What you’ll learn
On today’s episode, we look at the impact of the coronavirus on businesses, especially on big box retailers like Amazon and Walmart.
About our guest
Over 30 years of diverse business experience and 24 years of retail and consumer goods industry experience, and 4 years of Wal-Mart buying experience. Scott’s 17 years of consulting experience provide him the knowledge and insights needed to be a creative and pragmatic leader and “Team Builder,” skilled at planning, organizing, leading, and executing complex cross-functional sales and operations activities that cross organizational boundaries to quickly deliver business results. Scott has an inactive CPA status and an MBA from Boston University.
Speaker 1: Welcome to the Page One Podcast, a weekly podcast featuring a variety of guests and thought leaders on topics ranging from channel strategies, to tariffs, influencer marketing, best in class product launches, and all the details about how to accelerate your eCommerce sales with the big box retailers, or what we call rCommerce. Now here’s your host, Luke Peters.
Luke Peters: Thanks for joining us on the Page One Podcast. I am your host, Luke Peters, and this is the podcast where I bring you the best and brightest leaders to share consumer product sales and marketing strategies that will help you grow your business. I’m the CEO and founder of NewAir Appliances where I cut my teeth selling products online, and now I’ve started a Retail Band, where I hope to help other brands succeed in product launches, influencer marketing, and B2B online sales strategy, and right now offering a free evaluation of your online sales strategy. If you’re interested find me on LinkedIn or email me at Luke@RetailBand.com, we can take a look and see if influencer marketing is right for your brand, or just understand how you’re selling into your sales channels on the digital side and see if there’s some improvements you can make.
Luke Peters: In this episode you’re going to learn from Scott Bowman, president of Strategic Alliances. Scott has 24 years in retail and consumer goods industry, including four years of Walmart buying experience. Scott brings expertise en masse in online channels with a focus in building relationships that matter at the highest levels. Scott, in the past, has held a CPA license and has an MBA from Boston University. Welcome to the Page One Podcast, Scott.
Scott Bowman: Thank you, Luke, it’s good to be here.
Luke Peters: Great. In this episode of the Page One Podcast we’re going to focus on how to effectively sell into Walmart and Amazon, how to survive both of the world’s two biggest retailers, and how to plan around their channel conflict. Scott, looking forward to that conversation. You don’t mind kicking it off, tell us a little bit about what Strategic Alliance Incorporated does.
Scott Bowman: Okay, well Strategic Alliances, Inc., our mission statement is to design, develop, deploy, and deliver tailored, holistic, and integrated business solutions to small and medium sized product and manufacturing companies desiring sell and distribute their goods to the largest retail outlets in North America. We do that by helping our clients build cohesive teams based on mutual trust, create a shared understanding, sort of a mission of where we’re going, clearly defined business intent, exercise extremely disciplined initiative with mission orders, i.e. everybody has sort of a specific set of tasks and things for which they are responsible and accountable.
Scott Bowman: Then an acceptance of, what do we design as a prudent risk structure? We consistently aid these teams with mission command, allowing teams to take advantage of fleeting opportunities to exploit their initiative and see some business advantage. Then we design the processes technology and the structure of the business to enable the subordinate team leaders irrespective of the organization in which they reside to exercise and practice the art of command, i.e. make decisions at the lowest possible level and take advantage of an opportunity as it arises. That’s what Strategic Alliances does. That sounds a little bit sort of like a military orientation, it is. Prior to being in the retail world I was in the military.
Luke Peters: Oh, wow.
Scott Bowman: A lot of what I do, a lot of what I look at here has sort of this push responsibility down and out, make sure everybody at the appropriate subordinate levels really understands what’s the mission, what’s the objective. If you have that you’ve got teams oriented around accomplishing the mission, you don’t wind up being as clunky, you build nimble, flexible, and dynamic organizations that can respond to opportunities as they arise.
Luke Peters: Where in the military did you end up serving, Scott?
Scott Bowman: I was in the Army and then I was stationed primarily as an Officer, during my time as an Officer in the ’80s, in Europe, Germany.
Luke Peters: That’s awesome. Obviously in this episode we’re going to focus on Walmart and Amazon, and kind of contrasting them, by the way, for the audience, just so you guys know, so we’re going to get into a fun conversation about strengths and weaknesses, and how brands should plan around selling into both of them. Before we get to that, Scott, go ahead and just give the audience a little bit of scale on the company size, how many employees, you guys have a warehouse, and anything else you want to share about the company, just so folks can kind of understand those details.
Scott Bowman: Yep. Primarily we are a business process outsourcing company. We can do virtually anything a business needs to be done to operate here the United States. Many of our client companies are large companies based in foreign countries like India, or China, or Brazil, and we are essentially their operational capability here in the United States. We have warehouse, 50,000 square feet, here in northwest Arkansas, the home area of Walmart. We’ve got five warehouse people that are just dedicated for building orders, packing orders, shipping orders, a couple people who work in management tag team leadership of that group. Then the remainder of our organization, which is another about seven people, who are basically in what I call the intellectual capital side of our business, so they are all in the either tactical activities around measuring business results, or developing strategy, or doing supply chain demand planning, or potentially looking at things …
Scott Bowman: Depending upon the client we even get involved in things like, “Okay, you’re going to have a future tax liability that’s going to impact your cashflow. Here’s how it’s going to have to be paid. Here’s how this might impact your future investments as you move forward in inventory and other things.” We’ll even get involved in discipline and orientation around how you bring products to market, where is it going to get made? How is it going to get made? Who’s responsible for doing what where? At what point do we need to have samples finished, photographs done, get everything set up at all your various online retailers? What automated systems need to be involved? Who do we need to share this information with? So when the physical product arrives we’re able to launch day one.
Luke Peters: Awesome.
Scott Bowman: Those are all sort of the scope of things that we’ll be involved in and help our clients manage. It’s really kind of an envelopment strategy. Many of our clients come to us thinking, “Maybe these guys can help me get into Walmart,” but most of the time what we find is that once we get involved there’s so many other areas that they really need help in terms of managing their business so that they get the most out of their business.
Luke Peters: Great.
Scott Bowman: SAI is 15 people and we can do pretty much anything all up and down the supply chain. We don’t necessarily do everything ourselves, we will do … We have partners that we work with, that’s why we’re called Strategic Alliances, so in many cases what we might do is reach out into a trusted advisory group where we pull in other people to do a certain thing.
Luke Peters: Great. Thanks for that. Now, moving on into Amazon and Walmart, what might be the typical challenges that customers are running into when they’re selling into both companies?
Scott Bowman: Walmart and Amazon are so big in and of themselves that each of them really represent their own marketplace. They dominate so much in their respective arenas, Walmart obviously is dominant with physical stores, they’re gaining lots of ground in .com. Amazon has been, really, more evolved on the content side for a long time, they’ve been great at the home delivery systems, but Amazon has really been evolving over the last five or six years, not so much as the delivery of just products and goods, but they’re really more, in my mind, moving in the direction of being a content provider. You’ve got Amazon Prime, they make a ton of money on just opening up their platform and being a service provider. What you’ve got are two giants that are beginning to overlap in the areas in which they want to dominate. They’ve pursued very different strategies.
Scott Bowman: Amazon is really good at the content side but they’ve struggled on the physical delivery side with stores, their Trader Joe’s stuff has not worked out the way they’d hoped, whereas Walmart has done really well in managing what they’ve done with stores, but if you were to go onto their site obviously it’s not nearly as easy to use as the Walmart site. The user interfaces, the search mechanisms aren’t as good. They’re both struggling in different areas, in an area where they’re, in what I’ll call an overlap area in the business world, of where they’re providing to gain ultimately what I’m calling top of mind. It’s as though they want to be the first in your thoughts, and then obviously the theory is the dollars will then follow.
Scott Bowman: If Walmart’s your first choice you’re going to go through one of their means to buy the product, whereas Amazon has taken an approach where … Gosh, they’re involved in huge amounts of content management, you’ve got the whole entertainment area that they’re working on. If you look at a lot of what’s going on with Amazon, they make a ton of money on just opening up their platforms. They are different business models that are colliding in certain areas. Do I think they’ll peacefully coexist? I don’t know if peaceful is the right word, but I think they will both be two of the bigger survivors in the next 10 years.
Luke Peters: Great.
Scott Bowman: What does that mean if you’re a small product supplier and you’ve got an item that you want to sell? First of all you have to understand, these are two very complex ecosystems that have a lot of systems requirements. They’ve tried to make it simple but they have very high bars for what it takes to be successful. If you try and, even though you might get something listed either at Walmart or at Amazon, if you don’t have all the tools in place to help you actually manage that relationship it could cause you to go into bankruptcy very quickly with either of these two companies, more so with Walmart just because of the scale of the stores.
Scott Bowman: Your mistakes can cause you to lose more money more quickly than you ever thought possible, so you have to be well aware of what these landmines are before you run out and just say, “Well, I’m just going to get something online,” or, “I’m just going to go sell Walmart something.” You need to make sure that you understand what it is you’re trying to accomplish by engaging each of these two giant customers, and what it’s going to mean for your business. What is it you want that business to do for your company? What are the business outcomes you hope to achieve?
Luke Peters: Okay, great, thanks Scott. Thanks for that. Talking about Amazon, is Amazon taking a self destructive approach, do you think, in regard to maybe their allowances or pricing, or kind of the position that they put brands in? Then what might be some specific workarounds for small brands?
Scott Bowman: Yeah, I agree with you. Walmart and Amazon have very different pricing strategies. Amazon, their loads typically run somewhere between 20 and 25%, so when you look at things like marketing, and transportation, and other things that they’re looking for, you have to build that into your price or obviously you won’t make any money, whereas Walmart, their loads typically run somewhere between eight and 10%. Even if you’re charging both customers exactly the same price, Amazon’s price is going to be higher at retail. Anybody who’s selling Amazon right now, one of the things that they’ll do is they’ll go out to the marketplace and they’ll see if you’ve got an item that they can’t compete against, guess what they do? They basically turn that item off. They’ll tell you, “Hey, we can’t make money on this item. Come back with …” They’ll give you, in some cases, a price lower than you can actually buy it and tell you this is what they want to buy it for. That puts you in a very tricky situation, because you can’t artificially go out and raise your price to all your other customers, Walmart included, just in order to keep Amazon happy.
Scott Bowman: What we’ve done with a number of our clients is basically go out and say, “Look, we’ve got to develop a product line specifically for Amazon.” That basically gives them their own little playground that they get to have, these items are theirs, there’s basically a no compete. Amazon can go out and sell those items every day and not have to worry about an item that’s retailing at another .com retailer to compete, and they can go win with that item. The other thing you have to be aware of with the crossover at Walmart, if you’re selling both to Walmart stores and Walmart.com, Walmart’s pricing strategy is to price the item online at the same price they sell it in the store because of their scale and the efficiencies of their supply chain. If you’ve got something placed at the Walmart stores and they’re carrying it at the same price online there’s nobody that will … It will be basically an item killer anywhere else but at Walmart.
Scott Bowman: We’ve got a couple of clients where we’ve run into that situation, where they do such a good, phenomenal job both at the stores and online with that item nobody else can sell it. Now, what we have seen is … For example in the pet industry where we’ve got some items with one of our clients in at Walmart, Walmart only carries it in one color, gray. Chewy has come in and bought this item in three or four other colors. They’ve got the same basic item, which is unique, but they’re carrying it in different colors. Any customer that wants that item in any other color than gray is buying it from Chewy or one of the other retailers for that item.
Luke Peters: Got it.
Scott Bowman: This is a trick for Amazon, though, because long-term if too many suppliers wind up having to take this approach, then what happens is that Amazon gets a much … It’s a shrinking pool of innovation and new items because everybody’s doing it just for Amazon, and so all of the other stuff going on, Amazon doesn’t get the opportunity for that. In the long run it may be self destructive for Amazon.
Luke Peters: Yeah, it’s super interesting. How long does that take? The problem with that strategy for brands … Let’s say a brand has 50 total SKUs, I’m just making it up, and then, I’m just making this up, that you say, “Hey, let’s develop 10 just for Amazon,” and it would be curious of you tell me that no, you’d probably do even 40 … Then the problem could become inventory, and it could become a cashflow issue if the company’s having to now double their inventory that their having to carry, and that may just be kind of a fact of life in handling channel conflict, or is there another way that these companies handle the inventory in a better manner?
Scott Bowman: What we’ve done is we’ve made the conscious decision to provide a very narrow assortment for Amazon across the board because of that very reason. Why would you want to go and replicate, go from 40 SKUs to 80 for only one customer? Here’s the other part of that that you have to look into it, it’s not just what you sell, it’s how much you’re able to collect. Amazon typically operates on 60 day terms and they’re well known for being very generous with how they want to treat themselves in terms of the deductions that they take. I’ve got a client right now where I basically told them, “Look, in my personal opinion every item you sell Walmart is a win for you. Why? You get paid anywhere from 14 to 21 days.” That’s a great deal. I mean, my cash isn’t tied up for near as long.
Scott Bowman: If you’re a smaller entrepreneur or a smaller manufacturer that’s something you have to take into consideration when you’re making the decision around who is your most important customer, who is it you want to be selling? I think as customers have gained more sophistication on how to navigate the internet, and Google actually helping … Many of the things, if you type in the right keywords, and you’ve done a great job of listing the right keywords across all the different various platforms carrying your items, if the customer really wants your item they’re going to find it. Anything that Amazon cuts you off on, it’s picked up somewhere else. I can tell you right now that for one of my clients every time Amazon has cut an item off we’ve seen our business at Walmart and Wayfair pick up.
Luke Peters: Oh, that’s actually a really interesting example right there. Wow. Is most of your Amazon business on the seller side or do you do seller and vendor? Then if you do do vendor, how often are you meeting with the actual buyers?
Scott Bowman: In many cases anymore you don’t get to meet with buyers hardly ever, actually. Almost everything we do now is through just an online portal. Everything is self service, and that’s part of the reason why it’s so important to have good systems and processes in place, because there’s almost no way to get a human to remediate an issue that may come up with your stuff anymore. That’s both positive and it’s negative. The positive side of that is in terms of control of content a lot of that responsibility now resides with the supplier, so you have this responsibility and accountability to do the best for your product, it puts a lot of control and power in your hands, at the same time if you don’t have a lot of the skills necessary to do it properly it’s a struggle, because you don’t have anyone holding your hand. Meeting with the buyer anymore, we’ve found it rarely happens. Rarely does it happen. Once we’re in and we’re being successful we do find that we can set up mostly through email and other recommendations, promotional events, and usually almost always if they’re running something they will buy in.
Luke Peters: Sometimes it’s tough without a buyer to get price increases. Were you guys, if you had any products impacted by the 25% tariffs, were you able to push through price increases just through the portal? Just curious quickly if there’s any specific examples on that.
Scott Bowman: We were with everybody but Amazon on the pet side. We have a couple clients out of China and on the pet side that was the one that was most heavily impacted. We went from running duties of about 3.5% up to, once you throw in the 25%, it’s almost 30% now, everything being loaded on. It was a challenge, obviously it took a little bit of iterative process to get them to accept it, and everybody accepted it other than Amazon. I mean Chewy, Walmart, Wayfair, everybody accepted our increase except for Amazon. Then for Amazon we just said, “Look, if you’re not going to sell so we can make money …” We made a business decision, we cut Amazon off.
Luke Peters: There’s just not enough margin, right? Most companies, especially with all the back ends and everything involved there just isn’t enough. Yeah, that’s super interesting on that tariff end. Scott, you’ve actually kind of given me good details on a few of the other questions I was going to ask, but how are small companies … How should they navigate it? I mean, there are a couple rules that you have in mind, or when they’re dealing with Walmart and Amazon do they need to … Is there anything on pricing, like they need to start higher because they have to factor in a certain backend, and then certain other claims after the fact, or is it more about just solving it the channel conflict way to provide a unique assortment for Amazon? Then the other thing is most companies aren’t in-store at Walmart, it’s like a privilege and a massive thing to be in-store at Walmart, and then obviously at that point they’re your number one customer … A lot of companies, maybe they’re in-store there, maybe they’re in-store somewhere else … Just overall tips for how to navigate Amazon, maybe just kind of to summarize your thoughts on this.
Scott Bowman: As I discussed with you previously, I think the first thing that has to happen is there has to be this mission … What is it you expect that you want to accomplish? What is it that you want to accomplish? Your pricing strategy can be … If you’re all about growing your brand and you don’t care about being a high margin maker you may want to set your pricing so that it’s all about getting brand recognition. Most small companies can’t afford to do that. The other thing you have to recognize is, do you have the wherewithal to actually support the business requirements of each of these two customers? There are going to be differences. Amazon has a set of things that they expect every supplier to deliver that are going to be slightly different than Walmart.
Scott Bowman: When you get to the point, when you’ve made the decision, “Okay, I want to sell Amazon,” or, “I want to sell Walmart, I want to sell both, I want to sell everybody …” We have pricing models that are by customer, by category, by channel, that’s how detailed pricing has to be. The margin requirements that a buyer will typically have at Walmart.com, if it’s only a .com item, are really different than the margin requirements of the category buyer who’s buying from the stores. They are different. Same thing with Amazon. Amazon, as I said earlier, has much heavier loads, things like transportation, and marketing, and those vary a little bit based on the category and the item segment that you’re working in, and then buying-
Luke Peters: Or based on how much they can try to charge you every year when they send it out.
Scott Bowman: Again, that’s part of it, but in most cases it’s not arbitrary. I mean, I know from having been being a buyer, it’s sort of a top-down model. They basically tell you, “Here’s the dollars in revenue we need you to generate this year. Here’s the margin we want you to make. Here’s the penny profit you need to make.” I mean they give you pretty specific targets. Within that overarching structure, again, it’s kind of that mission command I talked about, the buyer has some latitude … If he’s managing multiple categories he can say, “Okay, in order for me to hit all my numbers I can afford this category to be …” I’ll just give an example in pets again. Food is always going to be a very low margin, it’s about top of mind, you’re thinking about pet food, I’m going to Walmart, I’m going to get the cheapest food at Walmart.
Scott Bowman: Guess what? You go into accessories, like dog leashes, or cat furniture, or pet bowl, the margins are huge. Those categories tend to be margin makers rather than revenue drivers in every buyer, if he’s managing across multiple categories, to have this sort of balancing act, this juggling act that they’re trying to manage. Part of your ability to be successful with those buyers is to understand the complexity of their business, the mission of their business, and know where your products fit into their overall category mix. Am I selling into a category that’s a revenue driver for the buyer or am I selling into a category that’s a margin maker? Does the buyer need to make 50 points or does the buyer need to make 20 points? Your pricing, if you’re going to be competitive in the market, for that particular buyer is largely driven by their business requirements.
Scott Bowman: One of the things we talk about at Strategic Alliances is that we are customer focused and client driven. Customers define the business requirements. Margins that they need to make are part of that. When you’re thinking about your pricing you have to understand, what is the business problem and the solution that buyer’s looking for? When you come to that buyer it’s not just like you’re walking with a trench coat saying, “Hey, you want to buy a watch? You like this?” You have to understand the business issues they’re trying to solve. Your product is an arrow in their quiver to solve their business problem and you have to approach it that way. If you don’t you’re going to wind up, basically the buyer’s going to look at you and go, “You don’t really understand my business, you don’t know what I need to accomplish,” and you’re going to not get to any reason to say yes, because you didn’t avoid all the reasons that they’re just going to say no out of the box.
Luke Peters: Yeah, and I like kind of how you put that, it’s something for all of us to think about, that you need to understand the buyer and understand your category, and if it’s either top line revenue or a profit maker for that buyer, and that they’re all under a P&L. That’s really great, and I guess great experience that you had at Walmart. Let me ask you this, Scott, just kind of going off quickly with this one question … We hear from buyers all the time in a bunch of CEO groups, and plenty of friends that sell to the same retailers and buyers, the joke is that buyers are always going to complain that they’re not making any money. Is there truth in that? Do you think they’re always going to be pushing for better pricing, or that they can’t take on the tariffs, or that you have the tightest margins of all the brands they carry or do you think that when buyers are telling a company that that there could be some sincerity to it?
Scott Bowman: Well, I would tell you that in some cases there’s a lot of truth to that. If you look at classic what I’m going to call transactional buying and selling kind of environments, like a Marmaxx, where they’re really buying clothes out and things … They’re always going to push for the lowest price. Let’s take an Amazon or a Walmart, or maybe a category killer like a Chewy or a PetSmart, part of what happens is you get to a scale where you’re so big that you’ve almost reached. If you’ve got a supplier who clearly isn’t as big as you are, I mean let’s face it, even the biggest battleships can’t support themselves, they’ve got to have all these other little ships, the supply ships, the fuel ships, things that are there to support their business … Think of Walmart or Amazon as one of these gigantic ships that has to manage all these other ships around it, the mindset …
Scott Bowman: I mean, when you’re a buyer and you’re managing a P&L of a $1 billion or more you can’t have a transactional mindset, you have to think about how you manage these complex relationships. Doing business at a Walmart or an Amazon, it’s not like you’re just managing a transaction, you’re managing this very complex set of strategies, and supply chain, and all the support mechanisms that need to be there so not everybody’s cut out. Probably 90% of the people that want to go sell Walmart aren’t capable of really supporting Walmart. Think about that. Now you’ve got this very limited supply base that’s capable of delivering in this enormous pipeline. You can’t afford to be transactional, you have to think a little more strategically. Many young buyers I meet, I tell them one of the most important things you will constantly be doing is assessing, truly evaluating, and developing your supply base. You can’t afford not to.
Scott Bowman: I mean, I’ll give you a perfect example right now, what’s happening in China. We are so dependent on China that now this coronavirus, and everybody’s working on these very tight supply chains where everyone wants to make money so everyone’s working on a four to six week supply chain, because they want to be efficient, they want to be effective. What happens when all of a sudden you have a coronavirus and China basically shuts down travel in their country? The provincial governments tell every worker, “It doesn’t matter if you show up to work on time, we’re going to quarantine you for an additional two weeks.” I mean, I’m living through this right now at Walmart. How are we going to stay in stock? We didn’t build in eight, 10 weeks of supply, we didn’t do that, we didn’t anticipate this. That’s a challenge and Walmart knows it.
Scott Bowman: Now what happens is Chewy starts to place orders for the same product that we would normally carry at Walmart, we’ve got to make a decision. Do we sell that to Chewy or do we hold it for Walmart? We have to make conscious decisions now about how we manage a very limited supply. Everybody’s going to be scrambling here in the next three weeks. That’s a real world deal right now.
Luke Peters: Yeah, and there’s so much unknown about this. We’re recording this episode, by the way, right here at the end of the Chinese New Year, and all the factories are getting back to work and … Jeez, what is it, the 10th today?
Scott Bowman: Yep.
Luke Peters: It’s February 10th, Monday, and the episode won’t air for a little bit, but this is when we’re recording it, so by the time this airs we’ll know a lot more about this virus. I’ve got some WhatsApp messages and videos from some of my suppliers that they’re up and running, so it’ll be interesting, I think they’re not at full capacity but most of them in southern China were a little less impacted … It’s definitely going to be a challenge to the supply chain. Yeah, you’re right in the middle of having to make that decision with your example of Walmart and Chewy. There’s a lot happening there.
Scott Bowman: That’s a long way to kind of talk to you a little bit about your question about are buyers actually just … Yes, every buyer wants to get the best available price, but they also need to know … Anybody can quote a low price. That was a famous saying, “Anybody can quote a low price, can you deliver?” If you’re a buyer that’s buying at scale you have to know that you’re working with people who are qualified to deliver. They’ve made it really hard, especially a lot of these ethical sourcing … It was needed, it’s important, it’s something that should have been done earlier, it shouldn’t have taken thousands of people dying in a factory in Bangladesh, but at the end of the day there’s only so many companies that can get over that hurdle. The minute you do that you have to know that you’ve raised the cost of production, you’ve raised the cost of supply, it’s no longer just exploited, it’s got to be about partnership. It’s got to be about shared objectives, shared goals, and a shared kind of mission of what it is you’re trying to accomplish, not just as a supplier but with your partner Walmart, or Amazon, or whoever you might be selling.
Luke Peters: Yep, nicely stated. I guess just wrapping up this Amazon and Walmart conversation … A couple quick questions about, where do you see this in five years? I guess I’ll give you a quick answer before I hear from you, but it’s … We always hear like Target gained 40% in online sales, or Walmart’s online sales increased 40%, but the problem is their base is so much smaller than Amazon, and Amazon went up like over 30%, I think, in Q4. I think this Q4 grew more than last year, it’s amazing what they’re doing. They’re growing at a huge percent with a huge base, so they’re just … I mean they’re just chewing up market share online, and then … Of course Walmart is the king in-store, but that overall in-store business is shrinking, so most betting people would probably bet on Amazon, that they’re going to grow at a quicker rate than Walmart, and in five years be a more dominant player.
Luke Peters: I’m curious if you have kind of a different take on that because you named a couple of totally legitimate challenges that Amazon is forcing brands into, not to mention what I see as Amazon doesn’t really care about brands, they just want to go direct to the factories … I mean that’s a whole nother conversation. There’s a huge disruption happening there, and I guess the question is, what’s it going to look like in five years? The reason to answer that would be because it’s kind of fun, but also brands can then say, “Hey, who do we want to be aligned with now, so that in five years we’re in the right spot?”
Scott Bowman: Well, that’s a big question. I don’t know that there’s a pithy answer I can give to that. They will both be here in five years, they’ll both be here in 10 years. Where I see the real battle lines being drawn up is ultimately going to be around lifestyle service delivery. The other big thing that’s coming up here that nobody’s really talking about, that really some of the people on the edges of technology are talking about … What I’m talking about is the advent of the real true rollout of 5G and the Internet of Things, and it’s to the point where you’ve got systems talking to systems, where people aren’t even involved. Your refrigerator sends an order to your automatic delivery at Walmart that says you need milk, you’re down to one guava fruit, and you want your almond milk, and your hamburger is bad, or whatever … That’s where I think, again, it’s not where …
Scott Bowman: When you begin to eliminate the human interface and it now becomes systems talking to systems it truly will be whose systems are more effective and efficient, and how good a job have you done talking to your customer and convincing your customer when they hook up their refrigerator that they’re going to actually hook up and ask for delivery from the Walmart that’s three miles down the road versus the Albertsons that might be four miles down the road. Once you’ve got grocery tied up I think you’re going to tie up a lot of other things in general merchandise, paper towels, toilet paper, diapers, all the other things that go along with that. Will Walmart ever be the best at their item search, when somebody’s looking for that new, unique set of earbuds or something? I don’t know. I know Walmart knows it’s a problem, I know they’re working on it. Don’t know that.
Scott Bowman: Now, on the flip side, is Amazon going to have the brick and mortar, the footprint near the customer to actually deliver against that? They know they’ve got that as a problem, that’s why they bought Trader Joe’s, and they’ve not done a good job of managing that. I do think that that’s where the battleground lines are going to be drawn, particularly … I don’t know if you’ve even seen some of the videos, but there’s already robots that have been designed that can work with self driving vehicles that will deliver groceries to your door. This is the world we’re going to be living in, not in 10 years, this could even be five years away. It’s what systems are talking to each other the most effectively and efficiently that will allow a lot of this to happen.
Scott Bowman: I mean right now, believe it or not, so many things happen almost on autopilot. When you’re talking to a Walmart buyer they make decisions around merchandising once a year, everything else after that is algorithms and systems talking to systems. If you don’t have the right tools to interface with these companies you’re going to be left out, it doesn’t matter how good your brand is, because the systems take over. I’m telling you, the big companies know this, they’re already working towards it.
Luke Peters: Yeah, it’ll be interesting to see. I always go back and forth, we know these things are coming but IoT has been so slow to roll out, but it definitely … You really have some great insights there about systems talking to systems, I think that was a really interesting insight that you just brought up there, and it’s going to happen. We’re just going to have to see what the adoption rates are because I think that kind of dictates how quickly that change occurs. It’s going to be there, and heck, we’re the ones making some of these appliances.
Scott Bowman: We have the benefit here of seeing it every day. Right now it’s basically systems talking to systems. I mean, yeah, we have people who will process the paperwork, the labels, and the tax labels, but it’s not … There’s no humans involved at this point, the orders are coming from a computer that’s gone out based on some sort of algorithms and looked at what the requirements are, the needs are, and then they order it.
Luke Peters: By the way, Scott, before I transition … Next to the listener … I mean, it’s really interesting there with Amazon and Walmart. Now we’re going to transition quickly into strategy. Scott’s got a great background, and I now the audience can tell, especially from your military background probably as well, you’re really kind of systems and process focused … Before we get onto that I had a quick note here, so I just wanted to ask you do you guys … Are you able to share what ERP you run on? Also do you guys use the product information management system, because you’re managing these brands, products … Are you doing them all yourself with your own internal systems or do you use an external system for that?
Scott Bowman: We use a mid-tier ERP system called … Shoot, I can’t … We’ve modified it so heavily … We typically use TrueCommerce as our EDI provider, we’re actually a reseller with them, we don’t upcharge anybody. Then the ERP system we use is UA Corporate Professional, and then we’ve bolted on through SQL or Access other modules. For example, our transportation management module integrates well with Walmart and Target, and we generate a specific Bill of Lading that they need to ship to those customers, and then it’s also integrated with UPS and FedEx, so that as we receive .com orders predicated on which shipper they want us to use we interface with those systems directly, and then provide all the electronic documents that are required to go back through UPS or FedEx, and then back to the customer.
Scott Bowman: Yeah, we have … It’s a combination of, the basic accounting system was UA Corporate Professional, and then everything else, all the other things … It’s basically an accounting system, everything else we’ve got is a bolt-on system that we wrote ourselves. Part of the reason for that is that each of these companies require very specific documents, that if they choose not to pay or you get a deduction … I’ll give you an example. We have one client who does 80% of their business over the fourth quarter, they had some massive deductions though, over $300,000 in no POD, no proof of delivery. Well, we know we have all the documents, we’ve got the signed Bills of Lading, the customer picks up collect, we know that the product was delivered because we even can go into their system and see that the product’s delivered, and yet there’s a no POD. They paid us, took the discount, but then immediately deducted the full amount of the invoice.
Scott Bowman: From a cashflow standpoint that’s crushing. We’re able to go back through a reconciliation process because we have all the right doc, the fact we have insights into what’s actually been received. We can put all this together, submit a claim asking them through the reconciliation process to pay us. Now, obviously it’s not as good as just being paid outright, but the fact of the matter, these things happen, it happens all the time, and the fact that we’ve got the mechanisms in place that allow us to, one, quickly identify it, figure out why it happened, and then our remediation strategy is very, very important. That’s one of the most valuable things that we provide our client, is the ability to very quickly identify an issue, go back in, provide the documents, and submit everything we need to get paid.
Luke Peters: Yeah, that’s a great example. We’ve had that happen, by the way, as well. Then depending who you’re dealing with, sometimes just proof of delivery’s not even enough, they have to have proof of receipt, and it can be a nightmare … That’s a great example. That’s why I wanted to ask about ERP, just because … I mean, at the end of the day there’s the sales and the marketing side, but at the end of the day on the ops side EDI is so important, how it integrates, and then also custom labels, and the ability to create those and be efficient with packing slip creation is super important as well, otherwise it just takes too many hands on a keyboard for every single order. It sounds like you guys have that figured out and I always love asking that.
Luke Peters: Now we can kind of transition on to your view on strategy, and we did have a pre-discussion prior to this podcast, and you have some really great insights there … One of the words you used, or one of the phrases, you said most companies are rudderless, I thought that was great, and they don’t have a strategy. I’d like to start there. Maybe if you can give an example, obviously not company name, or you could just tell what you mean by rudderless.
Scott Bowman: You have to start with the nature of the client. In most clients, particularly in entrepreneurial clients, they have an idea, they have a passion, they are running really hard, chasing down sales, they get sales, they get sales, they get sales … I do have a true example, we have a client that basically almost threw themselves into bankruptcy because they just weren’t able to truly manage the process of delivery. Though they made a bunch of sales, they had a couple containers from Brazil that literally had something like $40,000 in demurrage, the product just sat there. I mean, that’s inexcusable, but they didn’t have the systems in place. When I talk about systems, systems are a combination of people, process, technology, and obviously capital money, and they’re living things. These four things are part of what I call the business diamond, and they push and pull on your strategy, strategy sort of sits in the middle.
Scott Bowman: This is an example where you have a very entrepreneurial client, great idea, sold a bunch of stuff, but then utterly failed when it came to actually delivering the promise. He came to us, he was already a client on the .com side, this was a product that was going into the home self service area, Lowe’s, Home Depot area, and we helped him navigate through basically a very painful year of filling in the holes, designing process, putting in technology, applying people and human capital to solve these problems. Money just wasn’t flowing through his fingers. He was actually able to better deliver the promise to the customer. That’s a real world example of somebody who just, no real clue about what they … I mean, yeah, “I want to go sell this stuff,” but, okay, then what? Strategy has to be around, okay, you’ve got this product line, where is it best placed to sell it? Where do you get the biggest bang for your buck? What tools, how can you deliver that? Every company has to walk this tightrope, literally stretched between a stake in the ground and …
Scott Bowman: Today’s tactical reality, this is what you have to live with, you’ve only got so much money, only so many people, only so many skills, and you’ve got this other stake that’s, “Here’s my aspirations, here’s where I want to be.” Your strategy is exactly what you need to, one, identify that mission, this is your mission, this is what we want to accomplish, this is the what of it, that’s the strategy. Everything else is this combination of people, process, and technology that helps you walk this tightrope from where you are today to where you want to be tomorrow. That doesn’t mean at some point, if you’re successfully navigating and walking that tightrope today you can’t at some point say, “Man, we can do this now.” That’s great, but you need to understand that you can’t … You now have a new stake of reality, this is your new reality today. How do you now account for all the additional things that might need to be done if you want to reorient around new opportunities or new products?
Scott Bowman: This is the biggest thing that I see, people live very much in just surviving today without giving any real thought to what’s next. Now that I’ve made this sell, what now? Where do I go from here? My point is that you should already know, you should know at least the next 20 or 30 steps, you really need to have more of a gestalt view. Sells are important. You don’t have a sell, you don’t have a business. You may not be broke at least. If you have a sell and you can’t manage it you could be out of business in the blink of an eye. That’s why strategy’s important, because it’s not just about long-term, five years from now, that’s a misnomer. Strategy is about how do you build the capability to be nimble, and quick, and evolve rapidly with a clear understanding of this is where I’m going. If you don’t have that everybody who’s working with you doesn’t know what to do, everybody’s waiting around for the owner to make some sort of decision, or say something, so you wind up being paralyzed. I’m not just talking about people within the company, I’m talking about your partners.
Scott Bowman: For example, why is it that you can have a container sitting for 40 days … What was the broker doing? Why wasn’t he communicating? Where was the communication from the customer asking about where that PO was? I don’t know where those breakdowns were occurring, because we weren’t involved at the time, but we certainly went back and figured it all out. That’s why strategy is important. Everybody, and I’m not talking about just in your organization, but across the boundaries, because you’re dealing in ecosystem now, you’re dealing in multiple players, all of whom have to participate successfully for the system to be healthy. If they don’t understand what it is you’re trying to accomplish they may be doing things that actually not only don’t help you, but actually hurt you, without even knowing. That make sense?
Luke Peters: Makes a lot of sense. Thanks for that example, Scott. Even the de-merge one, we’ve seen that, so this kind of stuff happens. We’ve seen it with one of our clients, one of our customers, and it’s because of the relationship of how the inventory is shipped to them. These are things where … I think a lot of what you talked about also is potentially lack of communication, and all of us, businesses and entrepreneurs, know that we can get better there, that’s always … If you survey your team you’re going to know communication almost in every case needs to be improved, even if you have improved it. A lot of it is you’ve got to have that strategy, and like you just said, it’s got to be communicated and the team has to know what that strategy is.
Scott Bowman: Here’s the thing, once you have strategy you embed it in process. That’s the key. Once you’ve embedded it in process everything has a double and a triple check, everything.
Luke Peters: How is that? Do you turn that into reporting? How do you know it’s happening actually?
Scott Bowman: What we do, in our case now, is we’ve used the ERP system. We know what normal lead times ought to be. Everything is tied to … We have a container tracking system built in, so once we place the PO we know when that PO leaves the dock, we know what boat it’s on, we know the average lead time and ship time. We know if it’s not hitting a port at a certain date we’re actually being proactive in checking on the container, partly because it also eventually impacts our inventory. Do we have enough inventory? Are we going to have enough to ship? I mean these are things about, this is all about avoiding self inflicted wounds. These are things that are basically, they should never happen. They’re going to pop up but there should be redundancies in place that allow you to catch it and remediate it as quickly as possible.
Luke Peters: That’s a good example. For the audience that’s a great point, Scott, is build it into your ERP, build it into processes that your team is doing, and just make sure that there’s expectation instead of your team doing things on a whim, and without a planned approach. Let’s face it, for all of us entrepreneurs, we’ve been there, done that, and probably you’re still doing it in some cases. It’s a reminder we always need. With that in mind, Scott, what do you think has been your biggest failure, like a really tough one, one that you’ve learned from and maybe improved yourself or improved your business after you went through it?
Scott Bowman: Well, my biggest failure was while I was working at Walmart. I was dealing with an issue where I was hemorrhaging margin, I was a pet buyer at the time. I just didn’t understand what was happening that I would be losing margin, when I looked at my records everything I looked at my records everything from my level, where I’m looking at the top-down, at the buyer, at pricing, I should have been making more money. Again, I had a P&L and I was supposed to … I mean, why am I not making enough money?
Scott Bowman: One of the things I discovered at the time was I didn’t really have control over a good way to manage markdowns. At the time Walmart operated in a way where markdowns, especially competitive markdowns, were all taken at the store level. The store associates were great at going out and saying, “Oh, the store down the street, they’ve got this item marked down,” they’d mark it down. They’re great about marking it down. Guess what, a year later? Still on markdown. That was one of the things where I’ve always joked around, what’s harder to kill, an elephant or a swarm of gnats? That’s was what was happening at the time, this was during the time of conflict between who was going to own the relationship with the customer and drive pricing. Brands were killing Walmart at the time through this, almost you couldn’t keep up with it, this regional way they were providing different discounts and promotion.
Scott Bowman: What I wanted to do, and I tried to sell this notion of a buoyed pricing system that would be more of a top-down, almost like the way arbitrage works. I went to a Saturday morning meeting and I threw this idea out to Bill Fields, who was the chief merchant at the time, and he said, “That’s great, Scott. Why don’t you go figure out a way to do it?” I said, “Bill, let me just,” because I was prepared, because I’d been to 10 other buyers I picked 10 items, like Crest toothpaste, Purina Dog Chow … Just 10 items. On those 10 items Walmart had lost over $1 million in profit, just those 10 items in a year. I actually had a whole store list, of here’s all the stores where we’re losing money on these 10 items.
Scott Bowman: I made my point but what I failed to recognize was that I made enemies out of all those senior VPs who were running those regions. I can’t tell you how much grief I had to deal with as a result of that little Saturday morning meeting.
Luke Peters: What’d you end up learning on that one? What change did you have to make?
Scott Bowman: I just learned that there has to be coalition building. One of the things I’ve learned, particularly working with small entrepreneurs, and particularly because our business model is so invasive … I mean we’re like a virus, and we’re literally asking people, “Look, trust us. Trust us. Let us come in and understand every element of your business, everything, all suppliers. Everything you do, let us look at it.” Then in many cases we wind up taking it over. Well, most people I know aren’t comfortable with that. It takes a long time to earn that trust, and I failed to do that with those senior leaders at that time. People want to call it politics, it’s not, it’s just part of the human condition. People need to trust you.
Scott Bowman: That’s ultimately our goal at Strategic Alliances, we want to be the guy standing at the right hand of the king, whispering in his ear, their trusted advisor. If we come to you and tell you something it’s not arbitrary, it’s thoughtful, it’s based on experience, and it’s something that you need to be cognizant of. We always have our view at the edge of the horizon, we’re always looking for what’s coming at us that we may not be anticipating, and have we built an organization with our client and our customer that’s nimble and flexible enough to address it.
Scott Bowman: Now, there are going to be things like coronavirus that nobody sees coming, nobody understands, that no system can completely obviate the impact of, but you’re more capable than most. Certainly the things that you can anticipate you have, and you put things in place that help you avoid being hit by them. Yeah, you might take a blow, but are you going to take it on your nose or are you going to take it on your shoulder? Those are the kinds of things that we’re constantly looking to remediate on behalf of our client. That was the learning.
Luke Peters: That was a good example about people can’t work in their own silo, like you said, that communication, and that collaboration, and building those coalitions is so important. Like you said, it sounds like politics but it’s real world. Especially younger folks that are getting into the workforce, or even building companies themselves, it’s a huge learning, and just a huge thing that they often don’t think is that important. They think they can do everything. Experience teaches otherwise.
Scott Bowman: Here’s the thing I think is most important for entrepreneurs … Entrepreneurs that want to sell, don’t think of your buyers as adversarial. They are going to push you for a low cost, they are, but that’s the tactics. If you can rise above the tactics, and understand that they have a set of things they’re trying to accomplish in their business and you are there to help them, that’s the best way that I’ve found to communicate with buyers, is that, “You have these issues, I believe I understand them. If I don’t, then help me. If I do understand them, here’s how I can help.” That’s really the way I’ve found the most success in selling, is that I’m there as a means to help solve a problem. Again, if I can earn the right to be a trusted advisor … Who do they come to when they have an issue? Who’s top of mind? I want to be top of mind. I think that if they approach it that way, where it’s not an adversarial relationship, that ultimately you earn their trust and then your business can really take off.
Luke Peters: Great words. Scott, how can folks find you? Is LinkedIn a good area or is there another place to reach you on?
Scott Bowman: Obviously I’m not a big advertiser, I’m not even sure how you found me other than LinkedIn. Mostly what goes on with us is word of mouth. We turn down 99 people out of 100 because when we go through a process with them in most cases they realize, “Boy, there’s a lot of work I need to do before I even really engage a company like you guys.” Yeah, you can find me on LinkedIn, you can find Strategic Alliances at SAInc.biz, S-A-I-N-C, it’s SAInc.biz, you can find us … Yeah, we’re here to help, and I do a lot of free consulting with folks. If they just have questions, they’ve got a few things they want to run by me, I’m generally usually almost always able to make some time, because I really do want to help. I love this country and I love entrepreneurs, because they are the heart and soul of innovation and creation in this country, and I want to see them succeed. Anything I can do to help I’m there to do.
Luke Peters: Awesome. That’s a really special offer so thanks for doing that, and also thanks for your service, and it comes through loud and clear with how organized, and process-oriented, and confident you are. It’s been a pleasure having you here on the Page One Podcast, sponsored by Retail Band. Quick reminder that I’m offering a free evaluation of your online sales strategy, focusing on influence marketing, we can take a look at Home Depot, Wayfair, Lowe’s, Amazon, and how all those channels are working together on the digital side, looking at your assets and reviews, and just your overall strategy there. We can present these findings directly to you.
Luke Peters: If you’re interested in that free evaluation find me on LinkedIn or email me at Luke@RetailBand.com. Thanks again, Scott, and I want to thank you, the audience, for listening to this episode of the Page One Podcast. We appreciate all of you guys, appreciate your comments, your suggestions, and especially your reviews on iTunes. We’ll see you on the next episode.
Speaker 1: Thanks for listening to the Page One Podcast with Luke Peters. If you like our show and want to know more check out our other segments. Also please help us out by leaving us a rating on iTunes. Want to learn more about rCommerce? Check out www.RetailBand.com to get more great tips and tricks on how to accelerate your eCommerce sales with the big box retailers.
- The Strategic Alliances, Inc. mission statement—2:08
- The Strategic Alliances, Inc. Statistics (employee count, warehouse size, etc.)—4:30
- Most common challenges brands face when selling on Amazon and Walmart—6:55
- Amazon and Walmart pricing strategies: which one is self-destructive to small businesses?—10:29
- How to push through tariff price increases to retailers without a buyer—16:37
- Tips on navigating Amazon as a vender, especially when not instore at Walmart—18:16
- How to negotiate buyer pushback on profit margins and MAP—22:45
- How big retailers are responding to coronavirus supply chain, manufacturing, and stocking issues—23:00
- Scott’s Hot Take: 5-year projection on Walmart’s quarterly growth versus Amazon’s quarterly growth—28:20
- The Strategy Alliances, Inc. ERP and PIM systems—32:52
- How to take a rudderless business and build it a successful strategy—36:25
- Advice on how to build strategy into process—41:50
- Scott’s biggest lesson in business—42:45
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Episode References: Strategic Alliances, Inc.
Contact Scott Bowman: LinkedIn
Contact Luke: email@example.com + LinkedIn