A weekly podcast with the latest e-commerce news and events. In episode 274 we deep dive into the S-1 fillings from both Warby Parker and AllBirds.
Warby Parker and AllBirds filed their S-1 registrations with the SEC in preparation of making an initial public offering. In this episode we deep dive into all the information revealed in the fillings.
Episode 274 of the Jason & Scot show was recorded on Wednesday September 1st, 2021.
[0:24] Welcome to the Jason and Scot show this is episode 274 being recorded on Wednesday September first 2021 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:40] Hey Jason and welcome back Jason and Scot show listeners Jason we have a lot of favorite things on this podcast but you know it’s even cooler than some fresh Amazon quarterly results hot new Gadget.
Even some exciting Star Wars news.
[0:55] No what’s God.
[0:57] A fresh delicious hot out of the oven S1 and you know it’s better than S1.
[1:02] I’m guessing to S ones.
[1:04] You are right that is right we have we’re very excited this week because not only do we have one s one but we have two s ones so I don’t know if that’s an S 1 squared or S2 or how we talked about that I guess 2’s ones,
and what’s really exciting is one of our favorite topics on the show is digitally native vertical brands also called dnv B’s and we have two of them that filed within a week of each other so that’s pretty exciting
so the two are Warby Parker
and allbirds and before we do a deep dive into those S ones and highlight some of the things that we found that were interesting for listeners I wanted to give everyone just kind of a reminder of a great way to read an s-1,
so an s-1 is.
[1:52] Haven’t haven’t done a gone public before it’s kind of like a sandwich so you have three parts you have this kind of first part where there’s all this introductory stuff
and you’re kind of like CIA in that part
and then you get into the delicious sandwich part of the the meat and potatoes of this one which is commonly called management discussion and Analysis they called em DNA
that’s the best part because really management actually writes that now they have a lot of guidance from lawyers and investment bankers and PR firm in all this Jazz but it’s really most of the times it is the founders you know
putting pen to paper and describing the business and their words
then after that you have the lawyers kick in and then you have a pretty good chunk of risk factors and then the accountants kick in and you’ve got your your
your Gap financials and all that stuff and all that’s interesting but if you’re going to I always start a nest one from the middle out so I like to read that mdna first because it’s the best way to hear about the company from the founders.
[2:54] Now Warren Buffett and his Charlie Munger they always kind of
famously start at the back of this one and they like to start at the audited financials and that’s kind of how they look at a business and that’s important but especially for these I think it’s pretty interesting because you know it
tells us why the founders do this dnv be thing how’s it going how do they think about their business what are the key metrics they’re looking at inside of there and I think that’s particularly relevant
for listeners of this show because you can learn a lot you know these businesses may be there ahead of you or behind you and your scale but it I always learned a ton about.
[3:34] You know what other operators are doing and thinking about their business and you pick up a lot of interesting new tidbits there may be things you like and don’t like that you can add to your repertoire.
Jason how do you how do you peel into a delicious yummy new S1.
[3:49] Yeah well I mostly take your advice that I guess to two alternative views is just skip the s-1 entirely and wait for the retail Roadshow and so you can kind of watch a movie instead of have to do all this math and read.
[4:02] Yeah I like the retail Roadshow too but sadly it comes weeks after this one so this one is like an appetizer before you get to the movie.
[4:10] Yeah and II may be uniquely odd in this regard but I do find it amusing and humorous to read the risk factors.
I know they have nothing to do with the business and weren’t written by anyone that has anything to do with the business but I feel like.
They’re increasingly more creative in the voluminous wig west of apocalypses that could.
Could strike the Earth and I want to say like of the hundred seventy one page Warby Parker S1 about a hundred pages of it is the risk factors.
yeah and I mean it is fun to read but you’re taking the right approach at it what drives me crazy is actually went through and looked at a bunch of the headlines for both these companies and I would say about 1/3 to 25 percent of the.
Press that covers you things you know to be and I don’t know if this is just lack of understanding or clickbait or some combination of those things but they always pull out the risk factors so you’ll see you know allbirds is worried about Nike as a competitor
and you know and then you’re like
what did they read about that and they’ve just pulled out a the competitor list of the risk factors well the lawyers are saying you know if anyone has ever sold a shoe put them in the risk factors you know it’s not like
it’s not like the founders in their own words are staying up late at night worried about Nike but maybe they are but.
Most of that stuff is not the founders words it’s lawyers kind of saying you know here’s a checklist list everyone that you’ve ever think you thought you’ve competed with now that’s their guidance.
[5:42] Yeah I mean the list of competitors isn’t remotely shocking it’s more of the zombie apocalypse that makes me chuckle.
[5:48] Yeah and now there’s all these,
yes every time new legislation comes out you have to add a risk factors know it’s like you know GDP our cyber security we use cloud computing that could go down we
it’s kind of like you have to think of everything that’s ever happened and you want to cover it so that if you do get sued you can say well it was a risk factor you should have known we warned you.
Cool so we flipped a coin and you are going to kick us off with a deep dive into or be.
[6:21] Yeah yeah so we’ll jump right into it and we’ll start with some of the financial metrics per your point is pretty interesting because these are.
Private companies they don’t necessarily disclose a lot of this and so you kind of go from like a
pretty vague view of these companies to a pretty detailed View and if you’re some other DMV be that still private like there’s great benchmarking data in here so Warby Parker.
[6:48] 20/20 in this is all complicated because of course 2020 was an anomalous year 2020 revenue for Warby Parker was just under 400 million in sales so 393 million and
kind of to give you a progression they were 272 million in 2018 then they jumped up,
370 million in 2019 and then you know a much smaller jump up to three hundred and ninety-three million in 2020.
The more eye-popping number is they have six months of data from 20 21 and they’re already at 270 million in 2021 so if you kind of compare first six months of this year to first six months of last year.
Last year there were 176 million this year there are 270 so they’re definitely seeing a nice clip of growth.
And obviously as you grow bigger you would hope that that scale would help you with profitability when you’re you know small and still you know in growth mode it’s sometimes hard to make a profit,
and in this case.
It doesn’t appear like they’ve achieved that escape velocity where they’re starting to turn a profit yet like the gross margins are.
[8:00] Are in a reasonable ballpark they’re pretty consistent in the kind of 658 to 60% range and so they are generating.
Net positive ebit has but they basically have had a net loss every year except 2019 when they broke even.
So what’s a little worrisome about that is.
[8:26] You know you like if you look at 2018 you said hey they sold 270 million and they lost 22 million on it in 2019 they sold 370 million and they broke even.
Like that’s looking like a pretty good Trend that scale starting to help them with their profitability but then in 2020 where they had a lot of extra costs from covid and as we’ll talk about in a bit they’re somewhat store.
They were even bigger 393 and they had their biggest loss ever 55 million,
and they’re doing better this year but they’re not on a path to profitability this year either so they’re the on the 270 million they’ve sold this year they’ve lost 7.3 million.
Um before I jump further does any of that financial news sort of surprise you at all Scott or does that.
[9:17] Now I have a different opinion but well we’re going to do a little kind of analysis again.
[9:22] I like it cliffhanger.
[9:23] Yeah yeah.
[9:24] So one of the interesting things well a all these digital native Brands you start off by like
generating some buzz and selling some stuff to people that are already friendly to you and it’s super easy sales and and cost to get those sales is very low but then pretty quickly all these companies go into digital advertising mode and they buy ads on Google and buy ads on.
[9:47] To grow quickly and the first ads they buy a relatively cheap because,
that they can you know Target a very specific audience and there aren’t a lot of other people buying that exact same audience so the,
the cost per ad is low and so the the customer acquisition cost can be pretty reasonable but as you get bigger.
[10:06] You have to buy a bigger chunk of audience from Facebook and more people are competing for that same audience and it’s a reverse auction so you have to pay the most to get the ad and so growing purely on this digital ad business.
Pretty challenging particularly when Google and Facebook are so good at optimizing the the the maximum cost per ad and so.
For almost every DMV be we’ve ever talked about they
they have trouble scaling and they almost always Implement some new tactics later in their evolution to kind of scale beyond the digital ad phase and so in war Beast Partners case they were one of the first retailers to say,
the MVPs to say hey we need to open a bunch of stores and stores can be really profitable billboard to help dramatically improve our customer acquisition costs so by 2018 they already had 88 stores,
and right now they have a hundred and twenty-six or a hundred forty five stores
so so they have a reasonable Fleet of stores that has grown pretty pretty quickly.
Obviously there’s a lot of extra costs for running those stores and obviously those stores didn’t do particularly well in covid.
[11:21] So some of the interesting things about the stores is that like in 2018 sixty percent of the revenue came from e-commerce
forty percent of the revenue came from retail about the same in 2019 but as they jumped up there store counts and 2020 that.
So in 2020 sixty percent of the revenue came from these retail stores 40 percent came from ecom’s so the store is really are becoming the primary acquisition Channel.
It’s super interesting to look at the.
[11:54] The unit economics of a customer how expensive it is to acquire a customer
how much money they make on each customer has sticky each customer is and different s ones you know give,
different granularity in case of Ori Parker they reported a customer acquisition cost so they said that in 2018 they spent $26 per customer to acquire customers.
In 2019 they said they spent $27 to acquire customers and in 2020 and the pandemic influenced year they had to spend more they spent $40 per customer to acquire customers now put a big Asterix on that there’s some controversy will get to in a minute but.
If you take those numbers on face value those are pretty darn good customer acquisition cost for this kind of business other.
[12:42] Kind of did you a native vertical brands that have have done it s one have disclosed some kind of eye-watering Lee expensive customer acquisition costs and so famously like Blue Apron was paying $400 a customer to acquire customers so so even $40 a customer
it’s pretty reasonable to kind of put that in perspective in 2020 they were getting about 218 dollars in sales per customer which is a little over two orders,
um so the the the unit economics are potentially viable.
Except for that sgna line and all the expensive advertising that they’re having to do which is ultimately driving that those those net losses.
So those were kind of my big.
[13:31] Takeaways and I alluded to a controversy friend of the show and former guests Dan McCarthy who’s a assistant professor Emery and one of the true gurus and in clv
he looked at this as one and at first he was like wow that’s a really good customer acquisition cost they should be commended and then he like started reading the fine print and
they’ve used a novel definition of customer acquisition costs they’ve divided all of their expenses by all of their customers and.
About sixty percent of their customers are returning customers so in theory.
You shouldn’t be dividing all of your digital marketing by your total number of active customers you should be dividing it by the new active customers and that’s kind of the traditional definition that Dan and most of the rest of the world use
we don’t know what that number is for Warby but it’s probably a lot higher than the.
Forty dollars that would be disclosed based on this kind of unique definition of customer acquisition costs.
[14:39] They did they kind of elaborate on that or.
[14:44] No they didn’t at all.
[14:45] And easier he just kind of picked it apart and like there was no.
[14:48] Yeah like they like there’s not enough data in the s-1 to try to estimate a.
Revised customer acquisition cost now what Dan has done in the past is he’s gone a hold of credit card panel data.
And kind of backed into like customer acquisition cost by looking at the the.
The spend from you know the from customers I haven’t you know I don’t know that he’s done that analysis yet for these guys are the even has access to the data to try but.
Yeah so at the moment we don’t know what their khakis I have to be honest you like even if.
You you kind of like double it because you say like oh they should have only been chart you know counting all these costs against the 40% new customers and not against the hundred percent active customers.
You’re still at like 80 dollars which is expensive you you can’t make money spending $80 for a customer that you only sell $180 to.
It’s still better than a lot of these other companies that we’ve looked at.
[15:58] The worse is Casper were the cactus a good couple hundred dollars higher than the mattress.
[16:04] Yeah and I would say.
Like these guys have about the most mature store model of any of these companies like Casper’s up there too but the next company will talk about allbirds has a lot less stores so,
you know if the opening your own stores is the way to lower kak then you would expect to see it in Warby Parker’s S1.
And my my takeaway from this is.
Either you have to get to a much bigger and you’re going to say something in a minute that potentially disagrees but either where we Partners hypothesis is you have to get to a much bigger number to get profitable.
And so maybe you know instead of one or million run rate I need a billion dollar run rate.
Or you need an alternative customer acquisition strategy beyond your own stores and digital ads which are the two tools warble uses and I would also argue where B is.
About as good as it gets at sort of organic demand generation and they do they do great like social they do gritty like they do all the other guerrilla marketing tactics so like.
I would you know if they’re not profitable on 390 million with their type of product it seems hard to imagine that someone else with the same type of product.
Is going to do much better because they seem like a externally they seem like a darn good execute.
[17:37] Yeah isn’t in the die where category is dominated by the luxacore Oslo Exotica and they own like everything right so they do they have you know they have a licensed almost every frame like.
[17:50] Yeah almost every designer brand you’ve ever heard of is a is actually like license to Exotica.
[17:58] Yeah then they own the.
[18:00] And they own a bunch of the chains of retail stores.
But they also do wholesale so Exotica like both sell all those license frames to the third parties.
And they sell through their own stores,
and they sell at a way higher price point than Warby Parker so they have way more margin like you know part of the premise of Warby Parker is the eyewear should be affordable so their average per glasses is $95 whereas.
Like that the aov firm exotic is going to be much higher.
I do I’m not a customer but I knew I do know people that are and they do tend to buy more I’ve heard him say is anecdotal but I’ve heard him say especially women they’ll say you know the prices are low enough I can buy a two or three different pairs that kind of they almost become accessories at that
just kind of interesting.
[18:48] So that’s what I was hoping to see right like you go man I’ve been part of a frame cost $500 I can’t own that many frames but if they cost a hundred dollars I might have different ones for different outfits right or.
Right and so yeah like.
Could their average order value be much higher but on average they’re only selling 2.14 pair of frames per customer.
So they’re like again frame is $95 their average revenue per orders $184.
Um so they’re not necessarily like seeing a huge kit I’m sure their customers like you describe but they’re not there are apparently are not enough of those customers that that’s.
[19:28] Change dramatically changing the economics
also where we park our his kind of expanded to be a vision care company rather than just eyeglasses so they launched contacts they have optometrist services in all the stores and you might go oh wow I wonder how those things are contributing and at the moment / this one they’re not,
like the the all the non glasses products cumulatively are about one percent of Revenue and all the Professional Services are one percent of Revenue so
these the the eyeglasses are 98% of their business now maybe that means there’s a lot more growth there.
[20:05] But like my so my overall take away.
These numbers did not surprise me in terms of Revenue it was about exactly where I would have expected
I wasn’t sure they would be profitable by now it wouldn’t have surprised me if they were so it’s a little concerning to me.
That they’re that they’re not.
Again if a ton of this loss in 2020 is because of the pandemic and they really did break even on 370 and if they find a way to end up profitable in 2021.
Um I’m their biggest Revenue year ever then you know that
that probably looks pretty good but I can tell you a ton of people were shocked by these numbers a ton of people thought Warby Parker was much bigger a lot of people were speculating that they were near or over a billion dollars in annual sales which I did not
view is very likely and so I think this is kind of a.
[21:01] Glass of cold water in the face of a lot of the DMV be Fanboys and d2c Fanboys that like these guys are,
are basically the poster child for that whole segment and they’re better than most of the other ones and you know even they do not have.
Home run financials and so you know frankly like this this bodes poorly for the financials of a lot of other like apparel DMV bees that we haven’t seen yet.
[21:33] Well I guess my seemingly controversial take is when.
You know when you talk to these investment bankers there’s all of this data that indicates that you should really focus on growth and not profitability if you’re if you’re if you’re in a
category like this which you know the pitch is there’s this new way to build a brand it’s direct-to-consumer it’s digitally native yeah we’re having some stores
so by focusing on ibadah you’re essentially saying we were making profit and we,
need this we don’t have anything to spend it in essentially because it’s just going to kind of move over to your balance sheet especially when do an IPO you’re in a load of the balance sheet with presumably at least a hundred million maybe more so.
When you when you look at the data especially at this scale it’s much better to lose money or to not get profitable for years because.
You want to pump all that into growth so every dollar you can drive into growth gets a much bigger multiple than a dollar that goes to the bottom line.
[22:42] So yeah so that’s that’s why and then the other challenges once you’re profitable.
It’s kind of hard to undo it the classic example is Amazon in our retail world you know how many times have you and I heard retailers complained that Amazon is a profitable this is when they weren’t profitable today they are only say they’re not profitable,
eventually Amazon got to the point where they just couldn’t not be profitable so but you know for a good kind of like,
I don’t know 20-year run their they weren’t profitable so they were the extreme example of this and it gave them much more leverage over like a Walmart who had been
printing ibadah never got used to it and got valued off eBay doc then you can’t go in and say,
there’s a new disruptor and hey everyone we’re going to we’re going to stop being ibadah positive and growing even on we’re going to focus on the top line to you know our spend.
500 billion on some fulfillment centers so it yeah I think it’s appropriate and I’m sure you know the risk factors that’s going to be probably one of the first ones is we.
I don’t plan to make money and we may never make money so yeah so I think it’s actually.
I would almost expecting to be losing more you know if I look at kind of 21 so a lot of these.
[24:04] S ones they do a six-month view because they don’t want to update it every quarter its kind of pain wdesk one while you’re in process so they’ll do it like a six-month you and I believe their six-month view was 270 million Revenue so that put them in a 540
anyone’s is that what it was the okay.
Yeah and then loss is 20 that’s even a lost that loss of seven so losing 14 on that that’s.
[24:31] The well the even has our positive by the way the it’s only the net loss that like so like they have they made 20 20 million ibadah on 270 million in sales in the first six months of this year so that’s.
[24:43] That must be the way you’re some accounting the other thing that’s really frustrating is a.
[24:48] They have all sgna below that you badal line which is weird to me at least I don’t like.
[24:54] Yeah that is weird.
[24:56] That’s that’s why you got from this yeah that’s why you got get from this positive ebitda to this negative net loss.
[25:06] Yeah this is one of the ways Amazon lost money for so long is they would capitalize the leases on now it’s become an SEC rule I think this gets kind of the edge of my accounting knowledge.
[25:16] Yeah and they didn’t there was not like detailed disclosure about the real estate so I that is an interesting question how they finance these stores and do they own them and all that stuff but.
[25:25] So I would almost say.
As in a potential investor I’d rather get to a billion dollars faster and have a negative ebitda a light you know at a 500 million they had like a hundred million ebitda law side.
I actually kind of think that’s okay especially if they could grow faster.
[25:44] Yeah and so I’ll just say I generally agree with you and I certainly get the argument about profitability the the bigger concern for me is there an 11 year old
company that’s executed about as well as you can execute done all the things that the talking headset are smart to do
and they only got two with a super compelling value proposition and very high MPS scores and they still only got to 390 million so I like my biggest
cautionary take away from this whole thing is
it’s way harder to get to a billion dollars then people realize and none of these companies have done it not one have them have gotten to a billion dollars in run rate unless you call like white cloth digitally native vertical brand.
So I do think scaling
is hard and if it’s hard for these guys it’s going to be a heck of a lot harder for these why you know companies that want to be super Capital light and not have stores and and all of those things and I well I.
worry about the profitability I will tell you the unit economics are mildly concerning their making a custom product like they have to you know make those lenses for each customer
and if they’re having to spend $80 to acquire a customer that only half their customers are buying a second time they’re only getting a hundred and
or 218 dollars in revenue from each customer and they have to make a custom product in that it just like.
[27:13] I’m not saying they can’t get to profitability at a billion dollars but it’s.
It doesn’t look like a home run business I could it still could be a good investment right and I mean as long as there’s someone that’s willing to pay more for your stock after you own it not saying the stock won’t do well at all but it doesn’t look like.
A company that’s likely to just you know generate like obscene free cash flow like Amazon does.
[27:40] Yeah I bet if you looked at a kind of store cohort you’d be happier with the profitability and maybe that was something.
[27:49] Yeah I would have loved to see that in this one and obviously they didn’t put it in there.
[27:53] Yeah you know and and yes so they must have been advised that the institutional investors aren’t going to be that concerned that I think.
I think they’re actually close enough with the lines are the lines are converging so you know you can kind of see if you just kind of.
Plot them out you can see they’ll cross no get profitable because they’re already been up positive So eventually they’ll get to that net loss off when the lines are diverging like Lyft and Uber when they went public they had to spend a lot of time in there s one talking about well we know our lines are diverging but it’s because we’re
if you take our cities that are over a year old they’re very profitable and
the reason our losses are growing faster than revenue is because we’re opening city so fast and that’s how investors got comfort in that example.
[28:37] Yeah and their lines are diverging from 19 to 20 now they’re going to say well but that’s covid-19.
[28:43] Yeah yeah that’s project I could see that.
[28:44] No I’m sure does yeah and especially again because stores.
So Scott what did you learn from the allbirds S1.
[28:56] Yeah allbirds was it was a good read I enjoyed it it was different you know so I kind of
appreciate that having read a lot of these it was less dry of any S1 especially the mdna section was felt like the founders had definitely
put their heart and soul into it I don’t know if you do you listen to the podcast how I built this they.
A really good episode on there and you know the thing another thing I appreciate about allbirds is there’s consistency there every time you every time I hear one of the founders I go in a store have an online experience
They’re very purposeful and brand message is very very tight in and until you try to do that it’s hard to appreciate how hard it is to execute on that so,
so I just really felt like that was interesting that even this one kind of landed on me as if you know
the same vibe that I got from the store and the product and everything so that was really cool and kudos to them on that
probably the most interesting thing about the allbirds S1 is they try to kind of tilt it and they say look we’re not going to do an IPO we’re going to do an S peo and what they’re essentially doing is saying
we want to elevate the discussion and talk a lot about sustainability and so they call it a sustainable public Equity offering and spe
now I’ll get into more of that but I wanted to go into some of the numbers first.
[30:26] So on the number side there 2019 Revenue was a hundred ninety-three million and then in 2020 they did 219 million so so that’s 13 percent year-over-year growth.
[30:38] So that was interesting to me and then they it has accelerated from 20 22 21 looking at the six month period to 27 percent,
they unfortunately there they’ve got a fair amount of international business you’ve got this kind of
no Financial impact of currency conversion the FX is what they call it so do their 25 or 27 depend on
depending on the currency situation but let’s call it mid-20s and.
So that’s interesting so they’ve got accelerating Revenue growth which Wall Street loves to call that ARG ARG
and then they broke out digital and said that it was 89 percent of their business and in 2020 that was a hundred ninety-four
did you see that going down because part of their use of proceeds is opening a lot more stores they have 27 stores as of the IPO so June.
[31:33] June 20 and then I’ve been 21 and then they have the pretty much say you know one of the
we’re going to open a lot more stores and it’s gonna be a big push for us they also are losing money they’re losing about 40 million a year so kind of twenty percent of Revenue is being lost
which kind of feels you’re going to lose money you might as well lose you know twenty Thirty forty percent of
of Revenue to accelerate so that felt more in line with kind of what I’ve seen is public-private
kind of vc-backed company coming into the public markets couple highlights on the other metrics they
talk a lot about how their nudging gross margins up they in 2018 gross margins were at 47% and then moving up to 51% and a good expansion there on the margin side that’s pretty typical as you scale and you start to nail down with any kind of manufactured product there’s definitely
margin benefits of scale right because you’re buying more
pallets of wool I don’t know what we’ll comes in sheep’s of wool and you’re getting more you know your.
Paying off your fulfillment centers and you’re taking a lot of these fixed costs you just putting more stuff through them so on a unit basis it drives in Crete drives down your unit cost just driving up your gross margins.
[33:00] They were they were much more silent on cackle TV than what you saw with Laura B and so some of the data they had was
they try to repeat customers and that number has gone up and.
2019 it was 46 percent of their revenues from repeat customers and then that was up in twenty twenty two fifty three percent
they last raised a hundred million on 1.7 billion and I’ll come back to that and then let’s see
the biggest thing about their IPO I hinted at the top with this spe oh is there all about sustainability and it’s pretty interesting because some people they just kind of throw that in there in the hopes that there’s
the public markets there are increasingly large number of either,
purposely built vehicles for investors that want to focus on this area or.
[33:55] There’s a big investors that are moving this way one of the biggest public investors is called Black Rock and they run out,
huge massive amount of capital most of it in mutual funds but I think they have some hedge funds and whatnot and their CEO is basically put a Line in the Sand and said by can’t remember the year but let’s call it
20 30 or something like that they are going to shed any investment it doesn’t really have
kind of a framework around sustainability and you know.
What people uses This Acronym ESG so environmental social and governance in essentially everyone wants companies to to self
report what they want to do across those three dimensions and even the SEC is started kind of hinting and recommending that companies that they’re going to start doing some things here and requiring them in things like us ones and then,
the thing that’s really interesting in a public company that I didn’t learn until I was kind of deep inside of one
a lot of these mutual funds so you go public and you have this new set of shareholders that are largely got mutual funds you’ve got index funds and you’ve got hedge funds and then retail which would be individual people like buying to their Charles Schwab well
the mutual funds in the index funds when you.
[35:17] When every year you put out these different things that you want your shareholders to vote on well they they don’t like to vote on those things they like to defer that to a third party and there’s several of these third parties once called ISS and the other ones called,
glass Lewis or something like that and these third parties therefore become very powerful because they aggregate a lot of the,
you know because these decisions are referred to them they thus aggregate a lot of power from your shareholders and they are really starting to get where they are
they’re saying you know even that’s going to be kind of the first Domino to fall I think where they’re going to say hey the recommendations we make on your board and comp and all these things that they have to opine on to the,
to to the shareholders that have Outsource that to them they’re going to really focus in on ESG so so it’s a big movement and there’s a lot of even CNBC runs like a every other day segment on this topic because it’s become such a big
big deal and you know I actually think it’s good I think you know you would as a as you know.
[36:24] Public means transparency and I think companies should be transparent about this stuff and if if they say you know I don’t know where
we’re a liquor company and we’re not really focused on this that’s fine or if they say we’re all birds and this is going to be a huge differentiator for us that’s fine too it just you know
at least let potential shareholders know where you are on the spectrum of things okay so that’s the background the.
[36:51] So these guys say look we we think this is so important we want to put a stake in the ground and we’ve come up with 19 criteria that we hope we’re going to be the first we’re going to kind of self rate ourselves against these criteria and they fall against,
cross effectively two categories for each of the es and the D environmental societal and governance so it’s things like you know they want to be carbon neutral they’re going to like an environmental
they’re going to favor vendors that that kind of have a similar
carbon neutrality and sustainability mindset to them and on the governance side they’re going to have more diversity on their board and those kinds of things.
[37:31] One of the interesting things they do explicitly State and this caused a lot of noise on Wall Street is they when you go public you get
all these people there’s kind of this this literal they call it the book so let’s say you’re going to sell a hundred million worth of shares
you do your Roadshow and then you typically end up with maybe a more orders than you have shares she’ll get 300 million so one way to you have an allocation problem so one thing you can do is you can just cut everyone back to a third and you can say well you want to 10 million now we’re give you three that’s how you could Jam 300 million of demand into a hundred million dollar
well these guys have said is we’re actually going to your allocation is going to depend on where you are as an investor as it relates to ESG so essentially they’re saying if you’re like one of these companies like BlackRock that that is really kind of
pushing the foundation there we may give you your full allocation but if you’re this kind of hedge fund that doesn’t really
even have a website and no statement on this then you may get no allocation or a smaller size allocation
so that was pretty interesting that’s the first time that’s been done and that that was kind of.
[38:37] Pretty interesting on that so encountered an actually mentioned sustainability in the s-1 over 200 times which is it just shows how important it is to them and you know a lot of companies.
Tried this out
but allbirds was founded with this right the whole idea of allbirds was could you find sustainable products to make a shoe with and they started with the wool even the soul is made from a plant-based material,
if it was obvious like she shows her something to remember what it is.
[39:09] But it’s not rubber it you know it’s not a you know
there’s two types of rubber there is a plant-based rubber from a rubber tree but most rubber is obviously from a petroleum-based so
the other thing I thought was interesting is the essentially layout they have five pillars essentially and they basically say hey here’s our five pillars we’re going to be product Innovative platform
Purpose Driven brand with an inspired voice.
[39:38] Connections with our repeat customers around the globe so so Global and repeat customers are important to them
vertical retail distribution strategy robust infrastructure creating a platform for scale
the sequence of those is pretty interesting because again the first one is product Innovation and then second one is purpose-driven and that’s where they capture a lot of the ESG stuff.
[40:00] The I thought for listeners this would be the most interesting one is vertical retail distribution strategies I just wanted to add one will highlight here
are digitally LED vertical retail distribution strategy combines our digital offerings with our stores so we can meet customers where they are delivering value and convenience with our store serving as brand begins
our company was born online from the outset we developed a direct convenient digital platform for our customers we opened our first store and 2017 have since been expanding
yada yada so and then they wrap up and say in 20 as of June 30 we
20:21 we had the ability to reach up to 2.5 billion consumers in 35 countries across our digital and Retail platforms so I thought that was pretty interesting where they’re basically saying this D and B,
be thing even though we’re at a relatively small scale we think it’s still important part of our future and stores are really more of a brand,
front face to the digital back and so I thought that was interesting,
let’s see that some data on repeat analysis but you know the.
[41:10] Those are the highlights they that is really confusing table where people bought more than their repeat purchase rate went up.
[41:19] I kind of get wrapped up in a chicken and egg thing there because like just by buying more haven’t you already made your repeat
purchase go up like I couldn’t unpack that in my head but I need and up figure that one out for me look at a secret credit card data
my analysis on this one so that those are the kind of highlights my analysis was this one was shockingly smaller than I would have thought you know I.
I kind of backed in this because I had heard that valuation of 1.6 on their last they’re kind of in this unicorn status here 1.6 billion in your like okay
a lot of these Brands you look at kind of public comps you get 325 x as an e-commerce company so let’s give them a generous valuation of 5x so they must be three or four hundred million and then.
Turns out they’re kind of in this lower 200 or 300 million scale so that was like well they must be growing at a crazy Pace because if you’re going at a hundred percent then you can still get a really nice vault.
A super-sized multiple like they must be that makes them hopefully even higher right so there like a
times multiple but they’re really not they were going 25% so it’s kind of a bit of a head-scratcher for me and I’m really curious to see how the IPO does because
I kind of assumed
I’m not smarter than than all these investors have looked at this and put this price tag on it so I must be missing something so you know the things I think I may be missing.
[42:43] You know there’s there’s a lot of talk they’ve partnered with Adidas and they’re definitely going after the running category and so taking on Nike if you can build anything that’s,
20th of a Nike that’s a big brand so that could be people could be looking at this and seeing the optionality of that is this could be you know
counter to Nike this ESG piece it could be that there is an supply-demand imbalance I think.
[43:15] I think this is definitely the case where there’s a lot more ESG aware dollars looking for places to invest than there are places to put them,
so that could be a factor maybe there’s some bullish bullishness on the store business where people have done models they say well if they’re at,
25 stores and they go to 250 that’s going to the growth is going to accelerate a tremendous base so you know I kind of swirl all those around and
you know it is interesting so I then I kind of put myself and say well if I was going to be with Nike how would you go about them and Nike doesn’t have a lot of weaknesses and yeah they’re ten years ago you and I would have said while their weaknesses are not going direct to Consumers but they’ve largely fixed that
right and you’ve got a lot of you’ve got a whole deck on that that’s excellent
so that’s not a weakness anymore and but you know Nikes weakness is could be there is a,
you know and I don’t know any facts on this it’s just there’s a lot of noise out there right that there’s these Chinese labor camps that their products are made in and these sweatshops and
children making the shoes and then certainly so there’s there’s kind of that that they’re kind of unclean sourcing if you will.
[44:32] People claiming it I have no idea what’s going on there and then you know there is an argument to be made that
Nike to my knowledge hasn’t done a lot to say wow our products are sustainable in these ways is just really isn’t their thing
so so it is a clever way to attack Nike and maybe it’s actually a combination of all these things that investors see and they say we think this is a pretty clever way to attack Nike they’re going to get some market share because we think it’s important to Consumers it’s important to us
and they kind of scroll all that together and that’s why it gets the bigger multiple so I may be curious to see how the IPO does to see if,
that multiple holds up or in a there’s definitely something going on there or maybe it was just an anomaly in the private Market.
[45:20] Yeah and in both cases like the.
The economics of the IPO aren’t really revealed yet right like we’re a ways away from from like Target prices and like understanding what the valuation is going to be for the IPO.
[45:37] Yeah yeah you know these guys that could have effectively a Down Round where they essentially say hey we want.
[45:42] Both have raised a lot of money at some like reasonably High valuations.
[45:48] Yeah and you know they probably wouldn’t be going public if the bankers weren’t telling them they’re going to get.
Yeah I really nice mark up unless there was some desperation reason and I just don’t they’re not burning enough Capital that I don’t think the existing investors couldn’t sustain them for years so so mi
bat is the bankers think that they’re going to do really well and we’ll see a big pop so it will say.
[46:18] Yeah well if you think so a I would say like one of the things that
encouraging so a one thing a few things to remember that are different between these two companies is allbirds is much younger than Warby Parker so I want to say Orbeez like 11 years old allbirds is like 5 years old so there
earlier in their evolution that 27 stores versus a hundred forty five stores and that’s a.
A huge difference because a big expense in having stores is advertising to get people to your stores and you know.
Beyond the digital advertising which is very expensive per customer like traditional advertising is much less expensive but you have to buy traditional advertising.
Based on a metro area and when you only have 27 stores it means basically you’re buying an ad to that getting amortized for a single store whereas when you have a hundred and forty-five stores you can have six stores in a
a big Metro and that same ad is driving customers to six doors so my first thing I would say is.
It seems like they’re committed to a store strategy but they’re early in the face like they could get an ice pop as they open more stores because all of the marketing and advertising that they’re already doing spending money on,
will work much harder when they get to a little bigger feet of stores and the.
There are economies and scale of running a fleet of stores versus at 27 stores they’re probably pretty inefficient.
[47:48] Yeah they talked about how they’ve had they’ve invested in some distribution centers into the store so they’re probably over distribution Centered for you know 25 stores.
[47:58] So I do think the stores thing is encouraging,
um I always am uncomfortable on the whole Purpose Driven thing so because I guess I’m going to mines and you didn’t mention it but
I think one of the novel things about them is they’re one of the first companies to go public that’s a certified B Corporation.
[48:16] There’s several others so there’s that brand for girls nothing to you.
[48:28] Okay well it’s I mean regardless
a hundred percent think as a marketing tactic that you’re a hundred percent right like there is a cohort of customers that really care about
a variety of these different missions and Nike doesn’t particularly appeal to a lot of them right and so.
Kind of providing a viable alternative you know is certainly a way to win a segment I do think.
They’re very credible like they’ve been talking about this this sustainability purpose since the very beginning they’ve invested in it the shoe is more expensive to make because of some of the sustainability choices that they’ve made so it’s not just kind of.
[49:12] Ecology washing on top of a you know a greedy brand and like I think their claim in their in their last one is that the the shoe has a like 30% less.
Less ecological footprint than a traditional shoe and I think traditional she was code named for Nike by the way.
So so I do think they are they are credible in their Purpose Driven thing and there’s a.
At the moment there are all these surveys of consumers that o gen Z is way more purpose-driven and and
way more so than older cohorts they say that you know they really care about a brand that aligns with their goals and they care about the ecological issues and ethical issues in all of these different things and it
feels like Auburn’s is well positioned to cater to those customers so superficially you go oh nice it’s a.
It’s a growing favorable Trend in there a strong executor at it and I think some of that is legitimate.
[50:16] But in the back of my head there’s this this famous academic paper from like 8 years ago called the myth of the ethical consumer and
basically all young consumers have always said in surveys that they care about these various missions but when you look at their spending habits,
there their convictions are a lot less strong than their stated preferences are and so I do I worry.
[50:43] About completely hanging my hat on consumers doing the right thing when they’re there.
[50:50] Happily buying a lot of Nikes obviously I did also think it’s interesting.
Obviously the unit economics are wildly different than Warby Parker because of the nature of the product
but they have 3.3 million us consumers worry Parker has two million consumers despite the fact where we Partners got this way bigger Fleet of stores and has been marketing for six more years so,
so they are getting decent reach,
both companies disclose their MPS scores their net promoter score and and they’re both astronomically high and allbirds is even higher than Warby Parker so they.
They’re making their customers happy.
They’re doing well the one thing that jumped out at me as a opportunity is for allbirds that would be harder for worry Parker is.
Okay you start out purely online and you’re growing through digital ads and then you start opening stores and you invest a bunch in opening your own stores what other levers could you pull if you need to get your customer acquisition cost down.
And it’s not obvious to me what the big ones are for for Warby Parker,
a play that some similar companies to allbirds have run is expanding in a wholesale once once they sort of reach a plateau and allbirds absolutely could do that as well and so it again
my takeaway from both of these companies is.
[52:17] Scaling is way harder than the the Twitter DTC Universe realizes they all want to imagine these companies are much bigger than they are because they’ve raised a bunch of money.
It turns out raising a bunch of money doesn’t equal winning a bunch of customers not saying these two companies can’t be wildly successful in win a bunch of customers,
I’m just saying it’s really hard it’s a huge competitive advantage to be a big company that already has a bunch of customers.
And it’s hard to start a new brand from scratch and catch up and these both of these are examples of that and it’s going to be really interesting as they keep trying to grow to see what.
What new things they try to accelerate that growth.
[52:59] Yeah absolutely and I was curious I just looked it up allbirds is an 86 net promoter score and War B’s latest measure is 83.
[53:08] And those are both astronomical and side note there’s some controversy about how people measure it in the inventors of the metric.
Our kind of annoyed with how everyone’s misusing it so it’s not guaranteed that that’s perfectly Apples to Apples but.
That those numbers kind of fit with the consumer sentiment that I’ve experienced for both brands.
[53:32] Yeah yeah we do a whole show on the purity of net promoter score.
[53:37] That would be awesome.
[53:40] But that in with some attribution man that’s a party right there.
Go well it wouldn’t be a Jason and Scot show if we didn’t have a little bit of.
[53:52] Amazon news new your margin is there opportunity.
[54:04] That’s right we got a couple in lausanne news items the one I wanted to chat with you Jason is,
Amazon announced they are partnering with buy now pay later firm a firm so that was an interesting one did that take you by surprise.
[54:21] It did it totally did not it didn’t surprise me at all that they’re getting into buy now pay later it’s a huge trend.
In a way like I knew they didn’t have one but it kind of when I heard it read it and I said it to myself out loud I was cut it’s kind of shocking.
That they’re just now adding it now they have dabbled in the past.
With with much earlier iterations of these sort of installment plans but what totally took me by surprise is that they chose a firm like a a firm is working with a lot of.
Direct Amazon competitors that aren’t going to be happy about this I’m thinking of for example Walmart.
And so I’ll be curious to see how that flushes out and have a firm can successfully keep both of those clients happy that would be impressive and frankly there’s just so much money to be made in this space and an Amazon scale I’m somewhat surprised that they didn’t do it themselves.
[55:14] Yeah that shocked me to the thing is I’ve been digging into these being the combi and pills and it’s really interesting so if you look at a firm karna and a bunch of these,
you know what they’re finding is the under 30 year old consumer,
doesn’t like the way credit card debt Works where you have this pool of you know
that you can pull down and then it accumulates they much prefer
to match it with a purchase and pay off the purchase and it’s really interesting to read about that and then the the both the firms in there s ones they have a lot of data around us and increasingly even after they’ve gone public there’s more data coming out about this trend
so I was I was thinking.
You know why Amazon has they if you’re a seller though and you money you know they’ve got their own credit card there’s got to be like.
What is the larger Banks kind of effectively inside of Amazon that doesn’t really Market itself as a bank because it doesn’t want to be regulated like a bank maybe that’s part of what.
Triggers them not doing it.
[56:16] Dress fear about yeah Fair.
[56:18] Yeah there’s any trust thing but it is funny you know we’ve been at this long enough I remember.
I’m old enough to remember there was this startup called bill me later and they came on the scene and Amazon used it and you know
loved it and was actually giving them quotes that conversions were up 20 percent and then eBay bot eBay / PayPal but Bill Me Later and Amazon ripped them off the site the next night it was controversial and we’re all like
holy cow I can’t you know I think we’re all shocked how quickly Amazon turned that off after seeing his praises
so it is kind of funny to watch now Amazon jump back into it you know probably been 15 years at this point back into it and partner up with the firm
so I almost kind of wondered if.
Maybe there was an investment phase but also doesn’t Shopify own a chunk of a firm like there’s an alliance there too which is another it’s unlike Amazon to lay down you kind of have connections into.
Competitors even one degree away with a firm in the Middle With both Walmart and Shopify it all.
[57:22] And there is Juicy data at play in this service so it is it is interesting.
[57:28] Yeah days was famously he wouldn’t ever he really didn’t want to buy any Google ads because he didn’t want them to see what they’re up to.
[57:36] No I mean part of me would almost suspect that Amazon is like trying to learn on a firm and that it wouldn’t be a long-term deal but I entirely speculation.
[57:46] I think both of our Spidey senses are tingling on this one and we’ll keep an eye on it then there was a battle of press releases where
Amazon Walmart said we’re hiring 20,000 people and then Amazon du ha ha we’re hiring 50,000 so that was that was the other Amazon news I saw.
[58:02] Yeah I saw that too I got to be honest to me those were nothing Burgers it’s super complicated both of those companies hire a ton of seasonal Labour way more than that right and.
Sidenote like targets hiring a hundred and thirty thousand people for Christmas so those numbers just didn’t seem that impressive and if I was if I was Walmart my press release would have said hey we’ve hired 500,000 people since covid-19
like that seems that’s true and that seems a lot more impressive than than the 20,000 I guess what is interesting in both cases is,
this is not seasonal labor these are full-time jobs just dedicated to fulfilling e-commerce orders so that’s kind of interesting.
[58:42] And two other tiny pieces of Walmart news in the the time that we don’t have left Walmart did announce.
An enhancement to their advertising echo system so they have a thing called the Amazon or Walmart connect and they launched a DSP for that.
Demand-side platform it’s a way to use Walmart data to Target segments and by ads both.
On Walmart so walmart.com and in Walmart stores but also
um across the the interweb using Walmart’s first-party data and as we talked about in our privacy show as it’s harder to use Google and Facebook targeting because of all these privacy concerns.
It makes sense that that retailers are trying to maximize The Leverage they have with their 1p data Walmart has the most customers so they have the most wimpy data
and so that that’s kind of an interesting evolution of their ad platform and a potential competitive Advantage for Walmart.
[59:47] And then another one that’s just kind of interesting that I didn’t necessarily expect Walmart launched a new delivery platform.
Which is delivering goods for other retailers.
So they call it Walmart Go Local and essentially you can be independent owner operator you know,
in a town and sell stuff for home delivery and Walmart will use their network of owned delivery.
People in vehicles to pick stuff up from your bakery and drive them to a customer for a fee.
[1:00:19] Yeah we’ll see how that goes I don’t know if I want my bakery to be delivered by Walmart.
[1:00:27] Yeah I mean there’s a number of issues it just to me it’s interesting because obviously Walmart used to be a pure retailer
you know you’re seeing them lean into a lot of services they it was a few weeks ago but they announced this deal with.
With Adobe whether they’re they’re selling software to Adobe and now they’re selling delivery services to you know Main Street when you know used to be the narrative was that Walmart was putting Main Street out of business so it just it’s interesting to see the evolution of Walmart.
[1:00:57] I’ve whenever Walmart talks about some of the services they show kind of a low WalMart delivery vehicle that looks a lot like an Amazon Prime van.
[1:01:06] Yeah they have a lot of different they have kind of a patchwork Fleet of delivery services and some of them use different vehicles but you you maybe more expert in the Walmart delivery Fleet than I am.
[1:01:20] I just see this picture and it I think a lot about Vans everyday and it resonates with me.
[1:01:32] I appreciate it thanks for looking out for me well we are out of time and one of the topics we wanted to cover but what
with all the juicy IPO news didn’t get to this time but will dedicate neck so to it is there is a lot coming up we’re kind of coming in to wear it
the past the halfway point of Q3 and all eyes will turn to Q4 with the holiday season it’s going to be really unique this year because
we cut the covid thing we’ve got the Delta variant we’ve got
all kinds of crazy weather going on with hurricanes so as a retailer it’s a really wacky time
and one of the things we want to talk about next show is ship again so we coined that here on the show last year and turned out to be probably bigger than even we anticipated what’s going on with that and 2021
I see a lot of time thinking about Vanagon there’s also chip again so which which caused Vanagon so with want to talk about all the geddens that we’re seeing out there.
And then also you know there’s a lot of interesting things going on the supply chain we’ve been you know the team here at the Jason Scott show and our many analysts have been listening in to
the quarterly results and and talking to retailers about this and we have a lot of information to share on that kind of T up what we think the holiday is going to look like from from those angles.
[1:02:55] Wow that sounds like an awesome show I can’t wait to hear it.
[1:02:58] I know I cannot wait for us to make it.
[1:03:01] Will Scott it’s happen again we’ve totally used up our allotted time as always if this was valuable we sure would appreciate that five star review on iTunes and only takes a second it’s easier than ever before to leave it
jump over there give us a review and make sure you’re subscribed to get that next podcast Scot teas.
[1:03:21] Absolutely thanks everyone and until next time…
[1:03:24] Happy commercing.