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Roundtable

Roundtable: Is Thrasio the new P&G?

Amazon sellers worldwide sales grew by more than 60% Black Friday and Cyber Monday. Seller aggregator Thrasio now has absorbed more than 100 sellers, boosting their revenue to more than $400 million across more than 10K items. This is industry-changing. Rob and Peter talk it through. 

Sign up for the webinar with Jeriad Zoghby

TRANSCRIPT

Peter:

Hello Everyone, Peter Crosby coming to you from the Cape Cod office of the digital shelf Institute. And Rob is on from the Berkshares. Hey Rob. So, uh, as we pass by Black Friday, Cyber Monday, which now has become initials BFCM apparently, but we've started to see the shape of this holiday season really of 2020 as a whole. And, and one of the big storylines, not, not shockingly is just the impact of online marketplaces on commerce and just to zoom in on Amazon for a minute overall in, um, the, that 60% of Amazon's product sales in 2019 were from marketplaces double the percentage of a decade ago. During prime day third-party sellers had their two biggest days ever going are sales rising nearly 60% year over year to 3.5 billion black Friday and cyber Monday, again, growing 60% year over year to 4.8 billion. So it's all adding up and that's not the only money and going towards this.

Peter:

Joe Kazookehnas at Marketplace Pulse did a wrap up of the investment dollars going to the companies like [inaudible], those that are buying up small Amazon sellers at a rapid clip, and then refining those businesses. So seller X raised 118 million heyday raising 175 million razor, 30 million pounds hero, 65 million perch, 131.5 million with the technology that they're doing. Boston-based by the way. And then sort of the big, I mean, the, the big one in the neighborhood right now is throttle racing 360 million this year and reaching unicorn status in July with 1 billion valuation, let alone anchor going public, and now being worth over $11 billion. I'm just going to stop there and say, does this feel as sort of ground shifting to you as it does to me?

Rob:

Yeah. I mean, this is what we've been talking about for years is the fragmentation of the market from a mass market to masses of markets, removing the ability for Proctor and gamble and Unilever and others to just lock up shelf space by spending exorbitant fees, right, to basically lock out competition, um, online, you can't do that online. Anybody can sell anything. And on Amazon marketplace in particular, you can be just like some dude in the middle of Ohio and start selling a product. And you might get $5,000 of revenue one month and $10,000 of revenue a few months later. And it's, it's not big in and of itself, but there's a lot of people doing this. There are 2 million sellers on Amazon and what the [inaudible] of the world are doing, which I think is absolutely brilliant is they're recognizing that anchor at $11 billion valuation is not going to be the last Amazon native marketplace seller that reaches significant growth. Um, and in order to get, sorry,

Peter:

Just going to say Silverstein who's the CEO Fazio said, uh, to Forbes, if you think about the competitive advantages that Proctor and gamble, Unilever Newell enjoyed 15 years ago, and you asked which of these are important today, the answer is none of them.

Rob:

Yeah. I mean, it's, it's, it's brutal, right? Like the rules are changing almost immediately. So just to finish my thought here, if you're [inaudible], the idea is that a lot of these marketplace sellers have great products, but are not experts in selling on Amazon. Selling on Amazon is freaking hard. The rules change constantly, and there's a lot of expertise that goes into it. So the anchor anchor folks, I mean, if you think about what they sell it's chargers and things like that, I mean, you talk about commodity product in a highly competitive, low margin field, and they've built an $11 billion business outstripping, iconic companies like Belkin in the process and that's, that's due to skill online. And so what draws you is saying, and, and hay day, and these others is we can go out and buy on the cheap, small sellers and small products and get, and inject expertise and drive high growth. Right. Um, and, and so like one example that they had in that Forbes article, which is just an excellent read is they bought a product from a guy, uh, in the middle, you know, in the Midwest for like $1 million. Like you're talking about thriving, Zio raised $360 million. One of their acquisitions was like a $1 million acquisition. These guys are not going out and buying big companies. Yeah.

Peter:

Orange odor eliminator, a citrus sentence, pet odor remover was racking up more than 2 million in annual revenue.

Rob:

Yeah. And so the 2 million in annual revenue, if you look at pure profit, it's, you know, you're talking about six figures somewhere in there. So for the owner of angry orange to then pocket 1.3 million in a single transaction, you know, pull forward like 10 years of earnings for him and his mind into one transaction. And then Thrace CEO can inject expertise on how to grow the brand. And now it's over a 16 million revenue brand, right? So at 16 X growth, you know, overnight and in a matter of months and they're, so the $360 million fund is going to do this, call it 300 times. And each of those times they get 10, 15, 20 X growth just by taking a good product, injecting, Amazon expertise, growing it like crazy. And some of, you know, just like in the, in the, in the, in the index fund investment models, some of them are going to pop and be like anchors.

Rob:

Right. Um, and, and if you are in, if you are a giant house of brands, one of the things that we talk about is your competition. Isn't, you know, the number two player in your category anymore, your competition isn't a private label anymore. And when you probably building the private label, your competition is this death by a thousand cuts of 2 million sellers making 0.1% market share here, 0.2% market share their 0.3% market share there in an aggregate, you know, just, just really decreasing the amount of market share available to the category captain in any given category. And that's what, that's what this trend represents. And I mean, this year has just been explosive for it. Yeah.

Peter:

Oh, so Roseo in the last two years spent over a hundred million, snapped up nearly a hundred businesses there. Now revenue is now over 400 million and they're selling 10 over 10,000 items. That's just astonishing.

Rob:

And they just, it's just incredible. I mean, like if there was any business that I wish I had started in the last few years, it's drowsy. I mean, it's just, it's like an obvious, it's an obvious business model. It's a, it's a business model that sort of is immune to competition on some level, because there can be a whole bunch of them and there's millions of these sellers. So like there could be five [inaudible] out there and they could all be successful. I mean, it's just, it's just a heck of a model. Yeah.

Peter:

Yeah. When you look at, um, again, this Forbes article, uh, by, uh, by Lauren DEP debtor, which I thought is a really awesome last name for someone working at Forbes. But, um, she, she put in a, uh, a chart of [inaudible] transformations. And as you mentioned, angry orange going to 60.5 million just by new packaging and adding some pet media's pet, social media influencers, beast gear, they added new keywords for jump ropes, like boxing, weightlifting, functional fitness increased 74% in sales, creative space, reduce the edges of a white board by two inches and save 75,000 a year on shipping secured placement on Amazon's new influencer live stream program for desk cycle for miniature stationary, bicycle sales, some jumped 667% in one day.

Rob:

Yeah, it's incredible. The low hanging fruit on this stuff is incredible. I mean, and it's stuff that like, not even all the big boys have gotten. So, um, one of my, one of my favorite stories, the last bunch of years on this is tied to, uh, launched a plant-based version of their detergent and they were doing it on, you know, specific coastal grocery chains rather than, rather than nationwide. And every single chain, uh, you know, demographics that they thought would be, uh, you know, more anti chemical, more pro you know, blah, blah, blah, blah, blah. Um, when they launched the product, they didn't launch it with the shipping, your own container [inaudible] requirement that Amazon has. And, and it's because the supply chain, people at Proctor and gamble were not thinking about Amazon as a key launch channel for tide three years ago, because you're talking, you know, what, 1% of tides gross less than 1% of tide's gross at the time.

Rob:

It's just, you know, why do I do something special for those guys? And so they did, they caught it. And then, the launch on Amazon was delayed, you know, six, eight weeks, something like that. So the product gets in store. They do, they do media on it. And the sales are really disappointing. They're really disappointing for the first six weeks. Then they get online and to try to play catch up, to hit their annual Amazon sales target. They spend a lot on media in, in, in Amazon, in particular, when it launches on Amazon and the shipping, your own container packaging. And, uh, all of a sudden, as soon as you start spending on Amazon, the in store sales pickup for this product. And so, so this is, this is illustrative of a whole bunch of trends, but in, in the context of the small sellers that we're talking about, these changes that you can make to the packaging, to the pricing, to the marketing, to the media strategy, to you all, there's like a thousand ways that you can take something that is fundamentally good, but not being executed well and get massive, massive pops in, uh, in performance.

Rob:

Yeah. And these are all

Peter:

SBA businesses. So Amazon's making a ton off of them as well. Cause they're using FBA to do all this stuff, at least right now,

Rob:

Every, every everybody's EV everybody's making money in these things, right. It's, uh, I think there's, it's popular to kind of bash on Amazon. But, um, I remember back in 2000, I heard this stat that a subway has made more millionaires in America than any other company because the subway doesn't own their stores. They're franchised. So you get, typically immigrants will move into a community. There is no subway. They buy a store. They, you know, license a franchise from the subway. Subway does really well. I mean, in the nineties, the subway was really popular and was seeing a tremendous amount of growth. Boom. All of a sudden the family that started the subway or are a millionaire. So the subway has created tons of millionaires in the United States. Amazon is doing that right now. Amazon is creating tons of millionaires in the United States because you can just sell on Amazon.

Rob:

You know, it's not like having a product and having to negotiate with a buyer at a retailer. And the retailer comes up with you and there's these 30 different types of fees and co-op, and all this crap, you just can't understand. And they're taking it up front before there's any sales. And it's just, it's awful. Like you can't, as a startup, you can't really, the retailers are not built to bring you on board and Amazon is Amazon. You can just get going. And, and it means that, uh, they're, you know, it's an entrepreneurial explosion where lots of small business owners are making money.

Peter:

And that's what, uh, uh, you know, so I've been watching the, the EU just came out with, uh, with another round of, of, you know, regulatory concern around Amazon in the marketplace sellers and stealing of data from marketplaces and, um, and a fair amount of the reaction to it, you know, and in certain quarters is, Oh my God, look at all of the, the value they're creating in the world for small businesses for all of these startups like this. And you look at what's happening here. Like this is an amazing amount of, of financial success being spread out around the world. And I think we should be careful about how we choose to fiddle around in the machinery.

Rob:

Yeah. The European regulation on tech has been awful so far. I mean, the, the, the Google shopping result that took seven years to get to was a really crappy result. The GDPR is, you know, there's things in GDPR that are great. And I think overall it's been executed fairly poorly. Um, this Amazon regulation just feels like they're, they're absolutely missing the point again. I mean, the Europeans, I think one thing that, uh, that's becoming pretty clear to American tech companies that, that wasn't clear 10 years ago is the Europeans care about, um, fairness, you know, and, and perceive politic fairness way more than they care about, you know, technocratic correctness and open markets. Right. And so there's these, uh, w when you get aligned, like Amazon is using your own data against you, regardless of how much validity there is in a line, or how much it matters to Amazon or whatever, it's an easy line tip to say, and repeat and understand.

Rob:

And so it's powerful politically, and a lot of what happens over there tends to have that sort of flavor to it. You know, they sort of grab onto one particular aspect that has the window dressing of unfairness and, and they go to attack it. So they're gonna, they're probably going to produce some other kind of boneheaded regulation that at the end of the day, isn't really gonna hurt Amazon. That much is going to hurt any company that's trying to compete with Amazon because Amazon is already, uh, you know, one and a half trillion dollar company that can afford to abide by whatever European regulations there are, you know, Amazon smaller competitors. Can't and that's what that's, what's going to happen.

Peter:

Yeah. Yeah. I agree. It's really, I, I, you know, I'm, I'm not, anti-regulation in all things, but it's really difficult to muck around in something that's changing quickly and have a positive impact at the end of the day. It's really, it's really tough.

Rob:

Yeah. I mean, like, ultimately, your Europe's moving in this direction where, where they're going to have a full-time tech regulation agency, Benedict Evans talks about this. Um, I mean, ultimately you need people that like to live and breathe this stuff just like in financial services regulation. It's not, it's not a bunch of people that haven't worked in financial services that are just trying to understand what a credit to fall swap is for the first time and regulating it. It's people that have worked in financial services for decades and understand the industry and are therefore regulating with intelligence. They sort of need that, that same type of thing to happen with tech right now. It just feels like there's a bunch of politicians that really don't know the first thing of what's happening, how it's even how it's benefiting people and the regulations, uh, threatened to hurt consumer experience. I mean, look at GDPR, every website you go to. Yes. I accept the cookie. Yes. I accept the cookie. Yes. I accept the cookie. Just so stupid.

Peter:

I know it is. It's super annoying.

Rob:

Um, so anyway, but to get back to this marketplace stuff, I mean, I think these trends, if you're a large manufacturer and you look at for IZO and you look at all these others, and you look at a billion multi-billion dollar DDC valuations in, in every category, this has gotta be a wake-up call. I mean, we've been saying a long time, if you were going to create Procter and gamble today, would you create a really large R and D center focused on a one hit every once in a while and slowly over a hundred years, build up dozens of billion dollar brands that are market leaders, and then use your size and scale to lock out competition to dominate national media campaigns, to dominate shelf space. I mean, would you build it that way, or would you instead launch thousands of products all the time and see what wins and double down on what wins and shut down the losers and let, like, take, take that type of approach to launching a house of brands that has scale today.

Rob:

And I, for me, I haven't until Thrace came along, I didn't know what P and G of the 21st century would look like. Now, I sort of do now, like the PNG of the 21st century is throttle that's what's happening here. And so if you're a big house of brands, this has got to be terrifying to you. You either have to figure out how to build a moat around your previous business that keeps drawing you out. Or you've got to embrace aspects of how Grazia is operating and sort of play both models at the same time.

Peter:

Talk about that operating model when they, when they bring on one of these, um, sellers. So every new business has put on a conveyor belt where a core team of a half a dozen employees works through a 503 point checklist of best practices and an average of 34 days farms out tasked to a deep bench of specialists in supply chain, legal and other departments as needed. For instance, the creative team makes sure each listing has at least seven high resolution images that take up 80 or 90% of the allotted space on the online display page, because larger images lead more people to click. Like this is not in a way, this is not rocket science. It's just, it's the, the, the agile cycle that they're creating to do these things and apply them quickly. And I mean, we preach this all the time and, and brands are trying to do it, but these larger brands need to get to a place where they can move that quickly. And that clearly on an, on a continuous basis or, or the, the next, you know, Proctor and gamble and Rodeo will start to, to really

Rob:

How many, how many things in the checklist 503,

Peter:

This was as of about a month ago. Okay.

Rob:

He's like, I wanted to check the feels obviously. Right. But also, have you ever read Guan days? The checklist manifesto? No, but I love the tool Monday. So now I'm going to have to read that . Oh, it's a hell of a book. I mean, it's a relatively short read and he talks about checklists for, for airlines, checklists for hospitals. I'm a tool guarantee for those who listen to us, you don't know is just an, uh, uh, an iconic, um, doctor thought leader in, in, in the world. Um, and the checklist manifesto among other things was a manifesto about how hospitals should embrace certain kinds of checklists. And a lot of hospitals don't use checklists effectively, or don't use them at all. And it's, it's an area where we could actually avoid significant medical error if everyone did. And you should read the book. But one of the, one of the major ideas in the book is that a checklist with too many things tends not to get followed.

Rob:

You know, because at some point you just sort of like, ah, and I'm bored with this. I've done this a hundred times, right? So you sort of, the checklist needs to have, you know, the right things on them and leave, leaving a little room for judgment to be really effective. And so I see a checklist that large and for Amazon and obvi, I mean, obviously there's at least 500 things that you can optimize and pay attention to, but it feels like it should be broken down into, alright, we just acquired a million dollar company. Here's the first 20 things we do. Okay. Now let's check those off. Here's the next 20 things we do, right?

Peter:

This is why I want to get the CEO of Fasio on this podcast. If anyone out there knows, uh, the CEO or anyone at [inaudible] at a higher level, peter@digitalshelfinstitute.org, because I just, this is fascinating to me. And I feel like, uh, and we have to remember, I mean, just to sort of close this out, it's not just Amazon, uh, Benedict Evans are our great brain friend, uh, tweeted the other day. This year sales on Shopify will probably be 40 to 45% of sales on Amazon marketplace at sea. You know, I mean, just the list goes on and on, and, and I love this. Um, it turns out Shopify is now number nine on the list in time, on site for the top sites on the internet, just below Wikipedia and above eBay and Netflix. Yeah, man, we got in pretty good people. Like the shop turns out shopping online. So, I mean, that's the thing. Once you figure out this model in digital and you apply it with rigor and discipline and, and continuously it's, as you said, in this sort of land of masses of markets, uh, it's, it's, uh, it's a recipe for success and, and, uh, I'm, I'm fascinated by, and can't wait to see how it all turns out.

Peter:

So, um, Rob, just, uh, just to close out, you know, certainly this, all of this speaks to continue sort of upheaval and opportunity. And, uh, so coming up on the DSI too, to keep moving and to keep educating along this line, it's important to plan for where the consumer is taking us next year. Cause God knows they are in charge. So on December 10th at 1:00 PM Eastern Jared Zogby from Accenture interactive, uh, is going to bring us the results of the consumer study on the impact of consumer shopping across a number of merchandising categories. So he's going to dig into both the magnitude of the impact that they're seeing through that research and the stickiness of the changes coming out of this period. And then, uh, and then his colleague, Rochelle will cover the tech stack that can help you respond to those ship shifts faster than your competitors. So it's going to be good brain food before your holiday vacation. So join us on December 10th at 1:00 PM. Uh, Annie, will put the link to it in the show notes, Rob, thanks really, really great conversation. Good to dig in. All right. And, uh, yeah, right. Some, one way or the other it's going to happen. Um, so, uh, thanks, Rob. And thanks to all of you as always for being part of our team.