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Memo: A CPG Epiphany

A recent fireside chat between Parade co-founder and chief executive Cami Tellez and a small, private group of 2PM’s Executive Members was more than enlightening. It ended with one attendee proclaiming, “I was nothing at 23 years old” (Tellez is 23), and another confirming, “She’s ahead of the curve.” One of those responses was from a heralded retail executive with a decade of helping some of the most visible brands in America develop omnichannel presences. Every other member in attendance was equally esteemed in their own right.

Tellez represents many of traits familiar in the high-growth, modern retail industry, detailed in books like Lawrence Ingrassia’s Billion Dollar Brand Club. You know the commonalities weaved in and out of brands like Warby Parker, Away, Casper, and so on: the Ivy League pedigree, the summer internship with the well-respected Tusk Ventures, proximity to New York (or Los Angeles), and a coveted role with Rough Draft Ventures. But what separates Parade from earlier brands at similar stages is a combination of three attributes: profitability, supply chain management, and arbitrage in consumer behavior.

Ten minutes into the discussion with Tellez, it became clear. Her team identified a simple arbitrage that may define the coming years of desirable digitally-native brand growth. While Parade is an apparel and accessories retailer, the brand acquires and maintains customers like a consumer packaged goods brand. It’s more than a qualitative notion of community, brand awareness, or presence – terms that we often assign to apparel retailers. CPG brands operate quantitatively in distribution, shelf space, frequency, average order and lifetime values. Parade is a product that its consumers buy with a cadence more recognized in CPG or beauty brands. I recently spoke with Jann Parish, the former Chief Marketing Officer of Victoria’s Secret, about the opportunity ahead for Parade:

It looks like Parade is firing on all cylinders; product that performs, marketing that resonates and an avid, loyal (and growing) customer base.

Loyalty to an apparel manufacturer separates brands like Lululemon, Nike and Athleta from the specialty retailers that continue to struggle despite promotional events, large retail footprints, and unparalleled distribution. What separates brands like Lululemon from traditional retailers like Brooks Brothers, Aeropostale, or Forever 21 is two-fold: Winning brands require loyalty and repetition. This is where apparel culture meets CPG’s superpower.

On Applied Loyalty and Repetitive Sales

When you buy your groceries from Whole Foods, you choose the same products time and time again: Siete Foods for your tortilla chip cravings, Olipop for your root beer fix, and Jeni’s for your weekly ice cream binge. You do this almost without thinking, whether you’re purchasing through an Amazon app or roaming the store in person. You will find the same expressions of brand loyalty and purchase repetition in the aisles of Target. You choose the same diapers, the same premium razor blades, and the same non-aluminum deodorant. Again, you do this without much thought.

variants ≠ variance

While brands like Onnit, Native, Care/Of, or Schmidt’s exited for high eight or nine-figures, apparel brands who’ve grossed similar revenue figures have failed to achieve the same. This has been a bane to digitally-native brand founders like myself. But the growing successes of like-minded brands like Parade, Tracksmith, Madhappy, Summersalt, Rapha, and even Todd Snyder (founded in 2011 and acquired in 2015) may offer similar contexts. Parrish continued:

Parade has done a good job being an anti-Victoria’s Secret without calling itself one, that means less acquisition cost to fight VS and more dollars to its community. Similar to the approach Lululemon took years ago with its brand: it didn’t fight Nike. It won with performance and community. Parade has product performance and community nailed. A shrewd distribution strategy is its next step.

Community and loyalty can be interchanged in these assessments. Founded in 2019, Parade grew from zero to eight figures in annual revenue within 18 months. One of Maveron’s investors in the brand, Natalie Dillon, recently shared:

Their brand love is off the charts. In their first 12 months they acquired nearly 100,000 customers. The brand did $10M in sales in its first full fiscal year in 2020 with about 70% coming organically. [1]

These are extraordinary numbers, and while there are dozens of brands doing greater merchandise volume, few are selling to so many customers so early in their life cycles. Nearly 15 months into a pandemic that shuttered a large cohort of the retail industry, Parade’s latest valuation added to my curiosity about the brand. Tellez raised at a $70 million valuation from some of the smartest money in consumer investing: Lerer Hippeau, Greycroft, Vice Ventures, Shrug, and a who’s who of consumer founders and independent investors.

There are reputable, digitally-native fashion and accessories brands with gaudier revenue metrics but few if any have the ability to raise at a 5-6x multiple, a markup commonly held for brands that market repetitive products. And this is what may end up separating this new class of modern retailers from the 1.0 and 2.0 phases. They’ve figured out how to endear themselves to the customers in a manner reserved for another class of goods.

Like many business travelers, I likely own a dozen Lululemon tees in varying colors. Many were acquired on work trips after a number of near-instinctive visits to the retailer for a purchase that was as predictable as it could be. The 23-year-old brand is one of the rare apparel retailers to understand that “variants ≠ variance.” Lululemon manufactures and subtly markets products so effectively that customers find reason to revisit their stores, often for the same SKU in a different variant. This is CPG loyalty manifested by an apparel retailer. Once applied to an earlier-staged brand like Parade, it becomes difficult to question the valuation.

Brands like Parade excel at earning loyalty expressed through repetition. Their marketing dashboard likely shares “repeat purchasers” as a key performance indicator whereas many apparel brands associate average order value (AOV) and “time to payback” as their key metrics. More brands of this generation will pattern themselves like the consumer goods that own the right shelves on the right aisles of your favorite grocery and market retailers. In doing so, they’ll teach the old dogs the tricks that they should have already learned.

By Web Smith | Editor: Hilary Milnes

Memo: Hot Luggage Summer

Away is about to launch a travel accessories capsule in the midst of lingering pandemic. Is co-founder Jen Rubio on to something? The answer lies in the macroeconomic statistics.

On March 16, 2020, domestic air travel reached a notable point in its crash: slow at first, and then all at once. Daily traveler throughput fell to under 1 million. Just a month later and certain days saw only 90,000 Americans travel the country’s airports. Over a year later, as travel returns, so will the brands, marketplaces, and other businesses that serve the industry. It’s shaping up to become a hot luggage summer.

One day last April at Chicago’s Midway Airport, I stood in a terminal that spanned three football fields. I was an hour early to my evening flight and the only customer in the entire terminal. A month later, I returned. Little had changed as the national throughput number climbed to just 190,477. That number wouldn’t return to 1 million or more until Thanksgiving 2020.

Over the pandemic period of March 2020 and March 2021, I safely flew nearly 40 flights between cities like New York, Miami, Chicago, Austin, San Francisco, and Los Angeles. During the months of April through June, it seemed as though air travel may never rebound to its former self. According to Rafat Ali, the founder and CEO of Skift, there will be lingering reminders of the pandemic in the air travel industry well into 2022. Ali:

Even when we’re vaccinated to a certain point, even when we reach herd immunity, we will be wearing masks [on airplanes]. We can expect that this will last for at least through the year.

Even so, the return of domestic air travel seems to be on its way. In March 2021, a group of six entrepreneurs recently organized a business retreat. The air travel date was planned for June 16 and the destination was set for Montauk, New York. In the month of June, there are close to zero available properties on Airbnb and local fixture Gurney’s Montauk Resort is at capacity. These weren’t the only signs of density in New York’s Long Island region. The data proves that domestic travel is in for a leisure boom. Ali later added:

Domestic is in for a leisure boom. Summer is going to be frantic.

The numbers add up. Domestic travel is already back to 60% of 2019’s numbers and hotel occupancy has finally exceeded 60% for the first time since March 2020. Kayak searches are rising 27% week-over-week. Short term rentals are facing a shortage in availability in many of the travel hotspots around the country. Airbnb is reflecting the highest property rental prices in the company’s history. Ali noted that both the United States and the United Kingdom have done well with vaccination rollouts. He anticipates a travel corridor between the two countries. With travel data beginning to reflect a hopeful conclusion to the global pandemic, there is one company who may serve as the bellwether.

Commerce Follows Travel

In February of 2020, Away‘s website was ranked 16,500 on the internet according to the web traffic that it received. By July, that number fell to a ranking of 52,836, but climbed to a hopeful ranking of 24,882 around Christmas thanks to savvy marketing and promotion by new CEO Jen Rubio and her team. Today, Away has steadied around a 30,000 ranking according to data provided to us by Charm.io, representing a 20% drop in web traffic over the previous three months. This may be a lot of information to chew on but consider the implications: Away is perhaps the largest luggage seller in the United States by gross merchandising volume (though Samsonite likely sells more units of luggage and accessories).

Away’s trailing 12 months. More data at 2pml.com/dnvb

In similar fashion, German luggage manufacturer (and LVMH subsidiary) Rimowa followed a nearly identical trajectory of digital foot traffic, though its volume does not yet compare to Away’s and its target market differs. In the conversation with Rafat Ali, we compared notes between the industry-at-large and the consumer companies impacted by the overarching trends. Thanks to a once in a one-hundred year event, Away’s traffic fell.

But given its current position as a market leader, its social reach, employee count, and relative sales metrics (see more here: 2pml.com/dnvb), 2021 may be Away’s year to far-exceed even its highest former expectations.

Prior to the COVID-19 crisis, the travel brand grossed well into the nine-figures in annual revenue. With the decision to release Away’s new travel collection, Rubio’s marketing and consumer investment in this reemergence of domestic travel is significant enough of a decision to serve as a public interpretation of the positive private industry data mentioned above. The travel industry’s trends more than justify her decision to bet on this summer. Like Peloton, Mirror, Tonal, and Rogue dominated the direct-to-consumer fitness narratives of the previous year, I suspect that Away (and other travel consumer companies) will have similar trajectory narratives, finding their way to the top 100 fastest growing digitally native brands that 2PM tracks.

And if so, we may see the public offering that the team and its investors have long-earned. Either way, domestic air travel and the industries that support it are on their way to fuller terminals. That means more carry-ons, more Airbnbs, and everything in between for this hot luggage summer.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy

Memo: The Pompliano Skillset

The power of third-party data has diminished. With more restrictions, data collected from external sources with no connection to the consumer is becoming harder to acquire. Newsletter audiences may fill that void.

The importance of first-party identifiers has steadily risen over the years as web browsers evolved to emphasize consumer privacy. Then, Apple rolled out an iOS 14 update that requires all apps to earn explicit permission from users to track their data, bringing marketers’ fears to a fever pitch. IDFA, or identifiers for advertisers, are used to measure and target advertising efficacy on a user level across any mobile device. Marketing performance agencies like Tinuiti estimate that IDFA will drop from 70% to 10% in light of Apple’s new privacy measures.

In a January interview with trade publication Luxury Daily, Tinuiti’s senior director of mobile app strategy explained:

Things aren’t going to fully go away; things are just going to be powered a lot differently. I think it really just increases the need for a strong first-party data strategy and infrastructure.

First-party data will define the next wave of advertising and sales. American businesses are now in a race: They’ll build, acquire, or market to the audiences that have it. The independent media industry is quick to discuss outcomes but rarely do we dissect the early steps. As more pursue first-party data, audience development will become one of the most coveted skills on the market.

To acquire targeted customers, first-party audiences are replacing third-party collections. An early indicator of things to come: Over the past six months, two major newsletters were acquired by much larger companies.

Business Insider’s parent company acquired a controlling stake of Morning Brew in an all-cash deal. Just five months later, Hubspot acquired The Hustle, a smaller competitor to Morning Brew. The value of that acquisition has been disputed, but the impact on Hubspot’s marketing operation is likely invaluable. Both launched in 2015 and amassed large, dueling audiences of loyal fans. Two of the best sources of first-party data out there were acquired leading up to the iOS 14 update due to impact advertisers. But while we spend plenty of time discussing the acquisitions or revenues of these businesses, their ideals of scale may be more instructive.

We overestimate the value of distribution and underestimate the value of quality. Before Morning Brew maintained an audience of millions, its content captivated thousands. Over six years of independence, the quality and consistency of the content developed and retained the growing audience. I studied the work of Anthony Pompliano, owner of the Pomp Letter.

Everyone focuses on distribution because that’s the easiest thing to see. Distribution only gets them to the front door; the quality makes them stick around. The key is to write great content consistently. In a conversation with Alex Lieberman, CEO of Morning Brew, he suggested the same:

Very simply, when we started the Brew all we focused on was a three-step process to turn newsletter-as-a-hobby into newsletter-as-a-business: Create the best daily business read for millennials bar none, get the right eyeballs in front of that daily read, and convince brands to tell their story in front of these quality eyeballs.

Lieberman, along with co-founder Austin Rief and team, focused on quality and impact before monetization. I call this “the ideals of scale,” and it contends with many of the trends that we see today in the creator economy. We see Bleeple’s $69 million NFT sale but we forget that he drew daily for five years. We see Li Jin sell a .gif for $25,000 but we forget that she researched and wrote incessantly for years, quietly building a reputation for her work. To explore this topic further, I spoke with the co-chairs of one of the most successful families in newsletter audience development: Anthony Pompliano and Polina Marinova Pompliano.

The Skillset: Ideals of Scale

The shift away from third-party data has not been a complete surprise. Some entrepreneurs have long anticipated the rising value of niche audience development. In a recent thread by the former president of The Hustle, Adam Ryan riffed on one of the strategies of Anthony Pompliano, an entrepreneur and investor with a penchant for Bitcoin, debate, and audience development. Ryan’s thread on Anthony began:

Newsletters are the highway of a business. [1]

The senior “Pomp” Twitter personality would not agree with Ryan’s assessment. Two of his younger brothers have joined Twitter in the previous months: John and Joe. Joe seems to be following the Twitter-turned-newsletter strategy that has worked so well for Anthony:

Twitter: produce meaningful and consistent content
Substack: drive readers elsewhere to explore the depth of your thinking
Monetization: develop value-add strategies in line with readership expectations

Newsletters aren’t the highway for the Pompliano family. Rather, the highway is a combination of quality and consistency served through Twitter. Anthony, Polina, and Joe are in the business of connecting with like-minded people. They are not in the content business. They are in the “building companies and investing in companies” business. The way to build companies today is to build audiences first.

The first-party approach to business development is alive and well. Joe Pompliano has a thriving media operation at Huddle Up, where he writes on the business of sports. Despite launching his Twitter account and newsletter in the summer of 2020 (amassing 170,000 Twitter followers), Joe is already a partner at Roundhill Investment’s Sports MVP ETF, an innovative means of monetizing his passionate audience of readers. He recently told Forbes:

Professional sports teams and leagues are premium, scarce assets that have a strong record of value appreciation. [2]

In short, Joe launched a monetization strategy in line with readership expectations. Similarly, Anthony has parlayed his near-700,000 Twitter following and his Pomp Letter media brand into a crypto jobs board, a personal investment vehicle (80% crypto investments), a podcast, and the “No. 1 technology newsletter on Substack,” according to Anthony. Twitter may be the highway but quality, consistency, and authenticity form the engine.

No one understands this more thoroughly than Anthony’s much better half, Polina Marinova Pompliano, who left Fortune Magazine in 2020 after three years of building her personal media brand, also on Substack.

With nearly 80,000 followers on Twitter, Polina downplayed the platform as a major factor in the success of The Profile, where she’s covered luminaries such as: Dwayne “The Rock” Johnson, David Goggins, Kris Jenner, Tyler Perry, and Guy Raz. Her husband Anthony cites her as the entrepreneurial family’s “north star” of content, quality, and consistency, making sure to remind me that she has yet to miss a day’s assignment.

When I spoke to her separately she contended that Twitter was part of her success but that a number of other growth channels also contributed to it. Essentially, she is hyper-focused on good content and consistency and has been since 2017. According to her, there is no formula beyond that.

Quality, Quality, Quality

In conversation, Anthony Pompliano denied the idea that he is at the center of his family’s content flywheel, a view that Polina shares. As younger Pompliano brother was developing his audience early on, you’d find the occasional barb made about Joe’s prolific Twitter thread styling or his reliance on his brother’s cosign. Anthony would point to the co-sign of others like Darren Rovell as examples of Joe’s inevitability.

Like Polina’s success, Anthony also credits Joe’s explosion in popularity to quality and time. They work to review content together, patterning the work for audience and algorithms.

In effect, the family often works to structure the content of tweets for the “probability of reach” with the hope that the “audience and the algorithm take over.” Anthony credits the family’s success to three daily actions: they cheer, they help (or amplify), and they hold one another accountable to their schedules and the quality of the work. But while content is what they’re known for, it seems to be the tip of the iceberg for each. Anthony has repeatedly stated that the content business is the first step for Joe, John, and himself.

The creator economy would be better served if mindset changed from “I am a content creator” to “I am an entrepreneur,” he says. This pressure to produce content at the highest level, coupled with authenticity, seems to be the approach that produces a winning combination. In our conversations over the years, he has cited the need to be “super authentic,” a comment that he left in our podcast conversations. This is true, if someone doesn’t enjoy the work, you can see right through it.

There are dozens of high-potential, independent media operators with stories similar to those above. While the strategies will be different between creators, they will share three similarities: quality, consistency, and authenticity. Interested acquisition partners may have to rely on the dozens of other newsletter targets who adopted similar strategies to the Pomplianos.

The strategy in brief: Twitter is the highway and newsletters are the path from “off-ramp to the neighborhood.” And once those neighborly relationships form, monetization amplifies the operation – financing stronger, more authentic, and meaningful work over time. I share this strategy, though not to their degree of success.

For enterprises seeking to circumvent third-party data shortages, the first-party data proffered by niche audience development will grow in popularity.

As the need for first-party data continues to grow, companies will look to entrepreneurial publishers like Polina, Anthony, and Joe for acquisition or partnership. But before I could finish the question to the eldest Pompliano brother, he made it clear. The Pomp family isn’t looking to sell a thing. Anthony has often stated that freedom is priceless to them. I doubt he’ll ever sell his assets. He’s been known to hodl.