Memo: DTC’s COVID Advantage

There’s a movie scene that you may remember. The family that hailed from the North Shore of Chicago ran through the airport with ease, leaving their rambunctious son behind. With just 45 minutes to travel from Winnetka, Illinois, to their plane’s departing gate, they succeeded in driving 30 minutes and navigating one of America’s busiest airports in under fifteen (and with all of their luggage checked). For those who would grow up to watch the film after 2001, there was an element that was missing at Chicago’s O’Hare airport: the inconvenience of modern airport security. Until 2001, airports were more like malls. Traffic could flow in and out freely. Small shops and restaurants had visitors who were not ticketed for flights. Security was scant, and the performative aspect of security barely existed.

Until September 11, 2001, a 20-year-old independent firm called Argenbright Security was America’s largest security screening firm. With nearly 25,000 employees and 44 domestic airports, Argenbright was about half of the size of today’s Transportation Security Administration.

As the head of the company whose screeners worked at two of the three airports targeted on Sept. 11 — Newark and Washington’s Dulles — Argenbright quickly became a scapegoat in the aftermath of the terror attacks. On Oct. 12, 2001, then-Attorney General John Ashcroft publicly announced that parent company “Argenbright Holdings continues to violate laws that protect the safety of Americans who travel by commercial airlines.” [1]

The business soon disappeared after the conception of the Transportation Security Administration. An article in the Las Vegas Sun, just one year later, noted:

Argenbright is nearly gone from U.S. airports, all but forced out of the business by a string of security breaches. [2]

When the federal government chose to assume the security of America’s airports, the execution of the strategy seemed to happen overnight. By the end of 2002, in just one year, TSA was a force of 60,000 employees. Between September 11 and November 19 of 2001, the way that America interacted with airports changed forever. Gone were the days of walking a family member to his or her gate. TSA’s approach to human-powered detection meant that entry lines were slower and earlier arrivals were necessary. The small changes added up: identification requirements, shoe removal, screened baggage, a ban on liquids, removing electronics from all bags, removing belts and sweaters, the enhanced pat-downs, and the end of welcome committees.

If air travel tracked an industry-wide net promoter score (NPS), the first pain point raised would be the sense of intrusion that you endure whenever you travel commercially. The TSA does commandeer a number of weapons (knives, etc) each year along with $649 drivers that they categorize as weapons. You can retrieve neither upon completing the screening process. Yes: if you brought a single golf club with you, it’s now an agent’s property. Meanwhile, over my previous 70 trips, TSA has ignored the small knife on my keychain while removing a mid-sized bottle of skin moisturizer – nearly every time. While TSA’s role is important, their process is mostly performative. And brick and mortar retailers are beginning to adopt many of these attributes.

I’m not TSA. I’m a bartender. [3]

Today’s retail industry is beginning to resemble the year that followed 9/11. In many states, shutdown orders have lifted and retailers and restaurants have begun to reopen. As the economy continues to reopen, wage workers are doubling as security personnel. Many are having to enforce the use of face coverings and social distancing protocols. And some retailers have taken it one step further. In 2PM’s spring 2020 memo, The Dust Settles, I wrote about changes in travel customs in the context of retail and performative safety. 

The next time that I’d fly out of Providence, Rhode Island, it would be to see my family for Thanksgiving 2001. By then, everything was different. As a global culture, we moved 20 years in just two months. The new customs were tolerable because we thought that they would be temporary. They weren’t. The new customs set like concrete.

In Pittsburgh’s Shadyside neighborhood, the Patagonia store that once featured a capacity for 75 guests now caps their in-store traffic at ten customers at a time. After a 10-15 minute wait, the store associate checks the customer’s mask and then asks to wash and then sanitize hands. To enter the store, the associate explains their safety protocol over 90 seconds to each person entering the store. You are to self-report any item of clothing that you touch so that it can be removed, steamed, and returned to its original safe state. There are no longer try-ons in the store.

In Nashville’s 12th Avenue area: Madewell, Outdoor Voices, Draper James, Imogene + Willie, and other brands have employed similar strategies. With the exception of big box retailers, you will find that these safety strategies are more common than not. It has degraded the brick and mortar shopping experience. And it is pushing consumers to other channels.

Air travel was a five star experience when it began. The economy class did not exist prior to the 1950’s and neither did budget airlines. Amenities like food, alcohol, and entertainment were plentiful – relative to its era. The interiors of cabins were well appointed and the space and home comforts were notable. In many ways, this sounds like fine retail prior to COVID.

The evolution of post-COVID retail involves many of the strategies that the TSA employs to assure air travelers of their safety. Though some of it has yielded positive results, the vast majority of it is performative. For every bottle of lotion thwarted, a sharp object or a lighter passes through. But travel does seem safe and that is the goal. The question becomes, can brick and mortar retail suffer the same degradation of and still maintain its place in American consumerism? While 48% of American consumers travel through the air, nearly every adult consumer visits a store.

The airline industry is well aware that customers are fed up with the performative arts of airport security. Retail customers will grow tired of the performance much sooner. For affluent travelers, there are more options than ever to include TSA PreCheck and Clear. Any digital tool that clears the commitment to added time and steeper inconvenience has grown in appeal. Notice this parallel:

Clear was born of disaster. Founded in the wake of the 9/11 attacks, Clear — originally known as Verified Identity Pass — rode a wave of new funding from Congress allocated to secure American airports from terrorist plots. That history isn’t lost on the company. In its recent presentation on Health Pass, Clear compared coronavirus’s impact to the terrorist attacks of 9/11. [4]

There are analogs for the parallel that I am going to make. Like digital verification has become the patchwork for a broken screening strategy throughout America’s airports, digital commerce will become the antidote for the burdens placed on brick and mortar retailers to perform safety. The direct-to-consumer industry is positioned to benefit from these new safety measures. Customers prefer the joys of the physical retail experience. It’s how we’re wired to consume.

While online retail is but a fraction of the aggregate retail economy, this shift (one with no end in sight) will be a catalyst for its growth. When the dust settles, brands will see more of their business shifting to online channels. Retail is supposed to be mindless, enjoyable, and efficient. Those measures are no longer attributed to the physical spaces. With better online store performance and conversion tools like SHOP Pay, Google Pay, and Apple Pay: those attributes are assigned to physical retail’s digital equivalents.

In the previous decades, air travel democratized. It proved that what was inaccessible could eventually become common. COVID is accelerating the adoption of what was inaccessible to many consumers: eCommerce. Digital is becoming the new physical.

Report by Web Smith | Art: Alex Remy | Editor: Grace Clarke | About 2PM 

Member Practical: Perell’s Step Function

Welcome to Practical No. 1, the first in a 2PM Member series of features on individual people and what they can teach industrialists about building in the new digital economy. Sometimes, the hardest part of the journey is navigating from Zero to One. Here, we will cover how they accomplished it. Practical will become a part of The Study, the leading resource for operator insights.

This member brief is designed exclusively for Executive Members, to make membership easy, you can click below and gain access to hundreds of reports, our DTC Power List, and other tools to help you make high level decisions.

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Memo: A Five Year Reflection

The writing of this memo shared a day with a podcast conversation with Bradley Tusk, the former campaign manager for Michael Bloomberg’s third mayoral campaign and political acolyte. Tusk is the co-founder and Managing Partner of Tusk Venture Partners, a New York venture capital firm that notes:

TVP invests in early-stage technology startups operating in heavily regulated markets, or creating new business models where no regulatory framework exists.

As I write this, one of the most substantive articles written about 2PM and its mission is just days old. Written by Sherrell Dorsey, Annaliese Griffin, and Rachel Jepsen: the essay encapsulates where 2PM is today.

One of the most compelling aspects of 2PM is the deft way Smith mingles deep data sets with historical narrative context, using thrice-weekly essays to explain not just what Americans are consuming, but how and why. He’s as much a sociologist as a trend forecaster. Smith has a way of moving seamlessly from retail and entrepreneurship, to access to capital and real estate, to the social forces, particularly race, that shape the market. A conversation with him might leap from retail square footage in the U.S. to Brown v. Board of Education to the current pandemic. Makes you understand why he chose the name “2PM” — “to polymaths.” [1]

The business of 2PM has long evolved since the first newsletter was mailed to a testing group of 12 (yes, twelve) friends in October of 2015. But this isn’t about the business of newsletters, this is about the content – itself. As the time and research devoted to publishing these letters increased over time (thanks to the growth in subscription revenue), so did the depth of discoveries made. This led to a slight revision of the company’s stance on matters of socio-economic and socio-political significance. I’ll explain.

The idea for 2PM came about while seated in the conference room of Gear Patrol, my former employer. There, I served as its head of eCommerce operations. Many of these commerce strategies were in place elsewhere: Hodinkee, Uncrate, and Barstool Sports already maintained robust commerce operations. At the time, I was taking a break for the world of direct-to-consumer brand development. By building online retail capabilities into the strategy at the now-Hearst owned publication, I was able to understand how media and commerce established a new playing field. But it was another revelation that set me off on this path.

2PM was designed to drill down on matters of digital industries.

The autumn of 2015 was a tumultuous one for American media. The upcoming Presidential election of 2016 meant that the vast majority of publishers found new angles to publish issues related to the game-changing election. As you know, it was an election that pitted the first-ever female nominee of a major party and a reality television star turned political firebrand. And every last publisher wanted in on the traffic. It was a field day for a lot of the venture-backed media companies who – like the New York Times – positioned the coverage to ride the wave of the most captivating elections in recent history.

Overheard in that very conference room, that day: “Is there an angle for us to cover this election?” No matter the area of interest, media sought to devote resources to topics in and around the arena of politics. The result was that industry-driven insights, stories, and reports grew harder and harder to find. Gear Patrol chose not to, but the idea was set. I found myself lagging in my work, unable to see the industry as a whole. I was tied to the minutiae and unable to guide the company’s next steps. The idea for my newsletter was born; I believed that by studying a cross section of industries, belief systems, and sciences – you would become better prepared to lead your own operation. 2PM was designed to drill down on matters of digital industries. To facilitate this format of curation, I avoided discussing matters that could be perceived as political. I wanted none of it.

On the eve of the beginning of the newsletter’s fifth year, a reader will be hard pressed to find references to party politics throughout 2PM’s archives. I am slow to explain developments by pointing to the happenings of news cycles, a skill that is aptly performed by Ben Thompson. But the essays have certainly evolved. There’s good reason that a former political operative like Bradley Tusk has taken an interest in writings like Sanitized Urbanization. Or why the landmark case on school desegregation Brown vs.The Board of Education is referenced by The Plug‘s Sherrell Dorsey in the context of the essay on the acceleration of malls: in The Ballad of Victor Gruen, I explained America’s journey to over-retail by pointing to the commercial tax incentives that succeeded this landmark decision. The United States saw one mall turn into 25 in just two years. In the decade that followed, 25 malls became 1,000. America’s resegregation was the culprit. Is that political? It shouldn’t be – it’s merely the correct analysis. A more recent example explores recent educational shifts and the potential of long-term impairment of our consumer economy.

The key to middle-class growth has been the pursuit of the aspirational American Dream. A family makes a good living, their children go to good schools, those students are afforded better experiences that provide a ladder to an even better life. Between 1945 and the close of the 1970s, this approach provided a virtuous cycle that served as the basis for the golden age in middle-class economics.[1]

While far from political in the contemporary sense, 2PM has not shied away from the impact of socio-politics on our industries, our realities, and the innovations that accelerates those trends or upends them altogether. What I have come to learn is that there is an incredible advantage to viewing today’s industries outside of the narrow scope that typically constrains their narratives. 2PM will always include the practical sciences of commerce. But the higher you are in leadership, the less that practical knowledge determines outcomes. There are always other forces to consider.

And with this revelation, yes, 2PM has evolved greatly from the first public issue [2] in March of 2016. By setting the expectation that I’d omit all mention of American politics, the readership suffered by way of incomplete data and shallower insights. The great literary giant Thomas Mann once quipped, “Everything is politics.” This is an over-simplification. Any decision that involves human nature can be perceived as politics. But relaying the role of policy, human nature, and the sociological impact of our history of decisions are far from political. Rather, those elements complete the context. They paint the entire picture.

I believe that this style better prepares the industrialist by shedding light on the past, contextualizing the present, and providing forecast to the future. The readers of 2PM, today, are much better prepared for it. Here’s to another five years and the discoveries that will come.

By Web Smith | Editor: Grace Clarke | About 2PM