Same Day/Same Hour Delivery
At the Morgan Stanley Internet Conference a few weeks ago in SF, I was asked to sit on stage with Bill Gurley and Alfred Lin and take questions from the moderator and audience. It was fun. Bill and Alfred are two of the best VCs in the business and it was a treat to be on stage with them.
One question we got from the audience was what company was going to get most disrupted by the Internet. Bill answered Hertz and Avis, for obvious reasons. I think he’s got a great point. I answered Walmart. Here’s why.
Until now, if you want something right away, you have to go a store. If you are willing to wait, you can order it online. But it sure feels like same day/same hour delivery is coming and coming fast now. And when you can order something from Amazon, or Instacart, or Starbucks and get it right away, there are going to be a lot less reasons to go to a store.
We’ve got a horse in this race with Sidecar and I am seeing it happening right in front of my face. These real time driver networks that Sidecar, Postmates, Lyft, Uber and a handful of other companies have built can do a lot more than move people around. They can and are moving packages around. And more and more ecommerce companies (including bricks and mortar retailers!) are doing deals with these driver networks to get their stuff to their customers on the same day and even in the same hour.
This is going to put even more pressure on companies with lots of stores, lots of in store inventory and labor, and processes, systems, and procedures optimized for the in-store experience. That’s why I answered Walmart.
All that said, I am not advising you short Walmart. Please don’t take public stock market investing advice from me. I don’t know anything about that. I’m a VC.
I would put Costco right behind Walmart on that list
Agree. Amazon Subscribe & Save essentially eliminates my need to go to a warehouse store. Paper towels, toilet paper, other bulk items delivered to my door every month. What could be easier (assuming you have the storage space!)?
But it Costco is smart that plays right into their hands, their stores becoming essentially distribution points for final delivery with fewer people needing to go to them.Of course if they are “dumb” and keep doing the same thing they have been doing for years then yeah they may find themselves in trouble. Generally they seem to be located in less expensive places to own property so they shouldn’t have a huge huge cost to maintain / hold the physical locations.Its just getting their butts in gear on the last-mile & real-time stuff they need to do. This probably starts with them re-defining themselves as “tech companies” rather than bulk outlet retail/wholesale etc …
Yeah, and Lowe’s and Home Depot.
Building a new Lowe’s in my city….that already has a Home Depot and two Walmarts!!
I’ll leave my rant on the perishable goods distribution channel to another day.On a higher level what is really happening is the transformation of the structure of the workforce itself.Uber, Instacart, whomever are forcing a breakdown of what it means to be an ’employee’. Crushing the difference between a 1099 and a W2.Uber employees are really W2’d employees although not in structure.This is wildly freeing to the systems designer. Unbelievably threatening to the tax structure that drives worker’s comp, uic and the rest.I agree the most disruptive. But I think at a much more atomic cultural level. Chipping away at the rental car companies or big box stores is honestly, just collateral damange from what I think is under way.
Yeah. That’s a megatrend. We have a number of investments that are riding it
The interesting part of following the Megatrend is the end-state. To me that’s a shit-ton of depreciating commercial real estate in 15-20 years that could be reclaimed for other purposes
Residential hopefully. Homes cost too much for many Americans
.The trend to follow in housing is the “mini home” which provides the smallest possible amount of space within which to live and prosper while maximizing the site improvements.This trend tracks with affordability — both size and land component — and efficiency of design. Watch HGTV and try to find the person who doesn’t want the reception, living room, kitchen, dining room open to each other.This from a guy whose children are gone and lives in a 6K house. Rooms I have not been in in six months.Downsizing is around the corner.JLMwww.themusingsofthebigredca…
AirBnB those extra bedrooms. 😉
I agree Jeff. The answer to affordability of housing isn’t to subsidize unaffordable housing, it’s to produce efficient housing and abandon the mindset of extravagance, Both are underway I believe. For those that want a look at some cool “tiny houses”: https://www.pinterest.com/f…Granted, these aren’t spartan, most more like wilderness cabins but they are cool nonetheless.
Particularly if the only jobs around are as Uber drivers…(I exaggerate, slightly)
.This a well grounded phenomenon already. Community colleges and county government (co-working spaces, call centers, admin farms) are buying old malls and shopping centers like mad.Well located, big open spaces for cube farms, lots or parking, on big streets. Big AC systems. Lots of bathrooms.In ATX, Travis County and Austin Community College have both bought huge retail properties and converted them for their own assembly occupancy uses.The fate of all old WalMarts nationwide will feed this trend.JLMwww.themusingsofthebigredca…
The truth of it is that selling products through leading perishable channels is at its core not that very different than the contracts I signed in the mid 90s with hard goods.Much better IT. More transparency and certainly less ‘for sale’ from placement, but the similarities are greater than the difference.Re: 1099 and W2–I agree. This is going to crash into the law and quickly.
I always ask my Uber drivers how they like the service and if they feel like they are making better money working for the company. Might not be a giant sample size, but I’ve never had ~one~ say they weren’t making more and enjoyed the freedom to work the way they want. Decentralized work is going to change peoples lives for the better IMO.
Yes, people value empowerment and autonomy…add more income to that and you get happiness.
Yup.The key that I always get an aha about is that they are completely decentralized yet are controlled like employees.And more critical–and why I think companies like Instacart won’t succeed–is that with Uber it has changed the very chemistry of supply and demand.
Oh, man, yeah. I could chat about Uber’s strategy all day.Uber’s brilliance is rooted in creating a complete end-to-end solution. It had to be end-to-end to work and they had to launch the way they did; they created their own demand. By leveraging an existing pool of “sellers” (drivers) who were under paid, treated poorly, etc by incentivizing them with more income and more freedom… no brainer.
Same here. When I’ve used Uber I asked the similar questions with positive response.Decentralized work calls for more and different types of skills. Different or reconfigured products/ services to help with productivity, financial management, marketing, etc. Which creates new business opportunities.For marketplace companies, one of the competitive edges can be the amount and type of education and support provided to the supply side (service providers) of the business. Sometimes this can even be monetized.It will be very interesting to watch how society shapes around a more entrepreneurially-minded and in some ways liberated workforce. I imagine there could be some carnage too. But that’s part of progress.
In NYC have actually heard from many that they made more doing yellow cab, but they valued the freedom over the $ because they don’t have to work in shifts and can go online/offline at their own desire. Definitely agree with changing lives for the better regardless.
Its only a matter of time before there is an Uber driver’s union … and then some popular Democrat who stirs the pot at the thought of lining up his campaign fund and everything goes downhill.For same-day/same-hour delivery, the biggest issue is going to be scale. You just cannot make this work for the suburbs. Walmart will survive just fine for that reason. Also, grocery delivery doesn’t really work at scale. Most people still like to go pick out their own fruits and vegetables.
.The battle on 1099 v W2 has been settled law for a long time. Not suggesting it isn’t worthy of a re-visit but what constitutes an “employee” and what constitutes a “contractor” are very well litigated.It is essentially a tax issue while many folks want it to be a employment issue. It is not.An Uber driver who is providing his vehicle to conduct his business is able to depreciate it and to deduct substantial operating/ownership costs such as interest, depreciation, maintenance, insurance, car washes.These deductions are in millions of personal tax returns and will be hitting the revenue stream to the IRS immediately. Expect the IRS to go after them like a bear just out of hibernation.The IRS might have some trepidation about going after Uber, from a purely legal adversary perspective, but the IRS will just garnish wages, seize accounts and throw tax judgments at individuals. They are relentless when it comes to the individual as a matter of policy. The Lois Lerners of the world (who BTW is a freakin’ lawyer) are the operatives in this world.People like Uber are not going to win that war without some legislative solution — which they may well engineer but it will take a few years.One of the big impediments to any such modification is going to be entitlements and Obamacare which rely upon the IRS to collect the money and ensure compliance.This is a huge problem and will only get bigger.JLMwww.themusingsofthebigredca…
Agree about the tax issue completely. Very well stated.Don’t agree that is as cut and dry as you make it from a practical perspective as every small business works in the grey here.If the rule says that anyone who has to be at a given place at a given time is an employee–contractors are a rare breed. And they are not.Re: ObamaCare–you will never get me to engage is a discussion with you about that my friend;)
.In 33 years in business running companies, I have never seen anyone who professed to use “contract labor” ever prevail when confronted by the IRS. The rules are quite specific as to how that relationship must be constituted.I researched it very carefully as it related to three different business with which I was involved and other than real estate brokers to whom you provided no admin support, never could get anyone to tell me there was a safe harbor. I was looking pretty damn hard for the harbor.The “gray area” you mention is likely also an area of illegal alien employment wherein the issue is conflated with illegal workers, paying cash and a number of other illegal practices — which would be about every restaurant in the US without Golden Arches and some of them also.I remember the old days when the Border Patrol would come to a work site and all the workers would take off running. I was sitting in my favorite breakfast taco joint in Austin, Las Manitas, and had to go back into the kitchen to get my food as everyone ran for it.Again, I am not aware of any company who ever issued 1099s and when hauled in by the IRS prevailed.It is the entitlements — not the worthiness of the programs — the collection, that is the real sticking point. The politics of Obamacare are not at dispute here today, it is the collection, enforcement, penalty implications which the IRS — same arbiters of 1099 v W2 decisionmaking — is controlling.JLMwww.themusingsofthebigredca…
Well articulated.Agree completely.My strategy is to play by the rules.Many don’t.
Vehicle operating expenses are deductible regardless of employment status. The threshold issue when you go to the IRS is whether or not the automobile is used for business purposes. Either the deduction occurs as a function of the expenses the business outlays to pay and operate a vehicle or the individual deducts the expenses in schedule C as part of their self-employment, but there is symmetry from the viewpoint of the IRS. Same thing with payroll taxes, etc. because they simply recapture that in the self-employment tax.I think the one scenario you might be imagining is this: an individual drives their personal automobile for business purposes as a W2 employee in which case they cannot deduct in schedule C because they are not self-employed. Therefore these miles are not deductible unless an individual itemizes and they’ll only do that if itemizing exceeds the standard deduction. Maybe a possibility, but any rational businessperson will prefer to pay out these expenses as reimbursements which are not taxable income to the individual and are deductible business expenses as it’s a cheaper way to boost your employee’s take home pay then to simply increase their salary.
.The length of your explanation — with which I do not agree completely — seems to make my point. It is a complicated issue and is a tax issue.The deductibility of travel expenses does not require an employee to be self-employed. He can just apply the IRS mileage allowance even when a direct employee.Being reimbursed for actual expenses does not increase anyone’s salary. It is a zero sum game fraught with the costs of administration.Not to quibble but the issue of whether costs are deductible must also consider whether the enterprise is profitable. If it is not profitable the incremental expenses are worth nothing in the short term.JLMwww.themusingsofthebigredca…
I’m going to double down on my position with this evidence: IRS explains business use of car and its deductibility at http://www.irs.gov/taxtopic…. TurboTax provides the sumarized explanation noting you can only deduct if you itemize: https://ttlc.intuit.com/que….Salary and take-home pay are two different things. The general point is that for an individual that does not itemize, it is advantageous to receive reimbursements as opposed to salary that an employer presumes covers expenses. I illustrate the advantage in this hypothetical:Assume you make $1000/week and this money includes expenses and salary. If an employer pays it as pure salary and you’re taxed at 20% then at the end of the year, the 2014 standard deduction is $6200, then your take home pay is:($52,000 -$6,200) * 0.80 = $36,640If an employer reimburses you $100/week for vehicle operating expenses and pays you $900 a week in salary your take home pay is:($46,800 – $6,200) * 0.80 = $32,480 + $5,200 = $37,680The latter situation is clearly preferable to the former!
.Mattie –The flaw with you argument is very simple — what honorable employer is going to ask an employee to absorb $100/week in expenses?What employee isn’t going to realize they are getting screwed?Having been a CEO for 33 years, I can tell you with some certainty, this is not how honorable folks run their businesses.JLMwww.themusingsofthebigredca…
Sadly I’ve had many jobs with unreimbursed expenses. Typically my reaction to the decision to not reimburse has involved yelling, which I do not often do.
“It is essentially a tax issue while many folks want it to be a employment issue. It is not.”That’s it, in a nut shell.Though I’m not sure it means shit as it relates to taxes will hit the fan. We’ll just see more folks filing as contractors, which Uber drivers and Task Rabbiters are in the eyes of the law, and they’ll file their deductions, get them because, as you said, the laws are clear, and that’ll be that.I’m not sure what the numbers are when it comes to how much the IRS makes on average from W2s vs 1099s, but I’m willing to bet its pretty similar per capita. Either that’s true, and noting will really get shaken up — other than educating more people that they can live a great life as a 1099er — or the 1099s and their deductions will cut into the government’s profits and they’ll simply change the tax laws.If its the last bit, it won’t rock the “what’s an employee” debate, but it’ll, worse, rock the sharing / rental economy at large. If it’s not lucrative to be apart of it, no one will put up with the inconveniences of providing services within it. That’s the real hidden danger – collapse of the system. A possibly farfetched danger, but a real one nonetheless.
.The big issue from the IRS’s perspective is that it is much easier to collect payroll taxes and to impose Obamacare compliance on a big corporation than it is a million drivers.When dealing with a corporation, particularly one like Uber with a lot of “employees”, they can be very efficient and they can identify all the employees.It is also another example of how regulation gets in the way of a man making a buck.Make no mistake, the employers cannot be trusted to follow the law because they believe there is a huge benefit cost reduction in having 1099s v W2s — this says nothing about the number of cheaters in the “cash only” economy.In some ways, this is also conflated with the immigration issue as the real cheaters are hiring illegals, paying them less, paying them cash — no documentation of any kind.This is a huge financial consideration.JLMwww.themusingsofthebigredca…
I can definitely see that. Maybe someone needs to start a company that does for companies that mostly employ 1099ers what payroll companies do for fulltime W2 folks.If your predictions are right, which I think they must be, starting up and funding the solution to the government’s fast-coming problem will be a really big business.
May not be settled.
.This is actually a fight over Uber’s attempt to get part of what they have described as a gratuity — telling you something about Uber’s level of greed.It is a fight between a group of “employees” who desire to be W2 employees (direct employees) v 1099 employees (contract labor).It is not the typical IRS v the world lawsuit.The SJ Motion was denied — meaning only that there are factual disputes not that the law isn’t clear on the matter.The fact issue may well be — is a gratuity really a gratuity if the customer pays it to Uber and has no control over the amount?If so, then, arguably, the drivers are employees being employeed at a wage set by an employer and nothing more.This is a sideshow but one I predict will likely result in the Uber work force being classified as direct employees because of the manner in which the revenue (and gratuity) is paid by the customer to Uber and then Uber gets a cut and only then is it distributed to the driver.It is not a fight with the IRS. Yet.JLMwww.themusingsofthebigredca…
Is it just a tax issue? One of the pluses of being an employee is that you (usually) get benefits – health insurance, etc. Take just health insurance… If someone is forced, by market shifts, to become a contractor vs an employee they’re only better off if they make more money after not only all of the tax consequences but also after paying for benefits that were given to them as part of a compensation package when they were an employee.
1099 vs W-2 is purely a tax issue, which is obvious b/c those are both the names of IRS forms. Theoretically, employee vs. contractor is about agency and control. But I suspect that a lot of companies make the employee vs. contractor distinction based on what footprint they want to have with the IRS and the welfare state. Of course, this is an academic point. In reality, the issue is that the IRS *and* the rest of the welfare apparatus leans on the employer as its proxy, a sort of modern day tax farmer.
.Damn good comment.Well played!The employer is the IRS’s tax bitch required to collect not just from the employer but also the employee.Since the IRS gets to make the rules, they have made the rules in their own interest and only their own interest.Can you imagine how much money must be involved in this?I don’t trust the IRS or the gov’t on anything but if we had a national sales tax and no income tax and no IRS, I would be supporting that.JLMwww.themusingsofthebigredca…
What will happen when more and more people are independent contractors? The voluntarily reported tax base will shrink. National sales tax (or VAT? never figured out the distinction) could be the answer I suppose, though my fear would be that we’d end up with both: an unfair and disproportionately burdensome income tax regime, plus a new and expensive national sales tax.
.The tax base is not “voluntary” as the IRS gets a copy of all 1099s. They will hunt them down but it will be very time consuming.JLMwww.themusingsofthebigredca…
Agree that we need to tax consumption, not income.
IRS *and* the rest of the welfare apparatusWho’s welfare?I’d love to hear you unpack that phrase?I DARE YOU 🙂
I accept!Welfare apparatus = the bureaucratic structure that handles the collection and distribution of entitlements. I’m not sure whose “welfare” this refers to, or if the term is rather a general concept in the sense that a gov’t policy of welfare is supposed to promote the general interest of its citizens.Clearly I am a pessimist as to the efficacy of entitlement programs, but I think it is still possible to discuss the matter in neutral and accurate terminology…
So all government expenditures = “entitlements” ?
No, I didn’t say that. I said that employers classify employees in part to optimize for their footprint with the IRS *AND* the wellfare state (emphasis not in original). Those are two separate things, though there is significant overlap.
Nicely clarified !
The only entitlement programs that are sacrosanct are the corporate welfare programs, which dwarf citizen welfare.
I view corporate welfare as a distinct issue from individual entitlements. Corporate welfare is usually in the form of a tax break or subsidy for a targeted constituency. It could be every bit as insidious, and far more corrupt in the way it’s allocated, than individual entitlements. But I don’t see how it’s part of the same conversation, unless we’re just talking about how irrevocably screwed up the gov’t is.
My concern with this is that it’s causing unstable income and insurance/liability/workman’s comp/benefits for people making low wages to begin with. I can’t say this is an improvement as the people suffering have no recourse.
There is some lack of structure, but universally the Uber drivers I’ve spoken with have been extremely positive about having higher wages and more freedom to then tackle these sorts of issues. I think it’s a fundamental redistribution of capital, and that will give people more opportunity to vote with their dollars which will result in better outcomes.
I’ve heard both, I’ve heard from happy drivers and unhappy drivers.It may be a step in the right direction, it’s still too early to tell. This article haunts me : http://www.fastcompany.com/…I think we just need to be sensitive as the people benefitting from this system. These safe gaurds are in place for a reason. When people get injured, get sick, and want to take care of their families they should have recourse.
I suspect it depends HEAVILY on the market. Sharing economy services are much better in some cities than other depending on local economy health. I think on net pros outweigh cons.
Until other systems catch up to realizing the extra disposable income is available and up their prices.
I agree its messy but I think a step in the right direction honestly.There are industries like the food and manufacturing industries where the lower tier workers, very highly skilled are falling through the crack.Go to an upscale restaurant. Down the chain there are people making minimum wages, getting paid less off the books.It’s changes like this that I think over time have a chance of breaking things so they can get rebuilt in a better way.
I think it may be a little to early to declare that the atomization and self capitalizing of work force functions will be systemically positive ?Not with standing our inherent new powers of App-Network synchronization/organization.There are a lot of social/commercial/political substrate undertows yet to surface!There are always services and dis-services when picking a organizational tipping point between two organizational extremes.We humans have a long standing tradition of testing those painfully extreme swings on our educational journey to optimal.The experiment has just begun.
Agree it is the beginning.Disagree that this is not positive. Current structure is so bad that change in and of itself, is a positive.
I’m not saying it is negative in the long run rather that the transition could cause globally-systemic stasis-disasters if not framed around an a set of organic-narative/metaphor tools that afford collaborative social introspection that is adequately abstracted.We are entering a phase change in the trajectory of human social evolution where the network accelerated organic interlay between everything totally changes the baseline risk level for cavalier trial and error.Trying on crop-irrigation is far less risky than trying on new organically accelerated global banking structures or betting on the non-tivial causal spread of global warming outcomes all under new network accelerated interdependency conditions.We are becoming our own evolutionary hyper-speed-gods of self-referential substrate-micro-management. We need to collectively appreciate the magnitude of that non-linear organic network-effect risk-factor applitude change.Up till now the complexity inherent in the organic self-organizing-dynamic has largely been a hidden substrate to human social activity/organization, with algorithmically networked everything that organic-organizing-dynamic has suddenly been elevated to become our dominant systemic-social-platform construction kit.Social meme mistakes at 30 k/hr vs mistakes at 1000 k/hr !That sudden quantum leap from a linear-individualist-clockwork to an organically-interdependent network enabled social-organizing-dynamic seem very under appreciated to me ?That is why I’m am often caught prattling on here about the paramount importance of developing a new set of social memes/narrative/metaphors/language that can effectively capture/share the recurring components/dynamics/remix rules inherent in our new network-enabled, organically interdependent, social-platform construction kit.Our new social-environment construction-kit revolves around computational network-representations of abstracted social-objects/processes(abstracted social-nouns/verbs).A shared language that can effectively frame/visualize the pivotal recurring features of a society’s environmental realities is more crucial than ever when dealing with an emerging reality largely based on highly abstracted, virally accelerated, social-objects/processes.The atomic table with its effective valance framing language has allowed us to ride that concrete atomic-platform remix-pony all the way to our newly abstracted platform of socially-netwoked silicon chips.The analogue next step in a world dominated by abstracted social-objects/processes is to assemble an accessible organic-process-literacy, visualization-meme, roadmap for the rest of us as job one!Without that we are largely just operating in a world of network alchemy thus amplifying the risks associated with organic-scale unintended social consequences and further aggravated by our lack of respect for the inertia-dampenig functions so inherent in all stable living systems.( exhaustively explored by James G Miller in his 1978 classic “Living Systems Theory”)That viscerally accessible, organic-process-literacy, visualization-meme roadmap will probably be constructed largely at the crossroads between network-technologies and 3D-animation-arts.Sorry for ranting on you 🙂
If only people could get paid leave and time from work to vote for change – and time first to be educated thoroughly.
.In the US, there is “early voting” — often three weeks including weekends as well as the polls being open 7-7.JLMwww.themusingsofthebigredca…
People still have other things to do – that time doesn’t magically free itself up, especially people working paycheque to paycheque. A specific time, with paid leave, that is nationally promoted – to get people to go – is needed, everywhere around the world.
.Matt —I have to award you, but only if you will accept it, a WELL PLAYED for “paycheque to paycheque” — now that is cool.I am the Precinct Chair of my local voting district and I have had a very close handle on the voting laws for a long time.Anybody who wants to vote today can.First, anybody can have mailed to them or pick up an absentee ballot as soon as they are printed. You can vote absentee in your pajamas.Early voting is often headquartered at grocery stores and libraries as well as churches. In neighborhoods and for long daily hours. For three weeks.On Election Day, the polls are open from 7 to 7 and if you are in line by 7, you get to vote.Therefore, I will have to respectfully disagree with the idea that there is a need for additional access.If one cannot find a way to vote under those circumstances, then you just don’t want to vote.In Texas, even if you don’t have your voting card you can use a driver’s license or have one of the poll watchers — remember we have fairly small districts — can vouch for you.A voter needs to have a little skin in the game.JLMwww.themusingsofthebigredca…
Okay. Thanks for sharing. Now, what about the people who are mentally (depression or otherwise) unmotivated to participate in the process, and it’s the system (overall, not just voting) that got them there – and doesn’t help them get out of it? If accessibility to voting isn’t the issue then that is the next one.
.I really don’t understand what you are saying.If one doesn’t like the political system, a free man or woman cannot be compelled to participate.Remember that in the US, men died to provide that right.JLMwww.themusingsofthebigredca…
To broaden your horizons it might be good to research and understand the conditions people require for one to be healthy or heal, to gain knowledge, and to be productive.Maslow’s hierarchy of needs is a good place to start. If different layers of the pyramid have disrupted or are disrupting someone’s ability to learn and make decisions, be more productive or vote as examples, then they will not be .People also need an impetus to change their behaviours, especially when many are jaded at the current reality/status quo.People, not just men, have died around the world for all of time to maintain that right. I wish you’d keep your patriotism in check – that thinking is harmful for the world.Warmly,Matt
.Wow, Matt, thanks for a very insightful comment.I had never heard of Maslow’s hierarchy of needs. I will give that a study and get back to you.In the future, I will try to keep my dangerous patriotism — harmful to the world and all as you said — in check.Once upon a time, I actually lived that dangerous notion but I was just a silly youth in those days. I used to have a lot of respect for people who had actually done something about freedom but as I said, I was just a silly youth.I can see what you mean about it being “harmful for the world” all those free peoples going on about their lives because of American patriotism. Bad stuff. Very bad stuff.JLMwww.themusingsofthebigredca…
I agree that lumpy income and uncertain market conditions can be tough. As far as worker’s compensation, sole proprietors have the option of purchasing workers compensation insurance the way any other employer does, so there is certainly a venue for recourse on that.
Look who’s here 🙂 Nice to see you!
Looking further down the road, what happens if (when?) these driver networks become fully automated?
As in all self driving cars?Beyond the pale of my understanding or belief.Hybrid self driving/ nerworks of drivers is coming sooner than we think and won’t impact what we are discussing.
You have defend your turf as a business owner a tax payer
Seems like a big risk if at some point, a state, or the IRS, decides that uber drivers look more like W2 employees and imposes commensurate penalties. Then the drivers all have misclassification claims. But I’m sure uber has given a lot of thought to this issue and has a strategy…
I think the laws will change.The truly–massively disruptive companies–like Uber and Air BnB–are forging ahead into new areas that are all risk/all possibilities and all, I think, the future.Laws change. It will be a mess. But it will happen and we will be better for it.
I think this is just a matter of time. Labor has been a polarizing force,and it’s overdue for a swing back towards labor rights
.Huh?Labor is getting killed — 5-20MM unskilled, low wage illegals to be admitted and made legal?Labor has already lost. The battle is over.There will be no real growth in real wages for a decade at least.We are at an all time in labor force participation rate since the 1970s.The country is awash with labor.JLMwww.themusingsofthebigredca…
It’s going to be interesting when the union organizations types go after the 1099s
These are important changes coming.I’m not an expert but went through this when there were massive laysuits in the late 90s in the valley around contractors, as an advisor, as a small business owner.The most important chunk of the decentralization that the Uberization of the workforce initiates is this discussion.It is putting the needs of the people and the needs of the tax codes at odds.Perfect place to start.
I’d answer consumption as a human behavior.
That seems to be getting “more/worse” rather than better ? Or is that what you meant ?
the walmart model is entirely optimized for “i didn’t come here for this but i’ll buy it anyway”.We just don’t need the vast majority of the stuff that we “buy” at these retail outlets – and innovation is beginning to make us realize this.Who’da thought that my 3 year old son will never own a car? until uber etc came along…..i firmly believe that by driving age – he won’t…..I like lenod Neymoys quote ““The Miracle is this. The more we share the more we have”.
I agree in principle, I guess just not seeing it (yet?) in actual human behavior.Everything (including entire countries) seem to be moving toward “consumption driven economies” (which seems to be to be a complete and utter contradiction of hogwash)Plus it seems that ever fewer people are “makers” these days (I guess now I really am starting to show my age!) All people seem to actually be able to *do* is consume these days …. scary
Seems like the smart brick and mortar chains could pivot into drop-shippers for the logistics companies offering the same day/same hour delivery. Keep smaller retail footprint for showroom purposes.
Wouldn’t the natural progression be for these larger companies such as Walmart to join the trend as opposed to disrupting it. If they embrace the trend, their large number of stores could become an advantage as it will serve as local bases from which goods could be delivered.
I answered WalmartThe flip side of this is that Walmart is also in a position to gain the most from the Internet, if they choose to.With a zillion stores all over, the main distribution mechanisms are already in place. What they need to figure out is the last mile of delivery.
Why not partner with Postmates, Wedeliver.us or one of the car sharing platforms?
Why do they need to? They already have their own local labor force across the country. Redeploy the guy that greets you at the door (“Welcome to Walmart”) to a guy that drops your goods and greets you at your door.
Logistics. They are harder than you think. But, they have great distribution logistics point to store-question is can they do it store to end point (last mile). Might be cheaper to partner than build it themselves-or buy it rather than develop it themselves.
True. Merits analysis.
It seems cheaper to partner with TNCs because driver’s for TNCs (Uber/Lyft/SideCar) are not realizing the true cost of using their own vehicle for this mode of earning, and hence they are not realizing their true earnings (its not what Uber or Lyft says they make EOD).With that said, if Walmart was to redeploy all (or most of) its store employees to deliver locally, with vehicles owned/leased by Walmart, no Uber/Lyft can come close to its capability in delivering needed stuff instantly (within an hour).Big retailers like Walmart have the 95% figured out, and the 5% being the last mile delivery.Uber, Lyft, Postmates and Instacart have the last mile delivery figured out, but they make it look like thats the 95% in the game!
My general concern with partnering with one of the existing platforms is that none of them come even close to the scale that Walmart would need to do this right.Perhaps they could purchase a few of them then push enough resources in to make up the scale difference. That approach has a different set of problems though.
Yup if they are smart and get on it with vigor, I could see it. I guess they’d still be “disrupted” in that their business could change a lot but they could still be very successful
Wouldn’t that eventually lead a to shrinkage in store size? This is reminded me of the Sears story, when stores became catalog outlets, and now they are dying.
If this type of disruption is going to happen no matter what, then it seems like it would be in their own self interest to engage in it themselves.Sears never even attempted to adapt. They let the competition do all of the disrupting.
Sears…oh, that. I guess if Fred had said “Sears” instead of “Walmart” it would have been Monday morning quarterbacking. But it’s just about the same as Walmart, isn’t it?
If Walmart opts to not do anything ( the Sears approach ), then I would expect a similar result.While I’ve got plenty to complain about when it comes to Walmart, I’ve also been very surprised by some of the tech hires and efforts that they have made. Still unclear if those signals are enough to indicate they’ll make the bigger changes that are needed.
They also are screwy in other ways. They killed thier core brand retail value through the way they are organized internally
The Four Horsemen – Who Wins/LosesAmazon/Apple/Facebook & GoogleAmazon and “The end of pure play” – START at 1:52https://www.youtube.com/wat…
And yet Google is opening stores. Also, I don’t see the Apple Store going away.But I hear you loud and clear on Walmart…but I’m not so sure about that hypothesis as regards the suburbs. In cities, one hour delivery is a no brainer.
IMO No brainer for customer.Bix box stores have not found it profitable and they dont want to erode already thin margins. The companies doing same day delivery are far from profitable and surviving only VC money. Am sure you know Kozmo/Webvan story
Oh, yeah. Kozmo and Webvan…RIP.
No brainer at what delivery charge?
I dunno…I don’t actually live in NYC, I work in NYC. My lunch is delivered everyday at a cost that I don’t care about.
The Apple Store is a marketing thing more than a retail thing.
A self-paying marketing mechanism to that
Yesssss.As is every bank branch, as far as I’m concerned.
.I agree with you more than you agree with yourself.In N Austin, there is a shopping center that has an Apple Store and a Microsoft Store. The people in each store tell the story.The Apple Store is like a religious shrine with the entire cult represented. It is slick and it is entertainment.The MS store is two cuts below though I am over there looking at the newest goodies. I can’t seem to resist buying something when I go in there.The shopping center, The Domain, is a huge success with a Neiman’s and a bunch of great restaurants as well as hotels, housing and movies. It is very hip.It also has a Tesla store and while they can’t actually deliver a car to you there, you can feel the wind in your hair and the sweat on your palms and you can get one pretty damn fast.Apple is all about feeding the cult, in the nicest possible way.JLMwww.themusingsofthebigredca…
The stores are great marketing tools, but they are so much more. Apple does over $20B in sales via offline retail and has over 430 stores. They also lead the retail sector by a big margin, averaging $4,551 in sales per square foot of retail – http://retail.emarketer.com…
Stores that sell things which people want to see, touch and feel will likely stay around. When I was deciding on an Air, I wanted to play with it to decide between sizes so off to the Apple store I went. Same when I was deciding between an iPad Air and retina Mini. However, my upgrade from that Air to a newer version of the same size? Done on the web because at that point it was a known commodity to me.Commodity products, though, don’t benefit from the customer being able to experience them. Heck, look at books… Amazon sells the exact same copy of a book as does a local store so the store brings no advantage. If I know I want the new release from an author it doesn’t matter where I buy it, it’s the same product. Walmart most sells commodity products…
Interesting corollary to the massive long-term decrease in big box and other retail stores is the complete collapse of commercial real estate prices. Still likely 5-10 years away, but I have run a lot of analyses / models on the supply/demand imbalance in total commercial retail / office space etc. Right now commercial real estate is really hot in tier 1 and 2 cities, but three trends will doom it long term: 1. declining square foot per employee, 2. increased telecommuting, 3.and conversion of big box stores to cheap inner and out ring suburban office spaces will lead to 50-75% long-term structural commercial decline. residential real estate is still overheated, but people will always need homes to live in.. but WAY too much extra commercial space long-term due to the trends mentioned here
.This is not a new trend and has been going on for a third of a century. I was building high rise office buildings and leasing space to big law firms in the 1980s when “open office plan” became the rage which translated into less SF/lawyer even when the only people in OOP were secretaries, paralegals and accountants.Most law firms in that time were partnerships which meant each partner got a little boost when they cut costs.I used to see everyone’s financials when they entered into a lease and knew which firms were the most profitable — it was the guys in the most steady, oldest locations who didn’t spend a lot of money on constantly changing leasehold estate improvements, furniture and art.How big? Partners were making $1.75-2.0MM annually in the “tight” firms and less than half of that in the glorious big ego firms. Multiply that over a forty year legal career and you’ve got a bit of all right.With the advent of digital everything — no big filing rooms, no law libraries (Lexus-Nexus) — the numbers got smaller. When this happened, more and more work was done in front of a computer by the lawyer which reduced the support staff.Then lawyers found out they could work from home, the beach, the mountains, while skiing.CBD v suburban operating expenses (high rises with structured parking garages v short buildings with surface or structured parking) made a $7/SF annual difference quickly. Plus the cost of after hours AC in a high rise is hard to manage on a floor by floor basis. Not impossible just difficult.Site selection became a zip code study rather than the “best” CBD location.I saw law firms double in the number of lawyers and decrease their office footprint by 50% when it came time to renew a 15 year lease.Voila!This trend will continue in every business that is using rented office space. Forever.JLMwww.themusingsofthebigredca…
Awesome comment. Where are we in this cyclical trend? Do rents / occupancy support this?
.Rents are a function of the underlying investment base, interest rates and market forces. It is alchemy not science.The trend is going to continue forever.The cost of actually having an office is now about 10% of gross revenue for professional services. It will continue to trend downward.Open office plan, digital everything, “hot” hoteling offices, visiting offices, Skype, work from anywhere, document standardization — legal websites.All of this is becoming a commodity except for one thing — litigation. Litigation is going in the opposite direction and has created a whole new profession — alternative dispute resolution.Why we need “loser pays” the legal fees legislation. The third rail of the legal profession.JLMwww.themisingsofthebigredca…
Well what I am arguing is new is that commercial real estate prices will fall.. ie those who own them will lose money… big time. What is selling for $300-$600 per square foot when the building sells will be cut in half. So you agree with me on the trends 🙂 which is good… but the forces are now such that actual prices will fall (and meaning it I a terrible asset class to own directly or through reits)
.Institutional quality real estate is just a “bond” in which the leases are the securities which look through to the underlying credit of the tenants themselves.The leases are often — no, always — multi-year leases and thus there is not really a continuous “mark to market” pricing and valuation.Even when market prices are dampened, old or even fairly new leases are still in place. When I used to build high rise office buildings, my average lease term was probably 17 years meaning as long as a downturn didn’t last more than 17 years, my returns were fairly stable.This is why institutional quality commercial real estate is such a good asset class over the long run.In addition, costs of money and cap rates — not the same thing — have more impact on values than lease rates in the short term.Costs of money — mortgages — and cap rates — valuation multipliers — are at all time lows while the knowledge of the credit of underlying tenants is at an all time high.The very best real estate in the best locations always does fine and savvy investors know when to buy and when to sell.If you are picking cities with a constrained CBD (NYC) or a huge growth dynamic (Austin, Charlotte, Atlanta), growth and demand will bail you out over the mid-term.A REIT is very low leverage and thus you are talking about P/E ratios that are a kissing cousin of the inverse of high quality financial instruments.It is a complex variable but over a 20 year period on high quality institutional real estate, it is almost impossible not to make money.JLMwww.themusingsofthebigredca…
Appreciate the insight and feedback. Aware of most of what you are saying, but I still contend the difference is those markets you list are almost certain to have lower costs 17 years from now. If I knew you in person would be happy to put lunch on it … althought 17 years is a long time for me to wait for my sandwhich 🙂 I am pretty surprised that lease term is 17 years… felt much more that it was 5-10 years.. but 17 years definitely would change that conversation, I just cant believe that companies would sign that long now and moving forward. More than 5 years is hard to imagine, but I could be wrong. Are you still seeing this trend for 17 years??
.Not a chance in the world that real estate costs will be going down over the mid-term — 15 years, say.We are still in a very dicey economy with the lowest historic interest rates in the history of the country and have been for 7 years. Take a gander at the Japanese Lost Decades wherein Japanese interest rates have essentially been zero for a long, long time.We will have a recovery — not the faux rates we are seeing now and not a “jobless” recovery. Economic growth will be 5-7% within the next 6 years.The word “inflation” — which is one of the most important reasons why you own real estate in the first place — will work its way back into our vocabulary shortly.It starts quickly like when the FED scratches through the word “patience” in their utterances as they did last week.Big tenants always have wanted and have to have long term leases. Big law firms that have been around for a long time hate to move. Always have. Always will.Remember that a tenant signing a long term lease is protecting against lease rate increases hoping to limit those increases over the term of their lease. It does work.I bought plenty of buildings knowing the old leases would roll off and I could tap into new current market rates. I raised some folks’ rent by a factor of 3. This was in recovering markets when they had entered into that lease near the bottom.I like a nice Reuben and you will be buying.The world will look decidedly different in less than 5 years and we will finally be seeing some economic growth.One of the big drivers is going to be a worldwide oil glut that is going to simultaneously untether us from the Middle East while providing the largest tax cut in history. We are very close to US energy independence if we only had a coherent energy plan.JLMwww.themusingsofthebigredca…
I will take a reuben as well when I win :). This has been a pretty intellectual banter back and forth. We actually agree on the vast majority of economic facts (at least historical.. which most people don’t know) but we have decidedly different views on how it will evolve. You bring up Japan, which has a stock market down 50% over 25 years and real estate down between 60-70% over 25 YEARS… again different dynamics, so I certainly don’t think it will be AS big a decline here.. but if you are projecting 5-7% GDP.. that has not happened in a major economy since 1980 probably? (china not included as they were rapidly industrializaing). So you are projection 7-9% NOMINAL GDP growth??? (assuming Fed’s 2% inflation target which will be hard to hit nonetheless)
.Error of composition as it relates to Japanese Nikkei and real estate. You have to make a more delicate comparison though the 15-year Nikkei 2001-2015 just about proves my assertion that there is a strong set of shoulders over that period of time.I am only talking about institutional quality commercial real estate.I have now lived through a few cycles and have the scars to prove it.I remember in the early 1980s when the Japanese real estate wave came to the US and everybody marveled at the low cap rates the Japanese were willing to pay.All the baloney about how the Japanese were “in it for the long run”. What total crap.I recall someone asking me — what do they know that we don’t?I said, very presciently: “Nothing. They are just the latest bunch of goobers to make a math error.”And, so, it turned out to be true.Institutional quality commercial real estate has become a securitizable undertaking and almost nothing more. It looks through the leases and finds the security on the balance sheets of the underlying tenants.As long as tenants continue to have sound businesses, there will be sound real estate markets for those investors, owners and developers who know how to underwrite credit risk.The big learning from Japan is how damn long a downturn can last. We are in a 7 year recession and while there is a lot of mojo about how we have almost caught up to the level of jobs, that is not true when you qualitatively look at part time v full time jobs, labor force participation rate, unemployment (U-6/7 not faux U-3) and several other indicators.The energy sector has been good but it will stay where it is for a longer time than folks think but the lower costs of energy will provide a universal tax break for all.If we had an administration that cared about energy, we would achieve energy independence in less than 3 years which would change the geo-political sphere of interest for the US. A huge impact on the Treasury.I am not dicing things fine enough to segregate inflation and at the low levels currently, it is not really relevant to the conversation other than to note its lack of impact.We will have huge growth in the not too distant future.JLMwww.themusingsofthebigredca…PS — I like spicy Batampte mustard on my Reuben.
Will you fly to Cleveland to buy me the reuben? Also, do you at least back off the 5-7% GDP growth? 3% over a five year period is hard for me to believe. Lastly, just to get you on the record… do you view deflation as a risk? Personally without insane QE from the big central banks (Fed, BOE, ECB, BOJ and china’s central bank) I think we are in an inherently deflationary world (defining inflation more in credit terms as I think is appropriate). That is one of the macro theses that is why real estate will go down is because real estate is VERY hard to see appreciating if in an overall deflationary world.
.This is not a deposition.US growth in GDP will be 5-7% at some time in the next 5 years when the recession’s impact is lifted. This will not occur in an Obama administration. Look at historic average recovery rates from recessions.There is a huge difference between cyclical levels of inflation — low to high — and deflation in which all asset classes are dramatically lowered for a long period of time setting new levels of universal market value.The error of composition you are making is to compare Japanese residential real estate to American high quality institutional commercial real estate. They don’t behave the same.American high quality institutional commercial real estate is a credit business as evidenced by the participation of pension funds, insurance companies (proxies for pension funds) and REITs.Markets constantly segregate amongst submarkets. You can have multifamily real estate declining when single family is rising as well as CBD values increasing while suburban office buildings are declining.The same is true nationwide. NYC can be on a roll while LA is declining. It is very fact specific, geographical and economy based.I had lunch today with a guy and we were discussing the current outlook for different Texas cities by product. Not all — most are — are positive.JLMwww.themusingsofthebigredca…PS — I will want a pickle with my Reuben. But I can’t remember what we are betting on other than my being right and your generally being wrong. Can I also have a beer? Please?
vertical integration. the big store retailers have an enormous advantage in already owning the point of purchase. i believe this is more vital than the driver network. this is because i think the margins on this are going to be razor thin, and the way to get pricing to work with acceptable margins will require vertical integration.also, i don’t think this is death of the store. stores will re-invent themselves to become “experiences.” i.e. live music at grocery stores. first the internet gamified everything, now it will turn everything into an amusement park/concert!!!!
Another place I think that is in big trouble is exchanges, traditional banks, and brokers.
I can only pray that the banking model that has permeated us like a malignant cancer is entirely blown up. but alas…..
The seeds are there to blow it all up. Working on seeing if they bear fruit
It confounds me that local bank branches continue to be built – new construction – in my neck of the woods.
That’s their model and they are sticking to it. Of course, kind of hard to set up a personal delivery service there…
C.O.D….new meaning to cash on delivery.
In a sense if the cost is amortized and the person or people making the decision are not spending their money and most likely won’t be around other than the short term, I think it’s literally a simple napkin justification.Obviously there are reasons to open up bank branches however I suspect there is more going on than what meets the eye with that.We have the same thing here. They buy a piece of land and spend millions to construct a free standing building, which is not cheap, while most people are shifting to online and don’t even visit the branch anymore. And it’s fully staffed (although labor is cheap pay at banks is pretty low..)Here is the short answer: “When something doesn’t make sense or seems stupid (“confounds”) there is probably something about it you don’t realize or know”.Things like this interest me actually. If I had time and was a blogger this is one of the things that I would investigate and write about. “The Curious Case of Bank Branch Openings”.
I think the answer is:- “presence in the community” – we’re here; we care; bank with us; those big national banks don’t care about you.- “bank branch as marketing” – you drive by here everyday; branding, branding, branding.- “we have a vault” – “look, see? Your money is safe with us”- commercial banking is still very local, hands on.
Agree but noting that with the younger crowd all of the above, possibly with exception of the “rent as advertising” (drive by marketing) none of that matters.The “branch managers” have been totally stripped of any authority to do anything. The controls are to tight. So, it’s “caring” theater.
Yes. For sure.
All that said, I am not advising you short Walmart. Please don’t take public stock market investing from me. I don’t know anything about that. I’m a VC.Sometime could you address the difference between VC and public market investing? Are the skills that different? Can the concepts from portfolio analysis, risk tolerance, company analysis, etc be ported from one to the other. How important is luck vs. skill?I remember your YHOO>GOOG call from years ago, so I think I understand your reticence. I am interested in what you have to say.
i think things are going to happen wayyyyyyy earlier than they do. you can’t make money in the public markets thinking that way. you can make money as a VC that way.
I would add to that “peer to peer commerce” is another important leg in that stool.
Peer to peer “pick this up for me” services?
Agree, there are a lot of problems to be solved that aren’t obviously worth millions or billions but have intrinsic value.
outside of major metropolitan areas, don’t believe last mile delivery is as easy as it sounds — it is still driven by time — time to shop (collect the goods) and time to deliver — not technology, which undoubtedly improves the order process.
Supermarkets have been doing the last mile in suburbs for a long time. There’s PeaPod by Stop n Shop, for example. But generally, yeah, I agree. I think the Walmarts of the ‘burbs will suffer from the Innovator’s Dilemma.
yes, they have done so for a long time, but i do not believe they are independently sustainable operations. my assumption is the parent cos (ahold in your example) continue to support these services for “differentiation” reasons and to a certain extent to protect market share. i’d be interested to see an analysis of the actual unit economics per delivery for webvan/homegrocer — i think the results would show that they were losing money per delivery (not including warehouse capex amortization). supermarkets are in the real estate business. they sell shelf space and they want foot traffic.
I think you make a good point, delivery logistics is a different animal. Really, any sort of delivery will ultimately have to be a marketplace model where time + cost are balanced and probably on real time or near real time basis. Supermarkets and large retailers are still very uncomfortable with that premise, prefer fixed costs for a variety of reasons shareholder returns included.
MyWebGrocer is another example in the perishable market. They’ve been trying for years to make ecommerce work for grocers, but despite many tests over the years they have never been able to scale deliveries outside a dense urban environment. Curbside pickup, yes. Delivery, no.
Great point! MWG IS a technology business. They print cash as long as physical stores want to dabble in pickup/delivery and don’t commit to building proprietary solutions because they don’t see the economic benefits of doing so.
What is stopping large big box stores from jumping into this market? Most certainly have the infrastructure to develop a same day delivery service (i.e., a network of stores in dense and sparsely populated areas — maybe they only need a logistics partnership to get it to take off. If they are seeing a decline in their foot traffic, I’d invest in redesigning their massive warehouse spaces to include warehousing for third parties so that the third parties may take advantage of the infrastructure required for same day delivery to provide some competition to Amazon. I’m sure taking a percentage of each sale for providing warehousing and infrastructure would be lucrative.
IMO Cost is the option why they have not jumped to same day delivery. Big Box retailers like Walmart have been tinkering around this model for years now. Issue is they dont have/want the VC money to burn like the delivery companies Fred mentioned. NYC had Kozmo and Webvan and everyone knows what happened to them.
One barrier is that people underestimate the cost of their time and transportation, making pricing for delivery very sensitive. Walmart’s customers are even harder to sell on added services. Many consumers see transportation as a sunk cost and don’t see driving less as a savings.
Hey Fred,You have a typo, calling Alfred “Albert” in the first line :).Great article!! Regarding your Walmart point, I’ve recently thought about the “proprietary” relationships companies like Luxottica, Warby Parker, and others rely on to source inexpensive, high-quality goods from factories across the world. I suspect there are already brokers who help these firms quietly identify these factories. However, I haven’t heard of a startup that allows companies to directly connect to these factories. This in theory would be cheaper than going through websites like Teespring. It would benefit both smaller retailers / sellers on websites like Etsy, and also help companies find more competitively-priced, higher quality goods.Have you heard of anything in this space?
Albert’s an awesome VC also!!
He may be, the issue here is when was the last time he shopped at Walmart. The broader issue is how do consumers whose time is less valuable than the cost of 1 hr delivery justify 1 hr delivery.
Freudian slip. Was thinking of my partner Albert obviously. Will fix asap!!! Thanks
The minute you get into a car to drive somewhere to buy something, you’ve already lost.- Merlin Mann
Always thought there was an opp here for USPS, a service that in its current configuration has increasingly questionable relevancy. USPS has the infrastructure, the logistical/geographical know how and a strong need to create incremental revenue. How/why they’re not beta testing this concept w/ a couple of big box stores is surprising. Innovation and a large pivot is likely their only salvation, otherwise obsoletion is on the horizon.
Old skool. They’d just slap current postage rates on that package and deliver it tomorrow.As it turns out, I’m awaiting a delivery of some sporting gear. Delivery charges were about $5 and the online store used FedEx to get the goods from Ohio to my home town post office (package arrived there at 5am this morning)…where the USPS will take the next two days (“expected delivery Saturday”) to get the package to my house.I’m not complaining – clearly I could have paid more for faster delivery. But it wasn’t urgent. Just brought this up because it shows the current state of USPS “innovation”…or perhaps it’s FedEx reducing their costs by handing off at local level. Not Amazon, where I have Prime and pay nothing for delivery.
Yeah, it’s hard to walk into any USPS office and not marvel at the inefficiency. Lots and lots of people just standing around. It’s the one place to visit where time actually does appear to stand still. The gov’t won’t blow it up (too many jobs at stake), but it does make you wonder if a really progressive, forward thinking Postmster General came aboard there could be opportunity for innovation. Of course, there’s the American Postal Worker’s Union, 200K+ strong, who likely will put the kabash on any creativity/innovation.
Yup. Trifecta: Innovator’s Dilemma, Gov’t Agency, & Union
I have been watching the UPS guys hustle since the 70’s when I was a kid and my dad would yell to my uncle to make sure everything was ready for the UPS guy. Because he rushed in and he rushed out.Unfortunately you can’t take a culture like the postal service  and make it UPS or Fedex.If you have ever worked with the type of people who hold those jobs (I have and I have also employed them) you will find that it’s not a simple matter of just having good management and directives. Almost impossible to unring those bells in their head and change them. As my mother told me when I was a kid about the postman “that’s all he wanted out of life”.
Because they are public private and thier business objectives are set by Congress
Granted, it hasn’t even launched, but SBUX is quoting 30 minute delivery. Is that reasonable for a cup of coffee? Everyone will have their own standard for performance. My wife refuses to use Peapod because they require a 2-hour delivery window, which isn’t as valuable to her compared to the 1-hour round-trip to the supermarket whenever she chooses to allocate the hour. [I hate the store experience… I’m for Peapod.] I think market share will redistribute, and focus on value will change for multiple segments, but physical locations will always have a market.
I would argue that Walmart in the future will become more of a warehouse than a retailer, thus having a bigger advantage than Amazon in the race of faster and free delivery. Amazon netted $3Bn revenue on $6Bn shipping cost – its last man standing strategy to drive every other retailer out of business doesn’t seem sustainable. I agree that logistics / delivery and sidecar are disruptive to the space… but more societal benefits could be derived not through disruption, but cooperation with traditional warehouses ie, Walmarts of the world
I think that having stores will be a great competitive advantage for instant delivery. With traffic issues it will not be economical nor quick to have a driver get the packages in a centralized wharehouse.Companies with lots of stores will be in a perfect position to have stock near the clients and use those drivers to close the last mile gap.
if we believe same hour delivery will be provided reliably and consistently, surely all ‘non-experiential’ stores will suffer the same fate as walmart over time. i’m not sure standing in line for a big mac at McD’s or queuing to buy a pack of smokes from 7/11 is something consumers wont be overjoyed to relegate to the annuls of history
The final sentence was like the part of a movie when they say the movie’s the name
Totally agree. There are so many times I catch myself needing something right away, and it throws me off when I have to order it and wait two days…or I go to the store and they don’t have it at that location.
Some of the hottest consumer startups today had to recruit and train their own driver networks. Now, that is commoditizing, yet the value comes down to factors like frequency and the price of the good itself. Startups have been trying to beat Amazon Prime in hours 0-47.99, before Prime can deliver. (Older post, but dug into this race here: http://blog.semilshah.com/2…
.Years ago, I rode in Sam Walton’s pickup truck with his Lab and his shotguns. They were a pair of matched Purdey over-under shotguns. He was a bird hunter.He was working the “aw shucks” Arkansas good old boy but I asked him about those Purdeys and he was no Arkansas good old boy. Those were two of the finest shotguns ever made. The first house I bought was cheaper than the value of those shotguns — the pickup was new BTW.I got to swing one once — not one of his but some else’s. Me, I love a pre-WWII Belgian Browning and have one.I mention this to suggest that WalMart is not the easy pickings folks might be tempted to believe.They got into the grocery business — an incredibly slim margin biz — from a standing start and are now the nation’s largest grocer. Sam’s Club was a built from scratch startup. Likewise the eCommerce business. They are incredibly smart and competitive folks.They invaded China and Mexico with a precision and success that would make the US Army envious. These guys know what they are doing.If an innovation comes along as simple as fulfillment/delivery expect WalMart to be in the game and likely to be the best.What people miss about WalMart is not their selling or admin capabilities, it is their buying power. They are the best buyers across the widest spectrum of commerce in the world. Nobody buys as well as WalMart and the Silk Road to Bentonville isn’t going to ever be overgrown with grass.Take your prescription to your favorite pharmacy and then take it to WalMart. Pharmacy. Why does it work? They have buying power.I have no doubt that instant gratification will continue to drive all human behavior and that there will be huge wins on this score leveraging what has been learned about creating communities and networks.Eating out of WalMart’s chili bowl? Not bloody likely.JLMwww.themusingsofthebigredca…
Loved the story up top! I do think that there is room to attack part of Walmart’s market, but Walmart won’t be going down without a fight. Location alone plays an important role here. While the instant gratification works in dense urban areas, does the model work in less populated areas? Would be interesting to have some data around that.
Having had the opportunity to work with them first hand in automating some of their procurement processes, I can also confirm they are not only smart and effective but they are ruthless – I mean this in a respectful way. They rationally justified everything they did and took a moral high ground regarding their actions. I don’t imagine they will be early movers regarding the last mile, no reason to be in their minds. They have so much scale that they will be able to let other people do the testing first. The trick for them will be figuring out the right time to jump in.Also – – they want solutions for the MASSES . .not small niches, which will succeed first. Last mile delivery will be aimed toward people and products that are less price sensitive at first. . not where they focus.From 1994 to 2007 their slogan was “Always low prices”In 2007, they changed to “Save money, Live Better” . .so it does not have to be just about the price anymore . .
.WalMart has a no baloney low price guarantee. I invoked it on some 9MM ammo and they honored it like Christmas. No problems.http://challenge.walmart.co…JLMwww.themusingsofthebigredca…
Probably many here have read it, but his autobiography, “Made in America” is an interesting read. He tells a lot of the Walmart story right from the beginning of the first store, up to much later when it was in the hundreds of billions of sales range and one of the largest companies in the US.Couple of anecdotes come to mind: driving miles into neighboring states to buy stuff cheaper, and “blowing stuff out of the store” by having discount sale days.He used to fly (himself, in a small plane) over the US a lot, scouting for store locations.
I agree with WalMart will definitely feel it. As a consumer there is nothing I long for more than being able to avoid the herds, long lines, and maximum 4 out of 19 registers being open at the store.
“Please don’t take public stock market investing from me. I don’t know anything about that. I’m a VC.”So many chuckles. You know at least a few things. 😉
He has been an apple bear.
Which proves my point!!!!
Like Buffet says in a similar way I wouldn’t put my money into something that I don’t fully understand or have an edge with information. I love Apple as a company (am always a bull) but would never invest in it simply because of things that I don’t know that may be in the pipeline or the information asymmetry (or whatever it’s called). The unknown unknowns. The fact that you think the products will sell and there will be demand is only one factor.My dad made a bit of money with real estate but because he knew the areas he was investing in and knew more than the next guy.Stock investing is gambling, pure and simple. Now more than ever.People say what you do is gambling as well but you have way more information and dd in order to make a good decision.
One question we got from the audience was what company was going to get most disrupted by…WalmartOther disruptions include places that you would stop if you were going to Walmart, Staples and so on. Shopping centers are shopping centers and if you aren’t there buying shoes, you might not stop to buy a new coat either at the coat big box.
.The cross shopping index of a shopping center is the key to a successful real estate development. It takes more than a few years in the business to understand this.One of the best selling Tesla locations in Texas is in a shopping center with a Neiman’s and a bunch of very good restaurants. This surprises you?Shopping is a social function not just a mercantile exercise.JLMwww.themusingsofthebigredca…
I’ve been paying attention to mix in shopping centers since college. To me it’s an art.  The tenants, the placement, belgian blocks or no belgian blocks. The fact that there are no handicap spots in front of the Starbucks at one center (they are off further away) but in another place it’s right in front of the pizza shop (because he doesn’t have the balls or knowledge to fight it.)Most small businessmen can’t wrap their heads around the fact that the rent that they pay, for a good location, is instead of advertising so it’s not entirely “rent”. It’s foot traffic. There was a shopping center that opened in the area I live in (they call it “Main Street”) and I knew right off the top that it would fail. Why? Out of sight, out of mind. Township made them set it back so far and there was only nominal drive by traffic that it was certain to fail. And it did. Now almost all retail is replace by offices. You can always tell a shitty strip center when they start to put in professional offices. (Generally I’m sure there are exceptions..)I picked all of this up by simple observation over time. It’s one of those things that is fairly easy to reverse engineer if you simply pay attention. I worked for Coldwell Banker in college when they opened one of the first commercial re offices on the east coast. Nobody knew who they were back then. They offered me a job after college but I didn’t take it. Likewise all rent in fancy office buildings isn’t rent. If you have a fancy office you will in theory be able to pay less for certain labor. Why? Because the admin assistant would rather work in the fancy building for 20k per year than for “my dad or my uncle” in there shitty office for 23k per year. (Same reason some people work for banks and/or Starbucks – nice surroundings..)
.Tenant mix and site selection is a science. It is very easy to evaluate demographics, traffic, buying power, site conditions and create a matrix.There are companies who do this all the time. There is a good little startup in Austin idealspot.com which does just this including taking a look at social media info — Yelp reviews.When you look at the site and overlay buying power within a certain travel distance and subtract out the sales of the competitors, you know whether a site will work.The cross shopping index is a known quantity with some odd rules — as an example, a grocery store is a bad cross shopping co-tenant because of frozen food and fresh meat. It is also one of the reasons that groceries added pharmacy departments — Walgreens and CVS, et al, were poaching on them.It is a very scientific undertaking.I have seen unsuccessful shopping centers re-tenant and become successful just by changing their tenant mix and making it more complementary.JLMwww.themusingsofthebigredca…
I read recently that Apple is such a great tenant that it pays just 2% of sales vs 15%.
.Most retail leases are configured with a guaranteed rent (or percentage of retail sales with a “natural” break point) v a percentage of gross sales.Walgreen’s lease form is a good example wherein they pay a guaranteed rent v a % of gross revenue. The greater of.The typical percentage is 5-7% of gross revenue which is a great rule of thumb as to what a retail business can actually support.I doubt Apple pays a percentage rent under any circumstances.The reason they would pay such a low percentage is because their retail sales per SF are much higher — think about their average product cost — and therefore the lower percentage is an approximation of the guaranteed, market rent.I never did a deal with Apple but did a few with IBM just after the IBM PC was introduced. Their annual sales at 5% was about 2.5X market rent.Everything in real estate is numbers.JLMwww.themusingsofthebigredca…
Everything in business is numbers, but numbers aren’t everything…
Related: Whole thing is good. But the first five minutes sheds good light on this topic: Good stats about Amazon, Macy’s Walmart, etc – https://www.youtube.com/wat…
Thanks. Value adding and extending the discussion. That’s awesome
And more and more ecommerce companies (including bricks and mortar retailers!) are doing deals with these driver networks to get their stuff to their customers on the same day and even in the same hour.Huge potential here. Thinking back to when in another business we had a truck and a driver and had to do all sorts of pickups and deliveries in the city. Typically if you had overflow you used a courier service which was expensive and not practical for day to day things.The other night I ordered sushi. When I called, Kim, aka “mrs owner lady” who answered said that it would be 30 minutes until I could pick up the order. When I went in I said “wow you must have been really busy last night”. She said “no driver didn’t show up so sushi chef was out on deliveries”.(She also told me how much she hates the groupon people who come in..)
What company did Alfred mention?
I think he didn’t answer that question but I’m not 100% positive
if Walmart is vulnerable to disruption, the world is in a deep trouble.Not only walmart is about retailing, it is a real-estate booster with many ETF’s banking on it, it fuels the entire shipping industry and new transportation points across the globe. walmart also offers competition on pricing, labor, employment, local suppliers, regional benefits and above all expansion into new territories will help rapid civilization in growing economies in view of the population explosion..Fred, your assertion of walmart as disruptable is totally wrong. On that note, please don’t undermine the benefits of having behemoths.I can recommend as a key stock to buy. I don’t have any vested interests, just to disclaim
As a retail focused investor we see the same shift happening; retailers are shifting their traditional inventory models to utilize retail stores as mini warehouses. This has resulted in an explosion of Click & Collect models. The next logical step will be the last mile delivery of goods. Will be interesting to see if retailers chose to continue to outsource this process to Instacart and others…
I often joke about this as a near reality with popular Chinese restaurants on Seamless.. why service any of the foot traffic? Just be a factory that delivers (aka Amazon).Tl;dr — Brick/mortar is here to stay, they just may close their [public-facing] doors.
BiteKite recently launched in Boston market and delivers healthier meals right to my door within 30 minutes. They don’t have any public facing storefront!
I’m curious which company Alfred Lin mentioned?
50% of the US lives within 5 miles of a Wal-Mart. That’s one big moat.
And most of their stores are in areas that aren’t dense enough to be attractive for Uber.
One of the good disclaimers I have read 😉
This is going to put even more pressure on companies with lots of stores, lots of in store inventory and labor, and processes, systems, and procedures optimized for the in-store experience. That’s why I answered Walmart.Walmart, like supermarkets, make their money by loss leaders to get you into the store and lubed and primed to buy more … most importantly having you buy thngs that you weren’t planning to buy.I can’t imagine that there is a single person that has not gone into a supermarket to buy one item aka “the milk” and walked out with things that they didn’t need until they saw the attractive packaging. Or the batteries at the checkout counter. Well known fact. One reason the food staples are typically at the rear of the store. Also impulse items. (Note: Desktop publishing and that revolution has added to more attractive packaging as well as the lowering of printing costs as well – the perfect storm).Here is the thing that will hasten the “demise”. Those stores run at a particular cost structure based on supply and demand. If you start to alter the demand (same day delivery) then they have to make other adjustments. Even if demand drops nominally. Those adjustments can ruin the secret sauce of the business in a flash even if people continue to go into Walmart or the Supermarket. (The “people will always need to buy something from supermarkets so they will always be there” Not true. Kill the cheddar and the whole thing collapses.)
“Kill the cheddar and the whole thing collapses” – and the result might be (at least temporary) worse overall conditions for consumers.
My thoughts from December 2013 on how same day delivery could change retail https://medium.com/@billmcn…
maybe the likes of Walmart will benefit from ‘outsourcing’ delivery to these driver networks..better for margins? Delivery related capex shifts from the likes of Walmart to driver networks? Walmart can focus on sourcing the highest margin products?
I think you and many other VC’s vastly underestimate the logistics of Walmart.How are you getting the truckloads of stuff to local centers??? Pixie dust or magic carpets??
And if Walmart can handle that, why can’t they handle the last mile?
I think for the same reason that companies use independent contractors vs. employees. Because if someone is an employee then they are subject to certain rules, benefits, labor conditions and can’t as easily be layed off. If you use a web of what amounts to independent contractors you have flexibility to withdraw that labor or add to it with market conditions.Also, same with franchises or small business (let’s say certain ones) what a large company can do with policies is not the same corners that can be cut with people who are self employed. So for example it’s not uncommon to see children of chinese restaurants working there to help out the family and/or people getting paid “under the table” for labor. Not a reason why you couldn’t do this if you were Walmart, just pointing out some obvious differences.
In theory Walmart should be cheaper than these ad hoc delivery services and warehouses. Goods get to Walmart or goods get to local warehouse off I-95. Ok. So now is it cheaper for the customer to come to you to get the goods or for you to send a driver and deliver? Seems to me napkin wise it’s cheaper for someone to come to you, even considering the labor cost of the center unless the cost of the real estate and low paid “clerks” exceed a certain price. That’s not even taking into account the impulse buying that people do once they are already at the store.
One of the issues I run into as an independent contractor / service provider for Uber, Lyft and favor is getting labeled as an independent contractor but controlled as an employee. When you push back and remind them they don’t like it. It’s like a patent if you don’t defend it it’s worthless
While the walmarts/hertz etc likely get disrupted by the internet, I still believe they are here to stay for long. these are still the companies/sectors that might take a hit in the glitz of technology but will remain in business with new models and techniques.What you find more disruptive in the years to come is the education sector. look for universities to turn into barns in the next 25 years.I am sure the topic of education must have come up in your discussion with the VC’s
Does decentralised work lead to decentralized living. Have we reached peak city?Would people prefer to live nearer to nature?
I actually think some of the retailers who have many, many stores vs fewer massive stores (ie drugstore chains vs big box) could benefit from the uberization of consumer delivery expectations. Those retailers have pushed a lot of product out a lot closer to the end consumer than the big box guys or amazon which means they could actually offer the fastest and-potentially most comprehensive- coverage wrt customer orders/demands. Plus, since they are likely to have the products closer to the shopper, they could deliver more cheaply.Additionally, as retailers like Walgreens expand into more preventative and basic healthcare to become “wellness centers”, doing things like making getting flu shots, blood tests, prescriptions, etc a lot easier also expand the consumer value proposition significantly. It all depends on whether they can educate their customers to think of them this way and train their employees to handle this new order flow. Not easy to do but certainly possible and potentially significant if they pull it off. I a, bullish on them.
As a side question, does anyone know of any good case studies for consumer packaged goods brands using the new delivery services to drive product sampling, brand building, or sales? I think Stella Artois did a promo with instacart but would love to learn about more brands doing this.
China is going to be where we see this develop first and most rapidly. They are skipping over large format store retail and going straight to e-commerce the way many countries skipped over land lines and went straight to mobile. They have the population density in their cities to make the economics of same day delivery work. They are already doing same-day e-commerce delivery in the major cities. The e-commerce players have control rooms that monitor their supply chain service levels in real time, and they take a highly localized approach to their delivery infrastructure and partners. You can do this when you have half a million people in a high rise apartment neighborhood in your city. I’m not sure if “delivery sharing” models have taken hold there yet, but there’s no reason why they can’t, and that will only make things more efficient and provide even faster service levels.India may be where we see drone delivery take hold first. The poor road infrastructure and traffic in India, and the sprawl of many of its cities in generally low-rise buildings, could give the edge to drone delivery there.
What did Alfred say?
Walmart will get disrupted by TNCs as much as Apple Store got disrupted by Fedex/UPS.Walmart, Amazon have huge operations that manage the supply chain for a product to reach from manufacturing to warehousing. What will get disrupted is, the way Big Stores get access to their market.The customer walked into the store, purchased what was needed, paid and walked outwith TNC utopia:The customer’s needs are serviced by the TNCs, TNC integrates with the Big Store, probably gets a favorable pricing.What is going to get disrupted is the customer behavior, behavior of that person who goes to the corner store to get one item. Its those small shops that are going to feel the heat of this disruption.If anything, big store retailers/grocers will benefit from proliferation of such TNC’s, and get more competitive with Amazon.
TNC , TNC,, what is TNC heh
Transportation and Networking Companies. Lyft, Uber, SideCar etc
What is the equivalent of avc.com on the west coast ?
Totally agree Fred! Ecommerce is going to lose out – eg Amazon. Previously you needed warehousing and inventory for all products in a central place in the center of America and goods would take two days to arrive. Arguably 80% of the goods available on Amazon are available somewhere in Manhattan at a similar price, and with Postmates Manhattan becomes your 1 hour delivery warehouse. Want flowers? Get a delivery from a florist, want some Nike free’s? Send a guy on his bike to Nike town.Long live the brick and mortar retailer :)Watch this:https://m.youtube.com/watch…
Today has been a really interesting learning day in the avc comments. i think people also need to consider the unbanked customer base. That’s another moat that WalMart has.
where are the pizza guys? The national ones could be players here.
I just hope these drivers are paid enough so that they can afford to use these services as well (unlike Uber drivers?).
I’m really amazed at how far on-demand delivery has truly come. Many companies appear unprepared for this major logistical shift. I’ve worked with several new businesses that are now reengineering service (expectations) based on these new delivery models.
I’m not convinced that same day/same hour delivery can succeed, even with Amazon pushing ahead on it. The biggest problem is not logistics or desire. Clearly for most commodity items, if I could avoid going to a store and simply have it delivered quickly, it would usually be a better use of my time and money to do that.The problem with shortening the delivery window is fraud. In fact, it plays directly into hands of fraudsters, because reducing the latency between order and delivery increases the probability that a compromised card won’t be detected in time to prevent a bad order from being delivered. That means we end up suffering one of two negative outcomes — either much higher fraud losses which increase costs, or a much higher “insult rate” (what the fraud detection industry calls it when a legitimate customer is refused because the predictive analytics system generates too high a risk number).You’ve probably seen the reports that Apple Pay is rampant with fraud. It’s the same issue, and speeding up delivery of physical goods (especially those that are easily fenced) is like putting the system on steroids. Amazon has the best fraud detection systems, partly because they have the biggest volumes and can do a better job of knowing their customers (especially if they are Prime subscribers). But, even Amazon isn’t big enough to avoid massive attempted fraud increases if they shorten the delivery window. Smaller vendors will be crushed by it.Ultimately, we may get there, but Walmart may have the last laugh on this one in the short term.
Isn’t amazon though trying to directly own all that infrastructure? With warehouses and some retail locations now? Just kind of funny how they are moving to massive asset footprint.. main reason they have not been profitable OR had free cash flow (they have manipulated free cash flow through very creative “leasing” arrangements that haven’t shown the whole capital hit… really good article I read a few months ago on that)
Interesting.I bet it will work a lot better where the networks are established as in sidecar.In NY where it is all on foot, I’m not seeing that that network is en masse enough as yet, nor trained to make it on demand.This concept of managed crowd sourcing is powerful, yet a misnomer.