Strategies and Tactics for eCommerce Profitability

May 6, 2022 12:00 PM12:30 PM EST

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Key Discussion Takeaways

There’s a surprising truth about eCommerce: it’s hard to make a profit. A recent headline showed that even Amazon took its first quarterly loss after years of quarterly growth. Is it possible for your eCommerce brand to survive?

Currently, it’s never been easier to stand up a professional eCommerce entity, but it likely won’t be profitable on its own. Just as you can’t survive on an offline-only approach, neither can you survive on an online-only approach. That’s why it’s vital for brands to create a unified commerce model. Additionally, specific areas — like how you balance sales and service — will determine your profitability.

In this virtual event, Aaron Conant is joined by Michael Zakkour, Founder and Chief Strategist at 5 New Digital, to discuss how brands can make their eCommerce approach more profitable. Michael talks about the areas that can boost profitability, the areas that are depleting your profits, and the future of eCommerce as it relates to new digital tools and platforms.

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

 

  • The surprising truths about eCommerce
  • Why it’s crucial to diversify your channels and create a unified commerce approach
  • What’s consuming your profits?
  • The areas of focus that will boost your eCommerce profitability
  • Why it’s important to complete rapid tests for different channels and new SKUs
  • Should you work with micro fulfillment centers?
  • The future of eCommerce and the metaverse — and why you should get involved now
  • What DTC brands should do now to be more profitable
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Event Partners

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 LinkedIn

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.

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 LinkedIn

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.

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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 Friday, everybody. My name is Aaron Conant, co-founder and Managing Director here at BWG Connect chief digital strategist, I spend a lot of my time helping brands out with the digital strategy, just advising them as a whole. We're gonna host close to 300 events this year, over 200 of those being virtual formats like this. And everybody, thank you for the feedback on 30 minutes, that's kind of where we're drifting as well. I'm talking to 25 30 brands a week to stay on top of trends and want to make sure we're as appropriate and we're fashioning all these events is closely to what you guys would like as possible. That includes the topics of them and the people that we bring in. And so as we get started here, three to four minutes after the hour, we're probably going to wrap up right at 1230. If we're going to shorten these to 30 minutes. But if it's a few minutes early, we'll try to do that as well. ask as many questions as you want drop into the chat, drop into the q&a. Or you can always email me Aaron Aaron@bwgconnect.com. As we kick off this conversation, Michael Zakkour are great friend partner supported the network. Profitability is something that's been coming up over and over again. And just from a digital strategy side, that's right, where Michael sits here. And so he's dealing with a ton of different brands has a great time, different insights as a whole. And so as we kind of kick this off, you know, Michael, you know, I'll kick it over to you. If you want to do a brief intro on yourself and 5 New Digital. That'd be awesome. And then we can kind of jump into the conversation. Sound great?

Michael Zakkour  1:53  

Yep, sounds good. Thanks, everyone. Happy Friday. Yeah, Michael Zakkour. I'm the founder and CEO of a company called 5 New Digital. We are an eCommerce, digital commerce and retail consultancy. We work with some of the biggest global brands retailers, CPGs, probably 80% of our clientele is a retailer, a brand or a CPG. We work with them on their digital commerce strategy, their eCommerce strategy, their retail strategy, and their consumer journey strategy. We were known very well for having a pretty good crystal ball about what's coming up in the future. As Aaron knows, we keep our clients a year or two ahead of the game. We're also great believers and promoters of the new retail model, which is the complete integration of online and offline technology, supply chain and media to build an ecosystem. So today's subject is eCommerce profitability. You know, I think we're in a situation where it's never been easier to stand up a substantial and professional eCommerce entity, whether you're a multibillion dollar company setting up a new DTC front, or whether you're a startup just coming on line through Shopify. But what's been increasingly clear to us over the past five, six years, is it's really hard to make $1 in eCommerce, in fact, starting about five, six years ago on some of my BWG calls, or if I've been out at conferences and corporate events, I say to people that you know, eCommerce is basically a really bad business model. I've been saying that for six years which you know, usually shocks people because I'm Mister eCommerce, Mr. digital commerce, what are you telling me that it's a bad business model? It's been our contention that very, very few companies make a healthy margin on eCommerce that you can make a healthy margin in spurts but it's very hard to keep it sustainable. And so if we look at some of the things that are happening in the marketplace today, it's proving that out. Every DTC company who was founded 10 years ago to up to date is finally realized that they can't scale without involving physical retail, doing some wholesale doing retail setting up stores so whether it's a Harry's Razors and cap and Walmart or Casper store, Warby Parker store, you can't scale and you can't be profitable just doing eCommerce, right. So when the VC gravy train ran out what happened, prices went up, and everybody realized they need to get involved in physical commerce. If we look across the board, most DTC brands pricing is up by 30 to 40%. Over three years ago. If we look at the gig economy, it's even more pronounced. You might have noticed that your Uber is about 45% More expensive than it was two years ago, et cetera and down the line. We also saw the recent headline this week, that Amazon is taking its first quarterly loss in, I don't know, what was it guys? 12 years 15 years after 12 Straight quarterly growth, right? Well, the dirty little secret there is Amazon's never made a profit on eCommerce. Generally speaking, they've lost money practically on every transaction they sell except their own their own house brands, right. Amazon Basics etc. So we see DTC going to physical we see Amazon having a loss, we see, you know, companies really struggling on the economics of eCommerce. So today, we want to talk about how do you address that you may not be profitable now, we reduce our price on our products. So it's James brands? Oh, that's interesting. I don't mind interjecting there. James, what was the reasoning for lowering your price? Because you couldn't compete? Because I know the competition, that's the most likely answer away for James to answer. So, you know, it brings up a bit of a paradox, right? You can't be just offline physical to succeed. But really, what's happened now is you can't just be online and succeed. You have to have eCommerce and all of its variations in your mix. But the question is, you know, is it a drag on your overall company profitability? Or is there something you do to make it a profitable part of your entire enterprise? Right? And so the whole idea, we got better savings product, okay. And if everybody can see I change that we got better savings, product costs. Okay. Well, that's, that's a good hey, listen, if you can do that, and, you know, plough through all the better. So, you know, interesting also just a mention on marketplaces, globally. marketplaces accounted for 72% of all eCommerce transactions, so varies widely in the US, it's about 54% of all eCommerce transactions, mainly through Amazon. And then you have Walmart and Target and eBay who were all in the single digits. So it's roughly 54%. And then another 40%.

Aaron Conant  7:10  

Yeah, I mean, you were I sent omni channel. Oh, Michael, you know, I'm thinking you're telling me is it that I talked to a lot of brands and it was at first all Amazon, right, or all DTC. And then now, you know, is it is a lot of it, just the fact that people are self restricted, where they're selling. And not just, you know, online, right. But this idea, like you're talking about you said, 72%. But I know a lot of brands not selling on international marketplaces, or all the marketplaces available inside that like

Michael Zakkour  7:41  

Yeah, so James, James just threw it out there. You know, he's been a longtime believer in omni channel. I just want to set the record straight there. We don't like the term omni channel, we use the term Unified Commerce, you know, Omni channel, I guess it's the industry catch all I know, everybody uses it. But to imply that it's simply selling across several channels, that's fine. But that's sort of like there's a plateau to that. And the next evolutionary step is how do you make that Unified Commerce right, rather than just selling on these digital chip digital channels? How do you connect them all for your ecosystem, right? How does a live stream create a purchase in store? How does an in store browse, turn into a QR code purchase in a new CRM acquisition? So, you know, Omni channel is great, we have all these different channels. Unify commerce is connecting them and making them meaningful to each other. But as the general principle, one of the answers you're getting ahead to my endgame here, one of the answers is you have to have to have to have to divert diversify. Thank you, James. You have to diversify your channels. And especially when you're looking at new channels, right? So when you're looking at how much can I sell through live stream, how much can I sell through QR codes? How much can I sell through social commerce? How much can I sell in Roblox? How much can I sell, you know, setting up a Metaverse store, et cetera, et cetera. So yes, James, you're right on. Got ahead a little bit, but that is one of the key answers. So I'm just going to bring up a couple of slides here guys. I guess I need to share my screen that would help.

Aaron Conant  9:28  

It's super interesting, because then I just going through it in my head is, you know, I was even limited in it to marketplaces, but kind of where you're jumping into right is like, no, it's it's not just marketplaces anymore. It will be TikTok soon, right. But it is also the live streaming side of things. Right? It's, it's, it's awesome, ya know,

Michael Zakkour  9:49  

and TikTok is, at least in my experience, one of the fastest growing social commerce stories I've ever seen. Of course, that didn't come as any priced us because we've been putting our clients on door yon in China for four years. So Diane is TikTok's parent company. You know, this year, China will do roughly $400 billion. In live stream commerce, I think about half a trillion dollars worth of goods being sold by somebody looking at somebody else on a camera and buying while they talk. Pretty, pretty amazing. So. So the good news though, right is retail is anywhere everywhere. Right now we're in a retail Renaissance. And by the way, let's not confuse the term retail with store, physical store, right. The big fallacy of the last 10 years that was that we were in a retail apocalypse, which is just not true. There was a period where we had a store Apocalypse when 1000s of physical stores were closing and their parent companies were going bankrupt. But while that was happening, more places, more ways, more methodologies, more tools, and more channels to buy more things than ever in history popped up. And we just mentioned a whole bunch of them, right? So you really want to think about eCommerce profitability being tied into your Unified Commerce profitability, and your overall retail, wholesale and alternative channel profitability. Right? So just some numbers we can pull out here 74% of in store shoppers shopped online prior to the store? Well, how do you leverage that to be Unified Commerce 36% of sales that are digital, that numbers come down a bit, you know, maybe it's right around 33 or 32% Right now, but in a lot of categories is a little bit higher. So we average that out 42% of consumers a personalization of their journeys important. 67% of millennials prefer to shop online, US eCommerce 2020 to $151 billion, right. But we can look at the chart from E marketer that's on the left of your screen. And you can see where some of the growth and where some of the decline is. But overall, you know, these are pretty healthy growth numbers. So the question is with all of this, why aren't more companies making money doing it? Right? Why are more companies making money? You look at these numbers, it's mind blowing, everything looks rosy? The simple answer is your margin. And your profits are being sucked dry by two, two culprits, the cost of consumer acquisition and the increasingly difficult nature of keeping somebody to stick around with you for lifetime value. Right? Really, really difficult. So I had a stat, and what I read one of the largest retailers in the US two years ago, their average cost of consumer acquisition was $124. This year, the average cost of their consumer acquisition is $505. So last year, it went from 124 to 252. This year $505. If you're gonna spend $505 of marketing and advertising to get somebody to buy from you once you better have a plan for having them stick around for a long time, because that's a long runway to break even with that person. Right? So that's number one. Number two, is the cost of supply chain and fulfillment. And we use those two terms separately for a reason. Because we recognize especially the last year and a half, there's been extreme pressure on the overall supply chain. So cost of manufacturing, cost of ocean transport, costs of distribution. But then we've also had price inflation, on fulfillment. So what does it cost to store pick, pack and ship a product to somebody else write UPS, FedEx, USPS, what prices have gone up 35-38% In the last year and a half, just to ship the package. So now you've got downward pressure on the supply chain, you've got downward pressure, on your fulfillment. And all of a sudden you're saying, Well, I'm selling a product for $25. My books tell me I should have a margin of $12 on it. And in reality, you had a you know, if you're lucky, you got $1 margin. If you were kind of lucky, you lost 30 cents, right? And if you're unlucky, you lost more. So those are the two key culprits that everybody needs to think about it and so we like to think about profitability is the fulcrum between sales and your service level. Pay or your speed of delivery is one piece of it. So service is everything that goes into speed of delivery, consumer unique requirements, order complexity, packaging cost, all that on the service side. And on the sales side, the right product assortment, the right product channel fit product margin that you have baked in consumer basket, and cost of acquisition. So how you balance sales and service is all ultimately going to determine if or how much you are profitable. I'll just pause there for any questions from you, Aaron, or the audience on his visual because this is, you know, this is it, that's the story right there.

Aaron Conant  15:42  

So when you're working is kind of the recommendation isn't is to go piece by piece by piece and go through every one of these to get just to balance it out is that kind of when you're sitting down with companies is this kind of part of the methodology that goes through where people have to look at it, because reality is a lot of says it had to be looked at. I mean, it's always looked at, but you're shipping to a brick and mortar store, and they're selling it. But now there's so many added things in the right hand side that you have to be concerned with. And I have a lot of people, you know, asking for, like packaging engineers, right. But like a digital age one is concerned more about products demean out and sock, you know, so that you can design from the beginning. But then on the flip side, as well is speed of delivery, who are the people that can actually deliver the product because I finding that most companies can't do it on their own autonomy can, right they've built out the DTC drop shipping, you know, portion of their warehouse. But a lot of people haven't, and there's only a few people that are actually cost effective at doing it. Is that kind of, I'd love to hear your thoughts here as well. That's what comes to mind.

Michael Zakkour  16:52  

You’ve nailed it. I mean, that's exactly right. That's and this is this is right, you break this out, this is the methodology. Breaking down this piece by piece I'll give you I'll give you two quick real life examples from from clients of mine. One of them is a big bag Tea Company, one of the biggest in the US. They've got problems where they can't one staff, enough people in their plants to make the tea bags. And so now they're overpaying the plant workers that they do have. There is political unrest in something close to civil war in Sri Lanka, which is where they source much of their camera meal, and their Cylon tea, raw materials. Now you've got the, you know, 10x cost of a container to move something from one place to the other. And all of a sudden, while the brand is still healthy and strong, they've had to pause marketing campaigns, they've had to pause new product releases, and they've had to pause. And this is the worst part of all the pause opening up new clients. Because all that downward pressure both from what's happening in the supply chain and the costing in the supply chain. While that's going on. Okay, there now, and this is I'm sure something a lot of people on this call are dealing with is they are getting pressure from every retailer that they work with, to participate in their media network. Right. So Walmart wants their chunk target wants their chunk, Kroger wants their chunk ShopRite wants their chunk, you know, nevermind when Amazon, right, and they are an Amazon heavy brand in terms of eCommerce. What they're finding is a few things there that they can't pay everybody media, and they don't know how to get out of it. And the content that they have to create for the media do they do participate in is complex and they can't quite handle it. Okay. So they had to go with a slight cost increase. But what we're working with them on now is, you know, does everybody need two day delivery, right, so another client of mine huge retailer. When we were resetting their digital commerce strategy, there were voices in the room that said, we have to provide two day delivery to everybody, or we're just not going to be competitive. And we pause them on that. And we actually went out and talk to a couple 1000 of their consumers. And what we found out was about 60% of them were fine with four to five day delivery. Right? And these are typically middle aged woman in the Midwest. They don't care if they order a sweater on a Monday and get it on a Friday. Right? So had they gone ahead and applied universal two days delivery to everybody. It would have cost them a lot of money they didn't need to spend. So that's one example of how you can break these things down in and get a better better grasp of it. Let me do a time check. Okay, I'm gonna move on. So you know, these are some critical eCommerce profit, profitability focus areas that encourage everybody to dig deep on your assortment, right, we hear product channel fit, I think there's more talk about it than action on it. Right? Everybody's trying to figure out, you know, what should be sold where and the truth is just like your media and your messaging and your visuals should not be the same for every channel. Well, your products aren't meant for it either. And we still see a lot of people trying to shove products that are not meant for eCommerce into the eCommerce funnel. Need to sell and profitable channels. Right. ubiquity has its limits. So you know, really think about the balance between ubiquity and profitable channels. Order to Delivery must be planned and occur within timeframe. Order complexity. This is you know, again, we talked about one of the two great enablers if you're not getting the right guys, the two great enablers to succeed in eCommerce is on the one side all things technology, data science, technology tools, and on the other side, all things supply chain and fulfillment. Your order margin must be well planned, and it defines how to handle the file my final mile delivery, right? Everybody's taking, not everybody, but a lot of people are taking a one size fits all to final mile. Can't do it. Right? That's just can't do it. Pricing should be consistent across channels. And then the experience personalization, business most efficiently handled consumer issues returns, right? What's one more cost drag, we all have returns? Right? So you start getting into supply chain cost of acquisitions returns damages, you know, it's hard, guys, it's hard. It's a lot costlier for somebody to return something via eCommerce and mail than it is to bring something back to a store. So again, think about how your Unified Commerce plan fits in your online offline integration. And so finally, just you know, a simple solution model, conduct a full and honest assessment of your current eCommerce business, you know, honest, being the key word there, take an honest assessment of your eCommerce financials and figure out where the problems are. Rethink your service level assessment. So you know, what people need in terms of actual customization personalization, while they're browsing, pre click post click fulfilment, not everybody's the same one size fits all doesn't work, it's too costly. Assess your supply chain, recognize that technology, data science and digital tools are the power source for profitability. If there's some place you should not be, you know, putting your trigger finger down or putting the gun in the holster, it's it's on the tech side, develop a unified supply chain unified marketing unified sales strategy and operations, and then develop new strategies for a Unified Commerce new retail model operation. So just some quick hit solutions for more profitable eCommerce. And that's takes us to 12:26. So pretty good there Aaron.

Aaron Conant  23:36  

Now I looked at it from the standpoint just you know, it, those slides were able to shoot these out to people who joined today because everybody, I think the conversation I'm having is executive teams are jumping in saying, Hey, what are we doing about profitability? And it's the like, every day, I don't know everything we can Well, what are you working on? The reality is, it's almost like they need that slide, you know, to take it and say like, Listen, this isn't just a customer acquisition costs thing, this just isn't a supply chain issue. This is literally every part of our business is the content piece, like you were saying content now is more expensive to create, and people are going through it faster than they've ever gone through it before. Its delivery piece, right? And what are customer expectations? And it's not, you know, I would say like, digital 2.0, which we're coming out of, and we're gonna get into 3.0 2.0 was getting everything like out there and getting it installed now. 3.0 is like, like, optimization of everything. Right? How is everything working together? Do I have the right fulfillment strategy for every different part of my business? Right, kind of like where you're talking about? Do I have the right retail media strategy? Right? Do I have the right product assortment? Because maybe like you're saying, all the products don't have to be there and it's looking at it holistically like what's my plan for my businesses as a hole in how do I use each of these different channels to, to get to the end goal of that plan?

Michael Zakkour  25:07  

We have one question here from from Bruce. How do you look at innovation skews for eCommerce use DTC for small batch tests with real consumer interaction sales a better predict success? Versus fullscale? Launch is everywhere based on folk? Absolutely. That's, that's a spot on strategy. And, you know, the cool thing is, right, the infrastructure infrastructure is there to make those small tests through different channels and new SKUs. eminently doable. Right? So if we just take on the delivery side, you know, you have the micro fulfillment companies, right. So rather than having to make a big commitment to a big three PL with tons of, you know, long term commitments and a lot of space, you can bring in a micro fulfillment center strategically placed some of those innovation SKUs at key points around the country, and then run a test on a live stream or run a test on a QR code or contests. Or we're big believers in gamification, you do gamification, but yeah, Bruce hits the nail on the head, it's got to be rapid test and learn, right, the days of taking six months, nine months, 12 months to commercialize a product product. That's tough going, man, especially in a copycat world where, you know, 100, companies could have your product copied after you know, the first six 812 months, even with the best protections, totally on board with rapid tests and learn on new SKUs through new channels.

Aaron Conant  26:36  

I see we're kind of at time here, but we can keep passing through other questions that pop up, I have a couple more that I want to ping you for. But I realized that people have to drop but I also want to throw out there, you know, you know, just Michael sits in this space, and is helping so many brands out if your this is an issue for you, and you need like kind of outside expertise to come in and kind of walk through. When I've had conversation with Michael, this is kind of like the the top five, and each one of those five gets broken down into 30 different pieces that need to be picked apart and gone through. And just a lot of times internally, that's a way to wait on an organization to get through in a reasonable amount of time. And so I'd encourage you if you have the opportunity to connect with Michael 100% worth it. He's a great partners supporter of the network and a ton of brands in it. So worth that follow up conversation with him, the team over there, they're just doing some fantastic stuff to help brands set themselves up to win. You know, it's a, especially in the six 9, 12 months timeframe, like three months. Those are things you need to be working on a year ago. But there's things you start working on now to kind of totally understand what profitability looks like and what are the things you're doing on the back end everything from front end supply chain to final fulfillment. But are there other things? So others I understand if you have to drop we're gonna just pass through just a couple more questions that have come in over email and then we'll wrap this one up as well. So, you know, you mentioned micro fulfillment centers, you know, are those pretty much going to be table stakes in the next year?

Michael Zakkour  28:15  

Um, let me start my question is so is will working with micro fulfillment centers microphone centers be table stakes? Yes. Not for everybody. You know, I think if you take the biggest brands, they have enough reach into three pls and cell phone warehouses. But, you know, I think if you're a company with you know, $500 million in revenue or less than Yes, it'll probably become table stakes, because, you know, this is this is the other term for it, right? The micro fulfillment centers are the actual buildings. The concept is what we call distributed logistics. Right? Distributed Logistics is another way of saying we want to create fulfillment, forward operating bases as close to the consumer as possible. Okay. And because we just can't afford, right we can afford across the board, shipping everything through FedEx and shipping everything through UPS, right. So the trick is figuring out what level of micro fulfillment center store is a warehouse, mid size facility owned and operated, adopting back rooms. Yeah. So you have to be in the distributed logistics game because you'll never fully manage to get your fulfillment costs down without it.

Aaron Conant  29:46  

Yeah, I mean, the nice thing that I've seen happen as well, right is then you can when you talk about product selection, right, you can start making your own combo packs right your own count size, you can distinctly my product offering It's different from marketplace to marketplace website to website in store is distinctly different, which I know for a lot of people, brand control selection and third party resellers, all of this is a major issue, being able to jump in and control that, you know, price matching everything across the board. You know, utilizing somebody

Michael Zakkour  30:19  

by the way, that's a lot easier to do in an MFC than a big three PL building. Right?

Aaron Conant  30:24  

Yeah, I mean, they're just, you know, anybody we actually have a call one of these 30 minute power talks on Monday, around micro fulfillment centers if you're looking for recommendations on a ping Michael or myself, but both of us sit in that space, Michael, with a ton more expertise in the fulfillment space than I have. But are there other things that you see top of mine? You know, as we kind of wrap up, I'd like to wrap up the next three or four minutes here. If other people have questions or topics you just want us to hash on, drop into the chat or the q&a. You know, anything else? Why should people know I want to bring this up? Because it comes up the metaverse and you sit in this space? How concerned should people be with launching the metaverse? You know, or something in the next six months

Michael Zakkour  31:09  

when we talk about opening up a can of worms at the finish line, Aaron? Yes, I'll address it quickly. So as Aaron points out, I do see

Aaron Conant  31:20  

just have this you have the crystal ball, right? I mean, you're bringing up QR codes years and years ago now. Everything's right. You're talking about micro fulfillment two years ago, three years ago, and now it's all here. And so it's like,

Michael Zakkour  31:33  

it's also used half an hour to talk. So I'm just saying you open up an interesting conversation at the end here. But ya know, so we are deeply our firm ensconced in building out the metaverse web three NFT world. I'm trying to have four quick points on it one. If anybody tells you they're building the metaverse, or a Metaverse runaway very fast, because they're scary in trying to sell you on something that probably isn't real, right? You have to think about step back for a second say what is the metaverse? The real answer right now is we don't know. We don't know how this is going to evolve. We don't know what it's going to look like in five years. We do know it is going there's going to be a fundamental change in the way all of us experience the internet. Okay. And a fundamental change in the way we all use the internet for digital commerce, from sales from habitats, environments, we shop in 3d immersive AR ER VR. All of this is going to add up to so you know, the thing you could say is the metaverse will be a fundamentally different way to experience the internet and a fundamentally different way to experience retail. What's interesting to me is the retail world and the brand world has been the early adopter, right? Which is kind of refreshing because the retail world was so slow to adopt to web point one and two, right? But if you look at everybody from Burger King to Louis vaton, they're they're really diving into this. So there are 1000s of companies and people who are building the back end, which is web three, and the front end the quote unquote Metaverse, which is the interface, and there will be a fundamental change. It's already happening. So if you're looking at your clock and saying, you know, is it six months from now, a year from that? No, no, no. You know, Aaron and I were at shop talk a couple months ago. You know, it was amazing to hear what people are already doing, you know, Pacsun on the youth retail company. They've gone all in on the metaverse world they you know, they're already selling products on Roblox they have their own NFT set for kids called Mallrats. You know, they're rolling out a lot of projects. So you know, you have to Gucci garden you have I mean, you got Stan like it's happening now. Is it still primitive? Is it still early? Yes. All the more reason to step into it now because the cost of entry into that world are really low right now, relatively speaking to everything else you're doing. You could build 100,000 square foot floor on a Metaverse mall, and keep it for a year for $100,000. So I challenge you, is it worth $100,000 Your marketing money to build that and experiment it and set it up as your sandbox for experimentation over the next two years. While all the technology and the consumer preferences are are evolving, I would find it very hard to argue against not spending 50 100 $150,000 to build that environment to experiment with it. Oh, and by the way, we've also noticed, on average, every brand that has announced that they're doing something in the internet publicly sold publicly public calm And he's their stock price rises by an average of one to 3% in the three months that followed the announcement. So I would say even if price is gonna go back down, you know, if you get a 3% bump in your stock price for three months, how much more value is that than spending $100,000 to build them all? I mean, everybody phenomics profitability.

Aaron Conant  35:22  

We're not we're not talking about jumping straight into goggles. You know, we're talking a tab on your website that takes you through a walk Roblox atmosphere. But you know, more photorealistic of people being able to read and click between pages to see different items. Click right next to the item or see five items all at once next to each other and scroll through aisles. It's checkout like a Roblox or Minecraft. But think about it. What if it was photorealistic? And you're just you know, using your, your UP DOWN arrows or your your finger on your iPad to go through it?

Michael Zakkour  35:56  

Yeah. Last thing if anybody wants to talk more about the metaverse and the retail Metaverse, feel free to hit me up and we can chat about it. We're actually building a mall right now and Metaverse Mall. So if anybody's interested in talking about that having to pick up the phone.

Aaron Conant  36:10  

Yeah. 100%. The other thing is just had a question come in around Amazon profitability as a whole. That's a huge issue right now. If you're looking if you have issues with chargebacks, or fines or provisions for receivables, shoot me an email. We'll put you on an upcoming call. But also, you know, the top people in this space that are going back five years and recovery, hundreds of 1000s if not millions of dollars for brands depending on how big you are. Shoot me an email Aaron Aaron@bwgconnect.com. We have another question that comes in and I realized that people have to drop there's no worries. But if you want to stick around with recent Amazon aggregators laying off people in the higher CAC, you mentioned earlier, do you feel digitally native brands will be less disruptive to bigger brands for the next year until the aggregators reset?

Michael Zakkour  36:58  

I don't know anything if the aggregators

Aaron Conant  37:00  

actually had a negative impact on a lot of the brands they acquired. Because there wasn't the love and attention that needed to be there. This this idea that you could pay a 6x Multiple on a small digitally native brand. And then just dump it into a hopper and hopefully your supply chain in your you know, your better ad tech grow it and you get a return. I think I think the big one that just started to follow up, I don't think it'll fall apart that really took a hit. I think we're gonna see the other big ones fall as well. Was that through ICOs? Yeah, through ICO. And then there's other big ones that are out there, there's a few that'll that'll make it come out strong. I just think it's a reset. And digitally native brands, a vantage a digitally native brands have is they can move quickly. Right. And that is a major, major difference is you can try whatever you want out as quickly as you want. Now, the issue is, is that I'm trying to break into stores, which is, you know, at the end of the day, where a lot of brands want to get Michael, which is you are talking about is it's kind of a spread, you can only go so far on online, everybody, if you have a physical products wants to eventually get to a store, I don't see it having a negative impact. I think we're still gonna see digitally native brands pop up, there's just not going to be the 6x Multiple, it'll probably be a three. Right, there should be reset to where it's normally at.

Michael Zakkour  38:31  

But I agree, I think I still have a bright future in mind for for DTCs there's a lot of talk online and people whispering at the death of DTCs. And just said, that's utterly ridiculous. You know, just real last comment on the DTCs you know, DTCs have it all in front of them. You just need to kind of revise the playbook, right? The original DTCs had a very simple playbook, take out the middlemen, do all content marketing, and buy up cheap, cheap channels and cheap social media advertising? Well, the problem is, you know, the prices have gone up on all of that. But you have the chance as a DVC brand, to use the new channels and to use new types of advertising to repeat that playbook. Right? You can use these new channels, these new tools, these new selling environments to keep the cost reasonable if you're a DTC brand that thinks they're gonna make it now buying you know, Facebook ads and what have you. Good luck being profitable, right to come right back around to it. And like you said, the the appetite for, you know, 12 quarters of losses and still valuing a company at 12x is maybe that's come to an end but no DTC is the smart ones. If they adapt to the new channels, the new marketing, the new supply chain, they're going to do just fine. Yeah,

Aaron Conant  39:59  

then I think they'll still get acquired, but it might not be aggregators. So might be. Yes.

Michael Zakkour  40:06  

The aggregation idea which, yeah, I want, I don't want to go there.

Aaron Conant  40:14  

Awesome. Well I think, Michael, thanks for Let me grab an extra 13 minutes of your time today. All around, you know, fantastic conversation as always, again, I'd encourage anybody have a follow up conversation. Michael sits in that space where he's kind of that that vital, you know, outside set of eyes and mind that can help your business plan for the future as a whole. Michael, thanks again for your time, everybody. And, you know, look for a follow up email from us, we can get everybody a copy of the deck. And also we'd love to have a conversation with you. If you ever have any pain points across digital you looking for any connections across the board, you're vetting out any service providers from micro fulfillment to digital strategy and planning to Amazon or international expansion. Don't ever hesitate to reach out I always love those conversations, more than happy to set up some time to discuss and with that, we're going to wrap it up here again, thanks to Michael you’re a Rockstar my friend.

Michael Zakkour  41:07  

Aaron. Thanks, everybody. Have a good weekend,

Aaron Conant  41:09  

everybody. Absolutely everybody take care stay safe. Look forward to having you to future event occur via email from us. Alrighty, we'll see you. Alright, thanks.

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BWG Connect provides executive strategy & networking sessions that help brands from any industry with their overall business planning and execution. BWG has built an exclusive network of 125,000+ senior professionals and hosts over 2,000 virtual and in-person networking events on an annual basis.
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