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Peter: Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age. Hey everyone I’m Peter Crosby coming to you from the digital shelf institutes studios in Boston with our weekly episode of quick takes on the industry news that you might just want to pay attention to. We're going B2B today with the brilliant Justin King coming to us from his B2B cave in Baltimore. Hey, Justin.
Justin: Hello. Glad to be here.
Peter: Oh, so happy you're here. There's certainly no more scintillating way to start off a podcast than to talk the digital supply chain, right? Lowe's made some news this week that you saw in an article by Mark Brohan at Digital Commerce 360. Do you want to walk us through that?
Justin: Yeah, I think, I think it's pretty interesting. Lowe's is the, the title is Lowe's is investing $1.7 billion over the next five years to modernize their supply chain, but they said modernize their supply chain with digital technology. They talked about how they're gonna overhaul their eCommerce platform. That I think is a pretty legacy eCommerce platform. But the focus of this article is about how they're adding B2B e-commerce tools for procurement managers. So specifically you have lowes.com, right, which is the retail site of four Lowe's. And just like when you walk into a Lowe's building, you walk into a Lowe's building and as a retail customer, I can go and buy things, but there's a whole area of people that are more that are professionals or contractors or painters or plumbers or electricians that use Lowe's as a B2B site for them to go and pick up their products.
Justin: So Lowe's has early morning hours for contractors, not consumers. So contractors can go in at 6:00 AM get their product for the day, get their lumber for the day, get their piping for the day and then leave before the store opens. They get that using terms. So they can pay within 30 days or 60 days, whatever the terms they negotiate. Most of the time they get better pricing on products cause they're buying in volume. So, depending on how much they buy, they get better pricing from those. So it's a pretty good deal now. So you have lowes.com which serves as that consumer site. But then you have Lowe's for pros, which I actually liked the name Lowe’s for pros. So on Lowe's for pros, a customer can go online, they can create custom catalogs for their recurring purchases. They can get access to their purchase history.
Justin: I mean a standard B2B commerce site like a normal distributor would have on their website. They can even do things like manage your tax exemptions and their whole business account. And so I think you know, this, when they talk about this infrastructure, the infrastructure is kind of two fold, one to increase their supply chain for consumers, but they see a big opportunity on the B2B side. He mentioned that the, that the infrastructure improvements they're making is going to help Lowe's transition from a store based home delivery model to a market based model.
Peter: Yeah, I was wondering what that actually meant, I put a question mark next to it. I wasn't quite sure what they meant to me.
Justin: I've heard, well I know, I've heard, I've heard, I've heard rumors that just like just like other big distributors are doing that they want to open this up to more of a a marketplace type model where where a, where a contractor can actually get third party products that aren't necessarily housed at Lowe's but from their, other, from their brands and manufacturers delivered to their delivered to their locations. Cause again, this isn't delivering to home, it's delivering to the job site. Right. And the job site might be at like, Hey the corner of West and third. Right. And so that's just an assumption. I have no idea.
Peter: Do you think that it might, that also allows them to expand their assortment that maybe if they are more, cause they talked also about building out new distribution centers. So that suggests to me that they want stuff that's not necessarily held in the regular Lowe's stores but held somewhere else. I mean, like you said, maybe more of a marketplace and then they can just deliver it wherever it needs to be. Which I think is pretty smart
Justin: Yeah, they, they did talk about those D, you know, the DCs and modernizing the supply chain and the DCs that, DCs are distribution centers and so distribution center would be able to get to a product to a customer fast, but not necessarily from that local store. So yeah, you're probably correct.
Peter: Yeah, I saw Marvin Ellison is the CEO of Lowe's, said we are working diligently to improve the foundation of Lowe's.com by replatforming the entire site to Google cloud from a decades old platform. And I found that fascinating for one, just to move to the cloud. Like that's a substantial, I mean there's $1.7 billion will pay for a lot of cloud, but, but also I did notice it wasn't AWS. And I wonder if the choice of Google over Amazon is indicative of also they view Amazon as a competitor moving into a competitive position with them, perhaps.
Justin: Well, that's a, that's actually interesting. So I know a software platform and eCommerce software vendor that very purposefully put their platform on the Google cloud instead of AWS. So they, because they serve lots of distributors so they could tell their distributors, no, we're not on AWS, we are on Google cloud. So I think it's interesting that they are talking about replatforming this site. They're like, cause cause the cloud is a hosting environment, not a platform. Right. So even that little confusing.
Peter: Well, I mean it means it means recoding. I mean they have to rewrite that thing essentially from scratch. But, one of the things they also talked about adding was this a Yardi software management platform that users in the real estate markets that use this Yardi Y A R D I platform can select Lowes for pros.com as a vendor. So they're also expanding the way in which people can access that inventory, which I thought was, which I thought was interesting.
Justin: Well, it's about procurement, right? So Yardi allows you to do procurement, e-procurement, PunchOut, and so Lowe's for pros now as a vendor with, and it's automatically set up so that you can automatically go and punch out to the Lowe’s for pros website and purchase your products and it brings it back into Yardi. So simplifying, simplifying that purchase process so they don't have to go to Lowe's for pros, they don't have to go into Yardi, put their order in, and then go into Lowe's for pros, put their order in again, it's just one kind of fluid process.
Peter: Well, it's going to be a busy five years for Lowe's for sure. Do you, do you see this as an, you know, you talk to distributors, gosh, all day, every day, something like that. Do you see this as a larger trend when at the sort of mid level, distributor level? What are they in the, you know, in this kind of market with Lowe's, are they going to feel more pressure to do, to do better experiences or what do you think this trend is?
Justin: Lowe's, home Depot are interesting because most, most distributors at least for like commodity products or MRO, industrial plumbing, a little bit in HVAC and a little bit in electrical, most see Lowe's and home Depot as you know, relatively decent competitors. And they're in their local markets. And both home Depot and Lowe's have both put a focus on contractors, electricians, plumbers, HVAC technicians. And I do, I do see the pressure being put on the, especially the mid sized or regional distributors because Lowe's and home Depot all have, you know what a distributor would call branch, Lowe's and home Depot have a branch in every city in the US.
Justin: And they do see that as a competitor. Also, their, their buying power is significant for home Depot, Lowe's or allows them to get those products at cheaper, at cheaper prices. Today, most of the time you can get products still cheaper at the distributor, but, but I've seen that start to change where Lowe's and home Depot are actually getting those products at a different rate.
Peter: And also if you add in the new distribution centers now all of a sudden, you know it's so interesting to watch consumer expectations of, of convenience and price and all those things moving over to the B2B space and it, it, it feels to me like part of it is when Lowe's, because they will pull it off when they pull off the distribution center more as they said, market based model of delivery to the site in a more efficient and effective way. That to me feels like a potential big muscle coming into that market that might override the loyalty that some contractors feel to their more local distributors.
Justin: Yeah. Look, stock stock, I mean availability is, is probably the largest driver for if you're, if you're a business right? And you’re an electrician, you’re a plumber availability is king, right. Availability of product. Like I need to get it tomorrow or I need to get it this afternoon. I don't need it. I don't need it three days from now cause I'm working on the job today. So availability and local availability is important. So whether that's a distribution center able to fulfill that need or a local branch or a local store? I do. I mean I think availability always trumps price. And even service at this point inside of distribution supply chain.
Peter: No, I think I agree. I mean, just as a consumer of contractor work, when they turned to me and say, Oh, I got to run over to the hardware store at a Lowe's to get that part, I'll be back in an hour and a half. That drives me crazy. So I can imagine when you're doing it at scale on a construction site, if someone can bring it to you and all you have to do is walk out and get this thing you need. So it'd be interesting to watch that unfold over the next five years .
Justin: Absolutely. Absolutely. I think that the, the next, next interesting thing to talk about here, Peter, is really around payments. So, so Peter, do you know the number one benefit of, of, we're going to talk about Uber, the number one benefit of the Uber app, that riders site today. What would be the number one thing you think people enjoy about Uber?
Peter: Ah, I, over the overall Uber experience. I was going to say those little bottles of water. If I step in to an Uber and they have a little bottle of water for me, I love that. But the app and now they have cargo in there so I can buy a snack. But that's clearly I'm focused on food consumption. But on the app itself whenever it says two minutes as the fact that I can get somebody to my house in two minutes to go where I want to go, and it's not fourteen with a taxi that actually makes me the happiest, that minute counter.
Justin: I like that too. I don't like when it goes like two minutes and all of a sudden it's like four minutes cause it’s going the wrong way.
Peter: Yeah you see the route and no, it's like it goes around Uranus or something like that.
Justin: You’re going the wrong way. So, so obviously Uber is a, an amazing app. I mean, you click a button, a car comes, picks you up, takes you where you want to go. I mean, it's an amazing, amazing company and invention. However, the number one cited benefit of the Uber app that that riders cite is no payment. So you have this crazy technology, right that allows you to go from one location to another location and Uber riders cite payment, friction, lack of payment friction.
Peter: I got to say the biggest thing, the biggest pain in the neck when there were only taxis in the world was the, the rides fine, whatever. But having to sit there and swipe my credit card and wait for the drivers drove me crazy. And now they have curb or, and other apps that you can use to just immediately do, but they had to go do that because that is clearly the advantage. Like, I'm here, I'm out of the car. Don't make me wait another three minutes.
Justin: Right. Well it was even worse when you got there and they’re like oh my credit card machine is broken.
Peter: I know they, you know, they want cash. Exactly. You just don't, which I totally understand. Don't want to pay the fee.
Justin: Come on. You don't wanna get cash. So, so that idea of payment friction or lack of payment friction is pretty interesting, especially when it's translated into the BW world. So if you're a B2B buyer, payment friction is actually a decent sized problem. You and I, last time we talked about shipping friction and shipping transparency and payment friction I think is kind of on that same level. I mean, just so just, just think of your personal life. I was, I was on Instagram over the last few days I saw an ad for a really slim wallet. I need a really small, my wallet's getting huge. It looked really cool. So I went to this website, I'm on my phone and I realized I had to fill in a ton of data. I had to fill in my bill to information, my credit card information, my ship to information. So I was like, I'm not doing that. So I went to Amazon. They actually didn't have the product, but they had another slim wallet. So I bought that. And mainly I went to Amazon because of the lack of, of, you know, it was just easier. I could one click and purchase it without filling anything out.
Peter: I have to point out though Justin, that the reason that your wallet is fat is not the wallet itself, but all the stuff you have in it. So think about, cause originally when you bought it…
Justin: All the receipts I put in it.
Peter: It’s not like your wallet's been eating and gotten like fatter over time. You've just put more stuff in it.
Justin: So that's right. That's right. But no Peter, it's all the cash. That's what it is. It's the hundreds.
Peter: You don't believe in the cashless society.
Justin: In B2B though. It's a lot more complicated. So you know, buying something from a B2B site, people would normally, you don't just use a credit card to buy something, especially if they're looking to establish a relationship with a company.
Justin: What most companies try to do is they try to get terms with that customer, with that, with that company. And so net 30 net 60 terms where I can buy today and pay with a check from my normal AP department, my accounts payable department down the line. I mean it's a, that's the traditional way, however, to do that, to do that online, you actually have to fill out a credit application form to be approved for those net 30 days. And here's the process. Here's this traditional process. And this is, this is a slight exaggeration, but not by much.
Justin: So you go on and you're like, I have to fill out a credit application. So I download the PDF. I fill in the 75 fields. A slight exaggeration might be 65 fields for the credit application. I fax my credit application in, or maybe I email my credit application in, I wait for my credit application to be approved, which is typically like anywhere between three and seven days. And now I'm able to buy on terms on that company's website. And so there's a lot of friction involved. So if I don't do that, I'm, I am then paying with a credit card and I'm filling out all the different forms for that, for that credit card. And it's just, it's, most companies don't want their people using credit cards to buy off, especially if you're buying a decent amount. I mean, if you're buying $10,000 worth of stuff, that's a hard process to go with.
Justin: So let's do an interesting, another article from digital commerce 360, from Paul Demery. Talking about using a wholesaler that is using a automated system. In this case it's from fun box, but there's a couple others out there. There's fun box, there's approved, that are using kind of automated systems that allow you to fill out a credit application. And through artificial intelligence and machine learning, they quickly determine your ability to pay as a company, right? So I'm now registering as a company, not as an individual. And they, then they then grant you terms, they might grant you 30 days, 60 days, 90 day terms. What's interesting about that? So on the, on the, on the, on the buyer side, that is a really, really good process, right? I fill out a form, I'm immediately approved. I can go, I can go do my shopping and I know that I'm on terms and my accounts payable team just pays it like they would a regular invoice.
Peter: The, the thing that I, the thing that I thought was really interesting in addition to that angle that you're talking about was sort of the, the entry into this article was about a new D2C company, right? You talked about a company like DD apparel, it's called and they're a, they're a sustainable denim company that have their own D2C site. Under the brand. What brand was that? Oliverlogan.com. Excuse me. But for these, for the, we've seen the D2C brands want to scale. And so more and more they want to tap into the wholesaler market. Right. And, but the, the CEO Oliver Tim said of of DD apparel was talking about how difficult it can be to get to get retailers to put their product into the market. And that often it has to do with sort of, well I don't know if you guys are going to work and these payment terms that, you know, how much risk do I want to take with a brand that don't have experience with. So I thought that it was super interesting to think of this as a way for, for you know, D2C brands to make their product more attractive to try out without creating an enormous financial risk for the retailers. Was that, did that jump out to you as well?
Justin: Absolutely. Absolutely. I think it's a, I mean, and what we see, we see a lot of D2C brands that are, that do want to do, want to deal in wholesale and wholesale. Wholesale could be retailers, Peter, but it could be like individual, just, just small little shops or even online shops that want to offer, offer the product and the friction involved in being able to make those purchases often as often as pretty significant. And then for, for DD apparel on, on their side, you know, if, if you, if you have to have a credit department now that has to do this approval, that's a lot of hires. And the fees on the, so 30 day terms, 30 day term terms is actually cheaper on the terms than it is. So you pay like 3% on a credit card purchase, right?
Peter: Yeah. Flat.
Justin: Typically 30 day terms is like 2%. We actually pay less in points on a wholesale order that can be significantly higher for offering terms then than you would for credit card fees. So there's benefits on both sides both sides of the table on both cost and revenue opportunities.
Peter: Yeah, and they were saying that through, through things like fun box and the other, the others that you talked about the, the manufacturer receives payment at the time of purchase and then they're paying fees to Funbox for those terms as well. So you're getting cash in the door, you know, when you, when you need it. Which often for D2C brands, you know, they're, they're in startup mode and so that helps their business as well.
Justin: Yeah. And then the order sizes. So he talked about how average order value on the wholesale side increased by 30% to $2,500. I mean that's a significant average order by order value increase.
Peter: Yeah, and, and it, so it seems like it's again, reducing friction throughout this digital supply chain, kind of where we started with Lowe's. It's, we're seeing it consistently happen across and for companies like a Funbox to, to be innovating that area I think is super interesting.
Justin: Absolutely. Absolutely.
Peter: Well, you know, talking about digital supply chains and payment terms, it makes me anxious because they're not things that I normally talk about. So this is, the we’ll close out with this really cool thing cause I saw a on the Washington post Abha Bhattarai, wrote an article about a new trend and it's that Lego is now marketing to stressed out adults. And so apparently they've spent the past five years just revamping their instruction manuals. And I love this. The quote in the article is to make the kits foolproof for frazzled adults. So like my kids can figure out the Legos, but apparently adults are having problems. So they had to rewrite the instruction manuals. But what they're saying is is that essentially much like sort of jigsaw puzzles where in my parents era like sitting down at a table and just taking some time to like work on a Lego is creating, putting people in the present, all you can focus on and where the hell is this piece go. And then and it's just a mindfulness exercise for, you know, just letting you relax from the day. And I thought that was a super cool and smart of Lego. I was just wondering whether that's something you would ever do.
Peter: It's funny because when my kids were young, they're a little bit older now, but when my kids were young and they had their Legos, I always sat down and you know, I thought I'd play with them for 10 or 15 minutes and two hours would pass and I would have built this amazing castle.
Peter: Pushed to them out of the way.
Justin: Don't touch my castle. I exactly. And says, go make your princess thing over there.
Peter: The kids are sitting in the corner by the time you're done.
Justin: Even the creativity, Peter, and just the attention to detail, putting those things together makes a ton of sense. I’ll probably buy an adult version of myself. Right, right. I don't even know if you need an adult version.
Peter: If you've got those in the basement still just go down and, and pull one out.
Justin: They’re very pink. There’s a lot of pink in my basement. I need some black and blue.
Peter: All right. The, the apparently there's a show Lego masters, which ran on Fox. I, I have not seen that, so I'll have to check it out. And, and what it turns out is that adults are far more likely to drop $800 on a 7,500 star Wars millennium Falcon or $400 for Harry Potter than they might for their kids. So there's also a, you know, a margin and revenue push for Lego, which I think is smart.
Justin: What was the acronym that you used in that Peter AFOL? They called…
Justin: I this, they called this generation adult fans of Lego. They call it like they, they've typed them AFOLs.
Peter: That's right. That's right. They’re AFOLs that doesn't rhyme with anything. Well, with that pun, which I apologize for I think that brings the show to a close. Hey Justin, thank you so much for, for wiring in from, from Baltimore. I appreciate it.
Justin: Thank you very much for having me.
Peter: So loyal listeners, please follow us on the institutes LinkedIn page tweeted us @windigitalshelf. As always, if our content is useful, please leave a review wherever you get your podcast. We really appreciate it and thanks for being part of our community.