Eldad Alfi is an entrepreneur who started his first business at the age of 19. Since then, he has gone on to start four companies. He is the Founder and CEO of Alfi Trade, Inc., a wholesale distribution company that supplies decorative plumbing, kitchen, and bath fixtures. Eldad is the Founder and CEO of Blue Bath, an online retailer of name-brand high-end decorative plumbing fixtures for kitchens and baths.
In addition to those two businesses, Eldad has built up his rental portfolio and expanded his investments into property management companies. He’s the CEO of Alfi Properties LLC, a real estate holding and property management firm, and he co-founded La Casa Zula, an organic beach house and retreat center in the works. His focus remains on cutting-edge technologies and advancements in hospitality.
Here’s a glimpse of what you’ll learn:
- Eldad Alfi’s introduction into entrepreneurship
- Why Magento was a great fit for Eldad’s businesses
- Transitioning from wholesale to retail
- Choosing the right sellers in the marketplace
- Why driving traffic to your website isn’t always worth it
- The important principles when using ad spend
- Circumventing the need for MAP enforcement
- How Eldad was able to work with big box retailers
- Deciding who to add as a marketplace seller
In this episode of the Ecommerce Wizards Podcast
At first glance, retail and wholesale feel like completely different worlds. Any transition or cooperation between the two is rare, requiring distinct strategies and philosophies. However, they are not mutually exclusive, and some people have found success in both spaces.
Eldad Alfi has worked in the two fields at various times in his four businesses. His experience is filled with obstacles and breakthroughs, giving him his unique perspective. He has a lot to share about his time in ecommerce and, more specifically, what’s the best way to play the game.
In this episode of the Ecommerce Wizards Podcast, Guillaume Le Tual talks with Eldad Alfi, the Founder and CEO of Alfi Trade Inc., to go through his advice on retail and wholesale. They start with his multiple businesses and how he found his footing as an entrepreneur. They go on to discuss the transition from wholesale to retail, MAP enforcement, and how to sell in the marketplace. Check out the full episode to hear all of this and more.
Resources Mentioned in this episode
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Guillaume: Hello everyone. Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in e-commerce and business. Today’s guest is Eldad Alfi. He’s the CEO and founder of Alfi Trade and bluebath.com. Today we’ll be talking about the transition from wholesale to retail in his entrepreneurship journey.
So before we get started, we have a sponsorship message. This episode is brought to you by Mage Montreal. If a business wants a powerful e-commerce online store that will increase their sales or to move piled up dormant inventory to free up cash reserves, or to automate business processes to gain efficiencies and reduce human processing errors our company, Mage Montreal can do that. We’ve been helping e-commerce stores for over a decade. Here’s the catch, we’re specialized and only work on the Adobe Magento platform, we do everything Magento-related. If you know someone who needs design, development, maintenance, support, we got their back. Email our team, [email protected] or go to magemontreal.com.
All right, Eldad, thanks for being here today.
Eldad: Yeah, thank you for having me.
Guillaume: Pleasure. So could you give us a brief overview of your path as an entrepreneur, how you got started and ended up here?
Eldad: Yeah, I think for me, it all got started when I moved to America when I was 18 years old from Israel. I immediately saw an opportunity with this new thing called eBay. I started buying things there myself and I was so impressed with the availability of the products and the pricing of the products and I knew that this was the future. The ability to just go online and use a few keywords to find the item you’re looking for. I called it ‘click and forget’. Back then it would take a few weeks and eventually you’d get your item that you forgot you even ordered. So I really enjoyed shopping online. My whole life I’ve had a very entrepreneurial spirit. When we were in high school I would sell flags on Independence Day and I would sell fireworks to the neighborhood kids in a little pouch. So I was always looking for hustles and always did sell stuff.
Guillaume: Was that legal, selling the fireworks to kids?
Eldad: No, not really. That was a little side hustle. But yeah, I prefer to go more the legal route. So eventually what I did is I started selling on eBay. The reason I got into this industry of kitchen and bath is just because my uncle and my father were working together. They had a kitchen and bath showroom. So my first job in America was working at their showroom, helping them get the products out to the other showrooms and find dealers that are willing to carry the products that they had but it didn’t work so well for them. They were struggling to get the word out there.
Eventually I said, “Hey, let me try to sell one of these items on eBay, why not?” They said, “Okay, sure. If you sell it, this would be our wholesale cost that you would need to pay us for it”, and I think it was like $100. So I said, “Okay, I’ll start an eBay auction at $99 and then see what happens”. And it just took off from there. The auction ended at 140, I was stocked, I made 40 bucks while I was in a class in college. And I thought to myself, wow, this is awesome! The funny thing is that the first time I ever sold something on the internet it happened to be a buyer from LA. So I saw the address, I realized it was only 20 minutes away. So I got in the car having grabbed the faucet that he had bought. I knocked on his door the same evening that he bought it and I said, “Here’s your faucet”. The guy was shocked that he bought a faucet on eBay in 2003 and got it delivered the same day.
Guillaume: Yeah, even today with Amazon Prime you might not get that.
Eldad: I know. It was just a coincidence. It was kind of like it was meant to be and then I was hooked. Then I just started going back to their shop and saying okay, what can I sell? They were like, “Well, this has been stuck here for a week, this has been stuck here for a year, try to sell this, try to sell that”. So I started taking photos with my little digital Elf camera, connecting it to the computer, transferring the photo and writing a little description. Back then all you needed was one photo and a few words about the product. Practically, anything you put on eBay in those years would just sell. And that’s it. Within a month I had an eBay store and by the end of that year I had opened an actual company, I formed it in California.
After a few years of selling on eBay, I eventually opened my own dotcom that was originally with an old platform called Zen cart, which was really horrible. That was the first one I experienced, I got it going and it had some sales and had trouble with the shopping cart. Eventually I decided to build something in-house to make it more customized. That took a long time and by the time we finally launched it, about a year after, I found out about Magento. And then I realized that I had made a mistake. I shouldn’t have spent all this time to custom-make a platform that’s struggling to perform. We immediately started the transition over to Magento and we’ve been with Magento ever since, it’s been over a decade now.
Guillaume: Especially in those years when Magento came out, it was such a dominant platform. It had a fresh view on things and it just totally outclassed, that’s a decade ago, stuff like Zen cart, and there was VirtueMart and Joomla, and whatever else. So when we saw that, especially for me, because I’ve been working on this thing for over a decade, I was like, wow! These guys have nailed it. That’s on the next level. They didn’t keep that lead forever, of course, but it was sort of a ‘love at first sight’. It was like, wow, look at that platform! People were like okay, now we’re talking, something new has just arrived on the market.
Eldad: I think I started working with them before they got bought out by eBay. So once I heard they got bought by eBay I was even more sure that this was going to be the platform of the future. I’m happy I did it. It was very easy to customize and the number of modules and extensions made it so easy to customize without spending extra few weeks of writing things. Almost anything you can think of existed and that really made it much easier.
So it was a good transition. That’s why a few years after that I ended up creating a wholesale company called Elfie Trade and I began to do drop-shipping for other e-commerce companies. I immediately decided to use Magento for my website even though it has no shopping cart. It’s a B2B website that’s just used for a catalog. So all I did was to completely disable the add-to-cart feature but everything else is still based on Magento. So now, it’s a system that we’re already familiar with here at the company and that’s where we’ve put all the product data and people can search for it. They can do everything but checking out. All of our dealers use that as an online catalog instead of flipping through the printed books.
Guillaume: That’s very common. A lot of B2B companies do that. Instead of the digital catalog, instead of adding some kind of digital flipbook, they have an actual website and if appropriate, they might add on some additional features, such as the ability to either do a checkout with or without money. It could just be a purchase order, so you have an actual order and so on. Yeah, that’s interesting. I almost started like you, I did create a small eBay shop back in the day and I was starting the agency at the same time. Eventually, it was taking too much time so I had to choose which project to kill and which project to keep. It was a hard choice, but I chose the agency and I closed the eBay store. But then I continued servicing that for clients and doing the websites, of course.
So that’s an interesting story. You had the luck of not having too much trouble sourcing products, you had your family that already had all the connections who could just give you a bunch of faucets that you could sell. So that’s an easier way to start on that specific aspect, because very often one of the challenges is how you’re going to source those products and source them at a good price.
Eldad: Yeah, definitely. I think over the first decade when I was getting started, I and a lot of my friends were in our early 20s and everyone was asking me, how are you doing this work? Like, “I want to sell on the internet, what do I do? How do I get started?”. I always told them the same recommendation, think of what access you have to some product that could be of a superior quality or superior price. If you don’t have that specific direct access to one of those things or know how to find it, you’re going to have a hard time just being another random seller of a similar product on the internet.
For me, that happened to be the kitchen and bath Industry and that’s why I am stuck with this. But I did try other things over the years like you said, different projects, and I just had to kind of kill them and continue with this. There was a time where I was thinking, if I already know how to list and sell online and ship and drop-ship and do all these ecommerce stuff, why am I just selling sinks and faucets? Why don’t I sell other things? And then I was thinking, what’s the most expensive but smallest item I could get? I kept buying SD cards for my cameras and I thought, why don’t I sell SD cards? I went online and tried to find a supplier, I tried to become an authorized dealer of ScanDisk. They said no, they were like, who are you?
Guillaume: Minimum orders is this much. Like, Oops! Okay.
Eldad: Yeah, exactly. So I kept trying different types of products. There was a time where my website was split in half, half was kitchen and bath and the other half was hookahs. I started selling Gilo, because that was something that I had a connection to and I started importing them directly from Israel and selling them but I didn’t even realize that that paraphernalia was illegal to sell on eBay, so they shut me down within a few weeks. So I was stuck with my entire hallway in my parents’ house all the way to the ceiling full of 300 hookahs. I had to move the couch.
Guillaume: You were the coolest guy in the neighborhood then.
Eldad: Yeah, so that ended up becoming a whole side business for a few years wholesaling hookahs to smoke-shops all over LA County because I couldn’t sell them online. But there have been other side hustles along the way, but this has been the most consistent that I decided to continue with and it’s been 19 years now.
Guillaume: Yeah, and you have a key point there, what can I ship that is expensive, valuable, but it’s lightweight and small. You know, I had started with jewelry and diamond rings and stuff like that, exactly for that purpose. But that has some other problems. You didn’t want to be a pet.com from back then. It’s like, yeah, but you ship the dog food it’s so heavy and large as a package. It doesn’t make any sense when they could just go buy it at Walmart.
Eldad: Even diamond was something that I tried. I had a friend from Israel that was very big in the diamond industry. So I said, “Hey, let me get in with you, I can sell it on eBay”. He sent me a shipment of $20,000 worth of diamonds. I listed them and tried to sell them but it just didn’t catch, didn’t work. I don’t know.
Guillaume: There’s a question of trust. That was difficult because you’re on eBay. Like, will I pay $1,000 for that? When you’re a small seller and you’re just starting and you don’t have enough reviews or enough online credibility like a big jewelry outfit like Tiffany and Co, whose stuff is listed online. So there’s a question of will I get scammed with my $1,000 diamond or not. So there’s always that question of the bigger ticket items being more risky for the buyer.
Eldad: For sure.
Guillaume: So you said that you did a transition from wholesale to retail. A lot of the wholesalers that I speak with, they would love to sell retail, they love the margin. Very often their concern there is, but we will offend our network of retailers and or our distributors if there are manufacturers and that could damage or kill our business, so they often don’t dare to do the move. But most, either manufacturers or distributors, tend to dream of switching from wholesale to retail. So let’s talk about that, how you’ve done it, what kind of obstacles you faced, and what was the journey there?
Eldad: Sure. So that’s definitely a very valid point. It was a very sticky situation when I started the second company because I didn’t want to step on anyone’s feet and I didn’t want to create a conflict of interest. The reason that I decided to go for it is because I actually started with the retail side first. So what I did is to add wholesale and started selling to my competitors. So that’s a little easier as opposed to having wholesale, having a network of dealers and then saying, “You know what, I’m going to actually compete with you now and launch and create my own retail site”. So that already made it a little bit easier. But still, I knew that it would be a bit of a conflict of interest. So that’s why there’s two completely separate company names and two actual companies formed. There’s Blue Bath and then there’s Alfi Trade. Both are separate companies, with different addresses, different phone numbers, and even with different area codes.
Because in the beginning it was kind of secretive that both were owned by the same. Over the years that disappeared because nowadays it’s much more common. I could give you an example all the way to the top like Sony. You can go to Best Buy and buy it or you can go to sony.com and buy the same TV. They’re not hiding the fact that they’re selling directly to the consumer anymore.
Guillaume: They don’t have to. Sony is so powerful, like, will Best Buy really stop listing Sony?
Eldad: Yeah, they can. So that’s the environment of today’s market and it goes on
like the factory website, the brand website many times has a shopping cart. The reason they do that is and still stay in business is that they simply protect the price. These are the options I always tell people. If you want to do it without protecting the price, you have to have two separate companies so that there’s no direct tie back to know that this is actually them. The other way is to set up a MAP policy and to enforce it. And then whether it’s you directly selling the brand or another 100 retailers, it shouldn’t bother the other retailers because the MAP price is the same.
Guillaume: So the minimum advertising price, yeah.
Eldad: Yeah, exactly. A lot of companies have gone that route. They do go direct to consumers but they adhere to a certain price so that they give the dealer a chance to compete.
Guillaume: Yeah, because you do have 100 resellers and now you have 101 resellers and one is the source, they all respect the price and they don’t have to undercut anyone. I mean, there’s not much of a difference. There’s one more that is authorized, that doesn’t change much.
Eldad: Yeah, and they still have a bit of an advantage because it’s sony.com, people realize this is direct, it’s probably going to mean maybe it’s shipped faster, maybe I’ll get a better price, they just feel that.
Guillaume: Customer service.
Eldad: There is warranty, tech support and that kind of thing. So they have that advantage, but the other dealers hopefully have their own clientele. Otherwise, they’re not
a dealer that would make sense to even have. I get about one or two inquiries a day on my website of alfitrade.com of people clicking on the ‘become a dealer link’ and saying, ‘Hey, I’m about to launch an e-commerce site, or I just launched a site, I’d love to become a dealer’. When we check their website it has five visitors a day or very small numbers. Back in the day, 15 years ago, when I started the wholesale, anybody who reached out to me I was like, great, another dealer and another dealer, and I just added anyone I could get. But in today’s environment everybody lists on the same marketplaces, everybody pays the same to search engines to drive traffic. So these little guys are not generating any new business for me. If I let another 10 small online dealers become my dealers and start listing my products, all I’m doing is taking away from my existing 100 dealers that I already have selling my products.
So today, what we do is to only onboard new online dealers that have a significant
visitor count to their websites so that we know that they already have their own unique clientele. Maybe people are coming for sofas, windows or other building materials and now I can also sell them my plumbing fixtures. Those are the type of customers that we really like to add because they’re driving new business and not just taking away from business that would have come from search engines and so on.
Guillaume: And how do you check that, do you ask for a copy of their Google Analytics or you just use the Alexa toolbar or something else?
Eldad: I actually use a little website like Alexa and there’s another small website called Visitor Detective, I tend to use that a lot. It just gives you one number which is the estimated number of daily visitors. But Alexa is good also, it gives you much more details. Then we check how long they’ve been in business and if they have any other online presence and sponsored ads and things like that and we make a decision on that. We also asked them, where else do you sell besides your dotcom. And they’ll tell us we sell on eBay, we sell on Amazon, and sometimes which is lately the majority of the time, they tell us we only sell on Marketplace. So nowadays there’s tons of online dealers that don’t even have a dotcom, they’re only Marketplace sellers and they’ll sell on six or eight different marketplaces all at once using tools like ChannelAdvisor or ChannelSale. That allows them to manage everything from one platform and list on multiple marketplaces, which is what I use also at bluebath.com. Today, the majority of our sales comes from marketplaces, only about a quarter of our revenue comes from the dotcom itself through Magento.
Guillaume: Yeah, and the benefit is the margin because Amazon, depending on the category, will typically eat at least 15% of your margin. So you will still have benefits but of course the volume and the power of Amazon and Marketplace is undeniable. But you don’t own the customer and the relationship with the customer. You’re like an anonymous faucet provider when you just ship the thing, the customer has no loyalty unless you can really position the brand strongly. Or create some kind of ecosystem like the gear but they make the light and then make the stand for the microphone, and then they make another thing here, and they make the switchboard. Like Apple, you buy all the things, you buy the iPad, the iPhone, the watch, and this and that. So unless you’re able to sort of have that kind of brand presence and interlinking products, and create an ecosystem, it’s more difficult to earn customer loyalty on marketplaces like Amazon. Amazon purposely doesn’t want you.
Eldad: No. They don’t want you to call the customer, they don’t want you to include marketing material inside your box that will try to get them to buy from you next time directly. Those are the kind of frowned upon practices, they want you to just ship the item and stay quiet on the side, let us keep this customer. There’s pros and cons to it. The reason I started the dotcom was because I was tired of paying the marketplace fees. I thought, why should I lose this 15% when I can just sell it on Magento and make all that money. But it was a misconception because driving the traffic to the website cost in many times more than 15% cost of sale. So you’re now paying Google to drive the traffic to your website so you could sell marketplace free commission.
When you look at it like that it’s not really free, the only actual free sales you get are the organic traffic. In most websites that are e-commerce these days that’s usually less than half of the traffic or much less than half comes from organic. So what I decided two years ago is a big pivot point with bluebath.com. We were spending at the time about $20,000 a month just on Google ads, whether that’s shopping, text ads, and things like that. The cost of sale was many times going over 15% and what we were doing was we were competing with our listings that show up on Google Shopping anyway, through eBay, and Amazon and Haus and Walmart. So we’re listing our product on six different marketplaces. These marketplaces then want to drive extra traffic to themselves so they list at their expense on Google Shopping and then Blue Bath is listing at his expense on Google Shopping. So my same product is listed five, six times there. No matter who you buy it from, it’s Blue Bath.
So as with Google, I can easily get up to 17 and 18 and sometimes I hit over 20% the cost of sale because it wasn’t very optimized with the marketplaces. It’s a flat fee no matter what, 15% or whatever. So it’s much easier to build that into your margin structure and know that you’ll always make this much money. With Google, I just never knew what I was going to make by the end of the month because many times it exceeded the 15. So at some point what we decided is, let’s give it a try and see what happens if we just disabled all paid ads, we went from 20,000 to spending zero. That was two years ago right before COVID. Since then we don’t spend a dime on advertising anymore. Our sales come entirely from organic traffic to the site and marketplace sales that take their 15% .
Guillaume: That’s ideal, it saves you 20k a month when it is possible because I understand you can cannibalize yourself with all these ads depending on what you sell. We know here of course what it is. But there is a switch towards more lifetime value instead of trying to make a lot of money on the first order where you want to break-even and make a bit of profit if possible. Then if it’s possible to have a repeat customer then we can see more lifetime. Of course, if a person is just renovating their bathroom, how often will that happen? Well, it might take a while but maybe they’ll renovate the kitchen next year you don’t know. But it’s more challenging in an industry like yours to have a lifetime value mindset than if you’re in apparels or any kind of other fashion or beauty products or stuff like where you can say let’s just break-even on the first order, and let’s really build a lifetime value pipeline here. So as long as I acquire customers at cost then I’ll make money on order number two because I have my stuff in order here and there. Strong solicitation, sms and emails and let’s keep our analytics in order so we know that we’re making money on order number two at cost. So more advanced stuff.
Eldad: Yeah, you hit the nail on the head. That’s exactly why it was much more difficult in my industry, because the repeat customer rate is much lower than other verticals.
Guillaume: Yeah, because the repeat business would mostly be on the wholesale side when it’s a constructor, a developer or builder or a renovator guy that comes often to buy more and more material from you. Of course, he’s going to shop in other places, maybe a bit from Home Depot and a bit from you, a bit here and there but at least that would be a repeat customer where you can think of lifetime value in acquiring one such distributor or construction guy.
Eldad: Yeah, exactly. That’s how it is on the Alfi Trade site, we have about 400 offline kitchen and bath showroom dealers across the country that are buying from us on a regular basis. Some of them buy only once a year, some of them buy once a week, it just depends on their size. Then we have a network of about 100 online dealers that will sell our products on the internet. So it’s just those 500 plus new ones added on every week. That’s our network and they’ll just keep buying again and again because they are our retailers. On the Blue Bath side, it’s like every day we’re selling to 20, 30, 40 brand new customers every time. There are some that will come back a year or two later and like you said, they did their bathroom and now they’re doing their kitchen next, that’s the chance for repeat. But usually, because all of the products we sell are for construction it’s not something that you could buy from us unless you’re in a construction period and you have a professional installer. People only tend to do remodels like that after every 10 to 20 years. So unless they are separated between the kitchen and bath, it’s really hard to get them back.
Guillaume: Yeah, I totally understand that part. Anytime you get into like several 1000s or about tens of 1000s of Google ads, I can definitely see the benefits of exploring other channels to acquire traffic, or the organic traffic. You can even pay a content writer, agree on how much it’s going to cost to come up with a 1000 word or 1500 word articles and just start churning those out. Let’s pretend that you get 100 visitors a month on your article and you used to buy a visitor from Google for $1 per visitor so that traffic is worth like $100 a month, with this simplistic example of 100 visitors that read these articles each month that used to cost $1. But of course it depends on the purchase intent from that traffic to that article. Is it as relevant as when you had maybe a ‘buy a faucet’ as the key word? This could probably be way more than $1 a click for the targeting stuff but it’s worth it to explore other sources to diversify your traffic. In your case you just shut it off and say, let’s save 20k. That’s fun at the end of the year if you can put it straight to the bottom line and save 240k, why not? It’s pretty good for business.
Eldad: It was a very interesting experiment because what happened was, it cut our sales in half, which seemed very horrible. But on the other hand, our profit in dollars grew. So we ended up making more money at the end of the year with half of the amount of sales, which means I had one less employee, we were much less busy, we’re providing better customer service for the people that were buying from us. And now all of a sudden, we’re making more money than we did when we were selling twice as much and just running and spinning our wheels to help Google make money and being left with almost nothing. So I’m happy with the decision. But I know that there are ways to also get back into it, try to find maybe a more optimized advertising and maybe not spend 10 but spend five in a very specific place.
The problem with spending a lone budget is if you’re not managing it in-house it’s very hard to find a management company that will take on something with a spend under 10k because they have their minimums and that was our tough point. For years, we were looking for a good management company that could run our adwords and campaigns but a lot of them had a $2,000 minimum. If you’re spending 10k and then spending two grand just to manage that, plus they take another 10% of the ad spend, it really makes it so much more difficult to get an ROI. When you’re spending over 20k that is much easier to hide in the management costs. So it’s always hard for the small guys.
Guillaume: Yeah, that is true what you’re saying but those are sort of normal high numbers. I can refer you to somebody who offers that service. But for sure you could find people for like 1000 bucks a month sort of flat rate including management fees. Sometimes even without any percentage on your ad spends up to a certain amount in a not solid enough company like a smaller company of maybe 10 employees or twenty employees, that manage pay per click advertising. So that helps with the profitability right off the bat to not pay that 10% for the 1000s or a few thousands a month. But that’s an interesting story that you’re sharing, thanks for sharing that. That’s quite interesting. And let’s say there’s a distributor, they buy from the manufacturer, maybe they import or whatever and they want to go direct like you’ve done. You said in your case it was a little easier because you had done retail before, do you have any sort of other advice for them like in enforcing your MAP, mobile advertising price policy? And by enforce I mean, monitor it. You probably need some kind of automated tool that checks the marketplace if there’s any people violating the MAP and then to reach out and enforce it. Is there anything else that you have in mind that they should do to sort of make it happen and not have their whole network of suppliers explode?
Eldad: Yeah. One thing is that they can make a fair playing field. If you’re on the manufacturer’s site, on the brand’s website, and you go to ‘where I can buy this’ and it shows you a list of online dealers and maybe another list or a MAP of the offline dealers to just throw yourself in there as one with the other and not just try to say, ‘you buy from us’ and push only yourselves. That’ll show the dealers that you’re still trying to give them some of that business. So that’s one of the things that we do on alfitrade.com and we throw in Blue Bath there as just one out of the 30 different online retailers that are our preferred online retailers and Blue Bath is just thrown in there with the other 29. So we’re saying that you can buy our stuff on Home Depot, or Lowe’s or Blue Bath or Walmart and the customer gets to choose. We’re not trying to say buy it on Blue Bath, you know, that’s pushing too hard. That’s one way that you could do it. But the MAP is definitely going to help because the biggest concern for dealers is if you’re selling directly you could always beat our price, that’s not fair.
So once you solve the price issue, that’s already going to alleviate most of their concern of you going direct. And it doesn’t help to just create a MAP policy which is the easy part, the hard part is enforcing it. It’s almost impossible to enforce it yourself in-house, you’d have to have someone every day going, running searches, making spreadsheets of the violators, sending them emails, and you’d quickly realize you’re wasting your time. There’re companies out there that will do that for you but you have to be ready to spend that extra 500 or $1,000 a month that they want for their bots that do this and automatic email notifications and the first violation and then what happens with the second violation. Then maybe you have to actually pause dealers that are violating for the third time and it creates a whole department of MAP law enforcement and that’s not easy either. There was a time where I tried MAP and we quickly gave it up because we realized we just didn’t want to deal with that enforcement. We’ve been running for years now without a MAP.
The only way we can control our pricing is by deciding who gets what discount. Sometimes we have online dealers that are very small kinds of ‘mom and pop shops’ with maybe five, six employees or even just a couple working from home, their margin is much lower because they just want to beat any price they see online. But if they start beating my big customers that are giving me the majority of my sales like Home Depot and Lowe’s, Home Depot and Lowe’s will get very stressed out and threaten to shut us down. So we’re always trying to keep that balance by just controlling who gets what discount. If we get a dealer that is violating and selling just way too cheap because he’s willing to make such a small margin, we’ll reduce his discount, and that’s how we play with it.
We also give a better discount to our offline dealers, the brick and mortar stores than we do to our e-commerce, which many times is the opposite, because the online dealers have such a bigger buying power, they’re spending in many cases 100 times more than a kitchen and bath showroom would would buy from us in a year. You would think that I would be giving them the better price but in fact, it’s the reverse. This is because I don’t have a MAP policy, I need to make sure that if someone walks into a showroom and says I want an LC brand faucet thing, and that person goes online and sees other prices from big bucks retailers, he needs to know that he can always tell his customer no problem, I’ll match that price. If he can’t do that he won’t want to keep my catalogs in his showroom and ever bring it up because they don’t like bringing up brands that someone can ‘add to store’ or get it on his phone and say I can buy this on Amazon for cheaper. They want to know that they can always match any price that people see online. Otherwise, they don’t feel confident even talking about your brand.
Guillaume: That is a very critical piece of knowledge that you just shared here for someone who wants to put in place discount levels and prices too. Let’s say if the person is buying more from you like the online seller and you give them a bigger discount in addition to what you just explained, your margin takes a hit. So you have to be careful. Yes, it’s logical for bigger volumes to get bigger discounts but be careful how far you go. Because imagine you have like three huge customers that buy 80% of all your capacity and you give them the biggest discount imaginable, you will have almost no margin left at the end of the year. So we have to always be careful with that aspect.
I like how you’re doing it. And for those who do want to enforce a MAP policy, well, you’ve lived it, it is difficult but there are softwares that can monitor that. I think you can have consequences for the first offense and second offense. Your first one may be just a warning but the second offense, you can start to right away or chip at their discounts. I think that’s a very good incentive for violating the fine, but the slap on the finger is money so that next time you’ll get less and less percentage each time you violate. Then we’ll suspend you temporarily and then we’ll suspend you permanently. So that can be a good incentive, money talks there.
Eldad: That’s for sure.
Guillaume: Okay, and to be a provider for places like Home Depot or Lowe’s or other big retail chains, how did you go about it and how do you succeed to pull that off?
Eldad: Yeah. In my beginning years of wholesaling and starting in 2007, majority of my dealers were smaller ‘mom and pop shops’, kind of like Blue Bath. As a small online dealer that you can talk directly to the owner, push your product and tell them to add your new brand to their site and promise them that it’ll sell well, you can convince them that way. But with the big buck stores, every time I tried to get in and go to their corporate vendor portal on their website and fill it out, I always reached dead ends. I even went to trade shows and I had booths at trade shows and that’s actually how I acquired one of the big bucks stores like Overstock. So he just came to my booth, one of the buyers, liked the products and gave us a card. We now had the card of the actual plumbing buyer of Overstock, we talked after the show and we scored Overstock as a new dealer of ours. That’s the same thing that happened with the other big stores.
So we tried to get Home Depot but it never really worked. One day they found us, from a whole new angle they came to us. So the takeaway is, if you can’t get in with these big buck stores just keep going at it, keep getting bigger, branding your products and eventually if you make enough noise, they’ll come to you. That’s the best way to get in, it’s kind of like organic versus sponsored ads. So that’s how it worked with Lowe’s.com. The way we got in there is that they actually acquired a smaller e-commerce operation that we were direct with. And when those bought them out we now became a Lowe’s vendor. So we were really happy with that purchase because it allowed us to get into Lowe’s. So you have to really be out there and have as many dealers as possible, have a good product, have good service, and they’ll come to you. That’s actually what happened with Amazon as well.
Blue Bath was selling on the Amazon marketplace and so were many of our other dealers that we were wholesaling to. We tried to work directly with Amazon 1P and again, we weren’t able to sneak in. One day, we got an email from Amazon 1P saying, Alfie Trade, we noticed your products are selling well on our marketplace, we’d love to go direct and set up a relationship with you. So that’s how it started with them as well. So almost all the big bucks ended up kind of coming to us when they were ready.
Guillaume: How many years did it take for your business to make enough noise that the big names started coming to you?
Eldad: I started wholesaling in 2007 and I would say it took about five years. In 2012-13 when I look at my customer base, that’s when we went from 150 dealers to suddenly just having 50 active dealers, because we started adding the big buck stores. And today, 80% of our sales come from the top five, which is Wayfair, build.com, Amazon, Home Depot and Lowe’s.
Guillaume: Very important.
Eldad: We are always also worried about that because we don’t want to have too much of our percentages of revenue in one retailer. So at this point the risk for us is that Home Depot has reached a percent of 20. So 20% of the company’s revenue is from one dealer, and that’s already a bit risky for us. So we’re constantly trying to diversify and not give one retailer that much power. It’s ideal if they don’t pass the 10%.
Guillaume: For sure.
Eldad: So that’s something that we’re constantly working on by adding more smaller dealers and more brick and mortar stores to keep that balance and not be an online only brand, but have that store presence. That really makes a difference in how people see your brand.
Guillaume: I totally agree. Even if you get like above 5% or 10% from one client it’s more natural than when you have such huge stores. But on your side it can even affect your company’s valuation if you try to sell it. When they acquire you might say, but what happens if you lose Home Depot? Then that company will be worth like 20% less or something. But as you said, you just grow the other side of the business to try to diminish that 20%, even though the number doesn’t diminish, ideally. But it’s unavoidable if you have something like Costco that distributes to you like $20 million a year of your merchandise. I mean, of course, they’re going to be a big percentage of your company unless you grew like nuts on the other side. So it is sort of unavoidable. There’s another topic that you’ve already covered but partially, how you accept loss in new distributors. But how do you decide if another person should start selling your product on the marketplace or on Amazon? Like, how do you decide whether to accept one more Amazon dealer?
Eldad: So nowadays, the position that we’re in as an established brand with a big network of sellers already, if someone approaches us and they’re a marketplace-only seller, we normally deny the request. Because it doesn’t help to have 15 or 16 sellers on a SKU on Amazon, it won’t create any new business for us. It’ll just create more competition between the existing dealers that we have and that doesn’t have any benefit to us. We’re currently not interested in adding additional people like that because of the fact that it is just not new business.
Guillaume: Understandable, it’s totally normal and you don’t have a MAP policy. I’m curious, is there some kind of a gold nugget that the new potential distributor will sort of throw at you to pique your interest and say, I’ll actually add the 16, for example? Maybe they would say, “You know what? Map enforcement is a hassle for you, I’ll help you with that. I’ll set it up and I’ll cover the cost. You’ll have full transparency, full access to everything and I’ll send you the report. You do the enforcing, you’re the brand owner, but I’ll give you all you need to know who’s violating your MAP policy”. Would that be sort of a big enough golden nugget for him to throw at you for you to say okay, I’ll have you?
Eldad: I don’t know, MAP is always a scary subject for me. Because once you tell people you have MAP and it’s not happening, they’ll complain to you even more. Because I’m on Blue Bath and on that side I have 150 vendors. I work with many vendors and brands that do have a MAP and I can see how many times they will violate their own MAP. They won’t enforce it, or the most ridiculous thing is that they say, okay, there’s a MAP but then now they’re overstocked on the SKUs so now they want to run a promo. So they’re like, for the next 60 days forget this MAP, now there’s a sale MAP. Everyone can now sell at this lower price. It just happens every single month. So it’s a MAP when you want it to, but they say nevermind about it when they don’t want it, when they want to just move the product. So it’s still flexible.
Another solution that we didn’t talk about is that some brands decided to go a whole third route, which is creating a separate type of SKU. So they’ll have a brand that’s just for e-commerce and a brand that’s for brick and mortar stores. It’s the same exact product but it has two different SKUs. And that’s a way to kind of separate the competition between online and offline.
Guillaume: Yeah. Costco kind of does that because they want exclusive brands. So for example, if you manufacture one product for Walmart and the same product for Costco, they will ask for unique packaging. They will also ask that it has some widget that’s unique to it. Maybe it’s the thickness that is not the same, maybe it’s metal instead of plastic, or whatever but it’s unique to Costco. So that’s the Costco product version, so that’s for Costco.
Eldad: Yeah. Or they’ll ask them to brand it as Kirkland, their home.
Guillaume: Yes. That’s for sure. White label that could be attached to it, exactly. Well, this is a pretty interesting discussion Eldad, I’m enjoying this. Do you have any last thing you’d like to share with the merchant like a shotgun question or anything top of mind?
Eldad: I always say just give it a shot. If you have an idea and you want to see if it’ll work, don’t talk about it too much. Just go for it, give it a shot. There’s not a lot to lose when it comes to e-commerce. If you’re using a drop-shipper, the only investment is the time. So it’s always worth trying out and trying multiple things at the same time and then going with the one that works and shutting down the one that doesn’t. But you just have to get your feet wet and give it a shot, otherwise, you’ll never know for sure.
Guillaume: It sounds good. And if someone wants to get in touch with you, what’s the best way?
Eldad: My email is [email protected], that would be the best way. Anyone who has any questions or anything I’d be happy to help.
Guillaume: All right. Well, thank you for being here today, Eldad.
Eldad: All right. Thank you.