How KiwiCo is leaning on retail expansion to grow holiday sales

0:04Hello, everyone, and welcome to the Modern Retail Podcast.

0:30Co. for her birthday like a month ago. And so it's been top of mind. This was before we began talking about coming on the podcast, but I'm always excited to talk about kid-focused, parent-focused products that have a subscription angle. I want to get into just the growth over the last few years. The company's been around, I believe, since 2011. But also, there have been some big announcements this year. It's expanded into Target and Barnes & Noble, launched a sort of revamp of its subscription service that I believe are called Kiwi Clubs. And also, we're going into the holidays, and I'm talking with everyone about the holidays, and I'm sure Sandra has a lot to say and a lot of big things she's planned for that.

1:03So, Sandra, how are you doing? I'm great. You kind of covered it all right there. So thank you. All right. Podcast is over. So no, let's start with you. So you've worked at some really interesting companies that have sort of spanned the gamut. I know, I believe you've been at like Procter & Gamble and some other consumer companies. So what was your professional background before and how did that lead into starting a kid focused or you know like education subscription box company yeah it's interesting with kiwi co we're doing something really geared for consumers we're designing and delivering a consumer product and we've been basically direct to consumer so e-commerce related and my experience leading up to here actually has been comprised of those elements and i didn't necessarily have an intention of starting a company.

1:54But when I look back on my career, it makes a lot of sense. So my training is as an engineer. I was a chemical engineer, undergrad, and went to Procter & Gamble where I was in their R &D organization. So basically designing and developing consumer products, getting to know the consumer, and then applying that to designing the products. And then I came out to Silicon Valley at the height of the first dot-com boom and got to do some really interesting things. Went from a huge company to companies of like where I was fifth employee. Got really hands-on, got to know what it meant to be a product manager in a tech company and made my way back out here after grad school and joined PayPal.

2:41And at PayPal, again, e-commerce related, payments related, learned a ton, got to see a lot of different parts of the business moved over to eBay where I ran eBay fashion when it was still under one umbrella. And then at that point, I had decided that I wanted to join a smaller company again. My kids, my oldest two kids for almost three and five, and started to get hands-on with projects and eventually ended up starting KiwiCo. And so from a career perspective, it is interesting to look back on it. It's not necessarily that that was planned or architected that way, But that experience, I think, in customer development or customer understanding and product development and e-commerce has been very, very helpful to starting KiwiCo.

3:26Which came first, given that everything you just talked about was sort of the back end, the business model. Was it that you knew that you wanted to do this type of business model or did you have the product and consumer fit in mind before you figured out the subscription element? So basically what had happened is that I really wanted my kids to get exposure hands on projects. So maybe it's a combination of being an engineer. Also, I grew up and my mom and I did a lot of hands-on projects together. And so I think there was an element of trying to recreate that with my kids as well when they got to that age.

3:59And I started to pull these things together. And I was like, gosh, I'm going to invite my friends. It's taking quite a bit of time. And one of the moms was like, you should start a business around this, like doing these activities, you doing a lot of the thinking. This is so much fun for us. Maybe you should think about a business. And so that's really where it started is saying like, gosh, is there something here? I mean, certainly if this was an N equals one thing, you know, just for me, that wasn't going to work as a business. But it was like, gosh, there might be something here. And so for me, what that meant then is trying to verify that there was a broader market, right?

4:33And so went out, talked to parents, talked to moms, did my own form of focus groups in my living room, sent out surveys through SurveyMonkey to try to get feedback, and then decided, oh, there seems to be something here. There's something around fun, enriching projects that kids can get hands on and really just have a good time with these discoveries and their creations. And for parents, it's really easy, right? And if they can trust a brand that's delivering something that's good for their kids and is convenient and easy for them, that's something that they would buy into. So we've been really fortunate that that's actually rang very true at this point.

5:15And so I didn't necessarily go in saying, I'm going to start a kids company, a subscription business. It was, gosh, this is something that's a need for me. Is this a need for others? And then, you know what, this idea of delivering something that is convenient, easy, you don't have to think about it. And for the kids, the brand new discovery or topic every month is something that works. And so the subscription model happened to work with what we were trying to do. I wanted to get into this and I feel like we'll go more into it as we talk about Kiwi clubs and all that. But given that KiwiCo has been around for, you know, over a decade now, it's sort of a scene, the rise and the fall of the subscription business where like, or not the subscriptions, but you know, there was the birch boxes, all of those.

6:00And you guys have been able to pretty much write it out. Some stats I found, like you've sold 50 million crates, I believe is something I read. You have over 150 employees. Like you seem to have been able to stave off this industry-wide issue. What do you attribute to that? Is that more just the product fit? Or how have you thought about subscriptions and churn over time now that you've been here for so long? I really do think it comes down to what makes sense for the consumer, right? And so we have the young consumer, our little consumers, and we have our big consumers, who we also call the grown-up assistants, so the parents or the caretakers and that type of thing.

6:40And I think the key thing for us is that we have been very thoughtful about what makes sense for those customers. And the subscription model happens to have worked really well. I think if you come at it as I want to shoehorn this model, you know, into this particular product or industry, I think that's where it becomes really tricky, right? Because inherently, does it make sense for that consumer? And so, again, for the kids, like the idea, I mean, we send these crates out. They have the child's name on there. I mean, how delightful is it to get? I mean, we like getting mail, too, as long as it's not a bill, right?

7:15Like, it's kind of fun to get mail and especially a package. So there's something fun about that. kind of the opening up and the surprise of like, what is the thing that I get to work on this month? And then the kind of fun and learning that happens in the experience, right? Because it's not just a product, it's an experience for the kids and families, and then the pride that they have afterwards. And again, for the parents, it's very much about, gosh, this is something that I feel good about, right? Like I feel good about having my kids engage in this and I can trust this brand hopefully. And that's something we've developed over time.

7:54And to your point, gosh, we've been around for a while is I can trust this brand to actually deliver something that is that combination of fun, delightful, and enriching for my kids. And so I think that's why it's worked. What age did you start out with? And did you sort of begin expanding it as those kids grew up? because I'm always so interested in, you know, something that you need to do something new every month, keep them engaged. What is the process by which you go about sort of creating the crates, the content, making sure that it works with the kids and that it's the right age, like all of that.

8:28I'm so interested. How do you approach that and how has it evolved over the last decade plus? Yeah, I mean, I think there's kind of like two elements to what you just talked about. So one is kind of the evolution of what we provide, right? Like, how has that subscription service evolved over time? And we started off with an age band that was kind of this preschool, early elementary school age band. Happened to be where my oldest two kids were at the time, actually. And we started there. And it made a lot of sense, too, because people are really hungry for hands-on activities for their kids at that age.

9:04So we started there. And then in 2014 or so, the business was going, I would say, like, okay. Like it was doing fine. It was not kind of taking off like we necessarily wanted it to. And so we decided in 2014, at the end of 2014, to launch three additional lines. So one of the things that we would look at, and you would ask the question about subscription and churn and that type of thing, is we would always look at our surveys, right? We're constantly getting data from our customers. And one of the things that we had heard at that point is there were kids who were too young or too old. They were aging out.

9:40So we ended up creating lines that were younger and older, and then we expanded interest areas. So we ended up doing a line that was dedicated to science and engineering, one that was more dedicated to art and design as the kids got older and they had an opinion about their interests. And then we had one that was about kind of exploration and play and imagination for the younger kids. And when we launched those, our thought was, OK, if one of these takes off, we're going to double down on that and add that into the fold, into the mix. what ended up happening is that they all did well. They ended up selling out during the holidays and we're like, okay, we're onto something here.

10:17And so we actually at that point expanded to four different offerings and lines at that point. And it really was a turning point for the business actually is a real inflection point because not only did we address this kind of, okay, we're increasing the TAM, right? Our market was increasing because we were covering a broader age band. There were other things that started working too. For example, when you look at the unit economics at that point, the majority of U.S. households have more than one child. And so there are people who are buying then more than one box. And then that was going into one container for us to ship to the consumer.

10:58And we say free shipping to the consumer. guess what? It's not free shipping for us. And so they weren't able to amortize that cost and things like that. And so you can really draw a line to our first month of profitability from that particular set of initiatives that we launched. And that was a really important point for us because we haven't raised a ton of capital. We've raised maybe just a little north of$10 million. And we've been disciplined. We've been profitable. We've been cashflow positive. So we've been able to fund our own growth. from there on out. And so that was really exciting for us.

11:34And then your other part about the product design process. I mean, we have some really talented folks here. So we have a product design team that's geared towards kind of the e-commerce and content platform, but we have a product design team that's filled with mechanical engineers, industrial designers, et cetera, that are designing our projects that are going out to the kids. And they spend a lot of time really ideating, thinking about concepts that are interesting. And then there's a lot of testing with kids. So we have a dedicated room here and the kids kind of descend. The noise level goes up a notch here in the office.

12:15And we learn a lot from them. So they're taking in that data to iterate. And then we have a number of partners that we work with in order to actually get the product, source the product. and then we fulfill through our own warehouse, actually. So we run our own fulfillment. And so it is a process. So when you're dealing with a digital product versus a physical product, with a physical product, it does take time, of course, to ensure that the product is here and ready to go and in the shape that we want it to be before we send it out to the consumer. So that's all really important to us. And one other thing to note is that when we send something out to the consumer, ever since the very first, we call them crates, the materials and inspiration, ever since the first crate that we sent out, we actually get data back on how does that crate actually score?

13:04And then we're able to take that and say, okay, what is the net financial impact of this crate? Because we understand then kind of what the cost profile is, how satisfied people are, how that relates to retention, et cetera. And so we have a lot of data that we work with in our direct-to-consumer business. Interesting. So I'm kind of surprised that when you expanded to more ages and more crates and more subjects, your unit economics got better. Because I would imagine the more products you have, the more expensive it would be. So was it just that you were able to reach a wider audience? Or like, how did that work?

13:39Yeah. So basically, if you think about what we're delivering, there's a certain cost profile that we need to meet. So that was something that we defined, right? Because we know what the price is that is set for the consumer. And so we know what that cost profile looked like. And then if you think about, gosh, as part of that cost, one of the elements is the outbound shipping to the consumer. And so the fact that we were able to then amortize that outbound shipping to the consumer because there are multiple crates going up, the unit economics ended up getting better. So that was basically what had happened.

14:11And the other thing that happened is that we found a number of things happening with marketing efficiency too. And so we were able to put out different types of creative and messaging out there and somebody who might have a preschooler saw a message that was for a later elementary school age child, but they gravitated towards it. But then when they came to our site, they found where they belonged, right? Which is kind of the preschool offering. And so the fact that we were able to put more messages out there, tests more creative, was also very helpful at that point. Got it. I wanted to switch gears a little bit, but it goes into this conversation, is going into the new Kiwi clubs.

14:50Can you just describe exactly how they work? It's the way that I've sort of understood it reading about it. And I guess I'm now a customer of it because I bought that for my niece without even realizing it. But it seems like it's a way to fend off churn and that what you get changes over time with the kids. Is that correct, how it works? Yeah. So I think that is definitely one element of it. And so you had mentioned this. We've shipped out over 50 million crates at this point to kids. And so we've learned a lot during that time about what works and things that consumers really, really value in the experience.

15:29One of the things that I would say is that what we've discovered is that we happen to be good at that combination of delivering something that the kids really enjoy that has that element of learning in there. And we've also really keyed into the fact that the learning is a combination of skills, but it's also mindset that we can really teach the kids, right? When I say mindset, I mean kind of the mindset of an innovator, right? So the resilience or the problem solving or the creative confidence pieces of it. And so we've been very intentional now with the launch of KiwiCo Club to say, this is a learning journey that you can take your child on through the subscription.

16:10And so all these different moments of discovery, we've been very intentional in saying they relate to these different topics. And overall, when you bring them all together, they're able to achieve certain milestones. And so when you look at KiwiCo Labs, which is like our STEM offering, we start with kind of ages six to nine. There's a specific series of topics, but they all relate to science because we're like, hey, at that age, it's about learning how the world works. And that's what science is all about. So that's foundational. And then when you go from 9 to 12, it's about applying the science.

16:44So all the topics are related to engineering. So you're applying the science to do really cool builds. And then from 12 to 16 plus, it's about invention. So that's where it's like, okay, you can take all that and then be creative about what you are actually creating. And so I think it is this journey that we've been on that now we're able to offer this type of thing to our consumers. And how is it different with the new clubs? what is the difference between what it is now and what it was before? Sure. And so I would say it's this idea of learning journeys and topics, right? So being very intentional about what is it that kids can learn over time?

17:19Because we all know, certainly you can learn something in a one-off experience, but learning is also something that's a cumulative kind of effort, right? So I think that's one thing that we've been very, very thoughtful about. Another thing is this idea of membership. And so we hear and we see that folks like to be a part of a community. And so we're building in additional community-related features. We're launching an app later, actually in November, so very, very soon as well, that builds in custom community features. And we're offering different types of benefits to members too. So whether it's discounts, early access, access to this app, et cetera.

18:01So we're building all those things into the fold as well. I know I'm just talking about my own experience, but like I've bought many, it's always for my nieces and my nephews, but I feel like there have been a lot of subscription companies where they just have a product and then you sort of set it and forget it. And then I, a year later, my niece will say like, I'm tired of this. And so what actually like, what I liked about KiwiCo was like, oh, it changes every time. And it seems like it's growing up with them. And there's much more of an interplay in terms of how the kid is interacting and what they're trying to do and what they're overall learning.

18:29And so I think that that's somewhat of a unique thing about this compared to the other ones that I've actually had experiences with. Yeah. I mean, I think there's this element of what we do that is, you know, especially you had mentioned the holidays coming up, right. And, and kind of this element of like, gosh, like what should I get kids that's kind of toy related? And so there's, there's certainly that piece of it, but there's also a piece of what we do that is kind of a learning and education related thing too. Right. So when you think about kind of consumers and how they think about spend.

19:01There's the thing that might entertain your child and the thing that might educate your child, but we are able to bring those things together and what we offer. Got it. Yeah. You mentioned the holidays and I wanted to talk about this some more. So is your holiday strategy or your holiday marketing, the levers you're pulling, has that changed this year, especially now that you have many more retail stores you're in this year as opposed to years past? So we're really excited about our retail efforts. I don't think we talked about them very much yet, but we entered into a partnership with Target and with Barnes & Noble this past summer, basically, is when we went into their stores.

19:41And we're super excited about what that means for the customer, for the Target guests. And when we think about what we've done so far as a direct-to-consumer business, and we think about the different use cases that our community is looking for. So let's say it's a last minute gift or a weekend project. As much as they might love kiwico.com, there's only so much that we can do there. And so it really opens up additional use cases. And additionally for us, it opens up kind of the opportunity to increase brand awareness as well. And so we've been really excited about that. And with the holidays coming up, it's been really great because we've seen a real willingness from these retailers to work with us and to partner with us during the holidays.

20:27And even probably know that Amazon comes out with a kid's toy guide. And we were thrilled. They actually highlighted, we entered on Amazon as well and they selected one of our products to highlight in their toy guide too. So I think there's a lot of different opportunities that are coming up thanks to the partnership with these retailers. And so we're really excited about that. And then for us, the other things that we think about is in general, given we have KiwiCo.com and we have these additional distribution channels, is how do we just in general elevate awareness and education of KiwiCo as a brand?

21:05So I'd say for the holidays, that is something that we think about, right? When you're thinking about awareness-related spend as well as kind of more direct response spend. So we are spending more, I would say, on the awareness piece of the puzzle as we're entering into the holidays to make sure that we are more top of mind. for consumers. And then the other thing that kind of switches up a little bit for us during the holidays, which is a really important time, is we look at our channels and we consider the customers that come into the fold during that time of year. And we are very thoughtful about that too.

21:40So there's a lot more gift giving that's happening. And so there are certain channels or certain partners that work especially well during the holidays, which frankly may not work in other parts of the year, right? So if you're targeting an aunt or an uncle, there might be a different channel that you're targeting there. Or if you're targeting grandparents, for example. And so we really take that into account too, when we look at our spend allocation. So when you're talking about like those two things, awareness and reaching those demographics, like is reaching a grandparent for awareness, like being on cable TV or something like that?

22:17Like what are the awareness channels that you're investing in right now that are working and that you're especially investing in for the holidays? It's a variety of channels, really. And for us, it's about, because the fact of the matter is, yes, there's television. So we do invest in television. But the fact of the matter is, grandparents are also on Meta. They're on Facebook. There's also this, right? It's not just kind of one or the other. And so really, we're looking across the different channels. and for us looking at the mix and then also looking at the creative too. So to give you an example, we have a piece of creative that is out there for television where the main character is a grandparent actually interacting with grandchildren.

23:06And so that's very, very intentional. So it's a combination of both. So looking at the different channels, but also looking at the creative and how it is building awareness for the brand. I wanted to ask, just because you've been around for a little bit, and I was talking with a brand, and I can't remember who I was talking with about this, but essentially they were talking about how millennials used to be the young demographic, then it was Gen Z, and now it's more Gen Alpha. But some Gen Z, not all, are actually becoming parents. And so how has that changed the channel mix that you're doing and the way that you're talking now that I imagine some of your target demographic has changed in terms of the parents you're targeting, right?

23:43I think that, you know, we just talked about creative. So one of the things that we certainly have noticed is that I think authenticity is always important as a brand, but I would say it is heightened. I think especially with Gen Z, they can tell if something is authentic or not. You almost don't want too much polish, right? It needs to kind of be direct, be very, very true and authentic to the brand. And I think that's something that we've really noticed, like in terms of, gosh, what kind of creative will actually resonate with that audience? It really needs to be that. The other thing is that we are looking at channels where we can actually cultivate that audience and that customer.

24:30And so we've started to invest more in content, for example, even organic content on TikTok and those types of channels as well. I wanted to ask because I've always wanted to talk with a company that gets featured in Amazon's toy catalog. Did you see a direct impact or have you seen something happen now that you have that placement? Yeah, I mean, I think that there are opportunities to get involved. In the Amazon catalog for us, we received the catalog. By we, I mean members of the team received the catalog. And we were like, oh, we're in the catalog. They didn't even give you a heads up. They weren't like, by the way, you're going to be on it.

25:12Yeah, we didn't know. And so it was a very, very pleasant surprise. It was very organic. And so we were thrilled, of course. If you know these catalogs, they are things that kids and families enjoy receiving and looking at. And we did see and we have seen a lift of the item since we get the metrics right on Amazon. We've definitely seen a lift in sales and a lift in kind of traffic to that particular product that's been profiled. How are you thinking about now that your distribution has expanded so much? I imagine Target doesn't want you to say that we're trying to get people to KiwiCo.com, but I imagine you want people to become subscribers after they buy a product in Target.