Modern Retail Strategies: A Conversation with Rick Watson

If you’ve been in retail and ecommerce for some time, there’s a good chance you know Rick Watson. Rick has decades of experience in the industry, with stints at companies such as ChannelAdvisor, where he led product management and engineering, and Barnes and Noble, where he led their marketplace program. As the founder of RMW Commerce, he advises retail and ecommerce businesses on the strategies that help them succeed in today’s market. 

We recently partnered with Rick to deliver the first report on supplier enablement in the industry. If you haven’t read it yet, I strongly encourage you to do so. Some of the topics it covers include:

• Why today’s approach to dropshipping doesn’t work for retailers
• The number of net new brands retailers have to onboard every year
• How supplier enablement helps retailers overcome existential obstacles
• …and so much more!
  

I had a follow up conversation with Rick to dig a little deeper on what the report covers and understand his recommended strategies for success in today’s retail environment. We discussed a wide range of topics, including:

1. How new brands power a retailer’s assortment
2. Why retailers struggle to onboard new brands
3. The consequences of EDI-only integration paths for retailers
4. Rick’s supplier enablement best practices
5. How supplier enablement links to a retailer’s revenue objectives
6. How diverse supply models help retailers tackle the ongoing supply chain crisis
   

If you’re a retail, ecommerce, or supply chain nerd like I am, this conversation was extremely insightful. I came away with dozens of takeaways, and I’m sure you will too. Thanks to Rick for taking the time to speak with us!

Interview video

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Below you can find the best excerpts from our conversation and a full interview transcript as well. 

The best excerpts from the conversation

There’s a lot we covered, so I wanted to highlight some of the biggest takeaways that Rick shared.

1. How new brands power a retailer’s assortment (10:21 - 12:35)

Rick Watson: “What's interesting about modern sellers is they're innovating usually in two ways. One is price and then two is quality. 

To enter the market at all, like, if you’re making a pair of shorts and you're competing against champion or Target's private label, you have to figure out a better mousetrap or else no one's going to visit your website at all. 

And so if you look at some of these amazing brands that have come up in the last few years, and I look at a lot of like men's brands like Tommy John, or Saxx or Vuori or Rhone, like any of these up and coming brands, they spend so much time and care talking about what materials they have, what are the features of the product that is going to make it fit into your lifestyle better than others.

And so, whereas, and I think it kind of gets to the point where…classic brands, when a brand has changed hands, sometimes a dozen times, over its multi-decade history, the first thing new ownership does is cut costs [or] outsource, and that tends to reduce quality. And so, you know, like when a brand has taken over, at times, the quality doesn't necessarily follow there and which leaves an opportunity for these up and coming brands.

So I think that's kind of number one. And second is, I think I'm the biggest fan of direct to consumer as anyone, but direct to consumer is only going to take you so far. And there's only so many people where they're only going to go to your website and buy from the manufacturer. You do need distribution. 

I think before you're eat able to get on the radar of a target or Walmart or, or somebody like that, there are intermediate steps you can go through to improve your distribution on some of these up and coming retailers that have developed a niche audience that trust the curation and the storytelling, you know, for their consumer market.”

2. Rick’s recommended supplier enablement best practices (24:35 - 27:14)

Be thoughtful about having a process

Rick Watson: I remember coming into Barnes & Noble. My goal was I wanted sales to be able to reach out to someone and make the promise like you could, if your team is ready, you can onboard in three weeks. This was back in 2011 when this was all custom software. Like I wanted to be able to make that promise.My job as the leader of the business is to work with the product management and technology teams to ensure that our software was flexible enough to be able to make that promise if we wanted to. 

You have to have a standard, like what is our standard as a retailer? And I think a lot of retailers don't think about that upfront. They're just like, “Oh, let me just talk to the brands and see how the conversation goes.” Instead, they should be forcing the conversation. 

Have specific integration lanes for brands

Rick Watson: One of the worst things a retailer can do is ask a brand: how would you like to integrate?

Most brands would be like, they don't know even how to answer that question. They're waiting for direction from a retailer. And so if you could say, as a retailer, these are the three ways that we can integrate with, and here, maybe the timelines associated with each and the pros and cons to each of them, then you're just making it easy for you to do business with.

One of the worst things a retailer can do is ask a brand: how would you like to integrate?

Obviously some of those integrations could have incentives or benefits for coming on that. 

Think about storytelling upfront

Rick Watson: Connectivity is table stakes these days. To be one of the better retailers in the world, you better know why you're onboarding them to begin with.

And for that to be relevant, you need to have a story that you're going to tell consumers. And so think about, as a retailer, I think about the website as, “What are all the surfaces. I have to tell stories to my consumers for how we're going to help them?” And then you're, you're basically paying a vision for this brand, which is like, here's how you're going to appear on all the surfaces that I have, whether it's email reminders or SMS, or a landing pages or a brand page, all the, all the services that I could give you access to.

And then you treat it like a campaign. You don't treat it like a single sort of launch event. You have a full marketing strategy for how you're going to grow that, you know, help that brand grow their sales with you.

3. Multiple supply models need a unified product experience for consumers (39:57 - 41:09)

Rick Watson: I think the best retailers in the world going forward are going to be able to make nuanced decisions on a SKU by SKU basis for these, for their inventory disposition for a SKU. And so like, if you look at a fashion apparel style, whatever, like your core sizes, you know, let's say a shoe 8 to 12, those are the things you're going to want to have in stock. The rest, it's okay if you drop ship, maybe the volume is a little bit less, but you want all of those to appear on the same product page. And so you want to have a unified merchant experience regardless of the inventory arrangement that you have with your vendor. And I still think most retailers cannot execute that. Their merchandisers don't even know it's an option.

I think those conversations aren't always happening yet. And I think even some of the e-commerce platforms that are being used don't support that kind of arrangement. They're assuming like if a SKU, if I'm a Retailer A that has a relationship with vendor B, all SKUs are a certain way or all SKUs have a certain style or certain way.

And I think that kind of nuance will become more common in the coming years.

Interview transcript

Chris Grouchy: Rick, welcome. It's great to have you here. 

Rick Watson: Thanks so much, Chris. Excited to be here. 

CG: Awesome. Well, you've had quite the journey in retail, particularly enterprise retail and e-commerce, and then, you know, more recently you've jumped in and started your own consulting firm, RMW Commerce Consulting. I'd love for you to share with the audience a little bit more about how you got here and your journey through the wonderful world of e-commerce.

RW: Yeah, it's crazy. You kind of have to go back to in '98, I finished my master's degree and I was like trying to figure out what I do next. And really the choice was between joining a startup in North Carolina or going to Microsoft in Seattle. That was kind of my selection at the time. And I joined a software company in North Carolina called Stingray Software, which was actually Scott Wingo's first startup before ChannelAdvisor was founded and I've met a lot of the initial folks that would went on to start ChannelAdvisor, which ended up moving over to ChannelAdvisor in '99 with a lot of the initial people there. And so that was my introduction to e-commerce. I didn't know anything about commerce when I started. 

My background is in technology, so I only ever wanted to write like C++ code. I thought I'd be doing that forever, but that certainly has changed. So spent 10 years at ChannelAdvisor building the initial versions of their product, moving into product management, helping lead the, go to market for a lot of their products and spent about 10 years there.

So I got to see it grow from 10 people to 300 and something people, which is pretty amazing journey early in your career to see that. Not all ups, some downs, I mean, went through 2008 now multiple rounds of layoffs and things with the economy crashing. So it's actually really good to see that earlier in your career.

Cause it's not all up, you know, high valuations all the time. It's also about how do you deal with challenges? So from there, I moved to New York city. I was recruited to help Barnes and noble.com build out their own third party marketplace to compete with Amazon where I spent two years. I spent a couple of years at a venture backed startup in New York City called Merchantry, which was even like pre kind of Shopify days in the 2012 timeframe.

If anyone can imagine this now, when retailers were looking to start their own marketplaces, dropship programs and how do you enable them to onboard dozens, hundreds of suppliers, very efficiently. We were definitely early. And, and in many ways, you know, I think these cloud-based commerce platforms has come up has made it easier for kind of follow on companies to, to go to market, which is a great thing, I think for all of us, including entrepreneurs that are starting brands. 

I was asked to run the company as CEO, which I did for a number of years, and  ended up helping the board sell the company to a larger venture backed startup in Silicon Valley, and then joined Pitney Bowes global e-commerce as the head of their product management group.

They had just acquired Borderfree and then Pitney Bowes also runs eBay's global shipping program. So I've really got to do a deep dive into the cross border space there. 

All that kind of experience led me to start my own consulting business. And really the key insight was e-commerce isn't going anywhere for awhile.

It continues to explode. Lots of new investment going in. But there are still a lot of companies that are left behind. And so I work with a lot of brands that are really trying to transform their businesses and retailers really through the combination via people, process technology, and strategy. All those things worked in gathered to make a really great plan for business and help them kind of along their journey. As part of that, because I work with a lot of different players in the ecosystem, I also get to work with enterprise SaaS software and service providers that also want help with some part of their go to market. Usually has to do with some kind of marketing. They're launching a new product and they want someone to help review their competition, positioning, messaging, things like that.

So that's been a little bit about my journey. 

The precursor question to this entire report is what are retailers supposed to do in the age of Amazon?

CG: We certainly have been a beneficiary of your research work that you've been able to do with your consulting firm. And, you know, one of the recent collaborations that your firm and Convictional have produced has been this report. And the title of the report is: Freshness and Differentiation: The Modern Retail Strategy.

And I want to dive into the report in lots of detail, but maybe just to start, you came up with this title freshness and differentiation, two words that have a lot of meaning in the world of retail, but I don't think, the boards of some of these retailers truly grasp the significance of, and so let's just take those apart really quickly.

How would you define freshness and differentiation? 

RW: Yeah, to me, if you think about what a retailer is about, a retailer is about choices for consumer and helping them make decisions about achieving goals in their lives. To me, that's like the heart of what a good retail is really about. And if you kind of go back, I have a story I tell, like even going back to like 2012, 2011, I was meeting with a VC who invested in marketplace businesses.

And he told me like, you know, Rick, I don't invest in any marketplace that doesn't have unique supply. And I'm like, huh, okay, why is that? And so like, even that, like one nugget kind of started me on a journey of and this is something that every investor asks, like, how did these companies survive in the age of Amazon?

And so to me, that's almost like the precursor question to this entire report is what are retailers supposed to do? Amazon is investing what, $40 billion of capex a year. How could you possibly have more selection for them? How can you possibly have a lower delivery time or a higher retention rate than Amazon?

What is the place of a retailer in this world where all selection is everywhere? And I landed on these two things that you need to be good at if you're going to be relevant at all. Because ultimately, I feel like if you think about differentiation, It's essentially, it gets back to your customer value proposition.

Like why do you exist? And I think if you look at the negative stories of retail and the past several years, like Sears, JCPenney, Kohls, to some extent Macy's, consumers have forgotten why they exist. And previously they existed because it was the easiest place to get a whole bunch of selection in one place.

Well, consolidated sort of any kind of selection, is less useful and relevant in a world where a consumer can get top brands and 95% of them are on Amazon. What they're not getting from Amazon, first of all, it's hard to find things on Amazon, unless someone else curates it for you, which is why, you know, blogs and other sort of social proof and, and things that are useful.

And so the short answer for freshness is you need to give the consumer a reason to keep coming back. Obviously, if they can come back one time and then you're like, oh, if I need chairs next year, then I'm going to come back next year. But if you know that, okay, I can buy anything for my home. And there's always something interesting  here I'm not finding somewhere else, then your marketing costs go down, which, cost of customer acquisition goes down because the consumer is checking back on their own because they know something new  and exciting, is there. So it kind of goes back really into, if you're having to pay new money every time you attract a customer, freshness is one way to combat that because the consumer will want to come back on their own.

So that's, to me, that's interesting on the freshness side and then differentiation gets back to why do you even exist? Why should the consumer care? And if you're just a price check against Amazon, you're going to lose one way or another. And the money is going to run out and the ride is going to stop and you're going to get off and everyone's going to go back to whatever kind of their next venture is.

But if you're different and you can show that you offer better services, you care about the customer more, you have up and coming brands that competitors don't have. You describe them better. You can tell your story better. You have to have a different experience than the leading retailer. Obviously you're not going to be completely unique in every single SKU that you have, but there better be a core of half of your SKUs that  offer something than you can just sort of find typing in any random searches. 

CG: One of our customers, to give a shout out to them, I think has executed the freshness and differentiation strategy beautifully, and that's Indigo.ca. Indigo is a publicly traded retailer here in Canada. And just to speak a little bit about them briefly, every Canadian, you talk to shops at Indigo. And it's not because you're going to find everything under the sun.

It's because you're going to find products that you can't find anywhere else. And high quality products that are written, from the consumer's experience, the product page, in the voice of the customer. And beneath that, is, are modern brands, modern sellers. And we look at the world and we say, there's two types of suppliers.

There's modern suppliers or modern sellers and classic sellers, classic suppliers. Your report talks a lot about finding new and emerging brands before they become household names. And so let's double click on that. 

How do these new brands power the assortments for retailers and why are they critical to the longevity and growth of retail businesses today?

RW: Yeah, I think, the modern sellers, what's interesting about them is  they're innovating usually in two ways. One is price and then two is like quality. To enter the market at all, if, you're, you know, making a pair of shorts and you're competing against Champion or Target's private label, you have to figure out a better mouse trap, or else no one's going to visit your website at all. And so if you look at some of these amazing brands that have come up in the last few years, and I look at a lot of like men's brands like Tommy John, or Saxx or Vuori or Rhone, like any of these up and coming brands, they spend so much time and care talking about what materials they have, what are the features of the product that is going to make it fit into your lifestyle better than others.

Whereas, and I think it kind of gets to the point where classic brands, when you get, when a brand has changed, hands, sometimes a dozen times over its multi-decade history, the first thing new ownership does is cut costs, outsource, and that tends to reduce quality. And  when a brand is taken over, at times, the quality doesn't necessarily follow there, which leaves an opportunity for these up and coming brands.

So I think that's number one. And second is, I think I'm the biggest fan of direct to consumer  as anyone, but direct to consumer is only going to take you so far. And there's only so many people where they're only going to go to your website and buy from the manufacturer. You do need distribution and, I think before you're  able to get on the radar of a Target or Walmart or somebody like that, there are intermediate steps you can go through to improve your distribution on some of these up and coming retailers that have developed a niche audience that trust the curation and the storytelling, for their consumer market, 

CG: The brands themselves, they don't view necessarily direct to consumer as a religion. They want to make money and appeal to customers, great customers, profitable customers who could buy their products without, introducing channel conflict. And I think what's interesting is, these brands, particularly the emerging ones, the modern brands, they are not well penetrated today across the plethora of retail options, which means that by partnering with them, by providing on-ramps for those modern brands, retailers can actually have a comparative advantage against their competition.

Whereas with classic brands, they're more widely distributed today. And that shows up in things like how they price, their market power, their sophistication when it comes to B2B enablement technology. But as a result, as a retailer, you may be one of 20 selling the same SKU. And so as a consumer, you're basically vying for discoverability and price, right?

So if that becomes the game that the retailer plays by only merchandising classic brands, classic products, you know, to your point. Another player is going to win that game all day long. 

RW: Yeah. Yeah, definitely because they're going to do it in a faster and cheaper way. And it's a challenge for some of these retailers because these up and coming brands are, it's very hard to get the attention of the larger retailers.

And then two is once you, and I talk about some of this in the report is let's say you want to work with somebody like a Macy's. Just getting on their timeframe is difficult. And then you have to talk to you have four points of contacts in Macy's and good luck getting paid by the AP team. And so just the experience of being a brand, working with these retailers is not pleasant.

The volume is great. If you can get it and you can jump through enough hoops, but you could be dead by the time that you reached the end of that gauntlet.

CG: Bill Tarbell calls it an obstacle course. And when he first said that to me, I was. Yeah, that's exactly what it is. It's an obstacle course, right?

It's not a straight line for most retailers who don't have kind of the proper supplier enablement in place. And so where  this shows up in particular, the obstacle course is in situations where you have a retailer and they're entrenched in that three letter acronym, EDI. Right? And so why do retailers who use EDI struggle to work with, and frankly, discover some of these emerging brands, if they are so important to the longevity of their businesses, why do they struggle with it?

RW: Look, I think to me, it starts with  merchandising strategy a little bit, because if you're a typical retail merchandiser at a big box or a medium box is, you know at the end of the day, your top a hundred SKUs are going to make your season. If you miss on those top a hundred SKUs, it doesn't matter how many long tail up and emerging things are there, you're not going to hit your forecast and you get to a certain, so in some sense, it's a little bit of a law of large numbers is you need to find brands that consumers are already searching for, and you need to find ones that are readily available that can help you hit your, the 80% of your target.

And so that's a self-selecting group of brands. You need to find brands that have already made it, that already have people searching for them readily on Google that are, they have a lot of really good unaided awareness because to go from a $5 billion retailer to a $10 billion retailer, to add an upcoming brand and say, that's going to make a big difference in your business to a CFO is it's a little unrealistic. And so it's not even always necessarily their fault. It's just how the numbers tend to work the bigger you get.

CG: What are some of the consequences as a retailer if I'm trying to fit all of my brands, all of my vendors through the EDI only path? What  tends to break when that becomes the only possible on-ramp?

RW: Yeah, I think a couple of things, first of all, you used a word that I would not necessarily associate with a lot of these brands and retailers, which is sophisticated.  Some of them are decidedly not so sophisticated in their processes. But there, there are a couple of things. Usually there are three major touch points, any kind of onboarding process, and it's usually three different departments that hardly talk to each other at the retailer. And so I think that's where it starts to break down. 

First is the merchandising team. They're responsible for just understanding what assortment we're trying to get, what attributes we need, et cetera. The second is supply chain, which is how we actually are going to get an order to you and ensure that you can fulfill it and get usually some kind of ASN [Advance Shipping Notice] back to us, notification that the item is shipped or are canceled.

And then three is usually accounts payable. So, how are you going to get paid as a brand and how as a retailer, what is your process for paying your vendors? What terms, what proof do you need that you shipped orders? Usually that has to do with some kind of EDI invoice that's automatic. Even sometimes if you're sending an EDI invoice, sometimes they still want a paper trail out of band over email to get paid, which involves some kind of reconciliation process.

So even just that split of those three departments not being aligned  is usually the beginning  of the challenge. 

CG: Within each one of those, you could have a number of potential bottlenecks for onboarding a new brand or vendor, and even just maintaining the relationship. Like I look at number two, supply chain and where we see often EDI falling down is how slow the inventory gets updated from the supplier to the retailer.

And what ends up happening is that if you don't have sort of a bi-directional communication or integration between those parties,  the retailer is going to ask the supplier, well can you upload your inventory once a day? And what ends up happening is the supplier just becomes non compliant because that's a chore, especially across all of their retail marketplace channels.

So if you actually have most of your suppliers integrated by default, then they're able to effectively set it and forget it. They see orders come in from the retailer and they can action those quickly from the system of record that they're already using to manage all their direct to consumer orders. And that story is true, not only for inventory and orders, but also product information, you know, having as a merchandising team, not having to chase down vendors for accurate product information, such that I can then use my PIM or stage the products and curate them. That saves a lot of time and enablement effort that would otherwise exist in one of these traditional methods.

Let's talk a little bit more about the definition of supplier enablement in the report.  You talk about it, use this term. Can you share your definition of supplier enablement?

RW: Yeah, I think to me, the goal of true supplier enablement is thinking like the brand. And as a retailer, how can you treat your trading partners as if they're your real business partners, if they were part of your business.

So if you were going to make it as easy as possible for them to work with you in terms of information you need to share, how to deliver things to your standards, pay them  in a friendly and as friction free. So analyzing kind of the entire end to end relationship from the time you say,  "Hi, I'm so-and-so retailer,  I'd love to have your brand on my website" to the time you get your first order, just looking at all the friction points that could happen along that process, and just ensure that you're making it a really good experience for you to do business with them.

And ultimately that's going to make you more competitive as a retailer because more brands will want to work with you. 

CG: I've seen this recently where some of the most successful digitally native first retailers,  such as Wayfair, for example, have actually implemented supplier experience teams around this idea of how do we treat the supplier like we treat our customers? And it's just such an interesting frame on the idea and ethos of retail. The retailer doesn't have a business if they don't have suppliers to trade with or  to merchandise from. And so treating the supplier like you treat your customers introduces a lens by which you can view GMV growth through.

And so one of the things you've talked about in the report is that relevant retailers must deliver 50 to 250 brands per year in order to delight customers. What stops retailers from achieving these goals? 

RW: The short answer is usually it's not the fact that they can't identify brands that they want to work with.

Usually it has to do with the lack of coordination between the merchandising teams and the rest of the organization and being aligned on those freshness goals. And so  if that's how many brands you want to add, usually what happens is that they go into a queue and that queue has usually only one or two, sometimes maybe three suppliers that they can onboard at one time, even if they have EDI trading partner software, except in the case where the brand is already kind of on that VAN or whatever trading network there is.  If you have to complete sort of a new integration from scratch, then you need to schedule something on your IT team's roadmap, which at the same time, it, it also needs to be on your brand's roadmap. And so that's usually the first place it falls down. And I would say if I had to catalog all the problems, that's probably 75% of all problems have to do with just two IT teams talking to each other and coordinating on a specific time to do business.

CG: It makes sense. We see it all the time. It's unfortunate because these IT teams, they have roadmap that they need to get through. They have competing priorities and very scarce resources. And yet, making that integration, that onboarding effort happen implies a level of skill, capacity, and expertise that may not exist.

And so one of the takeaways is retailers should focus on what they do best, which is curating products and the voice of the customer and not building software. And if they're able to benefit from a software competency that enables them to do more of the curating, you get freshness and differentiation.

So when we look at supplier enablement practices for retailers, what are those best practices? What have you seen in talking to retailers and over the course of your career across retailers that nail this. What are they doing differently that others are not?

RW: I think number one, they're being thoughtful about having a process.

 I remember coming into Barnes and Noble is, my goal, and this was all custom software,  say back in 2011, like I, I wanted sales to be able to reach out to someone and make the promise like you could, if your team is ready, you can onboard in three weeks. Like I wanted to be able to make that promise.

And my job as the leader of the business is to work with the product management and technology teams to ensure that our software was flexible enough to be able to make that promise if we wanted to. So number one is like, you have to have a standard. What is our standard as a retailer? And I think a lot of retailers don't think about that upfront.

They're just like, oh, let me just talk to the brands and see how the conversation goes, rather than forcing the conversation. That's  number one. Second is having specific paths or lanes for brands to travel on. And so one of the worst things a retailer can do is ask a brand: how would you like to integrate? Because most brands would be like, they don't know even how to answer that question. They're waiting for direction from a retailer. And so if you could say, as a retailer, these are the three ways that we can integrate with, and here, maybe the timelines associated with each and the pros and cons to each of them, then you're just making it easy for you to do business with.

And obviously some of those integrations could have incentives or benefits for coming on that. I think  that's a second one. 

And I think a third one is, think about storytelling upfront. Because I think connectivity is table stakes these days. And if you don't, if you aren't - to me, to be one of the better retailers in the world, you better know why you're onboarding them to begin with.

And for that to be relevant, you need to have a story that you're going to tell consumers. And so think about as a retailer, I think about the website as what are all the surfaces I have to tell stories to my consumers for how we're going to help them. And then you're, you're basically paying a vision for this brand, which is like, here's how you're going to appear on all the surfaces that I have, whether it's email reminders or SMS, or a landing pages or a brand page,  all the services that I could give you access to.

And then you treat it like a campaign. You don't treat it  like a single sort of launch event. You have a full marketing strategy for how you're going to grow that, help that brand grow their sales with you. 

CG: It's a true partnership. What if we could merchandise at the speed of ideas? And it sounds like the retailer needs to think through data standardization of products, of technology. They need to deeply consider how we can consolidate fragmentation. All of these suppliers live on their own islands. And if, as a retailer, I'm not a software company, it doesn't make sense for me to build a software competency internally. Then I need to find a way to meet those suppliers on the islands that they operate.

And then lastly, bring storytelling upfront, such a key point around thinking through how will this resonate to customers? How can I increase the customer lifetime value?  And then,  round out the assortment gaps that might exist on the core assortment.  If we think through the supplier as the first customer of retail, it's a massive endeavor. It's a board level shift. How does supplier enablement therefore translate into business results? Like revenue recognition, faster GMV growth? 

RW: Yeah, I think the short answer is faster time to revenue for each supplier hits directly your top line and bottom line because you're able to take more profitable orders because you're ultimately satisfying your leading edge consumers more than others.  Your early adopter consumers that are in a retailer's customer base, where they could be the ones that are looking for these up and coming or modern brands. And so those are probably also are in your highest value segment and your most profitable customers out of retailers.

And so you're feeding essentially the best parts of your P&L, that's number one. And second is on the revenue side.  If you can onboard three suppliers, every four months versus onboarding 40 suppliers in three months, that's a pretty seismic shift in what you're able to accomplish  as a merchandiser, because that to me, I treat it like an artist and only having one color in their paintbrush versus a whole rainbow that they can then, like, what are the, what is it consumer experience that we're going to offer and how do we show, ultimately the consumer, why it makes sense to do business with us versus just take my business to a knockoff or some other website.

CG: And it's going to have a net promoter score implication to the supplier and working with the retailer if this isn't simple and seamless for them. We've talked to so many retailers where the average onboarding time for a new dropship or marketplace vendor is two to three months, but sometimes up to six months and then, and the longer it goes, the more risk we introduce for supplier churn in that onboarding funnel.

So your merchant team has worked so hard to get a brand signed on, negotiate terms, curate the product catalog. And then they're going through that process of onboarding and getting enabled. And they inevitably face those integration bumps or lack thereof, or they have to crank out a textbook and  look up the definition of EDI, and a few months into that journey, they may just decide, ah, this may not be worth it. I'm going to go work with a retailer that's a bit faster to work with. 

RW: Yeah. These processes are so convoluted.  If you've been through it enough times, you can see the roadblocks ahead, but I've seen the merchandising teams talk for months and assuming work was happening. And then you get to the end of that two months, just like, okay, so when are you ready?  Oh, this isn't an approved project.  Oh, how do I get approved project? Oh, I need to talk to IT.  So then you go talk to IT and then all you're doing with IT is then figuring out like how big the project is. You're not really getting the project approved. They'll tell you, oh yeah, maybe we can do this. We can get you on our EDI roadmap. This is what we can do, not what we will do. And so you can talk to IT sometimes three or four times. And then as a retailer, you're assuming like, oh yeah, this is going to happen.

And then the project start date that you talk to your IT manager about kind of comes and goes, and then you call them up. It's like, why hasn't the project started like, oh the business hasn't approved the project. Oh, I didn't realize that was a step. Who approves the project? Well, of course you have to go back to the CFO and then the CFO has to see the case for like how much money we're going to make.

Why is this retailer worth their time? And essentially  they're doing all of this energy because they're deathly afraid of wasting their IT teams time. And so when that project gets business approval, like IT doesn't write one line of code until the business says they can do it. They'll just sit back and they'll have a nice conversation with you, but they won't tell, you no.  It's someone else's job to tell, you no. 

CG: It reminds me of thinking through conversations with Chief Digital Officers who have been given this mandate from the CEO and CFO, that we've got to drive top line revenue growth and either increase or maintain our margin profiles. And the chief digital officer is going to say, great, the weight of, the longevity of the retail organization is on my shoulders.

 And we have to use our existing tools and infrastructure to drive top line growth. But I think one of the key learnings here is if you're a VP of E-Commerce or a Chief Digital Officer, go back and talk to the suppliers who are in the process of onboarding or recently have been onboarded and find out what that journey has been like for them.

And what you will determine is that if  they're not getting onboarded in minutes or days, that's missed upside. The business implications is all of the missed orders that you could have generated by having that supplier and their products merchandised on your e-commerce site, much much faster. And that's how you close the gap towards your GMV growth targets.

I want to talk a little bit more about supply chain issues, very hot topic in the world of media venture capital. Can you highlight some of those issues around warehousing and stockroom space that retailers face today and sort of what's the general synthesis here?

RW: Yeah, I think there are a couple of different issues that are happening. Number one is just labor generally is causing constraints all over the supply chain. So even if  retailers and brands are adding capacity, a lot of times they don't even have enough employees to staff those facilities. You saw recently in Q4, both Amazon and FedEx take sometimes hundreds of millions of dollars in charges because they had to route packages around what should have been optimal facilities, but they couldn't because they couldn't staff those facilities to their peak capacity.

So labor, I think is the, one of these biggest challenges in supply chain right now that we're having. I think capacity overall is starting to be solved. As more space comes online, the 3PL industry has gone through some consolidation. Amazon has doubled their warehouse capacity in the past two years, which is pretty crazy. COVID I think is going to continue to cause challenges.

Let's hope there's no new variants to shut down ports. That will slowly work its way through. But labor is something that doesn't seem to be going away quite as quickly as everyone expected, which is causing ports not to be unloaded quickly enough, both on inbound and outbound to the States. The number of truckers they're able to bring things between facilities in LTL or FTL type capacity for pallets of goods and then unloading within facilities.  Amazon warehouse moves into your town, one of the new distribution centers, and there's a giant sucking sound for your staff that wasn't there the week before.

So you've seen 3PLs implode when Amazon comes to town, just because of labor pressure. And the fact is, Amazon gets a bad rap for wages, but  they pay slightly above market because they can afford to, and a lot of other facilities can't. 

CG: And if you can't control the expansion of your own supply chain due to these constraints around labor and warehousing space, it may make sense to look at partnering with vendors and brands who do have those things, who may have landed inventory, who may have the labor or the 3PL capability to ship orders, according to your SLAs. And so,  most retailers would say, okay, if I don't have the space or the capability to do that because I'm maxed out, I'm facing all of these supply chain issues, maybe it's time to double, triple down on drop ship for those vendors that actually do have this kind of stock and the SLAs that  match mine. Are you seeing that happen more and more retailers turning to drop ship business models as a result? 

RW: Definitely. And I would say, overall, yes, I think in the pandemic, particularly in the last year, you saw that taper back slightly because of the premium on just having things, anything in stock.

Particularly, even Amazon and Macy's would like double and triple up orders that they would normally try to go back the other way, but kind of barring that, which is much more of a temporary blip, almost every retailer over the past three or four years, even the big ones have all stopped placing these huge up-front orders from brands and are expecting brands to drop ship as a matter of course, and not just in between wholesale orders that they're used to.

 Many of them expect both being able to take wholesale orders for  core SKUs, but as well as, you as a brand, be able to drop ship for them. I think generally investors have really prioritized business models that don't have huge inventory capital requirements. And so that has caused a sort of a top-down push on the profit and loss statements of a lot of these retailers where they're, the CEOs are being pushed to not carry him inventory.

So even if it's not dropship, it often is some kind of virtual inventory relationship. So we'll house it for you, but it's not ours by the way. And that has the advantage of  you're able to  control the experience a little more. So there could be even levels to quote unquote dropshipping and virtual inventory arrangements between a retailer and a brand.

CG: Yeah, it could be dropship, it could be consignment, could be marketplace, but having that flexibility to almost toggle a given vendor between those relationships, or even wholesale, right? So say they've got stock, I've listed it, the product on my e-commerce page, my customers are into it. Now I want to move that product that SKU into my warehouse because I know that, you know, demand is going to be greater than supply.

And as a result of that, I might as well just take a stock position because I just get better margins. We're seeing that too, where it's like supplier enablement can actually facilitate the entire journey, the entire life cycle of a vendor from nice to meet you let's test the SKUs all the way to, okay, I want to go all in on this relationship. 

RW: Yeah. And I think the best retailers in the world going forward are going to be able to make nuanced decisions on a SKU by SKU basis for their inventory disposition for a SKU. And so like, if you look at a fashion apparel style, whatever, like your core sizes, you know, let's say a shoe eight to 12, those are the things you're going to want to have in stock. The rest, it's okay

if you drop ship, maybe the volume is a little bit less, but you want all of those to appear on the same product page. And so you want to have a unified merchant experience regardless of the inventory arrangement that you have with your vendor. And I think still most retailers cannot execute that. Their merchandisers don't even know it's an option.

I think those conversations aren't always happening yet. And I think even some of the e-commerce platforms that are being used don't support that kind of arrangement. They're assuming like if a SKU, if I'm a Retailer A that has a relationship with vendor B, all SKUs are a certain way or all SKUs have a certain style or certain way.

And I think that kind of nuance will become more common in the coming years. 

CG: The implications I've seen is, we get retailers who come to us and they have their core assortment and then a tab for marketplace. And they've had to draw a line in the sand and bifurcate the experience of both as a customer in order to accommodate this idea of  the lack of flexibility between their existing systems and what they actually want to achieve with their assortment. And what you actually want to do is move to a world and assortment that is  unified, right? 

It's yes, this product could be dropshipped by the vendor, but  from the customer's experience, it's the same product page. They're just selecting a different size or color, or it's the same collection as everything else. But the product is being shipped by the vendor and maybe it's housed in virtual inventory. And  being able to remove the silos that are created as a result of systems that can't talk to each other, ultimately leads to just a better customer experience and probably more profitable supplier relationships too.

RW: Yeah, and the bifurcated experience is, this is something that Amazon itself had to tackle like way going back to 2004.  One of the small benefits  of being an e-commerce for a long time is you see some of these challenges get solved over and over and you see the same approaches either rightly or wrongly being chosen by retailers.

And you can just, and the way I think about it is you're going to solve the problem now, or  it's going to bite you later because ultimately an e-commerce, what do you have? You have the presentation of the product and you get the most leverage by  driving the most traffic to one place and not multiple places and diffusing that traffic, because then you have confusing experiences.

Where do I go?  Is this the product? Is that the product? Why are these products different?  When I go on Amazon and search for Apple phone charger, it's like disaster. Like what, which one of these is the real Apple phone charger. And so the fact that you can unify a product experience and make the technology do the work, rather than the humans, each one of your buyers, every time they visit your website, do the work by asking your customers to solve this problem.

What you're really doing is eliminating your growth and your profitability.

CG: I think that is a great note to wrap on. Rick, thank you so much for taking the time to speak with us and for your incredible work in producing your insights on the importance of freshness and differentiation for modern enterprise retailers. You are a true legend of retail and ecommerce and it’s just so great that we can partner and have these conversations, so I’m glad we were able to record one of them. We hope to have you back and certainly continue working together in the future, so thank you so much. 

RW: Awesome, I appreciate the time. If you can’t tell, I enjoy talking about this stuff, so happy to keep doing it.