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Amazon (NASDAQ: AMZN) puts more emphasis on profitability, which means getting rid of items on which it "can not make any profit," or CRaP, as the company unofficially calls it. Shannon Jones, facilitator, and Daniel Kline, contributor to Fool, also discuss the question of whether CVS (NYSE: CVS) the sale of CBD products corresponds to its corporate image focused on health.
A full transcript follows the video.
This video was recorded on March 26, 2019.
Shannon Jones: welcome to Focus on the industry, the show that plunges every day into a different sector of the stock market. It's Tuesday, March 26, and we're talking Consumer goods. I'm your host, Shannon Jones. I'm joined via an insane contributor via Skype recently pulled out of his weekend cruise ship, Dan Kline. Dan, how does your life treat you? Bad, it sounds like.
Dan Kline: I promise not to make you laugh – Shannon is a little cold, so, laughing, she's going to cough. My world is still a little wobbly. Many people get sick on a boat. I have problems after leaving the cruise. Over the next few days, my world is changing a bit.
Jones: I must say that I fall into the same category. After leaving a cruise ship, I am usually a little wobbly. I understood it, it was my caffeine consumption. We will need to follow up on how to avoid this for all our listeners aboard a cruise ship. I'm dealing with the same thing. Nice to meet you on dry land.
Kline: […] cruise ships, maybe next month. So, if you have questions about cruise ships, send them to us, tweet us, no matter what it is.
Jones: Yes, we would like to have that, and yes, we will certainly do it. I am delighted, Dan, that you are back on earth because today 's show covers the headlines and some of the biggest names on which many of our listeners have asked questions.
Let's start with the first story. Of course, this does not come from Amazon, AMZN. Last week, the new surge in Amazon's profitability was mainly updated. The CRaP website, for lack of a better term, has really progressed. Dan, what exactly is this CRaP on the Amazon website? What are they trying to do here?
Kline: I am someone who bought a ton of shit from Amazon. We talked about it in other programs. Sometimes, package notices are sent by my building, and it's a mystery. What did I order? Is this something I really need? But they do not talk about that. Amazon unofficially uses the term shit for "can not make a profit". It's an article that, no matter how it is shipped, will not work. Imagine something heavy, like a bottle of water; or something that is both fragile and not very expensive. A bag of Doritos that is really difficult to ship. If I decide at two in the morning that I need Doritos in two days, Amazon tries to downplay the importance of these elements by banning the broadcast of ads for them or just by not posting them. taking more because it is simply impossible to make money.
Jones: Exactly. In 2018, you saw Amazon start pushing back many of these vendors, saying, "You have to rethink your pricing." Now, we've learned that not only are they saying, "Rethink your rates," but also, "You will not be able to run ads anymore. You will not be able to pay for the ad space." on our website if your products are not profitable for us. "What's interesting is that when you look at the advertising industry, Dan, it's not as if the advertising industry was in trouble, in fact, ad sales doubled in 2018 , to reach more than $ 10 billion, some analysts estimate that this figure could rise from 50% to 60% and that their advertising activity could even exceed the most lucrative AWS, Amazon Web Services, by 2021. not necessarily as if the advertising industry was struggling, what is really behind that, Dan?
Kline: I think the advertising industry gives them room to maneuver. If a product was losing money or losing a little money, but it was being advertised and it made it globally profitable, Amazon might ignore it. They did not explain exactly what is on this list.
The other thing they did was that they pushed the vendors out and took some of the items and said, "We're not going to fill them anymore. They will not be Amazon Prime items. You will fill them. "This forces the seller to review the prices and say," OK, now I have to bear the costs of shipping. I have to face all this. "This will force some prices to rise.
It's really just Amazon who does what any store does. If you go to a grocery store, are they going to spend extra money on something for which they earn only a few cents? Or will they devote an end-cap to a high-margin product or a product that is a gateway to others? If you buy chicken broth, you may need noodles and carrots and who knows what else. Amazon has a harder time doing it. If I buy a bag of Doritos, I will not necessarily buy 16 other things with this bag. I could take advantage of my main membership status and buy only a bag of chips worth $ 2.99, and they will lose money. So that's the reason for all this. It's just to resize some of their stuff.
Jones: However, you still hear the headlines about it simply because Amazon has been touted, and they have really focused on creating that frictionless shopping experience, whether from the point of view of provider or customer experience. So now that you see them starting to be much more focused in terms of what they actually advertise on their site, you begin to hear people whining.
I wonder though, and I think that's what the problem is at the end of the day and you started to say it: what does this mean for consumers?
Kline: It's bad. Amazon has more than 100 million items available for Prime. Imagine that it removes 2% of objects. It's not going to be a disaster. It's not like you go on Amazon and you have to say "I want shampoo", and suddenly they do not sell shampoo anymore. But you may find that they do not sell the shampoo in the exact bottle size you want, or that in the brand of your choice they only have certain sizes or availabilities. This can happen in grocery stores. If you go to a grocery store, there will only be this double-sized cereal box for some brands.
So, again, it's going to affect consumers, because some things that were very, very cheap will probably disappear or become more expensive. But I do not think your average person will really notice it. This is very similar to grocery prices. It's something you do not think about often.
Jones: I agree. I think some buyers will have immediate difficulties, but in the end, the buyers who come to Amazon come from the point of view of convenience, and they are willing to pay a little more for this box to appear on their doorstep. # 39; inside. a day or two. I do not see that as a huge problem for them. This will definitely be something to look at from the front.
The next step for us, the largest retail pharmacy, CVS, CVS ticker, plunges into the latest craze for health and well-being that is none other than CBD. Indeed, CVS began selling hemp derived CBD in several of its stores with expansion projects with its partner, the cannabis producer. Curaleaf Holdings, ticker CURLF. Dan, what can you tell us about this new emerging relationship? Look what I did there?
Kline: [laughs] I do. So, it is a toe in the water. There are eight CVS stores, which only sell news products, which means that they do not fit into the other major category of CBD, namely edible products. It is also important to recognize that even if there are many medical benefits for CBD, presumed or even proven, in some cases it is not a drug. This is not marijuana. Shannon, you covered that up. Maybe you can explain the exact differences.
Jones: Exactly. CBD comes from hemp and not the marijuana plant, cousin of the marijuana plant. Hemp has been more specifically legalized thanks to the 2018 Farm Bill, which came into effect last December. So now, suddenly – and actually a little earlier than I thought – you see this flood of hemp-based hemp products. It does not contain THC. THC is the so-called psychoactive agent behind the high marijuana content. It's completely separate. It's just the CBD. As you have said, Dan, these are just topical issues: lotions, creams. This is certainly interesting because you can see how this could open the door to food. Canada plans to open the door to marijuana foods. Of course, they have already legalized adult recreational marijuana. Edibles is the next component. Of course, the United States is much more late. But, at least for CVS, they come out early of the craze for CBD, specifically partnering with Curaleaf with many of these topical creams and ointments.
Kline: Clearly, there is a demand. I live in West Palm Beach, Florida. Florida has less stringent standards in this regard. There is a CBD store, maybe not on every corner, but there are at least four or five in a radius of a few kilometers from downtown, where I am right now. It's CVS that says, "If people want it, we will not give it up." There are many ways, such as supplements and additives and other things that people take, that are not necessarily a proven science. Taking ginkgo biloba could help your memory. It may not be. There is a lot of that with the CBD. It's CVS that says, "Our customers will buy this product.We should ask them to get them.At least they will know that it is what it is supposed to be They will have a better idea of the interacts with other things. "It's a very smart game, provided that they take it very slowly and very carefully. You will see CBD at the mall. You will see the CBD in many places. Why not CVS?
Jones: Exactly. With Curaleaf, Curaleaf is the first partner announced. It would not surprise me if CVS decided to add a lot more brands, some with even greater appeal. Curaleaf was at least the first to come out of the door with a partnership to get that in CVS stores. My question, Dan, is this: do you think that makes sense? You and I have already spoken in the CVS show as a business in transition. Do you think that fits well with the whole concept they are trying to build?
Kline: I think the challenge is that CVS is trying to build its brand around health. You have the CBD – again, I understand, do not send me the tweets, please. Some research indicates that it works for some things. There are people who swear by this. But I think it's fair to say that science is still going on. We are not entirely sure of the impact of this. So, in many ways, it's as if CVS were selling products containing caffeine. Are there any benefits to caffeine? Absolutely. Can too much things hurt you? Sure. It does not quite fit the message about wellness.
On the other hand, there are people who think that it is a curative product. As long as CVS does not do these things in any way – if you publish the DBC and say that it will cure anything, it is not great. But if they keep it as they sell, for example, vitamin C or any other vitamin, and people believe in what it does, then I think it always fits that pattern.
Jones: Yeah. For CVS, personally, I think it fits well into the new branding they are trying to create right now. They want to be the one-stop-shop for health and well-being for anyone. I think that by adding to the CBD, you know that your consumers want it. Yes, the verdict has not been made yet, but we do know some benefits for the CBD. And really, the search is just beginning with the 2018 Farm Bill. I think there will be many more coming out. But I like to see that they are aggressive in trying to develop all of this concept of health and wellness in terms of store brand strategy.
What's interesting for me is of course marijuana with Curaleaf. Curaleaf, of course, being the first at the moment to provide this important supply contract to a retailer of this magnitude is considerable. You mentioned that Florida was a huge market. Curaleaf has a lot of clinics in Florida. This certainly extends their commercial footprint much more. As I said, this certainly opens the door to food products, if they ever came to the market. In total, the opportunity of the CBD market is enormous. In fact, some analysts estimate that the market could reach $ 22 billion by 2022. For a company like Curaleaf that may have only earned a few million in 2018, you can see here the long period of growth.
I like the strategy here. For Curaleaf, who has a long-term competitive advantage, it's a question mark for me. But I like, in the end, this piece that CVS is trying to masquerade as a health and wellness store and a one-stop shop for many as well.
Kline: Well, for Curaleaf, it's a no-brainer. This gives him the ultimate credibility of the brand. One of the reasons I've never used a CBD product is that I do not mean that every CBD store is a little sketchy, but most of them sell pipes, bongs and other things that have valuable uses but are also drug paraphernalia. So, I do not necessarily go into this store to find out if taking CBD would calm my nerves or be good for my stomach or, I do not know, would help my cat sleep better, among other things for which it is used. So, for Curaleaf, it puts their product in front of people who would never go where the CBD is currently sold.
This is where CVS has to pay attention. They lend their name to something. It is, in many ways, as in the 80s or early 90s, when I went to university. You can enter a CVS and buy the pills that helped you stay awake later to study more. It turned out later that these were very bad. We should not take these. And CVS takes a quick shot. That's why they are going slowly here. They will not introduce a soda containing CBD, because the children will drink, until they know exactly what it serves and to whom it is intended. So little steps, really good for Curaleaf, very progressive for CVS, but they have to be very careful not to hurt their brand.
Jones: What's even more interesting is that CVS is not the only retailer to tackle the CBD. We also have some others, I guess you can also call them upscale luxury retailers, Dan, jumping in the craze.
Kline: Yeah. Coming to Barneys, there will be CBD stores. It's putting in front of a whole new audience. From a hundred, let's call them upscale, malls owned by Simon. It's a very different presentation. This is a presentation at the concierge level. "What's hurting you? Here's what could work." This is not really a doctor, but it's a bit like a good steward or a good wine barist can guide you through the process of coffee or wine.
Once again, we will have to take the CBD and bring back margins. If CVS stores it at reasonable prices, and other people do the matching and the work "here's what you need," it will be good for CVS.
Jones: Who knew that CBD and a luxury lifestyle brand, like Barneys, could be a thing? I think it's interesting. They plan to call this concept that they develop at Barney's "upscale". I have to give them, at least some points for creativity there. I think you will see a lot more of that. More so, these are signs that we are reaching the peak of CBD fever. What do you think, Dan?
Kline: I do not think we are near the top. I think more people will be exposed to that … look, I'm 45 years old. There are aches and pains. There are all kinds of things that do not happen to you at 35 years old. If these products are safe and valuable, there is a market for them. I live in Florida. There are people a billion years older than me. If a cream makes your arthritis less painful and your friend has been exposed to it at Barneys, CVS or elsewhere, I think there could be a huge explosion of CBD in the mainstream media and a real destigmatization.
Jones: Yeah. I think the growth opportunity is very long. When I talk about craze for the CBD, it's really crazy. When my mother asks me if the CBD appears in CVS and all these department stores, I know that we have reached the stage of madness and madness. But overall, a lot to watch here.
Dan and I will do it for this week Sector of activity: consumer goods show. Dan, it's always a pleasure to have you in the series!
Kline: Thank you for having me! Next time, I may be sitting next to you.
Jones: J & # 39; s hope! And thanks to our listeners for giving this week! As always, program participants may have an interest in the actions they are talking about and the Motley Fool may have formal recommendations for or against, so do not buy or sell any stock on the sole basis of what you heard. This show is mixed by Austin Morgan. For Dan Kline, I'm Shannon Jones. Thank you for listening and fool!
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