What Every DTC Brand Should Know Before Q4 (with Shopify's Harley Finkelstein) | Limited Supply

Wait a second, ladies and gentlemen. Nik fucking Sharma. I feel like the curse word concentration saturation of this whole event is going to be super high. So as some of you don't know this story, I know you got a whole list of questions, but I got the microphone. Three weeks ago, Nik texted me at like 11:00 at night and said, "Hey, we're going to throw together this event, Q4 Summit. Can you speak there?" And I think within 30 seconds I asked first, I said, "Who's going to be there?" And he said Shopify partners, merchants, entrepreneurs, retail people. And I was like, "I'm in." This thing that they put together in three weeks is nothing short of amazing. The fact there's a packed room right now, the people that you got to speak here, not me, but other people that flew here from all over the country, is incredible.

But the theme I think that you should take away here is that entrepreneurship is lonely. It is unfortunately a lonely sport. There's incredible things about entrepreneurship, about being a founder, about building companies, but it is lonely. People don't understand what you do. You go to these family dinners and they're like, "What do you do?" And you're like, "I'm in like search engine optimization or I'm in funnel conversion." And they're like, "What is that?" But what makes this so interesting is that we've created this community around what we all do, and we do it together and we help each other. When someone calls and says, "I need you to do something," we default to yes. So, you're my people and I'm really grateful to be here. Thank you.

So a couple things. The reason I have an iPad on stage, I usually don't ever bring notes with me, but we actually just took a survey of 18,000 consumers and asked them what they are feeling, doing, contemplating for the holiday season. So I'm actually going to share some stats with all of you for the first time. I think this will be very valuable to all your businesses. I'll do that in just a moment. The second thing I want to say is this. Yesterday I got a chance to spend some time, about an hour, with the chief economist for Mastercard. I asked her basically, you know, lay out for me what Mastercard is seeing from a spending perspective, from a buying preference perspective, and she said that the one thing that has changed in the last 10 years, if you sort of extrapolate the last 50 years of data collection by credit card companies and you look at what's happening right now, specifically since the pandemic, she says the major change is that there's now a bifurcation of things. Historically you would say, "How is consumer spending?" and it would be a binary answer: it's going well, or it's not going well. She's like, it's not like that anymore. Something has dramatically changed. During the pandemic, for example, if you were in hospitality, you were having a terrible time. If you were in furniture during the pandemic or house goods, you were having an amazing time. And she actually believes that will continue to be the case, that you will not have a one-size-fits-all when describing consumer trends.

The second thing that is obvious to a lot of you already, but just to make the point here, is that if you go back to how consumers used to purchase in the past, it was all about the retailer dictating to the consumer how to purchase. That is over. I mean, we should talk about David and what you're doing with your new business you launched a couple weeks ago, a month ago, something like that.

Sorry, David—

Three weeks ago, four weeks ago, something like that.

Two weeks ago. What you were seeing is that now you have to sort of read the room of what the consumer wants to buy, how they want to buy, and then effectively create a funnel and a strategy to get in front of them. That doesn't necessarily mean online only. It doesn't mean offline only. We announced a couple weeks ago a partnership with Roblox. When I did a bunch of media around Shopify building commerce into Roblox, the first question I got was why? And I was like, well, there are 80 million weekly actives inside of Roblox. So, it's double the population of Canada that are there. Not all of them are going to be consumers of product, but some of them will be consumers of it. So, this idea of being channel agnostic is not just a cool sort of term or a fad. Channel agnostic is absolutely the way you have to operate.

Let me give you some new stats. Again, I wanted to make this as calorie-rich as possible because all of you have very busy lives. So 18,000 consumers we surveyed. Here are a couple things that I think are worth noting. First is younger shoppers are unequivocally the most likely to increase spending. From a delta perspective of last year to this year, the highest spending group will be 18 to 24-year-olds who will actually increase their spending and buy what they refer to as treating themselves first. Second thing is brand engagement peaks at around 35 to 44 years old. 85% of shoppers in the 35 to 44-year-old category know what brands they like. And when you solidify the connectivity between your brand and them, you ultimately will end up with having them as customers for life. My best friend and my co-founder of Firebelly Tea is in the room somewhere. Where's David Segal? David's in the room somewhere here. There's David. That's exactly what we're trying to do with Firebelly. We believe that we can convert people into Firebelly customers now when they're in that age group. As they get older, they will continue to be very loyal to Firebelly Tea. That is something I think everyone should think about.

Couple other things. This is for holiday shopping: 60% of US shoppers want to buy small things online, but they will more consider going in-store for larger purchases. And in-store discovery was reported to be the most valued among younger demographics in the US. So even the 20-somethings will still go into a physical retail store to discover something, but will then continue the buying online indefinitely. That's the first thing. Second thing I want to bring up, priority for BFCM from product categories is threefold: fashion, electronics, and food and drink. Food and drink has made a major—I know you guys have a bunch of incredible, I saw Brez here and a bunch of other great brands. Fashion is 37%, electronics 31%, food and drink 25%.

This is really interesting. Top loyalty drivers across all 18,000 people that we surveyed: the number one loyalty driver, super surprising, is discounting. Number two is free shipping. Free shipping came out at 41%. The reason I mention that is because I think all of us know that free shipping does increase conversion, but 41%, that's a dramatic increase. And so whether that's a softer economy or people have more trepidation about where they're buying, that is a big deal. Last stat: younger shoppers in the US are shopping way earlier. 55% of younger US shoppers are likely to finish all holiday shopping by the end of November. So we talked about BFCM being just a weekend, and then being a week, and then being a month, and now sort of a season, but historically even 5 years ago, holiday shopping went until around the 18th of December, and then all of us saw sort of the drop-off. Anyone in the room that owns a brand will see this. It is actually happening much faster now. So if you're not starting holiday shopping now, you absolutely should. And then last but not least, one in five holiday shoppers start planning shopping lists before the end of June. That is dramatic. Before the end of June, effectively before the summer actually starts, they're already contemplating what they want to purchase for the next six months. So, hope that's helpful. That's literally fresh off the presses, but now you have them.

And that's—I'm getting comfortable. Hold on a sec.

I don't know who said that.

We all talk about how big e-commerce is. Most of us in the room—just show of hands, I want to be clear. How many of you self-identify as being in the e-commerce industry in the room? Show of hands. Pretty much everybody. Okay. So, we're all in e-commerce. That's my entire life. It's my life's work. It is my craft. Nik, it's yours as well. Let's remember something: in Canada, e-commerce as a percentage of total retail is 15%. In the US, it's floating around 18 to 20%. The UK, excluding China, is the highest at 25%. We are not even in the early innings of e-commerce. We are still at the hotel getting dressed for the game. So, I'm incredibly bullish on it. I see the trend continue to rise. I think what's happening is as older consumers sort of leave the market and new, earlier consumers get their first credit cards, they're going to be native e-commerce shoppers and consumers immediately. Now, whether it's buy now pay later or it's rising CAC, we've always had challenges in our industry. My first online store—I was one of the first stores on Shopify, as some of you know—that was 2006. It wasn't as if—

I was selling t-shirts.

It was called Smoofer. And I was selling licensed t-shirts. I was one of the first merchants to use the product. Tobi was a friend. He stopped selling snowboards and began to realize that the software behind the snowboard business would be more valuable, which would become Shopify. It wasn't easy then either. So I think currently, you know, the CAC to LTV ratio or return on ad spend going down, these are new challenges we all have. I don't think we're ever going to be at a place where everything is just easy for any of us. It's always going to be challenging.

I do think, however, that there are new tools available. Show of hands: how many of you have used Shopify Audiences for any of your brands or businesses? A few of you. Shopify Audiences is this—this isn't a pitch for Shopify, I don't like doing that—but I will say that this idea of running your ad through an algorithm that has seen over a trillion dollars of spend online through Shopify, and then getting a lookalike audience that allows you then to place more targeted ads, that's a very good idea. That didn't exist 2 years ago. So my feeling is as the challenges mount around e-commerce, whether it's CAC or it's buy now pay later challenges or consumer debt, there's always new tools available to mitigate those things. The key for all of us, and certainly for Nik and I, is you got to stay ahead of this stuff. You got to come to these sort of summits and be in the industry. There's sort of this theme now of "founder mode," of course, which frankly, if you're running a great company, you've always been in founder mode. But you got to be in founder mode, meaning you have to be so close into the weeds of the business to actually understand what is going on. If you are not, and you're doing a sort of set it and forget it on Google Ads or Meta ads, or using some sort of TikTok shopping tool and it doesn't work, you're going to wake up one morning and wonder what has changed over the last 3 months. Everything has changed in the last 3 months. That's why we're all in this industry, because it's really exciting.

So I am as bullish as I've ever been on our industry. I'm as bullish as I've ever been on the consumer. And I told you backstage, I just spent the last 24 hours with the heads of Alo, Skims, Universal Music, Tevas. The brands that are beloved by consumers are killing it. The brands that are not beloved by consumers are not. Whether or not you have rising cost of customer acquisition or not, if you're beloved, you have a great product, you're creating great value, you're going to keep winning.

Lazy, right? That's the reason why I bring up this whole founder mode thing, because I think for a long time you would be like, "Oh, TikTok Shop is now available," or, "We just announced a partnership with YouTube Affiliates." So now if you're HexClad and there's all these people doing cooking videos on YouTube, you now can have them sell HexClad on your behalf. That's really cool. It also does it through what's called concurrent commerce, so the video doesn't stop, the video continues and you can purchase. That is very cool. But you can't just turn it on. You have to turn it on and look at it and study it. You have to do data analysis on it. You have to double down on things that are working. You have to be in the weeds of these things. Not to pick on David, but he's in the room, and again, I can say whatever I want about him because I have a mic, he doesn't. David built DavidsTea, one of the largest tea companies on the planet, a billion-dollar tea company, took it public on the NASDAQ not too far from here. When David and I decided to start Firebelly Tea, he was the tea guy, and we had a tough chat and I was like, "You also have to become the e-commerce guy. You cannot simply be the tea guy anymore." Just being the tea guy is not sufficient to build a multi-million dollar successful brand and company in 2024. We all have to be good at every aspect of our business. Now, it doesn't mean you have to be a jack of all trades, master of none, but you have to have the self-awareness to say, "I'm really good at these things, and I'm going to hire really good people for these other things."

I was shocked, too. That's such a cool tool. Again, I'm not trying to pitch Shopify, but it's a gimme. You should not be placing ads without having—we can give you asymmetric information, and that creates an unfair advantage for those that are part of this sort of ecosystem. One is exactly what you said, which is that people are not taking advantage of it. The second is everyone likes to talk about building in public and experimentation. Most people actually are faking it. They're making videos of building in public. Building in public means you actually—and you do this better maybe than anyone, Nik, in our entire industry—you show your wins and, boy, you show your losses, too, right? You will literally post a screenshot of an ad campaign that completely failed. Why is that valuable? Well, one, you get feedback from it, so it's super valuable, but also it gives other people the permission to do the same thing. Building in public is not just making a quick video and saying, "I killed it this month, we had a promotion, look how great we've done." Building in public means you're showing both the wins and the losses, and I don't think people are taking enough chances.

The second thing is the cool part about building a business and a brand right now, because of the dissemination and universality of the internet, is that if you take something like skateboards and you take something like technology and you combine those, the Venn diagram overlap is an Onewheel. You guys know Onewheel, right? Sort of like the motorized skateboard thing. 20 years ago, Onewheel would never really have been able to sell properly. They probably would be found in a Sharper Image or something like that, or an airport Brookstone-type store. But because the internet has democratized distribution, it means that what Onewheel can do today is they can say, "I'm going to find all the people online that love skateboards and all the people online that love technology, and I'm only going to target that little segment." If you were to walk around the corner to Blackstone or L Catterton or any of the big private equity firms and pitch this idea, they would say, "Market's too small. I'm not going to back this." It may be too small for Blackstone. It's not too small for an entrepreneur who wants to build a hundred million a year business selling Onewheels. And I think that is—I love these bracelets. There's a company called M.Cohen. They make these really beautiful bracelets. They're a couple hundred bucks, which frankly is too expensive, but I like them. I don't really wear much jewelry, so they're kind of cool. M.Cohen is a very successful company that no one's ever heard of. But when you talk to the folks behind M.Cohen, they're thrilled because 10,000 people are buying their bracelets every single year and they don't actually care if it's 100,000. Those 10,000 people really give a fuck about what they do.

I think products where consumers were purchasing settled indiscriminately and it felt like a commodity, and no one ever goes to work or goes to breakfast with their friends and says, "Man, I got the greatest shower head ever." If you can find products like that, that is a great place to innovate. I just bought something called xBloom. I like pour-over coffee, but I'm not going to sit there and go like this for 30 minutes. I think that's insane. I'm not really a hipster in that way. xBloom figured out to create very basic technology that allows a robot hand to go like this. And every morning I have this amazing coffee. And now I wasn't the guy that talked about coffee—I'm a tea guy—but I talk about coffee now because someone made pour-over coffee really cool, really interesting. The Venn diagram overlap of technology, which I care about, and having a good cup of coffee first thing in the morning, that is me. Whether it's shower heads or something as basic as—I saw a tool that's like an AirTag, but it's much thinner, so you can put it in a backpack or in a wallet, for example. Again, AirTags exist. I'm sure there's been countless meetings and consulting firms that said, "Can we compete with AirTags? No, we can't. Apple's doing it really well." Well, no. Apple's not doing it really well because there are some people who don't want a quarter inch, they want a very thin AirTag so they can put it in their wallet and never lose their wallet again. These things that are not necessarily sexy or do well on social media, you can actually build very large companies around it. If you do it really well, you innovate in what's happening, you can make boring products fascinating.

I want to make sure we touch on Q4, the theme of today.