'I plan to be in this business for a very long time': Boll & Branch's Scott Tannen on building a long-lasting home goods business

0:03Hello, everyone, and welcome to the Modern Retail Podcast.

0:30the right word, but you guys have done some really interesting things. And I want to go into how you've done that. Because correct me if I'm wrong, I just read this, you guys are doing over 200 million a year in revenue. Is that correct, Scott? Yeah, that's right. Right around 200. That's wild. And I want to get into all of that. I want to get into your new expanding store strategy, because I know you're opening up some stores, I think specifically this month, if I'm not mistaken, but we'll get into all that. But Scott, how are you doing? Thanks for joining. I'm great. I'm great. Thanks so much for having me.

0:53I'm excited to be here. Absolutely. So first, I want to just give a little background about yourself. Who is Scott Tannin and how did you get into the bedding space? Yeah, well, like most people from the bedding industry, I spent the prior seven or eight years of my life in the video game industry. Of course. So, you know, it's a natural, natural progression of things. But, you know, in reality, I grew up in consumer packaged goods marketing. So I started my career at Nabisco, which became Kraft Foods, getting to work on brands like Oreo and Planters Nuts and Lifesavers and everything in between.

1:28And from there, went over to Wrigley, the chewing gum company where I became their first head of digital globally. So built the entire digital organization for Wrigley. Left Wrigley and started FunTank, which was, you know, we were probably the largest developer and creator of casual online games back in the days when people played Flash on the internet. before Steve Jobs came out with that little phone device that decided to blow up the business. But we pivoted quickly and were pretty prolific in Facebook games back in the day, as well as games on the iPhone and sold the business in 2010, the end of 2010.

2:13So I stayed on for a few years and was really searching for sort of my next venture. And I had about 50 terrible ideas. one of the ideas, I guess, turned out not to be so terrible, which was to figure out how to democratize the bed linen space. And here we are. Got it. So what does democratize the bed linen space mean? Yeah, I mean, look, I started just like, you know, if you talk to the founders from any other of dozens of DTC companies, right, you start as a consumer. In our case, we were moving from a queen bed to a king bed. And my wife came home one day. And she's like, I went to bed Bath & Beyond.

2:52I went to Bloomingdale's. What's the difference between all those different products at these different price points? And I thought she was crazy and figured I could solve this problem on Google in about three minutes and then go back to playing video games. And ended up staying up all night. The first article I read was from the Times, and it was about why thread count doesn't mean anything. Wait, can I actually, can I pause you for a second? Yeah. So the person who is quoted in that very article is my great uncle, Julian Thompson, who is the thread count king. No way. Which is a very weird fact about me, but I know exactly what article you're talking about.

3:28Well, tell him that my kids are very appreciative that they get to go to college because I saw that article and saw him. But, you know, look, it was just the first of a great number of things I learned about the textile industry knowing nothing. And, you know, that being an advantage, right? When you know nothing and you know you know nothing, you have nowhere to start but to start by learning. And so finding that thread count was purely a measure of fabric density had nothing to do with quality and softness. And going all the way through everything from, well, Egyptian cotton, and it's actually grown in China, and so on and so forth.

4:04So in really simple terms, it was too difficult for the average customer, myself included at that time, to predictably get a great set of sheets. But then when you dig a little bit deeper, it was very easy to start a sheets company, incredibly easy to start a sheets company. There's other DTC brands that, I mean, I don't know if they still exist today. So many have come and gone because it's so easy. You don't actually have to build a real business. You can just raise some venture capital and away you go. And what I found was it's very hard to make a better product. And I felt that if we were going to do that, and my wife at this point was so scared I was going to lose the house on bed linens, which I knew nothing about.

4:46And she was right. We almost did a couple times. But, you know, we got into this together and said, well, you know, there are things that are important to us as customers. When you ask the question of where does the cotton come from, what's the livelihoods like, what are the factories like, is there child labor, all of those sorts of things, you end up finding that the status quo in the industry is not very good, number one. And number two, in a space where all consumers participate in the category but are largely uneducated, no one's asking the question. So the problems just continue to perpetuate.

5:19So we, with a little bit of a chip on our shoulder and, frankly, the benefit of not raising venture capital and being in the fortunate position to be able to bootstrap this, said we're going to see if we can make every right decision in the process and see where that gets us. We might write a book about why the world kind of sucks, or we might end up having a company at the end of it. And the truth of the matter is in building our own supply chain, we were able to create a much, much different feeling product and a much better feeling product at a really attractive price point for the customers and drive the business with strong margins and, you know, incredible quality and build our reputation from the ground up that way.

6:00while doing a whole lot of good for those that are responsible for making the products in the first place. So can you talk about how you built out your own supply chain and what you learned in those initial times? Because there are so many founders that you talk with, or I've talked with, I should say, that I always just try to know when you're not in an industry and then you want to learn about an industry, a lot of it can come down to arbitrage, which is clearly not what you're doing. But what you're doing is trying to figure out where to source. So how did you do that? And how did you make sure it was as sustainable and ethical as you as you said?

6:31Yeah. And look, it's not mutually exclusive. There is arbitrage on any direct to consumer business. That's what it is. But the question becomes, how do you create your basis and where do you start? So, you know, in this in the spirit of keeping your podcast from being eight and a half hours long, consolidate to, you know, a couple of years of work down into a few things. And for us, the starting point was trying to understand what actually makes a bedding product or a sheet better. Like, full stop, what makes it better? And the difference between a great product and an average or fair product, which the world is littered with.

7:10The world does not need, did not need another bedding product, still doesn't need another bedding product. The world did need better. And so in finding it out, you realize that it starts at the raw material. And while organic is a buzzword, organic also stands for a lot of things. And I'll leave sort of the social impact aside for a second and just talk purely about the raw material. It doesn't take much to start learning about the raw material when you say, well, what does organic mean? It means that there's no chemicals and pesticides being used. But that also means that the soil remains healthier.

7:42And if we think about it as something as simple as your tomatoes in your backyard, You grow tomatoes one year and you treat the soil properly and you don't douse it with chemicals and you grow them again the next year and they're better and then next year and they're better. And that's why we pay so much for an heirloom tomato at Whole Foods, right? And so when you think about cotton as a raw material, the same thing happens, right? You can skip the Monsanto genetically modified seeds and start with real heirloom seeds and create a much better raw material. And this raw material, it winds up yielding a softer, more durable, longer lasting, beautiful product.

8:24And so once you have the better raw material, how's it picked, right? Is it picked by hand or is it picked by machines? Machines do damage to things, right? How's it gin? What's the process in the gin? Then how's it spun? How's it woven? What are the processes around cut and sew and finish? Are you engineering your own weave? Are you buying it off the shelf and private labeling like I think every other DTC brand is doing other than us? So what we wound up doing is we started with that raw material. And at each stage, we're like, okay, we found the best. Now, what do we do with it? And you have to be smart enough to know what you don't know and talk to people who do.

9:02And we would talk to either people that would say, yeah, I get what you're doing. That's going to be great. But nobody wants it. There's no consumers that want it. They don't care. They're happy to go to a big box store and get their sheets. And so, you know, we wound up with something, the quality of an heirloom tomato meets a bed sheet. You know, it's softer, it's longer lasting, it's pure, it's non-toxic. And when someone puts it on their bed after having slept on sheets their entire life, what we found in our own focus groups, we found our own personal use early on was, holy cow, this is so much better.

9:35And so that was what we put together in a product and took the approach of, yes, we want to play the game of arbitrage and continue to grow. But we always want word of mouth to be our strongest driver. So this is about building reputation from day one, building reputation based on quality of product and service. And did that, figuring out all of the nodes of quality that you needed to put into the product so that it was a superior product, did that impact the margin profile? Like how did you – like it seems like if so many things are pre-made, how were you able to make a product that fit the right price point that you needed it to be?

10:10So let me take the approach of how your typical DTC in bedding would work, right? So they're going to the garment building in New York City in the garment district or the textile building, excuse me. And they're working with any one of probably a dozen mils that supply 95 % of the sheets. And they go in and feel things on the wall and say, I'll take model number 35. And they say, no problem. We're going to attach your label and ship it to you. And if you name the DTC company, they do this. And then I can tell you what actual big retailers use that product. So there's one that's located in New York City that it's just private labeling target sheets.

10:51It's all they've done from day one. And, you know, it's a fine product. When you go out to actually engineer something, you control every cost on the backside of it, right? So if I'm going to a factory and they're saying, hey, the sheet said costs$50, that's your cost of goods, you're fixed on your cost of goods there. And you have to do so much volume there to get any benefit from that. The flip side, we were going and securing the raw material directly from the cotton farmer. So we're paying them two to three times more than they end up getting through that traditional supply chain. Okay, but we're taking custody of that.

11:28So now we control the current transportation costs. There's no markups at any point throughout the manufacturing process. And at the end of the day, we end up with a more sustainable product that everybody involved has made more money, significantly more money by making. And our cost of goods is certainly no higher. and likely lower than just about everything in the marketplace. And so by controlling your supply chain, there's more middlemen that sit on the backside of a supply chain than sit between sort of factory and consumer. Even though when we talk about cut out the middlemen, that's what we generally talk about.

12:00So when you disrupt that supply chain, you have an opportunity to build a margin profile that's really, really strong. And if you have a great product and strong word of mouth, you're not living and dying by only buying your consumers. Therefore, you're living with this tiny margin and the difference between making money and being out of business is one weeks of sales, right? So let's talk about that word of mouth. You've brought it up a few times. In 2014 when you launched, what were the primary levers that you were pulling? And was the idea at the beginning that you were going to be online only?

12:34When did stores and wholesale get added to the mix? Yeah, so I'll start with building word of mouth, right? It happens slowly, obviously, and you always want it to happen faster. It was great in the beginning because all my friends bought the product, but that's not exactly going to build a business. We were very fortunate that our reputation and the way in which we were operating got a lot of really interesting press and coverage. The Wall Street Journal wrote a two-page feature story on us about eight weeks in, and we didn't retire our waiting list for two years from there. And unlike a lot of DTC brands, we'd never focused exclusively on millennials and key urban markets.

13:16So it was interesting in the opening, you said we flew a little bit under the radar screen. All right. We've been the largest player in this space since the day we've launched. And that clearly shows like where my glasses eye rate. Yeah, of course. Of course. I mean, I'd rather be successful than sexy. But fortunately, I'm both. No, I'm just kidding. But but look, you know, so building that word of mouth, it was amazing. We had a few things happen early on. You know, one of the things we've become known for is that that our sheets are, you know, it's one of our taglines loved by three U.S. presidents.

13:49One of our former presidents was one of our very first customers, heard about what we were doing from a supply chain standpoint, from a sustainability and social impact standpoint and reached out before we launched and wanted to be our first customer, still one of our largest customers. And so we just continued to build that strong word of mouth, really satisfied customers, and a very high repeat purchase rate. From the very beginning, a third of our customers were coming back within a month or two and buying again, which is kind of unheard of in a category like this that's generally one to two purchases per household per year.

14:23First, which president? I need to know. So out of respect, we don't reveal it. we have in the past, but I can tell you that among our fans include pretty much every living president at this point. So I do I do know for I believe, correct me if I'm wrong, but one of your brand ambassadors is Jenna Bush. Is that correct? That's correct. That's correct. So yeah, and I will say that, that I was very lucky that President Clinton invited me to to meet him, because he the product so much. So what this has done, you know, this business has been amazing in so many ways. And, you know, they all continue to be really big fans, which is exciting.

15:06That's awesome. So talk about the revenue mix in terms of over the last few years, because did you start out online only? Or how have you sort of grown into the business that you are now? Correct. So for our first five years or so, we were completely online only. And we did a little bit of experimentation with brick and mortar retail. I think in our case, again, we're always focused on staying above our skis from a profitability standpoint and from a capital standpoint. So I plan to be in this business for a very long time. We are not on a race to nowhere to either figure out how to get cash in the door, cash in my pocket or anything like that.

15:48So we try to make every decision we can with a long term lens. And so we had opened three stores as COVID kind of came around and saw the digital demand just driving so far that we really felt that investing in our supply chain and investing in scalability was smart. So we took a little bit of a hold there. But at the same time, also just before COVID, Bloomingdale's, or excuse me, Nordstrom approached us. And we were one of the first DTC brands, period, and certainly the first in the home category that Nordstrom had tapped to help sort of reboot their home business. And that's been just a tremendous partnership for us and has really helped introduce the brand to a lot of shoppers.

16:29And then last year, we started working with Bloomingdale's as well. So, you know, when we look across our mix, it's fairly diversified. Unlike many, our digital business continues to grow. while CACs are strained for a lot of people, we're not seeing the pinch that a lot of folks are seeing and the pullback. So again, we're up very significantly year on year this year, top end, bottom line. And I think that's because we've not overextended ourselves where we're paying for rents and can't continue to fund customer acquisition and things like that. Why do you think your CACs are performing so well when others aren't?

17:07Is that just because you mentioned how you're a thriving DTC business, but your target demographic isn't necessarily the upwardly mobile millennial. It's everyone else. Does that help? It's everyone including the upwardly mobile millennial. I think that what you find when you look at the flyover states, if you will, is our brand and our brand values resonate really, really well. And again, this is about reputation. It's about customer service and what you do on a customer basis. So we've seen, you know, continued growth and retention of our core customer. When someone buys a Bowen Branch product, they come back and, you know, they mostly start with sheets, but then they buy their towels and they buy their comforters and they continue to move through the home because they recognize that every single product we make is painstakingly engineered by us from scratch.

18:01It's significantly better than what they're used to having. And, And, you know, as long as we continue to ensure that our product line extends with that same standard of quality, right, it's always easier to say, well, I'm just going to go buy some throw pillows from this importer. I'm going to buy this product. And we just don't. We will never do that. And so I think we've been able to build a strong enough reputation that now when you look from a brand awareness standpoint, on a national basis, we are the leader from a betting standpoint. Not the leader among DTCs, but we are the most recognized brand of betting in the world now.

18:39Did you, given the time when you started and the growth that you saw, so many DTC brands were, they saw their growth purely reliant on digital acquisition because it was cheaper back then and it was easier, easier to do Google, easier to do Facebook. Was that part of what played into your strategy or sort of how has your digital marketing been and what have you done now to make it so that you're still able to grow and still have your CACs be, you know, at a good rate? Yeah, so I'm old and old fashioned. So we have the old thing called the diversified media mix. And so I know it's shocking. We actually, you know, early on, we were probably one of the very first brands that went heavy on audio and did so right around the time that we launched.

19:24So we were, you know, we started on talk radio. Howard Stern was one of our very first influencers, if you will. You know, when I found out he loved the product and we were custom making it for him, I was like, you know, I bought so much dumb stuff from listening to that show over the years. He can sell sheets. And so today, if you look at our media mix, it doesn't necessarily spike. We spend a significant amount on digital. We spend a lot through social and influencer search, those sorts of things. But we still spend a lot on TV. We still spend a lot on audio. And so when you have that diversified mix, and we do most of our media buying in-house.

20:02So we've built that agency in-house. I'm lucky that in a prior life, I did also run an agency. So all of our creative, all of our media buying, everything's in-house, which keeps the cost really, really efficient, right? Because I'm not paying 20 % to 30 % of fees on top of it to other folks. and we have the ability to move money between channels really, really quickly. Again, I haven't committed$10 million to a digital agency that isn't going to let go of that funding without a fight. So we spend a lot less time arguing about how to optimize and a lot more time working on optimizing that mix.

20:38And again, we've got just a really blended mix across the board. So if it's so blended and you're doing things like podcast and you're doing things like TV, What is your overall strategy with attribution? Because those are so top of funnel and difficult to quantify for a lot of brands. So is it, you know, do you think about that differently than you do, you know, a Facebook ad? Or how are you thinking about that? Yeah, so we look at it across a few things. First of all, we've also built a pretty sophisticated data team and data systems in house. And that's been an area, again, when we think about where have we invested, rather than opening 20 doors in one shot, you know, we've spent several million dollars building our data infrastructure, which I could probably productize and sell and license to other companies, but I won't.

21:21So, you know, we look at a fractional attribution model in general. So we have an understanding of upshot and uptick by channel. That's just been proven over a long period of time. We've got to go in and constantly remeasure it, retest the thesis and model it that That way, we also have a user reported aspect of our attribution mix, right? So that gets blended in. And, you know, what we find is that certain channels can assist others, right? So let's use paid search as an example. I have to look at paid search as part of a TV or audio campaign. Because if somebody is hearing our ad, they're then going to search on a branded term.

22:02And so I think that's where a lot of companies get into trouble is they try to think about their channels. They don't think about it on a fractional basis. They think about it on more of an absolute basis. And so when we think about that fractional attribution, we get into a space where we can maintain that profitability as well. And when you maintain the profitability, you shut things down faster and can deploy more money to other places faster. And I would say the other thing that we do from the way we look at CAC is we only factor our CAC against new customer growth. So when we look at repeat customer growth, that's not something that we assign dollar investments toward.

22:41That's something that we think about from an earned standpoint, which, again, that's how you can get to a point where you're driving serious profitability. At the same time, you're still driving really good double-digit growth. You mentioned TV. Are you doing both linear TV and connected? Both. I feel like that's an issue that a lot of people run into just because it's so expensive to get into linear TV. Yeah, both. Um, we're, we're, you know, more connected than linear candidly. Um, and, and again, that, that boils down to two things. Number one, it works really, really well. And, and the tracking, um, is better, but, but look, there's times when linear TV makes sense, right?

23:18If you want, if you want to reach a significant number of people through an NFL broadcast, that's your option. Right. And, and so, um, again, you just have to be really, really smart about it. Got it. Got it. Let's go into stores because this is one of the newest things you guys are focusing on. Correct me if I'm wrong. But you mentioned right before the pandemic, you were opening a few. Then you took your foot off the gas with that for obvious reasons. But now, is it four stores you're opening? What are you doing right now? We're opening three more. We're opening in Houston in about two weeks, South Jersey, in Shrewsbury, New Jersey at The Grove in a couple weeks after that and then in Dallas.

23:55So that's what's happening now. but we will be opening stores consistently. Again, we've been able, we're fortunate to have been able to build a pretty significant reserve of capital. So now we're at a place where we're not just thinking about opening stores, we're thinking about how do we go win in these markets. So when we think about Houston, we're not thinking about Houston as a store, we're thinking about Houston as a market, we're thinking about Dallas as a market. And so if you look at the New York area as an example, we have a store in Short Hills, we have one in Greenwich, we'll have one And in Shrewsbury, thinking about how you own those markets is how we're operating.

24:29I think that the model that a lot of DTCs did that said, oh, here's our store in Portland. We own Portland now. Here's our store in Chicago. We own Chicago. You don't get the advantage of scale in the market. And it's hard to sort of tip from an awareness and demand standpoint. So we're taking a little bit different approach with that and really, really excited. Our three stores have been, again, they've been quite profitable since the day we've opened them. Um, they offer, you know, a little bit more bespoke experience for, for the end customer, you know, the customer that comes in that wants special services that needs something custom that needs this or needs that.