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Jul 9 2017

No. 228: Life finds a way.

This is issue no. 228. The last issue had a 44.26% open rate with 9.21% reading up on how broilers are redefining how guys buy clothes.  

Here's a great opportunity here for former entrepreneurs looking to make the transition to associate VC. - First Round

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Today's Top Intelligence (13 Reads)
How Come The Most Enduring Icons Of Masculine Style Are All Six Feet Under?
Brand: Nothing ages faster than fashion; style lasts forever. And one of the problems in trying to define who are today's icons of cool and style is that fashion has taken over. Nowadays, it is almost a mandatory requirement for any male figure of distinction and achievement to be signed up as a figurehead for this fashion brand or an ambassador for that one. The reason Idris Elba, or Colin Farrell, or pretty much any actor you care to name, always looks good in magazines is because the fashion editor has styled them that way.
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Retail Real Estate: As technology changes, a country’s industrial mix changes. A century and a half ago, most Americans -- and indeed, most human beings -- worked on farms. Today almost nobody does. Nowadays, a substantial number of Americans work in retail, ringing up purchases, stocking shelves or helping customers find what they need. But in a decade or two, it’s anyone’s guess as to whether brick-and-mortar retail will continue to dominate the urban, industrial and occupational landscape of the U.S.
eCommerce: Online shopping accounts for only 8.4 percent of all retail sales in the United States, but it has had an outsize effect on the retail workforce. The hundreds of thousands of jobs created by new online firms have not absorbed the job losses at traditional retailers. At the same time, the new jobs are concentrated in a handful of large cities and tech hubs.
Brand: A U.S.-based group would also need to implement patience; "luxury" cannot be created overnight, or even over the span of a decade. There should be a balance across a portfolio of businesses: those that need time to incubate and those that are already there. Company practices matter, too. To foster the best brands from an outside perspective, the conglomerate has to thrive from within. That comes from its employees. 
Lavelle's Law: A retail brand's strong digital presence drives brick & mortar sales and vice versa. When different media and transactional channels work in harmony, the brand is more relevant. When any aspect is unremarkable or creates friction, the brand suffers. Too often, traditional retailers treat digital and physical retail as two distinct entities when most customers are, as some like to say, "phygital." 
Retail Real Estate: As the retail business evolves, such capital expenditures will become more crucial in assessing property values, according to Green Street Advisors LLC, a research firm that covers real estate investment trusts. Many investors aren't adequately accounting for the rising costs of maintaining a mall, Green Street said in its annual outlook in January. The real question is whether this is a temporary blip, or a new normal, according to Cedrik Lachance, director of U.S. REIT research at the Newport Beach, California-based firm.
eCommerce: The New York event is basically a warm-and-fuzzy sales pitch: stick with Amazon and we'll show you how to access billions of shoppers, including in hard-to-crack markets like China and Brazil. The gathering was modeled after Amazon Web Services' re:Invent conference that promotes Amazon's cloud-computing business. Re:Invent drew 6,000 attendees its first year in 2012 and grew to 32,000 last year. Amazon wants the new merchant event to become a similar phenomenon.
Media: As it turns out, Instagram’s algorithms are indeed keeping an eye on me, busily drawing a complex map of my likes, follows, and other in-app behavior, and that of the people I follow as well. As the app learns, its Explore tab gets better at recommending photos and videos to me. I can’t help but take the bait. Next thing you know, I’m barreling down some new visual rabbit hole and following six more people.
eCommerce: While department stores are sinking, sales of apparel and accessories on Amazon are skyrocketing, with $22 billion in clothing sales in 2016, or 6.6 percent of the market. In 2017, Amazon introduced innovations like the Echo Look, whereby your Amazon Echo gives you outfit feedback, and Prime Wardrobe, which lets you try on clothes without paying for them first. Nike is also rumored to be closing a deal to sell directly on Amazon.
Retail: Jessica Lee, the 31-year-old founder behind San Francisco-based fashion brand Modern Citizen, cut out a pretty big part of that well-charted path when, in 2014, she started to build her e-commerce business without raising money from venture capitalists (or hiring PR). Lee chose to bootstrap the operation, raising $250,000 from family and friends and slowly building out the business.
Brand: Form is the second brand launched by Walker & Company Brands, a health and beauty startup founded by the entrepreneur Tristan Walker in 2013. The first was Bevel, which sells razors and shaving accoutrements designed to reduce or eliminate razor bumps — a problem that affects a majority of black men. Bevel products are sold on Target.com and in Target stores, in addition to on Bevel’s own website.
Voice Commerce: In China, meanwhile, we’ll likely see these and other business models play out, with Alibaba’s device named after one of its popular online stores, and Baidu’s and probably Tencent’s efforts likely to be more ad-focused. All of this will lead to different pricing strategies for the hardware itself, with the early Chinese examples hitting price points roughly half those of the two early leaders in the U.S. market, and Apple in turn pricing its premium speaker at roughly double those devices.
eCommerce: Online marketplaces like Amazon are increasingly the first stop for online shoppers looking to research products and prices — 29% of the respondents said they plan to research more on marketplaces when they shop, and 30% plan to shop on marketplaces more frequently, making joining these marketplaces and comparing prices on them more important for retailers. Lastly, brick-and-mortar footprints allow retailers to offer alternative delivery methods that consumers are increasingly intrigued by.
Is retail really dead?
Of course not (for now). But for VC-funded D2C brands, there are divergent paths being walked in plain sight.

Path one: The Shave

Tristan Walker, owner of Walker and Company,  is much savvier than the hardcore tech press gives him credit for. And I think he is building a billion dollar company (sorry Richie). One thing that he understands is that to build a D2C brand in this decade: scarcity and data are key components of the strategy.

Target currently sells Harry's and Bevel, two early DNVB's that are wholly considered D2C despite what appears to be a diminished sense of scarcity. I'll go out on a limb here and say that the customer data that Target provides will more than justify the slimmer margins.  The data that Target provides may also make up for that just-average brand impression that can only be perfectly cultivated by an online-only customer service process or brand-owned storefront (think Ministry of Supply, Allbirds, or early-Bonobos).

The con: risk of under-scaling

The pro: data, brand mystique, and the tech valuation multiple.

Walker is currently cloning this strategy for his new brand (Form Beauty) by launching the brand's retail presence in Sephora. By emphasizing data collection, he will own consumer tendencies, email, and product association habits that will influence the brand for years to come.

This is all consequential as narrowing the sales channels and maintaining a focus on data science will ultimately increase the valuation of the company over time. 

Path two: The Pants

There is another approach for D2C brands and it is more common in fashion retail than CPG retail. A successful eCommerce mentor of mine used to emphasize the following: "an eCommerce company has no salespeople." But by de-emphasizing the longterm potential of data-driven eCommerce ops, D2C brands are able to generate working capital by selling into any channel that fits the character of the brand. The model emphasizes wholesaling products with the hope of driving consumers to the web store for their following purchases.

The con: little to no consumer purchase data to direct that follow up purchase, risk of over-scaling, slimmer margins, retail valuation multiple.

The pro: consumers can touch the products, scale, cash flow, ground troops (store owners), the longterm build to becoming a luxury brand needs this approach.

You will see this with brands like Herschel, Shinola, and Greats. Ralph Lifshitz pioneered this approach nearly 50 years ago. In Columbus, Ohio: you can experience Shinola in Nordstrom, The Ohio State bookstore, Peabody Papers, and the Columbus Museum of Art. This keeps the brand at the top of the mind, even when you may not be looking to buy.

Two vastly different yet effective approaches to retail can only mean that retail isn't dead, per se. There will always be urban menswear and women's wear shops, museums, country clubs, etc. But long gone is the game when big box malls and strip mall developments were enough to keep a brand alilve.

This is the opinion of Web Smith.

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