What you’ll learn:
A fire destroyed the core business of VHC Brands just as they company was about to enter Q4. But this didn’t stop Ken and his family from growing the business into a 6,000 SKU, eCommerce powerhouse. He gives us advice on how to lead a team through a fire, literally.
About our guest:
Ken Kline is a family business owner, long time home textile importer from both India and China, bootstrap wholesale ecommerce marketplace supplier. He has a wife, three kids, one dog and one cat, and does all the cooking. When Ken was asked about his life, he said “It’s nothing like that show on Netflix, relax. LOL”.
Key takeaways from this episode:
- Ken’s path to business ownership — 4:00
- The idea that sparked VHC Brands — 7:33
- The VHC category lineup — 8:02
- VHC stats (employee number, warehouse sizes, departments, etc.) — 9:17
- Own your eCommerce brand with in-house content creation and SEO — 14:00
- How niche and new wholesalers can break into a market with eCommerce — 16:30
- Sales Channel breakdown — 17:54
- NetSuite and managing international warehouses — 22:55
- Supply chain and sourcing roadmap for 6,000 SKUs — 25:35
- How to manage content and review SKU assets across all eCommerce channels — 31:40
- Product launch strategy for 6,000 SKUs — 34:10
- Recovering a business after a fire destroys everything — 41:59
- Key Business Takeaway — 51:43
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 E-Commerce sales with the big box retailers, or what we call our rCommerce. Now, here’s your host, Luke Peters.
Luke Peters: Thanks for joining me on the Page One Podcast. I’m your host, Luke Peters. 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 have now started Retail Band where I hope to help other brands to succeed in product launches, influencer marketing, B2B Sales, strategy and a whole lot of other marketing strategies that we can help product companies implement. Right now I am offering a free evaluation of your online sales strategy, so if you’re interested, find me on LinkedIn or email me at firstname.lastname@example.org.
Luke Peters: So, thanks again for joining us. Today we have Ken Kline on the podcast. And Ken is founding partner of VHC Brands and Ken graduated from Pepperdine University. He’s an experienced textile importer, married with three kids, a dog and a cat, I think, does all the cooking and thanks Ken for joining me today.
Ken Kline: Yeah, thank you. Thanks for having me. It’s awesome to be here. Thank you.
Luke Peters: Cool. Did I miss anything there in the intro?
Ken Kline: No, no that’s pretty expansive. Thank you.
Luke Peters: And Ken, would you mind sharing where you’re calling from? You’re in…
Ken Kline: I’m calling from the big town of Branson, Missouri.
Luke Peters: Awesome and you went to Pepperdine. So, talk about a little culture shock, right?
Ken Kline: You nailed it. Yep. Yeah, it’s definitely different moving to a town less than 12 thousand from a city of 14 million, you know. And none of us are from Missouri. That’s the funny part.
Luke Peters: Oh wow.
Ken Kline: Yeah, my parents moved here and then they called me up. They’re like, “Hey you want to move here?” And found a textile business with us which they had never run before and neither had I. And so, it’s kind of a strange thing. That was 25 years ago. Typical story like yourself, founded it on the kitchen counter and started shipping UPS out of the garage and all that stuff.
Luke Peters: Yeah and I know we got a great conversation ahead of us and just a teaser for the audience. Ken later on will talk about a really unique story about how Ken has rebuilt his business after a total loss from a fire, so I’m definitely interested in learning more about how you overcame that challenge. And also, just to give everybody just a little bit of perspective just in case they didn’t know where Pepperdine.. Pepperdine University is right on the coast, right? Is it in Malibu, Ken. I think its….
Ken Kline: Yeah. It overlooks the ocean. It’s absolutely gorgeous.
Luke Peters: Yeah. But like a lot of others, you’re fleeing California.
Ken Kline: Yeah.
Luke Peters: Yeah. It’s funny.
Ken Kline: A little earlier than the big tidal wave, but I mean, yeah, I lived out there seven years. That’s kind of a seven year itch when you live in a big town like L.A. kind of a thing.
Luke Peters: Yep. Cool. Well, thanks again for joining and I guess why don’t we kick it off Ken by, before we get into the business, why don’t we kind of talk about your early years. Right now, obviously you’re an entrepreneur, business owner, but what was it in your early years in upbringing that kind of gave you that mindset?
Ken Kline: Yeah. It’s kind of strange. It’s totally a non-sequitur. My dad was a Fortune 500 Executive for an oil and gas business in the deep south. So, I actually grew up in the deep south and my dad was a corporate man. He went all the way from the tax department all the way to reporting to the Chairman of the Board who was extremely wealthy, multi-billionaire. So, I grew up around the corporate environment that was very like, definitely suit, tie, new shoes for the board meeting, that kind of a deal in a very gentile kind of environment but with a hardcore work ethic.
Ken Kline: And then I was an English major with no real plan to be honest with you. So, I got out of college and started working PR and I got into financial PR which is a much bigger deal now than it used to be, like press releases, 10-case statements and things like that for a financial shop out in L.A. It was good, but it was a grind, but it was using my kind of skill set. And my parents retired early and they had this very strange idea to buy textiles that were kind of on liquidation and then resell them. And then they had this other very bizarre idea to move to Branson, Missouri from the deep south to start over for their retirement.
Ken Kline: And then they kind of kicked that around and did that and then I was living in L.A. It was one of those L.A. things and I love L.A. by the way. So, I wake up and go to work, right? And I hear this noise and I go outside and my car just got stolen out of my driveway.
Luke Peters: Oh, wow. Ouch.
Ken Kline: Yeah, and this is in West L.A. like Beverly Glen, nice area.
Luke Peters: Yeah.
Ken Kline: So, I called the police immediately and the lady said, “We don’t chase stuff like that down. Was there a homicide? Are you hurt?” I said, “No, my car’s gone.” She goes, “Oh, that’s not anything. We’re not looking for that.” So, my dad had planted the seed like six months earlier. “Hey son, if you get sick of L.A. let’s try this.” So, I called him and I said, “Hey, I think I’m done.”
Luke Peters: That was it. That’s all you needed to hear.
Ken Kline: Well, yeah, among other things. I mean, a 45-minute commute one way and whatever. Just all that stuff. But I mean it’s one of those deals, but yeah. So, from there you move to the middle of nowhere and you think it’s totally pristine in the Missouri Ozarks. I mean it’s very, very gorgeous. We have clear running rivers and streams. We have clear lakes. I mean it is gorgeous. But, like literally, you can hear crickets. I mean like nothing here. So, yeah, that’s the story. And it’s kind of a weird deal. You just kind of have to have the tenacity to say, “Well, let’s try this out,” which I know doesn’t even make any sense but it was better than the grind I was in kind of a deal. And kind of the agreement was, “If this doesn’t work out, we’ll pull the business up and just move back to L.A. and keep doing the financial PR work which you were doing, just kind of go figure out your life” kind of a deal.
Ken Kline: But, we made it work and we kind of figured out how to monetize it kind of pretty quickly and we had enough swagger and naivete to like start talking…what happened was we started talking to retailers that were canceling big orders on wholesalers and then the wholesalers would panic. So, we quickly figured out that there was some arbitrage there to like pick up goods and then figure out how to resell them. So that was kind of the initial, granted, very bizarre idea in textiles. But, that’s how we started it.
Luke Peters: Cool and thanks for getting us there. And now back in present day, why don’t we quickly dive in and just so the audience kind of understands the business. So, we’re talking textiles but kind of quickly can you give us a visualization or share so the audience understands what types of products we’re talking about?
Ken Kline: Yeah, so sorry, a lot of topa beds, so like soft goods, beds sets, shams euros, pillows, a lot of bedding like covers, a lot of bed skirts and then so we just sell a lot of that category that’s now all private label. It’s all our brand that we design and import from India and a little bit from China, but mostly India. And then we do a lot of window treatments that coordinates or matches which in traditional décor is kind of a big deal. So, a lot of people like to dress out their master bedroom with coordinating bedding, coordinating window, coordinating bathroom, that kind of thought. And then we also do a good bit of rugs that coordinate, but they’re not necessarily matchy, matchy, but are coordinates. So, those are kind of the categories we do. It’s all soft goods. So, it’s not like mattresses or anything like that.
Luke Peters: Okay, perfect. And then moving on down the list, how about the total number of employees and say warehouse size so we can an idea of the company footprint.
Ken Kline: Yeah, so I had to go ask my Accounting Director today. I said, “How many employees do we have on one staff now?” We did a major restructuring this year so it’s 66 employees of which I think three or four are, maybe five are part-time, so about 60. Now, 14 of those full-time are based in Delhi, India though. They’re not all here at corporate or our fulfillment center.
Luke Peters: Oh, okay, cool. That’s awesome. So you guys are going to have a global footprint there.
Ken Kline: Yeah.
Luke Peters: And then how about warehouse size?
Ken Kline: Yeah, so the warehouse, we have two fulfillment centers so the total is like 50,000 square feet, 49,800 somewhere in there.
Luke Peters: Yep and both of those centers are local or those are 3PL’s elsewhere?
Ken Kline: Yeah, so they’re local, so we post-fire, we segregated our offices from our fulfillment center so they’re 20 minutes apart now. And then we also started implementing, we can talk about it later, we also this year started implementing the Wayfair CastleGate option and some things like that.
Luke Peters: Okay, cool. We’re doing the same thing. We can talk about that maybe a little bit later on. Great and how about if you could quickly go through, just approximate, I don’t want to put you on the spot, but just approximately just so we understand the basic departments that you have there at the company. I’m assuming it’s going to be the typical finance and marketing and sales and I’m always curious because some people might have outsourced some of those disciplines. So, are you guys operating all of those departments or are there certain areas that you guys outsource and certain core competencies that you keep in-house?
Ken Kline: Yeah, so, as it changed over the past five years, so we have an internal and an external sales team, but they’re all corporate sales, so they’re all based with commission or based or whatever. So, the sales team is like that. We used to have outside rep groups and we sort of switched that up. Then we have a creative, part of the development team that basically works daily back and forth between the India office and the US office so we actually do a lot of our CAD work and a lot of the grunt work we do in India with a team over there. And then we do a lot of lead work and thought process kind of over here. And then we do QA back in India and things like that, production and everything. So, that’s kind of one India process though from induction of the launch which is like a nine month to 15 month window depending on the product.
Luke Peters: Oh, wow.
Ken Kline: And then we have developed a content team which is kind of content/onboarding/implementation which is obviously, when we’re talking about content, we’re talking about E-Commerce content so we’ve tried agencies and we’ve tried third parties for like bulk photography output and things like that, but you just really work better to bring that all in-house and really curate it and really take control, you know?
Luke Peters: Yeah.
Ken Kline: So, that whole process is all in-house now and then Accounting and Finance and Executive is all obviously in-house. So, that’s kind of how we do it, but as we grow we’re looking to add some niche expertise, kind of depending on the program. But that’s currently how we’re set up.
Luke Peters: That’s great. And is the content team part of a marketing team or is it more just outside of that?
Ken Kline: Yeah, yeah. So, there’s content creation and then there’s some SEO practice and then there’s some classic marketing ad work and things like that. But, yeah, that’s all under one umbrella as far as how we’re operating.
Luke Peters: Cool. Well, that will lead me into some other questions. Thanks for that. It’s always interesting because you know, as I listen it sounds like a company like yours has to be really good in product development. And obviously you have a team that does that and a team here and a team in Delhi. But, what could differentiate you, honestly, just from a lot of folks I talk to is that you guys are really focused on E-Common content. And I already heard you throw out SEO and PPC and so you’re thinking about that which is great because a lot brands are only kind of relying on the Wayfairs of the world and their brick and mortars to do the selling. But it sounds like you guys are kind of building those competencies in-house so you guys can own your brand and have more control over the destiny of the brand, basically.
Ken Kline: Yeah, that’s correct. That’s how we look at it. And in a nutshell, basically Wayfair is a perfect example where we saw tremendous opportunity, but at the same time it’s like an opportunity to occupy some shelf space and to have first mover advantage in some cases. There’s also a tremendous responsibility as you would know to then own up to and grow up to actually outputting that volume of content and be consistent. And so, while there’s opportunity in E-Comm verses maybe you can’t quite get into a mass retailer because they have their favorites or the buyer works a certain way or they don’t like how you operate or whatever. There’s all these kinds of reasons. Those opportunities are very different in E-Comm but then the responsibility is very different in E-Comm where you do have to create your content verses just basically. Once we got a container to their BC as a mass retailer, we were like, “Whew, that project’s done.”
Luke Peters: Yeah.
Ken Kline: And you know, it’s no way like that in E-Comm, totally different. So, yeah, we really try to focus a lot on that. Like I said, we do a good job for who we are. We still feel like we make mud pies but I think everyone does.
Luke Peters: Well, you’re the business owner perfectionist, so.
Ken Kline: Yeah.
Luke Peters: Everybody can see their flaws, but I’ll tell you what. You’re moving the right direction. And hearing that you started from the other mindset is even more impressive because it really is hard to go from that big box, in-store team because what happens is, when companies start that way, their whole team and culture is built around it and then transitioned to digital mindset is a big change.
Ken Kline: Yeah. And we did have to do some change management around that very issue. We really did. And there’s a lot of buya in the industry. Wholesale is kind of an old man’s business so to speak and then textiles is like an old, old man’s business.
Luke Peters: That’s funny.
Ken Kline: It definitely, it’s tough especially when your biggest buyers five years ago are telling you, “Nah, that’s not true.”
Luke Peters: Yeah, yeah. Well, how things have changed.
Ken Kline: Yeah.
Luke Peters: Okay Ken, so you are 30% niche retail. You were 70% which is really interesting and then go ahead and fill in the rest of the blanks there. Where are the rest of the sales coming from?
Ken Kline: Yeah. So, we switched to heavy E-Comm focus as a kind of a way to make up for the kind of industry buyas against smaller companies like ours sort of up against bigger textile vendors that have been at a mass retailer for maybe a long time and had the long relationship. So, we saw the E-Comm play as a way to get deeper into mass retailers as kind of first mover advantage as a niche player. So, usually the word niche for us, the niche for the mainstream retailer, sorry about that.
Ken Kline: So, the idea of that was we see some great opportunity where a lot of industry players maybe aren’t not trying to gear around it or maybe they’re not thinking that because the current volume is with traditional retail. And we did have a big traditional retail. We did have mass retail, traditional mass retail as well, but kind of just trying to figure our way around what’s the biggest opportunity with not limited shelf space. So, once we started figuring that out with the Wayfairs and some of the other players, then we said this really needs to be a big focus for us. So, that’s kind of how we made that switch and we started that about six and a half, seven years ago. And then we started taking it really, really seriously about five years ago and then we had the fire three years ago. So, we kind of walked through that. So, as far as the breakdown of the channels, indirectly I think I would have to say Amazon is our biggest channel, but we do a good bit of volume in private label that is private label exclusive for companies that have natively grown up on Amazon.
Ken Kline: So, that’s been an interesting business. So, I would have to say that a lot of our product ends up on Amazon but not under our label and not just randomly.
Luke Peters: Oh wow, okay.
Ken Kline: Yeah, so it’s a pretty cool model because Amazon, there’s plenty of shelf space and there’s very sophisticated players that know how to work that world of Ecosystem. So, that’s been a pretty neat kind of adventure for us to help people kind of launch brand. We’re not the expert on Amazon, but we’re the expert on the textile product concept to launch kinda side of it, you know?
Luke Peters: Yeah.
Ken Kline: Now, more recently we’ve started working directly with Amazon on some stuff that really is a better fit for bulk volume, every day kind of the Amazon model verses kind of a lot of our premium goods which is not necessarily the best channel for that. And then, I don’t want to talk about Amazon the whole hour though because we have great relationships with others. We actually have a longer relationship and do more volume with Wayfair. And as the function of the Wayfair model keeps growing, it’s the function of us trying to hand and glove fit, just trying to really make sense of that Ecosystem. And then the other thing is on Wayfair we touch multiple categories. So, we kind of became interesting to them very early from the standpoint that here’s a vendor that offers topa bed, that also offers matching window treatments, that also has coordinating rugs. That whole thought was kind of unique verses like one Instapot, you know?
Luke Peters: Of course.
Ken Kline: And then comes in one color, black. Now, there’s disadvantages to that so from there it goes down to, we do Overstock quite a bit and they’re a great partner. We added Home Depot this year, kind of a beta test, pretty successful though all around. And then it kind of goes down to there from there. Now, we don’t do Walmart. We’ve exited Walmart this year and we also exited JC Penney which was a pretty big gut call to my part, just seeing the way some of the legacy retailers are going with their traditional business verses their online business and whose going to get caught in the crossfire.
Luke Peters: Well, that’s a big set of companies that you’re working for or working with and I figured Wayfair would be a perfect company that’s suited around your product, obviously. Quickly, do you guys do private label with Wayfair? I know they have a ton of great brands that they have on the back end that they label with.
Ken Kline: No, we did do a pretty big program a couple of years ago with Birchlane. They do white label and then there’s private label. So, we did kind of custom specific programs for Birchlane that they white labeled but they weren’t custom for Wayfair kind of a deal.
Luke Peters: Yeah, so now you’re back to just focusing on your brand it sounds like.
Ken Kline: Right.
Luke Peters: How big is the Amazon business as a percentage of your total company? I guess adding in total that you sell to Amazon and that other parties are selling…
Ken Kline: You know, I would say, I looked at the figures today. It’s probably 22, 25% of total volume.
Luke Peters: Okay, so you’re about 30% to the niche retails, 20 or 25% to Amazon and then probably a good chunk to Wayfair and then the bulk is kind of some of the smaller companies that we talked about. And I’m sure if your Home Depot business is new that will be a growing component and I’m sure you’ll see some of that in 2020. So, it’s always fun to kind of go through the breakdown because everybody, I think it’s tangible. You know our audience is comprised mostly of other business owners and we all like to hear numbers. So, thanks for sharing those, Ken. I appreciate that.
Ken Kline: Yeah, yeah, totally.
Luke Peters: It just gives context and people can understand who the customers are. I guess I wanted to…this is again kind of in the weeds a little bit, but just curious in case you’re on anything different or interesting on the ERP side. Are you able to share what back end you’re on because you’re having to fun two separate warehouses it sounds like that are remote, so what’s the back end system that you’re using and how does it connect the different warehouses and your main HQ and how do you handle that with the EDI?
Ken Kline: Yeah, so we’re on NetSuite which actually is a pretty strong backbone.
Luke Peters: Yep, we’re on it too.
Ken Kline: Yeah, okay. That’s the whole conversation we could have about the pros and cons. It has so many bells and whistles of which a lot we don’t use but then it’s got a lot of good backbone in connectivity that you’re very familiar with. So, we’re on NetSuite and so we do that. And then I would say it’s really seamless with the EDI component, and then API which we’re converting a lot of our clients to API. We’ve been developing that in-house which is actually pretty cool because those legacy costs with EDI transactions kind of go away. So, that’s nice.
Luke Peters: That’s awesome. Yeah, that’s everybody’s dream actually is to get off EDI. It’s hard to for a lot of these retailers. Do you have an EDI expert at the company? It sounds like in the states you’re a team of about 50 so solid size team, actually about the same size number of people as my company is newer and we have a great, great dedicated EDI person. She lights out on handling the NetSuite EDI connections and along with part of the NetSuite integration. How about on your team? Do you guys have somebody that is responsible for that end of it?
Ken Kline: Yes we do. We have two point people that are really, really just brain surgeons and it’s like they just do a fantastic job in my opinion. And not only that, they love it and that’s always cool when someone really likes that kind of work. So, yeah, we have two people that are really, really good at it and that’s worked out really well for us. So, and that is the unique skill set that we kind of had to develop in-house and then you kind of have to free them up from everything else. You can’t let them be in 18 projects when they’re in that.
Luke Peters: Yeah.
Ken Kline: It’s kind of that deal. So, yeah, that’s what we do. We have some third party integration like some third party heavy lifting, but pretty much we’ve done everything in-house which I have to tip my hat to them. They’ve done a great job.
Luke Peters: That’s great. And then moving on to your supply chain, you obviously stated you guys are almost 100% it sounds like in India so you are not having to pay tariffs. I don’t even know if tariffs are hitting textiles in China but they’re definitely hitting appliances and electronics and we’re getting nailed by them.
Ken Kline: Sure.
Luke Peters: But, you’ll know more about that. Has that been a big advantage? It sounds like you got a big team there. It’s got to be a strategic advantage of your company to be sourcing from India and maybe you could talk a little bit about that and also where other textiles are also being sourced, I think Vietnam might be another location. It would just be interesting your thoughts on that.
Ken Kline: Yeah, sure. So, we are almost exclusively in India now. We opened an office there 14 years ago which was kind of a moonshot to be honest with you. I had started working out of India in the mid 90’s and late 90’s, really like 1997 and I think my first trip was like 1998 or 99, I’m trying to remember, maybe 98. And at the time, it was like, you could see China was growing rapidly and industrializing rapidly and India still was like way behind in the 90’s. I mean it was very interesting.
Ken Kline: But with the advantage that they have an Ecosystem for textiles and home décor that it’s based on a 200 year plus interaction with Europe and specifically the UK and England, so they have a very finely tuned sense. They understand what a Ralph Lauren buyer is looking for and they understand what a Pottery Barn buyer is looking for and they worked very well with that type of buyer. And so, for us, the play was we could do volume out of China but we can layer in premium goods, what we call premium goods out of India. So, that was kind of the impetus of the thought there. And then we kind of completely switched after the great recession and we made some other strategic decisions to say, “Well, while we do great volume out of China, it’s very thin margins given the commoditization of the products, so how can we sort of create a Pottery Barn of wholesale in textiles that we can be really proud of?” The wholesale is three to five times higher in a lot of cases, but we’re extremely happy with the quality and the heirloom kind of premium level we’re trying to put out there.
Ken Kline: But we did both for a while which is a little bit schizophrenic from a branding standpoint. That’s kind of the idea there. What put us in the business was again, I started as arbitrage buying from a textile importer out of Texas that had scaled very rapidly with premium brands in the United States like LL Bean, Ralph Lauren, Garnet Hill, some really premium home décor brands that are a little bit more legacy now that we’re getting into the E-Comm era.
Ken Kline: But still, you know, well-known brands. Well these guys were building a phenomenal business and the owner was spending every penny plus extra. So, we started buying their liquidation. Then they kind of went into a total tail-spin so we made a bid, got called in like 99 or 2000, I think it was 2000 where they were going bankrupt and we stepped into the Ecosystem and said, “Okay, we’ll buy. You got 20 containers lined up that are for different buyers. We’ll come in and soak those up. We will make sure our factories in India, they’re also supplying us, they’re not going to go bankrupt because they’re getting stuck with all these containers and we’re going to buy them for 30 cents and 50 cents on the dollar”, which is kind of a black eye for the vendor but it preserves the Ecosystem. I know that’s a very bizarre thought process.
Luke Peters: Yeah, yeah. But that worked for you guys.
Ken Kline: It worked.
Luke Peters: It’s a good story.
Ken Kline: Yeah and it put us in the business kind of in volume, kind of almost like in a year.
Luke Peters: That’s a big risk too that you took on a huge risk and just because you’re buying it 30 to 50 cents on the dollar, you still got to turn around and sell that.
Ken Kline: Absolutely.
Luke Peters: And that’s a huge volume too. I mean, that’s a ton of cash. You must have had, either you guys had a ton of cash or you got some really good terms on that deal, right, if you’re buying that many containers.
Ken Kline: Yeah. Well, I told you my dad was a retired Fortune 500 executive.
Luke Peters: Okay. That’s always good to have.
Ken Kline: Yeah, yeah. But I will tell you too. That was the last time he wrote a big check and then he told me, “Son, I’m not going to finance it like this anymore. We’re going to go get a bank account. I mean, we’re going to get a big line of credit.”
Luke Peters: Yep.
Ken Kline: Because he was just messing around. He was like, whatever. After that which was like 300, 400 thousand dollar check or more, he said, “I’m not doing that again.” It’s funny because recently we’re back with the banker that was my first banker 25 years ago when he was just a Junior Officer. Now he’s a CEO of a publicly traded bank here in Missouri.
Luke Peters: Wow, wow.
Ken Kline: He told me, he met with me three weeks ago just to talk about whatever. He goes, “I’m telling you something I’ve never told you Ken. First time I met your dad he scared the crap out of me.” That’s hilarious.
Luke Peters: So, talking through that, tell me more about the brand because I’m wondering how many total SKUs do you guys have? I want to kind of understand the different, not in detail, but let’s talk about that question, how many total SKUs and I got a couple of follow-ups to that.
Ken Kline: Yeah and the SKU story is an oddity because we had a high of 6000 SKUs and frankly, the idea behind textiles was more and we were like, “Well, let’s do this, let’s do that, let’s launch Christmas, let’s add Thanksgiving and Harvest and seasonal and let’s add tablecloths and window treatments.” And so, but then we kind of hit a big sobriety check so to speak when we started doing a big pivot into E-Comm and then all the content management.
Luke Peters: Yeah, that’s what I wanted to ask about and review management. How do you even build reviews and build rankings when you have 6000 different SKUs and one pillowcase from the next and one bed sheet from the next? That’s got to be difficult.
Ken Kline: Yeah, difficult is a polite word. That’s what we decided was like, “This is too much.” That whole business model while it’s fun to keep iterating and be known for that, it’s way too much bandwidth to cover. Now that we not only have to import and design and stock out the products, now we’re also drop shipping it which means our inventory has to be a lot higher because it’s not a container going out the door.
Luke Peters: Yeah.
Ken Kline: And then secondly, we’re also responsible to now create the content which we used to ship the container to Dilliards or whoever and then we take their own pictures and write their own content, you know, whatever. So, we’re definitely going through this phase. We’re like year two and a half into let’s reduce that by a good 50%. So, our target is to be less than 3000 SKUs by the end of 2020 to address exactly the issue you pointed out from like the ten thousand foot view which is that, how do you manage content, photography, reviews and ads pen. It gets to the point where you can’t unless someone writes you like a 20 million dollar check.
Luke Peters: Exactly. We all want one of those.
Ken Kline: Yeah, that would be nice.
Luke Peters: That would be nice.
Ken Kline: No one offered that this week.
Luke Peters: So, you got to go with strategy D instead of strategy A. Hey, that’s still a heck of a lot of SKUs. You’re trying to get down to 3000.
Ken Kline: Yeah.
Luke Peters: And so, that’s a massive catalog. It’s not only just the work…see, I know there’s a lot of work involved but then you invest in a SKU or a design, some design that’s taking your product development team like you said, 12 to 18 months. You bring that thing to life, but you’re probably launching tons of other SKUs. I mean, how do you get traction? How do you get them ranked? How do you get reviews? Do you guys have a product launch strategy for every SKU or do you kind of have to pick and choose which ones you’re really driving, you know, reviews and traffic to?
Ken Kline: Yeah, that’s a great question and it is a pick and choose battle which is we’ve got to get better at that and having a one to one parody so to speak. For example, there’s the 80/20 rule and so we’re not quite meeting that metric on the 80/20 rule which means we have a little bit too long of a tail. So, there’s an easy process of just start retiring things in bulk and kind of just clean things up. But then the other thing and this is very different than your business and a lot of businesses that makes it very difficult, is the fact that, and even on the level of NetSuite and Matrix planning and this stuff, it’s not same but for color, same but for size in our case.
Ken Kline: Like for example, our very popular window treatment program has 18 to 22 variations in window treatment size and maybe four to six colors. So, you’re looking at 150 SKUs of which within there, there’s an 80/20 rule that’s the every day piece that’s just at a glance sells 30% of the sales. But then all the way down the tail there’s a piece that’s maybe 60 bucks wholesale, it doesn’t sell nearly as many as the $10 one but when it does sell you got a super happy buyer. So, it all lives within an Ecosystem of relatable products but yet from a Matrix standpoint, yet it is not the same but for size. So, there’s that added complexity, but then you don’t abandon that because then there’s this client stickiness around the fact that we’re the only game doing that. So then, people love it. So, if this whole battle, Luke around, and I love the fact that I’m even having this conversation from a standpoint that this is the kind of thing that makes me excited to run a business another decade or two.
Ken Kline: Okay, while I see that challenge and it’s a tough challenge, it’s a big mountain to climb, if we climb that mountain, say on Home Depot with window treatments, we totally have first mover advantage. Right?
Luke Peters: Yep.
Ken Kline: And so we just take our data from like what we know traditionally works, but apply it to E-Comm as far as what the SKUs are and figure out the marketing and branding side on the Ecosystem. So, I don’t even think I answered your question.
Luke Peters: Well, you know I actually think though through that answer, I do have a little more clarity because it’s a window treatment, let’s call that, the XYZ blind. You have 150 variations because you got different colors and sizes, but it still is one product with different colors and sizes. So, you could still do a lot of marketing and branding around that one key product that is in these different sizes and colors. So, it still is a mountain but it’s not Mount Everest of 3000 because you still could, you know, we could talk about it offline, but there’s still a lot of marketing and branding and names depending how you’re calling the SKUs in ways where the consumer can kind of identify that that’s the one I want. Okay, here’s the sizes that I need, but I guess the inventory turn, that’s a whole separate issue. I guess that’s going to be a challenge for all textile companies, right? You guys trying to turn inventory at a fast enough rate with all these different sizes and colors, you got to carry massive quantities of that and coming from India, lead times are, I think it’s like five or six weeks on the water, right, instead of like three from China?
Ken Kline: Yeah, correct. And not only that. In textiles what you lose in the volume and the pricing play in not dealing with China, you pick up in quality and like a very different kind of level of thought that plays to a buyer in America and Europe who really prefers that. But what I was going to say is, within the 3000 SKUs, it’s about 55 or 60 product families total. So, it’s not like…and we’ve learned that too, by the way. We’ve learned don’t launch a Christmas pillow. That needs to be living in a family that maybe has 15 or 18 products that are relatable. And then, yes, the one off might be kind of cool but it’s not worth the heavy lifting, right?
Luke Peters: Makes sense.
Ken Kline: Yeah, so, to your point. It’s not as crazy as it sounds, but it is still crazy from a standpoint of…and it’s definitely not the issue of you can pick one SKU and really make that rock. If that pillow is a $14 wholesale, you’re going to have to work really hard to make that like relevant to the P and L. You know what I mean?
Luke Peters: I was going to ask that. What’s your average order value, but I guess it’s going to depend because you’re shipping out a lot of larger orders.
Ken Kline: Yeah.
Luke Peters: Is there a way to give an answer to that question or is that a difficult one just because of the business?
Ken Kline: No, the average order value, the volume has increased and the average order value has dropped because…
Luke Peters: Drop ships.
Ken Kline: Now, but this does get into the issue that everyone needs to pay attention to the content management side to make sure that…make sure it’s…. I was just listening to a channel advisor webinar about this, this week. It’s really good. You need to really make sure that it’s easier for people to buy from you instead of harder. But at the same time, you can water yourself down so much that you’re not really offering like the compelling value that people actually are bothering to search for. You’re going to have to be careful there and so that’s the kind of the journey we’re on in terms of…Look, people are going to….The long tail in E-Comm is the fact that, well, no, maybe this is not Wayfair’s best selling Christmas pillow. But for the buyer that knows our brand, they love it. So, the point is that, that buyer is not statistically located in a way that you can easily blanket it. That buyer is a settled, married, traditional lady scattered throughout the United States in small towns and suburbia and traditional places.
Ken Kline: So, it’s like once you get to that level while it’s very niche and long tail from like a macro Amazon perspective, it should be really lucrative if you figure out the formula. Does that make sense?
Luke Peters: It does make sense and it’s going to continue to change over the next couple of years. Even with your business it’s more of a transition in that direction.
Ken Kline: Yeah, yeah.
Luke Peters: Listen.
Ken Kline: It is tricky, though. We’re definitely on this path of how do we make more stickiness that’s relatable enough to where people say, “You know, I bought that last year or I bought it two weeks ago or I bought it yesterday and I love it and now I want to get more of it.” That’s a whole discussion we can have.
Luke Peters: I mean, yeah and that’s what I love about this podcast is you talking about that all day long. But, I want to make sure that we have time to talk about what seems like a huge hill you’ve overcome and a huge challenge in something so interesting that you guys had to come out the other end from a fire. I’d love to hear how that happened and how you guys have come out the other end even stronger.
Ken Kline: Yeah, so we were gearing up for, it was in October of 2016 and it was our first year, not our first year with Wayfair or like a frontal E-Comm strategy, but it was our first year we were really hitting our stride like that season. And so, everyone was buzzing. The economy was growing. We were excited. Everything was above plan. And I was feeling pretty good. What happened was, we had just decided to overhaul, kind of upgrade our corporate offices which were attached and we added a really big, really nice showroom for like national buyers to fly in. So we would fly in buyers from Wayfair and Birchlane and Hayneedle. The idea was bring them here to a really nice showroom and really cater to them instead of have a 30 minute meeting and don’t kind of really…So, that build-out and then we made some other changes and it was just a really simple mistake that someone made and it was a real honest mistake staining a piece of wood and it spontaneously combusted after we closed the building.
Luke Peters: Wow. Really?
Ken Kline: Yeah.
Luke Peters: So, they put a stain on a piece of wood to make it look better or smoother, whatever it was.
Ken Kline: Right.
Luke Peters: And it just, something must have started it though.
Ken Kline: It’s hard to believe, but we had everything on video surveillance so it was all recorded.
Luke Peters: Oh wow.
Ken Kline: So, yeah. So, that was big bummer because we literally were putting the finishing touches on our brand new showcase showroom and there was, like I said, a simple, innocent mistake. And it wasn’t not to fault, but that’s what happened. Here I was, out having sushi with some close friends of mine and one of my fellow economic development kind of people here locally, he’s a city administrator for one of the cities locally and we’re good friends and I got a call. They said, “Hey Ken. Your building is on fire.” And I’m sitting there having sushi and I go, “What?”
Luke Peters: Oh man.
Ken Kline: By the time I got over there, literally the building was 1900 degrees Fahrenheit.
Luke Peters: And how big was the building?
Ken Kline: That at the time was 36,000 square feet plus the new 3000 square foot showroom. So, it was like 39,000 square feet.
Luke Peters: And all of your inventory was in there, right? And did that all?
Ken Kline: Here’s the joke. Because it was drop ship high volume season, all of our best selling inventory was in that warehouse and all the other inventory was in the one that didn’t burn down.
Luke Peters: Oh, you had a second one at the time?
Ken Kline: Yes and we still have two warehouses. So the second one which is 20 feet away did not burn down. So, and we had literally just set up a brand new drop shipping logistics-like station like whole matrix to like better handle Wayfair and Hayneedle. We were just figuring all that out and so all new equipment, all new showroom, all new inventory, massive inventory, all time high of inventory. And so, literally though we started in the parking lot with the building still in flames behind us and we started triaging what are we going to do. And so, we had an all hands meeting the next morning at 730 and I said, “Listen, we’re down but we’re not out. It’s a building, it’s inventory, it’s not us. There’s a difference. So, we’re going to get past this thing and we’re going to be bigger than ever and also we’re going to rise from the ashes because now this is our chance to really pivot some legacy systems and planning to E-Comm to where we couldn’t do it before from the ground up.”
Luke Peters: I love that. Sounds like you really brought your leadership and were inspirational and painted a picture because I think at that time everybody’s asking probably thinking about their jobs and thinking the worst case scenario and then just as the leader of the company, you stepped up and had to paint the picture and kind of like a football coach maybe, when you’re down at half-time and had to give them that speech in given that vision.
Ken Kline: Yeah, and it was tough man, it was really tough because the other thing is, all of our records are in the cloud, everything is totally up to date, our depreciation schedule, our asset schedule, our accounts receivables. Everything is on NetSuite and then everything else is in box.com which is our mass storage depository for all product development, all pictures of samples, all CAD work, all work flow.
Luke Peters: Oh, good on you.
Ken Kline: We were already on Smartsheet for all our GANT planning where you process and work flow planning and all that. Literally everything was in the cloud. So, literally we knew exactly where we were. And the other thing I’ll tell you, Luke. This is the thing people don’t think about. Our direct competitors at wholesale that are selling to traditional retailers, not E-Comm, they were going around saying, “Well, you know VHC burned down” and they’re not filling in the blank and going, “But you know they’re rebuilding.” Like they just leave that hanging and the buyer goes, “Oh, well that means they’re gone.”
Luke Peters: Yeah, they’re kicking you while you’re down.
Ken Kline: Yeah and so that was really rough. And one of your questions was, “Did you think about this driving off into the sunset?” No, we had really, really good insurance and so the checks they cut were pretty massive. I’ll be real honest with you.
Luke Peters: Oh, that’s awesome and how quick did you get those checks and how quick were you shipping again?
Ken Kline: Yeah, so we started shipping 10 days later. We completely retro-fitted our small warehouse to be the distribution center. And then we lined up….containers were coming in fast and heavy so we just had to leave them sitting on the parking lot and ship from the container to drop ship.
Luke Peters: I can just visualize that. That’s funny.
Ken Kline: Oh my gosh. Imagine 150 containers in a shell of a building that looked like a nuclear bomb went off.
Luke Peters: Yeah.
Ken Kline: So, we did that and we, literally that night, we relocated to the Chamber of Commerce for two days and then we opened Monday morning, all systems go. Believe it or not, 96 hours later we opened our doors, fully operational with NetSuite and everything working from an abandoned Votech campus that’s like 18,000 square feet.
Luke Peters: You’re almost like a NetSuite commercial. Listen, it’s a nice selling point to have everything in the cloud and they’re one of the only organic ERP’s that are in the cloud. A lot of them are in the cloud but they’re not really made for the cloud.
Ken Kline: Correct.
Luke Peters: And wow, what a story how you guys turned that around that quick. You must have a great team behind you and a lot of leaders on the team to help you with that.
Ken Kline: Well, it took a lot of grit because basically you’re coming to work and what are you coming to work for? So, we did start like planning from there. I’ll tell you one of the things I did was, I made a decision literally that day. Okay, I now have three jobs. My first job is to rebuild VHC, the brand, the company. My second job is to get on the phone and start rebuilding the physical fulfillment center. And the third job I have is navigating successfully a massive insurance claim fire loss on multiple levels. So, right from the get-go, I told the insurance company and our agency…by the way, my advice to people that try and flip agencies to save 10 cents here and there, whatever, we stuck with our agent. Now we changed carriers but we stuck with our agent. You need to do that because if something big happens you’re up a creek.
Ken Kline: So, I told the insurance company, because this was a major loss for them in the mid-west. It was on their national radar. So, they’ve got the Fire Marshall all up, is there like fraud, anything going on? They’ve got inspectors. They’ve got people that are forensic experts. I mean it was….so I told them from the front end. “I’m going to treat you like an investor. I’m going to tell you everything I know and I’m going to be 110% transparent and we’re going to navigate this together because we’re partners.”
Luke Peters: Sorry. I’ve got so many questions, I didn’t mean to interrupt. I mean coming from this whole story, it’s amazing, that’s a great thought process how you broke it down. You had to break down into those three quadrants. You know when this process is over though, looking back at it a year later because it sounds like you guys were shipping 10 days later and you’re already making progress. And that was my first thought was you have Q4. This happens in October, October 2016 and you got Q4 around the corner and like you said you got tons of containers. So, but looking back at it a year later, what was your main learning? What was something that maybe for the audience that they could pick up on or think about in their businesses?
Ken Kline: Oh yeah. I think that definitely, definitely under-promise and over-deliver because literally you’re on the phone with Wayfair and they’re like, you’re talking to people that are like, I mean, I like Wayfair, trust me, but we go there and we know the buyers also. I mean everyone is just out of college.
Luke Peters: Oh, man.
Ken Kline: So, they’re like what do you mean you can’t ship? I’m like, “Do you want to see a video?”
Luke Peters: Yeah, that’s so funny.
Ken Kline: And they’re like, “It’s 4th quarter. How quick can you get onboard?” We’re like, “We burned down. Let’s just walk that back what that means.” He’s like, “What are you going to do about your EDI feed?” And I’m like, “I’m going to tell you I don’t have one right now.” You basically manage expectations and then kind of out perform. We ended up having a pretty good fourth quarter with what we did have left just by nature of the fact it was kind of a scramble for people that needed our product or were kind of depending on it. But they kind of sucked up everything we had. But that’s not in the big picture, you wouldn’t want to do it that way.
Ken Kline: My piece of advice would be have an emergency plan and secondly, be in the cloud. That’s a huge thing. And thirdly, it’s not a plan, just advice, I made sure that I looked and acted like a leader even if I wanted to go home and cry.
Luke Peters: Yeah and that’s always great advice. You got to hide those emotions sometimes, right? Because people are kind of feeding off how you’re looking and feeling.
Ken Kline: Yeah, yeah, totally. So, you have to have chin up even though the skies are real dark. You gotta have the chin up. It’s not pretty, it’s done Kirk, but we’re here. So, deal with it. I kind of feel like Luke, I can write a book about this. Maybe I will.
Luke Peters: It’s an amazing…yeah, maybe you should. It’s an amazing story and thanks for sharing and I think those bits of advice is good advice because I think a lot of us when we haven’t experienced that, we have the emergency plans that you kind of have to do for the city codes and that so on and so forth, but like you said. All of us, all business owners listening should kind of rethink that and how deep we want to go on the emergency plans. And then to your point, I think most people are getting most of their stuff in the cloud, but ERP-wise, I know a lot are not just because it’s tough. There’s a lot of legacy, great plains or sage or mass 100/200 type of systems and locally run, locally stored. That reason alone isn’t enough to jump to a cloud system but you kind of get that when you go to a cloud system. So, that’s great advice and thanks Ken for sharing that story.
Luke Peters: I mean, the whole story is amazing and thanks for giving the listeners insights into how you do things and we could probably have two or three podcasts, one on product development, one on how you launch products and maybe we will down the line. But this is a great start. I just want to thank you for your time today. You’ve really shared a lot about your business. How can listeners get a hold of you? Is there a way to connect on LinkedIn or how do you choose? What’s the best method to connect with you if they want to?
Ken Kline: Yeah, I am pretty famously very low key if that makes any sense. I am basically not there. I’m dark. So, the best way to reach me and don’t laugh, but I’m a maniac with my email. I don’t mind getting email and I read my email and I like email. I am on some forums and E-Commerce and LinkedIN and different things. I find myself going, “Oh yeah. I got to check that.” As opposed to, I like talking to people on email so if people want to email me it’s email@example.com and I’m happy to chat or whatever. That’s my, which I realize is really like lame, so my teenage daughter, she’d be like rolling her eyes.
Luke Peters: Why aren’t you on Instagram, Dad?
Ken Kline: Yeah, what’s your problem. That’s weird. No one can find you.
Luke Peters: Awesome.
Ken Kline: I don’t want them to find me.
Luke Peters: Yeah, well, listen. I feel your pain. Sometimes we just want a quiet moment, right? And it’s tough when every fire has to go through us. But, appreciate that. And just to repeat, firstname.lastname@example.org and you have a lot of wisdom to share, Ken. So, thanks for being open to that and listen, I just want to thank you for being a guest and also thank you listeners for listening to this episode of the Page One Podcast sponsored by Retail Band.
Luke Peters: Quick reminder, if you’re looking for some help on your digital strategy, product launch strategy, help with Home Depot, Wayfair or any of those accounts, reach out to me. Find me on LinkedIn or email@example.com. Doing that, I’ll talk actually about it more in a future episode but we have a really cool star process where we go through your strategy, your assets and your trust and the reviews that are associate with your products and we kind of help put together a tangible strategy that you could use with your internal digital team. So, happy to do that and just want to thank everybody for taking their time out and we’ll catch you on the next episode.
Ken Kline: All right, thanks. Talk to you soon.
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