Growing Ecommerce – The Retail Growth Podcast
Feed your growth mindset. Ecommerce is growing, and so are the challenges and opportunities for online retailers. In the Growing Ecommerce podcast, Mike Ryan and other smec experts are joined by industry leaders in ecommerce, digital marketing, and data science. By sharing business trends, practical solutions, and best practices, this podcast helps online retailers solve the challenges of tomorrow.
Growing Ecommerce – The Retail Growth Podcast
New co-host, same chaos: Amazon Haul, Nike's DTC regrets, Perplexity AI Shopping, and more
Big changes on Growing Ecommerce! Chris Scharmueller joins Mike Ryan for a fresh, unscripted take on the latest in online retail. In this episode:
- Amazon vs. Temu: What Amazon’s “Haul” launch says about their playbook and profit risks
- Perplexity AI: Can it challenge Google by fusing search and shopping?
- Nike’s DTC misstep: When cutting out retail partners backfires
- Marketing strategy: Are you spending where influence occurs?
All that and more, plus a hot take or two. Hit play.
Welcome to Growing Ecommerce.
Speaker 2:Hello sir.
Speaker 1:Hey, Chris, I'm your host, or one of them, Mike Ryan of Smarter Ecommerce, also known as Smek. With me today is big change to this podcast our new co-hostian schammler, chris. It's an honor, man it's enough.
Speaker 2:It's my, it's really an honor.
Speaker 1:Um, so I want to introduce you, chris, and I want to talk a little bit about why we made this change. Um, first let me just say something about chris. Chris is a. He's a very handsome guy, as you can. He's a nice dresser too. No one will ever accuse me of being fashionable, and when I first met you, chris, I can tell you this now, when was?
Speaker 1:it Because we've known each other eight years and you're not my direct supervisor anymore, and you're my favorite American and I know more than one Just saying Okay, that's good, that's important.
Speaker 1:But yeah, when I first met you, chris, I was like how to say this? I thought, to be honest, you were like this very flashy dresser and stuff like that, and I thought you were maybe a bit shallow. Okay, but that was actually me who was being shallow, because I was judging a book by its cover and, knowing you the past eight years, you're so deep, you're miles deep and you're such a smart guy and I'm really glad to have you as my co-host on the podcast.
Speaker 2:I'm getting emotional now. This is unscripted. Ladies and gents, thanks a lot, mate. Yeah, eight years, by the way, a fucking long time. We did a lot of stuff together. This is not not completely new to me, so I hope I can live up to your expectations by the way. Talking about expectations, mate, what are your expectations regarding this new setup now?
Speaker 1:Well, maybe if we just rewind to like why this change is happening I mean, anyone who's listened to the podcast regularly they'll know that it's been trailing off, like the volume has been dropping away and yeah, I mean, basically I was losing steam on the podcast. There's also a lot of administrative stuff that was not my strong suit for organizing interviews and stuff like this. Um, and on the one hand, it's always my favorite like hour of a week is to that when I get to talk to someone really interesting and get paid to do it too by smarter commerce is really great, uh, but on the other hand, it was just a grind after a while. But now I want a format, um, that's just a lot more dynamic and engaging. Those are really my goals is that the content is a little bit faster paced and a little bit more entertaining.
Speaker 1:I'd say Awesome, yeah, awesome.
Speaker 2:How about you, chris? Yeah, I mean. Look, the cool thing is I can't remember how many conversations we had about e-commerce topics, maybe even some broader topics Whenever we go for lunch or coffee chats, and now we can do this in an official framework. I'm really pumped about that and I'm just looking forward to it. My expectation is that we do it as much unscripted as possible so that you can really surprise me and I surprise you. We might be a bit controversial at times. I would love to do that as well, and everything else. All systems are on. Go, looking forward to it, mate.
Speaker 1:Awesome. Well, just a word about what else is changing. As we said, we want to introduce, like faster pacing to the show kind of more formats. We're still playing around with what those formats are, but it can be things like Sherlock and Watson dissections we want to do Steelman Strawman. We're still. We're going to learn that together. Um, and if you, as an audience, have feedback for us what you like, what you don't like, yeah, now's the time to speak up um, let us know. Uh, but on to today's episode. We are going to cover a bunch of topics, including amazon hall, perplexity, shopping, a look at nike's d2c efforts, where we stand and really looking forward to it. Let's jump right into it.
Speaker 2:All right let's go. Let's go Amazon Hall mate. What is your take on this whole thing and the strategy?
Speaker 1:of Amazon. Yeah, I mean, let's talk about what Amazon Hall is. It is a new really. It's a new business model for Amazon. It's a new business line and you can access Amazon, all it's in. I think it's technically out of beta now, but it's in the US right now. You can access it in the Amazon app and the idea is that it's basically their answer to Timu, so you can buy things very, very cheap and it'll take a little bit longer to get here. And it's related to this whole de minimis taxation topic, this taxation loophole. Um, I personally think that amazon blinked here. I think that timu we can talk about how threatening timu really is to amazon's business, but I don't know if this strategy makes sense long term. I don't know what you think about it.
Speaker 2:I mean, now, when I, when I dig into the stuff, the one thing which came immediately to my mind is the whole tariff strategy the us is is going going for now. Um, I think the major thing about that strategy is that they want to import cheap products. Right, I mean they, they sacrifice the speed of delivery, but the the idea is probably delivery, a slow delivery, or price. Trump's slow delivery. Did I say trump? Is this okay here?
Speaker 2:okay just just okay, got it, but. But they sacrifice the speed of delivery for cheaper prices and the whole thing, as far as I understand, is somehow based on the idea that they can import products very, very cheaply directly from china. Now my question would be what is the trump administration doing about that? Because the diminish, diminish act is, I think, you can import products below 800 US dollars duty-free, as far as I know. So what if this changes? What does it do to the business model? Because I can assume that they are losing money with every transaction. They have right.
Speaker 1:I can't remember the exact cutoff on the shipping, but yeah, it's on small orders and that's exactly right. That whole situation is already under a lot of pressure from the administration and we'll see. Because Amazon is, they have to subsidize this. They've already turned on ads in um Amazon hall. They didn't waste a lot of time doing that and you can tell they're looking to bring in some revenue into that, into that property, and try to offset it a bit. But, um, we don't know how much they're subsidizing it by. To me it's kind of like we know timu. There were reports that they were losing 30 per order or something like that back, uh in the day. I don't know if that's still accurate. Um, amazon's losing money on every order and so does timo. Yeah, they both do. And the question you know team was subsidized by this parent company, pdd. Amazon has all kinds of business lines. Amazon subsidized other business models of theirs for years too. It's not a new thing to them.
Speaker 2:I mean, they have been losing tons of money with Amazon Prime, right. But it paid off long-term, long-term. But this long-term strategy, especially this duty question, I mean it's massively impacting the strategy right From a revenue perspective. And how much do they want or are they accepting to lose money and for how long?
Speaker 1:Yeah.
Speaker 2:Because what do you think, Mike? Just one question.
Speaker 1:Do you?
Speaker 2:think they are attracting. So basically, it's about defending market shares, or is it rather a question of can we increase the addressable market? What's the strategy here?
Speaker 1:That's a good question. I wonder that too, because I wonder if Amazon should, really how much they should worry about the orders they're losing, and are these orders actually coming from Amazon or are they coming from, like dollar stores?
Speaker 2:or other budget retailers?
Speaker 1:It's not clear, but I think that Amazon, I think what they see is that this is maybe a thin wedge strategy from Timu or kind of a foot in the door strategy and that, while it might not be all too threatening at first, that later on Timu can expand and change their business model, and there's every sign that they will. They're already onboarding sellers, like you know, local sellers. They're already working hard on building up their local inventory to avoid this whole taxation loophole problem. So if the loophole gets closed that dependency they've been working already for months. They anticipated that this would happen. They're not dumb, whatever you want to say about the people at TeamValue.
Speaker 2:No, for sure not. So, if I understood you correctly, is that they could have a strategy to outpace Amazon. So they are now buying market share by being extremely cheap. The next step could be that they have their own warehouses in, let's say, in the US. If it's possible, let's see, but have their warehouses right there. The fulfillment is done by Timo, and then they go somehow upmarket and sell at high prices Exactly. Yeah, this would be a massive threat to Amazon.
Speaker 1:that's for sure, yeah, I mean Amazon's becoming a bit more like Timu with HAL and Timu is trying to become a bit more like. Amazon and you spoke about market share. I think eMarketer just published numbers. If I remember, Timu has like 2% 2.3% market share, which is very small compared to Amazon, but it's a lot of Where's Amazon at oh, very high, I don't want to misquote, but super high, but you know, at least 10 times, I would say, around.
Speaker 1:I read something about 100%, but I mean the fact is that they got 2.3% market share within a couple of years, within a couple, yes, and they did that just buying it with ads mostly.
Speaker 2:I mean, what's fascinating to me is, I mean, I have a couple of nephews, hi guys, by the way, if you're watching this, I've a couple of nephews, hi guys, by the way, if you're watching this it's fascinating how Timo was able to educate the US buyer, I mean, because there was always buying so cheaply. It's something very natural, right. I mean. I think the human being always wants to have the best price possible, but also accepting that it's delivered. I know what are we talking about here. Weeks, three weeks, yeah, I mean. And if you look up the amazon numbers, I think last quarter alone they had 40 million customers who used their prime within one day, free shipping. This was the core value proposition of amazon, and now they are deliberately setting up a new entity which is completely diluting this very unique selling proposition.
Speaker 1:quite frankly, yeah, I mean, I think a possible miscalculation from Amazon here is like the question. It's for sure people like fast shipping, but it's not always necessary and they offer it every time and, of course, like, if you have the option of having free next day delivery or not, then you'll click it. But a lot of times I'm ordering something and I don't actually care that much when in a wrap, I think it highly depends on the use case, right?
Speaker 2:There are products where you just don't care when you get it as long as it's I don't know 30, 40, 50% cheaper. I mean I'm absolutely with you there. What I'm still wondering is I mean I would love to get some calculations, hands-on on some calculations here, because you saw the massively aggressive discount strategy on haul. I mean, sometimes you get up to 90% discount for products 90%.
Speaker 2:I mean this can't be sustainable, Even if you have a war chest of billions of dollars. I mean, what's the strategy there? I mean because they are discounting whole products. Is this something Timo does as well, because I'm not that much into Timo. So is there a discount on already super cheap products?
Speaker 1:as well. Yeah, timo has a lot of like in the UI on the website is very gamified. You like spin a roulette wheel and stuff like that, and I think the outcome is predetermined you're going to win and get the discount. Okay, um, but it's crazy. There's there's all kinds of discounting on on both platforms. Um, yeah, I mean, amazon is a lot more selective right now. That. So, first off, the order volume on hall is a lot smaller than the main platform, of course um, so yeah, they're losing a lot on these orders, but it's not a huge volume right now.
Speaker 1:The question is where they want to go with that.
Speaker 2:Talk about Amazon. The strategy of Timo makes perfect sense the buy market share. They're losing money, but it's an aggressive market expansion strategy. If they can go somehow upmarket and have I don't know fulfillment by Timo directly in the US, they can of course go into other market spaces where Amazon is now with their core business model. One thing I thought about on my train ride is Amazon could do the same thing. Right, if they are somehow able to transform, let's say, these whole clients who are low-price-seeking clients into loyal classic Amazon customers, then this bet could be a big win for them. But I think it's a big if, because the classic haul customer I think they are hard to transform into loyal Amazon customer willing to pay more for products.
Speaker 1:Yeah, I think that this is why this whole market segment that is being fought over, like there's someone who is only focused on the basically the bottom line pricing, and it's a question of do you want to win the segment? Is this segment worth fighting for it's?
Speaker 2:worth fighting for, um, but in days of where growth is more important than profitability, yeah, I understand it also from a shareholder perspective. By the way, talking about shareholder perspective, I think we should have a look at the next earnings call of amazon to dig into this sure, let's do it would be super interesting. Yeah, let's do it we'll.
Speaker 1:We'll pencil in the agenda. I have to look when it's going to drop yes perfect, it'll probably be sometime. Uh, yeah, a month after yes, after let's go. Yeah, let's go cool let's call, let's go an autopsy direction here um. We'll do a pre-mortem because Hall isn't dead yet. Yes, no, for sure not, it's just getting started. They're actually hiring here in Europe. They're looking at potentially a worldwide expansion with it. But if Hall doesn't work, why? What was the?
Speaker 2:cause of death, Depending on what Amazon wants to achieve. Right, If they want to achieve volume, new customers, new customer segments, I think the question is not if it works, because it will work. Amazon has the brand and if they're as cheap as Timo, look, I mean it will work. From that perspective, If it's really about building a sustainable business model, I think that's the big question, and I don't know how big of a war chest Amazon has, how much they're willing to invest into this. So I would say if it didn't work, the main reason was that it's just not working. From a admin right now is um, I mean, by the time we this podcast is published, anything I could say?
Speaker 2:there'll be something new or some change.
Speaker 1:Um, I can't keep up with it and I don't have the patience to read every single headline and it's just going to be changed 24 hours later. Um, so I, but wherever the regulation settles, I think it's going to be very decisive. Yeah, 100%, but um, let's move on from Amazon haul to another kind of a challenger story. Um, amazon haul and Timu definitely a challenger, incumbent story. Let's look at this topic about perplexity shopping.
Speaker 2:Yeah.
Speaker 1:I've mentioned it. I've mentioned Amazon haul before in the podcast as well. Perplexity shopping? I'm sure too, but let's just run through it Like what if perplexity shopping takes off? What do you think about that?
Speaker 2:I mean, first of all, what I would like to put on front straight is um, I mean, we, we are now in the business for, let's say, I think you're eight years, nine years, I'm now in the e-commerce business for 14 years. If I think you're 8 years, 9 years, I'm now in the e-commerce business for 14 years. If someone had asked me, let's say, 10 years ago, maybe even 5 years ago, who is the one company you will never bet against, google would be on top of this list, right? This is the crazy thing now. Now we really could argue that Google, for the first time ever, has real competition and a real threat to their business model, which is google search. So for me, that's, that's what I just want to put on front search.
Speaker 2:The discussion alone is crazy to a certain degree, at least for me. Um, and yeah, I mean what if I think perplexity it's. I think it's not just about perplexity. I think perplexity stands for this new wave of competition. Yeah, and this new wave of competition are, and this new wave of competition are, I would say, search providers, search platforms, who are way more aggressively and way more open about integrating AI. Google is somehow became a slow company. Another statement couldn't have thought of telling you, saying to you a couple of years ago. So I think it stands for this new wave of search behavior and AI, integrating AI into the search platforms. This probably will be the one major differentiator for this new up and coming platforms like Perplexity. I think that they have a real shot to eat into market share of Google, which is still crazy. Yeah.
Speaker 1:I mean, I agree with everything you said there. I think perplexity for people like us who are very online, and probably a lot of our listeners who are kind of very online, they'll have heard of perplexity a lot more. For a mass market consumer, they probably don't know what perplexity is. But it's exactly like you said with this. It's that innovator's dilemma. I mean, google has everything to lose here and perplexity has nothing to lose, everything to win, and this is a totally asymmetric thing that's going on there. So what perplexity is doing? They're integrating um with shop systems like shopify. They're integrating with payment systems like stripe. Shopify, of course, has its own um, its own payment system in there with ShopPay, but they're also, yeah, basically building up merchant centers so that people can submit structured data to them product data and this is going to allow them to it's in a beta right now, but that you can do a checkout while chatting with it Exactly yes.
Speaker 1:So it functions. Way more is mind-blowing, Because the thing that is always missing for me, I mean, actually, Google has all of these assets too. Yes, they have merchant centers. They already have a huge pool of demand and supply AI power, money people brand. They have the payments. If you look at their buy on Google program. It's just almost rebuilding that slightly. But they won't move first on something like this because it's too threatening to them Absolutely, and this creates an opportunity for perplexity.
Speaker 2:I mean, if I may pick up the statement of yours that Google has everything to lose? I think I mean, let's be sure about one thing the smartest people on this planet are working for companies like Google and they will find ways here, but I think they're still very uncertain about how to integrate this new search behavior and the AI modeling around it. How can they embed it in their business model? Right, and business model is paid search, and I think this is the one major advantage perplexity has, because they have, like you said, nothing to lose. It's an upside for them, and I think we had a similar discussion during one of our lunches. I think Google also is facing somehow a brand reputation stuff. Right, that the young people are not Googling in anymore.
Speaker 1:Oh, yeah, they say like search it up and stuff, search it up.
Speaker 2:I mean, these are little indications that, especially with this younger generation who are coping with AI on a daily basis, I think perplexity has a real shot, which is good for one reason I think you, me and the listeners, everyone who will use these platforms they will benefit, because if there is pressure for Google for the first time since years real pressure outside pressure I think it will lead to more innovation again on Google's side, which is a good thing at the end of the day.
Speaker 1:Yeah, I agree, and I think Google can weather this storm because, again, ultimately, if this product would emerge, they could squash it. They have everything they need If it would emerge in a meaningful way. The question is could they do it profitably? But they have to fight that, fight they have to fight it. Like you know, we talked about Google search being their business model, but Google search, that's, that's the whole thing of what they do, but it's a war to everything else, but it's a war for a subset of all those queries.
Speaker 1:I mean even something people talk about like chat GPT, taking market share. Is that interesting or not? Are they taking the right market share? Because if people are just going to chat GPT for informational queries and not commercial queries, then it doesn't matter.
Speaker 2:It's a lost case here.
Speaker 1:Yes, absolutely. It doesn't matter. That's not the money-making part. So Google has to defend that core commercial query volume and we have to see how that's going to play out. But I just wanted one more thing.
Speaker 1:You mentioned, like young people saying search it up, also searching more on TikTok and alternative ways of getting information. I think I saw a really interesting thing I believe it was on Twitter X the other day and I wish I could attribute it, but I don't remember who said it. It was anecdotal but it was such an interesting idea because they were saying this person was someone like our age and they're saying how their mom loves chat, gpt, and I think that's really interesting because their speculation was that there's actually adoption happening with young people who are kind of AI native and you might think that, like the older folks, would lag behind new newfangled technology or something, but actually it is so easy to work with and convenient. Yeah, for sure that there's a part of the market where there's more friction in google search than in chat, gpt or perplexity or other things. So no doubt we could see this that maybe that last stubborn core could be more people our age who grew up with.
Speaker 2:Google search. One last thing, because it's a super interesting topic. What I would like to conclude on is, yes, google will face significantly more pressure, but I think we have to differentiate here, because I think the pressure they will face is, first and foremost, in their core markets right US, europe what I think Google has as a massive advantage on their side, talking about growth potential. All the new markets right, india and Co, where basically, the internet adoption is still significantly increasing. Google has one major foot in the door because of Google Maps. We talked about that right.
Speaker 2:All these highly convenient features Google has. This is the basis they can work from there. So what I would say is there is a high probability that perplexity and co will eat into market shares in the core markets, but an overall growth story, the overall growth story for google is still intact. It's no financial advice, by the way, but I'm just saying I think they have. They affect a strong business model and especially looking at the growth potentials in new markets, because they already have this foot in the door. Yeah, with the likes of google maps, the people are used to google there yeah that's what I wanted to say, yeah yeah, totally they.
Speaker 1:They have a program. We're getting a little off topic from perplexing but, that's sort of.
Speaker 1:They have a program called next billion users, um, where they've built um lightweight versions of all their apps that are suitable for, like, local infrastructure and developing markets, and it's no coincidence that Google and Meta these are the people building undersea internet cables across the ocean. There must be a reason, right? Yeah, they're like they want these markets to come online and they want them to get started with lightweight versions of the apps and then, as the infrastructure is more robust, get onto the full way versions which can be monetized. Perfect strategy.
Speaker 2:What we can, I think, also conclude on two of us is that perplexity is here to stay. That would be my assumption, and I think the competition, let's say it's not just about perplexity, but these new search platforms. I think it's good for everyone here the companies who are advertising on Google, the end consumer, the likes of you, me, the listeners because this will spark innovation again on Google's side, and perplexity will do their thing anyway. So I think it's a good thing in general.
Speaker 1:Yeah, I agree, and I think it's not necessarily zero-sum either. So let's see, because people might be using these services in parallel too. I think it'll be interesting. Chris, you wrote something lately about Nike's direct consumer strategy and, like you said, nike is a brand that a few short years ago they were on top of the world. You couldn't imagine them doing wrong. It was the Google of the sports manufacturers. Everyone in every like Wall Street Journal, everyone in the world was writing articles about how fucking smart their strategy is, and now everyone is writing about how stupid their strategy is and how obvious the mistakes are Hindsight bias.
Speaker 1:Here we go, yeah, yeah, but why don't you dissect that for us a bit? Why don't we do this?
Speaker 2:Yeah, for sure. I just took some notes here that I don't forget critical numbers here. So what I would like also to put on front straight is I have always been a three stripes guy, so I was huge and I aided us from six years on. I have to say the following although my two favorite sports athletes, roger Federer and Vince Carter, were both with Nike all the time, you were just saying me a Vince Carter gift this morning, by the way.
Speaker 1:Yes, of course.
Speaker 2:Vince Carter all the way. So this was all kind of a hate love with Nike, and I followed this company very closely. And what's fascinating to me is that I think, till the year 2022, nike was the Google of the sports industry. They couldn't fail. They were growing. They were blowing Adidas more or less out of the water, although Adidas did their thing, but the gap between Adidas and Nike was just huge and basically growing.
Speaker 2:And since 2022, I mean, it's fascinating the stock dropped by more than 50%, which is unheard of, right. And what I tried to do is I tried to find out what were the reasons behind it. And the reasons are, with like every issue in our life, manifold. Right, it's multifactorial, but I think there's one major reason which sounds crazy, because everyone loved the strategy until it failed was their extremely aggressive direct-to-consumer strategy and that led to significant home-alls with their business, which is crazy Because, again, everyone loved it. Everyone thought Nike is the one player who could go down the strategy and really succeed sustainably, and they didn't. And there are very, very interesting reasons behind it.
Speaker 1:Well, tell me more about those. But first I want to ask, because you said the stock dropped like 50 percent. Do you think that was fair or that they were punished by the market?
Speaker 2:the extent. Yeah, look, I mean from a shareholder perspective, I'm I think the wall street is way too short notice in their, in their, in their decision making in general. It doesn't matter which stock you're talking about so I think it was not fair to a certain degree. However, I understood the reasoning behind it, because the D2C strategy just it picked off greatly. I mean just one number In the year 2022, when they launched the D2C strategy, they crossed 18 billion revenues direct to consumer. Yeah, the DTC strategy, they crossed 18 billion in revenues direct to consumer. To compare it with the overall revenue of Adidas Adidas crossed 24 billion as a whole. So DTC took off like crazy. But then something happened which probably we call the black swan the Corona pandemic happened and this changed the buying behavior fundamentally, and that's why I think I understand why, in the short term, the Wall Street was very negative about them. Is it fair? From a long-term perspective? I don't think so.
Speaker 1:Yeah Well, tell us a bit more, just to run us through some of the reasons, like what went wrong?
Speaker 2:quick, quickly, yeah. So first of all, the reason why they did it. I think it's obvious, right, they wanted to cut out the middlemen, and we are talking about middlemen who were huge. Footlocker. I think they cut the ties with Amazon as well, as far as I know Macy's, and so they really went all in the biggest middlemen.
Speaker 2:They had Nomas, my friends. We want to do it directly, and so they wanted to save margin. They wanted to control the shopping behavior end to end, and it was a genius strategy, because what they basically did is they called it a direct consumer strategy or aggressive strategy I think there was even the term aggressive in there and what they did is they created four major apps, which is basically driving the digital growth right. Secondly, they were expanding their retail stores flagship store strategy. And the third one is they wanted to connect digital with offline in a very, very unique way, and all three of them were really, really great ideas. I mean, just to give you an idea, mike, you have this Nike app, right, and Nike knows basically everything about you the products you looked up, the preferences, sizes, which sports you're interested in, everything. If you enter a Nike store, you don't even need a sales guy from nike anymore because everything is qr-based selling you. You get the information directly by the qr code of the product you want to buy in your app and it's highly individualized content because nike knows everything about you. They even show the cross-sell products you have to look at because you love this product. You can even check out without you know. It's a great idea.
Speaker 2:But then the pandemic happened and two things basically led to to a downfall of this d2c strategy. First of all, people became more price sensitive again, which is not a good thing for a d2c strategy, because you want to keep the prices as high as possible. You don't want to have this, this discounts on on your direct to consumer. And the second thing is just, people were just eager to go to stores again. I mean very, very simple drivers here, which led to massive pressure on their business.
Speaker 2:And, to be precise here, mike, they were just off the shelves from big retailers like Footlocker, and the shelves were filled with new brands. So Nike was not there. The people were going back to the stores. They were looking for cheaper products and Nike just couldn't offer this. So these were the main reasons why this on paper genius strategy just failed. And now Nike has to crawl back, just to be clear here, crawl back to Foot Locker. I mean, they also hired a new CEO who is basically reigniting the partnership with these big wholesalers and retailers, because they have to be in the stores again. That's what the customer wants, and I think it will be an uphill battle.
Speaker 1:Ultimately, nike will be good again because they create awesome products still, and I think they're renewing their sports focus a bit more from what I remember, yes.
Speaker 2:What I will never forget, by the way, is that they dumped Roger Federer. He wanted a lifetime contract, like LeBron James got, and Nike said no. So for that reason alone, they should suffer.
Speaker 1:So now I'm hearing that the 50% drop was just a fact, it's fair.
Speaker 2:You're right, it was completely fair, okay.
Speaker 1:Yeah, I mean, when I hear this. My takeaway is that they just and this is, broadly speaking, true of the DTC kind of development in the last few years. But they underestimated the value of the retailer Absolutely. They thought that retailers were a cost factor, just a middleman that you could cut out. And actually there's a lot of things that retailers are specialized in and do well.
Speaker 2:One last point here, mike, because you're so right and you know, we have a lot of customers who are thinking about D2C strategy. Implementing or maybe increasing their efforts in a D2C strategy. Costs of the middleman is very short-sighted, because logistics, stock clearance, um, like returns, having a basically an independent discount strategy which is not directly affecting a brand all these things is done by the retailer. Yeah, and one crazy number I think I don't know where they are at right now, but I think in 2024 they piled up their, their inventory level to 9 billion US dollars. So there's, for instance, a very, very strong fact why Wall Street is critical on them because 9 billion in inventory and you don't have the retail network to clear it.
Speaker 1:So, yeah, I think they underestimated the importance of retailers and I think it's never an either, or I think you have to embed D2C into your retail strategy, yeah, and that's something that we saw like broadly, like you see, D2C ones that went public, I don't know Allbirds, for example, just some of these, they also started embracing retail 100%. You cannot. No brand is an island, Not even.
Speaker 2:Nike. I mean if Nike can do it. I think to all the listeners who have been thinking about D2C strategy, I think it's the right thing to do, but be careful and embed it into what you have and the retailer. There's a reason why we need, or you need, retailers.
Speaker 1:Yeah, it's a distribution stream. It can be an important one, but it's one of probably many.
Speaker 2:For sure. So I think we can conclude on that that, and I think it's a good segue to the last agenda point of today. Time flies, my friend, by the way. Again, it's an honor. It really feels good talking to you in an official frame. I will be watson now and you will be sure like it feels very natural to me talking to you because it feels all the time I feel all the time like that. So I will ask now probably two or three stupid questions. The agenda point is influence versus budget. I think it's a very, very interesting topic for retailers in general.
Speaker 1:Tell me, more about this. Yeah, the trigger here. Last week, at time of recording, there was a conference, friends of Search in.
Speaker 1:Netherlands and no affiliation. I love that conference, so happy to give it a shout out. It's the least known, best conference out there for search marketing and Rand Fishkin I bet everyone here listening knows about Rand Fishkin. He was on stage presenting a slide, a chart about influence versus budget, about influence versus budget. And then Will Reynolds, also quite known in the scene, ended up posting this online and it was really popular online 400 likes on LinkedIn, a ton on Twitter, and so, first off, we're going to show you what this chart looks like. But to listeners this might seem petty of me, but it's the least readable chart I've ever seen. It's like a donut chart surrounding a pie chart and there are 14 different segments, which is way too many segments for a pie chart.
Speaker 1:And to have a donut chart around. A pie chart is a mind bend. And also one of the charts is in percentages and the other is in absolute values. Um, but I also quickly redrew the chart and we'll share that too, because it's a lot easier to read and talk about. Uh, but to rand's point, because I also I don't want to be perceived as having a beef with rand fishkin, um, but because he doesn't know there can't be he doesn't know who I am.
Speaker 2:Maybe this will this will change after this podcast, uh let's see um rand.
Speaker 1:He basically compares the uh where influence happens in your different marketing channels and then where people are spending money. Um, and this comes out it's pretty critical of Google paid search, and I don't want to. Of course, I have an interest in Google. Paid search is really my specialty and I don't want to seem defensive here. But he shows like let's just run through by influence kind of, the top three most influential here are industry websites and blogs. That's changing fast with AI For sure. Social feeds, good YouTube channels, okay. And then he shows how budget is allocated and by far the number one source of spend is Paid search. Paid search Now, point taken, people don't invest enough on their influence channels. But it's also to me very apples to oranges. If someone thinks that Google search is an influence channel, they're sadly misinformed. I don't think anyone understands the channel that way. It is a demand capture channel, yes, and I definitely think building up a brand affinity makes a ton of sense certain way, because I think it's trying to say something about Google paid search that isn't entirely true.
Speaker 2:As your Watson. I have no more questions because it makes perfect sense, honestly. All right, and we would love to discuss it with Rand, right? Yeah, we can have Rand on the show. Maybe he knows you by now.
Speaker 1:Well, listen, it took me three minutes over coffee to fix this chart. Sometimes I'll do something quick as a little teaser or warm up in the morning, but it wasn't hard enough to be a teaser. No.
Speaker 2:I think you're absolutely right. It's a misconception of the Google channel and I know you for eight years now and you're highly critical of Google where and I know- you for eight years now and you're highly critical of Google where it's you and where it's necessary, yeah, but this one was not right.
Speaker 1:Yeah, I mean we can make a comparison here and you can shoot me down over at listeners right in, but the worms that you throw into bait in the water are going to cost less than you're going to spend a lot on. You still need to have an expensive fishing rod. It is what it is, I'm sorry. And if you don't, if you just throw worms in and you don't have a fishing rod, you are not going to catch any fish. Yeah, it sucks that you have to pay to capture the demand, but you do Because my question would be what can you derive from this?
Speaker 2:Stop Google paid or shift the money to demand, creating channels and you don't capture it afterwards. There are a lot of questions we can maybe tackle in one of our next episodes, but I think we're at time, Chris.
Speaker 1:It was an awesome first episode with you. Thank you for joining us. Thanks, mate, it was a pleasure. And yeah, if you want to learn more about smarter e-commerce, you can visit us. I'm going to break the fourth wall.