Speaker 1: You're listening to Bloomberg Business Week with Carol Masser on
Speaker 1: Bloomberg Radio. It's indeed Bloomberg Business Week on this Wednesday,
Speaker 1: Carol Masser. My co host on this Wednesday is Paul Sweeney,
Speaker 1: and God, Paul, I kind of forgot. I have actually
Speaker 1: not been doing any kind of shopping on Amazon Prime Day.
Speaker 1: Have you been doing anything? It's day two, right, Yeah,
Speaker 1: I have not. That's there are boxes everywhere around, you know.
Speaker 1: It's I'm not sure Prime Day is as important as
Speaker 1: it used to be. It seems like every day it's
Speaker 1: Prime Day. Yeah, that's I mean, this pandemic has accelerated
Speaker 1: the trend that we've already seen towards e commerce. Well,
Speaker 1: let's breg in our guest James Thompson, because he's partnered
Speaker 1: Bye Box Experts. Say that five times fast Bye Box Experts.
Speaker 1: It's a managed services agency supporting brand selling online. His
Speaker 1: former business head of Amazon's Services, which is the division
Speaker 1: of Amazon responsible for recruiting tens of thousands of sellers
Speaker 1: annually to the Amazon Marketplace. He's also author of The
Speaker 1: Amazon Marketplace Dilemma. And James joins us on the own
Speaker 1: from Seattle. James Nice to have you here on Bloomberg Radio.
Speaker 1: How are you? Thanks for having me, Carol, Thanks for
Speaker 1: having me, Paul. At the busy time, people uh, excluding
Speaker 1: yourselves are buying on on Amazon right now, and they're
Speaker 1: buying in crazy, crazy volumes. Well tell us, yeah, go ahead,
Speaker 1: tell us about that. What you're seeing. Well, I'm fascinated
Speaker 1: with this whole preconceived notion that somehow this is the
Speaker 1: beginning of the holiday shopping season. And the reason, the
Speaker 1: reason a little confounded by this is typically when people
Speaker 1: buy things on Amazon, if they're going to buy them
Speaker 1: for gifts, they send it directly to whoever they're gifting
Speaker 1: it too. And so I ask you, would you be
Speaker 1: buying Christmas presents right now in the middle of October
Speaker 1: and sending it to people two and a half months early.
Speaker 1: You know? The the the application here is people are
Speaker 1: spending money on themselves. They're not spending money on other people.
Speaker 1: At least that's my hypothesis. And they'll be interesting to
Speaker 1: see what happens when we get to end in November,
Speaker 1: when you know, the normal start of the holiday see
Speaker 1: and kicks in. But right now we're seeing people buying
Speaker 1: stuff that they're they're they're enjoying themselves. So I guess
Speaker 1: there's a lot of disposal income out there because the
Speaker 1: sales in the last two days are absolutely through the roof,
Speaker 1: even more than we expected for Prime Day. So, James,
Speaker 1: as we think about this pandemic, it's impact is so
Speaker 1: many facets of so many people's lives, daily lives, and
Speaker 1: one of that is retail. One of those is retail.
Speaker 1: Give us your sense of to kind of how this
Speaker 1: this move towards e commerce is accelerating here during this pandemic.
Speaker 1: If so, and then how permanent you think that might be.
Speaker 1: So obviously, when everyone started quarantining at home that there
Speaker 1: were a few few other options for buying other than
Speaker 1: going online. And one of the interesting aspects of what
Speaker 1: happened in March and April is that a lot of
Speaker 1: people not only moved more dollars online, but they started
Speaker 1: buying products that they had never before gone searching for online.
Speaker 1: So many of us were buying grocery products that we
Speaker 1: were used to win the grocery store and now we're
Speaker 1: stuck having to look online. And if you if you
Speaker 1: did a curb site pickup, or you had groceries delivered
Speaker 1: to you, you know, for some people, that was a
Speaker 1: very good, good experience, and they're saying, gosh, I didn't
Speaker 1: realize my life could be so easy. I should have
Speaker 1: been doing this a long time ago. Likewise, there are
Speaker 1: companies that obviously we're well positioned to sell online, and
Speaker 1: there were lots of retailers that were not well positioned
Speaker 1: at all, and so trying to play catch up and
Speaker 1: build yourself a website, figure out how to get logistics
Speaker 1: in place to deliver packages, that's really hard. And as
Speaker 1: I think about what's going to happen here later in
Speaker 1: Q four, some of the retailers who still won't have
Speaker 1: enough stores open to generate meaningful foot traffic, they're gonna
Speaker 1: have to rely on their their website to drive traffic.
Speaker 1: And quite frankly, it's one thing to sell ten percent
Speaker 1: of your volume through an online site, but what if
Speaker 1: acent of your volume now has to go online and
Speaker 1: you don't have good inventory software and customers are saying,
Speaker 1: do you or don't you have this product? Can you
Speaker 1: get me this product quickly? One of the things that
Speaker 1: we're gonna see, I suspect in the next six or
Speaker 1: seven weeks as we move into mid December, everybody except
Speaker 1: for Amazon is relying on UPS and FedEx and the
Speaker 1: postal service to get packages delivered. Amazon owns last mile
Speaker 1: delivery for two thirds of its own packages, So their
Speaker 1: ability to say to customers, we're comfortable that these products
Speaker 1: are actually gonna arrive on time when you order them
Speaker 1: on December twenty, You're gonna get them by nine o'clock
Speaker 1: at night on December. What about everybody else who relies
Speaker 1: on you UPS and FedEx. It's going to be interesting
Speaker 1: to see how the big carriers are able to support
Speaker 1: this crushing level of demand for online order fulfillment. So
Speaker 1: it's interesting one of the things that James is just
Speaker 1: talking about. You know, can people coming onto the Amazon platform?
Speaker 1: There's everybody, It's so crowded, there's so much availability, there's
Speaker 1: so many different brands competing against in effect Amazon, some
Speaker 1: of some of their brands. How do you how do
Speaker 1: you consultant and explain to your clients what's the best
Speaker 1: way to compete there? At the end of the day,
Speaker 1: that there are some formulaic things that every company selling
Speaker 1: on Amazon needs to do. You need to have the
Speaker 1: very best listings, meaning you've got to have the right
Speaker 1: images you've got to have video. You've gotta have high
Speaker 1: quality content that helps answer customers questions. But that's basic
Speaker 1: black walking and tackling. Unfortunately, lots of companies selling on
Speaker 1: Amazon don't do a particularly good job there. There there
Speaker 1: are questions around how do you make sure you stay
Speaker 1: in stock. Amazon penalizes products that are in stock, out
Speaker 1: of stock, in stock out of stock, So you've got
Speaker 1: to remain in stock and be in a position where
Speaker 1: customers can consistently find your product. And then the big
Speaker 1: catch all here is Amazon says, if your products are
Speaker 1: Prime eligible, we're gonna reward you with better visibility for customers.
Speaker 1: And so, uh, you know Amazon Prime. Some people know
Speaker 1: that as FBA, some people know that as buying your
Speaker 1: Prime membership. But those are the products that are presented
Speaker 1: to consumers first and foremost on Amazon when you go
Speaker 1: looking for products. If I go searching for men's running shoes,
Speaker 1: I'm going to see all the Prime eligible products first
Speaker 1: because I'm a Prime customer and I'm playing in and
Speaker 1: Amazon says I want to show you Prime eligible offers.
Speaker 1: There are too many companies on Amazon today who have said,
Speaker 1: let me dip my toe into selling on Amazon. I'm
Speaker 1: just gonna fulfill a few orders as they come in. Well,
Speaker 1: it's a self fulfilling prophecy. You're irrelevant unless you're prime ilig.
Speaker 1: It's like unbelievable. I've done it myself. I think I've
Speaker 1: even paid a little bit more because i know it's
Speaker 1: prime and I'm going to get it quickly and it's
Speaker 1: going to be easy. It's just pretty fascinating. I gotta
Speaker 1: tell you. I'm listening to you James talk and I'm
Speaker 1: just thinking, where does Amazon go from here? You know,
Speaker 1: where is Amazon in your view? You know, you know
Speaker 1: this company so well, you see their domination. And I
Speaker 1: think that's a fair word to say when it comes
Speaker 1: to retail, where do they go in the next two years,
Speaker 1: the next five years? The reality is Amazon starts by saying,
Speaker 1: how do we do more for customers? How do we
Speaker 1: focus on what customers want? And for twenty five years
Speaker 1: they've been looking at how do we deliver as much
Speaker 1: selection as quickly as possible at low prices. And the
Speaker 1: reality is as you grow your business and it becomes
Speaker 1: five times bigger, fifty times bigger, five hundred times bigger,
Speaker 1: it gets harder and harder for Amazon to do that,
Speaker 1: and yet they continue to step up and do that.
Speaker 1: And this year they've demonstrated that they're not just a marketplace,
Speaker 1: they're a massive logistics powerhouse. I mean they they hired
Speaker 1: a hundred seventy five people in order to do last
Speaker 1: mile delivery of your packages. That they are now at
Speaker 1: a place where they are competing with FedEx and UPS
Speaker 1: day to day for all the most profitable routes. And
Speaker 1: that's that's pretty staring when you can think of Amazon
Speaker 1: as being a shopping destination, but yet they support all
Speaker 1: these other things behind the scenes that consumers don't necessarily see,
Speaker 1: but are critical to keeping the core business of a
Speaker 1: shopping site to keep that running. So it's expensive to
Speaker 1: do that. It's really expensive to do that. It's expensive
Speaker 1: to do that, but it's actually cheaper to do it
Speaker 1: yourself if you do it at a scalable level than
Speaker 1: it is to wait around for UPS and FedEx to
Speaker 1: figure out how to grow fast enough to keep up
Speaker 1: with Amazon. And that's exactly what we saw when Covid
Speaker 1: kicked in in March, is the UPSs and FedEx is
Speaker 1: they can't keep up with the increase in demand that
Speaker 1: Amazon's experiencing and quite frankly, Amazon doesn't have to make
Speaker 1: any money with their fulfillment capabilities. They just have to
Speaker 1: be able to make sure the pipe is there and
Speaker 1: they can push packages through the pipe. And that's one
Speaker 1: of the beautiful things about Amazon. You know, the same
Speaker 1: thing happened when they built out their AWS capability. That
Speaker 1: wasn't meant to be a profitable business. It was meant
Speaker 1: to be back end services that would support huge numbers
Speaker 1: of customers flow flocking to the site. You know on
Speaker 1: Black Friday, we need to have essentially infinite capacity. Amazon said,
Speaker 1: we'll build it ourselves, and then they discovered, oh, we
Speaker 1: can now sell excess capacity to someone else. They're gonna
Speaker 1: do the same thing with logistics. Eventually they're going to
Speaker 1: be in a place here in the next year or
Speaker 1: two to start offering more shipping services to retailers who
Speaker 1: sell packages to people, not just on the Amazon site.
Speaker 1: That that's a nice, tidy business. We know Amazon has
Speaker 1: gotten into the health care business starting with how do
Speaker 1: you build out better, better options for Amazon employees? But
Speaker 1: the reality is if Amazon gets this figured out, that's
Speaker 1: another trillion dollar business where Amazon would say I'd like
Speaker 1: the slice of the bi please. So I see lots
Speaker 1: of opportunity for Amazon, certainly to grow in this country.
Speaker 1: But everything they've done in this country with regards to shopping,
Speaker 1: they're replicating all over the world. They've got over fifteen
Speaker 1: marketplaces now different countries they're moving into where they're saying,
Speaker 1: we could do the same thing and help local consumers
Speaker 1: in these other countries get huge, huge amounts of selection
Speaker 1: at low prices, delivered quickly. I did say domination, didn't
Speaker 1: I say domination? And the legal scholars, you know, the
Speaker 1: anti trestlers, hears part though. So it's interesting you want
Speaker 1: to think and you point out that it's expensive, but
Speaker 1: I'll also point out they've got seventy billion dollars of
Speaker 1: cash on the balance sheet, forty billion dollars of free
Speaker 1: cash flow, so I guess they can afford it, Uh, James.
Speaker 1: One business where they haven't been so successful is the
Speaker 1: grocery business. Is that just a sideshow for them? Or
Speaker 1: do you think that they want to get bigger, better,
Speaker 1: stronger in that retail space. They need to get better.
Speaker 1: And I'll tell you why. If you look at your wallet,
Speaker 1: the share of your wallet that goes towards grocery is
Speaker 1: a sizeable chunk of your spend and it's also one
Speaker 1: of those purchases you make at least once or twice
Speaker 1: a week. You're having to think about where do I
Speaker 1: go to buy my groceries. Amazon's endgame is to be
Speaker 1: top consideration for any type of product you want you want.
Speaker 1: Amazon wants to be in a position where consumers say,
Speaker 1: I need to buy something, let me pick Amazon first
Speaker 1: as my channel, and let's see what they have. If
Speaker 1: Amazon can get enough grocery selection in place available for
Speaker 1: fast delivery, then Amazon will be able to get consumers
Speaker 1: to spend that part of their wallet on Amazon. And
Speaker 1: that's too. Maybe two or three times a week, the
Speaker 1: consumers again are reminded, hey, Amazon is the place I
Speaker 1: need to go to buy everything else as well. So
Speaker 1: at the end of the day, grocery may not be
Speaker 1: a very profitable business for Amazon in and of itself,
Speaker 1: but it's a constant reminder and there's a constant ad
Speaker 1: for consumers to come back to buy everything else. That
Speaker 1: may make Amazon more money. But it is interesting that
Speaker 1: the grocery experience with Amazon is not the whole food's experience.
Speaker 1: If you go into the store and and it's interesting that.
Speaker 1: I mean, I don't know what they want it to be. Um,
Speaker 1: you know, I don't know if you have any thoughts
Speaker 1: on that. James just got about forty seconds here, but
Speaker 1: I am curious what they wanted to be. They probably
Speaker 1: just want people to shop. Amazon is all about experimenting,
Speaker 1: and they're trying to figure out how do they position
Speaker 1: themselves so they can do this effectively. They're never going
Speaker 1: to be Walmart, but they they're opening up different types
Speaker 1: of grocery stores in different parts of the country. They're
Speaker 1: trying things out. It's not that they're necessarily going to
Speaker 1: be the number one player in traditional grocery, but they
Speaker 1: can still make a very sizable business out of trying
Speaker 1: things and offering services to consumers in a way that
Speaker 1: still makes sense financially for Amazon. Yeah, it's interesting. It's
Speaker 1: just but it's about Amazon forever. And I agree with you. Right,
Speaker 1: And we didn't even touch on the cloud, which is
Speaker 1: what most investors are focusing on. Yeah, exactly, well, right,
Speaker 1: because that's such a growth engine for the company. Hey, um, James,
Speaker 1: thank you so much. James Thompson, partner at buy Box
Speaker 1: Experts and former business head of Amazon Services. I mean,
Speaker 1: you make up a good point. I mean, but I
Speaker 1: guess that's what enables them to do that experimentation, Paul,
Speaker 1: with parts of their business that maybe aren't doing as well. Yeah,
Speaker 1: it's amazing. And again, this is a company that invested
Speaker 1: every dollar it had for the first twenty years of
Speaker 1: its life. Uh, and issuing profits in cash flow. Um,
Speaker 1: and this is the payoff. Isn't this the place we
Speaker 1: go to buy books in CDs? Do? Isn't it used
Speaker 1: to do? God, I'm dating myself.