NM Live: Shopify’s Enterprise Gap, Loyalty Myths & Smarter eCommerce Playbooks

Drew Sanocki

Hey Mike, how you doing? 

Michael Epstein

Good Drew. 

Drew Sanocki

You've been busy. 

Michael Epstein

Been on the road, been on the road. Latest was Palm Springs eTail. 

Drew Sanocki

Right. You're the hardest working man in the Shopify app world, I think. eTail, Palm Springs, then you flew to I don't know, you were in like an L.A. And then I saw you left the country for a while and came back. 

Michael Epstein

Just, you know, the jet setter. 

Drew Sanocki

Did you learn anything big? 

Michael Epstein

You know what, I think the big insight from eTail was how much Shopify is still not in the sort of mainstream consciousness of a lot of the larger enterprise brands. And I kind of thought that over the last year with Shopify making such a push, such a hard push into the enterprise market that it would be higher up in sort of the consciousness and consideration set for a lot of these enterprise brands who are, you know, legacy brands on typically custom tech stacks going back 10, 20 years, Salesforce Commerce Cloud, some even on Magento Big Commerce. And you know Drew, you and I, when we were running our turnarounds it was always like, how fast can we get this busted thing onto Shopify? Cut all these IT costs out of these businesses, but it wasn't, it was still a little bit of like, yeah, no, isn't that sort of for small brands? 

Drew Sanocki

Well, I remember when you and I, you know, auto anything, we're just like, get it on Shopify. It was sort of a novel idea. Like, certainly the PE overlords, you know, they aren't as familiar with it and probably perceive it as a small store solution. But even at the company they are just like, really, Shopify? Like, isn't that like, you know, Squarespace commerce or something? So, yeah, it's interesting. I think there's a lot of upside for Shopify. 

Michael Epstein

I totally agree. And unfortunately for you and I, we found out that at that company we had six million SKUs and Shopify was not equipped to handle that, especially at that time, which was a big bummer. But for some of these other brands that could totally be supported by Shopify's current capabilities, it was just interesting to hear it's not a high, it's just not, yeah, it's still a bit of an unknown. 

Drew Sanocki

That's right. 

Michael Epstein

Still a bit of a question mark among the IT folks and the marketing folks about, I get the functionality that I want from Shopify? Is that capable of handling a store of my size? And it's like, yeah. Don't you want your life to be a lot easier than custom tech stacks where it takes months to add any feature or function versus installing an app and again, it was, was, it was interesting. It was eyeopening to know that there were still a ton of opportunities, a ton of penetration. And frankly, I thought it was a missed opportunity for Shopify to not have a much stronger presence at eTail this year. It was like, man, you have got to really educate this market even more than you're doing now. And what a captive audience of these big legacy brands in one place where you could have had a lot more conversation, a lot more education around how far Shopify has come in the enterprise market. I mean, they just moved over ButcherBox. They just moved over to Dollar Shave Club. But man, so many other folks still sort of just clunky old tech stacks lumbering their way through trying to add marketing capabilities. 

Drew Sanocki

Yeah, I'm thinking of my career. You know, we've  made like three three turnarounds that all had runs at Shopify. There was Karmaloop, Auto Anything, which proved to be ultimately impossible at the time. And then Overtone, which was our latest acquisition. They were on headless Shopify, but moved on to straight up Shopify in each case, at least Karmaloop and Auto Anything. I mean you'd go into these brands doing nine figures and you're the first questions like, how do you, you know, tell me about your stack. They're like, oh, it's on the server rack right over there. And like, they're literally hosting it on a server rack in the office. And you realize that, you know, one of your first keys to success and taking a lot of costs out of the business and moving as much as you can off the shelf. I mean, it's not just like where it's hosted. It's the email system. It's like every other system they use is like on that rack. So I think it's a little bit of maybe career advice to the many of you who are listening right now who have a really strong background in e-commerce and you're wondering how to get some leverage off that. I think there's a real opportunity to look for legacy brands that are just on these archaic old stacks. And you serve as sort of the shepherd and advisor and veteran on, you know, really get them off the shelf. And you can work with a private equity fund like we worked with Kingswood, but there's, there's several out there now that are open to acquiring one of these legacy stacks, or if you wanted to just build a consulting practice around taking costs out of the business, moving to off the shelf. I feel like I figured that out late in my career, but it was a real, it was a real need. And you can demand a premium if you're good at it. 

Michael Epstein

Yeah, I think that's a great point. And you reminded me of a couple of things. One was the server closet. I told that story detail a couple of times about how we literally had the server in a closet with fans blowing on it to keep the closet cool. And I remember you and I heading into Black Friday where, you know, you're going to do millions of dollars a day in sales going like, what happens if the closet overheats? Who's going to go in there? 

Drew Sanocki

Or if you stumble, like some dude just trips on the cord and you like unplug the site. What was my fear? Like you got guys, you know, what are we doing here? 

Michael Epstein

Exactly. But we also had, you we pulled $6 million in IT spend out of that business in the first year because of just moving them. You know, they had 50 engineers or something like that. We moved them to a lot more off the shelf solutions. And that was before we even got to Shopify. And that was a huge, huge imperative win for that company. Because again, it was a turnaround. So bleeding cash. And I remember the other thing that we did was we had a spreadsheet of all the features and functionality that we wanted in the app. we had check marks on one column for like, this is native with Shopify or has a one click install for Shopify. Here's if we need to build it. And it was just like, it was just 50 rows long of stuff that was like, we could have this active tomorrow. If we were on Shopify, if we have to build it or integrate some other third party tool, this is like a three year roadmap. It was crazy. 

Drew Sanocki

I think if you're interested in this, the place to start is looking at those e-commerce 1.0 brands that started around 2000. Karmaloop started then, AutoAnything started then. I'm thinking of brands like eBags. In many ways, they were these category killers that got really big, rode SEO up, and now we're 20, 25 years into their life cycle. They're still there, probably still have really good SEO. But someone needs to take them and get them off the shelf. You can take a lot of costs out of the business. 

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OK, Mike, while we were looking into e-commerce trends and news this week, we always like to talk about e-commerce trends and news. You know, when we were doing these migrations, one of the tools we used, there's always like loyalty software, a loyalty program. And in fact, you know, a study came out this week where LoyaltyLions surveyed, you know, a bunch of Shopify, a couple hundred Shopify apps and asked unsurprisingly, what their top priority was loyalty. So I don't know much about the survey, but it kind of put loyalty on our radar. And you and I have had a long experience running loyalty programs. We sort of came up with like five things, considerations when you want to start a loyalty program. I feel like there's this perception out there among marketers that, hey, all we got to do is implement a loyalty program in our customer lifetime that is going to go through the roof. It's like the silver bullet, you know, I was a Bill Bain said at one point, you know, that it's so much easier. He's one of the first people to say it's so much easier to retain a customer than to go acquire a new one. So I feel like brands out there really think that loyalty marketing is where they, you know, where they're going to see success. I think there are five considerations there. And the first is really like in our world, the world of nerd marketing, where we talk about customer behavior and RFM. Think of a loyalty program as a way to change customer behavior, not as a way to generate loyalty. So loyalty is going to be generated by your product and how much customers love the products. That's what's gonna elicit brand loyalty. A program is not going to create loyalty out of thin air, but what it can do is change customer behavior. So I think you should think of a loyalty program almost as a retention program and how you wanna change and modify customer behavior. Don't be under the illusion that you're going to create a brand or loyalty.

Michael Epstein

Yeah, I think that's a really critical point. And to emphasize that if you think about it as a rewards program, if it turns into a rewards program for your existing loyal customers, all you're doing is giving up margin to people that would have, that were already loyal and buying anyway. That's where loyalty programs become most dangerous, when you don't think about how you can use it to influence behavior and change behavior, you end up just subsidizing existing loyal customers with margin. And that is a disaster for a business. Because these are the folks that are more likely to buy at full price anyway, and you're just handing them a discount they weren't even asking for. That's crushing to the margins. So really important point. I'm glad you brought that up.

Drew Sanocki

Yeah. The second point or the second consideration we had is that just looking at a lot of data, think about a loyalty program is that you want to allocate between three and five percent of your revenue to the program, to points, to rewards. And what we've seen is that programs that offer below that, say one percent, they fail because they don't meaningfully influence customer behavior. So it's just, think, a rule of thumb that not a lot of people talk about. Like, you've got to put some teeth in your loyalty program or your retention program. If the brands that go too light on these typically don't get the response that they want.

Michael Epstein

Yeah, that's exactly right. And again, it goes back to the first point. You end up just giving away points, giving away some extra dollars. You didn't make it meaningful enough to actually change behavior. And I think that actually takes us to our third point of what are those things that you want to be thinking about that are intangible benefits that go beyond your typical points program. And that's things like experiences, insider access, exclusive first looks, exclusive access to products, exclusive access to events. I think the brand, to me, the gold standard of loyalty programs is Kiff. If you don't know Kiff, super cool clothing, accessories, too cool for me probably, but I do love the brand. If you're thinking about a loyalty program or you have introduced a loyalty program and you want to look, you want to get inspiration for how someone executes it really well, check out Kiff. It's already a brand that's focused on exclusivity and they amp that up with their loyalty program by giving you exclusive additional benefits for access to exclusive products, access to exclusive events. Like that's how you piggyback on something that is on brand already and generate just more raving fans for your brand and increase purchase frequency and revenue because you're giving them things that they wouldn't have been able to access or do otherwise.

Drew Sanocki

Yeah, I think a lot of fashion apparel brands are really good at this. As you know, Mike, I've got a strong background in streetwear. Kind of iconic supreme comes to mind greats like these brands that just unlocked that exclusivity with exclusive drops sort of made their name in streetwear. But things like that that elicit this emotional connection with your customer are often way better than going to the app store, finding a loyalty points app, bolting it onto your store and thinking magic's going to happen. So I would say this is a little bit about putting your thinking caps on and your marketing cap and starting there thinking about what's going to actually be meaningful to my customers and elicit that reaction. Our fourth consideration. Are you really good with a loyalty program or do you want to just start with retention? You know, I think a lot of brands think of loyalty programs as like, OK, you know, we focused on acquisition. OK, now we've got to like roll out the loyal, the magic loyalty program. A lot of them are just better off starting with straight up retention programs. You know, do you have a win back in place? Like, have you looked at your standard customer behavior and figured out, you know, when your best customers come back to buy and then sort of greasing the skids and making sure that they see the right offer at the right time, implementing a discount ladder, which I know we talk about a lot, just like those basics on the retention side. I think we'll take you a long way in maximizing your customer lifetime value without the need to build out a formal and often hard to administer loyalty program.

Michael Epstein

Yeah, another great point. And the thing about loyalty programs is once you roll it out, it's really hard to pull it back if you realize that this isn't working. Because now you've got these people that have become members of something, they've started accumulating benefits. And just as a side note, those benefits often have to sit on your balance sheet. So it's another accounting thing.

Drew Sanocki

I was just gonna say it's a bit of like the third rail when you go to acquire a company and you're looking through the balance sheet and you're like, my God, these guys owe X dollars to a zillion former customers that they can redeem at any time.

Michael Epstein

That's right. So, you know, the complexity of rolling it out, the fact that once it's out in the wild, it's very hard to pivot away from it or, or change it materially because you're just going to now have a bunch of upset people that felt like, you know, they earned something and you're taking it away or changing it. So get, I agree, get really focused on retention first, see how much mileage you can get just out of doing that. And then think about how you potentially roll out a loyalty program to take it a step further, but do it super thoughtfully before you just test into something like that.

Drew Sanocki

Yep. And the fifth consideration is really to be data driven. know, if the marketer thinks looks at his or her customer base, make sure you do your analysis, figure out things like intra-purchase latency and which customers come back when and make sure the loyalty program like syncs with that data and really tries to change customer behavior at the point of greatest impact. And, you know, thE programs that do better, think, really take that customer behavior into account. read up on your nerd marketing and make sure you do a good job of profiling all your customers before you go and try to start a loyalty program.

Michael Epstein

Yeah, that's right. Track your cohorts over time. If you're not seeing an increase in improvement in that intra-purchase latency, if you're not seeing an improvement in LTV, if you're not seeing an improvement in those different cohort charts that you're looking at, then again, you're subsidizing people and not changing their behavior at all.

Drew Sanocki

Those are our five recommendations.

Michael Epstein 

Drew, a little blast from your past this week in our M&A recap.

Drew Sanocki

That's right. So the brand Avenue.com was acquired by FULLBEAUTY Brands. And I think FULLBEAUTY has made a number of acquisitions in the plus size apparel space. Fourth acquisition in over a year. They also picked up Cuup, which is a digitally native intimates brand Eloquii and a couple others. But Avenue probably doing I think I could find that they were doing almost $200 million in revenue last year. But in a slow decline, they've had some store closures. So they're both Avenue.com and they've got stores. I believe they were also owned by private equity in the past. I've got a bit of history with the brand because at one point I consulted for for them and help them do some retention and cohort analysis work. And I just remember it as a brand that had very passionate users. They were on the cusp of exploiting social media. They had a real vibe in their stores. You know, there was like the Avenue customer. So interesting to see they got passed sort of from one PE to another. It looks like FULLBEAUTY is trying to do a roll up of the category. And, you know, I guess the question is like, what do you do with Avenue if it's sort of a steady state, big hybrid DTC and retail brand going forward. The first thing I'd probably think about is some cross-selling with the other brands. You've got an Intimates line in Cuup and you've got Avenue, which is sort of all on trend apparel. Seems like those would go together and not be competitive. You could do some cross-selling and upselling at the point of purchase, after purchase. So that's probably where I would start.

Michael Epstein 

Yeah, sounds like they were not profitable, at least as of recently. So any thoughts on quick wins to get them back to profitability?

Drew Sanocki

Yeah, I well, I think of how we started this podcast and AVENUE is one of those brands that started 20 years ago online, right? So I don't know. I'm not as familiar with their tech stack. mean, at the time when I consulted with them it was pretty archaic. I don't know if they were on exact target, but something like that, just like an old school ESP, their platform was pretty old. So I think I would start initially with cost outs and trying to get this on an off the shelf platform, Avenue.com. Shopify would be a great choice for them. And if I were at full beauty brands, I would probably build out a little operating team at the portfolio level that could run point on these migrations for every brand they acquire. Because there's money in getting them all on the same setup. Probably can negotiate better deals with Shopify, Klaviyo, everyone else. And then you want all your data piping into the same sort of ERP, whether that's NetSuite or you use something custom. But I'd probably start there with the cost outs, which might get it profitable, at least on a cashflow basis in the short run. And then I'd really lean into retention. I mean, the RFM was really impressive on this brand, a lot of high lifetime value customers repeat purchases. And as I remember, this was a brand that was sort of blindly focused on customer acquisition and was not doing a whole lot on the lifecycle side. I mean, this was 10 years ago. But I can't, you I think like a lot of brands this size are not sort of state of the art on how they go back to their customer base and try to bring them back to purchase. So probably figuring out the common paths through the site, what people buy, what they're inclined to buy next, and then just greasing the skids with things like email, SMS, and direct mail.

Michael Epstein 

Yeah, I think you're right. Blocking and tackling in businesses like this, I think can go a long way simply because we have a ton of data on apparel brands and particularly plus size apparel brands. And they tend to have extraordinarily high LTVs. Once that core consumer finds something that fits them well and that they like stylistically, they lock onto that brand and they buy a ton from them. So it would be, it would be surprising to me, to your point, if there wasn't significant additional upside in doing some of the blocking and tackling around retention better than what they're doing today, which would significantly help them get back to profitability if that were the case.

Drew Sanocki

Yeah. I mean, honestly, I'd go in, I'll put my PostPilot hat on, I'd go in and pitch the portfolio companies on a, on a joint catalog, introducing all their products. They could drop it to a, you know, a combined customer list. They could do it look alike and they could do some acquisition off of it. I think that'd be a great place to start with direct mail. Avenue acquired by full beauty brands. We don't have the price information, but good luck to them.

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All right, Mike, we've got an interesting case study today. Ancient Crunch, which is the company behind Masa chips. They have amazing chips, by the way, and I am a consumer of Masa chips. Do you know why?

Michael Epstein

Great chips. I'm gonna guess maybe keto friendly?

Drew Sanocki

No, no.  I'm a fan because they don't have seed oils, man. Seed oils like you pick up any brand of chip out there. I mean, especially those created like in our youth. And it's like vegetable oil, sunflower oil, and safflower. For years, I've wanted a torchet, like a good tortilla chip that doesn't use seed oils. And so Masa has come along, they don't use seed oils. And so you can cook things like avocado oil or, you know, if you're lucky, tallow, something like that. But, you know, as so healthy, if you believe that seed oils are evil, like I do, you know, you want a chip that you can feel good about eating. So I've always since these guys came on the scene a couple of years ago, I've been long on masa. They came to us with a more of a retention problem, more of like, let's optimize the lifetime value of our customers, certainly those that buy direct. And we launched them with three tactics to improve customer lifetime value. So the first tactic, and conversion. So the first tactic wasMailMatch™. So MailMatch™ is our proprietary process whereby, you know, any brand out there has a massive list of fence sitters. People have never purchased from them before. So what we can do is we look at your email list. We can pull out all those who have never purchased before. And then we basically can correlate a certain percentage of those to a physical address where you can drop a postcard. So you say, like, why would you want to do that? Because it works. You know, I think these are fence sitters like they've gone through your welcome sequence. So why would you want to do that? It's because it works. You know, these people are on your email list and have never ordered, despite your best efforts. given them every offer in the book. They have not responded. They will still respond to direct mail. So we built out a mail match campaign. It happens in the background as people sign up for the list and a certain amount of time goes by to get the mail match print collateral with the same offer that they've got an email and that's getting people off the fence and buying.

Michael Epstein 

That's right. And the second tactic or strategy that they use is one that we don't, we haven't talked about a whole lot about, it actually answers a question that we get from brands sometimes, which is how many times should I be hitting a customer with direct mail? And often brands are doing it once, but the real answer is as many times as it's still profitable for you. If you're hitting an audience at 60 days and you're getting, you know, a 6X ROAS on that audience, go out 90 days and focus on the people that still haven't come back and bought after, again, they've been sitting on your email list this whole time. They got a direct mail postcard at day 60, but they weren't ready to buy then. Maybe at 90 days, you're getting a 4X ROAS. That's still good. You should still be doing it. And then you just keep going until you've hit that inflection point of profitability or contribution margin where it no longer hits your profitability targets. But there's no reason not to do more if all of these things are generating incremental revenue at a profitable return or margin.

Drew Sanocki

Incremental is incremental, no matter where it happens. So we'd love to see that. And the third and final tactic they explored during this test was our abandoned cart campaign called Cart Match. We all know what abandoned carts are. know, a customer leaves an item in the cart and that typically triggers an email or SMS campaign to try to pull them back and complete purchase. You can do the same thing in direct mail, works better than either of those channels in that the response rate's better. So Masa leaned into that. It's working really well. And the overall results have just been impressive. So MailMatch™ consistently a 3-4x ROAS, new customer acquisition. CartMatch™ is clocking in at a 10x and abandoned checkouts. And on retention, they're seeing four to 15 times, depending on the segment, return off those retention campaigns. So this is all tested for incrementality, control groups, and it's legit. So Masa's very happy. They're leaning into us for other brands that they own. And it's a great place to start when you are, I think this is a really good typical place where we'd start a lot of customers.

Michael Epstein 

Yeah. And that range that you mentioned is exactly the point because they were able to test out to customers who hadn't bought in over a year and still getting very, very healthy returns at a year plus. So again, that's somebody that is long sort of defected from the brand. They clearly have not been engaging with email, digital ads, but you can drive significant incremental LTV and profitability by hitting them at a year plus out. That's a big win for any brand.

Drew Sanocki

Yeah, so if you're a CPG brand, even if you use seed oils, I would say check out the case study on the website.

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