For those of you who would prefer to listen:
The American Consumer keeps proving, time and again, it has some serious resiliency. That was on display last weekend as people from coast-to-coast were scooping up deals in their shopping baskets as the Holiday season commenced. Many continue to purchase on the go or from their couch. Online sales now account for over 15% of retail today. That number keeps growing. Online sales for Cyber Week, driven by the 5 days from Thanksgiving, increased 7.8% compared to last year. In total, $38 Billion was spent online. Nearly $100 Billion was spent in the whole month of November. But people still hit the stores, including our very own Meredith Rosen and her trusty sidekick Roxanne. Physical retail store traffic was up 1.5% for the Black Friday Weekend. There were 120 Million others that joined Rox and Mere. Well sort of. Of course, they were scattered throughout shopping malls nationwide. They weren’t all in Marin County like the Rosens.
Resilient consumers have not only led the American Economy rebound with a vengeance, they’ve also shaped the logistical winners and losers. Amazon is reportedly set to take hold of the annual delivery crown for the first time. The company is expected to have shipped a total of 4.8 Billion packages in the US before Black Friday and Cyber Monday. That has Amazon on track to deliver nearly 6 Billion packages for 2023. For perspective, UPS, the closest rival only handled 3.4 Billion packages in the first 9 months of the year. UPS also said it is unlikely to exceed last year’s record 5.3 Billion. FedEx’s domestic parcel volume is even less. What’s more, both companies even include packages they hand off to the US Postal Service for final delivery. Amazon is now America’s largest shipper in the shipping business.
It wasn’t that long ago that UPS and FedEx thought the idea of Amazon competing was a pipe dream. Amazon was their customer and provided a huge source of growth for their businesses. In 2016, FedEx Founder and then-CEO Fred Smith even called such an idea “fantastical.” Three years later, FedEx and Amazon went through a very public divorce. Amazon continued to scale its business and invest in its own delivery service. Now you see those Prime trucks and vans everywhere. In fact, Amazon owns 11 planes and leases another 100 plus for deliveries around the globe. Amazon still works with UPS, but it only represents 11% of revenue.
Jeff Bezos had a vision. From a garage in Seattle, it started with books and has moved way beyond. Today, Amazon delivers pretty much anything anywhere. It’s one of the most innovative companies America has ever produced. Logistical innovations such as flex drivers, same-day delivery centers, warehouse robots and AI make it happen. Competition has responded. Walmart and Target have sped up deliveries by fulfilling orders closer to customers. But Amazon’s store-less model makes the company nimble. It remains the clear industry leader.
What’s next? Amazon has clearly shown its power in residential delivery. Its core strength is anchored in one-way operations and its existing network. That is evolving as it expands its global reach and leverages other providers to deliver the same level of service on things like pick-up returns. Amazon has a large and loyal customer base. The annual membership dues for Prime got raised. Some on the Street feared that would lead to large cancellations. No such thing. Amazon’s subscription business has grown steadily. There are now over 150 Million Prime users in America. That’s nearly half the population. There are over 200 Million worldwide. The launch of new services increases the growth runway for the Prime subscription business at home and abroad.
This was a busy week for Amazon. In addition to the Holiday retail frenzy upon us, Amazon’s cloud business division (Amazon Web Service – AWS) introduced a comprehensive Generative Artificial Intelligence (GenAI) strategy. It features an intriguing new digital assistant named “Amazon Q.” It’s like Amazon’s digital partner or buddy. The AI chatbot can help get fast, relevant answers to pressing questions, solve problems, generate content, and take actions using the data and expertise found within an existing network. According to Amazon: “When you chat with Amazon Q, it provides immediate, relevant information and advice to help streamline tasks, speed decision-making, and help spark creativity and innovation at work.” This is Amazon’s answer to ChatGPT. Microsoft and Google have taken the lead in AI. Amazon is going to be a big player too.
“Q” got most of the attention at the event. But there are lots of important and interconnected elements beneath it. That’s usually the case. The hard and important work is behind the scenes and below the surface. The new AI architecture has 3 layers. Those are Infrastructure, Platform/Tools and Applications. AWS debuted a combination of new offerings and important enhancements to existing products that tied together to form a complete solution in what’s become the white-hot field of GenAI.
There were so many announcements in a field that so few still really understand. Many were a bit confused by what exactly Amazon unveiled. It’s not the first time and it won’t be the last time. Tech companies often struggle to articulate what they’re seeing and what they’re doing in we laypeople terms. The key takeaway here is that Amazon is focused on delivering choice. That was a theme that was repeated throughout the launch. Amazon is playing neutral, trying not to force customers to only use Amazon solutions.
I am no Tech expert and certainly don’t understand all this stuff, but I’ll try to explain it in a way that makes sense for all. Q’s chatbot-style experience is similar to what other companies currently offer. Chances are you’ve seen chatbots pop up at your bank, or while booking a flight or hotel. This is a very basic and common form of AI used today. You get the idea. Amazon’s strategy for Q is that companies who are looking for an “easy button” solution for getting GenAI applications deployed in their company, can use Q as is. Companies who are interested in doing more customized solutions, on the other hand, can create some of their own projects and workflows with Q too.
In case you were wondering, Q is either named after the character in the James Bond movies or the Q character in the Star Trek TV shows. Apparently, there’s even a divide on this within Amazon. No one knows.
Amazon keeps pushing forward with its aggressive and innovative style. In September, the company invested $4 Billion in the AI start-up Anthropic. The San Francisco-based company was founded by former staffers from OpenAI, the company that owns ChatGPT. Amazon has also been rolling out new services, including an update for the popular Alexa, which will allow users to have more human-like conversations and AI-generated summaries of product reviews for consumers looking to purchase on Amazon. One thing is certain: Amazon is really good at helping people spend money.
Goodbye November and hello December. The Stock Market had its best month since the Summer of 2022. What a difference, in a hurry. The November rally snapped the 3-month losing streak, which brought a near 10% decline. What’s more, with the slide in interest rates, the Bond Market had its best month since 1985. That’s a long time ago. Lower rates have been the elixir for higher stock prices. The question is the reason for the decline. It could be the cooling inflation and slowing economic data means the Fed is done and a soft landing is ahead. The flip side is that economic output is slowing, and recession is ahead, which means all expectations for 2024 growth could be a mirage. It’s too early to tell. It sure has been nice to see this rally after a brutal transition from Summer to Fall. Something fascinating: The S&P 500 closed on November 30th, 2023 at the exact same level as November 30th, 2021. There have been wide swings up and down while the Stock Market has made no real progress. You know what has made progress? Gold. The precious metal is up 15% over the same time, hitting fresh all-time highs today. We are studying developments closely and are prepared for another bumpy ride in the new year.
Our nation lost 3 iconic Americans. Rosalynn Carter, Charlie Munger and Henry Kissinger lived long and prosperous lives and left a lasting legacy for the American people. Kissinger was 100 years old. Munger missed the century mark by a month. Carter was 96.
Charlie Munger was a legendary investor and the right-hand man to Warren Buffett at Berkshire Hathaway. Both are self-made Nebraskans born in an age where American prosperity was on the rise in the wake of the Industrial Revolution. Known for his quick wit and shrewd intelligence, Munger was known for clever quotes. I will leave you with 2 of my favorites:
On Success: “It’s so simple. You spend less than you earn. Invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life.”
On Passion: “You’ll do better if you have passion for something in which you have aptitude. If Warren Buffett had gone into ballet, no one would have heard of him.”
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
