A Conversation with Amazon’s Jay Carney - Walker Webcast

On April 29, Walker & Dunlop hosted another installment of their Walker Webcast, this time featuring Amazon’s SVP of Global Corporate Affairs, Jay Carney.

Walker Webcast

Walker & Dunlop’s CEO, Willy Walker, and Jay discussed numerous topics, including:

  • The steps Amazon took at the beginning of the crisis, and how Amazon is currently operating to meet demand
  • How Amazon is keeping employees as safe as possible as they report to work
  • The retail industry, both in general and as an asset class
  • Predictions for May rent rolls and updates on forbearance, interest-only requests, and CMBS spreads

A bit about each speaker:

Willy Walker
Willy Walker

Willy Walker is chairman and chief executive officer of Walker & Dunlop. Under Mr. Walker’s leadership, Walker & Dunlop has grown from a small, family-owned business to become one of the largest commercial real estate finance companies in the United States. Walker & Dunlop is listed on the New York Stock Exchange and in its first seven years as a public company has seen its shares appreciate 547%.

Jay Carney

Jay Carney joined Amazon in March 2015 to run the company’s new Global Corporate Affairs organization. In this role, he oversees Amazon’s Public Affairs and Public Policy divisions, and reports to CEO Jeff Bezos. From January 2011 through June 2014, Carney served as White House Press Secretary to President Obama. As press secretary, he was the primary spokesperson for the president, the administration and the United States government. Before moving to the White House, Carney spent 21 years as a reporter, 20 of them at Time Magazine. From 2005 – 2008, he was Time’s Washington Bureau Chief. Carney was raised in Virginia and earned a B.A. in Russian and East European Studies from Yale University. His wife, Claire Shipman, is the best-selling co-author of The Confidence Code and Womenomics. They live in Washington, D.C., with their two children.

If you have any comments or questions about the evolving economic landscape and how it is impacting the CRE space, our experts are available and fully operational to help. Additionally, if you have topics you would like covered during one of our future Wednesday webcasts, we would be happy to take your suggestions.

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Webcast Transcript

Willy Walker (WW): Thank you Susan and welcome everyone to our seventh Walker Wednesday webinar. I know that we had over 9,000 people pre-register for this so we've got a great group on the line today.

I want to thank Jay Carney for taking time to join me today and talk about Amazon and what Amazon is seeing in the markets today. Last week I had a call with Barry Sternlicht that many of you attended and we had over 9,000 people on that call and over 13,000 have subsequently watched it on YouTube. Everyone is obviously seeking information from far and wide in these troubled times and it is a real honor for me to have my friend Jay join me today to talk about the perspective from Amazon.

I owe my relationship with Jay thanks to my mom. My mother was the White House photographer for Time magazine for close to 20 years and during that period of time Jay was covering the White House for Time magazine and so it's, A.) great to say thanks to mom and I know she's listening today and I hope she's feeling better because she's been a little under the weather recently but, B.) my relationship with Jay goes way back long before he joined Amazon and long before he went on to actually work at the White House.

Let me turn for a moment to what we're seeing in the retail world today from a commercial real estate standpoint and then I'll get into my questions to Jay. CREF-C put out a report last week on CMBS loans on retail and there's a hundred and $35 billion of CMBS loans on retail properties in the United States and ICSC’s estimate was that revenues to those retail centers fell by $46.2 billion during the months of February and March or about 8.7 percent. Those numbers were back up this morning by the GDP numbers that were announced. GDP was off by 4.8, but retail sales were down close to 9 percent right on top of that. The biggest decrease was in consumer durables- automobile sales obviously off dramatically. Personal consumption expenditures also decreased significantly in clothing and footwear with the two bright spots being food and prescription drugs. As I was putting this together my thought was to ask Jay when is Amazon going to acquire either Walgreens or CVS. He's obviously not going to answer that question for me, but clearly a part of the market that Amazon has got to be looking at.

If you look at CMBS performance, 20.6% of hotel loans in CMBS pools were within or beyond the grace period as of April 20th and that's up from only 1.5 percent a month ago. So, on hotels 1.5 out of the grace period a month ago to 20.6 percent and on retail it's now at 10.7 percent up from 1.7 percent a month ago. So, significant number of loans that have moved beyond the grace period. As it relates to loans that have moved to special servicing, which means that they actually have had a default, 6 percent of hotel loans in CMBS pools are now in special servicing - that's up from 2.25 percent a month ago. And there's only been actually a minor uptick in retail from 3.1 percent this month up from 2.7 percent in March. So just a slight uptick in CMBS loans on retail that have moved to special but as it relates to outside of their grace period there's been quite a significant kick-up in both hospitality as well as in retail. There was literally no change in the special servicing volumes for multi, industrial, and office month-on-month and so those asset classes continue to perform extremely well.

As it relates to forbearance requests, we're starting to see many retail borrowers ask lenders for forbearance. Many rather than asking for forbearance are asking just to go to interest only for a number of months and then come back to paying off their amortizing loans.

One of our bankers in New York City said to me that right now his client base on the retail side is collecting somewhere between 15 and 20 percent of rents at this point. As we've mentioned before what is somewhat odd in this crisis is that many of the credit tenants have stopped paying their leases and many of the smaller mom-and-pop tenants are actually still paying and that is obviously contrary to past crises where it's typically the non-credit tenants who default first and then the credit tenants who stick with you. Clearly showing the pain that some of those big national retailers are feeling right now, and also to some degree the leverage they think they have over the owners of the retail properties.

I went out to our team to ask whether they were doing any new retail loans and, actually, I was surprised to find that we have quite a few going on right now. One of the deals is a single tenant grocery store with a non-investment grade debt rating. It's got 17 years left on the lease and we're getting really good quotes around 3.5 to 4 percent on that for a seven year mostly IO deal. And then we just funded last week two loans on strip malls and those were smaller deals, $4 and $7 million dollar loans, all-in coupons with 3.87 and 4 percent. So, while there isn't a ton of capital going to retail or hospitality right now there are deals getting done for those sponsors who have good assets with long term leases and typically on the grocery side of things, with a grocery anchored retail.

On the spreads and where we are as it relates to the Fed buying program, spreads have remained very tight. The Fed was in the market yesterday buying agency CMBS and they bought 412 million dollars of bonds yesterday, that's down significantly from what they were doing two and three weeks ago. But the Fed stepping in and buying three hundred to five hundred million dollars of paper on a weekly basis is really helping to support the market and the spreads that we've talked about in the past for Fannie and Freddie paper, sort of swaps plus 70 to swaps plus 85 is holding very tight and the Fed is doing exactly what it needs to do to support that market.

As it relates to capital deployment, you heard Barry Sternlicht last week talk about Starwood going after a hotel before the hotel got a PPP loan and pulled itself off the market. I talked to one private equity sponsor over the last week who raised a Special Situations Fund at the end of March and they have already deployed $1.2 billion of equity capital over the last three plus weeks mostly buying notes, agency paper that was being sold at distressed levels, but they also actually just took down a pretty significantly sized seniors housing portfolio which is a very, very counter-cyclical play if you will, or a contrarian play, given the virus getting into many seniors housing operations and many people being afraid of what rent lows look like in the seniors housing space. But interesting to see several large sources of capital raising funds and starting to invest in this market, at this time.

But all eyes right now, we're on May rent payments, April is ending quite well for most of Walker & Dunlop's borrowers. Collections have steadily increased throughout the month. And as I've been talking to our clients and asking them for predictions on what will happen to rent rolls in the month of May, I've been generally getting somewhere around 3 to 5 percent down, although I have had the outlier who said we're expecting 10 to 15 percent down. It is anyone's guess what May 10th to May 15th will look like, particularly on the multifamily side as it relates to rent collections. I would only say that the common themes are communicate with your tenants, fingers crossed that a lot of the government stimulus money has made it out to renters across the country, and I guess the final point is that people start to see economies across the country getting back to work and therefore the hopes of getting a job again, pay their rent, stay safe in their apartment, and hopefully that all works the way through the system to benefit everybody.

I now want to turn to my friend Jay Carney. So, Jay, you went to Yale, you were an exceedingly successful journalist at Time magazine, you were the White House press secretary for over three years for President Obama. I'm just curious, Jeff Bezos is known for asking potential hires what their SAT scores were. Did Jeff ask you what your SAT scores where when you interviewed with him for the first time?

Jay Carney (JC): Willy he didn't, and if he had, maybe he wouldn't have hired me - that wasn't the strength of my application. No, he doesn't do that, a lot of that falls into the category of pure myth about Jeff - I mean certainly the Jeff I know and work with every day. One of the reasons why I went into Amazon, I've probably told you this, but when I left the White House in the summer of 2014, I took some time to try to figure out what was next and I really wanted to do something completely different. I didn't want to be, I didn't want to take the tried-and-true path of just being a consultant and a talking head on television and I was really intrigued with companies, especially tech companies that were innovative and doing creative things.

I spent a lot of time out in Silicon Valley and met with a lot of people and I got a call about Amazon and was open to speaking with them even though I hadn't really been thinking about it at the time, I went up and I met with a lot of the senior business leaders, including Jeff, and I had just a remarkable day. And what I loved about Amazon then, and love now, that I'm well past my five-year mark there is the culture. It may be because we're Seattle based and not based in the Bay Area but there's a scrappiness to the place, and humility to the place, that I've always liked. If you go back to that period when I was looking for a new challenge, tech and Silicon Valley were kind of the bells of the ball at the time. And I think there was a lot of hubris at the time about tech, in that milieu, especially in the valley, and I found Seattle to be quite different. And I loved that Amazon was a tech company, but it was a tech company that was also grounded in the physical world, you know our core business is retail and that requires an enormous number of people. We have employees in over 40 states, and it requires, it's a different business model. So, it's been a great run, Amazon’s been, you know I've learned more here than I could have imagined.

WW: So, your past two bosses have been the most powerful person in the world, Barack Obama, and the richest person in the world, Jeff Bezos. What is it about those two leaders, and extraordinary leaders both that you have observed from having worked with both of them so closely?

JC: Well they're obviously different, they're quite different, and that's reflected in the paths they took in their lives and their careers. But one way in which they're very similar is that they both focus very much on the long view and they're both in worlds that traditionally don't reward that.

So in politics, especially in modern politics, the urge to win the day and win the week and fight every battle as it comes up is powerful and it's the way that politics is normally conducted, especially here in Washington, DC in our national politics. But President Obama, remember he was nobody until he was somebody and, suddenly, he was president. And he did not live his life in Washington, and he didn't live his life in the public eye until he was elected to the Senate. Two years or four years before he was elected to the presidency, he didn't live with this sort of stamp on him that said, you know, you could be a president one day and he didn’t conduct his life that way. So, he wasn't very good at that kind of transactional day-to-day political battle and there was downside to it. We would go in to see him sometimes, I and some other of his other advisers, and recommend he say this or do this and he would listen to us and sometimes he'd agree but often he'd say you know, you're probably right but I'm not going to do that, and we'll take our lumps but here's why. And it was always a reason about the long view, the long term, and that was very gratifying to see especially in the political world that we live in.

Jeff’s been the same way in business. He has, since he founded Amazon told shareholders and his colleagues at the company, don't look at our quarterly earnings, don't measure your success by the stock price, plan for the future, invent for the future and invest, invest, invest in the future, and that's what he's done with the company. And there was a lot of, I think in the early days of, well before my time, a lot of skepticism about that approach. But I think he's shown that taking that long view, not governing the company quarter-to-quarter, has been great for customers, most importantly, but it's also allowed us as a company to explore new businesses, to invest in areas that may or may not pay off. For every success that Amazon has had in a new business line we've had multiple failures. But the successes only come because you have the freedom to experiment and innovate and fail and it's a great culture to be a part of.

WW: When you were first hired by Jeff a number of years ago, because you just said almost five years ago, there was a lot of talk about your crisis management expertise having been in the White House and being able to deal with a huge amount of data, figuring out how to create a strategy, convey that strategy, execute that strategy, what have you. What have you drawn upon from that crisis management playbook over the last two months at Amazon since the coronavirus fell upon us?

JC: Well that's a great question. Government and business are different in many ways, and they should be, but there is a similarity to the way. I think we collectively as a society have had to mobilize and then a company like Amazon because we have so many employees and are so present around the country and the world. There's similarity in terms of how we've had to mobilize, it’s not governmental necessarily but it requires broad policy decisions and quick thinking. Like everyone we were in a situation at Amazon where we had to learn as we went. As the COVID crisis began to take root we very early, because we're a global business, made the decision to end all non-essential travel well before there were any kinds of shutdowns here in the United States. Then we took steps to work from home, fairly early, for all of our corporate offices. And then because of the nature of our core business, our retail business, we have this situation that we've confronted where our customers are depending on us, have been depending on us more than ever because they have to stay at home and online shopping is not just a convenience but it's in many ways a lifeline and a necessity. So that's created an enormous demand but we've also had to take significant steps, and expensive steps, to adjust the way we do business in all of our fulfillment centers, our warehouses, and the rest of our distribution network to ensure the safety and health of our employees. So, a lot of this has been learning on the fly and it's been extraordinary to see the innovative business minds in our leadership applied to these new sets of problems that the coronaviruses has presented and it's been gratifying. We're still learning, we're still making changes to adjust.

WW: And Jeff has stepped back in from a kind of a day-to-day operating role given the crisis - big article last week in The New York Times about that. I would assume that since Jeff has spent so much of his time sort of thinking out on that long-ball strategy that you're talking about, whether it's the space endeavors or other things where he's been spending the majority of his time and thinking. What's it like now that he's back in from an operating standpoint because my assumption is there were lots of senior executives who had sort of those operating roles and responsibilities taken care of so all of a sudden Jeff comes back in on a day-to-day basis.

You've been around long enough to know what it was like sort of when Jeff was still more engaged than less engaged on the day-to-day and now right back into it. What's what sort of changed over the last month and a half?

JC: Well while I have no beef with that article I think one thing that I don't think it was quite clear on is Jeff - it was his mental model, his orientation in terms of his engagement at Amazon that changed because of COVID, not his day to day engagement. I report directly to Jeff, but I work for Amazon and I engage with him every day often multiple times a day pre-COVID and I do that now. So, it's just that he was thinking in his Amazon role, which is still overwhelmingly the dominant world in his business life, he was always thinking, he was using his time to help the teams think about projects that were more long-term. And he used to talk about, or he would talk about that he gets to live in the future, and by that he meant not, you know, the future 200 years from now but the future three to five years from now because the investments we make now as a business that are long-term in their nature will, if they succeed, will succeed three to five to ten years from now.

So, what's changed is that he has become seized by this crisis and has been directing all of us in our efforts to deal with it. So, on things that are very much today - like how do we get masks to our employees today, like what do we do, what are the supply chain challenges, where is the supply, how can we shorten that cycle. What steps, he was very involved in all the steps, the process changes that we implemented in our fulfillment centers – that ensured social distancing, staggering start times, so fewer people were in our sites at the same time, ending our stand-up meetings that they would have in those facilities, that was a time when people would congregate, to, again, ensuring the supply of PPE masks and gloves. We have now had, for a number of weeks, temperature checks at every one of our sites at the beginning of the day. So those are the kinds of things that Jeff would not have been involved in, or not as much involved in, because they were sort of today's problem, what's today's answer or today's solution, and if not today tomorrow or as soon as possible. So that's where I think he's had to push off some of the energy he would put into longer term business plans and investments to focus on the here and now.

WW: So, I want to ask one last question on sort of the management of Amazon right now and then more towards the marketplace and what you're seeing. My understanding is that there are 18 people on Amazon's S team, which is your senior leadership team.

First of all, does S stand for senior or SWAT or special, what does the S stand? And, second of all, any comparisons or differences between an S team meeting and a cabinet meeting that you participated in both - anything between those two that is just wildly different or actually similar?

JC: Yes, what's wildly different about it is that dressing up for an S team meeting in Seattle is wearing a collared shirt and not a t-shirt and not many people dress up so the formality of a White House, appropriately is quite different and the nature of the meetings and the content are obviously, it's quite different. That’s a great question. I think the senior team, it's been the name for the leadership team for many, many years, long before I started. And we recently added members to the S team, I think we might be up in the 20-21 range of members, and that's great because more ideas at the table, different perspectives, different brains is super helpful. And we meet as a leadership team frequently in full and then sometimes smaller groups of S teams meet on specific subjects. But not very much like the White House, not a cabinet room meeting

WW: So, transitioning to the crisis. You were you on Air Force One on 911 with President Bush. You were in the White House the day that everyone was in the Situation Room watching Osama bin Laden be taken out by U.S. seals. And you've also been there with Jeff as he's announced incredible breakthroughs in technology that has driven Amazon's business. What character traits or habits have you seen in those leaders at those moments that for someone who doesn't get that eye to history, if you will, is something that you have seen in those leaders as it relates to how they have dealt with this. I mean, there was a moment where, all of a sudden at Amazon it was like, uh oh, this really is going be something major.

What did Jeff do or say to get the team headed in the right direction, what did you see Obama do or Bush do in those moments that few other people get the opportunity to view those leaders actually processing the information and what they've got to deal with?

JC: Right. Well I think the analogy holds up only so far because the kinds of things that you mentioned, both when I was a reporter and traveling with President Bush on 911 and even the special ops action against Bin Laden ten years later, almost ten years later, those are the kind of problems that only presidents deal with. And in the first case, the attack on the United States, that's the kind of flash happening that changes your world and changes, I mean it changed everyone's world, but it also changed the nature of the Bush presidency and all the kinds of decisions you have to make with unbelievable speed.

And then in the in the case of President Obama on the Bin Laden mission, he had to make this very gutsy decision with incomplete intelligence and when he was being told by his top military advisors, including the head of the operation, that chances of success, i.e. that it was in fact Bin Laden were 50/50, and he had to make that call and would take the responsibility regardless of what happened. That's why being President is unlike any other job, it's not really all that similar to being a CEO in that regard because of the enormity of those consequences.

CEOs have an enormous amount of responsibility and pressure but they also - it's almost more like a parliamentary system. Like you, if you're in control of your business and you collectively or individually make a decision to invest in some area, and you get to execute on it, and implement it, and see if your customers like what you've done and reward you for it, and then you're judged later as a success or a failure, but you have more control, I would say. And what Presidents, ironically because they are the most powerful people in the world, individuals anyway, they often don't have nearly as much control as you think over the events that determine the success or failure of their presidency.

WW: Really interesting. So let's turn to the crisis and Amazon's response to it because, as I said previously, I have one colleague who lives in Rhode Island and I was talking to him about bringing you on and he said the only vehicles I've seen go up and down my road over the last month literally are Amazon Prime trucks. So, no one's driving their cars, no one, seemingly, nobody else is out there other than you all. Analysts are predicting that your revenues that you guys will announce tomorrow in your earnings call are up to 25 percent on the quarter yet expenses are going have gone up significantly because you had to pay overtime and you've had to, in some cases, double salaries. And you all were already a leader as it relates to raising your minimum hourly rate to $15 an hour across the country. Talk for a moment about just the general challenges that you all have as it relates to staffing. You've got four hundred thousand workers in U.S. distribution facilities. Many, many, people like Walker & Dunlop, for instance, when this all broke out our big concern was to get everyone out of the office, make sure that they're all safe and we can figure out how we continue to transact business. You and a few other companies had the very, very, real challenge of saying we’ve got to stay in it, we’ve got to protect our people, we've got to continue to operate and distribute these goods across the country and you've done it almost seamlessly, although I've read, you know, people saying, “oh, I didn't get my prime order in exactly the same amount of time I was getting it previously.” And I would hope that that person got someone writing back on the message board, you know, be happy you got anything. But how have you all managed with this crisis just because, I mean, you do have 400,000 workers, I saw something that says that you're going to be potentially hiring another 75,000.

Talk through just the logistics of all of that as you went into this because you guys almost uniquely had to deal with this on a massive scale both from a distribution standpoint as well as from your retail operations at the Whole Food stores across the country that have not shut down and continue to provide food to the American consumer seamlessly.

JC: Well thank you Willy. I mean, I think we, as I said earlier, the nature of our of our retail business because most of it is online - although we do have physical stores like Whole Foods stores - has been, has meant that we have become a vital service for millions and millions of customers. And we take that responsibility very seriously and one of the things we did early on was prioritize the intake stocking and shipment of essential items; medical supplies, household staples, the kinds of things that were most in demand and most immediately needed by customers. And that prioritization meant that we had to change the way the non-essential items, you know items that weren't on that list, were being brought in and stored and shipped. And other mechanisms were put in place to ensure that we were moving most quickly on the essential items. So that's how as you talked about or why some items that weren't essential that people ordered weren't coming as quickly as customers had gotten used to them coming. Now we've been able to as we've, as sort of the situation in our supply chains and our facilities have stabilized, to return to normal in terms of our mechanisms for making sure that our customers are getting the things they order in a timely fashion that they had become used to. But we're very proud of and sure that we did the right thing by prioritizing those items early on.

On the manpower question, I mean we were already a very large employer and we already paid $15 minimum, more than double the federal minimum wage for our starting employees in our fulfillment centers. And when we saw demand spike in the way that it does for the holiday season, for example, but a holiday season you can plan for - when we saw demand spike the way it did because of COVID, we had to meet that demand and that meant initially hiring a 100,000 people, and then when we quickly filled those roles hiring another 75,000 and we’re in the process of doing that now. So, our distribution network employee base is in the five to six hundred thousand range globally now at least. And we raised our minimum wage for this period from $15 to $17 an hour and we doubled, we made overtime instead of time and a half, double time so $34 an hour. We’ve put in place COVID-specific benefits in terms of extended paid time off, we have a policy of no questions asked, you know unpaid leave if people just felt - you know if there were circumstances at home or because they didn't feel like they wanted to come to work in this situation they were able to take off and not worry about their job status. So, all of these things, as you noted, these things as well as the supplies of protective gear that we provided to our employees required a big investment and you're right that it's definitely balanced against that demand. This has been an extraordinary time in many ways.

WW: So, given your supply chain, you mentioned PPE previously and trying to get it. First of all, tell me that Amazon can get it, because if there's any company in the world that actually hopefully has the inroads to getting things like PPE it would be Amazon. And then second of all, it's my understanding that you guys are building your own testing facility. Is that going to be just for Amazon employees or are you going to start processing testing for third parties?

JC: Let me, on the first question, yeah, we had to scramble like everyone else. There was a global shortage of some of these necessities - the masks and gloves and sanitizers. We obviously source from around the world and we were able to tap that network to get those supplies as quickly as possible but in the early days we did not have all that we needed or all that our customers needed much like any other retailer. So, the teams worked extraordinarily hard to fix that problem and were very creative in how they figured it out and that’s going to continue.

On the testing, Jeff has said, my boss, and others business leaders have said, and I think they're quite right, that the key to getting back to normal, to getting our economy up and running again is plentiful, scalable testing capacity. And that means enough tests available everywhere so that anyone can be tested regularly not just people with symptoms, but asymptomatic people, so that employers can know with certainty who's sick and who's not, who needs to self- quarantine or who needs medical care. And then whose not so the employees who are coming back to work when that's possible can feel comfortable and safe because everybody's been tested and the folks who are testing positive are getting the care they need and their self- isolating or are being quarantined.

So, as you know, that testing capacity has been scarce and hard to come by across the country and so we've taken steps to begin to build our own capacity. It's not a business or an arena that we've been involved in, in the past, but we have started, we built our first lab and began the process of offering tests to frontline employees. But these are early days and our hope is that other institutions, both private sector and governments, also engage in this effort to quickly scale the availability of tests that are reliable and that produce results on a fast turnaround basis. Because I think unless we, until we get a vaccine that's the only way really for normalcy to return in anything like a way that we recognize.

So, for us it's early days - I mean we have hundreds and hundreds of thousands of our own employees and we're sharing lessons learned as we go through this process. But I wouldn't want anyone on this call to think that somehow, even a company of our scale, can do this alone, it requires collective action.

WW: So, prior to the crisis there was plenty of talk about the size and scale of Amazon and Amazon's huge influence over e-commerce. I think your percentage of e-commerce in the United States is around 37 percent pre-crisis and if the projections are that your sales have gone up by 25 percent that's pushing your share of e-commerce well into the 40 percent range.

Does this crisis, and sort of the incredibly important role that Amazon has played in supplying the American consumer, does it help make people understand the importance of Amazon and the size and scale of Amazon, or does it hurt in that Amazon continues to be bigger and bigger and those calls for either breaking up Amazon or peeling Amazon out of certain markets gets even stronger?

JC: Well let me just say that, as you know Willy, it's a fallacy to suggest that Amazon is as big as we are often perceived to be. A couple points. The spike in e-commerce that's been driven by this COVID crisis, that's all of e-commerce that's not just us. So, we'll have to see what the numbers reveal but obviously the cost associated as we talked about earlier are quite high as well.

Separately, e-commerce to this day only represents - and these are outside assessments, independent assessments - eleven or twelve percent of retail in America. And while it might be a surprise to some, because we get a lot of attention, we're not even close to the biggest retailer in the United States. Walmart is two-and-a-half times our size. And it's also - maybe there was a time when sort of dividing retail between online and offline and treating them differently might have made sense but there really aren't any serious players who aren't both now.

We got our start in online retail and we are a major online retailer but as you know we've invested heavily in physical retail in recent years, not just with our purchase of Whole Foods markets but in building our own Amazon stores - Amazon 4-Star, Amazon bookstores and other physical stores. And that's a reflection of our belief that retail, the right way to approach retail is by listening to the customer and the customer wants both, the customer wants physical and the customer wants online. And there are things for which the customers always, are often going to go to a physical store for - in a post-COVID world - and there are things that they're going to be happy to go online for. And I think the successful retailers of today and tomorrow will be those that meet customers where they are.

So, as you know, Amazon is only four percent of U.S. retail total so in competition terms far from anything that comes close to dominance, and less than one percent globally. There's not a country where we do business where we’re the biggest retailer in that country, including the United States. So, we happen to be very customer-facing and we're unbelievably lucky that we have as many customers as we have but it's important to put our scale in perspective because retail is a very, very big market.

WW: So, you talk about that multi-channel strategy which clearly many of the traditional retailers started bricks and mortar and are trying to move into e-commerce, and you all started e-commerce and are moving into bricks and mortar. Obviously, the last couple weeks have made a lot of people scratch their heads about bricks and mortar retail. The numbers that I talked about previously as it relates to the number of CMBS loans on retail properties that have moved to special servicing, not that many, but that are now moving into delinquency has spiked dramatically. Over the last couple weeks has the thought of that sort of multi-channel distribution strategy been sort of tested and thought about in a different way at Amazon?

JC: No, and I think that these are extraordinary times and everyone's goal, including ours, is to get us back to normal, or whatever a post-COVID normal looks like, as quickly as possible. Our faith in the investments were making in physical retail remains. And I think that, look, we're going to have a vaccine at some point and prior to that hopefully we'll have the testing capacity that we need that will allow a physical source to reopen and will allow other businesses to reopen and to have the economy come back in a way that feels close to normal if not fully normal. And I think, you know we've learned a lot, we will have learned a lot of lessons, but a lot of retailers will have learned lessons, and we’ll make adjustments accordingly.

WW: So, a final question on real estate. You ran the HQ2 to process at Amazon - I guess a couple questions on that. First of all, as it relates to your investment in Northern Virginia, does Northern Virginia, the original spec was one city, $5 billion of investment and 50,000 jobs. Then you picked two cities so seemingly dividing, if you will, that investment in both capital as well as human resources. And then, as we all know, you backed out of New York and are now really focused on Northern Virginia. Does Northern Virginia get that full $5 billion and 50,000 jobs or does one of the other, I think it was 238 total cities who pitched to get Amazon HQ2 to come to it, does one of those other cities get picked for sort of an HQ2 two?

JC: Well the short answer to that question is no, we don't have any plans to have another headquarters in a way that we're building here in the DC Capital Region. We're still, as you know, building out here in Northern Virginia, and we have leased space with our excellent partners JBG Smith here. And as we're building our own structures there, hiring has continued and we're beginning to scale, but it will be some time, of course, before we're up, we get to the twenty-five thousand mark. So, I don't, we have the luxury of time of deciding as we grow where we’re going to have employees, notwithstanding the HQ2 process, and the desire to concentrate our growth in another location outside of our original headquarters. We also have a lot of corporate employees and centers with a healthy number of employees in various cities around the country, so that process continues. We've had just, since you mentioned it, we've just had a great experience here with both political leaders and business leaders and community leaders in Northern Virginia and in the DC area. It's been a great partnership and as somebody who was born and raised in this area, I'm thrilled that that this project is taking shape.

WW: So, returning to a couple other Amazon's business lines, I'm just curious, have you met Alexa and is she blonde or brunette?

JC: The great thing about Alexa is that she is whatever you want her to be, right, including her voice can change and her accent. Alexa - I'll tell you a great story about this. When I started in March of 2015, the most recent device that Amazon had created and launched with great fanfare was something that not a single person on this call owns today - the Fire Phone. It was Amazon's entrance into the smartphone market, and it was the result of an extraordinary amount of investment and technological development and there were some features to it that were groundbreaking. It didn't work, it didn't work - it failed - it was a multi-billion dollar failure.

A lot of companies would have said you know what, we got out over our skis, it's not really our core competency, we’ll just go back to what we do well, let’s not invent new devices, you know, try to do that kind of thing. And yet already in development and launched in beta not long after I started was the first Echo device. Which, by the way, got its start with the idea that Jeff had of creating the Star Trek computer in real life. Now that could have failed too, because who knows ultimately, you make a lot of educated guesses, the teams do, the tech teams and the other teams, about what customers will want and what they'll find rewarding. But, you know, these are these are guesses and bets and it turned out that Echo and the Alexa service were received incredibly well. We had that, I guess first class problem with the first Echo devices which is, we didn't have enough of them. Which is not a great problem to have but it's better than having too many that you can't sell and, you know, the rest is history. And the fact that so many customers have loved the service and love the devices and teams keep creating new variations and making improvements so it's super exciting.

WW: So on that, as I was sitting here thinking about my question to you, I was saying there's got to be a number of times where Jay was both in government as well as at Amazon where he’s shown something and he says “We can do that?” You’re like, “Really, we can do that?” Do you have anything within the bounds of sort of obviously both non-disclosure on the government side of things, or at Amazon on things that we all now know about where there was one of those moments where someone showed you something and it was like we can actually do that?

JC: Well I can talk about one in the Amazon context because it's now a reality. But in my first few years I would be, we’d go visit an unmarked building in Seattle to take a look at a project that was underway. It was built around the idea of just walk out technology; the idea that you have a physical store where you could walk in and walk out without paying, but also without stealing. And it seemed crazy - I mean crazy like how could that work? How could technology work in a way where you could walk into a store, grab what you wanted, stick it in your basket, stick it in a paper bag, walk out and never approach a cash register or a touchscreen or anything, just go. Well we have those stores now in multiple cities - the Amazon Go stores and it's magic if you’ve never been to one. The one in Seattle, the first, the original one that opened is in my building, my office building in Seattle on day one, it's also Jeff's building and my apartments nearby, and I do all my shopping there. And every time I go, and I've been hundreds of times, I feel like I'm stealing. Like I walk down the sidewalk and it's like did anybody see me walking out with all this stuff? And then moments later it pops up on my phone, my receipt, and it's always accurate. It's really, like I still am stunned that the technology works. So that's one where I got to see something in its early days when nobody was sure - and they tried everything, they tried all sorts of different interesting solutions, potential solutions to the problem, and then the team's delivered a product that is really extraordinary.

WW: So on that as far as cutting edge technology, there was the 60 Minutes piece on the drones and there's been heightened I guess re-attention on that issue now given the world we're living in today and people wanting things essentially to kind of drop out of the sky into their backyard. You're obviously on the front lines as it relates to the FAA and the ability to get drones flying around cities and dropping off goods and all that kind of stuff. How far away are we from the effective deployment of drones to deliver goods and services - not service’s, goods?

JC: Look this will happen; the technology is well within our reach and the reach of others. Getting the right regulatory infrastructure in place to ensure people's safety and the efficient operating of a service like that is the key. I think it will it will happen sooner in some countries than others depending on the disposition of the governments, and the kind of regulatory structure they have, but we're working really closely with, you know my teams on the policy side are working closely with regulators in that space, and we are pleased with our progress. But I don't have an update on timing except that it will happen, you know for the reasons that that you mentioned, even pre-COVID, which is that customers are going to want this service done well so that it's un-intrusive, it's quiet, it's incredibly safe, and safety is the highest priority on our teams as they develop this. I think once it becomes normal, people will be surprised that they were worried about it for whatever various reasons. And if you think about – a surprising stat for me was something I learned earlier. A huge number of our deliveries, even if there are multiple products, they can be multiple small products and they're small enough to be delivered, the full delivery is small enough to be delivered by drone. And the reduction in congestion, in congested areas on our streets, when there's that kind of service available will be, I think, beneficial in many ways, the reduction in pollution and the like. So, I think, you know stay tuned is probably the best I can say.

WW: Okay. As I was thinking about Amazon Web Services at this time, just the number of, I mean, I don't know whether Zoom is a client of Amazon Web Services but if it is I’m just thinking about the scaling of the Cloud and everything that's going into the Cloud right now has got to be driving a huge amount of customers to Amazon Web Services. I guess, as I was thinking about that Jay, I was thinking about the fact that on the retail front, you guys compete with Walmart and other massively scaled companies. On the entertainment side, you compete with Disney and Comcast, and on the Amazon Web Services you compete with Microsoft. I was sort of sitting there going, you know, why don't these guys pick a space that they're not going up against like the biggest and most sophisticated competitive set you could possibly go find.

But it is unbelievable to me how Amazon Web Services has not only grown but as Jeff said at the Economic Club in Washington when he spoke last year, he was very surprised about the head start that you guys got with Amazon Web Services. Can you talk about that for a second?

JC: What I know about that, I know from Jeff and from Andy Jassy, the CEO of Amazon Web Services, and that is that the idea to - as Amazon was building out its own server capacity needs for its Amazon.com business and its compute power needs there was a recognition, and this is long before my time obviously, you know how, especially how businesses in retail work, there are peak periods but a lot of businesses have peak periods of demand and then troughs, and in the old world of on-premises IT infrastructure you'd have to have your own server and your own compute power and your own data storage, all that kind of stuff, and you had to have enough capacity and pay for basically the goods that could meet your highest demand period. And what that meant is you had all sorts of wasted capacity that you weren't using otherwise. And it was the leaders at Amazon, it was their idea that, well, we could rent out that capacity. We're building this capacity for ourselves and when we have this excess capacity, we could rent it out. And that was basically the birth of public Cloud and what has now become so common.

And I think what Jeff said at that event that you referenced was that normally in this space – and probably in all business, but I think he was talking about tech in particular - when you create something new, when you innovate a new product or services, your unbelievably good and smart and well-resourced competitors take a year, maybe two to match what you have. And for reasons that are not quite clear, we had about a five-year head start in Cloud. Jeff at the time speculated that maybe it was because people didn’t see sufficiently clearly that Amazon, while a retailer, was in fact a tech company that was driven. I mean all of our businesses including our core businesses work because of artificial intelligence and machine learning and a lot of effective tech, and they didn't take us seriously, Amazon seriously as a contender in that space.

So, what it meant was that because the teams are so, are always so customer focused, and that means not just saying oh we built this service, customers love it, let's sell it and celebrate. It was like, okay, we built this but what else do customers want, what added services can we provide, what can we do to lower prices for customers. And that sort of Amazon cultural spirit infused the AWS teams as they grew from that initial stage, and even as some of the, you know, very, very, strong and deep pocketed tech companies that you mentioned began to get into the Cloud space. But that advantage has served us well. I think there really isn't - and I'm no expert on the tech piece of this - but I certainly know that there's just no similar, there's not a company that provides the scale and the range of services and the redundancy and the security that AWS provides.

WW: So, my final question and it's an outlook question. When you were at Time you sat around with the likes of Strobe Talbott and Walter Isaacson at the end of your…

JC: And Diana Walker.

WW: And Diana Walker, yeah, at the end of the year and said who’s going to be Man of the Year and why is he or she or it - as the computer was computer of the year in 1982 because they couldn't figure out whether it was going to be Steve Jobs or Bill Gates who ought to get the cover - but as you think forward to December and that group of really smart people that you've interacted with saying okay well the news of 2020 is without a doubt the COVID crisis. But fast forward to December, what's the cover? Is it that molecule that just says it wiped out the economy and the health of the world etcetera, etcetera? Is it somebody's found a vaccine and we're rapidly developing the vaccine? Is it the resilience of the U.S. healthcare worker who showed up every day and protected us? What's your - if you had to kind of think ahead and say well what I really would love it to be is X or what I think it's going to be is Y. Trying to think about that table in mid-December and figuring out what's going be on the cover of Time Magazine and give us your thoughts on it.

JC: Well, Willy, just hearing you talk about it just shows that you grew up in this world and culture because you said the things that I would immediately think of as possibilities based on what we know now. If there is some, a really important medical breakthrough, or an individual who does something extraordinary on the research, medical or healthcare side - I think that person would be a strong contender for a person of the year. But the molecule, which is quite vivid to look at, at least the pictures I've seen, is certainly an idea. And then in terms of where we are in the in the bounce back - like when you talk about the resilience of either the world or a particular country, or a group of people - you know those are all options. But knowing what I do - it's been a long time since I've been at Time magazine, I left in 2008 and there’s a whole new set of people there - but knowing what I do about that process it seems unimaginable even in late April that the person of the year, or the thing of the year, or the idea of the year, won't have something to do with COVID 19 and its impact on the world and the response to it.

WW: And that is said during an election year.

JC: Yeah, right, I mean one thing that was always…

WW: It's unbelievable that you can say almost declaratorily that in an election year.

JC: Right, because every year that I worked there and I think every year since, every fourth year the winner of the election was the person of the year. And again, I have no insight into the thinking of folks who run Time magazine now but it's tough to imagine even the presidential election having, winning an argument, as more important to the world, more influential for better or worse, than this crisis. It’s unlike obviously anything that’s happened in our lifetimes, and really in anyone's lifetimes because of, especially in the modern world, not since the Spanish flu.

WW: Well, Jay, we're now at the bottom of the hour. I want to thank you tremendously for spending an hour with us. I know your thoughts and ideas and perspective on all this has been greatly appreciated not only by me but by everyone who's been listening in. Thank you, my friend. To everybody else thanks for joining in this week. Next week we have co- CEO of Carlyle Group Glenn Youngkin joining us so I hope you'll be able to find some time to tune back in. Jay, thanks again, and have a great day.

JC: Thanks Willy. Thanks everybody. Take care.

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