Opening Retail Stores vs. Going Wholesale: What the Numbers Say

23:31We can build out an entire store in less than two weeks, fill it up with product in three days, and have it open.

23:39Matt Bertulli:I've been in retail. I grew up in a retail family. Locations and leases and things are just in my blood. Leases can be an asset or liability for people listening. When you do locations and leases well, they are an asset. When you outsource it to what Mike is saying, you run the risk of them becoming a significant liability for your business. These are hard to get out of. Sometimes these are five and 10 contracts you're signing. So Mike is right at the beginning. We're like, you don't step into this stuff lightly. Mike, I want to contrast this with how you start in wholesale. Because again, my experience with the Targets and the Walmarts and the Costcos of the world is there is a bit of a test period at the beginning, right?

24:22Matt Bertulli:So like new brand coming in, Target's going to say, we want to test you in 200 stores, not 2000. They're not going network wide. Can you give us a bit of your sort of like jump into mass retail and how that started and then ramped? Okay. But first we're going to take our last break. What's up operators. Welcome to the rich panel ad read rich panel has been a sponsor for over 12 months. I've been a paying customer for over 12 months. and guess what? I just renewed to pay again for another year. We have cut our SaaS bill in half and automation dropped our cost per ticket by 70%. Our CSAT has also improved from 88%, which is still really good, to 96%, best in class, all powered by RichPanel.

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27:06So we started Simple Waterman. I still worked with my brother and it started out just selling on Amazon. Water bottles weren't even our first product. We tried a couple of other things and it went just well enough that we were like, hey, I think we're onto something. Sold our first water bottle in March of 2016. And our initial PO, I think was literally 500 water bottles. So, I mean, as modestly as you can start a thing. And we sold the first 500. And so I bought more. I bought them in color system, I'm not just black. I bought them in colors. So when you're approaching May of 2016, to kind of set the scene, we have done an impressive$15 ,000 to$20 ,000 in lifetime sales on the brand.

27:51I'm not making this up. I mean, it is, we've sold dozens of these. And I am so just like irrational, egotistical, driven, who knows what the right word is. but I have this idea that what would be really good would be some licensed like sports licensed versions of premium drinkware and at this point Yeti's not doing that at all nobody's really doing that there's a couple of I would say more like licensing focused companies that also do that and but none of it's very good it's not very high quality it's real expensive and I'm like hey insulated drinkware is awesome and it's selling really well I think there'd be an opportunity here.

28:34Now, I had no idea when I set out on this, just how insane this idea was. If I had, I would have never started. It's the perfect encapsulation of an entrepreneurship in that if you know the odds, if you think about it, you just would never start. But I don't know any of this. I'm ignorant. And so I look into like, how could you begin to get licensed? And it turns out that it's quite a path. But like the first thing you do is you get what's called a local license where if you live within a certain number of miles of a university campus, you can kind of get licensed with that one university if you can convince their gatekeeper, their licensing manager to license you.

29:14So I'm like, okay, I'm going to try this. And before I even have this first local license, I start kind of trying to sniff around of like, how would I get in front of somebody from like Walmart? Just out of curiosity. So I call a friend of mine from college who now works for the company. He's been with us forever. He's our chief marketing officer, Chris Hoyle. But at the time he's in CPG, he might've been with Kraft or Mondelez or somebody at that point. And I'm just like, how would you start? And he refers me to a broker called Harvest Group. And I started talking with them about my idea and they think it's interesting.

29:48And so they're like, hey, we'll put out some feelers. We'll see if we can get a buyer interested. in between, I find a way to convince OU to give us a local license, like one singular license for the University of Oklahoma, which is a great story in and of itself, because like I said, we hadn't really sold anything. So when it's early on, it's always about like, you're like a puffer fish. You're trying to like pretend like you're way bigger than you are. And I've got to convince this other person to like let me sell it and licensing is full i've got so many like side parts of this but licensing is so full of people who say they'll do something and they can't do anything they're like i i don't know how to sell anything but if i put somebody else's ip on it i probably could sell something and they have no interest in those people so i'm like how do i convince this person so i literally flip our meta budget up to like the max i can and i turn on the Shopify notifications on my phone right before I walk into this meeting with the OU licensing director.

30:49And I walk in, my phone's going, cha-ching, cha-ching, cha-ching. And I'm letting it intentionally, you know, volumes cranked all the way up. And I let it do this for like the first two and a half minutes of our conversation. And then I'm like, oh, I'm so sorry. You know, those are just sales from our website, you know, notifications. Let me turn that off. And so I turn it off and I sell this OU person to license us as a local licensee. So I have one, one collegiate license and I'm sniffing around Walmart. And as we're, we're sniffing around Walmart, Harvest is able to get a buyer at Sam's club to express interest.

31:27Um, that buyer is one of my all time favorite people, Amy Legron and, uh, come to be a really good friend. And she's, I mean, she's incredible. I think she's a DMM now or, or like, I don't know, or maybe she's a VP at Sam's Club. She was like, she won some huge award in their organization last year. So she's like on an unbelievable path. But at this point she was over sports and rec and licensing for Sam's Club and she was interested. So she took a meeting and I did not know this, but my timing was serendipitous because we're right in the period where like the Yeti tumblers really taking off and Sam's Club's decided like, Hey, we need to do our white label version of this.

32:06And the week before Amy got reached out to about me, they had set their first two pack of insulated stainless steel tumblers for 20 bucks. And they were blowing through pallets of them a day. Like, just to give you an idea, like that is just like an insane amount of demand and sell through. And so she's, she's just hit like a gusher of a, of a, you know, opportunity basically. And right then an opportunity shows up to talk to me. So I get a meeting with her. This is like June of 2016. And I go in, I've got some good looking OU drinkware. And then I have like, you know, our water bottles and stuff and I show her everything.

32:48And I'm casting vision, which is, I mean, listen, early on, that's all you have is like the vision of what your company is going to become, why it's going to be great. That meeting turned into, I think, a$9 million commitment. And that was the beginning of our show. From tens of thousands of dollars to$9

33:05Matt Bertulli:million. I sold a$9 million mass retail program when I had less than certainly less than$100 ,000 in lifetime sales. So I just created the formula of what he did overconfidence, subtle manipulation and really lucky timing. Yeah. So that's it's easy to replicate, guys. so i so i'll finish off this story and that so what she says to me is she's like i want to buy all of this stuff if you can get the licenses and i'm like well surely i can get the licenses narrator he he was going to have a hard time getting the licenses uh so there's one the the universities have these kind of central bodies that more or less handle like the gatekeeping and the administrative of all of the people that sell for them because the universities don't really deal with all that crap.

34:02They just kind of want to cash the checks, which makes sense. And I mean, a few of them like Ohio State do it internally, but most of them just kind of farm this out. So anyway, I call this organization up and I'm like, hey, I'd like to get a meeting to talk about getting a national license that includes all the schools because I've got a I've got a really good opportunity. And the woman I talked to, who also has become a friend, she's like, I'm just going to save you a bunch of time. There is no way that you are ever getting licensed with everybody this quickly. Like you can just go ahead and move on to another opportunity.

34:41And I'm like, okay, I hear that, but all I want is a meeting. And she's like, okay, you know, we're happy to tell you no in person. So I set up a meeting and I had my buyer call the decision maker. I went in, gave one of the presentations of my life. And at the end of the meeting, the decision maker, Dave Kirkpatrick, said, we've been pitched by 15 to 20 companies about getting nationally licensed. And we've told them all no, but we're going to tell you yes. And the reason we're telling you yes is that you showed up with a$9 million purchase order. And we think that you can pull this off. And that was the beginning of us selling in a mass retail.

35:28Now, let me tell you some more to the story because that's an amazing story. And it's great. There's more. I was going to say, Sam's Club did not go well for you, did it not? It was a disaster in some ways. Guys, do you have any idea how many tumblers and water bottles that is? I have so we handled all the logistics on this we we personally which by the way it's one of my all-time favorite memories Curtis you would have loved it it was literally we moved 500 ,000 tumblers through our our local 3pl over the course of like two weeks and handled all the logistics and oh and some of them showed up so this is another kind of fun story some of the tumblers showed up and there were so many rules.

36:12Every school has its own colors and a particular licensing sticker that has to go on it. And like we had about 50 pallets show up that had been done wrong, where we had to deconstruct the entire pallet, take out all the individual pieces, change a packaging component, and then repackage it. We did all that. We did all the logistics. We shipped it out. And we just way oversold. And this is why I always say it's there's a big difference between selling in and selling through and being a chief sales officer when it comes to wholesale is not about getting people to say yes it's about selling the right deals and that it is so easy when you're an entrepreneur to be like all it is about getting to yes and it's like no not at all if you get so to finish that story where we really oversold ourself wasn't in the license stuff we sold them a bunch of simple modern branded stuff and as you know we had dozens of people that were aware of the brand at that point.

37:12And so we just sold way too much stuff for where we were as a brand at the time. We bought back, we bought back a million dollars worth of inventory. And that became wonderful donations to hurricane survivors in Houston. I'm sure there's some of it in the Dominican Republic. You know, like who knows where all those water bottles have gone to the four corners of the earth. But we learned some really important lessons. So like, it's not an overstatement. Amy LeGrone, Believing in Me, that program made Simple Modern. It was the start of Simple Modern, but it also was a pretty rude introduction to wholesale in that it's not just the buyer's responsibility to buy the right amount.

37:56It's your responsibility to know what you can probably sell through. And so it probably took us two to three years before we got really serious. I guess it was probably two years before we got really serious about approaching Target. And that's its own story. And I think going into Target was the beginning of kind of the modern expansion into wholesale that Simple Modern did. And that's a whole story as well, which I'm happy to share. So anyway, that's how we got started.

38:25Matt Bertulli:I asked the question about how many doors do you go into at the beginning because of that. I've seen too many people. Here's my experience. I've got some experience with retail, nowhere near you, Mike, but my experience with like a modern day buyer is they have no idea how much of your stuff to buy. Like they don't know the demand that your brand has. You really have to be the breaks in this relationship, right? Like their numbers, depending on the category, are so big. When you're in like a white space where they just don't have anything in the stores, I think that's an area where they're more likely to be really aggressive.

39:02So like, they're like, hey, this is really hot. We're seeing a bunch of sales online, we've seen one data point from an end cap or whatever. And so we're kind of we're buying blind. I think that that's, that's where you probably have the most risk of them way over buying.

39:19Matt Bertulli:But in a mature category, it's probably like they've got a lot of data, right? Yeah, Yeah, it's going to be hard for, I mean, it's going to be hard for them to go really big with you right off the bat in a mature category already because they have people. I mean, buyers are looking for growth just like everybody else. Like we've talked about this on previous episodes. The retailers can't really build more stores. The only way they can produce growth is you get higher margins on a product or you get a product that has higher sell through and that's kind of it. So one principle that I have learned internally is that I think this is a little bit different than digital.

39:56In digital, you can kind of be as greedy for growth as you want to be because you know pretty quickly when you're over your skis. When you get greedy for growth in wholesale, you don't know you're over your skis until you're really in trouble is basically what I'd say. because the decision timelines, the feedback timelines are so much longer. So let me give an example. We had, every year we have line reviews for each of our major retailers and our line review for Target for our 2024 Pog Reset, this would have been, we had this line review in probably May of 2024. and that they were going to use that to decide what they put on the shelf in 2025.

40:51Is this right? And so we went into the line review. We were really hot in a particular product category and they wanted to take it from four facings to like eight or something, which is like, man, that's a lot of this particular type of product. But the buyer was really excited. And so we said, OK, it's set in summer of 2025 almost immediately. Super obvious. We're way over assorted. So you don't really know until a year, you know, until the decision's been made and a year later whether or not you're over your skis. And then what happened is there's not a reset until 2026. but because the category wasn't doing well and we weren't performing as well as we wanted to, we didn't get to change those facings out.

41:39So we made a decision in 2024 that we won't get to undo until 2027. So just think about that. That's a three-year period. So the lag, the level of certainty, I think you have to have. Now, this is an advantage of owned retail. I will admit, this is an advantage is that you can switch things more quickly than you can with owned retail.

42:01Matt Bertulli:Well, I guess, Curtis, with owned retail, what would getting out over your skis look like? So you said, like, I screwed the third store up or fourth, whatever that was. Yeah, great. So basically, thank you for coming back to my side, Mike, and telling me how freaking complicated and horrible wholesale can be. I appreciate that because I was almost thinking about doing it there until you were able to convince me not to. It's a lease. it's the fact that the people who want to lease you the building are that's all they do they're salesmen and lawyers they're the most incompetent people in the history of the world there's just a bunch of nobody's doing nothing saying you know we want to look at this line in the lease and they'll negotiate a stupid line that doesn't matter for five freaking months because it's the only control all they have.

42:54I want to sign the lease so I can put a store and make money. They sign a lease and say, now what do I do? I don't know. They never answer their phone. They're never around. They're just, I don't like it. Hey, I don't like people who built their entire career around commercial real estate. They have something wrong in their brain that everything is a negotiation. Everything is, and they got to get a little bit of theirs. So we do a lease. You talked about this earlier. We like to have five-year leases with a guaranteed five extra years. But if the numbers are not there in four, we can walk.

43:32Matt Bertulli:It's still four years of commitment for you, no matter what, is what you're saying. So then the deal is to run your numbers close enough to say, at what level could we, at worst case, break even? And it's pretty low. I run my own manufacturing and I control my cost of goods. People really like our product. We're not going to go absorbent into these spaces. So again, being the entrepreneur, I'm playing that very careful. I'm making sound decisions. I'm not saying that's it, let's roll out 100. I am literally every decision is me working it through, working it through. Can you give me a sense of like, once you've chosen a location, how long does it take you to negotiate and sign a lease?

44:16Matt Bertulli:And then contrast that to how long does it go from we have a signed lease to we are open and selling product? What is the average of those two things? There isn't one, but let's say the space is open. Let's say it's an empty space, which is different than we got to wait to kick this person out. There's all of those folks and everything. They will go through that back and back and forth on the and push that for two to four months which literally dry and they'll say we want the deal it's empty we want it today and then they'll just delay every time they ask a question to a lawyer it goes to our lawyer it goes back it goes forever so we tell people we have a date we want to be open that's it so that helps out and that now once we get the space our team depending when we want to do can now go in and set that up and about two to three weeks tops and two uh two to four days have the product in merchandise set up technology must take some time though like to hire people and get them trained and that's going on the same time right the same time your store build is going on it's going on with that now we're getting so fast on build we have a new one in severeville it's an outlet and if you've never heard of severeville i had never heard of it but it's huge it's across from Dollyworld.

45:34It's one of the top 10 outlet balls in the United States. And we got an amazing space. Our team built it so fast, we didn't have all the people hired. They're getting faster and faster at what they're doing. So that's all getting simple. But it's a longer play compared to e-com, right? It's a longer play. But you get feedback right away. Now with us, we luck out. We get so many people at our openings and our grand openings that we make so much money. We pay back half of the build in the first couple of weeks, right? Because we get lines of people who are excited that we're there. So we're paying back that stuff right there in the first month.

46:16Matt Bertulli:Curtis, do you ever have a store that opens that does not come out of the gate, hitting the numbers that you need? When you open a store, how often are you saying, okay, now we have work to do? like it's not performing where you want it to or when you open a store they all kind of always hit like your floor the first day of course when they're opening our people are there three the one i chose in houston not great that that did not do well others and they were mostly seasonal they were mostly seasonal like it's a you know there's different types you can be in the middle of a mall you can be in a lifestyle center you can be street like you know a cool street uh if If you're on a cool street in Chicago, it doesn't matter how great it is on your opening day, but no one's walking around that neighborhood in the middle of a snowstorm.

47:06So we just run seasonal numbers on that, figuring out that starting right now through September, and it's already surging up because people are walking the streets shopping when it's 10 below. Okay.

47:20Matt Bertulli:And then Mike, whether it's opening a new sort of wholesale channel, like a new target, a new Walmart, or it's like, maybe you're just doing line, like a new line, right? So like new facings or a new product that's going in. How, how quickly do you have a sense for how that product or that channel is performing, right? Like the sell-in being, let's put that aside, but like actual turns and actual like sell through, what does that look like in those first days, first weeks? So interestingly, the answer is immediate. like literally the first 24 hours or yeah it's interesting because i mean think about it just from like a statistics perspective if you set something in target and it's in let's say you have five skews and 500 doors every day you have 2500 data points of how things are going and so you get to statistically significant samples like really quick like in a week you're just like yeah we we kind of know what it is so like there's there's two different ways you can expand you can expand by going to additional uh kind of retailers and the the challenge there is always like every retailer is a little bit different the price points people are expecting to pay, who you're kind of on the shelf against, and their own internal expectations.

48:50So I think that what you have to do is kind of test your way into which retailers work for you. I think one of my pieces of advice here is that as long as you're not trying to go really, really big, I would be more liberal in testing here. Just like you test a lot of creative, I think it makes sense to test a lot of different retail channels and kind of see like, hey, where's our product resonating? also who do we like working with because you learn that as you work with different retailers they're all different the the kind of their attitudes the types of buyers the margin requirements whatever so that's one way that you can diversify as different retailers and then the other way you can diversify is by being in different parts of the store with the same retailer so perfect example this recently with us we sell in the kitchen area with drinkware that's our kind of home base they also sell drinkware in sporting goods but typically you sell in one or the other, like a Wallace sells in sporting goods, Stanley sells in kitchen with us.

49:45But all of the back to school stuff is owned by sporting goods. So we are doing a kid's backpack program, a sporting goods this year, even though we sell in kitchen with drinkware. And then the kind of baby, more infant, kind of think at zero to two age buyer approached us and said, hey, we think you'd be a really good fit here. We came up with some stuff for them and they said it. And within like three days, it was like, we're going to just crush these forecasts. Like we're probably tripling up on their forecast. So like it was a good example where the buyer was like, we think you do well here.

50:22We didn't really have a frame of context of like how well would we do in that particular section. We knew what we'd do in kitchen, but it turns out that, you know, people shopping in the baby section, like it's a different buyer and the way that you might resonate against a different set of competitors, you just never know. So, and so like we were all way off. We way underestimated how successful we could be in that part of the store. And that's been a really bright spot for us this year in wholesale.

50:49Matt Bertulli:So can you give me the reverse then? If it does not go well, so you get feedback right away, and like this is the whole agency thing, what do you do? So like Target saying, if the sell through is not where it needed to be, you can see it the first week, the first two. Now what? I think that the tendency for people is to be like, well, let's give it some time. You know, customers don't know what's there, this and that. I have never seen that to really be the case. I'm not saying it can't. Just saying I haven't personally seen that to be the case. we have done a lot of testing around we've worked with house uh we've done testing around how how does digital spending impact physical purchasing and it does there's like there's some real spill over but i don't think it's like gonna change your life unless you're spending a bunch top of funnel with the digital spending and there's some brands that do but uh unless you're like planning on really scaling in a short period of time, top of funnel spend digitally.

51:52I don't think you can expect the numbers that you see to change. And this is where it's usually like, hey, we need to think about changing price. And it's really promotion is the lever that you have to pull. We're going to be on discount more. Maybe we just need to cut a price altogether. So you'll see this all the time where people will go out with an end cap or they'll go in line and they'll almost immediately, they'll flip on price. You usually don't notice it as a consumer unless you really pay attention to a category. But the next time you're in retail, like look for places where all of one brand stuff has new low price tags or whatever.

52:27Like that's usually like they came in and they just found like, hey, this price point's not getting the velocity we need. And we've been, I think for sure, like we had a situation where with the tariffs last year, it happened at the worst possible time where we were setting all of our stuff for the year and we had to make a decision about pricing and we just did not know what the government was going to do. And so we ended up taking up our prices and within a month, it was super obvious that it had really been bad for our sales. And so then we, you know, putting in price increases and putting in price decreases.

53:06I guess the way I would say is this, putting in price increases is like pulling teeth. Putting in price decreases is smooth as butter. Like the retailers are going to be more than happy to sell your stuff for cheaper. They're going to be very hesitant and resistant to you taking up prices unless you say, hey, I'm going to give you better margin. Or you're just selling so much that you kind of have more of the leverage and the negotiating kind of process. So anyway, I would say really quickly, and if you're not hitting the sell-through target you need to, then you need to start thinking about price.

53:44almost immediately. And sometimes it's like, it's not uniform. So like you'll set, you know, whatever, six SKUs on the shelf and two of them look real good. Two of them are kind of okay. And two of them really suck. And so it's like, oh, okay, well, we're getting an idea of the type of thing that the customer is responding to here. And we want to lean into that more. So anyway, like at this point we probably have, you know, I don't even know. I mean, definitely over 10 ,000 doors that we're in. And we probably have a hundred SKUs that we sell into wholesale. And so there's a lot of learning. You never get it all the way right, but hopefully over time you learn more about like what tends to resonate, what's good, that kind of stuff.

54:29Matt Bertulli:Would it be safe to say that if you're a new, let's say like if you're a brand and you're expanding into wholesale, this goes back to the like walk before you run thing, because is it fair to say that if you enter a target, not to say it's just target, but if you enter a target, sell through is not what you want it to be in your new. That's not a good signal for that buyer. Right. Whereas if you're more mature, you're simple, modern, you've got a longstanding relationship. They know you largely perform. You can manage around that. I think this is like the NFL, you know, they joke that NFL stands for not for long, you know, that you're, you know, Basically, you're just wearing somebody else's number at all given points, a future person's number all the time.

55:16This is the way it is. You are on the shelf when you're able to drive performance that year. One of the things that the wholesale partners will do, and I think it makes sense for them to do this, is that they just switch up the buyers every couple of years. They don't want the buyers to become too fond of certain brands. And this will happen all the time. Like a brand will really help a buyer, you know, double their performance or maybe not that much, but increase their performance a bunch and really improve their career trajectory prospects. And then they'll kind of plateau or decline. And if the buyer feels some kind of sense of loyalty to them, that's not in the best interest of the retailer.

55:51So they will they'll flip these buyers out. And, you know, we've had quite a few buyers at this point and they have ranged from being wildly, you know, favorable fans of the brand to people who are like, why are you on my shelf? Why do I need you? And that's their kind of opening line. and so you just kind of have to reprove yourself constantly and uh the way that i tell it to my team is you just have to be undeniable you just have to have your numbers be undeniable that no sane rational actor would do anything other than keep you on the shelf or expand you based on your numbers and if our numbers aren't that good then like you're putting yourself at the whim of a buyer and you don't want to be there and i i think also like there's a really big question about how agentic does buying become in the future?

56:39And my guess is more so. Like that it's more algorithmic, it's more AI driven. Walmart's already implemented a system where they're doing some of their negotiations with an AI agent. You're not negotiating with your buyer, you're actually talking with an AI agent. So that's probably what's coming is that you are your numbers, you are your performance and you serve at their pleasure.

57:04Matt Bertulli:Let's run that a little bit, Kurt. So one of the challenges with wholesale for DTC brands is just is actually price stability and channel conflict. Right. Like DTC you when you're single channel DTC, you've got a lot of leeway. You can do whatever the hell you want with offers and pricing and all that crap. When you start to go into targets and Walmarts, like they are actually quite algorithmic. They crawl your site. They crawl every brand site. So does Amazon. There's like a whole price matching issue. Curtis, when you're owned retail, you don't have this problem. Like you can you own your own stores.

57:35Matt Bertulli:you own your own ddc you can play with all this stuff i'm assuming you learn so much you learn so much about people uh my personality is exactly who the hell you think i am when you meet me in person you're like oh that son of a bitch is exactly who i thought he was right that's me and i like to be in control and the fact that i go into a room and say hey guys like here's what i need you to do like please put me in your store i know that's not what mike does right um i can control i can control my d2c i can control my retail i can choose what i'm going to do i pick my spot i pick my price i pick my product i manufacture that and for good or bad that's the limitations and the strengths that i have and i work around that right because what i think some of my strengths are might be big weaknesses.

58:25Like we build this thing in our minds. We were talking about Mike's strength over here and his great product at Simple Modern. I last week heard an amazing story that, Mike, I want to know if you know this story because it is fact. It is a PE firm, a private equity firm who owned a little drinkware company, right? And it was secondary because they delivered other ceramic drinkware to a very large chain of coffee shops that everybody knows. And this one sat around for years and years and no one did anything with it. And they only made their drinkware in hammer metal green, right? That's it. It was a famous thermos for 50 years, but they only made it in hammer green.

59:10And every quarter they'd say, maybe we should try some colors. And the people said, no way. Management's like, no way. People only want this in the ugliest green that has ever been created in the history of the world. They literally had to get rid of the entire management of that particular company. They got rid of them, put a new management in just so they could put in color. They took the color. They sent it to a bunch of Mormon women influencers. It took off and they went from the tens of millions to the over of a bill. And all they did was add color because they thought that their strength was that hammer green, right?

59:49That's who we are. Who I am is a control freak. You know, I'm very fun, but I really want to control this stuff. So what Mike says, he's brilliant at this. Everything he said makes total sense from testing to this, to the strategy. I, maybe I don't have the confidence yet to go into wholesale. People are talking about it, but I just haven't done it.

1:00:11Matt Bertulli:Well, I guess, okay, like let's flip that around then. Mike, why don't you guys do stores? Like I think – I know we've talked about this privately. I don't know how much we've talked about this publicly on the pod. Like Simple Modern has got quite an assortment of product at this point. So let's talk about this. I think that one of the things that I try and emphasize on the pod, and I'm going to do it again here, is that different products are better suited for different channels, right? If I told you guys, I mean, you know me, I'm predetermined. I'm a pretty smart guy. I'm doing a milk startup.

1:00:49I'm going to do owned retail and I'm just going to sell milk. It's going to be great milk. That's it though. Just milk. That's the name of the, that's the name of my store. Just milk. And it's going to be owned retail. How do you guys think it'll go? You guys want to invest? It's like, no, that's insane. Like if you want to sell milk, you need to sell it to like grocery stores, right? Because it's just like, that's the best format for that. Or if I'm like, I'm going to do a new DTC business, just milk. I'm going to ship milk to you. It's like, nope, that's a bad idea. You know, like 99 % of milk is sold through like whatever, like the Walmarts and the Targets and the grocery stores.

1:01:28And they put it in the back of their store because they know that that's the one item that people always get from them. The same exact thing is true in all of consumer. Whatever product you have, there is a channel that is the ideal channel for you. And there are some that it's like, yeah, owned retail is the best channel. There are many that D2C is the best channel. Like one example of this that we talked about with Sean last week, they've had a lot of success with rings and they're having a lot of success with not bracelets, but necklaces, chains. And that would not work in wholesale. Like Target will not buy that stuff from you.

1:02:06That is not going to happen. They're not going to do those price points. They're not going to, you know, they're going to do that in-house. They're going to take that margin. There's no way that you could do that wholesale. And I think it would be really, I mean, it'd be really difficult to do a non-diamond based, just rings and chains jewelry store, like as a owned retail. But D2C, it can really work and it can really work in his context. And so for my product category and my positioning in that product category, we don't sell coolers and we try and sell water bottles and tumblers and stuff that are, I don't know, call it$20 to$35.

1:02:47There's not enough AOV to be a DTC centric brand. It just, it just can't really work. And there's not enough, uh, volume plus AOV to, uh, support owned retail. It just won't. I mean, it's funny because I'm being really critical of it. We thought about doing one in OKC, not just for the business reasons, but also because like a kind of a, you know, like this is where we were founded, really high following here and we just couldn't make the numbers pencil it's like the things you had to believe about the world uh in terms of the number of people coming in and the and the purchase rates and stuff for this thing to make sense with a decent size build out we're just like it just was not going to happen and the reason i share all that is like i think that you have to be realistic about what's possible with your brand.

1:03:40Yeti sells drinkware, but they sell it at a$40 to$50 price point and they sell it with$200 to$400 coolers. And so D2C can work great and they do a great job at it. But for us, for like when you're doing our particular strategy, wholesale just, our particular product, wholesale just has to be a huge part of it. And interestingly though, like one exception for us is there's one part in the year where we can really do DTC well. And that's during back to school because people buy many things and they bundle it together. And we have a high AOV and we have embroidery and stuff like that, that makes DTC the ideal channel.

1:04:15So my whole point in this whole diatribe is just, it's great to listen to a bunch of people, but it's really important to understand what are the characteristics of the market you're in and the product you sell. And that's going to map naturally to certain channels and that you're going to have to really contort to make it work in other channels. Let's talk about Curtis's product for a second. He sells leather purses by and large. I mean, you sell a bunch of leather stuff, but leather purses are a big part of your sales, right, Curtis? It's very easy to map that to several other people that have made owned retail work.

1:04:49I mean, Coach would be a really obvious example where there are other archetypes in the market of making owned retail work when you're selling that kind of product. And so I'm not surprised that Curtis is able to make it work, the market kind of tells us that you should be able to make that work if you do it at a high level of excellence. Anyway, but do you guys, are you guys aware of anybody that does drinkware as a standalone? I mean, even Yeti, I think has like -

1:05:18Matt Bertulli:Yeti has stores, but not many. They have a few stores, but not many. I think it's more of a branding play. And again, they're also selling two to$400 coolers as well. And so anyway, all that to say, like I also we didn't really talk about this here but a lot of times you'll hear people say well it's a branding play and just for my taste that's a little bit too loosey-goosey I think yeah yeah so like yet he's done it and I you know it's like it's a there's no counterfactual has that helped their brand has it been positive ROI nobody knows yeah exactly who knows and for me it's just too loosey-goosey to be like yeah we're gonna spend millions of dollars at something that I really have no idea how it would impact the brand.

1:06:01And I think the actual like economics of it are really challenging. The difference, Mike, is in Austin, you're totally right. Like with that Yeti store, there's one in Austin. I've heard probably a dozen people say, hey, we're going to go to the Yeti store. No one says I want to go buy something from Yeti. It's almost like a tourist attraction, which is cool. That's why we thought about OKC. We thought maybe. But, you know, Yeti, Listen, Eddie's a much bigger brand than we are. And I think that what could make sense, and they have a lot of much bigger products than we do. And so like, I just think what made sense for them, we looked at it and we ultimately decided that it didn't quite make sense for us.

1:06:41sometimes when you own a brand like you can do things that aren't purely economic you can just do them because you're like this makes this look cool and it's a flex and like that's fine but if we're talking about like actually growing your business my guess is that you know for most people owned retail would be much more of a distraction moth on curtis you've had to learn a ton to make this work right you know the the key thing is if people are this far into this operator's podcast they're probably people who already have a company, right? And they say, hey, I want to take it to seven, eight, nine, ten figures.

1:07:13And they probably have already chosen their channel, right? So what we started talking about for me was, hey, I'm a D2C company, right? I'm going to do 200 million in D2C. What's the other channel that I go to next? Do I go to wholesale? Do I go international? Do I go to retail? By sheer luck, I went into retail and we found out that it was there. and for a lot of plays that we're working, it works for us. Like I have outlet stores around the country. So I have a manufacturing that can make things specifically for those outlet stores. I can buy slightly different leather, make different things, and fill those outlet stores up.

1:07:52So we all look around at our product. Mike is exactly right, but he said, hey, if I'm going to start a store, do I start here? Almost everybody here who's watching their operators, they have a store. It might be doing$100. It might be doing$100 million. But they're saying, hey, here's one avenue. I want to be more successful. And when I start hitting the top of that, how do I go? Where do I go from here? And that's what we did. We chose retail. And I'm going to be completely honest with everybody. I admitted this for the first time last week. Why did we really not go wholesale? Because I made the first leather bag in my garage.

1:08:33and my mind is so linked to, God, that was a bag, right? I didn't even know how to sew. And I sew this thing. I'm like, here you go. And I took it to an art festival and somebody bought it. And I'm like, you poor son of a bitch. Thank you for buying this from me, right? And I've never been able to make the mental adjustment to saying now that is sitting in a store and somebody walks by, how would it be displayed? How would they do it? How would they do their turns? We're our own limiting factor. once I built my first store I could see it in a store I probably once we do our first wholesale then I'll be calling up Mike every night crying saying help me out with I don't know what I'm

1:09:11Matt Bertulli:doing yeah I think Curtis the other thing too is own stores you can have a really wide assortment of products and wholesale you you can't right like you're very limited by how much space they give you and most most large retailers are going to give you like a very small amount of space at the beginning um and then if you're lucky and good and they grow it over time we have a higher end signature line coming out in november where the bags are much more expensive and we just take a small part of the store and turn it into that right like we just okay yeah you have so much flexibility over merchandising and i think that's an argument in favor of own stores um it's actually an interesting idea of doing a hyper local, you know, one physical retail of some type, whether that's a pop up or, you know, a booth somewhere, your own your own store, learning from it and then using that to go to the mass retailers.

1:10:05Because like, I think if we're talking about using owned retail to learn, I think that's really different. You could have said it earlier, like the thing PE loves is like, hey, you've got 50 stores, we can take it to 300. Well, Target has 2 ,000 doors. Walmart has 4 ,500 doors. And the ability to go from zero to 6 ,500 doors by going into those two places is like – it's untouchable basically. So I think when it comes to scaling quickly and scaling with the least amount of investment and complexity, those will always be undefeated. But you really do have to learn in order to do that effectively.

1:10:42And so I could see a model where you use both.

1:10:46Matt Bertulli:So Katie is a good example of this. I think she said this before on the pod, maybe not. She owns a retail store that is actually not branded Caden Lane. So it's a multi-brand retail store that she has had 20 years. I think it's called Nursery something. And that store carries lots of brands in her space. And she looks at that. She's like, I've talked to her about this. She's like, she learned so much about all of the categories because she has this store. It is like her, it's her school for what's happening in all things, baby and family and newborn, all that stuff. Right. So like, I think Mike, that's a really good use case.

1:11:26Matt Bertulli:I think the other one, the other one that I do see work very well is when you are the kind of brand that can own a geography. right so like there are retailers especially in the states less so up here in canada but in the states where like you do have brands that are like they just own texas or florida or like they're just a local darling and then that's a justification to say like okay stores owning your own stores might make sense like yeti only has 20 stores guys at their size so like that's very much a brand play like they've got i know they've got one in scottsdale because my parents so man but i i have this thing uh where i give out a hundred dollars when i see somebody in the airport or walking around with my bag and i and the first time i ever did it this woman was like i usually was gonna have a card i had made and i forgot it at home i'm in the dallas airport i went up and this woman was like freaking out on the phone i'm like should i do it walked up i tapped her on the shoulder i said hey love your bag keep supporting important leather goods i gave her 100 bucks and she looked at me like I was the crazy man, right?

1:12:35Like, and I'm like, I'm never doing this again, never doing it. I got home two days later on LinkedIn. The woman wrote to me and she said, the reason I was freaked out is I had lost my wallet. I had no money. I was stuck. I was hungry, stuck in an airport and a guy walks up and gives me a hundred dollars. She's like, thank you. And I'm like, okay, I'm going to do this. So when I go to the US or I'm traveling, I have like about a thousand dollars of hundreds. There's a point to this. I went to Portland a couple weeks ago. I got off the goddamn plane. I was at 100s by the time I got out of the airport.

1:13:08Because everybody's got a bag in Portland. It's Portland. It's because you own Portland. I stayed in a hotel downtown. I walk out the door and I'm like, oh my gosh. I'm glad it's a weekend because I cannot get that much money out of the bank. I'm going to stop doing this stuff. So you can own an area. Tecovis owns Texas in boots. Just, hey, let's put up one in. Are they in New York? No. Are they here? No. They have 30 in Texas? Absolutely.

1:13:32Matt Bertulli:Yeah. And just for everybody listening, Curtis, I think this gets done on an even more, like on a smaller scale, right? So like our friend Tony owns a brand called Vessi. They sell shoes. They sell waterproof running shoes. So like that was their big innovation. Well, they own the shit out of Vancouver and Seattle. And that little corridor of the Pacific Northwest where like it's super rainy. Their household penetration there is freaking nuts. So where do they open stores? Vancouver. So I think you can do this at all levels. There's lots of examples of this for people listening. You don't just need to look to the Yetis.

1:14:10Matt Bertulli:Tecovis is a good one. This happens everywhere, guys. I just want people to know it's an option when it comes to stores. You don't need to go into stores thinking, I got to go national. I got to have hundreds of them. I know a guy that owns a jewelry brand. He has 61 stores. I talked to him two weeks ago. and the first thing he said to me, he's like, I should probably have half as many. Right? So it goes the other way around. So I just think there's lots of ways to win when it comes to owned retail. And on the other side, Mike, I think there's lots of ways to win when it comes to wholesale. You don't need to play the game you do either.

1:14:45You don't need to be Target, Walmart.

1:14:49Matt Bertulli:It's so category dependent. There's lots of doors. There's many types of products you wouldn't want to go into Walmart or Target. Again, my big thing is this is a very specific thing for what you sell and that being a really good operator is understanding what are the channels where you're likely to have success. Every time we talk about this, we talk about wholesale. There are three names that come up. Target, Walmart, Costco. And I'm like, I sat next to Matt in Bozeman out to dinner and it was like Costco, Costco, Costco. Target, Walmart, right? So when you own a leather bag brand, you're like, yeah, no one's telling the stories I want to hear.

1:15:28And one of the things we do on the Operators Podcast is we're hoping that through all the craziness and the back and forth and us telling this, that one or two of these things hits you and says, oh, that's the same dilemma I'm in right now. And it subtly helps them make a decision for action to change what the hell they do.

1:15:46Matt Bertulli:100%, man. All right, boys. I like this. I think we can wrap here. This was a good conversation. Own retail, wholesale. I hope you learned something. If you're listening and you're still here, thank you for tuning in. I think that's the pod. I always learn something with you guys. Bye.