2022 is almost here! Let’s talk about trends around selling your Amazon FBA business and the aggregator business. 2021 was the emergence of aggregators on 2021. Learn about the dominance of Amazon eCommerce this year, and how Covid-19 accelerated online sales trends. Rob Salmon is the Head of Research at Global Wired Advisors. He has spent the past two decades analyzing transportation companies as well as the broader economy. He was named a Rising Star on Wall Street in the Airfreight and Surface Transportation Sector. Joe Hogg is the Co-founder of Global Wired Advisors. Joe began his career on the floor of the Chicago Mercantile Exchange where he traded foreign exchange and interest futures for some of the world’s largest investment banks. He was the global head of funding for Wells Fargo’s trading and investment banking division, Wells Fargo Securities.
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Episode: 238
Title: Norman Farrar Introduces Rob Salmon and Joe Hogg – Head of Research Rob Salmon and Global Wired Advisors’ founder Joe Hogg
Subtitle: “Selling Your Business in 2022 – What You NEED to Know”
Final Show Link: https://www.youtube.com/watch?v=f7OWVAbE6Yk
Back on Lunch with Norm…In this episode, we talk about the emergence of Amazon aggregators during 2021. Rob Salmon is the Head of Research at Global Wired Advisor. He has over 2 decades of experience analyzing transportation and economy, named a Rising Star on Wall Street in the Airfreight and Surface Transportation Sector. Joe Hogg is the Co-founder of Global Wired Advisors. He was the global head of funding for Wells Fargo’s trading and investment banking division, Wells Fargo Securities.
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Norman Farrar 0:03
Hey everyone it’s Norman Farrar, aka the beard guy here and welcome to another lunch with Norm the Amazon FBA ecommerce podcast.
Norman Farrar 0:22
Okay, today we’re going to be talking about the trends for Amazon aggregators for 2022. And what brands need to know I think it’s gonna be a really great episode. We’ve got some amazing guests on the show today. And there are sponsors. So our guests are from global wired Advisors, a digital investment bank, and sponsor of the show. So guest one is Rob Salmon. He’s the head of research, and looks to build a world class research platform on companies in the digital consumer sector. And my buddy Joe Hogg, is the managing partner and was the Global Head of funding for Wells Fargo trading and investment bank division at Wells Fargo security. So we’ll welcome the guests in a second. But first, let’s have a word from our sponsor. I wanted to give a quick shout out and say thank you to global wired advisors for sponsoring this episode of lunch with Norm. Global wired advisors is a leading digital investment bank focused on optimizing the business sales process. For more information, please call Chris Shuffling and his team over at globalwiredadvisors.com. Okay, where’s the squire?
Kelsey
Alright, hello, hello.
Norman Farrar
Last episode of the year.
Kelsey 1:44
That is I am right. I got a special No you’re not. It’s New Year’s Eve on Friday. Oh, okay. All right. Almost. But yes. Welcome, everyone. Hope everyone is doing fantastic. How is your holiday week? Weeks go in? We got old school joining us. Welcome Rad, Jeff, Jessica Rabbits. It’s great to see all of our beardos. Yeah, let us know how your Christmas and holidays are going. We’ll be back in the studio Friday. So back to normal. And yeah, so if you’re new to the show, remember to smash those buttons give us thumbs up. Also, if you’re looking for a fantastic community, as I may say, the left with Norm Amazon FBA and E commerce collective. That’s where all the good stuff happens. You can join there. And also, if you’re looking for replays, you can check out our YouTube channel. That’s Norman Farrar. And that’s where all 235 episodes are, I think maybe 20 to 40. Now, so yes, Jeff, Happy New Years. Yeah, let me see. I think that’s about it. We can kind of jump in today. Today, we have two guests. And yeah, it’s gonna be, it’d be fun. So,
Norman Farrar 3:08
Yeah and it’s gonna be, we’re gonna be talking about the trends, I think it is really important going into 2022. There’s a lot of different trends. And I’ve seen just one sec. Now another frog in my throat. I’ve seen Joe talk about this in an event and it was fantastic. So if you don’t get at all, we are going to be posting the reports in the show notes. So you can go back and refer to them. But it’s going to be fantastic information. All right. So I think that’s about it. If you have any questions, throw it over in the comment section. And so sit back, relax, grab a cup of coffee. Enjoy the episode. And welcome Rob and Joe.
Joe Hogg 3:52
How are we doing? Good, good. Good. It’s good to be like,
Norman Farrar 3:57
How do you like that little sponsorship thing?
Joe Hogg 4:00
Well, we like it. We like it a lot. We love being promoted anywhere and everywhere we can
Norman Farrar 4:07
when we like you for sponsoring us. So anyway. Let’s get into this. We I think you talked was it at the billionaire dollar Summit. Cellar Summit. BBSs. Yep. And that’s where you gave this report first, wasn’t it?
Joe Hogg 4:26
No, actually, that that was a that was a slide deck. I went through that, you know, was a little bit more general. It looked at broader trends in the economy. The the report we’re going to be looking at today is specific to the niche buyout class, the aggregator the Amazon aggregator, and in putting the report together and frankly and kicking off the research effort, which Rob is heading up. We felt that there was really a void in the market there was really a spot that needed to be filled with respect to analytical research rigorous analytical research and, and that’s what that’s what these focus reports are designed to do is to fill that need. So at pdss, I went through broader trends that would impact valuations for three P sellers. And, you know, we’ll be we’ll be touching on that probably in in future focus reports. But But this focus report, and unless you have the other one as well, we’re going to be looking at specific things. This, this first one is, again, the aggregator space and what we’re seeing and what we believe we’re going to see going into 2022.
Norman Farrar 5:37
Okay, and we do have the ability to share the screen. If you’re on a podcast, we’ll be sharing those in the show notes. Plus, we’re going to be describing them in detail as we move forward. Okay, so I’m not sure where you want to start. Who wants to take it away? Robert Joe, on the report,
Joe Hogg 5:56
I’ll kick it off. And I’ll let I’ll let Rob jump in, I think, I think if, if you can scroll perhaps to two. Let’s see, maybe page four, exhibit six. There we go. So, you know, I think a lot of people on the podcast are pretty familiar with the platform with the Amazon Echo sphere. So we probably don’t need to go through a lot of the introductory material that we put in the first part of the report, a lot of that was really aimed at people that are outside of the space that are trying to learn more about the space, particularly investors, people that are in venture capital that are trying to understand to understand the Amazon world, you know, but this is a pretty good chart as we get into year end, and we have the holiday shopping season behind us to, to contemplate so, you know, obviously, the pandemic was a boon for online sellers, where we saw just a tremendous shift from spending in the US economy away from services toward consumer goods, you know, obviously, Amazon, three P sellers, one P sellers, everyone on Amazon pretty much benefited from it. But now that things are getting back to normal Omicron set aside for the time being, we’re seeing more normalization, we’re basically seeing the service economy opened back up, and we’re seeing more shopping taking place, frankly, in malls away from away from E commerce platforms. So So this chart is kind of showing you that that trend was really underway prior to getting into the current holiday shopping season where you can see the convergence of the blue and orange line, the blue line, again being ecommerce sales, and the orange line being brick and mortar sales, we’re getting back to pretty much where we were, you know, from a from a split standpoint, and I will say the, the holiday shopping season, which I guess is now defined is November 1 through December 24. People are shopping earlier. For E commerce, it was up 11% year over year and 21 to over 20, which is pretty good considering that the the pandemic really juiced online sales. So, so overall that that held in pretty well it held in better than we thought it was kind of spread out where we saw a lot of people shopping earlier. But generally speaking, you know, sales were up, they were pretty good. But this normalization is happening and this normalization is going to have consequences through the aggregator space. And that’s really the the point that we make in the report is that a lot of deals were done. where things were a little pricey. Things were overvalued, where people were extrapolating a lot of pandemic growth well into the future that was going to revert back to mean so. So that’s something that we address in the report, but I thought this was a good. This was a good way to kind of dive into the report. I don’t know if you want to add anything that to that. Robert? Yeah,
Rob Salmon 9:14
just to piggyback on what Joe said that 11% growth was according to MasterCard, and you know, I think true holiday season actually began in October so the October if you include part of October, the numbers would be even better. I was actually surprised that we saw online sales actually outpaced broader retail sales. According to MasterCard, you haven’t yet gotten the the Census Bureau data which candidly I prefer and they were showing that E commerce actually grew to about 20.9% of total retail sales versus 20.6. And they’re excluding some automotive sales and gasoline stuff that you can’t typically don’t buy online. So we’re continuing to see this just really fast growth of E commerce sales and I think the first quarter will be in terms of year of your comp tough. But then as we look out into the back half of 2018, we should start seeing more normalization back to the trend growth that you’re seeing in Exhibit six of our aggregator report of about, you know, called 15% growth that we’ve historically seen with ecommerce.
Norman Farrar 10:21
Yeah. And I even wonder, especially with Amazon, if you’re going to see this continued growth, because we haven’t even like it’s it’s giftcard season now. Everybody’s spending their gift cards up until probably about mid January, even late January now. So we’re probably going to see that would you agree?
Rob Salmon 10:43
I totally agree. giftcard season and return season, right, you get something that isn’t quite right. For you during the holidays, and you spend a little bit more to get, you know, whatever it was that that you were really kind of craving. During the holiday season, that gift card season definitely extended the holiday sales, and that that’s a good thing grew up online sales, as well as brick and mortar.
Norman Farrar 11:06
You know, I never really thought about this. And it’s a little off topic. But you know, if you get a $20 gift card or a $50 gift card, psychologically, I’m sitting there going, Oh, if I could buy something for 75 bucks, and I can spend the 50. And I only have to spend an extra 25 bucks. You know, there’s additional sale I really like I always like gift card sales were just kind of a wash, right? Somebody bought it. They bought it back in November, December for somebody. So the the sales were then, but you’re probably seeing an additional 20%. Because who buys just the gift card? I don’t know about you, but I always overspend, like, Oh, I gotta do $20 Here, I’m gonna spend 30.
Rob Salmon 11:53
Well, if you asked my wife at point blank, exactly what you’re saying where she’d find something that that’s absolutely perfect, and exactly 10 bucks, we’re getting the right product. So I agree with the premise from both a personal perspective as well as the the economic tailwinds that we typically see with any sort of stimulus that goes into the economy. And certainly, we saw that during the pandemic, when the government wrote a bunch of checks to help us get through a really tough time. Right?
Norman Farrar 12:22
I am very curious to hear what you guys have to say about the we saw crazy multiples with aggregators, over last year, compared to the year before, you know, a year before it would probably think the average the average business sold that, you know, a 2.5 Multiple, it had an evaluation, and that was a 2.5. Multiple, and lash this year, I’ve seen it as high as 11. I’ve seen a little a bunch of companies selling around seven, but anywhere from four to one to 2.5 to about seven would be the range that people were selling the companies for.
Joe Hogg 13:12
Yeah, so, you know, like, like I was saying with, with respect to the the chart that we were looking at, on exhibit six, we have seen the normalization, in any Commerce Trends. And I think when we were in the thickest part of the pandemic, there was a tendency to extrapolate a lot of that anomaly into the future. And people got really excited about what the growth prospects could be, and they are quite good long term. A lot of money enter the space from the standpoint of venture capital coming in and funding a lot of aggregators there, there were a lot of deals to chase. But we have seen some normalization we’ve seen We’ve seen trends basically get back to where they were prior to the pandemic, which is not bad. I mean, ecommerce is typically growing at somewhere between 15 to 20% a year. So it’s a it’s it’s a great spot to, to participate in, but growing at 40 to 45% a year was not sustainable. It felt like it might have been but you just it just wasn’t. So I think what you’re going to see going into 2022 with respect to multiples is good companies are going to continue to trade with premium multiples. I think if if you see growth kind of flatlining or you’re having trouble with year over year comps, you’re probably going to see a little bit of an air pocket from a premium multiple down to a multiple that might have been closer to what you could have expected in 2019 that’s what that’s what we think we’re gonna see is a little bit of a bifurcation in the market from a multiple standpoint.
Norman Farrar 15:07
What about a non traditional format? So Amazon is saying that brand is everything right now building your brand community. And so as a business person, and I want to start selling soap, and I want to put a lot of money into the brand, and we do have something that’s going on right now that we’ve just pouring tons of money into the brand. So instead of seeing huge profits, the first year of the second year, you’re probably either losing or you’re, you’re you’re maybe making a point, you know, you’re not making much at all, but all your emphasis is going on to the brand for future growth. How are you going to see that come into effect instead of the, you know, the, the normal way of doing your market? valuations? I don’t know. Alright, let’s try that again. Okay, Joe, I think you’re on mute. There you go.
Joe Salmon 16:21
Okay, am I back? You’re back. Okay, good. Okay, good, good deal. Um, well, I think brand is important, you know, the, the thing that we’re seeing now, over the, I guess something that’s that’s quite new with respect to brand evolution, new within the last five years or so is that the lifecycle for a brand is much shorter than it was in the past. If you think back 1015 20 years ago, brands like Nike, Adidas, they had very long brand life cycles. Now, a brand can be basically launched on Amazon in the span of a couple of months, it can be acquired and scaled in the span of maybe two years. And it probably reaches some form of maturity within the next few years, unless it is a breakout brand. That grows much further than that. And as a result of that shortened, compressed brand lifecycle, we have a lot more brands, we have just 1000s and 1000s of brands that are they’re coming online and showing up all the time. And I think that investing in your brand is going to be important, because the field is a lot more competitive. I think that you, you’ve got to find differentiating factors with respect to building brand permanence. So that you first are going to be attracted attracted retractable to attractive to, you know, say an aggregator or corporate strategic or strategic sponsor. And you’re going to have to have a brand that that can think in play, they can compete, they can swim against all these other brands. So So I think a brand oriented approach is definitely the right approach, as opposed to trying to build a product and generate sales and take market share. I think that’s that’s fine for a quick start. But I think that you’re going to get more long term success if you’re, if your brain is brand oriented. And everything else.
Rob Salmon 18:44
Starting I’m just to piggyback on what Jim said is, you know, if we see that kind of top line growth come through a year after that investment in the brand is a fantastic investment. But it should all be driven by the return on invested capital, where you think the business can can grow over time. Because putting capital to work. If you’re not getting the returns, you’re expecting you’re actually better off de emphasizing the investment. But but if you’re able to kind of drive the sales and the profits in future years, but you’re just kind of creating a a strong brand recognition, it’s worth every penny as long as you get the recurring sales.
Norman Farrar 19:21
I’m glad you said that. Okay, where is the next step? You brought up the report? Let’s go to the next section in the report you want to talk to talk to us about
Joe Hogg 19:35
Sure. So I guess um, I guess just kind of panning through the report it might be good to touch on page eight. Which by
Norman Farrar 19:46
the way, everybody the report, it will be available in the show notes. So if you want to download it and check it out for yourself. This is incredible insight.
Joe Hogg 19:58
Thank you. So The the point that we make here and exhibit 13 Is that for a lot of three P sellers, their profitability is usually concentrated in Hero skews one, two or three SKUs that are the breakout original skews that drove original success. And there are a lot of tail skews typically, that were kind of tagalong skews that are actually a necessary part of product development in brand evolution, you have to continue to develop your product roadmap, but what we typically see is just one two or three SKUs that are driving most of the profitability. And from just looking at the economics at the SKU level, you can see that, you know, if we attribute cost across the different skews, you can see that a lot of the tail skews are really not profitable. So this is something that that aggregators will look at, though the look at tail skews and the profitability or lack of profitability and a number of skip tail skews. And it, it could be a way of increasing profitability, if you were to eliminate these tail skews, you would pick up you know another 100 150,000 of profitability, it doesn’t necessarily mean you’re in a good spot to continue develop the brand. But this is a pretty common profile that we say. So it’s something to come to understand. And I guess, um, what I would do next is, I would pan down to page 13, exhibit 21.
Rob Salmon 21:47
And just to kind of add to what Joe just said, there, a lot of the purchasers of Amazon brands want to see that dominant SKU that what we define hero skews because it makes it an underlying business moat where you’ve got a great product, people love to purchase it, it’s gotten a lot of really good reviews, it’s just an attribute that people are looking for.
Joe Hogg 22:11
Definitely. So So here, what I’m, what we’ve done is we’ve taken that same profile, and we’ve shopped it with a 10% decline in unit sales, all the way through each SKU. And you can see what the net result is the the previous event was 720,000. When we reduce unit sales through these, you know, 10 skews by just 10 percentage points. Because profitability is concentrated in those one or two skews, and you are profitable in the other skews when we do that the tail skews become a lot less profitable. And you know, so do the hero skews. So just a 10% decline in overall unit sales across all skews leads to a 42% decline in EBITDA. So it’s, it’s something to keep in mind that’s unique with respect to most three P sellers. This type of this type of I guess skew layout here a skew tail skew layout. So the point that we make in the report, the aggregator report is that when when you acquire a lot of three P sellers that have this particular profile and you you loot use debt, you know, in some cases a significant amount of debt 3456 times leverage, you can find yourself in trouble very quickly, you can find that that 42% reduction in EBITDA, unlevered with three or four or five times leverage can quickly go negative. And going back to the comments I was making earlier about trends in E commerce and how things are normalizing and how during the pandemic we, you know, we saw sales trends 40%. Well, I think there were a number of aggregators that made acquisitions, when things were looking pretty rosy, they used a fair amount of debt, and they’re looking at a p&l profile that’s very similar to this except much worse because of the leverage because of the debt payments that they have to use. So that they have to pay so. So that’s something to keep in mind, I think going into 2022 We haven’t really seen any significant fallout in in the space yet. I think today they’re 73 or 74, different aggregators. They’ve raised a lot of money and they’re continuing to raise money and the you know, the outlook for For the group as a whole, and for Amazon, of course, is is very positive. But I do think that there were a number of aggregate aggregators that did get caught at the highest using leverage, and they’ve got cash burns now that are heavier than they would prefer. So, so I think we’re gonna probably see some reallocation of capital, maybe in the first part of 2022. In the first quarter, I think a lot of people waiting to get through the holiday shopping season just to see how it went. And I think you might, you might see a little bit of follow up. But again, long term, long term, everything’s good.
Norman Farrar 25:40
It’ll be interesting to see what happens because it seems like everybody in his mother’s an aggregator right now. And,
Norman Farrar 25:47
you know, good aggregators, bad eggs, and ugly aggregators. But, you know, just to see where it’ll fall out. With a few of the aggregators, they’ve, I’ve been able to see their portfolio. And it’s pretty ugly. Like,
Norman Farrar 26:04
it may no rhyme or reason, what they’re saying, I’m not saying everyone, but certain ones that I’ve seen. And I don’t know what that’s going to follow. And this is an interesting question, because I don’t know if you know, but why would you be just buying anything? That’s, that’s out there. Literally, it was, it was all over the map from some of the guys that I’ve seen.
Joe Hogg 26:31
Yeah, it was land rush. And I think if you if you view it from the standpoint of what the end game is, then it it all kind of makes sense, the end game is to eventually execute a public securities transaction to to get over the get over the wall, so to speak, where you can realize multiple expansion, you can go from marketing to model, which I areas are largely doing now to CPG multiples that are publicly traded it is it is still very much a theoretical exercise. Because no one has gotten over the wall, no one has gone public yet THRASS has gotten close. But when when you see that as the prize, and we do not we denote that later in the report as the as the prize, then you go, Well, gosh, if if CPG multiples are 1520 25, and I’m making acquisitions, 5678, then when someone does get over the wall, or I get over the wall, then I’m going to realize that uptick in value. So I need to acquire as many things as I can as fast as I can, that I’m comfortable with is 5678, knowing that I’m working against multiple expansion with respect to the CPG multiple takeout, so Okay, so that’s what drove a lot of the land rush mentality, I believe.
Rob Salmon 28:03
And there was also a theory of, hey, if I’m able to expand the EBITDA, there will be a natural multiple expansion before you go and are able to achieve the price norm, I think you brought up a great point earlier in the discussion is that there are going to be different levels of performance amongst the aggregators, the business model, at its core is, is a pretty interesting business model where you’re buying a lot of asset light businesses paying at the time, lower multiples, and can achieve multiple arbitrage, potentially even diversify the risks of the different brands that you own or are different underlying sales that you have on Amazon. Maybe you’re getting deeper into one category, and you couldn’t have better cross sells or you’re able to do some performance, better performance on the logistic side. But if you’re just buying broadly, it at its face, it doesn’t feel like there is logical, easily achievable, cost synergies that you can kind of do some takeouts on. Very good.
Norman Farrar 29:11
So before we get to the next question, if you do have questions for Joe or Rob, throw them over into the comment section. If you are having hurdles, trying to exit your business, throw it over in the comment section. We’d like to hear about that. And I do want to talk about our giveaway today. So our giveaway today is a month of century League, the calendar that we’ve been talking about, and we’ve got one of our listeners. He’s just an awesome guy. Alan, he’s got chocolates. We’re going to be giving away one of his British chocolates. By the way, Kelsey. I’m going to throw Kelsey under the bus right now. Kelsey is going to give away a free console with social media. Just let you know Kelsey We never discussed them beforehand. But I thought that would be good for you know, today’s episode. So it’s a four pack. How’s that? So all you need to do is hashtag we’ll have Kelsey, and then take two people, and you’ll get an extra entry. And now, Kelsey, get your finger on the button, we’re going to go to message from our sponsor. Thank you, solarize for sponsoring this episode of lunch with Norm solarize is your comprehensive solution for your everyday business needs. Everything you need to grow and scale your Amazon business is just one click away. For more information, contact demon his team over at cellar eyes calm and remember, seller eyes is with one our you know, I just want to go back to one thing I know we’re a little bit off topic. But what are your thoughts? What’s going to happen with the 70 Plus aggregators over the next year or two? I mean, they can all survive?
Joe Hogg 31:01
No, I think you’re gonna see consolidation. I think that’s the most likely outcome. I think that that we’re gonna see some a little bit of pressure on the space in the in the first quarter. I think that this space has actually been under significant pressure over the course of the last six months. It’s going to lead to business combination, I think. I think that that is ultimately what’s going to happen. I think you’re going to have aggregators that have cash birds that are acceptable, that have portfolios that they can, they can’t tame given their cost structure, perhaps their GNA is too high, they can’t tame that. It’s going to lead to them being acquired or merging with another aggregator, I think, and, and we’ll find that, that again, because the underlying growth trend is so strong, and there’s still so much interest to invest in the space. A lot of that is going to be somewhat frictionless. I think they’re going to be some bumps in the road for sure. But it’s going to be smoother than some of the other. Let’s just say evolutionary processes that we’ve seen it with the natural evolution through the years, where you you have exuberance that leads to a little bit of a pullback, you know, sometimes there can be significant fall Fallout, but I don’t, I don’t think we were gonna see it here. I think again, there’s so much the underlying trends are so strong, and there’s so much interest still to invest in the space that I think that it’s going to make this reallocation of capital among aggregators a little bit more seamless and a little, little less bumpy.
Rob Salmon 32:40
Okay, now we started actually see a little bit of that in Europe, there have been two aggregators that have bought smaller aggregators. So we’re starting to see a little bit of consolidation. There isn’t much out there, because no one’s public yet, as Joe alluded to before, so we haven’t seen what the underlying performance of the group is, but we’ll be watching that. Yeah.
Norman Farrar 33:03
Yeah, I think I don’t know about you. But if I was a gambling person, through SEO is probably going to be the first on the blocks, I would think when you
Joe Hogg 33:12
Yeah, I think they’ve they’ve, they’ve gotten the closest, so far, they’re the largest, I think. I think they’re trying like crazy, I think the whole space is going to benefit from someone getting public, and there being a, an actual tradable security to an a multiple to mark two, as opposed to marking to a generic CPG. Multiple. And I think that the whole space has interest in, in someone getting over that over that hurdle. And again, THRASS is the closest so if I were a betting man to I would bet it would be THRASS as well.
Norman Farrar 33:55
Okay, so let’s get back to your report. Are there any other sections in the report you want to bring to our attention?
Joe Hogg 34:00
Well, well, no, I think I think if you if you want, we can switch over to our latest report, which is on supply chains. I love you can pull that up on the screen. But I think this is this is something that, you know, in talking about trends and thinking about 2022 should be on everyone’s minds. This is this is how we see the supply chain problem playing out. And I think that there’s there’s the possibility that a few key things come together to create what we refer to as a perfect storm. So I don’t know Robin, do you want to do you want to run through those factors that could be leading to a perfect storm with supply chains? Oop, I think you’re on mute.
Rob Salmo 34:58
Whoops, I was on mute. They’re upset. it’s obviously been a really tough 21. For everyone who’s running a business trying to get product to market, you had caps that Amazon was instituting at their fulfillment centers, you had really slow transit exuberantly high freight forwarding costs. And you know, unfortunately, we’re going to see higher transportation costs, across most modes. Looking out next year is your contracts renew, typically kind of any year where we’ve got a major contract renegotiation between the union, the dock workers union, which the ILWU and the ship owners, called the PMA, on the west coast, we see all large retailers bring a lot of product in ahead of that, because these discussions have always been contentious. We often have, you know, very high demands in terms of wage increases, we also can see the ship owners wanting to put in more automation, these are typical things that the two sides always have to work out. And it naturally can run into a little bit of Run, run into a challenge. And a one side gets annoyed and can lock out the other side. So this contract expires at the very end of June. So it’ll be turned out in July one, the ship owners actually tried to extend it by year, given what everything that’s been going on the IOU extended two years beyond kind of where the natural contract end and say, hey, the collective bargaining is a really important thing. And we need to do this, we’ve been waiting for seven years for a new contract. And we’ve been seeing a lot of union successes and labor has done a lot to try and get through. So I think they they want to write to bargain. And that’s going to mean, what we’ve seen in the second half of 21, which is just really high volumes entering the US, they’re going to stay high. And if we get any sort of lockout, or otherwise, things could get get even more challenging as we look into the back half next year. So we think volumes are going to stay stay tight. Our base case is that we’re going to stay kind of where we are throughout next year. Um, but you know, there there is the possibility that things could get worse. So if I’m sitting here as a business owner, I want to plan to ship my product earlier, I’m going to run through kind of what my typical seasonal sales are, what new products I want to launch, and build that into my forecast early on. I want to be in constant communication with my freight forwarder. With Amazon global logistics, whomever I’m using, I think if you can diversify. And if that’s your carrier, where you’re producing the product, anything just to give you a little bit more, a little more leeway to try and navigate what, unfortunately, our base cases it looks like it has this year, which isn’t a good case, I hate delivering a lump of coal just after the holiday. But I think it’s important and prudent to kind of plan your business for how things likely will be playing out, as opposed to some of the optimism that I’m hearing about supply chain situation getting materially improving, because with volumes as high as they are, it just creates natural dis synergies across the transportation supply chain and think about it. The transportation supply chain is basically a commute and you’re using the inner interstate highways to get to and from work. If you lose one lanes on a three lane highway, on your three minute commute. It doesn’t go up by a third, it doubles or even worse, or it’s even worse. And because anything can kind of cause a slight shank, and then that beautifully mute moving freeway becomes a hall. Go ahead, Joe.
Joe Hogg 38:59
Yeah, you know, it’s, it’s, it’s interesting, there’s been so much talk about supply chains, and we felt it was good to put a it would be good to put a piece out that gave you a background on supply chains, but also viewed them from a realistic standpoint where we were assessing the risk that things potentially could line up to create a serious problem. And, you know, Rob just went through the labor negotiations, which will be unfolding early next year, which no one’s really been talking about, which could be quite contentious, given the amount of money that shipbuilders have made over the past year and a half and given the two sides nature proclivity toward fighting. But when you stack that on top of already high throughput and supply chains already pretty much operating beyond capacity, and then you throw in the possibility that we could see surging, you know, additional COVID-19 cases from Omicron Omicron variant, then things could line up to be quite serious, materially worse Omicron. It this point does not appear to be as serious as delta, it is highly contagious, a lot more contagious, but it’s not. It’s not producing the same level of hospitalization and death. However, the thing to keep in mind is that when someone gets sick with Omicron, they have symptoms, they take a quick home COVID test, they said they have COVID, well, they’re not going to go to work for five days, right, so that the end result is a disruption to the workplace, whether it’s truckers, port, port employees, people on ships, or people that are working in ports in China, where there’s a zero COVID-19 tolerance level. So, so in examining all of this, there is a risk that these these factors stack up and, and the the factor that Rob went through, I don’t think anyone anyone is really contemplating. And that’s, you know, a breakdown in labor negotiations, when you when they if they were to all line up, then then you could see a perfect storm. And that’s something people need to keep in the back of their mind. So it’s not a reason to panic. But I think that, you know, like, what, like Rob was saying, if, if you can, if you can book things early, if you can order a little bit of extra inventory, you probably should. And, you know, another point that we make in the report is, you should probably think about raising prices. You know, this is this is something that a lot of Amazon sellers have not really thought of, in the context of an inflationary environment, which we’re in now, typically, the thinking was the other way around, where, if you’re a seller, you’re like, gosh, I gotta keep prices as low as I can to pick up as smart as much market share as I can to stay as competitive as I can to stay on the first page. Well, now with potential disruption, continued disruption in supply chains that could get worse. And inflation, we’re seeing significant increases in CPI, ppi and even more significant increases in a lot of individual product costs. The thinking needs to be shifted the other way, where you say, Okay, well, how, how far can I move prices higher? Where I don’t lose demand? As opposed to how low can I keep prices to take market share? I think the thinking needs to start shifting. And I think you’re gonna see it start shifting, particularly as because things with supply chains continue to say stressed and 2022.
Norman Farrar 43:10
No wonder why I like it so much. That’s exactly exactly what I would say to you, even if you were debating this, you know, oh, how can I, I’ve got a product, how can I bring it up? 10 or 20%, or, you know, perceived value, improve the customer experience? Do something it might be just changing around your packaging? Yeah, and it depends. It mean it really does depend on, you know, the volume, the price competition, but try changing things around like we try to do that when we look at a product, if we can change the packaging by a quarter or 50 cents to get three or $4. Back. I’ll do it all day long. But a lot of people don’t do it, they just try to sell the same product. Or even if they do, they don’t give if their products already has a very high perceived value. They don’t give the product a chance. They’re going to be like a bottom drop dweller, even though you could kind of go into that mid tier or higher tier. They just don’t want to lose the volume where that’s in most cases, in a lot of cases anyway. Could be the wrong way of thinking about things. Yeah.
Joe Hogg 44:21
Yeah, especially in this environment. Again, again, we’re we’re entering a new environment from an economic standpoint, over the course of the past 2025 years, we were in a non inflationary deflationary environment where, you know, raising prices was very counterproductive to increasing sales typically. And now that that thinking is is going to get up ended, we believe just because inflationary trends that we’re seeing. They might peak short term, but they’re going to continue I think we we reached a bit of an inflection point from, from the standpoint of inflation trends in this country and globally, too. So I think that that sellers need to start reorienting their thinking toward toward that type of environment, as opposed to the previous one.
Rob Salmon 45:16
And more broadly on Amazon and other online marketplaces, we are actually seeing, pricing increasing. According to profit. Taro was up five and a half percent year over year in October, up almost seven in November relative to June of 2020. So we were broadly seeing category price increases. And I think, given the inflation that I mentioned, with transportation, as well as what Joe had talked about earlier with commodities, it’s beholden on you to protect your bottom line and try and figure out, can you get a little bit more in pricing? If you’re seeing sales slip too much. You can always backtrack and trust. But I think you want to press the envelope a little bit to see if you can improve your bottom line.
Norman Farrar 46:02
Yeah, you know, if I just wanted to add one point, then we’ll go to some of the the listeners questions. But I have a partner in Honi, worldwide. So a lot of the listeners know laugh lobby. Anyways, what we’ve seen, it’s probably 5050 is we used to go to China. And we used to be sourcing in China, we had offices in China, and what he’s done now, and what we’re seeing is about 50% are sourcing either North America, even South America, and it’s just that much easier. So you know, it helps with the supply chain, who wants to wait to offload? You know, from a ship that who knows when it’s going to come into port, when you can have it just very inexpensively come up what you know, in the States, you know, it could be a week, you know, to be dropped off, you don’t have to have that long cycle. And one of the biggest things that, at least we found is you can turn that inventory so much faster, which is going to improve your cash flow. And you know, if you could do it instead of every on the quarter, you might never be able to do it every month. But anyways, it just helps to improve cash flow. And that’s a whole other podcast. But anyways, let’s get into some of the questions kills. Because I know we’ve got a hard cut off time
Kelsey 47:30
we do. So I’m not sure how many questions we can get to but we do have quite a few from Howard, is there still space for the small ecommerce sellers on Amazon? Or the cost and parameters starting to code them out?
Joe Hogg 47:45
No, I think there’s always going to be space for for smaller sellers. I think that if you stay brand oriented, you can you can go quite far. It doesn’t take much to get started on Amazon, I forget Rob what the what the startup costs cost was we listed they agreed it was at 5000 3000. To me
Rob Salmon 48:09
it’s very small, like the majority of sellers can actually bring that product to market for under $5,000. And so that it’s often kind of coming from your own place in terms of the Amazon three P gross merchandise value. It’s over 60% We thought it was about 62% last year. So we think there is definitely a space for the small seller. It is You guys are so close to an underlying product and you can really capture the consumers attention in a way that I think a lot of big brands candidly can’t or don’t. So we’ve got a very positive outlook long term for for smaller sellers just given the ability to really focus on one product create something great.
Norman Farrar 48:56
Very good. Next question Kells
Kelsey 48:59
All right, from Jessica Rabbit, how will aggregators gobbling up each other affect Amazon and E commerce space PL sellers and likely business models predictions of mostly hidden dispositive variables?
Joe Hogg 49:15
Well, I think you’re gonna see a quarter or two of of aggregators, looking for acquisitions of three P sellers and also looking for business combination opportunities among themselves are looking to acquire already acquired companies to move to their portfolio. So I think that it’s not going to be the the same land rush kind of opportunity that we saw in 20. Were aggregators for reaching out looking to buy pretty much anything and everything to get cash flow that was, again extrapolated forward a number of years a big exceptionally high growth rate. I think that There’s going to be a bit more discretion in, in the acquisition process. And I think that it’s going to be focused on not just reaching out to three P sellers, but also in looking at opportunities with other aggregators. Right.
Rob Salmon 50:17
But in terms of operating a brand, I don’t think it’s gonna have any impact about how your go to market strategy is going to be, it’s just going to be some incremental noise we’re hearing in the broader space. So, you know, focus on the fundamentals would be my suggestion, any brand owner out there?
Kelsey 50:35
Right, and just let everyone know, I don’t think we’ll be able to get to all the questions today. So if you do, please post them over into the Facebook group lunch with Norm Amazon, FBA and E commerce collective, and maybe we can have a discussion there and get our thoughts from the beard nation. So we’ll, I think we have time for maybe one more. I think this is an important question from read. How do you bet aggregators if they’re legit are fishing for information?
Joe Hogg 51:05
Well, that’s that’s a good question. I think that our recommendation, and perhaps we’re biased is to always use an intermediary and intermediary is going to know how to interact directly with an aggregator is going to know how to protect your information, is going to know how to build a market among different aggregators to ensure that you achieve the highest value for your company. So that’s going to be the starting point for us is that again, we’re biased, we think little wire does that better than anyone. But it’s, it’s highly recommended that you go through an intermediary to interact with, with anyone that’s trying to buy your company, there’s, there’s kind of an implied assumption, when you take your own deal to market that the multiple is going to be lower. There’s an implied assumption among pretty much every buyout class that when you’re trying to rep, you’re represent yourself your company in a transaction and trying to build a market, you’re not going to be as successful and hence the multiple is going to be lower. So that is, that’s actually something that aggregators are quite keen on trying to find. They build they spend millions of dollars building outbound efforts to develop proprietary relationships directly with sellers because they know they can get multiples that are going to be smaller than what could be achieved when an intermediary is building a market looking for the highest enterprise value.
Norman Farrar 52:41
All right, and I think that’s the last question of the day, Kelsey, is that correct?
Kelsey 52:46
Yeah, I want to get going soon. Okay, three minutes to one.
Norman Farrar 52:50
So Joe, Rob, you’ve never seen the
Joe Hogg 52:52
wheel of Kelsey. No, we haven’t. What is the what is the wheel of Kelsey
Norman Farrar 52:56
Oh? realize God, the Centurion League, the calendar with Tim George and myself. I’m the giant box of chocolates and a console with Kelsey on social media.
Kelsey 53:33
That’s right. So I’m gonna go shuffle this and go. So if you are the winner, please email me at Kate at lunch with norm.com. It looks like the winner is.
Kelsey 53:45
Dum Dum Dum.
Norman Farrar 53:50
Roslyn, my it’s a big prize.
Norman Farrar 53:53
There we go. Congrats, Rosalind.
Kelsey 53:56
Job.
Norman Farrar 53:58
Okay, well, that’s it for today, you guys are going to make your call or you got one minute to go. Hey, I really appreciate you guys coming on. I really want to look at more into that report that you have the two reports that you have. But we got to get you back talking a bit more maybe mid mid year. And we’ll we’ll see what’s up then.
Joe Hogg 54:20
That sounds good. We’ll come back anytime. That’s good for
Rob Salmon 54:25
all of your podcast viewers a very happy new year.
Norman Farrar 54:28
Yes. Right back at you. Alright guys. So I hope you learned a lot today. With today’s episode. As I mentioned, the both reports are going to be available in the show notes and on the website if you’d like to download it and have it read for yourself. Okay, this Friday, we’re going to have a little bit different podcasts. We’re just going to kind of go through the best and the worst of the year. So if you do have questions about that or comment Why don’t you start posting them right now? And we’ll get to all of them. Oh, right now, Kelsey, let’s have another word from our sponsor. Hey, just give me a second. Button. Yeah, thank you CO for sponsoring this episode of lunch with Norm. Are you looking to take your ecommerce business from local to global, you can with the help of z and their brand new app. That’s right. You can track live shipments with push notifications, get detailed lead times for each stage of your shipment, and store all compliance and VAT reclaim documents in the palm of your hand. All while listening to lunch with Norm. Ready to expand your E commerce empire. And take your Amazon FBA business global. Use the link in the description to learn more about Z’s new app that’s now available on desktop and mobile. That’s z.co z e dot C Oh, no. Okay.
Kelse 56:05
All right. So yeah. So just to Robin Joe, that are in the dashboard. Right now, if you guys have to get going. Feel free to leave. And we’ll talk to you later and catch up. But if not, stick around. And yeah, everyone watching. Thank you for joining. Thank you for all the questions. Sorry, we couldn’t get to all of them today. But like I said before, post them over into the Facebook group. And yeah, we’ll have a little discussion and yeah, get to see what the beard nation thinks about it. If you’re looking for the highlights in full episodes, you can go to our YouTube channel. Norman Farrar, that’s where our whole catalog is. And if you’re looking for a little bit more, if you want some private group meetings and q&a sessions with Norm, and me and even some monthly SOPs and official left with Norm MK, check out our membership, lead for norm comm and click on the membership button and you’ll be able to see what we have available. So all those all the money out there goes to support the podcast. And yeah, I think that’s about it.
Norman Farrar 57:12
Okay, fantastic. All right. So join us every Monday, Wednesday and Friday at noon, Eastern Standard Time. Look, everybody hear me say this all the time, but we could never do this without our community. You guys are awesome. And have a great well, I thought it was the weekend. Here it is. I’m an old guy. It’s not Friday. I was gonna say Have a great weekend but we’ll see on Friday.
Transcribed by https://otter.ai
