Procrastinators unite — unpacking the next phase of fast delivery in America

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Hi. Welcome to Mobile Money by Momo. I'm your host, Justin Zacks, vice president of Strategy at Moomoo Technologies. I've spent my whole career in and around financial markets working at a bulge bracket investment bank to a leading global financial news organization. It's something I have a real passion for. This is a show that helps investors gain a better understanding of markets and their money.

The holiday season is here, and for most Americans, that means a lot of gift giving and shopping. But why shop in person when you can get those gifts without changing out of your sweats? According to Gallup this year, 93% of holiday shoppers will buy at least some of their gifts online. That same poll showed that there is one leading factor that determines a shoppers choice of where to shop.

Shipping in fulfillment experience. 39% of shoppers choose their gift retailers based on free shipping or faster shipping. Even more so than positive product reviews, deals and promotions or brand loyalty. This is a far cry from the holiday shopping seasons of the past marked by in-person Black Friday sales in crowded mall parking lots. That's due to a lot of factors.

But chief among them is the fact that many brands now offer two day shipping. And as most of us know, that trend was pioneered by none other than Amazon, which began offering the service in 2005. Amazon now dominates online holiday shopping, but its peers are catching up at the same time. In-person shopping is far from dead. What could this mean for some leading retailers and what might the future hold?

Keep listening to find out. Please remember that past performance is no guarantee of future results and that investing is risky and the landscape continues to evolve. You may be wondering just how big the holiday season is from a dollar standpoint. The National Retail Federation expects November and December holiday spending to grow somewhere between 3 to 4% year on year to about $960 billion.

This is despite inflation, higher gas prices, stringent credit conditions and elevated interest rates. On average, consumers are expected to spend $875 each 620 on gifts and about $255 on seasonal items like decoration, candy and food or the retail stocks themselves. This is a make or break quarter, the fourth quarter generally for retail stocks comprises about 26.8% of overall revenue.

But for certain niche sectors like hobby toys and games, that percentage of 34.5% department stores 33.3%. It's really a big deal for these online retailers. I went out to dinner the first weekend in November and it seems overnight magically every storefront had been transformed with holiday decorations. At the restaurant I was eating at Mariah Carey's holiday album played on an infinite loop.

Wasn't it just Halloween? Just a few days before? Every year, the winter holidays seemed to come earlier and earlier. But can you really blame the retailers? They want to make sure they get as much of the American consumers discretionary income as possible. The day after Thanksgiving, Black Friday, so-called, because it marked the period when many retailers would move from being in the red profit wise to being positive or in the black, traditionally marked the beginning of the holiday shopping season.

And according to Global Retail Solutions brand Sensor Matic Solutions, it will likely be the biggest shopping day of the year. And just like my favorite local restaurant, many shoppers get an early start to their holiday shopping season, with 57% starting the process on or before Thanksgiving. But Sensor Matic also predicts that Super Saturday December 23rd, will be the second biggest shopping day of the year.

Many year I've been one of those last minute shoppers, and for those of us who procrastinated beyond mid-December, then often meant in-person shopping at a crowded store. Online magazine or phone delivery often stretched weeks and was unreliable during the holiday season. As an aside, all of the Saturdays during the holiday season are very busy taking up six of the top ten busiest spots.

Amazon would change that all and how we fundamentally shop during the rest of the year as well. Free two day shipping revolutionized the industry, but home delivery is nothing new. It's worth taking a look at how we got here. Let me take you back way back in the history of deliveries. Section 92 of the 1873 Postal Laws and regulation book, all for mail carriers to make deliveries as frequently as the public convenience may require.

By the turn of the century, that meant 3 to 5 deliveries per day for businesses and twice daily for residences. In 1913, the post office introduced a parcel postal service, and shortly thereafter, the largest cities in the country would see 5 to 7 deliveries a day. Some locations World War Two saw huge increases in the volume of both mail in packages and due to a large annual deficit at the post office, it ended twice daily residential delivery and cut back on business deliveries.

Delivery times suffered as a result. Reduced government services is something we've probably all experienced where you feel like you're paying for something more but getting less service. As a child, I would identify holiday gifts from Sears over 600 page wish book early on in the holiday season for delivery. Sears launched that catalog in 1933 and, along with its mail order, competitor Montgomery Ward, were headquartered in Chicago.

I was recently in Chicago to help launch a collaboration with the CBOE to provide index options to Moomoo users. CBOE is headquartered in the old Chicago main post office building that building was repurposed for office use after long and use for many decades before accepting its first tenants in 2019. Originally built in 1921 and expanded in 1932, its true massiveness is quite a sight to behold in its day.

It was the largest post office in the world with 13 floors and 2.5 million square foot. The ability to move 19 million letters per day. FedEx previously known as Federal Express would pioneer overnight delivery via an integrated air ground system in 1973. The deregulation of the airline industry in 1977 allowed it to purchase large jets and expand its package delivery.

But those faster delivery times came with higher shipping costs and were focused mainly on businesses. It would not be until several decades later when Amazon would take that same pioneering spirit to the residential customer. Amazon IPO’ed in 1997 at a valuation of $438 million. Today, it's worth about $1.5 trillion at a time when 40 million Internet users spent $2.4 billion annually online, it would move beyond books in 1998, introducing one click checkout in 1999 and free super savings shipping on orders over $99 in 2002.

But it was the launch of Amazon Prime in 2005, which at the time provided free two day shipping on over 1 million items for an annual fee of $79 a year. That was the true game changer. Just like FedEx had outside help in the form of airline deregulation. The introduction of the Apple iPhone in 2007 would help change how people shop.

Today, 80% of online shoppers visit retail sites on mobile devices. Amazon's revenue growth would top 38% that year. The Great Recession saw revenue growth drop into the high 20’s percent by 2010 would see closer to 40% growth with Cyber Monday sales. That's the Monday after the Thanksgiving weekend top $1 billion for the first time in history. Prime enabled Amazon to offer a true end to end solution.

Its platform has the ability to drive traffic for third party sellers as well as its house brands and fulfillment capabilities through its payment systems, warehouses, its own transportation network, and those of its partners, enabling it to deliver millions of packages to your doorstep just in time for Christmas. Fast forward to today, and over 80% of U.S. consumers have bought something on Amazon in the past six months.

Amazon now accounts for about half of all online purchases, and e-commerce has grown over the same period, according to the US Census Bureau, in the third quarter of 2023. E-commerce increased 7.6% over the previous third quarter in 2022, while total retail sales only increased 2.3% over the same period. Retail sales now account for 15.6% of all retail transactions.

That's up from 6% in early 2014. The percentage of online sales relative to all retail sales steadily climbed over the years until the pandemic, when it jumped from about 12% to about 16%. And it has bounced around this level for the past three years. The pandemic pulled forward a lot of that growth, but will that online growth slow two day shipping, shorten the window between immediately receiving an item and having to wait. In this society.

With the rise of instant gratification, is it going to be enough? I liken it to the streaming services now that many movies debut on streaming at the same time or a week or two after premiering in the theaters. I'm more apt to watch them at home. I might see one or two movies a year now in the theater.

Other people might not be as patient. There's a rise in the need for instant gratification in our society, and that actually may be slowing the growth of online shopping. Counterintuitively, online shopping can only deliver a good to your door, so fast and certainly not as fast as going out to the store and getting it for yourself. Before the idea of got to have it now.

There was the idea of layaway that was buying an item which would be held by a store as you made installment payments on it if you couldn't afford to purchase it all at once. This caught on during the Great Depression when people didn't have that much money. But the proliferation of credit cards during the 1980s antiquated this process. “just charge it”

became the motto of the American consumer. Layaway made a brief comeback during the Great Recession 2008 as credit availability for some consumers dried up. But now, by now, pay later, plans have become de rigueur. 60% of consumers have used this service. A lot of the consumers that use buy now, pay later or BNPL the acronym as it's known, are in a lower income bracket.

In online shopping really does vary among socioeconomic groups. For instance, according to the Bureau of Transportation, the percentage of people with an annual income of closer to $125,000 replaced in-store shopping by online shopping in the latter half of 2020 at twice the rate of those with an annual income of $25,000. Just goes to show you that there is a big disparity.

Not everyone is the same in the way they experience things and the way they can go out and get things. And I just know from experience of where I live, a lot of packages get stolen. So, you know, you have your package out there waiting. So a lot of people don't have a doorman building or someone to receive their packages.

So they might be more likely to want to go to the store to pick it up if if they don't think they're going to be at home at that time, they're going to be at work or something. While the pandemic sped up adoption of online shopping, it's also had some unintended consequences that have kind of hurt the ability of Amazon and other online retailers to do fast free shipping without consequence.

A lot of the supply chain issues that we saw during the pandemic have not been solved. These mean larger delays in getting your package. It means that a lot of things are not available on demand as they as they were before. In the factories themselves, the people that are doing this type of work have really been pushed to the brink.

A lot of them are not unionized. A lot of them have experienced injuries at work. A lot of them are burning out in this low unemployment area that we're in right now. It's really hard to find the workers that are willing to do that really hard, grueling work at the lower end of the wage scale. A lot of workers are quitting.

There's high turnover rates, and then you have to retrain a lot of the new people at the new job. And this just takes time. It cuts into margins. It's a big problem. Meanwhile, competition is ramping up. Amazon has competitors all over the place that they didn't have ten years ago that are doing just as good a job in many cases that they are.

To give you an example of how it's hurting them, Prime customers have to wait four or five business days for deliveries in their own state of Washington in certain areas, the more rural areas. So that's that's a fascinating statistic. Another factor to consider about online shipping is its impact on the environment. Research by the World Economic Forum estimated that urban last mile delivery emissions are on track to increase by over 30% by 2030 in the top 100 cities globally.

And these emissions could reach 25 million tons of CO2 emitted annually by 2030. While it can be difficult to accurately assess the impact that fast delivery services have on the environment, delivery companies may start to fall out of favor with younger generations or consumers with greater ethical considerations. It will be interesting to see which companies choose to adopt greener practices and whether or not this is a real priority for U.S. consumers.

More than half of U.S. consumers use Amazon Prime and a lot of them are hooked and have come to expect a certain level of service and speedy delivery. I think of Amazon Prime, just like I might think about a prime cut of meat there. Three cuts of meat determined by the USDA, prime, the best choice and select. Prime has the most marbling and is the most expensive.

But what happens when that prime cut looks and tastes more like a choice or select cut? Consumers won't be happy and hopefully this is not happening to Amazon Prime. When consumers are not 100% happy with their expectations based on previous experience, they might start to switch. And the real reality is consumers are now buying both online and in person in ways that best suit their needs and their lifestyle.

81% of shoppers research their purchases online before making them. Some of those would be online and then some of them they'll go pick up in the store. And this is something that suits people's needs in a lot of ways. If it's a big item and they're not going to be home or they want it delivered. There are all reasons why you might want to go into the store and get it when it's convenient to you.

Maybe you're on the way home from work and it's easy to stop by. So there's a lot of really valid thoughts to this combo approach that people are now using. That means that retailers that can provide both online and in-store experiences at scale are proving to be tough competition for Amazon. Both were general goods purveyors and specialized ones.

Obviously, the elephant in the room is Wal-Mart, the biggest retailer around. According to the National Retail Federation, Wal Mart had almost $500 billion in retail sales in 2022 compared to Amazon's 232.5 billion, which was good for second place. Costco, Kroger, Home Depot, Target, CVS Health. They are respectfully numbers, three to number seven on that list of top revenues.

Each with its own unique offering. Think about Costco and what it sells, huge bulk items. So a lot of these are very expensive to deliver, but people do want the ability to order them online and then go pick them up in the store where they can go buy. Amazon obviously doesn't have this type of offering, so they have to charge a lot more for items like paper towels that are just big and bulky.

Bulky. These items, even even if they're not heavy, the heavy ones even cost more to ship. So while certain things that are super small, obviously don't affect the shipping costs that much, the big bulky items are some place where Costco, where you have the ability to pick up in-store and you don't have to go through all the way to the back.

You know, these Costco stores are like 100,000 square foot and it's like, okay, it's about 10 minutes to get to find what you want. But if you're able to order online, you just go in, you pull your car up, you put it right in your trunk, you go right home. And I think a lot of consumers like that type of shopping.

Same goes for food. And look at Kroger. You know, you can order online for a lot of things and they’ll deliver to you, but you might not be home. And there's a very tight window where you got to be there, picked that. So a lot of people do want to order their food online, but then go to the store to pick it up.

Or maybe they're using some other type of combo approach where things like the dry goods that they have shipped to their home. But when you want produce, you're going to go in-store and you want to do it the same store with the same rewards program. So you might use a Kroger over over an Amazon. In that case, Home Depot, same thing as Costco.

Here you have a lot of really big bulky items. You're buying a piece of lumber or, you know, a huge garbage pail that you need to transport to cost to ship. These are often more than the actual product costs itself. So people can go in-store store and just pick it up. The other thing about Home Depot that I always think about it is its return policy.

You always hear these people that go to return something that they didn't even buy at Home Depot that they bought in or probably already used maybe at another hardware store. And Home Depot actually takes those returns. And I think that's another thing of the online shopper that has so important. It's these return policies both online and in person.

And I think no one does it better than a lot of these, you know, big box retailers and the biggest stores like Amazon and Walmart, where they have very good return policies. And, you know, people, if you're buying online and you're buying clothing, you know, you want to be able to try it on, you want to be able to return it, probably returning half the things you buy because they might not fit.

So the return policy is so important and a lot of the small places are not able to make that work monetarily. But the big places have so far figured it out. There are people that abuse it and you hear you do hear those stories of how they're shut their account down or they're, you know, people that are trying to return 50% of the things in.

They're using it, then they're returning it. So, you know, there's only so much abuse you can do. So people do have those returns. But I've had issues where things would come damage from various online places like you and I, and I don't even return it. They just ship you a new one. It's probably more worthwhile from a monetary aspect that just ship me a new and then have me actually return it, have someone come and pick it up.

CVS is another one of these stores that has online and in-person, and it's a little different from some of these other stores that I've talked about. A lot of their items are a lot smaller, easy to ship, but a lot of times you want to talk with someone that's knowledgeable about the product. So you want to go into the store and talk to them.

So you have that hybrid method of you can order your prescriptions online, get them built in there. Obviously a lot of specialization goes into that. Something that a general like Amazon finds more difficult to replicate. So how do you value Amazon and some of its competitors? That's actually quite a difficult thing to talk about because Amazon, not only is it, you know, one of the top online shopping destinations in the United States, again, over half of all online shopping is done through Amazon.

It also has a gigantic cloud storage business. So Amazon Web Services, which with much higher margins. So a lot of its valuation comes from that area. Let me let me just give you a breakdown of of just how big Amazon is market cap wise compared to some of its competitors. It's about $1.5 trillion compared to Walmart at 418 billion, Costco at 256 billion, Kroger's at about 30 billion.

Home Depot just over 300 billion, target at 60 billion in CVS, about 88 billion. Overall, Amazon's revenue growth is slowing. It had revenue growth of 9.4% in 2022. That's the only single digit year in its history. Every other year it was at least 10% or above and obviously much more above that in many cases. So it's now slowing its growth rate to a lot of its peers.

And to give you an idea in terms of its trailing price to earnings multiple, it's about 76 times. This compares to Walmart at about 26, Costco at 41 are Kroger at 19, Home Depot, about 20, Target 16.6 and CVS at 10.4. Obviously, all of these are going to be different in terms of their margins. So they're only somewhat comparable, but it's just a place to start looking.

And you can use the Moomoo app to do a lot of your research on these retailers. Use a screener. It's a it's a great place to start to try to figure out who Amazon's competitors are because they don't have a natural exact competitor for what it does. But you can use some of these ratios and figure out where there might be.

It might be with Amazon, it might be what some of these competitors are. Think about the actual stock performance. Amazon, as this is, as of all these numbers are as of November 17th, just so everyone knows, 72.8% year to date, Walmart only up 8.2, Costco up 27.3, Kroger actually down 4.6% as well as Home Depot down 2.7%. Target down 14.4% even after its good quarter and CVS down the most of all those competitors, 25.9% here today.

What might the future hold for Amazon in fast and speedy shipping? Let's look at some current initiatives in the works as well as a few we here at Mobile Money would like to see some development around. The first is e-cargo bikes. A lot of this last mile shipping can be done in a lot of different ways, particularly in the big cities.

In these e-cargo bikes are easier to maneuver. They can be very fast, they're easier to get through traffic and depending on the weather, they can get things done very quickly. I see them all over Manhattan and this is going to become a bigger thing, is particularly when these bikes are electrified, you're not pedaling with a £70 package that makes it very difficult for who's ever delivering to do a of that type of package with with the actual power of the electric bike.

It's much easier to do that thing. And this could catch on not only in New York City, but could catch on in other areas where you have an easier way to do that last mile delivery, cheaper and better for the environment. And that's something we here at Mobile Money thought about. It's, you know, people we talked a little bit about it before of that sustainability and maybe, you know, some of these online shippers start thinking about having sustainability rankings on their products on their website.

So you can know, you know, how much CO2 it takes to manufacture the product, the ship, the product, how far away is it coming from? And maybe you can think about buying. If you see two similar products you can buy the one that has a better sustainability ranking. This is something I think a lot of people that are into the green Movement would be very interested in doing.

One of the things that Amazon's doing right now that they recently introduced is buy with Prime. This allows US based prime members to shop directly from participating online stores on those third party websites using prime shopping benefits. And this is really Amazon becoming the go to platform not only on their own platform but on other people's platform and using that fulfillment center that they have in the delivery and everything that they can integrate, not just their own website.

And it's something that a lot of people, including the payments, right? So a lot of people are going to be looking to do that because they know Amazon as a trusted brand that they can use when shopping on other Web sites. And this just makes it more of a platform. In the bigger a platform can be, the more well known that the more people are going to get used to using it and continue to use only that platform.

And that's obviously something Amazon's interested in doing. Amazon has become the go to online platform for many Americans holiday shopping needs by providing free and fast delivery. Its future depends on its ability to maintain the quality of its service, while convincing more people to make the switch from in-store to online purchasing. We'd love to hear what your thoughts are on Amazon Prime Shipping and any other other competitors.

Please put your comments in the comments section on the main webpage. Thank you. See you next time. The opinions expressed are those of the host and any guest speaker and not necessarily those of Moomoo Technologies Inc or its affiliates. The podcast is provided for informational educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy that may be mentioned or covered in the podcast.

All investments involve risk and the loss of principal as possible. Past performance does not indicate or guarantee future success. Moomoo is not affiliated with any outside guests or their companies. Information provided in this podcast is general in nature and may not be appropriate for all investors. The Moomoo app is an online trading platform offered by Moomoo Technologies Inc securities, brokerage products and related services available through the Moomoo app, or offered by Moomoo Financial Inc, a member of FINRA SIPC.