At Yotpo’s Desination:D2C Conference on September 12, 2019, Bloomberg Reporter Matt Townsend sat down with Jeff Silverman, President of Global eCommerce at Steve Madden, to discuss how the company spurred serious growth through D2C and improved the customer experience with agile technology.
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Transcript
This transcript has been edited for clarity.
Matt Townsend: Good morning. Thanks for coming to the event. Today, we’re talking to Jeff Silverman, President of Steve Madden. Just a few things I dug up on Steve Madden: it’s about $1.7 billion in sales. Market cap is about 3 billion. First, I want to start off – Jeff has an interesting career trajectory. I wanted to get a little bit into just how he got to Steve Madden. He actually was there previously and came back. It’s kind of an interesting tale. So why don’t we start with that, how you got to Steve Madden, where you are now.
Jeff Silverman: Good morning, everyone. Real quickly: I’ve been in the footwear business and the internet business my whole life. I had a company that was running websites for other brands and we started running Steve Madden in 2005 and they acquired the company that was running the websites in 2007. They asked me to become the president of the company at that time. And in 2009, I resigned from the company. In 2015, I came back to the company. The company acquired a brand called Blondo, which was a waterproof women’s and men’s footwear business, and I started running that business for Steve Madden. Then they came to me and asked me if I would get involved with eComm, which is what I was doing. And so, I run eComm globally as well as this brand called Blondo today.
Matt Townsend: And when did you get eComm under your umbrella? When was that?
Jeff Silverman: In my second time doing the business. It was about 18 months ago.
Matt Townsend: If you could paint a picture… you previously ran eComm or were involved with eComm at Steve Madden. Years later, you get it back. Paint a picture of what you found and what you saw and what you realized you needed to do. What was that like?
Jeff Silverman: I imagine a lot of people here are in the eComm business. Back in 2005, what we found, at least at Steve Madden, was a subcontracted warehouse somewhere in the Midwest, and there was a buyer trying to buy through an internet site, and there were no technologies and platforms to run websites on. So we built our own platform to run the website. Steve Madden, at that time, had 100 retail stores, and we said there’s about a half million pairs of shoes in those warehouses and those stores. We said, “So instead of buying for an internet business, we’re going to ship from those 100 stores.” And at that time, it was very tricky to do what is now a little easier to do today. We were actually faxing the orders through the fax machine in those 100 stores in the beginning. But today, we’re still using those stores. They ship about 65% of the orders. And now we’re running on Shopify. So for all of you in this business who are as resolved as me, a whole lot of platform was developed that you could run businesses on. When I came back to Steve Madden, they were running everything on Oracle. From my perspective, it was an enterprise legacy mess of solutions to run on a site that were extremely costly and made us very slow to be able to do anything that we wanted to do.
Matt Townsend: What did you do with those legacy systems? Given that you realized they were costly and slow and maybe not the best thing.
Jeff Silverman: So under the Steve Madden eComm umbrella, we have about eight brands. Obviously the biggest is Steve Madden, but we are the North American licensee for Superga, as an example. We have a brand we bought called Dolce Vita. So we decided we’re going to move all the sites to Shopify. All of them were moved by January of 2019, but Steve Madden was moved on November 1st of 2018. We just got rid of all of the legacy that was there and ended up growing the business exponentially and dramatically reducing costs.
Matt Townsend: When we chatted earlier, you mentioned some stats about the growth you guys have seen. Can you share those? I mean, they’re very impressive – the growth you guys have seen since the shift to Shopify, and since you came in and replatformed some things.
Jeff Silverman: I think, if most of you are like me, the problem with large growth is figuring out how you’re going to do that again next year. We’re in one of those moments where we are feeling that maybe we shouldn’t have grown as much as we did. But the business is up about over 60%, close to 65%, on a revenue basis, and the gross margin dollars are up over 100%. So the business is growing very, very rapidly. It’s a large business and that’s a big jump in revenues. And as I said, not just because of the growth in growth margin dollars but also in expense reduction, the business is making quite a lot of money at this moment.
Matt Townsend: What’s the big difference between working with younger firms in the technology space versus the legacy players? You mentioned you stopped using Oracle. What was the big cultural change? I mean, is there something that makes it easier to work with those companies?
Jeff Silverman: It’s funny because yesterday we had a prep call for this talk. And I was talking about how when you get on Shopify, there’s literally hundreds of companies that have apps or connections to Shopify that are somewhere between 3 to 30 people. I don’t know how many people Yotpo employs, but these are small companies and they’re very, very hungry for your business. We found we can work with CEOs of suppliers, like the search on our site, which is something that we count on for a lot of growth. The actual search functionality is an Israel company that uses artificial intelligence, just using an example. So for all these companies who signed up with them, there’s no integration cost. They’re not like riding you like, “Oh, your bill for integration is this big number.” There’s a monthly fee and you can cancel it at anytime you want, just like Shopify, for reference. Yesterday I was in a meeting, I’m not going to mention any of the names, but I walked into a meeting and I felt like I was in 2012 because the company had something that would cost us like $100,000 a year, and they said, “You got to sign a 3-year contract, a no-cut contract, and you got to pay all the money at the beginning of the year.” And I was like, “You’ve got to be kidding me, right?” This is 2019, that’s not how it goes. So, we’ve seen that, and all these companies are incredibly competitive and willing to do a lot to not just earn your business but to make it work. They want what you’re doing to work, as opposed to “Hey, we signed that contract. We’ll see you later, when it’s time for renewal.”
Matt Townsend: Wow. And then mobile, I mean, obviously mobile is where most D2C brands are seeing a lot of growth, even traditional retailers, more and more purchases. What did you guys do in your mobile business?
Jeff Silverman: At the risk of sounding like an advertisement for Shopify, I probably argue with a lot of people at Shopify every day because there are things they’re great at, and there are things they’re not so great at, but it turns out the stuff that they’re really great at, is really unbelievable. So our checkout experience, both mobile and desktop – again, I’m an old guy. Some of you probably don’t remember this, but you had to have separate bills for mobile and desktop. And today, on Shopify, you don’t need to do that. So what we saw happen is that today, almost 80% of the visits to our site are mobile, and almost 75% of the sales are mobile. And those numbers are up dramatically from a 12-month period. When I say dramatically, I’m talking about returning visits of something a little north of 50% and transactions around 45%. And we’re seeing it continue to grow. The one thing I would say is that when you look at the checkout experience in Shopify, I mean, we have choices, everyone has choices about what it looks like. But one thing that we are very sure of is that we’re using Afterpay, which some of you have probably heard about. And it turns out it’s a little bit difficult on your first purchase if you’re not already part of Afterpay, but after that, it’s very easy to checkout. So I think that in the checkout experience and with what happens on mobile, moving to Shopify was unbelievably advantageous.
Matt Townsend: And these are comments about direct-to-consumer, but Steve Madden is about 80% wholesale business, I believe. A lot of D2C brands have to get to that point, whether they’re going to do wholesale. Any advice on how to manage those relationships? You’ve been doing it a long time, dealing with big wholesale accounts. You sell to department stores, sell to Amazon. Any advice on getting into wholesale managing and keeping those relationships solid?
Jeff Silverman: So as you mentioned, a large part of our business is wholesale and our customers range from department stores to Amazon to Zappos to places like Kohl’s and DSW. All of those companies also have websites, as we all know. If we were to break our sales into those companies, let’s use Nordstrom, for example, some categories are north of 50% on the internet, and a lot of these companies, Nordstrom and Macy’s, they have dropship businesses where the inventory is sitting in your warehouse. I think the first thing I would say is that when you’re selling on the internet, your conversion rate when you sell to nowhere else is going to go up because your site is the only place to get the product. We’re on the opposite of that business, where you can get Steve Madden anywhere, and we’re very proud of that, that you can buy our shoes anywhere. So our job, our website — I’ll get back to your relationship question — our job is to make our wholesale business do better as a website. Because let’s face it, whatever our conversion rate is, north of 90% don’t buy on our website. They’re shopping the brand and they probably buy it somewhere else. So we have a job, which is to make our brand look and be the best and help our wholesale business. But at the same time, we’re trying to have a direct-to-consumer relationship because I think in 2019, brands without that direct to consumer relationship are at their own peril because our main customers are department stores. Their share of the market is going down, that’s just the fact. Our share at those places is up because Steve Madden product designers and Steve himself are unbelievably good at what they do. But that means we don’t have the same share in places like Amazon and Zappos that we do at a place like Nordstrom. So the relationships are critical. You have to worry about what people call channel conflict a lot. But Steve himself has a perspective that’s really smart, which is that when you sell wholesale, there’s no chance that the retailer you’re selling to is going to buy all of your products. So if someone discovers your brand at Nordstrom, the odds are very good they’re going to come to your site or to one of your retail stores because if they like the brand, they want to say, “Hey, what else does that brand have to offer?”
Matt Townsend: Right.
Jeff Silverman: So when we talk about acquiring a customer and the cost of it in a D2C business, you sell to a wholesale company and the transaction is profitable from the get-go, right? You’re making money by selling to Nordstrom. Then they’re selling the shoe to someone who probably is going to come to your website and buy something. So that whole journey matters. And the relationships are… you have to be really careful because you have to treat them like customers.
Matt Townsend: When we spoke yesterday you talked about… you know one of the theories of taking a brand wholesale is price, price cuts, promotions, which control your brand. But you mentioned that you guys have been pretty successful in maintaining prices within your own D2C channel, even while your wholesale accounts might be discounting. Can you explain how you guys accomplish that? Because I think that’s what worries a lot of brands, that if they do take that leap into wholesale, they’ll be forced to do this race to the bottom and have to be promotional as well for their own channels.
Jeff Silverman: When I got back involved with the eCommerce Steve Madden, I saw a business that was extremely promotional. The lever of promotion was the lever of how you increase your sales. The gross margins on the business were not as high as I thought they should be. And so we just made a decision that we were going to really reduce promotional activity. We did that in two ways. One way was to say, look, when there’s a sale – and everyone knows what these sales are, you got Labor Day, July 4th, Mother’s Day, Black Friday – we said during those times, we’ll have a sale like everybody else. But the rest of the time, our stuff is going to be at full price. We also changed our loyalty program. At that time, our discount was 15%, and it was for joining the email list. We said, “You know what? We’re going to make that 20% first time only, and it’s for joining loyalty, not for joining the email list.” And we also said, “If you are a part of loyalty, you’re going to get free two-day shipping.” The reason why we’re able to accomplish that is because we ship 65% of our orders from our retail stores and they’re close to customers. So we can do that in a cost effective manner. By doing that, the gross margins on the site rose dramatically. We then said, from a business spending zero on paid social media to now something close to $4 million in a 12-month period, we can use that money to go reach the customer. For example, I was mentioning on the call that we have a sandal which is called the Kimmie, which is a very, very successful shoe. But if our sandal is at $70, you can buy something that looks exactly like it on Amazon for $15 from somewhere else. And we probably sell a sandal that looks like that to Target under some other brand because we sell a lot of shoes to Target and Walmart. So, this style… it’s got a little quirk but it’s platform, and Macy’s is one of our beloved customers and partners, and everyone knows their business model is promotion. Those are just the facts, that’s what they do. So Nordstrom didn’t have the Kimmie because we can’t sell to Nordstrom what Macy’s is going to be promoting. But we have the Kimmie in our store and the Nordstrom sandal. And Macy’s was doing their job in being 30% off a lot of this season, but we were at $70 the entire time. We were using social media ads to let the world know that we got the Kimmie, and our sales on that style were up triple-digit percent. We could not keep the thing in stock, even though we were clearly not the lowest-priced. If you did a search on Google, and you searched for Steven Madden or Kimmie, you would see that somebody else had it for less. We think that part of that has to do with the ease of using our site. Afterpay is a real draw for a lot of customers, and free two-day shipping – it’s kind of hard to argue with it, you’re going to get your product right away. So, that’s an example of how – even though we weren’t the lowest priced – we were really doing well in the marketplace with the product.
Matt Townsend: So it’s convenience, and two-day shipping obviously is big. Is it just being able to go and come in to your website and look at everything all together, or what else besides the two-day shipping do you think really drove the conversion on that?
Jeff Silverman: Our customers are Millennial or Gen Z, and they’re on their phones all day long. That’s all they do. So if a social media ad shows up in their phone about that style, that’s the beginning the journey and those ads say, “Steve Madden, $70.” Afterpay is right there and you add it, or “For installments of whatever, free two-day shipping.” Then they know that we’re in-stock on the style, they know they’re going to get free two-day shipping, and as we’ve learned now that we’re on Shopify, they know that the checkout, particularly on a mobile phone, is going to be very easy.
Matt Townsend: Got you. So we have about five, six minutes left. I wanted to get to a couple questions about the biggest headaches and hurdles you’re facing right now. Honestly, Steve Madden is doing fairly well right now, a lot of sales growth. You mentioned the .com business is on fire, the stock is up, but is that something that keeps you up at night or is sort of a bugaboo? What is it right now about the business?
Jeff Silverman: I said two but I’m going to add a third. To be honest with you, the biggest thing is, if your business is up 65%, if you’re normal or if you work for Steve Madden, which is the land of the paranoid, you’re trying to figure out, “How am I going to beat that number next year?” When you’re growing, you have a great year, and then everyone forgets you have a great year, and the next year you’ve got to beat those numbers. So that’s a fear. The second that I look at, and this is probably a little bit of a thorny topic, but the internet business is 24/7 business. It’s 7 days a week, 24 hours a day. You do most of your sales at nighttime, when normal 9:00 to 5:00 employees are not working, and then the weekend comes, and there’s no one around. If you look at your call center, sure. Those people have to be around. You have to answer live chats, you have to answer phones and emails. What we’ve seen is, just to use an example – the fear is that this business is 24/7, and we spot things sometimes at 7:00 at night. I was talking the other day and this guy ran up to me after the talk. He’s the guy in charge of the Shopify app that’s on your mobile phone. The app lets you look at your store in real time. And the analytics aren’t as good as Google, but the app is so good that you don’t care. So you look at that thing at 7:00 at night, and there is something wrong with the site. It’s not like you need a technician because the server went down. The problem is that you spotted something that you want to react to. And the sooner you react to that, the better the results. So I think one of the biggest challenges and fears is how do you deal with that, because the business is truly 24/7 and yet corporate work hours are 9 to 5, 9 to 6, whatever. So that’s one thing that really worries me. The third thing may be a shocker to everyone in this audience, but we’ve had a bunch of success with influencers. And the success that we’ve had is not normal. Our success is with people that probably no one in this audience has ever heard of. And the success has been very large, not little, small numbers. And what worries me is that you see with an influencer, when they like something, their message is so much more passionate than some brands saying, “Promote this.” So we’ve seen that when they promote something, the numbers of units that they can move – their followers are almost buying something to support them, and that influencer is then showing that look all day long, right? What worries me is that because at Steve Madden, we want to be first at being second, that’s just what fast fashion is about. Steve calls it the democratization of fashion, which I wholly agree with. And yet, all of a sudden, you see this huge numbers that an influencer moved, who has this great relationship with their followers. And then you have to know when the influencer is no longer promoting that… is the thing still going to sell? I was telling you on the phone that we had Nordstrom coming into our showroom and saying, “We might need to get the influencers into the buy meeting six months before the product delivers instead of when it delivers because they can have such a big impact.” And so if you think about it, there are scary thoughts about how do you navigate that. It’s also an enormous opportunity.
Matt Townsend: Is that something you guys would think about doing, bringing influencers in, in the shoe design or bag design phase of the process?
Jeff Silverman: I think it’s just more understanding what it is they like, and who their crowd is, and then making those kinds of things that those people like. But I think we all know about the very expensive, famous influencers, which I won’t mention, and there’s no disrespect to any of them. But what we see as a brand is that there’s a group of people that can really, really move product and have a real relationship with their followers. And like I said, we see there’s an opportunity there, but it’s a little worrisome because when they stop promoting, the thing might not sell anymore.
Matt Townsend: Got you. Well, on that note, let’s give a round of applause to Jeff for being here today. Thanks and enjoy the rest of the event.
Jeff Silverman: I appreciate it. Thank you.
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