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

Join hosts Jason “Retailgeek” Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Founder and Executive Chairman of Channel Advisor, as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
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Now displaying: August, 2022
Aug 20, 2022

Episode 295 is a breakdown of Walmart and Target Q2 earnings, as well as the US Department of Commerce retail sales data for July.

Episode 295 of the Jason & Scot show was recorded on Thursday August 18, 2022.

Transcript

Jason:
[0:23] Welcome to the Jason and Scot show,
this is episode 295 being recorded on Thursday August 18th 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot:
[0:38] Hey Jason and welcome back Jason Scott showed listeners Jason how you doing how you been traveling a lot lately.

Jason:
[0:46] I have I have it's been interesting to spend so much time at the airport's they've been quite busy lately.

Scot:
[0:54] Yeah yep the there's cancellations it's total chaos at airports so hopefully now that we're in back-to-school season that'll slow down a little bit.

Jason:
[1:03] Knock on Woods October is a busy Commerce trade show month so I'll be on the road almost of October hopefully visiting some listeners but hopefully yeah travels a little smoother hopefully I can get some better seats on the airplane I'm a little bitter at the.

Scot:
[1:19] Yeah you have like 20 million miles and they're putting your life back in steerage.

Jason:
[1:24] That's a slightly milder version of that is true.

Scot:
[1:29] Cool and then I guess the big question is we've got two new series kicking off are you going to do Game of Thrones or Lord of the Rings or both.

Jason:
[1:39] I'm super excited about both I'm actually some people know I had knee surgery earlier in the year I'm actually contemplating getting the surgery on my other knee so I have an excuse just stay at home for a while a month and watch them both.

Scot:
[1:55] Yeah and then let's see the well ready to jump into some news.

Jason:
[2:02] I'm super excited to.

Scot:
[2:03] Cool well it wouldn't be a Jason Scott show without.

Jason:
[2:08] Amazon news new your margin is there opportunity.

Scot:
[2:21] Yes there is some Amazon news I wanted to just chat about with youth the 16th of August Amazon surprised both
Wall Street and a bit and third-party sellers a lot with their first-ever peak season surge pricing for fulfillment by Amazon are commonly known as FBA
so the way this is going to work is they've put out the dates October 15th through January 14th of 23
third-party sellers that you use fbar going to have a new fee and I hope you're sitting down it is 35 cents per item.

[2:57] Now you may be saying to yourself Scott that's pretty small is that going to really move the needle and one of our friends of the show Colin Sebastian he actually did the math on this.
So it turns out that last holiday if you look at the third party sell units sold during that period you had two point seven two two point eight billion you have a midpoint of 2.75 billion.
He took that approximated in 34 so that went through yeah if ba you multiply that out and you get about 700 million dollars just drops right out of that 35 cents.
So that is the power of an Amazon scale is a seemingly tiny little.
Surcharge can be a big number so it's going to be interesting and you know that will be pure profit because the Amazon is not doing anything differently really.
And then in the press release they basically said our expenses are reaching New Heights and it's making it harder for the company to absorb cost and they have to pass some of those on.
But we still love our third-party sellers did you would you think about this video.

Jason:
[4:01] Yeah well I'm guessing third-party Sellers and investors didn't react exactly the same to that news.

Scot:
[4:07] Yes investors were happy third-party sellers it's kind of one of those things it's kind of tricky because you can't complain too much because it feels like 35 cents but you know if you're a seller selling couple of thousand items a day through F be a it's going to be material and I think,
at the end of the day all this gets passed on to the consumers and that causes inflation which we're going to talk about a good bit on Today Show.

Jason:
[4:30] Yeah it's a,
it's interesting it's kind of a mixed bag because well I feel like it is true that Amazon hasn't charged a true surge charge before the
you know they change their terms and conditions all the time and that you know they'll like they'll narrow the window under which you can keep stuff in,
in the warehouse before you start getting extra fees they'll make you take more stuff back they'll take less stuff and those all kind of.
Have the effect of making F be a more expensive for some sellers.
Well the 35 cents probably isn't a deal-breaker it is a good reminder to all these third-party sellers that your your kind of a digital sharecropper in the Amazon Echo System and what
you know the two things that I think are most interesting are this kicks in in October,
strong rumors that Amazon's going to try a second prime day in October so this could be insult to injury.
They could be asking third-party sellers to like,
load up the inventory and get ready for a second prime day and be charging them more so this actually could end up being even a little bigger than,
was forecasted than Colin forecasted have.

[5:44] Prime day ends up being a meaningful thing and then if you also remember earlier in the year Amazon launched check out with prime which was kind of a.
First move to making fulfillment by Amazon available to non Amazon sellers or at least sellers off of the Amazon platform and so it's kind of interesting.
You know shortly after they they're trying to make F be a more available there they're making it more expensive.

Scot:
[6:14] Yeah yeah the they've struggled with that because every time they've opened it up to people not selling on Amazon they have a surge of some kind and they have to kind of like pair that program back it's happened like four or five times it's crazy.

Jason:
[6:28] And the flip side is of course the other carriers you'd be shipping through the other common carriers the holiday search these are quite common so this is not not going to feel like a typical or out of line when you compare it to UPS or FedEx.

Scot:
[6:43] Yin haven't most of them put on a fuel surcharge already like an even though fuel is going down there.

Jason:
[6:47] There are there are surcharges on top of surcharges and you know some people feel like they haven't turned off the surge charges for two years.

Scot:
[6:55] Yeah yeah so it's hard out there in e-commerce land from a cost perspective that's for sure was there any Amazon news you found interesting.

Jason:
[7:03] Yeah yeah I would actually bundle two pieces of news and column two sides of the coin,
the interesting Amazon test was revealed this company that monitors the Amazon App found a new feature,
it appears like it's only been deployed to Amazon employees at this point,
but it's basically a picture and video stream in the app so this is like the way that this is described as sort of like a tick tock like feature.
Inside of the Amazon app which is interesting.
Obviously in China a lot of people shop in the Chinese version of Tik-Tok which is called do Hyun.
A lot of people get interested in buying products through tick-tocking us they haven't necessarily like.
Checked out on Tick Tock in huge quantities yet but it's super interesting the Amazons kind of approach to social commerce,
is get content creators and influencers and sellers.
To create social content on Amazon's platform so I'm twitch on Amazon live and now this new Tick-Tock feature it's like Amazon's not partnering with Tick-Tock Amazon's trying to be tick-tock.

[8:20] And I said two sides of the same coin because I mentioned in earlier tests Amazon did was Amazon live where they tried to take really popular,
content creators that are calmer sea and entice them to create content on the Amazon platform and they're they're paying anywhere from like two to nine thousand dollars a month plus the.
The affiliate commissions to get people to produce content on Amazon live and it didn't seem like content creators were super happy with those results,
they weren't making a lot of money they were there was a lot of churn and now a bunch of this content creators that have moved off the platform are now organizing a boycott of Amazon,
because they feel like Amazon's not treating their employees the way they would like so it just
reminds everyone that like man there's this really interesting opportunity and you know side of the business around social commerce and kind of you know letting influencers and content creators
into your Echo System but then the flip side is they don't always behave in the ways you you like and even more so when they're they're not on the payroll.

Scot:
[9:30] Yeah yeah the influencers live by the influencer die by the influencer The Tick-Tock things interesting I don't know,
I think it is reading a lot into it to call it Tick Tock but you know they're definitely trying to figure out live streaming
one thing we haven't talked about on the show in my world of Collectibles this Marketplace is really splashed onto the scene called whatnot and it's a whole live stream for Collectibles and you know the
I think they've raised money around a three to four billion dollar valuation which would imply there gmv is pretty substantial I haven't seen any reports
but it's pretty pretty interesting it's kind of an entertainment livestream like we see out of China but applied to Collectibles and I feel like that's a pretty good category for for this format because you can do these
Pack openings and all these kinds of things and I've experimented with it and it's pretty neat you can,
the streamers that can run auctions right in there and they can have kind of a three formats going at once they can kind of have a claim show
an auction and then like a little e-commerce slider store over on the side it's a pretty interesting platform that if you're interested in Collectibles go check it out
get started with collectible toys like these little Funko pops and then it's moved into it's got a vibrant
sports card non-sports card and then and I've seen a lot of activity around the comics category so that's kind of an interesting new approach ahead and seen out there.

Jason:
[10:59] Yeah you know the whole live streaming thing is super interesting and complicated the quick Reader's Digest version.
In China live streaming is super popular and it was born on the e-commerce platform so taobao live which is like kind of the equivalent of Amazon or Ebay.

[11:18] Like launched a livestream video platform and they built a huge Commerce business and these influencers,
the Alibaba paid like we're starting to sell like huge quantities there's this dude Austin Lee who sells lipstick Who Sold over a billion dollars in a single day,
and over time in China the live streaming has moved off of the Retailer's platforms onto the social media platforms like Dao Yuan and WeChat,
and so you look at China and you go oh my God live streams huge it's the future it's how all this stuff is getting sold I want to say it's like 15 or 16 percent of all e-commerce sales in China,
but then here in the US has been a mixed bag there's a bunch of use cases like you just described where it works really well there's a bunch of Ed C lies streamers there's a bunch of like small retail boutiques that live stream during the pandemic to great effect.
They're doing really well you know Tick-Tock which is the same companies do you know.
Announced that they were delaying their live streaming feature in the US so they.
You know it's not they're not rushing it to Market Instagram had a live streaming Commerce feature which they just retired last week.
We've seen Walmart do some experiments in live-streaming we've seen Nordstrom do some experiments in live streaming it's not clear.
The.

[12:39] There's a a mass-market huge opportunity for live streaming that the Amazon live streaming Pilots haven't worked very well and so they're both like there's a bunch of niches and use cases where consumers really like it and you could see it working.
But it doesn't seem like a slam dunk for any of the really big Commerce players that they just need to turn on this feature in the customers will come running so the.
Lot of debate amongst my clients at the moment you know is China just ahead of the US and does everybody have to get ready for live streaming or is the u.s. going to evolve differently than China as it often does.

Scot:
[13:16] Yeah or like is it going to be one of those things where like we call talked about chat Commerce forever and it never really jumped jumped over you know it even though Facebook tried really hard to put Commerce and messenger and they hired the PayPal dude it just never really
really translated to the US who next.

Jason:
[13:34] I know exactly so I yeah I'm not convinced the main way us consumers are shopping is ever likely to be live streaming but I do think it is.
An important solution to particular Discovery problems in the US so I think it's part of the mix but I don't think it's that like,
magic Panacea that's going to replace traditional e-commerce for example.

Scot:
[13:55] Yeah well I know you are tingly all over and super excited because the US Department of Commerce data came out and you have done your number crunching and I know I'm eager to hear what you learned.

Jason:
[14:08] Oh my God this week is like my leap year because you know US Department of Commerce data comes out every month so we always get excited about that but every three months,
the e-commerce data comes out so yesterday the the retail data came out and tomorrow the e-commerce data came out and you were like a should we wait till tomorrow and do one show and I might know there's too much goodness here we need to shows one,
to talk about the retail data today and then we'll do another one to talk about the e-commerce data after after that comes out.

Scot:
[14:38] Yeah on Wall Street I think they have a double and a triple jinx this is kind of a triple witching I don't know why they call it with you.

Jason:
[14:45] I do yeah so July retail sales were up 8.2% versus 2021.
So that's very healthy robust growth.
We've been talking about such big growth and with all these anomalies going on that like we've gone kind of used to it but just a reminder normal retail growth year over year,
for the last 30 years the median growth is 4.5% so 8.2% is almost twice as good as you'd.
And even more to the point year-to-date growth so January through June growth retail is up 8.9% so wit early twice what you would normally expect.
So that is super exciting the.
Wrinkle here is our friend inflation like every time I talk about this huge growth.
A bunch of people chime in and go yeah but it's all inflation and for the last two years that we've had this enormous growth because of the pandemic and changes in purchase patterns all the economic stimulus all that stuff.
I keep looking at inflation and inflation is a small part of the growth but not a meaningful part and so I have to keep telling people
yeah information is in there but it's not a huge deal well that changes this year,
so I mentioned year-to-date growth for this year's 8.9% if you adjust for inflation your today growth is 0.5%.

[16:13] So that basically means all the growth we're getting in 2022 so far is directly a result of inflation and that's super interesting because,
20:21 was like the biggest year of retail growth in my lifetime and I jokingly told a lot of my friends and clients you know they should think about retiring because comping against that.
20:21 is gonna suck and then so far this year we've been comping quite well but it turns out the reason we're comping well is not because,
consumer spending is like super robust and continuing but rather inflation has kind of filled in where that,
that consumer momentum is starting to wane so that is a big story that we need to watch for the rest of the year.
Again the actual.

[17:04] Hyper actor e-commerce.
Broad version of e-commerce called non store sales so for July they were up 18 percent versus last year.
The year-to-date there up about 12%,
I'll be really interested to see what the quarterly number is tomorrow you know in kind of Q4 of last year there was all this exuberant some for spending in retail stores and e-commerce continued to grow,
but it's rate of growth slowed down a lot so for one of the you know only times in my lifetime.
Brick-and-mortar retail grew faster than e-commerce and I have a feeling that we're going to see Q2 of next year that's Q 2 of this year tomorrow that that's not going to be the case that we're gonna returning to the normal trend of e-commerce growing.
Meaningfully faster than brick and mortar.

Scot:
[18:01] We're not going to no till tomorrow I can't wait all-nighter.

Jason:
[18:05] I will give you one other thing to tease based on the q1 data which came out three months ago we've seen that q1 data show up in a bunch of earnings calls and the most famous one is Shopify right so Shopify,
right before their earnings call they laid off like 10% of their Workforce and they said like.
Man you know there was all this e-commerce growth during the pandemic we hired all these people we got ready for all this stuff and then the e-commerce growth regressed to the mean.
Which toy surprised us we thought it would be more persistent and so we've got to lay off a bunch of people and cut a bunch of cops and they show this,
this famous graph of the quarterly e-commerce data showing this big spike the last couple months and it kind of Dipping back down to the trendline.
And I see that graph everywhere and the one thing I like to remind people about is regressing to the mean doesn't mean e-commerce.
Didn't grow it meant e-commerce grew as fast as it used to be growing which is quite fast so,
well Shopify weight off 10% of their people like I was screaming in the background e-commerce has grown 61% from 2022 2022 and it added four hundred and twelve billion dollars a year in space
it's not like it's not like there's not a ton of growth there it's just the growth that we're used to seeing.
So it'll be interesting to see what tomorrow brings.

Scot:
[19:33] Yeah seems like a lot of the the inflation is really starting to Ripple through at this point and we've seen that show up at some retailers but it's interesting to see it can work into the day-to-day with your.

Jason:
[19:45] I know that that brings up a good point like we have several omni-channel retailers that reported earnings this this week and it's a really mixed bag about.
The the.
Inflation indicators in their earnings calls and you know probably the biggest one is Walmart reported earnings two days ago and people
economists watch Walmart's earnings reports really closely in a challenging economic time because.
They're kind of the Bellwether for the American Consumer right like that they have the biggest chunk of consumer spending and they kind of as Walmart goes like the American economy goes so.
The as a reminder about a week before their earnings they low they significantly lowered their their earnings guidance for the rest of the year,
they said that they expect that that they expected their profitability to be considerably lower than they had previously.

[20:40] Giving guidance there earlier guidance was like zero to one percent growth.
And they reduced it to they think earnings are going to be 11 to 13 percent lower this year than they were last year.
Um so fast forward a week,
to their earnings and everyone was kind of braced for it being kind of a brutal quarter and it was a beat beat reiterate like,
they beat their earnings Target they beat the revenue Target and they stuck with their guidance that earnings are going to be a lot lower the second half of the year but.
Investors actually took that as good news they actually expected that that Walmart might have a miss and so the fact that.
Q2 sales and Q2 earnings were reasonably robust at Walmart was kind of positive news and to kind of put that in perspective.
U.s. comp retail sales for Walmart last quarter grew 6.5 percent so again normal retail growth is 4.5% so 6.5 is good e-commerce grew 12% and you can compare that with,
Amazon e-commerce grew seven percent the same quarter so obviously Walmart's a lot smaller than Amazon but they're the second largest e-commerce site,
in the US and they're they're drilling meaningfully faster than Amazon which is impressive they did.
You know we made a big deal about Amazon is breaking out their ad sales.

[22:04] Walmart didn't quite go that far they said that their ad sales which is called Walmart connect grew 30% which is.

[22:12] I'm not faster rate of growth and Amazon's ad sales are growing Amazon's growing about 18% Walmart is growing at 30 but they didn't tell us what the base was and and you know it's certainly a way smaller base than Amazon so I'm not sure.
That growth on the much smaller base is huge news but it was interesting to see them talking about it Doug mcmillon and the CFO both John rainy both made.
You know a big deal about Walmart connecting being a big part the CFO joked about not being used to businesses with this kind of crazy margins before and.
Doug actually talked a lot about how Walmart connect is gaining huge traction internationally so they're they're able to sell the ads in in India and China and some of the other other markets that they plan.

Scot:
[23:00] They were getting a lot of like why surface it now I don't understand the so Amazon started revealing it because they've had to like the SEC said this has become a material part of your business you have to unpack it a bit but this seems like they,
decided to do any Mini.

Jason:
[23:17] Yeah I think just because it's a good number 30 percent growth sounds like a good number.
And it's a yeah when when most of your news is about your earnings really being challenged talking about a super high margin part of your business.
Growing really fast I feel like just reflects well right like I'm not I'm not confident we're going to see them report that number every quarter by the way.
Yeah so we'll have to see how that goes but like to kind of,
summarize why they're saying profits are likely to be much lower for the full 2022 essentially what Walmart is saying is they are seeing consumers change Behavior because of the recession,
and one of the big ways is they're seeing consumers still spend a lot with Walmart but they're shifting from.

[24:06] Wants to needs so they're buying a lot less clothes and consumer electronics and a lot more food,
and the food in the essentials that Walmart sells are much lower margin,
then the home and apparel categories that they're selling less of so the mix it Walmart is changing.
Um which is hurting their profitability but not necessarily their income,
and in fact they called out 11 funny anomaly of the income is in this High inflationary time,
a lot more High income consumer start shopping at Walmart so people that make over a hundred thousand dollars a year spend more at Walmart in a tough economy than they do in a,
really bullish economy and so they feel like they captured extra customers because of that that would have shop somewhere else but they're buying this alone margin stuff,
and John rainy the CFO he specifically talked about how they're seeing consumers make different purchase decisions that there.

[25:12] He called it a pronounced customer shift that people are trading down and he gave the specific example that we're selling a lot less deli meats were selling a lot less beef and instead we're selling a lot more hot dogs chicken and tuna,
and that you know even vegetable based proteins like beans are starting to sell a lot better in those are all signs of,
you know distress consumer that's trying to make their food budget go further every week.

[25:39] So I would call that a mixed bag I feel like investors were thrilled that their earnings call wasn't worse but you know.
I don't I don't feel like people saw Walmart's earnings and said oh my gosh we're out of the woods on the economy and things are going to be great for the second half of the year.

Scot:
[25:57] Yeah.

Jason:
[25:58] So then we move to Target and and Target was kind of a Miss meat,
maintain right they miss their earnings pretty meaningfully so they the guy their expectation when 72 cents a share they came in at 39 cents a share so that's a big,
drop it's actually 90% less profit than they made this quarter last year,
so a huge drop in profitability they exactly hit the revenue Target which was 26 billion and their guidance kind of stayed the same that they're expecting to grow.
Kind of in there two to four percent,
um growth rate which would be a typical year and they're expecting six percent margins which would be significantly up from the 1.2 percent margins they got this quarter.

[26:50] Digital for them was up nine percent which is a lot slower growth rate than than Walmart and slower even than Amazon even though targets a lot smaller than then Amazon.
But what is interesting is.
Target basically talked about not seeing any inflationary changes to consumer spending they did not talk about their mixed changing dramatically they did not talk about like seeing their customer change a lot,
what they talked about is.
They had too much of the wrong inventory because of the supply chain disruptions last year and then being forced to deeply discount a lot of product and they took like a 1.5 billion dollar haircut on their inventory.
Um which they had warned us they were going to do but so what they're saying is man we're just having to sell a lot of this stuff cheaper and that's it's not necessarily because of inflation but more because.
We have the wrong stuff.

Scot:
[27:51] That yeah got you think they had this supply chain problem and ended up with the stuff they ordered a year ago gosh when I open this door is.

Jason:
[28:00] That for sure is true like they all ordered like Walmart you know said similar things that Walmart's I think said if we had a magic wand we would make 1.5 billion dollars worth of our inventory just disappear.
Um and you know they all like.
Beefed up their orders around holiday and they you know they all went to these extraordinary expenses to get inventory they got inventory much more via much more expensive means you know from more expensive suppliers with more expensive Freight.
Um a lot of those costs are coming down right now freight costs are coming down shipping costs are coming down,
but you know a lot of that inventory rolled in and it you know it was the clothes they hope to sell for Christmas that you know is less appealing now.
I would argue people are also just buying less clothes right now like and I do think that's partly because of the economy and inflation.
You know Target saying it's not Walmart saying it is it's possible they're both right it's you know Walmart has a lower income customer than Target and so it is possible that the.
The typical Walmart customers more affected by inflation and their behavior is changing more dramatically in the more affluent customer that shops at Target and Amazon,
um that their behavior is changing less as a result of inflation so I you know it's not outside the realm of possibility that they're both they're both right from their.

Scot:
[29:26] Nursing did in their warnings they both talked about apparel any more color on that.

Jason:
[29:33] I mean again the the they're seeing home slow down a lot which is interesting because you know people were overspending on home when they couldn't travel you you've seen this in your business but like.
A lot of people are back to travel there's a lot of Revenge travel people are also restaurants are having a moment restaurants are crushing grocery stores at the moment,
as you know everybody I'm not sure covid zup officially over but like everybody's mentally of it over covid rushing back to restaurants and fun fact.
Inflation for restaurant food is much lower than inflation for grocery store food so it's actually a better deal right.
So the food thing is weird the apparel thing is weird consumer electronics are really soft sales right now and they're they're actually.
They have this weird counter effect like that's the one category that's having deflation TVs or less expensive this year than they were last year.
And yet sales are still really soft I think Best Buy reports earnings tomorrow so that'll probably be a challenge for them.
In the discretionary spending categories the one category that everyone has called out as an out performer is beauty.
And I think that's this thing that we call affordable luxury that like you know when you're not feeling great about your finances but you want to treat yourself like what you do is you buy the premium whip.
Instead of an expensive outfit or something like.

Scot:
[30:57] Nursing yeah kind of a can still feel good about yourself but you spent a lot less than a whole new.

Jason:
[31:03] Exactly I would argue that a better affordable luxuries to have someone do an amazing job detailing your car but that's just me.

Scot:
[31:09] Or a iced vanilla latte at Starbucks or 10.

Jason:
[31:15] Yeah yeah absolutely that's not that's not an affordable luxury Scott that's a necessity.

Scot:
[31:22] Were there any other omni-channel you want to cover because I had a.

Jason:
[31:26] Yeah yeah I think we probably spend enough time the Home Improvement guys did report it was kind of a in between Home Depot is decent their up
5.4% in their their comp sales which is kind of in between what we saw at Target and Walmart they talked about seeing their consumer business has slowed down and seeing their Pro businesses which is the contractors pick up
so I do think consumer spending on their homes is slowing down I don't know where that pro-business is coming from at first glance so we'll have to dive into that deeper but the housing market is all
topsy-turvy right now.

Scot:
[32:04] Yes I think that this kind of ties into the,
bifurcation of the convenience already consumer in the more affluent and then the value of learning consumer that the pros being busy it was more Renovations are still going on at larger homes.

Jason:
[32:21] Yep that makes sense.

Scot:
[32:22] You know that that weird that like segment and maybe what's happening is you maybe you've outgrown your house you thought you get a new one interest rates went up are like well if I put that money into a expansion or something,
you know that this may be a better use of proceeds than putting it towards paying the bank larger percentage I think that's probably what's going on there.

Jason:
[32:44] No that makes total sense I'll buy that yeah so then what's the last tranche of earnings we want to talk about Scott.

Scot:
[32:52] This was interesting because I was reading a couple articles and I saw you know Casper has a new CEO and and he came in and was basically saying,
hey it's time to start stop losing money we need to be a profitable company,
so then I started wondering you know he had that cluster of sa cluster in a positive way we had a grouping of companies go public that we talk a lot about that we're kind of in this,
some of them were not 100% digitally native vertical Brands but in this kind of cohort over the last 18 months of IPOs,
not 18 months calendar but with IPO windows open we had if you remember we had wish thread up Casper glossy a all birds.
Warby and purple and a couple others go public.

[33:39] So then I started poking around and it's basically a bloodbath out there for that cohort of companies so you know Casper's not doing very well.
I'm thredup which you would think would do really well in recession because people would look at more Consignment type
type of peril they had to do a pretty big layoff the 15% probably the most hit hard is wished which I've never 100% understood wished but
you know far be it for me too
to figure that out but you would think they would be doing well because they always had this super inexpensive stuff the trade-off was it took a while to get to you but if you needed like a phone little drone or
I think one of their biggest sellers is hair extensions
bridal gowns all kinds of stuff you wouldn't really expect for that value or to Consumer you think during recession that would do really well,
their revenue is down 80 percent year over year so they are just basically coming unglued they did a Rebrand and their new brand is.
Bargains made fund discovery made easy which to be hence that maybe Discovery was a problem and now they're trying to say hey we kind of.

[34:47] You came to us before and you couldn't find what you're looking for but now we fix that kind of has that that kind of vibe to the new branding.
One that's popular with the ladies in my house is glossy a they had to do a 33% layoffs and I can understand this because we went on a New York trip and that's one of the,
places we make a trach tube and the store was closed and this is just like.

[35:10] Four weeks ago so definitely post coded so that wasn't good and I think I know what's going on there,
Albert's didn't 8% layoffs were be they had a weird mixed message they were doing some layoffs and talking about their losses mounting but then they announced their opening 40 stores and that they think it makes economic sense it's kind of like.
Yeah I didn't feel like the best time to be doing that and they didn't really say anything other than we think that this is a good use of capital.
We'll see and then you know so Casper is doing pretty poorly and then purple who's kind of a Casper clone if you will need to actually predate Casper's they wouldn't like that
being called a butt
yet another online mattress company their revenues down over 20% year-over-year I think during covid-19 we got new mattresses and now there's kind of a
like a pull forward for that that that's a huge problem so that whole cohort is not doing well and kind of
indexing much worse than kind of like what you saw in the data I want to ask you what if you think there's do you have a theory of what's going on with those guys.

Jason:
[36:14] I do like I think the whole direct-to-consumer model,
I'm not saying it can't work but it's way more challenging than a lot of people.
Um gave it credit for right like the fundamental problem with the direct-to-consumer model
is customer acquisition right like there's 240 million households in the US and getting them to know about you and be aware of you and want to buy your product is,
really hard right and if you're a direct-to-consumer company with no organic awareness and no reason for people to discover you
the way you get people to find out about you is you buy ads right you buy that awareness and and all these d2c companies were.
Using digital ads you know mainly on Facebook 22 by audiences and so one thing we know is customer acquisition costs have gone up because of,
the Privacy changes in the less the lower efficacy of a lot of those those digital things.

[37:17] You know even on the old pricing every subsequent customer gets more expensive than the last one like the first customers you can buy are the cheapest,
but you know increasingly you have to bid higher and higher for an audience that's slightly a lower propensity to buy your stuff and so as you grow as you scale,
it gets harder and harder to keep growing and so we've seen a ton of these d2c companies.
Grow really fast from zero to something and then hit a plateau and slow way down and we were seeing that before the pandemic we were seeing it during the pandemic,
some of these companies like we're partly aided by the pandemic and so maybe it gave them a little extra Runway some of these companies like.
A way we're probably hurt by the pandemic and had less less Runway but I think what we're seeing is that.
That the pure direct-to-consumer model without some other way of cup of consumers,
cheaply making consumers aware of your products,
is really challenging so you're seeing a bunch of these dtc's open their own stores that's the war be model you're seeing a bunch of these dtc's pivot to wholesale so glossy is moving into Ulta I think it is or it may be Sephora I apologize if I have it wrong,
um but they're a bunch of these guys have moved into wholesale to get awareness.

[38:43] And you know that changes the whole margin structure and does all these things I think there's a Warren Buffett quote,
they're only when the tide goes out can you find out who's not wearing a bathing suit and I feel like that's that's kind of the situation we're in with these D disease is you know once we've come into a,
challenging economic model Market the.
The high cost of customer acquisition and the challenges with continuing the scale are really starting to be a parent for all these data see companies you buy that.

Scot:
[39:15] I do and a lot of them in our you know in our world we think about cackle TV and you kind of get in your head yeah
it's you know I'm growing X percent macaque LTD is three or four and you feel like that's going to stay around forever right and then you hit
recessionary period which apparently this isn't and
hit some headwinds or some chop and suddenly you know that no one's buying that second mattress for that second pair of glasses or
you know whatever it is and then,
you know your whole economic model is built on this ratio of cacti LTD of three and suddenly it's one and a half and if you don't react quickly to that
and if you don't have if all you have is paid mechanisms that are built on that that will ratio then you're in the horns of a dilemma where you're kind of like well I turn that off,
the the acquisition spigot I can't grow Revenue but if I keep it on my my earnings are going to,
go to heck in a hand basket because I'm effectively my cup my kak My overall economic side business have changed very dramatically and there's no way for me to.
To deal with that and because these guys have such a big chunk of their you know their their revenue from Paid media it doesn't they don't have a lot of degrees to Pivot on so another way of saying what you said but I agree is the short route.

Jason:
[40:38] You know you reminded me one funny thing I think one of both of our favorite guests on the show Dan McCarthy.
You know he talks about like every time he gets to look at the finances for one of these d2c companies that they they wildly underestimate their CAC and overestimate their LTV that like
the math is also just flawed that like you know most most of these d2c companies feel like they're going to have like incredible retention and keep the these customers re spending every year for a long time that their data doesn't necessarily support so they
they overestimate their ltvs because
they don't account for enough turn and then you know they all just treat their ad costs as their total kak and you know it's customer acquisition cost it's all the costs
to find that customer and get them to buy them and onboard it so all the customer service costs all the onboarding cost there's a lot of extra
cost that should be in that cack number that a lot of first-time d2c CFOs don't don't tend to put in there so.
I thought that was a funny observation as well.

Scot:
[41:44] Yeah and then a lot of times you know you'll be like
let's say 20 million and you're just driving the business itself Google and you're like well this is amazing and but then Google Google searches are a pretty finite
resource and at some point you kind of can get them all right so there's only so many people that are typing in mattress everything and then then you're like okay well I'll do you know
I'll do Facebook I'll do this I'll do what not and then as you do you Whittle away Google is always one of the most effective advertising venues because the consumers given you their intent so they're at the bottom of the funnel,
so then as you walk up the top of the funnel your cat goes way up and then you can have infinite spin there at the top of the funnel but.
It doesn't really change the metrics Downstream so then
that's that scaling problem so all these guys get to 100 million and then and it really Falls over because because they can't really get that incremental next dollar and if they do they're kak LTV ratio goes way up because they're spending so much more on,
paid media LTD is stable so yeah it's a tough slog so I think reading between the lines when
when were be says we want to open up stores that I think they're trying to
you know cough ironically go from a pure online to being in foot traffic and getting people there which is you know what they're basically saying I think is that that may be cheaper than that next in Criminal
online add-on.

Jason:
[43:11] 100% I wonder I when we're all retired and we look back on this market like I do think there's going to be a lot more d2c activity than we have today but I actually think most of it is going to look
more like Nike it's going to look more like someone that was born as a wholesaler that created huge awareness affinity and love and eventually hit escape velocity where they didn't need
that that wholesale model anymore and they were able to then go direct to Consumer and have a low customer acquisition cost and kind of growth hack
and I'll bet you a lot more of the d2c brands that are dominant you know sort of 10 to 15 years down the road got there by
starting wholesale and transitioning to d2c rather than being born D to C which is just I think a tough value.
Scot that's a lot for one show and you know we've already teased people about a subsequent show on e-commerce so I feel like we should try to wrap up is there anything else we didn't cover that you were excited to talk about.

Scot:
[44:19] Not just want to give you good luck tomorrow I hope all your data flows or columns line up your Tableau is humming and I look forward to hearing your analysis on what comes out of the day tomorrow.

Jason:
[44:33] Awesome well my in-laws are visiting and they're commuting home tomorrow so they promised they're going to listen to Tonight Show in the car so I just want to give a shout-out sit to and Papa.
Um
and with that it's happen again we've used up our allotted time as always if this show for you some value if you're going to be a little smarter around the virtual water cooler tomorrow,
the way you can repay us for this free show is you can jump on iTunes and leave us that five-star review that we so warmly deserve.

[45:08] Happy commercing!

Aug 1, 2022

EP294 - Amazon Q2 Earnings

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Episode 294 is a breakdown of Amazon’s Q2 2022 earnings.

Episode 294 of the Jason & Scot show was recorded on Sunday July 31, 2022.

http://jasonandscot.com

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

Transcript

Jason:
[0:23] Welcome to the Jason and Scot show this is episode 294 being recorded on Sunday July 31st 2022 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.

Scot:
[0:38] Hey Jason and welcome back Jason and Scott strip show listeners well we have had a
plethora of vacations Jason did a business trip he’s going to report on over it in our F and then I had a little covid situation so it’s been The Universe has been trying to keep us from podcast so it’s great to be back in the saddle tonight Jason.

Jason:
[0:59] I am thrilled to be chatting with you on a rare Sunday night this is unusual for us.

Scot:
[1:04] It is it is usually we watch our Disney movies have a little popcorn in called an evening but tonight we’re going to throw down a podcast.

Jason:
[1:11] We I feel like we need to get ahead a little bit because you know there’s a new Game of Thrones series coming soon.

Scot:
[1:16] I know and Lord of the Rings we got a lot a lot of geekdom kind of happening all at once here.

Jason:
[1:23] Exciting stuff and even more exciting than all of that Scott I’m super grateful that you’re feeling well and recovered
but mental picture for our listeners I have a mild version of what Jason considers a tan for the show which is super rare.

Scot:
[1:40] Wow and that is because you went to a that summer in RF show that’s out in a ranch somewhere tell us about that.

Jason:
[1:48] Yeah I doubled down so I had a week of vacation in Upper Lake Michigan and then I went straight from there as one does when you work hard to a quote-unquote work trip
which is in Ranchos Palos Verdes at The Tiara new resort on the beach in southern California.

Scot:
[2:07] Cool and then so I’ve been turning our F of n this time of year that was called the merchandise or the merch conference is that what you want to.

Jason:
[2:16] You are old school so originally when shoppbs.org and NRF were two separate entities shoppbs.org had a,
fall summer event at this Resort that was exclusively focused on like digital merchandising and you’re exactly right it was a great event called the merch Summit.
And so this is kind of the spiritual successor to that than in a ref also had a event at the same time of year that was called the CIO Summit where all the cios got together and so they’ve kind of mashed those two events together change them a little bit
try to make it even more inclusive and they now call it an RF Nexus and so it’s focused on,
really forward-looking Trends and technologies that are relevant to
e-commerce professionals to digital leaders to cios and to see a Moe’s so there was a you know kind of like senior execs across it marketing and.
Digital all in attendance.

Scot:
[3:17] Nice nicer than what was the was there a topic to the event or what.

Jason:
[3:24] So there are a range of forward-looking topics.
Like probably the trend that topic that got brought up most were various aspects of the metaverse and some of those conversations came very close to getting me kicked out of the.

Scot:
[3:43] Because you are.

Jason:
[3:45] Because I’ve become.

Scot:
[3:46] VR headsets.

Jason:
[3:47] I become a huge cremation.
I know that’s shocking to listeners who find me like wildly optimistic but you know we had a lot of outside speakers talking about the metaverse and.
Spoiler alert I think the metaverse is super interesting it absolutely could be an important part of the future and when people say metaverse they’re mostly talking about three things that don’t necessarily go together but can which is.
In ftes and blockchain stuff they’re talking about the actual metaverse which is kind of like you know virtual reality and they’re also talking about web 3.0.

[4:24] And so they brought in a bunch of authors and subject matter experts,
that are super bullish and are like it’s a foregone conclusion that the future is with three and everyone’s going to abandon web 2 and if you haven’t already gone your,
wheezes and secured your property in the metaverse then you’re stupid and you’re going to lose huge sums of money.
And I disagree with most of that like I feel like it’s.
Wildly more up in the air than that and like at the moment first-movers that have tried to do Commerce things in the meadow verse have made more mistakes than not and so I spent a fair amount of time.
Like debunking some of those claims and highlighting some of the catastrophic mistakes that people have been making when they when they try to make a splash in the metaverse Without Really knowing what they’re doing and,
I choose to believe that the attendees appreciated that counter perspective but I don’t think some of the speakers appreciated being challenged.

Scot:
[5:20] What to do a deep dive where you essentially just dumped on the metaverse Jason dumps on the metaverse.

Jason:
[5:27] Well or.

Scot:
[5:28] Be part of our curmudgeon series.

Jason:
[5:29] Yeah a dose of reality about them again it could be a big thing I’m not saying it’s not I’m just saying it’s not a guaranteed big.
And then a close cousin of that that I spoke was,
the future of artificial intelligence for Commerce and I’m kind of and we’ve talked about this before but I’m kind of a curmudgeon on that as well only because.
I think focusing on artificial intelligence is kind of silly like to me artificial intelligence is a tactic not an outcome and there are a bunch of super exciting outcomes that are,
made much better by using artificial intelligence and so I talked about some use cases that I’m super excited about.
But but I you know caveat that with they’re not super exciting just because of the math that causes them to be artificial intelligence their super exciting because
they help people find more stuff to buy and have more successful shopping trips.

Scot:
[6:26] Cool well that’s that’s definitely out there and we have history on the show of given our listeners more of the hot truth of what’s going on right now so it was a it was a really interesting second quarter reporting period so we wanted to spend the bulk of our time today
reporting on that
I want you to lay the scene for us mr. US Department of Commerce what what’s what are the things feeling like there and then you know I think we’re all pretty red in on the macro that consumer confidence is like
what
10 20 year lows inflation’s at 40 year highs we had two quarters of negative growth that used to be called recession but no longer is called a recession.
So yeah so.
So that’s kind of the macro backdrop and then then I saw you had done your normal really great analysis of the US Department of Commerce what’s that looking like.

Jason:
[7:18] Yeah and there’s not a lot like super game-changing in the in the monthly data from the US Department of Commerce I like is you just kind of called out I feel like we’ve just made this transition from.
Overheated economy due to stimulus and extra covid demand and certainly a greater level of uncertainty and fluctuation but like in general,
really robust retail sales to now we’re having really robust retail sales because of inflation and so you know,
looking at the numbers they’re pretty consistent with the last couple months of numbers we’ve seen and so in general like July retail sales were up 8.3% from July of last year,
and year-to-date all retail sales from from January through July of this year are up 8.8%,
from July of last year so ordinarily we would expect retail to be up.

[8:11] I’ll call it you know three to four and a half points so being up 8.8 is a.
Significantly higher growth obviously a chunk of that growth is.
Fairly attributed to inflation and people having to spend more.
But you know inflation is kind of I feel like is misunderstood and people talk about about it being one number consumers spend a bunch of money on a big basket of goods and the amount of inflation on each item in that basket of goods.
Varies wildly right so the amount of inflation we’re seeing in gasoline.
And certain food items is really high consumer electronics are actually deflating it’s a you’ll get a cheaper TV this year than you did last year right so.
So you know if you break down in a segments.
Segments that have high inflation and you know we’re negatively affected by the pandemic the last couple of years are killing it right now so it’s a great time to own a gas station like that.
Gas stations are up 50% year-over-year.

Scot:
[9:10] Yes cool and then it’s too early to get the online number from the US Department of Commerce right that that’s got it.

Jason:
[9:17] Yeah we don’t have the quarterly number but the proxy that we do get is this like non-store sales and that’s a nine point six percent from last year so we’re
where the brick-and-mortar number is up more than you would usually expect the.
The non-star sales are e-commerce is up even higher but,
probably a little lower than you would ordinarily expect we’re kind of used to that kind of twelve to fifteen percent growth in the so you know 10% growth is a is a little bit lower.

Scot:
[9:50] That’s because we’re that they’ve got a comp problem because last year was such a surgery or with covid.

Jason:
[9:54] Exactly exactly.

Scot:
[9:56] Okay so that’s one set up and then the other one was for some reason we’ve entered this interesting period where Snapchat is one of the first companies to report and.

Jason:
[10:06] They need to change that by the way.

Scot:
[10:07] Yeah I don’t think that’s her they like it.
Because in our Recaps they’ve been kind of the first one to take it on the nose and it wasn’t any different this quarter so July 21st they came out.
And it was just a total mess and lower and a poop show because last quarter they basically said we got a handle on this we know what’s going on with ID fa.
You know I’m going to another Victory lap on this because I feel like you and I were like super early on I DFA and it’s really coming home to roost and interesting ways and Snapchat continues to be a,
non beneficiary of those changes but then addition to that,
you’re more in that business that I am but I’ve got to imagine that when you see recessionary head winds and and everyone’s tucking in their expenses one of the first things that you look at is your ad spend right and you know maybe
it’s not a great place to be if you’re Snapchat basically saying hey
you know we’re not really good anymore and measuring what’s going on with your ads because it feels like I guess people would cut that they’ve also become you know one of the smaller platforms so I imagined.
They’re probably out on experimental ring of AD spend and maybe they get cut from that too so they had a double whammy of both kind of micro meaning I DFA and then macro softness so that was just a total total nightmare
quarter for them.

Jason:
[11:33] No do it wasn’t pretty 100% agree like I do think we call the that I DFA was going to be pretty substantial to some of these businesses but I do think.
Some of there’s like there they were mostly trying to blame it all on IDF a and I do think there’s some softness in.
Digital marketing spend right now right I guess you go into recession it’s not the right thing to do but you know a lot of people that are nervous about their economic future are you know slow down their marketing spend right and it’s kind of like
when when you start to Skid on the ice.
You know it’s not very smart to hit the brakes but it’s human nature to hit the brakes and and you know some people people are doing that right now and I think some of their their softness and then you know some of the softness in the other AD platforms we’re going to talk about,
is is related to that recessionary fear and the ongoing impact of the various privacy initiatives.

Scot:
[12:30] Yes so then we were all like okay that’s that’s Snapchat maybe it’s isolated and then we had five days till Google was going to announce,
or / alphabet there called a whole I will always call them Google and then there was a surprise announcement on July 24th Walmart basically came out and said hey we need to update our guidance that they had already lowered,
for the quarter and they basically said sales are decent but profits are going to be way below kind of what we were talking about and they specifically called out some inventory problems so the CEO
they now have everyone has a there’s like 16 CEOs at Walmart or something but the CEO of us said,
there’s probably 20 percent of inventory if you could just wish it away and make it disappear you would,
and then around that same time Target also came out and I think there’s was even more severe,
and then Walmart called out apparel as a problem area where basically I guess when you look at kind of your your wallet where you’re spending money there’s always,
can’t live without groceries but you can live without like that 10th pair of socks or,
or a new outfit or something like that so it seems like consumers are definitely slowing down dramatically on the apparel side did you parse anything else out of the Walmart announced.

Jason:
[13:51] Yeah I mean I feel like those are the main two takeaways I Walmart in particular
like they’re got they reduce their guidance from like eleven percent profit 21 percent profit right so pretty meaningful and essentially what they said is a we’re starting to see significant changes in consumer Behavior as a result of the recession and or as a result of the inflation I should say
and the the specific behavior we’re seeing is people are spending more on Essentials and less on
non-essentials and the non-essentials are more profitable for us so our mix is getting less profitable which is why we’re adjusting our guidance and it also means
that we have too much of these non essentials we were already you know heavy on them because we over ordered,
during all the supply chain crisis and now we’re having trouble moving them so Walmart didn’t say this but a lot of other pundits have said this like you can
expect to see all these Goods at Walmart and Target start to really get discounted and in one weird way,
that’s potentially good news for the economy because that that could actually help counter some of the inflation that everyone’s talking about.

Scot:
[14:56] Yeah yeah 10% profit change at Walmart’s like a 40 billion dollar number.

Jason:
[15:02] Yeah I will say and you you’re the stock market guy I’m not right so not shocking
you come out and you revise your guidance in significantly down like that and not tracking your stock takes a pretty big haircut right so everyone wrote articles talking about the dipping the stock I happen to pick the stock right before we went on the show and its back it’s completely rebuilt.

Scot:
[15:23] Yeah it’s always better to take your medicine and then if you’re going to do it kitchen sink it and throw in some stuff because it’s an expectation machine not necessarily an absolute.
Machine
okay so then everyone was like well that’s not good but maybe it’s isolated to stores let’s see what Shopify does well then well then Google came out and Google was mixed probably less bad than people thought so their Core Business which is people going to google.com and typing in stuff it exceeded expectations
but their ad business and then their YouTube business were under pressure and they basically kind of counteract that each other where they did talk about
you’re more macro head runs around the ad world and that advertisers were pulling back so they kind of,
added on to that Snapchat message of some softness with ad spend.

Jason:
[16:11] Yeah and just for Google followers I would
add you know they’re interested in comments Commerce particularly interesting just remember like the president of Google Commerce recently left,
Bill ready to go to Pinterest right so they haven’t announced a new head yet like I’m expecting them to call me any day
so we’ll see where that goes but previously one of the things they’d really been leaning into was YouTube for Commerce and they’ve added a ton of Commerce capability to YouTube and it
it varies it doesn’t seem like that paying off quite yet in the Google world.

Scot:
[16:47] Yeah and then everyone’s like well let’s see what Shopify does in so let’s see after market close 26 was Google and then everyone was expecting Shopify to do something the next morning well then that evening Toby put out a Blog
post saying hey we’re laying off 10% of folks and then I was like oh boy that’s not good the quarter must be really really bad.
And it was really interesting to his credit I think Toby did a really good job in his blog post it’s never easy to do these types of layoffs and I thought he did an exceptional job of laying out,
why and essentially taking the blame for it basically saying he made a bet that this would be a pull forward it was you know.

[17:32] And then when you’re in the thick of it you do that was our logical,
thing to think could happen and instead now we’re reverting to the mean and they’ve gotten way out of their skis what did you think about and then the next morning because he had taken their medicine,
it wasn’t quite as bad and then Wall Street actually likes it when Shopify gets rid of expenses because they’ve added there,
that’s like a thousand people to them that they laid off our 10% so they’ve grown their head count up to this kind of astronomical 10,000 folks and then they,
is one of those little quizzical because then they said you know it’s not going to change our ability to innovate or do anything basically so then you’re kind of like wow I wonder wonder
hey how’s it feel to be one of those thousand people here in that part of the message and then be you know what did they do that you didn’t really need them and they were in the sales they have all these content management people so kind of not developers not product and so part of their message was they were going to double triple down on on
product development and adding features.

Jason:
[18:33] Yeah I’ll be interested to see how it plays out I got a ton of pings after that announcement because everybody did a Victory lap on my corpse right like everybody’s calling and going ha ha mr. e-commerce guy
e-commerce was an anomaly like it was it was big during the the pandemic but but now it’s all gone see even Toby
like over-invested in e-commerce and then he had to come out and say that he Comer sucks now.
And so a I got a bunch of those kind of troll tweets that I had to respond to.
And you know I have my own kind of issues / concerns with Shopify so a I would say.
That shopify’s actually been slower than I would like to see in product development leading up to this and in particular they have a product that’s aimed at more Enterprises and less.
Tiny businesses that’s called the Shopify plus and most of the folks I talked to that have.
Invest in Shopify plus I’ve been pretty disappointed with the rate of innovation and product development on that platform and a bunch of the people that got laid off.

[19:38] Where the teams associated with Shopify plus so that seems.
Interesting to me and I will tell you that like in Toby’s announcement he published this this US Department of Commerce Economic Development.
Which of course you and I are super familiar with and we talked about all the time but eat accurately represented it right like that there’s,
e-commerce has been at the certain rate and during the you know from 2022 2022 we had this crazy Spike and you know if you look at where it is now and you draw a dotted line to the growth you would have expected before the the pandemic like the.
The line is barely above where you would have expected so they called that regressing to the mean and you know gosh we exuberantly over-invested in now that it’s come back to the mean we have to right-size.
And so the only thing that’s wrong with that graph is it’s kind of a it visually doesn’t represent,
the huge amount of growth that’s in the mean like the mean is very high so,
from 2022 2022 we added four hundred and twelve billion dollars a year of e-commerce sales so e-commerce in United States of America Grew 61% From 2022 2022,
so when when Shopify another say oh man we covid dim boost e-commerce as much as we thought we only grew 61 percent over the last two years.

[21:06] Um like how many people did you hire right like you did you you didn’t add 61 percent to their their staff commensurate with that growth.
So yeah I just I take exception with people that think.
That this data in some way shows some some significant softness and the other thing I would say is all of these graphs that these people are talking about they all like to show the percentage of e-commerce to Total retail and.
It’s easy to overlook and forget the fact that the denominator in that that ratio has been fluctuating wildly because of covid-19.

Scot:
[21:42] Yeah yeah and then you know the other thing that mrs. is the it’s like almost like a pie chart where you don’t see the absolute dollars so so percentages are a tricky thing it’s gonna be a better way to visualize it.
One scary thing is maybe we don’t revert to the mean like a week the you know the lines we haven’t had enough time to know until that start sticking up you know we won’t know if we’re back on the mean or not who knows.
Google.

Jason:
[22:11] I know for sure but I get you know like I will do it maybe a Shopify deep dive at some point but like to me Shopify does is.
Great product for small businesses it caters to this long tail in my biggest gripe with Shopify as an investor is always that they never tell you what they’re stainless or sales are like they never tell you how well
last year’s customers did this year they just tell you the gmv of all the customers they currently have and so as far as We Know,
more than 50% of their customers go out of business every year and then you know 50% of new mom and pop start a smart start a business and sign up with Shopify so
the unlike a lot of other retail platforms that report their their data and when they grow we can kind of assume e-commerce grew shopify’s growth can be 100% attributed to turn we just don’t know.

Scot:
[23:00] Yeah
so then it was Thursday morning the 27th and meta formerly known as Facebook announced and that was a poop show so they had a myths of top and bottom and their second quarter of declining growth they threw the kitchen sink in there IDF a they’re seeing macro issues
Sheryl Sandberg is leaving and this has been announced for a while and then all the Talking Heads were like oh my God you know she
when out of the top this is kind of the end of Facebook so that was that was pretty
pretty negative sentiment there and then that brings us to the main topic we want to talk about which is after hours on Thursday Amazon announced.

Jason:
[23:41] And Scott one thing before you jump in the Amazon like you forgot the most important thing about meta.

Scot:
[23:46] What.

Jason:
[23:48] The Kardashians are mad at them.

Scot:
[23:50] Oh yes they changed Instagram in Kim’s I don’t I haven’t tracked this you know it better than I do.

Jason:
[23:56] Yeah I’m just well it is an interesting thing will do another show about this at some point but like Instagram is has probably been the crown jewel of men of for a while and you know
Instagram is getting a lot of competition from Tick Tock that the news feed and Tick-Tock is a lot more our rhythmic so the content you see
is less related to who you particularly follow and more what the robots think they want to show you and the you know can monetize
and so Facebook to try to follow suit is changing Instagram to be more algorithmic and less
based on your followers and so if you’re a mega influencer with 30 million followers
you don’t like that right like if you’re Kim Kardashian you want everyone to see all of your content because they followed you you don’t want them to see some unknown person that did something viral.
And so the change that Instagram made is to be more like Tick-Tock and you know some of these big
big influencers that benefited from the old model understandably don’t like it in are criticizing it.

Scot:
[25:01] Got it yeah we should definitely do a Kardashian deep dive how fun will that be.

Jason:
[25:06] Yeah yeah finally be able to let Kylie on the show and so she’ll stop bugging us.

Scot:
[25:12] Good.
Okay so if you’ve been listening this recap there’s two words I haven’t said and those are beat and raised so then Thursday night Amazon came out and everyone was like oh boy this is gonna be bad
and there was a CNBC person who actually like a lot of names Josh and.
He was basically he they do this little lunch time.
They have this investment committee they call it and he’s had a short on Amazon because he kept thinking they were going to miss Q2 he basically said look with Walmart and Target basically reporting the way they have.
To think Amazon would do differently means they have some totally different customer base I just don’t think that’s the case so Amazon surprised everyone with a beat and raised quarter.
So how did they do that with all this you know we’ve got Walmart Surprise Miss Shopify surprise Miss Google.
Less worse meta terrible Snapchat total disaster in an Amazon just kind of came out and surprised everyone.

[26:16] So so one way to think about Amazon is this very unique business and there’s not a lot of.
That you know another company like this that they have this portfolio of businesses they have built and they’re all intertwined but.
They have I imagine they have this is my mental model is they have dials where they can turn up and down this portfolio of businesses because they’re all intertwined and that’s one of the benefits of keeping this stuff together like when PayPal and eBay were together
there are some operational Dynamics there that you could use to you know if you hit a certain speed bump or something you could navigate that better,
so Amazon has these things so they’ve got the core retail business which is lower margin it’s a retail business still profitable on its own but.

[27:02] Not a great business but a good business and but like a massive scale you know hundreds you know what three hundred million dollars plus annualized then you’ve got a third party Marketplace business that we talk a lot about.
Very profitable,
doing really well you’ve got a smaller ad business super profitable doing really well growing rapidly AWS the cloud component now merchant services which is essentially the monetization of the,
Center asset you had to build for the first piece.
And my mental model is what they basically said was well we’re heading into this period where we’ve got all these recessionary things consumers Under Pressure let’s dial back on first party and dial-up third party.
And that really won the day so so what they did is the third party as a percent they don’t really give us.
The gmv of each of these things that the total sales in each bucket they give you a unit mix so the unit mix was at an all-time high I need a fact check on this I’m 99% sure this is right.
Five 57% third party versus first party the highest previous that was last quarter at 55%.
They may say let’s 2% how could that really make that big a difference well.

[28:18] That’s actually big because when a hundred dollars moves from the first party bucket and you and I have talked about this a million times but just to recap for listeners in the first party bucket the accounting is a dollar is a dollar of Revenue.
The third party Amazon doesn’t get to recognize the hundred dollar widget that sold they only get to recognize their commission or take rate which is about 10%.
So they lose 90 dollars if a doubt if a widget moves between those things and Revenue.
But that ten dollars that’s left is pure profit it’s almost like 99% profit so so if you really want to you know juice profits you move things from the 1p bucket the 3p buck.
So and then also tell us about Prime.

Jason:
[29:06] Yeah so Prime is a little confusing this year because it was in July and historically that’s
when Prime day has always been except this weird covid era that we’ve had so you know if you if you go back to 2020 they canceled Prime day in July and instead had it in October and then the following year in 2021 they went back to Summer but instead of having it in July I like they always have they had it earlier in June which is a big deal because it’s a quarter earlier it’s Q2 instead of Q3 so
we’re looking at Q2 this year we’re competing against a cue to that had prime day in it and this year Prime day is in Q3 so this year
Brenda is back to Mid July which July 12th and 13th so
a lot of extra work and verbal gymnastics for the poor cf0 on the earnings calls.

Scot:
[30:03] Yes there was no benefit from Prime in the quarter so that didn’t really it neither hurt or helped.
So even though third-party carried the day and I kind of theoretically so let’s say.
Yeah let’s say you’re running one of these really large retail businesses and you’re either a store based or a e-commerce base
I feel like Amazon because they have their products in a central location
they can be much more dynamic because you know think of the store networks that Target and Walmart have almost like an edge Network.

[30:37] And that product gets pushed out to the edge and then if you need to Pivot for some reason well you’ve got a tough decision you can
you can pull the product back it’s not really desistance not really designed for that it’s mostly returns comes back not like let me yank all the sweatshirts out of a you know store number 292 or something.
Or you have to liquidate them and then you end up with this problem that you call so if your Edge is full of stuff that’s not really moving right now,
you can’t really.
Change that rapidly you know you’ve got like a 60 90 day cycle to flush that out clear room for the stuff that’s going to work so I think that even even though they did turn up these higher-margin pieces to win the day
I think being an e-commerce oriented retailer gives them a lot more flexibility in a world where inventory and consumer behaviors are changing rapidly
do you agree or disagree with that.

Jason:
[31:34] Yeah no I I mean I feel like they’re their breath of offerings and monetization make them much safer than most other retailers they have more levers to pull in more knobs to dial.

Scot:
[31:49] And then the other thing and you know here one of the reasons I started spiffy is because we had talked so much on this show about the bifurcation where K seal Obama has come on and.
Talked about the value and the consumer and the convenience or any consumer and a lot of that data came from 08-09 the quote-unquote Great Recession
and you know what we learned during that recession is there is a consumer that is largely immune from recessionary and in that point time we didn’t have inflation but I think I think that’s kind of the same.
Same kind of Stew if you will of macroeconomic stuff that the consumer has to face whereas the value are going to Consumer was really impacted by it.
So I will also another argument I have is that that guy Josh on CNBC was wrong there is a separate customer now surely there’s overlap and what not.
But Amazon has captured all if not you know.
98% of that convenience or any consumer and you know that is a great place to be when you have a lot of these recessionary wins because they’re not as impacted as the value or any consumer.

Jason:
[32:57] Yeah no I do I think you’re 100% right like this gets complicated because these are such large numbers but the way I think of it there’s 240 million households in the United States of America there is more than 100 million.
Prime households right so the you know a significant chunk of America shop Amazon and have Prime,
190 million households shop Walmart so basically all you know the vast majority of America except for rich people in New York and California shop Walmart so you can’t talk about oh,
there’s a Walmart customer and there’s an Amazon Customer because the vast majority of customers go to both places but.

[33:38] There’s a core customer that spends most of their money at these two places that is likely very different right so there’s these these higher net worth individuals that spend the bulk of their discretionary money Amazon
that are way more insulated from inflation than the average Walmart consumer that spends the bulk of their money there and then.
A big difference in this inflationary period is if you’re a cord customer that shops at Walmart or Target.
You have more economic instability so you’re spending more of your dollars on Essentials versus nice to haves right and guess where you get your Essentials Walmart and Target like that’s still where you get your food.
And so at Walmart the mix shifts right instead of buying a cool outfit you’re buying more proteins for your family.
But that that Amazon customer is both more affluent and therefore less impacted by by inflation and they probably don’t get their protein from Amazon.
Right so like we Amazon doesn’t see their quote-unquote essential spending they only see their discretionary spending so they don’t have the same.
Dynamics like causing their mix to shift to less profitable mixes in a recession so I do think in that way.
The economic headwinds facing Walmart and Target are very different than the ones facing Amazon.

Scot:
[35:05] You know if you are getting your protein from Amazon it’s probably at a Whole Foods where I have a feeling that consumers pretty resilient based on.

Jason:
[35:13] Yeah which and again people do but like a see a statistically insignificant period of like whole food is less than 4% of the grocery market so yeah.

Scot:
[35:23] Well our are like Kroger and those folks feeling I don’t track them as.

Jason:
[35:27] Yeah
the so again they have less discretionary right so yeah they’re they’re doing pretty well like they’re benefiting like a lot of the items in Kroger are impacted by inflation so there’s their sales are up
um the you know.
They’re like the discretionary retailers are losing more dollars to the grocer so it’s I’m not saying that that the grocer particularly love the current circumstances they’re in but but they are like if you navigate them right there economically favorable.

Scot:
[36:03] But then because it’s not Walmart where interest or you’re making the toys there’s there’s a loser somewhere and it’s pie like a Macy’s and JC Penney you’re probably going to get hammered I would imagine because there’s you know if Walmarts telling us people aren’t buying much apparel than this kind of start Rippling through
all these other places.

Jason:
[36:18] Yeah or I’ll give you an even more painful example Bed Bath & Beyond.

Scot:
[36:22] Yeah yes Father they’re not doing well.
Okay let’s peel the onion on this a little bit so Revenue grew 7.2 percent year-over-year to 120 1.2 billion and that exceeded the expectations of 119 billion by about 2 billion.
So not a huge huge beat but again it was such a bad setup that that it seemed like.
You know what a miracle in somewhere North America this is really interesting when you kind of look inside of Revenue North America came in at 74 billion and then expectation was sixty seven billion so that was a really that was almost like a 10% Len.
But then International was a miss it was 27 verses 32 billion.
Everything I forgot to say that the top and everything we do is outside of the impact of financial currency moves so it’s called X FX and Wall Street parlance which which is important because the,
currency moves are gyrating around like crazy right now so you swirl that together and that’s where you get your North America was up seven,
International is all five so that’s how you get your two billion dollar win but it’s really interesting because if you look at Amazon’s North America they were up 14 percent year-over-year which Compares very favorably to your US Department of Commerce data.

Jason:
[37:44] Yeah yeah no that’s a and again like,
I look at this all in Aggregate and say this is a solid quarter in a challenging climate for Amazon and yeah they have performed the the industry average despite
being one of the largest players.

Scot:
[38:04] Yeah and then you know a mere like less than a week after Walmart said they were going from kind of ten percent to one percent profit margin Amazon’s gross margins improved 45 percent year over year versus the consensus 43 percent so that,
that was the one that really yeah I think people are like well if they make revenues surely they’re going to go out and readjust their profits and it’s going to be really hard so
they came in with an operating income of 3.3 billion and this was in our Sunday called out an incremental for billion of increased cost but that was offset from improved fulfillment center Ops
so I think what’s going on is they built out the Fulfillment center capacity so crazily and they’ll since the pandemic they were basically just standing them up and just you know
getting stuff out as quickly as possible.

[38:51] And then this quarter they kind of came back and where they use this phraseology invest in Harvest so they go in these different modes so they’re able to come out of invest mode and look around and say well.
You know in 2020 we sure we’re setting up fulfillment centers kind of crazily lets you know we need to tweak,
this this and this and then I want to have billion dollars of operational efficiency came out of that they called out some areas that are increasing and expense are.
Ews expenses so those sit there and use a lot of electricity which a lot of electricity is off fossil fuels and then I think I think computers are getting more expensive I guess that must be a chip related thing you said Electronics but that’s
probably like big screen TVs anyway.
Then obviously they called out fuel as an area and then they have a particularly large amount of money going into digital.
With the funding with digital content with the funding of The Lord of the Rings series coming out and then they also bought Thursday Night Football so they called those out is as expense items.
And as I mentioned at the top third-party one today.
And then looking inside of there we talked about that seller Services grew nine point one percent year over year to twenty seven point four billion and I think whenever any of these things,
grow faster than the Baseline of 7% and they’re higher-margin they’re going to drop that much more dollars to the bottom line.

[40:20] So there was that and then I don’t know anything about ads so I’ll kick that one over to you.

Jason:
[40:27] Yeah speaking of things that drop Towers to the bottom line so that the ad units is a reminder is a.
This business Amazon has had for a while but only broke out as a separate segment recently and so now it’s fun to see it every quarter so it Q2 of 2022 was up 21% versus,
the second quarter last year,
um if you add up the last four quarters of Ed Revenue its thirty four billion dollars in ads than Amazon selling and Amazon doesn’t tell us the profitability of these individual segments but most people estimate that like.

[41:06] Worst the advertising business is probably a 75% gross margin business so,
75% gross margins on thirty four billion dollars makes the ad business more profitable than AWS for Amazon so,
um Healthy Growth again you think about all the other people selling ads Google Facebook snap,
um you know really struggling but Amazon you know continues to grow and they’re already the third largest advertising Network in the US so,
that’s pretty impressive,
side note you know every other retailer in the world is trying to replicate this this new ad business than Amazon has invented and they’re all doing it you know with great success at a much smaller scale.
Um so that you know the ad dollars are shifting from these,
kind of top of funnel content providers to these bottom of the funnel retail networks that have first-party data and don’t have all these idea of a.
Problems that the others are facing so that’s.

[42:10] The ad business you know separately Amazon Amazon has this subscription business which is mostly Prime but a few other things mixed in there and,
you would expect that to be slowing down because they’ve you know hit they’ve saturated they probably have half of us households have Prime accounts but that’s still growing at 14% which again.

[42:31] Is pretty impressive and I think that’s a picking up the rate of growth from last quarter so it’s super interesting impressive to me that these,
these plati sticky Echo systems are particularly strong and Amazon and then of course everyone always talks about AWS,
you know I get and we’ll talk about this later but we get all these annoying tweets that like oh the only profitable part of Amazon is a WS and it’s great it is great right and revenue there was almost 20 billion dollars in nineteen point seven billion,
which is well ahead of the confessed consensus estimates it’s a decent margin business so I think there is a lot of hardware and electronic electricity,
behind that business but it’s still pretty high margins and you know a lot of the world hasn’t moved to the crowd yet so it WS has a lot of,
Headroom in its Tam
but a lot of folks were worried that in these economic uncertainty times that I see shops would be slowing down their migration in the cloud and therefore AWS would,
would take a hit and I want to say Microsoft announced a slower rate of growth before Amazon so there was an expectation there that might not be an awesome number and and again it was pretty solid
solid beat for for AWS.

Scot:
[43:52] Yeah so that’s kind of the different operating units and then,
you know again wall Street’s kind of a what have you done for me lately so then everyone’s like well this is an anomaly surely surely you’re not going to be able to repeat this
and everyone said number one stop calling me Shirley and then number two Amazon put out Q3 guidance and basically both the revenue of that guidance and the prophet were well ahead of what Wall Street had been thinking.
The the revenue guidance was 125 to 130 billion which at the midpoint is 15 percent growth so are one was was quite
pleased by that it basically made it feel like they were feeling very strong because remember
this is all 727 so Amazon’s got 27 date they got about a third of the quarter already in the books and it basically was a signal Amazon saying yeah we feel pretty good about the quarter right now
and Amazon had prime day in the books as well so that was good and then.

[44:54] Do anything Wall Street loves more than a beat and then raised so the beat is current quarter and then the Rays was the going forward quarter
is Abby trays in a buyback so then they also said oh and by the way we bought 3.3 billion dollars worth of stock in the quarter because we felt like
the price the stock was was kind of left so so that was all very very well received and and really made Amazon stand out from from
me up substantially from the other both retailers and add companies that had previously reported.

Jason:
[45:27] Yeah so.

Scot:
[45:28] And then you got Mean Tweets go.

Jason:
[45:30] Yeah so here’s what’s annoying so I would say that that’s a terrific quarter for Amazon given the economic climate and you know frankly exceeded my expectations and in a number of areas.
But you do know there’s room for lots of different interpretation and a bunch of folks on Twitter like zoomed in on the profitability of the US retail sector was down and you know they jump on this whole like
see this is what we’ve always been saying retails unprofitable it’s a loss leader for Amazon,
you know really Amazon is just about a WS and this like you know Silly retail thing is just a sideshow and there’s no way to make money on it.
How do they get away with a lot sweeter thing Jason don’t I have that right like I got a bunch of tweets like that and I didn’t respond because.
I’m not articulate enough to answer in a short tweet so hopefully it will make everyone listen to this this whole podcast,
but I would say you guys are all wow like it was a terrific quarter for Amazon retail like and there’s two things you’re missing Gap profit is not the same thing as how many dollars flow to your bank account right like,
um you know how much money Amazon decides to invest in new warehouses that are going to pay off in the future dramatically affects their.

[46:51] And so it’s almost silly to look at Gap profit to say whether Amazon retailers a good business or not but more importantly.
Um all these profitable businesses that everyone’s talking about exist only because of retail right so that ad business I just talked about.

[47:10] People aren’t coming to Amazon to consume ads they’re coming to Amazon to buy stuff in the ad show up right,
um and the other business that’s impossible for Amazon to lose money on that’s growing wildly is merchant services that you hit on,
um the merchant services are because Merchants want to sell stuff on Amazon on the retail platform and so it’s a little when people are talking about oh gosh the retail business and Amazon’s a loser but the ad business is profitable,
that’s a little bit like saying.
The content creation business in b.c. is a total loser but the ad business at MBC is a winner right like know that they’re only able to sell ads because they create that content and in the same way.
Amazon is only able to make money on Merchant Services and ads and to some extent on subscriptions because of this,
vibrant strong retail business
um that you know has more favorable characteristics than a lot of other big retailers in this current inflationary potentially recessionary environment so I’m sorry guys I just I think
you’re wrong and wildly oversimplifying Amazon’s business model and economic circumstances.

Scot:
[48:22] Yet another framing that’s kind of fun is after retails been around for what like I guess even longer but I get
I was here Sears like 150 years or something.
And you have all that history and it took Jeff Bezos to figure out hey you can actually glom on these really profitable high margin businesses and make the whole thing better
and there’s a synergy synergy inside of there that enables you to like they did this quarter where they can dial things up and down don’t you think Walmart had more of that right now or Target or you know
Macy’s or any of these other retailers so so in a way I think they’re missing the point there to just pick out this one piece that can’t be
unintegrated and say that it’s doing bad because you have to take the whole enchilada because they designed you know retail 2.0,
by mixing all these things together in a unique way no one figured out till they did.

Jason:
[49:21] Yeah no hundred percent so so Props to Amazon and keep on keeping on.
I did want to I think we’re over on time but I just wanted to just like briefly hit on a couple non earnings related topics just to wet people’s whistle so.
Hey we talked about prime day there’s a pretty significant week that there’s going to be a second prime Day this year so a lot so a number of journalists have seen internal documents.
That talked about a thing called Prime Early Access sale which is scheduled to happen this fall.
And so most of us interpret that as likely going to be October which again is when they accidentally had Prime in 2020 because of covid-19.
So look for more there but like potentially Amazon will have a second prime day to me that’s really interesting because.
I feel like the first Prime day at this point is mostly about comps and people turn to match last year’s Prime day and it’s I’m not sure it’s necessarily totally additive but adding a new sail if it.

[50:26] Works and capture sales in October that could be interesting so.
I found that super interesting Amazon launched a new product that maybe is only cool to me but it’s called retail store analytics and this is they’re taking all the data from all the cameras and all the just walk out stores and they’re selling it back to the brands.
So you know just like a you know a cpg can go to Amazon and find out how many glances they got on their their product detail page and how many add to carts they got,
they can now find out in a Whole Foods how many people looked at their package on the Shelf versus how many people bought it so there,
they’re monetizing all the customer insights they’re getting from these brick-and-mortar stores using all those cameras which I thought was pretty cool.
And then the last thing I’ll leave people with is there were some significant articles talking about internal week memos about Amazon trimming its private label and its private label largely being.
Unsuccessful and Amazon potentially moving away from private label and.
Like I don’t think those articles are wrong but I would just throw 11 piece of caution when you interpret those articles.

[51:35] I’ve seen no evidence that Amazon’s moving away from any of its successful private-label initiatives,
so so what’s happening Amazon has a huge amount of private labels they have a ton of Brands they invented a bunch of them never got traction never caught on never had significant sales and I do think they’re doing a rationalization of all of those,
but there still are Amazon private label brands,
they’re doing quite well and it appears the Amazon is doubling down on those so I guess what I would say is that they’re really focused on the head tail private labeled it’s doing well in there,
they’re kind of rationalizing the long tail that was not doing well so that is all of the Amazon news,
and it’s a good thing because we’ve blown through our lot of time once again as always if you found this episode valuable we sure would appreciate that five star review on iTunes.

Scot:
[52:33] Thanks everyone and until next time.

Jason:
[52:37] Happy commercing!

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