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Chapter 407 Consumers Don't Want Shelves, They Want Choices

It was the same corner, the same seat, and Grom felt rather awkward sitting in the same chair Quinn had just been sitting in.

He considered himself a local tyrant in America and had seen many big scenes, yet he actually felt a sense of pressure in front of a young man.

But thinking about it, it makes sense. The person opposite is a leader of the younger generation in America. In terms of wealth and influence, the two are incomparable.

That is to say, his own heartless son can remain calm, but for him, the more he can glimpse the tip of the iceberg at the top, the more apprehensive he becomes.

He didn't rush to speak, but instead gently placed his hands on his knees, his eyes filled with obvious hesitation and scrutiny as he looked at Ernst across from him.

Ernst clearly sensed Grom's unease, but instead of taking the silence as impolite, he broke the silence first.

He gently placed his wine glass on the table and then said in a gentle tone, "You probably already know about my relationship with Quinn, so there's no need to hold back. If you have any questions, just ask, and I'll answer them to the best of my ability."

Ernst spoke very politely, but Grom still subconsciously swallowed. The other party's gentle and friendly attitude carried an invisible aura that still made him feel pressured.

The other party's wealth was growing at such a rapid pace, exceeding conventional understanding and beyond their comprehension.

It's something that even established conglomerates can only dream of.

Although, in Grom’s view, Ernst’s foundation was still weak, unlike the Major family, which had been deeply rooted in Michigan for decades.

But that enormous amount of wealth has caused a qualitative change, transcending social classes and forming a powerful force capable of influencing the entire landscape of America.

This internet tycoon, who made his fortune online, is hailed as the heir to the title of the world's richest man, and his influence has far surpassed that of the Major family.

Westerners admire the strong, and it seems that they all have an instinctive bloodline of suppression in their genes.

"Since Mr. Garfield is being so frank, then I'll be frank as well." Grom took a sip of his drink to calm his inner turmoil, his tone carrying a barely perceptible probing tone. "Quinn just told me some of your ideas about entering the e-commerce field. Frankly, it's a very bold idea, but what I want to ask is, can e-commerce really succeed in the retail industry?"

He paused, as if organizing his thoughts, before continuing, "You know West Market, right?"

Ernst smiled upon hearing this, nodded slightly, and said, "I know what you mean. You mean they launched the e-commerce website GoWest, right? You think e-commerce, like GoWest, is a seemingly attractive trap?"

Westminster is a large shopping mall in the suburbs of New York City. A year ago, it launched its own e-commerce platform, GoWest, which sells products from Westminster's physical stores, covering multiple categories such as clothing, home appliances, and food.

In order to promote the platform, West Department Store invested a lot of money in GG advertising. However, more than half a year has passed, and GoWest's sales have not been satisfactory, accounting for less than 1% of West Department Store's physical store sales.

Due to increased online operating costs, coupled with expenses for website maintenance and logistics, gowest has consistently been operating at a loss. At a recent board meeting, the management of West Markets decided to close gowest.

One board member even publicly stated in a media interview, "E-commerce is an unrealistic fantasy. It's like a bottomless pit that will only keep swallowing up a company's funds without bringing any returns. For traditional retail companies, e-commerce is a trap."

"I arrived this afternoon, and although I didn't stay long, I happened to hear the Walmart president speak," Ernst's voice rang out again. "He said that physical stores have irreplaceable advantages; consumers can experience products firsthand and interact face-to-face with sales staff in physical stores, an experience that e-commerce cannot provide. I completely agree with that."

Grom looked puzzled upon hearing this.

If you agree with the Walmart president's views, why are you still venturing into e-commerce? Aren't you worried about repeating the mistakes of Westminster?

As if sensing Grom's doubts, Ernst changed the subject, his tone becoming firm: "But I've always believed that any innovation requires enduring misunderstanding. When the automobile first appeared, people thought it wasn't as convenient as a horse-drawn carriage; when the electric light was first invented, people thought it wasn't as safe as a kerosene lamp. But as it turns out, these innovations ultimately changed the world. The same is true for e-commerce; it may still have many shortcomings now, but that doesn't mean it has no future."

After Ernst finished speaking, he slowly turned his head and glanced at the other areas of the hall.

At this moment, many people in the hall were talking, but their eyes were all subtly drifting towards them.

Bezos, in particular, immediately avoided his gaze when he saw him look over, pretending to chat and laugh with the people around him, as if he paid no attention to him at all.

Ernst chuckled softly and turned around. "You know Amazon?"

"Of course I know." Grom nodded without hesitation.

E-commerce is essentially a category of retail, and as a representative company in the current e-commerce field, Amazon's development is naturally closely watched by retail companies.

First it operated a book retail business, and now it has added categories such as audio products. No one can guarantee that it will not invade its core business area and become its competitor. It is definitely something to keep an eye on.

Ernst nodded slightly upon hearing this and continued, "So, in your opinion, what is the current state of Amazon's development? And what are its future prospects?"

Grom answered almost without hesitation: "He won't survive the next winter."

"Ha!" Ernst couldn't help but let out a slightly mocking laugh upon hearing this answer.

This isn't directed at Grom personally, but rather at the current perception of e-commerce within the entire traditional retail industry. It seems to have become a consensus within the retail sector that Amazon cannot survive in the long run.

Ernst asked with a hint of curiosity, "I'd like to know, what are your reasons for concluding that the Amazon won't survive the next winter?"

Grom gathered his thoughts and said, "The reason is actually quite simple, mainly based on Amazon's current operating costs and profitability. I've heard that for every dollar of revenue Amazon earns, it spends 24 cents on marketing and promotion. This marketing cost ratio is simply too high for the retail industry."

At this point, Grom's tone carried a hint of uncertainty, clearly indicating that he was unsure of the data's accuracy.

"Our Meijer store also deals in book retail, although it's not a large business. But I know that for every dollar of revenue we earn, our marketing costs are only 3 cents."

"This percentage is less than one-eighth of Amazon's marketing costs. From an operational cost perspective, Amazon is simply not competitive with traditional retailers."

Ernst listened quietly to Grom's story, maintaining a calm expression throughout. He nodded slightly after Grom finished speaking.

Although he didn't know if the 24 cents figure was accurate, he was certain that Amazon's marketing spending was several times that of brick-and-mortar bookstores.

The reason for this is actually quite simple. For traditional offline bookstores, when consumers need to buy books, they will naturally think of going to offline bookstores, just like when they are hungry they will want to eat. It is a basic common sense, so they do not need to invest too much money in marketing and promotion.

But Amazon is different. Amazon is a purely online business. Consumers haven't received this kind of information. Without a lot of advertising, who would know that you can buy books on Amazon?

"But when you calculate costs, do you consider the customer's lifetime value?" Ernst countered.

Seeing Grom's puzzled look, Ernst continued to explain, "Customer lifetime value refers to the total revenue a customer brings to a company throughout the entire process of establishing a cooperative relationship. For traditional retail companies, since customers' consumption behavior is mainly concentrated in physical stores, it is difficult for companies to track and analyze customers' long-term consumption behavior, so they often overlook customer lifetime value."

"However, in the e-commerce sector, businesses can use internet records to gain detailed insights into every customer's purchase behavior."

Browsing history, purchasing preferences, and other information allow for a more accurate assessment of customer lifetime value.

"Currently, an average Amazon online buyer spends over $68 annually on books on the Amazon platform. As Amazon's user base continues to expand, the cost of acquiring new customers will be diluted accordingly."

"In other words, although Amazon currently invests heavily in marketing and promotion, in the long run, as customer lifetime value continues to increase and customer acquisition costs gradually decrease, Amazon's profitability will gradually improve."

"While I don't know the customer lifetime value of brick-and-mortar bookstores, I'm certain it's far lower than Amazon's, by a significant margin. Given this disparity, do you think brick-and-mortar bookstores will see their revenue decline and become weaker?"

"Power?"

Ernst recalled Amazon's stock price on Nasdaq: "Last week, Amazon's stock price reached a high of $160. Keep in mind that Amazon only went public on Nasdaq 14 months ago, with an offering price of only $18. In just 14 months, Amazon's market capitalization has increased ninefold. Isn't that the best proof of its growth rate?"

Grom frowned even more deeply after hearing Ernst's words.

He paused for a moment before retorting, "However, according to Amazon's financial report for the last quarter, although its sales reached $1.536 million, a year-on-year increase of 60%, its losses widened to $450 million."

"According to what you just said, as the scale increases, the cost of acquiring customers will be diluted, and the company's profitability should increase."

"But Amazon's situation is quite the opposite. Increased sales mean increased scale, but losses are widening. This shows that Amazon's current business model has serious problems; the more it sells, the more it loses. Since it's a money-losing business, why continue doing it?"

He paused, then said with a hint of certainty, "The market isn't stupid. The current prosperity that Amazon is creating is just a lie. As time goes on, and investors gradually recognize Amazon's true operating conditions, its stock price will eventually return to normal."

Ernst didn't immediately refute Grom's point of view. After shifting his posture, he asked, "Do you know how many kinds of books Barnes & Noble has?"

"A million kinds." Grom was somewhat uncertain, adding, "That's what their advertising says."

Ernst did not comment on Grom's answer, but instead continued, "Do you know how many books Amazon currently has?"

Grom frowned slightly when he heard the question.

Although he pays attention to Amazon's development, he only focuses on macro data such as revenue and has not paid attention to detailed data such as the number of book categories.

He paused for a moment, then shook his head and said, "I don't know the exact number."

"As far as I know, Amazon currently has more than 220 million book titles, which is more than double the number advertised by Barnes & Noble," Ernst stated directly.

"You just mentioned that Amazon's losses widened last quarter, but have you considered that the reason for Amazon's losses is not due to increased sales, but because it has invested a lot of money in expanding its book category?"

Seeing Grom deep in thought, Ernst continued, "Everyone says the internet is a revolution, but for e-commerce, I think it's a reconstruction of value. Customers have never wanted shelves; they want choices, convenience, and prices."

"Do you know how much a box of cherries costs in California? The kind that's about a pound," Ernst added.

Grom hadn't expected Ernst's thinking to be so unconventional; how did he even bring up cherries?

However, he still replied, "About four dollars."

Ernst picked up the wine glass on the table, took a sip, and gave him an incredulous answer: "It's $9, and that's the cheapest price I've ever seen. I'm talking about discount supermarkets like Walmart."

"How is this possible?" Grom asked in disbelief, his voice rising slightly.

Ernst explained to him, "That's because Michigan is the cherry capital of America, so cherries are very cheap. If you had two portions of cherries in front of you, one for four dollars and the other for nine dollars, and they were the same weight and quality, which would you choose?"

Do we even need to choose?

"That's the charm of the Internet. It eliminates information asymmetry and brings transparency, both in terms of information and prices."

"The nature of retail has changed when customers can shop anytime, anywhere."

Ernst paused, then emphasized, "It's not that e-commerce will disrupt traditional retail, but that customers are choosing the future."

These words struck Grom like a chord, leaving him speechless for a long time.

(My friend is here, so there will be two updates today.)