EP275 - Mickey Drexler on DTC
Mickey Drexler is the former CEO of Ann Taylor, The Gap, J. Crew, and is a former board member of Apple and Warby Parker. He is currently the CEO of Alex Mill, a digitally native vertical brand, founded by his son Alex Drexler.
He has been dubbed the “Merchant Prince” for his successful turn around of Ann Taylor, and his dramatic transformation of The Gap.
In this broad ranging interview, we cover his distinguished career, his opinion about the recent direct to consumer trends, and much more. The interview is full of juicy tidbits including:
Episode 275 of the Jason & Scot show was recorded on Wednesday September 8th, 2021.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scot show this is episode 275 being recorded on Wednesday September 8th 2021 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:39] Hey Jason and welcome back Jason and Scot show listeners.
Jason last week we did a deep dive into the Warby Parker and all boobs s-1 filings which was a lot of fun and we got a lot of really good conversation out there with listeners talking about digitally native vertical Brands and we thought
you know who could we bring on that keep this conversation going who has experience with wholesale Brands retailers
in a vertically integrated d2c brand I’m pretty sure there’s only one person in our industry that checks all those boxes and it is industry luminary Mickey Drexler we are very excited to have Mickey on the show Welcome Mickey.
[1:19] Thank you for having me and I’m excited to be here.
[1:23] Oh my gosh Mickey we are we are thrilled to chat with you
I’m eager to get into all the juicy topics going on in the industry and kind of cover your background but we have to start with the most important thing first and you may not know this Mickey but Scott
as very successful in the e-commerce industry and he’s invested a lot of his earnings from that industry into the car wash industry and.
The reason I bring this up is because you you have famously been on the TV Show Breaking Bad.
And I think that Scott is basically the plot for Breaking Bad is that.
[2:05] Yeah I’m sitting on pallets of cash right now.
[2:08] One of the highlights of my life nine takes but it was really a lot of fun and I love that show.
[2:17] It is a it is a great one.
[2:19] One of the best shows on TV.
Yeah so yeah we could probably do a whole show about breaking bad which I’m going to resist the temptation so,
Mickey normally we start up the show by letting the guest kind of tell us a little bit about their background that could be tricky in your case because a lot of us orders
probably know some of the highlights of your background and your backgrounds amazing but like
when you meet someone that doesn’t know you like how do you describe your career.
[2:50] Well I say I’m a retailer and I leave it at that,
no reason to go further sometimes people after the fact say gee I didn’t know you are who you are and cetera but if they want to know then maybe answer some specific questions,
but I don’t give them my resume.
[3:16] Nice well for the sake of our listeners I am going to break it down a little bit although I appreciate the the humility of it and
you you tell me if I have a ride but like
you grew up in the Northeast and and started your career in the apparel industry so you work for a bunch of storied apparel retailers Abrams and Strauss Macy’s Bloomingdale’s
and if I ever write your first big job that I don’t think that many people remember is you were the CEO at Ann Taylor.
[3:51] Yes by the way the Northeast means the Bronx to move is that was very special in my life so that’s who I grew up.
And my first after the three I had joined say Bloomingdale’s then briefly Macy’s,
Then I then I decided I did not want to work in the department store business anymore and I was fortunate enough to,
become CEO banjo which is a tiny company losing a lot of money owned by a larger company that happened on Brooks Brothers and probably never heard of the other companies who spoke to March around anymore,
and I did that for four years and we were then taken over by big bureaucratic department store,
and I decided I was never more disappointed at that point in my life I was a pretty young guy,
and I wanted to leave because they didn’t appreciate the business we were in it was all about bureaucracy was Alex Stewart.
Who then eventually like to play towards I’m not sure who they bought but so I left I left a mess a mess I left it in Taylor.
And moved to Gap in San Francisco.
[5:14] Yep and then for other young kids listening to the podcast Gap is going to sound like this famous iconic brand but when you joined in the late 80s
um they haven’t may be achieved all of their success yet and so like,
frankly you you are traded in for being that the CEO that led this,
enormous expansion and growth both financially and in terms of popular awareness of the Gap and I want to say you,
you watched a couple of the Gap Brands like Old Navy and Gap Kids and somewhat relevant to the conversations we have on this show a lot I think
you made a pretty significant decision to take Gap from being a wholesaler that sold a fair amount of other people’s Goods
to a vertically integrated brand that primarily focused on making your own goods and selling them direct to Consumers through your stores do I have that right.
[6:09] Yeah yeah correct I joined Gap you don’t mind if I correct details I join Gap,
at the end of 1983,
which is then it started as a hundred percent Levi’s company they only bought from Levi’s and then when I got there was about one-third of their business was Levi’s,
and long story short,
I learned in my retail life than especially having worked alongside Brooks Brothers which was at the beginning of the decline Franklin,
in the mid-80s but they were they own their label and they didn’t sell wholesale them,
and they did not have to worry about competitors etc etc and going on sale.
[7:05] They also with the highest profit company in a relatively small conglomerate of retailers and the reason was their margins were very high.
Because again they weren’t dealing with competitive sales my department store experience was the opposite,
if you’re in buying wholesale someone else will put the goods on sale and of course today you know 30 years later plus it’s the standard.
[7:35] And so I decided when I got to Ann Taylor.
[7:39] To own our own label over time I didn’t want to deal with competitors who have the same Goods as we did and we did,
to consumer or whatever you call it today and that was in 1980 1980,
1970 actually 74 5 trans legally 1980 exactly I joined them in 1980 so when I hear about direct-to-consumer today being the new heart area,
it’s been there has been a number of your few of us who did it,
and through a profit point of view it was the only way I wanted to go not want to buy wholesale we,
leave ours ironically after nearer to kick this out because they said we were copying them I’ll never forget the lunch was a long boring lunch in San Francisco,
and I said after I said they should have told us that right at the beginning so we didn’t have to go through this long boring lunch when they when they then said would not sell you anymore well frankly I didn’t really care and when you have news like that,
you figure it out better than you don’t have these like,
so we stopped being buying wholesale from Levi’s and great brand virus they were no hugely monstrous plan,
and we did it on their own but that was fine and that’s how it began.
[9:08] That’s amazing and I’m totally with you it’s I talked to all these young entrepreneurs that just started a new direct to Consumer brand and many of them are under the misguided impression that it’s a new business model that they just invented.
[9:21] I know well there’s a few of us then and now there are many many of us,
but it is what it was it was not where you could build a business and wake up in the morning and control,
your inventory and your prices when I joined the apple board in,
I think years later in 1999 Steve Jobs basically felt that’s what he wanted to do with apple that was his first year there.
And he wanted to go direct and of course she did continue doing business with Walmart and Target and all that but he became.
probably the greatest retailer ever and but you know it’s a standard today and there’s nothing new about it in fact it’s old and it is what it is.
[10:18] Yeah no I tease people that the very first merchants of all times I you know made their own rugs and sold them direct to Consumer so that’s that was the first Model like wholesale
is the newer the newer model.
And so I do so then the next chapter is going to be J.Crew and we’re going to go back and talk about some of the interesting issues that you confronted in some of these places but I do want to just highlight,
I assume you still follow the Gap the,
I would check out because it seems like you took them predominantly Direct in a lot of their news lately I don’t know you fought it but
they have a partnership with Walmart for their home goods and I just saw something today that they announced that they’re going to distribute Athleta which is there
they’re their work out a pair of brand on this doing really well through REI so it’s almost like they’re it’s interesting that they’re now adding some wholesale back to their mix.
[11:13] Yep well each company is entitled to you know they all have a point of view they have a vision and I think that’s what there is is can argue with it.
[11:24] Yeah no and obviously pros and cons to all of these so then you left the Gap was it around 2000 2002 something like that.
[11:33] Yes I think I left in I think 2001 yeah yeah they say I think I left in 2001,
in fact September 26 to be exact.
2001 and I started at J.Crew who’s counting January I think 25th or something in 2002.
[11:58] Awesome and what was the circumstances that J.Crew when you started.
[12:03] Well it was a mess a complete mess by the way I know you mentioned this but I started Old Navy I do it you probably know that story right.
[12:16] No no tell us.
[12:18] Well it’s an interesting story there’s an article in the New York Times page 4 5.
In terms of some some things I never forgot that like that and I read about Target Corporation then known as they Hudson starting a company to copy the gap.
And what do you do when someone wants to copy you get emotional you get crazy and then you fly to Minneapolis to the Mall of America and say okay I want to see what it looks like.
And I walked in on you say probably four minutes and I said this is way way off so I was relieved,
because to me everyone would sewing machine is your competitor potential,
I walked out and said you know is a big research company you know they I know they do a lot of research very successful and today more than ever,
stopping Chicago on the way back to San Francisco I visited.
Two stores demographics would be a price point below where Gap trailer very few me we were very much.
[13:29] Not expecting,
and I spoke to the store managers which you have to do in this world today you speak to who deals with customers it’s like I’ve always done that it’s my rule in any case they taught me a lot of lessons,
Gap was too expensive for this area things are always on sale and I knew that I pick those tubes that low-margin stores,
long story short got flew to San Francisco thinking about that,
check the jeans Business 80 percent of genes in America than was sold 25 years ago sold below $30 a hundred percent of our genes are above 30 dollars,
so I say this is not this is not a stupid idea,
for them because we are considered a little more expensive I gave 10 of our Associates,
then two hundred dollars each I assign.
Them to shop certain categories: Target Walmart then you came on versions and come back.
[14:39] Let’s discuss it in one week they all came back bottom line is,
they care about product they carry about price they couldn’t care less if it ended 99 Cents 87 cents as Walmart used to do,
etcetera and and right after that meeting I just said we’re going to do it we’re going to open up,
our version of it was called everyday hero,
and a few people from Jenny mean who worked at Marvin’s was running for the gap,
Jeff Eiffel we moved over we started with a small group to do what was then had no name.
[15:23] And Don Fisher was always you know he was always pretty open about entrepreneurial stuff and I said was starting his company we didn’t have a name long story short,
I couldn’t come up with the name I was in Paris going to the airport and I see a bar on Rue Saint Germain called Old Navy.
And I said to Maggie who was with me marketing I think what a great name for a company,
registered the next day in America no one had it and that was the name now of course my board didn’t really like name you know but to me your name your kids you’re not going to have a negotiation over what you name them,
we have a negotiation I hard to naming companies that have with horrible names and later on I’ll tell you how we got the Old Navy from olden days,
and that was the beginning first store open whole Gap Warehouse only had three names and I said,
we do this and we have no gaps in five years so then the next door is called Old Navy and that’s how we started today it’s about probably 80 and 90% of the earnings of the Gap Corporation I’m guessing.
But tremendously successful.
[16:38] Yeah that has been the tide that has lifted all the the Gap boats for a while.
And yeah that that is amazing you raise something that I have to ask though because it comes up a lot
I work with a lot of Brands and these days I spend a lot of time cautioning them
about how good the retailers are becoming it inventing their own Brands and and their first reaction is always the same is your trip to Minneapolis like you know targets not very good at this I’m not very worried right,
and I think that was absolutely true back then and in many categories it still is true but I would argue that in some categories,
and Target more so than most is getting darn good at this and you look today at like
cat and Jack and they’re very successfully competing with with Baby Gap and and you know sort of traditional brands.
[17:30] Hundred hundred percent I totally agree but you know what you’re good at and the products right.
And I think their inspiration I was told was the crew cuts I don’t know if that’s true or not I’m not the kids business anymore and I don’t pay attention,
but absolutely true look if it’s a vision,
and and the product is right and I always say the product has to be right and in their case you know the price is right well the past its product,
quality of product value and that’s by the way we did oh maybe that’s the story in any business right product right value.
Right marketing and emotional connection to it and then we had operated retail.
And the style and taste is all for us it’s very important.
[18:23] So then we mentioned that you you started that that January a J.Crew which was a mess at the time,
and I want to say one of the things you did for J.Crew kind of mirroring the Old Navy story is launched the Madewell brand there.
[18:41] Well I did that before I join J.Crew.
I bought the name Madewell from a fellow named David Mullen who was it really nice company,
hear that David used to work with me in wash it was a wash consult very talented guy showed me the name before I went to J.Crew,
I love the longer it’s very hard to name a company and the name immediately resonated with me,
and I should Wanted You by Sly can’t afford it,
and so I paid $125,000 for the name which you know once you finish with those naming companies which I wouldn’t want to do they’ll charge you a million dollars will come up and bad names no offense the main companies.
But but I thought the name 1937 already it had history it had a feeling it had emotion so I bought the name and tucked it away,
and when we went public when we turn Jake you around,
see I was there to about three or four years to you actually turn around always starts a year and a half later and that’s three years later or whenever I thought it was time to start me.
[20:04] So that’s what we start the username and that was unlike every day unlike the everyday hero.
Target this was a this was more complicated because the Old Navy was price point or two or three below gas.
[20:25] This one and I might say was the first company to get to a billion dollars in sales as fast as they did until Apple get there.
So it took off like a rocket at Old Navy like a rock it was really a very nice toy and maybe well was much more difficult,
we took it we had a number of different people leading it,
and we just couldn’t get it going the right way I made a number of mistakes in opening up.
Bedroom state which knows things it was real estate wasn’t on Vine and that didn’t work,
we just didn’t get our act together for at least four years in five years,
and I was really upset because I said you know this is taking away from the value of our public company so we must 15 and 20 million dollars a year which I think we were maybe 15 million a year,
you know you take the multiple of the stock and all the sudden you know the company’s worth three hundred million dollars less because we’re starting made well,
so that kind of aggravated me couldn’t get rid of that aggravation way things are but then some set.
[21:43] I came back to the corporation he left for you or two and he was putting to be in charge of.
Male and he did an incredible job and so he and I work very closely together.
And I always merchandising Missouri involved.
[22:06] And he did the design and he had a vision for design I had a vision well the storefront,
it was kind of a I was always inspired by I think they’re still around but I’m not sure a bread bread store in the village called the suvi oh maybe,
I don’t know if it’s still there to be the bakery yes I always loved the way the storm was so we designed a store.
I kind of felt like a see it was the studio I’m just actually look at a picture again we fun and we built a really I was really pleased with the store but I was not pleased with how the business was going,
and some sack pinion looking at the storefront now online beautiful store and it’s beautiful store goal,
and then when he came in the rest then this is starting to take off like a rocket plus woman named Mary.
Who was jeans made merry new Mary knew more veggies.
[23:19] And she joined us from Jay Vernon and Mary came in.
Thanks Gary Pierson and she and some set and it takes people to do it we put together we became a major genes,
that was our vision the best kind of jeans that not crazy designer prices and the company took off also at some point like a lock.
And that was the story of Nemo.
And you know all the retail to be all the over companies to Fashion they hit a wall at times and then they come back or they don’t come back,
and hitting a wall is part of what goes on every company I’ve been involved as hit a wall at some point it’s a wall in any me to save it and bring it back or it or it continues to have a hard time.
[24:17] For sure the side note another company hit a wall sadly was Vesuvio which is a hundred year old Bakery in SoHo I have some good news bad news they had a Hiatus and they reopened in like
20/20 so the last
and I was is in SoHo they were they were open I had not heard what has happened since the pandemic and I can imagine it wasn’t a great time for them so I hope they’re doing well.
[24:43] We’ll check it out and we’ll let you know that’s cool.
[24:47] Awesome so then I do want to kind of just wrap up the clear stuff and then we’re going to dive in a little deeper on a few of the things that we’ve already talked about but so today you are Alex Mill and do you want to tell us a little bit about Alex.
[25:01] Yeah sure Alex my son or Alex.
[25:03] We’re both I was waiting for you to tell that yes.
[25:08] Well my son started the business in 2005 13,
and he just started I was very involved and I pretty much had nothing to do with it at all which he reminded me when I started here,
he says you know you don’t even wear our t-shirts which were famous for.
And he was right I just didn’t pay any attention and I probably should have but he didn’t ask me really and he was a wholesale come.
And we do business it was kind of cool we had a little bit of a cult following and and I’m allergic to high prices which really gets translated as too bad value,
you know I don’t mind high prices in certain categories or where you get what you pay for for a you know the prices are ridiculous but you might learn from his luggage or whatever from a mess,
but we designer clothes in general so he went along I went along he.
[26:18] When I left J.Crew I didn’t think anything about his business but when some stack.
Who is he quit he had a non-compete and I was his age.
So we need help I hope to get jobs in the industry part-time jobs freelance because he walked away from a very very big job,
and so the day his non-compete was up,
I that was the day he was a beginning of a new Alex will be in some segments and do each other,
and Alex was very happy that he would find some partner and some seconds considered the founder of the company he’s a major shareholder long of Alex and myself,
and he joined us.
[27:16] And then I was very happy kind of had a job again because I was doing stuff but not doing what I love to do which is be involved in building a company Vision etcetera,
so I joined I think it was about two and a half years ago I’m not even sure the day.
And we had a little tiny office which I’m now we doubled the space instead,
that we start to build a business and we had a vision and a woman’s and Alex and I at the beginning or I would say it wasn’t a marriage made in heaven,
it’s the it’s the come one since when and it took a lot of work and a lot of a lot of help.
And we finally listening I’m going to say that he’s going to listening to his mother my wife about making certain that he and I get along and I did that with him,
it was like another else conversation and it’s been really really nice over the last number of months but it’s hard.
To be with your dad and I was trying to figure out is he.
Someone I work with or is he my son and it’s extremely difficult and he kept dealing with me as whatever I done.
[28:40] And so now he’s you know he’s a partner along with some set and and Hussein.
And we hired a team and it’s very hard to start a company I had the bank of Gap in the Bank of J.Crew in my other two startups now I didn’t have their back.
And so we funded us elves which in a way is really good I also do want to have for the first time in my life.
Too many opinions that weren’t right and that was a blessing even though you know I’m doing this for a million years,
if we’re right we’re right if we’re wrong way wrong but my best board members were always people I knew anyway not necessarily on the board.
But when you have a money partner which I certainly did they think about profits they think which is nothing wrong with it but,
take its long-term to build a profitable company,
and when you have hit a wall you succeed if you’re good at it I always had a kind of ability to.
Knock down and I just get right back up and I don’t stop.
[30:00] But some cases that doesn’t happen but here we are independent Leo and not negotiating colors or Styles or what someone else thinks we should do.
We’re expanding in the business is starting to really kind of take off now so I’m really excited I’ve always been excited.
It’s about the taste quality I look at the landscape out there.
And I think this is not a lot of things going on that I feel or what I would say are incredibly impressive there are those winners,
and you all know who they are so what I’m hearing so I think we’re all excited but small you know.
But that’s small anymore 20 people work there and we all have like multiple jobs which is good I’ve say snorts growing pretty rapidly,
so and you know that’s our mission.
[31:03] My I have a some great empathy for your son Alex I’m a fourth-generation retailer and I think I can imagine poor Alex just wanted his famous dad to wear his t-shirts and he got an activist investor instead.
[31:15] What your fourth generation retailer.
[31:19] Yeah yeah my family sort of started out in the in the grocery and then later jewelry business,
I did want to highlight you’ve referenced it a couple times that you’re also you had a long stint on the board at Apple and I want to say I’ve been,
worked with Ron Johnson the number of times and I’ve seen some interviews with Steve Jobs and in both cases they reference you as the the retail Savvy board member and Apple.
[31:46] I met Steve in I loved Steve idolized ski and I still love him to this day,
he was extraordinary and I give very slowly thinking about the way he died went through,
and to excuse me per.
Steve we met what he wants he gets when he doesn’t stop at anything the most seductive human being I’ve ever met in my life,
we met at a mutual friend’s birthday party in Napa Valley came up to me and we start the shoes and,
you don’t say what’s the job so long Steve you know a niche wasn’t and we’re talking and he.
[32:32] Got in touch with me after that asked if I would join this board,
and I said no I don’t like public companies now I took my schmuck anti schmuck pills after the okay,
because hello is that a bad word to say she’s no and I realized holy shit,
and I just you know I was yeah I was on a board you know bless them family board,
in other words and items on a number of other boards and I get bored very quickly on boards because that’s the way I am and I need to be action busy,
and I’m not a technologist I don’t know much about it but.
So a year later he came to me after becoming come to me and said you join my board I will join Apples by Gap store,
well Steve hate Sports also,
but he and I said deal why because God will he be amazing on the board,
just as a factor of not going along with everything already.
[33:50] And he became a pain in the ass to the number of people who isn’t always on Tiny going and what’s up this kind of but he privately we had a really nice strong relationship.
And she joined the board I would say made a few enemies on the board because he whatever he thinks he says that’s it he says.
And and sometimes he says it doesn’t make people happy so so that’s essentially what happened so in any case I join these board.
And first thing he wanted me to do was to design a store.
[34:31] And we had a really bad looking store and that he designed and then we got a warehouse which we used to do with my old company,
and we got a warehouse you designed a brand new store in the warehouse p.m. for 5,000 square feet and.
The store was really good-looking that’s basically what happens students are today simple it showed off the price.
And it wasn’t a story that was czechia where the product was competing with the design and that was our first Apple Store,
and then after that I just you know he asked me about color of iPods he always want to review the colors Etc.
You know it’s like you’re 16 years and lives through extraordinary success and you know appreciate it I don’t know you and appreciate it well he was alive and well.
But just I just always you know he went to the meetings he started every single meeting for it spent most of his time on the.
[35:46] And you don’t find that many people and many companies they spend most of their time necessary not on product that was steamed on product,
things tough he was titled in an infant in a good way in my mind you know Obama didn’t call him back,
one morning he wanted to President Obama to launch the first iPhone he was Furious Obama didn’t get that I’ll never forget that,
he says how do you not call me back like this light in four hours Al Gore was on the boy houses Steve I’ll get him to call you back whatever.
[36:24] You know Obama told and back when you had a minute came back and says he’s going to launch the iPhone pushing never did but that’s what Steve wanted to believe anyway amazing amazing run,
an amazing person he and Johnny I everyday had lunch and every day was you know what’s the future going to hold.
For apple and he the other thing he did,
is he kind of made me for sure and numbers feel stupid at the end of a board meeting I wasn’t in technology guys sometimes I’d say something that you look the righteousness gee how can I say that,
and then you can bury yourself and say oh I don’t want to disappoint Steve yeah but he was to me was a special unique gift to the world.
And I miss him and I think the world misses in today.
because I’m the entrepreneur on the program Jason has a fancy corporate job and a title that has more words that I can keep track of the so you’ve been a successful entrepreneur for decades what advice would you give to an aspiring entrepreneur listening to the show like what are,
distill down some of the things you’ve learned through there.
[37:36] I was explaining to him that every single day this we haven’t really nice marketing business we do well but every day I come to work.
And I reach for the sky.
[37:52] And I’m trying to explain that no matter what we’re doing oh he also time says I’m too critical of things or people or whatever and I said you know Alex everyday.
I come to work I said every day you come to work I come to work and I look for what.
Could be better not for what you write and I think a lot of people have a hard time with that vision is,
where you going how you get there with the unknowns is critical,
so people say well how do you do this that and the other thing and I said I had a photograph of what Gap should be I didn’t in Maine.
I didn’t J.Crew and I actually I did yet in J.Crew and I didn’t Old Navy and I didn’t so I had a photograph in my mind we get sale in one Business book.
Because it was actually misses you by I had to do with those.
[38:56] That didn’t work but yet not them to get up into the skill set whose huge toes.
What you need to do and I can’t speak about Instinct in other areas but I think Instinct judgment.
Seeing around corners where they say skate to where the puck is going.
Is extremely important in the fashion business and knowing when to go knowing when to stop when things slow down extremely.
[39:30] Picking the right team is something rules that rules but got to pick the right partners and when you make a mistake in a partnership and so many of us don’t do this for cleanup face up to you but.
[39:46] And do something of that.
You know and the bigger companies are no longer into the smaller company like this.
About your all living together and it doesn’t take long and when you’re writing your own checks,
that’s a big difference when you’re writing your own checks which I know most people probably don’t have the ability to do,
it’s very different than the private Equity the joint venture etc etc but he country each business,
as if you own it it’s your money in and that’s part of it and then you know we will passion,
I say leadership curiosity I think anyone was not curious in my mind can’t do well running a company,
they have to be curious unless it’s look like you speak about technology I just assumed the same rules.
But building a retail company it’s kind of like painting a very beautiful picture as to what we’ll stick together you know I once went twice went to visit Ford motor.
[41:01] Headquarters and the first time I got was because Anna meaning with Jeff Sons yeah.
Surrender they show the new Mustang this is probably seven.
The co-host and I said he says what do you think of the car in front of all these people I said it’s a very cool looking car.
[41:26] The wheels are really big and I would never want to Market or sell a car for have one myself with a wheels are bad,
I know it’s kind of silly ish but it’s not it’s putting together a painting and there’s nothing worse,
there are worse things in wheels that stand out like a sore thumb so he invited me to,
Detroit with designer factors Co didn’t go with me which I thought says.
He’s no one not because of Nations and it was seven people designing the one car.
Now you understand why the cars a lot of cases look like they look.
Steve always wanted to talk he would have done now they were to get when I he was he was fascinated with Tesla very impressed night,
from his point of view it wasn’t I said I know if you remember the to see your test sports car.
[42:28] Register yeah.
[42:29] I said Steve it’s such an ugly looking Paris looks to me like you are pathetic it’s not about the course looks you can always design a beautiful car it’s about what’s inside.
Mechanics engineering but anyway I think.
You know as for me I’m accused of being a micromanager you really better be,
you better care about the wheels better care about this hear about that Medicare by recalling about he just you know we have a few new bad colors in Arabic in Arabic.
The color is of opinion L and if you buy three good colors and then two bad ones you don’t morejon out on the product because you have bad colors which I don’t think people pay enough attention to.
And I could know what I’m trying to think what else to go on.
[43:23] You know I know we’re running up on time but just quickly
quickly so you you kind of were very early on what this kind of direct to Consumer now there’s this whole digitally native vertical brand what what do you think’s driving that Trend and where do you think it goes.
[43:39] Yeah I think it continues to go because if you’re buying wholesale you know the pricing is all off.
And I saw that when I was you know young guy you know like when I was at Bloomingdales I was 23.
Alexander’s department store maybe Fourth Generation member states they I was a swimsuit sweater and t-shirt.
And everything else I wasn’t I didn’t do that for terribly wrong but for the year I was in there you are Alexander’s cut their prices.
In the middle of June and I’ll never forget I had a couple my prices we had a policy to meet price.
Young kid in the business and I was Furious Alexander’s just here and now my my profits and margins.
Then what to help.
Because I hadn’t worked out on my bathing suits that was a stupid rule but it wasn’t a bad I kind of like the idea of Crisis competitors that was the beginning,
what’s happened to the last 30 or 40 years T.J.Maxx the most important department store.
[44:58] And you know the word stimuli,
we have all the discounts that and you go online and you we had a big discussion here yesterday you said well we sell this to Nordstrom Rack and he said well if it was an existing item,
we want think if it isn’t bad covers and they said you can’t miss anything going to go online,
given a look for this island yes my little bit Nordstrom Rack will whoever Valance T.J.Maxx before you see Alex Mill so the pricing.
Is critical so white and a lot of what I did was also because who I always admired Ralph Lauren Bailey – pricing and I know all these things cost and so I said we can put together.
A design team that will hopefully be as good as a design team ourselves if we do that I say I don’t I don’t want to have another problem.
[45:59] So the prophets were always all the retailers are inflated in America in Goods that are wholesale purchases,
because it is plant safety and cost,
and here we might sell 250 you spend fifty yourself Bloomingdale’s 425 and hundred twenty-five goes to 275 or $300 is the difference.
In pricing so TJ Max knows that really long Ross stores.
Everyone knows it and and I think that’s why I don’t think there’s a future to be in that business.
And I sit to the parks to excited family with a lot and probably not have to hear this but.
[46:46] Yeah no department stores listen to our show I promise I’m.
[46:52] So I said I really don’t want to see I said where you going to be in five years or ten years if everything you bought.
Is available at a discount and that’s the truth.
So and I have friends in the business they do hello mrs. with teaching marks they do with most of the partner stories and what does that leave you and Caroline Woods is a great coach.
And really smart nice person but what is forty fifty sixty billion dollars huge profits so,
and really big believer must now this is where I’m standing in the luxury business is not.
We have they probably can do it now via makes does.
They do with brilliantly I guess the other one you know they have they can probably do it who’s those customers probably like it exclusivity they like paying more money and so on and so forth but it works through that I think it does,
so so I know if I knew the answer to that question with that pricing thing is huge.
[48:06] No it’s a it’s a big issue for the industry to figure out and people that don’t are going to.
Have it have a challenging future I think as you’ve highlighted I did want to ask you a question so,
if anyone Google’s Mickey Drexler your you’re gonna find all these business articles with your picture on the cover and some variation of this title that we’ve all given you the merchant Prince
um and that the kind of just I hope you’re okay with it seems like you get that title whether you want it or not.
The gist of all those is that man,
Mickey had a really good run of picking a lot more winners than losers of therefore it having the the products that that consumers wanted and you know they’re there for
achieving a bunch of financial success for your various businesses and I’ve always wanted to ask you,
is in your mind is that success as a merchant is that we’re you better than other people at,
identifying the trends that were emerging in what people wanted or were you better at getting people to want what what you liked.
[49:19] I think it’s a little box I think our industry is lacking.
Merchants today as much as I’ve seen over the last many many decades.
I don’t know what it is but I think you have a sense of seeing around corners you must see around the corners,
I believe except if you’re a seller if you’re a Discounter and you’re good at it you don’t have to see around the corners just have to Source right,
and I have the right price and have a great way to view or but those businesses are out there I don’t really know them well.
But that’s important in most business not enough you know,
worthy I think mostly eyeglasses they sell what’s true of all of us most of what we sell,
are what we would call her oh it items iconic but you have to feel it you have to see it.
You have to have an inch and in the instinct is incredibly.
[50:39] I think I was talking to a friend yesterday and he said in his 15 year old is now color rather than know what need p is.
The expanse was something I said you know it’s interesting I said to Henry I said do,
is there anyone in your family who is musical I always ask someone that question whoever I interview,
and sure enough Henry’s wife plays very good these though and Henry was a musician.
[51:13] Growing up.
And now here’s their son they are very talented musician artist creative there’s always some kind of.
DNA is connection is fine and it always also depends on who works I was very lucky,
I started working for a woman named King Marcin I didn’t work for she’s the best Fortune taste Isle and when I got to Bloomingdale’s like this young.
[51:42] And I was after the first day in the house was checking on what they gave me a department to run,
Stand start that’s it you’re the buyer one department and Katie Mercy was my mentors go off to Europe together factories and I guess I learned from her,
and she the best merchants in the company if she wasn’t a woman she’s Co she was fantastic but there is something you get.
Fun styling taste that you were born with and I think that’s true in stinking with anything in the world.
Tonight and it’s not a scientific illusion but I everyone I interview I kind of want to know what their parents did.
[52:30] For what this family that might have been a grandfather and a lot of especially creative it.
So so I think that’s really important the other part of the question is mostly was what you’re going with and then creating your maker,
well there’s a lot of things under the radar and if you go after it you create demand for the people just don’t expose it so we have recording a items we bring in,
old mr. white we doing that way of doing this and they take off like crazy because someone wanted.
And understanding what someone might want and Steve Jobs has tasks.
[53:17] Is all part of the skill set with meeting.
I’m not too bad Commodities during this price I thought would worry Parker bids was absolutely brilliant at figuring.
What’s out there with the stylish kind of cool pumping where people are going to pay $95 for their eyeglasses the only thing I say that Neil and Davis I think we need to at times.
Balance or if you read Tales they could probably leave me come to my newest company of record I said I think you can have one more fun and I prices and however Orange.
But the most important so then just like friends but no I think you you kind of born I see,
I see him every time you sit down and look at it woman and she gets it it’s in her blood why she has.
And she’s had a chief Merchant and see something and feels it and knows it and you know and then you have to be go to the message you’re not quitting.
[54:23] You have to know numbers you have to get Four Kings you have to figure out how long it’ll be around you know has has everything.
To the end of the numbers of databases we’ve been doing data since with 23 years old,
whatever you always needed you need to know how much to buy anything happens to the forecast and you need to know how many sizes you do but now they have another fancy name for it.
Act like merchandising second you’re not going to succeed in affection.
[54:58] I think you just answered my next question but that’s like so obviously the traditional merchandising you have this science part which is the math and the forecasting and open a by and all that good stuff and you have the intuition which
like to a certain extent seems like a god-given talent the,
what’s interesting to me is lately some of these new companies that have been born and Amazon being a great example like they used to hire a lot of merchants in every category so that have a,
pet food buyer and you know and apparel buyer and a battery by or whatever they’ve kind of gotten rid of the merchant title and they’ve gone all-in on the data so they call it hands off the wheel and they let the computer decide what to buy,
instead of a merchant and I’ve told lesser extent I think Katrina it Stitch fix,
has that model a little where she uses data to inform her product a lot more and then you think of like she in and the Uber fast fashion space is,
is that a future Trend like do you see that mostly working for these discount categories is that.
[56:03] Well I think you can argue Amazon but you know I thought when when I was I thought Amazon should have purchased J.Crew.
I thought it would be really smart purchase they get a culture fashion and style.
I think they’d be dangerous if they could figure that out.
[56:30] And so we had someone approached them and of course it was done yeah not the personally I won’t be there.
I think that.
If you look you can’t even Stitch fix success but you cannot argue with kind of goods they sell if you.
I like what I do I love I love what I do and it’s about taste and style and if you do that for.
Many have a point of view you’ll probably do well so I need you to it is really good at the Bronx Science I couldn’t get arrested enhanced you G I was always really good,
I think you have to be good so I guess I do all the stuff they do I do.
We’re just hiring people do single stitch.
We haven’t been there but then again we are you know my choices to be the style formation with fun and emotion I give credit to any company.
Whatever they do is stand financially successful of your poems but I don’t know enough about Stitch fix lots of opportunities and Stitch fix.
[57:50] Chien have you follow them at all.
[57:52] Like they’re wildly successful I don’t follow them when it’s but you know.
[58:00] It seems like they’re a lot more about like plugging into all the social media you know like picking up the latest trends on on Instagram and Tick-Tock and things like that and then like you know super fast supply chain 2,
didn’t get those Trends in.
[58:16] Yeah and then again I care about quality and I care about all the stuff maybe bit different but if they’re really from Julia.
[58:25] It is it’s a Chinese company they don’t love for people to know that.
[58:29] Yeah well you know I wanted but sourcing their secretary like giveaway Price is Right.
[58:36] Yeah it’s super inexpensive like some people call it disposable fashion which is probably a.
[58:41] Yeah this is not what we want to do it’s a kid’s business on young business.
I don’t know we’ll see how I like you know my company’s that well so we’ll see.
[59:01] But but no I think the maths we really need a good mind and and for me I’m a huge micro.
I’m looking at.
Right now jumpsuit made dead which is brand-new and we’re going to sell a lot of it is you know we just put it it’s kind of comes naturally if you have the big jumps in the cellar.
And and so you know you always create but you’re not creating months Salem I just looked at.
[59:36] I’m just really upset I looked at it I see why did me five men were 87 and it’s $295 I said that’s important just came in yesterday to the bad mark.
And usually they can get away with doing that as a rebuttal so when you got it.
And right now syllables troops crossed because it’s not being self so you kind of get something you kind of knowing side and sort of okay.
It’s just bad news and it’s not us.
And you have to have a sense like covers the same thing most of them look alike so that the finger it comes.
I think it’s an offender brand new bottle and it’s made by making sure it’s a really good looking car and.
I looked at it I said I don’t want to renew pop color something that’s you know not everyone’s driving it’s a very good looking car and you can see it’s going to be a big guy.
Because it’s really designed well you know part talking about it over.
[1:00:48] No I’m trying to switch.
[1:00:50] It’s called The Defender I like your car like this.
Not to me but you work committee should whatever but you could see the second Network,
Tina news needles and I think it is I see a lot of them and cars used to be a lot more interesting design,
then they are too maybe it’s because is definitely people decide on here maybe it’s the vision see it’s hard to find cars and is Towing it.
You know you all have an interest in cars.
No we talked to what good looking car and not a lot of them are right so and I used to collect isn’t nice.
But but I kind of collecting child fantasize you’ve been having some cool cars but they are all kind of well design.
They were uniquely designed and today you know it’s a different world.
[1:01:52] Yeah no for sure and it’s it,
interesting there sort of both out there there’s you know people that you know still go for that unique distinctive looking care about the Aesthetics and there’s people that you know just want to take an Uber for,
for transportation so seems like a parallel is going in the same direction as that there’s you know strong stuff with a strong point of view and that’s that’s quality and unique and then you know there’s some people that you know just want,
affordable inexpensive sweatshirt.
[1:02:23] Sure was were those for sure but you know I like the integrity.
And not expensive I personally don’t like expensive too expensive you know I mean I know maybe this is for sure.
[1:02:43] Yeah well is it Mickey we could go on for hours but it has happened again we have used up all of our allotted time and I actually think.
[1:02:53] I’m having so much fun here guys.
[1:02:55] I know I know why we will record the Extended Cut and you and I can just keep chatting.
[1:03:02] Anytime seriously.
[1:03:04] You’re our new guest host you’re in.
[1:03:08] All right listen thanks a lot I appreciate the time and the questions and the schmoozing you know I do like two shoes so this is a great shoes.
[1:03:26] Never ever I was on that I was on Instagram for about a minute and I came off like I don’t want to forget.
[1:03:36] Okay well you if people want more you exclusively come to the Jason Scott show that’s where you’ll be going.
[1:03:42] We really appreciated the time and enjoyed chatting with you and until next time happy commercing.
EP274 - Warby Parker and AllBirds IPOs
Warby Parker and AllBirds filed their S-1 registrations with the SEC in preparation of making an initial public offering. In this episode we deep dive into all the information revealed in the fillings.
Episode 274 of the Jason & Scot show was recorded on Wednesday September 1st, 2021.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
[0:24] Welcome to the Jason and Scot show this is episode 274 being recorded on Wednesday September first 2021 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:40] Hey Jason and welcome back Jason and Scot show listeners Jason we have a lot of favorite things on this podcast but you know it’s even cooler than some fresh Amazon quarterly results hot new Gadget.
Even some exciting Star Wars news.
[0:55] No what’s God.
[0:57] A fresh delicious hot out of the oven S1 and you know it’s better than S1.
[1:02] I’m guessing to S ones.
[1:04] You are right that is right we have we’re very excited this week because not only do we have one s one but we have two s ones so I don’t know if that’s an S 1 squared or S2 or how we talked about that I guess 2’s ones,
and what’s really exciting is one of our favorite topics on the show is digitally native vertical brands also called dnv B’s and we have two of them that filed within a week of each other so that’s pretty exciting
so the two are Warby Parker
and allbirds and before we do a deep dive into those S ones and highlight some of the things that we found that were interesting for listeners I wanted to give everyone just kind of a reminder of a great way to read an s-1,
so an s-1 is.
[1:52] Haven’t haven’t done a gone public before it’s kind of like a sandwich so you have three parts you have this kind of first part where there’s all this introductory stuff
and you’re kind of like CIA in that part
and then you get into the delicious sandwich part of the the meat and potatoes of this one which is commonly called management discussion and Analysis they called em DNA
that’s the best part because really management actually writes that now they have a lot of guidance from lawyers and investment bankers and PR firm in all this Jazz but it’s really most of the times it is the founders you know
putting pen to paper and describing the business and their words
then after that you have the lawyers kick in and then you have a pretty good chunk of risk factors and then the accountants kick in and you’ve got your your
your Gap financials and all that stuff and all that’s interesting but if you’re going to I always start a nest one from the middle out so I like to read that mdna first because it’s the best way to hear about the company from the founders.
[2:54] Now Warren Buffett and his Charlie Munger they always kind of
famously start at the back of this one and they like to start at the audited financials and that’s kind of how they look at a business and that’s important but especially for these I think it’s pretty interesting because you know it
tells us why the founders do this dnv be thing how’s it going how do they think about their business what are the key metrics they’re looking at inside of there and I think that’s particularly relevant
for listeners of this show because you can learn a lot you know these businesses may be there ahead of you or behind you and your scale but it I always learned a ton about.
[3:34] You know what other operators are doing and thinking about their business and you pick up a lot of interesting new tidbits there may be things you like and don’t like that you can add to your repertoire.
Jason how do you how do you peel into a delicious yummy new S1.
[3:49] Yeah well I mostly take your advice that I guess to two alternative views is just skip the s-1 entirely and wait for the retail Roadshow and so you can kind of watch a movie instead of have to do all this math and read.
[4:02] Yeah I like the retail Roadshow too but sadly it comes weeks after this one so this one is like an appetizer before you get to the movie.
[4:10] Yeah and II may be uniquely odd in this regard but I do find it amusing and humorous to read the risk factors.
I know they have nothing to do with the business and weren’t written by anyone that has anything to do with the business but I feel like.
They’re increasingly more creative in the voluminous wig west of apocalypses that could.
Could strike the Earth and I want to say like of the hundred seventy one page Warby Parker S1 about a hundred pages of it is the risk factors.
yeah and I mean it is fun to read but you’re taking the right approach at it what drives me crazy is actually went through and looked at a bunch of the headlines for both these companies and I would say about 1/3 to 25 percent of the.
Press that covers you things you know to be and I don’t know if this is just lack of understanding or clickbait or some combination of those things but they always pull out the risk factors so you’ll see you know allbirds is worried about Nike as a competitor
and you know and then you’re like
what did they read about that and they’ve just pulled out a the competitor list of the risk factors well the lawyers are saying you know if anyone has ever sold a shoe put them in the risk factors you know it’s not like
it’s not like the founders in their own words are staying up late at night worried about Nike but maybe they are but.
Most of that stuff is not the founders words it’s lawyers kind of saying you know here’s a checklist list everyone that you’ve ever think you thought you’ve competed with now that’s their guidance.
[5:42] Yeah I mean the list of competitors isn’t remotely shocking it’s more of the zombie apocalypse that makes me chuckle.
[5:48] Yeah and now there’s all these,
yes every time new legislation comes out you have to add a risk factors know it’s like you know GDP our cyber security we use cloud computing that could go down we
it’s kind of like you have to think of everything that’s ever happened and you want to cover it so that if you do get sued you can say well it was a risk factor you should have known we warned you.
Cool so we flipped a coin and you are going to kick us off with a deep dive into or be.
[6:21] Yeah yeah so we’ll jump right into it and we’ll start with some of the financial metrics per your point is pretty interesting because these are.
Private companies they don’t necessarily disclose a lot of this and so you kind of go from like a
pretty vague view of these companies to a pretty detailed View and if you’re some other DMV be that still private like there’s great benchmarking data in here so Warby Parker.
[6:48] 20/20 in this is all complicated because of course 2020 was an anomalous year 2020 revenue for Warby Parker was just under 400 million in sales so 393 million and
kind of to give you a progression they were 272 million in 2018 then they jumped up,
370 million in 2019 and then you know a much smaller jump up to three hundred and ninety-three million in 2020.
The more eye-popping number is they have six months of data from 20 21 and they’re already at 270 million in 2021 so if you kind of compare first six months of this year to first six months of last year.
Last year there were 176 million this year there are 270 so they’re definitely seeing a nice clip of growth.
And obviously as you grow bigger you would hope that that scale would help you with profitability when you’re you know small and still you know in growth mode it’s sometimes hard to make a profit,
and in this case.
It doesn’t appear like they’ve achieved that escape velocity where they’re starting to turn a profit yet like the gross margins are.
[8:00] Are in a reasonable ballpark they’re pretty consistent in the kind of 658 to 60% range and so they are generating.
Net positive ebit has but they basically have had a net loss every year except 2019 when they broke even.
So what’s a little worrisome about that is.
[8:26] You know you like if you look at 2018 you said hey they sold 270 million and they lost 22 million on it in 2019 they sold 370 million and they broke even.
Like that’s looking like a pretty good Trend that scale starting to help them with their profitability but then in 2020 where they had a lot of extra costs from covid and as we’ll talk about in a bit they’re somewhat store.
They were even bigger 393 and they had their biggest loss ever 55 million,
and they’re doing better this year but they’re not on a path to profitability this year either so they’re the on the 270 million they’ve sold this year they’ve lost 7.3 million.
Um before I jump further does any of that financial news sort of surprise you at all Scott or does that.
[9:17] Now I have a different opinion but well we’re going to do a little kind of analysis again.
[9:22] I like it cliffhanger.
[9:23] Yeah yeah.
[9:24] So one of the interesting things well a all these digital native Brands you start off by like
generating some buzz and selling some stuff to people that are already friendly to you and it’s super easy sales and and cost to get those sales is very low but then pretty quickly all these companies go into digital advertising mode and they buy ads on Google and buy ads on.
[9:47] To grow quickly and the first ads they buy a relatively cheap because,
that they can you know Target a very specific audience and there aren’t a lot of other people buying that exact same audience so the,
the cost per ad is low and so the the customer acquisition cost can be pretty reasonable but as you get bigger.
[10:06] You have to buy a bigger chunk of audience from Facebook and more people are competing for that same audience and it’s a reverse auction so you have to pay the most to get the ad and so growing purely on this digital ad business.
Pretty challenging particularly when Google and Facebook are so good at optimizing the the the maximum cost per ad and so.
For almost every DMV be we’ve ever talked about they
they have trouble scaling and they almost always Implement some new tactics later in their evolution to kind of scale beyond the digital ad phase and so in war Beast Partners case they were one of the first retailers to say,
the MVPs to say hey we need to open a bunch of stores and stores can be really profitable billboard to help dramatically improve our customer acquisition costs so by 2018 they already had 88 stores,
and right now they have a hundred and twenty-six or a hundred forty five stores
so so they have a reasonable Fleet of stores that has grown pretty pretty quickly.
Obviously there’s a lot of extra costs for running those stores and obviously those stores didn’t do particularly well in covid.
[11:21] So some of the interesting things about the stores is that like in 2018 sixty percent of the revenue came from e-commerce
forty percent of the revenue came from retail about the same in 2019 but as they jumped up there store counts and 2020 that.
So in 2020 sixty percent of the revenue came from these retail stores 40 percent came from ecom’s so the store is really are becoming the primary acquisition Channel.
It’s super interesting to look at the.
[11:54] The unit economics of a customer how expensive it is to acquire a customer
how much money they make on each customer has sticky each customer is and different s ones you know give,
different granularity in case of Ori Parker they reported a customer acquisition cost so they said that in 2018 they spent $26 per customer to acquire customers.
In 2019 they said they spent $27 to acquire customers and in 2020 and the pandemic influenced year they had to spend more they spent $40 per customer to acquire customers now put a big Asterix on that there’s some controversy will get to in a minute but.
If you take those numbers on face value those are pretty darn good customer acquisition cost for this kind of business other.
[12:42] Kind of did you a native vertical brands that have have done it s one have disclosed some kind of eye-watering Lee expensive customer acquisition costs and so famously like Blue Apron was paying $400 a customer to acquire customers so so even $40 a customer
it’s pretty reasonable to kind of put that in perspective in 2020 they were getting about 218 dollars in sales per customer which is a little over two orders,
um so the the the unit economics are potentially viable.
Except for that sgna line and all the expensive advertising that they’re having to do which is ultimately driving that those those net losses.
So those were kind of my big.
[13:31] Takeaways and I alluded to a controversy friend of the show and former guests Dan McCarthy who’s a assistant professor Emery and one of the true gurus and in clv
he looked at this as one and at first he was like wow that’s a really good customer acquisition cost they should be commended and then he like started reading the fine print and
they’ve used a novel definition of customer acquisition costs they’ve divided all of their expenses by all of their customers and.
About sixty percent of their customers are returning customers so in theory.
You shouldn’t be dividing all of your digital marketing by your total number of active customers you should be dividing it by the new active customers and that’s kind of the traditional definition that Dan and most of the rest of the world use
we don’t know what that number is for Warby but it’s probably a lot higher than the.
Forty dollars that would be disclosed based on this kind of unique definition of customer acquisition costs.
[14:39] They did they kind of elaborate on that or.
[14:44] No they didn’t at all.
[14:45] And easier he just kind of picked it apart and like there was no.
[14:48] Yeah like they like there’s not enough data in the s-1 to try to estimate a.
Revised customer acquisition cost now what Dan has done in the past is he’s gone a hold of credit card panel data.
And kind of backed into like customer acquisition cost by looking at the the.
The spend from you know the from customers I haven’t you know I don’t know that he’s done that analysis yet for these guys are the even has access to the data to try but.
Yeah so at the moment we don’t know what their khakis I have to be honest you like even if.
You you kind of like double it because you say like oh they should have only been chart you know counting all these costs against the 40% new customers and not against the hundred percent active customers.
You’re still at like 80 dollars which is expensive you you can’t make money spending $80 for a customer that you only sell $180 to.
It’s still better than a lot of these other companies that we’ve looked at.
[15:58] The worse is Casper were the cactus a good couple hundred dollars higher than the mattress.
[16:04] Yeah and I would say.
Like these guys have about the most mature store model of any of these companies like Casper’s up there too but the next company will talk about allbirds has a lot less stores so,
you know if the opening your own stores is the way to lower kak then you would expect to see it in Warby Parker’s S1.
And my my takeaway from this is.
Either you have to get to a much bigger and you’re going to say something in a minute that potentially disagrees but either where we Partners hypothesis is you have to get to a much bigger number to get profitable.
And so maybe you know instead of one or million run rate I need a billion dollar run rate.
Or you need an alternative customer acquisition strategy beyond your own stores and digital ads which are the two tools warble uses and I would also argue where B is.
About as good as it gets at sort of organic demand generation and they do they do great like social they do gritty like they do all the other guerrilla marketing tactics so like.
I would you know if they’re not profitable on 390 million with their type of product it seems hard to imagine that someone else with the same type of product.
Is going to do much better because they seem like a externally they seem like a darn good execute.
[17:37] Yeah isn’t in the die where category is dominated by the luxacore Oslo Exotica and they own like everything right so they do they have you know they have a licensed almost every frame like.
[17:50] Yeah almost every designer brand you’ve ever heard of is a is actually like license to Exotica.
[17:58] Yeah then they own the.
[18:00] And they own a bunch of the chains of retail stores.
But they also do wholesale so Exotica like both sell all those license frames to the third parties.
And they sell through their own stores,
and they sell at a way higher price point than Warby Parker so they have way more margin like you know part of the premise of Warby Parker is the eyewear should be affordable so their average per glasses is $95 whereas.
Like that the aov firm exotic is going to be much higher.
I do I’m not a customer but I knew I do know people that are and they do tend to buy more I’ve heard him say is anecdotal but I’ve heard him say especially women they’ll say you know the prices are low enough I can buy a two or three different pairs that kind of they almost become accessories at that
just kind of interesting.
[18:48] So that’s what I was hoping to see right like you go man I’ve been part of a frame cost $500 I can’t own that many frames but if they cost a hundred dollars I might have different ones for different outfits right or.
Right and so yeah like.
Could their average order value be much higher but on average they’re only selling 2.14 pair of frames per customer.
So they’re like again frame is $95 their average revenue per orders $184.
Um so they’re not necessarily like seeing a huge kit I’m sure their customers like you describe but they’re not there are apparently are not enough of those customers that that’s.
[19:28] Change dramatically changing the economics
also where we park our his kind of expanded to be a vision care company rather than just eyeglasses so they launched contacts they have optometrist services in all the stores and you might go oh wow I wonder how those things are contributing and at the moment / this one they’re not,
like the the all the non glasses products cumulatively are about one percent of Revenue and all the Professional Services are one percent of Revenue so
these the the eyeglasses are 98% of their business now maybe that means there’s a lot more growth there.
[20:05] But like my so my overall take away.
These numbers did not surprise me in terms of Revenue it was about exactly where I would have expected
I wasn’t sure they would be profitable by now it wouldn’t have surprised me if they were so it’s a little concerning to me.
That they’re that they’re not.
Again if a ton of this loss in 2020 is because of the pandemic and they really did break even on 370 and if they find a way to end up profitable in 2021.
Um I’m their biggest Revenue year ever then you know that
that probably looks pretty good but I can tell you a ton of people were shocked by these numbers a ton of people thought Warby Parker was much bigger a lot of people were speculating that they were near or over a billion dollars in annual sales which I did not
view is very likely and so I think this is kind of a.
[21:01] Glass of cold water in the face of a lot of the DMV be Fanboys and d2c Fanboys that like these guys are,
are basically the poster child for that whole segment and they’re better than most of the other ones and you know even they do not have.
Home run financials and so you know frankly like this this bodes poorly for the financials of a lot of other like apparel DMV bees that we haven’t seen yet.
[21:33] Well I guess my seemingly controversial take is when.
You know when you talk to these investment bankers there’s all of this data that indicates that you should really focus on growth and not profitability if you’re if you’re if you’re in a
category like this which you know the pitch is there’s this new way to build a brand it’s direct-to-consumer it’s digitally native yeah we’re having some stores
so by focusing on ibadah you’re essentially saying we were making profit and we,
need this we don’t have anything to spend it in essentially because it’s just going to kind of move over to your balance sheet especially when do an IPO you’re in a load of the balance sheet with presumably at least a hundred million maybe more so.
When you when you look at the data especially at this scale it’s much better to lose money or to not get profitable for years because.
You want to pump all that into growth so every dollar you can drive into growth gets a much bigger multiple than a dollar that goes to the bottom line.
[22:42] So yeah so that’s that’s why and then the other challenges once you’re profitable.
It’s kind of hard to undo it the classic example is Amazon in our retail world you know how many times have you and I heard retailers complained that Amazon is a profitable this is when they weren’t profitable today they are only say they’re not profitable,
eventually Amazon got to the point where they just couldn’t not be profitable so but you know for a good kind of like,
I don’t know 20-year run their they weren’t profitable so they were the extreme example of this and it gave them much more leverage over like a Walmart who had been
printing ibadah never got used to it and got valued off eBay doc then you can’t go in and say,
there’s a new disruptor and hey everyone we’re going to we’re going to stop being ibadah positive and growing even on we’re going to focus on the top line to you know our spend.
500 billion on some fulfillment centers so it yeah I think it’s appropriate and I’m sure you know the risk factors that’s going to be probably one of the first ones is we.
I don’t plan to make money and we may never make money so yeah so I think it’s actually.
I would almost expecting to be losing more you know if I look at kind of 21 so a lot of these.
[24:04] S ones they do a six-month view because they don’t want to update it every quarter its kind of pain wdesk one while you’re in process so they’ll do it like a six-month you and I believe their six-month view was 270 million Revenue so that put them in a 540
anyone’s is that what it was the okay.
Yeah and then loss is 20 that’s even a lost that loss of seven so losing 14 on that that’s.
[24:31] The well the even has our positive by the way the it’s only the net loss that like so like they have they made 20 20 million ibadah on 270 million in sales in the first six months of this year so that’s.
[24:43] That must be the way you’re some accounting the other thing that’s really frustrating is a.
[24:48] They have all sgna below that you badal line which is weird to me at least I don’t like.
[24:54] Yeah that is weird.
[24:56] That’s that’s why you got from this yeah that’s why you got get from this positive ebitda to this negative net loss.
[25:06] Yeah this is one of the ways Amazon lost money for so long is they would capitalize the leases on now it’s become an SEC rule I think this gets kind of the edge of my accounting knowledge.
[25:16] Yeah and they didn’t there was not like detailed disclosure about the real estate so I that is an interesting question how they finance these stores and do they own them and all that stuff but.
[25:25] So I would almost say.
As in a potential investor I’d rather get to a billion dollars faster and have a negative ebitda a light you know at a 500 million they had like a hundred million ebitda law side.
I actually kind of think that’s okay especially if they could grow faster.
[25:44] Yeah and so I’ll just say I generally agree with you and I certainly get the argument about profitability the the bigger concern for me is there an 11 year old
company that’s executed about as well as you can execute done all the things that the talking headset are smart to do
and they only got two with a super compelling value proposition and very high MPS scores and they still only got to 390 million so I like my biggest
cautionary take away from this whole thing is
it’s way harder to get to a billion dollars then people realize and none of these companies have done it not one have them have gotten to a billion dollars in run rate unless you call like white cloth digitally native vertical brand.
So I do think scaling
is hard and if it’s hard for these guys it’s going to be a heck of a lot harder for these why you know companies that want to be super Capital light and not have stores and and all of those things and I well I.
worry about the profitability I will tell you the unit economics are mildly concerning their making a custom product like they have to you know make those lenses for each customer
and if they’re having to spend $80 to acquire a customer that only half their customers are buying a second time they’re only getting a hundred and
or 218 dollars in revenue from each customer and they have to make a custom product in that it just like.
[27:13] I’m not saying they can’t get to profitability at a billion dollars but it’s.
It doesn’t look like a home run business I could it still could be a good investment right and I mean as long as there’s someone that’s willing to pay more for your stock after you own it not saying the stock won’t do well at all but it doesn’t look like.
A company that’s likely to just you know generate like obscene free cash flow like Amazon does.
[27:40] Yeah I bet if you looked at a kind of store cohort you’d be happier with the profitability and maybe that was something.
[27:49] Yeah I would have loved to see that in this one and obviously they didn’t put it in there.
[27:53] Yeah you know and and yes so they must have been advised that the institutional investors aren’t going to be that concerned that I think.
I think they’re actually close enough with the lines are the lines are converging so you know you can kind of see if you just kind of.
Plot them out you can see they’ll cross no get profitable because they’re already been up positive So eventually they’ll get to that net loss off when the lines are diverging like Lyft and Uber when they went public they had to spend a lot of time in there s one talking about well we know our lines are diverging but it’s because we’re
if you take our cities that are over a year old they’re very profitable and
the reason our losses are growing faster than revenue is because we’re opening city so fast and that’s how investors got comfort in that example.
[28:37] Yeah and their lines are diverging from 19 to 20 now they’re going to say well but that’s covid-19.
[28:43] Yeah yeah that’s project I could see that.
[28:44] No I’m sure does yeah and especially again because stores.
So Scott what did you learn from the allbirds S1.
[28:56] Yeah allbirds was it was a good read I enjoyed it it was different you know so I kind of
appreciate that having read a lot of these it was less dry of any S1 especially the mdna section was felt like the founders had definitely
put their heart and soul into it I don’t know if you do you listen to the podcast how I built this they.
A really good episode on there and you know the thing another thing I appreciate about allbirds is there’s consistency there every time you every time I hear one of the founders I go in a store have an online experience
They’re very purposeful and brand message is very very tight in and until you try to do that it’s hard to appreciate how hard it is to execute on that so,
so I just really felt like that was interesting that even this one kind of landed on me as if you know
the same vibe that I got from the store and the product and everything so that was really cool and kudos to them on that
probably the most interesting thing about the allbirds S1 is they try to kind of tilt it and they say look we’re not going to do an IPO we’re going to do an S peo and what they’re essentially doing is saying
we want to elevate the discussion and talk a lot about sustainability and so they call it a sustainable public Equity offering and spe
now I’ll get into more of that but I wanted to go into some of the numbers first.
[30:26] So on the number side there 2019 Revenue was a hundred ninety-three million and then in 2020 they did 219 million so so that’s 13 percent year-over-year growth.
[30:38] So that was interesting to me and then they it has accelerated from 20 22 21 looking at the six month period to 27 percent,
they unfortunately there they’ve got a fair amount of international business you’ve got this kind of
no Financial impact of currency conversion the FX is what they call it so do their 25 or 27 depend on
depending on the currency situation but let’s call it mid-20s and.
So that’s interesting so they’ve got accelerating Revenue growth which Wall Street loves to call that ARG ARG
and then they broke out digital and said that it was 89 percent of their business and in 2020 that was a hundred ninety-four
did you see that going down because part of their use of proceeds is opening a lot more stores they have 27 stores as of the IPO so June.
[31:33] June 20 and then I’ve been 21 and then they have the pretty much say you know one of the
we’re going to open a lot more stores and it’s gonna be a big push for us they also are losing money they’re losing about 40 million a year so kind of twenty percent of Revenue is being lost
which kind of feels you’re going to lose money you might as well lose you know twenty Thirty forty percent of
of Revenue to accelerate so that felt more in line with kind of what I’ve seen is public-private
kind of vc-backed company coming into the public markets couple highlights on the other metrics they
talk a lot about how their nudging gross margins up they in 2018 gross margins were at 47% and then moving up to 51% and a good expansion there on the margin side that’s pretty typical as you scale and you start to nail down with any kind of manufactured product there’s definitely
margin benefits of scale right because you’re buying more
pallets of wool I don’t know what we’ll comes in sheep’s of wool and you’re getting more you know your.
Paying off your fulfillment centers and you’re taking a lot of these fixed costs you just putting more stuff through them so on a unit basis it drives in Crete drives down your unit cost just driving up your gross margins.
[33:00] They were they were much more silent on cackle TV than what you saw with Laura B and so some of the data they had was
they try to repeat customers and that number has gone up and.
2019 it was 46 percent of their revenues from repeat customers and then that was up in twenty twenty two fifty three percent
they last raised a hundred million on 1.7 billion and I’ll come back to that and then let’s see
the biggest thing about their IPO I hinted at the top with this spe oh is there all about sustainability and it’s pretty interesting because some people they just kind of throw that in there in the hopes that there’s
the public markets there are increasingly large number of either,
purposely built vehicles for investors that want to focus on this area or.
[33:55] There’s a big investors that are moving this way one of the biggest public investors is called Black Rock and they run out,
huge massive amount of capital most of it in mutual funds but I think they have some hedge funds and whatnot and their CEO is basically put a Line in the Sand and said by can’t remember the year but let’s call it
20 30 or something like that they are going to shed any investment it doesn’t really have
kind of a framework around sustainability and you know.
What people uses This Acronym ESG so environmental social and governance in essentially everyone wants companies to to self
report what they want to do across those three dimensions and even the SEC is started kind of hinting and recommending that companies that they’re going to start doing some things here and requiring them in things like us ones and then,
the thing that’s really interesting in a public company that I didn’t learn until I was kind of deep inside of one
a lot of these mutual funds so you go public and you have this new set of shareholders that are largely got mutual funds you’ve got index funds and you’ve got hedge funds and then retail which would be individual people like buying to their Charles Schwab well
the mutual funds in the index funds when you.
[35:17] When every year you put out these different things that you want your shareholders to vote on well they they don’t like to vote on those things they like to defer that to a third party and there’s several of these third parties once called ISS and the other ones called,
glass Lewis or something like that and these third parties therefore become very powerful because they aggregate a lot of the,
you know because these decisions are referred to them they thus aggregate a lot of power from your shareholders and they are really starting to get where they are
they’re saying you know even that’s going to be kind of the first Domino to fall I think where they’re going to say hey the recommendations we make on your board and comp and all these things that they have to opine on to the,
to to the shareholders that have Outsource that to them they’re going to really focus in on ESG so so it’s a big movement and there’s a lot of even CNBC runs like a every other day segment on this topic because it’s become such a big
big deal and you know I actually think it’s good I think you know you would as a as you know.
[36:24] Public means transparency and I think companies should be transparent about this stuff and if if they say you know I don’t know where
we’re a liquor company and we’re not really focused on this that’s fine or if they say we’re all birds and this is going to be a huge differentiator for us that’s fine too it just you know
at least let potential shareholders know where you are on the spectrum of things okay so that’s the background the.
[36:51] So these guys say look we we think this is so important we want to put a stake in the ground and we’ve come up with 19 criteria that we hope we’re going to be the first we’re going to kind of self rate ourselves against these criteria and they fall against,
cross effectively two categories for each of the es and the D environmental societal and governance so it’s things like you know they want to be carbon neutral they’re going to like an environmental
they’re going to favor vendors that that kind of have a similar
carbon neutrality and sustainability mindset to them and on the governance side they’re going to have more diversity on their board and those kinds of things.
[37:31] One of the interesting things they do explicitly State and this caused a lot of noise on Wall Street is they when you go public you get
all these people there’s kind of this this literal they call it the book so let’s say you’re going to sell a hundred million worth of shares
you do your Roadshow and then you typically end up with maybe a more orders than you have shares she’ll get 300 million so one way to you have an allocation problem so one thing you can do is you can just cut everyone back to a third and you can say well you want to 10 million now we’re give you three that’s how you could Jam 300 million of demand into a hundred million dollar
well these guys have said is we’re actually going to your allocation is going to depend on where you are as an investor as it relates to ESG so essentially they’re saying if you’re like one of these companies like BlackRock that that is really kind of
pushing the foundation there we may give you your full allocation but if you’re this kind of hedge fund that doesn’t really
even have a website and no statement on this then you may get no allocation or a smaller size allocation
so that was pretty interesting that’s the first time that’s been done and that that was kind of.
[38:37] Pretty interesting on that so encountered an actually mentioned sustainability in the s-1 over 200 times which is it just shows how important it is to them and you know a lot of companies.
Tried this out
but allbirds was founded with this right the whole idea of allbirds was could you find sustainable products to make a shoe with and they started with the wool even the soul is made from a plant-based material,
if it was obvious like she shows her something to remember what it is.
[39:09] But it’s not rubber it you know it’s not a you know
there’s two types of rubber there is a plant-based rubber from a rubber tree but most rubber is obviously from a petroleum-based so
the other thing I thought was interesting is the essentially layout they have five pillars essentially and they basically say hey here’s our five pillars we’re going to be product Innovative platform
Purpose Driven brand with an inspired voice.
[39:38] Connections with our repeat customers around the globe so so Global and repeat customers are important to them
vertical retail distribution strategy robust infrastructure creating a platform for scale
the sequence of those is pretty interesting because again the first one is product Innovation and then second one is purpose-driven and that’s where they capture a lot of the ESG stuff.
[40:00] The I thought for listeners this would be the most interesting one is vertical retail distribution strategies I just wanted to add one will highlight here
are digitally LED vertical retail distribution strategy combines our digital offerings with our stores so we can meet customers where they are delivering value and convenience with our store serving as brand begins
our company was born online from the outset we developed a direct convenient digital platform for our customers we opened our first store and 2017 have since been expanding
yada yada so and then they wrap up and say in 20 as of June 30 we
20:21 we had the ability to reach up to 2.5 billion consumers in 35 countries across our digital and Retail platforms so I thought that was pretty interesting where they’re basically saying this D and B,
be thing even though we’re at a relatively small scale we think it’s still important part of our future and stores are really more of a brand,
front face to the digital back and so I thought that was interesting,
let’s see that some data on repeat analysis but you know the.
[41:10] Those are the highlights they that is really confusing table where people bought more than their repeat purchase rate went up.
[41:19] I kind of get wrapped up in a chicken and egg thing there because like just by buying more haven’t you already made your repeat
purchase go up like I couldn’t unpack that in my head but I need and up figure that one out for me look at a secret credit card data
my analysis on this one so that those are the kind of highlights my analysis was this one was shockingly smaller than I would have thought you know I.
I kind of backed in this because I had heard that valuation of 1.6 on their last they’re kind of in this unicorn status here 1.6 billion in your like okay
a lot of these Brands you look at kind of public comps you get 325 x as an e-commerce company so let’s give them a generous valuation of 5x so they must be three or four hundred million and then.
Turns out they’re kind of in this lower 200 or 300 million scale so that was like well they must be growing at a crazy Pace because if you’re going at a hundred percent then you can still get a really nice vault.
A super-sized multiple like they must be that makes them hopefully even higher right so there like a
times multiple but they’re really not they were going 25% so it’s kind of a bit of a head-scratcher for me and I’m really curious to see how the IPO does because
I kind of assumed
I’m not smarter than than all these investors have looked at this and put this price tag on it so I must be missing something so you know the things I think I may be missing.
[42:43] You know there’s there’s a lot of talk they’ve partnered with Adidas and they’re definitely going after the running category and so taking on Nike if you can build anything that’s,
20th of a Nike that’s a big brand so that could be people could be looking at this and seeing the optionality of that is this could be you know
counter to Nike this ESG piece it could be that there is an supply-demand imbalance I think.
[43:15] I think this is definitely the case where there’s a lot more ESG aware dollars looking for places to invest than there are places to put them,
so that could be a factor maybe there’s some bullish bullishness on the store business where people have done models they say well if they’re at,
25 stores and they go to 250 that’s going to the growth is going to accelerate a tremendous base so you know I kind of swirl all those around and
you know it is interesting so I then I kind of put myself and say well if I was going to be with Nike how would you go about them and Nike doesn’t have a lot of weaknesses and yeah they’re ten years ago you and I would have said while their weaknesses are not going direct to Consumers but they’ve largely fixed that
right and you’ve got a lot of you’ve got a whole deck on that that’s excellent
so that’s not a weakness anymore and but you know Nikes weakness is could be there is a,
you know and I don’t know any facts on this it’s just there’s a lot of noise out there right that there’s these Chinese labor camps that their products are made in and these sweatshops and
children making the shoes and then certainly so there’s there’s kind of that that they’re kind of unclean sourcing if you will.
[44:32] People claiming it I have no idea what’s going on there and then you know there is an argument to be made that
Nike to my knowledge hasn’t done a lot to say wow our products are sustainable in these ways is just really isn’t their thing
so so it is a clever way to attack Nike and maybe it’s actually a combination of all these things that investors see and they say we think this is a pretty clever way to attack Nike they’re going to get some market share because we think it’s important to Consumers it’s important to us
and they kind of scroll all that together and that’s why it gets the bigger multiple so I may be curious to see how the IPO does to see if,
that multiple holds up or in a there’s definitely something going on there or maybe it was just an anomaly in the private Market.
[45:20] Yeah and in both cases like the.
The economics of the IPO aren’t really revealed yet right like we’re a ways away from from like Target prices and like understanding what the valuation is going to be for the IPO.
[45:37] Yeah yeah you know these guys that could have effectively a Down Round where they essentially say hey we want.
[45:42] Both have raised a lot of money at some like reasonably High valuations.
[45:48] Yeah and you know they probably wouldn’t be going public if the bankers weren’t telling them they’re going to get.
Yeah I really nice mark up unless there was some desperation reason and I just don’t they’re not burning enough Capital that I don’t think the existing investors couldn’t sustain them for years so so mi
bat is the bankers think that they’re going to do really well and we’ll see a big pop so it will say.
[46:18] Yeah well if you think so a I would say like one of the things that
encouraging so a one thing a few things to remember that are different between these two companies is allbirds is much younger than Warby Parker so I want to say Orbeez like 11 years old allbirds is like 5 years old so there
earlier in their evolution that 27 stores versus a hundred forty five stores and that’s a.
A huge difference because a big expense in having stores is advertising to get people to your stores and you know.
Beyond the digital advertising which is very expensive per customer like traditional advertising is much less expensive but you have to buy traditional advertising.
Based on a metro area and when you only have 27 stores it means basically you’re buying an ad to that getting amortized for a single store whereas when you have a hundred and forty-five stores you can have six stores in a
a big Metro and that same ad is driving customers to six doors so my first thing I would say is.
It seems like they’re committed to a store strategy but they’re early in the face like they could get an ice pop as they open more stores because all of the marketing and advertising that they’re already doing spending money on,
will work much harder when they get to a little bigger feet of stores and the.
There are economies and scale of running a fleet of stores versus at 27 stores they’re probably pretty inefficient.
[47:48] Yeah they talked about how they’ve had they’ve invested in some distribution centers into the store so they’re probably over distribution Centered for you know 25 stores.
[47:58] So I do think the stores thing is encouraging,
um I always am uncomfortable on the whole Purpose Driven thing so because I guess I’m going to mines and you didn’t mention it but
I think one of the novel things about them is they’re one of the first companies to go public that’s a certified B Corporation.
[48:16] There’s several others so there’s that brand for girls nothing to you.
[48:28] Okay well it’s I mean regardless
a hundred percent think as a marketing tactic that you’re a hundred percent right like there is a cohort of customers that really care about
a variety of these different missions and Nike doesn’t particularly appeal to a lot of them right and so.
Kind of providing a viable alternative you know is certainly a way to win a segment I do think.
They’re very credible like they’ve been talking about this this sustainability purpose since the very beginning they’ve invested in it the shoe is more expensive to make because of some of the sustainability choices that they’ve made so it’s not just kind of.
[49:12] Ecology washing on top of a you know a greedy brand and like I think their claim in their in their last one is that the the shoe has a like 30% less.
Less ecological footprint than a traditional shoe and I think traditional she was code named for Nike by the way.
So so I do think they are they are credible in their Purpose Driven thing and there’s a.
At the moment there are all these surveys of consumers that o gen Z is way more purpose-driven and and
way more so than older cohorts they say that you know they really care about a brand that aligns with their goals and they care about the ecological issues and ethical issues in all of these different things and it
feels like Auburn’s is well positioned to cater to those customers so superficially you go oh nice it’s a.
It’s a growing favorable Trend in there a strong executor at it and I think some of that is legitimate.
[50:16] But in the back of my head there’s this this famous academic paper from like 8 years ago called the myth of the ethical consumer and
basically all young consumers have always said in surveys that they care about these various missions but when you look at their spending habits,
there their convictions are a lot less strong than their stated preferences are and so I do I worry.
[50:43] About completely hanging my hat on consumers doing the right thing when they’re there.
[50:50] Happily buying a lot of Nikes obviously I did also think it’s interesting.
Obviously the unit economics are wildly different than Warby Parker because of the nature of the product
but they have 3.3 million us consumers worry Parker has two million consumers despite the fact where we Partners got this way bigger Fleet of stores and has been marketing for six more years so,
so they are getting decent reach,
both companies disclose their MPS scores their net promoter score and and they’re both astronomically high and allbirds is even higher than Warby Parker so they.
They’re making their customers happy.
They’re doing well the one thing that jumped out at me as a opportunity is for allbirds that would be harder for worry Parker is.
Okay you start out purely online and you’re growing through digital ads and then you start opening stores and you invest a bunch in opening your own stores what other levers could you pull if you need to get your customer acquisition cost down.
And it’s not obvious to me what the big ones are for for Warby Parker,
a play that some similar companies to allbirds have run is expanding in a wholesale once once they sort of reach a plateau and allbirds absolutely could do that as well and so it again
my takeaway from both of these companies is.
[52:17] Scaling is way harder than the the Twitter DTC Universe realizes they all want to imagine these companies are much bigger than they are because they’ve raised a bunch of money.
It turns out raising a bunch of money doesn’t equal winning a bunch of customers not saying these two companies can’t be wildly successful in win a bunch of customers,
I’m just saying it’s really hard it’s a huge competitive advantage to be a big company that already has a bunch of customers.
And it’s hard to start a new brand from scratch and catch up and these both of these are examples of that and it’s going to be really interesting as they keep trying to grow to see what.
What new things they try to accelerate that growth.
[52:59] Yeah absolutely and I was curious I just looked it up allbirds is an 86 net promoter score and War B’s latest measure is 83.
[53:08] And those are both astronomical and side note there’s some controversy about how people measure it in the inventors of the metric.
Our kind of annoyed with how everyone’s misusing it so it’s not guaranteed that that’s perfectly Apples to Apples but.
That those numbers kind of fit with the consumer sentiment that I’ve experienced for both brands.
[53:32] Yeah yeah we do a whole show on the purity of net promoter score.
[53:37] That would be awesome.
[53:40] But that in with some attribution man that’s a party right there.
Go well it wouldn’t be a Jason and Scot show if we didn’t have a little bit of.
[53:52] Amazon news new your margin is there opportunity.
[54:04] That’s right we got a couple in lausanne news items the one I wanted to chat with you Jason is,
Amazon announced they are partnering with buy now pay later firm a firm so that was an interesting one did that take you by surprise.
[54:21] It did it totally did not it didn’t surprise me at all that they’re getting into buy now pay later it’s a huge trend.
In a way like I knew they didn’t have one but it kind of when I heard it read it and I said it to myself out loud I was cut it’s kind of shocking.
That they’re just now adding it now they have dabbled in the past.
With with much earlier iterations of these sort of installment plans but what totally took me by surprise is that they chose a firm like a a firm is working with a lot of.
Direct Amazon competitors that aren’t going to be happy about this I’m thinking of for example Walmart.
And so I’ll be curious to see how that flushes out and have a firm can successfully keep both of those clients happy that would be impressive and frankly there’s just so much money to be made in this space and an Amazon scale I’m somewhat surprised that they didn’t do it themselves.
[55:14] Yeah that shocked me to the thing is I’ve been digging into these being the combi and pills and it’s really interesting so if you look at a firm karna and a bunch of these,
you know what they’re finding is the under 30 year old consumer,
doesn’t like the way credit card debt Works where you have this pool of you know
that you can pull down and then it accumulates they much prefer
to match it with a purchase and pay off the purchase and it’s really interesting to read about that and then the the both the firms in there s ones they have a lot of data around us and increasingly even after they’ve gone public there’s more data coming out about this trend
so I was I was thinking.
You know why Amazon has they if you’re a seller though and you money you know they’ve got their own credit card there’s got to be like.
What is the larger Banks kind of effectively inside of Amazon that doesn’t really Market itself as a bank because it doesn’t want to be regulated like a bank maybe that’s part of what.
Triggers them not doing it.
[56:16] Dress fear about yeah Fair.
[56:18] Yeah there’s any trust thing but it is funny you know we’ve been at this long enough I remember.
I’m old enough to remember there was this startup called bill me later and they came on the scene and Amazon used it and you know
loved it and was actually giving them quotes that conversions were up 20 percent and then eBay bot eBay / PayPal but Bill Me Later and Amazon ripped them off the site the next night it was controversial and we’re all like
holy cow I can’t you know I think we’re all shocked how quickly Amazon turned that off after seeing his praises
so it is kind of funny to watch now Amazon jump back into it you know probably been 15 years at this point back into it and partner up with the firm
so I almost kind of wondered if.
Maybe there was an investment phase but also doesn’t Shopify own a chunk of a firm like there’s an alliance there too which is another it’s unlike Amazon to lay down you kind of have connections into.
Competitors even one degree away with a firm in the Middle With both Walmart and Shopify it all.
[57:22] And there is Juicy data at play in this service so it is it is interesting.
[57:28] Yeah days was famously he wouldn’t ever he really didn’t want to buy any Google ads because he didn’t want them to see what they’re up to.
[57:36] No I mean part of me would almost suspect that Amazon is like trying to learn on a firm and that it wouldn’t be a long-term deal but I entirely speculation.
[57:46] I think both of our Spidey senses are tingling on this one and we’ll keep an eye on it then there was a battle of press releases where
Amazon Walmart said we’re hiring 20,000 people and then Amazon du ha ha we’re hiring 50,000 so that was that was the other Amazon news I saw.
[58:02] Yeah I saw that too I got to be honest to me those were nothing Burgers it’s super complicated both of those companies hire a ton of seasonal Labour way more than that right and.
Sidenote like targets hiring a hundred and thirty thousand people for Christmas so those numbers just didn’t seem that impressive and if I was if I was Walmart my press release would have said hey we’ve hired 500,000 people since covid-19
like that seems that’s true and that seems a lot more impressive than than the 20,000 I guess what is interesting in both cases is,
this is not seasonal labor these are full-time jobs just dedicated to fulfilling e-commerce orders so that’s kind of interesting.
[58:42] And two other tiny pieces of Walmart news in the the time that we don’t have left Walmart did announce.
An enhancement to their advertising echo system so they have a thing called the Amazon or Walmart connect and they launched a DSP for that.
Demand-side platform it’s a way to use Walmart data to Target segments and by ads both.
On Walmart so walmart.com and in Walmart stores but also
um across the the interweb using Walmart’s first-party data and as we talked about in our privacy show as it’s harder to use Google and Facebook targeting because of all these privacy concerns.
It makes sense that that retailers are trying to maximize The Leverage they have with their 1p data Walmart has the most customers so they have the most wimpy data
and so that that’s kind of an interesting evolution of their ad platform and a potential competitive Advantage for Walmart.
[59:47] And then another one that’s just kind of interesting that I didn’t necessarily expect Walmart launched a new delivery platform.
Which is delivering goods for other retailers.
So they call it Walmart Go Local and essentially you can be independent owner operator you know,
in a town and sell stuff for home delivery and Walmart will use their network of owned delivery.
People in vehicles to pick stuff up from your bakery and drive them to a customer for a fee.
[1:00:19] Yeah we’ll see how that goes I don’t know if I want my bakery to be delivered by Walmart.
[1:00:27] Yeah I mean there’s a number of issues it just to me it’s interesting because obviously Walmart used to be a pure retailer
you know you’re seeing them lean into a lot of services they it was a few weeks ago but they announced this deal with.
With Adobe whether they’re they’re selling software to Adobe and now they’re selling delivery services to you know Main Street when you know used to be the narrative was that Walmart was putting Main Street out of business so it just it’s interesting to see the evolution of Walmart.
[1:00:57] I’ve whenever Walmart talks about some of the services they show kind of a low WalMart delivery vehicle that looks a lot like an Amazon Prime van.
[1:01:06] Yeah they have a lot of different they have kind of a patchwork Fleet of delivery services and some of them use different vehicles but you you maybe more expert in the Walmart delivery Fleet than I am.
[1:01:20] I just see this picture and it I think a lot about Vans everyday and it resonates with me.
[1:01:32] I appreciate it thanks for looking out for me well we are out of time and one of the topics we wanted to cover but what
with all the juicy IPO news didn’t get to this time but will dedicate neck so to it is there is a lot coming up we’re kind of coming in to wear it
the past the halfway point of Q3 and all eyes will turn to Q4 with the holiday season it’s going to be really unique this year because
we cut the covid thing we’ve got the Delta variant we’ve got
all kinds of crazy weather going on with hurricanes so as a retailer it’s a really wacky time
and one of the things we want to talk about next show is ship again so we coined that here on the show last year and turned out to be probably bigger than even we anticipated what’s going on with that and 2021
I see a lot of time thinking about Vanagon there’s also chip again so which which caused Vanagon so with want to talk about all the geddens that we’re seeing out there.
And then also you know there’s a lot of interesting things going on the supply chain we’ve been you know the team here at the Jason Scott show and our many analysts have been listening in to
the quarterly results and and talking to retailers about this and we have a lot of information to share on that kind of T up what we think the holiday is going to look like from from those angles.
[1:02:55] Wow that sounds like an awesome show I can’t wait to hear it.
[1:02:58] I know I cannot wait for us to make it.
[1:03:01] Will Scott it’s happen again we’ve totally used up our allotted time as always if this was valuable we sure would appreciate that five star review on iTunes and only takes a second it’s easier than ever before to leave it
jump over there give us a review and make sure you’re subscribed to get that next podcast Scot teas.
[1:03:21] Absolutely thanks everyone and until next time…
[1:03:24] Happy commercing.