Episode 38
July 11, 2017

Is Retail Really in Crisis? - A Merchant to Merchant Special

Today we're bringing you a LIVE panel as featured on "Merchant to Merchant" Episode 5, a podcast by Something Digital. This panel discusses whether retail is in crisis, and if so, how do we deal with The New Normal?

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Brick and Mortar retail is in crisis, digital is thriving. We discuss the ins-and-outs of what makes a successful digital commerce strategy in businesses that depend on wholesale, and how to find success in a vertically-integrated direct-to-consumer brand. A panel of veteran ecommerce managers discuss how to navigate the months ahead and map out their own plans for success.

To hear more episodes of Merchant to Merchant visit the site here and subscribe on iTunes

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Phillip: [00:00:53] Welcome to Future Commerce, the podcast about new and cutting edge commerce. I'm your host, Phillip Jackson, and we have a very special episode for you here today. This is a bit of an experiment. We did a live podcast event in New York City at Rothman's, which is a historic men's clothing retailer in the heart of Manhattan, right in Union Square. And we had that event. We had three retailers on a panel in a roundtable talking about retail crisis and retailpocalypse. And are we in the midst of a retail crisis? And we answer some really great questions. And I couldn't think of anyone better to share this with than with our Future Commerce audience. So this was recorded live at a Merchant to Merchant event hosted by Something Digital and sponsored by Magento. And I wanted to bring this to you, this one and only time, because I felt like the content was just so great. So let's go and join it live in progress right now. For Merchant to Merchant, Episode 5: Frenemies.

Phillip: [00:01:58] Hello and welcome to Merchant to Merchant. A podcast by and for merchants. I'm your host, Phillip Jackson, and we are live at Rothman's in New York City. Make some noise, everybody. We have a live studio audience, and I'm excited to be joined today by a panel of really great retailers. I'll let them introduce themselves. I'll start with you, Lee.

Lee : [00:02:19] Hi, I'm Lee Bissonette, and I'm the VP of eCommerce for Marc Fisher, Sigerson Morrison, and Easy Spirit.

Julie: [00:02:29] Hi, my name is Julie Lefkowitz. I am the head of eCommerce for a Ramy Brook.

Heather: [00:02:35] Hi, I'm Heather Kaminetsky. I'm the President of a new company called DreamLabs. I most recently, prior to DreamLabs as a startup, was the CMO at Net-a-Porter.

Phillip: [00:02:45] Great. Well, glad to have you all with us here today. Our topic of discussion is the new normal. How to grow a digital, retail channel, in an environment where retail is in decline. And so we're gonna have a few questions that will kind of get conversation started here and maybe to get us kicked off, Lee, you could start here. What ways is your brand or brands at Marc Fisher footwear most dependent on brick and mortar?

Lee : [00:03:12] Well, we're wholesalers. So even though we have the Easy Spirit brand, that's the retail chain related to that is not ours. And that's been phased down. So the retailer's health is pretty important to us. It still accounts for a majority of our sales. And anybody who's in the business of being a brand that has to compete against your own customers, what you really have to find for most of the brands is a way to both be distinct from them, but also support them. It's a very symbiotic relationship that you have to be very careful about.

Phillip: [00:03:45] Julie, I know that you have been touched by this as well. What is your take? And how is Ramy Brook impacted really by what I would assume is a wholesale business? But how are you impacted by brick and mortar retail?

Julie: [00:03:58] So we are predominantly a wholesale business right now. We do have one store down in Soho, and we have the online store, of course. So I think in the same way that any wholesale, retail or wholesale brand is vulnerable to not only the decline of brick and mortar, but the decline of the department store. That's definitely something that like every week in our sales meeting, we talk about some of our accounts, even though, like we're one of the fastest growing brands in their portfolio, they're struggling. And they put a little bit more pressure on even their strongest brands because they need to make up for the fact that the legacy brands that aren't moving as quickly, it's kind of falling through for them. I was it Opening Ceremony before this, and we face a similar issue. And then before that I was at Urban Outfitters where Free People had a wholesale line. And I think a really cool thing they did is they had an assortment difference between wholesale and DTC, where there was only 20% overlap between the two. And that was to me, it's much more bigger lift from a production perspective, but that made it much, much harder to make the argument that we were cannibalizing each other. So I thought that that was really a great approach to making sure that, like you were saying, like you're kind of competing against your customer, to eliminate that.

Phillip: [00:05:17] It's interesting. We were having a conversation the other day with the retailer here in New York, and they said the same thing. Product differentiation across their channels is one way to combat that. Do you feel like that that causes brand confusion in any way? Is somebody brought into the brand with the lower line and then confused by their being exposed to a higher end line elsewhere?

Julie: [00:05:39] I think that there's always a little bit of risk of that, especially like in a department store environment where you don't have total control over the fixtures or how your brand's presented or who your adjacencies are. Definitely a risk of not being at that elevated stature the way everybody wants to be. But I don't think it's a prohibitive risk by any stretch.

Lee : [00:05:58] Interesting that we go the opposite way. I have a higher end line than what the retailers get for the most part, or I have parodies. So what we try to do is hit the minimums to do color variations, technology throwbacks, if we can pull an old construction out that was really popular back in the day, we'll try to bring that back and we'll always have those. But we think of ourselves more as, or at least we position ourselves more, as a canary in the coal mine for the retailers. And we provide a lot of data back about whether people looked at it, viewed it, added it to cart, bought it, and we use that in our selling to retail when they're doubtful about those styles. So it's a really positive thing for us.

Phillip: [00:06:34] And Heather, I know that you've spent some time. You were at one of the more famous department store brands or sort of an amazing name, Barneys New York. In your experience, what do you think the impact on brick and mortar is for the independent fashion retailer today?

Heather: [00:06:53] So I feel like tomorrow we're still going to have all the department stars. They're not going anywhere. Barney's is not going anywhere, just as an example. But I think what's going to shift is the relationship between the two, as when you're working at a department store, you have the responsibility of your primary brand, which is an example of Barneys, Barneys, as well as the 748 brands that live within your store environment. You cannot market 748 brands as well as the brands themselves can. So there will always be a place in the world for brands to market themselves and brand themselves. But what the department stores offer is an environment to go to where you could see multiple brands. No offense to brands. I love brands. But like no one wears head to toe anything. Like even if you love Gucci, which I do. But even if you love Gucci, you're not wearing it head to toe all the time. So you need a place where you can mix the match. So the stores will always exist because consumers, if you think like a consumer a consumer doesn't shop one brand. So at Barneys what we used to do is just put ourselves in the mind of the consumers and then market when we could and use a lot of different marketing verticals to help steer our customers to specific brands. We did a lot of personalization back then.

Phillip: [00:08:09] The store is about discovery.

Heather: [00:08:11] And experience. Back when we put, I think you and I spoke about technology platforms... We put technology into the Barneys stores. iPads when iPads came out. And consumers loved it, and then we learned that they wanted to pick up in-store because of the iPads, and they love that experience. So technologies in store has helped as well for the experience.

Phillip: [00:08:33] One thing that we talk about on another podcast that I run called Future Commerce with Brian Lange, we have this conversation that brick and mortar can't go away entirely because brick and mortar does the one thing that digital could never do, and that's to have human interaction and to have somebody who's the specialist in a product who will engage you in a new way. That can't be replaced by an AI because any AI doesn't have the empathy of the person that walks into the store and can't just see the fact that I have very oily skin, and I need that correct toner for my face. Right? As I experienced at Lush the other day. But it's one of those interesting experiences that it does skirt a fine line of sort of being an intrusive and annoying experience. Some people prefer not to have the human interaction, but where it can excel, it will beat digital every time. Lee, I wonder if you have a different take on this.

Lee : [00:09:24] I think what you're seeing is correct. I just wouldn't necessarily agree with the reasons. I do think AI will be able to tell that you have oily skin and whether or not I even need AI or whether I'm really interacting with an interactive hologram that's sitting in a call center two thousand miles away may be the question. You know, so I don't know if that's what stops me. I think what still stops me and still brings me in are two things. One, retail becomes experiencial. It becomes fun. It's something that I actually want to do with other people in the real world. And I think the second thing is, you know, it's hard to... I don't care how many gloves they give me that let me feel things and glasses that let me see things. I can walk up. I can touch it. I can feel it. I can put it on. That's going to be a tough sell to get past, even with free shipping, free returns, and all the rest.

Phillip: [00:10:12] You mentioned iPads in the store. Heather. Do you think that technology in store drives people into stores? Is that something that consumers are looking for today?

Heather: [00:10:21] No, I don't think so. I think that in the mind of a consumer, the reason you come into a store is for an experience, whether it's the touch and feel, the social engagement where you go with your friend shopping. Technology... And I think we actually spoke about this. I think that where a lot of the department stores went wrong is technology became their focus and they forgot about the customer. We all as customers use technology, but we don't use technology just to use technology. We use it for a reason, and then we use it to make a purchase or to understand something more about what we're trying to purchase. And the department stores went crazy and completely lost touch with the customer and how the customer was engaging with the technology, and they spent millions and millions of dollars. So, no, to answer your question, I do not think people walk into a store to feel technology. I think if technology can enhance an experience, then great. But otherwise, forget it.

Phillip: [00:11:19] Julie, where do you see technology fit in a retail experience, and how are we doing it wrong right now?

Julie: [00:11:26] I think I agree a lot with Heather, that it's there to enhance. Like I think about Rebecca Minkoff and them doing their digital dressing rooms maybe three or four years ago now. Because I was still at Urban Outfitters, and we were having the same discussion about we have 500 stores in the portfolio, what are we going to do with them? And there was this idea, if you could do like a bigger footprint, like a fifty thousand square foot store instead of a 5000 square foot store and make it not just apparel, but also bake in a coffee shop, a restaurant, like a beauty salon like Harold Square. Sorry. Harold Square up on 34 Street with the bigger Urban Outfitters. Like that was an experimental model that was born from this conversation we're having around technology needing to be enhancing. Technology was never gonna carry the store. So it's cool if you can walk by a beacon and it can say, "Hey, we recognize you're logged into your account, and we recognize your phone, and this is everything you were looking at on the web two days ago." Like a reminder, it's here in the store, and that you can be enhancing, but it's definitely not what's driving people.

Phillip: [00:12:25] Right. I would agree. I think technology is assistive to the experience. And I say that as a company, you know, Something Digital. We create technology experiences. So we tend to focus solely on the technology. It's engagement with the brand that I think is the larger piece. The brand has to have a voice that comes out through the technology. And I think that's what we're losing. It's technology speaking on behalf of the brand instead of the brand speaking through technology. If you see what I'm saying. Lee, how do you do that with a brand like Easy Spirit and potentially a customer base that's not engaged at that level of technology?

Lee : [00:12:59] You know, I think that was the first finding that was interesting. So we looked at Easy Spirit and a lot of people had a lot of opinions about who that customer was, how old she was and what she would or would not do. And it factored into making decisions about whether or not you would automate the return process or whether you would just pack a label and put it into her box, because she would only call the call center. She would never do it online. That was the line of thinking. Then I saw the call center logs, and I started reading the problems that she was having and she had very sophisticated problems. She understood what the problems were. And I started looking at the percentage of contact center that came in through chat, which arguably is more leading edge technology, even though it's sitting on the web site and all the rest. You know, the old person who supposedly buys our product didn't want to chat with somebody. She wanted to talk to somebody. All those stories were false. They were stories about a woman who was in our collective unconscious as this homebody grandma that, you know, I don't know, that never existed. And I think about my mother, who is now a professor of nursing, but was a nurse for 35 years, wore Easy Spirit every single day of her life, has an iPhone, has two PCs, has a smart TV, not too sophisticated, but buys everything online, understands how all the apps work, Skypes her grandkids every Sunday. She's not technologically missing anything. Or challenged. Thank you. That's the right word. So then we had a re-adapt our thinking to this customer, who is now the baby boomer. Still by far the biggest spending piece that we can look at who is now in this age bucket. And it changes our entire marketing approach. It's definitely going to be a technology first platform, and we're going to start treating her with respect for her technical aptitude instead of assuming that she can't do any of those things, because all we're doing is making her upset.

Phillip: [00:15:05] Julie, how do you come to understand your shopper? How do you come to understand your customer? And have you ever had a false assumption that was proven out through means of asking and investigating like Lee just talked about?

Julie: [00:15:20] Sure. So I guess since I've been at three different places, it's been different in each. Urban Outfitters. They knew that customer inside and out. It was just drilled into you from day one across all the brands in the portfolio. And that was very much the founder of that company, making sure that everybody thought customer first. Opening Ceremony is much more of like a product oriented company. They were the best that they identify new designers and like what's going to be the coolest, latest, greatest. They were the cool kids down Cosby Street. I did do a CRM survey there just to understand more about the difference in our customers across the store's business and the online business. And one of the working assumption was always that that online customer was younger, less affluent, like not able... Because the businesses had a very different profile. Like just didn't have the same purchasing power or taste level. And what we found was actually that they were very similar in age. Yet the store's customer is a little bit older and a teensy bit more affluent. But that online customer wanted to see, like wanted to have that amazing... The in-store experience is incredible. It's like walking into an art museum. It's like nothing else. And online, we just weren't delivering at that level. We kind of looked like every other web site before we did our redesign and we were working a lot on the photography and like the model selection on itself and just that, like sense like you have to have it. Like we weren't delivering that digitally. That's certainly something that we spent a lot of effort on redoing in our redesign. Yeah, a lot of the stuff I think comes out through surveys. I worked in the store. I worked in the Opening Ceremony store. I would just talked to customers to figure out what's going on because, like, that's the easiest thing to lose in your work in digital. Is that like contact with the customer.

Phillip: [00:17:12] Right.

Julie: [00:17:12] So it was their surveys in person just talking to people.

Heather: [00:17:16] So, Heather, you're starting from scratch and you don't have a customer yet. How do you create a persona of a customer that you haven't won yet?

Heather: [00:17:27] I'm guessing. I hope I'm guessing right. No, I created the customer segment based on a lot of research. To be honest, there was a lot of research done behind the scenes. The other thing I would say sorry, just to give props to Net-a-Porter for one second about understanding your customer. So Net-a-Porter was founded online, is still online. There're no stores anywhere. And one of the things that the founder, Natalie Massenet, actually taught each of us is that you really have to understand your customer. Forget surveys. Forget all of that, like go out and meet your customer. So many of us every week would sit with two or three customers, and they would literally tell you exactly what was wrong.

Phillip: [00:18:12] Wow.

Heather: [00:18:12] And so people always say to me, "But isn't that so annoying? Don't they say the same things?" And I'm like, "Nope." Some of our greatest ideas on service... So for Net-a-Porter, customer service was always first. The same day delivery. All these programs, actually, many of them came from customers. The ideas that stemmed from sitting for a lunch with a customer. So even though it's the most digital company, like everything's online, they really understood their consumer base and that helped them grow.

Phillip: [00:18:43] Wow. And when you're going into a space like fashion, I think it's easy... The value prop is there because I think the customer that you're looking for is someone who wants to look good and someone who cares to spend some money on their look. How do you attract... How does DreamLabs attract a customer? Do you feel like you're going to have to educate a market like Casper had to educate someone to buy a mattress online?

Heather: [00:19:16] I think there will be a learning curve. I think the biggest challenge I'm going to face is getting the brand out there. So today, the market is flooded with brands more than ever before. There're brand names that just passed by you every day. You don't even know what vertical they're in. They're passing by so fast. So how do I literally cut through the market to create enough branding and awareness about the brand, is I know my biggest challenge. And once I get the product into the customers hands, I know they're going to love it.

Phillip: [00:19:48] Lee, you looked like you wanted to jump in.

Lee : [00:19:51] Well, no, I shared the same experience. So I started my career at Macy's. And I started in January. So I spent 11 months trying to solve all the problems of the world, knowing that when we got to holiday season, they had a rule where you had to go and spend six days in the store. And I learned the answer to every problem I had accumulated in 11 months by spending six days in the store. I went out as frequently as I could after that. Then I went to dot.com companies, and I've learned that every member of the staff needs to get on the phones and answer customer service calls. They need to get on a chat. They need to respond people, because you're absolutely right. Well, you're both saying the same thing. It's a hundred percent. You can get so disconnected from the customer and get caught up into the psychology of what you think the customer wants based on data. It's nice to avoid talking to people sometimes when all they want to do is say something bad to you, but you need to hear it. And it's that hard truth that makes you better.

Julie: [00:20:44] What were some of the questions you had when you first started Macey's that by the time you got to December and you met with the customers, they answered for you?

Lee : [00:20:51] Well, you know, it was funny. With Macy's it was different. It wasn't meeting with the customers. It was meeting with the associates who worked in the departments.

Julie: [00:20:58] Oh ok.

Lee : [00:20:58] So I sat in the executive world, and we'd look at these stores and we would treat them, you know, kind of like a lot of people treat millions of dollars when they look at it on a PNL as if it's nothing. You know, it's oh, it's one zero zero zero. No, that's a million dollars. We would see a store and be down, and nobody really knows why. And everybody comes up with all these theories, and you get five minutes with the store manager on the phone. And I don't really know. And it's not my business. Click. You know, you go out there, you talk to the associate and you realize that the guy sitting in a department where he can sell beds, or he can sell rugs. He goes over and he sits on the bed the entire time he's selling and sells a fifteen hundred dollar bed to somebody every five minutes like clockwork. He goes over the rug department because they're not hung up on the wall for people to go through. He has to lift this huge... I couldn't even do it then. I certainly can't do it now. And this guy was ten years older than I am now, and he's trying to lift this thing up. And it's an arduous process. And what does he get? A seven percent commission on a five hundred a rug. That explained everything. We put the racks up. Business goes through the roof. And every business, there were 40 different businesses in the portfolio that were completely different from each other. But every business had things like that. And the people who worked there knew the answer. And the people who shopped there knew the answer. The only people who didn't know the answer were the people sitting in the office making all the decisions. So connecting that dot, I think, is pretty important.

Phillip: [00:22:15] So this begs the question then you can't get further from your customers than sitting on the other side of a computer screen. Why is the retail sector declining? Is it declining? Is it all hype? Anybody?

Lee : [00:22:32] I think we're going through decentralization. I don't think we're going through a decline. I think we're going through a process of de-industrialization. I go to a butcher that just opened up in my neighborhood. A butcher. Like 1920s, just opened up in my neighborhood, has a cow up on the wall. I spend 1.5 as much as I will at Whole Foods, which is already one and a half times as much as Gristedes. And I'll do it all day long. And the line of people in front of me and the line of people in back of me will do it too, because... I don't even know if it's better for me. But it feels better. The atmosphere is better. And there's just this culture that is developed around it that these people genuinely care about what they do. And it's real. And there's no supermarket in the world. And Whole Foods. I'm sorry. People think it's authentic. It's not. They just can't do that. And that's what I think is going on.

Phillip: [00:23:29] They call it Whole Foods Prime now, by the way.

Lee : [00:23:31] Yeah. Exactly. Powered by Amazon.

Phillip: [00:23:33] Yeah. Yeah.

Lee : [00:23:35] Yeah. I mean, I think that's what's going on. I don't know if it makes it as big as the current retail sector is. Maybe it'll be less money, but it'll be a lot better, and it'll be a lot more personal. And I think that's what I see going on.

Phillip: [00:23:47] Heather, do you think that retail is in crisis or is this just a headline?

Heather: [00:23:52] I think it's a headline, but I do think that the executives who sit in a lot of these department stores need to really, I guess, get on the floor, you know, and understand how the consumer is engaging with their brand and their stores and digitally. I think they've almost lost touch and gone into this crisis mode themselves. Like, we all still shop. People are still buying things. It's that you have more of an opportunity to buy from more places. More brands are going direct to consumer. So do I think it's a crisis? No, I do think there's a little bit of an Amazon effect happening right now where it's taking away a little bit from the stores. But over time, we'll see how much damage it does.

Phillip: [00:24:37] Twenty three minutes we made it before mentioning Amazon. I think we should all give ourselves a hand. That is a new record.

Lee : [00:24:45] It's 40% of the volume.

Phillip: [00:24:47] Yeah. Well... Yeah, exactly. So the question I guess I would then pose to you, is Amazon your competitor or your partner? You have to do business with Amazon. You cannot not do business with Amazon today.

Julie: [00:24:58] I think it's a frenemy. I don't know how else to describe it.

Phillip: [00:25:02] Show title.

Julie: [00:25:05] {laughter} We we sell into Amazon, and I run our digital marketing program and I see them come up in paid search. And I you know... It's this thing where it's like it's a growing part of our actual wholesale operation. But like, it makes my job that much more challenging, running eCommerce. But it's also like an amazing platform for brand awareness. So I don't know where it's all going to shake out. But depending on the day, sometimes it feels like an asset and sometimes it doesn't.

Phillip: [00:25:34] Yeah.

Julie: [00:25:35] So I think it's sort of a mixed bag, but overall, I think, and it's a new insight, but Amazon raised the stakes for everybody. And between like the two day, one day shipping, like we're integrating with ShopRunner in the next week because there's an expectation that you're gonna get your stuff, you know, in the two day window. They definitely just raised the stakes for everybody, I think.

Phillip: [00:25:59] Does Marc Fisher footwear sell through Amazon?

Lee : [00:26:01] Yeah, we do. I think I've moderated my position from when we talked on the phone on it a little bit.

Phillip: [00:26:06] Oh ok.

Lee : [00:26:06] I've thought about it a little bit. So, you know, I've long thought of Amazon as a real threat. But I've also seen it is an opportunity, like you said. And I think we're I've really come to on it is I feel very good about it when I'm selling into it as a marketplace, because it is then a marketing vehicle that is driving new customers to awareness of my brand. I feel very bad about it when I'm selling to them at wholesale. The problem with that is that it might be better for the customer if I sell to them at wholesale. And so from a company standpoint, it's a difficult decision. But I do believe that when you're selling into them the amount of control that they're taking away from your brand and the lock they kind of have on you in terms of the sheer volume that they have. It's a tough spot. And I kind of think you're right, both in the real world, and in the offline world, or both online and offline, what I'm seeing from the department stores of the world and everybody else, they want more on consignment. They won't experiment on anything unless it's on your dime. I see them as becoming real world marketplaces in a way, and certainly online ones to the extent that they have value by bringing me new customers that I can't just go get myself. And any retailer who can't do that and who wants to play marketplace, they're dead. If they can't bring me new people, no way am I going to do that. The Macy's of the world, the Nordstrom's of the world, yeah, they have a customer, and they have a customer I can't get. So they're good. But, you know, to bring it back home to Amazon, I think that that's where I would draw the line. If I can use them as that acquisition vehicle, it's good.

Phillip: [00:27:31] Amazon has done something for the consumer that all of us, I think, wish that we could have done in our business, which is they have the eyeballs and the amount of time invested from the consumer's perspective that they've done all the education for us. It used to be that we'd have to teach somebody how to use our eCommerce experiences. But the fact is that people spend so much time on Amazon now, they've become trained by Amazon to think and act a certain way. And if we begin to... I think we're learning to adapt to their methodology of doing things, everything from placement of product suggestions to our calls to action, to the way that we structure our checkouts now with zero distraction and no navigation and like, just go just buy, buy, buy, buy, buy. The consumer is learning from Amazon. We're learning from Amazon. And so I've been saying this is that Amazon is not our enemy, We're not in competition with Amazon. We're in competition with the new level of expectation our customers have on us because of Amazon. And I don't know that that's a bad thing, because I think that, as we said, your local butcher is going to deliver better for you than Omaha steaks. I hope they're not in the house, but they just will. And they will because they're going to get to know you. And like Ken here standing in this room, he's got an email list. He knows every single one of his customers. He knows them by name and he knows what they need when they walk into Rothman's. And that's the experience you're going to get.

Lee : [00:29:12] And that's why you have this experience.

Phillip: [00:29:14] Right. Sure.

Lee : [00:29:15] Yeah. I think when you say that, though, yes they raised the bar, but if they're underwriting their ability to sell at a fair market price through the use of other services and other add ons that as a retailer you can't really even consider doing. I'm going to set up a cloud service. I mean, that's crazy.

Heather: [00:29:41] Why not?

Lee : [00:29:42] Yeah. I guess. Right. Why not? Why not? You guys can do that for me. I mean, it doesn't make it inherently unfair. You know, they're allowed to do that. And hopefully somebody else comes along and puts the pressure on, which Walmart seems to be doing.

Phillip: [00:29:58] Yeah.

Lee : [00:30:00] I mean, that's kind of where I see it going. I just hope that there's more players that have that kind of clout. I just don't like one person having that much power, and they do abuse that power. I've sat in meetings where they've sat there and told us that they're going to lose money for five, 10 years in our field just to put us out of business.

Phillip: [00:30:15] Right.

Lee : [00:30:16] That's not partnership.

Julie: [00:30:18] I don't know that I'd say it's unfair because I think about shop opp. And I think the buyers there and how they do their planning and merchandizing assortment and they basically higher HBS grads to do like predictive modeling. So it takes a little bit of the gut work out of being a buyer. And to me, that's really incredible that somebody from the tech world came in and said there is a lot of data out there about like what people are going to buy next, like let's use it to do our inventory positioning super strategically. I kind of like that they don't only challenge us to keep our customers happy. Operationally. I think, there's a lot to learn from them.

Lee : [00:30:53] I agree with that.

Phillip: [00:30:53] Amazon is not the only one that's eating our lunch, though. We see this now this year, 2017, our customers are asking us why organic is down. There's no reason organic should be down for them. But we're starting to notice the ones that are complaining that organic is down are the ones who have Macy's and Nordstrom buying Google shopping ads for their products. So it's not just Amazon, right?

Heather: [00:31:22] Google shopping. I have to say, as a marketer, I've always loved PLEs, so I'm the biggest fan of them.

Julie: [00:31:29] Yeah, me too.

Heather: [00:31:29] So it used to be you only had this text to write copy, but when you're selling commerce or fashion in particular, you want people to see what they're looking at before they get through because obviously number one, the customer is happier because they see where they're going, and two as the retailer, my conversion was off the charts, so I'd rather that than the ads. I was at Google, I think a year and a half ago. And they were saying that everyone is so happy about PLEs... This was... Don't hold me to this. But the gentlemen in the room said that his prediction would be that in five years that PLEs would be like the home page when searching for certain keywords that they knew you were looking for commerce items, not just information. And as a marketer in commerce, I thought it was awesome. I was like, great. Get rid of your other ads. They're terrible. Nobody wants to look at text and nobody reads.

Phillip: [00:32:24] Right.

Heather: [00:32:25] So the thumbnails are awesome.

Lee : [00:32:27] I think the only marketers who don't like the PLEs are the ones who aren't within the top box. I mean, you've got to be in it to win it and kill it. I mean, it's a great thing. And organic, I mean, frankly, I'm sorry, but organic was kind of dead anyway when I had four other people selling my product and saying they were the official super duper deal half off, 500% off...

Julie: [00:33:07] Well especially when you see the cross bidding... I was googling, I think I was googling Survey Monkey, and Survey Gizmo came up in the first spot, so that negative key word bidding, that's where you have to be.

Lee : [00:33:07] Yup. I will take my chances on showing the product and having the brand name of that product.

Julie: [00:33:07] Yeah.

Lee : [00:33:07] That's fine.

Phillip: [00:34:22] We touched on it a little bit. I mean, what what are some ways that you can hedge against that? It sounds to me like you're going to have to spend a tremendous amount of money to compete with people in your wholesale business, also trying to sell your own product, so that you can get top spot where you used to be. Everyone's trying to launch a direct to consumer channel. But how do you compete there? If you can't compete on your own brand name in organic, and you can't compete with the ad spend of a Macy's or Nordstrom what do you do?

Heather: [00:34:49] You get clever. You have to find places. I mean, I was looking through Mary Meeker's report, which I love every year, and nerdily spend days looking through it to find where the opportunity is, so you can compete. I'm not going to go out with this new company and spend two dollars a click. It's not happening. I don't have that money, that budget. But what I am gonna do is I'm going to look and see. Well, one second. Where do I think my customer is going to shop for my items? And what are some platforms that haven't really been touched? I mean, when you looked at her report, the mobile opportunity for media is massive. No one's spending. Like the amount of people that are on mobile and the amount of ad spend is tiny.

Julie: [00:35:33] I think it's because... And my agency will say this to me, well, the conversion's not there. Of course, the conversion is there. That's not what we should be measuring against.

Heather: [00:35:41] No.

Julie: [00:35:42] Yeah. No, it's a good point. I think also... So we've been doing a lot of work with Facebook, and that's the place where you can differentiate on your creative and own your brand a lot more than you can even on the Google platform. That's something where we've been siphoning off budget from paid search to put it into that. And we've been seeing a really good, you know, click to lead, and actual click to website. So I think it's that. It is being creative about what you're going to do, because when the sandbox is full of giants, why be in that sandbox?

Phillip: [00:36:19] Talking about discovery... Social is, for me anyway, social is the discovery platform for new brands. Facebook is the Spotify to clothing for for me. And I'm sort of the average run of the mill. I only go to Brooks Brothers and that's it, because I just don't wanna be bothered. I know that I'm going to get something pretty consistent, over a course of four or five years. And I'm OK with that. And I feel like I'm probably normal. And I think pretty normally... I'm actually pretty abnormal. But as a consumer, I'm probably fairly run of the mill. I find myself, I never thought I would buy anything from a social ad. I find myself actively, eagerly looking for a new brand on social now. So is that it? We just have to... What happens when the giants awaken, and they start taking the social? I mean, Nordström is... Yeah go ahead, Lee.

Lee : [00:37:22] No, no, I mean, I agree with what you're about to say. And they already have shifted 30, 40, 50% of the spend there already. And by the way, it doesn't convert as well. So I think that that's a tempering factor. The stuff that I saw, that was the coolest thing that I think maybe leads into the future. But I still haven't seen it out convert the basic blocking tackling is in context. A fellow here was showing me shippable video the other week. I so a shoppable video that used AI to identify the product without anybody touching it. So I can just shop from TV from now on. That's probably how I really want to shop. Facebook Messenger. Being able to buy this, click, done. Inside of it, that Uber Facebook Messenger to Magento thing that they demoed at Imagine. I think that's where it's headed is. Technology is great when it's invisible, when it just stops being here, when you're not carrying your phone anymore, your PC... Then it's amazing. Then it's like magic. And I think that it just needs to solve our problems. And shopping should be the same way. When we want something, it should just be accessible to us. I think that's ultimately where we'll get to it.

Phillip: [00:38:34] Julie, you said we shouldn't be measuring conversion. Lee then said something doesn't convert as well. So what should we be measuring?

Julie: [00:38:43] I think then we're just getting in the conversation about the whole funnel and what KPI is used for each of it. So if I'm closer to the top of funnel with a Facebook ad, I'm happy if I'm getting an email and I'm happy if I'm getting a visit. If I'm not getting the conversion, it doesn't really matter today because when I go back a measure like how many of those 5000 emails we just captured on Facebook three months down the road, did they end up converting with us? So I think you just have to, which I think a lot of people talk about, is make sure that you have the right measurement and the right goals for what you're trying to accomplish and not holding everything to the ROAS conversion bar, like last click, because it'll lead you to put all of your money into paid search.

Lee : [00:39:24] That's a really good point. I mean, that is where we spend most of our budget is going after the email addresses. And we religiously tag those email addresses. And we have a report of just that.

Julie: [00:39:32] Yeah.

Lee : [00:39:32] List source...

Julie: [00:39:33] Time to convert...

Lee : [00:39:33] Conversion.

Julie: [00:39:34] Yeah.

Lee : [00:39:34] Yeah. I mean, that is where the conversion is. It's just a longer tail to get there.

Phillip: [00:39:40] What would be your take then on... This is an American consumer, I'm assuming, that we're talking about. How does your strategy change when you're going after an international buyer who has a very different approach to shopping? When we're looking at, you know, Asia Pacific, some regions, and we do some work with a couple of companies that do a tremendous amount of business in China, they don't even have email addresses. So what are you collecting? It's SMS. It's a completely different market. So is that an opportunity for you?

Heather: [00:40:19] Yeah. So at Net-a-Porter we were a global company founded in London. We had teams everywhere. China, Singapore, Australia, Hong Kong, I mean, literally any of the main countries. And what we did was we had very targeted marketing channels. So in China, it was all WeChat and personal shopping events. That was that was pretty much it. But you have to know your vertical. You have to know your consumer and understand it. Before we went into China, like all into China, we spent a good year meeting with people, meeting with people's friends, trying to understand how people shop, where they shop, why they shop. And then we came out and were like, "Okay, we're just going on to WeChat." And that was that platform. The international consumer, I find sometimes American brands don't take the time to understand the country that they're going into. Therefore, they throw their web site or throw some marketing onto Google in let's say the UK, and then will say, "We had no success." But like, you really have to understand the consumer and not everyone in the UK, if you look at the history of the UK, is on Facebook or on Google. Just  know where to put your money and spend the time ahead of going into a country to understand that consumer there. So I personally, when I launch this business, I'm going international, and I'm going to take all my learnings from what I knew before into those countries.

Phillip: [00:41:43] Julie, are Ramy Brook customers becoming more and more savvy to shopping with you wherever they happen to be? Do you see that? Is she sort of a jet setter? Does she shop on the go? Are you acquiring customers in the States and then closing business with them elsewhere?

Julie: [00:42:08] Well, so we're primarily a domestic US business, and it's the nature of the brand. It's seven years old. It's still growing its brand and the esthetic. You know, it's more of like New Jersey, New York, Miami, Newport Beach. We have big business in Alabama, Atlanta, Dallas. We have a southern quarter. So the nature of the product, I think lends itself to be a little bit more... It just kind of came up in the US, but what is really interesting is we just launched a big Facebook Likes campaign, and we opened up our budgets in China and India and Philippines and Brazil. And we're starting to get messages from people in those countries saying, "Can you ship internationally?" Because right now I have it all turned off. I'm waiting to turn on my fraud software. And so for me, that was really encouraging to know, like there is an appetite, especially out of India, interestingly, for this product, because nobody's really kick that can at all to know it's there. So I think once we open it up, it'll be really interesting what we start to see. And, you know, this year we don't have a Borderfree in place, but I would love to bring them in next year so we can actually do, like, you know, currency, duty, taxing, shipping, and making it look as seamless as possible for the international customer. So I think for this particular brand, they're a little bit nascent when it comes to the international business. I see opportunity.

Phillip: [00:43:31] So there's opportunity for the style that appeals to Americans. Do you think that there's something for you to learn to have product differentiation that's aimed at a specific market?

Julie: [00:43:43] I think potentially. I think we're not there yet. Yeah. For all the companies I've worked with, though, I haven't seen distortion at the product level. It's more distortion at the marketing and distribution channel level.

Phillip: [00:43:57] Lee, is international a growth opportunity for your brands?

Lee : [00:44:02] Yeah. Yeah, we, we do UPS i-parcel right now. Well we just moved from Borderfree to i-parcel. None of these solutions... Not that they're bad, they're good. But none of these solutions are particularly good for the end user. We have distributors in the English speaking countries, so we're actually looking to try to utilize their in-market warehouses but still control the brand experience. But we're trying to kind of figure that out. They have different holidays. They have different sensitivities. So it's still a bit of a learning process in terms of that. But I kind of agree with what Julie said. For us, we have enough challenges domestically. There are different customers in California, in the southeast, in the Northeast, and in the Midwest for us. I think we could occupy the next couple of years worrying about that before we get into the nuances of how India and Germany buy from us.

Phillip: [00:44:59] That's interesting you said they have different holidays. We started doing work with one of our clients, Jewelry.com, a few years ago, and they have a huge business in China. And I had never heard of it. But Single's Day is a massive thing. And Singles Day is there are more millennials shopping and purchasing on Singles Day in China than there are men, women and children in the United States. Over 600 million people buy on Singles Day in China. And they're all digital transactions on Singles Day. It was actually on Merchant a Merchant Episode 3 we interviewed Jon Azrielant from Jewelry.com. And he said that the first delivery from the first Singles Day order was clocked in at twenty three minutes. That's the consumer expectation. And there's a lot of reasons why they can do that. But having a digital first and a digital native society helps drive that. I think that our consumers are going to start to demand that as well. And we have bigger challenges. We're much more spread out geographically. How does Ramy Brook get the product to their customer in twenty three minutes when they're in Tuscaloosa? Not New York City.

Julie: [00:46:29] No. Never gonna happen. It's funny about Singles Day, so when I was at Opening Ceremony, we actually did some marketing campaigns around Singles Day, and we happened to... We were doing the year of China. So we were celebrating Chinese designers, but it was really cool to send out an email celebrating Singles Day, doing like a pulse promotion. And we got some really cool feedback on Instagram that customers in China felt very represented. And it's cool to use those, like holidays and touch points to show those customers that you want to have a relationship with them, even though you're not in their country. So I think it's more of like a soft touch with them. It was nice.

Phillip: [00:47:05] Heather, did you buy on Amazon Prime Day last year?

Heather: [00:47:09] I did.

Phillip: [00:47:09] You did? Do you remember what you bought?

Heather: [00:47:12] I think it was like something really stupid. I actually don't remember. I just remember my husband saying to me, "Did you just do that just to get in on it?" "Yes."

Phillip: [00:47:20] Yes. We want to be part of those things like that.

Heather: [00:47:24] I love being part of things. And I wanted to talk about it. I want to use the hashtag.

Phillip: [00:47:31] All right. So Prime Day is coming up July 11th. I find it interesting to hear some of the retailers that we work with who are extending their... They also sell through Amazon. But the notion of Prime Day hasn't escaped them, and now they're using that as a driver for email. Come see us on Prime Day. Don't forget about us. Come shopping at us on Prime Day. Is that what you're doing?

Lee : [00:47:56] We have a whole week of events planned.

Phillip: [00:48:00] Please go on.

Lee : [00:48:02] We really do. It's a huge week. People now expect it to be the Black Friday of summer. And it's a monster. And every one of our retailers we know for a fact are running weeklong promotions. So we are, too. And you just have to now. Which, by the way, is great. Because right now, this month is a very soft month for us. So getting a manufacturing holiday out of it, it's like Hallmark. I'm happy with it.

Phillip: [00:48:28] That's great. So I would sort of close and I direct this question to everybody with predictions for the year ahead. What does the rest of 2017 look like for you? And what are you gonna have to do to be successful in 2017 as you close out the year? Lee...

Lee : [00:48:49] Convince my boss to give everyone free returns and do direct mail to three or four million people.

Phillip: [00:48:55] Is that all?

Lee : [00:48:56] That's all.

Phillip: [00:48:57] OK. Julie...

Julie: [00:48:59] For us, we have a little bit of a different challenge. We're an emerging brand at that DTC level. We obviously have like a nice department stores business, but we're really trying to, like, put a lot of thought and energy into, like what is our brand DNA and how do we communicate that to the customer? So it's a little bit more going back to the building blocks because, while we still are in a more emerging stage, I want us to get it right the first time, you know, between the imagery, the models, the brand copy and just roll that out really strongly this year. We have some cool stuff coming up potentially for Fashion Week that I'm pretty excited about. But yeah, I think it's getting that that base of the brand right.

Phillip: [00:49:42] You have to launch.

Heather: [00:49:43] I would like to launch. I would like to launch. I was thinking about the question about predictions for this year. I think Amazon's going to go into talks with one of the big department stores. Like for real. Amazon for a long time, and I think about this a lot, has struggled in the fashion category. We all know there's been bazillions of articles about it. And now that they're just and eating up companies, I'm curious who they're going to eat up.

Julie: [00:50:07] Who do you think is most at risk?

Heather: [00:50:09] I thought Niemans until they came off the block. They were talking to many people. And then recently they pulled back. Karen Katz had mentioned that. I'm not sure yet.

Julie: [00:50:20] Because I thought it would have been Niemans, too, until that shift.

Heather: [00:50:24] There is a piece of me also that wondered if Amazon would go after, like the Reformations, kind of the direct to consumer millennial brands, if you will, and maybe buy up...

Julie: [00:50:34] And have a portfolio of them.

Heather: [00:50:35] Yeah, but that way to try to get more of the bigger guys to sell into them, because there's been I mean, the fashion community has been very. "No," with Amazon for so long.

Julie: [00:50:46] Yeah.

Phillip: [00:50:47] Sure.

Heather: [00:50:47] So if they can almost get an anchor or some sort of an edge to get others to come on, I feel like that's what they'll go after, especially since Jet bought Bonobo's.

Phillip: [00:50:56] Right.

Julie: [00:50:58] I thought Walmart bought Bonobos.

Phillip: [00:51:00] Well, yes. Yeah. Same thing.

Heather: [00:51:01] Same thing. Yeah. I'm assuming it was Jets' idea.

Phillip: [00:51:06] It's interesting the shift in consumer perception of Walmart as a brand over the last five years.

Heather: [00:51:18] Totally.

Phillip: [00:51:18] That is the story.

Lee : [00:51:21] Even in the last five weeks, right?

Phillip: [00:51:22] That's true.

Lee : [00:51:22] Suddenly a hero.

Julie: [00:51:24] That was like the coolest thing they did. Yeah.

Heather: [00:51:26] Yeah. Ever.

Phillip: [00:51:28] Bonobos... There was another acquisition recently. Who else has Walmart bought, Brian?

Brian: [00:51:37] Modcloth and Moosejaw.

Phillip: [00:51:37] Oh Modcloth, yeah.

Heather: [00:51:37] Moosejaw also was a huge one. If anyone knows what Moosejaw is. It's really cool.

Julie: [00:51:42] It's really cool.

Lee : [00:51:42] Very edgy for them.

Julie: [00:51:43] Yeah. I wonder who's in charge...

Phillip: [00:51:48] Marc Lore.

Heather: [00:51:49] Yeah Marc Lore.

Phillip: [00:51:49] Well, what's really interesting is the rest of 2017, I think, is about executing on our plans. I would almost say let's take this on the back end. We're halfway through the year, did you have to change tactics in 2017? Or are you still executing the same plan that you started out the year with?

Lee : [00:52:14] I came on to execute this plan, so it's not really fair for me...

Phillip: [00:52:16] Sure.

Lee : [00:52:17] Yeah. So far we're still doing it.

Julie: [00:52:19] No major pivot's yet.

Heather: [00:52:22] I've pivoted my media plan like 300 times. I'm not even live. {laughter} And that's the truth.

Phillip: [00:52:31] Not a bad place to end with the truth. Well, thank you so much to our panel. Thank you, everybody.

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