EP015 - eBags Peter Cobb, Co-Founder

EP015 - eBags co-founder Peter Cobb, Google SERPs and Amazon

Peter Cobb, co-founder of eBags and e-commerce pioneer shares his insight and learnings from 17 years of growing a profitable pure-play e-commerce site

Our discussion includes, the founding of ebags, shop.org, the future of pure-plays e-commerce sites, brands going direct, private label and the evolution of mobile.

Google has made changes to it's SERPs which will effect many e-commerce sites.

Amazon opened it's 11 fulfillment center in the UK / Amazon increased FBA prices

Amazon raises shipping threshold for non-prime to $49

Amazon private label apparel is already live (Franklin & Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Ro and Society New York)

http://retailgeek.com/podcast

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Full Transcript:

Announcer:

Welcome to the Jason and Scot Show, your source for the latest news and trends in the ecommerce industry, featuring host Jason Retail Geek Goldberg, SVP of Commerce at Razorfish, and Scot Wingo, founder and Executive Chairman of Channel Advisor.

Here is Jason and Scot.

Jason Goldberg:

Welcome to the Jason and Scot Show! This is episode 15, being recorded on February 23rd, 2016. I'm your host, Jason Retail Geek Goldberg, and as always, I'm here with your cohost, Scot Wingo.

Scot Wingo:

Hey Jason, how are you doing?

Jason Goldberg:

I am doing terrific. I am out here in beautiful Palm Desert for the eTail West trade show.

Scot Wingo:

Awesome! I could not make it. We have a lot of folks at Channel Advisor out there. Give me some highlights.

Jason Goldberg:

Yeah. A bunch of interesting speakers. The CEO from Barnes and Noble, CEO from US Auto, there's a great presentation from Lane Bryant. One trend that we've talked about a little bit on this show that kind of rubbed me the wrong way is always the case in these shows. There's a lot of conversation about Amazon as the great enemy and how folks can compete with Amazon. There's guys up on stage suggesting that we all move off of AWS, because that's somehow going to make them less competitive with us.

Frankly, I felt like I heard from multiple CEOs at this show that tried to put Amazon in this pigeonhole of primarily being a dominant price competitor and their only competitive advantage is price. Therefore, their solution to competing with Amazon is to compete on customer experience or customer satisfaction or curation, or all these other things. As I'm hearing those things, I want to throw something at the stage because I feel like that's way oversimplifying how significant a competitor Amazon is. I feel like they're excellent at a lot of categories of business that the CEOs are taking for granted.

Scot Wingo:

Yeah. Yeah, I run into that a lot. A lot of people feel like, sure, Amazon does compete on price, but what about the shipping infrastructure? The other one I don't think people bring up enough is selection. Amazon has over 400 million items available. I would challenge any of those CEOs to kind of think about that, and how do you deal with that level of selection, because if you want it, pretty much Amazon's going to have it.

Jason Goldberg:

Yep. Frankly, I don't think they do exclusively compete on price. I think they're very strategic about price, and they compete on price when it's in their economic interest to do so. They recapture margin when the opportunity presents itself, and I think we have a couple news items this week that sort of highlight that.

Scot Wingo:

Yeah, absolutely. What else is new at eTail?

Jason Goldberg:

One thing I did want to mention, not necessarily eTail news, getting a bunch of buzz this week is that Google has made some pretty fundamental changes to the search results. This will probably not come as a surprise to any of our listeners, but Google is still a very significant source of traffic to most ecommerce sites. Most ecommerce sites are getting in the ... Mid-20% of all their revenue is coming from organic search results in Google.

This week, they announced that they would stop showing ads on the right hand side of the search results. Superficially, you'd read that and go, "Oh, they're decluttering the page, they already didn't have ads on their mobile page. That's not necessarily a bad thing." By the way, we're also going to add a fourth ad on top of the search results for highly commercial terms. Traditionally, they would put up to three ads on top, and then they'd put a few ads beside. Now what they're saying is, they'll have three or four ads on top, they'll have no traditional pay-per-click ads on the side, but they will still have the Google product listing ads, which we've talked about on the show are kind of the fundamental ads unit of ecommerce.

You add all that up, and essentially what they're saying is, "We're adding more ads and we're making them more prominent on the page," and on many popular browser resolutions, four ads on top means you actually won't see an organic result above the fold. This is potentially alarming news for some folks that rely on organic traffic. I'm not sure it's an earth-changing thing in and of itself, but it's definitely something to be aware of.

The one-two punch is that Google also gave us a hint last week that they really don't like cluttering up the search results with too many what we call "rich snippets." Rich snippets are another super important feature to ecommerce sites. That's the visual stars that you might see on a product result that shows you what your rating is or pricing information or inventory information. Some of these extra pieces of information that you can embed in your product detail pages and then Google shows in the search results, when those extra bits of information show up, the click-through rate on that search result is much higher, so ecommerce sites are really careful to take advantage of all those rich snip features. Google has always decided how frequently to show it. It seems like they're turning down the amount of rich snippets they show quite a bit.

Most alarmingly, the review, the number of stars, has disappeared off a very significant number of organic search results in Google. Some people are frankly speculating that it's a mistake or a bug, and that Google didn't intend to be so drastic, because it is so prominent, but at the moment, the organic search results are getting pushed further down the page and the rich snippets are coming off of the page, which means that a lot of ecommerce sites are going to see a meaningful decrease in their organic search traffic.

Scot Wingo:

Just so listeners understand, how much do you think this really kind of is going to impact? Because we've kind of crossed over the 50% mobile. Mobile didn't already have, doesn't do four ads to the right. Is it more just the snippets will be on mobile?

Jason Goldberg:

Yep. The snippets absolutely fit both. The rating snippets are huge. Traditionally, you'd see, like, 70% of all the click-through are going to be on that first organic result, and then it exponentially goes down after each additional result. If the second result has rich snippets and the first result doesn't, the second result can actually get more click-through than the first. That's a significant driver of click-through, and if they're going to permanently turn off those stars, that's going to be a game changer, especially for sites that really rely on organic traffic. The site you immediately think of that this would have a prominent derogatory effect on is someone like an eBay.

Scot Wingo:

Yeah. Yeah, they've been in this kind of battle with eBay for a while, so it would not surprise me.

I know you always love to hear Amazon news, so I have a couple things there to share. If you're Retail Geek, I'm the Amazon Fulfillment Center Geek, and they slipped in a little announcement this week that they're building a smallish, only a million square foot fulfillment center in the UK. It's in Colville and Leicestershire. Along this lines where they're talking about job creations around fulfillment centers, they announced they're going to have 500 jobs over three years there. A fun fact, this is the 11th fulfillment center in the UK, which is about the same number of fulfillment centers that Walmart has in the US. They're very dense in the UK with fulfillment centers.

What's interesting is most of the things they've done in the UK recently have been kind of for deploying into London. Some of its Prime Now type stuff, or same-day delivery. This is a big new footprint for the UK.

Also in fulfillment center news, and this didn't get a lot of press, so I don't know how well this is known out there. The only area I am aware of where Amazon raises prices, everything else Amazon does lowers prices, especially if you do Amazon web services and that kind of thing, is Fulfillment by Amazon. Even in the marketplace, they haven't really changed the prices since the beginning of time, I think. With FBA, what they constantly do is kind of tweak the economics. There's a couple pieces in there. One of them is the per-package fee that they charge for FBA. It's going to have an increase from, I think it's $0.30 to $1.07, and on average, it looks like, from a model I've seen, it'll be about $0.45 an item increase.

That's one of the fees. The other one is called a storage fee. If you have inventory at FBA, it doesn't sell after x days, I think it's 30, then you get kind of the stump where they take the dimension of the volume of what they're storing for you and have a fee. That's going up. It's pennies, it's like $0.02 to $0.04, but that's kind of times the volume that you have. That's another one where they're constantly working the economic model to incent sellers to have the right behavior of focusing on faster-moving items that are in FBA. That's interesting.

As a result of that and some comments that have kind of come out in management meetings, what I've seen a couple Wall Street analysts do is raise their fulfillment center buildout this year from kind of middle single digits like seven to kind of mid-double digits like 15. It's going to be interesting to see how that comes out. We already have ... This UK one, I believe, is the first one that's been announced this year, so it'll be interesting to see what that looks like.

Another thing I'm sure you probably saw is, for those people that aren't on Prime, you can still get the free shipping. It's not two-day shipping, but the free Super Saver five-day shipping. They raised that from $39 to $99, now. Then, the last-

Jason Goldberg:

You mean $49?

Scot Wingo:

Yeah, sorry. $49.

The last piece was, we had talked about this last week, actually. This is kind of how fast Amazon moves, where there was news that Amazon may be considering doing private label in fashion. It turns out they are actually out with it. They have some fashion private label brands out there, and they're kind of a mouthful. Let me see if I can do this without stumbling through it. Franklin and Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Row, and Society New York. What is that? One, two, three, four, five, six, seven. Seven different private label brands. Some of these are men's apparel, some women's apparel. Very interesting that there was rumors they were going to do this, and now it's actually out there. You can search, we'll put it in the tidbits on the website. You can actually go search these brands and see what's available there, which I thought was pretty interesting.

Jason Goldberg:

Yeah. I think that was a pretty big revelation to a lot of folks that were following the rumors that they might do it, and then, you know, bam, surprise, there's already a ton of skews on the site a lot. I look across all that Amazon news, and my two big takeaways are number one, raising the shipping threshold is interesting. Amazon shipping costs are a very meaningful portion of their business, they're like 12% of their revenue, and so it certainly looks like they're trying to make a profitability move by recovering a little more shipping fees. The big thing is, this just seems like another very overt effort to push more people to Prime, and I suspect it's going to be effective in doing that.

Raising the rates on the FBA is interesting. To me, that's inevitable, that as Amazon grows its business and has more strain on those fulfillment centers, that shelf space becomes more valuable. They just need to charge more to maximize it. I think if you're a seller, you probably shouldn't expect this to be the last increase that you see there.

Scot Wingo:

Yet when I talk to customers, it's still very, very competitive to any other 3PL. Even when you kind of look at a multi-year model, you have to kind of look at it over two or three years because of the accounting. It ends up being relatively cheap compared to having your own fulfillment center.

Jason Goldberg:

Yep, and you get the huge kiss of being Amazon Prime-eligible.

Scot Wingo:

Yeah, and as they do Prime now and whatever else they're going to do around all these things, you ride along with all that investment, which is ... I don't know how you quantify that, but it's a pretty good value.

Jason Goldberg:

Yeah. I think the one exception I've heard there is if you're in a category that's predominantly oversized or unusual-sized items, that the economics get a little more challenging on FBA because they've really optimized the pricing model for their typical package size.

Scot Wingo:

Yeah, that drayage fee, because it's volumetric, really hits you hard with oversized items. Yeah, absolutely.

Jason Goldberg:

Did Etsy have their earnings call this week?

Scot Wingo:

They did. It was actually today. A couple highlights out of the call ... Etsy went public and had a great public offering, and then has really struggled since then. A lot of it was mobile. They had a huge challenge when mobile kind of accelerated right around their IPO. It was kind of like Facebook had the same problem, but Facebook recovered pretty quickly. It looks like Etsy is seeing the light in the tunnel. They had pretty strong results. They exceeded expectations. Then they actually came out and said, "For the next three years, we're going to have 20-25% growth," so kind of pounding their chest, feeling pretty good about the future. I think a lot of it is around ... I think they feel like they've solved some of their mobile challenges.

A couple of other interesting metrics: 1.6 million sellers. I think that's interesting, because Amazon reports 2 million sellers. Etsy definitely has more seller density than in Amazon, but because it's handmade, you would need that, right, because you can only handmake so many things. I thought that was interesting. 24 million active buyers. The Amazon question did come up on the call, and the CEO said that, "We" ... By this, I mean Amazon has launched a competing category and seems to have Etsy in their crosshairs. The CEO at Etsy said, "We have no reason to believe that any of the competitors are having an impact on us." For the 4th quarter, Etsy had $750 million in GMV, which, when you look at the run rate, that was a Q4, so it's not pretty fair to really do this, it's not going to be their run rate forever, but it's interesting to think that they're at about a $3 billion run rate.

I remember in the early days of Etsy, everyone in ecommerce was kind of like, "God, what a niche. This handmade stuff, maybe that gets to be $50 million." It really kind of shows ... I think what's interesting about Etsy is, some of these things that seem like niches and they're going to be really small, when you look at them on a global basis, they can be pretty big. $3 billion in homemade items, that blows me away, and they're anticipating it growing 20-25% for the next three years. They see a path to $4 billion or $5 billion, which I think's pretty fascinating.

Jason Goldberg:

It's almost like pure play is not really in fact dead.

Scot Wingo:

Yeah, yeah, yeah. That's a good little kind of teaser for what's coming next.

Jason Goldberg:

Well, let's get to the really exciting news. We have a guest today.

Scot Wingo:

That is true. It's episode 15, we're really settled in here at the Jason and Scot Show, so we thought we'd do something you and I had talked about way before episode 1, which was have a special guest. I think it's going to be a new tradition here on the Jason and Scot Show if it goes well, and I'm sure it will. I'm thinking every third show or so, we'll have a special guest to kind of help mix it up.

Today, we're really excited to have as our first guest ... I don't want to put it out there yet, I'm going to build some suspense. This is someone I've known probably for at least 12 if not 14 years. He's one of the founding fathers of ecommerce. If there was a Thomas Jefferson or maybe Alexander Hamilton of ecommerce, that's who we have on the show today. It's kind of a privilege to have someone that has been in the industry for so long but is still right on the cutting edge. He started a company back in '98 that is one of the successful pure plays that's out there.

If you haven't guessed yet, it is Peter Cobb from eBags. Welcome, Peter.

Peter Cobb:

Hey Scot, hey Jason. Thanks for inviting me. You guys are doing a great job.

Scot Wingo:

Thanks. We're super excited to have you here. I tried to keep your intro kind of brief. To start out with, maybe tell us a little bit about how you got into ecommerce. You're at eBags still and you've had an interesting journey there, so maybe a little highlight of that. Let's just start with that, just to orient everyone that hasn't known you for 15 years, on how you got into the industry and what you do on a daily basis.

Peter Cobb:

Yeah. Back in 1998, well, prior to that, there were a couple of us that worked at Samsonite. I led the marketing for Samsonite, and a couple of us execs at Samsonite saw what was going on with people buying books online, music, gardening equipment, toys, etc. We just said somebody is going to own and pioneer the category that we knew so much and love, and that's luggage and handbags and backpacks, business cases, etc. We peeled off from Samsonite in 1998.

Actually, kind of took the idea of my cofounder, John Nordmark. John took the idea to the president of Samsonite and said, "Hey, why don't we buy some domains, discountluggage.com, and so forth?" Back then, you could just make up a domain and you could buy it. We owned about 25, actually. The president of Samsonite said, "I get email, I can't imagine anybody buying luggage from an email. Go back to your cubicle." John called me up and said, "Let's do this. I think it's ripe," and both of us were into the internet and watching what was going on. That was in 1998.

We pulled it together. It was our own money for the first six months or so, and then we actually went the traditional route with angels and to friends and family, and raised some money from Silicon Valley and raised $30 million in 1999. That's the last time that we've raised money. We haven't had any down rounds since then. It's been cashflow positive, really, since 2002.

Scot Wingo:

Cool. That's around the time when Amazon did their IPO. They were in '97, if I recall. Was that kind of an impetus for you? Was that kind of the wake-up where you said, "Hey, we need to do something. There's this bookstore going public. This is kind of going to be a thing."

Peter Cobb:

Well, you know, I was just explaining to somebody at eBags today about the early days. There was cooking.com, garden.com, mothernature.com, and Amazon was there. Amazon's really the only one that's alive today. eToys. Really just kind of across the board, we just looked at it. Back then, Amazon was just books. We felt like in our space, right out of the gate ... Our model is somewhat unique from a lot of these guys in that we don't want to own product. Our model is drop ship. We knew at Samsonite, who's the global luggage leader, at Samsonite, 75% of our orders out the door were three pieces or less. Somebody owns a piece of luggage at Aspen Luggage, they sell a garment bag. We were selling them one piece at a time from Samsonite.

We convinced Samsonite and many other brands to ship directly to our customers. Took a little bit of time and some arm-twisting, but here we are today with 70,000 different bags and accessory items from 700 brands. Obviously, from a cashflow model, and that's primary to why we're alive today, is somebody buys on eBags.com, we get the cash immediately from the credit card, and pay our brands. It could be 45 days, 60 days, 90 days, whatever's negotiated. You get positive flow versus having a warehouse, and you imagine a warehouse with 70,000 individual units, but then you need to go 105, 100,000 deep on each. It would be $100 million of inventory we'd have to keep, and we wouldn't be alive today. That was really one of the key decisions early on. We were one of the first to drop ship, and actually, it isn't that common. You have marketplaces today which accomplish the same thing.

Scot Wingo:

You guys start a company, you raise money, it's all exciting, you're driving into the future, and then the dotcom bubble burst. What was that like? I lived through it, and it was quite painful. I can only imagine what it was like for you guys. What I recall is people are going out of business left and right. Pets.com and all these other things were just flaming out. You guys not only survived but thrived. What was that like, getting through that nuclear winter?

Peter Cobb:

It was brutal. It was really tough, because one side of you is saying we're homesteading, we need to claim our territory. Back then, portals were so big, and somebody like AOL could commit $1 million for something the size of a postage stamp, but you would own luggage or handbags on AOL and you just had to occupy that space because so many people came through some of those old portals. You did burn through cash.

Not only was it dotbomb, but for us, what really hurt, I think even more than dotbomb or as much, was the 9/11 tragedy. Just didn't have a lot of people traveling after that. We all were cocooning. Of course, they shut down airlines, and people just said, "You know what? I'm just going to stay home for a while." That really hurt our sales. From a positive standpoint, it really highlighted the fact that we need to diversify. We cannot survive by just being a luggage or even travel goods company. That got us into backpacks for school, women's handbags, fashion accessories, and watches is a big category for us now ... Branch out in business cases and business accessories.

In a way, it kind of poked us a little bit to say, "Okay, you're thinking too narrowly here." It's been an amazing 17 years, and in fact, just last week, we announced we passed 25 million bags sold, which is really a nice accomplishment. We're really proud of that, because if that was a chain of stores, it'd be hundreds of stores nationwide that do that kind of business.

Scot Wingo:

For our listeners, can you give us a little idea of the scale of eBags? I don't want you to divulge any confidential information, but maybe your IR rank or whatever you're comfortable letting us know. How big is the scale of eBags at this point?

Peter Cobb:

Yeah. We're 110 people, and as I said, 25 million bags. I mean, something that I'm just as proud of is that we have 3.2 million customer reviews, so it's a big part of the DNA of eBags.com, of leaving that virtual Post-It note. From the IR, we're in that kind of 100-150 range, kind of depending on the year, but we are a pure play, which is a critical part of this. We don't have stores to get that PR and help offset some of the expenses. We don't get traffic in the door, we don't eat. It's a constant survival for us.

We just had a meeting today with our executive team, and the primary message was, "We need to stay hungry, we need to be paranoid." This thing can change. You mentioned it, Scot, early. There are things that can happen that are out of our control that can pop up. Cash for us, cash is king. We have no debt. We don't plan on raising any more money. We've got to really live within our means. There's a lot of people out there doing some crazy things from a marketing standpoint, or willing to lose tens, if not hundreds, of millions of dollars. That's an area where we're just ... I actually love it, and we bring people on that accept that challenge and relish it. It's pretty competitive right now.

Like you mentioned, I could have said that in any of the past 18 years.

Jason Goldberg:

Peter, I wanted to ask you a question. You mentioned that you're a pure play, and you've been a pure play for more than 15 years. It's interesting, because a lot of the talk today is pretty negative on pure plays. I mean, you've got Scott Gallaway at L2, and he's got a whole campaign around "Rest in Peace, Pure Play," and you've got a bunch of these buzzy new companies like Warby Parker or Bonobos or Nasty Gal or, even I think Blue Nile now is opening some stores. It's a big trend that these pure plays are now shifting to stores. Then, of course, you have a couple of huge pure plays that flamed out. You have the fab.com and Gilt just sold for a disappointing valuation.

I think there's this buzz that, "Hey, pure play isn't a long term sustainable model, or maybe it used to be, and its time has come." It always drives me nuts when I hear that, because I feel like you're the best example, but there's a bunch of people in your class that are long time pure plays that have been able to grow based on their own revenues. I'm just curious, what's your take on the whole viability of the pure play model?

Peter Cobb:

Well, obviously with what we do, it depends ... Honestly, it depends on the category, it depends on products, it depends on factors such as ... We're fortunate in that for the most part, people don't need to try it on. It's a piece of luggage, it's a kid's backpack, it's a soccer bag, on and on and on. Our return rate is very low. Really, I think it lays out well for us to be a pure play in that we really feel like we want to be ... I mean, to have 70,000 bags and accessories on our site, and we'll probably pass 100,000 products in the next 120 days, and venture out into even doubling that in the next year or two. We really feel like we want to be a house of brands, as well as something ... For us, it's travel and fashion. If you want a bag or something related to travel and the travel experience, go to eBags.

No store can have the assortment and selection that we have. Picking a brand, one of our better brands is Tumi. It's a premium luggage and business case line. We'll carry 500-plus pieces of Tumi, and a typical store, because a physical space in luggage or business cases, they may carry ten pieces of Tumi, maybe 15, if they're lucky, and we have over 500. That's where we love where we are in the space. It lines up quite well, I think, for long-term viability. There's really no store out there ... I mean, obviously you've got the bookseller in Seattle that does a great job. They've got a broad and vast assortment, but for what we do in our category, there's a lot of brands, actually, that don't want to go down that path, let's just say the marketplace path. We demonstrate to them that we're a specialty store interested in travel and fashion, and that really resonates, especially with brick and mortar having some challenging times right now.

The last thing I'll say is, within our space, retail is still around 10% online, so 90% brick and mortar, and yet, you have stores closing every month in our category. I think it's only going to accelerate. We really love where we're positioned, and I think a lot of categories can say the same thing. To your point, Jason, on a brick and mortar, it just isn't ... You have to really focus on something, and focus on something that you're excellent at. I don't think brick and mortar is an area for us today that we should be venturing into. I think there's so many other opportunities out there within the ecosystem of what we're already working on.

Scot Wingo:

Cool. One follow-up on the pure play thing. Amazon's invested hundreds of millions of dollars, if not billions of dollars, in their fulfillment center, and you guys don't have a fulfillment center. Does it ever feel like doing the drop ship thing, that you don't have control over that customer experience, and that's a negative?

Peter Cobb:

You know, I think it gets down to are you getting products to people in a timely manner. With our, we have 700 brands, as I mentioned, the average product leaves that door in 0.7 days. Within a day, our goods are out the door. We actually spent some time ... One of our board members did a tour of Zappos, and came back ... At the time, it was 17 football fields, 800 employees, and came back and said, "It's unbelievable what they have. We should move to that model." I remember in the board meeting saying, "What would we gain? It already goes out the door in six hours. Okay, so, we would gain maybe two hours, if we're really, really good."

For us, that part of it ... I think that's the primary part of this. The other part of it is, a lot of our products, they actually are shipped from Asia in the boxes that gets delivered to the customer. In a lot of cases, just thinking in a piece of luggage, we just put a label on it, our brands do, and then ship it to the customer. It's in a box that may say Tumi, Samsonite, or Delsey. That experience is ... It probably could be better to your point, Scot, but I think we just have to make some choices and go that route.

Now, that being said, I will say our number one brand on our site is actually our own private label brand at eBags. It's 24% of units and 20% of revenue. It's unbelievable. I mean, we're product guys when we started eBags. That's what we did at Samsonite, and we just love product and we just have really told the team, "Make product that you would want to carry." Actually, right as we started the business, we got into it, so it's not like it's the last couple years. In a lot of ways, it's really built out this competitive mode. That's a big reason why we're as profitable as we are and that we have some kind of staying power within the space.

Scot Wingo:

That's good to hear, because Jason and I both get asked by a lot of what I would call multi-brand retailers, in other words, like a Macy's or something that doesn't really have their own brands, what one of the best strategies they can do. I always go back to private label. Earlier in the show, in the news segment, we talked about some of the stuff Amazon's doing there. It's interesting to hear that that's such a large part of what you guys are doing.

Unsponsored ad here. I love the cubes, the packing cubes you guys do. My wife loves to organize, and she's a huge fan of the eBags packing system there.

One other thing I just wanted to kind of introduce. You introduced me to shop.org. I had been going to the summit, and really enjoying the summit. When I was earlier in ecommerce, though, I didn't really kind of understand that there's an organization behind the summit that we all go to in the fall. You introduced me to that, and you were one of the early folks there. All three of us are on the board there. We'd love to hear how you got involved with shop.org, and how you describe it to folks.

Peter Cobb:

Yeah. It's ... You know, this industry that we're in, online retail and digital retail and so forth, it is made up of some amazing people, of some amazingly bright people. It's also, we're undergoing so many challenges, and it's changing so fast. You were talking about chat commerce and even now with what's going on with Facebook Messenger and Snapchat and so forth. Sometimes you need a network of people that you can reach out to to compare notes and share stories and really pick their brain. We're really good at drop shipping, so I'll field some calls from people interested in getting into drop shipping. Other people maybe have more expertise in social media marketing or some other areas.

The thing about shop.org, it's really a trade association made up of a community of people within the digital retail space that gets together several times a year, but also shop.org provides thought leadership pieces, whether it's a think tank, white papers, research, several conferences ... Also works on behalf of retail as part of National Retail Federation, NRF, as a team in Washington DC, working on issues important to all of retail, not only digital, with things like trying to promote legislation to limit patent trolls and things like that.

The big part of it is providing a space where you can learn from others but also network, and, as always happens, you end up developing pretty strong friendships as well, which makes it even more enjoyable.

Jason Goldberg:

I'm the new guy amongst the three of us, I think, at shop.org, but I would just absolutely echo that one of my favorite parts is the camaraderie and the opportunity to network and share in an adult beverage with folks that face a lot of the same challenges and opportunities every day that we do. Inevitably, when you get together with other ecommerce folks and you start having conversations, the topics pretty quickly turn to the things that are keeping you up at night or the new trends that you're most excited about in terms of upcoming opportunities. I wanted to ask what was kind of front and foremost in your mind right now, in terms of new trends or new challenges in the ecommerce space?

Peter Cobb:

Well, I think a challenge that all of us are facing, and I know we're all getting our arms around it, but it is a challenge, and that's the move towards mobile and smartphones. It's not a surprise. We all use them in our personal life. I think retail, frankly, was caught flatfooted. You have OpenTable and Uber and so many other apps that were built for the smartphone, and I think with retail ... I mean, two years ago, our traffic would have been single digits coming in on smartphones. You knew it was coming, the wave was coming, but there's just so many other things popping that you need to put your resources towards. We're really actually really happy with our mobile experience, but it's kind of one of those ... You just need to continue to invest and spend the resources, and when you think you've got it figured out, something else comes along.

Right now, a great example is, the big obstacle in mobile is payments. Credit card and so forth. Obviously, Paypal is a great provider helping with mobile. It's a big part of our mobile efforts, but there's other wallets popping up, Chase Pay and Masterpass and Visa, etc. I know you guys have talked about that in the past. That's a big challenge, of, okay, who do you partner with, where do you play on a mobile device, how does that all work when you only have so much space and so much real estate?

I think with mobile is, I know in the past, you guys have talked about average conversion rates, and if you just said a PC is 3% or 4%, and tablets 2.5-3%, and mobile is 1%, if not 1.5% ... You know, as your traffic continues to grow towards mobile, and it could be up 50%, 60% year over year, well, that means your weighted average conversion rates are under some pressure. A lot of times, you think about 100 people come into your site and only one or two purchasing. Well, with whether that's Google or Facebook or whatever affiliate partner you have, that's pretty expensive traffic, if you're only getting a 2% conversion. That's a huge challenge that I think a lot of people are facing.

The other part of that that people don't talk about is that usually, you know, on a PC, we'll get 1.5 units per order, and on mobile, it's really kind of one and done. It's about 1.1. You have your average basket size lower, so conversion rate's lower, basket size lower. You really need to just kind of think through how to optimize mobile. I think we're all slowly figuring it out. Our mobile sales ... Actually, our traffic last month up 40%, but our mobile sales are up 70%, so we're going in the right direction, really feel good about it. We always are thinking if we're redesigning parts of the site, it's mobile first, because then PC will all fall behind.

Then, I think another trend that I think is interesting is, you've got brick and mortar as well as brands developing websites, and those are obviously competitors, but I'm going to focus just on the brands. I think an interesting trend is that the brands are realizing, hey, building and maintaining and keeping a website up to speed is not for the faint of heart. It's super-expensive. You need expensive personnel. The whole resource requirements of a brand. I mean, it's one thing for a retailer, they're kind of familiar with the direct marketing model, but for brands that went into it maybe two, three, five, eight years ago, and now are realizing what I was just talking about with mobile and all the resources required, it's really a challenge. Then, they're under pressure for their own brick and mortar stores that many brands bid off. Now they're looking at us and, "Gosh, I got my website, should I update that? Should I send people into my stores? Should I have returns into stores?" I think a lot of retailers as well as brands are really being challenged right now. Those are some key challenges and opportunities I think we all face.

Jason Goldberg:

Yeah. Peter, the brands going direct is really interesting, because frankly, a lot of my clients are those brands that either already went direct, or maybe they're in a category of retail that's kind of a digital laggard, and they're just now talking or thinking about going direct.

It's funny, because my opening line is usually, "Hey, you're always going to be the worst place to buy your product. You're not going to have any of the third party accessories or add-on sales that consumers want. You're going to be the only retailer on the planet that perfectly complies with [MAP 00:43:33]. In general, there's a small subset of users that want to buy direct from you, and it certainly makes sense to capitalize on those users, but that you're not going to materially hurt your wholesale partners' business." I'm just curious, from your perspective, is that how you feel? When Tumi goes live and starts selling bags from their own site, which I think they did a couple years ago, did you look at that as, "Oh, a cute effort from Tumi," and maybe it taught Tumi to be a little more sensitive to some of the content issues that make them a better partner for you, or did you feel like that was a material threat to your business?

Peter Cobb:

Well, we actually ran Tumi's website for them globally, US, UK, Germany, and Japan, between 2002 and 2010. We had a great eight-year run with Tumi, and then they said, you know, as it was growing, they said, "You know what? It's time for us to take it on our own." I think even ... it's been a challenge. It really has been a challenge, like a lot of brands. They have to decide, does the website exhibit the brand essence, or are we in this to have ecommerce and generate revenue? There's that continuum they have to decide, and I think for a long time, Tumi kind of came out of the chute and said, "We need to promote the brand Tumi. This is part of going public," and so forth, but then realized, "Gosh, our sales are not nearly as strong as we thought they could be." Plus, building out a global ecommerce effort, multiple countries, and then you've got changing marketing messages in 15 or ten or 20 different sites, languages, marketing messages, all the same night, it's pretty challenging to do that for somebody like a brand like Tumi.

To your original question, we just think of that as, "Hey. Tumi's going to get into it," or Samsonite, or so forth. Sure enough, I know they're great partners of ours, and we actually talked to them about some of the challenges. I know they're scratching their heads just like some others say. By the way, this was something, especially when you're talking about global websites, it's something that's pretty challenging for them. I think in a lot of cases, they end up, somebody at the top ends up saying, "You know what? We need to go back to making great product and not pretend we're a technology company." Then they call you, Jason.

Jason Goldberg:

We're more than happy to pretend to be a technology company on their behalf!

Peter Cobb:

Exactly.

Scot Wingo:

Cool. We're up against time, but I have two kind of lightning round questions to ask you. One of the things that's fun about ecommerce is there's always some weird thing that you would have never guessed. For example, when we look at our data, we always see these weird correlations between people buying things that you would never think those would go together. Any insights like that, like from your time at eBags, of strange insights that you've found of consumer behavior?

Peter Cobb:

You know, I think ... There's something happening now which is, I think, pretty interesting, in that the power brands are not doing as well as one might think. What I mean by that is, think about anchor store brands, brands you would find in a Macy's, Nordstrom, Bloomingdale's, etc., are really, I think, undergoing some pressure. You've seen it in the designer handbag category with Michael Kors and Coach posting some numbers which were pretty challenging over the last three to five years. What happens, then, is you've got ... The thing that I love about it is, you've got kind of these small brands that, given the light of day, actually do really well. On our site, it could be Osprey backpacks, Fall Raven backpacks. Very cool products that now then we can show to the world of, "Hey, you probably wouldn't know where to find this in Chicago or LA or San Francisco, but you can click a button and have this sent directly to you."

Scot Wingo:

Cool. We call it, on the Jason and Scot Show, we call it "the hoverboard effect," kind of the disimportanting of brands. One last one, and I know this is hard to answer quickly. You don't survive 17 years in business without really investing a lot in the culture of your business. I've been to eBags and seen ... You invest personally a lot of your time as a founder into the culture of the company. If there's listeners out there, and maybe they're an entrepreneur or an intrapreneur, any quick tips on how you keep that culture and calcify it and all that kind of thing?

Peter Cobb:

Well, I think it starts with once you lock into a solid business model, then you hire great people, don't skimp on people. It's all about getting people that have a history of success, and then letting them run with, of course, guidelines. I think on our end, we were super transparent, we reveal all P and L, we reveal cash on a monthly basis and say, "Look, we're all in this together." Every employee gets stock ownership in the company, so we're all owners, and we think in terms of, "Treat the customer as you would want to be treated." You know, we just have things, too, I mean, a lot of people do, with dogs in the office and things like that, but just really making it a great place to work and making it fun. We're there for ten, 12 hours a day in a lot of cases, and just having it be ... Have it be a place that is fun. Not so serious, but people that are willing to work hard and have fantastic teamwork. You just have to make it fun for people, otherwise there's a lot of other options out there in the world.

Jason Goldberg:

Very cool, Peter. I know you're based in Denver, Colorado. Is it safe to say you're always on the lookout for great ecommerce talent?

Peter Cobb:

Absolutely. It's really challenging, I think, finding over-the-top talent. I think it's one of the biggest challenges. It is not necessarily somebody that gets straight A's in school. It's why I even talked about a history of success, of doing things that maybe are not right down the fairway all the time. It's okay to be a little bit quirky, because we're doing things that people have never done before in this space. You need people willing to take risks. You can't slap the wrists if they fail. They fail a second, third, fourth time, yeah, absolutely you need to sit people down, but you want people that are willing to get out there and make a calculated risk.

Jason Goldberg:

That makes perfect sense, Peter. Listen, that is all the time we have for today, but I want to remind everyone that our guest today has been Peter Cobb, who is one of the co-founders of eBags. You can follow him on Twitter. I think your Twitter handle is @PeterCobb, C-O-B-B.

With that, I will say until next week, happy shopping and thanks very much to all our listeners.

Scot Wingo:

Thanks Peter. Thanks, everyone.

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