The E-commerce Leader

[00:00:00] Jason: pricing, financials, profit and loss statements, those elements of businesses, are always good things to lean into in uncertain times
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[00:01:16] Michael: those, the Chinese curse that says, may you live in interesting times? The war in Ukraine is the latest and the most dramatic geopolitical event to hit world trade. So humanitarian and moral considerations aside is having an increasingly powerful effects on e-commerce on the buck of COVID in Europe and north America.
[00:01:32] And then add in China, zero COVID policy. And it’s clear we have to adjust this topic head on as e-commerce leaders. So what we’re gonna try to do today is address how to even make sense of it and where this might be going. And then we’ll look at how to actually solve it as e-commerce leaders to thrive, or just even survive in these strange times.
[00:01:52] Are you ready to dive into this topic?
[00:01:54] Jason: Yeah. This is a complicated one today. And, so I think we’re gonna have a good conversation about it, but yeah, there’s so many impacts on e-commerce right now because of the global uncertainties in many ways. Yeah. But we could spend days on this conversation.
[00:02:06] I’m not sure how we’re going to bring it to a short conclusion, but let’s jump in together.
[00:02:11] Michael: Yeah, absolutely. No, you’re right. It’s not easy. So let me ask you a question then. So I love the word geopolitics, because for me it can just setting things up, but what does it mean for you? If I say geopolitics and does it sound even relevant to you as an e-commerce operator?
[00:02:23] Jason: I try to keep. Heading the sand, I guess you could say to be honest, in many ways as it relates to geopolitics, what it means to me is just the interchange between countries, and societies globally. And it has impact in all sorts of things. Currency markets being one thing, trade agreements, and abilities, being a different thing.
[00:02:46] Shifts. Logistics those types of situations. And, all of its worlds together into a, a smorgasbord of opportunity or non opportunity for us as a e-commerce sellers. And, I think about the relationships of countries and their agreements together and, peace and conflict and all of the stages in between.
[00:03:06] So yeah, I think. That informally. It’s how I look at it. It’s just the relationships and the dynamics between.
[00:03:14] Michael: Yeah, I think that’s a pretty good definition. I like that. I guess I would include a few things that in addition to what you said, moving the goods as inputs and movement of goods to consumers sometimes are different things.
[00:03:26] Aren’t they? But, relationships also between governments, and their business and consumer sector sort of internal things. I don’t that’s geopolitics, but I guess it’s something else we’ve got to take account of. I’d like to start off by thinking about what we, how we, even, as you say, it’s a huge topic.
[00:03:42] What are the sort of things we can put our feet on and say, we’ve got some solid ground on which to have an understanding. I’m going to kick off with the things that I think are really important and then be interested to hear what you think are, I would say geography as the word geo in pies is a pretty solid basis as a starting point.
[00:03:56] So the fact that America has. Very defensible case has effectively at seas instead of lakes protecting, it has lots of oil that it can access on these accessing and has a lot of farmland that it can and does use to grow a lot of food and be fairly self-sufficient. For example, has a huge effect on things.
[00:04:12] So for me, geography is really important and very stable because that doesn’t essentially change. And then demographics, I think are also really important. So if you’ve got a very aging population, like in Russia, in Germany, You’re generally, that has a big effect on the labor market, the cost of labor, and that’s fairly predictable as well.
[00:04:29] So for me, those will be the most important things to base things on. What are the factors would you think are important to even make sense of
[00:04:35] Jason: this stuff? The most obvious one in the current conditions of, the whole, Ukraine, Russia, conflict, and the sanctions occurring is access to mark.
[00:04:44] Acts literal access to marketplaces access to things like the swift payment systems for resolving, money, payment transactions. We have, customers who have been contacting us regularly saying, I can’t purchase now. I live in Russia. I can’t purchase from, your website.
[00:05:00] What could I do? And our heart goes out for them. It’s what can they do? And w how do we solve this? And here we are just a small e-commerce operator in a relatively small niche. And yet these, global, disturbances and problems and crises are impacting our customers.
[00:05:19] And, I think that’s a big one, as well as just literal access to payment systems into marketplaces.
[00:05:23] Michael: Yeah, even in the small niche you’ve got, that doesn’t mean just cause it’s small insensitive, it’s a very specific market. It doesn’t mean it isn’t global now, which I think is why e-commerce has at its heart. Something very global. It doesn’t have to be, but it often is, because the internet is a fairly global system and suddenly of course we have the fact that.
[00:05:40] Things are also national and reasonable coming back at us. We’ve got the luxury of everything being free, flowing and global.
[00:05:47] Jason: It’s almost be careful what you wish for. We all built our models on the back of this idea that, Hey, we can tap into a global marketplace. We can find customers, anywhere that people have access to the internet.
[00:05:57] And that’s a great thing for expanding your opportunities to sell. But, it also comes with real world consequences. Then when there are huge disturbances and. Yeah, absolutely. And
[00:06:08] Michael: I think in a nutshell, you just nailed a lot of things that are true about the post global order since 1945 broadly, that’s got more and more of the world plugged into the, American protected American led system that I believe is breaking down.
[00:06:20] And, there are lots of fascinating books if you really want to deep dive into this, because as you say, it’s a short amount of time to deal with this. I would recommend very strongly books by Peter Zion, Z E I H a N. Look at me saying American letters now, American, who gets geopolitics. Not that common Americans tend to be very focused on America because it’s a huge which country, but he really gets it.
[00:06:40] I think in his predictive power for this has been, I would say astonishing. The first book of his, I read it was published in 2014 and it predicted a war in 2022 thereabouts with Ukraine and Russia. So that’s pretty amazing. That’s right. Yeah. And he’s his basis is geo geography and demographics as a solid basis for understanding what drives this stuff.
[00:06:58] So if you want to deep dive into it, he’s written three books got fourth one coming out this summer. So let’s get into the e-commerce side then. What do you think is the impact, or what do you think first of all is happening? That’s relevant to e-commerce and let’s start with the demand side, obviously, consumers wanting stuff, but not being able to get it is one thing you’ve experienced.
[00:07:16] What about on the other things on the consumer side?
[00:07:18] Jason: I think the, the consumers have been very, treated in the last 15 years on the, the growth. Simplicity of access to goods at relatively low prices because manufacturing in China made it possible for Amazon third-party sellers to scale so many things.
[00:07:38] And I need just that market place by itself is, Been an incredible impact on the world and, the opportunity to just simply import things, get them on Amazon, sell them for a profit has created a massive ecosystem. And the customers appreciate that. We all. It’s just, it is a technological Marvel that you can, have something off at Amazon in a couple hours to your doorstep.
[00:08:00] The origin of those items are critical to this storyline. And if they, are generated from manufacturing in China, that’s obviously become complicated. This year. Crisis is not a baiting. The ability to get product shipped is gonna continue to be problematic from everything I’m seeing, it’s not declining.
[00:08:23] And it is going to mean that goods and service, goods that were used to getting, Quickly and easy as e-commerce sellers, our own products that we’re reselling or whatever we’re going to have to find new sources for. And customers are going to do a lot of trade-offs. There will be winners and losers in that new game.
[00:08:40] There are winners and losers in every game and the smart e-commerce seller is thinking. Moves ahead to ask the question, how we can position ourself to survive in the changing world, order to quote Ray Dalio’s book title. And the real question is how can we do that? And it goes to, product options.
[00:09:02] And it goes to a pricing strategy and on. And so I think there are a lot of dynamics there on the customer side that are important for us to think through, as we prepare for and try to understand what’s happening in the global economy.
[00:09:16] Michael: Yeah. Wow. So you’re thinking of many moves ahead in terms of even how to deal with this as well.
[00:09:20] You’re thinking about, what we can do to solve it. I suppose I’m still at the stage of trying to make sure we understand what the nest is going on in the first place. So you mentioned the supply side. So the consumer side, I think, two trends. You mentioned the, I suppose what I would call the supply side or the experience that the customers had, the relative simplicity of getting goods increasingly fast and easy delivery, increasingly low prices, really relative to, Yeah, relative to inflation, I would say that on the demand
[00:09:46] Jason: we are, we should probably define the terms, right?
[00:09:48] So supply side would say the focus on the sh the creation, shipping logistics, and sale of the items, the demand side would be what the customer is expecting to receive what the customer is wanting, how much they’re wanting, how much they’re willing to pay all of the demand side questions.
[00:10:06] Michael: Exactly. So you’ve mentioned the supply side constraints, which I think are the most obvious constraints that we’ve experienced so far as e-commerce sellers. As you say, I don’t think that’s going away. I don’t think it’s necessarily going to be stable in terms of shipping prices. For example, I know there’s a lot of activity in the 10 K collective mastermind, many thing, ship containers around the world from China.
[00:10:24] So there’s quite a lot of in-house data there. And we are seeing the averages come down in price from what they were at their peak. Maybe half the peak, but that probably means five X or something. 500% increase on what it was in 2019 on average. And I don’t think it’s going to come back down to that and I think there will be, but that is
[00:10:42] Jason: astonishing.
[00:10:42] That is just obliterate of profit for
[00:10:45] Michael: e-commerce. Yeah. So that side has been very obvious. I think, the zero COVID feels like it’s common gone in, in the U S UK Europe to some degree, and these governments are treating it that way. So economically it’s. Not constraining things, a lock downs.
[00:10:59] However, China really has the opposite policy. And I think because they don’t really have a vaccine that works as far as I can tell against the Cron and they don’t have the national pride and the whole geopolitics coming out of that. It means that they can’t really go to the Americans and buy, a a few billion doses of something that works or for that matter, the Europeans, and this put them in a bit of a cleft sick.
[00:11:20] I think they can’t politically admit to that. They’ve their stuff doesn’t work, but on the other hand, it doesn’t, so they have to shut down. So I think that could go on for quite a long time, actually. Shutting down Shanghai, a city of 26 million people is not a small thing. And I think that’s not a one-off sadly.
[00:11:35] So I think that could be a major supply side constraint actually. Yeah. One other thing though, I think that the coming back to the demand side, being seen your take on this, I think sadly that most of us in e-commerce have really only experienced really broadly speaking apart from a bit of a blip around for in 2009, an upwards trend in demand.
[00:11:54] From consumers and I fear that may be coming down based on the fact that be spending such a big percentage of their money, particularly in the UK and Europe, maybe less than us, but on food, travel, home, heating up sort of thing that they just won’t have the money to spend on a lot of items that they’ve been spending on at all, or very minimal.
[00:12:12] What’s your view on that?
[00:12:13] Jason: The whole thing makes me feel like I need to brush up on. Econ 1 0 1, textbook from college days. It’s okay, how does this work again? Yes. We’re clear on the basic principles. If there’s a lack of supply, the price is gonna go up. If there’s, with static demand, if there’s increasing demand prices going to go up, if there’s declining demand, price is going to go down.
[00:12:33] But the reality is, I think what we’ve been treated with over the last 15 years is an easy solution. For many items that customers have become comfortable with in terms of price points and the, the difficulty on the supply side is going to create scarcity and that’s going to create pricing pressure, and that’s going to create a real, volatile pricing, pricing.
[00:12:57] I guess you could say scheme that is played out, broadly by many sellers. And, in the aggregate, it feels like prices are almost out of control. And the real question in that context then is what will people pay for what ultimately becomes a necessity versus, a luxury.
[00:13:17] And we haven’t been faced with those questions too much in the last 15 years. And what do you mean a luxury versus a necessity? I need a new mouse. What was that a luxury or a necessity? I don’t care. I just, I’m going to buy one because they’re $4. But, as prices go crazy for things, we will get clearer and clearer on the use of our money for basics.
[00:13:39] And, it just feels like it’s a very weird position to be in. I’m old enough to remember the eighties and, the inflationary times, early eighties, really things got stabilized, but the late seventies, I remember as a kid gasoline, and sitting in gas lines in our family station wagon, and, those were perilous times and inflation was crazy.
[00:13:58] And the question is, are we repeating that history? Back in those times, at least in California, where I grew up, you’d have people who had a home that they purchased for $60,000, that then became worth $180,000. And if they were the homeowner, they thought that was amazing. If they were trying to buy a home, they thought that was a massive crisis.
[00:14:17] And the question is, are we in the exact same scenario or something similar as history? Right now, and that will make people have a lot of hard choices in their spending. And, and it’ll play out for e-commerce sellers again with some winners and some losers. So there you have it.
[00:14:34] Michael: I think it’s interesting how the pandemic, really tilted the demand side.
[00:14:38] Very massively. So people who are stuck at home. So travel goods were decimated, went to like down 80%. Other types of goods when at three acts like home baking, it couldn’t be. Categories that went zooming up when people had money, couldn’t leave the house. It could be quite opposite to, there could be some sort of things like Lou role, buying a lot of toilet rolls and pastor seems to be a great hobby, bread station and everyone else is going on empty supermarkets.
[00:15:01] For some reason you can’t cook that much past in my experience, but anyway, people do it and my wife did it and we have just tons of pasta that we’ve never done it. But if you hit this, I wouldn’t bother doing this. If you’re listening to this, but joking apart, there are certain things that seem to be whenever there’s a crisis, people reach for them, but then we might find very weird category shifts might.
[00:15:23] And we, are you willing to hazard a guess as to what those categories might be or do you think it’s just completely empty?
[00:15:28] Jason: The interesting dynamics at play here are two things in my mind. It, if prices go crazy and. Sent it to be the predictions by smart people are that food is going to be a massive inflationary problem.
[00:15:41] And world food crisis will ensue. But if that’s true, but also at the same time, there’s this dynamic of there are massive deflationary pressures on things like accent to the internet, or, some thing are very inexpensive. My personal opinion is that people are going to continue to migrate.
[00:16:01] Outside of big cities and they’re going to continue to start looking into new things like, what’s old is new, again, like being a, a hippie that raises your own, vegetables in the seventies. And, California was real. It was real common. As people would find some land and start growing their own food and that being empowered and enabled by technology is occurring more and more, I think, As an e-commerce seller.
[00:16:22] I have a brand called the happy gardening life. I focus on that, industry or niche and do some influencer work in the gardening space. I think that’s going to be a massive winner, as a category. And I think things like that, things that empower people to take control of their own food supplies, and.
[00:16:40] Personal ability to manage their life. I think solar panels and, off-grid generators and anything like that enables people to solve some of this basic question for themselves as what is my utility going to be? What, what is my food costs going to be? People will run to, security and safety in those regards.
[00:16:58] And as an e-commerce seller, are we positioned to help, w with goods and services, I think that’s a fundamental question. Other things are going to be, be categories that are harder to operate in, and I don’t have any crystal balls broadly, but I just, I think about those types of things, what will people do, in a, a challenging inflationary environment where access to cheap products from abroad are a harder and harder to come by, and I think it will look a lot more like. Home-based, living, I guess you could say, or, not off, not living off the land, but I think it just, it will center people on, wait, can I grow broccoli myself? Can I buy the milk from the guy down the country road and those types of things?
[00:17:40] And to me, I I feel like, I desire to live that kind of lifestyle anyway, in a way. I’ve, I think about these things a lot and whether new people start to think about them because of this, I guess is, pros and cons there. But I think it will be a reality.
[00:17:56] Michael: Interesting.
[00:17:56] I like that a lot. I like the reference history rhymes is that mark Twain said history doesn’t repeat itself, but it rhymes that there’s a lot in that. I think history is another one of those guys to what will happen in the future. And it’s fluffier than geography and demography, I think. But it.
[00:18:11] should we put it that way? So this, the seventies was a time when there was an oil shock, that pushed people, global recession in America and in Britain, by the way, when America sneezes Britain catches a cold, the 1920s resection, whichever one says is so terrible in America, basically brought about Nazi Germany and in Europe.
[00:18:26] Sometimes some really extreme things happen in smaller countries, but, so that’s one thing that we can expect quite a lot turmoil. I think the self-sufficiency thing, it makes me think of, Britain in the second world war people talks about dig for victory. Okay. Wouldn’t turn their gardens into know vegetable gardens.
[00:18:41] And so there was a lot in that. And I think also then there’s a cultural nuance between say America and Europe and Germany and UK, where we have a different level of sort of the IMD of DIY self-sufficiency. I think Americans have always got this idea that there were fewer. There are fewer generations from me from the farm may be then the new UK, which was the first country of the world to industrialize.
[00:19:03] And they may be, have more of an attachment to the idea of they have better pharma and I’m in the U S has the best farm land in the biggest concept in the world. So the idea of buying milk from the guy down the road in Europe and in America is very realist. And we have a milk surplus. We’ve had a milk Cephas and bought us up is in the European union.
[00:19:19] It paid for people to not produce butter lake and the milk lake and all that. So that may actually be something that
[00:19:28] the milk lakes yeah. Go on about the EU that may actually start to be, gets to the point where, Regional producers of things like French butter or whatever, which is very good quality, but expensive for Europeans might start to be winners. And so you’ll see, as you say, weird winners and weird losers.
[00:19:47] And I think also the idea of things that empower you to make your own life is a very interesting, not only from the supply and sort of practical point of view, but. Branding. How does that tie in with, millennial aspirations? I think there’s some interesting overlaps between various trends that aren’t just purely driven by necessity.
[00:20:04] This is fascinating, interesting idea. And I think that the things that will be hardest to sell on, I think anything including electronics is going to be hit by the semiconductor shortage, which is partly calm as a sort of can supply constraint post COVID. But I think it seems to be. Just not an easy one for solve internationally.
[00:20:21] And I think with the advent of electric vehicle cars, there’s not going to be any lower demand for chips. I think that’s going to be one of the things that is really hard to deal with. Yeah. Yeah. And also electronics are going to get expensive and a luxury, as well. Yeah. That’s
[00:20:34] Jason: so interesting.
[00:20:35] The cost of them might be declining because of production. Systems improvements, the shifts. And the access to the, to the location, literal, trade agreements or whatever, with the countries where things can be made simply or quickly are becoming the barriers. While you might be able to produce some electronic, super inexpensively in a China and Chinese manufacturing facility, can you.
[00:21:00] Is there a tariff, is Amazon increasing its costs for selling and all of those things, are fighting against these deflationary, components of, manufacturing. I think. The fundamental thing that I would just encourage everybody to do with just a few minutes left here.
[00:21:16] Cause we’ve got to stop today early, but I would encourage everybody who’s listening. Who’s an e-commerce operator to dig into basic economic. Again, as I jokingly said, at the beginning of this conversation, the fundamentals of supply and demand, the fundamentals of pricing strategy, that they’re very well-worn, and clear, textbook.
[00:21:37] YouTube lecture series access to, all of the universities, lectures are pretty much online now where you can go find out about, supply and demand, challenges and really dig into the base components of these ideas, because it does come down to basic economics, and then consumer choice and, Elements.
[00:21:55] They’ll never go out of style. And, in the giddy times where it’s like, Hey, we can all find stuff cheaply and sell it and make a profit. When those things dissipate and disappear, what you’re going to be left with is the bedrock of fundamental economics that you want to really sharpen your skills into and really know, And, an increasingly expert level, I guess you could say, and it’s always a good time to brush up on those things, pricing, financials, profit and loss statements.
[00:22:25] Those elements of businesses, are always good things to lean into in uncertain times.
[00:22:31] Michael: Yeah, I could not agree more. And I would say, they say bad habits breeding good times. And that probably means a lot of us had got quite slack about a lot of basics of business that in a commodity-based business, you would never have the chance to be slack on.
[00:22:43] Or if you’ve been, forged in the fires of a recession, at some point you’ve learned the hard way. And I guess a lot of us are going to be forced to learn. So yeah, the more you can get ahead of that learning curve that you’re going to be forced into. Anyway, I believe. The more of an, a competitive advantage is as well.
[00:22:57] And it’s not very visible or sexy as opposed to shuffling image work or learning to do Facebook ads or something. But I think understanding the fundamental economics is one of the strategy level competitive advantages, which is hard to beat. Jeff Bezos, one of the reasons he’s built an incredible machine.
[00:23:14] Yeah. Hey, he saw a trend coming, which you’ve jumped on with both hands mixed metaphors, but the other one is that he was super, super sappy about economics and, that came from his days of wall street. So I think it’s not coincidence. Straight strategic thinking and economic understanding go together.
[00:23:30] I think so. I’d love to take it. W hello. I’d love to take a time at a time, next, episode to dive a bit more into some practical responses, that are a bit more immediate, but I think. If nothing else go away and studying economics is a great
[00:23:44] Jason: takeaway. Yeah. And I have a book on pricing principles on Amazon.
[00:23:48] I refer you to where I try to summarize much of this for, small business owners, e-commerce sellers. I also love the book by William Poundstone price list of myths of fair value. You mentioned now a couple books by Peter Zion. In today’s conversation, I mentioned the Ray Dalio’s book, principles for surviving, a changing world order is new book.
[00:24:07] That’ll scare you to death. And these books are great resources for understanding the conditions we find ourselves in. And I really challenge you to dive into them. I’m going to get into the Peter zine, literature. You’ve mentioned him a few times and I have never picked up the book yet, Anna.
[00:24:22] And so I want to do that and go deeper into that component of that. These ideas. Yeah.
[00:24:29] Michael: They have very good books. I think if you like history of politics, that’s all, not really politics. No, that’s not relevant, but history or geography and then you’ll find them fascinating. And yeah, I think. The power fundamentals is what we’re referring today.
[00:24:41] Isn’t it economics, geopolitics, understanding this stuff may seem like why would I bother, until the drama kicks off and then you go, I really got to get this. So I think now’s the time. Isn’t it? Yeah, for sure. Say first of all, take, thanks for taking time. Now you’ve got to dash. To talk this thing through fascinating topic.
[00:24:58] The other thing is if you’re listening to this and you’re enjoying it, don’t forget to find us on the call-in show. Our deep dives happen once a week and we have the, hot takes with our panel with Chris green and Kyle Haimer as well. And also of course, we’re available on Spotify and apple and don’t forget to subscribe to the show.
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