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PODCAST - Unpacking the digital shelf

Roundtable: Drunk Shopping, VC DTC, Andy is Dunn with Walmart

Tis' the season for drunk shopping and executive exits! Peter Crosby and Rob Gonzalez discuss drunk shopping economy, VC-fueled DTC brands, and Andy Dunn exiting Walmart.

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Transcript

Peter

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

Peter

Peter Crosby coming to you from the digital shelf Institute studios in Boston with our weekly episode of trends and takes on the industry news you might want to pay attention to. Rob is here with me. 

Rob

Hello? 

Peter

Hey Rob. Well, I mean clearly this time of year it's a perfect time with the festivities and the spiritual nature of the year to talk about drunk shopping. So apparently drunk shopping is a $45 billion a year industry and this is according to an article by Zachary Crockett at The Hustle. Now, Rob, you found this article, were you Googling drunk shopping for any reason? 

Rob

I just have a Google alert set up for any trunk shocking article that comes out. This one caught my eye because the leading stat was that “79% of alcohol consumers have made at least one trunk purchase”, which means to me that 21% of people that consume alcohol are lying.

Peter

Uh, no. So Rob, are you an alcohol consumer? 

Rob

I am. 

Peter

And uh, which percentage? I'm assuming you fall then in the 79%. 

Rob

Oh yeah. I mean, look, if, if you're trying to bang out some Christmas shopping online, there is no better performance enhancing drug than eggnog with rum in it. 

Peter

Oh my God! If you go to Betty Crocker's cookbook. But if you go to Betty Crocker cookbook, their alcoholic eggnog recipe is the best. Yes. Go, uh, maybe we'll have a link on the show page. I don't know. But, uh, it's like a family tradition and we got schnockered every Christmas Eve. 

Rob

Yeah, I got the internet here. I mean, I gotta tell you, it makes it easy to spend money when you've got a drink or two in you. 

Peter

I will admit this was a few weeks ago, I may have had an extra half of a martini or two and apparently I went online and bought tickets to Tina Turner The Musical. I had not really a memory of the next morning, so, so I'm part of the 79%. 

Rob

First of all, I'm a little jealous that those tickets, that's awesome. 

Peter

They're great seats. Good taste. When I'm drunk 

Rob

Were the tickets more or less than $444? Which is the average annual spend per drunk shopper. 

Peter

Uh, they were, well each ticket was less, but the total cost was, yeah, it was more than that. Um, but I'll, I'll let you know how the show goes and I will be sober when I see that baby cause that's going to be good. 

Rob

All right. So guess what is the most common category of purchase when drinking? 

Peter

Uh… Tina Turner show tickets? Outside of, outside of my little… Well I would think that, I mean if I think about it, uh, I would guess, you know, especially with the proliferation of apparel brands on Instagram, that is probably clothing like…

Rob

Yeah, you got it. 

Peter

Really? 

Rob

Yeah. You got it first guess I really, you know, I think this is a driven a lot these days by social media. I don't think it's that people, Oh, who knows, right. But I don't, I don't think it's that people are necessarily having a couple of drinks and then browsing Amazon or Wayfair or whatever. I think that people are having a couple of drinks and they open their feed and they're skimming through and ads have gotten really good. 

Peter

Really good. I'm feel very targeted, but without being creepy. I actually appreciate it. 

Rob

They really engage you. And so the less friction that there is between seeing that ad and checking out, the easier it is to just, you bought something.

Peter

All right. So I have to tell another story. Sorry. Uh, so, uh, my husband Dave is running in this charity run, uh, this weekend. Well, this will air on Monday. So last, last this past weekend, uh, for, uh, called the Santa Speedo run and it runs down the street of Boston with everyone in Speedos, men and women. Um, but their theme of his team and it raises money for kids in inner city schools in Boston to have sports. Uh, it's for the Play Ball foundation. But anyway, so uh, his team is running their own Speedos but they are being like chefs with trays of cookies, gingerbread cookies. And he bought, I don't know whether he was drunk or not, but he bought a gingerbread man costume that came from China. God blessed them and it's the most ridiculous thing I ever seen. And when he got it, the size that he got, which was called standard was tiny. So we ordered the large and it's the most, it's the biggest cookie costume I've ever seen in my life. So we have two of them sitting on our floor right now. It looks like one of the outlines at a police at a murder cause the, all the gingerbread costume is outlined in this white thing. 

Rob

So I've got an idea for a tech start up here, which is that before you do anything on Amazon or Google, you take a breathalyzer and the search results are re-ranked depending on where you are. Cause if you're dead sober, you just shouldn't show that costume. 

Peter

Like your car they have, they have breathalyzer tests in cars. You take it and then it shuts your car down. I think it should actually shut your phone down. 

Rob

Well, you know, then you'd be hurting the American economy here because the lifetime spend on drunk purchases per capita is over $4,000, which the article said is good for a total drunken expenditure of a half a trillion dollars.

Peter

That's the saving of the American economy. We need more… 

Rob

I'm just saying. Yeah, this is a, this is a trend we're going to be keeping a close eye on. Let me, I got one more stat. Which, um, may or may not, I don't know whether you're going to be on the majority side and the non-majority side for the Tina Turner tickets, but 94% do not regret their drunk purchases. 

Peter

Well, I'll let you know after I see the show, but it's supposed to be awesome. 

Rob

This is actually, ironically, this might make drunk shopping safer than sober shopping because I bet more than 94% of sober shopper… Well actually, what? Less than 94% of sober shoppers don't regret their purchases.

Peter

Yeah, no, I'm sure you're right. I mean maybe you know, alcohol removes inhibitions, so maybe it's that thing you always wanted but just didn't have the courage to buy.

So, uh, I think, you know, since we discovered that apparel is the leading cause of drunk shopping, it, it probably makes sense to segue to talk about fashion direct to consumer startups. Um, we did see this article by Maghan McDowell at Vogue Business who interviewed, um, Sonya Brown who's a venture capitalist at Northwest venture partners. Um, uh, Rob, what are, what is, what does Sonya Brown up to, what is it that they're onto and what are they seeing in the, in this market? 

Rob

Yeah, so first of all, I'm a big fan of Vogue Business as a publication. I've been reading it the last few months. I think their coverage is excellent and not just in fashion but beyond lifestyle. Um, I it really, really good publication. This was an interview with Sonya Brown. Now with Norwest venture partners has just raised a $2 billion fund. They are one of these West coast Bay area venture and private equity businesses that have had a bunch of big wins. 

They invested in Spotify and Uber and Jet just to name three of the bigger ones, but they've also got a ton of direct to consumer investments: Casper, Birdies, Imperfect Foods, Blue Jeans and so forth. Um, so this is a, it's a big fund. It's a big team. They invest all the way from early stage through significant growth. Um, and so Sonya is one of them, one of their managing partners and was being asked about a lot of their direct to consumer businesses in the fashion space. So recently, I mean, just in the last couple of years, they've invested in Birdies, which is a shoe brand and Sun Roof, which is a luxury handbag brand and Jolen, which is a performance women's swimwear brand and Vuori, which is I, I might be mispronouncing these, um, which is a men's clothing, fitness brand and so forth. Um, Kendra Scott Wood's fashion jewelry company.

So they've made a ton of investments across a whole bunch of different categories in the space. And so the Vogue business wanted to understand a little bit more what's going on. So the first question they asked was: “Is there a fashion tech investment bubble? “ Now what's really interesting about this is the way that Sonya answered. We talked before, I don't know, a few episodes ago about how it's harder and harder to create a direct to consumer brand. Like five years ago there was a formula almost that you could follow to build an audience. It was pretty cheap to advertise on Instagram. That was a relatively new advertising. Facebook was cheaper, they weren't, they were non-competitive spaces. So if you were a direct to consumer brand and you were looking to build an audience and get initial sales and drive growth, you can access people inexpensively.

And so there, there was a route to market that the big brands weren't really that focused on that you could exploit the relative cheapest. Now Instagram and Facebook are expensive. The margins aren't there to kick off the brand the way that they they used to be. 

Peter

Yeah. I was at a Forester consumer marketing conference this past year. And the consistent theme coming from the D2C executives on the stage was that this is the hardest shift for them, that, that, uh, where it used to just be easy pickings and a really cheap acquisition cost that, uh, economics has really started to change and there really isn't another place to go yet for cheap acquisition. 

Rob

Yeah. So the, the first question here was, is there a fashion tech investment bubble? And you know, a lot of these investments or new investments, it's in their investments in companies that were launched sort of after, what I think of in my own head as the golden age of D2C startups, which was, you know, seven, six, five, four years ago, and that range when things were relatively cheap.

Um, and so her answer was I thought, brilliant, right? So she says, she starts with, there's definitely more scrutiny and she focuses on the cost of route to market. So she says, you know: “If you're only on Facebook as your sole channel for acquiring customers, that can be very costly. We are looking at how customer acquisition is more diversified than just Facebook. The question is, can you efficiently acquire customers online? And if you can, what do you do differently than you would be doing wholesale?” So they're looking for these types of brands that are innovative. They're not just following the direct to consumer playbook from, from five years ago. They're building their own audience in some different innovative way that is going to be more defensible in some way. It's going to, it's going to have more of a moat. It's gonna be stickier, they're going to have more of a direct relationship with their audience and the article goes on and gives examples of that with these investments.

Peter

Yeah. And there are holding companies that are being stood up to create the, the infrastructure for consumer brands or direct to consumer brands. Um, and then that forms the core of the operations for a whole bunch of brands. So that way they're approaching markets so they have the combined power of this central holding company. And then each brand can do its own different sort of uh, experience. But based on a technology and marketing approach that is common across all of the, all of the constituents. 

Rob

Yeah. There's a, there's a couple of guys I want to have a conversation, uh, at some point that talk about if you were building Proctor and Gamble today, what would it look like? What, how would it be different, right. If you were starting from scratch. There's, there's some examples of, of early holding companies like that.

There's also examples of technology companies that are providing a lot more of the corporate infrastructure that had, that a direct to consumer brand can access. So Amazon, for example, has FBA as their logistics network and so forth. So you can launch a brand on Amazon relatively inexpensively, but it's really just isolated to the Amazon ecosystem. Shopify in the last year has made major investments in infrastructure that a direct consumer brand can use for, for their own direct to consumer strategy and through channel. And actually it's just coincidentally Norwest was an investor in Six River Systems here in Boston, which is a logistics robotics company founded by a bunch of the, the old Kiva folks. Kiva became Amazon robotics. And so now Shopify owned Six River Systems to provide robotic logistics support for these direct to consumer brands providing logistics scale. So there's both the holding company thing, but then there's also just shared infrastructure provided by these major tech companies that make you know, aspects of launching a direct to consumer brand easier. The hard part is still the marketing and building the audience.

Peter

Yeah, and I think also kind of the, everyone's looking for the, the ability, and Sonya talked about this, the ability to try small fail small. And so I think we're also seeing that in the, uh, how can D2C brands dip their toe into in store, you know, brick and mortar experiences and whether it's pop up shops or something like a show fields where essentially you can rent out being part of their experience. I think, uh, I think those experiments are going to be really interesting and give them a more of a smoother flight path to brick and mortar that other than we're, we're buying real estate all over the country today. 

Rob

I think about this sometimes where if you look at the different formulas over the last 10, 15 years that direct to consumer brands, if you use the launch, there were, there's been channel proliferation, right?

You get a new channel like Kickstarter to build a brand on and a brand like peak designs, which is a bag company that makes up bags for camera equipment but also general purpose. Um, I, I'm a big fan of theirs. And so they launched on Kickstarter and now they've got a big following and they can launch new bags and they know that a lot of people are going to buy their bags. And so they  started there, right. Um, be in, in the era before you had guys like Gary V with Wine library TV, which built a brand for his family's wine store in New Jersey because he became a YouTube celebrity. And then we've got the era of diuretics to the more recent era of the direct to consumer brand explosion where you could build a brand on Facebook and Instagram until it got expensive.

And so, so there's a, there's an element of this which is, you know, how much is the next generation just going to be early on whatever the next popular medium is for brand building or how of it is going to be, maybe we're past this and brands have just got to build relationships with consumers more directly and not in other ways. I am really interested to see what happens. I'm a little skeptical that the next phase is going to look like the last couple. 

Peter

And, uh, one of the things that, you know, they, uh, Maghan asked Sonya Brown at, at Norwest about the, the is, uh, the, um, growth versus profit. Like as they think about the, the companies that they invest in, you know, what are they looking for essentially for their KPIs? What are they driving towards? And, you know, not surprisingly though, she's, she started that, you know, that they are focused on enabling startups to start quickly. Uh, and that the sort of the growth versus profit thing really depends on it's, it's, uh, less important than supporting the particular entrepreneur that they're backing and that that growth versus profits decision just depends on what stage they're in and what they've accomplished. And I thought that that was really, uh, not, not surprising, but, but definitely, uh, a nice way of thinking about it. 

Rob

I mean, to me that was just like as motherhood and Apple pie, right? I mean, she, that's like the standard VC answer to these things, but you know, really they care about growth. Let's not kid ourselves. 

Peter

I'm gullible. Fine. 

Rob

Like, you know, she, in this article, she does talk about that there is more of a focus on profitability versus pure growth. Um, we have, uh, had, you know, the Uber's and that WeWorks and the most spectacular of them all is Movie Pass, right? Yeah. I'm just absolutely burning giant building size, bonfires of dollar bills and struggling to find profitability. So the whole sector is more conscious of unit economics. Um, but you know, assuming that your unit economics are healthy, they, they want growth, right? They, they're, they're not investing venture dollars at early stage companies and to get a two X return over 10 years, they're doing it to get a significant return over 10 years. 

Peter

Well, that's a know if you saw the, um, the article on The Verge, uh, about, uh, about the, the workplace environment at luggage maker Away. 

Rob

Oh, yeah. 

Peter

Oh my gosh. It was scathing, like, um, the article had Slack channel messages about the toxic culture. They're really led by the CEO at the time, Steph Korey, I say at the time, because the board, they brought in a new executive that was going to come on as COO, but ended up essentially, she left. Well, she's now executive chairman of the board. Right. But it seems to me that with Away, and with WeWork, I bet every board of any sort of startup with a big founder with a lot of presence or their own way of working is, is carefully now examining is this somebody that we should continue to bet on? What do we need to shore this person up with? Because it's ruining companies. 

Rob

I mean, at its base, as long as the growth is really good they forgive all kinds of weird stuff. And if the growth looks bad, they don't forgive the weird stuff. It's that, you know, they didn't throw Adam Neumann out of WeWork until the WeWork IPO was looking like it was going to implode and then they then got rid of them. Right. So there's an element, I mean, maybe I'm a little cynical about this, but I think with, with business in general, um, unless you do something that's, that's an egregious violation, like sexual harassment or something like that, they're not just, they're not going to toss you out because they don't like the way that you work. Like the, the, the Slack chats that were, that were put on the Verve, right? Like different companies have different cultures. Maybe that's a good place for some people to work that appeals to them or not. It's not a place that I would necessarily work, but it's, but it's, you know, like the, the culture being toxic is not necessarily a reason to get rid of the CEO as long as the growth is good. Um, so, you know, I look at news like that and I say, well, okay, they were grooming somebody else. They're getting rid of the CEO. Then something from a, from an economics perspective is, is questionable about Away. 

Peter

It's about also something that they're not seeing the full path to growth. Not scaling appropriately. 

Rob

Is it the unit economics or not? The margin profitability is not, is not growing as fast as it should be. Is it that they've made a huge bet on store growth, so away raised a ton of money and it's building out physical store locations? Is that not panning out? Is it, you know, is the cost of customer acquisition like we were just talking about maybe the cost of customer acquisition is growing a lot faster than they're predicting and they can't figure it out. They can't get a handle on the costs is it, you know, who knows what it is? Right. But some kind of something in there that the CEO has been unable to address for some period of time.

That's probably the root cause. And then, you know, the, I'm, you look at any company and you put a reporter on it hard enough and the reporter is going to come out with something that's embarrassing about the company. And then it's like, all they need is for, Oh, and they got rid of the CEO. This is the cause. But that's, I'm a little cynical. I think it's the economics performance. As long as you're not doing something that's egregious. If your company's doing well, you're going to stick around. 

Peter

That said readers, these are juicy Slack messages. So if you're up for a good read, uh, take a look. Yeah, I mean, not that all said, you know, I mean, it's, like I said, if you look at, you look at a way the branding's incredible. The, they've got a bunch of loyal customers. They've built a brand out of nothing in the last bunch of years.

Rob

The product is good. And, and so, you know, w whatever the Slack messages say she built, she built a company built it. Right. Yeah. So, you know, like I, I think, I think, uh, it's just natural for a visionary founder that does all those things. Well, some of them just hit stumbling blocks that they can't get over right now. Not everyone is a, is a Bezos or it Gates that can take something from a garage to global empire. A lot of times you've got to bring in somebody who's a little more seasoned, uh, to sit in a seat once you, once you get to a certain scale. So, yeah, that's how I, that's how I read the news. Um, and I like, you know, as a, as a founder myself, I just, I'm just impressed with what they've been able to build over there.

Peter

Yeah. I mean, speaking of founders and leaving, um, just as we recorded, uh, well last night the news came out that Andy Dunn, uh, who sold Bonobos to Walmart in 2017 for $310 million is now leaving Walmart. And, uh, uh, I don't know, Rob, what was your take on that exit?

Rob

I mean, Andy Dunn built one of the first great direct to consumer fashion brands that seven years ago period you had sort of the heyday of D to C. he did it, man. I'm actually wearing the pants of clause from Bonobos from them. I bought this maybe six years ago. I wear it every Christmas. One leg is green, the other leg is red. But they, you know, their, their pants when they were originally just, they made pants and their pants were better fitting than those pants for a lot of men. And they had um, cute little details that nobody else did.

Like the back pockets always were patterned on. Yeah. So you get a little, little flash of style they had. I mean it wasn't in their jeans right now. They just had a lot of great products. Um, I think he built a, he built a great product. He built a great audience. Um, it was a good exit to Walmart. Andy Dunn wrote my favorite all time article about direct to consumer brands and building an eCommerce business. I remember that if you go to medium search for eCommerce is a bear. It. He wrote this out on the four or five years ago. It's just an incredible article. It puts direct to consumer brand in the context of Amazon in the world of Amazon. Um, I think he's a brilliant man. I think he's a brilliant founder. And to me it's no surprise that, that he's leaving Walmart. The only surprise is, you know, why did it take two years?

Rob

I mean, the guy, the guy's brilliant. He's just a born entrepreneur. He built a great brand. I think he's got more in him. I don't, I don't know what he's got next for his career, but, uh, I admire the guy and hats off to him and at Walmart. Maybe a little worse offer for losing a guy like that. Well, it's interesting because a Recode from this article on vox.com, uh, Rico, this is a by, uh, Jason Del Ray of course at, at, at Recode. Um, they reported last year that [inaudible] still wasn't profitable, which did not make a lot of the traditional people at Walmart who obviously Walmart is entirely driven by how do we squeeze costs to nothing and make, you know, make the best margins out of things. And then these digital startups come along that are, are just losing money hand over fist and that, that formula has not been found yet to work for Walmart.

Rob

Right? It's, it's hard. I mean, I think, um, you look at the, the jet.com which was, you know, just losing a ton of money before the Walmart acquisition. You look at the dollar shave club with Unilever picked up, you look at Bonobos, which uh, Walmart picked up. Uh, it's, e-commerce is a hard game. Um, I remember there was another VC article a few years ago that said, that's a lovely little, a hundred million dollar eCommerce business you've got there. Call me when it scales. Right. The, the, the, the way that these companies get profitability is through massive scale. I mean, even Wayfair in Boston, which is a, you know, many multibillion dollar company right now is still on the growth path and is still investing quite heavily in logistics capabilities and store capabilities and so forth. So I mean I think it's hard for, like you're saying culturally a company that is a public company that is really focused on overall net profitability that is paying dividends to shareholders and so forth to invest the type of money over a long enough period of time to get these e-commerce brands to a point of, of real scale where, where the profitability equation turns in their favor.

Rob

Um, I think they, I think it's easy for them to lose appetite after guarantee. 

Peter

So, well, and also I think where they are investing, which I think is, is um, maybe rightly pushed by the, by the existing executives, Walmarts that say, Hey, our, our, our stores are aware where it's at. So they're, they just announced in, well in the fall, a $98 a year grocery delivery service sort of, you know, a sort of semi prime kind of thing. W, which is meant to drive the core business. And so they have to decide where they're going to put their investments that are going to pay off for them and will be interesting to see where this, this uh, this initiative of having, you know, these sort of startup brands within Walmart. How that, how that continues to pay. So yeah, I mean Walmart's already unwound a couple of those investments.

Peter

Um, yeah. So who knows, who knows how things are going to go. What I'm kind of wondering though is you've got a proliferation of these direct to consumer companies. You've got companies like Norwest that we were just talking about investing in more of them. Walmart and Unilever and others were good exit for previous generations of direct to consumer brands. And then you're seeing things like Bonobos or, or Dollar Shave Club under Unilever struggling to either maintain growth or hit profitability post acquisition. I just wonder if that path towards exit for the new generation of directing consumer brands is going to be there for them. Right? Or if they're going to be required to actually have unit profitability figured out before. Some of these majors are going to give them a hard look and pick them up. So it, it, I think, I think news like this, um, I'm a huge fan of Andy [inaudible] news.

Rob

Like this for me just highlights that this next phase is going in. It's gonna look different than the last phase because all the company, everyone involved has learned lots of different lessons from, from what's been happening. 

Peter

2020 will not be dull. And so with executive turnovers and DDA seas and of course drunk shopping, we look forward to getting through the holidays and seeing what happens in 2020. Uh, Rob, thanks for the chat. Happy holidays and please everyone, if you have a chance, hop on at wind digital shelf on Twitter or go to our LinkedIn page on LinkedIn and let us know what you're thinking about Andy Dunn's departure or drunk shopping or the thing that you bought drunk shopping would be great to hear about. Otherwise, when you have a chance, if the contents useful, leave a review wherever you are on your podcast listening. And thanks for being part of our community.