Rundown: Amazon's effective cost-cutting, E.l.f.'s growing momentum & Diamond Crystal's rebrand

0:05Hello, and welcome to the Modern Retail Rundown. I'm your host, senior reporter, Gabby Barco, and I'm here with editor-in-chief, Kale Guthrie-Weissman. Hello, Kale. Hey, how's it going, Gabby? It's going great. How are you? I'm doing good. First, I just want to issue a quick thing. Last week, we talked about Daily Harvest, and there's one clarification we should make, which is that we were talking about the recall of their lentil and leek crumbles, and we weren't precise about what was the cause of it. the cause of the recall was the taro flour ingredient they used. So just a quick clarification, but how are you doing?

0:42What are we talking about today? Yeah, no, I'm doing great. Like I said, this week was a busy week for earnings reports, and we really had to cherry pick what we're going to focus on, I feel like, because there were so many. But of course, Amazon is Amazon, so that's what we're going with. And And they did have a pretty big quarter this quarter. And yeah, we're going to talk about cost cutting and sort of how that is having this positive effect across the industry, which makes sense. But of course, it comes at the cost of other investments. And then next, we will talk about another earnings report that I find interesting, which is Elf Cosmetics.

1:26And they just continue to grow and grow. You know, they don't show any signs of stopping. No matter, it doesn't matter if the industry is slowing down, it seems like they are still on their way. And lastly, we have a fun story about Diamond Crystal that was in the Times this past week. It's a salt brand. For those of you who don't know, it's that big red box that you see on chef's counters. So yeah, they're trying to position themselves as sort of a gourmet home cook ingredient. So let's get started. First with Amazon earnings. Cost cutting does indeed work. Who knew? That's true. But I do think it's interesting that there were specific categories that did still grow or segments, I should say, of the business that grew.

2:15So if we're looking at the numbers, Amazon's revenue grew double digits. So it's$134.4 billion. It's 11 % over the same period last year. This comes after a couple of quarters of slowdown in Amazon, especially retail. And then, of course, we have AWS, which I think we had mentioned last week as being one of their, continues to be one of their big money makers. But what about, I always find the ad business really interesting. That one, I mean, we just did, we did just have Prime Day. So that does make sense, but still a pretty big jump. What do you think? Yeah, the advertising business. And this is another one of those better margin businesses that Amazon has been putting gasoline on the fire to.

3:05We'll probably go more into this a little bit, but advertising revenue jumped 22 % year over year, hit$10.7 billion. I forget who was saying this to me, but I wrote about Amazon ads a couple of days ago, and they were like, it's the triopoly, which is interesting and probably true, but there's a lot more to it. But Amazon is really focusing on its ad business, and clearly that is paying dividends now. And then, of course, let's talk about all of this you know, fat trimming, if you will, that has been happening. Amazon has cut 27 ,000 jobs since last fall. It's just so hard to wrap your mind around the fact that they had 27 ,000 jobs to cut.

3:49That's bigger than that's like 27 times as big as the town I grew up in. Okay, that's a good contextual number, actually. But yeah, and then the so that brought down their global headcount, 4%. So still, weirdly, a small, you know, drop in the bucket compared to their overall workforce. But that seems to be working, right? It seems like they're back, you know, their profits are back up. And I want to talk a little bit about where the cost cutting happened, which seems like grocery always, I mean, at least from, you know, our side of things, the retail side, it seems like retail is always sort of collateral damage when it comes to Amazon, because as we talked about a few weeks ago, it just seems like one of those areas where you just don't, I can't quite grasp what they're doing, I guess.

4:43Yeah. I mean, Amazon has been closing many of its fresh stores over the last year, which definitely played a role in this. I mean, the corporate office also played a huge role in this. I think there were a lot of business people from various offices. My LinkedIn was filled with people at Amazon who announced that they had been laid off. But I do think grocery is a big part of it. And grocery has always been a very difficult business for Amazon to master. I think it thought after it bought Whole Foods, it would be smooth sailing. They own one of the best, better high-end grocers. They'll be able to go from there.

5:19But that's not exactly how it worked out. And it's been a pretty wonky business over the last whatever, you know, six, seven years. What's interesting, I think specifically, is Amazon has been doing a lot of rejiggering when it comes to grocery. It has been taking away underperforming stores, rethinking all of that. But it just right before the earnings hit earlier this week, announced a big strategic reshift with grocery about how it's trying to unify it, how it's trying to rethink the store footprint. Even at the earnings call, I was reading the earnings call this morning, Andy Jassy mentioned just all of the learnings that Amazon has made and how that's going to change the grocery strategy going forward.

6:01So the way that Amazon always portrays cuts or bringing things back, not putting as much investment in is that it's about taking, you know, cutting what is not performing well, but with the understanding that there will soon be a new announcement of a new strategy in which they will invest, but they'll invest smarter. And that seems to be what they are saying they're doing with grocery. But it's also really important to note that I would say every two to three years, Amazon has a brand new strategy with grocery that often doesn't pan out the way it wants. Mm-hmm. And then talk to me a little bit about this buzzword, regionalization.

6:42That's a mouthful, but this makes sense. And I guess from what I'm getting is that it's going to make shipping via Amazon even faster if that's possible, which I don't know. I mean, ideologically, you can say what you say about that. But I mean, I can imagine that creating even a bigger problem for other retailers. Everybody always talks about how customers all expect Amazon-level lightning speed shipping, and now I think they're cutting it down even more than two or not. Yeah, exactly. So also before the earnings, I want to say a day before the earnings hit, so on Wednesday, they posted a blog post that pretty much just said, we're really focused on same-day delivery.

7:29We've been able to up our speeds, etc., etc. This all points to a big re-strategization that Amazon has done with its fulfillment. You mentioned regionalization. It just means that the fulfillment, I mean, maybe this is very simplistic. The fulfillment is more spread out and it's less centralized. So instead of having one very big fulfillment center near a metro area, Amazon has been investing in doing smaller ones, even closer to more suburban and rural locations. And the idea is that it can reach more customers in a less amount of time. And also probably those fulfillment nodes require less manning than one really, really big one.

8:12And so it's a rethinking of how the company is going about fulfillment so that it can reach more of the country in less time. And I do think a lot of this is about the cost cutting where it means that there are fewer touch points that a box has to go to in order to reach its end destination. So pretty much it can be shipped from one place to another place and then directly to the home as opposed to seven in between, which would require a lot more people. And in the analyst call, Jassy talked a lot about this or gave a good few paragraphs about it. And he said, this is a quote I copied and pasted.

8:50regionalization is working and has delivered a 20 % reduction in number of touches for our packages, a 19 % reduction in miles traveled to deliver packages to customers, and more than a 1 ,000 basis point increase in deliveries fulfilled within regions, which is now 76%. Essentially, what the take-home is, is that it's a very different strategy than I think a lot of other companies take, where instead of focusing on a centralized hub where packages go and then can be sent out to places around, Amazon's trying to have much more of a spiderweb-like presence, where they have all these different points where it can be more direct.

9:35Maybe those have fewer people, but it means that the packages get delivered faster and ultimately will mean cost saving if you're able to cut down on those inefficiencies. And I guess that must be a beast to create. It's probably very, very different to implement. It means you're looking at a lot of different regions that you usually weren't in, but the company says it's working. And I find that very fascinating. Yeah. And this is just an aside, but I wonder what this means for their carbon emission and sustainability goals. They say that this is helpful for it. I interviewed someone from Amazon earlier this year talking specifically about this.

10:17And pretty much she said this does play into lowering the carbon footprint, being closer to the endpoint, all that jazz. And so, you know, the proof is in the pudding. We'll see if that's actually true. I am sure Amazon's carbon footprint when it comes to fulfillment is more than we could ever imagine. But, you know, this is one way the company at least says it's trying to combat it. And then lastly, I want to talk about how, you know, we saw this cost cutting, obviously yielding pretty positive results. And this is all directly coming after a lot of layoffs, like we mentioned. But this isn't unique to Amazon.

10:58Amazon, we actually talked a little bit about Shopify being another big e-commerce giant that laid off about 20 % of their workforce in the past year. And they also are showcasing that that is working. So I guess efficiency maybe seems to be a big theme here. And it does, I don't know, I guess it begs the question, did these teams get over bloated in the last couple of years where there was just like a lot of hiring and investment in these categories. Yeah, I think Shopify is a great example of this where Shopify had a lot of what it dubbed side quests, which was things that were ancillary to the business, but it saw as still important that would, if it scaled, make it the e-commerce leader.

11:48And some of those didn't work out. The most glaring one was Shopify fulfillment. And so Shopify was trying to build its own fulfillment network, do all these different things on the back end to work with brands. And then last quarter, it announced that it was offloading its entire fulfillment network, which of course led to layoffs and a big re-strategy as it related to what Shopify was focusing on. But it also meant that the company was able to focus on the areas that were growing. I think earlier this week, it posted revenue growth of 31 % year over year, which is pretty good for the company, given that the last few earnings reports haven't been as rosy.

12:30And I think that you're right, that like it's what all of these companies are doing or have been doing. I don't know if they'll continue doing this has been focusing on the areas that are working and making sure that those are staying around and then cutting what isn't and rethinking where they should invest their resources. And, you know, it's not rocket science to say that if you cut businesses that aren't making money, then you're going to make more money down the line. But it's interesting that these were both really big companies that had huge ambitions, and they scaled them back. With Amazon, they scale back things all the time, and then they will reinvest in different ways.

13:07So if Amazon says it's taking its foot off the gas of one thing, I imagine it just means that they're going to go back to the drawing board, rethink about it, and then try to do it again in a different way. With Shopify, I don't know, but I think that the strategy is generally the same where they realized that they were spending too much after seeing huge growth because of e-commerce growth. And then they realized that they needed to put a halt to things and rethink what actually is working, how did they grow the core business, and where to go from there. We do want to move on to the next story, which I find this company very fascinating because it's been around since I was a teen, but it's all the rage now.

13:48But yeah, Elf is, of course, the drugstore, cosmetics, beauty brand, I guess now also skincare. But it saw 76 % increase in year-over-year sales. And there's a couple of different factors for why that is. But I think it goes to show that maybe there's a shift away a little bit from the sort of, you know, luxury beauty for a while was, you know, the name of the game. Those margins are crazy high. You know, even with returns, they do really well. But now we're seeing with Gen Z, they really love these, you know, more affordable, like we're talking, everything is like pretty much under$25. And so I want to talk a little bit about how Elf got here.

14:35So basically, like I said, they've been around since 2004. But in the last few years, they've had this sort of like project unicorn, they call it. It's a playbook where they basically took to TikTok and made Elf this really viral brand. So Kel, what are some of your favorites? I feel like the collaborations with like food brands are a big one. but they just they seem to be I mean they are I think they are literally the number one brand among teens and Gen Z right now yeah I mean I don't have any favorites and uh I think my TikTok algorithm I'm not very much on skincare TikTok so I've seen them in like other people's reporting but they've never showed up on my algorithm which is a testament to TikTok giving me you know knowing what I like which unfortunately I'm not that into skincare and I really should be as my my face probably shows.

15:28But Elf has always been ahead of the curve in terms of this type of marketing and really, really trailblazing in terms of the affordable but still cool type of skincare brand. And also was ahead of the curve when it came to the rise of dupes, which I think is really important to talk about here because there's been a really big shift in people, especially Gen Z, not really caring about name brand products, but just wanting to get products that they know are affordable, but do the exact same thing that they've been told the most expensive products do. And I think that's a really big cultural shift, especially in the skincare space that, you know, we've talked about a lot of other publications I've talked about, but ELF's results really show this.

16:14Yeah. And of course, this came at a time when the company's sales were actually pretty flat pre-COVID since going public in 2016. So all of these, you know, the TikTok plus dupes combination seems to be a winning one. But yeah, I mean, sometimes I do scroll through both influencers and just everyday people doing their beauty routine. And you do see they literally do talk about the fact that you can get, you know, this$10 version of a foundation that can do the same exact thing as, you know, NARS or Charlotte Tilbury or whatnot. So that I don't think is going away. It seems like it's here to stay, especially I was just reading on Glossy, our sister site, that inflation is also another thing that's pushing this along.

17:01You know, right now, everybody's trying to, yeah, find the most affordable alternative. So it makes sense that Elf is sort of cashing in on this. Yeah. And I think that there's a lot of really interesting dynamics at play with that specifically, because if you talk to investors, you know, I talk to investors about where are you looking into what might you invest in? It's been a pretty cool environment. environment. But skincare is considered or generally inflation resilient or like those types of like those types of products. People are still, you know, still looking to look good. Wellness is also another area.

17:38And but I think that it's a shift in what types of companies those are. And so it's definitely a company like Elf where you're providing value, but still have that cultural cachet still are going viral on TikTok. You're not going to see a slowdown. you're in fact going to see an acceleration. It's sort of like, it's not, Elf is clearly not a private brand, but it's like the private brand effect when you see a slowdown. People are more likely to get at grocery stores private brands than they are in name brands because they're trying to shop down, but still grocery sales as a whole remain resilient, if not more, you know?

18:14Yeah, and it helps that, of course, its distribution is literally everywhere. You can get it everywhere from an Ulta to a Target, Amazon. And that's, you know, if you're young, I guess that's where, you know, the most accessible shopping is. Yeah. And there's actually one other thing. And I wanted to make sure I'm saying this correctly. But isn't Dollar General getting into the skincare business or like they're boosting their skincare assortment? I vaguely remember reading. And I think that that shows like that they're really trying. Yeah, they're revamping their entire skincare, haircare shopping experience.

18:48And I think that that shows just how much of a big business this sort of value-based area is for the industry. And so I think Elf is perfectly placed within that kind of Venn diagram, you know, of still being cool, still being on the cheap side. And if a company like Dollar General is focusing on revamping that area, it shows just like what kind of big dollars it is, you know? Yeah, they've been on this path for a couple of years now. And it's private label, but I actually did write about this. They are recruiting giant CPGs like Unilever to create these shampoos, conditioners, skincare. So, and that they did mention that they want to target this, yeah, that specific customer that is price conscious, wants, you know, that sort of sweet spot of$20 and under skincare.

19:44care. So I guess$10 is really more so in a dollar general. But yeah, it'll be interesting to see whether these types of brands continue to maybe just gain more market share because it's the whole, you know, lipstick index that we're talking about. Although I guess the last recession didn't really have dupes and TikTok. So it's a little bit hard to compare. Yeah. And then up next, we are going to talk about salt. Fun story. Salt. Salt. This is a story that I saw in the times that I find, you know, I love legacy brands rebranding. So that's just, yeah, I sort of zoomed in on that. But we did realize as we were, you know, fleshing this out that salt, because it's such a commodity, it's kind of hard to tell, like, you know, there's only a couple of big players in the U.S., but it's hard to tell, like, who is doing well versus, you know, who isn't.

20:46And with Diamond Crystal, yeah, Kale, why don't you, you know, you're the gourmand here. Why don't you tell us a little bit about the gourmand? Okay. Is that a backhanded compliment? No, no. I'm saying kale is a way better cook than mine, than I am. Yeah, there's nothing in my oven right now. so diamond crystal is one of the leading players in kosher salt um and i'm guessing if you live in the u.s you have probably seen its packaging before it's been i bought it from the grocery store for years but diamond crystal has long been considered kind of an underdog and also a more professionally oriented player than the the big lead which is morton salt so morton salt is the most ubiquitous salt brand you can find in the United States.

21:39But Diamond Crystal has long been considered. It's kind of what chefs use, I guess you could say. So if you talk about chefs, they usually, when they give a recipe or you're looking at a cookbook, they say kosher salt. And often, I've noticed this more often than not, there's usually a part at the start of cookbooks that says, you know, what products do I use? Here's what I recommend. They will more often than not say they use Diamond Crystal. And so sort of, I don't think Diamond Crystal really leaned into this until now, which we'll get into in a few minutes, but it was always the nicer choice.

22:12It always had a pretty plain branding aesthetic, but it was the idea that if you bought a big box of Diamond Crystal, you were buying what the chefs buy. And now it seems the company is trying to lean into that and just did a big rebrand. You can go into all that, Gabby, but those are the dynamics where Morton has been the leader, but Diamond Crystal has been the beloved by the professional class. Yeah. Yeah. Ina Garten's favorite salt, you know, so if you know, you know, kind of thing. They, yeah. So as one does, you know, when you're a legacy brand, they hired, I believe, like a Brooklyn-based creative agency to rebrand the box.

22:52You know, it used to just look like very, you know, like 1950s, almost like mid-century looking box. And now it's got this sort of snazzy, like very colorful red box that is for the first time being sold. I mean, I guess we should talk about distribution, right? Because that's really the big needle mover here is that it's now being sold at Trader Joe's. And you can get it on Amazon as a year or two ago. So but that seems to be the biggest thing that's really changed because like we said, it has always been around. But the fact that, yeah, again, TikTok, I feel like, you know, it's got a lot of hashtag activity.

23:33People do want to discover these or rediscover these types of brands. And it's it's one of the benefactors of that trend. absolutely and i think it's you know it diamond is kind of perfectly placed to see a resurgence because it's big but it's not the leader so even if it is you know a billion dollar brand i like you said earlier how it's really hard to track any of this i can give you a few numbers that i i did like 40 minutes of research trying to find any numbers about salt that was actually reputable and it was very difficult to find. But Morton is considered the biggest. The Carlson School of Management, which is at the University of Minnesota, says that more than 90 % of kosher salt buyers choose Morton.

24:19So, you know, Morton's the biggest. But Diamond, also big. Cargill, who owns Diamond, they recorded$170 billion in revenues in 2022, which was a 7 % increase. But it shows that it's a huge business, but also it's really difficult to know the exact scale or the exact sort of market dynamics because these are all owned by bigger players, most of whom are private. But that being said, as I was talking about earlier, Diamond is kind of perfectly placed where even if it is a billion dollar player, it's still considered the underdog and it's considered the nicer choice compared to the more ubiquitous choice.

24:58And so Morton has kind of always been looked at as just the generic grocery choice you can get. But if you wanted something nice, or you cared about the product more than what people thought most people did, you would get Diamond to really make sure you were making the best types of recipes you possibly could. I do think that this is emblematic of a moment we are in branding, specifically as it relates to food, where it's no longer about buying the most expensive product or having the nicest consumer-facing branding. It's about knowing that you're in a secret professional club. I'm using what the best chefs are using.

25:44I'm using the products that they use. And usually those are a little bit more expensive, but the focus isn't on that they are luxurious or the highest of quality. It's that they are trusted and tested by these, quote unquote, I guess you can call them influencers, though a lot of them are just chefs on Instagram or TikTok. And they've said for years that they use this. And so now every home cook wants to use this. And I'll stop there. Do you have anything to say, Gabby? No, I think, like you said, this is sort of the, yeah, it's almost like adopting like a a utilitarian ingredient versus, you know, the really nice, like, aesthetic one that maybe a startup would have, right?

26:27But then, yeah, and then just to zoom out a little bit, why don't you talk a little bit about how, yeah, a lot of these sort of professional products that normally you would buy at, like, a restaurant, well, not, I mean, obviously ingredients, but a lot of these sort of B2B or wholesale-esque products are now becoming consumer-facing and, of course, having to rebrand and target specific customers. In this case, it's the, you know, home chefs and also like grandmas and whatnot. Yeah, I think you're seeing a lot of these more restaurant B2B-focused brands at least become cognizant that there is a consumer audience that they can market to.

27:07And I mean, B2B is a much easier business because you don't have to think about marketing. So I'm sure a lot of these industrial companies don't really care and they're not going to do a major rebrand. But the fact that Diamond sort of saw this opportunity and is focusing on making its boxes look nicer, having more consumer distribution shows that this is a real trend among all these companies. And on the flip side, you're seeing a similar type of marketing messaging from newer companies that are consumer based. And so especially like in the food and the food scene. So one of one example is we have Made In, which is a pan company.

27:45And its entire branding is that it is made for and by restaurant professionals. But it's also a direct to consumer brand. Yes, restaurant professionals do use it in in their restaurants. But in my opinion, I hope they don't come after me for this. That's more of a marketing play than it is like, you know, they're selling their things on their website so people can buy them. But they're featuring Tom Colicchio saying that it's great and he uses them in his craft restaurants. That, you know, that's the messaging there is that this is this is the product that is good enough that the best chefs in the world not only will use it, but do use it.

28:22You're also seeing a lot of other DTC ingredient brands focus on that type of marketing. I think of Brightland or I think of Graza, where they're these olive oil companies and they are launching a huge amount of restaurant collaborations, like showcasing their products in restaurants, but with their branding really high up saying, you know, I think Brightland this week is doing a bagel pop up in L.A., if I'm not mistaken. but it's about, you know, featuring their products and that it can be used in that setting and it's as good as a restaurant. And I think that that is the common thread we're seeing here is that to get that stamp of approval, at least for restaurant companies, or not restaurant companies, food companies, it's about saying that you have a product that even the best chefs in the world would use.