Issue No. 225: eCommerce and middle America


A last word: Amazon v. Alibaba

The differences between Alibaba and Amazon are numerous but there is one glaring difference. eCommerce in America is increasingly marketed as a solution for the middle-to-upper class. In China, eCommerce has made progress opening channels to rural and poorer citizens. Here, it is a novelty and growth is more difficult. In China, eCommerce is an economy open to all (mostly out of logistical necessity).

At last survey, eCommerce has a 30%+ adoption rate in China vs. 12%+ in the United States.

Why the difference? eCommerce is a relative luxury in America and the cost of fulfillment is to blame. With the (1) proliferation of “free” shipping, (2) the skyrocketing costs of warehousing, (3) and the slim margins of many major eCommerce players, adoption is reduced to a smaller slice of the American population than our Chinese counterparts.

In short: in America, we only market to people that can best support our rising logistics costs.

It is through this lens that you should view Amazon and Walmart’s recent developments. While we’ve all read the strategic differences between Amazon’s acquisition strategy and Walmart’s, one similarity is that both are moving upmarket. Solid Yarn Spun Tees and Kombucha Tea anyone?

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Issue No. 224: Better never than late.


What we can learn from the fall of J. Crew

What went wrong?
  • Rise of eCommerce
  • Failing mall traffic
  • Discounting culture
  • Increased competition
  • And as BOF says, “post-recessionary mindset.”
  • “As J.Crew’s fashion credentials began to grow, its focus on staple items suffered and an increasingly cool and expensive product mix alienated once-loyal customers.”
  • Use of cheap textile materials, 2013 and on
  • Complete ignorance of the athleisure movement
Moment of Truth (1): 

July 2013, when an unhappy customer wrote Drexler an email saying, “I am so disheartened and disappointed that you are leaving your core values and styling and abandoning your loyal customers. I would have thought you had learned your lesson at the Gap!! Why mess with these iconic brands and change them into something they’re not?”

Drexler’s Response: 

“We are on it for sure,” he emailed the customer after the call. “I hope you see a difference this Fall.” 

This was the beginning of the low quality of product that has flooded J. Crew stores and outlets.

Moment of Truth (2):

Back in 2014, Drexler repeatedly said J.Crew would never get into the so-called “athleisure” segment.

Drexler’s Response:

J. Crew launched an athleisure effort with New Balance, in late 2016, that has been widely panned as ‘late’ and ‘bland.’

Read the full rundown here on BoF. 

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Issue No. 200: Introducing Cotton Bureau

One look at Cotton Bureau’s “Wall of Fame” and you’ll understand what sets them apart from the rest. While the shirts’ designs are varied, the common theme of superior design is shared throughout the collection. The platform is completely custom-built (in-house) with no support from: Shopify, Demandware, Magento, or Big Commerce.
And that’s just the surface level. I’ve never seen a company of their scale accomplish so much with a $500k seed round (via Chalk it up to their midwest roots and cofounders who are both creative and technical. Here, you have a perfect storm competing in a tough eCommerce niche.
I first met Nathan PereticJay Fanelli, and Michelle Sharp at their new Pittsburgh headquarters. Launched in 2013, they’ve been operating in 800 sq. ft. until, well, this month. They have re-designed a former 5,000 sq. ft. warehouse space to usher in Cotton Bureau’s growth phase. Their pride is both palpable and deserving. The building’s energy was infectious and the paint hadn’t dried. With 18 employees (only eight who are full-time), they’ve already eclipsed their 2016 and Q1 2017. When I last spoke to their soft-spoken CEO, he casually told me that they sold 24,000+ shirts in January and they aren’t slowing down.

Their high profile partners include: the no. 3 Podcast on iTunes (Pod Save America), Vox Media, Serious Eats, BuzzFeed, Propublica, Tapbots, and a certain @RogueNASA team.

Michelle Sharp on Cotton Bureau’s IP factory: 

Designers and communities submit their t-shirt ideas, and Cotton Bureau evaluates them to see if they’re right for the site. If they make the cut—and only about 15% of submissions do—Cotton Bureau puts them on the site for a time-limited pre-order sale. Once the sale ends, we print all the shirts they need—in near-exact quantities—and ship them out. All shirts are printed in Pittsburgh. Cotton Bureau ships all shirts ourselves, and handles all the customer service (returns, refunds, exchanges, lost packages, etc.) forever. 
With the platform that they’ve built for themselves (and the ability to grow on cash flow), their next step is what should be most exciting for the 2PML audience. They’re preparing to start producing their own American-made tee shirt blanks, themselves. Not only would this initiative begin to supply Cotton Bureau’s rabid fans, it could evolve into a business of its own.
More on that here on Lumi’s “Well Made” Podcast

Over the course of 2017, 2PML will feature a series on Cotton Bureau’s evolution from web design studio to eCommerce company to an increasingly equitable brand, representative of activism and ingenuity. They are durable enough to continue thriving in our ever-changing digital ecosystem, with 90-99% less funding than their competitors. Midwest founders are so resourceful.

– @Web


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Issue No. 189: The next 40 years.

Last Word: The Great Retail Divide

Bloomberg’s Shelly Banjo brought this graph to my attention today.  The most dramatic point is the steep decline of retail business beginning in Q3 of 2008, coinciding with the great recession. The y-axis is pretty damning, upon inspection. While some argue that eCommerce is but 9% of all retail sales, this illustration tells the real story. Department store retail and its associated real estate are at recession levels of activity with no recovery in sight. Additionally, department stores have suffered from negative growth for the majority of the last 10 years. eCommerce has enjoyed 6-12% growth YoY during that same time period.

I’m no economist but as I’ve mentioned in “House of Cards” (Issue 179), a mass default of second and third tier malls could potentially move us towards the commercial equivalent of 2007’s housing bubble. While that would be an incredibly negative period for most of America, it’s this type of event that would lead to mass adoption of eCommerce, out of sheer necessity. I define that as a jump from 9% to 25% before 2020.

Much like China’s progression, where 89% of tier one city inhabitants shop online, the country’s reliance on eCommerce wasn’t solely software-driven. The swift adoption was influenced by lacking brick and mortar retail opportunities and an increase in eCommerce shipping and logistics real estate.

To keep up with increasing demand from smaller urban and rural areas, online retailers are seeking to expand logistics infrastructure and services. For example, Alibaba’s logistics arm, Cainiao, now owns 180,000 express delivery stations for the shipment of products and has recently expanded its fresh food distribution centers across China. The firm recently completed its first external funding round and is expected to spend $16 billion over the next five to eight years to expand its network. (Economonitor)

As department store retail sputters in much the same way that print media has, it will provide us opportunities to accelerate towards the mass adoption of the next 40 years of American consumerism.  – @web

See more of the issue here.

Issue No. 180: Steve Jobs Saved Nike?

Last Word: Thank You.

Originally, I committed to 180 issues because a) I knew that publishing each one would be difficult but attainable over time b) and frankly, I didn’t think that it would continue. I was right about one and wrong about the other. I hope that you stick around to observe the letter’s growth and how this dynamic readership continues to influence it.

I want to personally thank all of you who have joined this growing list. In all, it grew well beyond what I anticipated. I wanted to establish a place for people that share our industries’ many interests. To do this, I wanted to examine the several areas where our industries intersect. I focused on eCommerce (of course), data, branding, and media.

The intersection of media, eCommerce, and brands should matter to everyone with a pulse. Our digital economy continues to shift beneath our feet, like a lithosphere, as each industry jostles with new constraints, partnerships, and opportunities.

I want to thank several analysts and publishers, large and small, for doing great work (and reading 😀): Business of Fashion, Lean Luxe, CB Insights, The Information, Stratechery, Bloomberg Gadfly, and Pando Daily. You should read them all! And lastly, I’ve included a small informational document on partnership opportunities in the intro. See you on Wednesday for 181.  – @web

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Issue No. 176: Final email of 2016

Issue 175 featured a section devoted to CB Insights analyst and 2PML reader Zoe Levitt’s research on Amazon’s recent patents. Here’s where her work has since gone: TechCrunchUSA TodayNew York TimesPC MagCNBCGeekwire, and Good Morning America.

The Commoditization of American Manufacturing

Between bargain labor costs and the movement towards workplace robotics, American manufacturing isn’t as it was envisioned by the movement’s early adopters. For great American brands like Yeti, for instance, post private equitystrategy has driven many of their products to be made in China. While this shift is inevitable, the American market for their products have not flinched. The brand has only grown from a revenue of $10M at the time of investment to nearly $500M in annual revenue today. In July of 2016, the Austin brand filed for an IPO at a $5B market cap on the strength of their durable products and genius product market fit and associated strategies.

Last Word: The Shift To Casual Fashion’s Effects On Merchandising

As consumers seek to purchase experiences over goods, the successful fashion and luxury companies will be the ones that are best positioned to take advantage of the shift. North Americans are spending more time outdoors: snowboarding, hiking, and in fitness. And there is also a rise in leisure vacationing. To this effect, high end accessories will have slower growth and expensive clothing will see similar stagnation. Brands will need to focus on adjusting by merchandising their products around the paid experiences that illicit memories far more valuable to consumers than high fashion or cutting edge electronics. – @web

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