Well Made

Paul Munford: Building on Greenfields – Well Made E70

February 27, 2019 · RSS · Apple Podcasts

LeanLuxe is an online newsletter for the modern luxury business set, sharing noteworthy developments happening in retail. Launched in July 2016, the digest is a big picture briefing on the businesses, personalities, and broader trends driving modern commerce. Editor-in-Chief, Paul Munford shares focused, analytical coverage on the players defining what luxury means today.

On this episode, Paul and Stephan roundup the latest ecommerce news. VCs poured a record $138 billion into U.S. startups last year, but were unicorn valuations and expectations realistic to begin with? Now that the dust has settled, Paul discusses the adjustments VCs are making (3:20). Stephan and Paul question if it’s getting harder to become a global brand despite greenfield opportunities in consumer products (9:07). They chew on the consumer-centric shift in commerce, arguing a more fragmented marketplace will emerge (24:14). He talks about the new problem with shopping (27:40) and the return of physical retail (37:55). They discuss brands’ challenges of creating a physical gathering place (39:01) and community-building as a distribution tool. Finally, Paul talks about the future of connecting online (45:52) and the big opportunity around niche platforms (51:44). Full transcript below. 

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Product images via Lacey Waterman, Billie, David Kind, Glossier. Paul Munford: Building on Greenfields – Well Made E70

Product images via Lacey Waterman, Billie, David Kind, Glossier.

Also mentioned on the show:

Header image via FRENCH+TYE.

Stephan: You're listening to Well Made a podcast from Lumi about the people and ideas behind your favorite online brands. I'm your host, Stephan Ango. Paul Munford, welcome to the show.

Paul: Thanks man. Good to be here. It's been a long time coming I feel like.

Stephan: It has. So you're the founder of Lean Luxe. People might know your website, your newsletter. How do you describe it these days?

Paul: Yeah, it's funny, it's kind of evolved from strictly media to something quite different and right now it's kind of an emerging platform for kind of what's going on in the space around modern consumer brands and business. It basically consists of three parts right now. So, there's a newsletter, which is kind of the heartbeat throughout the week that keeps people up to date on what's happening in the modern brand space. Talking about brands like Warby Parker, Everlane, Glossier and the like and discussing what's happening on the investment front. Talking about the founders talking about the folks at these brands, the advisors and mentors. And really just giving life to what's happening in the modern consumer space today. We've got the newsletter. Like I said, we've got the website, which is kind of the repository for the reporting that we do. And then there's a selection of which is super, super small on purpose, but it is pretty damn powerful. There's a lot of meet-ups happening around the world and really it's a place where people are kind of connecting around this shared interest of modern brands and business

Stephan: You launched it when exactly, 2015 or something?

Paul: Yeah, no, it was late July, 2016.

Stephan: Wow. Yeah, I feel like I must have visited the website as soon as it first appeared and it was one of the first that was actually covering this particular area. And now there's a few others that have popped up. We've had Web Smith on the show and he's gone on to really expand his whole empire. I think of Lean Lexus as the other side of that along with a couple other publications. And so you've been doing an amazing job with it. We've got a few different topics. We're going to kind of go meta on what's been going on these days. And I want to start with just over the past couple of months, we've seen a ton of startups in the ecommerce space raise a lot of money. Probably some of which were mostly series B kind of level happening. Companies like Ritual. They make vitamins and supplements. Billie raised 25-million there in the razor shaving space. Hims raised $100 million. Cuyana which is more of like a luxury handbags, accessories brand, raised another $30 million. So, there's a lot of money pouring into the space. It kind of surprised me to see this happening actually because I had kind of heard rumblings through the grapevine of people feeling maybe a little bit concerned about 2019 and the political global environment. And I'm kind of amazed that all these folks have been able to lock in that much capital so rapidly. But what's your take on what's going on there?

Paul: It's interesting, I share your concern too, quite frankly. You and I were kind of just chit chatting a little while before we started the podcast and I was talking about just the growing concern that I personally have of what's happening in the space from the VC standpoint with a lot of the valuations and a lot of the money that's being pumped into these companies. It's an interesting time and I think that some of the companies that have taken on a decent amount of venture capital that have actually existed, have done so at levels that just were not what VC's were anticipating. I guess the most recent examples, probably Walker & Company Tristan started that maybe three, maybe four years ago, I forget exactly how long ago it was. But you got to Andressen Horowitz backing them and a lot of other really high profile venture capitalists expecting a company like that to exit for at least a billion dollars. They ended up selling for, I believe- Had to go back and research it again, but I think it was about $31 million and I think they raised I think $34 million. So, they weren't even able to recoup the investment that was made in the company. I think a lot of investors are starting to come around to the fact that these are just not going to exit at massive tech valuations like they're used to. Most of these modern brands are just not going to IPO. They're not going to sell for $1 billion plus. It's just not feasible. Reality is kind of matching or meeting expectations, so to speak. I think that a lot of these guys are starting to see that. I mean, again, they're not going to sell for billions of dollars. It's just not feasible.

Stephan: Well, I think that with the example of Walker & Company, they ended up selling to Proctor & Gamble. I remember a few years ago when they were first launching that Tristan was saying explicitly, "We want to be the Proctor & Gamble for people of color." It's an interesting thought that they ended up selling to Proctor & Gamble when obviously that's a company with a pretty long history. I actually think they were set up in like the early 1800s. And so if you set up that expectation like we're going to be the Proctor & Gamble of the future, I can see how investors might have been disappointed with the outcome there.

Paul: I mean, you've got to do that. You know, when you're, when you're raising money for venture capitalists you've got to kind of set those high expectations like that. That's fine again, like I'm saying, I think people are starting to realize that those expectations just weren't realistic to begin with. And so when you're investing in a modern brand today, a big firm, it's probably not going to see that outcome, that exit like they're expecting if you're a smaller firm, you get in super, super early and let's say, one of the brands that you invested in exit for $150 million, you know, $250 million, that's a good return for you. That's an excellent return for you actually. But if you are a larger investor with a lot, a lot of money and the funds, that's just not going to do anything for you at all. You know, I'm not sure how this is going to shape out of it the long term, but it's been interesting to see the kind of adjustment within consumer investments these days and the types of investments that have been made in the categories that have been made. And, kind of in sitting down with a lot of these founders and sitting down with a lot of these venture capitalists just hearing from both sides, like how the mindset has kind of changed and evolved over the last two or three, four years or so.

Stephan: Well, I think one thing that Max Temkin, one of the founders of Cards Against Humanity, mentioned on the podcast a few months ago, and I've been sort of turning this idea around in my brain trying to figure it out. It seems like it's actually getting harder to build a brand today. And one thing that I was also listening separately to an interview of Tobi Lutke, the founder of Shopify, and he was saying something that probably goes against most people's perception, which is that entrepreneurship is way down. It's like really quickly dropping. Over the past 10 years there's been fewer and fewer companies being built. The millennial generation has started fewer companies than any other generation before. Which it sounds counterintuitive because it feels like we're always talking about startups. Startups are in the news more than ever. But I think it points to a change in the globalization of capitalism, which is that the kinds of businesses that were being started 50 years ago or a hundred years ago were something like the local butcher shop or the local tailor or something like that. So you needed a lot of those, but now you don't need quite as many. And if we bring them online, they compete on a global level, they compete US wide as opposed to like in a local neighborhood. And that makes it a big difference. It's so for these companies that are getting investment or for the ones that are interested in starting to sell something direct to consumers, it's a very different landscape in a way. It's more competitive than ever. Even though there's these like big greenfield opportunities of product verticals that have not yet come online, it's also very hard because you're trying to capture the attention of people who are busy.

Paul: Yeah. I mean you're exactly right. You know, in order to build a company these days is not enough to just appeal to your local neighborhood. And especially when you take on an investment from Angels, from VC's. It's got to be huge and huge means appealing on a global scale. The interesting thing about that though is I guess you can say the elder statesmen of modern brands and DNVB's today are at this point about 10 years old. I'm not sure if (INAUDIBLE) is even international at this point. I don't think they are. And if they are it's probably just Canada. Warby Parker is starting to, they're in Canada right now, but I think they're also starting to test the waters abroad across the pond in London. A Way is a younger company, about three years old I believe they're in Canada for sure, but they have jumped the pond fairly quickly compared to the other companies and I think they're starting to see some, some big success there. They had a thing called Shae Away. I think this was last year, like two Septembers ago, I believe for Paris fashion week where they basically just took out the whole hotel. Rented it as the Shea Away Hotel and had some sort of multi brand travel themed pop up inside as well. So, you're starting to see some really interesting stuff happen with some of the newer brands. They're being more aggressive and appealing globally and expanding globally. Hims is another great example of a company that's fairly new that has very quickly expanded internationally there. They just started selling in the UK earlier this month, I believe it was last week. So, we're starting to see, again to your point, it's not enough to just be local and appeal to your neighborhood, let alone the US market alone. You really start to have to expand globally and capture that global consumer. And, I think you're starting to see a lot of these younger DNVB's starting to realize that and act pretty boldly on that realization. So it'll be fascinating to see who else starts to do that and how soon. Hims again has been in operation for, I think just over a year at this point. And they have already expanded in the UK, which is, which is pretty, pretty interesting.

Stephan: Well, and their valuation at this point is like over a billion dollars or something. I don't even know. It's crazy.

Paul: It seems like they're raising $100 million every, every quarter at this point, which is crazy.

Stephan: But, I want to maybe challenge the notion that is it necessary to raise VC to do this? We saw last year a couple of really interesting companies get bought Tuft and Needle's and RX Bar and some of these things that were alternate more bootstrapped ways of building companies. And then there's also just the question, I think this is maybe what Toby was raising from Shopify, which is: Hey, is there a place for a smaller brand, a more niche brand. Is it possible to do something that maybe it's considered a lifestyle brand to investors, but it's a good living for a certain number of people. Or is that niche that part of, not niche from a domain standpoint, but from a kind of size of a company standpoint, is that one going away?

Paul: I think that the reason that we're starting to see, or that we have seen a lot of consumer founders take venture capital money and start to build up the hype. But, yes, I want to be X, Y, and Z. I want to be the next this or that. Is because the outlets for raising capital are few for companies like that, a bank is never going to give you a loan if you're a consumer startup. It's just not going to work. Or any startup at all really. And you know, Angels may not be adequate enough for you. You're not going to get any private equity because you're not up to a certain scale. So, really the only outlet for a lot of these guys aside from just Kickstarter is venture capital. But, at the same time I don't necessarily think that that is the only way to go about this. And I mean, to your point, there are several examples, a handful of them that you seen some pretty good success without having to raise a dime from what I understand of venture capital. So, RXBar sold for gosh, I think it was like $600 million to Kellogg about a year ago. They didn't raise any venture capital. They just pretty much took on debt and I think they have maybe a $50,000 loan from one of the guys' fathers. But, they bootstrapped it and they grew based on revenues. Native is another company. They sold deodorant and kind of like natural sort of deodorants and soaps and things like that. Sold for I believe $100 million. I don't think they raised that much, I could be wrong. If you look hard enough, there are examples of companies that have not taken venture capital and has still been able to find some pretty big success.

Stephan: But I think, I guess that is one path. Sorry, keep going. Finish your point.

Paul: Well, I was going to say, I think that in my conversations with a lot of founders these days, both founders that have taken on venture capital or are that sort of venture capital level pedigree sort of company. And then also founders who are not necessarily venture capital type brands where it still has really strong brands, great foundations. I get the sense, and this is not scientific, this is just my conversations, but I get the sense that people are starting to get a little bit more comfortable with understanding that they're not going to be a $1 billion company. And that's okay. At some point you're going to stop. There's a natural threshold for what you can do. And once you reached the top of that threshold, that's pretty much it. And a lot of founders are okay with that.

Paul: But, when you're taking on venture capital, you can't just be okay with that. You have to justify that valuation. You have to justify taking out that money you have to show that you're growing by x amount. Month-on -month, year-on-year to justify that investment. And, as a founder that just, you have to kind of balance that, that thing. You got to balance that dynamic. But frankly, I think a lot of founders are okay and very comfortable with the knowledge that, hey, you're just not going to reach billion dollar evaluations. Maybe if your company that reaches $100 million evaluations or if you're maybe doing like $10 million annually in revenues, that's perfectly okay. And some VC's that may be labeled a lifestyle business. For a lot of founders every year I'd be a damn comfortable lifestyle. So it really just depends on your perspective but I think a lot of founders in my conversations are becoming more comfortable with the knowledge they are just not going to reach that massive, massive scale.

Stephan: Well to go meta on Well Made for a second, we're up to 70 something episodes at this point and we've talked to founders of multi-hundred million dollar startups and we've talked to people like Studio Neat where they're a two person operation and they're almost- It's like almost a scientific experiment because they're trying to only ever be two people they don't want to hire anyone and they want to use like all the leverage that technology offers today to stay as small as possible. That is a thing that you can do nowadays that probably wasn't possible before and so you can go back. Grove Made is another example that comes to mind from the archives of a smaller company. And I want to paint a picture of all the different models that exist out there. That's what we're trying to do with this show, to let the audience sort of decide for themselves what makes sense for them or how they feel about these different companies or how does this make sense or not? But I think that there is that thing that is possible in a company like Studio Neat proves it, that today it seems like with all the leverage that technology gives you, it should be easier to run a smaller, profitable company. But it's an expectations problem because we're all reading the news and the world is telling us that we're not good enough. But if you're willing to be happy, having a great lifestyle, making money and working hard and keeping your company small, that's a perfectly reasonable and great way to go. And I think 99% of the companies in the world probably would do better approaching things that way.

Paul: Yeah. You know? All right, so you've got, how many people do you have in your stuff? Like 50 or so? Yeah, so you're able to serve from where I stand, you're pretty much serving the whole kind of modern DNVB ecosystem. With regards to packaging, you don't have everybody, but you're doing a damn good job of pretty much cornering the market from what I understand. You're able to do that with 50 people. What I don't understand is when I go and visit these VC backed companies and I'm talking about brands specifically. The NVB's that are pretty damn young. I go to their HQ, I go and sit down with the founders. I look around, they're moving out because they're moving into a larger space, but they already have 260, 250 people on staff continuing to grow. They're a two year old product company and I'm thinking to myself, what are these people doing? Like why do you need 250 people to sell this one skill basically? What are these people possibly doing? What could they possibly be doing throughout the day that a handful of maybe 15 people, 10 people would not be able to do. Again, I'm not an operator of a product company, so maybe I'm just naive to that. But it's interesting and I'd like to see how that shapes out of the next couple of years, whether that is a fatal flaw for a lot of companies or if that's actually something that is absolutely required in order to actually scale. But my suspicion is that it's not necessarily required. And I think you're a great example of being able to corner our market even though you're not serving consumers, you're definitely doing a lot of work and you're doing so with a staff size that seems to me to be appropriate for what you're actually doing.

Stephan: Well, yeah. And part of our goal and now it's, I don't want to make this Lumi-feast, but it's to actually make it easier for other companies to not have to have full-time employees having to think about this type of problem. I think part of it is an expectations game and we have to like dial it back down a little bit because I do think we're still in the first inning of stuff moving online. You can still go to CVS, you can still go to Walmart, you can still go to these places and they have shelves and shelves and aisles and aisles of stuff. And most likely, that stuff is going to move online over the course of the next 20, 30 years. So, we're still at a point where ecommerce is 10% of retail sales.

Paul: You know, I actually-

Stephan: You disagree with me on that?

Paul: No, no, no, no, no, no, no. What that figure with that 10% of online sales. I would love to see more detailed breakdowns of what that actually means. Because when you hear that, and again, this goes back to what we were talking about earlier about entrepreneurship being down for our era in our generation. We're in the middle of it. So again, it just seems counter-intuitive and this could be another false assumption on my part based around the fact that I'm in the space, but it doesn't make sense to me that only 10% of retail sales are online. I would definitely like to see a breakdown of age group and generation and income, what that looks like by demographic. Right? So, you know, folks like you or I are friends or colleagues, what percentage of our purchases are online versus offline. And I guarantee you if you were to break it down by cohorts that you might see a vastly different story come out.

Stephan: Well, there's a couple things here and if you want to see data on this the10% number comes from the census bureau. So I have the link, we'll put it in the show notes, but it's census.gov/retail. That's where that figure that everyone always quotes comes from and they track this number every year. I think they track it every quarter actually. But there are huge areas that are unexplored to some extent. Some are generations, like you said, some are geographies. like the entire middle of the country. Where are you based again? I forget.

Paul: I'm in Washington DC.

Stephan: You're in DC. DC's probably covered. Web's over in Ohio. I was thinking Ohio. You know Web Smith. So, there's like whole sections of the country that are much less well addressed by brands. And then there are categories, I think cars count as retail sales. So if people are not really buying that many cars directly online. So that's a huge purchase. Right. And that's a huge industry. So there's categories that maybe won't easily come online, even though Tesla is doing a pretty good job with that already. So I think you're right that we have to kind of look at that a little closer. Some of that data is available, but my point is more generally the fact that those types of stores like Walmart, CVS, most retail stores, a lot of grocery as well, is still stuff that has the potential to go online where perhaps brands have not yet been developed to compete with the ones that are primarily sold at retail. But so if we project ourselves 20, 30-years into the future, it feels like that's going to be probably quite different than it is today. How will the companies that don't yet exist that will exist, grow or evolve? Would we be in a world where it's a handful of major brands like it is today with the consolidation like Gia Craft?

Paul: Yeah, I mean, that's a great question. And 30-years down the road, that's a long ass time from now. So, I'm not even going to pretend like I'm going to know what that looks like. We're also going to be old greying men. That's just a future that I can't even fathom right now. But, I do think when you kind of look at where we are right now in regards to the economic shifts with regards to the consumer, it's a far more consumer centric economy that we're living in today versus frankly even like 10 to 15-years ago. I mean, when you think about it, the brands that we shopped from in and the stores that we shopped at, the things that we read, there were all kind of gatekeepers and the market was closed off or limited because consumers didn't really get a chance to dictate what it was that they wanted. Power pretty much rested in a handful of folks. And so what you're seeing now with the Internet, online shopping, ecommerce, all that stuff is opened up and it's created a marketplace that's wide open and you're seeing the upstarts start to kind of influence and in some areas start to take over step away market share from the legacy players. But you know, whereas maybe 15, 20-years ago, small players could not exist because the bigger players would just completely gobble up the market and leave no rum. I don't think that's necessarily going to be the case. And I think what we're going to see, and frankly we're probably already starting to see it today, a lot of brands are going to be able to coexist even within a particular category. So even, let's say like shirting brands like men's shirting brands, there's a lot of them that exist currently that yes, there is some overlap with the customer, but each brand is able to exist and thrive in many ways because they know exactly who their core customer is. And that core customer adores them, is coming back multiple times throughout the year and really relies on them for that one thing that they're looking for. And so I think the marketplace is going to be super, super fragmented. You're going to be able to find whatever it is that you're looking for in a particular category. If you don't like Warby Parker, okay, you can just go find, you know, David Kinds or maybe, a Moscot or something like that. If you don't want to shop at Everlane, okay, well you can just go to Outdoor Voices or Girlfriend Collective or whoever else that speaks directly to you and the way that you're looking to be spoken to that has a price point that you think is comfortable. Is selling a product that you are looking for that is slightly different from the other companies and that you like slightly better. And I think what we're finding, and again what we're starting to see, is that multiple brands are able to exist together within one category and able to thrive by really focusing in on the core consumer for that particular company. And again, yes, there is overlap with a lot of these companies and a lot of these brands, but they're still able to thrive because the marketplace is wide open and consumers can find exactly what they're looking for when they do they support that brand’s well basically.

Stephan: I want to explore some other topics, but I do want to echo the thing that Toby was saying, which is just like, when I project into the future, I want to live in a world where people feel like they can start a business and be successful with it and not have to have aspirations of we have to build $100 million company or $1 billion company to be successful. That you can create something that works for you. And, that was kind of the dream of the Internet that you could present yourself online, but we have a new kind of problem, which is like the shopping problem that I don't think has really yet been totally solved of when you were walking into a mall or you were walking down the street of your neighborhood, you could see the storefronts right there and say, oh, hey, I want to pop in here and discover, I don't know what this brand is all about. Let's, go check it out. Or if you're walking down the retail aisles, you can discover a brand more easily that hasn't really been solved yet for the DNVB world that we're moving towards. It's an interesting problem. I don't know, is it one that you're seeing solutions to? I know that our friend Matt Alexander, he was on the podcast very early on, has started a new company called Neighborhood Goods that's trying to bring that idea into the physical world. So, how do you create a department store for the future that allows direct to consumer brands to like enter the real world? But what's the online version of that?

Paul: Yeah, to your point, so Neighborhood Goods of course. Let's talk about kind of like physical retail. So Neighborhood Goods is definitely a great example of, maybe best example right now of a company that is taking a lot of DNVB's and a lot of modern brands, new brands and putting them all under one roof and letting each brand stand alone so to speak. So, each brand has its own section and it's fully branded based on the brand sort of sensibility and the way that looks and acts and all that good stuff. And that's really cool. Show field is another example. They're based in New York. It's not quite a department store, it's kind of a showroom, a multi-brand showroom slash almost a museum. So you kind of walk in there, there's a front desk of people who kind of greet you and explain what the concept is and you kind of walk through this sort of gallery experience and there's all sorts of brands there from Quip to Gravity Blanket and others. Function of beauty is another one. It's really kind of a gallery sort of showroom experience, which is interesting. There's several other companies that are starting to address this in the physical retail space. Online though there is nothing like this happening whatsoever. And I think that is to your point, a big, big problem, because you and I might know where to find let's say we're, again going back to Warby Parker, going back to Eyewear. You and I know the brands because we're in this space. So, if I'm looking for sunglasses but I know I don't necessarily want Warby Parker. I know that there's David Kind. I know that there's Moss Scott. I know that there's Article One. I know all the brands basically because we're in it, we're in this space and we know. The average consumer doesn't really get that full picture. There needs to be a place-

Stephan: For them the mall is Instagram. They're just browsing Instagram and suddenly it's-

Paul: Well, Instagram is kind of just like the wild wild west, and yes, brands can target you as an individual, but you know-

Stephan: It's akin to a billboard when you're walking down the street.

Paul: There needs to be a department store online, so to speak, where marketplace online that is edited doesn't have the Instagram sort of appeal or the Instagram sort of dynamic, but it's like edited and it's a group. It's basically a group of brands, you know, DNVB's, so that if you're looking for sunglasses or if you're looking for eyewear and you have the sneaky suspicion that there are all sorts of Warby Parker's out there, you just don't know how to find them because Warby Parker's got a lockdown down on SEO and ad words. There's a place you gotta go where you can find all these brands and they're broken down by different things. So you know, maybe there's some quotient raking ranking them by quality customer service, like all this stuff. And to give you a much better picture as an average consumer of what's actually out there, apart from what you find on the ground, there needs to be a place like that.

Stephan: Well, one way to solve it is just through content, right? I think an Instagram account that does a great job with that is Thing Testing, and we're having them on the show soon. Jenny is amazing. But that's more of an editorial kind of solution to that problem. You can go there and learn about different brands and what they're doing and kind of see the products there. If you want to solve it from a more shoppers point of view. I think the challenge there, and if I were starting a company in this area, I would position myself really strongly against how Amazon does things. Because I think the skepticism of all these brands, like you mentioned Casper, why isn't casper selling on Amazon. Well, they don't want to give their data away to Amazon. They don't want Amazon to come out and make a mattress based on everything they've learned from Casper's data. They want to be able to control the experience of selling to that customer from the on-boarding, to emails to the exact kind of lay-out of everything, to the packaging, to the experience of unboxing that thing. So they want to be able to control that whole experience. How do you do that in a world where it's a multibrand digital retail environment? I think there was probably a way to do it that works for everyone, but you have to really position yourself against Amazon and allow the brands to have more ownership over the customer data that is moving through that platform somehow.

Paul: Yeah, no, I agree with you. I think that is going to be one of the biggest hurdles for whoever does this correctly to kind of get over and that is okay, they're going to have to be brand partnerships. They're going to have to convince the brands to partner with you and in order for you to lock those folks in order to lock in Warby and tell Robbie, hey, by the way, you know, it's not just going to be you and Eye Wear it's going to be David Kind it's going to be Article One.

Stephan: You're going to be head to head with your competitor.

Paul: You're going to be head to head. And there's going to be some sort of ranking system or some sort of crowd sourced rating based on feedback that's going to really kind of lay it out for folks to give them a much clearer picture of not just the brands that are available to them, but the breakdown in terms of quality, in terms of customer service and all that stuff per brand to get them a much better picture of what is what. That's a hard sell for a lot of founders because especially the older, the elder statesman, so to speak, the blue chip VC-backed brands have grown used to having things their way and kind of dictating the conversation so to speak. Not in a very- It's not like sinister about the way they've gone about business, they're just, they're used to things going their way all the time. And if it comes out that one of the smaller brands consumers actually like them better than what Warby Parker's doing, that could be a problem. That could lead to, maybe not a renewal of contract down the line. So yeah, that's definitely a big consideration. But I mean, frankly I think somebody will figure out how to do it. And I think it's something that the marketplace 100% absolutely needs that the average consumer just doesn't get a clear picture of what's available to them and that needs to change

Stephan: Well, the reason to do it from the brand's perspective would be is if it gives you more distribution. So it's going to be hard initially for any new entrant to be able to do that because, by definition they won't have distribution. So in the beginning, I suspect if someone is trying to do this, they would be able to lock in some of the smaller companies and how they find an audience will be an interesting challenge before they can get to some of these bigger companies. But the value proposition is not totally clear for me now, but I hope someone tries out.

Paul: Yeah, I do too. And I mean, frankly, if it grows as big as it probably could be, it could actually lead to another customer acquisition channel if it's done correctly. So to your point that that could be a plus for a lot of brands. But yeah, I'm curious to see what's going to happen there. And I think it's something that needs to exist.

Stephan: The brands have been burned so many times by platforms, right? Facebook in particular, Google, Amazon, they've all taken- Once they built up that distribution that's when they start pulling the lever on, hey, you know, why don't you give us a lot more money for access to your audience? Or, hey, why don't we actually take all the data we have on what you're doing and copy you. There's always some twist that occurs that is like, oh no, I've made a huge mistake. So I think that's the skepticism that any new entrant in that area would have to overcome. And I hope we'll have Matt Alexander from Neighborhood Goods back on the show soon to talk about what he's been up to with retail. It's an area that you've been covering as well, just in general because there's so many experiments. I mean, almost every brand that we've interviewed over the past couple of years has tried something. We were talking before the show. You were mentioning just the shift towards a more experiential concept of retail. I'll just note one big piece of news that has happened in the past month is one of the biggest pioneers in this area was probably Apple with the Apple stores. And they politely parted ways with Angela Aarons who was their head of retail. She was like trying to do this thing moving in the genius bar to like the Genius Grove and making it a place where people would want to hang out together. It didn't seem to really get all the way there. And maybe that's part of why she decided to step down or they asked her to step down, not totally sure. But what we're seeing that kind of idea emerge for much smaller companies as well.

Paul: Yeah, no, I totally agree. Before we started recording, we were actually having a really good conversation. I want to bring it back into this direction recording now.

Stephan: That was a really great conversation before we started the recording.

Paul: So to bring it into the actual podcast. What I was saying was, when it comes to retail, there are two avenues at that folks are kind of thinking and going these days. The first one is kind of the pop up and it tends to be kind of an experiential experience or experiential pop-up whereby, there's a space that's fully branded obviously it really is just exists to kind of build up hype and so, what you're finding is brand x is having a pop up. It's really glimmery and of glitzy and glamorous and all that good stuff and it's really just made to bring people into the store for x amount of time and have everybody kind of prop up against the wall and snap a couple of Instagram stories or snap a couple of pictures for the Gram and post them and kind of build up hype for the brand that way. There's nothing necessarily wrong with that. And I think that's a smart strategy but only for the short term. And the other avenue that I think is interesting in contrast to this sort of experiential will pop up a trend is having a space that actually acts as more of a gathering place more so than an experiential kind of hype building activation, so to speak. I think a great example of this, like we were talking about earlier, Stefan is Rapha. Rapha does a tremendous job of creating spaces that act as community gathering spots. And so they've got a place in Soho

Stephan: For people who don't know, it's a cycling brand. R. A. P. H. A.

Paul: They're really, really smart when it comes to building community. They're probably the best brands in the modern era that's done it that I've seen of reasons. But with regards to their spaces, they use those as gathering spaces. And what I mean is there, they're multi-use, they're permanent places they're not pop-ups and nothing's wrong with a pop-up, but Rapha has permanent spaces called Club Houses that they use for selling merchandise and selling gear. So there's that retail element. They also have bike shops in the back, so you can come and get your bike repaired if your chain pops or whatever, or you've got a flat tire, you need to get it pumped. You can get, you can do that there and while you wait, there's also a cafe there as well, so you can grab an espresso and chill out for a little bit. There's ample seating. They use that as a place to get people under the brand's umbrella and continuing to come back because it's almost an anchor. It's almost like a third space when you think about it, apart from the office and apart from the home, most Rapha writers are probably not going to be going to Starbucks. But if there's a clubhouse in their city, they're much more likely to go there for their coffee, maybe if they're on the road and there's a Rapha in the city that they're at maybe they go there for getting some work done in the laptop or something. And so again, it just speaks to this idea of creating a sense of place under the umbrella of your brand. And by the way, after hours, these Rapha clubhouses also function as places where they kind of gather after hours, like social happy hours and things like that. So it's a living, breathing space that isn't just there for the Instagram stories and it's something that anchors you to that brand when you may not know much about the city that you're going, you may just Google, hey, is there a Rapha in London? Yes, there's a couple. So you can go to the one in Shoreditch or you can go to the one in Chelsea if they have one or something.

Stephan: Well I think one of the things, and going back to Apple for one second. I think this is where they kind of failed to- I think that that was their aspiration to create a third place. But ultimately if you don't have a thing there, the Apple store doesn't have a coffee shop or books or really any place to hang out, exactly. They've got tables and Apple products and maybe a place where you can learn. They were trying to go for this idea that you could come here and learn new skills, learn how to use Garageband, learn how to use all our apps and maybe you'll buy a phone while you're there. But that didn't really take hold I think because, do I feel like I'm going to go hang out in an Apple store? Whereas I think the topic and interest based concept of what Rapha is doing, and I'm not a cyclist so I can't really exactly say, but the idea of taking a thing that people are very passionate about. People are really into their bikes, really into cycling, really into kind of all the gear and all the accouterments around that and giving them some coffee and a place to sit. Sounds like an interesting combination. I wonder what are other types of brands, like we were talking about Him. I don't know if I'm going to go to Hims and hang out and talk about our baldness problems with my buddies at the Hims store. Like what are the other types of interests and topics where you have the opportunity to create a place where people want to talk about that and hang out together and yeah. Discuss it.

Paul: Yeah. You actually just brought up a really fascinating point and people are going to go to Ralpha store because there's that shared interest. People have a passion for cycling. They want to go there, they want to buy the clothes, they want to grab coffee with their friends after a ride or before a ride or whatever at the Rapha clubhouse. And I think certain categories do well with that. They're passion categories, a problem solver category. Like if you've got ED or you're losing your hair, I'm not sure if you want to be hanging out at the Hims pop up because it's kind of an embarrassing issue. You're not passionate about it. You're using that company or that product rather to solve a particular problem for you.

Stephan: Or even the Warby Parker or the Harry's or whatever. I guess some people might be really into shaving or I guess maybe shaving is a good one because people have been using barbershops as a place to hang out for ages. So I could see them launching their own barber shops and that could be a thing that would be very retro.

Paul: Yeah, I mean they did have a-

Stephan: They had something like that, but it wasn't a full on barber shop was it?

Paul: It was a full on barber shop and they also had kind of a wall of Harry's products too. But it wasn't a place where you really hung out and they shut it down like a year ago. Not sure what they're gonna be doing with that. I'm sure they learned a lot from that kind of activation, that little space.

Stephan: But I think everyone in the retail world, dreams of being able to do something like that.

Paul: Well, not everybody's gonna be able to do it.

Stephan: Yeah. But even companies like Zara or H&M or whatever, the biggest companies, like they want you in their stores. Would they be able to accomplish that feat of like making it a place that you just want to hang out, you have to have some sort of thing that is a passion around it to make it work. So I wonder if there's any others that come to mind?

Paul: Yeah, I mean, I guess theoretically certain brands could do it if they did it well. I don't think that people would like to hang out at a Warby Parker store just for the hell of it. I don't think that people would like to hang out at a Zara now that we're talking about this. Frankly, maybe Rapha has that special sauce. Maybe they figured it out that yes there is a passion about around what we're doing and we can, we can use that passion to fuel other parts of our business in really smart and sustainable ways.

Stephan: Well, we were talking before as well about the movement towards communities as a distribution and brand building tool and some of the companies that have been really successful with that, Glossier comes to mind with that, obviously. They've been doing that since the very beginning. Sephora may be an analogy as a place that some people may want to hang out because they want to try out the new products and if they can foster an environment where people want to talk to each other and get a chance to learn from each other. I think they've tried to create that environment online. They're trying to create that environment in person. Another one that comes to mind that actually just launched recently and they now have a new location in LA, is The Sill. They sell plants. They were on the podcast. Eliza was on the podcast six months ago. They've launched now an online forum and a retail location in Los Angeles. Those are people who are very passionate about something. I could learn a few tips on how to fertilize my plants. I'm not even joking by the way. I have a lot of plants. I would be more into getting a coffee and talking about plants at the Sills store than at Rapha personally, just because I'm not a cyclist.

Paul: Yeah, it's funny, I actually The Sill forum just launched today I believe. So I checked it out before we started talking. Really smart on their part and looking at the forum in the conversations that are kind of taking place there. It's definitely the right move and it's a smart move on their part too. Yeah, I mean community is a big thing, no surprise there. And to your point, Glossier kind of developing out of Into The Gloss is one brand that absolutely understands the power of that. Again, to bring another conversation that we were having before we started recording, I'm going to bring it into the actual podcast. We were talking about some of these brands, Glossier, Girl Boss is another, two brands that are starting to develop their own kind of standalone platforms outside of the social networks. And that's fascinating to me because we're talking about the lack of RY and the rising prices with regards to customer acquisition costs. A lot of these brands are experiencing these days on Instagram and Facebook and other places. It's really just about owning that customer relationship and kind of developing that community and having that direct line with the consumer and building your own kind of platform in house is fascinating. And I know Glossier is as close to launching something on their end. Girl Boss recently developed- I'm not sure if it's still in Beta or not, but they developed something that's kind of like LinkedIn for the Girl Boss reader or consumer or member. These things are fascinating to me. But the one thing that I would like to see is a platform or a community that starts out as a platform and then start developing brands within that platform and spinning them out to become their own sort of entities so to speak. And I think you could probably say that Glossier is an example of that. But I would like to see a place that develops as you know, a community first, where the brand is not in the way. The brand is just facilitating a way for members to connect with each other unfiltered around a particular shared interest. They learn from that community. And then they start to develop brands in conjunction with the users who are already there to perfect those products, to build out the branding and the marketing, and then spin out those brands and really start to sell them directly to those same consumers through their own channels. I haven't quite seen that yet.

Stephan: I'll give you a prediction. Here's a good candidate for this is a company called Winnie. Do you know Winnie?

Paul: Yeah. It's like childcare.

Stephan: Yeah. They're like a social network for parents basically to talk about challenges that they're having raising their kids. I think that we're in an interesting place in consumer technology. There's been a lot fewer investments actually in that area recently. And we're at a place where obviously companies like Facebook are dealing with a lot of backlash. The concept of a forum seems quaint and outdated. I think. I feel like most teenagers have never even heard of what a forum is. So, I think there's a real opportunity to bring back that concept for this generation, because Facebook essentially consumed the online conversation. Facebook, Instagram, etcetera. Twitter, Reddit I guess have consumed all conversation in creating topic based, interest based social networks, definitely seems plausible today in creative disruption terms. And so maybe that will lead to a way to turn that into a physical manifestation. I don't know if that's necessarily the best way to monetize those platforms, but it certainly is one.

Paul: Yeah. I'm glad you brought this subject up because you're exactly right. I think that Facebook and all these other massive social networks have kind of dominated the conversation. They own the space, so to speak at this point. I think we are in an era of social media fatigue. I don't know about you or your friends, but I'm not using Facebook anymore really. My friends aren't really using Facebook. LinkedIn, nobody's really doing anything, you're really not finding jobs or anything like that there. And I think, the future of connecting online and being social online, if you want to call them platforms or social networks or whatever, I think they're going to be organized around specific interests. They're going to be razor sharp in their focus on those interests. Communities are going to develop around those shared interests and what you're going to find is really powerful and lucrative niche communities are going to develop as kind of play things at first. They may start out as forums, they may start out as a slack channel, private slack channels. They may start out as even Facebook groups. You'll start to see them develop into their own things. But it's all going to be built around this idea of niche networks. Some of them are going to be paid membership based or subscription basis. Some of them are going to remain free and they'll find ways to kind of advertise against that user base. But I think the future of social networks and platforms are really going to be niche focused and they're going to be able to use these networks to connect throughout the day online. And then also use those networks to connect offline as well. And Winnie is interesting. I'm not a parent yet. I know about Winnie and I've checked it out a couple times and it's a really fascinating platform.

Stephan: Another couple ideas that come to mind are Strava, speaking of cycling and Rapha are both kind of in the same market. Another one that I was thinking of while you were talking was The Wing, which is a social club essentially for women that is a physical community, but they're popping up all over the place. I think they're already experimenting with the same ideas as Girl Boss, which is like how does that become an app? How does that become a thing that people can use to connect digitally as well as in person? But maybe it becomes a product as well. And the last idea that you're freestyling there made me think of was the gym. That's another kind of third place that people go to and hang out at. That seems like a big opportunity for a lot of sportswear brands, supplements, food type of things that could emerge out of a physical place or a physical community.

Paul: Yeah. I mean people are just using the gym or other places like that, wellness spaces more or less, to connect with each other as like the center of the community, so to speak. Whereas, 50-years ago that might've been the church. What we're seeing now is the gym is becoming the new church. And it's fascinating to kind of think about.

Stephan: That's sending me into a whole other rabbit hole because then you're like: Oh, but what about Peloton? Or what about this new thing Mirror? People are taking the gym into their home.

Paul: Tonal, too. Let's not forget about them.

Stephan: Yeah. And now that thing becomes a sort of physical meets digital experience where you can live inside of your home but connect with the outside world from there. People should read, there's a book that I always recommend it to everyone, which is kind of the basis for Wally, which is called The Machine Stops, was a very fascinating short story that I would highly recommend that is very relevant to where the world is going at the moment. It was written in 1905 or something. And still feels futuristic to this day and it's like totally predicting things like Peloton and Mirror and Tonal and Skype and Spotify. It's like basically people live in cubicles and like everything comes to them and they chat remotely with everyone like we are doing right now.

Paul: It's pretty meta.

Stephan: Leanluxe.com people can read some of your articles there and subscribe to your newsletter. It's a great resource and I'm glad that you're continuing to keep it going. So I really hope people get a chance to check it out. We'll put all those links in the show nuts. You got any last words of wisdom for people?

Paul: I'm just interested to see what's going to happen this year. Here we are almost March at this point and some interesting things have happened on the investment side, on the retail side in our space. I'm curious to see what else is going to happen not just within the rest of this quarter, but for the remaining quarter we have left for 2019.

Stephan: Cool. We'll check in at some point again and get you back on the show to talk about it.

Paul: All right buddy. Appreciate it.

Stephan: One last thing before we go. I'm talking to you at home. What's your favorite brand these days? Is there something that you think is really well made or maybe someone that you love for me to talk to? Send us a tweet. We are @lumi. L U M I on Twitter. We're making this show for you. So tell us what you want to hear and we'll make it happen. Thanks. See you next time.

You can find this and all future episodes on iTunes, Google Play, and here on the Lumi blog. This episode was edited by Evan Goodchild.

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