2PM - No. 394: The DTC Counterpoint 👀

Burger: The death of physical retail has been greatly exaggerated

Retail Data / Elena Burger: If your memory of the past year was erased, and I told you that a pandemic would rip across the world, rendering us all loyal supplicants to online shopping, what percent of sales would you assume eCommerce would be of overall consumption? Probably pretty high, right? I posed the question to some family and friends, and everyone guessed in the 50-80% range. The reality — a little over 14% of sales — is actually shocking. The takeaway shouldn’t be “eCommerce is eating the world” it should be “despite lockdown, store closures, mass layoffs, and global logistics networks that rival militaries in terms of sophistication, eCommerce was less than 1/6th of sales in the US.”

This essay is one that is sure to take the retail ecosystem by storm, and rightfully so. Within the hour that it was published, seven different people sent it my way. It is well-researched and well-positioned. The author is a hedge fund analyst, which informs her views. She explains that the narrative around eCommerce's impact on physical retail is overstated. She and I hopped on a traditional old phone call to discuss what we agreed on as well as what I would contend with or elaborate further on. What I most appreciated about the exchange is that we discussed ideas candidly and constructively without as much as a prior introduction. It’s what I hope happens more often in this era of Substack creators, newsletter operators, and operators-turned-writers. Today’s memo (also at bottom) builds upon what she wrote.

Designing new products while socially distancing

Product Development / Thingtesting: The transition to working from home may have been easier than expected for many office workers. But one problem still remains, more than 300 days after the first stay-at-home orders were called in the US: It’s really hard to make new things while working remotely and going in and out of lockdown.

Walmart went from a nascent to aggressive eCommerce player

eCommerce / Modern Retail: When Walmart brought on Lore, the company was facing a looming threat in Amazon. The eCommerce giant’s sales had grown to $107 billion — not yet enough to eclipse’s Walmart’s then $482 billion in revenue, but enough to present a significant threat. Walmart’s online sales in the quarter before acquiring Jet.com were only growing 7% year-over-year; The company needed to figure out a way to compete with Amazon, and fast.

Your movie is about to be delayed again

Streaming Economy / Wall Street Journal: Executives say to expect a cascade of rescheduling that stretches into the summer moviegoing season. “Morbius,” a “Spider-Man” spinoff scheduled for release by Sony Pictures Entertainment on March 19, will now debut on Oct. 8, giving the studio a seven-month leeway and delaying what was expected to be the first big-budget, wide-release offering since theaters closed last March.

Additional Reading: The 100 Year Titan 

Redefining the ownership of men's clothing

eCommerce / Business Insider: Regy Perlera, 28, is the founder and CEO of Seasons, a menswear rental platform. Seasons raised $4.3 million in 2019 from investors such as Alexis Ohanian's Initialized Capital, Notation Capital, and the rapper Nas. It currently offers over 500 products and has 18 official brand partners.

It may not be as glamorous as DTC, but beauty tech is big money

Digital Industries / TechCrunch (Paywall): This change in sentiment from acquirers is further fueled by recent research on the challenges of turning hyper growth companies profitable. In his Harvard Business School case study Direct to Consumer Brands, Professor Sunil Gupta wrote, “Acquiring DTC brands is easy for incumbent conglomerates, but making them profitable is challenging. More than three years after Unilever acquired Dollar Shave Club, it was still unprofitable.”

What to know about the resale IPO boom

eCommerce / Vogue Business: Technology is “critical” in resale because it deals in single items, Gorra says. “It is extremely difficult from unit economics to make the financial math work because every single item has to be processed uniquely. It’s impossible to do at scale without building tech that can help you do that.” The mechanics and technology that process the flow of goods “needs constant upgrading”, says resale platform Privé Porter managing director Jeff Berk, which is costly. “Every pair of hands in [a] warehouse that touches a product takes away the small profit. The platform-based businesses are the ones which will endure.”

Peloton's rapid rise is threatened by its slow delivery

A. DTC Logistics / New York Times: Many of the stories follow a pattern: After agreeing to shell out for a bike or a treadmill — most buyers are required to begin making payments immediately — customers are given a delivery date of anywhere from three to 10 weeks from purchase. But on delivery day, Peloton either suddenly reschedules or never shows. Customer service representatives offer little clarity, inconsistently doling out $125 refunds or water bottles as consolation. They often blame the lack of information on XPO Logistics and J.B. Hunt, shipping companies that handle a significant portion of Peloton’s deliveries.

How ICON plans to fight Peloton back

B. Digital Brands / Fortune:  Watterson, who founded the company in Logan, Utah, in 1977 at the dawn of a major fitness craze, also likes to draw a parallel to Apple's constant innovation when he touts ICON's iFit, a streaming platform with 1 million members that connects equipment like treadmills, indoor bikes, rowing machines, and ellipticals to the Internet for streamed content and remote coaching. He jokingly notes that that tech pioneer, too, likes to use the letter “i” before its products.

Barneys at Saks: Resurrecting a luxury legend

Retail Real Estate / WWD: Saks Fifth Avenue is bringing Barneys New York back to life, in a Saks kind of way. On Friday, a " Barneys at Saks" department will be unveiled at the Saks Fifth Avenue flagship in Manhattan, where it occupies the entire 54,000-square-foot fifth floor.

The races are digital, and so are the ads, but the money is real

Streaming Economy / New York Times: Ten months into the experiment, sim races seem to be paying off, as television and web audiences helped to salvage the 2020 season. And now sim racing gives teams a new source of revenue, gives sponsors a more accountable form of marketing and has interested a young audience that motorsports have struggled to capture. Soon sim racing will face the real test: Can it retain fans and sponsors when real cars are back on real tracks and real spectators are in the stands?

The mindfulness business is thriving on our anxiety

Trends / Quartz: Ben Rubin, the co-founder and CEO of meditation app empire Ten Percent Happier, says that when it comes to convincing someone to pay for a meditation app, usually “there’s a crisis that is needed to bring someone to the point where they’re ready to really engage”—something personal, like illness, burnout, or divorce.

The meaning of The Forgotten Middle is two-fold: 

While retail is holding strong relative to its COVID-19 pressures, consumer bifurcation is a reality. In short, it's unlikely that the middle-class is spending as much or as often as they were before the pandemic. The wealthier Americans are spending at higher proportions than what has been seen historically. This is unsustainable if mall developers and specialty retailers look to survive the next months. Malls are designed for a robust middle class.

And second, there is more to retail than New York and Los Angeles. In Ohio's capitol city, the retail narrative is focused on the importance of retaining a vibrant middle class. Local retail groups like Designer Brands, L Brands, Ascena Retail Group, Abercrombie & Fitch, and Express are undergoing major changes as consumer behaviors have shifted over time. In this way, the midwest city of Columbus has great influence over the sustainability of most American malls. The city's retail ecosystem is a leading indicator for what's to come at malls everywhere.

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