EP182 - Amazon Q2 Earnings and News
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Episode 182 of the Jason & Scot show was recorded on Wednesday, July 31st, 2019
Automated Transcription of the show
Jason: [0:24] Welcome to the Jason and Scott show this is episode 182 being recorded on Wednesday July 31st 2019 I'm your host Jason retailgeek Goldberg and as usual I'm here with your code Scot Wingo. Scot: [0:39] Jason and welcome back Jason Scott show listeners, Jason has been a while since we were able to get together with given the holiday season 2 vacations going on and then we had some guests in there that that's important topics you on the cover so we thought it would be a good time to go and catch up on some news there's been a fair amount going on in the world Lee Commerce as you haven't been at this for feels like forever kind of Summer's kind of quiet and then here in this kind of Q3. Is where it gets really newsie as we head into the house so we thought we'd go over some of that before we do Jason you have been a busy traveler I'll tell us about some of the tricks you been on. Jason: [1:26] Yeah yeah I have been on a couple trips full disclosure a number of them have been vacation and so I'm I'm a little proud I feel like you probably beat me on quality of summer vacation but I feel like I at least meet you on quantity of summer vacation. Scot: [1:41] Yeah yeah you were able to get a couple weeks in there and I'm I can go further because I don't have to carry a 8 lb 80 lb espresso machine with me I think that that kind of limits our options but so fly over to Europe and stuff so we're going to free you from the shackles of the espresso machine. Jason: [2:00] Exactly I don't know if you think you're joking or not but I did I took two vacations I visited my family in in San Diego for the 4th of July and I went to Upper Lake Michigan with my wife's family and the Upper Lake Michigan lake house is remote enough that I did have to bring my own espresso machine. Scot: [2:20] Oh I know I know I'm familiar. Jason: [2:22] But I'm calling it a big win I actually consumer protip. Years passed I bought the new Nespresso which is called the virtuoso which is this fancy or system and I was never actually that happy with the shots. Into this year I retired it and bought the older Nespresso original system. And much happier with the shots there's a much greater diversity of coffee available for its was actually able to buy. My Starbucks pods to go in that coffee shop by my lattes were both much better and this little town we we stay in North Point Court last year head Giro expresso machines in the town and they sure they had to poop so I feel like. Like it was all green light. Scot: [3:07] Nice nice you're you're making America better. Jason: [3:11] But so in between all of that Leisure activity I took the opportunity during the Heatwave to go to Las Vegas. For a new show that interact has launched this year called in RF next and they cleverly spell it like the Hipster kids NXT. Scot: [3:31] It's very cool to drop any kind of owls so kudos. Jason: [3:35] Exactly it sweet speak. And they the. Important to me because it's somewhat of the spiritual successor to the shop. Org annual Summits when shop.org used to be a separate entity from NRF. Into this was the first year of this new format it's in Las Vegas in the summer it's at the Four Seasons hotel which is like a kind of cool luxury hotel inside of Mandalay Bay. And it's less of a trade show there's no exhibit hall and more of a a conference with. Certain interesting approach to content curation what they do is they they have. Key notes that everyone attends on a topic and then they have breakout sessions which are deeper Dives on the topics from the keynote and you sort of picked the. The specific tactic that you're most interested in for the deeper dive so you might have liked. Akina ain't no bunch of good retailers that did Keynotes Zulily DSW Shoes untie. [4:42] Dick's Sporting Goods Peapod. Lilly Pulitzer to Value H&M JustFab I think with all the main presenters and you know you might see that the CMO giving a presentation on the keno to set up high-level case study about what they're doing and then you might have the. The director of email marketing doing a breakout session specifically on on Dick strategy around a b testing emails for example if that was what was interesting to you until you both you got a mix of kind of high-level. Strategic content and like you do more Hands-On tactical button-pushing contents as well which I like. Scot: [5:22] Brickell what were what were your your your most and least favorite topics. Jason: [5:30] Yep so there you know. Everyone is tackling different aspects of what I call the next best dollar problem that like. [5:43] A lot of the traditional tactics that repairs of used to drive traffic and drive conversion like. Either aren't working as well as they used to or are becoming more expensive and more competitive and so you know our readers are challenge with like what is the right mix of tactics and you know how do we evaluate what tactics to do and then you know how do we optimize and get the best bang-for-the-buck for all of those. Like primarily traffic generation tactic so a lot of. Surf interesting examples of how to tackle influencer marketing an email marketing and. Bike shopping cart abandonment campaigns and in topics that we talked about for a while but like kind of what the the latest state-of-the-art is in optimizing those tactics out. You know there's a bunch of General stuff there and then the 1st came out of the day was sort of a. A much more overview of the market Keno which is from an acquaintance and former colleague of yours Pascal finette who's. At Singularity University but I think you hired him a channel advisor at one point. Scot: [7:00] Yeah that's goes way back Pascal is a super smart person in here and Germany for us for a while he's a great guy and we stayed in touch so hopefully he gave give a good presentation there. Jason: [7:14] So I thought he did a really good job and his his whole presentation, is there an interesting angle on something we've talked a lot about about bifurcation in retail and he had an interesting Paradigm for it like he he talked about traditional retail being a pyramid and at the bottom of the pyramid you had, very high-volume low-margin transactions. And at the top of the pyramid you had much of lower volume higher margin transactions and so you know for the most part it's like. [7:51] Discounters and super high efficiency stuff at the bottom of that pyramid so that's that's Walmart T.J.Maxx dollar stores things like that and at the very top of the pyramid. It's typically luxury brands, and you know then there are a bunch of retards that are historically a compromise of those two things right and so that's, that's all I like the mall based apparel companies that's that's gap that's Bed Bath & Beyond its Staples it's all these these different retailers and his premise was that for most of the history of retail. The best place to be was that compromise in between the two extremes and that as a result of our our current disruption in the marketplace like what's fundamentally happened is. The customers have all bifurcated to either the the super high efficiency retailers at the bottom and the super high-value read you know High luxury retailers at the top and the the segment of retail that's getting decimated are all those retailers that are trying to live in the middle and so he takes his pyramid and he he takes the bottom and the top and puts him around and it's it's sort of. Like an hourglass so that the pyramid has become an hourglass don't kick in in the the the. The dramatic conclusion being don't get stuck in the middle. Scot: [9:18] The sands of time are running out. Jason: [9:20] Yeah it was a little awkward that I'm sitting next to a little Gap team is he pops up beside that says and the Gap is in the middle. Scot: [9:26] They without the computers to start working on the resumes. Jason: [9:30] I don't think it was news to any of them that that was a challenge they had to overcome. Yeah but so that was a good conference and of course like, cuz it was a little smaller to maybe about four hundred attendees the networking you know is one of the highlights you know I got to see a lot of old friends of yours and mine and meet meet some new friends share a couple adult beverages and and make fun of people. Scot: [9:55] How about where are digitally native vertical Brands their represent. Jason: [10:01] There were so like JustFab was one of the presenters they were number of, the DMV be sort of in attendance so they they definitely had some some representation that it it's it was a pretty interesting mix of. Frankly you know all all portions of that of that parent of Pascal's pyramid. Scot: [10:28] Cooper another one of the takeaways can you share with us. Jason: [10:33] You're grilling me I mean like those are the the big ones that we have time to talk about right now because I heard a rumor I know you have this whole separate gig in the automotive industry that you're cheating on me with and I heard you were at an auto event while I was here so did you did you get a new cars. Scot: [10:57] I did not but it was fun because this was an event that was actually in my backyard the one of the Publishers and autospace I didn't even know this until Teresa Lee is based out of Cary North Carolina which is in the Research Triangle Park area and they put on an annual kind of it's not funny how things once you've done this in several Industries It's relatively similar to kind of are e-commerce road so they have kind of like the big show their one goes to this kind of like you know the current stage and then they have the more forward-looking show that they kind of do the smaller and we're in a hot soak. Kind of like interests next for Autos this was in Raleigh so it's actually nice to get to drive to the conference house by 2 so I was invited to speak about. [11:43] Changing car ownership landscape which is not the topic of our podcast but it is kind of fun you know there's an in the my world my e-commerce World in my Auto World are all colliding so we we talked a lot about these new models the most popular ones are there's two companies ones true and ones get around the CEO of truism eBay dude and then the get around my folks are both marketplaces into takes time for at least learn to talk about all the time and see it seeping into the Auto World another interesting company in that space is called ACV auctions where there's all these physical car auctions require acres and acres of land in kind of silly because you ship all the cars there and then if people fly there and then walked around and and bid on items and then they blow to back up and shut them somewhere else there's two shipping's in there there's this ACV auction company has gone and it just on a digital marketplace around that so very kind of eBay 1.0 asks to be in a different industry but then see the the similarities the other fun thing is a lot of the presentations were you how do we make it like easy for people to buy cars the carvana has really disrupted that World by effectively taking e-commerce. [13:03] Stuff that we know well and applying it to used cars so now all the dealers are trying to figure out your pay if Jason walks in on a on a Sunday afternoon in Chicago how can I sell him a car in less than 8 hours so that it's kind of funny they're trying to figure out you know. [13:21] The basic blocking and tackling of that that we had knee Converse for a long time but but it's funny to watch them, figure that out and there's a different set of vendors different set of players so it's a lot of fun. Jason: [13:32] Yeah I know it is it's funny when I get teased a lot from my tenure at Blockbuster entertainment which is now kind of a joke but we sold the company for a bunch of money and a lot of the management team and that the founder of Blockbuster took that cash and started AutoNation in the hole the whole premise even back then was, like the inventory in any given used car dealership is the local inventory in that one dealership so you know a very small assortment free Chopper but what you really need to do is aggregate the assortment across the whole the whole country right and that's that sounds like that's essentially what's happening with these options as well. Scot: [14:14] Yeah yeah and then yeah so they'll traditional models are all changing to the CarMax has the realtor now adding digital and it just kind of funny to watching. The same waves we were kind of in the end of the sixth inning or whatever you want to say I guess Amazon would say they won but you know if we've been that day one for 20 years daughter Ministry of feels like it's way earlier in that and it's going to go faster because we don't, we don't have all the new waiting for people to trust payments and smartphones broadband and all that it's all all here today so it's just feels even more chaotic to the folks that are in the middle of it. Jason: [14:49] Sure I will say and I've been falling carvanha a little bit as a start a digital shopping experience and there's a bunch to admire their butt from the commercials like you get the impression that if you bought a car on your mobile phone from carvana it would get delivered in this cool carvana delivery vehicle. Or you go to a vending machine and the car would come out of the vending machine and I was kind of disappointed to find out that like. Yeah in most cases some dude just going to drive the car you bought to your house. Scot: [15:17] Sure we'd moessmer delivered on the little flatbeds they don't have the commercial tissue this really big one but they bring them on these little flatbeds. You by Ada price on so many cars in Chicago that there haven't. Jason: [15:32] Got you okay good I'm glad I'm glad to hear that cuz that felt a little bait-and-switch e and I'm hoping they've all been detailed by gets 50 before they get to. Scot: [15:40] That's what we're going on there's a lot of lot of cars to clean up their thanks for bringing that up. Jason: [15:45] Hey I'm here for you man. Scot: [15:47] What's one of the big news items we wanted to talk about is last week Amazon revealed their second quarter earnings since they came out the stocks been a down about 10% feel a little bit of pressure and what would happen there is it's kind of mixed quarter so it's Amazon you look over the long Arc since it went public I was at a whiteboard I would draw these kind of stairsteps there and and see what happens is the, they'll invest will bits the stair goes sideways and her words, like what's happening this is going to work out and then do that that's what cycle Revenue growth will accelerate in the woods happy on Wall Street and then the Amazon will say well we need to go through another investment cycle so they've been pretty used to this the telegraph this if you want if you remember that's when they took the auctioneer to announce next day Prime so that's the real theme of the quarter is the mixed aspect of it so positive camaco season of the quarter was one day Prime really increased demand that was that was good and exceeded while she text Haitians pretty handily on the top line but at the same time I'm delivering on one day Prime really shoot away at probability so you know I can have this mental image of they press the button on the website and then the. [17:08] Total chaos happen to the Fulfillment centers in there just kind of getting their arms around that also you throw Prime day in there that wasn't a cute too but it's kind of body language was that it was a lot of little bit harder and more expensive to implement one day Prime I'm too we're going to dig in the next level down is and we thought we kind of cover on positives and negatives we drew straws and I got the positive side Jason sits on the positive side Revenue accelerated so Revenue at Amazon grew 21% year-over-year excluding in any kind of benefit or hadwin from a foreign currency that exceeded expectations by about 3% pretty material at Amazon's you know billions and billions of dollars to exceed by 3% hundreds of millions of dollars kind of come out of that one area that everyone looks that pretty closely is within the Commerce business or what they called the online unit the there's a unit growth so that's effectively no to the number of things sold so paid units that it's kind of slow down over the years to about 10% that. [18:16] That metric which is kind of a forward-looking metrics that popped up to 18% so that's probably the best signal that the one-day Prime is working really well and then I think imma call Amazon did call out that you know that that was driven that salvation was driving by the introduction of 1-day Prime one-day Prime's benefit was largely centered around North America because in most of it to go to 2 UK for example it's such a small little island are that pretty much prime has been one day for awhile since you out a lot of Europe they're already kind of at one day Prime. [18:52] So it has a business impact on their National side so a lot of this growth came from the North America side so North America Revenue accelerated to 23% year-over-year compared to 19% q1 that's a 4% bump due to one day Prime and then the other thing that made Wall Street excited was you know whenever Amazon releases a quarter they talk about the next quarter so. [19:17] Ouachita been projecting Q3 to be no X and then Amazon guided that pretty significantly ahead kind of keeping it this mid-20s growth rate at the mid, another kind of interesting kind of in this we get kind of inside baseball here on the call Amazon talked about Amazon is very methodical in these autometrix Sue on the call they revealed that they have about 10 million items right now that are in this kind of one day Prime so think about these concentric Rings where you have at the center at the same day you have Prime now and then some cities have car that same day delivery that's Prime now is like was like 5,000 skews and then I think maybe you get up to 10,000 20,000 skews for same-day so then the next thing out which is next day is now 10 million and then the next train out which is I think there's about 30 to 40 million Prime eligible products total supposed to be like the next thing out which is 2 days going to probably have caught 30 to 40 million so they're really kind of focused on this this kind of ring that is that one day Prime so you know theoretically I think they could get you know. [20:37] 4 * 40 million items that are effectively available to put into that one a prime will it get it all there I don't know I have to kind of wait and see how they go but ten millions not a not a bad start so it's it's going to be interesting and now they've revealed that number will get a slide about it we'll try to track it on the show here for you guys so you got to see if I was if I was them I would kind of try to get that up to 20 million die holiday I think that would be no cuz pretty material holiday bumps and then what you begin. [21:07] Last couple things within third-party that segment of Revenue grew 23% year-over-year which was a nice little acceleration retail subscriptions which is kind of our Prime lives that grew 37% and then one thing we watch on the show really closely is the Amazon ads now they put in this other category in blush and Rose have a way of kind of looking in there and pulling out the ads business so so the ads business was up 37% year-over-year really nice growth and then the estimates are that this is that about a 13 billion dollar run rate, I'm going 42% year-over-year so the projections have kind of been edging up we talked about this for a couple years that they were there you're pretty high now I think they're raising them so I'm seeing a north of 30 billion from Amazon ads by 2024 that would you're the ad guy that would definitely put them up into the the Facebook kind of snow level certainly that would exceed I think Twitter and Snapchat it might stay singers and they're not growing as fast as is Amazon's business so don't put them up in that kind of elite air with Facebook and Google if I'm remembering by my ad. Jason: [22:21] Yeah they're they're clear third they're like you. They still have a significant amount of ground to make up on on Amazon and Facebook and Google but they also have like a pretty good Gap ahead of everyone else. Scot: [22:34] Yes those are the positive sit in the question is why was the stock kind of down and I'll turn it over to our curmudgeonly Jason to give you the negatives. Jason: [22:44] Yeah I think it's because I'm such a positive guy that it it just feels better getting the bad news from me, 11 seidman on the advertising I saw a new and interesting datapoint today that I thought was kind of fascinating there's this company out there jumpshot we've talked about them before they have tricked a bunch of consumers in the stall installing there plug-in in their browser. Variety of utilities but then whether means is they get to collect data about how all those consumers are our shopping and their web browser and they, they sell that industry data so they get they claim they can watch millions of Shoppers in North America on Amazon and they said that in January of last year. 6.6% of all product detail page is the people looked at on Amazon where clicks from a sponsored at. [23:42] So by December it was 10.5% of all quicksand so there's this like they have monthly data and you just see this daddy step up that like, Amazon has essentially double the amount of page views as a result of these. These paid placements in that this very much follows a trend you see on the other big advertising platforms that you know originally. You know Facebook had a lot of organic Google had a lot of organic content in overtime as they. They've you know optimizing monetization on their platforms or less and less of the the content with C on their platforms is is organic and Marvis paid so where. We're seeing a very similar progression happening For Better or Worse on Amazon. [24:30] That Flippin to the the negatives from the earning report the first one was that their AWS growth rate was slightly below expectations so. [24:43] To put this in perspective. The growth rate was still 37% so it's a very fast growing business it's a wildly profitable business in Amazon has by far. The the largest share of that business and I would say you like one other positive about that business is that there's still a ton of growth left in that business so you know by most people estimate something like 5 to 10% of all the. Computing jobs in the world are done in the cloud and the rest are all still done in local data centers and things like that so there's still a huge amount of growth as. Compute my grades from from the local to the cloud and Amazon you know has this this clear commanding lead but the rate of their growth is starting to slow down and particular Microsoft and Google. Wow much more than Amazon are now growing faster than Amazon so that's like not unexpected but it's interesting to see that play out and obviously there's, a lot of mistaken Impressions out there that the. That the revenue from AWS like pays for the unprofitable retail business for Amazon and hopefully our listeners. I have learned to debunk that but be that as it may the AWS revenue is is very beneficial to Amazon. Scot: [26:09] Giannis this is not a cloud computing podcast but Microsoft actually their Cloud Revenue just passed their non-cloud revenue and that was really well-received by Wall Street they are now in that that Elite Trend dollar market cap where Amazon has kind of Fallen well below that due to the headwinds from this investment cycle. Jason: [26:31] Yep yep so it's it's super interesting to see this this Microsoft Resurgence they also announced that they're going to invest more than a billion dollars in this openai platform that they're going to accelerate via. Azure which is their Cloud platform so I say interesting stuff happening in the cloud space I like to think we're all the beneficiaries because the the tools and services that these guys are all offering. Like they're they're so competitive with each other that they keep wildly improving and expanding every quarter so. So it's a fun space going back to the retail side of Amazon's business a little bit more overall gross profit decelerated Amazon so is, 22% versus the last quarter was 27%. [27:22] As you mention like they took a little hit because they had a good quarter last year and then their guidance was that they were going to. Make more Capital investments in the subsequent quarter and expected things to go down and that's that's kind of how it it played out but they. You know still still it's no fun to tell people that you you made less profit than you you did in the previous quarter. Their operating income was also down a little bit and you know you meant I think you already mentioned their there. There's a third quarter guidance was also a little lower as a result of this slightly lower profitability and I look at all three of those things and that to me those are all symptoms of. They made the shift to one day Prime and it was a little more expensive and difficult and messy. Then maybe they they anticipated and sew-in you know I think as we talked about in the past. [28:28] Any inefficiency you have when you accelerate everything they they get Amplified in exacerbated and so you know the the. Putting the accelerator on a lot of these processes if you don't have the exact right inventory in every fulfillment center instead of having expedite a shipment from one for filming Center to a customer now you're having to expedite shipments from to fulfillment centers to a customer things like that so. Like this doesn't seem like a horrible shock to me and I I feel like I have a pretty high degree of confidence that. That Amazon is going to operationally get this stuff all squared away and you and me talk about this in in other news later in the Shell but like however much pain it's causing Amazon to do one day Prime delivery a bunch of other retailers have already announced that they're going to match the one day service and others probably will and I can virtually guarantee you. It will cause more pain to all those other retailers to try to hit that service level than it's causing Amazon. Scot: [29:30] Yeah absolutely yeah some of the Wall Street folks are kind of saying it's a knockout punch in there there's a lot of interesting kind of language around that that the the demand they're seeing from it. Is there a tributing just to really kind of is going to, if it stays in Amazon and get the cost down it is going to be late to away at the the sheriff not only online but the offline folks will moved on Lancaster. Jason: [29:56] Yeah I know you have talent follows Amazon pretty closely and they they. They have a pretty sophisticated model for how much opportunity think there is for hims on how quickly they'll grow and then they do this big consumer survey every quarter until right after Amazon announced this last quarter they surveyed all the customers about how their shopping behaviors might be different if they could get stuff in one day and they had enough Confidence from that survey that they had to dramatically increase the addressable Market in their in their model and therefore like the the amount of Headroom for growth Amazon had because I felt like, offering one day delivery was going to change a lot of shopping habits and and help Amazon capture a lot more wallet chair. Scot: [30:43] Yeah one final announcement they made that's near and dear to your heart as they talked about adding two more go stores which will bring the total to 13. Jason: [30:52] Yeah and it depends on how you read the announcement but there's two to four that are currently scheduled to open so maybe two of those they had already announced, and they added two more but two of them are in Chicago, and we have a number of ghosts tours I want to say we have three or four here now but one of the new ones that's opening here in Chicago is actually opening in one of the buildings I have an office and so it's at the merchandise mart. [31:21] So that that'll be fun this was not Amazon news but there was a sort of interesting article. That that came out that someone had done an analysis of the, the shopping carts one of the credit card companies of the like spend in the Amazon go stores and they reported that the average ring in the Amazon go store is. Much lower than the average ring in a traditional convenience store so so they were saying that like. A typical consumer visits a ghost or like two to five times a quarter and a typical consumer visits a 7-Eleven like. 427 x 1/4 so they get 7-Eleven get slightly more visits then I go store but then the average ring in the convenience store was like $25 and then the go store it was like $14 and so the. The takeaway from this is that you know people are tending to buy one item or just a couple items in the go store in a slightly bigger card in it. Typical convenience store in it adds to the the the high-level speculations that the C's go stores at the moment are wildly unprofitable so it's, it's very interesting and typical Amazon that like in spite of the fact that the the unit economics don't don't seem to work at the moment. You know that's not curtailing Amazon's ambition to keep keep scaling and growing and learning. Scot: [32:51] Have you tried the the coffee that I have seen some of the newer ones have the coffee thing have you tried the. Jason: [32:57] Yeah they do have a coffee bar I confess I have not because I have very goofy specific tasting coffee but I will I will have to try the coffee when they open one in the merchandise mart. Scot: [33:08] Well we need you to take one for the the podcast team and even if it's sub below your standards we want to kind of hear you're all the Gory details. Jason: [33:16] Yep. I'm embarrassed I'm embarrassed to say that that I haven't I mean I think two things you think of when you think of the retailgeek are Amazon go stores on coffee so somewhat embarrassing to me. Scot: [33:27] You can just walk out without paying this can be even more fun. Jason: [33:30] Yeah yeah as I was like to say they they invented just walk out but they broke just walk in. Scot: [33:35] What if you go in and get your coffee drink it and then fill the cup again will they charge you for lunch test that Force. Jason: [33:43] Yeah well yeah that it is funny that there is a little bit of a history of background like you think you're joking but this this ties into this so I kind of broader theme that there was some news about these last couple weeks which is about Amazon's overall grocery Ambitions and that the reason I say this that ties into coffee ago stores is because there's an interesting recode article about the history of the ghost or in the evolution of it and, it started out as a full-service grocery concept and in fact the idea was that you chop all of the. The perishables. In a live store that use Go technology to just let you grab whatever you want and leave and that you'd buy all your consumables, I just ordered them on your mobile phone and they'll all be packed enough for Film It Center that was attached to the store and they be waiting for you as you walked out of the store. And somewhere along the line it was deemed too complicated and one of the biggest reasons it was too complicated was. [34:54] All of these items in a grocery store that have variable quantities that you have to weigh or count, or you don't have different sizes of the same thing we're tricky for the camera to recognize and so, the camera knowing whether you have 12 or 16 oz of coffee in your. In your cup and your point whether you drink half of it and refilled it is a tricky Edge case that apparently Amazon aspire to do originally and then kind of avoided when they rolled out. The ghost or so. But it's interesting how Amazon handles that in these go stores but they they there is now construction going on in the original. 10000 square foot lease that Amazon took in Seattle when they thought they were going to open a grocery store and so there's lots of speculation that in the not-too-distant future we're going to see a new grocery concept. That that may include some of the Amazon go visual search capability computer vision capability but but the Amazon may be stepping back to that more ambitious original. Original Vision so we're all eager to see what happens when they they peel the paper off the windows of the storm Seattle. [36:19] So that is kind of interesting in the grocery space another interesting tidbit of news I saw recently from Yuna from the the Seattle corner of our country. That kind of feels very Amazon asked to me is Starbucks made an interesting announcement. They did a partnership with a POS company to sell a product ties version of their mobile order and pay two other restaurants. Scot: [36:52] So are they now it's any who's going to be taking the outer or how's it going. Jason: [36:57] Yeah so I did not see in the in this original article. Who like it may have already been pre-sold to. But essentially this was like the chief digital officer Starbucks that help build mobile order and pay left Starbucks to start this new company called Brighton, and now fast forward a year later Starbucks has done a deal with him at bright room, to sell the the technology stack in the software stack to other retailers and to me that feels very. Amazon AWS cuz it like you you build something to solve an internal problem and then you say like. You know rather than keep it as a proprietary manage for us we're going to scale it and monetize it by by selling it to the rest of the industry. Scot: [37:53] You'll be interesting to see who takes out or not. Jason: [37:57] So I'm up interested to see if other people up take it there a lot of categories that maybe aren't directly competitive with Starbucks but want this capability and so, you know I it is easy to imagine it being successful motor mobile order and pay the huge deal in the in the restaurant space right now and and something with a credibility of the Starbucks offering would be interesting when I'm super interested to see is. Included in this deal would they ever consider using Starbucks as a payment method. So can I buy my Five Guys burger on my Starbucks card for example. Scot: [38:36] Yeah yeah so be interesting to see how if it's a universal payment system ER or just kind of you know a complete private label into another brand. Jason: [38:44] Yeah I kind of suspect the first version will not include payments but it's interesting to think about and you know it could also open the door we seen a little bit of this like Kroger's it has invented some in-store technology that they're trying to sell the other retailers I get just going to be interesting to see if this is a play that becomes a more you know Common part of the The Playbook going forward where I would argue historically whenever a retailer meant anything proprietary they they want to keep it as far away from the rest of the market as possible and keep it as a sort of, unique competitive advantage. But there was also a lot of logistics news in the last couple weeks have you been following all this cotton. Scot: [39:26] I have a few yeah. I kind of use it that Amazon is caused so much destruction or one's kind of working to keep up have what what do you think about it. Jason: [39:36] Yeah no for sure and some of it very directly so this is slightly old news at this point but like in the beginning of July. FedEx add their earnings and either during their earnings call or within a day of that earnings called they announced that they were not renewing their contract to provide Express services to Amazon. And when you first hear that you go oh my God that's a huge deal. Be reminded FedEx have the smallest chunk of Amazon's delivery and FedEx has a couple. Products that they sell the Amazon only one of which is this this are delivery and so this is really FedEx walking away from one piece of Amazon business, and you know if your regular listener the show hopefully it wasn't a total shock to you because I've said for a long time. [40:27] The carriers are having trouble rapidly scaling their capacity and in so if you have a finite capacity. Do you want to sell that capacity to the highest volume user that you don't have the most negotiating power and pays the least or do you want to sell that capacity to eat or smaller retailers with more with less Leverage, they will have to pay more for that and then you know apparently FedEx answer was. Yeah we we can make we can better product profitize are our capacity by selling it to other retailers and walking away from from Amazon who presumably. You know as a Biltmore more of their own capability or you know where we're turning the screws for a better and better deal from FedEx. So that was big news at the same time in that earnings call they did acknowledge than Amazon is a potential competitor in the space which like that also should not be. Shocking but like you know up to this this point like FedEx had consistently said that that Amazon is a great partner and not a competitor so it's kind of funny that they finally acknowledge that. Scot: [41:37] I think they've all slipped it into their or their 10 case there's this guy competitor kind of category in everyone's going to start it but Amazon in there. Jason: [41:46] Yeah and I think I got triggered first by Amazon listing them which is never never good news, the FedEx and UPS are doing some interesting moves the going back to the capacity problem they are both going to seven-day-a-week delivery so they've added Sunday as a delivery day, that is going to be interesting to watch out you know Amazon was just a lot of their own deliveries here in Chicago already like has been delivering on Sunday for some time and Amazon has a u.s. postal deal with. For Sunday delivery so like and I feel like the consumer expectation is it is is expanding the seven days and now we're seeing the other carriers. Trying to figure out an offering in that space and they're also doing some interesting things about reverse Logistics and so. UPS and FedEx have both like greatly expanded the their locker program and their pickup locations and I think. Last week UPS announced that they had done a deal with CVS Michaels and Advance Auto Parts to use those 12,000 stores as. Pick up locations for UPS packages in my mind that the CVS one is particularly interesting because. CVS I believe is also a pickup and return location for Amazon so you know. [43:12] It seems like as the healthcare industry is getting more challenging and and the prescription drug business getting more challenging like CVS is doing some interesting things to repurpose some of the the square footage in their stores. Scot: [43:24] Have you is there any anecdotal evidence how these return programs are doing it for everybody like is Kohl's benefiting from the Amazon thing or are people just kind of like. Jason: [43:33] So the 3rd party traffic monitors feel like holes traffic was up and Kohl's claim that their traffic was up, demonstrably in the pilot stores when they first when I first started taking returns and so Kohl's is totally Double Down they've expanded the returns to all their stores and Colts is really improve the logistics around the return so you cannot walk in a Kohl's with just a unpackaged item that you bought from Amazon and your order on your smartphone and Kohl's will take it back box it and do the whole thing for you a CVS will take that package back but they don't do all of that boxing Logistics portal you have to bring the package, can a ready to go in a CVS store and I know people always say like Josh kaul poses in bed with their competitor I actually think this is the smartest partnership I've ever seen a retard do with Amazon because, this this partnership is not giving Amazon access to Kohl's customers in any way this this partnership is really exclusively giving Kohl's access to Amazon's customers. Scot: [44:43] Yeah yeah I guess I'll never announce it let you know there's some percentage shopping in the store which. Jason: [44:52] Yeah exactly if you have to walk through that store you're going to serendipitously discover something and closes protected well suited for that because they're a little bit of a treasure hunt store anyway and that you know they tend to have a thin inventory you know of that turns regularly with lots of deals and so if you are Kohl's shopper and that triggers a couple extra visits when you're returning something you know you're very likely to discover something and if you're not a Kohl's Shopper it's even a bigger win for Kohl's if they get you to come in that store for the first time. Scot: [45:23] And then I'll give you the privilege and then you every time I go to Kohl's I get in line behind someone that's optimizing their their triangulation between like some kind of cash back thing Kohl's cash and something else and it's crazy like. Jason: [45:41] Yeah we call it doing a leveraged buyout on a t-shirt. Scot: [45:45] And then invariably they'll like walk away from a cart full of stuff to run and get like this was it's not BOGO but you know if I bought this and this I got double Kohl's cash and I can apply them in this and then they want to split the transaction with their significant other and it's like no they did a line for people that don't like just want to buy stuff and get out of store. Jason: [46:08] So for sure that's a common complaint in a number of retailers and Kohl's in particular like the more sophisticated those those reward programs are in the greater percentage of customers that are in those reward programs and take full advantage the more acute that problem is in the case of the Amazon returns it doesn't hurt you though because the Amazon returns as a separate counter within Kohl's so you're not waiting in line behind any of those people to return your Amazon package at Kohl's and a bunch of other retailers like Macy's a big part of their answer for you, is if you're not that super high Rewards customer that's doing that really complicated transaction there they're trying to get you to do mobile, Scan & go and check out without standing in line because they know that check out is a big a big pain point for them. [47:05] Yeah I'm not sure that the average Kohl's Shopper Macy Shopper has, then as early in the Doppler that technology as you probably are but like I I do think they're going to continue get more more traction we're seeing more and more stores. Go that way and that's that such a perfect segue to. Something we'll talk about in in just a minute but I had one more news topic I wanted to touch on before we get there. [47:31] So there's this awesome quote I use all the time that I think Andy done originally used maybe four or five years ago e-commerce is awesome. As long as you don't care about anybody off and the sort of ominous you know message there is customers are loving it it's a it's a better customer experience in many ways for a lot of use cases boat but when things you shouldn't lose sight of is the the unit economics of e-commerce are almost always unfavorable versus traditional retail unit economics and, two big reasons for that are shipping and returns and it's it's just been interesting I've seen some some. Not optimal news for eCommerce sites on both of those those costs this this month so you know one thing there's a report every year that comscore does called the state of the online retail industry and they share a bunch of data and Trends the Desi from there you know millions of customers that shop in their panel and one of the staff they always share every year is what percentage of sales every quarter were sold with free shipping. And so for holiday this year 85% of all e-commerce orders had free shipping. [48:56] And like three years ago it was 65% of all Commerce orders had that had free shipping so increasingly this is probably isn't surprising customers expect free shipping and they only by when they get free shipping, and that that's currently you know ramps up the the profitability challenge for retailers and then you know when you, you talk about like you know Amazon stepping on the gas and Walmart and Target quickly following them with one day shipping you know when you not have to give away free 1-day shipping, that's a real challenge to to e-commerce profitability and then. For many retailers the double whammy is returns tend to be much higher online and I saw a horrific stat this month, there's a logistics company called optoro that did a study and I'm not sure if I told you this I haven't been able to look in their methodology but they are claiming that the average rate of returns for e-commerce orders over the last five years has essentially doubled so the percent the percentage of returns at every e-commerce retailer twice as high today as they were in 2014. [50:12] And I don't know if that exact number is accurate this came from a Vogue article I'll put a. Lincoln the show notes but but even if it's just directionally accurate your returns are going up. That that's a huge stress to profitability in the example I was like to use when revolve had to disclose their Finance his revolve is a Edition Ada vertical Brandon the apparel space in 2018 they had almost a half billion dollars in online sale they sold 499 million online and on their books they they wrote down 531 million dollars in costs associated with returns. Scot: [50:59] Wow that's not skilled. Jason: [51:02] No nosso the unit economics on that suck. Scot: [51:06] It's a minus 20% or something. Jason: [51:09] Exactly and so obviously there's a ton of people working on, the problem of returns and there's a lot of you know interesting things that the people are doing above make it less expensive to do returns and diminish people's, interest in return but like early on an e-commerce industry you know everyone encouraged you to buy multiple sizes and send back what you didn't need I think I've sort of Zappos has. You'll be one of the first big retailers to really do that and now they're desperately trying to untrain all those customers to stop doing that. So not so you know that's going to be interesting stuff to watch as more and more of a sales volume shift to e-commerce were going to have to figure out these. Scot: [51:53] I'm not sure how you entertain people out of free shipping and returns so sweet. Jason: [51:59] Yeah I haven't seen it done in general it's very hard to unring a bell. So wrapping up as we're coming up on time here I have a couple upcoming trips that I'm excited about and we'll get to talk more about some of them but I'm actually headed to. Indianapolis and Dallas next week and the one of the reasons I'm excited about dialysis there's a couple stores, that haven't been to yet in the Dallas Market so one of the sources Neighborhood Market that this is one of the physical Marketplace stores. [52:34] Like merchandise a bunch of degenerative Brands and others in a physical space in the, the the store essentially collects rent from all the other brands in the Brand's keep all the the prophet of there or their sales so it's sort of a digital Marketplace. [52:48] In a physical manifestation they're going to be opening a store New York soon but I'm going to get to visit their original Plano store next week. [52:55] And then also in Dallas Sam's Club has a store called Sam's Club now which pair are skin and go conversation Sam's Club now, doesn't have a traditional check out so the only way to get out of the store is to scan and go and ask him super interesting virtual reality feature or augmented reality feature is to let you get better product information and wayfinding and stuff in the store so it's up a store that's totally designed around using your mobile phone while you're in the store so I'm I am, excited to see that and then, a little later in the month on August 20th I'm going to be at Eataly East which is a long-running e-commerce show in Boston and I know you can't join me but, I will be sure to take good notes and do a trip report there and we may be able to put down a couple of interesting interviews from some of the set from some interesting retailers that are attending that show so hopefully more on that and then if any of our our listeners are in Brazil or are familiar with Brazil I'm going to be doing my first trip to Brazil ever at the end of this month and I'm excited that Mercado Libre has invited me to come speak at their customer conference so, looking forward to checking out some of the the Brazilian retail and I'm eating a bunch of the sellers on that platform. Scot: [54:23] Hope you can screw them on marketplaces. Jason: [54:26] I have a feeling they already know a fair amount about marketplaces but I'll certainly try to add my spin but it won't be in Portuguese. Scot: [54:34] Yeah talk slow to the translators and keep up the I learned that the hard way. Jason: [54:40] Well that's that'll be easier because I'm such a slow talker just naturally oh wait nevermind I'm allowed talker that's what I am. Yeah so that is all the news we have for this week I apologize probably little longer than we hoped but that's part of the ramification of us not laying down a new chauffeur for a little longer than usual. Scot: [55:02] And thanks for joining somebody. Jason: [55:05] Yep and as usual of you enjoy the show we sure would appreciate that five star review on iTunes if you do have any questions or comments about any of the news from the show feel free to hit us up on our Facebook page or on Twitter and until next time, happy commercing.