Richard Baum is the Managing Partner at Consumer Growth Partners (CGP), a private equity firm that specializes in helping companies with high growth potential to sell or monetize their business. Richard is a Harvard Law School graduate and he studied Economics at the University of Michigan where he graduated magna cum laude. Baum led nine initial public offerings and six secondary offerings for many retailers including Abercrombie & Fitch, Build-A-Bear Workshop, Cabela’s, Gymboree, Life Time Fitness, Talbots, Urban Outfitters, Yankee Candle Company, and Zale Corporation.
Prior to Consumer Growth Partners (CGP), Richard spent over 15 years as one of Wall Street’s leading equity research analysts covering the specialty retailing sector at Credit Suisse First Boston, Goldman Sachs, and Sanford C. Bernstein.
Here’s a glimpse of what you’ll learn:
- [00:18] Eric Stopper introduces his guest, Richard Baum
- [03:13] Richard talks about the parallelism between today 1973 and why he is in favor of policies banning adult product advertisements
- [05:46] How companies can sell their products despite Amazon ad bans and why Richard still considers that the most purchases happen in brick and mortar stores
- [09:08] Richard explains why people shop on Amazon and what he means by a business being non-Amazonable
- [12:10] How offering pickup and delivery services for bulky products can make a business Amazonable
- [14:24] Why Coach and established brands should consider partnering with Amazon to protect their brand integrity
- [18:06] Are Amazon-only brands considered non-Amazonable?
- [21:10] Richard explains why brands choose to sell on certain platforms and the consumer behavior of Amazon Prime members
- [26:32] Richard addresses why jewelry and luxury products shouldn’t be on Amazon, and why merchandise collections are difficult to sell on Amazon
- [35:16] Why competitive sales on Amazon is more of a problem for small brands than it is for bigger brands like Tide
- [39:45] Richard talks about his company’s involvement in the company Violife
- [44:09] Why Consumer Growth Partners decided to invest in Wild Things Gear and how they were able to sell to the military
- [49:03] Richard talks about his company’s investment criteria for buying and/or investing in a company
- [54:59] Richard’s thoughts on where the retail market is headed in the next 5 to 10 years
- [57:54] How to reach out to Richard and get in touch with Consumer Growth Partners
In this episode…
Are online marketplaces starting to replace brick and mortar stores? Retailers are moving into online marketplaces at lightning speed because of the extent of their reach but for Richard Baum, while they do offer convenience, products sold in physical stores still have an upper hand in key areas of the retail market such as product quality assurance and brand equity.
Richard Baum is the Managing Partner at Consumer Growth Partners and for him, selling on Amazon is a great idea but it isn’t the end-all and be-all for the companies who are looking to sell their products. He also says that while big brands should consider getting into partnership deals with Amazon to protect their brand credibility, small businesses should focus on establishing their brand in Amazon’s volatile retail environment.
Eric Stopper sits down with Richard on this week’s episode of The Buy Box Experts podcast where Richard talks about his perspective on the banning of adult product ads, what a non-Amazonable product is, why luxury items opt-out of Amazon, and what the future holds for the retail market in the next five years. Stay tuned.
Resources Mentioned on this episode
- Buy Box Experts
- Consumer Growth Partners
- Consumer Growth Partners’ Portfolio
- Richard’s email: email@example.com
- Richard Baum on LinkedIn
- Wild Things Gear
Sponsor for this episode
Buy Box Experts applies decades of e-commerce experience to successfully manage clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of clients’ business fundamentals and an in-depth expertise in the Amazon Marketplace.
The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity on the marketplace, not only producing greater revenue and profits but also reducing or eliminating your business’ workload.
Buy Box Experts prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.
Welcome to the Buy Box Experts Podcast with your host, Joseph Hansen. We bring to light the unique opportunities brands face and today’s e-commerce world.
Eric Stopper 0:18
Hey this is Eric stopper with the Buy Box Experts podcast today I am joined by Richard bomb managing partner at consumer growth partners a private equity firm that specializes in helping companies with high growth potential sell or monetize their business he’ll be he’ll be able to talk to us more about that. He is a Harvard graduate. He studied economics at the University of Michigan where he graduated magna cum laude today Mr. Bomb led nine initial public offerings and six secondary offerings for many retailers and here’s a list This is crazy. So listen to this. Abercrombie and Fitch build a bear workshop Cabela’s gymboree lifetime fitness Talbots Urban Health fitters Yankee Candle Company and Zale Corporation Holy smokes. Richard is somebody who looks to the future. He is he and his partners at consumer growth. They work closely with family and founder own businesses to implement best practices in ways that maximize value for a future liquidity event. So if you want to eventually sell your business, talk to Richard, obviously build your business. We learned from Christian feeling that you don’t want to you don’t want to try to sell too fast. But he wants to preserve you and your family’s future and your company’s future. He is a speaker, a thought leader, a hustler. He’s a partner and a friend Richard bomb. Welcome to the show.
Richard Baum 1:39
Thanks, Eric. What a pleasure to be here.
Eric Stopper 1:42
So I have a lot that I want to talk to you about. Now, you you graduated from Harvard in in 1973. Right?
Richard Baum 1:50
Right. This is actually from Harvard Law School
Eric Stopper 1:52
from Harvard Law School. That was a crazy year for the world. I’m gonna take you back For a minute, right, this was water date. Right? The 26th amendment. Cigarette advertisements were banned from TV. I personally also believe that in 1973 the radio was the best thing happening because of love train. And Stevie Wonder superstition, come together by The Beatles was was released around that time, like, oh, must have been amazing. The thing that I want to talk about is cigarette advertisements being banned from TV, you’ve been able to watch a lot of these kind of economic advertising type policies evolve over the last couple of decades. And I see similar policies getting enacted on the Amazon platform specifically among others, like not being able to advertise for adult products, right, if you’re flagged by Amazon, you’re just not allowed to advertise. And they don’t even let people list things like CBD.
Unknown Speaker 2:54
Do you and
Eric Stopper 2:55
this is my question. Do you believe that these kinds of laws and policies are Good for the market at a macro level? Or do you think that these kinds of restrictions are undo and hurt the economy and hurt these vendors who are trying to get these products into people’s hands?
Richard Baum 3:13
So, before I answer that, I just want to make a comment or to Eric.
I didn’t think you were old enough to remember 1970.
So be it. What’s interesting, you know, they say what goes around comes around. So 1973, we had, as you mentioned, we had Watergate. We had the impeachment of Richard Nixon. And we also had cigarette advertising being banned, amongst other things. So here we are, like almost 50 years later, and we’ve got the impeachment of our president. We also have got jewel now being banished from advertising as well which is kind of the next generation Cigarette advertising? You know, the question that you’re asking me is probably more a moral question than a legal question. And as a non practicing lawyer, of course, I feel eminently qualified to answer legal. And what I’ll tell you is I think that we, I think the government has a moral has a moral if not a legal responsibility to, quote unquote, protect the population, protect the people. And to the extent that there is scientific evidence that you know, in this case, jewel, is harmful to our health. I think that it’s that the government is perfectly okay to pass laws and regulation that forbid the advertising of it, and enticing certainly people who are under 21 years of age which seems to be a large population that the jewel manufacturers are going ask
Eric Stopper 5:00
I think that makes a lot of sense. I it’s it’s interesting I didn’t even the the impeachment kind of chasm that we’re running into the fact that that happened at the same time and cigarettes being banned. That’s, that’s amazing. So, from a from the government’s perspective, right, they have a responsibility to their, to their consumers to do this. So how as a company who might be selling something that isn’t as nefarious as a jewel, how are they supposed to get their products out there? Do you think in this day and age where Amazon represents anywhere from 40 to 60% of a consumer consumer products market? You know, how do they How do they kind of roll with the punches so to speak?
Unknown Speaker 5:46
Well, look, there’s plenty of
Richard Baum 5:49
plenty of distribution outlets other than Amazon. I mean, if a company is selling, you know, name the product. You know, it happens to be a product that Amazon is You know, let’s say banning from their website for a variety of reasons. You know, there’s no reason that they can’t go elsewhere to sell their product, whether it’s on their own website or sell it through through wholesale distribution, or through their own retail outlets if it happens to be a product. Sure. So, I mean, if a company is selling a product that Amazon doesn’t want to have on the Amazon website, you know, companies have many alternatives for selling the product, they can sell it through independent dealers or independent retailers, they can own their own retail stores, or they can sell it on their own website. So just because Amazon doesn’t permit it on the website doesn’t mean that there’s not other opportunities for a company to sell the products. I think
Eric Stopper 6:57
that makes a lot of sense and you use it On another podcast that 85% of purchases still happen in brick and mortar, is that right?
Richard Baum 7:08
Eric Stopper 7:09
So the people who are kind of doom and gloom saying that retail is getting killed by marketplaces like Amazon, is it just you just kind of completely disagree with those people?
Richard Baum 7:21
Well, I don’t completely disagree with them. I think you know, the facts are that you know, whether it’s 80 or 85% of everything that we that we buy in the country as consumers are still bought in brick and mortar locations. 15 to 20% of purchases are online. You know, I think if you read a lot of the press, or you watch too much TV, you know, you will think that it’s the other way around that 80 or 85% of what we buy is actually bought online. That is not the case. What is happening is that Amazon continues to make inroads into a number of different sectors in retail. And among the online competitors, they essentially are taking all the growth. So they are becoming much more powerful. There are certain areas, however, the American economy that Amazon has not done a good job of penetrating or penetrating at all.
Eric Stopper 8:25
That is a perfect segue into my next question. So, on the video, private equity perspectives podcast, when you talk to us, you mentioned and you kind of coined this new phrase there, a business that’s non Amazon. Or in other words, Amazon’s not going to be the company that puts this business out of business regardless of what Amazon does. They’ve got some quality of longevity mapped into the DNA of their business model. So it kind of protects them from this influence that Amazon has. I would kind Want to get some clarity here from your words? And I want to know, what makes a company non Amazon in 2020.
Richard Baum 9:08
So, let’s start with what Amazon is really great at. And why do people go there?
Unknown Speaker 9:13
Richard Baum 9:14
know, I think there are two, there are two major reasons, you know, one is price. And the second is convenience. You’re pretty much guaranteed if you shop on Amazon that you’re going to find the lowest price for just about any product that is sold elsewhere. So if there’s another place to buy it, you’re almost guaranteed that the Amazon price is going to be pretty close to the lowest price. And secondly, convenience. So as we all know, you can pretty much get next day or two day delivery in some city, same day delivery of whatever you’re buying on Amazon. It’s hard to get more convenient than that. But so that said I think that there are you know, plenty of other reasons why people Shop for products other than price and convenience. And those are the areas that tend to be quote unquote, non Amazon herbal. Or so I’ll give you a couple of examples, big ones. So one would be a company that, that that that has its own brands. So you could take taking any, we do a lot in apparel, so you can take any apparel or footwear company. Coach, for example, would be a good example. So anytime you control your own brand, you decide who you want to sell, to or through and who you don’t. So if I’m coach, I may decide I don’t want to sell on Amazon. As soon as I sell on Amazon, I kind of lose the customer because Amazon then owns the customer and it is a way for me to sell product. But you know, there’s all sorts of risks relating to price and as I said, Before owning the customer, so if you’ve got a number of already established allods distribution and you don’t feel like you really need to go through Amazon, or to Amazon, there’s no real need to another big area that is non Amazon, Audible, or things that are very bulky and therefore not necessarily convenience. So if I’m buying lumber to build a house or to build anything, chances are I’m not going to buy that from Amazon I’m probably going to go to Home Depot or Lowes or I may even go to my local lumber yard. So things that are big and bulky equipment, machinery none of that is you know, really going to be the purview of Amazon.
Eric Stopper 11:49
Interesting, okay. There’s a lot to unpack there. So what happens when Home Depot they start offering pickup in their store right like the coals you know like you can return any product to Kohl’s thus making Amazon even more convenient. So if I could order online and then have one of these Amazon delivery drivers in a truck pick up my lumber from Home Depot or even from like an authorized Amazon lumberyard. Do you think that that that shift could happen therefore making that type of business now, Amazon
Richard Baum 12:30
I think it probably a really good example of that Eric is Amazon got into the food business years ago by buying Whole Foods. So they targeted food as a major growth opportunity for them. And food is one of the areas that is probably thought was probably thought to be quote unquote non Amazon about particularly fresh Good press, you can’t just put in a cardboard box and ship it, you’ve got to have all sorts of, you know, selling it, you have to pack it with dry ice. You have to get it there. There’s spoilage factors. And so that hasn’t been a particularly easy area for Amazon. So what do they do? They go out and they buy an entire food chain called Whole Foods. And they gave them an entree into the food business. They’re learning an awful lot about how to run a food business. They have had a number of initiatives where they are trying to bring Whole Foods more into the fold of Amazon. I think if you’re a prime customer, you get some sort of a discount at Whole Foods if you kind of show your Amazon card. So there’s no reason why Amazon couldn’t have its eye on other markets or other sectors. So for instance, I suppose like you look Amazon has enough money, they can go out and buy Anybody they want. They could go buy Home Depot and get into all of that business, including the contract your business. I mean, at some point, it’s probably, you know, you got to figure out how profitable the businesses and you know, is the juice worth the squeeze but sure, there’s no reason why they couldn’t one day decide to get into some of those sectors.
Eric Stopper 14:24
So here’s probably even a harder question. You mentioned coach as one of these brands that can decide whether or not they want to sell on Amazon or not, right. So I did a search for Coach on Amazon. And I see they probably have like 50 or so products up here, but 100% of them are sold by resellers. So these are folks who have diverted some sort of wholesale product onto Amazon and now they control this channel for Coach right like if someone searches for co The 10s of thousands of people who search for Coach on on Amazon or finding something that does not look up to up to coaches standard, right, we’ve got a few white background photos, we’ve got some bullet points, the titles really short 17 reviews, no enhanced brand content.
Unknown Speaker 15:19
So if your coach,
Unknown Speaker 15:21
what do you do with this?
Richard Baum 15:24
So that’s a good question, Eric and I, and again, so I am involved with some other brands that I won’t mention, because of, you know, confidential information, but brands that kind of use coach to, quote unquote, clean up the channel. So one of the companies that that I work with, actually has an arrangement where they do sell some product of their own on coach, but primarily, you know, Amazon is tasked with getting rid of the resellers getting rid of the counterfeit items that are on there getting rid of the fakes and it looks like you know coaches got since we’re using that as an example does got a similar problem. You know it certainly it does tarnish the coach brand. But, you know, I don’t know how many of those items are real and how many are real and I’m sure coaches got a very active anti counterfeiting program where they can go after these resellers if they somehow are able to enter into a partnership with Amazon, which I know other brands do. It can be a very successful way of policing the channel.
Eric Stopper 16:48
Right? So for those listening, who might have no idea what we’re talking about, you as a brand can go on Amazon and you can register your brand with your trademark and then there’s some steps that you can take to essentially own that channel. Some people do vendor Central, I think that’s a total waste of time most do Seller Central, they register the brand and they take control of those listings. So yeah, brand like coach, I think they should absolutely have a presence on Amazon. I don’t think that this is necessarily going to bring coach down. But I think that it certainly dilutes the quality of their brand. Right. And I’m sure that they’re concerned about it and probably taking taking some action. So that leads me to my next question, which is
Unknown Speaker 17:34
Eric Stopper 17:36
Amazon only brands right? Like these these kids out of college or even you know, there’s I’ve talked to 60 year old 70 year olds who are running businesses on Amazon, but they completely leverage Amazon. It’s it’s basically their only vertical, maybe they have a website, I don’t know, but typically it’s only Amazon. Would they be considered non Amazon audible because they’re kind of riding this wave or they had just as much of a risk as everybody else.
Richard Baum 18:06
Well, I think for those brands, Eric, well, first of all, they they will buy almost exclusively as you’re describing it on Amazon to sell their product. Right. So they would not want to be an Amazon bubble, they actually, without Amazon selling their product, they might not be in business. So what you’re describing is a brand that really has chosen to sell most of their products through or on Amazon. So Amazon, in essence, is kind of, you know, their principal appendage, if you will. And those are those are brands where, you know, frankly, they’re probably not, they’re probably not big brands. And and since we know that so many searches begin on Amazon, I don’t know what the number is. So I’ve heard it’s a huge number of brands and actually began on a huge number of searches that began on Amazon. That’s, that’s your that’s how you reach your primary audience through Amazon. And frankly, if you’re a young brand, you probably care a lot less about owning the customer than you do about selling product is trying to make money. And owning the company owning the customer is more of a downstream opportunity. Because I may want to own that customer to sell that customer other products to reach out independently. But if I’m just trying to kind of eke out a living, I want to sell as much product as I can. I want to make as much money as I can. And I kind of figure that into into my gross profit margin knowing that I’m going to pay whatever it is 15% to Amazon but I’m reaching millions and millions of potential customers.
Unknown Speaker 19:51
So I have a difficult follow up question.
Eric Stopper 19:56
I’ve heard you say in the past that brands essentially have the opportunity to compete with or join Amazon in one way or another, right? Like I can either sell there, or I don’t sell there. And then if I’m not selling there, then I’m probably going to lose a little bit of my business to Amazon. And it’s it’s come this concept has come up a few times. Specifically there there are some folks who understand they view Amazon as a marketplace as a buying ecosystem, where certain types of customers congregate to be advertised to. So this means that in order to be in that ecosystem, you have to pay to play. And so if there are multiple marketplaces, like all the direct storefronts on Instagram and Facebook and even tik tok, I think has a direct purchase portal now, Google Walmart, Jet eBay, Jane, I mean, the list goes on. You can opt out of each of these ecosystems, no problem. You can say I choose not to sell there. But wouldn’t wouldn’t you want to be a part of every single one as a business right? Regardless of You know, what type of platform that is, if people are going to buy your products there, wouldn’t you want to put them in that ecosystem?
Richard Baum 21:10
Well, that’s an interesting question. And I’m not sure that there is a single answer for it. I think, first is, you know, not every platform is appropriate for every brand. So, platforms have their own personalities, they have their own customer sets. So I if I’m a brand, you know, I may choose to sell on a number of different platforms, but not necessarily all of the platforms. So I don’t want to be on a platform. That is for argument’s sake, inconsistent with my brand message. If I’m a luxury brand, I want to make sure that the platform that I’m selling on is got, you know, some sort of a luxury aspect to it. I don’t want to necessarily To be a platform that’s going to be for the mass consumer not for the luxury consumer. So I think that’s that’s an important consideration
you know, for example
if you take a brand like you know well known luxury brand like Tiffany you know is Tiffany selling on Amazon I kind of doubted you may find Tiffany product. But I would be very surprised if Tiffany said, we think Amazon is really a great platform for us to sell.
Eric Stopper 22:34
I’m looking now and it doesn’t look like like Tiffany sells there, which makes a lot of sense and I imagine that the barrier to entry for reselling and Tiffany product is probably pretty high there around wholesaling diamonds to people.
Richard Baum 22:48
Now they have very few that I mean, they do have some independent dealers but but but but not that many.
Eric Stopper 22:55
Also, I you know, we deal we’re data nerds right like that. That’s our whole thing. So there is a significant portion of the population. I don’t have the numbers right in front of me. But there’s a significant portion of the population that’s making over, you know, $150,000 a year. And statistically, most of those people we’re talking 80 to 90% of the people that fall into that income demographic, have an Amazon Prime membership. And so, I’m wondering, since those are our luxury buyers, right, those are the luxury people or wouldn’t those people probably go and check Amazon? For the products that they’re searching for? Or do you think that there is a pretty clear divide between how people shop for luxury products and how people shop on Amazon?
Richard Baum 23:44
Let me flip that if I could, sure. People are making more than 150,000 a year. I know a few of them. They, you know, I’ll take myself as an example, even though I might not include myself in that category. But, you know, I we buy a we do a lot of shopping on Amazon but we’re doing it for consumables. So we buy all of our consumables on Amazon, toilet paper, dish dishwasher detergent, washing machines stuff. You know anything that is big and bulky that I don’t really feel like going and buying at the store. I will buy on Amazon. I know I’m getting a great price. And it extremely convenient. I don’t have to schlep it to my car. It’s going to turn up on my doorstep the next day. I know exactly what I’m buying exactly what I’m getting. I do it every two or three weeks. But I’m not going to be buying my clothing or any jewelry or you know, really expensive items on Amazon because that’s not what I use Amazon for. So I think it’s kind of different strokes for different folks.
Eric Stopper 24:56
Huh? There’s a so I’ve talked to a couple of Joel jewelry companies on Amazon and they they sell like some pretty significant
Unknown Speaker 25:06
high priced items.
Eric Stopper 25:09
There’s there’s a couple that come to mind one by run by a friend of mine named Sammy and
Unknown Speaker 25:15
Eric Stopper 25:17
can’t keep in stock. He is just selling this like moderately high priced jewelry and it’s just out the door as soon as that sucker lands in an FBA facility. And so, my my personal just from from what I’ve seen, it looks like a lot of these luxury brands should probably have a presence on Amazon and control that but it likely doesn’t need to be their main channel, right. I don’t know that their conversion rate is going to be any higher. You’ve mentioned collectibles, collectible products as a as this one of these non Amazon audible businesses and brands are they finally Have you know a collection of shirts or blouses or jumpers or you know, whatever it is that that is able to help me compete with or against Amazon. Can you kind of help me walk through why why collectibles specifically as a as a market is a good bet against Amazon. Okay, so you’ve
Richard Baum 26:23
even better the number of questions in your last comment.
Unknown Speaker 26:26
Yes, yeah please let’s bring it back.
Richard Baum 26:28
Let me dissect them if I can.
So first on luxury.
I don’t mean to say that no luxury products are sold on Amazon because it’s pretty clear that they are sure. But I do know for example, that Costco online sells a ton of fine jewelry. And why is that because, you know, Costco is model is they work on something like 13% gross margin. So you know, whatever you’re buying from Costco is going to, they’re going to be selling it for 13% more than they’re paying for it and you’re going to get a really good deal. But I would ask you, Eric,
if you’re going to
buy an engagement ring for your fiance would you tell would you go and get it at Costco because you got really the best price. And then, you know, think about how that would start off your potential marriage. Honey, I love you. I got this great deal on an engagement ring at Cosco. Huh? You did what?
Eric Stopper 27:43
You know. I my wife does not know where I got her ring. And and that will continue to be the case in perpetuity for the rest of our lives. And so baby if you’re listening, I did not get your ring at Costco. Costco. I also didn’t get the ring at Amazon. The fact that I care matters, there is a perceptual consideration that I think people are certainly, you know, that the working through their minds at the point of purchase or even during their search.
Richard Baum 28:16
So, so you think the fact that you got it a Walmart is not really going to bother her?
Eric Stopper 28:21
No, that’s exactly what I am saying. I think that well, if it’s a real diamond, right, and it’s really nice, maybe not, but I’ll still never tell her right? I think I might be in a in a subcategory of my own. I wonder, right. Like, if you’re listening to this, like, hit us on Instagram and let me know, dude, first of all, Does your wife know where they got their engagement ring? And if you bought it at Costco, or Walmart, would you would you tell her because the other side of that is
Richard Baum 28:50
hurt bar, which is what she care.
Eric Stopper 28:52
That’s what I wonder. So think about it like this, right? If I bought it at Costco, I’m going to get a better deal than if I went to Tiffany’s and I bought it out of the store with the like 80% you know, margin that they’re looking for something crazy. I don’t know the economics. So I saved myself a significant portion of money. And so I can go to quiet. Right? I can go to the Caribbean, I have more money that I can spend on our on our actual experience. I don’t know, I don’t know the answer as to whether or not she’s going to care more about the place that you bought the ring. As opposed to the extras that you were able to include in the experience with the money that you saved from buying your ring that medium you know what I’m saying?
Richard Baum 29:37
Okay, so let’s let’s leave that to your listeners.
Eric Stopper 29:40
Please. Instagram, everybody Buy Box Experts. I want to
Richard Baum 29:44
know, let me move. I want to move to your next question. Which which, first of all, I just want to clarify a little bit, Eric, because you use collectibles. And then you also use the term collection elections. Let’s make the decision. So I want to distinguish because I think The more important aspect of this is really collections not collectibles. So collectibles to be like baseball cards. You know, those can be sold online provided that they can be authenticated. That’s not really what I was addressing when the comment that you were, you know, that you alluded to was really collect. So if I’m an apparel brand, I’m going to have a collection of merchandise that I’m going to be selling, and it’s going to be generally coordinated. So if it’s a women’s apparel brand, you know, there’s going to be tops and bottoms. There’ll be accessories and things will be coordinated with the color palettes. style, they work together with each other. Amazon has a really hard time with selling collections of things because their search engines really aren’t so great. You can’t go in and use a keyword called collections and get anything meaningful. If I’m a woman and I want to buy a sweater, I can type in sweater and I can search for a sweater. Chances are I’ll get like a million options. I know exactly what the number is. But if you take the sweater see how many choices you get?
Eric Stopper 31:22
I’m only going to get seven pages because that’s how Amazon typically functions. But I’ve got 70,000 results for sweater and yeah, it’s only seven pages worth but they Okay, like 100 pages,
Richard Baum 31:34
get 70,000 sweaters. Like what do I do with that? You know, I can go filter until I’m blue in the face, and then I probably will shut off my computer and I just say, let me go to my local Bloomingdale’s or Macy’s, it’s a whole lot easier for me to shop the sweater department than to find a sweater that I need. And then once I find a sweater Now suppose I want to find a pair of pants to go with it.
What’s my search? You know,
Unknown Speaker 32:03
I think I think Amazon.
Eric Stopper 32:07
Yeah, I think Amazon’s working on this. Have you seen the like this like shop zap, Zac Efron? shop? Chris Pratt on Amazon. Have you seen those little tabs?
Richard Baum 32:20
Eric Stopper 32:21
So now what I can do is, I see what Chris Pratt is wearing. And I’m like, Hey, that looks pretty good. I can just click on that and the brands that he’s associated with are automatically put into this collection. Right? And I know that the sweater goes in the pants because of the sock.
Richard Baum 32:37
It happens to be a gigantic collection. So if you’re going to put in who is it Zac Posen? There’s a bunch of people. Yeah. Angelina Jolie, I think is a really recent one. So if you put in an Angelina Jolie collection, or just Angelina Jolie, you are going to get everything that has the name Angelina Jolie associated with it.
Eric Stopper 33:01
When I got that actual ad, though, that is her stuff. It is really just the ones that are affiliated with her at that point. I do agree. Yes, the search function on Amazon is a is a mess, the beautiful mess, but that those new branded pages, I think are making it so that collections of products are easier to sell on the platform.
Richard Baum 33:19
Yeah. And I think I would agree with you. I think they’re working on solving that problem. But they don’t have they’re not the elegant solution that they are for tied.
Eric Stopper 33:29
They’re not the elegant solution that they are for tied. I completely agree with that state, right? Absolutely.
Richard Baum 33:35
Yeah. And I if I put in, if I put in something that’s kind of common, like I put in time, all of a sudden I’m going to have, you know, probably 25 or 50 sellers of tide. It’s not going to take me very long to figure out. I’m a prime customer, so I’m only going to buy Thai from anyone that’s offering prime shipping. Sure. And the pricing is so easy. So if I’m going to it takes me like literally a minute to find the lowest price with with prime shipping. One click, I’m done tide is on its way in
Eric Stopper 34:15
Efron. Yeah. It’s interesting that you bring up tied to because I was talking with Greg Mercer at Jungle Scout. And he said that the the actual brand, right like the name tied the kind of legacy associated with that is not as important as it used to be when you’re shopping on Amazon, that these smaller brands now have the opportunity to get more of the market share because they’re lower price and they’re the same amount of conveniences as tied and they’re more open to, you know, to making a purchase for that. So, in your mind, a brand like tide. How are they going to combat all of these little bitty sellers on Amazon, do they just like, give up and leave Amazon and choose not to sell on that channel? Because I mean, it’s a it’s got to be a huge amount of their sales or do they double down and make lower cost items or make new new lower price brands? What do you think?
Richard Baum 35:16
Well, I guess first I might challenge whether it’s a huge percentage of tied sales because I wonder, I have no idea. They’ve got gigantic distribution network. They’re basically in every single supermarket and drug store in America. So they have got thousands and thousands of points of distribution, for starters. And frankly, I think it’s probably more the problem of the smaller brands than it is tides problem. Remember, tide is 1000 pound gorilla, the 800 pound gorilla, people are trying they’re nibbling at it at time. And time untied as a brand is still got an awful lot of brand equity in it. So, you know, the whole thing with private label is everybody knows it’s cheaper sometimes it’s comparable sometimes it’s not comparable. Unless it’s got the exact ingredients in it, it’s probably not comparable. I don’t know how easy it is on Amazon to to compare ingredients I mean you have to kind of get zoom zoom in on the label sometimes to do that. But I frankly, you know, I don’t think you know, to tie is worrying about it and tide is constantly has to reinvent different formulations of their product they used to be you know, when I was growing up there was just kind of tied powder. Then it’s in liquid form. Now it’s in pods, delicious
Unknown Speaker 36:45
Richard Baum 36:47
children left to eat.
And who knows, so they constantly have to be on the cutting edge of, you know, inventing whatever is next and they they do have other brands. I’m sure PNG does work on other brands. In fact, I was speaking with somebody associated with PNG recently. And they have got something I’m not sure I’m going to get these numbers, right. But they actually have about 100 new ventures or hundred teams that work on developing new products that are internal. They are PNG employees. So you know, they’re not they’re really not kind of sitting on their laurels. They are constantly on the cutting edge of inventing new products and developing
Eric Stopper 37:30
innovate or die. Yeah, that’s I think that’s the watchword for everybody, by the way, a monthly revenue for tied products on Amazon. It looks to be a couple million bucks. And this is a low estimate. Yeah.
Unknown Speaker 37:45
Eric Stopper 37:46
Yeah, it’s small potatoes. You know what, and it’s a million
Richard Baum 37:49
bucks a month of time.
Eric Stopper 37:51
Yeah, I wonder how accurate the figures on the show. ranier it’s still a time
Richard Baum 37:58
must be tired. must be in all of its forms a multi billion dollar brain, I’d say so too, if they’re selling 2 million a month, they’re selling 25 million a year.
Eric Stopper 38:12
And so, I wonder for these small brands,
Richard Baum 38:14
right? It is not even selling it directly. Those are all resellers, or Amazon itself. Yeah, I think your Amazon is buying the product, holding the inventory because it turns so rapidly.
Eric Stopper 38:27
They are a vendor central client. Yeah. So Amazon actually buys their product from them. And so that means that this estimate is probably very low. But the thing that you said about the thousand pound gorilla, I think these small private label brands have a lot of peanuts that they can steal, and that tide is even going to feel it. And so it’s you know, Amazon’s great like if you’re thinking about selling heavy duty laundry detergent, Please continue to do so the market looks pretty good.
Richard Baum 38:56
Now, that’s a word from Eric stopper.
Eric Stopper 38:59
That’s a word from Eric stopper That’s exactly right. So I want to go back and let’s talk about some brands that you know a little bit more about brands that you’ve worked with. So if you if you look on the consumer growth website there are a list of transactions that Richard and his team have taken part in and have shown successful right these are these are deals that are going on right now. I want to talk about viral life you invested in them are investing in them helped with recap, what’s the situation there?
Unknown Speaker 39:34
Eric Stopper 39:36
Okay. Um, can you can you tell me a little bit about this company? Who are these guys? What what’s the kind of size and scope and what do you think that you can do for them?
Richard Baum 39:45
So via life was an investment that we made is the kind of ground at 2008 2009 time for rain and they started out as a Let’s call it like a eight tooth brush sanitizer company. You know these these ultraviolet lights that kept all the germs on your toothbrush. So they started out selling those small, small size, fairly portable and they they morphed into manufacturing, travel, electronic travel toothbrushes that are battery operated and operated very high speed so this is like you know having your your Philips or your brawn or your oral B toothbrush that you would have at home on a permanent fixture but you carry it with you when you’re traveling. They’re they’re small, they’re very easy to transport and they are inexpensive and they also are The the the two bits belt is capable of being printed on. So you could have all sorts of logos and artwork. So they’re kind of they’re decorative. And their primary way of selling these were on the TV channels, TV shopping through HSN and QVC more HSN this was a company that was father and son founded by the Father. And the way we got into it was the father wanted to retire, turn it over to his son. But turn over meant the son needed to buy out his father and didn’t have the capital to do it. One of the things that we do is work with family companies who are in transition and got out backer financial sponsor to work with us to buy the company. And they expanded some other products and beauty products. And we actually exited it. Oh god around 2013 or 2014. Okay, so
Eric Stopper 42:16
this is a company that you were helping with the recapitalisation for so that the son could buy out the father so that he could continue to run the business and not have to worry about this kind of like sleeping equity. You did you look at the market for their products. Were you really involved in helping them develop strategies? Or was it kind of purely for this this recap process?
Richard Baum 42:38
It was primarily the recap but we did you know, we we did, we always are very involved in our company’s kind of post transaction. So things that are related to strategy and board work and stuff like that we were very involved with.
Eric Stopper 42:53
Now for them. Are they a good fit for Amazon? And are they not Amazon?
Richard Baum 43:00
Well, they’d want to be on Amazon. Again, this is a low price product. I think we were talking about low price product. So, you know, under $25, you really care less about owning the customer. You want to sell as many as you can. So you know, they care I as a company, somebody liked via life would, you know, care a lot less about whether they were an Amazon or not because they want to be able to sell on Amazon.
Eric Stopper 43:29
Sure, and it looks like they’re here. so shameless plug even though Richard is not involved with them anymore. Via life. New stripe, slim Sonic toothbrush, here they are. That slim Sonics. Okay, yeah, we’ll have to reach out to these guys. Um, I also want to talk about wild things. gear. Now. This is an older deal. You invested in them back in 1999. Right.
Richard Baum 43:51
While things no it was kind of the mid 2000s
Eric Stopper 43:54
mid 2000s Okay. I got another story behind these guys. They sell This what seems to be super high quality, luxury price camera gear and they are not on Amazon.
Richard Baum 44:09
Right? So this is a company has a very interesting history. It was founded by a very famous French mountain climber probably about 30 years ago. A woman who comes from a family of professional skiers and professional mountain climbers and instructors. She’s came to the US and she was manufacturing started out ramp manufacturing very high end climbing gear for her friends. And because she manufactured locally meaning in the US she eventually found the On her way to supplying the military, US military Armed Forces, where there’s a requirement for anything that’s manufactured for the at least for certain parts of the Armed Forces and certain items need to be manufactured in America.
So kind of gave her an advantage.
We in invested in the company because we saw the opportunity for whilst things to become a fairly large consumer brand. So, at the time they really, the business was mostly military sales, not much consumer and, you know, we kind of envisioned an ad which would show, you know, an Army Ranger and a professional mountain climber standing on top of some mountain peak genius with the tagline saying, you know, if it’s good enough for them right on So these are, you know, these are people that really have very high, the customers very high technical requirements. Unfortunately, this is actually, you know, not a great success story for us because the, the military business is a very lumpy business in terms of its sales and also very competitive. So it’s hard to really count on consistent cash flow. And we never really, were able to get the consumer business to a place that we wanted to we did do some very interesting customization work, where consumers could kind of build their own jacket, which is a really, really cool thing where you could pick the colors, you could pick the zippers, you could pick the pockets and where you wanted them. So it was a lot of fun to build a jacket. But eventually we exited the business and we sold it to a firm that really had a number of different businesses that were selling to the military. So it was a perfect fit for them and a perfect exit.
Eric Stopper 47:05
That sounds like that sounds like a success as far as I’m concerned, right? Like you failed pretty fast. And then you got to a point where it made sense for the business. Yeah. How do you get into selling your products to the military? What’s like the first step that someone should take
Richard Baum 47:19
for anyone interested in that’s listening? It’s really hard to I will tell you, it’s really hard to sell it directly to the military. There are a number of organizations and distributors whose business is to represent various companies, brands and otherwise who want to sell to the military. So you really need to kind of partner with a with one of these firms that they know exactly what the process is, which is very complicated. They know exactly who you need to go to all the various steps because there’s a lot of with selling anything to the government. there’s just tons of hoops that you have to hop through in order to get there.
Eric Stopper 48:00
I’ll let the listeners reach out to you, specifically on your, on your website, go and talk to Richard You know, he can probably connect you with the right people. Now I have a final kind of double layered question for you, you on most of your publications and the interfaces that you have with folks in in your industry as a thought leader, as you talk about the future of retail of E tail, brick and mortar of Amazon, you you have given your thoughts on a lot of these fronts. Your firm, you you target these high growth potential companies, you identify them, you help them for the sale of their company. One of the questions that I have is what makes a what makes a good high growth firm that you would be interested in. And the second one is, if you were to start a company that would be attractive to a firm like yours that could make them a ton of money at an exit. What are some of the first things that you do what markets you Target, go ahead and give me your thoughts.
Unknown Speaker 49:03
Richard Baum 49:05
perhaps the easiest way for me to answer the first part of that question is to just tell you what our investment criteria are for when we’re sure to either buy or invest in a company. So first of all, we focus exclusively on companies that are in retail, where we are channel agnostic. So we’ll do bricks and mortar will do. online businesses will do thing businesses that operate in multi channel multiple channels. And then the other area is what we call non perishable branded consumer products. So we tend to steer clear of supermarkets and and we steer clear of food and beverage, and supermarkets and drug stores. And we do that for a couple of specific reasons. One is
We find that
at least with food and beverage, you know many of the of the potentially high growth food and beverage companies, they all have the same strategy. And the strategy as I hope Coke or Pepsi buys me before they buy one of my competitors. Because the real key to those businesses are distribution, we think having distribution may be more important than the product so and so we don’t like those kinds of businesses where, where you’re having to make big, big, big bets in marketing. Our investment criteria are pretty simple. So number one, we feel like it’s got to be a very defensible niche. Again, we are kind of category agnostic, if you will. But the question that we always ask is, is there another competitor out there either current or potential who could put us out of this business if they wanted to? If the answer is yes, we steer clear if the answer is no, we’re probably interested in learning more about it.
Secondly, it’s got to have
it’s got to have a, a decent level of profitability. So we’re not venture capital investors, we don’t invest in companies that are what are called pre revenue companies, they’ve got to already be in business generally have two or $3 million of profit and the opportunity in terms of growth for that to be many, many times where they currently are.
Number three is
there has to be a, a good management team, you know, probably the single most important component of any businesses, how good is the manager that you’re investing with or behind and we don’t require businesses to have necessarily a complete management team. But there needs to be a really solid core of management that is passionate about the business. And then number four is the business has to have viable exit opportunities that we know of when we get into the business. So we generally are avoiding investing in franchisees or licensees and that’s because their exit opportunities and options are very limited so if I’m a franchisee Sam, a McDonald’s franchisee I only have really two exit options, I can sell my business back to McDonald’s the franchise or or I can somehow find the next dumbest franchisee to buy my business, but I don’t really have many, many options. Okay, and those are our investment criteria for Frankly, you know, they’re they’re pretty broad. But we’d like to drill down a lot and due diligence and learn as much as you can about business.
Eric Stopper 53:09
And it sounds like those things are pretty consistent variables for a healthy business at any at any point in time. Right? I’m not going to get smashed by a competitor, I have a really nice liquidation event in my future that’s not going to be affected by anybody else. And I actually own the business. I think those are those are excellent criteria just for anybody starting a business. So anyone listening right, like get into something that that fits these criteria, and not only will you be attractive to Richard bomb and his partners, but you’ll be attracted to the market in general. Now, kind of a more overarching question, Richard,
Unknown Speaker 53:43
Richard Baum 53:45
just augment a little bit Eric and that is we we don’t invest in turnarounds. So what are the reasons? You know, we find that companies that have generally low level of profitability that is not consistent. It’s kind of too close to zero. In terms of profitability, we have found it very difficult, in fact impossible to raise money for companies or raise money to buy companies that are losing money. It just there’s a lot of institutional investors that just aren’t interested in investing in companies that are losing money. And therefore viewed as turnarounds. We kind of like to say even though we’re growth investors, that somewhere in our portfolio, there is a turnaround. We just don’t know which one it is.
Eric Stopper 54:40
Okay. Make sense? Well, I, I kind of want to roll out the red carpet for you and just for people who are interested in the future of retail, give us give us your thoughts, right, like where are we headed in the next five to 10 years?
Richard Baum 54:59
Well, I’m Wish I was really good at crystal ball gazing because if I were, Yeah, come on, wouldn’t have to work for a living. But I’ll give you some of my best thoughts. It’s pretty clear so all the channels of distribution the main channels are still going to be around that means bricks and mortar stores online, you know catalog is almost gone away. It’s also very obvious that the US is a country that’s got there we’re over stored we’ve got way too many stores we’ve got Make way too much square footage for what we really need going forward. And so we’re going to see we’re going to start seeing malls more malls go dark malls are generally classified into four, three or four categories ABCs and these really depending on what the tenant mix is and and how much business they Do per square foot, the season. These are the ones that are in real trouble. They’re, you know, they generally do not have great anchors, they’ll have anchors like Sears and JC Penney, you know, both of whom are very troubled companies. And as those anchors go dark, sometimes those malls go dark and they may get repurposed and not necessarily into retail. I do think that online is going to continue to grow. There are already some categories where they were online accounts for more than 50% of the sales. I think Consumer Electronics is probably those categories with their other categories that I think are going to become much more important to the online sellers and, you know, food and food is one of the big ones as we talked earlier about Amazon.
I think that you know, you’re seeing
Customers are caring more and more about sustainability not a topic we spend a lot of time on, but particularly Gen Z customers and millennials care a lot about, you know, what, uh, what what are the what are the what’s the mission of the company? Kind of what are the morals of the company? You know, do they use sustainable ingredients? You know, are they thinking about taking care of the planet? Where are they sourcing their, their, their product from where are they sourcing the fabric from, etc. So these are all becoming much more important as well.
Eric Stopper 57:39
Okay. We we tend to get into the future here on this podcast, but I think that that’s a very pragmatic look at what the what the future of e commerce will will hold for us. Thank you so much, Richard. It for anybody listening consumer growth.com. They have a contact button. There’s a couple of Different places where they have a contact button these guys just want to talk to you they want to help your business. Richard is great to deal with very responsive Is there any anywhere else where I should send people Richard to come and talk with you
Richard Baum 58:12
know, I think if they you know if they if they reach out to us, I’m happy to you know, give my email address is on our website. Our website is www dot consumer growth com. So you can reach out either on our website, through an email, or phone numbers are listed there as well myself or my partner lives done. So please, please feel free to reach out to us if you’re interested in in a liquidity event for your business, whether it’s today or in the future. We’re happy to work with you if you want to be able to raise capital today, or if you’re interested in in our strategic advisory services will work with companies to get them ready for For a liquidity event and you know, happy to talk to anyone who kind of fits their investment criteria and fills a bill.
Eric Stopper 59:08
Perfect. Richard, thank you so much for coming on the show.
Richard Baum 59:11
Great. Thank you, Eric. It was a real pleasure.