a16z Podcast - a16z Podcast: Building Brands and Running Retail -- Ron Johnson and Tristan Walker Break It Down
Episode Date: September 3, 2014Given that physical retail is expensive, what’s the right distribution mix for startups? In this podcast with Tristan Walker (who is building health and beauty brand Walker & Company from scratc...h), we hear Ron Johnson's lessons learned from arguably the world’s most successful physical retail outlet: the Apple Store -- as well as a discussion of the challenges of brand and retail in a multichannel world. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.
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The content here is for informational purposes only, should not be taken as legal business tax
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slash disclosures. Welcome to the A16Z podcast. I'm Michael Copeland. And we are here today with the
founder and CEO of Walker and company, Tristan Walker. And I'm not. I'm not. I'm
I'm a new, embarrassing right now, but everybody's retail hero, Ron Johnson. Ron, Rick, welcome.
It's great to be here. Thank you.
Yeah, well, you're my hero, and yet, when my kids want to go to the Apple store, I'm always, it's
like an orb that pulls them in. So I blame you for things, too.
I'll take that. That's okay.
So we want to talk about retail. And let me just back up, and Ron, you're an investor in Tristan's
company. I sort of want to get a little bit of this background on how you two synced up.
Yeah, no, it's actually a funny story.
I'm not sure Ron knows the true end-to-end story here.
So we were raising our series A round, and then Drison Harowitz decided to participate.
And I remember getting an email early in the morning.
I woke up, I think it was six in the morning, I got an email from Mark and Dresen.
And Mark said, Tristan, absolutely, no pressure.
I know we're about to close the round.
If you don't want to do this, don't worry about it, forget about it.
But we know Ron Johnson, and we think he'd be a great person to help you think through your business,
at which point I frantically emailed Mark back and said, are you crazy?
Ron Johnson has, you know, my retail hero as well.
I said, make it happen as soon as possible.
And fortunately, Ron was so gracious to meet with me and decide to invest in the business.
It seems like it's working out well.
I want to know, Ron, you know, let's start at a high level.
And Tristan, you have the opportunity to sort of build a brand from scratch, which is what you're doing.
But are the elements of retail, have they changed?
Are there certain things that you have to have as you're building a brand and a retail presence?
Where are we today and where do you think things are going?
Well, I think brands are really not retail.
They're much bigger than retail.
Retail is just a distribution system for a brand.
And for years and years, because the store was such a central part of commerce, and in the 80s, when a lot of specialty stores came out, we thought of a retail store as a brand as personified by like the gap, you know, back in the 80s.
And there have been a lot of specialty stores, but brands preceded retail stores.
Brands have been around forever, and brands have certain core values that show up in everything they do.
And we just a lot of times think of retail stores as brands, but brands are pervasive.
from what we drink to what we wear, to what we drive.
You know, it's an identity that has certain markers.
And those markers are really important to build and trust and monitor and value and love.
And that's the core of a brand, I think.
A retail store is just a physical face of a brand, if you will.
So Tristan, as you think about that part of your brand and how you're sort of creating those markers
and how are you executing on that and how do you think about it?
Yeah, so I think for our brands, there are two things that are really important for us.
Number one, designing product that works, right?
Products that actually prove on its efficacy promise.
Right.
But two, for us, even more important, is authenticity to what we're trying to build.
I think we try to have a really deep respect for our customers,
the culture that they want to be a part of, the aesthetic that they want to see,
the tone of voice in which we communicate with them.
You know, customers are as smart as ever.
And particularly, you know, in our case, we're focusing on the niche demographic.
I think, you know, our customers are a bit more perceptive around how they've been underserved.
And as long as we stay true and authentic to their needs, we'll be fine.
And we've been proving that so far.
Yeah, I believe.
I think Tristan's on a great job building the coral months of his brand.
And it shows up in the quality of the product.
You know, the moment I invested was right after I met Tristan for coffee one more,
and I just believed in him.
Right.
And as anyone will tell you, you invest in people, especially in early stage companies.
But it shows up in the brand because the values that Tristan embodies are embodying bevel in the products,
the marketing, the website.
And I become a real connoisseur.
You know, I shave every day, you know, with the bevel blade.
And I used to do, you know, a variety of things.
But it's by far, you know, the best.
shave I've had. And I honestly miss, it almost feel guilty when I don't do that the more
when I'm in a hurry. Because the part, I've made a commitment to this brand. There's a relationship
now. But brands are very powerful when done right. So if retail is just sort of the distribution
for a brand or the shelf space, however you want to describe it, how important is it? And for
brands, you know, Tristan, you can answer this, but for brands that are building, you know, their
footprint today, how should they start thinking about retail?
So, I mean, the way that we think about it, we very much believe in Omni Channel.
Right now we sell online directed consumer, but we have every intention to sell our product offline.
You know, one thing I learned from Ron in his buildout of the Apple store is, you know, Apple
is very thoughtful about the folks who didn't buy products.
Well, you walk into the store, you can go and check email.
You can listen to music.
You can get your Mac fix.
among other things.
And I think Apple did a fantastic job optimizing the experience
for the 90% of people who walk through the store
and don't buy anything.
And when we think about what we want to build,
our brand means more than just the product itself.
It's the lifestyle.
It's the music.
It's the aesthetic, among other things.
So we want to be thoughtful about creating an offline presence
similar to what they were able to build
and optimizing for the 99% of people
who might not want a haircut or want a salon treatment
or something of that sort.
Yeah, you know, it's interesting. When the Apple stores first opened in 2001, you look at what Apple's brand value was. It was ease of use, you know, enriching lives, making people's lives better, and the store had to do that. And so we designed a store that wasn't about selling things. It was about making an owner have a better experience and introducing the brand to people. So we located stores where people live their lives. We had free service. No employees were on commission. We delivered face-to-face help, a genius.
bars in a time everyone was going to the web.
We did that because that's what you'd expect from Apple.
And part of why the Apple stores were so successful is they somehow personified in a physical
way the core brand attributes.
In today's world, which is multi-channel, unfortunately we're in a period where stores
will become increasingly less important in the total distribution mix.
The world is moving online.
It's moving online more rapidly than I think a lot of us imagine a lot more than I do.
And so the challenge for a startup is given that physical retail is expensive and knowing
that it will be less important to your mix long term, what's the right mix, how does it
complement your brand, what's the role of that in your mix?
And that's a very challenging question for people to figure out.
So I want to poke at that then.
Tristan, you can answer this, but what is that mix?
And then how does it play a role?
Well, specifically for our products, I think it's fairly unique because there's still a hell
of a lot of folks who are skeptical about leveraging a tool like this, right? So, you know, when I think
about my shaving experience as a kid, I was, you know. As a kid? Or as a teenager. As an eight-year-old,
not being able to shave because all of the products that I would leverage did damage to my face.
Right. And, you know, we're talking to customers and trying to convince them to leverage our tool
when there's that inherent skepticism. So sometimes you might need that barber to say, hey, you can
actually use a product like this. You might need folks to experience having the priming oil
on their faces or the kind of cooling effect of the restoring bomb and what that does and show
the customer the efficacy in real time. So I think our needs are a little bit different from
some of more traditional retailers out there, where it's a very, very important part of our
And so this is something I want to ask is that there's this idea that there are certain products
or categories of products that you have to try and you have to, you have to, you have to, you know,
use or try on before you make that purchase. But we see sort of one by one the categories and
those products falling away and like, well, maybe I don't need to try that. But do you believe that
for, you know, hair care and, you know, sort of facial well-being products, what you do, that it's
always going to be the case that people need to try it before they buy it? Well, I think it's even more
than that. Let's kind of think about the traditional barbershop. Yeah. You know, folks go there
to get a haircut, but folks go there to experience the community and, you know, communicate with
each other and have fun with each other and experience the culture. You know, at least in our
community, the black barbershop will never go away. Right. Right. It's an important part in
driving politics, culture, among other things. And as long as we can be respectful and authentic
to that experience, you know, we'll be able to develop an experience for folks that really
resonates. Ron, how would you answer that question? Well, I think Tristan's right. The best
advertising has always been word of mouth. It's been
integrity coming from one customer to another. In the days we live in
today with social media, word of mouth can spread faster than
ever before in history. But it's kind of like the chicken or egg. Where do you
start? So you have to start with someone having a great experience with the
product, an authentic experience. So you see some level of trial. And then
that word's got to get out to people. And so every brand has to find a way to get
customers to try their product. Then you can
leverage social media to get the word out and it's actually trusted and if you look today
everybody goes online to research increasingly they go to video on youtube they get recommendations
from friends that's the most powerful voice for many brands it's the social media world we live in
but it's got to start somewhere right when we launched the apple stores the challenge for apple
was we had 3% you know market share but no one could try a product so we had to put stores in
so it would give us a chance to suit up and then the word
took off by itself. One of the values of the Apple stores over the past 12 years is Apple has
really not had a bad product launch since we had stores. Now, the stores didn't create the
products in any way, shape, or form. Inherently, you've got to have great products. But the stores
became a way for the first users to have a great experience. And then word of mouth took over.
Right. So if you look at the Apple stores, there's only a couple hundred in the US. You know,
other brands have thousands of stores, yet there are the right number of stores that when
something new happens, Apple gets the benefit of launching that product so real people can spread
through the social media network. If Apple comes out with a new product in September 9th,
you can guarantee those stores will be filled with people trying to touch it, try it, see what
it's all about, and that's a critical asset for Apple in its distribution system. It enables
their creativity of a chance to be heard by the marketplace. So I think all brands have to figure
how do you get that trial, but increasingly it's not about that being the only distribution
method. You're going to have most of your commerce done long term through other formats
than a traditional store. So I have two follow-up questions for that. Does that then explain
why other consumer electronics companies, I will name Sony and Microsoft, didn't succeed with
that same retail model? Is it because the sort of lineup of product meets retail, meets
experience meets, you know, satisfaction just wasn't there?
And so no matter how beautiful a store, et cetera, if you don't have all those elements, it's not going to help you.
Well, here's what I'd say.
I think the Microsoft stores have succeeded much more than the popular opinion.
You know, when someone sees an Apple store and a Microsoft store side by side, you're comparing the Microsoft store to, for some reason,
this most productive retail store on the planet.
Right.
That was the second question.
And Microsoft has, you know, 100 stores.
They continue to open stores.
the experience in the stores is pretty good
it's different than the Apple store
but it's not I think it's a very
it's a successful retail strategy
so this idea that hasn't been successful
is just not true
it just maybe isn't quite as popular as the Apple store
but that's just saying like you know
one restaurant isn't as good as the other because it's not quite
as crowded you know
and so you know I think retailing's really hard
and
you know I think Microsoft's doing better than people
think or they wouldn't keep opening
stores and I think it's
really help, for instance, the Surface 3. It's a really great product. We all know that.
Every who tries Surface 3 is pretty blown away with the software, the interaction, how it can be a
tablet and a computer. It's part of the future. Without those stores, that Surface 3 wouldn't
be where it is today. Now, it's going to take a long time because it takes time to move from
mind share to market share. But I think those stores are really helping Microsoft with that product.
Describe that and break down that in detail of moving from MindShare to Mark.
market share. Is there a sequence of events? And how do you think about this, too, Tristan?
Yeah. So the way that we think about is that market share will get figured out if mind share gets
figured out. And the way we think about mind share is getting the maximum number of people who
are so incredibly enthusiastic about the promise that you've given them. Right. So for us,
I tell our team, you know, we're not going to focus on growth as much as we are going to focus on
kind of customer lifetime value of sorts, right? We want to.
want die-hard loyal customers who are inevitably incentivized to want to promote our product,
right? The great thing that we have is, you know, a lot of customers who haven't had a good
experience with similar types of products of ours for decades. Right. And once they get it,
you know, they'll preach it to the mountaintops, their inherent incitement. And as long as we get
a core, small group of very die-hard loyal customers, they're going to talk about it. And
that market share will work itself out.
the Apple store you mentioned Ron that it's the most productive or one of the most productive retail stores out there
there is this idea that physical retail in future will be sort of this lost leader
do you believe that and or how should people again in this mix of retail and online
think about the expense and the value of retail oh I think anybody who sets up a retail store
as a lost leader is going to fail
You know, there are much better ways to invest your money to build a brand and to build a business than use a store as a loss leader.
Now, that has worked at times for flagship stores and Couture Apparel on Fifth Avenue.
But broadly speaking, to reach masses through a money losing retail strategy is not a good investment of money, in my opinion.
Fair enough. Don't do that, Tristan.
So, Tristan, it sounds like your retail strategy, you've mentioned barbers, you know, and you tell me, like,
if you're thinking about someday, because it's interesting that there's a handful of brands that've
been born online. So I can think of Warby Parker and Bonobos and some others.
Beta brands is another one here in San Francisco that, you know, they were all internet all
the time. And then all of a sudden they're like, well, no, actually, we'd like to have our own shop
or our own outlet. How do you think about that?
Well, I think when you kind of referenced some of the brands that you mentioned, they
were masterful at the way that they sequence things, right? So these folks didn't start online and
then come out with 10 permanent retail shops, right? These folks started online, built the
mine share, you know, sprinkled a few pop-up shops around the country, understood how efficient
they could make that retail space work. And then when that became successful, then slowly went
into kind of establishing their own permanent presences. I think we're going to take the same,
a similar approach. Fortunately, we have folks like Ron helping us think through some of that
stuff. But, you know, at least for us, we've been online for, you know, seven months now. We want to
take our product to consumers. We can do it efficiently with things like, you know, potential
pop-up experiences, et cetera. And if that's successful, you know, we'll acquire the learnings
from that to even potentially develop our own or, you know, pop-ups within a pop-up or permanent
presence. And not to mention opportunities and things like mass retail.
et cetera. But we'll get there.
Right. We're in no rush.
Yeah, the internet has been this amazing thing to enable a proliferation of great brands.
And if you look at most of them, they start by becoming famous for one thing.
You know, Warby Parker for the way you buy glasses.
Bonobos for a pair of pants that fit.
Everlane for a T-shirt.
Amazon for books.
The key when you build a brand is to take a product and idea that, you know, kind of means what the brand's all about
and do it so exceptionally well, let the word of mouth carry over,
and then it enables you to move at some point into a store
or some type of physical experience.
But it used to be you'd start with the store and then move online.
Today you start online and then maybe move to a store.
But it will be a multi-channel marketing strategy,
but the Internet is pretty powerful in what it enables.
Like Tristan's going to start with the best shave you've ever had.
And from there, he can build a variety of consumer products, and he'll have different ways to go to market.
But the Internet really enables someone to take an idea and build off a niche a very powerful brand
and to build a business that didn't exist prior to, you know, a decade ago.
Yeah, I think that's a great point.
I got some advice, you know, when I was in business school, I had a professor who said something that really stood out with me.
You know, she said, Tristan, brand is not what you say it is, is what they say it is.
Right. And what was fascinating about, I guess, what Ron just said, the quicker you can get to that one use case that everyone can identify on your behalf, then you know you will have had something to build upon. And I'm fascinated every single day by how much our customers can articulate our value proposition to us. That's a very, very special thing.
And it sounds like, and tell me what you think about this, but does building a brand on the internet, does it engender, does it engender,
loyalty in the same way or is there even
sort of more capacity sort of
for deeper loyalty?
I mean, you know, there's
much discussion about showrooming and that
nobody has any loyalty to sort of
at least retail outlets. They might
have loyalty to products. But how does the internet
help and or hinder kind of building
that loyalty and getting
us away from the sort of polyamorous
shopping habits that a lot of people have?
Well, see, I really believe the internet
is going to allow brands to
extract the premium that they deserve.
You know, great brands deserve a premium for the products,
for the experience that they provide.
Early on, with the mass number of stores we have,
too much square footage, broad distribution of products,
stores have competed on price.
And by definition, when you have to discount a product,
it's a withdrawal from the brand.
Right.
If you look online at the new brands we've talked about,
they're all sold at full price.
You know, they're maintained their premium.
And they're going to let a business build at the right rate based on true brand values
and not artificial things like a short-term discount and price.
Now, you know, people like Amazon are actually the Walmart of the Internet.
I think we all know that.
And they're helping people buy things at low price online.
There's a value for that, right?
But in the early days, most of Internet commerce is essentially a transaction.
It's about a low price and delivery.
Right.
And we have a lot of people compete.
on delivery. But if you look at the history of stores, there have been a lot of stores that
are about a great product and great service, right? And those are the ones we think of great
brands, right? And so the Internet's going to have a way to communicate, you know, products that
have great brands. And eventually people find a way to add service online. But in the early
days, it's been, you know, heavily devalued and very transactional. Right. But Tristan, Everlane,
all these people are in the forefront of building great brands online. And, and
And they're going to have those traditional brand values of, you know, fair price, really high quality, great brand attributes.
And hopefully those leaders will resist the temptation to get short-term value at the expense of their brands.
Yeah.
And this, go ahead, Tristan, please.
No, I was going to say or add that the irony of online that we've noticed is that it allows us to do things that potentially don't scale to the light of our customers.
And what I mean by that is, you know, we'll do things like our customer success.
You know, specialists will actually do one-on-one video interviews with customers that want to find the grain of their hair to shave in the right direction.
Like, when you think about it, that's not going to scale.
We'll scale it.
But like when you think about it on first glance, it doesn't.
You know, for customers that travel and can't take their blades, because TSA will take them away, you know, we'll send blades to their destination waiting for them, right?
You know, that's the stuff that will delight folks around the brand and things that the Internet can actually afford us.
kind of off-light kit. Ron, I want to get a little bit to your experience of J.C. Penny,
and only by way of having you sort of, I don't know, advise folks who come from sort of more
traditional retail backgrounds, how they can approach this new world. Tristan, in some ways,
has this huge advantage of building a brand and a company from a blank sheet. But if you're not
there, if you've been in the sort of bricks and mortar world, what are some things that you
should be thinking about to move, move forward?
Well, I think in many ways, and it's an advantage to come to the brand business, to the
online brand building business from a clean sheet of paper.
You know, a lot of the people in the bricks and mortar world have developed very bad
habits, very bad assumptions over a period of time, because they've been competing really
in an old business model and trying to survive, and some are doing pretty well, but very few
are thriving.
Right.
You know, and some of the best, like Best Buy yesterday, reported sales down 2%.
Stock went up because they earned more money.
Well, if they earn more money, it's because either the vendors gave them more margin
or they reduced payroll for their employees.
Both of these are good in the short run for investors long-term.
They aren't, you know, good for shareholders or stakeholders or for employees.
And so you're fighting a long-term, very challenging battle.
And I think you can develop bad habits competing that way.
You know, and so I think some of these people that are coming into the business with a fresh set of eyes, a fresh set of business models, a willingness to try things and pivot as needed to build a great business are going to end up in a better place than some of us who come from a lot of experience, but really have some old ideas about the right business models. You know, so that's the challenge.
How hard is it to unwind those bad habits and move forward?
I think it's really hard. You know, by human nature,
Most of us, our knowledge is based on our experience.
And the older you get, you draw on a lot more experience.
And it's pretty easy to try to take that play that worked a decade ago and apply it to today
versus someone who doesn't have that experience and just applies new thinking to things.
And you look at an example I was reading today, and I'm not advocating for the company,
but I was reading about Burger King.
And they said it's kind of being run by kids.
And the top five officers are 26 to 34 years old.
but they're performing really quite well.
And they're competing against people like McDonald's and other fast food with a lot of experience.
And they're flourishing right now.
And so age and experience are not a guarantee of success, right?
And there are a lot of examples where young people are changing the world.
We've seen that here in technology in the valley.
But increasingly we're seeing it in consumer products in retail.
You're seeing it in fast food.
you're seeing it in online commerce.
So I think it's time for us
who kind of have the silver hair
or the more mature thing
to really start to think younger
about how we approach business models.
And I'd use the word think differently,
but that'd be such a playoff apple.
There's obviously a lot of truth to that.
To thrive in today's world,
you've got to really challenge all those old assumptions.
I want to ask you guys both
about a great sort of brand,
purchasing experience you've had recently, and it can't be Walker and company.
Is there anything that comes to mind that we should be paying attention to as a good example
and or just a good experience to go out and try?
My answer is no.
And that's the problem, right?
I have not, in a very long time, had a very delightful offline retail shopping experience.
Okay.
Ron?
Yeah. Here in the Bay Area, there's a coffee company called Phil's, which charges about a dollar more a cup than pizza or Starbucks. But every time I go by their stores, the lines out the door. And what their secret is, is they personalize every cup for the customer. You know, today people want it now, but they want it personal. They want it special. And the employees that work there are valued for their uniqueness. They're valued for what makes them special.
and they're allowed to express themselves individually.
And every time we go into a Phil's coffee shop,
the employees are loving being there,
that customers love to be there.
They clearly don't even mind waiting and line out the door.
They sit around longer in the store.
So I think Phil's has created, through the starting point,
a really great cup of coffee,
a brand experience that's quite elevated
compared to other coffee shops,
and they're being rewarded with incredible volume.
You know? And so I think it comes down to the kind of things you have to do to build a great experience
are probably universal truths. It's really creating a place that someone wants to be. It's having a
great product. It's creating a trusted relationship with that customer that you can rely upon.
But it's hard. It's really hard work. But I think there are a lot of examples of it, but you've got to
look to find them. And increasingly they're not coming from the large companies improving their
business. They're coming from the startup.
that are really working really hard to take a set of values
and to honor those and to execute those every day with every customer.
Yeah, you really have to search for it.
Well, on that note, I feel like I want a cup of coffee from Phil's
and I definitely want to shave.
Got you covered.
Tristan, thank you so much for joining and Ron, you as well.
Thank you so much.
All right, we're signing off.