A weekly podcast with the latest e-commerce news and events. Episode 175 is a discussion of Hudson Yards, retail earnings reports, and DTC valuations.
Review of Hudson Yards mixed used shopping development in NYC (thye don’t like to call it a mall).
- Code 6/10
- RetailX 6/25
- NRF NXT 7/22
- Etail East 8/19
- Grocery Shop 9/15
Walmart, Macy’s, Kohls earning reports.
Direct to Consumer Valuations (Harry’s, Away, and more)
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 175 of the Jason & Scot show was recorded on Tuesday, May 21st, 2019.
Join your hosts Jason “Retailgeek” Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Founder and Executive Chairman of Channel Advisor 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 Scott show this is episode 175 being recorded on Tuesday May 21st 2019 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:39] Hey Jason welcome back Jason Scott show listeners.
Jason this is one of those rare occurrences which I think is actually not rare this year that we are in the same city so I am up in Chicago you and I just gave an amazing talk to Retail Group about innovation.
I’m Wichita that do a deep dive sometime I think I would drop some serious knowledge of their want to thank them for having us up and then we were able to lay down a podcast since I’m up here.
[1:06] Yeah I feel like it’s super distracting to actually get to look at you while I’m talking to you usually it’s just the the picture that I have hanging in front of my desk.
[1:14] Yeah your hair is amazing today I think we referenced in the taco or that you had a Brazilian blowout so it’s looking good.
[1:21] Yeah I’m not going there but I’m glad it worked for you.
[1:23] It’s also chilly here in Chicago I was in nice 90 degree weather down in North Carolina and flu up in my shorts I made that Strategic Air and it’s like 52 and rainy here in Chicago.
[1:35] Exactly but I I would like the record to show that I’m still not ashamed of you because I have brought you to my office in your goofy shorts and Jack.
[1:47] Yeah the other thing I’ve learned is when your Chief Commerce retail strategy digital officer you get Swanky Office Space.
[1:55] Yeah I don’t know I don’t know about that they just don’t know that I’m here so that’s like until they discover me I’m going to.
[2:01] It’s like we work but in Wedding Crashers all together.
[2:05] Exactly exactly show us to talk about this week Scott.
[2:10] Yeah we have some trip reports of you and I have both been to New York recently and went to the
Hudson yard new set up there which was pretty cool
how did you get to walk around the structure there called I caught the structure I think they’re going to rename it it’s the vessel did you get to walk around and.
[2:32] I did and this is going to be a big problem for me if the new attraction in all malls is hundred and fifty-four staircase structures I’m in a lot of trouble I might have to change my my field because my fitness level is not appropriate for climbing.
[2:47] Yep sadly when we went the line was like 45 minutes to get into the vessel so we pass on the vessel
but I did get to go into the I don’t know we’re supposed to call I know they are violently against calling it a mall so we went.
[3:02] Next you shopping space.
[3:04] Yeah I went into the mixed-use shopping space that was good so they have a beta store they’re obviously that you’re on the show,
first answer my family down there they really enjoyed the show and then I went with my younger daughter and they had this whole thing called a smart Park, news this whole combination.
Art installation space and kind of amusement area,
I’m in when we went there they had this really interesting kind of amazed so there’s imagine these sheets hanging from the wall in about a 3000 square foot area you navigate through these things and you kind of confined a lot of little interesting.
Art displays inside of there and then there’s a fun mirrored area we can watch everyone kind of getting lost inside of the maze that we enjoyed that.
[3:51] And is it purely to experience or is it also one of these places it set up to take like unique Instagram photos and.
[3:59] There was some of that yes so some of the art installation she likes it in so imagine a column that’s hollowed-out with a seed in it and then a mirror kind of a disco ball mirror on the inside so yes there’s a lot of lot of selfies taken lot of Instagram exciting.
[4:15] Yeah so it’s like taking me I have to be back as.
With most malls apologies these days that’s it’s sort of intended to be a mixed-use space so there’s,
luxury condos there’s a bunch of retail space,
there’s a bunch of Premium food and then there are these sort of
experiential spaces inside the vessel is this free one which is this really interesting structure with all these staircases outside there’s one you just mentioned and then it’s not open yet but they’re going to have,
it’s very tall tower and they’re going to have I think the highest outdoor deck in the in the in Manhattan.
[4:57] Yeah it’s called The Edge not to be confused with,
one of the members of U2 but it’s cool yes cantilever doubt and I believe it’s like 70 or 80 stories up.
So it looks like it’s going to be fun and it has an area there so he’s in Las Vegas on if you’ve been to them we’re going to glass bottom to it so not only are you you know I made some behind it in the air but it seems like.
[5:24] Charter member of the ghost bar in Las Vegas.
[5:26] I’ve also been there how about that.
[5:32] Boiler word that means that place is no longer cool when Jason and sky.
[5:36] We’re all in for table service and were the only people there so that’s going to be kind of fun to see what that’s like unless you’re scared of heights than that will not be fun.
[5:47] Into what was your overall impression this development a little controversial.
[5:53] Yes oh my I always go to my wife on this she felt like everything there was crazy expensive so so there’s as you know there’s an anchor stores a band
I like to find things that can go on sale and there was like nothing on sale at this entire
mixed-use environment so the betta shop was a power favorite another one there is a direct consumer sock company called stance and they were there so that was kind of interesting.
[6:25] I have an inkling why you like them.
[6:26] Yep they have Star Wars socks sadly they did not have them at the location,
you know as a operator I just kind of couldn’t get my head wrapped around how many socks should have to sell to pay for the rent so I felt like something like 10,000 pairs a day so I’m not sure you allow these things,
I lost four companies and they’re really more of the flagship branding kind of on the p&l versus like a real money maker.
[6:52] Yes what it is going to be interesting to watch the.
Anita manhattanites have been a little negative on this base you know they all tend to be tribal and stay in their own neighborhoods and there’s some well-established
shopping district either close to where they work or where they habitually shop instead of Hudson yards is in a new,
area that doesn’t have a lot of residential so it’s right next to Javits Center it’s coming on the water on the 33rd and 34th,
and when you talk to about a manhattanites there like who’s going to go down there.
[7:25] I’m so far away.
[7:26] To go shopping and I always remind them like.
Retail here isn’t probably first and foremost for them like it’s meant to be another tourist destination some of the traditional shopping centers for like luxury shopping like Fifth Avenue are actually starting to dying and brands are moving,
away from there because their rent has just gotten so crazy,
and so these kinds of places are are potentially alternative so I I don’t rule out Hudson you are being successful because of that like all mixed-use properties.
What’s really going to make it successful or not is how successful they are at the mixed-use part like if they sell out all the the residential there and they.
[8:06] Build a big community of potential customers and the the food is attractive enough to draw people there for date night and stuff.
It’ll probably go well if those things end up being a facade and the only reason you’d go there is to shop the beta store or the stand store.
There are other beta and stand stores in Manhattan so like I don’t feel like their store assortment is really differentiated like in fact.
It’s mostly the assortment you see it at any other sort of a or even being Mall,
in the US at this point and we’ll maybe talk about that in a minute the one really Unique Piece of retail there is the Neiman Marcus I’m in the reason I say That’s Unique is because Neiman Marcus is a texas-based,
luxury retailer would like 40 stores open the new store and sometime and they haven’t been in the new New York market and so it’s kind of interesting.
They’ve been relatively successful in the markets there in but.
Opening a new luxury department store in New York is very ambitious because there’s a lot of pretty well-established luxury department stores inside this.
You know it’s the newest in there for probably the nicest Neiman Marcus but it’s you know very high-risk high-reward whether they’ll be able to win over manhattanites with their ton of the Dallas Vibe if you will.
[9:29] Yes several New Yorkers I know pointed out the a bit of hypocrisy about it because I think
the the state and city gave a lot of development funds to this group
I’m actually more than were proposed for Amazon so it’s kind of funny that this was allowed to continue but then you’re bringing Amazon which would actually I have more jobs than a bunch of living and retail space would have to be very interesting to see the
the politics of Play-Doh.
[9:54] I mean these kind of Economic Development incentive programs are super dominant in retail and in development and obviously.
Why do you think there’s some hypocrisy there I also think it’s somewhat of a self-inflicted wound I mean Amazon dramatically raise the.
The the the public awareness and therefore like made themselves as a Target so I maybe don’t have total empathy for them.
But that this does dovetail to that the other thing I did in my New York trip is I went to another mall that’s south of Hudson yard called Brookfield Place and the reason I went to.
The place is that’s that’s a downtown that’s very near the new World Trade Center.
And it’s a similar mall with a very similar assortment of stores and actually I would argue while the food is is much more.
New indistinct at Hudson yard the retail mix between Brookfield Place and in Hudson yard is very similar and therefore not differentiated.
[10:58] What place has a lot of businesses already in it and they just open the first Amazon go store in Manhattan so for the,
all the retail price that’s based in New York and I want to say Bloomberg might even be based in Brookfield Place,
this became news because it was their first chance to experience Amazon go in their local market and so I want to see if they did anything different than they’ve done in the other nine Amazon go store.
[11:26] Today was a similar footprint cuz it got like a sassy that got alcohol in some now there’s some big ones and some small ones but they all tend to have prepared meals and kind of more of a convenience store type selection.
[11:39] Yeah I think if you drop those people in the store they wouldn’t be able to differentiate it from any of the other ones it’s definitely on the small end of the footprint.
And it does not have alcohol and the one differentiating characteristic you would you would really struggle to noticed so,
Manhattan is one of several municipalities that have this local ordinance that retail stores must accept cash.
And so big that’s a big controversy for Amazon go stores because they they were not designed to accept cash and so,
when Amazon open this store in Manhattan part of the pr round it was oh this is the first go store.
That would accept cash so I went there you know amongst other things to see how they they plan to handle that in the answer is badly.
[12:30] What kind of ruins the experience right the whole experience supposed to be totally digital.
[12:33] So again the whole point is like you use the app to show barcode to scan your way into the store you just grab whatever you want and walk out in the cameras automatically charge you for everything and it’s just walk out technology.
The pay with cash this time you can’t get through the turnstiles so you have to flag down an associate when you’re outside the store and get them to launch their app and cashew in meaning scan you in as a cash customer.
And then when you’re done shopping you have to flag down another employee who’s going to wheel out a portable.
Cash register with a cash box to accept your cash and then they’re going to have to walk you out of the car and it just.
It’s a very light.
Obviously they put a process in place to comply with the ordinance but if people really wanted to pay with cash this is an extraordinary High friction and experience and of course.
I like to joke it with Amazon go stores they invented just walk out but they broke just walk in.
Because there’s always a line in front of the store people trying to download the app to get in and now there’s people like,
turn the flag employees to get cashed in it’s it’s an awkward situation for them I don’t think any of their customers want to use cash I think it’s just an order in this thing.
[13:51] I bet they’re like a podcaster that wants to talk about our turbocash.
[13:57] Exactly I like to pretend that I’m such an irritant that there’s a picture of me in the in the employee room that there probably isn’t.
[14:06] Just a quick note we’re coming up on trade show season I am not going to a lot of trade shows but Jason is so code recode is coming up June 10th and that’s in York.
[14:18] That this year so historically has been in Southern California is the first year they’ve moved it to The Phoenician in Scottsdale Arizona.
[14:26] Should be nice and hot by them the show previously known as Internet retailer Conference & exhibition is now called retail X and that is June 25th I don’t think either of us are you going.
[14:38] If I’m in so that’s in here in Chicago if I if I’m in town I will at 10 but I haven’t.
[14:46] Poops then NRF has a new show called NXT or next and that’s going to be July 22nd etail East is in August 19th
Jason speaking at grocery shop which is from the shop talk folks and that is September 15th what he’s thinking about.
[15:04] Back in Vegas I’m moderating a couple of panels and you’ve totally busted me because as I sit here right now I can’t yeah it’s a.
[15:11] I said grocery stuff from side delivery.
[15:15] Transformation of a digital grocery is going to be super exciting don’t miss it.
[15:19] Well it wouldn’t be a Jason Scott show if we didn’t talk about some Amazon news.
[15:24] Amazon news new your margin is there opportunity.
[15:38] A quiet couple of weeks at Amazon couple things we wanted to hit on so one thing I thought was interesting is in India Amazon is testing a travel program this is kind of like
what I would look at liked Expedia business model were there,
instead of just being a a better site there actually looks like they’re taking inventory so imagine
imagine that goes well Amazon Alexa test these things a lot different markets imagine that goes well and in the next couple years imagine you could book your travel through Amazon and you know what can you tell me about that
cuz imagines part of prime,
I’m the beer that starts your travel habits Amazon so good at all this data processing they can do and they could give them an edge on going out and buying inventory
so that the secret of the travel industry is a lot of times it’ll use this data and I’ll go by rooms Expedia will go take inventory risk,
and then because they can go and say I was in Chicago’s when he busy and they go buy a bunch of rooms they can solve them and then they can
you make a bigger profit or give a bigger discount so you can see Amazon doing some really interesting thing for Prime users wear
you can effectively married with data you can effectively you know part of your Prime benefit would be really good hotel room kind of pricing
I thought that was interesting.
[17:01] That further expanding the definition of the everything store.
And went winning is mounting interesting to me about that is wow they’re pursuing that business model in India that model in the US has become somewhat controversial because you know who is really.
Threatening the traditional travel portals here is the Google so you know very hot you you do what you Google.
Hotel or flight information and now the incident answer box pops up and you can actually book your travel through that,
is answer box a lot of the traffic that would normally flow from Google the Expedia or Travelocity or those sites Google’s now.
Started stealing and monetizing and that’s like you know obviously that the traditional travel portals are not in love with it.
So that’s an interesting watch another part of the world Amazon acquired a delivery company in the UK called delivery.
The main reason I want to bring that up is because it’s really fun to say deliver roof.
But this is another one of those businesses that they’re not.
As big and in the u.s. delivery was sort of the doordash in the UK there are a meal delivery service in so that that was interesting acquisition as Amazon continues to bolster their.
Their breath of offering and their global.
[18:25] Speaking of delivery in Amazon so we talked about on the last show day Amazon in their q1 earnings,
announce that they are going to move Prime from two to one day now a lot of that is being driven by this program called the delivery service providers and that’s where they have these really fancy Mercedes sprinters out there
they’re kind of like this gray with the orange Amazon smile. I see you like 20 a day in my area I think they,
Danish about 20,000 of those
next day delivery they talk about an 800 billion dollar investment I think that’s going to be a lot into that program and I think they’re having enough challenge getting people there then now that any Amazon employee that want to set up their own DSP business Amazon will,
set them up the game guarantee volumes and then they’ll actually pay their there
previous job out three or four months so you know if they’re getting very creative on how they get more people to start these kind of 1099 delivery businesses for.
[19:28] And the way I think that’s got like it’s it’s not a 1099 individual employee delivering stuff from Amazon it it’s essentially.
Amazon hiring a franchise business to do deliveries and I think they’re their preferred version of that business has more than one van.
[19:46] Absolutely yeah they want they want employees to go and set up you know a business and hire 10 people and manage the whole thing and,
10 20 30 40 50 people,
the first company that did this is FedEx Ground so ground is effectively uses if you go to the dance closely every fax van has kind of been the corner operated by,
Jason Chicago delivery company FedEx air is completely owned and operated this broad category there’s a lot of legislation around this,
out there the labor market just the labor department actually just opined and said
individuals as 1099-r can still be 1099 now we’ll see how long that stays there because it’s in the political world and there’s been a lot of FedEx has done a lot of litigation around the way they do the businesses and that’s that’s pretty.
I’m pretty well litigated and if there is a business a true business then it can be kind of 1099 relationship.
[20:46] And this is not so uncommon like obviously a lot of other kinds of businesses are are actually a network or franchisees like a lot of fast food restaurant chains for example and often,
when you when you’re in growth mode one of the ways you if your Burger King or McDonald’s that you might grow your franchise footprint is you,
you looking at an employee base and go to all those good assistant managers and offer them financing to buy their own,
franchise in so I think of this Amazon program is someone on the same one.
[21:18] Yeah where it could bite you is I say you have you know this engineer working on AWS who gets a wild hair and wants to be on.
That made a harsh Street place I don’t know how many people I don’t know who they’re actually offering this to my my guess is probably kind of like supervisor enough time in the Fulfillment center so so they didn’t cover that in the
Presley’s but I bet there’s a certain type in that yeah if you are a senior developer this probably isn’t available to you.
[21:48] I would say if you were a conspiracy theorist.
Amazon is sort of rejiggering they’re the real estate and they’re moving a lot of employees around and one of the things that happens as you have.
And so potentially this is also a way to mitigate mitigate some of that turn that some of those employees that maybe wouldn’t have relocated to the new facility that you’re moving their team to stays in the family with one of these business.
[22:19] In tow,
you sort of wrapping up our Amazon delivery news Amazon of course I made a Big Splash in the US they announced that they were primarily going to,
one day delivery and we we’ve talked about this in a previous episode of the show Because of Winn Amazon on their earnings call announce,
did they were moving from 2-day delivery free with prime to one day delivery free with prime there was kind of a snarky tweet from Walmart.
Saying at that doesn’t sound like you do News free one-day delivery with no Prime Membership would be a much bigger deal.
And we all took that to imply that that was something Walmart was working on with but wasn’t prepared to announce.
And so now of course they have announced it and,
I would say it’s kind of mixed it was not exactly what I expected so they’ve they’ve announced that they’re Walmart has announced that they’re going to provide free one day delivery on orders over $35 which is their usual shipping threshold.
In initially in three marker.
[23:27] What’s it isn’t that big a deal but they sound like they’re they’re intending it to scale at rapidly so they they intend to reach 75% of the US population by the end of the year.
And so you know they I’m calling this the one day Shipping Wars as as both these companies are sort of escalating the.
The shipping promise.
As we talked about in the previous episode Amazon has a lot of infrastructure to leverage to do this and it’s probably kind of a incremental thing for Amazon,
it’s probably going to take a much bigger investment from Walmart and arguably Walmart eCommerce already isn’t profitable so this is probably like,
a pretty painful move for Walmart to further a road margins to keep up the service level that that Amazon has offered,
are you a Walmart can afford to do that what’s going to be interesting as the rest of the the market right at Walmart and Amazon are both offering one day delivery that’s going to set a new expectation level that all the rest of retailers are going to really struggle to me.
[24:32] Yeah I saw an interview with Mark Lori and another reporter said you must be doing this from the stores and they said no
it’s going to be from the warehouses and so it’s interesting so there’s like a whole different set of inventory that will be available for that
I’m going to be kind of play this out you know the next
kind of domino fall is Target and noble fir Target talk about more than 50% of their stuff is so from the store so what are Target can almost get there faster
on the smaller selection of store items by cranking up the ship from store kind of capability.
[25:05] Yeah I think that’s exactly the the trade-off that they each have to make Amazon’s got.
North of 400 million skus that they sell now.
Several million of those are available for this too and that one day shipping likes them millions of skus in there one day shipping program Target.
[25:29] Primarily sells the assortment that they have in the stores now they do have a broader assortment online and and they recently made no news because they’re adding their own Marketplace but all that ship from store,
is the store inventory so the overwhelming majority of Target sales are the 60,000 skus that are in a Target store side note.
Those those popular shoes are generally the hardest ones to be profitable.
And then Walmart has been kind of in-between they have a hundred thousand skews in a typical Walmart store and I assumed that’s what they were going to offer one day on because that would be a pretty painless thing to do is ship from store.
And they actually didn’t do that they’re they’re saying that they’re assortment for one day shipping is going to be about 200,000 skews so that’s twice the assortment of a store.
They’re shipping from the Fulfillment center it sounds like least initially they’re shipping from existing fulfillment centers but they’re going to have to dramatically expand those performance centers cuz traditionally.
Walmart is spread their inventory around there 8 for filament centers in when you order 10 things you may well get three boxes and so what they’re now saying is you’re going to get everything from one for the moment Center and it’s going to be up to.
200000 items that we can promise one day and so essentially what Walmart is really doing is.
Adding a bunch of capacity to their existing Adidas e fulfillment centers to offer this new service.
[26:51] There’s a beauty that means just bigger or more robots or more people.
[26:55] So don’t know they haven’t said but I suspect the answer is going to be Automation and the not so much because the automation is more efficient that’s a benefit but.
One of the cool things about these automated systems is they stack up higher in so you can get inventory all the way to the ceiling as opposed to just inventory that a person.
[27:14] Speaking of Walmart we are entering a peak earnings reporting season for retailers and so Walmart did report their earnings and,
is generally pretty good.
Their earnings were slightly above expectations of Revenue was slightly below expectations same-store sales were up 3.4% which is right about,
we’re the analyst expected them to be and then the big number I always like to watch at Walmart was there eCommerce sales were again up 37% for the quarter so they’ve been in that,
40% range last year they promised 40% for the year and they basically hit it I think they said that that for the year that the growth will still be big this year but slightly lower and so starting off with 37% is probably pretty good.
[28:02] Yeah an Amazon this slow down so Amazon’s kind of in the low 20s now and you
Walmart Ecommerce going twice the size of Amazon which will help him catch up now you pointed out on the show a lot that’s coming from grocery so what can I have to see you at some point
every store has curbside grocery then it becomes a game to see if you know can you drive more general merchandise and grocery sales do that that e-commerce pipe.
[28:27] Yeah I think Walmart has basically laughed all of their big Acquisitions and so the company against those now but they still only halfway to plug with groceries so they’re still comping against stores that have you just called her the didn’t that goes to ask.
[28:42] Yep and they always do more Acquisitions that always helps with the inorganic
I’m so set up going into the earnings was interesting cuz Macy’s surprised books in a positive way same-store sales grew .6%
which you know you may say wow that doesn’t sound great but you know I think while she was looking for a flat down
and then they you know the the stock reacted positively
I visited I actually here in Chicago I visited Macy’s and we went to the one in York is really interesting to see story so in Chicago is pretty start there’s other renovating it so there’s like all these gray sheets hanging around and then,
talk to you in theirs is colorful section of the store so it almost felt like story was taking over Macy’s in the signage everywhere and even the one in New York the story really like you.
So interesting to see a lot of innovative things are doing at Macy’s.
[29:37] For sure the next one really surprised me is Kohl’s and Kohl’s has been sort of an outlier in the his department store stories they’ve been the one,
department store that isn’t completely value-oriented that like has been generally conferring comping pretty favorably,
and in particular their same-store sales have comp favorably every quarter for I think the last two years they made a lot of news around their partnership with Amazon and letting you return Amazon packages in the store which they,
have said drives a lot of incremental traffic to the stores so they’re a little bit of a earnings darling and they just had their earnings call this morning and.
Surprisingly pretty severely down so same-store sales were down 3.4% I think the the initial reaction on the market is the stock really took a hit the management team,
talked about my favorite excuse they bring the weather,
which to me is always a warning sign and they you know they talked about the risk from tariffs.
Potential warning sign at Kohl’s at first first sort of chink we’ve seen in their armor in a while.
[30:49] Yeah I also heard and we’ll talk about JCPenney I heard Kohl’s and JCPenney are trying to dial down promotions in the consumer is not reacting well to that they’re kind of like I’m not coming to your store unless you’re going to give me some kind of a promotion of some kind.
[31:02] Yeah and so I think Kohl’s answer in his earning call is so we’re going to go back to the promotions and if that’s of course a one-way door that you you basically can’t reverse once you educate customers to only shop for the deal your car stuck with that for the rest of your life.
[31:17] Yeah it does so JCPenney also announced today and it was kind of a worse-than-expected situation so they’re the same store sales were down 5.5% revenues down 4.1%
I’m so you may ask yourself why is that different will there be the closing stores quickly which
which kind of helps and then the bad news is why all this is happening there they’re spending more than expected so they missed on DPS as well Macy’s telephone
Tale of Two Cities with Macy’s and Wal-Mart so far really kind of coming out ahead and then Kohl’s and JCPenney I’m coming down behind,
I also was announced today in a we try Molly getting here on the show Dress Barn announcer closing 650 stores we’ve had I think we have had more store closures and now started this year than all of last year,
so so this kind of in a mulligan is worsening it kind of went was flat from 17 and 18 you’re 19 feels like it’s definitely kind of the snowball is gaining momentum so I think there’s white like 5,000 stores that have been announced and that’s what we did last year.
[32:25] Potentially even a little more now.
[32:27] Yeah so that’s that’s.
I kind of used his good news I think we need to kind of clear out this dead underbrush and then build a new retail experiences so we’ll see how that goes.
Another we want to spend time on today we kind of touched on it while the whole episode with web
episode 174 was about direct-to-consumer digital native vertical Brands but really there’s been a lot of news they’re so we so
Perry’s was acquired for 1.6 billion what is interesting things about that acquisition is that we’ve seen this too so I kind of called this
analog company buys digital DNA and then what it what do they do with that digital DNA so some of the early ones were PetSmart bought chewy
Walmart by jet and they took the leadership of Jet and put him in charge of a lot of things mostly e-commerce and then we saw it with Dollar Shave Club,
I think they founder of Dollar Shave Club is now running a pretty big
piece of the car and Company there so it was interesting about this announcement is the Harry’s team is going to be running the whole us operations of the clearing company which is shiksa substantially.
[33:45] That’s kind of a pun for the shipping industry.
[33:48] Edgewell Cooks so you know this this is and of course 1.6 billion is nothing to sneeze at so it’s really heating up in this space also a way to raise capital.
[34:03] Yeah where is the another hundred million dollars,
I think we talked the last year mid-year they raise about 50 million dollars but what got people’s attention was they raised it a 1.4 billion dollar valuation
so I think it was Wellington Capital Management LED this particular round but one of the things they said they’re going to do with this cash is open 50 new stores in a bunch of new markets and potentially introducing new product.
[34:30] Yeah in love and one of the things in the world of venture capital that we look at is this whole unicorn Club so once a company gets up to a billion dollar valuation it’s called The Unicorn there’s not that many of them that’s why I’m so now we’ve got.
Between 6 and 8 depending on how you’re counting companies in that club so I’ll just go quickly through it
Warby has a 1.75 billion valuation is raised about 300 million allbirds is at 1.4 has raised 77 million
weigh at 1.4 billion and has raised a total of 156 Harry’s which was acquired their previous valuation was 1.4 and they raced 250 million
eyeglasses at 1.2 billion valuation 187 million raise Casper
1 billion valuation at 340 million raised Dollar Shave Club 1 billion at 163.3 million and finally hymns in kind of the
direct-to-consumer pharmaceutical space a billion dollar valuation on about 200 million dollar wrist so.
[35:34] You know those are interesting numbers you can kind of look at the multiples there you made a point that was interesting
can I sell you on the show you guys should get such a big valuation why would a way not raise more capital and I think you know.
Couple things are sometimes these sometimes I sugars are choosing to get in this billion club and then the capital E raised have a lot of negative
aspects to it it’s effectively almost like alone so so the people in the investors at that scale will say all right I’ll give you this evaluation
but I got all these protections there’s several.
[36:10] Ratchets in the.
[36:11] Yeah there’s there’s they can double dip on participation so there’s like there’s all these things that you can bake in there took the really kind of take their us-20 could be part of it is there is no you don’t want to.
Pull down a lot of that kind of capital another thing that could be in there is.
Also you could have things that commit to going public so some of this is called mezzanine Capital has kind of a trigger in there that says in 3 years if you don’t come go public or have an exit this thing kind of like explodes on you or it turns into start paying it back.
So the other one that I’m seeing is if we pick on a way the big fan of the brand they’re I think they’re actually profitable so when they’re going in and raised in this Capital it’s usually for a very specific purpose that says,
Iowa krapfl right now but we want to own we want to open 40 stores that’s going to take 30 million to open those doors so then we’re going to go ahead and kind of
little cushion on that and draw down a hundred so you know so is that that could be another reason why there’s not a lot of capital being pulled down.
[37:17] That meant that makes total sense.
[37:20] Another thing I wanted to talk about that that I’m watching really closely is the IPO windows open so we had you know you could argue if it’s successful or not but we had IPOs from lifting,
if someone else in our space that is filed to go public is chewy so when you file go public the document you file with the SEC is called the s-1,
is pie crust dry reading everywhere it’s kind of a poop sandwich I like to talk about it so so what you know the because of the way the laws are set up,
you almost have to discourage people from investing in your company I haven’t gone through this process before so what you do is the bread you have to have kind of like the SEC is in 3 sections the first part is you know All These Warnings you know.
And it’s kind of funny that the the
buses to financial press boost the Press I’ve noticed retail they kind of focus on those things and they’re like oh my God they could be exposed to all this competition and
but you purposely have to make that negative so you avoid lawsuits from someone saying chewy didn’t tell me PetSmart was a
competitor blah blah then the delicious middle part is called the management discussion and then you have a bunch of the end so I encourage listeners to kind of open up the two S1 go right to the management discussion
and then this really interesting things there I wanted to share.
[38:38] Answer a question for me about the wrist part.
You read those sections and it’s super Armageddon the and I sort of imagine that there’s somewhere there’s this really funny we go boilerplate of all the bad things that could happen to a business and so you I suspect you’re not inventing this way from scratch every.
[38:57] Yeah what you do is you look here, so you go out there and you look at all the other risk factors every public company update some annually typically
when they do so you have to accuse and then your cat when they do their K they will update the risk factors so I’m sure I’m sure you know what the lawyers did is they went out they looked at
all the public retailers and they kind of whittled it down to the most Salient ones her for 2.
[39:19] I’m talking like the population could catch SARS and not go outside and stuff.
[39:25] Yeah yeah you know how lawyers are they want you to just kind of put everything in there.
[39:31] Dep so nothing ever comes out of the risk section I can definitely play that easy to add stuff nothing ever comes out.
So just some highlights there in just a refresher so so chewy sells obviously pet in the pet category
they were acquired by PetSmart in Q2 of 2017 so it was actually kind of a spin out that way and they were founded back in 2011 in the second quarter.
[39:58] It was impressive to me was the scale so so chewy is now a 3.5 billion annual revenue company,
that was a 2018 Revenue compared to 2.1 billion in 2017 so that’s a 67% year-over-year growth rate,
which is pretty impressive now the losses were pretty sizable so I filled it this thing called adjusted ebitda they lost 268
million on that three and a half billion,
I’m set that equates to kind of a minus 6.5% margin so snarky folks would say sure anyone could build a business with this going that fast if it’s losing money but the way you think about this,
you know this business is trying to get into a very high orbit and when you try to get more of it you have to burn some some people to get there since essentially what they’re doing and if I think if you looked at other companies you don’t like as a post or
you know any of these other kind of companies that I’ve got to the scale I think they’ve actually done it in a pretty efficient way.
What do you peel the onion on a wire that is another aspect I will also point out is.
[41:05] Justin Bieber dies in Oxford or tend not to look at that because you don’t have a lot of control over it there’s all these County roles you can’t control,
right so a lot of the stuff that comes out you run your business you think you’re doing a great job is in your adjusted ebitda got worse on there so why would sound of your control so what most companies do as they look at free cash flow which is as an operator while you have more control over and I can’t
I can’t control what you’re going to do to my Revenue when it runs in the counting rule that I can control
you’re selling more and spending less so there are actually free cash flow was -57 Million so I would argue with a 3.5 billion top-line you’re effectively,
cash or break even.
Is that that’s a good indicator that that you know this is a really well-run business and those lines that I would imagine unless they accelerate further at that same growth rate they would be free cash flow positive
so why is that what was kinda secret while they were the things I love about this management discussion is you get kind of inside the head of the operators and they spend a lot of time in there.
[42:07] Talking about subscription spend their version of that is auto-ship so 65.7% of their revenue is on auto-ship which is amazing you may know better than I do
what the typical industry averages but I think most retailers that have a subscribe function and it’s probably like in the 10 to 20% range but of course obviously not stitch fix or something like that the whole model
I think it’s really impressive for a general merchandise kind of retailer in the category to have so much on auto-ship,
they have 10585 active customers another thing will try to put the show notices.
A lot of these as ones do really interesting job looking at Kotor analysis so get as an operator I like to look at this because I like to kind of think about how I think about my business and compared to how they think about their business Uber and Lyft had really interesting examples of this.
[42:58] What things they show is in their cohort analysis is they’ve been able to take the average sales per customer from 2016 at about $297
today at $334 so it’s nice about that is in addition to acquiring new customers in there,
kind of increase the sales from existing customers more than 20% Which is pretty impressive a lot of times that goes down over time so they’ve done a really good job of.
Building loyalty from a wallet standpoint and part of it probably is related to this auto-ship program.
[43:35] To me it’s it’s the interesting thing here is they they were acquired a couple years ago by brick-and-mortar retailers and now that retailers spinning them off again as a separate public company in it it seems obvious.
There really an outlier in terms of how well they’re performing as a pure play e-commerce site in many ways by,
the profitable are not very few. Play companies have gone to that two to three billion dollars in Revenue in almost all Pure Play retailers struggle with the repeat purchases and so,
repeat purchases and such a valuable spent per customer and have so much of that locked in Via Auto replenishment.
oh, because they’re still not making a lot of money I feel like they’re they’re not getting a lot of credit for all those good things so I’m assuming they’re going public because they feel like.
The the stock market will better reward them for their scale even if they haven’t achieved profitability.
[44:35] Yeah could be of value unlock play it could also be you know I don’t think integrated the websites did they so
so he’ll be really weird if I’m running petsmart.com I’m probably I’m going to go out on a limb and guess I’m getting my butt kicked by chewy
I I can’t imagine that is growing 67% and that 3.5 billion dollars may have seemed like a good idea and then they may actually be good kind of moved to an arm’s length relationship.
Spend it out I’m kind of thing that could be part of it as well.
[45:08] So that’s going to be interesting to watch we’re coming up on time but there were a couple of interesting grocery tidbits I wanted to at least.
Briefly acknowledged there was an interesting partnership that was announced this week between Lidl and boxed and is a reminder for our listeners Lidl is a highly successful German grocer that’s really focused on
low high quality with low cost of goods and they they famously tried to enter the US market a couple years ago and,
your your hometown is one of their initial markets,
and they weren’t super successful so they kind of slowed down retooled and now they’re getting ready for a second big push in the US,
wheedle in a very similar company them all the historically they really focused on No Frills,
barebones price in so they therefore completely ignore digital so one of the interesting things to me is as we don’t rely on Chaz in the US they’ve done this interesting partnership with,
text in there they’re essentially renting,
the Fulfillment of hardware and software the Box built for their own business to do.
What to use for grocery fulfillment as part of a digital offering so I’m excited to see,
what sort of digital experience Weedle is going to offer when they they relaunch here in the US and it’s going to be fueled by box.
[46:35] Shelby Nursing I get smart on the box side to have differentiated Revenue so they can sell direct to Consumers and also be a technology provider into the grocery.
[46:45] Yeah I was disappointed digital didn’t play any part in their initial launch so I’m pleased to see that they’ve seen the air in their ways there,
Kroger announced a new investment arm to invest in these,
direct-to-consumer cpg brands that they’re launching into it we talked before.
Maybe the most successful venue for launching new branches is inside of a retail store instead of seems like Kroger’s way of getting unlocking some extra value for helping some of these Brands become successful,
and then a funny when I saw is Bed Bath & Beyond just launched a new commercial.
Which is intended to be humorous.
Sort of that commercial where they’re explaining brick-and-mortar shopping to a millennial.
[47:40] Yes it is only a couple is kind of like sitting in bed online shopping and then they’re like trying to encourage them to come to a store so so I thought it was quite interesting to me is somebody like some kind of sign of the apocalypse and realizing that it is nigh in a pond.
[47:54] Yeah I feel I feel like there’s some infection point we used to have the funny commercials where these well-established brick-and-mortar Brands were trying to convince people to buy online so you know,
it was the ice shipped my pants campaigns and things like that in the
in the early days of e-commerce and now the fact that we’re having to do funny commercials to remind people you can still go to a store and buy something,
definitely definitely said something about where we are.
And that’s probably why you’re all listening to the show and therefore it’s not going to surprise you that it’s happened again we’ve run out of our,
a lot of time so if there’s something you had a question about a want to continue the dialogue we’d encourage you to hit us up on Twitter or jump on her Facebook page and as always if you got bad you out of this episode we sure would appreciate it if you had.
30 seconds jump over to iTunes and give us that five star review we desperately crave.
[48:44] Thanks everyone we appreciate your five star reviews and we will be back next week.
[48:49] And until then happy gummerson.
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