Well Made

Dan Frommer: Converting Shoppers into Buyers – Well Made E94

September 4, 2019 · RSS · Apple Podcasts

There was a time when the idea of shopping online was revolutionary. When you may have called yourself an ecommerce convert and swore to never step foot in a brick-and-mortar store ever again. But the truth is, while Prime Day gets bigger ever year, so does the line outside of Everlane's retail stores. 

Dan Frommer knows that change is the only constant in how we shop and what we buy. He launched The New Consumer to track that change. Dan used to be the editor-in-chief at Recode and a reporter at Quartz and Forbes. Now, every other week, he sends out a members-only newsletter with a real point of view to help you digest the ecommerce and retail trade headlines. He's on the Well Made podcast to give us a state-of-the-ecommerce-union report, diving deep into everything from the Harry's acquisition and the boom of CBD to globalization and tariffs.

“These brands are not fads. Some will be more successful than others, some may collapse, but these are real brands.”

On this episode, hear how Dan Frommer's journalistic past led him to an obsession with modern consumerism. Dan explains the point of view he's bringing with The New Consumer and how he finds the narrative (0:39). Stephan and Dan dive right in to direct-to-consumer venture capital, and recent brand brand acquisitions (13:32).

Dan explains how "direct-to-consumer" brands have outgrown that name altogether (and why this makes a great case for his disdain of jargon) (14:15). He and Stephan dive deep into Edgewell's acquisition of Harry's, the strategy behind it, and how it could be a possible indicator for future acquisitions of companies like Warby Parker, Away, or Everlane (17:09).

After the last recession came the boom of the heritage brands, but Dan and Stephan talk through the potential of a temporary company. What if the success of a modern brand isn't measured by its lifespan? (25:21) Dan talked to Starbucks Japan about this very idea with the concept of their "stunt Frappucinos" (38:32). Speaking of stunts, Amazon's Prime Day segue's right into a more macro discussion about tariffs, consumer transparency, and globalization (50:34). Dan wraps up with recommendations from his last year of travel to Paris, Milan, and Copenhagen (55:09). Full transcript below.

Also mentioned on the show:

Header photos via Everlane.

Stephan Ango: 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. Dan Frommer, welcome to the show.

Dan Frommer: Thanks for having me.

Stephan: So you're the now founder of The New Consumer. You've got a lot of projects cooking, but I think this is the one that you're going to be working on for a little bit.

Dan: This is definitely my focus with almost all my time right now.

Stephan: People know your byline from COURTS, from Recode. Where else were you before? I forget all of the things.

Dan: Yeah, I started at Forbes like 14 years ago and then I helped start something called Silicon Alley Insider that became Business Insider. So I was employee number two there.

Stephan: City Notes. Points party.

Dan: Points Party. Yeah. Most of my time right now is on two things. New Consumer, which is newconsumer.com which is my guide to the intersection of tech and consumer. We can talk more about that. And then my side project is Points Party. I'm a credit card points nut. And I wanted to apply my journalistic and my points obsessions into something. And also learn how to make a newsletter. I started this probably more than a year and a half ago. When I was still employed full time as the editor in chief of Recode. I was like, oh, I should learn how to make a newsletter from scratch. So I started Points Party as a side project just for friends and accidentally got a bunch of subscribers. And then of course I've taken the last like six months off from sending it out. So I'll be ramping that up again this fall. And that's a pointsparty.com, free newsletter. New Consumers is not free.

Stephan: Not free, 200 bucks a year. I think people who listen to this probably will be good. We do these episodes every three to six months where we try to talk to someone who can give a more meta perspective on the space. You know, most of the conversations that we have here are with founders of direct to consumer brands and other kinds of companies along those lines. But recently we did one with Pam Efford of Wean Luxe. We've had Web Smith on the show who does 2 PM links which is kind of has some overlap with what you're doing.

Dan: And then I discovered last night, you've also had my wife on the show Lauren Sherman from Business Of Fashion. I didn't even realize that.

Stephan: Gosh, what episode was that?

Dan: It was a long time ago.

Stephan: It was probably a couple of years ago. But yeah, so those kinds of bringing a perspective that's sort of a little bit more meta, but describe a little bit about the New Consumer before we jump into some news stories. What made you decide to start it, what is it about?

Dan: Yeah, kind of three things were happening. One is I'm just obsessed with this golden era of e-commerce that were happening that we're experiencing right now. Both as a, I don't want to only say journalists, I see myself more as an analyst and commentator now. But also the consumer, like, you know, I noticed that 90% of what I was spending x groceries were coming in cardboard boxes. Some beautiful Lumi box as well. And there were these new brands in my life that I felt really passionate about, which was kind of weird. Some of them brand new brands, some of them brands from overseas that were becoming more prevalent in the US, obviously Amazon. Amazon through subscribe and save and Prime. I'm probably getting an Amazon delivery almost every day, especially where I was living. I was living in a neighborhood in Brooklyn called Dumbo that barely has a drug store, doesn't really have any general supply stores of any kind. So we had a great grocery store, but everything else was basically coming from Amazon. So there was that kind of personal interest in a lot of this stuff. Also I was a web designer in the 90s. Like design has always been very important to me. So this construction of these new brands was a very interesting thing that I wanted to spend all my time on basically. And the other part of it was, and I had tried running indie media businesses in the past. I started a very Apple focused site in 2011 called Splat F, which I shut down eventually. And the problem with that was that it was still in the era of before people were paying subscriptions for boutique publications on that scale. Like obviously there's always been trade publications and they've always been investor newsletters, but this kind of pro-sumer publication didn't really exist back then and I was trying to monetize through advertising and that just didn't really work very well. You know, the ad network was paying me, but they weren't selling any ads and I couldn't sell anything on my own. So it was not a great experience. But now, eight years later, thanks a lot to people like Ben Thompson, the founder of Stratechery. There's a sizable audience of people who are willing to pay $100 to $1000 dollars a year for a boutique newsletter that most of them are going to expense. And I say newsletter, it starts as a newsletter and mine is also a website with a membership wall. But to me the new consumer is a point of view and it's a membership that I see over the years expanding to do a lot more than just inform and analyze. So the basic product now is I write a members only newsletter twice a week. Basically, I don't want to put numbers on the percentage, but like, let's just say half of it is stuff that you're not gonna read anywhere else because it's an idea that I had and I from scratch completely did all the research and analysis and reporting. I've been a business journalist for 14 years and I have really, really strong, you know, dedication to ethical reporting. I'm also pretty good at math, so I do a lot of data analysis and visualization. My design background comes into it. I designed and built the whole website myself. So this is all very organic and you're literally paying me directly and I'm the only one who's taking any of it besides like Stripe and Member full. So it's really interesting to me as someone who's also studied the media industry, a very interesting new-ish way of doing business, of being a journalist and an analyst and a community builder and a commentator and all the things that I aspire to do over time with it.

Stephan: Yeah. I was excited to support you and I think it's a very, so far great. I mean you launched only just a few months ago, so it's just getting started.

Dan: Just getting started. I was just saying the other thing I do is I look at what's in the news and I give my perspective. Ideally with some original research and analysis on top of it. I spend probably more time than I should on Twitter and I see a lot of executives either sharing links or sharing ideas and I try to shape that into a narrative. And really focus on the why and the how. I think that the something I learned in big journalism was, at Business Insider we were kind of the first ones that really were like second by second. News was still like you'd still get the journal every morning online and they'd be writing for this, like who are you writing for, you're burying all the leads. Like all the interesting stuff is at the bottom of the story. You don't understand what people actually are interested in. Twitter and Bloomberg and everyone between those two has dissected what the spread of facts on the Internet is so fast now and so robust that I'm not interested in competing there. To me what's most interesting is the why and the how. And that's what I really try to specialize in.

Stephan: Yeah. And having a point of view on that and a kind of a bigger narrative that emerges after several months of you've been going down certain different rabbit holes and like how that all threads together is kind of fascinating.

Dan: And that's the long term goal too, is to really pick things that change over time and really go deep on them through this kind of obsessive, whether it's weekly or twice a week or once a month, I kinda check out what's going on with that thing. Yeah, that's kind of interesting. This new thing happened there. One of those is actually this boom of CBD which has been, I'm sure you've seen it too.

Stephan: I haven't put any links to this in our little roundup, but I'd love to talk about it cause I have to say it doesn't make any sense to me. I've never had CBD, so maybe I'm not the right target at demo.

Dan: I've had it a few times. I just got some lotion with it. I don't know if it's going to do anything.

Stephan: Does it do anything?

Dan: No, I don't know. I'm not sure.

Stephan: Is it a placebo? Are there any good studies that have come out explaining it?

Dan: There've been a lot of articles that basically are asking that question and I'm not sure anyone has a definitive answer yes or no. Like, oh, it dramatically does this or, or doesn't. I'm sure that you'll see kind of claims to both. Either way. It's becoming this huge business and projected to blow up into like a multibillion dollar a year business. There are all these new brands being built around it. Everything from like edibles to lotions to tinctures, ointments, vaporizers, all these things. But it turns out that the business of selling CBD products is still really hard, especially online. You have a booth at a farmer's market, I guess if you're taking cash or something like that, it's fine. But trying to sell it in any real quantity online was kind of a nightmare. And so I wrote a big, I did a lot of research. I wrote a big article about it and little by little now and that story is free and anyone can go read it. It's called like CBD Is Supposed To Explode, But Selling It Online Is Still a Mess(https://newconsumer.com/2019/04/cbd-ecommerce-payments-elavon-stripe-shopify/) or something like perfect. Yeah. And that's I think the most popular story I've written so far. It's like one of my top stories every day now even though it's been months since I published it. A lot of interest in that. And now every week there's news that's like, oh, okay, Square is going to pilot letting merchants sell CBD. Today I just got an email from BigCommerce, which is I guess a Shopify competitor is also now making it easier for brands to sell CBD products and they're not doing the payment processing. You still have to work in another company. But it's one of these stories that I am going to be following in real time as the little pieces fall into place. But then also every quarter or every six months pull back and go, Oh wow, this has really changed in this period of time and here are the five takeaways from that. Like, here's what's possible now that wasn't possible six months ago. And that's kinda the way that I approach all the narratives and threads that I like to pull on.

Stephan: Yeah. I thought that for some reason, one of the big reasons that CBD was taking off was actually that because it doesn't have THC. The regulations are a little looser around it, but I don't know what that limits in terms of payment processing and what platforms and banking and things are available for that.

Dan: Yeah. And that's why it's so confusing because technically on a federal level it's legal, but the banks are super conservative. They're super low risk. The problem here is that the big companies, the CVS pharmacies of the world are like, yeah, we're going to start selling CBD in the store. You know that their bank and their payment processor like, okay, cool, you do that because we rely on you for a huge, huge business. Whereas it's the little companies, especially the ones who are founded by people of color or women or other underrepresented groups are the ones who are getting screwed here. And that's to me why this is such an electric issue, because they're the ones who the payment processors are like what you do like 50k a month or you know, $1 million a year, whatever in sales, we don't care about you because you're $10 to us, you know? Whereas Walgreens can say, yeah, we're going to sell CBD. Interestingly one startup, every time one shuts another one lights back up. So Thrive Market is this online grocery store that I find interesting. And they had to stop selling CBD a few months ago. And then I get an email last week or the week before that's like, alright, we're back. And I wrote them and I'm like, who's processing your payments now did you just switch? And everyone's like, we don't want to talk about it. We don't wanna talk about it.

Stephan: That's fascinating. Brainless which is also similar in a similar vein to Thrive. While they've had some different ups and downs, I think mostly relating to the fact that Softbank put in like $250 million into it. but they're like, CBD is the next big thing.

Dan: Yeah, right.

Stephan: Yeah. You know, how can we go down that path? I mean, it's fascinating. I mean, it's one of those things where it's hard to tell who are the ambulance chasers and is there enough demand to support that much activity?

Dan: So far, I think there is, but it's still so small, so unclear. We'll see, and there maybe this thing like in a year where there's like five studies in a row that's like, guys, stop, this is just nonsense.

Stephan: CBD doesn't do anything.

Dan: Or maybe not. I don't know. I don't know.

Stephan: Yeah, that'll be interesting. Well, maybe we should jump into you've been writing a few big stories around some acquisitions. Harry's notably some fundraising news around a couple direct to consumer startups. I thought maybe we should just kind of do a bit of a state of the union on the direct to consumer ecosystem and where you think it stands. You wrote a piece that was highlighting the fact that we've had a $1 billion exit in that space, which is Dollar Shave Club now three years ago, right? Just almost exactly, I think, right? Was it 2016?

Dan: You're the one with the computer open so you tell me.

Stephan: I'm gonna pull it up.

Dan: I think something like that.

Stephan: I think it was about three years. Yeah. 2016. I've got your beautiful chart here. It's just one bar, zero to one. What was your take on what's going on with Warby Parker and where that fits in relative to the whole ecosystem? Y.

Dan: Yeah, another free article, by the way. So anyone who wants to read that one, please do. It's interesting because we're at a stage now, this kind of boom in these new brands. I hate by the way, I'll straight up say it, I don't use jargon on my site. I don't use DNVB, you know, digital native vertical brand. I don't use DTC. I avoid that stuff.

Stephan: What do you call them?

Dan: They're just brands. Like by the way, as time goes on, we're seeing that. Many of them are not direct to consumer anymore. Harry's gets a big percentage of its business from Target and Walmart. Don't know the exact percentage. And I've seen some numbers that seem unbelievably high in some reports, which suggest to me that they're not necessarily correct. Also big old brands, maybe some of them will learn, maybe not, I'm not sure.

Stephan: It's all just blending together.

Dan: So now that I'm off my jerk phase where I say I don't use jargon, I think it's really interesting because a lot of these new brands started almost a decade ago. They receive venture capital very early in their formation, which is not required. You can build a consumer business without venture capital. We've seen a lot of successful ones happen. At Recode my former colleague, Jason Del Ray, did a really great feature on the direct consumer brands that sold for, I think all of them for over a hundred million dollars without raising a dollar of venture capital.

Stephan: Tuft and Needle was one of them. Native Deodorant.

Dan: Yeah. So you don't need to, however, these companies were, most of them were in New York, like Warby Parker. They're like downstairs from Lerer Ventures and that kind of stuff. And it was very easy for them, I would say to get seed funding from venture capital, which immediately starts a timer. It means that you basically have like 10-years to be worth billions of dollars or figure out plan B, which is either be really profitable or go out of business or get acquired or whatever it is. You know, we're now like the better part of a decade into a lot of these companies, especially Warby Parker, especially Casper, Everlane, some of the bigger ones, Away. And I find them really interesting. Allbirds is another one, because they start off selling one product and a lot of them bragged about: We only have one product. Casper's like: We figured out the only mattress you'd ever need. And now they have like six mattresses or something like that because they're not selling one product. They're selling a lifestyle, they're selling a point of view. They're selling a value proposition that will expand a decent amount, but not crazy style. And you know, many of them are not direct to consumer only anymore. Many of them have physical retail, like the Everlane guy. I think has been quoted in the past saying, I'll never ever open a store. And now they have great stores. There's a line outside of in New York when I started the New Consumer, this spring, I sat down with basically everyone and I was like, what are some of the things that are on your mind? And a lot of them were like, hey, it's interesting there haven't been besides Dollar Shave Club, which was acquired for $1 billion by Unilever. Yeah. There haven't been any huge exits despite the fact that we're getting kind of late in the game with some of these companies, at least on the VC timescale. So that was what this piece was about. I basically explained why, which was they don't need to, they don't need to be acquired or go public yet because they have access to capital through the private markets. You know, you mentioned Softbank earlier, Softbank has way too much money to invest in these companies. The founders are able to take some money off the table, which has become increasingly common. And if you look at We Work is absurd there. And many of them are still growing and they also haven't played all their cards yet. They haven't gone, okay, well, you may know us from our luggage business, but now we have a spa service or something like that. Whatever it is. Harry's is an interesting example because then of course, what, two weeks after I published this article, it's announced that Harry's is being acquired by this company called Edgewell. Which was a spinoff of-

Stephan: Schick? Or it's the parent company of Schick.

Dan: It was spun off from, I want to say Energizer battery. It was like the consumer packaged goods version, like side of I think Energizer. And it's either Energizer or Duracell. I'm like 90% confidence Energizer. The plan was we're going to spin off our CPG brands including Schick and Banana Boat and a bunch of these like dusty old brands and someone's going to buy it. You know, Procter and Gamble is going to buy it or Colgate or Unilever or one of those. They're just going to buy it because they have a bunch of these old legacy brands, they'll fold them in and we'll get some money and we'll be out of the business. Well, no one anticipated that Edgewell would actually be the buyer and they spent 1.3, $7 billion in cash and stock to basically aqua hire. There are a lot of like cynical ways of saying this. Like you could say, this is a reverse IPO for Harry's basically, or the most expensive acqui-hire of all time, but they're basically spending almost one and a half billion dollars to acquire Harry's in a deal that has not closed and is not expected to close until early 2020. So now we're in this place where and the big move there is the two founders of Harry's, Jeff Raider and Andy Katz Mayfield, they've done a really great job building Harry's. They've showed that they can start a second brand, which was Flamingo. They've built this pipeline of new brands. They're saying, we're not just a shaving company. We're a platform for creating and running new CPG brands, consumer packaged goods. And the Edgewell CEO's like, great, come in here, fix our brands, let's launch. You know, we have a bunch of stuff that you don't have. We have a global sales organization. We have manufacturing smarts that you don't have, you know, all these things. Let's do this together. Let's build the 21st century, Procter & Gamble with the kind of brain of Harry's and the guts of Edgewell and some of these old brands like, can we fix Schick? Can we fix Banana Boat? All these things. And that deal got announced. I was living in Paris the spring that deal got announced early morning Paris time, which was I think midnight in New York or something. I dunno, whatever it was. And I saw it and I was like, oh, I know what I'm doing today. So and this is basically the model of the new consumer. Like big news happens. I spend all day doing research and reporting and analysis. I make charts, I write, I publish, boom.

Stephan: And so is this like auspicious or what? How do you feel about it? What do you think it portends for the rest of the ecosystem?

Dan: Well, for me it says that like big deals are possible. So it's not that there was only $1 billion deal and there won't ever be any more again. No one would have bet the Edgewell card, you know? Everyone was like, oh, Harry's will, you know, whatever. You can make up 10 different scenarios. No one was like, oh, this spinoff of Energizer batteries is gonna merge with it. Big deals are possible. The entrepreneurs who have created these companies and these brands are highly valued in the market. Jeff Raider, Jeff also was a founder of Warby Parker, so he's done this twice now. The boards and investors, although the Edgewell stock is down, I don't know, 25%, 30% since this deal was announced and hasn't gone up. So, the investors are a little cagey. It's a huge bet. Like it's a bet the company kind of bet. It's the opposite of what everyone expected. But it shows that, that at least the boards and the CEOs of these brands really highly respect these entrepreneurs. And you can probably see the same thing with the two women who founded Away. Maybe it'll go public but maybe some brand will swoop in and say we need you to run our $10 billion business, go for it and we'll also buy you. And it also shows that these brands are not fads like some will be more successful than others, some may collapse but these are real brands. You know, Everlane is a real brand. It's not just a fake baby GAP that's going to go away. Warby Parker is the one that I think will go public and stay independent. If you listen to their founders talk about what they want to do with their lives. It really sounds like they really love running Warby Parker and they think that it has a huge way to go. Others maybe not. Others will sell because they want to cash in and maybe not necessarily run a huge public company for the rest of their lives or for the next 10, 20-years. It's obviously case by case. But it shows that there's potential. What worries me of course, is that everyone's like, oh, well Harry's sold for $1.4 billion. Every shaving startup will or every new take on a CPG company will. And the reality is that's not gonna happen.

Stephan: Well, it's fascinating that the $2 billion exits are both in the shaving market. And I think it's not coincidental. I mean, part of it is they started around the same time and so there is that kind of time horizon that you're describing. But also, I forget which big VC firm put together this like chart of ranking the different basically CPG markets that exist on several axes. And one of them is obviously like how consumable is this thing? Shaving is among the top things where hey, you know, you're replenishing this thing, it's called the Razor Model for a reason. Right? So like that's a thing where once you've got a subscriber you can pretty much predict that that's gonna, as long as they don't switch to some other provider that's going to be reliable revenue. Not so much the same thing for something like a big purchase, like a mattress or something like that. And so how did those different product categories work relative to each other when it comes to the long term potential of that brand? And then the other part, which I think goes back to what you were saying at the very beginning is why is it that suddenly you are spending 90% of your dollars aside from groceries on brands that seem to have popped up in the past like five to 10-years? And I think that's maybe more of a generational thing. Like do you and I really care about Banana Boat as a brand? Banana Boat hasn't established its credentials as a brand to us because it has never been marketed to millennials essentially. Are we in a phase where we're just rebuilding all the brands that need to exist to support the basic needs of millennials who have entered the workforce and are now spending money? Is that something where we see like that pattern accelerating and we now there's a next generation of like the Gen Z brands that need to come out? Or is it that we're kind of in a place now where there isn't as much consolidation and it's possible for many brands to coexist? That's the part where it's like a little bit of an unknown. I don't know where these developments take you.

Dan: There's a few things in that, it's very interesting that this is happening after the last recession, maybe coincidental, maybe not. Was the boom of the heritage brands, right? Like Red Wing came back and all these heritage brands were coming back, particularly in fashion, but maybe in other places as well. And now we have this new brand boom, which is interesting. This is where it's hard to talk about micro and macro in the same sentence because like there's probably other areas where heritage is booming right now. I don't know, like grains of corn or something like that. Rice companies or something like that. But I was having a great conversation with someone the other day and we were talking about how you used to measure a brand's quality in how long it's survived. You would literally have the seal of the brand and it would say like established 1912 and that would say a lot about the company.

Stephan: I love the companies that have since 732 like soy sauce and beer is basically in that category.

Dan: Yeah. But I think something has changed in the last- It must be a generational thing because to me, the rise of digital technology and modern science and everything else. Like I don't want an old brand because I don't think they've changed anything recently. Give me the new stuff. Give me the best science, give me the best technology, give me the best design and branding. And it seems like increasingly that's happening from new brands and not old brands. And the fact that we have reviews online, you can really in a short period of time. No one knows how well your suitcase is going to last over 10-years because the company hasn't been there for 10-years. But we know what a month or two or three or a hundred thousand miles a year of flying does to an Away suitcase. And by the way, like it's fine. They break surprise, surprise, but the company is actually very good at replacing them. So I find myself more attracted to new brands, especially in food and in other areas where just the technology and science and design that's been more possible in the last 10-years has really made these brands more attractive. So I think that's a big thing generationally, like we were talking about baby food and if you go look at the baby food aisle at the grocery store. Once millennials start having babies in mass quantities, like no one's going to buy that stuff. There's some element of the wealthy internet yuppie generation making a lot of these decisions too, and there'll always be a need to get quality products throughout the entire spectrum of pricing. But it just seems like there's been a generational shift in trust in newer brands and newer products. And to me that's super interesting.

Stephan: And do you think that's like super portable? Or is there a winner takes all kind of per generation?

Dan: If you're into consumer goods and you're not following Ryan Caldbeck on Twitter, pause and do that. He's the CEO of a company called CircleUp, which invests in consumer brands. I've learned a lot just reading his tweets. And he's kind of the one who's pushing this idea that selection and choice are super important and that means that there will be more smaller brands than huge one size fits all conglomerates in the future and maybe they'll all be owned by one parent company. I hope I'm not misattributing anything to him either. But basically this is where I feel like I've learned all this stuff. So do read his tweets. But by the way, I feel it, like I'm very sensitive and possibly very sensitive gluten and possibly celiac. So this boom in the gluten-free fad has been really helpful for me. But it also means that I will be seeking out products that match my specific needs forever, especially dietary. And I can see that like other people find that they, whether it's a sensitivity or just kind of in their head, people seek out specific traits in products and also the boom of ecommerce makes it possible for all these brands to coexist. I think there'll be an abundance of choice, hopefully that's sustainable, which means that there's more brands going forward and not enough fewer. I don't know if I answered your original question.

Stephan: No, I mean it seems both easier and harder than ever to start a brand because, maybe there was a peak easiness like five years ago or something like that, but it seems like now the market is somewhat saturated, like people know, okay, this is the Warby Parker of x and eventually every niche category. If you look at a CPG company's portfolio, it's a fractal of so many different smaller and smaller brands like what's the Warby Parker of shoe polish or something like that? Like the smallest CPG product and the way that those companies have become so massive like the Unilevers and Procter & Gamble is that they just own broad swaths of entire areas. Even if one specific CPG category is like so small and only brings tens of millions of dollars in revenue relative to the whole thing.

Dan: Yeah. I saw a stat this week, there was like 180, some online mattress brands or something like that. Well there was certainly low hanging fruit. A lot of it is by industry size and then also by like monopolistic evil category owners, like Optical was a huge one because it's a big industry.

Stephan: Evilness as one of the axis.

Dan: Yeah and also extreme profitability. So, your margin is my opportunity, right? So if I can make glasses that are $100 and also give another pair to child somewhere or someone in need and also build a brand that people are excited about, boom, big opportunity. Obviously a lot of those have happened now. It's gonna be hard to be the 189th online mattress brand or something like that. but the human condition will evolve. We'll find that we have new needs. That's to me where a lot of interesting technology and research will happen. Like, I think that we're just getting started applying software and machine learning to medicine. Regulation will hold everything back and all that sort of stuff. But like to me one of the things that I'm most excited about for the rest of our lifetime is like the application of technology to consumer medicine. I think it's going to be hopefully amazing and whatever. I'm sure there will also be horrible consequences that we're not thinking of right now on Facebook. But it's going to be really, really fascinating to see that. And then new forms of distribution. I dunno, you tell me man, are more people signing up to buy boxes than they were a year ago or not or is that number going down?

Stephan: I think more. I think the thing that is interesting is we've seen the influencer boom as well. And so there's a lot of, I don't know if you want to call it even smaller than a micro brand. Like Scott Belsky wrote this great article about micro brands that came out like a year and a half ago or something like that. But he was really trying to describe what if you can make a profitable company that is really just like using what China or some factory you can do best and packaging it in a nicely branded way and putting it online and sort of kind of give a name to that which was the micro brand. But then you have something that's even smaller, which is the influencer and it's just a person who has a following and whether they're making YouTube videos or they're on Instagram, you know, doing something. There's a business model around like merchandise that has been around forever that sort of works. The sort of like MLM style sales of things that you can do through that mechanism. But at least that Lumi we see a lot of people that we're not really able to help that much because like they are sort of in a weird, in between stage where it's like they don't really care what product they sell and they don't have the volume necessarily to sell something, but they sort of exist as a market area that needs to be served.

Dan: People who watch a YouTube video on how to become a drop shipper and then all of a sudden you're going: Is this? . No, but I think the influencer thing's interesting because if you have distribution through Instagram or tictoc or whatever and you have a single product, like you can theoretically build a one person business on that. I mean, literally that's what I'm doing right now. My distribution is basically Gmail and MailChimp.

Stephan: Yeah. I mean it's a distribution mechanism that has no product. Basically most companies have the opposite problem.

Dan: Right? Yeah. So I think that to answer the bigger question, I think that the direct to consumer, I think there's also been a lot of capital which is pushing a lot of this. And then there's the macro question of whether we're entering a recession. I think that there's probably some deceleration that's going to happen over the next couple of years. But I think that there's still massive opportunities. I was living in Paris this spring, I was walking through these giant grocery stores and noticing that the middle half of the store was just a bunch of garbage that no one was buying, like powdered stuff. And then you go to my favorite grocery store Cookbook here in Los Angeles, and it's the size of a closet, but you want every single thing in the store because it's new and fresh and real, whether it's produce or like the best beans money can buy or the best coffee or the best rice or whatever it is. Even the prepared food is, you want to eat all of it and then you go back to Vaughan's or whatever, and you see that half the store is literally cardboard boxes of like freeze dried mixes and powdered mixes and that kind of stuff. There's still so much change ahead. A lot of stuff that's still gonna happen. So, I don't think that there's, by far there's still massive opportunity and by the way, the next generation will probably think differently than we do. And we'll change things again.

Stephan: Yeah, that's a question that's sort of unanswered. But what happens in the Gen Z kids? They're the oldest ones are in their twenties, they're starting to have jobs. They will enter the workforce in the next five years. What is their interpretation of what a brand should be like, what a thing that they want to purchase from looks like and that sort of unknown still.

Dan: Yeah. And I guess the question then is like, do these brands have shorter half lives then than Quaker oats or something like that?

Stephan: And some of them are designed to be that way. I forget what podcast we talked about this on, but I had an interesting conversation with someone who was really trying to take a devil's advocate position and like why do we have any brands that need to last for a hundred years? Like why not just turn branding into fashion? What if you just had a new brand of toothpaste literally every year and it's just like whatever the fad of the year is and you are setting up your company to be more like a fashion company but selling CPG.

Dan: Fascinating.

Stephan: I don't know if that's a good idea or not, but it's interesting.

Dan: Probably not, but like that mentality of constant change as part of the idea is, you know, chefs live that way, right? Most of the seasonal focused market fare restaurants that we've been spending all of our time at.

Stephan: If you have fashion and fast food. Do you have like fast toothpaste or something?

Dan: Maybe? Yeah, I dunno.

Stephan: I don't know.

Dan: It's a good story idea though, I might have to work on that.

Stephan: Well you can. I mean it's definitely possible to make a case for it, I think. But I don't know if it would be successful.

Dan: Probably if a business is valued and it's future cash flows, you know, discounted cash flow type situation, you do want it to last long enough to pay for it's creation and all that kind of stuff. I don't think it's realistic to assume it will last forever either.

Stephan: Well isn't that sort of where things have been going? For some reason the thing that came to mind was how Oreos has like a new flavor that comes out like every week now. I mean I know that you're a big fan of Japan and traveling there and that seems to have been a thing they've been doing over there for a long time where they're still taking like a parent brand name, like Oreo and saying we're going to iterate on this all the time and do these like limited releases on a very frequent basis. Is that so different?

Dan: To me, the best example is the frappuccino in Japan and I actually did spend an hour with the Starbucks Japan, head of beverage innovation. It was amazing. And yeah, they have effectively a stunt cappuccino every few weeks. it gets people in the store. Some of them were even limited. They had a banana one once that every frappuccino had a fresh banana in it and they would limit the store to like 12 bananas a day or something like that. Yeah, it's a sense of novelty that is often seasonal or attached to an event or something like that. In February or March, they often have something that's cherry blossom themed. Obviously in the fall here in the states we have pumpkin spice. And they're building that kind of calendar out and it gets people in the door. I mean, you look at the sweet green seasonal salads, like some of it is literally here the produce items that are fresh this season, let's make something out of it. But also a lot of it is like, oh yeah, that watermelon feta thing. Like that sounds interesting. I want to try that. And it gets people in the door.

Stephan: Well, I think if anything going back to your question about are people buying more boxes now on Lumi or not? I think one thing that it is enabling is if you can sort of automate that whole process of making it easy for people to like have their supply chain be as flexible as possible, you can enable more rapid changes, whether that's good or bad. It's kinda hard to tell. Maybe it creates that sense of novelty. Maybe you are able to iterate more quickly and find something that is an unexpected hit and now you can actually take that and scale it up or something. That sort of up to the different companies. I think it's hard to paint any generalizations on that.

Dan: And that's something I've also wondered about like, does a Casper iterate on a mattress like a software company does? How many versions of the mattress exist? You know, is it three or is it 45? I'm not sure. That's another good story idea. No one steal that, please.

Stephan: Well, I've got a couple more here. We've got Amazon, we've got tariffs. You wrote a big piece on Prime Day. I was shocked just reading your piece on Prime Day that it made such a big bump on the chart.

Dan: Yeah, it was a great chart. Here's the thing about Prime Day. It's not a 10x bump though. It's like a 3x or a 2x.

Stephan: Still though. I don't know anyone who's like getting super jazzed about Prime Day.

Dan: No, except every publication with affiliate links. You're like, hey, Wired, are you really gonna do 40 Prime Day stories today?

Stephan: I guess I don't read those as well.

Dan: I don't know man. Like you think like they make such a big deal out of Prime Day, you'd think that it would be, you know, a 10x day or something like that. And it's just not, it is their biggest day of the year and now it's two days, which is like two and a half days because of all the time zones. But it's still, it's not a 10x bump, which I find interesting. But yeah, it's a big thing and the answer is like, people crave content in all forms. People want to feel like they're part of something, they want to belong. And if you give them a reason to go to Amazon and it happens to be that there's a sale and also that everybody else is on Amazon, so it's okay, you're not going to get fired for shopping on Prime Day or you might, I don't know.

Stephan: Well you had a good nugget, which was like converting shoppers into buyers. I think that that was an interesting insight, which is, I think everyone has like a wish-list of things that they've been putting off to purchase or whatever and that just creates the compelling event to do it now.

Dan: Which I screwed up cause I really wanted to buy an Eero router and it was half price and I didn't notice it until 10 seconds were left on Prime Day and I missed it.

Stephan: Did you see that story about some people who like camera equipment was discounted by like 90% or something and they bought some really fancy gear. Next year I'll be ready for that one. Because I could have used a $10,000 camera for $100 bucks.

Dan: 400 ML lens for $25 bucks. Yeah, I'm in.

Stephan: But you know, obviously people have been talking about Alibaba's take on this forever and it was just sort of is that a thing that can happen in the US? If anyone's going to make it happen, it would be Amazon. I don't know where that takes us. Like three, five years from now. Does it become a 10x thing for them? I don't know. Also, does it create for the rest of the ecosystem, like we've talked to a couple of people on the podcast who somehow they're aligning their calendar around Prime Day, even though they're not even selling on Amazon.

Dan: I mean it's storytelling. That's what it is. It's the same as the Museum of Ice Cream, the same as national bow tie day or something like that. It's just people crave content. They want a story. They will believe in things that they believe in. And if it happens to be, we're the biggest commerce company in the world. And we're going to tell you to shop today. People will do it.

Stephan: Anyone can have a national something.

Dan: Yeah, yeah, yeah. We need national shipping day, national newsletter day. I'm sure all these things actually exist.

Stephan: National newsletter day. It probably is. It's like a national start your own newsletter month. I remember going to Cheesecake Factory and seeing like national cheesecake day and I was like, okay.

Dan: It's amazing. By the way, you can't do it five times a year either, right? So everybody gets one. And look, it's Q4 we know is going to be holiday shopping. That's always going to be a big thing. There are other holidays throughout the year when people buy certain things. If Amazon and now every ecommerce companies, you know what, we've got nothing going on in whatever it is, July or something like that. Is it July something, something like that? We've got nothing going on in July. Let's do it. Let's start Q3 off in a big way. And it seems to be working just fine. Even though the deals aren't even that great.

Stephan: Not to go too much in a political direction, but there's obviously a lot of action going on with the primaries building up. And Elizabeth Warren's probably the person who's like the most proactive about putting out her policies. She's talked a lot about Amazon. There was a related story that is, didn't mention any policy or anything but around Amazon's choice. I don't know if you saw that story that came out where basically Amazon has this thing called Amazon's Choice, which is like whatever the top ranked, it's like sponsored content.

Dan: Yeah, sketchy labeling.

Stephan: Sketchy labeling and the story which was by Hillary Milnes, who's also been on the show, talked about how basically it's sort of a trade between the brand and Amazon in exchange for basically using more dollars of advertising placement. They would put them up. I think what has resonated around Elizabeth Warren's policies, and I've seen other Democratic candidates sort of pair at that idea is anyone who's operating some sort of app store or whether it's Google with the search results, Amazon with their search results, apple with the app store. If you control the mechanism through which people are searching to find things, you should take a more impartial view of the results. Has any of that stuff like peaked your interest or make sense to you?

Dan: I don't believe in 100% equal weighting of stories. I think that's bullshit too. Like this side believes this while these people say this other thing like that to me is not helping anyone either. But as someone who has very like strict editorial judgment and ethics, one of the most eyeopening things about covering commerce more, is just finding out how much of a lie the selection of stores is. Like it's not based on a purely editorial perspective. A lot of it is like who paid us the most to be on the shelf and you know, I wonder how much consumers know that that's the case. And that comes through in many forms. Like some of it is this horrible codependent relationship between Walmart and the big CPG brands. And that's been going on forever and some of it just makes it really hard for an entrepreneur to get distributed. It's not like if you create this really amazing product that instantly means that all these stores are going to want to carry it. They're going to want money from you. They're going to want you to commit to all these marketing events and sometimes they're going to use a loophole to hose you and send you a bill for 200-grand or something like that. Like to me that's the kind of thing where I need to figure out what my angle is on that. Like this is not news that this is happening though I think it's new to a lot people who learn about it. I think it sucks that Amazon would do something like that. I think that the reason that Amazon has become so successful and so big is that it really is a great service and that customers really love it. I love it. I spend thousands of dollars a year on Amazon and I'm mostly very happy with it. But when I hear of things like that where they're essentially lying to you. They don't need to do that. They shouldn't have to need to do that. Whether it's regulation or just Jeff Bezos saying, guys, this is bullshit. Why are we doing this? Someone needs to step in and say, let's have clear and fair labeling on things. I'm totally fine with them charging, they call it their advertising business. It's really just like in store marketing. I'm totally fine with whatever Colgate being able to put a banner ad up that as long as it's clearly marked as a banner. This is where they get in trouble, where a lot of stuff wasn't being labeled correctly or they were favoring their own brands. Totally fine with Amazon having its own brands, a lot of them are totally fine. Like I buy Amazon basics, dog poop bags and you know what? They're totally fine. But a lot of their other stuff I'm not gonna buy because I still value the greater quality that comes with it with another brand. And it's become a big political point to skewer these big tech companies for better or worse. Like personally, I don't think that breaking up Facebook right now is gonna make a big difference. Facebook is still going to be a huge thing. Maybe losing Instagram would be really painful and perhaps should not have been allowed in the first place. But I think it will be part of the election kind of hot topics. I think that a lot of this is self-inflicted and as someone who's also worked in management at big companies like it's impossible to be perfect. I think it's not great that Facebook has become so sloppy with privacy and that kind of stuff, but a lot of it just is that it's sloppiness. It's not Mark Zuckerberg going: I'm going to screw all of you and take all of your information because I want you to suffer. I don't think it's like that at all. I don't think Amazon is setting out to be like an evil retailer, but when there is sloppiness and when things do slip through the cracks, it's a bad look. So whether it's regulation or just peer pressure or, I strongly believe in the role of the press. I'm biased of course, but so much stuff that we learn about these companies and about politicians and about countries and about everything is because of journalists. So, I think that in many ways the system is working. Like we're learning about bad things that have happened. It's not great that they're happening. It's not great that there will be greedy companies and people who stack things against their customers to squeeze out more value. But we're learning about them and hopefully some of the things are being overturned and rectified. To me that says the system's working.

Stephan: Speaking of consumers being less educated on what's going on, one of the articles on our blog is about the tariffs and we're constantly updating it because there's so much action happening. It's really a blog post that we wrote to our customers kind of giving them updates on how the pricing of packaging that's coming from China is changing. But it's been linked to, I've seen a few times on Twitter, by people who want some evidence to point to to say that consumer prices are going up and it's true. Basically something that our blog posts is like very explicit with our customers. Like now most of the stuff that is manufactured through Lumi is actually manufactured in the US. But for the stuff that does come from China, we have to keep up with the changes that are happening almost at Trump's whim, like on a day to day basis and just try to keep people informed. And it's like, yes, there's going to be a 10% tariff and we are passing that on to our customers. We're not eating that 10%. And what was smart, I guess by the US government up until this point, is that they were mostly putting tariffs on things like packaging or things that are sort of components of something larger and not putting tariffs directly on products like electronics and toys where you could see that instantaneous like price jump, but they have announced those kinds of tariffs and the initial wave of them was supposed to start or is supposed to start on September 1st. There was a meeting between Tim Cook, I know that you're like a big Apple follower or you've written a lot about it. I just thought it was very fascinating just a few days ago, he went to meet with Trump and basically like now they're going to move the tariffs around. So that's kind of fascinating.

Dan: Yeah, I mean, hey, someone's got paid for infrastructure week. I'm not gonna pretend I know anything about the super macro kind of shape of what's to come or what the tariffs mean. Some things people will be pretty sensitive on and others they won't. And unit economics are going to get better or worse. And I realize that's a totally noncommittal nothing phrase. But more than anything it's just a distraction I would say. But you tell me are you seeing volumes decrease from in some verticals or some companies or is it still kind of everyone's like, okay, I think we'll be able to manage this?

Stephan: Well, I think there's a few different things at play. One is, yeah, there's the distraction element. I think overall the intention, the repeated intention of the tariffs is to bring back jobs to the US. I think that realistically how many of those jobs can practically be brought back to the US when you're thinking about something like, you probably followed this story closer than I did, but Apple was trying to manufacture a certain subset of their computers in Texas and they ended up shutting that down. And the story behind it was fascinating. Did you read that story where they're talking about they couldn't find the screws to close the computers?

Dan: I mean, my personal take on this is like technology and globalization are not getting reversed. I'm sorry. It's too easy to send an airplane to China. Unless something really, really dumb happens you're not gonna be able to fight that. That's just a huge macro shift. And I think it's really interesting that a decade and a half ago you had American Apparel, which was making its t-shirts in downtown LA, out of business now. And now you have Everlane, which is like, yeah, we make our stuff in China, but here's the factory, here's all the information about how it works. And it's a great facility. What do people feel more strongly about? I think they probably care more about the transparency and the story than they care about necessarily where it's being made.

Stephan: Yeah, that's a good point. I want to end on something I always ask you about just in general, which is travel. You mentioned you were around Paris for what, a couple months?

Dan: Almost four. Yeah, we were in Paris for three, a little over three months and then traveling in Europe and then in London as well.

Stephan: I'm always asking you for pic’s of places, whatever they are. What were some of your favorite experiences in the past? Like whether it's Paris or elsewhere in the past three, four months?

Dan: Paris was amazing. It was the longest I've ever been there, you know? I've been there a bunch of times for work, for my wife going to fashion week and just for a personal vacation and that kind of stuff. It was really phenomenal to be able to spend three months there because you really see the city in a different way. And actually one of the things I made for new consumer members is the Paris guide.

Stephan: Wait a minute I haven't seen this.

Dan: Oh yeah. And you know, looking at all the interesting new retail and commerce things that are in Paris right now. And this is something I'll be doing for other cities.

Stephan: Finally an outlet for that. Because you're just doing that anyway. Oh, here it is. I pulled it up, great.

Dan: So you know, you have the Gallery Lafayette reopening and opening a new store on the Champs-Elysees that is essentially like designed by Bjarke Ingels. The take on the department store of the future. Everything's different. The staff has been trained differently. The food court is good, the bathrooms have TOTO washlet it's fancy, it's a new take on the department store and then across town you have totally different things that are really interesting. A huge boom in natural wine. Smaller stores that are interesting. New brands, Holiday is a brand that started as a magazine that's now an interesting shop in Paris. So that was my kind of if you want to see my read on Paris, please check out the Paris guide on newconsumer.com. Other places we went. I really fell for Milan. Just on a whim I went to Milan design week, the Saloni Furniture Fair. It was really cool. Obviously walking through this massive trade fair of furniture is in many ways like good porn for me, but the whole city kind of gets taken over by design week and there's just a lot of really interesting creative people in town and it's a really beautiful, weird city. So I had a great time in Milan. We went to Copenhagen, which is always a hit.

Stephan: That's on my to-do list, I haven't been yet.

Dan: Go to Noma. It's great. Try to get someone else to pay for it. It was really wonderful and actually something else that was cool there is the, you say the PayPal mafia of Silicon Valley. Like the Noma mafia of Copenhagen is really fascinating. You have cooks and chefs who worked at Noma, when it was and still is in many opinions, the best restaurant in the world, kind of starting to branch off and do their own things. So you have Rosario Sanchez who has started a small empire of Mexican restaurants in Copenhagen that are great like excellent Tacos in the middle of northern Europe. You have one of the guys who ran the fermentation lab starting a spirits company called Empirical Spirits, which was really interesting science and in flavor driven creation of these new alcoholic drinks, which was really cool. And then you also have Heart Bakery, one of the best bakeries in the world starting as well. So that was really cool just to see like the spread of the Noma spirit and Noma has invested in some of these businesses, not all of them. And is supporting some of them. So that was really cool. I dunno, Europe is interesting. We didn't do any like super cheesy tourist stuff that we weren't like going to Greece or Ibiza or anything like that.

Stephan: Well, I said I'll put these links in the show notes, I guess the Paris guide is for subscribers, but it's useful for me on a very selfish level because I was born and raised in Paris. I lived there until I was 17. I lived there until I was 17 and my parents still live there, but I don't go there enough to be like up on what places people should go to. So whenever people are like, what are your recommendations for Paris? Like my stuff is like 15-years old now.

Dan: No, even my list from like five years ago, I looked at it, I was like, I don't know if I would send people to these places anymore. It changes so fast.

Stephan: Yeah, it's changing so fast.

Dan: There are great editorial tools for learning what's cool in a city and honestly Google maps is really good.

Stephan: What do you mean by editorial tools?

Dan: Like in Paris, there's a food guide called Le Fooding, which I think Michelin bought it, but there's one of those in every city in the US Eater's is pretty good.

Stephan: Yeah, Eater's good. They do some global stuff too.

Dan: Yeah, in Paris and Tokyo and some other big cities. But yeah, Europe who knew, pretty great.

Stephan: What's your next destination? Where do you want to go? What's on the list?

Dan: I'm planning my annual Tokyo trip. It has become an annual thing. I love Tokyo. I think the sense of design and quality and craftsmanship is still really phenomenal there. And so, I have friends there and I go. Last year I went to Osaka to this furniture store called Truck Furniture, which it's like the favorite of Monocle and probably five other places like that. But it's really great furniture that they make downstairs. And it was really cool to finally go there and it looks like the most like Portland meets Brooklyn meets Japan thing you could possibly imagine. But it was very satisfying to finally go there. So, this year I was going to go to the opening of the Ace Hotel in Kyoto, but it's been pushed til next year. So, but Moogy has a hotel in Tokyo now, so got to check that out, of course.

Stephan: This summer I was up for a couple of weeks in a place called Sea Ranch. Do you know about it?

Dan: Oh, I really want to go there. I've never been.

Stephan: I was there and it was weird because I booked it and then like a couple of days later, the New York Times had a big article about it with lots of great photos. It's this cool place a couple of hours north of San Francisco. It's very peaceful. I'm surprised that more people don't go there, but I guess it's also set up in a way that's very low density so that there's only hundreds of permanent dwellings there. So it's a great place to go and just relax and the architecture is beautiful.

Dan: My former colleagues and good friends at Curbed also did a really great piece on Sea Ranch this year.

Stephan: Yeah, I think I saw that.

Dan: I want to go there. Speaking of places like that. We went to this tiny island called Pantelleria, which is part of Italy. It's off the coast of Sicily and very close to Tunisia and that's another one those places where it was like cool, beautiful, totally not capable of hosting thousands of people. You know, it's one lane to two way roads throughout the whole place there. There's very few flights in and out. Not really many hotels, but it was a cool way to spend four days.

Stephan: The one thing I'll say about Sea Ranch is coming from La, I drove up, it took about like nine hours to drive there. So I was thinking, I think I could get to Japan more quickly than I can get to this place, but that was part of the experience. It was actually quite fun and meditative to do that big road trip. But I am missing Japan. I would love to go back. There's Naoshima, you been there?

Dan: I need to go.

Stephan: That's gotta be on your list. A weird little island in places that you can go for a few days.

Dan: Yeah. If not this year, next time. But yeah, for sure.

Stephan: People look it up. It's an art island. It's a beautiful place in Japan. Thank you, Dan.

Dan: Of course, thank you.

Stephan: Everyone should go to newconsumer.com. You're also tweeting quite a bit.

Dan: From dome. I've been on Twitter for too long. Fromdome on Twitter and basically every internet property. I got FromDome in 1995 so no one's had it anywhere ever, as far as I know.

Stephan: I'm not going to go into this. I need to find a form for this, but that's how I feel about Lumi. We captured all of the social media handles and everything. Weirdly enough, Pampers came out with a diaper called Lumi a couple months ago. There's been a lot of excellent things called Lumi, but I'm like, guys, we've got the .com we've got the Instagram. The SEO is really good. I don't know what you're trying to do here. I'm not gonna come at you Pampers. I don't have time for that. It's like if someone came out and we're like, I'm going to be FromDome now. That's probably not going to work out well.

Dan: Unless it's some service that I don't know about that.

Stephan: Yeah, you gotta stay early on the tictoc and all those different places.

Dan: Now I know what I'm doing this afternoon.

Stephan: All right. Talk to you later.

Dan: Thanks man.

Stephan: Oh, 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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