With the penultimate episode of Season 5 we pause briefly to celebrate reaching our 100th episode milestone, before taking an insider's view of the dynamic world of retail tech and consumer investing with Al Sambar, a deeply experienced industry executive who now serves as a General Partner at XRC Labs.
With the penultimate episode of Season 5 we pause briefly to celebrate reaching our 100th episode milestone, before taking an insider's view of the dynamic world of retail tech and consumer investing with Al Sambar, a deeply experienced industry executive who now serves as a General Partner at XRC Labs.
We get a fast-paced primer on how venture capital works and XRC's particular focus on early stage investing. Al helps us understand the process for discovering and sorting through those start-ups with the greatest disruptive potential before getting a behind the scenes view of how XRC's investment thesis has evolved over the years. We then take a look ahead at what trends will shape retail innovation in the future, with key take-aways for retail executives, budding entrepreneurs, and venture capital investments.
But first we dip into the week in retail news, including how the holiday season seems to be unfolding, perhaps to a game of what Michael calls "discount chicken." We make a return trip to the Wobbly Unicorn Corner and news of some serious stumbling as well as promising signs from the likes of Stitch Fix, Rent the Runway, Chewy, Blue Apron, and Getir. We close highlighting the remarkable results from Lululemon and the staggeringly high valuation of Fanatics.
Catch Steve and Michael at NRF's Big Show
About Al
As XRC Labs’s General Partner, Al Sambar leads business strategy and development for the NYC tech accelerator. A leader in innovation, Al previously held the role of Managing Director at Kurt Salmon’s North American Retail and Consumer Group. For more than 20 years, Al has been providing retailers and consumer companies with strategic planning, organizational design, consumer insights and operating performance improvement services, with deep specialization in omni-channel retailing and global brand management.
About Us
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks , The Food Professor with Dr. Sylvain Charlebois and now in its second season, Conversations with CommerceNext! You can learn more about Michael here or on LinkedIn.
Be sure and check out Michael's latest venture for fun and influencer riches - Last Request Barbecue, his YouTube BBQ cooking channel!
Michael LeBlanc 00:06
Welcome to Remarkable Retail podcast Season 5, Episode 23. Presented by MarketDial. I'm Michael LeBlanc.
Steve Dennis 00:12
And I'm Steve Dennis.
Michael LeBlanc 00:14
Well Steve, we're celebrating a pretty big milestone with this episode 100 regular feature episodes, cue the applause, there we go.
Steve Dennis 00:24
Looks like we made it. Looks like we made it, somehow or another.
Michael LeBlanc 00:28
I look like we made it. That's right. So, (crossover talk).
Steve Dennis 00:32
It's pretty crazy.
Michael LeBlanc 00:34
Well, listen to this COVID project of ours and your partnership, I really do appreciate you and thank you for your support and partnership and all that great stuff. It's been fun.
Steve Dennis 00:43
Well of course. Well, you know this thing, I think I may have mentioned this sometime along the way but you know, you were really the instigator even though I had this idea of doing a podcast, you were really the guy that got me off the fence and made it happen and obviously you have become a great partner through over two years now. And 100, 100 episodes,
Michael LeBlanc 00:54
Yeah.
Steve Dennis 00:55
And yes, it's been an interesting journey. I was listening to a couple of older episodes for various reasons. It was interesting to see how the format's shifted a little bit and I think our chemistry or whatever, has, has developed and I got a better mic,
Michael LeBlanc 01:02
Yeah.
Steve Dennis 01:03
Now and all those, those kinds of things. But I was also going back and just reviewing some of the episodes and I just got a couple of fun facts I want to, I want to mention, a little self-indulgent. So, listeners can see, (crossover talk) I don't want to hear this but,
Michael LeBlanc 01:11
Lay them down.
Steve Dennis 01:14
How many different CEOs or presidents do you think we've had? So, either of current or former retailers but out of 100 episodes? How many CEOs have we had?
Michael LeBlanc 01:50
Geez, that's, I never thought of it that way. I got to think, we're, we're the majority. I mean pretty much the vast majority, what, what’s, the number?
Steve Dennis 01:54
Well, this is a total episode. So, we haven't had a guest honorary on every single one.
Michael LeBlanc 01:58
Sure, sure.
Steve Dennis 01:59
It's 24 and it's a pretty good balance between large retailers. So, like Tractor Supply, At Home, Alta, BestBuy, Neiman Marcus, etc. Also, some more kinds of fast growing up and coming brands like Vuori, Indochino, Fluid, Mytheresa, The Citizenry, Hint Voodoo Doughnuts, etc. And then we've had several CEOs of tech firms like Fabric, Happy Returns, NewStore, OVR. So, that's kind of interesting. And then the other one I looked at quickly was out of the top influencer list that RETHINK Retail puts together. So, I think that's approximately 100 people. How many top retail influencers, not counting the two of us because we do happen to be on that list?
Michael LeBlanc 02:42
Yeah.
Steve Dennis 02:43
Other than ourselves, how many of the top 100 have been a guest during our 100, 1st 100 episodes?
Michael LeBlanc 02:56
Oh, I got to think at least 25. If it's not more.
Steve Dennis 02:59
Pretty good guess, it's 28 so,
Michael LeBlanc 03:01
28, there we go, hmm.
Steve Dennis 03:03
Yeah, so an interesting mix of retail leaders, influencers. We've also had some pretty ho-, high profile folks like Seth Godin, Dan Pink, Brad Stone, Mitch Joel, (inaudible). So yeah, I'm really looking at that and say, you know, it's, it's amazing, really when we got started, I didn't, you know, particularly our first episode, or first year we didn't have that many guests on. And then just kind of how we've ratcheted us up to get you know, progressively higher-level executives and some brands that frankly, I didn't think would say yes, but here we are. So, I'm very, very grateful for that. And stay tuned. We'll see what happens next season.
Michael LeBlanc 03:38
All right. Well, let's, it is fantastic. So, thank you again, particularly the listeners and all the guests as you say.
Steve Dennis 03:49
Exactly.
Michael LeBlanc 03:50
Our special guest on this episode is Al Sambar, General Manager at XRC Labs, a venture capital firm and accelerator for the next generation of disruptors in the retail technology and consumer goods sector. Steve, I think you, I believe you have some involvement already with the XRC Labs. Yeah?
Steve Dennis 04:00
Yeah, I got connected with Pano Anthos, who is the founder and I guess, Managing Director of XRC, a number of years ago. And so, I've known him and known XRC in various capacities. And I know of, have known of Al because he was a partner at Kurt Salmon Associates where, her, a good friend of mine worked as well. And I heard Michelle talk about Al on various occasions and said good things. And so, I was very curious to meet him. And very curious to get to learn a little bit more about how XRC works with startup and fast-growing firms.
Michael LeBlanc 04:38
And a little bit of behind the scenes, inside baseball. We actually got together at GroceryShop back in Vegas and a very rare technical issue happened and we, you know, the file was corrupted. So, he was very generous in jumping back on the mic with us. So, we will hear a little bit more about that and lots about retail from the VC firm perspective, which is Uh, super, super interesting. So, stay tuned later in the show for that.
Michael LeBlanc 04:58
Let's jump right into the news of the week. So, I thought we'd skip any kind of macro commentary this, you know, that the economy is what it is, it almost feels at this time of the year, you just hold your breath and see how they, you know, how it gets to the, to the finish line, right? What's your observations been and what are you hearing about you know, what's going on in retail, and these, you know, this, this Black Friday, Cyber Monday? As we said before, there's a lot of shopping to be done. What do you, what do you feeling is the more interesting storyline around this holiday season?
Steve Dennis 05:38
Well, there's a few things that are kind of interesting, you know, some people might know that we are, at least as we're recording this on Friday, the ninth we are in this dip period, there's typically 10 to 14 days after Black Friday, or Cyber Week, where traffic to websites and traffic to stores is down quite a bit from what it had been. And then it starts to really ramp up in kind of this sprint to the finish line, which makes it a little bit harder to read, read the tea leaves. I do think as I've seen other reports that are coming out about how recent sales performance has been as well as the whole Black Friday, Cyber Monday, it's, it's looking, I think, more muted than some of the early reports. But again, you know, we'll see because of different sample methodologies.
Steve Dennis 06:04
And one quick fact I thought was interesting was a story I saw the other day about the degree of discounting during Cyber Week. So, one report said that online prices are down. So, in this inflationary environment, we're down 1.9% year-over-year, and that's the largest year-over-year drop in 31 months. So, you know, whether that speaks to this over inventory situation, whether this speaks to Hey, sales are slow, we better ratchet up. The discounts or just kind of hyper competitiveness. Not sure, but I think some of the signs there, I don't know if they're flashing red, but they're probably flashing yellow.
Michael LeBlanc 07:04
Well, as you know, I write a members’ only report for the Retail Council of Canada. So, I get to interview dozens and dozens and dozens of CEOs. And I just finished the report this week. And the title of my report is "Canadians Play Discount Chicken with Retailers. So, that idea, that,
Steve Dennis 07:15
Yeah.
Michael LeBlanc 07:16
They're like yeah, you know, I think you got a better offer around the corner, I'm going to wait but then eventually they're going to run out of, you know, they're going to run out of real estate. I think this 17th or what's the Saturday before the 25th it's going to be just a huge day. And, and we, we see similar things. We also talked about, you know, interesting things about, you know, the money is still in consumers' pockets, they're just, you know, looking for some value as an excuse to spend it. And this inevitable shift to experiences, I was talking to a friend in the airline industry. I'm not sure how many Canadians are going to be left here in February, March, because this will be the first time, we call them snowbirds.
Steve Dennis 07:32
Yeah.
Michael LeBlanc 07:33
This will be the first time that Canadians and many of you have been able to go, you know, fairly comfortably to a warm weather destination. And, and that means well, I guess if you're in any retail business that has anything to do with servicing a warm weather traveling customer, but it also means, you know, I'm not going to buy that big screen TV, if I can only afford one thing.
Steve Dennis 07:46
Yeah.
Michael LeBlanc 07:47
You know, I'm going to, I'm going to Maui, I'm going to Florida, I'm going to wherever, right?
Steve Dennis 08:24
Yeah, I think absolutely we're seeing this shift, not just with Canadians too, to services and travel in particular is really, really on fire. So yes, if people are feeling stretched in their budget, they're going to make those, those tradeoffs. And that might be to the disadvantage of products.
Michael LeBlanc 08:43
All right, well, let's take a visit to the Wobbly Unicorn Corner. We got lots of news in the corner. What, what say you of a bunch of results that came up, up, down and sideways?
Steve Dennis 08:52
Yeah, it was, it was a busy week. And you know, I don't do this out of Schadenfreude if people know that, that expression, but yeah, there was quite a bit of news of misfortune, I guess, or, or concerning actions on the part of several companies. So, Stitch Fix, which is one of the older companies, you know, so called disruptor brands, they were among the, this, (crossover talk)
Michael LeBlanc 09:01
OG, OG.
Steve Dennis 09:03
Later, later, a wave of, of disruption, and they reported a 21+% year-over-year sales decline, and their net loss and they've been losing money for multiple quarters here now. Went from a couple million-dollar loss in the first quarter of 2020 to two $60 million in the latest quarter. I went back just because I love spending more time that's why apparently, but I went back and two years ago roughly Stitch Fix was not only a unicorn, it was a Deca unicorn perhaps? I don't know if that's a real word, but it was, (crossover talk), their market value was close to $10 billion. A year ago, it was down to about $2 billion And as of this morning it was about $425 million. Rent the Runway also had a report. And this is a little bit better. I mean, their sales have been increasing pretty nicely, you know, they got hit very hard by COVID, because you're not renting gowns to go to events when they're not occurring.
Michael LeBlanc 09:49
Sure, Sure.
Steve Dennis 09:53
So, they very much were hit especially hard by COVID. So, they're on an upward trend, they did have their loss decrease from about $90 million last year to I guess I can say only $36 million. I mean, that's, that's still like a 40%, negative operating margin or something like that. So, another one to talk about was something we touched on with the predictions recap, which was some of the issues in quick commerce. And not only as we talked about last week, where we are seeing valuations come down and layoffs and market exits and those kinds of things. But now we're seeing some consolidation. Getir is acquiring Gorillas, which was at one point apparently valued at about $3 billion. And so, this will be a bit of a haircut down to maybe $1.7 million, and they're also continuing to do layoffs. And so, seeing it like that, that space is really kind of getting reworking.
Michael LeBlanc 11:17
Pretty, pretty quickly, too.
Steve Dennis 11:18
Yeah, yeah. We can, we can destroy the venture capitalist money in only 30 weeks, (inaudible) of 30 minutes.
Michael LeBlanc 11:26
I describe it more as vaporizing, but that's a whole other,
Steve Dennis 11:28
On a little bit more positive side, perhaps Chewy, the pet supplies eCommerce company, they had really strong revenue growth from the year earlier. And which was actually a pickup from the trend that they had been on, which I think is interesting, because part of what seemed to really speak to his performance was COVID. Because not only did you have this shift to online players from, from physical retail, but also all the pets that got adopted. So,
Michael LeBlanc 11:50
Pandemic puppies.
Steve Dennis 11:52
Yeah, so now that we're, you know, not completely beyond it, but not certainly the place we were a couple years ago, to have their revenue growth accelerate this, at this match is very positive and they also managed to make some money. Not a lot, but they also managed to turn a profit after several quarters of losing money. So, that's more positive. And the last one, though, I hate to end with, you know, a more sad story is Blue Apron, this is a company that also is kind of like the story with Stitch Fix. At one time, when their stock went public, which is almost five years ago, the stock had a high of $60 a share. This morning, it was traded at .90 cents a share,
Michael LeBlanc 12:05
Gee.
Steve Dennis 12:06
For those of you who can’t do math, that's about a 99% decrease in valuation. So, this is a company that is now wor-, that was worth, you know, a couple billion dollars, maybe at one point and is now worth about $25 million. It looks like the total addressable market is, you know, maybe 1/10 the size of what was thought when, when a lot of this investment happened. And, and the other problem is that they ended up acquiring and this is you know, something that that Dan McCarthy, who's, who's been on and really gets into is, you know is really understanding the customer economics, and particularly in these subscription models, whether we're talking about Blue Apron, or HelloFresh, they spent so much money acquiring customers, (crossover talk). And yeah, and then like 80% of those customers, the lifetime value was just not strong enough, because, you know, they would unsubscribe after 10 weeks or something like that. So,
Michael LeBlanc 13:36
They get bored of the menus or whatever, right? They'd say this is good. But (crossover talk).
Steve Dennis 13:40
Yeah. So, you built, you built this business and this marketing expense on the presumption that it was a way bigger market and it made sense. And you know, one of the reasons why in my book and other places I've been so skeptical about many of these is because the valuations were just way out of whack with what I thought the potential could be. And the underlying, you know, cost of customer acquisition against customer lifetime value, seemed really out of, out of shape. And this is like we talked about in the predictions (inaudible). I think this is the thing that really finally became you know, after many of us pointing this out for three or four years wondering, you know, in this last year is when a lot of this has really come crashing down. So, we'll see, you know what, there's clearly going to be a shakeout whether that shakeout occurs, because I mean, I think Blue Apron is, you know, may not make it, based upon what transpired in the last few months. So, whether that is they go away and that helps the others get to better economics or whether there's a merger or you know, a bigger player or acquires them because there is a market for it. It's just it's, it's much smaller and the economics are proven to be extremely challenging.
Michael LeBlanc 14:45
Better news let's just wrap up, better news on the, we got a bunch of stuff to go through better news on the earnings front. We had some good news, because we are also the good news podcast from a couple of big players.
Steve Dennis 14:57
Yeah, I mean, I guess it just gets back and maybe it's an obvious point. But you know, even among economic pressures, there are still plenty of retailers that manage to deliver some good results. And that's because they have a remarkable value proposition and they executed well. So, just really quickly Lululemon, they got punished a little bit by the stock market because of their inventory levels and kind of a cautious outlook, getting back to what we talked about, kind of at the top of the News segment, but like 22%, comp store sales growth, you know, you don't hear numbers like that from a brand that is as big.
Michael LeBlanc 15:31
You know, during COVID, they had a pretty big tailwind behind them, because everybody was staying home. They were dressing less formally than tailwinds kind of evaporated. So, this is (crossover talk).
Steve Dennis 15:38
Yeah, exactly. Yeah, that's a little bit like what we were saying about Chewy, like you're not, there's not so much that COVID comp, you know, issue and they're operating margin 19%, which is very high.
Michael LeBlanc 15:48
Let's stand on Fanatics. So, a great, great businesspeople are literally fanatical about their business, that, you know,
Steve Dennis 15:57
Apparently, apparently. Yeah, they're,
Michael LeBlanc 16:00
Apparently.
Steve Dennis 16:01
This is a, this is a brand that I have to say I don't pay that much attention to. But they raised $700 million in new capital, which is a pretty, pretty big capital, (crossover talk) raise.
Michael LeBlanc 16:11
These days. Yeah, yeah.
Steve Dennis 16:12
Which brought them to a valuation of $31 billion. We don't know very much about their revenues and profitability, and we know a little bit about their, their revenues. But whether or not they're making any money or not, we don't know, as a private company. I was just kind of curious to see. You know, what are some other retailer valuations are and, you know, there are not many retailers that are valued at north of $31 billion, like I think, you know, if you took Macy's, Kohl's, Dillard's, and BestBuy combined, maybe you don't get to $31 billion in valuation. So, it's quite an impressive number, whether, whether that's sort of a function of, of this new money coming in and just kind of how venture capital works, you know, we'll see, but they certainly are going to have to develop a lot of profitability to, to grow into that valuation, but they are, they're definitely on a tear and growing very, very quickly and obviously, getting a lot of investor interest.
Michael LeBlanc 17:16
Hey, Steve, are you a Frank Sinatra fan by any chance?
Steve Dennis 17:18
Well, it turns out I am.
Michael LeBlanc 17:21
Well start spreading the news. We're coming to town strapping on Vagabond shoes. I want to wake up in a city that never sleeps, king of the hill, top of the heap.
Steve Dennis 17:29
Well, that's right. We're actually heading to the NRF Big Show in New York in January. In addition to meeting with and interviewing our top retail leaders in the industry, in the MarketDial booth, podcasting studio, we will be onstage with Gretchen Ganc, Senior VP of Strategy and Analytics from the most remarkable The Container Store. So, see us live in-person. Monday, January 16 at 12:30 on Expo Level 3, Expo Stage 3 for Shift Happens: Choose remarkable or irrelevant. Brought to you by MarketDial.
Michael LeBlanc 18:05
Al, welcome, or should I say Welcome back to the Remarkable Retail podcast?How are you doing this afternoon?
Al Sambar 18:11
I'm doing great. Happy to, happy to join you guys.
Michael LeBlanc 18:14
Well yeah, and for the listeners. They may say, I don't remember Al, being on the podcast. Well, we had the opportunity to sit down and had a great interview at GroceryShop back in Vegas. And a technical Gremlin got in the way we all sounded like a Mr. Roboto episode. So, thank you for being so gracious to jump back on the microphone with us.
Al Sambar 18:33
No problem. And December is always a fun time to talk retail. So,
Michael LeBlanc 18:38
Yeah, no kidding.
Al Sambar 18:39
It kind of works out anyways.
Michael LeBlanc 18:41
No kidding. Now, where are we reaching you today? I think you're on the West Coast, right?
Al Sambar 18:44
I am in the West Coast, Northern California.
Michael LeBlanc 18:47
All right, perfect, perfect. Listen, let's, let's start, let's take it from the top. Tell us about who you are and what you do for a living? Bit of your, a bit of your backstory.
Al Sambar 18:55
I'm a General Partner at a venture firm called XRC Labs. XRC Ventures is really multiple different funds, all focused on early stage, consumer and retail. So, early stage being anything from, you know, to entrepreneurs, (inaudible) and whiteboard that have an idea all the way up to sort of Series A, as ready first checks, and, and then maybe it's a follow-on through like Series B.
Michael LeBlanc 19:29
Right, right. And tell us a bit more about your background. We got into that a bit. You've got to, you've got consulting in your background and some other stuff and you served in the military as well, where you shared that you learned lots of great leadership lessons. Talk a little bit about that.
Al Sambar 19:42
Ah, yeah, sure. Well, going way back in the 80s. I went to the Naval Academy, I was a pilot in the Navy for several years and got out of the Navy, maybe after about seven years when my first job was born. And then went into consulting, and I spent 25 years in consulting, doing strategy work, operational work, mostly all-digital, I did it, I left the service and went into the business world maybe two years before the internet happened.
Michael LeBlanc 20:02
Right.
Al Sambar 20:03
I got to spend about a dozen years just being a startup guy. It's all when those businesses were starting up. And I did that ultimately, until my firm was sold to Accenture in 2016. And I sort of retired from consulting in 2020 to go full time VC. As a VC, as a venture guy, I started startup investing around 2007, I think I wrote my first check. And always an angel, I ran some small angel funds and member management funds. Just angels investing together had a lot of success. And then when I retired from consulting, I just came over to XRC full time. I helped start up XRC with a fellow, with the CEO, who is a fellow named Pano Anthos. I started it in 2015 or so. I think the idea was probably 2014. But the idea was to simply there was not a lot of, there was no fund at the time really focused on seed stage, early-stage retail specifically. And that was both Pano and my background, as investors and I spent my whole career essentially consulting in that space.
Steve Dennis 21:35
So, can you tell us a little bit more about, you know, specifically about what XRC Labs is and what kinds of investments you focus on. And I guess just more broadly, how you sort out what's likely to work in the retail arena.
Al Sambar 21:50
I mean, we're, it's relatively s-, because we're early stage for, for any of your listeners that might hear VC, and people tend to think if you're not in it, you might think about it broad-, more broadly speaking, about any startup, but when you're in the early stage like we are. We're really looking for things that are disruptive, things that might take a few years to get to scale. So, we're really looking for, our fundamental belief is that technology is changing how humans live their lives, and how the businesses that serve humans will do it, right. So, if you think about AI, you think about digital, just, it's, it's an explosion of change. And we look for how that change will affect human beings as consumers, and where we think the way that they've always done things for the last hundreds of years is going to be completely changed. If a founder is right, well, then we'll bet on it. And we can bet on it,
Steve Dennis 22:28
Sure.
Al Sambar 22:29
With small amounts of money really early. And then, as those companies proved themselves, right. We can bet more money as they grow. That's essentially early-stage VC in a nutshell. And we, since the partners at XRC have deep relationships with brands and retail-, retailers, and are in fact, our LPs are some of them, right? And helps us when we find those as those companies grow, we help, we can help them scale into the industry and the distribution channels they need. So, we just love the consumer space. It's been great for us, but we do, we do look for an early stage trying to change how humans behave as consumers.
Steve Dennis 23:38
And I'm curious if you can maybe just touch on it quickly. Since you got started like I've known, as I think, you know, we talked about a little bit that I've known your, your firm and Pano really since the beginning and I think going back then not specific to XRC but you know, sort of the venture capital world was very excited about these technology driven consumer brands, this idea that stores were going away and retail could be like, you know, SaaS kind of business model could, that could scale very quickly. And I think that, that is a perspective that has changed. And I know you guys didn't play too much in that particular space. So, I'm just kind of curious how the investment thesis, perhaps behind XRC going back six or seven years ago, might have evolved and maybe how you see it evolving in the future?
Al Sambar 24:27
Yeah, that's, that's funny, Steve, you probably, you might have some of our original decks. If you did, you'd, you might pull out one of I think Fund 1, our future, that was future of the stores was one of our investment topics. And we were a little counter there. I think everybody at the time was talking about retail apocalypse. We were talking about the trans-, of transformation of the store. So, we believe then and made investments that have worked out for us. Since then, around the store as a service center. This store is an experience center, fulfillment center, that the store is the place that's closest to where the consumer lives. So, we just never thought it would go away. We did think the economics of the store and the technology deployed in the store, and the revenue produced from the store would be very different. So, that, that, that probably hasn't changed. I think if you were to look at some of our earliest other themes, we thought there would be explosion of new channels. So, we were like in ShopShops, which was a live streaming shopping channel, it's still around doing relatively well, actually. But it was live streaming off of social networks, it was pretty much the first one. And, and so we were big believers that there would be all these new channels for the consumer. That was pretty aggressive for us, that has really changed quite a bit. It's still true, you still have social commerce its been a growing an influencer commerce has been important. But, direct-to-consumer brands using that to be only direct-to-consumer that's really changed.
Steve Dennis 25:55
Yeah, yeah.
Al Sambar 25:57
So, we, we, we won pretty well on investing in the tech platforms that you will need to service these new channels like, like video commerce and tagless commerce, things like that. But the, the idea of starting brands in VCs with VC venture capital that's really changed.
Steve Dennis 26:30
So, how do you, I guess, maybe give us a peek inside how you guys go about understanding innovation, which, you know, is a very broad topic. But you know, things have been changing so quickly, in so many ways for quite some time now. And obviously it's, it's hard to predict the future, right? Nobody has got a crystal ball. But to be great at venture capital to attract the investment funds that you do, you obviously have to have some sort of, of a way of sorting through the hype, sorting through all the different founders that come your way. Can you give us, give our audience any kind of glimpse into how you go through that process? How you kind of separate out the retail Apocalypse type narratives, let's say from, from some dif-, different narratives that might have more validity.
Al Sambar 27:20
I think the other difference to keep in mind is we're early stage, and we're sector-specific consumers. So, whether it's from Pano, myself or LPs, part of our magic has to be being able to understand the trends that are happening in that domain space, and which ones will have the best potential, and then being able to source the best founders for those potentially disruptive areas. So, it, it, if I boil it all up, all my investors care about is I returned a multiple of invested capital, and it better be five to 7X, right? Like, (inaudible) there's a lot of risk associated with venture investing. And I, people give me money because of the return, right? So, we have to do it, we have to deliver that. We then turn around and look at the areas where we think there's most potential that if this founder is correct, it will profoundly change an area that has a great value at the long end, right, that there's an addressable market.
Al Sambar 28:09
And it's, it's, that the founders got the chops and the right IP and approach and team to go after it. And then we just progressively, we'll make small bets early and take great risk. I, I mean, we don't do as much, we do, we're a little bit different on how we approach brands. But if you think about Billie women's razors, when they came to us, they were one of our early ex-, successes. Her single observation was just that, hey, women are being charged 30% more for the same blade that men need on razors. And she'd been turned down by all these other ventures. So, we, I remember them presenting and I think it was Pano at the time who said, ‘Why are you getting turned down? Why aren't other people wanting to invest in this?’ And they're all saying, ‘well, basically, women aren't a good investable market. It's not an addressable market that's big enough.’ I think we gave her the task and to go to the nearest CVS, and we gave her a tape measure and said measure the shelf width of men's razors and then measure the shelf width of women's razors and come back and tell us a number. And the number was the same. It was slightly larger for women, and we said, ‘okay, well I guess the addressable market is big.’ And (inaudible) it was fantastic for us. But so simply, it was knowing enough to know that it's pretty easy to validate that there's an opportunity there. And it was easy to validate that women were being charged more. There was a pink tax at the time, and
Michael LeBlanc 29:22
Yeah.
Al Sambar 29:23
We thought this founder was really sharp and felt this way. It was really sharp, on building a market. And it was, there's a way we could invest and support them as they grew. So, (inaudible) that same philosophy takes, it is the same in 2015, looking at, you know, women not getting the same pricing, you know, getting discriminatory pricing, and that being endemic across retail. And then if I look at today, I could, that the same rationale exists in super-techy topics like generative retail or generative AI, generative content, which is so hot at the moment, and it's really exploding. We could, we could just, our job is to say, there's a great observation, how might it be applied? And is this the right founder to drive forward a business around this new thing that we could do that we couldn't do before? And today, we still do the same thing. We look for the great founder with an, an idea that would really be disruptive if wha-, if it works right.
Steve Dennis 30:56
Since you've been on the venture capital side, as well as the corporate side, consulting side, I wonder if there? Well, I guess a specific question was, you know, we did meet at GroceryShop, and I imagine you and your colleagues spend time at shows but out more broadly in the market kind of scouting for opportunities or perhaps trying to make, make sense of different things in synthesizing those? Do you have any advice on that kind of scouting, exploratory work for, for people that are working inside of, or more established businesses? Like are there some venture capitalist type lessons that you think could be helpful to folks at bigger companies that are trying to create new innovations and, and find the next big thing?
Al Sambar 31:47
Well, sure. I think CDC corporate venture capital, and, and other types of approaches to funding innovation and large corporates, generally speaking there's some great, there's folks that are great at it, and folks that are not, if we're, if, if we're honest about it, and, and, and how you do it for new brands versus how you might do it for a new technology is, is important. What is different for us than corporate is we play much earlier than a typical corporate is allowed to do. Generally speaking, my startups after we've had them for a couple years, and now they're doing say, 30 to 50 million of revenue. Now, corporations can look at it because they could say, all right, if I buy that, I can turn it into something that's meaningful in my P&L, it can have a place to sit within my, my, my business groups. It's now at a point where it's got some EBITDA, prior to that it's really about growing the business and securing the IP and these other things that corporate is generally speaking, not as helpful for. So, they tend to be making relationships with us to find out, you know, which are the right startups? And are they mature enough where they can look at them. And, and prior to that, they'll just want to pilot with them. So we, we have a lot of them that are LPs in us for that reason, because they can understand what we're investing. And half my day is being available for them on calls when they're asking about an area. And which of the startups they should be piloting with, because they know I'm already looking at them from an investment point of view. But I do think that the challenge for a corporation is, you know, are they big enough to work with me and I've got 1000s of stores? I get that AI can do wonderful things. But is this particular startup able to support somebody's complexes, my business and, and that's,
Steve Dennis 33:47
Sure. sure
Al Sambar 33:49
That's a big filter for most of the corporations. I do think there are a few that have done quite a nice job of setting up, you know, a separate area where they could go take a look at it and play with earlier startups. I also think there is a particular urgency in the moment right now where companies are willing, you know, larger corporations are willing to come earlier than they ever have before, right. You know, I mi-, I threw out 30 to 50 million, but you can see acquisitions of large corporations out there, and companies don't normally have a couple million or 10 million in revenue. There's several of those in the last year. So, tha-, that just two or three years ago, you wouldn't have seen corporations go that early. I think, it's that AI in particular, it's just a couple of really hot areas where if I can understand the technology and that I can keep it for myself and exclude from competitors or I can make it strategic for me that you are seeing, that's always existed in other, you know, like CPG but it's not particularly been as prevalent in retail until recently,
Michael LeBlanc 35:04
Al, let's talk about, let's talk about the future. When we first talked to you, we were back at GroceryShop and a little earlier in the year. And now, we all turn our minds to 2023. You've already touched on a few trends, you just, you know, speaking of kind of a, a new pattern of, of acquisition by large players, that's, that's new. But is there anything from either a technology perspective or a trend? We've got so many competing things happening, the economy may or may not slow down, consumers may or may not buy stuff, they may go on vacation, they may or mi-, may not shop on interactive networks. I mean, what are you, what's on your mind for 2023? When you, what's your lens, when you kind of look ahead and say, I think this is going to happen and I think the waves are going to push me this way or that way. What are you thinking about?
Al Sambar 35:50
It's, it's funny, to even mention GroceryShop, if you'd have told me in 2015, that I would be at a GroceryShop looking for startups, and meeting with startups and I would have several of my startups, making commercial deals there. That's really why we go to these conferences, to support our startups that are making commercial deals and, and, and, and more importantly, to be there for the other startups that want to get into my platform, or that I want to invest in. So,
Michael LeBlanc 36:04
Right.
Al Sambar 36:05
That I would be at Grocery would have been laughable. So, I would point that out as an area where it, I think societal change, economic change is driven, so much opportunity there. And a lot of technology changes made it really a great place to do some venture investing.
Michael LeBlanc 36:14
Interesting.
Al Sambar 36:15
Because basically the entire, if you think about COVID, and customers much more rapidly moving to click and collect and willingness to do shop self-checkout, retailers are actually deploying retail media networks. All of a sudden, this is a great area for really disruptive technology, that probably if you'd asked me three years ago, would have been a pretty lousy area.
Michael LeBlanc 36:34
Interesting.
Al Sambar 36:35
And it's simply because COVID essentially accelerated a lot of things, particularly in that industry. And you can almost look at the industries that have the lowest margins, and are the least, most susceptible to these changes. And those are the places where technology can be a great investment. (Crossover talk) So, I look at that. And if I look at four to 23. I am still equally excited about Grocery. But I think that's just a small part of it. I think in the middle, if we look at, we start first with these real-, what are the really big trends that don't change from year-to -ear? Well, the US middle class has less than the discretionary spend, the wealth gap is not going in the right direction and unlikely to flip very soon.
Al Sambar 36:56
So, what are the technologies that might help serve that and that is informed a whole bunch of things like our investments in re-commerce and rental and all of these new ways where a consumer could live a life that they can provide for their family and stretch their dollar and what are the technologies and retail things that will be important to help a consumer that doesn't have the kind of discretionary spend that their parents did or grandparents did. The same thing around health and the consumers being able to, you know, purchase their own health comes, health outcomes, just like they might purchase groceries? Well then, you can see in my portfolio that consumer behavior around health and wellness has radically changed and, and that's made a lot of opportunities. So, we start at these really big things like sustainability and climate change, like brands not serving segments of the consumer by BIPOC. And fundamental consumer behavior change driven by their household economics. And those then inform where these great opportunities are, and that, that, those, those overlying theses are still right. And they, they're, they're just accelerating.
Michael LeBlanc 39:12
It's so, it's so interesting. I mean, I just got off the mic with some retailers. And we were talking about people and talent and acquisition and the role of technology. You know, you can, you know, the debate in self-checkout was you're taking a job away from someone, for example, in grocery world. Well, there's no, it's not the case you can't find the people to do that work. And that's not seen by many as a short-term phenomenon. That's seen as a kind of a long term, not enough people to do a certain amount of jobs. So, I'm sure that's attracting people's interest as well. Now, you mentioned earlier, about you've got your offering documents and it kind of lays out philosophies. Where can folks go to learn more about what you're thinking about and even get in touch with you and, and perhaps even, even connect if they got the proposition or want to tap into your wisdom?
Al Sambar 39:56
Well, we're, we're still right there at xrclabs.com And obviously, we let our LPs have access to us in all manner of questions. But we're equally happy to take a call from somebody from industry, we actually do these things that we call mini-demo days, we don't even charge for them. I have retailers come to me and say, I'm really interested in a particular area, or topic that's disruptive. It probably would be hard for me to imagine a retail or consumer area where I don't have a point-of-view in some portfolio companies and we'll, we'll put them in front of the, the retailer's teams. We do it, probably do, several a quarter, where I'll bring five or six startups on a particular topic area. And those you know, start with, you know, somebody reaching out to my email, you know, Al at XRPlabs.com. Say, ‘Hey, I'm retailer X, can you do XY and Z for me? Can you help me understand the space?’ and I'm always happy to take those calls. I mean, there's some selfishness in it, guys, because basically, my startups,
Michael LeBlanc 39:56
They might be a buyer, (crossover talk).
Al Sambar 40:25
They get their business doing it. That's all it's at the end of it, it's going to be good for me too. So, it's not just all you know, it's a little bit self-serving in that.
Steve Dennis 41:19
Well, we wouldn't know anything about self-serving actions on this, on this podcast or, or in our careers. But well, thanks so much for joining us Al. First of all, it was, it was great to finally meet you in person when I saw you in Las Vegas. But mostly it was great to hear all your great perspectives and give us this different lens into this, this part of innovation that we often talk about on the podcast but don't necessarily get to benefit from, from folks like yourself and firms like XRC. So, thanks so much for joining us, and particularly, your willingness to come back, and do a redo with us. I really, really appreciate it. And I hope you have a great holiday.
Al Sambar 41:53
Thanks for having me, guys. I appreciate it. And I enjoyed it. Thanks a lot.
Michael LeBlanc 41:58
If you like what you heard, please follow us on Apple, Spotify, or your favorite podcast platform so you can catch up with all our great interviews, including how (inaudible) and talking about Tractor Supply's, "Remarkable Life Out Here Growth Story". New episodes of Season 5, presented by MarketDial will show up each and every Tuesday. And be sure to tell your friends and colleagues in the retail industry, all about us.
Steve Dennis 42:21
And I'm Steve Dennis, author of the bestselling book, ‘Remarkable Retail: How to Win and Keep Customers in the Age of Disruption’. You can learn more about me through my consulting and keynote speaking at stevenpdennis.com.
Michael LeBlanc 42:26
And I'm Michael LeBlanc, Consumer Retail Growth Consultant, keynote speaker and producer and host of a series of retail trade podcasts including this one. You can learn even more about me on LinkedIn, and you can catch up with Steve and I in person at the NRF Big Show in New York, January 16 on the stage talking about what it takes to be remarkable with The Container Store SVP Gretchen Ganc.
See you in New York, everyone.
SUMMARY KEYWORDS
retail, bit, consumer, Pano, startups, retailers, people, big, technology, talk, area, early stage, founder, business, brands, podcast, investing, money, spend