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PODCAST - Unpacking the digital shelf

Roundtable: Can IDs and Blockchain Stop Counterfeiting?

Our weekly roundtable explores the most important news and trends in manufacturing, and we investigate counterfeiting and winter sports entering the B2B ecommerce world in our latest episode. Learn more about Ralph Lauren’s plans to authenticate merchandise with IDs, find out why the blockchain dress exists, and learn how one company will let you trace your sweater back to the exact sheep it came from. Featuring Rob Gonzalez, Molly Schonthal, and Justin King.

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Transcript

Rob

Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age.

Rob

Hey everybody! My name is Rob Gonzalez. I'm here in the Digital Shelf Institute studios in Boston with our weekly episode of Quick Takes on industry news. I'm joined with Molly in New York and Justin King in Baltimore. Hello guys. So I want to start with an apology here. I claim that the way to pronounce Toshiba was Toshiba and it turns out like YouTube says that I am dead wrong on this one. So I'm going to play what YouTube has. So I am sorry to Toshiba for mispronouncing the name. You learn a new thing every day. So we're going to kick off this week with Justin talking about snowboards. It's 30 degrees here in November in Boston. It's getting to be that time. I think Mount Snow over in Vermont got some snow yesterday, which is, which is awesome. Bodes well for the skiing season. So Justin, talk to me about snowboards.

Justin

Molly and Rob, are you guys skiers? Snowboarders? Either? 

Molly

I'm afraid of hurling myself down. Icy snow on to wax sticks. So no. 

Rob

I, I've done all of the things and the last 15 years or so I've been mostly telemarketing.

Justin

Aye, I'm with ya. I, so I, I enjoy skiing, but for kind of personally I have this, we have pretty big challenge when it comes to skiing with my family. When you have four kids doing anything, times six is expensive, right? Like McDonald's times six is expensive. Let alone skiing. So I've taken my kids skiing but probably not as much as I like, but I really do enjoy it. I bring this up because there's an, there's an interesting kind of   article about a buying group like event for snowboard and ski shops. It's called SMC. And in the past they, they had all their ordering. So buying, because you understand again, do you know what a buying group is? 

So a buying group groups together, lots of smaller, whether it's distributors or in this case lots of snow, a small kind of boutique snowboard and ski shops and they group together and they take that buying power to the manufacturers so that it allows them to be able to buy at better pricing.

So part of this buying group, it would place their orders, but most of the orders that they place were very manual and they actually had a high risk of errors. So, so they actually launched an eCommerce site that lets these individual shops place orders for manufacturers, actually routes the orders to the manufacturers. Digital Commerce 360 did an article on a launch and this kind of tells you at where we're at in B2B. Okay. Listen to, this is kind of funny. Another benefit of embracing an eCommerce system for the event is that SMC members will be able to see photos of the products that they're ordering. And in addition to detailed product descriptions. 

Rob

Photos are revolutionary in this space!

Molly

Like color photos? 

Justin

No, no, no, not color photos, just photos. Molly don't, don't be ridiculous. No, I mean like it tells you where we're at in B2B. But on the other side, like this is, this is really kind of an interesting business model where the buying group is sitting in the middle of this transaction and helping the snowboard shops, you know, buy from their manufacturers is nothing about the retail side of how the snowboard shops then go to market to their customer base. But I think it's really interesting. And buying groups themselves. I mean, there's so integral to the kind of supply chain and distribution and so it's, it's pretty interesting. I, as a kind of a side, I actually have a personal connection to this story. The software company behind the launch is actually the very first company I worked for out of college in 1997. It was about four people when I joined. And those founders actually build my love for software and e-commerce. So it's really neat to see their software behind this whole thing. It's pretty interesting.

Molly

Yeah, that's the buying group concept is interesting for me because the first time I heard about it was when I was working with the China market. And the Alibaba village partners program where they create sort of a CRM program for folks inside generally tier two or three cities in China or villages. And those people are representatives of the entire Ollie catalog and they are incented to sell into their towns and villages can aggregate their orders so that it makes more logistic sense to deliver, you know, a, a big pile of merchandise and they have a lot of these deals in China where you can like go in with four or five, I don't know, 10 people on something and buy it together. It's like this concept has been alive for a while, it seems. Why is it such big news?

Justin

Yeah, I think it's because, you know, traditionally this has been all about pricing, right? Buying groups really about: “Hey, let's group together our orders so we can get a better price from the manufacturer.” What buying groups have become though is the trusted environment where, whether it’s distributors or small boutique shops, they get together, it becomes a trusted environment. And the buying groups have started to move into this more of advisory kind of coaching role where, where it's about not just about pricing, but: “Hey, how can we help our members in other ways, right? How can we, how can we help our members order better, order more efficiently, reduce risk, reduce costs? “

They're getting into HR, they're getting into payroll, they're getting into finance. I mean, they're  getting into all the aspects, whether it's a distributor or a small shop like this. And, and I think e-commerce has started to become the forefront and there's buying groups out there right now that are creating product content for their distributors, right?

So, so these distributors are saying: “Hey, we want to launch an eCommerce site, but we've got no product content.” So the buying group says: “Well, we've got, you know, 150 distributors or small shops that can come together. Let's create the content for all of our shops in all of our distributors to be able to use.” So they group their power together to be able to do this. I think it's, I think that what's, what's most interesting about this is kind of seeing new business models. You know, this is, you know, it's really a B2C. It's really a kind of a B2C business of snowboarding. But this is a very, you know, very centered on the B2B transaction and where the buying groups kind of sit in that advisory and then extra services that are providing to their members.

Rob

It kinda makes sense that the, they're lagging the big purchasers. So the big purchasers would be someone like a Walmart or an Amazon or Granger or something like that, right, that they've got scale on their own. Typically you get groups bundling together for scale as a response to another central power that sort of does it on their own. Like in, you know, you've got the United States, but then you've got the EU is sort of like a bundled group of member States that give them, you know, more power in some, in some access. And that's, that pattern I think goes industry by industry. I mean in, in industrial supply you've seen buying groups for a long time due to the fragmented state of that space. And I guess what you're saying is an action sports here, buying groups matter a lot because it's such a fragmented space. It helps the small retailers have scale together to compete with the larger, more threatening distribution channels. Now that's it. That's an interesting story. 

So Molly, you've got a hot topic here, which people have been spending a lot of time writing about in particular over the last year, which is fraud. So to talk to us about counterfeit and fraud.

Molly

Counterfeit has been a thing and digital business for a while now. And counterfeit is not something that just applies to luxury goods where you commonly think about it. But also when I was at Mars, we had counterfeit issues with gum and candy, as surprising as that may sound. There's no item is too small to be counterfeited!!! And so why this particular news is so quote unquote shocking is because the RealReal has reinvigorated the luxury commerce business by combining the concept of pre-owned and digital sales together. Both of which are a little bit shaky territories for luxury business digital. Because I think up until recently, luxury manufacturers thought that digital in some ways cheapen the value of their brand, they couldn't necessarily control the perception, the way that the brand showed up. This concept of shortage is absolutely part of luxury could so it not always readily available.

Molly

So the RealReal is sort of moving against that concept that luxury goods can only be accessed in certain conditions in certain contexts that are tightly controlled by the brand and the brand image. 

Rob

What are some of the brands that are going through this? 

Molly

What's that? 

Rob

What are some of the brands that are being sold through RealReal? 

Molly

So Gucci is the accuser. I've been into a RealReal store and Hermes is there, Louis Vuitton is there, Chanel is there and all of the other luxury brands that I'm not cool enough to be able to list. And so the charge comes from Gucci. I'm claiming that the RealReal is selling counterfeit goods. And it's interesting that it's become a big story since it's such a pervasive theme. However, my second story is closely tied to that, which is sort of maybe the antidote to some of this, which is Ralph Lauren launching a digital product IDs.

Molly

They say that these are to ensure the authenticity of the goods while moving through the supply chain. You can think about it a lot, like the way that we're looking very closely at ingredients and the integrity of ingredients through the supply chain. They are collaborating with an internet connected software company called everything without the second E a technology in man and in technology and manufacturing companies. So, according to Ralph Lauren, consumers can now view product information, authenticate products, and even receive styling advice by just scanning the QR code on the products label with a smartphone

Rob

It's so easy to just print out a QR code. So just like, you know, the US treasury bill, so, and, and let's say U S dollars, so us a hundred dollars bills is a type of bill that's been Counterfeited I think more than any other bill. They've got serial numbers on them and they've got strips for identification and they've got things that enable you to tell whether this bill that you're looking at right here is valid or invalid or duplicate or whatever and they still counterfeit them. So I, I look at the QR code is maybe, maybe not enough there. What is it about the QR code and what is it about this system that gives them more hope that it's going to be able to effectively fight counterfeits than other mechanisms that have been tried?

Molly

I think they believed that, you know, in the same way that you chip a dog, it's just a bad analogy. That you can be assured that the exact item that you receive is the same item that Ralph Lauren says that it manufactured versus a counterfeit item that somehow made its way either into the supply chain or into your hands.

Rob

Yeah, this is, this is just a hard problem. I want to get back to the, the name of that store though. RealReal, which I hadn't heard of before. It's almost, it's almost one of those where they're, they're swinging the pendulum so hard because maybe it can't possibly be true. Like “I am not a crook. It's a real real, I swear!”

Justin

Molly, there's an interesting phrase in there though that I really liked in thatI'm article from Ralph Lauren. It said “Every Polo product will be born digital.” Great line.

Molly

Yes. Now the next thing I was going to say. I think it's a great line. So there's this interesting thing that happens when a manufacturing product is created, which is the, the digital sort of a birthmark of that product is the PIM data or the operational data about like: what it is, how big it is, you know, it's in your ERP. And you know what size it is, what's in it. And that's kind of like the only way if you want to stretch it that a product has ever born digital because then the rest of the physical product like moves through merchandising and through a distributor into a place where a consumer might come in contact with it.

And the digital information kind of struggles to resemble the physical thing, right? To get all of the pictures and the words together and the spins so that your online interaction with the product feels like the product. And then we have to struggle to connect the two things back together again at the time that that digital and enactment or that digital representation of the product that you clicked on Amazon has to suddenly be exchanged for real product that shows up in your door. And I'm kind of obsessed, like you mentioned Justin, with the fact that they say these products are now digitally born. Does that mean that we can sort of even track the digital representation with the physical thing more closely? Are they also then, in addition to putting a QR code on this product, making sure that it has all of the product data to sort of fully represent the digital thing at the time when the thing is born? I don't know.

Rob

Well the analogy stretched a little bit though, because if you look at the way that most operational ERP data works, it's about the class of product, right? So it's the Coca-Cola six pack and there could be a bajillion Coca-Cola six packs in the world and they all have one entry as a class of product about the size and the weight and the nutritional information and all that sort of stuff. In the system of record for the QR code to work as an anti-fraud mechanism, it's gotta be tied to the individual item itself as part of the construction. Because otherwise, if it's like the same QR code for every single one of a class of Gucci bags, then you know someone who wants to do fraud just gets that QR code and start stamping it on whatever the fake Gucci bag that they’re building out.

Molly

Yeah, no, I think it's kind of like first party data for your product.

Rob

But well, but at the individual product level that's like each individual can of Coke having its own identifier. 

Molly

Yes. That's the only one.

Rob

I guess it might work for like a, is it Hermes? I'm going to, this is the second week in a row. I don't know how to pronounce words. I can't afford it either way, but so the those are, those are created one at a time anyway, so you could, I could imagine that there just aren't that many in the world and so if you've got a line item per one and it, and there's just so expensive, it makes sense. But if you're talking about, I don't know, it doesn't. Gucci have items that are in the thousand dollar range where there's a relatively a lot of them. And I, it just, I don't know, something seems like it's just hard.

Molly

Yeah. Yeah. I mean it does seem hard and it's, I mean, have you seen, there was a, I think a sweater company or New Zealand wool company that you could sort of scan the item and find out which sheep your sweater came from? I swear to God this exists. Like as supply chain transparency... 

Rob

Like the sweater is from Betsy?

Molly

Yeah, exactly. Started to become a thing. Don't worry, she's grown a whole new coat. You're wearing this. As supply chain transparency has become a thing, you know, you see some of these like single origin being chocolate bars and, and ways to from a health perspective, track your product back to not, not, you know, the being it came from, but see the farm, it came from the sheep it came from. And I, I think that larger manufacturers really want to be viewed as transparent and authentic. And I'm interested to see where the space goes. I mean, we went back at the ranch. I'm looking at some of the stuff from the RealReall that they used to defend themselves or something that some of the arguments and here's speaking of also Toshiba they're, they're telling us here that they have taken pains to avoid the RealReal has taken pains to avoid the selling of counterfeit items. And they have hired for a long time certified experts such as gemologists. And what the heck is this? Horologist? What is a horologist?

Rob

Yeah.

Molly

Horoscope.

Rob

They read the stars and tell you whether this Gucci scarf is real. Yeah. I don't know the man I that, that problem is just so hard. I mean the, the new food economy, which is a great publication that, that I check out every week has an article this week about the olive oil producers asking to be regulated because there's so much fraud and uncertainty about what extra Virgin olive oil, olive oil really is. And so if you get random extra Virgin olive oils at Whole Foods and Whoel Foods has a whole olive oil section and you start testing these things, there's a dramatic swing in what, what's actually in the bottle, bottle to bottle and brand to brand. And you know, these are up upmarket bottles and they're, they're produced at scale and they're shipped all over the country and consumers sort of take for granted that olive oil is healthy. And you know what I mean? And and so this is like a whole industry saying: “No, people aren't accountable.” And I look at chocolate and there's definitely no accountability in chocolate across, you know, that where the beans are grown and all this sort of stuff at scale. It's really, really easy to claim one thing and slap something on a package and ship it and have distribution.

Molly

Wasn't there a debacle around this?

Rob

Yeah, there was a, this is a two, two years ago, right? It was one of the direct to consumer, sold through, sold direct to consumer but also so through the little fancy food shops chocolate brand that came up and, and you know, they were claiming their chocolate was organic and fair trade and all this sort of stuff. And it turns out, Nope. Wasn't. so I don't know. I mean there's ultimately, I don't think that this is a, my, my personal opinion is I don't think that this is a problem that can be solved through technology or at least through technology alone. It feels like a problem that requires watchdogs and requires auditing. And I don't, I don't, you know, I don't know how you solve it otherwise. Cause you know, you, you could claim whatever you want digitally. It's always that, that old far side comic was: “On the internet, no one knows you're a dog.” This, it's the same. It's the same problem except, you know, slapping labels.

Molly

Meanwhile I did present in a webinar, one of the first totally digital luxury goods that was a blockchain dress, that selling for, I want to say around $9,000. 

Rob

What does it mean to be a block chain dress?

Molly

Block chain enabled dress. So the garment that is issued to one person and one person only that can be authenticated I suppose inside the blockchain as the only one unique thing that exists. And it's a digital file, which creates a sort of eD rendering of this dress, this garments on top of a model and in the article and like a skin colored unitard. And you're the proud owner of the one and only version of this amazing 3d design you know, to the tune of $9,000.

Rob

So the way that this would work then is that a party across the room, you see a beautiful woman and a beautiful dress and you walk up to her and you say: “I'd love to talk to you, but first I have to scan your dress to make sure you're not cheating. Is that the use case?”

Molly

No, no, the just doesn't actually exist. There was no, there's no physical clothing involved in this purchase. It is just something that is super imposed on.

Rob

It's like, I actually, this is, I quit, I don't think I can understand this. 

Okay. So next is on LinkedIn. There was an article about the rise and possibly the beginning of the fall of direct to consumer brands. And I thought this was a little a fascinating take. So if you, if you go back a few years, direct to consumer brands are launching in every single category. A lot of them are launching on Amazon and then, and then with their own website and a lot of them will launch on Instagram and then with their own website to transact. And the claim here is that it was cheap to do that back then and you weren't, you could just launch and have really good search optimization and it didn't really cost you that much to get reviews in search results and all this type of stuff.

And so there was an arbitrage where the distribution channel was cheap because it was new. If you compare that to the cost of distributing through a regular retail chain, a any grocery store, target, Walmart, Costco, whatever, where you've got, you know, there's a lot of cost involved in that model and there's especially a lot of costs in growing a brand in terms of the trade marketing spend for the end caps and the shelf talkers and the circular promotions and all the things that you've got to spend money on to grow online. You just sort of, there was a, it was cheap for awhile and this company was doing analysis that says: “Look, it's not cheap anymore.” It's, there's just so many brands and if you go into Instacart and you start getting ads, it just feels like there's a budget [inaudible] and clothing brands of all kinds now, and if you go on Amazon, there's categories for six of the top 10 search results are paid now and a lot of the categories, the paid ads are actually gotten pretty expensive so that the margin benefit there just isn't there anymore. And what the article then said is, okay, well where's, where's the future of direct to consumer as a, as a concept. And they claimed two areas: One is earned organic traffic with a loyal audience. And the second is products that are highly personalized and therefore not mass market by design. And they said those are so anyway, I thought that was really fascinating cause we've been talking about direct to consumer taking market share for years.

Molly

I can speak firsthand to new digital channels being almost free at the beginning because I worked on Skittles on Facebook when Facebook didn't have any ad units. So they had the edge rank algorithm, but no one was saying the word algorithm or no one knew what it was. And so I was part of a group of community managers that were posting stuff and just seeing who, who got the post. And we sort of subtly uncovered what turned out to be Facebook EdgeRank algorithm, which is recency. So how recently did you post frequency? What's the frequency with which you're coasting? And relevance meaning how closely linked is this content in your social graph. And so we would gain those three levers, recency, frequency and relevance. And what we would do is we would post like a joke and then we would reply to our own joke. And this was like before even you know, marketing cloud or buddy media even.

So we didn't have any, any management. We just have like a content creator who had like a timer set for an hour after we posted they were going to respond to the post and then two hours after that they were going to respond to the post again. And we gained the edge rank algorithm by creating these jokes that had multiple punchlines over and over and over again. We, we grew our fan base by, you know, at least 50,000 that way. And then suddenly it was like pictures like posted have pictures are, are going to be exposed more. And then it was post with surveys are going to be exposed more and, and Facebook sort of would create these rules that which we then all followed. That was rewarding behaviors until they started with ad units. And then ad units were like, if you're playing a game of cards trumped any move you could make. Like if you had a picture and seven responses to your own post and you were posting five days a week at the premium time to post, which was like 10:00 AM and 2:00 PM and your posts were really relevant, frequent you still couldn't trump the effect of an ad unit. So that's like, that's just the way it goes.

Rob

Yeah, I think in in Google or there was similar, there was a golden age of 2004, five, six, seven, eight, nine where I just remember back then it was so cheap to, to advertise and build audiences on Google and now it is definitely not cheap.

Molly The thing is, once that ad unit, once the ad unit offerings became more complex, when you had a base of fans already that you had gained organically, you were getting much bigger value out of the ad units. Like the main argument that we got in the early days when we were doing just organic growth, well first of all, everyone was like “Social media is free media free media for everybody.” And so we were building up these organic fan bases but they weren't like super huge. They were, you know, I'll say we had like, this is maybe a big for some brands, but say we had 5 million fans in terms of media value, that was like chump change. However once the ad units became available, those 5,000 organic fans combined with the power of media was actually a thing that had media values. So it becomes a vicious cycle, right? Yeah. Well, organic growth that's so slow that has no medium value and then, or just having to pay to play.

Rob

Well, I don't know if it's a vicious cycle so much is that the pattern among all these things that I see is that when a new channel emerges in first it's Google. You, you know, you've been talking a lot about Facebook, or Instagram pops up or Twitch or YouTube or whatever. The thing is, there is a period of experimentation on the platform where winning is, is relatively cheap and it's not really established and the competition isn’t this tight. And people that just, you know, like you're saying, we all, while we had to do was respond every hour. That's kind of saying all we had to do is show up often enough. Right. And that's a, that's an easy game to play. And it doesn't require a lot of dollars. It just requires being organized. And you think about, you know, YouTube, Gary V grew up on YouTube as wine library TV, and now he's a big personality. You, you can't be, you can't become Gary V today. I think it's too late. Youtube is pretty saturated. It's a much, much harder to build an audience like that. Back then it wasn't saturated.

Molly

A lot of brands declined to participate at the beginning because yes, it's free, but the returns relative to establish channels are so low, but then they miss out.

Rob

Like right now I, you look at Snapchat as an example. Til Tok, those are still relatively emerging. Snapchat's ad platform is now now getting pretty good. It's revenue or is way up in the last quarter because they're just getting more effective at selling ads. The, the, they represent, I think platform opportunities that are new and unsaturated and therefore the ROI is going to be strong versus the saturated channels. But yeah, I think the, the whole, the whole concept of the, these direct to consumer brands are getting to these new opportunities first and establishing themselves and like you're saying, they build the audience and then when it gets expensive, it's a barrier to entry for new people. But they're already there. A lot of the, a lot of the, the legacy companies don't, don't really aggressively go after the new channels until they're expensive to go after.

Molly

Until they're proven. And then they’re expensive.

Justin

Rob, I think this is one of the problems here is that launching a new brand becomes very, very difficult then, right. Cause what I would think you guys have been talking about is it a long play. I mean organic traffic takes time to build up and that's a long play versus a short play where you used to be able to go on and create some ads and be able to build a brand that way without the organic. So I would imagine this is going to affect the future, especially of new brands.

Rob

Hey Molly, we have the definition for horologists is:

Horology (noun): this study and measurement of time. The art of making clocks and watches. So I guess in this context the, when you've got gemology and horology horology might be the dude who's looking at the Rolexes and figuring out whether it's a legit Rolex. 

Justin

That's cool.

Molly

Got it. I was thinking maybe or hoping it was the dude who's studying the passing of time and luxury minutes.

Rob

My wife's greatest fear and I object of loving is the passage of time. All right. 

This has been a great conversation everybody. That is it for today's podcast. Come to the Digital Shelf Institute's LinkedIn page or tweet us @WinDigitalShelf. Thanks for being part of our community. And all of the links to you today to articles will be posted in the show notes. Thank you.