06 Insights on Selling in the Marketplaces - Mike Stopka Oct 14 2021

Erik Martinez: [00:00:00] Welcome to this episode of The Digital Velocity Podcast. Today, we're going to be speaking with Mike Stopka, who's the president and owner of Design Toscano. Hello Mike.

Mike Stopka: How are you doing Erik?

Erik Martinez: Mike has graciously granted some time today to talk a little bit more about his ever-expanding business in the world of online marketplaces.

So with that, like to take a moment and re-introduce Tim Curtis. Say, hello.

Tim Curtis: Hello everybody.

Erik Martinez: Tim and I will get [00:01:00] started and we're really excited to learn about all the experience that Design Toscano has had in online marketplaces. I've had the pleasure of knowing Mike for, almost don't want to say this 23 years, and have seen his business transformed from a direct marketing company to a multi-channel business. It's been very exciting. So Mike, tell us a little bit about Mike Stopka.

I'm a Chicago guy, kind of a blue-collar type of background. Going through school, worked my way through. Used to work in the meat market, wrapping meat to get through. Truly no direction what I was going to do in college.

Originally a geologist and sort of got in to IS and was lucky enough to get my first job with Burroughs, gave me training and ended up at multiple companies, same mother company, but it was called Bank Tech. It gave me an opportunity to travel in my twenties and early thirties and to get experience with really, really smart people and [00:02:00] got to travel all over the US for banks, utilities, insurance companies.

I mean, I'd be on the road sometimes five, six times nights a week working with salesmen. I was able to get a lot of experiences. It's almost, a poor man's way of being a consultant at a time like Arthur Anderson and gained a lot of modeling experience, a lot of business experience that I wouldn't have gotten.

It was how I would get points and we would travel to Europe all the time. That sort of the foundation of the last 32 to 33 years of a journey with Design Toscano.

So, Mike, I happened to know that you're an avid cyclist. Can you tell us a little bit about your cycling? Is it for fun? Is it competitive? Tell us a little bit about some of the places you've been.

Mike Stopka: It's always been a hobby and actually maybe later on, as we go through the business, it was really sort of the reason why the business started.

Back in my twenties and early thirties, I was probably the worst of the best in bike racing, always hung around really [00:03:00] strong riders and always just tried to hang on. As we went through the thirty years of business, I switched to tandem with my wife because as guys get older, they don't ride as much, and we've continued riding.

It's really one of the few things besides the business that we do. Places that we had been, cause the nature of the business and what I like to do, we've been to Europe 60, 70 times. We've ridden just about everywhere in Switzerland, Austria, France many times, Spain. In two weeks, we'll be in Croatia.

It is a fun way to see Europe or to participate in Europe and it's a way to stay healthy and not go insane with all the stress of owning a business.

Erik Martinez: So, two questions come up from that. One, what's your favorite ride? Two, if you were to estimate how many miles you've ridden over the last 30 years, how many miles would that be?

Mike Stopka: Back in the racing days, I mean, there were two years of over 5,000, which is pretty good. Last year we did 3,500, the year before 3000, so we've been pretty consistent on 3000. I was gonna do that as a project to try to [00:04:00] estimate, I mean maybe a hundred thousand miles.

That one I have to qualify. I have to do some analysis. That's a spreadsheet project for a weekend.

Erik Martinez: You do like your spreadsheets. So, Mike, tell us that one dirty little secret. Well, maybe not dirty little secret. Tell us that one secret or something that nobody else knows about you except maybe Marilyn.

Mike Stopka: What I really do when I come home from work late, come home and get my two or three glasses of wine and sit there and watch YouTube. Very, very focused. It's amazing now what you could watch. If I want to watch bike riding in the island of Hvar in Croatia, I could drill that deep or coming home and watching bike racing documentaries. Like last night was a 30 Suisse Tour de France coming up.

That's like a period that nobody talks to me in the evening. I guess that's the secret passion is I do travel, bike riding and gardening. At this point, I have people that help me garden, but that's probably it.

Erik Martinez: I know something else that most people wouldn't know.

Mike has this amazing home that he built. When was the house [00:05:00] completed? That's about 10, 12 years ago.

Mike Stopka: In 2011 after it burned down once, an English manor home, and it's actually, that's a whole different conversation, as a side project, based on my business travels around both Europe and Asia, to build a house from Asia, but having all the design and skills of the English history that we pulled from.

I look back and sometimes they don't know how in the hell I had time to work at the level that I did, to get the house built, but again, it was probably a 20 year project.

Erik Martinez: Well, and you just launched a new website about the house, right? It's a brookemanorhome.com [EM1] or something like that.

Mike Stopka: Yeah. The background on it, as you traveled to Europe and if you traveled to some of these older castles, like Downtown Abbey, they need to open their house up to keep it paid for and for maintenance. So I'm working on that model right now because it does take quite a bit of maintenance, and I want to do a few things that are really kind of off the charts in the garden.

So, my wife lets me, we're thinking of renting out the house for [00:06:00] movies and maybe a wedding or two. Actually, just this week we had a movie production company come in I guess Netflix competition walked through it and it looks good. So, 40 of my closest friends might be living in our house or being in our house for four weeks to shoot the movie.

Erik Martinez: That's kinda neat.

Tim Curtis: That's pretty amazing.

So, kind of shifting gears here a little bit, I'd love to hear how you got into the business. You mentioned geology, that's quite a swing. So how did that transition happen for you?

Mike Stopka: We'll go back to cycling. I had a friend who was extremely good.

His name was Fabio. I knew from riding with him his business was making statuary and his family had been in the statuary business since the 1910, family came from Italy. I really was intrigued by it and my interest in Europe. So, I was done with graduate school, then it was about 1989, and I said Fabio, let me take your catalog and remarket it in the back of magazines. He says sure, but he says, everybody thinks that they're going to sell the merchandise. So, I took a $6,000 loan from my aunt, took his catalog and [00:07:00] literally on the kitchen table, we would pull the cover off, we remarket it. I had to restapled it cause all the creative was done already. In the back of metropolitan home, we'd advertise for $5 buy this catalog. Then the business grew. I think it was like 90,000, the first year, 180 the second year, 360. Then when it got up to, I think about 3 million, I quit my day job.

So, without that relationship with Landis', that's kind of a common theme on leveraging opportunities that you see. Be it other people's collateral, other people's money or other people's products and intellectual property developed and leverage it into business opportunities.

That was the start of it. Again, really was back a magazine only. It wasn't even a catalog at the time. Then of course the internet only existed for a military people. It was kind of amazing. Actually, you talk about things that could block the business. I look back, you know, napkin math, we've sold probably a billion dollars of merchandise over the last 30 some years.

If their family hadn't produced the catalog with a phone number on every [00:08:00] page, there wouldn't have been a business because I wouldn't be able to rip off the cover. If they weren't willing to drop ship for me, if I didn't go out for ice cream with my family, at Baskin-Robbins and walking through an art gallery and say, hey, can you answer my phones for me when I'm working for the next four years on my normal job?

I'm always doing things, but after traveling around the United States with Bank Tech, you're running the business from 40,000 feet up in an airplane. So, it was pretty cool.

Erik Martinez: It sounds a lot like today. One of my favorite stories with Mike was, this was probably 1999 and he was on his way to China and the laptop died.

He said, hey Erik, I need a new laptop. So, we picked one up from CDW and ran through the airport to give it to him at the gate while he was getting on the plane to China. That's one of my favorite stories.

Mike Stopka: I mentioned that I'm kind of a Chicago guy. I think there's two people other than Erik who work harder than I do. So that's pretty amazing too.

Erik Martinez: [00:09:00] So Mike, you talked about how you got into this business and when you started it was all direct marketing. It was print. You've gone through this amazing transformation from being just a direct marketing company to being mostly a digital marketing company.

 Tell us a little bit about that transition.

Mike Stopka: We've always had good sources in Asia. Once we went to Asia, we've always been, I think, product driven, but again, the beginning was back of magazine catalog and our website. So, we're pure B2C and my IT director at the time, gentleman in Ben, said, you know what? You should start advertising with Amazon.

This has to be 12 years ago, 15 years ago, and not knowing anything about it, but now looking at it, it was a seller central account. I said Ben yeah, go ahead and try it, and to my amazement, I think we did like $300,000 the first year, and says is, wow.

This might be actually a business. We got into the marketplace business [00:10:00] truly by accident because it was an initiative not from marketing, not from merchandising, but from IT, which is kind of counterintuitive, but that's where it came from.

Tim Curtis: So, question related to those marketplaces. The marketplaces were a bit of an evolution for you. Over the years you continued to evaluate go deeper in the marketplace. Is that an accurate statement or did you just dive headfirst into the marketplaces from the beginning?

Mike Stopka: It was a redundant process. You would take a couple steps and take a couple more steps and just learn from the experience. I mean, I knew at one point that with our 3P account doing as well, that I wanted to get some Amazon context and it was almost impossible and I kept trying to get a contact directly with a vendor manager.

So, I happened to be at the Las Vegas hardware show, and I walked into an Amazon session and I mentioned who I was, and then he said, we've been looking for you. We've been trying to get you. Actually, my VP of marketing was blocking it. That was the opportunity to get into Amazon 1P, same thing [00:11:00] with Hay Needles.

In the beginning, it was kind of hard being a B2C finding a niche or a contact to get in. That's actually gonna be a common theme talking about each of the marketplaces is sometimes you need a secret door, or you need someone to shepherd you in to get into it. Then just most recently we're launching with a Target Marketplace, which is kind of a curated marketplace.

We got into Home Depot about two years ago and that would never happen without someone to facilitate the process. Some of the guidance we had Overstock. So, it just evolves with time. At this point I think we're in most of the places we want to be, but there's always still ground to move into as the marketplace develops.

Erik Martinez: I'm kind of curious, Mike, how many marketplaces are you in and I know you well enough to know that there's probably no end number, but how many are you in right now? What kind of complexities does that drive for you?

Mike Stopka: Pure marketplaces, maybe 15, but again, we do sell [00:12:00] B2B, to lot of smaller players that have their own websites, but they put the product on marketplaces, but as long as they keep the map, I really don't care because if a smaller player can find a niche that we're not in.

Especially like in the eBay arena you have to be so nimble and so low in the process. Smaller guys can do a better job. It's pretty shocking how complex it's got over the years. It's an evolution in the marketplaces where you could just get into, FBA, a 3P account and start selling.

The level of expertise that you need. I give sort of a speech every so often to the management team, I says the harder it is, the more complex it is, the better it is for us. Assuming that we can keep up with it because it keeps out people.

It's much more difficult to get a starting position now in the marketplaces because of the complexity that's in there and the lack of people. Amazon used to be able to talk to vendor managers. We paid I think a quarter million once for an SBS, which is a direct contact at Amazon that would [00:13:00] work half the time with us.

Now to get people it's very difficult to talk to, except Wayfair. Wayfair has done quite a good job of keeping the people factored in. I think that's why they succeeded. So, I think I've answered a couple of questions, but it's become amazingly complex.

Tim Curtis: Here's a question for you. One of the things that we run into a lot. Brands balance their exposure as a brand to the marketplaces, and they're also at the same time wanting to take advantage of a sales conduit, but it is a balance and there are potential downfalls. I know there are clients who have been asked to expose their entire supply chain to Amazon in order to proof the supply chain.

Well, that also gives insight into how they're building product. Of course, that became a point of tension, but it really is, for many brands, it's a balance. How do you go about finding balance between protecting the brand, but yet taking advantage of the opportunities that marketplace presents?

Mike Stopka: It gets back to product, [00:14:00] and it depends on how exclusive your product is.

If you're selling toilet paper or a batteries you're screwed. The balance between marketplace B2C or B2B is difficult if you have a commodity product, in my opinion. But if you have a product that's long tail, I don't think it's that difficult because it's sort of like Home Depot and Lowe's why do they use middle people? Because of all the logistics and all the value that that middle layer brings to the table.

Same thing with Amazon, Wayfair, Hay Needles, without a middle layer, which is us, or to find these types of products, they wouldn't exist on these marketplaces. So, I sorta have let the marketplaces and our B2C sort of reach equilibrium and make whoever wins wins. As long as everybody competes at the same level with MAP.

So, everybody has the same price, and it allows fairness within the marketplaces. You break MAP, which is always a problem to keep. If you're not familiar with MAP [00:15:00] is minimum advertised price. And the definition of MAP is what the final consumer pays. So, if you have a retail price and you ship that item, it's the price for the hundred-dollar item, plus the $20 to ship it.

It's $120. Most marketplaces, if not all, it's free shipping, but of course we all know them. Nothing's free. So, it's built into the price.

Erik Martinez: There's definitely nothing free, but let's go back to product development cause you said something about unique products versus commodity products in these marketplaces

 You and I have had this conversation from time to time about the idea of building new products. How do you keep new products flowing into the marketplaces because it seems like they're heavily incented to just take bestsellers? How do you deal with that particular issue?

Mike Stopka: Like the catalog or any business you need new products to feed the chain. In the [00:16:00] old days with the catalog, you had to keep it very dynamic and keep moving because you had a set size universe it was the rental size that you could get to. In marketplaces, if you think that Amazon accounts for was at 50, 60% of e-commerce. E-commerce accounts for almost 30% of retail market and moving up to 50%, we're getting into niches in corners that we never would have before.

As an example, we sell a lot of garden products and gnomes is a category that really, we never really sold for Design Toscano B2C catalog and web, but with the much broader net, it's one of our best selling or actually is I think our best-selling garden product is a gnome that moons it's the mooning gnome.

 On Design Toscano in the catalog, I barely get it in because our buyers don't want it, so you're hitting different markets, different nets are being thrown out. The holes for the net are bigger or smaller depending on what you're trying to get. Going back to direct marketing, it's the bullseye. When you're selling in a catalog and you're buying a SEM and you're going [00:17:00] after a certain customer, the bullseye is pretty tight to make it cost effective.

When you're an Amazon, Wayfair, Walmart, it's a much, much, much, much broader net and you're able to pick up a lot of different products. So, what you've got to do is feed the engine, but it's not just feeding the engine now for your normal B2C it's now you have to account for what sells in marketplaces.

People always ask how big can you get? I would have put a limit on the business in the early days because it was based on the universe, the ecosystem of a catalog and a website, but marketplaces, how big you could get is much, much, much broader, and actually your market share because a lot of your competitors can't play in this game because it's not a B2B type businesses.

A lot of guys that are 50, 60 years old, they're not meant for marketplaces. Marketplaces and Ecommerce is a young man's game. Not saying that someone over 50, like me, or maybe over 60, like me can't play in the game, but it is a young man's sport

So [00:18:00] I think people like us, like Design Toscano, grow much, much larger now than it used to be when you were restricted to one channel, like a catalog or your website.

Tim Curtis: So, you said something very interesting that I want to go back to. It sounded as if you were saying your direct consumers that are selling either through DesignToscano.com or your marketplace consumers are two distinct different groups, and you have a merchandising strategy for both groups.

Did I hear that right?

Mike Stopka: I mean is it a real strong merchandise approach? No, but do we make modifications in our merchandising? Yes. The B2C you should be able to sell it. There has to be a reason. It makes business sense to put it in. So if I got a great deal to sell lawn chairs and I could make it work, I probably wouldn't make it work because it doesn't fit into what Design Toscano is. But if someone said you could sell, I don't know, [00:19:00] let's say runner statue, which wouldn't fit into Design Toscano, but I know that there's a market out there and I can put it in a marketplace and our vendors can produce it, I would add that product.

So yes, you fine tune your product, but it's not going to be a conglomerate type approach to products. They're not going to add things that aren't our core competency.

Tim Curtis: Sounds almost as if it's a brand strategy, and the merchandise aligns with the brand strategy. It doesn't fit into a Design Toscano whether that's Design Toscano. com or the catalog, it doesn't necessarily fit, but the marketplace affords you more possibilities to, to have that kind of independent placement.

Mike Stopka: Yeah. Correct. I mean, if we found a niche that was big enough and we had the sources in Asia, would we go after it? Yes, but I would not call it Design Toscano and I would put it to the side and silo it out. So, it would sit actually, you're getting real deep here.

It is venture capital strategy where you take the [00:20:00] platform, so in what we've developed is we have a platform expertise to go into the marketplaces to sell our products. We're really importers that built the channel, but we could add other properties or go out there and get private equity to buy properties, to put on that platform. So, it's a different type of play.

We're selling our platform to get into the marketplaces, and I think there's a huge opportunity and that it will give you a much higher multiple if you could do that. That's sort of the challenge to develop that and it's not just IT, but it's, I'm sure we'll get a chance to start going into logistics and three PLS and the complexity of what Bezos says introduced everybody.

That's the long-term plan is us or someone who invest in Design Toscano to expand the platform to a much larger entity than we are right now and we're getting pretty big.

Erik Martinez: That's kind of an interesting business strategy because I think you said [00:21:00] somewhere you're over 60 and you're building this platform to bring products, unique products into these marketplaces to sell.

What's the value proposition to a potential investor or acquirer of the business. What do you think the most tangible thing is for the brand if I'm trying to buy Design Toscano?

Mike Stopka: If you're just buying Design Toscano it's one dimensional is straight the EBITDA calculation, but if you're playing for a bigger picture, I mean, if you've been to the big shows, like High Point or Atlanta, you walk on those aisles, those guys might have really nice products, but they don't have the expertise to bring it to marketplaces and really leverage it.

They're more used to getting squeezed by Home Depot, Menards, Lowe's what have you. The reason they do that is because this is a tough business to get in. It's a young man's business and that it's spreadsheet based[00:22:00] internet based.

You start walking through and say there's a tool company and actually I know the guy. You buy a tool company and you put it onto your platform, so it uses your EPI connections. It uses your logistics. It uses your accounting systems.

The analogy would be back in 2006 I think it was, there was a big play in the catalog industry and the web business to roll up multiple titles under one entity and to get the economies of one platform. That was done by a company called Cornerstone at the time was Ballard Front Gate Brandon Road.

They built one giant warehouse in Ohio and they had one accounting department, but they let the marketing and merchandise people run as separate silos. There was a 2006 strategy. I'm saying that there's a strategy now and for marketplaces, literally, if you look for it, there are people out there that are buying Amazon based FBA companies right now.

There's a whole marketplace [00:23:00] in a bidding process for that business. I don't know much about it because I think it's scaled for smaller size than we are, but I think it's a great opportunity and multiple wise, instead of having a one dimensional multiple in that I am a brand that sells statuary garden in home and gift items, you're selling a platform approach, which makes you into a full e-commerce company, which demands a higher multiple in theory. We'll see if it works at some point in the next few years.

Erik Martinez: Well, isn't that the case in all businesses? So, Mike, you're talking a little bit about infrastructure, and I know quite a bit about your business because we've worked together for 23 years. The question that I have is really around the idea of logistics, because let's face it 20 years ago, you could have one warehouse somewhere outside of Chicago and distribute to the entire country and it was expected that product delivery would take seven to [00:24:00] 10 business days.

That model has been totally flipped and logistics is a driving factor in most of our businesses today. So, can you tell us a little bit about the challenges that your team has faced in getting those logistics systems up?

Mike Stopka: You look at the role models that are out there. So, you're not a bleeding edge and it's Bezos with 50, 60, 70, 80 three PLS warehousing across the United States. Then you have [EM2] a Niraj Shah (CEO) from Wayfair building out the Castle Gate, which is another warehousing three PL network.

Sitting here with the crisis right now that's going on with containers and shipping, it's kind of the one-day, same day, two-day delivery is sort of a little out the window right now on a short term basis, but it still holds true that that's the new gold standard.

So, if you're just a normal B2C selling your own brand and you have one facility in, let's say St. Louis, that to compete in the new world you need to be able to get it to the consumer [00:25:00] fairly fast and you need to diversify your product. There's also a savings to it depending on the size and dimensional weight of your product.

If you're selling t-shirts, you're just getting the two-day flyer or one day flyer have it in San Francisco west coast Midwest, but if you're selling a little larger products it's a big difference in shipping costs. So, if you have a large TV that you're shipping from Reno to somebody in Los Angeles it's a lot cheaper than shipping that TV from New Jersey to California.

There's so many reasons why you want to have your product spread across the United States.

Erik Martinez: You have statues that are very UPSable or FedEx ground ready type products. You guys also sell really large furniture, statues items.

So from a distribution standpoint, does that mean that you're going to parcel out some of that inventory across the country or are you going to centralize that in the warehouses in the Chicago region and [00:26:00] distribute from there?

Mike Stopka: For right now and our size, it's Chicago. I don't wanna get too deep academically, but I envision a bifurcated curve where it's inverted dome in that when you're selling in the middle size, it's where you should be spreading your products because you save on shipping, and you get the two day flag or one day flag.

As you get into smaller items, we're still in the analysis phase because there really isn't as much savings with smaller items being closer to the customer. The cost of a three PL warehousing partner, charging five bucks to pick a $20 item is kind of hard on the larger items given our size, it makes sense to have it as central location in Chicago.

If hypothetically, we were a quarter billion dollars annual turnover, right? Then you could take a chair and put it in all three locations, but we can't do that yet because it's too cost prohibitive.

In the middle part of that curve, it's perfect for having it distributed across the United States. [00:27:00] I say United States, again, you talk about the complexity. I mean, we have four, got Reno for Design Toscano, we have Savannah. We're launching New Jersey with a partner. We're in Chicago, so that's four.

Wayfair has their own system, so that's another six locations that our product gets distributed. We're launching Canada right now in Mississauga. We've been outside of Manchester in the UK for like eight years. Europe has been a little more challenging, but we've incorporated in Netherlands. Then we're having conversations about a three PL in the southeast of the Netherlands.

We're also in Castle Gate in Germany, so we will be there. So logistically, scale and the platform is pretty important because it's like IT, it's needed for the marketplace in the future. Not to scare anybody that's listening to this is a little smaller size because Amazon will do the lifting for you with FBA, or you could get a, a three PL partner to help you get into it.

That's where a lot of Amazon's [00:28:00] business has been with small guys on FBA, but, in my opinion, long term Amazon's trying to squeeze them out. Not because of trying to take over the market is they don't have enough space. If you're a small player in FBA, you're going to have to go and find a three PL partner someplace because you can't count on Amazon.

Right now, Amazon is having a space issue before prime day and they're stopping people that are FBA from shipping their products in, so they're, they're basically screwed. So, if you want to control your own destiny, you need to have your own controllable three PL network or your own facility. I gave you a lot of answers. Logistics is important to summarize it.

Tim Curtis: You're giving us a lot of insight into the marketplace selling. You may or may not be surprised to hear how frequently I run into brands that have no interest in selling in the marketplace. I'm just curious, let's play that out, what's your response to somebody who says that?

Mike Stopka: Well, let's just break the question into [00:29:00] two factions, right? If you sell a product that's a commodity product, I'll use the classic batteries that Amazon screwed. I wouldn't sell on marketplace because you're going to have competition. You can't win the buy box. Your margin is going to be compressed.

In an economic model, it's the best deal for the consumer because Bezos in these marketplaces are driving into the lowest price, but if your product is exclusive, proprietary, hard to find, if it has a strong brand I'd say, why not? Again retail, 30% of retail is e-commerce give or take.

It's going to be moving to 50%. If you're on the left-hand side of the ledger, you'd be insane not to get into marketplaces. Take an example. Nike has done, I think a pretty good job I have been told, I really haven't researched it, but that they sell their own B2C. Of course, they sell B2B, but they also share their products on marketplaces.

It's key there that you can control your pricing and Amazon understands that. I [00:30:00] think Amazon has really, especially with the big-name brands, allowed the brand to police the brand and that's why there's an anti-Chinese move on Amazon. Some of the platforms in that, not anti-Chinese as a nationality or a country, but it's for guys that would sell knockoffs or sanctioned Gucci purses or not sanctioned Nike shoes.

So, you look at it two ways. The product has to decide if marketplaces make sense and if you can control it and control the price, and you have the biggest opportunity in the history of retailing. I mean, in the days when you just would sell the Home Depot or Lowe's or Sears, you're selling a lot of points.

 Now you'd have a lot fewer the sell to, and they could get to a lot more consumers. Again, I used an analogy that I had a few years now, there used to be thousands of banks. I remember back in the seventies coming out of school, they said that eventually they're only [00:31:00] going to be like 10 big banks or whatever the number is.

I said that's insane. It's going to be like Canada, where Canada only has seven banks. Well, I think we're at that point in e-commerce that there's a natural economic scaling through a whole oligopolies way in that these marketplaces are becoming oligopolies. I mean the first to market and who gets market share, I E Twitter, you know, i.e., Facebook, that academic basis footing is the same for marketplaces.

So, I think it's a great opportunity and you should take advantage of it if you could deal with the complexities.

Tim Curtis: I think sometimes the marketplace, Amazon in particular, have been somewhat villainized in the conversation. The reason I mean that is you're right, there's this realization that if you have been primarily a reseller or you're selling commoditized product, there's no question that the world is getting more difficult for you and as people move into marketplaces or as they're trying, even on their own in a direct to consumer model, as they're trying [00:32:00] to distinguish themselves in the grand scheme of things, in terms of the selling space, it's not enough to just have the merchandise.

The merchandise has to be that much better. It has to be unique. There has to be something compelling about the merchandise. If you're going to go to all the trouble of creating something unique, something that necessarily won't be as easy for a marketplace to try to counterfeit, there you have it, but brands are going to have to really focus and really get serious about the merchandising issue.

It's been creeping up for years, but the rise of the marketplaces has really brought it to the forefront. Batteries is a great example. Everybody has read the stories, or if you're listening and you don't know, I would encourage you to Google some of the news stories about Amazon and the batteries and what they did to the battery sellers online.

So, it's all out there, right? It's all out there for people to read and understand, and that's been happening in large shopping clubs for years. Brands have been in there selling products, the product start moving, the shopping club creates their own version [00:33:00] of it.

The brand is out. So long story, but now we have to sort of focus on the importance of merchandising and really understanding that as you develop an Amazon strategy or you don't develop an Amazon strategy, that's still an Amazon strategy deciding to not go the Amazon route, you still have to create a strategy to deal with Amazon.

So, you're not off the hook just because you decide not to sell with big, bad Amazon. you're going to have to create a strategy to effectively carve your own way forward.

Erik Martinez: Tim you make a great point. We know from working with Design Toscano over the past few years that we constantly are having conversations with Mike about Amazon or even Wayfair and a handful of others that we bump into in the search market very regularly and sometimes very aggressively.

That brings a question Mike, what's your view on, hey, we're doing advertising in our own search [00:34:00] programs, whether they be paid or organic or social media, and Amazon and Wayfair, those two in particular are also competing with you in those same spaces, and sometimes we see that overlap rate as high as 50 or 60, or sometimes 70%, how do you reconcile that when you're working with your team and as you're planning your strategies?

Mike Stopka: Well, it's obviously something that's a new concern in the last five years, but if you're still getting the roles that you need on each of those channels and they're hitting different consumers, and if we were to do this, not that we ever did, but if you would take Amazon buyers that were on 3P and you were to model them, and compare them to your house file. They're different. Amazon buyers are Amazon buyers, and they're not necessarily your brand buyers.

Your buyers might overlap with Amazon and take an example. You brought [00:35:00] back my bicycle riding. So, what I'll do is I'll go to apparel Zuma. If I'm saying it correctly, the bike story. And I look at I'll look up a Jersey and I'll go to the brand store and get all the information I need about the Jersey, and I'll get all their emails and then I'll order it from Amazon.

I'm buying that because it's a logistics system that they could actually deliver product to my doorstep in one day, two days. You can't look at each silo in that example as a standalone, it's the number of touch points. You see studies now, how many times does a customer have to be touched before they buy.

So, you let the customer decide what channel they want to buy the product on, and they buy it for different reasons. It leads into a question that's related to the sort of Erik we've had conversations about that, a branded versus private label, and I think that's a topic that's still on the table.

I think MAP is more important to [00:36:00] almost all this because you want your partners to be making money. We just did a study with Amazon and making sure how much PPM their margin they're making. You want Amazon to be making decent margin, like all your partners, otherwise they're gonna take it out of your margin.

I feel that if Wayfair or another brand wants to take your product, use your content or maybe new content, that'd be preferable, and private label it, I think that's actually okay. I think Erik and myself have had conversations, beer talk, and Erik doesn't think it's a good idea unless you changed Erik, because I think it's more important to protect the MAP price than it is the to keep the branding all the time.

It's an opinion. We'll see if it plays out. The CEO, founder of Wayfair, I've gone to dinner with them. Here at Design Toscano we're decent size, but the joke is that I still have to pick up dinner. It just shows that he knows how important the players are in the marketplace because Wayfair especially is nothing without people that sell on their [00:37:00] platform because Wayfair owns nothing for product versus Amazon with one P they own.

Erik Martinez: There are pure retailer in the old classic sense, right?

Mike Stopka: They own nothing. They have all these warehouses and what's inside of there they own nothing for product, and so they need people like us. When you sit in these sessions that when he meets with senior managers and presidents, he talks about the concept where they're getting close to the 90% of the products they'll sell will be under their brands.

So, they have different names in different segments that they're marketing to based on those brands. So, if they, I don't even know the names that they use, but for our fountains, I know that we've private label our fountains with a Wayfair and they call it something and it might be garden flowers, I don't know.

They're, they're marketing to the Wayfair consumer with a different brand. If I sell the product because it gets back as we talk about merchandising, I see us as almost originally [00:38:00] as an importer that uses the channels. So, it's the sourcing and the products and I want to sell it through the channels.

As long as everybody competes fairly at the same price or higher which private labeling allows them to do, then everybody wins, in my opinion. They'll have better margin we'll sell more product.

Erik Martinez: How does that transition play out for somebody like Wayfair, where they're gonna say, hey, we're going to take Design Toscano’s products, I'd say out of the 6,000 plus items, we're going to take the best 1500, and we're going to sell that under private label on Wayfair.

Today in the classic marketplace model, you're supplying all the content. You're supplying the creative, you're supplying the copy, you're supplying all the digital assets and under a private label scenario, I would expect them to develop those creative assets.

Mike Stopka: In many cases, they do. They reshoot it, and they do a crappier [00:39:00] job than we do, so that's actually a concern. The content writers can't be as good as us, and so we're always finding silly things. Like you'll have a statue that they have up there that's private label, I'll make it up, it's David. They'll have the picture of David from behind, not the front of David.

We go what the hell is this? Come on guys. So, there's upsides and downsides of private labeling when the contract gets involved but they have their own resources.

Erik Martinez: I'm curious then, does that impact your brand? We've talked about this idea of balancing the brand with the marketplaces, but that's in the classic sense where you're somewhat competing with yourself or advertising yourself in multiple channels, right? I'm advertising myself in Amazon.

I'm advertising myself in Wayfair, Target, Walmart, whatever marketplace exists, and on DesignToscano.com you still have the brand authority and control, but the second they [00:40:00] private label and it's still your product, how does that play? How does that impact your customer service team?

Mike Stopka: It would not affect our customer service team, it would affect theirs is because they own the transaction, but when they're private labeling, they’re primarily doing it to have more margin.

So, if a buyer binds an I iconic product, let's say the Bigfoot Yeti gnome for your garden on Design Toscano at a hundred dollars, and they'll find the Yeti Wayfair's brand for 120. If they want to buy from Wayfair at $20 more, they'll buy it from Wayfair, but most cases why they’re buying is because they didn't find it on Design Toscano. That being said, they're not going to ever private label any iconic brand.

So, if there's something that is recognizable, that it's Design Toscano they want to use that brand. They want to keep to it. That gets to things like where they have blenders or if they have coffee makers. You talk to the guys at Wayfair, and they want to keep that brand and they want to leverage that brand.

So, then it goes to the Design [00:41:00] Toscano with 7,000 products. If there's that mid-tier type product or upper middle that they could add 10, 15% more margin on it, they'll private label it again that coming to fruition.

Only thing that we've been a hundred percent private label is on the fountains, and why it's important is that it's a commodity product. Let's say 10 people in the U S that sell fountains from China, but they all come from the same region and maybe four or five factories. The brand means more to Wayfair, it's more to the product that helps sell fountains than having Design Toscano's name on it. If that makes sense.

Erik Martinez: Yeah. You're talking about an ecosystem that includes sellers who are selling branded and non-branded Design Toscano kind of product. You're trying to sell in as many channels and reach as many consumers as possible. That's your business strategy, right? At the end of the day, you're not concerned is what I'm hearing, you're not as concerned about brand [00:42:00] dilution in that scenario because your products are unique.

Mike Stopka: And it's a big enough market out there cause you're getting the whole United States. I'll tell a story that my creative director was shooting in Florida, I think it was Ringling Brothers mansion and we're doing a garden shoot and people are going through the museum and the gardens, where can I buy this?

He said Design Toscano. Where can you buy this? Steve said all these people in the US that want to buy our product, but they can't find it. This is 15 years ago, 20 years ago. I said, unless we can go on TV and you get a large marketplace, that's the way it is.

Meaning at the time marketplace not marketplaces that we're talking today. And now everybody in the United States has an opportunity to find our products because with marketplaces the size of Amazon and Wayfair and Walmart, you could get your products.

We would never be able to sell in the store. You'd have a little margin. It's a pain in the ass to deal with the buyers, all the restrictions, but if you get those products on a Home Depot, Lowe's, or Target, the net is so much [00:43:00] larger that you're pulling behind the boat and you're going to catch so many more fish than back 20 years ago when people wanted to buy our products at the museum. There was no way to get it to them.

So, you're almost approaching sort of like marketing on TV, but not what TV used to be. Am I making sense there?

Erik Martinez: Yeah. Yeah. It totally makes sense. I think it's a critical point because every brand, every business has to take a strategy about, like Tim said, whether to deal with Amazon or not to deal with Amazon, whether to deal with Wayfair or not to deal with Wayfair, so on and so forth.

These are all the different considerations that you can think about in whether you want to employ that business strategy or not. I find it fascinating in terms of how you have actually transformed the entire company in what I would consider 20 something years ago.

You're the middleman in a lot of cases.

Mike Stopka: Okay, this is really going to academic. [00:44:00] In UK, the ecosystem there is a little different that you only have 55, 60 million people there. We were in the B2B garden business and vendors that sell in the UK are so hesitant to sell on Amazon because they only have a certain set of customers that they sell to, so everybody knows everybody in the UK.

So that might be plain for somebody that's considering a marketplace if they're a bigger niche, where they just can't sell on Amazon because it will destroy 99% of their business, but what develops there is then a gray market. So, wink, wink, they talk to somebody like i.e. me, or they talk to somebody else that's a smaller player to get it onto a marketplace because they can't directly go there without screwing their core competence.

The United States is much bigger, so that's less of an issue, but if you have a product that's much more mass market the business case, I just described in the UK again also play in the U S but size is what dictates that?

Tim Curtis: So, I want to pivot [00:45:00] and ask a question about your marketplace team. Tell me what it looks like today, and then I want you to put on the prognostication goggles and look and tell me what you think it's going to look like in the future based on what's happening right now with marketplaces.

Mike Stopka: It starts with your product merchandising content teams. They could do different versions of it. They could do a product for a marketplace, but that's where it starts, and I don't see that changing much unless you buy companies and have a separate silo.

But then that sits on top of the platform and today that's catalog and web. So as our B2C, we have a B2B business. We go to 15 garden shows across the United States. Then we have Amazon, Wayfair that's under neath one umbrella. Then we call something web commercial, which will probably start to be split up as it gets bigger, which is Overstock, Home Depot, Lowe's, Target, eBay, a handful of more.

Then there's another B2B business called trade, which sells to smaller websites that find niches that we're [00:46:00] not approaching, gift stores, specialty movie companies. So that's sort of the multiple departments right now, given our size, but I think the key thing here of people who are in marketplaces or who are thinking of it is you need outside expertise on it cause you can't afford, or you can't get the expertise from the outside.

It goes back to the first question you asked me to come from Bank Tech. I was an expert when I walked into a bank on remittance processing and I saw hundreds of customers, so I knew what was best practices. We can't possibly know what best practices is all these channels.

We have an expert team for Amazon and Wayfair. We have expertise for a Home Depot, Overstock, and eBay. So, the team is you got your merchandisers, content, then you have your different marketing teams and then you need outside help.

We knew immediately that we needed Amazon help when we got into it. At the time there were really no consultants back when we got into one P by [00:47:00] maybe eight years ago. So, we started at let's hire somebody from Amazon and we tried to do it and nobody from Amazon would we even look at us given our size and we couldn't possibly afford what an Amazonian was getting. So those types of people in Seattle went to an agency and that was the only way to get to somebody like that. But actually, one of our AMS was an ex-Microsoft executive in Bellevue, Washington and when I was there, he says, what we would do is we'd go to the UK. UK people like the work with the U S and you're able to get the things they have a little more reasonable rate.

So what we literally did was we asked our person at in London and I said, Hey, do you want to work with us be it as an employee or as an agency? They had planned on doing it anyway and it was like a marriage made in heaven. So, we got them into the business, but we could never get as deep in the expertise and afford the expertise that we get from those two people. [00:48:00] So our Amazon, Wayfair program is run from London with an account manager in Chicago.

You've got an expertise from our catalog industry. You always have to lean on outside expertise because it's too expensive, unless you're a big player. People working on our website, you meet on the outside. So that's sort of my takeaway for somebody in marketplaces or want to get in the marketplaces is you can't do it by yourself, and you need the outside to develop the infrastructure.

Of course, you need your internal team to do a lot of the managing of those consultants.

Erik Martinez: That's awesome Mike. I really appreciate all your insights. You guys have done an amazing job of transforming the business and building a really solid business in the marketplaces and have year over year growth to support that.

So, we really want to be respectful of your time, so we just have a couple more questions for you. One of them is, we talked a little bit about what do you say to people who don't want to get into the [00:49:00] marketplaces? What if you do and you've never been before, what key advice would you give them?

Mike Stopka: Make sure you have a product that is special enough that you don't have to have direct competition and leverage expertise from the outside. As you scale, that expertise can be internalized, and Amazon gives you an opportunity with FBA as long as it stays healthy.

eBay gives you an opportunity. Wayfair is a little harder to get into. Product is everything. You've got to go back to the product.

Tim Curtis: Any other advice you'd like to leave the audience with today? Any pearls of wisdom?

Mike Stopka: I guess after 30 some years, I've been accused of too many analogies, but you just gotta be able to change and like go back to when we started on the kitchen table, and I was copying other catalogers.

You'd cut and paste the catalog together and put the business together and you'll look back after 30 years, let's say there was a hundred people that were your counterparts in the catalog industry. There's, I don't know, maybe five, three left and it gets back to you have to change and you have to morph.

One thing looking back from [00:50:00] the outside of Toscano if a private equity guy ever comes and wants to bestow us with some money is that you look at the longevity and the morphine of a company and that leads into sort of your theme about marketplaces. If someone's not in the marketplace, you have to morph if you want to exist in the future.

I close with the analogy is that when you travel in China, when we started in 2000, you'd be driving down when China was much more raw and you go through these towns, and you'd see a dog in front of the car.

We'd all just put our hands in front of her eyes cause you're going to run over that poor dog. Right. Then I realized that dog was probably over 10, 15 years old. So, I would tell the guys in the car, I says, don't even worry because the dogs made it through 10, 15 years in the same situation. The chances of us running over that dog is non-existent.

The reason is that the dog has made accommodations for its environment and changed over time. Your business has to change dynamically. Like right now with the containers, we've had challenges and I say this is probably the best we've ever done.

[00:51:00] It's also the most challenging and maybe the worst it's ever been. That gets back to change is a constant and you have to adapt to the change that you're in business.

Erik Martinez: Yeah, I think that's a really important point right there that change is a constant, your businesses have to evolve, and if you're stuck doing the same thing today in five years, you're not going to be around to enjoy the fruits of your labor.

So I think that's a really important point. Anything else, Mike, that you'd like to offer before we go?

Mike Stopka: No, I enjoyed the process. It's actually kind of nice to verbalize some of the things that have been in my head, or you've shared with individuals, but then never really in a concise forum. Verbalizing things sort of helps bring business ideas to the top of the water. So, thank you for the opportunity.

Erik Martinez: Yeah. Well, thank you very much for taking the time to to join us today.

Well, everybody that concludes this episode of The Digital Velocity Podcast I'm Erik [00:52:00] Martinez from Blue Tangerine

Tim Curtis: and I'm Tim Curtis from CohereOne