Episode 44: The Evolution and Future of EcommerceSeptember 8, 2016 in Ecom-Crew-Podcast, Ecommerce, Importing, Interviews
On today’s episode we discuss the future of ecommerce. We talk about what we notice in the market right now. We also discuss our future plans for our businesses.
This will be a part one on this subject. Part two will focus on our predictions about business on Amazon.
The topics we discussed today:
- Why Amazon’s trade deal with China will cause trouble for American manufacturers.
- The things that Mike thinks will set China back in a “take over.”
- Signs that retail stores are dying.
- Automation’s role in retail shopping and production.
- Will Facebook still be king of advertising?
- How PPC (pay per click) is becoming a unsavory business practice.
- Why SEO will phase out.
- Why arbitration sellers will have stricter guidelines and licensing.
- The reasons we moved away from Amazon and focused on personal selling platforms.
Our predictions for Amazon are a whole episode in itself, so tune in for part two of this topic. Our Predictions for eCommerce: Amazon.
If you have any questions or anything you’d like us to discuss on the podcast please go to ecomcrew.com and fill out the contact form. Also we would really appreciate if you would leave us a review on iTunes. Thanks for listening!
Full Audio Transcript
Mike: This is Mike.
Grant: And this is Grant.
Mike: And welcome to this week’s edition of the EcomCrew podcast. How’s it going, Grant?
Grant: It’s going pretty good. How about you, Mike?
Mike: It’s going awesome. I was just telling you how exhausted I am from today, so if I sound tired, it’s a good thing. Been packing lots of orders, lots of stuff coming and going, coming to Amazon, going from Amazon, orders from ColorIt. Yeah, it’s been fun. It’s what you want in ecommerce, but it’s hot back there. It’s summertime in [inaudible 00:01:13] and the warehouse is a little warm. I wish we had a fully air conditioned space.
Grant: Yeah. I know all too well the warehouse joys and fun. I feel like everyone thinks that ecommerce is this wonderful, drop-ship, outsource-only business, but yeah, there’s a lot of physical labor involved for entrepreneurs too.
Mike: Yup, definitely. So today I think we have a pretty fun topic. It’s basically Grant and I making some predictions on just where ecommerce is going and it’s interesting because Grant and I have both kind of evolved from doing just drop-shipping to selling other people’s products to doing branded products as it is, so we’ve evolved. But it’s been awesome because the industry’s been evolving quite a bit and I think five or ten years ago, it was perfectly feasible to have a location independent, 100% drop-ship website doing ecommerce and be able to make a really good living at it, but it seems like those days have come and gone and I think that even selling other people’s products is kind of under pressure now. So we’re going to be talking about some of the evolution in the industry and making some predictions and just like how things in ecommerce will be changing. So, Grant, do you want to kick it off and we’ll go from there?
Grant: Yeah, sure. And this is a topic that’s going to be all over the place because we’re trying to predict the future over here, which, as anybody knows, can be a very dangerous idea because everything’s shifting so fast, especially in the ecommerce space. So we’re going to be hopping from topic to topic so just bear with us over here. But I think the topic that I always talk about, so I’m going to bring it up first, is going to be China. And I will say that I think China has always been a massive trading partner with the U.S., but the future, with the way that Amazon is integrating with China, I think that there will be a day of reckoning where we’ve realized down the road in the next five years that where Amazon we thought was delivering us Prime and giving us goodies, what it really was doing was letting the Chinese invade by financial means to essentially destroy American manufacturing and put the final nail in the coffin. So that’s my over-the-top prediction. Mike, back to you on China.
Mike: I mean I think China’s an interesting thing to bring up first. Obviously, we both have been over there several times and can kind of see how manufacturers are dealing with this and I think the Chinese manufacturer that has a son or daughter that ends up going to like a U.S. school and learns the language, they basically have a liaison between the two markets and are probably going to be in the best position.
And then also if that person also gets an understanding of Amazon, the direct from Chinese manufacturer to Amazon I think is definitely coming down the pipe. I think that two to five years from now, a significant portion of stuff on Amazon will be those types of products, which is why we’ve been trying to stay away from the commoditized type products because like one thing they definitely don’t get, at least not yet, is branding and quality. So knowing that that’s my prediction for the future of how things are evolving with the Chinese manufacturers, and even though we use a Chinese manufacturer to develop our products, we have some cache there with our brand that can’t be replicated by a manufacturer in China.
So I think we’ll be talking about that. It’ll be a constant theme of what we’re doing to position ourselves to be in the best position moving forward, but that’s my prediction for how things are happening with China.
Grant: And I can’t agree more with Mike. We’ve mentioned this many, many times, but the whole idea is that if you are selling a commodity with not a lot to differentiate yourself, then you are leaving yourself vulnerable to essentially copycats and somebody coming in and recreating your product. And I know this all too well selling cutting boards. It’s not like a very high-tech or fancy product, so my barrier to entry is really that I can market better than everybody else. Well, maybe not better than everybody else. That’s a huge statement. But I can keep on top of the search engine ideally and keep some sourcing, but the reality is that if I’m on a toe to toe fight with my own supplier or manufacturer, it’s going to be a very bad day just because I can’t match their price at all.
So I’ve got my own plans on how to stay ahead over there, but what most people in America are doing, at least on Amazon is that they’re not relying on a barrier to entry based on these premium type business models where you have a brand or you have quality; you’re really emphasizing price and it’s a race to the bottom. And Americans have a floor. The Chinese don’t really have a floor. I mean they do, but it’s lower than your floor and that’s not good. So do you think it’s all about price, Mike, or do you think quality’s still going to matter at some point too?
Mike: It’s interesting because I think that price obviously is a huge factor, but we’ve kind of proven that it definitely is not all about price. Our products are priced at the premium, sometimes double the average price of everything else in the same space, and we get that price and people say amazing things about us after they buy it. I mean we get a lot of comments in our Facebook feed; not on Amazon reviews because that have bought it don’t say this stuff, not definitely in Facebook feeds and social media just in general and also an email, “Like why the hell would I ever pay you $15 or $16 or whatever for a coloring book? Or why would I pay you $40 for a set of pencils or $30 for a set of gel pens?” et cetera, et cetera. And once they get it, they’re like, “Oh my gosh, the qualities amazing. I’d pay more for it.”
So I don’t know. I don’t think that it’s all about price necessarily. I think there’s definitely a group of people out there that are going to be passionate about the sector that you’re selling into, whether it be coloring or pets or babies or whatever the heck it might be, cutting boards or whatever, that are going to appreciate the quality and they’re going to get that you pay attention to all the details and that your product really is better. But it’s not like the Coach or that type of model where it really isn’t all that better, it’s just about the brand and like being seen with it. There was just a post about Kanye West selling a $3 for $180 and getting away with it.
Grant: Because he can.
Mike: Because he can. So we’re not like that. We’re not selling product that’s– you know, I actually think that our products are maybe even priced higher because they are just such good quality and we pay attention to the details. We’re positioning ourselves not to be competing on price, to answer your question I guess, Grant. I mean we purposefully price our products higher and make sure that we’re delivering value at that price, and the result is that it leaves us much more margin so we can spend more money on advertising and also paying attention to details. We can also spend more money paying attention to our customers and dealing with refunds or just making them happy. It’s like a three-legged stool. You can’t be competitive on price and service and whatever the other leg is. There’s a study about this. You can’t provide all these things, right? So we’re competing on service and quality. I guess service, quality, and price would be the three things. So yeah, I don’t know what your plans are there, Grant. Are you doing something similar?
Grant: My whole rationale is very much along the three-legged stool analogy that you’re making, which is that I don’t ever want to compete on price because I hate it. And I always think still that you get the worst kind of customers when you compete on price and it’s really just the eBay customer. I’ve always found the worst customer is always the guys that wants the discount because they just keep wanting more discounts and then they also want their product to be perfect. I can’t tell you again how many times on eBay I have– I liquidate a lot of products that are either dented in the warehouse or have a little bit of issues or Q&A and I’ll drop the price like 50% off retail, and then some guy will get it and they’ll complain that it’s not perfect and then they’ll do some kind of crazy Not As Described claim to try to ruin me on eBay, but at this point I just stopped caring. I go, “Do what you want, buddy. I don’t care about you.”
So it’s not the best business model, but again, eBay’s not my primary channel so I really don’t care that much. if I eventually get blown off eBay, I’m not going to really give two hoots. It’s just a lot of work for what it is. And again, we just have nothing but price competition over there. I do think one of the models that are going to get hit really hard in the future by this whole trying to compete in all fronts is going to be the brick and mortar though. I just see even in the Seattle area, where we’ve got a robust economy, tons of retail stores are just going under. And some of the high-end stores I think are doing pretty well because they’ve got that upper-crust income that is reliable, especially in a hot economy like we have here, but regular stores like Sears and JCPenney, I mean they’re just– like you can see the dust bunnies roll through there I feel like, even during the weekends. How about you in San Diego? Do you see retail in the same way that I do?
Mike: Yeah. I mean I go into retail stores so infrequently these days so I’m definitely not a retail shopper, but the times that I do go in there, it’s like borderline depressing as a business owner that gets it. I think as an entrepreneur, whenever you go anywhere, you’re always thinking the math, right? You go to a busy restaurant and you’re like, “Man, these guys must be doing really well,” and you start like calculating all the costs of the food and their rent and all their employees and you’re just always making these kind of calculations in your head. And so when I walk into a big lot store, I’m like, “Oh my gosh.” The cost of the square footage and all these employees in here and they can barely keep the crickets from chirping.
We went into Sears the other day because our fridge is dying, and it’s one of the few things where you’ll actually go look in person to buy something like that. And it was on a weekend and it was still just incredibly dead in there. I think that if I went in there on a Wednesday afternoon, I might be the only customer in there. I don’t know, like I think that those types of stores are certainly in trouble, but there’s also studies that show– I read something not that long ago that some ridiculously huge percentage of purchases, still to this day, are made within 10 or 15 miles or whatever it is of your house. So there’s still definitely a lot of retail that happens. Brick and mortar retail’s certainly much larger still than ecommerce, but the landscape is definitely shifting quite a bit. So I think there are particular retail stores that still have a chance, and there are certainly ones that are struggling, like Best Buy or Sports Authority are the ones that come to mind for me that are struggling majorly. I mean Sport Authority either completely went bankrupt or– yeah, you were just going to say that, right?
Grant: Yeah, they just closed down all of their stores I believe, right?
Mike: Yeah. The definitely closed the one here I know. And yeah, I think they closed them all because I saw an article about SportAuthority.com, the domain name, being auctioned off, which I was like, “Wow, that would be a pretty cool domain name to have because you can rank high.” Think of all the SEO juice going to a domain like that but…
Grant: Oh God, yeah. I’d love to get that domain.
Mike: It’d be pretty neat just to get the domain name. But yeah, so retail landscape’s definitely shifting. I certainly wouldn’t want to own a retail store in this day in age. But retail comes in handy when you’re selling things that people need right this minute, although even that’s changing with Amazon Now and all that stuff. It’s maybe a good segue, Grant. We were talking about autonomous cars. That can certainly change the landscape. I’ll just kick that off real quick. That’s another future of ecommerce kind of thing, where it used to be that you had to wait five days to get your package if you bought off of ecommerce, and then Amazon completely changed the landscape with Prime and two-day shipping.
But if you look at Uber Eats, Uber’s already adopting this model locally, where you can order food and they’ll bring it right to you, and certainly it’s not much of a reach to have an ecommerce network where Uber goes and picks up a package for you or picks it up for you on the way while they’re doing other fares or whatever because they already have like this Uber carpooling type of service, where they’ll pick you up, and then on the way to the airport or wherever, they’ll go pick someone else up. So they can pick up a package, and not too far from the distant future, I think within 10 years, these autonomous cars are going to be a reality. And you might not even own a car any longer and UPS and FedEx might be doing 100% autonomous type stuff. And I think that that can change the landscape of ecommerce quite a bit, and I know you definitely agree with that, Grant.
Grant: Yeah, I do think that automation is going to be a massive hit to the economy as well, and a lot of companies are just looking for every possible way of getting more efficient. Amazon’s leading that forefront with their automated pick-and-pack bots in their warehouses, yeah, because slave-driving your employees is not good enough; you’ve got to have the auto bot that goes around to pick those two-day Prime items that you have to have right now obviously. And even in the food service industry, like most of our podcasters know, I own two of the franchise stores and every other week, it’s how automation is going to come in to help save us from the minimum wage hikes and everything like that. So you look at the number one job in America, and just a quick quiz, Mike. Do you know what it is?
Mike: I wouldn’t even know where to start.
Mike: I really wouldn’t.
Grant: All right. So it’s trucking I believe.
Mike: Is that right?
Grant: Yeah, I think trucking–
Mike: Even still to this day. That’s interesting.
Grant: Yeah. And when you think about how big America is and you just think, “Well, every single store, every single restaurant, everybody needs to have stuff delivered,” and we don’t have really any kind of infrastructure other than trucks. You know, boats bring it to the shore, but once that’s been delivered, everyone needs a truck. So you have all of these guys driving trucks, and I know we’re talking, again, very far down the road here, I think automation is going to come to things like Uber and taxi, maybe small parcel delivery, but when you talk about LTL or FCL type deliveries by truck, then we’re going to be in a very, very interesting state because, one, there’s going to be a lot of people out of a job, and two, ecommerce will probably get even ridiculously cheaper then. So you’re really starting a true race to the bottom at that point. I think at that point, it becomes so crazy that I’m not even sure what would happen because I do think taking the number one job in America and displacing all of those people would be met with a lot of resistance I can imagine. Don’t you think, Mike?
Mike: Oh, for sure. I mean I think it would be met with the same resistance that the taxi industry had resistance to Uber and they’ll lose just the same way that the taxi industry did.
Grant: You know, I might disagree there not out of logic, but I think a lot of the people nowadays were fed up with taxis at some point but I don’t think people are fed up with truck drivers. I know a lot of people say, “Ah, truck drivers,” and whatnot, but I know a fair amount of truck drivers and they all seem to be decent people and if you know somebody that’s going to get affected, I think it makes you feel a little bit differently.
Mike: Yeah, and I agree. Most truck drivers seem to be really cool people and I only really know truck drivers from the ones who come and deliver and pick up from us, and that probably doesn’t seem like a lot but we have a truck driver here multiple times a day, and plus UPS. The UPS drivers, I don’t know what UPS does in their training, but I’ve never met a UPS driver that isn’t amazing. the mail carriers on the other hand, that’s kind of a coin flip sometimes. But yeah, I mean the guys who come drop off containers here or do LTL, less-than-truckload, deliveries or et cetera are all super nice and I always like try to think of them, offer them a drink, offer them to like use our restroom or whatever because they’re out all day and some people are kind of weird about that and stuff, and try to treat them nice because they’re taking care of us as well by delivering stuff. And almost every one of them is always awesome.
So I agree, but you can’t stop progress, right? To me, autonomous truck driving’s still at least a decade away. It’s not as close as some of these other things. Like I think Uber deliver of ecommerce stuff or Amazon type stuff now is like on the doorstep. I think that’s a lot closer to being a reality, but I don’t think there’s really any way of stopping autonomous driving and I do believe that a kid who’s born today will not need to learn how to drive. I firmly believe that within 16 years, there will be no reason to have a driver’s license unless you want one. But I don’t think it’ll be necessary.
Grant: Yeah, I do think we will work that way. I do agree: fully autonomous trucks I think are going to be far away. I do think going from B to B that a truck– for example, going from one trucking destination to another, where you go from one warehouse to another and you have people on the other end, that’s where you can have the most amount of automation, like on the long haul.
Grant: It’s the last mile that will almost never be automated because some guy’s got to lift the pallet and bring it in to you at the end of the day.
Mike: Exactly. Yeah.
Grant: So I do think the majority of the expenditure costs, the labor though, is during that long haul. So I do think that there’s going to be a lot of cost savings over there that people are going to be fighting over.
Jumping around to something else, let’s try talking about the future of marketing: search engine, Facebook, PPC, social. I know that you’re really big on Facebook, obviously, and email. What are your predictions there, Mike?
Mike: So, you know, the only thing constant is change, right? So I think the way that the landscape is now, if you’ve kind of got your heels dug in and you’re not prepared to change even on a dime, that you can be in trouble. And if you think back to just a few years ago, it was all about Google: Google Ad Words, Google PLAs. Facebook ads were even a topic of conversation. And now Facebook is really the go-to source for us for advertising. This goes across other topics we’ll be talking about on this podcast, but we’ve been doing things to defend our turf, right?
If we spend a dollar on advertising, I don’t want just to be looking at the revenue for that, but I also want to look at is our brand growing and is our email list growing? Are our assets growing? Or something I could quantify and say, “Okay, we now have 50,000 people on our email list. What is that worth to us?” versus just doing advertising the way that we used to, which would’ve been running a Google PLA ad, for instance, for a shoulder ice wrap or specifically like a brand, like an ActiveWrap (which is a brand, by the way) should wrap that someone might be searching for on Google Shopping, doing a price comparison, coming to our site, seeing we have the best price, and getting that customer, and that’s kind of it.
We’ve been thinking about marketing in a whole different way to where if like the lights turned off on Facebook tomorrow or they change the way that they price their ads, and if you look at– I was reading another survey. I’m in a really good Facebook mastermind group and I think that someone in there linked an article to the evolution of a price per click on the Facebook platform over the last few years, which just continues to go up. At some point, we’re going to run out of the ability for those to be cost-effective, so we’re doing things in a way that enhances our brand and it gets people talking about us and also, like I said, building our email list and just being fluid with what’s working now, right? I think we’ve gotten really good at what works now but we have never, even with Facebook, stepped back for even a week really and been like, “Okay, we have it figured out. Time to work on something else,” take our foot off the pedal kind of thing and lose focus of that. It’s an evolving platform. So I don’t know if that quite answers your question, Grant, but that’s kind of the way that we’ve been thinking about it.
Grant: Yeah, no, that’s obviously a very interesting insight onto Facebook in terms of cost per click, and I know it’s been going up as well. And I would actually say that, as a whole, and I think you’re going to agree here, the idea of taking arbitrage from a channel onto your own traffic is going to decrease as the level of marketing competency goes up. I know that’s a little bit of a convoluted statement, but the example is every time a new platform comes out, they’re dying for advertising revenue. And they’re going to bring in the traffic first and then they’re going to bring in the advertisers second. So there’s always going to be this, “Well, if you build it, they will come,” type business model, so there’re always going to be a few new guys out there and eventually one of them is going to hit critical mass. But during that time, advertising’s going to be very cheap.
So the idea’s that advertisers will always float where they get the best ROI. Now, back in the day, Google used to be that way because on Pay Per Click, we could get some just massive killings, and Google Shopping– you remember when it was free, Mike?
Mike: I do.
Grant: And you could actually get like free clicks?
Mike: And they just changed that not that long ago.
Mike: It was just like 18, 24 months ago.
Grant: Uh-huh. That was right around three years ago because we were on Treadmill right when they changed that. And so yeah, we were getting like free clicks and that was a wonderful time because your ROI is, you know, infinity practically.
Grant: So a lot of people rode the gravy train until, finally, the gravy train stopped and was like, “Oh, by the way, we’re charging you now.” And so Facebook was really that way too. They never gave away ads for free, but when you’re charging five cents or maybe $1 per CPM or something that low, you can get away with a whole bunch of stuff if you know what you’re doing. So now, everybody is pretty much talking about social media advertising, right? And everybody talks about Instagram advertising, Twitter advertising. I feel like YouTube is a little bit of the fringe space right now; people haven’t quite figured out how to advertise well on YouTube because of the videos, but people are kind of getting there. And I think what’s really finally matured is PPC because most people, when you get on PPC now, what happens, Mike? You don’t make money, right?
Grant: Yeah, and I think we get emails almost every week at this point from people going, “Well, you know, I want to try to advertise on Facebook because I tried PPC and PPC didn’t work.” I can always see how that happens because if you don’t have any expertise in PPC and you dump money in there, I will almost guarantee you, you will lose money just in a very spectacular fashion because the cards are stacked against you. I even wrote a post about that, about how PPC’s essentially garbage because Google is there, I should say, and [Bean? 00:26:25] to extract your money.
Mike: I wouldn’t even be surprised if a class action lawsuit happened at some point. I think it’s that egregious.
Grant: I think it already did happen.
Mike: Is that right?
Grant: Yeah, because Google was doing some pretty underhanded tactics for getting clicks.
Grant: I mean they made that entire click box like a massive box, so there’s a lot of accidental clicks and like you get a lot of clicks where people spend zero time on the website. There’s obviously a whole bunch of fraud going on, but the reality is I think you kind of build that in at some point.
Grant: For example, not to dive too deep, but I think short of being in maybe the porn industry, if you’re paying for clicks after midnight to 6:00AM, all of those clicks are completely garbage. It’s not worth anything. Yet probably 20% of every PPC budget of people who don’t pay attention is going toward those clicks. Who’s making those clicks? Probably bots or like a bored somebody or somebody who doesn’t have a good idea what they want because general functioning human beings aren’t awake from midnight to 6:00 shopping. Obviously there are some out there, but the vast majority are nothing. So you need a super-high level of expertise on PPC just to break even. And even those people who are making money, a lot of them are making money because they’re relying on LTV, or long-term value, of your customer to come back.
So I see PPC and marketing as industries that are getting very mature. I see search engine optimization as an industry that’s getting very mature too. Luckily, it’s difficult enough that a lot of people still have trouble on SEO. Luckily for us I guess, Mike. But someday people are going to figure it out and, at that point, you can’t really say, “Well, I’m this small little ecommerce site. I’m going to take on Amazon.” It’s like no, that’s not how it works. Do you have $1 million ready to put into marketing? No? Okay, then get in line with everybody else and take your number at the end of the line. So that’s honestly one of the reasons I really don’t do a lot of hardcore SEO consulting anymore, which is that not only do I have to explain to people what they need to get done; I have to convince them that SEO’s not something that you put in $1, you get $100 back. It doesn’t work that way anymore.
Grant: You put in $1, you get $2 back if you’re good.
Mike: 18 months from now.
Grant: Yeah, exactly. And, by the way, your dollar also might go to $0 too, so you’re taking an educated bet over here. Now, if me and Mike are working on SEO, for every $1 we put in, we could probably get, I don’t know, $8 or $10 but that’s because we can take those risks and we know what we’re doing. But for somebody else…
Mike: Hashtag brag.
Grant: Yeah. It used to be bigger, I’d say. So it could be even bigger of a hashtag. But going back to you, Mike, let’s talk about arbitrage and let’s talk about arbitrages that are going out. we talked about distribution models, like selling other people’s stuff, or retail arbitrage. What do you think? In or out?
Mike: Out. Yeah, definitely out. I mean it’s already almost out. Like I think we’re kind of on the doorstep of that being out, and on top of it, something really profound has happened just right before we recorded this podcast. In the last week, Amazon is now shutting that down as well. I forgot the number of brands, but it’s in the thousands of brands that they have locked. So if you have Nike for instance, if you have a pair of Nike shoes that you want to sell on Amazon, you can no longer do that. You have to get approved to be a seller of that brand, and there’re a whole bunch of brands that they’re doing this for. They’re doing it to help protect against counterfeiting, but they’re also doing it to just protect against sellers who are just selling less than quality goods I guess is the polite way to put it, even if they are new. I am actually happy that this is happening.
I think this is a good time to just kind of have a philosophical point to make here real quick. One of the things I’ve done as I’ve gotten older in life is I’ve taken a step back and just really asked myself, “Am I adding value here? Am I doing something that’s good for the world, bettering the world with what I’m doing?” And I think that if you’re looking at like retail arbitrage, the answer’s, “Absolutely not.” You’re not doing anything; you’re just buying stuff at one price and reselling it at a higher price and piggybacking on the hard work of other people and the marketing they’ve done. You know, I used Nike as an example. If you buy a pair of Nike shoes for $20 and get to sell them for $60, you’re not really adding any value in the world necessarily. You’re buying maybe stolen goods or shady goods or whatever.
Grant: Wait. Hang on, Mike. Are you telling me high frequency trading is not good for America?
Mike: No, it’s not. Wish they would get rid of that too. It’s amazing that that still exists. But yeah, even with what we’re doing with like CuttingBoard and IceWraps, I feel like we’re on the cusp of that as it is. Yeah, we’re selling quality products and we’re helping people, but the long-term goal for me is to take it to the next notch and have something, again, that’s defensible but people are clamoring for us looking for it. We get a lot of searches now for ColorIt, people typing in “ColorIt” and that’s not easy to do, to get a word like that that no one would search otherwise. But if someone’s buying another cutting board, for instance, like a John Boos cutting board or a Pro cold ice wrap or whatever, what value are we really adding there? I mean people can find it elsewhere if they want to, and yeah, I’m proud that we rank number one and we do provide good service, et cetera, but we’re not necessarily improving the space; we’re buying and reselling, which is kind of arbitrage in a sense.
So I don’t know, I kind of think that that’s dying and that’s why we’ve been working hard on a brand from the very ground up. We have a second brand that we are in the process of launching right now and we’re probably going to have a third one that we’re going to do next year, and it’s completely defensible. Like when someone wants to buy a set of ColorIt gel pens or pencils or one of our books, they can’t go elsewhere to buy it. We control the entire pipeline, the entire chain, and I just think that’s like a much better position to be in, like looking long-term in ecommerce. That’s just where we put our chips, so to speak. So I don’t know if that gets to your point there, Grant. I was kind of rambling a bit. Sorry.
Grant: No, I think we’re just both going off the cuff over here. So I would agree. I do think that reselling another company’s product, especially online, is a very precarious situation because, whereas in a brick and mortar, you’re in there because of immediacy. If I go into a Target or a Walmart, I’m there because I need something and I need it now; it’s not something I can really wait for. And I’m not really that interested in what brand it is because, again, I need it now. And if it’s a brand I know, such as Downy or Clorox, I’ll probably recognize that and be like, “Oh yeah, this brand. I’ll take that one versus the no-name brand.” But online, I can shop at any one place, and it doesn’t have to be IceWraps or CuttingBoard, to buy an existing brand.
So I do think the protection against that is obviously some very good relationships. I do think a lot of manufacturers are going to have to make a reckoning call at some point on whether or not they want to do direct and just make a deal with the devil and sell on Amazon and just hope to ride that train, or if they want to kind of have a protection for their vendors and have MAP and have a limited amount of people out there. But a lot of your future’s going to be dictated by how your vendor moves. We’ve seen that in many cases. I mean Treadmill’s a perfect example, where one vendor, a very primary vendor, makes a big switch and then suddenly you go, “Well, that was very interesting. That affects our complete business model.”
Mike: Yup. And it’s not a good position to be in, right? I mean we’re talking about the predictions of ecommerce here, but at the same time, it’s also the philosophy that we’ve both come up with to run our business, which is to not always have your future dictated by someone else, and that’s certainly the situation we were in with Treadmill. We have a vendor drop us that we were doing really well with because other people were bitching and complaining. We had a vendor tell us that we had to stick to MAP pricing when everyone else was violating MAP pricing. It’s just that you’re being pushed around by people and you have very little choice in the matter. And I feel that way with Amazon in some respect, which is why we’ve worked so hard to build our non-Amazon business. We keep a very close eye on our Amazon sales to our other business and do everything that we can to not let it get past 50%, so if something happened on Amazon one day or they change their rules, which they continue to do non-stop– I mean a really good example of that (I’m going to go on a rant for just a second here) is when they changed their rules on the non-branded box.
We had spent the previous three to four months getting all of our inventory in Amazon and we were high-fiving each other about how awesome it was using Amazon as a 3PL, third party logistics company, to fill all of our orders. No sooner than we finally get like all of the kinks worked out, they send out an email saying, “You can no longer use a non-branded box,” which they had a thing where you could pay an extra dollar, and any multi-channel order that you filled on another order besides Amazon, you could elect to send that out in a plain box so it didn’t have Amazon’s writing on it, which is what we were doing. And then they give you I think it was like four to six weeks’ notice saying, “We’re cutting this off as of September 1st.”
Mike: And now what do you do? So it’s a situation, again, where we’re trying not to have ourselves in these types of situations, and that’s a small thing that happened, right? Well, I mean it’s actually a pretty big thing, but it’s a small thing in terms of the products and the brand and stuff like that, but they could very easily say, “We’re now taking 20% margin on all sales.” There’s nothing to stop them from changing that rule. Or even 25%, or, “We’re going to increase our long-term storage fees,” or all kinds of things. And they keep on doing little things here and there to kind of make things worse for us resellers. So having a defensible piece of property, if you will, which we do have in ColorIt.com and, like I said, we’re working on another brand, I think that’s the way to be going long-term and that’s kind of like my prediction in ecommerce. Unless you have those types of things, your margins are going to be hit way harder and faster than if you don’t.
Grant: And, speaking of Amazon– I know we’re starting to run a little bit late on this podcast, as usual, but I do think that we should spend a little bit of extra time on this podcast in particular.
Mike: I think we should do a part two, Grant. I think we have a lot left to talk about. I think we can probably talk about Amazon for a good 15 minutes. What do you think about a part two?
Grant: Yeah, I think a part two could definitely work. I feel Amazon would take at least probably 30 minutes.
Grant: I mean they are the 800-pound gorilla in the room. So yeah, I think we could reserve Amazon for part two. I could talk about other marketplaces as well and yeah, I think if anybody has any questions from now until then on our predictions, we’d definitely like to hear and we can throw our hat into the ring and see which one of us is more wrong in the future than the other.
Mike: We should make some predictions, like over the next year, make some bet on the podcast that we can embarrass each other will.
Grant: Oh, gees. Well, in that case, I put my money on Elon Musk.
Mike: Nice. On his super tubes or whatever they’re called?
Grant: Yeah. Yeah, and life being virtual reality.
Grant: So if I win, then I guess we’re all not really alive, so…
Mike: You can win in your reality and I’ll win in mine.
Grant: Yeah, exactly.
Mike: Nice. All right, everybody. So yeah, until next week. We’ll do a part two of our predictions in ecommerce and until them, have a great week, everybody.
Grant: Take care.
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