Pod Insights a16z Podcast a16z Podcast | Building Brands and Running Retail -- Ron Johnson and Tristan Walker Break It Down About this episode Given 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 scratch), 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.
Transcript 0:00 Speaker 2 Welcome to the A16Z Podcast. I'm Michael Copeland. And we are here today with the founder and CEO of Walker and Company.
0:08 Speaker 1 Hello.
0:08 Speaker 2 Tristan Walker. And I'm going to embarrass him right now, but everybody's retail hero, Ron Johnson. Ron, welcome.
0:16 Speaker 0 It's great to be here. Thank you.
0:18 Speaker 2 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.
0:26 Speaker 0 I'll take that. That's okay.
0:28 Speaker 2 So we want to talk about retail. And let me just back up. And Ron, you're an investor in Tristan's company. I I sort of want to get a little bit of this background on how you two synced up.
0:40 Speaker 0 Yeah.
0:40 Speaker 1 No, it's uh it's actually a funny story. I don't I'm not sure Ron knows the true end-to-end story here. Uh so we were raising our Series A round. Uh, and then Dreas and 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 Treason. Uh Mark said, Tristan, um, absolutely no pressure. Uh, I know we're about to close the round. Uh, if you don't want to do this, don't worry about it, forget about it. Um, but we know Ron Johnson uh, and we think he'd be a great person to help you think through your business. Uh at which point I frantically emailed Mark back and said, Are you crazy? Ron Johnson has you know, my retail hero as well. Uh I said, make it happen as soon as possible. Uh, unfortunately, Ron was so gracious to meet with me and decide to invest in the business.
1:29 Speaker 2 It seems like it's working out well. I I I want to know, Ron, you know, let's let's start at uh at a high level. And 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 and a retail presence? Um where are we today and and where do you think things are going?
1:57 Speaker 0 Well, I 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, right? You know, back in the 80s. Right.
2:20 Speaker 2 And
2:20 Speaker 0 there have been a lot of specialty stores, but brands preceded retail stores.
2:24 Speaker 2 Uh
2:24 Speaker 0 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 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.
2:56 Speaker 2 Um, Tristan, as you think about that part of your brand and how you're sort of creating those markers and and uh how how are you executing on that and how do you think about it?
3:06 Speaker 1 Yeah, so I I think for our brands, there are two things that are really important for us. Uh, number one, designing product that works, right? Uh products that uh actually prove on its efficacy promise.
3:19 Speaker 2 Right.
3:19 Speaker 1 Um, but two, for us, even more important is authenticity uh to what we're trying to build. Uh I think we try to have a really deep respect uh for our customers, the culture that they want to be a part of, the aesthetic uh that they want to see, the tone of voice uh in which we communicate with them. Uh, you know, customers are as smart as ever. Uh, and particularly, you know, in our case, we're focusing on the niche demographic. Uh, I think uh, you know, our customers are a bit more perceptive uh around uh how they've been underserved. Uh and as long as we stay true and authentic uh to their needs, uh it will be fine, and we've been proving that so far.
3:56 Speaker 0 Mm-hmm. Yeah, I believe I think Tristan's done a great job building the core elements of his brand. And it shows up in the quality of the product. You know, the moment I invested was right here after I met Tristan for coffee one morning, I just believed in him.
4:07 Speaker 2 Right.
4:08 Speaker 0 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 embodied in bevel in the products, the marketing, the website. And I become a real connoisseur, you know. I 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 in the morning when I'm in a hurry. Because part of I've made a commitment to this brand, there's a relationship now. But brands are very powerful when done right.
4:45 Speaker 2 So if retail is just sort of the the distribution um for a brand or the shelf space, however you want to describe it. How important is it? And and for brands, um, you know, Tristan, you can answer this, but for for brands that are building, you know, their footprint today, how should they start thinking about retail?
5:05 Speaker 1 Um so I mean the way that we think about it, we very much believe in omnichannel. Uh right now we sell online direct to consumer, but we have every intention to sell our product offline. Uh you know, one thing I learned uh from Ron and in his build out uh of the Apple store is you know, Apple is very thoughtful about the folks who didn't buy product. Uh well, you walk into the store, you can go and check email. Uh you can listen to music, you can get your Mac fixed uh among other things. And I think Apple did a fantastic job optimizing the experience for you know the 90% of people who walk through the store and don't buy anything.
5:41 Speaker 2 Right.
5:41 Speaker 1 Uh and when we think about um 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. Uh 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.
6:02 Speaker 0 Yeah, you know, it's interesting. When the Apple stores first open 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. Right. 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 at 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.
6:55 Speaker 0 The world is moving online.
6:57 Speaker 2 Right.
6:57 Speaker 0 It's moving online more rapidly than I think a lot of us imagine a lot more than I did. And so the challenge for a startup is given that physical retail is expensive, and knowing that it'll 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.
7:19 Speaker 2 So I want to poke at that then. What I mean, Tristan, you can answer this, but what is that mix? And and then how does
7:25 Speaker 1 it play a role? Well, specifically for our products, I think it's it's fairly unique because there are still a hell of a lot of uh 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 uh as a kid as a
7:41 Speaker 2 teenager. As an eight-year-old, he started sharing.
7:43 Speaker 1 Um not being able to shave because all of the products that I would leverage uh did damage to my face.
7:49 Speaker 2 Right.
7:49 Speaker 1 Um and you know, we're talking to customers and trying to convince them to leverage our tool when there's that inherent skepticism. Uh 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 uh different from some of the more traditional retailers out there, uh, where it's a very, very important part of our
8:20 Speaker 2 and so this is something I wanted 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 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 and you know, sort of facial well-being products, what you do, that it's always gonna be the case that people need to try it before they buy it?
8:49 Speaker 1 Well, uh I think it's it's even more than that. Let's kind of think about the traditional barbershop. Right. Yeah. You know, folks go there to get a haircut, but folks go there to experience the community and you know, uh communicate with each other and have fun with each other and experience the culture. Uh, you know, at least in our community, the black barbershop will never go away.
9:07 Speaker 0 Right.
9:08 Speaker 1 Right. Uh it's an important part in driving politics, culture, uh, among other things. Uh, and as long as we can be respectful and authentic to that experience, um, you know, we'll be able to develop an experience for folks that uh really resonates.
9:22 Speaker 2 Ron, how would you answer that question?
9:24 Speaker 0 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. Right.
9:47 Speaker 2 So
9:47 Speaker 0 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% market share, but no one could try a product. So we had to put stores in so that 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.
10:33 Speaker 0 Now, the stores didn't create the products in any way, shape, or form. Inherently, you 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. 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 on 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 and its distribution system. It enables their creativity of a chance to be heard by the marketplace.
11:18 Speaker 0 So I think all brands have to figure out 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. Aaron Powell
11:32 Speaker 2 So I 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 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.
11:58 Speaker 0 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.
12:14 Speaker 2 That was my second question. And
12:16 Speaker 0 Microsoft has, you know, a hundred 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 it hasn't been successful is just not true.
12:31 Speaker 2 Okay.
12:31 Speaker 0 It just maybe isn't quite as popular as the Apple store.
12:34 Speaker 2 Right.
12:34 Speaker 0 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 uh, you know, I think Microsoft's doing better than people think, or they wouldn't keep opening stores. And I I think it's really helped, for instance, the Surface Three. It's a really great product. We all know that. You're going to try 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.
13:16 Speaker 2 Describe the breakdown that in detail of moving from mind share to market share. Is there a sequence of events? And how do you think about this too, Tristan?
13:24 Speaker 1 Yeah, so the way that we think about it is that market share will get figured out uh if if mind share gets figured out. And kind of 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. 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 uh kind of customer lifetime value of sorts, right? We want die hard loyal customers who are inevitably incentivized to want to promote our product, right? Uh the 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. Uh and once they get it, uh, you know, they'll preach it to the mountaintops, uh, their inherent incitement.
14:10 Speaker 1 And as long as we get a core small group of very die-hard loyal customers, they're gonna talk about it. Uh and that market share will work itself out.
14:19 Speaker 2 The Apple store you mentioned, Ron, that it's the most productive or one of the most productive um retail stores out there. Um, there is this idea that physical retail in the in future will be sort of this loss leader. Do you believe that? And or uh how should people, again, in this mix of retail and online um think about the expense and the value of retail.
14:44 Speaker 0 Oh, I I think anybody who sets up a retail store as a loss leader is gonna 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 lost 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.
15:07 Speaker 2 Fair enough. Don't do that, Tristan. Um, Tristan, it sounds like your retail strategy, you've mentioned um barbers uh, you know, and you tell me like if you're thinking about someday, could because it's interesting that there's a handful of brands that have been born online. Um so I can think of Warby Parker and Bonobos and and some others. Um 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. Um how do you think about that? Aaron Powell
15:42 Speaker 1 Well, I think when you kind of reference some of the brands that you mentioned, they were masterful at the way that they sequence things, right? Uh so these folks didn't start online and then come out with 10 permanent retail shops, right? Right. Uh these folks started online, built the mind share, you know, sprinkled a few pop-up shops around the country, understood how efficient they could make that retail space work. Uh and then when that became successful, then slowly went into kind of establishing their own permanent presences. Uh I think we're gonna take the same similar approach. Fortunately, we have folks like Ron helping us think through some of that stuff. Um, but you know, uh at least for us, we've been online for you know seven months now. We want to take our product to consumers. Uh we can do it efficiently with things like you know, potential pop-up experiences, et cetera.
16:30 Speaker 1 And if that's successful, uh, you know, we'll acquire the learnings from that to even potentially develop our own uh or you know, pop-ups within a pop-up or
16:38 Speaker 0 permanent presence. Right.
16:40 Speaker 1 Uh not to mention opportunities and things like mass retail, et cetera. But we'll get there. Right. We're in no rush.
16:46 Speaker 0 Yeah, the internet has been this amazing thing to enable a proliferation of great brands. Um 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, bonabos 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 or 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.
17:36 Speaker 0 Like Tristan's gonna start with you know 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, you know, prior to uh, you know, a decade ago. Aaron Powell
18:00 Speaker 1 I think that's uh 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. Uh you know, she said, Tristan, brand is not what you say it is, it's what they say it is, right? Uh and what was fascinating about, I guess what what Ron just said, um, the 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. Right. Uh that's a very, very special thing. Aaron Powell
18:33 Speaker 2 And it sounds like and tell me what you think about this, but does building a brand on the internet um 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 you know, nobody has any loyalty to sort of at least retail outlets, they 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?
19:05 Speaker 0 Well, see, I I really believe the internet is gonna allow brands to uh 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.
19:31 Speaker 2 Right.
19:31 Speaker 0 If you look at Lawn online at the new brands we've talked about, they're always sold at full price. You know, they're maintaining their premium. And they're gonna 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.
19:51 Speaker 2 I
19:52 Speaker 0 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.
20:07 Speaker 2 Right.
20:07 Speaker 0 And we have a lot of people competing 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 will find a way to add service online. But in the early days, it's been heavily devalued and very transactional.
20:32 Speaker 2 Right.
20:32 Speaker 0 But Tristan, Everlane, Bonaball, all these people are in the forefront of building great brands online. And they're going to have those traditional brand values of a fair price, really high quality, great brand attributes. And hopefully those leaders will reduce the resist the temptation to get short-term value at the expense of their brands.
20:51 Speaker 1 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 delight of our customers. And what I mean by that is, you know, we'll do things like our customer success um, 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. Uh we'll scale it, but like when you think about it on first glance, it doesn't. Uh, you know, for customers that travel uh and can't take their blades uh because TSA will take them away. You know, we'll send blades to their destination, waiting for them, right? Uh you know, that's the stuff that will delight folks around the brand uh and things that the internet can actually afford us that uh kind of offline can't.
21:40 Speaker 2 Ron, uh I want to get a little bit to your experience at JC Penney, but and 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 of building a brand and a 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?
22:09 Speaker 0 Well, I think in many ways, and it's 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 two percent. Stock went up because they earn more money. Well, if they earn more money, it's because either the vendors gave them more margin, or they reduce 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.
22:55 Speaker 0 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 gonna 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.
23:24 Speaker 2 How hard is it to unwind those bad habits and move forward? I think it's really
23:31 Speaker 0 hard. You know, by human nature, most of us are 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. You know, 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 they're flourishing right now. And so age and experience are not a guarantee of success, right?
24:17 Speaker 0 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 and retail. You're seeing it in fast food. You're seeing it in online commerce, you know. So I think it's time for us who kind of have the silver hair, the more mature thing to really start to think younger about how we approach business about business models. Uh and I'd use the word think differently, but that'd be such a playoff apple. But there's there's obviously a lot of truth to that. Right. To thrive in today's world, you've got to really challenge all those old assumptions.
24:56 Speaker 2 I want to ask you guys both about a great um 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 that you know we should be paying attention to as a as a good example and or just a good experience to go out and try?
25:13 Speaker 1 Um my answer is no. Ooh, that's the problem, right? Um I I have not in a very long time had a very delightful offline retail shopping experience. Okay. Ron?
25:29 Speaker 0 Yeah, you know, here uh in the Bay Area, there's a coffee company called Phil's, which charges about a dollar more a cup than Pete's or Starbucks. But every time I go by their stores, the line's 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 uh special, and they're allowed to express themselves individually. And every time I go into a Phil's, you know, coffee shop, the employees are loving being there. The customers love to be there. They clearly don't even mind waiting in line out the door. Right. They sit around longer in the store.
26:14 Speaker 0 You know, 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 gotta look to find them. And increasingly they're not coming from the large companies improving their business, they're coming from the startups 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.
27:07 Speaker 1 Yeah, you really have to search for it.
27:09 Speaker 2 Well, on that note, I I feel like I want a cup of coffee from Phil's, and uh I definitely want to shave. So uh Tristan, thank you so much for joining and Ron, you as well. Thank you so much. All right, we're signing off. Okay.
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