S17 E8: What Every DTC Brand Should Know Before Q4 (with Shopify's Harley Finkelstein)

0:04Nik:Welcome back to another episode of Limited Supply. I'm your host, Nik Sharma. And today, today we're going to do a little throwback Thursday action, but on a Wednesday. But just a, I believe a year or two ago, I talked with Harley about Q4. And the thing about Q4 is it's pretty much always relatively similar. It's always bigger. There's always a few new tactics here and there, but the 75%, you know, majority, the thick of it, it's always relatively the same. So today's episode is going to be a throwback and we're just going to go through it because a lot of that stuff still heavily applies to this year's upcoming Q4.

0:42Nik:So check it out. It's with myself and with Harley, the Shopify president. Give it a listen and stay tuned for something special at the end. All right, guys. How the fuck are we feeling? No, no, no. Come on. How the fuck are we feeling? Do you see where we are? Yeah, that's right. We're in the greatest city in the world, the center of e-commerce, the center of innovation, the center of advertising. And I couldn't be more excited to be here today with none other than Harley. Harley, thank you so much. Wait a second. Ladies and gentlemen, Nick fucking Sharma. i feel like the uh the curse word uh concentration saturation of this this whole event is going to be super high um so as some of you don't know this story i know you got a whole list of questions but i got the microphone um three weeks ago uh nick texted me uh at like 11 o 'clock at night and said hey we're gonna throw together this event q4 summit um can you can you speak there um and i think within 30 seconds i asked first i said who's going to be there and he said Shopify partners, there's going to be merchants, entrepreneurs, retail people.

1:46And I was like, I'm in. This thing that they put together in three weeks is nothing short of amazing. The fact there's a packed room right now, there's people that you got to speak here, not with, you know, like not me, but other people that are flew here from all over the country is incredible. But the theme I think that you should take away here is that we don't, you know, entrepreneurship is lonely. It is unfortunately a lonely sport. There's incredible things about entrepreneurship, about being a founder, about building companies. But it is lonely. People don't understand what you do. You go to these family dinners and they're like, what do you do?

2:21And you're like, I'm in like search engine optimization or I'm in like funnel conversion. And they're like, what is that? But what makes this so interesting is that we've created this community around what we all do and we do it together and we help each other. And when someone calls and says, I need you to do something, we default to yes. So it is, this is, you're my people and I'm really grateful to be here. Thank you.

2:44Nik:Thank you, Harley. It's, it is awesome to know that you are one of us. Truly, I believe that you're a true hustler. All right, Harley, I want to start with some data, some e-commerce specific data and what you're seeing. You, you know, you've got this empire with Shopify, you see so many stores, you see so much activity. I want to know major trends you're seeing in consumer spending, internet adoption, e-commerce penetration, you know, shape your worldview on where you think e-commerce is going here? So a couple of things. The reason I have an iPad on stage, usually don't ever bring notes with me, but we actually just took a survey of 18 ,000 consumers and asked them what they are feeling, doing, contemplating for the holiday season.

3:23So I'm actually going to share some stats with all of you for the first time. I think this will be very valuable to all your businesses. I'll do that in just a moment. The second thing I want to say is this. Yesterday, I got a chance to spend some time at an hour with the chief economist for MasterCard. and I asked her basically you know lay out for me what MasterCard is seeing from spending perspective from buying preference perspective and she said that the one thing that has changed in the last 10 years if you sort of if you sort of extrapolate the last 50 years of data collection by credit card companies and you look at what's happening right now and specifically since the pandemic she says the major change that there's now a bifurcation of things so historically you would say, how is consumer spending?

4:07And it was it would be a binary answer. It's going well, or it's not going well. It's not like that anymore. Something has dramatically changed during the pandemic. For example, if you were in hospitality, you were having a terrible time. If you were in furniture during the pandemic or house goods, you're having an amazing time. And she actually believes that will continue to be the case that you will not have a one size fits all when describing consumer trends. The second thing is that is obvious to a lot of you already but just to make the point here is that if you sort of go back to how consumers used to purchase in the past it was all about the retailer dictating the consumer how to purchase that is over i mean we should talk about david and then what you're doing with with your new your new business you launched a couple weeks ago a month ago something like that david sorry david david routine three three weeks ago four weeks ago something like that two weeks two weeks ago um what you are seeing is that now you have to sort of read the room of what the consumer wants to buy, how they want to buy, and then effectively create a funnel and a strategy to get in front of them.

5:04That doesn't necessarily mean online only, doesn't mean offline only. We announced a couple weeks ago, a partnership with Roblox. And the, you know, when I did a bunch of media around Shopify building commerce into Roblox, and the first question I got was, why? And I was like, well, there are 80 million, like weekly actives, 80 million weekly actives inside of Roblox, it's double the population of Canada that are there. Not all of them are going to be consumers of product, but some of them will be consumers of it. So this idea of being channel agnostic is not just a cool sort of term or a fad.

5:36Channel agnostic is absolutely the way you have to operate. Let me give you some new stats. Again, I wanted to make this as calorie rich as possible because all of you have very busy lives. So 18 ,000 consumers we surveyed. here are a couple things that I think are worth noting. First is younger shoppers are unequivocally the most likely to increase spending. From a Delta perspective of last year to this year, the highest spending group will be 18 to 24-year-olds will actually increase their spending and buy what they refer to as treating themselves first. Second thing is brand engagement peaks at around 35 to 44 years old, 85 % of shoppers in the 35 to 44 year old category know what brands they like.

6:24And when you solidify the connectivity between your brand and them, you ultimately will end up with having them customers for life. My best friend and my co-founder of Firebelly T is in the room somewhere. Where's David Siegel? David's in the room somewhere here. There's David. That's exactly what we're trying to do with Firebelly. We believe that we can convert people into Firebelly customers now when they're in that age group. As they get older, they will continue to be very loyal to Firebelly tea. That is something I think everyone should think about. A couple other things. This is for holiday shopping.

6:5860 % of U.S. shoppers want to buy small things online, but they will more consider going in-store for larger purchases. And in-store discovery was reported to be the most valued among younger demographics in the U.S. so even the 20-somethings will still go into a physical retail store to discover something but will then continue the buying online indefinitely that's the first thing second thing i want to bring up um priority for bfcm from product categories threefold fashion electronics and food and drink the third food and drink has made a map i mean i know you guys have a bunch of incredible i saw uh brez here and a bunch of other great brands um so fashion fashion is 37 percent electronics 31 percent food drink 25 percent this is really interesting top loyalty drivers across all 18 000 people that we surveyed the number one loyalty driver super surprising is discounting number two is free shipping free shipping came out at 41 percent the reason i mention that is because i think all of us know that free shipping does increase conversion but 41 that's a dramatic increase and so whether that's a softer economy or people are a little a bit more, have more trepidation about where they're buying, that is a big deal.

8:15Last stat, younger shoppers in the US are shopping way earlier. 55 % of US of younger US shoppers are likely to finish all holiday shopping by the end of November. So we talked about BFCM being just a weekend, and then being a week, and then being a month, and now sort of a season. But historically, even five years ago, holiday shopping went until around the 18th of December. And then all of us saw sort of the drop off anyone in the room that owns a brand will see this. It is actually happening much faster now. So if you're not starting holiday shopping now, you absolutely should. And then last but not least, one in five holiday shoppers start planning shopping lists before the end of June.

8:57That is dramatic. Before the end of June, effectively, before the summer actually starts, they're already contemplating what they want to purchase for the next six months. So hope that's helpful. That's literally fresh off the presses. But now you have them. That's amazing.

9:13Nik:Thank you for sharing that. Now I'm getting comfortable. Hold on a sec. Yeah, yeah. Get comfortable. So Harley. Oh, I don't know who said that. So Harley. So one thing you mentioned that's interesting is consumers are buying what they want, when they want, how they want, whether that's in Roblox, whether that's on, you know, through shop pay, whether it's through a marketplace. How do you feel about all of the other macro trends going on? The rising CAC, the buy now, pay later, you know, being overflowed, the rising credit card debt among consumers. How does that shape your thinking about e-commerce and the future of e-commerce?

9:46I mean, we all talk about how big e-commerce is. Most of us in the room, I mean, just show of hands, I want to be clear. How many of you self-identify as being in the e-commerce industry in the room? Show of hands. Pretty much everybody. Okay. So we're all in e-commerce. That's my entire life. It's my life's work. It is my craft. Nick is yours as well. Let's remember something. In Canada, e-commerce as a percentage of total retail is 15%, 1.5%. In the US, it's floating around 18 % to 20%. The UK, excluding China, is the highest 25%. I mean, we are still in, like, we're not even in the early innings of e-commerce.

10:23We are still at the hotel getting dressed for the game. So I'm incredibly bullish on it. I see the trend continue to rise. I think what's happening is as older consumers sort of leave the market and new earlier consumers like get their first credit cards, they're going to be native e-commerce shoppers and consumers immediately. Now, whether it's buy now, pay later or it's rising cash, we've always had challenges in our industry. I mean, my first online store, I was one of the first stores on Shopify. Some of you know, that was 2006. I mean, it wasn't as if. What were you selling? I was selling T-shirts.

10:54Wow. It's a business. It was called Smoofer. And I was selling licensed T-shirts. I was one of the first merchants to use the product. Kobe was a friend. He was just, he stopped selling snowboards and began to realize that the software behind the snowboard business would be more valuable, which would become Shopify. It wasn't easy then either. So I think currently, you know, the cap to LTV ratio or, you know, return ad spend going down, these are a new challenge we all have. I don't think there's, we're ever gonna be in a place where everything is just easy for any of us. It's always gonna be challenging.

11:26I do think, however, though, that there are new tools available. I mean, show of hands, how many of you have used Shopify audiences for any of your brands or businesses? A few of you. I mean, Shopify audiences, this isn't a pitch for Shopify. I don't like doing that. But I will say that this idea of running your ad through an algorithm that has seen over a trillion dollars of spend online through Shopify and then getting a lookalike audience that allows you then to place more targeted ads, that's a very good idea. They didn't exist two years ago. So my feeling is as the challenges mounts around e-commerce, whether it's CAC or it's buy now, pay later challenges or consumer debt, there's always new tools available to mitigate those things.

12:05The key for all of us and certainly for Nick and I is we got to stay ahead of this stuff. You've got to come to like this is in the picture Q4 summit either. You've got to come to these sort of summits and be in the industry. There's sort of this theme now of founder, founder mode, of course, which, frankly, like if you're running a great company, you've already always been in founder mode. but you got to be in founder mode, meaning you have to be so close into the weeds of the business to actually understand what is going on. If you are not, and you're doing a sort of set it and forget it on Google ads or meta ads or using some sort of TikTok shopping tool and it doesn't work, you're going to wake up one morning and wonder why did like, what has changed our last three months?

12:44Everything has changed the last three months. That's why we're all in this industry because it's really exciting. So I'm as bullish as I've ever been on our industry. I'm as bullish as I've ever been on the consumer. And I told you backstage, I just spent the last 24 hours with the heads of Aloe, Skims, Universal Music, Tecovis. The brands that are beloved by consumers are killing it. The brands that are not beloved by consumers are not. Whether or not you have rising cost of customer acquisition or not, if you're beloved, you have a great product, you're creating great value, you're going to winning.

13:18Nik:It's so interesting you say that. One of the things that I often realize when we work with brands is that exact thing. It's like, if your brand is not relevant, if your brand is not being talked about, if your brand is not something that's being loved on social and talked about or shared, or you're not sending your mom the link, or it's not ending up in a group chat, these brands have no chance at just relying on performance marketing. And especially when you think about other channels, whether it's the TikTok shops or YouTube shops or the Roblox, you know for somebody to just turn on a channel and expect sales it's not going to come unless you have that brand behind it lazy right that's the reason why i bring up this whole founders thing because i think for a long time you would be like oh tiktok shops is now available or i'm going to use we just announced a partnership with youtube uh youtube affiliates so now if you're selling if you're hexaclad uh and you want to be able to and there's all these people doing cooking videos on youtube you now can have them sort of sell hexaclad on your behalf that's really cool it also does it through what's called concurrent commerce so the video doesn't stop the video continues and you can purchase that is very cool but you can't just turn it on you have to turn it on and you have to and you have to look at it and study it you have to do like data analysis on it to double down the things that are working you have to be in the weeds of these things when not to pick on David but he's in the room and again I can say whatever I want about him because I have a mic he doesn't um David built David's tea one of the largest tea companies on the planet billion dollar tea company took it public in the Nasdaq not too far from here when David and I decided to start Firebelly Tea, he was the tea guy.

14:44And we had a tough chat. And I was like, you also have to become the e-commerce guy. You cannot simply be the tea guy anymore. Just being the tea guy is not sufficient to build a multi-million dollar successful brand and company in 2024. We all have to be good at every aspect of our business. Now, it doesn't mean you have to be a jack of all trades, master of none, but you have to have the self-awareness to say, I'm really good at these things and I'm going to hire really good people for these other things.

15:09Nik:I'm curious, as you see businesses of large sizes, you know, Aloe, Tecova, Skims, but also brands of really small sizes. I truly believe that, like, if you're at the top of an industry, you kind of see all the arbitrage opportunities, right? What are some of the arbitrage opportunities that you see that you think brands don't take advantage of? You know, Shopify audiences, I was shocked only a few people had raised their hand. I was shocked, too. That's such a useful tool. Again, I'm not trying to pitch Shopify, but it's a gimme. You should not be placing ads without having... We can give you asymmetric information, and that creates an unfair advantage for those that are part of this sort of ecosystem.

15:54One is exactly what you said, which is that people are not taking advantage of it. The second is everyone likes to talk about building in public and experimentation. Most people actually are faking it. They're making videos about building in public. building in public means you're actually, and you do this better maybe than anyone, Nick, in our entire industry, you show your wins and boy, you show your losses too, right? You will literally post a screenshot of an ad campaign that completely failed. Why is that valuable? Well, one, you get feedback from it, so it's super valuable, but also it gives other people the permission to do the same thing.

16:25Building in public, if not just making a quick video and saying, I killed it this month, we had a promotion, look how great we've done. Building in public means you're showing both the wins and the losses, and I don't think people are taking enough chances. The second thing is the cool part about building a business and a brand right now, because we have the, because of the dissemination and the universality of the internet is that if you take something like skateboards and you take something like technology and you combine those, the Venn diagram overlap is a one wheel. Okay, so one, you guys know one wheel, right?

17:02Okay, sort of like the motorized skateboard thing. 20 years ago, Onewheel would never really have been able to sell properly. They probably would be found in a sharper image or something like that, or an airport, you know, Brookstone type store. But because the internet allows, it has democratized distribution, it means that what Onewheel can do today is they can say, I'm gonna find all the people online that love skateboards and all the people online that love technology, and I'm only gonna target that little segment. If you were to walk around the corner to Blackstone or El Caterton or any of the big private equity firms, and you were to pitch this idea, they would say, market's too small.

17:38I'm not gonna back this. It may be too small for Blackstone. It's not too small for an entrepreneur who wants to build a$100 million a year business selling one wheels. And I think that is, I love these bracelets. There's a company called M. Cohen. They make these really beautiful bracelets. They're a couple hundred bucks, which frankly is too expensive, but I like them. I don't really wear much jewelry, so they're kind of cool. M. Cohen is a very successful company that no one's ever heard of, but when you talk to the folks behind M. Cohen, they're thrilled. because 10 ,000 people are buying their bracelets every single year, and they don't actually care if it's 100 ,000.

18:10Those 10 ,000 people really give a shit about what they do.

18:13Nik:So we talked about products that are trending, right, during holiday season. You mentioned electronics, food and bev, and apparel. Now, we're also talking about brands that are launching and have this amazing brand voice, right? One brand that often comes to mind in situations like this is Jolie, the showerhead, right? They're selling a product that should be in an aisle of Home Depot, but they've turned the conversation into beauty and changed the positioning. Do you think that is the secret sauce for brands to cut through the noise today? I think products where consumers are purchasing indiscriminately and it felt like a commodity and no one ever goes to work or goes to breakfast with their friends and says, man, I got the greatest showerhead ever.

19:00if you can find products like that that is a great place to innovate i think and not i mean um i just bought something called x bloom um i like pour over coffee but like i'm not going to sit there and go like this for 30 minutes i think that's insane i'm not really a hipster in that way x bloom figured out that and create very basic technology that allows a robot hand to go like this and every morning i have this amazing coffee and now i i wasn't the guy that talked about coffee i'm a tea guy but i talk about coffee now because someone made pour over coffee really cool really interesting the venn diagram overlap of technology which i care about and having a good cup of coffee first thing in the morning that is me and so whether it's shower heads or something as basic as um i i saw um a um a tool that effectively um like it's it's um it's like an AirTag, but it's just like, it's much thinner.

19:55So you can put it in much like, you can put it in a backpack or in a wallet, for example. Again, AirTags exist. I'm sure there's been countless meetings and consulting firms that said, can we compete with AirTags? No, we can't. Apple's doing it really well. Well, no, Apple's not doing it really well because there are some people who don't want, you know, a quarter inch. They want a very thin AirTag so they can put in their wallet and never lose their wallet again. These things that are not necessarily sexy or do well on social media, you can actually build very large companies around it. I think if you do it really well, you innovate in what's happening, you can make boring products fascinating.

20:29Nik:Yeah, I couldn't agree more. I wanna make sure we touch on Q4, the theme of today. What are, okay, so I think the first thing that comes to mind for Q4 is what's everybody's Black Friday promotion? I'm curious from your point of view, what are the most successful patterns or formats or strategies around Black Friday to drive the maximum amount of sales? I think novelty is still the most powerful marketing tactic on the planet. It's true. Like you can tell me, I mean, you can show me data. I don't believe it. I believe novelty is unequivocally the most powerful marketing tactic. It's better than any ad.

21:04It's better than any promotion or discount. A couple of years ago, some of you may remember this, but Gymshark, this amazing thing where they turned off their site for Black Friday, Cyber Monday. and I remember talking to Noel Mack and Ben from Gymshark and saying, I mean, a disproportionate amount of your sales and revenue are going to come from these four days. Are you guys really going to turn off your site? And I'm like, yeah, we're going to do it because we think it's so unique, it's so interesting, and we think we can actually make more money if we're open the Wednesday before the Thursday and the Tuesday after the Cyber Monday.

21:35I don't actually have the numbers. I don't know how they did, but considering that they've, you know, they've continued to do things like that in the past and in the future, since then, I think that worked out really well. I think the key to it is to really understand who your customer customer is. You know, Dave and I for Firebelly, we're just reviewing some of our promotions and discounting for for Firebelly tea for holiday season. In the past, we just kind of did this like blanket discount and and across, you know, for Black Friday, Sour Monday. And it kind of worked, but it just it was boring.

22:07It wasn't it wasn't novel. It wasn't interesting. And now we're beginning to think about like, OK, do we want to clear inventory? Well, maybe that's the stuff we should discount. Do we actually believe that if a new consumer to tea purchases this product, we know for certain they will buy a second product at full price later on. Now we're beginning to think a lot more thoughtfully about this stuff too. By the way, I think we're gonna give everyone a discount on Firebelly, right, Dave? Well, what's the discount code? Q415, if you wanna go to Firebelly Tea, best tea in the world, Q415. That's real hustle, by the way.

22:37Yeah, it's really good tea. Yeah, Q415 is the coupon code for 50 % off. um i think the key though is not to just blanket the discount that's first the second thing is starting earlier we already talked about that if you're not if you like you should be starting if you haven't started already you should start today on on your black friday star monday promotion to third is figure out what your hook is so you know gifting is not new gifting is is has been around for a long time seth godin who's a mentor has been talking about gifting as a way to create sort of this like this flywheel effect of commerce and distribution.

23:10I buy something and I gift it to somebody else and then they buy something to give someone else. You create this incredible funnel and distribution channel. I still think it works really, really well. So I think balancing things that people haven't seen before, like shutting off your site for black friends or money, if that's what you think your customer wants, and also discounting not everything but the right things and figuring out how those things are going to interoperate together, that really works. And then I mentioned the two major drivers, at least across these 18 ,000 consumers that we surveyed, first was discounting and the second was free shipping.

23:43This idea that you actually create some scarcity and you say, we're going to get free shipping now, we don't give it often, but now we're going to do it. That creates a new incentive for them to purchase immediately and not wait until after the holidays. Beyond that, we talked to Roblox, you mentioned TikTok shops. just going back to this i you know everyone always expects uh me to say as the person shopify like the future of retail is online only it's not the future retail is is absolutely everywhere the reason you see us announcing deals with youtube and roblox and tiktok and spotify and all these random marketplaces or random seemingly random is that for every one of your brands for every brand that exists on shopify one of those channels might be the most important channel it may be the online store, it may be the offline store, but there's a very good chance some of you in the room, your biggest channel is a channel that you have not activated yet.

24:37It could be the Roblox channel, or it could be, we have a partnership with Target where you effectively through Shopify, you can put your products on target.com. That may be your biggest channel. And we're trying to make it easier so that when you are on the Shopify admin, you can simply click new channel. You can experiment. And if you, and, and I think I'll come back here in 10 years and you can hold me accountable to this, but I think in 10 years from now on this stage, if now the average number of channels is three, online, offline, one more, maybe social media, I believe we'll be on the stage in 10 years and the average channel probably closer to 10.

25:09AR may be a channel, VR in the back of Ubers may be a channel, you know, like who, you guys probably saw the announcement yesterday from Ray-Ban and Meta, maybe that's a new channel. I think that's the way to sort of think about the future of selling business.