EP176 - Tuft & Needle Co-Founder JT Marino
Tuft & Needle (@tuftandneedle) is the original digitally native direct to consumer mattress brand (founded in 2012). In 2018 they merged with Serta Simmons Bedding company. JT Marino is a co-founder of Tuft & Needle, now Chief Strategy Officer for Serta.
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Episode 176 of the Jason & Scot show was recorded on Monday, June 3rd, 2019.
Join your hosts Jason “Retailgeek” Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and 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.
Jason: [0:24] Welcome to the Jason and Scott show this is episode 176 being recorded on Monday June 3rd 2019 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot: [0:38] Hey Jason welcome back Jason Scott show listeners one of our favorite topics here on the Jason Scott show is direct to Consumer brands or digitally native vertical Brands to choose your poison the day we are really excited to have one of the Oggi’s JT Marino she strategy officer at Serta Simmons bedding welcome to the show.
Jason: [1:05] We are excited that you’re able to join us tonight JT one of these we always like to start off as give our listener and a little bit of a bio background on yourself can you talk to us about how you came to starts a tuft and needle.
Jt: [1:20] Sure so background let’s see so I study Computer Science and Mathematics at Penn State and that’s also where I met my co-founder on it something you don’t Daisy Park we’re best friends bear and help several startups build their engineering and design teams product teams and one of those startups that he actually ended up joining.
[1:46] And we decided that we wanted to Branch off and the time was right you wanted to start something of Our Own, but we wanted to do something very different we wanted to start with so trying to trying to come up with an idea this would that I would like this company for this week we really wanted to start with a problem that we knew. I needed to be solved the big problem and what better way than the start with something that you experienced yourselves. And so the idea we went to the prom We settled on was shopping for a mattress. So I add you don’t have to call a judge had gone shopping for a mattress which was supposed to say worse than shopping for a used car. A lot of money like it try to return it couldn’t return it and so literally every night was reminded of this big mistake had made and so that was one of the items that are one of the ideas for your problems to solve. And in a way it was eccentric on the list because it wasn’t software-related which was primarily or background.
[2:54] So we decided to do you know instead of coming up with the idea of finding some co-founders building a pitched backcountry. The BBC’s Kearns money building your team W product a year or year-and-a-half later launching it to find out if it works or not he wanted to rapidly test it and see if we can find product. Ideally within a week. So we knew if it would have legs or not or whether we should move on something else so we did was we built a single single page website.
[3:28] And I and I actually should say the way that we approached the value proposition in formulating part of the business model was started with what we called hate must be took a legal pad we’re at the tables at the top we wrote down everything we hated about shopping for a mattress and everything we hitting about mattresses example walking into a mattress store and having all of these different options to choose from. Another commission sales people who are like really pushy and he’s all their sales tactics also not about a lot of fun, I’m having a scheduled delivery take a day off work to receive it and so on return processing just there’s so many tears so many things in the flood literally for the page we do a line down the center and just what we would do instead set up all these options one one mattress set up a commission sales person no commission sales person having go in the store will start online instead of having scheduled delivery to ship it via FedEx it possible to things like that we reduce the the feature list to the minimum we fought with it would take to convince me to buy from a company didn’t they never heard of and then just converted that to sales material on a website took a photo stock image of a mattress. Put that up there in a credit card for the bottom.
[4:43] And the credit are formed it wasn’t fully wire. But it would send a signal somebody attempted to buy lunch the site took out a Google ad in 15 minutes later there was somebody just jamming on the on the process button. We knew that we if we could get within 15 minutes of somebody already trying to buy. Then there was something something here so that’s what we should decide down that was Junior 2012 over the summer no BB figured out how do you make a mattress to make slime with a supply chain wires in a and then in October we launched tuft and needle the first product. I’m online but it was October 2012 without Venture Capital it was fully bootstrap usage at 4 months Runway with my savings just to survive before we had to either get a job or something ourselves between successful in doing what about 3 months post 1.
Jason: [5:35] That’s awesome did that first test customer ever get a mattress as far as you know.
Jt: [5:40] To be honest we we we we lost a customer we didn’t have their contact information. I really appreciate them. Who knows maybe after that maybe somebody wouldn’t have no somebody didn’t attempt it within the first day we might have abandoned the whole thing but I’m glad I’m glad whoever it was.
Jason: [5:59] Yeah so that’s an awesome origin story I’m sure it’s a ton of the the diesel need to come in as we talked about on the show come out of this Factory at Warden and you were across town like is there a Penn State Borden rival Reaper or digital native brands or not really.
Jt: [6:17] To be honest I’m not I’m not sure about.
Jason: [6:19] Yeah if you guys don’t have a softball league or anyting.
Jt: [6:22] There very well could be I will alternate there’s there is a pretty strong network of very successful entrepreneurs in Silicon Valley from Penn Station. Yeah something like Stanford Harvard but we we we definitely have a good feel good group going Wheatley and. A few others that works in the early entrance into y combinator in the first the first.
Jason: [6:47] Yeah it’s an interesting that that that part of the country has been such a fertile hotbed for for entrepreneurs especially back in 2012 you took a pretty untraditional path in. Not raising outside money will talk about in a second that you were ultimately part of an acquisition but. If you can say like where you able to then grow organically and did you ever have to raise any money before the acquisition.
Jt: [7:16] Yeah we we we grew so we started with $6,000 and we grew that.
[7:23] Sort of an anomaly so we grew like a fast-paced start up with a hockey stick all the way up and see the point of a merger. And we merged with Serta Simmons the largest mattress company in the world last last October. And it wasn’t something that we had to do we actually decided to do it because we strongly believe that would be the fastest path to completing the mission of company our mission was to not only disrupt the industry. Are catalyzed A disruption what you did but it was also to shift the industry to being focused and prioritizing the customer. And so we three felt that this was was a way to do that better between 2012 and. In 2018 read re zero capital on the first three years we didn’t have enough. Prophet to actually have much of a marketing budget and also be heavily relied on an iterative process of using customer feedback and it’ll rating on the product or service that I pop all of those things to be Best in Class which then turned into I’m a very strong organic growth promoter score the highest in the industry. North 75 on MPS and we really relied on our customers to spread the word until we we had enough profit actually start feeling I’m feeling the Dubrow.
Jason: [8:47] That is on bo4 are an awesome I’m curious I I presume you get asked for advice from other entrepreneurs is is that a path you would encourage other people to follow because I feel like there still is a lot of indoctrination and brainwashing. In the BC community that they’re the the path to entrepreneurship.
Jt: [9:06] Well it really depends on what path you give me what do you want is your outcome we are going to disrupt something big but we also had a minimum our goal as a minimum was to build a company if it if we couldn’t really grow it and beg him and caused a kind of change the ministry that we wanted to we were okay to settle with a lifestyle business I could pass the soccer he’s we’re making at the previous company and then we would just build something else so but one of the nice things about it so we we had a bad taste in your mouth with the proof of the previous company that we would work for 9 Venus not number of times how much Capital Money can be.
[9:45] Can be toxic to the decisions you make when you prioritize growth of everything a lot of times you forget about the cost of the very customer you’re serving or it sustain the shity product. Never really should exist and you don’t really need to Sprint to solve it because you got this money floating you so you know are orb just burning cash in buying your customer rather than turning them and having them or do $2 I’d rather than buying finest customers convincing them so we viewed it as a constraint I having this constraint it forced us to make. The brands of The Full Experience beginning to end for our customers so good that they would spread the word so additionally gives you a lot of options as to what you want to do you want to build a lifestyle business you want to sell it want to do a merger you want to go public you know how the company grows you you have a lot of flexibility is to how to do it you can operate your business build the culture the way you want to build it you don’t have anybody to condense I will say it’s playing the playing the play the game on on hardcore mode so the risks the risk is much greater. I’m the reward could very well be much much greater as well as high-risk high-reward.
[11:01] In it and I’ll also say I we learned a lot about building a real profitable business building it up proper budgets and understanding the P hiding under Cena piano from from Day Zero before we had a CFO I just. I say it was it is it is a huge learning experience for Daisy and I and it really set us up for whatever else you know we may want to do in the future but it’s really it is really up to based on where you want to go that we ended up moving out of Silicon Valley because he knew he had to get out of that bubble of thinking. If we were going to limit on some nothing kitchen hours.
Jason: [11:39] That’s awesome one of the things I like about that model as you pointed out it is it is potentially hardcore mode but I have a premise that there’s a lot of businesses out there that can be really vibrant. 100 million dollar-a-year businesses to $900 a year businesses that can, you know it support People Help customers gameplay employ a bunch of people and that can be really successful business if you’re able to grow to be that kind of business organically but of course, that’s not a win for a venture-backed company in so you’re sort of forced to get to that that next stage. Weather whether there’s organic demand or not and then like it it feels like we’re starting to see some of these these companies have to occasionally do foolish things to try to. Does BC multiples when the business maybe dance support.
Jt: [12:30] Yeah I’m in even even just press unimpressed is a good way to getting exposure the Press we found it they don’t for the most part don’t like to write about startups that that had to raise Capital because it’s all about the valuation all about the amount of money raised and we always struggled to get to get noticed where the architects of the destruction in the mattress industry and I’m in it it’s always been hard to cut through the noise. I’m to really get that story out so but yeah I mean it’s it was definitely definitely an extreme position you know the Other Extreme raising a lot of capital but I’m in the end you know and it really depends on you know what come product with the markets are in it possible there’s a few factors that made it possible for us to bootstrap it I’m in there in the early days but in the end I mean my co-founder and I we eat we owns now 80% of the business I’m right up to the merger and be a given away 20% to the employees and then. Set alarm to find me solve a long way to go through the merger to fully realize what it was originally but I’m going to Wild Ride but.
Jason: [13:41] That’s terrific and you mentioned just rubbed her I feel like there’s this or the traditional notion here is you know you had these disruptors that come in and come in industry and they either. Disrupt the incumbent and become the new incumbent or you know very often we see the incumbent acquire the disruptor another thing that’s interesting about you is is you alluded to earlier it wasn’t really an acquisition it was a merger of a disrupter and in an incumbent in the mattress base and you know I might even characterize it as sort of a reverse acquisition in that it feels like. You guys are not the leadership team for Purser. And you mention you’re you’re the chief strategy officer not for tuft and needle but for for all of Serta Simmons bedding.
Jt: [14:30] That’s right so yeah so the merger it was operationally legally and financially emerger and we would not have done this unless it that was the case and that was only going over the strongest and sticky and I had. I’m about to be honest that was also the way message because her descendant also wanted his if you if you think about it you know these these companies that. Heavily rely on retail, as their primary distribution. I’m when they when retail when this this whole landscape has and he cusses him completely changing the customer journey is completely changing what’s happening is direct-to-consumer is is the starting point of the customer Journey, and so if you if you are you see that ends and they did see that. That is what leads the business and you know a non long the customers Journey then some of them go to retail that’s the ship that’s happening so we are taking me to ship and are also currently I’m currently responsible for I’m building out there direct-to-consumer business and getting a setup properly.
Scot: [15:38] Freckle is it on are you guys doing that on the platform you guys filters at, reimagining of of weather look like.
Jt: [15:46] Yes it’s it’s it’s almost completely on our platform you know that in the first couple years I’m at built out all the software from the the e-commerce side with the front end all the way in the back ends and Order management customer service tools I’m today to factory floors where we have scanners and all the logistics the nice thing about having her own stock is that we have all the data and we can automate everything so versus using like an sap origin of some kind of other or you know like Shopify some I got your very your business rules and your business process do not have to conform to the software that you’re using you can literally don’t let the way you want so imma get it is a competitive advantage and for us I mean it’s it’s fairly simple to replicate for for the other brand so don’t go all operate with the same efficiency.
Scot: [16:42] Spoken like a true comp sci. The so that’s good background let’s talk about the state of the mattress industry so you guys kind of I think you were really a side I don’t have a good yardstick on this then now you can’t throw a rock without hitting 10 mattress companies how did that kind of developed from your point of view.
Jt: [17:04] Yeah it started we were the first it’s so we started there were some company company selling mattresses online that it had converted their money, and started before I mean mattresses were sold online back in the late 90s but that had converted to the model so we are the ones that said architect the model but really, meet when we started in 2012 we got noticed in 2013 By the Capital Community. I’m in another there’s a point where I heard the phrase meet decided to play in the space on actually to the Venture capitalists.
[17:39] Said that if we all had actually told us that if we didn’t take their money they would find somebody who would and they did about two and a half years later we had our first look alike company start. The most heavily funded on competitor. And then about six months after that it should more and then about a year after them probably 75 and now there’s two hundred plus, enzyme you know as a first-time founder I will say that it was exactly. Emotional emotionally it was emotional trial for me. To get over the fact that somebody was building a company exactly like yours you’re not really much you can do a do about it. And zabuton has I saw that this was actually a really great thing. Because I’m all this Venture Capital flooded into the marketing is being spent a marketing raising the awareness of of consumers they knew they now know there’s a new way to buy a mattress and as long as you do a good job of getting your name made it out there you know this is a. A high-ticket item will do a lot of research on his long as you have a solid. If not better value proposition in the competitors their dollars become your dollars so it’s been very good for accelerating our growth and and helping to stay safe out of the way it is this as it’s growing.
Scot: [19:07] Then what made you pull the trigger on combining with Serta.
Jt: [19:13] So in an initially started with so I want to say it wasn’t you have a 2000 mm 15 the beginning that we began to develop on the retail strategy. And I’m in an ARP roach and where were also the first ones doing this and building the store was not to take the approach of a pop-up we we we, I guess we’re sort of righteous and taking a right to standpoint or idealistic standpoint that the retail model is not dead. It’s going to take a new form and that we just have to figure it out the unit economics must work out somehow. And so we open up a store in San Francisco in followed by a couple more and it took us it took us a few years to figure out how do you build a store a retail store in today’s day and age that’s double lasting to the Future. An Xin into a profitably and when we figured that out that was really in 2017 we are well one of the things we learned was it something around the 6-month pay back before you know you making money back for a living and sorcery really wanted to rapidly expand it where you would being cash-poor because we’re following all are profitable growth.
[20:30] I’m being bootstrapped really wanted to go fast or we would have to raise Capital so we decide it okay we’ll take some capital on so we originally wanted to erase 25 million, which isn’t much and I was actually it was very easy to get to a two-term sheets but it was very difficult to get the term sheet for that small amount I’m so we as we were going through our options we had a lot of the word got out that we are raising and then he got out to I’m big giant retailers I got out to strategic factories and competitors and then we started to get calls and bounce from others and when Serta Simmons reached out it was actually driven by the the private Equity Firm that owns majority bed base I’m seen this and they saw the opportunity and they we decided OK Google will meet with them and just see what they have to say this is one of the the big boys ever going up against fighting against and take him down by the time we met with them we saw that, their point of view is completely different their executive team nobody laughs industry is on their executive team should weird their vision of the future is very similar to ours enzyme.
[21:50] We just saw that there was actually almost for alignment so so we decided to pursue it and if it worked out of work. If it didn’t you just continue on with Rick will raise at Capital and will we’ll expand our retail footprint, faster so yeah that’s that’s really the Genesis of how. We are arrived at the concept of the merger. And to be perfectly honest digitally native brands have a predicament when you when you capture the majority of the online Market you have to do something if you want to if your goal is to really be the number 1 2 or 3 you have to keep and you have to expand and distribute and so one of the the key benefits of doing this merger was that sir Simmons has the largest distribution Network mattresses so essentially unlocks all of those channels for us to expand so that was a way to greatly accelerate the growth of subliminal.
Jason: [22:49] That makes total sense. It’s interesting to see how much the evolution in the space has changed consumer behavior in some ways and expectations and then in other ways, you know maybe it hasn’t we’re recording this the week after Memorial Day is that still the mattress Superbowl.
Jt: [23:08] It’s one of them yeah that’s it’s definitely one of them and it’s unfortunate that mattresses are sold this way from my point of view it’s very promotional markets and its trains on customers to shop that way unfortunately. I think if if it wasn’t so promotion promotional if people didn’t shop that way we’d actually be about all these companies I should be able to provide products at a lower price but yeah it’s customers point of customers expectations at least the ones that now no are there any way to shop now expect at least so the way I the way I frame is usually is our biggest competitor is really Apple. And Amazon because what they’re doing is on bear setting the bar, so customers expect to get the kind of service that kind of product and kind of experience from the great companies that that are leading the way in other markets and sell them to go to buy a mattress they’re expecting something like that and then on top of it. The people that are not learning about Stephanie Tolan and some of the others are now seeing that there’s also a better way to buy a mattress so that people want their mattress right now they want it easy it when a good price they want best-in-class customer service they want free returns easy return they come to expect all of this so that so any of these companies listed in comments that do not have died after I just going to the just going to die.
Jason: [24:32] For sure. You mentioned where they got Scott whipped up into a tizzy of a word so we’ll want to get to that pretty quickly here but I did have one one other question like. As so many digital competitors have emerged in the space one of the negative ramifications is all the digital marketing tactics are super competitive and so that Brit drives up cost of customer acquisition and all those things and I and I want to say like back in 2017 there was this Fast Company article talking about like, a lot of oily marketing practices in the mattress base that I you know I think one of your competitors, was actually suing a review site and they were accusing him of being fake and then they they bought that review site and and I drop a laxative I have the story right.
Jt: [25:25] Yeah that’s that’s about right eye so, I’m not going to name any names but the mattress industry has been dirty since its founding I mean this is like it’s prolific so I’m the reason why you know those law tags that are on a mattress exist was that mattress salesman would sell you a mattress topper debits advertised that it was the used horse hair is very premium very high-quality material but instead it would be filled with straw.
[25:52] And so the government stepped in with a law that you have to disclose what’s inside the mattress so that they can track back if a customer to open it and discover or there’s an audit that you were you were lying then you do know Yugi is a good thing because customers buy a mattress so infrequent and if so uneducated really what to look for I’m like a computer like we no processing power Aaron’s memory and screen resolution me know these things now it’s pretty easy to the brush up since the last time you bought one but a mattress it’s very difficult to too and to know what to look for the teaser fleece customer and so it just the nature of the market is is set up for it set up for that and it also stems from marketing digital Lisa saying you’re something that you’re not. We’re saying oh yeah we have that too but you really don’t you know that you can get away with it because you’re just a customer to mattress store and you know where you’re having it so but anyway yeah one of the one of the tactics that used is these these review sites which I I refer to as the digital manifestation of mattress sales so in and they’re not all like this but in general but how it works is these bloggers will write a write a review. And I’m talking to a affiliate program or they get a kickback if the traffic flow through their website.
[27:18] And we have seen this. Where would be the more you give them in a kickback. The better your ratings will be or if you choose not to participate the lower your ratings will be. And we do have some on some evidence this this happening to us very frustrated because it’s it’s, our customers to know what they’re reading in are they going to see the little disclaimers at these are these are paid on the simply advertisers but yeah there’s several competitors that we have that I’ve either built I’m using these independent unbiased I’m doing are quads unbiased mattress reviews sites.
[27:58] I built them and long stem and tried to disassociate themselves and just review their product better and some of them have acquired a few and maybe just found another place another affiliate that we’ve been working working with. I was actually invited or so and what do you suppose what do you do if they have a lot of customers are flowing through there if you’re if you’re rated poorly you. It starts to influence your people perception of you it’s it’s almost like if you don’t if you don’t work with the mafia that you’re you’re going to lose. We refuse to work with it so it’s for a long time until we finally decided that if we did in our company’s not going to survive its, what about doing the deal with the devil it’s very frustrating but yeah it’s it’s a it’s a dirty market and that’s just one of the game that’s played another one is, persistent promotions another competitor I don’t want to name it runs a promotion 24/7.
[28:51] And that’s not a promotion after they’re literally rules to marketing if you run a promotion for if you don’t stop your promotion for a. Of time before you. You’re next one then that’s then it should that supposed to be your actual price but again customers a fool because they come in to buy the mattress when I leave and you don’t see them for 4 8 10 years so I’m those are just two of the tactics that are used and for a company like tuft and needle we’re we’re hiring people that are that are wanting to do right by the customer go to company that’s focused on the customer change the industry that way when they see this and these tactics working against us but we we know we can’t play that game or it’ll it’ll it’ll taints you know our ethos and I mean I’m certain that we would lose customers I wouldn’t be able to sleep at night it’s it’s definitely challenging so that is one of the key challenges took me to has is it is it which fingers do you know hopefully continue.
Jason: [29:51] In this particular ironic when the the senior leadership of a mattress company can’t sleep at night but yeah.
Jt: [29:58] Exactly.
Scot: [30:01] Call so we can introduce to Amazon it would be a Jason Scott show if we didn’t kind of do a little bit of a dive into Amazon. Maybe it’s interesting from historical standpoint I believe you guys sell on Amazon and it’s hard to tell if its first party or third-party or are a blend and then now so it’d be nice to hear your historical aspect of how do you make that decision. And then it looks like everyone selling their and now of course Amazon has an Amazon basic mattress in a box kind of thing how do you feel about all that.
Jt: [30:34] Well we sell first party onto to Amazon so in the in our second year we, we were struggling. To do it stops when you’re building a brand from scratch one of the things you have to do is build credibility until just everybody knows your name and one of the ways that you do that, especially is a company that’s on unheard-of is you you collect testimonials you collect reviews so they never talking about this all we’re going to do reviews we can’t post them to our site or like, have them write them on our side because what customers we wouldn’t trust that if we are buying it from somewhere else so we’re just like somebody’s going to read a review, where would we read reviews on where to find one more shopping and Amazon for the places that both of us read reviews for you by whether it’s through Amazon or direct and so we have this idea that we would list our product on Amazon didn’t even know if they would sell mattresses and just so that we had a place to send their customers right videos.
[31:33] And so we did and it took a couple months to get to get to buy button activated so that we can have reviews place there and then we started sending our call our customers everyday to write reviews and within about read a beautiful mess with the highest rated they were selling matches with the highest rated mattress in their store we are also the highest rated product in the entire Furniture category and we held that spot for almost two years so we were at an early mover. Enzyme and we still have majority to Market of mattress sales above the $500 mark. I’m on Amazon Nummies also developed a product with Amazon I’m called the knot. And so they did really surprised to label but you know that one of the things they found is that brand new Mater and they wanted to do a collaboration so we did develop a unique product if only available exclusively on Amazon. To serve their customers at that lower price point above or below $500 so I’m the way that we view it is.
[32:37] For us to only purely sell BTC, the market is only so big so the online is only so big it’s something like 20% of mattresses the bottom line for once once your growth curve begins to slow. That year your next question is where do else could we grow and there’s other markets and one of the big markets is Amazon so so far if there are customers there that want to buy up the needle why not be there, as long as it makes sense for a business so one of the things that we’ve we’ve always done is we’ve separated so so those reviews ended up turning into a lot of sales and then end up being something like, percent the years of art Marcell we would always measure penile separate or operating expenses so that if for any reason something happened to Amazon it wouldn’t include our business and I also gave us enough leverage to negotiate I’m healthy healthy. Chirps I’m at how it’s being sold there and but you know what the fees are in all that and to be perfectly honest I mean it’s always difficult working with the big partner but for the most part it’s been it’s been a good relationship, we’ve done very well. I mean you know of course the money that we make their wewe just further in investing the brand so it sits and there’s definitely some cons but there’s also going to want to Pros for our business.
Scot: [33:58] Men are so not only did you going to partner with Amazon you partner deeply the soap so a lot of people a lot Skeptics say okay you gave Amazon all this. Data and essentially LED them right into the mattress industry, how would you respond to that.
Jt: [34:14] I would say that’s probably true we did we did share a lot of learnings with them they should a lot of lemons with us but if you think about it it was really do need to be honest with somebody else on it was bound to happen but if you like here’s an example so we had a hundred Knight trial, we found that hundred I tried worked really well and they had a 30 nitrile that was really upsetting all of our customer so we prove to them with data that this was something that they needed to do survey they didn’t they don’t do this they didn’t my mom said he didn’t do this another word other categories so we convinced them to increase their their their trial on their return process to DeMatha are such an example is many others but but there are people who shop there and they should get a good experience I didn’t like we had talked to me or has customers that buy on Amazon we want them to be taking good care of so even though it’s technically not our Direct customer. We do want them to be taking care of him or Amazon to do a good job at themselves. I’m we viewed it as a as a good thing to to collaborate with Amazon but you know their Amazon wants you know their customers by and about all categories and they want to do a good job I want to be competitive they’ll figure it out you know just like our come out other competitors and figure it out so so that’s I mean it’s a difficult question to answer but that’s the sort of how I feel about it.
Jason: [35:38] Interesting in 1/4 vacation cuz I think you have one of the the most mature. Amazon models out there so you see you have sort of your core product or original project product what you sell 1p through Amazon and you sell direct and obviously one additional challenge. Protab selling 1p through Amazon as Amazon set the price at sets their price so they can potentially sell your product at a lower price point than you’re trying to sell your product. You have this exclusive. Product on Amazon Dena data value price point but then if I have this right you also have a premium product damn it that’s only available direct that you don’t make available through Amazon his back.
Jt: [36:27] And I think that’s like a sew-in are there the way that we view it is.
[36:35] All the products are the products that we sell elsewhere we want those to be available direct with the exception we know we violated. That idea with the nod and we don’t intend to do that with anybody else but but you know when you’re building your when you have your own stores and you have your own website. There’s got to be some value, Special Value that you would get coming direct and so we want to make sure that you have the full product menu available track I am so so so some Distributors may have some product that will not have them all, no we don’t want to put on everything and every point of distribution is only makes sense like we’re we’re in Walmart we’re not going to. The mint mattress would not sell in Walmart it just wouldn’t the demographic it wouldn’t even match unit just like the original wasn’t selling Crate & Barrel so we saw them in there. Like we we just pick and choose where we believe the product would be best suited you perfectly honest some of these higher price points we don’t necessarily believe are the best spots for Amazon. Until until proven wrong so we the majority of the match is being sold are actually below the $500 price point so by these these Chinese companies in factories or import export in for 10. I’m just honored coming. So you know we we don’t really see it necessarily has is it is a huge business. And sell them at the same time we also at the balance with a special value is like does example if you were to going to Best Buy and see the.
[38:00] The store in store for shopping shop for Apple doesn’t have all the products are just like at Walmart you might see an iPod you and the Apple Store there’s all their products you can play with all of them there’s all their merchandising you get all the.
[38:13] Experts about everything about the products there’s a reason why you still go into a Walmart to check out a product that you still want to go into an Apple Store. And it’s the same thing with our own stores and Zen are digital store is that you have to think about the the the balance of value that you’re providing your customer specially if you want if you want at least some percentage.
Jason: [38:36] Yeah so speaking of that like one of the things that’s interesting to me so you were primarily as a direct model you do this merger with Serta and I think sort of had some direct sales but I my son said they’re overwhelmingly a wholesale model. And so now you have some sort of experience and Legacy on both sides of the fence we’re seeing one or more of the the the digital native brands that originally only sold direct through their own website. You are starting to do Partnerships with traditional retailers but what’s been interesting is my senses a bunch of those because you. Already built this desirable brand that has a special Affinity with customers before you go to the. Crate & Barrel’s in the Walmart has your often able to cut a better economic deal than the traditional wholesale deal.
Jt: [39:33] Yeah it depends on you measure it so if you if you look at what the operating costs are for us to be in Lowe’s and we’re rapidly expanding Lowe’s and we’re the first mattress tattoo to go into a DIY store. I mean the business is growing very very big and very fast. But the operating costs is its primarily the the shipping by truckload which isn’t much different than that should be FedEx or customer so okay so that’s that’s you know that that’s not neutral so but it but how many people does it take to run that to people. If you look at my if you look at the clock, and we have we have a hundred and fifty employees so but but the thing is it’s it’s not that it’s not that easy you can’t, that’s the old way of thinking about retail.
[40:21] All of these all these team members that are building this that you know the digital brands and then all the advertising all that in the products they’re building the value. That the customer stop at it looked like on the customer Journey there’s a stopping point before they go into retail not to sight and then that gets them excited to want to go to Lowe’s to buy so it’s almost like you have to, blend your expenses erase all your costs on an overhead across your digital but also. I’m also your distributor so so it’s to answer your question yes it may and may be more profitable. You know direct but you know by, but honestly like it it’s still there still a lot of costs are involved with Lowe’s on everything that we do is driving driving those costs should be attributed to two loves them in Crate & Barrel in Walmart and all those. But the thing is like customers.
[41:18] Customer if you want to build you the online Market you know just depends on which market like if it’s Electronics Electronics I’m going to 30 or 40%. How it ain’t true that point for mattresses like 20% so if you want to keep growing you’re going to have to, Spence you’re going to have to be to go into retail and the customer start online and then they they discover you whether to advertising and or Googling around finding you and then you build the excitement know either by the Y right there. Or don’t want to go and see it for our specific Market on the mattress is Pete there is a large segment of our customers that want to try the product that’s just unique that’s probably fairly unique to the mattress industry if you’re if you’re not in a retail store you’re just not going to get that sale so we’ll just lose those customers so it’s almost a requirement if you want to continue to grow to serve.
Jason: [42:13] Yeah and I feel like even categories that made me don’t have quite as strong a tri component are still landing at this model where you really need to be Omni Channel, just survive and that you know that like it it seems like all the brands that started at exclusively selling directory website, are finding for me either customer acquisition standpoint or customer satisfaction standpoint they need a brick-and-mortar footprints. The compliment that that drug sales model.
Jt: [42:45] Yeah yeah it’s it’s just it’s just logical so it just depends where like where are your customers go where the people going where are they buying from so I could say that yeah retail is shrinking just. It is drinking digital is eating eating the retail world the question is, are we just going to stay digital until it fully transitioned over how long will that take.
[43:08] Even if we know that. But saying 10 or 20 years the 20% micro to 60% of something like that it may make sense to open retail stores and expand, with the intention to contract the retail stores as a transition it just depends on how fast you want to grow and in and you know what what kind of business you want to build but it really just goes back to the customer customer service to go and see your product or they, some people want to go to Costco or Sam’s Club and they want to buy their that’s just where they will buy their people that only buy from Amazon, it will not buy direct so do you choose not to serve them you know that’s just a business a business decision so that’s in our point of view is that. We want to we want to change the industry it’s over to do that when you insert a lot of customers and we need to go to where our customers are so I’m going to channel. Is the way the thing about omni-channel was it makes everything complicated because the way that you attribute your marketing dollars like. You know and I miss being able to measure what you know is this a creative or is this cannibalizing and that’s all very complicated so it’s a challenging problem but if you’re determined and smart.
[44:22] So the model that I can inform those decisions it can’t work we’ve proven at least Madison.
Jason: [44:31] Yeah I know and that that’s a great point about timing being so important in these disruptions as well I actually started my career million years ago in the like a late eighties early nineties a blockbuster entertainment. And every year there be some super smart investor that would pontificate that that you know physical media is going to get replaced by digital and they would short Blockbuster and, well they were all certainly right in the long-term Horizon they all took a bath shortage. And that that’s probably a great place to leave it because it’s happen again we have used up our in our listeners time if you do have any burning questions we didn’t get to or want to continue the conversation we encourage you to visit our Facebook page or hit us up Twitter.
Scot: [45:22] Thanks sweetie we appreciate you taking time out of your busy schedule to join us if folks want to follow you online or you Twitter or a LinkedIn publisher or anything like that.
Jt: [45:34] I’m not much of a social media person but my my emails JT at 10. Com and our website is is tn.com you feel free to feel free to email me.
Jason: [45:46] That by the way is an awesome URL and will wish everyone happy commercing.