Blog postsOctober 18, 2018
Part 1: Delighting Customers with Superior Retail Operations
Last week, we attended Seattle Startup Week in Pioneer Square. FLEXE CEO and co-founder, Karl Siebrecht, was on a panel alongside Rian Buckley, co-founder and CEO of FitCode, and Mauricio Cuevas, co-founder and CEO of BevyUp, and moderated by Laurel Martin.
Together they addressed how to delight customers with superior retail operations. Below is part one of the presentation, which addresses introductions and the number one industry driver that influenced each co-founder to start their business.
Video is also available here >>
By quick introduction, my name is Laurel Martin and I am a former Morgan Stanley banker covering retail and I’ve got some wonderful, wonderful experts here to talk about retail operations who are here to share their expertise with you.
Before we kick this off, I would like to just get a sense of who’s in the room and do just a quick show of hands if you work directly in the field of retail operations in some capacity. A couple of you. Okay. Great.
What about more broadly if you work in a B2C or direct-to-consumer business? What about anyone who does more B2B as a service provider to a direct consumer? A couple more. Great. Anyone who has no direct experience with retail but just found this topic really interesting? Okay.
Lastly, thinking about you as a consumer, raise your hand if you would say that you spend the majority of your consumer dollars in stores? So, I guess most online. Yeah. Okay. Great. Well, I think that will be helpful to us as we discuss today. We’ll definitely have time for questions at the end, but if you have a burning question as we’re talking, please feel free to shoot up your hand and ask.
So, what I’d like to do now is just turn it over to the panelists up here and then maybe if you want to spend a minute or two just providing a brief introduction about who you are, your experience, and your business.
My name is Rian Buckley. I am the co-founder and CEO of a company called FitCode. We are a fashion data company and we integrate straight onto eCommerce sites, and personalize experience by fit. So, we just do denim. Everyone wears denim. So, if you go to a brand website like Joe’s Jeans we ask you five questions, there are over 300 denim options, we say here are the 10 that are going to fit you and this is the size to buy in them. So, we’re all about personalizing online and making that decision to get to “yes” to purchase easier for the consumer.
My name is Mauricio Cuevas. I’m the founder and CEO of BevyUp. BevyUp was acquired by Nordstrom in March of this year but what we did, which actually now happens under the Nordstrom brands, was we provided tools for sales associates for them to be able to sell online. So, basically, we merged online and offline in sales.
Hi, my name is Karl Siebrecht. I’m a founder and CEO of a company called FLEXE. We’re in the warehousing and fulfillment business. So, we’re a tech platform that connects retailers and CPGs to over 1000 warehouses that they can tap into to provide inventory management, order management, order routing, etc. for their fulfillment numbers.
Thank you. Okay. Karl, since you’ve got the mic maybe I’ll keep it down to you. So, what was it that you observed in the marketplace that really sparked the idea for FLEXE and then what actually gave you conviction to leave what you were doing before and have a go at it?
Sure. I spent most of my career in tech and B2B software and for about 15 years I was an ad (advertising) tech from the point at which that industry was just emerging all the way through kind of it becoming fairly mature. But I was very familiar with eCommerce and online retail from the perspective of kind of everyone was involved to get people to the shopping cart and we sort of declared victory for our clients when someone would click to buy something and never really thought about what happened after that.
I was CEO of a company that we sold and then had some time to sort of think about what was next. And, two things happened, one I wanted to go back into B2B tech, probably not ad tech just to sort of do something new. And then, a friend of a friend basically came and laid the idea for FLEXE in our laps. It was a guy who had founded a business, was selling home barware, martini glasses and bottle openers and everything in that category. He was importing from overseas through a warehouse in Kent and distributing to retail stores like wine stores, gift shops and was starting to sell online. And he basically talked about how much of a mismatch there was between the dynamic nature of his business—very high growth and somewhat seasonal—and the way traditional warehousing and fulfillment work which is a very sort of stagnant fixed financial obligation to sort of reserve capacity, which was just a mismatch.
So, he said, “Hey, there’s got to be a better way. It’s probably a tech-enabled business.” And that’s what led us to create FLEXE. Knowing that obviously eCommerce is massive, and it’s only getting larger, and it’s a huge category, fairly outdated technology, and an opportunity to kind of create a better way for a certain class of businesses again those that need flexible kind of solutions to compete better.
Well, for me it was more like a personal frustration. It was an event that happened to me. I was trying to buy a camera with my sister. My sister was in a different city and the collaboration was very difficult. At the end of the day, we had the money, we had the intent, we wanted to buy the camera but because the collaboration was very difficult, we didn’t do it. I need to make a note here. It was 2009, 2010. So, we didn’t have as many options for collaboration as we have today. So, at that point I realized, I said, “Hey, there has to be a better way to do this.”
And, we started with a model that was consumer to consumer, more like kind of the social commerce concept and we quickly realized that there wasn’t a lot of money to be made in social commerce at least with the technology that we had developed at that time. And one of our customers, you know, when we were reviewing our monthly performance, the guy said, “Look, I know people are using you. I know they are buying more, but are they really buying more because of you or because you’re segmenting my best customers?”
And it was a question that was very difficult to answer, right. And then, at the end, the guy said, “Look, you know what, you know who’s using it a lot are our sales associates. Do you guys have a dashboard for sales associates?” I said, “Yes. We do. Give me two weeks because I am going to go out on a business trip, but I’ll come back in two weeks and I’ll show you what we have.” We didn’t sleep for two weeks. We developed an amazing dashboard with a lot of tools for sales associates and that’s how we ended up with BevyUp.
I love that because I think the best solutions are really formed out of problems that you see firsthand and it was the same thing with FitCode. I went to the University of Washington and then I modeled all over the world for the next five or six years and that was my introduction to the fashion industry. It was through that and my experience being the model on set and having all my clothes tailored and pinned and photoshopped to look great on me that I realized there’s a huge disconnect between what people see online and what they’re actually getting when they order it and it shows up at their door.
And as we’ve all followed the news in the last few years, brick and mortar is slowly kind of, it’s not dying, I think it’s still a very important part of the retail business, but purchases are happening online. They’re happening online with more and more frequency. And so, if we can make that more successful, we can solve that disconnect and say, “Hey, customers. You can have a personal experience online just like you would in the store.” The brand is going to make a lot more money. They’re going to survive and they’re going to innovate this time when innovation is really needed. So, that’s where FitCode was born.
And I think all of you have touched on the fact that at least the initial idea came a while ago when eCommerce was not nearly as prevalent as it is now. In the time you spent working on FitCode or FLEXE or BevyUp, what have you learned about working with retailers or how have the needs of the retailers that you work with evolved and then your business, therefore, has evolved? I mean, I think Mauricio you touched on going from social commerce to more of like a sales associate model. So, what’s that experience for you been?
Yeah. I’m going to speak from our experience talking to brands. So, we just do premium denim. About 2 ½ years ago when I would go to these heads of these brands—the CEOs, COOs, CMOs of these companies—Hudson, Joe’s Jeans, Citizen, etc., they were all extremely resistant to change and to innovation. It was a scary time in retail. They were losing business. Brick-and-mortar stores were shutting down. We were watching companies go bankrupt. So, they were all just trying to hold on and they weren’t able to see that if they wanted to break through, they wanted to survive, they had to innovate.
It was a really tough sell in those days. I’d say in the last 18 months or so, eCommerce has just skyrocketed. And suddenly these people have a little more cash on hand, they made it through the “retail apocalypse”, and they’re realizing we made it through because we innovated. We need to find more innovation. We need to bring customers online, meet them where they’re at, personalize, and make that whole shopping experience more successful.
And so, at least from my perspective, I’d say the last two years have been a great time to be in the eCommerce retail world because people are realizing that that’s where this is that and if they want to survive they have to do business differently. Anyone who’s creating companies in that space, the time is hot. You gotta go now. It’s a really good time to be in this business.
“If retailers wanted to break through, they wanted to survive, they had to innovate.”
Yeah, you touched on something that was very apparent to us when we started, which is there was this big change [happening]. At least what we experienced is with most of the retailers that we contacted that were customers of ours, their resistance to change was huge.
But at the end of the day, in principle, the retail business needs are the same, right? You have convenience, selection, and price depending on what business you’re talking about. In the case of luxury, price is not an issue. But, what has changed, and it was difficult to make people realize this, is the means in which retailers use in order to deliver those three things: price, convenience, and selection.
Most of the people we encountered in this process, and I agree with you in the last year and a half / two years it has changed a lot, were in denial. They were in denial like, “Oh, the website, yeah, that’s a small channel. That’s something that we have there for the customers.”
Our perfect customer was a retailer that had stores and an eCommerce operation. Most of the people that were on the top came from the stores. They’ve been old-timers, 20 to 25 years at the same company and now they’re VPs and someone says, “Hey, it seems like we need eCommerce. You, go, manage our eCommerce business.”
We found that the retailers that we talked to a lot of people didn’t know what they were doing or didn’t have the resources in order to invest. That has been one of the key things that we encountered. And it’s changing. Now there are more people aware that management is changing and thanks to that we found more companies that adopted our technology. I’m pretty sure that’s what happened to you.
The single biggest thing that’s changed for our business in fulfillment is consumers delivery promise expectations. So how many, this is almost an unfair question, but how many people are Prime members? Okay. Almost everybody.
Almost everybody is a Prime member which means you get your goods typically in two days and most of you go Prime Now which is either two hours or four if you don’t get the premium. So, even five years ago, you know, typical expectations of three to five days seemed pretty good.
Who knows the number one reason for shopping cart abandonment online? This is for customers that have purchase intent. So, not kind of lookie-loos, but I have purchase intent, the number one reason I put something in my cart and bailout.
That was kind of a softball question, but the content is great. But yeah, it’s dissatisfied with the delivery promise. So, either it’s going to cost me too much or it’s going to take too long. So, again, I spent 15 years on the customer acquisition side, so I’ve seen firsthand what brands and retailers pay to get people to come to their sites, to acquire customers.
So, you’ve spent all this money to get them to come to that cart, you design this beautiful web experience with all this great shopping experience, to get them to select items and put them in the cart and you’re there and they go to check out and they’re like, “Five-to-seven days. Are you kidding me?” New browser. What do you type in? Amazon. And they probably have it and you’re going to get it in two days and life is good.
“Five-to-seven days. Are you kidding me?” New browser.
Think about that. You spent all that money, you get people to the site and they bail out because of this mundane back-office thing—warehousing and fulfillment. It’s not doing it for me now. So, here’s the other thing about warehousing and fulfillment, in order to get a fast delivery time and a reasonable cost per unit, you have to have inventory close to where the buyer is. You can’t ship from Florida to Seattle and get it there fast and cheap.
You’ve got to have a distributed fulfillment network. You’ve got to have inventory in those facilities, hopefully somewhat intelligently driven. You’ve got the right types of inventory in the right areas and that can take a ton of capital if you have to go lease a building, install software, put financial investment against that.
Amazon has like 300 facilities—warehouses, sortation centers, fulfillment centers. The number two eCommerce player in the US has 30. So one-tenth. Amazon has spent tens of billions of dollars on this infrastructure. It gives us all the service that we’ve come to expect. They trained us to demand.
But what’s difficult about that is there aren’t many other companies in the world that can afford to replicate that infrastructure. So, that’s the biggest thing that’s changed from our standpoint is now retailers from the largest in the world all the way down to VC-funded, high-growth digital companies, they all need to compete with this Amazon delivery promise. I also have to get my product there pretty much as fast as the other guy. How do I do that? How can I afford to do that? There’s a key question.
“In order to get a fast delivery time and a reasonable cost per unit, you have to have inventory close to where the buyer is.