now they make it way harder to compete with him bye-bye you know letting letting people use that service wherever they want to shop.
[48:38] Yeah you had the one thing I'm still trying to get my arms around is I think deliver started building fulfillment centers and then they decided I think they have one or two and I think the rest of their Network ended up being a network and not
ones that they own and operate so I don't think they really bring into the world to new delivery capability or capacity.
[48:59] Ya know I as far as I'm aware they don't either so I think we.
Yeah so I do think that's big news I think there's gonna be a lot of talk about it 11 kind of Niche use case but you know there's a lot of established brands that only sell through wholesale and they're all secretly figuring out how they sell.
How they added direct-to-consumer component and in this this this offering is going to be right in all their wheelhouse right like if.
If you're a big brand and you suddenly need to figure out how to you and you're used to shipping pallets to Walmart and you suddenly need to figure out how to fulfill each as and you.
Party have a bunch of inventory at Amazon it's going to be super appealing they just say what use Amazon for.
[49:42] Yeah and then you beat me to the punch and you read the shareholder annual letter I have not had a chance to read that with what was interesting in there.
[49:50] Yeah well quick reminder for listeners Jeff Bezos wrote the shareholder letter every year,
the 1997 when was particularly amazing and in fact Jeff agrees with me on that so,
every year since then Kiri copies the the 1997 shareholder letter in it so this was a point of particular interest to me because this was the first shareholder letter written by someone other than Jeff Bezos,
so Andy jassy in the new CEO and I think it very much follows the.
The kind of pattern in the Cadence of the typical Amazon shareholder letters up to and including having the 1997 letter embedded in it at the bottom.
[50:32] I wouldn't necessarily say there were any huge Revelations or or huge new takeaways.
From from the letter like a lot of the letter talked about.
Kind of the iterative nature of all of these successful Services than Amazon launched so they kind of painted the picture that like people imagine that.
You know Kindle was just born as this amazing fully form business or ews was an amazing business,
and he talked about how the first versions of all those Services were pretty mediocre right and he used this term that a few others have used.
Minimum lovable product and he kind of Paints the picture about how they evolve like how they launch.
Um AWS and it was very rarely useful because they couldn't offer both compute and storage which most people tend to need and storage was going to take another year and a half so they launch compute without storage.
And then later added storage and then later added their own silicon and how each of those iterative steps made it a much more powerful offering until it reach today's Juggernaut and.
Similar stories for Alexa and and Prime and a bunch of these other things so he was kind of painting this,
this picture about how things iterate in the back of my mind I'm thinking.
[51:54] My my Alexa is disagreeing with me the.
In the back of my mind I'm thinking he's setting us up for some of his initial initiatives being kind of mediocre at first I don't know I don't know if that's,
really where he's going but then he did kind of highlight the autonomous teams principle that we've talked about several times on this show he talked about how important it is to,
expect and accept failure that you really you know can't be successful if you don't have some failures and well that sounds obvious I can't tell you how many times I've talked to,
potential clients that you know said hey we want to do some crazy Innovation but we can't afford to fail.
And that you know seems like a recipe for disaster so I do appreciate that advice and then this may be really nitzsche but he did he talked a little bit about there.
[52:47] Their press release and their six-page narrative principle that they use and we've talked about this before like so you go to a meeting and you read The six-page Narrative for new idea and at the back of that narrative they have a press release,
that is kind of written to paint a picture of the press release will be able to issue if this initiative is successful so it's kind of begin with the end in mind idea,
and in this Cheryl the letter he also alluded to the they now make you write they frequently asked questions to go with that press release which I hadn't heard that before and I thought that was interesting so,
so those are kind of.
The the main recap of the the shareholder letter but you know if you haven't if you have a few moments I would definitely it's worth a quick read and checking it out.
[53:32] Did he explain why they do the frequently Asked question.
[53:35] He did not he just referenced it and maybe maybe one of my Amazonian friends will correct me but I feel like.
Most of the the kind of external stories about that process have focused on the narrative and the press release and I just had never heard.
The Q&A being part of the or the FAQ being part of that that package before so I just thought that was an interesting.
[54:03] Recall any other e-commerce news you want to cover.
[54:08] You know there's always more stuff we could talk about but the good news is we always have more shows and it has happened again we've used up more than our lot of time for this episode
so I think we should probably call it quits let everyone get off the exercise bike,
hopefully you write us that that five star review and we'll pick up some of the other exciting industry news in the next show.
[54:31] Thanks everyone and until next time...
[54:34] Happy commercing!
EP290 - Shoptalk 2022 Recap
ShopTalk held it's first in-person show since 2019, May 27-30th in Las Vegas. The show made the move from the Venetian to the Mandalay Bay. Nearly 10,000 attendees joined more than 600 exhibitors at this years show. Making ShopTalk one of the first industry events to truly feel like it did prior to the pandemic, and living up to the billing as the retail industries reunion. Shoptalk has truly established itself as the preeminent digital commerce event in the US.
In this episode Jason and Scot recap all the major keynotes, trends, and themes from the show. If you wren't able to attend, this show will catch you up. If you did attend, they episode will help you write that event recap you owe the rest of your team!
Episode 290 of the Jason & Scot show was recorded on Thursday April 8, 2022.
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.
[0:23] Welcome to the Jason and Scot show this is episode 290 being recorded on Thursday April 7th 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host
[0:38] Hey Jason and welcome back Jason Scott show listeners
well tonight we are excited to talk about shoptalk Jason you went for the show I was not able to make it this year unfortunately but you went and you are going to report on all the happenings and I'm excited to hear how it went.
[0:57] I know I feel like listeners should know that your April Fool's joke is you told me you were there and I kept waiting like at the Starbucks to meet you and you never showed.
[1:06] Not true not true I was a good co-host and I let you know with plenty of time I wouldn't be able to make it.
[1:12] I am teasing but I do think shoptalk overlapped April Fool's this year.
[1:17] It was her a lot of shenanigans.
[1:19] There there was not any there was some usual trade show Shenanigans but I'm not sure I would say there was any April Fool's related Shenanigans but it was a good show you missed a good one.
[1:31] Before we dive in what was the Starbuck situation.
[1:33] So the Starbuck situation I would give it a B+ so it's a
for people for a long time treat your followers shoptalk started out at the Aria as a small show and then it outgrew the Aria and they moved to the Venetian which
it was nice because the Venetian does have on-prem Starbucks but the Venetian is a,
kind of very big and they did it there for a number of years and then they right before the pandemic they announced they were moving it to Mandalay Bay and so this was the first one in Mandalay Bay
and Mandalay Bay is good because it has.
To Starbucks one in the casino area and one on the way to the convention center so so ordinarily I would give that a plus
but they one of the Starbucks is still closed from the pandemic it hasn't reopened and the one on the way to the convention center normally takes mobile orders which is awesome,
for the convention they turned up they turned off mobile orders every day of the convention.
[2:41] I don't need it.
[2:43] I stayed very well caffeinated and in my new world where I drink iced coffee from Starbucks branded iced coffee from the grocery store I got to augment my stops at the Starbucks by having a couple,
jugs of Starbucks iced coffee in my room as well so no one should be worried about me.
[3:01] That you can say in your backpack or strapped to your head like I have one of those beer hats.
[3:06] Exactly and I showed up at a couple morning meetings with like to Starbucks and it's always this great debate like should I go hide in a closet somewhere and finish one so that the people in this meeting won't know that I was double-fisting it or should I just embrace my,
my problem and I embraced it.
[3:22] Everyone listens to the podcast Selena it's a well-known thing no one judges you for your Starbucks.
[3:35] We live all coffee we're pretty agnostic on the coffee.
We'll call what were the so that's the Starbucks what about the this whole thing called retail and e-commerce.
[3:50] Yeah so before we jump into all the the topics and going ons it's a I would just say like I think there,
I don't know what's the official or The Unofficial theme but they called the retails reunions and I feel like it was pretty apt this is the first big show,
that to me felt like it did before the pandemic they had 10,000 attendees which.
If it's off from from 2019 it's only slightly like maybe they had 12,000 attendees in 2019 so,
10 felt like a big show they had a 650 exhibitors.
It felt pretty normal which was awesome and one of the best things about shoptalk normally is the networking and catching up with friends and I feel like that was in full effect and,
extra fulfilling this year because you know I just got to see a bunch of people that I enjoy spending time with that I hadn't gone to Sea in a couple of years.
[4:52] Prickle yeah so it's kind of a I like this post covid lifestyle where it just feels like nothing happened it uh it's a it's a joy.
[5:00] Yeah yeah I feel like the biggest Debbie Downer for me is everyone I was excited to see was like mostly just asking me about you.
[5:07] All right sir I'm through through Outlet cool what did any.
[5:15] Throw out because maybe I'll throw a contrary position at the end but I would say the overall mood at the show was also interesting to me it felt very optimistic like people were upbeat people were.
Kind of like enthusiastic about the year ahead and you know I don't know it was it was a good vibe.
[5:36] Yes I was tracking a lot of the social media and it was interesting a long this so you had shoptalk which is like you know it was like one
one track if you will and all the positive things there but at the same time and there was like some some
chaos in e-commerce land where we had the single click checkout thing called Fast kind of falling apart we had,
lot of the rapid delivery companies,
go puff is not one of them but you know them better not be a gorilla and like three or four of them kind of imploded kind of right during shoptalk so there is kind of envisioned you guys like yeah this 15-minute deliveries the future while right outside the conference center it was kind of falling apart.
[6:17] There was some version of that there was you know Uber instacart and doordash all talking about instant delivery well a lot of the,
the tenuous VC funded ones were,
we're announcing their their shutdowns and for sure they're there was I mentioned 650 exhibitors I think about 620 of them were payment providers.
Or buy now pay later surfaces and what like if you walked around the show you'd think that was the biggest thing ever and and yeah / your point like you know one fast runner fast as a payment provider
was kind of spinning down and laying everyone off while this while the show is going on so not a lot of talk about that at the show.
[7:05] Yeah weird will call I'm excited to hear your take on things let's let's jump in.
[7:10] Awesome so I kind of am dividing tonight's talk into two sections the main Keynotes and kind of what my highlights were from the Keynotes and then,
some of the main trends that I sort of picked up on from the show so they will start with the key notes
and all the big media companies you know had a keynote So So Meta was there not with maybe the most senior met a person like that like shoptalk tends to get big names for the Keynotes
and The Meta was like a track keynote from Benjy Shalimar who's like the VP of Commerce which you know big roll it
meta but it wasn't like they had Sheryl Sandberg or someone,
they had Alan Siegen from Google who's like the president of America's Partnerships and they he talked about Google and YouTube,
and you know from those platforms,
meta was like super bullish on social commerce as you would expect but they were highlighting that like hey the biggest growth area at Facebook in the short term is Commerce,
and he specifically called that stuff you talked about all the time that like there's a huge amount of untapped buying intent and Facebook groups,
and Facebook Marketplace and then they're very bullish on the live streaming via reels in Instagram.
[8:40] This guy's a genius.
[8:41] Yeah so he was he was pitching that and you know he didn't.
Again people don't tend to break news at this show but you got the impression that there was going to be some some new product launches in the in the near future that we're Commerce related you definitely don't get the impression that that,
Netta is exclusively focusing on VR and moving away from Commerce,
and then very similarly Google was like Hey Commerce is where it's at,
you know they always have fun data to share that you know they always share some Trends about like,
search and you know one of the interesting things is they were saying was that while there's a lot of evidence that people are returning to stores as the pandemic abates,
that it's not at the expense of digital it's in addition to digital so they were.
They now have a lot of geolocation data in the Google ecosystem and so they were talking about how like fifty-four percent of shoppers.
[9:40] Have been to five different shopping channels in the last two days so in-store and online and they're they're super bullish on YouTube as a Commerce platform so they're they're both talking about,
lot of new shoppable video formats and shoppable video ads and YouTube is a live streaming platform for influencers.
In you know increasingly they have so many add products on Google that it can be hard to figure out where to put your money and what to invest in and so they have kind of one new,
new ad product they seemed to be leaning into pretty heavily which is called performance Max and the idea is you just close your eyes and give Google its money your money and Google figures out the best places to put up for you.
[10:26] It sounds a little suspicious I'm going to get Sr some machine learning in there that just going to magically spend my money for.
[10:33] It's got like a bunch of real time optimization and and you know the obviously like you should be cynical about those things I'm a little dubious but I would say that a lot of these.
Real-time allocation and bidding systems like you know they do tend to work pretty well like they do tend to outperform humans that are trying to make make you know decisions based on.
Historically wrong stuff and opinions.
[11:01] Yeah the we've been experimenting with some of the stuff that spiffy and you used to do
narrow match and Broad match experiment and then as you as you do some of these under the hood as we watch what they're doing at least you have some visibility it's not like a black box you know it actually seems to be doing a
pretty good job and it takes a lot of manual work out of what some of the best practices that you would do so so I like to poke fun but I do think there's definitely a there there.
[11:28] Yeah ya know I tend tend to agree and prove your point like you can put all the parameters you want and so you can run a test and see how it works and kind of,
increment into you know a bigger chunk of your budget,
but then we had like one real retailer on the main stage which was Catholic a who's a CEO of Sam's and she was pretty interesting she was talking
because you don't normally think of Club as being a super digitally engaged category and you know digital being super important to club like the,
the most famous club retailer in the world is Costco who I would argue is why quite famously a digital Luddite,
and Kathy was talking a lot about how important omnichannel was for Sam's and how like successful scan and go has been and that like.
That that specific particularly with younger Shoppers with Millennials that there's that there's a preference to scan and go over you know traditional checkout and the scan and go customers,
shop more frequently and spend more so they're they're the best customers and that Sam's Club is even running ads promoting,
the scan and go functionality and that was interesting to me because.
[12:51] Walmart has kind of tested and moved away from scan and go a couple times I feel like they're kind of leaning back into it at the moment,
but it seems like it's and it's club like they're pretty convinced it's a no-brainer that it's a net positive so so just walk out.
Type technology you know sort of more proof that customers appreciate.
[13:14] Nursing J W for the win.
[13:16] Exactly and then the Big 3 key notes as far as I was concerned that were most interesting where all the the.
I'll call them local Commerce is what they want to be called now or we might traditionally called them rapid Commerce but so it's the.
CEO of instacart Fiji Simo,
the president of doordash Chris Payne and then the CEO of uber dhara and I can never pronounce his last name but but so that would,
he begets as far as I was concerned and those are you know three interesting companies in our industry right now and.
[13:57] You know at least two of them maybe all three of them you don't necessarily first think of as Commerce.
Or if you do you think of them exclusively is kind of food Commerce and they all were kind of talking about their General Commerce Place so so it instacart,
it's all about becoming the platform for local Commerce right and so exactly kind of like.
[14:19] GSI pivoted from being a turnkey solution to being a platform that retailers used instacart is launching all these white label Standalone services so carrot ads and.
Carrot fulfillment and they're opening their own rapid Commerce distribution centers that you can stage your products in and,
and you know offer 15 minute or 30 minute delivery windows,
so that you know it's kind of interesting instacart was really trying to sell their their stuff as services and and white labeled services and not just for food so across all of Commerce,
the same with doordash doordash seemed to be talking about hey we're we're all general merchandise,
were you know doubling down on using.
Fulfilling orders from stores helping stores either use us as their own last mile service and even helping.
[15:28] Create inventory locations for retailers that are closer to Consumers and Chris Payne talked a lot about,
these delivery promises and it was interesting he was like.
You know we can all do 15-minute delivery but there definitely is not a path to doing 15-minute profitably and there's a lot of operational challenges and he was kind of arguing,
that he felt like 30 minutes was The Sweet Spot that that like he thought it was totally viable the offer,
in a peeling assortment of items for 30-minute deliver and meat delivery in major Metro areas and that that was going to be the focus of doordash.
And then Uber,
same thing like you know right now ubereats makes as much or more than then Uber rides,
and if you've been watching TV you may have seen they have a national ad campaign right now which is pretty funny called Uber not eats and it's you know promoting all the non edible stuff that you can get delivered from.
From from Uber and and that like they wanted their kind of phrase for themselves was we want to be the local business operating system so all the stuff.
That a business needs to do kind of local Last Mile does that get you all fired.
[16:49] Chris Payne was that a it does Chris Payne was a team I know him from her.
He always has he was at like MSN and then eBay he's been all over the place he said he's kind of a he started I think it was a CTO for a while but I think he's now more operational.
[17:09] Yeah I mean he was good and you know it was interesting to hear from all of them I do think all of these like startups that are you know.
You know I think there is a significant infrastructure disadvantage when when kind of uber doordash and instacart are all weaning into your space.
[17:28] Yeah it's hard to hard to compete with them on one side and Amazon on the other it's a bit of a crunch.
[17:36] Yeah and it kind of my big takeaway from the these these key notes in aggregate is,
the swim lanes are off by each of these companies might have been born in a slightly different category of the gig economy of you will,
and they you know they each had kind of their home market and they all have decided that the growth opportunity is to expand into each other's market so I think these three companies,
feel increasingly like direct competitors to each other.
Um so that was kind of my Keynotes and then and I did not get to attend every single key note it was a pretty busy show and I was over programmed,
but so then I did attend as many other sessions as I could and here kind of the big themes from my perspective and you tell me of any of these resonate with you.
[18:26] There are a lot of sessions about buy now pay later and like it was very optimistically covered,
in these sessions and Mackenzie did a session where they were sharing some consumer research that you know more than sixty percent of consumers plan to use it I thought all the,
the buzz around being PL was interesting because,
in my world it almost feels like like that that trend has already peaked and is starting to decline.
[19:00] So you know part of a lot of retailers adopted be in PL they originally World on their website now the ruling it out in point-of-sale and a little known fact,
it's more expensive for most retailers than a traditional credit card transaction and the argument was,
that it would bring incremental customers and higher value customers,
um and like that hasn't been universally true amongst my clients that have tested it,
and the kind of the world has changed a little since these Services first rolled out now these services are all showing up on credit reports which,
for a while they weren't and so that was a reason a consumer might have chosen to use this versus traditional credit card was if you know,
they already had a spotty Credit Report or didn't want to risk getting a spotty credit report and there's a lot of talk about like default rates starting to really creep up on these things so I kind of wonder.
[19:57] How durable they're going to be in the long-term especially if you know the economy keeps being challenging for a little while.
[20:05] Yeah and one of The Shining examples was Peloton which is kind of Hit the skids pretty hard and I think they were like half of a firm's volume or some some crazy number you know of one of the.
[20:19] Meaning a lot of protons where bye.
[20:21] That's got a great ahead.
[20:22] Installment plan yeah okay.
[20:25] Yeah like something like 80% of peloton's had an affirm plan and so but also I think it was by far our firms biggest Merchant.
I've read you know like a very material percentage of a firm's,
what do you guys call it transaction payment volume through those bmps I don't know whatever the metric is of the transaction volume flowing through I think I think Peloton was a big one and it's there in a world of hurt so I wonder if that's creating some pressure on the industry to.
[20:50] Yeah at the very least I don't think the world needs as many as we have right now so I would expect at the very least that we're going to see some consolidation in that space and it,
you know it certainly has a place in the ecosystem but there was a while when I was like oh my God the Magic Bullet to every Commerce problem is buy now pay later.
[21:11] Yeah there is was there any good consumer Behavior though that you believed or was it all felt like the the buy now pay later guys had just funded it that consumers love it.
[21:26] Yeah well yet I mean I don't think the Mackenzie research was funded by by a particular company but you know it was this stated preference survey from customers and you know how much I love.
Stated preference service from from consumers.
[21:44] Side note 99% of all alcoholic say they can stop drinking whenever they want if you want to do a survey.
[21:53] Absolutely and everyone says they'll spend more money for something environmental friendly than they never do.
[21:58] And a hundred percent of people are of above average intelligence.
[22:03] Yes and handsome.
[22:05] Which doesn't yet turn out to work out so.
Another big talking point at the show was everybody's favorite word to hate is omni-channel like there were a ton of omni-channel sessions there's a lot of interesting talk about,
people returning to stores like there is mixed messages about the rate of digital adoption declining and I would say.
[22:34] The rate of acceleration is declining but like digital is not diesel is not shrinking in any like absolute basis.
A lot more of these omnichannel amenities and so this was like that was a lot of the Sam's Club talk was about that Dave gilboa who's the one of the cofounders of Warby Parker
he was talking a lot about Omni Channel and the role of the stores in their business model
and how they've kind of gone back to Virtual try on like the I don't know people know that the original plan for Warby Parker was,
that you could use your phone to try glasses on and.
The technology wasn't quite there when they launched the company and people didn't like it very much so they end up having to do all these,
tried for five pair for free as an emergency stop Gap but now they feel like with the lidar and the latest iPhones they feel like the virtual try and experience is working better than the,
the tripe are model and so they're starting to see a lot of uptick in that but people still want to come into the store to buy the glasses so kind of talking about,
Omni channel for the win.
[23:45] That's not harmonized.
[23:48] Yeah no only 44 what's his name Steve Dennis.
[23:56] Dennis yeah.
[23:57] Sorry I missed her bifurcation is how I think of them but.
Data is always a buzzword at this show which again I like data as much as the next person but I'm not sure like as a tactic that it's a standalone thing but a lot of people wanted to provide case studies about how they were,
you know leveraging data in new ways and particularly omni-channel data so John strain who's the chief digital officer Gap was talking about,
all the new initiatives that Gap is doing for first-party data and he was arguing that like you know with the two doing personalization with first-party data like they were saying.
[24:41] Did that,
they were able to acquire customers that were like 40 percent more likely to be new file customers as opposed to Labs customers and it had a 30 percent higher order value than,
then kind of their their pre data-driven customer acquisition tactics.
The Steve Miller who's the head of digital at Dick's Sporting Goods he was talking about a lot of.
Sort of the data collection techniques that they were using and how they were getting way you know better outcomes out of personalization they had a kind of cool example I like.
Dick's Sporting Good launched an app called I think it's called Game Changer and what it is is it's an app for your phone to keep score at a baseball game and by keep score do you know what I mean like track all the stats.
People for a long time have Branagh book and like.
[25:37] Book yeah.
[25:38] Manuel keep score the game so they created this app they give it away for free but what it does is it now like get wet them get 27 million.
Like weekly Baseball fans like in their ecosystem that they then get to Market you know they have first-party data on and get to Market to so it's kind of like when.
Um Under Armour bought MyFitnessPal for example like kind of interesting places where retailers are,
are like building or buying these digital utilities that aren't necessarily directly related to Commerce so I just to get closer to customers that they can then Market.
[26:21] Yeah that is color all Trojan Horse strategy.
[26:24] Exactly and then Julie Bornstein who's the founder of the yes,
I think a past guest on the show she was kind of talking about her first party data and she was throwing out red meat to all the Consultants that are selling personalization so here's going to be the money quote that you're going to see in every brochure you get for the next year,
our first party day I driven first-party data experiences drove a 75% increase in annual spend a hundred percent annual order frequency and 125 percent better retention rate.
So sounds great sounds like they got some improvement that move the needle for them I'm excited for them,
here's going to be the thing when you see all these personalization vendors that are now pitching that to you like.
Personalization isn't like a binary thing it's not like you don't have it and then you do have it and these are the results you expect when you do have it right like everybody's doing personalization to some extent and like how much,
Improvement in results you're going to get is going to be directly related to how bad your experience was before and how far you improve it.
[27:33] Yeah yeah could so it could be just started with really bad bad numbers and then didn't kind of.
[27:40] Exactly so I wouldn't I mean I wouldn't be like putting too much stock in these like benchmarks are case studies as like
predictive in any way of what an individual user will get but like of course if you can get more customer data and use it to have more relevant experiences that's going to be you know benefit.
[27:57] Now one thing I'm noticing is previous shoptalk sweat with this whole panel format this is sounding much more like individual speaker was that that kind of change of the format.
[28:08] Not necessarily so they kind of have a few formats so they have like they have the key notes which is almost always,
an interview that presenter an interviewer and that that was still true so then they have
track key notes and attract keynote is usually in individual speaker or an individual speaker
followed by an interview and then they have these panel formats and so in some cases,
I'm cherry picking what I thought was interesting from one speaker and a panel of three but in a bunch of cases these were track Keynotes.
[28:47] Got it.
[28:49] And we'll get to the very best track keynote in a minute which you know was obviously mine.
[28:56] No bias there.
so a lot of talk about the best and most cost-effective ways to acquire customers so you know there was a ton of sessions talking about live streaming and kind of the,
the kind of at this point I'll call it the kind of predictable tripe that like oh my gosh you live streaming is huge in China and may or may not be coming to the u.s. but you should be testing it like you know Google obviously had a big keynote talking primarily about live streaming
a ton of practitioners were talking in particular about like their experience on Tik-Tok and successful live streaming
HSN was obviously talking about their success and then there were some,
shop shops is a live streaming platform that you know gave an interesting case study and then,
I would say there's always a couple of vendors that like emerge I don't know if they're necessarily the best or not but like kind of win the show for share of voice
and so every time someone's talking about live Commerce the vendor that they were talking about partnering with was firework which is a enabler of live streaming,
Commerce and so it felt to me like they they did a good job showing up in all these conversations are you bullish on live streaming.
[30:17] I am but it's because you have trained me that it's so big in China and then you know it's one of those things,
a lot of the stuff in China we thought would be good kind of come across as not like chat Commerce and why bow and all that so but it's one where you know I see these influencers and I think it will catch on because we've got,
the Kardashians and if they ever did a live stream or something like that it would be huge we just need we need like that spark and kind of a unique American take on it,
probably from a Content perspective not underlying technology but it all has to come together.
[30:52] Yeah so I don't like we may need a an updated deep dive on live streaming in China because it's actually,
it's evolving super rapidly like there was this interesting phenomenon at first where all the live streaming was happening on retail platforms so it was like,
kind of influencers that got made famous by Ali Baba and j.d. on their platform so think of it as people were consuming live streaming on Walmart.com not on tick tock,
and then the government kind of crack down on some of these influencers who apparently weren't paying taxes,
and and it kind of shifted the live streaming to the social platform so no like now Dao Yuan which is Tick-Tock in China is.
The destination for live-streaming so it's just been interesting,
but one wave live streaming I really like and I think coach was talking a lot about in their their track he noted the show,
is sales associates as in as micro influencers and doing live streaming either from the store or after hours which.
[31:55] Yeah we'll have to get caught up on them.
[31:58] It's a related Trend that got a lot of Buzz this show as another way of acquiring customers as micro influencers that's another one that I'm kind of bullish on and there were some good case studies there,
so Jill Ramsey is the CEO of AKA Brands was talking about like micro influencers being their most successful new customer acquisition strategy there are a bunch of apparel brands,
um one that I hadn't thought of that I feel like I need to get updated on more,
Alyssa Walt is the chief business officer for Burton Snowboards so you know all the snowboarding accessories,
and she was talking about they were having huge success using NCAA athletes as influencers,
and of course if you're not following it closely that used to be illegal for or not illegal but like it was a gainst the NCA term so you lose your college eligibility of you made any money as a,
influence our sponsor and now their college athletes are all permission to.
To endorse products and make money and so it's kind of open this new,
new channel if you have a product that's appropriate to be.
[33:13] Advocated by college athlete so that seemed interesting that they were a fast mover there,
and then I mentioned coach was definitely leaning into influencers and particularly using sales associates as influencers.
[33:29] Cool aunt heard the NCAA thing yielding some some fruit so that's interesting to hear.
[33:35] Yeah I've seen some funny like local case studies where do I go up a car dealership hired some NCAA athletes and as you could imagine,
like some of them are awful and some of them are awesome.
So I just like some of the like the quality of the deliveries have been pretty funny and uneven.
[33:55] So another big talking point that kind of it was not the topic of a lot of sessions but it got mentioned in a lot of sessions including mine was the emergence of retail media networks and I would say that was,
something that came up at a lot in hallway conversations more so than in like content on the stage.
But everybody and their brother you know now has a retail media Network and they you know they're all doubling down and one thing they're all doing is expanding,
Beyond digital search so you know more different ad platforms on their websites but increasingly a lot of.
Media opportunities in stores so you and I were talking about some of these offline like you know you know in-store displays and things like that,
and then also a bunch of these retail media networks are offering dsps and letting you buy ads on Google or Facebook using,
first-party targeting from the retailer so you know you think about the depreciation of cookies in your ability to buy your own look-alike audience on Facebook,
you know you can still pay Walmart to buy look like audiences on Facebook for you and that can be pretty successful.
[35:14] So we already talked about the payment Trends another big Trend that came up a lot we kind of covered it in the,
the Keynotes was the rapid Commerce being a big thing and then what I wanted to put on your radar screen.
When the came up an awful lot a few times in sessions and then a lot in the hallway is everyone is metaverse curious.
[35:41] Yeah yeah I read one of the summary as was everyone's talking about metaverse but no one thinks they'll actually be an e-commerce down there so I don't know we're people thinking there's actually going to be some Commerce happening or they were just.
What is this wise.
[35:56] So I don't know that's a good question I tried to ask probing questions and like the vast majority of people you talk to don't actually understand what they even meet like there's a lot of confluent,
compilation of terms right like web 3 metaverse,
um blockchains cryptocurrencies and so it's it's you know you're talking to someone about the metaverse and then they're telling you why they invested in Bitcoin and you go well like those are related but they're not the same thing.
[36:28] Yeah it's like 13.
[36:30] Yeah but so there are a couple case studies from some gaming companies that we're doing some in-game Commerce again Mackenzie like kind of had some consumed like part of their presentation had all these like,
evolving consumer Trends and they again there's a stated preference for take it with a huge grain of salt
um but they ask customers how many hours a day they expected to spend in the meadow verse five years from now and the average answer was 4 hours a day,
and for for Jen's he's the average our answer was nine hours a day.
[37:03] You know every pretty much every waking hour or sleeping hour will be the members.
[37:09] Yeah and,
you know I'll tell you about my evolving opinion The Meta verse in a minute but you know a really interesting question is what it like is like are we in the meta verse right now like like a zoom call the metaverse is.
But Facebook messenger chat the med over like you know the there's a lot of gray area in definitions.
[37:36] And so if you can't like if all my time on Twitter is in the meadow verse then I might be close to that average now.
[37:44] Yeah yeah I don't know I don't think that counts.
[37:49] And so I will highlight like I di think we have a metaverse Commerce Deep dive in in our near future,
everybody wants to learn about it and understand it like I've been doing some kind of meta verse 101 Commerce conversations with a bunch of clients,
and like at the very least if you're going to be an early mover and do some piloting like there are a bunch of easy to make tragic mistakes to make early on that you should.
You should be aware of and so it just you know it might be an interesting topic for us to do a deep dive on.
[38:25] Yeah we'll put it on the list.
[38:27] Yeah and I got corralled by everybody's favorite venture capitalist Andreessen Horowitz and they're wildly boyish on the members.
[38:36] Which which one of the folks steamer.
[38:40] So they now have like a whole team,
dedicate like that and you probably know them better than I do but you know they're trying to have this spin of providing all these services to entrepreneurs so they have like a lot of kind of.
Share real sources and so you know the pitch to me is like,
you know man if you have any client projects like we can play matchmaker and help introduce you to the right you don't companies in our portfolio and stuff like that so the these were not like Investment Partners these were all operating partners.
There were trying to accelerate business for their portfolio companies that were pitching me.
[39:25] I knew they had crypto Focus I didn't know they had a team thinking about the meadow verse that sinners.
[39:29] They do have a crypto focus and I'm saying metaverse but I'll tell you what they really have their their their in addition their trip to focus they have a web 3 Focus.
[39:38] Okay they're kind of loving it all together.
[39:39] Um yeah which there is an important distinction between metaverse and web 3 which would be fun to talk about it we do a deep dive.
[39:47] Yeah alright good teaser.
lot of talk I mentioned this already but there was a lot of talk about the return of stores which is funny because you know I wasn't where stores went away,
but maybe the buzz of the stores went away and you know now like stores are coming pretty well against their soft pandemic numbers and digital is comping,
not as well against their Mega pandemic numbers and so,
there's a way in which you look at it and go oh man you know store growth is unusually high and digital growth is unusually low.
[40:22] I think that's kind of a misunderstanding of the data a little bit in a lot of cases but that was,
a big hallway conversation and then the conversation that I didn't hear that really surprised me I mentioned the mood was really kind of Rosie,
I have to be honest all my one-on-ones with clients leading up to the show have not been Rosy like there's a,
awful lot of concern amongst the folks I work with about what everybody's calling the macros and you know by that they mean,
like inflation persistent supply chain problems you know consistent persistent like economic instability like housing supplies and cost-of-living going up like all these,
these kind of Doom and Gloom Financial measures and then you throw you know gas prices in war in Europe,
on top of all that and I'm talking to a bunch of people that are like really worried about the Financial Health and spending ability of their customer base and there was none of that at the show.
[41:24] Yeah yeah you know the consumer confidence numbers taken a precipitous fall which I always use is kind of my barometer and I'm I am also worried about the macros.
[41:36] Yeah I mean you know I get these wrong all the time but there was a time early in the pandemic when,
when you know my narrative was like
the pandemics probably going to cause a recession and it's probably going to end with a period of like crazy accelerated spending similar to The Roaring 20s and the irony is,
the opposite kind of happened like the pandemic like drove a two-year period of crazy spending and it feels like it's now ending in her session.
[42:07] Yeah yeah it's kind of kind of backwards from what we all thought.
[42:11] Yeah I hope that's not how it all plays out but.
[42:14] Shown up in the numbers like you know the numbers that you talked about the retail numbers the but so it's either not happening or its early indications and we haven't seen it yet that's just kind of the big concern.
[42:25] Yeah yeah no and I will tell you like if and it's going to come up here pretty soon I think another week.
Last March was a mega month for retail and so the comps this March.
Are copying against are really hard number and you know a lot of people feel that like the macros like really started to show up in the consumer numbers this March and so if,
like there's a chance that like the comps are going to be really ugly this March it's going to be a interesting month to watch.
[43:02] All right we'll keep an eye out.
[43:03] Yeah I did say the last best session best session for last,
I did a track keynote talking about achieving digital profitability right and I so I was the one Doom and Gloom session I'm like hey there is a bunch of macro concern over out there like obviously there was a bunch of extra digital,
um activity and now the challenge we all have to face as we got to figure out how to bring more profit to our digital business and so I did a whole,
track keynote talking about,
um opportunities to improve the profitability and then I had a guest Jerome Griffith who's the CEO of lands and like I did a,
like a 15-minute presentation and then we did like a 20-minute fireside chat talking about the best strategies to make money in this climate.
So I tried to channel my inner Scott as much as possible.
[43:56] What were some of the what are some of those strategies.
[44:00] Um I mean it's it's black and tackling stuff we kind of you know talked about you know typical framework of,
reducing cost getting more customers you know generating more revenue from each customer and then we kind of hit on,
our favorite tactics within each of those three buckets Jerome like you know by far feels that the,
the easiest best place to start is on the cost controls right and he's in the apparel space historically the apparel space does a horrible job of demand forecasting.
[44:36] So they make the wrong stuff and they make too much stuff in that really hurts costs and you know just just fundamental costs of goods and and having good rigor around controlling,
manufacturing cost is his kind of home base but like the part of his.
[44:56] Feedback that was super interesting to me is lands in was a direct-to-consumer company so they were a company that was born as a catalog that sold 100% direct-to-consumer,
they got acquired by Sears so then they were exclusively available on the lands in catalog and in Sears stores,
and they were acquired by Sears I greatest years was starting to get distressed and turning into a fast Eddie Discounters and so suddenly lands in which hadn't done any discounting was heavily discounted,
and then they got spun off from Sears and you know tried to recover their non discount price point and,
they expanded into a bunch of other channels so today you can buy lands and direct from their website which is still about 50 percent of their sales but they sell wholesale through Macy's and Kohl's,
which you know our discount channels and then they they also sell 1p on Amazon and so it was interesting he talked about wholesale and marketplaces being,
a very important and vibrant customer acquisition strategy for a direct-to-consumer company and so he felt like.
[46:07] Like the customers that he was meeting at Kohl's were incremental to the customers he met directly and that like partnering with coals and Macy's was,
way more cost-effective way to acquire customers then Facebook ads.
[46:20] Nursing and then I like the marketplace take that's a that's a good one.
[46:24] Yeah yeah yeah so he I mean he was kind of like you got to be where the customer is control your costs,
and then you know there are things like if you are direct-to-consumer like you should launch a retail media Network and try to supplement your,
your Revenue with those kinds of tools and you know I did some stuff just on basic block and tackling and on mobile experiences that we all still get wrong and improving mobile conversion and stuff like that.
[46:54] The was there a standing ovation at the end of the session.
[46:59] There was there was because I said I was going to shut up now and that that generated incredible standing ovation.
[47:05] Did you do the whole Spiel of if you like this I've got 290 hours out there on the internet for you.
[47:11] I did but it's 3:00 because even though we only have 290 shows the average one is longer than an hour.
[47:17] Nice yeah yeah good yeah some guy we interviewed somebody's like I've listened to all your podcast is like I'm not really sure yet.
[47:28] Yeah although I will tell you I ran into a ton of people so many nice comments I'm so grateful like the thing I feel bad about when you miss a show is,
just so many random people like recognize our name on my badge and I had a Jason and Scot show badge,
and like we're honest with Sinners and had great feedback and I was just found out talk to all these people and and it's nice to hear that people appreciate what we do and if you don't know the most common,
comment I get about the show is that oh yeah I listened at 1.25 speed or 1.5 speed while I'm at on my exercise bike.
And I want to say for the first time ever I met a guy who's a regular listener to the show that said he listened at 2X and that I found I sounded kind of sleepy and tired in real life.
[48:18] This is in your holding two coffees did you have the thing where you're speaking and someone recognizes your voice and they're looking around like a weight had I've heard that voice before that happens to us it.
[48:32] It's Starbucks every single time because but I mean hey I spent a lot of time standing in a Starbucks line and I spend a lot of time talking so a lot of people have the chance to hear my voice and go wait a minute you sound familiar.
[48:43] Did anyone make fun of your title that's my favorite part.
[48:46] So yes but like in fairness there mostly people that are friends of yours or mine that just like on team Scott.
[48:55] Okay they're just just carrying on the chief digital retail analytics customer Journey officer.
Nice cool did you guys did your company have a been big shindig was it a good show for you guys.
[49:11] It was it was it was also fun because I had a fair amount of co-workers their it was fun to spend time with them and we had a team dinner that was awesome.
The most purposes agencies wouldn't necessarily exhibit but we own a company that helps
Implement a lot of retail media networks called Citrus ad and so they had a booth there so I it was fun to hang out with them a little bit their founder by the way we might have I try not to put pupusas people in our show very often but we might have to have him on because
he's a two-time very successful entrepreneur he tricked us into buying his his most recent company.
He also is a former professional Australian Rules Football player like legit.
[49:58] Oh ah yeah that's that weird football that they have yeah it's kind of fatter and stubby or than our football.
[50:06] What version of football is not weird that okay yeah.
[50:08] Cool well yeah and we should talk about if pupal sis needs to acquire any car washes with you you and I can have that one offline.
[50:18] Yeah yeah for sure you I get as you can imagine that's that's most of the cycles that that I spend it purposes is pitching on us leaning into the car wash space.
[50:28] Cool did you get a chance to walk through the booths and the the show floor and see Annie was that well traffic to an any any kind of.
[50:38] Yeah it's always it's always hard to tell I do think shoptalk one of the things shoptalk does well is two things they try to have some events in the floor.
so so you know like the lunches and stuff you kind of have to walk through the tradeshow to get to the lunches so they try to artificially create some traffic but one thing I really appreciate about shoptalk is,
they have down time in the agenda when there's no track or keynote content like they have like two hours a day and part of the reason is they have this
this function cut these out meet up so I can retailer can attend shop up shoptalk for free if they agree to take like five meetings with vendors and then these vendors pay for these meetings
and so they have to have a window to do those meetings in and so I appreciate that,
it creates a more natural opportunity for people to walk the show and discover vendors without feeling like you're missing something.
[51:36] Crinkle how many retailers did you meet with.
[51:40] Yeah so I do always try to walk the show and I do try to stop and talk to some booths I got to be honest there's a weird dynamic Scott and I feel like you would appreciate this but Walking the Floor makes me feel old because,
I walk the floor and,
here's basically what goes on in my mind I don't recognize the name of any of the vendors and then I agreed to sign for a second and then I figure out that there are vendor I know super well that's changed their name three times.
And so it's like I feel like the Wikipedia that's like remembering oh yeah you used to be this and now you're this and now you're that and then I know I go oh and I know these 3 people that work there right now.
It is now the case that all the people I know that work at all these vendors are too old and Senior to be in the booth so.
I know I never run into any folks I know in the booth that's always the the Next Generation.
[52:33] Yeah and then I'll get excited that you're a retailer and then you're a podcaster and they're like.
[52:39] Yeah and that's my my unfulfilled young Lame Game I play with all of them is.
You know by and large they're like so what do you do and I go I'm mostly just talk about this stuff all the time and there and they like think I'm lying when in fact that's exactly what I said.
[52:55] The new about the 3:00.
[52:58] Yeah exactly.
And then in a couple cases it Dawns on them wait a minute you're the Jason and Scot show and they like chase me down in the hallway and go you I listen to your podcast.
[53:08] Very cool.
[53:10] Then we go into those sleepy tired thing anyway but in the interest of bringing the average down I feel like I've covered all the show do you feel like you caught up on everything you missed by not being there.
[53:23] I do the one thing that I've heard chatter from the folks I talk to is this
continued pressure on Shopify you ever seen they announce their last quarter's earnings Q4 their stock has been on a
precipitous slide that they haven't seen since their IPO and like 2016 I think,
maybe 15 was that that come up at all or no.
[53:50] It didn't come up a lot and I'm trying to remember like I actually don't think they had a booth at the show which is interesting.
I could be wrong on that but I kind of don't think they had had a big booth,
and yeah I mean you know obviously they're totally lumped into this whole category of companies that did amazing in the beginning of the pandemic and then like you know seem like they acted like they would continue to,
to grow that pace and obviously couldn't and then you know the their stock got punished for it.
[54:23] Yeah yeah and there's been a lot of Wall Street notes out saying you know that I think what freaked everyone out is the fact they're going to invest in infrastructure meaning warehouses and there's a lot of Wall Street folks trying to say.
It's not that bad it's only a billion dollars but I remain skeptical that that's going to be enough and then,
yep so we should just wondering if that was.
[54:48] Yeah I mean if anything I would say there are a lot more fulfillment companies that would be competing with a Shopify fulfillment Network and a lot more you like I'll tell you where Shopify has a ton of competition at this show are like.
POS systems which is actually a meaningful part of shopify's offering now and you know like kind of.
Solutions as a service besides the e-commerce site the payment systems and all of these things that you know Shopify does and I will say it's kind of funny.
I still think like a lot of people try to describe themselves as the Shopify of X which.
Like doesn't sound as good as it did a couple years ago and you still hear people trying to say like we're the word be Parker of X and I'm like have you looked at worry Parker stuffers.
[55:37] Yeah how about how about some of our friends from The Headless Commerce industry was there a lot of a lot of Buzz there with the.
so those platforms were there in full strength Fazal and fabric had a big presence there you remember they raised some good money right before the show,
we had Kelly on from a Commerce tools you know a number of episodes ago and he talked about the mock Alliance and that mock Alliance,
has really gained a lot of traction like I'm seeing a lot more and more vendors emerging that are now members of the mock Alliance so it seems like.
You know that that's not just a marketing thing that's kind of like a legitimate Trade Organization for all these headless providers.
[56:27] Nursing was there like common badging throughout or something like that.
[56:31] Well yeah there's a mock Alliance logo that was on a bunch of booths I they may have had events I wasn't able to like attend any of their.
There are social events but yeah it seems like it's getting traction I don't know if this is a perfect show for that like.
There was an ERA when like everybody needed a platform you need to go to a show to meet vendors and find out about platforms like I kind of think the average attendee here has a platform today and so you know maybe there's some that are thinking about switching.
But I have a feeling that those booths have gone a little bit more from customer acquisition to.
Customer relationship management and retention at the shows.
[57:11] Yeah yeah nursing will cope well we appreciate you going out and braving the wild environs of the Las Vegas hotel circuit and this the Starbucks to report back to us.
[57:25] It was my pleasure and if she's listening definitely congratulations to Christina Gibson and the whole team at shoptalk I do think they put on a good show and it's,
like I think it's definitely set itself up as the preeminent kind of digital Commerce show in our industry now.
[57:59] Yeah and until next time happy Commercing.
We discuss ShipBob's origin story, how the e-commerce fulfillment industry has evolved, as well as the challenges and implications of Amazon and Shopify's various fulfillment initiatives.
Episode 289 of the Jason & Scot show was recorded on Friday March 18, 2022.
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.
[0:23] Welcome to the Jason and Scot show this is episode 289 being recorded on Friday March 18 20 22 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo.
[0:37] Hey Jason and welcome back Jason Scott show listeners
Jason as you know we did a Amazon Fulfillment deep dive a couple weeks ago and that was quite a popular
Topic in episode and we've been getting a lot of questions from listeners about what's going on in the world of
and we are now living in a world where products used to be if you get it in a week that was amazing and now anything that's longer than 2 days feels like a lifetime
so we thought it would be good to bring on one of the top startups in the Fulfillment area the shipbob and we have with us the CEO and co-founder of shipbob dhruv saxena dhruv welcome to the show.
[1:20] Thank you so much Scott and Jason for having me excited for our conversation.
[1:24] We are looking forward to it as well I'm getting tons of complaints on the feet already that people were expecting Bob to be on the show today so you'll have to tell us how it became dhruv started shipbob.
[1:36] Yeah for sure I'll give you a quick back story on me if that's the opening question and tell you how did we come up with the name shipbob.
[1:46] That would be perfect yes I asked it very awkward we Scott is laughing at me on the back Channel.
[1:51] Yeah so.
Quick back story on us you know I grew up in Delhi India came to the u.s. in 2007 to pursue engineering my co-founder on shabaab device is also from India we've known each other all our lives.
And so we after we both did an engineering in the midwest here I went to Purdue we came back to Chicago and started.
I'll booking in a full-time jobs at software programmers and on nights and weekends as most Engineers do.
We were trying and experimenting with a bunch of thought of ideas and one of the start-up ideas was in e-commerce.
And be Engineers we were able to automate effectively everything in that e-commerce business except the part around shipping and Logistics.
And so every time you would have a bunch of folders we would have to run to the post office here in Willis Tower Chicago in the basement,
they have a post office and we would have to stand in line and basically ship out those orders out and that became the most manual and painful part of our e-commerce business.
And we wanted to find ways of automating that.
[2:58] And we would call up a bunch of these existing companies 3pls who helped companies with the shipping and Logistics take all three pills third party Logistics providers.
And none of them wanted our business because we were too small for them,
and so that got us thinking as to hey how do others small to mid-sized e-commerce businesses figure out their shipping and Logistics we realize that there really isn't a good alternative for businesses like ours who are you know ramping up e-commerce businesses and that caught us into,
thinking what should pop can be.
And how did the name come about you know so when we started thinking about building a company for helping businesses with their shipping and Logistics needs.
We were going for like like people want fast shipping so we should have ship and a fast you know like an animal name or something like a ship park or a ship Cheeto something on those lines so that it conveys.
That heylia company which helps you with fast shipping and all of these that domain names were taken,
stop after a while godaddy's recommendation engine you know started recommending you no other alternative domain names and one of them was shipbob for 299 or something,
and so we say you know we don't have money but this seems like a cool name and so if you just turned shipbob.com for 299 and that's the story of her name and so now we have a good messaging around hey,
Bob Means bending over backwards for your shipping or Bob can be a plumber Bob can be you know any
use for gyves but as Bob kennels to be a shipment so that's like the marketing angle on shipbob.
[4:24] Very cool so it's interesting because this kind of parallels a lot of a lot of companies in e-commerce they start with people building e-commerce stores and then they're like,
this part of it stinks I'm just going to focus on solving this so what is your original e-commerce store do.
[4:42] So we started were doing a lot of like printed photographs and so you know this is like 2013 2012,
bear Instagram had just been acquired by Facebook for like a billion dollars and so we thought oh wow that's photo-sharing seems to be like a heart,
market right now and Instagram is all about digital photo sharing so what if we brought back the Retro way of sharing pictures which is people would print and mail pictures to each other so our e-commerce business was that you would send us a photo.
Honor text bot we would print that photo we would frame it we would write a message at the back of the for any personal message you wanted and mail it to your friends and family all across the world.
And so that was sort of you know our big idea then like physical photo sharing.
[5:28] Cool car like frame bridge I think does some of that now cool yeah so then you you did you wind that down as you kind of pivot it over to the Fulfillment center.
[5:39] Yeah it won't down on its own to be honest because once we started focusing on on shipbob E that business wasn't really taking off with shipbob first was was so we started spending a lot more energy on shipbob.
[5:52] And then so that was 2015 earlier kind of also 2014 yet.
[5:58] Now 2014 2015 we got into this incubator called y combinator Scott so.
That allowed us to you know quit our full-time jobs because y combinator gives you like a hundred and twenty thousand dollars so that was enough money for us to like put in you know our notices on a full-time jobs and go all in on shipbob.
[6:20] Brickell so you got no Y combinator and then that usually requires you to go out to Silicon Valley for a period of time did you guys do that or are they at some point they introduced remote but I think that was later.
[6:32] Much later yeah no that's a good question so.
This is another great sort of Peace around you know building startups and Chicago so when we go into YC.
We were one of the very few companies you know.
Who did not relocate to California so it was it wasn't mandated or Partners there were very comfortable we okay with us traveling back and forth.
So every week on Tuesday they have these partner meetings but you go and tell them the progress you've made.
And so we would fly every Tuesday morning to our Mountain View California do our pitch and you know and learn and then come back and because,
we had to fly and I was you know what a red eye flight Etc it was a lot of effort so we would always try to make sure that we have enough progress that we've made in a given week
to make that trip worthwhile otherwise we would go there and we will just come out looking like we didn't really do much and that would be a waste of our time so that pressure of making that trip by productive I think in the early days for stars to work way harder,
that may be a lot of other companies simply because you know we were putting a lot of effort and these so and capital in making those trips and but we headquarter the business in Chicago.
I'll see you know which turned out to be you know pretty good decision I guess in hindsight.
[7:49] Yeah and then you know what's really interesting and I kind of live this every day so I'm curious how you
path you took here as software people you know we love to solve things with software and at some point
shipping is not a software problem right you can you can build the world's best shipping but at some point some human has to and maybe a robot but you know some something has to move a package from point A to point B
sometimes Point c d and e and then someone has to you have this middle Mile and this last mile when did you guys
realize that you're going to have to actually have like fulfillment centers.
[8:26] Um right from the prions yeah pretty much.
Because you know coming out of the running your own e-commerce business and then also a couple of other startups before then.
Be being Engineers yes we were very accustomed to writing a lot of code and then just hoping that users will show up and none of the startups are for shipbob for us worked out,
and one of the realizations that would be in the way had is that just because you build it doesn't mean that people will come,
and so you would have to spend a lot of your time and energy in making sure that you actually spend you know time on sales marketing and distribution and so when so we were very.
Early before even adding code we were talking to our customers and these customers you know who would eventually become users or loyal users.
Told us very clearly that we don't really care about great software what we care about is a great product or a great service which helps us in packaging and shipping so that influence the decision-making right.
We can't be a pure software company these Merchants are paying us because they need great fulfillment service so having our own fulfillment centers probably requirement for us before we can start scaling.
[9:36] Got it okay cool so you go do y combinator and then women did you like build your first like when did you have your first fulfillment center.
[9:48] So right at the you know when you started the company like our office and my apartment became sort of a file template.
Fulfillment center very Loosely here so you won't really be able to.
Call the Department of proper fulfillment center but you know it did the did the work so there was enough room in our apartment and enough first office.
Which is like I think thousand square feet for us to have some room for people to send us their product and we would store their inventory.
And then have couple of hours basically pick pack and ship you know those boxes out so my apartment was on the 31st floor so every evening we would get a big.
Little trolley and put all the packages and that's all a and then use the freight elevator to bring those packages to the ground level where Michael ejector words you know use the car and we'll take it to the post office.
[10:41] If you're in Jason's building he would have reported you as like a probably a drug dealer some suspicious Behavior going on up on the 31st floor.
[10:50] Yeah no.
[10:51] I'm just grateful the city planners that do the zoning didn't hear this story.
[10:56] Yeah you know it.
[11:00] It's not illegal if you don't get caught.
[11:02] You know we did get in trouble in the early days with the local post office so what would happen is again you know because we had been.
We didn't have a lot of successful startups before shipbob Beaver like way paranoid about finding customers.
And we none of us came from the sales and marketing background so we tried to run for this position where you can we find customers in the most cheapest and fastest way possible and the obvious answer to us was let's go outside the post office because there's always a line,
people don't always seem very happy or to go to a post office and so if he.
Can find a few e-commerce merchants in those lines we can pitch them that idea while they are still in the line and convince them to give us their package and not go to the Post Office the second webinar.
And so we spend the first three during by see it is like a first three to six months of our shipbob basically standing in lines outside different post offices in Chicago to convince people walking in that shabaab is a better alternative than you going inside the post office.
So the post office Forks very nice people thought that we were trying to take business away from them.
[12:10] So they were sent they would call up these post office apparently post office has its own police do something so they would send out these post office cops,
who would comment she was away and so we would just go from one post office to the other like based on you know which one had last called the cops on us and so,
I think some post office might still have a picture of Jessica and the way to make sure that they don't show up again.
[12:35] Those cops are federal agents by the way they're not messing around.
[12:38] Oh man I hope they did especially because we were immigrant Founders so we can't get in trouble with the the federal police.
[12:49] The federal jails and I hear pretty nice though so good they have tennis and stuff.
[12:54] What we're going to have a separate episode about how Scott knows that.
[13:00] Okay cool so you did your wife see then you came back to Chicago and then maybe kind of update us like the bullet points to where we are today.
[13:10] Yeah so once we you know got back to Chicago post why see we were fortunate enough to raise a seed round of a million dollars and so that allowed us to,
you know take that top pill and hire a couple more engineers and hire a few more sales people and then expand the business so we opened up a warehouse in Chicago.
Where we were headquartered and then we quickly expanded to New York as well so we added a location in Brooklyn New York.
[13:38] And based on the progress that we had made you know in Chicago and New York and remember let's also limited so it requires Capital because you're opening up these fulfillment centers at the very beginning and you're also writing a lot of software which powers.
The inside operations of the Fulfillment center and so we have to raise Capital simply by the nature of the business we are in also fulfillment I'm sure like,
all your list has no it's not like a software business it's not an 80% gross margin business we have very tight margins,
and so you are you require a lot of captains in this business to scale and so every couple of years we've had to raise Capital simply for us too,
add investment dollars into building,
either the software which powers are fulfillment centers or to open up our own fulfillment centers and so The quick summary of f Bob is today is that over the last five years or so,
we raised you know close to 400 million dollars or so of venture capital,
we've added you know be as close to 1,000 employees now a lot of it on the product and Engineering teams and sales and marketing team for us too.
Add many emotions to our network but also write a lot of great stuff in which power is the back end of almost we know back-end systems of all of the e-commerce businesses using a platform.
And the business strategically also has you know evolved where we don't now need to.
[15:02] Operate our own fulfillment centers because we have four of our own social incentives each one in Chicago New York Texas and California so we kind of know how to run fulfillment centers we now partner with existing.
3pl Zone fulfillment centers who have empty capacity we bring in our software our know how our physical infrastructure into those locations,
we bring them up to the shipbob standard and then we are able to Route our Merchants into those locations and so the business now requires a lot less capital in scaling the infrastructure side of things
but not all of that Capital goes towards you know basically growing out the product capabilities and adding new Merchants into our Network.
And we have fulfillment centers in the u.s. in Canada in UK Europe in Australia.
And we of course added a lot of capabilities on a network all the parts on this wall so truly today now shipbob is a global.
Omni-channel fulfillment solution for a Merchants where we can we are probably you know on power if you were starting an e-commerce business and you wanted to compete very effectively with Amazon and Walmart supply chain we are a great alternative.
[16:13] Pickle the way I explain it let me see if this pencils for you so if someone asked me how this you know how
this kind of what I would call your one of these next-generation fulfillment companies my pitch is you had these 3pls but they were really designed for
you're kind of almost like a real estate thing where you go in and say Hey I want a corner of this fulfillment center and I'm going to lease it and do X Y & Z and then Amazon's Innovation was FBA where it was you know what much more aligned with the
the e-commerce model of yes I want you to hold my goods but they're going to turn over quickly and I want to pay more of a per transaction kind of a thing,
and I also want a lot of flexibility about how
fast I can get products to Consumers so 3pls were in this kind of old world where they weren't really built that way so then part of what you guys did as you built your own fulfillment centers with this new model and then you can kind of take that model and put it into Old 3pls bring them up to kind of like the FBA level of
above standard is that a fair summary of how you explain shipbob to other folks.
[17:20] Yes that is very real articulated Scott I might actually use that going forward and and the only piece I would add to it is,
of course you hit on the fast piece of it which is very relevant for a merchant,
the second big element of wine Merchants choose us and our network is our ability to customize the unboxing experience which is unique for that particular brand so you know when you order something on Amazon it shows up in Amazon branded box
for a merchant they want that unboxing experience to represent their brands you know.
Ethos and the brand value so whether that's a custom box you know whether it could be eco-friendly material it could be custom gift notes accustomed shipping labels Etc the ability to customize that you know that.
Transaction is very relevant for them it's almost on par alongside speed and and so that's the piece the second element of.
Of customization I guess that should Bob's been able to unlock that I think FB it doesn't offer.
[18:18] Got it and just to sort of clarify for listeners like so the goal then is it feels like it got shipped by the vendor right so it has whatever
packaging the the manufacturer would want to use and a bill of lading that has their logo and those things on it as opposed to I ordered something from cuts and then I got an invoice from shipbob or something like that.
[18:41] Yep exactly right we want to be.
In the background you know where the Shopper is building a direct relationship with the brand and and the Shopper is agnostic to whether shipbob ships or whether the brand shifted.
[18:58] Yep so and just to kind of frame this like back in that time frame the the idea of B2 C3 PLS was not common today
it's a it's a pretty crowded Market space there's a lot of a lot of options but they're back then is got kind of pointed out like there was a thing called 3pls but they were more of like a B2B service really right.
[19:22] That's right yep and so,
the reason why even we were able to even build a business here is because majority of the 3pls out there were focused on the palette and Palette outside our transaction because most of their customers,
but the bands who was selling predominantly in retail stores like Macy's no storm or Target Etc and so the concept of this High Velocity two to three units per order was very foreign to them,
and all of the infrastructure was designed to store large number of palettes worth says having inventory in each has or in single units stored in bins and shelves.
And so far from that perspective,
the reason you know if you are doing pallets and pallid out like getting into e-commerce and then getting working with small and mid-sized e-commerce businesses where you don't make a lot of money for customer Justin.
Pencil for these for these B2 B3 Tails because they were used to having.
A small number of very large customers and then designing their entire operation inside the building's only for that few number of merchants because they would be able to make a you know the entire earnings ones from that limited set of merchants,
word says it shipbob you know we we have a whole large number of merchants none of our Merchants you know are these are all birds or these massive Brands but these are growing emerging bands and.
[20:50] Productized what is very much like been away service-oriented business.
[20:55] Yep and so the profile of the typical shipbob customer is a start-up that's intending to sell direct to Consumer mostly through their own website is that a fair characterization.
[21:08] That's how we got started his and so you know today that is definitely evolved as a capabilities have grown as well so,
I would say like if you have to break down the merchants that we serve are so,
on one end of the spectrum we have these Merchants you know they could be ought to pronounce what just getting started and they're doing anywhere from you know less than a hundred thousand dollars of annual revenue on the website all the way up to maybe a million dollars or so.
So that's one and then we have Merchants who are from 1 to 15 million dollars of gmv,
and they are predominantly selling on their own website but they're also selling on marketplaces like Amazon eBay Walmart.
And then we have a mid-market segment of merchant these are relatively established Brands they are doing anywhere from 10 to 150 million dollars of gmv across all the different channels that they're selling on,
and for them you know they are in e-commerce which is direct-to-consumer they're also in marketplaces but they're also in retailgeek,
and so they and they also are thought getting to be Global and so for them,
they use shipbob because under one umbrella they are they get not only great technology but the Fulfillment solution is able to carry it across all the different channels that they're selling on,
and it allows them to manage inventory Under One Roof so in the.
I guess the value proposition over the last six years for shipbob has definitely evolved as a capabilities have grown I've grown.
[22:33] Makes total sense and I'm assuming so in my day job one of the the new categories of business that I see you like getting into direct fulfillment more are
traditional products that used to exclusively sell through wholesale and in some cases these could be quite large companies
that are used to sending pallets to Target and Walmart and now they're starting to sell some of their own goods from their own website and just like those those startups from 2014
they've got to figure out how to do the each's Fulfillment and I think they turn to folks like you as well now.
[23:06] Yeah absolutely and so you know that's the exciting piece of direct-to-consumer is that.
The technology and the infrastructure needed for you to start your own e-commerce business and be able to reach your consumers is has massively evolved so these traditional.
You know Brands who are predominant retail now they are able to participate in e-commerce in the pretty meaningful way as well and they have access to Great infrastructure and.
I think you know the.
They've also realized that the infrastructure that they need it for their retail shipping doesn't look anywhere close to what they need for the direct to Consumer so on the record consumer side maybe you choose Chopper 5 for your front end platform.
Are you choose to do a lot of your advertising and marketing on through Facebook Instagram Snapchat social media is the predominant digital marketing channel effectively.
And then you choose shipbob for your fulfillment and and running your supply chain and maybe use a form or you know or care enough for your buy now pay later like those credit financing options
and so this technology stack that you need to run your direct-to-consumer e-commerce business you know now exists,
and is completely different from what you might have used for running a full wholesale retail operation.
[24:27] Yep and I do want to just double-click on one other thing before we turn to two marketplaces and the Frenemy situation there but the
so a couple of your advantages why you develop this software to make the Fulfillment center much more efficient than traditional ones were and obviously efficiency is a huge differentiator and in the Fulfillment
you you enable all this customization and personalization
which is a better match for The Branding that all of these clients want to do one of the other things that I think of is.
3pls from that era that was sort of problematic and that kind of Amazon disrupted is like they used to make you manage your own inventory so if they had to.
Fulfillment centers you as the merchant had to decide how much good you are sending to the West Coast and how much good you are sending to the east coast and and you sort of had to do all those things and.
Amazon through their fulfillment by Amazon kind of took that that
that Inventory management burden away from some of their their merchants and sort of did all that for them and did the load balancing and all those sorts of things
so do you do that like you now it sounds like you've got four of your own fulfillment centers and a bunch of virtual fulfillment Centers do you do all of that sort of AI based
inventory allocation for your customers as well.
[25:56] Yep absolutely so and that's sort of I guess we can break that inventory allocation into two parts so one is choosing where in the network,
to send your products from your manufacturer.
[26:08] And so that's based on you know we provide all of that information upfront to a merchant base where you know based on historical
purchase data that we captured from all the different sales channels that you connect into Shabbat we can be have a model that,
Delta to fairly well as to how much inventory to store in which parts of the network,
and so that's and so you can but we don't necessarily mandate that because for these brands
you know they want to be one them to have the ability to make those decisions for themselves we provide them with all of the information and if they choose to they can have shipbob distribute that inventory for themselves for them or they can do it directly from the manufacturer
my following our data you know that we give out to them so that's on the
first half of like sending like the right amount of inventory to the right location so that's a little bit of a optionality for these bands.
And then the second part of it where we do a lot of the work ourselves is once we start getting these orders into our platform once you buy something from our,
from a branch
choosing which fulfillment center that particular order gets routed to and what shipping carrier is used for that particular transaction that is something that we that we definitely do you know
in the house and so that is a pretty important element of it because as a brand you might off be offering two day shipping on your checkout page.
[27:32] But you actually don't want you know to be using Ups 2 day or FedEx overnight to do that today transaction because that will be very expensive,
and sociable because we've captured a lot of far,
carriers performance data over time we have a pretty built out model which tells us hey if we even if you use this local Regional carrier for this particular order we have a very high likelihood it will get delivered in 2 days or less
and we don't have to pay for a UPS guarantee today service and so we are able to bring down the cost of two days significantly down at this almost the same price point
as a USB as ground shipping which is a total which is the cheapest form of shipping simply by placing inventory
in better you know better placement of inventory and a fulfillment centers but also choosing where which fulfillment center ships that particular order and what shipping carrier we use for the transaction,
for that was a little long answer but I think that is sort of the secret,
Elemental why brands of any size are able to offer a two-day next a sort of a shipping experience on the checkout page.
[28:37] Yeah if that's helpful at
when I've talked to some people about this kind of stuff they're always like how hard could this be like this comes up in the
Shopify so a lot of Shopify Wall Street folks you know they'll say well why is this so hard and you know one of my favorite things about e-commerce is going to
tour warehouses because once you get inside of warehoused you realize that this pretty complicated and the way I explain it is once you've committed to a.
[29:09] Yo an asset like a warehouse and all the people in everything then it becomes an optimization problem in optimizing warehouses is pretty complicated right so let's let's take you guys have
X number of customers in a fulfillment center let's just keep it one of the ones you own and operate to make it even
simpler and you know there's a there's a bazillion questions like how do you if you take
customer 1 through 100 do you intermix there things how do you do the packaging you talked about how do you
how tall are the shelves do you use conveyor belts do you do two floors or one floor and your fulfillment center
so what's fun about that is an engineer there's a lot of fun problems to solve their and it's a lot,
you know your explanation of the shipping is interesting because that's like yet another one so a lot of people feel like this is too easy is really easy and then they kind of run up against the the the hardness of it and they kind of have to
step back and redo it do you have a point of view of.
You know what Shopify kind of did it seem like they tried to do a software-only kind of a solution and it kind of didn't work and now they're trying to get more involved in it and you have a point of view on that.
[30:18] Yeah for sure but you framed it really well Scott which is.
Once you you know once you go inside the Fulfillment center the number of problems of that that you can potentially solve or almost endless,
and the reason it's important to attack these optimization problems is fundamentally you know fulfillment is not a software only problem.
And it doesn't come with 80% gross margins
and so it's in your best interest to optimize once you get to certain scale because every cent and dollar you share from those operating costs is a dollar that flows to your bottom line
alternatively is a dollar that you can then reduce you know your cause to your brand which then allows them to reduce their fulfillment costs and that way allows them to offer free shipping which then drives,
you know more sales on the website which then drives you no more orders into your platform which allows you to get to scale faster.
And so optimization is you know is key for you to be operating at the lowest cost possible because there are advantages of doing so.
And so there are a lot of different ways to get to Optimum to try to optimize but if you don't own and operate your fulfillment centers at least the onset you simply don't know what problems to solve,
and so at shipbob you know what I believe worked really well in our favor is because we operated our own fulfillment centers we saw firsthand.
[31:45] What are the consequences of the choices that we are making.
And that involves you know the physical infrastructure do we mix products of different merchants in the same aisle where in the,
we're in the Fulfillment Centers do we place the fast-moving skus do we take the loaf slowest moving skills and put them at the back of the Fulfillment centers away from the rest of the merchants inventory or do we place them high up in the,
under racking system how do we think about Labor planning is Mondays.
[32:15] 20% higher than Friday so do we need to staff up in the morning shift Etc and they are all and material handling and and Idol walking is such a big.
Cost of the Fulfillment centers operations how do we try to minimize that and at what scale
there are hundreds of these optimization decisions that we've had to make over the last seven years,
which then have been productized in our software in our warehouse management system which then now is being deployed across these Partners sites,
and so I think if we were to
to you know jump ahead and just do our partners sites that we don't own and operate we don't own or operate on a day-to-day basis
we would have missed out on all of these optimization decisions that we made over the last seven years which then allows us to operate,
at a much lower operating costs than any of the competition so I think Shopify I don't know,
you know the products are actually there but I think they might have tried to short-circuit their way into running virtual fulfillment centers to early without having
learned the lessons of our without having experienced the lessons of running your own building which I think they might be course-correcting now.
[33:25] Yeah it gives you the ability to go to a 3pl and say hey here's your you know 3pls are kind of V1 and you guys are like V10 so you can go in there and say
take this section do it this way here's how you know here's the barcode reader you need to use yours there's like all this stuff that has to come together seamlessly with the software to kind of execute and you guys have figured all that out and you can just kind of plop it right into the 3pl I imagined.
[33:50] That's right yeah exactly out pitch to these existing 3pls is that you have this unused capacity.
This is like a warehouse in a box that we are providing you and if you follow
you know the product or the our operating protocol then you will be able to make X dollars and order or Y dollars a square foot,
Which is higher than what you are achieving now and by the way you don't have to spend any money on sales and marketing and servicing because shabab you know these are shipbob merchants and so you should be able to make.
You should be able to generate a return on that on that space in a relatively short amount of time which makes it a pretty interesting proposition for these existing 3pls who want to participate in e-commerce but they necessarily don't have the infrastructure.
All the capital to do so as yet.
[34:44] Interesting cool so give us an idea of your scale so I saw on crunch basis it says you've raised over 300 million so congrats on that the I've been raising capital in this kind of more asset heavy World in it's not not easy so so
kudos to you for being able to fund us at the scale you have
maybe like how many packages a day are you guys processing or anything you can tell us around scale would be kind of interesting.
[35:10] For sure I won't be able to get to the.
Exact are approximate taxes but here he is maybe a good proxy you know we have close to.
30 or so fulfillment centers in our Network today we are
adding one fulfillment center a month that's the relative scale and majority of the reason why we're adding these fulfillment centers that are rapid clip.
Is because we are you know reaching.
Pasty in these fulfillment centers fairly quickly and the amount of space that we take inside of a fulfillment center is anywhere from.
30 to 40,000 square feet on the lower end as much as 90 200,000 square feet on the higher end so that's the sort of every sight every node in the network represents at least you know maybe call it average 50,000 square feet and we have close to 30 of them.
[36:04] Furcal and then it wouldn't be a Jason and Scot show if we didn't at least throw you an Amazon question.
So so it's easy to kind of you know again for someone to kind of look at this and say hey you're competing with FBA and I I get that you know.
Amazon's talked about doing you know a you know just non-market play Style Style fulfillment.
And then but then and then they've also talked about yeah you can use your own packaging and but you know my understanding is they're not really doing that at scale do you
do you guys feel like you compete against them or do you see them the other thing that also blows people's minds a lot of time is
software and sinners like you guys operate frequently will ship stuff using Amazon's API so that it can be prime eligible which is also kind of a so-so the 3pl the
shipping partner can be Merchant fulfilled Prime which thus means their products are prime eligible so maybe talk a little bit about how you feel about Amazon.
[37:03] Yeah for sure and yes you're right so we do ship inventory sometimes into Amazon Fulfillment centers as well for,
for the fpaa.
[37:15] And some of our some of our Merchants do also you know use the what you call the seller fulfilled Prime option but more on your question on the do we compete with FPA I think it is servicing a slightly.
Different segments of the market and so if you talk to most of our brands,
you know they were they won't really say that we trust Amazon with all of our data.
And so for these brands that we serve as passing that customer information or who their buyers are,
to Amazon seems like a big business dress because Amazon competes with them,
you know on the Amazon to the Amazon Basics line or you know placing the product slightly differently on the the listing speed and sector so they want to build a supply chain,
and demand you know sort of website which allows them to control their own destiny without having to rely on.
On Amazon which could potentially be problematic for them down the road.
And so in that context they want to stay away from Amazon as much as possible of course they also do sometimes have Amazon listings because Amazon is such a great.
Aggregator of demand that maybe it has a lower cost of acquisition than having to do it yourself on your website but you don't want to rely on Amazon for.
[38:40] Majority of your sales and so in you know under that,
through contacts then we don't necessarily compete with Amazon FBA because for these Brands using FPA is not even an option and so and two because then we are there under this ethos of like if I have.
Slightly Superior brand and my brand is represented through all aspects of my branding website supply chain I can I can be a better business,
then you know shipbob stability to provide us a plethora of customization options,
is a real value sell because and I know our ability to match you know this two-day Prime life experience.
I think it's a real value add and the third aspect of it if I may add is as these Brands grow larger being able to have inventory globally is.
Something which I don't think is possible with FB and fourth is if you're also getting into retail,
you know doing being able to ship Ballads of inventory to these retail distribution centers again is not an option with fpso if a brand is thinking about their supply chain as a whole I think shipbob FB is probably not a solution.
[39:51] Yeah so that really makes sense
I'm kind of curious how this is going to continue to evolve I mean it seems like there's some risk that some of these big retailers like or marketplaces like Amazon and Walmart might eventually start selling their fulfillment as
as a third party service that could potentially compete in the 3pl area and I think the the FedEx is and UPS is of the world are leaning more into it as well is.
Is the future going to be kind of all of these different Services kind of colliding and meaning in the middle or how do you see the future of this industry playing out.
[40:26] Yeah that's a hard question to answer,
because yes you know e-commerce is growing so quickly that there are so many Greenfield opportunities for different companies.
To play a part in so but I think each one probably you know like this industry benefits from scale.
And so and of course this is a hard business because you're dealing with physical products and physical inventory and physical assets.
And so I don't know if the industry would sort of all of us will start doing each other's work simply because it's by doing our core businesses by itself pretty hard and getting to scale in our Core Business is very relevant so.
[41:07] I think UPS and FedEx might
I think might have dabbled an e-commerce fulfillment but I think majority of the business still very much remains around transportation and and same for shipbob I think majority of our business is around fulfillment
we are looking at ways of adding value to a merchant Base by taking parts of the transportation and seeing if we have enough density on certain routes,
that can be that can allow us to reduce the overall fulfillment calls for a Merchants but again I think there's so much you know there's so much to be done in this space that if you.
Lose focus you can lose the advantage that you have right now so you know I and and businesses are able to grow,
simply by focusing in the core business area so for us at least you know it's mostly fulfillment and maybe pieces of Transportation sprinkled in.
[41:58] Well that seems like a toy reasonable perspective and it certainly is going to be fun to watch but I think that's going to be where we have to leave it today because as per usual we have used up all of our allotted time as always if this is episode was helpful to you we sure would appreciate that five-star review
but we really appreciate your time today and sharing a little bit more about shipbob with us.
[42:21] Now thank you so much Jason and Scott for having me this was a good conversation.
[42:25] Dexter even if folks want to follow you online do you pontificate or should they just follow the shipbob socials.
[42:32] The shipbob Socialist would be a great great dad.
[42:35] I know I would advocate for you doing more would love to read anything you write about the industry as it's been a good discussion and you know at least Jason I would read it so we can guarantee that.
[42:47] It's great to read as I got I got it.
[42:49] Boom and Jason's mom she always follows Oliver stuff stuff.
[42:54] I can convince my mom as well.
[42:59] The audience is growing by the minute well thanks very much everyone and until next time happy commercing.
Episode 288 of the Jason & Scot show was recorded on Thursday March 10, 2022.
[0:23] Welcome to the Jason and Scot show this is episode 288 being recorded on Thursday March 10th 2022,
I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:39] Hey Jason and welcome back Jason Scott showed listeners Jason covid is defrosting and you are getting yourself back on a plane and I saw that you went out to eat tail.
[0:50] It is true I don’t know if listeners can see me knocking on wood when you say that but yeah I yes went to my first post covid trade show that felt like trade show from before covid which is cool.
[1:04] Sprinkle what was what was the buzz in the like the first time and well I guess in RFC some folks got together did you end up you didn’t go to.
[1:15] I did not go to in our app and an attendee and sit in our F was I think there are people that went in and found a good but attendance was significantly down from a normal and RF show.
[1:28] Was kind of the first normal.
[1:29] Yeah and the interrupt timing was just rough because that was kind of In the Heat of the Omicron variant like re-emerging and.
Um but so e-tail is in Palm Springs in February you know.
People are like turning off Mass mandates and it felt pretty good and so the show was sold out the hotel was fully booked and if you if I just popped you on at the trade show for.
It wouldn’t have felt any different than e-tail 2019 felt to me so I think people were like frankly pretty excited about getting back together.
And took full advantage of the you know typical trade show activities that cocktail parties and and all the frivolity.
So I did a couple of sessions I did a keynote interview with the chief marketing officer from Signet Jewelers and they have a pretty interesting story during the pandemic the,
you know they even have an interesting story in the metaverse that like I didn’t realize this but millions of people have gotten married on the metaverse and are buying jewelry for it.
[2:39] Nice can you buy a is your diamond and ft.
[2:43] In some cases yeah.
[2:46] I’d like to see picture I found it.
I don’t want to actually bring up the topic of buying jewelry and then tell her it’s digital jewelry because that won’t that won’t go where I was wanting it to go.
But so so that was good I did a panel on on sort of growth tactics with a bunch of kind of younger digital native Brands and so that’s fun to get
you know some some different perspectives and some novel stuff and I did record a couple podcast there so listeners have that to look forward to will drop those over the next few weeks and so some good
good conversations with with real people in the industry.
[3:26] What was the back of the hall conversations the you and I have talked a lot about the impact that the Apple and Google privacy changes have had was that kind of one of those
yeah you’re on the stage everything is Rosy but behind the scenes I was like oh no what are we going to do with this this whole thing that’s crashing down around us.
[3:44] Yeah it depends I because I feel like there’s a couple of different cohorts at Eddie tell like there is a cohort of them
kind of smaller direct to Consumer Brands and I think those guys are right in the Wheelhouse of those impact so that absolutely was coming up
you know it there is a pretty big like e-commerce vendor community in the show and so there you know weaning into the
the super high P Trend so everyone’s talking about metaverse and,
in ftes and trying to convince you why they’re the world needs 107th personalization engine,
so you know there’s a fair amount of that stuff and then you know there’s some of the big wholesale retailers and there they were like more interest like the trends that are impacting them the most right now are things like retail media networks and stuff like that.
[4:38] Brickell all right so anything else I need to run jump in the news.
[4:45] No not yet let’s we got a lot of news to cover so let’s get to it.
[4:50] Cool well it wouldn’t be a Jason Scott show if we didn’t talk about a little bit of Amazon news.
[4:56] Amazon news new your margin is there opportunity.
[5:08] Yes so one of the things it’s been a busy week for Amazon so
just yesterday they filed one of their SEC documents their annual report effectively and surprised Wall Street with two little good nuggets so one of them is they’ve they’ve expanded their stock buyback
over time as you issue stock options and restricted stock units to employees as incentives your stock count grows and EPS is calculated by earnings
/ your Share account so when your chair count goes up it puts a natural pressure downward pressure on your EPS number.
[5:44] So Wall Street loves the buyback so they increase the available by back to something like 20 billion which is pretty big number,
but then more and more interestingly Amazon’s been one of those stocks that has kind of refused to split and then just recently alphabet,
I think ask is the after microphones off that announced a split and Amazon did that to this is this is one of those
kind of fascinating psychological things so when you do a stock split does it change the economics at all right so you just say hey we had 500 shares in there worth a dollar and now we have
to let’s see if they usually do a reverse split so you have there were.
So 500 shares the dollar and we’re going to get down to 50 cents we have a thousand and fifty cents so the economics are the same but
what happens is in many brokerage accounts you can’t buy a fractional shares so
it makes the retail investor Amazon stocks kind of around over a thousand dollars so when you do a split it does make it so more people can buy and then there’s a psychological thing that’s irrational where people just feel like it’s cheaper.
[6:55] Even though it mathematically is so so all that was really well received and then and it’s been interesting because,
they also signaled that.
They’re not going to be doing as much capital expenditure this year as prior year so so Amazon goes to these invest in Harvest phases and on the call the you and I covered it they were,
they were pretty cagey about it and I think Wall Street didn’t like that they were going to be an investment especially after covid it didn’t kind of make sense they built so much fulfillment centers,
so there were some elements of this where they clarified some things and it gave Wall Street a really nice kind of vibe that they’re not going to be investing a ton on capex
and then I thought it was interesting they announced they’ve announced a lot of these little kind of Acquisitions and they did one recently this company called Vico if I’m saying that right veq oh
it’s kind of like a multi-channel shipping solution so they’ve you and I have long.
Posited that Amazon is not a fan of Shopify and all the gmv that they’ve grown in that’s going through there and in Amazon’s eyes they view them as a competitor and so you know.
[8:09] There’s a lot of speculation that they’re going to come out with some kind of a Shopify killer or some kind of competitive offering to Shopify so this gives them a pretty interesting shipping kind of non Amazon shipping solution
kind of like a ship station they acquired point of sale system
that was based out of India then this goes back like 18 months ago they acquired a little e-commerce player out of Australia so it kind of feels like they’re assembling some pieces to something so it’s either
little local groups doing random things or there’s a big plan and they’re assembling things I’ve said this before I’m still think.
[8:48] I think the best strategy here is to take all these Services create microservices out of them,
and then sell them and compete with like the fabrics and the Commerce tools is that the other one always forget it yeah you kind of so have a headless option
and put it in aw that’s because you already have so many developers using AWS that would be a great entry point into people that are like pay I need I need a cloud-based point-of-sale functionality of some kind or I need any of these little pieces
that’s my guess who what’s going on and then and then some people
that talk to you said all right if they do that then cows an SMB how are they going to compete with Amazon with Shopify do smbs going to use these micro services and,
I think then they also build a little kind of Shopify killer on top of those microservices almost like a,
demo that basically says look what you can build with these micro Services of a Shopify like platform that’s what I think is going on but I’m curious to hear what you think.
[9:49] Yeah so I kind of think you’re wrong we’ll see the I could easily see them
like they’re they’re releasing a ton of microservices on AWS all the time right and so I will not be surprised at all if they release a stack of Commerce oriented microservices for AWS that.
Could compete with Shopify I just don’t think they would do that by acquiring these companies that are on like a whole disparate set of Technology stacks and you know don’t have significant scale and aren’t necessarily like,
have some competitive IP like I’d like Amazon could buy all these could build all these capabilities that these companies have.
With very little effort so I look at each one of those companies and I’m like it kind of solves a practical problem for a particular.
[10:42] Stakeholder in a particular Market I mean you know Amazon’s trying to expand their into Australia and they bought a Marketplace that had a bunch of sellers in Australia right
Amazon’s trying to capture more share in India and in India a bunch of the orders don’t get shipped to the consumers home they get shipped to a retailer
the Aggregates the orders and then customers go to that retail and pick it up so now they bought a POS system that a bunch of those retailers run in these small villages in India and I do think Amazon is,
interested in is certainly going to make a bigger move in shipping and.
You know I think if you’re trying to get people to use Amazon Freight and Amazon shipping for non Amazon packages one of the things you need is a is a shipping manager software package to give to all of those,
those companies so I think that’s what the qos so I think I don’t see these Acquisitions as some sort of super strategic set of Mike rolling up of microservices.
But we shall see.
[11:48] Yeah we should go back in the hot tub time machine and we record our annual predictions but next time.
[11:56] And side note I will one other prediction I’m glad we’re not going to go back and visit is.
Um Whole Foods did open their first just walk out store in Washington d.c. this month.
And I will readily admit a year ago in this show when we talked about the significance of just walk out I said.
Probably be a long time before we see this in a Whole Foods because there’s all these logistical challenges that like are not an Amazon go store but are in the much bigger grocery format like you know.
Each has of fruit and stuff you know bulk items that have to be weighed and you know retrofitting this technology into an existing store that wasn’t designed for it is a lot harder than building a purpose-built.
Environment and you know there’s there’s challenges with things like bathrooms I listed all these things and very smugly said so don’t expect to see.
Just walk out in a Whole Foods anytime soon and then less than a year.
[12:53] I remember you saying it was pretty much impossible.
[12:55] Yeah clearly I thought it was impossible and I feel like that that created a moonshot team at Amazon which then did it.
[13:06] Because Jeff is just like oh Jason’s challenge me now the gauntlet is down.
[13:12] Exactly so so congratulations to team Amazon I have not gotten a chance to shop that I have shop the the Amazon Fresh stores with just walk out so which is kind of an intermediate step so so I’m excited to see how that plays out.
[13:27] Yeah kind of a a
tangential Amazon news story we talked about this on our last episode which shut out the listeners we had really,
your kind of strong engagement from from you guys about the Amazon
Logistics deep dive we appreciate everyone not only listening to that at you know we were concerned it would be a little boring kind of going through all these counts of what they’re doing but at least
I find it riveting and but we got really good feedback on that and we appreciate when listening to that buried in that at the time we did talk about
shopify’s earnings where they basically came out and said their previous iteration on partnering with 3p else to do chipping hadn’t worked,
and this was actually predicted by by facile over it fabric I think he mentioned on the show he’s been pretty vocal on Twitter about it too I’m not revealing some secret and,
um Wall Street was then they said they’re going to spend
what was it a billion dollars on fulfillment centers which seemed laughably small especially in the context of the.
[14:30] 260 ish large fulfillment centers Amazon house and that would get them two day shipping which just doesn’t logically make sense to me and then Jason you pointed out that’s not
not even where the market is now but the update on that is Wall Street was not amused and what happens is.
When you’re high-flying stock with a big multiple and your your your model.
[14:56] Becomes part of the story and your Shopify has these really high both gross and net margins and relatively high growth and so their growth has slowed down and then Wall Street kind of it was kind of a
doomsday scenario so all streets like all right you’re slowing down your growth you’ve got the shipping problem you always talk about how you’re not worried about Amazon but something’s going on here and then on top of that you know they basically,
said to Wall Street we’re going to change our margin structure because we’re going to take all our ibadah and plugged it into this
spying warehouses so Wall Street hates it when you make a change like that and you kind of say I’m a 80% gross margin business and now
I’m going to be a 60% right whatever it is so the stock has like been in a world of hurt so it’s basically gone down by half I think
depending on whatever timeframe you look at and then there’s been a lot of stories about folks leaving and it’s kind of create a little bit of chaos so it’s going to be interesting to see
can Shopify executed on this can they do it and not
I’m really freaked out there investor base what happens with employee turn so so it’s kind of the first time they’ve had a bit of a misstep or or a resetting of their valuation so it’ll be interesting to see how that plays out.
[16:12] Yeah yeah I I’ve been following closely I side note on facile dazzles the CEO of
fabric which is a headless Commerce company that in some ways competes with Shopify and
I actually ran into him in detail and side note he just raised they just raised like two hundred million dollars at a billion dollar valuation.
[16:33] Yeah I’m a super jealous of his ability to raise capital.
He seems to preemptively do it he was always like I know we just raised a hundred but these guys really want end so we’re letting him in for like 200 at a you know a bazillion dollar valuation so high class problem.
[16:49] You would know better than I but I have heard the advice frequently repeated that the best time to raise money is when you don’t need it.
[17:01] It is true yes I always raise money when I’m down to my last dime which is the worst.
[17:06] Yeah I did tell him I was expecting like fancier suits in a bigger Booth a detail and he seems like he’s not spending the money on that stuff it’s.
[17:17] Now he’s hiring Engineers like crazy.
Some other news and I know Jason you have some to run through Saga through this quick the still follow eBay because it’s kind of an interesting story and you know they’ve even been to the pandemic they.
[17:34] Sorry for our younger listeners eBay is a website that sells stuff like Amazon but before Amazon.
[17:41] Yeah it’s this auction format where you like you takes a week to figure out if you bought the product or not it’s not not great in today’s instant,
instant feedback but to be fair most of their products are sold with buy it now so they’re auctions is not the majority but they’re still kind of always called the auction company so they’ve had that.
There’s all these startups that are nibbling away at eBay in different categories because for the longest time I felt like eBay should have vertical buying experiences because if you’re a comic book collector you want,
to search for certain things that matter to you versus a shoe collector versus a,
electronic Gadget buyer versus whatever but they stubbornly would never vertical eyes that experience and so now they are very closing the experience so they’re finally kind of waking up to this there’s
let’s see they’re going to have some some different experiences for what was it,
it was couple luxury goods shoes sports cards then this interesting there’s this kind of one interesting Trend in Collectibles that I think is going to go into other areas is.
[18:50] Different ownership models so taking a physical good and putting a digital ownership on top of it so there’s a site called dibs and
this actually came up Greg Bertinelli we had on the show two years ago he’s a VC that really kind of execs eBay guy and he’s
focuses on these kinds of models but what dibs does is let’s say you have some really cool rare baseball card and you could certainly sell it and then extract all the value but what if you could.
[19:19] You put it in a digital Vault a vault somewhere and then you could sell 40% of it so you could get some liquidity from your baseball card but you still own it and then you you could you don’t have to sell the whole card,
and then you know some of those fractional rights could be shared and and whatnot or if someone wanted to buy the whole card they could and then you could transfer to them and it would stay in the ball so there’s all these companies that are doing really Innovative things around this
all this this side of digital marketplaces
is within the purview of the SEC so all this is this is not crypto which is kind of over on its side the side kind of going rogue outside the SEC for the most part these are all blessed by the SEC and
and then there’s two that are very popular ones called Rally Road in the other ones called Otis and they do more
they actually go out and buy various Collectibles and things and then you can have fractional ownership
so for example in the comic book world one of the most famous comic books in my generation is called Amazing Fantasy 15 and that’s the first Spider-Man.
I don’t have that comic book because it’s like 300 thousand dollars or something like that and that’s that’s crazy and but you know.
[20:31] But it’s actually an interesting investment because I’ve watched it for 30 years and it’s gone from five thousand dollars when I was a kid to three hundred thousand dollars now so.
You can invest in that by buying a fraction so eBay announced their starting this thing called the eBay vault which is going to be this 31,000 square feet secured facility we’re going to be able to store all these assets
they say it’s going to the largest one in the world which didn’t make a hundred percent since me because that just doesn’t I guess we just had you know Mark on,
talking about million square foot fulfillment center so 31,000 square feet just doesn’t seem huge but I guess it’s full of vaults.
Then that also enable them the whole eBay model and this is kind of like the Shopify story we’re for the longest time they refused to touch a product because you know they’re their margins are super high because they never touch the product,
so it’s a zero asset business well all these companies have come along that touch the product so there’s.
I mentioned some of them but then there’s like goat and the shoe company’s stock X where they’ll actually get the sneakers in and they’ll thumbs up and say we’ve looked at these These are really you know Michael Jordan error.
Sneakers and they we’ve authenticated them there’s a lot of companies that do this in handbags who’s the one that does it for apparel.
We could put all your apparel you want to sell in a bag and they’ll take it and.
[21:57] Rio Rio our thread upper.
[21:59] Thredup thredup that’s what I’m looking for so it’s interesting if you look at it every eBay category someone has kind of come in and added a high-touch experience and chewed up a fair amount of the GMB that used to be on eBay so they’re finally kind of reacting to them,
and then I thought you would find this interesting they are going to launch a,
they’re gonna let you put videos on your listings and then they’re going to have a live video streaming pilot for sellers so that could be kind of interesting.
I’m kind of excited to see you like what your average eBay sellers live stream looks like it’s going to be it’s going to be kind of a.
You know a menagerie of things to look at there that’ll be funny
and then I thought you being a payments guy you’d be really excited about this Innovation that call it the digital wallet and
lets you store balance from your eBay sales and then you can use those let’s say Jason you sold one of your widgets for $100
you can use that hundred dollars to now go buy stuff.
[22:52] Wow that’s an amazing idea.
[22:54] Yeah it’s also known as PayPal 1997 so so so let’s.
[23:00] For our younger listeners as Scott’s not being sarcastic PayPal did start out as a eBay digital wallet and they spun it off so this is kind of a redo.
[23:10] Yeah yes they’re basically having to you know.
They’ve got divorced from PayPal they had this they got separated from PayPal and then they went their separate ways and now they’re basically having to just reinvent PayPal instead of eBay it’s kind of.
Kinda weird but they you know being eBay they didn’t just say well let’s do it everyone else doesn’t just license stripe they’ve got all this features they had to kind of like go do it all themselves so
they’re now just finally getting a digital wallet so there’s been this period of time where if you sold on eBay there was no way to take this fund and then put them back on eBay you just you know and I’ve been doing some eBay selling and it’s like super painful it’s like constantly
emailing me and it’s like it feels like literally like,
the first version of PayPal so so doing some Innovative things there and then other areas they’re just kind of like they’ve been hobbled because of some of the corporate structure things that have gone on.
[24:01] Yeah and we are teasing eBay a little bit but In fairness they still are like the second or third largest e-commerce site in the u.s. so.
[24:09] Yeah I love eBay and I wish I still feel like there’s this big kind of nugget of goodness in there that needs to be unlocked they just needed to kind of do it faster and kind of more aggressive with.
[24:21] That now did you talk about the vault already.
[24:24] I did.
[24:25] Yeah so prediction for next year that I’m going to put on my list is there’s going to be a Nicolas Cage movie where he has to break into the Vault and steal something you heard it here first exactly in Ft.
[24:45] Yeah there’s nothing Scott likes better than than talking about like Amazon antitrust and inflation has his two favorite topics but I should note while we’re covering all the news that the,
the monthly inflation numbers came out and there’s there’s a ton of different numbers but one that gets talked about the most is this Consumer Price Index which is kind of a random basket of goods that were selected in the 1950s,
and based on that index over the last 12 months that index has gone up by 7.9% so that’s the.
The highest it has gone up in the last I don’t know more than 30 years,
so that’s pretty significant and that was one of the big talking points at e-tail is.
You know what what are the impacts of inflation going to be on the market and in Howard consumers going to react so,
there is significant inflation out there right now and it is like factoring into a lot of retail and e-commerce players plans are you worried about inflation at all Scott you think it’s overhyped what’s the.
[25:53] Now I’m very very worried about its going to hit that.
I don’t think it’s in control at all and it’s in this kind of spiral I think we’ll hit the this stagflation thing so you know imagine your retailer your labor is going up
imagine you’re an e-commerce gas prices are
you know hitting between four and seven dollars depending where you are in the country so now you have all these yeah I’m shocked we haven’t seen fuel surcharges for everyone maybe they have and I just missed them so now it’s going to be,
more expensive to ship stuff and then you have to raise your prices and then that causes more inflation and then you know
and then people need more wages to afford the stuff you just raise the prices on it that there’s a vert there’s kind of a worry there’s a bit of a flywheel there that I don’t know how you break out.
[26:43] Yeah no and even before all of this fuel unrest like fuel was already the,
the category with the highest inflation and now it’s you know likely to go even much higher so that that’s in very unfortunate and it does I’ve seen some studies,
and this is may be counterintuitive but when you think about it it makes sense.
Inflation is impacting the the low price sellers the most right so if you if you have a little extra margin in your product you can act as a shock absorber a little bit and absorb some of this inflation but if you are,
are selling at razor-thin margins so think dollar stores like they’re getting hit the hardest by inflation and.
[27:30] The other three dollar stores now.
[27:31] Exactly and the consumers that shop lower-priced retailers which you know tend to skew younger consumers so Jen’s ears.
[27:42] They’re feeling inflation much more than older cohort so it’s.
It is in unfortunate and definitely has a potential to be stifling on on a lot of the growth we’ve been talking about over the last couple of years.
So awkward transition off of that.
Ring in a piece of news from from last week Nordstrom became the the latest retailer to launch a retail media Network.
And I will talk more about.
What I think the prospects are for a Nordstrom retail MIT media Network on another show but I just wanted to use that to sort of highlight.
It’s one of the topics that’s coming up most in my conversation with retailers and Brands is.
Every retailer is leaning into launching these advertising networks like we talked on our Amazon Deep dive about Amazon disclosing,
the revenue from from their Network and it’s huge so every retailer and their brother is trying to launch one and they’re trying to collect dollars from every brand and the brands don’t really know how where and why they should be investing in them so there’s a,
a lot of discussion and test and learn.
And debate at the moment about retail media Network so I did knock out my position on them on Forbes article that I’ll link to but I was going to propose to you that we should,
finder there I guessed and do a deep dive in retail media networks in an upcoming show.
[29:12] Yeah I don’t think anyone knows more about it than you are so maybe it’ll just be a jacen solo deep death.
[29:17] Yeah I think 10 of my co-workers and pupusas just rolled over in their grave when they’re just say that they’re like dude that dude doesn’t need his head to be any bigger and we all know more about it than he does.
[29:27] Well we get a lot of listener feedback that’s essentially more Jason so can never have too much Jason.
[29:34] That may have something to do with I have the direct email to the feedback account.
[29:39] And then one last piece of news that happened yesterday is our friends at Twitter,
um expanded in e-commerce pilot that they’ve been running so they have had this this limited pilot where you could essentially on your Twitter account.
Sell three items so you kind of you had a carousel that could show up in your Twitter account for these three items and the expansion is
that they now let you upload a product feed with 50 or 10,000 items in it so you can you can send
Twitter 10,000 items you sell and at any given time you can,
activate up to 50 of them so you kind of have a little mini store with kind of like a,
you know a category page with a bunch of product tiles in it and you can you can shop through any of these these 50 items,
and it’s it’s what we would call a non-endemic check out so if you decide you want to buy one of these items you don’t buy it.
From Twitter and give Twitter your payment information you click on that product tile and it takes you to.
The that Brands e-commerce site on their on their store and you check out there so it’s kind of a.
[30:59] Twitter cause it e-commerce but it’s really a referral site to these Brands and it’s interesting that there.
They’ve tried a lot of different Commerce experiences none of them have been a home run,
this is a new one and I have to say and I know you have had similar feelings about this I’m kind of skeptical that the referral is a very good customer experience because what tends to happen is.
You upload this product fee that you know was probably accurate when you uploaded it but this is all Dynamic data something that you upload goes out of stock or the price changes or
you you fix an error in your CMS on the URL and so that now the product listing on your website,
doesn’t perfectly match the product listing.
On Twitter and that you know customers really don’t like that when they click a product at One Price or in one color or you know that that you say is available and then you get to the website and it’s,
a different price or a different color or not available and on launch day they had five.
Different vendors that could sell stuff and I click through all of them and three of them you know,
had we’re selling five products that were already wrong on day one so it looks a little problematic.
[32:17] You have literally had this like conversation with five iterations of the Scituate ER and it goes like this is super.
They tend to be this isn’t just one of al-ahly Silicon Valley companies they’re like super arrogant where insert
company name and we know all about software
okay and hey we’re going to do this Marketplace and it’s gonna be great and here’s how it’s going to work we’re going to sell stuff and we’re going to run people through this check out and then at the end we want to figure out how much inventory there’s and I was like
well you could do that but that’s exactly wrong right because you want to
before someone dies something you want to make sure you have it in stock or else it’s a consumer is going to get really frustrated and leave and they’re always like well it’s a beta we can fix that later why invest in real time inventory now and then they never got a beta because us so then they’re always like I’m like how’d the test go and like well consumers hated it
and I’m like so we’re not moving forward and I’ll say will you realize you set yourself up to fail,
like no our data indicates that they wouldn’t have engage with it even if the inventory thing worked you’re just like.
[33:23] I don’t understand so we’ll see if yeah they don’t don’t understand the importance of this stuff and that the customer Journey they want you know people want,
colors to be the same variance the all the all the blocking and tackling of e-commerce is actually
pretty hard if you don’t think it through and most of these companies this kind of say oh my God third party cookies are going away we need an e-commerce solution and then it travels down to an engineer that that has no idea how to how to get it done.
[33:55] Yeah and I guess In fairness I don’t there’s no easy answer like one of the five beta
clients is Verizon and I don’t know this to be the case but highly likely the Verizon told Twitter we don’t want you to take the customers money because then you’re the seller of record we want you to send customers to our website right so like the.
You’ve got this conundrum that that like the brands that want to sell stuff want want to own the customer they don’t want to rent the customer from Twitter but then you know when you do have this kind of two step
experience it totally breaks and it’s got as you know we have these kind of consistency problems,
just on our own website so when you add Twitter to the mix like it gets much worse and it’s it never works for customer experience.
[34:42] Yet built a whole company to solve this and it has like 120 Engineers working on it all the time it’s a hard problem it’s not it’s not going to be something you can like put like a five-person engineering team on and have this great integrated e-commerce experiences just like not going to happen.
[34:56] Yeah but that company you just mentioned sound like such a good idea though that sounds cool.
[35:00] Thanks thanks it’s been a good run.
[35:03] Especially after you turned over the keys to competent leadership I feel like that was been a.
[35:08] Finally hit its stride after I got out of the scene.
[35:11] Exactly so I thought we would try something new we just covered a bunch of interesting to us but random news over the last two weeks it also kind of is,
quarterly earnings season and so a bunch of retailers over the last couple weeks since our last show have had their their Q4 earnings which of course also gives us their their 2021 earnings
and we could do it a tower show on all these earnings but what I thought we would just try to do is a earnings rapid fire.
Because we are known for for being able to summarize things really briskly and and concisely what do you what do you say to that.
[35:54] Plus rapid fire this puppy lightning room.
[35:56] Awesome so what I’ve done is I’ve taken all the companies that I thought would be relevant to our listeners
and I’ve bundled them into three buckets what I’m calling the winners which are companies that had a really good year what I’m calling the neutrals which kind of you know tread water and when I’m calling the losers,
um which are you know the folks that lost ground so in my winners category the first earnings is Dick’s Sporting Goods they actually had a mediocre Q4 they were up 5.9% versus,
20:21 there in 2021 was up 28% versus 2019 so so decent growth,
um the their digital was actually down Q4 of this year so you’d go Jason why are there winner well,
the if we look at their full year their sales in 2021 were up forty percent from their sales in 2019 so the so,
huge growth throughout the pandemic and they were such a big winner in the first year of the pandemic that they still had growth in the second year but it was on top of these huge comps so,
um so you know forty percent growth on a two-year stack you know for a retailer of their size,
is a huge win and just a fun stat I’m trying to track for a bunch of these guys that now puts them at 27 percent digital sales so one out of every four dollars that dick stakes in,
is from their e-commerce site.
[37:24] Does that purpose.
[37:27] It would include both of us are curbside pickup.
[37:32] Okay that’s Jean.
[37:34] Um so then my second winner is Walmart.
The their Q4 was up 5.6% you know again they’re the largest retailer in the world so they have the hardest number to move,
and 5.6% is considerably up from there they’re sort of historical average and that’s on a big comp because they were up 8.6 percent this quarter,
last year but the real reason they’re a big winner is e-commerce.
On a two-year stack was up is up 70% so this was.
The third largest e-commerce site in the United States two years ago just behind Amazon and eBay there now the second largest e-commerce site in the US and they’ve grown 70% in the last two years so that’s astronomical and again.
They’re their full year sales were pretty good up 6.4% last year up 15% on a two-year stack and this is a company that normally goes up two or three percent a year so.
So I another big winner and then my biggest winner for the year is Target so.
[38:47] They had great numbers across the board they were up eight point nine percent for the quarter they were up 20% this quarter last year so too.
You know big numbers on top of big numbers again on the full year they’re up 20% versus 20 versus two years ago and their digital is a standout in all of this there there.
Two years ago their digital was up 145 percent and then they grew another 21 percent last year on top of that.
So monster numbers and I like how they break out their sales so so just a couple of things to know they’re the only company I’ve seen that report two.
Segments they report store originally needed sales versus digitally originated so where did the order get placed,
and they also separately report store fulfilled sales versus fulfillment center fulfilled sales so.
[39:46] Eighty percent of their orders comes from a store 20% of their stores,
of their orders come from digital but 96 percent of all their sales are fulfilled from a store so virtually all their e-commerce has fulfilled from the store what’s interesting about that is what that means is they are selling.
The 60,000 items that fit in a store are all of their sales versus if you look at,
Amazon eBay Walmart a huge chunk of their e-commerce sales are this super long tail of millions of skews so it,
Target had big numbers and they’re doing it differently than everyone else and then the the number I talked about the most is.
[40:30] You know they’ve been really successful with their own Brands and to kind of put that in perspective about 26 percent of all of their sales
where sales of of exclusive stuff you can only buy at Target so those own Brands were 30 billion of their 106 billion in sales,
so that’s phenomenal and then you you were talking about curbside pickup the curbside pickup numbers are also silly in 2020 during the pandemic curbside pickup went up six hundred percent at Target and then last year,
you know that six hundred percent is crazy but you go oh yeah because all the stores closed and people had to drive up
but then last year when stores reopened you’d expect that to dip way down and they
curbside pickup went up another 70% on top of the six hundred percent from the previous year so so curbside pickup is a huge growth they,
you know they bought a curbside company right before the pandemic and so I like they’re kind of clicking on all cylinders right now.
[41:33] The 96% number 95.
That’s so I’d go to a lot of targets and I’ve never seen like,
most stores that have shift from Storer there’s like some corner where it’s like a total poop show of people trying to,
package stuff in the middle of the store and things Target is that true I never see that and it’s kind of fascinating to me it seems like the stores would have this huge shipping piece that I’m not seeing somewhere,
and it’s not like they have a ton of storage in the stores.
[42:04] So they did a really.
[42:06] Just a shipped is it shipped that’s doing it is that kind of what they’re coming in there.
[42:09] No it like they did a remodel for most of the Target stores where they actually Shrunk The Selling space so they used to have no back-of-house like they’d have all the live inventory on the floor and they actually Shrunk The Selling Space by like 10 or 15 percent
and built a shipping center in the back of the stores that you can’t see right,
and so they now have dedicated shipping they like they literally had to go like negotiate with other carriers because carriers are used to delivering stuff to these stores but not picking stuff up from these stores
so they had to work all that and they’re there
doing so much volume now that you know what they’re big players got they have their own sortation centers and they work differently than Amazon the search the stores instead of shipping to the customer.
Like do multiple shipments a day
via private trucks to the sortation center and then all the items are shipped from the sortation center and so that lets them use this like hub-and-spoke and have super stores that have extra inventory for these orders but all the inventory is sitting in a store until a customer orders it
and then it goes through this this multifaceted distribution system to either go to the front of the store for curbside pickup via shipped or to the back of the store
out to a sortation center and then via USPS to a customer nearby.
[43:31] You want ship from store came out everyone in e-commerce kind of laughed because you’re taking the most expensive commercial real estate,
and using it as a shipping and warehouses are dirt cheap well it’s inverted so.
[43:46] I say that used to be true.
[43:47] So now it’s actually probably more economical to ship from the store than anywhere else from open Pure commercial real estate angle because covid is killed so much retail space and then at you know at some point like office parks.
That that that used to be the highest and then you so you should be Office Park retail and warehouse and now it’s Warehouse retail and Office Park so so it’s totally
all all mixed up and creating a whole nother economic model that we’ll have to kind of see what happens there’s you know a lot of people are taking these malls and converting them into fulfillment centers
I was in one I was in a Sam’s the other day and I was like.
Billy I’m in feels like a Sam’s that I guess it was a Sam’s and it was one of those sounds that he commissioned and they turned it into this weird kind of open Office Space and it was it was very strange because it felt like.
Literally having an office in a Sam’s.
[44:41] Yeah yeah that doesn’t sound appealing when you describe it like that.
[44:44] And they had that whole what do you.
[44:46] Do they still have like like samples necks.
[44:48] Well they were saying they were saying.
They had a hard time putting some like 3D printers in it they had a hard time because the floor was angled and it was because it was like where some freezers were and they dangled the floor to act as drainage and I guess they had to come in and re-engineer like a whole big section of it.
And I shopped in this house before too so it’s kind of weird like a new kind of where all the stuff was in her but they also do that what is that we some of your buildings do it where you check in and you don’t have a spot every day as a fan.
[45:21] Like hoteling.
[45:22] Yeah hoteling so they like the couldn’t they couldn’t understand like why no one wanted to come to work so like make it so you know Dad like all these impediments for people to come to work and they’re like we don’t know why more people aren’t coming in it’s like well.
You’ve made them feel like you know kind of fourth class citizens they kind of they don’t have a place to sit every day they can’t bring any personal items it was kind of funny and they’re basically sitting in a Sims.
[45:48] All right yeah I think there’s going to be an interesting question about like reuse of all this the the brick and mortar space then closes so but it doesn’t sound like you’re you’re going to be investing in the we work 2.0.
[46:04] Side note and I
I miss the most by far important and Brilliant move in that whole Target Whitney the major feature they announced is that you can now order Starbucks to be included in your curbside pickup order.
[46:20] Game changer.
[46:22] That that does feel like a game changer.
[46:25] I was picturing you being first alone.
[46:27] It feels like they’re targeting a couple people than I know.
[46:30] Well as fellow Starbucks kind of Sword the target ones I have found out you’re not as good or know that you like the.
[46:40] Some of it the taste is not the same.
[46:43] Their franchisees.
[46:45] Yeah and you can’t mobile order which is government I guess this is mobile ordering.
yeah so I think it is a clever move to like so these impulse and consumed on the way home items at curbside I bet we’re going to see a lot more of that but I am with you if I have the option I usually like to go to a Starbucks Company Store over a franchisee because the
the experience is more consistent at the company store but I’m saying that to someone that’s selling a bunch of franchises so we should maybe be careful about that.
So neutrals I have my first neutral is Best Buy they had a slightly negative quarter they were down 2.3 percent they were up 12 percent this quarter last year.
You know they actually did decent their kind of,
two-year stack they’ve grown about ten percent which is you know above what what a lot of retailers grow,
but they they are in a category that in my mind like seems like should have really benefited from the pandemic and you just don’t see.
Like this huge huge benefit in their full year numbers so I put them in my neutral.
They are now at 39 percent of all their their sales are digital and at the peak of the pandemic it was over 50 by the way.
[48:10] So certainly increasingly their most important store Ulta beauty you know they’re their company that was probably pretty negatively affected by the the pandemic and they had you know a decent year their full year comps.
[48:27] Pretty significantly this year but it was because they were so awful last year so they were down 20 percent last year they’re up 30% this year so they’re up on the two-year stack but not amazingly,
and then all the apparel guys like in my mind there’s two kinds of apparel guys there’s apparel guys that had a horrible Court year last year and or two years ago and did better last year and ones that,
had a horrible year two years ago and are still really struggling right so Kohl’s Gap and Nordstrom and Ralph Lauren are all in that kind of.
Had an atrocious year two years ago and are having a decent little recovery this year.
Um and then like Abercrombie and Macy’s I would put in that category of had an atrocious what your.
Two years ago and you know so far pretty weak recovery this year.
So those are my first two losers are Abercrombie and Macy’s and then someone who you would think would be really poised to benefit from,
the kind of economic downturn but have really struggled over the last two years are the dollar stores and and especially Dollar Tree,
their Q4 was decent it was up.
2.5% but they’re they’re basically up 1.1 percent for the year.
Which is you know pretty slow growth when the industry grew like 20%.
[49:53] So that that is my super rapid fire earnings recap are you impressed.
[50:00] Nice I am I like how you segment it do the dollar guys.
But I didn’t listen to the reports are they signing inflation is kind of basically or is it like so it’s their own pricing but I imagine going after that value or any consumer unfortunately they’re they’re the ones that get hit the hardest with inflation is that was that kind of what’s happened in there.
[50:23] Yeah so that that is happening now like most of their negative performance over the last two years is kind of
dollar stores are the least digital so in the pandemic when people are going to the stores last they they became a less viable option right like if you didn’t want to go to a Target you could shop from Target online like pretty seamlessly but dollar stores
very often don’t offer e-commerce they were disproportionately impacted by supply chain disruptions right so
you know if you’re a big General Merchant you could make all these plays to try to line up merchandise but you know the dollar stores are trying to buy.
Distressed inventory in remaindered remainer remaindered inventory so they like didn’t really have the option to be as proactive as some of the the,
the discount General merchants and so so they had a lot of supply chain disruption so that those were there,
they’re bad news the last two years there’s a school of thought that they’ll,
have a they’ll be decently positioned in an economic downturn but but we shall see.
[51:29] Coble thanks for doing that.
[51:31] If that was helpful for you we will remind you that the way you can repay us as you can jump on iTunes and leave us that five-star review.
[51:40] Thanks everyone we appreciate it and until next time.
[51:44] Happy commercing.
Marc Wulfraat is President of MWPVL, a global supply chain and logistics consulting firm, and one of the foremost experts outside of Amazon, into Amazons supply chain.
In this episode to do a deep dive into all the elements of Amazon's supply chain, how it compares to other third party logistics providers, and most importantly if and how other retailers should think about competing against the enormous advantage that Amazon's logistics infrastructure provides
Episode 287 of the Jason & Scot show was recorded on Thursday February 17, 2022.
[0:23] Welcome to the Jason and Scot show this is episode 287 being recorded on Thursday February 17th 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
[0:39] Hey Jason and welcome back Jason Scott show listeners
Jason were about 300 episodes into what I would like to call our podcasting journey and sometimes our timing has been terrible over that 300 episodes sometimes we roll the dice and
it comes up the right way tonight's episode is probably the best timing episode we've ever had
I mention this because yesterday Shopify announced their Q4 earnings that were pretty strong
but then they dropped a bit of a bombshell on Wall Street they announced that they're going to spend over a billion dollars on the next 3 years on what they call sfm Shopify fulfillment Network and they're going to compete with Amazon's FBA capabilities
and they also kind of said and we're going to essentially get to 2-day delivery across 90% of the United States
you and I were skeptical about that on on social media I said that's nice but Amazon has spent over 80 billion to get there and then you said.
[1:37] Yeah that there are also targeting a service level that's kind of antiquated like like to day is Amazon 2010 here in 2022 you know it's
at worst next day and increasingly at same day for millions of skews so I was a little surprised that they
their big splash was that they were going to invest a billion dollars to get Amazon service level from 10 years ago.
[2:00] Yeah that's where our timing gets interesting because you and I have long wanted to do an Amazon Logistics fulfillment Deep dive
and the person that knows more about this than anyone except for the folks inside of Amazon
is Mark Wolfe rat he is the president of mwp DL and we are really excited to have him on the show talk about all things Logistics.
[2:23] Well thank you kindly for having just gone through some really appreciate it before this.
[2:27] Oh my gosh Mark were thrilled to have you
Scott's too shy to mention it but but this is a rare circumstance where Scott is a fanboy of you because,
every time there's there's new data about Amazon's investment in their various elements of the
fulfillment Network he's forwarding stuff to me and he's like hey did you see what Mark and cover this week so I'm probably not gonna be able to get a word in edgewise but before Scott jumps in with the questions we do always like to get
a brief background of our guests and I'm super curious
understand how you got into the supply chain space and and sort of what led you to found em W PV l.
[3:12] Oh gosh well did I was a mathematician in my University days and,
I just accidentally got a job as a consultant you know what I got out of school and it was we didn't know what the word supply chain was back then it just didn't exist so I started a Consulting and distribution and then,
eventually went out and founded my own company and you know today we called Supply chains for 35 years I've been,
what the cost supply chain Logistics Consulting all over the world and it's been a blast I've enjoyed every minute of it.
[3:48] Very cool and does
I think of you as publishing all this Amazon specific data I assume that there's a non philanthropic commercial aspect to MB
W PV L are you selling consulting services to people that are trying to solve supply-chain problems to analysts like what can you tell us a little like what's the elevator pitch for your firm.
[4:16] You know that the whole thing about Amazon that we do is really for intellectual curiosity yet there's a little bit of money there but it doesn't it doesn't pay the bills so to speak,
you know really we work for other retailers that compete against Amazon and about 15 years ago when Amazon was becoming a household name.
I realized that they were very secretive about everything going on around but they didn't talk much about,
how they went to Market and as a supply chain practitioner I said well.
To wouldn't it be interesting to start diving into this and and I hunkered down in my basement and started to you know research the company and over the last 15 years 11 bowled we put together you know,
we'll put all the grease and we put our 10,000 hours into this we've got a huge database on every building they operate globally.
[5:13] We monitor the people that work in those buildings we have engineered the economics underneath the hood so to speak,
productivity rates than unit volumes package volumes Etc and that's enabled us to understanding your economics for their e-commerce operation,
including things like one of us automation done for them.
And that enables us to be more powerful as a consultant when we go to market for the rest of the industry and and they greatly appreciate the abilities that we have in terms of being.
You know conversant on areas like strategy which is a big part of what we do so I'll stop there.
[5:55] Yeah very cool so yeah I mean if you got to study the best to figure out how to you know,
scale up other other folks
so we definitely want to jump into this a kind of defer to you on the best way to explain to listeners the shape of the Amazon infrastructure from where I sit you've got kind of the core is the Fulfillment centers and these are these giant multi million square-foot buildings that house and ship product then there's sortation centers delivery stations then they've built this kind of airplane Network across that
how would you if you were at a if you were going to Justice and our listeners are pretty Savvy on this so how would you describe kind of the the core infrastructure that Amazon has right now.
[6:41] You just mentioned the core of it the I think a lot of folks don't realize that even before the Fulfillment center gets the inventory,
there's an important component to their supply chain which is called the inbound receiving Center and the inbound receiving Center is a holding tank,
sir inventory it is not meant to serve the public it's meant to if we to replenish inventory at the Fulfillment centers,
so typically what happens is when imported merchandise hits the apart.
It's brought from there into one of these inbound receiving centers it stays there until it's needed at the Fulfillment center.
And not doesn't just apply to Imports there's quite a bit of domestic merchandise that follows that logic as well so instead of,
ramming the Fulfillment centers with inventory like Christmas wrapping paper and I arrived in say the month of June or July,
instead of overstuffing and bloating the Fulfillment centers the hold it it means inventory tanks at the ports and then one month Christmas wrapping paper is needed at the Fulfillment centers they'll start shipping that say closer in November December.
[7:55] So that's really the first component of the supply chain are all of the major retailers like Walmart Target Home Depot they all do something similar they just called an import Distribution Center.
[8:06] Sanders come in various flavors the one that I think most of us recognize is the small sortable fulfillment center,
with goods are small enough to fit inside one of those yellow totes that can ride the conveyor system and go from picking the packing,
large not suitable for Fun Centers.
And they are usually a million square feet of me contain all the product that's too big to fit in those yellow totes and anything from an umbrella to a gas barbecue to an appliance that kind of thing.
We have specialty for Fun Centers that handle merchandise categories that are unique for a reason that perhaps they need some type of material handling.
Um you know requirement that is different.
For example apparel and Footwear or jewelry and even things like car parts or textbooks.
And then from there you have after the performance center I mean think of the Fulfillment center as being.
A place where inventory is kept and where orders are picked act and put into the shipping carton.
From there the typical shipping carton will now flow to us for Tatian Center which is a primary sort those buildings typically handle a 200 mile radius.
[9:25] They hit the packages get sorted by ZIP code palletized and then Trot to the nearest delivery station for that zip code.
Yes it's an Amazon Logistics delivery.
[9:38] Otherwise you will go to a post office or USPS post office that handles that zip code and that's typically,
the packages that are destined for the room low population density areas areas where you have high population density like Urban Suburban areas,
Amazon has built out their delivery Station Network.
So that they can deliver those packages themselves to have better speed more control and you know shall we say the capacity energy capacity to handle their package volume that's consistently growing.
And then of course there's UPS UPS picks up at the Fulfillment center so they don't go to the circulation Center the pickup directly at the foam in Center and they handle all the packages that,
are what I call out of region you think of a customer that might live in Montana or Amazon has no infrastructure,
PS would be delivering packages to Montana because Amazon doesn't have any Traditions Energy Delivery stations out there.
[10:37] So that's kind of the threefold passion others also are free and to that extent Amazon currently leverages 43 airports around the country.
Packages that are going are free or typically.
Adam should have picked in a fulfillment center for a customer that's Amazon Prime at lives very far away from where that item was picked ideally in a perfect world you'd never have your free because every fulfillment center Woodstock every item.
And everybody would live close to a fulfillment center so you want me to do this because it f8 in general cost seven times more than brown free.
So you don't want to do are afraid of unless you have to but it's an important part of Amazon's competitive positioning because if you're going to offer first to Coast to day service level for Amazon Prime.
Then you need her for you you can't get from Seattle to New York using ground free that would be five days.
So that's an important component to very expensive component what they do so packages will go fulfillment center to the air hub,
their hub from their planes will typically fly at to our regional airport public Dallas or Hebron Kentucky where their brand new airport Hub is been opened up last year,
and then from there the plans will take the packages to their respective regions and then from there to the delivery stations that end up delivering to the customer.
So that's where the I would say the main components of the supply chain I haven't talked about everything but that's the main just.
[12:06] Prickle and then so so when it goes to air it's kind of a bug right because you know
when it should have said Jason orders an Xbox and it's not near him in Chicago and it has to go out west or east and then fly it to him to since he's in the center of the country that may be a bad example but let's say there's someone on the west coast they order an Xbox it's not in stock and they have to ship it from the east coast and what does the network gets smart so do they have
the software that would then say all right we flown six of these across the country we need to kind of rebalance and get a lot of those closer to the West Coast is that kind of how it works.
[12:40] Yeah I think you're exactly right there's artificial intelligence you know where do you stock an item,
becomes a pretty important aspect of their business so I don't want to put windshield wiper blades that are for the winter in Miami,
in the Fulfillment center there right I'd rather have that open Detroit or Chicago so having the smarts to know if you're going to have 15 million items in a fulfillment center.
You want to have the smarts to position the rate 15 million items in each one of those small sortable fun answers.
And similarly if there's called 360 million items on the Amazon Marketplace that have been sold.
You're not going to be able to put 360 million items in every building.
So you have to have the smarts to be able to say if I see something will be frequently.
Um and it's going long-distance how can I fix that problem and save money and increase,
quality of service by adding either stop him or places or stock in different places so that's all part of the artificial intelligence behind the scenes that is part of the Amazon secret songs.
[13:50] Yeah let's put some members on this so we've got inbound how many of those do you think are just kind of roughly are there in the system.
[14:00] The inbound receiving centers.
[14:03] We can't 29 right now within the US and there's about 11 more on the way.
[14:10] Could you be more specific.
[14:11] Sorry I.
[14:12] I'm just kidding that's what I love that's why I love about your data it's like down to the like you know decimal points of square footage so your how about fulfillment centers just all all flavors I guess.
[14:26] In the u.s. there's author fulfillment centers add up to roughly about 287.
[14:37] Jason for the longest time didn't Walmart have like eight is mm I remember free comes.
[14:43] Yeah Yeah by 8 to 10 for a long time yeah.
[14:46] Yeah I'm sure they've increased that but still they don't they don't have 287 I'll Hazard to guess.
[14:52] Northern the third scruffy but what Mark's been doing is they've been retrofitting many of their existing facilities to play a partial removal for e-commerce.
[15:02] I think that's why it's tricky to count because they have a pretty robust store infrastructure infrastructure for Distributing the stores and increasingly they're repurposing a portion of those.
[15:16] And then how about sortation centers that's a little tricky because some of them are attached to fulfillment centers right or do you keep track.
[15:22] Now we track those step we track those those are clean they've got 96 active sortation centers that's an area of the business has really grown in the last 12 months and then 22 on the way instruction.
[15:36] Wow that is big Cecil get 20% growth and then how about delivery stations.
[15:44] So two flavors of the delivery station one is the small package delivery station which is what most of us,
think you know think of them get an Amazon box and then there's also the heavy bulky.
Where you know they have a box truck with a license truck driver maybe two people are needed to unload the coach or whatever moves you whatever it is it's big and heavy that you ordered and so it's 515 delivery stations are active.
And 113 of the heavy bulky ones and we're aware of another roughly about 161 buildings that are in the works right now.
[16:21] Yeah and now that's that's probably the newest part of this right because they used to from sortation they would dump it mostly before they had the DSP program they would dump all that into USPS
FedEx and UPS and then that delivery station is that lacks mile where they've built and if you're saying there's 5 15 plus
113 plus 1 so there's like 700 or 800 of these those are mostly in like the last five years is that is that your recollection.
[16:48] Well I ran 2014 we got started on the first couple and it was so hard for the first few years but this is the part of the business just skyrocketed you know for the last 34 years,
they've been building these out not only in the cities what's interesting is last year they opened up 30 of these in the tiniest of towns.
No population 5000 kind of thing and short It's seems to me they're trying to get an ecologist The Wagon Wheel they're trying to get into the rural,
areas to do this work as well which tells me,
did you know that lost 50% of the population where it's really tiny towns that's the most expensive part of the country to get to you know lust population density widest geography so it's the most expensive last mile delivery you can possibly make.
But the fact that they're starting out with this lab test to say hey let's try these 30 a talisman,
their goal is to have every one of these zip codes under their control including all of the rural ones so this is an interesting story that's unfolding.
[17:53] Yeah and then the thing that's kind of a if your UPS what's tricky about this is
you were in FedEx you were delivering all this stuff for them and then I imagine you know the Amazon robot
in the sky the a I basically said that's a profit or out for us we'll take that over this is a prophet I can just kind of picture them like snipping the tree and then adding these delivery stations and just slowly but surely and conversely someone on the FedEx UPS side watching that
all that margin go away is that kind of how you envisioned they rolled this out.
[18:26] I think it's a lot simpler than the AI in the sky you know I think it's just sort the US population in descending sequence right.
[18:34] Yeah okay.
[18:35] Start out with New York La Chicago and so on and working way down the list until you conquered all the big cities and then keep going down from there and and.
[18:43] That's not as ominous as an AI in the sky the.
[18:45] Yeah it sounds better.
That's really the way it works is they and it instantly for the Fulfillment center build out you know right now they're targeting towns in that four to five hundred thousand population range,
I like Green Bay Wisconsin that kind of thing and you know the that's on the list of places they're going and it's because they've already done the ones that are 600,000.
[19:10] Let's um so two of my favorite areas of the infrastructure to kind of poke around and is the Fulfillment centers and you know so I think the average in your data is something like 800,000 to a million and maybe that's maybe that's the small sort of bulls but,
it's hard for people to imagine a building like that until you're inside of one and you know the one way I've helped people to try and understand it as it's like
22 to the 30 Walmart's just kind of stacked in the cubic volume of that many Walmarts you get inside one of these things and you can't really
see the you might as well be on the moon because you can't really see the Horizon per se because it's just like it's so stack the stuff you don't really know where you are in the if you weren't familiar with it you're not really
no sure where you are how do they and then Amazon is pretty unique in the ones that aren't robotic with how they put product up is my understanding what what what system do they use for that or do you know.
[20:05] So you're talking about like the large no shuttle facilities where they are more manual.
[20:09] Or yeah we're there more manual.
[20:12] Yeah that is actually equipment being used for that is nothing special that's pretty common place it's called an order picker truck and an order picker truck is a vehicle that runs on a wire guidance that's buried in the floor.
So that it doesn't go left to right it stays true to the wire and an operator goes up with the unit load rather than staying at ground level and raising a bow.
The operator rise to the bull head of the 40 foot building takes the boxed off the pallet and then inserts it into the location in Iraq so it's called a man up system.
That's fairly common in most walks of life that's not something you need Amazon.
[20:52] Yeah and then don't they do it where the stuff they put on the shelves by shelf height they found it was kind of randomly placed on shelves by.
[20:59] They use random stoics that's great and I think when you're trying to manage you know one of those large amounts sort of a building's could easily have two million items,
and one of the small suitable for mysterious could easily have $15 I say items I don't mean units of inventory I mean unique SKU variety and,
even when you're dealing with that are sort meant that that's that's also coming and going you know it's not like there's one new item a day,
or we it's like there's thousands of new items every single day hitting you it would be,
an exercise in futility to try to organize it all in some meaningful way so that the fastest-moving Needham's are positioned strategically in the building and so forth that's the way most Warehouse is try to operate whether,
this is an item that generates a lot of excitement let's put it in a in an efficient place in the world of Amazon,
especially in the world where robots are retrieving the product and bringing the product to the Picker it doesn't really make sense to do that so they use random stowage and it works well for them.
[22:04] Yeah and then so they acquired Kiva that's been quite a while now where where are they on the Kiva robot system as it relates to fulfillment centers.
[22:14] I have to tell you a true story here I was at a trade show and they bought tear and I had chest,
it's done a huge interview and a big article and Kevo with the prior owners and I said to them you know this is a great system but it would never work for Amazon.
And they said the continent is said hey could you strike that from the article please,
I have no clue the next day they announced that they were acquired by Amazon and I thought what a what a boy Amazon overspent they spent 750 million I said,
all laughing at the trade show how much money Amazon spent on TiVo you know we thought they were fools at that we were wrong,
was I wrong you know I've never been so wrong the whole life that that's been a huge win for Amazon and to my knowledge there's about three hundred and fifty thousand of these Roomba star robots running around out there across the world,
and we've done the reverse engineering on their labor chewing we've put a lot of Manpower and we try to figure out.
What would it what would their roles look like today.
If they hadn't done this if they were continuing to operate with pushcarts people walking 12 miles a day to pick these orders that kind of thing and the math we keep coming up with is she not to push out five million units a week.
[23:36] Out of a small sort of a fulfillment center you need about three thousand people,
if it's got robotics same building no robotics you need about 4,800 people.
So the cost per unit when you look at all the labor cost in in the manual building it's about 95 cents a unit.
In the automated building it's about 60 cents a unit so it's it's been about a 37% labor reduction they have a cost reduction for them.
Now I was on doesn't like talking about that they like to say well actually in our automated buildings we sometimes have more people than in our manual abilities,
but what they don't mention is that they're pushing out way more volume.
With those extra people that they've got in Atlanta so they're at the end of the day you can't look at it that way you have to look at it is.
If the volume is constant how many people would I need manual versus automated and in our opinion they're saving about 37 percent of their love the labor requirements by putting this Automation and that's why they've been,
I showed in every single building that they put up in the US and and in the developed world because of the huge labor cost savings.
[24:48] Very cool I had not heard that step the,
so then the other one I think is really interesting is these delivery stations and some of the materials you have you have a kind of a really cool picture for how this is maybe a maybe try to walk people through kind of like how this is set up and what it does
on a day-to-day basis.
[25:11] Yeah I think there's a misconception sometimes that are delivering station yeah in the media they sometimes come to the room stations fulfillment centers and they get it mixed up delivery station is purely.
A secondary sortation Center the first sort took place back at this rotation Center we're all the packages for a 200-mile region,
were organized by ZIP code and then for a specific area within that 200-mile region that's very very tight.
Call it an area where the driver can leave the delivery station and go no further than 60 Minutes of drive time to get to the market that he's making deliveries.
[25:53] That's small ships unit circle,
it's what's being serviced by the delivery station in there could be many of those circles within the region that the sortation center serves so this is the secondary sort and all those packages arrive at the delivery station that they got downloaded to a conveyor system,
people sort those packages out,
to route and a route is quite simply a grouping of streets that are close together in a neighborhood,
so that a driver goes into that neighborhood will be as efficient as possible when making that last mile delivery and a delivery station you know in the old days they used to put on so that the Vans would drive through the building,
and the loading process would take place in the building and that is still done in Northern climates like Chicago like where I live,
because you can't effectively load of an out when it's snowing outside and so forth but a lot of the newer ones that they've got.
[26:50] You could easily have anywhere from 250 to 750 Vans pulling up to the side of the building underneath an extended canopy outside,
and they're getting loaded out very much in military discipline stock so you'll have a platoon of 72 Vans pulling up,
in 20 minutes later they've got,
all their packages for their roads and they're leaving in the next platoon of 72 is pulling in 20 minutes later they're gone the next platoon and so on and over the course of two and a half hours,
three hours you Amazon's loaded out upwards of five 600 fans and they're out there on the streets doing those deliveries and it's not unusual for a bad people,
quiet day with operative 175 packages or more on a busy day with upwards of 250 packages or more.
[27:42] And these drivers are going over a 10-hour day and when you do the math on the time it takes for them,
between deliveries some of these guys are average me three minutes per delivery.
Which is astounding because these numbers no one else is hitting them this is unique to Amazon they've got enough density,
and demand for their product and the service that they can go out there and every three minutes make a package delivery it's a,
it's incredible how much volume they've got we think that in the US last year in 2021 the came close to six billion packages delivered through the Amazon Logistics,
delivery Station Network which is incredible because when you look at that volume you compare it to seeing UPS or FedEx,
UPS is our is 120 Euro a hundred three hundred fourteen year old business and they're achieving about that same volume as we speak so they've been able to build since 2014.
Company a transportation company that they're on themselves that is basically doing the same volume as a hundred fourteen year old UPS.
So I find that and that's over and above everything else they've done whether it's at this is just history in the making.
[28:57] Yeah it's pretty amazing when they when they go to fill one of the Vans is it prepackaged like on a pallet and they just left a pallet in there or like a swarm of people are dumping packages in there.
[29:08] No actually it's pretty smart what they do they.
Each time a package is removed from the conveyor belt on the inbound it's being scanned into a canvas bag,
the canvas bag think of it as kind of like a hockey bag almost,
where you're putting a group of boxes that logically and should be together because they're close in terms of proximity as to where they need to be delivered so they
doctor soil 225 packages on into the back of the van Loosely they organize it by these bags,
and the operator who the driver has to make these deliveries is told what bag to go to in order to retrieve a specific,
parcel that has to be delivered so it takes a problem of say 250,
boxes and breaks it down into smaller subsets to make it faster for the driver to find the actual package.
[30:01] So then how many canvas bags are on is it like 25 or something.
[30:07] You know I don't know that's a good question that I've never been able to figure out.
[30:11] I stumped you.
[30:12] You stopped me.
[30:14] It took awhile,
yeah it's just fascinating to watch these deliver and then the thing that Amazon does is so they'll have one of these delivery stations and let's say you know to your point they'll Maybe
hundreds of ants may be up to 1,000 bands that service one of these and then there's different dsps running these things and they put them in competition with each other over routes
maybe say a little bit more about I don't think a lot of people realize that's going on so maybe maybe explain how that works.
[30:43] Yeah so you know when you when you look at UPS unit FedEx and the other large carriers out there they all have employees.
They sometimes have to deal with units transportation to heavily you know it's sector of the economy so how do you build a transportation business that's non-union.
How do you build a transportation business where,
no one has the ability to organize and come after you and go on strike and start causing problems for your business and how do you keep costs down,
well Amazon her everything about everything you really have to respect about this company and they've done it differently.
And I got thousands of stories that kind I can talk to that,
you know will describe how they just don't think the same as the rest of the world they say they don't allow themselves to be stopped by existing paradigms so what they said was.
[31:40] Last of all and help entrepreneurs get started.
[31:45] Ruth help them get the Vans will help them Finance the whole process of getting into business,
and the other load and higher the employees who will do the deliveries so they're that creates an arm's-length agreement between the driver and,
Amazon it doesn't become their HR problem becomes the HR problem that DS p--
and let's make sure that every one of these delivery stations is not being serviced by 1 DS p-- no no no,
we have to have that with 356 sometimes 90 a speech why because,
yes p number one starts rattling assume that he's not making enough money,
or he doesn't provide adequate service or something bad happens with one of the drivers or you know you can think of a Litany of other reason you fire them,
and you bring in another bsp to replace them so they're all powerless,
and they're all captive to Amazon so it kind of reminds me of the old family days when you know if you went off and sold Emily product at,
and even space is my captive rate what could you do about nothing,
in this case Amazon control is everything these dsps cannot go do deliveries for other people they're captive to Amazon Amazon own SEC passing,
and the dsps have to deal with all the churn and burn that was on a high turnover labor environment that they're dealing with.
[33:10] And I've got to perform because Amazon is monitoring them every step of the way there's cameras on these vehicles they can tell whether or not the vehicle is doing what it's supposed to be doing or if the driver is doing something wrong.
[33:22] And they have to perform and if they don't perform them there let go so it's a way of keeping,
this massive network of thousands and thousands of drivers without the ability to organize and form a union without the ability to,
gain any power and yet they can guarantee fast you'll be there for them when we need it so it's brilliant it's a stroke of Genius.
[33:46] They're not franchise right there their 1099 so the kind of like how FedEx set up ground is my understanding is that is it.
[33:54] There are there people that often times used to work for Amazon in the warehouse.
And then they took hold of this opportunity and said hey why not give this a try and they became entrepreneurs and now these business people.
Are out there having to manage sometimes 30 40 50 drivers are more and everyday they're under pressure to get this job done.
Do I think at the end of the day Kudos Amazon for figuring out how to do this and not be saddled with labor costs that are prices high right some of these drivers,
turn twenty to twenty-five dollars an hour you start looking at the wage rates fully loaded that a FedEx or UPS driver is making and,
sometimes those folks are out there making 70 thousand dollars a year to drive a vehicle,
number two new drivers when it's foot when you consider the benefits so that's what happens when you have employees and you know you treat them right and you have benefits everything else Amazon is gone,
hello cost way to db2 see and keep their costume we think the average delivery is coming in somewhere around a dollar 75.
And that's pretty hard to match you know when you start looking at the others.
[35:14] Yeah what what would you say FedEx and UPS around.
[35:18] It's hard to sort of cost structure is but if you you know you all you have to do is go there and say Hey I want you to shoot this package and it's still going to be 67 dollars,
a portion of that 67 dollars goes towards the last mile delivery function but a pretty big portion.
[35:35] So Mark I talk to other people that have kind of a simple model in their mind of how this works that way,
you know gosh Amazon puts one of everything in a huge fulfillment center and puts the Fulfillment centers close to people but I think the problem Amazon solves is even much more complicated than most people realize
did I hear you right a big Amazon fulfillment center holds about 15 million skus is that order of magnitude right.
[36:04] That's all that's not a bad number.
[36:06] And then how many skus do you think Amazon sells I have seen a number of numbers I thought I heard you say 360 million but I've seen some estimates that are even quite a bit north of that.
[36:17] And to confess I only know what I read as far as that goes so the number that I saw last was somewhere around 316 million or so.
[36:27] Okay so let's see.
[36:28] That's her prime eligible I think I think that's Prime eligible and then non-prime eligible ev's another 300 million yeah I think I think that's where the bigger number is Jason.
[36:36] That would totally make sense so to kind of frame this it's it's not like you place an order and everything can get shipped from the Fulfillment center that's closest to you right like the,
you know they're strategically staging different long tail inventory all over this network and then you know.
Impressively maintaining this high level high service level even when that product is in close and that's where a lot of those like are exceptions that you and Scott talked about in the beginning come in right is.
[37:07] Write that obscure Halloween costume you're buying for your daughter right.
That is only stocked in the Seattle fulfillment center and you're in New York he wanted two days so that's an example of something that would go by plane if your Amazon Prime.
[37:24] Yeah and the.
You mentioned so one funny thing so I live in a multi-unit apartment building a 12 unit Condo building and I like to think of us as an Amazon laboratory because we're in Chicago Chicago has every kind of
fulfillment infrastructure here and and are 12 units get about 50 Amazon Parcels a day and it
every single day in our mailroom there are Amazon labeled boxes delivered by the postal carrier there are
tons of Amazon boxes delivered by Amazon you know dress dsps and their their Amazon boxes delivered by UPS is,
is in your mind is that because people are ordering longtail items and they're having to use all these other delivery vehicles or are some of those boxes because,
their vendor fulfilled inventory or you know things like that.
[38:22] You know people ask me this kinds of questions I don't know all of the inner workings of how things function but I can only surmise so,
there is a significant amount of merchandise that's sold on the Amazon platform that's been fulfilled.
So if it comes in an Amazon box then it's probably Amazon Fulfillment right and if it's arriving by the post office and your,
area where you live is being service primarily by Amazon Logistics drivers.
Chances are it's coming the ship from location is such that it will ship by another former Senators far away.
Where for whatever reason the post office was used and maybe that customer that ordered that box was not Amazon Prime so they ship it from a farming fulfillment center,
and it arrived 345 days later and that was the lowest cost way of getting it there.
Right and something for UPS center maybe it's coming from a location where UPS provides the best value to get it to the customer address and remember not everybody's Amazon Prime so the rush to get it,
in two days is really an Amazon Prime only issue right.
[39:42] Wait there people in the world that don't have Amazon Prime and I'm teasing
so so now I do want to Pivot a little bit as if this kind of logistics wasn't difficult enough now there's all this demand for what to me seems like even more difficult distribution which is like all these
perishable locally sourced by grocery case.
what when you use it off all the various types of fulfillment centers in the beginning one thing we didn't talk about that my understanding is that like Amazon is likely also starting
to build a lot of are these smaller fresh distribution centers that are you know located closer to customers you know with various degrees of same day service.
[40:33] Yes of the you know Amazon's been very slow to step up to the plate for the food side of the business right so what they did initially was they opened up these Prime now hubs,
many of which had fresh capability fresh or frozen so these are smaller type of operations that are interested in.
My mom wanted to small running with 25,000 square feet type thing.
And they would be there real life was to you know pick your order for food and have it delivered to your house and say two hours.
And it was never a money-making side of the business because primarily everything that's going on here is manual so when they acquired Whole Foods.
And you know they said well here's always starts right we've got those 500 stores let's leverage them as being miniature Depot's that we can depart and do home delivery.
[41:33] And that's really been I think the focus over the last few years is how to get as many of those more food stores delivering your grocery orders as possible and fairly recently they did away with the free delivery,
our whole foods and we put up to ten dollars.
And that's the show I might add even if your Amazon Prime because it does cost a huge amount of money to do a delivery of food might say why.
Well food is the type of merchandise that you can't systematically.
Synergize and build-up Innovation for a day's worth of work when someone orders their food.
Usually what ends up happening at least in the case of Amazon is the delivery function is made in an unrefrigerated vehicle like a car.
You know I flexible driver and wait take several orders that I'm going to deliver them and that delivery function is usually within 15 to 30 minutes of the store.
[42:38] Because you don't want your chicken breasts sitting in the tropical car for 4 hours or you're a scream or anything else that could cause a food safety issue.
So that type of service when you're paying somebody 25 to 40 dollars to deliver a handful of borders that are food.
So often times it ends up costing seven to eleven dollars to perform one delivery.
And in the world of food it's a two percent net margin so you can lose your shirt quickly when you start paying for that and not charging a customer.
[43:09] Amazon is still trying to figure it out and I believe what they've decided on and so the strategy here is that they will.
Very gradually start building out the Amazon Fresh stores that don't require check out our cashier.
[43:27] Rotisserie snout that they're working on those.
And as they build up more of those stores and they get more volume to layer on top of the Whole Foods Network.
I believe that Amazon will start to develop their own supply chain capabilities behind the scenes meaning.
Highly automated distribution centers strategically positioned in at least seven major markets that will feed the stores.
[43:55] Giving Amazon the ability to buy efficiently and to distribute efficiently.
And how we do the automation will be applied to minimize the labor cost in these buildings and then we'll over the next decade.
Below are very robust supply chain that's similar to what Amazon are sorry Walmart big during the 1990s.
Walmart went to town they put 46 million square feet of distribution center space up in the span of a decade.
And they built out all those super centers with food capability during that same decade.
During that same decade Walmart put over 25 companies of business that we're long you know long-standing Regional grocery retailers.
It's so the next big wave or the next tsunami of competition in the food industry will be Amazon.
Are they doing it now no they're just getting started we haven't seen very much activity here I think they've really pushed this one off and they've formed a strategic Partnerships with UNFI and what's Spartan Nash but,
I said come 20/20 special reference start to see a lot more activity here.
[45:08] Yeah it's a it's a big chunk of consumer spending I get its lower margin and more difficult but eventually it seems like it will it'll be the place to invest I am curious though do you like I often talk about,
by God this general merchandise as being like deliverable via a route and a lot of this perishable merchandise,
at least at the moment people feel like you have to do point to point deliveries because you got to get the ice cream,
to the homeowner when the homeowner can put it in the in the freezer pretty promptly.
[45:40] Yeah and the other the other thing is the homeowner wants to know when you're coming so there's a specific delivery time window.
[45:47] Exactly and and pre-pandemic all these two income households there are very you know the there was,
a scarcity of squats win-win homeowners were available and it was the same slot for everyone right so it became so it's really hard some of the people some of Amazon's competitors are experimenting with these novel,
you know very small things but like hey let's put
refrigerators on customers porches and will deliver you to the refrigerators or let's get smart locks and you know deliver to the consumers home refrigerator like.
I don't know do you you imagine the Amazon is going to have to come up with some novel solution.
[46:30] No no don't forget there's all kinds of spaghetti get in front of the wall and half of it's not sticking right if so I like the idea where I'm going to let some stranger into my house to put food in my fridge,
um that's not lawsuit written all over it I can't imagine that's going to last very long.
Walmart's doing it and they're expanding it actually but you know I'm going to predict that once a dead duck.
When you get down to brass tacks we work with quite a few retailers in the grocery sector depending on the geography we're talking about.
Some of these retailers have 90% order of the orders that are ordered online or pickup at store.
So some will place an order at 10:00 11:00 at night and arrange to pick it up at 5:00 the next day after the work is over.
And the like that convenience because they don't have to go in the store and waste their time and it's on the way home it's from their local story anyway.
[47:30] And when you think about it 90% pick up at store 10% deliver that's exactly what a grocery retailer wants because that eleven dollar delivery to the house was the way that cost goes away.
Customer likes it because they don't have to spend the money on that bus too.
Start looking at the cost of instacart and what it cost for a valet to go shop you ordered and delivered to your house and after you look at the markups that are put on the product that no one really knows about because they're not looking at the fine print.
After you pay for the delivery fee the tip etcetera it's not uncommon that 100 all orders now 125 to 130 dollars coming out of your pocket as you want to the store would have been 100.
[48:12] And that business model will be what comes Under Fire as more and more people tune into that cost increase.
Amazon's proposition on the home delivery side will with the increase of these Amazon Fresh stores and the Whole Food stores I think they're going to try to go,
to the pickup at store model as well more storage more opportunity for that less expense.
And also try to get more efficient with scale at doing the home delivery model right because it requires scale.
Really touch and if you really want to do it right you won't with refrigerated trucks that's what Kroger's doing so now you can send a driver out for a day's worth of work with a refrigerated truck,
with appointment schedules and all that done and then and now you've got you know a uniform driver and a logo on the outside of the vehicle and it's far more professional than you know some Flex driver showing up at your front door.
[49:08] There's lots of things going on as you can people play with the proboscis down the sidewalk to do the to do the delivery of the order,
wait for a New York is doing that and we'll see whether or not any of these things and you know I've always been about Bethel that a single robot that might possibly thousand dollars.
Is is a good way to spend your money to go and deliver one order 9f you doing 10,000 orders a day when I need 10,000 of these robots have been waived spend capital.
Probably not so I and that's why drums never took off I am 137 million packages a year,
with drones you just can't right here you're going to need billions of drones to make that happen it's just it's not realistic.
let's pivot a little bit so let's talk a little bit about kind of the future so you've given us your really good good lay of the land of and even some future that they're you know they're there,
increasingly investing in these things one of the things I've kind of long predicted you mentioned the last mile is maybe like
a buck and change to deliver something do you think Amazon will eventually just compete with that axe UPS where I'll just throw some packages on my door like let's say I'm going to ship,
Jason a new microphone I'll just put it on my front porch address it to Jason and when the Amazon comes they'll pick that up and take it to him for three dollars or something.
[50:32] The question I get quite often asked quite often and I always start out by explaining you know Amazon is a business that there are days during Q4 were they on the hill quite a few days,
in the fourth quarter the volume this ship relative to an average day is 2X.
[50:54] So like a fulfillment center that there's a half a million units on an average day is spent a million units output on a busy day.
Repeat it and the same thing goes for the delivery stations right you might have a delivery station doing fifty thousand packages now doing a hundred thousand on a peak day,
so during the first quarter of the whole company stressed.
With trying to get all these resources to work longer hours huge amounts of overtime and everybody's tired and there isn't any fat in the system,
to be able to take on additional nice to have volume to try to subsidize your business.
Your just got every pair of boots on the ground trying to manage your own customers and your own needs.
Sorry you set something up where Logistics is a service during q1 through Q3 when you have a lot of slack in the system by frankly.
Matthew 4 well one way you could do that is on your 3p Partners you could extend an offering to them and say hello,
your only business partners will do your deliveries for you during q1 323 but not during Q4 and if they're small Mom & pops and they're going to get a significant cost break because of that,
don't jump on board and now you've got that additional volume that you need during she wants review 3,
to help Finance or subsidize your own Logistics operations and indeed that opportunity is readily available today and I think that's the first Port of Call.
[52:22] 24 on the other hand they might just turn that tap off and say we don't need the revenue and what really needs every boot on the ground to support our own business.
[52:30] If you're a serious ship and by that I mean spend five to ten million dollars a year on parcel free.
What happens is the people like FedEx and UPS first thing in the new you they come into your place and they say look what your business,
you gave us a commitment for the 10 million in volume and we'll take the whole thing and we'll give you a nice juicy discount.
So it's not something that you can carve up by quarter.
Commit at the beginning of the year to doing 10 million shipping volume may give you an extra Cent discount in exchange for that,
and you stay the whole year with that one partner so this Logistics as a service concept is is,
really something that you have to be careful with because it's a bad idea for the first three quarters but not the last one and it's not like AWS which is a commodity that you can sell to everybody.
It's something that requires lots of lots of vehicles delivery stations for patients centers drivers There's real resources that are needed to make this happen.
And you can't put a peak on top of a peak because that 24 Peak that's happening in the Amazon is happening everywhere else in the b2c world as well.
[53:40] So I think they'll become a competitor to FedEx and UPS and I think I'll primarily compete in the b2c spaced delivering consumers because that's what they're good at they're not trying to do,
the deliveries that you know it's 50 packages a delivery at a business and I'm trying to be that work that's still going to be the domain of UPS and FedEx but I see this competition really being something that,
we'll probably wind down towards that fourth quarter of the year.
[54:08] Finishing yeah the so we've seen an enormous amount of venture investing and go puff and what are these companies called Jason there's some cool name that you you guys use.
[54:20] Like ultra-fast delivery.
[54:21] Fast delivery do you yeah the gorilla and all those guys do you feel like you're going to have a better system than Amazon or do you think that they're foolishly going to crash into the Rocks the Amazon rocks.
[54:35] Yeah I think I think that's what's going to happen I think all of those especially the 15 minute guys I think they're all going to burn out and I Venture Capital money is going their way of course but.
You know anything to do with food requires volume,
and stale and you're not going to make money and find resources that are going to.
Stick around for the long run in this big worker economy of 15-minute deliveries when you're constantly under stress that that's just a recipe for disaster I wouldn't put a name on to that myself,
um the good parts of the world will see I'll hold off on that when they've got 500 of these fulfillment centers that call but their time kiosks really at the end of the day and,
you know it's a huge cost model to operate that way and I honestly think,
um you know this is all exciting and new but when the expectation to make a profit starts to become a reality I think a lot of these guys are going to go away.
[55:39] Yeah this is kind of a correlated question we're so you talked about you know some of the Amazon numbers you are putting out there you know you said they're going to add,
122 sorts and more another 161 delivery stations where does this stop and you meant also mention the Wagon Wheel where they're actually starting to get out into pretty Loosely populated areas is is there a point in time where,
we're done like and when is it.
[56:09] Well here's an interesting sound bite for you know when we add up all the square feet that Amazon added in the u.s. 2021 including the message.
Crossover in fact it came to about a hundred and thirty six point six million square feet okay keep in mind the entire Walmart Network that took 49 years to build.
Totals up to about 150 million so we're talking about company during covid conditions when it's impossible to get lead times that are decent and suppliers to do the work on society Etc,
this guy's built almost almost an entire Amazon just in the u.s.a. sorry and I'm tired of Walmart just in the u.s. in one ear,
and when you look at what there.
On schedule to build in 2022 148 million more square feet will be added in 2022 and that's the size of the Walmart Network that's been built over the last 50 years.
So this thing isn't going to slow down anytime soon even though in the last quarter they announced that they're going to take a breather.
Now you know when you hear that what that means is the number of new facility announcements that we would normally expect.
[57:27] To happen this time of year is down way down compared to last year.
So that means 2023 2024 I would fully expect this speak to start really slowing down.
At least on fulfillment center side.
The logistic side they've probably got another 750 to 800 buildings to put up between now and the next five years in order to hit true Coast-to-Coast coverage across all zip codes,
they may change direction to say about to do that but if they do decide to do that,
there's a good 800 more buildings they have put up that are Derby station since rotation centres and are hubs in the lake and that's not have to have an output of energy and but I would see within the next five years,
we should expect.
[58:22] That this engine will start to mature and it's quite the growth of warehouse space,
for Amazon is directly correlated to the product sales growth that you see on their quarterly statements,
so if sales go up by ten percent they're going to need 10% more space at least from fulfillment center perspective all of the logistics buildings are more geographically driven.
So the question is your how much more will e-commerce grow.
Over the next five years relative to what we know today that's a hard one to answer that I see that,
in the u.s. you know our expectation is 10 percent growth this year in 2022 slowing down probably eight six and four percent over the next several years so I think the growth in just e-commerce in general.
Combined with this mature Network that they've already got combined with the fact that I mean you can only build so many of these anyway.
It doesn't make sense to put up a 300 million dollar building a town of 200,000 probably not.
Now it's better to ship the product further than to spend all that capex and on a small town or small in time so these things lead me to believe that we're going to spoke we're hitting the top of the bell curve and we're heading down the other side.
[59:42] Marc this has been great this does kind of trigger one last question that
I maybe should have started with so you kind of have in a different field but the same job I have I jokingly tell people my job is to
unsuccessfully helped other retailers compete with Amazon and yeah you've just painted like a pretty impressive picture of,
like how daunting the the Advantage Amazon has and how far ahead of everyone they are you mentioned you work with a lot of other retailers like,
at the highest level I assume it can't be your advice to anyone that they should try to catch up right like is the
is the answer to like find some white space that's an alternative approach to brute-forcing this like what what do you tell other retailers that engage you.
[1:00:33] No one needs me to tell them that they can't compete against Amazon me this is history in the making right we've never seen anything like this in modern in the history of modern man this speed the sheer speed at which this has happened.
I can remember going to trade shows not that long ago when people said yeah but they'll ever make any money,
and you know pooh-poohing Amazon is slow they're going to be extinct in real time and you know what's happened since the mid-90s till today in a relatively short period of time has been devastating.
[1:01:09] To the retail industry to shopping lost every aspect of retail you can possibly imagine.
And it's going to continue to happen and sir you can't say to a company,
wow and become better at e-commerce than Amazon is because that's a losing battle I think you just have to understand when Back to Basics you know what made you great in the first place,
don't try to become a five hour delivery firm.
Because you're not going to get there without huge cock question and it kind of brings us to Shopify and how much money will Shopify end up spending.
In order to get the two-day next and all the rest of it well I think determine the two days but they absolutely need to be competitive,
mom you know go and build you are six or eight fulfillment centers however many that's going to end up being one put those in place either with a third-party Logistics partner through your own resources,
and stop and stop it today because there's no point in trying to be next day,
that just gets way too expensive and then focus on the core values right wider Shopify,
exists with a high degree of success and growth it's because they offer something that Amazon doesn't offer right then it has nothing to do with its owner has everything to do with the vendor.
[1:02:29] And same thing with wafer you know a lot of folks asking what about wafer wafer has a fantastic product offering.
Right I mean they the customer shop on the wafer safe for the products that are sold there not because Wayfair can deliver within the same day.
So don't even try to become an Amazon trying to be the best you can with the resources you have but you know focus on what makes you great first place.
[1:02:56] Well Mark that is great advice and that is going to be a great place to leave it because it's happened again we've used up all of our listeners a lot of time but this was an amazing conversation really appreciate your time if listeners enjoyed this show we sure would appreciate it if you jump on iTunes and give us that five-star review.
[1:03:16] Marc Lee really appreciate you taking time to share your deep knowledge of Amazon's infrastructure
if folks are interested in reaching out to you maybe maybe you've piqued their interest to help them figure out some stuff what's the best way for them to reach you or read what you write online.
[1:03:35] Our website wpbf.com.
[1:03:38] Awesome well thanks everyone and.
[1:03:42] Until next time happy commercing.
EP286 - Amazon Q4 Earnings
Amazon released their Q4 (and full year) earnings for 2021 on Thursday February 3rd. In this episode we do a deep dive into all the details.
Want to learn about Amazon’s sneaky fulfillment advantage (Amazon Key for Business)? Check out our YouTube video here
Episode 286 of the Jason & Scot show was recorded on Thursday February 3, 2022.
[0:23] Welcome to the Jason and Scot show this is episode 286 being recorded on Thursday February 3rd 2022 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-hosts Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners.
I’m dying to talk Mandalorian with you but I don’t want to do any spoilers so I’m just going to skip the Star Wars chat this week until I think we’ll give it until all the episodes out plus two or three weeks and then we can talk about so until then.
It’s business only.
[0:58] I accept your promise for a later conversation I would only say watch it people go watch it.
[1:05] Yeah it’s gotten really good okay so it has been Star Wars dramas aside it’s been a mega cap Tech stock drama this week so it’s been a very interesting week.
And we’re excited to kind of culminates in the Amazon news that came out today so this is this is our hot take on Amazon’s Q4 but I think it’s important to back up
about six steps before we jump into that briefly so setting the stage back in episode 257.
We were super Clairvoyant and in March of 2021 you and I were the first I’m pretty sure and we can get you into fat check this.
A lot of people were talking about am apples I DFA and that’s their new privacy where they’re killing the cookie and doing a variety of things to really limit the amount of tracking available to apps.
Inside of their ecosystem amongst email and a bunch of other stuff but the primary one is apps can no longer really track what’s going on
there’s a lot of talk in the ad World about that but you and I believe were very early talking about the impact on e-commerce so.
So we had that and then you know I went back and looked at our notes and our prediction was that this was going to put Facebook in a world of hurt.
So then Flash Forward.
[2:25] Past this is a in your hot tub time machine and episode 285 which we did a couple weeks ago our previous episode you took us through some really good data we got a lot of really good feedback from that show from folks and everyone enjoyed your presentation.
And except for that one person who said that you’re too verbose and your slide presentations are too long so shame on them anyway they in there.
[2:48] They’re probably not listening to our super long podcast.
[2:51] It probably we self-selected them out there listening to some 5 Minute Podcast.
Or they’re listening to us on 4X and they’ve totally missed this whole segment anyway so you one of the data points you put out there that is that e-commerce crew 18% that right.
[3:09] You do yeah well no retail grew 18%.
[3:11] Retail grew 80% okay so that was kind of the watermark and then e-commerce grow a little bit more is that correct like 21 or so.
[3:18] So we don’t know for sure non-store sales grew about 20.
[3:22] Yeah okay so we’ll call it 18 to 20 then last week and over kind of like the last.
Since College January 20s the stock market has really slid into a bit of an abyss so the there’s the whole saying don’t fight the Fed so the
inflation has been on a terror so the FED has signaled they’re going to do some pretty aggressive raising of interest rates.
So the market kind of did a total sell off and basically went into this let’s throw out all the babies all the bathwater we don’t care everything’s so expensive and it kind of went into what Wall Street people call quote-unquote risk off so
we don’t want any risk anymore we love to risk now hit
so that was the set up kind of coming into this last five days and then on January 27th which was last week Apple had a surprisingly strong quarter.
[4:14] Serving one ever was kind of like on pins and needles because they’re the supply chain really hasn’t improved in some areas it’s gotten worse seven was like surely Apple could not have had a good quarter there’s no way they could get all those complex little
cogs and widgets that go inside your phone but sure enough being Apple they were able to navigate that and they actually had a pretty surprisingly strong quarter
now Apple doesn’t call out anything around there add product or anything like that so it was just kind of a is largely a hardware type discussion
then so the market got a little relieved and then next up to bat was Google or alphabet and that was Tuesday this week so February 1st
and they blew it out of the water so they had very strong earnings and in the conference call their CEO Sundar pichai he specifically several times mentioned e-commerce and
it was kind of interesting because I was thinking you know they’ve really done anything in e-commerce Dave
they’ve they’ve kind of played around with Google shopping and they made it free and then they charge more and they’ve got this experiment to be a Marketplace but if you ask anyone including you and I you know it really hasn’t been like they done anything particular
they did call out I’m pretty sure you probably picked up on this that they’re going to do more Integrations with YouTube on e-commerce and then they have a
Tick-Tock competitor called YouTube short setting.
[5:39] Or short and they’re going to do kind of a livestream tie in there with e-commerce so that was the that was that was the take there.
[5:48] Wall Street was loved this result and the stock shot up 20%.
And when we’re talking about these companies as a reminder these are mini all these companies we’re talking about except Facebook are well over a trillion dollar and market cap.
So when you move something like that 10 or 20% that’s two and four hundred billion dollars of Market.
[6:11] Money sloshing around up and down so so this was an up
and it was like you know it was like effectively three to four hundred billion dollars of value added to Google literally in a.
12-hour day so that was interesting.
[6:28] Then so that was kind of a roller coaster was on the upside and then Facebook now called meta reported the next day on Wednesday and that was the exact opposite it was a total and complete
bloodbath the CFO got on and specifically talked about three reasons that they had a really bad quarter the first one was the iOS changes and then they kind of quickly moved on and talked about inflation and then
exchange rates where the dollar has gotten weak because of this fed tightening
but then as they got into so that was the cfo’s prepared remarks and then in the Q&A
Wall Street analyst being good at sniffing out trouble they spend all their time on the iOS changes the IDF a and it was interesting to asked
Sheryl Sandberg and they finally kind of got her pinned down and I thought this quote was interesting.
And she said Apple created two challenges for advertisers one is the accuracy of our ads targeting decreased so that they’re lost targeting which,
increases the cost of driving the outcomes the other is that measuring the outcomes because we’re.
And then the CFO came back on and said you know just to be specific we missed about 10 million dollars of Revenue this quarter due to these iOS privacy settings.
[7:45] And then and then I said well how how long is it going to take you to figure this out and they said this is going to be a significant headwind for our business and it’s a number of verticals and it’s gonna be a multi-year problem
so yeah that was not good and basically you’re.
You’re the ad Guru here but you basically can’t Target and you can’t measure so you know they’re bad that is not good if you’re spending money on the Facebook platform.
Any any comments on that before I go into a another little piece of the story.
[8:16] I think you summarized it really well like I feel like it’s even more acute when you’ve spent the last like 10 years telling people that targeted ads are the best right like that so I think that’s a challenge and I think,
meta don’t really talk about it but I would actually argue there’s kind of three challenges that you can’t Target as well you can’t measure the effectiveness
but also a heck of a lot of the best-in-class advertising on Facebook is what I would call real time optimized wide because they had this like real-time closed loop of performance you could.
Dynamically generate some add content see how well it worked and then change it on the fly so the ads got better really fast and part of the,
the problem with,
not being able to measure it as well is it breaks that real-time Loop so so I would I would say that also is adding insult to injury in terms of the.
Effectiveness on Facebook so I feel like after their earnings there was kind of a consensus that like man,
advertising dollars are shifting from Facebook to Google because Google has a less acute version of this
data problem than Facebook has and Google has more measurable Commerce events on their platform than Facebook does at the moment.
[9:37] Yeah and that’s that’s exactly right so.
So and just so listeners understand to the problem is most people are using the Facebook platforms so which the.
They have WhatsApp but they don’t make any money off what’s up that I’m aware of they make a little bit it’s de minimis so where they’re where they make their money is off Instagram and Facebook and ads inside of there
will guess what people use that you know.
[10:00] Instagrams level like 99% mobile and Facebook’s probably 80 90 percent mobile so they have some desktop traffic where you’re still probably getting some decent first-party cookie data but you know.
what’s called 85% in aggregate of their ad businesses on the inside the mobile app a big chunk of that well over half is inside of the iOS
and then the other problem is Google wants Apple to this Google has increasingly decrease the ability of apps to track things to see if it’s just
it’s pretty bad well Wall Street was freaked out and basically the stock went down 26 percent in one day today and that’s the biggest one-day drop ever
and they lost two hundred and thirty two billion Market in market cap so so basically what happened is
you know Google backed up the truck Google and apple backed up the truck and load it up
a big 30% chunk of Facebook and split it between them and drove off into the sunset it was pretty.
Pretty interesting to watch this happened in literally like a 72-hour period and to your point Wall Street figured this out pretty quickly and said hmm.
[11:12] Google was kind of talking about how that they kept talking about e-commerce
Facebook keeps talking about these people that want to really track things so while streets kind of figured out that what’s happened here is e-commerce dollars
the all those Shopify merchants and all the way from mini little Shopify stores all the way up to the big guys they very rapidly this is the challenge in the digital world
you can move dollars instantly two different mechanisms unlike TV where you’re locked into the Super Bowl ad for for six months or whatever so over the over the course of.
Effectively the holiday period dollars sloshed out of the Facebook ad bucket and into the Google and then I imagine also into the Apple ad Network
um as well so and then we’ll talk about Amazon also so that was really fascinating as a third party Observer to watch that happen and how rapidly these it’s kind of funny it was.
I would say these changes.
Have been known but then happened like rapidly and almost makes you start to be a conspiracy theorist right so back in March last year you and I were talking about this and we could kind of see it coming
but then it really didn’t hit until fourth quarter and if you were in hindsight if you were diabolical and really trying to put the crunch on this e-commerce segment on Facebook that’s exactly when you would
would really kind of clamp down on them so I don’t know if there’s any of that going on but it was it was really really brutal for those guys.
[12:39] Yeah and you didn’t there’s some slightly weird timing just in that like shortly after these changes happened who took it in the shorts right away was like Snap
and they you know they came out right away and said hey we’ve had a material dip and their stock took a dump and comparatively Facebook wasn’t as hurt in the narrative coming out was we’re better insulated from these changes than others and it’s now starting to feel like
maybe no you weren’t.
[13:09] Yeah and then you know it does hurt confidence because if we knew all these things were coming in March why did it take till Q4 for them to realize how much it impacted so yeah I don’t I think
I think we’ll find out a lot more it’s all still fresh information and all these companies also file
more detailed documents later as they file with the SEC and the will be combing that for listeners to see if there’s any other tidbits for what Facebook says about this idea of a problem surfacing.
[13:36] Yeah one another tidbit before we go on to Amazon for deep listeners you’ll remember our privacy show where we kind of talked about these these problems wounding and we talked about.
Google’s proposed alternative to the third-party cookies was this cohort based system that they called flock and
side note fun fact Google has already completely abandoned flogged.
[14:03] Yeah yeah yeah.
[14:05] So like it’s really the wild west right now like they’re they’re you know turning off these old Legacy Solutions and they’re kind of winging it on what they expect to replace them with.
[14:17] And in some way they don’t care because they’re you know they’re winning.
[14:22] Yeah no rush.
[14:23] Yeah not a big rush we’re coming to save you Facebook give us about six years we’re on our way we’re really really coming
coming fast okay so then you know the market kind of held its breath and was like holy cow we thought you know Apple did great and then Google and then we thought for sure Facebook would be doing okay because to your point that kind of signal that everything was good
and then they totally crashed what’s going to happen with Amazon so these stocks are called Feng we don’t you and I don’t talk about
Netflix but that’s the end but you have Facebook Apple Amazon Netflix and Google that’s the Fang and so we don’t talk about Netflix but they’re having a.
[15:03] Blockbuster alumni I’m contractually prohibited from talking about Netflix.
[15:08] Will be happy to hear they had a little bit of a rough spot too but anyway so.
This was the most dramatic turn of events that I’ve ever seen and I’ve been following a stocks for quite a while and since maybe 08-09 when everyone was kind of like what is going to happen to these companies through this Great Recession so so I would call this kind of like.
Wanted a 14 15 year kind of event that we kind of witness it’s me.
Seven was kind of sitting there wondering what’s going to happen to Amazon and in you know I think a lot of people felt like it was going to be,
pretty bad now you know you and I know that Amazon is largely immune to these problems because
yes they drive a lot of volume through their app but they have the benefit of inside the app closing a transaction and they have first-party cookie kind of they have a lot of first-party data is kind of how to think about that and closed loop
so you know in many ways they’re actually sitting in a really good position in the Commerce world because they do have that data and
and then inside of the app and then they can even sell some of the ads so you could imagine if you had extra dollars the problem with.
If you move dollars from Facebook to Google a lot of times you can’t spend more on Google you can but it’s not super effective because you’ve covered all the Search terms you can’t create more volume so then I think a lot of those dollars probably sloshed on over to Amazon as well
so that was the setup.
[16:34] So one one one just quick wholesale note Amazon lot of these companies report two sets of numbers they just report the absolute and then they do it without the impact of foreign exchange
gyrations and in Wall Street they call that X FX all the numbers we’re going to give you our XFX unless we explicitly stated otherwise and it does swing the numbers a lot because of the interest rates changing you know the
the dollar went from strong to weak and it created a lot of headwinds vs. Tailwinds on these foreign exchange calculations
okay so Revenue came in at 137 point four billion which was in line with Wall Street estimates and it represents 10% overall growth if you take the fourth quarter of
2021 and compare it to the fourth quarter of 2020 now you have a good observation about prime day.
[17:28] Yeah so as we’ve talked about before Prime day has moved around a bunch which is problematic for comps so if you remember in 2020 Prime day was in.
Late October so kind of right on the shoulder between Q3 and Q4 and so you know some of the cops are saying now are against the like Prime day augmented sales and this year Prime day was in.
Q early Q3 two years ago it was in late Q2.
[17:59] Okay and then one of the other key measures there’s like six ways you can report
earnings for Amazon but will do ebit so earnings before interest and tax and that came in at 3.5 billion and that blew a Wall Street estimates of 2.5 billion so a billion dollar kind of.
Overall win on the profitability of the business so
what what had happened is Wall Street and Amazon Wall Street at Amazon’s guide last quarter to Q3 when they did the results they had put a lot of extra cost in there due to covid and supply chain and all these in labor and it
It’s seems like that did not end up being nearly as expensive as Amazon had initially thought or they were sandbagging we’ll never know so I would call that a revenue meet and a bottom line be
so that was that was a positive and then we’ll go through some more of the details and then the guide is really in a couple other things or what really got,
Wall Street pretty excited so it’s hard to predict so in the after-hours Amazon is up 14% And you know the the analysts are coming out
as we’re recording this very positive on the quarter so I think
I don’t know if it’s going to be a Google level result but it’s certainly not going to be a Facebook level down 26 type result so you know I think Amazon is going to become in the win column
let’s peel the onion little bit and go into why.
[19:20] Yeah so start with one that’s not that financially material but Amazon breaks out their sales for physical stores
and they grew 17 percent for the quarter so they were just under 5 billion and
in brick-and-mortar sales and and for Amazon brick-and-mortar sales is largely Whole Foods there’s you know.
A smattering of Amazon book stores and a couple of five-star stores and you know we now have like 30 of these.
These non Whole Foods grocery store so you know one day it will be more material but it today it’s mostly Whole Foods.
[19:56] What’s interesting about 17 percent is physical stores had actually been shrinking for Amazon and.
Part of the the the likely reason for that is the pandemic shifted a lot of people from.
Shopping in a whole food store to having groceries delivered to their home and Amazon has has like somewhat unique accounting practices that that sales shifts from
from Whole Foods and physical store sale to a
in e-commerce sale when when you get those groceries delivered to your house so kind of you know it that artificially made stores look small so I just think it’s interesting because this is a weird time in the history of e-commerce
e-commerce for most retailers as you know over the last decade has grown kind of like 15 to 20 percent a quarter and brick-and-mortar stores grow like 32 Port four percent a quarter and so this q 4
because e-commerce is comping against the monster Q4 from last year and brick-and-mortar was really soft last year and is doing better this year it’s like the first time in our lifetime we’re in many cases.
Brick and mortar is growing faster than then e-commerce and that was actually true for Amazon in North America.
[21:18] So that online sales just for Q4 actually went down for Amazon by one percent and again I would I would attribute that largely to you know
comping against a crazy number that also had prime day in it.
[21:33] You want to do the Geo segments you want me to.
[21:37] Sure why don’t you do the quarterly ones.
[21:43] Okay so North America grew nine percent and so this these are all cordially so this whole section where in is quarterly comparison so we’re comparing Q4 of 21 to Q4 of 20
so North America grew nine percent International was down one percent and that’s kind of what that’s a that’s kind of what netted out to be
this looks at online and offline so that’s what netted into the 10% go through.
On the third party side there’s two line items at Amazon reports we won’t get gmv calculations from analyst for another week or so but when we do we’ll mention those on the show so seller Services which is revenue from largely from.
Prime no sorry from FBA is that grew 12 percent to 30 billion and seller units remain stable at 56% so
we use this nomenclature first part of units in third-party so therefore first part of units were 44 percent and third party were 56%.
It’s important to note this is a unit measure not gmv and you know you historically.
The GM V for first party is the Espeon first party is significantly higher than third party because you’ve got all the Amazon owned and.
Branded products like candles and all that good stuff so usually.
Usually the gmv is more flips the other way where it’s kind of maybe 60 first party forty third party we’ll see.
And then this is exciting and I texted you the second I heard this because I called it retailgeek.
For the longest time they have kept the ad business kind of tucked under this exciting category called other where they have a bunch of other things,
does the name other and for the first time they have broken this out as quote unquote ad services are you excited too.
[23:35] Yeah yeah that was a big deal I’m mildly annoyed because I want to say in
20 21 of my Jason and Scot show predictions was that they would start breaking out ad revenue and I feel like I didn’t get credit for that prediction and then you know the next year when I gave up on it they of course did it.
[23:52] I called him to tell him it was okay to finally finally do that now that the prediction had lapsed.
[23:56] Yeah that’s kind of petty of you I’ve been meaning to talk to you about that but yeah so so for the first time they disclosed how much General Revenue they generate in on ads the CFO was asked why they did that and he’s like.
[24:11] It just was becoming more and more material and I was getting tired of saying on all these earnings calls and other which is why largely the ad business so.
For the quarter they they reported ad revenue of nine point seven billion.
Um so for the year they reported 30 1.1 billion in ad revenue and they also showed their growth rate.
Their growth rate decelerated a little bit for that business to 32% so they’ve got a an annualized business is generating Thirty 1 billion and AD Revenue that’s growing at 32%.
To put that in perspective in September emarketer estimated their ad business at like 24 billion so.
Materially bigger than I think some people realized and by far the third biggest digital ad Network.
In North America and so super exciting that there were starting to get more visibility into it as we’ve talked about a lot on the show retail media networks is a big trend.
Um across all retailers but you know Amazon represents about 77 percent of the total retail media Network size at the moment.
[25:34] And I always like to contrast that with the business that analysts will have the most at Amazon which is a WS.
So you know the common narrative is the most profitable sexy business and Amazon is a WS.
And it had a great quarter it grew by 40% which is actually an acceleration of its growth which is.
Pretty remarkable if you if you think about what a big business it was they sold almost 18 billion in Q4 and I want to say they’re annualized.
Aw s business was like 63 billion and they made like 18 billion in net income on that so that’s that’s a.
Super good business that you’re still you know growing it nearly fifty percent on a business that’s spinning off 18 billion dollars a year in cash but.
It also is highly Capital intensive so they have to spend a bunch of money to make that money and so if you compare the
the 60 billion that they make on a WS that they have to buy all this hardware for against the
30 billion that they make on ads that they have almost no cost of goods associated with the ad business is almost certainly more profitable to Amazon than a didn’t even a WS.
[26:59] Do you think it was a bit of a flex to break this out kind of after seeing Facebook had such a rough time I don’t think they could have done.
[27:07] Yeah I think the timing is not right I think that like this was inevitable like I don’t know what I mean you probably are more familiar with.
Like I think the the Gap reporting requirements are that it’s quote unquote material and it’s like now that we see the number it’s kind of hard to argue it’s not a material number so I assume at some point they they run into SEC problems if they.
Disclose that but I.
[27:32] The definition of materiality is 10% in my recollection so and you know I think it could be argued it’s one of those squishy things where you know I don’t think this is ten percent of Revenue is it.
[27:46] No but Eva died probably is so then why yeah that’s probably it probably triggered something on the bottom line out imagine.
[27:54] Yeah and so one other side note I want to call out on AWS this news actually broke.
Yesterday but then they definitely cooked it into their earnings called today the Amazons been on a nice winning streak with AWS clients.
That are there are moving to the cloud but one that would be most relevant and somewhat surprising to our listeners is yesterday Best Buy announced that they were moving
all of their IT services to AWS and the reason that’s surprising is obviously Amazon and Best Buy are.
Are occasional Frenemies but they’re mostly competitors and you know it’s somewhat surprising that a retailer like Best Buy would
by its infrastructure from a direct competitor like Amazon.
[28:40] It is and I think some of the you know I’ve heard that like some of the retailers even ask their vendors that not to use AWS or you know they they.
[28:50] Yeah I think that’s a general policy at Walmart for example is that like that you can’t host any solution you’re pitching the Walmart on on AWS.
[29:00] Oops okay anything else that you saw that was interesting and adds an AWS.
[29:07] No no but that was exciting.
[29:10] Yes oh so Wall Street is a what have you done for me lately so the once they once they kind of heard that the revenue and was in line and
the bottom line was beat for the quarter then it’s kind of like well what’s it looking like for next quarter so Amazon’s Guidance the guided revenues for the first quarter to 112 21 17 billion
those in line with Wall Street,
the bottom line was better than Wall Street was expecting a 3.9 percent Gap margin compared to Wall Street at 3.6 so again that was kind of a sigh of relief and then that Revenue range is pretty.
Pretty slow so it’s three to eight percent growth.
So I don’t I don’t know if this is a lapping thing they’re saying or not or maybe their sandbagging here but that felt kind of like pretty slow to me,
but again it’s kind of like how does it match the expectations of the forward guidance not like what is the absolute number so Wall Street seemed to like that and then.
Did you want to do the annual View.
[30:11] Yeah so so for the year that top line revenue growth was like twenty one percent.
North America ended up being 18.4 percent for the year I think I mentioned that earlier in international was 22 percent,
those two numbers are getting closer together by the way like you know historically International was much more and growing much faster and there still is a lot more International that’s not as penetrated by Amazon so that’s a little bit interesting.
The North American number 18.4% sounds like a pretty good number until you you realize.
They’ve never been below 20% before so that’s that’s kind of a Debbie Downer and then the US Department of Commerce data says all of retail was up.
By 18 percent normally e-commerce grows faster than brick and mortar so if all the brick-and-mortar retailers in America on average grew 18 percent and then you know the biggest best e-commerce.
Retail in North America only grew 18.4% I would actually call that kind of lackluster.
[31:22] Yeah the you know doing that on about a 500 billion dollar number those is a pretty good the Amazons defied the law of large numbers for quite a while.
[31:31] Yeah unfortunately they’ve ruined it for themselves like I totally agree like if you if you just started a business and and Drew out this hockey stick everybody would be perfectly satisfied but
based on the the unrealistic expectations that Amazon has habitual eyes Dart 12 it’s a,
slightly tougher so letting for them now.
[31:53] One couple of other tidbits that I thought were interesting as someone that hires a lot of folks Amazon reported that for the end of the year they just cross 1.6 million employees
I cannot even wrap my head around that.
What does that that’s like the size of my residential area is all employee in the triangle area where I live is 1.2 million so there’s more people to work at Amazon that live in my entire
area here my 30 mile radius the other thing I thought was interesting and again like.
[32:26] Yeah we’ll get a look at the queues in the case and all that jazz when they file them I guess it’s K is when they for the annual
and that’s the SEC docs and they did report one I’ve been keeping an eye on is fulfillment investment and the cost for fulfillment only grew ten percent year over year in the fourth quarter
and that has been more running at like 40 50 percent and like
like me you probably see a lot of new Amazon Vans out there and a lot of activity going on in the shipping world so it feels like that data point indicated to me that they may be added
bit of a end of a so Amazon goes to these phases where they’ll have kind of a
invest in Harvest kind of cycle so it feels like we’re at the end of a
delivery invest cycle and kind of heading into Harvest when the cost of shipping is kind of caught up to the amount of volume that they’ve surged up to it this latest covid driving everyone to digital
any other tidbits you saw.
[33:28] So a couple of small things first of all with regards to that that Capital spending there was an interesting,
segment in the the Web Conference where the CFO kind of drilled into
expectations for future Capital spending and he kind of broke it out and he said hey the biggest chunk of our capex goes to AWS infrastructure that’s still a really fast growing business and that that kind of investment that
piece of Investments probably going to have to continue the second biggest chunk of our investment is fulfillment and he actually broke out
delivery and and.
Warehouses and you know he kind of implied that that both of them had probably gone over the peak investment and that they would probably be able to start slowing those Investments and so I have a feeling.
That that was good news to Amazon or to investors and then he did mention that less than five percent of their total capex goes into things like
new stores so all of these people including me tracking all their new store Concepts
in wondering if there’s some like big large scale deployment looming,
totally possible but they’re certainly not foreshadowing that in there.
In their capex spending at the moment and then the the other.
[34:56] Like potentially big piece of news that I think really was catnip to investors and I suspect will show up in that stock price tomorrow is that they also announced that they are increasing the price that consumers pay for Prime so
I think it was 120 bucks a year 100 119 a year and now it’s going up to 139 a year so they’re adding.
20 dollars to that super valuable super sticky service and I think investors will like that because it shows,
how you know sticky they think they are with with consumers that they’re able to get away with that kind of price hike in that of course will fall straight to the bottom line.
[35:42] Yeah Zack and I are you going to cancel your Prime subscription.
[35:45] I am not.
[35:47] What do you like ten boxes a day someone at Amazon is calculated the point at which that they’ll they can make you leave so that they could get some of their money back.
[36:00] Yeah side note on that,
you know I feel like there are all these advantages that Amazon has that we don’t talk about very much and I actually made a short little YouTube video about one of them that we’ve talked about on the show before Amazon key for business so if you’re you’re bored
you can I’ll put a link in the show notes you can watch my little YouTube video about about some of the sneaky advantages Amazon has that make themselves more sticky.
yeah that’s an interesting they’ve tried with Amazon key they tried going in your garage and your car and consumers did not care for those two options but I suspect I haven’t seen your awesome video I suspect you’re talking about where they work with property managers to get access to multi-unit.
[36:41] Exactly I’m specifically talking about multi using unit dwellings I’ve actually heard slightly different I’ve heard the car thing was a total dud,
which sounds like what what you heard as well but I’ve heard that the in some Suburban areas that the garage access is actually working pretty well so I.
[36:59] Okay we’ll save that for a future episode anything else you want to talk about.
[37:07] No I think that’s it for Amazon that was a lot it was an exciting quarter Ruiz.
[37:12] Yeah so just to kind of put the kind of
the tale of the tape if you will so the Biggest Loser was Facebook / meta they really got hammered by these changes and they thought they had figured it out and it turns out in the fourth quarter they had not so those those
fluid ad dollars left there left their coffers and went into Google’s apples and Amazon’s so those were the net winners for the quarter so it’s a really interesting
kind of set of events and yeah we will continue to report on it as we learn more as the company’s file they’re more detailed filings.
and and Scott in honor of my coworker who accidentally sent me an email saying that my my presentations are too long and rambling I think we’re gonna try to end this show a little early this week and so if you enjoy the shorter show you have my my coworker to thank and you can certainly send us that that feedback
but if you’re using our show to get your workout in on the at the gym and and suddenly you’re not getting as much cardio as you used to you you have that employee to blame.
[38:22] Yeah and this is either way I hope you like the our content and if you’d leave us a five star review on your favorite podcast listening technology that would be amazing thanks everyone.
[38:34] And until next time happy commercing!
EP285 - 22021 Full Year and Holiday Data Deep Dive
The US Dept of Commerce December Advanced Retail Sales Data is out, which gives us a full look at 2021 and the 2021 holiday season. So Episode 285 is a data deepdive into 2021.
If you want to follow along, we've made a deck with all the data available at https://retailgeek.com/2021-commerce-recap
US Retail & E-Com Sales Data: US Dept of Commerce
E-Commerce Estimates: eMarketer
Retail Foot Traffic Data: Placer.ai
Web Traffic Data: Similar Web
Holiday Estimates: Adobe, Salesforce, Mastercard
Episode 285 of the Jason & Scot show was recorded on Thursday Jan 20th, 2022.
[0:23] Welcome to the Jason and Scot show this is episode 285 being recorded on Thursday January 20th 2022 that’s a heck of a lot of 2012’s.
I’m your host Jason retailgeek Goldberg and as usual I’m here with your Cohoes Sky Wingo.
[0:41] Hey Jason and welcome back Jason Scott chaussures Jason is kind of a shame we neither of us were able to make it in our F but,
one of the things I don’t miss is every year that I’ve gone to in our f for the last three times I’ve went I’ve had trouble getting there or been stuck there so I think
then our F should use this opportunity to move that show out of January and maybe look at something like March or something if they’re going to be in New York.
[1:09] Or to the like Bahamas or something.
[1:12] Yeah even better yeah let’s make it a destination of it.
[1:17] You know you have my vote I’m not sure you have a majority of votes see you if you have mine that would be awesome.
[1:24] Yeah just watching and it seemed like some folks went and then they had a lot of cancellations so seemed like it was in kind of one of those weird.
Hybrid states were if you went and then,
person you are going to go see present canceled you sat there in a room with people watching a zoom so that’s number Super satisfying but I do think it seemed like some folks you and I know got together and had some dinners and had fund so hopefully that was that was good for everyone.
[1:50] Yeah I had a little bit of foam oh I think you know some people I would have liked to see you know I saw you know social media of them getting together and whatnot and.
It’s just super bad luck I have a feeling if this show was a month later it would be a lot less controversial that traveled to.
[2:09] Yeah and what did you want to talk about this week.
[2:14] Well you know if we had gone to NRF one of the things that I always like to do it in our f is kind of check in with a lot of our co-workers in the industry and kind of you know get a consensus,
about how the year ended up for everyone and what they thought the big issues were going to be for 20 21.
So since we didn’t get to do that at shop at NRF I thought maybe we could do it on this podcast for our listeners.
[2:42] Yeah that sounds good and then I know you always put together a little for your clients kind of the summary deck and I know that’s hard for our podcast listeners so do you have a way to solve that.
[2:55] Yeah so what I thought I would do I put together like a 36 slide deck completely full of numbers and what I thought I would do is describe all of the graphs on the podcast.
[3:09] Sounds good that sounds good and it’s going to be a we’ll go through it and intricate detail data point by day.
[3:14] Yeah because the one complaint I get about the show is that it’s not hard enough to listen to.
[3:18] That’s that’s from your mom.
[3:22] So that probably isn’t going to work but here so here’s what I did think I do like instead of,
just charging the fortune that we charge clients to go through this presentation I thought I would make a version of the whole deck available to all our listeners so in the event you do want to follow along with the visuals and see the actual data,
we will put a link in the show notes you can hit pause for a second,
you can open up the deck and I will tell you what slides were talking about in case you want to follow along but but Scott keep me honest here we’ll try to make sure we’re talking about in a way that you can kind of just,
just listen along on the podcast and then look at the deck later if that’s the way you prefer to do it.
[4:03] Yeah this is a good time if you like receiving awesome decks for your subscription here which is essentially free this is a good time to hit the five star review we always appreciate that and yeah
because we because this is a audio medium we are going to paint pictures with our words and you will see the slides form before your very eyes almost like augmented
virtual reality we’re going to take you to the metaverse on this thing.
[4:31] Exactly it’s a meta verse deep dive into a retail in 2021 and let’s jump right into it so.
[4:42] Super quick recap last week the US Department of Commerce publishes published their December
Advanced Data so that gives us the last month of data we need to see the whole year so it’s super exciting for all of us get data Geeks because we now have a complete set of data
the one thing to remember is.
It’s an advanced look and so it doesn’t have the granularity of categories that we would like and one of the categories it doesn’t have is
e-commerce which is highly unfortunate so,
the the Deep dive for the whole year with e-commerce broken out will actually be available in mid-February and that’s also when they published their quarterly.
They’re q4u Commerce data which is a separate report so so we have most of the interesting facts there maybe a couple things that filter in last,
next month but the top line if we add up all retail sales for 2021 we sold just over six point six trillion dollars of stuff last year which is
eighteen percent growth over 20.
[5:53] And it’s 22 percent growth over 2019 and so,
if you do have the deck and you were looking at slide for I show you the last 30 years of growth and the thing that will stand out at you is that this year’s growth.
Is is almost double the average growth we’ve had in any of the last 30 years so unprecedentedly good year.
[6:20] This is all retail or not talking e-commerce has.
[6:22] Yeah this is this is pure retail will we will double click into e-commerce a little bit later and you know reminder there’s a lot of controversy about what the definition of retail is and so you’ll see millions of different numbers out there and it’s because.
11 data set has automobiles in it and one has doesn’t one has gas in it and one doesn’t you know they’re all these different things I’m using.
The unadulterated numbers from the US Department of Commerce so it does include automobiles it does include gas it does not include restaurants it’s what we call,
in a ICS code 44,000.
[7:03] Cool good old code it 44,000.
[7:07] If anyone wants to catch me offline and ask for like a different spin I’m happy to talk about how the numbers change when you change your definition but I think that’s too complicated for for the podcast but so before I go any further.
Like is that does that surprise you at all it has is that has that been your perception that these are Monster year that 2020 and 2021 more Monster years for retail because I feel like that’s not necessarily the narrative we’ve been getting in some of the Commerce media.
[7:37] Yeah no it feels that is a surprise it makes sense and I’m looking at the slide but it makes sense that we were effectively spring-loaded right because you had the shutdown people really,
you know couldn’t or didn’t buy things from March 20 through and so there’s put up demand but what’s interesting is you really don’t see,
unlike the Great Recession about it no nine you don’t see a retraction before this the splurge and this is way way bigger than that period of time so it is it is surprising.
[8:08] Yeah so so,
in aggregate retail did awesome and then on slide 5 I give you this fun way of looking at the data that you and I helped
help kind of evolved together but the idea is that we give you a separate
line chart for 2019 2020 and 2021 and so you can kind of see.
You know how the year stack up against each other and you know.
[8:35] 20:19 was the unaffected by the pandemic than 20/20 happen and of course there was this huge dip in April
when the pandemic first got real for everyone because the NBA cancelled games and it recovered super quick and then you know the rest of 20/20 was actually above 2019 so retail grew.
From 2019 and 2020 even though we were like right in the thick of the pandemic and then in 2021 retail really shot up and the.
The hypothesis here is there are two things that really caused this number one there was a bunch of.
Economic stimulus that was poured into the economy right like there’s a lot of extra money available and consumers were in,
like generally really good Financial shape so there was a lot of potential to spend and then a lot of the things that might have gotten some of that money experiences like travel in restaurants and vacations,
we’re not available in the most consumers so
instead of paying money for a gym you bought a Peloton instead of going to a restaurant you bought groceries and instead of going on vacation you you got new patio furniture right and so you know the combination of,
more money and less things to spend and on ended up being super favorable to retail overall.
[9:59] Yeah that makes it so that it’s really a factor of the stimulus is what you’re saying.
[10:06] Yeah and we’ll talk about the downside of that if they end of this podcast but so that’s the industry average and I would remind everyone to be cautious.
In thinking about averages because,
very few retailers experience the average right like in general there were big winners and losers based on categories and I’m for the purposes of the podcast we’re not going to talk about category growth or foot traffic.
From 2022 2021 because 2020 was such a weird year because of the pandemic I actually am going to jump ahead in the deck to slide 9 which is where we start talking about,
Last year to 2019 so like what the cumulative changes were over the from before the pandemic to you know at the end of the second year of the pandemic so.
Over that two-year growth we grew 22% as I mentioned earlier and so I actually.
[11:09] Put together look at what the average to your growth was every year for the last 30 years and in general the average two-year growth is around 10 to 12 percent so 22% is,
Two year growth and remember like you know there was in 2008 there was this recession and there was negative growth so you’d think the the year-over-year from that recession would be super high but but this.
2020 and 2021 year is basically the the best years of retail in our lifetime.
And so then I go to slide 10 where I show you how fast each category grew and remember if the industry grew 22%.
You really want to be growing faster than that 22% so the categories that one the grew faster than 22% we’re your new favorite category automobiles.
So they grew at 24 percent which was mildly surprising to me because you,
you know early on you would assume Car Sales slowed down significantly and then of course there have been all these chip shortages that’s made it slightly hard to buy cars,
and yet cars were still one of the bright spots does that surprise you at all or were you totally dialed into that.
[12:30] Yeah the counter is the used markets on fire and they’re marking the cars up so there’s kind of like an inflation of car prices in there that I think.
One of the reasons so if there is a car dealers are taking these pretty exorbitant markups on those,
which is kind of short-sighted but that’s what they’re doing and yeah so so it doesn’t surprise me too much when you know
what surprises me is where did it all go so we had this like tsunami you know anything about retail it’s you know it hasn’t been over.
You know like what,
10% for a long time and then you’ve got in the two year ago comparison you get up to maybe like 15% so it’s like a surge year where did it show up like I can’t think.
You know amongst the public companies the Walmarts the targets and that kind of stuff I don’t really see it I don’t see them just like,
blowing up expectations and saying oh my God so much money flooded into our coffers.
I kind of wonder where it went or maybe it’s going to show up and you know in when you when you chart it out it looks like a lot of it came at the end of 21 so maybe we haven’t seen it come out and the public markets but it’s going to be you know I kind of wonder where it went.
[13:42] Yeah so I would argue that we are seeing it like in the big companies in the Amazon Walmart Target Kroger and certainly Home Depot and dicks we are seeing it.
And so I think the car one is a harder one to see because the car you know the actual car dealers are so fragmented because they’re all franchisees.
[14:05] Carvanha has seen it carvanha.
[14:06] The Used Car Guys for sure saw it so let’s come back to that in one second let’s talk about the other two categories that were above the industry average
building materials and garden supplies right so that’s Home Depot and Lowe’s
and you know they’re there to your growth Stacks were like significantly up from previous years and again.
Part of the reason they would be up as people spend a lot more money on their homes when they were traveling last and then and so that category group thirty percent over two years and then Sporting Goods grew 38 percent over two years
so that’s you know dicks and sporting goods and and those folks and they were seeing like
like I want to say the two year growth stack on dicks would be is like 94% or something so.
[14:59] So and then the categories that still like had,
by historic standards great growth but did not grow as fast as the industry average grocery stores so only grew 16 percent I have to say that surprised me a little bit because I would have.
Expected you know with the hit that restaurants took that the grocery would have outperformed the industry average but you know it doesn’t seem like it.
It did and then,
furnishings and furniture and Home Furnishings grew at 21 percent so about the industry average and again because of all the money people spend on their homes I kind of would have expected that to be higher so those two things.
Surprise me a little bit.
And then the the categories that were you know more significantly hurt by the pandemic like gas and clothing,
you know clothing was still up 13% gas was up 15%.
And that’s what hurt looks like right like so you know up 13 percent against the industry average of 22 percent like that’s.
You know kind of the the low end and you know I think if you talk to apparel people during the pandemic they would have said like oh we’re you know we’re experiencing Armageddon if you compare this 13% growth too
you know any of the last five or six years for apparel this would have been a great year.
[16:23] And then the most inexplicable to me of all and I think it just has to do with the mix in this category is Electronics and appliances are only up 6%.
And I I’m totally open if you have a hypothesis cop but like I think everybody bought a lot of extra Home Tech.
So especially the beginning of the pandemic everyone’s buying extra computers for their kids for homeschooling and everybody’s updating their work from home stuff,
and you know over the two-year course of the pandemic you know everybody remodeled their kitchen about new appliances so I’m a little befuddled.
Why that you know that category is literally the bottom of the Barrel in this the US Department of Commerce data and it’s only six percent of growth.
[17:13] Yeah let me look at the year.
[17:18] I have a so while you’re looking I’ll just I’ll tell you I my.
My unfortunate hypothesis so there’s an enormous flaw in the US Department of Commerce data and that flaw is that they call e-commerce or non stores.
So you’re either a Peril sale if you sell the clothes through a store or your Anon store sale if you sell the clothes online,
and so if you sell a TV out of Best Buy you’re in electronic sale but if you sell the TV online for curbside pickup.
Non-store sale and so I didn’t mention this earlier but the category that actually grew the most by far during the pandemic is non store sales which are 38% and we,
have any good way to know how that breaks down by category so my hypothesis is the electronics category actually probably
did better but the it over index to sales going online and therefore it gets office gated
in this US Department of Commerce data.
[18:32] Yeah and then accentuating this is the supply chain problems hashtag Supply pain where you know a lot of that stuff you would go into the store for especially big appliances where you kind of want to see it and touch it and feel it before you order it,
I know on the order of 10 people that cannot get washers and dryers.
So you know that that was all like this big appliances are in and they’ve been waiting since you know,
Q3 last year to get these things it’s insane so that could have you know so you have this kind of double edged double whammy of a lot of stuff moving
online or non-store from the store in the store or struggling because they can’t get inventory for the shelves and you know every electronics item has a chip.
[19:20] Yeah so I do like that I will say it from the data it looks like more of the group The Slowdown was in,
20/20 than 2021 which like kind of argues it like.
[19:35] Yeah attribution.
[19:37] Yeah so but I don’t I don’t know
and so then so that so far everything we’ve talked about is US Department of Commerce data so I’m also super interested in how many people walked into a store so I asked our friends at Placer AI which is a,
a company that has access to a huge panel of consumers that have software on their phones and it tracks where they go anonymously
and they use that data to forecast.
Retail foot traffic across the country and so I put together a data set so on Slide.
[20:21] 11 of the deck you can see how the 20 21 foot traffic every month compared to 2019 and so for the first half of 2021,
um foot traffic in retail was still down between 10% and 0%,
versus 2019 so fewer people are going to stores in 2021 then we’re going to stores before the pandemic.
And then by July we had our first kind of Positive Growth since the pandemic so July and August we’re kind of up for and six percent over 20 19 respectively,
then we had another slight dip in September and then we had a pretty prominent dip in December of 2021 which was probably the Omicron variant kicking in.
[21:12] But so in aggregate.
There are still fewer people walking in a brick-and-mortar stores in the United States of America in 2021 than walked in a brick-and-mortar stores in 2019.
[21:24] There are some it almost like it seems to be correlated an inverse correlation with case count right so in the summer cases were kind of low everything was feeling pretty good and then we had kind of the surge the Omicron surged kind of come back and
here at the very tail end of 21 we saw a really plummet.
[21:42] Yeah no for sure and there are lots of people that I have been correlating these statistics to case counts or hospitalizations or.
Or mortality or any of those things in there are strong correlations so you’re certainly right.
[21:56] Um so then I I said all right well let’s double-click on some of the categories that might be interesting and one category that I mainly double clicked on for you was Automotive so for folks that don’t know Automotive is the biggest.
Category of retail spending and which kind of makes sense because it’s the.
The highest ticket item so 1.5 trillion dollars in in car sales in 2021 which is 23 percent of all retail spending so we said 6.6%.
Six point six trillion in retail 1.5 trillion of it was cars and that’s up as we said earlier 24% from 2019 and then I give you kind of the,
the shape of that Demand right and and you know so again,
the best month in the history of car sales was April of 2021 and then it’s been,
tapering off a little bit since then but still up
significantly from 2020 and 2021 is up nominally from from 2019 so a very vibrant year even though per your point you know
it’s actually hard to get vehicles right so a lot of this this.
Increase in sales is an increase in price points and inflation versus unit sold but I think it is a little bit of both.
[23:20] Yeah the other changes there’s a pull forward because what dealers have started doing is pre sailing Vehicles so it’s almost like an auction where they’ll say Jason I know you want this IMA Mustang and we got three coming in and August but if you want one of those I’m going to need you to,
pay me to there now I don’t know how that correlates to these numbers but we’re seeing this big pull forward of the consumer
dollars into the auto category because of this pre-sale thing where,
historically it was you would go test-drive negotiate and then buy the car and it was sitting on the lot the inventory model is kind of flipped right now which is interesting.
[23:59] Yeah yeah and I know not not related to sales velocity necessarily but another interesting thing is.
The amount of test drives per sale is way down like it used to be like three test drives per sale and now it might be less than one test drive per sale.
[24:17] Yeah it’s kind of it’s fun being in the auto category because some in some ways I feel like I’ve seen the movie before right so for example remember when Zappos came out and they disrupted the shoe category by saying free 365 returns,
well then everyone would just buy would say well sometimes I’m an 11 sometimes in 11 half and 10 half I’ll just order all three in return to.
So then everyone had to adapt that new model because consumers flocked to it
and the car industry carvanha has had a seven day return for a vehicle and that’s how they got around the test drive and everyone laughed at him and was like why would you do that that’s ridiculous and then the pandemic it and everyone had to kind of adopt that model so that’s that’s gotten rid of the test drive most dealers now have had to adapt
to that that more customer friendly model and effectively have like a seven day return window.
[25:06] Yeah and you know you’ve heard me say this before but I’ve been following the ottoman of
category relatively closely and the grocery category for two big reasons they’re they’re the two biggest pieces of consumer spending
but also before the Pandemic those were the two categories that were released digitally disrupted like a small percentage of cars were sold online a small percentage of groceries sold online and so those two categories were the most disrupted by digital they they got
the most digital fastest as a result of the pandemic so I’ve been super interesting because
per your point a lot of the learnings that we’ve had over the last 20 years in the apparel industry in the consumer electronics Industry and the home industry like are now
you know playing out in an accelerated basis in the automobile industry and in the grocery industry.
[25:57] Yeah 11 cool example and I know you know these guys so yeah I tell folks a lot about how Walmart budget and it was kind of like this this analog kind of old-school company building bringing deep digital DNA and we would see a lot of that not emotive category and sure enough
Discount Tire which is a brick-and-mortar tire shop family-owned what are they like 100 years old or something like that and
they just bought Tire Rec which is kind of the you know the online incumbent and they’re merging those two companies together so
it’s funny because everyone thinks I’m kind of a Nostradamus of this stuff because but it’s really just,
the exact same thing we saw happen in e-commerce with other categories as happening in the automotive category.
[26:42] Groundhog Day yeah sometimes when I’m impatient I really have to avoid telling clients so I know you need to figure this out for yourself but I know how it is.
[26:54] But so I mentioned the grocery category that’s the next category that I want to talk about briefly so now we’re on slide 14 of the deck,
and groceries the second biggest category of consumer spending it’s fourteen percent of all retail spending so it’s,
901 billion dollars in 2021 and and I mentioned grocery was up pretty significantly up 16 percent but but that you know that is a little less than the industry average
and I give folks that that same kind of three-year year-over-year graph if they want to see it
but then a bonus data breakdown I always like to do for the grocery industry is on slide 16 and this is a,
a line graph with two data points grocery store sales and restaurant sales,
and what’s interesting about that is for like a pretty significant period of time about a 10-year period.
Sales were split almost 50/50 between restaurants and grocery stores so all the the American calories were kind of divided 50/50 between
McDonald’s on Applebee’s and Walmart and Kroger and in the pandemic exactly what you would expect to happen
grocery sales shot up and restaurant sales you know took a nosedive.
[28:13] Over the course of the pandemic they’ve moved back closer and kind of come summer of 2021 they actually came back to where they used to be so they were kind of level again and we were like I wonder if that,
if if that Gap is over but then Omicron appears to have open that Gap backup
so at the moment there is still about a ten billion dollar a month discrepancy between spending on on groceries and spending on restaurant so
potentially bad news for the restaurants.
[28:48] Yeah well you wouldn’t know it at my restaurants or so they’re they’re they’re super busy.
[28:55] Could be you know we you know it’s interesting traveling around the country a little bit now it’s like living in 50 different.
Countries the way they’re covid policies are so you go to you go to Florida and Texas and everything’s just open and normal and then you go to the north east or the west coast and things are very much shut down,
and here in our kind of a kind of in the middle but we’re still struggling our restaurants part of it could be that they’re just closing all the time so we have several restaurants that just can’t
keep their doors open due to this kind of constant struggle between in
team members employees and supply chain so you’ll you’ll go and they’ll have to close early because they didn’t have anyone to work that shift and then you’ll go and they’ll be like we’re out of
you know it’ll be a salad place in they’ll be out of lettuce you’re like yeah guess may not have needed open but they’ll be in there with nothing to do so so it’s really.
The economy is having a really hard time it’s really kind of sputtering right now across those things which which could fall into restaurants and bars you know this,
looking into this year into 22.
There’s a lot of grocery stores are have bare shelves and I don’t I was going to actually because you’re the grocery guy I don’t know what’s broken in the supply chain there because obviously we don’t rely on China for you know,
a lot of that stuff so it’s not the that specific thing but that seems to have really become discombobulated as well.
[30:21] Yeah so yeah for sure there it turns out like there is for a,
a fair segment of the grocery products there is an international component right like so there are weird ingredients
that we do depend a lot on on Imports for right so you know even if the Mondelez cookies are made in the US the sugar for the Mondelez cookies is not and so it
it is possible for the shipping to to have an impact on Oreo availability it just it tends to be delayed because it’s
it’s more the ingredient than the finished goods that that is getting in.
[31:01] Catching you know maybe the package.
[31:03] The cpg guys even more so right so a lot of the chemicals that get used in cpg products and a lot of the the,
the packaging like blue ink for a while was one of the the the constraining factors and so you know,
Brands did have a hard decision to make do we like change the color of our packaging so we keep stay on the shelf or do we you know try to stay true to our brand and wait for morning.
Which are not decisions you imagine ever have having to make.
Um and then you know grocery is have its groceries a very fragile ecosystem margins are really thin and so.
More so than other categories of retail the wage inflation has a Major Impact in it it actually.
There’s a low-wage workers all the way along that supply chain and so you know a big thing that takes out.
Domestic food is you know there’s a round of covid at the meat processing plant.
And that that can you know be a big Regional hit I walked into a breakfast place last weekend and they were out of eggs,
and I’m like wait a minute I haven’t heard about an egg shortage or like are we having an egg shortage and the guys I know are our manager just screwed up the hole.
[32:27] Yeah but I was I was with you I guess yeah what it’s questionable why you open if you’re a breakfast,
restaurant and you don’t have any eggs or you should at least put a vegan sign up or something I don’t know.
So I always like to talk about a parallel because for a long time apparel is like one of the crown jewels of the retail category and people are super excited about that and you know there was an ERA when those were the best jobs so up,
Peril is much more it’s about five percent of retail sales it was 303 billion despite the fact that we all have been living in sweatpants for the last two years apparel sales were still up 13%,
that definitely was a mostly due to a 2022 2021 recovery 2020 was a really bad year for apparel and it started to come back so apparel is one of the few categories on Slide,
18 where I give you the three-year graph of the the category it’s one of the few categories where the 2020 sales were consistently below the 2019 sales and then 2021 they,
they came back up to the top and you know one interesting fact about a parallel that I give you a data breakdown on 19 is.
[33:41] Apparel has just been getting cheaper over time that in the 1990s apparel was seven percent of retail spending and now it’s about four and a half percent of retail spending and that’s a largely because
good clothes are just less expensive and and you know the same
closet that an American would have had in 1990 Hassel asks in 2022 and so if you’re growing in the apparel industry
you’re you’re growing in a shrinking Market which is you know always a challenge to do.
[34:15] The entire Farm it’s kind of shocking to see April 2020 you know touching effectively zero sales and monthly apparel that’s crazy that I feel for those guys that must have been a scary.
[34:28] For most of these graphs I change edit the scale to make the graph as high resolution as possible so the bottom of the graph isn’t zero but in a Peril it absolutely is.
[34:38] Yeah might as well be easier yeah.
[34:40] Um and so,
so that’s enough of the categories I know a lot of listeners on our show were particularly interested in e-commerce I wanted to talk about e-commerce for a minute I mentioned the official.
Breakdown of e-commerce you know we won’t get for December until the middle of February we do get a,
a kind of proxy for e-commerce which is called non store sales it is a it is a bigger bucket and it has more other stuff in it than just e-commerce but if I look at,
the 11 months of internet data and then the the one month of non store sales data.
It’s pretty clear that we’re going to come in around a trillion dollars in e-commerce sales so if the official numbers work out the way I think this will be the first year the e-commerce in the u.s. is over a trillion dollars.
Um that would represent 16 percent of retail sales so 16 doesn’t sound like a huge number,
but again it just depends on what your denominator is that 16 percent is you know overall of retail which includes,
cars which are getting more digital but still aren’t very digital it includes gas which is you know only digital in a couple neighborhoods in San Francisco,
um and so I you know you start pulling out some of those traditionally non-digital categories and you know.
[36:02] That one trillion dollars represents about you know between 20 and 25% of all the categories that that you know people are willing to buy online and so it’s become a very meaningful mix and obviously.
It was the fastest growing because of the pandemic but inside 21 I show you the the.
The three-year breakdown and the thing that’s unique about e-commerce versus some of these other categories.
[36:32] E-commerce head its monster growth in 2020.
So the two-year growth numbers are still amazing but the one year growth numbers from 2021 to 2020 are not so great because we’re comping against.
[36:46] A monster year and it’s been interesting because like Shopify stock is down because their comps aren’t very good right but really there you know.
They’re comping against these monster numbers.
You know lots of retailers are calling me right now and they’re in a panic because they’re not they didn’t hit their goals and their their you know numbers are wrong and I’m like.
I mean they’re you know their numbers are soft and I’m like well but let’s look at what really happened like you had unprecedented growth over the last two years and you’re you know you potentially are.
Thinking about it in the right way so on slide 22 I give you my,
entire story of the world going digital in one slide and it’s a little hard,
hard to follow but basically what I show you is I show you the brick-and-mortar sales every year or every quarter and then on top of that I show you the e-commerce sales so you can see the e-commerce growing you can see kind of,
as a portion of retail what it is and then I show you the rate of growth for for retail and e-commerce and until the pandemic we had a pretty consistent story,
e-commerce was growing at like between 15 and 20% a year and brick-and-mortar was growing at three to four percent a year and that was pretty reliable,
so then the pandemic happens and brick-and-mortar shrinks for a quarter and e-commerce explodes by you know over 40%.
[38:10] And since that time they’ve been coming back and so for the first time in my life time in Q2 of 2021.
Brick-and-mortar actually grew faster than e-commerce for the first time ever.
Largely because of the you know they’re comping against these these you know huge huge March of 2020
and you know I will see you when the data comes out next month but I have a feeling we’re regressing pretty quickly now back to the kind of the
the pre-pandemic rates of growth like we absorbed all this big e-commerce growth for two years and I can you know I kind of think we’re gonna see e-commerce level back down at that 10 to 15 percent growth every quarter and and Retail drop back down to the 45 percent growth of quarter.
[39:06] Well I think it’s you know
I think the silver lining for me is and I’m the e-commerce guy here is we had the Surge and then we actually did kind of even better than the surgeon you know you could have painted a story that said this will kind of flip – for your to as it kind of the subsides and then
then we get back to normal so so the rising tide kind of stuck and created a new high and then we have continued to grow from there
how does I know this this agitates you which is why I bring it up but you know this does not support you know that
Theory out there that we pulled forward like five years of e-commerce.
[39:43] Yeah no we we didn’t and most of the evidence now is that.
We’re we’re not even way ahead of where we would have been that like like we we got the sales early but that.
The future growth is.
Slightly slower as a result so that like five or 10 years from now you know will see this this blip on the graph but we’ll kind of you know end up at the same
same place we would have end up without the the pandemic is most people’s projections that’s less to true in some of these,
digitally immature categories like grocery or automobiles where we really did probably pull in you know kind of accelerate two to three years into the future.
And so I did on slide 23 I give you the our estimates of the 2021 e-commerce sales for a bunch of retailers because I’m often surprised people.
Don’t necessarily have.
[40:52] The the best perception about how the relative size of all these retailers so these estimates come from emarketer there there gmv us estimate for Amazon is on the high side of all the estimates I.
I look at but they have 20 21 gmv for Amazon and about three hundred seventy six billion.
Walmart’s the second largest e-commerce site by a lot at 60 billion so quite a bit smarter than Amazon.
Until recently eBay would have been the second biggest site and Walmart’s approaching twice as big as eBay now so they have shot past eBay.
To get to 60 billion eBay’s at 38 billion apple is at 37 billion and then like people people forget how big a player apple is alone I saw a funny stat that like.
If the air buds alone the air pods alone were a company like it would be the 10th largest company.
[41:50] Yeah that’s crazy.
[41:52] And so then you get like a Home Depot is almost 20 billion targets 8 almost 19 billion Best Buys on you know over 16 billion,
Costco who’s the bane of my existence Costco like pays the least attention to digital they you know always talk about how unimportant digital is and how they don’t like it,
and I tell everyone what a horrible mistake that is and then Costco continues to Excel and despite not trying they sell 14 billion dollars a year on line.
[42:24] So then you can see the rest of the the top 15 on that slide on slide 23 if you’re interested but it’s interesting to understand the.
The relative size of some of these companies.
And so then you know one of the things that people always ask about is what did holiday look like particularly so the next section of this deck is,
a double click on on holiday 2021 and so.
I’m defining holiday as November and December sales that somewhat controversial because there’s a lot of different ways to think about it.
If we just look at November and December sales this holiday period was the the largest retail holiday ever.
And it drew about 16.1%,
which is vastly faster growth than any other holiday like the next biggest holiday was 10% so so kind of the same story for the whole year we get in Holiday it was a monster holiday,
You know again that depends a little bit on how you Define retail in RF likes to pull gas out of their number so they’re there they would say holiday was 14 percent growth which is still.
A monster number.
So then I went back to our friends and place Rai and said hey what is foot traffic look like every week of holiday.
[43:49] And that to me was kind of interesting so.
You know December foot traffic was down overall I’ll remind you because of Omicron but if we kind of look at the the weekly data for Holiday foot traffic was actually up versus 2019.
Leading into the Thanksgiving weekend and so then the weekend that was way down was Thanksgiving weekend way less people went to stores on Black Friday,
then went to stores in 2019 about six percent less,
and then you know the rest of holiday was slightly above so if it weren’t for the decline in Black Friday traffic I would say foot traffic and Retail was up about 2%,
over 2019 but that Black Friday dip pulled the whole thing down to where we still aren’t back to 2019 levels does that kind of make sense.
[44:44] And so one of the things that is a common narrative about holiday and I’ve even contributed to this narrative is,
man retailers are really trying to pull sales in and holiday starting earlier in October and you know holidays flattening it’s less about these big,
spikes on on Black Friday and Cyber Monday and so now that we have real data I’m like oh well let’s see how,
how that really held up in the first thing to know is.
The early sales in October was kind of a myth like there was not an unusual spike in sales in October and so you know.
[45:20] There was not a huge success in pulling sales into October and so then what I did is I went to similarweb which similar web has a data set of e-commerce site visits and what I like about that is,
we can get much more accurate granular data than we can on like foot traffic or you know foot traffic or lucky to get weekly data but for e-commerce we can get
daily number of sessions or unique visitors or things like that so I said hey let’s take the hundred biggest e-commerce sites in the US and let’s see total visits and let’s compare,
2019 with 2021 and the first thing to remember is.
You know Thanksgiving doesn’t fall on the same day every year and so what I did is I normalize those I said let’s not do November 1st through December 31st,
let’s do the 25 days before Black Friday in the 32 days after Black Friday so that we could kind of.
Match up the the flow and what you’ll see is there was a lot more traffic on e-commerce sites every day of holiday in 2021 than 20 then 20,
except for two days Black Friday and Cyber Monday and Black Friday and Cyber Monday 2021 with still above.
2019 but they were nearly the same and so.
The I guess what this would say is this partially Bears out our hypothesis.
[46:48] E-commerce visits did level out like the traffic did get spread out to the whole 60 days more than ever before but those those two tent poles are still tent poles and they still are by far the busiest days,
so I you know I definitely you know think that the narrative that like those Temple days don’t matter anymore is kind of a misnomer and they you know they got nearly twice as many visits as a normal holiday day.
Did that surprise you at all.
[47:20] The surgeon the chart 21 is interesting at the end I think that’s my procrastinator people.
[47:28] So so yeah so.
[47:29] It’s where I shop.
[47:29] It’s God’s talking about is the gap between 2019 and 2020 is pretty consistent but then opens up the most ever has,
um the very end of the holiday and my hypothesis for that is again this is e-commerce it’s Omicron again so I.
There was pent-up demand to go to stores people were going the store store traffic was going up and then store traffic fell off a cliff
the last half of December as people started getting nervous and so I think that you know drove more people to e-commerce again as my least is my hypothesis.
[48:03] And so so that I think is a super interesting data set I definitely am grateful to have access to the similarweb stuff and wow I was diving into their data Isles
one of the cool things there’s we can see traffic on individual website so I said,
well let’s see who the winners and losers are in terms of traffic and the story here is.
The the traffic is disproportionately going to the the big high-performing sites so you know not surprisingly,
Amazon gets the most traffic but they also got the biggest chunk of traffic growth so sometimes you’d say hey the biggest most established players should be the hardest to grow.
Amazon Druids traffic faster than any other top 10 retailer which is pretty impressive,
and then the next biggest grower was Walmart so this is kind of the story of the rich getting richer and you know traffic and sales consolidating on the,
those those very big a sites which is kind of the story you see on slide 29 if you’re following along on the deck.
[49:12] The thing that fascinates me about this data is you have like Etsy with the fourth most traffic but then they’re like one of the smaller e-commerce sites right so does that,
yeah it does that mean no well that’s apples and oranges I guess that’s all of retail in the previous comparison.
[49:30] No that was at Seas.
These e-commerce sales are about little less than 8 billion in the u.s. versus like Walmart at 60 billion but then Ed C does have like like nearly as much traffic as Walmart right like.
I want to say they did 600 million,
visits over the holiday period versus Walmart did like 1.1 billion so,
so you know despite Walmart being 10 times as large they only had twice as much traffic and I think part of the reason for that is the the.
Kind of thin long tail nature of Ed c means that their overall conversion rate and the amount of you know pay visits you have to do to find what you want is.
Is higher than then it is on Walmart where you’re more likely to go to Walmart with with high purchase intent for a particular item and these days it’s pretty easy to find that item and get out.
Um and that kind of is born out Ebay is still the second large just traffic site even though they’re they’re shrinking and again eBay’s almost half the size of Walmart but eBay is traffic is still higher than Walmart’s.
[50:52] Yeah it’s a huge it’s kind of sad in one way but it’s a huge opportunity Bay could get their act together and convert that traffic the way Walmart is they.
[51:00] Yeah if I could redo our.
Our predictions episode so you know I talked about in a number of times on this that one of the big trends is retail media networks and you know people selling ads
what this data set uncovers more than anything else is the untapped opportunities Ed C needs to get a retail media Network up as soon as possible because I,
as far as I know they don’t have one.
So they should be monetizing that traffic because that that that that’s a valuable asset they’re not they’re not leaning into yet for all our Etsy listeners so then I will just say in this is you know the Chrome Legend in me,
during holiday we talk a lot about these
estimates from companies right so Adobe you know you know we have on the show and they give us their real time estimates based on on all the customers they see we have sales force on the show every year and they give us real time estimates
and then you know when we talk about that I don’t think we’ve had on the show is Mastercard has this product called spending pulse which is,
kind of an anonymous aggregated view of all the people that buy stuff with MasterCard and.
[52:08] Just just for interest Adobe MasterCard in Salesforce all agree,
um that the e-commerce grew about 10% in in Holiday 9 or 10% and holiday of 2021
and that passes the smell test again we don’t have the e-commerce data for for December yet so I don’t really know but that.
That feels like the right order magnitude so I think you know these guys all credibly predicted,
the shape of holiday e-commerce but the only one of these guys that predicts brick and mortar is Mastercard right Adobe and Salesforce are pure online retailers and
every year I always get weird data from MasterCard and I say this because the whole.
The whole world and especially the media like publish this MasterCard data far and wide and and treat it as fax MasterCard like on December 26th said that,
retail sales were going to be up 8.5% and that meant they were going to be up 10.7% versus 2019.
And so we now know from the US Department of Commerce data that that they were off by 50%.
So just call out to my friends at MasterCard that I’d be curious to understand what’s going on there from my.
[53:31] Your category thing.
[53:32] Yeah from my seat Well they argue it’s not but from my seat there consistently off on the brick-and-mortar number so I’m I’m curious and so then.
[53:42] Every time I have this conversation with a colleague or a client the especially someone that maybe doesn’t live and breathe e-commerce every day is soon as you start talking about this monster growth number,
what everyone asks is yeah Jason but how much of that is inflation right because the thing we hear about in the media the most.
Is is inflation inflation inflation and so you know it stands to reason if.
[54:09] You know if something grew by 10% and people are paying more you know ten percent more for everything then that explains it and this you know this is an inflation story not a growth in consumer demand story and so I like to put in.
Just a little kind of inflation picture at the end.
The so I give I give folks a graph of the government,
inflation numbers for for for these three years and and what you can see is that like for most of the pandemic inflation.
Kind of stayed in the normal range and then we started this,
this huge climb not until January of 2021 so if you remember like all a lot of this growth were talking about was 2020 growth,
inflation doesn’t explain that growth at all there is significant inflation in all of 2021 and it’s historically High
it’s you know depending on how you want to count it could be a 40-year high and so it finished in December.
[55:14] At seven percent and so if you figure normal inflation,
is a about 11 and a half percent inflation was already high before the pandemic at 2.3 percent.
You know if you say alright it should have been at 2.3 percent and it’s at seven percent then you could.
Say that the kind of back half of 2021 sales that you know.
That three or four percent of it can be explained by inflation but definitely not this 22% were talking about.
[55:48] And I don’t know if you been thinking about her talking about the inflation a lot it’s kind of.
It’s it’s kind of funny because I always like to remind people the long-term picture we’re all paying way less for goods than we ever did before so I kind of pull this.
This 20-year inflation number to remind people that like we’re paying fifty percent for a pair of what we paid 20 years ago we’re paying,
30% last for personal products and beauty products were paying 17 percent last four cars we’re paying 12% less for food all the tangible stuff we buy is getting cheaper because we’re getting better at making,
and where the American family’s budget is going is to Services right so you know the American families having to pay way less for hard goods and food and way more for housing education and Healthcare and that’s the big macro picture,
but then we’ve had like the we talked about a lot of the growth in retail coming from all this economic stimulus,
the the downside of that economic stimulus is.
[56:47] It actually is one of the contributing factors to inflation right like the people have more money to spend,
um they buy more the supply chain wasn’t prepared for that buy more and so we have,
supply chain disruption and so now you have Supply going down and demand going up and what do people do in a rational Market when they they have high demand and low Supply they they charge more,
um and so then you know people say hey everything I buy is more expensive I need to get paid more and we have this unprecedented leverage that workers have right now
because the labor shortage so they’re all negotiating better prices and guess what that means they can afford.
Pay more again and and manufacturers are you know having more costs of labor for making stuff so they’re charging more and what’s been super interesting and all this is,
you know it’s kind of an excuse for manufacturers to charge you more like most of these manufacturers that are raising their prices are also setting record profits so it’s not like.
True that like.
All of this information is manufacturers passing costs on to Consumers it’s a little bit of the the you know opportunity of the moment of you.
[58:01] Yep it’s complicated to the inflation a lot of its gas and then to your point a lot of it’s stuff that doesn’t have this inherent
deflationary element to it like healthcare and we’re paying more and more for healthcare education anything that has a service component is shooting way up.
But even even in the short term though like yeah everything at the grocery store is insane right now it’s crazy.
[58:27] Yeah and food and gas are historically more volatile so inflation goes up and down more like side note you have to take all these numbers with a grain of salt because the way they measure it is,
they measure the cost of a basket of goods that an average American bought but they built the basket of goods in like 1945.
And so it’s not the right past it’s for today there’s no iPhone in that basket.
[58:52] So yeah so it’s interesting fun it’s fun for me because I’ll actually be on Good Morning America this weekend talking about inflation.
Yeah always fun but yeah I.
I’m with you if you take what’s called core inflation where you pull gas and food out inflation’s like 4.5% so for most of these retail categories,
it’s part of the story but it definitely would be a mistake to Discount all this growth and say oh it’s just.
And that’s my scoop that’s your 36 slide deck that you’re all welcome to grab and use my thanks to all the the data providers that contributed to all of it so I have a,
a bibliography at the end so if you’re interested in starting to track any of this data on your own I tried to make that easy for you.
[59:41] Yeah when we do when we post the show will also try to get on our socials because I’ve had some people say they can’t find the show notes and so we’ll make sure that we disseminate this wide and so everyone has it.
[59:55] Well Scott not surprisingly we were able to perfectly fill up an hour with this one topic.
So hopefully you found value in this is Scott mentioned the top of the show if you did we sure would appreciate that five-star review,
but thanks everyone for kind of following Along on this like pretty dry difficult data dump episode I hope I hope it was useful please,
give us feedback if you liked it or if it was not the right format.
[1:00:23] People of data in retailgeek delivers and until next time.
[1:00:28] Happy commercing!
EP284 - 2022 Annual Predictions h
2021 Predictions Recap
Bonus – More store closures in 2021 than 2020. No
Jason Total Score: 3 of 5
Bonus: post-covid anti-consumerism/materialism wave No
Scot Total Score: 3 of 5
We have a tie, including the tie-breaker. Here are some relevent links:
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 284 of the Jason & Scot show was recorded on Thursday, January 6th, 2022.
[0:23] Welcome to the Jason and Scot show this is episode 284 being recorded on Thursday January sixth
2022 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 she listeners happy New Year Jason and listeners it’s 2022 here we are we made it.
[0:49] I know I feel like I’m already winning because the intern type 2021 in the show notes and when I read the intro I caught it in my head I feel like that I’m impressed with myself right now.
[1:00] Boom yep and there that was bad timing because there is a performance review coming up so that in turn is going to be in some pretty pretty thin ice here so we’ll see hopefully they make it through.
[1:13] Might be another year probation before he gets to start taking a salary.
[1:18] Yeah most important question are you watching the book of Boba Fett.
[1:24] I am I am we have to be careful not to do any spoilers but.
[1:29] Never spoilers never a million spoiler.
[1:31] Spoiler free pass.
[1:33] I believe he got eaten by that giant thing in the desert oh sorry those spoiler.
Yeah there are I will let I’m not going to reveal anything but there is sand in the new episodes.
[1:49] Yeah yeah he want he like Star Wars you get a lot of sand in some people hate sand but Boba doesn’t seem to mind.
[1:57] No I think he’s had to adjust but yeah really well done show been enjoying it felt like there was a end of the year there was kind of a little role in television programming in our household so it’s been exciting too
Taz some of these series come back.
[2:13] Let’s jump into it cuz this is sometimes one of our longest episode so we’re going to try to try to not go too crazy long.
[2:20] I feel like we just lost half our listenership right there.
[2:23] Like I don’t believe that this is gonna be a three-hour I am happy that Joe Rogan is starting to do these like three-hour heh,
episodes it makes me feel better about our one hour winds so this is every the first show of every year is been are many many year,
tradition to go through our past years predictions and then formulate our predictions for the upcoming year,
and that is this show it is the 2021 prediction review 2022 prediction Revelation show feel like we need a sound effect for that,
[3:00] I have a sound effect but I feel like I’m going to leave yours in.
[3:02] If you can beat that you know over override it there.
[3:10] So the way we do this is we do have to show is kind of doing our predictions and kind of self scoring ourselves in Jason’s it’s kind of,
banging your head against a book typically self-flagellation or whatever it’s called and then and then we are back after the show is hopefully we learn from these predictions we made and we,
cast them forward to see what’s going to happen this year so I feel like Jason we should I think you actually won last year if I remember.
[3:41] In a major upset I feel like I had been like over 45 the the previous app that seasons.
[3:48] Yeah yeah so you get the dubious honor of getting to rate your 2021 predictions first so why don’t you kick us off.
[3:54] Awesome yeah and spoiler alert we do not learn from the previous years.
[4:00] Well part of making predictions is you yeah yeah yeah you got to kind of put it out there and that’s risky.
[4:07] Sure so I’m always looking forward to this episode I’m super excited about it I get
you know jazzed weeks in advance and then I like dust off last year’s forecast and suddenly I’m a gloomy because I realize I’m not near as clever as I remembered myself
so that’ll just set the tone up front so my first prediction last year was that more
personalized made to order products would be taking off this year and my specific prediction was made to order a parallel with grow to be a nine figure 9 digit,
business in 2021 and so good news bad news that happened so,
if you add up the revenue from Indochina oh and suit supply,
proper cloth and not standard you actually get now about 250 million in Revenue which is,
considerably higher than nine figures.
[5:14] In hindsight it wasn’t that good of a prediction like we are pretty close to nine figures before last year.
And so it wasn’t as stretchy as I had hoped and I had in mind a lot of more.
Well we’re in consumer products pivoting the made to order and I specifically had been watching some some Amazon Pilots around made to order and they didn’t really grow this year at also,
technically I guess it was it happened but I don’t feel very good about my first one.
[5:46] Okay yeah well it’s a win just take the W dude.
[5:53] Okay all right yeah well I’ll try to be more more strict going forward or just make better predictions so my second one,
there’s been a lot of initiatives around retailers weaning in the healthcare and I propose that at least one retailer would,
launch their own health insurance or offer some alternative solution to health insurance,
and while there were a bunch of investments in health care and Amazon you know in particular has done a lot in the last year I don’t think that really happened so I’m giving that a no.
[6:29] Yeah and in fact that was like a huge loss because Amazon Unwound their big partnership that made it seem like they were going to do a lot more in this myth.
[6:37] Yeah that there is some Nuance there they they were part of a Consortium and they bailed on the Consortium but then they invested a lot more money and did several acquisitions,
and expanded the scope of their own internal initiatives and it almost look like the the internal stakeholders didn’t like partnering with Goldman Sachs and Berkshire Hathaway but nevertheless.
I’m I’m not taking that that win that that didn’t happen so.
[7:09] What attracted such a big L kind of swamps the W from the first one.
[7:14] Yeah cleaner it correctly so the next one was interesting I said that e-commerce would
grocery e-commerce penetration with grow above 10% and I said someone will deploy not just pilot these micro fulfillment centers for grocery in both of those things basically happen so
bricks me clicks which is one of the more credible sources out there for tracking grocery penetration has us at about fourteen percent penetration right now.
So we definitely passed that ten percent threshold obviously aided by,
the pandemic and the various waves and then several retailers leaned into mfcs a couple small retailers did deploy them,
across all of their stores so like a chibi for example is aggressively rolling out mfcs
Walmart I want to say spent like 14 billion dollars on on MFC so real money is,
is getting invested in there so I think generally I feel good about my my grocery production number three so so.
Two yeses and a know so far.
[8:29] Is this a bricks and clicks thing is that a can mere mortals get that or is that something you get.
[8:35] Well there’s a there’s a paid version which is well worth it if you follow the industry but they do publish their monthly forecasts for free on their website at bricks me cliques.com.
It’s pretty interesting so there you know we get.
Grocery sales data from the US Department of Commerce and e-commerce data but we don’t get grocery e-commerce so there’s the grocery e-commerce we only get from a couple of these third-party private.
Data providers and they all do it primarily based on.
Big panels of consumer surveys so that’s what bricks me clicks does but they they have some like pretty interesting data like you can look at what percentage of those grocery e-commerce orders were home delivery versus curbside pickup and stuff like that.
[9:26] Very cool there’s a how do they get their data.
[9:30] Panel so they’re there.
Yeah they’re serving a bunch of consumers yeah.
[9:38] All right I’m going to remember you you did that.
[9:42] You make you make use with what is available.
Um and directionally emarketer published some grocery data and they kind of roll together a bunch of people’s forecast there’s another company out there called mercado’s that publish them data and it also aligns,
directionally that there we are over 10%
where they disagree more is where we started before the pandemic so some of them have us starting at like two-and-a-half or three percent some of them have as high as six percent before.
Um over 10 now.
And if you’re super interested in the interest of prolonging the show frequent friend and guest of the show Professor Dan McCarthy they he and his students just published an interesting.
Cohort analysis of,
um how the pandemic impacted digital restaurant sales so closely related to digital grocery right and obviously a lot more people ordered restaurant food for delivery during the pandemic but his interesting question was,
[10:49] Was that you know a pandemic Spike and it’s going to go down back down to pre-pandemic levels or is it a permanent shift and what can we suss out and the way they did it is they looked at cohorts that.
They ordering from restaurants for home delivery before the pandemic and how their behavior change versus first time users and what they found is like most of the growth was.
Households that were already using restaurant delivery increase their usage and it appears to be more sticky the smaller cohort of people that ordered from restaurants for the first time during the pandemic,
that behavior did not stick and they’re not continuing to order but still the sales are up higher.
There’s a nice long digression for you that wasn’t one of my forecast.
[11:33] Always appreciate the commentary.
[11:36] Yeah I’m here for you man so forecast number four was.
I predicted that Amazon’s Shopify competitor would be revealed,
in this is a thing that we had heard about called project Santos but no one really knew what it was I said hey we’re going to find out what it is and I think it’s going to be a shipping solution to compete with,
to fulfill orders for Shopify and take take you know a piece of the Shopify gmv.
And it was in fact revealed so that’s the good news it was not a shipping solution so so project Santos turned out to be,
a point-of-sale system for brick-and-mortar retailers that Amazon is developing,
and has still not released but is purported to be small business POS system that’s going to compete with Shopify and square and some other folks in that space so,
I’m giving that a no.
[12:42] All right I agree on the phone.
[12:44] Cool cool.
Interesting news and Evolutions there to talk about on one of our subsequent new shows is there some interesting patterns that Shopify and others of,
have filed in that space so we get to my fifth prediction my fifth prediction was that retail media networks were going to take off in 2021 and that they would generate more than 20 billion dollars in ad revenues,
and put things in perspective like the year before we had only seen about 10 billion and AD Revenue so that was a meaningful prediction and that.
Totally happen so according to emarketer we did 24 billion,
in calendar year 2021 in ads that were invested in retail media Networks,
um Amazon is on a run rate right now to do about 30 billion dollars a year and everybody and their brother is launching a retail media Network so the Gap is launching a retail media Network which is.
Interesting most of these,
retail media networks are selling ads to what we would call endemic Advertiser so your Duracell batteries you sell batteries at Walmart you buy an ad from Walmart for Duracell batteries to help more people find them.
[13:57] Gap doesn’t sell other people’s stuff so there are no endemic advertisers on the Gap right and so super interesting that even they are trying to monetize their traffic.
You know you name it they watched a retail media Network this year and just today I want to say Best Buy which already had a retail media Network,
launched a new rebranded retail media Network and they’re now selling ads to non-endemic advertisers as well so so that when I feel like I hit pretty well.
[14:28] So you add that up and that is three corrects and and to to mrs. and folks careful listeners will note we also made a bonus prediction and the case that we tied,
My bonus prediction was that we would have even more store closures in 2021 than we did in 2020 and I was wildly wrong,
caveat here are the data everyone uses when they quote store closures is this core site data and core site is kind of anecdotal data and it’s totally tracking Big Chain,
retailers but based on their data there is like 41 percent fewer store closures in 2021 than 20/20 so so we’ll call that a huge mess,
um I would argue that all the store closures that happen this year were small independent retailers that got wiped out by these big chains,
and we really don’t have a good data source for for those but nevertheless I’ll accept that I lost the bonus round badly.
[15:28] Yeah in fact isn’t there a record number of stores opened.
[15:33] Yeah so a separate issue from the store closings is hey where there are more openings and there,
there there were so not a record number of openings but the but from that course I data set more store opens opened than closed last year which so we would have had a net increase in stores.
That that’s interesting I wouldn’t encourage retailers to pay too much attention to that because it really matters.
The nature of the closed and open stores I get almost rather follow,
net gains or losses in retail square footage because if you have a bunch of Macy’s stores closed and you have a bunch of Dollar General stores open your closing 100,000 square foot store and opening a 10,000 square foot store.
[16:22] Awesome and then you had all right so then if we include your bonus you’re even so three wins and three else.
[16:35] Exactly I like to think of it as three wins and two L’s and the bonus only comes up if you can tie me.
[16:41] Okay alright let’s see how I did so.
[16:46] Yeah I’m excited to hear this.
[16:48] Yeah so just to remind everyone this was done a year ago in January of 21 we were merely.
Nine months months depends on when you start depending I guess nine months into two covid.
[17:01] That’s a calendar year ago but it was actually four years of Lifetime ago.
[17:06] Yeah it feels like it for sure,
all right so my first thing I always like to kick off with an Amazon prediction so my Amazon prediction last year was that we would move to same day Prime by opening a huge wave of neighborhood DC’s.
And they would be near dsps and I got that one right that one,
don’t feels obvious like I don’t feel like I was making too much of a prediction but at the time I remember being worried about it because I think they they were still doing most of the dsps this is where time dilation happens during covid the four-year thing you mentioned.
They’ve just built up an incredible amount of.
They call him I called him neighborhood DC’s they call him delivery stations now I think is the official name where they have built you know just tons of these these interesting new.
Footprints where they house a bunch of these dsps Under One Roof and then they for deploy a lot of that days
things to be delivered into that out of a fulfillment center and then the the dsps just line up and deliver that stuff so it’s been really interesting to watch them build that,
so I would count that one as a win.
[18:18] Yeah no I totally agree I’m often surprised by how many people still have this outdated model of Amazon and they imagine the Amazon is primarily doing two day shipping.
[18:29] Yeah no it is they have really cranked it up especially I’m out I’m in North Carolina you’re in Chicago and you guys are probably getting stuff you know.
[18:38] Yeah we we are we were in early market for same-day delivery and we’re kind of an epicenter for a lot of of their delivery products and the vast majority of stuff I order,
um my I get two offers for wind to have it delivered between 4 and 8 a.m. or between 8 a.m. and 10 a.m. the next day.
So some stuff I get same day I would just tell you there were I was listening to an Amazon earnings call and someone asked them if they were were concerned about all these ultra-fast delivery services that were popping up all these VC funded,
you know 15 minutes to 1 hour delivery services that are mostly sent in one one-block radius in New York and the Amazon CFO was like.
You know those those Services deliver,
an assortment of 4,000 skews to a five-block radius we’re currently delivering about 400,000 skews Same Day to all of America we feel pretty good about our offering what’s the.
[19:42] Boom drops the mic walk.
Haha okay sticking to Logistics which is interesting because I was poking around and Logistics a year ago and I
you know in hindsight the perfect prediction would be there’s going to be a supply chain problem but I did not
I did not pick that one sadly instead I said you know Shopify,
so my logic here was kind of looking at the chessboard at that point in time we all know Amazon’s kind of,
turning the guns toward Shopify if your Shopify you know those guns are turning towards you so one of the things you do is try to get into the delivery world.
They have tried but they pretty publicly there was Toby was in,
was it Bloomberg he did kind of a cover story on one of the Business magazines and in there he basically admitted that you know hey were.
Pretty bad at this fulfillment stuff and I think they had a customer say that they’re embarrassing really bad and you know it almost seemed like there are not going to go deeper into fulfillment so I missed on that one but Asterix.
I think they should and I think it’s going to be a pretty big strategic.
Blind spot if you’re an arm the rebels in e-commerce you’re gonna need to help them get the products to consumers in that last mile that’s going to be where the battle is and I feel like it’s a bit of a soft underbelly for them right now.
[21:11] Yeah generally agree.
An interesting side note that the CEO of instacart just got named to the Shopify board and I inadvertently started a little bit of
LinkedIn debate about like
how soon it would be before that was a potential conflict of interest and a lot of people chimed in that they thought instacart was a potential acquisition Target of Shopify which might be one way for them to to get into the the Fulfillment business.
[21:48] Yeah but even that’s a conflict of interest rent mean proofs proves your point not you know.
[21:53] Yeah I mean clearly I’m right but that’s a separate issue.
[22:07] You don’t think this will ever happen and everyone else in the world thinks it will so you know,
this one’s tricky I could make some argument that they are doing more on this and then that same article they do start to talk about it being more of a central by it I’m talking about the shop app that they have,
um doing more around that centralizing your your Shopify,
you know whole experience in aggregate including some search functionality they have added some search haven’t looked at lately but I’ve seen to Twitter traffic that they have added some stuff there,
but I’ll all I’ll take the L on this one I but I still think.
That it’s going to be something they do more of down the road probably in a different flavor than a traditional Marketplace but I think it’s an area that they have to explore it is more in their wheelhouse than the Fulfillment sign.
[23:02] For sure I certainly agree with that and I would encourage you to double down on that prediction for Fort Wayne tonight but I will say like two things I was clearly wrong on the shop a.
[23:17] Like is getting much broader adoption than I would have expected because I would argue it’s mostly a shipping tracking app.
It has some like Merchants search capabilities it doesn’t really have product search capabilities at least in general release but it’s.
At various times it’s been the most downloaded retail app and it’s bouncing around in the top four so a lot of people are getting that app and so per your point,
you know they have a bunch of merchants they have a bunch of users with this app which is really hard to do this app has some Marketplace of like features and then you know I don’t know you I’m sure you saw but bradstone,
got to go visit Shopify and do an interview with Toby and he in his article he kind of painted a picture that that.
Internal stakeholders at Shopify were wildly divided and didn’t agree about.
If Shopify should do a Marketplace and what it would look like and so that that makes me think.
They’re you know having the same debate we are and Toby himself weighed in that he’s like.
You’re not going to see us compete with our Merchants so if they do a Marketplace as probably going to have to look.
You know considerably different than the kind of marketplace I think some people are thinking about but but it’s an interesting space.
yeah and then so we’ll see if this comes up again in predictions and then I the super risky thing I did last year was made a covid prediction I’ve learned my lesson there
remember to week two weeks and we’re done anyway we my prediction was we will be shocked how much quote-unquote zero friction addiction sticks I’ve seen 30 to 40% repeated a lot and I think it’s going to be much much higher
and then so I think there is some good data that points to that we haven’t seen a decrease in the growth of you know online
even as we’ve gotten into a post covid World we’re kind of getting back into one with with
all the Quran right now but and to your point there’s a lot of interesting data like like Dan and his group did that show that it’s been pretty sticky.
[25:37] Yeah no I think that’s totally fair a lot of people are in correctly predicting that that it’s going to revert but yeah I think I think all the tangible evidence points to it being sticky.
[25:52] Okay and then my fifth prediction was given all the heat around these specs and IPOs that we would have
20:21 would be a banner year for digitally native vertical Brands either going pilot getting Acquired and doing IPOs,
I want to made this one I felt like it was going to be much more around these facts but then the specs pivoted and started doing these really weird esoteric things that end up,
not doing very well but where I kind of snuck the win out on this one is we did have three companies that we’ve tracked in our kind of the
oh geez of digital native vertical Brands go public so we had War be Rent the Runway and I’ll Birds now they haven’t done great since they went public but they did get out and they had you know the kind of met their pricing and went public and are still out there
and so so there you go so that was a yes.
[26:51] Yeah yeah I will certainly give that one too.
[26:54] All right so at this point I am let’s see three yeses and to nose.
[27:02] So we’re tied so the bonus comes up what was your bonus.
bonus was that there will be I was much more optimal another covid so I got lucky on the first one I felt like we’re going
we’re going to in 21 we would be post covid and
people would kind of stop buying stuff just generally and really focus on going out and doing things and seeing the world over the holiday I went down to Orlando for three or four days and it felt like,
there’s definitely a segment of the population that that’s out there doing that they all seem to be in Florida right now and maybe some in Texas
but I think if you look at the data there’s nothing to really support
that in fact the we’ve talked on this show about the e-commerce data and Retail data and it all seems quite robust so we have not hit a.n.t. consumer materialism wave that that I predicted.
[28:03] Cough so it turns out that I think we’re effectively tied is that I’m doing the math right on.
[28:09] I think you are and and I think all our listeners will agree that a tie is basically a huge win for me.
[28:15] Given our past history yes it’s the first time we’ve had a feels like soccer or that we’re in England where that is a possible outcome.
[28:23] Exactly I think I think my high school soccer team just just tied your your Premier League team.
[28:31] Yep cool so yeah that but you know it fun to do these things because
I would say in a volatile world like we aren’t getting half of these things right I think you would agree with me that we’re pretty awesome you know we there’s other people out there that make predictions and they throw so much junk against the wall they get like
five percent right but and they do big Victory lap so I think if you look at our records pretty good pretty solid.
[29:01] Yeah no I agree and I don’t think we sandbag very much either I mean sometimes in hindsight they feel like sandbags but I feel like we stretch ourselves so,
so I will definitely take them.
So how are you going to like pay off that that self-congratulatory pat on the back Scott you’re gonna have to come up with some Whoppers for this year.
[29:32] I don’t I don’t what do you want to do I’m sure we lost all our listeners except for my mom so whichever she prefers.
[29:39] I’ll go first so so my predictions this year,
so my Amazon prediction number one and this is for 2022 is I predict Jeff Bezos is going to have a midlife crisis and run around
it was in Miami with hot chicks and other exotic locations and take a lot of selfies for Instagram.
[30:05] If you had said in dubious fashion choices than I might give it to you.
Scot I’m not sure but I think as of January 6 that’s already happened.
[30:16] Yeah yeah yeah okay you got me that ones are what they call retcon and in the world where it has already happened alright or series prediction is
I’m gonna I’m gonna double down kind of on your prediction I’m going to steal your prediction from last year and say
I guess this isn’t exactly what you predicted but I do feel like,
Amazon is very serious about Shopify in that same article I was talking about where,
Toby was there a next Amazon you know an anonymous sex annum Amazon Source you have to take that with a grain of salt said these guys crushed us they came out of nowhere and destroyed us and where we were blindsided,
[31:03] Pretty pretty Amplified but I do think they have their guns trained on them so I’m going to say we’re going to see Amazon come out with a serious competitor this year,
and I think it’s gonna you know,
I imagine it could even be like a web store offering even though they started this and got rid of it I think they’re going to get pretty serious about it and now I could see them come out with a,
you probably won’t have a lot of Headway in the first year but they’re gonna I think they’re gonna go right out these guys the thing that’s hard to predict,
there’s some interesting things they could do it with AWS and headless so I’m going to kind of give myself a little space there that it could be headless versus kind of a more monolithic type SAS kind of an offering but yeah,
so I think they’re going to get pretty serious about.
[31:54] Okay yeah yeah I could I like that I can’t I see that and you could imagine bundling like AWS Commerce platform with a bunch of the traditional merchant services from Amazon like fulfillment and payment and stuff like that.
[32:08] Another Amazon one is
and you kind of foreshadow this when you’re talking about the Amazon thing there’s there’s hundreds of millions of dollars if not billions going into these do have a name for them fast.
[32:23] Yeah well ultra-fast delivery is the.
[32:25] Ultra-fast slurry okay these companies so there’s like go puff and there’s one that has like an animal name like.
Gorilla yeah Joker yep
yeah I’ve been I don’t know how DC is letting them do that one but anyway you know so these guys have raised billions of dollars and it’s a hot Market but I think Amazon is kind of going to train their guns on that and I think they’re going to put a real hurting on them,
I think we’ll see I’ll be pretty risky here and say one of them will close their doors one of those so I’ll put it here in the notes so to keep me honest so,
go puff gorilla and or Joker one of those three big ones probably doesn’t make it out of 22.
so that’s 1/2 so this is my third one I realize I’m actually short protection will have to do one on the flyer the Bezos wanted kind of counted in my head but that was early prediction you know the at the end of
21 we had Facebook changes name to metaverse and since they did that you can’t throw a rock without reading a thousand articles about the maneuvers.
In fact today on Twitter there was a big Walmart video you know kind of showing an metaverse shopping experience mock-up kind of thing that was kind of fun,
the I think there’s going to be I think there should be a lot of hype and 22 I’m actually kinda already burned out on it and a lot of you know what does metaverse shopping look like and there’s going to be lots of excitement and smoke but no fire and no Ray.
So I think it’s going to be the flash in the pan when we look back on 22 so I think it’s going to not a lot of activity there I think it’ll be like,
you know chat Commerce and social commerce and a lot of these things that had a lot of buzz in their era AI Commerce machine learning Commerce all these things that had huge amount of Buzz and then turned out to not really have substance.
[34:37] Okay and then the inverse of that is I think one of the things that there’s been a lot of talk about that
is going to have substance is live streaming of kind of video live video e-commerce integration so I think that one is going to be more mainstream there’s there’s a little.
Amazon has tried this and failed it’s big and Ali Baba I’m I’ll qualify this and say in the u.s. too so I’m not trying to be sneaky here and you know,
there’s not a lot of I’ve seen some startups trying to get traction here but they’re in like supermicro verticals but
that’s how I things get adopted is you kind of build some habits in these small behaviors and then they can go mainstream so I think we’ll look back on 22 when we do our
20:23 show and we will see live streaming has gone mainstream so that is one and then let’s see,
I may have to come back with another.
[35:35] Yeah I’ll let you you can make fun of mine and then you I’ll let you cherry pick after hearing my.
[35:41] Okay any reaction to my my for so far.
[35:44] No I so a I should have come to rehearsal because I feel like we’re gonna get off the right off the bat with some potential overlap but.
[36:00] I think we’re going to see some way Amazon very seriously competes with Shopify I think it’s not going to be the way most most people expect that your your description seems totally plausible is we’re about to see I have a,
an opinion on some of these ultra-fast delivery services and The Meta versed both of which you touched
and then I got to be honest I am nervous about live streaming like I could I definitely am not bearish I could see it going either way
a ton of Commerce happens via live stream in China and we’re starting to get a lot of Commerce.
Video content get consumed in the u.s. what’s not working very well at the moment is the buy now button at the end of those videos and so you kind of have,
indirect livestream commerce’s is already starting to happen in pretty high volume here in the US and a bunch of people are investing in in.
Trying to take it that that last click.
And I have reasonable confidence that it could work so at the very least I know a lot of retailers and a lot of my clients are going to be trying it pretty pretty heavily this year so we shall see.
[37:15] I came up with my fifth.
[37:17] I knew if I just rambled that I would give you enough room for one.
[37:20] Yeah this one is a risky one but you know our friend Faisal started Fabric and I’m going to predict that that company has so much Buzz they’re going to get acquired in
this year so that was risky because they’re super early stage where is it it’ll it’ll it’ll have to be a big number to take them off the table at this point but I think someone’s going to going to,
pay that number.
[37:45] Yeah to fun ways that could go I feel like he’s pretty – on Shopify so it would be awesome Shopify acquired them but you could also Imagine AWS acquiring them and and making two of your predictions come true.
[37:59] Yeah or or adobe or you know IBM IBM’s kind of on the sidelines lately they’ve got a whole.
[38:07] Yeah yeah they kind of got out of the those software platforms I would be I mean but not to say they couldn’t pivot and come back in for sure.
[38:14] Yeah yeah and then let’s see I said Adobe I’ve and Salesforce.
[38:20] Interesting okay well I’m going to jump into mine and again we did not dedupe these I bundled several of yours and made them more negative,
so my first prediction is what’s not gonna happen and I lumped in a bunch of very trendy things that people are super hyped about and
I said I don’t think any of these are going to be economically meaningful in 2022 so it’s in ft’s which I know,
are near to your heart than mine I I do believe there’s some Niche use cases where in Ft is totally makes sense and I know you play in some of those,
those Niche cases but there are so many people that just think crypto in general and nft is in particular are going to be,
a huge part of Commerce I don’t think they’re going to be very economically meaningful and in 2022 even more so I don’t think web 3 is going to have any impact I’m starting to get a lot of questions about,
how Bigcommerce is going to change because of web three in my answer is it’s not,
I think the metaverse is going to fail pretty miserably as a Commerce,
play and I’m also going to say all of these Venture funded ultra-fast delivery startups are going to fail so that’s not to say that.
instacart or even go puff couldn’t win but like all these these Sand Hill Road back startups that are delivering in Manhattan I don’t think any of them are gonna change consumer Behavior enough to really matter economically in,
so that’s my Chrome Legend hey all the cool things that talking has like to talk about aren’t very important one.
[40:02] Well I don’t think that overlaps too much no no I I disagree but we’ll see.
[40:09] Knox awesome those are the.
[40:11] What’s your specific prediction like there will be less in ft’s and 2022 and is in of T volume.
[40:19] Yeah yeah.
[40:20] Let’s put that one down oh that’s that’s the prediction last in a $50 transacted.
[40:26] Well so like I don’t so full disclosure I can throw out a number but like I don’t know of a credible source for tracking in Ft Revenue dollars.
[40:40] Yeah there’s some there’s gmv trackers so open sea and is the biggest Market Place than there’s like three or four others.
[40:46] Okay I was mostly thinking like the there’s there’s not going to be meaningful revenue from the US Department of Commerce retail sales data that’s enough.
[40:57] Wow that’s there it’s going to take them 50 years before they can spell it.
[41:02] Well I know they’re not going to report it that’s what I’m saying but I’m just saying like there’s an Amazon Walmart the the top 10 eCommerce sites in the US are not going to have any meaningful revenue from in FTS.
Yeah but nobody’s going to do anything with webbed three in Commerce and nobody’s going to buy anything with a virtual reality headset.
Or from gorillas outside of one block.
I’ll try to get less – now a company that we’ve talked about on the show a couple times that people don’t talk about enough and I’m kind of using them as a surrogate for a whole new trend but is the the.
Ultra fast fashion brand Chien which is a apparel brand the.
The they’re estimated to have sold about 10 to 15 billion dollars worth of Apparel in 2021 and I think they’re going to exceed 30 billion dollars in apparel sales and 2022 which is going to make them.
A top 3 apparel retailer in the US.
[42:24] And I said they’re kind of a surrogate for a trend this is democratized merchandising so this is,
instead of Mickey Drexler deciding what the cool kids should wear in high school instead of easy deciding what the cool kids should wear in high school this is,
algorithms watching what the cool kids post that they are wearing in high school on tick-tock,
and then making it in two weeks and selling it to all the kids that want to be cool,
and so it’s kind of the perfect manifestation of what Amazon called hands off the wheel where they stopped having Merchants pick products and instead kind of use data to,
to drive their catalog and I think she is gonna continue to have great success there and it’s,
it’s disrupting the fashion industry more than a lot of people in the fashion industry realize but I think,
it’s going to become extremely evident in 2022 that it’s disrupting the apparel business.
[43:23] And then are you are you putting a specific number on it and if so how much is that over last year.
[43:27] Sorry I thought I said it yeah so I think they’re going to sell more than 30 billion dollars of Apparel in 2022.
[43:34] What they do in 21.
[43:36] The estimates they’re not public but the estimates are between 10 and 15 billion so more than double.
[43:42] Okay all right.
[43:44] Again not trying to sandbag.
So third one and I guess I’m going back to my my negative Nelly so one of the hottest trends of 2021 and the prediction I have seen the most people do and I fully expected you to do so I’m,
totally bombed is that buy now pay later services are going to continue to explode,
and in 2021 by some estimates they grew 30% in their you know wildly adopted,
it’s the fastest-growing payment type in in e-commerce in 2021 you’re starting to see it expand from just e-commerce to in-store purchases as well,
and it’s moving down Market to you know from from
expensive High consideration items to a lot of lower cost more impulse items so by all accounts the future of payments and credit is buy now pay later in my prediction is
that it slows down and 2222 I’m not saying it’s necessarily going to flop,
but I think you’re going to see only about 15 percent growth over 20.
[44:52] One versus the 30% that they had this year so I think the rate of growth Cuts in half and I think there’s a couple reasons behind that,
I think the bill is going to come due for a lot of these products and a lot of these consumers are not going to be able to pay for the products they purchase,
and I think you’re going to start to see a ton of writedowns and the financial reality of renting money to subprime lenders without like significant collateral is going to kind of start to,
catch up with some of these companies I think the Credit Agencies are going to start to lean into this more and that’s going to take away one of the competitive advantages that they had and I think we might even see some some regulation because like there’s some,
some very financially responsible companies in the buy now pay later ecosystem but there’s also some,
some kind of rebranded payday loan players in that space and so I think there’s just going to be a lot of erosion of trust and and some- stories that will slow down the rate of growth.
[45:59] Gaap negative or positive on the next.
[46:04] Yeah we’re going positive again I’m yeah I’m alternating I’m and I’m going to throw an Amazon one to you I think Amazon opens more than 100 grocery stores in 2022.
Not whole food so Amazon Fresh doors,
um and that you know again that that would be about three times as many stores as they have ever opened Amazon book stores or five star store so.
It’s not the thousands of stores that some people have talked about but it’s also a much faster pace of brick-and-mortar growth than we’ve ever seen from Amazon.
[46:41] Yeah that I will be excited to see this one.
[46:46] And you know most of them will be in Chicago so that’ll be fun for me.
[46:50] Of the 500 stores they’ll be like 75.
[46:54] Yeah exactly I’ll be surrounded,
yeah so I think that’s a super interesting space I’ve talked about it a bunch it was you know the growth of digital commerce was one of my grocery commerce was one of my big ones and I think it’s just the big category of consumer spending that Amazon.
Doesn’t play meaningfully and Whole Foods is very Niche and I just think it’s a moonshot imperative for Amazon to win Grocery and I don’t think you can win digital grocery without having brick-and-mortar grocery as well.
[47:29] So that I think gives me 4 so my last one,
is I think there’s going to be a lot of interesting Activity one of the categories of e-commerce I’m most interested in watching in 2022 is Last Mile,
there’s going to be a lot all kinds of different Evolutions but the specific prediction I’ll make is one of these new,
um I’ll call them FedEx UPS competitors is going to sort of get get acquired or have some meaningful liquidation event and so so there’s a couple of startups that are kind of,
Next Generation parcel delivery services like vejo index delivery ship IAM is a bunch of X Amazon guys and I’m going to say that,
instacart original business model could even slow down and instacart could get acquired,
primarily to be a last mile delivery service by someone so so one of those companies gets acquired,
as part of the buzz around owning your own Last Mile in 2022.
[48:38] Yep and does that include so there’s all these like ship Bob Shapiro those kind of guys your that’s not.
[48:45] I think there’s going to be a lot of I think they’re an interesting space to in most cases they’re not actually delivering products they’re they’re facilitating delivery of products or tracking delivery of products and so I tried to keep this pure to the,
guys that have access to trucks and are driving products to people’s houses but.
Yeah so no I’m not I won’t call it a win if it’s if those are the only ones that get acquired.
[49:13] And then any other bonus prediction so I kind of had to stretch to get my 5 but anything else you want.
so yeah you know I do all my best thinking on dog walks and so I you know I might thinking about all these cool predictions and I came home with like 40 of them and so I struggled to narrow it down to these five
and so then kind of the next class of predictions that just sounded.
Too easy in a way but you know last year digital Commerce kind of slowed down a little bit compared to Brick and Mortar Commerce it was a huge year in brick-and-mortar growth.
Because e-commerce had grown so fast the year before so I think that that.
That Paradox gets inverted again this year so I think we see way faster e-commerce growth than we do brick-and-mortar growth,
I think curbside which was a big thing in 2020 and 2021 becomes even bigger thing in 2022,
I think you’re gonna see a ton of stores redesign their parking lot I noticed H-E-B just opened a new store and as 26 Bays,
for curbside pickup so I think those those are the big things in the you know the big macro story that we’ll see in 2022.
I recognize that less controversial than my official five predictions.
[50:34] Yeah okay cool I think that’s a good set of 10 predictions there any anything else you want to just let people marinate on that for little bit.
[50:42] No I if folks strongly agree or disagree I’d love to hear about it on social media and if you have different predictions,
throw them our way on Twitter Facebook and we’ll be happy to debate them on our next show.
[50:59] Yeah yeah maybe we could introduce some listener predictions as part of this going forward that would be kind of fun it also reminds me we need to we haven’t done a deep dive in a while and maybe you know we touched on in ft’s web 3 meta those are
pretty good topics for deep Dives maybe even buy now pay later so usually we hit a new slow down in the e-commerce world,
kind of in that March April May time frame after we get the q1 results so maybe we’ll throw some deep Dives in there so that,
if those topics are interesting we’re happy to kind of go deep on those I guess looking back the live streaming when I don’t think we’ve done a deep dive on that either so those are all areas where between the two of us we have a pretty good bit of domain knowledge that we could
make sure that is out there and available if you want to go deeper on one of those topics so let us know think about your preferences on 20-22 content around that type of a topic as well.
[51:56] Yeah I will look forward to all of that.
And of course if you did find this show fun at all or you learned anything the best way you could reward us as jump on iTunes and leave us that 2022 five-star review all those reviews you wrote in 2021 don’t count anymore
so you need to get back on iTunes and leave us up fresh review and feel free to make fun of Scott in the review that’s always appreciated.
[52:22] Or Jason’s title.
[52:24] One of my many titles.
[52:25] All right thanks everybody.
[52:29] And until next time happy commercing.