AI, customer acquisition and the DTC bust: The Modern Retail Podcast year in review

0:05Hello, everyone, and welcome to the Modern Retail Podcast.

0:30been all that jazz. And so I wanted to highlight a few of the conversations we've had over the last 12 months so that we can maybe use those as lessons for the year to come. So here we go.

0:46In this first clip, I'm talking with Tecovis CEO David Lafitte. For those who don't know, Tecovis is a Western wear brand known for its pretty nice cowboy boots and another apparel. The company has been on a store opening, pretty much clip, opening a bunch of stores over the last few years, also expanding into wholesale. And one of the reasons it's been so successful recently is because more people are embracing, I guess you could say, Westernware and Western culture. He spoke a little bit about what that means and how that happened. And you can listen to it here. Let's play the clip. So, you know, we look at the size of the market, MSA.

1:22We look at our e-com traffic and transactions. But one thing that is interesting, and I've said this before, but in non-traditional Western markets, you still have and look at, you know, how many people are listening, for example, to country music. The amount is, you know, exceeds pop, exceeds other genres. And these are also in regions that are non-traditionally Western. And so that's also kind of something we look at as sort of a proxy. when we see even concerts and entertainers that are performing in country music to go around the country, our stores in places like Charlotte or Denver or Cherry Creek really pop.

2:03So we believe that Western is kind of becoming, and we don't believe it's just a trend or fad, but it's just becoming more of the American lifestyle. And we're seeing that play out with these stores that are really in more less traditional markets like Texas. The other interesting thing is the amount of people that are migrating to these more traditional areas. You know, a lot of people moving to the Sun Belt states, moving to Texas. So that's kind of working in our favor as well. You mentioned the unit economics a little bit, but do you have, for lack of a better word, a formula? Like if you open a store, does it need to reach a certain level of profitability by X amount of time in order for it to be deemed a success?

2:47Or how are you thinking about it so that it works within the overall mix and you're not just throwing money away at an area that isn't resonating with customers? Yeah, we look at both as a fleet review. So we want to make sure the fleet in its entirety is hitting the economics that we need. But we'll also keep an eye on individual stores. We know that certain stores that we open might be a larger footprint, could be, you know, our sweet spot's probably 3 ,000 to 3 ,500 square feet. If we have a store that's 4 ,000 and it's going to be more investment, both capital expenditure to get the store up and running, we understand the payback may be a little bit longer, but we also do view these as awareness and a marketing play a little bit, but we don't want to just solely say, chalk it up to marketing and don't worry that it's losing money.

3:38So we look at four-wall profitability. We look at, cash on cash returns on the store and our just general revenue per store as well, among many other things. But yeah, it's important to constantly do a fleet review. Over the years, we have closed a couple as we continue to open. So we're always going to be evaluating the fleet and be pretty diligent about that and understanding why it may not be performing. Is it management? Is it the assortment? Is it the way we're merchandising that store. So there's a lot of factors that go into it. In this next clip, I'm talking with Celsius's CEO, John Fieldy.

4:20Celsius is a pretty exciting beverage brand. It makes an energy drink. It's really been very, very popular over the last few years. But Celsius has actually been around for a pretty long time, and it's had to go through a bunch of different brand evolutions and figure out different ways to reach its target consumer. It's really hit on something over the last few years, but it took a lot of trial and error, which Fieldy talked a lot about. So in this clip, it talks about some premium partnerships that Celsius has done recently and how the company approached it, but then also why he wants to approach the overall company not just being a beverage brand, but being a premium beverage brand and what that means and what sort of marketing it takes.

5:02Yeah, I mean, getting more strategic with our retailers is extremely important. shopper marketing strategies. We just partnered with Ferrari with F1. So that's a big partnership for us. Really leverages the pop culture, especially with the increase in awareness of F1, especially with Netflix, the Netflix series. And retailers are really excited about it. So trying to find a property that aligns with health wellness, aligns with the brand's energy component as well, but also is a property or asset that excites retailers too. So really trying to, you know, strategically almost serve the shopper, the investment in the brand asset that you're looking to leverage within retail, but also connecting that emotionally with consumers.

5:51So that was a big investment for us. And it's been a great partnership. We've Charles LeClaire, they won just most recently. We have several races coming up. So it's a great successful brand. It is a premium brand when you Ferrari and nothing's better to have Ferrari associated with Celsius as well. So we're really excited about it. Can you just give sort of a top level what the partnership strategy is? Like, is it are you looking for sort of top tier brands like Ferrari? Are you looking for certain types of influencers or creators or celebrities, etc., that that would align like walk through what is the ideal type of partnership you would want to make in the current state that you're at now?

6:29Yeah. Well, when you look at it, we want to be a premium brand within the energy category. So it's really important we continue to partner with premium brands alongside to build that credibility. So Ferrari was a great partnership. We're looking for really top funnel awareness, but then also driving at the point of purchase as well. So that's what those targeted NCAP retail marketing programs that we have. We do a variety of programs from enter to win sweepstakes where you can get gear and ultimately, you know, win a trip to Las Vegas to the race and have a great, unique experience. And we leverage that in a variety of different ways, not only at the point of retail, but also with our distribution partners and some of our sales team members as well around that.

7:11So it's a 360 encompassing program that leverages top funnel, targeted, social media, event driven, and at the point of purchase. So you're hitting, bringing it all the way down to the funnel. In this next one, I'm talking with ViLife's chief growth officer, Olga Osmankina-Jones, about how the company is finding its customers. For those who don't know, ViLife is a plant-based cheese company. It's one of the most popular in the U.S. right now. You can find it in most grocery stores. But also, Oseman Kina Jones' entire mandate is convincing people to buy plant-based cheese over regular cheese. In this section that we're about to play, she talks about how she's trying to get people to know what it is, how she's getting people to go about adopting the product and testing it out.

7:59And she's using a playbook that is very similar to some of the other successful plant-based companies of the past, like Oatly. Let's listen to the conversation. Our customers, whether it is on-premise or off-premise or food service, they are the name for it, very much on the same journey as us. And we constantly discuss with them the strategy, how do we build trial and adoption of animal-free or plant-based type of categories? because they equally play a massive role in, of course, us reaching the consumer, given how small and emergent of a category that we are. If you look back in history, definitely the category started more in health stores and more natural stores.

8:48And that was intentional because, again, that's where the initial product was fitting. That's where our core consumer was shopping back in the day. However, as you think forward, and frankly, also, as you look at the trajectories of such categories as plant-based milk, for example, you can clearly see that the scale of adoption was equally propelled by the collaboration and partnerships with the right channels and customers. Think of oat milk and baristas and positioning oat milk as maybe even better for a cappuccino. Very mainstream behavior, drinking a cappuccino and putting the new alternative category right at the heart of it was a big propeller for that category growth.

9:42So we are looking at the channel mix very similarly. How do we make sure we partner more and more at scale whilst unleashing the footprint of our availability? And really marry our conversation about choices of stores with customers or food service operators to the footprint of our consumer, our different people that we now know very well. So that matching, that cross-reference, if you will, where the consumer is and where the customers are, of course, creates a win-win situation for us as a brand and as a company and for the customers to be able to grow their shopper basket and to grow the category together with us.

10:28So you mentioned oat milk. And, you know, this is, I feel like it's now become like a marketing lore story, like Oatly, like they went to every New York coffee shop and got them to serve oat milk. And then that's how it all blew up. But what would for for Via Life or for vegan cheese, what would that that specific thing look like? Would that be finding a fast food partner? Like, what do you think would be the thing that would make that happen for you? Yes. Well, Kale, first of all, I have to tell you, you will just have to wait and see and maybe we can get together again. I'm sure you don't want me to disclose all of the trade secrets, but I can assure you we are hard at work with our now renewed strategy on how we're going to grow this category.

11:15We are hard at work on bringing to market not just the next generation of products, but also thinking about the right applications that this product should live in to be able to deliver best consumer experience. All right, let's switch gears a little bit. We were talking about customer experience in this last segment. In this next one, we're talking about business pivots and new technology. A few months ago, I spoke with Walmart's chief product officer, John Alfernes, and he talked all about how the company is leveraging AI, specifically what it's done this past year in 2024. He talked about the way that he approaches AI and the ways that it's used in some unexpected applications.

11:59Let's take a listen. In 2024, I think one of the big focuses for us has been around leveraging artificial intelligence, large language models, all of that emerging technology in ways that really solve problems for our customers in just really magical kinds of ways. Just a couple of examples for you. On the search side of the world, we've been working really, really hard to do a number of things to better understand the intent, what it is a customer is looking for. and we reflect on that in a number of different launches, things that we've brought to life recently, and we can send you more info on this as well.

12:36One of these things is guided search. So instead of making the customer do all of the work of trying to figure out what they want and breaking down their task into an individual query and bringing that to us, instead, just come to the search bar and tell me what it's about, right? I'm planning a birthday party for a seven-year-old who's really interested in dinosaurs. Okay, well, I'm guessing you want some dinosaur-themed cups and plateware, and maybe these would be appropriate balloons, and these could be appropriate toys for others to bring to the party, et cetera. So that's this notion of guided search.

13:09So tell us your task. Tell us your broad intent. And we'll help break that down into easy steps that then link to products that we have in our catalog to make it much easier for you to buy. We're also looking at summarizing item highlights, review highlights, almost synopses of this dense information that we have available on our site. And we're able to use generative AI and large language models to bring up the highlights and really pare that down so we bring the information to a customer much more quickly. That's on the customer side of the world. A lot more we're doing there as well. On the associate side of the world, too, it's a really heavy lean-in on the artificial intelligence side of the world.

13:50On the associate tools side of the world, we have this overall framework tool called MIAT. So our million-plus associates use MIAT as a tool on their phones that helps them with everything that they would need to do to do their job, Everything from payroll to clocking in and clocking out. And what's the next best action that I should take as an associate so that I can deliver that value for Walmart and then free up my own time so that I can spend that time on the floor? And some of the things that we've brought to life there are if we can let you know as an associate that we have just brought in a number of pallets or boxes of, say, somebody's favorite cracker and it happens to not be on the floor and you're out on the floor talking to a customer who wants that cracker, you can say, oh, I know they just got dropped off.

14:41Let me go in the back and grab a box for you and bring them up front. We're also looking at doing a lot in the RFID and the augmented reality space so that we can help associates in the back. So imagine the back of a Walmart is full of just many, many large cardboard boxes. But you need to know what's in the box in order to be able to unload it and be able to bring those things out. So for our associates, it's really just a matter of waving their phone around the boxes. And because of some of the technology that we have employed, you understand what's in each of those boxes, the amount of inventory, etc.

15:19So we're starting to bring all of this stuff together in the artificial intelligence space and unlock it in ways that really help our customers and associates deliver faster, get at what they're looking at faster, and ultimately save time and for our customers, save money as well. Just a few examples of some of the things that we're doing this year. Moving on, we're going to another, I guess you could call this a tech company, another platform, if you will. And it's similarly about approaching different sides of the business in innovative ways. I'm talking with BabyList's Chief Growth Officer, Leanne Grant.

15:53She talks about how people think of BabyList as predominantly a registry for new parents, right? Well, she has thought about building the company as a media company, and she talked about how that has been her mandate since she joined the company. So let's hear this clip. My very first assignment was it was such a consulting project. She said, how big can our media revenue be? And it was pretty small. And I said, I think really big. I can make all the spreadsheets. I, you know, I did a deck with market research and I don't know, SWOT analysis. And I made a spreadsheet and I said, but I think that like the thing is we could get financial services revenue.

16:38Like every advertiser wants to talk to an expecting parent because you change everything. Like, sure, you need a stroller, but also people get a new car. They get a new house. They get a, they get a will. They get insurance. They start a 529 plan. They need food delivery. Like literally, they need Tylenol. Like every single industry wants to talk to these parents. But I said, let's actually start with kind of an iterative MVP approach. Let's just talk to advertisers. Let's see how much we can grow it. And it successed in the first three years. It'll grow even more this year. So it's one of our fastest growing revenue streams for sure.

17:20And the best part is like brands keep coming back. So we have really high repeat rate because our advertising really works for them. And so that's the measure of a good media business, right? Is that people say, oh, this really performs for me as a brand. All right. And let's end on a more zoomed out note. For this last clip, it was from earlier in this year. I spoke with Bombas' co-founders, David Heath and Randy Goldberg. They talked about the overall evolution and trajectory of the business, best known for its socks. But in this clip, they're talking about how they approached business expansion and how they started out as an e-commerce-only company, but have slowly tested out new channels for business.

18:05Some have worked, some have not. And it's a great example of a lot of questions we write about, you hear about on Mono Retail Podcast is, if you're an online brand, how do you expand to become a huge behemoth? A lot of companies received venture capital and grew much quicker than they should have. This is an example of a company that has grown very systematically and slow over the last few years and figured out how to iterate and experiment when necessary and know when to pull back when something doesn't work. Let's take a listen. Yeah, we launched wholesale about five years ago, mostly because we were getting a tremendous amount of inbound demand.

18:44You know, a bunch of retailers saying, hey, we've seen your growth, you know, a big company, we'd like to carry your product. We were maniacally focused on being an e-commerce brand. And again, we were still growing at 100 % year over year at that point. So we were not like looking for growth. But I think we also weren't so naive to think that maybe at some point the online market might slow down a little bit and we might kind of tap out or the growth rate might get to a point where we might want to have other channels. and at that point spinning up a brand new business when it might already be too late.

19:17So we were like, let's dip our toe in. Let's figure out this whole – it's a very different business. You've got EDI, the products you ship, like the way you treat those customers is very differently. So for people who are thinking like, I'll just do it all, like it's very, very hard to do both well. Tremendous amounts of resources and teams' time. People get, you know, pulled into different things. So we did it very, very slowly. We launched with kind of one account, and then the next year we added another. And then, you know, for mostly for the last five years, we've been operating with kind of like five big accounts, you know, just trying to like make them really great.

19:52Now we feel like we've, you know, had enough skill set internally, enough experience where we're starting to kind of, you know, go to that next tranche of retailer. And the reason we do, why we feel confidence to continue to push there is we do believe we're at now a size and scale, around$350 million of revenue, where brand awareness is actually starting to help us in retail. Consumers that are going into retail stores, it's not like they're hearing about Bombas for the first time. They've seen our ads. They might have seen us on Shark Tank. They see our TV commercials. And so we significantly outperform in our categories in pretty much every retail door that we're in, you know, largely because we have this huge marketing engine that's driving this big e-commerce business.

20:38And naturally, that kind of spillover happens, you know, on the wholesale side of things as well. And we do think, you know, I think there's some data point out there that says like 85 % of, you know, our category is still purchased, you know, at retail. So we're also trying to meet the consumer where they are while also trying to keep up with shifting consumer trends and moving more online. And so we kind of want to be in both places at the same time as long as we can do it well. And that's kind of the big caveat with that. And it's why you're not going to see us kind of blow out and be everywhere all at once immediately.

21:18We're going to take a very slow and kind of methodical approach. and kind of caveats how we just think about the business as a whole. And, you know, we talked about the UK. You know, we had launched the UK. The market was really good at the time. And then the world changed and economies got really challenged. And within six months of launching the UK, we actually decided to pull it back. Oh, really? Because, you know, we were like, you want to launch in the best environment possible. And things were challenged here in the US and they were even more challenged in the UK, given their proximity to the war and all the other big economic things that, you know, pressures they were facing.

21:53And we weren't getting a good read on the data over there in terms of penetration. And we're just like, look, you know, you want to launch in a good market, not in a challenged market. Otherwise, you're going to be just running uphill the whole time. So we pulled that back and we've kind of diverted more of our energy into the U.S. only and then expanding, continuing to expand our wholesale channels. But we want to do everything very methodically. And I think this is a trend you've picked up on. You know, we were never the brand that was like, let's go out and raise$150 million and try to be the biggest company as quickly as possible.

22:28We look at the brands that we admire, the Nikes, the Lulus, the Under Armors, Patagonias, the world. These brands have all been around for 20, 30, 40 years. And they've built, you know, brick by brick, you know, every single year, you know, and And they never aspired to be the fastest, biggest company as quickly as possible, which I think a lot of the D2C brands over the last decade that have come and mostly have gone kind of approached it with that approach. And that's, I don't think, and Randy agrees, that's like, it's not how you build good long-term brand and company value. You've got to earn the trust with the consumer by being very consistent.

23:05And consistency is something that I think we're very, very focused on, you know, as we think about every new strategy that we deploy. Randy, anything to add? No, I think that nails it. Great job, Dave. I'm on board. Thanks, man. I'm on board with the strategy.

23:25All right. Those were all the clips we have for this week. We'll put links to all of those episodes in the show notes. If you want to listen to those full episodes, if you haven't already, definitely to give them a listen. Just a heads up that this coming weekend, we're going to have a brief pause on the Modern Retail Rundown. but we'll be back next week for another special episode. My colleagues, Gabriela Barco, Anna Hensel, and Melissa Daniels talk about what's ahead for the retail industry. And then going into the new year, we're going back to our original programming where I talk with retail executives about their business.

23:56Coming up on January 9th, I speak with Gregory Zamfotis. He's the founder and CEO of Gregory's Coffee. We talk about the coffee industry and how it's changed, what's ahead, as well as why some of the other players aren't doing so hot right now. It was a really fun conversation. You should check it out. But otherwise, have a great holiday season and thanks for listening.