Today I sit down with Bill D’Alessandro to make some predictions for 2018.
We make some bold eCommerce predictions about:
- What retail companies will go bankrupt in 2018
- How Amazon may make getting your FBA inventory into retail shelves incredibly easy
- How the internet sales tax fiasco will shake out
Andrew: Welcome to the eCommerceFuel podcast, the show dedicated to helping high six and seven figure entrepreneurs build amazing online companies and incredible lives. I’m your host and fellow e-commerce entrepreneur Andrew Youderian.
Hey guys, it’s Andrew here, and welcome to the eCommerceFuel podcast. Thanks so much for tuning in to the show today. And today I’m gonna do something a little bit fun. I’m not sure if we’ve done it in the past, at least not regularly, but we’re going to put on our wildly speculative hats and make some bold predictions which we’ll almost certainly come to regret next year when we have to revisit them about what’s gonna happen in tech and e-commerce specifically in 2018. And joining me to talk about this is Mr. Bill DAlessandro from Elements Brands. Bill, welcome back sir.
Bill: Glad to be here. I love doing predictions with you. I won a steak in the last time.
Andrew: I know you did, which I still need to pay you, which I think is probably gonna have to…If I don’t pay you, if I don’t buy you a steak dinner in Laguna Beach for ECF fly this year then I owe you two steak dinners. I need to make it on that bet.
Bill: That seems fair.
Andrew: Yeah. And my apologies for being so tardy on.
Bill: No. It’s compounding at this point. This is great. Best investment I got.
Andrew: Yeah, I figured we’d, you know, just…It’s always fun making predictions. Hopefully people enjoy a little bit but we’ll just jump into them. I think you’ve got…I’ve got four for the next year, you’ve got five, so, why don’t kick us off Bill? What’s your first prediction for 2018?
Big Retailers Will Go Bankrupt
Bill: This comes from a state of mind that I’ve been in very recently as relates to work because, for those who don’t know, we manufacture and sell a bunch of consumer products, sunscreen, shampoo, bio lotion, water, detergent, etc. We sell in a number of big box retailers. We sold to Toys”R”Us, they just went bankrupt. We lost about four grand in receivables. We sell to Kroger, we sell to Bed Bath & Beyond, we sell to Kmart, we sell…You know, a bunch of the big box guys. And without naming names of any retailers that I’ve experienced this with, on multiple times, I have had some glimpses into their business model. I’ve talked to some people that work at retailers, and I’m crossing that with all of the news that has been coming out, you know, in headlines. My primary prediction for 2018 is that not only will retail continue to completely implode, but some big names will seek bankruptcy protection or get acquired. And the two that I picked out do not have to do with any of this information. I am predicting that Kroger seeks bankruptcy protection in 2018, which is massive because they’re the largest grocery in the United States, and that Target gets acquired in 2018.
Andrew: Wow, those are bold men. The Kroger…why Kroger? I mean, I don’t know much about their financials, but they’re everywhere. I mean, I buy them all the time obviously.
Bill: Yeah, they’re everywhere. They’re the most highly, not leverage in a debt sense but leverage in a business model sense to kind of the grocery and retail downturn. They are…if you look at their margins, they’re in the toilet. They’re trying to…You can look at it in the things that they’re doing. They’re trying to open restaurants in their grocery stores, they’re trying to launch…I think they’re gonna launch…They sell jewelry in some Krogers now, like fine jewelry. Like, they’re just trying…They’re racing just…They’re doubling down and doubling down. I’m talking about 100,000 square foot Krogers, that’s like twice size of the Casco. And they’ve gotten absolutely whack. The stock is down 40% after they missed earnings, and then Amazon announced that they were going into grocery. That was the day that stock was down 40%. Since the stock have been down 40%, the market as a whole is up like 30% to 40%, Kroger has only gotten 5% of the value back. I mean, they got real estate everywhere, they got leases everywhere. They’re kind of stuck in the middle, they’re not like the all the, you know, like this ultra low price model, and they’re also not on the high-end kind of this Whole Foods model, and the middle is really getting squeezed, so I think they’re cooked.
Andrew: Interesting. When you look at their profitability like are they just eking out profits just barely and barely making their debt payments or do they actually have a cushion and they’re just getting penalized by the market?
Bill: The gross margin…Gross margin on the grocery business is 28%. If you take out bill backs and, you know, miscellaneous like fees, sliding fees that they charge to vendors, their gross margin is -16%.
Andrew: Wow. Well, what are they making? Are they actually breaking even right now? Are they making money as a company?
Bill: I think they’re at like a 1% net.
Andrew: Wow. Okay. Crazy. And Target, you mentioned they’re going to be acquired. Who do you think like…I mean, who acquires…? Do you see Amazon taking them over and just turning them into warehouses/distribution centers like they did a little bit with Whole Foods? Who do you see acquiring them?
Bill: I’m sure Amazon looked at Target. Target has a bit of the same problem that Kroger has, is that they’re sort of stuck in the middle. It’s not super low price, it’s not super high price. They have a big grocery business as well at Target. The one thing Target does have going for them is their private label brand portfolio is very, very strong. They have a brand called Cat & Jack, which is a brand of kids clothing. They launched Cat & Jack and in its first year, it did something like 3 billion in sales. I mean, just stupid numbers because they have scale at retail and the brands are pretty well respected. But there have been several negative headlines about Target recently, but I think they have enough brand equity that…I don’t think they’re in as much trouble as Kroger, but I could see them getting acquired by either one of the cheaper guys that wants to kind of move up market or one of more luxury guys that thinks they can make it work rival the Target brand. I could maybe even…I don’t know. This is a wild guess, but I can maybe even see Walmart buying ’em.
Andrew: Wow. Okay. It seems like Walmart would be one of the only ones. I mean, so many people in that space are, especially in the low end, are just struggling. It seems like it’d be hard for them to be able to sell an acquisition or pull it off.
Bill: Yeah. I mean, we’re supposed to make bold predictions, right?
Andrew: No, no. It’s a great prediction. I just was trying to think through it, and play all devil’s advocate.
Bill: Yeah. I think the value in Target is in their private label brands, and I think someone’s going to want that.
Andrew: Cool. Interesting man. That will be a fun one to come back to. I’m feeling like put more of my skin on the game on some of these predictions now after that.
Bill: And disclaimer, I’m not trading any of this. I’m just talking.
Chinese Sellers to Disrupt the Market
Andrew: What a good disclaimer to make. So, my first prediction is, I think in 2017, we started to see, you know, Chinese manufacturers and sellers come on to Amazon in a somewhat meaningful way. I felt like a couple years ago I had a handful of conversations with people and, you know, talking about, oh someday China is gonna come on to Amazon, but there’s too much cultural issues and things that are difficult that make it hard for them to sell on the platform. That was on 2016 maybe, you saw a little bit of that, and in 2017, you started seeing them actually come on. And I think 2018 is gonna be the year where, in our market, sellers on China are really gonna start causing some serious disruption, both in terms of the pricing and in terms of quality control.
And there’s actually a hat tip to David Bryant of eCom crew, he wrote up a great article about this. I will link up to it. But this was something that…I mean, when you look at the stats, I think right now people speculate that it’s even from 10% to 25% of Amazon is currently Chinese sellers. I heard this a lot just on the ECF road trip that I did for ECF week. A lot of people just anecdotally talking about seeing a lot more people from China selling on Amazon. Amazon, there’s these trainings for, you know, over…There’s a lot of people doing trainings for Chinese sellers on how to sell into the U.S. market. Amazon has a conference for sellers over there. It also ties in the kind of Amazon’s long term play of just low pricing. I mean, if they can cut out middlemen and just get the same product straight from China, for them, that kind of ties into what they want for consumers.
And then you see stuff like Oberlo, Shopify by Oberlo, which I love Shopify, seem like a strange move to me. Oberlo is the platform that allows people to really build out a Shopify platform quickly and easily by sourcing products from Ali Express and pretty much drop-shipping them to the U.S. And this coming from a guy who has drop-shipping background, it just does not seem like…It seems like there’s a ton of those stores sprouting up and it seems between…doesn’t seem like it’s gonna end well. So anyway, prediction for me is that I think Chinese sellers are gonna be a big presence on Amazon this next year.
Bill: Do you think…I think, yeah, that trend will increase. What do you…and I know Amazon got their operation dragon boat where they’re trying to get Chinese products on Amazon for more selection and better pricing. What do you make of the political angle? So, a big part of it is ePacket of Chinese people being able to sell, you know, it ships on for a dollar into the States from China. And that seems like a Trump chopping block item when you think. I mean, what do you make about kind of the protectionist angle? Do you think it’s overblown?
Andrew: That’s a good point. I think…I don’t know. I think if anyone, you know, it’s much more likely this year given the administration having that actually get cut, but I don’t know if that’s on Trump’s radar. Like, I don’t know. I think it could happen. I think it’s more likely to happen this year than it has in the past, but I don’t know what the chances are. So, I mean, if you look at that, how much of that…Like if you boost…I wonder if there was a big tariff issue, because even if tariffs go up, that could still affect it a little bit but at the big thing, I think is their subsidized shipping which makes it probably the easiest. And I’m not sure how much that’s being targeted by people. Do you have any thoughts into that?
Bill: I don’t. I don’t know.
Andrew: Yeah, it’s a good point though. All right. So your next prediction, prediction number two for 2018.
Amazon FBA Coming to a Whole Foods Near You
Bill: Yeah. My next prediction is that Amazon FBA items will be made available on the shelves at Whole Foods.
Andrew: Hmm. Nice.
Bill: Meaning if you an Amazon FBA seller, I believe that you’re gonna get a little message in your seller account, and it’s gonna say, “Hey, we’ve identified that people in these zip codes purchase your product a lot or that we think it will go very well in these zip codes based on all the data that we have. Would you like to check this box to allow us to put it in Whole Foods store in that zip code?” You’ll just check box, Amazon, without any further effort from you, will take a few units out of FBA, stick them on the shelf using the same price, using the same everything, essentially on consignment, and when they sell through the register, they’ll pay you just as though it sold on amazon.com.
Andrew: Cool, I like it. Have they started? Has Amazon given any…I mean, they are obviously made changes in Whole Foods and that they own them. But have they started selling non-food items broadly in the Whole Foods network yet? Do you know?
Bill: Well, I saw a bunch of Amazon echoes, you know, right on launch day in a bunch of Whole Foods stores. This I haven’t heard, I’m making this up. I just think it makes too much sense, and as consumer products guy, getting products on to retail shelves is, A, such a massive hustle, B, such an inexact science, that I think Amazon is gonna bring the fact that…And also inventory for a retailer is such a huge use of cash. Amazon is gonna look at it and go, “We already have all these goods effectively on consignment in our warehouses. We might as well just put them on shelves that people are walking past and see if we sell any of them.”
Andrew: How would they determine…So that little box that pops up will be limited to crossover goods that, A, would make sense in Whole Foods, and B, we’re selling it like a certain threshold of the best sellers list because obviously…
Bill: Yeah, I’m sure.
Bill: Yeah. They’d use data and, you know, they only do the ones that make sense. I mean, I’m sure it would be invite only. You know, I’m sure you couldn’t as a seller go, “I wanna be at Whole Foods.” You know, they would probably come to you.
Internet Sales Tax Coming to a Head
Andrew: Interesting. Cool. I like it man. Very cool. All right. My next prediction is I think the Internet sales tax issue is going to come to a head with momentum behind it in some kind of proposed legal resolution, either from Amazon side or something introduced in Congress. And it’s just…the sales tax issue today is so messy. There was that amnesty program that just wrapped up recently. And I think when you see how messy it is on one side and how much revenue is potentially being left on the table by people not complying, I think something’s gotta give. And I think you either see one or two things, you either see Amazon starting to collect sales tax from merchants and roll that out.
They’ve actually, just this last week or two, I think they started to allow that to be an option for residents of Washington. So, for collecting sales tax in Washington, Amazon is starting to collect that on behalf of merchants and submit it. So I think that will either get rolled out more broadly and you’ll see a lot of traction with that, you know, Amazon is starting to make deals like that with most states. Or if that doesn’t happen, I think the second tier thing is that you see somewhere pass something in Congress. I don’t know if it gets through, I don’t know if it gets passes, but you get something on the level of a bill introduced in Congress where maybe it’s a national sales tax, maybe it’s even some targeting Amazon specifically, especially with Trump. Trump has made quite a number of remarks, disparaging remarks about Amazon. So I think one of those two things we’ll see this next year.
Bill: I think I agree with that. I think the only risk to that is the fact that you’ve got Trump, who on one hand is a Republican but he’s a pretty populist Republican and he’s already tweeting about Amazon pay no tax. You’ve also got…I agree the situation is a complete mess. But you’ve also got a Congress that is predominantly Republican, predominately pro-business, and predominately anti-tax. So I wonder…I wonder how that plays into it. But it does need to be resolved for sure.
Andrew: That’s a good point. But I will say one thing if you look at it a little bit, they are pro-business, they are anti-tax, but they’re also looking at especially looking at places on a state by state basis. This isn’t something where it’s a state wide tax for our nation, or potentially it could be. Yeah, I know, that’s a good point. I was thinking that they might be a little more incentivized if they’re a state where they’re missing out on a lot of tax revenue from Amazon. The funds for their particular state, if a bill like this passed, could be advantageous enough to their coffers that might get them over there, there high level philosophy on taxation.
Bill: Very much. That is true.
Andrew: Yeah. All right, Bill, your next prediction.
Amazon To Go High-Fashion
Bill: Yeah. So my next prediction is also Amazon. I predict that Amazon acquires a large and a high profile consumer products brand, probably in the fashion space in 2018, something like Burberry, or something like a Kate Spade, or like something that is very high profile, very broad appeal, they buy it and they pull it from everywhere except amazon.com and make it prime exclusive.
Andrew: So like an exclusive but an exclusive sold by Amazon, it’s like in-house brand?
Bill: Yep. And I think, and the reason I predict this is, it’s very clear that Amazon strategy with the prime membership is that you’re gonna wanna be a prime member because if you’re not, you’re gonna miss out on a bunch of stuff. I mean, you’ve already seen it, like, some of the their Amazon products, like their Amazon Key and Camera, gotta be a prime member, all of their Amazon in-house private label brands, you gotta be a prime member, prime exclusive. There’s deals all the time at a prime member exclusive. It’s very clear that Amazon…And they’ve also tried…they’ve tried, in fashion too, so many times with private label brands. I think it’s clear Amazon wants to be a destination for brands, they want to have things that people can’t get anywhere else, just to further lock people in the Amazon ecosystem.
They’ve proven they’re not afraid to go out and buy something that they haven’t been able to crack themselves, ala Whole Foods. And while they do have a lot of private label brands, they have not been able to crack the Prestige brand, and I think it’s very tough because it’s at odds with the Amazon image, which is convenience and price, and a luxury brand is not those things. And I think they’re gonna have to go out and buy it, and I think they want to own it, and they’ll buy something really compelling that everyone knows, that everyone wants. And they’re going to make a big splash by pulling it out of all retail and people are gonna go, “I can’t get my Kate Spade stuff anymore,” and they’re gonna have to go back on Amazon to get it.
Andrew: Interesting. And I want to use your opinion on this. Let’s use Kate Spade as an example. If they did do that, do you think they’d still have a Kate Spade branded site that showcased everything that you could buy direct from there or on Amazon? Because I see with Amazon, they could definitely do it. But one of the things with Amazon is…one of the things that makes a brand so special and allows you to charge that premium is a lot of the merchandising, a lot of the attitude and the high end photography and the lifestyle that you can build in. Not that you can’t do that on Amazon, but it’s a lot harder at least from what I’ve seen for a lifestyle brand that take off on Amazon versus its own site, where you can really create that merchandising in that experience. So do you think that they would have both channels? Do you think that 100% Amazon is on the place to get and kill the retail site?
Bill: I think being that this would be a captive brand, they would make a lot of exceptions that are not available to brands today on Amazon. They would probably like, if you were on the right URLs, they would dramatically rescan the site or they would allow Amazon embedded commerce on katespade.com in a way that you just can’t…that’s much beyond pay with Amazon. I think they will bend the rules and experiment with it.
Andrew: So in 2022, when we’re doing this again, you may have the predictions that Amazon is gonna become, they’ve done a handful of years, they’re gonna become the place where, you know, up and coming brands pretty much sell to and Amazon just becomes the portfolio holding company for all of these high end or just noticeable brands in general.
Bill: Yeah, they’re just vacuuming up brands. I think it’s possible. They have demonstrated the desire to be private label and to vertically integrate and to kind of knock people off rather than try to buy them. But they also have a history of when they fail buying them, Quincy is a great example. They couldn’t put Quincy out of business and so they bought them. Whole Foods, they couldn’t get in grocery after years of trying, so they bought them. I think the same thing is going on with high end brands on Amazon.
Andrew: Well, they did it with…It’s not really a brand, but Zappos, they went and had a price battle for a long time and they weren’t able to…They kind of bullied…At least from what I’ve read, Zappos into sent to selling them out to them, they had the same thing, although they didn’t have a scale as much for brand, they’re more of a retailer.
Bill: Yeah, but totally that’s another great example. War of attrition, they couldn’t win, they bought ’em.
Big Legislation Against Tech
Andrew: Interesting. Love it man. All right, so my next prediction here is…It’s funny. You’re very Amazon type of focus. I’m a little bit more broader like regulatory focused as this is one will tell, but I think we’re gonna see some kind of legislation gaining support that’s introduced or at least a much growing course in the legislation space of antitrust against big tech. And I don’t know if it’s gonna be Amazon, I don’t know if it’s gonna be Facebook or if it’s gonna be Google, I think it’ll be one of those three. But you look at Amazon, how much power they have right now, you look at how much traffic those three control across the Internet, and…It’s Scott Galloway actually. It’s funny.
Right as I was waiting to record this with you, Scott Galloway from No Mercy, No Malice in L2 just published a piece how are they just on this actually. I’ll link up to that in the show notes. A couple of things he mentioned them. He mentioned that Amazon’s power to kill somebody is sheer price just by the fact they’re going into a space. So I don’t know if it’s totally justified from a purely antitrust standpoint, but how much power they do have, how much traffic they control, also looking at kind of the Trump administration we have now, I would be surprised if we didn’t see something at some teeth this next year on that front.
Bill: Yeah, I think that’s possible. It’s hard as you allude to. It’s hard because our current antitrust laws are not designed to prohibit any of this. I mean, Amazon has like a 2% share in grocery but Kroger stock create a 40% when they enter grocery. And they’re subsidizing, you know, all of their retail ambitions with all huge free cash flow from AWS. And our current antitrust laws are not built for Amazon. But at the same time this is the history of American business, you know, over and over again, subsidizing business expansion through a legacy or a cash flow other side of your business, a cash flow of the other side your business. So, I see it on both sides. I think if Amazon or Facebook or Google or whoever gets an antitrust case brought against them, it will be very, very rooted in populism and pitchforks and not very logical.
Andrew: Well, one of the hard parts too, is you look at Amazon and traditionally, antitrust is something that is breaking up big businesses because they’re unfairly creating monopoly or some sort of monopoly. And because usually monopolies for consumers are bad, I would argue with Facebook and Google, you can make a decent case for that. If you look at the cost per…At least…Well, I’m looking at it from the e-commerce advertising standpoint which isn’t necessarily their end consumer. But that monopoly allows Facebook and Google, given a duopoly kind of, to really jack up their prices.
Like it will be interesting, one of the questions I asked this year in the state of the merchant was, how much have your cost per acquisition advertising prices gone up which largely it can be covered on Facebook and Google. And I don’t have a hard number, but anecdotally looking at that column, they definitely are going up. And so, on that side you can make more of a case, but for Amazon, they do such a good job with Bezos’s customer first mentality, that the fact that the bigger Amazon gets, the better it is for consumers, maybe not in terms of the type of products they get, but for commodity items, they’re usually cheaper, they’re easier to get. Amazon’s done a great job of passing on their growth in terms of benefits to the consumer. And so, you try to make an antitrust case against Amazon on that, I think it’s harder.
Bill: I agree. Yeah. And so you’re bringing up a very interesting point, because you’re right about the Facebook, Google advertising duopoly, and the fact that they can jack up the bids and they can even price collude if they wanted to. I mean, although that would be illegal, but it hadn’t stop a lot of other people in past. But how do you fix it? I mean, you can’t break up Facebook. You know, you can’t be like, “All right, you 50% of people you’re on this other Facebook, and you 50% of people, you know, you’re over here.” How do you break up Facebook? You can’t divide it up. It’s a monopoly by vote of the people. They are network effects.
Andrew: Or you have Facebook Montana and Facebook North Carolina and Facebook…No, of course, not. I don’t know. That’s a good question. I don’t know how you do…I think Google, it’s maybe an easier case to break up Google. But even still, I mean, like what…I’m guessing here, but last time I remember what, 90% of their revenue comes from search ads that they generate, you know.
Bill: All the other parts of Google will be bankrupt instantly.
Andrew: Yeah. So, I don’t know how that works. Yeah, I don’t know. But I will say, I do think one thing that troubles me a little bi,t both you and I coming from similar places that have fairly free market, pro-business, of course. But looking at how much of the Internet now is controlled by Facebook and Google and Amazon, but especially Facebook and Google for traffic that’s not 100% commercial intent, it’s more content based like. That, I don’t like that. That scares me a little bit because you are seeing it…I think it’s getting a lot harder and I’m seeing merchants just being more beholden to the whims of those two platforms. And I would love to see. I don’t know…I don’t think the government can step in and create something that breaks that up and provides an alternative. That’s not gonna happen. But I would love, as unlikely as it is, I would love to see somebody come in and somehow disrupt that space where there’s so much concentration of those two. And I don’t know what happens and I don’t know how you break them up, but it’s troubling to me.
Bill: Yeah, it’s hard. And I agree. I’m also very a free market guy. And it troubles me as well because what you see is essentially a parallel Internet being built where, you know, publishing a web page doesn’t have the clout it used to have. You know, having a Facebook page, and how many fans you have, and can you reach those fans, and how much you have to pay to reach those fans, through a centralized kind of parallel platform. That’s not really what the Internet was designed for, and that is not the type of ecosystem that has led to a lot of the permissionless innovation that has been so successful on the Internet, that has made the Internet so successful and that has made these companies so successful.
So it almost looks like, you talk about a regulatory capture, but it’s almost like free market capture, like these two…Like the couple, and I don’t wanna say monopolist, but large companies have essentially captured the Internet and have succeeded in sort of putting a tax on the use of what is essentially, or what you could argue should be viewed as a public good or a utility, and regulated as such. There have been plenty of arguments made to that effect. So, do we want Facebook to control the Internet? But the weird thing is, is Facebook is just the users are voting on it. I mean, it’s a network effect, like the people want it that way and some ways it’s more valuable that you can just go on Facebook and find all the things you want. So yeah, it’s a hard problem to solve.
Andrew: Yeah, it’s tough. All right. Your next prediction of 2018.
No More Emails to Buyers on Amazon
Bill: This one is a little bit smaller, but I will predict that it is the end of Amazon sellers being able to email their buyers in 2018. I’m kind of surprised it hasn’t happened already. None of these post purchase emails, none of these, “Please leave us a review”. None of that. I think it’s a one way they’re going to clamp down. All Amazon’s customers, you can’t contact them at all.
Andrew: Sellers labs, all that kind stuff. Any kind of…Completely cut off. Toast.
Bill: Toast. If I own seller labs, I would sell it yesterday. Sorry, sorry to the guys, my friends over there that are listening.
Andrew: I’ll pass it along. Interesting that was…and Lars has been…Lars I’m gonna feature the hard laws about this, but he’s been…I think he’s been on that van. Better way kinda call him out for a while too.
Bill: He has been and I agree with him.
U.S. Sellers to Explore New Markets
Andrew: Yeah. This is my last prediction. I think in 2018 we’re gonna start seeing savvy kind of experience store owners that are looking to seriously expand for the first time start to look outside the U.S. as their primary place to do it. And not for everyone, but I think this is gonna be something we’re actually gonna see, at least start to take a hold of some sellers and for a couple reasons. One, the U.S. market is just gotten so competitive and at the same time you have other markets opening up. Example, Amazon Australia, brand new, just opening up this year. You know, you look at places like…even the market is so much smaller there, it’s so much less competitive.
And the second thing that kind of ties into my first prediction on seeing an increase in Chinese sellers for luxury brands or people who have a really high end luxury product, those kind of things in China with a growing middle class that’s getting access to the Internet, those are very highly covered at Western brands that are premium brands and there’s an enormous market over there. And I’m not gonna sugarcoat it and say that, you know, it’s gonna be easy to get into the Chinese market. There’s all sorts of cultural barriers and logistical issues. But if you can crack it and you can get your premium product over there, I think there’s a very enormous market that’s hungry for those kind of products. So between, you know, Asia, between Amazon Australia opening up and the fact that you’ve got more competition coming in from abroad, I think we’ll see exporting and foreign markets be something that people start taking a lot more seriously especially if they’ve got, let’s say, you know, a store doing, you know, 2 million to 5 million and they’re really getting, you know, seeing diminishing returns here in the States.
Bill: I completely agree. That to me was one of the biggest takeaway is from the FBA Boost Conference over the summer. It is clear that the international marketplaces are a strategic priority for Amazon and they are going to try to make it really, really easy for their U.S. sellers to unwrap and expand in the Europe. If Amazon wants it to happen at the level that it seem like they want it to happen at Boost, it’s gotta start happening more and more.
Andrew: And Bill, you’ve got the final prediction for us here.
Bill: Yep. So I wouldn’t be any fun if I didn’t make a prediction that I could be massively wrong on. So…
Andrew: You’re making a Bitcoin prediction, right? That’s what you’re doing?
Bill: No. I’m leaving Bitcoin out of it. I’ll make a prediction that I think is similar to predicting the price of Bitcoin, but it’s a little bit more broadly applicable.
Andrew: Is this an Amazon stock price prediction?
The Stock Market Will Double
Bill: Nope, nope. It’s not. It’s even bigger than that. So this is a pretty broad prediction. Today, November 17th, 2017. And I think by the end of 2018, assuming the Republicans pass the tax reform bill in its current form, the stock market will nearly double in the next year.
Andrew: Oh Bill. Double to 50,000? Like double 50,000ish.
Bill: All right. Maybe double is too much, but nearly. I said nearly, and here’s why. Interest rates are zero. And I’m not necessarily saying the economy will be doing better, I’m saying asset prices will inflate dramatically because the new tax bill is going to free up a ton of cash particularly on the high end of the income scale, the people who tend to buy and hold assets. So, you’re gonna have basically more buying pressure on assets, which is gonna drive prices up, stocks, and real estate is a little bit of a different ballgame because you need someone to live in all the houses and you need to lease all the stores. So, I’m really mostly specifically talking about securities. I think the stock market is going to explode especially because interest rates are low, cost of capital is almost zero, people are chasing yield and taking risk in places where they shouldn’t. I’m not saying it won’t burn and crash, I’m saying we have a long way to go.
Andrew: Wow. This is interesting coming right off the heels of our biggest investing mistakes, mine being trying to turn the market.
Bill: This is a fun one. I’m out over my skis.
Andrew: I like the boldness. So let me play those out in a little bit argue against you, this one of your thoughts. So, Price to Earnings right now in the market is 25, right?
Bill: Oh, you and your P/Es, always with the P/Es.
Andrew: Okay. I will grade you. If you look at Price to Earnings on a technical basis like for Shopify or Amazon in a tech stock, I have come to terms that it’s not a good way especially in the short term to judge how a stock is gonna do. But a broader market across the entire economy? Like, that means you’re looking at a P/E of 50, which is nuts, and I mean, what like that…I think the broader stock market P/E, I’m kind of reaching here I might be wrong. In the tech crash of 2000, was, you know, probably 50. So, you’re saying we’re gonna have a run up that could be as big just based on capital freed up and low interest rates that rivals the 2000s.
Bill: Yes, and chasing yield. It’s almost more of a supply demand type thing. Tons of capital chasing only so many securities.
Andrew: Interesting. So for me, I wonder if…I agree with you. I think there’s a good chance asset prices will keep going up. But I feel like it’d be more likely to see those in the real estate market versus asset prices, because maybe this is me just kind of projecting how I feel, odd to everyone else in the world, which is not very fair. But if I’m gonna pay for something like that, I would rather have the house, you’ve got utility, you’ve got something solid you can touch. There’s still a lot of places where we’re not anywhere near, I think…We’re probably actually at a price level close to where we were in 2008, but that was, you know, 10 years ago. I’m not making any…That’s just my gut feel, I’m not making a very coherent logical argument against that apart from the fact, that’s crazy man.
Bill: It’s crazy, but my case is not that individuals are buying stocks. And I also wanna be clear. I don’t know that this is a very, you know, “Good thing” because I think it’s gonna exacerbate the concentration of wealth because there’s gonna be huge wealth creation in people who are already rich and already on stocks. And when I’m talking about upward price pressure, all this capital freed up and remember, I caveated this by saying if the Republicans pass a broad sweeping tax reform bill. Of course, it will benefit people, wealthier people more, it’s gonna free up a ton of institutional capital, and I think there’s gonna be a ton of institutional private equity scale capital, a hedge fund scale capital chasing return. And that’s what’s gonna drive up asset prices, rather than, you know, you and I buying it out for our one case.
Andrew: Yeah. What about on the backend to that. I mean, you mentioned there could be…Do you think that’s gonna be the new normal or do you think that’s gonna set us up for a catastrophic crash that, you know, 2008 makes 2018 looks like peanuts.
Bill: One prediction at a time my friend.
Andrew: Fair enough. Well Bill, we’ll have to circle back around here and revisit this in 2018 especially that last one man, that’s a doozy. But this has been fun, always fun to just totally make wild predictions and see how they come out. And yeah, I appreciate you coming on man.
Bill: Yep. Talk to you next time.
Andrew: Want to connect with and learn from other proven e-commerce entrepreneurs? Join us in the eCommerceFuel private community. It’s our tight-knit, vetted group for store owners with at least $0.25 million in annual sales. You can learn more and apply for membership at ecommercefuel.com. Thanks so much for listening and I’m looking forward to seeing you again next time.
What Was Mentioned
- Andrew Youderian: Blog | Twitter | Facebook | LinkedIn
- Bill D’Alessandro: Website | Twitter | Facebook | LinkedIn
- China’s Share of Amazon Marketplace Is Likely as Much as 25%
- No Mercy / No Malice: Full-Throated Capitalist
- The Chinese Are Coming to Eat Your Ecommerce Lunch in 2018