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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: 2023
Nov 29, 2023

EP315 - 2023 Turkey5 Recap with Salesforces Rob Garf

Episode 315 is a recap of Turkey5 (The five days from Thanksgiving through Cyber Monday) 2023 with Rob Garf, Vice President and General Manager, Retail at Salesforce. This is Robs' Six time on the show, having previously been on episodes 110, 248, 282, 299, and 313.

Jason and Scot discuss the "Turkey 5" with their guest Rob Garf, VP and GM for retail at Salesforce. They analyze data from various sources to provide insights into the holiday shopping season. According to the U.S. Department of Commerce, e-commerce grew 7.75% in Q3, while total retail only grew 2%. Jason emphasizes the need for e-commerce to grow at least 7.7% in Q4 to stay on track. Adobe's data shows that Black Friday sales were up 7.5% and Cyber Monday sales were up 12.4% from the previous year. The speakers also discuss data from BigCommerce, MasterCard, and Salesforce, highlighting growth in online sales on Cyber Monday and Black Friday.

Rob Garf adds his observations on retail industry trends, noting an increase in demand and robust pricing. He mentions a rebound in demand in Europe, excluding the UK, and highlights retailers' focus on profitability and inventory levels. The discussion then turns to Amazon's innovative advertising approach during a Friday NFL game, where shoppable ads were displayed via QR codes. Jason believes this strategy will benefit Amazon, as it monetizes viewership and reinforces the brand.

Discounting played a significant role in driving demand during Cyber Week, with retailers offering an average of 30% off. Consumers were patient, waiting for attractive deals, while retailers managed their inventory and discounting strategies well. The luxury category, however, did not perform as strongly, with only a slight increase or even a decrease in sales. The hosts touch on the resale market and the growing popularity of Buy Now, Pay Later (BNPL) options and mobile wallets. They discuss the potential impact of mobile wallets on shopping behavior and note that BNPL resonates with new consumers and has replaced layaway.

Finally, the hosts mention the passing of Charlie Munger and the filing of an IPO by Xi'an, encouraging listeners to support the show and announcing more holiday shopping data and reports on Salesforce.com.

0:00:46 Introduction to the Jason and Scot Show
0:05:04 Black Friday: First Sales for Vendors
0:14:06 Softness in Consumer Electronics and Toys Market
0:14:55 Black Friday and Cyber Monday Impact on Holiday Season Shape
0:16:32 Retailers' Inventory Management and Positive Growth Forecast
0:17:47 Retailers analyzing profitability and customer profitability.
0:18:29 Increase in Demand and Robust Pricing
0:22:34 Amazon's Innovative Advertising and Potential Profitability for Holiday
0:26:27 Discount rates over Cyber Week in comparison to previous years
0:29:04 Retailers' management of inventory and transparency in discounting strategy
0:31:52 Consumer behavior and the rise of Buy Now, Pay Later (BNPL)
0:33:32 Mobile wallets and the impact on checkout process and shopping experiences
0:35:26 Buy Now, Pay Later Growing and Replacing Layaway
0:37:22 Charlie Munger's Passing and Xi'an's IPO Announcement

Throughout this episode make liberal use of real-time data from Salesforce Shopping Insights HQ, which tracks how 1.5+ billion consumers are shaping shopping trends. You can see a real-time holiday dashboard, powered by Tableau so you can interact with the data yourself on the Salesforce Holiday Insights page.

Episode 313 of the Jason & Scot show was recorded on Tuesday November 28th, 2023.

 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 315 being recorded on Tuesday, November 28th.
I'm your host, Jason Retail Geek Goldberg, and as usual, I'm here with your co-host, Scot Wingo.

Scot:
[0:39] Hey, Jason, and welcome back, Jason and Scot Show listeners.
Vigilant listeners will remember that we promised you a delicious turkey five

Introduction to the Jason and Scot Show


[0:47] sandwich starring none other than Rob Garf, VP and GM for retail at Salesforce.
And that's what we're delivering today.
Rob was here way back on episode 313 on November 8th. And he is back here today to tell us what happened during the Turkey 5. Welcome back, Rob.

Rob:
[1:05] Thanks for having me, Jason, Scot. Always a pleasure and look forward to getting into some of this really fun data.

Scot:
[1:12] Yeah, this is your record sixth time. So your old hat here. Before we jump in, we do want to just kind of set the table, keeping with the post-Thanksgiving, theme with some leftovers.
I saw what you did there. Yeah. And we, meaning Jason and his army of interns, have gathered a bunch of data from other sources.
So we just want to give listeners that, and we know you have your own data, and we want to paint a complete picture. So, Jason, give us the quick and dirty rundown of other data that we've seen out there covering the holiday period so far.

Jason:
[1:46] Yeah, yeah, yeah. Let's do it. And side note, Rob, we're going to keep making you come back till you get it right.

Rob:
[1:50] I appreciate it. I'm here.

Jason:
[1:52] I'll do what you need. Awesome. So, super quick reminder, Q3 data from the U.S.
Department of Commerce, e-commerce for the quarter grew 7.75%, over, the previous year. year, total retail only grew 2% from the previous year.
And so if you take e-commerce out of total retail, brick and mortar in Q3 2023 only grew 1.08%, so lower than traditional. So when you come into the beginning of Q4 and holiday in particular, in my mind, e-commerce has to grow at 7.7% just to stay at par.
And brick-and-mortar has to grow more than that one percent.

[2:37] So, and I like to start with the lesser data and work our way up to the gold standard, very best data we have, which is, of course, the Rob Garth.
So our friends at adobe which have a different data set but similar methodology and slightly different definition so you can't perfectly compare apples to apples, they said black friday sales were nine point eight billion in the us which is up seven point five percent from the year before so that would basically be right at that par i was just talking about, they said cyber monday was up to twelve point four percent and that was hot off the press so i wasn't able to do the math on what growth rate that was.
They said for the whole month of November year to date, that they see November up 4.6% from last year.
So kind of below that par. These are all numbers Adobe is giving for e-commerce.

[3:26] And of particular note, and I know we'll talk about this more, they've seen a significant uptick in use of Buy Now, Pay Later services, and they've seen deeper discounting than we saw last year.
Now, Shopify is really out there with a big news cycle.
And I don't want to say they won up Salesforce, but they bought the sphere in Las Vegas and broadcast their data on the outside of the sphere, which visually is, is super cool.
But their data isn't so useful because they don't report same store sales.
They had a, you know, some unknown basket of merchants that sold a bunch of stuff last year, and they had some unknown basket of merchants that sold more stuff this year, and we don't know if the same merchants were here this year and last year or if they added a bunch of merchants or, or if this is true growth.
So, so while the Shopify numbers are interesting, if you're investing in Shopify, they don't tell us a lot about what's happening in the e-commerce world.
I did see a super interesting quote from Harley Finkelstein, who's the president of Shopify, and it's possibly, possibly that he just misworded this, but he was excited after Black Friday and he said 17.5, thousand. So $17,500.

[4:41] Vendors made their first sale this Black Friday weekend.
So I took that to mean, not that they launched on Friday just in time for Black Friday, but that this was their first Black Friday where they sold anything.
So that's 17.5 thousand new merchants.

[4:58] And then he said, in total, 55 thousand merchants set their all-time daily record on Black Friday.

Black Friday: First Sales for Vendors


[5:05] And while those two numbers sound impressive, if you kind of think about it for a second, you go, wait, the vast majority of merchants on Shopify that are B2C are going to sell their record.
Cyber Monday hasn't happened yet, so take that out of the equation, are going to set their all-time record on Black Friday.
So not surprised, you would expect the vast majority of all merchants to set their Black Friday record.
And 17.5 thousand of them are new. So what that says is there's only 37 thousand merchants that are a year old on Shopify that sold more this Friday than last year on Black Friday.
And that's, I guess, less than I would expect based on the usual reports we get from Shopify.
So that, I'll just record that as a moment and our stock analysts that cover Shopify listening on the call can weigh in on that one.

[5:58] BigCommerce, a slightly weirder data set. They saw an outlier, they saw 14% growth, but again, random, they're not trying to report at the industry, they're just reporting their clients.
And then a particularly interesting one to me is MasterCard.
I have a love-hate relationship with MasterCard.
Unlike all the rest of you, MasterCard gets a set of data for stores and retailers, so they try to forecast what happened in retail, which is super valuable.
Historically, I've seen some weird deviations from MasterCard that make me cautious about their numbers.
But this year, they reported Black Friday, they did not report Cyber Monday.
Their Black Friday number was up 8.5% year over year for eCommerce.

[6:39] Which is at the high side of the mean for all these other datasets.
And they reported that on Friday, total retail sales were up 2.5%.
But if you back eCommerce out of that number, brick and mortar was only up 1.1%.
So basically, I would call all those numbers par with our Q3 numbers.
So, that kind of sets the table.
Scot, take us through what we learned from Salesforce.

Scot:
[7:11] Yeah. So, a million questions, Rob. Let's start with, it seems like one of the biggest interesting battle royales is, A, why was Rob's face not on the sphere?
And then B, it seems like one of the data sets is saying Cyber Monday is much bigger than Black Friday. And then in your pre-show, you had said you guys are seeing Black Friday exceed Cyber Monday. So let's start there. Which was bigger?

Rob:
[7:37] Yeah. Well, first of all, I lost the coin flip and Astro or Cody, which are critters in Salesforce world, won.
So they got their faces along with Einstein on the sphere a couple of weeks ago during F1.
So I'm still going for it next year, but we'll see what happens.
But I digress. Let's get into the numbers.
So yeah, we are seeing, you called it a battle royal. I appreciate any reference to 1980s wrestling, by the way.
So thank you very much, but let's not go down that path. That could be a whole other podcast.
But what we are seeing is, as you mentioned, a battle between Cyber Monday and Black Friday for supremacy.

[8:19] And they are going back and forth. What we found in our data in 2019, Black Friday eclipsed Cyber Monday and has remained there, especially outside of the United States.
And so we're seeing big growth and, you know, partly what's contributing to that is not only Alibaba, which has been in place for some time, but Timu and Xi'an, which I know you gentlemen like to talk about.
So regardless what I think, two things based on all the data that you provide, and I appreciate the broad perspective that you share here, is people are actually buying.
They might not be buying as much as they were in the past and throughout the pandemic, but But there is demand.
And you know, I think that's important because when we look at our numbers and just to put it out there for Cyber Monday, and we can bounce around here wherever you'd like to go, is we chalked our number at 12.6.

[9:13] Billion in the United States, and that's a growth of 3%.
And I'll call it a healthy growth of 3%. And the reason being is, for the first time in five quarters, we saw growth being generated by increased consumer demand and not just merely higher prices, which is our indicator for inflation.
And just to put it in perspective, let me talk about Black Friday here, because you mentioned the battle that's happening here.
We saw 16.4 billion in online sales for Black Friday in the US, and that was up 9%. And so, as I mentioned, what this shows us is people are buying.
What it's also showing is that there's a high concentration of online sales for those two days.
And sure, you two gentlemen are laughing because that's been that way since Cyber Monday was coined in 2005, but there has been a smoothing out of demand, particularly around Cyber Week or cyber five for the last several years, but there's been a stark shift back to those two prominent days.

Jason:
[10:27] So interesting on the top line numbers, one of the, you mentioned that you're, you're seeing items increase, not just prices, right? Which kind of opens the whole specter of, of it's, we're not just seeing growth for from inflation, right?
Are there any categories that you're like going into the holiday?
It was like, hey, the growth was in essentials and food and things like that.
And discretionary items like apparel and electronics and toys were not doing well.
Did you guys see, like, are people opening their wallets on discretionary items or are sales continuing to be these kind of essentials and affordable luxuries?

Rob:
[11:06] Yeah, it's a mixed bag. And I do want to underscore your point, Jason, around.
Growth being generated by more volume and not just higher prices.
So that's exactly what we saw.
3% growth when you're seeing 9% increase in inflation is a tough equation to, be profitable and to work out in the consumer's favor.
But in this case, we are seeing more demand. And the demand, as I mentioned, is a mixed bag.
On one hand, we are seeing really nice growth in areas like makeup and health and beauty, skin care.
We're also seeing nice growth in active apparel and active footwear as well.
I categorize that actually as comfort.
In uncertain times when consumers certainly are looking to really take control of their household balance sheets, oftentimes you migrate to comfort.
You know, you can talk about comfort food, but this is just comfort gifting and comfort what you put on your body, both clothes and literally on your skin.
And so we are seeing nice growth there where actually, if you think about it over the last 12 months, those categories have been hit a bit in terms of the growth curve.

[12:20] And what you're seeing on the other side actually is luxury is softening a little bit, which which I think is important to note because for the last, I mean, gosh, through the pandemic and after, luxury was one of the most, no, not one of the most, was the most resilient categories.
And we're starting to see a bit of breaking down, especially around the aspirational luxury side. So we're going to keep an eye on that.
I will mention one other thing, actually, as it relates to categories that are doing well in the holiday and that is food and beverage and gifting, you know, in terms of.
What people look to for comfort and experiences, they are gifting chocolate, they're gifting wine, they're gifting various gift baskets.
We saw really strong growth, even starting, you know, the Tuesday before Thanksgiving and working its way through the entire holiday.

Jason:
[13:22] Interesting. One category or two categories that come up a lot, like coming into holiday, electronics had been in a pretty big swamp, like for the whole pandemic.
And I'm curious, I've seen conflicting data about whether electronics are back or whether they're still soft.
Traditionally, electronics would be one of the fastest movers for holiday.

Rob:
[13:43] Of course, of course. Yeah, I mean, consumer electronics, toys, right?
Those two are still pretty soft. I think you really though need to put it in perspective in terms of the astronomical growth we saw on those categories over the last four years.
I haven't done the math. You're really good at this, Jason.
So I'm gonna put you to task maybe on your next LinkedIn post, but I am willing to wager, and I'm not a betting person, so I'm not really willing

Softness in Consumer Electronics and Toys Market


[14:07] to wager, but I'd love to see the CAGR of those categories over the last four years.
I'm guessing they're in really strong, like high team growth, which any retailer would be happy with that on a given holiday time period.
So there is a bit of softening, but I think it's really important to understand it in context with the growth that they've seen over the last several years.

Scot:
[14:32] Cool. Um, so, you know, with these good showings and Cyber Monday and Black Friday, what's that mean for the rest of the season?
Are you guys like doubling your forecast, tripling or, and what's that mean for the shape? We talk a lot about the shape of the holiday.
Any, any, any changes to your thoughts on those?

Rob:
[14:49] Yeah. The shape or the anatomy. I've been asked this by a lot of retail executives because they're being asked by their board, like, are you sandbagging us?

Black Friday and Cyber Monday Impact on Holiday Season Shape


[14:59] We need to really relook at this forecast.
We crawled through the data over the last couple of days just to look through our model and see if we could see the data in different ways through different lenses.
The reality is what we're seeing is that Black Friday and Cyber Monday were taking market share from the bookends of the holiday, from earlier on and later on, right before the shipping cutoff date.
And so for the last five years or so, we have been seeing a smoothing out of demand for the seven days that we define as Cyber Week, Tuesday before Thanksgiving through Cyber Monday.
And Thanksgiving became a really strong and important day, especially on the mobile device, especially as consumers.

[15:47] Either being distracted or inspired, whichever you want to think about it, on the couch after Thanksgiving meal, looking at social.

[15:54] But we've seen a snapback of the higher concentration of Black Friday and Cyber Monday.
So it's not like there's incremental sales, and that's what I think you were getting at, right?
I don't think there's incremental sales that we can now account for.
We're still staying to our forecast of 1% growth in the US for November and December.
That's how we define holiday and in the US and we're looking at 4% growth globally, really led by Europe.
And I want to just put a caveat on this.
Not only again, are we seeing that growth come from increased demand, but retailers have gotten smarter.

Retailers' Inventory Management and Positive Growth Forecast


[16:33] I don't know if it's smarter, but they were very deliberate going into this holiday starting six months ago about managing inventory levels and margins.
So there's been a lot of talk about how are we going to handle shipping?
How are we going to handle our return policies?
And also, how are we going to think about our open to buys?
And so I think most retail executives, especially on the merchandising side, are feeling pretty good because they're working their way through the inventory, which by the way, as you know, has been a big glut over the last couple of years, especially in 2021, when so many products were stuck in the port of LA.
I mean, that just created this bullwhip effect that we're still just getting our arms around now and getting over the hump.
And so that's my long way of saying is we're not reforecasting.
We still feel positive with that 1% and 4% growth in U.S. and global, respectively, because.

[17:24] Retailers are taking a very close look at overall profitability and this concept of customer profitability as well.

Scot:
[17:32] Yeah. You'd said, so it seems like the curve was kind of flattening out and now it's like steepening again it's like kind of coming in at the edges and in kind of like shaping up in the middle part of the bell curve which is like the that,

Retailers analyzing profitability and customer profitability.


[17:48] cyber week. Is that that's right. Okay.

Rob:
[17:51] That's really good. Yeah. It's kind of snapped back. Right. Yeah. Definitely. Yeah.

Scot:
[17:56] It's going to make that sound.

Rob:
[17:58] Where's the sound effects in turn? Are they there? Are they on call?
Can we get that bullying?

Jason:
[18:02] I'll be adding that in post.

Scot:
[18:06] You had said something that kind of piqued my interest. You said people are kind of, you know, I may be rephrasing this wrong, but you said kind of demand is back.
Like I knew it almost felt like you were saying before there was, you know, people were shopping, but it didn't seem like, you know, a new increase in demand.
And now it is because you're seeing robustness in pricing and stuff.
Is that say a little bit more about that? I'll make sure I understand what you were saying.

Increase in Demand and Robust Pricing


Rob:
[18:32] Yeah, you got it. So yes. And I, again, and don't think retail executives are doing backflips and thinking that we're getting back to roaring double-digit, growth coming out of the holiday.
But what this is an indication, and by the way, we're seeing this as a leading indicator in Europe, let's exclude the UK, which is probably in the same rebound curve as the United States and Canada, but you take continental Europe and who are about two, maybe three quarters ahead of us in terms of the rebound, we're seeing inflation settle, the average selling prices settle down and people are buying more.
So we're seeing average orders volume higher.
We're seeing slight uptick in units per transaction, only slight.
But the order piece is super interesting. We're seeing traffic.
We're seeing continued really strong traffic.
People are just really being diligent and patient and shopping a lot and looking for the best deals. And we'll have to talk about that in terms of what discounting patterns we saw as well.
So that's my long way of saying Scot is people are buying more, they're doing it.
By still making trade-offs. So there is a sense of let's load up on some essentials while we're getting good deals.

[19:57] Let's look for travel, entertainment, like experiences.
And you have to also think of the adjacent categories like luggage, as an example, if you're going on a trip, do you need something new to put your clothes in?
And though they are, again, increasing, as I mentioned.
So as I think about the sentiment, even with a 1% in the US growth, 4% global is what we're forecasting for the full holiday, retailers are feeling good about that.
They want to exit this holiday on a really good foundation of profitability, a really good foundation on inventory levels.
And most every retailer I'm talking to has a growth mindset.
They're thinking about customer acquisition, finding new ways to do that because customer acquisition costs are still off the charts, but also loyalty, finding new ways to create stickiness, looking for adjacent categories, adjacent services, looking for partnerships to supplement what they're doing organically.
And I mean, this would take us down a whole other path, but they're leaning into data.
They're leaning into AI to better understand who those consumers are and what they're likely to buy and making sure they're able to create profitable customers.
How was that soapbox? I just rattled off too much, too fast.

Jason:
[21:13] So hopefully you were able to digest it. But you kind of, you glossed over what they're really looking at is just selling ads to brands.

Rob:
[21:18] That's fair. Thank you. I could have just said that. You're right.
That's a very good point.
And yeah, we could, I love your take actually, seriously, given that on Amazon's move for the football game on Friday.

Jason:
[21:31] Yeah. So that's a great point. And maybe just to catch up listeners that might not have followed it. Something very different and unique for this year is that the NFL, you know, normally they have a Thursday game and they have Sunday games and a Monday night game.
On Thanksgiving, they have Thursday day games during Thanksgiving.
This year, they added a Friday game for the first time. And the sponsor of that Friday game was Amazon.
It was broadcast on Amazon Prime, and Amazon actually had shoppable ads via QR codes in the broadcast, all sort of innovative, cool, new stuff.

[22:11] The early read is that the viewership was pretty good for the Friday game.
There's no history, so we have nothing to compare it to.
I would argue fewer people are going and standing in line at brick and mortar stores for door busters.
You know, the little bit of data we do have on brick and mortar shows that, like, there wasn't a huge, huge spike in in-store shopping.
I feel like Friday has become more of an online shopping day,

Amazon's Innovative Advertising and Potential Profitability for Holiday


[22:36] which means people are home more, which means there's an opportunity to watch a football game.
I kind of don't imagine that the interactive ad formats, like, you know, we're high volume and really move the needle, but they're innovative.
And I do think that that Friday game is likely to be a new tradition as the holiday shopping season goes from an omni-channel thing to an online thing. At least that's my POV.

Rob:
[23:03] Yeah, I am super interested in your point of view given how close you are to this. So I guess I'm gonna put you on the spot.
Wow, look at me, I'm totally turning the table here, but this has been on my mind.
And actually, interestingly enough, over the weekend at a party, somebody who's not in like retail, you know, he shops.
That's the extent of it. He pointed out what Amazon did and thought it was really clever.
So what did I hear? Like, did they spend a hundred million dollars for that?
Regardless, do you think they made the money back going to your point, Jason, on selling ad space in there and kind of even if it's a break even and or they're gaining more prime members, it was a good day for Amazon?

Jason:
[23:42] Yeah, I am pretty confident it was a good day for Amazon.
Like, one thing to remember is Amazon has a better model for monetizing eyeballs than anyone else, right?
So, like, if you're Coca-Cola and you sponsor a football game, you're trying to get eyeballs and the only way you have to monetize those eyeballs is to get them to drink more Coke.

Rob:
[24:03] Right.

Jason:
[24:04] If you're Amazon, here's what you do. You get a bunch of eyeballs.
You try to sell them something that you make money on. And after you do that, you sell ads to other people for more than you paid.
And they try to sell something to that person, right? And so, you know, the combination of the ad revenue that Amazon generates and the top of funnel, and bottom of funnel benefit that Amazon gets, again, they're building their brand.
Your friend that was just talking to you, he wasn't talking about a particular product he was shopping for.
The brand he remembers is Amazon, right?
And so you got that Amazon top of the funnel benefit, which is valuable and important.
Amazon probably sold some stuff to people. So you got that Amazon bottom of funnel benefit.
And then we know Amazon sold a bunch of ads, which is, you know, a huge, huge driver of incremental profit.
So yeah, I definitely think we can call Amazon a winner there.
I think when it all settles, we're also going to see that it was just a pretty good sales day for Amazon as well.

Rob:
[25:09] Yeah, I bet you're right. Yeah. The last point and then we can move on and by the way, welcome to episode one of the Rob Garf podcast, is the fact that I mean, knowing Amazon, those ads that you're getting are personalized in terms of them understanding who you are and even if it's a different size or a different brand or a different you know, whatever, even what they know about what's in your shopping cart, what you bought in the past.
So anyways, it sounds like, as I would have suspected, you're pretty bullish about it and I am too.

Jason:
[25:37] So yeah, I do want to cover something just kind of fundamental.
So, so we rebounded a little bit and we got bigger sales on, on Friday and Monday.
Potentially we might've just pulled some sales in that were going to happen later in the month per your, your comments about not wanting to re-forecast.
Did we partly pull those in by giving deeper discounts than we usually give?
Like what, what did you see from a discounting standpoint and what does that say about potential profitability for Holiday?

Rob:
[26:03] Yeah, yeah. Yeah. So we actually looked at this going into the Holiday and we went back to 2019 and I have the team look at discount rates starting in November 1st for 2019, 2021, and 2023, what we had anticipated for this year.
And what we saw and actually came true is we saw discount rates over Cyber Week hover just north of where they were in 2019.

Discount rates over Cyber Week in comparison to previous years


[26:31] Don't forget, 2021, there were the lowest discount rates that we've seen because the product just wasn't there.
So retailers, it was the first time they won the game of Discount Chicken.
The short answer is yes. Retailers did discount the heaviest they have all year, right around 30% on average.
And I think that's important. It's on average. I mean, we've all seen discounts of 40%, 50%, really creative discounting strategies.
And so that definitely drove demand. I mean, going back to the consumer, while they're buying more, they're making trade-offs and they were really diligent.

[27:09] They were really patient and they waited and they waited and they ultimately saw the attractive deals starting in earnest on Black Friday.
They weren't even that great on the Monday, Tuesday, I'm sorry, the Tuesday, Wednesday, and Thanksgiving, Thursday until Black Friday, and then they started to buy.
So they held out and they ultimately purchased those attractive deals.
In terms of margin, I think we're doing okay. And the secret here is when we looked at the data, given all the inflation that happened, And actually, consumers are still, even with these deep discounts, paying more than they were in 2019.
The optics are there. They're feeling like they're getting a good deal, but the reality is they're still spending more. So I think they'll be okay.
And there wasn't this protracted discounting that did happen.
And because they manage their inventory well, the retailers, and their discounting strategy as well, I don't think they're going to be forced with the hail Mary discounts that you often see right before the shipping cutoff date.
So I think that retailers actually managed it pretty well.
I give them credit too, by the way, what we saw in our data as well is retailers were a lot more transparent around their discounting strategy.

[28:23] Many were offering price match guarantees.
If they saw, you know, the consumer saw the price for less, and they were also much more transparent around their return policies as well.
So people felt a little more comfortable buying earlier, even if the prices weren't exactly where they wanted it.
So the long of it is, or the short of it, whichever way I look at it, is there were healthy discounts.
Consumers took advantage of them.
I'm still feeling more positive, especially than I have from last year, about margins.

Scot:
[28:57] Cool. You said something I want to dig into, and then I want to pivot to be in PL. You said luxury was a little soft. What do we make of that?

Retailers' management of inventory and transparency in discounting strategy


Rob:
[29:06] Yeah, and like I said, it's had a run, like I haven't seen before in any one category.
I mean, don't get me wrong. Consumer electronics really strong and some other categories in the pandemic home looked really strong as well.
But it continued after the pandemic, both in store and online.
What we saw compared again, just to put in perspective, three percent increase on Cyber Monday in the U.S., nine percent increase in Black Friday in the U.S.

[29:34] There was a tick low beyond flat for luxury. What it also showed is they started to.

[29:41] Discount more than they typically do. You think of luxury, they're going to hold their really price and be sensitive around preserving their brand and their margins.
And we were seeing that tick up as well.
I think the ultra luxury is still alive and kicking, no problem.
It's more of that aspirational luxury.
One area that I think is really important to point out is the resale market.
More and more luxury brands are playing in the luxury market game.
I'm sorry, the resale market game, because they realize people are doing it anyways, and they might as well offer that in many cases on their own website.
So like Coach as an example, Canada Goose as an example, have the capability to exchange product, which then allows existing customers to likely buy something at a higher price point.
And then if the product is in good enough shape, they're able to resell it and allow for aspirational shoppers to actually access that brand and buy it where they might not have been able to in the past.
So yeah, I'm not overly concerned about luxury.
I mean, the brands are so strong and there's so much loyalty there, but it just does show that in the aspirational space, people are trading down to a degree.

[30:55] You know, they're trading down for value in the resale market.
In many cases, they're trading down for vintage.
It's amazing to see how many, you know, sneaker brands and specific models are hot that we all remember from our high school days.
And you know, even the younger generations like to save the world a little bit as well.

Scot:
[31:14] Yeah. So I guess what I'm getting at is, do we think the consumer's rolling over and that's kind of the BNPL question too, because one way to read BNPL increasing is people are under financial stress. So they're stretching out payments.
Another way is, you know, seeing all this data and it's always sponsored by one of the BNPL providers.
So I'm never sure how to take it, but it shows that, you know, millennials and Gen Zers like, they don't like open credit.
And it's weird because my kids have this perspective too. I thought it was like, I thought it was totally made up and then they're like, oh no, I, you know, I hate having like these credit cards with big limits.
And I'm like, well, if you don't use it, it doesn't matter. It just makes them

Consumer behavior and the rise of Buy Now, Pay Later (BNPL)


[31:52] nervous for some reason.
And do you think it's a generational thing or is it a little sign of softness on the consumer?
And maybe the luxury is another indication that it feels like the consumer is rolling over a little bit or you don't see that.

Rob:
[32:06] Yeah, I mean, I think it is a bit generational to your point.
I don't have those data's points to substantiate what you're describing.
But a lot of what I learned is from my 17-year-old and 14-year-old because they're right in the smack dab of purchasing and trends and so forth.
Don't worry, we have a lot more data at Salesforce to back this up, billions and billions of shoppers.
But in any case, the anecdotes definitely help provide a full commentary.
But we saw an outpay later over Cyber Week increase 7%. So that's healthy.
It's a little slower than we've seen in past.
What we're also seeing, and it started last year, is it's on lower and lower price point merchandise.
So that also speaks to the adoption as well. It's not just on the big ticket items.
I think if I zoom out for a moment as well, mobile wallets were really strong.
Mobile wallets were really strong. We saw about a 50% increase year over year in that.
Now, of course, it's a smaller base than traditional credit cards and debit cards.
But still, it's showing the adoption because it's really breaking down the friction in the checkout process.
But we keep a close eye on buy now, pay later, because you're right.
It could be an indication, especially as consumers look to buy lower price merchandise, that it might be a softening in the market.
But we're not quite there in proclaiming that.

Scot:
[33:25] You said a mobile wallet. That is catnip for retail geek, so I'll get out of his way. I bet he has a million questions.

Jason:
[33:32] Yeah, no, Scot knows I love a good mobile wallet and I'm sure everyone's already heard this,

Mobile wallets and the impact on checkout process and shopping experiences


[33:37] but I have a hypothesis that some of the popular shopping behaviors we see in Asia aren't as popular here because we don't have as good a penetration of mobile wallets and that if you have mobile wallets, it makes certain experiences like shopping on social media and things like that easier because it only requires one hand instead of three hands.
So I'd be curious, do you guys think you're seeing more mobile wallet users, or do you think you're seeing more transaction from the existing users, or do you have the ability to?
To see between those two? I suspect I just asked you a question you're going to now have to go do research on.

Rob:
[34:17] Nick Neumann We may have that based on some of the primary research we do.
We don't have access to personally identifiable information, so we can't see by user.
But my thesis there is it's both. There are more people adopting mobile wallets because they see the convenience and the friction that's removed.
And then once that happens, they're buying more.
I think you go back to the Amazon example, part of why that's probably a home run for them is because it's a lot easier for somebody to buy in that form factor than let's say Roku or other Verizon user interfaces that you don't have a wallet associated with it.
I didn't go through the shopping process on the Friday NFL game, but I can only imagine it was much easier than having to do it through other types of media.
So I think that, yeah, I agree by the way, with your hypothesis that, you know, embedded commerce or shopping at the edge has been a bit stunted because, the wallet piece is not there or as accessible as it is in other countries.

Buy Now, Pay Later Growing and Replacing Layaway


Jason:
[35:30] Yeah. Two things I'll just throw out there on buy now, pay later.
I mean, I do, I think it, it legitimately resonates with the new crop of consumers.
And so I think it's growing for all the reasons that the Buy Now Pay Later people claim it's growing.
But I would, there's two accelerators that are just kind of convenient in there.
Holiday used to be a big time for this payment method that the youngsters on the call wouldn't have heard of called the layaway.
And almost no retailer that I'm aware of has brought back layaway, like they all retired it in the last several years, largely because Buy Now Pay Later has replaced it. And so, you know, layaway is most popular around holiday.
So, you know, to the extent that buy now pay later is the digital version of layaway.
It kind of makes sense that you would see a spike over a holiday.
Also, digital is growing much faster than brick and mortar. Buy Now, Pay Later is disproportionately online.
So that, you know, is another reason you would expect Buy Now, Pay Later to spike.
One thing that's a little alarming slash interesting to me is that Buy Now, Pay Later gets used for a wider range of purchases and merchandise than LayAway did.
Like, LayAway tended to be big ticket items, your kid's aspirational toys, but Buy Now Pay Later gets used for food and consumables and things that economically you would argue probably don't want to be financing something that you need to rebuy every month.

Rob:
[36:52] Yes.

Jason:
[36:53] So I'll just throw that out there on Buy Now Pay Later. We are coming up on our allotted time.
I do have two other pieces of news that just kind of interrupted the Turkey Five news cycle.
And one of them I'm super sad about, and it's actual breaking news that happened while we were recording this show, Charlie Munger just passed away at 99.

Rob:
[37:13] Oh, wow.

Scot:
[37:14] That's terrible.

Jason:
[37:15] Warren Buffett's partner, and I just, I feel like, very admirable person.
I've learned a lot. He and Warren Buffett, like, are super generous with sharing

Charlie Munger's Passing and Xi'an's IPO Announcement


[37:23] all this thought leadership, and I just want to say best wishes to all his family and loved ones. Seems like you had an amazing life.

Rob:
[37:31] Yeah, I echo your sentiment.

Jason:
[37:33] Yep. And then in the middle of Cyber 5, you guys teased this a couple of times talking about Xi'an. and Xi'an disclosed that they filed an IPO.
So that came out yesterday. It's a confidential IPO, so we won't actually see the prospectus until probably 2024 sometime.
Okay. And the theory is that it's going to be, because of their not super transparent ownership structure and their Chinese ownership, it's gonna have extra regulatory scrutiny.
And so the reason you'd file a confidential IPO is so you could start talking to regulators and negotiating what you're gonna do and what you're gonna disclose.
And so they're probably working through all that stuff to then do the public IPO later.
But it's, I'm excited for when that gets disclosed because there's a lot of speculation about how big Shein is and how profitable or unprofitable their model has been.
And we're gonna be able to do away with all that speculation and get some real certified data.

Rob:
[38:38] I can't wait to listen to that show when you dissect that. It will be super interesting to see where they're allocating the investment and the capital.
Beyond, obviously, hiring people, but what parts of the business.

Jason:
[38:51] I totally agree and that's going to be a great place to leave it because we have used up our allotted time.
Rob, so grateful and congratulations on being our first six-time guest.
And as per usual, if you enjoyed this episode or it was useful to us in any way, the two ways you can reward us are to do a giant enterprise contract for all your marketing services with Salesforce.com or, you can leave a five-star review on iTunes for Scot and I.
So, you know, those are the two paths, choose whichever one makes most financial sense to you, but appreciate it if you do one or the other.

Rob:
[39:29] Yeah. And if I could say too, I know we're running up against time, but I want to give a big, sincere thank you.
Obviously we just came out of Thanksgiving, so I want to show my gratitude.
You know, it's amazing. Anytime I'm on the show, the people that reach out to me, not only talking about the show, but how much they've learned from you.
And so for you to trust me and providing my perspective and Salesforce perspective means a lot and just thanks for being such good friends.

Scot:
[39:56] Robert Leonard Jason said, no, but I overrode him just so you know the history.
I thought, you know, Jason's like, I'm the retail geek. We don't need any Garfies in here.
Rob, remind us where could people go? You guys will be updating your data.
I assume, you know, this is the last time you'll be on for this year, but I'm sure you'll be publishing more data as we get deeper in the holiday.
Where do people go to see that?

Rob:
[40:19] Jason Cosper Yeah, we have our Shopping Insights HQ on salesforce.com.
We will be updating the information.
We'll do a mid-season report right around the shipping cutoff window, and then we'll do an all-wrapped-up just around the beginning of NRF. So keep an eye out.

Scot:
[40:34] Awesome. Well, thanks, everyone, and until next time...

Jason:
[40:38] Happy commercing!

Nov 20, 2023

The Jason & Scot Show.  Podcast about e-commerce and digital shopper marketing.

Editor note: We're trying some fun new AI features for this episode. The following show notes were written by ChatGPT. We're also let AI remove all the "stop words" in our audio, and we've switched from Google to OpenAI for our audio transcription. Let us know your feedback.

In this episode of the Jason and Scot show, our special guest is Sean D. Nelson, the CEO and founder of Lovesac. He shares his inspiring journey of starting the company as a beanbag business in his basement and growing it into a successful public company. Sean highlights the key moments of his entrepreneurial journey, including winning a million dollars on Richard Branson's reality TV show and navigating the ups and downs of the business. Sean has upcoming book and podcast, both entitled "Let Me Save You 25 Years: Mistakes, Miracles, and Lessons from the Lovesac Story."

Sean emphasizes the importance of being a direct-to-consumer brand and how Lovesac has found sustained success by focusing on customer acquisition costs and offering a high-quality product. He discusses the concept of direct-to-consumer and shares his thoughts on its significance. Sean believes that having a differentiated product that provides value to customers is crucial, rather than simply relying on an online sales strategy.

The conversation also touches on the topic of innovation and how Lovesac has been able to push the boundaries of what a furniture company can offer. Sean discusses their Stealth Tech innovation, which incorporates surround sound into their couches, as well as their commitment to creating products that are built to last and designed to evolve.

Sean acknowledges the challenges of operating in physical retail and highlights the importance of their showrooms in reducing customer acquisition costs and providing a hands-on experience for customers. He also mentions their partnerships with Best Buy and Costco to expand their reach.

The discussion expands to the future of retail and e-commerce, with Sean mentioning the transformative role of AI but cautioning that it takes time for movements to fully evolve. He emphasizes the importance of being patient and keeping an eye on developments in the industry.

The conversation concludes with Sean expressing his long-term commitment to Lovesac and his desire to build something meaningful rather than focusing solely on personal gain. Listeners are invited to check out Sean's podcast and website, as well as his upcoming book, which will be released in January.

Overall, this episode provides insights into the journey and philosophy behind Lovesac's success and offers valuable perspectives on entrepreneurship, innovation, and the future of retail.

Chapters
0:00:46 Introduction and Welcome to the Show
0:08:36 The Journey of Love Sack: From Highs to Lows
0:12:05 Love Sack's Traditional IPO and Company Performance
0:15:49 The Importance of Having a Differentiated Product
0:19:49 The Value and Overhype of Market Movements
0:23:18 Sactionals: Built to Last, Designed to Evolve
0:25:56 Driving a Movement for Sustainable Consumerism
0:31:36 Innovation and the Evolution of Lovesac's Product Line
0:37:07 The Strength of Lovesac's Physical Showrooms in the DTC Landscape
0:40:03 Testing and Learning: Mobile Concierge and Shop and Shop
0:41:52 AI's transformative role in the future of technology
0:50:08 Long-Term Vision vs Quick Profit

Episode 313 of the Jason & Scot show was recorded on Thursday, November 9th, 2023.

Transcript

Jason:
[0:23] Welcome to the Jason and Scot show. This episode is being recorded on Thursday, November 9th, 2023. I'm your host, Jason "RetailGeek" Goldberg, and as usual, I'm here with your co-host, Scot Wingo.

Scot:
[0:37] Hey, Jason, and welcome back. Jason and Scot show listeners.
Jason, we're very fortunate to have a entrepreneur on the show.
I'm the entrepreneur side of our partnership. So I always really enjoy these.

Introduction and Welcome to the Show


[0:49] We have on the show, Sean D. Nelson. He is the CEO and founder of Lovesack.
And a little birdie told me that he recently started a podcast himself.
He started Love Sack as a beanbag company in his basement when he was around 18.
And now it's a public company and doing relatively large revenues over 600 kind of run rate.
If I look at the last quarter, I took a little glance at that.
Sean, welcome to the show.

Shawn :
[1:13] Thank you. Thanks for having me. Great to be with you.

Jason:
[1:16] We are thrilled to have you, Sean. Listeners always like to kind of get the background. I'm imagining you don't have a deep background before you started Love Sack because you started it so young.
But can you, like where were you in life when that brought you to start build your own product?

Shawn :
[1:34] Yeah, strangely, 25 years in and still running the same company I founded as my side hustle in college, which is exactly what Love Sack was.
So 95, all the way back then, I made a giant not bean bag because I thought it would be funny.
I literally, 10 days out of high school, got off the couch at my parents' house, having this dumb idea, like, how about a beanbag, like, me to the TV, like, the whole floor, like, huge.
Drove down to the fabric store, bought some fabric, brought it home, cut it out, and then began sewing it up, broke my mom's sewing machine, neighbor finished it, took three or four weeks to try and stuff it, originally with beads, but couldn't possibly find enough, so looked around the house, I just found out my parents' camping mattresses chopped up yellow foam, you know, like those yellow slabs of foam you take camping, on a paper cutter in the basement.
And eventually, I mean, foam, packing peanuts, old blankets, had this thing stuffed and started using it out and about through university, taking it camping, back of the truck, driving movies.
Ended up putting it away for a couple years. And by the way, everywhere I took it, everybody wants one. Like everyone's always like, Oh my gosh, what is that thing? Where'd you get it?
I was like, I'll never make another one. It was such a pain in the butt and put it away for a couple of years to go be a missionary for my church.

[2:58] And came back to finish up university in 1998.
And that's when I founded the company. Cause people kept bugging me to make them one.
And it became my side hustle in college.
And we tried to sell these things eventually beyond our friends and family and beer fest, May fest, October fest, car shows, boat shows, 10 by 10 booths, how we got started.
Tried to sell them to furniture stores and they laughed at us and told us it was a dumb idea.

[3:34] Eventually, at a trade show got discovered by the limited to this is like, you would not today as justice like in the malls, like little girls pink and purple fuzzy stuff for their bedrooms and, and clothing.
Anyway, they ordered 12,000 little love sacks, not knowing it was me and a buddy and like a woodchipper shredding foam in the back of this furniture place.
And, and that forced us to source over in Asia, which is, you know, where I had served my mission.
So I speak Mandarin Chinese. There's a whole story there I won't get into it it was just kind of one thing led to another led to another week we built a factory to support that 12,000 sack order we then went out to the furniture stores who again laughed at us didn't want our $500,000.

[4:19] Beanbags having completed that order wanting to keep the factory going so we finally opened our own store in a mall that didn't even want us there but finally capitulated let us in because they We had a space to fill for the holiday season, in Salt Lake City, Utah, and it just exploded.
We did a good job, carpet paint, neon sign, made it look like a proper mall chain store selling giant beanbags, and it just took off. Like, it worked.
People came in, flopped down, music bumpin', big screen TV, playin' movies, had a great time.
There was a couch in the corner to look pretty, be part of the decor.
People kept asking about the couch, And that led us to eventually, many stores later, many states later, invent Saxionals, which is our modular sofa solution, which now drives almost 90% of our sales today.
So we're more a couch company by far today than we are a beanbag company.
And there was a whole, listen, I'm skipping over decades of time really, but there was a whole transition where we...
We went through after we invented the sectionals and solved all these problems people have with couches not only can you ship it to your house via FedEx which was hyper relevant you know for.

[5:32] E-commerce and digital marketing obviously but it's watchable and changeable, and movable and it can be with you the rest of your life that that led us to a whole design philosophy that now.

[5:42] Drives are innovation we think is a really cool secret sauce called design for life but. 10, 20, 50, 100, 250 locations now.
We came public in 2018 on about 100 million in sales.
Right around the time there was just tons of fervor in this direct consumer movement.
We had farted around, we'll call it as a furniture store, selling rugs and lamps and bowls and baskets and all the obvious things along the way.
And it was really when we purged all that stuff around 2015, seeing the Caspers of the world emerge and Warby Parker's and even Tesla with their showrooms.
Could we adopt a more e-commerce-led model with showrooms for people to kick the tires, so to speak?
And that transition is really what unlocked the lovesack that you see today and where most of our growth has come since about 2015, 16, when we made that pivot, took the company public, wrapped around that direct consumer story.
So we're not a digitally native brand originally, we were actually a retailer that pivoted and became digitally led.
And now we don't even operate stores in the traditional sense.
We don't, we don't stock things there. You know, you don't walk out of there with your product.
They're all really online sales and those showrooms are extremely powerful mechanisms for helping people make up their mind around a five or 10, $15,000.

[7:06] Purchase where they want to see the thing and sit on it and, and, and see if it's everything it's cracked, it's cracked up to be online.
And so we, we, we believe that we really, uh, through that arc.
And then by the way, since coming public, I don't know, six, seven X, the company this year, you know, we'll, we'll be on a run rate to the analysts were a public company.
So the analysts show us around, you know, it's called 700 plus in revenue and profitable, very profitable and cash generative.
So we think, you know, the direct consumer game, in a lot of respects, Love Sack is one of the unlikely winners of that entire movement.
Because I think at that scale, there are very, very few, what I call successful direct to consumer brands. And so we're really proud of that.
And it's been a long saga, and we continue to grow and change and adapt and evolve.

Jason:
[8:01] It's an amazing story. And we definitely want to unpack it. But I want to go all the way back to the beginning for one second. Did that neighbor who helped finish sewing the first prototype get any equity?

Shawn :
[8:13] No, it was my ex-girlfriend's, mom, so about the time she exited, you know. No, it was just a friendly favor, but the truth is a lot of people helped out along the way, and a lot of people had equity or have equity in Love Sack from along the way, but look, we've been through every high, every low.
Somewhere in the middle there, I skipped over it just because of brevity.
Not only did I win a million dollars on TV with Richard Branson,

The Journey of Love Sack: From Highs to Lows


[8:38] his reality TV show on Fox Network back in 2005, if you can believe that, the rebel billionaire.
But I also guided the company through a complete chapter 11 reorganization back in 2006, spearheaded by Venture Capital, which was painful and ugly and embarrassing and humiliating.
So we've been through every kind of thing over these better than two decades.

Scot:
[9:01] Yeah, my deep dive question is, when you rented or bought the wood chipper, did you tell them you'd be throwing foam in there, or did they think you were clearing up a tree?

Shawn :
[9:09] Oh, that's so the original story. Yeah, the original woodchipper actually, you know, if you've ever used one in your backyard or, you know, you shove sticks into these things, that's basically what the original shredder was.
And it was in the back room of this furniture factory already.
They had used it back in the seventies to shred foam, but it had an electric motor, right? Instead of like, okay.

Scot:
[9:30] So it's okay to be inside here.

Shawn :
[9:32] Well, yeah, but I had to rehab it because it hadn't been used in like a decade or two because shredded foam had fallen out of favor in furniture.
And then later to do that bigger order, we couldn't afford like a proper German, shredder, so we ended up driving out to farm country to find more of those same kind of shredders and actually found a hay grinder called a hay buster can shred 2000 pounds at a whack.

Scot:
[9:57] And that's a lot of power.

Shawn :
[9:59] Yeah, it's powered by a tractor. So we, you know, agricultural loan for tractor and hay grinder. I mean, crazy, crazy story in the beginning.

Scot:
[10:07] Yeah, as a family, you gotta figure out how to get it done, right?
Whatever it takes.

Shawn :
[10:12] Whatever it takes.

Scot:
[10:13] I didn't know the Richard Branson thing, so that was interesting.
Did he like, was he an active investor, or that's like one of those things where his people kind of take over and you never hear from him again?

Shawn :
[10:22] No, I mean, it was a weird situation. He had a reality TV show, 2004-5, The Rebel Billionaire, you know, whatever, 16 contestants.
It was like The Apprentice, but not for apprentices, for entrepreneurs.
So my runner-up on the show was Sarah Blakely of Spanx, gives you an idea.

Scot:
[10:38] Oh, okay, cool, neat.

Shawn :
[10:39] Yeah, yeah, so we became great friends, she and I, Richard and I.
I ended up also being named President of Virgin Worldwide for a minute as part of the prize, believe it or not.
So, worked with Richard, worked with all of his CEOs.
Totally weird outcome. And, you know, but huge, huge blessing and a huge piece of story.
And he was involved in sort of our VC round that ensued on the tail of that.

Scot:
[11:06] Okay, and then I think I saw that you guys were on Shark Tank, right? You were like one of those that you know, kind of one of the big success stories.
Was that the OG Shark Tank or?

Shawn :
[11:16] No, we weren't on Shark Tank. A lot of people thought that. There was a Love Sack copycat that's on Shark Tank. Okay, and so they got...

Scot:
[11:23] I was confused because like Google says you were and then I was like, but then I couldn't find the episode.

Jason:
[11:28] There's a whole TikTok channel dedicated to Love Sack and Shark Tank and it's super weird.

Shawn :
[11:36] That's super, yeah, people get confused.

Scot:
[11:42] Yeah, yeah, super weird. Yeah. And then when you did your IPO, was it a traditional IPO or did you guys get caught up in the SPAC craziness?

Shawn :
[11:51] No, we did a traditional IPO back in 2018 and you know, our stock has been really volatile for lots of different reasons that, you know, COVID was crazy, but the company performance has been really solid.
So we're just trucking.

Love Sack's Traditional IPO and Company Performance


Scot:
[12:06] He, I think, was at Graham that said in the short-term it's an emotional machine, in the long-term it weighs your financials.
So you got to, it's very hard, you know, I took a company public, not to the level you have.
And yeah, it is, I was like, I'm not going to look at the stock, it's not going to influence me. And then suddenly everyone's like, are we making the quarter? And it's like, okay.
And then suddenly it's very hard to get out of that, that short-term mindset.
So congrats to you for sticking to it for so long.

Shawn :
[12:29] Yeah, look, I'm actually a big advocate of it, having lived inside of it now for almost six years.

Scot:
[12:36] Yeah, the transparency is good, you know, and I like that part of it, I think that's good for, you know, to kind of have to put out everything that you're doing, you know, it's a, the ultimate, yeah, it's like, yeah, transparency tends to be a good thing.

Shawn :
[12:48] I think it's the right way for companies to be governed and ran.
Anyway, we could get into that if you want.

Scot:
[12:56] Yeah, I like the, you know, and you talked about all the other, we call them digitally native vertical brands, like the Warby's and Bonobos and all that.
And yeah, a lot of them have not made it past kind of like that hundred million dollar level.
And you guys have obviously, you know, six, seven X that, which is awesome.
And then, you know, the big knock on Casper for a long time was as we've actually had this guy, Dan on the show, people were able to pick apart the CAC LTV and they found the average selling price was like, Jason will know these numbers, but it was like 350 and their cost to acquire a customer was 400.
And they were like, you know, that obviously wasn't sustainable.
So it's pretty neat that you guys have figured that out.

Shawn :
[13:36] Yeah. I mean, that's at the root of why obviously we've had some sustained success.
And I think it's also at the root of why there are almost no other direct consumer brands making any money. End of story, full stop.
And it's pretty fascinating to watch the whole thing unfold, because it really has been a movement for almost a decade.

Scot:
[14:01] Yeah, and I don't want to dig into the information you don't divulge publicly, so this is not a trap or anything but is it because the selection or your products, you've kind of cracked the code on Kakao TV, like what do you, and I don't want to know any methods or anything. and what do you attribute it to?

Shawn :
[14:18] Look, I think, let's start at the root. I think that many companies, product companies, let's start there, overlook the fact that you need a really good product.
I think they pick a category and they say, oh, it could be a direct consumer brand.
And the truth is, what does that even mean? Do you mean, because here's the funny thing.
When I hear analysts and industry people talk about direct consumer, it has become synonymous over the last decade as it's unfolded today with e-comm.
Oh, you mean you're an e-comm company and in many cases you do half of your sales through wholesale.
So what does it even mean? I mean, if you want to talk about a direct consumer brand, LoveSack may be the most direct.
We don't have any wholesale. I'm talking zero, and we only sell through our own channels, whether it's our website or our showrooms.
And we have these partnerships, for instance, where we operate our own showrooms inside of a Best Buy or a Costco.

[15:26] But you know, so this whole phrase even, direct-to-consumer, I think is really kind of silly.
You mean you're a company that sells stuff online and maybe in showrooms and maybe in wholesale?
So you're a company that sells stuff. So let's start with stuff.
And you have to make, I think, if you want to be successful in the world, it's not a new concept. You have to have...
A great product or or you have to have some other really. Hiller efficiency

The Importance of Having a Differentiated Product


[15:52] and i think what most have discovered it was a list again over this long decade of direction sumer evolution is that without a really differentiated product.
You're just another company with a clever name lots of funding and if you throw lots of money at anything it's gonna grow.
But you need to be differentiated. So Love Sack, you know, start with the giant beanbags.
They were unique, especially in their day. There's tons of copycats out there now.

[16:24] Sactionals are extremely unique. The problem is they photograph just like any other sectional sofa.
Like if you took an image of Sactionals and an image of one of, you know, out of any competitor that sells couches, ours looks a lot like theirs.
But the difference, the differences are myriad in terms of their washability, changeability, quality, and modularity, and many of those aspects, especially on the modular side, are patented at LoveSac.
And so once you dig into it, you find that that's the number one driving factor, is we have a product that's truly differentiated, truly gives more value to the customer, and therefore, we can extract more from the market.
It's really that simple, right? And that's at the root of why our CLV to CAC ratio it was so high and sustainable and cash-generative and profitable.
And then we could go down all kinds of other paths. We could talk about our website, execution and stuff like that.
And all of it needs to be there. Look, running a business is multifaceted and difficult. But at the root of it is that.

Jason:
[17:27] For sure. One of the things I sort of admire about your company is the original premise was not to have a particular go-to-market strategy.
It was to have this great product that people wanted to have in their lives, right?
And it feels to me like that, the whole quote unquote D to C movement, like this notion that before you solve any other problem, you're just gonna put a flag in the ground, like this is how you're gonna go to market, that just, it just seems silly because that may not be how the customer wants to acquire your product.

Shawn :
[18:00] Yeah, I think you're right. And I think that, so I think that whole movement that we're a part of, so I don't mean to like bag on the movement.
I'm just an observer as well. Like I've been living in it, right?
And we put, and I'm being really transparent, we put on those clothes very intentionally.

[18:16] Because people that planted those flags were getting funded.
People that planted those flags were being understood at the time.
And these movements come. Right now, I could hold up a flag that said AI on it and go out there and raise a bunch of money and do something.
And in the end, 99 out of 100 of those, flags are going to fall by the wayside after having tons of money thrown at them and Probably 1% of them will go on to you know be the next Googlers or who knows what right?
But these movements come and go and and and I'm and this is what I'm saying You gotta be careful.
I'm not bagging on the movement because these movements are useful these movements drive economic activity these movements drive innovation But they're often way overhyped, not as, I think, not as, so, you know, I mean, we could get into AI, you guys are, I'm sure, tracking it just like I am.
What does that even mean? Oh, you mean like software? You mean like software that, that does stuff in an automated fashion?
Like is that, is that, is it really that new?
But it doesn't matter. It's a story that's being heard.
It's a story that's being understood and it's where the momentum is.
And so if you're able to wield, take advantage of these movements in the marketplace to your end, that's what, and that's exactly what LoveSack did.
We put on those clothes, we took a concept that had been around for a long time, our concept.

[19:42] And look, in the end, the thinking and the development and even like, let's say the web services and all the things available to that movement that

The Value and Overhype of Market Movements


[19:49] were spun up because of that movement, we benefited from.
The money raising pricing aside, momentum, going public, whatever, all these things aside.
So that's why I'm saying I think that there is value in these movements, but fundamentally, you still need to have a great business, a great product, something that's truly differentiated, because anyone with some funding can go out, buy a logo, buy a name, and look like they know what they're doing.

Jason:
[20:20] And yeah, for sure. And to your point, there's a, there's a funny data by going around in, in our industry this week that like over a hundred million dollars or I'm sorry, Amazon's GMV is, I'm sorry, a hundred billion dollars of Amazon's GMV is from AI.
And you hear that and you're like, oh my God, that's huge. And then you find out it's product recommendation tiles that they launched in 1997.

Shawn :
[20:45] Yeah. Yeah. Yeah.

Jason:
[20:47] Which, yeah. Yeah, so I do just want to like kind of wrap up this section, but put it in context.
When you open that first store in a mall, like the mall competition for furniture stores was like Expressions Furniture, right?
Which no one on this call would even remember probably.
And then like by the time you really, after your IPO and really caught fire, you were competing directly against all these D to C companies that were expanding in malls. You were probably competing for leases.

Shawn :
[21:18] Yeah.

Jason:
[21:19] It's quite the, quite the journey. Now, Scot mentioned at the beginning of the show that you had recently started a podcast and I'm two part question.
How the heck did you have time to start a podcast and tell us what the premise behind the podcast is and what you're talking about?

Shawn :
[21:36] Sure. Yeah. Just to comment first on what you pointed out, there is this whole strip in the malls now out there right now.
But by the way, in these shopping malls that I was told were dead, you know, I could read the headlines of shopping malls are dead back in 2001 when I was opening my first shopping mall and I was forwarded those kind of emails by friends and family who were concerned.
And here we are in 2023 and while these things change, they take decades to change.
Meanwhile, they've evolved and you have all of these direct consumer players now and it It just cycles through, you know?
What the players inside of these shopping centers happen to rotate, and I've watched it all evolve, and by the way, they're rotating again, because a lot of those players are not viable. Some of the best ones, biggest ones, you know?
Like, concepts like Peloton, who I think is amazing as a concept, you know?
They have their struggles, and so we watch these things evolve.
In terms of, the podcast is relevant to this. Let me explain why.
We had the chicken, I'm going to go, given the nature of what your podcast is, I'll give you a much broader picture than just, hey, why am I recording a podcast on my own and writing a book?

[22:55] It works like this. We had the chicken before the egg.
Sactionals being the chicken, we discovered, as we observed and had success with it, we believe are so successful because they are are built to last a lifetime and designed to evolve.
Like those two attributes in our product are quite unique.
And those two attributes underpin what we call our designed for life philosophy.

Sactionals: Built to Last, Designed to Evolve


[23:21] I did not found Love Sack to make products that are super sustainable, sustain hyphenable. In other words, things that actually sustain.
Who's talking about that? I was just trying to survive. I made a big beanbag, people liked it.
Made a couch because people were asking about couches. who has solved all these problems, observed the success, and that success was rooted in the fact that things were built to last, designed to evolve.
Now that's led us to this whole philosophy that will inform our innovation on every product going forward, and it's why I'm so confident that we can continue to succeed, is because of this design philosophy that I'm sharing with you openly.
Because it's one thing to say it, it's another thing to execute to it.
That's the hard part. It's the execution that's the hard part, you know? Now, that said...

[24:08] I'm trying to drive a movement. I believe that there are many people that are sort of aware now that we have been conned into buying too much crap.
New season, new collection, the merchandising hamster wheel, new iPhone, now it's got a titanium band. Really?
Everyone knows. No, it's not even hidden. It's not even like a secret. it.
This whole hamster wheel called planned obsolescence that was not an accident, it's absolutely an economic strategy to lift us out of the Great Depression and onward.
And it has roots all the way back to Louis XIV.
What's my point? The world has just, I guess, accidentally, not so accidentally, fallen into all kinds of rhythms that are unhealthy, unsustainable, and not good for anyone, not good for the environment, not good for people, you know, we're frenetically chasing out.
Now my jeans are too tight, now they're too loose, now they're too long, now they're short, now I got, now they got to show my ankles, now they got to drape over my, like, this is not an accident.
This is a self-propelling machine that we have created.
What's my point? I believe we can drive a movement amongst people to reject that.
And I believe factionals is one of the embodiments of that.
Things built to last a lifetime are designed to evolve. So that movement is actually my long-term strategy.

[25:33] In the near term, I need to... One of the ways that we will reach people besides buying advertising and using it to drive a strong CLV to CAC ratio is through...
I don't know, even podcasts like this is through people finding our brand, finding out about me, finding out about the company through...
Whether it be me, whether it be through the goodwill of our customers, sharing this or that, the other.
And so I wrote a book called Let Me Save You 25 Years. It's our clever story

Driving a Movement for Sustainable Consumerism


[25:59] at Love Sack. It's really great. I think it launches in January.
I spun up a podcast called Let Me Save You 25 Years where I share my own entrepreneurial mistakes, miracles, and lessons of the Love Sack story. That's the subtitle of the book.
That's the spirit of the podcast. I talk to successful people, some of the world's most successful entrepreneurs and successful people about these concepts.
And it's not an interview podcast. We go really deep into some of these concepts.
So my long-term goal ultimately, is to write another book that can help drive this consumer movement that I'm describing because I think if we can get a little bit of luck and get people thinking about these things and then eventually seeking out.
Products that can do this, and just a lifestyle that is supported in the way that I'm describing.
Buy better to buy less. Buy better stuff so you can buy less stuff.
Well, obviously, LoveSack will benefit from that as a company that makes better stuff.
And so, look, it's a long, long, long, long way around, but you asked the question, and I'm totally serious about that.

Scot:
[26:58] Yeah. So I'm gonna guess you're not a fan of fast fashion.

Shawn :
[27:03] No, I mean, that's obviously gonna be I made the topic of the book, you know?

Scot:
[27:06] And I'm not. Jason's a huge Xi'an fan, so you just really hurt his feelings. No, I'm just kidding.

Jason:
[27:11] Hey, I wore a Patagonia, a used Patagonia jacket in honor of tonight's show.
What are you talking about?

Shawn :
[27:18] You are speaking my language, man. And look, it's not even about being a tree hugger.
I think that people have a brain.
And people, I think, are waking up to the idea after the iPhone 15, that holy crap, Apple probably should have been forced to innovate a long, long time ago.
Biggest company on planet Earth because they sell us the same thing every year or two.
Had we not allowed them to do that, they would have had to use their enormous treasure and enormous skill base to innovate into other categories and and change the world.
Instead, we've allowed them to sell us the same thing every year.

Scot:
[28:06] That's an interesting ethos. Having built a company, about how many people are in your company at this point?

Shawn :
[28:12] Total about 1,500. It's about 400 at the headquarters and another 1,000 out in the field-ish.

Scot:
[28:19] Yeah, you're at that phase where there's people at the company that you've never really met before. And it's awkward because they always expect you to know their name and they all know your name.
Yeah. Yeah. Yeah. So when you get a company to that scale, how do you keep innovating?
And, you know, one of the ones that I really love that you guys have done is the Stealth Tech.
I think that's genius because I love AV and like having a really immersive experience.
And I'll let you explain what it is, but, you know, my wife hates the big black speakers that I try to put all over the house.
So I think it kind of solves like six problems in one.
So A, maybe let listeners know a little bit more about what we're talking about.
And then be I'd love to hear like how do you guys you know it's really hard to kind of you know ideas are easy and execution is hard on execution.
It's really hard to like you know nail what you're doing and you have a lot going on and then like keep innovating.
How do you how do you like get the org functional that way?

Shawn :
[29:16] Yeah.
I mean, I think number one is you have to, you have to really want it, you know, not, not just like, Hey, I want to, I want to get, I want to get more business.
I want to sell more stuff. Obviously there's that.
But this ethos that I just kind of unpacked for you that, that we tripped stumbled into does the design for life ethos animates this organization.
Like, it is a lot of, it is very motivating to think about, holy cow, now that we know our purpose, and it's been identified, right?
Inspiring humankind to buy better so they can buy, you know, everyone's like, it was purpose, purpose, purpose, and hire some consultant, you know what I mean?
But for real, if you have something that's truly unique, and it's meaningful, it's not just like words on the wall, it really is motivating, it's exciting.

Scot:
[30:11] And you bake baked in the products have to get better too, right?
Like you, that's not well, so you have to support it.

Shawn :
[30:17] That's exactly right. Like, yeah, like we have to make stuff that's built to last a lifetime and design to evolve, which is really hard because if it was easy, everyone would do that.
And here I am telling you openly about it. Like that's what we're going to do.
And I'm not afraid to tell you because most companies won't do it because it's just freaking hard. Like it's a lot easier.
Like why doesn't love sack? You know, you brought up stealth tech.
So Stealth Tech is full Harman Kardon surround sound, no quality sound loss audio.
Perfect audio emanating from your couch through the phone through the next layer of fabric and through the decorative layer of fabric that's washable, changeable, removable, tuned down to the color of that fabric so that the audio is perfect rear, front, center, subwoofer, invisible, beautiful, because you don't see it, it looks just like a couch, and it has all that packed in there, it's radically successful.
It's been, it's now a huge piece of our business.
And nobody saw that coming, because what would they expect a couch company to do next? A couch beanbag company.
An end table, a coffee table, a rug, a lamp, you know, decorative accessories, get into the bedroom, who knows, right? Like the obvious stuff.

Scot:
[31:32] Meatballs.

Shawn :
[31:32] And what, yeah, right? Why did we do that?
We anyway, we saw the opportunity and we also invented it. So one is,

Innovation and the Evolution of LoveSack's Product Line


[31:40] to answer your question, a lot of play.
We are constantly at our innovation lab playing.
So it's not just consumer-led insights, which is a big piece of what we do, but it's also a lot of inventions. You gotta have teams to invent.
You gotta have engineers.
You gotta have, so you gotta support that. So there's a cost structure there.
And that's why LoveSack is quite profitable, but not as profitable as it could be in the future, because we are investing in innovation.
And there's a lot of heads. there's a lot of engineers, there's a lot of designers doing things.
Now they're not just all running around playing, they also have a very disciplined approach to executing on innovation, like launching Stealth Tech a couple years ago, and bringing that to market, which is a heavy lift because it's our invention, it's our patents, and it was not easy for this beanbag company to get into home electronics in a real way.

[32:29] We've done, I think, more than 100 million in home electronic sales and making us a pretty, a pretty big player in that space, believe it or not.
Already, and I don't think most people even, you know, would think that.
But we're, you know, totally serious about it. So, innovation, wrapped around an inspiring path to innovation, I think is the key.
Do you have an inspiring path, or are you just trying to make more stuff?
Because if I wanted all those things I mentioned, like I'm over here in Asia right now, I'm in Hong Kong.
And if I wanted a whole line of living room furniture with our logo on it to make myself feel good, I could have it in four weeks.
The suppliers will do it for me. They've been doing it for 30 years over here for all the biggest brands you can think of, you know?
And we could give them some designs and give them some ideas and let our, I mean, it's so easy to just source stuff.
I'm talking about, you know, product land. Now we're talking fashion, talking furniture, talk any category you want, the same is true.
But to truly invent stuff's a lot harder.
And that's why I think we've had success, that's why I think we will continue to have success.

Jason:
[33:35] Yeah, you know, so I am interested, I mean, obviously the product has to be the lead in solving that real problem for a customer.
But I do think another helpful aspect to your business is that in order for those products to be successful, like, they have to be demonstrated somehow.
Like, per your point, the catalog for the StealthTech sectional looks just like the catalog for a generic sectional.
And so I'm thinking you having your own showrooms was a big advantage for being able to tell the story.
And ironically, I'm not sure you opened that first showroom because you recognize that problem. It sounds like you opened that first showroom because you had no other way to get distribution.

Shawn :
[34:21] Oh yeah, yeah. And that's why I'm not taking any claim as some kind of marketing genius.
We just kind of tried to survive in the beginning.
And opening a showroom was actually a reaction to being rejected by the big furniture guys, because they didn't, you know, want our product, they didn't believe in us, whatever. They couldn't see it.
And so thankfully, it went that way. And by the way, they weren't showrooms, they were stores.
We were a furniture store for a decade and a half.
And we did all the furniture store things. And we sold merchandise, and you pulled your car around and we loaded you up, believe it or not, or we shipped to you.
And it took us a long, long time to, after copycatting all those furniture stores and hiring merchandisers and window dressers and all those kinds of things from our competition to do that stuff in our stores.

[35:14] To make that pivot to the direct consumer model that we operate on today that obviously looks very prescient in today's model.
Now, the reason I think we've been so successful at it is because we had those 15, 20 years to get really good at operating now 250 locations across every state, almost in the United States of America, where people are fighting and bickering and hiring and firing and touching each other, whatever it takes.
The point is operating physical showrooms is not something you get good at in a day or a week or a year just because that seems like the next thing to do.
We have a website, now people need to see our stuff, to your point.
And that's the approach I think a lot of the direct consumer brands have taken.
And I don't think that they realize how hard it is to be profitable at retail and how many pitfalls there are.
Where if I want to get a little better at digital marketing, which I think we're pretty good at now, but I can hire that.
I can agency that, I can platform that.
And so I think that the physical side of things is really underestimated.
And so thankfully, our very long haphazard history has played out in our favor in that realm.
And I think it's a huge strength of ours, because by the way, now that the economy's pulling back and this and that, we're 250 locations ahead of most that are just really coming around to the marriage of physical with digital and not realizing that, You know, it's not something you can just turn on and be good at.

Jason:
[36:44] Yeah. And I think it's you, you rightly pointed out that like the whole landscape of DTC hasn't been particularly successful.
There's not a lot of wins, but the, the people that are outperforming the average, even one thing they all have in common is they all have some kind of physical footprint to, to reduce CAC, right?
So they're either have their own stores or they, they are white selling through wholesale, or they're, they're in front of customers in some way,

The Strength of LoveSack's Physical Showrooms in the DTC Landscape


[37:09] other than, than Facebook ads.
Yeah, I, I did. I think there's a super interesting new evolution.
I thought I read about though.
So like Amen stores and showrooms are super complicated. People wildly underestimate how many mistakes you can, you can make owning and operating a retail store.
And now, now that you seem to have that clicking, you guys are bringing the retail store to the customer's driveways.
Is that true? Like talk to us about the mobile concierge.

Shawn :
[37:37] Yeah, so just like we're innovating in product, we're also always innovating go to market.
So whether it's mobile concierge, which is a lovesack trucks, where you can, you know, from the comfort of your home, have us pull up in the driveway and show you our products, which we've which we've dabbled in, and have tested into.
And we'll see, you know, where that goes. I think that that has its own just like retail has its own complications, but also more, I think, more.
I guess scalable already is Shop and Shop.
So our showrooms right now in shopping malls, they're only like 800 square feet.
So obviously the metrics are great, right? We're selling very big ticket items out of very tiny footprints with a small staff.
There's just good metrics.
And I don't hide from that.
That's been a big part of our success, right? So we chose a good category in that way.
We chose a terrible category in the sense is that the home category has all kinds of other issues.

Jason:
[38:38] Not the easiest category to deliver the product.

Shawn :
[38:41] Yeah, I mean, there's delivery, but there's also just the cyclical nature.
You couple that with the idea that, look, we are selling you something that we are intending you to have for decades.
My sectionals in my home are 16 years old, some of them, made with brand new pieces, made with Stealth Tech.
That's pretty cool. On the other hand, unless we give you Stealth Tech and other reasons to come back, like, you know, you've got your satchels and you've made your investment.
And so look, we deal with cover. So we're innovating on product, we're innovating on go to market, shop and shop.
So these thousand square foot showrooms have been very useful for us.
We have 200 square foot showrooms inside of Best Buy's or Costco's, where our people are basically checking you out and allowing you to kick the tires on the product.
And then look, whether you buy there or whether you go back and buy online, we don't care.
We built an agnostic platform where we just want you to be in the family.
So I think these are things that have evolved over time and you've got to test and learn, whether it's mobile concierge, as you described, whether it's shop and shops.
And these tests and learn activities can take years to play out and really take to scale and stuff like that.
And so I think in this day and age of, hey, I'm gonna go raise a ton of money and build my company to X revenue and exit for X multiple, which is I think

Testing and Learning: Mobile Concierge and Shop and Shop


[40:05] what drives a lot of entrepreneurial activity.

[40:09] That kind of mentality just doesn't have the staying power necessary.
And that's why you see so many of these brands reach a point where they have to be retooled, like some of them are going through now.
And look, they've made someone rich. Sometimes these founders find ways to squeeze a bunch of money out of it, or private equity tosses the hot potato to the next guy and they make a ton of money out of it.
But in the end, what's left? a brand that is at scale, doesn't make money, and can't go anywhere.
So my point is you gotta have the stomach to grind it out, to spend the time, to really slow cook some of these things, and to be flexible when they don't work, and shut them down and move on to the next.
And so constantly innovating on go-to-market, constantly innovating on product, and really putting in the time and energy it takes to refine concepts, you know.

Scot:
[41:03] I know we're running up against time, and you've obviously spent a lot of time thinking about this.
I know your goal is to bring this ethos out, but if you think about retail and e-commerce, what do you think the next five years hold? You talked about AI.
There's a lot of this stuff that's temporal, but anything you think that you believe is going to change the way we shop and buy, either in-store or online?

Shawn :
[41:29] Yeah, look, I think that it will just continue to evolve, and so I think AI is real.
I think it will play a transformative role, and I think everyone's trying to figure out exactly what that is, and nobody really knows yet.
I wish I could just give you a clever answer, but I think I've witnessed,

AI's transformative role in the future of technology


[41:53] you know, that's What's the benefit of having a 25-year perspective is it's like I was saying about shopping malls.
The mall is dead, headline from 2001. TV is dead, headline from 2008.
Here we are with both of them still intact. By the way, TV advertising is still a big piece of our marketing spend.
I know that's kind of mind-blowing because it seems like everybody's cut the cord or gone to this extreme. And I'm just telling you, these movements take decades.
And so while it's great to be ahead of a movement, you don't, unless you are trying to drive that movement, like unless you are trying to take advantage of that AI, boom, to go raise money and wave that flag or whatever.

[42:40] I've found it's okay to be a laggard.
It's not always beneficial to, unless you're trying to build your concept around that and take advantage of that movement itself, let the movements evolve.
So I can't give you a great prediction of exactly what's going to happen. AI is important.
But how, where the winners will actually be and what the effects will actually be, I think it's way too early to tell.
But I do think it's important to keep your finger and keep watching and eventually, you know, to find the connection and lean into that to affect your business.
You have to be a little bit patient, I think.

Jason:
[43:27] Yeah, well, certainly 25 years in, I think you've earned your patience creds, by the way.

Shawn :
[43:35] Maybe too much.

Jason:
[43:37] Yeah, I mean, there's pros and cons to both.
Urgency can be useful in certain circumstances, but short time horizons come with a lot of problems, as you have rightly pointed out.
That did lead me to one sort of thought question. And you, you referenced some of your, your CAC economics and side note, we've, we've one of the, our favorite guests on the show is this professor Dan McCarthy.
Who's, who's a huge advocate for cohort analysis and customer lifetime value based businesses.
And so he would be thrilled that you're on, because I know you guys disclose some of your cohort metrics in, in your financial statements, which he loves.
And to me, you're in a really interesting category to do that because although your product has invented a reason for customers to come back and you've sort of turned a product into a system, it's not like a fast cycle, right?
Like, and so like when you're thinking about like a time horizon for LTV, and you guys have a very good return on your CAC, but compared to most companies, your CAC still is really high, right?
Like, you sell a lot of product to compensate for that.

Shawn :
[44:57] Yeah.

Jason:
[44:58] So how, like, you know, you're spending five or six hundred bucks to acquire a customer and then you're earning thousands of dollars on each of those customers.
Like, was it difficult to sort of have the financial discipline to have a long enough time horizon to see those sorts of high CLVs come back for that initial customer acquisition?

Shawn :
[45:23] Yeah, I mean, you could call it discipline. In our case, again, it was just survival, being really transparent.
You know, we were just trying to find a way to make this business work, and we weren't profitable right out of the gate.
It took us many years to get better at retail, to get better at e-commerce, to have a shopping cart experience that was commensurate to the product, because that's really hard with our product.
Our product is really weird and complicated.
And so that's something that's overlooked with Lovesack. And I think a lot of our copycats and competitors are realizing that.
You can't just use a Shopify checkout if you're going to sell something as dynamic as, let's say, factionals where, you know, you can buy a bunch of these and a bunch of those and combine them in a million different ways.
How do you, how do you shopping cart that? How do you Amazon that, you know?
And so, and so these are superpowers that we've developed over a long time and thankfully given it enough time to become profitable.
So to answer your question about, you know, patience, I think part of it is just been our lot in life to, to be, to have patience forced on us.
But secondly, real discipline around.

[46:32] Our CLV and CAC metrics. So we are, we are, and have been for a long time, carefully monitoring them, tracking them, constantly innovating and refining on the marketing side, these things that I mentioned, whether TV, you know, over the top, linear, nonlinear, digital marketing with its 500 heads, you know, like I'm talking about species of digital marketing, it's such a big word, right?
I have to be constantly and tirelessly refined and risk taken and stuff tried and stuff failed and all rolled it and it all rolls up into that CLV to CAC ratio that you can hope you can keep moving and then couple that with innovation so that people can come back and buy more.
And so thankfully, look, we chose a category with a high ticket and that drives the lion's share.
That first purchase drives the lion's share of that CLV to CAC relationship.
But our long-term point of view now is not only to find other ways that we can do more of that, maybe even in other categories and adjacencies.

[47:32] But also give like StealthTack, give people a reason to come back and add on.
And then by the way, when they do come back, then they face the consequence of, well, what do I do with some of these things that I need to, let's say, I get StealthTack and I got to swap out two of my sides.
Well, okay, the obvious answer is I don't want to throw those in the trash.
We don't want them throwing them in the trash and they may not need another couch in another room.
So it's leading us to services, trade in, trade up, recycle, you know, all kinds of things that will again, give us more reasons to reach out and touch that customer.
And so I think that if you relentlessly pursue.

[48:13] A good concept with good intentions being driven by good philosophy and purpose like I've described, it's been my experience that the universe kind of unfolds for you, but it doesn't do it overnight.
And you can't just have a, at least in my experience, you can't just have a master plan and be like, we're gonna do this and then that and that.
You have to iterate to it. You have to observe, you have to live some, like when we launched Stealth Tech, we just, you know, it's easy now to look back in hindsight and be like, well, of course people are gonna want to or trade in their sides or do whatever.
But some of those things aren't always so apparent. And you need to plunge yourself into the pool, see what comes of it, and then react to that.
And some of those reactions can take years to unfold. Like some of these services that I just described and whatnot, they'll take us years to manifest.

[48:59] But the nice thing is, the core business can generate profits that will carry us to that and we'll invest some of those profits in that innovation that I'm describing.
But it's like, it's just relentless, man. It's tiring.
It's like you have to have the stomach to go the distance. And that's where the time horizon, look, I'm a big advocate of it.
Culturally, you know, like when my whole organization knows, like the theme of our manager fest a month ago, this is where we all get together once a year, was 25 and 25 more.
And I'm not kidding. Like my personal point of view, if I'm allowed to be here as a public company CEO, if I do good enough to stay in the seat, which is inherent, and that's why I love the structure.
It forces you to be awesome, you know?

[49:45] If I can do that, but the fact that my organization knows that I'm in for another 25, you know how grounding that is and stabilizing that is, as opposed to, man, when's Sean's gonna sell his stock and bail and go start his next company?
That's what I'm supposed to do, isn't it? That's how I become a bazillionaire, isn't it?
I'm not interested in that. I'm interested in building something.
And I think that that, I don't know, desire is actually kind of rare these days.

Long-Term Vision vs Quick Profit


[50:14] I think everyone just wants to be a bazillionaire as fast as they can.

Jason:
[50:17] Oh, for sure. Yeah. Everybody's assuming you're going to cash out and invest in your first rocket.

Shawn :
[50:24] Yeah, whatever. And I think it's sad. Look, I'd love to make a ton of money, whatever.
That's all great. But whatever happened to the ambition of let's build something awesome, no matter how long it takes. And that's where I'm at.

Jason:
[50:41] Yeah. Well, Sean, it's been an amazing run so far.
This is going to be a great spot to leave it because we have used up our allotted time, but I know listeners are going to appreciate you saving them the first 25 years, and we're going to be super excited to watch what happens in the next 25.

Shawn :
[50:57] Thank you. Thank you.

Scot:
[50:59] We really appreciate it, Sean. I know you're in Hong Kong, you're in the middle of your day there, and we appreciate you coming on the show.
If folks want to check out your podcast, where would you point them to?

Shawn :
[51:09] Yeah, wherever you love listening to podcasts, Let Me Save You 25 Years is the name. LetMeSaveYou25Years.com.
You can find me on social media, Sean of Lovesack.
I'm all over that and love to be connected, slide into my DMs.
I mean, I love talking to customers, friends, peers, being very accessible and looking forward to building the movement.
Of course, Lovesack.com. We're easy to find.

Scot:
[51:33] Trey Lockerbie 41 Yep. And the book's coming out in January and I assume it's going to be in all the usual places.

Shawn :
[51:37] Sean O'Toole 41 All the usual places. Yeah.
Let Awesome.

Jason:
[51:45] Thanks again and until next time, happy commercing!

 

Nov 9, 2023

EP313 - Holiday 2023 Preview with Rob Garf of Salesforce

Episode 313 is preview of Holiday 2023 with Rob Garf, Vice President and General Manager, Retail at Salesforce. This is Robs' fifth time on the show, having previously been on episodes 110, 248, 282, and 299.

It's happened again. Your Halloween decorations have come down (or at least your pumpkin is not in good shape), you survived Amazon Prime Big Deal Days, and now you're getting ready to ditch your in-laws and enjoy one of the most exciting retail weeks of the year. Yes, it's time for Holiday 2023!

This year, we've decided to do things a bit different by previewing the holiday in advance of Turkey 5. Rob Garf has kindly joined to walk us through Salesforce's e-commerce forecast for November and December, and we compare it to all the other forecasts out there (NRF, Deloitte, Bain, US Dept of Commerce). In addition to the top line forecasts, we touch on retail versus e-commerce, changing shape of the holiday, discounting climate, inventory and supply chain impacts, top performing categories, the economy, and the impact of rapidly growing Chinese brands (Temu, Shein, TikTok).

Throughout this episode make liberal use of real-time data from Salesforce Shopping Insights HQ, which tracks how 1.5+ billion consumers are shaping shopping trends. You can see a real-time holiday dashboard, powered by Tableau so you can interact with the data yourself on the Salesforce Holiday Insights page.

Episode 313 of the Jason & Scot show was recorded on Wednesday November 8th, 2023.

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 313 being recorded on Wednesday November 8th 2023 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot:
[0:39] Hey Jason and welcome back Jason and Scot show listeners Jason is 3:13 the lucky number I had the 13 is kind of on there so I think we'll count it.

Jason:
[0:48] It's a lot of threes.

Scot:
[0:50] Yeah yeah I think it's a primal have to get one of our research analyst to work on the okay so we are recording this in early November as Jason said so at that critical part of the retail calendar all the plans are laid the discounts are on the table Cyber Monday.
Thanksgiving Black Friday everything's teed up and everyone's waiting in anticipation of what holiday is going to bring us this year.
And we know longtime listeners will know that our holiday turkey five coverage with a lot of sprinkling of data is second to none in the industry and this year we're going to take it up a notch in past years we've had our friend of the show Rob Garf VP and GM for retail at Salesforce on after the turkey 5 give us a real-time view of what they saw and for those of you that have been with us very long time this is her Jason's mom primarily those were episodes 110 249 282 and 299 man that's quite a track record this year we are going to take it up and have a delicious rub Garf before and after holiday sandwich it's kind of like that turkey sandwich but we're going to kind of sample it here before we even even have Thanksgiving.
Rob before I before I go on welcome back for the fifth and I think record time on the show.

Rob:
[2:11] Wow I love it this is I will have to call the Guinness book up and make sure we get this knocked in memory on this is fantastic it's always good to be here and even better Scott and Jason and first of all thank you for having me on doing a little bit of a preview because as you mention were normally crawling through the data talking about the holiday weekend and seeing where everything lands after the critical time period and it's fun to take a little bit of a sneak preview and look at what we're anticipating and what we're seeing going into as you mentioned one of the most critical times of the year.

Jason:
[2:45] I think you're exactly right Rob I don't know why we didn't think of this sooner I feel like they should have always been part of our holiday tradition.
And I do feel like we're getting all of the Rob protein with none of the nasty carbs so that's like a.
Particularly healthy Thanksgiving treat but Rob before we jump into all of the good data remind listeners what the heck it is you do for Salesforce and how you get all this juicy data.

Rob:
[3:13] Yeah that's awesome let's by the way the listeners decide you know how.
Advantageous this is after the fact I hope it is and again we'll do our best so yeah and I've been I always thinking about it thinking into this conversation now at Salesforce for over 7 years but I came.
To the CRM Leader by way of demand where and if you remember demandware now Commerce Cloud was the leader and the cloud space and we instrumented the platform early on to get access to everything that flows.
Through our Cloud so you think about all the Taps all the clicks all the swipes.

[3:48] Now we don't have any access to personally identifiable information but we bubble that up and it becomes really The Benchmark for what's happening in digital and over the years we've included.
Things from marketing and Service as well to look at a more complete buyers Journey.

[4:08] And it's been really fun each quarter we release our shopping index which is available on salesforce.com built on Tableau and it's interactive so you can slice and dice it by vertical and by geography and it really helps.
Retailers gauge how they're doing vis-à-vis their peer set which of course is extremely important anytime of the year but certainly even more important during.
The holiday week now I think there's one thing that I sometimes forget to say so I want to make sure right cover it now which is.
Our index and by virtue of that our benchmarks are from a outside in perspective so they are a look at the entire industry, not just Salesforce data we've modeled this over the last 10 years since its Inception so it's really intended to look at.
The overall industry and benchmarking how peers are doing rather than speaking to anything that Salesforce is doing so that's my quick infomercial but hopefully more than anything just a little bit of credibility as to where we get the data, what we do with it and most importantly the conversations were able to have similar to what we're doing here.

Jason:
[5:19] God so that that sounds perfect.
I do want just a couple clarifying questions before we jump into the actual data because I know we're going to talk about holiday like what is your official definition of holiday what what dates are you looking at.

Rob:
[5:38] Yeah thanks for asking that's always an important question so we've defined it over the years as the complete November and December so that's our holiday our peak season look.
And we look at in particular for again the holiday weekend I know you call it cyber five or thirty five, we have cyber week which starts the Tuesday before, American Thanksgiving and works its way through Cyber Monday it's just something we started from the beginning and 4y like to like, your rear comparisons we've kept that intact so in on referencing cyber week or cyber five it's really looking at those, those seven days now of course the definition by some has been elongated and I hope we'll get into that in terms of when does the official real demand start but to answer your question straight on Jason it's for us at Salesforce November December.

Jason:
[6:27] Got it and so for historical purposes you've always been located in November December and then you're predominantly or exclusively focused on digital sales so you're you're reporting on what actually happened and forecasting what you think is going to happen in terms of e-commerce sales but unless I had this wrong you guys don't put a flag in the ground on on what you think is going to happen in brick-and-mortar is that true.

Rob:
[6:50] That is accurate now we do kind of go on the fringes a little bit because the bleeding between online or the blurring I should say between online and offline so we do have, data on buy online pick up at store we do have data on returns as well which is by virtue of, definition multi-channel omni-channel type of process but we don't put a stake in the ground because we just don't have the intrinsic data to be able to bubble that up and provide on the actuals.

Jason:
[7:20] Sure and then one other fun fact you reference the shopping index and you always have like the quarterly recap on there but I think.
For sure during holidays and I think you're going to tell me your round you actually have a real-time dashboard up there so it's kind of a fun thing during the individual days of cyber week to kind of pop in and see see what's going on after your family Thanksgiving dinner to see if you're still going to have a retail job when this is all over.

Rob:
[7:50] Yeah yeah we do exactly so during particularly cyber week each morning the team is getting up super early as you can imagine and work around through the data and we're updating in real-time the data from the previous day and so for any retailer who is looking for the latest and greatest certainly by I would say 10:00 eastern time at the latest you will get that and see that up there we do have many customers who do use that in there Roundtable boardroom discussions each day to understand how they're doing it repairing it and more than anything Jason truth be told we need to get it up that early because our boss this guy named Marc benioff is typically texting us saying where's the data because I want to tweet it so yeah as much of a motivator as anything else.

Scot:
[8:40] Always fun when you get the text from The Seer.

Jason:
[8:44] Slack's slacks the he sends wax not to.

Scot:
[8:48] A slacks yes sorry I was off I was off brand for a second yeah he Einsteins it to his his Einstein slacks you.
You mentioned one follow-up on that you mentioned American Thanksgiving that prompted me to ask this is largely we're talking about the u.s. here primarily we're not going to this is an international I'm sure you can go International but, we're doing more us right.

Rob:
[9:12] Yeah I'm prepared to do whatever I thought we'd probably borrow a bit more into us but we do have Global numbers but yeah.

Scot:
[9:20] Okay we have time Jason's obsessed with these Chinese companies I'm sure he'll ask you some questions so.

Rob:
[9:25] That's fair that wouldn't.

Scot:
[9:26] Yeah he gets all his clothes from she in any way.
So before we dive into the topic du jour which is this year's holiday 2023 maybe recap for listeners kind of that you know.
I know we had you on but the dust has settled and I'm sure you're going back and looking at it now with holiday 22 what were some of the bullet items that you kind of you you're thinking about as we go into 23.

Rob:
[9:56] Scot you don't think the listeners have totally taken This to Memory what we talked about last November 29 come on.
You're probably right that's fine yeah I get it not all of us live and breathe this but yeah let's bring us back and you know actually if I could just for a minute, to put 2022 in context you need to think a little bit about 2021 and let me just spend a minute there and then I'll fast forward to 22 which is if you remember some of us don't want to in 2021 it was truly one of the first times that demand, actually got pulled forward in the holiday season and the reason was.
The first mile delivery issues were stuck if you remember so many products were stuck in the port in the US of a Lala.
The containers if they even got to the port or having a difficult time getting off the ship in into the domestic supply chain and people saw a headline after headline when I say people like consumers by or shoppers and they realized if they didn't buy early in the season.

[11:03] They might not get the product that they actually want because in the past they would just have a waiting game and wait for the last and final deal and so.
Demand got pulled earlier in the season and oh by the way retailers didn't have to Discount as steep as they normally do so going into 2020 retailers thought.

[11:26] All of a sudden there would be this magical shift to Consumers buying earlier in the year and you know what that just didn't happen, there was actually a really good point of why that didn't happen when you look at the first two weeks of November we saw some of the lowest discounting rates that we typically see during the holiday season and because of these lackluster deals.
People really didn't buy anything they waited and they again went back to their normal buying Behavior.
One other by-product out of that is those that did by early.

[12:04] We saw that they actually return the product during cyber week cyber week last year 2022 at some of the highest.
Return rates during that week of the entire season people were doing their own price adjustments if they bought the product earlier in the year and realize they could have gotten a better price so there's like.
I don't know how you calculate a triple or quadruple whammy on the bottom line that retailer saw.
Because they were hoping to chase the deals earlier or wait I should say for the deals into the season and consumers just didn't bite.
Overall and then I'll stop talking for a second here is what we saw.
For let's just take cyber week as an example in the u.s. we saw a nine percent year-over-year growth growth online and globally we saw a 2% growth so us was really buoying up the global number there but a lot of that Sales Online happened right before cyber week and through the Thanksgiving holiday.

Scot:
[13:07] Got it it's kind of coming back to me I Remember You coining The Phrase discount chicken I remembered that is that right remember.

Rob:
[13:15] Yeah yeah yeah totally and thank you so discount chicken you know for the first time that we saw, retailers won the game of discount chicken last year I'm sorry in 2021 they tried to win again in 2022 but it just didn't happen consumers are really wise the real patient and now especially as they're seeing headwinds in their economic future there's definitely searching out for better and best deals.

Scot:
[13:46] Yeah this this kind of goes back to our data question it just occurred to me as we were talking about this obviously the macroeconomic is different now does that factor into your when you swirl all this together and you guys put together a funk forecast is that is that an input.

Rob:
[14:00] Absolutely yeah for sure and another piece that we look at very closely because it's driven so much of the growth over the last two years is inflation as well and so when you look at the last two years much of the online and growth is from increased prices not increased demand so people are just not getting as much from their dollar because of those increases we're starting to see that settle down the last couple quarters which is good news we're not quite seeing in Europe by the way but here in the US and so we're hoping, some of the growth will come from We're anticipating I should say some of the growth this holiday season coming from actual increase demand.

Jason:
[14:41] God so I want to I want to jump in the big reveal but a quick quiz first if you don't mind so last year us e-commerce growth nine percent G20 21 was also an incredibly abnormal year do you remember what the actual number you guys got for 2021 was.

Rob:
[15:00] For cyber week that's a.

Jason:
[15:02] No or sorry for holiday if you don't have it it's fine.

Rob:
[15:05] Overall holiday for 2021 was nine percent but that's Global so I'd have to go back to see what it was with the US.

Jason:
[15:13] No problem but so last year in the u.s. nine percent growth which was outlier for because Global growth was quite a bit softer.
And so now here we are getting ready for Holiday 23 and what what do you think's going to happen when how much stuff we're going to sell online in November and December of twenty three in the US.

Rob:
[15:35] Yeah, so we're anticipating here in the US basically flat online growth and anybody I'm talking to is candidly quite okay with that and let me tell you why they're not overly bullish about significant growth online this year.
For two major factors one is, we actually looked at the kegger over the last couple of years going back to 2019 and if things play out the way we anticipate we're still looking at for the holiday season compound annual growth of somewhere between 20 and 25% and so we're really where we are better than where we've been in 2019 year-over-year so we're you know we've been looking at these data points for quite some time during the holiday season if we're going to do 10 to 12 to 13 percent year-over-year growth online we're feeling really good and we've seen the average over the last couple of years come out well over that so there's a baseline that we're still needing to consider as we think about growth the second factor is.

[16:50] The store.
And we can't forget about even though our data doesn't explicitly account for that what we've seen in our data is that people are still going online very, aggressively meaning traffic quarter-over-quarter year-over-year is still really strong however what we're finding is people are then doing what they've naturally done for a long time which is in many cases then go into the store to actually make the purchase and so it doesn't necessarily tell when you look at flat growth year over year for the holiday season the entire story we're still feeling really good about it what helps us by the way one more caveat that I'll put in there and I should have mentioned it's got just a moment ago when you asked how we get to the numbers one of the key influences, is what does it October look like and particularly prime or we should I was about to say Prime day but the prime big deal days and so what we've seen when it first came out a nice halo effect.
And we still see a halo effect certainly during the dog days of summer in July since the Inception of prime day.
What was that 56 years ago but we although we saw bumps in the early part when it.
First was established in October there wasn't a significant halo effect that happened during Pride a meaning those.

[18:18] Not named Amazon during the October event we saw nice traffic we though saw really low discount rates once again so people were being patient they're biding their time and so we are seeing some nice add to cart rates as well so we saw people were poking around they were doing their research they were starting to.
Think about what their holiday gifting this look like but they were waiting and so that's my long way of saying we're anticipating a fairly moderate holiday but we're not at all discouraged by what we.

Jason:
[18:54] Totally fair and so and I want to put your forecast in a little bit of context but before I do you kind of open the door on this whole October and shape of holiday thing like hey.
Super useful to have historical consistency so I'm glad you guys report.
The same time period every year right like I'm by no means proposing that everyone should change periods but it is interesting there's there's a lot more promotional activity.
Happening in October than was true 10 years ago right and in very specific ways you convoluted 22 years ago, Prime day was cancelled in summer and happened in October and then they move prom date back to Summer but they added this second prime day and put a lot more marketing behind it this year than last year so and every other retailer on the planet.
Counter programs against that that holiday and so there's been a.
An increasing amount of pressure to pull sales in in October and then on the flip side a lot of people feel like holiday doesn't really end.
And told mid to late January and there's a variety of reasons for that but one very particular one heck of a lot of gift cards get sold and gifted during holidays and they get redeemed.

[20:18] Predominantly in January and so I guess I'm just kind of curious I'm not sure you would have necessary data behind this but like it does feel like holiday is flattening out and I know you guys pay particular attention to cyber week which you know is still a huge outlier and obviously we see way more sales on Cyber week than a traditional holiday week but.
As a.
Relation to the total holiday period it does feel like that spike is starting to flatten out a little bit like do you see holiday getting kind of stretched and flattened.

Rob:
[20:53] Yeah I love the question in this I feel like we could look back you know in a year or 25 years and do a whole.

[21:03] I don't know extensive research project around how, people in mindset and shopping has evolved because it has and of course the pandemic had a big accelerator to that what we've seen in our data Jason is there has been a flattening out throughout cyber week meeting the big Spikes have typically been Black Friday and Cyber Monday and those still remain the two largest online days of the entire year but we are seeing a flattening out throughout the entire week but we haven't seen a lot of the sales, when it's all said and done pulled into October we do see a little bit of a blip in and around, the big deal days and we actually to your point other retailers have preempted the sales and we saw that in July as well meaning doing sales events the week before and it does draw them up, some traffic but we haven't seen a large portion being pulled into that time period what I will also say again lackluster discounts played a big role we're anticipating, comparing big deal days to cyber week cyber week we'll see about a 40% higher discounting rate.

[22:28] Then what we witnessed just a couple of weeks ago in October you are totally right by the way that.

[22:37] The holiday season does definitely extend through December and into January that's why most every retailer has there.
You know fiscal year ending in January so they can really reconcile and get out from under what happened in the holiday not just gift cards but all of the returns and exchanges that invariably happen as well but at the end of the day just put a nice little underscore here is in 2020 and 2021 we did see a bit of pulling forward into October a couple of percentage points of sales but we're forecasting that 25% of all holiday sales will happen again as we Define it the 7-Day is of cyber week.

Jason:
[23:27] Interesting very cool okay so before we dive into some more granular topics I do you want to put the 9% in context and some listeners will be familiar with Nate silver and his poll of polls in the the kind of boring, boring a political forecast but the way more interesting March Madness forecast so I like to fancy myself as the Nate silver of e-commerce and so I do try to watch all of this data and huge caveat, nobody's data is Apples to Apples right so it's not really a matter of though this number doesn't match up to this number.
Everyone has a slightly different definition of what e-commerce means everyone has a slightly different set of dates that they're looking at and they have different methodologies right so your methodology I feel like you get perfectly accurate data from a slice of the market right like there's there's no like.
Human.

[24:30] Are introducing your data because it's coming right from the systems and that the challenge for you guys is to take your slice and extend that to the the entire world of retail.
The and I feel like you guys do that really well.
So another data source that of course people are sick of me talking about is the US Department of Commerce which are these like surveys that they force retailers to fill out and.
There's.
Entirely different challenges and flaws in their survey methodology and how they defined e-commerce but just to kind of put things in perspective.
I'm going to talk about they give us both brick-and-mortar and e-commerce data and so I pulled right before a show I pulled their data for the historical averages of November and December and so for the 27 years before covid-19.
November and December sales grew, 3.8 5% per year so that's brick-and-mortar that's not related to the number you gave it all so average retail growth in that States of America / the US Department of Commerce in November and December three point eight five percent so and then I remind people the three covid years 20 21 and 22.

[25:45] Were the greatest three years in the history of retail right because we didn't let anyone spend any money on travel and we mailed 10 trillion dollars to every man woman and child in America, to spend and so via the US Department of Commerce data 2020 Drew 9.2 percent.

[26:04] 20:21 Drew 12.5 percent in 2020 to grew 5.4% so three straight years of, way over the historical average growth right and then using that same methodology they US Department of Commerce reports internet sales I'm way more skeptical of their internet sales because of the methodology in the way they Define it but just to put it in perspective.

[26:32] For the 27 years before covid they have e-commerce growing eleven point two five percent a year and so then 2020 when everyone was locked in the house and not going to retail we had this monster year e-commerce group 35% in November and December from their data and then the following year because there was sort of a rebound and a return into two brick-and-mortar sales e-commerce sales were actually lower than the industry average so 2021 they had sales at 10.5% so a little bit off of the historical average and then last year they were the softest of all they were seven point six eight percent which is the slowest e-commerce growth in Holiday in the last 30 years so that's just kind of an interesting context right so the orders of magnitude are all right you had nine percent growth last year they had seven point six percent growth they don't forecast of course and so then I start looking at the forecast and a big forecast that comes out every year we're all friends of the NRF here and there in RF members the NRF just did their holiday forecast their forecasting brick-and-mortar growing three to four percent so.

[27:45] Pretty much in line with that historical average that's a deceleration from last year which was 5.4% and they're forecasting internet sales of 7.9 percent so they're kind of perfectly splitting the difference between the US Department of Commerce and Salesforce for whatever that's worth by pretty pretty broad range and so that just kind of passes my quick sanity check Deloitte also does a forecast now deloitte's forecast is a different time range they consider holiday November to January and they're forecasting brick-and-mortar 3.5 to four point six percent so a little more optimistic and they're forecasting e-commerce at ten point three to twelve point eight percent so again a little more optimistic and then Bain did a forecast this year and they have three percent brick-and-mortar so I just wanted to throw that out there that most people are expecting this kind of three to four percent brick-and-mortar growth and this kind of we'll call it eight to eleven percent e-commerce growth.

Rob:
[28:51] Yeah and I would say given what you just talked about.
Others a bit more bullish on the e-commerce growth than we are but I think directionally both brick and mortar and e-commerce are telling a very similar story which is e-commerce is still alive and kicking but it now has to be looked at in the context of brick and mortar and I think there's a lot of factors in that that actually will make the reporting moving forward even more difficult it is making it difficult and Jason you and I have talked about this before it's just the attribution models because it's not just about last-click anymore especially as people might you know in many cases go online and then go into the store where's that last click and how is that I'd be factored so everything from.

[29:38] What we had anticipated in seeing around, you know 60% of digital sales now influenced by the physical store because the associate is driving demand through, customer service or client telling or social media or they're fulfilling Demand with being able to, you know pick pack and ship and online order.
Or what's happening in digital as well in terms of people buying online and then picking up in or around the store so I think what is super interesting.
In addition to what you said is how these metrics might evolve over time because it will depend a lot on, by retailer who's getting the credit and I know that's something that's been talked about for quite some time but literally how to is it how is it being accounted for and what does that do to how their reporting the numbers.

Jason:
[30:33] Yeah couldn't agree more and just 11 sort of example to illustrate that 11 kind of category that sold almost no meaningful volume online before the pandemic was grocery right second biggest category of consumer spending but none of it was online before the pandemic now depending on how you count ten to twelve percent of its online and guess what it all gets attributed as store sales right because it all it's all bananas that are getting delivered from a store and you know so 100% of instacart sales look like store sales to the retailer.
And so it like I agree with you it's just it's just getting more and more convoluted.

Rob:
[31:14] Yeah well it's an interesting point around grocery you know our data showed in 2020 and most of 2021 we saw Triple digit growth year over year because of what you just talked about you just wouldn't ordinarily or historically by groceries online what drove a lot of that and what I think will drive Behavior moving forward is in 2020 we saw a 40-percent increase of net new.
Digital Shoppers so these are people that hang out online but they wouldn't click the buy button and so a lot of those people now want to go back into the store but they're using digital they're using their phone in particular to really be that connective tissue.

Scot:
[31:55] What's a continue to peel the onion here you hit on this a little bit but tell us more about what you think is coming up in the 2023 cyber week for example if I recall last year Cyber Monday was the biggest e-commerce Day Ever set, is that did you guys agree with that or what's a my misremembering.

Rob:
[32:14] Yeah yeah so we actually have seen Black Friday actually.
Bust up to the largest I know that's kind of hard to how others have looked at it but they're both really strong and we anticipate that being the case again again though we are seeing a bit of smoothing out of demand throughout the seven days.

[32:36] Particularly on phones and I guess that's not a big butt when we weren't traveling we saw the Resurgence of you know iPads and tablets and actual regular computers especially when you get nice groovy one Scott like you did just recently but anyways I am getting distracted here by your awesome new computer but.
What we are now seeing though is I move back to mobile and what we saw also during Thanksgiving a really strong traffic particularly local times between 4:00 and 8:00 if you think about it that's essentially when people are finishing their Thanksgiving Neil and they need a little break there sitting on their couch and they pull out their phone and so we're seeing a lot of traffic.
Via Mobile and social as well by the way we are anticipating and we predicted this going back in June that we're going to see.
Traffic via social be at a 10 times higher rate.
Than traditional marketing so there's a lot of budget being pushed towards that media and we're seeing.

[33:49] A lot of success there now they're still a bit of a gap in terms of conversion rate through that channel but again if you connect the dots mobile.
And social happening over cyber week in particular on Thanksgiving it's going to be really strong and we're seeing again retailers lean into that.

Scot:
[34:10] So Black Friday was bigger growth last year or bigger absolute dollars or both.

Rob:
[34:18] For us it was biggest absolute dollars the growth was essentially spot-on for both Cyber Monday and Black Friday.

Scot:
[34:28] Jason and I'm assuming that did other people say it was Cyber Monday or it was at all.

Jason:
[34:32] Yeah they're they're different different folks had that different Peak yeah so but.

Scot:
[34:39] Controversy in e-commerce I love it.

Jason:
[34:41] Yeah controversy and they're getting closer together like they're worth in the early days.
E-commerce Cyber Monday was a giant Tower and no one had internet access on Black Friday like that that could really is no longer the case.

Scot:
[34:55] Yeah well rip Cyber Monday cool I don't have any follow-ups Jason's Europe.

Jason:
[35:03] Awesome so.
I want to jump into one of the other topics you introduced a little earlier so far we've been mostly topping up talking about Top Line which is a kind of easy way to think about this and it's you know it's a it's a kind of easy way to get your brain around it, at the end of the day retailers care a lot more about bottom line and a huge impact on holiday bottom of line is how aggressively in deeply folks have to Discount in order to achieve those sales so, are you guys like what do you forecast I don't know if you have a formal forecast for discounts but what what should people expect from discounting this year versus last year and what what are the trends there.

Rob:
[35:46] Yeah yeah yeah this is good because I missed a point before that I want to make as a relates to Discount and so this will give me a good opportunity to bring that up but still has to go right at that Jason we're forecasting on average a.
Thirty percent discount rate throughout cyber week and again to put that in perspective it was 20% here in the US during the October event for.
Prime big deal days again we look at the entire industry not just Amazon as a relates to that and so we're seeing a much more aggressive, discount rate now it's going to differ obviously by different segments you're not seeing as high in luxury as an example we do anticipate for tour toys and a consumer electronics which have been a bit of a softer category over the last 12 months again especially because because of the high Baseline they had because of the growth over 2020 2021 but we're also seeing and this goes back to the pulling forward of demand.
Is more and more retailers are providing.

[36:55] Black Friday deals throughout the course of November and.
What's different in the past was it was fairly opaque in terms of we're giving you deals but we're not really sure those are going to be the best deals right and though we're seeing now much more transparency there's one major retailer that I'm sure you can guess who's doing Black Friday deals throughout the course of November and they are guaranteeing price matches.
If for some reason they do go lower and they are also offering buy now pay later so you can commit to getting the product so you don't miss out on it but you can then pay over time and so what really came to life for me in this topic was we were doing a round table.

[37:47] In Toronto in June and one of the attendees and she talked about this again at dreamforce in.
September so I feel comfortable talking about it is a digital executive from Desi mm which is a cool health and cosmetics and Beauty brand that also has two other brands one called the ordinary and they have something that they've been doing for quite some time calling it, slow vember and their whole point is don't cause any urgency but rather.
Make it a more relaxed buying experience and their point is throughout the course of all of November we're going to provide the same exact discount no matter when.
And if you buy it and so we're seeing that a bit more and more some of it is coming by way of.

[38:38] Early Access or exclusivity but also again extending and providing visibility, part of it is again trying to create that confidence that you're getting the best and final deal and also by the way you talk about the bottom line Jason.
Is trying to reduce the Deluge of returns that often happen a lot of retailers.
Are changing 88 percent according to our research are changing their returns policies and that's going to be a.
Big risk and what and how that impacts holiday purchases this year.

Jason:
[39:13] Yeah you know it's funny there's so many moving Parts it's so complicated you think about like what a big impact inflation had on last holiday and you know good news like it seems like inflation is going to be lower this holiday.
Consumer was in a better economic position last year than it seems like they're getting their sure we're seeing credit and defaults and things like that start start to creep up so there's there's just all these moving Parts but one thing I think a lot of people lose sight of is in the last three years predominately driven by the pandemic every retailer has completely reinvented their supply chain and their demand forecasting and I would argue everybody's way better at it now and they have way more agile Supply chains and there they're they're a lot more accurate with their level of inventory which means.
They're more confident they're going to sell through their inventory and that changes their discount strategy like they're just all these moving parts that make it really hard to compare your over year when you know.
Preview point the last three years sometimes we didn't have anything to sell and then the next year we had two years worth of stuff to say so.

Rob:
[40:24] I was just talking about that with an executive just earlier today and how retailers have gotten as you said better at demand forecasting.
Better at Inventory management and I joke sometimes although I'm only half joking that supply chain has really come to the front office it's like really part of the customer experience at this point and has such an opportunity, to either negatively impact our hopefully positively impact.
The customer experience especially when you're you know trying to find product after the shipping cut off window we're anticipating once again a huge uptick for those that have the ability for Consumer to buy online and.
Pick it up in and around the store after.

[41:06] The ship and cut off window we're seeing seven times higher growth rate for those that have that capability because essentially you're kind of shutting down your online doors if you cannot.
Fulfill those orders after the fact and so but that requires to your point Jason like a lot of tuning.
Around supply chain order management inventory oh and by the way store associates as well we have to.
You know planned for that extra time that they'll have to take to fulfill that order will have to provide the right incentives and will have to give them the tools as well and I think retailers have gotten better at it.
I don't think anybody's fully cracked the code but going back to your bottom line point last year for us the holiday theme was profitability and that doesn't go away I think people have gotten meaning retailers have gotten better at it but certainly always opportunity so I'm glad you called that out.

Jason:
[42:02] Yeah I like to say profit is cool again.

Rob:
[42:04] Providence cool again yeah.

Jason:
[42:06] The if you take nothing else away from this episode profit is cool.
The the way it's funny like I joke about this but it's kind of serious when I started my career the the VP of supply chain probably started his career as a truck driver and and today that VP of supply chain like probably has a PHD in data science um so it's a that that occupation has dramatically changed the one other follow-up question.
One of the cool things about your data set versus some of these other ones I look at is.
You guys have real-time access to the data so as we record this we're eight days into November have you seen anything interesting or there any patterns that have stood out it you does it make you more confident in your forecast or in anything that's interesting for listeners to know.

Rob:
[43:01] Yeah we did look at the first couple days of November and also of course looked at October it's pretty consistent with what we saw, in Q3 in the US we're basically flat in terms of growth however traffic is up so traffic is up four percent.
Orders are slightly down what we've seen which I think again is a very nice leading indicator is, product view rates have increased by 5% and add to cart month-over-month so September to October plus a little bit of November we've seen a slight uptick as well so what that's telling us is people are interested.
They're doing their research.
They're looking for the best deals they're understanding where the inventory is available and so that they're ready to make the move when they feel like they're getting the best and most value.

Scot:
[43:58] Cool so it sounds like if traffic's up in orders are down a lot of Tire kick in and kind of prepping and watching and making your list and you know could be the start of discount chicken 2.0 will see.

Rob:
[44:10] There you go exactly 2.0 I'm using that Scott I'm grabbing that I hope that's okay.

Scot:
[44:14] Discount chicken the chickens Strike Back.

Rob:
[44:18] Well and also I mean you talked about kick the tires so I think it's a good opportunity for a promo for spiffy at this point too so don't forget to get your gift cards as well right.

Scot:
[44:28] Yeah yeah we will be running some promos thanks.

Jason:
[44:30] And if you do kick your tires Scott can come to your house and replace them for you.

Rob:
[44:34] Exactly.

Scot:
[44:36] And shop for the new shoes online.

Rob:
[44:38] There you go I think there's a mash up there there's going to be spiffy and a DDOS coming together for anyways I don't know we'll leave that to the markers.

Scot:
[44:48] That's a good segue into my question in the predictions on category so I remember last year you guys had some interesting data on that does your prediction.
Kind of data science get down into the category slicing of things or that's going to be more in the rearview.

Rob:
[45:06] Yeah no we certainly look at that we do it obviously based on what we've seen historically we're anticipating for the holiday.
Active apparel active Footwear Health and Beauty being really strong so.
You know we talk about the big number because that gets the headline in terms of essentially flat growth but we had tisza Pate some nice growth in those areas it's going to be a challenging partly because of comping as a relates to toys and gaming and consumer electronics if you think about that's just macro trend.
People are looking for Comfort part of it is coming out of covid and maybe not all of us getting back into three piece suits but also when you feel a little bit of economic uncertainty I was listening to some Financial show.

[46:02] While I was traveling over the last couple weeks and somebody put it as kind of the household PL or the household balance sheet you know when you're looking at that in your making choices you're taking more control of your finances which is happening people often migrate not only obviously to value, and safety they're looking at comfort and so there's something to be said for comfort and shoes and Footwear comfort, in apparel and almost the openness to be a bit more comfortable both in Social and in work situation so what are anticipating like I said active apparel active Footwear Health and Beauty being really strong luxury as well don't sleep on luxury they've been the most resilient category.
In the pandemic and coming out of the pandemic and so that end of the market has held really well we're seeing a little bit.
Of softness and what I'll call the aspirational luxury but as a whole that category is looking really strong and we anticipate it looking pretty strong, during the holiday as well.

Scot:
[47:12] Yeah this is old school but I remember a channel advisor going through 08-09 we were always shocked that luxury you know it's like the world is falling apart around us and people are like oh yeah I'll get a get a 400 dog and back it's gone.
That part of the market just doesn't care that they're immune to those things I guess.

Rob:
[47:30] They're pretty resilient.
Yeah I mean one other thing I'll throw in there just because I'm talking about it more and more with customers as we think about the holiday more as a.
I think Bellwether to what will anticipate next year over the course and this is a global number but over the course of holiday were anticipating 194 billion dollars of online sales being influenced by a.
Sorry are you thought you were going to get through this whole I know should I have not done that I'm sorry because you definitely that's on your bingo sheet.

Jason:
[48:07] Now I have to check the there's a I in this episode flag on iTunes.

Rob:
[48:11] Exactly well might get some more traffic that way so who knows but we find that super interesting most of it I want to like temper that.
A lot because people are getting really excited about that headline is most of it will be from predictive a I like product recommendations which we've been doing for quite some time we're starting to see some early adoption of generative AI whether that's in email marketing with subject lines or body copy for that Saint product detail page with product descriptions or in service super interesting wood Gucci is doing and what they call a Gucci 9 their service center and teeing up responses for their agent to make them more efficient and allow them to scale but also stay on brand and so we'll see that a bit more but again a vast majority like I said it's around globally sixteen Seventeen percent of all sales will be influenced by AI this holiday.

Jason:
[49:06] That interesting so Rob we're almost out of time but I want to throw a super meaty 12 you for for a final question Scott was making fun of me but I am super interested in these Chinese brands that are capturing attention and share in the u.s. right and in particular that's that's Tim ooh which is has more traffic than Target more sales than Ed see in the United States Xi'an is the largest apparel reseller in the United States and then to a lesser extent Tick-Tock which has the vast majority of consumers attention in the United States and is now trying to sell stuff to people.
What super interesting is it's not obvious those guys are all growing at Breakneck Pace much faster than your your nine percent growth number it's not obvious if or who they're taking share from so I'm curious of you if you have any POV it kind of seems like there they're inventing new demand or at the very least they're taking sure from brick-and-mortar it does not appear they're taking sure from the Amazons of the world.

Rob:
[50:09] Yeah that's awesome I'm glad you're addressing this I've just spent a couple weeks.
In Europe I was in four different cities so talking to a lot of luxury Brands talking to a lot of traditional brick and mortars, and this is an area one of the executives put out Tech intermediary and I told him I would steal that and here you go I'm stealing it.
Because I would say those that you just categorized are really wedging themselves in between the demand and the supply and they're creating a whole new platform where.
It was just an originally with Tik-Tok and others about inspiration and now it's about purchase and so you know what we're seeing in Jason you and I have talked about this got 20 degree as well this idea of embedded Commerce or shopping at the edge.
Where the buy button is being pushed up through the funnel on these delivery platforms again these Tech intermediaries I mean if you think about it they're almost like.
The next generation of the shopping mall the shopping mall is created because of access because the highway here in the states and it created a place for people to hang out for people to get some food for people to shop.

[51:16] People to socialize and because of that hey they could have tenants who that would then pay rent and sell stuff right and it's not dissimilar to what these Tech into mediators are doing in that they're monetizing their traffic I think they're coming after, the brick-and-mortar to a degree they're all so I wouldn't say creating more demand but fraying some of the man from.
The brand sites because the brands are showing up there and so I would say there.

[51:52] A little bit creating more demand but more than that they're kind of defraying the demand we've seen is.
A high degree of growth thirty percent over the last couple of years of growth on these third-party intermediaries that we're talking about and they are taking from other platforms.

Jason:
[52:14] Interesting I don't know what the real answer is but I do know it's super interesting and important to pay attention to so I'm glad we brought it up but Rob that is going to have to be where we leave it because we have used up all of our allotted time I'm going to make sure to put a link to the Salesforce holiday dashboard in the show notes and super grateful for you taking at time and I hope you have a great Thanksgiving and we're looking forward to talking with you right after Cyber Monday.

Rob:
[52:45] Thanks Jason Banks got ya looking for doing a short couple weeks looking forward to talking to you then.

Scot:
[52:50] You robbed remind listeners where they can find your pontification xand and do they just Google the the index to find your daily things or like is there a quick URL that you guys have that.

Rob:
[53:04] Yeah you know to be honest with you the best way to is go to Google and put in shopping index Salesforce and you'll get to our holiday insights Hub so it not only has the dashboards but has all of the blog's were writing and all of the up-to-date analysis.

Scot:
[53:20] Cool well thanks we really appreciate you taking time out of your busy schedule to deliver this delicious holiday sandwich for our for Jason I in our listeners.

Jason:
[53:31] All right you guys be well and until next time happy commercing!

Oct 31, 2023

EP312 - Amazon Q3 2023 Earnings

Amazon reported another strong quarter across the board for Q3, soundly exceeding analyst profit expectations and retail industry averages. In this episode we break down the AWS AI, Ads, and retail performance.

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 312 being recorded on Monday October 30th right before Halloween I'm Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot:
[0:38] Hey Jason and welcome back to Jason and Scot show listeners Jason it's a Halloween Eve hallow Eve but also we just watch the Mac live presentation from Apple or live presented recorded earlier presentation from Apple about new Macs, so I don't know I think I'm going to ask you about Max first are you going to get a new Mac are you sitting out this upgrade cycle.

Jason:
[1:07] I am on the fence guy of course I want one I have scheduled a meeting with my family CFO to see if I can, I can justify it so so we'll see I did not order one tonight I'm actually.
Still super happy with my M1 MacBook Pro so so I know M3 is at least three times better so so of course I want one but we'll see when I pull the trigger what about you is yours already on the way.

Scot:
[1:38] I have been a while without an upgrade and running a little long on the tooth on this guy so yes I have a new machine coming they were actually pretty generous on the trade-ins you should just do an experiment before you talk to the CFO plug-in that trade in and see if it.

Jason:
[1:56] That could be the.

Scot:
[1:58] You a better presentation also if you have an Apple credit card which I'm sure you do they have a really compelling offer there.

Jason:
[2:07] All right lots of lots of good good things to consider my nine-year-old has made it clear that we're not allowed to trade anything in it.

Scot:
[2:17] It's got dibs on.

Jason:
[2:20] He's very he's very aware of the technology trickle down.

Scot:
[2:24] Oh man well you can somewhere down the stream there's going to be one that you could trade in but I don't think it may have as much impact as your courage.

Jason:
[2:32] I I don't know if he's ever going to own a computer device with a keyboard will see but yeah he's actually not that interested in my laptop.

Scot:
[2:40] Speaking of baby geek or I guess now he's I don't know kindergarten geek.

Jason:
[2:46] Third grade geek.

Scot:
[2:47] Third grade geek what's he thinking about Halloween I hear he's kind of outgrown Star Wars which makes me casa.

Jason:
[2:56] He still like Star Wars but he yeah he is not doing a Star Wars character last year he did a Pokemon character he did Pikachu and this year he's stepped up to Charizard so that.

Scot:
[3:09] Very rare.

Jason:
[3:11] Enables well I think it depends on which Charizard butt.
That steps up the whole opportunity to build pyrotechnics into the costume.

Scot:
[3:21] All right watch out for some evil Pokemon people that try to capture.

Jason:
[3:26] Yeah I think the big debate in our house which isn't hasn't fully happened yet is who's trick-or-treating with Stephen and who's staying behind to try to scare the bejesus out of neighborhood kids.

Scot:
[3:36] I'm thinking you and a gorilla suit or you could be in the last year's Pokemon suit or Pikachu suit that could be a fun combo.

Jason:
[3:45] Yeah last year I actually had knee surgery only a few days before Halloween so I won by default because I couldn't really walk but this year I feel like I have no good excuse.

Scot:
[3:56] Right as the title shows the purpose of this as we have some Amazon news to report on.

Jason:
[4:02] Amazon news your margin is there opportunity.

Scot:
[4:15] Well Jason it was a kind of interesting setup coming into Earth earning season this quarter the whole world was focused not on e-commerce not on marketplaces not on omni-channel not on payments some of our favorite topics but also not on ads one of your favorite topics but everyone is now obsessed with AI thanks to the success of chat Juju GPT so coming into the quarter Amazon was kind of on the backside of a lot of the other big companies so we had Microsoft come out and they did really well with AI the their partnership with open a.i. / chat gbt is bringing tons of workloads to azure.
How much is their cloud computing platform and then Google really underwhelmed everyone with what they're doing there you know they're they're kind of tiptoeing it's very clear that they don't want to kill the Golden Goose that is Google search by putting too much AI to that so allow their experiments are in Bard which is kind of way off to the side I've tried barred three times I can never get it to have the features that they say it should because my corporate Google account you know either won't have access or it says that feature is not here yet.
Um and I think people are really starting to worry about Google on this one.
So then that teed it up where all eyes were on AWS to see how are they doing and I think we've covered this but.

[5:44] The Amazons approach to this is to be kind of agnostic for lack of a better word so they're kind of like hey if you want to use.
Any of these different models we're going to basically let you run them on AWS compute and we're going to have all kinds of different graphic Processing Unit or GPU tears available from you know their own chip set to older Nvidia chip sets to the new ones and kind of be y 0, LM bring your own large language model.

[6:18] And then oh yeah also Facebook did pretty well and you know they're definitely through the worst of the Privacy changes that Apple put out and they have an approach to AI that is an open source one so they're basically saying hey we're going to integrate this in our products and what we build we're going to put out there kind of almost scorched Earth in a way saying why don't we just open source this thing and maybe that will slow down our competitors who are going to use this to to generate their own revenue and because they don't have a cloud piece they don't and they're pure advertising it doesn't really, Concord hurt them to do this so they're not making Cloud Revenue off of it but it's become a popular one and it's called llama in case anyone is it from there then, okay so just not to leave everyone in suspense because we usually talk about AWS kind of later in the Amazon update we're going to cover it first so the ended up having a really good ADB is showing so I would say people got kind of panicky and we're expecting it to be down and it kind of came in line.

[7:22] But what that people excited was part of the talk track on the conference call Co jassy said that they're winning some big AI workloads they talked about some big deals had close towards the end of the quarter that we're pretty significant and what's happening is as you know what's what a i chat gbt is trained on the broader internet and anything that they can throw into there.

[7:49] And that's interesting but what's happening is corporations and.
Both big corporations for internal use but then also other corporations they're wanting to train a large language model on their data and they also don't want that data to kind of leak into the broader ecosystem so that's that's really benefiting Amazon because it turns out a lot of the data that companies want to train these lme's are are already in AWS so instead of paying all this money to pull the data out of AWS and then synchronize it back into your LM as as Amazon anticipated with this kind of open bring by0 LM model.
People are bringing the LMS to them and using the data because it's already in AWS and it's easier for the llm to just kind of go right there and grab it versus moving the data around.

[8:44] That may not make a lot of sense so let me give you kind of a random example let's say you're a big added see like I'll pick up, this one called publicist they're out of France and most people haven't heard of them and let's say that that French Ad Agency wanted to save a bunch of money they could take like.
Let's say 3:00 of content from like a podcast transcript or something like that.
And they could use that content let's say someone of their company like a detailed digital retail payment strategy vice president general manager type person with a big crazy title like that.
They could put that data out there and run an llm on day ws and train that data on it.
The llm on that data and then they could have for example just picking something random they could have a retailgeek bye.
That was basically as good as the human probably ninety percent so good enough but you know this thing could run 24/7 you could actually you could have as many of them you could clone it on two different processors after you get through the training mode and you were in D quote-unquote inference mode and it also doesn't take breaks it doesn't need, Starbucks vanilla lattes constantly it doesn't have expense reports it just.
Does its job and doesn't complain and doesn't ask for raises so that's that's a that's a use case that something like that would work did that make.

Jason:
[10:08] Specific hypothetical there Scott.

Scot:
[10:11] Is randomly chosen just kind of picked it out of the are there.

Jason:
[10:14] It almost sounds like the more words in your title the more vulnerable you would be to AI disruption.

Scot:
[10:20] I thought about that but it is does make sense because that's essentially more tokens for the AI to learn just like right there in your title you're basically asking for it if you're a robot Overlord you're kind of picking on who to go for a first I would look for large titles person.
I don't know I don't know how their training these things.

Jason:
[10:37] There I know you're the investment guy in our podcast but there's this investment theory that you don't you don't, be the little guy chasing the big Trend that way you want to do is identify the secondary Trend and so in this scenario as soon as it seems like a i is ready to replace the the blowhard Talking Heads everyone should short Starbucks seems like the.

Scot:
[10:59] Mmm that's a good point yeah I hadn't thought about that.

Jason:
[11:02] Yeah because when I lose my job and can't afford those lattes I feel like something I would like I'll take some solace in knowing that you made some money on that.

Scot:
[11:14] Yeah they'll be like on their conference call we're still working on the data but we've isolated it to this to block window in Chicago and we're pretty sure we have an idea what's going on.

Jason:
[11:26] I feel like my Starbucks footprint is a lot bigger than Chicago.

Scot:
[11:29] Well you know the the core of your Bullseye answers is going around.
Okay but in all seriousness this is a really interesting blurb from the call where they talked about their strategy gaining traction and they said there's multiple businesses are using their gen AI That's short for gender of a i.
Apps on AWS including Adidas people in our European list listeners I think they call it a deed us but I'm here in America we call, here in South the southeast caught Adidas booking.com and United Airlines.
And while Jenny eyes Revenue contribution remains small management suggested Revenue quote compares favorably.
To some of the other leading providers and this is this is interesting because Amazon's always mum's on revealing anything until the SEC forces them to break out stuff like, for the longest time we didn't know at AWS was then we didn't know what ads were and then they became material enough they had to break them out so so Amazon under Bezos would never have said those words I've like even hinting about what's going on.

[12:35] But kind of is interesting because there's a new sheriff in town and also it shows you how important it is that they let everyone know that they are not falling behind and that their room new quote-unquote compares favorably with other other Cloud providers obviously they're talking about Azure once Wall Street analyst I did it is back of the napkin and he kind of said all right I think that they're telling us this is always funny because it's like six degrees of.
You know separation so who knows but they basically inferred what they were trying to say reading the tea leaves was that it's about a 400 million-dollar business and already two percentage points of AWS Revenue.
Which was basically zero six months ago so that's that that is kind of an interesting thing that came out of nowhere and is already a 400 million quarterly business so that means it's a 1.6 billion annualized run rate business.

[13:29] If they're reading the tea leaves right on that so that was the AI part so I thought I'd be important for us to get that out because that was kind of like the new cycle really centered around that, and it is interesting you know you and I are watching this very closely there are e-commerce ramifications you know there's all kinds of, The Innovation here is so rapid it's hard to keep up with there's all kinds of a eyes for creating product detail pages and you know all kinds of, e-commerce oriented support Bots and it's just like amazing a lot of AI applications for optimizing warehouses it's just like overwhelming how much is out there we're definitely in the, tippy top of the hype curve and you know a lot of businesses are still sorting through all this but that was the that was the.

[14:16] Dean on e-commerce retail side of things and non ads with that behind us the other big win for the quarter I thought you'd want to kind of fill us in on was the advertising part what did you see there.

Jason:
[14:30] Yeah yeah I want to jump into ads I do want to just say quickly it's interesting on the AWS because they posted solid numbers they posted 12 percent growth for AWS and they announced that they won the whole dialogue was about all these AI workloads that you just covered but they haven't recognized much of the revenue from all of these new AI workload wins yet so the this 12% growth feels like.
Kind of a win based on the Legacy Cloud business even before you start to factor in all this new traction they're getting, I'm AI workload so so that does seem interesting but I just want to reiterate what you started out by saying which is, the the bed at Amazon is that you're going to want to bring the llm to your data and not that you're going to want to bring your data to the llm and that, intuitively.

[15:24] Makes a lot of sense so it seems like investors were always pretty happy with their the AI Cloud case that they made.
Um so that being said.
As far as I'm concerned an even bigger win for them was the ad business so so they generated 12 billion dollars in ad revenue for the quarter that's up 26 percent versus Q3 of last year.
Year-to-date that means they're had businesses up 23% from the year before so you know we're comparing that to like the 11 or 12 percent growth they get on AWS.
Um

[16:02] The ad business grew 21 percent last year so it's grown 23 percent this year that impugns depending on how you factor in seasonality like a 46 to 50 billion dollar run rate for the ad business right now, so if you take a conservative estimate for the the the, margin rate on that business that's generating 2728 billion dollars worth of ibadah for Amazon which is a huge.
Huge business and much more profitable than a WS by the way.
So the ad business was very robust and a couple of injured interesting takeaways.
Amazon is adding more and more video properties they have Thursday Night Football you know they announced that they're going to start embedding ads and Amazon Prime and they'll have a premium offering to bypass Those ads.
So there's a lot of opportunity for.
Kind of top of the funnel linear programming ads at Amazon none of that is in this.

[17:09] 12 billion dollar number right now or very little like all of the potential they've they talked about for this for these non Commerce ads.
Is all sort of incremental the weather getting right now.
At the moment the vast majority of all Amazon's ads are bottom of the funnel the the sponsored product listing is by far the most.
Popular ad that that's growing particularly well and with the particular mix of economic headwinds we have at the moment, a lot of advertising is Shifting to bottom of the funnel people are less interested in investing in awareness and more interested in investing in sales and Amazon turns out to be, the best destination to take that that those dollars to put them into digital ads that generate.
Bottom of the funnel results so this quarter everyone was really interested to hear from the advertising companies, to see if advertisers were going to be cutting back right and so you know you mentioned meta had their their earnings call Google had their earnings call Facebook I'm sorry.

[18:17] Snap had their their earnings call and ads were uniformly up across everyone's earning so metas ads were up 23%, Google's ads were up 11% Google broke out YouTube ads which were up 12% snap ads were at 5%.
But nobody's ads were up as much the 26% that Amazon's were and nobody has had the consistently rapid add growth that Amazon's had the last three quarters.
Um so the economic headwinds like do not appear to be.
Putting a huge crimp in the the digital advertising business and they appear to be disproportionately benefiting, Amazon and so then you go wait next quarter they're going to be selling ads on all of their video programming and that could easily add another 5 billion dollars just for in to this this annual run rate so.
A lot of green lights in the Amazon ad business.

Scot:
[19:21] The I'm not a huge Sports person but you mentioned Thursday night football and have you seen and kind of marrying this back today I think if you seem Prime Vision have you played with them.

Jason:
[19:31] I have yeah.

Scot:
[19:33] So for listeners what they do is on Thursday Night Football if you watch from actually I do it on my Apple TV and I'm in the Prime video app.
And then you can it takes you to the standard broadcast just like every other thing but you can go in and then you hit down arrow and you can select a different broadcast which is, Prime vision and what it does they've added feature since they did it they started it they've added all these new AI features that are really amazing so during a pass play they'll show you the most likely Target they put like a Madden asked Circle in real time under the player and, he'll flash like green or something if he's a possible Target on the defense though they'll show a potential Blitzer.
They'll show you fourth-down probabilities in real time you know and it's just amazing they've added tons of features of that since I've been watching it and I find it like really adds a ton to the game too.
Kind of see you can see the strategy in real time mostly broadcasters you know they'll talk about it like Tony Rome or something but it's way after the play after they've had time to put together animation this is doing it all in real time it's just mind-blowing the amount of compute it must be thrown at that and you know I think it's a it could change the way you think about sports and in a really interesting way.

Jason:
[20:49] Oh yeah increasingly it's a better experience watching the game at home then you can get in the stadium.

Scot:
[20:54] Yeah the stadium doesn't do that.

Jason:
[20:56] They side note for soccer at the World Cup they actually did but you have to watch the whole game like through a are on your phone.

Scot:
[21:05] Let's see you at the stadium watching the game on your phone.

Jason:
[21:09] Yeah I mean and it was cool right like saying same sort of thing like it's overlaying all this real-time stats and probability was amazing.
Like it's not a very good experience to like hold your phone up and have your camera on the whole time to sort of get all these stats and so.
Yeah yeah side no Thursday Night Football is the bane of my existence because I do play Fantasy Football and I never have my act together to have my lineups all set before Thursday night so, usually the game starts and I have to pray that I don't have any super important players that I fail the start and then I can enjoy the game.

Scot:
[21:46] Okay understood anything else on Dad's.

Jason:
[21:53] No I think that covers it pretty well on ads you know just.
We've we've talked about a lot on the show but the overwhelming success Amazon's having with ads has this of course trickle-down effect that every other player and commerce paste is trying to figure out how to monetize their their traffic and get their share and at the moment nobody's getting, anything like Amazon's add, Commerce ratio and of course the audience eyes is start dropping off really quick after Amazon right you know you get a lot less eyeballs at Walmart then you have it on Amazon and a lot less eyeballs it Target then you have it Walmart and you know once you get smarter than that it starts getting real fragmented real fast.

Scot:
[22:39] Yeah how do you were still there still even though that's a big number they're still like way far away from Facebook right so so number one is Google by a really big margin and number two is Facebook and then it's Amazon and they're like way ahead of everyone else but they have to even though they're outpacing them, a little bit it would be like decades before they caught up in my own remembering that right.

Jason:
[23:00] I'm not no I'm not going to say decades it's an order of magnitude it's like 102 million 100 to 200 billion dollar annual run rates for those other guys and.

Scot:
[23:13] But they're kind of getting to half right.

Jason:
[23:15] Yeah yeah they are like they there with like within 50 percent of Striking Distance of number two.

Scot:
[23:23] Yeah if you had said that to us five years ago we would not have believed it I would I would not have seen how I've been.

Jason:
[23:30] Yeah I've been playing that what would you have thought five years ago game a lot and you you know you talked about who all the winners are in AI if you said five years ago the AI is going to become a huge thing what company is going to win like you we would have all been on Google.

Scot:
[23:43] Yeah yeah or apple or it would not have been startup called open air that was nonprofit that flip to profit no one saw that coming including Elon Musk yeah.

Jason:
[23:55] And by opening I you mean Nvidia but yeah.

Scot:
[23:59] One tidbit I saw on ads I love the leak read the Wall Street reports and they largely talked about the same data but a lot of them are good at very good at modeling and they can when Amazon doesn't tell them something like they don't break out they break out the revenue for ads but they don't break out the profit so it kind of gets swept up into this larger number but then they give you enough pieces you can kind of back into it so one of my favorite analyst he's a friend of the show Scott Devitt he modeled back through there and to your point he basically said that the ad business has a 60%, EB de margin so net margin of 60 percent which is basically like just money raining at this like Google's business model which I guess makes sense because Bass.

Jason:
[24:46] Is it is good.

Scot:
[24:48] Yeah because it is Google's business model and this ties into you know you know more about this government stuff than I do but Google's in a pretty nasty fight with the FTC, or the DJ I can't remember some government Bureau important entity that that is claiming they have a monopoly on search and they're basically pointing over here and saying look at these Amazon guys they're closing in on us pretty quick and they always reference those stats that show you know like more than half the people start product searches and those online.

Jason:
[25:19] Yeah no it's super interesting I Scott Devin is way better at Financial models than me but I actually think he might be under estimating the profitability and part of it is.
It's.
There's a lot of room for gray area like if you think about the the Amazon business it's super fascinating you know the number one digital Advertiser in the United States of America is you know who buys more ads than anyone else.
Amazon.
18 billion dollars a year of ads they buy just from Google so they buy 18 billion dollars worth of eyeballs from Google they use those eyeballs to sell a bunch of stuff that they make money on and then they sell 50 billion dollars are the pants to those eyeballs.

Scot:
[26:05] Ticket Arbitrage.

Jason:
[26:06] It's amazing eyeball Arbitrage and you know it's.
So how much of that acquisition cost are you factoring into the profitability of the ad business versus the like I would argue that these are not separated bubble businesses as much as ever wants to talk about ads as a separate business to me it only exists because you have all this traffic for Commerce and it's it's a core part of the the Commerce math at this point but we shall.

Scot:
[26:39] Yeah when we did our instacart coverage of this one now instacart been public for a while and you look at their numbers they're basically only being the whole instacart business is being valued a zero except for that so they're basically trading like an ad company so all of Wall Street said okay that grocery part is kind of like that yeah is there we'll put it in like you know.

[27:02] A hundred million dollars and then the ad business is like worth date hundred million dollar ad businesses where they gave it a really nice multiple of like 5x so that's interesting I'm sure, you're going to spoiler alert you're going to see a lot more ads on Insta guard the yeah a lot of people there is a negative and you know no one ever talks about this but a lot of people and this usually comes from a Amazon sellers and they always have kind of a love hate hate hate hate hate relationship with Amazon you know a lot of them would say and I hear this from consumers that the customer experience is the user experience is degraded on Amazon because there's just so many darn ads now you know the and I see it too if I'm looking for a specific thing I'm kind of like a dad at okay that's what I was looking for at some point there is cannibalization there and you know what we don't know is what did they lose from yeah doing this like was their product they didn't sell because people couldn't find it or we'll never really know that but you know kind of hope they're smart enough to figure that calculus Alden make it a huge net positive versus the cannibalization getting close to the ebitda contribution.

Jason:
[28:10] Oh yeah no I think two things like there definitely is an impact on customer experience and every retailer that gets into this space has a different philosophy about that and Amazon's appears to be the monetization is just worth it but you know you think about everyone other retailers that are not waiting and quite so hard, are trying to balance that and then the new interesting thing is if you're any retailer other than Amazon where all your eyeballs really are is not on your website it's in your store right and but you go we'll wait a minute, the these disruptions that people might tolerate as digital disruptions on a website they may not top you know nobody wants to junk a fi, um a physical store experience with a bunch of you know make it feel like you walked into Times Square every time you walk into, retail store so there's all this interesting calculus on where everyone should land on that the other interesting thing to me is for a while there was a.

[29:13] An opportunity for the best practitioners to get outside return so there was a subset of all those Amazon sellers that were really good at the Amazon ad, execution right and they did their smart about where they put their bids they were smarter about the attributes they put in their ad there are smarter about the creative they made for their ad and they could get outside Returns versus other sellers on Amazon but the first Trends you mentioned the AI affectation of this whole business.

[29:43] Has sort of made the best practices, dummy proof right and so now you know you just hand a product shot to Amazon and it makes the ad for you and you turn over the bidding strategy to Amazon and it optimizes your bidding for you and so it's squeezing more of the potential profit like out of all of these these other businesses that are built on top of Amazon because it's, kind of.
Normalizing the the ad business to everyone and it just becomes a pure pay to pay like who's going to be the most for this eyeball.

Scot:
[30:21] Yeah kind of supports your theory that maybe the Madonna's higher because they don't have a lot of people sitting there at adding images or something like would they used to do back in the olden days.

Jason:
[30:31] Is that you used to need this thing called what is it called Ad Agency.

Scot:
[30:35] Yeah good cut the if you can just get one of those Bots I discussed or just like you have a some a I do it for him.

Jason:
[30:40] Yeah yeah that was a funny example a few minutes ago.

Scot:
[30:44] Unrelated news Jason is brushing up to c v so hit him up the so just to zoom out to the big picture so so we kind of dove into the to topical things A to B Us / Ai and adds, those together really causing Amazon to beat Revenue that they came in about one percent higher than Revenue so it was kind of like a slight beat / meat but where they really exceeded oh and revenue came in at 143 billion were they really crushed it was operating income and these two contributed to it but also retail did some interesting things that also yeah I think dramatically helped beat expectations operating income came in at eleven point two billion and expectations which is Wall Street consensus is what they say was seven point seven billion you know so that's like what let's like.
Five per billion beat you know like a huge be compared to whatever.

Jason:
[31:49] 35%.

Scot:
[31:51] Yeah so that push the stock up 10% and then also we'll talk about guidance and that was positive so, it's been interesting Amazon stock has been kind of in a you know.
Funk for lack of better words has been con rallying around at the same level and literally for quite a while like 18 months and this was the first Catalyst to cause a big move and that it's market cap a 10% move at Amazon Lester look we'll get one of our researchers here one of the interns I look okay.
So you know they were like 1.2 trillion and now they're like 1.4 trillion so that's you know a move like that takes a lot of dollars when you're bigger than a trillion dollar business to move things it's like a lot of.
A lot of value creation can happen in a 1.2 trillion dollar company when it shoots up ten percent in five trading days.

Jason:
[32:44] 10% 0 by a lot of rocket fuel.

Scot:
[32:46] It will yes a lot of dates with helicopter Pilots as well and a lot of cool new clothes, so there were some really interesting things you know we spend the bulk of our time here on the Pod talking about retail and e-commerce to our favorite topics so Jason there's a lot of really interesting stuff going on in there as well you want to fill us in on that.

Jason:
[33:08] Yeah everyone just wants to talk about ads and AI but it turns out that Amazon is actually a pretty good retailer.
And so the the retail business also had a good quarter and to kind of set the table, every every listener the show knows I love my US Department of Commerce data so that came out last week 4.

[33:31] September which gives us Q3 data for the industry so us retail data in September this was up one point year-to-date sales in the United States January through September we're at one point nine percent this year versus last year.
It's a 35 percent versus before the pandemic in 2019 so 1.9% is not very good growth by historical standards we would normally expect about 4% growth.
So if we just look at Q3 growth the industry was up 2% which again half of what you would typically expect.
So Amazon's growth for Q3 is 11 percent versus that that industry number of 2% so 11% growth, is very robust the if you kind of, look at Amazon's growth since the pandemic that Q3 number means they're up 85 percent versus Q3 2019 and their year-to-date number is up 111 percent versus 2019.

[34:33] So Amazon is a very large retailer arguably number one or number two retailer in the US now, and they're growing way faster than the industry average, and again depending on how you count Walmart would be the number two retailer which is also growing significantly faster than the industry average so that actually, tells you everything you need to know about the rest of the retail industry is that where you know we're having a significant bifurcation and with winners and losers in the space.

[35:07] The other side of the retail business for Amazon is international and historically North America has been a very mature Market that has grown and generated profits, International has not made money for Amazon and I would say it was a mixed bag in terms of their International performance, on a constant currency basis International sales were up 11% which it's a smaller less mature business so you'd like to see it growing faster than the, the mature North American Market, um but they're operating loss is way smaller so last year this quarter they lost 2.5 billion dollars this year they only lost a hundred million dollars so nearly break it even for the quarter.
Um the this did not come up in their their earnings and no one asked them about this but Marketplace pulse reported earlier this month.
That appears Amazon has.
Meaningfully curtailed their International expansion and a lot of markets they had announced they were expanding into they seem to have delayed.
Postponed or canceled a lot of international market openings, so International definitely is not the start of the show it is also true of a lot of the other markets that say that Amazon's in still have more.

[36:26] Just general macroeconomic headwinds than the United States does at the moment a lot of the world has a more severe version of the same macroeconomic problems that we have.
In the US so a couple interesting tidbits.

[36:44] But in the discussion about the retail business that you know the CFO Bryant.

[36:54] Scot I always pronounce his name wrong alsop ski, um brett-brett else got a soft ski talked about how despite the fact that their they had nice growth in retail that they are seeing a cautious consumer who's generally trading down and more Deal seeking, then usual and that's consistent with, cautions that we've heard from other retailers that actually gives me some significant pause for Holiday which we'll talk about later, the the thing that that Amazon was really touting in the retail business is that they dramatically improve their cost to serve, and their speed of delivery in Q3 and that largely was thanks to an initiative they started a couple of quarters ago, this transition from a single National fulfillment Network.
To a regional fulfillment Network where they have eight distinct District regions in the United States, that each sort of operate independently in the goal is to have all the the inventory that that Scot Wingo wants to buy, in his region so the goods have to travel less far are less expensive to get to him, and get to him faster and what they announced in the earnings was that the transition to this this.

[38:19] Regional model has gone better and exceeded their expectations they're getting more.
Incremental profit and faster speed of delivery than they even projected, um out of transitioning to that so this is.

[38:37] I know we talked a lot about how big and what a huge moat Amazon would just accept our but I still feel like this is under appreciated by most Amazon's competitors and their there.
They're just opening a bigger Gap in speed of service and one of the things they mentioned is that they see a direct correlation between consumable sales and speed of service when they promised that they can get them there faster they sell more paper towels, so I think it's very clear that that consumers want speed of service, and Amazon has a huge advantage and it appears to be getting even bigger so that's interesting another thing I talk about a lot.

[39:20] Um is there's a few new retailers that are also stealing significant share, um very quickly and they're primarily Chinese companies so it's she in and most notably Tim oh, and so well like they certainly didn't come up in the Amazon earnings a lot of the analysts started looking at the the, rapid growth that Tim is getting and trying to figure out if they're stealing share from Amazon and evercore did a big consumer survey, and the results of their survey was that Tim ooh is mostly not stealing share from Amazon that most of its shares coming from, other retailers and in many cases coming from brick-and-mortar value retailers in the US so the dollar stores and it appears that that Amazon is more insulated from the.
The growth and profit that they're getting so all of that you know rolls up to be a pretty impressive.
Quarter I you've talked about it a lot but it kind of feels like Amazon's got a bunch of knobs that they can turn whenever they want to improve profitability and it feels like, they both added more knobs that can turn this quarter and they turn some of them.

Scot:
[40:37] Yeah the other thing that's really interesting is if you look at.
Amazon and you can't really read because they have so many employees in the Fulfillment centers you can't really tell their employee growth and it's surging right now is they prefer prepare for holiday but another really interesting trend is Google meta and there's one of the other ones Microsoft their revenue per employee is surging so they're they're actually not hiring many people right now and, the assumption is these companies are leveraging AI internally and becoming exceedingly efficient and you kind of wonder.
Is Amazon doing the same thing I hear inklings we have kids that are not so far out of college they don't know folks looking for jobs and things I hear inklings that Amazon is not really hiring that much as they kind of were at one point so I kind of wonder, are they also hiding behind that that have like a million employees and it surges like 200,000 for holiday so it doesn't look like they're being more productive but what they don't do is put out corporate versus fulfillment center.
Have to have an idea that if we looked at corporate there also.

[41:48] One dial they've turned its new is I think they're not hiring as me folk because people are getting a lot of efficiencies from these AI.
Systems that these companies are dogfooding internally.
And because they're they're a little bit further ahead than kind of like what we see out of the lme's I think they're doing some really interesting things that they will productized and we will we will see what they're doing in a lot of it can be this like really focused you know create an ad you know a lot of the stuff that used to be, kind of out sourced or you would have to throw a bunch of bodies at it I think there's LMS doing a lot of that you know customer support Bots think things like that that you know I think there's a lot of efficiencies going on inside of their that's helping these guys really beat their earnings numbers.

Jason:
[42:38] Yeah I do think that's true it's not lost on me that just as the retailgeek bought is gonna replace me at poobah says all the other places that might have hired me are also not so my fallback is that I may be washing cars at spiffy so we'll see how that.
That all plays out but I promise to work hard of it if it comes to that Scott.

Scot:
[42:58] Absolutely it also we could just turn this podcast into the entire ads so that could be could be here our second asked yeah.

Jason:
[43:04] We can monetize the podcast I'm not I'm not doing that to the listeners they advertisers would make us make a shorter podcast Scott.

Scot:
[43:13] Yeah yeah.

Jason:
[43:14] I'm not down for that I'm not down for it.
Even if I have to wash cars the I think you're certainly right like a lot of these companies and Amazon very overtly has has put some more barriers and in place in terms of corporate hires.
The one notable exception being the AI space they're hiring pretty rapidly.
Um but I also think in addition anything you mentioned that Amazon's actually finally like really leaning into the Fulfillment center automation so while they've always.
Been a leader in in having fulfillment center, not all their fulfillment centers in a big chunk of their fulfillment centers were not highly automated and so I think they're now automating all of them and they're rapidly moving to sort of next-gen automation.
Um you know where everyone else is kind of putting their first robots and you know moving things around the warehouse more efficiently.
Amazon is like rolling out new technology that's a lot more.
Seamless in how the people and the automation work together in a in a safe cohesive way so I do think one of the levers Amazon has is.
You know to really add more Automation in those in those fulfillment centers and in that cost to serve.

Scot:
[44:39] Absolutely it's kind of interesting because we started spiffy, which is my on-demand car care company where you're going to come wash cars people are like AI is you know they'll be a robot that can do this in five years I was like I don't know like you know the Boston Dynamics robots are cool but they're not.
Let's just programmed well I don't think it's like that you know it's not thinking and who would have guessed that a I would replace you know the digital retail Talking Heads first and and not.
Not the physical things I think the physical stuff is going to take a lot longer but who knows once these a eyes you have there's Tesla has that that demonstration of theirs was The Optimist that you know it kind of is learning things as it goes and making inference in real time so that is kind of you know we who knows where all this is going to go.
If we back to it now and not science fiction but your term science fiction so.

[45:37] Looking forward for fourth quarter they put guidance out that they're going to see growth in the fourth quarter of 7 to 12% the midpoint of that range which let's see would be 9 and change itself was five and a half percent above the consensus midpoint so this is what we would call A Classic.
Meet Top Line Crush bottom line on the current quarter and then raised the next quarter both top and bottom line pretty substantially so that you know.
This is an important data point when we kind of swirl it together with your Department of Commerce data it does seem like Amazon signaling they're feeling pretty good about the fourth quarter and everyone felt like this was kind of conservative given I didn't put the bottom line number but they felt like that was pretty conservative given what they just did and you know they felt like dad a lot of room to kind of beat that number and maybe it's going to be more like 14 15 percent growth which would be you have a new post covid reversion hi I guess you would look at it where do you did you leave this feeling more optimistic about Q4 or we are your classic Jason curmudgeon myself.

Jason:
[46:54] Yeah no I think I'm mostly curmudgeon e not for Amazon I actually I think their guidance seems realistic to me.

[47:06] On the top line I think the bottom line is just totally up to their whims like if they want to blow away the bottom line they can if they want to invest at all in you know new.

[47:18] New AI capabilities and and keep the bottom line constrain they can do that too but the that, Top Line I think they're likely to hit their guidance and again you know one or two other big retailers might you know have a pretty robust holiday as well but I actually think that that sucks all the, the potential growth out of the market for holiday and so I actually think.
That sort of signifies potentially Bleak holiday season for a lot of other traditional retailers so I guess it's a.
Little bifurcated it's good news for Amazon will see what a Walmart's Q3 earnings look like they announced on November 16th, but I do feel like endemic lie Amazon and Walmart have some, some inherent advantages that are insulating them from some of the economic headwinds and I think that that really just makes things, that much more difficult for the the rest of retail and so I desperately want to be wrong but I think it's going to be, I kind of disappointing holiday for a bunch of folks there also was sort of some if you really listen to the Q&A portion of the investor call, there.

[48:45] The the CFO in particular had some concerns about capacity around Q4 and one of the things he called that was carrier capacity which is interesting because Amazon does so much.
Of their own fulfillment now that they're just way less dependent on third-party carriers but if he's worried about carrier capacity for Q4 you can bet that means that every other retailer ought to be really concerned, about carrier capacity for cube Q4, and so we you know we feel like we talked about that every holiday season but Amazon's got a lot of.
New fulfillment center capacity that's coming online in Q3 of this year and will even in Q4 and so I guess.
If there's one thing that could glitch it Amazon if there's not enough delivery capacity if some of these new fulfillment centers have any, any sort of glitches or delays and coming online that you know that that could be the constraining factor for their Q4 growth.

Scot:
[49:50] There's so sprinkle of curmudgeon e speaking of holiday where can listeners go if they want to get the best holiday news even though we haven't been potting as much as we want to because our day jobs have been absorbing a fair amount of time this year we are going to have some killer content around this holiday and kicking it off we have our very own jacent live not an AI and you're going to do a little webinar for Commerce next what's that all about and when is it.

Jason:
[50:22] Yeah yeah so on Monday November 6 which I think is a week from now if I'm not mistaken we're doing a Commerce next webinar where we'll sort of preview the holiday season so you heard the very early preview just now but we'll go into more detail share some of the third-party forecast for Holiday Good News, all the other predictors are much more optimistic than I am so so we'll hit that on November 6 and then of course there will be all the good real time holiday news that will be will be hitting pretty hot and heavy here on the podcast so we'll we'll have some of the best data sources, right before and after the holiday to kind of talk about where things are going and what actually.

[51:15] And with that I think it is happen again we've used up all our allotted time as always if this deep dive in Amazon's earnings was valuable for you the way you can repay that value is to jump on iTunes and give us that five-star review.

Scot:
[51:31] Thanks everyone and Jason until next time.

Jason:
[51:34] Happy conversing.

Sep 18, 2023

EP311 - Video Commerce with Qurate's Brian Beitler

Brian Beitler is the Founder and General Manager of Live Shop Ventures, a video commerce initiative within the Qurate Retail Group, which is the parent company of HSN and QVC. Brian has also served as the CMO of Qurate Retail Group, in addition to many other interesting marketing roles in the retail world.

We met Brian at Etail Boston and arranged this interview. We cover video commerce, differences in adoption between Western and Eastern Markets. The role of livestreaming, and the benefits of being a "commerce platform with video" vs. "a video platform with commerce." We also explore the origin on Live ShopVentures, it's first video marketplace on a mobile app, Sune, and the benefits on incubating a start-up within an established company.

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

Episode 311 of the Jason & Scot show was recorded on Thursday, August 31th.

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 311 being recorded on Thursday August 31st 2023 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot:
[0:39] Hey Jason and welcome back Jason and Scot show listeners Jason as you know one of the most common questions we get from our huge listing audience is about live streaming with e-commerce is it a big deal why is it seem to be growing faster in the East versus the west and how important is it to live live streaming so we thought we'd get a expert on the show as a guest that could help unpack that for us all and you better than someone who's LED marketing for numerous historic Brands and served as the CMO for the mother of all video shopping sites QVC / HSN and so that's exactly who we found, we're excited to welcome to the show Brian beitler he is the founder of mobile V Commerce app called soon and the general manager of live shop venters both part of the Keurig group.
And I'm not sure Jason but that's a lot of words in the title but I think it's maybe half of the words in your title but welcome to the show Brian we're excited to have you.

Brian:
[1:36] Grateful to be here and I'll work on trying to lengthen the title so I can keep up with Jason.

Jason:
[1:41] Set your set your goals higher Brian.

Brian:
[1:43] Thank you for having me.

Jason:
[1:48] Brian we are thrilled to have you and as our listeners will quickly figure out and we are eager to jump into all this video Commerce stuff but before we do we always like to give the listeners a little bit of perspective about our guests background and where they're coming from and in your case it's a super impressive retail / consumer background so can you can you give us the version that your mom would share with her friends in the elevator.

Brian:
[2:15] Happy to do so so I'll back up a decade or two but I started well where I consider I started my career was at Mattel that huge toy conglomerate in fact they're very popular right now coming off of a I think a major hit movie.
It's doing very well.
Yes I think so has the rest of the world at this point but I started my career there and fell in love with the toy industry and thought that's where I would really spend.
My entire career when I left Mattel.
In the early 2000s I at the time was leading the core part of the Hot Wheels brand a dream job as a father and a former young boy.

[2:56] But I thought I would give myself a taste of retail in the toy industry so I actually left metallic thought I would spend a couple of years on the retail side working with it.
A brand I knew we all knew and loved at some point in our childhood called Toys R Us and truthfully I the reason I'm here today is I fell in love with retail there, and what was different for me about retail versus consumer packaged Goods was just the speed of retail it felt like it moved at light speed compared to kind of course EPG brand management, and you know I often tell the story you know working in those days to change you know the package on a five car pack took a couple of years to get it to Market and.
I joined Toys R Us and we had this idea to launch a birthday club and.
At the time I went to the CEO of the company John I learned and it was how quickly could you get it in Market could you do it in a couple of months.
And that and I was often running and in love with retail and so spent a couple of years there and then just continued to be given these remarkable opportunities to work with, really amazing Brands and helping them reshape their narratives with their consumers or and or finding new Pathways new emerging ways, I could grow I was you know there at Bath and Body Works when we launched e-commerce we redesigned the site as a marketing site decided oh we might be able to sell something.
Through here and that's been my journey so from from Bath and Body Works to Kohl's department store.

[4:24] Then my hand in the bridal industry and private Equity with David's Bridal and then women's apparel and you know fast forward.
A few few years and here I am at curate Retail Group.
Working in what I think is an exciting future for digital Commerce.

[4:42] All of those roles you know usually leading the marketing you know the marketing or e-commerce function for those various Brands and learning a lot making a lot of mistakes a lot of mistakes I'm getting a few things right every now and then, and you know kind of Landing in a pretty exciting place here at grea where we think we're going to do something you know again interesting a new in the digital space.

Jason:
[5:04] Yeah and a couple of fun facts brand you've LED marketing for for a bunch of those Brands you just mentioned and while you were doing that I was nominally helpful in building a bunch of the the backend e-commerce functionality for those same Brands and so I think without knowing it you've hated me your entire life for all the the features you wanted and didn't get or the the the pace of evolution so I just wanted to apologize publicly for all of that.

Brian:
[5:34] I appreciate that.

Jason:
[5:35] But one of the things I particularly love about your career is is I have this theory that, you know though all of retailers has been profoundly disrupted by digital but not all at the same time and so there were there are industries that are disrupted a long time ago and there's you know if you're a grocer or a car dealer you're probably getting disrupted you know right now and I feel like you serendipitously or maybe intentionally have have been in a bunch of Industries.
Right at the peak of their disruption so your Toys R Us when when shopping online became a thing and then urine Beauty when that became a thing and then you are you are in the the the heat of the the apparel Wars online and now you're you're squarely in the v Commerce space and it's you know one of the things we talked about the most on the show so whether you did that on purpose or not congratulations on on surfing that digital disruption wave.

Brian:
[6:32] No I appreciate that I think much much of it was serendipitous I would say that the pieces that probably weren't was my desire to always work for, brands that were leaders in their respective category or industry and as I look back and reflect that's probably one of the things that has been the most rewarding and probably given me the best.
Growth is being able to work with you know brands that were at the Forefront Mattel at the time was the leader in in toy manufacturing still still are.
Toys R Us at the time was the leader in toy retail Bath & Body Works was the largest kind of.
Bath & Body brand at the time Cole's was it was a chaser of you know kind of the discount Department space and ran past JCPenney's and Sears and its competitors and so that for me has been exciting because you know I think being with those who build powerful platforms, let you learn from the best and you know here I said today with curate retailgeek which owns QVC and HSN.
You know the largest livestream platform on the globe by far the industry, leader having changed the landscape of how you could use television to shop you know some 35 years ago and continued it for nearly four decades now so that part of trying to work with brands that, I felt were really leaders in their space because I thought it would be a great place for me to learn has certainly been intentional and then this digital Crossroad just happened to kind of line up and almost all of those places at the time I was there.

Jason:
[7:56] That is awesome and today I sort of perceive you you are on the Leading Edge of the curate retailgeek Roop with your current responsibilities and I definitely want to talk about those but if I have the story right before you took on your current role you also had broader marketing responsibilities for the core QVC HSN Brands is that.

Brian:
[8:19] I did I did that's that's right I joined you know curate retailgeek rupe.
And 20/20 is the chief marketing officer for QVC and HSN are two largest video Commerce businesses, at the time and you know fast forward we obviously are in the midst of those businesses are in their own form of transformation and disruption right for.
In some ways you know you talk about a Crossroads, ask for businesses you know having come through retail when e-commerce was exploding and and Retail foot traffic was being affected as people.
Spent more time online and less time in stores if you look at where accurate retailgeek Roop you know is today right streaming has remade the way we View television and so we've had to remake our business, there as well primary our audience used to be almost entirely on.

[9:07] You know on cable or we reach over 100 million households in the US we used to reach all of those almost on cable and over the last several years is as people have migrated from cable to streaming services we've migrated our business we still reach 100 million households, but today we reach many of those through streaming services because they don't have cable subscriptions any longer and so, you know joining another business who was in the midst of transformation again was was somewhat serendipitous I was excited about the future video and video Commerce had use that, extensively at kind of my two preceding roles and so part of the excitement of joining curate was joining someone who is at The Cutting Edge of this but to your point that's been migrating, and then as we look at the future we said Gee what places do we really own, from an e-commerce perspective and we own the 10 foot screen the screen that you see in front of you from a living room perspective.

[9:58] We do really well on the laptop you know the desktop for for e-commerce shopping like most traditional e-commerce retailers but as we thought about the small screen that wasn't a place where we had really built, for the future yet we thought were really well positioned we could certainly see what was happening in in Asia and the explosion of Live And mobile driven Commerce.
And realize that that was going to happen here in the west as well.
And felt like we were in a position to innovate around that but we needed to put some real Focus around that so you know about a year ago I stepped out of my role as Chief marketing officer of QVC nhsn, to build live shop Ventures and ultimately to launch the soon platform that we're going to talk about today.

Jason:
[10:42] Amazing and and I for sure I'm going to get into that but I did think you could help us clear up a few just basic questions about the industry first a I now have some some Envy because your TV is 10 feet at home I'm kind of jealous but the.
You you call that V Commerce and I'm just curious like I hear all these different phrases all the time I hear people kind of talk about live streaming when they they don't necessarily mean live and video like is there a preferred label that you guys like to kind of describe this, this industry.

Brian:
[11:18] For sure we love the V e-commerce label in fact we think V Commerce will be the new e-commerce and what we mean by that largely is that, more and more consumers shopping experiences will be driven by video in fact if you look at today's youngest consumer right gen Z or the Next Generation Rising almost all of their Discovery happens in a video experience.
If you think about it and it could come from one of the well-known video players right who's in this space Instagram which has become largely video Tick-Tock who obviously has led the way there YouTube.
All of these places if I think about and I have so fun fact I have six kids, the youngest is squarely gen Z 12 years old the oldest is Millennial 29 years old and I watched their journey and most of their Discovery right the new trip they're going to take.
The next meal they're going to make the next product they're going to buy the next television show they're going to watch is all coming through their video feed.
Yet in the e-commerce space we're still largely dependent upon static images and or in the physical space on boxes and shelf talkers and that's just not the way that the rising generation discovers.
Anything new.

Scot:
[12:34] Yep ingredient it's interesting you have a built-in test bed is that was that part of your strategy.

Brian:
[12:40] I think that that if.

Scot:
[12:42] We need more kids I need to get another generation.

Brian:
[12:44] If you went back in math my career I did a pretty good job landing at the right Brands and price basis for my for my kids ages the only one they might say I got wrong was the bridal industry I was a bit premature on the bridal industry, but but you know as I look back so we do we talk a lot about be Commerce and that for us means live it also means pre-recorded, right it can mean you know things that are that are behind the scenes it's anything that really leverages video to help tell the product and Brand Story to a consumer in a way that helps them make better decisions and get to yes faster.
That's where we see the Innovation going that's where we see all brands needing to play we think it will look different in the west than it looks in the east.
And that's because different consumers and different markets and different level of kind of retail development but we think it'll be globally relevant over the course of the next you know five to ten years.

Scot:
[13:37]