Month: April 2019

“There are tectonic plates moving in retail. Amazon is at one end of the spectrum, and DTC brands are on the other,” said Michael Kumin, the managing partner at Great Hill Partners. That shift opens up new opportunities for the firm, which has largely focused on categories like software, payments and healthcare with investments in companies like Paytronix and Recruiting.com. More recently, it’s invested in Bombas, Wayfair and The RealReal on the consumer side.

Digiday caught up with Kumin to see what comes next for PE companies going into the DTC category.

What opportunities do you see for private equity firms in the DTC category?
VCs are best at their game when they’re seeding companies and investing before the business models have formulated or locked in, when companies are getting their footing. Once they get to a certain point — for these e-commerce businesses it’s typically $50 million-plus — that’s when private equity typically comes in. We invest when the business model and unit economics are set, because we want to invest in businesses that are profitable. VCs are more comfortable with a lack of profitability. The challenges of a business scaling from $50-100 million in revenue are more challenging than the first $50 million. But, VCs are now late-stage investing, and we’ve gotten more comfortable being a growth fund, so the lines have blurred.

Overall, private equity investors are figuring it out now. They’re burdened by their own history of the businesses they’ve invested in, which were lower-growth models, and now they’re trying to pivot. But the business models and the pattern recognition is different. These are direct marketing businesses, which take a different understanding than something like a brick-and-mortar roll out, and they don’t have the profit profile private equity typically looks for. You have to be willing to look at a business differently — the attributes look different.

What are the patterns you’re looking for in terms of investments?
Early e-commerce businesses are often single-product, single-marketing strategy. Moving to scale when you’re multi-product, multichannel, the challenges are different. Some of these companies have grown up on social or search but don’t have experience in TV, radio or out of home. Having pattern recognition in how you do that is helpful. Strategizing around questions like third-party logistics vs. in-house and when to scale internationally is key. There are a lot of pitfalls, and there’s no one silver bullet. A brand’s success depends on a combination of a number of factors.

What is the next milestone for these brands? Going public?
No one’s gotten to that scale. You’re going to want to see these guys have $300-$500 million in revenue, and profitably, or at least have a pretty clear path before it makes sense to tap the public markets. The business opportunity has to be large — they’ll have to show a broader game plan to prove their worth.

What do you look for in companies you plan to invest in?
We look for moats. If you look at a company like Wayfair, there’s technology, there’s complexity. You can see what they’re investing in that will create that moat. It’s harder for these digitally native brands. Look at Bombas: It’s a sock business. That’s a more traditional consumer brand, so you have to believe in product design, branding and positioning to find the nuances. Any of these companies can get to substantial scale. They’re offering a compelling proposition with a broad selection and what are they competing against? Brands that did not have much customer loyalty. You can carve out a significant piece of the market that way. The ability to scale is different than the ability to build barriers. The barriers are less substantial. They stand for something different for every company. But overall, what you’re seeing is a 10 to 20-year shift — the brands I grew up with are not guaranteed to be the brands of the future, and there’s going to be a shift in market share to the brands that directly connect with customers and have something to say. That’s the value transfer we’re currently targeting. — Hilary Milnes

Kohl’s makes it Amazon official
Kohl’s announced Tuesday that it would begin accepting Amazon returns at all 1,150 store locations in July, after nearly two years of testing the service that brought the pilot to 100 stores.

It’s a foot traffic play. Customers can bring any Amazon purchase, unpackaged and without a return label, to Kohl’s, which will then take care of the return for free. Hopefully, they’ll stay and shop. Maybe they’ll stay and shop Amazon products, like the Echo, which Kohl’s stocks in stores as part of the deal. By adding convenience to customers’ lives, Kohl’s is betting that incremental sales will follow.

Kohl’s Amazon playbook speaks to the larger identity crisis riddling physical retail, which has seen more stores close this year than 2018 as debt-saddled stores cave to pressures. Retailers now have to strike the right balance between convenience — offering customers the right options at the right times — and experience, and making sure that one isn’t being sacrificed over the other.

“The idea of a retail apocalypse is overblown, but retail is changing fundamentally. That has different implications. All of the growth in retail is online, either through online retailers like Amazon or omnichannel retailers, who see their online business growing. Physical store business is flat or down,” said Ed Fox, a retail research professor at the Cox School of Business.

For Kohl’s, cozying up to Amazon underpins other efforts it’s made to make the in-store shopping experience more efficient, and not just in service of catering to Amazon’s returns. In the past few months, it’s rolled out BOPIS lockers, and pushes customers shopping online to pick up items in stores by offers Kohl’s Cash incentives at checkout. It consolidated its rewards program to function more easily. It’s also enabled RFID product tracking to get accurate inventory reads, ensuring that items can be easily found and delivered most efficiently. Kohl’s has also been experimenting with an in-store analytics tool to help store managers respond to customer data insights in real time. The strategy is to make convenience the experience.

“Stores are our special sauce,” said Sona Chawla, Kohl’s president and COO. “We have to win there, so we have to be constantly innovating there.” — Hilary Milnes

The state of CPG
CPG stalwarts Kimberly-Clark and Procter & Gamble both reported earnings this week. Kimberly-Clark reported net sales of $4.6 billion during the first quarter of 2019, with organic sales up 3% year-over-year, while P&G reported net sales of $16.5 billion, with organic sales up 5%. Here’s what else their earnings say about the state of the CPG industry.

Price increases: Both Kimberly-Clark and P&G looked to price increases this quarter to grow revenue. Kimberly-Clark said it upped the price on Pull-Ups and premium Huggies diapers in the first quarter, while P&G said that it raised prices on products in grooming, personal health care, feminine care, and organic baby care products.

The threat of private label: On Kimberly-Clark’s earnings call, one analyst asked CEO Michael Hsu what he made of mass retailers like Target encroaching upon Kimberly-Clark’s territory, particularly in baby products. Hsu’s response: “They’re still very receptive to big brands and big innovation. They are pursuing some other opportunities. But I think we’ll work with them as partners kind of leading these categories.”

Adult care is booming: As Digiday previously reported, new direct-to-consumer brands are targeting baby boomers, and so are legacy brands. Hsu said that Kimberly-Clark would be putting more advertising dollars behind some of its adult care brands, spending predominantly on digital.

Grooming is challenging: P&G saw the biggest sales drop in grooming — net sales decreased 8% year-over-year. But the company sought to reassure analysts that all is not lost in that category. “We have the potential to increase usage, bring men back into the category who have left, or increase shave frequency,” chief financial officer Jon Moeller said on the call. And the company’s recent acquisition of Walker & Co, may provide a much-needed boost in this category. — Anna Hensel

What else we’ve covered

Walmart in China. Walmart is holding strong in China, where it’s building a grocery business.

Loyalty rebooted. Retailers are switching up their loyalty strategies to focus less on discounts. Blame Amazon Prime.

Gyms are now acting like publishers. In the name of diversified revenue streams.

The post ‘VCs are more comfortable with a lack of profitability’: Why private equity firms are investing in DTC brands appeared first on Digiday.

For one creator, who works on a team of six that manages six Snapchat accounts — that together reach more than 2 million people daily — the move finally provided insight into why their and peers’ sponsored posts on Snapchat have been deleted over the last year. For the last few years, the creator has built and managed accounts on Snapchat and makes money through orchestrating brand deals and placing ads for them within those accounts.

Creators previously told Digiday Snap had been deleting their sponsored posts, sometimes with in-app warnings that directed them to the community guidelines. But there was no rule they were clearly violating — until this month.

Snapchat, like other social apps, has allowed creators to promote products and events, as long as they are not illegal, and the deals are disclosed, per Federal Trade Commission guidelines. Its early Snapchat-focused creators like Shaun McBride, also known as Shonduras, frequently orchestrated their own brand deals on Snapchat and made $100,000 per week at time, Time reported in 2014. Some creators now have access to formal monetization opportunities through Snapchat, like a Shopify integration. But unlike on YouTube, Snapchat has stopped short of ad revenue sharing with all creators with big followings.

To make creating on Snapchat worth their while, many creators still orchestrate their own brand deals and make their own sponsored posts. But several creators told Digiday Snapchat has been deleting their sponsored posts. Without direct communication from Snapchat and clear guidelines on how they should be making their own ads, creators say they’re unclear how to move forward.

A Snap spokesperson said the change was made to clarify the company’s existing guidelines and help preserve the integrity of its ad product. Snap doesn’t want its users to think the posts they see within a Snapchat story are official Snap Ads, which would be reviewed by Snapchat’s team, if the posts are in fact not. That’s especially true if the post promoted any illegal or otherwise inappropriate content.

A Snap spokesperson said the company is not preventing creators from monetizing as long as they abide the terms and guidelines. But it’s unclear what the exact restrictions are for how these creators can format their ads.

Here are two examples of sponsored posts for the same product — a burrito blanket — recently taken down by Snapchat, courtesy of the ads’ creator:

One creator said that the post — which includes the word “ad” — is not intended to copy Snapchat but rather to be transparent with the disclosure. The creator said the ads are not made in Snapchat’s ad editor.

The ads of burrito blankets shared above have stayed up on Instagram, where they were also posted, the ad’s creator said. Instagram’s branded content guidelines, which are shared with Facebook, do not mention imitation of Instagram Stories Ads, Instagram’s version of Snap Ads. Instagram’s terms of use simply state users “can’t do anything unlawful, misleading, or fraudulent or for an illegal or unauthorized purpose,” similar to Snap’s policies.

Creators sharing sponsored content on Instagram also have access to the company’s branded content tool. Per Facebook’s guidelines, “all Instagram accounts can post brand content” and can use Instagram’s branded content tool, as of its expanded roll-out in late 2017. There’s no such formalized tool on Snapchat — at least not yet.

“Snapchat is still figuring out their monetization strategy, so the lack of tools does not shock me. We don’t advertise on Snapchat right now as clients aren’t a fit, but I’d care [about the absence of a branded content tool] if we need to advertise and the tools were not at a similar level to other ad platforms,” said a media buyer.

Another media buyer who does advertise on Snapchat said their agency has focused on buying Snap Ads over the last year instead of working directly with creators on Snapchat. The buyer cited the ability to manage reach and targeting with Snap’s ad platform rather than relying on a creator’s insights.

The post Snapchat is quietly cracking down on unsanctioned sponsored content appeared first on Digiday.

Before, DAZN sold in a convoluted way, selling its sites separately across multiple fragmented markets. Now, those same sites are sold together based on contextual targeting and audience segmentation. Being able to aggregate audiences across several sites makes it easier for DAZN to sell its ads at a fixed price and guaranteed delivery of inventory as well as in private marketplaces.

Like other media owners, DAZN wants a plan to drive programmatic-direct deals, which incorporate PMPs and programmatic guaranteed, to capture the dollars moving from insertion orders into programmatic. Eight in 10 media buyers plan to direct more of their budgets to the channel this year, according to a Digiday study of 214 media buyers. DAZN declined to reveal how much of the revenue for DAZN+ comes from programmatic, though head of trading David Winstone said it is key to how that part of the business makes money — so much so that the business has recruited programmatic experts across the eight markets it has launched in, including Japan and North America, and is currently looking for an ad server to help it manage how its ads, including those sold programmatically, are traded.

“We’re definitely seeing an appetite in the market to execute more frequently on a programmatic guaranteed basis,” said Winstone. “Programmatic is key to what we do on the DAZN+ side of the business as most of what we trade is via PMPs and programmatic guaranteed.”

The problem with programmatic-direct pitches like these that promise advertisers visibility and control over the publisher sites they buy ads on, is that they can sometimes offer the same impressions an advertiser could have found in the open marketplace more cheaply. It’s an issue for a publisher like DAZN, which has decided against aggressively pulling its ads from the open marketplace in order to reach those advertisers that still use it as a testing ground to find publishers that could create private marketplaces in future. “Some of our inventory is still traded through the open marketplace as we want to be agnostic in terms of how we go to market,” added Winstone.

To make its programmatic-direct business more appealing, DAZN has begun pitching advertisers six creative units that mix real-time sports data and live scores into display and video creative. The data for all six units is sourced from Opta, the sports data provider owned by DAZN owner Perform Group. Early tests of the formats, which include expandable mobile banners and double MPUs, have seen interaction rates at 8% higher versus Moat benchmarks, while the hover rate is at 25% higher, according to DAZN.

Opta has been the area of focus for DAZN recently, but the brand has fallen behind some of the more social-first publishers like Joe, GiveMeSport and LadBible in creating an opportunity that provides engagement with sports fans — rather than just eyeballs, said Jonathan Harrison, digital account director at the7stars. “The new launch looks to address this balance alongside quality journalism, which can only be seen as a positive addition,” said Harrison.

DAZN is hoping its aggregated offer benefits from the rise in popularity of women’s sports. 2019 is a big year for women’s sports with this summer’s FIFA World Cup and that is likely to be reflected in advertising spend as evidenced by the likes of the Telegraph and GiveMeSport producing more content around women’s sporting events.

The post Inside DAZN’s plan to overhaul its ad business appeared first on Digiday.

The decision highlights a concern for retailers about adding third-party mobile wallets, especially since mobile payment adoption in the U.S. is still quite low (according to eMarketer, as of October 2018, adoption among the U.S. population was just 20%), and a lack of clarity around how the data will be used by tech companies running the mobile wallet platforms, according to industry sources.

Per Visa requirements, all point-of-sale terminals accepting contactless payments in the U.S. had to be upgraded, and merchants were given until April 13 to do so. While not speaking for JCPenney, a merchant association representative told Digiday there are broader concerns retailers have around a tech spend that may not yield significant return on investment, given low adoption rates of mobile and contactless cards across the U.S.

“Merchants [may] have other higher-priority tech initiatives with an ROI more robust than with these [mobile] payment wallets; they haven’t seen a ton of usage, and merchants need to decide,” the source said.

Most merchants across the U.S., including Target, Kohl’s, Costco, Best Buy, Walgreens and Safeway have added Apple Pay. A notable holdout is Walmart, which didn’t comment on why it hasn’t added Apple Pay to its suite of payment methods. Walmart, however, has rolled out its own mobile wallet (Walmart Pay) and other retailers accepting Apple Pay have also out their owned and operated mobile wallets. For example, Target’s barcode-based payment capability within its app is tied to its store-branded Redcard, and Kohl’s Pay’s QR code-based wallet is linked to Kohl’s store card. Retailers incentivize customers to use store mobile wallets through collection of loyalty-based rewards and other benefits. When customers use a retailer’s mobile payment platform, the retailer gets a line of sight into customer data to help target promotions and offers. The issue with third-party mobile payment wallets, like Apple Pay and Google Pay, is that the retailers have limited access to data and aren’t able to get as detailed insights into customer behavior.

“All the valuable customer purchase data stays at Apple and not the retailer,” said Victor Gevers, cybersecurity researcher and chairman of the GDI Foundation, speaking about Apple Pay transactions.

Additionally, when customers use Apple Pay, Google Pay or Samsung Pay, payments are tokenized, which means the the credit card number is replaced with a randomly generated code called a token. According to payments consultant Deborah Baxley, retailers accepting payments via third-party payment wallets like Apple Pay don’t know which mobile payment wallet the customer used, which impedes efforts to market and promote offers using customer data.

Without a clear picture of who customers are, retailers are effectively hobbled in their efforts to use data to build customer relationships.

In addition, there are competitive concerns with what tech companies can do with the data they hold, and concerns around liability, because with mobile wallets (unlike plastic cards) the liability rests with the retailer when there are fraudulent transactions, the merchant association representative said.

Retailers that have mobile wallets say they’re doing it to make transactions easier. For instance, when Target rolled out Apple Pay in January, a company statement said the company rolled out the wallets to allow customers to shop more conveniently. In the same statement, Target promoted its own mobile wallet that lives within its app, highlighting the crucial importance of customer data in retailers’ plans to reach customers.

“Data is the new oil, and customer data is a vital source for retailers. Specific customer purchase data allows a retailer to target its customers with relevant promotions better,” said Gevers.

The post Retailers are still wary of mobile wallets appeared first on Digiday.