Join hosts Jason “Retailgeek” Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Founder and Executive Chairman of Channel Advisor, as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
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EP292- Quarterly Recap Sorry for the delay since our last show. We took a beginning of summer hiatus, and Jason upgraded to a new knee! This episode was recorded in front of a live audience at the NYC Google HQ, for Zenith Basecamp. Key Topics discussed: Amazon's rate of growth declined in Q1, what lies ahead for them. Impact of App Tracking Transparency (ATT) on advertising platforms Shopify vs. Facebook Retail Media Networks Q1 2022 US Department of commerce data and trends Audience questions (including buy now pay later) If you'd like to follow along, the audience could see this deck during the discussion: JAS_ZenithDownload Episode 292 of the Jason & Scot show was recorded on Wednesday June 8, 2022. http://jasonandscot.com Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing. Transcript Jason: [0:23] Welcome to the Jason and Scot show I'm Jason retailgeek Goldberg. This episode is number 292 being recorded on Wednesday June 8, the beautiful New York City Google headquarters for Zenith base camp and is a special treat we're recording the show in front of a live audience. Scot: [0:45] That was a super important. Jason: [0:49] That Applause is super important because I have no credibility with our audience so they wouldn't believe me if you didn't applaud thank you very much as I mentioned I'm Jason retailgeek Goldberg as always I'm here with my co-host Scot Wingo. Scot: [1:01] Hey Jason and welcome back Jason Scott show listeners. Jason: [1:05] I think I've met most of you but for those of you who I haven't mentioned a met yet thrilled to do so today I as was mentioned earlier I'm the chief Commerce strategy officer for publicist your, almost certainly going to hear from Scott that he thinks might title is super funny and, I'm a fourth-generation retailer back in the Dark Ages I helped launch e-commerce at some funny retailers like, Blockbuster and Best Buy and Target and today I get to work across all the Publicis groupe with all the clients that care about Commerce and I'm super interested to know which clients, don't care about Commerce at this point and so that's me but like I said many of you have met. My annoyingly successful co-host Scott you may not have met so Scott can you tell us a little bit about yourself as they flip the slides. Scot: [1:56] Sure and congrats on that a win at Blockbuster on the digital that was that was good you crush that one yeah. Jason: [2:03] It's super fun every presentation ever done a publicist starts with a big Blockbuster logo and a saying like don't let this happen to you. Scot: [2:11] Isn't there one still open in Alaska if you're gone to visit them. Jason: [2:13] Bend Oregon. Scot: [2:14] Okay then yeah I knew you know that have you talked to them about their digital strategy. Jason: [2:20] It's on the to-do list. Scot: [2:22] I'm a Serial entrepreneur from the Research Triangle Park area and so I started a company I have an engineering background started a company the developer tools. And then this thing called the internet came along and I have a lot of weird Hobbies one of my hobbies we'll talk about a lot of those today is I'm a Star Wars fan so I started I had this I sold my first company, said this dangerous combination of e-commerce has born and I had a lot of liquidity so I started buying really big Star Wars stuff, it stays at my office I have an agreement with my wife that it does not come into the house sadly I probably won't be married if it did so there you go, so that was there at the early days of e-commerce that company I parlayed into a company called challenge visor so started that in 2001 that's a B2B soccer as a service platform for selling on marketplaces are there any channel guys are customers in the house about 3,000 customers and then so Channel visors biggest partners are eBay and Amazon so I've been I'm also he's retailgeek I'm Amazon geek if we have to Brand ourselves maybe a little bitty big geek so I'm in the marketplace side and that's how I met Jason we were on a board together at shot dot-org, remember the first meeting I was there with Jason the CEO of NRF walks in and he's like does anyone have a question Jason raises his hand and says why do we have the worst website on the internet and I was like. [3:38] I need to get to know this guy so he called him out on the terribleness of the in R Us website which was kind of fun and then took Channel advisor public so that was one of my things is an option where I always wanted to do was do an IPO so I got to do that in 2013 that was a lot of fun got to ring the bell I'm a also a CNBC donkeys got to meet and Jim Cramer my wife calls him the guy that yells every night on TV and makes all the loud noises, that was fun and then my current startup let's go to the next slide next two slides yeah it's called spiffy and next slide. [4:12] So spiffy was actually good and go through this animation Jason was supposed to take this on and, so spiffy was actually kind of inspired by the podcast so on our podcast would talk a lot about consumer behavior and for me I'm also an Elon Musk geek and Elon talks about core principles his core principles are physics he's always talking about well if you want to send a ship from here to Mars you're going to have to you can't use let's see welds you have to like mix the atoms together and because of physics we can do we don't do that on Jason Scott show we talk about consumer behaviors so we spent a lot of time talking about the bifurcation in the convenience oriented consumer saw that was swirling around in my head I had my first Uber experience and the this the series of things that lit up for me was alright services are going to go digital we've seen products go digital in the form of e-commerce if you look at GDP consumer services are twice the size of consumer products and then the then as I looked out there there was a lot of companies in this space but none of them were going after the convenience oriented consumer. [5:15] Another hobby of I guess it was a shared one is we like to coin phrases, one of the ones that I coined was Zero friction addiction so when consumers have these low-friction experiences not only are they great. But they amplify the friction of previously previous experiences you didn't think we're friction e Starbucks mobile app for example how many of you use the Starbucks mobile, once you do that and then like the mobile app systems down it's like the worst day of your life because you have to wait in line behind three people and you're like oh my God I'm going to claw my eyes out. And before the mobile app existed you're like three people whoaa short line this is going to be a faster bruxism. So all that was swimming around in my head and I was like I wonder where I could participate in this idea and I was gravitated to car care because I previously invested in a car wash and then I researched and Car Care has a minus 85 net promoter score especially with women, how many of mean if you don't have cars in New York but how many of you have had a bad car experience especially. You're my people so another thing that fascinates me is the Auto industry is going to go through this digital change that we've seen e-commerce go through but it's also the car is changing so I've had a Tesla since 2012 since I've been living that kind of vehicle 2.0 lifestyle so next line so started spiffy in 2014 and today we're in 27 locations about a 50 million run rate doubling, we have 250 Vans across the United States and about 500 technicians so that's a little bit of background on me. Jason: [6:44] That's amazing Scott and so you know Scott mentioned we started this podcast that the joke is he and I met at a board meeting it shop dot org and he and. After the meetings we'd go to a bar and we would just talk shop about what was going on in Scotts Valley. You know we should record this there's like eight other people that would be interested in this conversation and the joke is that like the next day I showed up with like five thousand dollars worth of audio equipment I think. Scot: [7:10] This 90 is forget your mom. Jason: [7:12] That's true yeah. Scot: [7:12] 99.9 listeners. Jason: [7:13] Including my mom who gives me notes on every show hi Mom. So so that's kind of how the show started and you know that one of the topics that's most frequent in fact we often say it wouldn't be a Jason and Scot show without talking about Amazon. And so you know Amazon have their quarterly earnings last month and in the u.s. they're gmv growth rate they sold 6.7% more stuff than they did in q1 of last. Um so that is a alarmingly slow rate of growth by traditional Amazon standards and we click to the next slide. The. This month you've seen all these news articles about Amazon actually having too much warehouse space too much what they call fulfillment center space and how they're literally trying to sublease space to other people that they may have over-invested, as e-commerce starts to slow down and if you cook to the this next slide. [8:15] Actually graft my pandemic Hobbies I learned Tableau by the way if anyone super exciting other people are not a big bread. I'm a geek what can I say so I graphed e-commerce has growth rate versus Amazon's growth rate and historically in the u.s. e-commerce has kind of grown about 10% a year before the pandemic Amazon despite being. 35 to 40% of all e-commerce grows quite a bit faster as you can see the gold line above the blue line but when the pandemic. Um they their paths kind of linked and and you know for these last several months Amazon has grown at about the race. E-commerce and so there's a bunch of analysts that are freaking out. Is the gravy train over the good times done is Amazon selling off and so that's the first topic we want to talk about is what the heck is going on with Amazon Scott. Scot: [9:11] Yeah and it's been interesting another one of my hobbies is Amazon Fulfillment centers this one's riveting and so this started I think it's like 2005 I was driving to work and I saw some construction and you know you're later they put a big amazon logo on it that's like holy cow there's like a million square foot building, this is the Raleigh-Durham area so it's like I wonder how many of these there are so I went on to Amazon's website and they said something like we have around 10 fulfillment centers nice like that, that seems low and then what I discovered at that point time was no one was tracking. From the Wall Street analysts through Amazon fulfillment center roll out so so started working on that and quickly discovered that they had about sixty fulfillment centers built and they were building like another 16 so I started publishing data on this, and fun fact they always use airport codes so this was like RDU 3 soyuz rd1 and these numbers and this kind of thing so I get to know about the Amazon fulfillment center really interesting you know really deeply so I think then one of our most popular popular episodes I think we got till like 12:00 listeners on this one so a 30 percent increase this was February 18th we did episode 287 which is a deep dive into Amazon's fulfillment. [10:19] And to me it's just endlessly fascinating I haven't been to a fulfillment center but I have been able to sneak into some of the delivery stations and that's kind of a fun thing so what ties into this is what I think happened is Amazon was in front of their capacity needs before the pandemic and then the pandemic flip that upside down so I think what's happened is over that time where they're in line with e-commerce they were just out of capacity they literally couldn't ship the couldn't build enough fulfillment centers fast enough and whatnot so during the pandemic they have built an incredible amount of infrastructure so I'd have some data here the other thing you need to know is in 2018 another this was probably the most popular one Jason I coined the phrase ship again is even heard this one. And this is where we. Jason: [11:03] We got on like The Today Show. Scot: [11:05] Be on the Today Show they're like what is this ship again and should we be concerned that was us that was us we cause that and we take all the credit, and what happened is Jason has many of his Tableau slides he had this he has a slide that shows the FedEx capacity USPS and ups and then Amazon's growth and you can see that Amazon alone then you layer in e-commerce was going to we would run out of capacity for shipping well Amazon also saw those so in 2018 they started a program called, the DSP now this is confusing because they have two DS p– programs there's one in your world of ads I don't know what that one is, delivery service professionals is the one I focus on and what Amazon did is he basically took a page out of the FedEx Playbook and they went and they built a network of 1099 contractors to do last mile deliveries so whenever an Amazon Prime van comes to your house that is an Amazon DSP. [11:59] They've built that entire network since 2018 which is pretty crazy okay so the problem with that Network though is they started it out of fulfillment centers and very quickly it was obvious the Fulfillment centers were when you have these million square-foot buildings and you're just putting things through a door or a loading dock you can't reload Vans quickly so what they've done is they've come up with a new format called a delivery station, this is a smaller about a 200 thousand square foot thing and what it is it's largely attached to a fulfillment center and it's pretty wild at eight am the Fulfillment center doors open and these rafts of containers come down and there's these Vans all lined up, staged in line, where they go furthest packages away get loaded in the first Vans and then they're off and then it's like a military operation it's like D-Day it's like crazy to watch this happen hundreds of employees loading these vans that get deployed through the day. [12:49] So just to give you some numbers that started at zero and now they have built 487 delivery stations for small products 108 delivery stations for large so they built about 600 delivery stations in the last 3 years which is pretty crazy that represents so there's so nothing Amazon does each delivery station has four or five dsps and they play them off each other so they're small businesses and then they give them all these scorecards and if you score well you get more routes and trucks so there's like this gamification, and I've met some of these guys and they're just like constantly going at each other and and Amazon is very clever because they're like stuck in this game gamification they don't really realize it that Amazon just playing them off each other the thing that fascinates me is they're all run by this you know data in the cloud so everyone in this operation there's no real managers or anything they're just like all looking at their their their devices and it's telling them what to do every day that's kind of as a computer science guy that kind of fascinating we do have a i overlords that that just kind of run things so there's two 2500 dsps and 100,000 Vans and so they've invested a ton in that and then that's just the delivery stations so they've also added you know 88 sortable fulfillment centers. [14:08] Basically they've invested so much in infrastructure during the pandemic that I think we're going to see these numbers they're they actually have admitted they have too much capacity but I think it's going to give them the ability to re-accelerate versus e-commerce because they now have the capacity in this new world. [14:22] It was a long answer to that one but but you know I think what's key to me is if you buy into this theory that getting product to the consumer fast and efficiently is going to be key, they've gotten the cost to deliver a package and that last mile down to a dollar fifty with this. [14:37] You know so many of you that are shipping products and you're looking at FedEx at eight nine ten twelve dollars in different zones that's kind of the economics they've baked into that now for a long time thought one of the Amazons unusual playbooks is they'll build something really really crazy expensive and you're like this is insane and then they'll open it up which for most people in the old score world you're like, that doesn't make any sense because you used to build these proprietary networks like Walmart's Data Center and computer infrastructure, that was proprietary and gave them an edge Amazon's philosophy is let's open it up that makes the product better and we get third parties to help pay for the. So this is obvious now that the AWS and Amazon third-party Network I believe that there will be a day when I could ship I'm enrolling your in Charlotte I'll be able to ship you a package I'll just put on my front porch the Amazon DSP will pick it up and I'll ship you a package for three bucks right so it'll be half the cost of FedEx or UPS but don't make a hundred percent are 50% gross margin on it, so that's going to be really interesting and they'll be able to offer that they are actually offering a lot of that kind of capability to other Merchants so so that'll be interesting you'll have to face this decision of if you're your Cody or someone like that do you want to switch from FedEx to Amazon shipping your products and so there's a lot of real interesting things going on in the Amazon World those are some of the big ones. Jason: [15:51] Yeah yeah to kind of put that in consumer terms. Before the pandemic Amazon had invested something like 50 billion dollars in their fulfillment centers and so on. It wasn't that long ago I would talk to clients and they're like hey Jason we've got the secret plan to compete with Amazon where we're gonna buy a warehouse in Kentucky because that can ship to the whole us and we're going to compete with Amazon and I'm like. You realize Amazon has 109 million square foot fulfillment centers and 50 billion dollars worth of infrastructure and that was before the pandemic from. Mid 2018 to today they've invested another 50 billion dollars and literally double the size of their capacity so the likelihood of anyone in the u.s. competing with him in terms of. Capacity is next to know and as Scott mentioned in 2018 we had this bad holiday where we didn't deliver everything on time Amazon became you know aware that they weren't going to grow where they want to grow using third-party parcels and I think there's this famous quote from Fred Smith it FedEx like. Amazon's an amazing company but they're our partner they're not a competitor they never understand the competitiveness of the, the parcel business and back then Amazon delivered eight percent of their own packages that was 2018 today Amazon delivers over 60% of their own packages right and so in a very short period of time. [17:16] They they've created this phenomenal capability so the magic question is is this a blip like, is the are they going to start growing faster than e-commerce as soon as we get out of all this crazy economic Madness or like is this going to be the new normal for Amazon that they're you know so big that they can't grow as fast anymore. Scot: [17:35] My prediction is yes they will I think they'll get the capacity they'll turn on these other things another area that I think they'll get into and we've covered this on the show is where we call these things like to go Puffs the road you have a fancy name for. Jason: [17:47] Instant delivery or ultra-fast delivery. Scot: [17:49] Yeah Amazon part of this infrastructure they built out is in that similar vein so some same-day infrastructure where, you know these delivery stations are getting smaller and smaller and closer and closer to the consumer so that they can do same delivery in fact at the delivery station I was at they do 7 a.m. to 10 a.m. load out and then everyone comes back at to and they do another load out of a smaller portion of vans, for same-day delivery orders that have come in so so so I think I think what they're going to do is they're going to Crank It Up, Prime will eventually go to same day and then that's going to create a whole new stimulation of demand and then they will grow faster than e-commerce. Jason: [18:24] I feel like that's another funny one is talk to like there's a bunch of new startups that are like trying to do e-commerce fulfillment and they're like we're going to do two day delivery just as well as Amazon. Scot: [18:34] Yeah this is this is a good segue into Shopify so one of the things that there's defied explanation for me is the rise of Shopify shopify's a great platform great CEO but they got this valuation of like 50 times forward earnings forward Revenue which just never made sense to me and then they started poking the bear so they started to give Amazon and Jeff Bezos so hard time like when his pictures they were like making fun of him and I was like this you and I have seen this. Jason: [19:01] They're arming the rebels. Scot: [19:02] We've seen this play out we're like who was it the CEO of Macy's said Amazon will never get into apparel and if they do it'll be a bloodbath everyone that makes one of those statements they end up a you know ruining their career and then be very being very wrong so. Jason: [19:17] Terry Lundgren. Scot: [19:18] Terry Lundgren yeah thanks he was also in the in that in our f word me the so so so it's really interesting is Shopify has been poking at Amazon and then Shopify announced that they were going to. Arm the rebels with two day shipping and they're going to build a fulfillment center we're like. Okay this doesn't ever end well then in this then like literally 30 days later they announced and they were going to spend a billion dollars and build a fulfillment center are two billion which you know Amazon spend 100 billion so that's kind of a ridiculous and then they were going to get everywhere two day shipping and Beebe in parallel with prime which doesn't make any sense then they punted on that and they acquire deliver. And then at the same time and this is a good segue into our next topic they basically said, and this goes back to March of this year last year we saw that after Apple's WWDC that year last year, they announced IDF a and I-80 T which is next slide. Jason: [20:18] Yeah jump to slides actually one more. Scot: [20:20] So you and I were like this is going to change everything and destroy all these middle players so so basically you guys probably know what this is I'll let Jason describe it better these new privacy things basically you get rid of not only third-party cookies for web-based things but if you have an app based ecosystem you get rid of tracking it all together and we were like freaking out about it no one else was I, and I felt like Shopify was going to be worse because if you think about Shopify the bulk of their traffic comes from social then they sit in the middle and then they have the merchant well these things in the middle aren't going to really exist in a world where you can't track anything and sure enough this is really caught up not only to them but the social media guys. So we're entering this world where Shopify poked the bear Amazon has a bunch of stuff going on that hasn't even come out to counteract Shopify and when that stuff comes out, then I'll know if you've seen it but Shopify is down like 98% or something like that because they've lost you lost a lot of credibility with this fulfillment thing and then the overall economic has been a really interesting impact and then I think everyone realizes that they're really exposed to these IDF a changes. Jason: [21:25] Yeah and so I think most people in this room are probably painfully familiar with idea Fay but essentially. It's become harder to track a consumer across multiple website so all these advertising platforms that aggregate an audience and send them to third-party content sites used to be able to buy a super-efficient audience on that third party site and then they used to be able to measure how effective it was when they sent people to that site and what they ultimately bought and so because of the tracking deficiencies too bad things happen we can't buy as good an audience as we used to buy so the by is less efficient so the CPM is higher and we can't measure how effective it was right and so there's a lot of impacts certainly for all of you folks that are involved in advertising there's there's a very direct impact on those changes but the secondary impacts can I talked a lot about is before these changes it felt like Shopify and Facebook for example where cozying up, like Shopify has a digital wallet called shop pay which is very exciting successful and they actually made it possible to buy items not from Shopify sellers on Facebook. With Sharpay and you're like oh man it's very synergistic Facebook gets the audience and then they send them to Shopify seller to close the deal and it seemed like they had this partnership and we saw IDF a coming and were like oh man this is going to break up because in the New World. [22:47] The Facebook's of the world need to own that conversion they need to own the sale so they can see the conversion data so they can report on the efficacy they need instead of third party data they need first-party data and so now all these advertising platforms most notably Facebook and Google are doubling down on becoming Commerce platforms which you've talked for a long time about Google is secretly Marketplace. Scot: [23:13] Yeah and then I think ultimately Facebook has to buy Shopify or build show, so that'll be interesting now the price is down before when it was like 40 times for door like they'll never do that but I think now but they do seem, it's hard to know what's going to happen to Facebook because they're so focused on the metaverse that I don't know if Shopify fits into that somewhere inside of there you know someone watches Revenue versus like Ford things and and if you care about revenue and Facebook you would buy you would buy, Shopify the other thing that's really interesting another one of my weird habits is I love to listen to public quarterly calls. Probably the worst quarterly call I've ever heard and I have a lot of empathy for this because I've done many of these is this the Snapchat the last the q1 Snapchat call they basically it was like they just rolled in there, half drunk and had no idea what's going on in the business and like the analysts are asking them questions like do you think this is the bottom of i d f a and the last quarterly call they had said that was the bottom. They're like well you know last time we said it was the bottom we think this is a bottom Jason do you know if it's a bottom it was just like that kind of a thing so if you're an investor and you're sitting there like these guys have no idea how bad this is where the bottom is or how to remediate. And you know that that leg down I think that really big one there that was right after that quarterly call everyone there while she was like these guys have no clue what's going on. So it's really interesting. [24:33] Wall Street is very much awake that these changes that apple and then subsequently Google have made and the Android have really just clobbered these ad networks that kind of our sit between AD networks and kind of relying on on third-party data the converse of that so every time there's a there's a zero-sum game here every time there's a loser there's a winner the big winner here is retail networks and I heard that we're going to have talk about their ad Network I'm the Amazon guy so Amazon's ad network doesn't get a lot of play here but just as of last year it was 30 billion dollars in revenue and they're growing that 25%. And I know they have a massive amount of investment going on there they have a new marketing Cloud they're doing a ton of stuff in there because they realize hey thanks Apple and Google the you have created gold dust out of first-party data guess who has the most first-party data on buyer intent and conversion it's Amazon. But then if you're other retailer be at a Walmart or Target and even smaller retailers are getting into this and kind of more of a, I called a Battlestar Galactica kind of way but more of like a shared data kind of a way that's going to be real interesting. [25:41] You are yeah yeah I think you and I are the only ones to get them the, so that's that's really fascinating to watch this one change in mobile platform just cause these billion-dollar ripples down there and you kind of wonder who it Apple did they think about this where they like, you know that Mark Zuckerberg he's too big for his britches let's let's clobber him in the rest of these guys but you know they don't love app Amazon either so they have to be kind of frustrated that it has helped enable one type of competitor but that just clobbered the other ones. Jason: [26:12] Yeah it's I mean it's super fascinating I. The retail the emergence of retail media networks I think you know is a direct cause of this essentially that you know you now have all this first-party data it Walmart and Target and to your point like. Craziest retail media Network to me is Gap in the reason I say that like most retail media Networks primarily sell ads to endemic Advertiser so you know Cody wants to sell through Sephora so for launches retail media Network they have some leverage to get Cody to invest in, in add-on Sephora but Gap doesn't have any endemic advertisers like Gap only sells their own stuff right so they're now you know trying to go find. Advertisers that are synergistic with The Gap lifestyle and sell ad so I don't think that could have ever happened in a world in which you could really cost effectively by that audience from Facebook but today because it's harder for the Facebook's of the world I think this is a. A permanent shift we're seeing and another reason that it's really an imperative for Facebook to become a Commerce platform of Their Own. Scot: [27:20] Yeah this is probably a good time to pause and see if there's any questions yeah so Amazon or IDF a any questions on those two topics any other comments how many of you have felt some kind of an impact from the IDF a thing that's called you to change strategy. Wow I guess we're wrong yeah. Jason: [27:38] We usually are so there's that I feel like a lot of the success of the show is Scott and I rarely agree and I feel like people like to hear us debate right and so the last topic we put together is. Again one that's probably only near and dear to my heart but the, US Department of Commerce publish all this data about the health of the US retail right and I'm this dork that like wakes up at 8 a.m. I'm kidding I'm up at 8 a.m. right now I wasn't supposed to say that out loud, on the on the day the data is released to like load the stuff into Tableau and so may was a super exciting month because that's the first time we get the. Q1 quarterly data for all the retail categories and e-commerce and so I kind of put together a quick. Quick summary and week I just want to hear if you're surprised or not so first thing if sorry if you go back just one side for just a sec. From from January through April in the u.s. we sold 2.2 trillion dollars of stuff that's almost 10% more stuff than we sold in 2020. [28:42] 36% more stuff than we sold in 2019 so everybody talks about how hard the last two years have been and how challenging and difficult and that's all true. What doesn't get hit is it's been the greatest two years in the history of retail like we've grown, way faster than we ever have before and so if you flip to this next slide this is this visualization that's got an icon of created this is sales by month so that Gray Line is retail sales in 2019 and then the Gold Line is 20/20 so you can see oh my gosh we all panicked in April when the pandemic first happened we have this dip but 2020 we actually sold more stuff than we did in 2019 even with the the pandemic. What we sold changed dramatically we'll talk about that, and then we get to 20 21 and look how much higher 2021 was like 20 everyone was like oh my gosh was 2020 a weird year and growth is going to go down and instead, growth went way up and so at the end of 20 21 I was advising all my peers that worked at clients to retire right because your comps are going to be impossible from, from 20:21 so that was a great time to go out on top. And I was really worried that 2022 was going to come in below that and of course we're talking about all these economic headwinds and things that we may talk about but so far in 2022. [29:59] Even ahead of 2021 so you hear all this news about how like. Oh man the rate of growth has slowed we grew so much in 2021 and now we're only growing a little bit and doom and gloom and all these things. But when you see this picture you go wait a minute. With the best year in the history of retail last year and we're doing even better this year it's actually quite a Rosy story but if you flip to the next slide of course there are certain categories that did. Especially well right and so if you are a gas station and you got utterly creamed. During the pandemic and one was driving anywhere it was easy as to grow fast if you are restaurant that no one went to it was easiest to grow fast apparel that. Scot: [30:41] Miscellaneous that's my favorite yeah I wish I sold more miscellaneous. Jason: [30:46] It's the hardest category to buy. Um and so you can see there's categories that kind of outperform the industry average and there's categories that underperformed the industry average food and beverages grocery right so even though grocery had a really good time in the pandemic it's actually underperforming, the overall category because there were some of those other categories that were so much and whenever I talk about this people are like yeah Jason but all the growth you're talking about isn't, consumer changes or more spending its inflation right and so I actually tried this, experiment of taking the inflation out and I looked at the last three years of growth in 2018 dollars and as you can see, information used to not matter very much in the data so through 2020 and then we started opening up this Gap where inflation legitimately has an impact on our sales right now but even if you just look at the Gold Line which is taking all the inflation Outlook. Um the growth is still very meaningful in phenomenal so it's a like Well you certainly inflation is part of the reason that we're seeing a lift in sales it's a mistake to assume. [31:51] People are just buying less stuff and they're just having to pay more for that stuff in that there really isn't a consumer change the really is a consumer change here in so we want double click on a couple categories in the first category I grab because it's super near and dear to Scott's heart is Automotive right so they sold half a trillion bucks last year they're up 50% from the bed you have 20/20 and if you go to the next slide you'll see the. You know they're their shape that obviously the you know the pandemic gave him a temporary dip but again like most categories they we did slightly better in 2020 2021 was a phenomenal year and then it seems like 20:22 is having a little bit of trouble comping against that what's going on in the apparel or the automotive industry. Scot: [32:34] Was a guy that buys like 30 Vans a month you can't buy vehicles yeah so there are no vehicles out there it's pretty crazy I had to buy my daughter a vehicle and we had to wait like six months and then had to pay like over sticker. Against all grains of my being but had to do it yeah the things we do for our kids. Jason: [32:52] Combo of like there's increased demand and there's these supply-chain constraints and there's no chips right. Scot: [32:58] Yeah yeah so it went from chips now they seem to have the chips but then all the zero covid policy in China is made all the other inputs go to hell in a handbasket so-so so there was some Supply that got out because they had all these vehicles waiting for chips the chips have gotten there but now they can't make a lot of the other components of the vehicle as my understanding and we order we ordered 100 Vans and we got three delivered this year from from new which is just crazy. The other problem I'm up against his there's this other company buying a lot of ants called Amazon and they're buying I'm buying I'm buying what it feels like a lot to us 100 and they're buying like you know, twenty thousand so so they seemed to get a higher spot. Jason: [33:36] They're higher in the queue than you yeah so if you take nothing else out of this this segment if you have to sell a car right now do not use Blue Book value your car is way more valuable than Blue Book value. Scot: [33:47] And before you sell your car get a new car so it's kind of like yeah because you may be hoofing it if you don't you may be getting to know the Uber app really well. Jason: [33:55] Yeah and whichever card you get get it clean by get spiffy. So let's a lot of people in here in the cpg space so grocery super important this is a category that I follow really closely almost 300 billion in sales in the first quarter and again it's up its up. By the way a new coin we turned is your over 32 years ago right like that's the new the new black in earnings calls is everyone's talking about their silver says 2019 which was the. Quote unquote normal year so groceries up twenty Twenty-One percent from from that normally year and we've kind of had this 8% growth rate which is better than grocery historically grew if you go the next slide you see our shape again, grocery is a unique one right like. Yet average sales in 2019 and then 20:28 was great for grocery right because nobody went to restaurants like so all the calories that used to buy from restaurant you're buying from grocery so that Gold Line is way up and then, in 2021 they had trouble comping against it in the first half of the Year where all that growth happen but they still 2021 ended up. [35:00] About 10% from 20/20 and 2022 is continuing to be up so far, from from 20 21 and so the way I like to think about this if you jump to the next slide is Sheriff stomach so this gray line is how much. Calories you buy from grocery stores in the Gold Line is how many calories you buy from restaurants and historically over the last 10 years it's been almost a 50/50 split so then the pandemic happened and we got seventy percent of our calories from grocery stores thirty percent of our calories from restaurants and everyone's like wait how did we get any calories from restaurants they're all closed doordash, right it was all off Prem consumption and then we've been waiting to see what would happen could grocery permanently hang onto that lead would restaurants come back and you can see over the last year it kind of close the gap but then look what's happened these like this year restaurants are way above Grocery and so the magic question here is, was their pent-up demand and we're all rushing out to restaurants because we haven't been there and that's kind of a, a one-time Spike and it's going to normalize back to 50/50 or is the new normal that we're all so sick of being in the kitchen for the last two years. That groceries going to have a real decline because if you're you know a leading Grocer in the US this this is a really scary slide at the moment you have a guess. Scot: [36:21] Yeah I'll throw a Freakonomics curveball in here I think a one input into this is the work from home trend, so when you're working from home it's a lot easier to go to the grocery store prep the veggies between zooms or while you're on his Zoom or something like that or like chopping below below the line and just prepare a meal right but when you're in the office and you work late and now you're kind of gone back to that office lifestyle then I think that's going to be a big driver I think. I think we're going to go back to working in the office I think when everything's up into the right you're like okay everyone can work from home but if things get tougher and we go into recession one of the levers Executives can pull as well we need everyone back in the office so I think we're going to get back to that, it won't be the same so it's not going to be whatever we were at before it'll be ten to twenty percent lower but I think that's going to be the Big Driver of this one is that work from from home Trend and I bet it's spiking now, um because of that so I'm seeing and we have data at spiffy for this so one of the things we do at spiffy is we go to office Parks as an amenity if I look at Dallas the Raleigh-Durham area and Atlanta, we're almost back to 80 or 90 percent to pre-pandemic levels at office parks. Now you look at Blue States like California New York Etc you're like a zero so so ultimately I don't know if that separation remains or not but ultimately we're seeing people get back to the office park at least in this Southeast kind of region which is which is I think that's going to drive this more than what you show her. Jason: [37:47] And so then the the last category we're going to talk about is obviously most near and dear to our heart is e-commerce. So in March we sold almost a hundred billion dollars worth of stuff inside baseball thing this is data from the US Department of Commerce it comes out every every month there's better data that comes out every quarter this quarter we had a crazy thing happen, the US Department of Commerce restated the data that they had published in the past and they actually added 100 billion dollars of extra e-commerce sales last year they said we've been Under reporting how big e-commerce was so you may have earlier in the year seen these articles in the Wall Street Journal and elsewhere talking about how the e-commerce craze is over and retailers caught up and it's a much more complicated story than that again e-commerce is up 55% from 20/20 so that's going to be tough to comp against the if we flip to the next slide. Scot: [38:45] Well I disagree with their methodology so we had them on the show and it was. Jason: [38:49] US Department of Commerce. Scot: [38:50] Here's the geekish I had to like break-in Jason was like you were just like. Jason: [38:53] It would be like if anyone mask was on the show. Scot: [38:55] Yes yeah you're just like slobbering all over yourself it was embarrassing and they God we're. Jason: [38:59] Tending that's unusual. Scot: [39:00] They got were Audio Only and the, but then as we got into it you know they count like curbside pickup is e-commerce and to me as an e-commerce guy I have to kind of throw the flag on that one because you know going during the pandemic you know, order online have it shipped to me and now I just go to the Best Buy and set outside they bring it to the store and now I've converted that to an e-commerce sale that doesn't really pencil for me so I think these numbers are overinflated because all the curbside pickup flipped over to e-commerce. Jason: [39:29] There's a common debate and you and I violently disagree on that one. Scot: [39:33] Digital influencer blah blah blah. Jason: [39:35] Yeah yeah exactly but yeah I mean if you so if you what's happening is e-commerce orders are being fulfilled from the store but you think about all these orders at Target that you place online and get delivered to your home from a shipped person or even from a u.s. post office targets fulfilling 96 percent of all their e-commerce orders from stores so curbside pickup is just another. E-commerce order that's fulfilled from a store and so again like to me. Scot: [40:03] But I had to get my car ready to go to Best Buy and I kind of blue shirts only difference is the blue shirt walked 50 feet to me versus me walking 50 feet in the store. Jason: [40:12] But so yeah we'll agree to disagree. Scot: [40:13] That's e-commerce more people can disagree. Jason: [40:13] Smart people can disagree and us so you see the shape again you know again 2020 accelerated e-commerce 2021 still did better although slower and so far in 2022 we're doing better again. Scot: [40:28] Boy what's the one that you hate so much what's the chart you hate the Goldman Sachs one. Jason: [40:33] Well yeah I mean there's a couple different. Scot: [40:38] Mackenzie or McKenzie yeah that's it. Jason: [40:40] Yeah so we'll talk. Yeah so jump to the next slide so Mackenzie is the early in the pandemic came out with this thing and said hey e-commerce has been perfect permanently accelerated by 10 years. Which is utterly wrong right like e-commerce. White kind of went three years ahead and now some categories are still three years ahead like grocery but a lot of categories are much closer to where we'd forecast which I'll show you in just one sec before I get to that though I just wanted to kind of show you pre-pandemic the Gold Line is have as retail grew this The Gray Line is how fast e-commerce grew again Scott and I would disagree about how to count e-commerce but still. [41:18] Retail tended to grow three to four percent a year a great year would be 5% e-commerce grew ten to fifteen percent a year, and and in the pandemic obviously e-commerce wildly accelerated and Retail kind of stayed flat people thought it went down but it kind of stayed flat so then we had this thing that's never happened in my lifetime, which is in like May of 2021, because retail had been so soft for so long retail actually grew faster than e-commerce and we're now having this topsy-turvy thing where the rate of growth for e-commerce and Retail are very similar and so you know I said hey. Well what would have happened if we didn't have the pandemic so this next slide is kind of showing the growth rate for e-commerce. And showing where we would have forecasted e-commerce to go and again in the Wall Street Journal they showed the blue line under the Gold Line. They have this old US Department of Commerce data and if you go to the next slide I zoom. Scot: [42:15] They don't wake up at 8:00 and put it into the table like it. Jason: [42:18] They don't know Tableau like I know tableau, and shout out to all my friends at Salesforce for the own table so you can see it's very noisy right now but it does seem like the pandemic permanently accelerated e-commerce. You know 122 years of acceleration not, not ten years and so then I think the very last slide I put together on the shape of e-commerce is in this is a scary one of me I'm curious what you think about this while e-commerce is continuing to grow well. Is Gary is this is traffic to the top 10 eCommerce sites in the US and this is a different story the gold on the grey line was before the pandemic the blue, the Gold Line was after the pandemic but you can see traffic went down in 2021 even though sales went up and traffic is down even further in 2022 and so what this means is fewer. Are going to e-commerce that the big eCommerce sites less often but they're buying more stuff when they go so. This will be our last question is we're way over time is, that like an inflation thing is that a change in consumer Behavior what do you have any hypothesis what's going on here. Scot: [43:30] So I think people were pegged at home for a while they bought everything they possibly could and they've bought forward so they feel like they got new laptops they've got their fancy exercise bikes. They've got all that stuff their peloton's and now they're just spin out on stuff and now they're wanting to do experiences and services so that's where the dollars are going if you know I think the Gainer of this traffic is probably, Airline sites hotel sites another we have visibility in this a spiffy because our largest customer set is rental car companies, we had a record day yesterday so people are traveling like. Pre-pandemic levels and which is really interesting so the dollars they do want to spend the discretionary dollars are going to experiences and not Services I'd call this a year to go I was a year early, I'm sadly many of our predictions. Jason: [44:16] We have a forecast every year and I get to cream Scott in the for. Scot: [44:19] Well I don't know what. Jason: [44:21] History doesn't show that but you guys don't know. Scot: [44:23] So I think that's what's going on so I you know but I feel like a really really interesting indicator is going to be Amazon Prime day so that's going to be in July of this year and we call it Prime day but every other retailer is glommed onto it and sees a bump from it so it's kind of this fabricated holiday not unlike singles day. That yeah that you know, that is going to be really interesting data point so that could you know the the bullish cases that's going to stimulate people to be like oh yeah I do need a couple other you know cables or a battery or whatever it is so we'll see that we'll be a nursing data point that I think will set us up for holiday and we'll get a pretty good indication of how this is going to go, will the consumer be like okay I'm all travelled out and I want to buy more things or will they continue down this Services dollars been passed. Jason: [45:11] I do think it's really complicated economy right now part of this is inflation and inflation I think is hitting e-commerce harder than than the sort of CPI numbers because the price of a lot of the goods that tend to sell on e-commerce are tend to be. Scot: [45:25] Their supply chain a lot of stuff you just can't get. Jason: [45:27] So there's there's constraints but also consumer Behavior has changed their categories that we would never sell on e-commerce before the pandemic that we are now so one of them that we talked about is Automotive that's a big ticket item right so you need less visits to sell a big Tesla then you then you did to sell a TV and another one is Grocery and when I say that people are Jason are you hi Grocery and I am hi I just had my knee replaced and I'm on some Good Meds the I wore it out going on store visits, the the grocery isn't that expensive but grocery sales and e-commerce are a week's worth of groceries it's 60 to 120 items so that. It is actually a lot higher per visit so some of these new categories becoming more important combined with inflation combined with the supply chain constraints I think off, aspire to do that and that's kind of our, our last take away because it's happen again if you go to the next slide we have used way more than our allotted time but there was no one that could put us off the stage and so. Appreciate it and Scott any closing words. Scot: [46:34] Did anyone have any questions. [46:49] How do you think is going to impact and trends that we're seeing right now. Jason: [46:53] So to repeat the question really quick big Trend in buy now pay later Apple just announced that they were going to have their own flavor buy now pay later built in the Apple pay this week at their event. Scot: [47:06] I've seen some interesting consumer behavior and I'm a little little incredulous on it because it's always sponsored when you dig into it it's like sponsored by a firm and so but what it what it shows is Millennials and gen Z they don't like to have as much open credit they kind of view that negatively and I see this I have kids that are in their 20s and they are freaked out by credit cards but they like to attach that credit to a thing and then pay it off and be done with it, so I think there's an argument to be made that there will be a generational the way we interact with credit will change and then people will after certain over a hundred dollars they'll interact with it in that way so I think that's a really fascinating thing and I want to see more data on that before 100% believe it but I was super incredulous that talk to my kids are like yeah that's how I think I was like well I guess there may be something here. Jason: [47:53] Yeah and as usual that's a really thoughtful and wrong answer. Scot: [47:58] For you yes. Jason: [48:00] No so it. Buy now pay later is huge right now it's the fastest growing form of check out and / Scott's point I would argue they've done an amazing job of branding right like oh it's credits evil credits bad this is not credit right and I talked to our traditional, um Financial customers and I talked to a family-run bank that's a fourth-generation bank and the CEO is like Jason, my family's been in the money renting business which I think that's an awesome way of calling the credit money money renting business for 100 years and that buy now pay later dog doesn't hunt, like it's just a bad version of credit that's been rebranded and. At the moment it's working like it's more expensive to sell something with with a firm or with a buy now pay later service than it is with a credit card but retailers are all doing it because they're selling more stuff because of it right so that's the argument at a firm. Best Buy you should pay more to use buy now pay later. Scot: [48:59] Conversion rates go up. Jason: [49:00] Because conversion rates go up. The scary thing that's starting to come up is guess what's happening right now 42% of all those buy now pay later purchases are now in arrears right so so kids haven't kept up with those purchases it's a. Scot: [49:15] What would a firm would say is that on the front end they can tighten the credit now so yeah that's what they all say. Jason: [49:20] The jury is out and I would say like this Amazon announcement is kind of an interesting nothing Burger because guess how you pay for the the Amazon the Apple buy now pay later service with a credit. Right so you're so it it's kind of like. If the buy now pay later services are rebranded credit and they kind of hide the fact that as credit that Apple buy now pay later is installment payments on a credit card. So so the. Is still out but there is a fear that that this whole bubble of buy now pay later is about to burst and whether it does or not I would say there's too many of them there's going to be a, consolidation retailers are having a lot of pain about. All the consumer requests they're getting to support all of them and we call it NASCAR in the checkout when like you have to you know have 57 logos on the checkout for all these different different ways to pay so I think it's kind of going away. Any other questions before they kick us off the stage. Awesome well thank you guys so much and until next time happy Commerceing! Scot: [50:20] Thanks everybody.
Amazon released their Q1 earnings for 2022 on Thursday April 29th. In this episode we do a deep dive into all the details. Key Topics: Declining macro economics First quarter 1P sales were down year-over-year for the first time in two decades, as it had to comp against a very strong Q1 2021 which was elevated by the pandemic. AWS getting a strong boost from the pandemic. Ads continue to quietly be a bright spot for Amazon Andy Jassy's first annual shareholder letter Amazon's new "Buy With Prime" offering for DTC sites. Episode 291 of the Jason & Scot show was recorded on Thursday April 29, 2022. http://jasonandscot.com Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing. Transcript Jason: [0:23] Welcome to the Jason and Scot show this is episode 291 being recorded on Thursday April 28 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo. Scot: [0:39] Hey Jason and welcome back Jason and Scot show listeners it is a Thursday in April late April and that means it's Amazon results so we're going to take everyone through the results that came out today talk a little macroeconomic and a little bit of ecom's if we have time Jason I wanted your hot take on Ilan buying Twitter are you freaking out. Jason: [1:04] I am not freaking out but I'm having to have a lot more conversations with people about it than I might have expected people are super interested in following it closely. Scot: [1:14] Yeah I had. I think I'm not freaking out but I think one because everyone is freaking out they may be looking over a little prick little kind of idea I had which is if the logic path goes like this the dad model on Twitter hasn't worked since they went public that hasn't really grown or do anything the subscription model is tricky and if you do have Elon doing this he obviously understands e-commerce really well with Aziz. Help create PayPal yeah I think it could be an interesting experiment to do a hybrid some kind of a subscription type program but also I think if anyone could take a run at actually doing e-commerce right inside of Twitter building on Marketplace of some kind I think that would be interesting to see him take a run at that now we could have the whole if you don't go to a cocktail party to buy stuff conversation but I do think there is something there where if you are a influencer and you know obviously Instagram is starting to figure this out all the live streams I think there's something there that Twitter could monetize so we'll see that's kind of what I'm thinking more versus make you know. That kind of losing my mind. Jason: [2:34] I think if you're a traditional Advertiser that has for what like. Who benefited from the advertising model like you're concerned because there's potential disruption but I'm with you I think there's the. The rate of change is likely to increase it Twitter like Twitter had been you know somewhat stagnant for a while so like I'm always excited to see interesting new experiments and trials so I suspect we'll see some. Some clever new ideas at least attempted to be implemented in that and you know some of them I'm sure we'll be cool side note and I maybe shouldn't disclose this on the podcast. I'm a pretty long term user of Twitter I was like in the first million users I'm pretty sure I've never seen an ad on Twitter. Scot: [3:18] I see him all the time. Jason: [3:19] So what I haven't figured out why it is I don't see them like I have a verified account and I don't know if there's some. Oily status where like they don't show as many ads but I also primarily use Twitter through apps and it doesn't seem like any of the apps show ads do you use a web browser or do you use like. Tweetdeck course. Scot: [3:44] Phone I use that wealth the apps. Jason: [3:48] Use the Twitter app. Scot: [3:50] Yeah I use the Twitter app the old apps don't really work anymore because they limited them to like some they're all hobbled at this point. Jason: [3:57] So except for tweetdeck which is owned by Twitter it's like an alternative a poem by Twitter that I stole. Scot: [4:04] Okay I didn't know that still existed. Jason: [4:07] Um yeah so I have like hesitated to Deep dive into why I don't see ads because I'm grateful that I owe but but. Scot: [4:16] Show me Aunt as the chief digital ad officer you should be seeing ads though I do think that's pretty important. Jason: [4:23] Every time I watch a TV show in my wife fast-forward through all the ads I'm like like I say you realize Those ads paid for this house right and. Scot: [4:30] Yeah. Jason: [4:32] I'm sorry tell the advertisers listening. Scot: [4:35] Well I saw on Twitter that you have been spending some time in the meadow verse what's that all about. Jason: [4:40] I have its kind of fun I got invited to a conference that was put on by meta AKA Facebook and the reason I was interested in it was not necessarily the topic they were hosting this 800% event in the middle verse so they sent us all their latest headsets which is the. Used to be called the Oculus quest to now it's called The Medic West too. But I hadn't really looked at their Hardware since the first generation that you and I bought the Oculus Rift which required a, pretty beefy computer and a bunch of sensors and cables and I was pleasantly surprised by The onboarding Experience like you just take this thing out of the box doesn't have any cables doesn't require any external sensors. And it seems like it works way better and easier than the old Hardware so that was kind of fun and it was kind of fun to see, the early iterations of how. Facebook in Visions like 200 people having a virtual meeting in a in the metaverse I'm not sure. It's a super exciting or that the experience has been nailed yet this is like very much a 1.0 kind of thing but it's fun to see you know people inventing new things. Scot: [5:57] Cool yeah a lot of those things you just kind of like you fiddle with your avatar for a while then it's you're sitting there watching other people you're like what is going on because their hands are moving all weird as they're like typing or something. Jason: [6:09] Yeah they have a very like accurate looking avatars and I'm like that's the last thing I want exactly. Scot: [6:15] Yeah I want to be Brad Pitt for crying out loud number one reason to go in the meadow Reese's to look better. Jason: [6:21] Indeed indeed well they apparently opted not to do that for this conference. Scot: [6:26] Well we we had mentioned doing a web three deep dive and I got a lot of listeners that reach out and said they would really like to see that so we need to put that on our agenda. [6:42] Yeah yeah yeah you know what I mean Dad request for us to do a podcast. Your pedantic so you want to kick us off with the little view of what's going on the macro before we jump into some micro. Jason: [7:01] Yeah so in general the macroeconomics are kind of a Debbie Downer and you know I am spending an awful lot of time talking with retailers and brands that are kind of planning for. Wean sort of next 9 months as a result of that but kind of frame this up. You know the Marquis - macro is inflation which there's a bunch of ways to measure it it's a wildly imperfect thing but the the most popular foot like General inflation number we use, we're now at 8.5 4% which is a 40-year high so inflation is very high. Another one we look at is like various credit worthiness and so like mortgage delinquencies is a good proxy for consumer health. And mortgage delinquencies aren't alarmingly High yet but they're in the last quarter they ticked up. And so that that is a potential early indicator. A bigger indicator that we don't like is to see the savings rate Decline and so historically like for the last 10 years I would say. [8:20] The average savings rate has been about eight percent so consumers save about eight percent of their income, during the pandemic we had the highest savings rates ever because consumers got really conservative and they were gifted a lot of extra money in terms of economic stimulus so it like briefly pipe. [8:38] Spiked over 20% but now it's back down below the it's at a 10-year low now so it's at 6.6 percent so that. It says that all of that inflation has kind of sucked all the savings out of the the US consumer and we're starting to see more defaults, I don't have data on it but one that I've heard is alarming is we're starting to see a high default rate on all those buy now pay later services that everyone you know has gotten attached to. [9:07] I've been in the housing market lately and for those that don't know the you know mortgages are starting to to really shoot up so that the. Traditional 30-year fixed mortgage rate is up at 5.1% now. It was it that during the pandemic it was down below 3. And then you know a particularly alarming one is GDP, which you know we had been kind of growing in that that one to two percent a quarter and you know we just got the the. [9:45] The Q I want to say I think it's just Q4, GDP and it was expected to be up 1% and it was actually down 1.4 percent so the economy shrunk witch. Was alarming and then you roll all that up. And you and I have talked about this being a little bit of a mixed bag but there's these consumer confidence index has and the one I look at is the University of Michigan survey, and so they have it kind of indexed against a hundred and so right now the the consumer confidence survey is that a five-year low so it's, lower right now than at any point during the pandemic and it's it sixty five point seven and so often. The consumer confidence our roads before the consumers actual Financial Health our roads but spending tends to correlate with consumer confidence more than. Then actual economic macro so so that's a particularly alarming one to the retailers, the one thing I would say is bright is as I've talked about before you know in general retailers did really well in the pandemic and and sales, um we're quite a bit higher over the last two years, and we haven't really seen them take down there the rate of growth has dramatically slowed so March retail sales versus a year ago was up 5.5 percent. [11:14] You know that's up forty percent versus two years ago and q1 of this year was up 10.8 percent versus last year it's up thirty percent versus two years ago so retail sales are still strong what you know some people would rightly point out however is what we what's hard to measure is how much of those. Of those increases in retail sales and q1 were actually from that inflation right so you know unit sales could have been down significantly because prices were up so much. Scot: [11:48] Yeah I just one of our interns handed me a note the GDP is a quarterly so that's the q1 result they do frequently update those kind of after the fact that they get more data and so but I don't usually it's kind of fractional so I don't think it's going to swing to a positive sadly. Jason: [12:07] Yeah so you roll all that up and let me just say like we went into two strong years in January and February a lot of people are planning a lot of aggressive. Investments and I and it feels to me like people are like really curtailing those investment plans as and are starting to hunker down for for potentially rough economic year, so we shall see. Scot: [12:32] Are so when you're out there talking to clients or few people kind of saying because right now everyone's maybe they already done it maybe they're kind of making their fourth quarter planning decisions right so it's kind of like a very very, cloudy crystal ball. Jason: [12:49] Oh yeah I've I've already like finished a bunch of holiday campaign plans so I've been talking like Christmas toys Non-Stop, three weeks which is a little weird but yeah and you know they're like they're there is a inflation layer to everybody's holiday plans right now, you know hopefully we get to use the the optimistic version and not the pessimistic version but everyone's planning for you know potentially going into Q4 in not great shape. [13:30] Yeah yeah but I mean you're going to tell me not to worry about any of that because Amazon made a bazillion dollars right. Scot: [13:36] Well want want also not great news on the Amazon front so that part of the setup here is we are lapping q1 2021 where covid will a huge Tailwind for for Amazon we were still we weren't shut shut in per se are locked down but there was still you know. Very little air travel and people weren't out doing stuff and then also last year there was a prime day and q1 so that's not this year so that swings the number some to some degree and then just a blanket statement whenever Jason I cover these things we always go with the data that excludes the, any changes from Financial currencies what Wall Street would call X FX so so - is the X any any. [14:25] Currency kind of changes so that neutralizes the currency stuff which is actually been oscillating quite a lot with the the whole Ukrainian Russian thing so but we take that out so we try to get kind of a neutral currency view of what's going on so it was really interesting earnings this year are this quarter because you know we had Netflix coming out and really kind of miss their number and, you know there's a family of public companies that everyone thought there was a new normal but it was actually this kind of covid-19, pull forward that is gone away so Zoom Peloton are in that camp and now it's looking like maybe Netflix's there. [15:11] Yep Shopify shopify's well I think Shopify has a whole nother world of hurt we'll talk about here. The other the other surprising thing of Netflix is just kind of randomly on the call we tasting the co kind of said oh and we're looking at an ad model and I think I'd like surprise people inside the company hadn't even been briefed on this so that's good for you so so good news I think maybe an ad models coming to Netflix so more more ads for you to go sell and do your thing. Jason: [15:39] Yeah but honestly I think no one heard that because he's right before that he said we're going to stop letting everybody share passwords I think that's. Scot: [15:47] Yeah it was like what. So yeah so you can tell they're they're scrambling to kind of they're opening their minds to things they never thought that they would look at before because the subscription actually had a loss of net subscribers even when you take out the head turned off Russian subscribers don't even if you take that out it was negative and then Google was really interesting because you and I I think we're actually pretty clearly some of the first people to talk about how worried we were about the IDF a some people call this a TT I do I don't like to call that I call it the idea phase so the the blanket term will just use as the the Amazon the Apple privacy changes and Google's results were interesting because Google has a lot of businesses inside of their Google core is immune from the Apple privacy changes because they are the search partner of Apple. [16:43] So you just go right in there they have access to all the delicious cookies and all that kind of stuff and then also they you know search is nice because you get this intent in the form of the search term so you don't have to guess what someone's trying to do and use all this add technology to figure it out that being said the YouTube part of the business we got hammered and reading through because apples a big partner of theirs but also a competitor you kind of like you had to parse their language really carefully but it seemed like YouTube was hurt hard enough that it really, really kind of ended up. [17:23] Putting pressure on the overall business even though the core search business was was pretty resilient through the changes so that was interesting and then you know what's going to. [17:34] What's going to make this even worse just broadly is they are pretty publicly stating they're going to bring a lot of those changes to the Android platform so it was kind of an Apple only platform problem but now Androids going to replicate, many of those no tracking hiding your email all these kinds of things that. Our overall good for consumers to some degree maybe they're going a little too far because there is some benefit for having. [18:02] Good product recommendations in those kinds of things that are I think are going to get hurt from this but yeah so that is all getting worse, so then Facebook so then I was like oh man this is gonna be really bad for Facebook but I think what Facebook did is they kind of kitchen sink it last time and they basically said in fourth quarter wow this apple stuffs bad let's just go ahead and if we're gonna rip the Band-Aid let's rip that thing off. Chest hair in off and they. They they actually did less worse than everyone expected so that was a relief which is we're kind of in that market and so I think they had predicted that it would be really really terrible and it was only. Terrible and then apples revenues were up 9 percent which was in this climate is when it's very low for Apple but a wind that brings us to Amazon results, anything from those who wanted to opponent before we jump into Amazon. Jason: [18:59] No just I think the apples Apple earnings were today and I would say they were surprisingly upbeat like both. Like they talked about the macros but they you know what would what you would expect to be particularly acute concerning apple is supply chain given that a bunch of their factories are walk down and closed in China right now, and Tim Cook seem like quite optimistic that they had a solid supply chain point and go forward so I hope he's right because I'm gonna want my new iPhone. Scot: [19:30] If anyone would have a handle on that I would be Tim Cook so so. Jason: [19:34] No I mean I. He's credible I wasn't saying he was wrong I was just pleasantly surprised to hear I don't hear a lot of people talking about feeling like they have their hands arms around supply chain this year so that was an outlier to me. Scot: [19:49] Well they talked about. He was a year ago diversifying out of China into was it Singapore or Vietnam they may have been Vietnam so I think they've got a couple you know they have Diversified there, they're manufacturing portfolio across multiple countries so maybe that that's part of the resilience that they're seeing there are maybe they think those cities that are locked down in China will get back to it but by the time they have some new iPhone or some. Jason: [20:14] Yeah and I do think they have this privilege status where when their factories get walk down they get watered down with workers and them so there is that. Scot: [20:22] So productivity is up yet for going to shelter in place you might as well do it on the assembly line making the Apple phones. Okay so let's jump into Amazon results and start with Revenue so the little bit of A Tale of Two Cities here so online product sales when - at minus 1% which obviously isn't good some Wall Street analysts did the math and they pulled out the comp, to the Amazon Prime day and I think that made it basically neutral so not up or down but still you know not something you want to see here I guess if GDP is decreasing, you know zero is the new wind but but not what you expect from Amazon and clearly one of the you know I would I need to go back and look at 08 and 09 it went - in those years. Jason: [21:15] I was going to ask did it because I couldn't remember it going - Scot: [21:18] It did yeah I have a chart in a presentation and it goes e-commerce went like - 20 and Amazon went negative 5 so it was better than always is tracked considerably better than the e-commerce data but it did go - for a period of quarter or two in 08 and 09 I want to say q 4 of 8 and he wanted nine is my memory but I'll fact. [21:38] Conversely subscription Services were up 13% and and there is Prime and you know all the things associated with Prime so that's interesting and then you had some commentary from the call that you heard around that that I'll say it for you unit sales were flat and in the commentary on the call they talked about that being due to inflation so you know they're they're starting to say hey we're seeing the signs of inflation here and we're fuel is rising and supply chain and they're starting to kind of. Throw a lot of these things out there that you know I think. We're doing this the evening of the report so I think wall Street's not going to really like this whole body language coming on Amazon overall growth when you stroll together all the Amazon business units you get to seven percent growth which is the slowest growth since the recession of 08 09 and if you compare that to Q4 of 21 which it's your of your growth of Q for 20 that was nine point five percent so a pretty material slow down quarter-on-quarter from the growth rates here that we're seeing, they do split out a couple segments so North America was up. [22:57] 7.6% all in and then where they felt a lot of pressure was International it was down six percent so it feels like you know. Internationally known us has is actually kind of in a worse slide from a macroeconomic and we're starting to feel it here as well, so that was that and then physical retail was up 16% that's an easy cop because you've got people weren't going to stores largely Whole Foods mix that up, this is good time you and I haven't had a chance to talk about it but they did announce that they're closing a lot of their stores so here we had a was interesting we had just opened a 5-star store, four star whatever that is and, and then they closed it like it was literally open for like 45 days I didn't get a chance to go to it and they're closing a lot of those bookstores and whatnot and that's been attributed to the new Co Jassie, saying hey we're not going to really pursue that strategy anymore. Jason: [23:55] Yeah it was a little surprising because that you know there was a decent Fleet of the book stores they closed them all the five-star stores the, the stores that were saved were the grocery store so obviously Whole Foods but also these Amazon Fresh has they added like six more so they're like 46 now if I'm, I'm counting right and then they have announced a new fashion store that supposed to open this quarter in Los Angeles, and as far as I know plans are still, on to do that but yeah it was surprising that the bookstore here in my neighborhood closed as well. Scot: [24:35] Cool and then you were watching The Profit side of Amazon what you see there. Jason: [24:40] Yeah well the they you know they talked a lot about all of these macro pressures and you know, those all having an impact on rising cost so labor costs were up fuel costs were up, and you know overall supply chain was significantly more expensive they talked about shipping expenses reached 38 percent of revenues and like in comparison that normally is about 32%. What you know fuel being a big factor and all other shipping costs and so roll all that in and they made three point six billion for the quarter which is like a 3.2 percent margin, and I think the consensus estimate was. [25:27] 4.6 so a meaningful Miss on the margins and it's interesting because. You know normally these - macro things they it's they can have a weird effect because, when the mat the inflation is high but consumer confidence is okay it actually, increases demand because you sell the same amount of stuff and you sell it for a higher price, but once consumer confidence starts dropping people start buying less right so you know Amazon you can see that demand dropping on the top line so that's a concern and then all of their costs go up because of all these macros and so the margins. Take a bigger hit and so that's a big concern and then in their commentary there was this interesting, um narrative around Amazon inadvertently ended up with too much capacity so primarily in there there with just X Network so. [26:28] You know over the last two years they famously have doubled their their warehouse capacity which now I think in total is over 100 billion dollar investment. And. They also hired a ton of people during covid they had a lot of people on covid we've said they backfield a lot of positions and then all those people came back and they apparently had too much labor so too many warehouses and too much labor equals, a hit on margins as well and so a lot of their narrative was around, they're they're expected focus on improving the efficiency of that supply chain this next quarter which. Means they have to either get more Goods in their Network and do more stuff and I you know I think we're if we have time we'll talk about some new programs Amazon's rolling out that my do that and it'll be interesting to see if they. Shrink or at least slow the rate of their labor force growth based on some of these comments as well. Scot: [27:32] Yeah yeah and. You know one Wall Street analyst kind of rolled all that together and kind of put a 6 billion dollar number on it which which is kind of yeah wow that's a it's a lot of headwinds that they're facing there so it'll be interesting to see do do they read the tea leaves and take that capacity out or do you just kind of keep it in place for a holiday because the cops will get easier through the year right because you have things were less crazy covid Wise from second half of last year. Jason: [28:06] Yeah and I you know I mean they both rightly pointed out like Hey we're glad we made the Investments we did, like they put us in a strong position you know as I don't don't pay too much attention to year-over-year comps because we're competing against such a weird year the way to think of this is, um That sales are way up in there mostly staying up right so that's kind of the the management spin on the circumstance but there for sure our head winds and I would say. If Amazon is feeling head wins the vast majority of other retailers are feeling like a head storms because, you know Amazon has more levers and more scale to insulate them from a lot of these challenges. Scot: [28:54] Yeah so so rough spot on on the cost side how about usually the bright spot is AWS how did that. Jason: [29:03] Yeah so that is exactly the opposite like, I demand you know one of the things they talked about is like a lot of people rethought their their infrastructure needs as a result of covid and it's greatly accelerated. People's migrations to the cloud so it had a good run during the pandemic and it continues to go gangbusters so it was up. Um 37 percent year over year for Q4 I think it was up forty percent so that that's a. A huge highly profitable business that's continuing to, um to go well I you know I think their total revenue was like eighteen point for tea. [29:48] Four billion which was above the consensus and you know I don't like a lot of the other businesses this is like a 35%. Gross margin business so that substantially beat the expectations which were like I think just under 30%. And it's interesting they didn't so much cover this in earnings but an indie jassi's shareholder letter, he spent a lot of time talking about some of the, amazing Innovations on silicone and the Amazons rolled out that have dramatically improved their their efficiency on AWS so it seems like they still have. They feel like a lot of Headroom to keep driving their cars down even as demand for capacity is, is growing really fast so AWS continues to be a good story I would say though I don't sleep on the ads and interestingly, they didn't talk a lot about ads in earnings they didn't talk about ads in the, the shareholder call but they sold seven point eight billion dollars worth of ads in q1 which is up 25% from last year q1 so not growing quite as fast as they WS. [31:04] That does mean 30 their last 12 months they sold almost thirty three billion dollars worth of ads and so a couple things to bear in mind. That's 33 billion dollars at like 75 percent gross margin so. Pretty you know appealing business even compared to if you call a WS like 75 billion dollar business at a 35 percent gross margin and you know. Thirty three billion dollars in ads Twitter just sold for forty four billion dollars and they sell less than 5 billion dollars a year in dance so so that that is a, highly profitable and still strongly growing business. Scot: [31:52] Yeah yet kind of doesn't get enough sunshine I think the how big this is getting. Jason: [31:58] Yeah I will say every other retailer has noticed this even if no one's talking about it and so the if the number one conversation I have with retailers is about inflation right now the number to conversation I have is about retail media networks which is code for like part of the way we'll deal with inflation as we'll get more money from the manufacturers. Scot: [32:17] Yeah and again I kind of circle back to those apple changes when when Apple gets rid of all this tracking the companies that are best positioned to, to benefit from that have closed loop data which is retail retailers because they have that transactional data and you know I think that Apple change is one of the unintended consequences is going to make Amazon's ad business huge at the detriment of Facebook and Snapchat and, Twitter in those kind of companies but then also a Walmart and Target and anyone that has you know hundreds of millions of people coming in there and and doing closed-loop transactions now is in a better position to build in that ad Network than Facebook who was so dominant for so long. Jason: [33:07] 100% And if any of these social networks like you know really start to lose value because of these challenges like don't sleep on on seeing a retailer require them right because, what you do is you swoop in with all that first party data in a choir that Network in China a lot of the big social networks are owned or aligned, by big retailers and if you remember when B dance was going to have to sell tick-tock, like it was a bunch of retailers lining up to to be involved in that transaction so yeah you know that, first party data that the Retailer's own is very valuable and you can expect they're going to look for multiple ways to monetize that you did tease one other takeaway from the. [33:55] The Q and A after the earnings were at least, was Andy they mentioned that that the rate of prime memberships is is now growing faster than pre-pandemic. Which that was a surprising bit of good news to me because I think they disclose their over 200 million Prime members now so you would. Assume like 60 percent of that's in the US that's pretty good saturation, in the US market you would expect the rate of growth to slow and then with all these macros and consumer confidence going down you would expect people to be cutting back on these. You know kind of optional subscription services and so you know apparently Jack Reacher and The Marvelous Miss maisel are good enough that that Prime is continuing to kill it. Scot: [34:47] Jack Reacher's Beyond good it was excellent. Jason: [34:50] Absolutely I saw a few people that said their new use for for Twitter is just proposed changes to propose plots for Jack Reacher season 2 so I think that was funny. Scot: [35:03] Cool and then with Wall Street it's always not what have you done for me today but what's the future look like and so all eyes were on Amazon's forward guidance which was kind of a this this quarter in Wall Street that kind of use this would you do this quarter and what's your projection and this would be a missing lower kind of quarter which is like, death quadrant of results so the forwarder forward guidance Wall Street had a consensus of 125 billion for the Top Line. In Amazon's range came in well below that their range was 116 to 121 which let's see it so 18 and a half kind of in the middle versus Wall Street was expecting 125 as kind of where they thought things would be and then gaap operating income Amazon said will be minus a billion to 3 billion positive and Wall Street had a consensus there of 6.7 billion so they basically took down the top line by a good seven, billion ish and then the midpoint of operating income by another 4 billion so this could begin I've mentioned Facebook kind of kitchen sink to it in the fourth quarter if if you're the CEO of Amazon and you're relatively new on the job. [36:25] This is a good time if you're going to have a bad quarter you might as well lower expectations and make the rest of your easy for you and I feel like there's a little bit of that in there but but again you know maybe they also they see all these things going on macro and it's also a good time to be really conservative on guidance because you don't want to you don't want to be the one cheery voice out there and then then miss it and and that that's cataclysmic in the Wall Street world. Jason: [36:50] No I think you're exactly right. Scot: [36:52] Yes so having done I don't know how many ways we've been doing this for so we've probably done 20 to 30 of these kinds of shows and this is you know this is except for that you know that. For as long as I've been watching Amazon except for those 08-09 years this is this is this is kind of a rough one so it's going to be interesting to see how the market reacts tomorrow after hours things were down about nine percent and you know this is a 1.5 trillion dollar market cap company and when it's down 10% that's 150 billion dollars so it's like, losing three shopify's kind of to put it in that context so it's interesting to see how the market reacts tomorrow and if it causes a broader concern Shopify hasn't reported yet we're going to talk a little bit about that and then yeah so yeah it's going to be interesting to see how Wall Street reacts has. Jason: [37:42] Indeed so what what other news did you want to talk about Scott. Scot: [37:46] Yeah well it is interesting thing about Shopify because in this world with the Apple privacy. You and I have talked a long time this may have to go back at my holiday predictions Shaka is in a really rough spot right now so they, so on one side many of their Merchants were using Facebook to advertise and that was really efficient so that's been cut off now there's been articles talking about how Facebook really wants closed-loop data they don't have it, so the best way to build it is to, need to have that close look data is for Facebook to build out a shopping platform there's a lot of talk about friction between Shopify and Facebook. You know if your Facebook buying Shopify just makes that easy but Shopify Toby at Shopify has kind of famously never wanted to sell the company and wants to stay independent. So you could see a day where Shopify is best partner Facebook becomes their biggest competitor so that's that's kind of an interesting thing so that's one, one attack front Shopify has kind of coming the other one is Amazon and you know I've talked on the podcast where for the longest time Shopify has been, poking the bear at Amazon and you know, I've been at this 27 years and anyone that has ever thumped Amazon on the nose has not really survive that and so so I think that's coming back to roost here because Amazon seems to have a lot of. [39:13] Programs targeted at you. [39:18] Taking the gmv back from from Shopify that's over there what are the ones I found most interesting is this idea of by with prime now a. You know skeptic would say Amazon's tried these buy things for a long time they've never worked what they've lacked in my opinion is as a merchant out there having a new payment thing you kind of famously have that NASCAR logo thing that you do and and you know it doesn't really move the needle at this point there's so many payment options and there's already by pay with Amazon, and this this program isn't there so I'm kind of reading the tea leaves here a little bit. But if I'm Amazon and I can go to a small Merchant and say all right if you add this by with Prime. We are also going to add you into the discovery side and exposure to all of our prime numbers that starts to get really interesting because now you're bringing me new customers and I think, I think that's where Amazon is going to go with this quote-unquote by with prime new thing and that. That is a perfect this is a perfect time to offer that because if you've your Shopify merchants and you're reeling because you've lost all this Facebook traffic. And then suddenly Amazon throws you a life preserver and you're going to take that life preserver even if Amazon is going to see some of your data and you know then it's really interesting because if your Shopify. Do you block that like do you stop your Merchants from taking this and it's a it's a bit of a gordian knot that they've put them in here that it's going to be interesting to watch. [40:46] One reaction to all this is we talked about it on the show last quarter Shopify announced they were going to spend a billion dollars to really beef up their delivery, and I kind of mocked that because the Amazon spin. Like 200 billion so so to think you're going to compete with Amazon and some material way with a billion dollars is kind of not serious they did acquire a company called deliver which has an extra are I don't know if how you say it deliver. And you know that's interesting but and I think they paid like three billion so they are starting to get pretty serious about this. [41:19] And I think they now see that Amazon is going to turn their Logistics Network on on them and leverage that side, the delivery side and the supply side the traffic side to hammer them the thing that makes me nervous about this these networks that are just built on existing 3pl infrastructures out there they're not going to really solve a lot of problems because, you know Amazon's got. 200-plus fulfillment centers and thousands of dsps doing last mile delivery and just building on existing old-school 3pl infrastructures even with a more friendly software isn't going to solve the same economic problem that Amazon is yes you may be able to get two day shipping, but it's going to be like $12 and Amazon's going to be at like three dollars at some point and they'll be able to offer that and they'll be able to Merchants and say the standards two days do you want to do this deliver Network you thing that shopify's doing for $12 or do you want to use our Network for three dollars and obviously you know. The choice is obvious in that room so I think it's really fascinating to watch these really big, Titans battling it out in a way that that is changing very rapidly and Amazon is really good using these these downdrafts to really Hammer a competitor and I think I think we're going to see this cure they're going to get, Shopify in a vice and I be interesting to see if shop of I can get out of that. Jason: [42:49] Yeah no I think your analysis is spot-on I do want to, clarify or clean up a couple of things the last I heard they they actually haven't closed the deal with deliver like so, you may have more recent information than me but I read like there a lot of reports that they're in talks and that there's like a, a two billion dollar price on the table but I don't think they actually announced the acquisition yet so maybe you might have you may have called it first. Scot: [43:18] It was just yet still rumors at this point I think they'll do it yeah I'm assuming they're going to do it. Jason: [43:23] So just for listeners that may not be quite as in the deliver is a 3pl so you know you there. Company you can hire to store your goods for you and ship them for you when you sell stuff and you know part of their value prop is they can, ship stuff from orders you get anywhere so you get orders on Walmart marketplace they'll ship them you get orders on Amazon they'll ship them. You get orders on your own Shopify special site they'll ship them and. [43:52] You know if Shopify serious about building out the logistics Network they need some jump starts off he's, 3pl so an acquisition would make sense but to put things in perspective the very best 3pls can kind of match Amazon service levels, and when they do they can be part of this program called, vendor fulfilled Prime which essentially means we're going to ship just as fast as if we were in Amazon's Network and so Amazon's going to you know offer Prime benefits for that shipment. Deliver is not a 3pl that has that status so, like when you talk about even if Shopify acquires them this it's not going to put them in a position to compete with Amazon I would say you're absolutely right like not only are they weigh smaller in scale, they don't have near you know they don't have the service level to even get Vineyard fulfilled Prime, and like almost all 3pls they're dependent on the traditional parcel carriers to deliver the package and they're the they're forced to pay the market rates for those deliveries and. [45:02] Amazon just has this huge Advantage from being able to deliver their own stuff so. Not saying it's not smart for Shopify to acquire some 3pls and I'm sure they'll be able to leverage them but that definitely is not going to make a fair fight with. With Amazon and then you were talking a little bit about Amazon's new offer but I'm not sure we said exactly what it is so last week Amazon announced this new service called by with, and what essentially it is is it's taking app Amazon pay and bundling it with. What Amazon would call fulfillment by Amazon. [45:43] And I think technically it would be FB am which is it fulfilled by Amazon merchants, um and so this is a program Amazon hasn't offered very often and doesn't offer widely where you put your goods in Amazon's fulfillment center and you and Amazon will ship goods for orders that didn't happen on Amazon. [46:05] So Ernie early you can only put Goods in Amazon's Warehouse to fulfill orders that happen on Amazon so if you sell something on Shopify. You have to store those goods somewhere else and you have to have kind of your inventory split but implied in this by with prime is they did this clever bundling of. Hey we'll let you fulfill orders that happen elsewhere so that could be on Facebook or on Instagram or Tik-Tok, or on Shopify and we'll bundle it with, um the Apple pay I'm sorry Amazon pay and we'll give you the badging so it essentially if there's a Prime member shopping on your website they'll see a thing saying hey get the same fast delivery you're used to you know same day delivery or next day or two day for free don't have to type any of your payment information don't have to pick any of your shipping addresses because we have all that it's a dramatically lower friction check out and it's, it's going to be super appealing for a bunch of sellers especially if you selling your own site and you sell on Amazon. It's going to be really appealing and it's kind of a deal with the devil because you are giving more data to Amazon and you are making Amazon a stronger potential competitor. [47:19] I think it's going to be hard for a lot of people to turn it down I think the only thing that makes it. I think it's a death blow to a lot of 3pls out there the only thing that I think makes it not completely devastating is that they will only it will only work for Prime members so. You couldn't for example launch your Shopify site and say by with prime is my only checkout flow. Because you wouldn't you wouldn't be able to sell anything to non-prime members so you still need an alternative solution for non Prime members but if. Amazon ever expanded this program like you know it that that would become. Super devastating to a lot of the 3pls and and folks that are looking to compete with Amazon in the space and I just. I think it's a super scary / clever way to both leverage that excess capacity that we just talked about and you know kind of. Um pull up the ladder behind you know after that after they kind of use their their fulfillment as a competitive advantage to, too kind of you know acquired 200 million Prime members now they make it way harder to compete with him bye-bye you know letting letting people use that service wherever they want to shop. Scot: [48:38] Yeah you had the one thing I'm still trying to get my arms around is I think deliver started building fulfillment centers and then they decided I think they have one or two and I think the rest of their Network ended up being a network and not ones that they own and operate so I don't think they really bring into the world to new delivery capability or capacity. Jason: [48:59] Ya know I as far as I'm aware they don't either so I think we. Yeah so I do think that's big news I think there's gonna be a lot of talk about it 11 kind of Niche use case but you know there's a lot of established brands that only sell through wholesale and they're all secretly figuring out how they sell. How they added direct-to-consumer component and in this this this offering is going to be right in all their wheelhouse right like if. If you're a big brand and you suddenly need to figure out how to you and you're used to shipping pallets to Walmart and you suddenly need to figure out how to fulfill each as and you. Party have a bunch of inventory at Amazon it's going to be super appealing they just say what use Amazon for. Scot: [49:42] Yeah and then you beat me to the punch and you read the shareholder annual letter I have not had a chance to read that with what was interesting in there. Jason: [49:50] Yeah well quick reminder for listeners Jeff Bezos wrote the shareholder letter every year, the 1997 when was particularly amazing and in fact Jeff agrees with me on that so, every year since then Kiri copies the the 1997 shareholder letter in it so this was a point of particular interest to me because this was the first shareholder letter written by someone other than Jeff Bezos, so Andy jassy in the new CEO and I think it very much follows the. The kind of pattern in the Cadence of the typical Amazon shareholder letters up to and including having the 1997 letter embedded in it at the bottom. [50:32] I wouldn't necessarily say there were any huge Revelations or or huge new takeaways. From from the letter like a lot of the letter talked about. Kind of the iterative nature of all of these successful Services than Amazon launched so they kind of painted the picture that like people imagine that. You know Kindle was just born as this amazing fully form business or ews was an amazing business, and he talked about how the first versions of all those Services were pretty mediocre right and he used this term that a few others have used. Minimum lovable product and he kind of Paints the picture about how they evolve like how they launch. Um AWS and it was very rarely useful because they couldn't offer both compute and storage which most people tend to need and storage was going to take another year and a half so they launch compute without storage. And then later added storage and then later added their own silicon and how each of those iterative steps made it a much more powerful offering until it reach today's Juggernaut and. Similar stories for Alexa and and Prime and a bunch of these other things so he was kind of painting this, this picture about how things iterate in the back of my mind I'm thinking. [51:54] My my Alexa is disagreeing with me the. In the back of my mind I'm thinking he's setting us up for some of his initial initiatives being kind of mediocre at first I don't know I don't know if that's, really where he's going but then he did kind of highlight the autonomous teams principle that we've talked about several times on this show he talked about how important it is to, expect and accept failure that you really you know can't be successful if you don't have some failures and well that sounds obvious I can't tell you how many times I've talked to, potential clients that you know said hey we want to do some crazy Innovation but we can't afford to fail. And that you know seems like a recipe for disaster so I do appreciate that advice and then this may be really nitzsche but he did he talked a little bit about there. [52:47] Their press release and their six-page narrative principle that they use and we've talked about this before like so you go to a meeting and you read The six-page Narrative for new idea and at the back of that narrative they have a press release, that is kind of written to paint a picture of the press release will be able to issue if this initiative is successful so it's kind of begin with the end in mind idea, and in this Cheryl the letter he also alluded to the they now make you write they frequently asked questions to go with that press release which I hadn't heard that before and I thought that was interesting so, so those are kind of. The the main recap of the the shareholder letter but you know if you haven't if you have a few moments I would definitely it's worth a quick read and checking it out. Scot: [53:32] Did he explain why they do the frequently Asked question. Jason: [53:35] He did not he just referenced it and maybe maybe one of my Amazonian friends will correct me but I feel like. Most of the the kind of external stories about that process have focused on the narrative and the press release and I just had never heard. The Q&A being part of the or the FAQ being part of that that package before so I just thought that was an interesting. Interesting tidbit. Scot: [54:03] Recall any other e-commerce news you want to cover. Jason: [54:08] You know there's always more stuff we could talk about but the good news is we always have more shows and it has happened again we've used up more than our lot of time for this episode so I think we should probably call it quits let everyone get off the exercise bike, hopefully you write us that that five star review and we'll pick up some of the other exciting industry news in the next show. Scot: [54:31] Thanks everyone and until next time... Jason: [54:34] Happy commercing!
EP290 - Shoptalk 2022 Recap ShopTalk held it's first in-person show since 2019, May 27-30th in Las Vegas. The show made the move from the Venetian to the Mandalay Bay. Nearly 10,000 attendees joined more than 600 exhibitors at this years show. Making ShopTalk one of the first industry events to truly feel like it did prior to the pandemic, and living up to the billing as the retail industries reunion. Shoptalk has truly established itself as the preeminent digital commerce event in the US. In this episode Jason and Scot recap all the major keynotes, trends, and themes from the show. If you wren't able to attend, this show will catch you up. If you did attend, they episode will help you write that event recap you owe the rest of your team! Episode 290 of the Jason & Scot show was recorded on Thursday April 8, 2022. 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 290 being recorded on Thursday April 7th 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo. Scot: [0:38] Hey Jason and welcome back Jason Scott show listeners well tonight we are excited to talk about shoptalk Jason you went for the show I was not able to make it this year unfortunately but you went and you are going to report on all the happenings and I'm excited to hear how it went. Jason: [0:57] I know I feel like listeners should know that your April Fool's joke is you told me you were there and I kept waiting like at the Starbucks to meet you and you never showed. Scot: [1:06] Not true not true I was a good co-host and I let you know with plenty of time I wouldn't be able to make it. Jason: [1:12] I am teasing but I do think shoptalk overlapped April Fool's this year. Scot: [1:17] It was her a lot of shenanigans. Jason: [1:19] There there was not any there was some usual trade show Shenanigans but I'm not sure I would say there was any April Fool's related Shenanigans but it was a good show you missed a good one. Scot: [1:31] Before we dive in what was the Starbuck situation. Jason: [1:33] So the Starbuck situation I would give it a B+ so it's a for people for a long time treat your followers shoptalk started out at the Aria as a small show and then it outgrew the Aria and they moved to the Venetian which it was nice because the Venetian does have on-prem Starbucks but the Venetian is a, kind of very big and they did it there for a number of years and then they right before the pandemic they announced they were moving it to Mandalay Bay and so this was the first one in Mandalay Bay and Mandalay Bay is good because it has. To Starbucks one in the casino area and one on the way to the convention center so so ordinarily I would give that a plus but they one of the Starbucks is still closed from the pandemic it hasn't reopened and the one on the way to the convention center normally takes mobile orders which is awesome, for the convention they turned up they turned off mobile orders every day of the convention. Scot: [2:41] I don't need it. Jason: [2:43] I stayed very well caffeinated and in my new world where I drink iced coffee from Starbucks branded iced coffee from the grocery store I got to augment my stops at the Starbucks by having a couple, jugs of Starbucks iced coffee in my room as well so no one should be worried about me. Scot: [3:01] That you can say in your backpack or strapped to your head like I have one of those beer hats. Jason: [3:06] Exactly and I showed up at a couple morning meetings with like to Starbucks and it's always this great debate like should I go hide in a closet somewhere and finish one so that the people in this meeting won't know that I was double-fisting it or should I just embrace my, my problem and I embraced it. Scot: [3:22] Everyone listens to the podcast Selena it's a well-known thing no one judges you for your Starbucks. [3:35] We live all coffee we're pretty agnostic on the coffee. We'll call what were the so that's the Starbucks what about the this whole thing called retail and e-commerce. Jason: [3:50] Yeah so before we jump into all the the topics and going ons it's a I would just say like I think there, I don't know what's the official or The Unofficial theme but they called the retails reunions and I feel like it was pretty apt this is the first big show, that to me felt like it did before the pandemic they had 10,000 attendees which. If it's off from from 2019 it's only slightly like maybe they had 12,000 attendees in 2019 so, 10 felt like a big show they had a 650 exhibitors. It felt pretty normal which was awesome and one of the best things about shoptalk normally is the networking and catching up with friends and I feel like that was in full effect and, extra fulfilling this year because you know I just got to see a bunch of people that I enjoy spending time with that I hadn't gone to Sea in a couple of years. Scot: [4:52] Prickle yeah so it's kind of a I like this post covid lifestyle where it just feels like nothing happened it uh it's a it's a joy. Jason: [5:00] Yeah yeah I feel like the biggest Debbie Downer for me is everyone I was excited to see was like mostly just asking me about you. Scot: [5:07] All right sir I'm through through Outlet cool what did any. Jason: [5:15] Throw out because maybe I'll throw a contrary position at the end but I would say the overall mood at the show was also interesting to me it felt very optimistic like people were upbeat people were. Kind of like enthusiastic about the year ahead and you know I don't know it was it was a good vibe. Scot: [5:36] Yes I was tracking a lot of the social media and it was interesting a long this so you had shoptalk which is like you know it was like one one track if you will and all the positive things there but at the same time and there was like some some chaos in e-commerce land where we had the single click checkout thing called Fast kind of falling apart we had, lot of the rapid delivery companies, go puff is not one of them but you know them better not be a gorilla and like three or four of them kind of imploded kind of right during shoptalk so there is kind of envisioned you guys like yeah this 15-minute deliveries the future while right outside the conference center it was kind of falling apart. Jason: [6:17] There was some version of that there was you know Uber instacart and doordash all talking about instant delivery well a lot of the, the tenuous VC funded ones were, we're announcing their their shutdowns and for sure they're there was I mentioned 650 exhibitors I think about 620 of them were payment providers. Or buy now pay later surfaces and what like if you walked around the show you'd think that was the biggest thing ever and and yeah / your point like you know one fast runner fast as a payment provider was kind of spinning down and laying everyone off while this while the show is going on so not a lot of talk about that at the show. Scot: [7:05] Yeah weird will call I'm excited to hear your take on things let's let's jump in. Jason: [7:10] Awesome so I kind of am dividing tonight's talk into two sections the main Keynotes and kind of what my highlights were from the Keynotes and then, some of the main trends that I sort of picked up on from the show so they will start with the key notes and all the big media companies you know had a keynote So So Meta was there not with maybe the most senior met a person like that like shoptalk tends to get big names for the Keynotes and The Meta was like a track keynote from Benjy Shalimar who's like the VP of Commerce which you know big roll it meta but it wasn't like they had Sheryl Sandberg or someone, they had Alan Siegen from Google who's like the president of America's Partnerships and they he talked about Google and YouTube, and you know from those platforms, meta was like super bullish on social commerce as you would expect but they were highlighting that like hey the biggest growth area at Facebook in the short term is Commerce, and he specifically called that stuff you talked about all the time that like there's a huge amount of untapped buying intent and Facebook groups, and Facebook Marketplace and then they're very bullish on the live streaming via reels in Instagram. Scot: [8:40] This guy's a genius. Jason: [8:41] Yeah so he was he was pitching that and you know he didn't. Again people don't tend to break news at this show but you got the impression that there was going to be some some new product launches in the in the near future that we're Commerce related you definitely don't get the impression that that, Netta is exclusively focusing on VR and moving away from Commerce, and then very similarly Google was like Hey Commerce is where it's at, you know they always have fun data to share that you know they always share some Trends about like, search and you know one of the interesting things is they were saying was that while there's a lot of evidence that people are returning to stores as the pandemic abates, that it's not at the expense of digital it's in addition to digital so they were. They now have a lot of geolocation data in the Google ecosystem and so they were talking about how like fifty-four percent of shoppers. [9:40] Have been to five different shopping channels in the last two days so in-store and online and they're they're super bullish on YouTube as a Commerce platform so they're they're both talking about, lot of new shoppable video formats and shoppable video ads and YouTube is a live streaming platform for influencers. In you know increasingly they have so many add products on Google that it can be hard to figure out where to put your money and what to invest in and so they have kind of one new, new ad product they seemed to be leaning into pretty heavily which is called performance Max and the idea is you just close your eyes and give Google its money your money and Google figures out the best places to put up for you. Scot: [10:26] It sounds a little suspicious I'm going to get Sr some machine learning in there that just going to magically spend my money for. Jason: [10:33] It's got like a bunch of real time optimization and and you know the obviously like you should be cynical about those things I'm a little dubious but I would say that a lot of these. Real-time allocation and bidding systems like you know they do tend to work pretty well like they do tend to outperform humans that are trying to make make you know decisions based on. Historically wrong stuff and opinions. Scot: [11:01] Yeah the we've been experimenting with some of the stuff that spiffy and you used to do narrow match and Broad match experiment and then as you as you do some of these under the hood as we watch what they're doing at least you have some visibility it's not like a black box you know it actually seems to be doing a pretty good job and it takes a lot of manual work out of what some of the best practices that you would do so so I like to poke fun but I do think there's definitely a there there. Jason: [11:28] Yeah ya know I tend tend to agree and prove your point like you can put all the parameters you want and so you can run a test and see how it works and kind of, increment into you know a bigger chunk of your budget, but then we had like one real retailer on the main stage which was Catholic a who's a CEO of Sam's and she was pretty interesting she was talking because you don't normally think of Club as being a super digitally engaged category and you know digital being super important to club like the, the most famous club retailer in the world is Costco who I would argue is why quite famously a digital Luddite, and Kathy was talking a lot about how important omnichannel was for Sam's and how like successful scan and go has been and that like. That that specific particularly with younger Shoppers with Millennials that there's that there's a preference to scan and go over you know traditional checkout and the scan and go customers, shop more frequently and spend more so they're they're the best customers and that Sam's Club is even running ads promoting, the scan and go functionality and that was interesting to me because. [12:51] Walmart has kind of tested and moved away from scan and go a couple times I feel like they're kind of leaning back into it at the moment, but it seems like it's and it's club like they're pretty convinced it's a no-brainer that it's a net positive so so just walk out. Type technology you know sort of more proof that customers appreciate. Scot: [13:14] Nursing J W for the win. Jason: [13:16] Exactly and then the Big 3 key notes as far as I was concerned that were most interesting where all the the. I'll call them local Commerce is what they want to be called now or we might traditionally called them rapid Commerce but so it's the. CEO of instacart Fiji Simo, the president of doordash Chris Payne and then the CEO of uber dhara and I can never pronounce his last name but but so that would, he begets as far as I was concerned and those are you know three interesting companies in our industry right now and. [13:57] You know at least two of them maybe all three of them you don't necessarily first think of as Commerce. Or if you do you think of them exclusively is kind of food Commerce and they all were kind of talking about their General Commerce Place so so it instacart, it's all about becoming the platform for local Commerce right and so exactly kind of like. [14:19] GSI pivoted from being a turnkey solution to being a platform that retailers used instacart is launching all these white label Standalone services so carrot ads and. Carrot fulfillment and they're opening their own rapid Commerce distribution centers that you can stage your products in and, and you know offer 15 minute or 30 minute delivery windows, so that you know it's kind of interesting instacart was really trying to sell their their stuff as services and and white labeled services and not just for food so across all of Commerce, the same with doordash doordash seemed to be talking about hey we're we're all general merchandise, were you know doubling down on using. Fulfilling orders from stores helping stores either use us as their own last mile service and even helping. [15:28] Create inventory locations for retailers that are closer to Consumers and Chris Payne talked a lot about, these delivery promises and it was interesting he was like. You know we can all do 15-minute delivery but there definitely is not a path to doing 15-minute profitably and there's a lot of operational challenges and he was kind of arguing, that he felt like 30 minutes was The Sweet Spot that that like he thought it was totally viable the offer, in a peeling assortment of items for 30-minute deliver and meat delivery in major Metro areas and that that was going to be the focus of doordash. And then Uber, same thing like you know right now ubereats makes as much or more than then Uber rides, and if you've been watching TV you may have seen they have a national ad campaign right now which is pretty funny called Uber not eats and it's you know promoting all the non edible stuff that you can get delivered from. From from Uber and and that like they wanted their kind of phrase for themselves was we want to be the local business operating system so all the stuff. That a business needs to do kind of local Last Mile does that get you all fired. Scot: [16:49] Chris Payne was that a it does Chris Payne was a team I know him from her. He always has he was at like MSN and then eBay he's been all over the place he said he's kind of a he started I think it was a CTO for a while but I think he's now more operational. Jason: [17:09] Yeah I mean he was good and you know it was interesting to hear from all of them I do think all of these like startups that are you know. You know I think there is a significant infrastructure disadvantage when when kind of uber doordash and instacart are all weaning into your space. Scot: [17:28] Yeah it's hard to hard to compete with them on one side and Amazon on the other it's a bit of a crunch. Jason: [17:36] Yeah and it kind of my big takeaway from the these these key notes in aggregate is, the swim lanes are off by each of these companies might have been born in a slightly different category of the gig economy of you will, and they you know they each had kind of their home market and they all have decided that the growth opportunity is to expand into each other's market so I think these three companies, feel increasingly like direct competitors to each other. Um so that was kind of my Keynotes and then and I did not get to attend every single key note it was a pretty busy show and I was over programmed, but so then I did attend as many other sessions as I could and here kind of the big themes from my perspective and you tell me of any of these resonate with you. [18:26] There are a lot of sessions about buy now pay later and like it was very optimistically covered, in these sessions and Mackenzie did a session where they were sharing some consumer research that you know more than sixty percent of consumers plan to use it I thought all the, the buzz around being PL was interesting because, in my world it almost feels like like that that trend has already peaked and is starting to decline. [19:00] So you know part of a lot of retailers adopted be in PL they originally World on their website now the ruling it out in point-of-sale and a little known fact, it's more expensive for most retailers than a traditional credit card transaction and the argument was, that it would bring incremental customers and higher value customers, um and like that hasn't been universally true amongst my clients that have tested it, and the kind of the world has changed a little since these Services first rolled out now these services are all showing up on credit reports which, for a while they weren't and so that was a reason a consumer might have chosen to use this versus traditional credit card was if you know, they already had a spotty Credit Report or didn't want to risk getting a spotty credit report and there's a lot of talk about like default rates starting to really creep up on these things so I kind of wonder. [19:57] How durable they're going to be in the long-term especially if you know the economy keeps being challenging for a little while. Scot: [20:05] Yeah and one of The Shining examples was Peloton which is kind of Hit the skids pretty hard and I think they were like half of a firm's volume or some some crazy number you know of one of the. Jason: [20:19] Meaning a lot of protons where bye. Scot: [20:21] That's got a great ahead. Jason: [20:22] Installment plan yeah okay. Scot: [20:25] Yeah like something like 80% of peloton's had an affirm plan and so but also I think it was by far our firms biggest Merchant. I've read you know like a very material percentage of a firm's, what do you guys call it transaction payment volume through those bmps I don't know whatever the metric is of the transaction volume flowing through I think I think Peloton was a big one and it's there in a world of hurt so I wonder if that's creating some pressure on the industry to. Jason: [20:50] Yeah at the very least I don't think the world needs as many as we have right now so I would expect at the very least that we're going to see some consolidation in that space and it, you know it certainly has a place in the ecosystem but there was a while when I was like oh my God the Magic Bullet to every Commerce problem is buy now pay later. Scot: [21:11] Yeah there is was there any good consumer Behavior though that you believed or was it all felt like the the buy now pay later guys had just funded it that consumers love it. Jason: [21:26] Yeah well yet I mean I don't think the Mackenzie research was funded by by a particular company but you know it was this stated preference survey from customers and you know how much I love. Stated preference service from from consumers. Scot: [21:41] Yeah. Jason: [21:44] Side note 99% of all alcoholic say they can stop drinking whenever they want if you want to do a survey. Scot: [21:53] Absolutely and everyone says they'll spend more money for something environmental friendly than they never do. Jason: [21:58] And a hundred percent of people are of above average intelligence. Scot: [22:03] Yes and handsome. Jason: [22:05] Which doesn't yet turn out to work out so. Another big talking point at the show was everybody's favorite word to hate is omni-channel like there were a ton of omni-channel sessions there's a lot of interesting talk about, people returning to stores like there is mixed messages about the rate of digital adoption declining and I would say. [22:34] The rate of acceleration is declining but like digital is not diesel is not shrinking in any like absolute basis. A lot more of these omnichannel amenities and so this was like that was a lot of the Sam's Club talk was about that Dave gilboa who's the one of the cofounders of Warby Parker he was talking a lot about Omni Channel and the role of the stores in their business model and how they've kind of gone back to Virtual try on like the I don't know people know that the original plan for Warby Parker was, that you could use your phone to try glasses on and. The technology wasn't quite there when they launched the company and people didn't like it very much so they end up having to do all these, tried for five pair for free as an emergency stop Gap but now they feel like with the lidar and the latest iPhones they feel like the virtual try and experience is working better than the, the tripe are model and so they're starting to see a lot of uptick in that but people still want to come into the store to buy the glasses so kind of talking about, Omni channel for the win. Scot: [23:45] That's not harmonized. Jason: [23:48] Yeah no only 44 what's his name Steve Dennis. Scot: [23:56] Dennis yeah. Jason: [23:57] Sorry I missed her bifurcation is how I think of them but. Data is always a buzzword at this show which again I like data as much as the next person but I'm not sure like as a tactic that it's a standalone thing but a lot of people wanted to provide case studies about how they were, you know leveraging data in new ways and particularly omni-channel data so John strain who's the chief digital officer Gap was talking about, all the new initiatives that Gap is doing for first-party data and he was arguing that like you know with the two doing personalization with first-party data like they were saying. [24:41] Did that, they were able to acquire customers that were like 40 percent more likely to be new file customers as opposed to Labs customers and it had a 30 percent higher order value than, then kind of their their pre data-driven customer acquisition tactics. The Steve Miller who's the head of digital at Dick's Sporting Goods he was talking about a lot of. Sort of the data collection techniques that they were using and how they were getting way you know better outcomes out of personalization they had a kind of cool example I like. Dick's Sporting Good launched an app called I think it's called Game Changer and what it is is it's an app for your phone to keep score at a baseball game and by keep score do you know what I mean like track all the stats. People for a long time have Branagh book and like. Scot: [25:37] Book yeah. Jason: [25:38] Manuel keep score the game so they created this app they give it away for free but what it does is it now like get wet them get 27 million. Like weekly Baseball fans like in their ecosystem that they then get to Market you know they have first-party data on and get to Market to so it's kind of like when. Um Under Armour bought MyFitnessPal for example like kind of interesting places where retailers are, are like building or buying these digital utilities that aren't necessarily directly related to Commerce so I just to get closer to customers that they can then Market. Scot: [26:21] Yeah that is color all Trojan Horse strategy. Jason: [26:24] Exactly and then Julie Bornstein who's the founder of the yes, I think a past guest on the show she was kind of talking about her first party data and she was throwing out red meat to all the Consultants that are selling personalization so here's going to be the money quote that you're going to see in every brochure you get for the next year, our first party day I driven first-party data experiences drove a 75% increase in annual spend a hundred percent annual order frequency and 125 percent better retention rate. So sounds great sounds like they got some improvement that move the needle for them I'm excited for them, here's going to be the thing when you see all these personalization vendors that are now pitching that to you like. Personalization isn't like a binary thing it's not like you don't have it and then you do have it and these are the results you expect when you do have it right like everybody's doing personalization to some extent and like how much, Improvement in results you're going to get is going to be directly related to how bad your experience was before and how far you improve it. Scot: [27:33] Yeah yeah could so it could be just started with really bad bad numbers and then didn't kind of. Jason: [27:40] Exactly so I wouldn't I mean I wouldn't be like putting too much stock in these like benchmarks are case studies as like predictive in any way of what an individual user will get but like of course if you can get more customer data and use it to have more relevant experiences that's going to be you know benefit. Scot: [27:57] Now one thing I'm noticing is previous shoptalk sweat with this whole panel format this is sounding much more like individual speaker was that that kind of change of the format. Jason: [28:08] Not necessarily so they kind of have a few formats so they have like they have the key notes which is almost always, an interview that presenter an interviewer and that that was still true so then they have track key notes and attract keynote is usually in individual speaker or an individual speaker followed by an interview and then they have these panel formats and so in some cases, I'm cherry picking what I thought was interesting from one speaker and a panel of three but in a bunch of cases these were track Keynotes. Scot: [28:47] Got it. Jason: [28:49] And we'll get to the very best track keynote in a minute which you know was obviously mine. Scot: [28:56] No bias there. Jason: [28:58] Yeah, so a lot of talk about the best and most cost-effective ways to acquire customers so you know there was a ton of sessions talking about live streaming and kind of the, the kind of at this point I'll call it the kind of predictable tripe that like oh my gosh you live streaming is huge in China and may or may not be coming to the u.s. but you should be testing it like you know Google obviously had a big keynote talking primarily about live streaming a ton of practitioners were talking in particular about like their experience on Tik-Tok and successful live streaming HSN was obviously talking about their success and then there were some, shop shops is a live streaming platform that you know gave an interesting case study and then, I would say there's always a couple of vendors that like emerge I don't know if they're necessarily the best or not but like kind of win the show for share of voice and so every time someone's talking about live Commerce the vendor that they were talking about partnering with was firework which is a enabler of live streaming, Commerce and so it felt to me like they they did a good job showing up in all these conversations are you bullish on live streaming. Scot: [30:17] I am but it's because you have trained me that it's so big in China and then you know it's one of those things, a lot of the stuff in China we thought would be good kind of come across as not like chat Commerce and why bow and all that so but it's one where you know I see these influencers and I think it will catch on because we've got, the Kardashians and if they ever did a live stream or something like that it would be huge we just need we need like that spark and kind of a unique American take on it, probably from a Content perspective not underlying technology but it all has to come together. Jason: [30:52] Yeah so I don't like we may need a an updated deep dive on live streaming in China because it's actually, it's evolving super rapidly like there was this interesting phenomenon at first where all the live streaming was happening on retail platforms so it was like, kind of influencers that got made famous by Ali Baba and j.d. on their platform so think of it as people were consuming live streaming on Walmart.com not on tick tock, and then the government kind of crack down on some of these influencers who apparently weren't paying taxes, and and it kind of shifted the live streaming to the social platform so no like now Dao Yuan which is Tick-Tock in China is. The destination for live-streaming so it's just been interesting, but one wave live streaming I really like and I think coach was talking a lot about in their their track he noted the show, is sales associates as in as micro influencers and doing live streaming either from the store or after hours which. Scot: [31:55] Yeah we'll have to get caught up on them. Jason: [31:58] It's a related Trend that got a lot of Buzz this show as another way of acquiring customers as micro influencers that's another one that I'm kind of bullish on and there were some good case studies there, so Jill Ramsey is the CEO of AKA Brands was talking about like micro influencers being their most successful new customer acquisition strategy there are a bunch of apparel brands, um one that I hadn't thought of that I feel like I need to get updated on more, Alyssa Walt is the chief business officer for Burton Snowboards so you know all the snowboarding accessories, and she was talking about they were having huge success using NCAA athletes as influencers, and of course if you're not following it closely that used to be illegal for or not illegal but like it was a gainst the NCA term so you lose your college eligibility of you made any money as a, influence our sponsor and now their college athletes are all permission to. To endorse products and make money and so it's kind of open this new, new channel if you have a product that's appropriate to be. [33:13] Advocated by college athlete so that seemed interesting that they were a fast mover there, and then I mentioned coach was definitely leaning into influencers and particularly using sales associates as influencers. Scot: [33:29] Cool aunt heard the NCAA thing yielding some some fruit so that's interesting to hear. Jason: [33:35] Yeah I've seen some funny like local case studies where do I go up a car dealership hired some NCAA athletes and as you could imagine, like some of them are awful and some of them are awesome. So I just like some of the like the quality of the deliveries have been pretty funny and uneven. [33:55] So another big talking point that kind of it was not the topic of a lot of sessions but it got mentioned in a lot of sessions including mine was the emergence of retail media networks and I would say that was, something that came up at a lot in hallway conversations more so than in like content on the stage. But everybody and their brother you know now has a retail media Network and they you know they're all doubling down and one thing they're all doing is expanding, Beyond digital search so you know more different ad platforms on their websites but increasingly a lot of. Media opportunities in stores so you and I were talking about some of these offline like you know you know in-store displays and things like that, and then also a bunch of these retail media networks are offering dsps and letting you buy ads on Google or Facebook using, first-party targeting from the retailer so you know you think about the depreciation of cookies in your ability to buy your own look-alike audience on Facebook, you know you can still pay Walmart to buy look like audiences on Facebook for you and that can be pretty successful. [35:14] So we already talked about the payment Trends another big Trend that came up a lot we kind of covered it in the, the Keynotes was the rapid Commerce being a big thing and then what I wanted to put on your radar screen. When the came up an awful lot a few times in sessions and then a lot in the hallway is everyone is metaverse curious. Scot: [35:41] Yeah yeah I read one of the summary as was everyone's talking about metaverse but no one thinks they'll actually be an e-commerce down there so I don't know we're people thinking there's actually going to be some Commerce happening or they were just. What is this wise. Jason: [35:56] So I don't know that's a good question I tried to ask probing questions and like the vast majority of people you talk to don't actually understand what they even meet like there's a lot of confluent, compilation of terms right like web 3 metaverse, um blockchains cryptocurrencies and so it's it's you know you're talking to someone about the metaverse and then they're telling you why they invested in Bitcoin and you go well like those are related but they're not the same thing. Scot: [36:28] Yeah it's like 13. Jason: [36:30] Yeah but so there are a couple case studies from some gaming companies that we're doing some in-game Commerce again Mackenzie like kind of had some consumed like part of their presentation had all these like, evolving consumer Trends and they again there's a stated preference for take it with a huge grain of salt um but they ask customers how many hours a day they expected to spend in the meadow verse five years from now and the average answer was 4 hours a day, and for for Jen's he's the average our answer was nine hours a day. Scot: [37:03] You know every pretty much every waking hour or sleeping hour will be the members. Jason: [37:09] Yeah and, you know I'll tell you about my evolving opinion The Meta verse in a minute but you know a really interesting question is what it like is like are we in the meta verse right now like like a zoom call the metaverse is. But Facebook messenger chat the med over like you know the there's a lot of gray area in definitions. Scot: [37:34] Nursing. Jason: [37:36] And so if you can't like if all my time on Twitter is in the meadow verse then I might be close to that average now. Scot: [37:44] Yeah yeah I don't know I don't think that counts. Jason: [37:49] And so I will highlight like I di think we have a metaverse Commerce Deep dive in in our near future, everybody wants to learn about it and understand it like I've been doing some kind of meta verse 101 Commerce conversations with a bunch of clients, and like at the very least if you're going to be an early mover and do some piloting like there are a bunch of easy to make tragic mistakes to make early on that you should. You should be aware of and so it just you know it might be an interesting topic for us to do a deep dive on. Scot: [38:25] Yeah we'll put it on the list. Jason: [38:27] Yeah and I got corralled by everybody's favorite venture capitalist Andreessen Horowitz and they're wildly boyish on the members. Scot: [38:36] Which which one of the folks steamer. Jason: [38:40] So they now have like a whole team, dedicate like that and you probably know them better than I do but you know they're trying to have this spin of providing all these services to entrepreneurs so they have like a lot of kind of. Share real sources and so you know the pitch to me is like, you know man if you have any client projects like we can play matchmaker and help introduce you to the right you don't companies in our portfolio and stuff like that so the these were not like Investment Partners these were all operating partners. There were trying to accelerate business for their portfolio companies that were pitching me. Scot: [39:25] I knew they had crypto Focus I didn't know they had a team thinking about the meadow verse that sinners. Jason: [39:29] They do have a crypto focus and I'm saying metaverse but I'll tell you what they really have their their their in addition their trip to focus they have a web 3 Focus. Scot: [39:38] Okay they're kind of loving it all together. Jason: [39:39] Um yeah which there is an important distinction between metaverse and web 3 which would be fun to talk about it we do a deep dive. Scot: [39:47] Yeah alright good teaser. Jason: [39:49] Awesome, lot of talk I mentioned this already but there was a lot of talk about the return of stores which is funny because you know I wasn't where stores went away, but maybe the buzz of the stores went away and you know now like stores are coming pretty well against their soft pandemic numbers and digital is comping, not as well against their Mega pandemic numbers and so, there's a way in which you look at it and go oh man you know store growth is unusually high and digital growth is unusually low. [40:22] I think that's kind of a misunderstanding of the data a little bit in a lot of cases but that was, a big hallway conversation and then the conversation that I didn't hear that really surprised me I mentioned the mood was really kind of Rosie, I have to be honest all my one-on-ones with clients leading up to the show have not been Rosy like there's a, awful lot of concern amongst the folks I work with about what everybody's calling the macros and you know by that they mean, like inflation persistent supply chain problems you know consistent persistent like economic instability like housing supplies and cost-of-living going up like all these, these kind of Doom and Gloom Financial measures and then you throw you know gas prices in war in Europe, on top of all that and I'm talking to a bunch of people that are like really worried about the Financial Health and spending ability of their customer base and there was none of that at the show. Scot: [41:24] Yeah yeah you know the consumer confidence numbers taken a precipitous fall which I always use is kind of my barometer and I'm I am also worried about the macros. Jason: [41:36] Yeah I mean you know I get these wrong all the time but there was a time early in the pandemic when, when you know my narrative was like the pandemics probably going to cause a recession and it's probably going to end with a period of like crazy accelerated spending similar to The Roaring 20s and the irony is, the opposite kind of happened like the pandemic like drove a two-year period of crazy spending and it feels like it's now ending in her session. Scot: [42:07] Yeah yeah it's kind of kind of backwards from what we all thought. Jason: [42:11] Yeah I hope that's not how it all plays out but. Scot: [42:14] Shown up in the numbers like you know the numbers that you talked about the retail numbers the but so it's either not happening or its early indications and we haven't seen it yet that's just kind of the big concern. Jason: [42:25] Yeah yeah no and I will tell you like if and it's going to come up here pretty soon I think another week. Last March was a mega month for retail and so the comps this March. Are copying against are really hard number and you know a lot of people feel that like the macros like really started to show up in the consumer numbers this March and so if, like there's a chance that like the comps are going to be really ugly this March it's going to be a interesting month to watch. Scot: [43:02] All right we'll keep an eye out. Jason: [43:03] Yeah I did say the last best session best session for last, I did a track keynote talking about achieving digital profitability right and I so I was the one Doom and Gloom session I'm like hey there is a bunch of macro concern over out there like obviously there was a bunch of extra digital, um activity and now the challenge we all have to face as we got to figure out how to bring more profit to our digital business and so I did a whole, track keynote talking about, um opportunities to improve the profitability and then I had a guest Jerome Griffith who's the CEO of lands and like I did a, like a 15-minute presentation and then we did like a 20-minute fireside chat talking about the best strategies to make money in this climate. So I tried to channel my inner Scott as much as possible. Scot: [43:56] What were some of the what are some of those strategies. Jason: [44:00] Um I mean it's it's black and tackling stuff we kind of you know talked about you know typical framework of, reducing cost getting more customers you know generating more revenue from each customer and then we kind of hit on, our favorite tactics within each of those three buckets Jerome like you know by far feels that the, the easiest best place to start is on the cost controls right and he's in the apparel space historically the apparel space does a horrible job of demand forecasting. [44:36] So they make the wrong stuff and they make too much stuff in that really hurts costs and you know just just fundamental costs of goods and and having good rigor around controlling, manufacturing cost is his kind of home base but like the part of his. [44:56] Feedback that was super interesting to me is lands in was a direct-to-consumer company so they were a company that was born as a catalog that sold 100% direct-to-consumer, they got acquired by Sears so then they were exclusively available on the lands in catalog and in Sears stores, and they were acquired by Sears I greatest years was starting to get distressed and turning into a fast Eddie Discounters and so suddenly lands in which hadn't done any discounting was heavily discounted, and then they got spun off from Sears and you know tried to recover their non discount price point and, they expanded into a bunch of other channels so today you can buy lands and direct from their website which is still about 50 percent of their sales but they sell wholesale through Macy's and Kohl's, which you know our discount channels and then they they also sell 1p on Amazon and so it was interesting he talked about wholesale and marketplaces being, a very important and vibrant customer acquisition strategy for a direct-to-consumer company and so he felt like. [46:07] Like the customers that he was meeting at Kohl's were incremental to the customers he met directly and that like partnering with coals and Macy's was, way more cost-effective way to acquire customers then Facebook ads. Scot: [46:20] Nursing and then I like the marketplace take that's a that's a good one. Jason: [46:24] Yeah yeah yeah so he I mean he was kind of like you got to be where the customer is control your costs, and then you know there are things like if you are direct-to-consumer like you should launch a retail media Network and try to supplement your, your Revenue with those kinds of tools and you know I did some stuff just on basic block and tackling and on mobile experiences that we all still get wrong and improving mobile conversion and stuff like that. Scot: [46:54] The was there a standing ovation at the end of the session. Jason: [46:59] There was there was because I said I was going to shut up now and that that generated incredible standing ovation. Scot: [47:05] Did you do the whole Spiel of if you like this I've got 290 hours out there on the internet for you. Jason: [47:11] I did but it's 3:00 because even though we only have 290 shows the average one is longer than an hour. Scot: [47:17] Nice yeah yeah good yeah some guy we interviewed somebody's like I've listened to all your podcast is like I'm not really sure yet. Jason: [47:28] Yeah although I will tell you I ran into a ton of people so many nice comments I'm so grateful like the thing I feel bad about when you miss a show is, just so many random people like recognize our name on my badge and I had a Jason and Scot show badge, and like we're honest with Sinners and had great feedback and I was just found out talk to all these people and and it's nice to hear that people appreciate what we do and if you don't know the most common, comment I get about the show is that oh yeah I listened at 1.25 speed or 1.5 speed while I'm at on my exercise bike. And I want to say for the first time ever I met a guy who's a regular listener to the show that said he listened at 2X and that I found I sounded kind of sleepy and tired in real life. Scot: [48:18] This is in your holding two coffees did you have the thing where you're speaking and someone recognizes your voice and they're looking around like a weight had I've heard that voice before that happens to us it. Jason: [48:32] It's Starbucks every single time because but I mean hey I spent a lot of time standing in a Starbucks line and I spend a lot of time talking so a lot of people have the chance to hear my voice and go wait a minute you sound familiar. Scot: [48:43] Did anyone make fun of your title that's my favorite part. Jason: [48:46] So yes but like in fairness there mostly people that are friends of yours or mine that just like on team Scott. Scot: [48:55] Okay they're just just carrying on the chief digital retail analytics customer Journey officer. Nice cool did you guys did your company have a been big shindig was it a good show for you guys. Jason: [49:11] It was it was it was also fun because I had a fair amount of co-workers their it was fun to spend time with them and we had a team dinner that was awesome. The most purposes agencies wouldn't necessarily exhibit but we own a company that helps Implement a lot of retail media networks called Citrus ad and so they had a booth there so I it was fun to hang out with them a little bit their founder by the way we might have I try not to put pupusas people in our show very often but we might have to have him on because he's a two-time very successful entrepreneur he tricked us into buying his his most recent company. He also is a former professional Australian Rules Football player like legit. Scot: [49:58] Oh ah yeah that's that weird football that they have yeah it's kind of fatter and stubby or than our football. Jason: [50:06] What version of football is not weird that okay yeah. Scot: [50:08] Cool well yeah and we should talk about if pupal sis needs to acquire any car washes with you you and I can have that one offline. Jason: [50:18] Yeah yeah for sure you I get as you can imagine that's that's most of the cycles that that I spend it purposes is pitching on us leaning into the car wash space. Scot: [50:28] Cool did you get a chance to walk through the booths and the the show floor and see Annie was that well traffic to an any any kind of. Jason: [50:38] Yeah it's always it's always hard to tell I do think shoptalk one of the things shoptalk does well is two things they try to have some events in the floor. Um so so you know like the lunches and stuff you kind of have to walk through the tradeshow to get to the lunches so they try to artificially create some traffic but one thing I really appreciate about shoptalk is, they have down time in the agenda when there's no track or keynote content like they have like two hours a day and part of the reason is they have this this function cut these out meet up so I can retailer can attend shop up shoptalk for free if they agree to take like five meetings with vendors and then these vendors pay for these meetings and so they have to have a window to do those meetings in and so I appreciate that, it creates a more natural opportunity for people to walk the show and discover vendors without feeling like you're missing something. Scot: [51:36] Crinkle how many retailers did you meet with. Jason: [51:40] Yeah so I do always try to walk the show and I do try to stop and talk to some booths I got to be honest there's a weird dynamic Scott and I feel like you would appreciate this but Walking the Floor makes me feel old because, I walk the floor and, here's basically what goes on in my mind I don't recognize the name of any of the vendors and then I agreed to sign for a second and then I figure out that there are vendor I know super well that's changed their name three times. And so it's like I feel like the Wikipedia that's like remembering oh yeah you used to be this and now you're this and now you're that and then I know I go oh and I know these 3 people that work there right now. It is now the case that all the people I know that work at all these vendors are too old and Senior to be in the booth so. I know I never run into any folks I know in the booth that's always the the Next Generation. Scot: [52:33] Yeah and then I'll get excited that you're a retailer and then you're a podcaster and they're like. Jason: [52:39] Yeah and that's my my unfulfilled young Lame Game I play with all of them is. You know by and large they're like so what do you do and I go I'm mostly just talk about this stuff all the time and there and they like think I'm lying when in fact that's exactly what I said. Scot: [52:55] The new about the 3:00. Jason: [52:58] Yeah exactly. And then in a couple cases it Dawns on them wait a minute you're the Jason and Scot show and they like chase me down in the hallway and go you I listen to your podcast. Scot: [53:08] Very cool. Jason: [53:10] Then we go into those sleepy tired thing anyway but in the interest of bringing the average down I feel like I've covered all the show do you feel like you caught up on everything you missed by not being there. Scot: [53:23] I do the one thing that I've heard chatter from the folks I talk to is this continued pressure on Shopify you ever seen they announce their last quarter's earnings Q4 their stock has been on a precipitous slide that they haven't seen since their IPO and like 2016 I think, maybe 15 was that that come up at all or no. Jason: [53:50] It didn't come up a lot and I'm trying to remember like I actually don't think they had a booth at the show which is interesting. I could be wrong on that but I kind of don't think they had had a big booth, and yeah I mean you know obviously they're totally lumped into this whole category of companies that did amazing in the beginning of the pandemic and then like you know seem like they acted like they would continue to, to grow that pace and obviously couldn't and then you know the their stock got punished for it. Scot: [54:23] Yeah yeah and there's been a lot of Wall Street notes out saying you know that I think what freaked everyone out is the fact they're going to invest in infrastructure meaning warehouses and there's a lot of Wall Street folks trying to say. It's not that bad it's only a billion dollars but I remain skeptical that that's going to be enough and then, yep so we should just wondering if that was. Jason: [54:48] Yeah I mean if anything I would say there are a lot more fulfillment companies that would be competing with a Shopify fulfillment Network and a lot more you like I'll tell you where Shopify has a ton of competition at this show are like. POS systems which is actually a meaningful part of shopify's offering now and you know like kind of. Solutions as a service besides the e-commerce site the payment systems and all of these things that you know Shopify does and I will say it's kind of funny. I still think like a lot of people try to describe themselves as the Shopify of X which. Like doesn't sound as good as it did a couple years ago and you still hear people trying to say like we're the word be Parker of X and I'm like have you looked at worry Parker stuffers. Scot: [55:37] Yeah how about how about some of our friends from The Headless Commerce industry was there a lot of a lot of Buzz there with the. Jason: [55:47] Yeah, so those platforms were there in full strength Fazal and fabric had a big presence there you remember they raised some good money right before the show, we had Kelly on from a Commerce tools you know a number of episodes ago and he talked about the mock Alliance and that mock Alliance, has really gained a lot of traction like I'm seeing a lot more and more vendors emerging that are now members of the mock Alliance so it seems like. You know that that's not just a marketing thing that's kind of like a legitimate Trade Organization for all these headless providers. Scot: [56:27] Nursing was there like common badging throughout or something like that. Jason: [56:31] Well yeah there's a mock Alliance logo that was on a bunch of booths I they may have had events I wasn't able to like attend any of their. There are social events but yeah it seems like it's getting traction I don't know if this is a perfect show for that like. There was an ERA when like everybody needed a platform you need to go to a show to meet vendors and find out about platforms like I kind of think the average attendee here has a platform today and so you know maybe there's some that are thinking about switching. But I have a feeling that those booths have gone a little bit more from customer acquisition to. Customer relationship management and retention at the shows. Scot: [57:11] Yeah yeah nursing will cope well we appreciate you going out and braving the wild environs of the Las Vegas hotel circuit and this the Starbucks to report back to us. Jason: [57:25] It was my pleasure and if she's listening definitely congratulations to Christina Gibson and the whole team at shoptalk I do think they put on a good show and it's, like I think it's definitely set itself up as the preeminent kind of digital Commerce show in our industry now. [57:59] Yeah and until next time happy Commercing.
EP289 - ShipBob Co-Founder Dhruv Saxena Dhruv Saxena is the co-founder and CEO of ShipBob, Inc. ShipBob is a tech-enabled third-party logistics provider (3PL) that fulfills e-commerce orders for direct-to-consumer brands. We discuss ShipBob's origin story, how the e-commerce fulfillment industry has evolved, as well as the challenges and implications of Amazon and Shopify's various fulfillment initiatives. Episode 289 of the Jason & Scot show was recorded on Friday March 18, 2022. 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 289 being recorded on Friday March 18 20 22 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo. Scot: [0:37] Hey Jason and welcome back Jason Scott show listeners Jason as you know we did a Amazon Fulfillment deep dive a couple weeks ago and that was quite a popular Topic in episode and we've been getting a lot of questions from listeners about what's going on in the world of and we are now living in a world where products used to be if you get it in a week that was amazing and now anything that's longer than 2 days feels like a lifetime so we thought it would be good to bring on one of the top startups in the Fulfillment area the shipbob and we have with us the CEO and co-founder of shipbob dhruv saxena dhruv welcome to the show. Dhruv: [1:20] Thank you so much Scott and Jason for having me excited for our conversation. Jason: [1:24] We are looking forward to it as well I'm getting tons of complaints on the feet already that people were expecting Bob to be on the show today so you'll have to tell us how it became dhruv started shipbob. Dhruv: [1:36] Yeah for sure I'll give you a quick back story on me if that's the opening question and tell you how did we come up with the name shipbob. Jason: [1:46] That would be perfect yes I asked it very awkward we Scott is laughing at me on the back Channel. Dhruv: [1:51] Yeah so. Quick back story on us you know I grew up in Delhi India came to the u.s. in 2007 to pursue engineering my co-founder on shabaab device is also from India we've known each other all our lives. And so we after we both did an engineering in the midwest here I went to Purdue we came back to Chicago and started. I'll booking in a full-time jobs at software programmers and on nights and weekends as most Engineers do. We were trying and experimenting with a bunch of thought of ideas and one of the start-up ideas was in e-commerce. And be Engineers we were able to automate effectively everything in that e-commerce business except the part around shipping and Logistics. And so every time you would have a bunch of folders we would have to run to the post office here in Willis Tower Chicago in the basement, they have a post office and we would have to stand in line and basically ship out those orders out and that became the most manual and painful part of our e-commerce business. And we wanted to find ways of automating that. [2:58] And we would call up a bunch of these existing companies 3pls who helped companies with the shipping and Logistics take all three pills third party Logistics providers. And none of them wanted our business because we were too small for them, and so that got us thinking as to hey how do others small to mid-sized e-commerce businesses figure out their shipping and Logistics we realize that there really isn't a good alternative for businesses like ours who are you know ramping up e-commerce businesses and that caught us into, thinking what should pop can be. And how did the name come about you know so when we started thinking about building a company for helping businesses with their shipping and Logistics needs. We were going for like like people want fast shipping so we should have ship and a fast you know like an animal name or something like a ship park or a ship Cheeto something on those lines so that it conveys. That heylia company which helps you with fast shipping and all of these that domain names were taken, stop after a while godaddy's recommendation engine you know started recommending you no other alternative domain names and one of them was shipbob for 299 or something, and so we say you know we don't have money but this seems like a cool name and so if you just turned shipbob.com for 299 and that's the story of her name and so now we have a good messaging around hey, Bob Means bending over backwards for your shipping or Bob can be a plumber Bob can be you know any use for gyves but as Bob kennels to be a shipment so that's like the marketing angle on shipbob. Scot: [4:24] Very cool so it's interesting because this kind of parallels a lot of a lot of companies in e-commerce they start with people building e-commerce stores and then they're like, this part of it stinks I'm just going to focus on solving this so what is your original e-commerce store do. Dhruv: [4:42] So we started were doing a lot of like printed photographs and so you know this is like 2013 2012, bear Instagram had just been acquired by Facebook for like a billion dollars and so we thought oh wow that's photo-sharing seems to be like a heart, market right now and Instagram is all about digital photo sharing so what if we brought back the Retro way of sharing pictures which is people would print and mail pictures to each other so our e-commerce business was that you would send us a photo. Honor text bot we would print that photo we would frame it we would write a message at the back of the for any personal message you wanted and mail it to your friends and family all across the world. And so that was sort of you know our big idea then like physical photo sharing. Scot: [5:28] Cool car like frame bridge I think does some of that now cool yeah so then you you did you wind that down as you kind of pivot it over to the Fulfillment center. Dhruv: [5:39] Yeah it won't down on its own to be honest because once we started focusing on on shipbob E that business wasn't really taking off with shipbob first was was so we started spending a lot more energy on shipbob. Scot: [5:52] And then so that was 2015 earlier kind of also 2014 yet. Dhruv: [5:58] Now 2014 2015 we got into this incubator called y combinator Scott so. That allowed us to you know quit our full-time jobs because y combinator gives you like a hundred and twenty thousand dollars so that was enough money for us to like put in you know our notices on a full-time jobs and go all in on shipbob. Scot: [6:20] Brickell so you got no Y combinator and then that usually requires you to go out to Silicon Valley for a period of time did you guys do that or are they at some point they introduced remote but I think that was later. Dhruv: [6:32] Much later yeah no that's a good question so. This is another great sort of Peace around you know building startups and Chicago so when we go into YC. We were one of the very few companies you know. Who did not relocate to California so it was it wasn't mandated or Partners there were very comfortable we okay with us traveling back and forth. So every week on Tuesday they have these partner meetings but you go and tell them the progress you've made. And so we would fly every Tuesday morning to our Mountain View California do our pitch and you know and learn and then come back and because, we had to fly and I was you know what a red eye flight Etc it was a lot of effort so we would always try to make sure that we have enough progress that we've made in a given week to make that trip worthwhile otherwise we would go there and we will just come out looking like we didn't really do much and that would be a waste of our time so that pressure of making that trip by productive I think in the early days for stars to work way harder, that may be a lot of other companies simply because you know we were putting a lot of effort and these so and capital in making those trips and but we headquarter the business in Chicago. I'll see you know which turned out to be you know pretty good decision I guess in hindsight. Scot: [7:49] Yeah and then you know what's really interesting and I kind of live this every day so I'm curious how you path you took here as software people you know we love to solve things with software and at some point shipping is not a software problem right you can you can build the world's best shipping but at some point some human has to and maybe a robot but you know some something has to move a package from point A to point B sometimes Point c d and e and then someone has to you have this middle Mile and this last mile when did you guys realize that you're going to have to actually have like fulfillment centers. Dhruv: [8:26] Um right from the prions yeah pretty much. Because you know coming out of the running your own e-commerce business and then also a couple of other startups before then. Like. Be being Engineers yes we were very accustomed to writing a lot of code and then just hoping that users will show up and none of the startups are for shipbob for us worked out, and one of the realizations that would be in the way had is that just because you build it doesn't mean that people will come, and so you would have to spend a lot of your time and energy in making sure that you actually spend you know time on sales marketing and distribution and so when so we were very. Early before even adding code we were talking to our customers and these customers you know who would eventually become users or loyal users. Told us very clearly that we don't really care about great software what we care about is a great product or a great service which helps us in packaging and shipping so that influence the decision-making right. We can't be a pure software company these Merchants are paying us because they need great fulfillment service so having our own fulfillment centers probably requirement for us before we can start scaling. Scot: [9:36] Got it okay cool so you go do y combinator and then women did you like build your first like when did you have your first fulfillment center. Dhruv: [9:48] So right at the you know when you started the company like our office and my apartment became sort of a file template. Fulfillment center very Loosely here so you won't really be able to. Call the Department of proper fulfillment center but you know it did the did the work so there was enough room in our apartment and enough first office. Which is like I think thousand square feet for us to have some room for people to send us their product and we would store their inventory. And then have couple of hours basically pick pack and ship you know those boxes out so my apartment was on the 31st floor so every evening we would get a big. Little trolley and put all the packages and that's all a and then use the freight elevator to bring those packages to the ground level where Michael ejector words you know use the car and we'll take it to the post office. Scot: [10:41] If you're in Jason's building he would have reported you as like a probably a drug dealer some suspicious Behavior going on up on the 31st floor. Dhruv: [10:50] Yeah no. Jason: [10:51] I'm just grateful the city planners that do the zoning didn't hear this story. Dhruv: [10:56] Yeah you know it. Scot: [11:00] It's not illegal if you don't get caught. Dhruv: [11:02] You know we did get in trouble in the early days with the local post office so what would happen is again you know because we had been. We didn't have a lot of successful startups before shipbob Beaver like way paranoid about finding customers. And we none of us came from the sales and marketing background so we tried to run for this position where you can we find customers in the most cheapest and fastest way possible and the obvious answer to us was let's go outside the post office because there's always a line, people don't always seem very happy or to go to a post office and so if he. Can find a few e-commerce merchants in those lines we can pitch them that idea while they are still in the line and convince them to give us their package and not go to the Post Office the second webinar. And so we spend the first three during by see it is like a first three to six months of our shipbob basically standing in lines outside different post offices in Chicago to convince people walking in that shabaab is a better alternative than you going inside the post office. So the post office Forks very nice people thought that we were trying to take business away from them. [12:10] So they were sent they would call up these post office apparently post office has its own police do something so they would send out these post office cops, who would comment she was away and so we would just go from one post office to the other like based on you know which one had last called the cops on us and so, I think some post office might still have a picture of Jessica and the way to make sure that they don't show up again. Scot: [12:33] Hello. Jason: [12:35] Those cops are federal agents by the way they're not messing around. Dhruv: [12:38] Oh man I hope they did especially because we were immigrant Founders so we can't get in trouble with the the federal police. Scot: [12:49] The federal jails and I hear pretty nice though so good they have tennis and stuff. Jason: [12:54] What we're going to have a separate episode about how Scott knows that. Scot: [13:00] Okay cool so you did your wife see then you came back to Chicago and then maybe kind of update us like the bullet points to where we are today. Dhruv: [13:10] Yeah so once we you know got back to Chicago post why see we were fortunate enough to raise a seed round of a million dollars and so that allowed us to, you know take that top pill and hire a couple more engineers and hire a few more sales people and then expand the business so we opened up a warehouse in Chicago. Where we were headquartered and then we quickly expanded to New York as well so we added a location in Brooklyn New York. [13:38] And based on the progress that we had made you know in Chicago and New York and remember let's also limited so it requires Capital because you're opening up these fulfillment centers at the very beginning and you're also writing a lot of software which powers. The inside operations of the Fulfillment center and so we have to raise Capital simply by the nature of the business we are in also fulfillment I'm sure like, all your list has no it's not like a software business it's not an 80% gross margin business we have very tight margins, and so you are you require a lot of captains in this business to scale and so every couple of years we've had to raise Capital simply for us too, add investment dollars into building, either the software which powers are fulfillment centers or to open up our own fulfillment centers and so The quick summary of f Bob is today is that over the last five years or so, we raised you know close to 400 million dollars or so of venture capital, we've added you know be as close to 1,000 employees now a lot of it on the product and Engineering teams and sales and marketing team for us too. Add many emotions to our network but also write a lot of great stuff in which power is the back end of almost we know back-end systems of all of the e-commerce businesses using a platform. And the business strategically also has you know evolved where we don't now need to. [15:02] Operate our own fulfillment centers because we have four of our own social incentives each one in Chicago New York Texas and California so we kind of know how to run fulfillment centers we now partner with existing. 3pl Zone fulfillment centers who have empty capacity we bring in our software our know how our physical infrastructure into those locations, we bring them up to the shipbob standard and then we are able to Route our Merchants into those locations and so the business now requires a lot less capital in scaling the infrastructure side of things but not all of that Capital goes towards you know basically growing out the product capabilities and adding new Merchants into our Network. And we have fulfillment centers in the u.s. in Canada in UK Europe in Australia. And we of course added a lot of capabilities on a network all the parts on this wall so truly today now shipbob is a global. Omni-channel fulfillment solution for a Merchants where we can we are probably you know on power if you were starting an e-commerce business and you wanted to compete very effectively with Amazon and Walmart supply chain we are a great alternative. Scot: [16:13] Pickle the way I explain it let me see if this pencils for you so if someone asked me how this you know how this kind of what I would call your one of these next-generation fulfillment companies my pitch is you had these 3pls but they were really designed for you're kind of almost like a real estate thing where you go in and say Hey I want a corner of this fulfillment center and I'm going to lease it and do X Y & Z and then Amazon's Innovation was FBA where it was you know what much more aligned with the the e-commerce model of yes I want you to hold my goods but they're going to turn over quickly and I want to pay more of a per transaction kind of a thing, and I also want a lot of flexibility about how fast I can get products to Consumers so 3pls were in this kind of old world where they weren't really built that way so then part of what you guys did as you built your own fulfillment centers with this new model and then you can kind of take that model and put it into Old 3pls bring them up to kind of like the FBA level of above standard is that a fair summary of how you explain shipbob to other folks. Dhruv: [17:20] Yes that is very real articulated Scott I might actually use that going forward and and the only piece I would add to it is, of course you hit on the fast piece of it which is very relevant for a merchant, the second big element of wine Merchants choose us and our network is our ability to customize the unboxing experience which is unique for that particular brand so you know when you order something on Amazon it shows up in Amazon branded box for a merchant they want that unboxing experience to represent their brands you know. Ethos and the brand value so whether that's a custom box you know whether it could be eco-friendly material it could be custom gift notes accustomed shipping labels Etc the ability to customize that you know that. Transaction is very relevant for them it's almost on par alongside speed and and so that's the piece the second element of. Of customization I guess that should Bob's been able to unlock that I think FB it doesn't offer. Jason: [18:18] Got it and just to sort of clarify for listeners like so the goal then is it feels like it got shipped by the vendor right so it has whatever packaging the the manufacturer would want to use and a bill of lading that has their logo and those things on it as opposed to I ordered something from cuts and then I got an invoice from shipbob or something like that. Dhruv: [18:41] Yep exactly right we want to be. In the background you know where the Shopper is building a direct relationship with the brand and and the Shopper is agnostic to whether shipbob ships or whether the brand shifted. Jason: [18:58] Yep so and just to kind of frame this like back in that time frame the the idea of B2 C3 PLS was not common today it's a it's a pretty crowded Market space there's a lot of a lot of options but they're back then is got kind of pointed out like there was a thing called 3pls but they were more of like a B2B service really right. Dhruv: [19:22] That's right yep and so, the reason why even we were able to even build a business here is because majority of the 3pls out there were focused on the palette and Palette outside our transaction because most of their customers, but the bands who was selling predominantly in retail stores like Macy's no storm or Target Etc and so the concept of this High Velocity two to three units per order was very foreign to them, and all of the infrastructure was designed to store large number of palettes worth says having inventory in each has or in single units stored in bins and shelves. And so far from that perspective, the reason you know if you are doing pallets and pallid out like getting into e-commerce and then getting working with small and mid-sized e-commerce businesses where you don't make a lot of money for customer Justin. Pencil for these for these B2 B3 Tails because they were used to having. A small number of very large customers and then designing their entire operation inside the building's only for that few number of merchants because they would be able to make a you know the entire earnings ones from that limited set of merchants, word says it shipbob you know we we have a whole large number of merchants none of our Merchants you know are these are all birds or these massive Brands but these are growing emerging bands and. [20:50] Productized what is very much like been away service-oriented business. Jason: [20:55] Yep and so the profile of the typical shipbob customer is a start-up that's intending to sell direct to Consumer mostly through their own website is that a fair characterization. Dhruv: [21:08] That's how we got started his and so you know today that is definitely evolved as a capabilities have grown as well so, I would say like if you have to break down the merchants that we serve are so, on one end of the spectrum we have these Merchants you know they could be ought to pronounce what just getting started and they're doing anywhere from you know less than a hundred thousand dollars of annual revenue on the website all the way up to maybe a million dollars or so. So that's one and then we have Merchants who are from 1 to 15 million dollars of gmv, and they are predominantly selling on their own website but they're also selling on marketplaces like Amazon eBay Walmart. And then we have a mid-market segment of merchant these are relatively established Brands they are doing anywhere from 10 to 150 million dollars of gmv across all the different channels that they're selling on, and for them you know they are in e-commerce which is direct-to-consumer they're also in marketplaces but they're also in retailgeek, and so they and they also are thought getting to be Global and so for them, they use shipbob because under one umbrella they are they get not only great technology but the Fulfillment solution is able to carry it across all the different channels that they're selling on, and it allows them to manage inventory Under One Roof so in the. I guess the value proposition over the last six years for shipbob has definitely evolved as a capabilities have grown I've grown. Jason: [22:33] Makes total sense and I'm assuming so in my day job one of the the new categories of business that I see you like getting into direct fulfillment more are traditional products that used to exclusively sell through wholesale and in some cases these could be quite large companies that are used to sending pallets to Target and Walmart and now they're starting to sell some of their own goods from their own website and just like those those startups from 2014 they've got to figure out how to do the each's Fulfillment and I think they turn to folks like you as well now. Dhruv: [23:06] Yeah absolutely and so you know that's the exciting piece of direct-to-consumer is that. The technology and the infrastructure needed for you to start your own e-commerce business and be able to reach your consumers is has massively evolved so these traditional. You know Brands who are predominant retail now they are able to participate in e-commerce in the pretty meaningful way as well and they have access to Great infrastructure and. I think you know the. They've also realized that the infrastructure that they need it for their retail shipping doesn't look anywhere close to what they need for the direct to Consumer so on the record consumer side maybe you choose Chopper 5 for your front end platform. Are you choose to do a lot of your advertising and marketing on through Facebook Instagram Snapchat social media is the predominant digital marketing channel effectively. And then you choose shipbob for your fulfillment and and running your supply chain and maybe use a form or you know or care enough for your buy now pay later like those credit financing options and so this technology stack that you need to run your direct-to-consumer e-commerce business you know now exists, and is completely different from what you might have used for running a full wholesale retail operation. Jason: [24:27] Yep and I do want to just double-click on one other thing before we turn to two marketplaces and the Frenemy situation there but the so a couple of your advantages why you develop this software to make the Fulfillment center much more efficient than traditional ones were and obviously efficiency is a huge differentiator and in the Fulfillment you you enable all this customization and personalization which is a better match for The Branding that all of these clients want to do one of the other things that I think of is. 3pls from that era that was sort of problematic and that kind of Amazon disrupted is like they used to make you manage your own inventory so if they had to. Fulfillment centers you as the merchant had to decide how much good you are sending to the West Coast and how much good you are sending to the east coast and and you sort of had to do all those things and. Amazon through their fulfillment by Amazon kind of took that that that Inventory management burden away from some of their their merchants and sort of did all that for them and did the load balancing and all those sorts of things so do you do that like you now it sounds like you've got four of your own fulfillment centers and a bunch of virtual fulfillment Centers do you do all of that sort of AI based inventory allocation for your customers as well. Dhruv: [25:56] Yep absolutely so and that's sort of I guess we can break that inventory allocation into two parts so one is choosing where in the network, to send your products from your manufacturer. [26:08] And so that's based on you know we provide all of that information upfront to a merchant base where you know based on historical purchase data that we captured from all the different sales channels that you connect into Shabbat we can be have a model that, Delta to fairly well as to how much inventory to store in which parts of the network, and so that's and so you can but we don't necessarily mandate that because for these brands you know they want to be one them to have the ability to make those decisions for themselves we provide them with all of the information and if they choose to they can have shipbob distribute that inventory for themselves for them or they can do it directly from the manufacturer my following our data you know that we give out to them so that's on the first half of like sending like the right amount of inventory to the right location so that's a little bit of a optionality for these bands. And then the second part of it where we do a lot of the work ourselves is once we start getting these orders into our platform once you buy something from our, from a branch choosing which fulfillment center that particular order gets routed to and what shipping carrier is used for that particular transaction that is something that we that we definitely do you know in the house and so that is a pretty important element of it because as a brand you might off be offering two day shipping on your checkout page. [27:32] But you actually don't want you know to be using Ups 2 day or FedEx overnight to do that today transaction because that will be very expensive, and sociable because we've captured a lot of far, carriers performance data over time we have a pretty built out model which tells us hey if we even if you use this local Regional carrier for this particular order we have a very high likelihood it will get delivered in 2 days or less and we don't have to pay for a UPS guarantee today service and so we are able to bring down the cost of two days significantly down at this almost the same price point as a USB as ground shipping which is a total which is the cheapest form of shipping simply by placing inventory in better you know better placement of inventory and a fulfillment centers but also choosing where which fulfillment center ships that particular order and what shipping carrier we use for the transaction, for that was a little long answer but I think that is sort of the secret, Elemental why brands of any size are able to offer a two-day next a sort of a shipping experience on the checkout page. Scot: [28:37] Yeah if that's helpful at when I've talked to some people about this kind of stuff they're always like how hard could this be like this comes up in the Shopify so a lot of Shopify Wall Street folks you know they'll say well why is this so hard and you know one of my favorite things about e-commerce is going to tour warehouses because once you get inside of warehoused you realize that this pretty complicated and the way I explain it is once you've committed to a. [29:09] Yo an asset like a warehouse and all the people in everything then it becomes an optimization problem in optimizing warehouses is pretty complicated right so let's let's take you guys have X number of customers in a fulfillment center let's just keep it one of the ones you own and operate to make it even simpler and you know there's a there's a bazillion questions like how do you if you take customer 1 through 100 do you intermix there things how do you do the packaging you talked about how do you how tall are the shelves do you use conveyor belts do you do two floors or one floor and your fulfillment center so what's fun about that is an engineer there's a lot of fun problems to solve their and it's a lot, you know your explanation of the shipping is interesting because that's like yet another one so a lot of people feel like this is too easy is really easy and then they kind of run up against the the the hardness of it and they kind of have to step back and redo it do you have a point of view of. You know what Shopify kind of did it seem like they tried to do a software-only kind of a solution and it kind of didn't work and now they're trying to get more involved in it and you have a point of view on that. Dhruv: [30:18] Yeah for sure but you framed it really well Scott which is. Once you you know once you go inside the Fulfillment center the number of problems of that that you can potentially solve or almost endless, and the reason it's important to attack these optimization problems is fundamentally you know fulfillment is not a software only problem. And it doesn't come with 80% gross margins and so it's in your best interest to optimize once you get to certain scale because every cent and dollar you share from those operating costs is a dollar that flows to your bottom line alternatively is a dollar that you can then reduce you know your cause to your brand which then allows them to reduce their fulfillment costs and that way allows them to offer free shipping which then drives, you know more sales on the website which then drives you no more orders into your platform which allows you to get to scale faster. And so optimization is you know is key for you to be operating at the lowest cost possible because there are advantages of doing so. And so there are a lot of different ways to get to Optimum to try to optimize but if you don't own and operate your fulfillment centers at least the onset you simply don't know what problems to solve, and so at shipbob you know what I believe worked really well in our favor is because we operated our own fulfillment centers we saw firsthand. [31:45] What are the consequences of the choices that we are making. And that involves you know the physical infrastructure do we mix products of different merchants in the same aisle where in the, we're in the Fulfillment Centers do we place the fast-moving skus do we take the loaf slowest moving skills and put them at the back of the Fulfillment centers away from the rest of the merchants inventory or do we place them high up in the, under racking system how do we think about Labor planning is Mondays. [32:15] 20% higher than Friday so do we need to staff up in the morning shift Etc and they are all and material handling and and Idol walking is such a big. Cost of the Fulfillment centers operations how do we try to minimize that and at what scale there are hundreds of these optimization decisions that we've had to make over the last seven years, which then have been productized in our software in our warehouse management system which then now is being deployed across these Partners sites, and so I think if we were to to you know jump ahead and just do our partners sites that we don't own and operate we don't own or operate on a day-to-day basis we would have missed out on all of these optimization decisions that we made over the last seven years which then allows us to operate, at a much lower operating costs than any of the competition so I think Shopify I don't know, you know the products are actually there but I think they might have tried to short-circuit their way into running virtual fulfillment centers to early without having learned the lessons of our without having experienced the lessons of running your own building which I think they might be course-correcting now. Scot: [33:25] Yeah it gives you the ability to go to a 3pl and say hey here's your you know 3pls are kind of V1 and you guys are like V10 so you can go in there and say take this section do it this way here's how you know here's the barcode reader you need to use yours there's like all this stuff that has to come together seamlessly with the software to kind of execute and you guys have figured all that out and you can just kind of plop it right into the 3pl I imagined. Dhruv: [33:50] That's right yeah exactly out pitch to these existing 3pls is that you have this unused capacity. This is like a warehouse in a box that we are providing you and if you follow you know the product or the our operating protocol then you will be able to make X dollars and order or Y dollars a square foot, Which is higher than what you are achieving now and by the way you don't have to spend any money on sales and marketing and servicing because shabab you know these are shipbob merchants and so you should be able to make. You know. You should be able to generate a return on that on that space in a relatively short amount of time which makes it a pretty interesting proposition for these existing 3pls who want to participate in e-commerce but they necessarily don't have the infrastructure. All the capital to do so as yet. Scot: [34:44] Interesting cool so give us an idea of your scale so I saw on crunch basis it says you've raised over 300 million so congrats on that the I've been raising capital in this kind of more asset heavy World in it's not not easy so so kudos to you for being able to fund us at the scale you have maybe like how many packages a day are you guys processing or anything you can tell us around scale would be kind of interesting. Dhruv: [35:10] For sure I won't be able to get to the. Exact are approximate taxes but here he is maybe a good proxy you know we have close to. 30 or so fulfillment centers in our Network today we are adding one fulfillment center a month that's the relative scale and majority of the reason why we're adding these fulfillment centers that are rapid clip. Is because we are you know reaching. Pasty in these fulfillment centers fairly quickly and the amount of space that we take inside of a fulfillment center is anywhere from. 30 to 40,000 square feet on the lower end as much as 90 200,000 square feet on the higher end so that's the sort of every sight every node in the network represents at least you know maybe call it average 50,000 square feet and we have close to 30 of them. Scot: [36:04] Furcal and then it wouldn't be a Jason and Scot show if we didn't at least throw you an Amazon question. So so it's easy to kind of you know again for someone to kind of look at this and say hey you're competing with FBA and I I get that you know. Amazon's talked about doing you know a you know just non-market play Style Style fulfillment. And then but then and then they've also talked about yeah you can use your own packaging and but you know my understanding is they're not really doing that at scale do you do you guys feel like you compete against them or do you see them the other thing that also blows people's minds a lot of time is software and sinners like you guys operate frequently will ship stuff using Amazon's API so that it can be prime eligible which is also kind of a so-so the 3pl the shipping partner can be Merchant fulfilled Prime which thus means their products are prime eligible so maybe talk a little bit about how you feel about Amazon. Dhruv: [37:03] Yeah for sure and yes you're right so we do ship inventory sometimes into Amazon Fulfillment centers as well for, for the fpaa. [37:15] And some of our some of our Merchants do also you know use the what you call the seller fulfilled Prime option but more on your question on the do we compete with FPA I think it is servicing a slightly. Different segments of the market and so if you talk to most of our brands, you know they were they won't really say that we trust Amazon with all of our data. And so for these brands that we serve as passing that customer information or who their buyers are, to Amazon seems like a big business dress because Amazon competes with them, you know on the Amazon to the Amazon Basics line or you know placing the product slightly differently on the the listing speed and sector so they want to build a supply chain, and demand you know sort of website which allows them to control their own destiny without having to rely on. On Amazon which could potentially be problematic for them down the road. And so in that context they want to stay away from Amazon as much as possible of course they also do sometimes have Amazon listings because Amazon is such a great. Aggregator of demand that maybe it has a lower cost of acquisition than having to do it yourself on your website but you don't want to rely on Amazon for. [38:40] Majority of your sales and so in you know under that, through contacts then we don't necessarily compete with Amazon FBA because for these Brands using FPA is not even an option and so and two because then we are there under this ethos of like if I have. Slightly Superior brand and my brand is represented through all aspects of my branding website supply chain I can I can be a better business, then you know shipbob stability to provide us a plethora of customization options, is a real value sell because and I know our ability to match you know this two-day Prime life experience. I think it's a real value add and the third aspect of it if I may add is as these Brands grow larger being able to have inventory globally is. Something which I don't think is possible with FB and fourth is if you're also getting into retail, you know doing being able to ship Ballads of inventory to these retail distribution centers again is not an option with fpso if a brand is thinking about their supply chain as a whole I think shipbob FB is probably not a solution. Jason: [39:51] Yeah so that really makes sense I'm kind of curious how this is going to continue to evolve I mean it seems like there's some risk that some of these big retailers like or marketplaces like Amazon and Walmart might eventually start selling their fulfillment as as a third party service that could potentially compete in the 3pl area and I think the the FedEx is and UPS is of the world are leaning more into it as well is. Is the future going to be kind of all of these different Services kind of colliding and meaning in the middle or how do you see the future of this industry playing out. Dhruv: [40:26] Yeah that's a hard question to answer, because yes you know e-commerce is growing so quickly that there are so many Greenfield opportunities for different companies. To play a part in so but I think each one probably you know like this industry benefits from scale. And so and of course this is a hard business because you're dealing with physical products and physical inventory and physical assets. And so I don't know if the industry would sort of all of us will start doing each other's work simply because it's by doing our core businesses by itself pretty hard and getting to scale in our Core Business is very relevant so. [41:07] I think UPS and FedEx might I think might have dabbled an e-commerce fulfillment but I think majority of the business still very much remains around transportation and and same for shipbob I think majority of our business is around fulfillment we are looking at ways of adding value to a merchant Base by taking parts of the transportation and seeing if we have enough density on certain routes, that can be that can allow us to reduce the overall fulfillment calls for a Merchants but again I think there's so much you know there's so much to be done in this space that if you. Lose focus you can lose the advantage that you have right now so you know I and and businesses are able to grow, simply by focusing in the core business area so for us at least you know it's mostly fulfillment and maybe pieces of Transportation sprinkled in. Jason: [41:58] Well that seems like a toy reasonable perspective and it certainly is going to be fun to watch but I think that's going to be where we have to leave it today because as per usual we have used up all of our allotted time as always if this is episode was helpful to you we sure would appreciate that five-star review but we really appreciate your time today and sharing a little bit more about shipbob with us. Dhruv: [42:21] Now thank you so much Jason and Scott for having me this was a good conversation. Scot: [42:25] Dexter even if folks want to follow you online do you pontificate or should they just follow the shipbob socials. Dhruv: [42:32] The shipbob Socialist would be a great great dad. Scot: [42:35] I know I would advocate for you doing more would love to read anything you write about the industry as it's been a good discussion and you know at least Jason I would read it so we can guarantee that. Dhruv: [42:47] It's great to read as I got I got it. Scot: [42:49] Boom and Jason's mom she always follows Oliver stuff stuff. Dhruv: [42:54] I can convince my mom as well. Jason: [42:59] The audience is growing by the minute well thanks very much everyone and until next time happy commercing.
EP288 - News and Q4 Earnings Reports News Amazon Stock Split Shopify Fulfillment Network eBay “The Vault” Twitter E-Commerce Pilot Retail Media Networks are on fire Inflation continues to rise Q4 Earnings Reports Winners Dicks Sporting Goods Walmart Target Neutral Best Buy Ulta Kohls Gap Nordstrom Ralph Lauren Losers Dollar Tree Abercrombie & Fitch Macy's Episode 288 of the Jason & Scot show was recorded on Thursday March 10, 2022. http://jasonandscot.com Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing. Transcript Jason: [0:23] Welcome to the Jason and Scot show this is episode 288 being recorded on Thursday March 10th 2022, I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo. Scot: [0:39] Hey Jason and welcome back Jason Scott showed listeners Jason covid is defrosting and you are getting yourself back on a plane and I saw that you went out to eat tail. Jason: [0:50] It is true I don't know if listeners can see me knocking on wood when you say that but yeah I yes went to my first post covid trade show that felt like trade show from before covid which is cool. Scot: [1:04] Sprinkle what was what was the buzz in the like the first time and well I guess in RFC some folks got together did you end up you didn't go to. Jason: [1:15] I did not go to in our app and an attendee and sit in our F was I think there are people that went in and found a good but attendance was significantly down from a normal and RF show. Scot: [1:28] Was kind of the first normal. Jason: [1:29] Yeah and the interrupt timing was just rough because that was kind of In the Heat of the Omicron variant like re-emerging and. Um but so e-tail is in Palm Springs in February you know. People are like turning off Mass mandates and it felt pretty good and so the show was sold out the hotel was fully booked and if you if I just popped you on at the trade show for. It wouldn't have felt any different than e-tail 2019 felt to me so I think people were like frankly pretty excited about getting back together. And took full advantage of the you know typical trade show activities that cocktail parties and and all the frivolity. So I did a couple of sessions I did a keynote interview with the chief marketing officer from Signet Jewelers and they have a pretty interesting story during the pandemic the, you know they even have an interesting story in the metaverse that like I didn't realize this but millions of people have gotten married on the metaverse and are buying jewelry for it. Scot: [2:39] Nice can you buy a is your diamond and ft. Jason: [2:43] In some cases yeah. Scot: [2:46] I'd like to see picture I found it. Jason: [2:49] Yeah I don't want to actually bring up the topic of buying jewelry and then tell her it's digital jewelry because that won't that won't go where I was wanting it to go. But so so that was good I did a panel on on sort of growth tactics with a bunch of kind of younger digital native Brands and so that's fun to get you know some some different perspectives and some novel stuff and I did record a couple podcast there so listeners have that to look forward to will drop those over the next few weeks and so some good good conversations with with real people in the industry. Scot: [3:26] What was the back of the hall conversations the you and I have talked a lot about the impact that the Apple and Google privacy changes have had was that kind of one of those yeah you're on the stage everything is Rosy but behind the scenes I was like oh no what are we going to do with this this whole thing that's crashing down around us. Jason: [3:44] Yeah it depends I because I feel like there's a couple of different cohorts at Eddie tell like there is a cohort of them kind of smaller direct to Consumer Brands and I think those guys are right in the Wheelhouse of those impact so that absolutely was coming up you know it there is a pretty big like e-commerce vendor community in the show and so there you know weaning into the the super high P Trend so everyone's talking about metaverse and, in ftes and trying to convince you why they're the world needs 107th personalization engine, so you know there's a fair amount of that stuff and then you know there's some of the big wholesale retailers and there they were like more interest like the trends that are impacting them the most right now are things like retail media networks and stuff like that. Scot: [4:38] Brickell all right so anything else I need to run jump in the news. Jason: [4:45] No not yet let's we got a lot of news to cover so let's get to it. Scot: [4:50] Cool well it wouldn't be a Jason Scott show if we didn't talk about a little bit of Amazon news. Jason: [4:56] Amazon news new your margin is there opportunity. Scot: [5:08] Yes so one of the things it's been a busy week for Amazon so just yesterday they filed one of their SEC documents their annual report effectively and surprised Wall Street with two little good nuggets so one of them is they've they've expanded their stock buyback over time as you issue stock options and restricted stock units to employees as incentives your stock count grows and EPS is calculated by earnings / your Share account so when your chair count goes up it puts a natural pressure downward pressure on your EPS number. [5:44] So Wall Street loves the buyback so they increase the available by back to something like 20 billion which is pretty big number, but then more and more interestingly Amazon's been one of those stocks that has kind of refused to split and then just recently alphabet, I think ask is the after microphones off that announced a split and Amazon did that to this is this is one of those kind of fascinating psychological things so when you do a stock split does it change the economics at all right so you just say hey we had 500 shares in there worth a dollar and now we have to let's see if they usually do a reverse split so you have there were. So 500 shares the dollar and we're going to get down to 50 cents we have a thousand and fifty cents so the economics are the same but what happens is in many brokerage accounts you can't buy a fractional shares so it makes the retail investor Amazon stocks kind of around over a thousand dollars so when you do a split it does make it so more people can buy and then there's a psychological thing that's irrational where people just feel like it's cheaper. [6:55] Even though it mathematically is so so all that was really well received and then and it's been interesting because, they also signaled that. They're not going to be doing as much capital expenditure this year as prior year so so Amazon goes to these invest in Harvest phases and on the call the you and I covered it they were, they were pretty cagey about it and I think Wall Street didn't like that they were going to be an investment especially after covid it didn't kind of make sense they built so much fulfillment centers, so there were some elements of this where they clarified some things and it gave Wall Street a really nice kind of vibe that they're not going to be investing a ton on capex and then I thought it was interesting they announced they've announced a lot of these little kind of Acquisitions and they did one recently this company called Vico if I'm saying that right veq oh it's kind of like a multi-channel shipping solution so they've you and I have long. Posited that Amazon is not a fan of Shopify and all the gmv that they've grown in that's going through there and in Amazon's eyes they view them as a competitor and so you know. [8:09] There's a lot of speculation that they're going to come out with some kind of a Shopify killer or some kind of competitive offering to Shopify so this gives them a pretty interesting shipping kind of non Amazon shipping solution kind of like a ship station they acquired point of sale system that was based out of India then this goes back like 18 months ago they acquired a little e-commerce player out of Australia so it kind of feels like they're assembling some pieces to something so it's either little local groups doing random things or there's a big plan and they're assembling things I've said this before I'm still think. [8:48] I think the best strategy here is to take all these Services create microservices out of them, and then sell them and compete with like the fabrics and the Commerce tools is that the other one always forget it yeah you kind of so have a headless option and put it in aw that's because you already have so many developers using AWS that would be a great entry point into people that are like pay I need I need a cloud-based point-of-sale functionality of some kind or I need any of these little pieces that's my guess who what's going on and then and then some people that talk to you said all right if they do that then cows an SMB how are they going to compete with Amazon with Shopify do smbs going to use these micro services and, I think then they also build a little kind of Shopify killer on top of those microservices almost like a, demo that basically says look what you can build with these micro Services of a Shopify like platform that's what I think is going on but I'm curious to hear what you think. Jason: [9:49] Yeah so I kind of think you're wrong we'll see the I could easily see them like they're they're releasing a ton of microservices on AWS all the time right and so I will not be surprised at all if they release a stack of Commerce oriented microservices for AWS that. Could compete with Shopify I just don't think they would do that by acquiring these companies that are on like a whole disparate set of Technology stacks and you know don't have significant scale and aren't necessarily like, have some competitive IP like I'd like Amazon could buy all these could build all these capabilities that these companies have. With very little effort so I look at each one of those companies and I'm like it kind of solves a practical problem for a particular. [10:42] Stakeholder in a particular Market I mean you know Amazon's trying to expand their into Australia and they bought a Marketplace that had a bunch of sellers in Australia right Amazon's trying to capture more share in India and in India a bunch of the orders don't get shipped to the consumers home they get shipped to a retailer the Aggregates the orders and then customers go to that retail and pick it up so now they bought a POS system that a bunch of those retailers run in these small villages in India and I do think Amazon is, interested in is certainly going to make a bigger move in shipping and. You know I think if you're trying to get people to use Amazon Freight and Amazon shipping for non Amazon packages one of the things you need is a is a shipping manager software package to give to all of those, those companies so I think that's what the qos so I think I don't see these Acquisitions as some sort of super strategic set of Mike rolling up of microservices. But we shall see. Scot: [11:48] Yeah we should go back in the hot tub time machine and we record our annual predictions but next time. Jason: [11:56] And side note I will one other prediction I'm glad we're not going to go back and visit is. Um Whole Foods did open their first just walk out store in Washington d.c. this month. And I will readily admit a year ago in this show when we talked about the significance of just walk out I said. Probably be a long time before we see this in a Whole Foods because there's all these logistical challenges that like are not an Amazon go store but are in the much bigger grocery format like you know. Each has of fruit and stuff you know bulk items that have to be weighed and you know retrofitting this technology into an existing store that wasn't designed for it is a lot harder than building a purpose-built. Environment and you know there's there's challenges with things like bathrooms I listed all these things and very smugly said so don't expect to see. Just walk out in a Whole Foods anytime soon and then less than a year. Scot: [12:53] I remember you saying it was pretty much impossible. Jason: [12:55] Yeah clearly I thought it was impossible and I feel like that that created a moonshot team at Amazon which then did it. Scot: [13:06] Because Jeff is just like oh Jason's challenge me now the gauntlet is down. Jason: [13:12] Exactly so so congratulations to team Amazon I have not gotten a chance to shop that I have shop the the Amazon Fresh stores with just walk out so which is kind of an intermediate step so so I'm excited to see how that plays out. Scot: [13:27] Yeah kind of a a tangential Amazon news story we talked about this on our last episode which shut out the listeners we had really, your kind of strong engagement from from you guys about the Amazon Logistics deep dive we appreciate everyone not only listening to that at you know we were concerned it would be a little boring kind of going through all these counts of what they're doing but at least I find it riveting and but we got really good feedback on that and we appreciate when listening to that buried in that at the time we did talk about shopify's earnings where they basically came out and said their previous iteration on partnering with 3p else to do chipping hadn't worked, and this was actually predicted by by facile over it fabric I think he mentioned on the show he's been pretty vocal on Twitter about it too I'm not revealing some secret and, um Wall Street was then they said they're going to spend what was it a billion dollars on fulfillment centers which seemed laughably small especially in the context of the. [14:30] 260 ish large fulfillment centers Amazon house and that would get them two day shipping which just doesn't logically make sense to me and then Jason you pointed out that's not not even where the market is now but the update on that is Wall Street was not amused and what happens is. When you're high-flying stock with a big multiple and your your your model. [14:56] Becomes part of the story and your Shopify has these really high both gross and net margins and relatively high growth and so their growth has slowed down and then Wall Street kind of it was kind of a doomsday scenario so all streets like all right you're slowing down your growth you've got the shipping problem you always talk about how you're not worried about Amazon but something's going on here and then on top of that you know they basically, said to Wall Street we're going to change our margin structure because we're going to take all our ibadah and plugged it into this spying warehouses so Wall Street hates it when you make a change like that and you kind of say I'm a 80% gross margin business and now I'm going to be a 60% right whatever it is so the stock has like been in a world of hurt so it's basically gone down by half I think depending on whatever timeframe you look at and then there's been a lot of stories about folks leaving and it's kind of create a little bit of chaos so it's going to be interesting to see can Shopify executed on this can they do it and not I'm really freaked out there investor base what happens with employee turn so so it's kind of the first time they've had a bit of a misstep or or a resetting of their valuation so it'll be interesting to see how that plays out. Jason: [16:12] Yeah yeah I I've been following closely I side note on facile dazzles the CEO of fabric which is a headless Commerce company that in some ways competes with Shopify and I actually ran into him in detail and side note he just raised they just raised like two hundred million dollars at a billion dollar valuation. Scot: [16:33] Yeah I'm a super jealous of his ability to raise capital. He seems to preemptively do it he was always like I know we just raised a hundred but these guys really want end so we're letting him in for like 200 at a you know a bazillion dollar valuation so high class problem. Jason: [16:49] You would know better than I but I have heard the advice frequently repeated that the best time to raise money is when you don't need it. Scot: [17:01] It is true yes I always raise money when I'm down to my last dime which is the worst. Jason: [17:06] Yeah I did tell him I was expecting like fancier suits in a bigger Booth a detail and he seems like he's not spending the money on that stuff it's. Scot: [17:17] Now he's hiring Engineers like crazy. Some other news and I know Jason you have some to run through Saga through this quick the still follow eBay because it's kind of an interesting story and you know they've even been to the pandemic they. Jason: [17:34] Sorry for our younger listeners eBay is a website that sells stuff like Amazon but before Amazon. Scot: [17:41] Yeah it's this auction format where you like you takes a week to figure out if you bought the product or not it's not not great in today's instant, instant feedback but to be fair most of their products are sold with buy it now so they're auctions is not the majority but they're still kind of always called the auction company so they've had that. There's all these startups that are nibbling away at eBay in different categories because for the longest time I felt like eBay should have vertical buying experiences because if you're a comic book collector you want, to search for certain things that matter to you versus a shoe collector versus a, electronic Gadget buyer versus whatever but they stubbornly would never vertical eyes that experience and so now they are very closing the experience so they're finally kind of waking up to this there's let's see they're going to have some some different experiences for what was it, it was couple luxury goods shoes sports cards then this interesting there's this kind of one interesting Trend in Collectibles that I think is going to go into other areas is. [18:50] Different ownership models so taking a physical good and putting a digital ownership on top of it so there's a site called dibs and this actually came up Greg Bertinelli we had on the show two years ago he's a VC that really kind of execs eBay guy and he's focuses on these kinds of models but what dibs does is let's say you have some really cool rare baseball card and you could certainly sell it and then extract all the value but what if you could. [19:19] You put it in a digital Vault a vault somewhere and then you could sell 40% of it so you could get some liquidity from your baseball card but you still own it and then you you could you don't have to sell the whole card, um and then you know some of those fractional rights could be shared and and whatnot or if someone wanted to buy the whole card they could and then you could transfer to them and it would stay in the ball so there's all these companies that are doing really Innovative things around this all this this side of digital marketplaces is within the purview of the SEC so all this is this is not crypto which is kind of over on its side the side kind of going rogue outside the SEC for the most part these are all blessed by the SEC and and then there's two that are very popular ones called Rally Road in the other ones called Otis and they do more they actually go out and buy various Collectibles and things and then you can have fractional ownership so for example in the comic book world one of the most famous comic books in my generation is called Amazing Fantasy 15 and that's the first Spider-Man. I don't have that comic book because it's like 300 thousand dollars or something like that and that's that's crazy and but you know. [20:31] But it's actually an interesting investment because I've watched it for 30 years and it's gone from five thousand dollars when I was a kid to three hundred thousand dollars now so. You can invest in that by buying a fraction so eBay announced their starting this thing called the eBay vault which is going to be this 31,000 square feet secured facility we're going to be able to store all these assets they say it's going to the largest one in the world which didn't make a hundred percent since me because that just doesn't I guess we just had you know Mark on, talking about million square foot fulfillment center so 31,000 square feet just doesn't seem huge but I guess it's full of vaults. Then that also enable them the whole eBay model and this is kind of like the Shopify story we're for the longest time they refused to touch a product because you know they're their margins are super high because they never touch the product, so it's a zero asset business well all these companies have come along that touch the product so there's. I mentioned some of them but then there's like goat and the shoe company's stock X where they'll actually get the sneakers in and they'll thumbs up and say we've looked at these These are really you know Michael Jordan error. Sneakers and they we've authenticated them there's a lot of companies that do this in handbags who's the one that does it for apparel. We could put all your apparel you want to sell in a bag and they'll take it and. Jason: [21:57] Rio Rio our thread upper. Scot: [21:59] Thredup thredup that's what I'm looking for so it's interesting if you look at it every eBay category someone has kind of come in and added a high-touch experience and chewed up a fair amount of the GMB that used to be on eBay so they're finally kind of reacting to them, and then I thought you would find this interesting they are going to launch a, they're gonna let you put videos on your listings and then they're going to have a live video streaming pilot for sellers so that could be kind of interesting. I'm kind of excited to see you like what your average eBay sellers live stream looks like it's going to be it's going to be kind of a. You know a menagerie of things to look at there that'll be funny and then I thought you being a payments guy you'd be really excited about this Innovation that call it the digital wallet and lets you store balance from your eBay sales and then you can use those let's say Jason you sold one of your widgets for $100 you can use that hundred dollars to now go buy stuff. Jason: [22:52] Wow that's an amazing idea. Scot: [22:54] Yeah it's also known as PayPal 1997 so so so let's. Jason: [23:00] For our younger listeners as Scott's not being sarcastic PayPal did start out as a eBay digital wallet and they spun it off so this is kind of a redo. Scot: [23:10] Yeah yes they're basically having to you know. They've got divorced from PayPal they had this they got separated from PayPal and then they went their separate ways and now they're basically having to just reinvent PayPal instead of eBay it's kind of. Kinda weird but they you know being eBay they didn't just say well let's do it everyone else doesn't just license stripe they've got all this features they had to kind of like go do it all themselves so they're now just finally getting a digital wallet so there's been this period of time where if you sold on eBay there was no way to take this fund and then put them back on eBay you just you know and I've been doing some eBay selling and it's like super painful it's like constantly emailing me and it's like it feels like literally like, the first version of PayPal so so doing some Innovative things there and then other areas they're just kind of like they've been hobbled because of some of the corporate structure things that have gone on. Jason: [24:01] Yeah and we are teasing eBay a little bit but In fairness they still are like the second or third largest e-commerce site in the u.s. so. Scot: [24:09] Yeah I love eBay and I wish I still feel like there's this big kind of nugget of goodness in there that needs to be unlocked they just needed to kind of do it faster and kind of more aggressive with. Jason: [24:21] That now did you talk about the vault already. Scot: [24:24] I did. Jason: [24:25] Yeah so prediction for next year that I'm going to put on my list is there's going to be a Nicolas Cage movie where he has to break into the Vault and steal something you heard it here first exactly in Ft. [24:45] Yeah there's nothing Scott likes better than than talking about like Amazon antitrust and inflation has his two favorite topics but I should note while we're covering all the news that the, the monthly inflation numbers came out and there's there's a ton of different numbers but one that gets talked about the most is this Consumer Price Index which is kind of a random basket of goods that were selected in the 1950s, and based on that index over the last 12 months that index has gone up by 7.9% so that's the. The highest it has gone up in the last I don't know more than 30 years, so that's pretty significant and that was one of the big talking points at e-tail is. You know what what are the impacts of inflation going to be on the market and in Howard consumers going to react so, there is significant inflation out there right now and it is like factoring into a lot of retail and e-commerce players plans are you worried about inflation at all Scott you think it's overhyped what's the. Scot: [25:53] Now I'm very very worried about its going to hit that. I don't think it's in control at all and it's in this kind of spiral I think we'll hit the this stagflation thing so you know imagine your retailer your labor is going up imagine you're an e-commerce gas prices are you know hitting between four and seven dollars depending where you are in the country so now you have all these yeah I'm shocked we haven't seen fuel surcharges for everyone maybe they have and I just missed them so now it's going to be, more expensive to ship stuff and then you have to raise your prices and then that causes more inflation and then you know and then people need more wages to afford the stuff you just raise the prices on it that there's a vert there's kind of a worry there's a bit of a flywheel there that I don't know how you break out. Jason: [26:43] Yeah no and even before all of this fuel unrest like fuel was already the, the category with the highest inflation and now it's you know likely to go even much higher so that that's in very unfortunate and it does I've seen some studies, and this is may be counterintuitive but when you think about it it makes sense. Inflation is impacting the the low price sellers the most right so if you if you have a little extra margin in your product you can act as a shock absorber a little bit and absorb some of this inflation but if you are, are selling at razor-thin margins so think dollar stores like they're getting hit the hardest by inflation and. Scot: [27:30] The other three dollar stores now. Jason: [27:31] Exactly and the consumers that shop lower-priced retailers which you know tend to skew younger consumers so Jen's ears. [27:42] They're feeling inflation much more than older cohort so it's. It is in unfortunate and definitely has a potential to be stifling on on a lot of the growth we've been talking about over the last couple of years. So awkward transition off of that. Ring in a piece of news from from last week Nordstrom became the the latest retailer to launch a retail media Network. And I will talk more about. What I think the prospects are for a Nordstrom retail MIT media Network on another show but I just wanted to use that to sort of highlight. It's one of the topics that's coming up most in my conversation with retailers and Brands is. Every retailer is leaning into launching these advertising networks like we talked on our Amazon Deep dive about Amazon disclosing, the revenue from from their Network and it's huge so every retailer and their brother is trying to launch one and they're trying to collect dollars from every brand and the brands don't really know how where and why they should be investing in them so there's a, a lot of discussion and test and learn. And debate at the moment about retail media Network so I did knock out my position on them on Forbes article that I'll link to but I was going to propose to you that we should, finder there I guessed and do a deep dive in retail media networks in an upcoming show. Scot: [29:12] Yeah I don't think anyone knows more about it than you are so maybe it'll just be a jacen solo deep death. Jason: [29:17] Yeah I think 10 of my co-workers and pupusas just rolled over in their grave when they're just say that they're like dude that dude doesn't need his head to be any bigger and we all know more about it than he does. Scot: [29:27] Well we get a lot of listener feedback that's essentially more Jason so can never have too much Jason. Jason: [29:34] That may have something to do with I have the direct email to the feedback account. Scot: [29:38] Me Jason: [29:39] And then one last piece of news that happened yesterday is our friends at Twitter, um expanded in e-commerce pilot that they've been running so they have had this this limited pilot where you could essentially on your Twitter account. Sell three items so you kind of you had a carousel that could show up in your Twitter account for these three items and the expansion is that they now let you upload a product feed with 50 or 10,000 items in it so you can you can send Twitter 10,000 items you sell and at any given time you can, activate up to 50 of them so you kind of have a little mini store with kind of like a, you know a category page with a bunch of product tiles in it and you can you can shop through any of these these 50 items, and it's it's what we would call a non-endemic check out so if you decide you want to buy one of these items you don't buy it. From Twitter and give Twitter your payment information you click on that product tile and it takes you to. The that Brands e-commerce site on their on their store and you check out there so it's kind of a. [30:59] Twitter cause it e-commerce but it's really a referral site to these Brands and it's interesting that there. They've tried a lot of different Commerce experiences none of them have been a home run, this is a new one and I have to say and I know you have had similar feelings about this I'm kind of skeptical that the referral is a very good customer experience because what tends to happen is. You upload this product fee that you know was probably accurate when you uploaded it but this is all Dynamic data something that you upload goes out of stock or the price changes or you you fix an error in your CMS on the URL and so that now the product listing on your website, doesn't perfectly match the product listing. On Twitter and that you know customers really don't like that when they click a product at One Price or in one color or you know that that you say is available and then you get to the website and it's, a different price or a different color or not available and on launch day they had five. Different vendors that could sell stuff and I click through all of them and three of them you know, had we're selling five products that were already wrong on day one so it looks a little problematic. Scot: [32:17] You have literally had this like conversation with five iterations of the Scituate ER and it goes like this is super. They tend to be this isn't just one of al-ahly Silicon Valley companies they're like super arrogant where insert company name and we know all about software okay and hey we're going to do this Marketplace and it's gonna be great and here's how it's going to work we're going to sell stuff and we're going to run people through this check out and then at the end we want to figure out how much inventory there's and I was like well you could do that but that's exactly wrong right because you want to before someone dies something you want to make sure you have it in stock or else it's a consumer is going to get really frustrated and leave and they're always like well it's a beta we can fix that later why invest in real time inventory now and then they never got a beta because us so then they're always like I'm like how'd the test go and like well consumers hated it and I'm like so we're not moving forward and I'll say will you realize you set yourself up to fail, like no our data indicates that they wouldn't have engage with it even if the inventory thing worked you're just like. [33:23] I don't understand so we'll see if yeah they don't don't understand the importance of this stuff and that the customer Journey they want you know people want, colors to be the same variance the all the all the blocking and tackling of e-commerce is actually pretty hard if you don't think it through and most of these companies this kind of say oh my God third party cookies are going away we need an e-commerce solution and then it travels down to an engineer that that has no idea how to how to get it done. Jason: [33:55] Yeah and I guess In fairness I don't there's no easy answer like one of the five beta clients is Verizon and I don't know this to be the case but highly likely the Verizon told Twitter we don't want you to take the customers money because then you're the seller of record we want you to send customers to our website right so like the. You've got this conundrum that that like the brands that want to sell stuff want want to own the customer they don't want to rent the customer from Twitter but then you know when you do have this kind of two step experience it totally breaks and it's got as you know we have these kind of consistency problems, just on our own website so when you add Twitter to the mix like it gets much worse and it's it never works for customer experience. Scot: [34:42] Yet built a whole company to solve this and it has like 120 Engineers working on it all the time it's a hard problem it's not it's not going to be something you can like put like a five-person engineering team on and have this great integrated e-commerce experiences just like not going to happen. Jason: [34:56] Yeah but that company you just mentioned sound like such a good idea though that sounds cool. Scot: [35:00] Thanks thanks it's been a good run. Jason: [35:03] Especially after you turned over the keys to competent leadership I feel like that was been a. Scot: [35:08] Finally hit its stride after I got out of the scene. Jason: [35:11] Exactly so I thought we would try something new we just covered a bunch of interesting to us but random news over the last two weeks it also kind of is, quarterly earnings season and so a bunch of retailers over the last couple weeks since our last show have had their their Q4 earnings which of course also gives us their their 2021 earnings and we could do it a tower show on all these earnings but what I thought we would just try to do is a earnings rapid fire. Because we are known for for being able to summarize things really briskly and and concisely what do you what do you say to that. Scot: [35:54] Plus rapid fire this puppy lightning room. Jason: [35:56] Awesome so what I've done is I've taken all the companies that I thought would be relevant to our listeners and I've bundled them into three buckets what I'm calling the winners which are companies that had a really good year what I'm calling the neutrals which kind of you know tread water and when I'm calling the losers, um which are you know the folks that lost ground so in my winners category the first earnings is Dick's Sporting Goods they actually had a mediocre Q4 they were up 5.9% versus, 20:21 there in 2021 was up 28% versus 2019 so so decent growth, um the their digital was actually down Q4 of this year so you'd go Jason why are there winner well, the if we look at their full year their sales in 2021 were up forty percent from their sales in 2019 so the so, huge growth throughout the pandemic and they were such a big winner in the first year of the pandemic that they still had growth in the second year but it was on top of these huge comps so, um so you know forty percent growth on a two-year stack you know for a retailer of their size, is a huge win and just a fun stat I'm trying to track for a bunch of these guys that now puts them at 27 percent digital sales so one out of every four dollars that dick stakes in, is from their e-commerce site. Scot: [37:24] Does that purpose. Jason: [37:27] It would include both of us are curbside pickup. Scot: [37:32] Okay that's Jean. Jason: [37:34] Um so then my second winner is Walmart. The their Q4 was up 5.6% you know again they're the largest retailer in the world so they have the hardest number to move, and 5.6% is considerably up from there they're sort of historical average and that's on a big comp because they were up 8.6 percent this quarter, last year but the real reason they're a big winner is e-commerce. On a two-year stack was up is up 70% so this was. The third largest e-commerce site in the United States two years ago just behind Amazon and eBay there now the second largest e-commerce site in the US and they've grown 70% in the last two years so that's astronomical and again. They're their full year sales were pretty good up 6.4% last year up 15% on a two-year stack and this is a company that normally goes up two or three percent a year so. So I another big winner and then my biggest winner for the year is Target so. [38:47] They had great numbers across the board they were up eight point nine percent for the quarter they were up 20% this quarter last year so too. You know big numbers on top of big numbers again on the full year they're up 20% versus 20 versus two years ago and their digital is a standout in all of this there there. Two years ago their digital was up 145 percent and then they grew another 21 percent last year on top of that. So monster numbers and I like how they break out their sales so so just a couple of things to know they're the only company I've seen that report two. Segments they report store originally needed sales versus digitally originated so where did the order get placed, and they also separately report store fulfilled sales versus fulfillment center fulfilled sales so. [39:46] Eighty percent of their orders comes from a store 20% of their stores, of their orders come from digital but 96 percent of all their sales are fulfilled from a store so virtually all their e-commerce has fulfilled from the store what's interesting about that is what that means is they are selling. The 60,000 items that fit in a store are all of their sales versus if you look at, Amazon eBay Walmart a huge chunk of their e-commerce sales are this super long tail of millions of skews so it, Target had big numbers and they're doing it differently than everyone else and then the the number I talked about the most is. [40:30] You know they've been really successful with their own Brands and to kind of put that in perspective about 26 percent of all of their sales where sales of of exclusive stuff you can only buy at Target so those own Brands were 30 billion of their 106 billion in sales, so that's phenomenal and then you you were talking about curbside pickup the curbside pickup numbers are also silly in 2020 during the pandemic curbside pickup went up six hundred percent at Target and then last year, you know that six hundred percent is crazy but you go oh yeah because all the stores closed and people had to drive up but then last year when stores reopened you'd expect that to dip way down and they curbside pickup went up another 70% on top of the six hundred percent from the previous year so so curbside pickup is a huge growth they, you know they bought a curbside company right before the pandemic and so I like they're kind of clicking on all cylinders right now. Scot: [41:33] The 96% number 95. That's so I'd go to a lot of targets and I've never seen like, most stores that have shift from Storer there's like some corner where it's like a total poop show of people trying to, package stuff in the middle of the store and things Target is that true I never see that and it's kind of fascinating to me it seems like the stores would have this huge shipping piece that I'm not seeing somewhere, and it's not like they have a ton of storage in the stores. Jason: [42:04] So they did a really. Scot: [42:06] Just a shipped is it shipped that's doing it is that kind of what they're coming in there. Jason: [42:09] No it like they did a remodel for most of the Target stores where they actually Shrunk The Selling space so they used to have no back-of-house like they'd have all the live inventory on the floor and they actually Shrunk The Selling Space by like 10 or 15 percent and built a shipping center in the back of the stores that you can't see right, and so they now have dedicated shipping they like they literally had to go like negotiate with other carriers because carriers are used to delivering stuff to these stores but not picking stuff up from these stores so they had to work all that and they're there doing so much volume now that you know what they're big players got they have their own sortation centers and they work differently than Amazon the search the stores instead of shipping to the customer. Like do multiple shipments a day via private trucks to the sortation center and then all the items are shipped from the sortation center and so that lets them use this like hub-and-spoke and have super stores that have extra inventory for these orders but all the inventory is sitting in a store until a customer orders it and then it goes through this this multifaceted distribution system to either go to the front of the store for curbside pickup via shipped or to the back of the store out to a sortation center and then via USPS to a customer nearby. Scot: [43:31] You want ship from store came out everyone in e-commerce kind of laughed because you're taking the most expensive commercial real estate, and using it as a shipping and warehouses are dirt cheap well it's inverted so. Jason: [43:46] I say that used to be true. Scot: [43:47] So now it's actually probably more economical to ship from the store than anywhere else from open Pure commercial real estate angle because covid is killed so much retail space and then at you know at some point like office parks. That that that used to be the highest and then you so you should be Office Park retail and warehouse and now it's Warehouse retail and Office Park so so it's totally all all mixed up and creating a whole nother economic model that we'll have to kind of see what happens there's you know a lot of people are taking these malls and converting them into fulfillment centers I was in one I was in a Sam's the other day and I was like. Billy I'm in feels like a Sam's that I guess it was a Sam's and it was one of those sounds that he commissioned and they turned it into this weird kind of open Office Space and it was it was very strange because it felt like. Literally having an office in a Sam's. Jason: [44:41] Yeah yeah that doesn't sound appealing when you describe it like that. Scot: [44:44] And they had that whole what do you. Jason: [44:46] Do they still have like like samples necks. Scot: [44:48] Well they were saying they were saying. They had a hard time putting some like 3D printers in it they had a hard time because the floor was angled and it was because it was like where some freezers were and they dangled the floor to act as drainage and I guess they had to come in and re-engineer like a whole big section of it. And I shopped in this house before too so it's kind of weird like a new kind of where all the stuff was in her but they also do that what is that we some of your buildings do it where you check in and you don't have a spot every day as a fan. Jason: [45:21] Like hoteling. Scot: [45:22] Yeah hoteling so they like the couldn't they couldn't understand like why no one wanted to come to work so like make it so you know Dad like all these impediments for people to come to work and they're like we don't know why more people aren't coming in it's like well. You've made them feel like you know kind of fourth class citizens they kind of they don't have a place to sit every day they can't bring any personal items it was kind of funny and they're basically sitting in a Sims. Jason: [45:48] All right yeah I think there's going to be an interesting question about like reuse of all this the the brick and mortar space then closes so but it doesn't sound like you're you're going to be investing in the we work 2.0. Scot: [46:02] Pregnant. Jason: [46:04] Side note and I I miss the most by far important and Brilliant move in that whole Target Whitney the major feature they announced is that you can now order Starbucks to be included in your curbside pickup order. Scot: [46:20] Game changer. Jason: [46:22] That that does feel like a game changer. Scot: [46:25] I was picturing you being first alone. Jason: [46:27] It feels like they're targeting a couple people than I know. Scot: [46:30] Well as fellow Starbucks kind of Sword the target ones I have found out you're not as good or know that you like the. Jason: [46:39] Controversy. Scot: [46:40] Some of it the taste is not the same. Jason: [46:43] Their franchisees. Scot: [46:45] Yeah and you can't mobile order which is government I guess this is mobile ordering. Jason: [46:49] Yeah yeah so I think it is a clever move to like so these impulse and consumed on the way home items at curbside I bet we're going to see a lot more of that but I am with you if I have the option I usually like to go to a Starbucks Company Store over a franchisee because the the experience is more consistent at the company store but I'm saying that to someone that's selling a bunch of franchises so we should maybe be careful about that. So neutrals I have my first neutral is Best Buy they had a slightly negative quarter they were down 2.3 percent they were up 12 percent this quarter last year. You know they actually did decent their kind of, two-year stack they've grown about ten percent which is you know above what what a lot of retailers grow, but they they are in a category that in my mind like seems like should have really benefited from the pandemic and you just don't see. Like this huge huge benefit in their full year numbers so I put them in my neutral. They are now at 39 percent of all their their sales are digital and at the peak of the pandemic it was over 50 by the way. [48:10] So certainly increasingly their most important store Ulta beauty you know they're their company that was probably pretty negatively affected by the the pandemic and they had you know a decent year their full year comps. Um we're. [48:27] Pretty significantly this year but it was because they were so awful last year so they were down 20 percent last year they're up 30% this year so they're up on the two-year stack but not amazingly, and then all the apparel guys like in my mind there's two kinds of apparel guys there's apparel guys that had a horrible Court year last year and or two years ago and did better last year and ones that, had a horrible year two years ago and are still really struggling right so Kohl's Gap and Nordstrom and Ralph Lauren are all in that kind of. Had an atrocious year two years ago and are having a decent little recovery this year. Um and then like Abercrombie and Macy's I would put in that category of had an atrocious what your. Two years ago and you know so far pretty weak recovery this year. So those are my first two losers are Abercrombie and Macy's and then someone who you would think would be really poised to benefit from, the kind of economic downturn but have really struggled over the last two years are the dollar stores and and especially Dollar Tree, their Q4 was decent it was up. 2.5% but they're they're basically up 1.1 percent for the year. Which is you know pretty slow growth when the industry grew like 20%. [49:53] So that that is my super rapid fire earnings recap are you impressed. Scot: [50:00] Nice I am I like how you segment it do the dollar guys. But I didn't listen to the reports are they signing inflation is kind of basically or is it like so it's their own pricing but I imagine going after that value or any consumer unfortunately they're they're the ones that get hit the hardest with inflation is that was that kind of what's happened in there. Jason: [50:23] Yeah so that that is happening now like most of their negative performance over the last two years is kind of dollar stores are the least digital so in the pandemic when people are going to the stores last they they became a less viable option right like if you didn't want to go to a Target you could shop from Target online like pretty seamlessly but dollar stores very often don't offer e-commerce they were disproportionately impacted by supply chain disruptions right so you know if you're a big General Merchant you could make all these plays to try to line up merchandise but you know the dollar stores are trying to buy. Distressed inventory in remaindered remainer remaindered inventory so they like didn't really have the option to be as proactive as some of the the, the discount General merchants and so so they had a lot of supply chain disruption so that those were there, they're bad news the last two years there's a school of thought that they'll, have a they'll be decently positioned in an economic downturn but but we shall see. Scot: [51:29] Coble thanks for doing that. Jason: [51:31] If that was helpful for you we will remind you that the way you can repay us as you can jump on iTunes and leave us that five-star review. Scot: [51:40] Thanks everyone we appreciate it and until next time. Jason: [51:44] Happy commercing.
EP287 - Amazon Supply Chain Deep Dive with Marc Wulfraat http://jasonandscot.com Marc Wulfraat is President of MWPVL, a global supply chain and logistics consulting firm, and one of the foremost experts outside of Amazon, into Amazons supply chain. In this episode to do a deep dive into all the elements of Amazon's supply chain, how it compares to other third party logistics providers, and most importantly if and how other retailers should think about competing against the enormous advantage that Amazon's logistics infrastructure provides Episode 287 of the Jason & Scot show was recorded on Thursday February 17, 2022. 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 287 being recorded on Thursday February 17th 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo. Scot: [0:39] Hey Jason and welcome back Jason Scott show listeners Jason were about 300 episodes into what I would like to call our podcasting journey and sometimes our timing has been terrible over that 300 episodes sometimes we roll the dice and it comes up the right way tonight's episode is probably the best timing episode we've ever had I mention this because yesterday Shopify announced their Q4 earnings that were pretty strong but then they dropped a bit of a bombshell on Wall Street they announced that they're going to spend over a billion dollars on the next 3 years on what they call sfm Shopify fulfillment Network and they're going to compete with Amazon's FBA capabilities and they also kind of said and we're going to essentially get to 2-day delivery across 90% of the United States you and I were skeptical about that on on social media I said that's nice but Amazon has spent over 80 billion to get there and then you said. Jason: [1:37] Yeah that there are also targeting a service level that's kind of antiquated like like to day is Amazon 2010 here in 2022 you know it's at worst next day and increasingly at same day for millions of skews so I was a little surprised that they their big splash was that they were going to invest a billion dollars to get Amazon service level from 10 years ago. Scot: [2:00] Yeah that's where our timing gets interesting because you and I have long wanted to do an Amazon Logistics fulfillment Deep dive and the person that knows more about this than anyone except for the folks inside of Amazon is Mark Wolfe rat he is the president of mwp DL and we are really excited to have him on the show talk about all things Logistics. Marc: [2:23] Well thank you kindly for having just gone through some really appreciate it before this. Jason: [2:27] Oh my gosh Mark were thrilled to have you Scott's too shy to mention it but but this is a rare circumstance where Scott is a fanboy of you because, every time there's there's new data about Amazon's investment in their various elements of the fulfillment Network he's forwarding stuff to me and he's like hey did you see what Mark and cover this week so I'm probably not gonna be able to get a word in edgewise but before Scott jumps in with the questions we do always like to get a brief background of our guests and I'm super curious understand how you got into the supply chain space and and sort of what led you to found em W PV l. Marc: [3:12] Oh gosh well did I was a mathematician in my University days and, I just accidentally got a job as a consultant you know what I got out of school and it was we didn't know what the word supply chain was back then it just didn't exist so I started a Consulting and distribution and then, eventually went out and founded my own company and you know today we called Supply chains for 35 years I've been, what the cost supply chain Logistics Consulting all over the world and it's been a blast I've enjoyed every minute of it. Jason: [3:48] Very cool and does I think of you as publishing all this Amazon specific data I assume that there's a non philanthropic commercial aspect to MB mmm W PV L are you selling consulting services to people that are trying to solve supply-chain problems to analysts like what can you tell us a little like what's the elevator pitch for your firm. Marc: [4:16] You know that the whole thing about Amazon that we do is really for intellectual curiosity yet there's a little bit of money there but it doesn't it doesn't pay the bills so to speak, you know really we work for other retailers that compete against Amazon and about 15 years ago when Amazon was becoming a household name. I realized that they were very secretive about everything going on around but they didn't talk much about, how they went to Market and as a supply chain practitioner I said well. To wouldn't it be interesting to start diving into this and and I hunkered down in my basement and started to you know research the company and over the last 15 years 11 bowled we put together you know, we'll put all the grease and we put our 10,000 hours into this we've got a huge database on every building they operate globally. [5:13] We monitor the people that work in those buildings we have engineered the economics underneath the hood so to speak, productivity rates than unit volumes package volumes Etc and that's enabled us to understanding your economics for their e-commerce operation, including things like one of us automation done for them. And that enables us to be more powerful as a consultant when we go to market for the rest of the industry and and they greatly appreciate the abilities that we have in terms of being. You know conversant on areas like strategy which is a big part of what we do so I'll stop there. Scot: [5:55] Yeah very cool so yeah I mean if you got to study the best to figure out how to you know, scale up other other folks so we definitely want to jump into this a kind of defer to you on the best way to explain to listeners the shape of the Amazon infrastructure from where I sit you've got kind of the core is the Fulfillment centers and these are these giant multi million square-foot buildings that house and ship product then there's sortation centers delivery stations then they've built this kind of airplane Network across that how would you if you were at a if you were going to Justice and our listeners are pretty Savvy on this so how would you describe kind of the the core infrastructure that Amazon has right now. Marc: [6:41] You just mentioned the core of it the I think a lot of folks don't realize that even before the Fulfillment center gets the inventory, there's an important component to their supply chain which is called the inbound receiving Center and the inbound receiving Center is a holding tank, sir inventory it is not meant to serve the public it's meant to if we to replenish inventory at the Fulfillment centers, so typically what happens is when imported merchandise hits the apart. It's brought from there into one of these inbound receiving centers it stays there until it's needed at the Fulfillment center. And not doesn't just apply to Imports there's quite a bit of domestic merchandise that follows that logic as well so instead of, ramming the Fulfillment centers with inventory like Christmas wrapping paper and I arrived in say the month of June or July, instead of overstuffing and bloating the Fulfillment centers the hold it it means inventory tanks at the ports and then one month Christmas wrapping paper is needed at the Fulfillment centers they'll start shipping that say closer in November December. [7:55] So that's really the first component of the supply chain are all of the major retailers like Walmart Target Home Depot they all do something similar they just called an import Distribution Center. [8:06] Sanders come in various flavors the one that I think most of us recognize is the small sortable fulfillment center, with goods are small enough to fit inside one of those yellow totes that can ride the conveyor system and go from picking the packing, large not suitable for Fun Centers. And they are usually a million square feet of me contain all the product that's too big to fit in those yellow totes and anything from an umbrella to a gas barbecue to an appliance that kind of thing. We have specialty for Fun Centers that handle merchandise categories that are unique for a reason that perhaps they need some type of material handling. Um you know requirement that is different. For example apparel and Footwear or jewelry and even things like car parts or textbooks. And then from there you have after the performance center I mean think of the Fulfillment center as being. A place where inventory is kept and where orders are picked act and put into the shipping carton. From there the typical shipping carton will now flow to us for Tatian Center which is a primary sort those buildings typically handle a 200 mile radius. [9:25] They hit the packages get sorted by ZIP code palletized and then Trot to the nearest delivery station for that zip code. Yes it's an Amazon Logistics delivery. [9:38] Otherwise you will go to a post office or USPS post office that handles that zip code and that's typically, the packages that are destined for the room low population density areas areas where you have high population density like Urban Suburban areas, Amazon has built out their delivery Station Network. So that they can deliver those packages themselves to have better speed more control and you know shall we say the capacity energy capacity to handle their package volume that's consistently growing. And then of course there's UPS UPS picks up at the Fulfillment center so they don't go to the circulation Center the pickup directly at the foam in Center and they handle all the packages that, are what I call out of region you think of a customer that might live in Montana or Amazon has no infrastructure, PS would be delivering packages to Montana because Amazon doesn't have any Traditions Energy Delivery stations out there. [10:37] So that's kind of the threefold passion others also are free and to that extent Amazon currently leverages 43 airports around the country. Packages that are going are free or typically. Adam should have picked in a fulfillment center for a customer that's Amazon Prime at lives very far away from where that item was picked ideally in a perfect world you'd never have your free because every fulfillment center Woodstock every item. And everybody would live close to a fulfillment center so you want me to do this because it f8 in general cost seven times more than brown free. So you don't want to do are afraid of unless you have to but it's an important part of Amazon's competitive positioning because if you're going to offer first to Coast to day service level for Amazon Prime. Then you need her for you you can't get from Seattle to New York using ground free that would be five days. So that's an important component to very expensive component what they do so packages will go fulfillment center to the air hub, their hub from their planes will typically fly at to our regional airport public Dallas or Hebron Kentucky where their brand new airport Hub is been opened up last year, and then from there the plans will take the packages to their respective regions and then from there to the delivery stations that end up delivering to the customer. So that's where the I would say the main components of the supply chain I haven't talked about everything but that's the main just. Scot: [12:06] Prickle and then so so when it goes to air it's kind of a bug right because you know when it should have said Jason orders an Xbox and it's not near him in Chicago and it has to go out west or east and then fly it to him to since he's in the center of the country that may be a bad example but let's say there's someone on the west coast they order an Xbox it's not in stock and they have to ship it from the east coast and what does the network gets smart so do they have the software that would then say all right we flown six of these across the country we need to kind of rebalance and get a lot of those closer to the West Coast is that kind of how it works. Marc: [12:40] Yeah I think you're exactly right there's artificial intelligence you know where do you stock an item, becomes a pretty important aspect of their business so I don't want to put windshield wiper blades that are for the winter in Miami, in the Fulfillment center there right I'd rather have that open Detroit or Chicago so having the smarts to know if you're going to have 15 million items in a fulfillment center. You want to have the smarts to position the rate 15 million items in each one of those small sortable fun answers. And similarly if there's called 360 million items on the Amazon Marketplace that have been sold. You're not going to be able to put 360 million items in every building. So you have to have the smarts to be able to say if I see something will be frequently. Um and it's going long-distance how can I fix that problem and save money and increase, quality of service by adding either stop him or places or stock in different places so that's all part of the artificial intelligence behind the scenes that is part of the Amazon secret songs. Scot: [13:50] Yeah let's put some members on this so we've got inbound how many of those do you think are just kind of roughly are there in the system. Marc: [14:00] The inbound receiving centers. Scot: [14:02] Yeah. Marc: [14:03] We can't 29 right now within the US and there's about 11 more on the way. Scot: [14:10] Could you be more specific. Marc: [14:11] Sorry I. Scot: [14:12] I'm just kidding that's what I love that's why I love about your data it's like down to the like you know decimal points of square footage so your how about fulfillment centers just all all flavors I guess. Marc: [14:26] In the u.s. there's author fulfillment centers add up to roughly about 287. Scot: [14:37] Jason for the longest time didn't Walmart have like eight is mm I remember free comes. Jason: [14:43] Yeah Yeah by 8 to 10 for a long time yeah. Scot: [14:46] Yeah I'm sure they've increased that but still they don't they don't have 287 I'll Hazard to guess. Marc: [14:52] Northern the third scruffy but what Mark's been doing is they've been retrofitting many of their existing facilities to play a partial removal for e-commerce. Jason: [15:02] I think that's why it's tricky to count because they have a pretty robust store infrastructure infrastructure for Distributing the stores and increasingly they're repurposing a portion of those. Scot: [15:16] And then how about sortation centers that's a little tricky because some of them are attached to fulfillment centers right or do you keep track. Marc: [15:22] Now we track those step we track those those are clean they've got 96 active sortation centers that's an area of the business has really grown in the last 12 months and then 22 on the way instruction. Scot: [15:36] Wow that is big Cecil get 20% growth and then how about delivery stations. Marc: [15:44] So two flavors of the delivery station one is the small package delivery station which is what most of us, think you know think of them get an Amazon box and then there's also the heavy bulky. Where you know they have a box truck with a license truck driver maybe two people are needed to unload the coach or whatever moves you whatever it is it's big and heavy that you ordered and so it's 515 delivery stations are active. And 113 of the heavy bulky ones and we're aware of another roughly about 161 buildings that are in the works right now. Scot: [16:21] Yeah and now that's that's probably the newest part of this right because they used to from sortation they would dump it mostly before they had the DSP program they would dump all that into USPS FedEx and UPS and then that delivery station is that lacks mile where they've built and if you're saying there's 5 15 plus 113 plus 1 so there's like 700 or 800 of these those are mostly in like the last five years is that is that your recollection. Marc: [16:48] Well I ran 2014 we got started on the first couple and it was so hard for the first few years but this is the part of the business just skyrocketed you know for the last 34 years, they've been building these out not only in the cities what's interesting is last year they opened up 30 of these in the tiniest of towns. No population 5000 kind of thing and short It's seems to me they're trying to get an ecologist The Wagon Wheel they're trying to get into the rural, areas to do this work as well which tells me, did you know that lost 50% of the population where it's really tiny towns that's the most expensive part of the country to get to you know lust population density widest geography so it's the most expensive last mile delivery you can possibly make. But the fact that they're starting out with this lab test to say hey let's try these 30 a talisman, their goal is to have every one of these zip codes under their control including all of the rural ones so this is an interesting story that's unfolding. Scot: [17:53] Yeah and then the thing that's kind of a if your UPS what's tricky about this is you were in FedEx you were delivering all this stuff for them and then I imagine you know the Amazon robot in the sky the a I basically said that's a profit or out for us we'll take that over this is a prophet I can just kind of picture them like snipping the tree and then adding these delivery stations and just slowly but surely and conversely someone on the FedEx UPS side watching that all that margin go away is that kind of how you envisioned they rolled this out. Marc: [18:26] I think it's a lot simpler than the AI in the sky you know I think it's just sort the US population in descending sequence right. Scot: [18:34] Yeah okay. Marc: [18:35] Start out with New York La Chicago and so on and working way down the list until you conquered all the big cities and then keep going down from there and and. Scot: [18:43] That's not as ominous as an AI in the sky the. Marc: [18:45] Yeah it sounds better. That's really the way it works is they and it instantly for the Fulfillment center build out you know right now they're targeting towns in that four to five hundred thousand population range, I like Green Bay Wisconsin that kind of thing and you know the that's on the list of places they're going and it's because they've already done the ones that are 600,000. Scot: [19:10] Let's um so two of my favorite areas of the infrastructure to kind of poke around and is the Fulfillment centers and you know so I think the average in your data is something like 800,000 to a million and maybe that's maybe that's the small sort of bulls but, it's hard for people to imagine a building like that until you're inside of one and you know the one way I've helped people to try and understand it as it's like 22 to the 30 Walmart's just kind of stacked in the cubic volume of that many Walmarts you get inside one of these things and you can't really see the you might as well be on the moon because you can't really see the Horizon per se because it's just like it's so stack the stuff you don't really know where you are in the if you weren't familiar with it you're not really no sure where you are how do they and then Amazon is pretty unique in the ones that aren't robotic with how they put product up is my understanding what what what system do they use for that or do you know. Marc: [20:05] So you're talking about like the large no shuttle facilities where they are more manual. Scot: [20:09] Or yeah we're there more manual. Marc: [20:12] Yeah that is actually equipment being used for that is nothing special that's pretty common place it's called an order picker truck and an order picker truck is a vehicle that runs on a wire guidance that's buried in the floor. So that it doesn't go left to right it stays true to the wire and an operator goes up with the unit load rather than staying at ground level and raising a bow. The operator rise to the bull head of the 40 foot building takes the boxed off the pallet and then inserts it into the location in Iraq so it's called a man up system. That's fairly common in most walks of life that's not something you need Amazon. Scot: [20:52] Yeah and then don't they do it where the stuff they put on the shelves by shelf height they found it was kind of randomly placed on shelves by. Marc: [20:59] They use random stoics that's great and I think when you're trying to manage you know one of those large amounts sort of a building's could easily have two million items, and one of the small suitable for mysterious could easily have $15 I say items I don't mean units of inventory I mean unique SKU variety and, even when you're dealing with that are sort meant that that's that's also coming and going you know it's not like there's one new item a day, or we it's like there's thousands of new items every single day hitting you it would be, an exercise in futility to try to organize it all in some meaningful way so that the fastest-moving Needham's are positioned strategically in the building and so forth that's the way most Warehouse is try to operate whether, this is an item that generates a lot of excitement let's put it in a in an efficient place in the world of Amazon, especially in the world where robots are retrieving the product and bringing the product to the Picker it doesn't really make sense to do that so they use random stowage and it works well for them. Scot: [22:04] Yeah and then so they acquired Kiva that's been quite a while now where where are they on the Kiva robot system as it relates to fulfillment centers. Marc: [22:14] I have to tell you a true story here I was at a trade show and they bought tear and I had chest, it's done a huge interview and a big article and Kevo with the prior owners and I said to them you know this is a great system but it would never work for Amazon. And they said the continent is said hey could you strike that from the article please, I have no clue the next day they announced that they were acquired by Amazon and I thought what a what a boy Amazon overspent they spent 750 million I said, all laughing at the trade show how much money Amazon spent on TiVo you know we thought they were fools at that we were wrong, was I wrong you know I've never been so wrong the whole life that that's been a huge win for Amazon and to my knowledge there's about three hundred and fifty thousand of these Roomba star robots running around out there across the world, and we've done the reverse engineering on their labor chewing we've put a lot of Manpower and we try to figure out. What would it what would their roles look like today. If they hadn't done this if they were continuing to operate with pushcarts people walking 12 miles a day to pick these orders that kind of thing and the math we keep coming up with is she not to push out five million units a week. [23:36] Out of a small sort of a fulfillment center you need about three thousand people, if it's got robotics same building no robotics you need about 4,800 people. So the cost per unit when you look at all the labor cost in in the manual building it's about 95 cents a unit. In the automated building it's about 60 cents a unit so it's it's been about a 37% labor reduction they have a cost reduction for them. Now I was on doesn't like talking about that they like to say well actually in our automated buildings we sometimes have more people than in our manual abilities, but what they don't mention is that they're pushing out way more volume. With those extra people that they've got in Atlanta so they're at the end of the day you can't look at it that way you have to look at it is. If the volume is constant how many people would I need manual versus automated and in our opinion they're saving about 37 percent of their love the labor requirements by putting this Automation and that's why they've been, I showed in every single building that they put up in the US and and in the developed world because of the huge labor cost savings. Scot: [24:48] Very cool I had not heard that step the, so then the other one I think is really interesting is these delivery stations and some of the materials you have you have a kind of a really cool picture for how this is maybe a maybe try to walk people through kind of like how this is set up and what it does on a day-to-day basis. Marc: [25:11] Yeah I think there's a misconception sometimes that are delivering station yeah in the media they sometimes come to the room stations fulfillment centers and they get it mixed up delivery station is purely. A secondary sortation Center the first sort took place back at this rotation Center we're all the packages for a 200-mile region, were organized by ZIP code and then for a specific area within that 200-mile region that's very very tight. Call it an area where the driver can leave the delivery station and go no further than 60 Minutes of drive time to get to the market that he's making deliveries. [25:53] That's small ships unit circle, it's what's being serviced by the delivery station in there could be many of those circles within the region that the sortation center serves so this is the secondary sort and all those packages arrive at the delivery station that they got downloaded to a conveyor system, people sort those packages out, to route and a route is quite simply a grouping of streets that are close together in a neighborhood, so that a driver goes into that neighborhood will be as efficient as possible when making that last mile delivery and a delivery station you know in the old days they used to put on so that the Vans would drive through the building, and the loading process would take place in the building and that is still done in Northern climates like Chicago like where I live, because you can't effectively load of an out when it's snowing outside and so forth but a lot of the newer ones that they've got. [26:50] You could easily have anywhere from 250 to 750 Vans pulling up to the side of the building underneath an extended canopy outside, and they're getting loaded out very much in military discipline stock so you'll have a platoon of 72 Vans pulling up, in 20 minutes later they've got, all their packages for their roads and they're leaving in the next platoon of 72 is pulling in 20 minutes later they're gone the next platoon and so on and over the course of two and a half hours, three hours you Amazon's loaded out upwards of five 600 fans and they're out there on the streets doing those deliveries and it's not unusual for a bad people, quiet day with operative 175 packages or more on a busy day with upwards of 250 packages or more. [27:42] And these drivers are going over a 10-hour day and when you do the math on the time it takes for them, between deliveries some of these guys are average me three minutes per delivery. Which is astounding because these numbers no one else is hitting them this is unique to Amazon they've got enough density, and demand for their product and the service that they can go out there and every three minutes make a package delivery it's a, it's incredible how much volume they've got we think that in the US last year in 2021 the came close to six billion packages delivered through the Amazon Logistics, delivery Station Network which is incredible because when you look at that volume you compare it to seeing UPS or FedEx, UPS is our is 120 Euro a hundred three hundred fourteen year old business and they're achieving about that same volume as we speak so they've been able to build since 2014. Company a transportation company that they're on themselves that is basically doing the same volume as a hundred fourteen year old UPS. So I find that and that's over and above everything else they've done whether it's at this is just history in the making. Scot: [28:57] Yeah it's pretty amazing when they when they go to fill one of the Vans is it prepackaged like on a pallet and they just left a pallet in there or like a swarm of people are dumping packages in there. Marc: [29:08] No actually it's pretty smart what they do they. Each time a package is removed from the conveyor belt on the inbound it's being scanned into a canvas bag, the canvas bag think of it as kind of like a hockey bag almost, where you're putting a group of boxes that logically and should be together because they're close in terms of proximity as to where they need to be delivered so they doctor soil 225 packages on into the back of the van Loosely they organize it by these bags, and the operator who the driver has to make these deliveries is told what bag to go to in order to retrieve a specific, parcel that has to be delivered so it takes a problem of say 250, boxes and breaks it down into smaller subsets to make it faster for the driver to find the actual package. Scot: [30:01] So then how many canvas bags are on is it like 25 or something. Marc: [30:07] You know I don't know that's a good question that I've never been able to figure out. Scot: [30:11] I stumped you. Marc: [30:12] You stopped me. Scot: [30:14] It took awhile, yeah it's just fascinating to watch these deliver and then the thing that Amazon does is so they'll have one of these delivery stations and let's say you know to your point they'll Maybe hundreds of ants may be up to 1,000 bands that service one of these and then there's different dsps running these things and they put them in competition with each other over routes maybe say a little bit more about I don't think a lot of people realize that's going on so maybe maybe explain how that works. Marc: [30:43] Yeah so you know when you when you look at UPS unit FedEx and the other large carriers out there they all have employees. They sometimes have to deal with units transportation to heavily you know it's sector of the economy so how do you build a transportation business that's non-union. How do you build a transportation business where, no one has the ability to organize and come after you and go on strike and start causing problems for your business and how do you keep costs down, well Amazon her everything about everything you really have to respect about this company and they've done it differently. And I got thousands of stories that kind I can talk to that, you know will describe how they just don't think the same as the rest of the world they say they don't allow themselves to be stopped by existing paradigms so what they said was. [31:40] Last of all and help entrepreneurs get started. [31:45] Ruth help them get the Vans will help them Finance the whole process of getting into business, and the other load and higher the employees who will do the deliveries so they're that creates an arm's-length agreement between the driver and, Amazon it doesn't become their HR problem becomes the HR problem that DS p-- and let's make sure that every one of these delivery stations is not being serviced by 1 DS p-- no no no, we have to have that with 356 sometimes 90 a speech why because, yes p number one starts rattling assume that he's not making enough money, or he doesn't provide adequate service or something bad happens with one of the drivers or you know you can think of a Litany of other reason you fire them, and you bring in another bsp to replace them so they're all powerless, and they're all captive to Amazon so it kind of reminds me of the old family days when you know if you went off and sold Emily product at, and even space is my captive rate what could you do about nothing, in this case Amazon control is everything these dsps cannot go do deliveries for other people they're captive to Amazon Amazon own SEC passing, and the dsps have to deal with all the churn and burn that was on a high turnover labor environment that they're dealing with. [33:10] And I've got to perform because Amazon is monitoring them every step of the way there's cameras on these vehicles they can tell whether or not the vehicle is doing what it's supposed to be doing or if the driver is doing something wrong. [33:22] And they have to perform and if they don't perform them there let go so it's a way of keeping, this massive network of thousands and thousands of drivers without the ability to organize and form a union without the ability to, gain any power and yet they can guarantee fast you'll be there for them when we need it so it's brilliant it's a stroke of Genius. Scot: [33:46] They're not franchise right there their 1099 so the kind of like how FedEx set up ground is my understanding is that is it. Marc: [33:54] There are there people that often times used to work for Amazon in the warehouse. And then they took hold of this opportunity and said hey why not give this a try and they became entrepreneurs and now these business people. Are out there having to manage sometimes 30 40 50 drivers are more and everyday they're under pressure to get this job done. Show. Do I think at the end of the day Kudos Amazon for figuring out how to do this and not be saddled with labor costs that are prices high right some of these drivers, turn twenty to twenty-five dollars an hour you start looking at the wage rates fully loaded that a FedEx or UPS driver is making and, sometimes those folks are out there making 70 thousand dollars a year to drive a vehicle, number two new drivers when it's foot when you consider the benefits so that's what happens when you have employees and you know you treat them right and you have benefits everything else Amazon is gone, hello cost way to db2 see and keep their costume we think the average delivery is coming in somewhere around a dollar 75. And that's pretty hard to match you know when you start looking at the others. Scot: [35:14] Yeah what what would you say FedEx and UPS around. Marc: [35:18] It's hard to sort of cost structure is but if you you know you all you have to do is go there and say Hey I want you to shoot this package and it's still going to be 67 dollars, a portion of that 67 dollars goes towards the last mile delivery function but a pretty big portion. Jason: [35:35] So Mark I talk to other people that have kind of a simple model in their mind of how this works that way, you know gosh Amazon puts one of everything in a huge fulfillment center and puts the Fulfillment centers close to people but I think the problem Amazon solves is even much more complicated than most people realize did I hear you right a big Amazon fulfillment center holds about 15 million skus is that order of magnitude right. Marc: [36:04] That's all that's not a bad number. Jason: [36:06] And then how many skus do you think Amazon sells I have seen a number of numbers I thought I heard you say 360 million but I've seen some estimates that are even quite a bit north of that. Marc: [36:17] And to confess I only know what I read as far as that goes so the number that I saw last was somewhere around 316 million or so. Jason: [36:27] Okay so let's see. Scot: [36:28] That's her prime eligible I think I think that's Prime eligible and then non-prime eligible ev's another 300 million yeah I think I think that's where the bigger number is Jason. Jason: [36:36] That would totally make sense so to kind of frame this it's it's not like you place an order and everything can get shipped from the Fulfillment center that's closest to you right like the, you know they're strategically staging different long tail inventory all over this network and then you know. Impressively maintaining this high level high service level even when that product is in close and that's where a lot of those like are exceptions that you and Scott talked about in the beginning come in right is. Marc: [37:07] Write that obscure Halloween costume you're buying for your daughter right. That is only stocked in the Seattle fulfillment center and you're in New York he wanted two days so that's an example of something that would go by plane if your Amazon Prime. Jason: [37:24] Yeah and the. You mentioned so one funny thing so I live in a multi-unit apartment building a 12 unit Condo building and I like to think of us as an Amazon laboratory because we're in Chicago Chicago has every kind of fulfillment infrastructure here and and are 12 units get about 50 Amazon Parcels a day and it every single day in our mailroom there are Amazon labeled boxes delivered by the postal carrier there are tons of Amazon boxes delivered by Amazon you know dress dsps and their their Amazon boxes delivered by UPS is, is in your mind is that because people are ordering longtail items and they're having to use all these other delivery vehicles or are some of those boxes because, their vendor fulfilled inventory or you know things like that. Marc: [38:22] You know people ask me this kinds of questions I don't know all of the inner workings of how things function but I can only surmise so, there is a significant amount of merchandise that's sold on the Amazon platform that's been fulfilled. So if it comes in an Amazon box then it's probably Amazon Fulfillment right and if it's arriving by the post office and your, area where you live is being service primarily by Amazon Logistics drivers. Chances are it's coming the ship from location is such that it will ship by another former Senators far away. Where for whatever reason the post office was used and maybe that customer that ordered that box was not Amazon Prime so they ship it from a farming fulfillment center, and it arrived 345 days later and that was the lowest cost way of getting it there. Right and something for UPS center maybe it's coming from a location where UPS provides the best value to get it to the customer address and remember not everybody's Amazon Prime so the rush to get it, in two days is really an Amazon Prime only issue right. Jason: [39:42] Wait there people in the world that don't have Amazon Prime and I'm teasing so so now I do want to Pivot a little bit as if this kind of logistics wasn't difficult enough now there's all this demand for what to me seems like even more difficult distribution which is like all these perishable locally sourced by grocery case. Marc: [40:06] Yeah. Jason: [40:07] And what when you use it off all the various types of fulfillment centers in the beginning one thing we didn't talk about that my understanding is that like Amazon is likely also starting to build a lot of are these smaller fresh distribution centers that are you know located closer to customers you know with various degrees of same day service. Marc: [40:33] Yes of the you know Amazon's been very slow to step up to the plate for the food side of the business right so what they did initially was they opened up these Prime now hubs, many of which had fresh capability fresh or frozen so these are smaller type of operations that are interested in. My mom wanted to small running with 25,000 square feet type thing. And they would be there real life was to you know pick your order for food and have it delivered to your house and say two hours. And it was never a money-making side of the business because primarily everything that's going on here is manual so when they acquired Whole Foods. And you know they said well here's always starts right we've got those 500 stores let's leverage them as being miniature Depot's that we can depart and do home delivery. [41:33] And that's really been I think the focus over the last few years is how to get as many of those more food stores delivering your grocery orders as possible and fairly recently they did away with the free delivery, our whole foods and we put up to ten dollars. And that's the show I might add even if your Amazon Prime because it does cost a huge amount of money to do a delivery of food might say why. Well food is the type of merchandise that you can't systematically. Synergize and build-up Innovation for a day's worth of work when someone orders their food. Usually what ends up happening at least in the case of Amazon is the delivery function is made in an unrefrigerated vehicle like a car. You know I flexible driver and wait take several orders that I'm going to deliver them and that delivery function is usually within 15 to 30 minutes of the store. [42:38] Because you don't want your chicken breasts sitting in the tropical car for 4 hours or you're a scream or anything else that could cause a food safety issue. So that type of service when you're paying somebody 25 to 40 dollars to deliver a handful of borders that are food. So often times it ends up costing seven to eleven dollars to perform one delivery. And in the world of food it's a two percent net margin so you can lose your shirt quickly when you start paying for that and not charging a customer. [43:09] Amazon is still trying to figure it out and I believe what they've decided on and so the strategy here is that they will. Very gradually start building out the Amazon Fresh stores that don't require check out our cashier. [43:27] Rotisserie snout that they're working on those. And as they build up more of those stores and they get more volume to layer on top of the Whole Foods Network. I believe that Amazon will start to develop their own supply chain capabilities behind the scenes meaning. Highly automated distribution centers strategically positioned in at least seven major markets that will feed the stores. [43:55] Giving Amazon the ability to buy efficiently and to distribute efficiently. And how we do the automation will be applied to minimize the labor cost in these buildings and then we'll over the next decade. Below are very robust supply chain that's similar to what Amazon are sorry Walmart big during the 1990s. Walmart went to town they put 46 million square feet of distribution center space up in the span of a decade. And they built out all those super centers with food capability during that same decade. During that same decade Walmart put over 25 companies of business that we're long you know long-standing Regional grocery retailers. It's so the next big wave or the next tsunami of competition in the food industry will be Amazon. Are they doing it now no they're just getting started we haven't seen very much activity here I think they've really pushed this one off and they've formed a strategic Partnerships with UNFI and what's Spartan Nash but, I said come 20/20 special reference start to see a lot more activity here. Jason: [45:08] Yeah it's a it's a big chunk of consumer spending I get its lower margin and more difficult but eventually it seems like it will it'll be the place to invest I am curious though do you like I often talk about, by God this general merchandise as being like deliverable via a route and a lot of this perishable merchandise, at least at the moment people feel like you have to do point to point deliveries because you got to get the ice cream, to the homeowner when the homeowner can put it in the in the freezer pretty promptly. Marc: [45:40] Yeah and the other the other thing is the homeowner wants to know when you're coming so there's a specific delivery time window. Jason: [45:47] Exactly and and pre-pandemic all these two income households there are very you know the there was, a scarcity of squats win-win homeowners were available and it was the same slot for everyone right so it became so it's really hard some of the people some of Amazon's competitors are experimenting with these novel, you know very small things but like hey let's put refrigerators on customers porches and will deliver you to the refrigerators or let's get smart locks and you know deliver to the consumers home refrigerator like. I don't know do you you imagine the Amazon is going to have to come up with some novel solution. Marc: [46:30] No no don't forget there's all kinds of spaghetti get in front of the wall and half of it's not sticking right if so I like the idea where I'm going to let some stranger into my house to put food in my fridge, um that's not lawsuit written all over it I can't imagine that's going to last very long. Walmart's doing it and they're expanding it actually but you know I'm going to predict that once a dead duck. When you get down to brass tacks we work with quite a few retailers in the grocery sector depending on the geography we're talking about. Some of these retailers have 90% order of the orders that are ordered online or pickup at store. So some will place an order at 10:00 11:00 at night and arrange to pick it up at 5:00 the next day after the work is over. And the like that convenience because they don't have to go in the store and waste their time and it's on the way home it's from their local story anyway. [47:30] And when you think about it 90% pick up at store 10% deliver that's exactly what a grocery retailer wants because that eleven dollar delivery to the house was the way that cost goes away. Customer likes it because they don't have to spend the money on that bus too. Start looking at the cost of instacart and what it cost for a valet to go shop you ordered and delivered to your house and after you look at the markups that are put on the product that no one really knows about because they're not looking at the fine print. After you pay for the delivery fee the tip etcetera it's not uncommon that 100 all orders now 125 to 130 dollars coming out of your pocket as you want to the store would have been 100. [48:12] And that business model will be what comes Under Fire as more and more people tune into that cost increase. Amazon's proposition on the home delivery side will with the increase of these Amazon Fresh stores and the Whole Food stores I think they're going to try to go, to the pickup at store model as well more storage more opportunity for that less expense. And also try to get more efficient with scale at doing the home delivery model right because it requires scale. Really touch and if you really want to do it right you won't with refrigerated trucks that's what Kroger's doing so now you can send a driver out for a day's worth of work with a refrigerated truck, with appointment schedules and all that done and then and now you've got you know a uniform driver and a logo on the outside of the vehicle and it's far more professional than you know some Flex driver showing up at your front door. [49:08] There's lots of things going on as you can people play with the proboscis down the sidewalk to do the to do the delivery of the order, wait for a New York is doing that and we'll see whether or not any of these things and you know I've always been about Bethel that a single robot that might possibly thousand dollars. Is is a good way to spend your money to go and deliver one order 9f you doing 10,000 orders a day when I need 10,000 of these robots have been waived spend capital. Probably not so I and that's why drums never took off I am 137 million packages a year, with drones you just can't right here you're going to need billions of drones to make that happen it's just it's not realistic. Scot: [49:53] Yeah, let's pivot a little bit so let's talk a little bit about kind of the future so you've given us your really good good lay of the land of and even some future that they're you know they're there, increasingly investing in these things one of the things I've kind of long predicted you mentioned the last mile is maybe like a buck and change to deliver something do you think Amazon will eventually just compete with that axe UPS where I'll just throw some packages on my door like let's say I'm going to ship, Jason a new microphone I'll just put it on my front porch address it to Jason and when the Amazon comes they'll pick that up and take it to him for three dollars or something. Marc: [50:32] The question I get quite often asked quite often and I always start out by explaining you know Amazon is a business that there are days during Q4 were they on the hill quite a few days, in the fourth quarter the volume this ship relative to an average day is 2X. [50:54] So like a fulfillment center that there's a half a million units on an average day is spent a million units output on a busy day. Repeat it and the same thing goes for the delivery stations right you might have a delivery station doing fifty thousand packages now doing a hundred thousand on a peak day, so during the first quarter of the whole company stressed. With trying to get all these resources to work longer hours huge amounts of overtime and everybody's tired and there isn't any fat in the system, to be able to take on additional nice to have volume to try to subsidize your business. Your just got every pair of boots on the ground trying to manage your own customers and your own needs. Sorry you set something up where Logistics is a service during q1 through Q3 when you have a lot of slack in the system by frankly. Matthew 4 well one way you could do that is on your 3p Partners you could extend an offering to them and say hello, your only business partners will do your deliveries for you during q1 323 but not during Q4 and if they're small Mom & pops and they're going to get a significant cost break because of that, don't jump on board and now you've got that additional volume that you need during she wants review 3, to help Finance or subsidize your own Logistics operations and indeed that opportunity is readily available today and I think that's the first Port of Call. [52:22] 24 on the other hand they might just turn that tap off and say we don't need the revenue and what really needs every boot on the ground to support our own business. [52:30] If you're a serious ship and by that I mean spend five to ten million dollars a year on parcel free. What happens is the people like FedEx and UPS first thing in the new you they come into your place and they say look what your business, you gave us a commitment for the 10 million in volume and we'll take the whole thing and we'll give you a nice juicy discount. So it's not something that you can carve up by quarter. Commit at the beginning of the year to doing 10 million shipping volume may give you an extra Cent discount in exchange for that, and you stay the whole year with that one partner so this Logistics as a service concept is is, really something that you have to be careful with because it's a bad idea for the first three quarters but not the last one and it's not like AWS which is a commodity that you can sell to everybody. It's something that requires lots of lots of vehicles delivery stations for patients centers drivers There's real resources that are needed to make this happen. And you can't put a peak on top of a peak because that 24 Peak that's happening in the Amazon is happening everywhere else in the b2c world as well. [53:40] So I think they'll become a competitor to FedEx and UPS and I think I'll primarily compete in the b2c spaced delivering consumers because that's what they're good at they're not trying to do, the deliveries that you know it's 50 packages a delivery at a business and I'm trying to be that work that's still going to be the domain of UPS and FedEx but I see this competition really being something that, we'll probably wind down towards that fourth quarter of the year. Scot: [54:08] Finishing yeah the so we've seen an enormous amount of venture investing and go puff and what are these companies called Jason there's some cool name that you you guys use. Jason: [54:20] Like ultra-fast delivery. Scot: [54:21] Fast delivery do you yeah the gorilla and all those guys do you feel like you're going to have a better system than Amazon or do you think that they're foolishly going to crash into the Rocks the Amazon rocks. Marc: [54:35] Yeah I think I think that's what's going to happen I think all of those especially the 15 minute guys I think they're all going to burn out and I Venture Capital money is going their way of course but. You know anything to do with food requires volume, and stale and you're not going to make money and find resources that are going to. Stick around for the long run in this big worker economy of 15-minute deliveries when you're constantly under stress that that's just a recipe for disaster I wouldn't put a name on to that myself, um the good parts of the world will see I'll hold off on that when they've got 500 of these fulfillment centers that call but their time kiosks really at the end of the day and, you know it's a huge cost model to operate that way and I honestly think, um you know this is all exciting and new but when the expectation to make a profit starts to become a reality I think a lot of these guys are going to go away. Scot: [55:39] Yeah this is kind of a correlated question we're so you talked about you know some of the Amazon numbers you are putting out there you know you said they're going to add, you know, 122 sorts and more another 161 delivery stations where does this stop and you meant also mention the Wagon Wheel where they're actually starting to get out into pretty Loosely populated areas is is there a point in time where, we're done like and when is it. Marc: [56:09] Well here's an interesting sound bite for you know when we add up all the square feet that Amazon added in the u.s. 2021 including the message. Crossover in fact it came to about a hundred and thirty six point six million square feet okay keep in mind the entire Walmart Network that took 49 years to build. Totals up to about 150 million so we're talking about company during covid conditions when it's impossible to get lead times that are decent and suppliers to do the work on society Etc, this guy's built almost almost an entire Amazon just in the u.s.a. sorry and I'm tired of Walmart just in the u.s. in one ear, and when you look at what there. On schedule to build in 2022 148 million more square feet will be added in 2022 and that's the size of the Walmart Network that's been built over the last 50 years. So this thing isn't going to slow down anytime soon even though in the last quarter they announced that they're going to take a breather. Now you know when you hear that what that means is the number of new facility announcements that we would normally expect. [57:27] To happen this time of year is down way down compared to last year. So that means 2023 2024 I would fully expect this speak to start really slowing down. At least on fulfillment center side. The logistic side they've probably got another 750 to 800 buildings to put up between now and the next five years in order to hit true Coast-to-Coast coverage across all zip codes, they may change direction to say about to do that but if they do decide to do that, there's a good 800 more buildings they have put up that are Derby station since rotation centres and are hubs in the lake and that's not have to have an output of energy and but I would see within the next five years, we should expect. [58:22] That this engine will start to mature and it's quite the growth of warehouse space, for Amazon is directly correlated to the product sales growth that you see on their quarterly statements, so if sales go up by ten percent they're going to need 10% more space at least from fulfillment center perspective all of the logistics buildings are more geographically driven. So the question is your how much more will e-commerce grow. Over the next five years relative to what we know today that's a hard one to answer that I see that, in the u.s. you know our expectation is 10 percent growth this year in 2022 slowing down probably eight six and four percent over the next several years so I think the growth in just e-commerce in general. Combined with this mature Network that they've already got combined with the fact that I mean you can only build so many of these anyway. It doesn't make sense to put up a 300 million dollar building a town of 200,000 probably not. Now it's better to ship the product further than to spend all that capex and on a small town or small in time so these things lead me to believe that we're going to spoke we're hitting the top of the bell curve and we're heading down the other side. Jason: [59:42] Marc this has been great this does kind of trigger one last question that I maybe should have started with so you kind of have in a different field but the same job I have I jokingly tell people my job is to unsuccessfully helped other retailers compete with Amazon and yeah you've just painted like a pretty impressive picture of, like how daunting the the Advantage Amazon has and how far ahead of everyone they are you mentioned you work with a lot of other retailers like, at the highest level I assume it can't be your advice to anyone that they should try to catch up right like is the is the answer to like find some white space that's an alternative approach to brute-forcing this like what what do you tell other retailers that engage you. Marc: [1:00:33] No one needs me to tell them that they can't compete against Amazon me this is history in the making right we've never seen anything like this in modern in the history of modern man this speed the sheer speed at which this has happened. I can remember going to trade shows not that long ago when people said yeah but they'll ever make any money, and you know pooh-poohing Amazon is slow they're going to be extinct in real time and you know what's happened since the mid-90s till today in a relatively short period of time has been devastating. [1:01:09] To the retail industry to shopping lost every aspect of retail you can possibly imagine. And it's going to continue to happen and sir you can't say to a company, wow and become better at e-commerce than Amazon is because that's a losing battle I think you just have to understand when Back to Basics you know what made you great in the first place, don't try to become a five hour delivery firm. Because you're not going to get there without huge cock question and it kind of brings us to Shopify and how much money will Shopify end up spending. In order to get the two-day next and all the rest of it well I think determine the two days but they absolutely need to be competitive, mom you know go and build you are six or eight fulfillment centers however many that's going to end up being one put those in place either with a third-party Logistics partner through your own resources, and stop and stop it today because there's no point in trying to be next day, that just gets way too expensive and then focus on the core values right wider Shopify, exists with a high degree of success and growth it's because they offer something that Amazon doesn't offer right then it has nothing to do with its owner has everything to do with the vendor. [1:02:29] And same thing with wafer you know a lot of folks asking what about wafer wafer has a fantastic product offering. Right I mean they the customer shop on the wafer safe for the products that are sold there not because Wayfair can deliver within the same day. So don't even try to become an Amazon trying to be the best you can with the resources you have but you know focus on what makes you great first place. Jason: [1:02:56] Well Mark that is great advice and that is going to be a great place to leave it because it's happened again we've used up all of our listeners a lot of time but this was an amazing conversation really appreciate your time if listeners enjoyed this show we sure would appreciate it if you jump on iTunes and give us that five-star review. Scot: [1:03:16] Marc Lee really appreciate you taking time to share your deep knowledge of Amazon's infrastructure if folks are interested in reaching out to you maybe maybe you've piqued their interest to help them figure out some stuff what's the best way for them to reach you or read what you write online. Marc: [1:03:35] Our website wpbf.com. Scot: [1:03:38] Awesome well thanks everyone and. Jason: [1:03:42] Until next time happy commercing.
EP286 - Amazon Q4 Earnings Amazon released their Q4 (and full year) earnings for 2021 on Thursday February 3rd. In this episode we do a deep dive into all the details. Key Topics: Amazon North American Revenue grew 18.4% in 2021, which was just above the industry average of 17.9% Amazon has broken out their ad revenue for the first time. In 2021 total revenue was $31.16B growing at 32% Year over Year. Ready Jason's Forbes Article here. Amazon is raising the rates for Amazon Prime from $119 to $139 per year. Want to learn about Amazon's sneaky fulfillment advantage (Amazon Key for Business)? Check out our YouTube video here Episode 286 of the Jason & Scot show was recorded on Thursday February 3, 2022. 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 286 being recorded on Thursday February 3rd 2022 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-hosts Scot Wingo. Scot: [0:38] Hey Jason and welcome back Jason Scott show listeners. I'm dying to talk Mandalorian with you but I don't want to do any spoilers so I'm just going to skip the Star Wars chat this week until I think we'll give it until all the episodes out plus two or three weeks and then we can talk about so until then. It's business only. Jason: [0:58] I accept your promise for a later conversation I would only say watch it people go watch it. Scot: [1:05] Yeah it's gotten really good okay so it has been Star Wars dramas aside it's been a mega cap Tech stock drama this week so it's been a very interesting week. And we're excited to kind of culminates in the Amazon news that came out today so this is this is our hot take on Amazon's Q4 but I think it's important to back up about six steps before we jump into that briefly so setting the stage back in episode 257. We were super Clairvoyant and in March of 2021 you and I were the first I'm pretty sure and we can get you into fat check this. A lot of people were talking about am apples I DFA and that's their new privacy where they're killing the cookie and doing a variety of things to really limit the amount of tracking available to apps. Inside of their ecosystem amongst email and a bunch of other stuff but the primary one is apps can no longer really track what's going on there's a lot of talk in the ad World about that but you and I believe were very early talking about the impact on e-commerce so. So we had that and then you know I went back and looked at our notes and our prediction was that this was going to put Facebook in a world of hurt. So then Flash Forward. [2:25] Past this is a in your hot tub time machine and episode 285 which we did a couple weeks ago our previous episode you took us through some really good data we got a lot of really good feedback from that show from folks and everyone enjoyed your presentation. And except for that one person who said that you're too verbose and your slide presentations are too long so shame on them anyway they in there. Jason: [2:48] They're probably not listening to our super long podcast. Scot: [2:51] It probably we self-selected them out there listening to some 5 Minute Podcast. Or they're listening to us on 4X and they've totally missed this whole segment anyway so you one of the data points you put out there that is that e-commerce crew 18% that right. Jason: [3:09] You do yeah well no retail grew 18%. Scot: [3:11] Retail grew 80% okay so that was kind of the watermark and then e-commerce grow a little bit more is that correct like 21 or so. Jason: [3:18] So we don't know for sure non-store sales grew about 20. Scot: [3:22] Yeah okay so we'll call it 18 to 20 then last week and over kind of like the last. Since College January 20s the stock market has really slid into a bit of an abyss so the there's the whole saying don't fight the Fed so the inflation has been on a terror so the FED has signaled they're going to do some pretty aggressive raising of interest rates. So the market kind of did a total sell off and basically went into this let's throw out all the babies all the bathwater we don't care everything's so expensive and it kind of went into what Wall Street people call quote-unquote risk off so we don't want any risk anymore we love to risk now hit so that was the set up kind of coming into this last five days and then on January 27th which was last week Apple had a surprisingly strong quarter. [4:14] Serving one ever was kind of like on pins and needles because they're the supply chain really hasn't improved in some areas it's gotten worse seven was like surely Apple could not have had a good quarter there's no way they could get all those complex little cogs and widgets that go inside your phone but sure enough being Apple they were able to navigate that and they actually had a pretty surprisingly strong quarter now Apple doesn't call out anything around there add product or anything like that so it was just kind of a is largely a hardware type discussion then so the market got a little relieved and then next up to bat was Google or alphabet and that was Tuesday this week so February 1st and they blew it out of the water so they had very strong earnings and in the conference call their CEO Sundar pichai he specifically several times mentioned e-commerce and it was kind of interesting because I was thinking you know they've really done anything in e-commerce Dave they've they've kind of played around with Google shopping and they made it free and then they charge more and they've got this experiment to be a Marketplace but if you ask anyone including you and I you know it really hasn't been like they done anything particular they did call out I'm pretty sure you probably picked up on this that they're going to do more Integrations with YouTube on e-commerce and then they have a Tick-Tock competitor called YouTube short setting. [5:39] Or short and they're going to do kind of a livestream tie in there with e-commerce so that was the that was that was the take there. [5:48] Wall Street was loved this result and the stock shot up 20%. And when we're talking about these companies as a reminder these are mini all these companies we're talking about except Facebook are well over a trillion dollar and market cap. So when you move something like that 10 or 20% that's two and four hundred billion dollars of Market. [6:11] Money sloshing around up and down so so this was an up and it was like you know it was like effectively three to four hundred billion dollars of value added to Google literally in a. 12-hour day so that was interesting. [6:28] Then so that was kind of a roller coaster was on the upside and then Facebook now called meta reported the next day on Wednesday and that was the exact opposite it was a total and complete bloodbath the CFO got on and specifically talked about three reasons that they had a really bad quarter the first one was the iOS changes and then they kind of quickly moved on and talked about inflation and then exchange rates where the dollar has gotten weak because of this fed tightening but then as they got into so that was the cfo's prepared remarks and then in the Q&A Wall Street analyst being good at sniffing out trouble they spend all their time on the iOS changes the IDF a and it was interesting to asked Sheryl Sandberg and they finally kind of got her pinned down and I thought this quote was interesting. And she said Apple created two challenges for advertisers one is the accuracy of our ads targeting decreased so that they're lost targeting which, increases the cost of driving the outcomes the other is that measuring the outcomes because we're. And then the CFO came back on and said you know just to be specific we missed about 10 million dollars of Revenue this quarter due to these iOS privacy settings. [7:45] And then and then I said well how how long is it going to take you to figure this out and they said this is going to be a significant headwind for our business and it's a number of verticals and it's gonna be a multi-year problem so yeah that was not good and basically you're. You're the ad Guru here but you basically can't Target and you can't measure so you know they're bad that is not good if you're spending money on the Facebook platform. Any any comments on that before I go into a another little piece of the story. Jason: [8:16] I think you summarized it really well like I feel like it's even more acute when you've spent the last like 10 years telling people that targeted ads are the best right like that so I think that's a challenge and I think, meta don't really talk about it but I would actually argue there's kind of three challenges that you can't Target as well you can't measure the effectiveness but also a heck of a lot of the best-in-class advertising on Facebook is what I would call real time optimized wide because they had this like real-time closed loop of performance you could. Dynamically generate some add content see how well it worked and then change it on the fly so the ads got better really fast and part of the, the problem with, not being able to measure it as well is it breaks that real-time Loop so so I would I would say that also is adding insult to injury in terms of the. Effectiveness on Facebook so I feel like after their earnings there was kind of a consensus that like man, advertising dollars are shifting from Facebook to Google because Google has a less acute version of this data problem than Facebook has and Google has more measurable Commerce events on their platform than Facebook does at the moment. Scot: [9:37] Yeah and that's that's exactly right so. So and just so listeners understand to the problem is most people are using the Facebook platforms so which the. They have WhatsApp but they don't make any money off what's up that I'm aware of they make a little bit it's de minimis so where they're where they make their money is off Instagram and Facebook and ads inside of there will guess what people use that you know. [10:00] Instagrams level like 99% mobile and Facebook's probably 80 90 percent mobile so they have some desktop traffic where you're still probably getting some decent first-party cookie data but you know. So then what's called 85% in aggregate of their ad businesses on the inside the mobile app a big chunk of that well over half is inside of the iOS and then the other problem is Google wants Apple to this Google has increasingly decrease the ability of apps to track things to see if it's just it's pretty bad well Wall Street was freaked out and basically the stock went down 26 percent in one day today and that's the biggest one-day drop ever and they lost two hundred and thirty two billion Market in market cap so so basically what happened is you know Google backed up the truck Google and apple backed up the truck and load it up a big 30% chunk of Facebook and split it between them and drove off into the sunset it was pretty. Pretty interesting to watch this happened in literally like a 72-hour period and to your point Wall Street figured this out pretty quickly and said hmm. [11:12] Google was kind of talking about how that they kept talking about e-commerce Facebook keeps talking about these people that want to really track things so while streets kind of figured out that what's happened here is e-commerce dollars the all those Shopify merchants and all the way from mini little Shopify stores all the way up to the big guys they very rapidly this is the challenge in the digital world you can move dollars instantly two different mechanisms unlike TV where you're locked into the Super Bowl ad for for six months or whatever so over the over the course of. Effectively the holiday period dollars sloshed out of the Facebook ad bucket and into the Google and then I imagine also into the Apple ad Network um as well so and then we'll talk about Amazon also so that was really fascinating as a third party Observer to watch that happen and how rapidly these it's kind of funny it was. I would say these changes. Have been known but then happened like rapidly and almost makes you start to be a conspiracy theorist right so back in March last year you and I were talking about this and we could kind of see it coming but then it really didn't hit until fourth quarter and if you were in hindsight if you were diabolical and really trying to put the crunch on this e-commerce segment on Facebook that's exactly when you would would really kind of clamp down on them so I don't know if there's any of that going on but it was it was really really brutal for those guys. Jason: [12:39] Yeah and you didn't there's some slightly weird timing just in that like shortly after these changes happened who took it in the shorts right away was like Snap and they you know they came out right away and said hey we've had a material dip and their stock took a dump and comparatively Facebook wasn't as hurt in the narrative coming out was we're better insulated from these changes than others and it's now starting to feel like maybe no you weren't. Scot: [13:09] Yeah and then you know it does hurt confidence because if we knew all these things were coming in March why did it take till Q4 for them to realize how much it impacted so yeah I don't I think I think we'll find out a lot more it's all still fresh information and all these companies also file more detailed documents later as they file with the SEC and the will be combing that for listeners to see if there's any other tidbits for what Facebook says about this idea of a problem surfacing. Jason: [13:36] Yeah one another tidbit before we go on to Amazon for deep listeners you'll remember our privacy show where we kind of talked about these these problems wounding and we talked about. Google's proposed alternative to the third-party cookies was this cohort based system that they called flock and side note fun fact Google has already completely abandoned flogged. Scot: [14:03] Yeah yeah yeah. Jason: [14:05] So like it's really the wild west right now like they're they're you know turning off these old Legacy Solutions and they're kind of winging it on what they expect to replace them with. Scot: [14:17] And in some way they don't care because they're you know they're winning. Jason: [14:22] Yeah no rush. Scot: [14:23] Yeah not a big rush we're coming to save you Facebook give us about six years we're on our way we're really really coming coming fast okay so then you know the market kind of held its breath and was like holy cow we thought you know Apple did great and then Google and then we thought for sure Facebook would be doing okay because to your point that kind of signal that everything was good and then they totally crashed what's going to happen with Amazon so these stocks are called Feng we don't you and I don't talk about Netflix but that's the end but you have Facebook Apple Amazon Netflix and Google that's the Fang and so we don't talk about Netflix but they're having a. Jason: [15:03] Blockbuster alumni I'm contractually prohibited from talking about Netflix. Scot: [15:08] Will be happy to hear they had a little bit of a rough spot too but anyway so. This was the most dramatic turn of events that I've ever seen and I've been following a stocks for quite a while and since maybe 08-09 when everyone was kind of like what is going to happen to these companies through this Great Recession so so I would call this kind of like. Wanted a 14 15 year kind of event that we kind of witness it's me. Seven was kind of sitting there wondering what's going to happen to Amazon and in you know I think a lot of people felt like it was going to be, pretty bad now you know you and I know that Amazon is largely immune to these problems because yes they drive a lot of volume through their app but they have the benefit of inside the app closing a transaction and they have first-party cookie kind of they have a lot of first-party data is kind of how to think about that and closed loop so you know in many ways they're actually sitting in a really good position in the Commerce world because they do have that data and and then inside of the app and then they can even sell some of the ads so you could imagine if you had extra dollars the problem with. If you move dollars from Facebook to Google a lot of times you can't spend more on Google you can but it's not super effective because you've covered all the Search terms you can't create more volume so then I think a lot of those dollars probably sloshed on over to Amazon as well so that was the setup. [16:34] So one one one just quick wholesale note Amazon lot of these companies report two sets of numbers they just report the absolute and then they do it without the impact of foreign exchange gyrations and in Wall Street they call that X FX all the numbers we're going to give you our XFX unless we explicitly stated otherwise and it does swing the numbers a lot because of the interest rates changing you know the the dollar went from strong to weak and it created a lot of headwinds vs. Tailwinds on these foreign exchange calculations okay so Revenue came in at 137 point four billion which was in line with Wall Street estimates and it represents 10% overall growth if you take the fourth quarter of 2021 and compare it to the fourth quarter of 2020 now you have a good observation about prime day. Jason: [17:28] Yeah so as we've talked about before Prime day has moved around a bunch which is problematic for comps so if you remember in 2020 Prime day was in. Late October so kind of right on the shoulder between Q3 and Q4 and so you know some of the cops are saying now are against the like Prime day augmented sales and this year Prime day was in. Q early Q3 two years ago it was in late Q2. Scot: [17:59] Okay and then one of the other key measures there's like six ways you can report earnings for Amazon but will do ebit so earnings before interest and tax and that came in at 3.5 billion and that blew a Wall Street estimates of 2.5 billion so a billion dollar kind of. Overall win on the profitability of the business so what what had happened is Wall Street and Amazon Wall Street at Amazon's guide last quarter to Q3 when they did the results they had put a lot of extra cost in there due to covid and supply chain and all these in labor and it It's seems like that did not end up being nearly as expensive as Amazon had initially thought or they were sandbagging we'll never know so I would call that a revenue meet and a bottom line be so that was that was a positive and then we'll go through some more of the details and then the guide is really in a couple other things or what really got, Wall Street pretty excited so it's hard to predict so in the after-hours Amazon is up 14% And you know the the analysts are coming out as we're recording this very positive on the quarter so I think I don't know if it's going to be a Google level result but it's certainly not going to be a Facebook level down 26 type result so you know I think Amazon is going to become in the win column let's peel the onion little bit and go into why. Jason: [19:20] Yeah so start with one that's not that financially material but Amazon breaks out their sales for physical stores and they grew 17 percent for the quarter so they were just under 5 billion and in brick-and-mortar sales and and for Amazon brick-and-mortar sales is largely Whole Foods there's you know. A smattering of Amazon book stores and a couple of five-star stores and you know we now have like 30 of these. These non Whole Foods grocery store so you know one day it will be more material but it today it's mostly Whole Foods. [19:56] What's interesting about 17 percent is physical stores had actually been shrinking for Amazon and. Part of the the the likely reason for that is the pandemic shifted a lot of people from. Shopping in a whole food store to having groceries delivered to their home and Amazon has has like somewhat unique accounting practices that that sales shifts from from Whole Foods and physical store sale to a in e-commerce sale when when you get those groceries delivered to your house so kind of you know it that artificially made stores look small so I just think it's interesting because this is a weird time in the history of e-commerce ordinarily e-commerce for most retailers as you know over the last decade has grown kind of like 15 to 20 percent a quarter and brick-and-mortar stores grow like 32 Port four percent a quarter and so this q 4 because e-commerce is comping against the monster Q4 from last year and brick-and-mortar was really soft last year and is doing better this year it's like the first time in our lifetime we're in many cases. Brick and mortar is growing faster than then e-commerce and that was actually true for Amazon in North America. [21:18] So that online sales just for Q4 actually went down for Amazon by one percent and again I would I would attribute that largely to you know comping against a crazy number that also had prime day in it. Scot: [21:33] You want to do the Geo segments you want me to. Jason: [21:37] Sure why don't you do the quarterly ones. Scot: [21:43] Okay so North America grew nine percent and so this these are all cordially so this whole section where in is quarterly comparison so we're comparing Q4 of 21 to Q4 of 20 so North America grew nine percent International was down one percent and that's kind of what that's a that's kind of what netted out to be this looks at online and offline so that's what netted into the 10% go through. On the third party side there's two line items at Amazon reports we won't get gmv calculations from analyst for another week or so but when we do we'll mention those on the show so seller Services which is revenue from largely from. [22:23] The. Prime no sorry from FBA is that grew 12 percent to 30 billion and seller units remain stable at 56% so we use this nomenclature first part of units in third-party so therefore first part of units were 44 percent and third party were 56%. It's important to note this is a unit measure not gmv and you know you historically. The GM V for first party is the Espeon first party is significantly higher than third party because you've got all the Amazon owned and. Branded products like candles and all that good stuff so usually. Usually the gmv is more flips the other way where it's kind of maybe 60 first party forty third party we'll see. And then this is exciting and I texted you the second I heard this because I called it retailgeek. For the longest time they have kept the ad business kind of tucked under this exciting category called other where they have a bunch of other things, does the name other and for the first time they have broken this out as quote unquote ad services are you excited too. Jason: [23:35] Yeah yeah that was a big deal I'm mildly annoyed because I want to say in 20 21 of my Jason and Scot show predictions was that they would start breaking out ad revenue and I feel like I didn't get credit for that prediction and then you know the next year when I gave up on it they of course did it. Scot: [23:52] I called him to tell him it was okay to finally finally do that now that the prediction had lapsed. Jason: [23:56] Yeah that's kind of petty of you I've been meaning to talk to you about that but yeah so so for the first time they disclosed how much General Revenue they generate in on ads the CFO was asked why they did that and he's like. [24:11] It just was becoming more and more material and I was getting tired of saying on all these earnings calls and other which is why largely the ad business so. For the quarter they they reported ad revenue of nine point seven billion. Um so for the year they reported 30 1.1 billion in ad revenue and they also showed their growth rate. Their growth rate decelerated a little bit for that business to 32% so they've got a an annualized business is generating Thirty 1 billion and AD Revenue that's growing at 32%. To put that in perspective in September emarketer estimated their ad business at like 24 billion so. Materially bigger than I think some people realized and by far the third biggest digital ad Network. In North America and so super exciting that there were starting to get more visibility into it as we've talked about a lot on the show retail media networks is a big trend. Um across all retailers but you know Amazon represents about 77 percent of the total retail media Network size at the moment. [25:34] And I always like to contrast that with the business that analysts will have the most at Amazon which is a WS. So you know the common narrative is the most profitable sexy business and Amazon is a WS. And it had a great quarter it grew by 40% which is actually an acceleration of its growth which is. Pretty remarkable if you if you think about what a big business it was they sold almost 18 billion in Q4 and I want to say they're annualized. Aw s business was like 63 billion and they made like 18 billion in net income on that so that's that's a. Super good business that you're still you know growing it nearly fifty percent on a business that's spinning off 18 billion dollars a year in cash but. It also is highly Capital intensive so they have to spend a bunch of money to make that money and so if you compare the the 60 billion that they make on a WS that they have to buy all this hardware for against the 30 billion that they make on ads that they have almost no cost of goods associated with the ad business is almost certainly more profitable to Amazon than a didn't even a WS. Scot: [26:59] Do you think it was a bit of a flex to break this out kind of after seeing Facebook had such a rough time I don't think they could have done. Jason: [27:07] Yeah I think the timing is not right I think that like this was inevitable like I don't know what I mean you probably are more familiar with. Like I think the the Gap reporting requirements are that it's quote unquote material and it's like now that we see the number it's kind of hard to argue it's not a material number so I assume at some point they they run into SEC problems if they. Disclose that but I. Scot: [27:32] The definition of materiality is 10% in my recollection so and you know I think it could be argued it's one of those squishy things where you know I don't think this is ten percent of Revenue is it. Jason: [27:45] No Scot: [27:46] No but Eva died probably is so then why yeah that's probably it probably triggered something on the bottom line out imagine. Jason: [27:54] Yeah and so one other side note I want to call out on AWS this news actually broke. Yesterday but then they definitely cooked it into their earnings called today the Amazons been on a nice winning streak with AWS clients. That are there are moving to the cloud but one that would be most relevant and somewhat surprising to our listeners is yesterday Best Buy announced that they were moving all of their IT services to AWS and the reason that's surprising is obviously Amazon and Best Buy are. Are occasional Frenemies but they're mostly competitors and you know it's somewhat surprising that a retailer like Best Buy would by its infrastructure from a direct competitor like Amazon. Scot: [28:40] It is and I think some of the you know I've heard that like some of the retailers even ask their vendors that not to use AWS or you know they they. Jason: [28:50] Yeah I think that's a general policy at Walmart for example is that like that you can't host any solution you're pitching the Walmart on on AWS. Scot: [29:00] Oops okay anything else that you saw that was interesting and adds an AWS. Jason: [29:07] No no but that was exciting. Scot: [29:10] Yes oh so Wall Street is a what have you done for me lately so the once they once they kind of heard that the revenue and was in line and the bottom line was beat for the quarter then it's kind of like well what's it looking like for next quarter so Amazon's Guidance the guided revenues for the first quarter to 112 21 17 billion those in line with Wall Street, the bottom line was better than Wall Street was expecting a 3.9 percent Gap margin compared to Wall Street at 3.6 so again that was kind of a sigh of relief and then that Revenue range is pretty. Pretty slow so it's three to eight percent growth. So I don't I don't know if this is a lapping thing they're saying or not or maybe their sandbagging here but that felt kind of like pretty slow to me, but again it's kind of like how does it match the expectations of the forward guidance not like what is the absolute number so Wall Street seemed to like that and then. Did you want to do the annual View. Jason: [30:11] Yeah so so for the year that top line revenue growth was like twenty one percent. North America ended up being 18.4 percent for the year I think I mentioned that earlier in international was 22 percent, those two numbers are getting closer together by the way like you know historically International was much more and growing much faster and there still is a lot more International that's not as penetrated by Amazon so that's a little bit interesting. The North American number 18.4% sounds like a pretty good number until you you realize. They've never been below 20% before so that's that's kind of a Debbie Downer and then the US Department of Commerce data says all of retail was up. By 18 percent normally e-commerce grows faster than brick and mortar so if all the brick-and-mortar retailers in America on average grew 18 percent and then you know the biggest best e-commerce. Retail in North America only grew 18.4% I would actually call that kind of lackluster. Scot: [31:22] Yeah the you know doing that on about a 500 billion dollar number those is a pretty good the Amazons defied the law of large numbers for quite a while. Jason: [31:31] Yeah unfortunately they've ruined it for themselves like I totally agree like if you if you just started a business and and Drew out this hockey stick everybody would be perfectly satisfied but based on the the unrealistic expectations that Amazon has habitual eyes Dart 12 it's a, slightly tougher so letting for them now. Scot: [31:53] One couple of other tidbits that I thought were interesting as someone that hires a lot of folks Amazon reported that for the end of the year they just cross 1.6 million employees I cannot even wrap my head around that. What does that that's like the size of my residential area is all employee in the triangle area where I live is 1.2 million so there's more people to work at Amazon that live in my entire area here my 30 mile radius the other thing I thought was interesting and again like. [32:26] Yeah we'll get a look at the queues in the case and all that jazz when they file them I guess it's K is when they for the annual and that's the SEC docs and they did report one I've been keeping an eye on is fulfillment investment and the cost for fulfillment only grew ten percent year over year in the fourth quarter and that has been more running at like 40 50 percent and like like me you probably see a lot of new Amazon Vans out there and a lot of activity going on in the shipping world so it feels like that data point indicated to me that they may be added bit of a end of a so Amazon goes to these phases where they'll have kind of a invest in Harvest kind of cycle so it feels like we're at the end of a delivery invest cycle and kind of heading into Harvest when the cost of shipping is kind of caught up to the amount of volume that they've surged up to it this latest covid driving everyone to digital any other tidbits you saw. Jason: [33:28] So a couple of small things first of all with regards to that that Capital spending there was an interesting, segment in the the Web Conference where the CFO kind of drilled into expectations for future Capital spending and he kind of broke it out and he said hey the biggest chunk of our capex goes to AWS infrastructure that's still a really fast growing business and that that kind of investment that piece of Investments probably going to have to continue the second biggest chunk of our investment is fulfillment and he actually broke out delivery and and. Warehouses and you know he kind of implied that that both of them had probably gone over the peak investment and that they would probably be able to start slowing those Investments and so I have a feeling. That that was good news to Amazon or to investors and then he did mention that less than five percent of their total capex goes into things like new stores so all of these people including me tracking all their new store Concepts in wondering if there's some like big large scale deployment looming, totally possible but they're certainly not foreshadowing that in there. In their capex spending at the moment and then the the other. [34:56] Like potentially big piece of news that I think really was catnip to investors and I suspect will show up in that stock price tomorrow is that they also announced that they are increasing the price that consumers pay for Prime so I think it was 120 bucks a year 100 119 a year and now it's going up to 139 a year so they're adding. 20 dollars to that super valuable super sticky service and I think investors will like that because it shows, how you know sticky they think they are with with consumers that they're able to get away with that kind of price hike in that of course will fall straight to the bottom line. Scot: [35:42] Yeah Zack and I are you going to cancel your Prime subscription. Jason: [35:45] I am not. Scot: [35:47] What do you like ten boxes a day someone at Amazon is calculated the point at which that they'll they can make you leave so that they could get some of their money back. Jason: [36:00] Yeah side note on that, you know I feel like there are all these advantages that Amazon has that we don't talk about very much and I actually made a short little YouTube video about one of them that we've talked about on the show before Amazon key for business so if you're you're bored you can I'll put a link in the show notes you can wat