Growth Through Brick & Mortar for Ecommerce Brands

Links:

• Website: KOTN, Shopify
• Ben's Twitter

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Raphael Paulin-Daigle:
Welcome to the Minds of Ecommerce podcast, where you'll learn one key strategy that made leading ecommerce companies grow exponentially. We cut the bullshit and keep the meat. In a 15 to 20 minutes episode, founders and executives take us through a deep dive of a strategy so you get to learn and grow your online sales. In the last episode, you heard from Ben Smith of Skincare Brand Disco, and we discuss how to understand your customers in depth so your marketing can truly resonate with your audience. Today on episode number 24. Get ready. Ben Sale is the cofounder of Cotton, and he'll be sharing how to use brick and mortar as a growth strategy as a DTC brand. I'm your host Raphael Paulin Daigle. And I'm the founder of Splitbase, a conversion optimization and landing page agency for DTC ecommerce brands. This is minds of ecommerce.

Raphael Paulin-Daigle:
All right, Ben, welcome to the show.

Ben Sehl:
Hey, thanks for having me.

Raphael Paulin-Daigle:
Yeah, well, I'm glad that we're chatting today, because, as you know, this podcast is all about going deep and dissecting one key strategy so our listeners can get the most value right away. And you've done some really interesting things with Cotton, and I know one of the strategies that's been really great for you has been brick and mortar.

Ben Sehl:
Yeah.

Raphael Paulin-Daigle:
So tell us more about that.

Ben Sehl:
Yeah, it's funny. I'm a huge fan of the Internet and digital guy, and I think the thing that's worked the best for our ecommerce strategy has actually been offline. So one thing I can say to that is, anytime you're trying to figure out your growth here, the key is understanding that AHA moment of where do customers really understand your value? And with Cotton, when we started out, our first product was just this plain white T shirt, and it's pretty hard to showcase that online. Sure, we can talk about quality, but anybody can write the words. And so how do you really show that and get people to realize that value? And so really early on, we had ended up doing, like it was just the three of us, and we took place in this little marketplace at So House at the time. First couple of months, it was just like a few orders a day or something, and then here we go and do this marketplace, and all of a sudden, every time people are coming up feeling their T shirts and trying them on, they're like, oh, wow. It was like ten X the sales in that day. And so that was like, the very first sign that we had where it was like, okay, cool one, this is where people get it.

Ben Sehl:
And then we had the second sign where a few weeks later, we ended up throwing this party that we called a white T shirt party, and we threw it at this co working space called East Room, where I actually work now. And it was this awesome thing we invited, there was maybe like 150 people that ended up showing up, everybody's in white T shirts. And it was just this really cool thing where we started to see the value of building a network and community and what type of value you can create for people and then still and not have it as a sales event, but make it tangential to what we were doing. So that was really cool. And then a few months after that, like, that November, December, we opened up our first pop up in Toronto and was able to see how that was able to start to accelerate things and also start to bring down some of the CAC that we're seeing on Facebook, which we were just starting to get going with. And then about five months after that, we opened up our first flagship store. And then that started to roll this strategy that we had this land and expand. So drop in a pop up, create awareness, do events, and then follow up with a retail location, flagship and build community, more events, and then sort of have this Omnichannel approach.

Ben Sehl:
And then in the past couple of years, we took it a step further where we started to expand the Omni channel offerings. So we work with this company called Swift to do, like, same day delivery here in Toronto that we're working on expanding to more markets and then empower the teams to be running a little bit more autonomously and starting to set up coming out of the pandemic now, like setting up more ongoing events and regular community engagement stuff. So that's sort of the nuts and bolts. But I think the most interesting thing to me is what it's done when you look at the fully loaded cost of running a retail location against the new customers that are coming in and how efficient that can be, and actually scalable of a channel it can be. And then two is what Omnichannel customers have done for lifetime value and how that compares to repeat customers on any single channel. And that's been sort of the most exciting. And to me, it's really this sort of signal of using a local strategy to create density where word of mouth has a higher frequency and you can actually build these network effects. And this is something I just read about in Andrew Chen's new book, The Cold Start Problem, and really resonated with me and put into words a lot of the stuff that we've been playing.

Ben Sehl:
So, yeah, really, really pumped to talk more about that today.

Raphael Paulin-Daigle:
So, yes, this is a great point. So, look, obviously you're a DTC brand, and most people listening to this are either running a DTC brand or working at a DTC brand. Now, I'm sure if you were to tell them, hey, you should launch a retail store, they'd be like, Wait, what the fuck? Why would I do that? Now, it's been very successful for you guys. So what would be your arguments for opening a retail store when it comes to a DTC brand?

Ben Sehl:
Yeah, so this is a great question. I think the retail store is the solution to the problem of how do you create an incredible activation experience, pre revenue moment that drives a lot of value to potential customers. And so when you look at the typical pirate metrics funnel or any of that sort of thing, it's really for a lot of these SaaS businesses that are premium and that sort of thing, it doesn't really work the same when you're talking about ecommerce. And so I think when you look through the lens of advertising and direct response, there's not a lot of value there for the customers. You can do some stuff through education, newsletters, this sort of thing, but I think what you're trying to do is really front load a lot of the value. So that purchase thing is sort of like this reciprocity moment and it actually makes them feel really excited. And what I love about retail is it's just such an in depth experience. You engage all senses in our retail locations.

Ben Sehl:
It's like we got to have the right music playing, we got to have the right tone of lighting, we got to have the right scents in the stores with the candles burning. The aesthetics obviously have to be on point and you don't want to overcrowd the racks. And then the sales staff has to be really good as well and just really focused on creating a great customer experience rather than scaling sales. Because I think ultimately, if the product experience and I consider that the full journey, the product experience, if that product experience is amazing, then the sales are going to follow. And that's something I learned at Apple really early on in my career. I worked in Apple Retail, and the first thing I remember they said to me in training was like, hey, if we just wanted to make money, the best way to do that is if we just set up ipod vending machines, because people are just buying these ipods all day. It is not your job to sling ipods. It's your job to slow the conversation down, build a relationship, show them what the Genius Bar has to offer, how we do events here, what Apple Care can do for them, and then show them all the great features and just get them to even become aware of all the aspects of our product and service.

Ben Sehl:
I think that's just like a really interesting approach. So much of the dollars were going into this pre purchase moment and meanwhile, everybody was sort of investing that while Apple was sort of like doing this zag while everybody's zigging and investing in the purchase experience and then even the post purchase experience with Apple care and support and all that sort of stuff. And even keeping those retail centers as a place for post purchase where, okay, you just got your Mac set up. Now you can come back in and play around with Logic Pro and have these creatives teach you and that sort of thing. So that inspired a lot of what we did. And then I discovered the benefits of the network effects with lowering our customer acquisition costs, like increasing the engagement and LTV, allowing these retail stores to be working more capital efficient and creating this overall growth loop where we can then start to reinvest those earnings into creating these new networks and new cities and sort of having that. You know, of course, the biggest hurdle is setting up that first store because it can be an expensive endeavor, for sure.

Raphael Paulin-Daigle:
Well, I was going to ask, right, I think the biggest, probably barrier to DTC companies doing that is one actually doing it. But also, I guess probably one of the biggest questions I have is like, when do you know right now is the right time in the business to open up those doors? Because if I'm putting myself in a D, two C brand's shoes, I could say, hey, well sure, we could put all that money into just more paid acquisition efforts that are online. That's what we're used to. It's a bit more safe. Whereas obviously, if we're going retail, I mean, that's a whole different story. And we're very much focusing on one particular market. So when's the right timing?

Ben Sehl:
I think you don't need to set the bar so high. When you're really small, you're focused on early adopters. These are the people who are used to trying to find new brands. They are used to the earlier stuff and they pride themselves on that, right? They want to have a closer relationship with you. And that's something you can give them that bigger brands can. So even when we just had our first office, people would come in and check out the stuff and try on the shirts just changing literally in our office. And then we're having this conversation. But it's a pretty cool experience if you're somebody who just discovered this new brand and you can go and try this thing on and get to talk to the founders and whatever.

Ben Sehl:
And it's great for us to be able to get to know them. I think the main thing that I had found, in contrast to digital ads, is like when you're going on Facebook, you're advertising to a pretty large audience and it's trying to find the best individuals who are going to be the most capital efficient for that purchase. But one could be in Montreal, one could be in Idaho, one could be wherever. And so the problem with that is that you might be building up all these individuals, but it depends on the brand. If you're more utility focused, maybe that's totally the move for you. But for us, a lot of the value came through this community lifestyle and trying to create a cult following. And I think there's this thing from Brian Chesky that I love that's like distribution of love. And I'd rather have a fewer number of people that love us than a larger number of people that like us, and the thousand true fans concept and all that sort of thing.

Ben Sehl:
So where that happens the best is if you can actually get people in one market. And we know when you're advertising, if you scope down to just say, let me just run Facebook ads in Toronto, well, your CPMs are going to be really high. So it's actually then becomes less capital efficient. And so when I actually just look at, for instance, our Toronto retail location, actually any of the retail locations on average compared to Facebook, one thing I did was you don't have to go crazy. You don't have to do the most luxe experience ever. Like the Apple Store for like the floors are flown in from this quarry in Germany and the glass comes from this crazy, and everything is just to the nines. I'm sure it costs a ton of money. For us, we didn't have that money starting up, and we started with just like markets, and then we did a pop up.

Ben Sehl:
And the pop up was like we just partner with some local furniture makers and sold their furniture as well so that we could get that for free or on loan. We did a bunch of these different types of ideas just to keep the cost down. And then that gave us enough money where then we could take that and then invest it. In the first couple of months we had a really small build out and then we've renovated since and started to upgrade the space as we went and as our product line expanded as well. So I think just like leaning into your assets is important. So what I was going to say was the way I look at is I take the all in loaded cost, full expenses, everything we spend on running a retail store. And each retail store runs its own. P l.

Ben Sehl:
And so we take the full cost, and then I take all of our new customers that came through that store, and I divide it by that cost. And that gives me my customer acquisition cost. Right. And then what I do is I compare that to Facebook and I say, how efficient is this? And at least for us, and maybe we could do our Facebook a little bit better. But for us, that was a 40% improvement over Facebook and that's pretty amazing. So just on a one to one customer level, that's better. And then when you start to look at what happens with Omnichannel customers and just the network effects, it then starts to really lean into the favor of retail. And so for us Omnichannel customers, for example, I'll say two points.

Ben Sehl:
One is 70% of our I'll use toronto as the Use case. But like 70% of the orders within Toronto happen within 1.6 our or 1 mile of our Toronto retail location. Only half of those are actually people who've been retail customers. So there's word of mouth that's happening and then people who are like, oh, you have a retail location here, I've.

Raphael Paulin-Daigle:
Only seen you online.

Ben Sehl:
But they still are close to the store because they learned about it from a friend at a bar or something like that. And then the second thing is when people come in, get the brand experience of retail, build the trust, know that our team is there to help them, and then go and order online and get the same day delivery. That experience then leads to a 2.5 x multiple on LTV for Omnichannel customers in comparison, not just to all customers, but in comparison to repeat customers from any single channel. So that alone I think is just like hugely slides the favor in terms of that strategy and it's definitely contextual for us. But I think the focus there is less on retail specifically and more on are you making that brand experience meaningful and are you driving value through acquisition? There's just not a lot of value in seeing an ad. No one says, oh, I loved that ad, I'm so glad I saw that ad. But they love going to retail store if it's done well. And then two is are you creating a network that can be through a newsletter, that can be through a discord channel, that can be through whatever, but are you creating value so that as people join, they're finding like minds, they're growing their skill sets and knowledge and just like friendships.

Ben Sehl:
That's really it. It's basically like great brand experience, great community, so that's awesome.

Raphael Paulin-Daigle:
And I love how you've been able to kind of break down how you do those calculations. But the next question is how long does it take until you see that difference? Because I'm sure if you open up a store within the first month, you're probably not or maybe, I don't know, but you're probably not going to get the fantastic customer acquisition cost numbers that you're maybe getting now, right? So how long until you're able to see an impact both on an LTV or a CAC perspective?

Ben Sehl:
Yeah, so you're right. LTV you see trailing, right. That happens as you look at cohort analysis and stuff. And then you see that over time, what you can look for as leading indicators is to scope down your digital metrics to just the city and start to look at and then when you're looking at sales code, your sales scope that by. If you're in Canada, the FSM code, like the first three letters of the postal code. Or if you're in the US. The zip code. And so what you can start to do is to say, okay, how much money are we? Like, what's our CAC in this city right now with ad spend, which you can get to a degree now from Facebook and that sort of thing.

Ben Sehl:
Or you can at least approximate if you can look at a region, and then you can start to look at baselines of like, let's say when we opened up in Vancouver, let's just say for the sake of numbers and making it easy, 50 orders a day. And then we opened up a pop up store. We had our first thing before the store opened. We had like this press and influencer dinner. So we had a dinner where everybody came, I gave a speech. We just like this really great dinner from a local chef with all organic ingredients, really fit our ethos. And then people got to actually just chat and build friendships, take some selfies, whatever, and get to see our clothes. Cool.

Ben Sehl:
Now everybody's talking about it. We have a launch event the next day. People come in, we invite a bunch of people from the community. We go and get every other retailer nearby, like some discounts and that sort of thing, to like, hey, come check us out. Love to just say, Hi yada yada. They come in and then you see actually pretty quickly, like, our Google Analytics lift is like it was like 150% in users. And then the conversion rate also increased, I think by like 35%. And then we would run a pop up for a month.

Ben Sehl:
And then after that you start to look at like, okay, what are the lasting effects? What's the half life of this thing? And how long does a trail off? And it does actually shift the baseline, but of course you do start to see it. It doesn't continue to exponentially grow, it starts to sort of plateau. So then we follow that up with essentially we're running the pop up, and then as soon as we're running the pop up, you get some pretty early signals, like, is the market responding when people come in? Are they stoked? What's our sales team saying? You just look at the sales figures pretty early on, and if you can run that, you can build temporary fixtures as long as it's like using recyclable materials and stuff. Temporary fixtures that aren't designed to last for years and years. It's designed to last for seven weeks or whatever, however long you're in there. And you can scope down your costs or scope down the space, scope down the amount of products that you're offering, that sort of thing, to really just kind of minimize that and just get the taste and then handicap yourself based on what you're doing. Maybe if you invested ten x more, you would get ten X of sales. But just handicap to know, hey, what's their investment? What's the return on this investment? And then what halo effects is it having for this market? And then if that's going well, you're getting some early signals in the first, like, seven days and then you're starting to go look at the leases for full time spaces if you can, or longer term installations.

Ben Sehl:
We had worked with this company called Uppercase, which sort of like airbnb for pop ups, really great team and they helped us do pop ups at scale. And so we would go and start the Vancouver one for instance, was a twelve month pop up. It was just a twelve month lease that we had it for one month. They ended up letting us extend it for twelve months. COVID happened and the twelve months lapsed at the same time. So this other lease that we had didn't end up working out, which thankfully but now finally that things are starting to look like there's some hope on the horizon, we can go back in there. So I think you can see the results right away and you want to keep your pulse on those lagging metrics, but just look at things like Net Promoter Score, what's the difference with retail and online? Look at things like just conversion rate when people are walking into your store, how many people who are coming in are making a purchase, what lift is that happening to your online? Is there any word of mouth? And then if you can run it for a month, you can start to see like depending on the size of the brand, probably your sales in that market aren't that big. So you can probably get to like a ten x lift in that market pretty quickly.

Ben Sehl:
And maybe in the scale of all of your North American sales. If you're in the west that's not that big. But if you look on it on just that basis, it's pretty huge. And if you can scale that out in an operational way now you can say, oh, that's our land and expand strategy. So it's like, let's go into these different markets, let's grow these, create great teams, make them autonomous, empower them to do the best work, empower them to work with the community and build community, and then keep our headquarters focused more on great ecommerce operations, getting them the resources they need, scoping out new opportunities in new markets and that sort of thing.

Raphael Paulin-Daigle:
So yeah, that's awesome. I love how you make it sound so simple. This is pretty much like the guidebook of how to open a retail store as a D two C brand and you've literally just laid it all out. So that's great.

Ben Sehl:
Thanks man. Yeah, I'll say too. I work at Shopify now and still advise Cotton. So this is obviously going to come off as a biased perspective, but the one thing that actually made it really easy for us was just like Shopify POS because it was just an app on our iPad and I just personally brought my iPad, like my personal one in the first few. We didn't have to buy them for the company and just had the little chip thing that they sent us for free. We worked with Maneris originally. Now they got this great little POS thing and you just tap on your phone, so you can just actually take that long. When we did Vancouver pop up, which ended up being twelve months, we landed there 15 days before it opened.

Ben Sehl:
We got all the stuff in, set it up, steamed all the stuff, pull a couple of overnighters. The tech side took like 20 minutes and then launched and got going. I think our all in investment for that space was $17,000. And then it turned into like it had like a 30, 40% profit margin, something like that. And then that's on top of not only is the store running profitably, but it's helping driver online acquisition and all that sort of thing too. So yeah, it was awesome.

Raphael Paulin-Daigle:
We've got about 30 seconds left. So in 30 seconds, if you were to start this process all over again, what would you do differently?

Ben Sehl:
You know what, I don't know if I would do too much differently. I think one thing is I would really focus on the capital efficiency in comparison to Facebook. I would value the halo effects that are created and have a little bit more intensity. Would they say like, CAC is the new rent? Well, now everybody's on CAC and so rent's the new CAC. Right? So I think I'd also just consider certain retail locations. When we looked at New York, for instance, we went to Soho, and that was a really expensive rent. And when we actually looked at where our community was, they weren't actually living in Soho, they were living in downtown Brooklyn, in Williamsburg, in the East Village and that sort of thing. So to me, what I would do is I would lean more into and this is what I think we're continuing to do, is lean more into where our community actually is.

Ben Sehl:
Think about it not just as a revenue tool, but as a community tool, as a post purchase and post purchase experience creating these halo effects and that sort of thing, and then just have a little bit more conviction and lean in even more. I think we could have just done it even more, but honestly, it went pretty well. I'd also say it's a solution to a problem that has other proxies. So we could have invested more into education and content or Discord. There's a lot of interesting things there. Web Three is a whole new avenue and lots of different ways that you can build your community that don't. Retail is not relevant for everybody, but community is right, and I think that's the big change. We used to be in this world of mass media, and now we're in a world of a billion different communities.

Ben Sehl:
And so you got to find your niche, lean into it, and then those can exist online. But there's nothing like an in person experience. To me, so the more you can do those, the better. Awesome.

Raphael Paulin-Daigle:
That was a phenomenal wrap up, Ben. Thank you so much. Now, if people want to learn more about you, Cotton, where should they go?

Ben Sehl:
Yeah. So cotton is kotn.com. You can always go there. You can find me on Twitter. Twitter.com slash Benjaminsale Sehl. And, yeah, I'm always tweeting about e. Comm, and lately I'm talking a lot about headless and that sort of thing, so always happy to chat that stuff, too. Yeah.

Raphael Paulin-Daigle:
Thank you so much, Ben.

Raphael Paulin-Daigle:
All right, that's it for today's episode.

Raphael Paulin-Daigle:
Thank you so much for tuning in. Now, to make sure you don't miss any of the new episodes, subscribe to the podcast, and if you've liked what you've heard, make sure to leave a review in the itunes Store. That would truly mean the world to me. Now, if you're working on an e commerce store that does over a million dollars in online sales and increasing conversions is currently a priority, make sure to go to Splitbase.com to find out how we might be able to help with landing pages or on site optimization so you can improve the performance of your marketing. Now, if you have any guest requests, questions, or comments, tweet me at rpaulindaigle, and I'll be super happy to hear from you. Thanks again for listening. This is minds of e commerce.

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