Achieving eCommerce Profitability

The Key to Business Growth and Sustainability

Jun 16, 2022 1:30 pm2:15 PM EDT

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Key Discussion Takeaways

A recent survey shows that many C-suite executives and leaders in the digital markets are very concerned about profitability. Their main worries are around the cost of sales, the cost of goods sold, delivery costs, fulfillment operations, and product returns. So what can eCommerce brands do to boost profitability?

eCommerce profitability is all about balance. Brands need to balance sales areas, including product assortment, product margin, and CAC costs with service areas like the speed of delivery, order complexity, and packaging costs. Although each brand’s path to profitability is unique, there are critical focus areas that can help you become more profitable both in the short-term and long-term.

In this virtual event, Aaron Conant is joined by the Founder and Chief Strategist at 5 New Digital, Michael Zakkour, and Co-founders and Partners of eMATE Consulting, Scott Moon and Gene Tyndall. Together, they discuss the different steps eCommerce brands can take to become more profitable and sustainable. They dig into the uni-channel approach, the seven critical focus areas, and more.  

 

Here’s a glimpse of what you’ll learn:

  • What’s the problem with eCommerce profitability?
  • Why balancing sales and service areas leads to profitability
  • An important reminder: not all products should be sold on every channel
  • How to streamline the seven mega processes and gain total business profitability
  • What are the critical areas to increase profitability?
  • How shipping costs and supply chain complexities are impacting eCommerce capabilities
  • Why it’s important to think holistically about your strategic approach 
  • Expert advice for selling on Amazon
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Event Partners

eMate Consulting

eMate Consulting provides advanced services and solutions for supply chains and digital commerce for retailers, brands, wholesalers, and logistics and technology service providers.

5 New Digital

5 New Digital is Digital Commerce, New Retail, & Unified Commerce Consultancy focused on strategy and construction for brands, retailers & services companies. Their services are built around the "5 New" realities of digital commerce: New Retail, New Consumption, New Technology, New Finance, and New Supply Chain. ​ 5 New Digital was built to address the “5 New” realities of the digital revolution: New Retail, New Consumption, New Technology, New Finance, and New Supply Chain. ​ Our clients engage us to provide them with research, strategy, and implementation across the commercial value chain and to help them engage in the Mega-Ecosystems of commerce and to build their own.

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Guest Speakers

Michael Zakkour

Michael Zakkour

Founder of 5 New Digital

Michael Zakkour is the Founder and Chief Strategist at 5 New Digital, a consultancy that advises clients on strategy, structure, implementation, and transformation in the digital realm. Michael has over 20 years of experience in eCommerce, specializing in digital transformation, the new retail, data science, the China/APAC market, digital commerce, and new retail strategy.

Aaron Conant

Co-Founder & Managing Director at BWG Connect

Aaron Conant is Co-Founder and Chief Digital Strategist at BWG Connect, a networking and knowledge sharing group of thousands of brands who collectively grow their digital knowledge base and collaborate on partner selection. Speaking 1x1 with over 1200 brands a year and hosting over 250 in-person and virtual events, he has a real time pulse on the newest trends, strategies and partners shaping growth in the digital space.

Scott Moon

Co-Founder & Senior Partner at eMATE Consulting

Scott Moon is a Co-founder and Partner of eMATE Consulting, which provides advanced services and solutions for supply chains and digital commerce for retailers. As a creative business entrepreneur, Scott is driven to add value and make businesses more profitable. Previously, he worked in executive roles at DCC plc, Lenovo, and Kidde.

Gene Tyndall

Senior Partner at eMATE Consulting

Gene Tyndall is a Co-founder and Partner of eMATE Consulting. His specialties include executive advisory services for all industries such as supply chain management, logistics, marketing, and information technology. Gene has worked for companies including Tompkins International, Ryder, and Ernst & Young Consulting. 

Event Moderator

Michael Zakkour

Michael Zakkour

Founder of 5 New Digital

Michael Zakkour is the Founder and Chief Strategist at 5 New Digital, a consultancy that advises clients on strategy, structure, implementation, and transformation in the digital realm. Michael has over 20 years of experience in eCommerce, specializing in digital transformation, the new retail, data science, the China/APAC market, digital commerce, and new retail strategy.

Aaron Conant

Co-Founder & Managing Director at BWG Connect

Aaron Conant is Co-Founder and Chief Digital Strategist at BWG Connect, a networking and knowledge sharing group of thousands of brands who collectively grow their digital knowledge base and collaborate on partner selection. Speaking 1x1 with over 1200 brands a year and hosting over 250 in-person and virtual events, he has a real time pulse on the newest trends, strategies and partners shaping growth in the digital space.

Scott Moon

Co-Founder & Senior Partner at eMATE Consulting

Scott Moon is a Co-founder and Partner of eMATE Consulting, which provides advanced services and solutions for supply chains and digital commerce for retailers. As a creative business entrepreneur, Scott is driven to add value and make businesses more profitable. Previously, he worked in executive roles at DCC plc, Lenovo, and Kidde.

Gene Tyndall

Senior Partner at eMATE Consulting

Gene Tyndall is a Co-founder and Partner of eMATE Consulting. His specialties include executive advisory services for all industries such as supply chain management, logistics, marketing, and information technology. Gene has worked for companies including Tompkins International, Ryder, and Ernst & Young Consulting. 

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Aaron Conant

Co-Founder & Managing Director at BWG Connect


BWG Connect provides executive strategy & networking sessions that help brands from any industry with their overall business planning and execution.

Co-Founder & Managing Director Aaron Conant runs the group & connects with dozens of brand executives every week, always for free.


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Discussion Transcription

Aaron Conant  0:18  

Happy Thursday everybody. My name is Aaron Conant. I'm the co founder and managing director here at BWG Connect. We're a networking and knowledge sharing group of 1000s of brands to do exactly that. We network and knowledge share together to stay on top of the newest trends, strategies, whatever it might be that shaping digital as a whole. A lot of times, we're also dealing with pain points that are out there when the same topics come up over and over again, we hosted an event like this. And so a couple housekeeping items as we get started. Number one, we're kicking this off a few minutes after the hour, and we're going to wrap up, I think we're in try to wrap up at least 15 minutes before the end of the hour, to make sure you have enough time to get on to your next meeting without being late. The other thing is we want this to be as educational and informational as possible. So at any point in time, if you have questions, drop into the chat, drop them into the q&a, or you can always email them to me, Aaron, Aaron@bwgconnect.com. And we'll get those answered. So to kind of kick this this topic off, profitability is a major focus, especially on the digital side of things we saw COVID hit everybody over index and going all in on digital. And at this point in time, we've matured enough, right, where we're taking a step back and saying, Okay, it's a little bit more margin deluded than we thought it was going to be. Like, how do we address this before it gets even more out of control. And so he got some great friends, partners, supporters of the network. Michael, we're just chatting ahead of time you've been around since we kicked this off five years ago. I'll kind of kick it over to you want to do an intro on yourself and 5 New Digital kick it over to Scott for a brief intro. So

Michael Zakkour  1:52  

yep, sure. Good afternoon, everyone, or good morning, or good evening, wherever you may be. Thank you for joining us today. It's always an honour to participate in a BWG event and always a pleasure to work with Aaron. as Aaron mentioned, you know, we've been working with 5 New Digital with with BWG. Literally since the day they launched this effort. We've been great partners over the last five years. I highly encourage everyone to be is participatory and everything that they do is possible because it's benefited our business in so many different ways from just meeting great people, great connections, knowledge sharing. We've developed business partnerships, clients can't speak highly enough about BWG and Aaron, and Bill and Nick and what everybody does there. So Thanks, Aaron. So yeah, I'm the founder of a company called 5 New Digital. At heart. We are a digital commerce, eCommerce and retail research and consultancy. We work with companies from all over the globe. We have offices in Portland, New York, London, Shanghai, Hong Kong, Atlanta, Raleigh, North Carolina. And we work probably 80% of our client base is brands, retailers, and CPGs, who are looking for research guidance, strategy and structure. Like I said, retail the new retail model, digital commerce and eCommerce and I'll explain why there's a difference between the two. Scott Gene and I have been working together for about 12 years. They're the co founders of a company called Email consulting. Their focus is on operations supply chain logistics and fulfillment, for digital businesses, for retailers. I've had the pleasure of working with them. We are part of the five new digital ecosystem. And their main focus, like I said, is on the Operation Supply chain logistics side. Little bit more on the strategy side, and you know, over and over again over the last year maybe plus we've just had so many people coming to us and saying, you know we can't seem to make a proper buck this eCommerce game what gives? How do we improve it that inspired us to start a new practice group for eCommerce profitability? And so today we want to cover why is profitability and eCommerce a problem and what to do about it short term tactically and long term strategically.

Aaron Conant  4:20  

Awesome. Love it. If you want to, you know Scott and Gene, do you want to do a quick intro on yourself? Scott,

Scott Moon  4:29  

yeah, no, I appreciate the opportunity to be here. We do GNI both focused on operations consulting we do that both for digital organisations as well as consumer products manufacturing, retail, we understand the business processes that support the operation. So demand planning, demand forecasting, inventory management, which is a real pain point in organizations, as well as what it takes from a supply chain standpoint to support the high service standards that are being required in the eCommerce So we look forward to helping during this conversation unlock sort of that balance between service and cost and what it will take to be profitable.

Aaron Conant  5:10  

So just a quick reminder, those of you have any questions along the way, drop in the chat with the q&a, we'll get an answer. Okay, let's roll through.

Michael Zakkour  5:18  

Yeah. So I think that we're just like to start is, you know, we completed a survey three days ago, we polled 125 C suite executives, heads of eCommerce heads of digital, and retailers to gauge their thoughts. And they're thinking about eCommerce profitability. We know what we feel about it. And what we've been saying. And we've seen a lot of good work coming out of, you know, big companies like McKinsey and Capgemini, doing their research on eCommerce profitability. But the missing piece to us was we wanted to hear from the brands and the retailers and the CPGs themselves. And so anybody who wants that full report and study after the session is over today, when we make the introductions, we're happy to send that along. But we just grabbed two quick visuals from that. On the left hand side, you'll see that on a scale of one to 10, the vast majority of respondents to the poll fall into that very concerned to extremely concerned space on eCommerce profitability. And then the corresponding visual shows us what some of the pain points that they're seeing out there. The cost of sales cost of goods sold, which includes CAC, fulfillment, operations, delivery costs, and I suspect, if we take this same survey, about six months from now, that product return slice of the pie is going to grow significantly as well. So yeah, we're happy to share the results of that. And you know, we listened to you. Go ahead, Scott. So, all right, we we agree that there is a problem with eCommerce profitability. I mean, there's some micro and some macro reasons for it. This is a quick quick checklist of what we're hearing most often from our clients. And, you know, from people we're talking to in the marketplace in the industry. Like you said, Aaron, there was an over indexing towards eCommerce over the last couple of years. And I think some people lost sight of the fact that in the new retail model, physical retail, as is as important as digital retail. And at the end of the day, the real trick is, and you've heard us talk about this many times, is how do you blend the two? How do you achieve that integration of online offline technology, supply chain and media to create a more unified commerce channel, single channel, consumers want to be spoiled. ubiquity, and choice roll the day. So yeah, we all want to spoil our consumers. But spoiling your consumer can get very expensive. You know, when you're giving multiple options for fulfilment, and personalization, and the cost of acquisition, and more importantly, the cost of customer loyalty, all of those things that spoiled consumer do come at a cost. And the cost in the eCommerce realm for doing those things is frankly, more expensive than it is in the in the physical realm.

Aaron Conant  8:20  

Really quick, do you have that? Are you when you think about costs as a whole? Are you just having a completely separate breakdown? Because there's a blend that takes place? Right, and I think what happened, you know, is you just need to get started on digital, you didn't have the answers. They didn't have what, what all the costs are going to be, especially how customer acquisition costs are going through the roof, because of all that iOS updates and, you know, third party cookies going away. But they're just two separate models for analyzing it. You just blend them together based on your percentage of how much is online? How much is, you know, still in brick and mortar? Well,

Michael Zakkour  9:00  

I think that's part of the problem. So first of all, to your point, the average CAC has gone up two to 300% over the last three years. So we have a client who three years ago was paying $150 per new consumer, then they went to 350. In this past year, they paid $475 per new consumer. And that's not a a typical view to what we're seeing out there in the marketplace. The problem is they're viewing the CAC for eCommerce separately from the overall CAC and you need to blend them right the answer to your question is there needs to be more blending. How do you put offline and online working together and then blend the CAC there to dilute the cost of CAC and increase loyalty? That's absolutely it. So anyway, you can look at the rest of these, you know, selling b2c and b2b engages all consumers being DTC only you know, it just not gonna last much longer. marketplaces dominate 72% of digital sales globally. But the brand retailer profit on marketplaces can be tough to achieve at anything less than massive scale. Media costs are skyrocketing logistics clocks are skyrocketing and burdened by order complexity and service level. And obviously, you know, people can't keep looking at eCommerce as a separate business but a selling channel equal to store. So these are a lot of the key drivers that are that are, you know, impacting profitability.

Aaron Conant  10:29  

Yeah. One other quick comment that I just, you know, as you're targeting here, is, we have the brick and mortar who jumped into, you know, econ, but there's the flip side now, of the fully digitally native that are realizing they need to get into brick and mortar. And so there's the two sides that I think that people are trying to rationalize is, if you're all digital, I can make more money if it's brick and mortar potentially. Anyways, no, awesome.

Michael Zakkour  10:56  

Well, no, to your point, right. So when we kicked off our relationship five years ago, I was the guy who walked in the door and said, I have this thing called the new retail model, which is the integration of online offline technology supply chain and media to create an ecosystem. Well, lo and behold, five years later, right, people realize DTC, you can't scale and you can't get profitable on DTC alone. So that's what that blend is all about. So, you know, eCommerce, profitability is about balance, getting the product assortment, right margin, right? You know, customizing the consumer basket, getting a hold of your cat cost, and most importantly, you know, retaining the consumers that you do achieve. But that's balanced with the service levels, speed of delivery, unique requirements of the consumer order complexity, packaging costs. And by the way, and this is, you know, Scott's, you know, put this beautifully here, we now have real time focus groups, right? In the past, you had to really make an effort to gather consumers together, and listen to them, and say, What do you think of this product, or this service or feedback, they're out there talking to you every day in 1000? Difference spaces in the internet, right? We have a client called flawless ladies hair removal products, they created two entirely new product lines, literally based on what the feedback they were getting from social media, right. So finding that balance here, between, you know, the sales and the product and the service, you have a real time focus group out there, use it.

Gene Tyndall  12:30  

You know, my goal is the one thing I'd add to the this introductory picture that Aaron touched on this, I think companies started eCommerce as a separate unit, or a separate service, brought in someone to hit it up and said, go build it. And as and when they did test and learn and other knowledge acquisition and so forth, in many ways, copy the competitors. And they got to the point where revenues are growing, but all of a sudden, you get the growth, but all of a sudden that they're being questioned, the executives are by shareholders, when are you going to start turning a profit, we've had many of our CEOs face that, as you know, let's say, that's why this has become so important. Now they've matured, to figure it out, it's got to cost a lot of money to do eCommerce alone to your point. And we got to figure out a better way.

Aaron Conant  13:18  

Well, it's a full blown new strategy, if you go just that previous slide. Right, the idea that new product launch and or the product assortment, or what you're focusing on? They would it would if all of the talk is about the products that have little to no margin. Right. And, you know, I just think it's so much more complex, right? I'm looking at this product is certain is key. And you're right. I mean, literally, everybody's talking about it all day, every day. Immediate social media listening tool to figure out what they're saying. But those are all over the place now, in the next level is then actually taking what that feedback is, what products are actually moving, who's talking about what and then even get a margin on it, or are you just losing money?

Scott Moon  14:05  

I think the key point to that is if you think about it, not all products should be sold on every channel. Right? So because of a heavy burden, heavy burden and costs on the right, that says that I have to be very selective of the right products being sold to the right channels to be able to compensate or deliver the margin that seemed to cover the costs of the highest speed of delivery, and the order complexity, the cost of that delivery. So many in the survey talks about this. So we'll be glad to hear this. But in the survey, some of the question was, you know, are you selective of the products you put in your channels and a large majority of the respondents said no, we put all products in all channels. Well, that is that's setting yourself up for failure. Because many of those products don't deliver enough margin that warrants providing that level of service and you're better served by having the Customer go pick it up physically at store and do things online that you can't do at store. So customization, things you can do Abolishment is value added services through their distribution arm that add value to the customer and cost the organization very little but are a premium to the end recipient, or the types of things that eCommerce should be supporting. Whereas in a store format, you can't get that done. So it's a recognition of the right services, the right value added services that eCommerce can deliver. And the product assortment that best fits that to deliver the right margin. You know,

Aaron Conant  15:35  

I love it. Because I know a lot of people especially even before the pandemic kit, and they're jumping on Amazon, Amazon's The Everything Store. And so your vendor manager or your seller, central onboarding specialist was saying upload everything, literally every SKU, right, because that's what Amazon wants. Right? And so the way

Scott Moon  15:57  

yeah, the way I digest Amazon is Amazon is the next generation of Walmart, in many ways, right? They were the mass retailer, that was the now they become the major marketplace where you get everything in one stop. Okay, so yeah, you should go on Amazon, if you've got the margin associated with your goods. Yeah, that's a great place to go. You shouldn't walk away from Amazon, Amazon is not your enemy. Amazon reaches a large proportion of the population, and you need to embrace Amazon. But you need to use it knowingly and wisely, and only put out products on that channel where you can make money and deliver the uplift that makes it profitable for you.

Michael Zakkour  16:36  

The example for me is keep your gallon jugs of tide on the physical shelves at Walmart and Target. But sell Tide Pods through Amazon. Yeah. Yeah. Right.

Gene Tyndall  16:49  

It's a largest horizontal marketplace there is. And if that's what you're faced with, you put your products on Amazon, God knows what page they're gonna be on. So that's that's the issue there. Yeah, I mean,

Scott Moon  17:02  

we're embracing Amazon is something everybody needs to do. It's not an either or it's not. Do I shot do I sell on Amazon? Or do I not? It is? Yes, I'll sell on Amazon because I reach a good cross section of the population. But I've got to do it in a smart way.

Aaron Conant  17:18  

Yeah, yeah. Yeah, I would, I would say the one piece of advice is view Amazon as a platform, not as just a retailer. Right? They are more like a Facebook or a Google. And that helps, especially if you're struggling with explaining that to executive teams. I mean, you're not, you're not getting into in depth negotiations with Google and Facebook. Right. I mean, the executive teams are not showing up. But Jeff Bezos not showing up. Neither is Mark Zuckerberg. Right. That's it, if you

Scott Moon  17:51  

use it great, totally agree. So and that's a great segue into this view of a unique channel mind, right? A customer is out there, and you're trying to get them to engage, you're trying to find that means by which they react to your message, right, that could come in multiple forms, it could come in a retail footprint, it could come through Amazon, if you come through your own channel, what you're trying to do is get that customer to come to you and want to buy your products and open up your, your product portfolio. So if we view all these different ways of selling product and view them as all channels that are available to engage your customers, the thing that the real realization you'll come to is any marketing, you do benefits all the channels, which are goods are being sold. It also says that the product price points that you're offering, and each one of those channels has to be consistent, you can't have a variable price point of your products in one channel versus another because your customers are shopping all channels simultaneously. And just because they buy through one channel doesn't necessarily mean that's where the journey started. That just means that's where the journey ended for that purchase. And when they started again, they're gonna go through this whole uni channel view again, and determine where it is they want to engage you the next time what stimulus will energize the actual purchasing decision. What that says is, is we were talking before about marketing dollars at some of the spend is your marketing that customer multiple channels, right, you can look at how do I bear that expense based on where they actually purchased, you need to look at that and say that's a shared marketing vision that plays throughout that customer experience. What happens when they make that end purchase is they actually engage what we call the mega processes, which should be a shared service. So unlike to the point that was made a second ago, that historically had separate up organizations, one for eCommerce, one for catalog, one for retail, and they ran a separate businesses. The way for to get profitability is you To the back office functionality is a shared service, of which you've got to find efficiency where when a customer engages and wants their product, they're engaging your network product can be used as support any channel at any time, regardless of what channel is sitting in. And every process from planning to buying products and making product to distributing product should all be channeled through a single shared service organization, thereby weaning out any redundancy capabilities and any redundancy in costs that are being generated by thinking of these as segmented business units. We and that leads to the concept of you got to break the paradigm, you got to break the paradigm that just because of the shared service doesn't mean you have responsibility and accountability to each one of these businesses that are trying to sell to these channels. That's not what a shared service means. So it's not as though if I'm a shared service, I don't have the responsibility or accountability to the eCommerce team. Now you've got that responsibility, you got to deliver to the KPIs or the metrics that are important to them. It just needs to be done in a consolidated network. Viewing inventory is an asset to be deployed anyplace anytime that satisfied customer needs, and shouldn't be hoarded by the original channel that it was destined for. Senior it's all about the mega processes.

Gene Tyndall  21:24  

Yeah. So as Scott said, mega processes are what you really need to focus on, you know, as Michael showed in the survey, operations costs are significant. And I think most people realize that and that is because for several reasons are causing that, we look at the problem as a supply chain as, as real as the people doing store replenishment have always done it and retailers have always done it. Part of the problem in separating eCommerce in the beginning to Scott's point is we had duplicate functions carry on some of the processes. Really, that's a plus there's a supply chain, that's called end to end for eCommerce just as well as it is for replenishment. So stores. So most companies have not looked at the whole supply chain for eCommerce, and figured out how to share the service what they need, with the rest of the company is God's point. And it starts with planning, are we planning eCommerce from beginning to end? Are we buying the products along with the corporate buys that we want? And not separately? are we handling freight in the best way inbound and outbound? And are we distributing them properly through our network or whatever we're doing with fulfillment centers, that opens up a lot of questions on costs, because people haven't had very different ways of, of distributing through fulfillment centers. It gets into fulfillment, and fulfillment network. And all those some people can call the last mile really 1300 miles, in many cases, because we're serving the customer from 1300 miles away through what's often called middle where they don't mile and last mile. So all these things we have to look at, when we're looking at the cost profile of eCommerce, business, and fulfillment is down there. And as Michael said, returns are growing. Interesting. We've noticed this week, Zara has started to charge certain customers for returns, we believe that's just the tip of the iceberg. Companies cannot afford to keep doing what with returns what they've been doing, because the costs are rising, rising higher than the revenues. So that's a big problem. So each of these steps or mega processes in a supply chain, eCommerce, people have to start looking at it as an end to end process, get the savings where they can with the shared services that Michael talked or that Scott talked about, and really get at the cost this way. It's all about the supply chain in eCommerce just as it is in retail, brick and mortar. There's no difference, except that in a way is good or are distributed and handled. And then, of course, in fulfillment, many companies have outsourced this to third party logistics companies, many have not been satisfied with those. We always look at who you're out of outsource to and how you set up that process. And that's important as well. Do you do it in house or do you outsource it? And if so, if you outsource it, how do you really do that and the right way. So there's many opportunities had not been focused enough on in the eCommerce side along the way as it's been growing.

Scott Moon  24:42  

To add to that the one place we'd say eCommerce has a competitive advantage versus fixed retails in the sales side. It has the flexibility to look at inventory velocity and determine strategies very strategically and tactically on how to mitigate that And that can be done through a value added service. It can be done through kitting as an example, not necessarily pricing, right? Because everybody's got that opportunity. But it's got the ability in a very quick reactionary mode to change the relative positioning of that product grouping and do dynamic things without having to do physical change before it's moved to an end selling position. Unlike fixed retail, you would if you want to do kidding, you'd have to do the pre kidding, send it to the retail store, create a new partner, and then make it available in eCommerce that can be done, done dynamically on the fly, and the kids can be men changed and modified dynamically on the fly. So in the selling side, that's where eCommerce really gains its competitive advantage. And that's why you heard a stress early on, create parts kits, value added services that carry the profit margin, that can allow the delivery and the cost there have to be able to be managed and covered through the margin. It's being generated, by the way, which are selling goods in the way it's being brought to the market.

Gene Tyndall  26:08  

Yeah. Sorry, Scott, one boy, I think New fulfillment models are the order of the day. Each company needs to think through how they want to do fulfillments going forward, because very few of them are, are cost efficient at the moment.

Michael Zakkour  26:29  

Let me just back up a second there and just pause for a moment. commentary from from Aaron, or anybody from the audience.

Aaron Conant  26:40  

Yeah, the one of the questions that came in was actually do we jump back to the first slide? Like, maybe it's next slide? It's where do you start? So you had the pie chart up? There? This is where the biggest pain points are? Which one is the lowest hanging fruit that that people should go after? I mean, isn't the fulfillment side? I mean, we've done these chats with like, you know, Cory, over at DaVinci. The great model as a whole, you know, people save money there. But what, where do people start? When you think about all those pain points? I mean, is it? Is it fulfillment?

Scott Moon  27:18  

Error? And that's a great question. Right. And so what this the teeth of this page, actually, your question tees up this page, it says, There is a pathway to profitability, we've identified seven major focus areas that one should consider and think about, as they get on that path to profitability. The first of course, will be strategy. Right? You got to know what your endgame is, you got to determine and define the right sales channels. You gotta define the products that sell best in those sales channels. That would be first and foremost, what is your branding? What is your imaging? What customer you're trying to reach? And how do you best reach that customer? Right, that would be sort of foundation one is get on the right path and know where you're trying to go. Don't get on a trip to Abilene, but know exactly how you're going to get your end destination? Right? Once you have a firm understanding of how you're positioning and the routes, if that's resetting customer, then you start thinking about it focusing on how do you do that most economically to deliver products to the end customer within the timeframe that they're expecting. The whole this is all driven by consumer voice. So as we talked before, real time, focus groups are always listening to what the customer wants, and what they value. Right now the market seems to be valuing order to ship a very quick order to ship time. Right? So they want to order today and get it today. So you have to then say, how do you do that through and supply? The gene talked a second ago about fulfillment models, right? Once you know what that service level is, then you can start to navigate on how do I deliver that? Do I use store supply in some instances, to deliver those customers in very short order? Do I have to now expand my fulfillment network to include local fulfillment centers that aren't warehouses but fulfillment centers? How do I deal with the order complexity? What is the order size? What's the base order value that will cover my shipping costs, which then leads into the last part of this, which is once I have those two, then figured out now I start thinking strategically about future products. I started looking at margins of future goods and how what goods I should be selling, where I should be going, and then how do I go get price parity, but figure out the margins that will bring price parity and deliver?

Aaron Conant  29:48  

Yeah, you Mike, I want you to jump in here. But yeah, just my brains kind of exploding here about the drastic shift that has to be explained to executive teams and uppermill Management around new product new product selection it was I'd love to hear I know you're ready to jump in Michael, your thoughts? And then yeah, just,

Michael Zakkour  30:07  

I just wanted to give one example what Scott was talking about. We have a client who is a multi billion dollar apparel retailer based in the Midwest. And when they came to us to reset their digital commerce and eCommerce strategy, they came into the conversation with the assumption that they absolutely had to have two day delivery on every single item, everything, why we're not keeping up with the Joneses. If we don't, well, we actually did a voice of consumer research element. And what do we find out 75% of their customers are women between 50 and 65 years old, who couldn't care less whether their new sweater came in two days or four days. And so we quickly made a pivot and had a drop down menu to give the choice of what service level the consumer wanted, had they gone ahead with universal two day delivery to everybody, they would have been costing themselves a lot of money they didn't need to spend based on what the consumer actually wanted. Right, that's that real time focus group that you have in front of you. The other thing I would just say is, you know, you've come into thinking about what to do. Starting from the sales and marketing side, you have to be aware of all of the new tools and channels that are available to in which to sell, okay, and if I see where there's one pocket of, you know, blank space, and a lot of brands, it's they don't understand the full landscape of what's available to them. And the problem is, right, if we look at cost of consumer acquisition, inflated media costs, now you have retail media, so everybody you sell to wants a media money, Well, where am I going to come up with that budget? You know, the cost of a per click, you know, all of its gone through the roof, right? We've established that. But if you look at things like live streaming, and social commerce, and Google Shopping, and Facebook, and you lay out that, oh, my god, there are actually 30 sales channels I have in here that I really wasn't thinking about are aware of incrementally as you add them, right, you're going to reach a larger audience, you're going to get more bang out of your buck. And by the way that ubiquity is going to be part of customer loyalty. So I would just say on that other side, it's really time for people to start thinking outside the box of, you know, we view Amazon as its own entity, you have to have a strategy for Amazon, you have marketplaces, here's what nobody's thinking about. Not a lot of people are doing it platforms, right? You've heard me talk about platform selling before, as Netflix and Twitch, become retail platforms, right? What can I be doing there, you know, Netflix as a store in store and Walmart, Netflix as a.com, you know, retail site. So what I would encourage everybody to do is step back and say, there are three kinds of silos, I need to think about my eCommerce. And that's even before I started integrating with offline, but you have marketplaces, you have platforms, and then you have habitats, right. So you have all your online habitats and all of your offline habitats, you say, how do I handle ecosystems, platforms and habitats, and make your strategy for the full integration of the three?

Gene Tyndall  33:34  

Yeah, and Michael was like, Yeah, I'd say two, we need to integrate sales as sales with operations. And both of those then need to integrate with customers. What we cannot, what we have to stop doing is planning one silo at a time because it impacts both the other two. So this is a this is why it's a challenge to do this. But every time you make a sale change, as we all know, it changes fulfillment. Somehow,

Aaron Conant  34:00  

it's so much more. It's so much more complicated. If you think about, you know, when you're just going brick and mortar, just think seven to 10 years ago, yeah, where the unit economics are, are changed by run size and or negotiations with the retail and now they're dictated by how many unauthorized resellers are selling your product, how many channels how far away the orders come in the size, you know, the actual product that you're shipping, and now it's making its way into the products you decide to actually manufacture and where you're going to sell them. Michael to your point. Liquid tide is heavy to ship. Right? And so it's actually affecting now product design and channels to sell on. And then the profitability on each one is different. But I'm thinking like, step one, in my mind is getting an entire deck together doing this deep analysis on a SKU by SKU basis on a retailer by E retailer bases and going to the executive team and saying number one, this is an this is 100 times more complicated than you've seen in the past. It is it that's like step one is just trying to get to them and then walking them through and I know every board deck, you walk in there, and they look at the first page and last page and say, What should I know? But it's, you have to be at this level, at least them grasping the difficulty that, that there's so many different variables on every different channel that are affecting profitability. Yeah, to your point,

Michael Zakkour  35:33  

it can be very complex, but often what we'll find is there are some elegant, simple answers that can be derived in the face. So another example is we have a home cleaning products company, they were having a real hard time shipping their, you know, core Fleenor, floor cleaner, I don't know mopping the equivalent of mopping globe, online. And so their engineers went to work. And they came up with a pad, about half an inch by an inch by an inch. And they shipped out these pads to people in the home. And now they throw the pad in a bucket of water. And instead of having to ship a gallon of this stuff, they're sending these one inch by one inch pads that somebody throws in the water. And they exploded. So sometimes simple, elegant answers to complex issues.

Aaron Conant  36:24  

Engagement like are you engaging with brands where they say, here's our portfolio help us optimise? Oh, yeah, that's

Michael Zakkour  36:33  

part of it. Absolutely. Looking at the the current product offerings, and then helping brands and retailers understand which type of products belong in which channel? Absolutely. Yeah.

Aaron Conant  36:45  

So like it consultive consultative, you know, engagement. Awesome.

Scott Moon  36:51  

Yeah, the other thing to think about is everybody gets hung up on demand forecasting, inventory planning, those sorts of things. What we're promoting is you break down the paradigm you don't think of demand and each one of these channels you think of demand as overall organizationally, which helps to simplify the view of demand and inventory. And you don't worry about precisely positioning inventory where you're going to sell it, you say inventory is available to support any channel as needed. So you can make the problem very complex and overwhelming and daunting. Or you can step back and think of it at the 30 foot level and simplify some of your thinking and recognize that you're never going to be precise enough to be able to optimise every dollar, you just got to determine what's most important and trying to optimize it customer experience. Is it overall revenue? Or am I really trying to minimize costs? What am I trying to optimize that will set the tone of how do I go and approach some of these more complicated issues?

Gene Tyndall  37:54  

Yeah, just just to add to Scott's point, you can you can overcomplicate the accounting girl lives as well. I mean, we've seen companies trying to measure it down to the next eyelash, and they lose sight of the bigger bigger issues here. And that's why we get management accountants involved some time and say, let's look at it from a management point of view and not just what goes into what, what account because that's where it gets really complicated and difficult to explain.

Aaron Conant  38:22  

Awesome. And just a quick note, you know, kind of the things that Michael was talking about earlier, you know, three different segments. We did an awesome podcast with him. We bring out a lot of the digital experts within the network. And that's just an awesome episode across the board. I think it ended up being two episodes actually was a branch into the metaverse as well. There's another one in regards that we did with John Doerr. So around, you know, viewing Amazon as a, as a platform rather than a retailer. And I'll drop that one in the chat as well. But badly. Yeah, but just great thing. Let's see. So others of you have questions, feel free to drop them in the chat or the q&a are there as we get to like, a few minutes left here. Are there any other key takeaways, as many awesome discussion? It's just every level of digital is just gotten so much more difficult over the past, you know, two to three years. Yeah, I mean, marketing, you know, fulfillment. It's affected every stage of the company.

Michael Zakkour  39:28  

Yeah, I think Garen for me, and then I'll let Scott and Jean give their table. But the key takeaway from me is, you have to think short term tactically. What are the things I can do now and do soon, which focus around lowering your cost of goods sold, lowering your CAC, increasing visibility, and then balance that with the longer term strategy of building towards a Unified Commerce model? You know, all those big picture things So, you know, there are things you can do in the short term tactically, and long term moving towards this Unified Commerce model. That's that's the key takeaway from me. And I'll hand it over to Scott and Jean there.

Scott Moon  40:10  

Yeah, no, I think I would add to that, that the concept and how you define profitability has to change. So you can't look at each channel in isolation and try to make each channel profitable, you have to look at total, holistically, what what you're delivering to the business, and the costs associated with it. So things like marketing, and some of the shared service activities need to be viewed as shared activities and not sort of isolated to individual business units. And I think that's a paradigm shift that organizations need to go through to recognize that just because I'm doing marketing on a digital means doesn't mean I'm not driving brick and mortar sales, right. And once you get that sort of foundational perspective, it changes the way you think about marketing, it changes the way you think about how I'm going to operate. And then you can apply the right costs against the

Gene Tyndall  41:02  

right sales channels. Jane, your thoughts? Just a quick point, I think it's a matter of multifunctional input. It's the same thing we've been arguing for years around supply chain. Ecommerce has to involve sales, marketing, operations, fulfillment, finance, and you have to put all those heads together because it is so complex, and work through with most multifunctional teams. That's how we get progress these days.

Aaron Conant  41:28  

Yep. Really, on that, on that note of just different platforms as a whole. There was one question here, I want to make sure we got to, and, and that is in regards to selling on Amazon whether or not you think it cheapens the brand. Yeah, so

Michael Zakkour  41:44  

I started to answer that. While the guys were talking in the chat, but you know, there's such a wide variance there, you know, depending on the category, depending on the product type. You know, how would I explain it this way? I would feel I'm big fisherman. I would feel comfortable buying a very high end Orvis $600, fishing rod on Amazon, without feeling like the Orvis brand is being cheapened, right. That might not hold true. If I'm buying my wife a present or a piece of jewelry or a high end cosmetic, you know, so much of that depends on who you are. What what is your brand story? What is your brand history? You know, I don't think Amazon is right for everybody. there for you know, aesthetic. And for brand reasons, as much as for financial reasons. I think just the general rule of thumb is if you're affordable luxury, or luxury in most categories, it has somewhat of a cheapening effect. But if you're in mass to mid market to just, you know, kind of that lower end of affordable luxury, I don't think so. For me, Amazon is more of a question of economics than, than anything else.

Scott Moon  43:04  

Yeah, I think everybody has an assortment where they have low middle and high range products. When I work with Nova, we had the real battle internally, do we sell an ova products through eBay? eBay was our sort of bottom tier. Ultimately, we recognize that in that situation, that there was a market at that lower level. And it's a matter of marketing the right products through the right channel. And so I think it goes back to your strategy, what customer base are you trying to hit? What products are right for that customer base? How do you sell products at that customer for that focal with enough margin where it makes sense to go there? I don't think it necessarily cheapens the brand. I think it's just a matter of hitting a different market segment. And you got to recognize that that's part of what you're trying to do with your product assortment.

Gene Tyndall  43:51  

Well put, yeah, I agree. And I think to me, you need a differentiator, if everybody sold on Amazon and depended on fulfillment by Amazon, everybody would be the same. So you have to figure out how you're going to sell on Amazon, or at least this on Amazon, how are you going to differentiate in the marketplace? Awesome.

Aaron Conant  44:10  

Awesome. I see. We're just a few minutes past the time that I didn't have any other questions show up in the chat or in my email. So I think it's a great time to just wrap it up again. Scott, St. Thanks so much for your time today. Again, I encourage anybody have a follow up conversation with this fantastic team here. This is an important part of overall profitability for companies and is coming up over and over again, we'll probably have a future call on it as well. But again, thanks to all everybody who attended. Thanks for the great conversations that popped up here. Hope everybody has a fantastic Thursday. Have a great rest of the week. Everybody take care, stay safe and look for a follow up email from us. I saw a couple people requesting recording the video. You can just shoot us an email. We'll make sure you get a copy as soon as it's done, and more than happy to connect you with the team here as well. So thanks so much. Aaron,

Michael Zakkour  45:00  

thanks everyone

Scott Moon  45:01  

here. Let me just add one thing, right this was focused on DTC, we will do want to have a follow up on b2b. Right? Same issues apply to b2b. So we did one of the follow up on that. I love it. Love it. Love it.

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