Interview: Reading the Amazon Tea Leaves, with Eamon Kelly, Senior Research Analyst in Consumer and Ecommerce for Edgewater Research

Transcript

Peter: Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age. Hey everyone, Peter Crosby from the Digital Shelf Institute. It's not a shocking revelation to say that understanding Amazon strategy is critical intelligence for a winning eCommerce strategy, no matter whether you list on Amazon or not. That's why we reached out to Eamonn Kelly. He's a senior research analyst in consumer and e-commerce for Edgewater research. One of his major beats is Amazon and he came on and read the 2020 tea leaves with Rob and me. Here are his insights. So Eamon with all of your knowledge about Amazon and how much time you spend looking at that platform, I think it's very important that our listeners know how much of your household shopping budget actually gets spent through Amazon?

Eamon: It's a high portion, you know, given two kids at home and you know, a busy job. It's, you know, we just find it extremely convenient. So I'd say a solid outside of outside of food and grocery, you know, it's, you know, probably 60, 70% plus,

Peter: Oh Jeff Bezos just had a twinge that, that your grocery and food isn't going through them.

Rob: It's the white whale.

Peter: It’s the Moby Dick of Amazon.

Rob: Yeah, so your business, Edgewater, advises investors on a, on a whole bunch of different stocks including, and for our interest, especially Amazon. And Amazon's a really confusing company I think for investors because they optimize for free cashflow instead of gap profitability. They're a weird conglomerate that's organically built that's in a ton of different businesses. So we wanted to start the conversation at sort of the highest level, which is how do you think of Amazon's financial motivation and in particular, is it meaningfully different than the way that other large public companies operate?

Eamon: It is. You're right, you hit the nail on the head. I mean, they're extremely focused on free cash flow. I think you have seen somewhat of a change over the last, you know, five years where, you know, yes, there has been, you know, at times, and I think we'll, we'll probably could go into it a little bit later, but at times you do see them focus a little bit more on profitability today than they did, you know, five years ago that probably wouldn't even come up in conversations with people. So you know, yeah, I think there's, there's been a drastic changes at Amazon in terms of how they look as business and yes, some of it is, I think, you know, when we started to follow this company, you know, roughly 10 years ago yeah, the, the comment that the Bezos always made, you know, they just, they didn't care what investors thought.

Eamon: He just ran the business for what he thought was, you know, was right long term. And I think you fast forward here to 2020 and you know, certainly there they've gotten a little bit more focused on profitability. They have gone to listen to investors to some degree. You know, I think it's for them it's finding that fine balance of, of top line and profitability and managing free cashflow. So you know, yo, yes that is different than some of the other traditional you know, brick and mortar retailers that we follow where, you know, three cash flow isn't, isn't the main focus and you know, for the most part for a lot of these companies, these companies, it's, you know, what's, what's the comp this quarter and you know, what is the margin and the flow through to the bottom line. So, you know, yeah, I think they tend to take a significantly longer term approach and you see that with a lot of the investments that they've made over the last, the last several years and probably over the next 10 years.

Rob: But free cashflow, the focus on free cash flow anyway, allows them to do what other retailers have a harder time doing which is invest cash over the long run. Even if it means that their gap profitability is zero and other retailers are focusing on, on more short term goals. Like, you know, like you're saying the quarter over quarter comps and margin and things like that. But there, there is one area where I wonder if Amazon size and maturity has them acting a little bit more like traditional retailers these days, which is the stock price and so much of compensation for key employees at a company like Amazon is tied to stock, that they sort of on some level have to be more investor focused now than they were maybe five or 10 years ago. Do you agree with that?

Eamon: Yeah, absolutely. I think that's the one thing that, that people, you know, haven't gone pretty much un-talked about over the last, you know, 10 years and you know, in a lot of the years that it isn't an issue. But yes, to your point you have such a large percent and certainly all the upside from the employees is based on the stock price. So yeah, they do have to be cognizant of, of what investors are looking for. You know, you know, best case for Amazon is just kind of a continued you know, a continued upward momentum. You know, it's not great for them to see 30, 40% appreciation. Yes, that sounds great. You know, sounds great at a, in a given quarter at a or at a current time, but you know, you're setting expectations, you know, higher. And if you get, you know, then another year where the stock's down 20%, you know, that's not what they want.

Eamon: I think, you know, best-case, they'd rather see a kind of constant 15 to 20% gain, you know, each year rather than a lot of the volatility. And for the most part that's kind of what you've seen. But there have been instances over the last 10 years and more recently where you do have a, you know, fluctuations and you know, that's something that they're trying to listen to investors and, and figure out what are looking for and you know, how to reposition things for the longer term. And I think that's partially why you saw a little bit of a shift this year to refocus back on top line. I think the other began to saw, see the top line a slow a little bit as they were probably overly focused on on profitability and, and you know, decided to pivot because essentially the, the sense that we got was that was the feedback they had gotten from investors.

Rob: That's interesting. So you've said before that Amazon has been operating for a few years on two year cycles of investment on one cycle and then profitability on another cycle. And so that statement is that, and Amazon is swinging the pendulum back to investment right now. Is there anything structurally about the company's operation that gives them confidence to invest in, in revenue growth versus profitability? Are they doing it for the stock price? Are they doing it because they see opportunity? Is it a combination of those two things?

Eamon: I think they're doing it for a couple reasons. I think one, they had seen the top line begin to slow a little bit and you know, along with the top line slowing, they began to see a slowdown in advertising. You know, as they were crapping products out. You know, imagine this as a manufacturer if you're advertising. And they crap products out, you are going to pull advertising cause you don't have anything to advertise. So I think, I think some of it was the top lines slowdown and the associated slowdown in the advertising or if you look at their P and L, it's, you know, within the other revenue bucket you know, the slowdown on that bucket I think is you know, certainly a, a big portion of it. And then I think secondly, I think they underestimated the impact that Walmart's OGP and all of click and collect has had.

Eamon: I think, you know, Amazon you know, probably thought that, you know, customers were really focused on convenience and just wanted stuff delivered to their home and people didn't want to go to stores to pick stuff up. But, you know, I think the ease of, of click and collect you know, and it has really helped enable, you know, Walmart and some of these other grocers like a Kroger be pretty successful over the last year and a half. So I think they've been forced to almost play a little bit, a little bit of defense. I think historically you've seen them a lot more on the offensive and trying to stay ahead of everybody. You know, I think this was one where they just kind of swung to profitability at a time where you know, these other guys had some success and you know, now they're being forced to, you know, invest a little bit more, you know, whether it's something like one day that they rolled out earlier this year or you know, you look and there's talk of, you know, the Amazon go expansion or the Amazon grocery stores that it sounds like they'll open up next year. You know, I think certainly there's, there's a, you know, play of continuing to focus in and how do we compete more with the Walmarts and groceries down the road.

Rob: That's an interesting take on this. So if I, if I'm going to summarize there, the top line growth has slowed. One possible reason for that is that there's actually meaningful competition that they didn't foresee. So the click and collect programs are more successful than, than they have been or that anyone anticipated them being. So that's, so the, Amazon's gotta play defense and fight back. So is that the reason, is that's what's driving the heavy massive investment in same day delivery. And even in some cases, the ultra fast one to two hour delivery. Is it that they're, they need to be an effective replacement for the click and collect programs?

Eamon: I think they do. I think, you know, thus far the, you know, whether it's fresh or prime now, you know, has been, you know, I think if you, we talked to a lot of manufacturers and if you ask most of them in that arena, it's been relatively unsuccessful. You know, a lot less or a lot less successful than anybody had expected. So yeah, I think they're trying to find all alternatives of, you know, alternatives of how to  provide that service since they can't compete with the, they don't have the physical locations to compete with the you know, click and collect one, two hour you know, pickup.

Rob: Man, that's such an interesting take on this. Like I always, I mean for years, Amazon's been so far ahead of the ball in same day delivery at the number of products that we're talking about for them is so far ahead of the ball. But on the other hand, if what's motivating them to do it now is a defensive move to defend growth and defend stock price. That's, that's really interesting. That's a different mode of competition than they've had previously.

Eamon: Some of it, I think some of it is that, and you also that has the, you know, how do we stay alive? How do we stay ahead of everybody else on the deliveries, you know, on the delivery standpoint. So you know, as everybody has begun to offer two day delivery, you know, their thought is, Hey, we're already offering that. We're already offering one day in 50 to 60% of the, you know, instances. Maybe not necessarily the amount of skews that they do today, but we're already offering one day and we're not getting credit for it. So let's roll out one day more effectively. You know, and, and you know, whether or not this was a big driver to it, kind of put pressure back on Walmart and these other guys of, you know, hey, you've, you've kinda upped your game to do two day delivery. You know, we're taking it to the next level and raising the stakes and go into one day delivery. So, you know, putting the onus back on these guys to kind of make their, their next move, if you will.

Rob: So I've got a topic very much related to click and collect and one day delivery, which, which is, I mean, especially if you view those things as directly competitive with each other for, for this next phase of retail. And that is how incremental is Amazon's business to a manufacturer versus versus just revenue shifting. If a consumer can click and collect a Walmart order online for Amazon, is it just the same dollar going to one place or the other place? If you, if you are Proctor and gamble or you are a Unilever is, is it just a shift of dollars to a new channel or is it incremental in any way?

Eamon: Yeah, I think for the most part it is just a shift of dollars from one channel to the next. But you know, you have to adjust to where your customers want to shop and how your customers are shopping. And you know, actually the way we think about it is if you're a traditional CPG manufacturer who has a lot of their business, whether it be in the club or mass channel or grocery channel you know, it's actually probably a negative mix shift because you know, if you think about a traditional brick and mortar shelf, let's say you have a 10 foot section of some random category, you know, you might have 15 or 20 skews that fill that fill that shelf. All of a sudden now we transfer to online where you have endless aisles and you're not competing against 10 people. You're competing against, you know, hundreds if not thousands. So, you know, there are very few examples. You know, very few examples that we've ever heard of a young man, manufacturers maintaining share you know, online and in many cases, you know, as business shifts more online and shifts more to Amazon you know, suppliers actually probably lose share because of the increased competition.

Peter: Yeah, we've seen that. So the direct to consumer channels, springing up products, online private label stuff. Is that when you speak of a competition, those are back actual, yeah,

Rob: The private labels are another super interesting financial topic when it comes to Amazon, I mean retailers have been private labeling forever because it's really good margin for, for the retailer and gives them an alternative to big brands, which gives them a negotiating a point of negotiation, a win, win, win trading margin effectively with big brands. Amazon has been in the, in the press a lot for, you know, competing with their suppliers using data as this big bugaboo for me. I've had a hard time understanding how that's any different than Costco with Kirkland or Walmart with, with their private label strategy or Kroger, which has a publicly stated strategy of having 40% of revenue from private label. Is Amazon doing something different there? What do Amazon's private label numbers look like?

Eamon: I, I think there's, you know, in, in terms of the private level, private label penetration, no, I don't think there's any, any number that I've heard that I even feel comfortable is, is accurate. But yeah, I think you're absolutely right. I don't think it's any different than any of these other retailers. And you know, I think the one argument that you'll have that I know I've seen articles on as well, Amazon on people's item detail pages are saying, well what about this alternative or Amazon is getting, you know, unfair placement on some of the you know, search terms. Well, you know, in my mind, I don't know that it's any different from a retailer putting, you know, their private label at eye level versus, you know, putting stuff, you know, down at the bottom of the floor. So, yeah, I think you're absolutely right. I don't think there's a whole lot of difference. I think in many cases it's, yeah, I think there's some arguments, arguments to be had for you know, some of the suppliers. But for the most part it's, it's very similar in our mind to how, you know any of these other traditional retailers have handled private label.

Rob: The data that I've seen too, I mean to your point, no one has perfect data on this other than Amazon employees, but the data that I've seen is that the category share of Amazon private label for most of the categories that they're operating and you know, maybe batteries aside is a lot lower than you would expect and is growing slower than you would expect and actually is less successful or has been less successful than the efforts at the major competitors of theirs. The Kroger's and Costco's and Walmart's and whatnot of the world in large part because there is less choice on the physical shelf so they can have the one branded item in a category and the one private label version of the category. And so they can get a lot more share that way when it comes to private label. So Amazon, even when they're doing what people are alleging that they're doing with, with regard to manipulating search results is still worth competing in a playing field that is harder to compete in then an existing retailer on their own shelf. Right. So in a, in their own way, like their business model makes it harder for them to be good at private label.

Eamon: Yeah. And I think, I think the other thing that you have to a lot of is you have a lot of, yeah, you have a lot of white labeled, you know, low entry level product that, you know, has come in from various, you know, various parts, whether it be domestic or you know, overseas and there's lots of unknown competitors. You take somebody in the consumer electronics channel, like an Anchor that, you know, from everything I've heard it's become well over a billion dollar brand on Amazon. And you know, they've kind of taken the success that they've had on, on Amazon and leveraged that back to get into a, you know, to get into somebody like a best buy and some of these brick and mortar retailers. So know not only do you have the private label aspect, but you have, you know, all of the, you know, no name, white label, white labeled product. That's yeah. That's come in from, from overseas as well.

Peter: So when you look on the other side of that Eamon and you have somebody like an Anchor that, you know, found their success there and then is now spinning it out into, into other channels. What's your view on the Nike move to, to divorce Amazon? Is that a sort of a, does that go in the category of the luxury brand, kind of a arms length distance or what was that choice about, do you know?

Eamon: Yeah, I quite honestly, you know, I don't know that if you look at the Nike and we certainly don't have the ability to do this, but if you look back at the Nike site on Amazon five years ago versus three years ago versus a year looking at, you're probably a year, three years out. I quite honestly don't know that there's a whole lot of a difference from a consumer perspective. You know, I think some of us that are heavy into Amazon likes to talk about, you know, Nike and other examples like this. But I think from the consumer side there's very little difference that, you know, a normal consumer can tell of the shopping experience of Nike product on Amazon, you know, a year and a half ago versus five years ago versus today.

Rob: Yeah. So picking our head back up to Amazon retail business as a whole one, one of the ways that retailers drive margin across the board is through advertising. And in a, in a traditional brick world, it's the trade advertising spend sliding fees and end cap promotions and circular promotion and stuff like that. And that amounts to a very large percentage of the advertising budget of a Proctor and Gamble or any of the other big advertisers. And Amazon's advertising business is growing like gangbusters right now. And people are focusing that on that as an another high margin advantage that Amazon has. But I also, that's another area where I struggled to see how financially it's much different than traditional retail. So what's the, what's the true difference there in Amazon advertising and financial leverage and margin driving versus trade advertising of a traditional brick retailer.

Eamon: Yeah, I think you're, I think you're right. I think you look and I think the challenge is that, you know, a lot of traditional manufacturers just aren't set up organizationally. They weren't, they were set up organizationally to deal with the traditional retailers and you know, a lot of them expect to see some type of return on a, you know, on a, on a dollar. If they run a promotion, they expect to see some type of return or you know, you use the term sliding fee. You know, if they, they pay something for a sliding fee, they're going to get on the shelf and in turn they're going to sell product. I think a lot of manufacturers have just struggled to wrap their arms around, you know, the, the old AMG process. And I think gradually, you know, we found over the last several years, I think companies are finally beginning to, you know, finally beginning to adjust and look at Amazon as a, as an advertising vehicle.

Eamon: Because you know, you look and yes you can measure the spend and the ROI on what you're getting on Amazon. But you know, I think to you guys, if you guys, or anybody listening is similar to me. How many times are you at a brick and mortar retailer and you're looking at five things on the shelf. The first thing that you do, right as you pull out, you pull out your phone and if you want to compare the two products, you're looking on your phone to compare them. And you know, 99% of the time I'm looking on Amazon. So, yeah, that's the one area where I think a lot of, a lot of people hadn't necessarily thought of or maybe thought of but didn't account for. And you know, I think you've seen, it's forced a lot of you manufacturers to adjust the way they think about you know, they think about Amazon. You know, and, and where that, where that spend goes and the, you know, still today there's lots of manufacturers that we've talked to where they struggle to get the brand team to fond spend on Amazon. And that's just something that as an industry I think, you know, we'll continue to evolve over the next several years.

Rob: So that actually is interesting that traditional trade advertising spend is really specific to an individual retailer, individual channel, right? The Amazon advertising spend and what's you're saying is influential beyond the individual channel. It, it can be treated as brand. So that enables Amazon to capture, not just advertising spend related to Amazon, but instead advertising spend related to the whole brand itself. And that, that actually would give them more of a margin advantage versus what, what Walmart or, or Kroger are capable of doing today. Is that, is that a fair restatement?

Eamon: Yeah, absolutely. And I think as you, as you've seen over the years as they continue to become more front and center from a search perspective, yeah, I think it's always hard. We always ask people, Hey, is your, as you're reallocating resources and dollars to, you know, the Amazon advertising business, where is that coming from? And you know, obviously you're seeing this consistent shift to more and more digital advertising rights. So you have this shift that's been happening from years of traditional print shifting over to digital. But what you also have in many cases is this shift within digital. And you know, the one place that gets called out, probably the most because they're most comparable on the digital side would be, would be Google and Amazon. And that's probably the one area we've seen more of those. You know, more of those dollars shift.

Eamon: And you know, I think it's going to be interesting, you know, that the whole advertising and even the in store slotting fees and traditional trade spend is going to go through another, you know, massive change. I think over the next five years as you have a, you know, all of these retailers rolling out their own, you know, their own advertising, whether it be Walmart or target or Instacart, or Kroger, you know, everybody assuming the success that Amazon's had and is trying to jump in and kind of launched their own version of, of Amazon advertising.

Rob: So let's, let's go to an Amazon growth area that we about for, for a minute, but I want to dive into a little bit more deeply. Jeff Bezos is, one of the famous quotes that he's got and he's got many is, “your margin is my opportunity.” So very gang style retail quote, right? It's a scary quote for people. But in grocery, the average grocer in America in 2019, their average margin is 1.7%. Like there is no margin in grocery. So you know, your margin is my opportunity. Like, what margin is there? And I wonder how much that plays into how hard it's been for Amazon to break in. And I don't know the Walmart history either. It took Walmart a while, they're breaking a grocery as well, but how, how much is the, the just lack of margin and lack of efficiency in grocery a part of how hard it's been for Amazon.

Eamon: See, I think, I think you're right. And I think part of this goes back to what we've seen and you have seen a little bit of a pivot. You know, they had been so focused on item level profitability and to your point, the others, there's, there's very little, if any profitability on the, on the grocery side. And I think that's why you have seen this change by Amazon. And I think it comes at the same time where you see the stories of them rolling out more go, you know, they've removed the Amazon fresh you know, fee, you know, they're rolling out their first grocery store at some point in 2020. You know, I think it's interesting that at the same time Amazon is pivoted more to profitability. You know, you're seeing this greater emphasis on you know, on grocery. But you know, I think they see it as the same, same reason Walmart does.

Eamon: Why does Walmart have grocery? Walmart has grocery because they use it as the loss leader. They use it as the traffic driver to pull people in and then people are going to shop the rest of the store while they're there. I think Amazon sees that as the exact same you know, as the exact same thing. How do we  how do we pull customers on more know how are we getting people on our, on our side daily and multiple, multiple times a day and, and not having an, I'm going to the other, you know, our other competitors.

Rob: So I've heard a theory which I think is interesting and I want to run by you here. And the theory is the center of the grocery store is dead. It's got no reason to exist anymore. These are the shelf stable consumer packaged goods that replenish. The theory is directionally all of that stuff is going to be orderable. And so if you're a grocer, what you want to do is you want to reuse that valuable square footage for higher margin, higher value, more differentiated things like wine tasting space, prepared food, more space for fresh. Things like that, right? And in that world, if, assuming that the center aisle all really goes to delivery of some kind, one of the things that people have been focusing on in the grocery space in general are micro fulfillment centers. Instead of using the grocery store as the picking space.

Rob: Instead you've got a micro fulfillment center or a totally separate space that's really optimized just for picking and keep picking costs low. And if I think of Amazon as having any advantage in grocery structurally right now it's that they're built to have really efficient picking costs for the, for these low, low cost, low margin, high volume items. And I wonder if that's the way that they get in. But I wonder if, if that's all they offer and they don't have an answer to the fresh and the prepared, whether it actually makes them competitive or not. So what do you think about that theory? What do you think about the competition?

Eamon: We’ve kind of wondered that too. I think if you had asked me, you know, 15 months ago, you know, I think the answer, you know, our sense of what the Amazon grocery store looks like was probably, you know, dark stores, right? Where they're, where they're you know, dark warehouses where people pick, pick the product and you drive by and you pick your product up. So to hear Amazon, you know, to, to hear them moving more into traditional grocery is a little bit puzzling. I mean, it's also probably a test to Amazon testing stuff daily that none of us even hear about, I'm sure. You know, so as they, as they roll out the first, you know, grocery store, you know, it's just one test. But yeah, I think you're right. That is their, their advantages not having that. And I think the other one piece of feedback that we've had, and I'm sure everybody has seen this as, how frustrating is it?

Eamon: You know, going through a grocery store, when you have our, I see this at Costco all the time going through these stores and you just have a bunch of pickers who they know where everything is and they're just flying around and you know, you're getting run into in some cases and you know, you get these massive orders and all of a sudden something's out of stock. So, you know, I think that that's going to be the struggle too for some of these grocery stores is how do we effectively, how do we effectively manage inventory levels and that's so I, you know, I think it'll be interesting to see what the, the route that Amazon to take decides to take with grocery. And quite honestly, it's probably a combination of all of the above. It's probably a, yeah, there's probably physical grocery stores. There's probably dark fulfillment centers where you can you know, utilize some version of click and collect and any, you probably have the traditional Amazon model where you have delivery to home.

Rob: The hybrid though, I mean it does have, like you're talking about, it does have pretty negative side effects. There's actually an irony with Amazon prime delivery and whole foods where Amazon is so focused on customer experience, but the experience shopping at whole foods when it's packed with pickers is, has gotten quite bad. My wife and I used to really just enjoy going there with our kid and kind of exploring what was on the shelves and tasting things at the tasting stations and now going to whole foods. It's just a zoo and you do get bumped into and you, you do have the pickers just bombing through the store and…

Peter: And pickers that are local at Whole foods actually said that it's when your daughter, so she comes in that they feel like a zoo. I've seen her running through a restaurant before, so I can imagine what it's like an old food.

Rob: Maybe that's what the employees are saying is that the more pickers we have, the less, the less toddler friendlier we are.

Peter: So I joke I show but, but I think it's true that they are two different things, two different experiences. And when you mesh them together, and particularly I would imagine in the urban areas, it starts to get really crazy.

Rob: This is a lot, this is a big part of it. The interesting thing about Amazon is this sort of colliding of worlds and colliding of strategies in a weird science experiment where there's, no one knows what's going to happen. Another area is, and you guys focus on, on  this a lot in your 2019 research at Edgewater was the, the rise of 3P as a way to drive assortment in Amazon. Amazon, which, you know, generally speaking has a reputation for being really hard to negotiate with as a supplier. Has actually cut fees to third party sellers and it's just made it made it cheaper and easier to list as a third party seller to increase assortment.

Rob: It's in that world where so much is third party. You do get these, these weird unintended consequences where there's a great first party experience. There's a variable third-party experience and a lot of the third party products are fraudulent. Right. So it's the same thing with whole foods and the, and the, the picking you have, you've got a great delivery experience, you've got great product and the whole food. But I do an in both on the same platform. You, you end up marginalizing a third axis here, which is the in store shopping experience. So it's interesting to see them try to thread the needle and get this all done at once. But getting, getting back to the, the third party stuff as a, as a segue, what were the big stories in terms of Amazon cutting fees in 2019 to drive top line and what, why was it necessary for them to concede anything?

Eamon: Yeah, I think they felt like as they, as they were continuing down this path of profitability and as they began to remove some brands that were smaller in nature, you know, there was at times there was this threshold of $10 million thrown out there of any brand under $10 million where it was going to go away. But as Amazon put pressure on those small brands and big brands, you know, to improve profitability, you know, they use the third party as a way to you know, pick up some of that loss selection. So, you know, as they've, as they've gotten rid of some brands and quite honestly as some brands have walked away from Amazon, you know, they've used those as a way to, to get that in the other categories where they did it most on or a lot of those lower margin consumed bulls.

Eamon: And I think, you know, back to what we talked about before, there's not much margining in grocery in, you know, if you look at some of the traditional categories for Amazon where they're charging, you know, at minimum in many cases a 10% plus type a fee as a third party, you know, in grocery that's hard to do. So I think they felt that that's necessary to, you know, in many cases remove that and use these as almost lost leaders so that they could provide selection and improve, you know, improve the customer experience for a, for a shopper to avoid that customer from having to leave the site to go to another site. So, you know, I think that was a, a big focus point. I think it's been interesting as you fast forward now to today where, you know, they've now been a bit more focused on top line and I think, you know, at the same time of being more focused on top line, what they've found is that the third party experience hasn't been, overly great.

Eamon: I think they felt like they lost a little bit of control with the third parties because there's things, you know, there's, there's probably no instances I've ever heard of where a brand is pulling something off of the first party site and moving it to third party at a lower price. You know, in 99% of those instances, the products get pulled off of Amazon and go into the third party and the price is going from you $10 all of a sudden now on the third party, it's going for $12. So, you know, I think Amazon felt this, this need you know, to reign in the third party a little bit. Now what we've seen over the last several months is a little bit of a refocus and actually, you know, taking away some of the third parties. You know, I think there's been several thousand that they've eliminated and we've heard as we move into the first quarter of 2020 and get past holiday, there's probably another traunch of third parties that get eliminated. Whether it's from a bad, bad experience from a price perspective or, yeah, to your point with a lot of fraudulent and counterfeit items, I think they're beginning to crack down a little bit. Certainly not, not to the degree that any of us would hope for, but I do think you're going to start seeing them cracking down a little bit on you know, some of the third parties as we go into 2020.

Peter: Yeah, I mean, we were talking about the fraud program, when you see the investments they're trying to make to try and scale that back. I mean, they're getting a lot of tough headlines over that, in some cases a deserve, but it's a, it's a huge problem for them. And for consumers. Do you see the one vendor programs sort of playing out in that, in, in the near or mid term? Do you know what's happening on that side?

Eamon: One vendor was a great, was a great in theory, if I go back two years ago, you know, and, and think to what that looked like last year at this time, the whole thesis of the program was, hey we're going to dictate where and how items are sold. So you know, mister manufacturer, you're going to sell these items on 1P a or you're going to sell these items on, on 3P, whichever one we want that to be. And you know, we're probably as Amazon, we're going to take the higher, you know, the highest velocity items and those C and D skews. We're probably gonna push to the third party side. And then, you know, you had other examples where, you know, they just took the smallest manufacturers and they said a manufacturer that's under, you know, that's only a couple of million dollars like that, that supplier just doesn't matter.

Eamon: It's not worth our time. We're going to focus on these, you know, whatever three or five thousand most important brands on the site. So I, I think that was kind of the focus for, from what we understand. I think one vendor has kind of evolved. I think it's, it's a, I don't want to call it dead, but I think it's taken a bit of a backseat as they've refocused on profitability. You know, I think you've seen them kind of hit the pause button there because you know one vendor was in several cases taking selection off of the first party side. And I think Amazon from everything we've seen over the last six months has been trying to improve selection again on the one piece side.

Rob: Yeah. So–

Eamon: Now does that, does that come back down the road? You know, certainly anything's possible, but I think for the last, at least the next year or so you know, I, I think that kinda one vendor program's probably on the, on the back burner.

Rob: Yeah. So high, high level here. Let's, let's end on an industry wide note, which is how, like why is Amazon so hard to compete with for other retailers? Can another retailer effectively compete? How does the math work? Are there things that are holding back a Walmart or a Kroger from being able to, to fight back harder and stronger and faster and with more growth online than they have been able to today? Like what structurally is Amazon using at as its advantage to, to continue to grow as fast as they've been growing?

Eamon: Yeah, man. I think the biggest thing is is, you know, why do you, why do you shop on Amazon? At least for me it's all about the selection, right? I can go on there and buy everything that I, that I need and you know, I can do it at work and I don't even have to go out to a store anymore. And you know, yes, you have Walmart that probably is next closest in terms of selection, but they still don't have near, near the selection that, that an Amazon does. So, you know, I think I look and it's, it's certainly, you know, the ones that are gonna succeed long term are, you know, ones you'll have the selection like a, like a Walmart and Amazon and two, it's the ones that have a niche where there's some type of service component.

Eamon: So whether you look at somebody like a best buy that has, you know, that has a great service offering that you could go in there, they have the knowledge of, you know, whether it be PCs or, or TVs and they have, you know, they have their Geek squad or whether you know, whether you look at somebody like a, you know, an Ulta beauty who has, you know, some type of experiential you know, model within the stores. I think really think those are going to be the retailers that are going to succeed, you know, long term. And it's the ones that kind of are stuck in the middle are the ones that we probably worry about the most, you know, over the next five to 10 years.

Peter: Yeah. Sort of the general merchandisers that are trying to be everything. I mean they're the same. Same exists. Yeah. In the, in the sort of general department store category, you've got to get serious about who your customer is and how you want them to feel wherever they encounter you at any touch point. And I think that that's the consistency that's required. Both of retailers and a brand manufacturers are, they get more and more into, into speaking directly to their consumer.

Rob: Be clear about why you matter. Costco is still kicking butt in, in the world of Amazon.

Peter: Well that's just a sampling of all the food in the aisles. They're smart. So she had Costco. Yeah, she's everywhere. Hey man, thank you so much for coming on and sharing your Amazon tea leaf reading and research with us. It's the value that you guys offer by being able to focus on this and provide your clients with insights on this is really a quite a service and we are just delighted to be able to tap into it today. Thank you so much.

Eamon: Absolutely. I appreciate it guys. Anytime.

Peter: Well that's the latest on Amazon from here. Get more info live from the experts at our upcoming digital shelf summit in Boston on May 20^th. Mark power, author of the CMOs guide to Amazon will be there in person to break down how Amazon is challenging CMOs to rethink the customer journey and how you can leverage Amazon's platform evolution to win. Throw your Amazon questions at us on our LinkedIn page and share this episode with your favorite Amazon trend watcher. Thanks for being part of our community.