Jason & Scot Show Episode 271 – Amazon Q2 2021 Recap

A weekly podcast with the latest e-commerce news and events. In episode 271 we break down Amazon’s Q2 2021 earnings announcement.

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Jason is back on the road and has some retail store visit reports:

• Bed Bath & Beyond Flagship in Chelsea
• Harry Potter Store New York
• Google New York
• Neighborhood Goods
• Starbucks Reserve New York

Amazon Q2 2021 Earnings Recap

Episode 271 of the Jason & Scot show was recorded on Thursday July 30, 2021.

Transcript

Jason:
[0:24] Welcome to the Jason and Scot show this is episode 271 being recorded on Thursday July 29th 2021,
I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-hosts Scot Wingo.

Scot:
[0:40] Hey Jason and welcome back Jason Scott show listeners,
Jason is one of my favorite days of the year and what’s exciting is it happens four times a year yep you guessed it Amazon earnings
but before we jump into some pretty dramatic earnings this quarter you are coming to us live live live from
New York city so it’s good that you’re out there on the road again and word has it you have some trip reports these are their first trip reports you’ve been able to give our listeners for last 18 months.

Jason:
[1:14] Yeah they like this feels like a little bit of normalcy for me is talking to you from a hotel room like I used to do this all the time and I think the first show in 18 months we recorded from a hotel.

Scot:
[1:28] Nice what’s jump into I know you’ve been on many many store visits let’s what’s what what are you been seeing.

Jason:
[1:35] Yeah it was fun I mostly want to focus on stores that had opened for the first time during the pandemic and surprisingly.
There are several of those in New York City so I’ll start with the one that is closest to my hotel and therefore the first one I went to this morning there’s a new flagship Bed Bath & Beyond store that opened in Chelsea.

[1:59] And ordinarily folks might say why do we care about a Bed Bath & Beyond store that doesn’t sound very interesting and I get it but.
The reason it’s a little interesting to me is because twofold,
they’ve had a major management and Leadership change at Bed Bath & Beyond they the new CEO is a guy Mark Triton we’ve talked about a little bit he was responsible for a lot of the new product development at Target before he joined Bed Bath & Beyond,
and he announced that he was.

[2:31] Doing a dramatic story design and so this Chelsea store is that store and I wanted to check out how he’s changed it from what we traditionally think of as a bit Bath and Beyond and it is.
Pretty substantial change.
Bed Bath & Beyond traditionally is a pretty chaotic treasure hunt so very hard to find your way around people complain that they get lost and can’t find an exit the,
the lines of sight in a Bed Bath & Beyond or horrific so they stack product to the roof so you can’t see very far in any direction in the store.
Um and you know it’s usually a cluttered mess and so this store.
From a visual merchandising standpoint is a much more organized attractive store they it’s dramatically more open it has clear lines of sight it has,
um like a nice wayfinding system in a visual hierarchy you know it doesn’t feel as much like everything’s about to fall on top of you or you do it you when you walk in the store so it.

[3:36] Visually is more impressive and it’s more important it’s a more pleasant environment to stand in.
Um and so I’ll be curious from a pure retail design standpoint I would say it’s way better.

[3:49] It’s pretty off-brand for bed but for what we traditionally have thought of as Bed Bath and Beyond and and because of all those,
those sort of clean cleanliness approaches it actually has a fairly significant SKU rationalization so there’s fewer skus in the store.
And there’s probably some Bed Bath & Beyond loyalists that are like you know looking for some of those old products that they no longer have so I’ll be curious how the,
if they successfully attracts a new Shopper that didn’t used to shop Bed Bath and Beyond and whether alienates any of the traditional Bed Bath & Beyond shoppers.
Part two of that store is that as he did it Target Mark has launched the first.

[4:35] Owned brands for Bed Bath and Beyond and those brands have sort of significant.
Prominence in this new store design so so there’s I individual vignettes for every one of the Bed Bath and Beyond Brands they’re all like,
very prominently signed as exclusive to Bed Bath and Beyond and their well executed with attractive.
Packaging and visual merchandising that makes them easy to recognize and differentiate so.
A bunch of sort of traditional things right that you kind of you know things that are that targets well known for doing well like you’re now seeing and Bed Bath & Beyond,
um a fear is that people could walk in the store and say wait this is starting to feel like a Target store.
Um so we’ll see if how that all plays out but I would say if I had one knock on the store.
It seems like they’ve changed the design team but they haven’t really changed the store operations team and so,
the thing I noticed as well the store was quite well designed and in the product layouts all made sense
the store was still starting to feel a bit like a cluttered mess because of the same employees that used to work at the old store are working in this store and their parking shopping carts full of product that they mean to restock on shelves like out in front of things and blocking things and.
It just it doesn’t seem like they’ve.

[6:00] Um Extended the the new visual merchandising approach to to the Staffing and store operations yet so maybe a work in progress.

Scot:
[6:10] Well how did they decide from the shopping carts Niles big decluttered it you mentioned they have less cues but did they go to kind of more of like a kiosk kind of a much more clear,
kind of Department kind of orientation or how.

Jason:
[6:26] It’s very it’s segmented by department and it may not be a fair representation because well,
this is a huge store so it made it easier to kind of reconfigure things it’s a two-story store so you know you have a home section you have a bedding section you have organization section,
um
And you know there aren’t all these like random nooks and crannies amongst other things I’ll bet you shrink as way better in this store than Bed Bath and Beyond because it’s super easy for shoplifters to hide and a Bed Bath & Beyond.
The end and what they tended to have is like a featured.

[7:06] Product display for every department so you know the there’s a.
Um a sparkling water Cafe sponsored by SodaStream for example.
And you know SodaStream was a fast turn product and in bed bath and beyond that here they have a woman working behind a counter,
pouring samples of Sodastream and they’ve launched all these SodaStream launch this new product at Bed Bath & Beyond all these.
Branded flavors you can add to the water so IQ can get the bubbly branded flavors and so she’s she’s sampling different flavors for people they have a coffee bar where they’re making you know Keurig copies.
Um the other owned products again had their own like featured display where they you know set up a bedroom or a kitchen display that,
was was featuring those Bed Bath & Beyond products one of the Bed Bath and bringing Beyond Brands is about green cleanliness and so they you know they have like a cleaning display and stuff like that.

[8:14] I would also say they leaned into Mobile in the store and qr-codes more than they have in the past so I all of these feature displays had a big QR code you can scan that took you to a.
Sort of a product specific landing page on in their mobile app.
In-store pickup was was much more prominent with like a dedicated area for for Bo piss pickups in the front of the store you could do self checkout with scan and go using the mobile app and there was a lot of.
Merchandising promoting you to download the mobile app and scan things with your your scan QR codes with your phone.

Scot:
[8:54] Very cool indeed I know you love QR codes and I think you love more is digital fact tags any exciting digital fact eggs.

Jason:
[9:01] They did not have any digital fact tags again they are using a lot more QR codes then Bed Bath and Beyond has ever used before and it kind of makes sense because you know,
all the restaurants taught everyone how to use qr-codes.
During the pandemic and side note I’ve been getting a lot of complaints from people that the restaurants are not.
Give going back to paper menus and I’ve certainly noticed that here in New York City is that like things are open up they’re not requiring people wearing a mask but they still don’t have menus and they expect you to order your own food from that app.
Um in a QR code on the table so I wonder if that’s going to be a permanent thing I’ve talked to several people that kind of miss the.
Paper menus and ordering from a waitress.

Scot:
[9:47] Cool what a where’d you go after Triple B.

Jason:
[9:51] So that’s in Chelsea and around the corner from this store is the Wizarding World of Harry Potter,
in this store opened during the pandemic as well about six weeks ago I actually had a chance to visit the store before it open but this is the first time I got to visit it with people in it.
Um
And you know this is a super well done themed store we’ve talked a little bit about it but you know it’s the same.
Sort of team that that did The Wizarding World of Harry Potter theme park experience so it’s.
You know they use they use the actual like tools and dies for props for the movie to make everything they have a.

[10:38] A bunch of cool experiences that there’s a bunch of personalized products you can get your name engraved on a bunch of stuff you know you can get your own admission letter to Hogwarts,
um they have exclusive products like there’s a particular version of the the Juan that golden finch one that you can only get from this store so if you’re a collector of the ones.
There’s some product scarcity they have they have food they have a bar essentially for sailing it’s selling the.
The butterbeer which is from the the movie and is a horrible sweetened alcoholic beverage.
There’s a non-alcoholic version as well they’re in the movies there’s a there’s a magic candy store so they have a magic candy store.
And then in so the merchandising and stuff is really good what’s interesting about this store is,
that you have to get in a virtual line to get in the store so you you scan a QR code on your phone and that reserve your place in line and then you get texted when you’re allowed to come back to the store and go into the store and so I showed up at like.
10:30 scan the qr-code and it said that I was 231 first in line to walk into the store.

[12:02] I had to wait for about 45 minutes so that’s you know two or three Starbucks for me and then I got to go in the store and.
In the store are two virtual reality theme park rides,
and sadly I have not gotten an opportunity to try either of those you buy tickets for those online separately from entering the store and,
the the tickets sold out for the entire window that they’re selling tickets for like the first week that the store opens so so it’ll be a few months before you you can get a ticket and do one of these virtual reality rides.

Scot:
[12:39] So you just there’s no motion the Motions all VR or there’s like a combo your.

Jason:
[12:44] My so I don’t know my understanding is one of them is a is like a sit-in VR so I do think it has motion but it’s like.
It’s not forward motion it’s like the jerkiness I don’t know what the right word for that is but it moves a few inches in every direction is my.
Understanding and you’re looking through a VR headset the other experience you’re walking and you wear like a backpack and a VR headset and I’m people say it’s amazing I’m curious how that works because.
From previous VR experiences you know first time people are not super.
Comfortable in the VR environment and like people tend to like fall and stumble and do all kinds of things so I’m.
I’m not exactly envisioning how this works so I’ll be curious to try it one day.

Scot:
[13:36] Yeah yeah a lot you’ll get nauseous from this viewer thinks do so I’ll have to wonder how toned down it’ll be.

Jason:
[13:43] Yeah yeah and I wonder what what cleaning protocol issues.

Scot:
[13:48] What well since it’s magic that can just flick the wand and they’re good to go did what house did you get sorted into.

Jason:
[13:55] Yeah so I didn’t visit the Sorting Hat I did you know get my picture taken in Hagrid shoes and in the.
It’s quite a bit taller than me I’m about as wide as him but that’s a separate issue,
the the I got my picture taken in the phone booth and I got Steven a griffin door,
Jersey and some unlimited Flavor jelly beans.

Scot:
[14:27] Nice very cool Bertie Botts.

Jason:
[14:31] Yeah exactly.

Scot:
[14:33] So you left their half drunk off butterbeer and where’d you go.

Jason:
[14:39] Exactly so then I went to the Meatpacking District which is just a little south of Chelsea.
And my main destination there was that there is a new Google Store for the first time so Google has had pop-up stores and temporary stores in the past but this is their first,
permanently open store,
and it’s open in what still is a Google office but was formerly the Google headquarters in in New York and so it just took like the ground floor of that and turned it into a retail experience.

Scot:
[15:16] So it’s all the just mostly the Google what do they call it the Google home or Google Talk stuff.

Jason:
[15:22] Yeah it’s so mobile so all the the Androids and pixels it’s Google home so nest and and the.
Google version of Alexa which is I think called Google home and then some some.
Like miscellaneous stuff like there some gaming products and some things like that.

Scot:
[15:47] Cool are they still making Nexus phones haven’t seen those in a long time.

Jason:
[15:52] Yes and I don’t I don’t think Nexus is them their version is called the pixel so the Google pixel is a Google branded Android phone.

Scot:
[16:01] They went from Nexus to pixel urgent.

Jason:
[16:03] Yeah and they might have a tablet that still branded Nexus but I’m not super current on the Google Hardware ecosystem,
I would I would say I was a little underwhelmed by the store like it’s a perfectly reasonably executed store it frankly doesn’t feel any different than their pop-up stores it seems like it has a very consistent,
um
merchandising approach that doesn’t feel like they invent anything new there’s no digital fact eggs there’s no qr-codes there’s very limited product information and it feels more like a showroom than a store so like.
There’s you know one of everything kind of locked down and you have to talk to a person to get help you can’t like.
Pick up your own products and pay for them and I bought a few things from the store and they struggled to take my money like they.
They all have mobile point-of-sale all the sales associates have mobile point-of-sale systems but like.
Didn’t seem like they mostly knew how to work them and this is a story that’s been open for five weeks and none of them were logged into their point-of-sale terminals so they had to like take it out of their belt and go through like a five-minute like authentication process before they could take my money which,
kind of tells you that they’re not doing a high volume of selling stuff out of the store.

Scot:
[17:18] Did you try to pay with Apple pay.

Jason:
[17:20] I did in fact I didn’t try I succeed.

Scot:
[17:23] Whoa really.

Jason:
[17:24] Yeah the in so I literally like looked at and then I might can I pay with Apple pay and then he like looked at me and said you mean NFC payment sure.

[17:39] Yeah so that did work eventually once I found someone that had was logged into their point-of-sale terminal I would say the best part of this store,
was that they had several vignettes in separate little rooms that were kind of great retail theater that was kind of telling the story of a particular genre of Google products so like I said down on a couch.
In a in a little room that’s you know kind of designed to look like a small house.
And they teach you about all the Google Home Products so so they have like a projector that projects text down on the coffee table in front of you and they come up with all these scenarios like in the window,
you see the silhouette of a UPS delivery driver come up and you hear someone knock on the door and then the table says you know teaches you how to use Google home to look at the front door camera.
And so you can see the UPS driver and an approved the package and then,
a woman in the background answer of your cooking lunch and the table teaches you how to use Google home to find a recipe to cook and
you know the table teaches you how to pick some music to listen to and how to turn up the lights and run a good night routine to get ready for bed stuff like that so
it was nice retail theater you know I can only serve one group group at a time and so again it feels like.

[19:00] You know exactly what it is the stores you know mostly focus on sort of being a.
In education showroom for for these Google Technologies more than like a high-volume retail.

Scot:
[19:14] Colts after being quote unquote that guy that had to pay with Apple pay at the Goodwill store where where did you go next.

Jason:
[19:21] I think they were just thrilled I was bad guy that paid for something,
but yeah so then to other stores that are kind of kitty corner from the the Google store that I had been to before but like I really only opened just before the pandemic so I wanted to check them out again while I was there.
The there’s a neighborhood good store so we’ve talked about neighborhoods this is like one of these um d2c department store Concepts where it’s like a shared retail space and Brands rent rent.
Space primarily like DDC Challenger Brands rent space inside of this this department store so there’s a bunch of vignettes in the store we visited one in Texas I think you were with me.
And so this is a the Manhattan one and you know as I’ve discussed before like this it’s reasonably well executed I actually think neighborhood Goods does.
The best job amongst the companies that do this but I’m I’m not super bullish on the concept.
Because it’s the big problem is it’s kind of a chaotic hodgepodge of Assortment like there isn’t a merchant saying customers are coming to our store to solve problem X and so I’m going to have these products that solve that problem,
so it’s kind of a.

[20:42] You have to go to the store you know willing to be completely surprised by what they have in the store right and it might be beauty products it might be a parallel in might be Beach where you know you couldn’t go there with any specific need and have any confidence that,
that there was going to be a product that match that need their but I would say.
Neighborhood Goods feels a little more curated and a little more focused than with a point of view than some of these others.

[21:10] And then I visited the the most important retailer in Manhattan which is the Starbucks Reserve store so,
they’re this is there’s a small Fleet of Starbucks stores that are called the Starbucks Reserve stores they all have working,
Coffee Roasters in them and have you buy the premium beings from any Starbucks anywhere in the world that come in the black bags they’re getting roasted on premises in the stores,
these doors all have like alcohol and unique coffee bars,
in a bunch of drinks that you can’t get in a regular store and they usually have some like third-party restaurants in the stores and their huge extravagant beautiful architecture.
Um stores so the largest coffee shop in the world is a Starbucks Roastery in mine in my city in Chicago the first one of these was in Seattle which is home of Starbucks,
the only other one in the u.s. is this Manhattan one in flat iron which is.
Um well we execution but I would say nothing that I haven’t seen in one of the other.
Starbucks reserves and then there now is like a Starbucks Reserve in Shanghai and a Starbucks Reserve most controversial of all in one of the cities in Italy.

[22:28] And I say controversially because the Italians like their coffee and don’t necessarily appreciate the American coffee brand so it was kind of a bold move on Starbucks part to open this.
Ginormous Coffee Emporium in in Italy.

Scot:
[22:42] Read teach them how real coffee is made.

Jason:
[22:45] Exactly my favorite feature of the Starbucks Reserve stores is I mentioned they wrote their own beans in the store and then they have these fancy coffee bars.
So what they’ve done is they they have a Willy Wonka style vacuum tube or a series of tubes,
so to me it’s a metaphor for the internet that runs from the the Roasterie to the coffee bar and so the you literally like if you’re there when they’re roasting can watch beans.
Flow through these tubes straight from where they’ve been roasted to the bar where they get ground into coffee drinks.
Yeah yeah it’s very very Willy wonka-esque and again the startx folks do a great job of visual merchandising,
this kind of reminds me of the first time I walked into a Nike Town and it was kind of this like.
Temple to the Nike brand and they did all these things that back then were not common like they you know design the door handles of the store to be swooshes and all these cool little touches,
and in many ways this these Starbucks stores feel like the modern successor to that.

Scot:
[23:58] I noticed you didn’t mention one of our favorite stores beta and that made me think about one of the big buzzes before the pandemic was that Hudson yards event is that right yeah is that what’s going on with with those guys.

Jason:
[24:12] Um well so I don’t have super first-hand information Hudson yard is still open a giant floor of Hudson yard was a Neiman Marcus the fanciest Neiman Marcus and that is out of business.
Um I don’t think they have another tenant for that yet but I didn’t go to Hudson yard and this visit it’s actually in this area so it would have been.

[24:34] Possible to walk too but I just didn’t have time and that Hudson yard does have a beta.
You know I think beta struggled a little bit in the pandemic they kind of were optimized to be pandemic unfriendly like most of their stores are in malls like heads in yard that had.
Significant decline in trout in traffic,
and they’re kind of the opposite of Essentials right like so there they have a very curated point of view their Consumer Electronic gadgets but again you wouldn’t go there because you need a Bluetooth headset like you’d go there to find some new.

[25:10] New Gadget that you didn’t know existed that you wanted and I think that kind of shopping you know was particularly impacted by the pandemic like you tended only go to the store when you really needed something so,
um you know I think some of the founders of beta including bib who’s been on our show I think at least once,
we’re kind of public during the pandemic about some of the the challenges they were having trying to take care of their employees and you know stay open and generate Revenue,
and I would say you know one thing that I’ve been a little critical of beta I think they do a bunch of things very well they’ve always been slow to embrace omni-channel in the web so they really focus on the in-store experience and I’ve been kind of critical that they don’t have a,
equivalent online experience and I have a feeling that that that deficiency probably you know was extra painful during the pandemic so hopefully they’re starting to recover now.

Scot:
[26:05] Yeah yeah hope they make it too because this one of my favorite favorite gadgety places to go.

Jason:
[26:09] Yeah I have to be honest because I also I didn’t even mention it because they’re so boring but I bounced into the Flatiron Apple Store,
and it like it dawned on me how fun I used to think it was to walk into a text or or a computer store or even a Best Buy because you would always discover something you didn’t know existed that you wanted.
And that doesn’t happen anymore like there’s there’s very few sores that surprise and Delight you with their product assortment like you know because of the.
The you know all the digital pre-shopping like you’re way more likely to know about all the cool products from from the web before ever before you’d ever you know stumbled across it in the store and in the case of Apple.
There you know rationalizing their inventory to exclusively Apple products so they just have less interesting accessories and you know lesser-known things than they’ve ever had before.

Scot:
[27:06] That sounds like a busy day you’re missed.

Jason:
[27:10] Yeah yeah I’m a little tired and then of course I had to spend about eight hours deep diving into the Amazon earnings.

Scot:
[27:17] Yeah that’s a good set of well thanks for doing those trip reports for so no
enjoy hearing hearing your exploits as you’re out there and hopefully you can keep exploring this Delta variant won’t shut you down so let’s jump into the Amazon quarter.

[27:45] So Amazon released calendar Q2 results and I’d say it was the toughest Amazon quarter and quite a while so,
you know the headline here is in Wall Street vernacular companies put out their own
projections and then Wall Street Khan does their own math and which is called consensus a lot of times based on the history of how the company does Wall Street will either go above kind of what the company says or below it or whatnot
and I would qualify and when you when you exceed wall Street’s expectations that’s called a beat and then when you then Wall Street always looking out it’s a
what have you done for me lately or in the future coming so then they’re always thinking about
you know what’s going on in Q3 and they already have consensus for that so you either beat or miss the current quarter and then raise neutral or lower than forward quarter or the years
Viewpoint and this is this is kind of the the worst scenario here is it was a myth so they missed wall Street’s Revenue expectations
and then they lowered Revenue expectations going forward
so so that’s no good and we’ll dig into what happened there and then the Silver Lining here though is the in this part is really isolated to the
on What’s called the segment called online store which is effectively the e-commerce part of the business which was Amazon obviously is pretty big and important.

[29:13] But they actually exceeded expectations on the high margin parts of the business that everyone really values even
more than when you see the sum of the parts kind of things so things like
the advertising piece we talked about AWS and some of the other the third party Marketplace they actually exceeded expectations on those side so if there’s a silver lining it’s that they kind of
you know the e-commerce year-over-year comparisons were really tough and we’ll go into why but then the other non e-commerce parts of the business did really well
also as a reminder this is the first quarter where Jeff Jesse is taking over to the new CEOs taking over so the timing.

[29:56] Yeah sorry yes I do Andy Andy Jesse is taking her so,
you know the timing is tough for him because he gets to kind of reside over you know what feels like a long time since the company has missed a quarter but in a way,
you know it’s a chance it’s kind of what a lot of Wall Street people are also called kitchen sink quarter so you kind of like if you’re going to have
a little bit of a rough quarter you might as well sweep everything into this quarter lower expectations and that resets the bar hopefully so that you can then start to get back to exceeding that those expectations so a lot of folks were kind of saying
yeah.
Projection didn’t felt pretty aggressively low compared to the quarter so a lot of people were kind of framing it as maybe that’s what’s going on there.

Jason:
[30:44] Yeah it’s interesting I listen to the the webcast.
Where you know reporters and analysts get to call in and ask questions and you know one of the questions was
kind of critical asking like what they what they missed in terms of pandemic trends that that adversely affected in this quarter and
and I don’t remember who the Amazon employee was that answered but he’s like we’ve been
pretty consistently bad at predicting the impact of the pandemic he’s like you know in the in the good quarters we wildly underestimated what would happen and you know this quarter we over it we underestimated the the counter Trends and so you know he’s like.
At least we’ve been consistent in being being wrong.

Scot:
[31:33] Yeah it is hard to predict even now
you know it’s hard to predict what the second half of this year is going to look like right you can you know the data the immediate data is telling you everything is like on fire
in but then you know this Delta variant you know there’s always talk so shutdowns and stuff again so the cone of uncertainty is quite large right now for everybody.

Jason:
[31:55] Yeah and go ahead I was just going to say I had I almost wonder if.
Amazon like is taking a little extra hit for being one of the earlier Q2 earnings calls.
Because I feel like everyone is going to have a kitchen sink quarter it’s going to be super complicated and they’re going to be ups and downs.
You know for a for a lot of retailers and I think you know the analysts are kind of learning about the factors through these first couple earnings calls but you know the,
the Amazon quarter may not look as bad you know once once we get through the whole learning seen each season and see how everyone shook out.

Scot:
[32:35] Yeah I think what we’ll do is we’ll kind of track this through the next couple weeks and and maybe it actually won’t look bad in hindsight but
kind of been one of the first ones to report the only one that I saw that came out earlier was Shopify and they had a
pretty rip-roarin quarter they exceeded that was a beat and exceed so so you know it’s kind of kind of weird of the mix of what’s going on here and,
I can’t hundred percent parse out like why would Shopify do better than Amazon and you know why would smbs do better than big old Amazon so maybe maybe it’s just a comp thing you ever your butt will dig into that for listeners.

Jason:
[33:15] Sad no my hypothesis on Shopify would be that the pandemic taught a lot of small businesses that they needed a website and,
ideally if they were in one of these categories where they were Outsourcing digital to Door – or instacart or you know my web grocer or someone else,
that they started thinking about needing their own website and if they were you know mainly selling through marketplaces and then you know Amazon throttled FBA,
like they suddenly realized they needed their own direct sales and so I do think.
There are a bunch of the pandemic trends that would particularly cause small business this is to invest in their own website for the first time and so that that could have could mean that a bunch of,
customers on boarded onto Shopify which kind of helped Goose their number.

Scot:
[34:08] Yeah they don’t break out new net new.

Jason:
[34:11] No no I wish they did because that again like they had a huge GMB growth but the problem is we never know if that’s because the stores that have been using Shopify for a while doubled in size or because they doubled the amount of stores they host.

Scot:
[34:25] Let’s dig into the Amazon numbers to kind of give the context is kind of one of the early results here and then then we’ll follow up with some more details so overall sales increased 24%
taking out the effect of currency and variations for the quarter 213 billion for the second quarter that is the slowest growth
since 2019 and that’s when I stopped looking back so you know Amazon’s been growing
much much faster than 24% for quite a while here so this was a very slow quarter which is kind of funny because pre-pandemic e-commerce is growing 15% so so it’s all relative I guess but slow for Amazon.

[35:08] Actually above Baseline for normal e-commerce I would say this cause them to miss the consensus so the number they came out with his 113 consensus was 115 and change and then Amazon they did
kind of come within their own guidance but at
kind of the midpoint and whereas for the last six plus quarters they’ve come in at the higher beat their own guidance and then another thing you know if as you think about these moving parts
Q 221 had prime day and last year it was in Q4 of 20 so we should have had the benefit of prime day but then you know obviously,
Q 220 covid-19 at its peak in Amazon was was going to be benefiting from that Surge and all the PPE stuff they were pushing out and Essentials and all that and then obviously we don’t have that this year
so lots of moving Parts going on and then Amazon does peel the onion a little bit with the segments and want you walk us through that.

Jason:
[36:13] Yeah happy to so the big segments that the Amazon discloses are North America international and AWS,
so North America in Q2 of,
20/20 had grown 43 percent.
Tends to be growing a little slower than International it’s the biggest piece of the business I want to say it so I 62 percent of the business,
and so this this Q2 it only grew by 22 percent so the rate of growth substantially slowed down.
Um
The you know a couple of the things we try to zero in on in that are the online sales and the brick-and-mortar sales so the online stores grew by 13 percent which again is,
the slowest rate of growth for North America online stores in at Amazon that I can find in history.

[37:19] So so that that’s a pretty significant deceleration and you know pre-pandemic we used to talk about e-commerce growing about 12% a year,
and Amazon was typically their store their online store sales North American Sales were growing in though I Thirty to forty percent a year so,
um it we won’t know yet the Department of Commerce data on e-commerce won’t come out for Q2 until August,
but it’s very possible that this will be the first time in a very long time that Amazon’s growth in e-commerce was slower than the industry average I’m going to go out on a limb and guess that that’s not going to be true.
The industry average is going to slow down as well but like you know they’re those numbers are flirting with each other and usually Amazon as well above the the industry average.

[38:10] Um and then also interesting and quite complicated is physical stores So Physical stores had a rebound they were up 10% Q2 of this year versus Q2 of last year,
and you know.
Previous quarters had been going down quite a bit so Q2 of last year was down 13 percent from the previous year so.

[38:35] The the thing then think about here is physical stores that Amazon mostly means Whole Foods so that they have about 15 on Hall food stores or maybe 70 now,
but most of the revenue is Whole Food stores and there’s a quirk where when someone buys an online delivery order from Whole Foods.
Amazon online sales gets the credit instead of Whole Foods so so for a long time the stores their number has been declining and and the hypothesis has been that’s because.

[39:10] More people are learning how to shop online and that makes the,
the people that are buying from the cash registers at Whole Foods look smaller and so this was the first quarter in a long time that Whole Foods had a net growth,
which is interesting because that’s grocery is not necessarily one of the categories that you would you know.
Grocery had a huge quarter during the pandemic and so you would you would expect not to see real Healthy Growth in grocery stores this year comping against the pandemic quarter from last year so,
I found that interesting so then the next category is international it was a little more,
robust versus usual it was up 26%.
Which I guess I misspoke because that’s that’s actually a lot slower than usual.

[40:09] So so that also was kind of a downer and then AWS,
um what what Drew quite robust so it was up 37 percent versus for example being up 29% the same quarter last year.
So so the rate of growth of AWS accelerated and you know the funny thing is how this plays out because of these diverse businesses Amazon has and the fact that,
you know a WS and some of the other businesses are so margin favorable when,
you know retail is the biggest piece of their gross sales so so when retailgeek us down there grow sales go down but their profitability goes up basically.
And conversely if retail has a gang Buster quarter likely is going to have a negative impact on their on their margins so.
So you know there’s always happy and unhappy news and in a company as complex’s Amazon these days.

Scot:
[41:07] Yeah the International Center success scanning the results on a psycho 36 percent that’s good but then it was like
X FX was 26 percent so 10 points you know which is a
pretty material chunk of that growth was due to currency so that was interesting the dollar must have been strong a year ago and then quite weak now to have moved ten percent against the basket of currencies they’re measuring against.

Jason:
[41:32] Yeah in the press conference the CFO called out that this is like one of the,
most complicated highest fluctuations of the international currencies and so he was he you know he was trying to exclusively talk about,
the the normalized numbers because he’s like you know this was a very unusual quarter from the currency standpoint.

Scot:
[41:53] Yes I’ve done this having operated.
On the international side it’s super frustrating because you’re like oh man we had a great quarter and then you get the results of the taking out the currency then like knocks like half of the work in there and you’re kind of like that’s not fair I’d have no control over that but it is what it is.

Jason:
[42:12] Indeed and it is part of the cost of doing business on that scale unfortunately so a couple of things kind of Sub sub numbers within those numbers that were interesting.
You know increasingly Amazon makes a lot of money selling services to the third-party Sellers and so the 3rd party seller Services number grew quite robustly that group 34 percent,
that’s a nice high margin business and I think the third-party Sellers as a percentage of total sales hit a new high mark,
422 they were 56 percent of all sales so I that’s the highest number I remember because I want to say was 54% last quarter which was at the time the highest number.

Scot:
[42:57] Yeah that’s interesting it’s been for longest time it was just a fifty percent for years and years and then it seems to be on a bit of a take off right now just which is interesting I wonder if it’s.
Conspiracy theorists would say hmm I wonder if this is a way of further insulating themselves from scrutiny from from any Trust.

Jason:
[43:18] Yeah and then when number that I was curious to get your take on so subscription Services were up for 28%.
And the thing that’s interesting to me about that is I have always assumed that the bulk of subscription Services is prime.
Um and I actually think there’s some data points from outside of the earnings call that point to the.
The growth rate of Prime members slowing substantially for Amazon so I think you know there were a bunch of forecast that that,
you know they may have only added to % Nu Prime members on Prime Day last year which.
You know the there over half of all the households in America are prime numbers so they’re kind of is the law of large numbers kicking in here but you know they used to get.
Very robust double-digit growth in Prime members just from Prime day and it felt like those things are slowing down so I was surprised to see subscription services so high do you have a.
A take on why that might have been.

Scot:
[44:19] Yeah so let’s see so we had to Prime days in the last under a year so we had October and then June,
most people would be in there free window isn’t there free window of prime still we get 30 days free.
Yes I don’t think June would have really moved the number so it must be residual from.
Q4 now that does show up they’ll kind of start in q1 I don’t know that that’s interesting I do I have read reports that there
you know some of the international Prime was kind of slow to take off and they’ve tweaked the offerings in some of the countries like the UK has been popular but other parts of Europe like maybe Italy and Spain has been a little sluggish and then I think they’ve tweaked the offering and then India I think
they’ve been doing a big push there if I recall so so maybe again it’s kind of
it’ll break unfortunately don’t break down that that piece by North American International like the other pieces we can kind of see my bet would be us as slow and maybe a lot of it came from.

Jason:
[45:24] No that’s a great point I wasn’t I wasn’t thinking about that but you’re probably exactly right in a reminder for listeners the prime offering in a lot of other countries is,
significantly different than the North American offering the North American offerings the most robust so there’s a lot of things,
that you get in that North American offering that they’re they you know they’re not doing same-day delivery and every Market they’re not doing Prime Video in all 22 markets where they offer Prime so.
It said that the the offering is more compelling some places than others.

[45:56] Um and then the most important number of all Scott you know the number I always focus on is the super descriptive other Revenue,
and so as a reminder
other Revenue we think in Amazon’s case is mostly their advertising Revenue in this this has been a rapidly growing number of for them every quarter and it was rapidly growing again,
it had 83 percent growth to you know just under eight billion dollars for the quarter I did some quick math and I think my math ended up being slightly different than you so I wonder if I did.
Not trying to see adjusted and you did currency adjusted or something like that,
but I think the Run rate at the last four quarters for other is now 28 billion.
So that they are they are like the clear number three advertising Network in the US and they are they’re rapidly gaining on Google and Facebook.

Scot:
[46:56] I think the trailing 12 would be that number and then I think the Run rate would be about eight times four which would be 32 would be the run right yeah.

Jason:
[47:05] Fair enough yes yeah although I don’t think that’s completely even so yeah.

Scot:
[47:10] Yeah that assumes that they’re going to at least do that as well as they did this quarter 24 now this this is one of the things that would have had a in the quarter bump from Prime day yeah and I
I heard anecdotally you probably have a better kind of quantitative data on this that this Prime day people get like really Knives Out fighting for customers and spinning out a ton on ad dollars as did you hear,
some similar stuff.

Jason:
[47:36] Yeah and I think like every other advertising platform out of the world in the world like that Amazon is getting better and better about optimizing,
the pricing for Prime which means that it is less profitable for the advertisers right because they’re getting as much
as they possibly can so the kind of the the return on ad spend is going down as the revenue to Amazon is is going up,
um and increasingly like there is no visibility for your deals on Prime day like unless you support them with ads.
So in the same way like no one’s going to see your organic content on Facebook if you don’t buy an ad you know nobody is going to see your product listings on on Amazon without add support.

Scot:
[48:26] Yep pretty amazing how fast they made that go from a hey if you want a little bit extra traffic do this now it’s like hey if you want to sell anything you better run some ads.

Jason:
[48:36] Yeah it’s the bane of my existence because every retailer is trying to recreate that you know on a smaller scale and.
It creates all kinds of complications as a brand it’s really hard right now because you’re getting extorted for retail advertising dollars from all these retailers
there are many cases don’t have the reach to justify the money they’re asking for
but in some cases you can’t say no because they’re your wholesale partner is going to kick you out of the store if you don’t give him the money so it’s interesting.

Scot:
[49:06] Of course those were the segments and then so I would say well she was kind of looking at that like kind of a mixed bag you know we wish they had at least meet expectations there but it’s nice that the high-margin things kind of beat our expectations and then the guidance came out and that’s kind of like where it was like a
this is this does not look good so
what happened here is a guided to 106 to a hundred and twelve billion so at the midpoint it’s 109 that is 13 percent year-over-year growth
consensus was at 119 so they’re off by kind of 10 billion there they,
lowered the expectation by 10 billion and then during the Q2 results we didn’t go into it in super detail but the
they missed the Top Line because those high margin businesses exceeded the overall profitability of the business was decent right so it wasn’t wasn’t terrible.

[49:58] But here they’ve now lowered the bottom line to pretty considerably below expectations and then that brings down the whole year so you know I looked after hours the stock was down 8% I think it’ll be a little bit of a bloodbath tomorrow as everyone kind of like real lions towards you know this
well what is it is a
13% grower I don’t think anyone had modeled out 13 percent growth for Amazon this year so so that will be a little bit of a blood bath and a resetting them expectations which I think again
if I’m the new CEO this is might as well go ahead and do it now and
and then hopefully he can kind of like use that Foundation to start beating exceeding expectations but that was that was kind of the ugliest part I think that really
kind of you know everyone’s kind of mix quarter you know hopefully the guidance will be kind of you know not really impacted and it was kind of like a little bit of a shock at the end there about how low they did Diamond Stone.

Jason:
[50:58] Yeah yeah and again Amazon was one of the very first retailers to report their Q2 numbers and so I think it is going to be super interesting to follow the rest of the earnings.
And see where the rest of retail lands.
You know and whether they’re adjusting their guidance for the end of the year because pretty good point that this fear of uncertainty is huge.
And you know nobody knows like are we going to be back in the pandemic behaviors in Q3 and Q4 as variance get worse are,
you know is they’re going to be spending their money on weddings and vacations that you know had been deferred and instead of in retail like how does the.
The you know tweaks in government stimulus and the childcare credits and all those things impact spending like there’s just so many factors.
It’s really complicated and it’s going to be interesting to see how those all net out for the Walmarts and targets and Best Buys of the world.

Scot:
[51:55] Yeah and you know for listeners we’re going to this is kind of one one data point and we’re going to keep track of other retailers as they report and kind of sort through it for you so we can figure out what’s going on in the data and you know here in retail Land by the time
July rolls around and we had in August we’re all thinking about the fourth quarter so what we’re trying to do is
parse these tea leaves and see if we can help you think through any strategies for the fourth quarter so
that’s going to be where we’ll start to lay down some content here in the next several episodes.

Jason:
[52:26] Yeah now a number of listeners asked me to ask you like because Amazon had such a soft quarter it’s presumably going to affect the stock is that going to slow down your plans to buy a ticket on Virgin Galactic at all or.

Scot:
[52:39] I have no desire to go to space so I’m more than happy to watch the billionaires do their thing and you know and I’m glad they’re not spending my tax dollars so I’m all good with what they’re up to.

Jason:
[52:53] Fair enough I think the listeners will be thrilled to know that you’re staying safe.

Scot:
[52:58] Doing my best.

Jason:
[53:01] Awesome well I think that wraps up this this quick take on Amazon earnings as always if this was valuable to you we sure would appreciate that five star review on iTunes.

Scot:
[53:16] Thanks everyone for joining us and…

Jason:
[53:19] Until next time happy Commercing.