EP318 - Temu Deep Dive with Earnest Analytics
In this episode, Jason "Retailgeek" Goldberg and Scot Wingo dive deep Temu, the online marketplace operated by the Chinese e-commerce company PDD Holdings, that has become the fastest growing retailer in history.
Joining us on the episode is Michael Maloof is the Head of Marketing for Earnest Analytics. Earnest works with world-class data partners to acquires, anonymize, and productize insight about the entire U.S. Economy. They have posted numerous insights about Temu in the US this year:
In this episode we cover who Temu is, how big they have become, who their customers are and what retailers they are likely impacting, their go to market strategy (and especially their marketing spend), the controversy around their use of the Global Postal Treaty, and some of their potential risks. We also explore where they could go next. If you're in the commerce space, you'll want to make sure you are up to speed on Temu.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 318 of the Jason & Scot show was recorded on Wednesday, March 13th, 2024.
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.
Jason:
[0:23] Welcome to the Jason and Scott show. This is episode 318 being recorded on Wednesday, March 13th, 2024.
I'm your host, Jason “Retailgeek” Goldberg. And as usual, I'm here with your co-host, Scott Wingo.
Scot:
[0:39] Hey, Jason, and welcome back, Jason and Scott show listeners.
Jason, one of the topics that is coming up a lot this year, we talked a lot at a lot in our recap and our preview is Temu.
By many measures, people think they're one of the fastest growing e-commerce companies in history.
If you watch the Super Bowl, I think they spent $8 trillion on ads there.
So we want to do a deep dive into this and cover a number of topics.
We want to talk about a little background around Temu.
What's it mean for U.S. retailers? And, you know, it's a Chinese company.
Does it even matter? If yes, why?
Because Temu isn't public and they are a Chinese company, they don't really disclose any information.
So we wanted to bring on a guest that is basically a Temu expert.
So we looked around and we found Michael Maloof.
He is the head of marketing at Ernest Analytics.
Ernest works with world-class data partners to acquire, anonymize, and productize insights about the U.S. economy.
They have posted lots of articles. This is how we found Michael.
I think you know him as well from the trade show circuit.
So he's going to help us do this deep dive into what's going on at Temu.
Welcome to the show, Michael. Michael?
Michael:
[1:59] Yeah, thanks so much for having me on the show. Big fan of your annual predictions and the work you guys do.
So I'm head of marketing at Earnest Analytics. We're the leading credit card retail pricing and healthcare claims data provider for investors and retailers.
Before Earnest, I was actually a tech and telco analyst over at Goldman.
The two credit card data sets we work with now, Orion and Vela, are probably the most pertinent to my conversations about the consumer economy and certainly this conversation today about TMU.
They sourced respectively from a large account aggregator, like a budgeting app, and part of a POS system in the US.
And Ernest essentially takes these massive and messy data sets, normalizes structures, and then puts them onto our platform so everyone from portfolio managers to marketers can see this third-party data.
For example, you'd see market share, competitive benchmarking, customer behavior, revenue predictions, and macro trends for thousands of companies, including TMU.
Scot:
[3:03] Awesome. Thanks, Michael. And then, so which sector did you cover when you were an analyst at Goldman Sachs?
Michael:
[3:08] Tech and telco. So anything in the tech space, we had a few marketplaces in there, telecom companies.
It's been a while though. Ernest has been my home now for seven years.
Scot:
[3:20] Okay. Was this in the Anthony Noto era you were there?
Michael:
[3:23] This was in the vera rossi era she was my my lead where we recovered uh latin american tech and telco.
Scot:
[3:30] Very cool awesome yeah they did goldman did the channelizer ipo so i get to know the team there pretty well awesome well before we jump into the data which we're excited to kind of hear what you have to share here jason i know this has become a very hot topic in your world you you You spoke on it at NRF.
In your day job, you're getting tons of questions about this.
I think you're booked out solid with Tmoo briefings.
So those people pay big money for it, and our listeners don't pay.
Give us the free version of your backgrounder on Tmoo.
Jason:
[4:05] Yeah, thanks, Scott. And I'm sure we'll spice in some other tidbits as we go, but I'll try to give a concise bullet. it.
Temu is a subsidiary of a company that used to be called Pinduoduo in China.
It's now called PDD Holdings, which is infinitely easier to spell, by the way.
And PDD Holdings is one of the largest e-commerce companies in China.
On a market cap basis, they keep flip-flopping with Alibaba.
So they're super competitive.
They're way north of like $400 billion in GMV in China and had a really interesting trajectory, but a couple of years ago, they launched Tmoo into first UK and then US, now 49 other markets as a new retail concept.
And so a couple of things I'd want folks to know before we dive in with Michael, first of all, the name is a loose English acronym for team up price down.
So I always pronounce Tmoo as in team.
[5:08] There are multiple pronunciations out there, even from Tmoo employees.
So I'm not sure there's an official pronunciation.
In the United States, they launched in September of 2022.
So they're about 18 months old now. And most folks were not familiar with them until, a surprise, three months after launching, they bought a Super Bowl ad.
So they became familiar to millions of Americans with the Shop Like a Billionaire ad that ran in the Super Bowl in 2023.
And then as Scott alluded to, they bought five ads in the Super Bowl this year.
So they haven't disclosed what they paid.
A normal 30-second spot in the Super Bowl costs about $7 million.
They ran four ads during the Super Bowl and one during the postgame.
So estimates are in the kind of $20 to $30 million that they spent just on that ad.
There's a bunch of estimates for how big they are in the U.S.
I'm eager to hear what Michael thinks, but his old rivals at Morgan Stanley have them at about $16 billion in GMV in the U.S.
But more interesting, Morgan Stanley estimates they're going to be $32 billion by 2030.
So you think about a retail company that launched in September of 2022, and then in the first year, business sold $16 billion worth of stuff.
That's the fastest growing retailer of all times.
We do know from other sources that they get more traffic every year than Target.
[6:36] They've been the most downloaded shopping apps on the Android and Apple app stores since they were born.
So they've kind of owned the top of that list.
And a couple other little interesting things. They are a marketplace.
They have invented a model they call next generation manufacturing.
So they're a marketplace.
It's all three-piece sellers that are selling goods on Temu.
But unlike traditional Western-based marketplaces, Temu does a lot more of the work, of listing the products and fulfilling the products for the factory.
So they may, if you're a factory, they say the only thing you need is a cellular internet connection, and they provide you all the infrastructure to become a successful seller on Temu.
There's somewhere between 80 and 100,000 Chinese factories that are currently sellers on the marketplace.
And then one big innovation is this week, they're turning on the ability for U.S.
Marketplace sellers to sell and fulfill their goods from the U.S. as well.
So one interesting question about a marketplace is, are they competing for sellers with Amazon and Walmart?
And now they're bringing that fight to American soil. So that, I feel like, is enough to get us started.
There's certainly an interesting company that's worth following.
[7:52] The way I originally discovered Earnest is through this show.
One of our most popular guests, Dan McCarthy, has been on a few times talking about his his CLV methodologies. And our listeners have really enjoyed his his commentary.
He has partnered with Earnest Data several times to do some really interesting analytics. And you guys at Earnest have published a couple of those as thought leadership.
And so that's how I first met you. And then, Michael, I noticed you published like three articles on Temu this year.
Michael:
[8:22] That's right. Right. Teamio has been one of the top client asked for themes.
It's definitely something we're seeing a lot in the press. We work a lot with those thought leaders as well.
And that's something that we're getting a lot of questions on from everyone from business to fashion to Dan McCarthy.
So glad to answer any questions there.
We are kind of in a unique spot, kind of have the dashboard on the consumer economy, if you will.
Basically what's going on within the last few days we can see everything from customer acquisition they have to their gross market merchandise value.
Scot:
[8:56] Got it let's let's start at the basics and let's pretend you know so i see Temu and you know it looks like they've got and you know one of my theories is it feels a lot like wish.com so it's really kind of cheap stuff slower ship going to what i would call value-oriented and consumers, you know, in your data, what, what kind of customer are, is buying this and then how fast do you think they are really growing?
Michael:
[9:22] Yeah, let me answer the second one first. Timmy's growing very quickly.
Like you said, from late 2022 onwards, our data is showing double digit month to month growth, which is just explosive, right as it became a household name.
In the first three months, for context, it had roughly as many weekly active users in the US as the largest fast fashion brand, Shein, and within 10 months had surpassed Shein in sales.
And it had taken Shein years to get to that point. So really, a much shorter timeline.
For an idea of size, about 18% of US households have shopped at TeamView since its launch.
And in terms of GMV, in February, we saw about 1% of Amazon's US GMV.
If you look at that, if you just break that out over the whole year, I believe in 2023, their net sales were something like over $500 billion.
You're looking at around $50 billion in gross merchandise value moving through the service.
But nevertheless, it's kind of not made really meaningful inroads with the largest online brands.
I mean, it's still 1% in a good month. And that's actually decelerated since 2023.
In fact, February of 2023 had fewer sales than January, despite the really heavy advertising spend you mentioned.
[10:47] So yeah, there's some signs that the growth is kind of changing there.
Mainly that retention is increasing even while this like...
[11:01] New customer acquisition-based sales growth model is slowing down.
TeamU's average customer lifetime value tracks higher than Walmart.
And we're seeing customers becoming much more loyal.
So that's an interesting kind of plus for them while sales in total are kind of hitting a lull.
But yeah, let's talk about who those customers are too.
It's definitely been one of the more interesting finds from our data.
Despite the really low price points and that kind of gamified discount system, TeamView's US customer base skews middle to high income, actually.
Sales among customers earning that over $190K, which is obviously very high up there, they're the fastest growing income bracket.
And that's from May to January, May of 23 to January 24. So those sales to customers earning under $55K, like less than the median U.S. household income, that's actually the slowest growing.
So today, about 44% of TeamU sales come from earners making over $130K.
Not only do high-income earners account for the largest share, they're outgrowing.
We just think that TeamU resonates mostly with customers with more disposable income. income, people who can afford to take a gamble on an item that might not work out.
[12:27] You buy a floor mat for $5, it doesn't work.
A middle high income person might just say, hey, it was $5 wasted, but the poor people don't always look at that.
They're looking for a little bit more bang for their buck, can't afford that type of gamble. Yeah, it's interesting.
Scot:
[12:46] Cool and then you've you know you mentioned that they're you know basically their ltv is going up do you have any insight into why are they getting better at like maybe predictive analytics or recommendation engine or you know they see jason bought some gadget and then they they know he's now a gadget geek and they kind of start targeting do you have any insight into what's driving that that bump in LTV?
Michael:
[13:09] That's a good question. So I don't really have much insight into that.
I try not to get out over my skis in terms of the data that I have available to me.
We're looking at retention. We're looking for what's called a smile.
Dan McCarthy talks about it all the time, which is over time as a company starts to bring back more customers that stopped stopped spending with them.
And that's been pretty rare to see in e-commerce history.
That's something they've managed to do. How they're doing that, I'm not totally sure.
So it's definitely going to be the key for them to continue growing as new customer growth slows down, though.
Scot:
[13:52] Yeah. Jason, do you know?
Jason:
[13:54] Yeah. Well, so I don't know. I just want to point out that while Michael is wisely trying to not get over his skis, I live over my skis.
So I'll tumble down the ski slope once again.
One of the things I maybe should have said up front or maybe apparent to a lot of people is T-Moves marketing spend isn't just that Super Bowl ad.
They're spending a fortune on digital ads and almost certainly losing a lot of money on every sale.
So there's a Wall Street Journal article that came out this week that said that Temu or PDD overall spent over $2 billion with Facebook and was Facebook's largest advertiser.
They're also Google's largest advertiser in the U.S. And so they're buying a lot of customers.
And the the Wall Street Journal estimates that they're losing $6 on every sale.
They're spending so much on customer acquisition.
And so in that first year, they're doing a ton of marketing.
There's a ton of people that never heard of Temu. They're acquiring those customers.
They're getting that first order.
[14:54] And, you know, a mini version of this is what Wish did until they ran out of money.
But though it doesn't seem like there was a lot of evidence that Wish ever got traction, right? Like they didn't get those repeat orders.
And what I think we're seeing And what I've seen in some of the data that Michael shared with us is that Temu very much is growing that LTV, getting repeat orders, even as the flood of digital marketing they're spending is sort of losing some efficacy as the law of large numbers kick in.
And then I would also say Pinduoduo in China and now Temu in the U.S.
Is very well known for their gamification.
So they have lots of clever gamification mechanics on their websites, group buying, contests, gifts, one-time deals that are all like very carefully crafted to entice you to make an incremental purchase and to make an unplanned purchase.
So I think all of those things appear to be working and then they hit you on social media with, you know, a huge spend, you know, right when you're, you're doom scrolling and expressing some, some purchase intent through your clicks.
Scot:
[16:08] Very cool. How about you, Michael, you mentioned this, this, this slowdown, which is exactly opposite of what I would have thought given the Superbowl ads.
What do you, does the data show you anything there? Is it?
Normal or like what what's going on.
Michael:
[16:23] Yeah i mean i don't know i don't know what would be normal for this company that's still up hundreds of percent a year but when i'm looking at at month over month growth which is the kind of the best way i can think to to look at it it is pretty remarkable there was some sort of a step change in august of last year where it went from growing double double digits each month to growing just single digits or down.
The holidays, December actually was smaller than November in terms of their sales.
And January was smaller still, makes sense. But February, also very challenged in terms of sales.
I'm wondering if they're in a sort of spiral in terms of the new customer's first time kind of buying frenzy is over, or if this is a shift towards very purposely trying to get people in the door and they're just actually tapping brakes a bit on advertising spending.
I'm not totally sure what this signals just yet.
Scot:
[17:35] Got it. Okay.
Jason:
[17:36] Is it safe to say that there's no clear evidence that spending $30 million million dollars on the Super Bowl had a super observable impact on their sales.
Michael:
[17:46] Okay. Yeah. So the Super Bowl. Let's talk about that.
The million dollar question or $30 million question, I guess.
The answer is probably not. There are a lot of ways to measure advertising effectiveness, as you guys know better than most.
Brand awareness and net promoter score.
But yeah, for a young company like this facing slowing new customer growth, I'd imagine they're looking to move the needle with each of these like big marketing events and the data just suggests that their multiple ads on February 11th had no meaningful boost in sales actually TeamU saw a noticeable deceleration in sales growth following the event actually kind of, like sales were significantly slower in the next few days.
So unless they're measuring this on a much longer timeline, I don't think this investment was worth it.
I think they would be better just plowing dollars into digital, wherever that is.
Jason:
[18:42] Yeah, it's super interesting. You know, obviously for listeners that don't know, my salary gets paid by those Super Bowl ads.
I work for a big ad agency for which I'm very grateful.
But the lot of controversy around our water cooler the day after the show.
That was a spin that you rarely see.
And in one metric, it clearly had an impact.
There was a lot more discussion about Temu than any other company on social media the day after the Super Bowl.
So the Super Bowl ads triggered awareness and conversation.
I think they were the second behind Verizon, which had Beyonce, right?
And so there was a lot of talk on social media. It was not all positive.
There was a lot of discussion on social media, but people that hated the team who had the first time they saw it because it was sort of by Super Bowl standards, not a very high production animated ad.
I think they made it in-house and they, you know, ran it with much greater repetition than audiences are used to.
So it generated a lot of conversation that didn't necessarily translate to sales, at least that we can measure in the short term.
And so that that's going to be interesting long term case study about what what these kind of, you know, splashy big reach audiences can and can't can't do. Right.
Michael:
[20:00] You know, I don't, again, skis and getting over them.
It just seems like the outcome for them at this point should be a little further down the funnel.
And I don't see how advertising spend like that will marginally get someone, persuade someone to buy a team you that wasn't already going to.
It seems, yeah, it was a lot and there was no really movement in our data, either in new signups or in sales.
I think there's some other research out that downloads are trending downwards or slowing down as well. We don't have that data, but I was reading elsewhere.
So I think, Scott, this is maybe more to your 2024 prediction that people are realizing this is wish and slowing. and becoming less enamored or falling out of it.
Jason:
[20:52] No, no, no, no. Scott's predictions cannot be right.
Scot:
[20:55] Wait, if I hear that, you're pre-anointing that I'm right. Is that you're here in March, you're saying I was right with my prediction. Man, I'm good.
Michael:
[21:04] I didn't want to pick a side here, but I think people might be falling out of love with it, although it's not because it's not wish, it's because they're out wishing wish.
We can talk to it a little bit. But I think people just realize Teamio is managing to disrupt Wish.
And we can talk to the brands that it's disrupting. That's just one of many.
It's got higher retention, bigger scale than Wish.
But it does have the same limits as Wish and that this deep discount model doesn't have the big household brands that people want when they're making those everyday purchases that are slightly bigger, like the Tides and Cloroxes or the recognizable alternatives.
There are just some things you don't want to replace and you don't want to gamble on.
I don't think anyone wants to spend a dollar on detergent and see what happens.
It's just going to be tough for them to scale at some point.
I think the question we should be asking is if they've reached that point yet.
I'm not sure. The sales growth slowing suggests they could have.
But in the meantime, they are actually taking a wrecking ball to several other brands.
So just because total sales is slowing doesn't mean the disruptive effect is slowing.
Scot:
[22:22] Yeah, let's go, Jason.
Jason:
[22:51] Because Temu is buying so many ads and driving the price on all those auctions up.
So don't know if it's moving the needle on consumer impact or not, but it for sure is having an impact on their competitors, at least in that regard.
Michael:
[23:04] So you're saying maybe their goal is to just suck all the oxygen out of the room?
Jason:
[23:08] I'm saying that's potentially an unintended positive benefit. Mm-hmm.
Scot:
[23:15] Yeah, and you've teed us up there. Who is, is it retailers or is it more brands?
Who's getting impacted by this?
And kind of embedded in this question is, do you have an idea of the categories?
Like if we looked at that pie of the 50 billion GMV, is it largely electronics?
Is it apparel? Like what are the big wedges inside of there?
Michael:
[23:35] Yeah, well, so the great part about transaction data, it's really good at looking at brand disruption, or I should say retail disruption by brand.
Not great at looking at the categories.
You know, I don't see what an individual breakout of a credit card receipt is.
I'm just seeing where people are spending.
So I think that's the question I'm more equipped to answer.
In terms of impact, some of the folks you think of when you think of mass market and discount retailers like Five Below and Walmart, the ones that you immediately want to ask if they're being disrupted, they seem like they'd have the most overlap. They've been pretty untouched, actually.
Part of its overlap, only 19% of Walmart and Amazon's customers have even tried TeamU.
And that's about the same as the total percent of US households that have tried it. substantially the whole country has made a purchase at Walmart and Amazon.
So they're just not as at risk, maybe on the margins.
But what we're seeing, I guess, next step up with some risk is the dollar stores.
Dollar General, they share about a quarter of their customers with TeamU.
And if you look at Dollar General's customers spending at TeamU, it's up over 800% year to year from January 23 to 24.
Obviously, a super small base and flat. at Dollar General itself.
[24:54] And then those TeamU customers who aren't, or those Dollar General customers who aren't TeamU customers, they're spending slightly up at Dollar General.
It suggests that there's some impact.
Again, not the biggest that we've seen. So I'd say like dollar stores kind of marginally.
[25:10] This is not as supported by data, but just putting the data point together that the TeamU customers are spending less and TeamU customers are richer, you could come to the conclusion that Dollar General role is losing out on richer customers looking for deals a little bit.
Maybe they're popping in for something they really don't want to spend a lot of money on, like a party, something like that.
That's where the sales that they're losing is. Which actually kind of takes us to the last and biggest impact.
Wish and AliExpress, as well as all those hobby lobby party supplies, like Oriental Trading. So I'll start with Wish.
Their customers are just fleeing. I think there's no better way to say it.
50% less spend on Wish in January 2024 than January 2023, and over 680% increase at TeamU.
That's just astounding. The Wish customer, once they try I, TeamU, they're done.
It's game over. It's similar for AliExpress.
And I think that what TeamU has really done early on, we need to think of them less as like an Amazon killer, and more as a brand that just came in to consolidate the existing demand for this deep discount online spending that these two, AliExpress and Wish kind of got off the ground in the US.
[26:35] In terms of the hobby space, Oriental Trading, Hobby Lobby, Party City, they all experienced double-digit declines year-on-year in February among the customers who also shopped at TMU.
And these brands, they're catering to occasional and discount merchandise.
I think they're really going to struggle adapting to TMU. It's like I said, the person who doesn't mind throwing away $5, $10, $15 on party supplies if they don't work out.
But it's a one-time thing anyway. way you know it's it's things that they're somewhat disposable items to these customers and very interchangeable got.
Scot:
[27:12] It i noticed you didn't mention amazon on that list is there is it there been an amazon impact or has it been.
Michael:
[27:18] That's great good catch pretty negligible just just like walmart they're just brands on those platforms at this point that you can't find at at these places i think when i say on the margins that's what i mean there could be hey, I need this small thing for my kitchen that I could get for $1 or get for $3.
And that might be the sale they lose out on, but they're doing a better job of being one-stop shops.
And I think with what we've seen, it doesn't seem like the business model is set to take on Amazon yet.
Scot:
[27:57] Got it. Yeah.
Jason:
[28:00] You know, a couple of things that come to mind. A, I think the dollar store thing is super interesting because historically dollar stores haven't sold very much online.
Like, and, and, you know, usually their excuse is that, that super low price point discounted items don't work online.
Right. And I, I think like in some ways I look at Temu and I say, they're actually the digital dollar store that did figure it out. Now.
[28:25] It remains to be seen whether they can make money doing it in the long run.
But it doesn't surprise me that those are some of the categories that are being disproportionately impacted.
And I think you really hit something interesting on some of these everyday essential retailers that sell the brands that consumers are looking for and trust.
[28:46] That, to me, feels like a different shopping occasion than the shopping occasion I think Timo is winning.
Branding there's this whole new trend on all the social media platforms called dupes and you know people think of like knockoffs and forgeries where you you try to pretend you're a brand that you're not but dupes is a something different dupes is this is a very similar product to a name brand product but it it overtly is not the name brand product and it's a way better value and they're now these big cohorts of consumers that talk about their dupes and brag about their dupe finds and, you know, proudly make these, these dupe decisions.
And it feels like those are the kind of things where, where Teemu's playing really well, where, you know, you're into, you know, crafting and you've, you know, there's some expensive machine, a cricket machine for cutting vinyl.
And you say, oh man, I found a dupe on Teemu for 20 bucks, right?
Like those Those feel like the kinds of occasions they're winning when you're willing to trade down for that no-name product and take a gamble versus when you know you want the Tide dishwasher soap.
Michael:
[29:58] I think that's a great point. They're taking advantage of the trading down phenomenon in general right now that a lot of brands are seeing, a lot of retailers are seeing.
This is the perfect spot. I'll just go ahead and see if Temu has it.
Maybe they will, maybe they won't.
Scot:
[30:15] Cool. One topic, and this is kind of a jump ball for you guys, is the, you know, I read a lot about this shipping model, and this was always Wish's kind of secret sauce is there's this, there's this like loophole in the postal code where if you send this something small, you know, it doesn't have any tariffs, number one.
And then number two, there's like this really cheap postal rate, or I can't remember if China subsidizes it or it's free or we subsidize it, but there's some, there's kind of like double loopholes. There's a tariff one and a shipping one.
And I've seen some noise lately about people wanting to kind of shut this down.
Do you guys, either of you more expert on that than I am and have an opinion on if it's going to be sustainable or not?
Jason:
[30:57] I could certainly jump in there. So what you're talking about is there's this thing called the Global Postal Treaty.
And it's a prearranged agreement between like 95 countries, 94 countries for how they'll deliver each other's mail.
When you try to ship a letter from the U.S. to Germany, the U.S.
Post Office is going to hand it to the German Post, and they need to know in advance how much the German Post is going to charge the U.S.
Post Office to deliver that so that the U.S.
Post Office can charge a rate in advance to you to deliver those things.
So this global postal treaty is super valuable, and it makes it possible to cost effectively and, you know, with predictable rates, mail stuff all across the world.
[31:41] Unfortunately, there's a couple of problems with it. There was the developed nations agreed that for less economically developed nations, they would have a preferred rate.
So they would charge even less to deliver.
The U.S. post office would charge less to deliver mail from a developing economy than they would from an established economy.
And until recently, China was characterized as a developing economy, which is probably not accurate.
And then the Postal Treaty specifies a dollar limit that it only is in effect for packages under a certain value.
And so this is called the de minimis clause of the Postal Treaty.
In the United States, the threshold is $800.
So when Temu ships something to a consumer in the U.S. that costs under $800, they get a predetermined rate from the U.S.
Post office, which is often cheaper than the rate to mail something from one part of the U.S. to the other.
And Scott, per your point, there is no tariffs charged on that item and there is no import inspection on that item. So, you know, normally when we, you know, if a U.S.
Retailer imports a container of goods from China, there's all kinds of inspections to make sure that the factory in China met labor standards and, you know, met environmental standards, and then they pay tariffs on all that.
[33:08] The team who hands one package to the U.S. post office, they they get to bypass all that, which, you know, is, of course, controversial.
No one wants to get rid of the Global Postal Treaty or even de minimis.
But what they're saying is that the U.S.'s 800 hour threshold is probably way too high.
Like China's threshold for reciprocation is something like forty dollars or something.
So you could you could put a big dent in Temu if you just lowered the the threshold.
And so there's There's, you know, noise in Congress about trying to change that limit.
I would say that, you know, it is an unfair advantage in many ways, and U.S.
Companies are certainly right to complain about that.
[33:51] I would say that Temu is different than Wish. Wish took advantage of this cause.
Temu takes advantage of it way more effectively, right?
So Wish sold, you know, was a marketplace, and they had a factory sell something to an American consumer.
And then it was up to the factory to get it to the American consumer.
So the factory had to have their own postal account.
And then they, you know, had to trigger this postal treaty. And there was no shipping confirmation.
And often Wish products took a very long time to ship and a very long time to arrive.
As part of this next-gen manufacturing model that Temu has, they do all that for the seller. And it uses Temu's postal account.
And they expedite all of these things. Most of these goods get air freighted to the U.S. and put into the U.S. postal system.
So while Wish items would have averaged three or four weeks delivery time.
[34:46] Temu normally averages like five to seven days, and they almost always outperform their shipping promises. And in fact, they even have a guarantee.
They give you $5 back if the package arrives late.
So, you know, part of the reason that I don't think they're just purely Wish 2.0 is they actually do have a better, more reliable shipping experience than Wish.
And they actually more effectively take advantage of this postal loophole than Wish ever did.
Scot:
[35:18] Yeah. And Wish took the proceeds of their IPO and built out some fulfillment centers.
And they almost did their own version of that Amazon dragon boat or whatever that was called.
Has T-Mood signaled they're going to do something like that where they have, you know, even more?
Jason:
[35:32] Yeah, they already have in some. So they're in 49 countries now.
So they do have D.C. fulfillment centers in some of those countries.
They've actually talked about opening a fulfillment center in Mexico for delivering goods in the western U.S.
And so so they are talking about that.
But then this other big thing is starting this week that a U.S.
Seller could list their goods that, you know, the goods are already in a warehouse in the U.S. that US seller could list their goods on Temu and then deliver those goods from a US fulfillment center.
So that's a potential way to get much faster delivery times for Temu.
And we've already seen some badging. Temu has items with a rapid ship badge that are guaranteed for two-day delivery.
So it does seem like Temu recognizes that over time, their fulfillment model is going to have to be more nuanced than just the the individual parcels uh coming one at a time but but you know that still seems like the the sort of biggest foundation of how they're delivering all these goods got.
Michael:
[36:36] It um the minimus though i can't imagine that much they would change would really have an impact we're seeing average ticket prices at 38 last month for for timmy like are they thinking thinking of reducing it by that much or.
Jason:
[36:52] So, I mean, a just talking about way over our skis, like my, my political acumen is very poor, but yeah, I don't think Congress is gonna do anything.
I think like at most they'll have a, a hearing and try to look like tough guys talking about how unfair it is and how they're gonna try to protect the American businessman and the American consumer.
And then when push comes to shove, they won't, they won't do anything, which is my, my cynical nature.
But you're right. Right. Nobody's talking about dropping the de minimis low enough to to, you know, really trigger the bulk of these these Temu shipments.
So it's it's more likely if they made a change, it would be a gesture, not like, you know, some some game changing thing.
Now, you know, there's another big Chinese company out there, ByteDance, which is TikTok.
And like there there is a bill going through Congress right now to ban TikTok.
And so, you know, if something like that were to happen with, with a PDD or Temu, you know, that, that would of course, you know, be a, a big threat of a disruption.
Scot:
[37:54] Yep.
And then on that example you gave, Jason, of a U.S. seller in a fulfillment center, is that Temu's fulfillment center or the seller's fulfillment center?
Jason:
[38:04] The seller's fulfillment center. So potentially what would be one of the ironies of this is, of course, as Amazon has expanded their fulfillment services, you could be an Amazon seller, be using FBA, and sell something on Temu and have Amazon fulfill it for you.
Scot:
[38:20] Yeah, Wish did something like this. What we found was the U.S.
Seller struggled to get things in the price point that consumer wanted, right?
It's like it's such this low quality stuff that almost has to be offshore for even to the manufacturer.
Jason:
[38:36] Yeah, I think you are 100 percent right there. I don't think they're going to like we don't know what the uptake is going to be on these U.S.
Sellers. It's an interesting talking point, but it doesn't seem like there's going to be a bunch of U.S.
Sellers that are going to likely participate in this like low price dupes demand that they have today.
Now, what would be interesting, Pinduoduo, I mentioned, which is a huge, huge entity in China.
Pinduoduo started with this same stuff. They started with really inexpensive marketplace goods.
And as Pinduoduo got bigger and more established and won the hearts and minds of Chinese consumers, they moved up market. They started selling brand name stuff. They started selling higher quality stuff.
And today they're a hybrid seller.
PennDuoDuo in China sells their own goods in addition to marketplace items, which I've never seen before.
Usually it always goes the other way. And so there's at least a premise that like maybe the U.S. sellers don't like add to the current assortment, but maybe the U.S.
Sellers help Temu round out their assortment with some higher price point, you know, more recognizable goods for the U.S. consumer that helps them win more wallet share.
Scot:
[39:49] Interesting. Cool. We're running up against time. Do you guys have any other topics you want to hit before we call it a show?
Michael:
[39:58] No, I think it's fair. You know, I already mentioned one of your predictions.
I should talk about the other one.
Just to pick on Jason for a second. I don't think we'll make it to the 75% of target USC comm this year for Temu, Jason.
Sorry. It's like a stretch.
Scot:
[40:17] Man. How do we get Michael on the show more? Like, I'm really enjoying this.
This was a really good guess.
Jason:
[40:24] I feel like you're calling the winner of the Super Bowl in the first quarter, man. Come on.
Michael:
[40:27] Okay, well, I'll just put it this way. At 18% of the US households, three months into the year, it seems unlikely at their current growth that they get there.
My view basically though, writing this, is that they've done a great job in the first year of attracting folks with a lot of disposable income to buy things that they likely wouldn't have bought anywhere else, like party supplies, household goods.
It's maybe a different model than they they have in China.
The challenge for them now, you guys both definitely identified this, that it's basically to convince people to switch everyday spending from Amazon and Walmart on those bigger items.
And they don't have the assortment right now for that. And that's what you're mentioning.
They need to either move up market or figure out what that assortment looks like. But that's going to be a bigger hurdle. They're reaching critical mass.
They just have some decisions to make internally at this point.
Jason:
[41:17] Yeah. Well, in general, I feel like that is going to be a great place to leave it for this show because we have run out of our allotted time.
But Michael, we really appreciated your insight. We'll certainly have you back.
I know your view of the U.S. economy is useful for a whole bunch of topics that come up frequently on the show.
But as always, if listeners enjoyed this episode, I hope you will jump on iTunes and leave us that five-star review.
Scot:
[41:46] Thanks, Michael. And this has been really good for Jason's ego.
So I feel like you've knocked him down a couple of pegs. I appreciate that.
And then if folks want to read more about your writing or connect with you, is LinkedIn the best place or are you more active on TikTok?
Where can people find you? Yeah.
Michael:
[42:04] Michael Maloof on LinkedIn. I'm always posting a lot of Ernest data on there.
And then also on our company blog, ErnestAnalytics.com.
Go to the Insights blog and subscribe.
Jason:
[42:17] Yep. And I will put links to both the team new articles you guys published and your LinkedIn in the show notes.
Michael:
[42:23] Thank you.
Jason:
[42:24] Until next time, happy commercing!
EP317 - Amazon Q4 Results
In this episode, Jason Goldberg and Scot Wingo dive deep into Amazon's fourth-quarter results for 2023, analyzing the company's performance in various segments such as retail, offline and online sales, marketplace, AWS, and advertising. They also explore the impact of AI on Amazon's business and provide insights into the company's future guidance for Q1 2024.
Amazon had a strong Q4 earnings report, beating analyst expectations for revenue and income. In fact, it was Amazon's most profitable quarter ever.
Retail sales were up 6%, which imputes a 2023 GMV of $515B - $660B in the US for all of 2023. The bottom end of that estimate would be a 9% growth over 2023, versus all of Core Retail in the US (x Gas and Auto) which grew 3.6% in 2023. This impressive growth was achieved while Amazon improved delivery times (6B packages delivered next day, and 1B delivered same day, same day offered in 110 metros) and reduced cost to serve by $0.45/package in the US (the first reduction in cost to serve since 2018).
AWS accelerated growth but slowly declined margins.
Ad revenue was again the brightest spot, growing 27% to $14.7B, resulting in $47B in revenue the last 12 months, and a $58B run rate. The income generated from that ad revenue was likely more than $27B, far in excess of the $21B Amazon earned from AWS. Once again demonstrating that Ads are Amazons biggest income generator.
Amazons total GMV in the US likely falls in-between Walmart's expected 2023 GMV of $442B and Walmart plus Sam's Club total US GMV of $519B. Walmart reports it's Q4 on Feb 20.
Amazon probably represented 24% of ALL retail growth in the US in 2023. Amazon, Walmart, Temu, and Shein alone likely represented 49% of all 2023 Us retail growth (leaving mostly crumbs for the rest of retail).
Amazon also announced Rufus, a new Gen AI based search amenity for the e-commerce site.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 317 of the Jason & Scot show was recorded on Wednesday, February 7th, 2024.
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.
Jason:
[0:23] Welcome to the Jason and Scott Show. This is episode 317 being recorded on Wednesday, February 7th, 2024.
I'm your host, Jason Retail Geek Goldberg, and as usual, I'm here with your co-host, Scott Wingo.
Scot:
[0:38] Hey, Jason, and welcome back, Jason and Scott Show listeners.
Jason, we've been talking about ARVR since before shop.org changed its name.
And did you get a vision pro and how is it i.
Jason:
[0:57] Did not i feel like i've let you and our listeners down i desperately wanted to lie and say that we were recording this episode through our joint vision pros i did i did go do a demo and it it seems super cool i am sorting through my my highly poor vision to see what sort of corrective lenses i'll need to put into the thing, to pull the trigger. I heard yours has arrived though.
Scot:
[1:24] Yes, mine actually just came hours ago here to Jason and Scott, North Carolina headquarters.
And it is sitting in a box staring at me. And I figured I would not get the show notes done if I started playing with that.
So that's gonna be my weekend fun that I'm gonna work on. So I'll report back on that.
Jason:
[1:42] All of us that love you are slightly sad because we've seen your real eyes for probably the last time in a long while.
Scot:
[1:48] That is true yep yep these baby blues are going behind the goggles and i'm gonna drive the first thing i do is get in my car and drive that seems to be what everyone does on twitter so that'll be fun yeah.
Jason:
[1:59] That sounds wildly safe.
Scot:
[2:01] Yeah well you can see right through them so it's totally fun yeah.
Jason:
[2:05] No you can't.
Scot:
[2:09] Just kidding everyone do not do that at home and if you do blame jason Yeah.
Jason:
[2:13] But again, the Tesla is perfect self-driving anyway.
So what, what would it even matter? It's like, I feel like you have multiple layers of AI overlords protecting you, Apple and Tesla. What could go wrong?
Scot:
[2:25] Yeah, it is not perfect by any means.
Jason:
[2:29] Yeah i'm glad we caught you i feel like there there's been a lot of travel and it's i know you you have kind of stepped away from the hustle bustle but i'm right in the middle of uh retail trade quarter trade yeah yeah.
Scot:
[2:41] How's that going you did so we haven't been able to catch up since you've done nrf i saw you were like posting like a wild man seems like you had a very active big show how was that.
Jason:
[2:51] Yeah it was pretty good i would big show is definitely back it was the largest attendance ever. There were over 40,000 people.
So it was very robust.
A lot of good, good conversations.
I do have a lot of content out there. If anyone wants a deep dive recap, you can go find my recap on YouTube, but maybe we'll talk more about it later because we have such a meaty episode just talking about Amazon.
But last week I got back from like, frankly, a more fun event then big show.
Our friends at Commerce Next have a new show that they call their Digital Leader Conference.
And it's kind of a small little gathering of like 50 digital leaders at a resort in Del Mar, California, exactly where I grew up.
So I went and drank wine and talk shop with a bunch of folks and the Commerce Next team in San Diego and had a great time nice.
Scot:
[3:49] Did you have some say in where it was hosted you're okay i.
Jason:
[3:52] Did not um i think people were tired of hearing me say this but this is like a fairmont resort it's gorgeous but it was built on like what used to be like these trails behind my high school and i kept you know regaling everyone with how i probably thrown up all over this this facility from all the the runs our soccer coaches used to make us do there.
Scot:
[4:14] Nice that's a good pitch yeah.
Jason:
[4:16] Nice visual for all our good uh good podcast listeners uh and then i have two shows coming up so the end of this month is etail west which is usually a pretty good show in palm springs we'll probably be uh corralling a couple interesting podcast guests uh from that show and there's kind of a shop.org board reunion There was an actual shop.org board reunion that you and I missed that was last month, but there's like six former board members will be at ETL West.
So we're going to get together and have a little catch up there.
And then less than a month after that is our Shop Talk in Las Vegas.
Scot:
[4:59] Fun. Yeah. Have you had an opportunity to see the Sphere? Yeah, I have.
Jason:
[5:04] I have. I have not been in the Sphere, but I have gone by it.
Hopefully, I'll be prominently featured on it for Shop Talk.
Seems like that would be appropriate.
Scot:
[5:14] Yeah, yeah. That would be fun. Get a picture of you on this here and then go inside. Everyone says it's an amazing show inside of there.
Jason:
[5:20] Yeah, yeah, yeah. I definitely want to check it out when time permits.
Scot:
[5:23] Cool. Are you speaking at either of those or just all of you? Oh, wow.
Are you seems like a part of your your 2024 New Year's resolution is to talk about Sheehan and Timu.
Are you going to be doing that that whole dog and pony over there?
Jason:
[5:39] Neither of my sessions are specifically on that. I'm sure I'm talking about it a lot in the hallways.
It's coming up a lot. It's probably spoiler alert going to come up again in this Amazon earnings call.
Scot:
[5:52] Yeah and we've got the super bowl this is like we're annualizing the big timu reveal and so it'll be interesting to see if they i guess they've actually said i think it's an article that said they're coming back in a big way so yeah.
Jason:
[6:03] They bought a second ad so.
Scot:
[6:04] They will they will be back on a few have you seen like a super secret version, uh i cannot say oh okay oh okay oh all right exciting well it would not be a jason scott show without some Amazon news.
And this whole episode is essentially Amazon news. We are going to do a Amazon fourth quarter earnings deep dive.
That's right. On February 1st, Amazon announced their fourth quarter 2023 results.
The setup coming into this one was we had Microsoft announce really solid cloud results that was largely driven by AI.
People are moving their workloads to Azure and they are doing that to get their data over.
And due to Microsoft's partnership with OpenAI, that has been a really nice big draw for their cloud offering.
Then we had Meta announced, the artist previously known as Facebook, and they had tremendous ad performance, largely driven by AI.
Long-term listeners will remember Jason and I, I'm pretty sure we're some of the first to call the impact of this thing called ATT and IDFA, Am I remembering that? You nailed them.
Jason:
[7:24] Yeah.
Scot:
[7:25] Yep. And that just really, that was like, what, four years ago, three years ago?
That walloped Facebook, Snap, and all these companies that their ad system relied on cookies and third-party data. data.
Facebook slash Meta has kind of come back from that and they credit it to AI systems they've used that have really driven the optimization of their advertising products and made the targeting basically nearly as good as it was when they had more precise targeting.
Then Google was kind of like had a bit of a rough patch there.
I think it's hurting them. They don't really disclose much about youtube and it probably did okay but their ads were kind of flat and their cloud computing did not see the benefit that that microsoft did and there's a growing concern there's more and more folks and some data coming out that shows that people are starting to use ais for interesting searches versus google i do find we were talking about it before we got got on here, I am using it more and more.
For example, I was telling Jason, I found OpenAI slash ChatGPT announced this little, it's not a store, but a...
[8:39] Add-ons or like almost like an app store but it's called gpts and i found one that enables me to load a bunch of pdfs on a common topic and then just like ask chat gpt about it and yeah so so i found i'm using it more and more for informational queries just generally and then also for things like that like research for work and and for the pod and so i think i think there's a growing concern that google is watching this ai thing kind of like run away from them and there's There's growing talk that they're stuck in an innovator's dilemma.
So that was the setup. And the market was kind of nervous coming into Amazon earnings because a big chunk of Amazon is the cloud, which is their AWS segment.
And then folks, we really didn't have any great idea how their holiday sales were.
And then last, that Google piece made people a little nervous about the ad business, which has become almost a third leg to the Amazon stool. tool.
So, and then as you keep kind of pointing out, Timu and Sheehan are just like really on the rise and could they, you know, you also have said, I don't want to put words in your mouth, but you've said, you know, you don't think they're being impacted by it too much. That is some other folks.
But, you know, there's definitely overlap there. So people worried, are those up and rising stars going to be the Grinch?
So we're going to walk you through that and peel the onion.
[10:01] We're then we're going to go into how the retail offline and online did and then marketplaces cloud AWS.
And that's where we'll talk about AI. You can't talk about anything now without talking about AI.
So we'll hit that and then Amazon ads and then kind of finish up with how Amazon guided to next quarter, which will be Q2 Q1 of 2024.
Anything you want to add in that setup before we jump in?
Jason:
[10:28] No, I think you've queued it up well. I'm eager to hear how Amazon did.
Scot:
[10:32] Yeah, well, it is what in the Wall Street world we would call a beat.
So they, you know, back in Q3, they set some guidance and they beat that on the top and bottom line very handily.
And then I would call it a raise. It was kind of a slight raise. They raised the range.
Amazon has gotten very good, especially in the Jassy era of not getting too ahead of their skis on expectations.
Expectations so but now that we're you know a fair amount into the Jassy area Wall Street's starting to get his number so now Wall Street's not really believing the guidance it's kind of interesting phenomena that we'll talk about when we get to that part but that's you know if we're going to characterize it it was a win and a win so it was a win on the pass quarter which is Q4 and it was a win going into Q1 and you know Amazon historically if you've been following it as long as jason i have they go through these periods of what i call invest and harvest so they'll invest and invest and invest everyone's like gosh and then people think all right there's no way this thing's going to be either profitable at all or as profitable as it once was or whatever it is they start to lose faith and then amazon goes into a harvest phase and then they just print money and it always surprises people and they're able to do that and that's what what But this quarter really is kind of the –.
[11:49] Output of focusing on that a lot in 2023 where they kind of had this post-coveted hangover they had overbuilt a bunch of stuff and now it feels like they have righted that they've stopped a lot of the things that since jesse came in that maybe were investment areas that they shouldn't have been investing in and and they've got a lot of discipline on expenses and that has turned out really well so those numbers work is revenue came in at 170 billion and wall street had 166 billion So that's a beat of a mere $4 billion, which is very good.
That represents 14% year-over-year growth. Operating income came in at 6.1%, which is the highest since 2019.
So they're kind of back in pre-COVID shape, if you will, and doing better than pre-COVID. So that's good to see.
Operating income came in at $13.2 billion, and Wall Street had $10.4.
So this was a pretty big beat. it's only three billion ish but you know that's a 30 percent beat so that's a that's a nice win when you can deliver 30 more profit than wall street's looking for so all that was really good so jason how did you think that the retail and offline online parts of the business did.
Jason:
[13:03] Yeah well it was certainly a good part you know reminder amazon reports their online sales which which is a global number, and Amazon's in a different set of countries than anyone else.
So you almost can't compare it to any other retailer because there's no retailer that does business in the same geographies as Amazon.
And that online stores has their first party sales in it, and it has just the profit from their third party sales in it.
So it's not a real GMV number, but that number was over 70 billion, like 70.5 billion versus 68.6 billion.
So that was up 6%. That was a beat for Wall Street.
Physical stores were 5.1 billion, which is slightly down. So that was one of the few misses in there.
[13:52] What I suspect most of our listeners are more interested in is if you convert all those sales into a GMV number and you strip out just the U.S.
So you can kind of compare it to other U.S. retailers. What does that look like?
And there's a number of different estimates out there.
One that we pulled was Citibank's. So the Citibank estimate for total GMV for the year was $904 billion. billion, the US portion of that would be like $659 billion.
And that implies that the third party sales were particularly profitable.
So I'll call that a optimistic estimate.
And then Marketplace Pulse did an estimate using a much more conservative figure for how profitable third party sales that was largely based on the one year Amazon really really told us what the numbers were, which was 2018, right?
And so based on those kind of 2018 ratios, Marketplace polls estimated that global GMV is about 700 billion, US GMV would be 510 billion.
So that's up, if we take that conservative number, the 510 billion, that would be up 9% from the previous year.
All of retail in the United States grew 3.6%. So 9% growth for one of the largest retailers in the market is terrific.
[15:20] We'll talk a little bit more about what that might mean, but they also, they had some other interesting successes in the retail business.
They talked about the, it was their fastest speed of service ever.
So you know, we've talked in previous quarters about how they really shifted from a national fulfillment network to these regional fulfillment models so that packages would be staged closer to the consumers that bought them.
And they said this quarter that 7 billion packages, or I'm sorry, for the whole year, 7 billion packages were delivered next day or same day.
A billion packages were delivered same day. And there are now 110 metro areas in the United States that get same day delivery.
So I still talk to other retailers all the time that talk about competing with Amazon's offer.
And they always talk about two day delivery. And the reality is that's not the Amazon offer anymore. They're same day in 110 metros, and they delivered $7 billion packages in zero to one days.
So speed of service, super impressive. And while they got faster, they also got more efficient.
So for the first time since 2018, they actually reduced their cost to serve, the total cost to get a package to a customer.
And so in the US, they said the cost to serve went down by 45 cents a package. package.
So that's a pretty meaningful cost reduction.
[16:45] Volume went up, which sometimes makes it easier to be cost efficient, but, you know, to actually get better service and lower your costs at the same time is an impressive feat and a big win for Amazon, which, you know, probably contributed a lot to that particularly high operating income, which I'm not sure if you mentioned, but I think that's the highest operating income they've ever announced.
Scot:
[17:06] Yeah. Yep. It's pretty good. They're actually profitable now.
Just saying they've been profitable a long time.
Jason:
[17:12] Yeah. Yeah. So for all of our, our friends that don't think Amazon's profitable, the, so overall you have to call that, that a really good quarter on the retail sales side.
Scott, did you kind of do a deeper dive in how much of that was the marketplace versus 1P?
Scot:
[17:30] Yeah. It was interesting. You read your GMV data and Scott Devitt, he's at Wedbush now. He's a longtime friend of the pod.
He also put out his number and he came in around that market pulse side.
So more like the 700 billion combined.
Those numbers are 1P plus 3P? Yeah. Is that right? Yeah. Okay.
And global. Yeah. So he was in the same zone.
And what I found was interesting is because we're heading into 24, he pushed his forecast for GMV. He's the only one I've seen that forecast GMV.
And it's obviously driven from like the revenue. So he kind of takes the revenue growth rate and uses that to kind of like get to the growth rate of GMV.
[18:08] But he pushed it out to 2025. And then if I push it out one more year, just kind of using the same, what I think he's doing, it crosses a trillion dollars. If you could wrap your head around that.
I remember you and I, one of the first discussions we ever had was about this frustration that people didn't understand this GMV thing and they were underestimating.
You know, you'd see these charts that showed maybe Amazon never catches up to Walmart.
And at that point, you know, Amazon was at a hundred billion and Walmart was at 400 loosely. Maybe that's the ex-grocery. I can't remember the specifics.
This is going back like seven, eight years.
And now we're at a point where not only have they crossed them from GMV perspective, but even revenue is crossing Walmart or very close to it. And there's a shot at a trillion dollars of transactional flow going through Amazon between 1P and 3P.
That's pretty, that's crazy. Like, and it makes sense. You drive around anywhere.
All you see is Amazon last mile delivery and long haul, you know, trucks.
There's just like the economic impact of what they're doing is monumental.
Jason:
[19:13] Yeah, it's crazy. I remember when the first e-commerce sites sort of passed the billion dollar mark and how amazing that felt.
Yeah, yeah. This thing could work.
Scot:
[19:22] Work this thing has legs exactly they thought we were crazy yeah.
Jason:
[19:29] Um so you know normally the narrative is all this retail stuff loses money but that's okay because aws is so profitable and if if there was like any sort of cautionary tale in this earnings call at all i would say it was aws the growth was decent right like what the i think the the estimates were 11 to 15 and they came in right in the middle of that like 13 but the operating income actually went down slightly.
So like that, that is a mild concern for some folks.
If you, if you kind of convert AWS to it, the last, the trailing 12 months of revenue at, at there, I want to say it's like 24% or 24.1% gross margins.
You generate about 40, $21 billion in, in operating income from AWS.
So that, you know, 20 billion here, 20 billion there, it starts to add up.
But as, as I quickly checked that that's significantly less income than for example, the ads business probably generated for them. So it's a good business.
They are growing slower because they are the biggest player.
They are growing slower than their competitor, certainly than Microsoft.
And it, And their profitability did slightly tick down.
[20:51] But on the exciting side, they talked about a lot of the AI workloads that were moving to AWS and what a headwind that is.
And one of the workloads they announced is Rufus, which is an e-commerce search engine that runs on Amazon.
So, so that, that giant text box that we're all used to for finding our products and that's helping you find what, what SKU to buy amongst the 800 million SKUs available on Amazon is now rolling out a much smarter generative AI amenity that can help, help you find products with much more sophisticated searches.
Scot:
[21:33] Yeah. Yeah. I have not seen any screenshots of it or anything. Have you?
Jason:
[21:37] I saw a demo. though. I have not seen it in the wild yet.
You know, they're not the first mover here, right? Like Instacart adopted a version of OpenAI pretty early.
Walmart rolled it out in their iOS app at CES a few weeks before Amazon.
And so it's funny, like, you know, Amazon, there are some rumors that some of the AI tools in Amazon aren't performing as well in internal tests as people would like.
So there's some concerns about that.
[22:11] What we'll probably have to do a deeper dive on another show is this whole interesting thing as all the text boxes that you can enter text in and e-commerce are moving from keyword searches to these ai engines customers have to re-learn how to use them and right now they're not right and so you know you go to the walmart app and you know it's a generative ai search engine but you still type the same same you know basic keywords in that you always have and so i'm kind of interested in the long run, is that really where the AI is going to live in these e-commerce sites?
Or will we have, you know, sort of a different amenity for doing these more intent based searches than we do for the keyword searches?
Or will people just learn how to use them different? I don't know.
It's a TBD thing as the world evolves right now.
[23:02] But you also alluded to the ads business. That was definitely another bright spot.
They sold 14.7 billion dollars of ads which was above the wall street estimate it's a 27 growth year over year and so if you look at the trailing 12 months that's like 30 billion dollars 27 billion in ad sales if you look at a run rate if that fourth fourth quarter number were to go four consecutive quarters it's a 58 billion dollar run rate so they are they're like a clear third largest digital ad platform in the United States and rapidly gaining ground on the other two.
And the most conservative estimate I've ever seen for this business is that it's 60% gross margin.
At 60% gross margin over the trailing 12 months, the ads business contributed $28 billion billion in operating income to Amazon versus the 21 billion for AWS.
So ads was $7 billion more profitable than AWS over the last 12 months.
Scot:
[24:08] Yeah. That would be net margin, I think you meant to say.
Jason:
[24:11] Yeah. Sorry. And in fun fact, they also announced this little thing called Prime Video Ads, which which, you know, is a huge new source of revenue for them.
And that is expected to tack on another like six and a half billion over the next 12 months or 24 months.
So like there's a lot of upside still in the ad business for Amazon.
Scot:
[24:37] Yeah it's gonna be crazy back on marketplaces i skipped a couple data points because i was so excited about the trillion dollars the as far as the quarter they they kind of have a couple of things that they report on you know the gmv we we we talked about analysts have to kind of back into and they use this one data point to kind of triangulate the things they do tell us is there's this piece called third-party seller services and that's basically you know where they make money from prime and other things of that nature and that grew 20 percent year-over-year beat estimates it was everyone was thinking 42 billion and it came in at 43 and change and then the other thing they tell us is units and that's tricky because you don't know the relevant price of a third-party unit in a first party so you can't just assume it's 61 of revenue that that's a little trick in there that that's that's why the analysts have to do some different math to get in there but third Third party was 61% of units in the fourth quarter.
Last year, you have to look at year over year because of the seasonality. It was 59.
So that's up 2%. So more and more products that they're selling are third party, which is, you know, just juices their margins that much more.
Jason:
[25:46] Yeah. Just looking at the Citibank model for that, Scott, it would be seven globally.
It would be like 71% of total GMV is third party.
Scot:
[25:55] Yeah.
Jason:
[25:55] By revenue.
Scot:
[25:56] Yeah.
Jason:
[25:57] Yeah.
Scot:
[25:57] Yeah, because first party, back when I was modeling this, I've since abandoned that because the Wall Street guys do a better job than I ever could.
Jason:
[26:04] Their spreadsheets are a lot prettier, for sure.
Scot:
[26:07] Yes, it was similar. It would add about 10 points because the AOV on first party is relatively low compared to third party because of all the books and digital little things that they have that are a dollar here, a dollar there kind of things.
Things okay so then we go into next year with the guidance and they guided the top line 138 to 143.
This was Wall Street's consensus is in the middle but they really raised the top end of this and it gives it a growth band of eight to thirteen percent and what's happened in the jassy era is it either comes in right at the top or a notch or two above so Wall Street thinks that you know While the midpoint was aligned with what they're thinking, many of them have bumped up their, models to the 143.
[26:58] And then also the similar kind of situation on operating income, Amazon raised it a fair amount more.
And then what that did is it increased the price targets. And the stock has been on a really nice tear since earnings, thanks to this.
And I think AWS wasn't what everyone wanted to see, but.
[27:16] It reaccelerated growth, which folks want to see, and it doesn't feel like they're losing AI.
I do think Microsoft's got more buzz, but at least they're in the game.
Whereas I think people are starting to worry Google's not really.
Google's talking a good game with Bard, but they're really slow to put stuff out.
Like, you know, they announced this. What is it? Ultra version.
Bard has three flavors, and, you know, they're way behind on each one they've announced.
They're behind weeks or months on. And then the last one is, like, really taking a long time. So everyone's like really starting to worry about Google's ability to execute quickly.
And, you know, so I would say the winners of this earnings season were definitely Meta, Amazon, Microsoft up in kind of a league of their own, and then Google and some of the others.
I think Snapchat, I don't follow them this close, but I think they had a really rough quarter.
So there's definitely an interesting AI has thrown a whole new mix into how these big, you know, either trillion dollar mega super mega caps are doing or meta is not in that discussion.
It's a little bit smaller, but these big some people call them the significant seven.
And they when they say that on CNBC, they're throwing NVIDIA in there and a couple others.
But, you know, AI has just changed the game in the last year. It's been amazing.
Jason:
[28:30] Yeah, for sure. Sure. And they, you know, along those lines, they also announced a bunch of sort of AI-driven new inventions at Amazon.
So we talked a little bit about Rufus. They, they have part of that reducing that cost of service.
They have a lot of smarter robots in the fulfillment centers that are like interfacing with humans more and doing more stuff like that.
And I saw they had one, one AI innovation right in your space, right?
Like they're using AI to inspect respect all the Amazon vans and identify any service needs before the vans break down.
Scot:
[29:02] Yeah yeah yeah these these last mile vans are they get pretty beat up as you can imagine sure you know being in Chicago you see how they can that can be pretty bunged up and all kinds of things happen so, you know they it's interesting I've been to tour several of these because we work on them at my day job spiffy and it's pretty wild we don't have time to go into it maybe we can do a whole pot on on it.
But anyway, they, they line them up and drive them through a single area.
And they have this like arch of cameras that they put them through.
And I imagine that's what that system is.
It's, it's using this kind of 300, almost like a ring of cameras that the vans drive through, and they must be using the AI to detect what's going on there.
Jason:
[29:45] Yeah it's crazy um so anything else jump out at you on specific on the amazon earnings because i wanted to take a last minute to kind of put these amazon earnings in context for the rest of us retail but i want to make sure i didn't miss anything you wanted to.
Scot:
[30:00] Yeah one last thing in my little auto world that i live in now they kind of made a almost you know i haven't seen a lot of buzz about it i know you work a lot with the auto company so you're you're probably getting some feedback on it which is why i'm kind of curious but they announced hyundai is going going to start selling cars on Amazon.
And for a long time, everyone's thought Amazon would maybe compete with Carvana or buy Carvana, some of Carvana's used cars.
So it's like e-commerce for used cars. And a lot of Carvana's competitors, Vroom and Shift, have kind of hit the skids and actually are out of business now.
And some people thought Amazon would buy them, but it looks like Like they're actually going to be maybe an ad unit or a showroom and then send, you could transact on Amazon or start your transaction on Amazon and then go to the dealer.
So that has been, there's a lot of buzz in my world around that.
And we keep hearing many more OEMs are coming and the dealers are, the Hyundai dealers I've talked to are very excited about this and expecting kind of a different customer than they're used to. And there's some prime tie-in there too, which is kind of interesting.
So it's going to be interesting to see Amazon has their eyesight on this auto category and they're doing more and more in there. And it's going to be interesting to see what they do.
Jason:
[31:14] Oh, for sure. I have this giant deck of industries where the leaders in the industry would say like, oh man, e-commerce is amazing in these other industries, but here's why it will never be relevant in ours.
And I think the car industry is the one that this is playing out in right now that, you know, they used to all say like, oh, there's never going to be e-commerce.
People want to go to the dealers and drive it. And there's three tier distribution and all these things and it'll never happen.
And you know, now it's certainly happening.
Scot:
[31:44] Yeah. Yeah. It's going to be interesting to see that.
Jason:
[31:46] Fun times. So I just want to put all this in a little bit of context.
So before the pandemic, retail in the United States of America grew very consistently.
4.1% a year with some very minor deviations, but that's kind of what you expected just from normal inflation and the growth in the population, 4.1% a year. So then the pandemic happens.
We mail out a couple trillion dollars in economic stimulus. We lock everyone in the house so they can't spend as much money on services.
And we had the three greatest years in the history of retail. We grew 7.7% in 2020.
We grew 13.6% in 2021, that's the best year of all times, and we grew another 8% in 2022.
So those were those three crazy outlier years. So the end of 2022 comes and everyone's like, what's 2023 going to look like?
[32:37] We just had these three years that were more than double the industry average.
The NREF came out early in the year and said, hey, we're forecasting 4% to 6% growth.
So bottom end of their range would be average, 6% would be sort of halfway to those last three years.
So we now know what actually happened and we came in at 3.6% growth.
So missed the NREF estimate, missed the traditional average, it's a down year.
And this is $5 trillion is the total sales.
So missing by half a percent is pretty meaningful.
So all of retail grew 3.6%.
If you convert that into a number, that's $180 billion more stuff we sold in 2023 than we did in 2022.
[33:25] And the numbers I'm using for all this are retail without auto or gas in it, just because that's what the nrf calls core retail and it's kind of amazon doesn't sell a lot of cars or gas yet right so so amazon grew nine percent if we use that conservative gmv number for the us.
[33:42] That means amazon alone grew 43 percent last year 43 billion dollars last year so amazon alone was 24 of all retail growth in the united states of america and they're the first or second largest retailer in the country and they grew a quarter of all growth which is pretty phenomenal Walmart also wildly outperform the industry they grew and there they won't announce their q4 till for a couple more weeks but assuming they they have like hit the low side of all the estimates so only 4% growth in q4 though that that'll bring them in at 6% growth for the year that means they They grew by $29 billion, which is 16% of that total growth last year.
Then I keep talking about Timu and Shein.
Timu only grew 3,100% last year, which is a pretty good growth rate.
So they contributed $9.3 billion in growth, 5% of the total.
And Shein grew 30%. So they contributed another $7 billion in growth, 4% of the total.
So you just take those four retailers, Amazon, Walmart, Timu, and Shein.
That's half of all U.S. retail growth last year.
So those four companies had a terrific year, but they essentially left crumbs, for the rest of the retail industry in what without those four companies is pretty much a Debbie Downer year.
Scot:
[35:09] Yeah yeah it's amazing share there it's kind of crazy.
Jason:
[35:13] Yeah and it's it's just so weird to see the biggest two retailers in the market amazon and walmart growing faster than like almost anyone else that that to me is a a very anomalous circumstance that you you don't normally see, there is this super interesting horse race who is the biggest retailer in the u.s and the the sort of unfortunate answer is it depends a little bit on how you count because you you've got Walmart's total US GMV which we also don't know by the way because the there now is a meaningful marketplace at Walmart not as meaningful as as Amazon but like you know Walmart doesn't disclose its actual GMV.
[35:59] But Walmart also has Sam's Club.
And so if you take just Walmart's GMV and shoot, I thought I had the number in front of me, but now that I'm talking about it, I of course don't.
But from memory, it was about $442 billion last year would be my estimate for their GMV after they announced that's their Q4.
And so that would be lower than even the conservative estimate for Amazon's US GMV.
If you add Sam's GMV in the US to Walmart's GMV in the US, Walmart gets to about $520 billion.
So that would be above Marketplace Pulse's estimate for Amazon and below Citibank's estimate for Amazon.
So no matter how you count, these two companies are very close.
A few years ago, you and I were talking about Amazon being close to Walmart if you take grocery out, which grocery is 60% of Walmart sales.
But now we're in a year where Amazon may have passed Walmart, but however you count, it's very close.
And they're obviously continuing to grow faster than Walmart.
So if it wasn't 2023, it likely will be 2024.
That's the year that Amazon actually takes the title as the largest retailer in the US.
Scot:
[37:18] Yeah, it's crazy. We knew the day would come and here we are.
Jason:
[37:22] Exactly. So Scott, I feel like we nailed it.
We targeted to have a slightly shorter show to just keep the meat in there and we have succeeded.
Scot:
[37:33] Yeah. Yeah. Thanks everyone for joining us. Don't forget, if you have a second, leave us a review. We'd really appreciate that. And.
Jason:
[37:41] Until next time, happy commercing!
EP316 - Annual Predictions 2024
Jason visited the Walmart Neighborhood Market in Pea Ridge, Arkansas featuring drone delivery. Here is a video for those interested.
Jason:
Jason Total Score: 3 of 5
Scot:
Scot Total Score: 4 of 5
Trends revert to the mean, and Scot is back on Top!
Jason:
Bonus: Live-steaming, MetaVerse, Crypto still not a major thing in e-commerce; Management stops blaming performance on retail crime; and Smaller RMN’s fail.
Scot:
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 316 of the Jason & Scot show was recorded on Thursday, January 11th, 2024.
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.
Jason:
[0:23] Welcome to the Jason and Scott show. This is episode 316 being recorded on Thursday, January 11th.
I’m your host, Jason Retail Geek Goldberg. And as usual, I’m here with your co-host, Scott Wingo. go.
Scot:
[0:39] Hey, Jason, and welcome back. Jason and Scott show listeners.
Well, folks, this is one of our most popular shows of the year.
This is our Jason and Scott annual prediction show.
This is where being an audio podcast really works against us.
You can’t see us, but Jason, I normally wear leisure wear when we record the podcast, but tonight we’re wearing tuxedos.
Jason, I really like that cummerbund. It looks really good on you.
Jason:
[1:04] Thanks.
Scot:
[1:04] I feel like you’ve really elevated elevated your game this year the the suede tuxedo really suits you thanks thanks and the extra glitter on the bow tie was my daughter’s influence smart the the 17 year old touch as you can never have enough glitter that is literally what she says half the time so yeah this is the show where we make we kind of self-score last year’s predictions which would have been the predictions we made this time last year early January for 2023 and then we make new ones for this year the 2024 2024 predictions but before we jump into that Jason we’re recording this on the Eve of nrf big show and I know that’s a huge show for you it’s now I think it’s expanded it’s always a fun weekend show which I’ve always appreciated that that was sarcasm and then I think they’ve extended it you know I think it was like what was it Saturday Sunday Monday and now there’s like a Tuesday and then there’s pre-days and post days so it’s like a whole it’s like a whole month of nrf big show are Are you teed up and energized and ready to go?
Jason:
[2:06] Yeah, and I feel like if all those things weren’t exciting enough, you know, it’s like 113 years old, and it’s always over a holiday, Martin Luther King Day, and it always draws a blizzard, like either on the first day or the last day. And so this year, maybe we’ll get both.
Scot:
[2:22] Yeah, yeah, and it’s always fun. And it used to be there was nothing down in that part of New York, and now at least they have, what’s that thing called?
Hudson Yard or whatever.
Jason:
[2:29] Yeah, yeah, yeah. Yeah, I feel like Manhattan has grown up around Javits a little bit. So you are definitely right.
I have clients and partners with offices that are now walking distance from the show. And Hudson Yard is pretty cool.
Scot:
[2:42] Yeah, very cool. Now, are you speaking and also on behalf of the listeners, what are you going there to learn more about?
Jason:
[2:51] Yeah, so in the highly unlikely event, there’s anyone that listens to this show that doesn’t already know what the show is. National Retail Federation’s big trade organization represents retail in the United States. It’s their big event.
30,000-ish people come to New York City. Tons of exhibitors in a wide variety of fields.
The area that’s always fun for me is one area of the show is dedicated to innovation.
So they give like inexpensive booths to small companies that, you know, aren’t ready to invest in a big booth.
And many of these are startups or startups from other countries.
And, you know, so it’s always, there’s always a lot of wacky dubious stuff there.
But in between that, there’s usually some, you know, kind of cool ideas.
And it’s often the first place you’ll see something that a few years down the road becomes, becomes one of the innovative new parts of retail.
So I love walking the innovation center.
Last year, retail media networks were the big thing at this show, and I’m sure they’re going to be a big thing again this year.
People were starting to talk about AI last year, but this year, I think it’s just going to be off the hook.
I think in order to get a booth, you had to say you were an AI company.
I’m pretty sure the trash is getting emptied by AI sanitation engineers.
[4:09] I feel like it’s simultaneously going to be wildly overhyped and super important and transformative to the industry.
So that’ll be interesting to see how that all plays out.
I like to talk about food and grocery a lot and InterF has done a lot to expand their coverage of the food industry.
So there’s a whole separate portion of the trade show dedicated to grocery retail vendors and a whole content track.
So that stuff is all interesting.
John Furner, the president of Walmart, will have a keynote. A bunch of other retailers will have keynotes.
Magic Johnson is kind of the outside speaker that they’re hyping this year, which is, I mean, fine, but I don’t go for those paid, not retail speakers that much.
And then I am speaking, I am doing a session on one of the featured stages that is entitled, Coming to America, which is all about what Western brands can and should be learning from the Chinese brands that are now successfully doing business in the US.
And so most notably, Timu, Shein, and probably a little bit of TikTok.
[5:26] Yeah very cool i also saw on linkedin that you had what i would call a close encounter with a.
[5:32] Drone experience what tell us more about that i did so i mean scott i’m sure you remember this but it was like i looked it up it was like 2013 that jeff bezos was on 60 minutes and was like oh and we’re going to deliver all the packages via drone wasn’t it the eve before cyber monday was like that sunday night before yeah cyber money yeah and so he made that announcement and you know that sounded incredibly far-fetched and i don’t know if you remember but i had a session that i was doing an internet big show that year and i dressed up a drone with the amazon air logo and landed it on stage at the javits center or i had someone that was better than me landed on stage at the javits center in the middle of my presentation as a joke and i got in huge trouble for that that’s wildly illegal that’s why they call you retail geek yeah sometimes it’s better to ask forgiveness than permission is my philosophy on that one.
But back then, it was like this kind of silly science fiction.
And since then, we’ve on this show and in the press and media talked about various kind of edge use cases where drone delivery might actually make sense or be economical.
And we’ve talked a lot about some of these pilots that both Amazon Amazon and Walmart are running.
And so I know it’s a real thing and you can really do it.
And maybe in some use cases, it’s even practical at this point.
[6:57] This December, last December, so last month, I did my last trip of the year to Walmart, which is in Bentonville, Arkansas, which side note, downtown Bentonville is beautiful for Christmas. They have a super cool light show.
So if you’ve never visited Walmart, that’s the time to do it.
But there is a small Walmart neighborhood market, which is their grocery store concept, which is in a small community of 5,000 people about about 30 miles away from Bentonville called Pea Ridge.
And so I drove out to Pea Ridge to visit the Walmart neighborhood market.
And behind the neighborhood market is a drone center.
And they are actually delivering packages via drone on an ongoing basis for all the residents of this 5,000 person community.
And so standing in a parking lot and having a bunch of these planes, and the Walmart ones are fixed wing aircraft, launch and like zoom over your head and all the signs in the parking lot, you know, say low flying aircraft beware.
[8:00] And like seeing all these planes like launch, it was more fun and cool than I expected it to be.
And what’s particularly cool is this particular model, the way they recover the planes is the planes all have a hook on the tail and they literally have a a retractable zip line that like two robot arms raise up and it puts the zip line across the drone center, which is elevated.
And the plane flies into the zip line and gets hung up and it just swings like a swing until it loses momentum.
And so, you know, I just sat there for like probably 45 minutes and watched like 10 planes launch and get caught by the zip lines.
And I I made a video and put it on LinkedIn. So I edited it down to like a minute, but I know this is not new news to most people on this show that there’s drone deliveries, but I’m telling you like when you actually see one in person, it’s still kind of cool.
Scot:
[8:58] Neat. Are they, obviously they’re not going to carry like a gallon of milk or something super heavy like that. What’s their payload max on this?
Jason:
[9:06] Yeah, so I am not super well-versed on exactly what, like the one part of the experience I couldn’t see, unfortunately, Unfortunately, you’d have to be pretty lucky to be out of residence when a delivery was happening.
I think it’s like a four-pound payload, and it’s dropped via parachute.
And I know the way it works is you register in advance to be a drone delivery site, and then you’re given a little foldable circle target that you put in your backyard, and the drone drops the packages right on this target.
And so, you know, Walmart neighborhood market is…
Scot:
[9:42] It’s a grocery store with like you know dry goods and pharmacy and stuff like that so i i think it’s a lot of like bottles of advil and things like that that are likely getting delivered there, very cool so head over to linkedin and look up jason and it’s it’s the post that starts you know x years ago on 60 minutes and it’s in there yeah i’ll put a link in the show notes if you if you want to find it quick cool one last topic we wanted to cover before we get into the meat of of the prediction show, Jason and I have been getting a lot of questions from listeners and it concerns a slowdown in our frequency.
Well, no one can pull the wool over our listeners’ eyes. You guys caught us.
We have slowed down our frequency.
And that’s because starting with the next episode, 317, we’re going to rebrand and it’s going to be the Jason Bott and Scott Bott show.
And nothing’s going to really change. We are going to increase the frequency.
It’s going going to be daily. You guys wanted more shows. So next year, we’re not going to do 365.
That would be too much, but like 355, something like that.
And you probably guessed by the rebranding that it’s going to be Jason and I writing the outline of the show.
But Jason, being the geek he is, has created a Gen AI version of himself that’s been trained on 800 hours of Jason content. and he produces a lot more content than I do. So about 300 hours a month.
So congrats, Jason, on this technological breakthrough.
Jason:
[11:09] Yeah. I’m super excited about that. You’ve disclosed one of the secrets to our success is that every episode is about a three to one ratio of Jason and Scott.
Scot:
[11:22] Since you do the audio editing, I try to go easy on you and you’re self-inflicting your own pain. Yeah.
Jason:
[11:27] The truth, and that may be the norm, but the truth is we have two kinds of shows.
There are shows where you are much more dominant than I am.
And then there’s shows where I I contribute more than you. It’s kind of funny to see the flip-flop.
If you get an interesting entrepreneur or you get a deep dive in a really arcane portion of Amazon’s business, you get a lot of Scott.
Scot:
[11:48] Yeah. Yeah, that’s where I thrive in the darkest corners of the interwebs.
Yeah. Seriously, though.
Jason:
[11:55] I was just going to say one side note on that. That LLM we trained, you can now buy on the OpenAI GPT store that went live tonight.
Scot:
[12:03] Yeah, and you can have your own personalized. We get a lot of requests for personalized shows, so you can just write your own.
Jason:
[12:09] There you go.
Scot:
[12:09] Yeah. We’ll talk to you in a three-to-one ratio of Jason to Scott.
But seriously, though, we do not have an LLM. We wouldn’t do that to you, but our frequency has decreased.
We looked this up, and our first show was on November 14, 2015, if you believe it or not.
So that’s over eight years ago we started. This will be our ninth year.
And yeah, so that’s a lot of content. And when we started, I had just, I was one year into my current company Spiffy, and now we’ll be celebrating our 10 years this year at Spiffy.
And we had five employees and now we have about 500.
Jason worked for Razorfish and he only had two words in his title.
And now he works for the biggest or one of the biggest ad agencies with a fancy French name called Publicis.
[12:59] And he has 16 words in his title. So there in his world, you measure your success by the size of your title. And he has done awesome.
So both of those endeavors have kept us a little bit busier than we were nine to 10 years ago. So that is the root cause of our slowdown.
We did the math and we actually did 15 shows last year. So it was like monthly plus a couple extras, plus three, if you will.
We used to do around 50 a year. So you’re all right. We have reduced the frequency.
Apologies for that. this is a passion project for us so our revenue good news our revenue has not gone down which is which is good because we don’t make any revenue we just love talking about this stuff and hanging out together and that was the whole genesis of this show and still is true even though we have less time to do it anything you want to add there jason yeah no i i think i mean obviously i feel like we’ve both gone a tremendous amount out of the show and we we love it and want to want to keep it going we want to make sure when we do shows that that they’re interesting and valuable for folks.
Jason:
[13:57] And so one of the things that I’ve gotten a lot of feedback on is we, you know, every year we’ve always done a handful of these deep dives on particular topics.
And I feel like the shows we get the most compliments on are when we do these deep dives or when we do really detailed breakdowns on the Amazon earning shows.
And so, you know, certainly we’ll still keep the Amazon earning shows on the schedule, but like, I’d like to lean into if, you know, if we are going to, you know do sort of one to two shows a month uh lean into some of those like more prep higher production deep dives as well so that is one of my new year’s resolutions is to drink a lot more ice coffee and the other one is going to be to make sure we get get some relevant deep dives into the show schedule every year yeah there’s got to be on the topic of ice coffee there has to be some limit to what the human body can endure there so it’s going to be interesting too you’re kind of a tim Tim Ferriss body experiment mode with the level of coffee you’re reaching.
Scot:
[14:58] So I look forward to seeing how this goes.
Jason:
[15:00] Hack myself.
Scot:
[15:03] Okay. With that housekeeping out of the way, let’s jump into the meat and potatoes of the show.
As mentioned, this is our annual prediction show. Way back in episode 301, recorded on January 20th, 2023, we made five predictions each about what would happen in the upcoming year, which was 2023. 23.
Let’s go through and review our performance because jason is first in our title he always gets to go first decision i greatly regret from eight years ago just kidding my memory from eight years ago is you did name the show yeah scott and jason just doesn’t it doesn’t sound right obviously so here we are so jason go ahead i’ll read your prediction and then you self-score All right, Jason, prediction number one, insert drum roll sound effect.
You predicted, prediction number one, at least two retail bankruptcies besides Party City would occur. How’d you do on that one, Jason?
Jason:
[16:03] Yeah, well, Mr. Debbie Downer was right. The Party City reference was because Party City had already declared bankruptcy by mid-January of that year.
But unfortunately, there were a number of other bankruptcies last year.
So the marquee one was probably Bed Bath & Beyond, although they have a new life as the brand for Overstock.
Talk david’s bridal right aid but the one that i’m personally maybe the most sad about and i know you were a customer if not a fan was boxy yeah yeah very sad yeah so i’m giving myself credit for that that first one although i feel like a bad person for making negative predictions, it’s kind of part of your personality i used to be the malageddon guy and now you flipped lived through the bankruptcy guy.
Scot:
[16:49] So I appreciate you carrying the banner on that one.
Jason:
[16:52] I’m here for you, man.
Scot:
[16:53] Okay. So that’s so far one out of five is what we’re scoring you.
So one right, zero wrong.
And number two, buy now, pay later consolidation.
Klarna, Affirm, Afterpay, excuse me, Afterbuy is another one, et cetera.
At least one of these will emerge or exit the US or BNPL altogether.
Jason:
[17:15] Yeah, and I failed.
Those companies, for the most part, continued to gain traction.
I want to say Sezzle had some valuation problems, although it started to recover in Q4 this year, but they’re all viable, independent entities still going. So that is a miss.
Scot:
[17:34] Okay, cool. So we’re now tied one and one, one right, one wrong out of the first two. So batting 50, which is pretty good for a batting average.
Above my my career average i’m pretty sure yeah yeah we we i have i will self-admit we’ve done a terrible job of track tracking this over the years because you know it’s really fun and it’s just trying to it’s good exercise and i recommend you do it too listeners because it makes you think, in a little bit longer term way and when you make a prediction and you don’t have to put yours out there but when you put it out there it makes you think a little bit a little bit deeper about it Your third prediction, prediction number three, was in 2023, Shopify will launch an ad product such as a retail media network.
You were banging the RMN drum back then.
Jason:
[18:22] Oh, for sure. So this is a complicated one.
I feel like I kind of got it right, but full disclosure, not in the way I expected.
So when I wrote that, I really thought, gosh, Shopify’s got, you know, all these independent stores that are probably too small to have retail media networks.
That, you know, one of the interesting products Shopify could launch is a sort of a confederate network where, you know, all these individual sellers opt into a shared advertising product that Shopify could administer and help all these sites to monetize their traffic. And that did not happen.
But what I wrote was launch an ad product such as a retail media network.
And last year, Shopify did launch, they already had a product called Shopify Audiences, which is buy data on anonymous data on people that use ShopPay to help target ads.
And last year, they added automated integrations with Snap, Criteo, which Criteo is a multi-platform advertising platform, and TikTok.
So as a Shopify seller, you could now say, hey, I want to go buy an ad using Shopify customer data to define your market it and have it automatically placed on all these different digital media platforms.
So I don’t know. I feel like I kind of lucked into it because it didn’t happen the way I thought, but it kind of did happen. Yeah.
Scot:
[19:49] Okay. We will give you, so at this point we’re on number three and you’ve got two right, one wrong.
Heading into the fourth prediction. And this one was in 2023, Meta, Google, TikTok are going to lose ad share to new social media platforms and retail media networks. How did you do on that one?
Jason:
[20:10] The real answer is I don’t know. So I expected it to be much more prominent.
And the tail of the tape is kind of mixed.
Using eMarketer data, Google lost share across all their properties.
So they went from 28% to 26%. Meta was kind of flat at 20%. They They lost share in Facebook but gained a little share in Instagram.
And then TikTok actually grew a little share, so from 2% to 2.4%.
And then the retail media networks obviously did gain share, but they’re smaller.
So Amazon went from like 11% to 13%. Walmart went from like less than 1% to 1.2%.
So it kind of happened, but it happened.
Scot:
[20:56] To a tenth of a percent instead of what i i sort of felt would happen which was multiple percentages so i’m gonna not give myself credit for that one okay that’s very generous of you, we uh this is the trick of writing these in hindsight you’re always you wish you’d put like a clear number there so you’d be easier to score 100 100 they’re kind of being squishy all right so here on number four you’re at you’re back to 50 50 so two right and two wrong and then one One quick clarification was this share of digital ads, like not all ads, right?
Like not TV and stuff in the DOM denominator. All right.
Number five prediction for Jason Retail Geek.
For 2023, live streaming commerce, still not meaningful in the US.
It will be less than 5% of social commerce in the United States of America. How’d you do on that one?
Jason:
[21:50] Also, the real answer is don’t know because it turns out there’s no good data source for truly measuring live streaming commerce.
The estimates, which are based on these kind of thousand person surveys, are that all video commerce in the US is like 32 billion to 50 billion.
And so how much of that like really happened live?
Even if all of that was live, it’s still not 5% of total e-commerce, but like what what percentage of e-commerce is social commerce.
I just, I ended up feeling like I wrote a bad, squishy forecast, but there is part of me that wants to say, hey, the spirit of this was people aren’t gonna be shopping for products live on video and it’s not gonna be very meaningful.
And I think that that is absolutely the case, that it’s not meaningful.
Scot:
[22:39] Yeah, one thing that’s interesting about, kind of like thinking back on 2023 with streaming, There’s a couple of things I’m kind of just pontificating here.
I don’t I don’t have an I’m not scoring you.
Yeah, I kind of want to use this opportunity to pick your brain.
So, you know, we have TikTok shops.
I’m going to guess you don’t think that’s live streaming, right?
Because it’s like a recorded video and you’re selling an ad next to it. Is that exactly?
Jason:
[23:04] And when you say I don’t think it’s live streaming, it’s because it’s it’s not.
Scot:
[23:07] It’s not. You’re not putting it in your definition of live streaming. Yeah.
Jason:
[23:11] And that’s something different to you.
Scot:
[23:13] But it’s like a static streaming revenue or something. I don’t know.
Jason:
[23:17] Yeah, I think there is video commerce, right? And even video commerce is not a very big thing.
But most of TikTok shops and YouTube native checkout and these other experiences are what we would call video commerce.
And there are now a couple vendors that have decent size revenue helping enable video commerce. So I think of someone like a fireworks, for example, that, that adds, adds video commerce to a lot of e-commerce sites and ad platforms.
Scot:
[23:45] And then how about, so there was a really interesting experiment and I don’t think we talked about it because we were deep into the holiday data stream, but you know, Amazon had Thursday night prime video football.
And then on Thanksgiving, the Friday after Thanksgiving, they bumped the game and did it on Friday. And part of that was if you watched the thing that’s fascinating about the Amazon live stream is there’s like three or four sub streams in there.
And one of them had basically QR codes and you could buy right from the ad.
Yeah. Is that live streaming or it was like an ad next to a football live stream in your view? Yeah.
Jason:
[24:23] So I do think that would meet the definition of live streaming because most people watch that game live. live, and they didn’t disclose any data on how those were done.
I could tell you in talking to several people that bought those ads, there was not meaningful engagement with the QR codes.
[24:43] And so, yeah, you know, I think there’s still lots of experiments.
I think there’s use cases where native checkout in video makes a lot of sense.
There’s even a few use cases where live video make sense, but they’re edge cases.
They’re not, it’s not the main thing.
And again, there’s a big difference between China and the US.
There is a ton of content that is streamed only live and allows you to buy stuff in China, but it’s mostly deals stuff. It’s kind of like the next generation of guilt.com, if you will.
And it’s mostly like very scarce items.
So it’s farmers in tier three cities in China selling their produce for the week. And when they’re out, they’re out.
And so they don’t store the video and have people watch it later in order because they sell all their apples during the live stream.
And that’s a meaningful way people sell stuff in China.
It’s just it’s just not I mean like the vast majority of video can be time shifted in the US and then it’s not live streaming and you know we still for the most part don’t have people buying a lot of stuff even you know through through video that’s not live so I feel like because of the success in China it gets a little overhyped in the US and I feel like it hasn’t lived up to the hype a.
[26:02] Year ago though I would argue there are a bunch of vendors telling us that this is the next thing and we’re all going to be out of business if we don’t jump on the bandwagon and i can assure you if you did not jump on that bandwagon you you potentially are still in business.
[26:14] Got it i know how amazon’s going to solve this so hear me out this is this is an unofficial prediction and i know andy jassy listens to this show so andy here’s how to solve this i’m going to share my entrepreneurial insights number one you have to keep travis and taylor together number Number two, you’ve got to get the Kansas City game next Friday after 2024 is Thanksgiving.
Scot:
[26:36] And then you have to sell exclusive Taylor merchandise on that game.
So that’s how you’re going to get the engagement you want. You got to tap into the Swifties.
Jason:
[26:45] Yeah, I feel like the Swifty economy is a way to solve any business problem.
I’ll totally agree with that.
I will throw out Amazon, you know, did lean into live streaming and they had a product called Talk Shop Live.
And you know by all accounts it wasn’t very successful the people they they bribed influencers with extra bonuses to produce content and as soon as they stopped offering those bonuses all those influencers moved off the platform and now it there’s a a version of it that still exists but once again it’s not live yeah yeah uh okay so what does that give me three out of three uh Uh, three out of five.
Scot:
[27:25] Yeah. So you, so three, correct. Two wrong. So that’s good. You have a winning average. That’s very similar to my college career.
Jason:
[27:32] Yeah.
Scot:
[27:32] There you go. Yeah. Gentleman’s a D minus. Yeah.
Jason:
[27:40] So now let’s get to Mr. Sparty Pants, who I suspect and fear did much better than me.
So Scott, you’ll remember your first prediction.
It’ll come as a shock to no one involves Amazon, right?
Amazon uses this 2022 setback slash slowdown slash reversion to the mean for a public resetting of expectations.
But behind the scenes, they take share and raise the bar on shipping.
Scot:
[28:09] Yeah. I, um, the shipping part was surprisingly clairvoyant there because, you know, what they did in 2023 is one of the things Jassy dug into this and they did these, what do they call it? Nodes regional.
Yeah. These regional nodes. And they, they started zoning out at a tight level.
They were moving too much product too far unnecessarily. And they, they really tightened that up and it allowed them to cut costs pretty dramatically on shipping and get a lot of leverage that that everyone was surprised about but also and this is nice they similarly you know have really cranked up to delivery speed and delighted customers so so you know very rarely in a business do you find something that that both saves money and delight usually you’re having to make a choice you’re like well i could save money but customers are going to hate this this was what very aligned with their, you know, their corporate goals of being like wildly efficient and automated, but at the same time, getting products to customers faster.
So I think they had a pretty good year. So they’ve, you know, everyone was in the doldrums about Amazon.
Everyone was like, oh, this Jassy guy is really messing things up.
And I think he went kind of back to basics and said, let’s squeeze some nickels and dimes out of this shipping thing and get it a little faster.
And the customers have reacted to it. So I would score that one correct.
Jason:
[29:32] Yeah, 100%. I feel like Tim cooked it, and it was a good call on your part.
Scot:
[29:36] Yeah, absolutely.
Jason:
[29:38] So your second prediction, and I’d like to harp on this one a while if possible, is that Shopify would get acquired.
Remind me, did that happen?
Scot:
[29:49] It did not, but you have to put this in context. Shopify dropped, what was it, like from $60 billion to $10 billion?
They had a precipitous fall, and they had a lot of missteps.
So they, you know, when this happened, you and I, I think jointly predicted that them getting into fulfillment was not only a bad idea, but a terrible idea.
So this is the year they had to unwind all that, which I thought it would be.
[30:18] I didn’t think they would do that, but kudos to them. You know, so I 100% give them this is very hard to make a mistake and fix it out in the public world. It is a very humbling thing, but they sure did.
So they got rid of the shipping part.
They turned that into a little bit of lemonade where they ended up having a good partnership with a company that acquired Flexport, I believe it is.
And then they have made a series of moves that have rebounded not all the way back to where they were, but they have done very well and they are not going to be acquired or they’re not in any kind of existential problems.
I do still think there’s a world where meta, I think the natural require for them is meta.
And at some point, those companies kind of have to go together.
I also, if I recall my thesis on this, it was around the first party, the third party data going away.
And I felt like they’d have to go on to a first party network.
I still think that’s true. I think they can survive independently. independently but i think to unlock a lot of value they need to be married into a first party entity more tightly so yeah yeah and of course the stock has rebounded a bit so it’s it’s it’s a bigger swing now yeah i don’t you know i you will spoil alert i did not repeat this.
[31:42] This prediction i was gonna say you technically only missed that prediction by one word had you had you written shopify with fulfillment is acquired you you kind of would have been right, yeah long time listeners will know i have a long history of repeating predictions and then it never works out for me so i’ve learned my lesson the hard way my my big one was like for what have we we’ve been doing this for like eight times i guess or maybe this is the ninth and you know literally for like five years i predicted amazon would compete with them with fedex and i gave up and then like two years later they announced they’re gonna compete as soon as you stop repeating it that’s when you know it’s gonna happen yeah so maybe i am predicting shopping there you go Oh, head explode emoji.
Jason:
[32:21] Yeah. So one out of two. So then let’s move on to number three.
And innovation in e-commerce powered by AI, such as GPT-4, surprises us by how fast it’s adopted and how cool it is.
Scot:
[32:36] Yeah, I would say there’s no one innovation that you can kind of say, wow, everyone added X to their site and it was amazing.
But I would say it’s pretty amazing how many retailers are using and getting a lot of value out of AGI. So, you know, the one you read a lot about is the helping of writing product description pages and tightening those up.
A lot of people are using it for customer service and really improving that.
A lot of people are using it for, you know, one of the things that’s a total pain in the e-commerce world is many times you want to take a product image and it’s, you know, it’s in a scene and you want to isolate it.
And then you want to spin it around and do a video and inject that thing in another templated video. you know, that was always very hard.
And you would send these images to, you know, a, you know, another country where someone would, you know, for $5 an hour, sit there and meticulously isolate the item out of the background and pixel by pixel do that.
Now they have, you know, pretty awesome AI systems for doing all those things.
And, you know, retailers are using those pretty heavily. So I would say.
[33:48] It’s a little hard to score this one. I’ll defer to you. I feel like I’ve been surprised by how much of it was useful.
I think a lot of people were kind of saying this is going to be another blockchain, another live stream, another social chat commerce kind of a thing.
AI is going to be a flash in the pan.
And I would say, you know, companies are really using this. It’s real.
It’s impacting the customer experience and improving retailers margins because they can be wildly more efficient.
Jason:
[34:15] Yeah, no. So I’m for sure giving it to you. I feel like part of the art here is you have to go back in time to last January and put yourself in the context that this was made.
And I think there’s a lot of things that are being routinely done today and are pretty darn cool that we would not have believed happened last January.
And I think all that text on product detail page is one.
The images is for sure one. there used to be whole sections of these trade shows dedicated to companies that were doing image manipulation and image masking and all that stuff.
And they’re all gone because the AI is so good.
And I would also say they’re now like it’s starting to be pretty meaningful in search. Like Instacart has had generative AI search engine for a while.
Walmart just launched generative AI in their search engine.
So, you know, there is a lot of flavors of AI that are overhyped and it, But, you know, it is like, I mean, there are a lot of AI snow jobs out there, but also there’s a lot of legitimate stuff.
And so I think I definitely have to give you that one. So I think you’re two out of three at the moment.
Scot:
[35:22] Awesome.
Jason:
[35:23] And so then we move on to number four. E-commerce accelerates back to the mean in the second half after a mean regression in the first half.
E-commerce returns to 10 to 15 percent growth rate.
Scot:
[35:36] Yeah, I will. The bulk of my e-commerce data comes from Amazon.
And I would say Amazon kind of checked this box.
But you, the ultimate consumer and gesture and recool charter of all the data, do you agree that I got this one?
Jason:
[35:53] I do, especially because you were prescient enough to list the growth rate as a range from 10 to 15.
So I’d say there was this weird regression where there was even a stage where retail was growing faster than e-commerce.
And for sure, by the second half of last year, we were back to sort of normal trends with retail growing at 3% to 4%.
And kind of pre-pandemic, e-commerce might have been growing at like 14% or 15%. And it returned to sort of 10% growth.
So I think you definitely hit the spirit of this that we’re kind of back to normal.
And I think you also hit the technical letter of your prediction because I think we surpassed 10% growth for e-commerce.
Scot:
[36:40] Cool. So that puts us at three right now.
Jason:
[36:44] Three for four, which basically means you have to miss this last one for us to tie.
Um, and I, I think I’m in trouble because your last one was Sephora and or Ulta moved to a subscription model for new product discovery.
Scot:
[37:02] Yeah, I, you know, I have to tip my hat to my daughter who previously mentioned is now 17 and was 16.
Thanks to her. I spend an inordinate amount of time and money in both Sephora and Ulta.
So this one was inspired by her. And yeah, I do have to admit before the show, I didn’t know how I did on this one, but I was looking and I see Sephora has this thing called play exclamation mark.
And it’s the beauty inside community community announcing our new monthly beauty subscription box. Play on players.
I don’t know if you subscribe to that, Jason, but it sounds like your kind of thing.
Jason:
[37:39] You said oh yeah i was i was a pilot user you can’t get this kind of camera ready look for the podcast without being totally totally plugged into all those products yeah no i think i think you definitely get this one if i was smarter i should have objected at the time because there’s a debatable way in which this was already happening back then but they had subscribe and save but that doesn’t count that’s like auto that’s like yeah with some sampling and stuff So, but I think it’s much more customer facing and prominent now.
So I, I’m giving it to you. So I’m giving you four out of five, which any year would be good performance.
And in this particular year, it’s both good performance and enough to declare you the winner.
Ding, ding, ding, ding, ding. We have a winner.
And I will be sending the Claret Jug to your home to live for the next year.
Scot:
[38:30] Awesome. Thanks. Thanks everybody.
Jason:
[38:31] Everybody I would like to I am a little salty to the folks at Shopify Toby if you’re listening if you had only said yes to whatever acquisition came your way I would have been 100 so thanks dude thanks for everything so now for the three listeners that have hung out for our 15 minute of pre-ramble and our and our 20 minutes of scoring you finally get to the meat what the heck is going to happen in the world of e-commerce in the next year Nostradamus Thomas?
Scot:
[39:00] Yeah, let’s continue. I just went, so why don’t you give us the Jason Retail Geek Goldberg 2024 predictions for retail. Go.
Jason:
[39:12] Yeah. So last year, retail media networks were super hot.
I think this year is going to be the year that the big retail media networks really start focusing on their in-store audiences.
So I’m calling it Retail Media Networks Go In-Store, and I’m predicting that at least one top 20 retailer will launch a digital in-store ad network.
So some kind of screens or interactive displays in a store that you can buy ads on through the retail media network.
Scot:
[39:41] So I’m in Sephora or whatever retailer. There’s a cool screen telling me about this exciting new Kardashian lip color.
And I go and interact with it and suddenly an ad comes up for something else.
Jason:
[39:53] Exactly.
Scot:
[39:55] Okay.
Jason:
[39:56] Switching you to the Taylor Swift cosmetics from the Kim Kardashian ones.
Scot:
[39:59] Whoa. Swifties make another appearance in the predictions. All right.
Jason:
[40:03] Exactly. My second one, I know what the spirit is.
I struggled to make it specific enough that we can measure it, but I tried.
So we’ve been talking a lot about AI. You had an AI prediction last year.
[40:16] I think while a lot of these trends kind of get really buzzy and then die down, I think AI is the real deal.
I think despite all the hype, AI is going to be even hotter in in December of 2024 than it is right now.
And so the way I’m gonna try to quantify that is, I think by December of 2024, it will be more common than not that if there’s a text box in an e-commerce experience, it’s gonna be powered by generative AI.
So we’re gonna start typing sentences into all of these search engines instead of keywords.
I think it is gonna take consumers a little while to learn to do that after it’s possible, but I think that’ll be really common. And then I think at least one retailer is going to have an AI-based auto replenishment solution that has significant adoption.
And I need to clarify that because one retailer, Walmart, announced it at CES yesterday.
So I don’t think it exists yet, but they’ve announced that they’re going to do it.
And my prediction is not that they’re going to try it. My prediction is that it will work or someone else will do one that works. and it’s very different than like a subscription-based thing where you automatically get a fixed amount of something.
This is going to be, you know, handing the keys to the computer and letting the computer decide how much peanut butter you’re going through and making sure that I send you new peanut butter whenever you need it.
Scot:
[41:38] Hmm. Cool.
Jason:
[41:40] So that’s number two. Number three, I really think this is going to be a bifurcated year in terms of retail prospects.
I think we’re going to have a handful of retailers that are really going to do well, that are poised for some growth rebounds from the last couple of years.
Yeah, I kind of think Amazon and Walmart are both going to be in that bucket.
I think we’re going to disagree about this, but I think some of the Chinese companies like Timu and Shein might might be in that bucket.
And I think there’s going to be some other traditional retailers that really struggle.
And so you’re either going to do well or do poorly. I don’t think there’s going to be very many retailers kind of treading water in the middle of the road.
And as a result, I think we’re going to have a couple more significant bankruptcies in 2024.
So the Grim Reaper is at it again. I’m once again predicting that at least two well-known retailers will close their doors and this year i’ll be slightly more specific at least one of them is going to be a specialty retailer so in a category and another is going to be a general merchant or department store so i hope to be wrong on that one but it is what it is that’s prediction number three how about a little size this can be like a two unit kind of a thing or no no no these uh yeah like these have to be a little more two two top 50 retailers like oh okay oh let’s write Write that in because I won’t remember that next time. Okay.
[43:02] I will add it and then delete it in about six months when you’ve forgotten.
No, I’ll remember. Yeah. So number four, and this is where I think it’s going to start getting fun.
[43:12] I actually think that we’re going to see more Chinese companies focusing on Western consumers.
So I actually think that for a variety of reasons, the Chinese economy is not as hot as it once was. And I think it’s going to take a little while to recover.
So I think there’s going to be more entrepreneurs in China trying to export their solutions to other parts of the world.
And, you know, Timu and Xi’an are certainly the two most noted examples of companies that don’t sell in China, but do sell in the U.S.
I think Xi’an is going to successfully execute a Western IPO next year.
And I think Timu is going to continue to grow. And very specifically, I think by 20, by the end of 2024, Timu is going to have at least 75% of the e-commerce revenue that we see from a very well-established U S retailer like target for e-commerce.
Scot:
[44:06] Okay. Now, are you implying it comes out of targets hide or that just like that?
Jason:
[44:10] I do think it’s partially is going to come out of targets hide, but I’m not specifically saying that I feel like target could come down a little bit and that would help me make this. but I actually think e-commerce will not be the sore spot at Target next year.
Scot:
[44:25] Got it.
Jason:
[44:27] So that’s number four. I’m bullish on the Chinese companies coming to America.
And my fifth one is going to go to grocery e-commerce.
So, you know, grocery e-commerce grew a lot during the pandemic, but fun fact, grocery e-commerce actually shrunk a little bit in 2023 relative to the big growth they had in 2022, like partly because groceries got more expensive, people, it was safer to go back to grocery stores.
And so people kind of regressed a little bit in their e-commerce shopping.
So the best source we have for e-commerce data for grocery is BricksMeetClicks, which is a big, it’s a survey, but it’s a big survey.
So the BricksMeetClicks folks said that grocery e-commerce shrunk by about 2%.
And I’m saying they’re going to grow by like 25% in 2024.
So very meaningful acceleration and growth.
Scot:
[45:18] Cool.
Jason:
[45:20] So those are my five. Some years we did bonuses. is.
I’m just going to throw out some other things that I guarantee are going to happen, but I don’t want to bother making them predictions because they’re too hard to measure.
But as I did this year, again, I’m going to say live streaming is not a major thing next year either. And I’ll throw the metaverse and crypto in there as well.
If you’re an innovative startup that’s going to solve retail with live streaming the metaverse and crypto, please don’t send me an email.
Scot:
[45:46] But it’s on blockchain.
Jason:
[45:48] Yeah, exactly. If you’re doing anything on blockchain, the first thing i need to know is why i can’t just do it with a database and why i need a distributed ledger so if you can’t answer that question don’t call me um because blockchain yeah, i i think another one that really annoys me i couldn’t figure out how to measure this so i didn’t make it a forecast but i think you’re going to hear a lot less retail ceos blaming their poor performance on retail crime next year if you don’t know or haven’t been following it That’s mostly a scam.
Shrink in retail is down. There is this new kind of crime called organized retail crime, which is awful, and people get hurt, and people should stop doing it.
But it’s not economically meaningful, and it’s not the reason that any of these retailers miss their guidance. And I think we’re going to see.
[46:34] And CEOs stop leaning on it as much because it’s becoming obvious that it’s a false excuse.
And lastly, I was bullish on some of the big retail media networks in my predictions.
I said one would go in-store.
But a corollary to that, there’s a lot of really small retailers that are seeing the success of the big retailers and trying to launch retail media networks.
And yeah, that’s not going to work. So if you’re, you know, a relatively unsuccessful e-commerce, a specialty retailer with small e-commerce or you’re a regional retailer, you’re just not going to have enough traffic and a big enough audience to make it work.
So I think, you know, I’m starting to see some retailers that are probably on the wrong side of the scale equation, trying retail media networks and I’m mostly not optimistic for them. So, so you heard it here first.
Scot:
[47:24] So the world where they patch together in like a little alliance and like a a Battlestar Galactica kind of thing and get some heft.
Jason:
[47:32] There is. There absolutely is. And the most notable place that’s happening is in Europe.
And kind of interestingly, the biggest retailer in Europe, Carrefour, like sort of embrace that.
Like Carrefour is the Battlestar Galactica in this, this like, you know, convoy of ragtag, this fleet of ragtag ships.
And so, so you’re exactly right. And I heard the giant French advertising company that is helping them do it is decent too.
Scot:
[47:59] Yeah. Soccer blue. One clarification on your grocery e-commerce thing.
You know, that’s a big number, right?
That’s like 30% off a big base, 25%. Are you counting like curb pickup on that?
Jason:
[48:15] Yeah. So I’m specifically using the Bricksmeet Clicks metric, which does include three categories of grocery.
It’s curbside pickup, which is over 50% of grocery in most U.S. cities.
It’s home delivery of groceries. And it is actually shipping of some grocery items, but that’s a relatively small one. Yeah.
Scot:
[48:37] So Instacart would be kind of captured in there as well.
Jason:
[48:39] They would. Yeah. Yeah. Side note, I actually, I think I’m not as bullish on Instacart as I think you’re going to be, but they will certainly be part of it that helps me make this prediction.
Scot:
[48:51] Cool. And we should have said this before we got into the predictions, but what we do is we do these independently and then we splat them into our shared show notes that we have here that Jason and I use.
Jason:
[48:59] Yeah. So it would have been possible for us to have the same predictions, but we did not.
Scot:
[49:03] We never see each other’s beforehand. So that’s a part of the fun.
So there’s no, no, no planning or, or, you know, kind of swapping and prediction.
Jason:
[49:12] No cross-contamination.
Scot:
[49:14] But because we’re, we don’t have any revenue, we don’t have Pricewaterhouse verifying that. You’re just going to have to trust us.
Okay.
Jason:
[49:23] What do you have, Scott?
Scot:
[49:24] Well, I want to point out that I see you snuck in three bonuses.
So you took, so yet again, you’re hogging the stage, but that’s okay.
You’re first in the, in the title there.
Jason:
[49:34] And I have many more words in my title in case you didn’t notice.
Scot:
[49:38] Being a rule follower, I have five predictions, not eight.
And my first one is Amazon’s going to relaunch Alexa on a native LLM.
So, yeah, Alexa and the whole Siri and what’s the Xbox one, Katana, you know, Cortana, they they once you interact with the chat GPT voice, which is a little slow, but it’s a little slower than those.
But the responses are so much better. You really want to just throw your Alexa in the garbage can.
So, you know, this is tricky because Amazon doesn’t have an LLM.
The things they’ve done on AWS are kind of like geared towards being neutral, and I think they’re not going to stay neutral.
So they have to be neutral, and then they have to rewrite Alexa on that.
Maybe it’s tricky because what do you do?
Do you call it like new Alexa, or do you change their name, or you’ve got some brand equity built there? So it’s going to be interesting to see how they navigate that. that.
[50:40] And then number two is I don’t understand how Timu isn’t just wish dot 2.0.
So in the early days of wish, everyone got all excited and they’re like, oh my God, this is amazing. I can buy all this cheap stuff and it comes and it’s amazing.
And it’s like a dollar drone and it’s awesome. And then it showed up six months later and then it broke in five minutes.
So I think there’s a lot of buzz around these things. I think a lot of this stuff gets supported by China and free shipping and these kinds of things that the Chinese government does to help give their Chinese-born companies an edge.
And none of that is infinite, right? So we saw that with Alibaba and Alipay.
That whole thing kind of has had a whole situation in China where it got too big and they didn’t like the success there.
And Jack Ma, and Lord knows what’s happened to him.
I think these, I think Timu is kind of, there’s gonna be some kind of an episode like that.
And this was my, I kind of use the word falters. So that kind of thing.
I don’t think they’re gonna do an IPO. That would really shock me.
Jason:
[51:48] Yeah, I think we’re going to, I mean.
Scot:
[51:50] Yeah. So we’re misaligned on that one, which makes it fun. Yeah, either could happen.
Jason:
[51:53] There are smart people that think on both sides of that one, but that’s a fun one. We’ll agree to disagree.
Scot:
[51:58] But both can’t happen. So this is a zero-sum game one for sure.
Jason:
[52:01] Exactly.
Scot:
[52:02] And then, you know, this one I guess we’re aligned on, but I kind of got more specific because you always do super generic ones that make it easier to get them.
[52:13] Retail media networks are currently and i found a there’s a research firm called core site so like you i wanted to kind of pick a measurement stick here and they say the whole world that that whole thing in 2023 did 52 billion and it’s growing 20 so that’s their data and i said my prediction thus is it’s going to accelerate this year to 30 growth and that brings it to to about 67 billion.
So, you know, clever listeners that listen to our Amazon recaps, you’ll know, you’ll notice that, well, okay, if that’s at 52 billion, Amazon ads are at like, what are they? Like 49, 45 billion?
So, but that’s a run rate. So for that Amazon number, you take the quarter, and the last one we talked about was Q3, Q4 will be coming out soon.
So we took the Q3 number, multiply it by four, and that’s how you get the 45-ish.
So, so really doing 15 a quarter, but the prior quarter was like, like 10 ish. And the prior quarter that was like eight ish. So, so Amazon didn’t do 45 in a year.
They probably did more like 35 to 30 in the year. But the trajectory is such that when you do the run rate, it comes out to be a big number.
So, so they are a large part of that 52 billion, but they’re not like 90% of it. They’re, you know, 65% of it or so.
So there’s that one.
Jason:
[53:34] Okay.
Scot:
[53:35] Number four, and this one we’re kind of aligned on, surprisingly, even though the specifics you disagree with.
Here, I’ve been watching the Instacart. That was an important IPO because a lot of people thought it was going to open the IPO window.
And then, you know, wah, wah, it did not.
So that company IPO’d at $33.
We did a deep dive on that, and that was a lot of fun.
And now it is down to $23, kind of low $20s, and it’s kind of hovered there since the IPO. I think they’re going to really be able to solve their, they have a real rudimentary ad system.
I think they’re going to really be able to turn the crank on that.
And that’s going to make money rain out of the sky for them.
And Wall Street’s going to wake up and say, this is pretty interesting.
And then the stock’s going to respond and pop to over $40.
So I wanted to do something that felt like a bit of a double from here and certainly above the IPO price. So, so I think, I think they’re going to decode that in 24.
Now you, you kind of put it into your bricksy bricks and clicks thingy.
It’s kind of in that bucket, but I was talking about stock price. Yeah.
Jason:
[54:42] I mean, they’re somewhat independent. Both could happen or both could not happen.
Like I personally am going to take the under on Instacart.
I actually think grocery e-commerce is going to grow, but it’s predominantly going to be the, the native providers of the goods.
Like Instacart doesn’t have any groceries. They’re an intermediary and there’s pros and cons to that model, but I, I, I think they’re going to grow less than some of these other guys.
So we’ll, we’ll see what that does to their stock. Like you kind of made it a stock prediction.
So obviously that, that comes with its own dynamics.
Scot:
[55:16] Yeah. And there, there is a world where this one horribly falls apart.
Like my Shopify prediction where, you know, they Instacart relies on this network of grocery stores kind of staying in the network and a big one like a Kroger which also owns a bunch of sub brands like Harris Teeter and whatnot if a big one leaves then the whole thing could kind of crumble and I this could be the worst prediction I ever made so who knows that’s part of the fun if it does you get to mock me endlessly for at least a year and then this last one is I kind of came back to the the the timu sheen uh well and I said well While everyone thinks, I actually had a typo there, so let me fix that.
While everyone thinks Xi’an and Timu are going to take share from Amazon, this is every article that I read is Wall Street’s fighting a wall of worry about these these, you know, Eastern intruders and all this kind of jazz, these Chinese upstarts.
I think that’s wrong. I think Amazon’s fine.
[56:16] And, you know, Xi’an is really largely focused on apparel.
So that’s really the kind of one that got me here. I think Shein is actually taking share from the fast fashion.
I think Amazon has a fair amount of this type of product and will do fine with the underlying trend. They’re actually riding it themselves.
And I think the ones that are getting hurt are the non-fast fashion, the slow, the glacierly slow fashion.
So this is going to be your Nordstroms on the high end, your Macy’s, your Kohl’s, your Target, the apparel part of Target. I think those are going to really suffer.
And as these Chinese upstarts really start scaling, that’s who’s going to get hurt.
And I tried to put a number in there and I said, there’s going to be material share and I’d call it 10%.
Jason:
[57:03] Okay, so just clarifying, are you saying like Nordstrom, Macy’s, and Target e-commerce go down by 10% because she and Timu go up?
Scot:
[57:14] Yeah, it’s really the apparel. So I think it’s probably going to be hard to measure Target because I don’t think they break it out, do they?
Jason:
[57:19] I don’t think they break out e-commerce apparel. They do break out total apparel, but yeah.
Scot:
[57:25] Yeah, so I’m going to say Nordstrom and Macy’s just as companies.
I think it’s going to hurt both offline and online.
Jason:
[57:31] Line it’s gonna like chew away at the apparel space and the traditional apparel space harder than you know those have already been under a fair amount of stress and it is gonna be yeah stress now I kind of agree with the spirit of this one again I think it’s hard to measure but I I would tend to concur like Amazon would like to be in the fast fashion and apparel space but they really haven’t won it yet so you can’t take something from someone that they They don’t already have.
And Timu is a little different animal than Sheen at the moment.
I’m sure Amazon is losing some share to Timu, but I have a feeling Amazon grows so much that it’s not going to be measurable in any way.
So yeah, those are fun. It’s going to be interesting to see if you can hold on to the trophy.
Obviously, 20 minutes after we made our predictions, I suspect we’re both feeling okay about them, but it’s going to be fun to watch the year play out and see what we got right and what we missed.
Scot:
[58:33] Yeah, yeah. This was an extra long one because we had a lot to cover.
We appreciate you sticking with us to the end.
And until next time.
Jason:
[58:43] Happy commercing.