[EP 6] Modern Merchant Podcast: Is the Distributor Dead?

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Is the distributor dead?

In this episode we will be going over how today’s distributor is struggling with modern advances in technology and are they truly “dying off”. We will also be discussing the use cases on why certain distributors will always be around and vital in their respective markets.

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Below, you will find a transcript of the episode.

Austin Rose:

Welcome everybody to the Modern Merchant Podcast today. Super excited about this new episode that we’ve got coming up, today’s topic is going to be on Is the Distributor Dead? And we’ve got the same usual suspects with us today, Travis, the CEO of Flxpoint and Matt, our CTO of Flxpoint as well. Welcome, gentlemen.

Travis Mariea:

Appreciate it. Happy to be back.

Matt Myers:

Good to be here.

Austin Rose:

Good, good. You guys brought this topic up to me and it’s a really important one to talk about. It’s something that we keep seeing popping up and it’s something to discuss on the ever changing evolution of eCommerce and technology in general. And again, we’re talking about the distributor dead. And we’re really going to talk about a couple different use cases. Mainly one, who’s the distributor? How are things affecting them nowadays, the normal distributor? As well as what’s some things that’s going to talk about they’re going to stay alive and they’re still going to be a key asset to supply chain in general when it comes to eCommerce.

Austin Rose:

But really to set the scene, let’s first start and talk about who is a distributor. Obviously distributor, vendor, supplier, all these different names get bounced around. So Travis, go ahead and give us a start and give us a quick breakdown on what is a true distributor today.

Travis Mariea:

Yeah, who we’re talking about when it comes to a distributor today is really someone that is buying in bulk directly from the brands, wholesale freight purchases. I buy a bunch of Nikes, Under Armour and Adidas clothes, shoes, whatever. I buy them specifically to resell to retailers like Academy Sports, Dick Sporting Goods. I’m that middlemen distributor and my value proposition traditionally has always been two fold. One, you don’t have to figure out how to ship an individual item, like onesie twosies as they refer to it, those individual shoes or that T-shirt. You don’t have to have the infrastructure to do that, we’ve got that figured out. So logistic sides, the shipping and logistics and the pick packing and all the warehousing that goes into shipping out individual items.

Travis Mariea:

And then two, being able to sell to retailers and get into the Dick Sporting Goods and get into the Academies work directly with them and focus on that transaction with retailers. So distributors specifically sell to B2B, only having to do that onesie twosie type scenario when they drop shipping if it’s B2B. But the value is logistics one and the shipping, warehousing and the pick packing and the manpower that it takes to do that for individual items. And then secondly, just the distribution of their items to retailers, getting actual sales and marketing of those brands out to the retailers. So sitting in the middle and then the big part to take away from this is taking a percentage. If they buy it for five dollars from the brand, they’re going to typically sell it for 10 dollars to the retailer and the retailer’s going to typically sell it for 20 dollars to the consumer. And so that middleman process of taking a cut out the middle is typically a distributor from a B2B perspective.

Travis Mariea:

But yeah, with that, that’s who we’re talking about and why we’re talking about the death of the distributors going away is that there are a couple different movements that’s happening in distribution and that middle man sitting in the middle there and helping with those two value propositions is kind of breaking down. One, specifically because, and I’ll just kind of summarize and then kick it over to Matt because I think he’s got some really good thoughts on how we look at this. But one is the rise of the 3PL. And okay, I’m a brand, and do I really need to sell my products at a discount to a distributor when I can just store them in a warehouse more cost effectively and have more ownership over those items? I’m Nike, I want to make sure that I’m selling directly to the retailer, directly to the consumer, and I’m not selling my items to some middle man who might go sell to other channels I’m not familiar with or okay with or at a price that’s not all right with me. So at the rise of the third party logistics warehouse and storing your items in somewhere that you still own it but they take care of logistics, is the number one reason why.

Travis Mariea:

Secondly, the rise of them just going direct to consume because of better technology and intelligent parcel shipment, being able to ship that onesie twosie allowing you to do direct to consumer, might as well just do that directly to retailer which is even easier.

Travis Mariea:

And then lastly is just getting in front of retailers easier. So I just talked about two logistical items, but now lastly it’s like if I’m a brand I can get in front of the large retailers a little bit easier than I could five, 10 years ago because of social media, building my brand. A lot of these retailers might be reaching out directly to me now. You don’t need a distributor going to all these trade shows, hawking my brand, talking about my brand in front of retailers. So that’s why we’re having those podcasts today and that’s why we’re talking about it is that external forces are happening, forcing out the distributor in some industries.

Austin Rose:

That’s perfect. Matt, what do you think?

Matt Myers:

Yeah. It’s interesting because there’s actually three levels of this. One is the distributor, like is the distributor dead? And the counter argument to that could be because of the rise of 3PLs. But there’s also another section where even 3PLs are sometimes getting cut out these days. I kind of look at this equation with the idea of outsourcing your supply chain versus owning it. And some would say that if you have a 3PL you kind of own that supply chain, but there’s a lot of companies, like one that came to mind is Dollar Shave Club, where they actually started with a 3PL and they just recently, well I don’t know if it’s recent, but they swapped it to they actually own their supply chain now where they don’t even use a 3PL anymore. And they did that for cost effective reasons and all that type of stuff.

Matt Myers:

But just to focus on the distributors so we can isolate this into chunks, it really is that is the value of a distributor, are they useful anymore in today’s day and age? And it’s a tough question to answer but I would say one of the key points to me is that product catalog. So you basically have a distributor and they have many different catalogs or many different product lines in their catalog and that’s valuable to some people where you want to get home décor and you want different patio furniture and different internal furniture and so maybe as a reseller it’s a good idea to go with that. But there’s definitely a lot of brands right now that are stamping out their mark where they’re solely focusing on, “we sell patio furniture, we’re going to go direct to consumer, we’re going to use a 3PL and we don’t actually need to leverage a distributor for those reasons.” Because even with distribution like that you still have to essentially sell them the products and a lot of times distributors will have deals where if they don’t actually sell a product within a certain timeframe they’ll kick it back to you and you have to recoup that.

Matt Myers:

So like answering the question more as just outsourcing your supply chain versus owning it. I have a lot on that.

Travis Mariea:

Real quick, I want to just double click into the whole larger catalog, because that’s a part I didn’t really, we’ve got this whole case against that we’re going to get into, but that is probably one of the best cases against distributors going away is that it is super valuable to have a bunch of different items from multiple brands under one warehouse that you have access to from a drop ship perspective. And right now, owning your supply chain like you were saying is the only way to do that is to bring it all in and to bring it into your own warehouse. If you want to outsource your supply chain and do something more cost effectively, the other option is to just work with a distributor that has all of that, all of those homes, they’ve got patio furniture, whatever it might be, and they’ve got that. Because the alternative, what I’m talking about is, if the rise of 3PLs are killing the distributor, okay, you have to still buy all that stuff initially and take on all that inventory risk and then go put it in a 3PL.

Travis Mariea:

And then secondly, if you want to work directly with brands, I can’t do that. If I want to drop ship in this scenario and I want to still outsource my supply chain and be more flexible like we talked about in past podcasts, there’s no way to, if you get an item or an order and it’s cost three different brands on it and three different types of items coming from three different warehouses and you have to drop ship all those, we know that’s a recipe for disaster for shipping fees. So I think that’s important that you brought that up because that large catalog under one warehouse that can be shipped out cost effectively that you don’t have to own, that’s definitely a case against it going away.

Matt Myers:

Yeah, for sure.

Austin Rose:

I think we have audio back guys, I think this works.

Travis Mariea:

That’s great for a podcast.

Austin Rose:

Right. Okay, so let’s end up moving onto the next one here. And I was trying to pick up everything on what you guys were talking about, and from what I see, keeping on track especially for distributors and you started talking about Travis on the specific industries. We were talking about this a little bit beforehand. There are going to be certain industries, and you might have hit on this a little bit earlier as well as the certain industries that we’re going to have to rely on those distributors because they’ve got the logistical side of things down pat. And some examples were the grocery, larger items, firearms, all the different nuance things that we see for certain industries. Travis, what are your thoughts on some of those? Maybe grab one of those examples, for instance.

Travis Mariea:

Yeah. I think that we’ve already seen this direct to consumer and this direct relationship between brands and retailers happen, a lot more clothing and apparel and stuff like that that’s easier to facilitate, light shipping. But industries that still do have very specific logistical challenges like grocery, keeping things frozen and just the shipment of frozen goods or perishable items in general, that value from a distributor is large enough that we don’t see this question coming up really as quickly or anytime soon, because that value that we’re talking about may be breaking down, is very much there in grocery.

Travis Mariea:

Large items in general, retailers, going back to Matt’s owning versus outsourcing, even if you are a large Home Depot or a Target or someone like that, you can definitely own your supply chain and there’s a lot of reasons why you want to. For the control and the efficiency that you gain and competitive advantage of being really good at fulfillment and having that catalog all to yourself that you physically own already. So there’s great things there. But they still outsource the large items. And so they’re still going to buy that, they don’t want to take a whole grill and put it, they’re only going to have like five or six grills on their floor and then they’ll only take up so much in their warehouse of a large safe or whatever. So they’re still going to work with a distributor on large item stuff that they don’t want to have and own and take up the space.

Travis Mariea:

And then lastly, there’s specialty items like firearms. But even jewelry or high value items, things like that that you just don’t want to buy or one, you just don’t want to store and take on all that inventory risk. So we started this with there is talk about this thinning or at least streamlining of the supply chain, but I think there’s a lot of distributors out there that can rest safe in that they add enough value today in certain industries and continue to. As long as they stay focused on adding that value and they’re not disrupted too much based on all the factors we’ve just talked about.

Austin Rose:

Yeah. I always feel like that grocery side of things is almost one of the hardest things to do. Like how many times have we heard of a specific distributor, I’m not going to name any names, but they’re doing drop ship, they’ve got these high end retailers doing high volume, and they can’t handle the high volume. And so now they’re trying to send out packages, it could be even a half a day late, a day late, two days late, and now the end customer is getting soured goods, something that needed to be refrigerated like all this different stuff that you’re just now imploding on different businesses. And people are going to go to new distributors if you can’t keep up with that. Matt, what do you think, what’s your thoughts on the different industries here?

Matt Myers:

Yeah, industries are tough. Obviously perishable is an outlier where you require a certain level of care and quality and really special equipment, refrigerated vans of packaging that will last several hours or days. Firearms, that’s kind of another one where FFL licensing and having a physical location to be able to distribute that can make a big difference. I think just in general, I don’t really have specifics about industries to be honest, there’s obviously some outliers that make a great case for being a distributor and give you a lot of opportunities to provide value by being in those industries.

Matt Myers:

But I was just going to comment on, to me one of the main value props of distributors is capital. And that could be applied for various industries, but like if you’re choosing to go with a distributor, you don’t have to have that upfront capital investment. If you’re choosing the 3PL, even though technically some might not consider owning your supply chain because you’re still outsourcing your warehouse space and what not, you’re still having to make a conscious decision to purchase and put upfront capital in place in order to get those items into your warehouse. And so maybe this is more for the previous question, but I just feel like that’s one of the biggest value props to me. And if you’re actually starting a business or you’re in eCommerce and you need to warehouse these goods, distributors probably won’t go away for the experimentation phase or this concept of, “I’m just getting started and I don’t want to have to go and purchase all of these items and store them at my warehouse.” It’s almost like you start with a distributor and make your choice on which ones that you’d like to invest in after the fact.

Austin Rose:

Yeah, that makes sense. So let’s go ahead down into the next one. And I think you guys could probably ramble on for a while on this next question, and Travis we’ll start with you. But any parting thoughts that you guys are looking at and something that we can look towards the future when it comes to distributors? I know there’s a handful of different stuff here that you guys can go on about, but what are some thoughts that we might look at in the future and maybe some predictions on are distributors going away? Are they not? Different pitfalls and things like that. Go ahead, Travis.

Travis Mariea:

It’s more like how does the distributor word involve the term and the value that they add and how does the model change now that warehouse space and it’s almost commoditized and every VC I follow on LinkedIn it’s investing in a new third party logistics company and warehousing space and things like that. You’re seeing ShipHero and other companies like that actually integrate their software and then supply the actual warehouses past that and outsourcing and commoditizing the technology that distributors always touted. So it’s like there’s definitely disruption here, but it comes down to there will always be a middle man. I love that quote, I think it was DMX that said it, there will always be a middle man. The market decides who that is, but there will always be a middle man. R.I.P., DMX.

Austin Rose:

Too soon.

Travis Mariea:

But for me, that always hit home with me especially in the industry we’re in, in that distributing will just change [inaudible 00:16:52], and I haven’t thought through this too much, but what if there is a new model of, you’ve got a 3PL, it’s almost like, not even a new model, consignment, the consignment model. There is consignment in previous brick and mortar and I’m sure still today where you just basically are advertising. And I’m sure Amazon does have like a consignment arm, but I don’t hear a lot of it in our industry, I don’t run into a lot of people who are in this, put all of your stuff as a 3PL in here but then also we’ll advertise it but we don’t own it, we’ll do all that. So it’s basically the exact distributor model, but they don’t buy it at a discount they just take the 3PL.

Travis Mariea:

So I don’t know it’s probably happening today, maybe there’s something I’m not thinking about where it’s completely just a stupid idea and it doesn’t make any sense. But if you can make money as a 3PL just off these per order fees, you feel like it would be advantageous for you to then now advertise the items you have in your warehouse the same way a distributor does, but never take on any of the risk of actually buying them and give more margin longterm to the brand. And so it’s like a pass through distributor that still adds value in both the same ways that they traditionally added value, but they don’t take on the risk of actually owning them. So there’s probably some more complexity in the exchanging of hands and selling it back and all that kind of stuff, but it’s basically the consignment model. So it’d be interesting to see that if that is a thing, I think it is with Amazon today but it becomes more popular.

Matt Myers:

Yeah, it seems like you’re kind of talking about virtual distributors. That definitely does exist to some extent. Like you could look at maybe like Doba might be an example of that or even USD to some extent.

Travis Mariea:

But they don’t store, they’re almost pure dropship, US Direct’s all pure drop ship, adding the other piece to the value. But you’re right, it’s halfway there.

Matt Myers:

Yeah, it’s the idea that I’m going to aggregate, in that case it’s off distributors, but whatever there’s 3PLs, there’s distributors, it’s kind of like I’m advocating for inventory that I haven’t put in the upfront capital. And as a result, there’s generally going to be more fees associated with the purchase, so some sort of order fee or ship fee that will go as just a fixed cost with that. But you’re right, the value of advertising.

Travis Mariea:

Yeah, it’s what 3PLs do today, they say, “We’ll store your stuff and then we’ll just charge you for orders.” And it’s like, “You tell me when you have an order.” But they would also on top of that say, “We also have our own sales channel. So there’s another value add where we could probably sell you stuff that’s in our warehouse as well.” And I don’t know how much of that is happening. I think Amazon does that for sure. I don’t [inaudible 00:19:38] how much of that is happening where they don’t actually own it, and it’s probably because 3PLs are like, “Hey, we run a business. It’s called warehousing and that’s all we do, we don’t do this advertising arm.” But I’m curious if I had the option all things equal as a brand and someone said, “yeah, here’s my warehouse, I’ll store it for you and I’ll do it just as good as the next 3PL, but I’ll also drive more revenue because I have X, Y and Z partnerships to drive sales, I’d probably go with them. And like I said, Amazon does it, I’m almost positive, but I don’t see a lot of 3PLs doing it.

Travis Mariea:

And then Matt, I want to get your thoughts on, this is just getting a little out there, but I’ve been looking into NFT stuff like everyone else has and just keeping more digital records of digital things is really what NFTs are about right now. But there’s also this heady concept of just the digital record of a physical thing and just maintaining, like you could say I own something physically, whether it’s via NFT or whatever, but almost like having warehouses specifically that own the chain of custody of who owns a high end art or whatever. And for whatever reason, you don’t want to hang it up in your house. There’s people out there like this, not me, not a lot of people I know, but I’d be a couple million dollar piece of art and I just want to store it away somewhere. Maybe it’s for appreciation or whatever, and with NFTs or maybe there’s probably just stuff today for physical goods, NFTs would just be like a vanity way of tracking the ownership of it. But actually, not necessarily distributors, but storage of ownership of items and then facilitating the transaction of these high value items. I don’t know, I’m just curious if you know of that today that I’m not thinking about or if you’re following me on that at all or if I’m just getting out there too far.

Matt Myers:

Yeah, I get the idea. I’ve actually never heard of that. Are you saying those exist today or you’re curious about that concept?

Travis Mariea:

I’m sure there’s definitely storage units today. I think the step in the next direction in my mind is someone that facilitates the buying and selling of items and the storage of it and the transaction of it and then maybe leveraging some digital token to authenticate who actually owns this specific item.

Matt Myers:

Like the block chain?

Travis Mariea:

Yes.

Matt Myers:

Is that where we’re going?

Travis Mariea:

That’s where we’re going. That’s what NFTs are built on, right? And just that, I guess my thought is if the block chain and NFT type technology will enable easily managing the ownership of items if a new model comes out of managing the ownership of expensive items and then layering on the actual physical storage of it. You typically own something in your physical possession. It’s like nine tenths of the law. Someone else can tell and say like, “No, I know for a fact that you own this,” and then they have the storage of actually keeping it safe for you, I could see a business model evolving from that.

Matt Myers:

Yeah, I could. To me that valuable aspect of that is the authenticity of the purchase and the ownership. You think about a baseball signature or some sports memorabilia that is from the 1970s or ’80s or whatever and today, I’m sure you guys have seen Pawn Stars, you watch them bring in the documents and they say it was traced back to this person or whatever and the way that they validate that in most cases, obviously it’s a TV show but I’m sure it’s pretty standard in real life too, you actually have experts come in that know the signatures and they’re able to compare the handwriting and understand where it originated from and try to estimate that yeah that seems like an appropriate place and time frame. But the certificates of authenticity today to some extent are kind of like, is that real? So I see a lot of value in authenticity and being able to vet that. The storage of it to me, maybe, maybe that’s kind of a stretch. Maybe for expensive items there’s some sort of security that they can offer, but it might facilitate something like that in the future. It’s one of those trends that’s hard to say.

Travis Mariea:

The baseball card thing is interesting because once again, if you’re trading stuff in the way that I’m thinking of art and baseball cards and things like that, it’s almost always physically traded which slows down the amount of trading. And so if you’re able to take physical goods that have inherent value and fluctuate quickly. Right now you do that obviously with stocks and more digital trading, there’s even you can trade on athletes, there’s markets out there for that, and all about physically exchanging it. But if you said, “Hey, I don’t really care. You don’t need to send it to me. As long as I know that you trust this place to store it and I trust that they know it’s mine and I have some kind of NFT that proves it and I feel I have enough trust in that, because I’m not trusting a signature in some [crosstalk 00:24:55] back that far.” I think there might be new markets, like baseball. That was a great example, the baseball trading market could blow up and there could start being frequency trading of Mickey Mantle stuff happening constantly and that physical card is actually in a physical warehouse and then the ownership of it’s just trading via an NFT.

Matt Myers:

Yeah. To connect this back to the distributor, we see today that like Amazon right now for example, if I want to go sell a certain type of product on Amazon, I have to have some sort of certificate of authenticity to confirm that I’m eligible to sell those types of items or that specific product. And so it is interesting to think about when we’re talking about the distributor dead, ways that they might evolve might be in that realm. Because the distributor today kind of to some extent is discouraged from selling on Amazon because of that authenticity piece where you have to have a physical item. They’re kind of creating a barrier of this virtual process where I’m aggregating 3PLs or I’m aggregating distributors or something and I’m selling those on my Amazon store. It takes a lot of due diligence for that person to physically connect that they are eligible and approved to sell those items, let’s say. And so to bring it circle, I could imagine that that expands, the authenticity piece is maybe something that distributors have to adapt in the future in order to continue to thrive and sell on these other various channels that are so restrictive.

Travis Mariea:

That’s a great point. And thanks for bringing us back from way out there in Pawn Stars [inaudible 00:26:32]. But it’s a good point. And we kind of talked about this before where it’s like the block chain type technology we talk about all the actual practical use cases versus the hype. Authenticity is a big issue in our industry and that could be like the third leg of the value. Logistics, actual marketing and distribution of your products, and then authenticity and managing that across multiplied sales channels [crosstalk 00:26:58] value point added, I like that.

Austin Rose:

Getting real deep in the pawn shop stuff. It’s funny because it’s so true though. I follow a lot of vintage sports accounts and they buy and sell, not trading cards, but more so memorabilia and apparel, hats and things like that, and it’s an interesting thought. Do you guys have any other closing thoughts on the distributors dead? Anything that we want to talk about? Maybe want to just start talking about DMX since we brought him up?

Matt Myers:

Yeah, I’ve got a couple things. So we’ve talked about the distributor here and how people may be opting these days to use a 3PL instead. But I’ve found the idea that Dollar Shave Club, I don’t know why I was fascinated by that kind of story where, the first thing I’ll say to preface this is the idea of a distributor makes a lot of sense at the start, and even a 3PL makes a lot of sense at the start, because 3PL is kind of mid tier. So you could think about, say I’m starting a business and I want to be able to sell products, maybe I have other value props too, like informational or whatever, the easiest, lowest barrier to entry is a distributor. It’s kind of like this stepping stone to getting more advanced and embedded in the pipeline, whereas the second step is maybe I want to actually own some of those. So a natural progression path might be, I start with distributors, I make some sales, I find the products or items that are selling the most, I place bulk orders for those and send them to my 3PL now. And now I use that 3PL as my primary, like anytime I can fulfill out of there I do that instead because there’s less fees associated with that.

Matt Myers:

And then eventually you hit a point where like Dollar Shave Club hit where they were using this 3PL, they actually upgraded to a new 3PL, and at the end of the day they decided that it’s time for us to take everything in house. And that topic is really interesting to me where it’s kind of like what Apple does today, like even in modern times Apple is deciding to stop using Intel processors in their PCs or in their computers or MacBooks. And they’re starting to actually build their own processor to embed in those. So another slightly different topic along the same tune is outsourcing versus in house supply chain management entirely and what are the value props of that?

Matt Myers:

So when I first thought about this topic, immediately I started gravitating towards Dollar Shave Club, towards Apple versus Microsoft where Apple owns basically everything in their supply chain as much as they can and everything they don’t own they’re trying to continue to advance into that. And Dollar Shave Club is kind of copying that model right now where they’re starting to build out their own logistics and stuff. And I just started to think about the problems with that but also the advantages. And I kind of ended on this idea that it almost just looks like a progression path where the best solution is to own everything but it’s so intensive to do that and it’s so hefty of an investment and the capital that you have to do and the time it takes to build all the infrastructure out yourself, that I don’t see the distributor dying or the 3PL dying for example until we no longer have newcomers, is kind of my thought. Where it’s like as long as you have new people entering the industry, it just seems like those are the stepping stones you need to take in order to even become somewhat of a successful business. And so that was more of a heady thought, but I was thinking about that.

Austin Rose:

That’s a good point. If we’re ever going to get rid of newcomers, it’s always going to be a thing. And it all comes down to trust when it comes to that specific brand. Dollar Shave Club, I remember when they weren’t a thing and then they started popping up, you started seeing commercials and you’re just like, “What, who’s this?” We’re not all used to this when it comes to shaving. It’s like you go to CVS or Publix or wherever and you go and get your stuff from big brands like Gillette and things like that, so it’s that whole trust factor of you need to build trust for you to have that type of model. And that’s just going to take time.

Travis Mariea:

What I think Matt said is pretty interesting and I kind of want to push back to him on the progression path. I don’t think there’s an end there though Matt, it’s almost like it’s a cycle where you get good at something or you decide that you’re large enough or have enough resources to take something in house that you feel strongly has a competitive advantage and you do. And as long as your business is still progressing you’re probably going to reach that point again in another area. Because outsourcing allows you to go wide, and then insourcing or taking something in house, handling it yourself, allows you to go deep and really good deep. And I think it’d be interesting once you go deep in one thing whether it’s logistics or whatever, if they want to go wider to another catalog or internationally or whatever, they might have to do the same thing, start with a distributor, and then when they get there then they’re going to buy a warehouse.

Travis Mariea:

So it’s like as long as you keep progressing your business, I think you’re going to pretty much, you might run out of it in the context we’re talking about like distribution, but I could see it evolving pretty quickly as far as a business as a whole. You could make the argument that I’ve outsourced something until I determine it has a competitive edge, then I bring it in house and we launch the next thing and the next thing and the next thing.

Matt Myers:

Yeah, it’s definitely a cycle amongst many different variables. It’s like I’m going to house this variable and then eventually I might grow to the point where this other variable now I need to worry about in housing that. Another really good example of that might be Tesla, where they ended up buying a battery making company because they needed better batteries and they needed to innovate in the battery realm and research. I just watched a video the other day about them coming out with this brand new concept of a battery that’s lighter weight, longer lasting, and takes a different approach to how to build a battery. So they hit this point where they’re like, “Okay, these batteries are good enough to get us these products that we want to launch, but if we want to get longer lasting vehicles, if we want to start getting into aeronautics and actually creating airplanes with batteries and things, we have these restrictions.” And so they then opt to bring those in house.

Matt Myers:

But I think the general cycle, even though it is a cycle with different variables, it’s like it seems like housing is always the more efficient route. It seems like it at least, long term, when you look at things in the very long term. But the investment and the capital and just the bandwidth of your team, it might not make sense to even approach that in the near term. But if you had the resources at your disposal and if you could in house everything, obviously you can make everything to spec exactly how you want it. But it’s more that it can be very daunting depending on what you’re trying to do in house. Like maybe I’m trying to in house my development for my app or something like that and now I have to build a whole dev team and the second that app starts scaling now I have to build a network engineering team and an infrastructure team and dev ops. And so it’s one of those things that it’s probably always better to in-house it long term if that’s a core competency to your business, but there’s a big barrier to do that and you have to decide if that’s worth tackling or not.

Travis Mariea:

Yeah, that’s the key point is it sounds like, I’m agreeing with you, it’s the end goal for anything that your company has determined is a core competency and a competitive advantage. And you have to pick and choose what’s our competitive advantages and then which one can we afford with limited resources to bring in house? So let me caveat with a final part, like bringing it back to the distributor, as long as you feel like it’s a competitive advantage, and we’ve touched on this in other podcasts where it can’t be deemed a commodity, it can’t be deemed a commodity.

Travis Mariea:

So the only way that a distributor or warehousing or whatever you want to end up here with the value that a distributor adds, is not to the point of a commodity. Because it’s the same thing, Zappos did the same thing as Dollar Shave Club and basically said, “I want to bring all my stuff in house,” and the only reason they did that is because it’s not all warehousing and fulfillment, it’s the same. And there’s some things where it gets to the point where as a tech company we’re not going to manufacture our own computers because we can work faster. But the only way that distributors will phase out or just that whole model in general or owning versus outsourcing would be if they just made it to where it makes no sense whatsoever for you to do your own warehousing. Outside of the distributor talk, just owning versus outsourcing.

Matt Myers:

Yeah, I agree.

Austin Rose:

Yeah. One thing that I, and I agree with you guys as well, I think what’s going to start really hurting, my big thing is who’s going to start hurting the distributors is once brands become easier and easier to work with and people can just go straight to the brands and make better margins that way whether than going through a middleman distributor. But at the same time, if distributors make it easier and easier to work with from a data perspective then these online companies are going to stop doing it in house because think about all the costs you have to take on of owning a warehouse, teams, packaging, all that stuff. And the better they get at data, the better they’re going to be like, “it just makes sense to outsource regardless and not bring it in house if the margins are there.” So kind of my final thoughts there. What do you guys have, any other final thoughts?

Travis Mariea:

I’ll kick it over to Matt. I guess my final thing is just these are fun to talk about, hopefully people will find these interesting. The idea with this podcast and some of these that we’re doing is just talking out loud about, there’s several things that I’m probably going to regret saying that sounded really stupid about certain potential ideas in the future. But we’d love to hear whether you see this tomorrow or five years from now, we’d love to see your comments and just talk about this kind of stuff because we’re really interested and just kind of b.s.-ing around what potentially could happen or how people think about these kinds of things.

Matt Myers:

Yeah, agreed. And obviously is the distributor dead? The answer right now is now. And it might in the future, who knows? There’s obviously a lot of competitive advantages, even just like we briefly touched on it, this idea of, I don’t know what you would call this, product trailing, where you essentially have a distributor out there and I have my own maybe in house inventory or I have a site that I have and I’d like to hook into this distributor to trial out if some of these products are of any interest to my customers and then decide if I want to invest more in those. And so just in that realm, I can see a lot of value in them long term and just to understand what’s a good fit. And I’d like to see if these products are of any interest because there’s no way for me to validate them unless I get sales on them, and I don’t actually want to go and purchase all those. And so even seasoned and veteraned retailers would find a value in a distributor in that realm so that they don’t have to take on that capital investment and that risk associated with that.

Austin Rose:

And I think a side note on that too, because that’s a good point, we kind of already talked about this, but we talk about working with brands, if brands make it easier and cut out the middleman where retailers can work directly with them then that’s going to hurt a distributor. But almost all virtual distributors like US Direct, like Doba, like some of these other guys that are very transparent, “We use these distributors. These are big distributors that work with these big brands and we use them fulfill.” And you know that, so you’re going to go out there and sell these specific, I don’t know, let’s stick on the laptop train, through a distributor, you start making sales, you start seeing how this works. Well guess what? We work with this person so you can now go work with them and not use us anymore and make a better margin. And then now you’re doing that ever evolving of stepping stone and how many times have we talked about that when we started US Direct is it is that kind of graduation program of you’re getting your feet wet, now you’re getting your knees wet, now you’re waist deep and it’s kind of a stepping stone of figuring out your exact supply chain that works for you.

Matt Myers:

Yep, agreed. So we’ll probably see them around for a long time, but it is interesting to theorize what the future holds.

Austin Rose:

Yeah, it’ll be fun to listen to this a year from now, maybe a couple years from now.

Travis Mariea:

I’m going to be running high frequency baseball card trading. [crosstalk 00:40:22]

Austin Rose:

Block chain. We’ll just be like, “Hey, let’s do a podcast on block chain and Travis is going to run it.” No, that’s great. Guys, anything else? Anything we can think of? DMX? Block chain? I like where this is going. I think we should keep up the small nuggets and tangents.

Travis Mariea:

I think this was a good one, and like I said just to riff off and B.S. and I don’t think we need to beat the dead horse completely.

Austin Rose:

Yeah, no exactly. And if you’re tuning in, you’re giving us a listen, let us know your thoughts. We have a little bit of a different perspective from where we’re coming from and I think it’d be interesting to get more people involved. Should I like the comments below, all that good stuff?

Matt Myers:

It’s your boy Austin.

Austin Rose:

Gosh, never going to get away from that, which I’ve never said. All right guys, well thanks for jumping on. We had a little bit of an audio issue at the beginning, no worries, we’ll get a recording up, make it all look good. We’re just refining this podcast. But stay tuned for the next one next Tuesday. Tune in 5:00PM. Travis, Matt, thanks guys.

Travis Mariea:

Cool, appreciate it Austin, thanks man.

Matt Myers:

Cool. [crosstalk 00:41:36].

Austin Rose:

All right, see you everybody.

Matt Myers:

See you.