A conversation about transitioning to ecommerce

This is the time to transition your business to e-commerce. In partnership with Purple, Utah Business will be talking with industry leaders who made the switch to online sales about exactly how they did it.

Find the transcript from the livestream below:

Elle Griffin: Welcome to another one of Utah Business’s livestreams. I’m Elle Griffin, Editor and Chief of Utah Business, and today, we are talking about taking your business online. I’m talking with some people who are especially expert at this subject. I’m speaking with Joe Megibow, CEO of Purple, Taleeb Noormohamed, CEO of Jane, and Dan Jiminez, president and CEO of Chatbooks

My first question is, right now we’re in a time and have been for several years, where brick and mortar is somewhat on the decline, and ecommerce has been on the rise. As you are all in the ecommerce space, and some of you even have some brick and mortar presence, I wanted to start by asking, how has this year been compared to years past? 

Joe Megibow: Our perspective may be a little different, as we’ve operated in both channels. A big part of our strategy has been making sure the consumers can see what [our mattresses are] like, and understand what’s so different about us. So, we’ve always done both, which has meant while the majority of our net revenue has been driven through eCommerce and online, we’ve also been very aggressive in getting our product out to our wholesale partners like Macy’s or Mattress Firm. 

This year, obviously, things changed a lot. Where about a third of our business was being driven through wholesale when COVID-19 hit so all of that business just dried up overnight. And what was more interesting, was how quickly all of that demand, all of that addressable market, pivoted online. And in a category like ours to see that kind of demand and to be able to move online, and do so rather quickly was just a fascinating change, and one that fortunately was very lucrative for us as we were able to lean into that. 

Taleeb Noormohamed: Yeah, I’d agree. The speed at which the consumer behavior pivoted was quite a remarkable thing. And for us, Jane had been growing pretty well entirely. Jane is of course, entirely online but the growth had been fairly consistent, and we had started to really think about how do you expand category selection, and variety? And for better or for worse, the shift in consumer behavior actually forced us to do that a little bit more quickly than we wanted to. 

And of course, our price point is much lower than [Purple’s], so there were a couple of things that really happened. But at the same time, we were selling things that people now needed more of, now that are at home. First, it was masks, and then it was comfort wear, then it was sweatshirts. Now, going into the holiday, it’s stuff for the home. So, that shift has been something that we have been working really hard with our suppliers to try and meet as well. Whereas in some categories, I think as Joe mentioned, there was a shift to offline. In our world, we’re seeing that there’s this consistent growth, and behavior change, where people have realized that in fact, as they get comfortable with sizing, as they get comfortable with taking a little bit more risk on lower priced items, it’s still okay to shop online and to keep that momentum going as they’re thinking about shopping for holiday, and as they think about back to school and whatever form that now has taken, and what it will mean for January.

Dan Jiminez: For Chatbooks, 2020 has been an interesting year in two respects. We’re 100 percent online and the vast majority of what we do is for mobile phones. As been discussed, we had this wave of buying behavior moving to ecommerce, which was helpful for us at certain times of the year but what drives our product are the photos from travel or family events that people [take and post to social media.] And so, we saw up the funnel from the photo book creation step but rather the photo taking, that was actually changing year over and year, and through the Summer, we saw less photo activity on Instagram and fewer photos being put onto people’s camera rolls.

Elle Griffin: That’s interesting because Taleeb and Joe are both in industries where there are a lot of comfort items that you can purchase, whereas Dan, Chatbooks is more of a, “We need to be doing fun adventures and have weddings that people want to have photos of.” So, maybe that has been a little bit different from other industries. How are you looking at this going into the holidays?

Dan Jiminez: For us, the holidays are still a really significant part of our business. Traditionally, for printed photo products, it’s all about Christmas and all about the five weeks leading up to it. With our business model and the way that we connect to people’s Instagram, or to their social media, we’re a bit more countercyclical than traditional photo book brands I would say. So, that’s been helpful for us but the holidays are a big piece. So, it’s a little bit of, we’re going to wait and see. We’ve been around for five years but this is our first time through an economic downturn in the cycle [so we will see.]

Joe Megibow: Just building off of Dan for a minute on the holiday side, I do think there’s an important thing to note, all three of our companies involve physical goods. All three of our companies ultimately provide products that consumers can hold in their hands, or lay on, or wear but they’re physical goods that have to be shipped, fulfilled, and enter the person’s home. And that’s part of the challenge in running a successful online business, is how do you actually service that customer end to end? And I do think it’s a topic that’s going to be increasingly in focus this holiday. The headwind here is, with the rapid increase in consumer demand, and adoption of online, the infrastructure to actually service that customer, by delivering packages, your FedEx’s and UPS, and other freight carriers, is overwhelmed. It’s just overwhelmed. I saw a study that Google, that they estimated that as many as 700,000,000 gifts are at risk of not being delivered in time for the holiday this year. 

So, and if you think traditional brick and mortar, while online is attractive in many ways right now, there is something about brick and mortar that you can, in theory, walk into a brick and mortar store the day before Christmas, buy something, and walk out, that’s just never been an option online because of fulfillment times. But I think this year is going to be increasingly challenging because even if you can get the product, even if you have the availability to put something on a truck, which many retailers are struggling with because they’re just getting allocations on cubic inches in the trucks. But even if you can get it in the truck, the ability for the networks to actually fulfill in time, and meet their SLA’s is at risk as well. So, it’s an interesting holiday. 

Taleeb Noormohamed: We definitely depend on others to make this happen. In our world, there are probably thousands of different complexities. For Jane, we’re dealing with hundreds of sellers, right? All of whom need to hopefully adhere to, and abide by a series of shipping rules, despite issues with [COVID lockdowns]. So, we have to make sure that all of the supply chain at it’s source is able to push the product into those networks at the right time, so that they’re able to get delivered, as Joe says, in time for the holidays.

There’s also this other interesting complexity that I think, for the three of us, and certainly, for others like us, is what does a new version of the holiday actually mean? And where you may not necessarily be doing large family gatherings, what does this mean for gifting? What does this mean for how much shopping you’re going to do for others versus your own family, or your self? Are people feeling an economic pressure going into this holiday season they haven’t felt in the past? Given all the online shopping that happened in the last two quarters, are they going to be more reserved, less reserved?

Dan Jiminez: Both of those were really good points. And I think that, from us, the transit times, and the effect that this is going to have on the third party logistic providers and shippers are a huge point of uncertainty for us. And so, for us, every year, setting that order deadline for guaranteed delivery in time for Christmas is always a big exercise because we want to maximize and push that date as late as possible. But once that order’s placed, it’s got to get printed, and then, it’s got to get shipped, right? And then, not having it in time for Christmas is just not acceptable, right? So, for us, the strategy this year is we’ve pushed back our deadlines or, we’ve made our deadlines a few days earlier, and then we have a strategy, or a plan to observe transit times as those deadlines get closer. 

Elle Griffin: How are you anticipating that? What are you anticipating the challenge to be, that there’s more gifts than usual or more things being sent, shipped, fulfilled?

Joe Megibow: Nearly every retailer is on an allocation from the fulfillment partners right now. If you were to call up a UPS, or FedEx, and say you want to kick off a contract for them, you’d likely be told, “Call us in January.” There’s no capacity right now. I mean, we’re a little bit bigger, we just announced through Q3, and have done 475,000,000 year to date. So, we’re moving a lot of product. Two months ago, we were already at our limits with FedEx who’s been our primary carrier, so we had to add UPS to our stable of carriers, whom we didn’t even have a contract with at the time. We’ve since put an MSA in place, and we’re doing more than 10 percent of our fulfillment through UPS because FedEx can’t take anymore packages. And every retailer is facing this right now. It’s a very big challenge this year, as the growth rate in ecommerce has far outpaced the infrastructure.

Taleeb Noormohamed: Yeah, and if you look at real numbers… I mean, look at a business like ours, we’ll do a quarter billion in sales this year, but at a lower price point than Joe’s. Think about the number of parcels we’re going to put into the system, right? So, we’ll be responsible for somewhere on the order of 7,000,000 packages from our sellers. And we’re growing but we’re not Amazon, we’re not Chewy, or Etsy, or someone of that size yet. And so, if you think about everybody growing 30, 40, 50, 20 percent, 10 percent, what that actually means in terms of network capacity, it’s a very, very real problem. You didn’t see 30 percent more FedEx planes in the sky, you don’t see 30 percent more UPS trucks on the ground, you don’t see 30 percent increase in warehouse capacity, and so something’s got to give somewhere. 

Joe Megibow:

I think the key here though is, while we’re all geeking out a little bit on what happens under the hood, to the consumer, they don’t care about any of this. They don’t care who your carrier is, at the end of the day, if that Jane package comes two weeks late, they’re going to be calling up [and complaining.] It’s what responsibility do we have for our brands, our customer experience. We may all be giving appeasements, we may all be doing things to keep these customers happy but it’s on us as brands to service our customers, it’s on us as brands to own that long term relationship, and it’s part of the challenge.

Elle Griffin: How do you account for returns, or the customer not being happy? Because all of you, as you said, are selling tactile products that the consumer in a lot of cases doesn’t get to touch, feel, see, or try on before purchasing. Do you have to account for that?

Joe Megibow: Yes, we absolutely have to account for it, it is part of our accounting, is a certain amount of loss that we just build into our business. It’s like a marketing cost, it’s just something we have to build in. But even there, it creates ecommerce opportunities, [we partner with] a company called Sharetown, [a gig economy business with] a network of people who will go pick up mattresses at no cost to us, refurbish them, and resell them in markets that they’re resellable as a grade value, that we then get a rev share on. So, instead of a catastrophic loss, we’ve turned it into a way to actually reduce the costs and turn it into a revenue stream.

Taleeb Noormohamed: Obviously, you have to be there for your customers, to make sure people have that fidelity in the experience. But by large, I think our customers have been pretty happy with what they’ve got. So, return rates are quite low but make no mistake, you have to factor it into your numbers, you have to factor it in into making sure your customer service team is able to handle those requests. And at our side, making sure that our individual sellers are aware of their obligations and responsibilities as they’re pushing product. As a marketplace, we have to make sure that we’re doing our part to support sellers.

Elle Griffin: Let’s say, for example, we have US Vinyl Fence, a local company that wants to launch an app or a merchant website, and they’re wondering, what does the front end piece of this look like? What’s the cost? How do you make that transfer to get everything online so that you have this front-facing customer experience?

Joe Megibow: My guidance would be to just do it. And the reason is vendors like Shopify. They’ve got a full-service platform that you just key in your products and price points and some photographs. They actually have their own merchant processing you can just tack on. And basically, it just becomes a percentage of revenue, they take a cut on everything you sell, and you’re in business. And I mean, you can spin that up in a matter of a week. And the cost at that point, if you’ve got the content, the cost at that point is just the rev share. So, it is remarkably easy to get going.

Elle Griffin: Yeah, I want to go deeper into a couple of things, the first piece is the marketing piece just because when you’re selling online, you’re up against Amazon and everybody else in the world, and you don’t want to wind up on page three of Google, or you’ll miss everyone who doesn’t scroll that far. How are you getting noticed?

Dan Jiminez: I think it’s going to be probably different for all of us. For us, traditionally, within printed photo products, VSCO was the game. And then, when Chatbooks came into the world, it was much more around Instagram and social media, and we built our brand on Instagram. Our customers are word of mouth. We attract them through advertising on Facebook and Instagram. And I would like, as time goes on, to have more word of mouth and more referral. For us, social media has been the primary channel for our customer acquisition.

Taleeb Noormohamed: Thinking about a variety of different channels makes a huge difference. And we’ve been very, very lucky that we’ve got a very, very strong email program which of course, for repeat business, has been great. But we’ve been working with affiliates, and affiliates have been a fantastic source of customers for us. And again, pigging back to how this pandemic has changed things, there was a period of time when Amazon was really, really hammering their affiliates in March and April, cutting commissions and making it harder, and harder for affiliates. And we said, “Look, actually, we think is a great way to acquire customers, and we think these relationships matter.” So, for us, that’s been, again, that’s been hugely valuable.

Social has been truly interesting. I mean, just before this, our fashion director did a Facebook Live for holiday, and it was great to see the reaction, to see people reacting and shopping in real-time was a really interesting thing. And of course, we’re all dependent on the big bad folks at Google and Facebook, in terms of paid search and what that means. But the key is content, right? The key is to make sure you have really good quality content that people want to engage with your stuff. You can spend all you want on advertising, but if it isn’t compelling to people they can’t connect with it, it doesn’t matter. 

Joe Megibow:  I’m so glad you brought up the content side too. Make no mistake, virality is purchased. There’s a lot of money you put in making sure that those videos have a chance of getting played. Now, virality improves the economics. If you buy your way into enough placements, and enough views, it starts getting shared and feeds itself, and you get that flywheel going and the overall economics start to make a lot of sense. And these are very, very expensive detailed processes but I think the key here, is that it’s not about spend, it’s about product and content.

Elle Griffin: There’s been a lot of speculation about how one-click buying and purchasing has worked for Amazon, how people will leave things in their cart, and not purchase things if they have to go through too many landing pages. What have you guys seen in regards to your own companies and how are you addressing that?

Joe Megibow: I’m sure my friends here will approach this with many different angles but I’m going to introduce one that isn’t talked about as much in ecommerce, the role of human beings. Our associates play a critical role by giving customers the ability to engage with experts and associates who hopefully are not just commissioned, and trying to sell at all costs. I mean, good brands, good consumer companies are truly there to help the customer out, and they’re really good at what they do.

We’ve been investing a lot in how do we replicate that online? In one way we’re doing that, and it’s been a terrific growth engine in our business, is leaning into our associates who are human beings but are not in a store. The channel is less important as it is the human engagements. 

Taleeb Noormohamed: The question for us, at a lower price point, is how do you create that sense of trust? How do you create that sense of comfort with the purchase? And so, certainly, in a store, the ability to interact with a human being makes a huge difference. We don’t necessarily always have that luxury. So, for us, it comes down to how well do we tell the story of the product? How comfortable and confident can somebody be when they see the images? Are the images trustworthy? Is our experience on the site going to provide them that level of support if they need it to talk to customer support, or they need to send us a message?

But in order for them to not have to go to that step, we have to make sure we’ve done all of the things that we can possibly do around making it as easy as possible to pay. Reading everything they possibly want to know about the product, how to think about sizing, the different types of images, seeing those things on people. That’s the other best effort that I think has to go into this, and you can’t just throw a bunch of two-dimensional images and hope people are going to trust you, and want to shop with you. They have to want to feel connected to what it is that you’re selling. Does the context of the image make sense? Does the story behind the image make sense? Does the story of the seller in our case actually matter to them too? And we [want them to feel connected to us.]

Elle Griffin: We did get a tactical question about software. For those of you that did have to integrate chat into your website, what are you using?

Dan Jiminez: We use Helpshift as our customer support platform. And through Helpshift, we can handle email. Recently, we added SMS, and then, actually just this week, Helpshift integrated with Facebook messenger as well. 

Joe Megibow: We use Zendesk on the back end, and it’s all just integrated right into the same agents. So, whether they’re on phone or chat, it’s all the same tools, it’s all the same profiles on the back end. Messaging is just something we’re starting to lean into and it’s really powerful because if you get it right, you’re engaging with the customer on their terms. They have a question they ask, you get back to them, the timing is a little different, they can respond when they want to, and you can actually begin to have a long-term dialog.

Taleeb Noormohamed: We use something called Kustomer. It’s a CRM platform. We are now at a point where close to 22 percent of all our customer interactions are done by chat. And so, it’s been huge for us in terms of being able to deal with issue resolution. It’s been a really great transition, I think, in terms of how people are thinking about getting that level of engagement that they need.

Elle Griffin: All right, last question. Where do you see the future of ecommerce going? Is it drone delivery, USPS open on Sundays? What do we need? Where is this headed?

Dan Jiminez: Oh, I wish I knew with a high degree of certainty. Everything will be purchased over TikTok, that’s the future I hope for.

Taleeb Noormohamed: I actually think the future of ecommerce is going to be much more omnichannel than it is purely online, or offline. You cannot replace the human element of being able to pick something up, feel it, look at it, and then, make a decision. But you also can’t replace the efficiency and the scalability of online. So, I think that the future of ecommerce is actually not just a shift in how online platforms think about things but also how retail operations think about ecommerce. And so, a store becomes a place where you go and look at stuff, and try stuff but it’s not necessarily where you get that item right away.

Joe Megibow: I mean, ecommerce isn’t really a thing anymore because everyone is online, and everyone shops in brick and mortar and online. I mean, we’re all the same customers. And what we buy online, and what we buy in-store is shifting but we are all living in both the physical world and the online world. And when we’re in our brick and mortar stores, we’re on our devices either with those brands, or with those retailers, and when we’re at home, we’re often planning visits to go check out a product whether it’s for showrooming, or for education. So, it all intersects. The winners are going to be the ones who figure out how to use that for good. I think the broader question is really, where do we retail going? And not so much where do we see ecommerce going.

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