Amazon: Picks & Shovels of Brick & Mortar (Neiman Marcus & Saks)

Disclosure: I previously worked in Strategy for Hudson’s Bay Company and now run a business focused on Amazon.

“The combined company would have about $10 billion in annual sales, the people said. Luxury behemoth LVMH Moët Hennessy Louis Vuitton, which owns Louis Vuitton and dozens of other brands, had sales of about $94 billion last year.

Amazon would take a minority stake in the new company, which will be called Saks Global, and plans to provide it with technology and logistical expertise, the people said. Salesforce is another minority shareholder. Saks already does business with both tech companies, so the transaction would deepen existing partnerships, one of the people said. ”

It hasn’t been a secret that Richard Baker of Hudson’s Bay Company has had his eyes on Neiman Marcus. As the luxury department stores shrink, the focus is on maintaining the A quality stores, building mass against the luxury brand houses whilst consolidating back office operations and taking a bet on the longer term value of the real estate. Including Amazon in the mix has been a rumor that now seems to be true.

Amazon has long sought success in luxury fashion. There has been the launch of Amazon Luxury, the opening of test stores and the acquisition of flash sale sites that sold off-price luxury like MYHABIT. We know Amazon wants to be the toll booth of eCommerce, continue to face FTC pressure and largely struggled with brick & mortar. This type of deal seems to allow Amazon to run the piping, picks & shovels of brick & mortar plus ease the FTC. Quite an interesting deal.

Costco Building Housing

Why not attach housing to your store if it provides ease for approval? Well played Costco.

“The company plans to open a new store in South Los Angeles and has teamed with developers Thrive Living and architects AO to build an 800-unit apartment complex — with 184 units set aside for affordable housing.”

“Cohen speculated that Costco tacked the apartment building idea onto its plans for a large storefront on the property to avoid Los Angeles’ often costly and drawn-out site review process.

He told SFGATE that at least two-thirds of the 185,000-square-foot plan must be allocated toward housing under state law for Costco to enjoy a quicker, cheaper building process.”

Robinhood Looks Compelling $HOOD

Disclosure: I have a small personal position in Robinhood common stock, use the platform for trading and have recently opened their credit card.

One can’t forget the craziness of Gamestop and Robinhood during the pandemic. One can’t forget the “free” trading being paid for by market makers like Citadel that Robinhood was called out for. However, you can’t help but notice what they are doing differently. The recent Gamestop news was a catalyst to check-in on the Robinhood stock. After a review and some use of their newer products including 24 hour trading, I do see a path to market share gains and stock appreciation.

What’s to like?

1. Aggressive push for assets. Robinhood provides a 3% boost on retirement account contributions. Robinhood provides 1% pay out on any deposits that STAY on the platform either via trades or savings. Robinhood provides a 1% boost on any retirement account transfers. Some are paid out immediately, some are paid out in time to ensure the funds remain in the account.

2. Credit card stickiness. The formal launch of the credit card provides a new revenue stream also a stickiness factor to existing traders on the platform. The product is impressive with immediate points redemption pushed to your brokerage account earning 5% in interest or ready for trading. The best part? The card pays 3% on every purchase. The card also offers a 5% cash back when booking travel but I have found the travel portal lackluster.

3. Subscription model. Just over 7% of the funded customers are part of the Gold club. The subscription model isn’t providing significant revenue but does provide a loyalty to the platform. This model can be credited with growing assets under custody and net deposit growth.

Are there concerns? Sure. Has the funded customer count growth been relatively weak? Yes. Can these incentives continue forever? Unlikely. My bet is the incentives for assets can continue for as long as needed to catch enough flies in the trap. And ultimately see significant stock price appreciation.

Lucid vs Tesla

Not an owner of a Lucid nor a shareholder of Lucid but how can you not be intrigued by statements from Peter Rawlinson of Lucid?

“I think that the, the mantle has has passed to Lucid. I think Lucid is now at the cutting edge, huh? I think we are the company with a true sense of mission. This week. I was proud to announce that we’d created a landmark number in the development of the ev, which is gonna have a profound impact upon the planet. And that is achieving five miles of range per kilowatt hour of energy.”

“But for a more affordable family car, it’s over 40%. There is no gasoline engine car equivalent to this imbalance of cost. So what we are doing at Lucid is addressing the cost of the batteries. And we are doing it in an unorthodox way, rather than saying, right, can we make batteries cheaper? Through an economy of scale, we’re actually saying, do we need that many batteries in the first place? Can we go further with higher technology? We’ve reinvented the electric motor. We have reinvented the inverter to go further with less batteries in the first place. And so if you look at our products today, if you look at the Lucid Air Pure, we’re able to do the car that’s in production right now for any journey you take from A to B, whether it’s from home to the office, down the shops on your vacation, you will use less electricity to go from A to B than any other car on the market today, bar none. And because it’s the most efficient and because you’re able to use less electricity, not only will it cost you less as a user, but it means you don’t have to carry such a large battery pack around. And that means better use of the world’s precious resources, less mines for lithium, nickel, cobalt, less dependence geopolitically in this world for the us. And this is of a profound significance. We can go further with less through technology.”

Pay In a ChatGPT World

Freelance jobs are down by as much as 21% and now Upwork is providing a study on impact to pay by job category and level of value (screenshot below). We are years away from understanding the impact to workforces globally yet I still believe those who use AI in their daily tasks are likely to replace those who don’t.

Delivery Premiums of Uber Eats and DoorDash

“Uber Eats’ orders in Seattle fell 45% last quarter from the same period a year earlier after the company imposed a $4.99 fee on each order to cover the city’s new pay requirements.”

“DoorDash said Seattle drivers have to wait between orders three times longer than before. Uber said 30% of its active delivery drivers in the city have quit its app.”

Wages needed increases and the apps needed higher fees to the point of some massive demand drops. There were also drops in demand when the ride hailing apps increased rates and legislation added various fees…but never this dramatic. Would expect these changes to spread to other cities over time and have that same dramatic impact to Uber and DoorDash growth rates.

Pay TV Losing The Battle

“The trend is only accelerating: The first three months of 2024 were the worst the pay-TV business has ever seen, according to analysts at MoffettNathanson. They estimated that the industry lost a record 2.37 million subscribers — a drop of 6.9%.”

The YouTube TV drop is likely due to the NFL season ending but clearly the number of streaming subscription services is taking a toll on Pay TV. As the streaming services earn a greater percentage of the sports rights, we should see this abate yet accelerate for traditional TV providers.

Kohls Understands The Value of Brick & Mortar Foot Traffic

“The department store retailer is partnering with Inmar Post-Purchase Solutions and Narvar to introduce The Return Drop @ Kohl’s, an in-store offering expanding on its existing service that allows shoppers to make packageless and label-free returns from select retailers and brands, most notably Amazon, at its more than 1,100 store locations nationwide. ”

Although Kohl’s continues to post negative store comps each quarter, I can’t help but wonder how much faster the decline would have happened if they didn’t start accepting Amazon returns back in 2019. The industry clearly frowned upon the news of tying up with an “enemy,” I still believe Kohl’s understands the value of just having potential customers walk through the door.

Thankless Service: United States Postal Service

The U.S. Postal Service has been hemorrhaging money for years, due in part to declining mail volumes, limits on what it can charge customers and a costly mandate to deliver to every address. The agency is fighting for a larger share of the package business to turn itself around.

It is overhauling its vast network of sorting centers and truck routes that had long been focused on moving flat letters. The $40 billion plan includes outfitting sorting centers with new equipment, purchasing electric vehicles to replace aging trucks, and consolidating processes and facilities. The efforts haven’t gone smoothly.

It is clear that the USPS on-time delivery rates have declined and improvement is needed. It is also clear that the USPS will always struggle to earn a profit. Lastly, the volume of mail and packages combined is down 45% over the last two decades. However, keep in mind the USPS is required to deliver to EVERY single address in the United States. Keep in mind that the USPS must provide a first class letter delivery for the low price of $0.68 to EVERY single address in the United States. UPS and FedEx have the luxury of not delivering to certain addresses and their lowest price service for an item as small as a letter is >$5. Yes the USPS should seek to improve operations and earn or profit or breakeven. However, being a biased eCommerce operator, we would struggle without the USPS even at these service levels.

What Happened to Ad-Free TV?

Just a few years ago, an episode of a prestige basic cable drama like Ryan Murphy’s “American Crime Story” was interrupted by 21 minutes of commercials. But ads take up far less time on streaming services. For instance, on Disney+, the average amount of time for commercials is four minutes per hour. On Hulu, it’s just over six minutes.

Any way you cut it…it is remarkably better.

UPS vs Amazon Round 2

Disclaimer: We have two UPS Store franchise stores and run 100+ accounts on Amazon as part of the agency Commerce Canal.

One of the more interesting relationships in eCommerce is UPS and Amazon. UPS recognizes Amazon’s dominance of >40% of eCommerce share. Amazon recognizes UPS’ willingness to deliver to addresses that Amazon has yet to have the scale to profitably deliver to. Amazon also realizes that the more than 5,500 UPS Stores (which operate independently from UPS) are perfect for return drop-offs. However, Amazon clearly has the upper hand. Amazon already delivers more packages and accounts for nearly 12% of UPS’ annual revenue.

Amaozn has yet to open dropoff stores that also provide shipping services but it seems that Amazon is now coming after return pickups.

““We’ve been conducting a limited pilot in recent months of having Amazon pick up heavy/bulky returns and other items to provide more return choices for customers,” Amazon spokesperson Branden Baribeau said in a statement. Asked what the pickup test means for Amazon’s relationship with UPS, Baribeau said: “We’re always testing new features like this to provide more choices for our customers. UPS remains a valued business partner.” Baribeau added that customers in the test markets will be able to choose between UPS and Amazon to pick up their returns.”

While this sounds as an offensive move on Amazon’s part, customer return pickups are somewhat infrequent due to the cost of $7.99 per pickup. A pickup does make sense for larger items but the vast majority of returns come via dropoffs to Amazon Lockers, UPS Stores, Staples, Kohls or customers printing labels from home and shipping back directly to Amazon. Now if Amazon were to make those return pickups complementary as part of the customer deliveries, this would become a worry for UPS. However, the logistics make that quite difficult. As the returns are picked up from customers, they would need to be tagged and/or consolidated en route back to Amazon.

Bottom line: I just can’t see how this is a major impact to UPS at this time. If Amazon were to waive the $7.99 fee…it would be another story. I still however marvel at the size of Amazon Logistics in sheer volume which will soon surpass the USPS.

Freight Rate Increases Are Back

Nowhere near the pandemic highs but Baltic Dry Index and Drewry showing a return to highs not seen since November for 40 foot containers worldwide.

Publishers Fear Google Traffic and Ad Declines From Google AI Results

Publishers and advertisers worldwide are slowly waking up to dramatic drops in organic traffic. The launch of AI Overview last week which was first tested via Search Generative Experience (SGE) by some estimates will lead to a drop of 25% or more in organic traffic.

“Raptive, which helps sell digital ads for 5,000 independent creators’ websites, initially estimated AI Overviews could cut visits by as much as 25% and cause the industry to lose $2 billion in annual ad revenue. However, Raptive chief innovation officer Marc McCollum now thinks that is “maybe [on the] very low end.” ”

With nearly 1/3 of all traffic for top 100 publishers coming from Google, publishers will gradually then suddenly experience a dramatic impact.

“For the New York Times — where 32.5% of organic traffic in April came from Google — that adds up to around 250 million visits. However, other U.S. publishers are even more reliant on the search engine. Google accounted for 72% of organic traffic to Forbes and 60% of traffic for the websites of USA Today, Business Insider and Newsweek.”

Whilst other industry experts aren’t fearing the worst, major publishers aren’t waiting around for the impact and have been signing deals to have their content indexed with rival services such Reddit and OpenAI.

““It will have an impact, but I don’t expect it to be as substantial as many fear,” said Kyle Byers, director of growth marketing at Semrush. “It may even have a positive impact on average since AI Overviews link back to source web pages. An improved experience for Google users could also result in more searches being made, which is another way it could lead to increased traffic for publishers and content creators.””

I can already hear the questions and speculation as to why traffic is down in boardrooms across the country over the coming months.

Online Reviews: Present Tense vs. Past Tense

Reviews on product detail pages of eCommerce products are critical. It seems those reviews that are written in present tense for an audience within close distance are most relevant.

““A 50-word review only using verbs in the present tense is about 5.5% more likely to be ‘liked’ than a 50-word review using no present-tense verbs at all,” says David Fang, a doctoral student at Stanford University and one of the paper’s authors. ”

“There was one twist to the authors’ finding. Their results showed that when people read reviews written by people living far away, verb tense matters a lot less. That was the case when the researchers asked a group of U.S. participants to read reviews they said originated in Australia.”

PDD aka Temu EXPLODES $PDD

PDD Holdings $PDD released their earnings yesterday and they were mind blowing. You may remember PDD’s US offering in the form of Temu. How could you miss the 4 separate commercials they ran before/during/after Super Bowl.

Recently Temu has been in the news for scaling back in the US. After reviewing the earnings (largely China based results) and seeing the quotes from the PDD leadership, I don’t believe that to be the case.

“Rather than focusing on short-term results, we prioritize long-term value creation and remain committed to further deepening our
investments in the future.”

Unfortunately PDD doesn’t break out Temu from rest of results but I thought the below quote from the Co-founder and Chairman to be quite interesting.

“Global business is still in a exploration stage, and there’s plenty of room for improvement.”

Apple iOS Attachment

The Apple attachment that comes with their iOS software continues to build new businesses. Just a simple update of the software to provide a new service and boom…captive publishers. The user won’t switch since the ease is there.

“A spokesperson for Time said that Apple News has become “one of our most important partners and delivers 7-figures of revenue for TIME annually,” adding that the publication garnered 5 million unique visitors from Apple News last month.”

“And the impact for a mid-sized news site was immediate, putting the Beast on track to make between $3-4 million in revenue this year from Apple News alone — more than its own standalone subscription program, and without much additional cost.”

Netflix Scale Akin To Facebook/Meta

In the latest Netflix earnings, the company reported nearly 270 million global streaming paid memberships. The ad supported tier grew from 23 million in January to 40 million today. Though nowhere near the scale of Meta who now reports “Family daily active people (DAP)” of 3.24 billion, you can’t be astonished at these Netflix numbers. The platform of global access, global content development and then global sharing of that content now ad supported? Can’t be beat.

Amazon Inbound & Outbound Traffic $AMZN

Chart via Semrush is quite interesting. Inbound direct to Amazon remains the same but sizable increases from Google organic and YouTube. Also looks as though outbound traffic driving back to Google and YouTube is interesting. One could surmise this is to continue research, look for reviews or shop for other options but why the dramatic increase?

Amazon Earnings Takeaways: Services, International, Sellers and Advertising $AMZN

Although the Amazon streak of new highs did end, they are back to starting new highs on the back of their Q1 earnings. A couple of points stuck out in the client letter I distributed a few weeks back:

1. Product sales slow, SERVICES SERVICES SERVICES - Product sales grew 7% versus service sales growing 17% and now accounting for nearly 58% (vs. 55% in Q1 2023) of total net sales.

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2. International back to growth - US remained flat with last year’s growth rate but International is back with several consecutive of quarters of positive growth. Interestingly, AWS now nearly half the size of Online Stores, the business was only a 1/4 the size 3 short years ago.

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3. Amazon reliant on 3rd party sellers and advertising - Continued strong growth from both 3rd party seller services (aka Seller Central) and advertising. Those two businesses now account for 33% of total sales vs 26% a few short years ago. Recent fee changes likely will mainly be seen in the next quarterly earnings report.

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None of these trends are new. Amazon continues to become the “toll booth” of eCommerce and now own nearly 40% of eCommerce. Nothing here to suggest they aren’t continue to build the moat.

Groupon Turnaround Remains Intact $GRPN

I have been quite vocal on the belief that Groupon is returning to glory. Latest results were posted this evening and I believe the return is intact. First consolidated growth since 2016. Yes, 2016.

Management tends to beat their high end guidance that is clearly achievable. Last quarter the high end was $118 in revenue and $12 in EBITDA. Results were $123 in revenue and $20 in EBITDA. Cash flow also feeling that positive trend.

This one is not for the faint of heart given the declining customer base (see below) but one might take a bet this turn will result in a bottoming that then allows the marketing engine to turn back on. Disclosure: I continue to own a long position in Groupon $GRPN.