A weekly podcast with the latest e-commerce news and events. Episode 207 is an interview with the author of “Billion Dollar Brand Club” Lawrence Ingrassia.
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Lawrence Ingrassia ([email protected]) is the author of “Billion Dollar Brand Club: How Dollar Shave Club, Warby Parker, and Other Disruptors Are Remaking What We Buy“. (Amazon Affiliate Link)
We discuss the trends of DTC companies turning to brick and mortar. New ways to leverage data to identify product niche (what Larry called the “money-balling of DTC), and what the future may hold for DTC.
We also cover events that happened after the book was published, including the FTC’s blocking the Harry’s acquisition, Caspers IPO, management challenges at Away.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 207 of the Jason & Scot show was recorded on Tuesday, February 11th, 2020.
Google Automated Transcription of the show
Transcript
Jason:
[0:24] Welcome to the Jason and Scott show this is episode 207 being recorded on Tuesday February 11th
20/20 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot:
[0:40] Hey Jason and welcome back Jason Scott show listeners Jason as you all know one of our favorite topics here on the show is the big move where brands are going direct to consumer
and of course we spend a lot of time talking about digitally native vertical brands also known as DMV bees
today on the show we are really excited to welcome Lawrence and Gracia.
Larry has been a business journalist at top Publications including Wall Street Journal New York Times and LA Times Larry is the author of the book
billion dollar brand Club how Dollar Shave Club Warby Parker and other disruptors are remaking what we buy
the book was just published in January and we are really excited to have Larry on the show Welcome Larry.
Larry:
[1:20] Thank you guys.
Jason:
[1:22] Very we are excited to have you in the topic of your book is
super relevant and pertinent to our audience so before we jump into it can you share with our audience a little bit about your background and how,
you know you sort of came up to the point where you wanted to write a book.
Larry:
[1:41] Yeah you know I worked at newspapers for many years I was the senior editor really loved it retired a few years ago and when I retired and I wanted to delve deeply into something that I thought was interesting and I’ve been fascinated by the world of,
entrepreneurs and startups and.
I actually had a kernel of an idea when I retired so and it goes back to 2011 and that was before most people actually at even,
I thought of the idea of direct to Consumer Brands and back then I heard about a company.
Dollar Shave Club it was actually before it had the name Dollar Shave Club it was an idea of a friend of my daughters.
Now I had been business journalists as as you guys noted for long time and eating had covered Gillette at one point.
It is one of the most powerful Brands not just in the US but the world has great products as great advertising,
and it’s maintained a 70 percent market share for decades I think that’s worth repeating because that’s just unheard of in any consumer product 70%,
market share in the US for decades and so I didn’t tell Michael Dubin who was the founder of Dollar Shave Club but I thought to myself,
this is the dumbest business idea I have ever heard.
[3:03] You’re going to compete with Gillette by selling razors and Blades online like really.
So then you know kind of fast forward to 2016 I’m driving to work at 7:00 a.m. I’m listening to NPR,
and there’s a story about Unilever buying Dollar Shave Club for 1 billion dollars.
[3:24] And after grabbing the steering wheel tightly to keep from swerving into the lane next to me I said to myself out loud he did it Michael,
expletive deleted did it and I had two thoughts quickly first,
oh my gosh was I wrong not just me but lots of so-called smart people who scoffed at the idea you know Venture Capital investors who turned him down competitors including Gillette that had ignored and dismissed him.
And second in this is where really the idea kind of grew was how did this happen how did The Impossible or what most of us thought impossible become possible,
because nobody thought that the razor business could be disruptive in fact after my book was published I got a I got an email from an executive at a big consulting firm who does Consumer products and he said if somebody had told me that.
Ten years ago that the razor business is going to be disrupted told them that they were crazy so it was the same reaction that I had.
And you know what it was disrupted gillette’s market share fell too low 50% range within about four or five years just unbelievable.
[4:33] And so as I started reporting I quickly realized that the Dollar Shave Club story well while amazing was really part of a much bigger story it was a story about,
Revolution that has changed what we’re buying and how we buy things and it’s not just razors its eyeglasses mattresses bras contact lenses sneakers luggage cosmetics.
Dog food vitamins hearing aids you know you’ve named it and you can buy a new brand and often several new brands that have been launched online and so that was kind of where I got going is a let me kind of find out about this world and why this was happening.
Scot:
[5:09] Rico we’re glad you you wrote the book on it so it’s been great so so you do spend a lot of time in the book on Dollar Shave Club.
What do you think was the magic there you know they had the viral-video the subscription model with what do you think was the lightning in the bottle that they capture.
Larry:
[5:28] Yeah so let me you know kind of pan up to it like 5,000 feet and then go back to Dollar Shave Club so you know a couple things that these companies.
Had in common but I found early on you know first of all the main formula for Success was actually quite simple.
These entrepreneurs and their young and trumpeters mostly in their 20s and 30s spotted a problem and figured out a way to fix it.
[5:58] But by offering a lower price or better value or improving the customer experience or just eliminating the hassle.
You know these problems now may seem blindingly obvious but the big companies had never fix them.
[6:12] And the second thing that is really interesting about most of these companies is that the founders knew little or nothing about the products that they were introducing them when they actually started their business.
How can that be well actually you know kind of it turned out to be an advantage rather than this advantage and the reason for that is that they.
We’re thinking outside the box,
you know kind of thing they were constrained by oh we can’t do this or that or the other thing because you know that’s not how the way things are done in our business,
conventional wisdom can be a real problem for companies.
So Michael Dubin was an out-of-work internet marketing guy was looking for his next thing but he thought razors were ridiculously expensive and frustrating to buy because they’re often locked behind a glass case so his solution raises it to half the price shipped right to your home with the monthly.
And often it’s not one thing it’s often several things that lead to the success and you mentioned the video which went viral.
Which you know kind of our blades are blanking great.
Shot for about $5,000 1 minute and 30 seconds I’ve had Marketing Executives and marketing professors tell me that they’ve watched it so many times it’s taken basically recited by line.
Jason:
[7:31] I’ve quoted a lot of it to him which he finds really annoying.
Larry:
[7:35] To Michael.
Jason:
[7:39] Yeah every time I see him my first sentence is I’m good at tennis.
Larry:
[7:43] That’s right and that you know kind of but if you look at this Warby Parker to you know this was the pioneering online eyeglass company that was started as a class project.
For students who are getting an MBA degree at the University of Pennsylvania’s Wharton Business School.
And you know kind of a figured well if it doesn’t become a business at least we’ll get class credit for it but they wondered as many people,
probably have why does a pair of glasses cost,
$700 so their solution was classes for his littlest $95 with five frames shipped to you at home so you could try them on before buying them.
Again kind of in retrospect a very easy solution in a simple solution to a problem that a lot of people had but it was people outside the business that thought of it.
And then you have the founders of all these mattress companies including tough to needle which actually was the first one it was before Casper.
[8:43] These guys were software Engineers who got tired of working for software companies and one of them had bought a mattress and you know what as I’m sure,
both of you guys would agree at everybody I talked to buying a mattress going into a mattress store is a truly miserable experience your stock by a Salesman,
tries to steer you to the most expensive mattress you lie down on it for 30 or 60 Seconds,
get it home and realize you don’t really like it your back is killing you and so you call the stories they can I return it and they say yeah.
20% restocking fee plus a hundred dollars shipping and at that point you can’t go out maybe I’ll keep it so you know kind of their idea was a foam bed in a box,
reasonable price free shipping and if you don’t like it free return after 30 to 60 days if you don’t like it so you know kind of,
all these startups the most successful ones spotted a problem,
so I need and pink the way to fill it and I think that’s what was the Real Genius of Dollar Shave Club and then of course they have to figure out a way to Market it to get attention which Michael Dubin did with his video,
it helped in his case that you had a giant that was in Gillette that was a bit.
[9:57] Complacent even arrogant.
Pick one of the tidbits in my book is that early on one of Dollar Shave Club investors called Joel and said hey would you guys be interested maybe in making an investment in Dollar Shave Club and they were dismissed out of here.
It was like nope you know didn’t even take a meeting.
Well that came back to kind of be kind of what they ruled that day because for five years later to let did.
With a hood nobody can remember it having done it lowered its prices because it was losing so much market share and again it’s because,
Michael Dubin saw that they were vulnerable and then attacked it on his terms rather than competing on gillette’s terms.
Scot:
[10:40] Cool the haven’t seen a lot of people talk about the exit and detail were you able to get any details of you know why they sold win and was there a bidding war or anything around.
Larry:
[10:51] He had taught he had talked to a few people but I think that Unilever came up with you know kind of this outrageous number and it was kind of like yeah right I’ll take it,
you know kind of I wondered if they overpaid I think they were buying you know a growing business,
I think they were buying on an entrepreneur who might help them think about how,
e-commerce is changing the way that products are being sold so there is a combination of those things.
Scot:
[11:22] Yeah it’s interesting because you know something like six to twelve months later P&G had an activist in their really disrupting things because they didn’t buy Dollar Shave Club so it kind of made me feel like
maybe they’d either totally missed the boat or they had kind of low-balled it ended up not winning.
Larry:
[11:38] Probably at that you know at that point probably PNG couldn’t have bought Dollar Shave Club for any trust purposes it might have been able to invest in them you know kind of the first year to because it was so small but you know kind of by the time Dollar Shave Club had
you know ten percent market share in volume you know kind of or maybe even a little bit more
it might have been very hard for that to pass muster with antitrust regulators.
Jason:
[12:04] Yeah and we may get an opportunity to talk a little deeper into the antitrust issue because there’s there’s been some recent developments there but one of the things I really enjoyed about the booklet is I sort of feel like,
it would have been sufficient.
To just have like some great biographies of these d2c companies that have caught our attention and we’re all talking about and and you certainly do have,
some nice biographies of the you know the origin stories for some of these these Brands and in you know.
Most I would is I was already familiar with but for almost every one of them you you know you uncovered some interesting tidbits or had some,
some good background that was news to me so it was it was fun to read those biographies and I particularly like you you sort of introduced a framework for these companies I you highlighted the fact that,
you know some of them really entered the market by trying to have a better experience than their predecessor so you know Dollar Shave Club being an easier way to get razors then,
go to the store.
Larry:
[13:09] Not just priced yes.
Jason:
[13:10] Yeah defeat product jail like some of these like we’re about price you know and you know Finding finding Windows of opportunity,
somewhere about like dramatically improving a the product from what was previously available
and then someone about using data to uncover sort of an unmet need.
Larry:
[13:33] Yeah that’s that’s a really good point so when I started looking at the book I didn’t want the book to be like one chapter after that kind of telling the story of this company that company other company I wanted to to matically,
slow and and you know getting back to that moment when I was sitting in the car and said to myself oh maybe there’s something here,
and then kind of why is this happening you know kind of and why now and the answer I quickly Learned was technology.
[14:03] Technology had leveled the playing field and made possible what had not been possible you know 10 or 15 years ago so if you go back to I mean all these,
problems that these entrepreneurs all had long existed I mean mattress stores have been kind of ridiculous places for a long time Gillette has long you know added you know kind of little features and so that they can justify increasing the price,
but it was very the barriers to entry were much much higher,
10 or 15 years ago especially if you wanted to create a brand that was a national brand so you know kind of 2005 even up to about 2010 you want to introduce a new brand you know kind of you have to go to a retail store you have to say mr. Walmart or Ms Walgreen,
you know can will you carry my product and they like why I don’t need to carry your product first of all have limited shelf space and save all have all these other brands that are doing quite well you know kinda is a pretty cozy relationship so,
dinner that comes along and that means that you know can e-commerce allows companies to introduce products introduced new brands in ways that would have been really difficult before,
the internet has unlimited shelf space you know kind of your website is yourself space.
[15:20] And then second okay so you’ve got that she’ll straight how do you get anybody to notice you again go back to you know kind of 10 or 15 years ago and you would need a multimillion-dollar,
advertising campaign really you know kind of tens of millions of dollars advertising campaign on TV you know kind of radio newspapers if you wanted to get any attention,
Gillette spends hundreds of millions of dollars a year but all of a sudden you know kind of Technology first with Google but then most importantly with social media,
like Facebook allows a company to spend your thousands or tens of thousands of dollars to Target those customers who.
Are most likely to buy your products.
And because you have this relationship online and you’re kind of selling all your products on lied you’re learning a lot about your customers Behavior,
and you can keep fine-tuning the product the message whatever.
Again so and the final technology that really you know that Leap Forward that really made all this possible was in logistics so.
[16:25] It’s hard to remember but in the early days of e-commerce you ordered something and you know you were happy to get it in a week or two right and thanks because thanks to Amazon,
push the envelope and forced everybody else it got to the point where you could order something it’s something within it two days or even one day.
And again the convenience factor of getting something going on and getting something made possible,
this revolution is taken in front in front of our eyes so you had kind of Technology changes and it’s going to continue changing,
is made you know these.
Companies these startups possible and enabled them to challenge much bigger much more deep-pocketed companies in ways that would have been unimaginable.
Scot:
[17:12] Yeah I agree what you think about so there’s been a lot written I’ve written a couple books and I realized that a lot has happened since you probably put the book to bed but.
Larry:
[17:24] Yeah when you’re when you’re writing something when it’s live and it’s actually kind of evolving you know kind of it’s really you know interesting interesting challenge.
Scot:
[17:33] Yeah so a lot has been written and I think Andy done at bonobos to set a lot around you can get these businesses up to 100 maybe 200 million and then the conventional wisdom has kind of fallen over that you need to open stores so so we’ve seen away as open stores sometimes they’re called guide shops but they’re essentially
stores to go experience.
Larry:
[17:53] Warby Parker.
Scot:
[17:54] Warby has it cetera.
Larry:
[17:56] Third love is dabbled in it tough to needle and Casper both have as well
yeah and so when I started seriously working on the book two years ago I think you know basically there was Warby Parker,
with stores and you know kind of,
one or two others it was kind of really small and as I got into the reporting and more open it up I said you know what I have to write have to have a chapter on retail and where does retail fit in this I mean it was something that you know that that clearly was becoming,
a trend among some of these startups and for just the reasons that you say so a couple things were happening,
one social media marketing was so successful.
Everybody started doing it so it became a bit more expensive now it’s still one of the most effective ways to acquire customers.
[18:56] But it’s more expensive than it was in the past so the cost of that is going out
second you have you know kind of the type of people who are most likely to buy online and to respond to a social media ad you’re getting to saturation point now that may be a little bit of an exaggeration but a lot of the people are most likely to do it I’ve done it.
And finally then you get to like that eighty to ninety percent of retail in this country is still done in physical stores.
[19:24] And some categories is even higher,
Neil Blumenthal one of the cofounders of Warby Parker told me it’s like 95% in eyeglasses so there’s no surprise that they were one of the first,
startups actually go to physical retail so the new thing that you hear a lot of is multi-channel,
that yes you can build you know kind of a brand it might be depending on the product that might be 20 million it might be 50 million it might be a hundred million sales but to scale it up you’re probably going to have to be,
multichannel I think most of these Brands still have more than fifty percent of their sales online and over time I think you know
the percentage overall of retail that online is going to continue to increase but that’s why these brands have moved their oh and the final thing is that you had a lot of traditional retailers having problems and going out of business
so guess what retail space became a lot cheaper.
So you know a company could kind of test retail in a way that was it going to cost them an arm or a leg they can see how it worked without really kind of going all in.
Jason:
[20:31] Yeah and you know it’s interesting you mentioned the the evolution of Facebook and that that you know emerged as a new tool that allowed more efficient marketing,
there was one of the in a blurs for a lot of these companies but you also covered a lot of other aspects of this sort of,
product development through you know go-to-market ecosystem that that sort of evolved to create this this opportunity so you covered some of the.
Larry:
[21:02] The infrastructure as it were right.
Jason:
[21:03] Yeah yeah exactly so I.
Larry:
[21:05] The things that people don’t see very often I you know as a business journalist I got really fascinated by that stuff.
You know kind of the company that you know kind of figured out that you know face could,
Facebook could really be a way to reach Target audiences and of ampush,
based in San Francisco found by kind of three College friends roommates who went to Wall Street and got bored I’m doing Wall Street and said hey let’s start a company and they figure that out you know kind of done very well.
And then there’s you know the logistics companies which I found extraordinary fastening go into a modern warehouse and it’s not like what you would have seen.
Five or 10 years ago certainly not 10 years ago,
where are you know kind of a lot of forklifts and people carrying things around and racing around you know a lot of their automated to a large extent they’re a lot of robots there people there and they tend to tend to do the things that robots aren’t yet good at.
But the amount of innovation that’s going on there to make that.
Product that you quick on and then get it within 24 to 48 hours is amazing it’s kind of cool it’s actually kind of cool.
Jason:
[22:16] For sure and so you you had some interesting stories in there so like one of the companies you profiled in that ecosystem quiet Logistics I was familiar with them but I didn’t really know the back story,
they were early adopter of these first robots for automating warehouses in the robot they adopted was this Kiva systems robot.
And then you tell the story of how they were subsequently he though.
Larry:
[22:41] So keep your hat size yes so this is is I love that story coming Kiba was acquired by Amazon,
in Amazon you know kind of not long after acquiring Kiba said to the people that keep it been selling to is like basically we’re not going to support we’re not going to you know after a few years we’re going to stop,
you know kind of servicing the robots that you have and these guys at quiet Logistics who had built the nice business who had spotted the e-commerce,
Revolution coming and built a business totally on having an automated Warehouse they’ve been in the warehouse business for years and it sold a another warehouse company they had built up a decade earlier but they say hey this is a new opportunity they’re like.
What you’re not going to surface the robots anymore what are we gonna do you know kind of that’s our own business model and so they had the idea,
why don’t we build our own robots and so they went about kind of hiring,
engineers and higher robotics experts so they built their own robots and lo and behold that business is so successful that they spun it off and it’s now sewing robots,
two other Warehouse companies and two ups and all over the world.
Jason:
[23:57] Yeah that that was funny and I’m trying to remember Scott were you an early investor in Kiba.
Scot:
[24:03] Thanks Big thanks for watching that.
Had the opportunity and at that point it was just random pitched it was described as ant algorithms in a warehouse full of robots and it didn’t make sense to me but I was wrong.
Jason:
[24:19] Dab to teasing you you at least four on the list of people they called.
So that was a great story Larry another one that I think is in some ways one of the most important Trends in the whole book is you described a number of entrepreneurs that,
really leverage data that previously probably didn’t exist.
To help Define the products that they offer so I’m thinking like E Salon or Mohawk or or anchor could you talk a little bit about one of those.
Larry:
[24:50] Yeah so I think this is one of the things when you have a disadvantage when you’re competing against a bigger rival.
You need to have some other Advantage you need to play by different rules and actually you know kind of you guys remember the the book and in the movie Moneyball by Micheal Lewis.
So Moneyball basically was about how.
A small-market baseball team the Oakland Athletics.
Couldn’t compete with big Market teams like the Yankees who are rich in could you know kind of pay for more Talent so they had to figure out how we going to compete and they came up with the idea of data analytics to find players who were undervalued.
And within a few years after embracing data analytics they became highly competitive.
And and you know kind of vague were you know going toe-to-toe with the Yankees in many ways so.
To me what is happening in retail in the creation of Brands is kind of the Moneyball.
[26:04] These companies in addition to seeing a problem in looking for a way to fix it also recognized that you could use data.
Technology barley but also data to spot opportunities to improve your products to connect with your customers so a lot of people call it this is direct to Consumer businesses also say it’s connect to Consumer businesses,
so early on before they get big enough that they decide they need to offer you know kind of have retail stores as well.
These companies are doing all their business with people online.
[26:39] People are coming to the website they know everything where did you come from how much time did you spend on the website what are you looking at.
What are you ordering how many times you come back before you order they can just gather a lot of data to learn about their customers and to improve their products.
[26:58] In some cases one of the things that some of these brands of do he’s having more customized products and that’s where he’s Lon as come on E Salon offers customized are coloring.
That is you know just about as good as Salon but what more expensive but better than the off the shelf.
Hair coloring that you would get from one of the big name brands and how does it do this its Gathering data all the time from its users has a questionnaire.
It’s using AI to analyze that data when we mix this for these for the woman who answers the question are this way.
This is what she like sometimes we will tweak it and give her a slightly different than what she thinks that she wants because our experience has shown over hundreds of thousands millions of people answering the questions and of this is what is going to work best.
And so their product is like 20 or 25 bucks depending on what kind of subscription you have and you know it’s a lot less than you might spend at a hair salon and it’s and it’s a very good product again that would not be possible.
[28:08] Without being able to collect the data and you know kind of fine tune.
It’s a product but also it’s the marketing it’s the pitch kind of to see somebody comes to your website you know kind of how long you’re going to stay there.
Every you know kind of incremental Improvement in each step along the way.
[28:28] Means that you’re going to have more customers and more customers stay with you so initially they started I think they told me like you know fifty percent of their customers were coming back because they were still trying to figure out the formulation and now 70%.
Come back after the first purchase they get people past their third purchase they know they’re going to have until 8:00 purchases if they get past their 8 purchases they’re going to have them like just about forever again and they know this because they’re measuring every bit of data.
Jason:
[28:56] Yeah I mean one of the examples in the book that really struck me was when a woman ask for the lightest possible blond they know that she actually doesn’t want the light as possible blond and that she maybe want something with a slight bit of blue tint in it.
Larry:
[29:11] Yes because because I know from people who’ve gotten the lightest possible Dom who fit the profile that she fits that they have a lower kind of Second Coming Back conversion rate than they do when they kind of tweaked it a little bit,
it’s you know kind of it really is a type of rocket science put it into a computer for retail purposes.
Jason:
[29:32] But I like that metaphor so you could almost think of them sort of anchor money bald Belkin right like the the you know the traditional accessory providers.
Larry:
[29:44] Yeah well one of the challenges I think for some of the startups is that you know,
what happens when the Yankees starting you could start using data analytics right they got money and data analytics.
So now you know having said that I think the Oakland A’s are year in year out Fielding better teams.
Did they ever did before data analytics going to watch.
So so even though it may be harder now that everybody is using the same tactics and I think a lot of the big companies are starting to learn some of them are buying some of these companies,
some of them are buying expertise,
so so that’s going to make it a bit more challenging for companies but still you know I think that there’s a lot of potential because you have the technology out there that makes it easy to introduce a.
Jason:
[30:39] Yeah and you know what you know finding that metal part maybe just one step further that’s a great point you make that
when the Oakland A’s are the only ones using the Moneyball system they were they were suddenly identifying valuable players that other teams didn’t want because they didn’t know they were valuable,
so they had this competitive Advantage but once the whole world adopted this this Quantum metric,
system suddenly everyone knew those value and so it was it was harder to gain an advantage from that and then in some ways it feels like.
DDOS is playing out very similar when you were the only ones leveraging this like targeted audiences on Facebook.
You had this great competitive Advantage but now that everyone’s using it they you know bit up the prices and it’s it’s less of an advantage than it was for that first mover.
Larry:
[31:29] Right right there’s no doubt about that there’s no doubt about that.
Scot:
[31:33] Cool one one thing I wanted to talk about is so a way has been interesting and this probably happened,
post publication of the book so they’ve had one thing that’s interesting is so so Amazon is kind of cloned their model so there’s an Amazon basic suitcase
Target just announced Their Own Line of suitcases that look very away ish and then they had their own kind of implosion with the CEO,
sending some unsavory slack messages internally kind of kicking yourself upstairs and then re kicking yourself back downstairs what do you make of the tumultuous times there.
Larry:
[32:10] Yeah so I think implosion is probably to stronger word clearly embarrassing for the CEO
to be berating her,
employees the way that she did in a very demeaning way and I think that she has said she’s embarrassed but you know one thing I would point out.
These are startups most of these people have not run companies,
and often you have you know entrepreneurs who aren’t great managers you know witness Steve Jobs at Apple,
right or Elon Musk at Tesla I mean both of these executives.
Were incredibly incredibly difficult to work with and the second thing I would say is that you know,
especially when you’re in the mode that away is in you know competing first of all with other startups which it ended up as the leading,
new luggage company and now competing against other existing players trying to get into its pace and copy what it’s doing,
you know it’s a life-or-death situation for a company and so you know sometimes emotions boil over I think the big question there is.
[33:30] Will that bad publicity affect ways image overall and you know you go on social media and you see people saying oh I’m never going to buy it anymore and oh I wish I hadn’t bought it and.
You know what week later those same people are outraged by something else.
So I’m not sure I mean I think time will tell how much it’s going to affect them but,
you know they have a good product at a at a good price it’s a value price right it’s not the most expensive and it’s not the best product but it is you know a good product at a good price,
and I think it could end up being one of the winners only time will tell but I think it could be.
Jason:
[34:07] Yeah yeah another one you know I feel like demonstrating how liquid all this is like obviously you you
you know the you mentioned our shave club was sort of one of your your first interest in this space and their well covered in the book and you alluded earlier to gillette’s prodigious market share
so like the the interesting news from last week and this week as last week the FTC filed the complaint and said that they were actually going to oppose,
Harry’s acquisition by Edge well because they felt like number to March it.
Larry:
[34:45] Which own chick.
Jason:
[34:47] Yeah exactly so Schick number to acquiring Harry’s which some people think is number four behind our Shave Club I actually have some data that looks like Harry’s may have a bigger market share today than Dollar Shave Club.
So calm three or four number two by his number three or four and the FTC was concerned that that would dramatically a road,
price competition so they they block the merger and and then this week Edge well announced that they weren’t going to fight it so there are.
Larry:
[35:17] To the consternation of Harry’s well you know like I’m not sure what the most recent data is the data that I got from an independent source,
that tracks sales said that Dollar Shave Club sales and market share was quite a bit bigger than Harry’s but separate from that,
I think it was an interesting decision I’m not a little bit of a puzzling decision you know kind of the FTC is letting Sprint,
and T-Mobile merge.
And put not Harry’s and sik or Edge well merge the barriers to entry in Mobile.
[35:54] Communication is much higher than the barriers to entry in razors and actually one of the things I think you know getting back to the whole point about how easy it is to introduce a new brand we let’s say that Harry’s,
you know starts raising its prices and starts doing business more like chicken Gillette had long done it that cozy relationship,
to me that would prevent a you know kind of two things would happen because of the way that the world has changed one dollar she would help Dollar Shave Club being in there as you know kind of offering this alternative view of the world.
And second,
it’s quite possible that another brand would come in and say Hey you know kind of these guys you know kind of are leaving their customers behind they’re not being true to what they were and obviously there is a market for what they were doing.
[36:42] And I think that’s one of the kind of long-term getting back to the Money Ball issue kind of one of the long-term benefits of what’s happened is that
we as consumers have more choice and
likely will have more choice in most consumer products going forward because it is so easy to introduce a new brand there’s been a democratization which leads
how did the fragmentation I don’t think we’ll ever see a prey on that you know kind of like Gillette has 70% market share in the future but that’s good you know that’s not bad,
you know I kind of finally I think part of the reason that that edge well sik backed out was it paid I thought the price that it offered was quite a rich price it was like 1.3 billion was even more than Unilever paid for Dollar Shave Club,
so although there was an awfully Rich price maybe they kind of at the end got cold feet and said oh maybe we’re paying too much for it you know kind of let’s let’s let that.
Jason:
[37:36] The I think the investors must have agreed with you because I feel like Edge well stock is up since the merger was called off.
Larry:
[37:43] Right right,
but long-term long-term sik Edge well is going to have to figure out how to better service its customers right because it was distant distant distant you know kind of number two to Gillette forever and it had,
combined combined Harry’s and Dollar Shave Club I think had more market share than Schick so that says something about the way they were doing business before the way they need to think about doing business going ahead.
Jason:
[38:10] Oh for sure and like I mean two things,
hey like it’s going to be interesting to watch it because you know in many respects when they announced this merger they said and we’re going to put the Harry’s guys in tired of our strategic plan going forward so they sort of announced to the world,
that we don’t have any good ideas and we’re trusting them to take the brand forward and so now what do you do when you don’t have those guys.
Larry:
[38:34] Right I mean you know you maybe you try to hire that talent but sometimes that entrepreneurial talent and that just kind of feel for what the customer wants is not so easy to duplicate in focus groups and such.
Jason:
[38:44] No but so I’ll admit very personally selfishly I’m disappointed that they’re not going to litigate with the FTC because per your point,
in the ftc’s complaint they made a lot of interesting claims and one of the claims was that,
Harry’s was able to capture significant market share and become a relevant player but they sucked up all the opportunity to do that and that it would be much more difficult for anyone to follow in Harry’s,
footsteps and therefore it was important not to allow this merger and like well as we discussed already in some ways it probably is harder to be the third or fourth mover,
in other ways,
like the the friction is considerably less like and it’s hard to imagine that Amazon couldn’t be a significant player or Target couldn’t invent a razor.
You can play or so.
Larry:
[39:44] Well Amazon as you noted earlier I think you mentioned it with.
Jason:
[39:48] Yeah they’re already in the space.
Larry:
[39:49] In the space but they have there are at least 200 new brands at Amazon has introduced,
over the last few years and I mentioned this in my book that are there have amazonbasics Brands but this is separate from that these are brands that you don’t know her necessary Amazon Brands unless you really drill down,
they actually have a shoe brand called I think it’s called Collective 206 kind of crazy name for a shoe brand but anyway they introduced a knockoff of all birds,
wool Runner Shoes recently and all birds took a shot of them and say oh your stuff is not sustainable materials and but in some ways Walmart is I mean she’s me Amazon is validating.
What all birds is doing and it’s somebody’s it’s giving a threat so you’re going to have,
all sorts I mean the opportunity to introduce new products new brands is you know kind of higher than ever before and then getting back to my point if Harry’s changed the way it did business.
So that it charged higher prices and and you know kind of acted more like chick that would create an opportunity for somebody else in the marketplace I truly believe that.
Scot:
[41:04] Yes can be interesting to see
you know if more of this gets blocked and what’s going to happen one one other topic I wanted to just touch on quickly that happened kind of post the book is the Casper IPO so you know I think Casper raised money as a private company at around
one to 1.2 billion and then they really struggled price in the IPO the kind of,
we’re talking about a 15 to 17 range and a pricing it at 12 its trading off of that
it’s interesting because I’ve seen a lot of people argue that these brands should get kind of one times revenue and then other folks have argued that a lot of these brands
because they’re more efficient they should get
two three four times so this one ended up kind of going right in I think they’re trailing 12 months Revenue are about 400 million and now their market cap is right around 400 million so they.
Larry:
[41:55] Or 500 or something like that but pretty close to it.
Scot:
[41:58] Get a pretty quickly zeroed in on that one X do you think that’s going to throw kind of a wet blanket on things or do you think that that I.
Larry:
[42:04] So yes but with a caveat so let’s look at the mattress space overall and how disrupted that has been.
So if you go back five years I met mattress business retail mattress business in the u.s. is about 15 or 16 billion dollars a year.
If you go back five years about 50 million dollars was done direct-to-consumer the bed in the Box friends.
[42:30] Last year it was two billion dollars and if the.
Barriers to entry fell in a lot of categories the barriers to entry in the mattress.
Category collapsed because it’s so easy to make a mattress and sell a mattress you get somebody to sell you foam you know you get somebody
just to so the bits together the top together and then you kind of get a machine that crams it down and puts it in a box and send it you had dozens does is I’ve actually heard hundreds but you know dozens of doesn’t serious serious players and I think that they’re probably going to be,
you know kind of maybe a half-dozen that emerge so in this in this you know kind of,
fiercely competitive free-for-all bare Knuckles free for all the way I described in the book Casper raises a lot of money and,
besides that it has to spend a lot of money to try to knock the others out of the box and become the leading and and I think that.
They made a strategic mistake I think they spent so much that it validated the whole category,
right so when you went and searched for mattresses online you found Casper but you also found tough to needle and purple and others,
and the second thing I think that they thought maybe that you know is like a network effect you know we spend moral kind of get others you know kind of have to drop out it hasn’t you know kind of those others have thrive,
so if you guys heard much about purple innovation.
[44:00] Okay so purple is a public company it stock is traded.
It came it actually didn’t start selling mattresses until like 2016.
Its stock has doubled in the past year it’s market cap is now 700 800 million I think it’s sales are 4,500 roughly the same as as Casper and tough to needle,
which was sold about a year and a half to go to Sur to Simmons for four to five hundred million dollars we started as I mentioned by these kind of too.
Software Engineers who just decided they wanted to make a product they raised virtually no money they had no Venture Capital Mike they had to be profitable from the start.
And they were and they sold the company they each together they had 90% of the company so you know kind of both of them did very very well
so I think that Casper you know kind of rather than being a poster child for all DTC companies is more of a poster child for,
kind of format a poorly managed DCTC.
You know I mean we’re going to see time will tell but when you have profitable companies in that space and their unprofitable then you know kind of it says that somebody doing something right compared with them.
Jason:
[45:20] Yeah it’s it’s a funny so a number of these guys have been on the podcast so Joe Mega bow who’s the CEO of purple has been on in JT Marino has been on and one of the cool stories JT told us was,
um that yeah you know that you know he mentioned that he hadn’t raised any money that you know some of these these
Venture funds that we’re starting this emerge specializing in data see all wanted to invest and they didn’t take the money and that his his version of the story was Casper was specifically created as a,
alternative to tough to needle that could be Venture funding.
Larry:
[46:01] Right right yeah though I I talked to him too as you know in the book and he told me that same thing but he was you know can it again they were high they had to be very disciplined.
Right because of the way they spent.
Jason:
[46:14] Yeah no I really admire that.
Larry:
[46:16] And I think that that Casper was undisciplined now that you know the final thing I would say about it is that you got you ever heard of a company called Tesla.
So a year ago.
Jason:
[46:27] Single-handedly is keeping them afloat.
Larry:
[46:29] So year ago.
Tesla was like almost given up for dead right oh we can’t get the production right you know kind of they have they can’t get you know kind of mass production of cars right it’s you know kind of he’s running out of cash you know he’s got so much debt and now it’s stock is at all-time high.
And they’re making money and why because they fix their fundamental problem which was you know they had a great brand name and a great product but they were kind of Highly inefficient the way they made it
but they appear to have gotten that under control Casper’s has still has a great branding I don’t know if they can pull off a Tesla.
But you know sometimes the the rigor and the discipline imposed On You by public markets can focus the mind and make you be a lot more efficient than you were and we’ll see but I wouldn’t count them out quite yet.
Jason:
[47:18] No I think that’s that’s certainly fair so,
you had this front row seat to all of these interesting Evolutions obviously so you know most of them are still sort of playing out like if,
if you had to put your prognostication hat on like how is all this going to play out like is are these got companies a blip on the radar and Joe Ed and p and g are going to keep on tickin for for another hundred years or you know like are we seeing the start of a.
Change.
Larry:
[47:48] Great question so I think that there will be billion dollar brands.
That have you know market cap or kind of they go public and there will be a billion dollar brand so they Corby Parker probably wants to go public you know kind of I don’t know that they’re making money but I think they’re a lot closer to it than for example Casper,
there will be other brands that will be you know kind of modestly successful.
And then there will be other brands that will be Niche brands that will be successful and niches have you guys ever heard of a company called lens simple.
This is one of my favorite one so so if you have a pair of eyeglass frames.
[48:29] That you really like maybe what a couple pair of designer frames a couple years ago and you need a new prescription and you kind of go back to the,
optician and you say hey can you know can I got a new prescription just put new lenses in my frames they look at you like you’re crazy I don’t know we want to sell you another pair of frames,
this company you send them the frames and they put in your new prescription they send it back to you.
So I think that they’re going to be a lot of Niche players like this and then they’re going to be companies that fail in the in the luggage space you know kind of away emerged as the leader among the startups and there were a couple of companies rate in and blue smart that ended up going out of business.
So you’re going to have you know kind of a whole array of this but I think the the ability to you know getting back to it bent or bury the ability to introduce Brands means that you know kind of.
Things have changed forever just like Moneyball started with baseball and now data analytics is used in every sport.
So you know can a big companies will fight back none of those companies are going to disappear but if unless they figure out a way to connect to Consumer better,
they’re going to have lower market shares and you know again I don’t think that’s a bad thing actually maybe as an investor in those companies that’s a bad thing but for consumers.
That’s a good thing because in the end more choice is better it keeps the big companies honest it makes them he’s like Gillette lowering its.
[49:58] Prices by an average of 12 to 15.
A couple years ago I mean unheard of that never would have happened without Dollar Shave Club at Harry’s coming along City.
So we kind of we’re in the early stages of this Revolution and I think the revolution like all revolutions you’re not exactly sure where it’s going to end up but you are pretty sure that it’s not it’s going to look quite a bit different than where we started.
Jason:
[50:26] Yeah no I would totally agree with that and I feel like we’re lucky to be sort of in the in the front row at a time when we are going through this revolution because it’s it’s not the status quo.
Larry:
[50:38] Yeah very fun to very fun to watch.
Jason:
[50:41] Yeah for sure and so until you write the sequel that’s going to be a great place for us to leave it tonight because we’ve once again used up all our a lot of time but in the event that listeners have questions or want to continue the dialogue
we always encourage you to jump on Twitter and send us a note or leave us a message on our Facebook page
I’ll be sure to put a link to Larry’s book in the show notes so that listeners can find that without doing anything dangerous while driving.
Larry:
[51:08] And and you can send me an email to my email address is on my wedge page web page which is www Larry ingrassia.com so.
Jason:
[51:18] I will I will put that in the show notes Larry thanks very much for being on the show tonight we really enjoyed our conversation.
Larry:
[51:25] Guys Jason Scott very fun thank you so much for having me.
Scot:
[51:29] Thanks I appreciate you taking time to fill us in on your book and hope everyone orders a copy ASAP.
Jason:
[51:35] And until next time happy commercing.
[…] Billion Dollar Brand Club: How Dollar Shave Club, Warby Parker, and Other Disruptors Are Remaking What We Buy – Lawrence Ingrassia (Larry was on Episode 207) […]