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EP324 - Amazon Q4 Earnings
In this episode we do a deep dive into Amazon Q4 and Full Year 2024 results. Amazon had an overall strong quarter with record profits from their retail business unit. Amazon GMV grew 11% in 2024 vs. 2023, almost three times as fast as the retail industyr as a whole. Amazon's North American GMV also nearly matched Walmart's in 2024 (Walmart reports it's Q4 results next week).
We also cover the impacts and implicates of the de minimus ban in the US (which was lifted after only 4 days).
We wrap up by comparing Amazon's 2024 growth to the rest of the retail industry. Amazon, Walmart, Costco, Temu, Shien, and Tik Tok Shops representing 62% of all retail growth in 2024 (this is a revision from the 70% estimate we shared in the podcast).
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 324 of the Jason & Scot show was recorded on Monday, February 10th, 2025.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason
[0:23]Welcome to the Jason and Scott Show. This is episode 324 being recorded on Monday, February 10th. I'm your host, Jason Retail Geek Goldberg, and as usual, I'm here with your co-host, Scott Wingo.
Scot
[0:36]Hey, Jason, and welcome back, Jason and Scott Show listeners. Jason, how was your Super Bowl?
Jason
[0:43]My Los Angeles Chargers did not do well in the Super Bowl this year. Or my adopted Detroit Lions.
Scot
[0:50]Well, as a chief digital payment retail advertising officer for a big ad firm, I'm sure you were there for the ads. What any ads catch your attention?
Jason
[1:02]Were there ads in the Super Bowl?
Scot
[1:04]Yeah. Yeah. It's supposedly one of the more expensive places to buy an ad.
Jason
[1:08]Yeah. Yeah. I mean, this is kind of hackneyed, but it's near $8 million for each 30 second spot now. And what people miss is that most of these ads cost more than twice that. That both the production of the ad is quite expensive. And then there's now this whole, it used to be that you just surprised everyone by running an ad. And what everyone has learned is you get a lot more mileage by hyping the bejesus out of your ad for weeks before the Super Bowl. And so now the Super Bowl is like step four in a 10-step process and it's all super expensive. So the money is higher than ever. I would not say it was a standout year for e-commerce. Like the last two years, like two years ago, we had this surprise new, not only Super Bowl advertiser, but surprise new retailer in Timu.
Jason
[2:02]And, you know, then last year they were surprised in that they bought so many ads. So that was remarkable. Over the years, we've had some really interesting Amazon ads. And then occasionally we have some weird venture funded, like digitally native direct to consumer companies try to make a splash in the Super Bowl. So I'm not sure I would characterize anything that this year as super standing out from an e-commerce standpoint. Instacart was like the most significant new e-commerce player to do a Super Bowl ad. I thought they did a good ad that was well received with the famous brands. And then, you know, there's some weird stuff. Most of these ads are just to increase brand awareness. And in fact, the way they measure them is things like unaided brand recall, which are, these are metrics that I personally hate. But one of the ads for Fetch, which is arguably an e-commerce company, it's a, you know what Fetch is, Scott? It's a, it's like a purchase affinity program.
Jason
[3:08]So... Brands buy promotions. They're from Fetch. Customers subscribe to Fetch, and when they take advantage of the discount on General Mills goods, they earn Fetch points, which they can then redeem for prizes. So it's, it's a multi-brand customer affinity, digital native customer affinity program. And they did an ad in the last two minutes of the Superbowl that was essentially open our app right now. And in the next five minutes, we're giving 120 people, $10,000.
Scot
[3:44]Well, and so the.
Jason
[3:46]The, yeah, you had to watch to the bitter end and the game was no longer interesting at that point. But the interesting thing about that is that this is one of a handful of attempts over the years to do real activation in a Super Bowl ad versus just generate awareness. So I don't think anyone thought it was super well done or super effective, but I admire the effort to try to make some of these ads work harder. Like you'll remember past years, there were interesting, like there was a one year where the ad was just a QR code that stood on the screen for 30 seconds.
Scot
[4:23]Yeah. Yeah. And bounced around. It did the bouncy thing.
Jason
[4:25]Yeah. To make it harder to scan, which is, yeah.
Scot
[4:31]Cool. I liked the Instacart. That one kind of caught my attention.
Jason
[4:35]Yeah, I was just sad that there was no Timu jingle to get earwormed into my head this year.
Scot
[4:42]Yeah, I was confused by the water bottle thing. I had never seen that.
Jason
[4:46]Yeah, that got kind of panned. That didn't get circle or whatever it's called. Yeah.
Scot
[4:53]Yeah.
Jason
[4:54]Yeah. So it didn't get great reviews as an ad, but it was super confusing. People didn't understand what they were even trying to do.
Scot
[5:00]Yeah, I thought it was like a delivery network. And then I was thinking, oh, we'll have to mention this. And I was like, wait a minute. They're only delivering water bottles. I must have misunderstood the whole thing.
Jason
[5:08]Yeah. It's a filtering, it's a filtering water bottle.
Scot
[5:11]Yeah. I guess I didn't understand why they were distributing a hundred.
Jason
[5:14]I guess they gave away like a million starter kit sample packs, but it was not clear to anyone watching the ad that that's what they were talking about or doing. They, they tried to get too much in a short ad, but I think the, the plot in theory was that the the celebrity who's the the guy from mean girls and or pitch perfect yeah um that he who apparently is a real life fan of the product and got this contract as a result of his like, social shares about the product that he inadvertently ordered a huge surplus of the of these these products and then had to give them all away.
Scot
[5:54]Well we'll have to have you do a live stream next year to explain the commercials to me.
Jason
[5:58]Yeah i think we should get someone that understands.
Scot
[6:05]I got none of that whatever you guys got so.
Jason
[6:07]Yeah yeah that's just all the water cooler conversation i get in my company today the coolest ad in our world i should have said is starbucks that did not advertise at the super bowl but they've created a new holiday which is called i think I think it's called like super Monday and so it's, everybody's like tired and low energy on the Monday after the super bowl. So Starbucks gave all, all rewards members a free coffee today.
Scot
[6:40]Yeah, that was smart.
Jason
[6:41]Yeah.
Scot
[6:42]The, it doesn't work for the kind of drinks we have though sadly.
Jason
[6:45]Not trying to use a little. Basic brewed iced coffee does count. So I didn't, I didn't go, but I could have gotten a nice coffee.
Scot
[6:52]Yeah. Okay. I liked, I thought it was interesting that the Dunk Kings were, or Dunkin' Donuts was basically making fun of Starbucks. They were kind of dissing them.
Jason
[7:03]Yeah. Yeah. I didn't like that at all. No. And that was kind of a sequel, right? Like that was a sequel from last year's ad. Although I think Matt Damon got bumped for Ben Affleck's brother. So that, I will say the, the. The david beckham ad was pretty cute.
Scot
[7:20]Yeah that was funny yeah.
Jason
[7:21]The other david yeah.
Scot
[7:23]And he kicked the ball.
Jason
[7:25]Yeah oh it's the thing i do yeah and so this is for people that didn't watch matt damon portrayed david beckham's long lost brother that his parents never told him he had and, and the other david grew up in america versus david beckham growing up in in england obviously But at the end of the ad, David Beckham explains that he's a pretty famous soccer player. And Matt Damon goes, you mean like Matt Damon famous? And David Beckham goes, more like Ben Affleck famous. And Matt Damon goes, oh, that's too bad.
Scot
[8:00]Ouch.
Jason
[8:01]Yeah.
Scot
[8:03]Cool. Well, today we are going to talk about Amazon's fourth quarter. So the, before we go into there, the setup was you, did the Department of Commerce ever come out with their data for, for the holiday or we're still waiting on it?
Jason
[8:21]No, they did. The December data is out. And so it ended up being a good holiday. November sales were really soft by historical standards, but then December sales were really strong. The partly, I think that's partly because the, October. Literally, the holiday season started in October this year. For the first time ever, they really got consumers to buy more stuff in October. And so then there was kind of a lull in November and sales picked back up in December. Also, just weird vagarities of the calendar. Cyber Monday was in December this year, which it's normally in November. So that had some impact. But cumulatively, between November and December, sales were up 4% year over year, which NRF had forecasted that they would be up two and a half to three and a half percent. So being up four percent is pretty solid.
Scot
[9:13]Yeah. Good. Cool. So then coming into, oh, the other thing I wanted to hit before we get into the deep dive of Amazon earnings is the end of the de minimis thing that you've been talking about.
Jason
[9:26]Yeah. See, we can do a super short version of this. When you import stuff into the United States, you have to pay duties and taxes on those things and you have to meet import requirements. So you can't import products that are made with, you know, dangerous chemicals or made by a child political prisoners or things like that. But we don't have enough inspectors to make sure that everything comes into the United States meets all those criterias. So for a long time, we've had this exception on the import thing, which is if it's a very small package of low value, it does not need to be inspected and you do not need to pay customs. So if you make a container full of t-shirts and send them to the United States to sell, you pay duties on that container. But if you put a single t-shirt in an envelope and ship it to a single customer, it's under the de minimis threshold and nobody has to pay customs on it. And it was a clause that was just to save on labor to process all this paperwork. No one wanted to collect $0.30 of duties and have to spend $5 processing that $0.30 payment. But over time, that threshold crept up and up. And under the Obama administration, it got raised to $600.
Jason
[10:42]And so there's companies like Shein and Timu shipped the vast majority of their packages into the U.S. When they first started via that mechanism. So they, in essence, didn't pay any duties or taxes. And, you know, a lot of people felt that's unfair, that Gap is paying a lot of duties because they're importing containers, a lot of stuff, and Timu is shipping individual packages to consumers and not paying duties. And so Biden actually...
Jason
[11:11]Issued an executive order to cancel De Minimis from China, but he wrote it in a way that it would be like carefully considered and slowly implemented. So it hadn't been implemented by the time he left. And then Trump issued an executive order on like a Thursday saying it's, it's closed on Tuesday over the weekend. And so everyone's like, oh man, Timu and Sheehan are going to be out of business. This is going to be great for Western brands and blah, blah, blah. and it's still all playing out. Who knows what really will happen. My own personal opinion is Timu and Sheehan needed De Minimis to get started and they took full advantage of it. They are now so big that they don't need it. And both of those companies have half the goods they sell are already in warehouses in the US. They were already paying customs on it. They mostly decided that the popular items needed to get to Americans faster. So they have one and two day shipping. That's all coming from the U.S. So they're not dependent on de minimis anymore. And so banning de minimis, I think, is an inconvenience to them, but I don't think it's a death blow.
Jason
[12:19]Also, it doesn't necessarily save you money to use de minimis because while you save money on duties, it costs you a lot more shipping money because you're usually air freighting something instead of ocean freighting it. And that's much more expensive. So arguably, there's a trade-off between the air freight and the ocean freight. And then the secret dirty thing of all of this is every Western brand also figured out this was a thing. And so all the athletic shoes you buy get shipped in a container, not to the United States, but to Mexico, and then de minimis into the United States from Mexico. And so a lot of people assume, oh, this is only going to affect these Chinese brands that we don't particularly like doing well in our market, but it actually is likely to have an equal impact on many big brands.
Jason
[13:07]Trump also banned a minimus from Mexico and Canada, but then that got reprieved. So at the moment, it doesn't affect those. Nobody knew how to and still doesn't know how to process all of this. So literally the post office stopped accepting packages from China altogether for a day because they didn't know how to do this. Nobody solved the fundamental problem that we don't have enough inspectors to inspect all these packages. So in theory, if we try to inspect them all, there's not going to be any more goods in the United States because it's going to take a year for anything to clear custom. So there's a lot of confusion and uncertainty out there. I just sum it up by saying Amazon took full advantage of not paying sales tax when they got started. And it was a huge advantage and it helped Amazon scale.
Jason
[13:56]When we definitively started charging sales tax on e-commerce companies, everyone's like, oh, that's going to put Amazon out of business. And of course it didn't, right? Like Amazon had already gotten so big that they were happy to pay taxes and kind of pull the ladder up behind them and not let other people start with the same jumpstart that they got. And now they're happy to play on a level playing field because they know they can win on the level playing field. And I would argue Timu and Shein are kind of in the same boat with regard to De Minimus. So I think it's not going to materially stop them, but it's going to change how everyone does business. And at the moment, it just created a lot of confusion and uncertainty for everyone.
Scot
[14:40]Yeah. Interesting. Yeah, I saw a screenshot that like most of them, you know, overnight they had switched everything to be from Mexico and native in the U.S.
Jason
[14:49]Well, that's the other problem. There's a way to whack them. When you write, oh, we're just getting rid of de minimis for three countries, you're just starting a whack-a-mo game. Like, everyone will move everything to Guatemala or Indonesia. And then you'll have to issue new orders.
Scot
[15:04]Yeah, it does close the door for other competitors to use it as a bootstrap method. So in a weird way, it almost like solidifies Amazon, Timu, and Shein as kind of like the leaders of this.
Jason
[15:14]Yeah, I think that's it makes it much harder for a new competitor to be born to compete with with these guys that have already used it to get to scale.
Scot
[15:22]Yeah, cool. So last Thursday was Amazon.
Jason
[15:25]Oh, Scott, sorry. There's one other thing we have to cover before we get to Amazon. I did an event for a client, a speaking event, and a picture of it went up on the internet. And my friend Scott Wingo has too much free time on his hands and posted a whole LinkedIn article, zoomed in on my sock in this picture, which revealed the logo of the client I was doing a presentation for. And it's gone like Jason and Scott viral. So all of my supervisors at Publisys are super impressed that I got caught wearing a logo. And I have Scott Wingo to thank for that. So thanks, Scott.
Scot
[16:05]You're welcome. Hey, you wore the socks. It was funny. I was talking. I did another post where I went to a Starbucks one day and the new CEO, I don't know if you know this, but he's asking them if they have time to write little notes on the cups. I went to the Starbucks like two weeks ago and everything was lined up alphabetically. It was like one of those little delivery stations. And it all had like personalized notes. And I just like put it up there as like a really good example of small things are important for customer service and like wearing your client's socks. So little things like that matter.
Jason
[16:35]Amen. On the one hand, it was super awesome. On the other hand, the unintended consequence of that, Scott, is I now cannot go to any other client presentation without their socks. I just cost you thousands of dollars. Yes, yes. So let me just say, I've spent the last like five days, like scraping the corporate web company stores of a lot of retail and brands.
Scot
[16:58]Cool. So coming into Amazon's earnings, you know, it's really become all about AI these days. There's a lot going on in AI. First, we had Microsoft with Azure. They largely missed expectations on the growth of their AI piece. And then Google had a similar reaction. And what they're all saying is the demand is outstripping our ability to meet it where we're gpu and energy constrained and and fulfill a data center constrained so then everyone was kind of like oh boy it's going to be bad for amazon and there's a lot of little bit of a fear uncertainty and doubt in the market and then the big disruption happened when deep seek which is the chinese company there's there's been so much ink on this i'd be surprised if people hadn't heard about it they're.
Scot
[17:42]Their reasoning model, R1, came out and it was basically what they call open source. It's really open models, meaning open weights. You don't actually get the source code. So it's a little bit of a misnomer. I prefer open weights. But what that means is you can just basically download this thing and run it anywhere. And this is interesting because it's as good as the latest models from everyone that's charging quite a bit of money. And you know what what this the direct disruption here is it became very clear that the way this is priced is dollars per million of token million tokens so if you're going to use one of these llm kind of engines from an api perspective to power a feature or something like that it was really it was relatively very expensive in the early days of chat gpt and now it's gone from it's basically turning to zero very quickly so a lot of people were beating up Amazon for not having their own multi-billion dollar investment in an LLM. They are an investor in Anthropic, but they don't have their own LLM. So it's interesting because Jassy's been saying, we're kind of neutral. We just want to host them all and let the customer pick and the customer is going to go where the data is. And we have a lot of data.
Scot
[18:56]So then that actually ended up, DeepSeek R1 ends up really being a big benefit to companies is Amazon for the reasons I mentioned, but also Apple, because it turns out the way DeepSeq developed this thing, the whole model is pretty efficient because it only lights up a little part of the model instead of all the parameters. It uses this expert network thing.
Scot
[19:19]And anyway, so there's a, you know, Apple has put a lot of neural nets on chips near memory, which this model works really well for. So there's kind of like two unexpected winners in this, which are the two companies that didn't spend billion dollars on models, which were Amazon and Apple. So then, so that was kind of the setup going into it. And then...
Jason
[19:41]Scott, there's one super important stat about DeepThink.
Scot
[19:45]Yes, DeepSeek.
Jason
[19:46]DeepSeek. They should have called it DeepThink, by the way. But apparently Meta has 20 AI execs that all have an, each have an annual salary that's greater than the total training cost of DeepSeek.
Scot
[20:00]Yeah. Yeah, that's pretty crazy. It also kind of shows that these export controls may have backfired because they made them, they constrained them so much, they came up with like a really clever way to do it. So it was all very interesting. And then we didn't have any Walmart coming in. That hasn't happened, right?
Jason
[20:18]Yeah, Walmart has a very peculiar financial calendar, but what would be the reporting for their sales in Q4 of the calendar year happens on February 20th. So that's next Thursday.
Scot
[20:33]Yeah. Okay, so then Amazon came out, and much to the relief of everybody, their revenue was in line. So it was kind of a meet. If you have kind of miss, meet, and beat, it was a meet expectations on the top line, but they beat on the bottom line. So earnings per share came in at a buck 86, which beat the estimate of $1.48 by 20%. So a really nice kind of profit beat there on earnings per share.
Scot
[20:58]And then the guidance is what Wall Street would call soft. So Wall Street already thinks they're going to know what the guidance is. And they look at this midpoint, there's a range, and they do all this kind of triangulation. And it came in a little bit below. But they have a history of that. So people weren't too concerned. So I think there was a bit of a sigh of relief that things at Amazon were pretty good and there wasn't a big miss on AI. And then I think they got a nice benefit. Now, the stock was down a little bit. I think that just kind of happens. It's recovered most of that since then. It did signal that a relatively conservative guidance going forward where they were going to grow between 5.4% and 8.5%. Again, they beat this guidance like for the last eight to 10 quarters. So I think people know there's some conservatism in there. They did say, you know, giving the environment with like this de minimis thing, these tariffs and all this stuff that they wanted to be a little careful there. Also, everyone, they did signal in the call that they're going to invest a lot. And we'll talk about that in a second. So they're going to kind of enter this invest phase again. And a lot of it is around AI, but it's not models and things. It's really just kind of supporting AWS as a part of it. But they're also investing a lot in AI applications, they call them, for the retail and the supply chain part of the business. And we'll go into that.
Scot
[22:23]So then they dove into kind of more of the retail side and some of the macro numbers. Why don't you take that over?
Jason
[22:30]Yeah. So what they typically disclose in their earnings call is the retail business unit revenue, which is not the same thing as their total sales or what we would call gross merchandise value. So the revenue number they reported was that Q4 was up by 10.5%, which was good and above expectations. That was like $188 billion for the quarter, which would be a total of $638 billion in revenue for the year. They said online stores grew at 7% year over year, while physical stores grew at 8.3% year over year. That physical store number is interesting because, you know, the bulk of the Amazon physical store fleet are these Whole Foods that they bought. And then over the last five or six years, they've opened a bunch of store concepts, Five Star, Amazon Books, Amazon Go, and Amazon Fresh Grocers.
Jason
[23:32]They've closed most of those concepts. They only have a handful of the Go stores left and the grocers. So the number is back to mostly being Whole Foods, which hasn't been a great growth story. So the 8.3% growth for physical stores is somewhat encouraging for Amazon on Whole Foods. And I don't know if this is coincidental or not, but the CEO of Whole Foods got named the head of olive retail for Amazon or olive grocery for Amazon rather.
Jason
[24:01]So those were good numbers. I'm most interested in how much stuff they sold, which they don't tell us. They give us some data, like their breakdown of first-party and third-party sales. And we're able to back into an estimate of GMV. And all the really smart, big-brain stock analysts put together these big models and do the math for me. So in the old days, you and I used to do models. But now I just get a way prettier spreadsheet from Morgan Stanley and Citibank. So the Morgan Stanley model is already out. And they think GMV for Q4 in North America, which is, you know, mostly what I like to talk about on this show, was up 11.4%, which is huge. The, you know, again, like retail is growing about 3.8% in Q4. So it's Amazon's growing three times as fast as the overall retail industry. And then, you know, you look at that on a full year basis and Amazon sales for the, in North America, GMV was up 11% year over year, which is huge.
Jason
[25:09]And somewhat even more impressively, those sales are getting more profitable. The fulfillment network is getting faster and more efficient. The cost to serve is going down.
Jason
[25:21]I think they had a stat that like same day and early next day deliveries grew 65% versus the number of deliveries in the same quarter last year. And so if you remember, about a year and a half ago, they pivoted from this national model to this regional model of distribution, and it's totally working. They're delivering goods way faster and cheaper. And so what kind of the interesting unexpected thing here is as they're able to deliver goods faster, the mix of goods that customers are buying from them is changing. So they used to not be good at selling everyday essentials, but now that they're so good at same day and fast next day delivery, they're selling a lot more of those essentials, which is taking a huge bite out of grocery. And I would argue even a huger bite out of like drugstores and convenience stores. So the, for a long time, you know, analysts are always like AWS is the growth and retail is this necessary evil and blah, blah, blah. Well, I would argue retail was really the star of, when you peel back the onion on the numbers, retail was really the star of this earnings call for them and is really helping to, it's contributing a lot of dollars that are now getting invested into AI cloud capabilities.
Scot
[26:44]Yeah. Cool and then on the marketplace side the third-party seller business accounted for 62 percent of paid units kind of has ebbed and flowed between 58 and 62 for a while i mean q4 it does surge up because the first party business gets swamped and sells out and then the third party is kind of there to to take up the slack that's up 60 from 60 so in q3 it was 60 and then here it was 62. I believe last Q4, it was also 61, 62. So not a big change there. That's kind of steady state now. The revenue grew 9% year over year. These numbers used to be crazy at like 20, 30, 40, 50%. But again, we've kind of settled in with overall retail on a lot of the business. And then that came in at 47.5 billion is the revenue from third-party seller services, which includes some of the pieces of FBA and whatnot. And then the ad business is my favorite. That's the best business.
Jason
[27:40]I know Scott waits with bated breath to talk about the ads every year. So again, ads was a super robust growth driver for Amazon. I think the trailing 12-month run rate for ads, so Q4 was up 18% on a year-over-year basis. That Q4 number would put them at nearly $70 billion run rate for 2025. But trailing 12 months, it was $56 billion of ads. And, you know, remember you sell a banana at like 4% gross margins. You know, you sell an ad at like 80% gross margins and that's being like conservative. And so this, this ad business contributes a tremendous amount of free cashflow and profit to Amazon.
Jason
[28:29]A couple of notes here. The vast majority of this ad are sponsored product listings and search. And that's true for most retail media networks. But increasingly, Amazon's a more complicated ad network because they do now have a lot of network programming. They have an NFL contract. And this ad number isn't just the retail media dollars. It's all of their ad dollars. So there may come a day when, like, just like we have to have a kind of a third party model to estimate what GMV is, there may come a day when we have to estimate what percentage of the ad revenue is retail media versus other flavors of ads.
Jason
[29:11]But as a result of this huge success that Amazon has had, everyone else in the retail industry is worked up into a huge lather over retail media networks. So, all the big agencies like mine, you know, have now hundreds of people that, you know, are talking about and helping brands and retailers execute, helping retailers build retail media networks and helping brands spend more money on those retail media networks. And every tiny little retailer is hiring a bunch of ad execs to launch their own network.
Jason
[29:41]And while I do think this ad business is great for Amazon, I think it's pretty good if you're Walmart or Instacart, I think it's wildly overhyped. And what people are missing is the only people making money on retail media networks are retailers with huge traffic at the top of the ecosystem that all have one thing in common. They're marketplaces because all of those third-party, those sponsored product listing ads are being bought by third-party sellers. It's not being bought by the first-party sellers. There's a little bit of revenue coming from first-party sellers, but that's the revenue that they used to get that they called shopper marketing dollars or trade dollars. The growth engine here is marketplaces get to make money selling ads. And so I just point all this out because I see more and more like small regional wholesale retailers with no marketplaces spending a fortune to launch a retail media network thinking they're going to have the same success on a smaller scale as Amazon. And it's not true that this retail media business is tied directly to the success of the robust third-party marketplaces that you predicted. Well, when did you predict marketplaces? About 70 years ago, was it?
Scot
[30:56]Yeah, it feels like it.
Jason
[30:58]Yeah. So just an interesting part of this whole thing. But for sure, if you're Amazon or you're another big retailer like Walmart or Instacart, it's another competitive advantage that helps the big get bigger at the expense of the smaller players.
Scot
[31:14]Yeah. And then I love that business and not facetiously because it's basically pure margin. Like it just makes the whole thing work. I do feel like it's got to, as a consumer, whenever I go to kind of top of the funnel, wherever I'm kind of like researching and try to find products, I feel like it's definitely, kind of ruined is a strong word, but greatly diminished the shopping experience at Amazon, which is always debatably not great. It's very kind of transactional to begin with. It's very hard to find the product you're looking for now because you're just like inundated with ads at this point. I think they've, they've reached the, you know, almost jumped the shark levels of the amount of ads, but that's a personal preference, I guess.
Jason
[31:57]No, no, no. I think most people agree with your evaluation there. Like, you know, they're for a long time, Amazon tried to make this argument that it's always about the customer experience and customers like these helpful ads. But I think that's, that's a pretty hard argument to make. It's, it's every digital platform in the history of mankind, like started out super useful and ad free and they slowly turned up the sponsorship over time, right? So when Google was 10 blue links, when you did a search, it was super useful. Now, you know, all the pixels on the front page of Google search are paid for, you know, Facebook used to, you know, Elevate all this organic content from people in your social graph. Now it's predominantly ads. TikTok with Instacart with the interest graph and now predominantly ads. It's the same thing. The problem is if the product is the ad and not the customer satisfaction from selling goods, this is the foreseeable outcome. And all of these businesses have just realized selling ads is a better business than being a wholesaler.
Scot
[33:06]Yeah. Cool. So then they rolled into the AWS part of the program. The AWS revenue reached $28.8 billion for the quarter, growing about 19% year over year. And its operating margins were 36.9%. That's actually an improvement of 732 basis points. So, you know, even though, you know, this thing is growing really quick, it's both growing fast and improving margins, which is good. And then you can think about AWS as having kind of three things. There's like a storage component where they can store your data, and that's commonly called the S3 family of offerings. And then you can basically rent, compute in traditional fashion, which is CPU. And then you can rent AI, which is on a GPU. So there's kind of like storage, CPU, and GPU.
Scot
[33:56]I think margins went up because of the strong demand for GPU. When supply outstrips demand, you can have pretty aggressive pricing in there and higher margins. So I think what's happening with the advent of AI is the workloads are really tilting towards that GPU side, which are much higher margin. And speaking of AI, Amazon is one of the two companies. So Google has their own GPU called a TPU and Amazon has Tranium and they came out with the version two of Tranium they announced was generally available. And it is much cheaper than other GPUs, which basically what they're the other big player in town is NVIDIA. So that's kind of what they're saying. And they still offer NVIDIA, but you get to pick. So what they said when they announced Tranium two is if you choose that is 30 to 40% better price performance and other GPU instances. So let's say your company and you want to host this deep seek open weight model, you now can host it on Tranium and run it yourself. It won't connect to China because you're controlling the infrastructure and you can basically have your own model. All you can eat just paying for the GPUs. Whereas when you go to like a open AI API or Anthropic or anything, you're paying for the GPU, the model and their margin. So this is what's driving that price per million tokens down towards zero.
Scot
[35:13]And in fact, to that end, they basically said that they would have had a much better quarter on AWS, but they are at maximum capacity for these GPUs, both their in-house and third party. And this is the same story that we're hearing from everybody is there's so much, so many people want to put out these GPU based AI workloads that they don't have the infrastructure for it. And it's not only the chips. So they're chip constrained, data center constrained, and energy constrained, and refrigerant constrained, and so on and so forth. So it's kind of a crazy time that there's so much constraint around this one part of something everyone wants.
Scot
[35:52]They did, when they file their 10Q, they put out a backlog and it was pretty material, which got people excited. So there was like some backup data to that. And then, you know, they did announce they're going to make some investments to the tune of $100 billion in 2025. And this is crazy because Meta came out and said something like 25 to 30. Microsoft said a number that was big, like 65 to 75. And then Amazon one-upped them all and said $100 billion. So that's pretty eye-popping. They didn't specifically say exactly how that's going to be, but it was like in the conversation of we're at capacity for AI. So I imagine they're going to build a literal tons of these Tranium chips and deploy them as well as whatever GPUs they can get their hands on from the folks out at NVIDIA. I already mentioned that it feels like they're really doing well here. And they talked about that. They didn't specifically talk about DeepSeq, although they quickly announced that they had it on their infrastructure.
Scot
[36:51]Jassy's been saying all along that they're not going to bet on an LLM. They're going to be neutral. But what they're going to bet on is people are going to want to run them near their data. And so because they have all these traditional CPU workloads, they have all their data. So if you're a big ad company, you're running all these calculations on ads, you're probably doing that in the cloud. You want the data to be near the compute so that it's fast. And now if you're going to run any AI workloads, they're going to want to be near the data because they're usually not just running an LM, you're running it through your data through like a retrieval augmented generation so that you can get insights from your data and either present them internally or to customers. So Amazon has really set up very well for this. And this part, a lot of the, you know, prior to kind of recently, most of the GPUs went towards training these models. Well, training is becoming a commodity, and it's really the inference part, which is where the models are actually running. And so they're really well set up for this whole thing. So I thought that was really interesting that they had the foresight, and they ended up being right. You know, they and Apple were the ones that were right, and everyone kind of thought they were crazy for not investing hundreds, tens, if not hundreds of billions of dollars in these things.
Jason
[38:07]Yeah. Yeah. That worked out pretty well for them. Yeah.
Scot
[38:11]The jury's still out, but like, as of today, it feels like they made a pretty good decision. Now, if, you know, OpenAI is the only one that has a, you know, ASI and AGI and all these fancy, you know, superhuman like capabilities, then maybe it's a problem, but seems like, you know, even then, are you really going to want that to be kind of running through your corporate data or something? You know, that starts to be even kind of scary. So I think this use case of making my internal data smart has many, many decades to run before it runs out of steam.
Jason
[38:41]Yeah, I hear them all talking a lot too about this AI application layer that they're investing in. So not the underlying LLM, but all these industry-specific, vertical-specific application APIs that sit on top of those LLMs. So like at NRF, they were focused on the hundreds of retail-specific patterns they had for AI applications that get to take advantage of every time there's an iteration or an improvement in the underlying LLMs.
Jason
[39:16]I wanted a couple of things that jumped out at me on the AI side. Number one, in our last podcast, you made a prediction about the profound impact of agent-based AI in commerce. And we started to talk a little bit about like, is this friend or foe to retailers? Are retailers all going to be blocking the AI agents from scraping their sites? Or are they going to be partnering with the agents? And I just want to say that that whole narrative got like hugely picked up and discussed on LinkedIn. It's super interesting. And we're definitely in the near future going to have to do a deeper dive on the podcast on the implications and ramifications specifically on retail of all this AI. But I do want to point out in the short term, you know, it's not all roses. There's two big negatives to AI. Like number one, every time Scott Wingo does a search on perplexity, it is taking out a small rainforest in Brazil.
Jason
[40:12]So like it's not clear at the moment like that all these things can scale, that there's enough electricity for all these things to scale. Unless these more efficient models like DeepSync end up winning. Right. Because one of the benefits of it is like it's a lot more compute efficient to to build a new model. But the the bigger negative ramification to me is you cannot buy a darn graphics card for good video gaming in the world anymore yeah all the all the the ai hosts have have bought all the chips and and you know if you just want to run call of duty at 240 frames a second you you are mostly out of luck which is quite irritating in the goldberg household.
Scot
[40:56]Yeah and whatever was available, the crypto bros grabbed. So you're kind of third on the wait list there.
Jason
[41:02]Yeah. Yeah. So I'm, I'm a little bitter about that, despite the fact that I'm, I'm very bullish about the profound impacts AI is going to have on commerce. I will say it is interesting in the, in the AWS world, because it feels like there's, there's two kinds of compute loads in the, in the world. There's the traditional CPU based compute loads that, you know, Amazon's been making a lot of money as people migrate from on-prem compute loads to the cloud. And then there are these new GPU-based AI compute loads. And the GPU-based compute loads are totally constrained by capacity. Like Amazon could sell more loads if they had more chips. They only have so many chips, and that's why they're going to spend a fortune on chips. The it does appear that the rate of growth of the cpu loads has slowed down which what is a worry sign to some investors because they they have excess capacity there if there were more people that wanted to move more of their loads from their on-prem to the cloud amazon could make more money today whereas if more people wanted to do ai they like they're they without more chips they really can't do anything.
Jason
[42:20]And so what's interesting to me is that it has not slowed down because all the world's compute is on the cloud. Arguably, well less than 25% of all the world's compute is on the cloud. So there's still plenty of compute happening on premise that could be moved to the cloud. But I think the double whammy is that all the easy compute loads got moved to the cloud And all the ones that had a particularly high ROI of being hosted on the cloud moved. And now all these older legacy compute loads are harder to move, are less appealing to move. And we were joking earlier, a lot of them are probably written in COBOL. And so, yeah, it's going to be interesting. They may ironically require AI to port all the business logic and COBOL code to cloud loads to kind of reinvigorate the cloud growth.
Scot
[43:18]Unless there's some kind of a simulator thing or, you know, emulator mode, there's no running COBOL up in AWS. So those loads are going to be stuck on some old mainframe for a very long time until something can rewrite it.
Jason
[43:32]Yeah yeah but it won't surprise me if the the ai bots get really good at porting all those those cobalt applications to to some modern architecture on the cloud.
Scot
[43:41]Yeah open eight sam just yesterday he was sam altman was speaking in japan and said they have an internal open ai, developer agent that they think is the top 50 developers in the world and they think they'll have the best one in three years yeah and these he says all this wacky stuff and it's kind of like, it's easy to say because it's unverifiable. So, you know, it's very hard to tell if he's hyping, but he's a pretty, you know, a lot of what he said has actually come true. So it's like, there's evidence that he's not making stuff up.
Jason
[44:15]I think that's very fair. And then there, like there are real world examples, maybe not quite that profound, but like of this stuff working, right? Like, so going back to Amazon earnings, like on the investor calls, they've talked a lot about, I'll tell you what workloads AI has been awesome for us on coding is porting all of our end of life Java 4.1 code to Java 5 that in the old world would have taken a hundred million man hours to do. And now takes like 10 man hours because of AI, right? Like I'm, I'm dramatically exaggerating because I can't remember the numbers, but, but it's, there are things that used to be hard and expensive to port that are like, are real business savings for big companies like Amazon now as a result of the AI being an adequate coder. So forget even being one of the best coders in the world. Just being adequate is saving Amazon a fortune.
Scot
[45:08]Yeah. I hate technical debt like that. Rewriting for some new version. Yeah.
Jason
[45:13]Doesn't add any benefits. You have on Sundays. So I want to bring this all home for our audience that's mostly focused on commerce, right? So if we zoom back to the retail side of Amazon, I'm just going to recap for you that Amazon probably sold $540 billion worth of stuff in North America, which was 11% more than they sold the previous year. So they're, they, they added $56 billion in sales this year.
Jason
[45:48]The U.S. Department of Commerce said that all of retail grew 3%, 3.6% this year over last year. So 11% growth is way higher than the industry average. And the whole industry added $183 billion in sales. So Amazon alone is $56 billion of the incremental $183 billion that happened in North America in 2024.
Jason
[46:20]So then the other huge retailer is Walmart. So you'd love to compare Walmart and Amazon growth to U.S. Department of Commerce. But as we mentioned, Walmart's earnings aren't going to get released until the end of next week. But we have three quarters of earnings and we have estimates, right? And at the moment, people are estimating that Walmart's Q4 is likely to grow about 4%. So if they see 4% growth Q4 this year versus last year, it means that Walmart will grow 5% for the year. So half as fast as Amazon, still meaningfully faster than retail, right? Retail is growing at 3.6%. Walmart's growing at 5%. Amazon's growing at 11%. That means that Walmart contributed another $26 billion of incremental sales, if that plays out. And then our friends at Timu, Sheehan, and TikTok probably captured about $50 billion of sales in 2024 that they didn't have in 2023.
Jason
[47:23]So you take $26 billion from Walmart, $56 billion from Amazon, $50 billion from Timu, Sheehan, and TikTok, and that's $132 billion in growth. When the entire industry had $183 billion of growth. So it basically means Amazon, Walmart, and those three Chinese companies are 72% of all retail growth, which is super scary. Obviously, the big are getting big, and we're seeing this huge gap open up between those leaders and everyone else. The other super interesting thing, if these numbers are right, it means Amazon sold $540 billion worth of stuff in 2024. Walmart in North America will have sold $547 billion worth of stuff. So Walmart in North America is still slightly larger than Amazon. And when I say Walmart, I mean Walmart Inc., including Sam's Club in the U.S.
Jason
[48:21]Walmart has international sales. Amazon has even more international sales. The U.S. economy is faring pretty well. A lot of other economies in the world where Amazon in particular does business are not faring as well. So there's more headwinds on the international side of Amazon's business. But apples to apples in North America, this is really turning into a two-horse race with these Chinese entrants taking a huge bite of the market, but clearly not taking a bite out of Amazon or Walmart, which is super fascinating and super concerning.
Jason
[48:58]And Scott, I roll all this up and I say to myself, huh, all of these companies that are growing, the thing they most have in common is their growth and or their primary business model is all coming from marketplaces. Like increasingly you can't name a huge super successful e-commerce wholesaler that buys goods and resells them the like amazon keeping 62 of their sales as third party is even more impressive if you remember i said that amazon selling way more essentials than they ever did before historically essentials were all one p so for them to keep 3p at 62 that means 3p is growing really robustly based on the mix change at Amazon. So they're increasingly, I'm looking at all these numbers and I'm going, man, it is just getting harder and harder to make a living selling other people's stuff that you either have to make your own stuff and sell it to consumers and be content not to be one of the largest retailers in the world. Or if you want to be one of the largest retailers in the world, you have to be really good at a marketplace. And then that unlocks all these supplemental revenue streams and retail media revenue streams and all these other things we've been talking about on the earnings call. So you may have seen this a long time ago, but like, It's increasingly seeming possible that marketplaces will eventually kill off the wholesale model, which is crazy to think about.
Scot
[50:24]Yeah, it's kind of like what happened in China, though. So it's, you know, it's something that a lot of people have predicted for a while. It's actually taking longer than I thought. I'm a little perplexed why all of e-commerce isn't growing a little bit faster, but that's a topic for another time.
Jason
[50:39]Yeah. So last week we did an overly long show. And so this week we worked really hard to bring it in slightly under our typical hour. So I'm happy to say we have not used up all our audience time, but hopefully this was a helpful recap on Amazon's earnings, a forecast into Walmart's earnings next week, and gives everyone a really good kind of feel for how 2024 played out in North American commerce. I'm always Debbie Downer. I want to leave everyone with one piece of good news. The U.S. Government data for January sales comes out next week, but the National Retail Federation has a new data source called the Retail Monitor, which uses a huge panel of credit card data. And that data came out this week and they report that January sales are up 5.7%. So, again, all of last year grew at like 3.6%. Holiday grew at 4%. January being up 5.7% over last year is really encouraging. and certainly we'll hope to continue that momentum for the rest of 2025.
Scot
[51:42]Look at that Jason ending on a positive note. Who would have thunk it?
Jason
[51:46]Yeah, it's the new wear your clients logos and think happy thoughts version of Jason.
Scot
[51:53]Cool. Well, thanks everybody. And until next time.
Jason
[51:57]Happy commercing!
-
The expended edition of this podcast is 80 minutes long. We're sorry, if we had more time, we'd make a shorter podcast.
0:00 - 27:30 NRF Big Show Recap 27:30 - 59:00 Recap of 2024 Predictions 59:00 - 80:00 2025 Predictions Watch a complete recap of NRF Big Show 2025 here 2024 Predictions RecapJason:
Retail Media Networks go In-store. At least 1 top 20 retailer launches a digital in-store ad network YES AI is even hotter at end of 2024 than now. Most text boxes in E-Com are GenAI powered. A least one retailer has an AI based auto-replenishment solution with significant adoption. YES Bifurcation drives at least two more retail bankruptcies, including 1 national specialty retailer, and one general merchandise/dept store. (two top 50 retailers) YES China companies focus more on West and get more traction. Shein successful IPO. Temu US gets to at least 75% of target US E-Com. No Grocery E-Commerce goes from $95B to $125B in 2024 (after being down in 2023 per Bricks meets clicks). NoJason Score: 3.0
Scot:
Amazon relaunches Alexa on a native LLM No Temu falters as people realize it’s wish 2.0 No RMN is currently $52b, growing 20% y/y, accelerates in 24 to 30% and $67b (coresight has the 52 datapoint) No Instacart who’s stock IPO’d at $33 and now is $23, solves ads and pops to 40 YES While everyone thinks Shein/Temu takes share from Amazon, they end up hurting Nordstrom, Macys and Target instead - materially (10%+) focus on apparel, maybe take target out? YesScot Score: 2.0
In a rare upset victory, Jason takes the 2024 predictions crown! But can he keep it?
2025 PredictionsJason:
Shein & Temu are NOT impacted by changes to De Minimus (which either don’t happen or are ineffective). They ay be impacted by Tik Top Shops and/or Trade War tarrifs but not by changes to De Minimus. Tik Tok is not permanently banned in US (prediction made before scheduled ban was to take place). Tik Tok Shops is fastest growing $1B+ retailer in 2025. A major auto manufacturer launches a DTC offering in the US in 2025 (other than Tesla). Retail Media Networks undergo consolidation in 2025 as smaller retailers realize they can't go it alone. Live-streaming/VR/Voice Commerce are all materially insignificant in 2025. No financial evidence that consumers care about green or purpose driven brand with their wallets.Bonus: - AI Agents hottest trend in commerce (but I don’t know how to measure it)
Scot:
Facebook acquires eBay puts them out of their misery finally Temu loses its newness/out of the honeymoon period and people realize it’s a gimmick - down 20% in 25 vs. 24, even more with tariffs AI agents become a double edge sword for retailers (headless/composable) vs. no ux, I predict 10 large retailers block them, but the rest embrace Marketplaces have a new leg of expansion into a variety of places even an LLM - let’s call it 5 new larger retailers Personalization is out, memory is in, but still silo’d -Bonus: AI automates and optimizes the supply chain in ways we humans can’t, or at least analyzes the data in such a way -OR could be quantum computing.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 323 of the Jason & Scot show was recorded on Thursday, January 23rd, 2025.
TranscroptJason:
[0:23] Welcome to the Json and Scott show this is episode 323 being recorded on Thursday January 23rd that's a lot of 2 threes I'm your host Jason retail gee Goldberg and as usual I'm here with your co-host Scot Wingo.Scot:
[0:37] Hey Jason and welcome back Jason Scott show listeners for episode 323 being recorded on 123, Jason you are in the post honeymoon phase of the NRF Big Show 1 of my and I'll have to be honest with listeners kind of not favorite shows because it's in New York during January and I'm allergic to cold weather and I always have a hard time getting there and out because of the snow and then also it's a show that's over weekend so it kind of crushes the whole work life balance thing so hope you had a fun 1 I was not I did not attend this year.Jason:
[1:14] Very often it's over a holiday weekend it's like.Scot:
[1:17] And yeah so in the holiday weekend as well for for fun yeah.Jason:
[1:20] Yeah yeah I think for as long as I can remember we've been going to that show and complaining about it and the the the usual answer is of course due to its 114 year old show we're not changing it because you're whining um, which fair enough, I will point out good news for you Scott global warming it doesn't snow in New York anymore so it hasn't it was cold but like there there used to be an annual blizzard and they literally haven't had any snow in like the last 3 years which is a little spooky, um and I have great news for you if if you thought it was a lot to go to 1 in RF a year guess what we get this year.Scot:
[1:57] 2 nrf's.Jason:
[1:58] 3 NRF or depending on how you count 4 NS.Scot:
[2:02] Whoa are they going to call them Big Show small show Medium show.Jason:
[2:05] No so for a while they've had so they have a few other shows so they have the NRF Big Show which is what we're talking about in in New York in January 114 years old 40,000 people at 10 mostly Brazilians, they've had what I'll call the small show which is technically now called NRF Nexus it's had some other names in the past that's in Southern California in the summer and I really like that show I'll be I'll be at that show, I'll I'll be doing a number of gigs there and I encourage people to go there because it's a way better boondoggle we all hang out and eat good food on the beach and, in his way less stressful than than in our Big Show.Scot:
[2:41] I can sign up for that yeah that's uh no blizzards sign me up.Jason:
[2:45] Trono in Rancho Palo Verdes it's a good it's a good spot it's where Rico started.Scot:
[2:48] Oohnice.Jason:
[2:50] Um they have like a loss prevention show which is probably not relevant to mow most of our listeners but the big news is they are the Big Show has gone International so last year they had Big Show Asia for the first time in Singapore I was not there but it was by all accounts a big success and so, this year we'll have year 2 of Big Show Singapore, and then they're now expanding to Europe so this September will have NRF Big Show Paris. So Scott if you want to go well you know my my corporate headquarters is there my boss is there so we'll we'll host everyone in his office on the shampoo Jose.Scot:
[3:29] I would love that I have a lot to chat with your boss about I feel that you're being shorted on your title and it's been too long we need to expand your title so that's going to be my number 1 you know point on the agenda.Jason:
[3:41] Yes it is high on my list to get you in front of our tours to renegotiate my package.Scot:
[3:47] Yeah I'm there I will I will Ari Gold this thing and we will get.Jason:
[3:50] Yeah I know he our tour listens to every episode so be ready our tour he's coming Scott's coming for you.Scot:
[3:55] Yep I got your I got your number first of all I'm going to loosen him up with some wine and cheese French people like that right and some croissants boom.Jason:
[4:03] Yeah but I kind of don't think you can loosen a French person up with 1.Scot:
[4:07] True it may be a bad strategy.Jason:
[4:09] Yeahfun strategy but it just may not work out the way you hope.Scot:
[4:14] Well how is the show I saw that you were you know doing some really good instagramable pictures out in front of some signs and looking spelt and you had your cool eyewear rocking did you how did how are all the balls and Galas and the and you did a bunch of content give us a give us a rundown what we're give us the behind the scenes.Jason:
[4:35] Well so the number 1 takeaway from internet Big Show is that retail geek is Overexposed so I apparently they couldn't get any good speakers this year because you haven't been going so I was on stage 4 times which is more Jason than anyone should want.Scot:
[4:51] There can be an honorary Kardashian if you keep that.Jason:
[4:54] Yeah yeah I I'm not sure that's that'll be 1 more item off my bucket list honorary Kardashianthe, so I mean the show went well it continues to grow it felt super vibrantit was very it was cold but clear.Jason:
[5:13] The the kind you know you and I have been to so many of these shows that I feel like, somewhat predictable at this point for those that haven't been a big show it's a heavy networking show there's a lot of private events that maybe aren't even published and are invite only and, it's 1 of the the the few, events where I get all those invites so you're right like you know I I went to a lot of dinners and a lot of Galas and saw a lot of, mutual friends that are of course ask about you and are bitter that I'm there and you're not um but it's a lot of fun to catch up with people and certainly you know I got to a chance to talk Shop with a lot of people which is 1 of the big benefits to me, you know there are some interesting on-stage content I'm not going to do a super deep recap on the podcast because, in in NF Big Show recap would be an hour and the good news is I recorded an hour webinar yesterday so in the show notes I'll put that on and if you want if you want an hour of a big show recap, you you can get it there but like at a super high level kind of 3 3 big takeaways that that we highlighted in the recap from Big Show the, continuing to be 1 of the big topics that all these retail shows that they're all heavily leaning into I have some controversial mixed feelings about our.Jason:
[6:32] Exuberant over retail media Networks, so every every retail on the planet is launching 1 every V you know there's a thousand vendors that somehow raise money selling like some service for retail media networks all the the retailers now come to these shows and have booths so there's Giant, Amazon Walmart booths at these these shows trying to sell people ads they've they've kind of turned into media shows, and so NF has a whole extra day of the show if it wasn't fun enough to go over the weekend you can now attend retail media day which is all day Saturday the day before the show starts on Sunday, so a lot of talk about retail media networks a lot of vendors a lot of content on the stages. 1 of my biggest session I did a a session on the featured stage and it was a new format for them it was a debate.Jason:
[7:24] And so they had a much smarter sort of a retail thought leader Christina Russo and I on stage together and they they pulled all of, the the popular retail Talking Heads and ask them to surprise us with questions and then we debated the answers and so longtime friend of the show tsukareta had a question like hey Jason aren't all these retail media networks a scam, and, I I kind of felt like I think she thought she was that was a gotcha question for me because she I think she thought like working for a agency that you know is generally super excited about all media formats and has, you know hundreds of people at the moment working on retail media networks I think she thought that would be a controversial question, I basically answered like it's absolutely a scam and the vast majority of all these are going to fail, so I think that probably surprised Christine a little bit that she had to take the the pro retail media position after I after I jumped in on the con position. But, there is a lot of talk about retail media networks it's going to show up in our predictions I'm sure there are people making a lot of money on retail media networks but they also they're not going to be as ubiquitous they're not going to translate to the small retailers as well as everyone thinks and, as you and I know the dirty secret is like all the retail media money is in third-party marketplaces it's all those third-party.Scot:
[8:46] Yayanother win for third-party marketplaces.Jason:
[8:50] Yeah it's almost like you saw all this stuff coming like 20 years ago.Scot:
[8:54] Yeah yeah they uh.Jason:
[8:57] Until you get a good new idea I'm going to keep giving you props for the old 1.Scot:
[9:00] Okay I appreciate ityou can do my negotiating with my boss.Jason:
[9:02] Yeah uh soyeah I'm not doing that because I've met herum.Scot:
[9:09] Yeah she's tough.Jason:
[9:11] Yeah but fair tough but fair. So 1 big Trend retail media networks love them or hate them there's a lot of discussion about them a lot of a lot of activity in that space the most predictable big trend is of course AI so, half the Boost of the show you if you if you didn't read carefully you would actually think it was an Nvidia Booth they had like, bigger logos than half the exhibitors they they did a keynote with John furner John's the CEO of Walmart us and and the the head of retail at Nvidia was on stage with him talking about all these, these interesting retail use cases in 30 seconds or less the Takeaway on AI is, there's a ton of successful AI efficiency stories where retailers and brands are doing something in Commerce they've always been doing but AI allows them to do it way better faster and cheaper than before and so there's, there's increasingly you know tons of money being saved by using AI for efficiencies.Jason:
[10:13] And that that there's some pretty interesting ones and some pretty clever ones and a lot of smart vendors, at the show coming up with that stuff but the the big prediction the coming very soon part of AI That's more game-changing that's sort of a new shopping experience that didn't exist before, is agent-based Commerce it's what so-called agentic AI so if you went to Salesforce Microsoft Google, sap, Amazon's Booth like the the biggest words in the booth were agentic Ai and the the you know all all these big vendors are in a knife fight if I know you follow the, the kind of core AI space, you know openai launched their agent this week which is uh operator which is super interesting and exciting perplexity launched their agent of course you know Salesforce and Microsoft have, uh and Google all have big big plays and agents and so, I'm I'm relatively bullish on on agents disrupting Commerce and fundamentally changing some shopping experiences and breaking search for example I'm making search a lot less important and a lot less relevant.Jason:
[11:25] I think all that could happen I think it's really risky to think about the time Horizon for that and at the moment if you're familiar with the gardener hype cycle, agents are kind of still C climbing up the the hype Peak like they have not fallen into the trough of disillusionment yet.Scot:
[11:45] Yeah we're going to talk about agents in the predictions so.Jason:
[11:48] Hello I should have I should have known I should have held some of my.Scot:
[11:50] Uh passion a lot of them are kind of like glass-based which I think's interesting but you and I know you can't have a great shopping experience just you know kind of looking like you're a browserso if you say you know hey.Jason:
[12:02] Yeah I think that's a fast early wave to proof of concept A lot of this stuff but that's that can't be how it all works in the long run.Scot:
[12:09] Yeah I'm excited you know I've had a fair amount of exposure to the perplexity and it it's okay on a surface level but it falls apart on some basics in our world and then I think I think the glass-based nature of Operator by glass I mean it has to scrape it's it's not.Jason:
[12:22] It it acts like a human clicking buttons on a browser.Scot:
[12:25] Yeah yeah so we'll see ya.Jason:
[12:28] Microservices and apis.Jason:
[12:30] The so that that was a super interesting 1 and then the third big topic from NRF Big Show was just kind of the state of the industry NRF released, their final data for annual sales the US Department of Commerce came out with their data the day after the show, and you know everybody in the hallways talking about like hey how'd you do did you do well did you not do well what's your budget look like for this year or are you spending more than last year less than last year what's your forecast like and so there and what the heck do you think is going to happen in the new Administration and how is that going to affect all of your business plans right and so there's a lot of, those kind of conversations and and again go listen to the the the interf recap for the Deep dive but the the super high level is, it's it's kind of mixed mixed news in 2024 we sold 7.4 trillion dollars worth of stuff which is a ton of stuff, but the NRF doesn't like to talk about that retail number they like to talk about core retail which is, all of retail sales less automobiles gas and restaurants so 2024 we sold 5.3 trillion dollars worth of stuff core retail stuff, that is up 3.6% from the previous yearso the question you might ask is hey Jason is 3.6% good, and the answer is it's okay NRF predicted that this year we would grow between 2 and a half and 3 and a half percent so 3.6 is above the top end of, prediction yeah.Scot:
[13:58] A small butt I said we they crushed their number.Jason:
[14:01] Uh so they beat interest prediction the 10-year average growth which you know growth is slowing down a little bit but the 10 year average growth is 4.1% so 3.6 is less than 4.1, last year's number was 3.9 so 3.6 is less than than 3.9 but so all these numbers are kind of in the range it's a huge number so you know a tenth of a percent is is Meaningful.Jason:
[14:25] But the real butt is half of all that growth half of that 3.6% growth Amazon Walmart T-Mobile and Tik Tok shops, so you pull those those 5 retailers out and is a way below average year for the rest of retail, and add on top of that that, consumers were hugely value seeking in 2024 they were trading down a less expensive Goods so we sold more or less expensive stuff which is a lower margin the discount rate was uncharacteristically high so we sold stuff at deeper discounts and so you know all these retailers that are not 1 of those top 5 Growers.Jason:
[15:04] Had a mediocre sales year and an even worse profitability year and so you know in the hallways the talk was oh the overall industry maybe did okay we didn't do so well and our Focus next year is, economic fundamentals like austerity we're we're trying to save money wherever we can we're not doing big grandiose plans bunch of retailers are likely closing stores and we've already seen that play out in the week since nrfa Macy's has announced, another huge wave of of store closuresit's it's going to be a challenging year in retail and I'm not sure the, the vendors have fully felt it yet but like when I hear all these retailers talking about how they're cutting back on all their plans and then I go look at the 450 vendors that are all hoping to sell new it technology to all these retailers, I'm like it's going to be a lean year for all those vendors that are trying to sell new new search engines and new platforms and and new new products and services to all these retailers in 2025.Scot:
[16:07] Yep it's busy out there did the Department of Commerce their their this is where you get the other and then the really good 1 for e-commerce comes out much later has have theywhat what did they say about e-commerce does that come out.Jason:
[16:20] Yeah so so you are correct we get at the moment we havenon-store sales is what it's called um and it, it grew about 10% year-over-year, um so what that likely means is that e-commerce will end up growing at about 7 and a half to 8% is my prediction right nowso so retail grow brick and mortar total retail, grows at 3.6% e-commerce grows at twice that at 7 and a half to 8% so e-commerce is still the fastest growing part it's 1 out of 5 of core retail now right it's over 20% of core retail sales so the law of large numbers is starting to kick in when you and I started doing this retail was still growing at 4% but e-commerce was growing at 20% right over the last 10 years e-commerce has grown at 15% and now we're starting to see it tick down, 7 and a half percent and I I think that's a natural progression as as e-commerce has gotten more mature.Scot:
[17:21] Yeah it does still feel slow like if you'd asked me 20 years ago where it would be in 2005 I would have said oh it will be at 30 or 40%, 20 20% just feels low and it's historically low compared to not historically but it's low compared to like most other countries right so the UK is much higher and.Jason:
[17:41] It depends on what you mean by the most uh there are countries way higher so so there are countries in Europe.Scot:
[17:46] Yeah not in.Jason:
[17:47] Europe is a mixed bag but like UK is higher Asia is much higher it's very hard to count in Asia there's not good data so you you will hear a lot of people say that e-commerce is over 50% in Asia and it might be there are other people that are say that will say it's more like 40% you there's there's a bunch of countries in that kind of 30-ish percent so, you know certainly there's no endemic reason in the United States can't hit those same same kind ofPeakswhat I would say is, not every industry got affected by e-commerce at the same time like like you know I you like to joke about how I started my career at Blockbuster they were they were affected by e-commerce a long time ago right um borders was affected a long time ago Toys R Us pretty long ago Circuit City all those companies you know were affected at a different rate, but there were always new categories that were you know just had this massive adoption of e-commerce that you know kept Goose the number and there are fewer and fewer categories with really small e-commerce today right so it's mostly cars and Grocery and again we're like rightly or wrongly most of us are pulling cars out of the numbers we talked about so, so yeah you know they're just our fewer kind of untapped markets to to to grow.Scot:
[19:07] Gotcha should we any other uhwhat was like the back room conversations like give us no specifics of course but like what else was so retail media networks a lot of an AI anything else that that is like aon people's minds.Jason:
[19:22] Yeah I you know I think everyone is like really, concern like there's the a huge variety I know you and I love to talk about politics on this showthere's a huge, collection of potential policy changes in the current Administration again NRF happened the day before Trump took office right and so a lot of the talk is hey are we gonna have way lower income tax and is that going to cause everyone to spend like a drunken sailor are we going to have huge tariffs and start a massive trade war and not be able to sell anything, you know is deregulation going to help us is is Tik Tok gonna get shut down is the minimum is going to get shut down, you know there's a there's a lot of uncertainty 1 of the best attended Keynotes was David Solomon who's the the CEO of Goldman Sachs and him kind of pontificating on the potential impacts of the new Administration on the, on the economy and the the long and the short of it is no 1 really knows there's a bunch of, you know potential policies that would be favorable to the economy there's a bunch of potential policies that might be erosive to the economy you know some of those policies will be easy to enact some of them will be quite difficult to enact and so like on the aggregate, what all is going to happen over the next 2 years and what's that going to do to the economy I think, there's more unsure it's always uncertain and there's more uncertainty at the moment than it feels like they're typically is so you know.Jason:
[20:50] A lot of folks had a disappointing year last year and then they're staring at a lot of uncertainty this year and it it just creates a general disease.Scot:
[21:01] Bummer sounds like not a happy ending but this is a fun fact Dave Solomon is a DJ as well.Jason:
[21:07] I did not know that that did not come up in his in his keynote oddly enough I think he would have like at least.Scot:
[21:11] I thought maybe he would like uh spend some tunes before and after yeah.Jason:
[21:15] Picked his own walk-on music I'm sure A-Rod got to pick his own walk-on music so you'd think.Jason:
[21:23] Oh by the way the, the other big news the internet cave like the NF has always been like a show that was about this content and other shows figured out that you could get way more people to come to your show by having, celebrities and musicians and and so like the shop talk shows always famously have an interesting concert right and so the NRF cave this year and and had a big concert and so we all got to see flow ride up.Scot:
[21:49] Whoa.Jason:
[21:50] Yeah now you really regret that you didn't go I know it.Scot:
[21:53] I did but I've seen you at these things you you go to the event and you have like maybe 1 drink and then you check out and go do email or.Jason:
[21:59] I make sure I make sure that some people get some selfies with me so I'll show up on the socials and then I do what what has been described to me as an Irish exit.Scot:
[22:10] Yeah yeah because uis have some slides that were due 3 weeks ago that you're gonna.Jason:
[22:13] That that is.Scot:
[22:14] You can work till 1:00.Jason:
[22:16] Often often true you're actually giving me PTSD by just talking about it.Scot:
[22:20] Yeah when Jason Goes to these shows the the first thing he does is start with a Starbucks that's a manual that's a must and then, people people that are waiting for slides no to wait at the first Starbucks so he right at the counter after he's ordered there's a line of people waiting for for slides and her ringing him about Decks that are due weeks ago it's hilarious.Jason:
[22:38] And let me just say as we continue to go further and further author reservation here uh, 1 of 1 of the biggest improvements at the NRF is that the the 2 Starbucks have got at Javits Center which wasn't always true by the way that's exciting to me to just say there are 2 Starbucks at Javits Center the 2 Starbucks have gotten wildly efficient at mobile ordering even at a trade like it used to be this huge cluster of disaster and you you you just have to stand.Scot:
[23:05] Massive.Jason:
[23:06] Line for hours and when they turned on mobile order it was highly unreliable and you'd have to wait 30 minutes like it, they've kind of figured it all out now like and so I found it much much easier to I knew exactly how far away I needed to be from the Starbucks to place my order and I walked up and, it just feel you feel like George Jetson when you like.Scot:
[23:27] Skip the line yeah.Jason:
[23:29] That whole line and and grab your Starbucks and make it to your next meeting on time with Starbucksuh.Scot:
[23:34] And if the people are waiting on slides are in line now they have a hard choice to get out of line to bother you for slides or and then you can just dip in and out and they don't have time to catch him so that's.Jason:
[23:43] People waiting for their slides for me have a lot of hard choicesthe and they're usually disappointed but Scott I feel like you are procrastinating long enough if you haven't thought of any good predictions by now they're not coming to you.Scot:
[23:58] I think I'm ready I it was tough because, it's a hard time to predict things because there's so much change like oddly when it's kind of slower it's easy to predict stuff so we'll see this will be a fun 1 it's going to you know the rate of change and Chaos makes it hard to make predictions but.Jason:
[24:15] Yeah I did.Scot:
[24:15] It's uh that's why we make the big bucks so we have to buckle down and I did it.Jason:
[24:19] I was in 3 different sessions where the first slide was predictions are very hard especially about the future and and what's which is a great quote what's funny is all 3 of them attributed the quote to a different person.Scot:
[24:33] You should say also attributing quotes is hardit's harder than predictions.Jason:
[24:39] Yes so uh so offline I did a deep dive in who actually said it in so we could we could get into it but it came from CERN um but yeah the it was not Mark Twain it was not Yogi Barra.Scot:
[24:53] The particle accelerator people started.Jason:
[24:54] Yes yes exactly um.Scot:
[24:56] Would quote as a body.Jason:
[24:58] Yeah but the the the VC version of that that quote that I thought was pretty pretty apt for NRF wasthe the pace of innovation seems to be outrunning the pace of adoption.Scot:
[25:11] Yeah it is yeah it's kind of crazy. I get some of these AI newsletters and I I keep a little running list of things I want to go put you know try out and it's like literally 200 long right now and it's like okaywell I'm not gonna get to all but like maybe you know maybe I'll get to 4 of those.Jason:
[25:27] I know and I I'm like, the open AI like they dropped their agent it's a at the moment like to get it this month you have to step up to the hundred dollar a month account and there's part of me that like oh this is super interesting and valuable I should just do it but then I know I'm going to use it once and then move on to the other 200 things on my list and it like it just doesn't feel good so part of me is like wait till it drops down on my 20 account.Scot:
[25:51] Yeah that's just enough where it's kind of unless you're on your uh your work credit card then go crazy.Jason:
[25:56] Yeah but our as I mentioned our tour is listening to this and so until you negotiate I'm afraid to go there but so predictions about the future are hard what about predictions of the past how how did we do on the predictions from last year.Scot:
[26:08] Yeah let's go re so as a reminder for those of you that are new to the show every year we make a prediction usually in the January time frame and we then review it and add forward-looking predictions we have a long history of me being better than Jason at this so we'll see if that that holds on and then what we do is we read each others and then grade and then there is a formal, rebuttal period that lasts approximately 90 seconds no longer no less and now I'm just getting we're not a super rules of the road on this but, yeah so I'll go through Jason's for predictions for last year so this was in 2023 Jason predicted these things for 2024.Jason:
[26:51] Hear him because I don't remember him.Scot:
[26:53] Jason prediction number 1 1 of your favorite topics you've already talked about retail media networks go in store at least 1 top 20 retailer launches a digital in-store ad Network, I think this is definitely happening I don't know if it's going to I don't know if 1 of the top 20 maybe if I was going to guess I would say maybe Walmart has done that because they seem, Dev screens but they a lot of them are almost like you know Walmart today type things I don't really think I've seen them advertised other stuff, but um I'm going to ask you you can go ahead and rebut away I don't know how to grade you on this 1.Jason:
[27:30] Yeah so all of my my good friends at Walmart please take note Scott is a legitimate Walmart Shopper and and.Scot:
[27:36] I love Walmart.Jason:
[27:37] He does we both do and he has he he is rightly noticed that the ads in your store so yes it did happen e-marker said it was not huge they said about half a billion dollars in in revenue for in-store ads in in 2024 which you know compared to the total size of of retail media is not, huge but Walmart is selling ads on 170,000 screens now a lot of those screens are screens that had up other jobs in the store so things like the TVs and the TV department or the the screens in the deli department but 170,000 screens is still a lot of screens that are in front of 190 million Shoppers that walk in that store every week so Walmart certainly you know makes it on their own a bunch of the European guys have also done it so Tesco sainsbury at Big gers in the UK have done it Home Depot I believe is predominantly in store so they have What's called the Orange apron media Network and it mostly is selling in-store experiences Rose also has the lows media Network which which sells ads in store so I think we gota lot here so I'm giving myself a yes on number 1.Scot:
[28:47] All right I will agree to that. Jason's prediction for 2024 made in 2023 number 2 AI is even hotter at the end of 2024 than now and in this sentence now means back in 2023 this is so confusing, most I'm I'm making it so clear for our listeners though so most text boxes and e-commerce are G powered at least 1 retailer has an AI based Auto replenishment Solution with significant adoption. I don't see a lot of Johnny AI powered searches I've tried Rufus and that is that is a swing and a miss if you're counting Rufus I'm going to call foul on that.Jason:
[29:28] So I gotta be honest this is a tricky 1 for me I don't know how I feel about my prediction I will fully disclose I thought, a AI search in particular would be even more ubiquitous by now than it is right so in 1 cents I want to say oh yeah didn't make it objectively like all the things that I sit here sort of did happen so so we could debate about, roof is being an awful experience which I totally agree with Doug Herrington did a keynote in NRF and said that Rufus has answered 500 million queries last year right so.Jason:
[30:02] That's a lot of queries yeah so so that that Alone 1 would argue you know technically makes my prediction correct Walmart did Roll Out Auto replenishment so Walmart Plus members can get suggestions in their cart based on their past purchases that they did not ask for for for better or worse so so there are some some Auto Replacements in there, Amazon Walmart Tik Tok have all aifi their their search boxes instacart and then, like in particular the grossers are leaning into this Auto replenishment so a lot of the vendors that serve the grocery space there's a company called Alami that does a lot of uh predictive ordering and there is a standalone retailer a direct to Consumer grocery store called Hungry root which is exclusively predictive AI so you don't go shopping for Stuff, you fill out a profile and hungry root decides what to send you based on AI and surprises and Delight You by sending you stuffum.Scot:
[31:02] You don't go shopping for stuff stuff goes shopping for youshopping powered by AI.Jason:
[31:07] Shopping becomes implicit so I don't know how to score this like part of me wants to give me half credit like because I I do think, literally everything I said in the prediction happened but like it didn't happen at the scale that I thought it would and it and the experiences are, more meaning nothing Burgers like all those Auto replenishment things I mentioned are super interesting none of them are selling, meaningful volumes of stuff so I don't know part of me wants to go 0.5 on this 1.Scot:
[31:36] I'm feeling generous you you announced on the show you're taking me to Paris and we're going to meet meet your boss so I'm pretty excited by that trip and we're gonna have wine and cheese so I'm gonna I'm gonna round that 1 up and give it to you.Jason:
[31:46] Gotcha I I don't you may have already pre-impact conference room at our office and in Paris does not have Wi-Fi but it has a private kitchen and Chef so to give you an idea of our priorities.Scot:
[31:57] Oh and a view of the Eiffel Tower I I assure you.Jason:
[32:00] Arctic Triumph like.Scot:
[32:02] Oh even better.Jason:
[32:03] Yeah like literally NBC rents my bosses balcony to put their TV cameras for the tour to France. Yeah so we'll sit out there and have fancy glass of French champagne served by the pubis chef but don't hope to search for the internet while you're doing it.Scot:
[32:20] Yep and then you'll ask me how the cheeses and I'll say Jason this cheese is Gouda.Jason:
[32:25] And then someone will call and ask for their slides and I'll say I can't send them to you because there's no Wi-Fi at pubisum.Scot:
[32:29] Perfect.Jason:
[32:32] Yeah but I'm not bitter awesome so I'm taking the win to a 2 for 2 should we just stop thereoh.Scot:
[32:38] The the we go to 5 so your number 3 prediction for 2024 made in 2023 bifurcation drives at least 2 more retail bankruptcies including 1 National Specialty retailer in 1 general merchandise slash department storeparenthesis 2 top 50 retailers so I'm going to party city that was in, those in the year like that didn't happen in January that happened like.Jason:
[33:04] Good news it happened twice.Scot:
[33:07] Party City twice.Jason:
[33:08] Party City twice in 2024 yeah uh so the second.Scot:
[33:11] Count those as your 2.Jason:
[33:13] I'm I'm gonna count the 2 of those as my specialty retailer but but there were sadly more right so the Container Store Express Jo-Ann's the general Merchant which is not quite as general merchandise as I would like but the the the the general Merchant in my mind that that failed last year was Big Lots.Scot:
[33:31] Were you with me on this tour we did at Container Store.Jason:
[33:35] I don't I don't get invited to any of the cool stuff.Scot:
[33:38] And we were talking to 1 of the sea-level people and I was asking him about e-commerce. Maybe I don't remember and he basically went this long spiel about how they'd never wanted anything on their site that wasn't available in the store and I thought, I said to him that's kind of strange because other people most people view it the other way they have this like concept of this endless aisle and they view having an unconstrained space is he's like what is the customer going to do and they see it on the website and its not available in this toy.Jason:
[34:06] Yeah I will say that's more.Scot:
[34:07] Well.Jason:
[34:08] Uh I I I get that that would be an announcement that would be an atheist to you and to a lot of people and like I think when we think of the most successful e-commerce sites they now have hundreds of millions of skus there are examples out there Target basically only sells, online what they have in the store Costco and Sam's Club only sell online what they have in the clubso the there's ways, there's ways to make either either model work but uh.Scot:
[34:35] I blame the bankruptcy on it personally I haven't read anything so I'm just gonna I I found it like a strange so I'm going to blame the whole thing.Jason:
[34:38] But uhyeah I'm not sure Container Store was a a fast-moving early adopter of digital.Scot:
[34:46] No no no they they just launched their site too so this was like 2012 or something.Jason:
[34:51] Yeah yeah so sadly I I regret that I got number 3 right.Scot:
[34:56] Yeah that's kind of an easy 1 to get done you could have done most that's another reason uh number 4China companies so you have 3 right uh 2 TBD, China companies focus more on the west and get more traction shien successfully IPOs, and tiemoue us gets to at least 75% of all us e-commerce I made from that 1 of Target, Target do you mean.Jason:
[35:23] I meant the retailer Target that the team who was at least 3 quarters as big as Target in e-commerce.Scot:
[35:29] Okay well we know Sheen did not do.Jason:
[35:31] Yeah so I'm giving myself a Miss on this because of that right um so China companies focus more on the west, what's interesting is that happened and then it didn't last year so I think there was a eeo last year when, the Chinese economy was doing very poorly pendwa Duo was all in on the US market as the US got less and less friendly to Chinese companies and there's all this talk about banning and all these things they all kind of, de-emphasize the US and move to Europe and other markets so, so I think there was for part of the year a big focus on the west I guess if you count Europe as the west then that definitely happened, shein tried to do an IPO in the US it got kind of they got spooked they tried to move it to the UK there's some talk about them doing 1 in Asia this year and there is still some traction about them coming back to the US so, I don't know what's going to happen with Sheen I obviously didn't get that prediction, right so I'll take the the miss here but I will also say I I wildly underestimated how much better team it would do than Target so, Target sold about 20 billion dollars on the line last year she and sold 54 billion about half of it in the US 42% in the US so so Teemu outsold Target online in the US.Scot:
[36:48] Wow that's impressive on its own.Jason:
[36:50] Yeah so a lot of impressive stuff in there I blew it when I threw the IPO into the into the prediction so I'll take the loss.Scot:
[36:57] Yeah the um so it's interesting because T-Mobile they kind of came on the scene in 22 when they ran a Super Bowl ad right like that's I think the, you knew about them earlier yeah, and then LA and 23 they ran a lot more Super Bowl ads have they announced if they're going to be in so the 23 24 have they announced their 25 Super Bowl plans you probably.Jason:
[37:22] That they have not in some cases advertisers predisposed what they're doing but a lot of them like to keep it a secret and I believe, team who has never discussed their Super Bowl plans ahead of time they totally were surprised Advertiser in 23 they were the biggest Advertiser in 24 as you you rightly remembered they they bought us huge controversial amount of of add time for the Super Bowl, if memory serves they probably spent like thirty million dollars on media for that 1 day um and then you know everyone in my agency like think, that they're they're Super Bowl presence is just awful because they made the ad themselves and it's you know a Cheesy animated cartoon with a with a you know kind of candy jingle and I have to keep pointing out to them that that adds sold 50 billion dollars worth of stuff which 1 of our clients did that. Um and they don't they don't like that so so let me just say myself and all the creative directors at pubis have a slightly different definition of what makes us successful Super Bowl ad.Scot:
[38:30] Yeah I'm looking at the list of people that have announced it's a bunch of cpgs as you would imagine and then the only 2 I kind of see out of our world would be GoDaddy which is a stretch and then instacart so.Jason:
[38:39] Yeah yeah I think I think.Scot:
[38:40] It'll be uh I think that may be their first did they do 1 last year I don't remember.Jason:
[38:43] Instacart has done 1 before they're I can't get in all the details but there's going to be a few e-commerce companies that are first-time.Scot:
[38:50] Ooh breaking news.Jason:
[38:54] Yeah we will not be at the Super Bowl this year is any football team that I remotely support itmy my my La Chargers like briefly had hope we made it to the playoffs I was wearing a charger Jersey 2 NF this year and we got trounced and then you know my adopted family all my in-laws from Detroit have been super excited about the lines this year and they they took.Scot:
[39:14] Ooh that was a disappointing 1 yeah yeah okay all right so you are. Yep 344 and then we've got your last 1 the last 1 Number 5 grocery e-commerce goes from 95 billion to 125 billion in 2024after being down in 2024, per bricks meets clicks was that I guess that's the name of a report that you you grocery people love.Jason:
[39:40] Yeah we do I do not love it but it is the most consistent data I have on on grocery e-commerce and I miss this 1 so, grocery did grow we went from from 95 billion, to 105 billion but we did not get to 125 billionlast time I do really specific easily verifiable predictions.Scot:
[40:02] Well we we went to a phase where we couldn't verify them and we're just like looking at each other like what do we do so that's that's where the screw from I know you've forgotten so 3 out of 5 we'll give that a 60%, gentlemen see all right you had a bonus live streaming metaverse crypto still not a major thing in e-commerce oh you blew crypto crypto is where it's at, management stops blaming performance on retail crime nope and smaller retail media networks fail, let's see live streaming check metaverse check crypto not major things you got all those rightman I still think management blames.Jason:
[40:39] I I don't I actually think.Scot:
[40:40] I saw the Walgreens guy just said.Jason:
[40:42] He he said it was wrong he said they were wrong so.Scot:
[40:46] It turns out when you lock everything up in the store people don't buy as much.Jason:
[40:50] He he absolutely did say that but before he said that the CFO had to say maybe we cried too much about like a literal quote in an earnings call maybe we cried too much about shrink because it was pointed out that while they were locking up all the product allegedly to stop shrink, the amount of shrink they reported on their income statement was lower in 2024 than it was in 2023 um.Scot:
[41:14] Because they locked up all the productit worked.Jason:
[41:17] And so then they didn't sell any so there's a catch showing 2 there but like the CFO said said on the air we cried too much about shrink and the NFL the NRF had to retract all of their shrink data and stopped reporting on shrink um so I'm saying it doesn't matter there's no points for the bonus but I'm saying that absolutely happened.Scot:
[41:37] So that NRF shrink data shrink.Jason:
[41:40] The NRF has been reporting shrink for 20 years they have a dubious methodology they send a survey to people and say did people steal stuff from you. Yeah and whoever answered that survey, for the last 20 years has answered it exactly the same so the the rate of shrink as reported by the NRF like is what is perfectly consistent for 20 years, um so if you believe in that stated stated survey methodology which we know I do not, then then everybody's way over complaining about shrink because it didn't go up but what happened is a bunch of retailers publicly blame shrink and then the NRF data didn't support that and it was a black eye and so the NRF like literally, a they they reported something that said shrink was way up, and then they had to retract that and say that their data was incorrect and they stopped publishing the survey and said they're going to invent a new better data set and publish it in the future which we haven't seen yet so.Scot:
[42:39] This seems like Jason working behind the scenes this feels like a someone that Goldberg.Jason:
[42:43] Saying it's it's a it's a complicated Quagmire of a mess but the takeaway for everyone it's a bonus so we're not arguing for points the takeaway for everyone on on this podcast should be do not put your product and product jail, uh if you have to put your product in product jail just don't carry it.Scot:
[43:00] Well there's this thing called convenience and if you have to call someone if you're going to the Walgreens for 6 things and you have to call 6 times and have 6 unlocks and it takes 6 hours.Jason:
[43:09] On a webinar today and the host had all these data sets and 1 of them is convenience is not King and you know he talked about how people are willing to you know get a great links to get what they wanted um and and then you know he asked me like how do you feel about that I said I don't know if convenience is King but I know that inconvenience is Satan.Jason:
[43:38] Yes yes never never.Scot:
[43:40] He hates observed measured data that's that's usually wrong.Jason:
[43:42] Do just ask people what they what they think they're going to do.Scot:
[43:46] Yeah do you feel like you're being compensated fairly that's a good 1 there's a lot of good ones, all right well I think you did pretty good let's see how I did.Jason:
[43:55] I think 3 out of 5 is better than my historical average.Scot:
[43:58] Yeah it is yes usually it's 1 so you crushed it 3x it.Jason:
[44:03] Gotcha, all right now let's get to Scottsand I'm I'm I also didn't remember Scott so I'm looking at them and the first 1 makes me so happy already, so prediction number 1 Amazon launches Alexa on a native llm.Scot:
[44:23] Yeah did I say was tried or no no I didn't say try okay they tried like 3 times and failed and they've I think already in 25 they tried again and failed so yeahthis is kind of sad you know I I have a.Jason:
[44:34] Thisyeahit's super sad.Scot:
[44:38] Amazon is not a day 1 company anymore and they're a day.Jason:
[44:42] It is day it is Day 2 at Amazon I'm sorry to all my friends at Amazon but I think it's pretty clear um.Scot:
[44:47] Yeah.Jason:
[44:47] The what's funny I will disclose I was a little miffed at you when you made this prediction a year ago because I'm pretty sure I pointed out to you when I saw this prediction before the show that Amazon had already announced they were doing this and I'm like it's not fair to predict something that Amazon already said they're doing, and and you I think didn't have time to make any new predictions so you just stuck with it and like even though they announced that they were going to do it in 2023 they tried 4 times in 2024 and couldn't get it so so Amazon's lack of execution caused me to win 1.Scot:
[45:20] Yeah I read an article and it's from that that seattle-based publication that sometimes gets some juicy Amazon information do you remember the name of it I can't, it's on the tip of the mount.Jason:
[45:30] Is it the Seattle Times is that the.Scot:
[45:32] No it's got like a you know a techy kind of a name, but it's interesting this is like I remember reading it like in October November and an Insider was explaining why they're so delayed and what they found is the and they're using I think anthropic underneath the the hood.Jason:
[45:47] Will not originally several of those efforts they tried to build their own and then they they gave up and then they went to anthropic exactly.Scot:
[45:54] Well this guy you know this reporter fared it out and you know it's it's anonymously sourced so it's hard to it's like so specific to what seemed pretty Legit To Me that the the problem is you you and I are big fans of Ale XA and we have a lot of them and they're really good at like the little Atomic tasks like setting alarms and some little things like that I like to play music and stuff, so what they did is they they had this problem that once they they took their current programmatic stuff which is the simple little things and then they added the LM well once an LM was on it would refuse to do the atomic things and in fact it would be get sassy you would say you know hey you know what's the weather and it would say well you know, do you just want to know it would want to have a conversation it was very chatty so it would never just get to the point and they they haven't figured out how to fix that, so they have this world where like you're going to have to kind of pick you know their current state is the lm1 is really good if you ask it a nuanced question like you know how do you know how do these things work or something how do microwaves work and it would be happy to chat with you about that but if you ask it like you know what the weather is today it wants to kind of like you know, ask a bunch of follow-up questions and we'll just like remember you're in Chicago and tell you the weather.Jason:
[47:04] Yeah so I I'm going to say 2 things about this number 1 there it's so funny what how how big a factor expectations play in your satisfaction like I I have dozens of these devices in my home we I don't know how long we've you and I have had them now but like is it 8 years something like that it's a long time um when I first got them this was magic like this was like, 1 of the the best most reliable Technologies and I liked this so much better than a light switch right and there's all these use cases raising a kid timers or a huge part of my life and and they're great for all these timersso they work exactly as well now as they did 8 years ago but now I'm nothing but frustrated and annoyed by them, the rest of the world has gotten so much better while they've Stood Still and I I get that that that solving the big problems and the atomic problems is is hard but like here's a baby step just every time you come back to me and say I didn't understand what you say send that to an llmlike every time you said I don't have a light name that like maybe ask the llm what what it thinks I meant like but yeahI'm I'm a little bitter I'm waiting for a better version and they're you know they're competitors Apple and Google like, I mean arguably I would I would have a better quality of life right now if I flushed all these things and put Apple or Google Hardware in their place.Scot:
[48:30] Yeah while we were chatting 1 of the research assistants popped in and the article I read was from that Seattle 1 but it was actually inside there it sourced you know you know how these things go like it takes you 8 clicks to find the original Source it was actually PC World how's that for.Jason:
[48:45] Ah oh yeah niche.Scot:
[48:47] Ben Ben Patterson wrote it so if you're interested in that we'll put a link in the show notes it was a it was a good, I found it kind of interesting to kind of like understand what could they possibly be working on and it was like oh that does seem kind of important seems like you want to nail that 1 you can't go backwards on the basics right.Jason:
[49:03] No okay 0 for 1 so number 2Teemu falters as people realize it's wish 2.0how do you feel you did on that.Scot:
[49:11] That 1 I clearly lost because I I bet against you and you won so just mathematically I was I was doomed there so that was a bad 1.Jason:
[49:20] I will say their pace of growth slowed way down in Q4, so so I would argue less because people realized it was wish 2.0 and more because Tik Tok shops, stole a bunch of the the customers from it and Tik Tok Tik Tok shops is potentially a better version of T-Mobile but yeah still they sold 54 billion dollars last year they sold you know 20 25 billion in the US so not wish 2.0 yet.Scot:
[49:45] Yeah when you I'll talk about later. Uh so I'm a batting zero here retail media networks is currently 52 billion growing 20% and accelerates to 30% growthand and 67 billionrun rate so, you did say they're very hot so did I come close on this 1.Jason:
[50:06] You you are in the ballpark you know again you were smart enough not to quote a particular sourceand the the sources that that we use most often so e-marketer which you know does a lot of publishing in the space they said 56 billion in 2024so right order magnitude but you did you did miss it by like 10 billion.Scot:
[50:30] Dang it how about the growth rate it did accelerate I think right.Jason:
[50:33] Yeah so the data set I'm looking at right here does not have 2023 in it so I don't the22% 22% growth rate.Scot:
[50:42] Just like acceleration dang itcome on retail media networks get your act together you and Amazon get in there and figure stuff outall right it was a rough year for predictions for meall right number 4.Jason:
[50:55] Uhyeah I I'm I don't like doing public math but I feel like you're gonna have a hard time beating me at this point.Scot:
[51:03] Yep I'm hopelessly behind.Jason:
[51:05] Uh so number 4, whenever you're in trouble go with the stock prediction that's that's what I always say number 4 instacart whose stock IPO at $33 and is now at $23 $23 as of this prediction show in January of 2023 solves ads and Pops to 40 uh dollars a share.Scot:
[51:27] It was January of 24 yeah but yes you got the dollars right but the time was January 24th.Jason:
[51:32] Okay got it so.Scot:
[51:34] If they had done it on January 23rd that would impressive because I would have been predicting the IPO price and where we'd be.Jason:
[51:39] And it would have been even more predictive if you bought at that point yeah um so what happened in their their stock is this dollar sign cart is that who we're talking about.Scot:
[51:48] Yeah I questioned it at 45 right now so I beat that 1 and therefore I get 2 points by my mouth.Jason:
[51:54] Yeah and for any listeners that weren't already clear on this if you want to adopt either of our stock picking you should adopt stocks.Scot:
[52:03] Yeah this is like you know how the NBA they have the 2-point things and then the 3 this was like a 3-pointer for me so it's like a 2-pointer it's kind of.Jason:
[52:09] Got it all right all right um I did I feel like your foot might have been on the line so I'm only giving you 1, all right and then rounding out number 5 well everyone thinks T-Mobile uh well, wait while everyone thinks she and tiemoue take share from Amazon they end up hurting Nordstrom Macy's and Target instead materially 10% plus focus on apparel maybe take Target out okay maybe there's some notes in there on the prediction um.Scot:
[52:40] Um yeah.Jason:
[52:41] But so high level you're saying.Scot:
[52:43] I wasn't sure if we knew the I didn't I was trying to like I wasn't sure if we I I occurred to me that Target probably doesn't report on apparel and it doesn't matter about merged from the Macy's because they're mostly up here but yeah that's like what I was talking about.Jason:
[52:54] I see what you're saying yeah yeah yeah.Scot:
[52:55] But let's just say target has a rough year is my prediction. This is what's known as a prediction Recon.Jason:
[53:05] Yeah so how do how what do you how you're grading yourself on this 1 I'm curious.Scot:
[53:09] I didn't think so I don't think Nordstrom and Macy's are reported yet so we don't know but I don't think I do think Amazon fought back which was interesting like I would never, I thought that I thought they would fight back just in the current mechanism but they came out with their I always forget the name of this what's their to competitor.Jason:
[53:29] Uh Hall.Scot:
[53:30] Yeah, you know I think that's interesting in its own so maybe it was actually wrong because I don't know I don't know if Amazon would have come out with that or I guess they did you know I don't think they've slowed Amazon down by any take and I do think they've taken share, from the Omni Channel people.Jason:
[53:47] Yeah no I I think you are right here so so I I feel like objectively there's a pretty easy way to say this Amazon probably is going to end up growing at twice the the average rate of retail so nobody took share from Amazon.Jason:
[54:01] And so like I you know as as as well as she and and tiemoue did it it had to be coming out of other people I think it's a little unclear exactly who they came it came out of, you know you're right like they do skew a little apparently and you know that a lot of apparel returns that did poorly Nordstrom didn't have a good year their their stock went down and the family was able to buy the company back like, but so that's not going to be because they lit the world on fire in 2024 a spoiler alert, Macy's you know continues to struggle in their turnaround they just announced hundreds of More Store closures and Target did okay they have kind of fallen out of the, the kind of top tier you know running they're not growing as fast as the Walmarts and and Amazons of the worldbut they they probably, tread water which is probably disappointing for them so don't know if how much shared Sheen or team specifically took out of them but I think it's it's totally correct that Sheen and tiemoue did not grow at Amazon's expense I think it's also true that Amazon is, you know intrinsically nervous company that you know look tries to look at the future and hedge its bets and I think that's why they they launched hall for the the potential of these services to impact Amazon not because of the the material impact it was already having.Jason:
[55:19] So I'm giving it to youyeah so that puts you at 2 out of 5so a rare a rare win I feel like we should just, like we've already used an hour of the podcast got so I feel like we should just forgo next year's forecast and just you know carry the the champion forward a year.Scot:
[55:37] Gone out on top is smart yeah I I understand your prediction your your desire to do that but the listeners would be very.Jason:
[55:45] No the listeners do deserve better they do they do deserve a a shorter tighter better edited show which they're not getting so we should at least give them the predictions. But I do think we should try to be concise uhokay you want to go first or you want me I uh I I would love to hear yours.Scot:
[56:00] Yes I can go fast all rightdo you want to go first or you wantwhy don't we go with yours because we heard your that will keep us alternating you go.Jason:
[56:12] So prediction number 1 Sheen and tiemoue are not I I underscore not impacted by changes to Dominus so there's the Biden Administration announced that they were, they were going to suspend a minimum from China and a lot of people thought oh man that's that's a death null for Shen and tiemoue, and I'm predicting that either those those diminished changes won't happen or even if they do happen that they're not going to materially impact Sheen or team machine and team are already too big and they're they're now not using de minimis for a bunch of their deliveries, so I think they announced their goal this year is to deliver 80% of their their European orders from factories they already deliver 50% of their us orders from factories so I don't think I don't think to minimize slows down she and her team who, that's a question I get asked every week by reporters by the way, more likely if she and tiemoue don't have a great year it's going to be because Tik Tok shops does really well or trade Wars you know knock everything off but but it's not going to be because of Dominusso that's prediction number 1, prediction does that shock you or don't care or somewhere in between.Scot:
[57:17] Wellokay so you're putting tariffs in so it's an and the minimum so you don't think tariffs or diminish are going to slow them downbut tariffs could could slow yeah tariffs are going to like hurt.Jason:
[57:31] Disregard the tariffs I actually said I I I I hedge there which I shouldn't have I I said they may.Scot:
[57:37] I I heard tariffs 100% you're saying though not the any tariffs.Jason:
[57:41] No no no I said they could be impacted by tariffs but they won't be impacted by changes to de minimis.Scot:
[57:46] Ah okay.Jason:
[57:47] Um but even tariffs aside I I just yeah I think it's going to be an a good year for Shen and tiemoue and even better year for Tik Tok shopsum, so prediction number 2 I'm just sticking all all Chinese retailers all the time now and this 1 In fairness I have to point out I wrote a week ago, and then Scott realized that he wanted to have the 123 date and so we didn't we didn't do the show this week but but so a week ago I predicted Tik Tok will not be banned in the US but the more important part of my prediction was Tik Tok shops will be the fastest growing retailer that does over a billion dollars in Revenue in the US in 2025so you could debate with, banned or not they kind of got banned for 2 2 hours but more relevantly they're going to be the fastest growing retailer in 2025, the the billion dollar threshold is just to eliminate tiny little companies that you know grow at some huge rate because they're tiny.Scot:
[58:47] Are we gonna how are we gonna measure that because they don't disclose have you found a good third party that does.Jason:
[58:52] No but a bunch of analysts will a bunch of third parties will follow them and I'll I'll do a aggregate of the the Morgan Stanley and and City Bank estimates of of their their sales.Scot:
[59:02] Okayall alone.Jason:
[59:04] All right all right and sometimes they they are it it's debatable if you should believe them or not but sometimes they the bite dance does say something, about their size in any case prediction number 3 a major auto manufacturer launches D to C offering in the US in 2025.Scot:
[59:21] Hm a major Auto okay it doesn't have to be a us could be any auto manufacturer can you count Tesla in this 1.Jason:
[59:29] No because they already are D to C.Scot:
[59:32] All right okay.Jason:
[59:34] So it has to be someone other than than someone other than Tesla has to have some real Sales Direct to Consumer bypassing the the third-party D or Network.Scot:
[59:43] So Hyundai is sung on Amazon but it's through the dealer Network so that would not count if they added like another 1 to that. Okay all rightwe're gonna have a feeling we're gonna have to come back and check some of these nuances because you can get a little slippery in your predictions Mr retail geek.Jason:
[1:00:00] Suddenly you lose 1 year and suddenly you're all competitive interesting umprediction number 4, retail media networks go through a major consolidation in 2025 so a lot of the smaller networks realize they can't, succeed on their own they don't have the success that they they thought they would have and in 2025 we start to see a lot of federations of multiple retailers, that are throwing throwing their Edge units together to try to get bigger volumes.Scot:
[1:00:30] And then does that mean so they're not going to like the retailers aren't going to merge but maybe there'll be some kind of a way for their inventory and sales teams or something.Jason:
[1:00:37] Their ad networks will merge yeah so you buy an ad for all the regional grocers in the northeast of just from Wegman's.Scot:
[1:00:43] Yeahyeah that 1 sounds like a pretty pretty logical 1 just kind of a question of when like the trick timing on these is always tricky.Jason:
[1:00:50] Timing turns out to be way harder part of predictions than you and I have each had a really wise prediction that we would predict 3 years in a row be wrong and then get tired of predicting it and have it come true, uh which is heartbreaking but so my fifth predictionI I feel like I might be, repeating tradition this was my bonus last year but it's my actual prediction this year who I streaming VR and voice Comm Commerce are all materially insignificant in 2025 no evidence that consumers care about green or purpose-driven brand with their wallets. So uh again this is because I get calls every week from reporters that want to do a article about how what a big deal live streaming is or or VR Commerce or how everyone has to have a green Mission or they're going to fail, and it's all a bunch of March so I'm chromogen me is saying none of those things are going to be a big story in 2025um, and then I did write a bonus again and the reason this would have been my fifth prediction but I actually couldn't figure out a smart way to measure it and so I I opted to not, not put it in there although debatably the the 1 I replaced it with is also tough to measure but my bonus is AI agents are the hottest Trend in Commerce and so we we talked about that in the in the NRF recap but I I I think the our agent space is going to be really really interesting and eventually very meaningful to Commerce.Scot:
[1:02:14] We should do a deep dive on on that we we're behind deep Dives every time we say deep deep dive we we haven't had time to do it but.Jason:
[1:02:20] Yes we'll make it happenall right so what do you got Scott.Scot:
[1:02:26] All right Amazon relaunches Alexa on a native element just kidding I'm I have a I have officially given up on that 1 sorry Amazonyep.Jason:
[1:02:33] Yeah so I'm grateful that you gave up because that means I have a chance of actually getting a better 1 this year.Scot:
[1:02:44] Okay on this 1 I think Facebook, is going to acquire eBay and put them out of their misery so eBay has been on this kind of like, painful decline I'm a I'm a huge eBay fan and it's been kind of sad to watch them like not keep up with the times and I was initially excited they bought a guy back Jamie I think it's his name is Ion or something like that and uh he he's a really nice guy and he was.Jason:
[1:03:08] In a way I think yeah.Scot:
[1:03:08] Category guy in a way and you know I just think it's like too big of a beast and kind of too far gone and got an innovator's dilemma problem all kinds of problems so I think Facebook buys it and they kind of merge it in with Facebook groups in some way and and Marketplace and to kind of figure out a way to to to re reimagine it as kind of a peace inside of the social network and you know and they probably get the ad piece and all the data and it. It it probably makes sense just.Jason:
[1:03:40] I love that I love that I also love that you call it Facebook and not meta.Scot:
[1:03:44] Yeah refused to um I think they're going to regret that they prior to do they're probably going to like change to some kind of an AI.Jason:
[1:03:50] I think that wasn't wasn't that my fifth prediction I think was that it's on yeahthe metaverse is material eiroa.Scot:
[1:03:58] Okay I'm going to redo I'm not going to redo my Alexa and I'm going to revisit the T-Mobile and I still think if your premise is like silly gamification and cheap junk that that's going to catch up with you so I think it's going to catch up with them this year, um yep so I have a you know specifically they're going to be down at least 25% year-over-year from 24 to 25.Jason:
[1:04:18] I love this cuz we violently disagreed so that'll be fun to watch again in my perspective Teemu possibly could be down but if they are it's because someone will be selling the cheap junk better than them not because nobody's buying cheap jump.Scot:
[1:04:30] Yeah just I don't know, all right okay this 1 may explain may take some explain so AI agents become a double-edged sword for retailers because a these agents can be a couple of things and.Scot:
[1:04:43] I'm a retailer, I think I'm okay with an agent like embedded on my site like my agent you know my my thing on my site my experience so I can draw I'm not sure I want the external agents, you know making me a back a headless serviceand you know especially if you're you and I know a lot of these retailers make, bunch of their money off you know the add-ons the, that they they almost don't if they were just became a transactional part of a hey agent I need to get dog food book a trip to La this that and the other they they start to lose money because a lot most most of not all their margin comes from the little things and it's add-ons it's you know all the little things and I think I think they they will that's the double edge so the prediction is, I think1, okay 10 10 the larger retailers will block them and I think it's going to be like the Amazons the Walmart's the targets those types of folks but I think the rest of them if you're a if you're a big 1, you're going to want to you're going to have enough power that you're going to want to block it and you'll be okay and again this is not the use case of its on your site this is like a third-party entity is using you as a, you know an endpoint for an agent to buy something um and then I think everyone else will will kind of Welcome them and and maybe even make it easier so it's going to be like a really weird, bifurcation for how retailers handle that that new thing.Jason:
[1:06:12] Got it yeah yeah no I totally get it, I mean yeah every everyone wants to be the AI agent no 1's to be a sharecropper on someone else's AI agenttoy get it like I I think for the fulfilling product I also think that's true on the data side by the way like the best agents are are they going to be the ones that know the most about your life and so you that would argue for interoperability right like the agent ought to be able to see read your Gmail and read your travel schedule.Scot:
[1:06:37] Oh I have a prediction on this too.Jason:
[1:06:38] Yeah oh okay I'll shut up on that then um but they're all they're all going to want to be well Gardens and be agents that only have you know are the only 1 that sees their data is how they're all going to try to win in the in the short run at least unless consumers make them change.Scot:
[1:06:52] Well there's a throwaway line in the I also I came very close to spending the $200 to get to the operator but I also showed some constraint yeah yes.Jason:
[1:07:01] You make me feel better about my decision I was worried you were going to say that's that's ridiculous Jason you should just spend money.Scot:
[1:07:06] When they're it's like they have they have a throwaway line in there and they're like oh an operator you know once you pay uh it will remember your payment information for next time and I was kind of like, wow you know that that that raises a lot of questions Jason and I have a lot to talk about when we play with this thing I worried like a lot of these companies.Jason:
[1:07:24] Going to we're going to leave the hose in your armtake more blood on it whenever we want it.Scot:
[1:07:27] Yeah is that piece is there a PCA compliant PCI compliance this thing's scraping me entering my credit card and like where is it storing it.Jason:
[1:07:35] Oh I'm sure I'm sure they have a bunch of adults that are super focused on PCI at uh at openai.Scot:
[1:07:42] I can't tell if that's.Jason:
[1:07:43] The same people that made sure they didn't use Scarlett Johansson's voice right.Scot:
[1:07:47] Yeah so I'm a little you know when I try this I'm going to use my credit card that that uh I use for these types of experience.Jason:
[1:07:55] The 9-year-old video game player say it's a little sus.Scot:
[1:07:58] Yeah it's totally Seuss there's no risk just riskless um, okay number 4 marketplaces have a new leg of expansion yay marketplaces into a variety of placesmaybe even 1 of the LMS get some religion around marketplaces, and then this kind of ties in you made this interesting point that there's connective tissue between marketplaces and RNs and I think what happens is all these people have rolled out our MNS and they're going to say they're going to pull all the little ad levers and all that jazz that you guys are doing the ad world with you know, ad units and number of AD units per thing and then they're going to it's going to slow down they're going to say Hey what if we had more products how do we get more products on our site because that's going to be more page views well what's leaning into marketplaces so I think we're going to see this another I think rmns are going to retail media networks are going to pull marketplaces into more places that maybe previously haven't done them.Jason:
[1:08:49] So is this specific prediction here then 5 major new retailers will launch a Marketplace is that what you're sayingoh awesome okay.Scot:
[1:08:58] Major would be like let's call it the top 200 or whatever you know yeah not.Jason:
[1:09:01] Suresure significant retailers yeah okay.Scot:
[1:09:05] If retail Geeks uh you know merch store rolls it out.Jason:
[1:09:07] I know I know a bunch of vendors that sell that sell Marketplace Stacks that that are just thrilled to see that prediction.Scot:
[1:09:13] Yeah the the miracle folks have done a good job.Jason:
[1:09:15] Exactly who I was thinking ofuh they have a lot of competition these days by the way.Scot:
[1:09:21] Yeah there's software is tough man.Jason:
[1:09:23] Yeah as you wisely predicted the SAS had its moment but it's pretty pretty will bear to entry these days.Scot:
[1:09:31] And then number 5 and this is just my phrasing but it should resonate with you personalization is out and you know, I call it memory so so some of these LMS you're using and if they see an interesting fact about you they'll say I've added that to my memory or they'll give you a prompt that says hey Jason I see you're talking a lot about your cat, I'm going to remember you have a cat okay, that type of a thing so so I do think that that's going to be where you know these things will start to ask hey if I had access to your Gmail just this 1 time and I knew a little bit more about you and that could be the types of products you've ordered your upcoming trips to your point your calendar I could make your life a little bit easier so we're going to start trading off this convenience for data and I think it, it's gonna be painful because it's gonna be stored probably at the LM level with 1 of the big LMS and it's not going to be cross LM so someone could figure that out, I don't know if that's to figure out but, it's going to kind of be stinky in a way because it will be a lock in because that lock in a convenience will make it relatively painful once you know lm1 knows all the stuff about you that your left-handed you have a dog and a cat and you prefer Pringles over let you know whatever your preferences are across travel all these different things that's going to be so convenient that it's going to be hard to break that and and it'll be hard to, extract them and make them portable and no 1's going to want to have them extractable and portable.Jason:
[1:10:59] Interesting yeah I think it's a super interesting point I think it's going to be fascinating to watch it all play out I'm not exactly sure how we'll be measuring this 1 a year from now but II like it, I feel like the answer though Scott is super simple if just every piece of personal data about all of us was just on the blockchain and anyone that we give permission to could just tap into all of it.Scot:
[1:11:20] Well said it had a coin if it had a utility coin.Jason:
[1:11:23] Yeah and the only problem is we need the power of about 12 sons to power all the the compute for all that but yeah.Scot:
[1:11:31] Well actually it's kind of funny that you know everyone was freaking out about crypto and power that's like that's a drop in the bucket compared to the AI power you asked chat gbt to help with your homework and you just like yeah.Jason:
[1:11:42] Take out a rainforest.Scot:
[1:11:43] 80 80 Bitcoin transactions I I don't know but like it's a it's kind of crazy.Jason:
[1:11:47] Yeah I have a lot of clients that ask how they can use generative AI to achieve their their ecology goalsreally.Scot:
[1:11:55] Uh yeahget a lot of solar panels.Jason:
[1:12:00] Yeaha lot of solar panels like planets worth um awesome yeah you have a bonus.Scot:
[1:12:06] Bonus and and you know you kind of I don't know if you count this in your replenishment kind of thing but but there's a lot of supply chain is hit kind of a, not a wall but there's some problems in there that are hard for humans there's a set of problems that start to get these you know multivariable Solutions kinds of things and some AI so a really good 1 a good analogy that may not seem like a good, connective 1 on the surfaces drug Discovery so there's these things like folding proteins and things to figure out a different drugs and how to develop them and if they're candidates for solving certain things, it ends up at its simplest in a computer science standpoint it's like, it's these uh 4 5 6 7 8 dimensional problems where you end up having these you know surface areas colliding and crazy ways and you're looking for they have lots of collisions in there that could be answers and you're trying to find the optimal.Scot:
[1:12:58] And that's a set of problems that that happens when you get a lot of complexity of of of the trade-offs become you know, hard to even enumerate like if I do this then this happens and this happens supply chain has a lot of that right like if I if Jason orders the product here and it goes it needs in Chicago and he waited a day he could have gotten this added to the box and that does this and it's that and the other, so so there's some really you know they're using both Ai and interesting ways that they're different types this is more like the Deep Mind type of a thing where there's a, there's a winner State at the end not a not a natural language kind of thing, another 1 that's really interesting and I've gone pretty deep on this and it's pretty crazy is we don't have time you know but I'll just kind of introduce the topic here within the world of quantum Computing you have 2 types of computers you have cubits which are going to be better and they're good for, you know doing crazy calculations in parallel and and stuff that we don't even 100% understand the other 1 is there's a this thing called Quantum annealing where you load, the problem into this uh quantum computer, and then you cool it down and then there's something about the quantum nature of it that it goes right to the low point it finds the answer relatively quickly or a set of answers that are you know are almost guaranteed to be 1 or 2 of the the, the optimal answers so uh I've actually talked to people that are like looking at this in supply chain and and trying to figure this kind of stuff out and that's going to be interesting like it could be.Scot:
[1:14:21] You know right now we're getting like 1 and 2% kind of things out of supply chain but maybe we get like a 5 or 10% off something like that so.Jason:
[1:14:28] Scot I love that you found a way to work Quantum cubits and a kneeling into what minute 1 hour and 18 of the puck.Scot:
[1:14:36] It's a little bonus for the people that stick around you got to give them got to give.Jason:
[1:14:40] No no no I will I will say, it's super interesting and I like the the the very early versions of this kind of stuff is already showing up at at in the NRF vendor so there there are now like people have moved on from these kind of like, like Old School Ms to we'll call it a supply chain or order orchestration so instead of like, new Legacy systems to do these things like interoperability of all these disparate data sources to, to be way more efficient and so the you know there there were vendors like next nextuple or pipe 17 at interf this year that are already using AI to optimize supply chain in ways that you know humans couldn't see or understand which is pretty cool.Scot:
[1:15:22] Awesome well if you stuck with us this long listeners we appreciate it and that's uh before you go to bed start learning about Quantum and kneeling and then we'll uh we'll do a deep dive if there's enough demand.Jason:
[1:15:32] Yeah yeah we'll have a question and answer show in the listeners can explain it to us um, it's got its we we say it's happened again that we've run out of time but that was 15 minutes agoso we've blown way past time everyone complains that we have been publishing enough shows so be careful what you wish for, as we we hit some almost epic choir length podcast this week. Always a lot of fun talking to you I think the predictions are super interesting I'm going to cherish my rare annual win for at least the next you know 2 or 3 hours, and sure appreciate everyone sticking with us as always if you find Value in this show jump on iTunes and give us that 5-star review the AI robots love the 5-star reviews our corporate our our AI overlords are going to want them.Scot:
[1:16:21] Yeah congratulations Jason on the big win it's 10 years in the making you finally finally got 1.Jason:
[1:16:27] I might I might have a future in this industry after all and until next time happy Commercing! -
Mangler du episoder?
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EP322 - 2024 Holiday Recap
Episode Summary:In today’s episode of the Jason & Scot Show, Jason and Scot recap the 2024 holiday season, and give a preview of the upcoming NRF Big Show.
The week of January 20th, we'll be publishing our annual predictions show.
If you enjoyed the episode, help us reach more listeners by leaving a five-star review on Apple Podcasts. Thanks for tuning in!
Episode 322 of the Jason & Scot show was recorded on Wednesday, January 8th, 2025.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript Jason [0:23]Welcome to the Jason and Scott show this is episode number 322. Being recorded on Wednesday January 8th 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 Json is Scott showed listeners happy New Year Jason. Jason [0:45]A happy New Year and happy holidays Scott it's it's been a while it's been it's fun to catch up. Scot [0:50]Yeah you're kind of crummy when do you start giving people a hard time for saying Happy New Year I I was kind of a little worried because I was thinking I bet Jason draws the line at third or fourth of January and here we are on the 8th so I feel like. Jason [1:05]I accept all all well wishes I'm totally merry Christmas happy holidays as long as you want any of those variations are totally acceptable despite the fact that I'm nominally Jewish. And I'm New Year's at least through January my lights are still up out front. Scot [1:21]Okay good I'll I'll try to for the Valentine's show I'll make sure I don't say it that though I'll stop from there forward. Jason [1:29]If it helps people not judge me I think my Amazon smart plug is broken so I think the holiday lights might not be on. But they're still out there it's too cold to go out and get them is the problem. Scot [1:41]Yeah yeah you and I both went warm places for the holidays so that was good because I think we're both facing a cold spell here and I think actually here in North Carolina we may get snow whereas in Chicago you're not going to isn't that weird. Jason [1:56]That that is super weird even if we're both getting snow I'd be a lot more worried for you than me because I feel like we're we're a lot more used to it but yeah it's even weirder that like it's not not snowing here and you guys are going to get get dumped on. Scot [2:11]Yeah yeah we're just going to shut down and hopefully we don't lose power, the so it's been a while since we laid down a pod there's a lot we could talk about any any trip reports you you've been super busy you've done some vacationing but you grocery shopped before the break and then we definitely want to talk a little bit about holiday to kind of go through some of the tea leaves that are starting to come out on how things happened let's start let's start with a trip report anything interesting there. Jason [2:38]Yeah so at least anyone worry I have been traveling a lot I just got a note from my my favorite vendor United that they've invited me to their secret. Highest status program for for another year and this year I'm going to cross 2 million miles with United so um. Yeah I feel like that I had mixed feelings about that like it's a a cool accomplishment slash it kind of signifies that I have a sad life. Scot [3:05]And it's like congratulations all you do is fly would you like to fly some more. Jason [3:10]Yes and the general answer is no um so I did do a lot of traveling last year there were a bunch of trips running right up to holiday but, but a lot of them were sort of Private Client gigs more so than, industry events and I've been on 2 weeks of vacation so I frankly can't remember where I was right before those but the Big Show of course that I don't think we talked a lot about was was grocery shop which, isn't you know focused on the food restaurant and grocery industry in October in Las Vegas and that show continues to get. Bigger and better longtime listeners of the show will know kind of I talk a lot about how. Every industry is getting wildly disrupted by digital just not all at the same pace so some of the you know first categories to get disrupted. Digital where things like like Borders bookstore and Blockbuster video and then Circuit City and Toys R Us and the gap. Jason [4:08]And that at the moment it's the Auto industry in the grocery industry that are getting most disrupted by digital so I feel like grocery shops are particularly interesting show because, in many ways that's where all the, the rapid Evolution and action is in the in the digital space so it was a a good vibrant show and. 1 of the things I'll I'll give props to the show organizers for is you know they always get good Keynotes they always get big names on stage but they share more so than many years in the past I felt like. A lot of the Keynotes had like actual interesting. Information and insights in them it was less like sort of CEOs giving the the prepared PR. Can speech and more talking candidly about what was working and what wasn't working and and you know what the priorities were going to be and what was being deemphasized in the future so I I would just say overall again it was back in October and we're in January now so. Don't press me for for a ton of specifics but I walked away. Feeling like there are a lot of useful takeaways and of course like all the all the networking and hallway conversations were were super helpful as well. Scot [5:21]Cool were you leader of any sessions. Jason [5:25]I was as per all of these events I'm I'm wildly Overexposed and so I I both presented a session I also moderated panel. The like I probably can't even remember exactly who was on my panel so. Scot [5:45]It's been a long time you've got you've got vacation fog we'll give you a. Jason [5:47]I do I do I'm gonna call it vacation fog and hope it's not dementia but yeah. Scot [5:53]Yeah and then on the holiday recap we kind of have to wait that first week of February last I looked is when Amazon's going to announce and then right after that I think you got some Walmart and some of the other folks Target and whatnot kind of put out their data so we won't really know what happened until we get some of that but several of the folks that do pontificate have some data out did you see any data that was interesting that you want to run through I I I saw some of the Adobe stuff I was going to just run through. Jason [6:21]Yeah well so maybe I'll just wait the groundwork a little bit like so again there's. In general we see 2 kinds of data like there's people that talk about what happened in retail which is all all of retail so it's brick and mortar mixed with eCommerce and then there's people that just talk about digital so I know you're going to jump into the Adobe 1 which is, exclusively talking about e-commerce, but of course a long time listeners of the show would know you know the history of the last 10 years is that retail tends to grow about 3 to 4% a year, and e-commerce has grown about 10 to 15% a year for each of the last years so 2024 is an interesting year we you know it's still a week or 2 before we have the final data for the the whole year, but with 11 months of data. Retailers slowed down a little bit like it's growing closer to 3% than 3 to 4% and e-commerce has slowed down it's grown about 7% this year versus the typical 10 to 15% and. Jason [7:22]You know it could be that this is a down year it also could be the law of large numbers as e-commerce is getting you know to be a bigger and bigger part it's hard to grow as fast so it's e-commerce is still growing at more than twice the speed of retail. But that's that's a smaller Delta. Then it has historically been so that's kind of the the backdrop coming into this holiday and then this is 1 of the weirdest holiday seasons of my career. So traditionally what we always talk about is. There's an arms race to start holiday earlier that like you know retailers used to open up their stores on. Black Friday the day after Thanksgiving and they were creeping earlier in the earlier in the morning on Friday originally when I started my career they opened at 10:00 the normal opening time and then they're like wait I'm going to open at 9:00 and get people to get in the line of my store before your store and then I'm going to open at 8, and then retire starts saying hey we're actually going to open Thursday night after dinner and then oh we're going to be open all day Thursday, and fast forward 30 years hey we're going to run our big Prime day sale in the middle of October right and so, every year we talk about how holiday starts earlier and earlier and these sales start her early and earlier but here's the Dirty Little Secret. Jason [8:39]The retailers may offer deals earlier and earlier but consumers have never spent earlier. So if we look at October sales growth it's the same every October for the last 30 years so I get it has it it's not like October has become more important over time as these sales have gotten early and earlier and so when. Amazon announced a huge sale in October and Walmart and Target quickly followed suit I actually. Kind of thought it was a nothing burger like I I didn't expect it to have a big impact and. I was wrong so October is actually been 1 of the most robust months of growth we had this whole year like it was a big spike much bigger than we had any other month. And I thought oh man that's interesting like these these sales really are having a meaningful effect this year. But then we got into November in the first 2 weeks of November were abysmal. And so you go huh we we had a bunch of big sales in October it appears people jumped on those sales uh we sold more stuff in October than ever before but we probably just pulled a bunch of demand in that would have happened in November because. Jason [9:47]The beginning of November was awful and so then we got to Holiday the turkey 5 week and you go well what's going to happen is it going to stay soft like it has most of November but it actually bounced back and so we had this, we had this low from November 1 through November you know 26 and then, it jumped up and we had a pretty robust not not like World beating but a pretty robust turkey 5 and so then you go wow you know and by the way the turkey 5. Extended into December this year because of the the way the holiday schedule works, um and then we've all been real curious to see what would happen in December and the real answer is we don't have the December data yet we have a couple data points so. Jason [10:30]Market MasterCard spending pulse. Is 1 of the companies that publishes an estimate of total retail sales and they published an estimate of November 1st through December 24th so not catching the last minute holiday shoppers, that said all of retail for November and December was up 3.8% so if that's true. Will take it that's that's the industry average growth that's the high side of the nrf's forecast for holiday this year and it, would kind of mean that that, December sales were pretty robust to make up for the kind of anemic November sales so so that's, the big data that I followed about overall retail and then you know we have some better more granular data on the e-commerce side and that that's where like that adobe data comes in so you want to you want to break that down for us. Scot [11:24]Yeah it's kind of interesting as you as you talk about you know kind of pulling it in October we we always talk about the shape of the holiday right and we used to have kind of this you now as you described it it sounds like a w where the the left side of the W is like that October Spike and then you had a little decrease in early November and then the turkey 5 you come is the middle of the W and then you come back down and then we always seem to have this procrastinator kind of pop at the end I don't know about you but I I fall into that for a lot of my things I'm kind of like I get busy at work and I'm like, holy cow it's December 18th I better think about this holiday thing so you always see a little bit of a spike and some of that's driven it's kind of a self-fulfilling prophecy because that's when all the best prices happen there's the you know the Garff used to call it. Turkey chicken game of chicken discount chicken do you remember that. Jason [12:17]I do I do. Scot [12:18]Yeah I saw he changed jobs that was you're not going to be able to do selfies with him anymore yeah Rob gar. Jason [12:24]Going to do selfies with Rob and I, uh NFS coming up in a few days so I I hope to see them and we'll for sure take a selfie but you're right Rob Garff a long time friend of the show and I I want to say 4 or 5 time guests left Salesforce this year so a big big change he was kind of, face face of Commerce at Salesforce for a long time. Scot [12:42]You have to give us a an inside scoop of what's going on there it reveals secrets you get from the show on our podcast, okay so on the Adobe data, you know they they they call this November and December and they're saying online came in at 8.7% year-over-year growth which to your point is kind of below that 10% where we've been going. But we're getting to a scale where it doesn't surprise me I I think ultimately the lines for retail and online just kind of merge and blend and kind of become the same thing they did say that Shoppers they called it event based they were waiting for events which were basically price drops and they were kind of I guess they don't want to say discount chicken maybe that's not as uh fancy so they called them Event Event based shopping. Jason [13:29]Yeah and if you think about it was invented by their competitors at Salesforce so yeah. Scot [13:34]Yeah oh true yes sorry wrong uh wrong 1 and then this I thought you I thought interesting and it basically said groceries was the fastest growing at 13% so I guess with inflation people were just gifting groceries or or did groceries are just growing fast enough now that you know that's just faster than the holiday what what's your read on that 1. Jason [13:55]Yeah well a couple of things so like when when if adobe's right that it grew e-commerce grew 8.7% over holiday to me that's that, totally makes sense and put your point it's lower than what we would historically expect but it's actually higher than the year to date averages for e-commerce so e-commerce is growing about 7%, through the you know the whole first 11 months of the year so growing 8.7% over holiday actually means. Jason [14:26]E-commerce was a more important factor in Holiday than brick and mortar which I I believe and think was true so that that was kind of my first takeaway from the Adobe data and and as I mentioned, you know there's some really mature categories in e-commerce I mean you know 90 something percent of all books and music is is digital now right like you know well over 50% of electronics and toys. Jason [14:50]Our digital 50% of apparel is digital but. You know less than 8% of groceries are digital so it's still it totally makes sense that grocery e-commerce is growing faster than anything else I don't think it's gifts. Although you know people host a lot more over holidays so they do spend more on groceries than usual. But I think it's just reflecting the the fact that we had lots of busy families that were availing themselves of the convenience of grocery delivery. And you know another Factor overlaying all of this is we we've had this kind of thing that I like to call A vibe session this year that. Consumers have really curtailed their spending on non-essential purchases so when you break down the actual categories uh all year people have spent a lot more on deeply discounted goods and on food and have to have and they've spent less on want to have so you know consumer electronics it's actually been a poor year a parallel you know has been a little mixed but generally a poor year Home Improvement has been kind of a poor year. Jason [15:58]But you know these these have to have categories like grocery have been 1 of the stars all year so if you kind of factor in that, you know people have tended to spend more on grocery just in general and the e-commerce is a you know more substantially growing part of of grocery than it's ever been before it makes sense that grocery would win the e-commerce race for holiday. Scot [16:23]Yeah interesting. Then they said this the so groceries number 1 at 13% the number 2 category was Cosmetics at 12.2% I think the Wingo household contributed a. A pretty big piece of that, I go to Sephora a lot against my will and then they said that category hit 7.7 billion and then they pivot into discounts they made this quizzical statement where they basically said retailers discovered that for every 1% price drop demand went up 1% being forces I was like well let's look at the edge if you dropped 100% demand would go up 100% it seems like demand would actually go up more if it was 100% off anyway I didn't really understand what they were trying to say there it's it and it made it seem like it was just like new revelation I'm like wait a minute this is called. Supply demand curve and I learned it in economics anyway I must have misread it or something I didn't kind of like grow what they were trying to say there. Did you did you have a hot take on that 1. Jason [17:24]Well just a reminder most of the people that were good at Econ economics like don't get jobs at Adobe so I I would just remind you of that but no. I'm just kidding all my friends at Adobe who are super smart um the yeah I. Of course like lower prices generally drive more sales that that certainly true it's probably not a linear scale I think they're more saying like observationally like on their data set that it happened to play out this year that that there was kind of a linear, who asked the city between price and demand but the my bigger takeaway is I think. Jason [18:02]This was a highly promotional holiday period right and this was kind of expected I mean again overall 2024 was a soft year in retail. We we just we'd had a couple really good years after the pandemic of of really strong growth and this is going to be kind of a. You know we'll be lucky if we get to out to an average year it's probably going to be a below average year of growth and, you know there are all these extraneous factors like you know there's there's positive and negative economic indicators but the consumer confidence has been really poor they're they're only spending on Essentials they're all trading down to cheaper Goods so you know more discounted goods and value Goods, and there was a super polarizing election that you know distracted a lot of people and it was the shortest holiday season we we get on the calendar with fewer days between Thanksgiving and Christmas than we ever than we get any other year. And so for all of those reasons retailers were desperate to sell stuff and what desperate retailers do is they discount deeper and so what we always worry about in these kind of years is that retailers will. Jason [19:11]Go deeper discounts to kind of hit their Topline sales goals and clear out their inventory but it actually means that their margins, are going to be really poor and that's 1 of the things I really worry about this year is, I think when all the dust settles we're going to find out it was a below average to average holiday season but way below average on profitability right and that's going to have a carryover effect in 2025. Scot [19:39]You know that's what's really matters right you know you can sell the Top Line doesn't matter it's the basically the profitability. Jason [19:46]Bonus on the top line. Scot [19:47]True but I have a feeling the more sophisticated people are are the kind of caught on to that trick they talked about Electronics was the deepest discount to your point of demand being kind of sluggish at with a 30% off there and then toys was number 2 at 28 toys is just a. Terrible category these days because kids don't really want toys they want to just play electric electronic games we're talking about. You can't climb baby geek anymore but you know uh. Jason [20:15]The little geek we're going with. Scot [20:16]Little geek retail geek Junior. You know he's into games and wants digital currencies and stuff the good old Roblox dollars and and whatnot so yeah it toys are just tough so that that 1's kind of an easy call at 28% and then they said apparel had a fair amount of discounting to 23%. So I thought that was interesting traditional Trends we've talked about for. Kind of going on a decade at this point you know this may I hope you're sitting down but a lot of people shop on their phones that was up to 55%. Another call out I thought was interesting was they they saw a buy now pay later a pretty significantly at 9.6% year-over-year and you know. It's hard to tell if that's kind of a new consumer Behavior or there's all this data that's out there that shows the consumer's kind of increasingly Under Pressure they're they're starting to get a bit of a debt thing going and. Interest rates going up have made made home buying slow down all those kinds of things are putting pressure on the consumer so, it's hard to tell the buy now pay later people would tell you know it's a whole generation likes to buy that way I'm a little skeptical that maybe it's just the you know part of the the consumer being under pressure that saw a climb there. And then they on that they said Cyber Monday was a record day for buy now pay later where it it came very close to a billion I guess 991.2 million of transactions had buy now pay later. What do you think is buy now pay later surging so is that about. Jason [21:45]I do think it is I I do think it's it's kind of a combination of 3 things like I do think it's legitimate that that younger consumers look at debt and credit differently then then older consumers and and so I there is a legitimate thing that's hard for people our age to understand which is like even consumers that you know young consumers that have economic means to buy something. Don't like to go into like debt on their credit card and they do view these like fixed installment things where you you know buy something on 4 payments as. Jason [22:22]Is a different kind of debt than credit cards and so I do think there's an actual consumer preference for younger consumers to, that credit vehicle so I I think that's what genuinely part of it and the buy now pay later Services continue to grow and be more ubiquitous so they're just offered, more places more retailers have them and more retailers are offering them both online and in store than ever before so, so there's more places you can use it and there's more consumers that have a preference for it that's part of it I also think, there were more distressed consumers coming into holiday so there were you know more consumers that were forced to use it and the the thing that I don't love for the economy and that scares me about these services, are some of the really inappropriate categories, that consumers are using buy now pay later for right like if you're buying a durable good and you you buy it on installments and you know that like we could argue about the economic Prudence of that but I I don't personally have a problem with that. But if you're buying a monthly consumable on installments. That's concerning right so you know you shouldn't be buying food on buy now pay later right and yet like buy now pay later is showing up and getting used at grocery stores. Jason [23:33]The that you mentioned Cosmetics are up Cosmetics is 1 of these weird categories where there's been this bifurcation. There's some inexpensive Cosmetics that are kind of an affordable luxury and they're doing really well, the the true expensive luxury cosmetics and the whole luxury category we saw get really soft and Q4 this year and historically, luxury is the category that survives economic downturns right because you know more fluent people tend to be. To be more resilient but this time around we have this kind of it's It's a negative vibe as much as it is an economic factor and so even a fluent people are like, don't feel great about the economy I'm going to cut back on my spending and so luxury overall especially in the United States. Jason [24:18]Got really really soft but buy now pay later got used a lot for like consumables like lipstick and things like that so that's a a little bit of a, a worry and so I I think you've got kind of and then the the third factor that I think helps buy now pay later is, people don't like pulling their credit card out of their wallet and typing it into an e-commerce site it's just a pain in the neck and economies that have digital wallets like China sell a lot more stuff online than econ then economies that don't have big digital wallet penetration, and so for some American consumers, PayPal and Shop pay our digital wallets for some American consumers Amazon pays a digital wallet but for some American consumers a firm is a digital wallet and so there is a, lower friction more convenient checkout experience that that you know I'm not saying it's the biggest part of buy now pay later but it's another incentive that some consumers have to use it so I think, the combination of those 3 things. Jason [25:18]You know younger consumers with different attitudes about credit consumers that you know are buying stuff that they don't necessarily have the cash to pay for and consumers that like the convenience of. Of the buy now pay later checkout flow all are helping buy now pay later continue to grow for the moment and we'll have to see if that. That carries forward but it's definitely a big thing. Scot [25:40]Interesting the other data and I know you love this is from MasterCard spending pulse and they said retail X Autos was up 3.8% and that was kind of they had a couple other things but I know that that 1 has not 100% tracked the the Commerce Department data that that is the gold standard. Jason [25:58]Yeah yeah so it's weird it it it should be a really good data source all all of these data sources are dubious right like the only. Jason [26:06]Economic indicators are really care about are the public retailers earning statements right because those those are like audited um and and you know. Tend to be pretty reliable although although Macy's had a glitch this this last quarter that was kind of interesting. The the retail earnings reports are are are pretty credible all of these estimates the the US Department of Commerce data I I'm deep in that data I use it all the time I find it really helpful but you know it's it's very flawed at best and then most of these other data sources are more far than that so so MasterCard data is, a big panel of credit card users right and MasterCard has a lot of users so it it should be a good data set. You know there's a lot of people that pay with cash and so the the MasterCard data set is skewed and the economists at MasterCard would say they normalize the data to reflect All American spending even though they only see a subset of American spending, but I have to say historically of all these data sources I've seen the most fluctuations in mastercard's data versus everyone else's so, they're the only ones that have put a flag down for December and they're saying it's 3.8% which again would be decent I hope the other data sources they will get next week come in and are similar but I I'm. I'm not prepared to to say I'm very confident at this point what what the December numbers are going to be. Scot [27:33]Yeah what was the I missed the Macy's flood what was that all about. Jason [27:36]Where like a week before they they were scheduled to do their Q3 earnings call. They acknowledged a massive fraud by an employee in their accounting department and had to delay their earnings and restate their earnings for the last several quarters. Scot [27:53]Wow holy cow that's a that's a pretty material fraud. Jason [27:58]Yeah yeah and yeah you never that's never a fun message to give to the market and then you know of course. Meses is in a really challenged category department stores just aren't doing well and are generally declining and so you know odds are we're there and they did you know come out with a soft earnings report, you know that there's a couple favorable things in it but the top line is is that they're shrinking. And you know that's bad news just anyway and then when you have to you know taint it by saying and we're not even sure that that that all the all the losses we've reported the last 3 quarters like aren't even the full story it's it's it's. Investors do not love that. Scot [28:37]Yeah that's terrible all right 2 other topics I want to talk about we have NRF coming up and you're going to be attending for the Json and Scott show where do you expect him to see there. Jason [28:49]Retail media networks and AI I think everything is going to be a retail an AI driven retail media Network. Scot [28:56]Some combinations of the letters a r m n i looks like a uh Wheel of Fortune kind of thing. Jason [29:03]Yes and generally I throw up in my mouth every time I hear either of those acronyms so it's kind of it'll be a super pleasant pleasant week we. Scot [29:11]Well I can't wait to hear your show report. Jason [29:13]Yeah I have approximately 10,000 emails in my inbox right now which are you know from someone that wants to meet at NRF that is inviting me like today. Despite the fact that my internet schedule booked up about 3 months ago. To see their new Innovative AI driven retail media Network solution to that's going to revolutionize the retail industry. That's that's the exact extent of the pitch no more detail than that. Scot [29:40]Do people say as the chief digital Commerce retail payments officer at pubis do you have any uh are you interested in e-commerce in in retail Solutions you must get the craziest email. Jason [29:53]Yes exactly yes whenever they do that exact pitch I know it's from you. Scot [29:59]Yeah for those of you that see Jason make sure you give him a hard time about his title that's it he he really enjoys it it's the only thing that brighten his day and being pummeled by the AI and Retail. Jason [30:11]It it does because every time I hear it it makes me think of Scott and and Scott Scott is just 1 of my happy places. Scot [30:17]That's nice, 1 thing I saw in this kind of came from my you know so so I do investing here in the Research Triangle Park area in a bunch of startups and, you know AI you're going to do this but AI gen AI to be specific and you know the the change in consumer behaviors from that are really fascinating so a lot of these folks that Source deals and they're trying to you know do lead gen by emailing you constantly, no none of these companies you're not in their target but they they do send out a lot of cold emails. Scot [30:50]None of that works anymore except LinkedIn which is kind of odd because I get so much LinkedIn stuff I can't even hardly use the messenger. But anyway and then the other thing they said is content strategies under a lot of pressure because, the amount of traffic going to these these blogs and other kind of you know content you put out there hoping to get some inbound interest is kind of falling off a cliff and you know I talked to a couple of them and dug into it and and then I started poking around back into our world of retail and e-commerce and and started to see some interesting things. Scot [31:21]You know number 1 what you're starting to see is SEO is changing and you know search engine optimization because Google largely dominate search with like let's call it 80% share and you know it's been pretty well known how the algorithm Works they do tweaks and things and whatnot but it's generally well known with patreon and all that stuff for for decade now or decades, but what you're trying to see is enough traffic is starting to go through openai perplexity and some of these things that and it's pulling the content up a layer your site your content that you put out there may have been part of the answer but you're not getting the traffic anymore and therefore people aren't seeing the form to generate a lead or you know oh my gosh this this is a vendor that can offer me a solution to problem X on researching so so that's interesting and then I I noticed in that same Adobe report that kind of had this little little call out where, they said and this is a quote 1 of the newest factors nudging spending is AI powered shopping assistance such as chat gbt and its competitors traffic to retail sites that came from gen AI powered chat Bots, shot up 1300% 1300 percent compared with a year ago holiday season now I'm sure it was small last year so maybe it was like 5 people in this year it's like you know. Scot [32:41]What's the math on that 1 6000 but you know just relatively that those kinds of numbers, but still I thought it was interesting that we're seeing it over in 1 part of the world and it it's definitely kind of forming over on the e-commerce side and then, a lot of it is Shoppers are now turning to that technology for gift ideas and for you know kind of what you would call the research and and maybe a little bit of finding the product but we've got this research you know what do I want to get, Jeep this guy named retailgeek he's hard to shop for certainly not a gadget because these are get 10 of everything and they're like how do you find find narrow it down and find it and then. What's the best format to buy it in so that that kind of top of the funnel it seems like a lot of consumers are using that and I thought that was pretty interesting and the quote from the Adobe dude was you have a consumer that's a very strategic and thinking a lot about their strategy around where they're buying when they're buying what's offering the best deal and then that's where they're using gen AI the assistants are helping the consumer and co-piloting that Journey so I thought that was interesting and then right before after we did our last pod but right kind of towards the end of the holiday I saw several articles but this Business Insider 1 was like a good Recaps where. Scot [33:54]You know there's been such an explosion of stuff out there that is increasingly hard to make a decision so there was this 1 article November 4th willing to it in the show notes and it basically was this couple trying to buy a mattress and they were just or a bed frame and they literally spent like 8 to 12 hours and just gave up they just kind of felt like it had become their job and I I do think that's kind of happening it's like it's so hard to find stuff in it I had this problem where I needed 1 of these you know dumb little dongles for my second HDMI thing for my camera and this 1 died and I had a webinar in 3 hours and I do Best Buy I had 1 but it was the 1 that's far away from me so I had to like find how instacart so then I had to back into instacart tell it. Scot [34:38]Work address and then I went to work to pick it up and like you know seems like all this stuff is out there but the you know the the consumers are just having a hard time parsing through it all so it it's going to going to be interesting to see next year I think we're going to find perplexity has some shopping features we talked a lot about chat GPT has to be working on it, Google Gemini has some really cool stuff that I've been using their deep research and and if it was shopping capable uh they also put out a paper about agents that actually kind of has a shopping agent little placeholder on it, travel agent you know so you could see them kind of turning Google shopping and Google travel into little agent things that go do stuff for you somehow or at least give you some information it's going to be really interesting to see how this changes e-commerce because the consumer, feels a pain point and they want wanted to change but I don't know what it's going to look like on the other side what what do you think about all that. Jason [35:33]Yeah yeah well so I I I think you're right I think it's complicated because AI is both an annoyingly overhyped buzzword that I'm sick of people AI washing everything and expecting it to sound interesting. And simultaneously I do think that there's there's a ton of AI use cases which are, totally disrupting traditional business processes all across the the Commerce ecosystem and and I think that this, kind of the idea that you started to touch on this idea of AI agents and you know people not having to go shopping for stuff and find stuff and do research and just have the the robots proactively solve shopping problems for you before you know you have them. I I I'm not going to say oh that's for sure the future and and all stores are going to go away, but I think there's a very high likelihood that it becomes a meaningful part of the consumer's tool set and I think it's going to be wildly disruptive so, I don't think it's, it's there yet and I so I don't think it's economically meaningful at this point and so in this Adobe data I feel like is a little bit it's ironic like it's it's they're kind of SEO keyword stuffing when they're implying that SEO is going away. Jason [36:51]But the, I I think it's a you know a very small number of people were using AI chat Bots last year and now 13,000 you know 1300% more which is still a very small number, but I think bigger picture we used to all discover products, at this place called the retail store on a shelf and now a huge huge percentage of Discovery happens at this thing called the search engine right and and you know 15 years ago that would have been unimaginable how important Google would be to the to the the shopping process today and increasingly I feel like that that search traffic is under threat part of it is from retailers with better databases so you do the search on Amazon or Walmart instead of on Google part of it is, then I would argue the biggest most disruptive part is on social that you're discovering new products to buy on Tik Tok instead of on Google and, you know it's still tiny but an increasing number of it is happening on these AI platforms and this is even really before the AI agents have rolled out like what happens when there's really powerful AI agents built in the series and Amazon and Gmail and they're all plugged into every email and text message we get. Jason [38:07]You know what what's the world going to look like then you know I think this is the disruption that we're all living through right now I think it's really hard to predict, exactly how it all plays out but I think you know if you're in the space you need to be paying attention to this and you need to be contingency planning you know how you're going to be good at all these things and what you're going to do you know as these things do become meaningful because I think it's entirely possible that, AI agents are as important to Commerce in 10 years as Google is today as the store shelf was 15 years ago. Scot [38:42]Yeah and what's it mean like to all your, all this front-end stuff when the e-commerce basically kind of was like headless Commerce but with a you know you're not putting a you're not building any front end there's just like the front door is now the. It's not even API it's like some kind of a a genetic thing that's like calling into the API and doing stuff like hey you got 1 of these uh what's your price okay I'll order 1 of those it's going to be it's going to be tricky because a lot of the things that add a lot of extra margin like check out add-ons and you know recommended products and you previously bought this all that stuff. Maybe it goes away in that world and in some extent so it's going to be I guess retailers are going to have a hard choice to decide to even want to participate in that and you know because in the early days. I remember like the Twitter's been at this like 6 times they've tried to have e-commerce and they always try to bypass the checkout and that's kind of like what perplexity is doing and you know you can imagine a bunch of retailers. Like I think it's 1-800 Flowers they get so much from all the upselling that they do that you know maybe there's certain sets of folks that just kind of opt out of that world but then if your competitor opts in what do you do it's going to be interesting to see what happens here. Jason [39:59]Yeah no and and 1 version of that is already happened like. The when I say we used to discover stuff on the Shelf we used to put a lot of stuff you didn't know about on the Shelf next to the stuff you wanted right, and you made all these unplanned purchases you made all these impulse purchases do you know what the most profitable real estate is in a grocery store it's the cash wrap. It's the the the Widow refrigerator that has 1 can of Coca-Cola that you can buy right as you're checking out that you drink on your way home from the, the the Kroger store, or the the mints or the gum that you didn't think you wanted that you decided you you had to have while you were standing there that those impulse purchases were a huge part of retail and when. Grocery has gone a digital grocery you know what nobody's buying on digital grocery single single cans of Coke or gum. Scot [40:51]Yeah yeah. Jason [40:52]Right um those those impulse items like nobody's figured out what the digital version of those impulse items are right and and you're you're absolutely right when when shopping goes from implicit I have to build a list figure out where I'm going to get that list, proactively go give someone money and then get all those things, to implicit like all the stuff that I need to run my life just magically shows up in my pantry and I don't have to lift a finger or ask anyone. Jason [41:18]Tons of opportunities I had to upsell and influencer brand selections, and you know Drive impulse purchases are going to go away and some people will see that and say doesn't matter if the future that's where I got to go and they'll embrace it and other people will say no I'm going to hang on to the old model as long as I can right and that that happened in retail too do you know who 1 of the greatest retailers is in the modern era it's Costco they're amazing do you know how much Costco loves e-commerce, they freaking hate e-commerce right like they they say on their earnings call why would I ever encourage someone to go to my website when they'll buy so much more stuff if I get them into my store right and so they're they're 1 of the biggest laggards in digital Commerce because, they're so good at brick and mortar and, like we're likely to see some of those same same kind of companies you know resist moving to AI agents or social commerce or you know what whatever things comes next but these are all the. The disruptions that are playing out right now right and it's it's super fun. Scot [42:24]Yeah yeah well guess what Jason it's happened again. Jason [42:29]We've wasted a perfectly good our of our listeners time. Scot [42:33]Yeah yeah and uh I meant to mention it at the top of the show but we were going to do our predictions but 1 of us which was me did not get a chance to work on them so we're going to make this a 2-part so we're going to this is kind of the the wrap the 24 w and then we're going to do our prediction show next time when Jason gets back from NRF and he's going to have an amazing trip report with with lots of Garff gossip. Jason [42:59]Yeah and here's the good news if you are going to interfere in New York this week I I leave Saturday I come back the following Thursday and you are a planning on on attending, any event or content at NRF, I will see you there because you talk about Overexposed I think I'm on stage like 8 times at at NRF this year so I owe so many decks that I haven't done yet. But it it's going to be fun I'm looking forward to seeing everyone I think there's going to be a lot of interesting stuff that you know it's going to be a real vibrant exhibit hall with a lot of new, new exhibitors there's an Innovation Pavilion which is always super interesting which is you know where a lot of startups go and and there is going to be a bunch of good content, it all wraps up on Tuesday I'm doing a session on the big stage on Tuesday which is kind of going to be fun it's like a point Counterpoint debate. So a good friend and way smarter colleague of mine Christine Russo and I are going to be on stage and a bunch of our our friends in the e-commerce industry have sent in video questions and Christine and I are going to debate. The the pros and cons of of each of those questions and so I'm desperate for people to go to the show attend that Tuesday session and route for me because I think, there's about 10 Christine fans for every Jason fan. Scot [44:18]The Jason fans are small But Mighty stuff well uh they'll be allowed loud and proud. Jason [44:22]My my wife and son are both going to root for Christine I'm just saying um so any any any help I can. Yes anyhow if I could get his appreciated but so yeah so so interest is going to be very fun but busy. And I as Scott alluded to I have already written my predictions for 2024 I do reserve the or 25 got to get better at that, I do reserve the right to update them if I learn anything new at NRF so so maybe the fact that we're doing the prediction show after NRF this year will give me a chance to to be slightly more accurate than I've been in the past which would not be a bad thing. Um but hopefully. Yeah you got some value out of this show and we've teased you with the next show in just a couple of weeks and as always if you if you did enjoy the show we'd love for you to jump on iTunes and give us that 5-star review. Scot [45:11]Thanks everybody and until next time. Jason [45:14]Happy Commercing! -
EP321 - Amazon Q3 2024 Earnings Recap
In today’s episode of the Jason & Scot Show, Jason and Scot dive into the latest developments shaping retail, tech, and consumer trends heading into the 2024 holiday season. Here’s a breakdown of the topics covered in this jam-packed discussion:
Amazon Q3 2024 Earnings Release Amazon Q3 2024 Earnings Call Transcript🎉 Holiday Season Sentiment & Retailer Anxiety
• With the holiday season shorter than usual due to a late Thanksgiving, retailers face the challenge of fewer shopping days. Consumer behavior trends indicate a shift toward essential purchases over non-essentials, creating mixed expectations for holiday spending.
• The impact of the election is expected to influence consumer sentiment, media spending, and holiday promotions, with Amazon and Walmart predicted to perform above market averages.
📈 Amazon Q3 Earnings Highlights
• Retail & GMV: Amazon’s retail revenue surged by 7.2%, with U.S. gross merchandise volume (GMV) rising 9.9%—nearly three times the industry average.
• Efficiency Improvements: Amazon’s focus on fulfillment efficiency under CEO Andy Jassy is paying off. The company’s same-day delivery options and regionalized inventory system have led to a 25% improvement in fulfillment cost efficiency.
• Growth in Essentials: With increased demand for everyday essentials, Amazon is capturing market share from traditional pharmacies, offering same-day delivery for prescriptions in select cities.
🏢 Amazon’s New Store Concepts
• Whole Foods & Amazon Grocery: A new Amazon grocery concept opened in Chicago, catering to convenience items like packaged snacks and sugary drinks, which contrasts with Whole Foods’ health-conscious inventory.
💸 Amazon’s Profit Engines: AWS & Advertising
• AWS: With a 19% increase in AWS revenue, Amazon is now operating at a 38% margin. Demand for AI-powered compute continues to push AWS growth, even as it faces GPU supply constraints.
• Advertising: Amazon’s advertising revenue reached $14.3 billion, growing 19% year-over-year. With a nearly 70% estimated gross margin, advertising may soon outpace AWS in profitability.
🛒 Rise of AI-Powered Search & Perplexity’s Native Checkout
• Perplexity’s Surge: Scot shares his switch from Google to Perplexity as his primary search engine, noting the emerging competition from OpenAI’s ChatGPT search. Perplexity now includes shopping links, allowing users to check out directly through Amazon, hinting at a new era of AI-driven shopping.
• Impact on Retailers: Retailers need to rethink SEO strategies as search shifts toward AI-powered “answer engines” that may fundamentally change how products are discovered and purchased online.
📡 What’s Next for Alexa?
• Amazon’s next-gen Alexa, powered by large language models (LLMs), faces delays into 2025. Scalability and usability challenges highlight Amazon’s shifting internal dynamics and potential headcount reductions in its Alexa division.
🔍 Is Google Search Under Threat?
• Perplexity’s and OpenAI’s expansion into search could spell trouble for Google. With monetization still in the early stages for these answer engines, the retail industry is watching closely to see how they’ll shape online shopping behavior.
⭐️ Tune In, Subscribe, and Leave a Review!
If you enjoyed the episode, help us reach more listeners by leaving a five-star review on Apple Podcasts. Thanks for tuning in!
Episode 321 of the Jason & Scot show was recorded on Monday, November 4th, 2024.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason:
[0:23] Welcome to the Jason and Scott Show. This is episode 321 being recorded on Monday, November 4th, 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. Well, Jason, you've been out there traveling more than I have. What are retailers saying about the holiday? Are they lots of excitement? Are they more worried about the election and they'll worry about the holiday? what's going on out in the retail end.Jason:
[0:54] Yeah i feel like the the like webster word of the year is going to be anxiety obviously we're a day before election day and everybody's anxious half the country is going to be depressed no matter what happens there but i feel like retailers are also anxious about holiday it's a weird thing we won't we don't have to get into the whole thing but it's the shortest holiday season we get uh thanksgiving super late so it's five days shorter than last year. So there's fewer days to spend on stuff. Consumers have been spending slowly, trading down the lower priced goods, buying more everyday essentials and foregoing non-essential purchases for a while. And then the election is a major distraction. It also is really hard to buy media and break through all the noise. You live in a swing state. So I assume you haven't been able to turn on a tv or look at your phone for several days um yeah.Scot:
[1:54] Wall-to-wall and three inches of mail every day it's crazy.Jason:
[1:56] Yeah yeah and so like like even if you're not someone that's super focused on the election like it just like the black friday ads just don't break through all that noise and it's more expensive to put that by the media for those ads and all of those things so you know there's some there's some historical precedent in previous elections that you tend to get a little bounce in spending after the election, but no election's been this polarized before. So I'm less confident that history tells us exactly what's going to happen here. And then there's this huge vibe session thing still going on where, you know, people are generally pessimistic and anxious about the economy and, you know, laser focused on the price of goods and spending less, even though honestly, like most of the macroeconomics are actually like pretty solid. Like there's a lot of economic good news that you would ordinarily expect to translate to consumer confidence and more spending. Now there was a slight uptick in consumer confidence for the first time in a while this month. So there's plenty of tea leaves, however you want to interpret them, but there there's very little certainty. My I look at all this and I say, on average.Jason:
[3:15] The biggest retailers that are, you know, best at really being highly efficient and low cost. So the Amazons and Walmarts of the world are going to do reasonably well. They'll outperform the market. They'll have lower margins and a bunch of specialty retailers and big box retailers and people that aren't quite as efficient are going to have a really hard time. But, you know, I hope I'm wrong.Scot:
[3:39] Yeah. Wow. Lots of wasn't there. So we got through the the longshoreman thing. Right. And then isn't there a big budget thing where the government could shut down or are we is that been kicked into.Jason:
[3:53] It's kicked till post-election. It may still be in, there may be another budget thing in December. But again, like, depending on what changes in the House and Senate, like, that could be like a trivial additional continuing resolution or, you know, someone could go nuclear and try to shut down the government. So I think it is a risk.Scot:
[4:17] Yeah. Okay. I don't know. We'll see. So lots of mixed messages out there for retailers to try to parse there.Jason:
[4:25] Yeah, exactly. But we at least know what happened to Amazon in Q3.Scot:
[4:36] Amazon News. Your margin is their opportunity. Yeah, yeah. So on the eve of Halloween, Amazon announced their results. And coming into that report, Microsoft had reported kind of slowish cloud growth. Turns out they're having a hard time getting enough GPUs and they're really having to stretch to handle all their customers' needs, which you would think would be positive. But Wall Street is kind of because they also see this whole mixed signal thing. All they care about right now is short term signals. So they were kind of down on Microsoft. And then everyone and then Meta also reported and they had a great quarter, but then they said they're going to really ramp their spending on GPUs going into next year. So there's this really big kind of wall of worry around all this money on these GPUs, which are for AP.Scot:
[5:28] Artificial intelligence or ai and they're mostly nvidia chips so nvidia is off cycle so that i think they report in the 20s like right before thanksgiving so i'm going to be watching that one carefully so you know amazon is largely driven these days by aws so that was kind of feeding into that there's a lot of concern that amazon was either going to miss for a similar kind of thing like microsoft or they were going to announce they're just going to like buy an ungodly number of GPUs. So there was a lot of, I believe the stocks sold off going into the report, which was interesting. Usually Amazon kind of lifts a bit the day of the report. So those ended up being unfounded. They achieved an 11% overall revenue growth and operating income hit 17.4 billion and beat forecast by 18%. And that was the seventh consecutive quarter of operating income above guidance, which is good. So Jassy kind of like reset it low enough and has gotten better now that he's CEO of kind of managing expectations is kind of how I read that. And then the looking forward guidance was very well received. So looking at Q4, they kind of gave a band of seven to 11% growth. When you have 11% and you're going into Q4 and you're kind of showing 11%, that's good because a lot of people worry that they're going to project a slowdown Because when they do this, they've already got a month's worth of data. So in a way, Amazon being Amazon, they're pretty good at reading these tea leaves and kind of figuring out how the holiday is going to shape up.Scot:
[6:58] A couple of things I thought in the report I just wanted to call out for listeners. We've talked about this a little bit. This kind of really part of Jassy's era has been efficiencies. And he's really dug into the fulfillment part of Amazon. and it's been interesting to see the results. So they had a lot of progress on the cost of fulfillment and they attributed it to three areas. Number one, we've talked about this before, but they had this new regionalized inventory system where they're just getting better at spreading inventory and predicting demand across their fulfillment centers. So if they can predict, hey, it's getting cold in Chicago, we're gonna kind of balance some cold weather stuff there or anything in that regard. Obviously, that saves the money versus having to ship stuff across the country. So they've improved that over the last year, they've improved this system 25%. And it's interesting, I triple checked this because I thought I was hallucinating. I thought I had LLM bring, but they've, you know, many of these, these have resulted in 25% improvement. So this is not a typo.Scot:
[8:04] The, so when you get the product closer, not only is it lower distance to the customer, therefore lower costs, it's like in a closer quote unquote zone, but it also increases the number of products they can put in a box. So there are a lot of customers like you to get a daily Amazon box. And the more they can put in that JSON box every day, the better off there.Scot:
[8:25] Then they have really expanded the same day facilities, which results in more of the products being available same day. So they now have over 40 million customers a quarter benefiting from same day delivery. That's up 25% year over year, that number of customers that are having access and getting products delivered same day. And to deliver on this, they've built a bunch of new facilities and a lot of new processes increased. And that ends up really increasing customer satisfaction, conversion rates, and speed to reorder. And then the last one is robotics and automation. There was a lot of talk on the call and then some various notes and in the Q&A from Wall Street around this one fulfillment center in Shreveport. And that's what they call a quote unquote 12th generation system. So I think it's like their showcase where Amazon has put all their best automation ideas into this fulfillment center, and it is showing really promising results, which gets Wall Street excited because if they do it one, they can scale it across their network of north of 200 fulfillment centers. It'll take a long time, but these are the types of improvements that are pretty material. It also saw that fulfillment center and the things they do in there, which is lots of robotics and new ways of automating. It had a 25% reduction in the cost for fulfillment center cost per unit.Scot:
[9:43] That's pretty material. So let's say it costs $6 to ship one of these things. You can knock a dollar or two of that off. And this is Amazon and you're shipping some billions, tens, if not hundreds of billions of products. That is just basically margin that kind of falls to the bottom line.Scot:
[10:03] So together, these did help with that earnings beat. And they caused a somewhere in the four to 6%, let's call it 5% underage in what Wall Street was thinking shipping, total shipping spend would be. So, you know, the good news is they're making progress on these things. And it feels like it's still early days for, I think the regional, they're probably kind of at the end of that one. I think same day facilities, they have a lot more they can do there. And I think robotics, they're very early. So it feels like they've got another two or three years of runway for improving the economics of fulfillment.Jason:
[10:39] Yeah, I think in the press call after they released their earnings, the CFO even said that they believe there's headroom in all three. So they think they're going to continue to get additional efficiencies. And they talk a lot about those three things together, like fundamentally reducing the cost to serve is kind of the language for talking about all this stuff and what the average price is to get a box of goods to Jason's house.Scot:
[11:09] Yeah. Another theme that you'll kind of hear as Jason, I go through some of the pieces is this has really dramatically increased consumers ordering replenishables. So, so we'll talk about that.Jason:
[11:20] Yeah, yeah. So obviously the most interesting and important segment of Amazon's business is the retail part of the business. The numbers were all pretty favorable. So they hit $61.4 billion in revenue, which is a 7.2% year over year growth. It's a significant acceleration from the 4.6% growth in Q2. And it's a significant beat over Wall Street's expectations. It's like 3% over. So I think the revenue number was very encouraging. And a number of other retailers had reported and were saying that there were a lot of signals of the consumer slowing down. So this was, I think, surprising and well-received. Of course, listeners of this show will know you probably shouldn't care too much about revenue because revenue is a blend of the cost of goods for 1P sales and the take rate for 3P sales. So when we kind of are thinking of them as a pure retailer, the number we really like to know about is their GMV, their gross merchandise value, which is the value of all the goods they sell, whether it was on the marketplace or first party.Jason:
[12:31] And they don't tell us what that is, but…Jason:
[12:34] Citibank has released their estimates. Morgan Stanley's released their estimates. A couple other sites have released them. And in my pull of polls, the Morgan Stanley numbers are kind of right in the middle and most believable. And they have Q3 GMV in the United States going up 9.9%, so 10% essentially. In that same quarter, we know from the US Department of Commerce that core retail went up 3.6%. So Amazon grew almost three times as fast as the industry average, which, you know, Amazon's number one or number two are just retail out there. So that's super impressive. That's slightly lower GMV growth than they had in Q2, which was 11%. The number we'd most like to compare this to would be Walmart's number. Walmart doesn't report Q3 till November 19th, I want to say. So, so it'll be super interesting to look there. I would expect Walmart to come in somewhere between Amazon and the retail industry average. So above the retail industry, but below this 10%. So that in and of itself is super interesting. You know, Walmart probably beats the industry average. Amazon triples the industry average. Then we still have Timu Sheehan and TikTok shops out there growing faster than anyone's ever seen before. And so you've got, you know, Those five horsemen eating up most of the growth in the retail industry.Jason:
[14:03] One thing that did negatively surprise people a little bit was the mix of, which you alluded to, is the mix of 1P and 3P sales. So ordinarily for a long time, 3P sales are creeping up as a bigger and bigger chunk of the overall mix every year. I think it was 61% last quarter, maybe. And it dipped down this quarter to 60%. So that's the first time 1P sales have gained share over 3P sales at Amazon. And the management tells us the reason for that is increased demand for everyday essentials, right? So that's the cleaning products for your house, the, you know, affordable skincare products, the things you use in your bathroom and shower. Or all of those products are more often sold 1P than 3P on Amazon.Jason:
[14:57] And, you know, both because of the vibe session and the economic situation that I talked about earlier, and because Amazon's better at same-day delivery, they're winning more of these everyday essential trips. And that is shifting their mix slightly to 1P. In theory, it should also be eroding their margins because these items are lower margins. But Amazon did so well on the efficiencies and the cost to serve that you covered that those efficiencies more than made up for the lost margin from the slightly less profitable mix of products that they're selling with everyday essentials. So that's a super interesting trend. When you hear management talk about it, they're like, we love these everyday essentials, even if they are slightly lower margin because those customers are way more sticky and we get way more wallet share in the long run and the the more those orders we get the more volume we have to drive our.Jason:
[15:59] Cost to serve down and the lower our cost of serve, the more we can profitably fulfill all of this everyday essentials demand. And so this is a sort of a new flywheel for Amazon, if you will. But like one tangible proof point on this is they said something like when a customer sees a one-day delivery promise or same-day delivery promise, conversion rate is 20% better than when it's a two-day delivery promise. So kind of, you know, giving evidence to the fact that like consumers have an insatiable appetite for faster and faster delivery and the faster and cheaper they can deliver, the more they can sell.Scot:
[16:37] So- Where do you think they're taking that share from you? That's like Target and Walmart or like, you know, do you see any evidence of it?Jason:
[16:44] Target is totally possible based on the last couple of earnings calls, some grocery, the super vulnerable place that we'll talk about a little bit later is the traditional pharmacy. So Walgreens, Rite Aid, CVS, and then all the independent pharmacists. They're for sure taking share from those guys. And they talked about that in the earnings, which in pretty funny language. So I'll get to that in just a second. But it doesn't feel like it's coming completely at the expense of Walmart, because again, both Amazon and Walmart are growing faster than the industry average, but it's pretty much everyone else that sells everyday essentials that's dipping below. Side note, we're now seeing these Chinese direct-to-consumer companies start to lean into everyday essentials. So Timu has a ton of everyday essential goods on there. So the world has noticed that that's what consumers have an appetite for spending on right now.Jason:
[17:40] Interest rates are still a little high. People aren't moving houses. So people are not buying as much home improvement goods as they normally do. They're not buying as much, except for you and I are not buying as much consumer electronics as they normally do.Jason:
[17:52] And they're spending more on the center store grocery assortment. And so that's, you know, Amazon through great insight or luck or whatever combination you want to attribute it to, that shift to regionalization of their fulfillment center and this like laser focus on cost to serve has really positioned them to take advantage of this trend, where arguably four years ago, they wouldn't have been well positioned for this trend. They would have said this, that's all stuff that craps out that we can't realize a profit on and that we're discouraging sales on. Now they're encouraging sales on all this stuff. So that's interesting. And then the slightly, if there's a negative sentiment in the industry regarding all of this, it's, hey, 3P sales ticked down slightly, but the revenue that Amazon is earning from 3P sales went way up because Amazon has found a lot more fees to charge sellers than ever before. And so, you'll hear a lot of noise from the 3P seller community that they're, The overall, not the raw take rate, but the overall cost to sell on Amazon when all these fees and marketing services are factored in has never been higher and makes it harder than ever for three-piece sellers to truly be profitable.Scot:
[19:14] Yeah.Jason:
[19:14] So that's the story on online sales. I mentioned pharmacy another trend happening in our industry is you know the way pharmacies normally work is the traffic to a pharmacy is to get pick up your prescription and then while you're there you go oh I need paper towels and you buy paper towels by design they're the worst place to buy paper towels they don't have a great assortment and they they don't have a good price but you're already there to pick up your Lipitor prescription so you know you just want to save yourself a trip and you pick and you take them home from there. So the front of house of a pharmacy only works because of the back of house. And the back of house is under huge stress. There's like three companies called pharmacy benefit providers, and they get to dictate the price that a pharmacist gets reimbursed for every prescription they fill. And these pharmacy benefit providers are reimbursing the pharmacy less than the pharmacy is able to collect from the consumer. So on a lot of popular prescriptions, pharmacies are now at negative margins and all the chronic prescriptions, if you take something every day or every week, instead of getting a 30 day supply from Walgreens, that pharmacy benefit provider is making you get a 90 day prescription from mail order.Jason:
[20:35] So people are going to the pharmacy to pick up prescriptions less, which puts more stress on the front of the store. And then, of course, their lower overall profit, that 10% loss of traffic has a huge impact on their profits. And then they start freaking out about shrink and they lock up all the products and that chases even more customers out of store. And the pharmacies are kind of in a negative flywheel from all this. And Andy Jassy summed it up perfectly in one sentence on the earnings call. He said, brick and mortar pharmacies often require customers to make trips to forlorn physical venues with much of the selection behind locked shelves, wait in line for meds, and only to find out about pricing at the point of purchase. The largest mail order pharmacies offer delivery in five to 10 days. We think customers deserve better, which is a clear shot across the bow at the pharmacy industry. Amazon has doubled the number of cities that they do same-day pharmacy delivery to. But I actually think the big story here is not Amazon's prescription business. It's Amazon getting all this everyday essential traffic that used to go to the pharmacy in conjunction with the prescription business.Jason:
[21:52] That has other healthcare implications in the long run. a lot of people in America go to a pharmacist to get a vaccine. And if all these pharmacies close, you know, we got to figure out how we're going to get those vaccines and things like that. They, of course, do break out their physical stores. Physical stores for Amazon is almost exclusively Whole Foods at this point, and maybe a few Amazon Go stores left. And physical stores grew like 5% year over year, which again, on itself, that's better than the industry average. that's better than most other big grocery stores are growing. And that was also a beat versus the analysts that thought they were gonna be at 5.16 billion.Jason:
[22:32] Same story there. The mix is shifting to more essentials. And what's fascinating and interesting and controversial here is Whole Foods is a unique grocery concept. They have all of these food quality guidelines that dictate what products they will carry and what products they won't carry. And so they won't carry products that have artificial colors in them. They won't carry products that are sweetened with corn syrup, for example. And so the assortment in a Whole Foods is very different than the assortment in a Kroger or an Albertsons. And a lot of the Everyday Essentials volume is traditionally those products that Whole Foods chooses not to sell. So the fact that they're doing better at Everyday Essentials is interesting. But what's super interesting is in Chicago, where I live, Amazon opened yet another new grocery concept this month.Scot:
[23:25] Which is now like the fifth or sixth one.Jason:
[23:27] Yeah. So, yeah. So now called Amazon grocery. So they have, of course, Whole Foods, they have Amazon Go, they have Amazon Fresh. A few of these, they have multiple iterations of Amazon Fresh used to mean an online grocery store, and now it means a physical grocery store. And now they have this new concept, Amazon grocery. And the one and only Amazon grocery store is downstairs from a Whole Food in downtown Chicago, and it carries all the unhealthy stuff that Whole Foods isn't allowed to sell.Scot:
[23:59] So you go down for your Rice Krispie Treats.Jason:
[24:01] So it's literally, they carry like 3,500 SKUs and it's mostly Kraft and Hostess and Coke and Pepsi, right? And so it seems superficially, it seems very explicitly like go upstairs and get your organic produce and feel good about your purchases there, and then stop on your way out and get your guilty pleasures.Jason:
[24:25] From Amazon Grocery on the way out, right? And so, It's unclear. Did Amazon already own this real estate and it's a convenient place for them to test it? And Amazon believes that the world needs another, you know, small format grocery store with 3,500 SKUs. That strains credulity a little bit. Or is this an overt, you know, first step at eroding the Whole Foods quality promise that was, you know, part of the core mission when John Mackey started the company and the Amazon said they would respect when they took it over? Like don't know it's super interesting i would say you know i got back from grocery shop three weeks ago amazon was on stage at grocery shop and they talked about like you know how much they're leaning into grocery and they and how synergistic all these grocery offerings are and how they're unifying them all and then the week later the ceo of grocery resigned at amazon and they and this they revealed this new concept and it seems totally muddled to me so i'm not saying Amazon can't win at grocery, but it does not seem that there's a crystal clear hypothesis from Amazon as to what a winning grocery concept looks like at this point.Scot:
[25:39] Have you been in it?Jason:
[25:40] I have, I have. And in fact, I'll put a link in the show notes, but I uploaded a little video tour on LinkedIn, so you can, you can go check it out. It's, I would call it most similar to an Amazon Go store without the tech. So there's no just walk out. There is Amazon.Scot:
[25:55] It's like a convenience store kind of stuff.Jason:
[25:56] Yeah. It feels more like a 7-Eleven. There's a cafe, a small espresso bar in there. There's an Icy machine, so you can get your non-Swerpy branded Icy. And yeah, all the Twinkies and Apple Jacks you want.Scot:
[26:12] Nice. You have to hit that first before you go out to Whole Foods because by then you'll spend your whole paycheck. You don't have any money left for Rice Krispies.Jason:
[26:20] I would feel personal shame dragging that stuff around in my cart on my Whole Foods shop. So I feel like it's more likely to be on the way out to avoid the shame. But in fact, I took all these funny pictures because there's all these pictures about the ethical principles at Whole Foods. And it's like giant wall-size signs that say, eat good food. And then you go downstairs and it's like, buy more, get more Twinkies.Scot:
[26:49] Maybe it's a higher conversion rate for the people that are cheaters, Whole Foods cheaters.Jason:
[26:55] Yeah. Yeah. Again, there's probably a small cohort of people that Whole Foods is their own grocery store, but I feel like there's a lot more that are like my household where Whole Foods is definitely in our mix and there's a lot of products we only get from Whole Foods. But I have a nine-year-old son and like a lot of his preferences do not exist in the Whole Foods environment.Scot:
[27:13] He's not eating tofu potato chips.Jason:
[27:15] No, no. He wants the good Pringles.Scot:
[27:20] Cool on the aws side revenue rose 19 for 227.5 billion which kind of met expectations but they were just a little bit higher so it was like right in line so that wall street was thinking 20 to 21 but they came in at 19 so they didn't really get much heat over that because they did talk about the strong demand they've they've started talking about a backlog or kind of a bookings backlog so So that was interesting. I saw a wall sheet analyst kind of do this whole thing around it and felt like there's a lot of positivity in the number that they gave there.Scot:
[27:55] And yeah, so the margin there was very nice. So 38% operating margin. That's not even a gross margin. That's a net margin. And they saw their own benefits from cost efficiencies. They're getting more life out of their servers. Imagine what's going on here is those workloads that are not GPU bound. They're probably flat right now because everyone's obsessed with moving everything over to GPUs. So they're probably having to spend a lot less on traditional CPU type things and getting more life out of the machines than maybe they initially had thought they would. Let's see the they were also supply constrained they did call out they have their own chip that can do some inference and they're they're deploying those as quick as they can and they're also supply constrained on the nvidia chipsets they did say they're gonna spend you know they prepared wall street to buckle up for more capex that were on this one time in a lifetime demand curve so that was interesting and but no one really freaked out about it so that was good, what'd you see on the advertising business?Jason:
[28:58] Yeah. Well, I would just add that, that 38% margin that was up from 30% the quarter before. So that, that was a.Scot:
[29:05] Yeah, that's material. Yeah.Jason:
[29:06] Uh, very, very meaningful. And, and I think nobody freaked out over the CapEx because they're like, Hey, we, we thought like regular AWS was like a pretty good demand curve. And, and the AI AWS demand curve is ahead of where AWS was at this point. And so I think they think there's a lot of headroom. It was interesting. They used to talk a lot about how we really only have scratched the surface on cloud compute that like, you know, some ridiculously low percentage, like only like 5% of all the workloads are in the cloud at all. So, you know, traditional AWS has all this headroom. And I assume they still believe that's true, but they don't bother even talking about it because there's so much demand for all this AI compute at the moment. So advertising, I always love talking about right after AWS, because I feel like there's this common notion that AWS drives Amazon. And you said it earlier, like all the analysts think that Amazon's at AWS with some annoying side projects. So the advertising business also had a good run. Exact same growth rate, 19%. The difference is 19% is an acceleration of their advertising business, where it's a site deceleration of their historic AWS rate.Jason:
[30:26] So that 19% growth gets them $14.3 billion this quarter. So if you look at their last four quarters, they're now at a $58.7 billion run rate, or not even run rate, trailing 12 months. So nearly $60 billion in ads. To put that in perspective, the trailing 12 months at AWS is like $100 billion, $102 billion. So AWS is a bigger business in terms of revenue, no question. But the ads business is growing fast. They're adding a lot of advertising products, like almost all this advertising is still just in support of search. It's mostly sponsored search ads on the website. But of course, Amazon is winning more eyeballs with their media, right? And their NFL stuff is going really well. Their original programming is going really well. And they're increasingly putting ads in all that content. So like this really is like $60 billion of search ads. And there's still a lot more headroom in, you know, monetizing all of this other media that Amazon is increasingly succeeding in. And so that's interesting. Unlike AWS, which is highly CapEx intensive and, you know, constrained commodity because of these silicone chips, the ads are very low CapEx, right? And so they don't tell us what the gross margin is for the ads, but let's call it 70% gross margin. There's no cost of goods, right?Scot:
[31:55] Yeah.Jason:
[31:55] Let's call it 99%.Scot:
[31:57] Okay.Jason:
[31:58] Very popular. Yeah. They pay a lot of sales, guys, right? Like that's the one, that's, that's the one cost. And I think those are the only sale guys that don't get fired if they don't go to the office, by the way. But so 60 billion, 58 billion in revenue at 70% gross margin is 41 billion in earned income, operating income that they've made over the last 12 months for the advertising business. If we go back and apply the 38% gross margin, which is the highest gross margin they've ever achieved and not what they actually achieved over the last 12 months and apply that 38% growth margin to the last 12 months of revenue on AWS, it earned $39 billion worth of operating income. So like in the most conservative version of this, advertising is contributing more dollars of profit to Amazon than AWS's and growing faster.Scot:
[32:48] Yeah. I 100% believe that because the cost structure for AWS is pretty, pretty big.Jason:
[32:53] Yeah. Yeah.Scot:
[32:54] And it's going to get worse, which is amazing that they popped up to 38.Jason:
[32:59] Yeah, yeah. I mean, it's a testament. They do a lot of stuff really well. So that is the advertising story. Scott, I know the future of Alexa is very near and dear to your heart.Scot:
[33:12] It is. And I've had some interactions with Amazon in like the last year. I won't go into specifics. And I came away thinking, man, the company seems like different. Like they're just like not as engaged and the people you meet are very… Company kind of feeling, which is way different than, you know, when I was at Channelvisor dealing with Amazon, you would meet a VP and he or she would know exactly how everything at the company worked. And it was like freakishly, you know, freakishly informed about everything. So, you know, case in point, they're coming out. They've been working on this for a long time. At first, it was going to be kind of, you know, late summer, fall, and then they moved it to kind of late to catch holiday. And now they just announced that they're delaying till 2025, that they're not going to have any kind of LM type technology on Alexa. They started with having, saying they're going to do their own in-house kind of a model. Then they moved to Anthropic. But what they're doing is they're finding some problems with it that in the beta testing, I read an article that said it likes to show off. So instead of just answering a question, it will give you all this extra expository. It just kind of like basically has the Jason version of the LLM.Jason:
[34:26] All right. You were thinking it.Scot:
[34:31] Alexa, what time is it? Fascinating you asked. The nuclear standard for time began and then it like, it can't understand basic things. So it's gotten, it's better at answering questions Alexa currently can't ask, like, you know, certain facts and stuff but it it's not good at turning your lights on and off and those types of things so they're having a really hard time with it and they even got someone they weren't on the record but they i think this is in what's the one that's in seattle starts with a v i want to say vibe that's not it anyway they they got some amazon folks to say it's because because we have a management layer that's bloated and no one can make any decisions above us and they're constantly jerking around what they want the product to be.Jason:
[35:12] It's not a two pizza team.Scot:
[35:14] No, no. The two pizza team thing is not happening on the Alexa product. So that's pretty interesting that they seem. And then I think Jassy just basically nuked the leader and put a new leader in there. And they're doing all this return to office stuff, I think, as a way of kind of thinning out the employee base. I think next year, we're going to see them get pretty serious about reducing headcount in a lot of groups. So it's going to be a lot of companies have gone through that. And I don't think Amazon's done as much as they probably could based on how slow they're moving on some things.Jason:
[35:48] Yeah, yeah. It is going to be interesting. I'm a little disappointed that the devices haven't gotten better faster. I think you and I both expected, like with all the amazing things that are happening in the outside ecosystem of LLMs that like, we can't figure out a way to make these devices better. But, you know, I think we talked about it in the last earnings call that there's this kind of more advanced concept of what AI can do called agent-based AI or agentic AI.Jason:
[36:22] And there was a little bit of a hint in the earnings call when Andy was talking about this ecosystem. And he said, you know, all these LLMs out there are amazing. They're super good at processing information and summarizing information. But what we haven't seen yet and we think is going to be a huge part of the AI capability set is systems that can take action on that information. So actually do stuff for you, not just tell you stuff. And he optimistically said, and we think we're going to be pretty good at that. And so that, you know, my interpretation there is, hey, we at Amazon are going to lean way into agentic AI. They kind of have to because they've already been beaten in the first generation of LLM. So, you know, it kind of makes sense at this point to try to leapfrog. And of course, the guy that invented the concept of agentic AI, the super credible AI scientist, Andrew Ng, is on the board of Amazon now. So like none of this is particularly surprising.Scot:
[37:29] Yeah. Yeah. So you, you wanted to bring up something that a lot of clients are talking to you about, which, which is interesting.Jason:
[37:36] A lot of my clients have noticed this, this intersection of three very scary events that happened in the world of retail last week. So event number one is that Scott Wingo deleted the Google icon from his dock in his iPhone and replaced it with a perplexity icon.Scot:
[37:57] True.Jason:
[37:58] So, Scott is all in on perplexity as his primary search engine. Like, I'm less relevant, but I totally agree. Like, it's amazing. It's my daily driver for search.Jason:
[38:11] And I think a lot of other early adopters have all now found it to be far, far more useful than traditional Google search. So shortly after Scott announced to the world that perplexity had beaten Google, OpenAI launched their first true kind of search competitor called ChatGBT Search. For me, the jury is still out on if ChatGBT Search is better or even at parity with perplexity. It's way better than any other OpenAI at doing search type things. I still think at the moment I prefer perplexity, but if you do 10 searches, you're going to prefer the answer for both of them for different things. And so this was the second big announcement was OpenAI getting directly into the search. And then in response to that, perplexity unveiled a new feature. They unveiled a public feature, which is shopping links in the search. So now, you know, you do a perplexity search for best Thunderbolt monitor to add to my new MacBook M4, and it comes back and gives you a bunch of answers. And at the bottom of that page, it gives you links to go to product detail pages of various retailers that are selling those monitors.Jason:
[39:29] So that's interesting. But then in beta, they've added the ability to buy the product right in the perplexity interface without ever leaving. So what we would call native checkout. And I'm not in the beta, so I haven't gotten to do it hands-on yet. But I've been watching a lot of videos from people that are in the beta. And not all, but a disproportionate amount of those links are to buy now from Amazon. So they very clearly have some kind of partnership with Amazon. And, you know, if the world were to move to these kind of AI searches instead of Google, the two major things would happen. It would totally break SEO and keyword research and all the things that are a core part of marketing today. And number two, you know, it would be super important to win that buy box and that pull position in these new search engines, this new shopping surface that didn't exist for most of the world a month ago. So this is fascinating. I feel like this is just the first evolution of a battle we're going to see play out, at least for the next year.Jason:
[40:37] Couple of years, but if you're a retailer and you weren't thinking about, you know, what happens when all this, this search traffic moves off of Google and onto these new, new surfaces, you know, it's, it's, it's time to start putting some contingency plans in place and at least think about how you're going to participate. And if you're a product or a content provider, you need to start thinking about how, you know, what your monetization strategy is and how you're going to optimize, you know, so your products show up at, you know, for their fair share of voice or better and all those sorts of things so it's.Scot:
[41:08] Yeah it's called the aeo so the ceo of perplexity he's a fun interview i've watched a lot of his interviews now and he calls it an answer engine instead of searching in which is really appropriate that's why i like it because it just like gives you an answer and then so instead today google gives you like some things you have to figure out you go to 10 sites you open up 10 tabs three of them are garbage seven are okay then you kind of get to an answer after a lot of work this gives you the answer and then says well here's the supporting stuff if you want to dig in further so yeah so then to optimize it he calls it aeo and they're actually seeing people do this and they're they're really tweaking you know the sites to make sure that it's more llm friendly and and whatnot which is fascinating i wonder how the the pay on perplexity works because where are your payment credentials being stored is something i'd really want to understand so that's why i'm desperate to get.Jason:
[42:01] In the beta because those are all.Scot:
[42:02] That Like.Jason:
[42:03] Normally when companies that aren't in commerce space first launch a native search, There's a bunch of deficiencies.Scot:
[42:12] Yeah.Jason:
[42:13] When will I get it? And what are the return policies? And how do I bundle multiple products? And what about, can I use my digital wallet? And all these things. There are now people that have figured it out. TikTok Shops has a pretty decent experience for native checkout. And so, yeah, I'm super interested to dive in all that with perplexity. I have not.Scot:
[42:35] That's apples and oranges. They're like using it up at their lair, though. like you're actually selling on TikTok. Like it's the, it's like a marketplace. But this one, they're like sending the order down into Amazon or wherever. Like that's, they've got to be doing that. You know, how, is it Anthropic? Yeah, Claude can now take over your screen. I wonder if they're doing that. Like they're storing your credentials and then insert them, like crawling it in.Jason:
[42:55] I doubt it. Could be, I kind of doubt it.Scot:
[42:58] Super not PCI compliant.Jason:
[42:59] No, and to be honest, the Anthropic demo is cool because it can do it at all. Like it doesn't do it well enough to solve a real world problem yet. And so I'm kind of assuming all the examples of checkouts I've seen are retailers that I know syndicate APIs, right? And so I actually think this isn't using TikTok Shops native checkout, but TikTok has a native checkout in TikTok ads where they already have a Amazon API integration. And it seems most likely that that's what they're leveraging is that they're, they've gone out and said, what retailers are, you know, enabling checkout in, in native ad formats? And we'll, we'll, you know, position ourselves as another ad platform for those, those checkout engines. Yeah, I'm with you. It's to me, the analogy I like to use is perplexity gives you a meal, whereas Google gives you a recipe.Scot:
[44:00] Yep. True.Jason:
[44:01] And I feel like, you know, the world has expanded from 10,000 SKUs to 800 million SKUs, like the recipes are now too complicated.Scot:
[44:11] Yeah. Cool. I agree. It is. And there's even worse than that. There's bad ingredients, right? Like the, there's so much spam inside of Google now that it's just like really hard to find anything good a lot of times.Jason:
[44:22] Yeah. I will admit like you've just hit my, my greatest fear about all of this. I feel like the perplexity search experience is so awesome right now, but they're not monetizing it. I mean, I, I pay 20 bucks a month, but you really don't need to. And I think back to every other cool technology that you and I have adopted, and they all started before monetization and they were all cool. And over time, the owner of that technology has turned up the dial more and more on monetization to the point where it really arose the experience, right? So, search, social, all these things were great pre-monetization. And, you know, now, you know, there's no organic content on social. There's no organic product listings that you're going to see on the first page of Amazon. Like, they've all been overwhelmed by the monetization. And so my fear is, as great as perplexity is right now, that when they really land on their, you know, that it's kind of the first hit of crack for free. And that when they eventually land on their monetization model, it'll be inferior and more noisy, as has happened in the past.Scot:
[45:33] Yeah, we'll see.Jason:
[45:34] Yeah. And one last side note on that. I'll tell you who wins here is Jeff Bezos because he has a lot of Amazon stock. He has perplexity stock and Amazon has a big investment in Anthropic. So it kind of feels like, you know, whoever wins here, Jeff Bezos is going to do okay.Scot:
[45:53] Jeff would not cry to see Google taken down. A lot of people in tech would not be upset to keep Google taken down a peg.Jason:
[46:00] I know you know this. Like many of our listeners may not know that Jeff made billions of dollars on his initial investment in Google. He was one of the angel investors in Google.Scot:
[46:11] Yeah, he famously identified him as a threat early on and wouldn't let anyone at Amazon talk to them or share any kind of – they never installed the Pixel or anything. They wouldn't tell them what – they wouldn't buy ads on there for a long time.Jason:
[46:25] Yeah, now they're the largest advertiser, $18 billion.Scot:
[46:28] Yeah.Jason:
[46:29] It's a crazy world, Scott. But that seems like a great recap for this week. Hopefully you found value in it. And if you did so, there is still room for more reviews on our iTunes page. So Apple has called us. They've said, hey, you're an enormously popular podcast. You have so many great reviews that we're expanding the capacity so that more listeners can jump on iTunes and leave us a five-star review.Scot:
[46:55] Thanks for joining us, everyone. Hope you enjoyed the show.Jason:
[46:58] And until next time, happy commercing. -
EP320 - News, First Half Recap, Early Holiday Preview
http://jasonandscot.com
0:23 Welcome Back After Hiatus
2:51 Upcoming Events in Retail
7:28 GroceryShop
16:02 Retail Growth Trends
21:28 Concerns for Holiday 2024
30:27 The De Minimis Provision
40:27 TikTok's Impact on E-commerce
In this episode of The Jason and Scot Show, we discuss the current state of retail and e-commerce.We analyze macroeconomic factors impacting the retail landscape, noting a 3.4% growth in core retail and a maturation of e-commerce, dominated by giants like Amazon and Walmart. We address consumer sentiment heading into the holiday season and the potential influences of the upcoming election and interest rate changes.
The episode also covers the role of AI in enhancing personalization experiences, challenges faced by dollar stores, and supply chain issues. We conclude with insights into Amazon’s recent earnings and their strategies to engage younger consumers through TikTok Shops.
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.
Download the complete 54 page deck of all my insights from the US Dept of Commerce Retail Data for the first half of 2024 here https://rgeek.co/retail2024
Transcript [0:23] Welcome Back After Hiatus Jason [0:23]Welcome to the Json and Scott show this is episode 320 being recorded on Monday september 16th 2024 I'm your host Jason retail gee Goldberg and as usual I'm here with your co-host Scott Wingo. Scot [0:38]Hey Jason and welcome back after a very long time, Jason and Scott show listeners Jason our last show was an early May so it's been about a little over a 4-month hiatus and when people ask me I always blame you do you blame me. Jason [0:57]I do blame you and I'm bitter because in my mind. Nobody's really complaining to you but like I I've gone called out on stage by like I've I've been heckled by people that are like what are you going to do a new show. Scot [1:15]It's part of our it's it's a Nintendo like strategy where you you dribble you know if you could really constrain Supply scarcity that drives demand so yeah. Jason [1:25]Yeah it it we are we are playing 3 dimensional chess in a world of checkered players. Scot [1:31]Exactly the the real reason is as Chief digital Innovation retail and payments and grocery officer your title's gotten bigger and your your more famous your allies on a plane I can never record because I'm like how about now he's like Paris how about now Australia how about now India so you've been flying all over the world. Jason [1:52]I sadly I have been it does feel like travel is back there there have been more International trips this year than any year before coid so I I can I can only partially deny that accusation. Scot [2:08]Cool well we're glad that we have you here for for an hour give us an update what are you any uh show you know what's going on out in the world of retail as you've been expanding the globe for the Json and Scott show. Jason [2:20]Yeah it's been another Super interesting year for retail we'll we'll certainly get into some of what we think are the key topics that have been planned out this year but I have attended a bunch of events I I can't even remember which ones where since this this last show visited a bunch of customers out in the field which is always great learning new things from them [2:51] Upcoming Events in Retail Jason [2:40]but the upcoming show is in early October is grocery shopping in Las Vegas so I'll be moderating a panel on. AI enabling Next Generation personalization, at at that show which I always look forward to to grocery shop and then a week later they're they're shop talk is moving their show their other stuff to Chicago so they're going to have their first, fall shop talk that will be in my backyard in Chicago so I'll be curious to see how if the world wants another another iteration of shop talk every year. Scot [3:18]Yeah give us the behind-the-scenes did you like throw down the gauntlet and said shop talk must move to Chicago or I'm not going to attend or and run all the speaking stuff. Jason [3:28]I basically did that with everything I told every client that they had come to Chicago I told shop talk and I told you you had to come here to record the podcast and yeah you'll note we haven't had a lot of podcasts and you know I still have the same 3 customers here I've always had. Scot [3:44]But you got to show them to me for at least that's a 1 w. Jason [3:46]I did but they really just added a show they're just looking for more Revenue so like it seems like it's probably not. Not just me but I feel like your LinkedIn feed has been more active than me and mostly with accolades for for the the fund that you helped kick off. Scot [4:05]Yeah yeah so the just to update everybody I'm in a post spiffy world so started spiffy in 2014 and then, you know decided to to we got to kind of north of a 60-ish million run rate which is plenty big lots of employees lots of things going on and I had started this little side hustle well first of all I started this thing for our little local ecosystem here called the tweener list in 2015 which was just a little passion project and then started a little fund around that called the tweener fund which invests in early stage startups so I've I've really enjoyed that and decided to, move on from spiffy and make this my full-time gig so have been really enjoying doing that and actually have. I'm sure you do this where you have a list of things you're kind of like want to learn about and you can hardly ever get to it and I've been doing a lot of that the last 4 weeks and 1 of the big 1 is AI I've been going really deep on AI and it's been been a lot of fun to play around with all the cool new stuff going on there and I got a couple interesting ideas I'm not going to reveal anything but there's some interesting if you think from a AI native remember how we used to talk about mobile native well now thinking AI native I think there's some interesting things that could happen in the world of e-commerce so I'm going to I may go back to thinking more about e-commerce so we'll see. Jason [5:23]Come on back though we're we're waiting for you the water is fine man they're they're for your point there's a lot of super interesting stuff the grocery shop will be fun a a show after that that I'm looking forward to is NRF because you know they have this Innovation Pavilion and they've kind of upped the the, rigger around recruiting exhibitors at The Innovation Pavilion this year and I think it's going to it's a big year for Innovation so, probably be a cool time for all of us to meet in the New York in January with global warming it's not even cold anymore. Scot [5:58]Not been there not too long ago and it's still pretty darn cold for this North Carolina. Jason [6:04]Oh okay fair enough fair enough I'm just last year was the first time it snowed in like 2 years in New York at at in her uh and then. Scot [6:10]Okay yeah yeah last time I remember trudging through like 6 inches to get to your hotel which was painfully far away. Jason [6:17]I mean that's yeah that's been my normal life so it's been weird that you haven't had to take the heavy coat to New York so although I wouldn't recommend that if you go to New York in January I'd bring that vote uh. And, I feel like in addition to everything else I know we're going to jump into the retail but all the Apple software updates dropped today so cool new icons and emojis and and delayed chats so I can have, like Emoji based chats hit Scott Wingo at every hour of the day now it's amazing. Scot [6:48]Nice I look forward to that at 4:00 a.m. I'll have my do not disturb on to counteract your your attack. Jason [6:53]Yeah although I may need you talk about new things you want to learn 1 of the things I want to learn is how to make Do Not Disturb work right in the the modern app like the system because I feel like all the focus modes have made it complicated. Scot [7:05]Yeah I have to have you know that that kind of funny YouTube where the dad puts on 6 seat belts that's me putting on do not disturb I have to do the physical thing check the moon do my watch hit D and D in a profile and then that's that that combination of things I don't know which of them does it but that seems to stop everything. [7:28] AI in Grocery Shopping Jason [7:23]Yes I feel like I'm in a similar boat but it would be interesting to figure out how to do it for as intended. Scot [7:29]Yeah or just we know it works so just keep doing it do so just give us a preview of grocery shop can AI do better recommendations than kind of the old school way we used to do it. Jason [7:42]So 1 would hope certainly it can do it at greater scale than we used to do it there's some anecdotal evidence that it's. Better it you know part of it I'm I'm curious to talk to some of these folks So So Meta will be on my panel. They they have a strong POV you know what's going on in the digital ad space right now is all the the ad platforms are trying to talk you into going hands off the wheel and turning over. The bidding to their AI engines and I would say at the moment it's an uneven playing field there like if I if I talk to my. Performance media folks they'll tell you that the the AI robots from some of the platforms are very effective and tend to outperform a manual bidding and on other platforms that they they wildly do not so. Jason [8:33]That it'll be interesting to kind of hear their perspective 1 of the panelists is hungryroot, which to me is a super interesting example they they're truly doing AI based recommendation so they're essentially they're a ger. That is mainly filling out your whole cart for you proactively with AI based. Recommendations so you manicure a Char a cart that they recommend to you versus you hunting and pecking for each individual item and putting it in your cart and they they have some pretty interesting sales metrics using that methodology so they're all in, there you might almost think of them as like the Stitch fix of food and so they'll they'll be interesting to hear, and then my friend Ben from Endeavor and Endeavor may be familiar to some listeners not to others they're the largest adult beverage and hospitality company in Australia. And so they they have a nationwide chain of beer and wine stores that are doing some really interesting personalization hubs and kind of Shifting all of their customer touch points to to 1 to 1 so. I'll be curious to hear how effective they all claim to be. Scot [9:47]How do these it seems like you're going to need some training data like how do they Kickstart that do they look at like your email or credit card data to kind of get an idea for what you like or they just kind of start you at a demographic Baseline and build from there or do you know. Jason [10:01]Yeah well so in many cases you've been a customer of theirs for a long time right so they have you you have a significant amount of personal data I mean Walmart launched a predictive cart feature, in January that's in beta so I think it's only available to a select group of. Of Walmart Plus members but yeah it you it's trained on all of th those members pass purchases leading up to the launch of that product. Um so I yeah good question what signals do they use for a net new customer but I think the first crop where customers where they they already had a significant history. Scot [10:40]Got it cool well that's gonna be a good panel riveting it's also pretty wild they have them so close together now that's like 10 days you're gonna have to kind of like Zip back home rest for a couple days and jump in. Jason [10:50]I I do I was going to zip back home anyway so it's not an inconvenience for me but I my heart does go out to all the the shop talk folks that that have responsibilities of both shows because that I'm certain is not fun for them. Scot [11:02]Cool which of the shop talks is bigger now the. Jason [11:09]Shop talk is still the biggest show that's their March show um and it's it's north of 10,000 people so it might have been like 11,000 this year I'm not sure they, release an official number so hopefully I'm not disclosing something proprietary and grocery shop is only about half that size. So think closer to 5 500 attendees and then this fall shop talk this will be the first time so so. All all bets are off I I certainly wish them no ill will but part of me thinks it's a it's a big lift to get people. To add yet another event to their schedules. Scot [11:48]Yeah maybe the Fallen will be more Regional like you know folks in the midwest or east. Jason [11:53]Yeah I mean that that would be my initial assumption but you know they've they've been able to build up some really good shows in the past so so you know we'll see how they do with this 1 I certainly, would like to see a good show in Chicago they're in as you would remember in the old days you know there was like internet retailer here which still exists but I would argue it's it's probably well past its prime. Problem is when you did the orientation and used to teach everyone how to do e-commerce on the first day. Scot [12:20]Amazon yeah that was fun that was they were like well you do this and I was like well how many people come and they're like I usually 100 and I did it and there's like 700 people say dude you vastly underestimated your crowd size at this thing the um. Jason [12:32]I know I know you're a big draw. Scot [12:34]Yeah well of course the uh and what was always funny is people would want to meet I forget what hotel it was either Hyatt, or a Hilton and there was 4 of them around that convention center and like No 1 could ever find each other at that that Hotel chain because they know 1 realized they all had the same name I'm sure that's still a problem. Was always funny to watch the chaos ensue. Jason [12:54]Yeah. Scot [12:55]The only thing works is in Las Vegas when you're at the Mandalay Bay when the hotel is called the hotel and the bars called the bar it's like a whose first kind of scenario trying to get. Jason [13:04]Yeah I'm sure they thought that was really clever when they. Scot [13:07]Yeah that was the worst worst naming. Jason [13:08]When they first named it yeah. Scot [13:11]Cool well you guys have been waiting for it and we are recording this mid-september all of our friends and Retail and e-commerce are making their final changes to their sites they're implementing their new features they're putting new vendors in place and going through the final QA test, before the big October code freeze so. This is when the Pod turns to really thinking about a holiday of 24 it's a fun to believe that we're already here this fast and Jason to tee that up let's set the table a little bit you put out a really interesting kind of adjacent Mega deck on LinkedIn that was really good and I thought maybe we could go through a couple slides of that and kind of tee up, you know how the year has gone so far and then that'll take us into kind of a little bit of a prediction of how holiday 24 is going to shape up. Jason [13:58]Yeah yeah yeah happy to do it thanks man so maybe setting the table. I don't want to go back and get too deep we'll put a link to the deck so anyone that wants it's like 54 pages of data visualizations about about the Commerce industry so anyone's welcome to download it and check for themselves but the the highest level metric that I like to think about is this thing that NRF calls core retail so that's, all of retail sales from the US Department of Commerce US Census Data uh except restaurants Gas and Automobiles and. Jason [14:33]If you go back in time and you say how how much does core retail grow year-over-year for the last 20 years core retail grew about 3.9% a year. And then of course we had this this huge anomaly more recently which was Co. And you know I like to joke that like well you know some people feel like oh man those were really hard years for retail what they forget is we mailed 5 trillion dollars in extra cash to everyone and didn't let them spend any of that on flights or Taylor Swift tickets. And so those were actually the greatest growth years in the history of retail like we like the the peak year was like 14% growth for core retail. So we had that this like Giant mountain of unusual growth 3 years that were twice as big as the normal 3.9% growth, and then 2023 happened and 2023 was right back to the average 3.9% again, and so now we're halfway through 2024 and we're actually below that average a little bit so we're at 3.4% growth year to date. Which is you know meaningfully off from 3.9% like that you know these are these are big numbers so that's 2.9 trillion dollars worth of sales year to date. Jason [15:50]And the you know. [16:02] Retail Growth Trends Jason [15:53]When we look at holiday I I mean we'll we'll talk about it in a minute but you know that's kind of setting the the table for retail for holiday but of course. People on this podcast are probably particularly interested in e-commerce and will know that historically at least in the modern era e-commerce has grown much faster. So the problem with talking about the average growth rate of e-commerce is of course it only started about 24 years ago and so it's. You know the the rate of growth has has decreased over time if you look at the last 24 years e-commerce is growing 17% a year versus that 3.9% for retail. Over the last 10 years right before coid e-commerce was growing at 12.4% a year. Jason [16:37]So I kind of tell people think about you know e-commerce typically growing at 12% a year retail typically growing at 4% a year is kind of the. The the basic ratios so 4 times faster but this year 2024, retail is only growing at 3.4% and e-commerce is only growing at 7.5% so still twice as fast growth but a meaningful slowdown from the, historic average and you know at the risk of of giving away a spoiler. I I don't think that's like some bounce because of a spike during Co I actually think it's just an indication of the maturing of. Of e-commerce and e-commerce is a you know increasingly big chunk of of the whole retail pie it's. E-commerce is 21.8% of core retail so almost 22% so you know we'll spend over 7 trillion dollars this year and you know well over a trillion of it will be e-commerce. Scot [17:38]Interesting cool so that's the full year. Jason [17:41]Yeah well. Scot [17:43]Basically kind of an average year. Jason [17:45]So so last, yeah so so well so last year e-commerce had already started slow down it it grew again the average was about 12% it grew 10% last year and we're only growing 7.5% year to date this year. Scot [17:59]Okay got it okay. Jason [18:01]But. As I keep pointing out to people the story depending on who you are the story is either vastly better or worse than that those industry averages I just shared because the real story of of retail in 2024 is. This this concept of bifurcation right that there are 5 retailers that are vastly outperforming those industry averages. And they are eating up all of the growth in the industry so these 5 retailers represent 51% of all that growth so if you're 1 of those 5 retailers, you're having a great year if you are not 1 of those 5 retailers you're having a way worse than average year in in most cases so that's, Amazon which alone represents 16% of all retail growth it's Walmart which represents 15% of all retail growth, and it's it's Tik Tok which, you know was well under a billion dollars in sales last year and is trending towards twenty billion dollars in sales this year so they're the fastest growing retail, in the history of mankind and then rounding out these top 5 Growers are the the fastest growing return history of mankind from the last 2 years T-Mobile and shien so, it's kind of T-Mobile Sheen Tik Tok Walmart and Amazon's world and the rest of us are just living in it which is you know somewhat alarming for the rest of retail. Scot [19:26]Yeah yeah definitely is it seems like those the chinese-based guys seems like they're taking share from somebody but it's not Amazon is it dollar stores because it's kind of like this convenience-oriented lower price kind of stuff right. Jason [19:42]Yeah so it it it it's it's inexpensive variety Goods the, it it very likely is taking share from from the the dollar stores the dollar stores have not fared well which historically, you know there's there's some economic headwinds there's a thing going on in the United States that I I like to call A vibe session which means, some of the the economic fundamentals are actually pretty decent but people are really, consumer sentiment is down and people are really cutting back on their spending there's a lot of evidence that people are trading down and and trying to be more frugal, and that kind of climate normally has favored the dollar stores and yet you know they're they're definitely performing below these, these industry averages so certainly a chunk of of the Tik Tok team mushy and growth um is coming at their expense. Some of the sheen growth is coming at the expense of luxury which you know historically luxury has been been insulated from downturns in the market but you know we're starting to see. Some softness in their earnings and for sure softness in their guidance. So you know the you know people that would have bought more designer stuff maybe they're still buying some designer things but they're mixing it in with really affordable fashion from. From shien like I I am sure Amazon is losing some sales to Tik Tok shops that they would like to have but for your point. Jason [21:08]Amazon still you know growing much faster than the rest of the market and so yeah it's not it's not eroding Amazon's any share it's just eroding their Tam. [21:28] Concerns for Holiday 2024 Scot [21:19]Got it okay so that's the setup so e-commerce has slowed down a bit retails kind of doing its thing what what does that mean for holiday. Jason [21:29]Yeah so I I have become Debbie Downer I am concerned about holiday this year, so if we just kind of extrapolate out these Trends again 3.4% growth is below our historic average so if something dramatically didn't turn around if consumer sentiment didn't get a lot better. For this holiday you would expect this to be a slightly soft. Holiday and I I really think this trend of winners and losers is likely to continue through holidays so I think you're going to see a handful of retailers perform really well holiday at the expense of everyone else and I. I I think on average that's going to mean that revenue is kind of similar to traditional holiday growth. But I I suspect that that's that margins, will be even further eroded than usual so so usually for Holiday retail grows about 4.3% e-commerce grows at 12.9% I don't think we'll see either of those numbers for holiday this year and I think. Jason [22:34]You know if if retail grows at 3.7% and Ecom grows at 8% you know I still think you're going to see Amazon Walmart and Tik Tok grab, disproportionate share of that holiday spend which is going to be bad news, for a lot of other folks and those are just kind of the macro Trends you have to layer in that that there's a couple of reasons to to be worried about this holiday regardless of the trends going into this holiday so. We have a different calendar a number of days in the holiday season every year, and this is our worst year this is the year when we have the fewest days and holiday which actually you know historically does depress sales if there's fewer days to shop then then we sell less stuff and so this is the shortest holiday season that we ever get, and historically an election year is not favorable to Holiday spend right so traditionally there's some some anxiety and you know. Competition for attention, that plays into these November elections that impacts holiday and I I think you know this will be the most polarized election ever and so I think it's you know no matter what the outcome is half the country is going to be pretty depressed and that that likely you know translates into not an awesome holiday so so we got some things working against us. Scot [23:53]Yeah so if that's the headwinds I'll throw in a Tailwind so as a our celebrated CNBC junkie the all they talk about is the Fed meeting tomorrow where you know it's pretty clear the fed's going to lower interest rates and the big question is is it going to be a quarter point or half a point I think I I I'm not a prognost prognosticator on that I think whatever they do it's going to be wildly popular and relief a lot of this kind of interest rate pressure we've everything's been on so even if it's only a quarter point I think it'll be somewhat euphoric for the market and for for hopefully for consumers to feel like interest rates are coming down a little bit so maybe that'll like bump start some house buying and selling and they'll be a little bit more liquidity in the market so so I'm going to think of that as more of a Tailwind so there's some positivity going on there do you worry about the election because I think it's just going to take forever to figure out who won and, everyone's going to contest it and it's gonna be like this unknown thing for a very long time so we'll see how that goes. Jason [24:55]Yeah and you live in a swing state so I can only imagine what's happening to your media. Scot [24:59]Yeah we just kind of we can't even like the male is an inch thick full of like Gunk and you kind of have to sort through all the stupidity I'm not a political person to get to like you know the bill and make sure you pay it and that kind of stuff and then the you know, at the TV is just crazy but thank goodness I'm not in Pennsylvania I think they're getting just totally hammered right now. Jason [25:18]Yeah probably so and In fairness while we're covering Tailwind like this could be a headwind or a Tailwind but like I will say in general the macros are getting a little better right so inflation has been steadily coming down the 1 the most stubborn version of inflation had been. In in this core retail category is is food and even food you know they're all down below 3% which like pre-pandemic they were kind of in that, 2.1 2.3% and the FEDS sort of stated goal was to keep inflation between 2 and 3% so, you know we still had all the pain of the high prices over the last couple of years but like. Prices really have started to come down so on the 1 hand that helps consumer sentiment you know just like in announcement from the FED would and so that that's favorable you know most of the jobs reports have been you know pretty good there's there there's some decent news that in theory should make people feel better, the flip side is inflation going down actually hurts retail sales because the stuff they sell is cheaper and so when, comping with low inflation against a previous year of higher inflation it actually can make your comps more challenging. So yeah it's a a complicated mix of stuff going on. Scot [26:35]Yeah does that if you boil all that down do you end up with a like a semi prediction like if your clients were to say to you give me a number what what do you spit out. Jason [26:45]Yeah I I'm saying buckle up I normal retail holiday growth is 4.3% and I think we're retail growth is going to be below 4 this year. Margins vary wildly depending on the category but I think average margins are going to be down across the board like there there are going to be some some outliers like the the interest rates have really been brutal on the Home Improvement guys right like if you know people can't get loans they're trapped in their house uh they don't buy new houses they spend a lot less in Home Depot and Lowe's and I think it's pretty likely Buy holiday that there's some, some movement in the in the interest rates which like at the at the very least is going to Goose. That housing market which is going to have a trickle on effect to the the Home Improvement guys so I I suspect they'll have. Better holiday than they have the last last couple of years but overall I I'm not optimistic, you know with the caveat that some some really good operators or some people with a really clever model like the Amazon Walmart Tik toks are are likely gonna you know have a really good run this holiday. Scot [27:51]Okay cool I will I do not have a prediction so I'll stick with yours. Jason [27:58]Usually that doesn't work out well for you but thanks. Scot [28:01]I have to go review our it's been so long I have to go look at our New Year's predictions because there's always start to be coming to fruition here soon. Jason [28:09]Yeah yeah yeah I've kept half an eye on some of them and there's there's going to be some some are going to come down to the wire some I I would have thought were safer but like you know surprisingly Amazon's pretty slow getting their their AI stuff out the door so we'll see. Scot [28:23]Yeah yeah there's the so this is a sidebar that we didn't really prepare for but did you see they tried to build their own and they kind of couldn't and they had to punt and they're using and. Not anthropology the 1 that starts know they're using anthropic. Jason [28:41]Anthropic that's right yes I did see that um. Scot [28:44]Yeah so that's got to be embarrassing I mean they invested like some bazillions of dollars. Jason [28:47]To I mean Amazon is kind of a not invented here company so like when they have to give up on the internal initiative and and rent someone else's Tech that that probably doesn't feel very good. Scot [28:59]Yeah I made the mistake of changing my action button on my phone to the chat GPT voice and then I've been I switched from Google in my search to perplexity so I've gotten used to asking these pretty complex questions and then I chat with Alexa and I feel like I'm talking to a kindergarten I'm like I'll even like ask it something you know play this song from this album by that artist and it loses itself halfway through half the time I feel like it's brain is melting and it's just like getting Dumber even though I know it's at a Baseline. Jason [29:29]Yeah no absolutely and and I would say it's even more acute in my household because I live with a 9-year-old um and and his default is that, it should know all of this stuff right and it asks he asks these really complicated questions and I like can't tell you how many times a day I have to say to my son she's not going to know that. Scot [29:50]Why dad why. Jason [29:54]But but for your point hand him like, you know he basically lives to play Roblox and watch you to Awful YouTube videos um and I can hand him chat gbt 40 and like it's about as entertaining as Roblox to him which is amazing. [30:27] The De Minimis Provision Scot [30:13]Gotcha does uh so you mentioned Teemu and all that jazz you have been tracking this rule that allows China to use our postal system to send stuff free what's going on with that puppy. Jason [30:27]Yeah so that is famously called the Dominus provision and it's this rule that got. Put into the US Customs Enforcement in like 1938 and the idea was hey if people are going to ship stuff in the United States like we want to charge tax on it we want to charge duties and we want to have rules about what kinds of things from a safety standpoint and from a a human interest standpoint can be imported into our country right and so so normally you ship something from another country it has to go through inspections it has to go through duties but gosh there's this new kind of peer-to-peer marketplaces and there's eBay sellers selling stuff in London to people in the US and we don't have enough Customs agents to inspect all these little, packages that Scott Wingo is helping people sell on the internet right so we're going to pass a rule called the Dominus provision which is if you ship something that has less than 5 dollars of value, you don't have to declare it you don't have to pay taxes on it it's not getting inspected by anyone and it was really just a labor savings for for the the Customs agents in like you know originally in 1939 when like it was it was an e-commerce it was mail order back then. Jason [31:44]But in like 1996 that that. 5 Dollar limit got bumped to Dollars and then in 2016 the hundred dollars got bumped to $800 and that really opened the floodgates that's when companies like shien and tiemoue figured out that hey instead of filling up a container of stuff, and shipping that container to the US and having to pay C duties on that container and having that container come over in a boat and take a long time to get here I can put each. Sale in an individual envelope, and Air Freight it to the US and it'll be under the 800 hour minimum so I won't have to pay duties on it I won't have to get it inspected. And you know these these factories in China, and these these marketplaces of these factories in China you know quickly built a huge business shipping individual packages to Americans right and so that's. Jason [32:48]You know today they they quote unquote exploit what we call the Dominus provision. To to ship all those packages right and so there's been a lot of complaints by people that have to compete with the, the those those you know cheap Imports and there's been a lot of saber rattling in Congress about how you know this is exploitation and all these things, and so last week Biden proposed, that he was going to issue an executive order that goods from China no longer qualify for the de minimis exception and so what that would mean is regardless of the value. Every single package that comes from China would have to go through customs would have to be inspected would have to meet all of our import requirements and so, you know some people are looking at that and saying oh man that's going to put a huge dent that's going to make shien goods and Tik Tok goods and tiemoue goods more expensive. And that might rebalance you know all of these trends that that you and I have just been been talking about. I regrettably am a little more skeptical that it's going to have a huge impact. Jason [33:58]Couple of other sort of interesting facts to know about this Dominus thing so first of all. Not going to shock anyone there's a lot of american-based companies that are now taking full advantage of this de minimis Clause right so. Jason [34:12]Not going to name names on the podcast but there's a lot of big sellers that are us-based that import containers of goods to Mexico and then put those, unpack those containers in Mexico and ship, the goods in individual packages from Mexico to the US so they get relatively fast delivery and they get to bypass all the duties and tariffs and you know that's that that's being done by by a number of like big famous, uh retailers and brands in the US so this kind of Dominus rule if it if it affects goods from China. I guess the first thing I would expect to see is Tik Tok and team who are going to start shipping containers to Mexico and importing them from another country right and so we're going to get kind of a a wacko, situation and if you if you Google section 321 which is the the. Part of the the Customs law that that that amendments provision is in section 321 shipping you're going to find that there's dozens of 3pls that specialize in in doing this for you so. I think it's going to be harder to knock down than 1 executive order but the bigger problem is. Tik Tok to and shien together are by some estimates sending about 900,000 packages a day. Jason [35:33]2 of the United States and so if you could magically wave a wand and say all 900,000 of those packages have to be inspected before they can come in. Think what that would do to the rate of goods flowing into the United States right like all everybody's Imports all the containers would get slowed down because, we have the same number of Customs agents we've always had an executive order can't hire a bunch of new Customs agents that would require new budget from Congress and that seems a lot less likely. So just like the reason the Dominus was there is we didn't have enough people to look at all these packages and that was when they're way less packages than there are now so. If we could somehow like do away with Dominus like would it, reduce the number of shipments probably but it still would be way more shipments it would still overwhelm well customs and would likely suddenly mean all those goods that are I guess holiday Goods for the most part are already on the way are already here but like, it it would probably have a dramatic effect on on q1 availability of goods because it would just gum Up Customs so while I I like the ex the spirit of trying to, update the laws to have a More Level Playing Field I kind of doubt in practice that 1 Executive Order is is going to fix this super complicated problem. Scot [36:51]Yeah now that we're through earning season did you hear anything else interesting in earnings that we were not able to do an Amazon's earning podcast there wasn't really anything super exciting other than. You know kind of more of the same I think you know the AWS did better than a lot of people thought which was good, and that everyone's really focused on that because of the AI stuff everyone's worried Amazon's going to lose share but they seem to be holding their own and then e-commerce and, the retails were were kind of in line so they didn't really slow or speed up, if you have any there was a little color around Prime day but nothing Earth shattering any other interesting things from earnings Seasons you saw. Jason [37:31]Yeah so so again like what you've you've kind of had 3 kinds of retailers right you had those 5 retailers that I mentioned only only 2 of them have like earnings calls in the US which is, Amazon and Walmart. Tik Tok is owned by bike dance which has has earnings calls in China and team was owned by poor which has earnings calls in China she and is trying to go public they're trying to list in in London so we haven't really seen any, any earnings calls from them so they they've had interesting things you've actually had T-Mobile stock took a pretty big hit after their earnings because they, reported great sales but by dance like lowered his guidance and part of it is I believe. In in response to how much share Tik Tok shops has captured so this is 1 of I think 1 of the most interesting stories of the year is. Jason [38:23]For probably as long as I've known you Scott like we've always talked about social commerce and people are always talking about like. Hey there's all this attention on Facebook are people going to be able to sell Goods on Facebook and just not even need e-commerce sites anymore and the narrative we've always had is man it's been tried dozens and dozens of times and it so far hasn't worked it seems like. Us consumers don't want to shop on their social platforms they want to interact with their friends on their social platforms and they want to shop on their shop platforms, but the 1 place in the world where this does seem to be working is China where, pendo Duo on Alibaba had been you know pretty successful 10-cent had been pretty successful with with social commerce and, that narrative is kind of over right now because Tik Tok shops is selling twenty billion dollars worth of stuff direct to Consumer and Tik Tok is. Really winning with consumers attention and especially with younger consumer consumers attention so you know. Jason [39:21]Gen Z Shoppers are are gen Z consumers are spending like an hour a day, on Tik Tok like the Olympics didn't do very well because nobody watches long form video on television anymore like they're all watching all this this short form content on Tik Tok and Tik Tok has been able to turn that attention, into sales so much so that you know the most successful e-commerce site on the planet while Amazon has has kind of said like hey we can't beat him so we're joining him right so Amazon announced, a deal with Tik Tok where you can run an ad on Tik Tok have direct Commerce in that ad and check out with your Amazon credentials and have your order fulfilled by Amazon Prime, in an ad on the Tik Tok platform so that is super interesting and Amazon has said and we're going to start shipping Goods direct from China just like Tik Tok and T-Mobile and shien so they've announced that they're going to, [40:27] TikTok's Impact on E-commerce Jason [40:19]direct to Consumer from factory model you know presumably to take advantage of some of this these same de de minimis. Jason [40:27]Provisions that we we talked about earlier so it's kind of interesting to see Amazon have to kind of match some of the, the offerings and play with some of these Frenemies you know historically you know that's that's gone the other way right like it was it was the old Legacy retards that were having to begrudgingly or brands that had to begrudgingly, moved to Amazon so interesting to see Amazon moving to Tik Tok so that was a super interesting. Jason [40:56]Sort of evolution this year I'm going to be really interested to see whether the, the Tik Tok thing you know it's mostly inexpensive impulse Goods at the moment and, you know can that get traction with staples will people buy more premium Goods we're starting to see more and more Brands I just spent some time with, Keurig which owns you know a bunch of the coffee brands and they're now doing direct Commerce on Tik Tok shops so it kind of went from all unbranded stuff on Chinese factories to, you know we're starting to see branded merchandise in the Tik Tok shop so, that super fascinating and then on a much more scale 1 other thing that really jumped out of me in the investor call after the Amazon earnings is the Amazon CFO talked about. Jason [41:43]The softness that people have seen in the drug channel right and so Walgreens write a CVS haven't been having a very good run lately and and he called out that like Amazon probably got a boost in sales because the the Walgreens so helpfully locked all the products behind cages and that like uh. You know was an impediment to sales at Walgreens and caused a lot of those sales to happen on Amazon instead and so you know if you remember last year a lot of retailers were claimed you know crying about shrinking complaining a lot about shoplifting you're not hearing a lot of conversation and earnings calls about shrink this year. And now you know Amazon saying like man we're we're a beneficiary of all the the eroded customer experiences, that that have resulted from an overreaction to shrink. Scot [42:34]Hu yeah I saw there's a CVS has a thing where you can actually tap with your phone I guess it has an NFC chip in it and so I imagine you have to have the CVS app and be logged in and then you can tap to get into that cage so at least you don't have to wait an hour for someone to wander by and and get you your your pack of gum. Jason [42:55]Yeah which I have mixed feelings about on the 1 hand I really admire The Innovation and that's a clever way to reduce the friction if you are going to put all these products and product jail which is what I call those those cases the, the pro you know the the argument would be, in CVS's case you have to be a member of their Affinity program and have their app on your phone in order to unlock the cases and so like in practice essentially what that means is you know all of America used to be able to shop at CVS now it's a members-only store right like now it's it's it's essentially Costco like you you have to be a member and give them all your data or you're going to have really inconvenient access to the razor blades and so you know, I could see that going either way like if if you compare it to Walgreens or Raid where you don't get that option like it might be looked at favorably but if you kind of look at it in big picture and say wait a minute you're going to lock up all this stuff and then you're going to make me be a member of your Affinity program in order to, to just be able to do what I've always done or at least since the 1920s when Piggly Wiggly opened up all this stuff. Jason [44:01]I you know I could imagine consumers not not reacting super well to that, I don't actually know if the CVS is is like Bluetooth or NFC but you did bring up another point. IOS 18 launch today and 1 of the cool features in iOS 18 is they have apple is for the first time opened up the NFC chip to third-party apps so. Under iOS 18 it would be possible for CVS to use that NFC chip to unlock the, the uh their their smart locks that would not have been possible in the previous operating system so that's a fun Commerce innovation, that came to uh Apple today, and I haven't seen any announcements yet but I'll I'll be surprised if we don't see some some cool evolution of some of the digital wallets to take advantage of that new feature as well. Scot [44:50]Pretty cool yeah so anything else before we wrap up that that you want to prep listeners for as we go into holiday. Jason [44:58]No no I feel like we covered a lot of ground again I'm I'm super sorry on my behalf and and Scott's behalf that we've been a little sporadic with the shows we really appreciate all the kind words people have, been sending our way and for sure I take it as a compliment that people are mad at me that we haven't been putting out shows so hopefully we'll we'll be able to find some good Windows throughout the rest of the year to get some, some shows out there I you know certainly want to do a recap after grocery shop coming up and we'll certainly want to cover holiday and maybe we can do some. Go old school and do some live shows from interrupt this year if we can get you to come to to New York Scott. Scot [45:35]Yeah yeah the we'll look at the weather and see how it goes. Jason [45:39]Yeah yeah yeah if if you're an investor in his fund use use that leverage to pressure him to do it. Scot [45:45]Hey that hurts. Jason [45:46]And if you're not an investor nurse fund why the heck not. Scot [45:49]Heck yeah between your fund.com come on aboard. Jason [45:52]Exactly well Scott that's probably going to be a great place to leave it if you're super ecstatic that we are back on the air feel free to jump on iTunes and give us that 5-star review we want to refreshen those up and. Until next time happy commercing. -
EP319 - Amazon Q1 2024 Recap
http://jasonandscot.com Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Episode Summary:In this episode, Jason "Retailgeek" Goldberg and Scot Wingo dive deep into Amazon's first quarter results for 2024, 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 Q2 2024.
Amazon Q1 2024 Earnings Release Amazon Q1 2024 Earnings Call TranscriptIn our latest episode, Jason and Scott cover a range of topics, starting with their reflections on recent events such as May the 4th and Cinco de Mayo. Jason shares intriguing stories from his extensive travels and interactions with listeners worldwide. Scott delves into the intersection of e-commerce and the auto industry, honing in on Carvana. The duo also delves into the U.S. Department of Commerce retail indicators data, shedding light on trends in retail sales and e-commerce growth. The conversation pivots towards Amazon's recent earnings report, contextualizing it within the realm of AI investments by tech giants like Meta and Alphabet, offering valuable industry insights and analysis.
The discussion continues with a focus on Amazon's earnings report, zooming in on concerns around AWS amid heightened competition from Alphabet and Azure. The rising trend of AI investments, particularly in data training applications, is explored, alongside the growing popularity of open source AI models due to cost and privacy considerations. Despite a conservative Q2 guidance, Amazon impresses with robust revenue that surpasses Wall Street expectations, particularly in operating income. The retail segment shows exceptional growth, exceeding operating income estimates for both domestic and international divisions. Notably, Amazon's performance in brick-and-mortar stores, spearheaded by Whole Foods, demonstrates resilience with a 6.3% growth rate. AWS stands out with a 17% growth, dispelling market share concerns and showcasing accelerated revenue growth, illustrating Amazon's continuous growth potential and innovation prowess.
Scott delves deeper into Amazon's positive quarterly earnings report, emphasizing the remarkable revenue performance, especially in operating income. Insights are shared on Amazon's successful agnostic approach to LLM models and the potential advancements in generative AI. The conversation shifts towards the burgeoning ads business at Amazon, underlining its profitability and future growth prospects. Scot also outlines Amazon's Q2 guidance and the potential impacts of consumer spending patterns on the retail sector, including concerns about changing consumer behaviors and economic pressures shaping market dynamics. Jason complements the discussion with additional perspectives on consumer behavior and economic influences reshaping the market landscape.
Furthermore, we embark on a detailed exploration of supply chain logistics, with a spotlight on Amazon's expansion into third-party logistics services, revolutionizing traditional retail strategies by sharing proprietary capabilities for wider adoption. Insights from Andy Jassy shed light on Amazon's logistics business approach. The conversation expands to include how companies like Spiffy are embracing a similar model of sharing proprietary products to drive innovation and revenue growth, showcasing an evolving landscape of retail innovation.
The podcast unpacks the complex world of grocery retail, highlighting Amazon's experimental forays like Just Walk Out technology and the Amazon Dash cart, while examining the challenges in delineating Amazon's grocery sector strategy. A comparison is drawn between Amazon's strategies and those of rivals like Walmart and Target, who are adapting their product offerings to match evolving consumer preferences, offering a comprehensive view of the dynamic retail and supply chain management sphere. Dive into our engaging discussion, explore retail dynamics, and keep a lookout for more insightful content.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 319 of the Jason & Scot show was recorded on Sunday, May 5th, 2024.
Chapters 0:23 The Jason and Scott Show Begins 2:56 World Travel Adventures 5:53 Commerce Tools Elevate Show 6:53 Jason's World Tour Plans 7:22 Where in the World is Retail Geek? 20:43 Amazon's First Quarter Earnings 23:23 Sandbagging Strategy 26:45 Amazon's Dominance in E-commerce 27:44 Online Segment Growth Analysis 28:53 Offline Store Segment Analysis 31:35 Spotlight on AWS Performance 34:32 Data at AWS 42:02 Gen AI Revenue Growth 46:24 Consumer Pressure 49:56 Supply Chain Evolution 53:46 Leveraging Technology 58:08 Disruption in E-commerce 1:01:54 Amazon's Grocery Strategy 1:05:01 Retail Industry News TranscriptJason:
[0:23] Welcome to the Jason and Scott Show. This is episode 319 being recorded on Sunday, May 5th, 2024. I'm your host, Jason Retail Guy Goldberg, and as usual, I'm here with your co-host, Scott Wingo.Scot:
[0:37] Hey, Jason, and welcome back, Jason and Scott Show listeners. It's been a while, but first, happy Cinco de Mayo, and also a belated May the 4th, Jason. Did you have a good Star Wars day?Jason:
[0:49] I did. I did. I feel like Star Wars Day always makes me think of the podcast because I feel like we have spent many of them in my latter life together.Scot:
[1:01] Yeah, absolutely. Any exciting new Star Wars experiences or merch?Jason:
[1:08] No, I understand you got some vintage merch. merch.Scot:
[1:13] It's not, but they, back when I was a kid, you would go and if you went every week to, I think it was Burger King, you would for the, I think it was Empire. I have the Empire right here. So definitely Empire, but you would get a glass. Now it turns out these were full of lead paint, which would kill you, but that was the downside.Jason:
[1:32] Not recommended for drinking.Scot:
[1:33] You got a very, yes, I never, being a collector, I never drank out of them. So that's good.Jason:
[1:37] Saved your life right there.Scot:
[1:38] Yes, but I did drink out of the Tweety Bird. So that me, me. I'm sure I got some yellow lead paint from a twitty bird glass. Anyway, so they came out with a Mandalorian kind of homage to those glasses and they were at the Hallmark store of all places, not where I usually hang out, but I got to go to a Hallmark store and the little ladies that worked there were, I wish them all an awesome May the 4th. And they looked at me like I was from another planet and it was hilarious. My wife's like, stop, they don't know what you're doing.Jason:
[2:07] Wait, they didn't have a big May 4th section in the Hallmark store?Scot:
[2:11] They did. The little ladies didn't know.Jason:
[2:13] The overlap of people that still buy Papyrus cards and celebrate May 4th is probably not great.Scot:
[2:21] It was very humbling. It was a humble May the 4th, but I got my glasses and I was happy. I'm happy for you. And then tonight we had tacos for dinner, so I'm hitting all the holidays.Jason:
[2:30] I feel like we should have tacos for dinner every night, whether it's Cinco de Mayo or not, but I'm i am happy for that.Scot:
[2:35] We do have a lot of tacos but this was a special single denial edition.Jason:
[2:42] Well, very well done, my friend.Scot:
[2:44] Thanks. Well, listeners of the pod have been all over me. They're like, why aren't you recording? And I said, it's not me. It's Jason. It's Jason. Because you have been travelingScot:
[2:55] the earth, spreading retail geek goodness. Tell us, we are way far behind on trip updates and all the different countries. It's like you're playing, do you have like a little travel bingo where you're just like punching, what is it, 93 countries?Jason:
[3:09] I do. They call it a passport. Oh, nice. Yes.Scot:
[3:13] That, uh, little book that you get to carry. Yeah.Jason:
[3:15] Yeah. Yeah. Yeah. I have been on a lot of trips and it sounds like you and I may be telling complimentary lies because I also, I've had an opportunity to meet a lot of listeners in the last, we'll call it seven weeks and which they're always super nice. And it's always super fun to talk to people. And obviously they're, you know, strangers recognize my voice in line at Starbucks at all these e-commerce shows. And then we strike up a conversation. And then the next question is always, where the heck is Scott? Because they're always disappointed to meet me and not you. And now the new thing is, and why aren't you producing more frequent shows? And my answer is always that you're dominating the world at Get Spiffy and that you're too busy.Scot:
[4:00] Uh-huh. I see. Okay.Jason:
[4:02] Well, we're both very busy.Scot:
[4:05] You're traveling more than I am. I'm busy washing cars.Jason:
[4:08] Yes. I think both are fairly true, but I did finish a grueling seven-week stint where I got to come home a couple of times on the weekends, but I basically had seven weeks of travel back to back. In my old life, that would not have been that atypical, but post-pandemic, The travel has been a little more moderate. And I have noticed that I have my travel muscles have atrophied and I don't really want to redevelop.Jason:
[4:35] So the seven weeks was a lot. Please don't ask me for trip reports for all the commerce events because I kind of can't remember some of them. They're all a little bit of a blur. But I was at Shop Talks, I think, since the last time we talked, which is, of course, probably the biggest show in our industry. And that was a very good show. I did get to see a lot of our mutual friends and a lot of fans of the show there. So that was certainly fun. And maybe in another podcast, we can do a little recap of some of the interesting things that came out of Shop Talk. I did produce a couple of recaps in other formats for work clients, so we could certainly pull something together. I also went to a vendor show. One of the e-commerce platforms out there is called Commerce Tools, and they had their annual customer show, which is called Elevate in Miami. So I got a chance to go visit there. They're one of the commerce platforms that I would say is winning at the moment in the kind of pivot away from the old school monoliths to these new sort of SaaS-based solutions. And commerce tools in particular are kind of pioneers in pushing this actual certification around a more modern earned stack that they they coined mock. And I think I think we've had Kelly from from commerce tools on the on the podcastJason:
[5:51] in the past to talk about that. But that was a good show. I got to meet a lot of listeners there. And a funny one, several listeners were like.Jason:
[5:59] I would apologize for the, the, our publishing schedule lately. And they're like, I'm cool with it. I like that. Like you don't do a show if there's not something worthwhile. And then, you know, when I do get a show, it's like a treat. So I don't know if they're being honest or not, but that made me feel a little better about some of our, our, our Tardis shows lately. So those, those were good events. I also spent a week in India with some clients and that super interesting, a lot of commerce activity going on there, a lot of different market dynamics than here. So that's kind of intellectually pretty fun to learn about and see what's working there that might be working here or what, you know, why things tend to play out differently there. So that's interesting. And then I have a lot more international trips booked right now.Jason:
[6:48] So coming up, I'm going to Barcelona, London, Paris, and Sao Paulo. So if anyone either has any favorite retail experiences in any of of those cities, please send them my way. I'll be doing store visits in all those cities. And if you're based in any of those cities, also drop me a line. Hopefully we can do some meetups while I'm out there.Scot:
[7:07] Cool. It's Jason's world tour. You can do a little pod while you're there.Jason:
[7:12] We have done a bunch of international pods in the distant past. I remember hotel rooms in South Korea and all over the place,Jason:
[7:19] Japan that we've, we've cut shows from. So, so totally could.Scot:
[7:23] Yeah. We'll have to do it. Where in the world is retail geek? That could be the theme song. I just sampled that.Jason:
[7:30] Yeah. So besides cleaning the world's cars, what have you been up to, Scott?Scot:
[7:35] Well, it's kind of funny. My worlds are colliding. So a lot of the analysts that you and I know from the e-commerce world are creeping into the auto world and their gateway drug is Carvana. So in the world of retail, we have Amazon, obviously. Well, Carvana is kind of Amazonifying used cars. They had a bit of a drama kind of situation. They were the golden child of online cars. And then they totally pooped the bed. They did this acquisition. They loaded up with debt. And then after, I think it was 21. So they had a good COVID. They surged. And then the debt got in front of them. Used car prices bop around and they kind of like got in an open door situation where they had bought a lot of cars for more than they were worth suddenly. And then they plummeted and everyone thought they were going out of business, but they have had a resurgence. So it's causing a lot of the internet analysts to now pick up auto tech or mobility or whatever you want to call it. So it was fun. I got to do a live chat with Nick Jones. He's been a friend of the show. I don't think we've had him on due to some compliance stuff that his company has rules around, but he's at this firm JMP and it was kind of wild to talk about, with someone about both Amazon and what we're doing at Spiffy, which is basically a lot of Amazon principles applied to car care. So it was interesting to have someone reach out and say, hey, I think this is a thing. And everyone tells me I should talk to you about it. And I was like, oh, yeah, I would love to. So it's kind of fun.Jason:
[9:01] That's very cool. And isn't it also a thing, I think half the vehicles on the road are now owned by Amazon. So I assume that's an overlap too. too?Scot:
[9:09] Yeah, not half, but a lot are. The number of last mile delivery vehicles are very, very large. And we work with a lot of them, so it's kind of fun. I started spiffy somewhat to get away from Amazon and still all I can talk about. Nope. So embrace it. I love Amazon. Love me some Amazon, Jason.Jason:
[9:29] I'm glad you do. I love them too, but I feel like I spend most of my career You're unsuccessfully helping people compete with them.Scot:
[9:38] Hey, got to play one side of the coin. It's a gig. You're going to be more like them or how to fight them.Jason:
[9:43] It's a gig. It is indeed. Yeah.Scot:
[9:46] Cool. I thought we are going to talk about some Amazon news. But before we jump in, you have done your magic with your data analysis interns. And I'm sure there's an LLM and an AI thrown in there. Let's start with some of the things you're seeing in commerce trends from the data that's out there.Jason:
[10:07] Yeah. So as everyone knows, I have a little bit too much of an infatuation with the U.S. Department of Commerce retail indicators data. And these guys, you know, publish monthly estimates of retail sales in a bunch of categories. And, you know, we've talked about this many times on the show, but broadly over the last several years have been really interesting in retail. 2020, 2021, and 2022 were the greatest three years in the history of retail. Like we mailed like $6 trillion in economic stimulus. People didn't travel or go to restaurants as much. And so we sold way more goods than ever before. And so those three years, retail grew respectively at like 8%, 14%, and 9%. The 20 years prior, retail averaged about 4% a year in growth. So normally pre-pandemic, you'd expect 4% growth. We had these three, you know, wildly pandemic influence years where we grew really fast. And then last year we finished a little below 4%. So, so we were around, I want to say it was like 3.6%. So it was growth. It would, it would have been in line with pre-pandemic growth, but it certainly felt like a significant deceleration from those heady pandemic years. And so, you know, people are super interested to see how does 2024 play out? Does it?Jason:
[11:32] Kind of return to pre-pandemic levels, like what is the new normal?Jason:
[11:37] And we now have the first quarter's data from the U.S. Department of Commerce, and I would call it kind of a mixed bag. If you just look at the raw retail data that the U.S. Department of Commerce publishes, they're going to tell you that retail grew in the first quarter 2.8%. So that's a little anemic, right? Compared to historical averages, that's not a great growth rate. Most of the practitioners that follow this podcast care about a particular subset of retail that the National Retail Federation has dubbed core retail. And so the National Retail Federation pulls gas and automobiles sales out of that number. And gas is a decent size number and it's very volatile based on the commodity prices of gas. And auto is a huge number that has, as you're well familiar, its own idiosyncrasies. And so that's how they justify taking those two out. And if you take those two out and you get this core retail number, retail in the first quarter grew 3.9%. So kind of to align with how the NRF talks about retail, we'll say Q1 overall was 3.9%, which is very in line with the pre-pandemic historic average. So disappointing by pandemic standards, but kind of traditionally what we would expect.Jason:
[13:05] What is unique in that number is.Jason:
[13:09] That it's very bifurcated. There are clear winners and losers, both by categories and specific practitioners. So if you break down the categories, e-commerce is the fastest growing chunk of retail. I'm sure we'll talk more about that. Restaurants were the next fastest growing categories. And categories like mass merchants and healthcare providers outperform that industry average, every other segment of retail underperformed the industry average. So things like furniture stores did the worst, building materials did really poorly, gas stations did very poorly, electronics did poorly, and side note, electronics have been the worst performer since the pandemic, which is kind of interesting and challenging. So you've had this weird couple categories doing really well, a bunch of categories doing really poorly. And then within the categories even, if you look at the public company's individual earnings calls, what you tend to see is a couple of big players performing really well in overall retail, that's Amazon and Walmart. And then a lot of other retailers really struggling. So that even that's like in general merchandise, it's Amazon and Walmart that are lifting the boats. And it's folks like Target traditionally that have performed really well are actually struggling at the moment. So the average is kind of hard to follow at the moment.Jason:
[14:37] But that is kind of how things play out. And then we have some preliminary e-commerce data, but the actual Q1 e-commerce number that the U.S. Department of Commerce publishes will publish on May 17th. So that's 12 days from now.Jason:
[14:53] And crunching the numbers that we have available at the moment, that growth is likely to come in at somewhere between 8% and 10%. I'm guessing more like 8% or 9% growth. And so that also is twice as good as overall retail, and it's more than twice as good as brick-and-mortar retail. But that is noticeably slower than the historic e-commerce growth rates pre-pandemic. So kind of file those two numbers away. The overall retail industry is growing at 3.9%. The overall e-commerce industry is growing at about 9%. And then we have our friends at Amazon that dropped their earnings announcement just before May 4th so that they could celebrate May 4th, I think.Scot:
[15:39] Yeah, yes, that's a good setup. And without further ado, let's talk about Amazon's fourth quarter. It wouldn't be a Jason Scott show without a little bit of...Scot:
[16:01] That's right. On April 30th, Amazon announced their first quarter results. And the setup coming into these, so you had the data you talked about, but like to drill in a little bit. We had Meta, the artist formerly known as Facebook, and Alphabet, the artist previously known as Google. They announced and they both basically told Wall Street, AI is the cat's pajamas and we're going to spend anywhere between $10 and $40 billion of capital expenditures on it, meaning NVIDIA chips. So it turns out the way to play all this is basically buying NVIDIA. So hopefully you bought some NVIDIA stock. Maybe this is not a stock recommendation or when it's too late, so... And also don't take stock recommendations from podcasters. Anyway, so there was all this angst and people were a little freaked out coming into the Amazon results because Meta was down like pretty substantially, 20 to 30 percent. And Alphabet was also up substantially. You also had Microsoft come in there and they really crushed it. Their Azure is really lighting it up with AI. And they announced that they were going to invest a lot. And there's this rumor that a $100 billion project, it's got a name like Starship or something, but it's not Starship. Spaceship? Stardust? I don't know what it is. But it's going to be this mega data center, and they literally can't find a place to put it because it's going to consume so much power. So they're going to have to maybe build a nuclear plant next to it or some wacky thing.Scot:
[17:31] Anyway, that was the setup. up. So coming in, Wall Street was very, very concerned about Amazon's AWS division, which is their cloud computing. Because if Alphabet is building out their infrastructure, and so is Azure, that's the two biggest competitors for AWS. And is AWS getting its fair share? And is it going to announce that it's going to have to go build some $40 billion kind of a thing? Also, another Another thing, and I'm kind of curious on if you're seeing this with your clients, but in the, I follow this, you know, the AI, you can't do much without seeing AI everywhere. But the part I'm most interested in is what are big enterprises spending money on? This is like your Fortune 500s. They're all experimenting and really getting into it. And where they're finding a lot of good use cases is training on their data. So they'll say, you know, hey, I'm Publisys. How many documents do you think are inside of Publisys? I don't know, 8 trillion documents. Documents and you know wouldn't it be helpful just the ones I created and who is this retail geek and he's he's created uh you know 90 of those and you know so you know imagine you're starting new at publicists you're gonna be like where do I start going through some of these documents for us and if you had a chat bot that was like hey I've read all that you know I can navigate you through everything that's been published or you know whatever I'm certainly you.Scot:
[18:50] Providing a very big metaphor, certainly be more divisional and all this kind of stuff. But that's where big companies are spending the bulk is they're taking their data in whatever format it's in, be it a relational database, a PDF, whatever it is, they're trying to train it. They don't want it to go up into the, they don't want to train the LLM so that other people get the benefit of that and can see any confidential data. So that's really important. So it needs to be gated in these types of things. Because of that use case, open AI is not great because people are very worried. A, it's very expensive and it's only an API. So OpenAI hosts itself and you call it through an API.Scot:
[19:25] Those API calls are very expensive. They're getting, as OpenAI has gotten more popular, there's more latency. It's taking forever to get answers out of this thing. And a lot of people are very concerned that even though there's ways to call the API such that it's in a window and not being trained, that maybe it leaks in there. So because of all these elements, the open source models are becoming very popular. And right around the time Meta announced, they announced their Llama, which has become quite popular. And what's nice is you can host it wherever you want. And it's kind of like WordPress, where if you are a serious WordPresser, you can host it somewhere yourself, and you can kind of understand that. Otherwise, there's other people that will host it for you. But it has the nice feature of you're just getting the weights and whatnot, and it's it's pretty clear, it's pretty obvious, it's not training itself on your data. So a lot of people like it because it's quote unquote free. It's not an API usage based. It's a pay once to set it up, pay for some resources type thing and you're done. And it's also not going to train on the data. That's one of many. There's probably 10 or 20 pretty commercial grade open AIs out there.Scot:
[20:38] Okay. So that's kind of the setup to get to the earnings. things. So from a big picture, this was a really good quarter. Asterix, the guide made Wall Street a little bit nervous. So-Scot:
[20:53] And one of our research analysts just said it's Stargate, which is also a sci-fi series. They must have that on Prime Video or something. There's probably some callback there.Scot:
[21:01] So they beat for the quarter Q1, but then they also kind of tell you what's going on the next quarter. Amazon doesn't provide fully your guidance. They just kind of give you a snippet. So when they report one quarter, a quarter, they then tell you what they think the next quarter is going to do. So Wall Street got a little bit ahead of its skis, and the guide for Q2 was below what Wall Street wants. So it wasn't what we'd call a beat and a raise, which is the current quarter was a beat and the next one they increased. It was a beat and a guide down. So that probably tampered Wall Street. But ever since Jassy came in, Andy Jassy, this has been his MO is to be pretty conservative because Wall Street's very much an expectation engine. And the more, if you can beat and tamp down expectations, it makes it, it's a little bit rougher in the short term from a stock price, but it makes next quarter better and then so on and so forth. So it's a smart way to manage the long-term vibe of the stock, the mindset, the expectations around your stock. Okay. So revenue came in at $143 billion versus Wall Street at $142. So pretty much in line. But most importantly, where Amazon really threw people off was on operating income. Yes, Amazon is profitable. This is the proxy for operating income. True Amazonians would tell you, no, it's cashflow. We can go into that, but this is kind of the way they report to Wall Street. So this is kind of the standard operating system, if you will. So this is what we're going to use, but it's a proxy for cashflow.Scot:
[22:28] That was 15 billion for the quarter and Wall Street expected 11. Well, you know, 4 billion on a world of 143 doesn't sound like much, but between 11 and 15, that's a very material beat. What is that? Like 38%, something like that.Scot:
[22:44] So that was a really nice surprise. And, you know, Amazon goes through these invest and harvest periods and everyone's been feeling like they're going to be back in investing which would mean they're going to start lowering operating income as they invest but it's actually kind of beating expectations, also this is the fifth quarter amazon has come in at the high end of its guidance or above its guidance since basically you know on operating income and that corresponds with when jassy came in so this is his mo right now is to kind of like beat and lower beat and lower you know exceed expectations tamp them down not get not get ahead of his skis and it's working really well.Jason:
[23:24] Sandbagging for the win. I like it.Scot:
[23:26] Yes, it is. Having run a public company, this is a lesson I learned painfully. So that's something we can talk about over beer sometime.Jason:
[23:33] I will book that date. Yeah. And the retail business sort of followed in line with that. They had like some nice growth, but like the real standout number was the improvement in margins and the significant positive operating income from the retail segment. So I think the actual operating income from U.S. Retail was like $5 billion and the Wall Street expectations were 4.3. So again, that was another strong beat. Total revenue, which revenue is not the same thing as retail sales, as we've talked about on the show many times, that we would use GMV as a proxy for that. But revenue was $86.3 billion for the quarter, which I think was in line with the analyst expectations.Jason:
[24:27] And I think this was the largest operating income that Amazon has ever reported for the retail business. So that was super interesting on the domestic side. Traditionally, domestic has done pretty well and international has been a money loser because, you know, they've been less mature. they've been investing a lot in growing international and they haven't had the same kind of margins. This was the first quarter that they reported positive operating income for the international division. So that's another super encouraging sign for investors that maybe they've kind of passed that inflection point on a lot of their international investments that they've made in the EU and Japan and the UK, which reminds me is not part of the EU anymore.Jason:
[25:13] So so they kind of beat beat international expectations across the board on income. Revenues were lower. So revenues were like thirty one billion dollars, which was below expectation.Jason:
[25:25] But they they earned like nine hundred million in operating income. And I want to say the the the Wall Street expectation was like six hundred million. So so again, like a 30 percent beat, which is pretty, pretty darn good. Good. They also, a bunch of analysts have, you know, taken these revenue numbers and they try to back into a GMV number. And I would say the bummer at the moment is there's a fair amount of variance in the estimates, like different analysts have different models. So I have kind of been putting to a model of the models together and trying to kind of find a midpoint. And like Like based on that, the Amazon's GMV globally probably went up 11.5% for the quarter. So if you're comparing this to other retailers or the U.S. Department of Commerce number, overall GMV went up 11.5%. The U.S. was stronger. So the U.S. probably went up at 12.2%. So again, we talked about core retail was up 3.9%. Well, Amazon U.S. GMV was up 12.2%. So, you know, three times faster growth than the retail industry overall.Jason:
[26:39] And again, Amazon is mostly e-commerce, very little brick and mortar,Jason:
[26:44] which we'll talk about in just a minute. But even if you're comparing Amazon to that e-commerce number, if e-commerce comes in at 8% or 9% and Amazon's at 12%, they're by far the largest e-commerce player out there and they're still substantially outgrowing the average, which, you know, is very impressive and should be very scary to every other competitor out there.Jason:
[27:08] One analyst kind of put together an estimate of what they thought the earned income contribution from Amazon was for retail and ads together, pulling AWS out. And they had it at $27 billion in earned income if Amazon was just a retail with no AWS. And that puts them right in the ballpark of Walmart that spent off about $29 billion in earned income or operating income. I keep saying earned, but I mean operating income. So, so that is all pretty impressive and simultaneously super scary.Jason:
[27:45] Scott, did you drill down into the online segment at all?Scot:
[27:49] Yeah. And, you know, what I would tell listeners is picture a block diagram where you have this big, big rectangle, that's the whole Amazon entity. And, you know, so what we're going to do is talk about the segments. And the first segment is the biggest one, which is the retail business. And that, that's what you just.Jason:
[28:04] Biggest and best. Wouldn't you say?Scot:
[28:06] Coolest.Jason:
[28:07] Coolest. All right.Scot:
[28:08] Cool. Okay. Yeah. Yeah. Okay. I'll, you know, I don't know.Jason:
[28:11] It is for you.Scot:
[28:14] Um, I think the whole enchilada, I like the, the way they do this and I'm trying to replicate it. It's 50. We'll talk about that in a second. The, so then the, you know, so then another segment is AWS, another segment, I think marketplace should be in some segment, but they don't break it out. So it's just kind of in kind of hidden inside of the blob that is retail. So we tease some of that out here on the show. They purposely hide it in there. So no one knows how awesome it is, I think. And then they've got AWS ads and a couple other things, but we'll talk about this. So as you dig into the retail business, there's a couple of ways to look at it. You can look at it by domestic and international, which Jason just did,Scot:
[28:50] or you can look at it by online and physical store. So the online biz grew 7% year over year, which if I remember your stats, well, you don't have it until may 17th so on may 17th we'll be able to know how that compared but probably the one you can compare is the offline biz which is the the store comp that they have, And Jason, you saw on that one, what'd you see?Jason:
[29:16] Yeah, so physical stores grew 6.3%. So again, like, you know, when we say all of retail grew 3.9%, a big chunk of that's e-commerce. Brick and mortar probably grew at like two to 3%. So Amazon's brick and mortar growing at 6.3% is actually super impressive. And it's kind of interesting, you know, for several years, Amazon has had experiments in a bunch of retail formats. So they've had these Amazon Go stores, stores. They had Amazon five-star stores. They had bookstores. They had a fashion store. They're trying all these things. And of course, the biggest chunk of their stores is they own Whole Foods. And so offline stores for Amazon was kind of a mix of all these different concepts. In the last couple of years, they've kind of cleaned house and gotten rid of all those concepts. And so, you know, nominally there's a few of their own grocery stores called Amazon Amazon fresh open, but the vast majority of online offline retail for Amazon is, is Whole Foods. And for it to be growing at 6.3% in the current climate is, is a really good sign for Amazon. And, and I would say somewhat impressive, you know, on the earnings call, they, they announced that they're working up a new format for Whole Foods, which is a smaller format store that's It's going to open in Manhattan. So I have that on my ticker file to go visit when that's open.Jason:
[30:38] You know, the whole grocery space for Amazon is super interesting, but maybe we'll talk about that a little bit more later. But I will call out, they did launch a service that there's been some controversy over. They launched a $9.99 a month grocery delivery service, which essentially lets you have all you can eat free grocery delivery to your home for an incremental fee of $9.99. And they're spinning that as, you know, a cool new grocery service and enable more people to shop for groceries online. And there are a lot of articles about it, like.Jason:
[31:13] They used to have free grocery delivery included in your Prime membership, right? And so they've kind of like, I look at the big arc of all this and say, there used to be a lot more free services in Prime that they've kind of peeled out. Then they started charging for, and now they'll let you get it free again for another $120 a year.Jason:
[31:32] So interesting things happening with grocery that we could probably talk more about later. But I'm kind of eager to dive into some of these other businesses like AWS.Scot:
[31:42] Yeah. So that's the one that everyone was really waiting on the call to hear how it went. And good news, AWS exceeded expectations. Everyone thought it was going to grow 14% and it came in at 17%. And if Wall Street likes, they like a lot of things, they like beating expectations, that's important to them. But their favorite thing is ARG. And that is not a pirate day thing, ARG. It is Accelerating Revenue Growth. Wall Street loves that more than anything. And that's what they delivered for both the ads and the AWS part of the business. And what that means is that as the law of numbers kicks in, so back on the retail business, the only time we see that accelerate is in the fourth quarter and that seasonal acceleration, right? We've gotten used to that for decades now. It always happens in the fourth quarter and whatnot. So it's what you would expect. But this is quite unusual for a relatively mature business. This thing's $25 billion a quarter. So this is a $100 billion business that accelerated. And so that tells us that there is a lot more wood to chop here. It has not gotten near its addressable market. And it really allayed fears that they were losing massive market share because they're, quote unquote, behind on AI to Azure, which is Microsoft offering, and then the Google hosting solution as well.Scot:
[33:05] That does not seem to be the case. So they did very well. So they came in at $25 billion and Wall Street was expecting $24.6. So that was really, that accelerating is what really made everyone very happy. And then the operating income came in at $9.5, way ahead of Wall Street at $7.5. So another pretty material 20% beat on this component at the bottom line. And this is really interesting. There was some really good language around this. And this has been Jassy's statement all along, and it's coming true. His early Amazon's early play was we're going to be agnostic on models and it's kind of like bring your own model we'll work with anything now with open AI they're not going to ever host open AI but they'll they're not going to stop you from working with it and then they for these open source ones they've made it very easy for you to spin up an AWS instance throw a little llama in there and I would make a llama noise if I I knew what they said I guess they make like a sheep sound. So you throw a little alarm in there and it does its thing. And, you know, the benefit of them being agnostic on these LLMs is most likely they have some or all of your data, right? Because they've been at this so long that if you're doing cloud computing versus on-prem, most likely a lot of, if not all of your data is in AWS. Extracting that data, you know, imagine you had terabytes or or what's the biggest,Scot:
[34:31] bigger than terabytes? I always forget this one.Jason:
[34:33] Petabytes.Scot:
[34:34] Petabytes of data at AWS. They literally have a product that they can send a truckload of hard drives around and get your data. That's how much data there is that you could never push it across the internet, that there's so much data. So if they have that data and that's what you want to train on, you don't want to have the latency of the internet between your data and the training. So you'd really need the LLM to operate near your data. And this is what they predicted two or three years ago, kind of around the, the, the launch of chat gpt when all this stuff really started to accelerate and it's coming true so everyone feels a lot better about that then their body language this time a lot of times they were kind of like this is what we're doing and we're pretty sure it's going to work now they're like it's working and people really felt relief around this because everyone there was a set of people that believed it but then you know open ai's pitches nope our lm is going to be we're spending, billions of dollars we're going to be so far ahead none of these open source things are going to keep up. If you don't have us, you're going to be so far behind, you'll be like playing with crayons and everyone's going to be playing with quill pens.Scot:
[35:42] So it was really good to see that this is not what's happening, that people are embracing, enterprises are embracing these open source models. They are in the same zip code performance-wise from results and much cheaper than OpenAI's offerings. And what Amazon said specifically was very positive around what is It's kind of abbreviated Gen AI for generative AI. And it's kind of a way to encapsulate this. And they said that it already is a multi-billion dollar run rate business. And you always have to parse what they say. So multi-billion can be anywhere between 1 and 9.9, right? And you'll see why I drew 9.9 there.Scot:
[36:25] And inside, as part of that big AWS number, and they believe it can be rapidly tens of billions. Billions so they're basically saying it's not double digit billions so it's a single digit million which is where i get one to nine point nine but they basically hinted that that it is growing so rapidly inside of there that it's gonna be tens of billions and this is why they saw accelerating revenue growth which made everyone happy it wasn't just people you know moving some more you know loads on or something boring loads around relational databases or something it was the juicy ai stuff so this got everyone so lathered up that three analysts did price increases and they cited that this was one of the reasons the biggest price increase was from sig susquehanna and they put the price up to 220. At the time all this happened the stock was at 175 and today it's around 185 so it's been up nicely but 220 is a pretty big big you know even.Scot:
[37:20] From where they expect that's where they're thinking i think most these guys look at a year to two years as a time horizon on these prices so and that's the the high i have you know again there's a wide range some people think it's going to go down some people think it's over price so go do your research this is not a stock recommendation but i just thought it was interesting that people get really really excited by by this whole gen ai largely the body language that, and it's, Amazon doesn't pound their chest much. So the fact they were, was kind of a new, new way of managing Amazon and Jassy's pretty conservative. So he must've felt pretty good about it, but also that they needed to ally, allay, allay, allay, whatever the right word is, get rid of these competitive concerns everyone's been talking about.Jason:
[38:05] Yeah. It feels like a pretty big prize out there. Jassy and the whole team always talk, Just AWS, even before you get to Gen AI, they always remind everyone, hey, 85% of the workloads are still on-prem. So like this, as big as AWS looks, if the long-term future is 85% of the workloads are on the cloud and only 15% are on-prem, there's a lot of headroom still in AWS. And then, you know, you add this new huge demand for AI on top of all that. And like this, it's almost a limitless opportunity. And I want to tie the AI back to retail, though, for just a second, because there's another bit of news that I haven't seen covered very much, but is super interesting to me.Jason:
[38:51] There's a particular flavor of AI out there, a subset of generative AI that's now being called agentic AI. And that's sort of a clever amalgamation of agent-based AI. And there's a very famous AI researcher, this guy, Andrew Ng. He's the founder of Coursera. He's done a bunch of things. He was the head of Google Big Think, which was one of the first significant AI efforts. And I want to say he was like on People Magazine's 100 most interesting people list in like 2013 as an AI researcher. So the dude's been around for a long time. He is one of the biggest advocates for this agentic AI. And the premise is that if you just ask an LLM, you take the best LLM in the world, and you ask it to do something for you, that's called zero shot. You give it an assignment, and you take the first result you get. It's a zero shot. You get pretty good results. But if you...Jason:
[39:53] Turn that, that LLM into multiple agents and break the task up amongst those agents and potentially agents even running on different LLMs, you get wildly better results.Jason:
[40:05] And so his, his research kind of showed that, Hey, if, if Jason goes write a PowerPoint presentation for his client, explaining what's going on in commerce. And I just give that to the turbo version of ChatGBT 4, I'll get a pretty good deck. But if I say, hey, I want to create four agents. I want to create a consultant to write the deck and a copywriter to edit the deck and an editor to improve the deck and three people to pretend to be mock customers to poke holes in the deck and have all those agents work on this assignment. I could give that assignment to chat gbt 3.5 and it would actually output a better work product than the the newer more advanced model was by by breaking the job into these chunks and so in retail you think about like this is the idea of assigning higher level jobs to shopping right so instead of saying like going to amazon and saying oh now it's a ai-based search engine and i'm going to type a long form query into search and get a better result.Jason:
[41:09] The agentic AI approach is I'm just going to say to Amazon, never let me run out of ingredients for my kids' school lunches. And the agent's going to figure out what is in my school lunches and what my use rate is for those things and what weeks I have off from school and don't need a school lunch. And it's just going to do all those things and magically have the food show up. And this is a long diatribe, but the reason it's relevant is is this dude, Andrew Ng, was named the newest board member at Amazon three weeks ago.Scot:
[41:40] Very cool.Jason:
[41:40] I did not see that myself. Yeah. And so if you're wondering where Amazon thinks this is going, like this, in my mind, ties all this tremendous opportunity in generative AI and the financial opportunity in AWS directly to the huge and growing retail business that Amazon runs.Scot:
[42:02] Very cool. Oh yeah. I had not seen that. So maybe Wall Street picked up on that. I'm sure. And maybe that was another part of the excitement.Jason:
[42:09] Yeah. But all of that is just peanuts compared to the real good business in Amazon, which is the ads business. So again, you know, Amazon used to, to obfuscate their ads business. They've for a number of quarters now had to report it as earnings because it's in their earnings separately, because it's so material. And it was another good quarter for the ads business. It's hard to say whether it's actually accelerating growth or not, because the ads business is very seasonal. So the ad business grew 24.3% for the quarter versus Q1 of 2023. Q4 grew faster. So Q4 grew at 27%, but the 24% growth is much faster growth than other... Q1 year-over-year growth rate. So however you slice it, it's a good, robust growth rate. If you add the last four quarters together, you get $29 billion worth of ad sales. There's lots of estimates for how profitable ad sales are, but there's no cost of goods for an ad, right?Jason:
[43:13] And so it's very high margin. So if you just assume, I think 60% gross margins is a very conservative estimate. But if you assume 60% gross margins, that means the ad business spun off $29.5 billion of operating income over the last 12 months. And to put that in comparison, AWS is big and profitable as it is, twice as much revenue at over $100 billion now, but it spun off like $23 billion in operating income. So the ad business is a much more meaningful contributor to Amazon's profits than even AWS.Jason:
[43:51] And another way I've been starting to think about this is what percentage of the total GMV on the Amazon platform are the ads? And they are now 6.5%. So that's a very significant new tax. You know, as Amazon has hundreds of millions of SKUs available for sale, no one's ever going to find your SKU or buy it if you don't do some marketing on the platform for that SKU. And that's this 6.5% tax that Amazon's charging. And in the same way we said, hey, AWS is a really robust business. And then there's this thing called generative AI that can make it even huger. All of this ad revenue we're talking about is really coming from their sponsored product listings, which is like basic search advertising on the retail platform. Last quarter, Amazon said, by the way, we have this huge viewership streaming video service called Amazon Prime. And we're going to start putting ads in the lowest tier version of Amazon Prime. So unless you want to pay more, you're going to start seeing ads on Amazon Prime. And that's another huge advertising opportunity that hasn't been very heavily tapped yet. So the analysts are pretty excited about the upside of Amazon potentially tacking on another $6.5 billion in Prime video ads onto the $50 billion of search ads that they already have.Jason:
[45:11] And so ads are a pretty good business to be in, which is why every other retailer is trying to follow suit with their own sort of version of a retail media network.Scot:
[45:22] Cool. I imagine you get a lot of calls to talk about that.Jason:
[45:25] Oh, yeah. I actually, I'm sick of talking about it. So one nice thing about working at an ad agency is there are now thousands of other experts. You know, I was one of the early guys in retail media networks. Now there are thousands of other experts that are way more credible than me. So I don't have to talk about it quite as much, but it still, still comes up in every conversation.Scot:
[45:43] Very cool. All right. So then that was the basic gist of the corridor from a high level. And then it came to the what's going on in Q2. So that did come in lighter than folks expected, as I said, and they guided the top line to 144 versus 149. Let's call it 146 and change at the midpoint. They always do this range kind of thing when they're doing their guide. And Wall Street was at 150 consensus. So, you know, a tidge below two or three percent below where they wanted. But the operating income guide was above Wall Street. So they're kind of, we'll take it. Como si, como sa.Scot:
[46:21] So that was, you know, I think Amazon tapping things down. Yeah. Now they did talk a lot about consumers being under pressure. So they said in the, it wasn't in a Q and a, it was in the prepared remarks and Jassy said it, which is kind of like the more important stuff. And I will say it's really nice to have the CEO of Amazon back on these calls because Bezos basically ditched them after, I don't know if, I think he came the first two quarters back in 97 but i honestly can't remember but he has not gone to the calls and jassy's been to them all so it's really nice to hear from the ceo and he answers very candidly i feel you know he doesn't feel as kind of like robotic as many ceos when they get on here because it is a stressful thing that you're going to say something wrong, but there was this exchange well first of all he he in his prepared remarks he talked about.Scot:
[47:12] I forgot to put the exact language, but he said, we're seeing a lot of consumers trade down. So they're seeing, you know, we're seeing this in the auto industry. Tires is this huge thing where it's under a lot of pressure right now because people are just waiting. So there's a lot of this, you know, it's not showing up in the data that I've seen, but there's, you know, maybe the inflation data, but not the GDP and some of the other unemployment data. But it feels like the consumer is under a bit of pressure here, and they talk about that a lot in the prepared remarks. So I thought our listeners would find that interesting. Jason, before I go into this longish little thing that I wanted to just cover, what do you, did you pick up on any of that consumer stuff? Are you hearing that?Jason:
[47:55] Oh, yeah, that's very common. And remember, in the beginning, I mentioned that there's this weird bifurcation that some retailers, even in categories, are doing well and others aren't. And some categories are doing well and others aren't. That's super complicated to get to the why. But the most obvious why is that consumers feel like they're under a lot of economic pressure and are trading down and are deferring certain types of purchases. The easiest way to see this is own brands and private label sales going up and, you know, national brand sales stagnating, see things like chicken protein going up and beef protein going down. You know, there's lots of examples out there, but the retailers that are best able to follow the consumer as she trades down are tending to do well. And the retailers that only cater to the luxury consumer, the super luxury is still doing fine. They're somewhat insulated. But the folks that haven't been as able to cater to the value consumer as much have struggled more. And the non-mandatory categories have struggled more. So Andy's comments exactly mirror what we're seeing going on in market dynamics and what other retailers are saying in their earnings. It is slightly weird because if you just look at the macros.Jason:
[49:18] It's objectively, the consumer is doing pretty well. There's actually a lot of favorable things, but there's a ton of evidence that the consumer sentiment is that they're really worried about their household budget and are making, you know, hard, hard financial decisions.Scot:
[49:36] Yeah. Yeah. It's tough out there. Well, hopefully it'll get better. So one of the questions I want to just kind of pull out some tidbits, because this has been a theme on our pod for a long time and I thought it was really, really interesting. And this is going to get into the weeds of supply chain and this kind of thing. So sorry if that's not your jam. We like to talk about logistics.Scot:
[49:56] Side note to you, Jason, I saw that deep dive we did on Amazon logistics is still like our number one show and all the stats and stuff, which is kind of fun. So someone cares about it. Anyway, one of the friends of the podcast, Yusuf Squally asked a question. He's one of the analysts and he said, as it relates to logistics, so he's talking to andy on the call back in september you launched amazon supply chain can you help us understand the opportunity you see there where are you in the journey to build logistics as a service on a global basis and does that require a huge increase in capex a function increase in capex which means huge so jesse said this was a very long answer so i'm going to pull out two snippets you can go read the transcripts can you put a link to that in the show notes absolutely yep yeah so so i'm just gonna give you the the snippet the whole thing is worth reading but it would be like another 20 minutes to do that. But so Jassy starts out and says, I think that it's interesting what's happening with the business we're building in third party logistics. And it's really kind of in some ways mirror some of the other businesses we've gotten involved in AWS being an example. And even though they're very different businesses, and that we realized that we had our own internal need to build and launch these capabilities.Scot:
[51:01] We figured that there were probably others out there who had the same needs we did and decided to build the services out of them so this is this model that really blows the minds of traditional retailers where you know so walmart has this huge data you know capability there's this this urban legend that they know when people are pregnant before they do they can see changes in their habits or they know who all is on weight loss drugs they they see your buying habits so intricately that they can do that that's a neat capability but they view it as proprietary and And that's old school thinking.Scot:
[51:32] What Amazon does is says, well, that's a cool capability. Let's certainly someone else needs it. Let's open it up. This is one of my favorite things at Amazon. And it's so counterintuitive that in my current car world, I talk about this and everyone's like, why are you, we're doing it a lot at Spiffy. And they're like, well, why are you doing that? That's like your proprietary thing. And we're like, well, that's just how it should be. And like, this is a better way to do it. And it's really interesting that still today, Amazon's built what I say, $100 billion business out of AWS, which has used this and people are, are befuzzled by the whole thing. So I, I thought that was an interesting use case. And then he, he goes into some details there that are pretty obvious for our listeners, like how this is gonna work. But then he basically kind of brings it back around and then he says he wraps up and says, I would say that supply chain with Amazon is really an abstraction on top of each individual block services. And in those services, he talked about all the things that, that, you know, FBA and last mile delivery and buy with a prime. He talks about each of those kind of and how awesome they are. So he's basically saying Amazon supply chain wraps a bow around all that. And it gives this collective set of business services is growing significantly.Scot:
[52:43] It's already what I would consider a reasonable size business. I think it's early days. It's not something we anticipate being a giant capital expense driver. So it's because they've already invested in all this that doesn't require additional capex. And then he finishes and says, we have to build a lot of the capabilities anyway to handle our own business. And we think it will be a modest increase on top of that to accommodate third-party sellers.Scot:
[53:05] But our, there's a typo in the thing. Our third-party sellers find very high value in us being able to manage these components for them versus having to do it themselves. And they save money in the process. So I thought that was a really interesting, interesting. So they're really leaning into this supply chain. I think that ultimately they'll open this up to more consumers where you can send Aunt Gertrude in Detroit something from Chicago for three bucks a package and just throw it in an Amazon box, maybe a return box, and it kind of makes it way cheaper than you can FedEx it. I think that's coming, but it's really interesting to see. The way they think about things and his articulation of it was very crisp,Scot:
[53:45] and I really enjoyed that. I was geeking out on that when I was listening to the call.Jason:
[53:50] Yeah, for sure. That actually came up in some of the conferences I was at that he, you know, Jeff Bezos famously wrote this memo a long time ago about kind of being an object oriented, company and having all these building blocks that people could easily access and use internally and externally. And, and that this was kind of Andy Jassy doubling down on that. Yeah. It's Biffy is an example of that. Like you inventing some cool products that make it your jobs easier. And then you're selling those products to, to your potential competitors.Scot:
[54:20] Yeah. So two examples, we have some devices we've developed for ourselves. One is a tire tread scanner. So it does 2D and 3D tires, tire tread scans. It's called Easy Tread. And we developed it for ourselves because we touch 3,000 cars a day right now and we wanted to measure the tire treads. And the state of the art is a Bluetooth needle. And it's, you know, you have to lay on your back. The cars are on the ground for us most of the time. So you have to like get underneath there, measure three things, and then it Bluetooths to a phone. Then you have to take it, the data entry, it doesn't have an API. Then you have to like take what it measured and then now cut and paste it into something else. It's kind of, kind of redonkulous in our world. So we developed a solution for that and we're selling it externally. And then the big, the big one is from day one, this has been the plan is we've built a ton of software for Spiffy. So we're, you know, we've got 400 technicians, 250 vans doing all kinds of services across the US and there's no operating system for that. So we, there's no like Salesforce for that or Shopify. So we had to go build our own. And so we've built, you know, route optimization specific to this parts integration, fitment integration, VIN lookup, all these things that are required integration with tire suppliers, oil filter suppliers, oil suppliers, parts suppliers, all these things. So we have like 150 things we've integrated with and pulled in from all over the place.Scot:
[55:44] And then labor management, all the reporting that comes along with it, all that stuff. And we're starting to license that out as its own platform to anyone that wants to do auto services. And so these dealerships and large auto service companies are coming to us and finally saying, this seems kind of obvious now that we need to provide the ability to go to our customers. They call it at their curb. They use a different language than we do. But basically what you and I would call mobile, you know, last mile delivery of the service. And we're starting to license that out. And it's a lot like AWS, right? So we had to build this for our retail business, which is doing the services and now we're licensing it out a lot AWS and we have this device business. So it's been, I would not have, it comes intuitively to me now. Cause I've been, you know, basically living this lifestyle for 20 years and watching Amazon do it, But it's been fun to kind of build a company with this mindset of we're going to take these things we build and give them to other, not give them, but sell them to other people. And then that makes them better. And they help us pay for all the R&D that we've done on it.Jason:
[56:48] Yeah, that's very cool. And that gives listeners a very tangible example of why we haven't been able to podcast quite as frequently as we'd like.Scot:
[56:56] Yes.Jason:
[56:56] I do, at the risk of making this the world's longest episode of our show, I do have a geeky add-on to the supply chain conversation. Yeah. So a lot of these services that they're adding to specifically what they call supply chain with Amazon are around importing services, because an increasingly high percentage of all the stuff Amazon sells is.Jason:
[57:20] Amazon is taking care of importing it, right? And most often from China, but from all over the world and taking care of all that logistics and getting it ready to sell and deliver via the world's most impressive last mile to consumers in America. And there's tons of complicated, high friction touch points and processes to flow all those goods. Well, the big competitors out there to Amazon at the moment that we've talked about ad nauseum on the show, like Shein and Timu, had this kind of direct from China model where they're putting all the goods on 747s, flying them over, and they're taking advantage of this loophole in the postal treaty called the de minimis provision to not pay taxes or duties or have all these goods inspected that they ship into the U.S. and U.S.Jason:
[58:07] Businesses have been complaining it's unfair. There's like all kinds of talk about it. We've done shows on this and I'm sure we'll do others. So here's the new thing in supply chain.Jason:
[58:15] All the people that have been complaining about this are now doing it because guess what's happened? A bunch of these companies have been born that now help every other brand in the world take advantage of the de minimis provisions to near shore their goods. So you're a footwear manufacturer, you make your shoes in Vietnam, Instead of shipping them to the U.S. On a pallet and paying taxes and duties, you ship them on a pallet to Mexico, and then you send them individual parcels across the border from Mexico into the U.S. and never have to pay taxes or duties on the stuff. So I don't know if that will last in the long run, but that's a very disruptive, significant change happening in the whole world of e-commerce supply chains as we speak. That's pretty interesting. Interesting. Had you gotten wind of that yet?Scot:
[59:07] No, no. That's all new to me. Thanks for sharing.Jason:
[59:09] Yeah. That's probably how you're going to have to start getting your spiffy stuff into the country now too. I won't, I won't, we won't go there. But the one other piece that did not come up in the earnings call, but a controversy around Amazon since our last show is news articles came out that Amazon was de-installing its Just Walk Out technology from its grocery stores. So Amazon had built Just Walk Out into several of these Amazon Fresh stores and they built it into Whole Foods. And if you know the history of Just Walk Out, this was the original intention of Just Walk Out was was to do it for grocery stores, but it was too hard at first. So they, they started with these little convenience stores and now they had scaled it up and everyone thought that was the future. And, you know, in the last eight weeks they announced, yeah, we're, we're uninstalling it from the grocery stores. It's not a good fit. And the articles that came out both started out saying that, but then they pretty quickly extrapolated from that to say, Amazon's giving up on just walkout technology.Jason:
[1:00:09] And it was a scam anyway. It was a bunch of, it was thousands of people in India that were just watching the cameras and doing the work. It wasn't really AI or technology doing it. And then Amazon had to quickly go into a PR spin cycle and they sent reps out. They're like, you know, guys talking on a bunch of podcasts about, no, no, no, we're not abandoning Just Walk Out. We just learned that it's not a good use case for grocery and all the SKUs and all the weight-based SKUs in a grocery store. So we still think there'll be lots of good use cases for Just Walk Out, but that's not gonna be the grocery innovation that we actually think the grocery innovation is the Amazon Dash cart.Jason:
[1:00:51] And the India thing just turns out that like when you're training LLMs, you do have humans look at the LLMs results to improve them, right? Like it's a natural, you know, appropriate part of the, the LLMs and Amazon was probably doing that, but they do have a lot of technology around these just walk out. But so it became this whole thing is Amazon abandoning grocery is Amazon abandoning, just walk out.Jason:
[1:01:16] Andy has made it clear. They're still going after grocery. He said in the earnings call that we're, you know, we're doing really well in growing at the non-perishable side of grocery, which is all he, he, he even mentioned this antidote. He said when the general merchants first started trying to get into grocery, which is code for Walmart, that Walmart started trying to sell groceries in 1990, that at first what they sold was shelf stable, non-perishable stuff, paper towels. And they got pretty good at that. And Amazon's point is we're really good at that and do really well at that.Jason:
[1:01:49] We're not very good at fresh, frozen and perishable yet. And we still have to figure that out, but we do have this new model, Amazon Fresh concept in Chicago called V2 and we like the results so far. And we'll hope to refine that and scale that one day. And it'll be interesting whether the unique value prop is dash cards. When the technology guys from Amazon said, hey, we're de-installing Just Walk Out, they kind of hyped up these dash cards, which are these smart shopping carts.Jason:
[1:02:22] I'm by no means I'm writing Amazon off as a grocer, but I am very skeptical and cynical about these dash cards. I live in Chicago, so I've been able to visit the stores that have them. And, you know, a typical store has six of these dash cards and they have 50 to 100 shoppers in the store. So it just, it, it doesn't, they're not scaling it to try to be, you know, a good solution for all the shoppers. And one of the main things you try to use a shopping cart for in a store is to get your 60 grocery items to your, the trunk of your car. And two problems with the dash cart is it doesn't fit 60 grocery items and you're not allowed to take it out into the parking lot. So I still think, I think there's some work to do still on the dash carts, but all this sort of came new ahead leading up to the earnings call this year. So I did, I did want to mention that, I don't know. Are you optimistic about Amazon Grocery, Scott?Scot:
[1:03:17] They haven't quite figured it out yet. I think they're still kind of lost. Seems like they're leaning in. The $9.99 thing is really just Whole Foods, right?Jason:
[1:03:28] No, it's unclear. Amazon delivers groceries from two models, from what they call Amazon Fresh and Whole Foods, and they put too much work on the consumer. The consumer has to decide in advance which one they're ordering from, and you can only get part of the products from each thing. Yeah, I hate that.Scot:
[1:03:44] It's like whenever I find stuff, it's split in there and I just give it. And then it's kind of like, what are you doing? And I'm like, I'm just trying to find stuff I want. And I want this granola and this thing. And it's like, well, you can't do that. I'm like, well.Jason:
[1:03:57] Yeah, you can only get that Hook's cheddar cheese from Whole Foods, but you can only get the Doritos from Amazon Fresh. And you didn't opt in to either of those. So it's confusing. It's a mess at the moment. And again, grocery is a huge part of retail and it's the highest frequency retail. So, you know, if you care a lot about knowing the data about consumers, you want to win in grocery. But it's it's also very different. Like Andy Jassy has said in past calls, we understand we're the only way to win in fresh and imperishable is to have a lot more product, a lot closer to customers. And that's why, you know, we might need physical stores. And Amazon has proven they're really good at fulfillment and these hub and spoke delivery models. They have not won at brick and mortar retail. And, you know, we were looking before the show, Whole Foods is a little bit bigger than when Amazon bought them. But, you know, Amazon hasn't really like, you know, poured gas on Whole Foods in any meaningful way either.Scot:
[1:04:57] Yeah. So they need to figure it out. Not a very day one kind of experience. Yeah.Jason:
[1:05:02] We'll have to do another show, but across the parking lot from Amazon, there has been some other retail news. A big one was, you know, Walmart's invested billions of dollars in healthcare clinics. And they announced this month that they're closing the healthcare clinics, which is super interesting. At the same time, Amazon is actually ratcheting up their pharmacy business. So they're now offering same-day delivery of pharmacy goods in two cities and expanding to six more cities. So that's the healthcare industry is really following all that stuff. We could talk about that. And one that I think every listener should follow really closely, Walmart launched a new owned brand this year. The biggest brand launch Walmart's done in 20 years called Better Goods, which is elevated premium food products sold by Walmart. We talked earlier about the consumer climate's really favorable to these higher value store brands. And if you look at the companies that are performing the best in grocery, it's the companies that own their own brands. It's Trader Joe's, it's all the... Costco's the largest CPG in the United States of America. Costco's bigger globally.Jason:
[1:06:08] Kirkland is bigger globally than Unilever. And so super interesting that Walmart is kind of making its first significant entry in that in a long time. And then the retailer that historically has been doing the best of that is Target, who's been struggling as of late. And what they launched most recently last month is a new brand that's competing with dollar stores called Dealworthy that has the lowest price point products that Target's ever offered. So we talked about the consumer being stressed and Target not necessarily having a good answer for that. This Dealworthy brand seems like their big effort to try to catch that value consumer that they historically haven't captured. So lots of stuff in this world of own brands, which if you're a competitor to Amazon, the best way to compete with them is to sell stuff that they don't have. So that's a super interesting space as well. We'll have to do a show about that coming up.Scot:
[1:07:01] Yeah. Yeah. Thanks for sharing that. We'll keep an eye on it.Jason:
[1:07:04] Yeah. And with that, we've blown past our allotted time. So people complain we didn't podcast enough. So we gave you two podcasts in one show.Scot:
[1:07:12] Yeah. Careful what you wish for, folks. Boom.Jason:
[1:07:16] But hopefully you enjoyed this and we still would love that five-star review. Again, if you live or have familiarity with any of those global cities I'm visiting coming up, please drop me a line. And thanks everyone for sticking with us. And thanks everyone for all the kind words and comments that we've both heard this quarter. Until next time, happy commercing. -
EP318 - Temu Deep Dive with Earnest Analytics
Episode Summary: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:
Feb 28: Temu’s 2024 Super Bowl ad blitz failed to accelerate growth March 5: Temu is growing fastest among high income earners March 12: Almost half of Wish, AliExpress customers shop at TemuIn 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.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason:
[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
Episode Summary: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.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason:
[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.
2023 Predictions RecapJason:
At least 2 retail bankruptcies (besides Party City) Yes BNPL Consolidation (Klarna, Affirm, Afterpay. Sezzle) – at least one merges/exits US or BNPL. No Shopify launches an ad product such as a retail media network Yes Meta/Google/TikTok lose ad share to new social media platforms and retail media networks. No Live Streaming Commerce Still not meaningful in US in 2023 (less than 5% of social commerce in US) YesJason Total Score: 3 of 5
Scot:
Amazon uses this 2022 setback/slowdown/reversion to the mean for a public resetting of expectations, but behind the scenes they take share and raise the bar on shipping. Yes Shopify is acquired No An innovation in e-commerce powered by ai (gpt4) surprises us by how fast it’s adopted and how cool it is. Yes E-commerce accelerates back to the mean in 2H after a mean regression in 1H. E-com returns 10-15% growth rates. Yes Sephora and/or Ulta move to a subscription model for new product discovery. YesScot Total Score: 4 of 5
Trends revert to the mean, and Scot is back on Top!
2024 PredictionsJason:
Retail Media Networks go In-store. At least 1 top 20 retailer launches a digital in-store ad network AI is even hotter at end of 2024 than now. Most text boxes in E-Com are GenAI powered. A least one retailer has an AI based auto-replenishment solution with significant adoption. Bifurcation drives at least two more retail bankruptcies, including 1 national specialty retailer, and one general merchandise/dept store. (two top 50 retailers) China companies focus more on West and get more traction. Shein successful IPO. Temu US gets to at least 75% of target US E-Com. Grocery E-Commerce goes from $95B to $125B in 2024 (after being down in 2023 per Bricks meets clicks).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:
Amazon relaunches Alexa on a native LLM Temu falters as people realize it’s wish 2.0 RMN is currently $52b, growing 20% y/y, accelerates in 24 to 30% and $67b (coresight has the 52 datapoint) Instacart who’s stock IPO’d at $33 and now is $23, solves ads and pops to 40 While everyone thinks Shein/Temu takes share from Amazon, they end up hurting Nordstrom, Macys and Target instead – materially (10%+) focus on apparel, maybe take target out?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.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript
Jason:
[0:23] Welcome to the Jason and 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. -
EP315 - 2023 Turkey5 Recap with Salesforces Rob Garf
Episode 315 is a recap of Turkey5 (The five days from Thanksgiving through Cyber Monday) 2023 with Rob Garf, Vice President and General Manager, Retail at Salesforce. This is Robs' Six time on the show, having previously been on episodes 110, 248, 282, 299, and 313.
Jason and Scot discuss the "Turkey 5" with their guest Rob Garf, VP and GM for retail at Salesforce. They analyze data from various sources to provide insights into the holiday shopping season. According to the U.S. Department of Commerce, e-commerce grew 7.75% in Q3, while total retail only grew 2%. Jason emphasizes the need for e-commerce to grow at least 7.7% in Q4 to stay on track. Adobe's data shows that Black Friday sales were up 7.5% and Cyber Monday sales were up 12.4% from the previous year. The speakers also discuss data from BigCommerce, MasterCard, and Salesforce, highlighting growth in online sales on Cyber Monday and Black Friday.
Rob Garf adds his observations on retail industry trends, noting an increase in demand and robust pricing. He mentions a rebound in demand in Europe, excluding the UK, and highlights retailers' focus on profitability and inventory levels. The discussion then turns to Amazon's innovative advertising approach during a Friday NFL game, where shoppable ads were displayed via QR codes. Jason believes this strategy will benefit Amazon, as it monetizes viewership and reinforces the brand.
Discounting played a significant role in driving demand during Cyber Week, with retailers offering an average of 30% off. Consumers were patient, waiting for attractive deals, while retailers managed their inventory and discounting strategies well. The luxury category, however, did not perform as strongly, with only a slight increase or even a decrease in sales. The hosts touch on the resale market and the growing popularity of Buy Now, Pay Later (BNPL) options and mobile wallets. They discuss the potential impact of mobile wallets on shopping behavior and note that BNPL resonates with new consumers and has replaced layaway.
Finally, the hosts mention the passing of Charlie Munger and the filing of an IPO by Xi'an, encouraging listeners to support the show and announcing more holiday shopping data and reports on Salesforce.com.
0:00:46 Introduction to the Jason and Scot Show
0:05:04 Black Friday: First Sales for Vendors
0:14:06 Softness in Consumer Electronics and Toys Market
0:14:55 Black Friday and Cyber Monday Impact on Holiday Season Shape
0:16:32 Retailers' Inventory Management and Positive Growth Forecast
0:17:47 Retailers analyzing profitability and customer profitability.
0:18:29 Increase in Demand and Robust Pricing
0:22:34 Amazon's Innovative Advertising and Potential Profitability for Holiday
0:26:27 Discount rates over Cyber Week in comparison to previous years
0:29:04 Retailers' management of inventory and transparency in discounting strategy
0:31:52 Consumer behavior and the rise of Buy Now, Pay Later (BNPL)
0:33:32 Mobile wallets and the impact on checkout process and shopping experiences
0:35:26 Buy Now, Pay Later Growing and Replacing Layaway
0:37:22 Charlie Munger's Passing and Xi'an's IPO AnnouncementThroughout this episode make liberal use of real-time data from Salesforce Shopping Insights HQ, which tracks how 1.5+ billion consumers are shaping shopping trends. You can see a real-time holiday dashboard, powered by Tableau so you can interact with the data yourself on the Salesforce Holiday Insights page.
Episode 313 of the Jason & Scot show was recorded on Tuesday November 28th, 2023.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript
Introduction to the Jason and Scot Show
Jason:
[0:23] Welcome to the Jason and Scot Show. This is episode 315 being recorded on Tuesday, November 28th.
I'm your host, Jason Retail Geek Goldberg, and as usual, I'm here with your co-host, Scot Wingo.
Scot:
[0:39] Hey, Jason, and welcome back, Jason and Scot Show listeners.
Vigilant listeners will remember that we promised you a delicious turkey five
Black Friday: First Sales for Vendors
[0:47] sandwich starring none other than Rob Garf, VP and GM for retail at Salesforce.
And that's what we're delivering today.
Rob was here way back on episode 313 on November 8th. And he is back here today to tell us what happened during the Turkey 5. Welcome back, Rob.
Rob:
[1:05] Thanks for having me, Jason, Scot. Always a pleasure and look forward to getting into some of this really fun data.
Scot:
[1:12] Yeah, this is your record sixth time. So your old hat here. Before we jump in, we do want to just kind of set the table, keeping with the post-Thanksgiving, theme with some leftovers.
I saw what you did there. Yeah. And we, meaning Jason and his army of interns, have gathered a bunch of data from other sources.
So we just want to give listeners that, and we know you have your own data, and we want to paint a complete picture. So, Jason, give us the quick and dirty rundown of other data that we've seen out there covering the holiday period so far.
Jason:
[1:46] Yeah, yeah, yeah. Let's do it. And side note, Rob, we're going to keep making you come back till you get it right.
Rob:
[1:50] I appreciate it. I'm here.
Jason:
[1:52] I'll do what you need. Awesome. So, super quick reminder, Q3 data from the U.S.
Department of Commerce, e-commerce for the quarter grew 7.75%, over, the previous year. year, total retail only grew 2% from the previous year.
And so if you take e-commerce out of total retail, brick and mortar in Q3 2023 only grew 1.08%, so lower than traditional. So when you come into the beginning of Q4 and holiday in particular, in my mind, e-commerce has to grow at 7.7% just to stay at par.
And brick-and-mortar has to grow more than that one percent.
[2:37] So, and I like to start with the lesser data and work our way up to the gold standard, very best data we have, which is, of course, the Rob Garth.
So our friends at adobe which have a different data set but similar methodology and slightly different definition so you can't perfectly compare apples to apples, they said black friday sales were nine point eight billion in the us which is up seven point five percent from the year before so that would basically be right at that par i was just talking about, they said cyber monday was up to twelve point four percent and that was hot off the press so i wasn't able to do the math on what growth rate that was.
They said for the whole month of November year to date, that they see November up 4.6% from last year.
So kind of below that par. These are all numbers Adobe is giving for e-commerce.
[3:26] And of particular note, and I know we'll talk about this more, they've seen a significant uptick in use of Buy Now, Pay Later services, and they've seen deeper discounting than we saw last year.
Now, Shopify is really out there with a big news cycle.
And I don't want to say they won up Salesforce, but they bought the sphere in Las Vegas and broadcast their data on the outside of the sphere, which visually is, is super cool.
But their data isn't so useful because they don't report same store sales.
They had a, you know, some unknown basket of merchants that sold a bunch of stuff last year, and they had some unknown basket of merchants that sold more stuff this year, and we don't know if the same merchants were here this year and last year or if they added a bunch of merchants or, or if this is true growth.
So, so while the Shopify numbers are interesting, if you're investing in Shopify, they don't tell us a lot about what's happening in the e-commerce world.
I did see a super interesting quote from Harley Finkelstein, who's the president of Shopify, and it's possibly, possibly that he just misworded this, but he was excited after Black Friday and he said 17.5, thousand. So $17,500.
[4:41] Vendors made their first sale this Black Friday weekend.
So I took that to mean, not that they launched on Friday just in time for Black Friday, but that this was their first Black Friday where they sold anything.
So that's 17.5 thousand new merchants.
[4:58] And then he said, in total, 55 thousand merchants set their all-time daily record on Black Friday.
Softness in Consumer Electronics and Toys Market
[5:05] And while those two numbers sound impressive, if you kind of think about it for a second, you go, wait, the vast majority of merchants on Shopify that are B2C are going to sell their record.
Cyber Monday hasn't happened yet, so take that out of the equation, are going to set their all-time record on Black Friday.
So not surprised, you would expect the vast majority of all merchants to set their Black Friday record.
And 17.5 thousand of them are new. So what that says is there's only 37 thousand merchants that are a year old on Shopify that sold more this Friday than last year on Black Friday.
And that's, I guess, less than I would expect based on the usual reports we get from Shopify.
So that, I'll just record that as a moment and our stock analysts that cover Shopify listening on the call can weigh in on that one.
[5:58] BigCommerce, a slightly weirder data set. They saw an outlier, they saw 14% growth, but again, random, they're not trying to report at the industry, they're just reporting their clients.
And then a particularly interesting one to me is MasterCard.
I have a love-hate relationship with MasterCard.
Unlike all the rest of you, MasterCard gets a set of data for stores and retailers, so they try to forecast what happened in retail, which is super valuable.
Historically, I've seen some weird deviations from MasterCard that make me cautious about their numbers.
But this year, they reported Black Friday, they did not report Cyber Monday.
Their Black Friday number was up 8.5% year over year for eCommerce.
[6:39] Which is at the high side of the mean for all these other datasets.
And they reported that on Friday, total retail sales were up 2.5%.
But if you back eCommerce out of that number, brick and mortar was only up 1.1%.
So basically, I would call all those numbers par with our Q3 numbers.
So, that kind of sets the table.
Scot, take us through what we learned from Salesforce.
Scot:
[7:11] Yeah. So, a million questions, Rob. Let's start with, it seems like one of the biggest interesting battle royales is, A, why was Rob's face not on the sphere?
And then B, it seems like one of the data sets is saying Cyber Monday is much bigger than Black Friday. And then in your pre-show, you had said you guys are seeing Black Friday exceed Cyber Monday. So let's start there. Which was bigger?
Rob:
[7:37] Yeah. Well, first of all, I lost the coin flip and Astro or Cody, which are critters in Salesforce world, won.
So they got their faces along with Einstein on the sphere a couple of weeks ago during F1.
So I'm still going for it next year, but we'll see what happens.
But I digress. Let's get into the numbers.
So yeah, we are seeing, you called it a battle royal. I appreciate any reference to 1980s wrestling, by the way.
So thank you very much, but let's not go down that path. That could be a whole other podcast.
But what we are seeing is, as you mentioned, a battle between Cyber Monday and Black Friday for supremacy.
[8:19] And they are going back and forth. What we found in our data in 2019, Black Friday eclipsed Cyber Monday and has remained there, especially outside of the United States.
And so we're seeing big growth and, you know, partly what's contributing to that is not only Alibaba, which has been in place for some time, but Timu and Xi'an, which I know you gentlemen like to talk about.
So regardless what I think, two things based on all the data that you provide, and I appreciate the broad perspective that you share here, is people are actually buying.
They might not be buying as much as they were in the past and throughout the pandemic, but But there is demand.
And you know, I think that's important because when we look at our numbers and just to put it out there for Cyber Monday, and we can bounce around here wherever you'd like to go, is we chalked our number at 12.6.
[9:13] Billion in the United States, and that's a growth of 3%.
And I'll call it a healthy growth of 3%. And the reason being is, for the first time in five quarters, we saw growth being generated by increased consumer demand and not just merely higher prices, which is our indicator for inflation.
And just to put it in perspective, let me talk about Black Friday here, because you mentioned the battle that's happening here.
We saw 16.4 billion in online sales for Black Friday in the US, and that was up 9%. And so, as I mentioned, what this shows us is people are buying.
What it's also showing is that there's a high concentration of online sales for those two days.
And sure, you two gentlemen are laughing because that's been that way since Cyber Monday was coined in 2005, but there has been a smoothing out of demand, particularly around Cyber Week or cyber five for the last several years, but there's been a stark shift back to those two prominent days.
Jason:
[10:27] So interesting on the top line numbers, one of the, you mentioned that you're, you're seeing items increase, not just prices, right? Which kind of opens the whole specter of, of it's, we're not just seeing growth for from inflation, right?
Are there any categories that you're like going into the holiday?
It was like, hey, the growth was in essentials and food and things like that.
And discretionary items like apparel and electronics and toys were not doing well.
Did you guys see, like, are people opening their wallets on discretionary items or are sales continuing to be these kind of essentials and affordable luxuries?
Rob:
[11:06] Yeah, it's a mixed bag. And I do want to underscore your point, Jason, around.
Growth being generated by more volume and not just higher prices.
So that's exactly what we saw.
3% growth when you're seeing 9% increase in inflation is a tough equation to, be profitable and to work out in the consumer's favor.
But in this case, we are seeing more demand. And the demand, as I mentioned, is a mixed bag.
On one hand, we are seeing really nice growth in areas like makeup and health and beauty, skin care.
We're also seeing nice growth in active apparel and active footwear as well.
I categorize that actually as comfort.
In uncertain times when consumers certainly are looking to really take control of their household balance sheets, oftentimes you migrate to comfort.
You know, you can talk about comfort food, but this is just comfort gifting and comfort what you put on your body, both clothes and literally on your skin.
And so we are seeing nice growth there where actually, if you think about it over the last 12 months, those categories have been hit a bit in terms of the growth curve.
[12:20] And what you're seeing on the other side actually is luxury is softening a little bit, which which I think is important to note because for the last, I mean, gosh, through the pandemic and after, luxury was one of the most, no, not one of the most, was the most resilient categories.
And we're starting to see a bit of breaking down, especially around the aspirational luxury side. So we're going to keep an eye on that.
I will mention one other thing, actually, as it relates to categories that are doing well in the holiday and that is food and beverage and gifting, you know, in terms of.
What people look to for comfort and experiences, they are gifting chocolate, they're gifting wine, they're gifting various gift baskets.
We saw really strong growth, even starting, you know, the Tuesday before Thanksgiving and working its way through the entire holiday.
Jason:
[13:22] Interesting. One category or two categories that come up a lot, like coming into holiday, electronics had been in a pretty big swamp, like for the whole pandemic.
And I'm curious, I've seen conflicting data about whether electronics are back or whether they're still soft.
Traditionally, electronics would be one of the fastest movers for holiday.
Rob:
[13:43] Of course, of course. Yeah, I mean, consumer electronics, toys, right?
Those two are still pretty soft. I think you really though need to put it in perspective in terms of the astronomical growth we saw on those categories over the last four years.
I haven't done the math. You're really good at this, Jason.
So I'm gonna put you to task maybe on your next LinkedIn post, but I am willing to wager, and I'm not a betting person, so I'm not really willing
Black Friday and Cyber Monday Impact on Holiday Season Shape
[14:07] to wager, but I'd love to see the CAGR of those categories over the last four years.
I'm guessing they're in really strong, like high team growth, which any retailer would be happy with that on a given holiday time period.
So there is a bit of softening, but I think it's really important to understand it in context with the growth that they've seen over the last several years.
Scot:
[14:32] Cool. Um, so, you know, with these good showings and Cyber Monday and Black Friday, what's that mean for the rest of the season?
Are you guys like doubling your forecast, tripling or, and what's that mean for the shape? We talk a lot about the shape of the holiday.
Any, any, any changes to your thoughts on those?
Rob:
[14:49] Yeah. The shape or the anatomy. I've been asked this by a lot of retail executives because they're being asked by their board, like, are you sandbagging us?
Retailers' Inventory Management and Positive Growth Forecast
[14:59] We need to really relook at this forecast.
We crawled through the data over the last couple of days just to look through our model and see if we could see the data in different ways through different lenses.
The reality is what we're seeing is that Black Friday and Cyber Monday were taking market share from the bookends of the holiday, from earlier on and later on, right before the shipping cutoff date.
And so for the last five years or so, we have been seeing a smoothing out of demand for the seven days that we define as Cyber Week, Tuesday before Thanksgiving through Cyber Monday.
And Thanksgiving became a really strong and important day, especially on the mobile device, especially as consumers.
[15:47] Either being distracted or inspired, whichever you want to think about it, on the couch after Thanksgiving meal, looking at social.
[15:54] But we've seen a snapback of the higher concentration of Black Friday and Cyber Monday.
So it's not like there's incremental sales, and that's what I think you were getting at, right?
I don't think there's incremental sales that we can now account for.
We're still staying to our forecast of 1% growth in the US for November and December.
That's how we define holiday and in the US and we're looking at 4% growth globally, really led by Europe.
And I want to just put a caveat on this.
Not only again, are we seeing that growth come from increased demand, but retailers have gotten smarter.
Retailers analyzing profitability and customer profitability.
[16:33] I don't know if it's smarter, but they were very deliberate going into this holiday starting six months ago about managing inventory levels and margins.
So there's been a lot of talk about how are we going to handle shipping?
How are we going to handle our return policies?
And also, how are we going to think about our open to buys?
And so I think most retail executives, especially on the merchandising side, are feeling pretty good because they're working their way through the inventory, which by the way, as you know, has been a big glut over the last couple of years, especially in 2021, when so many products were stuck in the port of LA.
I mean, that just created this bullwhip effect that we're still just getting our arms around now and getting over the hump.
And so that's my long way of saying is we're not reforecasting.
We still feel positive with that 1% and 4% growth in U.S. and global, respectively, because.
[17:24] Retailers are taking a very close look at overall profitability and this concept of customer profitability as well.
Scot:
[17:32] Yeah. You'd said, so it seems like the curve was kind of flattening out and now it's like steepening again it's like kind of coming in at the edges and in kind of like shaping up in the middle part of the bell curve which is like the that,
Increase in Demand and Robust Pricing
[17:48] cyber week. Is that that's right. Okay.
Rob:
[17:51] That's really good. Yeah. It's kind of snapped back. Right. Yeah. Definitely. Yeah.
Scot:
[17:56] It's going to make that sound.
Rob:
[17:58] Where's the sound effects in turn? Are they there? Are they on call?
Can we get that bullying?
Jason:
[18:02] I'll be adding that in post.
Scot:
[18:06] You had said something that kind of piqued my interest. You said people are kind of, you know, I may be rephrasing this wrong, but you said kind of demand is back.
Like I knew it almost felt like you were saying before there was, you know, people were shopping, but it didn't seem like, you know, a new increase in demand.
And now it is because you're seeing robustness in pricing and stuff.
Is that say a little bit more about that? I'll make sure I understand what you were saying.
Amazon's Innovative Advertising and Potential Profitability for Holiday
Rob:
[18:32] Yeah, you got it. So yes. And I, again, and don't think retail executives are doing backflips and thinking that we're getting back to roaring double-digit, growth coming out of the holiday.
But what this is an indication, and by the way, we're seeing this as a leading indicator in Europe, let's exclude the UK, which is probably in the same rebound curve as the United States and Canada, but you take continental Europe and who are about two, maybe three quarters ahead of us in terms of the rebound, we're seeing inflation settle, the average selling prices settle down and people are buying more.
So we're seeing average orders volume higher.
We're seeing slight uptick in units per transaction, only slight.
But the order piece is super interesting. We're seeing traffic.
We're seeing continued really strong traffic.
People are just really being diligent and patient and shopping a lot and looking for the best deals. And we'll have to talk about that in terms of what discounting patterns we saw as well.
So that's my long way of saying Scot is people are buying more, they're doing it.
By still making trade-offs. So there is a sense of let's load up on some essentials while we're getting good deals.
[19:57] Let's look for travel, entertainment, like experiences.
And you have to also think of the adjacent categories like luggage, as an example, if you're going on a trip, do you need something new to put your clothes in?
And though they are, again, increasing, as I mentioned.
So as I think about the sentiment, even with a 1% in the US growth, 4% global is what we're forecasting for the full holiday, retailers are feeling good about that.
They want to exit this holiday on a really good foundation of profitability, a really good foundation on inventory levels.
And most every retailer I'm talking to has a growth mindset.
They're thinking about customer acquisition, finding new ways to do that because customer acquisition costs are still off the charts, but also loyalty, finding new ways to create stickiness, looking for adjacent categories, adjacent services, looking for partnerships to supplement what they're doing organically.
And I mean, this would take us down a whole other path, but they're leaning into data.
They're leaning into AI to better understand who those consumers are and what they're likely to buy and making sure they're able to create profitable customers.
How was that soapbox? I just rattled off too much, too fast.
Jason:
[21:13] So hopefully you were able to digest it. But you kind of, you glossed over what they're really looking at is just selling ads to brands.
Rob:
[21:18] That's fair. Thank you. I could have just said that. You're right.
That's a very good point.
And yeah, we could, I love your take actually, seriously, given that on Amazon's move for the football game on Friday.
Jason:
[21:31] Yeah. So that's a great point. And maybe just to catch up listeners that might not have followed it. Something very different and unique for this year is that the NFL, you know, normally they have a Thursday game and they have Sunday games and a Monday night game.
On Thanksgiving, they have Thursday day games during Thanksgiving.
This year, they added a Friday game for the first time. And the sponsor of that Friday game was Amazon.
It was broadcast on Amazon Prime, and Amazon actually had shoppable ads via QR codes in the broadcast, all sort of innovative, cool, new stuff.
[22:11] The early read is that the viewership was pretty good for the Friday game.
There's no history, so we have nothing to compare it to.
I would argue fewer people are going and standing in line at brick and mortar stores for door busters.
You know, the little bit of data we do have on brick and mortar shows that, like, there wasn't a huge, huge spike in in-store shopping.
I feel like Friday has become more of an online shopping day,
Discount rates over Cyber Week in comparison to previous years
[22:36] which means people are home more, which means there's an opportunity to watch a football game.
I kind of don't imagine that the interactive ad formats, like, you know, we're high volume and really move the needle, but they're innovative.
And I do think that that Friday game is likely to be a new tradition as the holiday shopping season goes from an omni-channel thing to an online thing. At least that's my POV.
Rob:
[23:03] Yeah, I am super interested in your point of view given how close you are to this. So I guess I'm gonna put you on the spot.
Wow, look at me, I'm totally turning the table here, but this has been on my mind.
And actually, interestingly enough, over the weekend at a party, somebody who's not in like retail, you know, he shops.
That's the extent of it. He pointed out what Amazon did and thought it was really clever.
So what did I hear? Like, did they spend a hundred million dollars for that?
Regardless, do you think they made the money back going to your point, Jason, on selling ad space in there and kind of even if it's a break even and or they're gaining more prime members, it was a good day for Amazon?
Jason:
[23:42] Yeah, I am pretty confident it was a good day for Amazon.
Like, one thing to remember is Amazon has a better model for monetizing eyeballs than anyone else, right?
So, like, if you're Coca-Cola and you sponsor a football game, you're trying to get eyeballs and the only way you have to monetize those eyeballs is to get them to drink more Coke.
Rob:
[24:03] Right.
Jason:
[24:04] If you're Amazon, here's what you do. You get a bunch of eyeballs.
You try to sell them something that you make money on. And after you do that, you sell ads to other people for more than you paid.
And they try to sell something to that person, right? And so, you know, the combination of the ad revenue that Amazon generates and the top of funnel, and bottom of funnel benefit that Amazon gets, again, they're building their brand.
Your friend that was just talking to you, he wasn't talking about a particular product he was shopping for.
The brand he remembers is Amazon, right?
And so you got that Amazon top of the funnel benefit, which is valuable and important.
Amazon probably sold some stuff to people. So you got that Amazon bottom of funnel benefit.
And then we know Amazon sold a bunch of ads, which is, you know, a huge, huge driver of incremental profit.
So yeah, I definitely think we can call Amazon a winner there.
I think when it all settles, we're also going to see that it was just a pretty good sales day for Amazon as well.
Rob:
[25:09] Yeah, I bet you're right. Yeah. The last point and then we can move on and by the way, welcome to episode one of the Rob Garf podcast, is the fact that I mean, knowing Amazon, those ads that you're getting are personalized in terms of them understanding who you are and even if it's a different size or a different brand or a different you know, whatever, even what they know about what's in your shopping cart, what you bought in the past.
So anyways, it sounds like, as I would have suspected, you're pretty bullish about it and I am too.
Jason:
[25:37] So yeah, I do want to cover something just kind of fundamental.
So, so we rebounded a little bit and we got bigger sales on, on Friday and Monday.
Potentially we might've just pulled some sales in that were going to happen later in the month per your, your comments about not wanting to re-forecast.
Did we partly pull those in by giving deeper discounts than we usually give?
Like what, what did you see from a discounting standpoint and what does that say about potential profitability for Holiday?
Rob:
[26:03] Yeah, yeah. Yeah. So we actually looked at this going into the Holiday and we went back to 2019 and I have the team look at discount rates starting in November 1st for 2019, 2021, and 2023, what we had anticipated for this year.
And what we saw and actually came true is we saw discount rates over Cyber Week hover just north of where they were in 2019.
Retailers' management of inventory and transparency in discounting strategy
[26:31] Don't forget, 2021, there were the lowest discount rates that we've seen because the product just wasn't there.
So retailers, it was the first time they won the game of Discount Chicken.
The short answer is yes. Retailers did discount the heaviest they have all year, right around 30% on average.
And I think that's important. It's on average. I mean, we've all seen discounts of 40%, 50%, really creative discounting strategies.
And so that definitely drove demand. I mean, going back to the consumer, while they're buying more, they're making trade-offs and they were really diligent.
[27:09] They were really patient and they waited and they waited and they ultimately saw the attractive deals starting in earnest on Black Friday.
They weren't even that great on the Monday, Tuesday, I'm sorry, the Tuesday, Wednesday, and Thanksgiving, Thursday until Black Friday, and then they started to buy.
So they held out and they ultimately purchased those attractive deals.
In terms of margin, I think we're doing okay. And the secret here is when we looked at the data, given all the inflation that happened, And actually, consumers are still, even with these deep discounts, paying more than they were in 2019.
The optics are there. They're feeling like they're getting a good deal, but the reality is they're still spending more. So I think they'll be okay.
And there wasn't this protracted discounting that did happen.
And because they manage their inventory well, the retailers, and their discounting strategy as well, I don't think they're going to be forced with the hail Mary discounts that you often see right before the shipping cutoff date.
So I think that retailers actually managed it pretty well.
I give them credit too, by the way, what we saw in our data as well is retailers were a lot more transparent around their discounting strategy.
[28:23] Many were offering price match guarantees.
If they saw, you know, the consumer saw the price for less, and they were also much more transparent around their return policies as well.
So people felt a little more comfortable buying earlier, even if the prices weren't exactly where they wanted it.
So the long of it is, or the short of it, whichever way I look at it, is there were healthy discounts.
Consumers took advantage of them.
I'm still feeling more positive, especially than I have from last year, about margins.
Scot:
[28:57] Cool. You said something I want to dig into, and then I want to pivot to be in PL. You said luxury was a little soft. What do we make of that?
Consumer behavior and the rise of Buy Now, Pay Later (BNPL)
Rob:
[29:06] Yeah, and like I said, it's had a run, like I haven't seen before in any one category.
I mean, don't get me wrong. Consumer electronics really strong and some other categories in the pandemic home looked really strong as well.
But it continued after the pandemic, both in store and online.
What we saw compared again, just to put in perspective, three percent increase on Cyber Monday in the U.S., nine percent increase in Black Friday in the U.S.
[29:34] There was a tick low beyond flat for luxury. What it also showed is they started to.
[29:41] Discount more than they typically do. You think of luxury, they're going to hold their really price and be sensitive around preserving their brand and their margins.
And we were seeing that tick up as well.
I think the ultra luxury is still alive and kicking, no problem.
It's more of that aspirational luxury.
One area that I think is really important to point out is the resale market.
More and more luxury brands are playing in the luxury market game.
I'm sorry, the resale market game, because they realize people are doing it anyways, and they might as well offer that in many cases on their own website.
So like Coach as an example, Canada Goose as an example, have the capability to exchange product, which then allows existing customers to likely buy something at a higher price point.
And then if the product is in good enough shape, they're able to resell it and allow for aspirational shoppers to actually access that brand and buy it where they might not have been able to in the past.
So yeah, I'm not overly concerned about luxury.
I mean, the brands are so strong and there's so much loyalty there, but it just does show that in the aspirational space, people are trading down to a degree.
[30:55] You know, they're trading down for value in the resale market.
In many cases, they're trading down for vintage.
It's amazing to see how many, you know, sneaker brands and specific models are hot that we all remember from our high school days.
And you know, even the younger generations like to save the world a little bit as well.
Scot:
[31:14] Yeah. So I guess what I'm getting at is, do we think the consumer's rolling over and that's kind of the BNPL question too, because one way to read BNPL increasing is people are under financial stress. So they're stretching out payments.
Another way is, you know, seeing all this data and it's always sponsored by one of the BNPL providers.
So I'm never sure how to take it, but it shows that, you know, millennials and Gen Zers like, they don't like open credit.
And it's weird because my kids have this perspective too. I thought it was like, I thought it was totally made up and then they're like, oh no, I, you know, I hate having like these credit cards with big limits.
And I'm like, well, if you don't use it, it doesn't matter. It just makes them
Mobile wallets and the impact on checkout process and shopping experiences
[31:52] nervous for some reason.
And do you think it's a generational thing or is it a little sign of softness on the consumer?
And maybe the luxury is another indication that it feels like the consumer is rolling over a little bit or you don't see that.
Rob:
[32:06] Yeah, I mean, I think it is a bit generational to your point.
I don't have those data's points to substantiate what you're describing.
But a lot of what I learned is from my 17-year-old and 14-year-old because they're right in the smack dab of purchasing and trends and so forth.
Don't worry, we have a lot more data at Salesforce to back this up, billions and billions of shoppers.
But in any case, the anecdotes definitely help provide a full commentary.
But we saw an outpay later over Cyber Week increase 7%. So that's healthy.
It's a little slower than we've seen in past.
What we're also seeing, and it started last year, is it's on lower and lower price point merchandise.
So that also speaks to the adoption as well. It's not just on the big ticket items.
I think if I zoom out for a moment as well, mobile wallets were really strong.
Mobile wallets were really strong. We saw about a 50% increase year over year in that.
Now, of course, it's a smaller base than traditional credit cards and debit cards.
But still, it's showing the adoption because it's really breaking down the friction in the checkout process.
But we keep a close eye on buy now, pay later, because you're right.
It could be an indication, especially as consumers look to buy lower price merchandise, that it might be a softening in the market.
But we're not quite there in proclaiming that.
Scot:
[33:25] You said a mobile wallet. That is catnip for retail geek, so I'll get out of his way. I bet he has a million questions.
Jason:
[33:32] Yeah, no, Scot knows I love a good mobile wallet and I'm sure everyone's already heard this,
Buy Now, Pay Later Growing and Replacing Layaway
[33:37] but I have a hypothesis that some of the popular shopping behaviors we see in Asia aren't as popular here because we don't have as good a penetration of mobile wallets and that if you have mobile wallets, it makes certain experiences like shopping on social media and things like that easier because it only requires one hand instead of three hands.
So I'd be curious, do you guys think you're seeing more mobile wallet users, or do you think you're seeing more transaction from the existing users, or do you have the ability to?
To see between those two? I suspect I just asked you a question you're going to now have to go do research on.
Rob:
[34:17] Nick Neumann We may have that based on some of the primary research we do.
We don't have access to personally identifiable information, so we can't see by user.
But my thesis there is it's both. There are more people adopting mobile wallets because they see the convenience and the friction that's removed.
And then once that happens, they're buying more.
I think you go back to the Amazon example, part of why that's probably a home run for them is because it's a lot easier for somebody to buy in that form factor than let's say Roku or other Verizon user interfaces that you don't have a wallet associated with it.
I didn't go through the shopping process on the Friday NFL game, but I can only imagine it was much easier than having to do it through other types of media.
So I think that, yeah, I agree by the way, with your hypothesis that, you know, embedded commerce or shopping at the edge has been a bit stunted because, the wallet piece is not there or as accessible as it is in other countries.
Charlie Munger's Passing and Xi'an's IPO Announcement
Jason:
[35:30] Yeah. Two things I'll just throw out there on buy now, pay later.
I mean, I do, I think it, it legitimately resonates with the new crop of consumers.
And so I think it's growing for all the reasons that the Buy Now Pay Later people claim it's growing.
But I would, there's two accelerators that are just kind of convenient in there.
Holiday used to be a big time for this payment method that the youngsters on the call wouldn't have heard of called the layaway.
And almost no retailer that I'm aware of has brought back layaway, like they all retired it in the last several years, largely because Buy Now Pay Later has replaced it. And so, you know, layaway is most popular around holiday.
So, you know, to the extent that buy now pay later is the digital version of layaway.
It kind of makes sense that you would see a spike over a holiday.
Also, digital is growing much faster than brick and mortar. Buy Now, Pay Later is disproportionately online.
So that, you know, is another reason you would expect Buy Now, Pay Later to spike.
One thing that's a little alarming slash interesting to me is that Buy Now, Pay Later gets used for a wider range of purchases and merchandise than LayAway did.
Like, LayAway tended to be big ticket items, your kid's aspirational toys, but Buy Now Pay Later gets used for food and consumables and things that economically you would argue probably don't want to be financing something that you need to rebuy every month.
Rob:
[36:52] Yes.
Jason:
[36:53] So I'll just throw that out there on Buy Now Pay Later. We are coming up on our allotted time.
I do have two other pieces of news that just kind of interrupted the Turkey Five news cycle.
And one of them I'm super sad about, and it's actual breaking news that happened while we were recording this show, Charlie Munger just passed away at 99.
Rob:
[37:13] Oh, wow.
Scot:
[37:14] That's terrible.
Jason:
[37:15] Warren Buffett's partner, and I just, I feel like, very admirable person.
I've learned a lot. He and Warren Buffett, like, are super generous with sharing
[37:23] all this thought leadership, and I just want to say best wishes to all his family and loved ones. Seems like you had an amazing life.
Rob:
[37:31] Yeah, I echo your sentiment.
Jason:
[37:33] Yep. And then in the middle of Cyber 5, you guys teased this a couple of times talking about Xi'an. and Xi'an disclosed that they filed an IPO.
So that came out yesterday. It's a confidential IPO, so we won't actually see the prospectus until probably 2024 sometime.
Okay. And the theory is that it's going to be, because of their not super transparent ownership structure and their Chinese ownership, it's gonna have extra regulatory scrutiny.
And so the reason you'd file a confidential IPO is so you could start talking to regulators and negotiating what you're gonna do and what you're gonna disclose.
And so they're probably working through all that stuff to then do the public IPO later.
But it's, I'm excited for when that gets disclosed because there's a lot of speculation about how big Shein is and how profitable or unprofitable their model has been.
And we're gonna be able to do away with all that speculation and get some real certified data.
Rob:
[38:38] I can't wait to listen to that show when you dissect that. It will be super interesting to see where they're allocating the investment and the capital.
Beyond, obviously, hiring people, but what parts of the business.
Jason:
[38:51] I totally agree and that's going to be a great place to leave it because we have used up our allotted time.
Rob, so grateful and congratulations on being our first six-time guest.
And as per usual, if you enjoyed this episode or it was useful to us in any way, the two ways you can reward us are to do a giant enterprise contract for all your marketing services with Salesforce.com or, you can leave a five-star review on iTunes for Scot and I.
So, you know, those are the two paths, choose whichever one makes most financial sense to you, but appreciate it if you do one or the other.
Rob:
[39:29] Yeah. And if I could say too, I know we're running up against time, but I want to give a big, sincere thank you.
Obviously we just came out of Thanksgiving, so I want to show my gratitude.
You know, it's amazing. Anytime I'm on the show, the people that reach out to me, not only talking about the show, but how much they've learned from you.
And so for you to trust me and providing my perspective and Salesforce perspective means a lot and just thanks for being such good friends.
Scot:
[39:56] Robert Leonard Jason said, no, but I overrode him just so you know the history.
I thought, you know, Jason's like, I'm the retail geek. We don't need any Garfies in here.
Rob, remind us where could people go? You guys will be updating your data.
I assume, you know, this is the last time you'll be on for this year, but I'm sure you'll be publishing more data as we get deeper in the holiday.
Where do people go to see that?
Rob:
[40:19] Jason Cosper Yeah, we have our Shopping Insights HQ on salesforce.com.
We will be updating the information.
We'll do a mid-season report right around the shipping cutoff window, and then we'll do an all-wrapped-up just around the beginning of NRF. So keep an eye out.
Scot:
[40:34] Awesome. Well, thanks, everyone, and until next time...
Jason:
[40:38] Happy commercing! -
The Jason & Scot Show. Podcast about e-commerce and digital shopper marketing.
Editor note: We're trying some fun new AI features for this episode. The following show notes were written by ChatGPT. We're also let AI remove all the "stop words" in our audio, and we've switched from Google to OpenAI for our audio transcription. Let us know your feedback.
In this episode of the Jason and Scot show, our special guest is Sean D. Nelson, the CEO and founder of Lovesac. He shares his inspiring journey of starting the company as a beanbag business in his basement and growing it into a successful public company. Sean highlights the key moments of his entrepreneurial journey, including winning a million dollars on Richard Branson's reality TV show and navigating the ups and downs of the business. Sean has upcoming book and podcast, both entitled "Let Me Save You 25 Years: Mistakes, Miracles, and Lessons from the Lovesac Story."
Sean emphasizes the importance of being a direct-to-consumer brand and how Lovesac has found sustained success by focusing on customer acquisition costs and offering a high-quality product. He discusses the concept of direct-to-consumer and shares his thoughts on its significance. Sean believes that having a differentiated product that provides value to customers is crucial, rather than simply relying on an online sales strategy.
The conversation also touches on the topic of innovation and how Lovesac has been able to push the boundaries of what a furniture company can offer. Sean discusses their Stealth Tech innovation, which incorporates surround sound into their couches, as well as their commitment to creating products that are built to last and designed to evolve.
Sean acknowledges the challenges of operating in physical retail and highlights the importance of their showrooms in reducing customer acquisition costs and providing a hands-on experience for customers. He also mentions their partnerships with Best Buy and Costco to expand their reach.
The discussion expands to the future of retail and e-commerce, with Sean mentioning the transformative role of AI but cautioning that it takes time for movements to fully evolve. He emphasizes the importance of being patient and keeping an eye on developments in the industry.
The conversation concludes with Sean expressing his long-term commitment to Lovesac and his desire to build something meaningful rather than focusing solely on personal gain. Listeners are invited to check out Sean's podcast and website, as well as his upcoming book, which will be released in January.
Overall, this episode provides insights into the journey and philosophy behind Lovesac's success and offers valuable perspectives on entrepreneurship, innovation, and the future of retail.Chapters
0:00:46 Introduction and Welcome to the Show
0:08:36 The Journey of Love Sack: From Highs to Lows
0:12:05 Love Sack's Traditional IPO and Company Performance
0:15:49 The Importance of Having a Differentiated Product
0:19:49 The Value and Overhype of Market Movements
0:23:18 Sactionals: Built to Last, Designed to Evolve
0:25:56 Driving a Movement for Sustainable Consumerism
0:31:36 Innovation and the Evolution of Lovesac's Product Line
0:37:07 The Strength of Lovesac's Physical Showrooms in the DTC Landscape
0:40:03 Testing and Learning: Mobile Concierge and Shop and Shop
0:41:52 AI's transformative role in the future of technology
0:50:08 Long-Term Vision vs Quick ProfitEpisode 313 of the Jason & Scot show was recorded on Thursday, November 9th, 2023.
TranscriptJason:
Introduction and Welcome to the Show
[0:23] Welcome to the Jason and Scot show. This episode is being recorded on Thursday, November 9th, 2023. I'm your host, Jason "RetailGeek" Goldberg, and as usual, I'm here with your co-host, Scot Wingo.
Scot:
[0:37] Hey, Jason, and welcome back. Jason and Scot show listeners.
Jason, we're very fortunate to have a entrepreneur on the show.
I'm the entrepreneur side of our partnership. So I always really enjoy these.
The Journey of Love Sack: From Highs to Lows
[0:49] We have on the show, Sean D. Nelson. He is the CEO and founder of Lovesack.
And a little birdie told me that he recently started a podcast himself.
He started Love Sack as a beanbag company in his basement when he was around 18.
And now it's a public company and doing relatively large revenues over 600 kind of run rate.
If I look at the last quarter, I took a little glance at that.
Sean, welcome to the show.
Shawn :
[1:13] Thank you. Thanks for having me. Great to be with you.
Jason:
[1:16] We are thrilled to have you, Sean. Listeners always like to kind of get the background. I'm imagining you don't have a deep background before you started Love Sack because you started it so young.
But can you, like where were you in life when that brought you to start build your own product?
Shawn :
[1:34] Yeah, strangely, 25 years in and still running the same company I founded as my side hustle in college, which is exactly what Love Sack was.
So 95, all the way back then, I made a giant not bean bag because I thought it would be funny.
I literally, 10 days out of high school, got off the couch at my parents' house, having this dumb idea, like, how about a beanbag, like, me to the TV, like, the whole floor, like, huge.
Drove down to the fabric store, bought some fabric, brought it home, cut it out, and then began sewing it up, broke my mom's sewing machine, neighbor finished it, took three or four weeks to try and stuff it, originally with beads, but couldn't possibly find enough, so looked around the house, I just found out my parents' camping mattresses chopped up yellow foam, you know, like those yellow slabs of foam you take camping, on a paper cutter in the basement.
And eventually, I mean, foam, packing peanuts, old blankets, had this thing stuffed and started using it out and about through university, taking it camping, back of the truck, driving movies.
Ended up putting it away for a couple years. And by the way, everywhere I took it, everybody wants one. Like everyone's always like, Oh my gosh, what is that thing? Where'd you get it?
I was like, I'll never make another one. It was such a pain in the butt and put it away for a couple of years to go be a missionary for my church.
[2:58] And came back to finish up university in 1998.
And that's when I founded the company. Cause people kept bugging me to make them one.
And it became my side hustle in college.
And we tried to sell these things eventually beyond our friends and family and beer fest, May fest, October fest, car shows, boat shows, 10 by 10 booths, how we got started.
Tried to sell them to furniture stores and they laughed at us and told us it was a dumb idea.
[3:34] Eventually, at a trade show got discovered by the limited to this is like, you would not today as justice like in the malls, like little girls pink and purple fuzzy stuff for their bedrooms and, and clothing.
Anyway, they ordered 12,000 little love sacks, not knowing it was me and a buddy and like a woodchipper shredding foam in the back of this furniture place.
And, and that forced us to source over in Asia, which is, you know, where I had served my mission.
So I speak Mandarin Chinese. There's a whole story there I won't get into it it was just kind of one thing led to another led to another week we built a factory to support that 12,000 sack order we then went out to the furniture stores who again laughed at us didn't want our $500,000.
[4:19] Beanbags having completed that order wanting to keep the factory going so we finally opened our own store in a mall that didn't even want us there but finally capitulated let us in because they We had a space to fill for the holiday season, in Salt Lake City, Utah, and it just exploded.
We did a good job, carpet paint, neon sign, made it look like a proper mall chain store selling giant beanbags, and it just took off. Like, it worked.
People came in, flopped down, music bumpin', big screen TV, playin' movies, had a great time.
There was a couch in the corner to look pretty, be part of the decor.
People kept asking about the couch, And that led us to eventually, many stores later, many states later, invent Saxionals, which is our modular sofa solution, which now drives almost 90% of our sales today.
So we're more a couch company by far today than we are a beanbag company.
And there was a whole, listen, I'm skipping over decades of time really, but there was a whole transition where we...
We went through after we invented the sectionals and solved all these problems people have with couches not only can you ship it to your house via FedEx which was hyper relevant you know for.
[5:32] E-commerce and digital marketing obviously but it's watchable and changeable, and movable and it can be with you the rest of your life that that led us to a whole design philosophy that now.
[5:42] Drives are innovation we think is a really cool secret sauce called design for life but. 10, 20, 50, 100, 250 locations now.
We came public in 2018 on about 100 million in sales.
Right around the time there was just tons of fervor in this direct consumer movement.
We had farted around, we'll call it as a furniture store, selling rugs and lamps and bowls and baskets and all the obvious things along the way.
And it was really when we purged all that stuff around 2015, seeing the Caspers of the world emerge and Warby Parker's and even Tesla with their showrooms.
Could we adopt a more e-commerce-led model with showrooms for people to kick the tires, so to speak?
And that transition is really what unlocked the lovesack that you see today and where most of our growth has come since about 2015, 16, when we made that pivot, took the company public, wrapped around that direct consumer story.
So we're not a digitally native brand originally, we were actually a retailer that pivoted and became digitally led.
And now we don't even operate stores in the traditional sense.
We don't, we don't stock things there. You know, you don't walk out of there with your product.
They're all really online sales and those showrooms are extremely powerful mechanisms for helping people make up their mind around a five or 10, $15,000.
[7:06] Purchase where they want to see the thing and sit on it and, and, and see if it's everything it's cracked, it's cracked up to be online.
And so we, we, we believe that we really, uh, through that arc.
And then by the way, since coming public, I don't know, six, seven X, the company this year, you know, we'll, we'll be on a run rate to the analysts were a public company.
So the analysts show us around, you know, it's called 700 plus in revenue and profitable, very profitable and cash generative.
So we think, you know, the direct consumer game, in a lot of respects, Love Sack is one of the unlikely winners of that entire movement.
Because I think at that scale, there are very, very few, what I call successful direct to consumer brands. And so we're really proud of that.
And it's been a long saga, and we continue to grow and change and adapt and evolve.
Jason:
[8:01] It's an amazing story. And we definitely want to unpack it. But I want to go all the way back to the beginning for one second. Did that neighbor who helped finish sewing the first prototype get any equity?
Shawn :
[8:13] No, it was my ex-girlfriend's, mom, so about the time she exited, you know. No, it was just a friendly favor, but the truth is a lot of people helped out along the way, and a lot of people had equity or have equity in Love Sack from along the way, but look, we've been through every high, every low.
Somewhere in the middle there, I skipped over it just because of brevity.
Not only did I win a million dollars on TV with Richard Branson,
Love Sack's Traditional IPO and Company Performance
[8:38] his reality TV show on Fox Network back in 2005, if you can believe that, the rebel billionaire.
But I also guided the company through a complete chapter 11 reorganization back in 2006, spearheaded by Venture Capital, which was painful and ugly and embarrassing and humiliating.
So we've been through every kind of thing over these better than two decades.
Scot:
[9:01] Yeah, my deep dive question is, when you rented or bought the wood chipper, did you tell them you'd be throwing foam in there, or did they think you were clearing up a tree?
Shawn :
[9:09] Oh, that's so the original story. Yeah, the original woodchipper actually, you know, if you've ever used one in your backyard or, you know, you shove sticks into these things, that's basically what the original shredder was.
And it was in the back room of this furniture factory already.
They had used it back in the seventies to shred foam, but it had an electric motor, right? Instead of like, okay.
Scot:
[9:30] So it's okay to be inside here.
Shawn :
[9:32] Well, yeah, but I had to rehab it because it hadn't been used in like a decade or two because shredded foam had fallen out of favor in furniture.
And then later to do that bigger order, we couldn't afford like a proper German, shredder, so we ended up driving out to farm country to find more of those same kind of shredders and actually found a hay grinder called a hay buster can shred 2000 pounds at a whack.
Scot:
[9:57] And that's a lot of power.
Shawn :
[9:59] Yeah, it's powered by a tractor. So we, you know, agricultural loan for tractor and hay grinder. I mean, crazy, crazy story in the beginning.
Scot:
[10:07] Yeah, as a family, you gotta figure out how to get it done, right?
Whatever it takes.
Shawn :
[10:12] Whatever it takes.
Scot:
[10:13] I didn't know the Richard Branson thing, so that was interesting.
Did he like, was he an active investor, or that's like one of those things where his people kind of take over and you never hear from him again?
Shawn :
[10:22] No, I mean, it was a weird situation. He had a reality TV show, 2004-5, The Rebel Billionaire, you know, whatever, 16 contestants.
It was like The Apprentice, but not for apprentices, for entrepreneurs.
So my runner-up on the show was Sarah Blakely of Spanx, gives you an idea.
Scot:
[10:38] Oh, okay, cool, neat.
Shawn :
[10:39] Yeah, yeah, so we became great friends, she and I, Richard and I.
I ended up also being named President of Virgin Worldwide for a minute as part of the prize, believe it or not.
So, worked with Richard, worked with all of his CEOs.
Totally weird outcome. And, you know, but huge, huge blessing and a huge piece of story.
And he was involved in sort of our VC round that ensued on the tail of that.
Scot:
[11:06] Okay, and then I think I saw that you guys were on Shark Tank, right? You were like one of those that you know, kind of one of the big success stories.
Was that the OG Shark Tank or?
Shawn :
[11:16] No, we weren't on Shark Tank. A lot of people thought that. There was a Love Sack copycat that's on Shark Tank. Okay, and so they got...
Scot:
[11:23] I was confused because like Google says you were and then I was like, but then I couldn't find the episode.
Jason:
[11:28] There's a whole TikTok channel dedicated to Love Sack and Shark Tank and it's super weird.
Shawn :
[11:36] That's super, yeah, people get confused.
Scot:
[11:42] Yeah, yeah, super weird. Yeah. And then when you did your IPO, was it a traditional IPO or did you guys get caught up in the SPAC craziness?
Shawn :
[11:51] No, we did a traditional IPO back in 2018 and you know, our stock has been really volatile for lots of different reasons that, you know, COVID was crazy, but the company performance has been really solid.
So we're just trucking.
The Importance of Having a Differentiated Product
Scot:
[12:06] He, I think, was at Graham that said in the short-term it's an emotional machine, in the long-term it weighs your financials.
So you got to, it's very hard, you know, I took a company public, not to the level you have.
And yeah, it is, I was like, I'm not going to look at the stock, it's not going to influence me. And then suddenly everyone's like, are we making the quarter? And it's like, okay.
And then suddenly it's very hard to get out of that, that short-term mindset.
So congrats to you for sticking to it for so long.
Shawn :
[12:29] Yeah, look, I'm actually a big advocate of it, having lived inside of it now for almost six years.
Scot:
[12:36] Yeah, the transparency is good, you know, and I like that part of it, I think that's good for, you know, to kind of have to put out everything that you're doing, you know, it's a, the ultimate, yeah, it's like, yeah, transparency tends to be a good thing.
Shawn :
[12:48] I think it's the right way for companies to be governed and ran.
Anyway, we could get into that if you want.
Scot:
[12:56] Yeah, I like the, you know, and you talked about all the other, we call them digitally native vertical brands, like the Warby's and Bonobos and all that.
And yeah, a lot of them have not made it past kind of like that hundred million dollar level.
And you guys have obviously, you know, six, seven X that, which is awesome.
And then, you know, the big knock on Casper for a long time was as we've actually had this guy, Dan on the show, people were able to pick apart the CAC LTV and they found the average selling price was like, Jason will know these numbers, but it was like 350 and their cost to acquire a customer was 400.
And they were like, you know, that obviously wasn't sustainable.
So it's pretty neat that you guys have figured that out.
Shawn :
[13:36] Yeah. I mean, that's at the root of why obviously we've had some sustained success.
And I think it's also at the root of why there are almost no other direct consumer brands making any money. End of story, full stop.
And it's pretty fascinating to watch the whole thing unfold, because it really has been a movement for almost a decade.
Scot:
[14:01] Yeah, and I don't want to dig into the information you don't divulge publicly, so this is not a trap or anything but is it because the selection or your products, you've kind of cracked the code on Kakao TV, like what do you, and I don't want to know any methods or anything. and what do you attribute it to?
Shawn :
[14:18] Look, I think, let's start at the root. I think that many companies, product companies, let's start there, overlook the fact that you need a really good product.
I think they pick a category and they say, oh, it could be a direct consumer brand.
And the truth is, what does that even mean? Do you mean, because here's the funny thing.
When I hear analysts and industry people talk about direct consumer, it has become synonymous over the last decade as it's unfolded today with e-comm.
Oh, you mean you're an e-comm company and in many cases you do half of your sales through wholesale.
So what does it even mean? I mean, if you want to talk about a direct consumer brand, LoveSack may be the most direct.
We don't have any wholesale. I'm talking zero, and we only sell through our own channels, whether it's our website or our showrooms.
And we have these partnerships, for instance, where we operate our own showrooms inside of a Best Buy or a Costco.
[15:26] But you know, so this whole phrase even, direct-to-consumer, I think is really kind of silly.
You mean you're a company that sells stuff online and maybe in showrooms and maybe in wholesale?
So you're a company that sells stuff. So let's start with stuff.
And you have to make, I think, if you want to be successful in the world, it's not a new concept. You have to have...
A great product or or you have to have some other really. Hiller efficiency
The Value and Overhype of Market Movements
[15:52] and i think what most have discovered it was a list again over this long decade of direction sumer evolution is that without a really differentiated product.
You're just another company with a clever name lots of funding and if you throw lots of money at anything it's gonna grow.
But you need to be differentiated. So Love Sack, you know, start with the giant beanbags.
They were unique, especially in their day. There's tons of copycats out there now.
[16:24] Sactionals are extremely unique. The problem is they photograph just like any other sectional sofa.
Like if you took an image of Sactionals and an image of one of, you know, out of any competitor that sells couches, ours looks a lot like theirs.
But the difference, the differences are myriad in terms of their washability, changeability, quality, and modularity, and many of those aspects, especially on the modular side, are patented at LoveSac.
And so once you dig into it, you find that that's the number one driving factor, is we have a product that's truly differentiated, truly gives more value to the customer, and therefore, we can extract more from the market.
It's really that simple, right? And that's at the root of why our CLV to CAC ratio it was so high and sustainable and cash-generative and profitable.
And then we could go down all kinds of other paths. We could talk about our website, execution and stuff like that.
And all of it needs to be there. Look, running a business is multifaceted and difficult. But at the root of it is that.
Jason:
[17:27] For sure. One of the things I sort of admire about your company is the original premise was not to have a particular go-to-market strategy.
It was to have this great product that people wanted to have in their lives, right?
And it feels to me like that, the whole quote unquote D to C movement, like this notion that before you solve any other problem, you're just gonna put a flag in the ground, like this is how you're gonna go to market, that just, it just seems silly because that may not be how the customer wants to acquire your product.
Shawn :
[18:00] Yeah, I think you're right. And I think that, so I think that whole movement that we're a part of, so I don't mean to like bag on the movement.
I'm just an observer as well. Like I've been living in it, right?
And we put, and I'm being really transparent, we put on those clothes very intentionally.
[18:16] Because people that planted those flags were getting funded.
People that planted those flags were being understood at the time.
And these movements come. Right now, I could hold up a flag that said AI on it and go out there and raise a bunch of money and do something.
And in the end, 99 out of 100 of those, flags are going to fall by the wayside after having tons of money thrown at them and Probably 1% of them will go on to you know be the next Googlers or who knows what right?
But these movements come and go and and and I'm and this is what I'm saying You gotta be careful.
I'm not bagging on the movement because these movements are useful these movements drive economic activity these movements drive innovation But they're often way overhyped, not as, I think, not as, so, you know, I mean, we could get into AI, you guys are, I'm sure, tracking it just like I am.
What does that even mean? Oh, you mean like software? You mean like software that, that does stuff in an automated fashion?
Like is that, is that, is it really that new?
But it doesn't matter. It's a story that's being heard.
It's a story that's being understood and it's where the momentum is.
And so if you're able to wield, take advantage of these movements in the marketplace to your end, that's what, and that's exactly what LoveSack did.
We put on those clothes, we took a concept that had been around for a long time, our concept.
[19:42] And look, in the end, the thinking and the development and even like, let's say the web services and all the things available to that movement that
Sactionals: Built to Last, Designed to Evolve
[19:49] were spun up because of that movement, we benefited from.
The money raising pricing aside, momentum, going public, whatever, all these things aside.
So that's why I'm saying I think that there is value in these movements, but fundamentally, you still need to have a great business, a great product, something that's truly differentiated, because anyone with some funding can go out, buy a logo, buy a name, and look like they know what they're doing.
Jason:
[20:20] And yeah, for sure. And to your point, there's a, there's a funny data by going around in, in our industry this week that like over a hundred million dollars or I'm sorry, Amazon's GMV is, I'm sorry, a hundred billion dollars of Amazon's GMV is from AI.
And you hear that and you're like, oh my God, that's huge. And then you find out it's product recommendation tiles that they launched in 1997.
Shawn :
[20:45] Yeah. Yeah. Yeah.
Jason:
[20:47] Which, yeah. Yeah, so I do just want to like kind of wrap up this section, but put it in context.
When you open that first store in a mall, like the mall competition for furniture stores was like Expressions Furniture, right?
Which no one on this call would even remember probably.
And then like by the time you really, after your IPO and really caught fire, you were competing directly against all these D to C companies that were expanding in malls. You were probably competing for leases.
Shawn :
[21:18] Yeah.
Jason:
[21:19] It's quite the, quite the journey. Now, Scot mentioned at the beginning of the show that you had recently started a podcast and I'm two part question.
How the heck did you have time to start a podcast and tell us what the premise behind the podcast is and what you're talking about?
Shawn :
[21:36] Sure. Yeah. Just to comment first on what you pointed out, there is this whole strip in the malls now out there right now.
But by the way, in these shopping malls that I was told were dead, you know, I could read the headlines of shopping malls are dead back in 2001 when I was opening my first shopping mall and I was forwarded those kind of emails by friends and family who were concerned.
And here we are in 2023 and while these things change, they take decades to change.
Meanwhile, they've evolved and you have all of these direct consumer players now and it It just cycles through, you know?
What the players inside of these shopping centers happen to rotate, and I've watched it all evolve, and by the way, they're rotating again, because a lot of those players are not viable. Some of the best ones, biggest ones, you know?
Like, concepts like Peloton, who I think is amazing as a concept, you know?
They have their struggles, and so we watch these things evolve.
In terms of, the podcast is relevant to this. Let me explain why.
We had the chicken, I'm going to go, given the nature of what your podcast is, I'll give you a much broader picture than just, hey, why am I recording a podcast on my own and writing a book?
[22:55] It works like this. We had the chicken before the egg.
Sactionals being the chicken, we discovered, as we observed and had success with it, we believe are so successful because they are are built to last a lifetime and designed to evolve.
Like those two attributes in our product are quite unique.
And those two attributes underpin what we call our designed for life philosophy.
Driving a Movement for Sustainable Consumerism
[23:21] I did not found Love Sack to make products that are super sustainable, sustain hyphenable. In other words, things that actually sustain.
Who's talking about that? I was just trying to survive. I made a big beanbag, people liked it.
Made a couch because people were asking about couches. who has solved all these problems, observed the success, and that success was rooted in the fact that things were built to last, designed to evolve.
Now that's led us to this whole philosophy that will inform our innovation on every product going forward, and it's why I'm so confident that we can continue to succeed, is because of this design philosophy that I'm sharing with you openly.
Because it's one thing to say it, it's another thing to execute to it.
That's the hard part. It's the execution that's the hard part, you know? Now, that said...
[24:08] I'm trying to drive a movement. I believe that there are many people that are sort of aware now that we have been conned into buying too much crap.
New season, new collection, the merchandising hamster wheel, new iPhone, now it's got a titanium band. Really?
Everyone knows. No, it's not even hidden. It's not even like a secret. it.
This whole hamster wheel called planned obsolescence that was not an accident, it's absolutely an economic strategy to lift us out of the Great Depression and onward.
And it has roots all the way back to Louis XIV.
What's my point? The world has just, I guess, accidentally, not so accidentally, fallen into all kinds of rhythms that are unhealthy, unsustainable, and not good for anyone, not good for the environment, not good for people, you know, we're frenetically chasing out.
Now my jeans are too tight, now they're too loose, now they're too long, now they're short, now I got, now they got to show my ankles, now they got to drape over my, like, this is not an accident.
This is a self-propelling machine that we have created.
What's my point? I believe we can drive a movement amongst people to reject that.
And I believe factionals is one of the embodiments of that.
Things built to last a lifetime are designed to evolve. So that movement is actually my long-term strategy.
[25:33] In the near term, I need to... One of the ways that we will reach people besides buying advertising and using it to drive a strong CLV to CAC ratio is through...
I don't know, even podcasts like this is through people finding our brand, finding out about me, finding out about the company through...
Whether it be me, whether it be through the goodwill of our customers, sharing this or that, the other.
And so I wrote a book called Let Me Save You 25 Years. It's our clever story
Innovation and the Evolution of LoveSack's Product Line
[25:59] at Love Sack. It's really great. I think it launches in January.
I spun up a podcast called Let Me Save You 25 Years where I share my own entrepreneurial mistakes, miracles, and lessons of the Love Sack story. That's the subtitle of the book.
That's the spirit of the podcast. I talk to successful people, some of the world's most successful entrepreneurs and successful people about these concepts.
And it's not an interview podcast. We go really deep into some of these concepts.
So my long-term goal ultimately, is to write another book that can help drive this consumer movement that I'm describing because I think if we can get a little bit of luck and get people thinking about these things and then eventually seeking out.
Products that can do this, and just a lifestyle that is supported in the way that I'm describing.
Buy better to buy less. Buy better stuff so you can buy less stuff.
Well, obviously, LoveSack will benefit from that as a company that makes better stuff.
And so, look, it's a long, long, long, long way around, but you asked the question, and I'm totally serious about that.
Scot:
[26:58] Yeah. So I'm gonna guess you're not a fan of fast fashion.
Shawn :
[27:03] No, I mean, that's obviously gonna be I made the topic of the book, you know?
Scot:
[27:06] And I'm not. Jason's a huge Xi'an fan, so you just really hurt his feelings. No, I'm just kidding.
Jason:
[27:11] Hey, I wore a Patagonia, a used Patagonia jacket in honor of tonight's show.
What are you talking about?
Shawn :
[27:18] You are speaking my language, man. And look, it's not even about being a tree hugger.
I think that people have a brain.
And people, I think, are waking up to the idea after the iPhone 15, that holy crap, Apple probably should have been forced to innovate a long, long time ago.
Biggest company on planet Earth because they sell us the same thing every year or two.
Had we not allowed them to do that, they would have had to use their enormous treasure and enormous skill base to innovate into other categories and and change the world.
Instead, we've allowed them to sell us the same thing every year.
Scot:
[28:06] That's an interesting ethos. Having built a company, about how many people are in your company at this point?
Shawn :
[28:12] Total about 1,500. It's about 400 at the headquarters and another 1,000 out in the field-ish.
Scot:
[28:19] Yeah, you're at that phase where there's people at the company that you've never really met before. And it's awkward because they always expect you to know their name and they all know your name.
Yeah. Yeah. Yeah. So when you get a company to that scale, how do you keep innovating?
And, you know, one of the ones that I really love that you guys have done is the Stealth Tech.
I think that's genius because I love AV and like having a really immersive experience.
And I'll let you explain what it is, but, you know, my wife hates the big black speakers that I try to put all over the house.
So I think it kind of solves like six problems in one.
So A, maybe let listeners know a little bit more about what we're talking about.
And then be I'd love to hear like how do you guys you know it's really hard to kind of you know ideas are easy and execution is hard on execution.
It's really hard to like you know nail what you're doing and you have a lot going on and then like keep innovating.
How do you how do you like get the org functional that way?
Shawn :
[29:16] Yeah.
I mean, I think number one is you have to, you have to really want it, you know, not, not just like, Hey, I want to, I want to get, I want to get more business.
I want to sell more stuff. Obviously there's that.
But this ethos that I just kind of unpacked for you that, that we tripped stumbled into does the design for life ethos animates this organization.
Like, it is a lot of, it is very motivating to think about, holy cow, now that we know our purpose, and it's been identified, right?
Inspiring humankind to buy better so they can buy, you know, everyone's like, it was purpose, purpose, purpose, and hire some consultant, you know what I mean?
But for real, if you have something that's truly unique, and it's meaningful, it's not just like words on the wall, it really is motivating, it's exciting.
Scot:
[30:11] And you bake baked in the products have to get better too, right?
Like you, that's not well, so you have to support it.
Shawn :
[30:17] That's exactly right. Like, yeah, like we have to make stuff that's built to last a lifetime and design to evolve, which is really hard because if it was easy, everyone would do that.
And here I am telling you openly about it. Like that's what we're going to do.
And I'm not afraid to tell you because most companies won't do it because it's just freaking hard. Like it's a lot easier.
Like why doesn't love sack? You know, you brought up stealth tech.
So Stealth Tech is full Harman Kardon surround sound, no quality sound loss audio.
Perfect audio emanating from your couch through the phone through the next layer of fabric and through the decorative layer of fabric that's washable, changeable, removable, tuned down to the color of that fabric so that the audio is perfect rear, front, center, subwoofer, invisible, beautiful, because you don't see it, it looks just like a couch, and it has all that packed in there, it's radically successful.
It's been, it's now a huge piece of our business.
And nobody saw that coming, because what would they expect a couch company to do next? A couch beanbag company.
An end table, a coffee table, a rug, a lamp, you know, decorative accessories, get into the bedroom, who knows, right? Like the obvious stuff.
Scot:
[31:32] Meatballs.
Shawn :
[31:32] And what, yeah, right? Why did we do that?
We anyway, we saw the opportunity and we also invented it. So one is,
The Strength of LoveSack's Physical Showrooms in the DTC Landscape
[31:40] to answer your question, a lot of play.
We are constantly at our innovation lab playing.
So it's not just consumer-led insights, which is a big piece of what we do, but it's also a lot of inventions. You gotta have teams to invent.
You gotta have engineers.
You gotta have, so you gotta support that. So there's a cost structure there.
And that's why LoveSack is quite profitable, but not as profitable as it could be in the future, because we are investing in innovation.
And there's a lot of heads. there's a lot of engineers, there's a lot of designers doing things.
Now they're not just all running around playing, they also have a very disciplined approach to executing on innovation, like launching Stealth Tech a couple years ago, and bringing that to market, which is a heavy lift because it's our invention, it's our patents, and it was not easy for this beanbag company to get into home electronics in a real way.
[32:29] We've done, I think, more than 100 million in home electronic sales and making us a pretty, a pretty big player in that space, believe it or not.
Already, and I don't think most people even, you know, would think that.
But we're, you know, totally serious about it. So, innovation, wrapped around an inspiring path to innovation, I think is the key.
Do you have an inspiring path, or are you just trying to make more stuff?
Because if I wanted all those things I mentioned, like I'm over here in Asia right now, I'm in Hong Kong.
And if I wanted a whole line of living room furniture with our logo on it to make myself feel good, I could have it in four weeks.
The suppliers will do it for me. They've been doing it for 30 years over here for all the biggest brands you can think of, you know?
And we could give them some designs and give them some ideas and let our, I mean, it's so easy to just source stuff.
I'm talking about, you know, product land. Now we're talking fashion, talking furniture, talk any category you want, the same is true.
But to truly invent stuff's a lot harder.
And that's why I think we've had success, that's why I think we will continue to have success.
Jason:
[33:35] Yeah, you know, so I am interested, I mean, obviously the product has to be the lead in solving that real problem for a customer.
But I do think another helpful aspect to your business is that in order for those products to be successful, like, they have to be demonstrated somehow.
Like, per your point, the catalog for the StealthTech sectional looks just like the catalog for a generic sectional.
And so I'm thinking you having your own showrooms was a big advantage for being able to tell the story.
And ironically, I'm not sure you opened that first showroom because you recognize that problem. It sounds like you opened that first showroom because you had no other way to get distribution.
Shawn :
[34:21] Oh yeah, yeah. And that's why I'm not taking any claim as some kind of marketing genius.
We just kind of tried to survive in the beginning.
And opening a showroom was actually a reaction to being rejected by the big furniture guys, because they didn't, you know, want our product, they didn't believe in us, whatever. They couldn't see it.
And so thankfully, it went that way. And by the way, they weren't showrooms, they were stores.
We were a furniture store for a decade and a half.
And we did all the furniture store things. And we sold merchandise, and you pulled your car around and we loaded you up, believe it or not, or we shipped to you.
And it took us a long, long time to, after copycatting all those furniture stores and hiring merchandisers and window dressers and all those kinds of things from our competition to do that stuff in our stores.
[35:14] To make that pivot to the direct consumer model that we operate on today that obviously looks very prescient in today's model.
Now, the reason I think we've been so successful at it is because we had those 15, 20 years to get really good at operating now 250 locations across every state, almost in the United States of America, where people are fighting and bickering and hiring and firing and touching each other, whatever it takes.
The point is operating physical showrooms is not something you get good at in a day or a week or a year just because that seems like the next thing to do.
We have a website, now people need to see our stuff, to your point.
And that's the approach I think a lot of the direct consumer brands have taken.
And I don't think that they realize how hard it is to be profitable at retail and how many pitfalls there are.
Where if I want to get a little better at digital marketing, which I think we're pretty good at now, but I can hire that.
I can agency that, I can platform that.
And so I think that the physical side of things is really underestimated.
And so thankfully, our very long haphazard history has played out in our favor in that realm.
And I think it's a huge strength of ours, because by the way, now that the economy's pulling back and this and that, we're 250 locations ahead of most that are just really coming around to the marriage of physical with digital and not realizing that, You know, it's not something you can just turn on and be good at.
Jason:
[36:44] Yeah. And I think it's you, you rightly pointed out that like the whole landscape of DTC hasn't been particularly successful.
There's not a lot of wins, but the, the people that are outperforming the average, even one thing they all have in common is they all have some kind of physical footprint to, to reduce CAC, right?
So they're either have their own stores or they, they are white selling through wholesale, or they're, they're in front of customers in some way,
Testing and Learning: Mobile Concierge and Shop and Shop
[37:09] other than, than Facebook ads.
Yeah, I, I did. I think there's a super interesting new evolution.
I thought I read about though.
So like Amen stores and showrooms are super complicated. People wildly underestimate how many mistakes you can, you can make owning and operating a retail store.
And now, now that you seem to have that clicking, you guys are bringing the retail store to the customer's driveways.
Is that true? Like talk to us about the mobile concierge.
Shawn :
[37:37] Yeah, so just like we're innovating in product, we're also always innovating go to market.
So whether it's mobile concierge, which is a lovesack trucks, where you can, you know, from the comfort of your home, have us pull up in the driveway and show you our products, which we've which we've dabbled in, and have tested into.
And we'll see, you know, where that goes. I think that that has its own just like retail has its own complications, but also more, I think, more.
I guess scalable already is Shop and Shop.
So our showrooms right now in shopping malls, they're only like 800 square feet.
So obviously the metrics are great, right? We're selling very big ticket items out of very tiny footprints with a small staff.
There's just good metrics.
And I don't hide from that.
That's been a big part of our success, right? So we chose a good category in that way.
We chose a terrible category in the sense is that the home category has all kinds of other issues.
Jason:
[38:38] Not the easiest category to deliver the product.
Shawn :
[38:41] Yeah, I mean, there's delivery, but there's also just the cyclical nature.
You couple that with the idea that, look, we are selling you something that we are intending you to have for decades.
My sectionals in my home are 16 years old, some of them, made with brand new pieces, made with Stealth Tech.
That's pretty cool. On the other hand, unless we give you Stealth Tech and other reasons to come back, like, you know, you've got your satchels and you've made your investment.
And so look, we deal with cover. So we're innovating on product, we're innovating on go to market, shop and shop.
So these thousand square foot showrooms have been very useful for us.
We have 200 square foot showrooms inside of Best Buy's or Costco's, where our people are basically checking you out and allowing you to kick the tires on the product.
And then look, whether you buy there or whether you go back and buy online, we don't care.
We built an agnostic platform where we just want you to be in the family.
So I think these are things that have evolved over time and you've got to test and learn, whether it's mobile concierge, as you described, whether it's shop and shops.
And these tests and learn activities can take years to play out and really take to scale and stuff like that.
And so I think in this day and age of, hey, I'm gonna go raise a ton of money and build my company to X revenue and exit for X multiple, which is I think
AI's transformative role in the future of technology
[40:05] what drives a lot of entrepreneurial activity.
[40:09] That kind of mentality just doesn't have the staying power necessary.
And that's why you see so many of these brands reach a point where they have to be retooled, like some of them are going through now.
And look, they've made someone rich. Sometimes these founders find ways to squeeze a bunch of money out of it, or private equity tosses the hot potato to the next guy and they make a ton of money out of it.
But in the end, what's left? a brand that is at scale, doesn't make money, and can't go anywhere.
So my point is you gotta have the stomach to grind it out, to spend the time, to really slow cook some of these things, and to be flexible when they don't work, and shut them down and move on to the next.
And so constantly innovating on go-to-market, constantly innovating on product, and really putting in the time and energy it takes to refine concepts, you know.
Scot:
[41:03] I know we're running up against time, and you've obviously spent a lot of time thinking about this.
I know your goal is to bring this ethos out, but if you think about retail and e-commerce, what do you think the next five years hold? You talked about AI.
There's a lot of this stuff that's temporal, but anything you think that you believe is going to change the way we shop and buy, either in-store or online?
Shawn :
[41:29] Yeah, look, I think that it will just continue to evolve, and so I think AI is real.
I think it will play a transformative role, and I think everyone's trying to figure out exactly what that is, and nobody really knows yet.
I wish I could just give you a clever answer, but I think I've witnessed,
Long-Term Vision vs Quick Profit
[41:53] you know, that's What's the benefit of having a 25-year perspective is it's like I was saying about shopping malls.
The mall is dead, headline from 2001. TV is dead, headline from 2008.
Here we are with both of them still intact. By the way, TV advertising is still a big piece of our marketing spend.
I know that's kind of mind-blowing because it seems like everybody's cut the cord or gone to this extreme. And I'm just telling you, these movements take decades.
And so while it's great to be ahead of a movement, you don't, unless you are trying to drive that movement, like unless you are trying to take advantage of that AI, boom, to go raise money and wave that flag or whatever.
[42:40] I've found it's okay to be a laggard.
It's not always beneficial to, unless you're trying to build your concept around that and take advantage of that movement itself, let the movements evolve.
So I can't give you a great prediction of exactly what's going to happen. AI is important.
But how, where the winners will actually be and what the effects will actually be, I think it's way too early to tell.
But I do think it's important to keep your finger and keep watching and eventually, you know, to find the connection and lean into that to affect your business.
You have to be a little bit patient, I think.
Jason:
[43:27] Yeah, well, certainly 25 years in, I think you've earned your patience creds, by the way.
Shawn :
[43:35] Maybe too much.
Jason:
[43:37] Yeah, I mean, there's pros and cons to both.
Urgency can be useful in certain circumstances, but short time horizons come with a lot of problems, as you have rightly pointed out.
That did lead me to one sort of thought question. And you, you referenced some of your, your CAC economics and side note, we've, we've one of the, our favorite guests on the show is this professor Dan McCarthy.
Who's, who's a huge advocate for cohort analysis and customer lifetime value based businesses.
And so he would be thrilled that you're on, because I know you guys disclose some of your cohort metrics in, in your financial statements, which he loves.
And to me, you're in a really interesting category to do that because although your product has invented a reason for customers to come back and you've sort of turned a product into a system, it's not like a fast cycle, right?
Like, and so like when you're thinking about like a time horizon for LTV, and you guys have a very good return on your CAC, but compared to most companies, your CAC still is really high, right?
Like, you sell a lot of product to compensate for that.
Shawn :
[44:57] Yeah.
Jason:
[44:58] So how, like, you know, you're spending five or six hundred bucks to acquire a customer and then you're earning thousands of dollars on each of those customers.
Like, was it difficult to sort of have the financial discipline to have a long enough time horizon to see those sorts of high CLVs come back for that initial customer acquisition?
Shawn :
[45:23] Yeah, I mean, you could call it discipline. In our case, again, it was just survival, being really transparent.
You know, we were just trying to find a way to make this business work, and we weren't profitable right out of the gate.
It took us many years to get better at retail, to get better at e-commerce, to have a shopping cart experience that was commensurate to the product, because that's really hard with our product.
Our product is really weird and complicated.
And so that's something that's overlooked with Lovesack. And I think a lot of our copycats and competitors are realizing that.
You can't just use a Shopify checkout if you're going to sell something as dynamic as, let's say, factionals where, you know, you can buy a bunch of these and a bunch of those and combine them in a million different ways.
How do you, how do you shopping cart that? How do you Amazon that, you know?
And so, and so these are superpowers that we've developed over a long time and thankfully given it enough time to become profitable.
So to answer your question about, you know, patience, I think part of it is just been our lot in life to, to be, to have patience forced on us.
But secondly, real discipline around.
[46:32] Our CLV and CAC metrics. So we are, we are, and have been for a long time, carefully monitoring them, tracking them, constantly innovating and refining on the marketing side, these things that I mentioned, whether TV, you know, over the top, linear, nonlinear, digital marketing with its 500 heads, you know, like I'm talking about species of digital marketing, it's such a big word, right?
I have to be constantly and tirelessly refined and risk taken and stuff tried and stuff failed and all rolled it and it all rolls up into that CLV to CAC ratio that you can hope you can keep moving and then couple that with innovation so that people can come back and buy more.
And so thankfully, look, we chose a category with a high ticket and that drives the lion's share.
That first purchase drives the lion's share of that CLV to CAC relationship.
But our long-term point of view now is not only to find other ways that we can do more of that, maybe even in other categories and adjacencies.
[47:32] But also give like StealthTack, give people a reason to come back and add on.
And then by the way, when they do come back, then they face the consequence of, well, what do I do with some of these things that I need to, let's say, I get StealthTack and I got to swap out two of my sides.
Well, okay, the obvious answer is I don't want to throw those in the trash.
We don't want them throwing them in the trash and they may not need another couch in another room.
So it's leading us to services, trade in, trade up, recycle, you know, all kinds of things that will again, give us more reasons to reach out and touch that customer.
And so I think that if you relentlessly pursue.
[48:13] A good concept with good intentions being driven by good philosophy and purpose like I've described, it's been my experience that the universe kind of unfolds for you, but it doesn't do it overnight.
And you can't just have a, at least in my experience, you can't just have a master plan and be like, we're gonna do this and then that and that.
You have to iterate to it. You have to observe, you have to live some, like when we launched Stealth Tech, we just, you know, it's easy now to look back in hindsight and be like, well, of course people are gonna want to or trade in their sides or do whatever.
But some of those things aren't always so apparent. And you need to plunge yourself into the pool, see what comes of it, and then react to that.
And some of those reactions can take years to unfold. Like some of these services that I just described and whatnot, they'll take us years to manifest.
[48:59] But the nice thing is, the core business can generate profits that will carry us to that and we'll invest some of those profits in that innovation that I'm describing.
But it's like, it's just relentless, man. It's tiring.
It's like you have to have the stomach to go the distance. And that's where the time horizon, look, I'm a big advocate of it.
Culturally, you know, like when my whole organization knows, like the theme of our manager fest a month ago, this is where we all get together once a year, was 25 and 25 more.
And I'm not kidding. Like my personal point of view, if I'm allowed to be here as a public company CEO, if I do good enough to stay in the seat, which is inherent, and that's why I love the structure.
It forces you to be awesome, you know?
[49:45] If I can do that, but the fact that my organization knows that I'm in for another 25, you know how grounding that is and stabilizing that is, as opposed to, man, when's Sean's gonna sell his stock and bail and go start his next company?
That's what I'm supposed to do, isn't it? That's how I become a bazillionaire, isn't it?
I'm not interested in that. I'm interested in building something.
And I think that that, I don't know, desire is actually kind of rare these days.
[50:14] I think everyone just wants to be a bazillionaire as fast as they can.
Jason:
[50:17] Oh, for sure. Yeah. Everybody's assuming you're going to cash out and invest in your first rocket.
Shawn :
[50:24] Yeah, whatever. And I think it's sad. Look, I'd love to make a ton of money, whatever.
That's all great. But whatever happened to the ambition of let's build something awesome, no matter how long it takes. And that's where I'm at.
Jason:
[50:41] Yeah. Well, Sean, it's been an amazing run so far.
This is going to be a great spot to leave it because we have used up our allotted time, but I know listeners are going to appreciate you saving them the first 25 years, and we're going to be super excited to watch what happens in the next 25.
Shawn :
[50:57] Thank you. Thank you.
Scot:
[50:59] We really appreciate it, Sean. I know you're in Hong Kong, you're in the middle of your day there, and we appreciate you coming on the show.
If folks want to check out your podcast, where would you point them to?
Shawn :
[51:09] Yeah, wherever you love listening to podcasts, Let Me Save You 25 Years is the name. LetMeSaveYou25Years.com.
You can find me on social media, Sean of Lovesack.
I'm all over that and love to be connected, slide into my DMs.
I mean, I love talking to customers, friends, peers, being very accessible and looking forward to building the movement.
Of course, Lovesack.com. We're easy to find.
Scot:
[51:33] Trey Lockerbie 41 Yep. And the book's coming out in January and I assume it's going to be in all the usual places.
Shawn :
[51:37] Sean O'Toole 41 All the usual places. Yeah.
Let Awesome.
Jason:
[51:45] Thanks again and until next time, happy commercing! -
EP313 - Holiday 2023 Preview with Rob Garf of Salesforce
Episode 313 is preview of Holiday 2023 with Rob Garf, Vice President and General Manager, Retail at Salesforce. This is Robs' fifth time on the show, having previously been on episodes 110, 248, 282, and 299.
It's happened again. Your Halloween decorations have come down (or at least your pumpkin is not in good shape), you survived Amazon Prime Big Deal Days, and now you're getting ready to ditch your in-laws and enjoy one of the most exciting retail weeks of the year. Yes, it's time for Holiday 2023!
This year, we've decided to do things a bit different by previewing the holiday in advance of Turkey 5. Rob Garf has kindly joined to walk us through Salesforce's e-commerce forecast for November and December, and we compare it to all the other forecasts out there (NRF, Deloitte, Bain, US Dept of Commerce). In addition to the top line forecasts, we touch on retail versus e-commerce, changing shape of the holiday, discounting climate, inventory and supply chain impacts, top performing categories, the economy, and the impact of rapidly growing Chinese brands (Temu, Shein, TikTok).
Throughout this episode make liberal use of real-time data from Salesforce Shopping Insights HQ, which tracks how 1.5+ billion consumers are shaping shopping trends. You can see a real-time holiday dashboard, powered by Tableau so you can interact with the data yourself on the Salesforce Holiday Insights page.
Episode 313 of the Jason & Scot show was recorded on Wednesday November 8th, 2023.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript
Jason:
[0:23] Welcome to the Jason and Scot show this is episode 313 being recorded on Wednesday November 8th 2023 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:39] Hey Jason and welcome back Jason and Scot show listeners Jason is 3:13 the lucky number I had the 13 is kind of on there so I think we'll count it.
Jason:
[0:48] It's a lot of threes.
Scot:
[0:50] Yeah yeah I think it's a primal have to get one of our research analyst to work on the okay so we are recording this in early November as Jason said so at that critical part of the retail calendar all the plans are laid the discounts are on the table Cyber Monday.
Thanksgiving Black Friday everything's teed up and everyone's waiting in anticipation of what holiday is going to bring us this year.
And we know longtime listeners will know that our holiday turkey five coverage with a lot of sprinkling of data is second to none in the industry and this year we're going to take it up a notch in past years we've had our friend of the show Rob Garf VP and GM for retail at Salesforce on after the turkey 5 give us a real-time view of what they saw and for those of you that have been with us very long time this is her Jason's mom primarily those were episodes 110 249 282 and 299 man that's quite a track record this year we are going to take it up and have a delicious rub Garf before and after holiday sandwich it's kind of like that turkey sandwich but we're going to kind of sample it here before we even even have Thanksgiving.
Rob before I before I go on welcome back for the fifth and I think record time on the show.
Rob:
[2:11] Wow I love it this is I will have to call the Guinness book up and make sure we get this knocked in memory on this is fantastic it's always good to be here and even better Scott and Jason and first of all thank you for having me on doing a little bit of a preview because as you mention were normally crawling through the data talking about the holiday weekend and seeing where everything lands after the critical time period and it's fun to take a little bit of a sneak preview and look at what we're anticipating and what we're seeing going into as you mentioned one of the most critical times of the year.
Jason:
[2:45] I think you're exactly right Rob I don't know why we didn't think of this sooner I feel like they should have always been part of our holiday tradition.
And I do feel like we're getting all of the Rob protein with none of the nasty carbs so that's like a.
Particularly healthy Thanksgiving treat but Rob before we jump into all of the good data remind listeners what the heck it is you do for Salesforce and how you get all this juicy data.
Rob:
[3:13] Yeah that's awesome let's by the way the listeners decide you know how.
Advantageous this is after the fact I hope it is and again we'll do our best so yeah and I've been I always thinking about it thinking into this conversation now at Salesforce for over 7 years but I came.
To the CRM Leader by way of demand where and if you remember demandware now Commerce Cloud was the leader and the cloud space and we instrumented the platform early on to get access to everything that flows.
Through our Cloud so you think about all the Taps all the clicks all the swipes.
[3:48] Now we don't have any access to personally identifiable information but we bubble that up and it becomes really The Benchmark for what's happening in digital and over the years we've included.
Things from marketing and Service as well to look at a more complete buyers Journey.
[4:08] And it's been really fun each quarter we release our shopping index which is available on salesforce.com built on Tableau and it's interactive so you can slice and dice it by vertical and by geography and it really helps.
Retailers gauge how they're doing vis-à-vis their peer set which of course is extremely important anytime of the year but certainly even more important during.
The holiday week now I think there's one thing that I sometimes forget to say so I want to make sure right cover it now which is.
Our index and by virtue of that our benchmarks are from a outside in perspective so they are a look at the entire industry, not just Salesforce data we've modeled this over the last 10 years since its Inception so it's really intended to look at.
The overall industry and benchmarking how peers are doing rather than speaking to anything that Salesforce is doing so that's my quick infomercial but hopefully more than anything just a little bit of credibility as to where we get the data, what we do with it and most importantly the conversations were able to have similar to what we're doing here.
Jason:
[5:19] God so that that sounds perfect.
I do want just a couple clarifying questions before we jump into the actual data because I know we're going to talk about holiday like what is your official definition of holiday what what dates are you looking at.
Rob:
[5:38] Yeah thanks for asking that's always an important question so we've defined it over the years as the complete November and December so that's our holiday our peak season look.
And we look at in particular for again the holiday weekend I know you call it cyber five or thirty five, we have cyber week which starts the Tuesday before, American Thanksgiving and works its way through Cyber Monday it's just something we started from the beginning and 4y like to like, your rear comparisons we've kept that intact so in on referencing cyber week or cyber five it's really looking at those, those seven days now of course the definition by some has been elongated and I hope we'll get into that in terms of when does the official real demand start but to answer your question straight on Jason it's for us at Salesforce November December.
Jason:
[6:27] Got it and so for historical purposes you've always been located in November December and then you're predominantly or exclusively focused on digital sales so you're you're reporting on what actually happened and forecasting what you think is going to happen in terms of e-commerce sales but unless I had this wrong you guys don't put a flag in the ground on on what you think is going to happen in brick-and-mortar is that true.
Rob:
[6:50] That is accurate now we do kind of go on the fringes a little bit because the bleeding between online or the blurring I should say between online and offline so we do have, data on buy online pick up at store we do have data on returns as well which is by virtue of, definition multi-channel omni-channel type of process but we don't put a stake in the ground because we just don't have the intrinsic data to be able to bubble that up and provide on the actuals.
Jason:
[7:20] Sure and then one other fun fact you reference the shopping index and you always have like the quarterly recap on there but I think.
For sure during holidays and I think you're going to tell me your round you actually have a real-time dashboard up there so it's kind of a fun thing during the individual days of cyber week to kind of pop in and see see what's going on after your family Thanksgiving dinner to see if you're still going to have a retail job when this is all over.
Rob:
[7:50] Yeah yeah we do exactly so during particularly cyber week each morning the team is getting up super early as you can imagine and work around through the data and we're updating in real-time the data from the previous day and so for any retailer who is looking for the latest and greatest certainly by I would say 10:00 eastern time at the latest you will get that and see that up there we do have many customers who do use that in there Roundtable boardroom discussions each day to understand how they're doing it repairing it and more than anything Jason truth be told we need to get it up that early because our boss this guy named Marc benioff is typically texting us saying where's the data because I want to tweet it so yeah as much of a motivator as anything else.
Scot:
[8:40] Always fun when you get the text from The Seer.
Jason:
[8:44] Slack's slacks the he sends wax not to.
Scot:
[8:48] A slacks yes sorry I was off I was off brand for a second yeah he Einsteins it to his his Einstein slacks you.
You mentioned one follow-up on that you mentioned American Thanksgiving that prompted me to ask this is largely we're talking about the u.s. here primarily we're not going to this is an international I'm sure you can go International but, we're doing more us right.
Rob:
[9:12] Yeah I'm prepared to do whatever I thought we'd probably borrow a bit more into us but we do have Global numbers but yeah.
Scot:
[9:20] Okay we have time Jason's obsessed with these Chinese companies I'm sure he'll ask you some questions so.
Rob:
[9:25] That's fair that wouldn't.
Scot:
[9:26] Yeah he gets all his clothes from she in any way.
So before we dive into the topic du jour which is this year's holiday 2023 maybe recap for listeners kind of that you know.
I know we had you on but the dust has settled and I'm sure you're going back and looking at it now with holiday 22 what were some of the bullet items that you kind of you you're thinking about as we go into 23.
Rob:
[9:56] Scot you don't think the listeners have totally taken This to Memory what we talked about last November 29 come on.
You're probably right that's fine yeah I get it not all of us live and breathe this but yeah let's bring us back and you know actually if I could just for a minute, to put 2022 in context you need to think a little bit about 2021 and let me just spend a minute there and then I'll fast forward to 22 which is if you remember some of us don't want to in 2021 it was truly one of the first times that demand, actually got pulled forward in the holiday season and the reason was.
The first mile delivery issues were stuck if you remember so many products were stuck in the port in the US of a Lala.
The containers if they even got to the port or having a difficult time getting off the ship in into the domestic supply chain and people saw a headline after headline when I say people like consumers by or shoppers and they realized if they didn't buy early in the season.
[11:03] They might not get the product that they actually want because in the past they would just have a waiting game and wait for the last and final deal and so.
Demand got pulled earlier in the season and oh by the way retailers didn't have to Discount as steep as they normally do so going into 2020 retailers thought.
[11:26] All of a sudden there would be this magical shift to Consumers buying earlier in the year and you know what that just didn't happen, there was actually a really good point of why that didn't happen when you look at the first two weeks of November we saw some of the lowest discounting rates that we typically see during the holiday season and because of these lackluster deals.
People really didn't buy anything they waited and they again went back to their normal buying Behavior.
One other by-product out of that is those that did by early.
[12:04] We saw that they actually return the product during cyber week cyber week last year 2022 at some of the highest.
Return rates during that week of the entire season people were doing their own price adjustments if they bought the product earlier in the year and realize they could have gotten a better price so there's like.
I don't know how you calculate a triple or quadruple whammy on the bottom line that retailer saw.
Because they were hoping to chase the deals earlier or wait I should say for the deals into the season and consumers just didn't bite.
Overall and then I'll stop talking for a second here is what we saw.
For let's just take cyber week as an example in the u.s. we saw a nine percent year-over-year growth growth online and globally we saw a 2% growth so us was really buoying up the global number there but a lot of that Sales Online happened right before cyber week and through the Thanksgiving holiday.
Scot:
[13:07] Got it it's kind of coming back to me I Remember You coining The Phrase discount chicken I remembered that is that right remember.
Rob:
[13:15] Yeah yeah yeah totally and thank you so discount chicken you know for the first time that we saw, retailers won the game of discount chicken last year I'm sorry in 2021 they tried to win again in 2022 but it just didn't happen consumers are really wise the real patient and now especially as they're seeing headwinds in their economic future there's definitely searching out for better and best deals.
Scot:
[13:46] Yeah this this kind of goes back to our data question it just occurred to me as we were talking about this obviously the macroeconomic is different now does that factor into your when you swirl all this together and you guys put together a funk forecast is that is that an input.
Rob:
[14:00] Absolutely yeah for sure and another piece that we look at very closely because it's driven so much of the growth over the last two years is inflation as well and so when you look at the last two years much of the online and growth is from increased prices not increased demand so people are just not getting as much from their dollar because of those increases we're starting to see that settle down the last couple quarters which is good news we're not quite seeing in Europe by the way but here in the US and so we're hoping, some of the growth will come from We're anticipating I should say some of the growth this holiday season coming from actual increase demand.
Jason:
[14:41] God so I want to I want to jump in the big reveal but a quick quiz first if you don't mind so last year us e-commerce growth nine percent G20 21 was also an incredibly abnormal year do you remember what the actual number you guys got for 2021 was.
Rob:
[15:00] For cyber week that's a.
Jason:
[15:02] No or sorry for holiday if you don't have it it's fine.
Rob:
[15:05] Overall holiday for 2021 was nine percent but that's Global so I'd have to go back to see what it was with the US.
Jason:
[15:13] No problem but so last year in the u.s. nine percent growth which was outlier for because Global growth was quite a bit softer.
And so now here we are getting ready for Holiday 23 and what what do you think's going to happen when how much stuff we're going to sell online in November and December of twenty three in the US.
Rob:
[15:35] Yeah, so we're anticipating here in the US basically flat online growth and anybody I'm talking to is candidly quite okay with that and let me tell you why they're not overly bullish about significant growth online this year.
For two major factors one is, we actually looked at the kegger over the last couple of years going back to 2019 and if things play out the way we anticipate we're still looking at for the holiday season compound annual growth of somewhere between 20 and 25% and so we're really where we are better than where we've been in 2019 year-over-year so we're you know we've been looking at these data points for quite some time during the holiday season if we're going to do 10 to 12 to 13 percent year-over-year growth online we're feeling really good and we've seen the average over the last couple of years come out well over that so there's a baseline that we're still needing to consider as we think about growth the second factor is.
[16:50] The store.
And we can't forget about even though our data doesn't explicitly account for that what we've seen in our data is that people are still going online very, aggressively meaning traffic quarter-over-quarter year-over-year is still really strong however what we're finding is people are then doing what they've naturally done for a long time which is in many cases then go into the store to actually make the purchase and so it doesn't necessarily tell when you look at flat growth year over year for the holiday season the entire story we're still feeling really good about it what helps us by the way one more caveat that I'll put in there and I should have mentioned it's got just a moment ago when you asked how we get to the numbers one of the key influences, is what does it October look like and particularly prime or we should I was about to say Prime day but the prime big deal days and so what we've seen when it first came out a nice halo effect.
And we still see a halo effect certainly during the dog days of summer in July since the Inception of prime day.
What was that 56 years ago but we although we saw bumps in the early part when it.
First was established in October there wasn't a significant halo effect that happened during Pride a meaning those.
[18:18] Not named Amazon during the October event we saw nice traffic we though saw really low discount rates once again so people were being patient they're biding their time and so we are seeing some nice add to cart rates as well so we saw people were poking around they were doing their research they were starting to.
Think about what their holiday gifting this look like but they were waiting and so that's my long way of saying we're anticipating a fairly moderate holiday but we're not at all discouraged by what we.
Jason:
[18:54] Totally fair and so and I want to put your forecast in a little bit of context but before I do you kind of open the door on this whole October and shape of holiday thing like hey.
Super useful to have historical consistency so I'm glad you guys report.
The same time period every year right like I'm by no means proposing that everyone should change periods but it is interesting there's there's a lot more promotional activity.
Happening in October than was true 10 years ago right and in very specific ways you convoluted 22 years ago, Prime day was cancelled in summer and happened in October and then they move prom date back to Summer but they added this second prime day and put a lot more marketing behind it this year than last year so and every other retailer on the planet.
Counter programs against that that holiday and so there's been a.
An increasing amount of pressure to pull sales in in October and then on the flip side a lot of people feel like holiday doesn't really end.
And told mid to late January and there's a variety of reasons for that but one very particular one heck of a lot of gift cards get sold and gifted during holidays and they get redeemed.
[20:18] Predominantly in January and so I guess I'm just kind of curious I'm not sure you would have necessary data behind this but like it does feel like holiday is flattening out and I know you guys pay particular attention to cyber week which you know is still a huge outlier and obviously we see way more sales on Cyber week than a traditional holiday week but.
As a.
Relation to the total holiday period it does feel like that spike is starting to flatten out a little bit like do you see holiday getting kind of stretched and flattened.
Rob:
[20:53] Yeah I love the question in this I feel like we could look back you know in a year or 25 years and do a whole.
[21:03] I don't know extensive research project around how, people in mindset and shopping has evolved because it has and of course the pandemic had a big accelerator to that what we've seen in our data Jason is there has been a flattening out throughout cyber week meeting the big Spikes have typically been Black Friday and Cyber Monday and those still remain the two largest online days of the entire year but we are seeing a flattening out throughout the entire week but we haven't seen a lot of the sales, when it's all said and done pulled into October we do see a little bit of a blip in and around, the big deal days and we actually to your point other retailers have preempted the sales and we saw that in July as well meaning doing sales events the week before and it does draw them up, some traffic but we haven't seen a large portion being pulled into that time period what I will also say again lackluster discounts played a big role we're anticipating, comparing big deal days to cyber week cyber week we'll see about a 40% higher discounting rate.
[22:28] Then what we witnessed just a couple of weeks ago in October you are totally right by the way that.
[22:37] The holiday season does definitely extend through December and into January that's why most every retailer has there.
You know fiscal year ending in January so they can really reconcile and get out from under what happened in the holiday not just gift cards but all of the returns and exchanges that invariably happen as well but at the end of the day just put a nice little underscore here is in 2020 and 2021 we did see a bit of pulling forward into October a couple of percentage points of sales but we're forecasting that 25% of all holiday sales will happen again as we Define it the 7-Day is of cyber week.
Jason:
[23:27] Interesting very cool okay so before we dive into some more granular topics I do you want to put the 9% in context and some listeners will be familiar with Nate silver and his poll of polls in the the kind of boring, boring a political forecast but the way more interesting March Madness forecast so I like to fancy myself as the Nate silver of e-commerce and so I do try to watch all of this data and huge caveat, nobody's data is Apples to Apples right so it's not really a matter of though this number doesn't match up to this number.
Everyone has a slightly different definition of what e-commerce means everyone has a slightly different set of dates that they're looking at and they have different methodologies right so your methodology I feel like you get perfectly accurate data from a slice of the market right like there's there's no like.
Human.
[24:30] Are introducing your data because it's coming right from the systems and that the challenge for you guys is to take your slice and extend that to the the entire world of retail.
The and I feel like you guys do that really well.
So another data source that of course people are sick of me talking about is the US Department of Commerce which are these like surveys that they force retailers to fill out and.
There's.
Entirely different challenges and flaws in their survey methodology and how they defined e-commerce but just to kind of put things in perspective.
I'm going to talk about they give us both brick-and-mortar and e-commerce data and so I pulled right before a show I pulled their data for the historical averages of November and December and so for the 27 years before covid-19.
November and December sales grew, 3.8 5% per year so that's brick-and-mortar that's not related to the number you gave it all so average retail growth in that States of America / the US Department of Commerce in November and December three point eight five percent so and then I remind people the three covid years 20 21 and 22.
[25:45] Were the greatest three years in the history of retail right because we didn't let anyone spend any money on travel and we mailed 10 trillion dollars to every man woman and child in America, to spend and so via the US Department of Commerce data 2020 Drew 9.2 percent.
[26:04] 20:21 Drew 12.5 percent in 2020 to grew 5.4% so three straight years of, way over the historical average growth right and then using that same methodology they US Department of Commerce reports internet sales I'm way more skeptical of their internet sales because of the methodology in the way they Define it but just to put it in perspective.
[26:32] For the 27 years before covid they have e-commerce growing eleven point two five percent a year and so then 2020 when everyone was locked in the house and not going to retail we had this monster year e-commerce group 35% in November and December from their data and then the following year because there was sort of a rebound and a return into two brick-and-mortar sales e-commerce sales were actually lower than the industry average so 2021 they had sales at 10.5% so a little bit off of the historical average and then last year they were the softest of all they were seven point six eight percent which is the slowest e-commerce growth in Holiday in the last 30 years so that's just kind of an interesting context right so the orders of magnitude are all right you had nine percent growth last year they had seven point six percent growth they don't forecast of course and so then I start looking at the forecast and a big forecast that comes out every year we're all friends of the NRF here and there in RF members the NRF just did their holiday forecast their forecasting brick-and-mortar growing three to four percent so.
[27:45] Pretty much in line with that historical average that's a deceleration from last year which was 5.4% and they're forecasting internet sales of 7.9 percent so they're kind of perfectly splitting the difference between the US Department of Commerce and Salesforce for whatever that's worth by pretty pretty broad range and so that just kind of passes my quick sanity check Deloitte also does a forecast now deloitte's forecast is a different time range they consider holiday November to January and they're forecasting brick-and-mortar 3.5 to four point six percent so a little more optimistic and they're forecasting e-commerce at ten point three to twelve point eight percent so again a little more optimistic and then Bain did a forecast this year and they have three percent brick-and-mortar so I just wanted to throw that out there that most people are expecting this kind of three to four percent brick-and-mortar growth and this kind of we'll call it eight to eleven percent e-commerce growth.
Rob:
[28:51] Yeah and I would say given what you just talked about.
Others a bit more bullish on the e-commerce growth than we are but I think directionally both brick and mortar and e-commerce are telling a very similar story which is e-commerce is still alive and kicking but it now has to be looked at in the context of brick and mortar and I think there's a lot of factors in that that actually will make the reporting moving forward even more difficult it is making it difficult and Jason you and I have talked about this before it's just the attribution models because it's not just about last-click anymore especially as people might you know in many cases go online and then go into the store where's that last click and how is that I'd be factored so everything from.
[29:38] What we had anticipated in seeing around, you know 60% of digital sales now influenced by the physical store because the associate is driving demand through, customer service or client telling or social media or they're fulfilling Demand with being able to, you know pick pack and ship and online order.
Or what's happening in digital as well in terms of people buying online and then picking up in or around the store so I think what is super interesting.
In addition to what you said is how these metrics might evolve over time because it will depend a lot on, by retailer who's getting the credit and I know that's something that's been talked about for quite some time but literally how to is it how is it being accounted for and what does that do to how their reporting the numbers.
Jason:
[30:33] Yeah couldn't agree more and just 11 sort of example to illustrate that 11 kind of category that sold almost no meaningful volume online before the pandemic was grocery right second biggest category of consumer spending but none of it was online before the pandemic now depending on how you count ten to twelve percent of its online and guess what it all gets attributed as store sales right because it all it's all bananas that are getting delivered from a store and you know so 100% of instacart sales look like store sales to the retailer.
And so it like I agree with you it's just it's just getting more and more convoluted.
Rob:
[31:14] Yeah well it's an interesting point around grocery you know our data showed in 2020 and most of 2021 we saw Triple digit growth year over year because of what you just talked about you just wouldn't ordinarily or historically by groceries online what drove a lot of that and what I think will drive Behavior moving forward is in 2020 we saw a 40-percent increase of net new.
Digital Shoppers so these are people that hang out online but they wouldn't click the buy button and so a lot of those people now want to go back into the store but they're using digital they're using their phone in particular to really be that connective tissue.
Scot:
[31:55] What's a continue to peel the onion here you hit on this a little bit but tell us more about what you think is coming up in the 2023 cyber week for example if I recall last year Cyber Monday was the biggest e-commerce Day Ever set, is that did you guys agree with that or what's a my misremembering.
Rob:
[32:14] Yeah yeah so we actually have seen Black Friday actually.
Bust up to the largest I know that's kind of hard to how others have looked at it but they're both really strong and we anticipate that being the case again again though we are seeing a bit of smoothing out of demand throughout the seven days.
[32:36] Particularly on phones and I guess that's not a big butt when we weren't traveling we saw the Resurgence of you know iPads and tablets and actual regular computers especially when you get nice groovy one Scott like you did just recently but anyways I am getting distracted here by your awesome new computer but.
What we are now seeing though is I move back to mobile and what we saw also during Thanksgiving a really strong traffic particularly local times between 4:00 and 8:00 if you think about it that's essentially when people are finishing their Thanksgiving Neil and they need a little break there sitting on their couch and they pull out their phone and so we're seeing a lot of traffic.
Via Mobile and social as well by the way we are anticipating and we predicted this going back in June that we're going to see.
Traffic via social be at a 10 times higher rate.
Than traditional marketing so there's a lot of budget being pushed towards that media and we're seeing.
[33:49] A lot of success there now they're still a bit of a gap in terms of conversion rate through that channel but again if you connect the dots mobile.
And social happening over cyber week in particular on Thanksgiving it's going to be really strong and we're seeing again retailers lean into that.
Scot:
[34:10] So Black Friday was bigger growth last year or bigger absolute dollars or both.
Rob:
[34:18] For us it was biggest absolute dollars the growth was essentially spot-on for both Cyber Monday and Black Friday.
Scot:
[34:28] Jason and I'm assuming that did other people say it was Cyber Monday or it was at all.
Jason:
[34:32] Yeah they're they're different different folks had that different Peak yeah so but.
Scot:
[34:39] Controversy in e-commerce I love it.
Jason:
[34:41] Yeah controversy and they're getting closer together like they're worth in the early days.
E-commerce Cyber Monday was a giant Tower and no one had internet access on Black Friday like that that could really is no longer the case.
Scot:
[34:55] Yeah well rip Cyber Monday cool I don't have any follow-ups Jason's Europe.
Jason:
[35:03] Awesome so.
I want to jump into one of the other topics you introduced a little earlier so far we've been mostly topping up talking about Top Line which is a kind of easy way to think about this and it's you know it's a it's a kind of easy way to get your brain around it, at the end of the day retailers care a lot more about bottom line and a huge impact on holiday bottom of line is how aggressively in deeply folks have to Discount in order to achieve those sales so, are you guys like what do you forecast I don't know if you have a formal forecast for discounts but what what should people expect from discounting this year versus last year and what what are the trends there.
Rob:
[35:46] Yeah yeah yeah this is good because I missed a point before that I want to make as a relates to Discount and so this will give me a good opportunity to bring that up but still has to go right at that Jason we're forecasting on average a.
Thirty percent discount rate throughout cyber week and again to put that in perspective it was 20% here in the US during the October event for.
Prime big deal days again we look at the entire industry not just Amazon as a relates to that and so we're seeing a much more aggressive, discount rate now it's going to differ obviously by different segments you're not seeing as high in luxury as an example we do anticipate for tour toys and a consumer electronics which have been a bit of a softer category over the last 12 months again especially because because of the high Baseline they had because of the growth over 2020 2021 but we're also seeing and this goes back to the pulling forward of demand.
Is more and more retailers are providing.
[36:55] Black Friday deals throughout the course of November and.
What's different in the past was it was fairly opaque in terms of we're giving you deals but we're not really sure those are going to be the best deals right and though we're seeing now much more transparency there's one major retailer that I'm sure you can guess who's doing Black Friday deals throughout the course of November and they are guaranteeing price matches.
If for some reason they do go lower and they are also offering buy now pay later so you can commit to getting the product so you don't miss out on it but you can then pay over time and so what really came to life for me in this topic was we were doing a round table.
[37:47] In Toronto in June and one of the attendees and she talked about this again at dreamforce in.
September so I feel comfortable talking about it is a digital executive from Desi mm which is a cool health and cosmetics and Beauty brand that also has two other brands one called the ordinary and they have something that they've been doing for quite some time calling it, slow vember and their whole point is don't cause any urgency but rather.
Make it a more relaxed buying experience and their point is throughout the course of all of November we're going to provide the same exact discount no matter when.
And if you buy it and so we're seeing that a bit more and more some of it is coming by way of.
[38:38] Early Access or exclusivity but also again extending and providing visibility, part of it is again trying to create that confidence that you're getting the best and final deal and also by the way you talk about the bottom line Jason.
Is trying to reduce the Deluge of returns that often happen a lot of retailers.
Are changing 88 percent according to our research are changing their returns policies and that's going to be a.
Big risk and what and how that impacts holiday purchases this year.
Jason:
[39:13] Yeah you know it's funny there's so many moving Parts it's so complicated you think about like what a big impact inflation had on last holiday and you know good news like it seems like inflation is going to be lower this holiday.
Consumer was in a better economic position last year than it seems like they're getting their sure we're seeing credit and defaults and things like that start start to creep up so there's there's just all these moving Parts but one thing I think a lot of people lose sight of is in the last three years predominately driven by the pandemic every retailer has completely reinvented their supply chain and their demand forecasting and I would argue everybody's way better at it now and they have way more agile Supply chains and there they're they're a lot more accurate with their level of inventory which means.
They're more confident they're going to sell through their inventory and that changes their discount strategy like they're just all these moving parts that make it really hard to compare your over year when you know.
Preview point the last three years sometimes we didn't have anything to sell and then the next year we had two years worth of stuff to say so.
Rob:
[40:24] I was just talking about that with an executive just earlier today and how retailers have gotten as you said better at demand forecasting.
Better at Inventory management and I joke sometimes although I'm only half joking that supply chain has really come to the front office it's like really part of the customer experience at this point and has such an opportunity, to either negatively impact our hopefully positively impact.
The customer experience especially when you're you know trying to find product after the shipping cut off window we're anticipating once again a huge uptick for those that have the ability for Consumer to buy online and.
Pick it up in and around the store after.
[41:06] The ship and cut off window we're seeing seven times higher growth rate for those that have that capability because essentially you're kind of shutting down your online doors if you cannot.
Fulfill those orders after the fact and so but that requires to your point Jason like a lot of tuning.
Around supply chain order management inventory oh and by the way store associates as well we have to.
You know planned for that extra time that they'll have to take to fulfill that order will have to provide the right incentives and will have to give them the tools as well and I think retailers have gotten better at it.
I don't think anybody's fully cracked the code but going back to your bottom line point last year for us the holiday theme was profitability and that doesn't go away I think people have gotten meaning retailers have gotten better at it but certainly always opportunity so I'm glad you called that out.
Jason:
[42:02] Yeah I like to say profit is cool again.
Rob:
[42:04] Providence cool again yeah.
Jason:
[42:06] The if you take nothing else away from this episode profit is cool.
The the way it's funny like I joke about this but it's kind of serious when I started my career the the VP of supply chain probably started his career as a truck driver and and today that VP of supply chain like probably has a PHD in data science um so it's a that that occupation has dramatically changed the one other follow-up question.
One of the cool things about your data set versus some of these other ones I look at is.
You guys have real-time access to the data so as we record this we're eight days into November have you seen anything interesting or there any patterns that have stood out it you does it make you more confident in your forecast or in anything that's interesting for listeners to know.
Rob:
[43:01] Yeah we did look at the first couple days of November and also of course looked at October it's pretty consistent with what we saw, in Q3 in the US we're basically flat in terms of growth however traffic is up so traffic is up four percent.
Orders are slightly down what we've seen which I think again is a very nice leading indicator is, product view rates have increased by 5% and add to cart month-over-month so September to October plus a little bit of November we've seen a slight uptick as well so what that's telling us is people are interested.
They're doing their research.
They're looking for the best deals they're understanding where the inventory is available and so that they're ready to make the move when they feel like they're getting the best and most value.
Scot:
[43:58] Cool so it sounds like if traffic's up in orders are down a lot of Tire kick in and kind of prepping and watching and making your list and you know could be the start of discount chicken 2.0 will see.
Rob:
[44:10] There you go exactly 2.0 I'm using that Scott I'm grabbing that I hope that's okay.
Scot:
[44:14] Discount chicken the chickens Strike Back.
Rob:
[44:18] Well and also I mean you talked about kick the tires so I think it's a good opportunity for a promo for spiffy at this point too so don't forget to get your gift cards as well right.
Scot:
[44:28] Yeah yeah we will be running some promos thanks.
Jason:
[44:30] And if you do kick your tires Scott can come to your house and replace them for you.
Rob:
[44:34] Exactly.
Scot:
[44:36] And shop for the new shoes online.
Rob:
[44:38] There you go I think there's a mash up there there's going to be spiffy and a DDOS coming together for anyways I don't know we'll leave that to the markers.
Scot:
[44:48] That's a good segue into my question in the predictions on category so I remember last year you guys had some interesting data on that does your prediction.
Kind of data science get down into the category slicing of things or that's going to be more in the rearview.
Rob:
[45:06] Yeah no we certainly look at that we do it obviously based on what we've seen historically we're anticipating for the holiday.
Active apparel active Footwear Health and Beauty being really strong so.
You know we talk about the big number because that gets the headline in terms of essentially flat growth but we had tisza Pate some nice growth in those areas it's going to be a challenging partly because of comping as a relates to toys and gaming and consumer electronics if you think about that's just macro trend.
People are looking for Comfort part of it is coming out of covid and maybe not all of us getting back into three piece suits but also when you feel a little bit of economic uncertainty I was listening to some Financial show.
[46:02] While I was traveling over the last couple weeks and somebody put it as kind of the household PL or the household balance sheet you know when you're looking at that in your making choices you're taking more control of your finances which is happening people often migrate not only obviously to value, and safety they're looking at comfort and so there's something to be said for comfort and shoes and Footwear comfort, in apparel and almost the openness to be a bit more comfortable both in Social and in work situation so what are anticipating like I said active apparel active Footwear Health and Beauty being really strong luxury as well don't sleep on luxury they've been the most resilient category.
In the pandemic and coming out of the pandemic and so that end of the market has held really well we're seeing a little bit.
Of softness and what I'll call the aspirational luxury but as a whole that category is looking really strong and we anticipate it looking pretty strong, during the holiday as well.
Scot:
[47:12] Yeah this is old school but I remember a channel advisor going through 08-09 we were always shocked that luxury you know it's like the world is falling apart around us and people are like oh yeah I'll get a get a 400 dog and back it's gone.
That part of the market just doesn't care that they're immune to those things I guess.
Rob:
[47:30] They're pretty resilient.
Yeah I mean one other thing I'll throw in there just because I'm talking about it more and more with customers as we think about the holiday more as a.
I think Bellwether to what will anticipate next year over the course and this is a global number but over the course of holiday were anticipating 194 billion dollars of online sales being influenced by a.
Sorry are you thought you were going to get through this whole I know should I have not done that I'm sorry because you definitely that's on your bingo sheet.
Jason:
[48:07] Now I have to check the there's a I in this episode flag on iTunes.
Rob:
[48:11] Exactly well might get some more traffic that way so who knows but we find that super interesting most of it I want to like temper that.
A lot because people are getting really excited about that headline is most of it will be from predictive a I like product recommendations which we've been doing for quite some time we're starting to see some early adoption of generative AI whether that's in email marketing with subject lines or body copy for that Saint product detail page with product descriptions or in service super interesting wood Gucci is doing and what they call a Gucci 9 their service center and teeing up responses for their agent to make them more efficient and allow them to scale but also stay on brand and so we'll see that a bit more but again a vast majority like I said it's around globally sixteen Seventeen percent of all sales will be influenced by AI this holiday.
Jason:
[49:06] That interesting so Rob we're almost out of time but I want to throw a super meaty 12 you for for a final question Scott was making fun of me but I am super interested in these Chinese brands that are capturing attention and share in the u.s. right and in particular that's that's Tim ooh which is has more traffic than Target more sales than Ed see in the United States Xi'an is the largest apparel reseller in the United States and then to a lesser extent Tick-Tock which has the vast majority of consumers attention in the United States and is now trying to sell stuff to people.
What super interesting is it's not obvious those guys are all growing at Breakneck Pace much faster than your your nine percent growth number it's not obvious if or who they're taking share from so I'm curious of you if you have any POV it kind of seems like there they're inventing new demand or at the very least they're taking sure from brick-and-mortar it does not appear they're taking sure from the Amazons of the world.
Rob:
[50:09] Yeah that's awesome I'm glad you're addressing this I've just spent a couple weeks.
In Europe I was in four different cities so talking to a lot of luxury Brands talking to a lot of traditional brick and mortars, and this is an area one of the executives put out Tech intermediary and I told him I would steal that and here you go I'm stealing it.
Because I would say those that you just categorized are really wedging themselves in between the demand and the supply and they're creating a whole new platform where.
It was just an originally with Tik-Tok and others about inspiration and now it's about purchase and so you know what we're seeing in Jason you and I have talked about this got 20 degree as well this idea of embedded Commerce or shopping at the edge.
Where the buy button is being pushed up through the funnel on these delivery platforms again these Tech intermediaries I mean if you think about it they're almost like.
The next generation of the shopping mall the shopping mall is created because of access because the highway here in the states and it created a place for people to hang out for people to get some food for people to shop.
[51:16] People to socialize and because of that hey they could have tenants who that would then pay rent and sell stuff right and it's not dissimilar to what these Tech into mediators are doing in that they're monetizing their traffic I think they're coming after, the brick-and-mortar to a degree they're all so I wouldn't say creating more demand but fraying some of the man from.
The brand sites because the brands are showing up there and so I would say there.
[51:52] A little bit creating more demand but more than that they're kind of defraying the demand we've seen is.
A high degree of growth thirty percent over the last couple of years of growth on these third-party intermediaries that we're talking about and they are taking from other platforms.
Jason:
[52:14] Interesting I don't know what the real answer is but I do know it's super interesting and important to pay attention to so I'm glad we brought it up but Rob that is going to have to be where we leave it because we have used up all of our allotted time I'm going to make sure to put a link to the Salesforce holiday dashboard in the show notes and super grateful for you taking at time and I hope you have a great Thanksgiving and we're looking forward to talking with you right after Cyber Monday.
Rob:
[52:45] Thanks Jason Banks got ya looking for doing a short couple weeks looking forward to talking to you then.
Scot:
[52:50] You robbed remind listeners where they can find your pontification xand and do they just Google the the index to find your daily things or like is there a quick URL that you guys have that.
Rob:
[53:04] Yeah you know to be honest with you the best way to is go to Google and put in shopping index Salesforce and you'll get to our holiday insights Hub so it not only has the dashboards but has all of the blog's were writing and all of the up-to-date analysis.
Scot:
[53:20] Cool well thanks we really appreciate you taking time out of your busy schedule to deliver this delicious holiday sandwich for our for Jason I in our listeners.
Jason:
[53:31] All right you guys be well and until next time happy commercing! -
EP312 - Amazon Q3 2023 Earnings
Amazon reported another strong quarter across the board for Q3, soundly exceeding analyst profit expectations and retail industry averages. In this episode we break down the AWS AI, Ads, and retail performance.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript
Jason:
[0:23] Welcome to the Jason and Scot show this is episode 312 being recorded on Monday October 30th right before Halloween I'm Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:38] Hey Jason and welcome back to Jason and Scot show listeners Jason it's a Halloween Eve hallow Eve but also we just watch the Mac live presentation from Apple or live presented recorded earlier presentation from Apple about new Macs, so I don't know I think I'm going to ask you about Max first are you going to get a new Mac are you sitting out this upgrade cycle.
Jason:
[1:07] I am on the fence guy of course I want one I have scheduled a meeting with my family CFO to see if I can, I can justify it so so we'll see I did not order one tonight I'm actually.
Still super happy with my M1 MacBook Pro so so I know M3 is at least three times better so so of course I want one but we'll see when I pull the trigger what about you is yours already on the way.
Scot:
[1:38] I have been a while without an upgrade and running a little long on the tooth on this guy so yes I have a new machine coming they were actually pretty generous on the trade-ins you should just do an experiment before you talk to the CFO plug-in that trade in and see if it.
Jason:
[1:56] That could be the.
Scot:
[1:58] You a better presentation also if you have an Apple credit card which I'm sure you do they have a really compelling offer there.
Jason:
[2:07] All right lots of lots of good good things to consider my nine-year-old has made it clear that we're not allowed to trade anything in it.
Scot:
[2:17] It's got dibs on.
Jason:
[2:20] He's very he's very aware of the technology trickle down.
Scot:
[2:24] Oh man well you can somewhere down the stream there's going to be one that you could trade in but I don't think it may have as much impact as your courage.
Jason:
[2:32] I I don't know if he's ever going to own a computer device with a keyboard will see but yeah he's actually not that interested in my laptop.
Scot:
[2:40] Speaking of baby geek or I guess now he's I don't know kindergarten geek.
Jason:
[2:46] Third grade geek.
Scot:
[2:47] Third grade geek what's he thinking about Halloween I hear he's kind of outgrown Star Wars which makes me casa.
Jason:
[2:56] He still like Star Wars but he yeah he is not doing a Star Wars character last year he did a Pokemon character he did Pikachu and this year he's stepped up to Charizard so that.
Scot:
[3:09] Very rare.
Jason:
[3:11] Enables well I think it depends on which Charizard butt.
That steps up the whole opportunity to build pyrotechnics into the costume.
Scot:
[3:21] All right watch out for some evil Pokemon people that try to capture.
Jason:
[3:26] Yeah I think the big debate in our house which isn't hasn't fully happened yet is who's trick-or-treating with Stephen and who's staying behind to try to scare the bejesus out of neighborhood kids.
Scot:
[3:36] I'm thinking you and a gorilla suit or you could be in the last year's Pokemon suit or Pikachu suit that could be a fun combo.
Jason:
[3:45] Yeah last year I actually had knee surgery only a few days before Halloween so I won by default because I couldn't really walk but this year I feel like I have no good excuse.
Scot:
[3:56] Right as the title shows the purpose of this as we have some Amazon news to report on.
Jason:
[4:02] Amazon news your margin is there opportunity.
Scot:
[4:15] Well Jason it was a kind of interesting setup coming into Earth earning season this quarter the whole world was focused not on e-commerce not on marketplaces not on omni-channel not on payments some of our favorite topics but also not on ads one of your favorite topics but everyone is now obsessed with AI thanks to the success of chat Juju GPT so coming into the quarter Amazon was kind of on the backside of a lot of the other big companies so we had Microsoft come out and they did really well with AI the their partnership with open a.i. / chat gbt is bringing tons of workloads to azure.
How much is their cloud computing platform and then Google really underwhelmed everyone with what they're doing there you know they're they're kind of tiptoeing it's very clear that they don't want to kill the Golden Goose that is Google search by putting too much AI to that so allow their experiments are in Bard which is kind of way off to the side I've tried barred three times I can never get it to have the features that they say it should because my corporate Google account you know either won't have access or it says that feature is not here yet.
Um and I think people are really starting to worry about Google on this one.
So then that teed it up where all eyes were on AWS to see how are they doing and I think we've covered this but.
[5:44] The Amazons approach to this is to be kind of agnostic for lack of a better word so they're kind of like hey if you want to use.
Any of these different models we're going to basically let you run them on AWS compute and we're going to have all kinds of different graphic Processing Unit or GPU tears available from you know their own chip set to older Nvidia chip sets to the new ones and kind of be y 0, LM bring your own large language model.
[6:18] And then oh yeah also Facebook did pretty well and you know they're definitely through the worst of the Privacy changes that Apple put out and they have an approach to AI that is an open source one so they're basically saying hey we're going to integrate this in our products and what we build we're going to put out there kind of almost scorched Earth in a way saying why don't we just open source this thing and maybe that will slow down our competitors who are going to use this to to generate their own revenue and because they don't have a cloud piece they don't and they're pure advertising it doesn't really, Concord hurt them to do this so they're not making Cloud Revenue off of it but it's become a popular one and it's called llama in case anyone is it from there then, okay so just not to leave everyone in suspense because we usually talk about AWS kind of later in the Amazon update we're going to cover it first so the ended up having a really good ADB is showing so I would say people got kind of panicky and we're expecting it to be down and it kind of came in line.
[7:22] But what that people excited was part of the talk track on the conference call Co jassy said that they're winning some big AI workloads they talked about some big deals had close towards the end of the quarter that we're pretty significant and what's happening is as you know what's what a i chat gbt is trained on the broader internet and anything that they can throw into there.
[7:49] And that's interesting but what's happening is corporations and.
Both big corporations for internal use but then also other corporations they're wanting to train a large language model on their data and they also don't want that data to kind of leak into the broader ecosystem so that's that's really benefiting Amazon because it turns out a lot of the data that companies want to train these lme's are are already in AWS so instead of paying all this money to pull the data out of AWS and then synchronize it back into your LM as as Amazon anticipated with this kind of open bring by0 LM model.
People are bringing the LMS to them and using the data because it's already in AWS and it's easier for the llm to just kind of go right there and grab it versus moving the data around.
[8:44] That may not make a lot of sense so let me give you kind of a random example let's say you're a big added see like I'll pick up, this one called publicist they're out of France and most people haven't heard of them and let's say that that French Ad Agency wanted to save a bunch of money they could take like.
Let's say 3:00 of content from like a podcast transcript or something like that.
And they could use that content let's say someone of their company like a detailed digital retail payment strategy vice president general manager type person with a big crazy title like that.
They could put that data out there and run an llm on day ws and train that data on it.
The llm on that data and then they could have for example just picking something random they could have a retailgeek bye.
That was basically as good as the human probably ninety percent so good enough but you know this thing could run 24/7 you could actually you could have as many of them you could clone it on two different processors after you get through the training mode and you were in D quote-unquote inference mode and it also doesn't take breaks it doesn't need, Starbucks vanilla lattes constantly it doesn't have expense reports it just.
Does its job and doesn't complain and doesn't ask for raises so that's that's a that's a use case that something like that would work did that make.
Jason:
[10:08] Specific hypothetical there Scott.
Scot:
[10:11] Is randomly chosen just kind of picked it out of the are there.
Jason:
[10:14] It almost sounds like the more words in your title the more vulnerable you would be to AI disruption.
Scot:
[10:20] I thought about that but it is does make sense because that's essentially more tokens for the AI to learn just like right there in your title you're basically asking for it if you're a robot Overlord you're kind of picking on who to go for a first I would look for large titles person.
I don't know I don't know how their training these things.
Jason:
[10:37] There I know you're the investment guy in our podcast but there's this investment theory that you don't you don't, be the little guy chasing the big Trend that way you want to do is identify the secondary Trend and so in this scenario as soon as it seems like a i is ready to replace the the blowhard Talking Heads everyone should short Starbucks seems like the.
Scot:
[10:59] Mmm that's a good point yeah I hadn't thought about that.
Jason:
[11:02] Yeah because when I lose my job and can't afford those lattes I feel like something I would like I'll take some solace in knowing that you made some money on that.
Scot:
[11:14] Yeah they'll be like on their conference call we're still working on the data but we've isolated it to this to block window in Chicago and we're pretty sure we have an idea what's going on.
Jason:
[11:26] I feel like my Starbucks footprint is a lot bigger than Chicago.
Scot:
[11:29] Well you know the the core of your Bullseye answers is going around.
Okay but in all seriousness this is a really interesting blurb from the call where they talked about their strategy gaining traction and they said there's multiple businesses are using their gen AI That's short for gender of a i.
Apps on AWS including Adidas people in our European list listeners I think they call it a deed us but I'm here in America we call, here in South the southeast caught Adidas booking.com and United Airlines.
And while Jenny eyes Revenue contribution remains small management suggested Revenue quote compares favorably.
To some of the other leading providers and this is this is interesting because Amazon's always mum's on revealing anything until the SEC forces them to break out stuff like, for the longest time we didn't know at AWS was then we didn't know what ads were and then they became material enough they had to break them out so so Amazon under Bezos would never have said those words I've like even hinting about what's going on.
[12:35] But kind of is interesting because there's a new sheriff in town and also it shows you how important it is that they let everyone know that they are not falling behind and that their room new quote-unquote compares favorably with other other Cloud providers obviously they're talking about Azure once Wall Street analyst I did it is back of the napkin and he kind of said all right I think that they're telling us this is always funny because it's like six degrees of.
You know separation so who knows but they basically inferred what they were trying to say reading the tea leaves was that it's about a 400 million-dollar business and already two percentage points of AWS Revenue.
Which was basically zero six months ago so that's that that is kind of an interesting thing that came out of nowhere and is already a 400 million quarterly business so that means it's a 1.6 billion annualized run rate business.
[13:29] If they're reading the tea leaves right on that so that was the AI part so I thought I'd be important for us to get that out because that was kind of like the new cycle really centered around that, and it is interesting you know you and I are watching this very closely there are e-commerce ramifications you know there's all kinds of, The Innovation here is so rapid it's hard to keep up with there's all kinds of a eyes for creating product detail pages and you know all kinds of, e-commerce oriented support Bots and it's just like amazing a lot of AI applications for optimizing warehouses it's just like overwhelming how much is out there we're definitely in the, tippy top of the hype curve and you know a lot of businesses are still sorting through all this but that was the that was the.
[14:16] Dean on e-commerce retail side of things and non ads with that behind us the other big win for the quarter I thought you'd want to kind of fill us in on was the advertising part what did you see there.
Jason:
[14:30] Yeah yeah I want to jump into ads I do want to just say quickly it's interesting on the AWS because they posted solid numbers they posted 12 percent growth for AWS and they announced that they won the whole dialogue was about all these AI workloads that you just covered but they haven't recognized much of the revenue from all of these new AI workload wins yet so the this 12% growth feels like.
Kind of a win based on the Legacy Cloud business even before you start to factor in all this new traction they're getting, I'm AI workload so so that does seem interesting but I just want to reiterate what you started out by saying which is, the the bed at Amazon is that you're going to want to bring the llm to your data and not that you're going to want to bring your data to the llm and that, intuitively.
[15:24] Makes a lot of sense so it seems like investors were always pretty happy with their the AI Cloud case that they made.
Um so that being said.
As far as I'm concerned an even bigger win for them was the ad business so so they generated 12 billion dollars in ad revenue for the quarter that's up 26 percent versus Q3 of last year.
Year-to-date that means they're had businesses up 23% from the year before so you know we're comparing that to like the 11 or 12 percent growth they get on AWS.
Um
[16:02] The ad business grew 21 percent last year so it's grown 23 percent this year that impugns depending on how you factor in seasonality like a 46 to 50 billion dollar run rate for the ad business right now, so if you take a conservative estimate for the the the, margin rate on that business that's generating 2728 billion dollars worth of ibadah for Amazon which is a huge.
Huge business and much more profitable than a WS by the way.
So the ad business was very robust and a couple of injured interesting takeaways.
Amazon is adding more and more video properties they have Thursday Night Football you know they announced that they're going to start embedding ads and Amazon Prime and they'll have a premium offering to bypass Those ads.
So there's a lot of opportunity for.
Kind of top of the funnel linear programming ads at Amazon none of that is in this.
[17:09] 12 billion dollar number right now or very little like all of the potential they've they talked about for this for these non Commerce ads.
Is all sort of incremental the weather getting right now.
At the moment the vast majority of all Amazon's ads are bottom of the funnel the the sponsored product listing is by far the most.
Popular ad that that's growing particularly well and with the particular mix of economic headwinds we have at the moment, a lot of advertising is Shifting to bottom of the funnel people are less interested in investing in awareness and more interested in investing in sales and Amazon turns out to be, the best destination to take that that those dollars to put them into digital ads that generate.
Bottom of the funnel results so this quarter everyone was really interested to hear from the advertising companies, to see if advertisers were going to be cutting back right and so you know you mentioned meta had their their earnings call Google had their earnings call Facebook I'm sorry.
[18:17] Snap had their their earnings call and ads were uniformly up across everyone's earning so metas ads were up 23%, Google's ads were up 11% Google broke out YouTube ads which were up 12% snap ads were at 5%.
But nobody's ads were up as much the 26% that Amazon's were and nobody has had the consistently rapid add growth that Amazon's had the last three quarters.
Um so the economic headwinds like do not appear to be.
Putting a huge crimp in the the digital advertising business and they appear to be disproportionately benefiting, Amazon and so then you go wait next quarter they're going to be selling ads on all of their video programming and that could easily add another 5 billion dollars just for in to this this annual run rate so.
A lot of green lights in the Amazon ad business.
Scot:
[19:21] The I'm not a huge Sports person but you mentioned Thursday night football and have you seen and kind of marrying this back today I think if you seem Prime Vision have you played with them.
Jason:
[19:31] I have yeah.
Scot:
[19:33] So for listeners what they do is on Thursday Night Football if you watch from actually I do it on my Apple TV and I'm in the Prime video app.
And then you can it takes you to the standard broadcast just like every other thing but you can go in and then you hit down arrow and you can select a different broadcast which is, Prime vision and what it does they've added feature since they did it they started it they've added all these new AI features that are really amazing so during a pass play they'll show you the most likely Target they put like a Madden asked Circle in real time under the player and, he'll flash like green or something if he's a possible Target on the defense though they'll show a potential Blitzer.
They'll show you fourth-down probabilities in real time you know and it's just amazing they've added tons of features of that since I've been watching it and I find it like really adds a ton to the game too.
Kind of see you can see the strategy in real time mostly broadcasters you know they'll talk about it like Tony Rome or something but it's way after the play after they've had time to put together animation this is doing it all in real time it's just mind-blowing the amount of compute it must be thrown at that and you know I think it's a it could change the way you think about sports and in a really interesting way.
Jason:
[20:49] Oh yeah increasingly it's a better experience watching the game at home then you can get in the stadium.
Scot:
[20:54] Yeah the stadium doesn't do that.
Jason:
[20:56] They side note for soccer at the World Cup they actually did but you have to watch the whole game like through a are on your phone.
Scot:
[21:05] Let's see you at the stadium watching the game on your phone.
Jason:
[21:09] Yeah I mean and it was cool right like saying same sort of thing like it's overlaying all this real-time stats and probability was amazing.
Like it's not a very good experience to like hold your phone up and have your camera on the whole time to sort of get all these stats and so.
Yeah yeah side no Thursday Night Football is the bane of my existence because I do play Fantasy Football and I never have my act together to have my lineups all set before Thursday night so, usually the game starts and I have to pray that I don't have any super important players that I fail the start and then I can enjoy the game.
Scot:
[21:46] Okay understood anything else on Dad's.
Jason:
[21:53] No I think that covers it pretty well on ads you know just.
We've we've talked about a lot on the show but the overwhelming success Amazon's having with ads has this of course trickle-down effect that every other player and commerce paste is trying to figure out how to monetize their their traffic and get their share and at the moment nobody's getting, anything like Amazon's add, Commerce ratio and of course the audience eyes is start dropping off really quick after Amazon right you know you get a lot less eyeballs at Walmart then you have it on Amazon and a lot less eyeballs it Target then you have it Walmart and you know once you get smarter than that it starts getting real fragmented real fast.
Scot:
[22:39] Yeah how do you were still there still even though that's a big number they're still like way far away from Facebook right so so number one is Google by a really big margin and number two is Facebook and then it's Amazon and they're like way ahead of everyone else but they have to even though they're outpacing them, a little bit it would be like decades before they caught up in my own remembering that right.
Jason:
[23:00] I'm not no I'm not going to say decades it's an order of magnitude it's like 102 million 100 to 200 billion dollar annual run rates for those other guys and.
Scot:
[23:13] But they're kind of getting to half right.
Jason:
[23:15] Yeah yeah they are like they there with like within 50 percent of Striking Distance of number two.
Scot:
[23:23] Yeah if you had said that to us five years ago we would not have believed it I would I would not have seen how I've been.
Jason:
[23:30] Yeah I've been playing that what would you have thought five years ago game a lot and you you know you talked about who all the winners are in AI if you said five years ago the AI is going to become a huge thing what company is going to win like you we would have all been on Google.
Scot:
[23:43] Yeah yeah or apple or it would not have been startup called open air that was nonprofit that flip to profit no one saw that coming including Elon Musk yeah.
Jason:
[23:55] And by opening I you mean Nvidia but yeah.
Scot:
[23:59] One tidbit I saw on ads I love the leak read the Wall Street reports and they largely talked about the same data but a lot of them are good at very good at modeling and they can when Amazon doesn't tell them something like they don't break out they break out the revenue for ads but they don't break out the profit so it kind of gets swept up into this larger number but then they give you enough pieces you can kind of back into it so one of my favorite analyst he's a friend of the show Scott Devitt he modeled back through there and to your point he basically said that the ad business has a 60%, EB de margin so net margin of 60 percent which is basically like just money raining at this like Google's business model which I guess makes sense because Bass.
Jason:
[24:46] Is it is good.
Scot:
[24:48] Yeah because it is Google's business model and this ties into you know you know more about this government stuff than I do but Google's in a pretty nasty fight with the FTC, or the DJ I can't remember some government Bureau important entity that that is claiming they have a monopoly on search and they're basically pointing over here and saying look at these Amazon guys they're closing in on us pretty quick and they always reference those stats that show you know like more than half the people start product searches and those online.
Jason:
[25:19] Yeah no it's super interesting I Scott Devin is way better at Financial models than me but I actually think he might be under estimating the profitability and part of it is.
It's.
There's a lot of room for gray area like if you think about the the Amazon business it's super fascinating you know the number one digital Advertiser in the United States of America is you know who buys more ads than anyone else.
Amazon.
18 billion dollars a year of ads they buy just from Google so they buy 18 billion dollars worth of eyeballs from Google they use those eyeballs to sell a bunch of stuff that they make money on and then they sell 50 billion dollars are the pants to those eyeballs.
Scot:
[26:05] Ticket Arbitrage.
Jason:
[26:06] It's amazing eyeball Arbitrage and you know it's.
So how much of that acquisition cost are you factoring into the profitability of the ad business versus the like I would argue that these are not separated bubble businesses as much as ever wants to talk about ads as a separate business to me it only exists because you have all this traffic for Commerce and it's it's a core part of the the Commerce math at this point but we shall.
Scot:
[26:39] Yeah when we did our instacart coverage of this one now instacart been public for a while and you look at their numbers they're basically only being the whole instacart business is being valued a zero except for that so they're basically trading like an ad company so all of Wall Street said okay that grocery part is kind of like that yeah is there we'll put it in like you know.
[27:02] A hundred million dollars and then the ad business is like worth date hundred million dollar ad businesses where they gave it a really nice multiple of like 5x so that's interesting I'm sure, you're going to spoiler alert you're going to see a lot more ads on Insta guard the yeah a lot of people there is a negative and you know no one ever talks about this but a lot of people and this usually comes from a Amazon sellers and they always have kind of a love hate hate hate hate hate relationship with Amazon you know a lot of them would say and I hear this from consumers that the customer experience is the user experience is degraded on Amazon because there's just so many darn ads now you know the and I see it too if I'm looking for a specific thing I'm kind of like a dad at okay that's what I was looking for at some point there is cannibalization there and you know what we don't know is what did they lose from yeah doing this like was their product they didn't sell because people couldn't find it or we'll never really know that but you know kind of hope they're smart enough to figure that calculus Alden make it a huge net positive versus the cannibalization getting close to the ebitda contribution.
Jason:
[28:10] Oh yeah no I think two things like there definitely is an impact on customer experience and every retailer that gets into this space has a different philosophy about that and Amazon's appears to be the monetization is just worth it but you know you think about everyone other retailers that are not waiting and quite so hard, are trying to balance that and then the new interesting thing is if you're any retailer other than Amazon where all your eyeballs really are is not on your website it's in your store right and but you go we'll wait a minute, the these disruptions that people might tolerate as digital disruptions on a website they may not top you know nobody wants to junk a fi, um a physical store experience with a bunch of you know make it feel like you walked into Times Square every time you walk into, retail store so there's all this interesting calculus on where everyone should land on that the other interesting thing to me is for a while there was a.
[29:13] An opportunity for the best practitioners to get outside return so there was a subset of all those Amazon sellers that were really good at the Amazon ad, execution right and they did their smart about where they put their bids they were smarter about the attributes they put in their ad there are smarter about the creative they made for their ad and they could get outside Returns versus other sellers on Amazon but the first Trends you mentioned the AI affectation of this whole business.
[29:43] Has sort of made the best practices, dummy proof right and so now you know you just hand a product shot to Amazon and it makes the ad for you and you turn over the bidding strategy to Amazon and it optimizes your bidding for you and so it's squeezing more of the potential profit like out of all of these these other businesses that are built on top of Amazon because it's, kind of.
Normalizing the the ad business to everyone and it just becomes a pure pay to pay like who's going to be the most for this eyeball.
Scot:
[30:21] Yeah kind of supports your theory that maybe the Madonna's higher because they don't have a lot of people sitting there at adding images or something like would they used to do back in the olden days.
Jason:
[30:31] Is that you used to need this thing called what is it called Ad Agency.
Scot:
[30:35] Yeah good cut the if you can just get one of those Bots I discussed or just like you have a some a I do it for him.
Jason:
[30:40] Yeah yeah that was a funny example a few minutes ago.
Scot:
[30:44] Unrelated news Jason is brushing up to c v so hit him up the so just to zoom out to the big picture so so we kind of dove into the to topical things A to B Us / Ai and adds, those together really causing Amazon to beat Revenue that they came in about one percent higher than Revenue so it was kind of like a slight beat / meat but where they really exceeded oh and revenue came in at 143 billion were they really crushed it was operating income and these two contributed to it but also retail did some interesting things that also yeah I think dramatically helped beat expectations operating income came in at eleven point two billion and expectations which is Wall Street consensus is what they say was seven point seven billion you know so that's like what let's like.
Five per billion beat you know like a huge be compared to whatever.
Jason:
[31:49] 35%.
Scot:
[31:51] Yeah so that push the stock up 10% and then also we'll talk about guidance and that was positive so, it's been interesting Amazon stock has been kind of in a you know.
Funk for lack of better words has been con rallying around at the same level and literally for quite a while like 18 months and this was the first Catalyst to cause a big move and that it's market cap a 10% move at Amazon Lester look we'll get one of our researchers here one of the interns I look okay.
So you know they were like 1.2 trillion and now they're like 1.4 trillion so that's you know a move like that takes a lot of dollars when you're bigger than a trillion dollar business to move things it's like a lot of.
A lot of value creation can happen in a 1.2 trillion dollar company when it shoots up ten percent in five trading days.
Jason:
[32:44] 10% 0 by a lot of rocket fuel.
Scot:
[32:46] It will yes a lot of dates with helicopter Pilots as well and a lot of cool new clothes, so there were some really interesting things you know we spend the bulk of our time here on the Pod talking about retail and e-commerce to our favorite topics so Jason there's a lot of really interesting stuff going on in there as well you want to fill us in on that.
Jason:
[33:08] Yeah everyone just wants to talk about ads and AI but it turns out that Amazon is actually a pretty good retailer.
And so the the retail business also had a good quarter and to kind of set the table, every every listener the show knows I love my US Department of Commerce data so that came out last week 4.
[33:31] September which gives us Q3 data for the industry so us retail data in September this was up one point year-to-date sales in the United States January through September we're at one point nine percent this year versus last year.
It's a 35 percent versus before the pandemic in 2019 so 1.9% is not very good growth by historical standards we would normally expect about 4% growth.
So if we just look at Q3 growth the industry was up 2% which again half of what you would typically expect.
So Amazon's growth for Q3 is 11 percent versus that that industry number of 2% so 11% growth, is very robust the if you kind of, look at Amazon's growth since the pandemic that Q3 number means they're up 85 percent versus Q3 2019 and their year-to-date number is up 111 percent versus 2019.
[34:33] So Amazon is a very large retailer arguably number one or number two retailer in the US now, and they're growing way faster than the industry average, and again depending on how you count Walmart would be the number two retailer which is also growing significantly faster than the industry average so that actually, tells you everything you need to know about the rest of the retail industry is that where you know we're having a significant bifurcation and with winners and losers in the space.
[35:07] The other side of the retail business for Amazon is international and historically North America has been a very mature Market that has grown and generated profits, International has not made money for Amazon and I would say it was a mixed bag in terms of their International performance, on a constant currency basis International sales were up 11% which it's a smaller less mature business so you'd like to see it growing faster than the, the mature North American Market, um but they're operating loss is way smaller so last year this quarter they lost 2.5 billion dollars this year they only lost a hundred million dollars so nearly break it even for the quarter.
Um the this did not come up in their their earnings and no one asked them about this but Marketplace pulse reported earlier this month.
That appears Amazon has.
Meaningfully curtailed their International expansion and a lot of markets they had announced they were expanding into they seem to have delayed.
Postponed or canceled a lot of international market openings, so International definitely is not the start of the show it is also true of a lot of the other markets that say that Amazon's in still have more.
[36:26] Just general macroeconomic headwinds than the United States does at the moment a lot of the world has a more severe version of the same macroeconomic problems that we have.
In the US so a couple interesting tidbits.
[36:44] But in the discussion about the retail business that you know the CFO Bryant.
[36:54] Scot I always pronounce his name wrong alsop ski, um brett-brett else got a soft ski talked about how despite the fact that their they had nice growth in retail that they are seeing a cautious consumer who's generally trading down and more Deal seeking, then usual and that's consistent with, cautions that we've heard from other retailers that actually gives me some significant pause for Holiday which we'll talk about later, the the thing that that Amazon was really touting in the retail business is that they dramatically improve their cost to serve, and their speed of delivery in Q3 and that largely was thanks to an initiative they started a couple of quarters ago, this transition from a single National fulfillment Network.
To a regional fulfillment Network where they have eight distinct District regions in the United States, that each sort of operate independently in the goal is to have all the the inventory that that Scot Wingo wants to buy, in his region so the goods have to travel less far are less expensive to get to him, and get to him faster and what they announced in the earnings was that the transition to this this.
[38:19] Regional model has gone better and exceeded their expectations they're getting more.
Incremental profit and faster speed of delivery than they even projected, um out of transitioning to that so this is.
[38:37] I know we talked a lot about how big and what a huge moat Amazon would just accept our but I still feel like this is under appreciated by most Amazon's competitors and their there.
They're just opening a bigger Gap in speed of service and one of the things they mentioned is that they see a direct correlation between consumable sales and speed of service when they promised that they can get them there faster they sell more paper towels, so I think it's very clear that that consumers want speed of service, and Amazon has a huge advantage and it appears to be getting even bigger so that's interesting another thing I talk about a lot.
[39:20] Um is there's a few new retailers that are also stealing significant share, um very quickly and they're primarily Chinese companies so it's she in and most notably Tim oh, and so well like they certainly didn't come up in the Amazon earnings a lot of the analysts started looking at the the, rapid growth that Tim is getting and trying to figure out if they're stealing share from Amazon and evercore did a big consumer survey, and the results of their survey was that Tim ooh is mostly not stealing share from Amazon that most of its shares coming from, other retailers and in many cases coming from brick-and-mortar value retailers in the US so the dollar stores and it appears that that Amazon is more insulated from the.
The growth and profit that they're getting so all of that you know rolls up to be a pretty impressive.
Quarter I you've talked about it a lot but it kind of feels like Amazon's got a bunch of knobs that they can turn whenever they want to improve profitability and it feels like, they both added more knobs that can turn this quarter and they turn some of them.
Scot:
[40:37] Yeah the other thing that's really interesting is if you look at.
Amazon and you can't really read because they have so many employees in the Fulfillment centers you can't really tell their employee growth and it's surging right now is they prefer prepare for holiday but another really interesting trend is Google meta and there's one of the other ones Microsoft their revenue per employee is surging so they're they're actually not hiring many people right now and, the assumption is these companies are leveraging AI internally and becoming exceedingly efficient and you kind of wonder.
Is Amazon doing the same thing I hear inklings we have kids that are not so far out of college they don't know folks looking for jobs and things I hear inklings that Amazon is not really hiring that much as they kind of were at one point so I kind of wonder, are they also hiding behind that that have like a million employees and it surges like 200,000 for holiday so it doesn't look like they're being more productive but what they don't do is put out corporate versus fulfillment center.
Have to have an idea that if we looked at corporate there also.
[41:48] One dial they've turned its new is I think they're not hiring as me folk because people are getting a lot of efficiencies from these AI.
Systems that these companies are dogfooding internally.
And because they're they're a little bit further ahead than kind of like what we see out of the lme's I think they're doing some really interesting things that they will productized and we will we will see what they're doing in a lot of it can be this like really focused you know create an ad you know a lot of the stuff that used to be, kind of out sourced or you would have to throw a bunch of bodies at it I think there's LMS doing a lot of that you know customer support Bots think things like that that you know I think there's a lot of efficiencies going on inside of their that's helping these guys really beat their earnings numbers.
Jason:
[42:38] Yeah I do think that's true it's not lost on me that just as the retailgeek bought is gonna replace me at poobah says all the other places that might have hired me are also not so my fallback is that I may be washing cars at spiffy so we'll see how that.
That all plays out but I promise to work hard of it if it comes to that Scott.
Scot:
[42:58] Absolutely it also we could just turn this podcast into the entire ads so that could be could be here our second asked yeah.
Jason:
[43:04] We can monetize the podcast I'm not I'm not doing that to the listeners they advertisers would make us make a shorter podcast Scott.
Scot:
[43:13] Yeah yeah.
Jason:
[43:14] I'm not down for that I'm not down for it.
Even if I have to wash cars the I think you're certainly right like a lot of these companies and Amazon very overtly has has put some more barriers and in place in terms of corporate hires.
The one notable exception being the AI space they're hiring pretty rapidly.
Um but I also think in addition anything you mentioned that Amazon's actually finally like really leaning into the Fulfillment center automation so while they've always.
Been a leader in in having fulfillment center, not all their fulfillment centers in a big chunk of their fulfillment centers were not highly automated and so I think they're now automating all of them and they're rapidly moving to sort of next-gen automation.
Um you know where everyone else is kind of putting their first robots and you know moving things around the warehouse more efficiently.
Amazon is like rolling out new technology that's a lot more.
Seamless in how the people and the automation work together in a in a safe cohesive way so I do think one of the levers Amazon has is.
You know to really add more Automation in those in those fulfillment centers and in that cost to serve.
Scot:
[44:39] Absolutely it's kind of interesting because we started spiffy, which is my on-demand car care company where you're going to come wash cars people are like AI is you know they'll be a robot that can do this in five years I was like I don't know like you know the Boston Dynamics robots are cool but they're not.
Let's just programmed well I don't think it's like that you know it's not thinking and who would have guessed that a I would replace you know the digital retail Talking Heads first and and not.
Not the physical things I think the physical stuff is going to take a lot longer but who knows once these a eyes you have there's Tesla has that that demonstration of theirs was The Optimist that you know it kind of is learning things as it goes and making inference in real time so that is kind of you know we who knows where all this is going to go.
If we back to it now and not science fiction but your term science fiction so.
[45:37] Looking forward for fourth quarter they put guidance out that they're going to see growth in the fourth quarter of 7 to 12% the midpoint of that range which let's see would be 9 and change itself was five and a half percent above the consensus midpoint so this is what we would call A Classic.
Meet Top Line Crush bottom line on the current quarter and then raised the next quarter both top and bottom line pretty substantially so that you know.
This is an important data point when we kind of swirl it together with your Department of Commerce data it does seem like Amazon signaling they're feeling pretty good about the fourth quarter and everyone felt like this was kind of conservative given I didn't put the bottom line number but they felt like that was pretty conservative given what they just did and you know they felt like dad a lot of room to kind of beat that number and maybe it's going to be more like 14 15 percent growth which would be you have a new post covid reversion hi I guess you would look at it where do you did you leave this feeling more optimistic about Q4 or we are your classic Jason curmudgeon myself.
Jason:
[46:54] Yeah no I think I'm mostly curmudgeon e not for Amazon I actually I think their guidance seems realistic to me.
[47:06] On the top line I think the bottom line is just totally up to their whims like if they want to blow away the bottom line they can if they want to invest at all in you know new.
[47:18] New AI capabilities and and keep the bottom line constrain they can do that too but the that, Top Line I think they're likely to hit their guidance and again you know one or two other big retailers might you know have a pretty robust holiday as well but I actually think that that sucks all the, the potential growth out of the market for holiday and so I actually think.
That sort of signifies potentially Bleak holiday season for a lot of other traditional retailers so I guess it's a.
Little bifurcated it's good news for Amazon will see what a Walmart's Q3 earnings look like they announced on November 16th, but I do feel like endemic lie Amazon and Walmart have some, some inherent advantages that are insulating them from some of the economic headwinds and I think that that really just makes things, that much more difficult for the the rest of retail and so I desperately want to be wrong but I think it's going to be, I kind of disappointing holiday for a bunch of folks there also was sort of some if you really listen to the Q&A portion of the investor call, there.
[48:45] The the CFO in particular had some concerns about capacity around Q4 and one of the things he called that was carrier capacity which is interesting because Amazon does so much.
Of their own fulfillment now that they're just way less dependent on third-party carriers but if he's worried about carrier capacity for Q4 you can bet that means that every other retailer ought to be really concerned, about carrier capacity for cube Q4, and so we you know we feel like we talked about that every holiday season but Amazon's got a lot of.
New fulfillment center capacity that's coming online in Q3 of this year and will even in Q4 and so I guess.
If there's one thing that could glitch it Amazon if there's not enough delivery capacity if some of these new fulfillment centers have any, any sort of glitches or delays and coming online that you know that that could be the constraining factor for their Q4 growth.
Scot:
[49:50] There's so sprinkle of curmudgeon e speaking of holiday where can listeners go if they want to get the best holiday news even though we haven't been potting as much as we want to because our day jobs have been absorbing a fair amount of time this year we are going to have some killer content around this holiday and kicking it off we have our very own jacent live not an AI and you're going to do a little webinar for Commerce next what's that all about and when is it.
Jason:
[50:22] Yeah yeah so on Monday November 6 which I think is a week from now if I'm not mistaken we're doing a Commerce next webinar where we'll sort of preview the holiday season so you heard the very early preview just now but we'll go into more detail share some of the third-party forecast for Holiday Good News, all the other predictors are much more optimistic than I am so so we'll hit that on November 6 and then of course there will be all the good real time holiday news that will be will be hitting pretty hot and heavy here on the podcast so we'll we'll have some of the best data sources, right before and after the holiday to kind of talk about where things are going and what actually.
[51:15] And with that I think it is happen again we've used up all our allotted time as always if this deep dive in Amazon's earnings was valuable for you the way you can repay that value is to jump on iTunes and give us that five-star review.
Scot:
[51:31] Thanks everyone and Jason until next time.
Jason:
[51:34] Happy conversing. -
EP311 - Video Commerce with Qurate's Brian Beitler
Brian Beitler is the Founder and General Manager of Live Shop Ventures, a video commerce initiative within the Qurate Retail Group, which is the parent company of HSN and QVC. Brian has also served as the CMO of Qurate Retail Group, in addition to many other interesting marketing roles in the retail world.
We met Brian at Etail Boston and arranged this interview. We cover video commerce, differences in adoption between Western and Eastern Markets. The role of livestreaming, and the benefits of being a "commerce platform with video" vs. "a video platform with commerce." We also explore the origin on Live ShopVentures, it's first video marketplace on a mobile app, Sune, and the benefits on incubating a start-up within an established company.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 311 of the Jason & Scot show was recorded on Thursday, August 31th.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason:
[0:23] Welcome to the Jason and Scot show this is episode 311 being recorded on Thursday August 31st 2023 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:39] Hey Jason and welcome back Jason and Scot show listeners Jason as you know one of the most common questions we get from our huge listing audience is about live streaming with e-commerce is it a big deal why is it seem to be growing faster in the East versus the west and how important is it to live live streaming so we thought we'd get a expert on the show as a guest that could help unpack that for us all and you better than someone who's LED marketing for numerous historic Brands and served as the CMO for the mother of all video shopping sites QVC / HSN and so that's exactly who we found, we're excited to welcome to the show Brian beitler he is the founder of mobile V Commerce app called soon and the general manager of live shop venters both part of the Keurig group.
And I'm not sure Jason but that's a lot of words in the title but I think it's maybe half of the words in your title but welcome to the show Brian we're excited to have you.
Brian:
[1:36] Grateful to be here and I'll work on trying to lengthen the title so I can keep up with Jason.
Jason:
[1:41] Set your set your goals higher Brian.
Brian:
[1:43] Thank you for having me.
Jason:
[1:48] Brian we are thrilled to have you and as our listeners will quickly figure out and we are eager to jump into all this video Commerce stuff but before we do we always like to give the listeners a little bit of perspective about our guests background and where they're coming from and in your case it's a super impressive retail / consumer background so can you can you give us the version that your mom would share with her friends in the elevator.
Brian:
[2:15] Happy to do so so I'll back up a decade or two but I started well where I consider I started my career was at Mattel that huge toy conglomerate in fact they're very popular right now coming off of a I think a major hit movie.
It's doing very well.
Yes I think so has the rest of the world at this point but I started my career there and fell in love with the toy industry and thought that's where I would really spend.
My entire career when I left Mattel.
In the early 2000s I at the time was leading the core part of the Hot Wheels brand a dream job as a father and a former young boy.
[2:56] But I thought I would give myself a taste of retail in the toy industry so I actually left metallic thought I would spend a couple of years on the retail side working with it.
A brand I knew we all knew and loved at some point in our childhood called Toys R Us and truthfully I the reason I'm here today is I fell in love with retail there, and what was different for me about retail versus consumer packaged Goods was just the speed of retail it felt like it moved at light speed compared to kind of course EPG brand management, and you know I often tell the story you know working in those days to change you know the package on a five car pack took a couple of years to get it to Market and.
I joined Toys R Us and we had this idea to launch a birthday club and.
At the time I went to the CEO of the company John I learned and it was how quickly could you get it in Market could you do it in a couple of months.
And that and I was often running and in love with retail and so spent a couple of years there and then just continued to be given these remarkable opportunities to work with, really amazing Brands and helping them reshape their narratives with their consumers or and or finding new Pathways new emerging ways, I could grow I was you know there at Bath and Body Works when we launched e-commerce we redesigned the site as a marketing site decided oh we might be able to sell something.
Through here and that's been my journey so from from Bath and Body Works to Kohl's department store.
[4:24] Then my hand in the bridal industry and private Equity with David's Bridal and then women's apparel and you know fast forward.
A few few years and here I am at curate Retail Group.
Working in what I think is an exciting future for digital Commerce.
[4:42] All of those roles you know usually leading the marketing you know the marketing or e-commerce function for those various Brands and learning a lot making a lot of mistakes a lot of mistakes I'm getting a few things right every now and then, and you know kind of Landing in a pretty exciting place here at grea where we think we're going to do something you know again interesting a new in the digital space.
Jason:
[5:04] Yeah and a couple of fun facts brand you've LED marketing for for a bunch of those Brands you just mentioned and while you were doing that I was nominally helpful in building a bunch of the the backend e-commerce functionality for those same Brands and so I think without knowing it you've hated me your entire life for all the the features you wanted and didn't get or the the the pace of evolution so I just wanted to apologize publicly for all of that.
Brian:
[5:34] I appreciate that.
Jason:
[5:35] But one of the things I particularly love about your career is is I have this theory that, you know though all of retailers has been profoundly disrupted by digital but not all at the same time and so there were there are industries that are disrupted a long time ago and there's you know if you're a grocer or a car dealer you're probably getting disrupted you know right now and I feel like you serendipitously or maybe intentionally have have been in a bunch of Industries.
Right at the peak of their disruption so your Toys R Us when when shopping online became a thing and then urine Beauty when that became a thing and then you are you are in the the the heat of the the apparel Wars online and now you're you're squarely in the v Commerce space and it's you know one of the things we talked about the most on the show so whether you did that on purpose or not congratulations on on surfing that digital disruption wave.
Brian:
[6:32] No I appreciate that I think much much of it was serendipitous I would say that the pieces that probably weren't was my desire to always work for, brands that were leaders in their respective category or industry and as I look back and reflect that's probably one of the things that has been the most rewarding and probably given me the best.
Growth is being able to work with you know brands that were at the Forefront Mattel at the time was the leader in in toy manufacturing still still are.
Toys R Us at the time was the leader in toy retail Bath & Body Works was the largest kind of.
Bath & Body brand at the time Cole's was it was a chaser of you know kind of the discount Department space and ran past JCPenney's and Sears and its competitors and so that for me has been exciting because you know I think being with those who build powerful platforms, let you learn from the best and you know here I said today with curate retailgeek which owns QVC and HSN.
You know the largest livestream platform on the globe by far the industry, leader having changed the landscape of how you could use television to shop you know some 35 years ago and continued it for nearly four decades now so that part of trying to work with brands that, I felt were really leaders in their space because I thought it would be a great place for me to learn has certainly been intentional and then this digital Crossroad just happened to kind of line up and almost all of those places at the time I was there.
Jason:
[7:56] That is awesome and today I sort of perceive you you are on the Leading Edge of the curate retailgeek Roop with your current responsibilities and I definitely want to talk about those but if I have the story right before you took on your current role you also had broader marketing responsibilities for the core QVC HSN Brands is that.
Brian:
[8:19] I did I did that's that's right I joined you know curate retailgeek rupe.
And 20/20 is the chief marketing officer for QVC and HSN are two largest video Commerce businesses, at the time and you know fast forward we obviously are in the midst of those businesses are in their own form of transformation and disruption right for.
In some ways you know you talk about a Crossroads, ask for businesses you know having come through retail when e-commerce was exploding and and Retail foot traffic was being affected as people.
Spent more time online and less time in stores if you look at where accurate retailgeek Roop you know is today right streaming has remade the way we View television and so we've had to remake our business, there as well primary our audience used to be almost entirely on.
[9:07] You know on cable or we reach over 100 million households in the US we used to reach all of those almost on cable and over the last several years is as people have migrated from cable to streaming services we've migrated our business we still reach 100 million households, but today we reach many of those through streaming services because they don't have cable subscriptions any longer and so, you know joining another business who was in the midst of transformation again was was somewhat serendipitous I was excited about the future video and video Commerce had use that, extensively at kind of my two preceding roles and so part of the excitement of joining curate was joining someone who is at The Cutting Edge of this but to your point that's been migrating, and then as we look at the future we said Gee what places do we really own, from an e-commerce perspective and we own the 10 foot screen the screen that you see in front of you from a living room perspective.
[9:58] We do really well on the laptop you know the desktop for for e-commerce shopping like most traditional e-commerce retailers but as we thought about the small screen that wasn't a place where we had really built, for the future yet we thought were really well positioned we could certainly see what was happening in in Asia and the explosion of Live And mobile driven Commerce.
And realize that that was going to happen here in the west as well.
And felt like we were in a position to innovate around that but we needed to put some real Focus around that so you know about a year ago I stepped out of my role as Chief marketing officer of QVC nhsn, to build live shop Ventures and ultimately to launch the soon platform that we're going to talk about today.
Jason:
[10:42] Amazing and and I for sure I'm going to get into that but I did think you could help us clear up a few just basic questions about the industry first a I now have some some Envy because your TV is 10 feet at home I'm kind of jealous but the.
You you call that V Commerce and I'm just curious like I hear all these different phrases all the time I hear people kind of talk about live streaming when they they don't necessarily mean live and video like is there a preferred label that you guys like to kind of describe this, this industry.
Brian:
[11:18] For sure we love the V e-commerce label in fact we think V Commerce will be the new e-commerce and what we mean by that largely is that, more and more consumers shopping experiences will be driven by video in fact if you look at today's youngest consumer right gen Z or the Next Generation Rising almost all of their Discovery happens in a video experience.
If you think about it and it could come from one of the well-known video players right who's in this space Instagram which has become largely video Tick-Tock who obviously has led the way there YouTube.
All of these places if I think about and I have so fun fact I have six kids, the youngest is squarely gen Z 12 years old the oldest is Millennial 29 years old and I watched their journey and most of their Discovery right the new trip they're going to take.
The next meal they're going to make the next product they're going to buy the next television show they're going to watch is all coming through their video feed.
Yet in the e-commerce space we're still largely dependent upon static images and or in the physical space on boxes and shelf talkers and that's just not the way that the rising generation discovers.
Anything new.
Scot:
[12:34] Yep ingredient it's interesting you have a built-in test bed is that was that part of your strategy.
Brian:
[12:40] I think that that if.
Scot:
[12:42] We need more kids I need to get another generation.
Brian:
[12:44] If you went back in math my career I did a pretty good job landing at the right Brands and price basis for my for my kids ages the only one they might say I got wrong was the bridal industry I was a bit premature on the bridal industry, but but you know as I look back so we do we talk a lot about be Commerce and that for us means live it also means pre-recorded, right it can mean you know things that are that are behind the scenes it's anything that really leverages video to help tell the product and Brand Story to a consumer in a way that helps them make better decisions and get to yes faster.
That's where we see the Innovation going that's where we see all brands needing to play we think it will look different in the west than it looks in the east.
And that's because different consumers and different markets and different level of kind of retail development but we think it'll be globally relevant over the course of the next you know five to ten years.
Scot:
[13:37] Brickell as the entrepreneur host on the program Jason's a big company guy he's a you can tell by his title.
He's corporate drone and he doesn't know who he works for half the time over there there's like he's like I think I have a boss but I don't know I don't know who approves my expense report Seymour, that's how big is a company and you know one of my favorite books is the innovators dilemma where and I'm sure you're familiar with it where you know most companies like tear you they were super Innovative and really did a ton in the category and you know a lot of them don't make it it's interesting to me that you're now working for a company that you know obviously.
Is working to not get caught in that in most companies don't kind of sounds like and I may be reading too much in this you you either put your hand up and said I want to do this or they said we need someone to incubate this and you volunteered I'd love to hear the story of how your kind of like starting this company inside of a bigger company that that's interact to excuse you know the extent you can share our what you want to do that that's always interesting to hear because a lot of a lot of big companies don't do that.
Brian:
[14:39] No I appreciate that you know we feel, you know we I feel honored to kind of be in an organization and part of a company that's trying to lead that way Forbes just named, secure it retail one of the you know the country's top three hundred Innovative companies right so we're recognized for having thought about this space and we've innovated over the course of the last, 35 plus years if you were to look at what QVC nhsn looked like 30 years ago they look very different than what you see today both in the way that we reach interact with customers and so you know the story here you know I'll keep it relatively 34 for time sake but we were looking at you know the future of curate and looking for where we think, you know girls could come from I was obviously looking at that in my core role as Chief marketing officer I let our you know our insights and analytics team and we were looking at the consumer and we're looking at the businesses and the ages of and cohorts of consumers where we did really well and where we felt like, there was opportunity for us and one of those that was clear was we had an opportunity with the younger consumer and unlike many many brands that will often make the decision to go how do we stretch our brand younger it's one of the hardest things to do our view was to say.
[15:49] We have a core customer we love our QVC and HSN customers 50-plus their affluent they have disposable income they love to engage with us and Us in this way as we think there is, potential for growth with still the 50-plus customer we have plenty of, consumers who can discover our experience who aren't you a shopping there and we think can fall in love with it but we did recognize hey there's a there's a rising generation that's that's embedded and videos embedded in the way that they operate, why aren't we doing anything there so I did raise my hand and talked a lot about you know that consumer and about the power of video and our expertise and, you know that with.
David Robinson who was a new CEO Who had who had joined us in you know late 21 had a knife or for growth and an eye for the digital landscape and.
You know started he started to think about where our future would would would lead and he knocked on my door.
[16:45] Early and 22 and and we started to talk about what the future could be and how we might do that and decided he decided to establish the e-commerce Ventures is a new unit inside the organization and I join that team to help, you know lead a component of our Innovative future and so it does take having.
A CEO that's got a mind for Innovation and you know the ability to say we're going to make the investment necessary to do that so.
You know this isn't one of those I feel you know grateful for the fact that I get to work in this call it an intrapreneur setting.
We're not chasing you no seed series a series B series C where we're going as a company we believe that we need to invest in the future and this is one of the ways that we can do that.
Scot:
[17:29] Yeah that's neat that you still sounds like you get the flavor of kind of a start-up within a big company but you can use infinite resources you guys have.
Brian:
[17:37] Yeah and that we think gives us an advantage and that that's true I we operate we don't have an operation in New York I soon is based in New York right are.
QVC is based in West Chester Pennsylvania HSN is based in st. Petersburg Florida.
Right so you know we set this up in a new location so that we could operate as an independent and entrepreneurial company but knowing that you know.
Just an hour train ride away I've got hands and resources and folks that can kind of help us get through some of the tougher things of getting something off the ground.
Scot:
[18:09] Yeah exactly now do you have a pretty wide aperture what you could do so you could you say hey we want to just try something real fast on Tick-Tock or is your mandate it kind of needs to run through one of the mother ships or tap into.
Brian:
[18:24] No not at all.
Scot:
[18:25] The mothership or something.
Brian:
[18:26] No we have a very a very wide mandate most of the team comes from Industries outside of kind of are.
Our CORE family fact most of the town I've hired has not been former or current QVC or HSN employees they have been, you know team and talent here based in New York City most of them which is where we found the talent pool that, looking forward to kind of build this future and we have a pretty wide aperture to test and try and that's we say we've been up for for several months now we're still we largely consider this the beta version because we are, finding the things that we think will be the best fit for the market and create the best experience for both consumers for Brands and ultimately for creators because we do the reason we refer to this as a platform is, we don't see this as just a one-dimensional or two-dimensional relationship you know brand to Consumer retailer to consumer, but we're also trying to build a place where creators can build a livelihood as well where Brands can create their own content to connect with consumers and where we've built kind of a new way for consumers, the kind of interact and discover new brands.
Jason:
[19:32] That is awesome and so it sounds like the soon mobile app is kind of the first public release from live shot Ventures am I thinking about that right.
Brian:
[19:42] Yeah it's the soonest kind of our first public facing you know component of the platform we have components that are that will face Brands and that will face creators to help round out this ecosystem that we think.
We'll create a new way for you know these different constituencies to meet one another in a pretty exciting and interesting.
Interesting way and they'll be more to share I'm not going to share a ton about those back-end Solutions at this point but there will be more to share in the future as we as we continue to round out the experience, we think it takes to really make this kind of new be Commerce mobile experience.
Jason:
[20:22] Awesome so maybe you can help it like paint us a picture like what is the unique value prop of soon like is it live is if e-commerce like is there a particular category focuses on or what's the.
Brian:
[20:35] Yeah to know it's appreciate you asking so look at the core of what we're trying to do is take the the style of video that is loved by a young consumer set column you know.
Gen Z too early young Millennials we can't digitally native consumers what we mean by that that's a buzzword everybody said but we simply mean people that seem to have been born with an iPhone implanted in their hand, or some sort of device and if you go back up to 2007 when the iPhone and these devices launched we're looking at people to kind of get there.
Hit their teens or younger in that view I look at you know the way that they navigate and that's kind of our core audience because they've grown up with this fat.
Device being their primary form of discovering the world so that's our Target so our goal was to build.
[21:23] An experience that would make sense to that to that audience so would be short would be fast could would be personalized.
I would include the kinds of voices that they're used to hearing from that they trust and that they find credible.
Would give Brands a place that are searching to find a pathway that are working so hard to build there.
Their products but are can get caught in the jungle that are the very very large marketplaces would give these younger Brands these Innovative brands of place to meet the consumer and to be discovered and to be seen and to have their whole story told.
You know it's one thing to just become a product listing on a.
On a massive platform like Amazon or Walmart it's another to be able to have someone who understands the consumer tell your brand story so the value prop is to really build what we think is this entertaining.
[22:13] Joyful serendipitous shopping moments where you can just discover Brands when you're when you're on the go we think.
In some ways part of what.
So wonderful about the e-commerce experience is also what's so difficult about the shopping experience and what I mean by that is e-commerce made it easier than ever to buy something.
It also made it very difficult to just go shopping and if you think about the experience we used to love as teenagers by the way that gen Z teenager still allowed which is the notion of wandering a physical location a mall or a Target or pick your brand or.
You know any of those physical experiences where you can just wander and things just inspire you and you you may have gone into by something you may have had an idea in mind you may have not had an idea in mind.
But it was fun and it was a Pastime and it was, enjoyable just to go shopping digital Works differently digital is great if you know I need I need luggage for my trip to Europe I'm getting a backpack I'm going to take a three months and traveling through Europe.
[23:18] You can go to the internet and I'll help you find the best backpack in the most array of choices at the price but if you just.
Want to sit back and shop and so our goal was to build a platform where the Serendipity of shopping could come up again you could just thumb if you're standing in line at the.
At the Starbucks or if you're standing in line at the store you're standing on the platform in the subway station, or you're sitting in class and you're done listening to the professor and you just want to see what might be in your feed that's relevant to you this could be as fun as opening Tick-Tock or opening Instagram.
This would be opening shopping for the joy of.
Jason:
[23:52] I love that there's a this entrepreneur Julie rain Wainwright who founded real real and I don't know if she actually said this but she's always attributed with his quote the internet solve buying but broke shopping it's I.
Brian:
[24:06] It's a great quote I've heard I've heard that quote I'm not sure if it's hers or not either but I fully subscribe to and that's and that's the reality and so this is a way to bring it back in a way that we think is relevant to you know this.
Young emerging audience who's up who's about to have a lot of spending power.
Jason:
[24:26] Yeah now I'm curious you've talked about this as a platform and it sounds like it's what I would think of as a sort of two-sided market place that you both have to you know recruit and keep happy a bunch of world-class creators that are creating content and you've got to recruit and keep happy in audience that consumes that content and buys stuff that shows up in the content and my am I thinking about it right in terms of it being a two-sided marketing challenge.
Brian:
[24:54] Yeah I think I think we've called three-sided because we think he have to keep the consumer happy you have to keep the brands and their Founders happy and then you have to, you know create something unique and special for creators who may or may not work directly for the brand that they're going to create content for, and so our thought process is thinking about all three of those audiences as we build and it's why you know we don't see this as a, you know as a Sprint but is building something that we think will be lasting because we're trying to build something that's going to be relevant and meaningful to all three of those participants in the platform.
Will you operate as a marketplace right so we're not buying retail we're not buying inventory in the traditional sense right we're building the destination we're working to drive consumers to the destination we're working to source and find great creative talent that we think can build the right kind of content and then we're looking, and reaching out into the.
You know into the Reit into the brand landscape to find Brands and products that we think would do well with this with this audience and so we got all three of those things kind of.
You know working at once if that's not easy but sometimes the most rewarding things are difficult.
Scot:
[26:04] Yeah absolutely the marketplaces are hard because you're kind of building to businesses at once you get kind of the consumer and thus the demand and the supply side it can be.
But once the network effects it going it's a great business but sometimes it's hard to kind of kick start them do you feel like you guys are at kind of like that product Market fit or you're still kind of.
Experimenting and figuring out or like.
Brian:
[26:25] Yeah we think you know what we're excited about today is the engagement from the number of brands that have come on our platform has gone much faster than we expected.
The consumer You Know download and engagement we're in that that nice stair-step each month each week of downloads, increasing on the platform so we feel that we're moving very strongly towards that you know that market fit place but that's why we say we're in beta right well when we're, one more there will declare that were there and we'll change the even the way that we go to market even more aggressively but we're excited about the early signs both the excitement from creators excitement from from Brands who come on board, and again the excitement from the early consumers who have engaged with us the early adopters and starting to experience the platform and so all of those things right now are very positive and.
Giving us a lot of optimism as we think about the future.
Scot:
[27:25] There's wear it sometimes, great to be in a big organization when you're ready you can say hey we need a little distribution and suddenly you know you can you can turn that funnel on you got to be going to make sure you're ready for it and it sounds like you probably haven't you know you should definitely get out of beta for you do that but then even you know even you know how do you do the shoots the right way and you know, inside the work there's tons of just knowledge around streaming and video quality and I'm sure there's some interesting craters that overlap that would be fun to tap into it even brands that you know I'm sure if you were looking for a brand it's much easier being part of the larger or more brands are going to take your call versus you know Joe's startup LLC.
Brian:
[28:11] Yeah yeah I would say one of our I think that's well that's well well said one of our advantages right is the reality that for you know, for decades we've been helping small Brands become household names become very large businesses because we understand the power of live we understand the power of video and using it to help.
[28:30] You know a Founder commercialize their their story and help it reach and reach an audience and so.
For sure that is valuable as we talked to Brands who go hey this isn't you know this isn't just somebody out of there, out of the corner of their garage going hey we've got an idea for the future of video shopping this is you know the the leader in video and live shopping who said hey we're going to build a new platform a new experience for a new audience and, we're going to bring our expertise to video shopping to that to that platform and we're going to help you learn how to do it as a brand we're going to help you learn how to do it as a Creator both of those things have been very important, add helping us you know get to yes as we don't get a lot of NOS as we have conversations with Brands right now we get a lot of people excited, even in this early Journey even recognizing that we're in the beta phase because they believe in the business where you know we're over 300 Brands already interested in on the platform, at this stage and you know we're early on we launched in March.
And so it's not been hard to get people excited about the potential here and I think part of that is because they can look to the parent of who's building this, and who's making the investment.
Scot:
[29:46] Yeah very cool would you say so that made me I'm a huge shark tank junkie and I always love when Laurie's on there because she always has that trump card of like, I can probably get you on HSN and everyone's like who so she could tend to get a good deal so then it made me think are you dealing with Challenger Brands kind of like you know things we people maybe haven't heard of or is this kind of like you know Kate Spade or whoever I don't want to go into details but like more long-term brands that are just kind of looking for a fresh new channel is there.
Resonating.
Brian:
[30:22] Yeah so we have a lot of what we call emerging Brands and we can define those in a couple of ways right so there you know I'm an emerging, might have been around for 10 years or 15 years but they're just very tightly, geographically located maybe they just had a couple of stores and a little direct consumer website but they weren't really propagating their brand through there, back in the emerging and we have several brands that look like that we also have Brands there.
Relatively young this could be year 1 year 2 year 3 right and they started as a direct consumer brand and they're looking for other points of distribution and other places to be able to tell their story.
[30:58] But we've not preclude ourselves from from other brands that are better known and more, National in nature because again at the end of the day you know where our Focus has been, I'm in the early days is and it's because this is this is an area that works really well and video right or proper products that are problem solution oriented products and, Kelly's are great Brands who innovate and develop some new products that solve a consumer problem those do really well in video right now and if you think about, all the you know Tik Tok made me buy it friends you know so many of those products are built around the idea of hey we've got a new solution, a problem that you have or we've got a new take on solving a problem that has been solved a bunch of other ways but never quite solved this way those are the kinds of products and brands that do really well and we find those both in this emerging space and we also find.
You'll also find it in some more established brands.
But the focus has really been can we bring consumers content that's interesting to watch because what the product does for a consumer is.
Have itself useful and highly valuable and that's if you spend some time on the app you'll see a lot of products, better focused in that in that regard and so you know we've not been exclusionary and by any stretch of the imagination but we do have a lot of young and fun emerging brands with some amazing Founders and some amazing founder stories behind them on plan.
Jason:
[32:23] That is awesome and Brian a fun fact about Scott like most people watch CNBC for Shark Tank and then they accidentally stay on for for Jim Cramer Scott's the one guy that watches CNBC for Jim Cramer and then accidentally.
Brian:
[32:37] Technics days I'm free.
Scot:
[32:38] I watched a shark fresh shark tanks on ABC come on.
Jason:
[32:41] Yeah.
Fair enough Earth but inside not I keep telling Scott Scott keep saying hey we need to get on On Cue be on Shark Tank to get into QVC and I keep telling him that curate retailgeek has great merchants and if you have awesome product you can get in regardless of what whether you know a shark or not.
Brian:
[33:00] And that you know what that's so true Jason that in the reality is is that again if you have a great product curate wants to hear from you and that's and that's the truth and you know we understand what works well for our audience and we understand what works really well.
For the video platform and if you bring it you can find your way there I will tell you we get a lot of submissions and for obvious reasons.
But yeah you absolutely could find your way there without getting on Shark Tank although a little bit of notoriety never hurts.
Jason:
[33:30] Know for sure so I'm curious about a tactical element of soon it seems like you made a conscious decision to natively be a nap and and on the one hand.
Like man you look at all the data and mobile apps are where it's at like that the overwhelming majority of all minutes spent on mobile devices are an app's you know the top apps have the best engagement and all this stuff but the flip side is, it's a brutally competitive space and it's like really hard to get people to download the app and then it's really hard to get them to to reuse it like I'm curious did you guys.
Like debate about a mobile web experience versus an app and and decide that that's where you needed to be or how is that played out for you.
Brian:
[34:15] Yeah so we absolutely did they say it was probably one of the one of the bigger conversations right as we thought about our future and our Direction working with my team and and.
Our partners to think about hey what's the best way to go forward and build a new shopping you know destination and we certainly researched all the hurdles.
As well but we saw all the things that you highlighted in the beginning right the notion that, more time is spent on apps particularly from from the target audience we were going after the engagement is much higher the commitment once you have it as much stronger all of those elements that.
This is going to be a heavier lift but it's going to be the right lift for us and.
And we have to be committed we know it's going to take time but this is going to be the right lift because inside that app also it just gives you the flexibility to do and create some experiential things that just aren't as as.
[35:12] They're just not as intuitive or as functional as they are in a mobile web app.
Right so you know I'll give you I'll give you one of the features that we love that's just really hard to do in mobile web but amazing an app so you know part of our vision was to be able to create this window, shopping experience again right to bring the joy back to shopping we're literally as you thumb through things consider each one of those swipes the window, write as if you were walking down your favorite shopping destination and you know there's an amazing product with an amazing Storyteller so instead of being on a mannequin in a fixed window it's by a voice that, you know has some credibility and authority and as they tell you about that but what if you want to see more from that brand well you just swipe left.
And you're into that brand store.
Or what if you want to love what if you love this soon said what if you love this Creator we call them soon satyrs that's telling you the product and you want to do you want to see more will you just you know tap the screen and up comes all the video content that that person is created, doing that in a mobile app mobile apps just don't have the same kind of tactical functionality that you can build inside of an app I'll be realized, part of this if we were going to build a new experience we needed.
[36:22] The flexibility in the capabilities to be able to use everything the mobile device gives to you you know ultimately we don't have haptics in our experience yet we will you know they're all those things that are that are native to the app experience that you know.
Is opened up an iPhone and ultimately Android which are not on yet but will be in the future.
That we wanted to be able to have access to to give it the richest experience even knowing we'd have some hurdles and getting apps downloaded keeping them on the device and getting people back to him.
Jason:
[36:52] I got it that totally makes sense another one that comes up a lot in a specially you mentioned it seems like adoptions a little earlier in China so I watched the Chinese Behavior a lot to sort of see a bit it predicts how things will evolve here and it's interesting there are amazing social platforms that had huge engagement that are all pivoting to become shopping platforms right so that's by dance that's we and then there are amazing Commerce platforms like Ali Baba and Team all that are kind of pivoting to become engagement platforms and so that's why you know ding dong live and Ali Baba live and all of these these things like I'm kind of curious do you have a position like in the long run what wins right being a a platform that has a lot of video engagement and adding Commerce to it which in the u.s. I guess that could be.
Tick tock on Instagram or is it a platform that really is good at Commerce and adds adds the video engagement and so you know maybe that's that's obviously but Amazon or Walmart and then I assume like The Perfect combo of both of those is of course you guys.
Brian:
[38:00] Yeah so I'm not trying to sidestep but here's what I'll say, video wins video ends and I'll come back to it and here's a here's why I say that so do I think you know Tick-Tock and Instagram and all those who are building you know shopping experiences into their platform, have an opportunity to win and do conversate for sure do in fact I'll give you an example I often share.
With you know Brands and others as I'm eating and it's a very simple question for both you Jason and Scott have you ever bought anything while you were in an airport.
From a retailer awesome have you ever gone to the airport have you ever gone to the airport to go shopping.
[38:36] Right so the reality is that airports have a purpose right which is they help you get from one place to another and it's a very valuable part of your life experience.
But what airports learned is have had a lot of people in my space I'll bet if I put some stores in here for you those people will buy something that is for sure going to be true with these social platforms they have a lot of people in their space.
[38:59] If they create opportunities for people to buy people will buy but the purpose for opening Tik-Tok is not to go shopping, and people are finding Pathways there because that's like that's a place where I'm at and I'm learning their shopping there so now I can do this so I know if I'm Atlanta I like Ferragamo I know in the Atlanta airport there's a Ferragamo so I can find my way there.
As a as a consumer and make it a point to go there when I'm in airports where I know the brands that I like are at, but that's very different than then going to your favorite neighborhood street or going to your favorite you know mall to go to go shopping and so we think those places exist on the other side you have right you have what's happened in the physical space that's taking place in the digital space right so malls have tried to figure out hey shopping isn't enough to get people here I need restaurants and entertain I need other things that are engaging, and team on everybody else is going to go down that pathway as well and go hey, if I want to keep people here I need I need things that are engaging because consumers are expecting more well-rounded experiences from all the places that they go and so our viewers to say listen if you know let's just build something, that recognizes that that's what the consumer needs and wants and create a place we're going shopping and being engaged and being entertained is, in and of itself the point the experience and we believe there will be space for that for an experience like that but I think I think Commerce is going to happen.
[40:25] In all of these spaces if you bring video to them I think it's going to happen on on you know brand own websites as they bring video that's the that's the core of it, and again if you step back and go well gee how much space is there you know retail such a fixed base well that's what we all said.
You know 20 years ago when e-commerce showed up like e-commerce can't grow the retail space there's a fixed space it's going to be you know give some take some.
At the end of the day retail is just larger as as the platforms and places, have continued to evolve and to explode if you think about the difference between where we are and you know where Asia is and where we see the Western markets I think part of this is understanding that I think Asia is unique in that there.
Retail ecosystem you know take China it's just very different.
From Mars when you consider the scale their population and how much of that is urbanized versus still you know in more agrarian spaces and so it's not exactly the bear to make the comparison between.
[41:25] Those two spaces and you know they have different tastes and different preferences and so I think for us in the u.s. I think part of the difficulty has been we've been trying to apply.
A formula from Asia to Western markets versus saying hey what's the formula that's right for Western markets and video.
And let's let's take stock of understanding what the Retail Landscape looks like here what the consumer behavior and preference for shopping looks like here and then how do you build something that's around that I think brands are starting to figure that out I think we're, you know we're just at the corner we're probably today where e-commerce was in 2001-2002, right so we're on the verge of exploding but if you remember back in those days there were a lot of brands that we're saying yeah we're not going to need any Commerce site.
And and then five years later everybody in the country headed e-commerce site.
Scot:
[42:17] Yeah that first of all you should have qualified your question I'm pretty sure Jason is gone to airports just to go to the Starbucks.
That much of a Starbucks not or are you just like is muscle memory for him he's like I want to Starbucks he just ends up at O'Hare and he's like oh oh I don't have a flight but man this this latte is delicious.
The so I started a company Channel advisor andqvc was an early customer of ours and I got to go on that behind the scenes tour where you can watch the production room and it blew my mind as an e-commerce person because it was like this pure intersection of data meet Stevie because you know the talent on are would have a may be mic'd up, and the producers say when you talked about you know how the vest feels they watch this I think it was like orders per second some velocity.
And they would tell him to talk more about that and if a product didn't make a certain velocity there like next so it's really so I'm kind of thinking you know can you guys because you're you've got both sides of the marketplace are you giving your creators some really interesting kind of youqvc any HSN informed data on on you know.
How how to make a better video and sell more product and that kind of thing or you may be too early in your journey but it seems like you guys Doug be like right in your strike zone.
Brian:
[43:40] No that's the you know that's part of the secret sauce that's why we're so excited about this space it's taking that learning and absolutely the analytics right that we're putting in place and ultimately the.
That algorithms that will drive right the personalization feed and the coaching that's given not just to creators but then ultimately to Brands is all built around enabling their ability to be as effective as possible at producing a video and what works depending on the category so.
That's core to what we are doing at Stone is using data to drive decisions around content to drive decisions around.
The speeds that ultimately will be will be you know shared with consumers right to create as much likelihood or much potential for success as possible and you know you you hit on the head Scott right part of this and part of what's made.
You know curate successful for so long is that what seems very soft.
Is very data-intensive and using data to make those decisions and we see that as being one of our core attributes in our core advantages is a boat as we build.
Jason:
[44:51] That certainly makes sense Brian I'm sad because I know we're running up on time and I have one more topic I want to make sure I get in which is this whole debate of video versus live video and I know you do you think about QVC and there's a lot of scarcity built-in which makes the the live model make a lot of sense and in China a lot of it has scarcity of deals and things in the u.s. I hear a lot of people calling things live that aren't even live and so I'm just curious like what you know do you think it needs to be live or is it a place for both like what how do you guys feel think about the live versus store and play video Commerce.
Brian:
[45:32] Yeah so we use both at soon so we think live live has a role in the sense of creating excitement creating a bit of scarcity also creating the the Serendipity the moment and the authenticity and organic and credibility of the content most of the content.
In our mind is shot or created live meaning we're not trying to do a bunch of takes and a bunch of edits of the work in fact I tell people all the time I said it's part of the magic of one of the longest running show Saturday Night Live it's one of my favorite shows maybe maybe part of your audience loves that show as well as right it's taped in front of a live studio audience and part of what makes that show so engaging.
Right is that reality and the fact that there's room for errors or groom for mistakes you know you may see one or two but it just feels so, in the moment we think that matters a lot in the experience but today.
I don't know I don't know the facts but I suspect a lot of SNL is watched after the fact.
[46:29] But the fact that it was shot in front of a live studio audience is what makes it so engaging so what we think about video we talk about it live here we often mean look what we want this to feel is live like meaning it should feel like you're having a fantastic conversation sometimes it will actually be live.
But the vast majority of the content is going to be consumed post life because let's be honest gen Z doesn't really meet anybody for an appointment anymore from a from a watch perspective right they watch things on their own time when it makes sense for them, and it fits into their their life that doesn't take away from the fact that if the offer is big enough, for the products right right they'll show up in force for a live moment and so we believe that you need both in order to.
[47:15] To create something that's compelling but for us you know largely what we think matters is creating content that is done by people who really know how to speak, can do it in one take right because you know they're good at what they what they do and can bring that level of Candor to the.
To the content and that's that's what we think really will resonate candidly with people of all ages we don't think this is that's just specific to young people that's specific to everybody, we love candidness, we love I think you open the podcast here saying Hey listen if you make a mistake or two we're not going to stop and rerecord and all those things right and you're going to listen part of what makes this so natural is when it's.
Captured in the moment we think that's true for video Commerce as well.
Jason:
[48:00] That I love that that that's a perfect way to sort of describe that the approach it makes perfect sense to me side note the reason we do that on the podcast is because Scott makes so many mistakes that we couldn't possibly go back and fix them all.
Scot:
[48:15] Hey I think Brian was saying we're influent we're popular influencers that's how I.
Jason:
[48:19] I feel like he's like as an l and the Jason and Scot show are the two.
The two top top tier entertainment vehicles I think that's very fair but Brian I'm super sad to report that we've used up our allotted time this has been a great conversation and we sure appreciate you taking time to talk with us.
Brian:
[48:39] I appreciate you having me on the show thank you so much guys.
Scot:
[48:42] Brian if folks want to learn more about your online thoughts or you are you an influencer yourself do you publish somewhere or you just want to encourage them to check out that.
Brian:
[48:54] No you so you can absolutely follow me on LinkedIn for sure I do Post.
On occasion I'm not an avid poster right now because my head has been down here but please do that and then again I would encourage you to download soon if you have an iPhone you can visit us at soon dot live too.
Hear more about this if you're a brand and you want to be a part of it part of what we're doing here please go to soon dot live you can fill out a form and and someone from our our merchandising team will reach back out to you for fairly quickly and get you connected but.
Yeah thank you again for the time.
Jason:
[49:30] Brian we will put all those links in the show notes for anyone that wants to follow up with soon and until next time happy Commercing! -
EP310 - Sam's Club VP E-Commerce, Sabrina Callahan
Sabrina Callahan is the VP of E-Commerce at Sam's Club. She participated on a panel at E-Tail Boston entitled "Humanizing your brand through effective storytelling".
After her panel, she sat down with Jason to discuss all things digital commerce at Sam's Club. This broad ranging discussion included:
Mobile's impact on shopping Challenges and opportunities of membership clubs (and their unique access to data) Role of omni channel Connecting digital marketing channels to digital experience Building a brand for Sam’s Club in the digital eraDon't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 310 of the Jason & Scot show was recorded on live from e-Tail Boston on Tuesday, August 22, 2023.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason:
[0:23] Welcome to the Jason and Scot show this episode is being recorded live from e-tail Boston Trade Show on Tuesday August 22nd 20:23 I'm your host Jason retailgeek Goldberg and unfortunately Scott wasn't able to join us so you're getting twice the Jason for the same great price which if you think about it is double the value.
And while I know it's disappointing to miss Scott we're making up for it by having a way better guest I'd like to welcome to the show Sabrina Callahan who's the VP of e-commerce at Sam's Club.
Sabrina just completed a panel here at retail and titled humanizing your brand through effective storytelling Sabrina welcome to the show.
Sabrina:
[1:04] Thanks for having me Jason.
Jason:
[1:06] We are so excited and I'm hoping this ends up being a permanent replacement for Scott.
Sabrina:
[1:09] I think I'm up for it I've heard him so I think I could do it.
Jason:
[1:12] I feel like in the first five minutes you're way more interesting and pleasant than he then he he's kind of a curmudgeon.
Sabrina:
[1:18] I'm not I'm just not even going to say anything but just know that I'm ready.
Jason:
[1:20] Smart so before we get into all the meaty topics I always like to let listeners kind of get to know the background of the guests a little bit so did you work for Sam's Club straight out of the Cradle how did you come to Sam's Club.
Sabrina:
[1:34] Surprisingly no not right out of the Cradle.
I've been here for the last four and a half years and Jamie rule mark my five year so I'll get the coveted 5-year badge but kind of backing up all the way to, my background I was born and raised on a small farm in Kansas.
Jason:
[1:53] And in Kansas a small farm is like 100 acres right.
Sabrina:
[1:57] Yeah exactly so I grew up on the farm grew out in the field by somebody dad does all of the crops and my uncle has the dairy so I was out on the tractors driving the semis trying to not get myself.
Killed you know all of the fun things that come along with Farm life and left went to University of Kansas.
Chuck that's exactly right that's Rock Chalk.
And then graduated in journalism and then made my way down to Dallas so as much as I love Kansas and small-town farm and and everything I wanted to kind of experience, bigger city and been in Dallas ever since and we love it there so worked at a start-up in the beginning my entire career has been in digital and marketing and brand and social media and everything that goes kind of along with that storytelling and driving digital performance so I was a star but at startup and then I went over to Hilton corporate and was there for about seven years loved it there I think I.
Jason:
[3:00] Are you okay this event is a tan on Hilton property.
Sabrina:
[3:03] I know listen you're not supposed to say it don't say it.
Jason:
[3:07] To our loyal Hilton listeners were sorry.
Sabrina:
[3:10] But what if he found out I was staying at the Hilton and walking all the way over.
True loyalty rate my shoes weren't word up for it today but no I was at Hilton for about seven years I loved it there and really grew up there and they took a they took a lot of.
[3:28] You know bets on me and allowed me to thrive I was there in the e-commerce space really when they launched the pilot of e-commerce, and and got to work with some of the biggest hotels, in the world with them and a lot of great opportunity got to start managing people you know they kept growing me and investing in Me And It ultimately LED I was in the e-commerce space for the majority of the time and then It ultimately LED to driving and leading the social media strategy and Innovation for Hilton so it was across all 15 Brands and at the time.
There was a lot of opportunity to kind of pull it together and say what's the role of social media, for a for a big company right not just hey we're going to go post but how do we think about the tech stack how do we think about the member feedback to drive business impact how do we think about, content and how do you think about influencers in the role of influencers in the partnership and understanding the rules of the Ft c-- all of the fun things that come along with that and then how do you make sure that, the Brand's all understand the value of it and lean in the right way so I got to present Hilton's first Evers social center of excellence and then that led to, a lot of opportunity that opened me up in the social space and I was on maternity leave with my third baby, when Walmart came knocking.
Jason:
[4:50] Wow congratulations on that by the way.
Sabrina:
[4:52] Yeah three babies is a lot especially we're in August right now and school starting so it's slightly chaotic around my house but still good so.
No so then Walmart and Sam's Club came knocking and I didn't think I would leave Helton but I really had some fantastic conversations during my interview day and a lot one of the last ones with was with mr. Tony Rogers and have you met him before he's.
Yes so you know you know.
Jason:
[5:26] Put my life in his hands on an airplane before.
Sabrina:
[5:29] Oh yes good luck yeah.
That's good you're here to talk about it so that's good no and so we.
We hit it off and they offered me the job and and four and a half years later it was a big giant move in a bet for me but it was obviously well worth.
Jason:
[5:49] Very cool and you've actually had some really interesting responsibilities at Sam's waiting up to your your turn responsibilities briefly talk about some of the projects you've been in.
Sabrina:
[6:00] Absolutely so his pitch if he will at the time was come build a 60 billion dollar brand with me.
Now how can you say no to that so that was a fantastic first start and so coming in really we built the brand together I learned I think about 10 years worth of information from him about Brandon, three short years but we developed the brand so the look and feel the tone of voice the target audience we revamped all of the marketing channels including you know site email everything digitally and then really launched social media right so Facebook Instagram Pinterest, YouTube you name it all the things that have to do with social media including the influencer strategy again and and moderation and care so.
We did some really fun things I think it was a bit of a whirlwind so our first brand campaigns got to do you know the Super Bowl with Kevin Hart all of the the fun things that come along with leading you know a pretty awesome brand.
Jason:
[7:09] That is very cool and for listeners that might not be familiar Tony was the former CMO at Walmart and Sam's and the next time he calls you I have a feeling free jewelry is going to be part of the offer because he.
Sabrina:
[7:21] Yeah I should make a list of things that I want.
Jason:
[7:26] It should be a long list but be my suggestion that he's at signature Georgia.
Shout out to tell me I know he listens every week very willingly and so in the current role you are responsible for All Digital at Sam's Club and is that a thing is digital a fad at Sam's Club or.
Sabrina:
[7:44] We just a Fab yeah who probably probably gone.
Yeah no big deal yeah is super super fat yeah so I along with two of my peers we lead the e-commerce business and so I'm basically the upper funnel piece, so working really closely on the traffic strategy so what types of traffic re driving in and then how are we actually moving that traffic down the funnel so you can think about that of all of the Cross category, you know Stories the homepage anything that really allows us to show the breadth of what Sam's club offers so not just the categories and Merchandising but also the membership the Sam's cash that we offer the Travel and entertainment all of the things that come along with an actual full membership not just retail only.
Jason:
[8:32] Yeah and there's all kinds of interesting Dynamics to me it seems about marketing em in a membership environment versus a.
Traditional, wide open and retail business so I assume you're trying to get people in the funnel for membership and at the same time you're trying to get members in the funnel for individual transactions.
Sabrina:
[8:54] Absolutely right the bigger the base the more sales you can expect so it's a balancing act right in terms of we need them to be purchasing things but ultimately we need more members and we need them to renew right so at the end of the year would it becomes renewal time we want them to see have seen the value throughout the year that they say oh this is a no-brainer when we're on the brand side or I was on the brand side a lot of it was we're trying to build brand Advocates because there's nothing more powerful than someone saying you've got to join Sam's Club I joined and I love it, so that was the the sole purpose of we're building Advocates we're building brand passion we're getting them excited and every piece that we're pushing you should be pushing our value prop of the overall membership.
Jason:
[9:35] Awesome so before we dive any deeper in that I need to know what your favorite Members Mark product is.
Sabrina:
[9:39] Oh okay it's really hard to just pick one so I think I'm actually gonna pick two.
One of them because one of them is very seasonally relevant and one of them something we do all year long so the seasonally relevant one I'm going to say.
There's so many things I would say probably the members Mark beach towels and or pool towels I've had some of the same ones.
For since I started working there they are thick their giant and big and they have a fantastic value to Market and we just keep I keep adding every year this year they didn't kid towels to with awesome designs on them so I'm a big fan of mild that's you know anything about you're advocating for something I advocate for a lot of things there and not because I work there but because I genuinely like them and then the other one that I love that I try to get everyone to do is we have these Members Mark southern style chicken bites.
And you just pop them in the airfryer and sad sad to say is good and bad it's sad to say I give my kids then like once a week but they're addicting some always like well they're just for the kids and then I end up eating them all for dinner to they're just really good.
Jason:
[10:43] I'm well familiar with all those phenomenons and I'm going through an airfryer phase right.
Sabrina:
[10:48] Few are so easy.
Jason:
[10:49] I'm I gotcha yeah it seems and I thought you were going to go with salty snacks I mean that's the easy answer and then you curveball Benny with the beach towels which as a parent I have learned you need way more beach towel.
Sabrina:
[11:03] It's important we've got a pool and we always have kids coming over and using all the beach towels so it feels like it becomes a full-time job and then you can't find them all and I don't want to go spend a ton of money to replace them, and so we either have them on hand or they're not that expensive to go by Exo.
Jason:
[11:19] Now I don't know if you checked with the home this week but your pool has probably evaporated it is hot in Dallas.
Sabrina:
[11:23] Oh my gosh it is hot I think it was like 109 on Sunday.
Jason:
[11:28] Yeah good call to come to Boston.
Sabrina:
[11:29] Yeah yeah I walked around this morning it was so nice you Dallas is brutal yeah I did you ever see the thing that went viral with the guy who he was pointing out the temperatures and then he showed McKenney and it was like a hundred thousand degrees he's like everyone in McKinney's dead.
That's how it really feels.
Jason:
[11:46] It does and pro tip is someone that does a lot of business travel we probably don't want to mention to our family that it's more comfortable here than it is at home.
Sabrina:
[11:55] I already texted them like sorry.
Jason:
[11:58] Just saying be careful so I have a new and it's so Members Mark is a of course the famous owned brand for Sam's Club.
And I won't put you on the spot with any proprietary information but it's a on its own a very large brand I think Walmart in the past has disclosed that it's over a 10 billion dollar a year brand so so remarkable the Walmart, there's a number of own Brands but of course the one most associated with Walmart in my mind is great value, and so I'm now in a murdered with a new Great Value product that's only available in Canada.
Sabrina:
[12:32] And it'll only available in Canada what is it.
Jason:
[12:34] And I just imported two cases of them to my home in Chicago Great Value ketchup flavored potato chips.
Sabrina:
[12:43] Oh my gosh things are off we got two cases.
Jason:
[12:48] Do not recommend you you try them but here's the thing there was you guys just had your earnings call congratulations it was a very very successful quarter.
And Doug mcmillon to see ya.
I don't know if he did it on purpose or on accident but in the investor car he talked about a trip to Canada where they made him try catch, potato chips and he kind of said it's the only Walmart owned brand products that he doesn't want so now my thing is I show up at every meeting.
With a bag of these potato chips.
Sabrina:
[13:22] I don't see him in here.
Jason:
[13:24] I did not I didn't think about bringing him to Boston and you have to like it's a pain too.
Sabrina:
[13:28] Okay packing with potato chips in an airplane.
Jason:
[13:32] Chick early well.
Sabrina:
[13:33] Get interesting yeah well now I'm intrigued yeah so I'm gonna have to drive it.
Jason:
[13:37] Procure some.
Sabrina:
[13:37] Yeah I can't wait to try them yeah.
Jason:
[13:40] Come away if Doug comes for a visit just saying.
Sabrina:
[13:42] Yeah perfect you don't as much as I'd like to be picking my kids will probably even like two.
Jason:
[13:46] Oh my God my son my son would definitely the more like something's unappealing to my palate the more likely.
Sabrina:
[13:53] I'm a to be fair I've seen my kids dip potato chips in ketchup.
Jason:
[13:56] Yeah of course.
Sabrina:
[13:57] So it seems to actually make a little bit of sense yeah.
Jason:
[14:01] Um so zooming into Sam's a little bit like obviously in this last decade one of the huge changes is this whole mobile, um and I imagine it's fundamentally changed how people shop, the you know you hear a lot of stats about even how much people are using mobile in the store in the club so like I'm somewhat curious I don't think please don't be offended, don't think of Club as the earliest adopter of digital not saying specifically but all club like.
Hilton was impacted by digital before Club was right and Circuit City was probably impacted by a digital a little before.
Sabrina:
[14:44] Sir.
Jason:
[14:45] Of our club was so that being said like, is like how has the Advent of mobile changed how you think about marketing and customer experience at Sam's today.
Sabrina:
[14:55] I mean it's extremely important so you're absolutely right at Sam's Club when we look at that the performance and understand where people are headed that's where we focus our time and energy Ray where do they want to be where they going how do we get ahead of it and provide a good experience which requires us to know where they're spending their time and we've seen a pretty significant shift.
Into Mobile and app experience specifically and so what we've what we've done is try to get a better understanding of what's the data and the behavior that they're taking within the app so let's just focus on specifically app right because there's desktop there's mobile web and then there's a and if you think about it there's trial barriers to downloading an app on your phone right you don't just immediately say yes I'm going to put the app on my phone so there has to be a reason and a journey to move them from mobile web into actually you know committing and putting the app on their phone.
[15:51] So I think there's different ways to say well what's a trigger to get them to download but we know one of those giant triggers is this can I go I so everyone loves scan ago if you've done it you know and and you have to download the app and actually.
You know use it in the club to be able to make the purchase through scan and go what's interesting that you might not know is if you hope if you've got scan and go and overall digital and you're looking at it the numbers are pretty strong if you take out scan ago and you just look at online digital penetration only about a third of our members or shopping online so so to me I'm like well hang on a minute they have the app on their phone so we broke through a massive barrier already of loyalty they're purchasing with us but they don't see the value of shopping online.
[16:41] Unless they are shopping on the app in the club so the opportunity becomes massive I got two thirds of our own member base for good acquisition and new members coming in if I just even start with our member base how can I give them a reason to see the value of pulling up the phone and building a relationship through digital when they're not in our clubs and I think that's what we've been trying to focus on and get to so really then it becomes the traffic drivers.
[17:07] Right so how are they coming and how do we get them to ultimately make that decision to move from Google to the app or to mobile web to add to cart and ultimately ultimately make that conversion and we're really taking a lot of time and focus around the data so for instance they come in on the homepage did they come in on a category shelf page that has a bunch of items did they come in on a specific product page did they come in because they wanted to check their Sam's cash total what drove them in how much time are they spending did they bounce or did they stay did they look at things what was their scroll rate did they spend a lot of time we really focus on what it is they're doing what types of things are finding worth adding to their carts and then we start figuring out okay how can we drive bigger baskets your category penetration or introduce new member benefits like we were talking about earlier rate so if I've seen that you know Jason's come in and he comes every five weeks and he buys the same 15 things to stock up as house well how do I show him the amount of Sam's cash he's earned.
[18:15] In between that five to six weeks to get in to come in and then give them things to potentially you know get them excited to purchase through digital using that hands cash or whatever it is that that you can create those triggers using the data so ultimately focus on on driving more app frequency and.
[18:33] Also say as we continue to see the shift to mobile and to app I think members are at the center of everything we do so remember obsessed and as we see what's working and not working with what's working we can lean in, great okay they love it keep doing it if it's not working we know about it so every week we start off the week of one of the members saying what do they not like about us last week right so we look at not only the MPS but we look specifically at the word for word feedback so through member surveys the customer call center the social media I mean we're all pulling it up looking at the Facebook groups and looking at the comments and saying hey we could have done better here and so as you think about that and you put that lens of app and digital this is working this is not working how do we think about our roadmap and our prioritization to provide a better experience to remove, the things that are giving them reasons to not want to shop online with us and pick the big ones and and start to move the needle which ultimately is part of the reason we saw an 18% complex you too.
Jason:
[19:37] That's amazing and I do I want to double click on the data but before I do I just want to stay in the app thing for one more SEC because I couldn't agree more, people way underestimate the difficulty of getting customers just to download the stupid app.
And in many cases I have a lot of clients that like don't have quite the, Market awareness of Sam's and they'll ask about building an app in before I let any of my clients build an app I take them to an Apple store and we sit down and Apple Store and.
Talking thing you'll notice about half the people in an Apple Store are men and women that are my age or older and they're in line at the Genius Bar because they do not know their iTunes password.
And guess what you can't do if you don't know your iTunes password and download an app.
And so there is just this this huge barrier and the.
For normal retailers the mortality of apps is huge two people download it only use it once like the abandonment rates are super depressing so for a lot of people like you go like.
Explicitly focusing on app downloads is often a mistake.
Um I don't actually see Sam's heavily promoting the act of downloading the app what I see you guys promoting are the.
Benefits and the problems that are solved with the app is that I'm assuming that's an intentional decision.
Sabrina:
[21:00] 100% right because I think if you go into the club which I think is again, the true power and value of a true end-to-end Omni retailer right and and that's our challenge always is when you go into the club you feel the club, right the the first experience coming in like you're like this is awesome and where do I start right and it's a full brand experience and you feel the I feel you see you touch you experience the items.
And digital you don't necessarily have the ability to do that so the challenge becomes how do you bring your brand to life, through digital and you have to know those touch points and I would say.
You're exactly right is is it's really hard to do say go download our app it's another thing to say hey do you want to get out the door quicker.
Jason:
[21:47] Get this line.
Sabrina:
[21:48] And I would tell you I would say 10 out of 10 people are like yeah they're not going to say no I'd like to stay in touch in line the waste my time no they want out and it's actually really yeah.
Jason:
[21:57] Desert home with the with their their their significant other.
Sabrina:
[22:01] That's very true like listen okay we'll say nine out of ten, 10th person's a sad sad person but either way the the opportunity becomes okay we'll give them a reason valuable enough for their time and attention that it's worth downloading that app on their phone I think what's been interesting to is navigating the conversations rate because when you see the value of app and you see the growth and app me like yes app app and everything is focused on app you tend to forget the actual member journey to get to the app right so they may have started on desktop, when you know they were sitting at work and me and they were trying to figure out where to start for dinner that night that desktop Behavior may have said okay actually I was looking at something at work today and now I'm pull it up on my phone and they went through mobile web and then ultimately they shop with us a couple times and now all of a sudden oh I didn't realize they had an app that app would be easier right so there's a journey and you can't forget everyone else that that is experiencing it before they made the decision to put that app on their phone and so you it's hard to prioritize and forget about about everyone else you have to understand there's a journey in between.
Jason:
[23:08] No I couldn't agree more in before I go on I do want to just one shout out to scan and go because it's amongst my favorite digital experiences because unfortunate truth of many digital experiences is, they're awesome and members our customers love them but they often are problematic for us as retailers IE often, it's taking something that the customer used to do and shifting it to something we have to do right so you think about online grocery, the customer used to get the bananas now we're getting the bananas right if those are home delivery the customer used to drive those home now we're driving those home scan and go is one of those rare things where it both increases customer satisfaction or NPS score, and the member is doing something that we used to have to do for them so I feel like that just amazing, on the data side like obviously one reason a lot of people like to get people in the digital echo system and using the app is because you do get all that wonderful data that, describe activating that's one of the areas where I feel like clubs have an unfair advantage because of the membership structure right like most of my retail clients they talked about this capture rate and what they mean is what percentage of my customers do I have any idea what they bought.
[24:25] Right right because a lot of people buy with cash or they shop anonymously or, they pre-shop digital and then they you know paid on a different credit card and there's this whole, you know family amalgamation all these complications which is why if you walk out of this room right now there's 47 CD P vendors all trying to help retailers, solve this data Quagmire and I'm not saying it's not still hard at membership-based retailers but you do kind of have an unfair built-in Advantage like you pretty much know.
What and how much each members fans and on what.
Sabrina:
[25:00] And I know they're out there I might just stay in this room and close the door.
No but there's a reason why they're booming right because it's a it's a lot of work to figure out I would say yes coming into the membership space I was, very excited and shocked by how much data we really truly had every time you know member makes a purchase we see it so it allows you to kind of.
Really understand what it is that's driving their trips how often they're coming where they're shopping what are they buying you can also start to understand their typical journey and behavior, so I'll give you two examples of the way we're kind of leveraging data I know I already talked about app but let me kind of put it into real life for a second.
[25:46] One of those is and I'm talking specifically to like end-to-end experience so one of those I'll start with on, specific promotion or sales or event right what gets exciting is you can put this money into Market you can understand where they're coming in so first of all to drive the traffic and you're looking at a year-over-year confer a marketing campaign okay great so the traffic was there and hit the pages you needed it to hit well now you can say okay what they do next right and you can start to say all right did they move from that page to the next page and so you can see the analytics team has done fantastic jobs not only of having the data but making the data.
[26:30] Readable digestible and actionable is a completely separate, right so there's a lot of work that happens behind the scenes of late great I'm looking at a table of a massive amount of data but what am I supposed to do with this to make a business decision and what they can do is they can take that and they can build it out for me across the funnel so they'll say okay traffic was up well and then it moved to the next page to it so it actually moved from let's say the home page or landing page we built to the Shelf page with all of the categories and then it moved from that category page to the product page and you can see all the product pages that were tagged with in that event in that campaign, then you can and it has your year-over-year growth of each so you can see the continued strength in growth throughout the funnel and then it moved to check out and ultimately her to cart and ultimately to check out and so you can see okay but you can also see when it's off right what happened okay so something's off you can say oh well that's because X percent of our items ran out of inventory in the first two hours because maybe we didn't estimate, demand properly right and so now all of a sudden okay we'll stop marketing that so go back up to your upper funnel and stop talking about those because you're making some angry members because they're falling off here and not because there's not strength in the funnel, it's because it's not actually available when they tried to go add it to their car so we got them all the way to the PDP and then something breaks.
Right so it makes it makes it really easy to be able to do that in a way that allows us to actually pinpoint the issue.
Jason:
[27:57] Side note that used to be way harder to do in the store circular let's hard to erase the printing when you run out of.
Sabrina:
[28:04] Yeah it's not it's not exactly it's not exactly possible okay so and then other than the the funnel I think the other thing is understanding kind of their behavior on the pages, so if you think about let's just take the types of traffic coming in where they going and is it working raise so if they're coming in through paid marketing or if they're coming in through CRM or they're coming in through SEO where are they going and is it actually doing its job, right and then once it lands how to use the data up to optimize the right message you're putting in front of them at the right time so, not only just on personalization right so let's take our home page you have, frequently ordered items you have no inspired by a recent views things like that but you also think about well where is it they're clicking on that page the most and how do you take that that, that knowledge and that data and say okay here are the things we need to be putting in front of them based on that traffic driver that came in so we can connect the message, and make sure that we're taking advantage of that quality traffic so that we can actually move them down that funnel.
Jason:
[29:08] Yeah that's amazing and hearing those two examples it makes me think and hope that we both have kids in school hopefully they become data analysts because.
Seems like there's an ever-increasing problem with processing all this data I heard a rumor that Walmart has like seven petrol bytes of data and I don't actually know what a petrol B is, but my seven-year-old tells me it's a big number.
Sabrina:
[29:33] I don't know what that is either but I'm not doubting it.
And you're absolutely right like I think it becomes a if you have so much data right at your hands how do you make sense of it how do you organize it and again make it actionable because otherwise it's just a bunch of days that you're just sitting on and you're not actually doing anything with it to improve the experience, Sokka.
Jason:
[29:53] Compounding that data problem even longer we have the whole omni-channel, right and you know we used to talk about what percentage of our sales were digital and you know try to get that digital percentage up but increasingly, every customer using digital tools somewhere on the path to purchase and very often they're using physical stuff so how do you guys think about that at Sam's eye.
That seems like it makes that whole analytics problem even more.
Sabrina:
[30:18] Of those it does but it's good right like you don't want them necessarily only shopping in the cupboard only shopping online you want them to think about it and we try to put ourselves, through this Member First mindset.
Approach right so what is it that's driving that that needs data that purchase intent so are they just looking for inspiration right they're building their patio where there's getting ready for tailgating so they need a full solution or you know is it they just needed their paper towels or their bananas or their bottled water and on top of that you think about what what's the most convenient way for them to shop at the moment maybe they're on their way home from work and Sam's Club is right there five minutes from their house will they can.
[31:00] Hop in because they know that they had a list of they can't remember what was on their list and they're already here so they're just going to do it maybe while they're in there they don't want to deal with the line so we give them another convenient option of scan ago okay well maybe they head home and then all of a sudden that night after Sam's Club is closed they realize they forgot all of the Lunchables for school tomorrow, bummer yeah been there multiple times and also big bummer or you're out of milk and you know your kids are going to cry because they have cereal every morning and now you've got an issue or whatever it is and I think based on whatever situation there and we want to make it convenient for them to be able to choose Sam's Club so you've given them the two options in the club will now you've got multiple options from an online purchase perspective you've got curbside so I'm going to put in my curbside order and I'm going to be able to go get it in the morning when it's ready and it'll be ready just in time or you're going to go you know put in a same-day delivery the next morning and you know you're going to get it really quickly or you can order on you no shipping and get it there in 23 days and you can wait a little bit because you can get free shipping as a plus member so you kind of see the opportunities for us to build around you you remember us have told us was most important to you and what you need so you know what the quality you want a great value you want it conveniently we know that about you so how do we think about all of the different scenarios you might be in and make it as easy as possible for you to choose Sam's.
Jason:
[32:26] Yeah and I'm assuming those successes and near-misses come up a lot and all that qualitative data on your.
Sabrina:
[32:34] They tell us yes they tell us they're like you know know but also a lot of times yes it worked.
Jason:
[32:39] Yeah I worked with a retard once they said there's two outcomes successes and learnings.
Sabrina:
[32:43] That's exactly right that's exactly right.
Jason:
[32:46] If that were true I would be a lot smarter than I am so.
Sabrina:
[32:48] So yeah it's a it's interesting because you see you know from one member of might have been a great experience and the same exact experience didn't work for the next member and it's because it's like well how do we put how do we let them know of all the options that they actually have to shop with us and let them choose the right Journey for them so a lot of it also is an opportunity around awareness right so do they know we have a curbside we just launched delivery not that long ago right so do they even know we have same day delivery I think you then get to the point of in the funnel again is this a conversion issue or is it just an adoption issue or is this an actual awareness issue, right so being able to kind of pinpoint where those opportunities are and the funnel I think is just just as equally important.
Jason:
[33:31] You know at the beginning of the show you mentioned that earlier in your exams career one of the projects you worked on was the actual Sam's brand which a would be terrifying to me because it's I mean.
Is always Gary but then when the blank brand quite literally is the name of an American icon is kind of more.
Sabrina:
[33:51] Little bit little intimidating.
Jason:
[33:53] You don't want to screw that one up but when I think of, the sort of original Sam's brand right it was a lot about the store experience right and we've just spent 45 minutes talking about, all the cool new paths to Sam's and a lot of them are digital like do you guys have to think about.
What the Sam's Club brand even means to members today in a different way than maybe you you were able to five years ago or ten years ago.
Sabrina:
[34:23] A hundred percent and I think you know we have continued to evolve with the members to to be able to say hey these are the most important things for them so let's continue to evolve the brand I would say yeah like starting out in the beginning it was really clear and again we used the member feedback to say like if we look at our brand passion index well here are the things that they're talking about and it's not driving a ton of volume and they don't really like it or they're rather neutral okay well when they are talking what are they talking about right both negative and positive and when you've got the - address it and when you've got the positive lean in right and the way you can lean in is on digital, so they not only from all of the marketing channels whether we know we talked about earlier marketing the social media all of those things but it's also on digital in the experience so if you know they like something how do you make it easy for them and bring the brand to life and tell the story so it's not just about again items are merchandising but it's the full membership experience and the ability to say hey like welcome to the club, right I think when we we've identified some of those opportunities when we think about their full Journey so the first year is extremely important to us they become a member.
[35:31] If they didn't join in the club how do you make them feel like they're part of the club if they didn't come to a membership desk and say Hey I want to be part of this you might have gotten them through something a non-digital, well we also know that that first 90 days is extremely important and how do you get in front of them and say okay this is awesome welcome to the club and you should be shopping with us digital did you know our Omni proposition did you know the value and convenience that we provide and the team looks at those ways I think one of the things we did was build.
[36:03] A digital membership booklet that's like okay we don't really talk about anywhere all of the things that the membership has to offer any more digitally we usually relied on the Associates at the membership desk to do that for us as they're like hey now welcome to the club here's everything you have well when you join digitally you're kind of Flying Blind right so okay I'm here now what do I do right what do I even get and if they don't want to spend a ton of time looking around and or it's not easy for them to find it then how do you introduce the journey that says welcome, look at all this stuff that you now have access to as a member of our club and and really kind of bring that brand to life and feel it even if you can't have your foot in the club so there's opportunities like that where we look for for bringing it to life and I think there's probably many more to go but we use the data and the members to say hey this feels like a gap let's figure out how to address it.
Jason:
[36:55] I'm in is that the big filter because I.
Follow-up question is going to be what are the things that we could expect to see evolve over the next five years and you know we're at a trade show where there's a bunch of vendors that each have a interesting widget that.
They want to sell and you every one of them you could imagine use case where that would be really cool and I imagine for someone in your shoes one of the challenges is which of these three hundred things is actually.
Going to add the most value to to our members lives right and.
Sabrina:
[37:27] You're a hundred percent right and which way is the right path and I would say when I talk about Sam's something that I love is that it feels like we run, like an 84 billion dollar startup, and it truly feels that way and one of the reasons it feels that way is because of how quickly we test and learn and you know we work really closely with product and Tech and Engineering with a problem what's the problem we're trying to solve for the number that's what everything starts with right so again back to the member Obsession hey they're saying this is an issue and I think if we could solve it for them it could be really impactful so we give that problem to the product Tech and Engineering teams and they come back with like I think this could be it let's go test, we don't know it might crash and burn but we think this could be a potential path and they do a lot of customer surveys research to say, feels like it's down the right path and could solve for this problem and then they go out and they if it does well great let's try to scale a little bit more maybe move it across some of the platforms and see if it works across desktop mobile web and app maybe IOS and Android different behaviors right and then once they say oh okay no this is actually going to work and they're telling us they really like it we run, and I think that's the way we've done we've always done it is what the members tell us their problems in their pain points it's our job to go solve them for them and then run as quickly as possible and let them tell us whether we figured it out or not.
Jason:
[38:49] That sounds like a totally sound approach and I know I can't put my thumb on the scale but I hope one of those problems ends up being that I never have to run out of Lunchables again.
Sabrina:
[38:59] Yeah me too that could be really nice.
Jason:
[39:02] Significant quality of life.
Sabrina:
[39:04] My kids would appreciate it.
Jason:
[39:05] Exactly and sadly Sabrina that is going to be a great place to end it because it's happened again we've used up all our allotted time there are 45 CDP vendors waiting outside this podcasting studio and I've promised them all the time.
Sabrina:
[39:15] So excited yeah I'll thank you I appreciate it yeah nice of you.
Jason:
[39:21] But it's been a real Joy chatting with you and we appreciate you sharing a peek inside the covers with all our listeners I hope you'll come back.
Sabrina:
[39:29] Thank you guys for having me this has been awesome and I've Loved listening to your podcast you guys are extremely entertaining and I'm excited and honored that you guys had me here today.
Jason:
[39:38] Scot and I both agree that one of us is funny we just don't agree on.
Sabrina:
[39:41] It's clearly you because I'm replacing him so it's obvious who it is but we won't tell him he'll have to just hear it let he'll have to listen to the his own podcast so he decided not to come to ya.
Jason:
[39:51] Yeah he definitely does not listen to the show he's like the one person in e-commerce that doesn't listen.
Sabrina:
[39:54] Perfect yeah oh great.
Jason:
[39:58] It's been great thanks again and until next time happy commercing! -
EP309 - Instacart IPO Filing
Warning: Given the complexity and breadth of topics, this is a longer than usual episode with a runtime of 90 minutes (if we had more time, we'd produce a shorter podcast).
Update: In this episode Jason mentioned that he didn't think Instacart accepted SNAP payments. It turns out that Instacart did start accepting SNAP earlier this month.
On Friday, August 25th 2023 Instacart filled its S-1 IPO form with the SEC, in advance of its intention to make an initial public offering. The complete filing is almost 400 pages. In this episode we summarize all the key points, including a number of surprises, in the filing.
If you want to follow along with the actual S-1, you can download it here. Scot suggests you focus on pages 101-124.
Topics Covered:
Cover Page and Entry Level Items Overall Growth Trends 25:50 Unit economics 42:90 Cohort Analysis 48:10 Instacart Ads 56:30 The Big Risk/Concern 1:00:11 Other observations (Instacart+, Carrot Services, Generative AI) 1:22:50Other episodes mentioned: Episode 255 - Instacart Chief Revenue Officer Seth Dallaire and Episode 224 Customer Cohort Analysis and CLV with Dr. Daniel McCarthy.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 309 of the Jason & Scot show was recorded on Tuesday, August 29, 2023.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Jason:
[0:23] Welcome to the Jason and Scot show this is episode 309 being recorded on Tuesday August 29th I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:38] Hey Jason and welcome back Jason and Scot show listeners.
We are going to jump into the talk tonight because one of our most popular shows as you know Jason the format is a deep dive and we have got a great Deep dive for you guys this episode.
Last Friday August 25th there was a very big event not only in our favorite world's grocery which is Jason's favorite world and my favorite world of e-commerce and then Jason's favorite world of.
But also in my favorite world of startups so this is this is a pretty big event and we wanted to dedicate a complete episode to it.
I mean it is the filing of the S14 instacart.
[1:24] And just to set it up the you know in my world of start-up land it has been very hard to get an IPO done so there's been a couple post coated and like late 2020.
And then summon 21 and then there's been a dry spell there's been something called a dese back so you have this spec which is this.
[1:44] Special-purpose acquisition thing and you can kind of go public through this kind of complicated convoluted thing.
Tends not to go very well so there's been some of that like in My World Mobility there is one called get around and there's been a couple others and those typically have not.
Gone so well they're down like 95% bird the scooter company did this as well.
So it's been a very dry IPO market for startups and thus of interior backed investors.
So there has been a lot of anticipation around when is that a PO when they're going to open who's going to be brave enough to kind of stick their foot out there first.
And you know a lot of people have been rooming that instacart would be out there there's a couple other companies in this kind of unicorn Stratosphere stripe is another one that we cover a lot on the show from the payments world.
There's also the others you can think of Jason there's this one.
There's a software one that is just doing really well in AI that's been mentioned a lot not not open AI it'll come to me in a minute.
So you know so this is kind of the real.
Bang the Big Bang of here's a company that is being brave enough they're gonna go first and we're going to see what happens so it's going to be really interesting and we thought because it hits this Venn diagram of all of our favorite things that we would spend a fair amount of time on.
[3:10] So first of all this is a 400 page document so our value add to the listeners is we have distilled it down into what we think are the most interesting little tidbits and some of the things we've learned from instacart it is nice because there's been a lot of rumors about how instacart Economics work and Jason has been tracking their ad piece which is you know cpgs have really seen some really nice results from that so we know that's been active and the areas we picked apart we thought we would cover tonight is I wanted to kind of give you a quick and dirty Scott's guide to reading an s-1 and we'll start at the cover page that's there's actually a lot that happens on the cover page so I want to spend a little time there and kind of give you a little I haven't taken a company poet behind the scenes of what's going on on there and then we're going to talk about some of the overall growth things that just kind of help you understand.
[4:07] How to think about instacart how they're growing and what they do and what role they play and then unit economics one of the things that is happening more and more in these s1's is they're doing a more comprehensive cohort analysis and this is basically showing hey if if I car to a customer in a certain period how are they doing now and what are those Trends so that this this had a lot going on there of course we want to talk about the ad business and then little bit of a catch-all for other observations, Jason anything I missed before we jump into the cover page.
Jason:
[4:42] No I think you mostly covered it just one slight correction it's four of our five favorite things for those listeners that tuned in to hear us talk about Ahsoka we're going to do that on an upcoming episode so that Star Wars would be our fifth.
Scot:
[4:56] Yes sadly there was no Star Wars in this one so it's that one little part of the over the Venn diagram was left is its own little circle out in space.
Jason:
[5:06] That's a we call that a teaser for a future episode.
Scot:
[5:09] Yeah yeah we're we're Pros were 300-plus episodes into this thing and this is the kind of you know Pro level that we deliver on the pod.
So you guys missed it Jason forgot to plug in his microphone earlier so that's a yeah we're still still learning every day, so when you open an s-1 the first thing you see is the cover page and it you know a lot of people just Breeze by it because it's a cover page but it has a lot of really valuable information so first of all the first thing that I noticed is I was searching for this on Edgar and I kept typing in instacart and it wouldn't show up and I was like WTH I know this s1's out there why can I not find it and then I saw an article and it said oh the company's real name is maple bear so that's the first thing you see on the cover is the company we all refer to as instacart its actual Corporation name is maple bear and it does business as instacart so I thought I did not know that prior so that was the first thing I learned right there on the cover so that's interesting so if you do go to the will put a link to the s-1 in the show notes but if you do Brave the Edgar SEC database yourself throwing a little Maple bear there and not instacart.
Jason:
[6:22] Not to be confused with Amazon's house brand Mama Bear.
Scot:
[6:26] Yeah yeah and I'm sure there's a honey bear and brown bears there's a there's a lot of a lot of bear things going on.
The other thing that I was like to see is what symbol are they using I think it's fun to kind of you know as an entrepreneur to kind of think about what symbol you're going to use that best personifies your brand Channel Bowser we had ecom's so that was an exciting one so we captured e-commerce Shopify go.
Jason:
[6:52] The best ticker symbol of all times by the way.
Scot:
[6:55] Thank you thanks thanks I appreciate it.
Shopify head shop and that was a good one and instacart / Maple bear is going with cart so I think that's a that's a that's a pretty nice one you know it kind of there a multi grocer chart cart and we all think about instacart I'm sure they hate being called Instagram so this kind of like really punches on the cart so maybe they get away from everyone mistakenly calm Instagram.
Jason:
[7:19] I think it's solid.
Scot:
[7:20] Yeah A-Plus on the symbol and then in the you'll notice that a lot of the evaluations and how many shares they're selling are blank and that's you know in this draft of this one which is the first kind of public one that they're dropping out there they'll they'll iterate a couple more times they'll do their Roadshow and then write one that, it prices they'll update the S12 include all that information so they'll make kind of literally a game day decision the night before IPO of how much based on the order book how much they want to sell and at what price so that, that's going to be blank through probably several more iterations as we go on then this is did you want to do something in.
Jason:
[8:04] No I was just I was just thinking that they I assume they left it blank because the underwriters were out of practice.
Scot:
[8:10] Yeah no no they they are there waiting and that's a good point because when you go public the the companies that take you public in this context they're all investment banks on Wall Street.
But they they filled this role of Underwriters and basically what they're doing is they're acting as market makers they're going to cover your stock when it's public and they're also going to be basically pounding the pavement to sell your stock to buy side by side analysts and firms on Wall Street.
Which there's two buckets of there's mutual funds and hedge funds there's also retail that I guess there's three buckets, retail would be you log into Schwab or Robin Hood and the diet of the IPO you try to buy some chairs that's retail and they all allocate a little bit of that for the IPO so they like retail to come in and get a little taste.
[9:04] A lot of folks that if you're an accredited investor at an institution and you have a wealth manager, sometimes you can get a little bit of access to an IPO before it prices you don't get a special price or anything but you can if you're really excited and you're a retail customer you and you're in this kind of wealthy bucket then you can you can get some allocated shares I think is what they call it these call this friends and family they don't call that, that anymore that's called a allocated shares but what's important about the underwriters is there's actually a signal there several signals here and I didn't know this time went through the process.
First of all they have lined up a who's who of investors so even before you get to Underwriters they have this really interesting note right before right underneath before they get in the underwriters and they say oh by the way we have lined up these investors already that have committed to buying and they have committed Asterix and then they kind of like take away the committed but.
[10:05] I think that's a legality I think I think it's a pretty hard commitment is my reading of them and they basically say these guys are already these guys have lined up to buy at least 400 million in this offering.
Regardless of the price and there's some big names in there there what I would call.
Public-private so they have invested in instacart already as a private entity and then they have another side of there.
Firm that invest in public entities and they have said that side is going to support the private side and that's nor just Bank tcv.
[10:38] Sequoia and a couple others this is very unusual but I think it's an interesting play because it basically says to the market.
Hey you don't have to worry about this thing you know taking on the first day because we're going to were signaling to you we're going to place a chunk of this with these folks that are long-term holders and they're going to backstop this thing I think of it as a adding a floor to the IPO basically saying we know it's been a while we know there's risk out there we're going to have a floor on this so so there's built-in demand for this IPO so that's quite unusual and this is the first time I've ever seen anything like that sometimes you'll see tiro price is a big one a big mutual fund that likes to do this or they'll have a private-public and they'll say you know they'll kind of suggests that, they're interested in buying more and they'll come out and say they don't plan to sell or they've accepted a lock up for a year or something like that I've never seen such a strong message as this one so I thought that was interesting.
Okay then we move to the bottom of the cover and that's where you have the list of the underwriters and what's really interesting is the way this works is the bigger your font the bigger a role you play in the IPO so on this one the biggest font is Goldman Sachs and JP Morgan and you know they have I don't know what would you say Jason like a 40 Point font.
Your.
Jason:
[12:03] Yeah I had to read it with my my PDF zoomed way up so I feel like I yeah but it was a big font.
Scot:
[12:11] Yeah yeah so those guys get like a you know they're kind of really big and then what's also interesting is where you show up on the page is important so your importance starts at the left and goes down to the right so the most important what we would call the vernacular is the lead left which is the biggest font on the left side of the cover is the lead Investment Bank and as Goldman Sachs and they're they're The Bluest of Blue Chips everyone wants Goldman Sachs if they come out.
[12:37] And then usually you want either JP Morgan or Morgan Stanley now JPMorgan has increased greatly and stature over the last three years because they have weathered coded and they have basically absorbed most of Silicon Valley Bank's deposits and a lot of these other riskier Banks and their CEO is pretty famous Jamie dimon so they've this is kind of you know two blue tips on the top of the book here which is pretty interesting and then, then you kind of go down a bit and you end up with 18 more Underwriters and there's like three levels of them there's like the font gets smaller so you go from 40 point to 20 point then you go to like kind of like 15 point and you go to seven point and you know what's interesting is I have never seen this many Underwriters either so they basically have said we want everyone on Wall Street lined to go and help us sell this we will turn no Rock no Rock will be unturned looking for buyers of instacart stock with the institutional investors.
There's some International Players so they've basically if you kind of said if you if you.
[13:53] Few War Room doubt what are some things a company could do 2D risk an IPO they have done things I've never seen before times like three and then the last thing that's interesting is the economics each of these Banks gets kind of depends on where they are on the page so you know if it all this gets him to like, there's all this Machinery but these guys do it because they make money so Goldman will make their kind of highest percentage and then JPMorgan and so on and so on based on how much they contribute to the book and all this kind of calculus that goes on behind the scenes so I thought that was kind of a really interesting just on the cover some things that were very unusual from other IPOs I've seen Jason anything that you found on the cover that was riveting.
Jason:
[14:43] We'll know I did.
I have a question for you though I got I guess I when I saw all of those Underwriters I kind of and perhaps erroneously assumed that part of what was going on here is, it's been a while since there were in any IPOs that went through an underwriter and that all of the underwriters are out there.
Desperate for four deals and that therefore.
Instacart had more more leverage to get more Underwriters like is it.
Is it literally instacart just agreed to pay more for these two more Underwriters 2D risk the IPO is that.
Scot:
[15:23] Yeah I think.
So human nature is that the lead laughed and Lead right want to absorb a lot of the deal and don't want to share too much so so typically there's some friction there right so they'll be like yeah you could add a couple and they use this tearing language I don't you know this is just kind of how I don't know who how they know what who's what dear, but tier one is Goldman Morgan and JP Morgan Morgan Stanley and then tier 2 is you get kind of Stiefel, a couple others in there then you go tier 3 and then you kind of have like an international kind of tearing as well so usually you get like two from Tier 1 Maybe two or three from tier 2 and then that's kind of it and then if you've if the company feels strongly like another consideration is when you go public one of the things that helps you long term is to have analysts that follow your stock and we've had many of these analysts on our show Mark mahaney Collin Sebastian these are and then Scott Devitt he was at stifel and he's moved on to another shop these are these are famous people in the internet marketing world so you want take Mark sets, I wasn't even as Fern was he ever green but that's not it.
[16:40] Ever Quorum so so you as the company can say the Goldman hey I know you guys want to keep a lot of Economics but I want mahaney on this and we got to get ever Cora so some of those on the bottom are probably International distribution retail or something the company wanted kind of specific to add them on and you know that was all pre-negotiated with Goldman getting lead left they had they kind of had to acquiesce to having a bit of a large number of Underwriters on there so I don't yeah I don't think I'm sure they all wanted to be to your point like there certainly wasn't even saying no to being invited to this and they probably you know you just bake off in this was I came to imagine if they ended up with 18 like, mr. started with 80 I don't know it's crazy that was probably like a.
Six week bake off just to hear from all the bankers so yes I think there's more around the analyst going on with with the large number on some of those.
Jason:
[17:39] Got it and then I want to hear your speculation about where the price might come in but I'm trying to remember the details there's been a lot of interesting things going on with the private placements before we got to this point right so I think the some of the valuations of the private placements were at some point disclosed and then I want to say instacart reset there.
Their valuation at a lower number while they were still private like presumably to make the equity appealing for employees.
Scot:
[18:17] Yeah the sequence of events and this is all you know they don't disclose all this in this one because it's kind of like.
Jason:
[18:25] Sure I'm just trying to get the the Run.
Scot:
[18:27] The Whispers And if you read some of these you know I subscribe to a lot of things that talk about some of this kind of rumors and so take it with a grain of salt but there was some sequins like they were chugging along and then Covent hit and it was like Off to the Races vertical and I think the wheels kind of came off the bus and they started to lose money because the unit economics weren't weren't ready for for like a surge like that and then right around 21 they replace the CEO and they had to kind of emergency raise some Capital which is kind of like one of the worst times to do it because even though their revenue was surging the rest of the market was in the toilet basically so I think they had to do a Down Round And what I've heard is their bed raised money as high as 39 billion and then they took this haircut at with this new CEO in this kind of re leaning down the company at about 13 billion so.
[19:19] So I think that's kind of like the watermark is kind of where they've last raised money and if you look at their revenue that's actually not that's a very reasonable Place given where you know they've grown since then but now what's the revenue like four billion ish yeah so they're like 3 billion and 22 in revs so that's like a four times Revenue which is pretty reasonable for a company growing the way they are with with good profitability so I would be I would not be surprised we don't we won't know this per share price until we see the denominator and they didn't have the denominator which is market cap divided by number of shares equals share price we don't know the number of shares so I would I would suspect.
I'll guess, four billion I'm gonna guess 20 billion would be a low like I think it will price they're on the low end and it could go as high as 25 30 depends on you know.
Retail and how much momentum it gets with with buyers.
Jason:
[20:26] And part of the art here is you don't you don't want to price it too low because that means you you have money on the table when you sold your Equity but you also don't want to price too high and have the, the stock like go down from the offering price and get below water right away right so.
Scot:
[20:49] Yeah it's very common we kind of had this situation at Channel visor we went public right after you know cortical right after in a longer time window of 08 09 and you know they strongly we had golden lead left and they strongly encouraged us to think long-term and not get obsessed about that pricing and leave a little bit of money on the table and yeah and then over time you could do a secondary at a higher price and you really want to you don't want to tank especially in a tepid market so I'm sure this was all part of the um you know Goldman would counter negotiate this to be lead left and say look we we need your commitment that your yep part of the pitch is they give you what they think it's worth and how it's going to price and they also discuss the strategy and that's part of the selection processes and you would think it would be.
Okay whoever says they're gonna give me the highest price but you actually kind of they really stand out a lot because the Goldman people can talk about Dave, they've got like a lot of data to back up their strategy and you know there's like Watson there that that are.
It would make your head spin and so they do a really good job of talking about why it makes sense to price the way they think and how how they see it over a longer Arc of time.
Jason:
[22:12] Gotcha so the guys with all the money have really good justification for why you shouldn't worry so much about the money.
Scot:
[22:18] And then the other thing to know though is what typically happens is you are not sharing you're not selling any one shares so the company so as part of this IPO the company will issue new shares so so you as the founder and the other investors you still have your shares you're not actually selling them at this moment so you know in a way now you get diluted right so the flip of that is your percent ownership goes down but you know it's kind of the would you take a little bit smaller.
Of that and long term when you can sell your shares as the investor and the founder and the team and the people that bet on you now you know can you execute and deliver and then earn your way into a higher price and then that's when you can kind of like get some equipment sir.
Jason:
[23:08] Do you want a little bit of a grapefruit or all of a grape.
Scot:
[23:11] Yes exactly yep that is a good description.
[23:17] Okay so here's here's the other part of the quick and dirty guide to reading the S1 you can take so that's cover is really good and then you take the literally the next let's see what is it.
100 pages and you can toss them so this is where the lawyers come in and they love to make sure you understand all the risk factors you know a meteor could hit the Earth people could stop needing groceries cybersecurity I could be no one wants to shop for them it could be they'll compete with a bunch of people Amazon is always a risk factor Google Microsoft.
So all that really doesn't add value and then there's a little bit of financial stuff but it's it's pretty dry and it's kind of like from the Auditors almost so it's like super drive so it always do is you skip to the part of this one we're finally the lawyers have earned their large fees and they vomited forth 100 pages of risk you know stuff.
And then you get to write your story and that's called the Management's discussion and Analysis in the industry it's called the md&a.
[24:27] It's confusing I thought for a long time it was md&a because Aaron says mdna really fast and they're saying the word A and D and it sounds like an end to me and I kept saying what the heck does md&a stand for they're like what do you mean what's up what are you saying.
It's like a who's I first got a thing but it's md&a so Management's discussion and Analysis and this is where you.
Jason:
[24:49] Because I read all 100 pages and and I'm super depressed and one of the risk factors is the way I could become sentient and take over the Earth.
Scot:
[25:00] Mmm yep that is a risk factor and then it will bring our groceries to us I guess as we are batteries for its consumption.
Jason:
[25:08] The computers won't eat.
Scot:
[25:10] So if you really want you know so what you can do is you can get the gist of 95% of this by printing out the s-1 pages 1012 124 that's it's only 23 pages and it's really dense but it is actually this is actually a very good read they did a very good job of making this so you know.
It's very approachable and they go into a level of detail that's really handy into problem so we're going to give you some of the highlights from that but if you want to go deep on your own we will give you all you need to go to the next level just by looking at those 23 pages.
Okay so what did you see and them DNA and that got your attention.
Jason:
[25:55] Well I mean a number of things so maybe just super high level what's exciting to me like obviously a lot of this information about the business was not, publicly available so in the process of going public in issuing S1 they suddenly reveal a lot of things and they reveal things about.
Their own business but they also have to paint a pretty good picture of what they think is happening and could happen in the digital grocery business so it's kind of like getting a whole class of really smart people to sort of, write a thesis about the the digital grocery business that we get to read and interpret and you know we they reveal things that we didn't know like how valuable customers are over time and how much consumers spend on a given order at instacart and what percent share of wallet they think digital gets versus brick and mortar and all these sorts of things and we'll get into a bunch of them in the in the individual sessions but my my takeaway from the beginning of that management discussion was that it's a.
[27:08] A pretty robust business that the aggregate amount of.
GTV that they that they have is pretty significant its twenty eight point eight billion dollars in groceries that they sold in 2022.
Scot:
[27:27] Yeah and GTV is gross transaction volume so instacart it's basically a Marketplace like eBay or Amazon where parts of parts of Amazon all of you back where you have in the marketplace of product Marketplace use GMB a lot of payment systems like PayPal use tpv gross merchandising value total payment volume they have chosen to use this term for the gross figure of GTV and at first I thought it was going to be groceries to do but it's gross transaction value I thought for sure it was like grocery, I was trying to decode it without looking it up and I was like that can't be grocery because then I don't know what a TV is doing there and you know so then their revenue is a derivative of that meaning of some percentage then of that big number Falls to them as Revenue after they pay the grocer The Shopper and then instacart the business has the leftovers and which ends up, we'll go through the unique and I'll mix it ends up being being pretty small because the grocery business does not have huge merchants.
Jason:
[28:26] Yeah so kind of looking at those business fundamentals that you know in 2022 they sold 28.8, billion dollars worth of stuff which for them generated 2.5 billion dollars in revenue and they were profitable on that Revenue they they net 428.
Million dollars which like back in the a couple years ago when there were more IPOs happening there were there were IPOs in the space they were happening with companies that still weren't profitable so so that was interesting that they they were meaningfully profitable and then the, you know you're super interested in what the growth trajectory is and.
[29:13] 20:19 was a very small year so going from 2019 to 2020 you know and then the pandemic app in the middle 2020 and urban was ordering groceries from, from instacart so the growth in 2020 was astronomical like 300% or something like that.
But then the growth in 2021 over 2020 was 24%.
On revenue and the growth in 2022 over 2021 was 39% in Revenue so.
The revenue growth is Meaningful and accelerating.
Which would be exciting they were not profitable in 2020 or 2021 so 2022 is the First full year that they were profitable.
The GTD is a little different though they had significant growth three hundred percent in 2020 20 percent in 20 21 and 16 percent in 2022 so, well they have a track record of growth it's the top on GTV growth is decelerating.
And then of course we're halfway through 2023 so they have to disclose.
[30:23] How the well they've done in the first six months of this year and they compared to that to last year and the revenue and GTV are both essentially flat in the first six months of this year.
Versus last year so I don't know you'll have to tell me but I look at that and you go man there's some robust stuff here there's a great growth story.
I should have mentioned that that's on an annual basis on a quarterly basis they have five consecutive quarters of profitability which also seems.
Impressive him pretty favorable but it's probably a slight worry that the.
A lot of that growth seems like it's it's leveling off in 2023 I don't know if.
That the most recent performance gets gets over weighted or underweighted and sort of evaluating the the prospects for the company.
Scot:
[31:19] Yeah the buyers will you know what every everyone has a different way they value things and they they're going to build their own models and the company will give them some guidance that's some of the stuff we did it we're not going to go over and but you have to be careful because you don't want to make forward-looking statements so this is this weird dance you do of you.
You try to get people excited by not saying anything about the future which is which is a little tricky so you know what I imagine instacart s' just reading the tea leaves again they talked a lot about how they don't really do much sales and marketing which I kind of read to say, look we really hunkered down on our unique economic sand we've got it dialed in right now and spoiler will get to adds a lot of a lot of that has come from this ad piece.
And I think now.
[32:07] Because investor and I was the bullish scenario is you know they're going to raise at least 400 million they'll probably raise a lot of money from this they could start doing some advertising and you pick up some new customers that again I'm going to kind of hope they look at the cohorts those cohorts look like with what this in the here and they have at least the same unique anomic so if not better and I'm going to look at this growth accelerating wow what Wall Street loves their favorite favorite favorite kind of the top quadrant is accelerating Revenue growth an accelerating profitability and you know I could see a scenario the light has to go their way but I could see a scenario where that works here you know if they could if they could start spending some really careful sales and marketing dollars building the brand where they've been kind of under the radar for the most part and then.
That works those cohorts stick and then they can work on the economics because that's gonna bring more advertisers per order because the more average more orders and more.
GTV is going to bring more cpgs in that want to advertise against that then you could argue accelerating Revenue growth accelerating profitable unit economics.
So I think that's the bull case the bear case is they've hit saturation they've got all the stores.
4% is anemic and nowhere to go but down.
So that's the end of it is it is going to be interesting to see there's a little bit of A Tale of Two Cities in those possible outcomes.
Jason:
[33:36] Yeah what else jumped out at you in the management discussion.
Scot:
[33:43] They made a big point of talking about they have 7.7 million monthly active users which is a good number but they point out that in the u.s. there's 330 million consumers or I guess population so they use that and this is kind of one of those hints I was talking about the basically said hey we're.
We've done good to get here but these are like the early adopters we still have a long way to go there's a lot of people you know I don't think they'll get all of them and I'll talk about that in a second but there's a lot more people that you should be using our service that aren't is so they kind of paint that 7.7 million and say that's teeny tiny compared to where we should be.
And then you know the other thing they talked about that I thought was interesting I wanted to get your opinion on is they talk about, per user per month they get three hundred and Seventeen dollars and I was wondering I know you probably know this off the top of your head.
What is if you look at the average US consumer and you probably look at the.
Population of the convenience store that's like a kind of probably like that 100K and up household you know what is their monthly and is this like half of it a quarter what is your spidey sense tells you on that.
Jason:
[35:00] Yeah so real rough numbers the average American family and you know people shop for groceries in households versus people so it's almost better to talk in household so there's like 131 million households in the US and sin they've got.
Seven million of them as customers the average household shops for groceries 1.6 times a week and they spend a hundred dollars per visit so you kind of you know rough that up and you get.
Get what is that I'll have the intern do in turn do the math one point six times.
100 times, 4.5 is 720 total grocery spin which I don't have the census numbers in front of me but but that passes the smell test that so.
Households are spending six seven hundred bucks a month and instacart saying that they're getting less than half of that.
Scot:
[36:12] Yeah and I saw some people speculate on this that, what their inferring is Davin they have an average order of 110 so this is like 2.6 instacart some month instacart orders per user per month that's another kind of interesting metric and then people are speculating in the saying the pattern is probably people are doing a big shop once a month and they're kind of going and getting you know, a lot of like maybe canned goods and things like that and then they supplement it with two or three instacart has to bring maybe a refresh of the the replenishable is like the cheese the milk the veggies and the fruits kind of thing.
Again this is everyone just kind of like taking data and kind of going out for data point so the cone of uncertainty is pretty big out there but it kind of passed my sniff test that's how we've used it before, at our house with exception of wizard a lot at work to fill our snack area at work and we're probably like we're probably like top one quartile of this whole thing that's the number of snacks we get from Instagram.
There's a deep does that that analysis of the one big shop yourself and then supplement does that.
Jason:
[37:26] No exact yeah I mean I think the Grocer's talk and I hesitate to bring this up because I don't think I remember I'll for off the top my head but there's like four typical types of shopping missions right so there is that like Pantry stocking shop there's like a weekly shop there's a.
Occasion Bay shop where your your it's date night or it's Christmas or whatever and you make a special shop and then there's those, top off shops and I think it's generally agreed like there's not a big cohort of consumers that have just said I'm never using a grocery store again then I'm exclusive we gonna, I have all of my my calories show up at my doorstep so digital grocery ends up being one of the tools in the family's tool kit for, procuring their their calories and so it makes.
Total sense that they would have a share that one of the ways they could grow is to increase that share presumably by.
Being the best choice for more of those different kinds of missions.
Scot:
[38:34] Yeah and then the md&a they talk a lot about how they have these new offerings where you can get a weekly Monday thing and they're definitely poking around at this experimenting on how to grow the sand again they're kind of signaling we think we've got some room to go on this we can get that.
[38:51] Bridge order up and we can get the ma use way up the second thing I noticed was you know they use this they use this phrase, several times you can tell it's kind of like must be tied to company values and they talk about we believe people want selection quality value and convenience if that sounds familiar to you the this is infamously brought up in the Amazon Jeff Bezos first shareholder letter in 1997 where he talks about the mark you know what Amazon believes and they believe that a multi-decade trend is people will not get tired of selection quality value and when value he uses kind of free shipping like versus product value is pretty specific on it and then convenience and then what got me thinking about this is.
[39:38] Value inconvenience her you know they're often in conflict and this is the whole point of we've had, Casey on the show from the Lloyd there bifurcation kind of model which shows this was this I think a lot about this because this is the whole one of the whole reasons I started spiffy and we decided early on if we're going to be convenient we can't be the cheapest and I don't think people look at instacart as the cheapest you know whenever we use it it's kind of like, holy cow this is this is a pretty expensive treat in you know I really kind of need to be able to justify this to myself that I can't just pop over the grocery store and do this myself it needs to be yeah some some reason I'm going to miss a kid event or something that I'm getting a really good bang for the buck here so I thought that was interesting that at some point I wonder do they value part kind of struggle with you know how.
Jason:
[40:31] I think they have to have a.
A more liberal definition of value because I think you're exactly right right and obviously you know value means different things to different people like they disclosed later in the S1 that they not surprisingly that they skew disproportionately to households that make over 100,000 a year compared to a traditional retail and particularly a traditional grocer like give I've no idea what it looked like when they actually did it but when Kroger went public or certainly when Walmart went public they would have talked about the top of their tree that we think the consumer really values price and and Walmart probably said price not value and you know they built a business around very aggressively maintaining those low prices because they thought that was the beginning of their flywheel and and you know Amazon talked about value but they when they said value a lot of what they meant was and we're going to you know have the very competitive or the lowest price on a lot of these goods and, the the business model of instacart makes it unlikely that that can be their positioning so they have to kind of, find a a valid but alternative definition of value to hang their hat on.
Scot:
[41:50] Yeah and I thought was interesting they put convenience a lot you know last you may say oh you're reading too much into it but you know I've been in rooms you spend so much time on every word there's a purpose to this order of selection quality value and convenience and and they mentioned this exact phrase like several times so this is a this seems to be an yeah a pretty important phrase in their their world to I just thought that was I want to get your take on you know at some point they may cross this road where they have to pick a lane and it'll be if it ain't going to be the value late you know I don't see a path there but you know maybe they think they can and you know they also talked about selling to the grocer some software so maybe that's kind of like how they're squeaking that in I don't know.
Jason:
[42:36] Yeah yeah and there's I think we'll talk about this and in our final conclusion but the there's multiple ways you could see this going over time and depending on which path it took like value could mean something different.
So what will come back to that.
I heard you like dissected all of the the disclose data and put together unit economic model for for instacart.
Scot:
[43:07] Yeah so it starts at the top so the GTV per order so every order that comes in they get the GTV as $110 and then there here's how they slice the onion so the biggest chunk goes to the grocer for the groceries and they get 83 percent which is $91 so right off the top we're left with $19 but now the grocer they have to go make all their money so instacart is that's what you would basically get I think if you and I went to the grocery store you know maybe they're getting a little bit of a discount but they're they're taking that $91 and they're adding $19 on top of it and this is all X tip there's a there's there is a delivery fee and what not so then the Shopper gets 8.2% or nine dollars in order and that's in that delivery fee and then they get the tips.
Jason:
[43:58] Clarification on shopper because like in most contact Shopper would mean the consumer that's buying the goods The Shopper in this case is is a instacart gig worker that goes to the store and gets Aggregates the order for the customer.
Scot:
[44:14] Exactly the gig worker is the Shopper so they get nine dollars and they get 100% of the tip so whenever you you know whenever you what what they don't say some of these gay places in this bothers me because we fell out on this they say the gig worker gets 100% but then they take a transaction fee of 3%, now I can't find they say 100% I can't see any little asterisks that says there's going to skim 3% or something so.
[44:44] So to the hopefully they're being super up front and they the gig worker does get 100% of the tips but the tips aren't in the economic the kind of sit over on the side to go to kind of bypass instacart all together and they go straight to the shopper.
Who also gets nine dollars from instacart so if you gave a 20 dollar tip the the Shoppers going to get 20 plus 9 or 22, then at this point we are finally at instacart Revenue which is ten dollars and that's into pieces seven dollars is the transaction revenue and three is ads.
So almost half their margin you know so 30% I guess yeah.
I say half because the line is going so fast it will become half probably by 2024 you know half the.
Profit the margin the revenue that they get and probably disproportionate part of margin is from the ad piece which we're going to talk about in detail so that is.
That's pretty important to this whole enchilada and until they figure that out this didn't really work I do.
[45:48] So they get so 110 dollar order $91 goes the grocer that leaves us with 19 Shopper gets nine we're left with 10 7 of that, is the transaction Revenue three is ADS then their costs come out they have three dollars of cost per order.
And this is this is things like you know their entire some allocation of all their website hosting the engineering team developed the app.
I don't know if they would put sales and marketing in there and they weren't very specific about what they do and don't put in cogs so that was a question mark.
And they're left with seven dollars of gross profit for that order.
My bet is marketing is not in there and they kind of take that up later but again the didn't really.
Disclose that I saw what all was and not in Cox so basically that 110 boils down to seven dollars a profit from them and if we looked at it you know.
I bet that three of that seven is basically from the ads and you know because there's almost no cost to serve an ad and so so I thought that was pretty interesting that like you know around half of the Prophet basically is from the ad system.
Jason:
[47:00] Yeah I think I think it's for sure interesting and like you know two possibilities there there there, average value of an order is 110 bucks traditional brick-and-mortar grocer is a hundred bucks and so one question like did instacart wasn't totally clear I mean they tried to take credit for having a higher order value but it wasn't clear like do we think.
There's something unique about our experience that causes people to spend more or.
Is our service just more expensive and so therefore you know if I got the same 60 items from from Walmart it would cost me $100 but if I got it from instacart Cassandra and ten dollars.
But if it's the latter and I'm sure the real answer somewhere in between but but if it's the latter then you go you know all of the, The Profit that instacart is potentially taking is kind of from the.
The convenient spread where they're you know getting consumers to pay more for the extra convenience of this grocery delivery.
Scot:
[48:08] So that was the unique nanak's what did you discover from the cohorts.
Jason:
[48:12] Yeah well I think we both we both noticed that they had a pretty detailed cohort analysis in the s-1 and by cohort analysis what we mean is they.
They break down all the revenue they get from every.
Group of customers on the first year they acquire those customers and then they track the spending for that group of customers in each, subsequent year and so you have a cohort that you acquired in 2017 you have a cohort you acquired in 2018, so on and so forth through this 20:22 cohort and there's.
Other dimensions you could do Court analysis on but this this tenure cohort is most common and loyal listeners of the show will know we've certainly talked about it before no most notably with a guest Professor Dan McCarthy.
From Emory University who spends a lot of time.
[49:13] Talking about and thinking about cohort analysis so I my first thought when I saw this cohort analysis is I'll bet you Dan McCarthy's really happy right now and is probably.
Deep deep into these numbers and he has a phrase that he calls a super annuities which is for the circumstances.
The older cohorts get more valuable over time and keep contributing more Revenue to your business which is, you know that if you think about it that's that's the ideal state right you want those kind of six-year-old cohorts to be.
[49:51] Growing and be your most valuable and if they're you know significantly tailing off over time then like you know you start to question the core value proposition of the business like maybe customers get fatigued with your business or decide it's not a good value in the long run or something else so um the the big takeaway for me of the cohort analysis is the cohorts grow over time the if you look at like the year one value of this cohort it averages $226 and then it goes up 33 percent in year two to three hundred dollars and then up 16%, to 350 dollars in year three and then another up another 16% to 4:00 in your for and then up 10% $445 in year 5 and up another 8% to 480 dollars in year 6 and so like fundamentally.
That is a very good picture of.
The value of the cohorts and I'm certain why they chose to include the cohort analysis in there as one because I don't believe there's any.
Any filing requirement to do that and certainly lots of companies don't include any cohort cohort analysis but then my kind of secondary take is.
[51:12] You know not every year is the same and so some of those cohorts like started before Cove it and then they're their behavior, was slightly impacted by their maturity but also impacted by covet and some of these cohorts started after Cove ID and so one of the things you would look for in that cohort analysis is did these guys just get a big spike from Cova da, when people are afraid to go to grocery stores and you know has that worn off right and that's kind of a comment common narrative out there like I argue.
[51:45] It's mostly misunderstood when people give that narrative about digital but it's.
It's even more likely that is misunderstood if you have that narrative and grocery because grocery appears like on the surface to be the one category where hey we're at three percent e-commerce penetration before covet and now we're 12% e-commerce penetration and so this, these cohort analysis if if there was a spike that dip back down you would expect to see some of the later cohorts underperforming versus the the precoded cohorts and we don't see that right that like all the cohorts grow and they grow over time the rate of growth slows down over time which is like I think pretty pretty typical and not surprising um so all that was super favorable the one thing and one will have to have Dan on the show but the one thing that I think wasn't in here that you'd really want to understand how valuable the customer bases and and again guys like Dan kind of pioneered this idea of how you value a company based on their customer base.
[52:53] And kind of set the price based on on this type of data but I think they would also want to see some churn data and understand.
How many people are each in each of these cohorts and whether there's the same people or lots of defectors and new people coming and all those sorts of things and none of that was was disclosed and assess.
Scot:
[53:22] Yeah you're right the I think they're making the argument that the swamps turn but because they don't disclose it you kind of.
You have to trust him and he would he would want that data because you know the whole Begin Again the the bull case here is all right if you got super annuities than spending ad dollars to bring super annuities in this smart right because everyone you bring in the door is going to follow this cohort and start of it you know you and I looking at a table that the says you're one they start at 2:26 and then by year 60 at 500 bucks so they they double over their life cycle in their GTV so over six years so if you know if you can go buy them for a hundred bucks a pop then you would just go and, and spend all that money in it should be we have a super annuity on one side you can spend a lot of money acquiring customers on the other.
Jason:
[54:15] For sure true what.
Scot:
[54:17] You turn there's something that they could hide in there.
Jason:
[54:19] Yeah so you have to worry about that you also side note like a thing that drives CFOs crazy about marketers is you also have to have this argument about correlation and causation right that like if I went out and bought a bunch of customers would they maintain this the same level of performance or with those those.
Purchase customers through higher advertising and through greater sales and marketing a activities be less oil less valuable customers by.
The answer varies depending on the business.
Scot:
[54:53] Yeah that's where I this kind of come back to that bifurcation thinks I think would you say 120 million households.
Jason:
[54:59] Yeah 131.
Scot:
[55:00] Yeah so there's probably I think it's probably a pretty evenly split between convenience and value so call it 60 and they've got 7.7 so there's actually good I think they've got a 10% share of, what does the actual dress for Market because I don't think they're going to get any of the value or in a consumers because yeah the valuing consumer does not pay for convenience they'll just go to grocery store.
Jason:
[55:23] Yeah and again in the bottom quartile a lot of people are shopping for for groceries with government assistance and I don't actually think instacart should double-check this but I don't believe instacart has a way to accept Snap payments.
Scot:
[55:36] Yeah I don't think the government is going to subsidize the food delivered.
Jason:
[55:39] Well they just you know they do in other great white white guy like you can order groceries online from Walmart and pay with SNAP but I don't think you can with instacart.
Scot:
[55:49] Yes that's another factor and then at some point yeah I'm sure you'll bring this up but the.
The if you're if you're a grocer you know a lot of ours opt out of the sand to themselves and they like we have a Harris Teeter that they don't accept instacart yeah they're not on there and they want to do their own they want to own the customer themselves.
Jason:
[56:12] Yeah I save that discussion for other but I think that's a super important one.
Scot:
[56:16] Forget I said that that's a teaser that's it's a teaser was what we call a tease.
Jason:
[56:19] Excellent teaser yeah because I feel like we've gone to the add segment of the breakdown of is there anything else you wanted to cover before that Scott.
Scot:
[56:28] No I'm on the edge of my seat to hear what you thought about that specific.
Jason:
[56:31] Yeah so it turns out instacart sanad Essence and probably shouldn't surprise anyone you know Scott you alluded to the change in CEO the the current CEO for this IPO is fidge Asuma Seema who formerly was VP of advertising at Facebook so they brought in a Facebook.
Exact to run this business and shoot I should have looked up what episode he was on but Seth Dallaire was a past guest on this show when he was the chief Revenue officer.
For instacart which was right around the time that that fidget joined.
[57:19] Instacart so we actually had a discussion about their aspirations to become an advertising business and spoiler alert, it worked at instacart which we're going to break into and that guess set the layer subsequently was hired as the chief Revenue officer at Walmart where he's.
Building Walmart connect which is also working so turns out ads are becoming an increasingly important part of the ecosystem for retailers but the basic ad math at instacart is that in 2022 the last full year of data instacart generated 470 million dollars in ads so 470 million on 28 billion in GTV, means that that's about 2.6 percent of the spin.
That went to ads it's thirty percent of their revenue today and.
[58:20] It's growing at 29 percent so it went up 29% from 2022 to from 21 to 20 22.
Um it's grown another twenty four percent in the first months of six months of 2023 so, a lot of the unit economics of their transactions have kind of stabilized and are flat the one thing that's still growing at a very fast double-digit pace, is the ad business and at seven and twenty million dollars it's already reasonably robust and they don't.
Ads are not a line item on the income statement that they included like you know and presumably like it's not.
You could argue it's not Material against the three billion in in Revenue.
But the so we don't we don't really know exactly how profitable, Those ads are but in general we would call these ads or retail media Network and the you know people argue about how profitable these retail media networks are people particularly argue about Amazon's but kind of the middle of the range when people estimate how what how profitable these things are is that they're about 75 percent gross right so in theory they should be near 99% gross margin because like you don't have to make anything to sell an ad.
[59:46] You know you do need some technology you need an ad server you need Administration and salespeople you need brand safety people you know there is.
Some infrastructure some of which has to scale with the ad business and so the the kind of.
Most common estimate that that I see out there is like 75% of that revenue from ad business is profit.
So that implies that the ad business contributed seven 555 million to the.
To the income statement for 2022.
Um and they were only profitable 428 million in 2022 so that the ad business contribute like by that sort of slice the ad business contributed.
[1:00:33] You know covered all of their losses and and was essentially all of their their profit.
In in 2022 and it's growing faster than anything else so it's very clear that the ad business is a key.
Tenant of this instacart model and they in the management can section they it was kind of funny working for a big, advertising agency because they had to spend a fair amount of time like justifying that ads are valuable good thing and that people are spending money on ads so they kind of you know paint paint this picture that consumer packaged Goods companies which are you know most of the goods that instacart cells that.
[1:01:20] Cpgs in the u.s. spend about 200 billion dollars a year on advertising and currently about a quarter of that is digital.
And so the.
The you know a typical cpg spends like about thirty percent of their gross sales on advertising and you know at the moment instacart is collecting about less than three percent of its sales in advertising so I think they're saying like hey.
Advertising is super effective it's an important part of our economic model and there's a ton of.
Of potential growth for us in this market and that cpgs need us and they amongst their claims about the size of their business, there are 50 500 brands that are advertising on instacart today and those are.
At the moment all brands that sell.
[1:02:18] Whose Goods get sold on instacart so we call that endemic advertisers right so it's it's Mondelez selling cookies and folks like that a lot of advertising companies.
Sell ads to people that aren't necessarily selling through the.
The the platform we call those non-endemic advertisers and we I don't think there are any non-endemic advertisers on instacart as of yet.
But so at the Top Line like these are these are solid fundamentals for an ad business you like.
[1:02:54] From my perspective retail media networks are super important evolution in the space they are very important I actually think for a lot of smaller retailers they get overhyped and that there's a problem with scale with a lot of these but instacart appears to be one of the companies.
That has enough scale to build a real.
A real business around this there is a unique problem that instacart has with ads that you know I think they've only been partially able to remediate so far who's paying for the ads.
[1:03:25] Right so they talked about the brands paying for the ad right it's Procter & Gamble about the ad but there's a lot of stakeholders with budgets at Procter & Gamble, there's Mark Pritchard that buys Super Bowl ads and tries to build the brand and make people love tied but there are also account teams, that are trying to Goose the sales at their account so there's a Walmart account team and a Kroger account team and an Albertsons account team and all of those guys have an ad budget, that they want to use to sell more stuff at Walmart Kroger and Albertsons respectively.
And so the big problem you have with instacart is you spend that ad dollar with instacart and you don't actually know.
Which retailer it's going to impact.
Right and so it's kind of like it has to come out of the top of funnel ad budget but it's bottom of the funnel Performance Marketing, type ads mostly search ads and so not saying that model can't work but it's.
[1:04:33] The the guys with budgets that are used to buying ads are used to a slightly different structure so I will say that at the moment instacart causes a lot of consternation because it's a it's an unusual Beast that people don't exactly know how to budget for or how to spend their money on and you know I would assume if instacart wants to grow a lot they have to make that, easier for for the brands to do.
Scot:
[1:05:00] Yeah so what do you think.
They're so this is a relatively good chunk of Revenue where do you think they're getting it from is it online going offline I mean offline going online are they taking it from Google are they taking it from couponing or.
Two Brands even do like newspaper inserts are still a thing like I know that back in the day.
Jason:
[1:05:22] So I know I yeah I think.
Brands are pretty pretty rapidly shifting their their dollars to digital vehicles and so two things like there's you know traditional kind of, newspaper magazine advertising that's atrophying and and the brands are replacing that with digital there's a slight misnomer the whole privacy thing and Facebook is a real thing but you know who wasn't buying a huge amounts of Facebook ads are like National cpgs with huge brand recall so so you know those tended to be smaller Brands and longer tail things so it's less like oh.
[1:06:05] The these guys are shifting from Facebook it's more they're shifting from old-school marketing and over are television to to these digital vehicles but a big chunk of it is still coming out of these trade budgets right and so there may have been a pool of money that was allocated to spend at Kroger and it used to get spend on newspaper circulars that were like Kroger ads that fell out of the newspaper and that's an increasingly ineffective vehicle or maybe they even got spent on floor decals in the aisle at Kroger right you know like Shopper marketing tactics or trade tactics and so increasingly the retail media networks are getting a chunk of those trade dollars and I do think instacart is getting some of those even though it's trickier to do because you know it's not allocated exactly 21 specific retailer at the moment.
Scot:
[1:07:07] Yeah the so what did the ad formats I've seen is I always get this one that's like you through some Quaker Oats granola bars in there if you add these six things will give you a five bucks or something I've seen a coupon and I've seen a you know an upsell hey you've previously bought this or you may like this are there those are the three main add units or am I missing something.
Jason:
[1:07:33] Yeah so I am not going to speak specifically about the variation in ad units but as a general rule like probably I'm assuming the most predominant ads on the platform are search ads right so people search for products like always and you know above all the organic results are a bunch of sponsored ads right and so off very often those don't have a special offer in them they're just premium.
[1:08:00] And so a big chunk is probably those those search ads you know then they're there are like Banner type ads that that land either on like the homepage of a particular retailer or on a category page or subcategory page and more often those are likely to have some call-to-action offer in them so they might have a promotion or a discount of some kind and then in the digital space um there's a lot of what we call like top off and impulse ads which are what you were just talking about right and you know one of the big problems we have with digital grocery is when you go shopping at the grocery store your wife sends you to the store with a list of 10 items and you buy all those 10 items but then you walk by the ice cream aisle on your way to the cash wrap and you add ice cream even though you didn't plan to buy ice cream and then when you're standing in the cash wrap, you're sneering at that Snickers bar or that Wrigley gum and you add that to the car and maybe a cold Coke to drink on the way home from the grocery store so a big chunk of a traditional grocer sales are all these unplanned impulse purchases and that.
[1:09:16] By default happens a lot less in digital Grocery and so a lot of these ad formats are kind of are, our Industries early efforts to try to reinvent digital impulse and I would I would call it pretty imperfect at the moment.
Scot:
[1:09:35] Don't you get a nursing inside about gum or something like because self-checkout smelled the gum that serendipity.
Jason:
[1:09:42] Yeah the the that that cash wrap used to be the most valuable real estate in a grocery store like the most Revenue per square foot was that what we call the cash wrap which is the.
The conveyor belt that you stand in line and actually the first thing that killed the cash wrap was not any of this digital shopping or any of these things it was.
Facebook and the mobile phone and simply because you now had something else to do when you are standing in line so you were paying attention to your phone and back then you are on Facebook today you'd probably be on tick tock but you're doing that instead of being forced to stare at the gum or the the coke with a suspiciously intentional you know Sheen of dew on it.
And so just impulse buys went down just because the darn phones were distracting people that were standing in line and now that you don't even walk in the store or stand in line you know of course we lose.
A lot of our our impulse juice so I think you know if we we went from three percent online sales to 12 percent online sales if we get in those twenty or thirty percent it's it's.
Like the economics are only going to work if Grocers figure out how to replace those lost Sample Sales.
Scot:
[1:10:55] At some point does this create channel conflict if I'm Kroger I want to these a dollars in their kind of happening.
Or the order gets to me and your skin you're skimming them away from me like do you think Grocers wake up and say sorry if this is something on discuss later.
Jason:
[1:11:12] No let's pivot to that because I think that was the end of my ads section is there anything that you want to ask her missed about her noticed about ads that.
Scot:
[1:11:21] No I already said it just kind of reminds me Amazon so I did you know.
Jason:
[1:11:25] Yeah.
Scot:
[1:11:26] So Channel conflict what's going to happen there.
Jason:
[1:11:28] Yeah so there's some other interesting tidbits that will come to but like the the big concern about this whole thing is this is a Marketplace to me that has some unique characteristics that are distinct from most other marketplaces so you're obviously the marketplace Guru on our show if you think about a Marketplace like Amazon there's nearly an.
In endless supply of potential sellers that could sell on Amazon right so you know Amazon treats them well enough, but if they have some churn and sellers if people feel like they're not making enough money selling Goods on Amazon Amazon doesn't sweat that too much because if they leave the platform some other seller is likely right behind them to win that by box there that is not the case in grocery because these Goods aren't coming from a warehouse they're not coming from a factory in China most of these goods are coming from the perishable shelves of a local grocer and there's only a finite number of those grocers in the United States of America so we're you know you could have kind of all these.
[1:12:35] Arbitrageurs like becoming sellers on Amazon and you know any college kid could decide to start selling on Amazon tomorrow.
You kind of have to already be a traditional grocer to become a seller on instacart and so the the pool of potential sellers is way more constrained and.
Um I would argue that many of those sellers should not be on the instacart marketplace right because.
In the early days of digital grocery you go oh man this is just a distraction we don't have a queer a good grocer but we don't have expertise in digital now we've got a few eating customers that want to order online but just Outsource this whole thing to instacart, and see if customers even want it and that that was a perfectly reasonable strategy and a lot of Grocers have obviously done that.
But once you start seeing that oh my God customers really do want this and now it's 12 percent of our sales and it's trending towards twenty percent of our sales and it's more than half of their their total visits to our brand are now happening on that platform.
[1:13:42] Do you want that to be a platform you out sourced that also any of your competitors can Outsource or do you want that to be some sort of.
Owned competitive Advantage right and, I tell the story all the time so people are their eyes are probably rolling in the back of their head but this all played out in e-commerce right when, bookstores first started hearing about the people on to buy books online they said that's a distraction we should Outsource it what about that company in Seattle that's outsourced it to them.
[1:14:11] And when they suddenly realize oh Outsourcing our book business dams on probably doesn't make a lot of sense.
Which if you're a younger listener that really did happen toys Toys R Us and and Borders books like.
Gave gave their their e-commerce businesses to Amazon, when you realize Amazon was a direct competitor then you found another service provider to Outsource it to and the outsourced provider that everyone found in the e-commerce industry was this company called GSI Commerce and they became.
A very high valued fast running business founded by this guy Mark Rubin and you've probably heard of him because.
He owns the Philadelphia 76ers on with the money he made from from GSI and he started in another very successful business fanatics but GSI was a tremendously.
Successful business that kind of doesn't exist today because over time Toys R Us said you know we better learn how to, run our own e-commerce site and Dick's Sporting Goods said we need to learn how to run our own e-commerce site and targets that we need to learn how to run her own e-commerce site and so as that market matured, all those people that were happy to Outsource this nascent business to GSI fire GSI and brought that that.
Function in-house and to me instacart feels a lot like the grocery version of GSI now.
[1:15:39] One reason this isn't necessarily a doom story is GSI actually does still exist they've rebranded and they're called the radial and what they do today is they provide a lot of the backend services.
That businesses use for e-commerce but they no longer provide the front end and they no longer provided under their own brand so they're sort of a white label service provider.
And we haven't talked about it yet but but instacart actually has an extra Revenue stream that they talk about in their S1 that just isn't economically material yet which is, they're selling a bunch of services to retailers that want to do some or all of this, themselves and they white label a lot of the services and instacart is, trying to invest in making good versions of those services that they might be able to sell to a retailer that does decide, to bring the website in house or the picking in fulfillment in house.
But so to me when I look at this business I go the number one risk is.
[1:16:39] In the long run can they maintain the sellers that they have and if they can't it's not like there's an unlimited Supply to replace the current ones which is a very different Dynamic than.
Then like the Amazon Marketplace and so one of the things you see that you know they claim they're very proud of in there.
There s one is and I should have found this but what's the count of retailers they say.
Scot:
[1:17:09] 5700 it's just kind of pop that's the number two spot.
Jason:
[1:17:12] We'll call that the right number unless I find that number but that but that number of that's the number of resellers and those resellers have 80,000 stores in the US and represent 85% of all Grocers right so you look at that and go oh good news bad news.
They've saturated the market they are they already have 85% of all grocers on their platform so they're not going to add a bunch of sellers but the seller but all the sellers will love them right that would be the.
The favorable interpretation but the wrinkle here is.
A bunch of the sellers that they're claiming have kind of already moved away from instacart right so included in the list of sellers on this Marketplace our Walmart.
Kroger and Albertsons which cumulatively are the top three grocers in the market and I think together the three of them are over 50 percent of the market the.
It's 1,400 retail banners.
Scot:
[1:18:14] For 200 yeah 5500 advertisers house I've got those.
Jason:
[1:18:17] That's what I was worried about yeah so so 1400 retail banners representing 80 thousand stores representing 85% of the US grocery Market but again today Walmart Kroger and Albertsons are in that.
That list and those are all grocers that are investing huge amounts of money in building their own capability and today, that capability sits beside instacart or maybe in front of instacart and they're only using instacart as kind of overflow.
But it's it's way less certain to me and there was not a lot of like.
[1:18:54] You know confidence and stealing information in the s-1 to say oh we're going to be able to retain Kroger as a customer or we're going to be able to retain Albertsons as a customer and to me it's a big risk for their current business model.
If they can't and a huge percent of those of the a huge portion of the eighty-five percent of the market share they're saying they have.
Is those three companies and then after those three companies which have already expressed like clear intent to invest in their own capability there are other giant Grocers.
That haven't expressed an interest but they need to write and so you and I'm specifically thinking of like all the in Costco are two huge grocers in the US.
You know are not very digitally mature and have not seem to want to invest a lot of there.
Their own resources in digital but if they're going to be around in 20 years I'm pretty confident that they're going to have to figure it out and it's not just going to be Outsourcing it to instacart so I look at a big chunk of those.
Marketplace sellers on instacart and I go.
Um that that is a little risky and you know a lot of their volume is probably concentrated in those sellers that are at risk and you go, is there a business if all the big guys leave and it's just all the Independent Grocers there might be but the economics probably look a lot different than this.
Scot:
[1:20:19] Very cool so you're going to are you going to be a buyer.
Jason:
[1:20:23] I am.
[1:20:26] Yeah yeah yeah if I could have gotten in her like I would love to be at the 76 or games with my driven but I'm not sure that the retail price like has some risk cooked into it because of that that problem now again you know radials a decent little business and could could you know carrot services for instacart be a decent little business one day sure you know the counter argument if I'm trying to be fair here is.
What I think in instacart exec would say is hey Jason like we had two things we're the Outsource capability for some of these retailers that don't have that capability but we're also.
Marketplace with a bunch of loyal customers and we're bringing customers and visits to Kroger which is why Kroger isn't gonna fire us.
[1:21:20] Right but prettier Point like.
Really where are they getting those customers right like they're not you know they're not making huge investment in sales and marketing they haven't like you know demonstrated some magical top of funnel capability to acquire, in consumers like I would argue they're acquiring most of their primary acquisition strategy is to acquire great sellers that already have consumers and take over the that business for those those, those banners so that that to me puts this this whole thing at risk like is there something I'm missing about that Scott or does that at least.
Scot:
[1:21:56] It's a risk you know they would probably argue they have data that says they're largely in criminal and my guess is the Grocer's aren't sophisticated enough to be able to run an analysis on that so yeah, Walmart certainly is but not yeah you know gross has been right.
Jason:
[1:22:14] The long tail of.
Pretty pretty pretty thin and pretty like grocery is a super hard business that requires a lot of unique capabilities and the people that you know, acquired those capabilities over 60 years are not necessarily the people you're going to expect to be the first fastest digital adopters and like side note in favor of all the hard-working Grocers out there I mean.
It's the one business that Amazon has invested billions in and can't figure out how to do properly right so so it is what gentlemanly hard.
I do, I did have a couple other tidbits on the if we're done talking about the giant elephant in the room that is their their seller concentration there were a couple other tidbits that jumped out at me in the ass one do you want to should we run down those real quick.
Scot:
[1:23:04] Yeah far away.
Jason:
[1:23:06] Yeah so there is another interesting part of the thing that I was surprised by which is instacart membership program so instacart has a membership program called instacart + and it turns out all this revenue is coming from members.
Which again is another favorable Trend we saw that the cohort analysis was pretty favorable but.
57% of instacart Revenue comes from people that pay a monthly or annual fee to get free.
Shipping from instacart so that are members of this instacart plus program and 5.1 million of the 7.7 million active Shoppers are in the program.
[1:23:46] And those those members spend disproportionately more like over 6X more than non-members spend so this is like.
You spend your your monthly fee or I think it's like a hundred dollars annually and for that you get unlimited Fleet free delivery.
You get reduced service fees you get credit back on eligible pick up orders like if you if you do curbside pickup and you get some other exclusive benefits so.
They have kind of monetized a membership program so you could think of this as a very baby Costco but that.
If this all scales that's another potential interesting Revenue scheme.
I did mention I was pretty excited they had to kind of make the pitch for digital Grocery and so.
You know they do talk a lot about a groceries accelerated to 12%.
Digital groceries accelerated 12 percent penetration that.
[1:24:44] That has accelerated a lot in the last three years as a result of Cove Ed and they spend a lot of time talking about the distinction between.
Delivery of groceries and pick up of groceries and instacart plays in both but here's kind of an interesting thing.
[1:25:01] About it's a it's near 50/50 split right now the.
Grab the delivery orders instacart is primarily competing with other digitally native digital Grocers so they're competing with.
Um shipped which is owned by Target they're competing with doordash and ubereats which if you haven't been following it both have pivoted into grocery they're competing with go Puff.
And so these are other like digitally native companies that kind of didn't exist in the space until until digital came along but the other half of the business is pick up.
And 95% of all the pickup business is getting fulfilled by a traditional brick-and-mortar Grocery Store where the parking lot.
And so like there is you know there are these like interesting bifurcated segments where.
You know some of instacart Revenue they're competing against you know Amazon Uber and doordash and other parts of their business there.
They're competing for customers against Walmart Kroger and Albertsons so I found that kind of a interesting evaluation.
[1:26:13] You know again I think a lot of people might have been surprised and asked someone to see that they're competing with with Uber and doordash.
[1:26:22] And then the other thing that I found interesting and this might be obligatory now but I think in instacart is case is kind of true they spent a fair amount of time talking about how they're leaning into a.
And so they both you know we're very early adopters of like.
Licensing open a eyes large language model to have a.
In a i chat assistant on instacart app and website they were one of the they were launched partner that had a plug-in on opening eyes website to let you order order groceries from Chad CPT and they've done at least like for Acquisitions in the like AI in ableman space so they've acquired companies.
Like Rosie which is AI pricing and dynamic pricing they acquired ever site which is a promotion engine the Caper food storm is a software company that.
Doesn't like kiosk software that they can sell to retailers as part of their carrot services so.
That I don't know you tell me why like I suspect that every S1 we do see for the next 18 months is going to have to have an AI section and it was interesting to read about like what they've done in the AI space.
Scot:
[1:27:47] Oh yeah everyone like yeah salesforce's spending all their time with this giant Matrix of how AI is getting integrated into every product everyone is trying to ride the wave but video is making all the money it's a they is off topic but they printed just incredible quarter of just nothing but.
Jason:
[1:28:04] Yeah way more valuable than Intel.
Scot:
[1:28:06] Billion of profit that just showed up at the door is crazy.
Jason:
[1:28:11] Yeah yeah that's a great story for another episode but Scott anything else that we want to cover in this first look at instacart S1.
Scot:
[1:28:22] Know our brand promise is to bring the heat on these and a deep dive this I lost track when we started but this is a very deep dive so we appreciate you guys sticking with us to the end there there was a lot of good stuff on here and we really only got to the tip of the iceberg.
I do encourage you to print out the those relevant pages of this one we talked about 10 12 12 24 or 25 that's the really good stuff and it's worth a read if you're in the space into this Market as we are which I I'm going to guess a lot of you are also pretty geeky about this stuff.
Jason:
[1:28:57] Yeah yeah and so I will definitely put a link to the s-1 in there and until next time happy commercing. -
EP308 - Amazon Q2 Earnings
http://jasonandscot.com
Amazon reported a strong quarter across the board for Q2, soundly exceeding analyst expectations and retail industry averages. In this episode we break down the 1p and 3p retail performance, AWS, and the Ads. We go into depth around Amazon disruption reorganization (to a regional model), Amazon's newest efforts in grocery, and health care.
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.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 308 of the Jason & Scot show was recorded on Thursday, August 4, 2023.
Transcript
Jason:
[0:23] Welcome to the Jason and Scot show this is episode a 308 being recorded on Thursday August 3rd 2023 that's a lot of Threes I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:40] Hey Jason and welcome back Jason and Scott showed listeners well Jason today is one of my four favorite days of the year it is Amazon earnings day.
Jason:
[0:51] I was going to guess it's the 4th Halloween okay.
Scot:
[0:54] Nope good guess and today was a real doozy so we have a lot to talk about and of course it wouldn't be a Jason and Scot show without.
Jason:
[1:05] Amazon news your margin is there opportunity.
Scot:
[1:18] That's right sometimes I hear from listeners why do you guys spend so much time talking about Amazon well my rationale is a it's one of my favorite subjects did be not only is Amazon the biggest retailer but it represents over half of e-commerce and for our listeners I think their data is pretty much the standard compared to even anything like comscore or adobe, just by definition of them having so much data that it is the basically the best source for what's going on and then given our macro environment we're at the tail end of the last show you were talking about how it's setting up for kind of a bad holiday so we're heading into this it's a critical quarter and for me Q to see what Amazon is done really sets us up for the back half of the year.
And especially holiday.
So kind of a canary in the coal mine and right now there's all this confusing data coming out about the consumer you see things that sentiment is down travel to starting to tip over housing is slowing so there's some negative but yet credit card spend is going pretty well and so this is probably the best read we're going to get on the consumer heading into holiday.
[2:39] So I think of it as Scott foreshadowing the whole industry that's why we like to spend a lot of time on it, so the other thing I'll point out is it's been kind of a rough period for Amazon the last, probably 6/4 a day that things have slowed down post covid they've struggled they've done some layoffs but having watched Amazon if we zoom zoom out having followed them since 97 they're really good at reading the room and if the market and the externalities are saying you're free to invest they will invest like crazy and you know and by saying that I mean they'll focus on Revenue growth implementing infrastructure but then when the macro turns - and they can move to harvest pretty quickly so, a lot of that kind of goes as good as Wall Street so Wall Street will love them and give them a lot of rope and they'll invest invest invest and then while she starts to worry they're like oh my gosh this is scary your spending so much things are doing this and then they will turn very quickly and can then get into Harvest mode and produce results that's a really a big theme for this quarter so that's part of the set of the other part of the setup is we have some eCommerce data coming into this what is that, what are those tea leaves tell us before we jump into Amazon.
Jason:
[4:00] Yeah so we have data from the US Department of Commerce through June and it is a really complicated story so that the top line is a little bit of a worrisome sign so year-to-date January through June of this year retail sales are 1.9 percent higher than they were during that same period last year so time now to put that in perspective in the 10 years leading up to covid we average retail growth of 4% a year so so far this year the growth is less than half of the industry average and then the last three years of growth the last 3 years of Cook post covid were the biggest three years of retail growth in the history of retail so we had these three monster years and now for the first time we have a six month period That's, well off the average and, Q2 was worse than q1 now you know people always say well what about inflation in these numbers if you adjust all these numbers back to 2019 dollars to sort of take inflation out of it, retail sales this year are actually down 2.8 percent from last year so so.
[5:15] All of the Mir growth we have this year is really due to its unusually high inflation now big caveat there, the information news is actually pretty solid in inflation in June is only up three percent year over year which.
[5:32] You know before all this inflation stuff started the Fed was always trying to keep inflation between two point two and three percent so.
[5:39] Information down and three percent if it if it stays down there is pretty encouraging but from a retail standpoint, you have this weird thing you have the macroeconomics getting better there's a lot more economists saying we're not going into a recession we somehow managed a soft Landing you've got the inflation numbers coming way down all the wages and employment numbers have continued to be robust so you're all these favorable macroeconomics and now the consumer has stopped spending and you hear every retail are talking about how, consumers are trading down a cheaper Goods they're buying more needs and less wants and all of these sorts of things and so.
If you if you kind of look at the retail industry average.
There are two retailers that have hit consistently been outperforming the industry average and those two retailers are Walmart and Amazon which are the two, largest retailers in the United States of America.
Um there's some controversy over who's actually bigger but we'll leave that for another show if the bottom line is if the two biggest retailers in the market are both outperforming the industry average.
That's a bad sign for the rest of the retailers.
Scot:
[6:54] Someone's losing share.
Jason:
[6:55] Exactly exactly and I would note we don't talk about it a ton on the show but then there's two Chinese companies that are.
Dramatically grabbing share really quick so she and and and Tim ooh so you know outside of those four.
It's not looking super up to Mystic for, for retail so I was super curious to hear not only how Amazon did but what they're what guidance they gave for Q3 and what they were seeing in terms of consumer spending because we do have this weird paradox.
Macroeconomics getting better, but retail spending getting worse so that being said like what what did Amazon report Scott.
Scot:
[7:40] Well it's an interesting quarter because again for like the last six quarters are 18 months it's been kind of using Wall Street language Wall Street always comes in with expectations and then you either meet those beat them or miss them and or sometimes I'll call it in line if you meet their expectations well this was this was pretty much an unprecedented four-way beat with a raise and that's that last part is what about next quarter so the current quarter is did you how did you do and then did you for future Revenue expectations did you stay in line with those or did you raise them so this was kind of like one of the best quarters you can have using all the Wall Street language and I say a four way beat so number one is earnings per share, while she was expecting 35 cents and they handily beat that at 65 cents so that's the first one the second one is revenue revenue came in at 134 billion versus 131a clear beat.
[8:41] AWS Revenue there was a lot of worry around this because Microsoft was really showing their first of all Microsoft had to break out as your separately for the first time and it used to be all clumped in together in this kind of cloud bucket, where they could kind of have office they're hiding what was going on with Azure so now that Microsoft had to call, carve out Azure it has been slowing down very dramatically so everyone was very worried about that a WS beat the expectation was 21.8 and they came in at 22.
I will talk a little bit more about the growth things and some other color there third-party exceeded expectation the only thing that was really kind of in line is online store Revenue but the margin improvements if you can't go back to that EPS were so dramatic that everyone was fine with Alan being I think it was like.
[9:30] Point two percent miss or something it was like basically in line so that was the only piece that didn't beat and everyone was fine with that because all these other things really swamped the outcome there and then to cap that off the midpoint we'll talk about it but this represents about 11% growth all in for this quarter and the next quarter they guide for growth for 11 to 13 so they're basically saying hey we beat your expectations this quarter and things are accelerating into Q3 so and then they also on the bottom line that guided up for next quarter as well so that went really really well um and that was a pretty amazing so let's peel the onion and see what we can learn you want to take us through the retail business.
Jason:
[10:18] Yeah for sure so the the retail business globally grew 11% so that last year this in this quarter they grew nine percent so accelerated growth, North America grew 11 per sent an international grew ten percent International really struggle this time last year they actually had a 12% decline last year and so so in general pretty robust growth now, these are the revenue numbers which returned mine everyone Amazons and Marketplace they don't report all of their sales as Revenue they only report, one piece sales and then the fees they earn on 3-piece sales so it's not it's not a perfect.
[11:09] Now match to to the sort of Industry retail data I said but it's a close approximation so, on average retail grows four percent a quarter the last two quarters retails grown you know less than half of that and Amazon comes in at 10 or 11 percent growth.
So that's you know a pretty healthy outperforming that the industry average is and, you're essentially taking share from the rest of retail now often just a side note.
Obviously the vast majority of Amazon sales are online traditionally online grows much faster than.
[11:48] Brick and mortar so historically we would see ten to fifteen percent online sales but post pandemic that's actually slowed down quite a bit and so, online sales this year are probably averaging around.
Seven and a half our eight percent and so Amazon's growth not only did it beat brick-and-mortar it actually beat the industry average, even for e-commerce so that that is very robust, they spent a lot of time both in their their press release and also in their earnings call talking about their focus on efficiencies, and you know the all the work and efficiencies reorganization of their supply chain you know changing of Labor models, that those others efficiencies are starting to bear fruit because, the profitability was significantly up for.
[12:52] For the retail business for this segment so I want to say no for North America they ended up earning like 3.2 billion and earn income.
So you know some quarters they don't learn any so 3.2 is a healthy number.
[13:10] For their growth and for people that aren't following it.
Part of these efficiencies is a super interesting story essentially what Amazon has decided and what they now seem to have successfully executed is that having a national Supply.
[13:27] Chain and a national order fulfillment network is not the right way to structure themselves so in the old world they had one order fulfillment system that covered the whole nation you could really want some, delicious Green Tea Oreos you know that are only in the warehouse in California and you order those and Amazon figures out had a, get those Oreos to you in 2 days from the warehouse in California, and increasingly what Amazon said is you know customers really want speed we have to get faster in most cases where promising next day or same day to day is.
Is you know a promise from 10 years ago and in order to do that efficiency efficiently and save money, we have to have those Green Tea Oreos really close to Scott to start things off and so we're going to drop a bomb on our own industry-leading fulfillment Network and we're going to redesign it as a set of regional networks so that the vast majority of good Scott orders come from a much shorter distance and so one of the, the impressive results of that effort today is this quarter Amazon said that like despite all this growth and increasing order volumes that they actually drove 20% less miles than they did this quarter last year.
[14:42] So they're very successfully getting the goods, closer to the consumer and to put you in put it in perspective how many Goods that is they announced that they now have over 300 million, items that are eligible for Amazon Prime and over fifty percent of those items get delivered same day or next day.
Scot:
[15:07] Yeah I thought that part was pretty amazing and what they've done is they've split the country into eight regions they actually were pretty and the call to get into some pretty interesting detail on this end and I thought that was interesting because I usually pretty pretty tight-lipped on this so then so they've taken their National optimization you talked about and they're almost running each region has its own country so they're doing more of the load balancing inside of there so in addition to the 20 percent fewer miles there touching the packages 20% less and you now get 76 percent of the units are in the union are in the region and just a while ago it was 66.
[15:50] And then what he's what he's basically saying is that's a big efficiency and then within there another efficiency is they're leveraging the same day where houses so things used to go from these really big distribution centers to the smaller ones and now we're going to these much smaller ones and they can now inject things in there and he said those are streamlined and they can get an item from the order coming in to delivery in as little as 11 minutes and those are even closer to the consumer so that it's almost he didn't say this but I kind of envisioned as eight regions are split up into eight more regions almost with these tiny you know within points being some of these other ones they basically said this is working so well we're going to double the number of these small last-mile fulfillment centers so that was I don't think Wall Street heard that because that's you know whenever Amazon says double that's a big number because they have like 200 ish of the big fulfillment centers I don't know how many small ones are but Amazon doubling anything is Nan.
[16:55] Trivial number of dollars they're going to invest you didn't say over what time period you want your when ordering covid they said they were double and they went from like 120 fulfillment centers took to actually literally doubled those pretty quickly so it's going to be interesting to watch that build-out I haven't seen one of those I've seen them Beck's I haven't been in one of been on the back end of one to watch the flex drivers that that's kind of what they used to do for Flex drivers so be interesting to see how they scale that and I would like to go got a visit one I don't I don't know if any of the dsps which spend a lot of time with dsps here at spiffy so I've got to see this side of the world a lot more than I did in the software e-commerce world and there at the big fulfillment centers at these delivery stations that are called bolted on the side haven't seen how they pick up from some of these but I'm making it a mission.
Learn more about this.
Jason:
[17:48] Dsps are the third party delivery services that Amazon uses yeah.
Scot:
[17:52] Delivery service professionals yeah so that was interesting.
Jason:
[17:57] And a reminder for the big fulfillment centers Amazon actually offers tours you can sign up and get a tour I don't think they haven't seen them ever offer tours on any of the other formats but there are some bootleg videos out on the internet if you know where to look I'll see if I can find some for the show notes that that show like like one of the general contractors that builds these facilities put some videos on their website of, of the finished facilities before they open.
Scot:
[18:28] Yep so that's kind of the retail business let's mix it up usually I cover third party but let's kick it over you to run through them.
Jason:
[18:37] Yeah are you okay with me talking about marketplaces I feel like as a Hall of Fame member you you this is like when mess a wet the other guy take the penalty kick.
Scot:
[18:45] I'm an auto guy now I don't know what this what is a 3 P3 what are the three p's.
Jason:
[18:51] Yeah so another milestone for Amazon's Marketplace.
They hit a new high for the percentage of their total sales that came from third parties so the mix is now 60% third parties 40% first party so that that's continuing along long-standing trend.
The third party is continuing to grow and being the most important part of the.
The assortment makes at Amazon I don't have the number in front of me but my memory is that the.
The growth in 3p Services was actually faster than the retail growth as well so sort of implies that the volume went up but also Amazons.
Doing even better at collecting more fees from all those three p providers so that the marketplace continues to be robust and important.
You know one that always gets a lot of the energy on these earnings calls is a WS and there's kind of an interesting story going going on so so first of all, the the Wall Street expectation was for AWS to grow eight percent this quarter and they announced that a WS grew 12% so.
Massive beat from that perspective.
Um and so then you go well is 12% good growth well a year ago they were growing at like 33 percent so twelve percent doesn't sound all that impressive compared to 33 percent.
But what you have to remember is.
[20:20] The rate of growth has been significantly slowing down quarter after quarter and last quarter q1.
[20:27] That growth was 16 percent and when they announced that growth was 16%, they really put dosed a bunch of cold water on investors because they said and we already have a month of data since the end of that quarter and it's slowed down more since then so I think that really is what spooked.
The the investor community and that's where that sort of 8% expectation came from so 12 percent growth is kind of an indication that the growth rate although you know swelling down is stabilizing.
Um and I think they're they don't give guidance on these individual segments but they.
Made a nod to the fact that we're probably not going to see the growth rate slowed down dramatically from this, they do pay a lot of lip service to the fact that, it's a very big number and you can't grow in double digits anymore by just getting organic growth that like in order to, continue to grow double digits you need to acquire a lot of net new customers and you need to acquire a lot of net new workloads, but the good news is you know they have a very robust narrative about why there are a lot of customers and additional workloads to acquire and spoiler alert.
You know a huge amount of them are related to generative Ai and a large language models where.
[21:54] Amazon is investing a lot in things a lot of the future is going to be in these these three hosted layers of AI services that companies use to build AI Solutions on top.
[22:06] So so you know I think their sales focus is going to be is less about getting more money from existing customers and more about getting.
New customers and new workloads on a go-forward basis for a WS, um I do want to say you add up the numbers for AWS and it's 88 billion dollar a year business that's the Run rate right now.
And they make about 25 percent gross margin on that business so that that 88 billion dollar business is spinning off 21 billion dollars a year in profit.
And everyone always talks about how AWS is by far the most profitable business at Amazon so keep that 21 billion dollar number in the back of your head because the next segment that Amazon talked about is ads, and while AWS is growing at 12% they announced that the ad business is growing at 22 percent.
Um so that puts, the the ad business at like a 41 42 billion dollar run rate.
And that the speculation is that the ad business is about a 75% gross margin.
Business and so if they're at a 41 billion dollar run rate that means they're spinning off 30 billion dollars in profit.
[23:25] For the ads business so Thirty 1 billion dollars in earning come from ads versus 22 billion dollars in.
Or 21 billion dollars in profit from AWS so.
Quit talking about a WS being the most profitable business than Amazon ads is the most profitable business and is growing almost twice as fast.
And there's another of my favorite facts about that ad business is.
You know so again they're selling 44 billion dollars worth of ads you know where they get all the eyeballs that they they have to sell those ads.
[24:03] Buy them from Google for 20 billion dollars.
So so here's like an awesome business, the Amazon is one of the largest advertisers in the world they spend twenty billion dollars I'm sorry 22 billion dollars on ads to get people to come to all their services, and consume them for profit right so, so you run ads and you get people to buy stuff on Amazon you run ads and you get people to sign up for AWS you run ads and you get people to sign up for Amazon Prime Those ads do all this heavy lifting for all these different business units and then after you've monetize that, that a dollar you then sell that ad dollar back for a profit through this ad business so you want to talk about the network effect and how powerful it is this to me is just an an awesome example of business engineering and you know I think.
Often misunderstood aspect of the Amazon profit machine.
Scot:
[25:01] Yes pretty amazing quarter for ads the they're just really Trout's snap used to be in the conversation and Twitter and it's really just Facebook Google and it was on it.
Jason:
[25:11] I mean Amazon's a much bigger ad business than Microsoft and Bing.
Scot:
[25:15] Absolutely another tidbit from the call we had talked about this and if you remember we had we had a guest on from Guardian baseball and he was talking about this was right one by with prime came out and you were super skeptical that anyone would adopt.
Jason:
[25:35] Yeah and what should you do anytime I'm skeptical about a new idea.
Scot:
[25:39] Go long on it go.
Jason:
[25:40] Invest in it.
Scot:
[25:41] Yeah.
So first of all I saw a tweet earlier and this is from everyone's favorite follow bearded egg F ba and a couple other people had similar tweets but he actually had used the software that scrapes all these websites, and he reported there's over 2,200 sites that now have by with Prime and then jassi's comments he said quote, merchants in early trials use by both Prime saw their Shopper conversion increased 25% on average which makes a real difference in their business Merchants who participated in Prime Day activities, experience 10x increase in Daily by with prime orders, so there was a knock on effect that if you had by the Prime on your website then people found you and and rattled over and you saw a really nice kind of ripple effect from the prime day efforts I thought that was an interesting tidbit so they're like like everything Amazon and I haven't followed the features but I'm sure if you remember Matt was complaining that you couldn't turn it on and off for certain excuse there was some feedback he had and maybe it didn't work with attributes like a parent-child skews I'm sure they fix all that or else it wouldn't be on this mini website so it sounds like that's really getting some some traction.
Jason:
[27:00] Yeah I do I still think.
To cite Lira but my double down on my earlier skepticism there still are some rough edges to the customer experience right so it still is a purse Q experience which is a little weird like you know some products on the on the website you can get fast shipping for and some, some products you can't and it's hard to know what they are until you put them in your cart so that's kind of the the old shop Runner.
[27:32] For if you will but I do want to say two things both Amazon and Shopify are leaning into these, conversion rates way better when you have by with Prime on your website or when you have shop pay on your website and you know you have to ask yourself what they're comparing that to write because, it should surprise no one that conversion rate when the customer has stored payment information available is much higher than when they don't have stored payment information so the magic question is if you already had shop, pay and PayPal on your site and then you added by with prime did by with prime perform 25% better than PayPal.
Um or are they only saying by with prime prefer performs better than nothing because performing better than nothing isn't, quite as impressive in my book and I do want to say well well they are making progress with by with Prime and the 2500, Merchants is impressive just a reminder there's 2.5 million merchants on Amazon so the fact that 2,500 of them are using it you know does not exactly mean it's caught fire.
Scot:
[28:44] So still skeptical.
Jason:
[28:46] Yes so again what should you do go double down on the go along.
Scot:
[28:49] Short Amazon Jason you short Amazon I'll go alone.
Jason:
[28:54] Yeah that.
Scot:
[28:55] Prime is not going to work thesis and I'll go on.
Jason:
[28:58] Yes I don't I don't think you're giving me helpful investment advice.
So that was all the main stuff I saw in the earnings calls was there anything else you wanted to cover because I think there is a few other tidbits of Amazon news.
Scot:
[29:15] I saw Grocery and I had a feeling that your ears were too perked up I I fell asleep during that part so I'll kick it over to you.
Jason:
[29:21] Oh my god do you not eat.
Scot:
[29:23] I do but groceries is everyone's least favorite chore.
Jason:
[29:28] Scot doesn't want to say it but he has people that get his groceries for him that's what's going on here he hasn't been to a grocery store in like 10 years.
Scot:
[29:35] Every every meal is from Chick-fil-A so I don't have to go through.
Jason:
[29:37] That seems like it would be a pretty fun for a little while but I have a feeling that the there would wear off, so yes Scott you are right I'm super interested in grocery groceries 25 percent of all retail spending it's the biggest category of spending that Amazon hasn't won, I think it was about 40 years ago that they acquired Whole Foods do I have that right was it 40 years ago.
Scot:
[30:03] 49
Jason:
[30:05] I'm exaggerating I was over 10 years ago now though.
That they bought at Whole Foods and hopefully just kind of flat since they acquired them it really hasn't you know turned in anything a reminder Whole Foods is very niche in the grocery space like Whole Foods doesn't sell Coke they don't sell Fritos, um and they're only in a handful of big cities so there the the industry leader in organic produce but they're not a mainstream.
And one of the things so Amazon made a bunch of announcements that they were retooling their grocery experience and changing some of their offerings.
Two days before the earnings call.
And I'll come back to what those announcements were but on the earnings call Andy answered some questions about Grocery and he kind of admitted something interesting, Amazon is doing very well at what Amazon usually calls everyday essentials.
And I think the Brian the CFO call that non-climate controlled Goods right so all these shelf-stable things that you tend to buy from a grocery store but you don't actually eat.
Um Amazon's pretty good at selling and growing fast and they have a big chunk of that business they are not good at selling.
[31:21] Perishables they're not good at Selling climate-controlled Stuff they're not good at selling fresh food online.
Um and what Andy said in answer to one of the analysts questions was, to really meaningfully capture sharing grocery you have to have a broad offering in all the areas of grocery not just the everyday essentials and we don't believe you can win.
With a broad assortment of groceries without a national footprint of stores.
[31:53] So you know he kind of conceded that the Fulfillment center model and the multi-tiered regional Warehouse model that Amazon is building out.
Is not particularly well suited for the grocery mix and so he said so you know we need to figure out a grocery, and we kind of concluded what we've rolled out over the last few years at Amazon Fresh is not a winning grocery concept so we put we put a hold on growth, we went back to the drawing board we invented a bunch of new experiences and now we're testing those new experiences to see if they are, more appealing to Consumers so the First Market to get these new experiences is Chicago so they just remodeled the the Amazon Fresh stores here in Chicago I'm going to go visit one soon.
But they've essentially they've changed the assortment quite a bit they've added more private label and they've added more National brands for a grocery store Amazon Fresh doors were really kind of a limited assortment grocery store and so it sounds like.
[32:56] They're moving they didn't say numbers but in my mind, they were like a twelve thousand SQ grocer and Kroger is like a 20,000 SQ grocer so they're there it sounds like they're moving up to that 20,000 skus.
[33:10] And they're testing a bunch of new amenities, and one of the big problems you have in grocery especially when consumers are being really cost-conscious is consumers walk into a grocery store with a budget and they want to make sure they don't overspend that budget.
And just walk out grocery stores you actually don't find out how much you spent until 15 minutes after you've left the store.
[33:35] Which is an awful experience if you're trying to make sure you stay under 100 dollars.
And so one of the amenities they've rolled out is on these Dash cards these digital cards that they let you use in the store they now have a real time running total of what's in your cart so for the first time you can see.
[33:53] You know how much you spent so there's a bunch of experiences like that I'll get a better feel for what the new ones are.
When I go visit but they're starting to Pilot new grocery Concepts and they're you know they've kind of conceded that they need to scale one of these brick-and-mortar Concepts nationally before they can really be a.
A meaningful winner in the digital grocery space.
But they made a couple other big changes in grocery to one of the biggest complaints and one of the stupidest things about Amazon's grocery is before you shop for groceries in Amazon you need to get an org chart and understand how Amazon's organized because, you have to decide in advance if you're shopping online at Whole Foods or Amazon Fresh and guess what most customers don't understand the distinction between those two things, and so they had separate carts you actually have three cards on the Amazon website you have a general merchandise Encarta gross Amazon Fresh cart and a Whole Foods car, and it can be really confusing because you just click add to cart on a bunch of stuff and then you go look at your cart and it's not there because it's in one of the other car.
So they announced that they're moving to a universal cart.
I haven't seen it yet so I can't speak to exactly what it looks like I have a few a name mean a universal grocery cart I don't think they're actually going to mix it in with general merchandise but.
[35:11] Will be eager to see that and then the other announcement they made that is I'm not I mean I just don't think it's as big a deal is, um they have opened up grocery delivery from Amazon Fresh to non-prime members so so prior to this week you had to be a prompt Amazon prime number to order from from Amazon Fresh.
And this is kind of interesting because this is a further erosion of Amazon Prime benefits you used to get free delivery, um with Amazon Prime for groceries and about a year ago Amazon caved to try to get more profit, and they added a delivery fee even if you're a Prime member but they said you can only get delivery of your Prime member now they're they're taking that benefit off the scale and I just point that out because.
Amazon's ordinarily so good at adding new benefits to Prime is kind of rare to see them taking benefits away from Prime so I think that's interesting in the.
The grocery space anything else that I missed or the jumped out at you about grocery Scott.
Scot:
[36:13] No I thought it was you know.
A lot of people would expect him to throw in the towel because they've closed some of these physical store experiments and Jesse did that but they still seem committed to grocery at least the four star or what was that start.
Jason:
[36:30] Yeah five star.
Scot:
[36:31] Faster that is the closed all those right.
And the trimming back the just walk out stores so it's interesting to see that there they they see something in grocery or it's just such a big tan they feel like they have to obviously they have Whole Foods but.
Jason:
[36:50] Yeah I do think it's one of one of their big bets and it was interesting like in some of the narrative Andy kind of he threw something at the grocery teams under the bus.
You know like a lot of his complaints about the Amazon Fresh stores is he's like we just weren't good grocery operators that like are.
Our inputs as he called it just weren't good like the the inventory turns the, you know the inventory waste the labor cost that you know all those things weren't where they needed to be to be a competitive grocery store and there's I'm sure a lot of traditional grocers that were listening to this call going amen Andy we told you groceries are really brutal, difficult Cutthroat business and you won't find it as easy as some of the other businesses you've dominated so, I still want to bet against Amazon I still think they're ultimately going to be a big player in grocery but.
[37:53] And then one other to me really interesting tidbit is Healthcare that Amazon announced last week a new National Healthcare offering which is telemedicine.
Um service and that's attached to Amazon Pharmacy.
Um so this used to be an in-house experiment that they use to provide health benefits to a bunch of Amazon employees but and then they started offering it to.
You know a few other employers that they had Healthcare agreements with, but now they've made it a national authoring that's available to everyone so you know if you if you need some prescription or you need some some medical advice and you don't want to go in and see a doctor you can't get an appointment.
You can you do now use this Amazon Health Service to get a fast and easy.
Um Health Care visit so you know we know Amazon has been kind of.
Kicking the tires on the healthcare industry and they've had a couple initiatives they had some Partnerships that they walked away from, but there's another one where it seems like they haven't given up on the space and they're still you know rolling out and trying new things.
Scot:
[39:08] Yeah and I hope they nail this because my my experience with the physical drugstores always terrible.
Jason:
[39:17] Yeah I am not bullish on physical drug stores so again.
You you know oil listeners now know what they should do for the investment there but like.
You know the drug business used to be a retail business you walked into a pharmacy and you got all your prescriptions today the insurance companies mostly try to force you to use mail order.
Pharmacy said the main reason people had to go to.
Pharmacies has kind of gone away and as a retailer if you don't have to go there to get a farm prescription filled.
The retail drug stores are awful retailers like they, you know they don't have a good assortment they don't have a good prize they're they're deficient in digital in and if you watch all the moves they're making, the thing that every retail drugstore is trying to do more than anything else is get out of retail and become a Healthcare company and own an insurance.
So you know a lot of the CEOs of these companies now come from the insurance sides of the business and it it just doesn't seem like.
The long-term future of us retail is to have you know multiple big National drug stores because the model is kind of waning.
Scot:
[40:28] Yeah yeah we'll I'll shut a small tear when they all go out of business and I can get things more efficient.
Jason:
[40:36] Yeah I think at least one is going to have to survive because there are a lot of impromptu emergency get it right now kind of kind of needs but you know maybe down the road we'll do a grocery in Pharmacy Deep dive.
Scot:
[40:50] Or Amazon will have things so close to you can get it in 15 minutes so you won't miss it.
Jason:
[40:55] Yeah you know one thing I will say like I thought you were going to say I won't feel bad if Amazon sells this because Healthcare in America.
Royally screwed and a lot of people you know don't have in can't afford access to it so certainly it would be good if they fix that I will say Amazon rule that a service similar to a Walmart service which is really beneficial, they're now offering generic versions of most chronic prescriptions for a flat five dollar fee and so one thing that has approved a lot in the United States in the last two years.
Between Walmart and Amazon and actually like a big startup that Mark Cuban is running is a lot of these.
You know prescriptions that were Out Of Reach for a lot of low-income people are becoming more affordable which is certainly a good thing.
Scot:
[41:40] Yeah yeah we'll take care of them but I'd need my experience you better too.
Jason:
[41:44] See how I found a way to end the show on a happy note.
Scot:
[41:47] Yeah World Peace.
Jason:
[41:50] Yeah and that you know last week we had a slightly shorter show and listeners told this they loved getting a little bit less of us and so miraculously we have done it again we brought in a voluminous Amazon earnings call in a pithy 41 minutes, so if you'd like to reward us for our brevity the best way to do that would be to jump on iTunes and give us that five-star review.
Scot:
[42:14] Thanks everyone we hope you enjoyed this Amazon Q2 earnings results and until next time.
Jason:
[42:21] Happy Commercing. -
EP307 - PrimeDay, NRF Nexus, Commerce Next
http://jasonandscot.com
Amazon Prime Day 2023 occurred over June 11 and 12th. Adobe says total sales were up 6% over 2022. Discount levels were much more conservative than holiday. We give a complete breakdown.
Commerce Next 2023 was held in New York City June 20-21st.
NRF Nexus 2023 was held at the Terranea Resort in Southern California July 10-12.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 307 of the Jason & Scot show was recorded on Sunday, July 23rd 2023.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript
Jason:
[0:23] Welcome to the Jason and Scot show this is episode 307 being recorded on Sunday July 23rd, 20:23 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:39] Hey Jason and welcome back Jason and Scot show listeners, Jason it's been a minute since we recorded a pod as the kids would say we've had a series of feels like the universe doesn't want us to podcast either I'm out of town or you're out of town in a place where we don't have Wi-Fi or a mic and then I had a little kid drama and we had to reboot and but here we are we're finally getting the pot in them.
Jason:
[1:07] Thank goodness and we're I think we're going to talk about this in a minute but I've been to several events and people are starting to get on me they're mad, that we fallen off of our regular recording.
Pace in so I feel like I hope we will get credit for recording a rare Sunday night show and I'm looking for even extra credit, I'm actually recording this on vacation at an upper Lake Michigan lake house sitting in my car stealing the neighbors Airbnb Wi-Fi.
Scot:
[1:42] Yeah I give you 100 extra points on that one yeah definitely definitely some kind of new Ninja level podcasting that you're doing there.
Jason:
[1:51] I feel like that alone deserves a five star review on iTunes.
Scot:
[1:55] Yeah I feel like at some point the police are going to tap on your window and it's going to be fun to listen to that when it happens here you hear you explaining what you're doing in that that foggy car there.
Jason:
[2:05] Exactly I promise to keep the bike running if that does happen.
Scot:
[2:09] Maybe some post-show editing we'll call you've been a busy on the road retailgeek so I know you went to Commerce next and NRF Nexus which sound kind of relatively somewhere they both got that NEX in there, I was not able to make those and we purposely haven't really talked about it so I'm excited to hear your take on the State of the Union that you've been at to trade shows.
Jason:
[2:36] Yeah yeah I think Commerce next might have been shortly after our last recorded show so it happened June 20th in New York City in Manhattan at the the Midtown Hilton and this is a show, I don't know what year it is it's been going for a while but this is put on Friends of the show Scot Silverman who's been on several episodes and his Partners Veronica and Alan, and you know they they sold the show so as to raise some money last year so the show is getting, more serious they're hiring more staff they hired another friend of the show Jill Dvorak from the in our EFT, to manage content and it was you know bigger and better than previous in our interests Commerce next shows which were already good so I thought it was a good show in New York.
[3:33] Two days one track of content for the most part on the main stage so you know you got to see most of the main speakers, there were like lunches and breakout sessions I did a session on sort of the evolving art of platform selection and you know this kind of shift from monoliths to, to these sort of mock based headless platforms and the pros and cons of, in picking the Best in Class vendors for each little Point solution versus all-in-one sweets from one vendor and, we had we had some good dialogue about the relative merits of all those approaches and sort of the evolution of the technology platform.
[4:19] Which I used to talk about and work with clients all the time and I feel like.
Kind of I've lost some of my muscle on that like it it comes up less often and I think part of the reason is all this stuff is getting, somewhat commoditized and it's just easier and safer to pick a solution and and you know get into the e-commerce business than it used to be.
Scot:
[4:43] Yeah the Pod we've talked a lot about headless and then there's that whole acronym of what they do which escaped to be just as internet yeah mock then you work on them and not the best branding is that this till the very much, you know what folks are looking at or are you just kind of walk them through the 30,000-foot layer of you know and on-prem open source SAS and then headless or her like what's.
Jason:
[5:13] Yeah so it's yeah so it's mostly Cloud it's headless it's it's you know multi-tenant Cloud headless.
You know what Gardner calls compostable Commerce so you know 8 micro services or you know efficient apis or however you want to look at it but often it's like.
[5:39] Rolling your own UI or buying a you I versus getting a you know pre can you I from.
What they the funny term for the old Legacy Solutions is monolith so I guess AP Oracle and IBM now HCL are these like mono.
Monolith Solutions and like Commerce next and fabric I'm Commerce tools are kind of the more modern architecture is for the actual platform.
You know once on an interesting you know Shopify there's headless version of Salesforce you know Bigcommerce they're all kind of playing in this space and the interesting thing is it used to be a huge game-changing decision what you picked and.
In many ways it just is less important it's a less critical decision to your overall business because they're all like pretty good and somewhat interchangeable today with any of them the sort of modern ones it's you know the folks that are.
Kind of still trying to feed the servers under their desk and keep the the you know sort of on-prem, proprietary Stacks going you know are the are the folks that are usually behind.
[6:57] Also and I know even, Wes about the specific nuances event of individual vendors but the there was a robust Exhibit Hall at Commerce next and by far the most common vendor is a all-in-one, AI based marketing Suite so you know all these tools that have like a CD P email server SMS server personalization engine like all of these sort of.
Out marketing Outreach Tools in a single vendor driven by Ai and I have great empathy for anyone that needs to buy one of these things because there's like, 30 of them and they all have the exact same words on their Booth the same same Basic Value prop so it's a crowded space right now.
Scot:
[7:46] Yeah yeah that was gonna be my next question the AI Buzz is sweeping through every company and I'm sure I'm sure our e-commerce vendors Are Not Alone.
Jason:
[7:54] Yeah yeah and there were a number of sessions at both shows, switching per second from Commerce next which was June in New York to Nexus which was July in California so interrupt Nexus is kind of the spiritual successor.
Before in a ref acquired shop dot-org we used to have this great shop dot-org show but we have another great show the shop dot-org merchandising Summit that was a smaller show in California there was a little more sort of tactical Hands-On type stuff, and in some ways this interact Nexus is the spiritual successor to that it's like four or five hundred person conference.
At beautiful Resort the Tara no resort in Southern California on the beach.
[8:47] One track of content great networking and just you know a nice week to spend with, many of your co-workers and, I was vastly Overexposed at this show I feel like they spent their whole Budget on the venue so so they had me do way too much content so the first night the big keynote was an interview with Kara Swisher so I got to interview.
Kara Swisher who you know famous Tech journalists started New York Times started the code conference so I interviewed Steve Jobs Mark Zuckerberg Jeff Bezos you on mosque like all those guys multiple times and so you know very famous interviewer, here's the brutal part of this the most common thing that happens to me at these shows is people recognize my voice from this podcast.
And they're super excited and then the first thing they say is oh it's great to meet you but where is Scott.
Because everyone is way more excited about you than me which kind of hurts so then like now I've made the big time I'm on the big stage interviewing Kara swisher and what do you think everyone says to me.
Scot:
[10:10] We're Scott.
Jason:
[10:12] Yeah because she does a podcast with Scott Galloway.
Scot:
[10:15] Galloway.
Jason:
[10:16] Exactly and so if they're not disappointed.
Scot:
[10:18] The big dog.
Jason:
[10:19] Yeah yeah that it's me instead of you they're disappointed that it's, it's a me instead of Scott Galloway and I did mention probably on stage that we both did podcast with egotistical co-host named Scott, but I also alleged that my Scott was way better than her Scott and she agreed even though I don't think she knows who you are.
Scot:
[10:43] No no lies detected.
Jason:
[10:45] No exactly.
Exactly no but we had a pretty good conversation she's.
David very opinionated and outspoken but she's also pretty well informed so we got pretty deep into Ai and some of the pros and cons and some of the, the near term and far term use cases around AI we talked a lot about social commerce and why it's, hasn't caught on here yet and it you know has has more legs in China she's very psyched and in favor of autonomous vehicles I thought you would.
You like that and so I feel like we had a pretty wide-ranging conversation that got pretty good reviews I got good feedback that I didn't blow it.
[11:32] And then we're that not enough I also had my own keynote onstage right kind of recap the state of Commerce and you know did one of my data pukes and I spent a fair amount of my keynote talking about the emergence of these Chinese juggernauts particularly Sheehan and Tim ooh, and I showed a chart that was pretty eye-opening to the audience of web traffic like a lot there's a lot of charts footing around about mobile app downloads particularly of ten Moon how quickly they've gotten, you know to be the top downloaded shopping app on the US app stores but I showed.
Amazon Walmart Target Tim ooh Incheon.
Monthly web visits and you know, for people that aren't following it closely she has been around for 10 years they've been kind of in the u.s. in their current form for at least five years Tim has brand-new just launching last November and.
Shion is.
Almost it is about 80% as much traffic as Target, Tim ooh past Target for when monthly web visitors in January of 2023 and is now sort of halfway between Target and Walmart.
Scot:
[12:56] Yeah it's amazing.
I spend a fair amount of time with 16 to 25 year old young ladies and it's all she and all the time they don't ever mention team and they call it Shy and I tell them retailgeek says it she in and they say they don't care.
Jason:
[13:13] Yeah she's an Insider.
Scot:
[13:14] Call It Shine they say everyone calls it Shine so sorry.
Jason:
[13:19] They started out selling wedding dresses.
And yeah the they also are doing well you know we haven't talked a lot about them lately but they've expanded from a apparel retailer to a broad set of categories including consumer electronics and they've launched a third-party Marketplace on the US.
Scot:
[13:37] Wow.
Jason:
[13:39] So both Tim ooh and she and are now third-party marketplaces kind of competing with a very similar assortment and yeah both both are capturing.
Pretty pretty significant attention of us consumers.
Scot:
[13:57] The did you get booed off the stage or they were like you.
Jason:
[14:03] No not theirs I think people are were I suspect people are slightly less informed than they should be on them and I feel like people are interested in we're taking note and then I did a third session for the CMO marketing Council on, generative AI there are a bunch of other sessions on AI as well but I kind of did a deep dive on some of the Commerce use cases and I'm, particularly interested there is a lot of new I mean there's new stuff every week and there's a general stuff that you can imagine, being applied to Commerce but like Google launched a new generative AI feature for apparel try on, that's remarkable like so you upload a picture of yourself and you pick any of these garments and it shows you that garment on you and it's not.
[14:58] Some stupid rendering where it's like you know a gif on top of you.
Or you know some distorted thing like the garments flow on your body type but in a very realistic way and this is a functionality that a few websites have offered for a while with really complicated 3D models and really expensive.
Product detail Pages because they have to scan all the apparel and have to get you to take a picture of your body to scan your body and it's like a cool experience but it's a lot of work to get there in this Google thing just does it with a couple of flat images and it's.
[15:35] It's really pretty remarkable so I you know I definitely think the the future of a Peril shopping and a bunch of visual categories.
Is going to be you know seeing this stuff on a realistic representation of you.
And they have another feature coming out soon that they call scene Explorer which is kind of the, the augmented reality hold your camera up to the Shelf at the store and overlay all the products it sees on the Shelf with all the digital product detail from, from the Google catalog which is interesting.
Scot:
[16:09] I was gonna ask you about the Google thing because when it was announced there was some confusion where it looks like you could say it had like somebody types some Matrix of 256 body types and you could say that's me and you could see the body type not you but you're saying you can actually upload your own picture.
Jason:
[16:27] Yeah so the the confusion is understandable because they launched a feature with a predetermined set of models.
There was kind of a proof of concept and so you could like pick a model and they had models with different body types and so you know and ethnicity so you could see kind of your ethnicity with your body shape and then three weeks later they said and here's how you upload your own picture.
And so they're technically two different products but they happen in such close proximity you're like I wonder why they launched the first one.
And In fairness the first one is a like in available to use API that Commerce sites can use now the second one is kind of a science.
Like proof of Technology concept that they've released to the academic Community but I don't think they've released it for commercial use yet.
Scot:
[17:21] Ian timing-wise I don't know if this was before after your show there but Shopify has their new kind of like co-pilot kind of like, a eyepiece it's really more at the store level though.
And you got a lot of buzz but I looked at it it just seemed like a fancier wizard for setting up stuff but God it didn't seem as game-changing as some of the Google stuff.
Jason:
[17:46] Yeah yeah although it is interesting that just everybody's building that Rai into every product right like you know I think someone said recently like.
Like every text box on the Internet is going to get a large language model.
Scot:
[18:02] Yep the expectation is you can just like talk to these things and having to do stuff for you so it's going to be.
Jason:
[18:06] Exactly yeah yeah so it's interesting and that was for sure a Commerce it interrupts Nexus that was probably like 80 or 90 percent of the conversation was AI base so it was kind of.
It was fun for me to talk about a few things that weren't a i based because it was getting getting a little tiresome and fun fact.
Nexus if you recognize those dates July 10th through the 12th it's because it was during Amazon Prime day.
Scot:
[18:33] Yeah yeah and anything else before I move on.
Jason:
[18:39] No I think those those were the big things you know two shows that are well worth attending for for folks that are looking for Commerce events and I'd say you know congratulations to both for.
For putting on a good growing robust events in a in a semi challenging climate to get people's attention.
Scot:
[19:01] So you know there's always the what you talked about in the front of the hall and then the back room chatter what's what's the back room chatter what's top of Mind are people worried about and by people I mean people in our industry are they worried about the recessionary headwinds and inflation or do they you know they feeling pretty good about.
Holiday this year what's kind of the scoop.
Jason:
[19:26] So I don't know I might even say there's two tears there's like what's the normal conversation in the hallway and I do think there's a lot of conversation about.
What's going on in the industry right now from a momentum standpoint and and I think that the.
The sort of Top Line there is it's complicated like it's really weird like there's, there's economic indexes that are becoming more favorable I mean we're seeing like the inflation numbers come down, you know there's still some data to suggest that the US consumer is in like pretty good Financial shape All Things Considered, but there's a lot of indications that consumer spending is slowing down and, you know we're just coming into kind of Q2 earnings season I think Amazon is going to report next week and so obviously we'll do a show about that but, you know a lot of retailers have kind of reported soft q2's and even more alarming they're lowering their guidance for the back half of the year so you kind of simultaneously have some like.
[20:31] Decent economic news and Pew no more economists are starting to say hey a soft Landing is possible and maybe we're going to avoid a recession which you know I feel like.
The majority of economists earlier in the year we're pretty convinced that we were going to end up in a recession and so that would feel favorable but then at the same time, customers feel like they're cutting back and you know a lot of growth indexes are kind of slowing so I feel like there are variations of what the heck is going on with all of that when I like privately talk to people and get into a lot more specifics, I have to say I am not optimistic for a robust holiday I feel like a lot of people.
Are gearing up for a pretty challenging holiday with pretty deep discounts, like there already is a Slowdown in sales and so people are worried that they're going to be in a bad inventory position for holiday and they're just seeing.
Consumers in continue to trade down there seeing, sort of elective category product categories really start to take a dip and you know more consumer budget going to Necessities versus wants and so.
It is increasingly sounding like it's going to be a challenging holiday especially from a margin.
But I hope we're all wrong.
Scot:
[21:57] Is that shared by folks or that's kind of like what the big gun on the elephant in the room is base.
Jason:
[22:03] No that's I when I talk to retailers about like what they're bracing for and you know what their their Play books are for holiday and you know people are talking about expecting to see deeper discounts.
More competition on discounts which than roads margins and you know some some traditionally stalwart categories being soft and stuff like that.
Scot:
[22:26] Cool well you mentioned primeday and it wouldn't be a Jason and Scot show without some.
[22:46] That's right so unfortunately Amazon doesn't announce their second quarter results until Q3 and then we'll get the real well July they won't really talk about primeday but we do have some Amazon news coming and we'll do you doing a show if the universe aligns for us around those results but until then we can talk about primeday first of all did you end up buying anything this year.
Jason:
[23:10] I did I feel like I talked in the show every year about, over buying on like cables and chargers and I did do all of that again, the other I bought some I think I mentioned on the show before that I moved from a condo to a house in the last year and so we have this new thing that we didn't use to have called patio furniture so I bought some.
Like Furniture to hold the covers when it rains in Chicago some weird weird outdoor stuff.
Scot:
[23:45] Up getting some accessories one of my anchor multi-headed.
Octopus things died and this is frustrating I thought I was buying another one and I specifically was searching on anchor I was on my phone and I was having to go fast and the thing showed up and it was like a no-name it wasn't an anchor device and it's already acting wonky so kind of.
You know how they can advertise and like really get this is kind of the negative side of some of the Amazon experience these days I was pretty sure I was in an anchor only mode but but a non anchor product snuck into my cart I end up getting up.
But it was cheap so there you and it doesn't work so yeah that was a bummer.
Jason:
[24:29] Yeah if you want to buy like cheap no-name stuff you should buy it from Tim oh it'll be like 99 cents.
Scot:
[24:36] Yeah no like wish does it take six months to show up her.
Jason:
[24:39] No it's you know so Tim who is seven to ten days and they offer you a shipping guarantee so you get like store credit if it doesn't arrive in 10 days.
Scot:
[24:54] That's good cool well what did you see on Amazon Prime day I'll do a little Wall Street piece but I thought you may hit some of the high notes.
Jason:
[25:04] Yeah so a you know primeday is important just because it's primeday but also a lot of people use it as sort of kind of a first indicator of what the second half of the year is going to look like so this year was on the 11th and 12th it's been 2 days for, for a number of years now and you know Amazon doesn't really report anything very useful about primeday it's everything's a record.
[25:29] They did more than they did last year which they're always going to do more than they were last year, but they don't give you any real numbers so Adobe is the most commonly cited, some estimate of primeday an adobe estimates twelve point seven billion dollars were sold on primeday which is up 6.1 percent year over year, now A Wrinkle In These third-party estimates is none of them are just estimates of Amazon.
They all you know talk about this phenomenon of other retailers doing sales on primeday and so they're actually measuring, e-commerce sales on the primeday is not just Amazon sales so they're saying industry-wide, 12 point 7 billion in sales up 6.1 percent year over year, which is robust there were people that were forecasting would be bigger than that the other forecast I've seen was emarketer emarketer with same ballpark they estimated thirteen point five billion, they said about eight of the billion would happen on Amazon and 5.5 billion of that was going to happen off Amazon, both of those are us estimates so that would you know be decent growth it would be a deceleration from, from the last few years of primeday growth.
Scot:
[26:50] Yeah the so one of my favorite reports was from Colin Sebastian who's a friend of the Pod and he's from Baird and he basically said that they thought it was an acceleration so meaningful, so Amazon reports items sold and then they take that and some proprietary data and they're saying it was a 20 to 25% you're over your rent increase and they ended up increasing Q 3 is estimates based on them so it'll be interesting to see you know, where it's going to fall on that so that seems like the bookends we're hearing are six percent and 25% that's a pretty big big range to see where it's going to fall into the will never disclose, Axel primeday results but, we'll know when they announce Q3 if they beat her exceed that that it was kind of towards the high end and if they come in on the lower end of the range well no it's more like that six percent.
Jason:
[27:51] Yeah yeah and that'll be interesting 25% in the current climate would be pretty darn impressive not saying it's not true but you know you look at like the last couple quarters of Amazon's growth they weren't that high you know you look at the end retail Industries growth, not near that I so like if they're driving 20-25 percent that would be big, yeah and I guess we'll never win we'll never know for sure did anything else jump out at you in The Baird report.
Scot:
[28:20] That was the meat of it they were just really focused on that a little little things in there like last year there was a lot of supply chain issues and lot of reports product not getting to people it does seem like this year they things work a little bit more flawlessly so there was some, some just Optical stuff like that.
Jason:
[28:39] Yeah I really didn't hear the many glitches in this year's primeday which you know it's one of the sort of like highest demand is the year so you know it is a day when you would uncover glitches I saw a bunch of other a smattering of other interesting data points about Prime from various folks Adobe and it is in addition estimating sales they showed category growth and so they call that out like appliances was the big category growth with 45%.
Up year-over-year household products were up 28 percent year-over-year Electronics were up 18% year-over-year apparel up 17% and then the big winner is Office Products which is up 76 percent, and at first that might surprise people but one thing to know about Office Products is they always do phenomenally well on primeday because primeday tends to fall right at the beginning of back-to-school shopping.
[29:35] So it's kind of a perfect perfect storm there, yeah and then they also Adobe reports discount rates and here's where it starts getting interesting they said that on average Electronics were 14 percent off, apparel and toys were twelve percent off and that those were the deepest discounts and to put that in perspective on holiday of 2022, toys were 22% off consumer electronics were twenty-three percent off and a pair of was 14 percent off so that data would imply that the discounts have Prime were.
Not as significant as the discounts, that we you know Tennessee over holiday period another does that surprise you at all.
Scot:
[30:24] No I dunno you know so since we're in the this kind of economic situation I think the consumer is really.
Not getting off the dime unless they have deeper discounts and I think they probably had a pretty good data science reason for the.
Jason:
[30:43] Yeah so then one interesting thing which also says something about the consumers Health the.
Buy now pay later use was up 20% on primeday and represented 6.5 percent of all sales.
So that you know quite that's been a growing payment type for a while but I would argue it's kind of plateaued and so it's interesting to see that big big step up on prey.
Scot:
[31:08] That's a firm right there married to a firm set.
Jason:
[31:12] Well so on Amazon but again all these debts are this kind of like, everybody is primeday and so I think that does include like Target and Walmart sales which are not a firm so so it's all those guys karna and affirm and, and there's too many to name these days but then to me some of the interesting things were like who participated in primeday and so you know a.
A digital marketing agency Acadia that tracks this stuff pretty close and that Q Masters works for who who I think is one of the really smart voices on Amazon sellers they reported, this year eighty percent of all Amazon sellers participated in primeday in some way and from their methodology last year 69 percent participated so it's.
[32:12] The participation levels continuing to increase in its nearing 100 percent of all Amazon sellers participating in primeday which, isn't super surprising it seems like primeday is a pretty successful important thing to participate in, they also said in general that primeday that's ours had to spend fourteen percent of their total revenue on primeday on Amazon digital marketing so that came from momentum Commerce that estimated that so that's a, pretty high, on top of the take right you know that's that's just all the Amazon marketing services and then a particularly interesting take was from our friends Joe it Marketplace pulse he reported that, 150 Brands were promoting by with Prime on their own websites, on primeday which would be up 10x from last year where there were like 15 Brands using by with primeday.
[33:17] So you know just interesting how it's all playing out with kind of Amazon expanding off-site like all these other retailers getting in the market I feel like the vibe, there have been other years when a lot of other retailers more directly counter programmed against primeday in this year.
There were a lot of sales on primeday for sure but it almost felt like more retailers did like Fourth of July sales and almost tried to.
Preamp primed a little bit as opposed to completely focus on.
Scot:
[33:48] Yeah I guess we won't know until the data comes out windows so we won't have that.
Jason:
[33:55] Yeah so the.
Scot:
[33:56] While.
Jason:
[33:56] The Debbie Downer.
Scot:
[33:58] Anyone.
Jason:
[33:59] This is you know primeday is actually in Q3 right so we're we're just going to start getting cute to data here like the US Department of Commerce Q2 data for e-commerce will come out in mid August, Amazon report Q2 next week and then a bunch of other retailers in the next couple of weeks but that'll all be Q2 data in this primeday stuff is all cute 3 so it's it's going to be you know four months down the road before we have.
Have more clarity on that and will be you know well into holiday when we get that clarity.
Scot:
[34:32] Yeah well speaking of data I saw you had a tweet where you went through some of the new Commerce data what are you seeing there.
Jason:
[34:41] Yeah so obviously we talked about the US Commerce data every month so last week just after interrupt Nexus on July 18th there's Department of Commerce released its June data and, this is one of those it's complicated these results don't seem that that favorable kind of stories June retail sales overall were up six percent from June of last year which is a pretty meager, growth rate and a significant deceleration so if you go year to date January through June sales this year are only up 1.9 percent, versus last year and again like normal retail years sales tend to go up about 4% a year the last three years you know largely impacted by the pandemic we've had the three highest growth rates in the history of retail so they're all much higher than four percent so only being up 1.9 percent year-to-date is a, pretty disappointing place to be it's still.
Healthy amount from before the pandemic so year-to-date we're up bike 35% from before the pandemic, you know what everyone immediately asks when you talk about these numbers is well what does inflation due to them and if you adjust those numbers from PlayStation year-to-date we're down 2.8% and we're only up 14% from before the pandemic so.
[36:10] You know that reflects you know a consumer that's being pretty conservative with their spending.
And that you know is a worried sign going in a holiday if we only grew you know less than 2% or you know on a real adjusted basis We Shrunk three percent from last year.
We don't get great monthly data for e-commerce we get better quarterly data so the monthly data we get is this thing called non-store sales which is kind of like.
Cattle catalogs and e-commerce and it's a little bit of a broader catalog but it was up.
[36:46] Nine point nine percent in June which means year-to-date we are up 7.9% for, non store sales and so that's reflecting kind of a return to typical e-commerce growth rates like before the pandemic e-commerce would grow 10 to 15 percent.
Year-over-year in brick-and-mortar with grow 4 percent.
At one point during the pandemic we had an inversion where retail is actually growing faster than brick-and-mortar than e-commerce and e-commerce has over the last couple quarters been kind of, flipping the script and kind of going back to normal and so at the moment we have this thing where e-commerce growth is back to its normal, eight to ten percent level and brick-and-mortar is well under it's normal for percent level.
Um so that's kind of the Commerce story and again will get better e-commerce data because will get the Q 2.
E-commerce data next month.
I did have one funny story I didn't mention when we're talking about the Tim ooh and she in stuff Tim ooh and she and are now suing each other.
Scot:
[37:59] They're in their Chinese companies room.
Jason:
[38:01] Yeah so Bo for Chinese companies Sheehan has a US headquarters in Boston I don't think Tim who has a US headquarters that I'm aware of, so she in which again has been around for a while is suing newcomer Tim ooh, by saying that Tim has been impersonating Sheehan on social commerce platforms including Twitter, where you know of course the verified system has been kind of, put in flocks and so Tim who is accusing Sheehan of creating a bunch of fake social media accounts to undermine.
[38:42] She in and, Tim ooh is counter sewer not countersuing their separate suits Tim who sued Sheehan in US court for violating us antitrust laws because what Tim who is saying is that she and is trying to walk up all the factories in China and get all these factories to sign exclusive trade agreements to only sell products through Sheehan and explicitly to not sell through Tim ooh, and so Tim was trying to use us us antitrust wada sort of, who have all the playing field so you know and it just addition to being too fast growing sites that are winning winning consumers and and you know taking as a meaningful share of retail sales there now both be coming, jobs programs for lawyers just like every other retailer in America.
Scot:
[39:34] Yeah the I just don't think that's going to work I don't think the US courts are really going to find you like.
Jason:
[39:41] Yeah so definitely not it.
Scot:
[39:43] Hi going to say your evil Chinese company.
Jason:
[39:46] Yeah so I don't know I doubt it I doubt know so I think they all have standing to Sue and they're all obligated to follow us law so I think the suits will go through I do think there is a.
All right Leah wrong there is a sort of anti-chinese sentiment in the US but I doubt that carries through to the courts I think that's a lot bigger deal for.
Potential regulation against some of the things these companies are doing and there is a.
[40:14] There's a complicated thing that both TNT Moon she and her getting partly accused of violating like, there's a a a cap, on Customs that shipments have to be worth over 800 dollars in order order for you to have to pay tariffs and you know meet all these import obligations so if you ship a container of clothes from China to the US you're going to pay tariffs on the import of those clothes and you're gonna have to comply with a bunch of laws like that the, clothes were made at a factory you know in a region of China that's known to violate human rights and all these things and there's this loophole that if your sale if your shipment is under 8:00 in value.
[41:04] You don't have to do any of that and so when she and started they were shipping a lot of stuff straight from China and and it was all under this 800 our threshold and timbu is still shipping everything straight from China XI and has built a few warehouses in the u.s. so there, probably Blended but like there's a lot of talk on Washington about changing our trade treaties and lowering that minimum, to because there's a significant amount of shipments coming from China to the us that are.
They're now under that threshold and taking advantage of that to not not be you know incur all these costs that the bigger companies are having to do.
Scot:
[41:46] Michael we will see it'll be funny to watch that one rattle through the courts and see who wins.
Jason:
[41:51] Yeah yeah yeah it's a you know it's all if you don't have a huge financial interest in it it's fun to grab some popcorn and just just follow the drama of all of it.
Scot:
[42:02] Cool any other exciting news you want to go into.
Jason:
[42:05] No I think that is everything on my list for for the this month I'm going to be, interested to see how Amazon earnings play out next year again there's a weird thing like, you know in general growth is decelerating the industry average is decelerating and our friends at Amazon and Walmart which are the two largest retailers in the US by a significant margin, Arbor of grow have historically been growing faster than the industry average which kind of means.
There's not a lot of growth for the rest of the industry and so it'll be interesting to see whether that Trend continues, in with this Q2 data or whether you know the law of large numbers starts to kick in with these guys.
Scot:
[42:53] Yeah and if you have these fast Growers out here like these upstarts the Sheehan and the team is who are they taken care from that's that's always the ultimate question that we ask.
Jason:
[43:04] Yeah absolutely so we're going to have to continue watch and more data becomes available.
Scot:
[43:10] Cool so do you have any trips coming up that people need to be worth any appearance.
Jason:
[43:14] I'm all vacations all the time now so.
Scot:
[43:17] Having done three Keynotes you're burned out.
Jason:
[43:20] I am not of course I'll be at every show so I think next up for me is eat a least in Boston so if any talks are planning on attending that or in the Boston area, drop me a line and we can meet for a Starbucks coffee and you can give me a hard time about why you wish Scott was there and not me.
Scot:
[43:40] Cool and then on our docket we have August 3rd as Amazon earnings will try to get a show out pretty close to that one and then we've been promising folks a deep dive I get notes all the time and now that you've done a talk on one that will that should be helpful because now you've hopefully got some slides that we can use as an anchor it so we'll have to get that in the can once we get back to a more normal schedule here.
Jason:
[44:04] Yeah and that's a deep dive on generative a I assume you're talking about.
Scot:
[44:07] Yeah yeah yeah I do too cool.
Jason:
[44:10] I love it well we'll give back some time to users so if you appreciate this nominally shorter episode feel free to give us a five star review and encourage us to be briefed more often.
Scot:
[44:24] And until next time.
Jason:
[44:26] Happy commercing. -
EP306 - Apple WWDC announcement, Generative AI, and Holiday First Look
Apple previewed a new mixed reality headset called the Apple Vision Pro at it's Worldwide Developers Conference (WWDC) this month. Apple calls the new category spatial computing and we speculate about how it may or may not be a big deal.
We also discuss the latest Echo hardware from Amazon, which is mostly disappointing.
We discuss the rapidly evolving generative AI space and some of the commerce use-cases.
And we take a first look at Holiday 2023.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 306 of the Jason & Scot show was recorded on Thursday, June 8th 2023.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptJason:
[0:23] Welcome to the Jason and Scot show this is episode 306 being recorded on Thursday June 8 2023 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:38] Hey Jason and welcome back Jason Scott show listeners well it's been about a month our weekly pot has become a monthly cut pod because our lives have gotten pretty busy here in this postcode world I know you've been traveling a lot what else is new with you.
Jason:
[0:57] Yeah yeah it's finally feels like summer which I'm very grateful for, a lot of interesting stuff going on in the world of Commerce that keeps me engaged but I feel like the main reason our podcast is slow down is because you are an entrepreneurial mogul.
Scot:
[1:15] I don't know about mobile but I'll take the entrepreneur piece yeah the day job is a occupying 100 or 99 point, eight percent of my time and I used to be able to use speed like 97 and I could squeeze in more time so I podcast start button but got a there's a lot of cars out there to take care of and we're doing our best to get to all of them.
Jason:
[1:35] And we are grateful for it I feel like I'm I'm going back in time about six months because we've been on such a leg but I feel remiss.
There was a huge accomplishment like six months ago you were named one of the founding members of the.
Marketplace Hall of Fame.
Scot:
[1:57] I saw that yeah yeah.
Jason:
[2:01] Here's the thing I'm going to say about that I didn't know that much about it and I don't think anyone would be surprised to hear you're a founding member but like.
Don't like five names and it was like Jeff Bezos Mar Quarry.
And you and Jack Ma I'm like I'm like man you are going to be the best looking dude on that Mount Rushmore.
Scot:
[2:24] Yeah usually I'm I'm kind of Groucho Marx not sure I want to be in the club but this is one I was very happy to be being is like me and like three or four other billionaires all I'll take I'll take being included in that group.
Jason:
[2:39] Yeah yeah you don't want to be the fanciest house on the Block so.
Scot:
[2:42] Yeah I got a yeah I'm I'm excited I'm punching way above my weight on that list for sure.
Jason:
[2:48] Yeah well so anyway congratulations on that for sure I know and westerners would appreciate it and then while I'm thrilled for summer I've been a little down about one bit of news.
Scot:
[3:00] What is it Jason.
Jason:
[3:01] Disney click closed the Star Wars Hotel before you and I got to go there.
Scot:
[3:08] Yeah I know we could have done a live stream when this thing was announced I was excited and then I saw the price and then I saw the promo video and then I saw the reviews and you could just tell they had totally the totally whiffed on the whole thing it was.
It was it wasn't just kind of a hotel you stayed at you had to just do that thing alone you didn't have to but it was so expensive.
You're paying like two or three thousand dollars a night which I don't know this gonna be some.
Someone in California makes these decisions I guess I don't understand the the tolls of the everyday American or even the higher in Star Wars hand that's a that's a big ask and you know I'm not in the cosplay so I think they had this if we kind of put on our marketing hats they had death by a Thousand Cuts so you had to be a Star Wars fan number one number two you had to be willing to spend 5K on this fancy hotel experience number three had to be in the cause playing and then number for the experiences that people that try to gave it you know at best a.
Jason:
[4:11] Yeah mediocre.
Scot:
[4:12] Yeah it felt very Star Trek e which is definitely a problem for Star Wars fans and you know it had a lot of kind of fun Spacey kind of vibe but like not enough Star Wars so yeah but you know.
I'll say kudos to them for trying but it was an expensive mistake and I'm sure they can repurpose the real estate it's not like they're gonna I'm not shedding a tear.
Jason:
[4:36] Real estate has been depreciated I'm sure.
Scot:
[4:38] I think they'll be okay but yeah you know it is bummer because I was kind of hoping it would work, I've done some other Star Wars experience you'll stuff that was really fun there was there's this group in the UK and they go create movie scenes and industrial areas it's really weird the way it's described is called like underground movies or something like that they did a Star Wars experience that was like amazing where they had a Cantina I guess galaxies Edge is kind of like yeah.
As when I mean I haven't been yet but I'm actually going to go this summer so I'm excited about that all.
Jason:
[5:11] Yeah it's really good you should.
Scot:
[5:12] Yeah everyone says it's good so that's on my list.
Jason:
[5:15] Yeah I'm in the same boat like it I don't feel like I'm disappointed that I missed it because I feel like.
It sounds poorly executed in poorly conceived but the high-level concept of a.
Experiential Star Wars Hotel experience I was super excited about and I hope the fact that this does didn't work isn't going.
Like slow down future future ideas on that space because it could have been cool if they did it really well.
Scot:
[5:44] Yeah yeah I don't put salt down.
Jason:
[5:47] Onto something more reliable Apple announcements.
Scot:
[5:51] Yeah this was exciting so I'd love to get your take on the Apple Vision Pro so first of all the the earlier announcements I was kind of like I was getting a little concerned because they're like you know coming up the biggest new feature in Mac OS is a really cool screen saver and then the phone had a new sleep display mode I'm like, we've kind of jumped the shark if this is the big new OS features there were some other ones and I'm being a little bit facetious but there were there were to say there were minor tweaks which is kind of a Fair assessment I think.
[6:24] And then they finally gave us that one more thing that we've been waiting for and I went and our crack staff of interns went into the Jason and Scot show vault and you and I and 2016 gave a talk at an in our F / shop dot-org event where we were asked to talk about the future of retail and in there I remember I pulled up the presentation we talked about drones and 3D printing and then we talk about a rvr and at that point in time Facebook they're used to this company called Facebook now you may know them as meta they they had just acquired Oculus and we were speculating would Apple enter the game and turns out we were right but like many of our predictions we were maybe a little early if I've done the math on this right we were about seven years ahead, but I think the wait has been worth it because they definitely swung for the fences on this one and you know the the feature sets and the user interface no one none of us have experience to have read the reviews of folks that have sounds like it I can't wait to get my hands on one and I'm definitely ordering one so excited to hear what you think.
Jason:
[7:37] Yeah yeah so maybe half a step back Apple tends to do two big events a year they and they do as software announcement and they do a hardware announcement this is normally the software announcement where they detail all the.
New releases of the various operating systems for all the devices and they do sometimes, launch devices at this which they did again they launched a number of new configurations of Max and then in like September they announced.
The hardware which is up you know generally includes a new phone for October.
So you don't necessarily expect a huge new hardware product at this announcement and I was I was kind of with you most of the OS and announcements were very incremental the new.
Computers were all like like very very incremental there is like.
[8:35] The new 15-inch the the MacBook Air is now a 15 inch.
So that's maybe going to be an appealing laptop for people that want to pretty powerful laptop that's super light.
But I will say there's a number of small enhancements in the OS has that I'm looking forward to like they their incremental but they did you know call out a number of sort of pain points where like.
The autocorrect on the keyboard can often be very annoying and they're going to use a large language model too.
Um what you keep your curse words and proprietary language a lot easier and, a few little bits like that and then yeah to your point like at the end they go and one more thing and as I assume most of our listeners know that's magic language at Apple, that's that's the language Steve Jobs used before he pulled the first iPhone out of his jeans pocket or the first MacBook Air out of the manila envelope and you know that language has been used to introduce a lot of apples game-changing products and it frankly hasn't been used very much.
In the in the modern era so the mere fact that they started the innocent reduction with an one more thing tells you that Apple thinks this is a.
In extra big deal and.
I'm with you like I will I'm embarrassed to say somewhere in some ways I will probably buy one I think there's a bunch of.
[10:03] Cool things about it like the the hardware achievement is is pretty impressive so this is a.
They would be pissed at me describing it this way they invented a new term they call this spatial Computing but it's a it's an AR VR headset and it kind of looks like ski goggles.
And you know a lot of people had predicted this and their renderings that weren't too far off but the hardware is beautiful as you would expect from Apple it has a bunch of Premium finishes it is not an accessory that talks to a computer a phone it's a.
Computer that you wear in your face and in fact I think it has to M2 chips in it.
And in the specs are really high each eye has more than a 4K screen so very high resolution VR headset and the latency, it has this Mode called pass-through mode which means there's cameras in front of it and it can feel like a transparent visor because.
The the cameras see outside and then you know project that onto these two 4K screen so it makes it feel like you're seeing through the visor and it's in full color at 4K with less than 12 millisecond latency which is.
[11:20] Other VR headsets have a pass-through mode like the Oculus has a black-and-white pass-through mode but the latency is.
As much there's a lot more lag and so that creates like all these like motion artifacts and stuff.
That this is all very premium high-end Hardware which seems, pretty cool and so the experiences seem cool everyone I've read you know just got to actually try it thanks though I.
On your face experience was vastly better than any other a rvr.
They had experienced and then they also you know brought in Bob Iger from Disney and who announced that they were doing a bunch of proprietary content for the platform which is a.
Another exciting thing right because the these headsets are only as good as the.
The content you have for them so all that to me was super favorable the things that they're rightly getting knocked on is you just talked about the price of the Disney hotel being unrealistic they didn't really even mention the price in this announcement but they released it afterwards and it's the base price is going to be over 3500 bucks and if you're blind like I am you're going to have to then buy some prescriptions Iceland's is that screw into it.
And so it's an expensive device.
[12:43] It also has kind of mirror battery life like the there's a small battery on the device but in order to get a two-hour battery they make you put a battery pack the size of an iPhone in your pocket and connect it via a cable, to the headset and that gets you two hours which frankly isn't even enough time to watch a lot of movies that are out these days.
People have talked a lot about it being really heavy.
On your face because of all this like you know metal hardware and premium materials that it feels pretty pretty meaningful on your face and then the biggest weird thing to me.
In the announcement they made multiple they took multiple occasions to talk about.
[13:28] How important what they called presences right so they talked like there's a lot of new features and all the OSS around FaceTime.
And making it a more useful meeting thing and and all of those features were around making you feel like you were.
More together with the people you are FaceTiming with and when they first show this, this apple Vision Pro experience the first thing they show is video conferencing with other real people and how their faces are floating right in front of you and it you know it's this great presence experience.
Except for anyone wearing.
This bloody device because guess what you don't get is a picture of the person wearing the device wait what what you get is a.
Uncanny valley like semi-realistic Avatar of the person.
[14:18] And it just feels like very incongruity us that they're both saying presents a super important and then they're partitioning, anyone wearing this device sort of away from real people and so I that to me is worrisome I got to be honest when I add up all the pros and the cons it feels like people like you and I will buy it, but I kind of suspect that this is going to be more like an apple Lisa than the first Macintosh.
Scot:
[14:44] It you know but you gotta start somewhere and this is by setting the goalposts hi it's easier to go down than up so you know I can imagine several iterations and maybe it'll take another seven years but at some point I think they'll solve all those things and they'll get the cost way down but.
Jason:
[15:00] 100% if you look at this as like the entree into a new form of computing I'm totally with you right and and I get I wish I owned one of the a police's but and it did pave the way for the Macintosh so so I'm all down for it I don't think, if you're a retailer at home and you're going like hey do I have to invent some new Commerce experience for the.
For the Apple Vision Pro like the answer is no right like and what like unless maybe your Louis Vuitton and you want to get a good press release about being a first mover you know it's unlikely that there's going to be 100 million people sitting in their house wearing this thing on their face all day and wanting to shop on it.
Scot:
[15:42] Yeah I saw so to last comments on this one I saw One reviewer who's really into a rvr and it was interesting framing he basically said Facebook is going down this path of VR is a social experience and you're using it for meetings and for meeting people which aligns since their social network right and that's part of their DNA where's apples kind of more saying we're heading into a world where we're more alone and you'll you know your increasingly you'll be working for home alone and remote and your you'll you know you'll be interacting with your family with this mask on it's kind of a I don't buy this framing but it's kind of an interesting you know the way it's set up today is very different view of things and then you know then the conclusion was you know for society I hope it's the Facebook silly should be good or else we're all going to be ready player one like sitting in little tiny you know compartments never interacting with each other at a human level and.
Jason:
[16:38] Yeah no I agree and then ironically like apples Imaging everyone sitting at home except for Apple employees who will get fired and they said.
Scot:
[16:46] Yeah.
Jason:
[16:48] Yeah another framing I heard which makes some sense is like they talked about meta really thinking of their device as a gaming platform and it's kind of priced at parity with gaming platforms and the, Partnerships that are leaning into a really gaming Partnerships and it comes with very sort of gaming friendly controllers and things like that and apple is really thinking of this as a compute platform and I think on an implied in their announcement is they Envision a future when.
You know we don't we don't own clamshell devices with keyboards that we used hitter.
Get our work done and that we're more likely to sit in a comfortable chair with one of these things on our face and be much more productive.
Scot:
[17:28] Yeah another thing that was interesting this got obscured by the announcement was I've heard a fair amount of Buzz about this roller coaster experience in Japan and I think it's a Nintendo theme park and what you yes.
Jason:
[17:39] Super Mario Kart and I think they did they just did it in.
Scot:
[17:43] Yeah.
Jason:
[17:44] Universal Studios in Los Angeles I believe may not have it.
Scot:
[17:48] Okay well Apple acquired the company that built this experience for Nintendo and.
Yeah so you know kind of putting that together you see all right you got Bob Iger on stage and that was like content on the device but think about this killer you know imagine you go to your next Generation Galaxy Edge experience in your writing some kind of a ride and now they throw some AR part on top of that experience that that would be pretty cool.
Jason:
[18:14] Yeah I guess so to other random things I thought were mildly interesting normally apple is pretty good about dropping these announcements and then having like.
Pretty quick of the ability thereafter and so one weird thing they're announcing this and June and it's not going to be available in told 2024.
Um which I you know that feels a little unusual for me and then not surprising at all but like very noticeable.
Three words that were not mentioned ever in this announcement were artificial intelligence VR or the metaverse.
So they kind of invented their own terms and I think they very intentionally avoided.
A variety of stigmas that are attached to some of those those other terms and then I guess the last thing in my head you know there's this company and I think they still exist and they have raised billions of dollars.
On a lot of hype around a really high-end AR headset it's this company called magically.
And I think like if there's any loser in this whole Space.
[19:26] Like if there was any hope of magically surviving think I think this you know this seems like a better product in every way than what magically was promising and wasn't able to deliver.
[19:46] Yeah I'm sure there's some IP that's that's interesting to someone I hope so they spent a fortune.
Scot:
[19:48] Yeah I think they're done they yeah they missed their window and they had these really cool early demos but.
Jason:
[19:55] Yeah I actually got one we're like literally the it was kind of like old-school Oculus like there's a you know a refrigerator size computer that was Tethered to the.
To the screen but it definitely it was not 4K with 12 second latency.
Scot:
[20:10] Nothing yep and so this is where Apple wins because they can they built their own silk and they built a chip for that latency it's called the R1 or something and so they basically said alright we need to create Hardware that can have this under eight millisecond latency and they just did it and you know that's not everyone can do that.
Jason:
[20:28] Not many yeah so I thought that was interesting again like you and I will be able to have our little Avatar meetings after this maybe we'll be able to record the podcast in it.
Scot:
[20:38] Yeah people can watch us look at each other with goggles.
Jason:
[20:42] I feel like if there's two people that would whose attractiveness would be improved by the goggles and might be us we have faces for podcasting.
Scot:
[20:47] Yeah yeah I can yeah I'm kind of wondering can you change your eyes you know so those are all simulated so.
Jason:
[20:54] You have to be able to write like if I can buy blue contacts why can't I have yeah because that that is true for those that didn't see the announcement it can look like the glasses are clear because you can see the where's eyes through the glasses but it's because, there's cameras inside the glasses and there's always screens on the outside of the glasses and so they're they're renderings of your eyes.
Scot:
[21:16] Yeah I want to I'm going to do a Terminator ice that's what I'm going for.
Jason:
[21:20] Yeah I'm extra weary about Terminator references in our current AI climb.
Scot:
[21:25] That's a good Segway.
Jason:
[21:28] Nice I like it.
Yeah so there's lots of AI news like we could do a month of AI shows it feels like the only thing I talk about it work but there's one particular subset of all this AI That's often called generative Ai and I'm going to even say focusing very specifically on the image generation Ai and there's tons of cool stuff that I think you and I have both been playing with.
Scot:
[21:58] Yeah I'm big into mid-journey and then everyone's done chat G PT but then the big the big thing that's helped me is once it became where you could do the links I've been able to I do a lot of writing and I've been able to accumulate all my writing in a file and then feed it in and say Here's my style analyze this so that it goes to, then I taught to start writing in my style and then that has been a huge game-changer for me that's the first one gives you like a decent draft and then you're kind of find yourself editing a lot but like having it where you can now upload new information either from the web or in a file or a PDF is a been a big game changer for me it's it gets it more like you know 95% weather.
Jason:
[22:47] Oh yeah I think I've mentioned this before but like there's a small subset of the writing I do that I get to partner with a copywriter so I'll like, give outlines or dictate things to a copywriter in the draft I get back is almost always will written but not remotely in my voice and so it takes me a long time to edit it and give I give the same raw inputs to chechi BT that that I've trained.
To know my writing style what I get back is is way closer to use them.
Scot:
[23:19] Does your copywriter listen to this podcast.
Jason:
[23:23] Hopefully she does not.
Scot:
[23:25] Okay good.
Jason:
[23:27] Yeah yeah no I you know again there's a whole we again we could do another podcast about whether AI is gonna create or destroy jobs or both but I think like a lot of things there are things that we used to pay people to do that are it's going to be harder to make a living doing, but there's going to be lots of new jobs to write and those copywriters like ought to be the first ones learning how to write good prompts for these for these things, the image ones I've been playing with image generators to I use mid Journey, you know there's an open source one that you can kind of run on your local hardware stable diffusion, that has a lot less constraints it's not quite as high quality of rendering is mid-journey but I'll tell you the new thing that's been fun for me is Adobe announced a generative AI model called Firefly and they already built it in one of their products so the the if you own Photoshop CC you can download a Photoshop beta and it has this feature that they call.
[24:28] Excuse me generative Phil and, generative Phil is a legitimate Game Changer there's a bunch of use cases that used to be super time-consuming for designers that that this beta version already like.
Makes Child's Play and one of the sort of unfortunate thing mid-journey generates really beautiful images the one thing it doesn't do is, trademark images or copyright images or text right so very often you might generate an image in mid Journey but then you had you'd have to hand it to a good Photoshop artist to put the spiffy logo in it or to put you know and actual image of Scot Wingo in it or something like that.
And Adobe Firefly is really good at that use case so like I've actually done a bunch of kind of Blended image where I made an image in mid journey and then, I refined it in the Photoshop beta and it's, it's super fun but man like you know if I'm any kind of designer or graphic artist like I want to get good at this stuff right away because it, I'm not saying is going to eliminate jobs but it's going to change the kind of jobs people need to be good at.
Scot:
[25:43] Yeah there's been a lot of really cool use cases of the generative AI feature in Photoshop where people would start like with them Nirvana cover you know the little baby swimming naked and then expand it ever bigger than you can like see the rest of the scene what the computer imagines and they're starting to it with memes to it's pretty wild to watch some output of that it's it's like it's a little scary wow it could be, how real it is it feels like it is it's not real obviously because no one knows what's in that rest of that frame.
Jason:
[26:15] Yeah there's a real world use case where Nike and Tiffany announced a collab product and everyone saw it and thought it was awful.
Right like that it just like is just a very like not inspiring combination of Nike shoes with Tiffany branding and a bunch of people then you know went and use these generative AI models to create.
Way better looking shit Tiffany Nike shoes and that really happened and then last night I actually watched the Nike are movie which is the movie about the.
[26:50] Both of the Air Jordans with them.
Matt Damon and Ben Affleck in it awesome movie by the way especially if you grew up in the 80s like there was a lot of fun nostalgia.
But in this movie The they get a meeting with young Michael Jordan and his family who are going to come to Beaverton to talk about.
In doing a Nike endorsement and and Nikes though Dark Horse like Jordans not interested in Nike and so the the the team after they booked this meeting on Friday afternoon they go to the the one Nike designer in the basement and they say Hey by Monday I need a prototype and a rendering of the world's greatest basketball shoe and this, this guy had a weekend to invent the Air Jordan which he did right and and history is made like you know it made 40 billion dollars for Phil Knight and a couple billion dollars for Michael Jordan so great success but you imagine that if that kind of thing were to happen today, um there'd be a team rendering, a hundred different concepts in these generative AI models and that it have like a way wider variation of interesting ideas to consider.
Scot:
[28:10] Yeah very cool.
Jason:
[28:12] So I will say we're starting to see some interesting Commerce use cases the I have seen a bunch of clients that are using generative AI to create or refine product images and in some cases they are literally saving millions of man hours now.
You know so maybe you've got you know a huge catalog of products and they're all shot as lifestyle imagery or they're all sot on a particular background and then you now need to sell them in the new Marketplace at Sheehan that didn't exist a year ago.
And there's a requirement for white backgrounds.
Well you know you used to pay like an army of graphic designers to mask out all these images and change the backgrounds and now that these like generative things can do it.
[29:02] Trivially and you imagine pretty quickly that all these images are going to be personalized right so instead of, you know seeing that that product around some you know model family like at some you know random persons Thanksgiving table, you're going to see that that that new food product.
At your Thanksgiving table with your family sitting around it and all of these sorts of you know personalized cases as as the imagery the ability to generate imagery on the Fly gets really good, and I've actually never seen a couple of demos from Google of a product they first announced.
Last year and then they announced that it's going to be released eminently last month, it's called Google seen exploration in this is a cool AR use case specifically for retail so this is walk into a store hold your phone with the camera on in front of an aisle and it recognizes all of the products on the Shelf using computer vision, and then it overlays all the products with Google ratings and reviews.
[30:08] So like giving you a lot of this like valuable digital information that didn't used to exist on the shelf right and you you know they talk about all the use cases like you know you need to buy a highly rated nut free vegan chocolate bar and you're standing in the chocolate aisle and there's a you know a thousand chocolate bars there's no way to search by that right and and with this scene exploration you know you can now do that on the fly in a store and to me that seems like a, pretty cool use case and it's it's going to be built in the phones and then area of your in the OS in the very near future.
Scot:
[30:50] Yeah I saw a Salesforce they've been going at this very hard in within the Commerce Cloud they announced like 10 features they have one where it will auto-generate your pdp's for you they have one where it will it'll generate tags so like it'll search the description and come up with sizes and colors and and you know kind of like a variance and things out of a description to have another one, there was no actually go create product catalog for you so if you've you've this was a huge thing we had a challenge with it Channel visor is if you're selling if you're selling on Amazon and you're just matching to their Easter eysan you don't really have the rights to that product information so then you can't just copy that and then put on eBay or something like that or your own website so they've got this whole way that you can take that data your your properties which aren't, sentences create the description and then move it to other sections to a lot of really interesting things going on in the intersection of AI and e-commerce.
Jason:
[31:56] Yeah absolutely so exciting about that and there's going to be I have a feeling we're going to be talking about significant new capabilities on an ongoing basis for the foreseeable future.
Scot:
[32:06] I remember you'd walked internet retailer and there be ten vendors there that would take your product pictures and add a white background yeah.
Jason:
[32:15] And that win from like you know people in America doing that to people in India doing that and now it's it's an Nvidia chip doing it.
Which side note like you know people keep asking who's winning the who's going to be the one to monetize a eyes are going to be open AI or meta all these small companies we also got the answer to that this quarter it's Invidia.
Scot:
[32:36] Yeah they're gonna win yes.
Jason:
[32:39] So for those that don't know nvidia's market cap Nvidia has a chip manufacturer famous for, these high-performance graphic chips that were originally used for gaming and still are and their chips have been extremely useful for training and doing refining training for all these these large language models in AI, and their market cap briefly passed a trillion dollars, um this month I think it dipped like just below a trillion dollars at the moment but to put that in perspective Intel's market cap is like 130 billion dollars.
Like so Nvidia the game chip company is eight times more valuable than Intel at the.
Scot:
[33:25] It's crazy yeah who knows no one had that on their bingo card five years.
Jason:
[33:29] No I wish that was one of my year beginning predictions.
Scot:
[33:34] Yeah anything else on a iron.
Jason:
[33:38] No no did you Amazon 10 announcement last month you follow.
Scot:
[33:44] Yeah yeah well it wouldn't be a Jason Scott show without some.
[34:00] That's right time for some Amazon news Amazon has been unexpectedly quiet so we've got a new CEO basis is out romping around wearing crazy shirts at festivals and living the high life with his girlfriend so, some of that out there other engage did not know that congratulations Jeff I know he listens to.
Jason:
[34:26] If you're playing bingo it was a 2.5 million dollar diamond.
Scot:
[34:29] Nice the one thing I saw just to highlight is a lot there's kind of a, this bit of an economic downturn has made many of the video providers get more serious about profitability so we saw both Netflix and Disney add an ad-supported tier and increase their prices and just as we're recording this Amazon announced they're going to do the same thing with prime so they're going to have an add to your 44 Prime but I know you follow the devices I totally slept on this because I was so eager for the Vision Pro tell me about the new devices.
Jason:
[35:07] Yeah yeah.
I would characterize it as disappointing they want some new Echo devices at.
The in the middle of May for release on May 31st and you know I have it.
An embarrassing amount of these devices controlling smart home features throughout my house and they when I first got them like.
[35:37] I seem very I felt very satisfied with them like the the accuracy of the speech recognition and stuff seemed adequate like based on my expectations at the time but I've grown to be very annoyed by them like they really struggle to know which room you're talking to and they're inconsistent about how semantically accurate you have to be like in in this world where Chad gbt is writing all my articles for me you know you just go I, man the speech recognition in this Hardware has to be better and so I was kind of eagerly looking for some new Echoes that have like an llm in them it seemed like Amazon was a first mover here, and so they did announce some new devices but they're pretty boring so they announced a new form factor called the echo pop which is.
[36:27] I want by my count their fourth or fifth attempt to build a more premium speaker into an echo and this is like.
A more affordable premium speaker which seems like a weird Niche so that wasn't that interesting I don't actually use the echoes.
As speakers so much and then they launched a new Echo Show 5 which is.
The the echo with the screen it's the smallest screen has 5 inch screen and then they announced some new Echo buds the echo built into the the earbuds which you and I both tried and I don't think we're very enamored by.
The.
The features are like oh the speaker sounds better than the old speaker the microphone is more accurate than the old microphone and it's 20% faster.
[37:15] And so like I bought a couple of these new new Echoes to see if I you noticed a difference and it's.
Like it's to me it's mostly imperceptible from the old Hardware so pretty disappointing.
Um but app that announcement I will say Andy jassy said that hey the large language model for Echo is coming and you know there.
It does feel like Amazon's a little behind and I don't know if this announcement was meant to apologize for that that.
Status or whether there really is something that's going to be imminently announced but you know like he he doubled down on their effort to make this the, the most useful personal assistant on Earth and you know part of that is we're going to have a robust large language model that's you know on has a, a similar number of parameters to to open a I or bear door or Lama from from meta, that the Amazons going to release to make these these sneakers smarter so I hope he delivers on that promise.
Scot:
[38:23] Yeah the there if definitely feels like chat gbt started this new gear for Innovation and feels like apple even with their big announcement there was they worked some AI in there but it just feels like.
There's a lot of people speculating do you really need a phone if we're going to head to a device where you can talk to it and these plugins at chat gbt now give it action so you can say hey book me a restaurant reservation the things you would do on your phone you're going to be almost able to do totally by voice soon therefore will you need a phone so there's a lot of you know that's a new would expect Amazon who was ahead on voice now feels like they're behind on a lot of this so it's be really interesting this next year to see who can kind of hang with this and you can't the R&D budgets are gonna go through the roof that's for sure.
Jason:
[39:14] Yeah and the irony is you know you go back in time and you know all the retailers in America where happily you know shipping two weeks after you place an order in Amazon you know disrupted Everybody by saying like hey you should get your stuff in two days and then one day and then same day right and they they raised the expectations for everyone else it feels like open AI is doing that to Apple and Amazon right now on the on the natural language models.
Scot:
[39:43] The to the pop did not pop.
Jason:
[39:46] It did it did not I did that in full disclosure I did not buy a pop because again like I don't I don't so much by them for their speaker Fidelity I mostly buy them to control my lights and stuff.
But yeah I like I still have to repeat myself multiple times and some rooms to just turn stuff on and it's frustrating.
Scot:
[40:06] Yeah so this one was one I wanted to bounce off of you I'm a CNBC junkie and I was watching the other day and Target stock had a big Miss and the folks on, Talking Heads were saying that in their earnings release they really called out this shoplifting as a.
[40:24] A problem and they took a one right off of something like 500 million dollars so I'm sure everyone has seen the videos where you know this is just new organized crime kind of wave going on especially in big cities where you'll see.
20 people go in a store and just run out with arm full of stuff it's happening to starting to kind of luxury then then you saw a little lemon and it happens in Apple Stores and now you're starting to see it in every day department stores and drug stores, so I thought that was you know as e-commerce person I was thinking huh that's interesting you know I wonder if and kind of hi Pro some high-profile store closures have followed from the so Nordstrom closed a store and like San Francisco and that's kind of thing so I was thinking is e-commerce person I was kinda thinking well this is interesting this is gonna this is going to benefit Amazon pretty immensely because as the stores have to close due to this crime wave it's going to benefit e-commerce and then Amazon like 60% of e-commerce so they'll just get they'll just absorb a lot of that that that so that the crime is going to have this unintended consequence of getting rid of stores which is bad for for the local environment and then it'll yeah I don't, yeah I don't think they really want to benefit Amazon but they will so I wanted to get your hot take on them.
Jason:
[41:40] Well first of all just to complete your thought the the brick-and-mortar retailers and the national retail Federation would actually say Amazon's double-dipping on that benefit because they're both.
Selling stuff when the the stores closed in the big cities but also most of the Retailer's blame the organized crime on Amazon.
[41:59] So the The Narrative is basically that like you know people here's who used to steal from stores, people that needed something and couldn't afford it for whatever reason right so they.
Stalled food for their family or you know items they could afford to buy that was individual shoplifting and, employees told stuff employee shrink and there now is this much higher occurrence of organized crime for profit where where people are stealing you know every bottle of shampoo in the Walgreens and one of the reasons these big retailers say that this kind of crime is much larger now is it's way easier to monetize that stuff after you steal it, and the reason they say it's easier to monetize it is you can go sell all of this this still the merchandise pretty easily on Amazon and eBay.
Um so that's controversial like the marketplace is due a lot to sort of avoid selling, um song Goods but that one of the premises why there's more organized crime is because.
It is easier to fence and monetize this stuff.
But here's the thing that's super interesting about that like there for sure is this new kind of crime and it's.
[43:22] It's much more newsworthy so when someone drives a truck through the front of an Apple store and then steals all the phones that's going to be on the local news when someone shoplifts pound of cheese, that's not going to be on the local news right or when an employed as a fake return to embezzle 60 dollars from a shirt like that's not as often on the local news so all of these organized crimes get put on the news and on YouTube and things like that more and and a huge problem is.
Like it's much more violent people are getting hurt employees and in a few cases the perpetrators are are getting hurt or even killed and so like there is a way higher human cost to this kind of crime and so we have heard a bunch of.
Retail CEOs, you know raising the alarm bells and they say two things like oh man our losses are going up this is having a material economic effect on our business we're closing stores partly because of this and you know we're having to change how we do do store operations and and you know all these things they're also saying that police forces are underfunded and you know don't have enough resources to retailers with this problem so they're there in many cases you know asking for more more Municipal support here's the thing though.
[44:51] People have always stolen stuff from retailers there's always been a line item on every retards p&l for shrink and for most public companies that's that's a publicly disclosed number and usually, for most retailers and it varies by the type of retailer and the the geography but usually it's one to two percent of Revenue is lost in shrink and so.
[45:19] Target's announcement was hey we lost we potentially could lose 500 million dollars in profit this year.
And their stock partly went down from because of it like I would argue their their stock also went down for some, PR missteps they made and then also because their revenue is just soft compared to some of their competitors, they probably went down for that shrink because 500 million dollars in profit sounds like a big deal but if you gross up 500 million dollars in profit to product costs, that's one point six billion dollars in shrink at Target in 2022 and they're saying it could be as high as two billion dollars in shrink in 2023 that means that shrink is 1.5 to 1.9 percent of targets Revenue which is below industry averages Walgreens, has made all of these same complaints and last year the Walgreen CFO like in the earnings call said hey this is a huge deal like our shrink could potentially be up 52 percent from before the pandemic.
Um and then he did his swing 22 year in earnings and Shrink was lower then then the last two years and he literally had to say like maybe we cried too much.
[46:40] So I do think there is this new crime it's very serious like it is a problem and you know I have great empathy for retailers in addressing that and they shrink should be zero like a butt.
It's a little bit of a fallacy to say hey there's this new material economic impact from this shrink that didn't exist before because the employee shrink is way down because the the surveillance and the the big data and in the business process has evolved eliminated a lot of that and so the net shrink for a lot of retailers, really isn't as significant now it might be more significant in particular stores and so some of the the closing of these stores, seems at least partially legitimate I will say there's even controversy about that like when, Walgreens has hey we're closing a store in San Francisco because there's too much crime, the San Francisco Police Department rides in and goes that's weird because we got way less complaints from from Walgreens last year than we did three years ago or whatever so there's there's.
Room for disputes about all this stuff but organized crime, is definitely an increasingly serious thing that retailers have to deal with but don't immediately by all the hype that it's.
That it's some you know New Economic strain that retailers have never seen before.
Scot:
[48:04] I wonder if there's a bit of a narrative around this shrink number like I you know I'm sure they're reporting it correctly but so I wonder if it has the same store sales effect like let's say Walgreens has to closed in ten stores because the shrink is so bad.
That comes out of the numbers right because it's probably a seems to work kind of metric so they probably you know now gold number would improve dramatically but.
They've shrunk their footprint like it's probably not capturing that you.
Jason:
[48:33] Yeah no agreed, all as a Wayne huizenga taught me 30 years ago like it any good healthy retailers should be closing and opening stores every year why there's like you can't if you had the perfect realist real estate in one year it would not be perfect the next year right and so in many cases like they're closing stores in economically you know unfriendly climates for them and that improves their same-store sales numbers and improves their cops right and you know whether they did that for purely economic reasons or they did it because there was more organized crime or to put protect employees or whatever like, um it's not wrong for these retailers to curate their, they're fully in an economic downturn that might mean having fewer stores than last year historically the challenge with that is investors always expect you to grow.
And so infect investors don't like the story of what of closing underperforming stores and having better comps if you if your overall Revenue goes down so, you know this is yet another kind of excuse for them to reset expectations with investors I think I think that's totally fair.
[49:44] In some cases I will tell you retailers are closing iconic stores that just feels kind of sad like the the, Nordstrom flagship store in San Francisco is has always been a big deal that's closing I lived in Portland Oregon and they had a beautiful REI in the Pearl District which was, like a great super friendly place to live and they're closing that store and they said partly because they didn't feel they could protect employees like.
That there is something happening that feels like a bummer and there's a lot of big cities that it feels a lot less fun to go shopping.
Than it did a few years ago which which is I do think a legitimate concern.
Scot:
[50:26] Yeah so I know you're the king of all e-commerce and commerce data what are you seeing in the the reports that have come out since our last pot.
Jason:
[50:36] Yeah well we've slowed down a little bit on the frequency the podcast so kind of just super brief recap US Department of Commerce data comes out every month so we we have the May report which has data through April next week we'll get the, the May data so January through April sales for all of retail are up 2.4% from last year that, that is down a little bit from historical averages pre-pandemic you'd expect retail to be up about 4% a year so 2.4%.
[51:11] Is concerning if you look at it from before the pandemic retail sales are up year-to-date, three thirty six percent from 2019 for example so still by historic standards that's very high but this year feels like a meaningful slowdown in sales from last year and of course as soon as you start talking about this people go well what about inflation so if I normalize this data for inflation year-to-date sales this year are down three percent from last year, which historically doesn't happen even with inflation so that, that is a real concern like it it feels very legitimate that we're seeing a Slowdown in in consumer spending and particularly in inflation-adjusted dollars so I mentioned retail sales since the pandemic are up 36% if you adjust that for inflation there up about 14% so less than half of all our sales growth since the pend or more than half of our sales growth since the pandemic, has been a direct result of unusual inflation more than typical inflation and then you know people always ask us in particular about the e-commerce numbers again before the pandemic the.
[52:25] Over the last 20 years e-commerce would average around 12 to 15 percent growth a year retail would average three to four percent growth a year there was a weird transposition in the middle of the pandemic when people you know finally went back to stores for the first time and slow down their e-commerce bending so like for the only time in my lifetime, 20:22 size.
Retail sales growing faster than e-commerce briefly that trend has reversed e-commerce is back on top of retail but it's not back to Historic standards so e-commerce year-to-date is up about 7.4% verses 2022 still, you know, you remember in the pandemic people are talking about e-commerce spiking and then regressing to the mean just want to remind our listeners that's not true the US Department of Commerce revised some numbers and e-commerce growth.
Has ended up being much more robust than like the Wall Street Journal reported in in in a famous article in 2022 so e-commerce is up about 89 percent since, since 2019 and that means.
[53:29] Above and beyond the traditional growth that I would have forecasted for e-commerce we've sold an extra six hundred and seventy five billion dollars since the pandemic started so e-commerce still is the biggest winner in this kind of.
Pandemic accelerated spending and it's you know we'll get the cue to e-commerce data and about two months it's going to be interesting to see, how it plays out and whether you know the consumer slowdown persist through the end of the year and holiday or whether we start to get a bounce.
Scot:
[54:01] Yeah and I know it's June and but you get paid to think about this more than I do so what when clients are saying Jason what are you thinking about holiday 23 Woody tongue.
Jason:
[54:14] I think on the aggregate I'm not expecting it to be an awesome holiday I think there's even if, the the economy listens up there's it's going to take awhile for consumer spending to come back and I think the overall consumer spending is going to be you know modest there will be growth but it'll be low growth and because inflation will still be unusually high like profitability is going to really be, be strain for this holiday that being said we are likely to see some clear winners and losers so like not everyone's going to kind of match the industry average and we've already had a couple bankruptcies Bed Bath & Beyond used to sell a lot of holiday Goods so retailers are going to fight over you know who wins that customer this holiday and so I do think.
You can expect to see some retailers have a really good holiday and you know, I hate to say this for all the small retailers out there but like at the moment the the likely narrative is the biggest best retailers in the ecosystem are likely that too.
Disproportionately win holiday so like if I had to guess I would guess Amazon and Walmart are going to have a pretty good holiday at the expense of the rest of retailgeek.
Scot:
[55:32] Got it well you're a Grinch.
Jason:
[55:37] Yeah I want to be wrong I want to be wrong on that I want to be right on all my year beginning forecast which I can't even remember what they were.
Scot:
[55:44] Yeah I'm just kidding you get paid to tell the real.
Jason:
[55:49] I'd rather I would rather be prepared for soft holiday and then be pleasantly surprised.
I almost hesitate to even bring this up because it kind of feels like it always happens but there there are now some potential new supply chain challenges.
Perking up so there's there's some labor disputes our friends the teamsters the unload all the boats on the west coast of America like are threatening work stoppages and, you know any disruption in there like has a meaningful impact on how much Goods we have available for holiday and then one I've never heard before in my lifetime, the worldwide drought is having a material impact on the supply chain what there is not is enough water in the Panama Canal.
[56:39] And so it turns out the way the locks work they have to pour a bunch of water into the canal to lift the boats and there's less water available so the water costs more so it is more expensive to take a heavy boat through the Panama Canal today than it was a month ago.
Because of the price of water which.
It makes sense when you hear it but it's not something you would I would have thought of and so at the moment the supply-chain wonks are are talking about like you know we might have some unanticipated, supply chain cost as you know people have to pay for the constrain amount of tonnage that they can lift through the Panama Canal.
Scot:
[57:23] Wow learn something everyday and I can check that off my box in it.
Jason:
[57:26] Nice well that's probably a perfect place to end it because we have used up our allotted time but even though we've been a little less frequent than usual, I always look forward to catching up with you and it's been great to chat but I look forward to hearing how our listeners are doing.
Scot:
[57:44] Yeah and you know what listeners could do to help us out leave a review we would always love your feedback let us know how we're doing and if there's any topics you want to cover and we appreciate you giving us a listen.
Jason:
[57:57] Scot that's a great idea and until next time happy Commercing. -
EP305 - Amazon and Shopify Q1 2023 earnings
Amazon and Shopify both reported their Q1 2023 earnings last week.
Amazon had a strong first quarter, slightly over-shadowed by it's slowing AWS growth.
Shopify also had strong Q1 2023 earnings although it did not achieve profitability. Shopify also announced a second reduction of headcount and announced that they were selling all of the recently acquired logistic assets.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 305 of the Jason & Scot show was recorded on Thursday, May 4th 2023.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Transcript
Jason:
[0:23] Welcome to the Jason and Scot show, this is episode 305 being recorded on Thursday May 4th May the 4th be with you I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.
Scot:
[0:39] Hey Jason and welcome back Jason Scott showed listeners Happy Star Wars Day May the 4th be with you hope everyone had a great Star Wars Day Jason people can't see you but you are wearing your Jar Jar Binks cosplay.
Jason:
[0:53] I kind of assumed people just assume I'm always wearing that.
Scot:
[0:57] You should do the whole episode and jar jar speak well said Jason what's a new at the Amazon what.
Jason:
[1:10] I feel like people don't get the jar jar one I did I did do an act during covid-19 doing all this pitch theater online I did a pitch on Halloween in a Darth Vader mask.
And we won the pitch so I feel like I should be doing costumes more.
Scot:
[1:28] Awesome you guys intimidate them and it's called the Darth Vader intimidation closed when you wear the Vader the Vader suit.
Jason:
[1:34] Exactly exactly and it had the voice changing thing and so it is.
Scot:
[1:38] Honest I find your lack of faith yeah there's a lot of death lot of lot of puts you can use in a pitch.
Jason:
[1:48] Yes unfortunately not a large enough chunk of the total addressable Market are Geeks.
If you like is wrong I know how I got in this like funky like creative advertising world with all these I kept custody clients like I totally don't fit in.
Scot:
[2:09] Yeah been a misfit toy my whole life so sir not going to stop anytime soon embrace it Jason.
Jason:
[2:15] Yeah it was announced today that we won a big new client lvmh and so I like went on LinkedIn and joke that like it was largely thanks to my my stature is a luxury influencer.
Scot:
[2:29] Nice congrats your tick-tocks on luxury have one the death.
Jason:
[2:32] I know I know for a long time people were like why are you wasting your time with that and now they know.
Scot:
[2:38] Who will we have it's been a while since we dropped a pod because we both had spring breaks and then you've been traveling a bit so it's great to be back.
Jason:
[2:49] Yeah it's super fun to catch up with you and with the audience.
I feel like the last show we did was right after shoptalk so I did get to see a bunch of folks and now you know it's a treat your season is starting to heat up so I have a bunch of upcoming trips so.
If listeners are going to any of these shows make sure you make a point to catch up with me and you could see the jar jar costume.
In person so I'm actually doing this show from.
The famous Mayflower Hotel in Washington d.c. because I'm in town for the.
Home and Commercial products Association I'm doing the keynote for their annual conference tomorrow morning.
And then I'm going to sap Sapphire which is their big customer show in Orlando in on May 15th if you like.
There's a fair amount of our listeners that go to that show and then to fun ones that are you know core Commerce shows after that we have Commerce next by our friends Scott Silverman is in New York in June so June 20th.
And I'll be doing some fun stuff stuff on stage there and then in RFC you know has their kind of future looking executive digital Summit.
[4:07] On the beach it Tara no in Rancho Palos Verdes it's called the inner F Nexus on July 10 and all both be giving a keynote and I will also be interviewing Kara Swisher so I feel like.
I'm going to spend an hour just making fun of Scott Galloway with her.
Scot:
[4:25] Nice yeah that's good the dog dog is off the porch whoo.
Jason:
[4:30] Exactly I was thinking about like maybe bring a mask I've already you know I have audio collection of a lot of my favorite Scott Galloway predictions meaning which didn't come true.
Scot:
[4:43] Macy's Woodberry Amazon and apparel.
Jason:
[4:47] But I feel like this is.
Scot:
[4:48] Amazon to be Roadkill.
Jason:
[4:50] Like Freaky Friday like so like Cara is this like super famous interviewer and I am interviewing her and we're doing it at Tara know where she started code conference so it's very topsy-turvy.
Scot:
[5:03] Yeah yeah just bring red tears without her trademark thing.
Jason:
[5:07] I assume she just travels with one of her own yeah that Herman Miller red chair yeah.
Scot:
[5:09] BYO RC okay.
Jason:
[5:15] I actually think she's not with Vox anymore so I don't know you know she may be in withdrawn not she may have said said goodbye to the red chairs will have to ask her.
Scot:
[5:24] Look that's that's question number one.
Jason:
[5:26] Yeah but besides all of that we are just getting started on q1 earnings season and you know of course for most of our listeners one of the most important earnings calls happened last week.
Scot:
[5:39] Yeah it wouldn't be a Jason and Scot show if we didn't have some Amazon news.
So on April 27th which was last Thursday when we're recording this Amazon had their earnings it was what Wall Street would call a clear beat meaning both top and the bottom line where a beat this is welcome news because Amazon's earnings have been kind of like not not mrs. but not amazing.
[6:07] So revenues came in two percent above consensus which is a slight beat but what got Wall Street very excited was operating income came in 57 percent above and longtime listeners will know I usually cover the retail portion of Amazon and Jason covers the cloud or a WS part, we're going to mix it up because I read all the reports and what was most interesting right now in kind of the world of Internet stocks the whole world has been turned upside down by chat GPT which is put out by open AI Sam Altman startup who is partially owned and supported by Microsoft there and investor and the hole, infrastructure runs on Azure their cloud computing, platform this has been a huge win for Microsoft because it's enabled them to add a chat gbt like component to Bing.
[7:02] And you know the buzz is that, search is dead a lot of people are even speculating maybe even apps will be dead you know maybe maybe you don't really need apps on a phone if you could just talk to your phone and say hey book me restaurant reservation as 6:30 at the one of these three restaurants why do you need a nap if an AI can go to that room so there's there's a lot of people in the Wall Street and Tech world are, I would say there's like this wall of worry around this new innovation and this is real so chat GPT was the fastest product to 100 million users what was it Jason like four weeks or something.
[7:42] Like an egg yeah if you see a chart it's like this a vertical wall whereas like Facebook and some of those kinds of things were previous record holders for this and it took, you know years and so-so.
Jason:
[7:54] Two months to a billion or 4 months to a billion users.
Scot:
[7:58] Yeah so it's just this crazy adoption curve unlike anything we've ever seen before so you know there's, this was top of mind when this came out so the so while streets pretty obsessed with what's going on with the cloud also Amazon's Cloud division has been slowing their growth it was the you know the darling of the Amazon portfolio and now it's been slowing because as we head into this recessionary period, also another concern is we cover this a little bit last time but Silicon Valley Bank failed we've had all this kind of startup craziness and a lot of those startups use cloud computing and Amazon so, so that was what all eyes were on and you know what we saw was the growth did slow to 11 and a half percent which was less bad than what people were thinking so is kind of viewed as positive which is always one of these counter, Wall Street all about expectations not like the real absolute numbers but 11.5 percent growth is this is this part we've been covering this for for.
[9:04] Years of this point five years and it's always growing north of 50% but this time it really slowed down and they're even projecting for next quarter or slow 2011 Amazon did Jesse did talk a lot about AI there they've talked about how they're going to do a lot of people the other problem with Chad gbt is it looks the prior to the prior a I think we all spend a lot of time with which was Alexa now feels wildly inferior because you're having these really robust conversations with chat gvt and Alexis can do like, yeah it's not really like at that level of conversational AI you can get some weather maybe play a song and a couple other little things add something it'll talk to you about do you want to reorder your dog food and yeah that's about it right so very, Barry and then you know that used to be cool and now in a world where we're chatty be teeing it feels inferior so Amazon like Google is a little bit on their heels from this and they basically came out and said we're going to do a lot around Alexa here and it will we're dedicated that being by far the best voice assistant, and we'll be adding chats ubt like capabilities but then for AWS they basically said look there's all these language models out there and we're going to be neutral will have all kinds of different flavors kind of thing so whatever you want we'll have.
[10:30] And the one of the concerns is these large language models use a ton of gpus and those are expensive.
Azure is adding a ton of workloads from this and their conference call they went so far as to say.
It's like accelerated growth dramatically at Azure they're getting all these loads that they would have never seen before thanks to their relationship and, they're scaling up this gpus and so it kind of feels early and Aang's like maybe Microsoft has got like this.
Bit of an advantage over both Google and they WS so, so you know it was interesting because I'm saying all that because what happened is they announced their up a little bit that day and then they announced and they were down and they've been kind of sideways since then so and what was clear be quarter with AWS not as bad as you would think it would be you had the numbers would say oh the stock should go up 5 to 10% but they didn't because I don't think everyone really liked, body language around you know what's going on chat gbt and Amazon's response.
[11:40] So that was a that was a long part but that was I thought it was kind of interesting.
The whole world and like the last yeah six months has been turned upside down by this and it's always an option or that always gets my attention because this is where unique opportunities are created for disruption and all kinds of what happens is when my favorite books is the innovators dilemma when something new like this comes along, people that were previously the leaders have a really hard time adapting to it because they get baked into their business model so for example to pick on Google it's very hard for them to offer a chat interface on the core Google search because, every pixel of core Google search is like so highly optimized and them hitting their numbers relies on that that real estate.
[12:28] Basically not changing that to change that real estate and experiment with something that is expensive and not monetized is.
Almost impossible you know it's it will certainly make them lose mountains of Revenue and even worse on ibadah, so it's really kind of fascinating to Think Through the strategy here of what's everyone going to do and how do they adapt to this new world and to some extent Amazon not as bad as Google I would argue but that Amazon is a little bit of a in a pickle.
Um it got even so bad also around the same time Jeff Bezos was at Coachella and he was just out there dancing and wearing this kind of fun butterfly shirt and everyone's kind of like you know it almost felt like fiddling while Rome burned so a lot of people are like and then you know so Disney's CEO has come back and a lot of people are projecting that maybe we'll see a day where like a Larry Page comes back to Google and a Bezos comes back to Amazon to it's going to be interesting to see what happens this next next three to six months are gonna be really fun to watch in the world of large trillion-dollar internet companies to see what's going down.
Jason:
[13:39] Oh for sure and I keep saying this but we're going to have to do another.
Deep dive on AI and chechi because there are so many it's changing so, fast and there's this whole like shift from keywords to prompts and you know like all of you know Google's intrinsic strengths are suddenly becoming weaknesses there's this interesting battle, um between like these AI capabilities as destinations versus these AI capabilities as.
Sort of infrastructure that that you add to any destination right and so you know the interesting thing about Chad gbt you can license the.
The GPT for engine and build it in your own apps or your own website but 1.2 billion consumers a month, are going to chat. Open a i.com so that's now a destination on the web that's bigger than Bing.
[14:40] Like move more people last month went to their website opening eyes website then went to Bing and that's a, Game Changer I get it's feels like a huge missed opportunity side note that there's not ads on that website yet I'm sure I'm sure that that that is coming in Italy but so there are all these like super interesting changes.
I kind of feel like even if all that wasn't playing out like just the the fact that AWS is decelerating a little bit.
[15:10] Would be the news from this earning thing and it's what everyone's talking about and it's almost a shame because it's kind of masking what otherwise like is a pretty remarkable quarter compared to like what most of their peers are likely to do.
Scot:
[15:25] Yeah yeah walk us through some of the highlights that you saw in the non aw site.
Jason:
[15:30] Well so the first thing if you look at North American gmv it grew 13% in q1 so that that is a deceleration from, their Q4 growth but like to put that in comparison.
Us retail sales grew four percent in the first quarter so so you know this is kind of back to pre-pandemic levels where Amazon's growing.
Despite being you know the largest or second largest retailer in the US depending on how you count growing quite a bit of water faster than the industry, you don't normally we would we compare Amazon's growth to all retailers growth but also to all of e-commerce has growth, so the US Department of Commerce comes out with their Q2 growth numbers in a couple weeks so May 18th I think if you want to mark your calendars will do a show and talk about that but.
Just kind of interpreting the data and extrapolating.
[16:31] U.s. e-commerce and q1's likely to grow about 10% which is kind of a recovery for e-commerce but still, that means Amazon the largest e-commerce player out there is growing faster than the industry as a whole which is.
You know typical for Amazon but you know not very typical in the rest of the world so the retail story was, was really strong and it was driven almost exclusively by your favorite part of the retail Echo System the marketplace right it was almost all.
[17:00] 3p sales which I want to say grew 16 percent.
Or fifteen percent for the quarter so so 3p continues to be a super important part, and you know I always like to talk about the ad business ads were up 21% which is a, a deceleration of the ads business as well just like AWS but a couple interesting things, there's a ton of headwinds, for traditional dip digital ads right now as the economy is getting a little more challenging you know a lot of brands are cutting back on their spinned because the privacy issues they're cutting back on a lot of the traditional digital channels, um so you look at like metas ad business in q1 it grew three percent Google's ad business grew to percent.
[17:55] Pinterest was the leader of those kind of traditional platforms their ad business grew five percent, and Amazon which is has a bigger ad business than Pinterest Amazon grew 21% so that that growth you know continues to be remarkable, um I did a quick back of the napkin estimate and I, I know AWS generated about 5 billion dollars in earn income for the quarter the ad unit probably generated 7.1 billion dollars in earning come for the quarter so quite a bit more, profit to the bottom line coming from that ad business then coming from from AWS, and then you know Amazon you know as they always do they kind of pepper and some favorable stats so they talked about how.
They they had 26 million customers for same-day delivery in q1 which is fifty percent growth year over year so you know you.
You kind of you've seen a lot of other retailers that as the economy has gotten kind of tough they've kind of.
[18:58] Ratcheted back their service level a little bit like you're seeing a lot of people starting to charge more for returns you're starting to see delivery promises get stretched out a little bit and you know Amazon is kind of.
Adjusting their returns policy as well but like they're they're all in on that fast same day delivery.
And it seems like consumers are continuing to embrace that.
Um there's this kind of big strategic shift that they talked about Scott that I know you've been falling which is kind of the shift from a national fulfillment model to a regional fulfillment model.
And this is all about getting more efficiency so the idea is you know in the old model you placed an order and you know they ship from whatever Warehouse fulfillment center had the goods in stock so often that.
Are shipping things from pretty far away, and mold you know in a you know your your multicart order could have Goods coming from a lot of different fulfillment centers and you know this quarter the focus is really on redesigning the whole fulfillment center to optimize.
[20:06] How many trips they have to make to your house and how many, how much of the goods can all come from the same fulfillment center so there's a laser focus on kind of getting the inventory in each fulfillment center right for the market that it's serving, um and the you know in their investor call the CFO was talking about how like they're starting to they're already starting to unlock.
Um significant improvements in their operating margins as a result of cutting down on the amount of trips in order to serve the same amount of gmv and they think there's a lot of Headroom to continue improving math if you've been following that kind of, Regional shift it almost feels like the Reinventing the you know kind of against innovators dilemma they're Reinventing their whole fulfillment model despite the fact that they have the.
The world's largest fulfillment model.
Scot:
[21:00] Yeah yeah I think this is really interesting and in some ways maybe the go Puffs the world kind of showed him how to do this ironically enough and you know and this surge of same-day delivery I think they're having.
I think you know in the early days the same day delivery I remember Sebastian going ham he was SVP saying yes he was at our conference and he said something like we just put out there to see and we were surprised by how many people use it and then you know they had data that indicated this is like five years ago that it was addictive because you.
[21:37] We have forget which of us going this is your zero friction addiction so once you have one of these low-friction experiences you're like yeah yeah you know of course I would like it yeah, I'm running this morning all like it the same day but that's making them for deploying a lot more of the product to be able to satisfy that demand but they have the data to do it the key is it's a you know there's, there's this you know something like 300 million skus out there in the cloud that you can buy a small portion of those percentage-wise large sales wise is in the network of FCS and then the system learned what to, put at the edge near you and that same day thing there's a set of skus and it's probably down to 10,000 at that point, that they know those are the most frequently Asked seemed a things it's going to be things like toilet replenishable toiletries, dog food for me all those types personal items Healthcare Beauty and you know it's not the it's not the Xbox or something that can kind of weight well I guess some of that could be but you know there's plenty of stuff people are happy to wait for so, that that edge Network allows them to Ford deploy 5 to 10,000 excuse and get them to you really fast.
Jason:
[22:56] Yeah and I think what's interesting is that it turns out that the.
The those skews that are needed for same-day delivery in Raleigh are not the same as the skills that are needed in Chicago and AI is really helping them sort of optimize.
Those fulfillment centers and the numbers are actually a little bigger than your you're saying there are now like 300,000 same day skus in the system and in some markets there they have over 100,000 skus available for same-day so it y you know there.
[23:26] They're kind of expanding from the head in skews to you know at least the chunky middle scuze.
On that same day delivery and it and it seems like that's continuing to work for them.
I just think it's you know again a lot of people that had you know the huge infrastructure lead the Amazon had him fulfillment centers you know would.
But I find it hard to disrupt that model and pivot to a new model and it seems like you know Tim zones credit they're they're not afraid to disrupt themselves and it feels like that's kind of what they're doing here.
And it seems like it least pull narrowly it's working you know they're also.
Over the covid time there have been some capacity constraints and they rolled out a lot of technology to help help third-party sellers better manage their own.
Capacity and you know I'm hearing from third-party sellers that that is going better that they have you know are better able.
[24:29] Predict the cost and the capacity that will be available for them and they're not getting as many unpleasant surprises as they as they kind of had had in the past of that that stuff is all interesting, I also think Amazon's big enough that they're they're you know kind of a.
A good surrogate for for the actual consumer economies at this point and so is interesting you know they talked about the Americans can consumer and you know the North America was where a lot of Amazon's growth was.
Um They they had a statement that they're continuing to see the US consumer is being conscious that she's definitely moderated her spending on discretionary categories, she's trading down to more value oriented eizan's.
[25:16] You know there continues to be healthy demand for Staples and you know I think we heard similar things from other big retailers like Wal-Mart and Target so that kind of felt in line but what was interesting was Europe.
The growth is much slower but it was a significantly higher beat versus expectations than North America was and they had kind of an interesting editorial on Europe they said that, European demand while cautious came in better than expected, we see customer confidence increasing with inflation tickling down in the EU and that's kind of at odds with a bunch of other retailers that that are competing in Europe that are still you know kind of talking about, the consumer Demand Being really repressed in Europe and the European consumer really struggling due to even higher inflation then then what consumers are experiencing here in North America so, um it either sounds like Amazon's having a better go of it than a lot of other retailers in Europe, or Amazon is being the first one to sort of see the economy turning a little more favorable in Europe so.
I kind of found that interesting.
[26:42] Yeah well again you know the.
Historically like Europe is smaller than North America for Amazon but it you know because it's smaller it was growing faster but you know there have been more.
Challenges supply chain disruptions there's more uncertainty in a lot of the European economies and so you know it's like for global companies I'm particularly brands that do business everywhere.
Um that European softness has been a challenge the one outlier of all that is luxury so it does feel.
Like kind of a bifurcated economy that like luxury can you know is actually kind of bounce back in Europe and is continuing to do pretty pretty well worldwide while.
High inflation is hurting a lot more of the kind of staple Industries a lot more.
Scot:
[27:35] Having Survived the Great Recession of 08 and 09 at Chow buzzer the weird thing about the data was the luxury segment accelerated you have to have the the wealthy folks do find during economic downturns turns out.
Jason:
[27:50] Yeah this was a weird one in that like that's for that was for sure true where the demand was shifted in unusual ways because often you have a lot of.
Really wealthy consumers are also tend to be really mobile consumer so you have, historical you'd have a lot of really wealthy people from China that would go to France and buy a lot of luxury goods and in covid of course nobody was going anywhere so there was this huge, spike in luxury goods in China so like the overall worldwide demand for luxury was very high but there were these weird mismatches where the demand was not coming from the markets that it typically came from and now it feels like it's.
Reverting more it's starting to revert to more traditional.
[28:37] So there was a another interesting earnings call this morning.
Scot:
[28:41] Yeah so Shopify came out with their earnings and they've had just kind of set the stage.
In the during covid they were Off to the Races and they've had a really hard time in the last year kind of in that post covid era as they invested so much and then covid the e-commerce growth reverted to the mean as you've been, so good at pointing out and they thought it would just continue up into the right and so they did about a ten percent reduction in force I think is a year ago maybe a little longer, and so then this morning they came out and they beat Lowered Expectations to put this in perspective of their growth has slowed to 25% and they were consistently growing well north of 50% so they're they're definitely, this was good for a while there were kind of Contracting but now at least they're back to growth they are losing money but they should get back to profitability here in a quarter or two but the big surprise was you know if you recall they were going to take on Amazon and they started really building out some fulfillment and they bought a couple companies to do that and started building out this whole infrastructure called Shopify fulfillment Network or sfm.
[30:00] So they announced on the call today that they're just basically abandoning that whole strategy and the assets they previously bought an aggregate for over two billion dollars they sold to a company called Flex port for a billion so that had to hurt so basically a billion dollar loss on the strategy and they basically said you know the future is AI and that's where we're going to put our effort, and then when they sell this unit there also some people go with that but they're also announced they're doing at 23% that would include some of those people it's not it's not entirely clear.
[30:36] How many will be core Shopify versus the people leaving with the sfn I think it's.
Relatively small you know I don't think that's happened was like this huge.
People operation like you have an Amazon anyway so they're going to reduce headcount by 11,000 people 29k so from 11,000 29k, so about 23% reduction these things are always kind of.
[31:06] Little tricky emotionally because you feel for those people that are losing their jobs and found out this morning that's going to be no fun, but then Wall Street loves a good reduction for us because that means more profits oh, the stock this is a huge win for the stock because Wall Street has hated hated hated this idea if you take this super high margin software business and you layer in a super low margin fulfillment business, so you know Wall Street this is part of the innovators dilemma, once you've baked your margins in at 85% or whatever you can't then go to Wall Street and say we're going to bring that down 15% 270 because we're going to be fulfillment and that's a, yeah 30% margin business your blend that in with our 85 you get us to 70 or whatever it is, so so Wall Street was very happy to see them abandoned us, it does raise the question one of the reasons they got in this is you and I talked a lot about Shopify versus Amazon and you know the same time.
Amazon is raising the bar on e-commerce we just talked about this two same day, Shopify was going to arm the rebels so that they could at least keep up with two day now they're abandoning that you know there's gonna continue to be, yeah this could be a big moment in history where Shopify messes up and you know.
[32:29] What's a I going to solve if you have this great product recommendation or something that doesn't show up for five days in Amazon eats the Shopify Merchants lunch because they just are better at Logistics so this is this is a big decision throwing in the towel and it's going to be interesting to see, if this is wise or not I obviously lean towards I don't think this is going to be a great in decision for him.
Jason:
[32:57] Yeah it is tricky.
The you know I would also mention there's this so I you know scary service from Amazon looming on the Shopify Horizon that it's not clear Shopify his really declared what they want they're going to do with yet which is the.
The by with prime service which is you know in in effect to use that really solid Amazon Fulfillment Network even when you sell stuff on Shopify.
And so you know maybe they're they're dumping on the Shopify fulfillment Network stuff in there just gonna see the Fulfillment Amazon we'll have to see.
Um I do I've decided to correct one thing you said like Shopify is huge on talking about e-commerce regress to the mean.
That's actually not true right get when they talk about that they're talking about the ratio of e-commerce sales to retail sales and it's partly true for that.
That you know we kind of went from 14 or 15 percent of all sales being online to 17 or 18 percent and we bounced back down to 15%.
Um you know that that shape varied while we you know depending on the category so image digitally immature categories like Grocery and Automotive had kind of a permanent Spike whereas, like apparel you know had kind of a temporary bump.
[34:23] In absolute dollars e-commerce is way bigger than before the pandemic e-commerce is 90% up from from 2019 and so when when they kind of use that.
As an excuse for the layoffs I would say like don't buy it right like that.
[34:41] There's a lot more demand for digital Goods than there were in 2019 and Shopify isn't laying people off because that demand has receded like throwing people off because they haven't perfectly figured out what the right business model is and from my standpoint.
They're still a little dyslexic on who they're even trying to serve they still have all this language around you know serving the small Independent Business the mom-and-pop and arming the rebels and all that but like you know when you listen all the success stories in their earnings calls.
It's it's Staples it's why it's it's you know it's it's bigger or midsize specialty retailers that are moving to the platform, it's not the rebels I, Kendall Jackson and Kendall Jenner and Staples are not the rebels and so I don't know like I think they like that that narrative but like I'm not sure they've come a perfectly aligned their product offering to the.
The companies that are like driving the bulk of their gmv growth and when they you know do focus on the long tail Mom and Pops.
It really makes that gmv number kind of office gated because there's so much churn over there right and they go or gmv went up 25%.
Was that because like all your customers are thriving and they're all growing or is it because you just added way more companies that will have a nine-month mortality rate than you then you did the quarter before.
[36:09] So I think it's like I definitely like there's a lot of strong, sort of advantages and and experiences still in the Shopify ecosystem and.
Feel like shot pay is getting some traction the shop app has got a lot more traction than I originally predicted and now there are some legitimate.
Marketplace features in there there's a lots of things going for them I certainly would not write them off but I do think.
Like in the next couple of quarters we need to see some more clarity about like what they want to be and where their growth is really going to come.
Scot:
[36:46] Yeah yeah it's going to be we'll be tracking it closely on the show as we have them so it's going to be interesting to see I don't think either of us had this in our predictions though sadly.
Jason:
[36:57] Yeah no I mean I was definitely caught by I never thought this Acquisitions made sense but I certainly thought that you know they would hold on to him longer so I don't know I guess if you're an investor like.
Like once you realize it was the wrong decision like there's probably something good about like cutting bait quickly instead of trying to.
Drag it around drag it out longer just because you you don't want to own up to the mistake.
So anyway that feels like a pretty good recap of the two big earnings there's a you know a bunch of the traditional retailers will be record reporting over the next four weeks and of course we'll have US Department of Commerce data, including q1 e-commerce.
Later this month so lots of reasons to have another new show and I still do think we got to get that.
That large language Model A I show on the on the books.
Scot:
[37:52] Yeah yeah we will we're through our vacation period and we should have some time to lay that down and Jason you've got a keynote tomorrow and you got some slides to work on buddy so we're going to make this a short one in the pantheon of Jason and Scot show lengthy episodes.
Jason:
[38:09] Yeah yeah we'll give it a few minutes back to our listeners and I will go write a keynote for tomorrow.
Scot:
[38:15] Awesome it's always good when you're up against deadlines so you're going to crush it.
Jason:
[38:20] I feel like the one thing I have going for me is the present the content will be very Timely.
Scot:
[38:26] Good yep fresh like.
Jason:
[38:30] Awesome Scott thinks every very much everyone for listening as always enjoyed the show we sure would love it if you jump on iTunes and give us that five star review and until next time happy commercing! - Se mer
