WEBVTT - Buy Box Experts Partner on E-Commerce

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Masser on

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<v Speaker 1>Bloomberg Radio. It's indeed Bloomberg Business Week on this Wednesday,

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<v Speaker 1>Carol Masser. My co host on this Wednesday is Paul Sweeney,

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<v Speaker 1>and God, Paul, I kind of forgot. I have actually

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<v Speaker 1>not been doing any kind of shopping on Amazon Prime Day.

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<v Speaker 1>Have you been doing anything? It's day two, right, Yeah,

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<v Speaker 1>I have not. That's there are boxes everywhere around, you know.

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<v Speaker 1>It's I'm not sure Prime Day is as important as

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<v Speaker 1>it used to be. It seems like every day it's

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<v Speaker 1>Prime Day. Yeah, that's I mean, this pandemic has accelerated

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<v Speaker 1>the trend that we've already seen towards e commerce. Well,

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<v Speaker 1>let's breg in our guest James Thompson, because he's partnered

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<v Speaker 1>Bye Box Experts. Say that five times fast Bye Box Experts.

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<v Speaker 1>It's a managed services agency supporting brand selling online. His

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<v Speaker 1>former business head of Amazon's Services, which is the division

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<v Speaker 1>of Amazon responsible for recruiting tens of thousands of sellers

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<v Speaker 1>annually to the Amazon Marketplace. He's also author of The

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<v Speaker 1>Amazon Marketplace Dilemma. And James joins us on the own

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<v Speaker 1>from Seattle. James Nice to have you here on Bloomberg Radio.

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<v Speaker 1>How are you? Thanks for having me, Carol, Thanks for

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<v Speaker 1>having me, Paul. At the busy time, people uh, excluding

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<v Speaker 1>yourselves are buying on on Amazon right now, and they're

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<v Speaker 1>buying in crazy, crazy volumes. Well tell us, yeah, go ahead,

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<v Speaker 1>tell us about that. What you're seeing. Well, I'm fascinated

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<v Speaker 1>with this whole preconceived notion that somehow this is the

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<v Speaker 1>beginning of the holiday shopping season. And the reason, the

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<v Speaker 1>reason a little confounded by this is typically when people

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<v Speaker 1>buy things on Amazon, if they're going to buy them

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<v Speaker 1>for gifts, they send it directly to whoever they're gifting

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<v Speaker 1>it too. And so I ask you, would you be

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<v Speaker 1>buying Christmas presents right now in the middle of October

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<v Speaker 1>and sending it to people two and a half months early.

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<v Speaker 1>You know? The the the application here is people are

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<v Speaker 1>spending money on themselves. They're not spending money on other people.

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<v Speaker 1>At least that's my hypothesis. And they'll be interesting to

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<v Speaker 1>see what happens when we get to end in November,

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<v Speaker 1>when you know, the normal start of the holiday see

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<v Speaker 1>and kicks in. But right now we're seeing people buying

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<v Speaker 1>stuff that they're they're they're enjoying themselves. So I guess

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<v Speaker 1>there's a lot of disposal income out there because the

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<v Speaker 1>sales in the last two days are absolutely through the roof,

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<v Speaker 1>even more than we expected for Prime Day. So, James,

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<v Speaker 1>as we think about this pandemic, it's impact is so

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<v Speaker 1>many facets of so many people's lives, daily lives, and

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<v Speaker 1>one of that is retail. One of those is retail.

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<v Speaker 1>Give us your sense of to kind of how this

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<v Speaker 1>this move towards e commerce is accelerating here during this pandemic.

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<v Speaker 1>If so, and then how permanent you think that might be.

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<v Speaker 1>So obviously, when everyone started quarantining at home that there

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<v Speaker 1>were a few few other options for buying other than

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<v Speaker 1>going online. And one of the interesting aspects of what

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<v Speaker 1>happened in March and April is that a lot of

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<v Speaker 1>people not only moved more dollars online, but they started

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<v Speaker 1>buying products that they had never before gone searching for online.

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<v Speaker 1>So many of us were buying grocery products that we

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<v Speaker 1>were used to win the grocery store and now we're

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<v Speaker 1>stuck having to look online. And if you if you

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<v Speaker 1>did a curb site pickup, or you had groceries delivered

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<v Speaker 1>to you, you know, for some people, that was a

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<v Speaker 1>very good, good experience, and they're saying, gosh, I didn't

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<v Speaker 1>realize my life could be so easy. I should have

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<v Speaker 1>been doing this a long time ago. Likewise, there are

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<v Speaker 1>companies that obviously we're well positioned to sell online, and

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<v Speaker 1>there were lots of retailers that were not well positioned

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<v Speaker 1>at all, and so trying to play catch up and

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<v Speaker 1>build yourself a website, figure out how to get logistics

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<v Speaker 1>in place to deliver packages, that's really hard. And as

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<v Speaker 1>I think about what's going to happen here later in

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<v Speaker 1>Q four, some of the retailers who still won't have

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<v Speaker 1>enough stores open to generate meaningful foot traffic, they're gonna

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<v Speaker 1>have to rely on their their website to drive traffic.

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<v Speaker 1>And quite frankly, it's one thing to sell ten percent

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<v Speaker 1>of your volume through an online site, but what if

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<v Speaker 1>acent of your volume now has to go online and

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<v Speaker 1>you don't have good inventory software and customers are saying,

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<v Speaker 1>do you or don't you have this product? Can you

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<v Speaker 1>get me this product quickly? One of the things that

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<v Speaker 1>we're gonna see, I suspect in the next six or

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<v Speaker 1>seven weeks as we move into mid December, everybody except

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<v Speaker 1>for Amazon is relying on UPS and FedEx and the

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<v Speaker 1>postal service to get packages delivered. Amazon owns last mile

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<v Speaker 1>delivery for two thirds of its own packages, So their

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<v Speaker 1>ability to say to customers, we're comfortable that these products

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<v Speaker 1>are actually gonna arrive on time when you order them

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<v Speaker 1>on December twenty, You're gonna get them by nine o'clock

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<v Speaker 1>at night on December. What about everybody else who relies

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<v Speaker 1>on you UPS and FedEx. It's going to be interesting

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<v Speaker 1>to see how the big carriers are able to support

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<v Speaker 1>this crushing level of demand for online order fulfillment. So

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<v Speaker 1>it's interesting one of the things that James is just

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<v Speaker 1>talking about. You know, can people coming onto the Amazon platform?

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<v Speaker 1>There's everybody, It's so crowded, there's so much availability, there's

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<v Speaker 1>so many different brands competing against in effect Amazon, some

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<v Speaker 1>of some of their brands. How do you how do

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<v Speaker 1>you consultant and explain to your clients what's the best

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<v Speaker 1>way to compete there? At the end of the day,

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<v Speaker 1>that there are some formulaic things that every company selling

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<v Speaker 1>on Amazon needs to do. You need to have the

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<v Speaker 1>very best listings, meaning you've got to have the right

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<v Speaker 1>images you've got to have video. You've gotta have high

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<v Speaker 1>quality content that helps answer customers questions. But that's basic

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<v Speaker 1>black walking and tackling. Unfortunately, lots of companies selling on

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<v Speaker 1>Amazon don't do a particularly good job there. There there

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<v Speaker 1>are questions around how do you make sure you stay

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<v Speaker 1>in stock. Amazon penalizes products that are in stock, out

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<v Speaker 1>of stock, in stock out of stock, So you've got

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<v Speaker 1>to remain in stock and be in a position where

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<v Speaker 1>customers can consistently find your product. And then the big

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<v Speaker 1>catch all here is Amazon says, if your products are

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<v Speaker 1>Prime eligible, we're gonna reward you with better visibility for customers.

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<v Speaker 1>And so, uh, you know Amazon Prime. Some people know

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<v Speaker 1>that as FBA, some people know that as buying your

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<v Speaker 1>Prime membership. But those are the products that are presented

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<v Speaker 1>to consumers first and foremost on Amazon when you go

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<v Speaker 1>looking for products. If I go searching for men's running shoes,

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<v Speaker 1>I'm going to see all the Prime eligible products first

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<v Speaker 1>because I'm a Prime customer and I'm playing in and

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<v Speaker 1>Amazon says I want to show you Prime eligible offers.

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<v Speaker 1>There are too many companies on Amazon today who have said,

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<v Speaker 1>let me dip my toe into selling on Amazon. I'm

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<v Speaker 1>just gonna fulfill a few orders as they come in. Well,

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<v Speaker 1>it's a self fulfilling prophecy. You're irrelevant unless you're prime ilig.

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<v Speaker 1>It's like unbelievable. I've done it myself. I think I've

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<v Speaker 1>even paid a little bit more because i know it's

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<v Speaker 1>prime and I'm going to get it quickly and it's

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<v Speaker 1>going to be easy. It's just pretty fascinating. I gotta

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<v Speaker 1>tell you. I'm listening to you James talk and I'm

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<v Speaker 1>just thinking, where does Amazon go from here? You know,

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<v Speaker 1>where is Amazon in your view? You know, you know

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<v Speaker 1>this company so well, you see their domination. And I

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<v Speaker 1>think that's a fair word to say when it comes

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<v Speaker 1>to retail, where do they go in the next two years,

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<v Speaker 1>the next five years? The reality is Amazon starts by saying,

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<v Speaker 1>how do we do more for customers? How do we

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<v Speaker 1>focus on what customers want? And for twenty five years

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<v Speaker 1>they've been looking at how do we deliver as much

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<v Speaker 1>selection as quickly as possible at low prices. And the

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<v Speaker 1>reality is as you grow your business and it becomes

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<v Speaker 1>five times bigger, fifty times bigger, five hundred times bigger,

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<v Speaker 1>it gets harder and harder for Amazon to do that,

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<v Speaker 1>and yet they continue to step up and do that.

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<v Speaker 1>And this year they've demonstrated that they're not just a marketplace,

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<v Speaker 1>they're a massive logistics powerhouse. I mean they they hired

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<v Speaker 1>a hundred seventy five people in order to do last

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<v Speaker 1>mile delivery of your packages. That they are now at

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<v Speaker 1>a place where they are competing with FedEx and UPS

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<v Speaker 1>day to day for all the most profitable routes. And

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<v Speaker 1>that's that's pretty staring when you can think of Amazon

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<v Speaker 1>as being a shopping destination, but yet they support all

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<v Speaker 1>these other things behind the scenes that consumers don't necessarily see,

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<v Speaker 1>but are critical to keeping the core business of a

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<v Speaker 1>shopping site to keep that running. So it's expensive to

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<v Speaker 1>do that. It's really expensive to do that. It's expensive

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<v Speaker 1>to do that, but it's actually cheaper to do it

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<v Speaker 1>yourself if you do it at a scalable level than

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<v Speaker 1>it is to wait around for UPS and FedEx to

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<v Speaker 1>figure out how to grow fast enough to keep up

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<v Speaker 1>with Amazon. And that's exactly what we saw when Covid

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<v Speaker 1>kicked in in March, is the UPSs and FedEx is

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<v Speaker 1>they can't keep up with the increase in demand that

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<v Speaker 1>Amazon's experiencing and quite frankly, Amazon doesn't have to make

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<v Speaker 1>any money with their fulfillment capabilities. They just have to

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<v Speaker 1>be able to make sure the pipe is there and

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<v Speaker 1>they can push packages through the pipe. And that's one

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<v Speaker 1>of the beautiful things about Amazon. You know, the same

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<v Speaker 1>thing happened when they built out their AWS capability. That

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<v Speaker 1>wasn't meant to be a profitable business. It was meant

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<v Speaker 1>to be back end services that would support huge numbers

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<v Speaker 1>of customers flow flocking to the site. You know on

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<v Speaker 1>Black Friday, we need to have essentially infinite capacity. Amazon said,

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<v Speaker 1>we'll build it ourselves, and then they discovered, oh, we

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<v Speaker 1>can now sell excess capacity to someone else. They're gonna

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<v Speaker 1>do the same thing with logistics. Eventually they're going to

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<v Speaker 1>be in a place here in the next year or

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<v Speaker 1>two to start offering more shipping services to retailers who

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<v Speaker 1>sell packages to people, not just on the Amazon site.

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<v Speaker 1>That that's a nice, tidy business. We know Amazon has

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<v Speaker 1>gotten into the health care business starting with how do

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<v Speaker 1>you build out better, better options for Amazon employees? But

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<v Speaker 1>the reality is if Amazon gets this figured out, that's

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<v Speaker 1>another trillion dollar business where Amazon would say I'd like

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<v Speaker 1>the slice of the bi please. So I see lots

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<v Speaker 1>of opportunity for Amazon, certainly to grow in this country.

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<v Speaker 1>But everything they've done in this country with regards to shopping,

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<v Speaker 1>they're replicating all over the world. They've got over fifteen

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<v Speaker 1>marketplaces now different countries they're moving into where they're saying,

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<v Speaker 1>we could do the same thing and help local consumers

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<v Speaker 1>in these other countries get huge, huge amounts of selection

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<v Speaker 1>at low prices, delivered quickly. I did say domination, didn't

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<v Speaker 1>I say domination? And the legal scholars, you know, the

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<v Speaker 1>anti trestlers, hears part though. So it's interesting you want

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<v Speaker 1>to think and you point out that it's expensive, but

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<v Speaker 1>I'll also point out they've got seventy billion dollars of

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<v Speaker 1>cash on the balance sheet, forty billion dollars of free

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<v Speaker 1>cash flow, so I guess they can afford it, Uh, James.

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<v Speaker 1>One business where they haven't been so successful is the

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<v Speaker 1>grocery business. Is that just a sideshow for them? Or

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<v Speaker 1>do you think that they want to get bigger, better,

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<v Speaker 1>stronger in that retail space. They need to get better.

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<v Speaker 1>And I'll tell you why. If you look at your wallet,

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<v Speaker 1>the share of your wallet that goes towards grocery is

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<v Speaker 1>a sizeable chunk of your spend and it's also one

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<v Speaker 1>of those purchases you make at least once or twice

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<v Speaker 1>a week. You're having to think about where do I

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<v Speaker 1>go to buy my groceries. Amazon's endgame is to be

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<v Speaker 1>top consideration for any type of product you want you want.

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<v Speaker 1>Amazon wants to be in a position where consumers say,

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<v Speaker 1>I need to buy something, let me pick Amazon first

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<v Speaker 1>as my channel, and let's see what they have. If

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<v Speaker 1>Amazon can get enough grocery selection in place available for

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<v Speaker 1>fast delivery, then Amazon will be able to get consumers

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<v Speaker 1>to spend that part of their wallet on Amazon. And

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<v Speaker 1>that's too. Maybe two or three times a week, the

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<v Speaker 1>consumers again are reminded, hey, Amazon is the place I

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<v Speaker 1>need to go to buy everything else as well. So

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<v Speaker 1>at the end of the day, grocery may not be

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<v Speaker 1>a very profitable business for Amazon in and of itself,

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<v Speaker 1>but it's a constant reminder and there's a constant ad

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<v Speaker 1>for consumers to come back to buy everything else. That

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<v Speaker 1>may make Amazon more money. But it is interesting that

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<v Speaker 1>the grocery experience with Amazon is not the whole food's experience.

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<v Speaker 1>If you go into the store and and it's interesting that.

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<v Speaker 1>I mean, I don't know what they want it to be. Um,

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<v Speaker 1>you know, I don't know if you have any thoughts

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<v Speaker 1>on that. James just got about forty seconds here, but

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<v Speaker 1>I am curious what they wanted to be. They probably

0:11:48.480 --> 0:11:52.920
<v Speaker 1>just want people to shop. Amazon is all about experimenting,

0:11:52.960 --> 0:11:55.520
<v Speaker 1>and they're trying to figure out how do they position

0:11:55.600 --> 0:11:58.280
<v Speaker 1>themselves so they can do this effectively. They're never going

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<v Speaker 1>to be Walmart, but they they're opening up different types

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<v Speaker 1>of grocery stores in different parts of the country. They're

0:12:04.080 --> 0:12:06.760
<v Speaker 1>trying things out. It's not that they're necessarily going to

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<v Speaker 1>be the number one player in traditional grocery, but they

0:12:10.080 --> 0:12:13.520
<v Speaker 1>can still make a very sizable business out of trying

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<v Speaker 1>things and offering services to consumers in a way that

0:12:16.679 --> 0:12:20.680
<v Speaker 1>still makes sense financially for Amazon. Yeah, it's interesting. It's

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<v Speaker 1>just but it's about Amazon forever. And I agree with you. Right,

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<v Speaker 1>And we didn't even touch on the cloud, which is

0:12:26.280 --> 0:12:29.080
<v Speaker 1>what most investors are focusing on. Yeah, exactly, well, right,

0:12:29.080 --> 0:12:32.160
<v Speaker 1>because that's such a growth engine for the company. Hey, um, James,

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<v Speaker 1>thank you so much. James Thompson, partner at buy Box

0:12:34.640 --> 0:12:37.559
<v Speaker 1>Experts and former business head of Amazon Services. I mean,

0:12:37.559 --> 0:12:39.680
<v Speaker 1>you make up a good point. I mean, but I

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<v Speaker 1>guess that's what enables them to do that experimentation, Paul,

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<v Speaker 1>with parts of their business that maybe aren't doing as well. Yeah,

0:12:47.000 --> 0:12:49.679
<v Speaker 1>it's amazing. And again, this is a company that invested

0:12:49.840 --> 0:12:52.120
<v Speaker 1>every dollar it had for the first twenty years of

0:12:52.120 --> 0:12:56.080
<v Speaker 1>its life. Uh, and issuing profits in cash flow. Um,

0:12:56.120 --> 0:12:57.959
<v Speaker 1>and this is the payoff. Isn't this the place we

0:12:58.040 --> 0:13:00.360
<v Speaker 1>go to buy books in CDs? Do? Isn't it used

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<v Speaker 1>to do? God, I'm dating myself.