Episode 45: Our Predictions for E-Commerce Amazon

We’re back for a new episode. Today we’re discussing part 2 of our last topic.  The last time we discussed our predictions we spoke about eCommerce in general. So today’s topic is Our Predictions for eCommerce: Amazon. The subject of Amazon is so in depth that its own episode.

On today’s episode we’ll talk about what Amazon is facing in the next few years, and what sort of reactions a seller might see to that market.

Here are today’s topics:

• The inventory issues Amazon appears to be having.
• The increase in storage fees.
• The benefits of sellers having warehouses.
• Amazon’s achilles heel and how the competition is exploiting it.
• The raise of “crap reviews” and why it’s becoming a problem.
• The “Groupon effect” comes to Amazon.
• Amazon’s growing product expansion.
• How that expansion affects other sellers.
• Amazon’s brick and mortar stores.
• The customers Amazon have a hard time reaching (or may never reach.)
• The differences between A, B, and C grade malls.
• How the mall grade affects brick and mortar availability.
• The importance of niche marketing in eCommerce.
• The challenges a newcomer will see in the future.

We don’t see Amazon going away, but it will adapt to this highly competitive climate. E-Commerce is an evolving business and it is adapting with its market. These are just our opinions and observations, but maybe we will encourage you to form your own opinions and observations.

 

If you have any questions or anything you’d like us to discuss on the podcast please go to ecomcrew.com and fill out the contact form. Also we would really appreciate if you would leave us a review on iTunes. Thanks for listening!

Full Audio Transcript

Mike:   This is Mike.

Grant:  And this is Grant.

Mike:   And welcome to this week’s edition of the EcomCrew podcast.  How’ve you been doing, man?

Grant:  I’ve been busy, I’ve been not sleeping, and I’ve been taking in lots of orders, so Q4 is officially here.  How about you, Mike?

Mike:   Yeah.  It’s been pretty crazy.  I’ve been traveling a lot, got a bit of a cold when I came back.  We missed an episode here, which makes me sad because we were doing pretty good on not missing any episodes, so I apologize to our audience for missing a week, but we’re back on track here and we’re going to do part two of our predictions of the future.  This week, it’s all about Amazon, and we were just talking about Amazon before we started recording here, so it’s pretty topical just for us.  So yeah, I guess let’s dig into it.  What are you thinking as far as where Amazon’s going to be a year from now, or five years from now?  What are some of your bold predictions?

Grant:  Well just from our conversation that we were having, talking about how it’s taking forever to get any of our inventory into Amazon, I think that is a good segue because, let’s face it, Amazon is running out of space.  And there is a limit to how much Amazon can possible store, and I think everyone thought that there was going to be no limit and now we’re actually hitting that point.  So I kind of feel like this is where we find out what it is to divide by 0 or something and, you know, mathematicians commit suicide and bad things happen, Ben Burnacke can’t print any more money.  Like how does this all end?  I tend to think this ends actually quite poorly for a lot of smaller sellers, but what do you think?

Mike:   Yeah.  I mean I think the prediction that I have on the heels of this is basically that Amazon is going to stop doing third party or multi-channel fulfillment.  They’ve already gotten rid of the brand-neutral box thing, so I think the writing’s on the wall that the next step basically is, “Okay, well we’re not going to fulfill anything except for our own orders,” which I think will free up quite a bit of warehouse space, and I think that when they make the decision to do that, it’ll be just like anything else, where you get little to no notice, maybe three weeks or six weeks.  So I think that that’s the first prediction as far as warehouse space, and I do agree that it hurts smaller businesses more.  As a small business ourselves that relies on Amazon to do our multi-channel fulfillment as of today, it’s kind of scary.  So we’ve been looking at other alternatives but none of them are as good, unfortunately.  It sucks.

Grant:  Yeah.  There is very little in the way of a good distributed inventory placement like what Amazon has.  And I feel that, like you said, the writing has been on the wall for a while.  They increased the storage rates and then they increased the holiday rates and they’ve been gradually upping everything up for quite some time.  And I would not be surprised at all if, even in the next three months or at the very least, the next year, to see some kind of significant raise in the cost to warehouse at Amazon or even an increase in the commissions because, let’s face it, Amazon has all the traffic that it could possible want at this point.  Why not just start putting the pressure on sellers like us, right?

Mike:   Yup.  No, I definitely think that’s coming.  I think that increasing warehouse fees are probably first.  You know, they’ve already done it obviously, like you said, for the holidays.  It’s just so difficult.  The thing that makes it difficult is it’s impossible to plan on how long it’s going to take Amazon to check your inventory in.  It’s this constant like double-edged sword or the angel and the devil on your shoulder.  The angel’s like, “Don’t send more stuff in because you don’t want to pay extra storage,” and the devil’s like, “No, send in lots of stuff because you don’t want to run out of inventory, especially if you have the stuff sitting in another warehouse.”  But we were just talking right before we started recording here.  This is something that’s just happened to both of us right now.  It used to take three to four days from when Amazon picked up a pallet from us for it to be fully checked in and now it’s literally three to four weeks, and sometimes it’s six weeks, sometimes it’s one week.  So it’s just really hard to figure out and plan for that.  If it was consistent, it would be a lot easier.

What we’ve been doing, which is really expensive and just a disaster in a lot of ways, is having to ship stuff in via UPS ahead of the pallets.  And we’re lucky enough that we have that inventory to do that, but it’s expensive.  It’s about five times more expensive than just shipping it in on a pallet.  But one of our new items is a number one best-seller and we’re selling just a ton of them and we’re just trying to get enough inventory in there to last the day.  And every day, we send in more inventory and I don’t really see any other way around it if you aren’t willing to run out of inventory.

Grant:  Mm-hmm.  And I see a lot of people who are essentially garage FBA sellers having a massive problem because they don’t have any place that they can actually launch or do any type of staging of inventory.  A lot of these guys have very vertically integrated channels where it goes straight from China into Amazon.  That’s not going to be a good solution anymore.  I mean that’s going to be a huge liability, wouldn’t you agree?

Mike:   I totally agree.  Yeah, it makes me happy that we do have a warehouse here.  It’s already come in handy.  It’s obviously an expense and some days I wish I was just in Hawaii and was in that set up where inventory just went from China directly into Amazon, but in a lot of ways, I’m happy that we go have this.  I don’t know if that’s bold of a prediction, but my next prediction on the heels of this exact topic is I think that Amazon’s going to be pushing more and more for seller-fulfilled Prime just to get back to a more distributed warehouse model for them where they’re not warehousing at the expense of warehousing; it’s back on the customer, the vendor, the person reselling, whatever you want to call it, and they’re going to be responsible for shipping.  I think that those people are probably going to get rewarded in some way for helping kind of alleviate some of their warehouse woes.  I’m not sure what you think of that.

Grant:  I’m very much of the belief that seller-fulfilled Prime is really where the direction is going to go and I mean I just got approved for Wal-Mart and Jet and with those guys, you don’t send in your inventory; you fulfill yourself.  And there’s a huge wave, I think, from the whole idea of Amazon not having any boxes that no longer have their logo because now that you fulfill on Jet and Wal-Mart, back in the day, you could at least fulfill with a blank box and you can send it to your customer and they’re none the wiser.  But now it’s got the Amazon logo.  So Wal-Mart and Jet aren’t happy about that either, so they’re kind of pushing it and saying in the signup forms like, “Hey, do you use FBA for fulfillment?  How much of the percentage are you actually fulfilling through FBA?”  And I’m like, “Well, luckily (or maybe not luckily), I’m not a totally FBA shop that I can say, ‘Actually, I’ve got my own 3PL and my own warehouse over here.’  I fulfill a lot by myself.”  So they’re pretty happy about that.  I said, “Oh, about a 20/80 split.”

But I do think that a lot of major sellers are going to have to look at going into the seller Prime route because if they actually want to expand onto other channels, then that’s going to be a requirement, plus the fact that I really do think the Achilles’ heel of Amazon is finally really showing itself and that’s the FBA side, which is that now they actually have more power in the hands of FBA sellers than there is in the hands of Amazon because all of these guys actually control the inventory, they control the sourcing and the buying, they know what sells, they have logistics in place.  Now they just have to find the right marketplace, and I think what Jet is doing– now, I never really quite understood Jet back in the day, but I finally am like bringing myself around to understand what they’re doing.  They’re attacking Amazon right where they’re weak.  So I do think Jet is going to be a major player in the future.

Mike:   I agree.  We just applied for Wal-Mart as well, so we’ll see h ow that goes and luckily, we are set up to be able to handle that.  If the volume gets crazy, we’ll have to come up with a better solution, but we’re already looking for another 3PL.  I mean there’s obviously things like Shipwire and other companies out there, but the problem is they’re some factor higher than what Amazon does it for.  And we have to have a second pile of inventory somewhere, which is even a bigger problem for a smaller company like us.  So our inventory becomes disjointed.  If there’s a situation where you have stuff at Shipwire that you wish were at Amazon and vice versa, versus having all of it in one spot, which has been nice.  So yeah, it’s tough.  I mean I was looking at it.  I don’t know if you’ve compared those prices yourself, Grant, but it’s 75% more to ship a package through a company like Shipwire.  If you count their pick and pack fee, they have a box fee as well, and they make money on the shipping so you don’t get anywhere near the same rates as Amazon gives you, and it’s about 75% to ship a package than when you do it through Amazon.

Grant:  Yup.  It’s difficult.  Unfortunately to me, it’s just the cost of doing business, I suppose.  But I do find that some of the older 3PLs, like the one I’m using at least with [inaudible 00:10:34], they tend to be a little bit cheaper but they’re just a little bit behind on the technology.  Unfortunately, all of the really cool kids that have the technology that links of directly to your inventory management systems end up charging about a 20% to 30% premium I feel like.

Mike:   Yeah.  And they’ve got to make their money back on that, right?

Grant:  Yeah.  Exactly.

Mike:   As tech guys, we know it’s not cheap to develop that stuff.

Grant:  Nope.  It is not.  So, for now, I tend to use a little bit more low-tech stuff and a little bit more manual type processes with CSV uploads and stuff like that, but at some point I’m just going to get tired of that and just link up probably Skubana to a 3PL that makes a little bit more sense for me.  But yeah, I mean I see that as where the industry is going and I do think Amazon is still going to be the lead, obviously, so don’t get me wrong and let me say that Jet is going to take them over.  I don’t think that’s going to happen any time soon at all.  But it does make sense that a lot of sellers will look at Amazon like as a primary instead of just a sole marketplace in the future.

Mike:   Mm-hmm.  Yup.  So, switching gears just a little bit, I want to talk about something else that’s kind of current.  There was a study that just come out, and I wish I had it up in front of me.  I’m going to misquote it just a little bit, but it was basically about reviews on Amazon and this was like a study where they crawled Amazon and looked at something like a million reviews and looked at the average ranking of one of these reviews that says, “I got this product at a discount,” versus reviews that don’t have that.  And it was basically 4.6 stars on average versus 3.9 so it’s like this massive delta between reality and what people think when they get something for free.  So I guess my next bold prediction is just how Amazon’s going to handle that.  I haven’t really quite figured out exactly what they’re going to do but I have a feeling that, within the next like three to six, maybe nine months at the most, a major hammer’s going to come down on this whole review thing.  I don’t really know.  What do you think, Grant, exactly what they might do to curb this?

Grant:  Well, I know on Seller Labs, they’ve already said something to the extent that reviewers that have not paid for $50 will no longer be able to review.  And I know that’s going to just be trying to isolate a lot of the cheapos out there who are creating Amazon accounts just to get free stuff.  I really think whereas couponing has now died, Amazon reviews has now taken over in its place and so you just have a bunch of freeloaders out there.  And obviously, reviews have their place and people need them, but there’re a lot of guys who are reviewing just to get free stuff that obviously are not good for the ecosystem.  I do think that something’s going to happen but I might not agree that the band hammer’s going to come down, and here’s why.  I do think that Amazon has probably put a lot of study into it and if they were going to stop it, they would’ve done it already.  Maybe that’s a little naïve, but I feel that once the snowball gets rolling, there’s not an easy way to stop it but maybe I’m wrong.  What do you think?

Mike:   Yeah, I’m going to have to disagree with you on this one.  The reason being is these reviews are just awful.  I actually don’t like it.  I feel so dirty when we solicit these types of reviews and I’ve been thinking about more and more ways, and we’ve been pretty successful in some ways of getting off Amazon reviews, like not a review club but through our own list to buy stuff through Amazon or through advertising, and then we’re not having to leave that, “I got this review at a discount.”  But now that I know the industry, when I shop on Amazon, I look at products and I look for those types of reviews, and if it has those types of reviews on there, I either don’t want to buy the product at all because it makes me feel so scammy and scummy, or absolute minimum, I discount every single one of the reviews that says that.  And I think more and more people are seeing that, and then it also has a byproduct of, you know, people who are looking to buy the product at full price, they see that other people are getting this product at a discount and they’re looking for how to do that themselves, and if they can’t get the discount, they get upset.

So I don’t know.  I think it’s bad all around and I think that the study that just came out looks really bad and Amazon’s going to have to do something about it.  Like I think in some cases, you’re forced into doing it.  You can always say it’s not a problem, right?  You can be like, “Ah, it’s not that big of a deal.”  That’s like saying, “Cigarettes don’t cause cancer,” you know, and they can get away with that for long enough, but eventually the real facts come out and it’s like, “Oh, crap.  Now we’re kind of caught.”

Grant:  Yeah, I think we’re just going to have to disagree on this one for the exact reason that you mentioned, and I do think you’ve made a lot of good points.  I am the same way.  I think both of us are generally quite jaded when it comes to schlepping on the internet and all the fake ways that people are trying to earn your money.  But I agree that the reviews are totally atrocious.  I don’t feel good when I do them either and I think I converted over to the, you know, quote/unquote “dark side” before you did.  It’s one of those things where, unfortunately, it’s just you see everybody else rising and you remain static and you just go, “Well, do I play by the rules or do I try to make money?”  It’s not a good situation.  So anyhow, I ended up just doing the reviews too, but obviously I try to do it with a little bit more care than the next guy and I have my own theory on like proper ways of doing that too.

But the reason I think that Amazon’s going to be okay with it in the long-run is because, one, it’s essentially turned this kind of Groupon mentality to Amazon.  So you’ve got a huge amount of people who are now on Amazon just constantly reviewing stuff.  Maybe it’s not a good ecosystem, but anytime you want to get free or cheap products, people know that they can go through these review clubs and go and get in on Amazon.  So it doesn’t hurt Amazon.  They still get paid for all this kind of stuff.  Every time you give away a product, they get their commission, no big deal.

So the other thing, too, is that I just try to think if I’m Jeff Bezos, I do think that the FBA dream has helped Amazon more than anything else in its past.  This whole idea of The Amazing Seller and all these other podcasts, you know, even guys like us, talk about how to make money off Amazon.  And when everyone’s talking about how to make money off Amazon, then you’ve got complete crowd-sourced buyers shoving inventory on there for you, testing out the market, spending money on tools, figuring out how to make things better.  So they don’t even have to worry about conversion rate optimization, you know?  All their sellers are working on it.  Now there’s Splitly, now there’re people testing all these other things, there’re people making packs.  It's like a little optimization engine that just keeps running, and the more people they have working on it, the better it gets.  So I feel like Jeff Bezos has created like the ultimate Willy Wonka Chocolate Factory and he’s just drinking all that [slurm? 00:17:59] out of there now.  So that’s my long-winded spiel on that.

Mike:   I have a pretty good thing on the heels of that, which I have written down here.  What are your thoughts on Amazon selling Amazon Basic products and expanding that like with the use of that data that you just mentioned?

Grant:  I think with them, it would be beneficial to cherry-pick the most profitable items, and when you look at Amazon’s sponsored products and they can see how much people are willing to pay on PPC, I mean they can just do a regression algorithm to see exactly how much you’re willing to go into heartache to get your product to rank because they know that most people are willing to break even on PPC.  So they know your cost for just about everything and they can figure out, “Well, look at everybody that has the best [ACOGs? 00:18:50], look at them who have the highest BSR.  We’re just going to go monopolize those markets.”  Long story short, I would hate to be number one on any category that’s profitable.

Mike:   Yup.  Yeah.  Or be in any category that is high-volume because there are situations where I’m happy to be in the fifth best sellers in some category or even 20^th best seller, you know, and we’re still doing really well, kind of under the radar, but it’s a category that Amazon might get into.  I mean I think everybody know that s we sell colored pencils.  Amazon has an Amazon Basics pencils thing now, which is kind of scary that they get into these–

Grant:  Do they really?

Mike:   Yeah.  Yeah, as far as I know.

Grant:  Wow.

Mike:   I’m pretty sure they do.  I have to look that up real quick.

Grant:  So I’ve got a buddy who’s into toner, and you know the margins on that, I’m assuming.

Mike:   Yeah.

Grant:  Yeah, for every piece of paper, you print out $1 for yourself.  It’s just liquid gold, and Amazon is getting into the Amazon toner business apparently, so my friends were very unhappy because the price suddenly dropped by a good 70% overnight.

Mike:   Yeah, no it’s definitely scary.  I was like actually shopping for something the other day, I think it was an iPhone case, and I was on someone else’s iPhone about to buy it and like Amazon just runs an ad right underneath of that product, like right underneath the Buy box basically, saying, “Hey, come check out this Amazon Basics product.”  So if you’re selling a product in a category that they want to win in, you’re pretty screwed.

Grant:  I would agree.  It would be a very bad day if they came in to any of my categories.  Luckily, my categories aren’t really all that popular, so…

Mike:   Yeah, I think it’s kind of a lesson learned to not go after the biggest things, right?  I mean that’s kind of how we’ve always been anyway.  You don’t necessarily want to be selling toner or cables or iPhone cases where there’s just so many of those sales over at Amazon, where it makes sense for them to want to compete.  Something like our books or some of our other products that we’ve launched, like some cases or things that we’ve done, they’ll never get into those categories just because they don’t sell through anywhere near enough for them to be bothered with it.

Grant:  Mm-hmm.  Now, kind of going on that, though, I do think that what’s going to happen with a lot of people who have very high-volume listings is that they have a lot of incentive to try to mitigate against the potential Amazon catastrophe and if you’re anywhere in the top 1,000, top 2,000 of a product, you’re moving a good 1,000-plus units a month very easily.  And at that point, you’ve having hundreds of thousands in inventory, even millions in inventory, depending on what categories, how many listings you have.  And at that point, you can really just look at opening your own store.  You’ve got the funds, you’ve got the cash flow, you know, you’ve got the product, and I’m assuming that most of those guys, rather than trying to milk one item for all that it’s worth– and I know there’re going to be a lot of guys out there, you know, the guys who’ve got the number one mosquito netting or something like that.  I don’t know if you can necessarily create an entire website about mosquito netting, but if you can at least get 10 to 15 SKUs up and maybe create a website about bug netting or something like that, it goes somewhere at least to building a brand, kind of like what you’ve done with ColorIt.  The whole idea is that Amazon launches your brand but you need to have your own direct marketing place maybe not even to grow your revenue but just as a hedge to protect yourself.

Mike:   Yeah.  So I guess the next thing is what do you think they’re going to do with these stores?

Grant:  As in the Amazon–?

Mike:   Like the brick and mortar stores, yeah.

Grant:  Oh.  Well, I do think we’re just going to keep continuing seeing more consolidation.  I see that in the malls.  I’ve got the two mall locations and–

Mike:   Amazon has like a store up in Washington, right?  Isn’t that like their first store?

Grant:  I’m pretty sure they do.  Completely off topic, somebody was just telling me about the banana cart.  I don’t know if you’ve heard about the Amazon banana cart?

Mike:   I have, yeah.  They’re like these little pop-up stores.

Grant:  Yeah, apparently one of the perks of being an Amazonian is that they just have random goodies that they just pass out on the street in front of the Amazon headquarters.  I was talking to somebody who was working next door, and one day they had an ice cream truck come in and they just gave everyone free ice cream.  And they have a banana cart up there too, where you just apparently go up and they give you a free banana.  It doesn’t matter who you are.  Strange dude walking down the street, walk by Amazon, have a banana.

Mike:   Interesting.

Grant:  Yeah.  This is what all your FBA money is going toward, people: making sure that Seattle is fed bananas.  Must be like some kind of stupid inside joke or something but, yeah, ice cream truck pulls up, now you’ve got banana ice cream split.  Other days they have other people there, just random things.  I don’t understand it myself.

Mike:   Interesting.  But I mean I guess in terms of the actual like brick and mortar stores, I haven’t actually been in one yet.  I think they only have one or maybe a couple of them in the county.  For some reason, I was thinking there was one in Seattle, but maybe it’s like New York.  But from what I understand, they’re smaller.  They’re like 3,000 square foot versus like a Barnes & Noble, which is like 30,000 square feet and they’re just like these little retail stores that they’re coming out with.  Maybe you haven’t heard about it or whatever, but I was curious what your take was on what they’re doing there.

Grant:  Yeah, I haven’t been in one.  I heard that they were going to open on in Seattle, but the reality is I don’t really shop in person.  So I might bounce that back to you.  Wasn’t one going to go down in San Diego or something?

Mike:   I was actually just looking real quick to where it is.  I think it’s actually in New York.  My thought is that the whole– actually, this has been a big topic in some of the ecommerce events I’ve just been to, but only something like 6% or 7% percent of transactions, even to this point and even though ecommerce has expanded so much, are done online and the other 93% or whatever are done in person, and usually within a file miles of the home.  I’m actually looking at this article and the store’s in Seattle, so it’s somewhere near you, Grant, their first retail store.  It’s in University Village Mall.

Grant:  Oh yeah.  I know where that is.

Mike:   Which is by a college you went to, right?

Grant:  Yup.  They probably took over the Barnes & Noble that used to be there.

Mike:   Yeah.  So, anyway, I think that’s kind of like what their thought process is, is just to have an extension where people are still going in person.  A lot of purchases are still made at the local grocery store, the local hardware store, the local Best Buy or whatever like down the street.  And you’ve got to think of like middle America, where the other 40% of the country lives that aren’t living in cities.  They’re making almost all their purchases in person still in that lifestyle.  It’s interesting.  I think a lot of it is they’re just trying to expand their reach and trying to get more dollars for people who are looking for stuff immediately.  They know what top 1,000, top 2,000 best-selling SKUs are.  They can probably cover 80% of all of Amazon’s sales with some limited number of SKUs like that and can have those in a retail store that people can just go buy when they want it.

Grant:  Here’s where I might add maybe some disclaimers.  I would believe those numbers, but things that I would want to know personally: for example, Wal-Mart.  What do they do?  Like $450 billion or something like that?

Mike:   Yeah.

Grant:  And when you look at Wal-Mart and the percentage of EBT purchases that actually makes up Wal-Mart, it is some ridiculous number from what I remember.  And I think that number might be as high as 25% or 30%.  So, when you think about it, Wal-Mart is kind of this giant American like subsidized supermarket.  You have people who are essentially using the modern-day food stamps and buying stuff at Wal-Mart, and you can’t use food stamps on Amazon, right?  I mean I’m sure Bezos would love to be able to have food stamps be accepted over there for Amazon Fresh, but I do think that there are areas that are simply off-limits to Amazon, and a lot of the Wal-Mart customers, if I had to imagine too, they might actually be paying in cash.  I’m not trying to bash on Wal-Mart customers; it could be any customer here.  But there’re a lot of people who simply don’t use credit card, they pay on debit card, and the reason is they either have credit issues, they just don’t want to pay on credit or something.

Obviously, you can still use your debit card online, but this is kind of a certain demographic, certain part of the population.  And there’re also other people who simply just don’t purchase online.  We’re talking about older folks and whatnot.  I know my parents still have trouble figuring out Amazon.  They ask me to order on Amazon for them, and I’m like, “Seriously?”  How about your parents?  Do they order from Amazon?

Mike:   I think they can figure out Amazon, but I don’t want to give them too much more credit than that.

Grant:  Yeah.  So I do feel that when you cut apart some of the existing spending habits of people right now, the reason that we see still a big SKU over to the brick and mortar is just the fact that I do think that there are systematic things that are preventing Amazon from having a greater reach, and I do think that when you come across a lot of the disposable income, Amazon is sucking up a lot of that.  So younger people, white collar people, gainfully employed, I do think that a lot of your modern-day small little do-dads or just small consumables are getting purchased from places like Wal-Mart or your convenience store or whatnot.  But what do you think?  Do you think Amazon will actually be able to take over those daily goods?

Mike:   I don’t know.  That one’s a tough one to figure out and I think they obviously are pretty smart.  It makes me think of Apple back in the day, when Apple first came out with stores.  I was like, “That’s the stupidest thing ever,” and sure as can be, you know, think about the Apple store now.  I actually just went to the Apple store to get my new iPhone.  Every time you go in there, it’s just a complete madhouse.  It’s amazing.  So I don’t know.  I think just because of the stats of how much stuff is done offline, they’re probably using this first store, the first few stores as kind of a trial and error to see what does the best and I don’t know, something kind of tells me that it’s probably going to do pretty well.  I mean they have the name recognition.  It’s kind of like a Starbucks.  They could have one on every corner eventually.  Who knows?  I don’t know.  I’m not quite ready to make a bold prediction on that yet.  I think I’ve got to see how it goes first.

Grant:  Yeah.  Just from the brick and mortar side, I do know that malls, as a whole, are in the decline.  And I actually just did a really big pitch deck to somebody in my space about why they need to revitalize their marketing, because malls are really classified into three types of categories, or grades, you can say.  And it would be like an A mall, a B mall, and a C mall.  The A malls are doing fantastic right now, and A malls are places in Houston, San Diego, San Francisco, New York, all the major metropolitan areas.  In the A malls, you find all the big brands and that’s probably where you’ll find Amazon opening up stores and they’re doing better than they ever have and you can almost say that that might be a result of the rich getting richer and the poor getting poorer.  There’s a lot more disposable income for those that have disposable income.

On the other hand, the B malls and C malls are just floundering.  C malls are closing just unbelievably fast.  Those, unfortunately, are the ones all throughout the rust belt, the Midwest, rural areas.  I mean they can’t find any anchor stores that are willing to be in there.  you think about an anchor store at a small, little town, and it would be like Sears, JCPenney, maybe even something like, and they’re not remotely an anchor store, but RadioShack.

Mike:   They’re all gone.

Grant:  Yeah, exactly.  Barnes & Noble, Sports Authority, Best Buy.  I mean these are like kind of middle America anchor stores and they’re just getting destroyed.  So once your anchor stores go out in a mall, that’s a very bad thing.  They’re called anchor stores because they are a huge draw for people to go to the mall.  And they go away, now you lose your foot traffic.  Now you have all these little guys that are not subsidized from the mall, paying enormous amounts of rent for a lot less people and they immediately just fall.

Mike:   Go out of business.

Grant:  Yeah.  Like very weak hands.  And in our location, we’re next to, for example, a JCPenney.  Every time JCPenney talks about bankruptcy, I’m just like, “Oh, God.  Please no.”

Mike:   Oh no.

Grant:  Like maybe we can get a better anchor in there.  we have Nordstrom’s, we’ve got Macy’s and stuff, but we’re right next to the JCPenney and I think our clientele is much more JCPenney than Nordstrom’s.  It’s a huge problem and we’re in like a B kind of mall.  We’re in an A and a B.  But the B malls, yeah, they’re struggling too.  Middle America’s struggling and that’s kind of a scary thing.

Mike:   Yeah, definitely.  Well, unfortunately, we’ve kind of run out of time.  I went through all my list anyway, so I think we’ve kind of wrapped up all of my thoughts.  Did you have anything else to add to this real quick?

Grant:  Yeah, I think we spent a lot of time talking about Amazon, of course, and brick and mortar, but I do think we should give maybe just a few minutes to the independent ecommerce store.  We talked about independent brick and mortars, like the independent stores like IceWaps.com, CuttingBoard.com.  What do you think?  Is it going to grow or shrink?

Mike:   I think grow.  I think that ecommerce is continuing to grow.  It’s gone from 4% to 5% to 6% to 7%.  I mean it’s slowly growing.  Something crazy like half of all of those ecommerce stores of that 7% are going to the top 10 ecommerce stores, so there’s very little left over for the smaller guys like us, but I think that where the individual stores can shine is by offering niche products and better service, expertise about their particular niche.  You know, if you’re trying to buy something from Amazon, an ice wrap, for instance, or a cutting board even, there’s no one there who’s going to really know that stuff inside and out.  And if you just had a sport injury, it’s something that’s very near and dear to your heart obviously, taking care of your body.  If you play sports and your knee always aches or you’re getting a knee replacement or if you have cancer and you’re going through chemotherapy and you need some of these products for that, you’re not going to get any answer from Amazon, and I think that that’s where the individual stores can shine and it’s all about content around that.  So having large amount of really good high-quality content that answers questions about those things and having something to differentiate yourself I think will allow these smaller stores to still differentiate themselves and do just fine.

Grant:  I agree.  I think it’s going to grow and I see all of the growth in places like Shopify, BigCommerce, just the sheer amount of SaaS apps that are coming out every day.  And I’m not talking just Amazon, I’m just talking about regular ecommerce tools.  I feel like in the last two years, we’ve seen a complete explosion, which means demand is obviously there.  So people are talking about how to do more advertising on Facebook, how to do more email marketing, and obviously if you’re doing both of those, you have clients of some kind.

Mike:   Yeah.  But I do think it’s going to be harder and harder for the ecommerce store that’s just getting started, you know?

Grant:  I would agree.

Mike:   I think that there was a time where you could launch a Shopify store and, within a few days, like get your first order and without a whole lot of effort.  And I think that’s going to be more and more difficult because there was a time where, because it’s the internet, you can make yourself look big, a lot bigger than you are, with a lot of these cheap or free tools, like just launching a Shopify store.  But I think that people are getting savvy enough to realize the difference now, so the bigger guys are getting a bigger advantage over the smaller guys, if for no other reason than that reason alone.

Grant:  I do think cost per acquisition is going to continue to go up, and a lot of that is, let’s face it, I believe the internet is essentially an arbitrage machine.  And it’s all about how much money does it cost to get eyeballs on your product.  TV and radio used to be it, then the internet came around, and now Google was the huge arbitrage and then Facebook and then Instagram, and you can’t really make much money in Google PPC.  I mean you can obviously, but in competitive spaces, you’re just going to lose money outright.  Facebook is still a room where a lot of people can do a lot of arbitrage and other places like that, but I do think in the future, once everybody starts really ramping up their abilities, then it gets expensive for everybody very fast when everyone knows how to do something.

Mike:   Yup.  I think the reason that’s become that way is because the number of retailers has grown quicker than the number of people looking to buy like on a relative number.  So if the number of retailers has doubled or tripled or quadrupled over the last couple of years, but the percentage of transactions in ecommerce has gone up by 1%, you know, then it’s just basically the competition’s much more tough and the sales aren’t growing at the same pace.  So that’s why PPC goes up and cost per acquisition goes up.

Grant:  Yeah.  And I think a lot of the knowledge of what works now is actually going to get flipped a little bit later in life, and I think there’s a lot of talk about long-term value, lifetime value, for customers and this and that, and how these techniques work and these kind of things work over here.  But I do think that it’s going to be a constantly-shifting game and ecommerce is just going to continue to get harder, especially for new people.  And obviously that window has not eclipsed yet but I do think it’ll be much like somebody trying to start up their own like store in a mall, for example.  It’s going to take a lot of capital in there and I think it’s so attractive right now because it takes what people perceive as little capital– only $20 a month and you can get a Shopify store, right?

Mike:   Yeah.

Grant:  But then you just realize, “Oh, well it actually costs me $50 to acquire every customer and it takes another $2,000 to hire marketing guys to do this here and then costs me another X amount in inventory because I can’t drop-ship anymore because nobody actually makes money drop-shipping because everyone breaks MAP and all this kind of stuff.”  And I think it’s going to be a big bucket of cold water for people who are entering very competitive industries.

Mike:   Yup.  I couldn’t agree more.

Grant:  So that’s, yeah, pretty much my predictions for the next three years, four years, I would say.  Anything beyond that and I would have to defer to just technology and history and say that I have no idea what’s going to happen in four years, other than I hope we’re not under Trump.

Mike:   Yeah.  There’s a debate tonight.  We’re recording this on the night of the first debate so we’ll see how that goes.

Grant:  Yeah.  I’m going to buy like [December puts? 00:39:02] if I think it’s going to go wrong, man.  I’m telling you right now.

Mike:   Yeah.

Grant:  It’s going to be a lot of like out of the money put call.  Yeah.

Mike:   I wonder if you could buy like poop hitting the fan puts.  That’d be pretty nice.

Grant:  Yeah.  Let’s see.  Which symbol would that be?  Poop.

Mike:   Poop on NASDAQ.

Grant:  Shit hit the fan.

Mike:   Yeah.

Grant:  That probably means buying calls for Smith & Wesson and like Haliburton and stuff.

Mike:   Yeah, pretty much.

Grant:  Like, “Ah, troops are going to get deployed at this point.”

Mike:   Yup.  All right, guys.  Well, hope you guys enjoyed our predictions, our two-part series on this, and we’ll be back next week with another topic.  Looking forward to it.  We’ve been talking about some pretty interesting things, so I think you guys will enjoy some of our future episodes.  If you have a second, take a moment to like us on iTunes.  I know we say it all the time, but we never seem to get a lot of reviews and we have a lot fewer reviews than we do have listeners because I meet these listeners all the time and they’re like, “Oh, I haven’t gotten a change to leave a review yet.”  So we do all this free content, all we ask is for a review.  So there’s my pity pitch for the week, and I’d definitely appreciate it if you guys could do that.  And besides that, we shall talk to you next week.  Bye, everyone.

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