EP095- Listener Questions and Amazon Earnings
Amazon Q2 2017 Earnings Summary (PDF from Amazon)
I'd love to hear Jason and Scot talk about their global e-commerce outlook. Amazon in particular seems keen to expand aggressively in international markets. Does the growth opportunities match the regulatory / operational complexity for brands? Interested to get your take.
Hi Jason and Scot--What is your take on Amazon's strategy behind buying products at full retail price from marketplace sellers? Here is an article: http://www.cnbc.com/.../amazon-new-fba-program-buys....
Thank you. I love the show.
Hey guys... love your show. Would love to see your take on when/ if brands will be active on messaging platforms like Messenger, Kik. etc.
Is it actually a better channel than email? Is there a signal in all that noise? Opportunities/ risks etc. Thanks!
Ben Kates: off-price retail offline and online
Gareth Hanes (in uk): Hi Jason & Scott, enjoying your podcasts from "the other side of the pond" in the UK.
I would be interested in your take on the recent (in the UK anyway) growth of products sold on Amazon by Chinese 3P merchants (presumably manufacturers) using FBA. I have noticed transformational changes in some product groups where new SKUs and brands have gained strong traction very quickly (propelled forward by a combination of agressive pricing, AMS & FBA).
There's been a lot of talk on your podcasts about Amazon "own label", but this "manufacturer to consumer" model would appear to be a much more of a imminent threat to incumbent domestic brand owners.
Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 95 of the Jason & Scot show was recorded on Thursday July 27, 2017.
Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, 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.
New beta feature - Google Automated Transcription of the show
Jason: [0:25] Welcome to the Jason and Scott show this is episode 95 being recorded on Thursday July 27th. 2017 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo. Scot: [0:40] Hey Jason and welcome back Jason and Scott show listeners Jason imma. I haven't been traveling a lot lately but I think you have been zipping around for you you've kind of been hanging around the coast update listeners on your many travels. Jason: [0:56] Yeah I have been bicoastal this week's. I spent most of the week in my ancestral hometown of San Diego California, I was there for interact Tech which is a great smaller event that the internet puts on every year so that's some. Originally designed for CTO that sort of expanded to include the CMO Council and the digital Council so we had a. A fun couple days of a networking and content there and I got to lead to Workshop which was fun. It was for me probably not for any of the attendees and then flew to New York today to do a workshop with a card tomorrow. Scot: [1:37] Awesome yet so just racking up the miles going to join the eight million Mile Club Pearson. Jason: [1:43] I'm happy to report I hope to never achieve 8 million miles but I do have quite a few and I did get to visit I got to check off another Amazon bookstore on my West cuz there's one in University Town Center in San Diego. Scot: [1:58] Cool so give us a quick update on that and then what was the buzz it in RF take anything that listener should know about. Jason: [2:05] Usher so the the Amazon bookstore like. [2:09] Is not very interesting it was the second one they opened and it's a smaller footprint so it's basically. [2:18] Today in equivalents at our offerings to the. [2:21] The Seattle won that bet in West base so you not if you've been to another Amazon bookstore you don't need to go out of your way to see this one is that mentioned before the. The one in my hometown in Chicago appears to be, the most advanced with the with the coffee shop and a broader assortment of products than any of the other which is sort of interesting. Scot: [2:42] Did you try to return a random Amazon product like you're like you're freaking leader. Jason: [2:47] Because I was traveling for 8 days in a two-day overnight bag I did not have room to bring any test returns with me. [2:56] Yeah that's my shoes and I'm sticking to it but the check was good there was a lot of interesting speakers. [3:06] I definitely would say the theme of the show was preparing for the future and particularly overcoming risk aversion and not being afraid to fail and failing faster with sort of the. A recurring theme throughout the day. Scot: [3:23] So, gelatin and how do some of these 5200 or organizations crank up the the speed. Jason: [3:30] Exactly and I you don't I I think sometimes explicitly stated and sometimes kind of just implied, but you know I'll just leave the boogeyman for most of these these folks as Amazon and and they're particularly good at moving fast and innovating despite the fact that there. A large twenty-year-old company in so you know I feel like the the realization is hit a lot of folks that they have to find ways to be more. More agile and more forward-leaning than than the the innovator's dilemma with typically dictate. Scot: [4:03] And then what was your talk on. Jason: [4:05] So I actually did a workshop on that theme so I am. Presented sort of seven trends that I felt were sort of exponential growth Trends in the industry that would likely affect all of the. The attendees businesses and then I gave them some brainstorming tools that we use to be more forward-looking and sort of divorce ourselves from some of the, the Legacy thinking so I introduced them to a structure that was designed by a guy named Eddie to Bono called six hat thinking and so we went through a six hat thinking brainstorming exercise where we fired everyone from their current companies and had them all work for a new grocery retailer trying to invent a new customer experience in the US, to compete with Amazon Whole Foods. Scot: [4:52] Cool we should do a deep dive on the so don't say too much let's leave listeners just kind of guessing my my big question is did you really wear 6 haven't set a time. Jason: [5:01] Note that when we talk on the thing what you want is you only get to wear one handed a time that's that's the beauty of the the system. Scot: [5:11] So we won't tell listeners why it's called six hats so leave that is as I'm sure they're on the edge of their seat right now. Jason: [5:18] Cliffhanger. Scot: [5:19] What we have a jam-packed show tonight so let's jump into it so the two big topics number one is earlier today Amazon release their earnings for the second quarter and hot take on that and then we have listened or questions it's been quite a while since we did listen to questions we put the call out, and I'm excited report we we have a lot of listen to questions I'm not sure we're going to be able to get to them so let's kick it off with Amazon news which is our hot take on earnings. [6:04] Yeah so today. [6:07] Amazon came out with their Q2 earnings they're usually one of the later companies to report in our world so we already heard from eBay already heard from Google and Facebook and Twitter just kind of summarize those guys eBay was Steady As She Goes. Google did did relatively well the stock was off a little bit. They paid clicks were up but they face somatization challenges that that people kind of scratching her head about a lot of people worried maybe they're just getting a lot of klicks from YouTube that aren't monetizing very well-off out loud concerns over mobile and then, let's see Facebook crushed earnings on every measurable kind of thing they hit some new all-time highs Twitter's results for kind of man you know they're really struggling to add new users so that's kind of the setup is kind of you know. Mixed bad coming into Amazon so let's go through that so. The Top Line got to looking at Revenue that I came in at 38 billion and that topped Wall Street expectations pretty handily and represents 26% year-over-year growth and just remind listeners e-commerce is growing at 15%, and here you have Amazon just kind of pretty easily doubling that. [7:19] Nothing that I was have to remind myself with this quarter is it does not include Prime Dave so Prime day will actually fall into the Q3 results so. So this is this is pretty nice that represents a bit of an acceleration kind of from last quarter so you know Amazon would what amazes me is. [7:38] They seem to defy the rule of large numbers and what kind of talk what about Wyatt a minute that you have to be 38 billion and still posting these kinds of growth numbers is is. Pretty impressive. As you peel the onion on the revenue side North America Revenue was the cause of the reacceleration in that grew 27%. [7:59] There were some concerns about the cloud computing which is AWS because Microsoft had reported a strong quarter there a dubious has been lowering their prices as they kind of compete out in the world with with kind of the commodity storage and things, and AWS topped expectations so people are excited about that International had some currency headwinds but when you take those out it also had a nice showing. Things I watch closely are some of the non-gaap measures so third-party seller Services which is its own Revenue line item now. Groove 40%. [8:33] I should say little footnote for those of you that have followed my Amazon analysis for a while that used to break out media egm and other and they stop doing that unfortunately so. I can no longer kind of see how that egm pieces doing that's always going to want things I really enjoyed I do think this third-party seller service metric now is probably a proxy for that because most third-party sellers are in a GM. So that grew 40% so again you know almost three times the pace of e-commerce which is pretty amazing, third-party as a percentage of units hit a new high water mark of 51% that's the highest that's ever been so the third party Marketplace I know we have a lot of listeners that are either brands that do hybrid or are there are third-party sellers, retailers very healthy growth there. [9:22] The another new segment that Amazon introduced this year in the first quarter that we're now starting to see some Trends on is called retail subscription services, and that's essentially revenue from Prime and Dad grew 53% which the Wall Street notes will come out tomorrow I think we're going to see. People against before Prime day which I think had you know they said record signups I think we're going to see people touch up their number of prime subscribers based on this I think I think. [9:49] Egg while she may have underestimated how many prime subscribers kind of added in the quarter so so that'll be interesting to watch and will report on that, another area I look at is paid unit growth so this is just took kind of a, measure of volume that was up 27% year-over-year and that's its highest level since Q3 of 16 so it's really interesting reacceleration at Amazon going on and that's you know I think if you kind of. [10:16] You think about how Wall Street thinks about that was all super positive the one thing that kind of freak Wall Street out a little bit and this happens. Every cycle with Amazon is they start to show some profit and they reinvest and then a certain set of investors freak out about that. So that's on the bottom line on the expense side so while she was looking for just over billion dollar in in gap profit, and it actually came out to be 600 million so kind of half of what folks are looking for earnings per share that translates into earnings per share of $0.40 while she was expecting like a buck 40 so you'll see this headline to know that. Amazon misses bottom line by you know 77% that kind of thing that's certainly true. But you know when you when you beat revenue and Miss on earnings usually kind of implies some level investment inside of their and. [11:10] We'll see that we'll talk about that in a second and then the thing we. You know yo big public is very much of what have you done for me lately kind of thing it's really, maybe 20% about the quarterly reporting 80% about the next quarter what they're talking about so at Amazon updated their guidance for Q3 and the projected revenues between 39 and about 42 billion which implies, a bracket of 20 to 28% year-over-year growth 24% at the midpoint Amazon has a pretty good history at kind of beating that just like they did this quarter or coming in right at the top of that guy that's so that. That was as kind of that exceeded wall Street's kind of previous thinking about Q3 but where they did not exceed are they contact. Missed where while she was thinking is when they projected the bottom line into next quarter Wall Street was thinking about 950 million and Amazon said no it's me arrange of - 400 million - 300. [12:09] So this is going to raise those questions you and I hear a lot about in Amazon's not profitable it's not fair we just have to kind of wait for them to wash it to wake up. [12:19] And you again. Stock after hours was down 30 or $40 which feels like a lot but you have to remember Amazon is an $1,000 stock Club so that's only a couple points. And I think what we'll see tomorrow it'll be interesting you know it's hard to guess how lost react but I think we'll actually see. [12:40] The set of investors that care about growth and market-share what kind of overcome the industrious that are focused on profitability. [12:48] Last point on profitability Amazon really does not optimized for any of those things I just talked about they optimized for Revenue growth in market share and then. Cash flow and what happens is always accounting rules kind of. Bend that as you report this thing's so just kind of give you some numbers for the quarter Amazon had 17.8 billion dollars of operating cash flow and then 8.2 billion of that goes property equipment in R&D, so that's kind of what's Happening Here is the way I think about it is. [13:22] Amazon where to stop investing for the future and so let's just come. Play that off they wouldn't be making these kinds of Investments and you would have seen no a big chunk of the 17 billion flow to the bottom line. What they're doing is they're investing in R&D they're building fulfillment centers in her building data centers does does your kind of the three biggest legs of investment so for example another four billion went to pay for Lisa's so that's fulfillment centers and then invested another four billion in, new releases in equipment so so you know. [13:58] The losses that you see the way I would argue it and I think a retailer should think about this Wall Street it's kind of Ena. Don't think Howard I think these losses actually are not from the current business is kind of his F you know they're they're making. [14:14] Good investment for an Indies levels you think about the levels I just talked about that's the level of their investing in so so pretty crazy levels investment. Jason: [14:23] Yeah absolutely and you know I tend to think of it pretty simply if they if their profits were going down because their cost of goods were going up or some, some operating expense that was directly related to their sales this quarter were dramatically going up like shipping went way up as a percentage of sales or something like that like then. That would be indicative of a problem in their business model but when they're their profit isn't High because they're investing in, things that are likely to have a much higher future value like capacity or subscribers. [14:59] Like that that's that that's a whole different equation in my mind. Scot: [15:04] Yeah absolutely into that point I didn't talk about it but gross margins were real. About that been relatively the same for the last year or so you know the cost of goods are pretty are very stable and then, this is kind of like in the weed so I'll just kind of leave it as something if listeners are interested Amazon does report kind of segments in then that gives you a little bit better view of how profitable is each business unit if you strip some of this investment out they call it, CSI which I think stands for I know it's segment operating income I forget what the C is for, but they kind of report on retail AWS and that customer segment operating income I think it is that's a really interesting metric if you if you're if you want to get super geeky on this stuff and you have to really dig into their SEC documents their q and in her case can I get that, but it is a Consolidated segment operating income at the kiddos said look for CSI and I think. [16:05] I always find that is a really interesting few that strips out a lot of the things like you know RS use and non-cash pieces and a lot of the accounting stuff that kind of gives you a hard makes it hard to see what's going on inside of their. Jason: [16:19] Yeah I'm I still run into it all the time that you know I hear from some particular from retailers but you know others that oh man Amazon has good at growing Revenue but they but they're not profitable and of course. That just factually untrue and. It was even on Truth escort or even though it was a somewhat down quarter versus Wall Street expectations and then the one of here even more commonly is. [16:44] Only AWS is profitable so were you to take out AWS they they wouldn't be a viable business. Scot: [16:50] Yeah and the CSO actually proves that wrong so it does show AWS is profitable but it also talks about, not combines retail and 3p and it I believe it does a, domestic non-domestic in both of those domestics profitable Internationals losing a little bit on but you can see it's on a path to get there and it's kind of been chewing away at it over time so yeah you know that that's those are just kind of factually wrong Sue. Yeah I guess and NF. Amazon secretly loves it when people think that because they did you know that is not true and they they love misinformation kind of things like that that people are not watching the right. Part of them the ball here to to keep up with it when one thing is happened and we called it here on the Jason Scott show, as the stock has kind of held over $1,000 is kind of in the, thousand $10,020 range so things have happened out there and with Berkshire Hathaway and Microsoft stock and whatnot and the end result is by at least I've read into sources now CNBC in Fortune Bezos is the most rich person in the world at 90 billion dollars so so congrats Jeff whenever you're a big listener so, big pat on the back for that and yeah we know congratulations. Jason: [18:10] Pour yourself a drink with that top shelf a beverage of your choice. Scot: [18:14] Boom get a Diet Coke go crazy. Jason: [18:16] Exactly other I do things gotta actually read that that he hit that Peak based on the stock having a nice little uptick before the earnings were now it's because the, that anticipation was that it was going to be a good quarter, and then I think after the announcement that the stock actually corrected a little bit and I think you might have slipped back under Bill Gates for the time being. Scot: [18:38] Yes it gets it like 10:20 to 10:25 somewhere in there so I'm sure he probably doesn't care what's another. Jason: [18:46] I think if you really cared you would have skipped a year of space exploration and you'd be there. Scot: [18:53] Cool so that's our hot take on Amazon's earnings for Q2 and and if the way I would summarize it is. I think it was really strong and they are just pouring more money into Investments and they're very profitable lots of free cash flow that they are just spending as rapidly as they can into. Things that I think are pretty. Conservative that are going to pay off for them another fulfillment center Prime now launching in Australia launching in Singapore all these things are our kind of no-brainers. [19:28] Soup that is Amazon news and now it is time for. [19:43] Question question question. [19:50] Who's the first wanted to thank all our listeners to most of these come from our Facebook page so as reminder if you just go to Facebook and the search for Jason and Scott show you will be taking there, or if you go to Jason and Scott. we have links to Facebook page there and it's Scott with 1T so our first question Jason comes from Curie Masters so it's also say a blanket statement of I apologize if I say Jason right I say your name wrong, security says I'd love to hear Jason Scott talk about their Global e-commerce out, Amazon in particular seems Keen to expand aggressively in international markets does the growth opportunities matched regulatory operational complexity for Brands interested on your take. Jason: [20:34] Yeah so that that's a great question carry like at a high-level like you know I think certainly we're all bullish about. International e-commerce growth so just kind of. The level set this is a milestone year in 2017 globally e-commerce will surpass 10% of all retail sales across the globe so, we can I hit that inflection point worldwide and Global e-commerce growth is about 23% so even Scott mentioned earlier, we're in one of the more developed markets here in North America and its about 15% so so the worldwide growth prospects are certainly higher. [21:12] But your your question sort of implies the real trick to all of this is you know in those markets where there is considerable growth. [21:23] Is it cost-effective to see that growth either because of the. The individual complexities of those markets it because of language and Logistics in in those sorts of things and in particularly is the growth opportunity constrained. [21:37] That because of rigor Tori issues right and so you know that's the. The sort of equation you have to apply but certainly I think the the conventional wisdom is you know that the super exciting market for most. [21:51] Folks at the moment is India and you know to kind of put that in perspective. In North America about 75% of all the consumers that have access to the internet or online Shoppers in fact I think it's like 76% in Asia. [22:09] It's closer to 2:50 or 60% of of all users. That have internet access are shopping online but where it gets interesting is in North America the overwhelming majority of all users have internet access in Asia only about half of all users have internet access so when you look at. [22:31] The percentage of the total population that are shopping online you don't in in North America where about 65% in Asia were at 25%, so India in particular is even a little lower than that and has a huge population so you have a huge population you have an emerging middle class. And you have very low penetration at the moment so those are certainly. You know all the the favorable characteristics that have caused a lot of big International companies to come in and make big bets in it in India which is why it's. Kind of the the global e-commerce Battleground right now and as you've directly pointed out there some, challenging Logistics and Regulatory environment that make it difficult for for businesses Amazon in particular to sort of. Completely replicate their their North American model in India so so that's that's the barrier. Scot: [23:27] Yeah and um. So I'll specifically can't talk to Amazon a little bit I'm not an expert on regulatory issues but you know so Amazon is growth strategy has been, is it interesting so they start in the US and then they did Europe and then they, the only time Amazon has not kind of. [23:50] Really focused and become number one is China and if anything in China I think they're like number four or five which is pretty interesting and I think they've learned a lot from that experience I think they they realize that. [24:05] They have to really adaptive local market and build a team and maybe acquire a company and, just kind of be more Nimble than they had been since the China was a real big learning and and ever since then you know they have when they going on Market they go guns blazing and, to Jason's Point India seems to be that's really interesting Battle Ground right now between all the big. Global e-commerce companies so so Amazon got a bit of a late start because there is some some regulatory things they had to cross over and India and they. They can only open the third party Marketplace are they Amazon still does not retail so there's some kind of protectionist law that you can't afford company can't be a retailer and India so so you had. [24:50] Flipkart and Snapdeal as kind of the incumbents local companies and then Amazon dinner and they started taking sure then what's happened is Alibaba and eBay of each continent. Southside Bank in so he's really big players have kind of bolstered those anti Amazon companies so Amazon is is, pretty publicly said they can spend billions of dollars in India there's something like I tracked us pretty close 15 to 20 fulfillment centers they're building Justin India so there. Derp derp pretty much betting that the Playbook of getting product close to Consumers can be really important India because it is a very large country. No what is a six billion people in the Diaz Harrison. Jason: [25:34] Yeah I think that sounds about right no maybe like 3 billion. Scot: [25:39] Maybe China sex so. So you have a very populous country spread out lots of cities lots of different ways not a really great career system or delivery system, like a FedEx UPS USPS so I think Amazon is really investing in that so it's been interesting to kind of watch in and they know they've been way more aggressive there than they, did when we went to China I think day and when I read the tea leaves I think they kind of regret not being more aggressive in China and Android building that out better and they got kind of beat by JD with a 1p model and Alibaba other 3p model. [26:12] What kind of stick to Asia pack there they that's been where they've been investing for last 3 years they haven't been, expanding much but now we're starting to hear they're definitely opening Singapore and then Australia and so it's interesting to see them kind of pick up those countries, then just a reminder they did a choir a the top Marketplace in the Middle East called souq souq. Jason: [26:42] Yep exactly. Scot: [26:44] And that's a pretty big market place I think it was like 2 to 5 billion and GMP which is pretty sizable and, that's going to pick up you know Saudi Arabia Qatar Kuwait some of the Middle East countries there and it's a lot like mercadolibre we've had on the show or it's kind of a family of little local marketplaces it's not kind of. Homogeneous Marketplace it's kind of every country has its own rules and regulations and language and currency and careers so they kind of like have built that in each country in the Middle East and then they. Did you have some glue that kind of combines it together so some cross-border trade kind of things payment platform that I think is is kind of somewhere across there and that kind of a thing so so for that gives you a flavor for Amazon is and then the last one I'll talk about is, kind of something America so, so Amazon so South America for long time was one of the fastest growing e-commerce markets yes you would have China so Jason was talking about, Jason did you say Global at 23 or 25. Jason: [27:53] 25 Scot: [27:54] Cuz I didn't you used to see Brazil kind of this 35-40 and China kind of like maybe it 2830 Brazil has come down pretty considerably because just politically rest in the country also have right next door is Venezuela is kind of Hit the skids, do the some currency devaluation things going on there so loud political and currency things in the South American countries have caused the Slowdown I believe in we had mercadolibre, on the show they were talking about kind of 25 28% growth that they were seeing so that used to be like the fastest grower and I think China has kind of supplanted that that kind of what your data shows Jason. Jason: [28:36] Yeah and I I would say like so. Latam is kind of right in between Asia and North America in terms of digital Shopper penetration so there is a lot of Headroom there but is you you rightly pointed out it, it's actually a lot more fragmented so while you can kind of you know list ones q and and reach all in India. You know you you are what you really need to do is West as you know a separate skew and in each country in Latin America are the Middle East which make the the logistics a lot more challenging. Scot: [29:08] Yeah and I've never had the pleasure of meeting Carrie but I see from her LinkedIn that she she always Brands sell on Amazon and other places and you know when when I talked to brands in the US about this. [29:22] It's interesting so. [29:24] Two years ago plus they were they were obsessed with China and like what's our China strategy and I've seen the last 18 months that has cooled down and it's very much. What's my direct consumer strategy what's my Amazon us strategy, so I think I think that people have pulled back a lot on this kind of global international thing because they are feeling the heat in their home market and there's this is us Brands I'm talking about, so You know for those brands that aren't concerned about that you know where where we see a typical road map is let's see it to us brand they starting to us the natural place to go is the UK because you don't typically have a language in Madera, it's a very kind of us feeling kind of a country obviously and then you'll see some expansion into Europe usually Germany and France being kind of the next biggest e-commerce markets. [30:15] We have a lot of customers a challenge to do really well in Australia Australia is kind of an easy box to take off its English-speaking and is very friendly to Imports and, there is a lot of infrastructure out there for supporting these countries so there's a lot of lot of the marketplace provider so eBay has a really excellent program around this so does Amazon, around global Shipping say allow you to they'll take care of lot of this operational kind of complexity you talk about where you can have a crawl walk run metaphor so, eBay brand program for example you start out like let's say you're a US company and you want to start selling into eBay Germany, you can just kind of set a flag that says I want my part to show up on eBay Germany they'll actually translate it for you using a Google translate consumers there can see it the order it and then you'll get an order that just shipped to the US and does it reshipping, that's that's nice because you can kind of test the waters without having to make huge Investments Santa Crawl part then is what we say to folks is as you see that volume take up it's not the best customer experience so really kind of go to that next level of customer experience you need to start kind of shipping pallets over to, the destination country and selling in more of a localized way that's the walk and then run is when you, you know you actually kind of maybe create a store footprint or a fulfillment footprint actually put bodies over there answering questions of that kind of thing and that's the run so we sit up that model work really well for both small and medium-sized retailers as well as Brands and. [31:46] I think we'll see more and more of those kind of solutions that come out to really help everyone kind of, peel this cross-border trade peace and understand how you selling these International markets. Jason: [31:57] And I'll just head one one points and Scott and I both won't geography China has about like 1.35 billion people in India has about 1.3 billion so there, they're the two most populous countries in together they're almost three billion which is. Scot: [32:13] Yeah there's like eight billion people on the planet. Jason: [32:15] Exactly. [32:18] But so yes I think that that that's a great answer to carries question the next question came from Josh tarasoff and Josh wanted to know what our take is on Amazon strategy, behind buying products at full retail price for Marketplace Sellers and he gave us a link to CNBC article talking about this this new deal. Scot: [32:43] Yeah and this is kind of a little bit of a head-scratcher and as I've talked to a lot of sellers are concerned about this because, the way it was announced was just kind of like Amazon didn't exactly say why this kind of said hey you know you have some product and FBA and you may see. Amazon.com is the buyer which kind of people like what what's that mean so what I think's Happening Here is. Yo again these global Shipping program let me kind of explain how eBay does this so a seller on eBay. [33:18] If you don't opt out of it they will actually. Up to your default opted into that global Shipping program I was talking about I think that's what Amazon is doing because what they want to do is when they pick a new country but this is true for any country but when they ruined Australia. They want to show as broad assortment as possible and people and I'll show you love Western Goods so this this program will allow Amazon to say to people in Australia. Look we have you know 30 million products that that are available to come into your country, versus if they did do that then maybe it's a million or two million that they would kind of host, so they would still have a million to 2 million local and then like another 28 million that are kind of cross-border trade that could be shipped from the US, that gives that gives them this kind of I would call the backfill strategy so it gives them this perception of lots of selection. Using cross-border trade as a back film then let's do it lead you do is so imagine people start buying from. The cotton country in the outer country product they can very quickly learn from that and say oh. [34:23] These widgets are very popular in Australia let's kind of source them local or let's get pallets instead of each is from the u.s. FBA let's work with Our Brands and sellers to kind of say hey. Hey mister customer your widgets are really popular in Australia that was kind of wrap this up so that's what I believe is going on it's easy to kind of make it seem more nefarious and Jason turn over to you for that Park. Jason: [34:52] Yeah though I have to say I have a slightly dishonor different understanding of what's happening so be interesting maybe there's a little both happening but I've talked to a few 3-piece Sellers and it was less than automatic. To the program that you had to opt out of and more it was an offer to opt into a one-time transaction. [35:14] And so like what these sellers were told as hey you have an inventory that you're selling 3p in North America. We want to buy that inventory from you one time so that those listings will go away in North America cuz you'll no longer have the product to sell and we're going to take ownership of that inventory and sell it in another country and so it was basically an offer. [35:38] From Amazon to the seller to buy their inventory so that Amazon could resell it and they were offering to buy at at at. [35:46] Full ask price from the seller and how I interpreted that is. That they were looking to buy inventory to fill in brands or products that they were missing in some of the new markets that they're entering like Australia for example. [36:04] Interview if you think back to the early days of toys and Amazon you remember they originally had a deal with Toys R Us Toys R Us to the famous we pulled out of the deal. Right before holiday would you have to Amazon in a bad spot and Amazon actually sent a bunch of employees to go in the retail stores. Buy toys at full pop and put them on the market place so that the customers would be able to buy toys from Amazon and that really kicked off Amazon's. [36:32] Foray into the toy space in so I look at this this 3p thing and I said hey Amazons. Doing the same thing in new markets today only they now have a convenience they didn't have back then they don't have to walk in the stores and buy products, have a bunch of sellers in their own Echo systems that are they have products in their warehouses so they just go to those guys and say hey do you want to sell me your inventory if you do great I'll buy it. [36:56] I'll sell them in another Market you know in the long run I'm certainly going to look to get them more efficient supply chain but but as a way to get started I will do that. There's nothing wrong or nefarious about doing that but what what does happen is there a few brands that three-piece Cellars. Are selling on the marketplace the do not want Amazon to be able to sell them in and most famously, these days that would be Birkenstock and so Birkenstock had a number of, of authorized resellers that were selling their products on Amazon is 3p and they got letters from Amazon saying he will buy your inventory and resell it. And the Birkenstock CEO reacted very badly to that he sent out a very dire letter saying you know any retailer that sells even one pair of shoes to Amazon to allow them to resell will never sell Birkenstock again and he, he called it Amazon's attempted modern-day piracy and and you know there's a pretty pretty lengthy article about it in Washington Post, which is I guess somewhat ironic since it's paper owned by Jeff Bezos and will put a link to that in the show notes. Scot: [38:10] So our next question comes from a nuke goes off in a noob says hey guys I love your show so Anup obviously has, impeccable taste and yeah where was he says we would love to see your take on when if Brands will be active on messaging platforms like Facebook messenger Kik Etc is it a better Channel than email is there any kind of signal in the noise where do the opportunities risk thanks. Jason: [38:39] Great question on oops so it it depends a little bit on the parameters of what you're asking so when you know you mentioned, Brands being active which is different than brand selling stuff on these platforms and you predominately named platforms that are. They're pretty prevalent in North America although kick kick has a more Global footprint. [39:06] The answer varies widely depending on your geography so obviously we talk a lot about we chat, in China being you don't Super Active platform for brands, there are millions of sponsored accounts on on WeChat kakow chat and other parts of Asia like Korea is very popular and a ton of brands or have are active on that here in North America although messenger has a billion users you know we only see about 30,000 Brands active on it right now which like compared to Lee isn't a lot, and that's really because the the platforms that are most prevalent in North America like, messenger Snapchat Instagram historically haven't had the best tools for Brands so the advertising tools have been kind of poor and those are rapidly improving which. Makes me think we'll see Brands using those platforms more as an advertising vehicle and then the Commerce tools are still very poor and what we what we just painfully lack in North America is a. Universally adopted digital wallet that enables you no friction full free transaction on all these platforms so when you look at what the big difference between WeChat is and Facebook Messenger, it's really, that we chat has 10 since digital wallet built into it and it makes it really easy to do a transaction right in the platform and we don't we don't have that on Facebook Messenger today. [40:35] And so I do I guess you know roll all that up we are starting to see brands use those platforms more, more degree brands that are very Visual and that are using like Snapchat and Instagram as a discovery platform, all the platforms are rolling out better advertising tools they're rolling up better self-service tools and their ruling out visual search tools like the Pinterest new lands feature for example and those all lend themselves to do. The platform's Becoming better product Discovery platforms so I do think we're going to see progress but I don't think we're going to see anything like, the adoption of WeChat in China unless and until we get a universally-accepted digital wallet. [41:21] So I would just add one more thing, these could all be good tools for your mix but at the moment none of them are going to give you an Roi anything close to email which is you know still a great bang for the buck. Scot: [41:32] Yeah I totally agree and we talked about it a lot and our annual predictions and you know I think. Everyone every us company wants that China mild work here in an in it just hasn't kind of. Taking it I don't know if it's even if we had a lot I'm just not sure consumer behaviour the same so it's going to be really interesting to watch that play out I wouldn't count it out yet because you know you have some really serious multi-billion-dollar companies kind of playing this it is interesting, kind of a dark horse in this is Amazon so they we mentioned this in summer Amazon news last episode so they've got theirs a lot of rumors that they have a messaging platform in the works. I have to believe that would enough. If I think of what would Amazon do to make their messaging platform different I think buying stuff would be the one thing that other thing I would think would be kind of unified Echo, and text chat kind of you know, kind of hook up maybe pretty resting so let's kind of see what they come out with and then also as a reminder they came out with I want to call it. Sprint's but Sparks I guess is there a kind of. Pinterest e instagrami product oriented kind of think so so Amazon is the first e-commerce company to take a shot of this so that could be a different take but I do think there's a lot of headwinds there. Nothing I would draw your attention to that's an interesting case study is, the the retailer everlane came out and they were kind of the poster child for this and they've been lockstep with Facebook the integrated everything they did the transaction notifications they did the wallet they've done all that stuff and then in March of this year they actually announced they were just going to end a life that so I think you know. [43:15] I think that we went to a hype cycle there and we're definitely in the trough of disillusionment kind of phase I don't know if we going to make it out of that truck or not. Jason: [43:24] Yeah it's going to be interesting to watch I tend to be bullish but I think you it could be really risky to overestimate the timing so, you know what remains to be seen like how quickly it's adopted, and I guess I would add just one of the point I have seen some interesting new pilots including one by I think Adidas with a really trying to. [43:48] Use SMS as that that sort of transactional platform, and add the ability to do auto reorders and things like that using SMS witches sort of interesting cuz that can be well or friction than some of these other platforms. [44:05] So let's go to the next question which is from Lauren Tonkin and Lauren right side love your thoughts on auto replenishment, why have other retailers not adopted this tactic probably Beyond Amazon at Target. Do auto replenishment models differ globally what non-intuitive product categories do you think him venefit from the NADA replenishment strategy thank you keep up the great work Jason the sky. Scot: [44:33] Fix another person with a great taste I have to say Jason let me let me kind of. Paying this off of you so we make sure to talk about the same thing so when I think about Auto replenishment it is. There's kind of nuance here so Amazon free sample has subscribe and Save which is a hard I want to subscribe to this Auto replenishment to me means the platform saying to you, hey Jason you ordered toothpaste 30 days ago is this a good time do you want to go ahead and order more is that kind of how you think about it or do you want them all together. Jason: [45:06] No I think about exactly how you do I think there's two tears and implied in Laurens question is when she says Auto replenishment I think she's actually, initially talking about subscriptions because she references Amazon and Target and you know Target does support subscriptions but not through Auto replenishment, and and your point like you know I think the Step Beyond subscriptions is this entirely implicit process where the stuff just shows up. Scot: [45:34] Yeah and it's too kind of background things to answer this question in number 1 full disclosure I'm on the board of a company here in Research Triangle Park called Windows Circle and their whole thing is applying data science machine learning to transactional data retailers to cut a fine replenishable products so it's actually know a fair amount of this and then I would also Point folks to, the excellent Deep dive Jason let us onto machine learning this is a great way the other, to leverage machine learning so this is obvious right so. Dog food any replenishable kind of a consumable product is going to have a certain period of time and it's done. Other ones are harder to tell so it's harder to tell the duration like even dog food you know I you know I may have a dog that only eats one cup versus Jason's dog eats two cups we all know MacGyver loves to stuff it and. And then also another good example is maybe batteries because maybe person a has six kids and they just. Turn two batteries like crazy person be being doesn't burn two batteries that much of This Is War Machine learning is, nursing because it can look at that transactional data at a very personalized level and say you know this. This customer is seems to be replenishing on this product on this level let's automate that for them. Or maybe even surfacing it up to that that top to your of subscribe and save I do think it is very interesting. [47:04] I think Why are retailers not really kind of attacking it I think when retailers list the things they're going to move the needle for them, they are stuck at night number one into which typically and Jason you're more of an expert on this but whenever I talk to retailers they're obsessed with 3 platforming, so they spent a lot of time I just like choosing the platforms Andrey platforming and kind of doing that kind of stuff. And then there are spending a ton of time around omni-channel Integrations and these kinds of things and then you know like. Replenishment subscribe and save is like number four and five personalization maybe this number three so so my view is it just kind of like it's hard for your average top. 200 retailer to get to this to spend time on it so I'm curious to hear your thoughts Jason. Jason: [47:51] Yeah I do think one of the challenges is just the band with challenge that you know and he's big roadmaps if if it doesn't pencil out as that you know. First or second most valuable initiative it just hard to get bandwidth to get to it, but I do think there are some nuances I think the majority of subscription programs at the moment are pretty brain dead and tendon not work very well, so you know you think about a lot of these subscription services. Like a blue apron or Dollar Shave Club and after awhile you get behind you didn't cook all the food the Blue Apron sent you or you have an excess supply of razors and you get subscription fatigue and you turn it off and so we're left in North America with this irony there all these subscription-based businesses, Stitch fix Trunk Club. It started out as a recurring subscription in and they all have had to shift their model to not be automatic subscription because customers. In general just don't like receiving the product when they don't need them and so just sending stuff on a fixed schedule hasn't worked very well you know I do think. [49:00] An exception to that rule is the Prime Pantry and I think boxed is probably an exception to that rule in that regard but what we really. Like close to and just haven't seen enough good examples yet is the artificial intelligence based, replenishment witches I think more what's Scott's talking about an interested in and you know they're there certainly are some good examples of that we're doing a lot of work with Sephora which has a huge data set and, you can imagine you know everyone's use case for a Cosmetics as wildly different, and so it's not a matter of just figuring out that people need mascara on a monthly basis it's a matter of figuring out you know the individual usage patterns for for a particular consumer. And and predictively shipping for that consumers use case and so I do think that's going to be successful we're going to see more of that and then I would also say. Did to me the big the big picture here is instrumented Auto replenishment in you know and said this. Amazon has a little bit of this and what they called their Dash replenishment program but your you know your Canon. Inkjet printer that automatically orders ink when it knows it's running low or The Brita water filter that orders a new filter cartridge when it knows you should change the cartridge. Those are the today examples but you don't have to go too far in the future before I can virtually assure you that the, your toilet paper holder is going to count how many squares of toilet paper to use and know when you need more toilet paper in your house and you know you can imagine that Amazon Go technology that they're using in the store to see what products you put in the cart you can imagine that same technology being in your kitchen to know when you're running low on milk and you know so I think. [50:39] In the not-too-distant future the internet of things will be the trigger for a lot of these Auto replenishment orders in and when that happens we're projecting that about 40% of the skew used in the center of a grocery store, you know the people go shopping for the day and drive trips and causes serendipitous Discovery and all these other things are going to go away because about 40% of those goods you're just going to have magically show up at your house when you need them. Scot: [51:06] Yeah and there's kind of a news item here just recently Walmart filed a patent that would it was kind of like dash button but the products would order things themselves so there's there's a lot Innovation going around that area to be interesting to see that. Play out and see you know. Is consumers adopt that or not it's kind of like creepy when the milk kind of self their nose is empty and orders it for you I'm not really sure if if how folks are reactive. Next question is from Ben Cates and been really wanted to just kind of talk about our point of view of off-price retail both online and offline. Jason: [51:45] Yeah and that it's a tricky topic right now cuz it's, in North America off-price retailers in one of the few bright spots in brick-and-mortar retail so you look at the dollar stores you look at TJ Maxx and and there you know really one of the. The few growth areas in brick-and-mortar retail. You know obviously consumers are getting more price-sensitive and and that's become a super popular format in the challenge has been how to manifest that off price format, online Frank and you have sort of two problems when you get to these really you know inexpensive low-cost items like the things in a dollar store. The shipping becomes really challenging for e-commerce so that that's a you know the Majestics cost become a big impediment in Amazon parlance you know most of those items are crap items items you can't realize a profit and e-commerce on in the even bigger problem is, a big part of the shopping experience in these off-price stores is the treasure hunt it's that you don't know what you're going to find when you walk into the TJ Maxx and your you know hopefully going to find something that there's only one that's a great deal and it's really. Cost inefficient to, create a product detail page for that SKU you only have one of them and it sells super quickly and in many cases it just makes more sense to put that coat in a store then it does to. Put it online and so I would say the moment that the best off-price retailers are really struggling to figure out what the Digital model is I mean you know that. [53:17] TJ Max is in the Nordstrom Rack I'll have e-commerce sites but the. Assortment of product they sell in their e-commerce site is very different than the assortment they sell in the stores and the percentage of their sales that are online are much lower than a traditional apparel retailer for example. Scot: [53:36] Yeah I think I don't have a ton dad there there's a there's a chart maybe we can put it in the show notes that this kind of shows this disparity that that you have been kind of talks about here where, if you look at it just kind of physical retail the only things that are growing from a same-store sales are the dollar stores and the the warehouse clubs and, it's ironic because those actually don't translate to unlined very well no one is figure it out we've had boxed on the show I kind of put brandless in this bucket. Amazon Pantry figured out how do you bring that that Wholesale Club kind of an experience, bolt products and end up getting the unit volume unit cost down and butt by having you buy, large assortment some things no one's figured out how to bring that online and at the same time the guys that are really struggling offline are the the non off-price retail so if you're not a value-oriented or kind of a convenience oriented play right now that seems to be there studies that show this will have time to go into it but there's this kind of, bifurcation in the US by our Market where a pretty big segment loves value and they'll go to the TJ Maxx and they'll sort through every. Apparel item in there looking for a great deal so they have at Skyway I think about it as they're willing to spend a fair amount of time to save save money and they like that hunt and other side is convenience wanted so so I think's happening is the guys that are really struggling offline you know the ones we've reported on the Sports Authorities to Macy's the Sears guys closing stores. [55:06] Then really have value and they also don't have convenience so they kind of in this no man land where consumer behaviour changed and and I think the off-price guys have been very fortunate that they they are squarely in that value bucket. Jason: [55:21] Yeah I think that's absolutely right and I think there's there's one outlier there which we won't get into on the show but the affordable luxury is is one other bright spot and that's, mostly cosmetics in the form of Sephora and Ulta in North America but those guys are killing it, so if you need to make an investment right now that might be a place to walk. The moving on Gareth Haynes from the UK from across the pond sent us a great question enjoying your podcast from the other side of the pond I would be interested in your take on the recent in the UK anyway growth the product sold on Amazon, buy Chinese 3p Merchants which are presumably the manufacturers, using FBA and Garrett says I've noticed transformational changes and some product groups where new skus and brands of being strong traction very quickly, is propelled forward by a combination of aggressive pricing and supported by AMS NFPA. Scot: [56:19] Yeah this is this is very much in my wheelhouse and, this is huge said this is a massive Trend Amazon it's in Orson cuz you think Alibaba would solve this cuz all these guys are all about as customers but all he bothers so focused on, new Chinese manufacturer selling to Chinese consumer they've kind of dropped the ball on this they do have a platform caught AliExpress but it really hasn't gotten Traction in our Market or Europe it's very popular in in a couple other areas where e-commerce is underrepresented like Russia and what not, so when Amazon is done is. Yeah I would say two to three years ago they realize there's demand people like this product direct from China manufacturers what they don't like is the stuff takes you know when it gets shipped from the Chinese manufacturer. Honeycomb Core slow boat from China it literally is a slow boat from China it takes kind of four weeks to get here if you've ever bought anything from the marketplace wish you've experienced this. That's a fun Marketplace and have been all kinds it's the closest thing to a dollar store if you will kind of that his kind of nail dad and you know it's a great company they're growing but the. The downside is you order these things for three to five six bucks and they take 6 weeks to get here cuz they're coming from mainland China so so. In a world war addicted to Prime that feels like it takes a thousand years so it would Amazon cleverly did as they saw demand for the stuff on the platform. But it was being shipped directly so they have built a whole entire infrastructure call Dragon Boat that essentially uses Predictive Analytics and looks at these folk song on the platform that are shipping Direct. [57:53] And says to them look at instead of doing this direct we think your volume would increase this much if you did pallets and they'll actually then work with them too. Pallets on containers onto an Amazon boat they're cut off all the middle men they see six of middlemen in this exchange so all draft right from Amazon Amazon has part of Amazon China is all. Set up for this to get them into the u.s. in FBI and then now they're Prime eligible. [58:18] And the same is true for the UK this is been extremely disruptive especially for non-branded kind of things so. Yo electronic accessories was the first category now we're seeing it in apparel so you're the same Factory that's making the Vera Wang. Wedding dress is now selling a wedding dress for $200 versus the. The 20K kind of thing so yeah it's been hugely disruptive and what's interesting is you start to see this trend now where. Let's see what can I pick on I was buying some shorts other day and I bought a Columbia pair of shorts for like $80 so that was the name brand, and then amazonbasics had a pair of shorts so then Amazon has worked probably with a China Factory too kind of say here's what we want it to look like in the quality and is not half price so is $40 and then I could actually buy a comprable products direct from a, and you find these guys using AMS to your point using a Chinese manufacturing never heard of and, yeah that one was $20 so what you start to see is this differentiated price we're branded is attacks Amazon Prime as half of X and, Chinese seller is 80 to 90% of X and I think what Amazon is saying is let's give consumers the trade-off and if they whatever they choose they choose and they they understand the trade-offs there and we'll make it very transparent. And so is very interesting and it's extremely disruptive. Jason: [59:49] And I would totally agree and I do think that three-tier, model is going to become more common I mean you even think about like you know Gillette razor blades cost $7 each Dollar Shave gun, Club disrupted the market by you know selling blades at a dollar each and now the Chinese manufacturer the dollar was using as is selling directed $0.20 each and disrupting Dollar Shave Club. And I think that is common. I will give Scott Galloway credit which I hate doing that he has a funny quote about how you know people that have way over estimated 3D printers we already have the world's greatest 3D printer it's called China Anne and I think these marketplaces are really just a sort of facilitating, us using China as sort of a 3D printer that can you know really quickly manufacture these products and get them in the market. Can I guess I would say the one cautionary tale is there have been two huge hits, in in North America that were direct from Chinese Factory products with no brains right and said I was to holidays ago we had all the hoverboards the the stabilized skateboard stuff and you know those were all like designed by Chinese factories and sent over here and they were you know, all also direct from Factory and right now we're in the middle of this silly affair with all the fidget Spinners and most of those are our direct from Chinese factories and in both cases their electronic products were the battery and we're having some scary. [1:01:20] Consumer malfunctions and so I do think there is there's a potential risk, that that these these products are going to get a bad rap for safety concerns and therefore it's going to scare consumers away and so you know, I think we have to make sure we steer clear of that you know for this trend to continue. Scot: [1:01:42] Yeah and the time and puts it in Gareth question. quickly is what's a brand to do so so you're a brand or a retailer you're in category X and suddenly there's a Chinese seller and I think this is really this is the world going forward and to your at the top of the show you talked about how are you more agile I think the answer is. Brands and retailers have to partner to be much more agile there's some things you can do around you know what's interesting is a lot of these things are coming out of the same Factory so they'll do a run for the brand and then we'll do it run stuff, and so if I'm a brand I think I would go back to my Factory in negotiate that they're not allowed to do that in some way you know there's certain constraints that that you can put on there especially with your Electro property, there's some stuff you can do there but it is a day there's so many use factories that you know just shutting down the one there's one next door, so I think its Innovation so you know. And if that's what your brand has to kind of stand for just just kind of these lifestyle Brands and things, those days are are are going to be hard to stay on top of if you're not doing something Innovative around the fabric the technology, all these kinds of things to differentiate your product as a brand and that that treadmill a lot of Brands I talk to you kind of say we've had private label in grocery whatever for years and it doesn't matter I think this is way different than Ethan they face before and it's a new world and. The only solution is in a bit. Jason: [1:03:10] That absolutely and I think it comes down to being close to your consumer if your brand that they can really stay close to your consumer know them you can innovate products that. Particular meet their needs or fit their life and it best that the Chinese factories are going to be fast followers and so I think in the New World, those. Does he know great Innovations you come up with their going to have a shorter lifespan because you know you are you are going to have the Chinese competitors coming in and and challenging your price point so you need to be ready to move on to the next product little faster than we used to do. [1:03:46] And with that I'm sorry to report that it is happen again we've wasted a perfectly good hour of our listeners time, and I'm even sad and report we didn't get to all the listener questions so we're definitely going to have to do another one, so if you have any thoughts about the questions we covered on this show we'd certainly encourage you to hop on Facebook, let your thoughts be known and if you have some other questions we'd love you to leave those on Facebook as well and will get them in the next episode and they've you did enjoy the day show we would certainly appreciate a 5-star review on iTunes. Scot: [1:04:20] Yeah thanks for when we really appreciate the questions and hopefully even enjoyed the hot take on Amazon's quarterly earnings and listener questions. Jason: [1:04:31] Until next time happy commercing.