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Marcus Johnson (00:00):

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(00:25):

Hey gang, it's Friday, August 15th. Rachel, Jeremy, and listeners, welcome in to Behind the Numbers, an EMARKETER Video Podcast made possible by Awin. I'm Marcus, and today we have two folks joining us from our New York Studio. Retail newsletter analyst Rachel Wolff, hello.

Rachel Wolff (00:40):

Hey, Marcus. Thanks for having me.

Marcus Johnson (00:42):

Of course, of course.

(00:43):

And senior director of briefings, Jeremy Goldman, how are we doing?

Jeremy Goldman (00:46):

Hey, I am doing great and I have some really cool stuff to tell you. But I know the fact of the day has to come before anything else.

Marcus Johnson (00:55):

Go on.

Jeremy Goldman (00:57):

Happy birthday, Ben Affleck, Jennifer Lawrence, and Silas Winslow-Goldman. I have to say this because my first son, second kid, is a big fan of yours, Marcus, and also of Amazon, so he's really excited for this episode.

Marcus Johnson (01:13):

Silas is our only listener. I don't know if that's true, but it might be. We have one. It could be him.

(01:19):

Why did you name him third of all the people you listed? Silas, I'm terribly sorry about-

Jeremy Goldman (01:24):

I think more people are familiar with Ben Affleck and Jennifer Lawrence. Are they not?

Marcus Johnson (01:27):

No, they won't be. No, absolutely not. Yeah, we'll cut Silas in for us. Hello, Silas. Happy birthday to you. I don't care about the other people.

(01:35):

Anyway, today's fact of the day. In Japan, there is an island called Okunoshima full of wild but friendly rabbits. This one's a good one. The island is nicknamed Rabbit Island, fitting, and the bunnies approach people without fear because there are no natural predators. Cats and dogs are not allowed on the island either, and so you can just go and hang out with them. They're very friendly.

Rachel Wolff (02:07):

That's interesting. Isn't it-

Marcus Johnson (02:08):

Rabbits are normally friendly.

Rachel Wolff (02:09):

Isn't it true that rabbits can die of fright? I think I've read that somewhere.

Marcus Johnson (02:13):

Bring us down, Rachel.

Rachel Wolff (02:16):

Sorry.

Marcus Johnson (02:16):

Took a turn.

Rachel Wolff (02:16):

Very abnormal rabbits.

Jeremy Goldman (02:19):

How did they get there, though? That's what I want-

Marcus Johnson (02:22):

There are a few theories. Yeah, I spent too much of my day really looking into it, but yes, there are a few theories of how they got there. But no one is certain for sure.

(02:32):

Well, so here's another fact about rabbits. In 1807, French military general, the statesman Napoleon Bonaparte was attacked, he wasn't really attacked, by hundreds... He swarmed by hundreds of rabbits during a rabbit hunt organized in his honor. Instead of fleeing the hunting party, they charged Napoleon and, charged is a lot, and his men. Some reported this was because they weren't wild. They were tame and hungry. They were unfed, and so they just swarmed him. He had to run away.

Jeremy Goldman (03:05):

In fairness, wasn't he known for carrying a lot of carrots in his pockets?

Marcus Johnson (03:11):

I don't think that's true.

Jeremy Goldman (03:11):

That's not true. That's wouldn't explain things.

Rachel Wolff (03:14):

He's secretly Bugs Bunny.

Jeremy Goldman (03:15):

Yeah.

Marcus Johnson (03:18):

Yes.

Jeremy Goldman (03:18):

[inaudible 00:03:19]

Marcus Johnson (03:18):

Anyway, today's real topic: Amazon.

(03:20):

"After pledging to keep prices low, Amazon hiked them on hundreds of essentials," reads a Wall Street Journal headline. The article reads, "In the five months since President Trump first announced sweeping tariffs, Amazon quietly raised prices on low cost products such as deodorant, protein shakes, and pet care items," according to a Wall Street Journal analysis, "of nearly 2,500 items. In April, Amazon said it would hold the line on prices." The article notes, "But the journal's analysis shows that prices from e-commerce data firm Traject data found that while Amazon's price on the 1,200 of its cheapest households goods went up, competitor Walmart lowered prices on the same items by nearly 2%."

(04:10):

Amazon did respond by saying the products tracked by the journal weren't representative of the company's prices overall. But Rachel, how is the world's largest online retailer weathering tariffs so far in your opinion?

Rachel Wolff (04:24):

I think overall it's weathering it pretty well. I mean, if you look at this past quarter, they had another solid quarter of growth. We had online store sales up 11%. Like they said, they're not seeing any decrease in demand so far. As you said, they are pushing back very strongly against the narrative that prices are going up.

(04:46):

I think so far it seems like most sellers are working through pre-tariff inventory, inventory they brought in while tariffs were lower, so it's possible that yes, the price impact has been negligible. Whether this will hold also remains to be seen. There are a lot of questions there, but I think so far Amazon is holding up extremely well.

Marcus Johnson (05:08):

Yeah, to your point, I mean, the growth overall was impressive. The smashing quarter top line was over 13% growth on basically $170 billion in the quarter. Growing faster than last Q2, and it's the fastest quarterly growth top line since Q4 2023. The line talking about, online stores, net sales, that was up 11%. If you go back previous Q2, it was up five. Previously four, previously negative, so this 11 is exceptional to be frank.

(05:43):

But, Jeremy, it seems to what Rachel was ended on, it does seem like they're not out of the woods yet. Rachel noted in one of your articles that the range for Q3 suggests that there could be, we said Rachel, a drop from of 11% to a gain of 18, and so that range in itself you were saying indicates considerable uncertainty going forwards. Jeremy, what do you make of the online retailers' negotiation through this world of tariffs so far?

Jeremy Goldman (06:14):

I think that Rachel's right here. They definitely have some sellers that they planned ahead. There was a lot of signaling that the relative chaos that retailers and CPGs had had to deal with in the first part of the year. People knew about this so they could both. If you're a seller on Amazon, you have contingency plans in place to some degree.

(06:41):

But that does wind up catching up to Amazon the longer this goes on. Amazon's right to basically have a degree of caution in terms of what this looks like going forward because it's not like Amazon can say, "Yeah, we think that November 12th is the day where the relative chaos tied to tariffs is going to be done." They don't really know, so they can have projections but nobody quite knows. As a result they have to hedge a little bit by not saying that Q3 is going to be gangbusters.

Marcus Johnson (07:15):

Yeah, and I guess it's nice that they've got a Prime Day. It feels like it's in Q2, but it's not. It is in Q3, and it's nice for them to have that in the books and have a sense of how that went. That's going to shape obviously the rest of the quarter with the remaining August and September.

(07:32):

Amazon extended this year's July Prime Day event from two to four days. US retailers drove just over $24 billion in online spend, all of the retailers during that period. That's up 30% year over year for the Amazon Prime Day events. 8th to the 11th of July, I believe. These numbers were from Adobe in our article on retail dive by Danny James.

(07:58):

Jeremy, for you, what was the biggest takeaway from Prime Day this year?

Jeremy Goldman (08:02):

I think the biggest takeaway is that Prime Day is just going to be something that winds up getting diluted over time. I think we've seen this a little bit.

(08:13):

I was even looking at some data ahead of Prime Day this year about knowing that Prime Day was going to be more days, how do you plan on making purchases? What is this going to do? A lot of people said, "Yeah, I'll spend more time shopping on Amazon." But the Tinuiti study also said that some people are going to wait until later in the event in order to pull a trigger, right? Which then if you're somebody like me, you put 17 things in your wish list. And then if you get around to it, maybe you pull the trigger.

(08:52):

It's not like a flash sale, right? It becomes longer and longer, and I think people just feel like it's business as usual and I worry on Amazon's behalf, like they need me to worry for them, that Prime Day just becomes something that people don't pay enough attention to necessarily. It's just going to be harder and harder to anniversary whatever success they have.

Rachel Wolff (09:15):

I guess I see it a little differently. I don't think that Prime Day is going to be less important, but I think that Amazon's share of spending is going to start to fall. Because one of the notable things is when you have a longer event, you give people more opportunity to comparison shop. We really saw Walmart, Target, all of these retailers get a pretty big bump during that period.

(09:36):

I think people are coming to expect sales in July, but whether they keep going to Amazon for all of those purchases I think will definitely shift.

Jeremy Goldman (09:46):

I think, by the way, that's a really good point is that the average shopper that from all the studies that we look at, Marcus, the data shows that they get on average more sophisticated every year. They do price comparison. They have tools that allow them to do this, right?

(10:03):

When Amazon says, "Wow, this thing is 40% off," maybe a few years ago people might've said, "Well, I better buy that now." But now it's easier than ever to just say, "I'm just going to make sure that that's a good price." Is that a price as in some cases where the price actually went up the few weeks before Prime Day so that then a seller could discount off of a higher number? Often that is the case, and I think that consumers are getting wise to that over time.

Marcus Johnson (10:33):

Yeah, on the discounts piece as well, I noticed that the higher prices from tariffs meant people said that they needed larger discounts, and so they're expecting the discounts to also go up before they buy.

(10:44):

This chart here from Tinuiti showing that when asked how tariffs will affect Prime Day shopping, the number one response from Prime members was that they needed to see larger discounts before pulling the trigger. That's more than the share of folks who are buying things now before prices went up and more than the share of folks who were just spending less. They were saying, "I just need bigger discounts to account for the increase in prices."

Rachel Wolff (11:08):

Yeah, I think the other interesting part is, going back to the Adobe data, is that they mentioned that a higher share of items being bought were in higher price points.

(11:16):

I think it goes both ways. Yes, people are looking for bigger discounts, but they are also using these sales as an excuse maybe to buy more expensive things that they wouldn't have bought otherwise.

Marcus Johnson (11:26):

Yeah, they are, but it's also... There's some of that, but Jeremy, I think I want to pick up on the phrase that you used, which was business as usual. It does seem to be that way for a lot of folks.

(11:38):

There's this chart again from Tinuiti showing that everyday essentials are what most folks buy on Prime Day. They've been doing that for a while, but you can see 51% of US Prime members on this chart saying that they were likely to buy essentials they would've bought had it not been Prime Day. They're likely to buy those during the event, and again from Tinuiti. That's a lot more than the folks who are back-to-school shopping or impulse buying. It does seem like it's just, let me just get the regular things I was going to get, but at a discount because this day, which is now turning into half a week...

(12:15):

Eventually, what do we think bets on next year being a week? A full five-day event probably first?

Jeremy Goldman (12:21):

I think if Amazon's smart, which they are, they're going to also lean into what are other ways to meaningfully discount that might not be a Prime Day, but it might be... Making up an idea, but like Amazon, if you're listening, which you often do because you're Marcus's second listener-

Marcus Johnson (12:39):

They won't be, it's just Silas.

Jeremy Goldman (12:41):

I think it's definitely valuable to find other ways to discount and to keep people on their toes rather than people just waiting for this big sale. Could it mean there's going to be one crazy hour in the middle of August where there's deep discounts, but you've got to be paying attention and you're going to get a push notification on your app and it's going to be things that are never discounted.

(13:03):

Something like that that wakes people up that feels new rather than something that just feels baked into the equation.

Marcus Johnson (13:10):

Yeah. Yeah, dynamic pricing I think is really interesting.

(13:15):

I think I've mentioned this a few years ago. At my university, they had this thing where at the local bar, which was part, it was on the campus, they would do this evening where it was stock prices for drinks. And so you might walk into the bar and a glass of Coke might cost $2. And then you keep paying attention to it and maybe in 20 minutes it price crashes and now you can buy it at like 30 cents a glass. Or if you come in maybe, oh, actually it's just gone up, you waited too long to get the drink, now it's $5. They would do that across different drinks to keep people engaged, do something fun.

(13:49):

I do wonder if Prime Day would do something like that, Jeremy, to your point of like a flash sale. Keeping people engaged, making them pay attention throughout the event versus... Because Rachel, I really liked the way you had phrased it. You were talking about daily average daily spending and average daily sales fell significantly. But you were saying that sellers and shoppers basically had recalibrated their behavior to accommodate the longer event because total money was up, but the averages were down because they had longer to spend.

Rachel Wolff (14:18):

Yeah, and they are doing this to a certain extent. Amazon does have special discounts that they... I think Prime members, you can put out alerts for certain things if they go on sale. They do have sales that go out even before Prime Day so you can keep an eye on what's happening.

(14:34):

Yeah, I do think that it'll be a struggle for Amazon to figure out how do you engage shoppers over a longer period of time. That also plays into advertising, right? If you're an advertiser, maybe you don't want to allocate too much spending to the first couple of days. Maybe you do go all in on the last two days when you know that people have the most intent.

(14:54):

I think it's going to be sort of test and learn for them. Next year I think they might stick with four, maybe five days, just to see, again, what can they do to get people to stay engaged over the entire period.

Marcus Johnson (15:09):

Yeah, the advertising, line item, pretty healthy. 23% growth in Q2. That is up from basically 20% last Q2 and becoming a significant piece of their business. This quarter it was just over 9% of their whole business was the advertising piece.

(15:29):

The final story I wanted to focus on here with regards to Amazon was about their AI ambitions, though. One headline from Nicole Nguyen in the Journal stated, "Why Amazon wants an AI bracelet that records everything you say." Sounds fun. She explains that Amazon is buying Bee, B-E-E, maker of a wearable bracelet that transcribes your conversations and uses AI to create searchable histories and action items in a to-do lists.

(16:00):

Rachel, is this Amazon's AI future?

Rachel Wolff (16:03):

I think it's one piece of it. I mean, I'm always slightly skeptical about these kinds of AI devices because I don't know how many people would feel comfortable having a device that they know Amazon is listening to every word they say, although I guess that's technically what Alexa-

Jeremy Goldman (16:19):

Echo. People have an Echo?

Rachel Wolff (16:20):

Yeah, but I think it's different. I guess people feel differently about having it in the home versus wearing it all the time. It doesn't play music as far as I know.

Marcus Johnson (16:29):

The Echo is supposed to have a wake word, right? The Alexa is supposed to have a wake word, whereas this is supposed to just you switch it on, it's listening the whole time in theory.

Jeremy Goldman (16:37):

Echoes have been known, including mine, but there are many other reports of it just starting to do something even when it's asleep or supposed to be asleep and not paying attention to you. That's worth noting.

(16:51):

But by the way, the whole entire thing about what its AI future is, if you have the ability to spend, Rachel and I were talking about this offline right before, this is in some ways what you have to do in order to show the market that you're doing innovative things. But also then you're spending so much on AI and you have to show is that money to good work.

(17:18):

In some ways, they're darned if they do, darned if they don't. A lot of the companies that we cover, we just had a Triopoly advertising earnings report that we put out that basically showed that there's been a substantial expenditure from Meta, Google, and Amazon in AI that is far greater than the increase in ad spending, or in Amazon's case in terms of online sales. Basically, it has not been justified yet in relation to the dollars spent.

Marcus Johnson (17:50):

Yeah. Yeah, it's hard to know how much to focus on this because their competitors, a lot of the big tech players are investing in these things. Meta has their Ray-Bans, their smart glasses. OpenAI just hired Apple Designer Jony Ive to come up with some kind of AI-focused device.

(18:08):

It does seem like almost like we better do something, but it probably isn't going to be our entire future.

Rachel Wolff (18:14):

Yeah, I think for Amazon, really the big question is how is GenAI and AI going to affect the shopping journey, right? Is it going to take people away from Amazon? Are tools like ChatGPT or Perplexity going to be the places where people discover products? In which case, what does that mean for Amazon's retail media business, for example, or even its ability to build loyalty and collect data from its customers?

(18:40):

I think in terms of investment, I would say that probably a lot of the money is going there. How do you create a business that is protected from AI shopping agents, but how do you build your own shopping agent to take advantage of the fact that you think that that's how people are going to shop in the future?

Jeremy Goldman (18:55):

The whole caveat that I think you're right to point out, Rachel, is that there are other people trying to figure this out that are basically platform-agnostic, and then you have a lot of people who might be competing on value.

(19:10):

In a lot of ways this ties into how is the economy going. Because as we know, people will do a lot more price comparison-like behaviors when it's, A, frictionless for them relatively, and then, B, when they are more price sensitive. If people are more price sensitive, this is going to be difficult to keep people within the Amazon ecosystem.

Marcus Johnson (19:30):

Yeah.

(19:32):

That's all we've got time for today's Amazon conversation. Thank you so much to my guests. Thank you to Rachel.

Rachel Wolff (19:36):

Thanks, Marcus.

Marcus Johnson (19:38):

And to Jeremy.

Jeremy Goldman (19:38):

Pleasure as always.

Marcus Johnson (19:40):

And of course to the whole editing crew. That is Victoria, John, Lance, and Danny. Stuart runs the team and Sophie does our social media. Thanks to everyone for listening in to Behind the Numbers, an EMARKETER Video Podcast made possible by Awin.

(19:49):

We'll be back Monday. Happiest of of weekends.