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    Interview

    Interview: A New Platform Approach to Brick & Mortar Retail, with Amish Tolia, CoFounder and Co-CEO of Leap

    Every brand is looking for the most efficient ways to grow sales and compress operating expenses and in this environment of rising digital acquisition costs, it is brick and mortar that is rising back to the top of the strategy conversation - but the economics and efficiencies must be right for a brand to test and learn and scale that strategy. Amish Tolia is co-founder and co-CEO of Leap, a platform that helps brands launch and operate retail stores to grow their brand with less risk. He joins the podcast to talk about this new vision for scalable, data-driven retail performance.

    Transcript:

    Peter Crosby:
    Welcome to Unpacking the Digital Shelf, where we explore brand manufacturing in the digital age.

    Peter Crosby:
    Hey everyone, Peter Crosby here from the Digital Shelf Institute. Every brand is looking for the most efficient ways to grow sales and compress operating expenses. And in this environment of rising digital acquisition costs, it is brick and mortar that is rising back to the top of strategy conversations. But the economics and efficiencies must be right for a brand to test and learn and scale that strategy. Amish Tolia is co-founder and co-CEO of Leap, a platform that helps brands launch and operate retail stores to grow their brand with less risk. He joined Rob and me to talk about this new vision for scalable, data driven retail performance.

    Peter Crosby:
    So Amish, thank you so much for joining us. We have been so interested in the feeling that, this is from a digital first thinking person, brick is back, baby. I think you might tell me that it's never gone anywhere. But tell me, does it feel like we are entering a resurgence of brick and mortar? What's going on, seeing all these brands rush to figure out what their brick and mortar strategy is when they didn't know they needed one before apparently?

    Amish Tolia:
    Yeah, yeah. Well, first off, thanks for having me, Peter, Rob, [inaudible 00:01:33] team. Exciting opportunity. But yes, brick is not just back, it's always been here. It's just back and a different way. We like to call it the rebirth of retail on our end. But yeah, no questions, there's a lot of velocity and momentum in of course, the bricks channel, the retail channel, ultimately, to help brands create omnichannel and omnichannel strategy.

    Amish Tolia:
    But yeah, look, there's been, of course as I'm sure many of your listeners know, there's just been a massive boom in this whole direct consumer approach over the last decade plus, since the Great Recession. And particularly Shopify and Facebook have made it really, really easy for anybody that has an idea to sell a product or a service to somebody online, they've made it really easy for folks to spin up businesses and empower entrepreneurs to build great online strategies. But over the course of time and how competitive the online the digital business has gotten, there's no question that a lot of these brand building organizations and online businesses need to transcend into the world of becoming retailers, right?

    Amish Tolia:
    They have to meet their customer where their customer is. And of course, naturally, there's still a line share of the total spend, commerce spend in the US that takes place offline. And so most of these organizations if they have the scale, if they have the type of assortment, they're looking to build an omnichannel strategy. And so they're rushing into the world of physical retail, not just because of how difficult it has gotten online, but because of course, I think through the pandemic, we've all been reminded that humans and us as consumers want to be outside in physical environments, whether it's for entertainment or shopping, folks want to be outside. So I think we've seen in the last couple years a major push to get into the retail channel. And we certainly believe that it's here for the long term.

    Rob Gonzalez:
    Yeah. It's gotten so easy to start a business that's digital first these days, that I got to imagine the jump to physical is just crazy time. So I'm just thinking through, if I wanted to start a new direct to consumer business, I can set up a Shopify site really easily, or I can just sell as an Amazon seller. And we spent a lot of time talking to Carlos Cashman from Thrasio, these are just individuals that are working million dollar Amazon businesses out of their garage, right? It's so easy to get going.

    Rob Gonzalez:
    But if I think about what it's required to do brick, there's a ton of expertise that these companies don't have. You've got to deal with choosing the right location. Location, location, location. You've got to deal with all of a sudden managing store level retail employees. I've got a cousin who spent his entire career in hospitality and the labor issues, especially in this market for dealing with people that are on the ground there, are really, really tough. You've got to deal with assortment planning and merchandising in store, which is a totally different can of worms than online. In store, you've got to be pretty picky about what products fit into your limited shelf space. Whereas online, you can just churn and burn through them until you find something that works, and so on and so forth. It seems hard.

    Rob Gonzalez:
    And so how does Leap help make brick and mortar achievable for companies that are these direct to consumer businesses, their whole DNA is online and they're dealing with what is in some ways becoming an easier operating environment in the online world than what I see as much more complicated, challenging environment in the brick world?

    Amish Tolia:
    Yeah. Rob, you're not wrong on any of that. Operating a physical environment has historically and still today, it's never really been easy, right? It's not rocket science, but there's just a lot of things that you need to get right for it to work well, whether you're operating one location or many at any interesting level of scale. But what we've done in our world is we found out, through our own experience, that many of the component parts that go into the world of running a physical operation, whether you're selling a premium good or you're selling a mass good across categories, a lot of the competencies required to become a great retailer are fairly generic in nature. To your point earlier, real estate competencies, operational competencies, omnichannel technology competencies, design build competencies, et cetera.

    Amish Tolia:
    Really, truly the unique thing is just the look and the feel of the experience. And of course, naturally how a brand building a retailer assorts a store with their product and how they drive traffic to that store. Those are the unique parts. And all we've really done is we have assembled all of the generic components that go into retail infrastructure into what we call our platform, or our operating system, and enable brands to tap into that OS, but be able to customize the front end, i.e., the look and the feel of the physical environment.

    Amish Tolia:
    And so now in today's world here we are coming up to four years into our journey at Leap and brands can leverage our platform to deploy physical retail stores, one location or many, they can scale with us. And they don't have to worry about what we call the, quote, unquote, unsexy components of retail. They can really be focusing on building their brand, i.e., the merchandising strategy of the physical locations, or how to drive traffic to the store location, a la, this whole the analog is no different than how they think about their online business.

    Amish Tolia:
    In today's world, to what we were talking about earlier, Shopify's made it so easy. Before, pre Shopify, there was a world where you had to build your e-commerce infrastructure yourself in house. And brands would have to figure out how to think about payment functionality or product description functionality, database architecture, things of this nature. You just don't in today's world any longer, you can use things like Shopify. So anyways, we've assembled these things into our back end and given brands the ability to our network of locations, our systems and tools, our data infrastructure, and our labor pool, to be able to scale up their retail channel in a way that works in concert with their eCommerce to build an omnichannel strategy.

    Rob Gonzalez:
    Yeah, that makes total sense. I'm wondering, as a follow on, what specific economies of scale, your offer has in the model, that a brand would be just unable to get on their own? I'd imagine just, just to give a subset, one of them might be that you've got dozens and dozens of locations. So you give location flexibility and maybe a brand could try one and then try another and do so more cheaply than having to execute leases and build out the locations on their own and all that type of stuff. Of course, having a labor pool already handy without having the brand spin up their HR operations, you're going to be able to deal much more efficiently with all the aspects around that than they will be able to. But what's the rest of it? Is there a data play here as well?

    Amish Tolia:
    Yeah, yeah, yeah. Well actually, you hit a lot of them. But there is an under the hood view. And so just to give you my version of the question here is if a brand wants to start, build their own retail infrastructure, there's a ton of upfront costs, right? CapEx that goes into the development of the channel and then a ton of overhead growth that comes with the scaling of the channel. And that doesn't just come from payroll growth, building the real estate or the operational competencies. That comes from a lot of capital that has to be put into securing and guaranteeing lease locations and using cash off your balance sheet to go pay for things to put into a store, whether it's a light fixture or some piece of your FF&E.

    Amish Tolia:
    So all of that is now effectively abstracted away and now brands can use a centralized SG&A platform to scale their channel. So for starters, the notion of overhead growth and CapEx needed to build and scale the channel isn't required any longer. They basically can use our platform to do such. Now furthermore, one of the core strategies of the business is really, and this isn't truly novel, scaled retailers have figured this out in the past, that a lot of our strategies to create density in the markets where we operate. And so take New York City today, we power about 26 locations in Manhattan and Williamsburg. And our stores are clustered around specific submarkets, the West Village or Soho, NoHo, Nolita, Upper East Side and Williamsburg, as I said. But when you zoom into one of those areas, let's just take the West Village, for example, on Bleecker Street, between basically 7th and 8th Avenue, we have eight brands, eight store locations, all within a few blocks of each other.

    Amish Tolia:
    And when you create that density in close proximity, you derive a lot of leverage in the marketplace, right? Particularly, you asked about the economies of scale, the brands can run these stores. We can run these stores at a much lower cost basis than if they were to do it themselves, particularly by using a shared labor pool across that entire cluster, versus having to build individual teams across each one of these stores. So the easiest way to think about it is okay, instead of putting a general manager in one store location, we can have a shared general manager across a number of locations, and that effectively creates cost efficiencies for these individual brands. And then furthermore, you're asking about data, so not only can you create efficiencies, but we can drive up productivity and we can avoid a lot of mistakes that have historically plagued retail for forever, just from our shared intelligence, our data.

    Amish Tolia:
    So just take, for example, in that West Village, Bleecker submarket, because we have scale across eight stores of, let's say 40 storefronts on Bleecker Street, I'm estimating there, we have a lot of intelligence of what's happening in that market in particular, who's shopping, what they're shopping for, what they're buying, what they're not buying, how much they're spending, where they're coming from, who they may be coming with, time that day, day of year, a bunch of different data points that we can essentially leverage to make smarter decisions across things like, what other brand should we put on Bleecker Street? Well, okay. We know that, this is hypothetical, we know that men's accessories don't have strong performance in that particular market. So we would never put a men's accessories brand on the street. But we do know women's ready to wear has really great sell-through rates, so we should try to over index and drive site selection decisions accordingly.

    Amish Tolia:
    Or you can take that one step further, it's not just putting the right brand in the right location, it's how do you put the right assortment in these stores? What percentage of the brands' overall assortment do you put in the store based on the type of data and intelligence that we have such that you can drive maximum performance. That's a tiny bit of the data strategy of the business that we now have a shared data pool, and we can use that to make way better decisions that one brand could on their own.

    Rob Gonzalez:
    That makes total sense. To play back a little bit, if I think about the economies of scale that you offer a direct to consumer brand that might be going brick for the first time, on the one end, there's just CapEx savings, which can be massive. And especially, if we go back over the last decade where capital's been really cheap due to historically low interest rates, it was really easy to raise a lot of money. The first generation of D2C darlings, like a Casper or Glossier or a Allbirds, could raise tons of capital and just eat the upfront CapEx expensive going into store.

    Rob Gonzalez:
    But today, in particular, that's a lot harder to do, even than it was a year ago. So there's economies of scale where you're just giving a much more attractive cost basis to the company. But then you're saying there's actually a growth story here too. You're reducing risk on growth through data that you've got by clustering a ton of stores in specific areas. That's really interesting. I hadn't thought about the latter at all, but it makes a lot of sense to me.

    Amish Tolia:
    Yeah. And actually taking it one step further, just driving growth is a key piece. And so not only using the data, eventually as we continue to scale up in a highly predictive way to make better decisions which stretch performance and certainly increases your batting average. The amount of times you make silly decisions is far less when you have scale on a particular market.

    Amish Tolia:
    But take that one step further.,Actually, we also have a shared customer file. So we can leverage, effectively, our CRM to drive incremental sales across every one of these brands and locations on our network. We're the merchants in the store, so we can actually cross pollinate shoppers across our entire network of locations. And that creates a dramatic impact, a dramatic lift to the top half of the P&L that, quite frankly, a lot of these brands wouldn't necessarily have on their own. It's incredibly costly with rising caps in today's world. Now, they have this great benefit of being on a platform like ours, where they can leverage a universal customer file and be able to get incremental sales that they wouldn't be able to get otherwise.

    Peter Crosby:
    And when you think about the experience of retail, there's certainly, as you talked about, the assortment choice, the environment that is set up. But obviously, where the key advantages can come from, or conversely, if it's not done well, one of the things that can make it miserable is having the right people in the store to bring that experience to life. And I'm wondering, when you think about getting those qualified employees and attracting and retaining them in this environment, do you find that your approach helps with that metric, with being able to attract and retain folks?

    Amish Tolia:
    Yeah. It's a great question. The interesting thing about Leap is we are not one brand. We're a platform that powers physical stores for lots of different brands across geographies. And those brands are across categories as well, apparel, footwear, accessories, fine jewelry, home furnishing, you name it. And the AOVs, or the unit economics of a lot of these different brands are slightly unique. On the low end, we have AOVs in some of our doors that are $50. On the high end, we've got AOVs that are $2,000.

    Amish Tolia:
    And to that end, it's been a really interesting journey on the staffing and the operating of these doors in a really good way, because we've been able to attract really great talent to Leap, to work in the field across all of these doors. And actually retain folks too, because there's this notion that you can work across brands and you can have a different career path and a different professional development working in retail in the field than you would if you were just hired at a mono-brand operator. If you get hired at a mono-brand operator, you might be in said store for X period of time with the hopes of growing. But the likelihood is far lower than that of being able to be employed in the field at Leap, where you can work across brands and you can be a career path and develop selling across a number of different categories, brands, AOVs and growing accordingly.

    Amish Tolia:
    And so we find it as actually a huge strength to the platform, and to the model. We've invested significantly in building highly robust training and education programs for our field teams, such that they can become the best at customer experience and the best at sales, whether passive or active selling and become experts at the particular brand that they may be working in. And so we found it as a huge strength of the business and even through these unusual times over the last couple years, we've been able to attract and retain amazing talent.

    Rob Gonzalez:
    Yeah. So I want to get back to the insights and data part, and not to keep harping on it, I just love data.

    Amish Tolia:
    No surprise there.

    Rob Gonzalez:
    That you can help brands make more money, and I love money. So data and money are two things that you're singing my songs here. You said that you've got the central CRM, you're getting data on all the purchases of people that go into these stores. And to what extent is the data advantage due to the fact that you're aggregating data across brands? So you mentioned things like customer demographic, this customer location, where we've got eight locations, men's accessories don't sell here. That type of data gives you assortment decisions. But are you taking data that's aggregated across brands and helping companies do, I don't know, product development planning, like what are new skews that they should be offering, or are you doing the marketing? So if you've got eight stores in a location and somebody buys a product from location A, you're cross-selling a different brand's product from location B via email or text message or something to that customer. I'm just wondering what the different data aggregation angles are for increasing sales across the brands and the portfolio.

    Amish Tolia:
    No, no, it's actually, these are all great prompts because these are all, quote, unquote, opportunities. Some were much further along than the other, but you're swirling all around the right ideas. I'll just take a few of the examples you threw out, particularly around merchandising. If you are a brand on Bleecker Street today, and you discover through Leap insights that in this particular corridor, you know footwear as a category has incredibly high sell through rates, but your store today in on Bleecker Street doesn't have footwear in it, you may think about, okay, how do I build into my assortment and either create a capsule or do a JV or a collab a capsule collection with a footwear brand to have that assortment in my store, because I know that, hey, shoppers, in this particular corridor are, are buying shoes, right?

    Amish Tolia:
    So certainly, the quantitative and the qualitative data that brands are receiving through an automated fashion, just like think Shopify analytics, same thing over here, Leap analytics, get the same dynamic where they can understand and assess not just what's happening in the individual door, quant and qual, but also benchmarking data what's happening in what we call that cluster. And so you can use that to not just drive assortment and drive merchandising decisions. But also to your point, Rob, marketing. You'd know that, hey, traffic is slow on Bleecker generally in July and August. Maybe the local residents are all on vacation, for example. So you're probably going to think, okay, I'm not going to push my marketing during that time period, driving people to the store because it's not a good use of marketing dollars.

    Amish Tolia:
    And so historically, if you were running your store on your own, you may wonder, "Hey, am I the only brand around here, the only retailer around here, that's not getting traffic right now in July?" Your store team may ask their neighbors, "Hey, how's traffic," et cetera. Historically, data's always been in walled gardens in the world of retail. And now through this benchmarking data, we can actually have some scale and confidence in what we're seeing, because it's not just one brand, one location, it's across a number of different locations. Again, back to the point, a lot of this local intelligence can be used to effectuate performance decisions, whether it's on the merchandising side, the marketing side, for the brands that are using a platform like our platform.

    Rob Gonzalez:
    So is there a way to go... Man, I just love this idea. I'm thinking you've got what, 67 locations, something like that total?

    Amish Tolia:
    Yeah. I think that's about right. Yeah.

    Rob Gonzalez:
    Yeah. So I just remember reading from the notes, somewhere in that, which is a lot of locations, but it's not like thousands or millions of locations.

    Amish Tolia:
    Not yet.

    Rob Gonzalez:
    Not yet.

    Peter Crosby:
    Not yet. Exactly.

    Rob Gonzalez:
    I'm thinking of Manhattan and Bleecker Street. And however many locations you end up having in Manhattan, it's going to be like a small minority of all the total store locations in Manhattan. And certainly, like a small minority even of the non-chain, non large corporate locations. And I just wonder, should you be doing something like a data co-op or something? Should you be going beyond your locations and aggregating data across, I might be dreaming a crazy dream here, but all of the smaller, maybe single store or small number of store chains that are around and providing intelligence to everybody that's within the co-op? This seems like one of those rising tides raises all ships, like the more data you have, the better service you can provide your customers and you could be the center of this thing. Have you thought about that or are there reasons that definitely wouldn't be possible?

    Amish Tolia:
    I feel like we should spend more time brainstorming together because I think you'd be basically looking into our product roadmap for the future. And I can't share everything on it, but certainly, what you're talking about, it's absolutely a part of the vision. The truth, or the reality, is that in the world of retail, for forever, it's just been a game of asymmetrical information, tons of inefficiencies, tons of upfront costs, very little flexibility. And the probability that you'd succeed was very low. And a lot of things had to go right for it to work well, at any interesting level of commercial scale.

    Amish Tolia:
    Now that all said, of course, if we can help, if our data and intelligence in this operating system can support other retailers in a particular sub-market where we have some of our brands, we want that to happen because everybody's performance drives one another's in a particular area. Think about the old mall analogy, people would always go into places that had strong anchors. Why? Because if you have a strong anchor in a particular mall, it drives traffic and you can draft off of it. No different here.

    Amish Tolia:
    To give you a micro example of a little bit of today, there is actually, in a lot of our stores, we were actively running events and our brands are always turning on local activations in their stores, whether it's hosting an influencer, whether it's doing a coffee cart or any one of these things to draw more traffic into their stores. And now, the beauty is in a particular, let's just keep picking up Bleecker Street or any of our other submarkets, whether it's Lafayette or Elizabeth, or Crosby, et cetera, or Madison, Lexington, et cetera, when we're activating in a particular submarket or a cluster, we can get efficiencies on the marketing spend.

    Amish Tolia:
    So if one brand turns on a coffee cart or two or three of the brands turn on some activation, all of the other brands are benefiting from it. And so there have been a number of times just at this micro level where other retailers that are not powered by Leap, quote, unquote, will actually participate in the marketing co-op to actually be a part of that program for the day. Shop Bleecker, and we can deliver efficiencies for not just all of our brands, but other brands as well.

    Rob Gonzalez:
    Yeah. I just want to give credit where credit's due on the brainstorming. Socrates from IHeartJane is the guy that put the idea in my head of small businesses sharing data for mutual gain. And they've been doing nationally with all the local cannabis shops. And I just thought, man, you guys are in a unique position to be able to do that for brick generally. It's a really, really interesting idea. And to your point, it's like a unique position where you can correct the information asymmetry that's existed for so long. It's just interesting to think through.

    Amish Tolia:
    Yeah, absolutely. And taking it one step further, the beauty is that in today's world, you have to prioritize omnichannel, omnichannel customer journey. So what does that really mean? Just the whole thing of buying online, return in store, buy online, pick up in store and buy in the store and return to the web. These pathways need to be unlocked and in today's world, it's table stakes. And so for us, the way we think about it is because we're the merchant in the store, we think about it a little bit more like an omni-merchant, right? So somebody can shop seamlessly online at one of our brands and they're powered by a Leap location and return the product, no issues whatsoever.

    Amish Tolia:
    But the reason I bring this up is because this notion of creating the omni-channel pathways, our system and their systems need to be integrated. And so they see what's happening in the store at one point in time, we see what's happening on the e-commerce side of all of our brands. And so with that capability, we not only understand what's happening in the local market, but we also understand what's happening at the e-comm level. And so the information set gets even more robust, not just based on what we're seeing in the stores, but what's happening online as well, because of this integration we have across all of our brands. And so that becomes really powerful, particularly around understanding a shopper's behavior online, offline, across brands, across categories, down in a particular locale.

    Peter Crosby:
    Wow. The potential of that is really cool because that's the holy grail that a lot of people are trying to solve and having difficulty bringing that data together. I'm impressed that you've been able to get access to that data at least in some cases and be able to merge and have some broader understanding of how that journey's working. That sounds very powerful.

    Amish Tolia:
    Yeah. Of course, everything's anonymized and used in a way that's compliant, but we use it to the benefit of our brands. Again, it's all about, look, we make most of our margin on performance. And so we're aligned with our brands, we want the same thing as they do. And so how do we use this information intelligence to make sure that our brands are set up for success and can continue scaling?

    Peter Crosby:
    So Amish, to close out, I think all of us are acutely aware of the economic environment that we're in and the uncertainties that come along with that and controlling expenses and looking for growth opportunities. At the same time, all of that complexity of the time, we're about to go into. Based on what you are hearing from your customers, you're also out there looking at the cost of space in various markets. As you think about the next 18 months, what are the pressures and the opportunities for brands that they should be thinking about in terms of leaping into something like this with you?

    Amish Tolia:
    I assure you that's never happened before.

    Peter Crosby:
    I'm sure it has not. And that's certainly not why you chose the word Leap as your brand.

    Amish Tolia:
    No. By no means is what I'm going to share any sort of investment advice. I do believe that these brands, brand building organizations, they're going to continue to think methodically about channel diversification and channel growth in a way that complements one another. Historically, in particular, these direct to consumer brands have just been so focused in, on eCommerce, eCommerce, eCommerce, which is fantastic, that's what's given them their start. But now it's really incumbent upon them to think about how to diversify in a flexible and agile way across wholesale or even private label, and of course, naturally retail.

    Amish Tolia:
    So the next 18 months, of course, with the macroeconomic environment being a bit tricky and some uncertainty existing out there, it's going to be incumbent upon brands to again, think more methodically than perhaps historically, just because, to Rob's point, capital isn't necessarily readily as easily available as it used to be. And dipping your toes and, or scaling in the world of retail is, I still believe, highly prudent. But making sure you get the unit economics working well and then scaling accordingly. Right? I'm actually generally bullish about the next 18 months. I do believe that a lot of the brands, the premium brands that are out there in the market today, have the ability, again, if it's methodical, they have the ability to continue taking share from some of the incumbents. But they just have to think about maintaining agility across their channels.

    Peter Crosby:
    Amish, if our listeners are out there thinking about working with their non-digital partners to think about opportunities like this, if you're doing a test and learn of this strategy, what is the ramp up period once you decide, let's go see if we can try these things, if they were working with Leap in some Leap locations?

    Amish Tolia:
    Yeah. Well, it's actually fairly quick, certainly, faster than doing it on your own we'd like to think. But maybe not as fast as turning on performance marketing and turning that off within minutes or hours.

    Peter Crosby:
    Right.

    Amish Tolia:
    So as much as we try to emulate the ability to scale up and scale down, we still are dealing with physical. So I think usually we say that once you're underwritten successfully and choose a location on the network, we can get up and running within 60 to 90 days. So it's a fairly quick turn and usually, brands that are testing retail on the platform, they're usually approaching that test with one to a few locations, to get ample set of data to understand their brain and physical, to understand their brand across markets and tinker with the merchandising and the marketing strategy to ultimately get to a place where they feel really good about a handful of metrics, like CAC and CAC to LTV in particular. Or eventually four wall contributions, and what does that look like? And so that's generally how folks get started with us. But I think the good news is we found a number of brands now, I think just north of 35 brands on the platform, and a number of them have greater than that of a few stores with us. So it's an exciting time.

    Peter Crosby:
    Yeah. Amish, thank you so much for coming on board here and sharing this new approach to the brick and mortar opportunity in an omnichannel context. All of that working together is just really exciting to hear about and I'm grateful you spent time talking to our community. Thank you.

    Amish Tolia:
    Of course. Guys, thank you so much for having me and hopefully it's helpful and insightful for your listeners.

    Peter Crosby:
    Absolutely. Thank you. Thanks again, to Amish, for making the leap to be on our podcast. You should make the leap to become a member of the Digital Shelf Institute at our website, digitalshelfinstitute.org. Thanks for being part of our community.