Memo: GoPuff and Basically

When a retailer launches a private label, it means they’ve achieved a critical mass. According to Placer.ai data, Gopuff’s launch of “Basically,” is right on time.

A lot can be said about the state of the retail industry, and the modern consumer, by looking at the companies that are expanding their store footprint most aggressively. Recent data from Placer.ai reported the top ten retailers to watch in 2022 based on their expansion plans. The list, which features fast food chains, Dollar Store spinoffs, and a store-in-a-store partnership, confirms that today’s customers are drawn to physical stores when there’s a reason to visit them, and the companies that best deliver are those that are most aware of current consumer trends: DTC, bifurcation, instantaneous delivery, and convenience.

Most notable on the list is Gopuff, which has turned some of its micro-fulfillment sites into customer outlets after building up a business based on ultra-fast delivery. Gopuff is expected to IPO this year, after Reuters reported it has hired banks to help it go public, with a valuation of close to $15 billion. The physical locations could make Gopuff even faster by bringing customers to the delivery point, cutting down on time workers take to get items to customers at home. The stores are not typical convenience stores, but ordering hubs, where customers use digital kiosks to place orders that are then fulfilled from the warehouse. To facilitate this omnichannel strategy, GoPuff acquired companies in a land grab, with 161 BevMo stores and 23 Liquor Barns now acquired.

The Gopuff model does what retailers like Target are trying to retrofit their stores to accomplish: functions seamlessly as order fulfillment centers by serving both in-person and online customers simultaneously and sustainably. One look at instantaneous delivery data shows that Gopuff is not optimizing for sub-15 minute delivery:

By building its retail business off the back of its delivery business, Gopuff is poised to meet customers exactly where they want to shop: either online, at home, with instantaneous delivery, or in person when they’re out already and it’s easier, or they want to avoid additional fees.

Getting customers to build a Gopuff habit both via delivery and physical retail will place the nine year old company in a league of its own. With the launch of Basically, – Gopuff’s private label – and the in-store model that only DoorDash’s Dashmart comes close to in function, and Gopuff could present a case for why it may lead the convenience delivery market in the years to come. According to YipitData, as of now, DoorDash leads with 45% to Gopuff’s 23%. Instacart and Uber have earned 16% and 15% of the market.

This could – and should be – a wake up call to grocery and convenience store chains that have slowly turned to delivery. From Grocery Dive:

Gopuff is hardly the first online retailer to move into physical stores, joining a long list that includes large companies like Amazon and niche players like Warby Parker. This underscores the importance of bricks as well as clicks to companies’ retail strategies, even as the pandemic has boosted online shopping. But a strictly digital ordering model for in-store shoppers is unique among grocery and convenience stores, and could prove to be a useful test of shoppers’ expectations for convenience and store experience.

Gopuff’s physical retail strategy isn’t the only one to watch.

DTC brands are the new mall brand. Placer.ai also lists Warby Parker and Allbirds, both of which IPO’ed last year. More stores are integral to both DTC brands’ plans as they’re massive money makers, with customers who shop both in store and online spending more than customers who only shop online. In last week’s member brief on Glossier, Skims, and Savage x Fenty, I explained:

Malls need them, and they’ve effectively built passionate customer followings supported both by savvy marketing and products that people want to buy.

That also applies to Allbirds and Warby who are representative of the future of mall retail: they have enough of a following online that customers seek them out, and they are both pushing to build enough of a national retail footprint to allow existing consumers to buy more impulsively (a benefit of owned retail). They are also benefiting from cheaper customer acquisition costs as new consumers are introduced to them through more efficient channels.

Beauty is a sales driver, but only for certain retailers. Ulta and Sephora have amassed an in-store beauty monopoly to the detriment of department stores. Retailers that have won their business have gained from their statuses as retail destinations for beauty fans. Placer.ai found that Kohl’s stores with Sephora locations inside drew more foot traffic than those without Sephoras. And Target is already expanding its partnership with Ulta after a successful start. What’s more interesting is what’s happening online in this space, much to the dismay of Glossier:

Notice the shift from brand eCommerce to marketplace eCommerce as a preference in beauty. As companies like Sephora, Ulta, and Walmart have grown their eCommerce presences, Glossier has avoided partnerships with them (both in-store and digital). Walmart recruited nearly 100 beauty brands over the trailing 12 months, Ulta has partnered with Target, and Sephora is within Kohl’s.

Retailers are following customer bifurcation. Two brands on Placer.ai’s list, Arhaus and pOpshelf, reflect the continued trend of consumer bifurcation. Furniture brand Arhaus is targeting high-income households, particularly those in suburban areas, as an alternative to RH, with 70 stores and showrooms so far. pOpshelf, meanwhile, is the Dollar General spinoff designed to appeal to wealthier, younger, suburban shoppers who turn the nose to the Dollar General but appreciate the treasure-hunt shopping experience known at stores like TJ Maxx.

The bottom line? Rightsizing is still underway as overly stretched retailers with weaker online presences and less relevant brand names shrink their footprint. Waiting in the wings is a new class of retailers that more closely mirror today’s consumer, with digital innovation in stores and omnichannel cachet becoming top competitive advantages.

The internet has reshaped class and how the affluent shop. What the Placer.ai data shows is just how great the influence of eCommerce on retail real estate seems to be.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams 

Memo: Retail’s 2021

Year two of the pandemic, 2021 saw what can be best be described as sustained disruption throughout the world of retail. Wave after wave of pandemic variant and ensuing outbreak continued a chaos that we was supposed to be over in 2020. And yet, retail found ways to make its products easier to buy, more experiential to discover, and more available than projected (whether physically or digitally). We’re looking back at the main themes from this past year that will influence the year ahead.

The prolonged effects of Covid-19:

The pandemic is far from behind us. While we didn’t see mass lockdowns like 2020, the retail industry continued to form around new ways of shopping, new customer needs, and developing behaviors. The pandemic is woven throughout the rest of the year’s themes, with the Delta and Omicron variants making it clear that new disruption is never off the table. From a December memo on “Resilient Retail”:

The pandemic has caused a substantial shift in how consumers behave. It has begun to impact brand preferences, the decrease in impulse buying, a reduction in non-essential purchases, and a 35% increase on the reliance of online shopping.

Winners and losers have been born along the way. Major retailers proved most resilient, with the ability to skirt around supply chain back-ups (which we’ll get to in a moment) and get inventory on shelves ahead of the holidays. One example is Target, who found a way to keep digital shelves stocked in case their physical ones came up short.

The supply chain delays

Supply chain backups dominated retail headlines this year. As a result, major retailers responded with 2021’s holiday season starting earlier than before, with customers hoping to get ahead of out-of-stock notices. Agile, digitally native retailers were able to compete as well. But no one was immune. With COVID expected to continue disrupting the supply chain, impacting staffing and inventory availability, retailers will continue to develop omnichannel and staffing strategies that provide enough flexibility and control to outlast another year or two of these consumer behaviors. In October, we broke down the year in cascading effects caused by supply chain disruptions.

There are currently 90+ ships drifting off of the coast of Los Angeles and Long Beach, California. Nationally, truck drivers are employed at historic lows. Internationally, retailers are concerned by the news that China has begun limiting power at its many factories and shipping facilities, further hindering import timelines. And some of the most fortunate brands are buying the ships necessary to move products from A to B with some semblance of reliability.

But Lowe’s and many of the retailers in its class are no longer optimistic that any of the current issues will find resolution in the coming weeks. That may mean that we will see an uptick in top CPG brands as some of the top gifts of the season.

Even so, the holiday season saw retailers in a better position than many analysts believed. Some of them found new ways to consolidate supply chain management, other brands and retailers opted to buy their way out of supply chain disruption. Here is American Eagle Outfitters for example, the company also acquired Quiet Logistics:

The AEO pattern of acquisitions breaks a decades long cycle of reducing costs by off-shoring blue collar business functions. Historically, the market punished companies looking to build more robust, fully vertical systems. But no longer. If this two-year period has taught us anything, it’s that inventory control is a necessary function for brands. But also, that eCommerce operations are no longer on the fringes of big retail. The largest companies are building systems for direct-to-consumer growth.

eCommerce kept growing

Online retailers and their enablers, including Shopify, benefitted from the shift from in-store to eCommerce shopping that continued in 2021. What was reactionary in 2020 became more intentional this year and that’s expected to continue in 2022. From August:

So here we are, back again. Though government mandated shutdowns are far from likely, corporations are instituting their own versions of them. CBS News reported that Walmart and Kroger will require masks as the second wave of worry is anchored by the spread of the Delta variant. Whether more or less dangerous than the first model of pandemic, businesses have to respond proactively. Few industries are as preemptive as retail; other industries will follow.

This means longer lines, shorter in-store supply, and a decrease in consumer satisfaction as customers lament the persisting inconveniences of mainstream physical retail. Like before, eCommerce will be there to pick up the pieces. It will look something like a j-curve.

The rise of the Metaverse and Web3:

One of the biggest stories of the year is the rise of interest in the metaverse and Web3, both will continue to develop into next year. I mean, Oculus Quest 2 was the number one gift for Christams 2021 according to the free app rankings in the Apple app store. The shift from Web2 to Web3 finds internet users delving into digital-first and digital-only spaces, where their avatars and PFPs define their status. Consider it the new country club.

Brands are going to join in more in the new year, following a lead well established by Nike, which has led retail brands into metaverse presence development (MPD). MPD will define the next generation of marketing and brand equity; these are the companies leading in the digital world. For Nike, it’s been a worthwhile play so far.

This trend will continue. In one prediction from this year, we explored the shift from eCommerce to simply “commerce,” which will account for any purchases made in any space – physical, online or digital. When goods can be bought digitally and their inherent value is also digital, that means new competition in retail that overrides physical demands and disruptions. Just look at what’s happening to the supply chain – it’s all connected.

DTC’s new store strategy

It was a big year for first-generation DTC brands. Of the many that went public was Warby Parker, whose growth strategy belies a more significant trend that will define the paths for other mature DTC brands going forward. Warby Parker is going to continue opening more stores, along with other brands including Allbirds, which also went public this year. In August:

No, DTC was never meant to be online only. Warby realized over the years that its customers wanted to shop for glasses in stores, and it built the infrastructure to meet them. Now, the question is whether they can leverage their growing consumer-base to achieve operating leverage. And can Warby Parker continue climbing the chart?

Expect more similar brands to expand their store networks in populated areas where they can boost their online business simultaneously.

And last, the acquisition boom

It was an even bigger year for exits. Companies including Manscaped, BuzzFeed, Milk Makeup and more went public with the help of special purpose acquisition companies. In March, retail vet Art Peck launched a $200 million SPAC to acquire emerging retail brands. Good Commerce Acquisition Corporation will focus on e-commerce and data-led companies that also have ties to wholesale and retail. What became clear this year is that retail is not a funding race, it’s an EBITDA one. From October:

Over the past few years, several categories have benefited from the tailwinds of the shift towards online retail. Suddenly, SPACs were interested in direct-to-consumer retailers. Private acquisitions became a popular headline. Companies like Figs, Warby Parker and Brilliant Earth debuted on the public markets; each share market capitalizations north of $1 billion. Warby Parker and Figs, both north of $5.3 billion in market cap, are setting the market for the brands suspected to follow: Allbirds and Away are but a few in the pipeline. Now, companies like Gymshark are mulling an IPO, signaling a final stage of sorts.

All of these themes will influence the next year and beyond for retail. Covid is still here, the supply chain ripple effects will be long lasting, and the metaverse will become more mainstream. What’s been proven at the same time is that retail is resilient, and DTC is a viable model with its biggest practitioners moving to the next stage. It makes sense – it’s a long game. We’re still in the thick of it.

By Web Smith and Hilary Milnes | Art by Alex Remy and Christina Williams 

Memo: New York, Los Angeles, and Columbus

One line from a book written 130 years ago would influence marketing and branding for ages to come. In his novel Five Hundred Dollars, Horatio Alger writes: “I don’t know but I can wait two or three weeks,” he said slowly, “if you are sure we shall play at Peoria.” This line gave the advertising industry “Will it play in Peoria?”, an old adage that is traditionally used to question whether a product, person or theme will appeal to the average person in middle America. It’s a question that answers a product’s potential role in the lives of a broader demographic or psychographic. In today’s digital age, for brand owners, Peoria is worth your time and here is why.

The Trope

The trope was meant to characterize the Midwest as somewhat of a lesser-than place where uniformity, simplicity, and a resistance to modernity reigned supreme. Don Marine, a professor of theater at Illinois State University once said:

The widespread appeal of this verbal maligning by comics, actors and other performers suggests Peoria as a paramount example of the dull, banal, and provincial theatrical road stop. But the popularity of the “put down” suggests as well that the city possesses a theatrical heritage of considerable longevity.

If you close your eyes, you can imagine Don Draper sitting in his office on Madison Avenue, asking, “Will it play in Peoria?” as he decides between models for a new Dodge ad. Today, the concept of a test city is more likened to Columbus, Ohio – the city where I choose to live despite my deep love for the pace and promise of cities like New York, Los Angeles, and San Francisco.

Sometimes, a city can fail to understand its own power. Columbus is affectionately (yet restrictively) known as “Test City, USA” because it accomplished what Peoria only did in America’s 19th and 20th century imagination. A 2012 CBS News report says it well:

With Ohio State and dozens of other colleges, the student population here is massive, and there’s a strong international presence. It all adds up to a near-perfect cross-section of the country’s consumers. It’s Middle America – but that doesn’t mean it’s average.

The perfect mix of consumers and the perfect volume of them has collectively reassured corporate brands that they are ready for market expansion. I grew up believing I needed to be in New York, Los Angeles, or San Francisco to succeed. If you were a child from the South or the Midwest, unless you were well-traveled, you believed that your success would rely on your proximity to the centers of the world. In reality, you are always at your own center – especially now. This is beginning to reflect in certain circles: technology companies are thriving in Miami, Tampa, Austin, and Atlanta. But for the most part, product brand development still lags behind. There are exceptions of course: Outdoor Voices (Austin), Summersalt (St. Louis), Mizzen + Main (Dallas), and Jeni’s Ice Creams (Columbus).

Line up 10 brands and you will see similar attributes driven, alone, by their geography. There are the internal similarities: design agencies, performance marketing agencies, product development consultants, public relations firms, the same industry events, newsletters, Discord servers read, and degrees had from Wharton or Columbia. And there are the external similarities: product packaging, copywriting styles, typefaces, front-end design, and distribution strategies. In fact, when new ideas come along, they are well-rewarded simply because they are fresh. Snaxshot is like a breath of fresh air because Andrea Hernández is different, Ruby’s marketing strategy woke up the blands, and Parade’s sex-positive marketing strategy broke open a boring underwear industry. But these are mere exceptions.

If you query 1,000 people interested in DTC culture, the majority of them will know several millionaires and Ivy League graduates. It’s a very coastal, affluent club of people with (or nearing) lots of money had. If you ask 100 founders where they will be this weekend, 70 of them will say Los Angeles or New York. As a whole, the disruptors have fallen in line, savoring the laws of best practices and oldened rules of perceived aspiration. If you want a pop-up, why else would you choose a neighborhood away from Soho, Atwater Village, or Fillmore Street? The DTC industry is a club and clubs have rules made to be broken. The first rule to break?

Build for New Yorkers, San Franciscans, and Los Angelenos.

Modern brands must understand that there are consumers outside of major coastal cities. And it is the spaces outside of these comfort zones that may end up determining the long-term viability of the brands themselves. Of course, some of the industry’s pioneers understood just that.

The Reality

Warby Parker launched one of its earliest DTC brick-and-mortar retail experiments in history. They chose a small corner of the Columbus, Ohio neighborhood known as the “Short North.” Dave Gilboa and Neil Blumenthal of Warby Parker sought to understand whether it “played in Peoria.” The showroom was a success. Today, the official Warby Parker store sits just steps away from its original 20-square-foot Ohio showroom. The company recently filed an S-1 for their IPO.

Observing this early Warby attempt (in addition to co-founding Mizzen+Main with Kevin Lavelle on the same street) was my inspiration for helping Tenfold agency CEO Rachel Friedman with her latest project, Tenspace. It’s the latest retail experiment to cater to the DTC industry, located just down the street from that first Warby Parker showroom and the original Mizzen + Main flagship store.

Tenspace is an ever-changing, brick-and-mortar store in the Short North that will share stories of rising online brands with the public in an interactive, experiential format. Every two months, the space is transformed to immerse customers with new brands. Web Smith, founder of 2PM, a subscription-driven media and e-commerce company, was integral in the Tenspace launch. [1]

The process was not kind to Friedman. Over the course of months, several New York and San Francisco-based retailers inched towards the finish line before cancelling or stalling their decisions to engage altogether. A few, worried about stepping outside of the DTC playbook, cited things like, “…Not New York…” or “…I am so busy….” or “…we have another pop-up in Santa Monica….” But the irony is that in no way was any labor expectation placed on any of the brand partners. In a way, they said no out of underestimation of Friedman. I began to take it personally, for her sake! The premise was simple: take a brand and editorialize it through physical expression, retail installment, and a multi-media depiction of the brand’s roots. In this way, she is using real estate as media, not as the retail format that we are accustomed to. And I am comfortable suggesting that there are few if any operators in modern retail who are as talented as she.

Friedman, a forum mate of mine in Entrepreneur’s Organization, committed a reported hundreds of thousands of her own capital to bring the first show to life. I stood by as a late-night ear at times while she coped with her investment. I’ve been there. Her two-pronged strategy was failproof, in my opinion. The comfort that I provided, if any, was grounded in my confidence in: the idea, her execution, and market timing. Her strategy for recouping that investment is two-pronged:

  1. Show brands her storytelling capability and they will flock to her for the experience.
  2. Provide data around visibility to potential sponsors like Shopify, BigCommerce, Yotpo, Loop, Klarna, Lumi, or Lightspeed Venture Partners and await their interest.

They are flocking and they are interested. By all accounts, this strategy is playing out just as anticipated. She has outside interest and a growing book of potential sponsors and brands. But to get to this stage, she needed her first brand partner. And heading into the early months of summer, I was short on DTC contacts who understood retail markets outside of Los Angeles and New York. Five well known DTC brands turned down the opportunity to work with Friedman and each were based in New York, the Bay Area, or Los Angeles.

As I stood watching our daughters play in a tense soccer match, I recalled that there was a brand that may have the appropriate context to understand the opportunity after all. I didn’t have to call, tweet, or text anyone. I looked over to my left at Ohio State wrestling legend and former National Team wrestler Tommy Rowlands, and told him: “I have an idea for you and I need you to say yes.” Tommy, a stoic and imposing friend of mine listened intently and quipped, “Sure, let me talk to her.” The her was Friedman.

Rudis social growth

Rowlands and his partner Jesse Leng are co-founders of Rudis, a brand that is on the precipice of leaving behind the niche of wrestling apparel thanks to savvy sponsorship of high-profile Olympic athletes like Kyle Snyder and Tamyra Mensah-Stock, the first African-American woman to win a wrestling gold, plus a timely partnership with Authentic Brands Group to market products with the licenses of Muhammad Ali, Jesse Owens, “Rocky” Balboa, and Vince Lombardi. With these forces working in its favor, Rudis launched as the first Tenspace partner just eight weeks after the sideline soccer match presented the opportunity. Over those weeks, Friedman and team developed, fabricated, and stocked the brand’s show. The reception has been extraordinary, quantifiably and qualitatively. The retailer’s social channels have grown, sales have reflected new interest, and the media from within the walls of the Tenspace installation have amplified the brand to the far ends of the internet.

I’d never suggest that a retail exhibit of Tenspace’s caliber is superior because it is located in Columbus, Ohio. But what I will say is that we live in a digital-first society now. Drake’s Certified Lover Boy album release featured billboards in places all over the world. They each made their way to Twitter, Reddit, and Instagram. Physical billboards became digital fodder. Such retail opportunities should no longer be looked at merely through the lens of geography. Part of the reason why the social shareability of Tenspace is such a sure bet is precisely because the project isn’t based in a place like Los Angeles or New York, where art and retail are so common that they become background noise.

The actual space

For the retailers with the courage to think outside of the box, opportunities to breakthrough can be found far outside the cities and strategies of the status quo. Of them, Tenspace has raced to the top of those options. Friedman and her team did an extraordinary job of meeting media and brands at its point of linear commerce, and she did so in a way that has to be seen for one’s self. There are no comparisons. And as for Rudis, the wrestling brand for hardened athletes and the warrior minded, it has begun to show that it has the crossover appeal required by any sporting brand who may want to change the world.

Last week, Jeni Britton Bauer was hosted at Tenspace for a virtual and in-person hybrid talk with a number of executives in the 2PM ecosystem, including Loop founder Jonathan Poma, Kat Cole, Nugget co-founder Ryan Cocca, Tenspace founder Rachel Friedman, Kelly Vaughn, myself, and a few dozen others. She left with a Rudis “Ali” jacket and a new appreciation for the wrestling brand and its retail partner. A wrestling brand turned a DTC ice cream pioneer into a fan. Her appreciation for the product was later noted before her Instagram following of 150,000.

Cities like Columbus can seem secondary to the coastal retail ecosystem, it’s time to reassess the opportunities beyond the borders of America’s top metropolitan areas. To avoid doing so is limiting. It’s early days for the level of execution seen within the walls of Tenspace so the first actors will still earn the greatest return on investment. Don’t worry, your brand will play in Peoria.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy and Christina Williams