Jerry Kavesh is the CEO of 3P Marketplace Solutions – a company that specializes in Amazon and other marketplaces account management and optimization and creating a multi channel strategy.
In this interview, we talked about how Amazon is changing the retail industry, what kind of multi channel strategy brands should adopt today, and whether or not brick-and-mortar companies should diversify into Amazon.
Join us and thank you for reading!
- Brick and mortar is not dying with the advent of Amazon and online marketplaces. It’s evolving into a unified strategy, where online is coming together with offline, and the buying experience is seamless. The stores of the future will be different, focused on the customer pain-points, and data-driven.
- What do you want that store experience, that brick, and mortar experience to look like? Answer this question and then build backward.
- If you are starting a retail business in 2020, you have to build an online presence as well as a brick and mortar presence at the exact same time.
- As important as FBA is, you have to have a strong self-fulfillment capability yourself. Whether for both Amazon and non-Amazon. FBA is critical for being successful on Amazon, but you need to know which products to have on Amazon and which products to fulfill yourself.
How do you explain what you and your business does in plain terms?
I call us a boutique agency that works with brands who want to be on Amazon, but they don’t know how to get started. They don’t know what to do. And they often do not want their traditional channels to know that they’re on Amazon.
We don’t only work with brick and mortar, we also work with a lot of different brands. But it’s a completely different process because they have different needs, so there are different criteria.
What categories are you mainly involved in?
We work mostly with apparel and footwear. What makes us unique as apparel and footwear is more challenging because of all the SKUs associated with the product. Many agencies out there are focused on just the widget, or maybe a two-pack or three-pack of the widgets. Whereas, we deal with a variety of them.
If we compare apparel to other product categories, what else is different besides the product variation?
Variations are the biggest difference. Followed by the amount of returns. And so inventory management is very very important. Also, you have to make sure that you understand your unit economics. Because your return rates are going to vary depending on your product category, anywhere from 10 to 35 in some cases as high as 40%. Also, you have to make sure that you have a good understanding of what your costs are. Here reverse logistics operation becomes very important.
I read on your LinkedIn that you were a retailer yourself before you got involved with 3P.
Yes. I think of myself as relatively unique in this space because I came from a traditional retail background, whereas many people come to this space from a data background or some kind of online. Marketing background. So I think I look at things a little bit differently than some others do.
I understand some of the challenges brick and mortar entrepreneurs have and it helps me bridge the gap for brick and mortar to the online space. But also for brands – to understand how they can create policies and procedures and processes that compliment both their online and offline channels.
Is brick-and-mortar doomed with the advent of Amazon and marketplaces like Walmart?
No. But it’s changing and it’s changing very quickly. What that change is going to look like five years or 10 years from now, if you talk to 10 people, you’ll get 20 answers. But I believe that for brick and mortar there, they’re really going to have to dive deep into knowing who their customer is and really figure out that one-to-one connection.
And that means they’re going to have to create technology and processes within their brick and mortar locations to gather that information. The consumer wants to give it to them. They’re going to have to figure out a way to make that experience enjoyable and seamless. They’ll have to remove the pain points.
And that’s why I think you’re starting to see some companies like Nordstrom. They’ve started to create very small footprints where it is all about as a showroom. You come in, you have your experience, you leave, and then they ship it from their fulfillment centers or from their stores.
And you actually see it the other way around too. Amazon is moving into brick and mortar to create this multi channel strategy, right? They’re there.
Online and offline are coming together, and it’s a question of what is going to look like and the challenge for legacy retail, whether it be your, so-called “mom and pop” store that’s on the street corner in your local community or the national chain. How do you become local and relevant and with, and change your way of thinking? And that’s, I think, going to be the largest challenge for brick and mortar.
And so I suspect what we see is brick and mortar legacy, what I’ll call legacy companies disappear and new brick and mortar. 21-st century versions will appear and take their place and they’re going to look very different. They’re going to operate very differently, and they’re going to be very data driven.
So is it true to say that the future brick and mortar will be localized, and target its nearby community? Is there a trend towards a more decentralized approach in retail?
I think they’re going to have to be localized now. They still could be a 5,000 store chain, and they’re all over the world, but they’re going to have to figure out how to localize. And that’s going to take a lot of technology and they’re going to have to have a lot of data, people in the background who are figuring out what that local community looks like.
So that green shirt may sell in store number two, but does not still in store number 150. They’re going to have to make sure that green shirts have store two and they don’t put them in a store one 50. So yes, it’s going and they’re going to have to bring in a lot of inputs, whether it be population, demographics, weather, or history.
I mean, they’re going to have to have an online presence also, and that’s going to help them understand who their customer is. But they’re going to have to really do a lot of data analytics, and they’re going to really have to slice and dice their data to figure out what works for their local storefront.
Are there certain business and product categories that might have this transition easier than others? (You mentioned that apparel is difficult because of its returns and variations)
I don’t think it’s going to be easy for anybody. I think it’s going to be a function of who has built the best backend and who has the best data scientists working for them. And people who can interpret that data. Managing big data is all the craze for a reason. You have to be able to take that data and interpret it and turn it into actionable.
The company, whether they’re selling widgets or footwear or glasses or whatever, or electronics or whatever – that figures out how to do that is going to be the ones that are going to win in the brick and mortar space. Look at a Best Buy, for example, they seem to be doing a pretty good job. I think they’ve been written off as dead five or six years ago, and they’ve been very successful. How they’ve created stores within stores, their geek squad. They’re trying to connect with their consumer base, both online and offline. And they seem to have a pretty good story.
And yet they’re still in 30 – 40,000 square foot footprints. They have their few hundred store locations. Are they going to be able to continue to scale that or are they going to scale that down and put more of those foot, more of those footprints out there and become smaller, more nimble around their community?
That I don’t know. It would seem like a logical approach to me. Just look at what Amazon is doing with their Go Stores or their bookstores. They’re smaller footprints versus say Barnes&Noble or a grocery store, but they’re very nimble and they’re very data-driven on what they’re putting into those stores and how they’re restocking those stores.
You mentioned that businesses will have to be data-driven. But will they have to build this backend by themselves, or will they be able to use some ready solutions on the market?
There are some really good solutions on the market. I’m more familiar with the solutions that are online-only at this point. I’m not as familiar with the omni-channel solutions that are out there just because that’s not the space that I’m spending a lot of time in.
But I suspect to get started, they can use something that’s off the shelf, but they’re going to have to figure out how to customize it to their needs. They may have to plug some tools in together. Particularly, they’re starting from scratch.
If they’re a startup and depending on how much funding they have, I think they’re better off starting small and identifying what those key metrics are and staying really focused on those key metrics and then building out from there.
Take something off the shelf and then modify, customize it. But that means they’re going to have to have some good tech people on their team.
What do you want that store experience, that brick and mortar experience to look like? Answer this question and then build backwards.
When you work with brands, what common misconceptions about Amazon and online marketplaces in general do you have to clarify for them?
The brick and mortar store has a lot of challenges. If they want to get on to Amazon and I’ll spend my energies speaking about Amazon, the brands are in a much better position, and that’s why we work with more brands than we do brick and mortar stores.
The brick and mortar store, first thing they have to do is they have to understand e-commerce and the economics of e-commerce. And the smaller companies just don’t understand it. And it’s a question of how much bandwidth they have. There’s an education process that has to take place there where we have to walk through.
What their economics are, and does it make sense for them to be FBA? As one of those general statements to start, I would say yes, they need to be FBA. But that creates challenges. And there’s, there’s an education process that has to go with that.
They also have to get permission from the brands that they carry, that they can be on Amazon. Not only can they be online with their own website, but then that they can be on an Amazon and that is not necessarily easy to do. I know myself and many other people like myself, when we’re working with a brand, we are actually recommending to brands that they limit the number of sellers they authorize on the platforms.
The reason for that is it lets the brand control what their message is much better. What their listings look like versus having all these people popping up that they can’t control. And so it’s becoming harder for a brick and mortar to be successful.
That’s why you’re seeing more and more companies working with brands versus working with the stores. But there is an advantage to a brick and mortar business to be present on Amazon.
Could you guide us through a process of how you work with those brands?
The first question we’ll ask is we’ll want to understand what their infrastructure looks like. And often it’s just a consulting gig and maybe a three month consulting conversation. What does your inventory management process look like? How accurate is that inventory management? Do you have your own website now? What platform is it on? How are you fulfilling orders? What is your accuracy rate? How quickly are you shipping? What is your capacity to ship? Or do you have a fulfillment center set up?
You know, 80% of your business comes from 20% of your product. Just because it sells well online in your stores does not necessarily mean it will sell well online.
Going through the conversation with your suppliers of getting permission to represent them online and understanding what those policies might look like. Do they have a MAP policy? Do they have a customer service policy?
There’s a lot of conversations that you have to have from a process and system standpoint and understand if they have the capability to even.
Look at an Amazon before you even get into the conversation.
Going from brick and mortar to Amazon seems to me like building a whole new business from scratch. There’s so much you need to take care of.
From the systems perspective. Yes. If you own a smaller store, you probably do not have a very good system and so Amazon is not right for you.
They, they don’t have the, they don’t have the resources, the infrastructure or the systems to be successful. Amazon’s adding thousands of sellers a day, and they’re losing thousands of sellers a day, because they don’t sell anything. If you’re a 20 or 30 or 40 store regional chain there, they’re much more likely to be successful.
Do they have the ability to limit what they’re showing and what they’re sending to Amazon? You know, also, how do they keep themselves from overselling and that goes back to their systems. If they have five units in stock, are they publishing all five units on Amazon or, and they also have them in their stores, or are they only publishing two units?
There’s a lot to keep track of. I mean, I think that one of the biggest problems when you have a multi channel strategy like that and when you sell in different markets in addition to brick and mortar. You need to keep track of your inventory and business metrics and just understand what’s going on basically.
Could you recommend some tools that might help sellers keep track of various multi channel strategy of their business?
There are some fabulous tools on the market to create your multi channel strategy.
I’m not going to recommend any multi channel strategy tool per se, just because every business is different. But for example, your company, Sellerscale, offers some excellent unit economic reporting. And that is just an example of what’s out there. Again, it comes down to what are you looking for? So I don’t believe your system will actually fulfill the order.
So if they have a fulfillment system, a warehouse system already as part of their operation, their ERP that they have you plug in very nicely to give them some of that. Those metrics and data that they need to be able to evaluate what’s happening, not happening. Um, conversely, if they don’t have that capability, um, maybe they need to find something that is offering them some data analytics, but some fulfillment capabilities.
What systems do they have in place and how and what is their multi channel strategy, what are they trying to accomplish? And then, and then creating that RFP and evaluating some different tools. Because each set of multi channel strategy tools, it brings strengths and weaknesses. Your company, for example, has some very good strengths, but there are companies in some places that you’re not quite as strong on. And another tool might be strong where you’re not where you aren’t, but they’re weak where you’re strong. And so how, how, how to manage that, and understanding for each company what, what their needs are, what they have. What they need and where they want to be.
Exactly. Most of our users at Sellerscale use it as a part of their stack. We’re focused on what we do best – reporting, unit economics, but there are things we don’t cover, and that’s OK.
Correct. And that stack has to include everything from order fulfillment, from reporting to customer service CRM.
There are so many different tools that you have to be able to bring together. And fortunately, most tools today are able to connect to each other somehow, whether it be through, through an API or through export, and then, and then a re-import. There’s some way to bring the data back and forth.
The larger you get, the more complex you get, you’re going to want to automate that. But early on, there’s no reason why you can’t be exporting information from one place and putting it someplace else.
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What do you think the future of e-commerce, retail, and the multi channel strategy looks like?
Online is going to become more important. If you’re watching this today, we’re in the middle of the COVID-19. Stay at home orders online has become very critical. Lots of stores are closed. If you’re watching this three years from now, you’re probably remembering what it was like “when the stores were closed.” But I think when we come out of this, what we’re going to find is the consumer behavior has changed and they’re going to be looking for combinations of online and offline. And this is where your multi channel strategy becomes vital.
And if you are a brick and mortar company and you have offline locations, I think you can really leverage those to help the customer and be where they need to be, whether it be in-store pickup or you ship it to them, or a combination thereof.
But I think what we’re going to see is that the online players are going to be moving more into the physical world. And the physical world, if they haven’t already started to move, to the online world. Again, a multi channel strategy is what all businesses need.
Just having an information page doesn’t solve it. But they’re going to have to figure out a way to be online where their customer is because the customer is going to be looking for them. And that is a very different animal than what they’re used to. And again, we’re, you know, I want to clarify where we’re speaking smaller brick and mortar versus larger.
The bottom line is, having a multi channel strategy now is more important ever.
What practical advice would you give to someone starting a retail business now? How do they leverage what you’ve just said to position themselves for success?
If you were to walk into my office and they say, “Hey, I have this brilliant idea. I have access to this product. I want to create a brick and mortar store.” My first thing would be, OK, but you have to be in both places. You have to build an online presence as well as a brick and mortar presence at the exact same time.
Physical space, shrink it down and put some of those resources online. And when I speak online, not only is it a website, a transactional website, but it’s also your social media. Focus on one, maybe two social media platforms based on who your customer is or likely to be and be really good at that.
And so that means that they’re going to have to have somebody who’s really good about the in-store experience, but they’re going to have to have somebody who’s really good about the online experience.
That probably means finding yourself a good partner. I’m serious because they are two different skill sets and you need, and you need somebody who is focused on brick and mortar, and you need somebody who’s focused on online. And then together you have to create your multi channel strategy of how those are going to complement each other and drive it forward.
Great advice. One last question – it’s our traditional question. What contrarian truth do very few people agree with you on?
As important as FBA is, you have to have a strong self-fulfillment capability yourself. Whether for both Amazon and non-Amazon. FBA is critical for being successful on Amazon, but you need to know which products to have on Amazon and which products to fulfill yourself.
And I see too many people who look to Amazon to be a hundred percent of the solution, and Amazon is not everything.
There are some products Amazon does a poor job of packing. For example, we have one product that comes to mind that needs to be packaged in a specific way. They cannot seem to ship it packaged correctly. So we’d have a lot of breakage and damage. And so we had to pull it out and we fulfill that ourselves through our network.
There are also products – and this goes back to the unit economics we were speaking about with Sellerscale – there are some sizes that don’t perform as well as other sizes.
Let’s talk about men’s footwear. So men’s feet, where do I go from size 7 to 15? Well, most people are from 9 to 11. And those make perfect sense to be an FBA because you’re turning them fast enough, however, that size, 14 or 15 or that size, seven or seven and a half. You only sell a few units a year. Well, those are going to incur incredible storage fees and costs if you keep them at Amazon. So you need to have a way of fulfilling those yourselves because you don’t not want those to be at Amazon. You can store those and keep those and fulfill those less expensively when you take all the associated costs that go into an item, into a SKU on Amazon.
Go to 3PMarketplaceSolutions.com to learn more about Jerry’s business. Thank you for reading.