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No. 335: The Merchant Class
The rebuttal that you’ll typically hear is: “eCommerce is not blue collar.” It’s a refrain tweeted from the 20th floors of urban sprawls. On those floors, you’ll find dual-monitored workspaces adjacent to espresso machines and collagen bars. But for Jerry M. of Pickerington, Ohio, his opinion differs.
He’s been a four year member of Amazon’s third shift at its CMH2 facility. With his trusty Fitbit, he measures his nightly activity. His all-time goal is a little over 17,000 steps for the day, though the 57 year old typically falls around 12,000 – 13,000. An impressive number, his picking and packing statistics are even more impressive. On any given night, his fulfillment center is one of Central Ohio’s most prolific. And that’s saying quite a bit. Jerry’s no stranger to hard work, he is a former maintenance man who took the opportunity to grow with Amazon’s exploding logistics-side business. It paid far better.
Central Ohio is a bastion of third-party logistics centers and fulfillment warehouses. Name a digitally native brand and they will likely have a presence in the area. It was my first experience within the walls of one of those retailers that changed my perception of commerce altogether. At 26, I began in the marketing department of Rogue, a now-gargantuan online retailer that employs hundreds of machinists, warehouse workers, packaging engineers, and front office developers and executives. The employees and contractors now sit (or stand) within 900,000 square feet near Downtown Columbus. But on my first two days with the company, I passed the hours in the warehouse moving 40 pound boxes. On the second day, I wore comfortable shoes.
To the marketers, developers, and managers – they are online retail. They are what makes the engine move. And for a time, this was true. Commerce investments like recruiting engineering teams, advertising talent, server space, able creatives, and copywriting mavens rounded out the major spend. Leaders would spend heavily on the front-end, not the back-end. Commerce was pixels, not forklifts. But to those building packaging, operating forklifts, moving goods to trucks, they were commerce. To them, the front office folks were the replaceable ones.
Commoditization of the Front End
The front-end product side of online retail is quickly commoditizing. You have Shopify and Magento, of course. But then, there are solutions for every corner for the ecosystem; these innovations grow by the quarter. There are legacy partners like Fulfillment by Amazon (FBA), Adobe, BigCommerce, Square, Oracle, SalesForce, and WooCommerce. And there are new and innovative no-code options like Webflow Commerce and Storefronts by Elliot, a new plug and play product that launched to much fanfare on Product Hunt. With storefronts, you don’t need many of the front office folks that were required just eight years ago. The constraint is now warehouse logistics, and Shopify saw that before any of its competitors. The labor is the hard part.
The foresight by Shopify’s management team couldn’t have been better-timed.
Despite the front-end component of online retail commoditizing more and more each day, eCommerce is mainly discussed within the confines of code and pixels. But if you’ve ever had to build something, you’re just as grateful for the UPS employee as you are to the front-end developer. Online retail is a blue collar industry built on accessible tech. When Shopify launched into the third-party logistics (3PL) industry earlier this year, it raised eyebrows. Critics suggested that Shopify was losing its focus. Many of the questions centered around matters of optics: Can they maintain efficiency across hundreds of warehouses? Do they understand the difficulty? Will it lower their net promoter score? And don’t they know that they’re a software company?
Unpacking the next battle
It’s the third question that is at the crux of it all. Shopify has a decade-long history of enabling storefronts for tens of thousands of traditional and digitally native retailers. It has been, in effect, a publisher. Over that span of time, the company has added retail operations: omni-channel inventory tracking, point of sale hardware, and now shipping and logistics. The retailer’s primary user base (Shopify account holders) benefits from the company’s growing list of core competencies. [1]
Sitting with Shopify founder and CEO Tobi Lütke in his Ottawa office and one line of thought stood above the rest. I cared more about the enterprise names in commerce than he did. I found that to be confusing at first. Within the Shopify solar system, Plus is its own planet. It operates out of a different city. The cultures between offices are wildly different. One is low key, the other has a dash of braggadocio. But for Lütke, Shopify doesn’t exist for the sake of Shopify Plus. In fact, one could argue that it’s the other way around. Shopify Plus helps Shopify build more tools for the common merchant. To the Ottawa-based CEO, helping mom and pop shops and millennial side hustles is where the action is. Engineering is no longer the bottleneck, in this respect. There are a dozen options if a merchant would like to sell a product and accept payment.
Shopify plans to spend $1 billion on its fulfillment network through 2023, and Wong writes that his research shows that “there is enough merchant discontent with Amazon and sufficient inefficiencies in the logistics workflow to innovate upon, that Shopify could eventually compete against” the e-commerce giant. [2]
But it’s become abundantly clear that, at some point, Shopify’s business needed to shift from the theoretical to the practical – from bits to boxes. If every merchant can find a storefront, Shopify’s original vision is no longer enough. This week, Shopify officially closed acquisition of 6 River Systems for $450 million in a cash and stock deal.
By equipping independent warehouses and 3PLs with task-augmenting robotics, it frees up workforces to do more, faster.
Shopify expects this move to support on-site employees with their daily tasks, such as inventory replenishment, picking, sorting and packing, as well as increase the speed and reliability of its warehouse operations. [3]
This long-term investment was key to Shopify’s strategy. By improving efficiency through out hundreds of warehouses, Shopify is growing capacity at 3PLs. Not only does this lower the costs of shipping, it also increases success rates. Ask any top 3PL if they’d onboard a small business doing less than $300,000 per year; the answer will be “come back when you’ve grown.” If top 3PLs do accept small retailers like these, the costs are disproportionate. The concern and care is minimal. In an industry where top performing 3PLs gross $200 million or more, $100,000 accounts are a strain. But until recently, there was no efficient funnel to help small merchants attract the business of independently owned, small cap 3PLs like Ohio’s Ships-A-Lot.
The average DTC founder spends 20-30% of her time dealing with shipping concerns while managing scale and expectations. Lütke is democratizing third party logistics for all merchants, not just ones at the enterprise levels. By increasing optionality and making the investments into robotics and data systems to lower costs – more merchants, small retailers, and early-stage DTC brands may finally be able to utilize 3PL services earlier in their life cycles. In 2004, Shopify launched products that made founders reconsider hiring full-time engineers. With innovations like no-code platforms, online retail has come a long way since those days. Third-party logistics for smaller merchants is just the latest in the line of pain points that Shopify is well-positioned to address for the merchant class.
Some will argue that eCommerce isn’t blue collar, Shopify’s actions suggest otherwise. For employees like Jerry and the hundreds of thousands of other warehouse workers spread throughout the exurban office parks of America, they see themselves as the center of the eCommerce universe. And rightfully so. Products are picked, packed, and moved by hard-working, tireless people. Retail is the movement of physical goods that require enormous amounts of physical labor to arrive faster and faster to your doors. And so, eCommerce isn’t just a front office job anymore. Of course, many merchants will tell you that it never really was.
Report by Web Smith and edited by Tracey Wallace | About 2PM
No. 326: Lyrical Lemonade Empire
To understand the future, listen to the kids. In this case, I am recalling a short conversation between my oldest daughter Alexis and me in the spring of 2018. Dad, have you watched the Lucid Dreams video? Oh my gosh. In May of 2018, I was sitting in a conference room with a packed whiteboard of ideas and the math to justify them. In that room, I was laying out another idea to partner with an indie music festival ownership group. Independent music operations yield tremendous power to influence the cultural zeitgeist. Monetizing it is as simple as meeting supply with demand. But rarely do you find the operation with true, organic demand. For this exercise, the math held up. However, I ended up scrapping the idea of brokering a deal between the two groups.
As in most in edgy music scenes like hip hop or EDM, pairing the right product with a primed audience would require a risk tolerance and the willingness to go all-in on the partnership. And just a few weeks prior, the first attempt had fallen short of expectations. I’d spent several days assessing what could have been done differently. I came to the conclusion that it wasn’t worth the trouble.
Hip hop culture is not for the meek, the safe, or the politically timid. But for a merchandising company, it could be lightning in a bottle if executed appropriately. In the Midwest, there are few greater examples of lightning in a bottle than Ohio’s Prime Social Group (PSG), the ownership group behind The Number Fest and other top festivals. For a time, there was no festival that was more skilled at identifying talent that was primed to go mainstream. By the time the festival’s weekend came about – each year – the once-obscure talent would be a household name. The business model was brilliant. And it’s one that an even younger entrepreneur would find perfect.
Dominic Petrozzi is the founder of The Number Fest and, now, a partner at Prime Social Group. I’ve been such a fan of what his partners have built, and I recognized the linear commerce opportunity. This led me to introduce them to The Chernin Group‘s investment group. Their portfolio includes: Barstool Sports, The Athletic, and The Action Network. Though they focus on traditional “indie” media, it was clear that the same type of model could work well in the festival business. In an email between the two companies’ principals, I concluded with:
I have watched [Prime Social Group] grow into something special in the entertainment space, here in Columbus and abroad. I know that PSG is (currently) outside of The Chernin Group’s investment thesis, but I believe this to be a worthwhile conversation between the two of you.
When I mentioned the research for this brief, Petrozzi provided industry insight on a young, hungry media company that was primed for the mainstream. It was the same media group that I scribbled on a Pittsburgh whiteboard in May of 2018. Just a few days prior to that whiteboard session, my oldest daughter suggested that there was something special happening in Chicago music. An avid consumer of Youtube, she knew all about Lyrical Lemonade and its college-aged founder. She loved the music, but she really admired the company’s unique approach to visual production.
The fledgling media company was more impressive than I originally believed. Here’s PSG’s Petrozzi on Lyrical Lemonade’s growth:
Turning down $30 million for essentially an urban / hip hop-centric media company is insanely awesome to me. I think that’s the future in and around the live event space. The revenue generated by content will eventually outweigh all other revenue streams in festivals.
He finished his thoughts with a provocative comparison:
I’m all for the prosperity of the industry. Chicago is a market we’ll never see. I think what [Cole Bennett] is doing is similar to Barstool Sports’ strategy. But cool, indie, hypebeast-based fans instead of pseudo-bro, Portnoy sheep.
What Petrozzi was describing was linear commerce as applied to his industry. And, as far as independent promotions are concerned, there may be no greater example than Cole Bennett’s booming operation.
Linear Commerce and Lyrical Lemonade
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my 2018 music video reel. enjoy. pic.twitter.com/scJo5YOVwm
A recent profile in Complex Magazine tells the story of a coming-of-age videographer and media entrepreneur: a suburban kid thriving in an urban environment. The 23-year-old videographer and founder of Lyrical Lemonade shares a surname with one of the two most visible hip hop artists in his state – Chance Bennett – known to the masses as “Chance The Rapper. But that’s where the comparison ends.
In its early stages, Bennett’s YouTube channel was dedicated to Chicago show recaps, local cyphers, and documentaries about the city’s hip-hop scene. Then, in 2016 and 2017, he began working with artists like Famous Dex, Lil Pump, and Ski Mask the Slump God, and soon became the go-to video director for an entire subgenre that was exploding from SoundCloud pages into the mainstream.
For Cole Bennett and the six-year-old Lyrical Lemonade, the DePaul University dropout is writing the playbook that the more-established leaders in the space wish that they could duplicate. From a 2017 article by the Chicago Reader:
Videographer and manager Cole Bennett launched Lyrical Lemonade as a senior at Plano High School, an hour southwest of Chicago. For more than a year now, his splashy, colorful aesthetic has been attracting rappers from farther and farther afield—at this point, about half the people who pay him to make music videos are from somewhere besides Chicago.
The musical talent is Chicago-based but the center of the state’s burgeoning hip hop scene may be a town of less than 10,800. That’s the home of Bennett and his family. The indie music blog launched in 2013 from the small town of Plano, Illinois – an hour and twenty minutes southwest of Chicago. Here is a quick rundown of the media company’s digital assets, today:
- Instagram: 2.1 million followers
- Twitter: 438,000 followers
- Youtube: 10.4 million followers
- Bennett’s Personal Twitter: 530,000 followers
- The Summer Smash Festival: sold out.
- Organic MAU at LyricalLemonade.com: 178,000
Lyrical Lemonade is a linear commerce engine, a platform that could achieve an organic 7-8 figures in annual sales with organic traffic – alone. Petrozzi’s comparison to Barstool was prescient; a quick scrape of Barstool’s eCommerce data shows a 2019 headed for north of $10 million in annual sales – a small but significant enough portion of a business that is heavily-dependent on podcast revenue. It appears that Bennett and his management partners are similarly positioned to take full advantage of its tremendous flywheel of content, promotion, and sincere fandom.
In 2PM’s No. 314, we discuss our Law of Linear Commerce:
The digital economy rewards the companies that work along the line that partitions digital media and traditional eCommerce. A great product needs an organic and impassioned audience. Captive audiences will need products and services tailored to their tastes. Linear commerce is the understanding that digital media and online retail will eventually meet at the center – along the line – the most efficient path for growth.
In the last 60 days, Lyrical Lemonade has migrated from Big Cartel to Shopify, a shift that signals added sophistication to their growing operation. Former employee of independent merchandising agency Haight Brand, Elliot Montanez also maintains the pace of the Bennett’s editorial calendar. According to LinkedIn, Montanez left Haight Brand in 2018 to focus on Lyrical Lemonade’s latest plans.
This includes this week’s CPG launch, the company’s four-pack of canned lemonade. This is the first product that Lyrical Lemonade will offer, in addition to the traditional apparel-based products. The product is an obvious nod to the company’s brand. But the drink also serves as a tongue-in-cheek reference to the illicit party habits that are common within the gritty hip hop circles associated with Bennett and his team.
What separates Lyrical Lemonade from other promotions and media companies is its access. By cultivating talent at its earliest stages and promoting them in the ways that are often limited to mainstream acts, Lemonade has developed a 360-degree promotional pipeline. In this way, the company’s reach extends beyond its digital numbers. The musical acts that are now mainstream owe at least some of their success to Bennett – this translates to continued digital and commerce-related growth.
In talking to Petrozzi, a veteran in Bennett’s industry, the executive spoke highly of the entrepreneur’s prospects. He clearly understand what it takes. The Summer Smash Festival is a marquee event for Lyrical Lemonade; it’s likely the first of many real world opportunities for Bennett and team to authentically reach customers. Petrozzi recognized some of the overlap between his business and Bennett’s but was gracious in his assessment:
Cole is smashing. Summer Smash will be a staple in the festival world in the next two years.
Lyrical Lemonade has sold more than 15,500 units since their recent site re-launch. With an aggregate audience nearly 20 million strong and a retail business capable of high seven figures in 2019 and 2020, there’s a clear trajectory. Bennett – who calls himself a “standard student” – may prove brilliant to turn down the reported $30 million acquisition offer. There will surely be more of them. From TikTok’s upcoming phone to $3 million dollar purses for Fortnite tournament victories, Generation Z’s influence on the market is creating unique outcomes. To understand the future, listen to the kids.
Read the No. 326 curation here.
Research and Report by Web Smith | About 2PM