Amazon: Frenemy or Enemy?

Art Peck, Gap CEO at the company's annual investor meeting recently said:

“To not be considering Amazon and others would be -- in my view -- delusional. We are always considering all of the opportunities beyond our traditional mix of channels and stores. Amazon is certainly one, and there are others as well.”

The comments resulted in a frenzy of comments from analysts to industry insiders asking whether Gap has lost their mind. So much so that Art had to quickly retract his comments by stating in no way is this an indication of an imminent partnership with Amazon. 

Despite the comments, Peck is right. The impact of Amazon on the retail market, customer expectations and customer service is undeniable. Let's just focus on the Apparel industry in the US, Gap's current top market and consider these facts:

  • Amazon will be the largest apparel retailer by 2017
  • Amazon ranked #1 in customer satisfaction when compared to other internet retailers and retailers
  • Half of US households will be Prime members by 2020
  • 45% of shopping searches begin on Amazon
  • 61% of merchandise sold on Amazon was by 3rd party sellers that can control their price, inventory, marketing and brand aesthetic

Based on the above, why wouldn't you consider working with Amazon and at least listing product as a 3rd party and not selling directly? Without Amazon in your arsenal, your product isn't part of the largest marketplace filled with captive and satisfied customers thoughtlessly pressing one-click buy buttons. Gap's product is already on the site, why not control what's on the site and use it to your advantage. Maybe focus on only selling clearance. Maybe focus on only selling one particular line.

The point is that Amazon allows you to own control of your brand if you so desire. Retailers and brands that realize this and use Amazon as a frenemy will be those that ride the coattails of profitable ecommerce growth in sales and awareness.

Disrupted: My Misadventure in the Start-Up World

Recently finished Disrupted: My Misadventure in the Start-Up World that details Dan Lyons career shift into the world of start-ups as a 53 year old former journalist at HubSpot. An entertaining read and first hand look into the "smoke and mirrors" of some start-ups. There are a number of quotes that highlight the drive for start-ups to push growth in anyway possible and appease hungry VC's, bankers and angel investors:

“There’s an old expression on Wall Street,” Tad tells me. “‘When the ducks quack, feed them.’ Have you heard that? Back in the nineties investors wanted to buy anything with the word dotcom at the end of its name. So that’s what we gave them. Our job isn’t to talk people out of buying. Our job is to make what people want. Our job is to feed the ducks. And right now, the ducks are hungry.”

The book highlights the cultures surrounding start-ups and the endless thirst for "corporate kool-aid":

Perhaps by accident, or perhaps not, tech companies seem to employ techniques similar to those used by cults, the creation of special language being one example.

Lastly, the exploitation of labor created by start-ups using young and hungry millennials to create wealth for the investors:

This is the New Work, but really it is just a new twist on an old story, the one about labor being exploited by capital. The difference is that this time the exploitation is done with a big smiley face. Everything about this new workplace, from the crazy décor to the change-the-world rhetoric to the hero’s journey mythology and the perks that are not really perks—all of these things exist for one reason, which is to drive down the cost of labor so that investors can maximize their return.

The main takeaway is well timed with the current state of investing in start-ups using the "spray and pray" investment approach of taking many bets in hopes of a win. A few noteworthy lessons backed by stories of a career change gone wrong. 

Source: http://www.amazon.com/gp/product/031630608...

Amazon Restaurants Launch Trial

GrubHub investors sent shares tumbling down 8% due to worries of Amazon's restaurant delivery service launch. While the drop was a bit much for Amazon only announcing NYC and Dallas, I would definitely argue that Amazon's service along with UberEATS and Square's Caviar has GrubHub losing sleep. 

So what is the Amazon service like? Pretty straight forward and up, front and center within the Amazon Prime Now app.

Selection

As of this posting, there were roughly 125 restaurants available for my zip code in Midtown West in Manhattan. Restaurants were organized in alphabetical order with filters based on price tiers and type of food. There were no restaurant reviews but each restaurant profile had featured items.

Ordering

Ordering was simple and the app isolates restaurant orders from product orders. Unlike UberEATS and Caviar, the user sets the tip with a suggested $5 on a $20 tab. The user is provided free delivery for orders over $20 but there was a disclaimer within the app that free delivery is available for a limited time.

Delivery

Delivery time was average but difficult to gauge after one try. About 10 minutes after ordering, I received a call from Amazon in Seattle saying the driver is a bit behind but will still make it within the hour. Dropoff was seamless and the courier was courteous. Time from order confirmation to delivery was 55 minutes.

Overall

Overall it was a positive experience and I believe this service continues to add to the Amazon ecosystem and naturally will gain scale as more of America's wallets shift their share to Amazon. Watch out GrubHub, you have now have 3 major competitors who will release new cities by the week.

Images of the order flow:

April Retail Sales

April sales results were unexpectedly rosy. March retail sales were revised from down 0.4% to up 0.3%. This is why you should not believe the headlines calling for doom and gloom. That doom and gloom was predominantly a byproduct of one category: department stores.

Total April retail sales were up 1.3% to March and up 3.0% to April 2015. Total year to date excluding Autos is up 3.0%. A few highlights from April:

  • Building material & garden equipment was up 8.2% and retails the largest percentage gain of 9.6% versus last year for Feb thru Apr
  • Online/non-store retailers accelerated further and posted a 10.2% year over year gain and now showing 8.8% increase for Feb thru Apr versus last year
  • Heath and personal care stores posted the 3rd largest year over year increase for April with a 8.1% gain 
  • Department Stores multi-decade decline continued with a decline of 1.7% year over year and now down 3.6% for the February thru April period
  • The Electronics vacuum of sales to online continues with a decline of 2.0%

The trends for strong Building, Online, health and sport retailers continues. The continued weakness in Electronics and Department Stores with combined weakness in Clothing Stores reiterates why the retailers are posting weak Q1 numbers. 

March Retail Sales can be found here.

February Retail Sales can be found here.

January Retail Sales can be found here.

December Retail Sales can be found here.

Source: http://www.census.gov/retail/marts/www/mar...

Retail Recap: Q1 Comp Sales

The overwhelming majority of retailer Q1 comps are in. Home improvement and discount showed strong gains, department stores struggled and big box was slightly up for the most part. The themes of spending to improve homes, buy big ticket items like cars, purchasing branded merchandise at a discount, and shifting to online players is a reality that is here to stay. 

Department Stores and Off-Price Retailers Comp Sales Growth

The only positive gains thus far of the major department stores is within the off-price space in Marmaxx (Marshall's and TJ Maxx), Ross and Nordstrom Rack. Not all off-price is strong though. Saks Off Fifth posted a negative comp. Unfortunately, the poor Q1 results were coupled with further sales and earnings revisions to the downside. 

*Includes license businesses. Excluding license businesses, comp of -6.1%.

Specialty and Dollar Stores Comp Sales Growth

Q1 comp sales for specialty and dollar stores was a bit mixed. American Eagle continues to flourish as Abercrombie struggles and Aeropostale enters Chapter 11. Best Buy was essentially flat while dollar stores continue to grow market share. On the luxury end, Tiffany saw one of its' worst comp sales numbers this decade.

Big Box and Warehouse Retailers Comp Sales Growth

Home Improvement remains incredibly strong while the big box retailers like Target and Walmart continue to eke out gains whilst heavily investing in ecommerce fulfillment and offsetting minimum wage increases. 

Tipping Continues

Feedback from smaller restaurants on eliminating tips has been mixed. Most of those restaurants are upscale restaurants that pride themselves on fine dining and a top notch level of customer service. But how would eliminating tips work for a casual chain of restaurants? Joe's Crab Shack which has more than 130 restaurants tested the no-tipping policy in 18 restaurants by raising prices and sharing the proceeds with staff. 

Company research had found that 60 percent of the restaurants’ customers disliked the change in tipping, Mr. Merritt said. They wanted to inspire good service with their tips and they didn’t trust management to pass on the money to its employees.

Sometimes perception is reality. Customers enjoy being in the driver's seat and feel they can positively or negatively impact service by owning the power of the tip. 

“The system has to change at some point, but our customers and staff spoke very loudly,” Mr. Merritt said. “And a lot of them voted with their feet.”
The number of customers at the no-tip locations dropped 8 percent to 10 percent on average, he said.

The results were significant enough for Joe's to pull back the number of locations from 18 to 4. Until there is a city wide regulation or a major chain adopting a no-tipping policy, I believe we will continue to be a tipping society. With minimum wages on the rise, the service industry should come out in a better position regardless. 

Source: http://www.nytimes.com/2016/05/13/business...

Programmable Dash Buttons

Just last week, I demo'd why I believe Amazon's Dash buttons are the closest version to one-click ordering in the physical world and provide for "thoughtless commerce." This week, Amazon announced the release of Dash buttons that are programmable:

You can code the button's logic in the cloud to configure button clicks to count or track items, call or alert someone, start or stop something, order services, or even provide feedback. For example, you can click the button to unlock or start a car, open your garage door, call a cab, call your spouse or a customer service representative, track the use of common household chores, medications or products, or remotely control your home appliances.
The button can be used as a remote control for Netflix, a switch for your Philips Hue light bulb, a check-in/check-out device for Airbnb guests, or a way to order your favorite pizza for delivery. You can integrate it with third-party APIs like Twitter, Facebook, Twilio, Slack or even your own company's applications. Connect it to things we haven’t even thought of yet. We can't wait to see what you will build with the AWS IoT Button!

AWS, Echo, IoT via Dash...all bets that further Amazon as a platform and not just a commerce company. 

What are Dash buttons? Watch here.

Wondering what the first Amazon store is like? Watch here.

Source: https://aws.amazon.com/iot/button/

Alibaba > Walmart

Alibaba reported earnings last week highlighting a few points:

  • $485 billion in Gross Merchandise Volume (GMV) making Alibaba larger than Walmart ($482 billion). Walmart got started in 1962, Alibaba got started in 1999.
  • 423 million annual active buyers on platform with 410 mobile monthly active users
  • 24% growth in GMV and 39% growth in revenue
  • Fastest growing business is cloud computing albeit on a much small base

Alibaba's comprehensive service offering led by traditional ecommerce via Tmall to factory/SMBs ecommerce via Taobao fueled by financial services and cloud computing has created unmatched scale in today's rapidly changing retail environment. The internet, mobile and China's scale have led to Alibaba creating a behemoth in just 17 years vs. Walmart's 54 years.

 

 

Source: http://www.alibabagroup.com/en/ir/presenta...

Retail & Digital Disruption: Intrigue, Immediacy and Frictionless

Had the honor of keynoting the HUG Talk Listen Learn Conference in San Antonio, TX earlier this week. The entire talk was centered on who, how and where the world of retail needs to focus on to ride the current wave of change. Topics such as Alibaba, Amazon, mobile, Uber, virtual reality are all a part of the discussion. Video to be posted at a later date, but here is the SlideShare. Enjoy!

Alibaba: The House That Jack Ma Built

Recently finished Alibaba: The House That Jack Ma Built. Enjoyed the book and came away with a better understanding of Jack Ma's vision and personality at the heart of Alibaba. Even more importantly, learned more about the Son/Ma fallout and Alipay split from Alibaba. Book seemed to rush the recent years but left me with a number of staggering stats and learnings listed below. Definitely worth the read for those looking to better understand the Chinese ecommerce market.

  • Now a new model is emerging, one centered on catering to the needs of a middle class expected to grow from 300 million to half a billion people within ten years.
  • “Iron Triangle,” the key underpinning of the company’s dominance today: its strengths in e-commerce, logistics, and finance
  • Just as Google is synonymous with searching online, in China to “tao”7 something is shorthand for searching for a product online
  • For every person in China there are only six square feet of retail space, less than one-quarter the space in the United States.
  • Already more than 40 percent of Chinese consumers buy their groceries online as compared to just 10 percent in the United States.
  • In China, the e-commerce gold rush has stimulated the rise of more than eight thousand private courier firms, of which twenty major companies stand out.
  • By far the most popular online payment tool in China, Alipay handles more than three-quarters of a trillion dollars a year in online transactions, 3 times the volume of PayPal and one-third of the $2.5 trillion global online payments market.
  • Jack Ma on MBAs: "Most MBA graduates are not useful. . . . Unless they come back from their MBA studies and forget what they’ve learned at school, then they will be useful. Because schools teach knowledge, while starting businesses requires wisdom. Wisdom is acquired through experience. Knowledge can be acquired through hard work.”
  • Crucially for Alibaba, SARS convinced millions of people, afraid to go outside, to try shopping online instead.
  • Without WeChat a cell phone in China loses much of its utility. The WeChat app effectively has made the contact book redundant. Most users check the application at least ten times a day.
  • By the end of 2015, JD.com had surpassed Tmall by some estimates to become the leading e-commerce player in Beijing.

 

Source: http://www.amazon.com/gp/product/006241340...

Amazon & High End Fashion

In news quietly released over the weekend, Amazon and Moda Operandi announced a deep partnership. The partnership includes the ability to login using your Amazon account, pay via your Amazon account and even alert Moda sales associates when an Amazon app customer walks into one of their two stores in London or NYC. 

This is significant for a number of reasons:

  • Amazon has been aggressively pursuing high end brands to list on the various Amazon sites to be viewed as more respectable in the fashion world. Moda is known for the highest end of apparel and allows preorders of styles seen on runways across the world.
  • Despite having its' own bookstore in Seattle, Amazon has never linked mobile location to store visits. Using the Amazon app, Moda sales associates will be alerted of Amazon customers and be provided click & collect/buy online pick-up in-store options.
  • This partnership further extends Amazon's fashion offering into the most prestigious fashion brands (Oscar de la Renta, Dolce & Gabbana, Burberry) in the world.
  • Many retailers and brands get caught up in defining Amazon as a competitor yet Amazon fail to realize its' high customer satisfaction rating and grasp of customer journeys starts on their various sites.

With 47% of shopping searches starting on Amazon, I applaud Moda Operandi's effort to tie up with the soon to be largest apparel seller in the world. If done well, partnerships like these are the tip of the iceberg for Amazon within the fashion world.

Source: http://www.seattletimes.com/business/amazo...

Worth A Click: 4/19/16

  • Overstored. And this is just the beginning. Link
  • In the future we will photograph everything and look at nothing. Link
  • Here come the Germans with Lidl and Aldi. Consumers will benefit: Aldi's prices are 24% cheaper than Walmart's and 21% cheaper than Dollar General's, according to a Deutsche Bank price check in northern New Jersey. Aldi's prices are also 10% lower than Save-A-Lot and 22% lower than Kroger's, according to another pricing study in Nashville. Link
  • Ocado's Uphill Battle To Deliver Abroad. Link
  • The Future Of Microsoft Office: Many Apps, Many Interfaces, Many Devices. Link
  • Global PC shipments were down close to 10% in Q1 2016, the lowest since 2007. Link
  • Netflix may allow you to download movies. Things always change when times get rough or competition steps it up. Link
  • CVS uses startup Curbside to launch buy online pick up at curb. Link
  • Visa to speed chip checkout with new software upgrades. Link
  • India is the smartphone market everyone has their eyes set on. Micromax is flooding the market with new handsets. Link

March Retail Sales

March sales marked the third straight month that sales were flat to down. Total retail sales were down 0.3% to February and up 1.7% to March 2015. Compare the year over year to February's 3.1% and you see the big misses within Auto, Building materials and Clothing stores. A few highlights from March:

  • Building material & garden equipment had the largest percentage gain of 10.8% versus last year but down from the 12.1% last month
  • Motor vehicle and parts dealers were up 1.5% versus last year but down from 6.8% last month
  • Clothing stores historically have been putting up 2-3% growth but were only up 0.1% year over year
  • Sporting, non-store (online) remain strong year over year with 6.1% growth
  • Restaurants continue to lengthen their lead on grocery 
  • The Electronics vacuum of sales to online continues with a decline of 2.1%
  • Department Stores multi-decade decline continues with a decline of 6.1% year over year
  • Online retailers continue to post rates above 6% year over year

The trends for strong Sporting, Building and Online retailers continues. The continued weakness in Electronics and Department Stores with combined weakness in Clothing Stores is showing a weak 1st Quarter emerging. If we see further revisions downward, earnings in the coming quarters will likely result in lower than anticipated gross margins as retailers will need to "buy" the quarters through markdowns. 

February Retail Sales can be found here.

January Retail Sales can be found here.

December Retail Sales can be found here.

Source: https://www.census.gov/retail/marts/www/ma...

Teens & Amazon

From a recent Piper Jaffray Companies' 31st semi-annual "Taking Stock With Teens" research survey with 6,500 respondents across 46 U.S. states:

Amazon ranked first among websites, with a  41% “mindshare.” Its closest competitors, Nike and Forever 21, both had a 5% share. In a related finding, the survey found that Amazon Prime adoption, which  has increased across all income brackets in each of the past five surveys, continues to expand and now exists in 51% of households of the teens in the survey. This survey, along with other previous Piper Jaffray consumer surveys, suggests that there are 57-61 million Prime households in the U.S.
Source: http://www.retailingtoday.com/article/stud...

Worth A Click: 4/9/16

  • A.I. Assistants like Siri, Alexa and Cortana are terrifyingly convenient. Link
  • Sears borrows another $500 million to assist in funding transformation. Link
  • Amazon may be violating India's new rules on foregin eCommerce. Link 
  • When a cell phone almost ruins your relationship. Link 
  • The trouble with iPhone's 3D Touch Peek/Pop is there really is no need for it.  Link
  • How Buzzfeed got 800K concurrent live viewers on Facebook to watch an exploding watermelon. Link 
  •  Cars that drive themselves that cost $20k. Link
  • H&M struggles amidst dollar strength and increased comepetition from LOWER priced rivals. Link 

Worth A Click: 4/7/16

Several newsletter and blog readers have requested daily links to sites, articles or thoughts I come across. Therefore I will start a "Worth A Click" post of similar themes to my newsletter: retail, tech and finance. I can't promise this daily and can't promise the amount of content. I won't waste your time if something isn't worth a click and do promise to give you my view. Without further ado, here is the "Worth A Click" for 4/7/16:

  • New Kindle will bring solar charging and extended battery case. Didn't realize the battery was an issue.Link
  • Replacing your laptop with an iPad Pro for 2 weeks. Spolier: Don't. Link
  • Twitter to livestream NFL Thursday games. Always loved the platform but Wall Street fell out of love once growth slowed. Fantastic move to increase relevance and re-engage Wall Street interest. They won't make money off of ads during the game but it may help in the growth department. Link
  • 3-D printed Rembrandt. Link
  • Unbundling continues. Starz is latest network to launch monthly channel at cost of $8.99.
  • Etsy allows you to launch your store outside the Etsy.com site. Link
  • Chat app Kik allows you to launch your own bot. Link
  • Facebook suggesting businesses to chat with within Messenger. Link
  • Target integrates manufacturer coupons within their Cartwheel app. Link
  • Asos closes in China. Alibaba proves to be too much. Link
  • Alibaba is officially larger than Walmart. Link
  • Bots are all the rage almost overnight. Line is latest to release. Link
  • You can now order Taco Bell on Slack via bot. Link
  • Dominos releases its' version of Amazon Dash. One button ordering via app. Link
  • A fleet of trucks just drove itself across Europe. Link
  • WeWork launches livable space service named WeLive. Link

Retail Chart Porn

This past week had an extraordinary number of charts outlining social, digital and media trends disrupting retail.

Chart 1: Millennials don't use Facebook? That's a lie. Facebook destroys all competition in average monthly minutes per visitor and reach:

Chart 2: Despite the Facebook dominance, Snapchat is on the rise and making headway outside of teens:

Chart 3: Google's Chrome browser is about to overtake Microsoft's Internet Explorer:

Despite popular belief social media is a small driver of traffic to sites. Search, direct and affiliate are the top 3:

Chart 4: For the first full year, more clothing was sold online than electronics:

Chart 5: Global shipments of Android, Apple and Windows devices vs everything else:

Chart 6: Digital continues to disrupt physical sales in a number of categories:

Flock to Where the Eyes Are

Reading this interview and quote from one of the cofounders of Stripe reminded me of what retailers often forget regarding apps:

  • Building an app is expensive
  • "Buying" app downloads is expensive
  • Customers are only willing to download a select few
  • Customers only use a select few

This is not to say retailers shouldn't build single purpose apps. Just remember that given the fickle use of apps, flocking to where the eyes already are makes most sense. Brands not using apps and marketplaces that show a multitude of brands won't ever be part of the conversation. When not part of the conversation, sales and awareness suffer. As Stripe Co-Founder Collison says:

Our idea is to let retailers enable buying in the apps consumers already have installed, rather than going on a quest to get consumers to install their single purpose app.
Source: http://adage.com/article/digital/q-a-tech-...