A weekly podcast with the latest e-commerce news and events. Episode 149 is a recap about Amazon’s Q3 2018 earnings, as well as industry news.
Happy Birthday, to Jason’s wife, Leila!
Scot Wingo is contributing the Forbes Digital Council, and writing about his new Vehicle 2.0 Framework. Introducing Vehicle 2.0. Jason Goldberg is also contributing to a regular retail column on Forbes, starting with his first article: What Competitors Are Missing About Amazon’s New 4-Star Retail Concept.
Scot is appearing in a national TV spot promoting his alma mater, North Carolina State, “Think and Do!”
Jason is leading several sessions at GroceryShop October 28-31 in Las Vegas, including a keynote interview with Sam’s Club Chief Merchant Ashley Buchanan.
- Amazon’s third-quarter earnings beat Street estimates, but its revenue and fourth-quarter outlook fell short of expectations.
- Revenue: Revenue increased +29% Y/Y (+30% ex-FX) to $56.58B, 1% below the Street’s $57.11B. 29% Revenue growth was below consensus expectations as Int’l revenue disappointed with a ~$1B shortfall.
- North America revenue (ex-AWS and ex-WF) of $30.10B was up 25%, in line with 2Q18 growth. International revenue of $15.55B was up 13% (+15% ex-FX), a notable deceleration from 27% growth in Q2 (+21% ex-FX). AWS revenue of $6.68B was up 46%, down from +49% growth in Q2 but in line with expectations. Physical Stores revenue of $4.25B was slightly ahead of consensus expectations.
- Amazon’s “other” category, aka advertising, jumped 123% to $2.5 billion in revenue
- AWS revenue: $6.68 billion vs. $6.71 billion estimated, according to FactSet
- Net income, meanwhile, grew more than 10-times from the year-ago period, to a record-high $2.8 billion, marking the fourth straight quarter of topping $1 billion in profits. The $3.7 billion in operating income far-exceeded Street estimates of $2.1 billion
- GAAP Operating Income of $3.72B was higher than the Street’s $2.12B. Gross margin of 41.7% came in above the Street’s 40.5%. GAAP Operating Income margin of 6.6% was higher than the Street’s 3.7%. Profitability, once again, was a positive surprise with Op Inc ~$1.5B ahead of consensus expectations,
- Implications of the US pulling out of UPU Treaty
- Implications of Sears bankruptcy
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Episode 149 of the Jason & Scot show was recorded on Thursday, October 25th, 2018.
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.
[0:25] Welcome to the Jason and Scott show this is episode 149 being recorded on Monday October 25th 2018 I’m your host Jason retailgeek Goldberg
and as usual I’m here with your co-host and television spokesmodel Scott Wingo.
[0:46] Hey Jason welcome back Jason Scott show us nurse yeah yeah yeah.
So if you’re at the front should I guess we’ll will preface it’s been a couple weeks but a show out so apologies to everybody we have been just crazy busy and what Jason’s referencing there is
I did a small video for this NC State thing and then end up being in a promotion that they
are nationally a lot of people have seen it so that’s been fun we’ll put a link to it in the show notes so NC state has the motto which is thinking do,
I am and I’m featured in there talking about they can do.
[1:26] And they are airing at like on ESPN during the games.
[1:30] Yeah when the when the college’s nobody watch college football UIC usually during halftime they get two spots that they can kind of do a promotional video about University each University gifts and this is one they’ve been running for.
[1:45] That’s it’s totally awesome I’m just saying it’s my animated screensaver now so just so you know.
[1:50] It’s a little creepy but whatever floats your boat Jason.
[1:56] Not even the weirdest thing about me.
[1:58] Another fun fact is we are both contribute to Forbes you had a really good article where you you went through your Amazon go store the force Star Story.
[2:13] Yeah and you are like some fancier CIO contributor if I’m not mistaken.
[2:21] Yeah if you have the tech Advisory board or some such
and I am writing about vehicle 2.0 which is a framework we’ve developed its if he for thinking about the future of cars which seems like it wouldn’t have anything to do about e-commerce but it’s kind of interesting.
The first of all you have a.
Perspective on how fast or how slow this vehicle stops going to go in and then second of all there are overlaps there so for example
imagine autonomous vehicles delivering packages.
[2:54] Yep for sure and I suspect in the not-too-distant future will be ordering a lot of packages from our vehicles and in many cases getting delivered to our vehicles.
[3:05] Yes sir that’s good and then the in exciting car news so Tesla’s new operating system came out so that that has been fun to play with and a lot of the folks that are in the same demographic issue and I the most exciting part about the parade
this is the Tesla West Nine is they have an Atari simulator in there as one of the new Easter eggs so that you can’t do this while you’re driving so full disclosure there.
Sadly but I guess safely but it is a lot of fun to play on the touch-screen the various old Atari games,
most fun one probably is Missile Command because he was always super frustrating to have to deal with that track ball and you can never get
faster left right it in your little basis would get destroyed so now you can kind of do a two-finger thing and it makes it a lot easier to save your bases file.
[3:57] I am always jealous when you get a new upgrade because I just think that’s the coolest thing that you’re you go to bed and wake up in your car has been upgraded it makes me want to like go out and get a fancy new cup holder or something for my car.
[4:10] Yes you could. You could get a Tesla you should.
[4:14] Yep despite the fact that my wife and I have no commute in the car is almost exclusively used by a three-year-old shirt.
[4:21] Call Anna Jason you got a lot of stuff you can be doing here either this week or next week.
[4:31] Yeah the the these next two weeks are super busy for me on the personal front this is the busiest week of the year for me tonight is my wife’s birthday,
inside of a side-note shout out to you honey happy birthday she most wanted to celebrate it by having me catch up.
With the podcast cuz she knew the listeners were frustrated with the,
the Gap we’ve had and her main request for her birthday is she wants to go to the Star Wars experience in Orlando on a joint vacation with the windows so we’re going to have to.
I think we’re gonna have to find a way to make that happen.
[5:13] Absolutely that is one birthday gift I’ll be happy to help make happen.
[5:17] Exactly and then it’s a crazy fertility week apparently in my family because in addition to my wife’s birthday.
Tomorrow is like my mother’s birthday my mother-in-law’s birthday and my father-in-law’s birthday.
So so we’re doing a lot of birthday celebrations this week and then Sunday I shoot out to grocery shop which is this new trade show in Las Vegas this will be the first year.
Mainly focused on digital disruption of the grocery category.
It’s put on by the same folks that started money 20/20 and Shop talk.
And I think they were hoping to get like a thousand attendees in this first year and they actually sold out capacity of the venue at 2200 people.
So it’s it’s shaping up to be a really good event and I’m dramatically Overexposed at the event so Sunday night I’ll actually be doing the keynote interview with Ashley Buchanan who’s the chief Merchant at Sam’s Club.
So I get to talk to him about digital at Sam’s and we’ll talk about scan and go and some of their partnership with instacart and some of the other things they’re doing hopefully I’ll have some.
Samara tough questions I’m doing a piano on.
[6:36] Brands using product content help build a brand since we got.
Folks from the Boston beer company which is like Sam’s Sam Adams we’ve got Chobani what unit or disrupted the the yogurt space and we’ve got the wonderful company with the almonds and pom wonderful Fiji Water and all that stuff.
And then I’m doing a panel on the evolution of the cpg retail relationship we’ve got constellation Brands which is.
A big house of brands in alcohol space I think has Corona amongst others you have a elf Beauty and then a Fairway Market which is a great bespoke grocery retailer in the New York City area so.
Some topics that are near and dear to my house heart and I’m looking forward to seeing everyone at grocery shop and the.
I do have plan I know you’re not going to go to join us so that always makes me sad but I do think we’re going to get the opportunity to record a couple shows from there with some of the the grocery industry makers.
[7:38] Next year they’re going to Rebrand the sink to Jason talk or something like that cuz it seems like you’re just doing everything there.
[7:45] Yeah I think that was actually there original premise and then they found out like that the only for family members I could possibly get to attend we’re all celebrating their birthday and so they decided to scrap.
[7:56] Expanded to smother people in the loss of that that looks good I look forward to seeing all the social media that comes out of that and and he ran to the interviews any trip reports.
[8:11] I do so,
we’ve talked about Amazon go on the store on the show we did talk after they open the first go store in Chicago they have open to other go stores in Chicago so now we have a.
A fleet of ghost tours and then this week or last Thursday Google opened a pop-up shop shop here in in Chicago for the holidays.
So Google has done pop ups for several years but they’ve always been in New York this is their first year in Chicago so I was eager to see.
What that look like and I I went and visited it this week so I’ll talk about that in just a minute and then.
They have announced their first permanent retail store in the US and that is going to be in Chicago there’s no official date on when that’s opening yet so we’re continuing.
To watch for updates on that but I’ll be interesting to see what a permanent Google Store looks like but the pop-up is really sort of.
[9:12] Very similar to pass Google pop-ups it’s it’s focused on the Google Hardware products so the pixel 3 phone their new home hub which is there a voice assistant that has a screen built-in so it sort of.
Competing with Amazon Alexa show.
[9:32] They you don’t have a a couple cool accessories I’ve never really smart a wireless charger for the pixel phone.
So you know you go to the pop-up they have all the products they had them on launch day.
Which would which is kind of cool as the first place outside of Verizon you can get the pixel 3 phone.
And they set up a couple of fun vignettes to sort of demo the capability so they have sort of a.
A fake record store you can go into and play music using the the Alexa assistance in there that their new high-end audio Fidelity speaker.
You can go into a tree house and do a bunch of home automation stuff so you can you know give commands to Google and you know see the shades in the tree house go up and down or change the lighting in a few different things.
And they have a kitchen vignette and in the kitchen vignette you can have a bunch of Easter eggs you can give commands and it’ll like pop open a drawer with candy in it and some stuff like that so.
Some some fun little vignettes to kind of get you experimenting with a Google product but sorta in typical.
[10:44] Pop-up shop fashion you know it it really felt more like some sort of Museum exhibits where you could go in and try products rather than a working retail store.
[10:57] And you know the it was very sales assisted experience you know there more Google employees in the store then there were customers.
[11:06] You know if if you are specifically looking to get Hands-On a Google product it was great opportunity to do that but I’m not sure as a pure retail store.
[11:15] It was all that that interesting or or Works particularly well and in my mind the big change from previous Google pop-ups was just sort of the.
The visual treatment so in the past they’ve done he’s really kind of techno treatments with a lot of like.
Animated light things and fiber optics and you kind of got a very sort of Tron feel from the the Google pop-ups in this Google pop-up was a much more.
Sort of the Vintage organic feel so you know instead of a house they had a tree house and they they don’t sell these other they should they they’re like merchandising all of the.
The the phones and he’s cool Google tool boxes that they made for the store and so is very white.
Sort of organic store with a fake tree in the middle of it and it was two stories and so if you live in Chicago you’re interested in some Google products totally worth we’re checking it out there are a couple features in the pixel 3 that I’m super jealous up as a.
IPhone user they have dramatically improve new spam telephone spam filters which.
I feel like I’m getting a lot more telephone spam so that seem cool and they have a great new visual search built into the the camera and incredible new will light features for the camera that seem to be class weaving.
[12:40] Awesome I don’t want to.
Get you an agitated but I am ambidextrous and my pixel 3 actually just arrived today and I’m going to crack it open after this podcast so I’ll do it boxing next week and tell you about all the awesome teacher missing.
[12:57] Exciting I I probably will add one of the beat to I think it is going to be fun and if you have already gotten one spot I do suggest you get the the Google pixel.
It’s really smart and clever like unlike traditional wireless chargers it recognizes each individual phone and you can have different settings for each phone it basically turns the phone into
a mini Google home hub when you put the phone on the charger it has a bunch of unique features that
I feel like everyone else should have thought of but give always the first ones to implement.
[13:31] Awesome I didn’t know about that so I appreciate that
cool wall decals caught up on outside and it wouldn’t be a Jason and Scott show without.
Amazon news your margin is there a opportunity.
[13:59] Yes Jason said at the top of the show it’s Thursday October 25th and.
After the market closes today Amazon announced their third quarter earnings and just kind of position awareness if you listen to podcast
setting up for Holiday 18 and
I like good stuff going on in a little while kind of shaky here in the last couple weeks the stock market’s gyrating a bit tariff kind of stuff is accelerating were to talk about some things there later than the show
around China impacts so for me this is a really important set up cuz this is kind of the one the last data points work
it going into holiday 18.
Add a reminder for everybody we tend to think of e-commerce as Baseline going about 15% 1/5 overall retail tubilee grows low-single-digit so 4%
so with that being said Amazon did announce their ornax and it’s kind of a mixed bag so he was a little light and and I’ll go into why but then profitability exceeded expectations so
as of the recording of that show the stock is down a tad and a smoke so.
[15:20] When you peel the onion on on the top line revenue came in at.
30% year-over-year growth is 56 billion and that was about 1% will at the street was looking for so that one person.
Turns out to be about a billion dollars so what’s a billion dollars between friends who was largely on the international side
Amazon doesn’t really give any details about things but reading the tea leaves their you know it feels like there’s
there’s some stuff going on they did annualize some things like suck exertion of some changes they made in India
but then also you know I think a lot of the Wall Street analysts are or feeling like this is
Felix of tariffs and packed so when item is sold from China and us that counts as
it’s where the seller is that that counts is international Judy and Skip Bayless so so that could be Amazon on the little bit of that passes Air Force they’re going on
Ding and revenue little bit more when you look at North America and you take out just when you just get the retail North America that snow cloud computing.
[16:33] Whole Foods is a 25% begin to put this in perspective Amazon overall grew about 30% even that it’s amazing you know huge 800 lb scale
North America grew at 25% and then
International only grew about 15% which is a pretty steep deceleration from last quarter is 27% of us continue to do really well that 46%
and a physical stores came in right at expectations one of the stupidest things we like to talk about on the show is the advertising that continues to grow
triple digits that grew a hundred 23% and is now 2.5 billion dollars and
yeah that that just kind of looking at the trend overtime book with this the show notes so you’ll get you one of 18 at 132%
U2 under 29% you 323% so little bit of a slow down but really just continues to be white hot
that eternity Jason for some other highlights.
[17:42] Yep it’s always hard to talk about a Slowdown in growth when it’s still over 100%.
That’s a first world problem for sure but it’s it was sort of a bifurcated story you I got the,
the revenue was a slight Miss for the quarter but earnings for the quarter were really strong so they were.
2.8 billion for the quarter which is the their highest earnings ever that means that’s four straight quarters that they’ve earned over a billion dollars in profit hopefully that.
[18:20] I was just going to say I hope I hope that finally puts to bed the the silly myths that they’re not profitable.
That is wildin more profitable than they were just a short time ago so that is like 10 x their profit from a year ago
and that earnings was a pretty solid beat on the market expectation so on the one hand you go man they say we miss Revenue but they blew away earnings that should be a great story
but then you know they gave their guidance for Q4 which was a little soft and disappointing to the market
and the ramifications of that is this after hours trading their stock took a meaningful dipso their stock was down 9% tonight,
if that holds tomorrow it is conceivable that Microsoft which had a good earnings report yesterday
well at least briefly pass Amazon is the second most valuable company so I’m not sure that says anything particular negative about Amazon but that’s a pretty impressive run for Microsoft
will get themselves on the mixer.
[19:31] There’s a little bit of overlap so one of the reasons Microsoft doing well is azure which is their competitor to AWS
it seems to be really doing well and and kind of
sticking out of a definite second position and nudging out IBM in Google that were trying to get that that second position by the Amazon seems like seems like it’s
pretty quickly becoming a two-horse race between Microsoft and Amazon.
[19:56] An in general Microsoft is still way behind in Cloud but.
As a result able to grow much more quickly and of course in our category of retail what are the one category where
you know Amazon faces some headwinds and their major retailers that obviously don’t want to use AWS and there’s some big powerful retailers like Wal-Mart they really discourage their vendors from using AWS so
retail is one one particularly lucrative category for Microsoft azure.
[20:26] Yeah on the.
On the marketplace side one of the metrics than Amazon does discloses 2% of orders are units that came from Marketplace sellers last quarter it was 53% and it held steady at 53% again.
Don’t spend picking up about 1% every quarter so stabilize here at 53%.
[20:53] Yeah and then there you know there after their names there’s always the Q&A with a couple of the Business Leaders and,
I’m always looking for tidbits there and one question that that Amazon got asked is about ads on the Alexa platform and I was.
Happy to see there the guy that weaves investor relations for Amazon say that that they have no plans to,
put in the ads on the Alexa platform in the day exclusively want to focus on it being a good customer experience so.
Not shocking but but good to affirm that that they’re not going there.
[21:40] The and then you know kind of following up on the analysis of of the quarter I think you know people are definitely looking at that International softness and you called out like that they laugh their suit.
Acquisition so that that probably had a material impact on International growth and then there’s this big.
Indian holiday it’s right on the cusp of a shopping holiday that’s right on the cusp of Q3 and Q4 so.
Last year it was in Q4 this year it’s in Q3 and so they’re cute their comps.
Mirror over a year are challenge cuz the holiday was in in one year and not the other.
One piece of speculation is another report out there estimating the size of the Prime Membership.
And that they are reporting that that growth in frying is dramatically slowing down which is,
not a huge surprise
you know the Amazon themselves they said they have over a hundred million Prime households and that’s a global number but in North America there’s only like 120 or 240 million households depend on how you count so it
and it has to be getting harder for Amazon acquire more.
Prime households and if it is in fact true that they’re requiring us households than that certainly would have an effect on on future quarters growth so that’s going to be an interesting thing to what.
[23:09] Yeah yeah once you’ve kind of have every household on Prime then it becomes a
saturation game to see the one thing on the fourth-quarter guides that you mentioned is it was a little soft on Revenue but but about
8% off on the prophet side and Amazon’s not being specific about it but one thing they did announce that we haven’t heard on the stove is there
increasing everyone’s wage for warehouse workers to $50 there’s a lot of controversy around this so so this was a reaction to a lot of politics going on Bernie Sanders has been kind of lighting them up these ladies kind of
but I think as an ox we’re kind of silly things where they’ll take Jeff bezos’s net worth in / 365 and don’t say that that’s how much he makes a day or so.
[24:05] Forgets the 20 years where he you know took tons of building Amazon but whatever I do dress and
there is a point there that there is a large disparity between his of the top echelons of Amazon warehouse workers to Amazon straighten that out by
$50 an hour doing so they get rid of stock options and some other things that they don’t like that
I can’t win so that in the lot of people trash come over getting rid of those things so that being said it is a prematurely and talk to
literally hundreds of thousands of employees so a lot of speculation that.
Big head wind on the bottom line going in the fourth quarter is going to be that that wage increase Warehouse her.
[24:52] Yep and I I think they were specifically asked if that it was going to have a material impact and Amazon didn’t comment on
the exact impact of the wage increase but that that wasn’t pretty like from my view a pretty Savvy move
you know there’s been this trend in retail for a while you don’t return a really competing for talent you know unemployment is low so it it’s hard to get people and we’ve seen both Target and Walmart you like dramatically increase there
starting wages in an effort to improve the quality of the workforce and then you know Amazon came in and LeapFrog them in and Amazon is competing for four people at this point to fill those Protomen centers in so that like I’m sure there was some political advantage
in doing that like that you know I do think in a lot of ways it’s the right thing to do I was here for the employees.
[25:48] But it also just is a capitalistic thing to do in terms of making sure that you get the input the workforce that you need in this competitive environment so
be interesting to see even what economic impact it has
but the other question that they got about the financial impact in this going to happen thank you for is
the u.s. postal rate increase that is coming and am I was pretty clear that they did not feel that the
postal increase was going to materially affect them into me this is another one of these sort of funny ironies
[26:28] You know that the president that appears to have some animosity towards Jeff Bezos adopts an issue and then some some which situation gets past like the sales tax
Supreme Court ruling or now this postal rate and
you know that you like him superficially is tweeting that this is going to have some negative impact on Amazon Amazon.
[26:52] Has more ways to deliver packages than everyone else they have more of their own package delivery and so the operations folks and Amazon or like no we’re just going to be smarter about which of our delivery vehicles we use only think we’re going to be able to absorb that rate increase
and of course no other retailer has those levers to pull in so like the
postal rates going up actually is a competitive Advantage for Amazon versus the rest of the market that doesn’t deliver 15% of their own packages like Amazon does.
[27:24] Yeah to that vein couple of tidbits so
there’s a lot of video surfacing of Amazon order to something like 20 to 40,000 Prime delivery dance these are really nice there these Mercedes sprinters
and I don’t know about you in Chicago but in the Research Triangle the Raleigh-Durham area I probably see four or five of those a day right now and it started where they were going to large corporations so
where were there a lot with my stuffy and your folks are reporting to Neo at Cisco and Citrix and MetLife.
All these large employers there seeing the Amazon big ants go there a couple times a day and then now it seems,
large Prime neighborhoods deserve this kind of replicating the FedEx Ground model to FedEx ground
not realize this but the next error is W-2 employees FedEx Ground as a 1099 network of local stores that are given
license to FedEx brand and they operate ground on behalf of their local businesses so,
Amazon your kind of started.
[28:35] This mix of some fulfillment center employees are driving these things and I talked to several of them and the ones I’ve talked to her are full on Amazon employees
but a lot of them also are these 1099s ramazan will set you up in your own little 1099 delivery to you
certain number of packages and effectively a dollar per package so your point pretty fast meeting at Amazon that really wrapping that up.
A couple of other pieces of Amazon news not necessary related to earnings but Amazon did launch a new credit card in partnership with Amex this
I think maybe you last week that was targeted at small businesses and it has some interesting features it’s a no fee Amex or if the first time you can get a free MX
They sort of have variable terms for each purchase that you can select at the time of purchase in Amazon so that so there’s a unique user interface in Amazon for purchases better.
Completed with this credit card and so you can say for example that I want to use my Amazon reward points to pay for this purchase or you can say I’m going to,
pay back this credit card charge in the next 30 days and you get 5% back for doing that or you can select these 90-day terms.
You know take 90 days to pay for the purchase so kind of an interesting tighter integration between Amazon and Amex.
You know what I’m always interested in those kinds of tie-ins because you know payment is such a.
A potential competitive advantage in the e-commerce pay so it’s interesting to see Amazon doing that.
[30:26] I mentioned earlier that we now have 3 ghost tours in Chicago we also had the the first go store open in San Francisco this week so these things are rapidly opening.
Side note kudos to the Amazon real estate team they’ve actually done a phenomenal job of hiding a lot of these stores from the media which is you know.
Carefully carefully watching property managers to figure out where all these stores are and I I know it’s Amazon’s been a pretty good job of surprising us all with some of these openings.
I had an interesting little debate with some folks on Twitter this week.
[31:01] You know as as it seems clear that they’re opening a network of these stores and there is that Bloomberg report that they’re going to have it three thousand of these go stores buy.
Doug Stevens a retail author and and subject matter expert me to tweet saying.
You know that 7-Eleven is now on the clock.
They’re going to get dramatically disrupted by Amazon and they’re really not ready for it and I sort of made a smart alec or reply.
You know while I’ve never would tell anyone not to worry about Amazon I’m not sure that first and foremost Amazon go is likely to affect 7-Eleven I said that.
You know probably print amazed year or hobo pie.
Are at much more risk from the Amazon go store then 7-Eleven is and my contention is the ghost or is really a restaurant.
You know whose main mission is to get you lunch when you only have a half hour lunch break and that it’s it’s not really a competitor to a traditional convenience store in so some folks on Twitter jumped in and we had a we had a good healthy debate about that then.
Obviously the Ender Wintergreen I’m right.
[32:11] Or they got blocked.
[32:14] Yeah alright I just scream them exactly a side-note top three categories at 7-Eleven.
7-Eleven sells a ton of gas which Amazon go stores don’t sell yet 7-Eleven sells a lot of tobacco which Amazon doesn’t sell
at all and then they sell a lot of alcohol which Amazon go only sells in one store in Seattle
so you know where food is in a growing part of 7-Elevens business it’s not even a top 3 category and it’s it’s like 95% of the skews in this this ghost or so that’s why I think Joe is much more of a restaurant than a traditional convenience store.
[32:53] When one last reminder is it’s been a little over a year since it was on announce their hunt for hq2 so Alaska chelation is that we should be hearing about that here in the fourth quarter.
Amazon said it would take about a year now it’s firm you this involves a lot of details and local governments and stuff so I.
Adders reversing a ramp up of speculation around hq2 stuff I’m kind of interested.
You know there’s a lot going on in Chicago not pick on Chicago’s great City.
For all the other stuff they’ve done the kind of event Seattle York and Chicago but now they’re just really pouring it on in Chicago I wonder if that so I could slide indication that maybe Chicago’s kind of pulling into one of the top.
Possible locations for hq2.
[33:50] Yeah it would be interesting with my wife and I were driving around town today and there’s a ton of trains building conda commented like do the the condo developers know something about Amazon that we don’t know.
That. Why do you think Chicago is a interesting market for Amazon and you know it’s a good test Market because it is it does.
I have a broad representative demographic
I personally would be a little surprised if it’s here but that being said I suspect we’re all going to know pretty soon.
[34:28] And then you use it surfaced at nursing little spot between Amazon and eBay.
[34:34] Oh yeah
so you may actually filed a lawsuit against Amazon and it related to Amazon potentially trying to steal top Marketplace Sellers from eBay and the reason I was a lawsuit is
the allegation is that the way Amazon was doing this is they
very systematically infiltrated a private
chat board for these eBay sellers and created a bunch of fake personas and you know what we’re reaching out in Contin privately contacting sellers,
through like a pretty sophisticated alleged hacking of this this site eBay communication platform and
you like it it seems like they have a fair amount of evidence it is true it’s a little surprising to me that there’s someone in Amazon’s position would do,
you know I would certainly presume that wasn’t a corporate directed to do this but that you know someone had enough autonomy
to do this and can put off of that scale it would be interesting so I don’t know what the real story is there but it’s going to be fun to watch the lawsuit play out as a an interested Observer.
[35:55] Cool so that that kind of wraps up our Amazon part of the show and then we had a lot of listeners that were sad that we we took a little break there so apologies for that and then two other topics that it looks really wanting this hit on IR Sears
and then this really big change to the u p u which is squarely in your.
[36:18] Your wheelhouse Jason saw the Sears side there was kind of two buckets of questions we got from listeners one was really you know some folks selling on the Sears Marketplace or are you in this would apply a guest to vendors
yo what what should I do to Sears in her chapter 11 bankruptcy
what percentage of the time companies come out of bankruptcy other times they don’t and when they don’t they’re they leave creditors sitting there kind of holding the bag and a lot of times adders
even a Marketplace seller would be considered under their left holding the bag
and then the other thing so I’ll tackle that one in the other one Jason was over all kind of Redan what’s this really mean for retail
my guidance would be
you know it’s all a risk tolerance question and Anna scale question so if you’re you know if
if you did have a speed bump and you lost you know usually is inside of trailing 30-day payment type cycle
skiers of material enough that you did lose 30 days of that cash because of a bankruptcy if that is you know pretty.
[37:32] Material to your business to be getting packs it out of 10 percentage I would start trimming my sales for selling on Sears and reduced to a tryst September set
yes it was I think that’s the prudent thing from a risk management perspective when a company goes into bankruptcy to start limiting your risk,
now if you’re someone that that is super risk intolerant and
it is going to bother you make me time to phase out that Marketplace because and and see what happens with the chapter 11 you can always come back and it when the risk is diminished so I would kind of you know.
Figure out your risk tolerance a spectrum of hey I go bungee jumping off Bridges as a super sweet.
Each risk for breakfast all the way to I don’t own stocks I keep cash under my mattress and level and then apply that to to your.
Your strategy for selling on Sears and also put it through a filter of materiality is is this more than 10% of your business or not.
[38:38] Yeah that seems like totally Sound Advice I can’t believe you you gave out my mattress strategy online though.
[38:47] Yeah they will talk about inflation some other time.
[38:53] It’s actually.
[38:55] You know every time
one of these is a significant retailer goes under there’s always this question like who’s going to benefit from them going under or what what’s the impact going to be on the rest of retail you know Sears is still like a 10 billion dollar a year retailer in so
that you know it today.
Assuming they don’t emerge from the realreal organization and and retain a significant portion of their.
There are 10 million dollar Revenue run rate a bunch of other retailers are going to benefit.
[39:31] The thing I like to point out is Sears has already donated most of its market share to the rest of the market so you know.
There there was a time when they were 40 billion dollar retailer and they’ve been slowly a roading since 2006 and they probably have donated.
Over a hundred million a billion dollars in in share to other retailers.
Over these last 12 years or so and so you know the the bulk of.
[40:03] The benefit of them going out of business like has already paid off two other retailers.
And you know there’s a lot of analysis that goes in a who’s going to benefit most from these stores closing and you know who has favorable,
merchandising categories that are similar to Sears who has similar geography to Sears to benefit from the.
The specific store closures.
But in general I think if you look at the macro Trends I I sort of have this premise that were really seeing a bifurcation of retail and where were essentially seeing.
A few huge aggregators that focus on selling every product that’s available in doing so at a really low price and super efficiently.
And if that sounds familiar to you in North America and that’s because I just described Amazon.
There would be a good argument that Walmart is also one of those aggregators that that’s going to continue to do well and in the future we might have a duopoly if he’s too big.
Big aggregators and then everyone else is in a really focused on selling curated assortments to specific.
Target audiences and really selling exclusive products that you can’t get from the big aggregators in so those big aggregators are.
In the best position to benefit when.
[41:24] You know someone else that used to win based on assortment and scale goes away so like obviously Amazon Walmart or.
Going to take a significant percent of that share that Sears losses in Sears specific case because of a big portion of the revenue is soft goods at a low price point poles is particularly well positioned to.
To get a nice benefit from the Sears stores going away and because appliances what a big chunk.
Of Sears Revenue Best Buy is also in a position to get.
A nice lift from the the the Sears market share lost so I think those are the retailers.
Will see benefit the most but you know.
At this point we’re not losing the big one of the biggest retailers in America we’re losing eyeshadow up there once was one of the biggest retards in North America so I don’t think this is going to be
a title change in the Retail Landscape by any means I think you know it’s more sad because of.
The history of Sears and what a dominant position they want had and how important they were to the evolution of retail in North America and frankly in many ways how important they were to the actual development of North America.
[42:41] Anderson so you can take off the mattress all the money from of your mattress and put it. It sounds like.
[42:48] That probably would be far from the worst investment I ever made.
[42:53] What will save that story for a future ship so that’s that’s good perspective now tell us about this whole Universal Postal Union treaty and what’s going on.
[43:07] So this is a very little known thing that suddenly is getting a lot of ink so
you know back in 1874 at the treaties burn the world establish this thing called the universal Postal Union later got rolled into the to be sort of a subsidiary of the United Nations and then the idea of this poster 3D was
that every country you would agree to uniform rates for postal delivery so when you’re
in France and you want to mail something to Germany you could know in advance what the cost would be to mail that and the cost ought to be,
the same for mailing between every country and each because that mail requires the,
cooperation of at least two Postal Services the one that picked up the package from you and hands it to that that foreign country and then that terminal country that the country that gets it and has to deliver it.
[44:11] They ate their handling of that package the treaty
agreed on how those two postal entities would share the the rates for that shipment and they agreed that that the international shipments would get equal trip treatment with domestic shipment so if the.
Is the terminating country you know couldn’t for example deliver International Post much slower or less reliably or with West tracking are these kinds of things.
[44:44] And so it sort of made it very easy and possible for 4 people all over the world to mail things to each other and know in advance how how much it was going to cost and have
pretty good confidence that it was going to get delivered and then overtime this treaty added some other useful things they added some standards like a big stamp should be they added electronic data interchange so that the the
Post Oak interchanges could be more efficient and they added some you know things to catch fraud and crime and and share databases and things like that so so we’ve all had benefited for a long time from the Disposable 3D
it’s got a hundred and ninety-three member countries in it now.
[45:26] So if I feel like that’s that’s good for the world it’s super important in a lot of e-commerce.
Pretty good cross-border e-commerce still gets delivered via the post office so there’s a lot of artists that make beautiful art here in the US and they sell it to people in Europe in the primary way they deliver that is.
They mail it via post a post so the one sort of real challenge is,
did there was a clause built into this postal treaty that essentially said developing nations,
would get charged less terminal fees.
And so what that essentially said is more developing poor or countries would not have to pay as much
to have their their post delivered by richer countries and so if you’re in one of these more developed countries
you are obliged to accept packages at a lower cost from a developing country and if you lost money delivering that the way you would have to make up that money is by charging the people in your home Market.
More for postage and like there’s probably a good argument that that.
[46:43] That mechanism for developing countries was probably fair and had some benefits and made it easier for more countries to participate in the treaty, one of those countries that was flagged as a developing country was China.
And the treaty is super slow and it takes a long time to change
like I think there’s not a good argument that China should still be considered a developing economy for purposes of this treaty but but they were and so what that essentially meant is
that a seller in China could sell something on Amazon to it to a buyer in the US and they could very cost-effectively,
male that that good via
post and frankly it was much cheaper to send something from Shanghai to San Francisco then it was to send something from Chicago to San Francisco and ironically that that seller in Chicago selling the San Francisco was
having to pay a higher postal rate to subsidize that cheap delivery from that Chinese seller so treated this really unfair situation where
Chinese sellers had a much lower cost of postal
delivery for cross-border trade then did for example American companies and so a lot of people felt that was unfair and so now the Trump Administration is threatening to pull out of the treaty,
because of that that fundamental unfairness which frankly totally agree is unfair the problem is.
[48:13] If we do in fact pull out of the treaty.
What that also means is that all those sellers in the US that want to ship via post anywhere else in the world can only do it if the United States negotiates a individual treaty with a country you want to ship your goods to sew.
[48:30] That that potentially would mean we need a hundred and ninety-three postal trees that we have to negotiate one and one with each of these countries,
many of those countries we don’t have an ambassador with right now so I guess it would be a big Challenge and so while I think pulling out of the upu fixes this this.
Fairness imbalance with China
it’s going to create a bunch of new headaches for people in the US that do cross-border trade and so what you know frankly the best out come here and what what I think a lot of his hope is the case is Milli by threatening to pull out of the upu we could put.
Pressure on the the governing bodies of the upu to sort of fix this this China Gap
to keep us in the treaty and so hopefully this is just some sabre-rattling it causes them to rethink the developing nation clause and we stay in the treaty but if we do pull out that’ll be you no good news for some people that are competing with China but it’ll be bad news for a bunch of other US base sellers.
[49:32] One of the companies that seems potentially most impacted is wish so
Bocas wishes Marketplace are Chinese sellers Supervalu oriented so they’re not using FedEx or anything like that
they are using the postal system and the wish founder was actually kind of saying to you earlier point about it is kind of ironic that.
By raising the postal rates it actually kind of helps Amazon versus other retailers that this is another interesting kind of example actually oddly benefit Amazon
because you know now there won’t be the goods from wish that you’re competing with
Amazon isn’t the middle sister where they bring products are from China on boats called Dragon Boat so it’ll have to get a lot of their goods they skirt this this
this just don’t understand how that works correctly.
[50:25] Yeah. You’re exactly right and this is again the biggest sellers I actually have more options right and so even
and I don’t know how true this actually is Betty wish claims that hey this isn’t going to be you know to join material to us because we are selling enough stuff from China to the US
that we can be a cost-effective freight forwarder so we can put all those small
packages on our on boats bring containers over here and then dump them in the US Postal System to be delivered domestically and not have international right and because we’re a big seller we have enough volume to aggregate to do that
where as you know smaller sellers wouldn’t wouldn’t have that option so remains to be seen whether which will be able to
follow through on that if we pull out of the upu treaty but like certainly it’s your point Amazon.
[51:16] Already doing that and there was a I think Jason Delray did an interview with the CEO of wish and he had a funny comment like when the
the Diplomat talk about pulling out of the UVU one of the reasons they say it is it’s totally unfair the US Post Office is losing three hundred million dollars on.
On postage as a result of this deal and the wish CEO offered to pay it
and obviously like that’s not the the total cost that’s lost from from this this imbalance but it I thought it was a funny snide remark.
[51:57] Hearing you describe it almost could be an eBay proxy on eBay benefits from a lot of this stuff too so it’ll be interesting to watch that and then in the world that talk a lot about ePacket do you know what that is and if it’s a fact about us.
[52:12] Yep like so that is a specific postal product and it
if I’m remembering right it’s indexed to the upu rates but it’s not actually governed by the upu rate so it would be
possible for us to change the ePacket rates without pulling out of upu but it would require the US Post Office to change
some of their their pricing policies and I think that might require a vote of Congress if I’m if I’m not mistaken so it’s a
a slightly special case but it basically is indexed to the rest of this problem.
I’m so it’s all it’s all going to be interesting to watch like I never thought I would get a chance to talk so much about the nuances of international postage systems.
I think my my father-in-law the stamp collector would really enjoy it.
[53:09] And that’s going to be a great place to wrap it because it’s happen again we’ve used up all our a lot of time as always
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[53:44] Absolutely look forward to hearing from everybody thanks for joining us everyone have a great week.
[53:49] And until next time happy commercing.