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Memo: The Roaring Twenties

Chronocentrism is the misconception that the period in which someone is living is paramount, while historical periods pale in comparison. By suggesting an historical importance of the present, it slights the past at the expense of potential lessons derived from it. But a chronocentric mindset overlooks what can be learned from the past, and where we sit now, there is much to be derived from the historical period that precedes our present by exactly one century. It can be summarized with one simple phrase.

The Roaring Twenties weren’t everyone’s. The Roaring Twenties will not be everyone’s.

Despite a booming economy, swift urbanization, and F. Scott Fitzgerald’s imagery of old money’s clash with ascendant wealth, the 1920s did not belong to everyone. The upper 10% of society provided the period’s reputation of grandeur. The next 20% prescribed to the aspiration of it all. And the following 70% watched from afar, resenting the careless consumerism and hedonism of the time. They remained in ruin as a result of global conflict, pandemic, inflation, and post traumatic stress. The two global catastrophes influenced a bifurcation of America’s wealth that resembled the Gilded Age that preceded it 60 years prior.

In Fitzgerald’s 1931 essay Echoes of the Jazz Age, he spoke of the time as “a whole race going hedonistic, deciding on pleasure”:

The whole upper tenth of a nation living with the insouciance of grand dukes and the casualness of choir girls. […] Even when you were broke, you didn’t worry about money, because it was in such profusion around you.

Though 1918 and 1919 are marked by the plague that killed 675,000 Americans and 50 million worldwide, it was a relatively stable economic period for the United States. The wartime economy was to thank for both. The influenza outbreak of 1918 coincided with the final year of The Great War, one of the first times in recorded history that soldiers were shipped en masse to other countries. First recorded at Fort Riley, Kansas in March of 1918, 24 countries marked cases by October of that year. Global conflict exacerbated the transmission of the virus and the lack of care that many received due to shortages in available medical professionals. Like an accelerant, the free flow of soldiers contributed to the epidemic. [2PM, 1]

The 1920s penchant for consumption, the economic policies that rewarded it, and the political alliances that encouraged that penchant laid the groundwork for a kindred present.

The same war supplied a meaningful boost to an idling manufacturing economy. And despite a depression that gutted that economy in 1920, the next nine years would see an unprecedented period of prosperity. When the slump ended, Americans welcomed change. Manufacturers pivoted away from wartime wares to market goods to a thriving upper-strata of an economic base that welcomed convenience and the novelty of consumerism. Social events thrived, both legally and illegally. And thanks to newer technologies like the automobile, travel reached its zenith.

तेजी से आगे बढ़ते हुए 100 वर्ष बीत चुके हैं और पुनर्निर्माण, उपभोग और सामाजिककरण की इच्छा ने पहले ही एक असंभावित अर्थव्यवस्था को मजबूत करना शुरू कर दिया है।

Once pandemics end, often there is a period in which people seek out extensive social interaction, and which [Dr Nicholas] Christakis predicts will be a second “roaring twenties” just as after the 1918 flu pandemic. [2]

Three vaccinations (AstraZeneca, Moderna, and Pfizer) have buoyed hope for normalcy. Air travel reached a daily peak on December 27 with nearly 1.3 million people traveling in a single day according to the TSA. It’s no longer war that is greasing the wheels of manufacturing machinery and large scale distribution. Today’s engine is the discretionary income of the haves and a Parasite economy powered by millions of underemployed have-nots. The 1920s penchant for consumption, the economic policies that rewarded it, and the political alliances that encouraged it laid the groundwork for a kindred present. According to Mastercard’s recent SpendingPulse report:

Holiday retail sales excluding automotive and gasoline increased 3% this expanded holiday season, running from October 11 through December 24. Notably, online sales grew 49% compared to 2019, the preliminary insights show. [3]

The direct-to-consumer industry has served as a leading indicator for how the greater economy will change. For instance, the surge in online shopping has been a boon to retailers.

American consumers turned the holiday season on its head, redefining ‘home for the holidays’ in a uniquely 2020 way. They shopped from home for the home, leading to record e-commerce growth. [3]

But this growth comes at a price, which will be paid in the cost of reverse logistics. The operations that encompass the return or reuse of products is a growing expense for retailers. The National Retail Federation anticipated that holiday sales would increase as much as 5.2% to $766.7 billion in seasonal sales. But the trade group is also anticipating up to $101 billion worth of goods sold during the holiday season to be returned in January. This represents 13% of merchandise.

According to Narvar, shoppers are due to return twice as many items when compared to this same season in 2019. This presents the first true market opportunity for the Roaring Twenties to course correct for an ailing industry. The first roar, which I’ll unpack here, is a resurgent suburban retail real estate market.

The Roaring Twenties of the 20th Century was a boom period in new construction, new infrastructure, deferred spending, and new forms of art. The Roaring Twenties of this century will see a similar boom in new construction, high speed internet and commerce adoption, deferred spending, and creator-driven dynamism.

The upper 10% of 1920, as written about by Fitzgerald, resembles the upper 30% of society in 2020: an expanded subset of America that climbed beyond the middle-class by a mixture of well-paying salaries, deferred compensation, and savvy investments. Despite a pandemic, cities like Houston, Miami, Dallas, and Austin feature the region’s top malls surrounded by luxury cars. Customers carry shopping bags bearing the marks of many of the finest brands in retail. Nearby, four- and five-star hotels bustle with first-floor dining. And just next door, the valet lines of top restaurants look like car shows. The Twenties won’t belong to everyone. But for the fortunate, the boom will resemble the past.

But for many of America’s malls, even a number of the “Class A” facilities peppered throughout America’s upper-class suburbs, there is a vulnerability that did not exist until recently. Retailers are shuttering and commercial vacancies are accumulating. And with those vacancies a current problem is met with a new solution. Simon Property Group has long courted Amazon as a potential suitor for a growing number of shuttered retail stores and movie theaters.

Amazon’s growth and healthy balance sheet would make it a reliable tenant at a time when most retail business has been waylaid by the pandemic. Simon, which owns 204 properties in the US, has had to contend with a ramp-up in retail tenant closures in recent years that has accelerated during Covid-19. [4]

As of April of 2020, there was close to 10 billion square feet of industrial space dedicated to warehousing logistics, according to data from research firm Statista. Historically, close to 30% of eCommerce orders are returned, a number that rises during the holiday rush. In comparison, only 8-10% of in-store purchases are returned.

As malls become desperate for new business, reverse logistics providers are due to fill the demand. According to CBRE, 400 million square feet will be needed over the next five years to account for the surging demand of online returns. This all leads to resurgent interest in suburban retail real estate.

Earlier this month, Amazon announced customers can return items at 500 Whole Foods Market stores without a box or shipping label. Amazon already had a returns partnership with Kohl’s. Amazon shoppers also can return items at UPS locations, in some cases without packing them up. Returns service Happy Returns partnered with FedEx this fall to let shoppers return items from brands like Everlane, Rothy’s and Steve Madden at 2,000 FedEx locations with no box or shipping label. Happy Returns previously had about 600 locations, which were mostly at malls and retailers like Paper Source and Cost Plus World Market. [5]

The apprehension that once faced mall developers like Simon, Macerich, and Brookfield would be eased by the presence of reverse logistics companies like Happy Returns, Loop, and existing marketplaces like Amazon who currently process returns through industrial warehouse leases. Not only would a reverse logistics presence provide new foot traffic in resurgent developments and urban centers, it may begin to account for the shortfall in physical space required to accept the volume of returns that will break yearly records from here on out.

January’s “Returnageddon” will reveal that returning products through a Whole Foods or FedEx kiosks may overrun those locations in ways that are difficult to project. Eventually, market leaders like Amazon and Ebay will look to malls for the newest two-way outposts. This isn’t exclusively an enterprise problem. Even the reverse logistics software solutions like Happy Returns and Loop will require dedicated space – by the millions of square feet – to account for a volume that few in the industry were prepared for.

There is precedent for a post pandemic boom for the higher strata of income and wealth. When you visit a mall five years from now, they won’t be for everyone. The developments that last will combine luxury retail with dedicated experiences for reverse logistics tailored to invite high-value eCommerce customers. For a technology that once penalized the mall retail industry, eCommerce benefiting these spaces would be a welcomed change. If history is any indication, the following years will see a period of advancement. For a nation of impassioned consumers, we may finally see two factions of industry finally begin to benefit the other after years of opposition. It wouldn’t be the first time that a consumer economy roared after a pandemic. The French called it “Années Folles” or “The Crazy Years.”

वेब स्मिथ की रिपोर्ट | संपादक: हिलेरी मिल्नेस | कलाकार: एलेक्स रेमी | लगभग 2 बजे

Memo: Enter MrBeast

Every industry is overdue for a digital-first reset. Even casual restaurants are beginning to adjust to a brave new world, accelerated like many other categories by the pandemic.

By and large, foot traffic slowed at shopping malls. Retailers and department stores earned the majority of the media’s attention, but in the process, tens of millions of square feet in commercial kitchens and dining rooms were going to waste. The wage workers who ran them suffered from job losses. Restaurants were sinking into bankruptcy by the dozen. Over the last year, new concepts began to take shape based on proven experiments. To better understand those experiments, I spoke with one of the foremost experts.

When Kat Cole calls to discuss the inner workings of food service, you answer the phone. There aren’t many executives with more knowledge or experience than her. Cole is stepping down after 10 years of success and innovation as President and COO at Focus Brands, the parent company to a number of mall dining fixtures that you’ve likely walked past thousands of times on shopping trips. Leading a company with billions in annual sales, Cole understands the power of placement and foot traffic. While customers aren’t walking past quite as often as they did before the pandemic, she was still incredibly optimistic about the prospects of her industry. Concepts like Nextbite and Virtual Dining Concepts (VDC) have revolutionized the casual dining industry. But the business isn’t new.

As early as 2016, UberEats tested virtual kitchens as a strategy to drive revenue for restaurants with excess production capacity. Today, there are over 5,000 virtual brands on UberEats across the country. Early on, in a partnership with a well-known casual wing chain, Uber tested a virtual brand concept within the Eats app to improve sales by rebranding their wings to reach a wider audience. It worked. When eCommerce met human resources and excess production capacity, a new vertical in dining was born. Today, this industry, also populated by GrubHub, DoorDash, and Postmates (which Uber recently acquired) is in the midst of another evolution.

A recent article on Today.com began with:

Ghost kitchen, dark kitchen, virtual kitchen, cloud kitchen, whatever you call them, they’re popping up everywhere, with estimates placing the number at 1,500 in the United States. [1]

Virtual kitchens and ghost, dark, or cloud kitchens are not all interchangeable. A “ghost” establishment, in this context, is essentially a commissary kitchen or a facility where restaurants produce food for distribution to their satellite locations. Former Uber CEO Travis Kalanick acquires real estate and converts them into food production facilities through his company CloudKitchens. Platforms like DoorDash, UberEats, and Postmates then markets the many brands that are built atop of the physical infrastructure. CloudKitchens recently raised $400 million from Goldman Sachs and the Saudi Arabia wealth fund to finance these real estate acquisitions.

Companies like Robert Earl’s Virtual Dining Concepts partners with existing restaurants to monetize excess capacity. And like many restaurants that rely on foot traffic at mall complexes, there is quite a bit of it. Earl isn’t just the owner of VDC. He has stakes in casual dining chains like Buca Di Beppo, Mixology, and Planet Hollywood. In June of 2020, Earl’s latest acquisition turned heads. The ownership group of Bravo and Brio filed for bankruptcy just three months earlier due to a COVID-related hit to its already flailing business. Earl seemed to have another vision for them.

Earl Enterprises, the parent company of Buca di Beppo, Earl of Sandwich and Planet Hollywood, has confirmed the purchase of Bravo Cucina Italian and Brio Tuscan Grille restaurants in a deal that will bring back 4,000 employees left in “limbo” since FoodFirst filed for bankruptcy, Robert Earl, chairman of Earl Enterprises, said Thursday. [2]

Earl acquired capacity in much the same way that Kalanick’s CloudKitchens acquired real estate to build functional facilities. But in Earl’s hybrid format, he can accomplish both dining formats. Virtual Dining Concepts is driving high-margin business to this suite of causal restaurants. If they survive the pandemic, they will be able to service traditional and online customers at once. This isn’t unlike any other restaurant that delivers. What organizations like Nextbite and VDC are building adds a significant layer atop of the Olo-driven last-mile delivery network.

Companies like Olo provide the interface between restaurants, their ordering systems and the on-demand ecosystem. With excess capacity at casual dining and a need for new demand, celebrity-driven virtual dining has emerged as a new prospect for a suffering industry. It just might work.

Within the next year, Virtual Dining Concepts, a subsidiary of Earl Enterprises has a goal of reaching 20 celebrity and 20 consumer brands in its delivery portfolio. The pandemic, combined with targeted social media advertising and the omnipresence of delivery platforms have brewed the perfect storm to fill a massive supply of kitchen capacity with these new concepts. [3]

The economics favor restaurant ownership groups that can typically earn nearly 60% of the gross margin of each sale. The celebrity that generates interest for the sale can earn as much as 25% for a sale that that they had little to do with. It’s a brilliant system. And thanks to a recent partnership with a YouTube creator, it’s about to become a popular option for ailing foodservice retailers.

Linear Commerce: Enter MrBeast

I downloaded the app (currently No. 1 in the app store), manually inputted my address and billing information and then waited for the branded sandwich. Constructed within the kitchen of one of Robert Earl’s Bravo restaurants, the “I launched 300 burger restaurants nationwide” promise was met with operational efficiency. When I ordered the Beast Style burger, I was surprised that it arrived with 15 minutes of purchase. I photographed it and laughed at the fact that Jimmy “MrBeast” Donaldson was going to successfully store hundreds of thousands of new credit card numbers thanks to this promotion, including my own. And then I walked upstairs to hand it off to my teenage daughter.

Oh my god, Dad. How did you get this? I love MrBeast. Oh my god.

At 13 years old, she’s adept at understanding the world of creators and their collective impact on culture, commerce, and trends. But even I was surprised that she was excited for a burger that she wouldn’t have otherwise eaten without the branding.

Jimmy Donaldson has quite the story. In a 2019 interview with Casey Neistat, the two creators discuss his improbable rise from obscurity to nearly 50 million Youtube subscribers. The 22-year-old owns an audience larger than most multinational media companies.

Donaldson represents a new class of creator with the power to move entire retail markets. In a recent conversation with DTC titan Nik Sharma, he mentioned an eye opening figure.

Was just looking at 2PM DTC Power List and as I was looking through, I wondered if you’d ever put creator brands that crush it. I think definitely Danny Duncan’s brand. I mean he’ll do nine figures in revenue with $0 ad spend.

For the vast majority of direct-to-consumer retail, achieving a $100 million revenue mark is highly improbable. Doing so without advertising is impossible. For the top 1% of creators, commerce is just a natural progression. They will earn far more in retail sales than through advertising.

कोई शीर्षक नहीं

Here’s how much the biggest YouTube stars earned this year:1. Ryan Kaji: $29.5M2. MrBeast: $24M3. Dude Perfect: $23M4. Rhett and Link: $20M5. Markiplier: $19.5M6. Preston Arsement: $19M7. Nastya: $18.5M8. Blippi: $17M9. David Dobrik: $15.5M10. Jeffree Star: $15M

Ryan Kaji, the 9-year-old toy reviewer, has an omnichannel toy empire worth over $500 million by some estimation. What began as a trend of marketing merchandise has evolved as other industries have adopted eCommerce strategies. The digital layer provided by VDC, Olo, Nextbite, and others has provided new opportunity for this class of creators.

Before year’s end, you’ll see Marques Brownies and Dobrik’s Dumplings. And while the creators will certainly line their pockets, Robert Earl’s foresight into this marketing strategy is due to revolutionize an industry crippled by the lack of foot traffic that leaders like Kat Cole once relied upon to fuel growth in the industry.

MrBeast wasn’t the first creator to put his mark on a fast casual product. But this partnership will be the most transformative for an industry in need.

When this partnership was announced, it was common to see skepticism from commerce industry veterans and advertising executives. One chimed in: “I can’t figure out what’s even really that interesting about it, but I’m new to Mr. Beast.” Another added: “I still don’t see the connection to helping restaurants and charity?” But what’s truer than ever is that commerce follows audience. And the physics of building brands the traditional way is erased by the new mechanisms of linear commerce at scale. For a creator who spends a great deal of his time performing acts of charity, there seems to be more scale on the way, and not just for a struggling restaurant industry, but for the 50 million subscribers who’ve cheered him as he’s turned sponsorships and personal earnings into viral giveaways.

Wherever 50 million fans go, industries will be disrupted. Sometimes for the better.

वेब स्मिथ द्वारा | संपादक: हिलेरी मिल्नेस | कलाकार: एलेक्स रेमी | लगभग 2 बजे

Memo: The DoorDash OS

DoorDash has an opportunity to power an evolved, local commerce economy where urbanization has taken a back seat to remote work, the homestead is more relevant than ever before, and the “arming of the rebels” has yet to capture the imagination of Main Street businesses. This is bigger than late night takeout: Food delivery is to DoorDash what book sales were to Amazon.

A singular failure has shaped my understanding of commerce and how digital would influence physical retail. In 2014, eCommerce accounted for just 7.7% of US retail sales, the investment into urbanization had a positive trajectory, and apps like Postmates and DoorDash had begun to eat market share of incumbents like Grubhub. With that backdrop, a close friend and I pieced together a mobile application with a simple marketplace function. It featured an open chat room to guide users through recommendations, sales, and checkout.

The experiment had one goal: To understand if eCommerce could improve the viability of local, analog retail businesses. To do so, we targeted hard goods (not food products). We built atop Uber’s then-available pricing API and enabled independent retailers to market their products within our app and ship products as far as 20 miles outside of the city. Uber’s drivers delivered the goods to their homes.

To accomplish this, we indexed the goods of independent retailers and tracked inventory with a relatively light integration that relied on imported Quickbooks data. And then each product’s corresponding image was pulled into the app through .JSON web calls. Given that the vast majority of featured stores were within a mile of us, contractors were tasked with acquiring the goods and bringing them to a central location to stage for delivery by Uber. The last shipment left by the close of business and inventory was painstakingly updated upon the completion of each business day. In just under a year, the app sold $627,000 in top line sales at an average margin of around 17%.

That’s where the positives ended. The price of doing business with Uber was costly and the fleet of drivers was subpar, causing a number of customer service issues. The demand for hard goods was outpaced by the demand for perishable goods (food). And the area’s physical retail scene was a draw, so most consumers opted to walk, drive, or bike over instead. The app eventually amounted to an expensive experiment in between jobs.

The Difference: Now and Then

The experiment wasn’t a complete failure, however. By the time that we shut the application down, we’d developed a better understanding of the intersections between real estate, retail, technology, and the limitations of small businesses. I also learned an important lesson about eCommerce adoption: 2014 was far too early. Today, the former 7.7% share of retail (in 2014) sales has tripled. Nearly one of every four dollars is spent online in 2020.

Given that our focus was on non-coastal markets and second-tier cities, the marketplace helped us understand the needs of retailers outside of the country’s main retail hubs: Los Angeles, New York, San Francisco, and so on. The app experience was nowhere near perfect, but the experiment was valuable. I went on to build DTC brands, founding 2PM Inc just a year later. That friend of mine became the founder of Loop Returns.

Fast forward and many of the retailers who once considered eCommerce a distraction have now invested heavily into building online retail as a primary channel. Consider Josh Quinn of Ohio’s Tiger Tree, a multi-million dollar independent retailer and former partner of our app experiment. Quinn recently shuttered Tiger Tree’s doors to pursue an eCommerce-first strategy. He said:

It’s an interesting example of just how fast retail has accelerated in six years. To say I don’t think my customers would have seen the utility in an on-demand delivery solution seems laughable now. But we could have been better positioned. We did so well as brick-and-mortar stores that it kept us from investing the way we should have. It hurts to think of where we’d be if we would have put the time into eCommerce back then.

Quinn is representative of a large swath of retailers who relied upon a brick-and-mortar business before the pandemic. But he won’t make the mistake again. He added: “We are in the middle of local online retail being a thing. Almost half of our eCommerce orders go to the Columbus, Ohio area.”

This is the new economy that DoorDash is primed to capture. The permanence of remote work culture and the restrictions placed on urban dining and nightlife has spawned three separate trends. There is a shift from major cities to smaller ones, urban flight to suburban “cities”, and housing to the all-encompassing homestead.

Sanitized urbanization removes the perceived risks of living in urban areas while adding the value of – what’s often – upgraded infrastructure, improved schools, and lower tax bases. [2PM, 1]

As remote work and distance learning continues to become more commonplace, entertainment, commerce, and utility will shift from physical to digital as well. There has been an extraordinary shift from thinking along the lines of office perks to thinking about optimizing the home. Consider Wayfair’s sudden shift of fortune. In 2017, the furniture reseller traded at a $5 billion market cap. Today it trades at nearly $26 billion, a growth emblematic of a boom in redesigning the home for modern needs: remote work, leisure, and comfort.

If this is any indication of how small business owners will react to these macroeconomic changes, we can expect second and third-order effects in the housing market to continue to materialize.

Inside The Home

Like Postmates, which has long tested hard goods marketplace capabilities, DoorDash’s opportunity lies with supporting the businesses of independent retailers by providing new opportunity for them. Not just by delivering the goods but by fostering a marketplace that expands their reach to wider, local audiences. By streamlining retailers as sources of goods and developing new initiatives to reach customers, their marketplace partners will be more inclined to view DoorDash as an effective customer acquisition engine.

A possible future as DoorDash embraces the shift to the homestead (and innovative demand-gen partnerships).

Success or failure will depend on growth beyond food delivery as the core model. This means that the development of efficient customer acquisition, fair and incentivized pay for its last-mile workforce, and paths to hyper growth in gross merchandising volume are key to the company’s long term viability. Consider this excerpt from a recent analysis on DoorDash:

That inability to change the business model is also likely to keep DoorDash from making any meaningful profit. Grubhub, the only US food delivery service on the stock market, recently complained that food delivery is not enough to build a sustainable and profitable business. [2]

By instituting a local marketplace model, DoorDash would encourage retailers like Quinn who find value in reaching more customers in their cities without relying upon the postal service for delivery. Quinn cited his frustration with existing local shipping models:

Independent retailers like us are facing something of a crisis with USPS shipments being delayed. Not that I am blaming them – I understand the strains on their system.

Amazon Prime has popularized next day and same day delivery. Services like HBO Max have begun to shift resources away from physical theaters and towards home-streaming models. And founded a year before our local commerce experiment, DoorDash is now trading at $55.6 billion. Like Jeff Bezos former marketplace of books, Tony Xu’s marketplace of local retailers is in its infancy. While intended for restaurants, the technology could easily be applied to retailers. And while DoorDash touts partnerships with large and sophisticated companies (Macy’s, etc), the delivery app’s real opportunity lies with locally-owned retailers who’d rely on DoorDash for the technical expertise and the audience to grow their businesses – a model that not even Shopify could compete with right now.

In its short existence, DoorDash has evolved well beyond just delivery logistics, adding services like Storefront, which enables merchants to set up digital ordering directly from their native channels. [3]

We look at apps like DoorDash and see food delivery. Rather, view them as the last-mile enabler for businesses who are leaning into localized eCommerce. Food delivery, alone, will not justify the $50+ billion market cap but a city-by-city network of local retailers may. This is the eCommerce era now. Like every other retailer, DoorDash must learn to create new demand and service it with creative solutions. I suspect that the company’s reach will soon extend beyond your kitchen or your mobile phones. In the near future, the app may function more like a retail operating system.