We're really excited to have Claire with us. Come on out, Claire. Are you here? Great. Welcome, Claire. What will we be talking about today?
We're going to be talking about China. You know, just as everything has been all spicy. Well, okay.
Yeah, well, just again, we're trying to make today about just easy breezy topics, you know, the most easiest things to manage. Armaments, Ukraine. Let's go to China, sure. Please welcome Claire.
We are going to actually keep this pretty apolitical today and maybe talk a bit about the parts about China that are less discussed in the headlines. And you know, Jason reached out and he said he wanted to really understand what were some problems that we wanted to see solved. So, I'm a property developer. I run Greater China for Hines. We're the largest private real estate firm in the world. And we have an incredible Greater China team. I know I see these folks in the front. They're like, 'Where is she? I can't possibly spot her in there.' So, we have a team that is working across Beijing, Shanghai, Shenzhen, Dongguan, and Hong Kong. And we get to work really across the real estate spectrum. So, we built the greenest skyscraper in China. We built some of the first international service apartments in the country and are doing some really interesting innovative projects. Like in Hong Kong, we bought a distressed hotel that we're turning into really a new kind of living, collaborative living that's super technology enabled for a young population there where the average white-collar young person it takes them 20 years of salary to be able to buy an apartment. So, we get to approach these problems that are not unique to our part of the world, but often the solution is a combination of East meets West.
So, back to kind of what's the problem? Well, you know, we're sitting right now in Miami, a place that is super exciting thanks to a lot of the things that are happening right here that have been hyped by a pretty awesome mayor, right? What did he do? He got on Twitter and he talked to all of us about what this city had to offer. It had key ingredients. It had universities. It had an upward trajectory. It had young people looking to collaborate. And at the end of the day, that's what we want to be, right? We want to be sitting together in awesome spaces like this, exchanging ideas with other interesting people. That's how you do cool stuff. And so, as property developers, we think, you know, how do you create spaces where people want to be their best, right? Collaborate with others and build a better future. So, that's a lot of jargon, but what does that actually mean? Back to the problem. Well, first, these ingredients are pretty clear. I teach a class at Stanford on this called Who Owns Your City, and the students usually pick it up in the first 10 minutes. Is this a place that has pretty good infrastructure, can I get a job, can I afford to live here, and is there cool cultural stuff that keeps it from being too bland? But then, you know, you'd say, 'Okay, well, cities can learn from each other, right? You can just take those ingredients and apply it.' And that's what Suarez did a great job of here. But we are living in a time where the East and West have never been more divided. Right? And building a city, building buildings is really hard. It's like the most extreme version of hardware. So, as a property developer, we spend our time really thinking about what are the big macro trends, what are startups focused on, where do they want to be? Because our spaces need to be relevant for 50, 70, 100 years, and we can't pick up our building and move it somewhere else.
And so, you try to take the arbitrage of what's working in one part of the world and try to apply that to another and solve problems. And that's where you find great returns, but it's also where you build places that are going to be relevant for folks. And so, you know, just a couple examples up here behind me. So, you know, we talked about the living challenges. So, for folks to be able to afford a place to buy, but the concept of rental apartments, so like multi-family, if anyone lives in a multi-family building with one landlord, that isn't totally a thing in Greater China. Often people are left to rent from an individual landlord, pay a deposit that's enormous, cost prohibitive, and get quality of product that really is not up to what they would expect. And so, taking a very in some ways kind of Western concept and applying it in a place that technologically is probably about 10 to 15 years ahead in terms of what that average user is used to. They're used to unlocking a door with their phone. Their WeChat is their ID. It's the way they meet new people. They can physically shake hands on WeChat to introduce themselves to a friend. It's where they keep their coupons. It's how they pay their rent. It's how they pay their taxes in some regards, right? We don't have that in America. But, if you're like me and you live in Greater China, you do. And so, how do you combine those things together to create something that doesn't exist? You see up behind me a logistics building. But it's actually six stories high. Something we're developing. It is a giant, almost like a refrigerator, but a high-rise. Super tech-enabled. And that's because, you know, they got a lot of people. That building will be sitting within a 45-minute driving radius to 45 million people. And yet China only has a quarter of the cold storage capacity per capita that the US does. It doesn't take a genius to see that this trajectory is, you know, lower left to upper right.
And so, again, you're taking this concept of East meets West. Building up here, just behind me, is in Shanghai. It's about a million-foot tower. You have a lot of those here in the United States. Big fancy office buildings, you know, where people used to go to sit at their computers and do work. But this one is very different from one that you may have walked into earlier this week. This entire building is on WeChat. You can interact with the building on WeChat. You can interact with the landlord. You can interact with your other tenants. You can have chance encounters or organize a yoga trip in the afternoon with the people, with the space, using this digital interface. So, in a way, it's really combining the way we live right now. We live in a physical world, but so much of our idea sharing, our collaboration is happening in the air, right? In a digital experience that we can't see. And so, it's another combination of this East meets West. And so, what becomes a problem and an opportunity. The problem, when you sit in the middle of this world, like my team has the honor to do, is you see that there are all of these opportunities for us to be able to share this, really the best of what the West has to offer with the innovation that's happening on the ground in China, but it is so hard to talk about in this very divided world. And so we like to take the positive side and say, you know, we're living in this world of like magic and Larry, and how can we make each other better?
So I thought I'd use just a few minutes and then we'll hang out with the besties to share a story that maybe y'all haven't read so much about so that you get the benefit of knowing a little bit about what's happening over there, and you can see an example of where sort of East meets West and that collaboration can make us all better. So up here is a gentleman y'all will probably recognize, it's Deng Xiaoping, he's famous for really the opening up of China. And you know, he was an experimenter. You know, he had this vision of what China could be, and he saw what the importance of the physical world, the physical infrastructure, what a role that could play in enabling the economy to jump further. And so the picture to the other side is Shenzhen, which in 1980 was barely a fishing village, it had about 58,000 people, very few paved roads, and Deng Xiaoping, he was from Sichuan, so he really understood what it was like to not be from the big city, and so he declared a special economic zone. And that meant that it would be this place to experiment with bits of capitalism, with free trade, etc. So what is it today? Well, first there's that same road along progression just a few years after it was declared a zone, and then up here behind me is what it looks like now. Shenzhen is over 12 million people. The average age is 29. It's really the tech hub of China. So companies like DJI, which makes 70% of the world's drones, they call this area home. And just within this area, if you were to go shortly from where this picture is taken, you'll have two of the world's five biggest ports by tonnage.
So, how do you take that head start and turn it into something further? Well, they took a lesson out of the book of the West. And they created something called the Greater Bay Area. It's like the... Yeah. Yeah, okay. You guys get it. And so, what is the Greater Bay Area? Well, it is a collection of nine cities on the mainland side. Some of which may be familiar to you guys. So, Shenzhen, as mentioned, and Guangzhou. Guangzhou is about 18 million people. Places like Zhuhai. Do you all remember, you know, several years ago there was this thing about China building the longest bridge in the world? Everyone's like, 'Where is that?' Okay, it was in Zhuhai. And then so nine cities on the China side and then Hong Kong and Macau. And together, this area, it's about the size called West Virginia, today has a GDP that's sitting right around Canada and South Korea. About 1.7 trillion. In 2017, they declared this Greater Bay Area name, and it was there to really back up a lot of the investment, frankly, that had already started to join these cities together to create a super region. So, within that super region, they spent about 300 billion to build infrastructure to further connect it. So, within just 4 years, they'd built 2,000 miles of speed rail. Like high-speed trains. Here we have like a little, you know, one from here that goes to Fort Lauderdale. You know, Texas is going to get one in the year 2090. And so, what does that mean? That means that I can walk out of my office with my teammates in Hong Kong, which is right next to that big Ferris wheel thing that everybody recognizes. I can take one stop onto metro in 13 minutes on a speed train, I could be in Shenzhen. Or I could keep on going and I could access about 23,000 miles of high-speed trains and get to Beijing, get to further than Guangzhou, get to Western China. It is amazing and it is happening so quickly and that number will soon be 40,000 as they continue to build. But, it's not just speed trains. These are interconnected nodes with further metro, with transit-oriented development on top of the meetings of these trains.
So, back to the so what. So, we know that if you take cool people, you put them in cool places and you give them an opportunity to interact, well, what can you do? So, this area, again, the size of West Virginia now with 70 million people who are all quite young. And again, back to the ingredients, we talked about what sort of fosters innovation. Well, they've incentivized universities to put additional campuses here. And these are the best universities in China. So, Tsinghua, Fudan, etc. They funded further life science. They funded further tax increment zones to encourage businesses to come and set up nodes of activity focused on areas of excellence. Somewhere we talked earlier about 1980, there were 58,000 people in all of Shenzhen. So, just between 2010 and 2020, in one small neighborhood on the western side of Shenzhen, they filed 58,000 patents. It's pretty amazing. And that shouldn't be scary. That should be exciting, guys. This is where we get innovation. This is how we get better. Back to the magic and Larry, right? Thank you. Yes, you can clap for that. You can clap for that.
So, what does that mean for us? What does that mean for folks who are sort of getting to work in this interstitial space in between getting to live within it? You know, up here behind me, I'll clear the visual for you. It's further just connecting showing these metro lanes, these trams, buses, etc. leading to these speed trains. Back down here, that's Hong Kong Island and then this takes you through a bit of the Bay Area before you get out to the rest of China. Well, why does it matter? It's because these things layer together. Okay, so China's e-commerce percentage is about 25% of their overall retail. Here, it's about 14%. Again, you all are smart. We can see where this is going. So, you can take some notes on the preview and see what things and trends may be coming here. In China, about 85-ish percent of their transactions are mobile. Here, that's barely 30%. Where is that going? How does that work? Again, you can see what's happening. Another is you can look at trends that are just part of the world there that haven't made it here. And you sit there and you're like, 'Wow, what a chance to iterate.' So, the example there, again, we'll stick with shopping and retail, is social shopping. So, this idea of streaming while shopping that's layered with a full experience and imagine what it can do. Again, if you layer that on top of this WeChat platform we're just talking about, a place where I can go and I could make a new friend right now, you, by looking at you, showing my phone to you, putting them together so we can introduce a product, introduce a lecture, a concept together. Imagine what we can do. Elon likes WeChat. He was just talking about it yesterday.
So, the point is that we all have this opportunity to really, you know, again, the headlines can be exciting. They can be crispy. But to look beneath them. And to take an opportunity to further connect with the people. Because, again, those folks who are hopping on these trains for, you know, probably the equivalent to about 45 cents, right, to get on the public transit here, going around and exchanging ideas. These people, most of them are not politicians. Right, most of them are not big world global leaders. They're folks who are trying to create something for themselves, to create something for their children, to build a better world, right? So, we're really all on the same team. So, with that, bring the besties out, I guess. Try not to get too spicy.
All right. Center stage for you.
Right there in the middle seat.
Well, Sachs isn't here, so of course we'll be nice. It's kind of by default. And meet our Ryan Peterson from Flexport. Claire, I'm introducing you two guys. Claire,
Ryan. Ryan, Claire. You guys met?
So, what do we as Americans not understand about our rival? And what does our rival most not understand about us in your estimation, having operated in both countries for so long?
You know, the term rival is an interesting one. Obviously, I love sports analogies and came from the track and field world myself.
Claire was in the Olympics, guys.
Claire was injured. Claire was injured. I used to go running sometimes.
Kind of fast. At the Olympics.
But, you know, your job in the sport is to find the person who is better than you in some ways. And maybe they're strong where you're weak. You're weak where they're strong. You find each other and you shore up together. And I think that is what becomes so clear when you live there, when you live on the other side of the world. But maybe we're born here, or I'm a minority, so I've maybe always lived in that interstitial space personally. Or even our team. Our team is very representative of modern China. We have people from nearly every province, they're really across the education bracket, highly trained engineers but who might be quite young, to folks in their 60s who have really seen China evolve. And so I do think the thing that can get missed is almost that concept like we talked about, that as quote rivals, they're not monoliths. Just as America is not a monolith. And we can take the best of each other.
So we're best of rivals in a way.
But is there a model for this century for cooperation between the two nations that's enhancing to both?
I think it's happening in enterprise. I really think it is. So when I look at again younger people, the products that they use or the things that the young tech entrepreneurs in China are working on versus here, they're approaching a lot of the same problems. So on the social side, looking at Douyin and what made it so catchy...
Explain what it is for us, yeah.
It's TikTok. It's TikTok. And back to that one about cheat codes and a preview, Douyin was popular years ago. And so I remember first looking at the app and being like, 'Wow, this is very catchy.' And there's effectively no difference between Douyin and TikTok.
And write Mandarin fluently as well as speak it or...
Well, you will never confuse me for a local, but you know, I know enough to get by.
And so when you do business in China, do you conduct in English or do you conduct in Mandarin?
Yeah, so with the team we work fully across what's appropriate because we also work in Hong Kong where it's Cantonese. But all of my communications that go out to my full team, everything in full team is in Mandarin. We do have a large part of our team that only functions within Mandarin.
So when you're, for example, you showed some of these buildings and the idea that came to me is this is a massive coordination problem that's almost impossible in the United States, which is if you had this idea of this living, breathing, monolithic building that is connected via the internet, it'd probably be 50 organizations in the United States that would have to have a say or want to say. The perception that we get is there is an individual that can effectively make that right decision in China, whether it's at the city level or at the state level. Is that how it's really like? When you guys have super ambitious ideas, is there one place you go to and then it just kind of all gets decided? Or is it just like here where it's messy?
So, it's kind of neither, actually. And this is where I think it takes the best of both, which is at a local level. So, you have a local party secretary, you have a block leader, and ultimately it goes all the way up to, you know, the big guy. But China does this amazing thing. They have a 5-year plan. They call it the 5-year plan. Last year was the 14th 5-year plan, and it sets KPIs and areas of focus for the entire country. And those are things around carbon neutrality, education, agriculture, seniors, industry. And it's a lot like, you know, for you guys who are running companies, setting goals and how are you going to get there? What's the road map? But that filters all the way down. And so, at a local level, those KPIs for the local leader are, you know, how did you make your district greener? How did you increase revenue from higher quality services and technologically advanced companies?
What happens if you don't achieve it? Like, you get fired? You get kicked out of the party? Like, what is the mechanism of reward or, you know...
Well, it's quite high accountability. And so, if you perform very well within that system as a leader, then you can move to higher and more advanced posts to a bigger city. Right. So, yeah. So, from a block to a bigger city to a higher, you know, up to a higher...
Stalls out if you don't hit them, but it gets accelerated if you exceed them.
And so, that creates a very interesting set of opportunities. And so, to put it to maybe a tangible example is so for the things that are really great for communities like park space or building a building that's green. The last building that I showed up there sits right on top of a metro and it's next to a natural history museum. And we needed to work with the local government to ensure that we were relating to the area properly, creating, like, leaving it better than we found it. You know, we look at projects where you can't do the project unless you show that it's going to be green and additive or restore historic buildings in the area. There's a real handshake there that I firmly believe creates better outcomes. I know our team would say the same thing.
Claire, what's going to happen with the capital markets for your business with Evergrande and like some of these big kind of property developers that have had major debt problems and have you seen that already flowing over? And you understand the market very well. You probably are able to navigate this, but the foreign capital and other investors like might group everybody into the same block and get scared off.
Sure. Sure. So, certainly we get a lot of questions. But it's another one where the headlines out versus in, you know, inside the country certainly the built environment, the construction, and the real estate industries, if you combine that all together, you've got about 27% of the economy. If you include the full integrated stack, one of the things in the 5-year plan is to diversify away from that in a way. But, you know, Evergrande and the other developers, the real focus at the local and the higher level is to help the regular people get good on their deposits and ultimately get the homes that they were promised. So, it's very interesting for developers, like us and acquisitions people, for some of those smaller developers who got into trouble.
A bailout? Is that the wrong word the way that it's been characterized in the US media that the Chinese government had to step in and shore up the balance sheet, make sure Evergrande wouldn't default on some of their loans?
There was a concern that there would be an entire meltdown of the full Chinese economy, which is not what we feel on the ground. And I think if anything, it's created a set of opportunities to really level set, especially on the living sector. It's really accelerated some policies to make it easier to build and to create rental housing, which creates more access, which therefore maybe takes away some of the pressure on the condominium system. You know, for the debt markets to create a space that is maybe taking on projects that are appropriate for the system. A little bit again, more diversification and development in the right places in the right markets.
When we look at the relationship between the United States and China, we've had three, four, 500 million people come out of abject poverty on the planet because of this great engagement. I don't know if that's a term, but I'll call it the great engagement. We started using their factories. We started making iPhones there. This has created, despite all of the hand-wringing about the relationship, and all the various issues on both sides, a lot less suffering in the world. And so, there is something that I think we don't recognize sometimes is that people who are living for under a dollar a day, three or four 500 million of them are now gone. And that leaves some areas in Africa and in Southeast Asia that we still need to do that work, which paradoxically or ironically it seems like China is doing in Africa. What I'm curious about is what you're seeing on the ground with their middle class, which to me seems analogous to what we went through in the 30s, 40s, and 50s. This establishment of a middle class, which then established, you know, education and prosperity for the decades to come and specifically for the boomers and Gen X. So tell us about that middle class that's emerging. We hear about it. But how many of them are there? And qualitatively, what do they want from life?
Yeah. Well, Jason, in a word, it's incredible. Right? Like again, I talk about infrastructure so much because you see it up there, right? China's only as urbanized as the US was in about 1950. So we read a lot about these today. Today. So we read a lot about these bullet trains. Right. And so that leaves this incredible consolidation of people to cities and younger people to cities. It's a demographic spark that maybe gets talked about a little bit less. But also, if you look at the change that that person you're talking about has seen in their lifetime. So they went from a rural lifestyle, frankly most of them, in something of a village setting that has not changed in decades to this future world that in many ways can only be imagined in movies. And so I think, I sort of struggle to put it into terms because you ask, what do they want? What are they looking towards? And I'd say on a, to use a personal example, right? I'm the luckiest girl in the world. I get to live in this amazing place and work with this incredible team. And yet, my parents graduated in a fully segregated world. The elder people, when they were growing up, were not just slaves, they were the slaves that we talk about on Juneteenth, the ones in Galveston who walked across the bridge and followed railroad tracks to Houston, Texas, right? That's amazing.
That is amazing. And so, I think when a generation or a collection of generations sees that amount of change, what they want is, first of all, they're grateful, but what do they want? They want to be able to build and create and be people.
I have a question. Japan in the '80s had a moment where everything came together for that country. Great population growth, great economic growth, great systems like Kaizen and all of this other stuff that they would export. And the headlines in the '80s was Japan was taking over the United States or Japan was going to lap the United States. But really, one of the biggest things that it had working against it was a demographic wave, right? And you had massive negative birth rate that has really compounded Japan's stagnation. China is on the precipice of this because of this one China policy. I think the stat that I saw, which is stunning, is there's 1.2 billion people in China. 1.4? By 2100, it's going to be around 600 million. If that's true, the point is just like there's a real issue. Is there something in these five-year plans around how to become sort of more culturally integrated with the rest of the world, you know, meaning how do you use immigration as an example to subsidize some of the negative birth rate? Do you teach English more so that you're more integrated into the world economy? All of these things, can you just talk about that?
So, first, I think the urbanization trend of folks consolidating to the cities really can't be overstated. Just in the way that it shifts sort of how the country will work and what's happening on the ground. You know, it's still relatively early days, but when we look at things like Belt and Road, you know, as I walk around Beijing and I compare it to, you know, when we first started there or when we were working with capital partners there, I see a lot more brown faces.
Going to the universities around Beijing. Now, these are still...
Belt and Road is for folks who maybe haven't heard the term. Yeah.
Yeah, so many places you guys can read about it. And before I forget, talking about the sort of, just, you know, everybody loves recommendations here. So, if you haven't read Dalio's latest book on changing world order, or there's actually a great...
You read it. Friedberg. You read it. Friedberg talked about it every podcast for the last 20, as you know.
So, you got to read it. Listen to your besties. There's also a very good illustration of it as it talked about. But, you do read that because China's been a major participant in the global south. So, you know, the short version of Belt and Road is working really across a set of countries around Southeast Asia and Africa, bringing in infrastructure and kind of what it sounds like. Roads, ports, airports, etc. Really building out this network for that part of the world. But, I think what gets sort of bumped over on that is again things like this. So, folks coming to China to be educated. The number of folks on the African continent now learning Chinese. And again, I think this is something that is exciting at the end of the day. The opportunity to further exchange, to lift more people out of poverty, to create further infrastructure.
I was hoping you would stay with us and be a bestie for Ryan who is the next speaker. Would you be willing to help us interview Ryan?
No, no, no, there we are.
Yeah, you'd be better off.
Get in. I warmed it up for you. And you're the guestie.
I like it. I like it. So, give it up for Claire. Now Ryan, congratulations. CNBC does their top innovator of private company awards every year. And you made it to the top 50 list today. I didn't check which ranking you got, but being on the list in and of itself is a big win. What do they call it? Disruptors list?
Disruptor 50, and my view of these lists is you should never share any list.
About your company unless you're number one, and we were number one this morning.
Well done.
You truly helped us navigate, I think, the challenge of us as besties and the audience understanding supply chain. We appreciate that. You've been on the show twice, I think, or what?
Just once so far, and then here, so this is your second time on the show.
Apologies. I was filming the interview for that during Palmer's talk this morning.
You didn't miss anything. Nothing much happened.
Nothing much happened? Nothing much.
But when Palmer and I woke up this morning, we're writing our speeches together and deciding, you know, what we were going to say.
Oh, do you have some feelings you'd like to share with the class? This is turning into therapy.
No, I don't have any enemies. It's sad.
He says nice things about people, Jason.
I got COVID. I couldn't think of a single person who do I want to give this to. I was like, I like everybody. I don't know.
So, tell us. He was going to do a talk, right? Are you doing a talk for a couple minutes?
Well, he's going to talk from there. Just — yeah, let me share a little bit about what we're seeing. So first off, what Flexport is, is we're a global logistics platform. We help businesses of all sizes ship products all over the world, from anywhere in the world to anywhere else in the world. We do a lot of business in China. Probably about half of all of our volumes come out of China.
I know a landlord if you're looking for one, Ryan.
If you need to trade, you need to ship stuff, then we'll do some business after this.
And so we see a lot. We're sort of like a front row backstage pass to the world economy of what's really happening and unfolding. And it's been a crazy few years. To give you context, Flexport started in 2013. Its first revenue was in 2014. We did $2 million in revenue that year. We're on track this year to do $5 billion in revenue. So from $2 million to $5 billion.
And this time period is — I assume it's always like this in this industry. I have only been in the business for about 8 or 10 years here. But just to take you through that timeline: in 2015 there was a port strike on the West Coast and you couldn't import anything into the United States for like 3 months. Total pandemonium. By the way, that might happen again July 1st. Their contract that they negotiated back then is up for renewal on July 1st. So we might talk about that.
2016 there was so much excess capacity of ocean shipping, or so many extra ships were purchased, that the price of ocean freight hit the lowest in all of human history. It was like $600 to ship a container. This past year it was 20,000 bucks. In 2016. So we go through these boom and bust cycles. It's an asset business, that'll happen.
2017, 18, and 19 our president would launch a new tariff war every couple of months and you couldn't predict anything.
2020 a pandemic hits. You couldn't ship anything for a couple of months out of China. They were really hard zero COVID. Shut down factories. Shut down all the purchase orders. Everyone thought the Great Depression was coming. Canceled all the purchase orders.
Then it turned out the opposite happened. It was this crazy boom and you couldn't import anything because the ports were overcrowded. It went from 2019 — it took about 50 days to ship a container from when the goods are ready, when the factory raises their hand and says, 'Hey, come and pick up these goods.' To right now it's about 120 days. So you're doubling or more than doubling the transit time.
And it is just incredibly hard operating this environment if you're trying to run a business. And so, we've had to learn how to navigate through chaos at Flexport. It's like kind of welcoming it at this point.
We found that it might actually be good for our business. We try not to talk about that because it's so bad for our customers and it's been hard to fulfill the customer promises. But, if you put yourself in the shoes of those customers, so like a direct-to-consumer e-commerce business — and we ship for probably 80 or 90% of the hot new D2C brands, a lot of IPOs recently, a lot of really cool hot new brands — they're going through almost a perfect storm right now. In a really really bad way, like the movie The Perfect Storm.
Because ocean freight rates are sky-high. Mentioned this, $10, $20,000 to ship a container. Rule of thumb long-term is like two grand. So really really elevated cost. Walmart announced really high costs this morning and so it's not just small companies, but Walmart announced their costs were through the roof from supply chain and their stock fell 10% today, wiping off $40 billion of market cap this morning. So it hits companies of all sizes, but these D2C brands got a double whammy.
Because Apple, last I think it was last year, when they changed their privacy rules and their customer acquisition models on Instagram, Facebook, all these things stopped working. And so, at the same moment your CAC stops working, you can't acquire customers, your supply chain costs are through the roof.
And then add to that the consumers are now starting to come back to conferences like this, going back to the restaurants and the clubs and doing the travel. And during the pandemic everybody just bought stuff. You got to get your dopamine from somewhere and everybody was just buying goods. So that is like a triple whammy for these companies. I'm incredibly worried about the whole D2C space.
The D2C space is only physical goods.
Saw it in like, I think it was Thrasio that just announced they're laying off 25% of their — Thrasio was buying a collection of those Amazon D2C brands, putting them together and trying to have some economies of scale.
But when your supply and your demand both get 10X'd in the wrong direction, it's game over.
It's — I don't know if it's game over, but it definitely changes the rules of the game. The reality is, look, people are going to buy stuff. They're going to be successful. There are going to be some winners. There are going to be brands that survive.
But though? At what price?
Well, so you're saying that your thesis, that you're making the statement that you're making today is, hey, we're seeing real significant risk to D2C companies because of this confluence of issues right now. And this could be a big threat to a lot of businesses, particularly in an environment where venture funding is —
I think, yeah, venture funding is — oh my gosh, the capital markets are drying up. Capital markets are public and private. Investors like you all will look at this and go, hey, maybe I, you know, put more into SaaS or something.
It's just easier to not do anything. So what does that mean? How do you manage this?
And fundamentally one of the problems that comes about in all supply chains has been written about, the famous PhD paper from like the '60s or something called the bullwhip effect. And a bullwhip, if you crack a whip, the end of that whip is moving incredibly fast. And it's a bit like that in supply chains because you have imperfect information.
And so, the people doing demand planning are living one system. They're selling goods. They're looking at this data set. The people producing stuff is in a different system. How long is it taking to produce things? That's getting longer. The transit time is getting longer. This data is living across all these different domains and becoming very, very hard for a brand to make a decision. How many goods should we buy? When should we buy them?
Want to have in stock? How do we avoid being way overstock? And what we're seeing right now is these warehouses are overflowing and people can't —
So what changes that? Like what breaks it open? So, you know, like in China Pinduoduo didn't exist in 2015. Now 800 million plus, right, users. But it was technology that broke it open. Like what's the breakout moment to solve this exact problem you're talking about?
Yeah, I mean, I actually — China's got one of the companies to watch is Shein, S-H-E-I-N. It's this Chinese kind of like the new Zara that is taking over the world. I think they're going to do $20 billion in revenue this year.
Fast fashion. They're launching a thousand SKUs a day. A thousand new SKUs a day. All like AI generated and then if people order enough, they produce it and it's like really incredible.
So a robot says make these SKUs?
This is where this shirt is from, actually.
Wait, your shirt is from —
