How to Offer Prime-Like Delivery Everywhere [Video]

Pauline Shiu

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June 4, 2020

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For many sellers looking to go multichannel, fulfillment is often the first order of business. Sellers are confronted with questions like, how should we distribute our inventory? How can we maintain fast shipping across all our channels?

With an extensive network of warehouses and a history launching programs like Walmart's 2-Day Shipping in direct partnership with marketplaces, Deliverr is well-primed to answer these questions.

In this week's interview, Cofounder Michael Krakaris chats about the inner workings of Deliverr and what it takes to offer Prime-like delivery across all of your sales channels.

Watch "Ask the Ecommerce Experts" Episode #3

The Full Transcript

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The Early Days of Deliverr (0:01)

Pauline - Director of Marketing, Zentail
Hi everybody, you have Pauline here with Zentail today with another Ask the Expert session. I am excited to be speaking with Michael Krakaris from Deliverr. Michael, hi. How are you doing?

Michael - Cofounder, Deliverr
Hey Pauline, good to be on. 

Pauline
Awesome. For those of you who don't know, Michael is one of Forbes 30 Under 30 [entrepreneurs], as well as cofounder of Deliverr. They offer FBA-like fulfillment for channels such as Walmart, eBay Shopify and Wish. Looks like he's had a fun past from all the photos behind him there. We're excited to have you on, Michael.

Michael
Yeah. Out of my parents' home, which is great.

Pauline
Very good. You know, I should have looked into this a little more but any chance that you guys started out of your parents basement or garage there?

Michael
Yeah, this is actually where it probably started. I was here. While Harish was working out of his house, I was working out of mine. And probably right at the beginning when I got my first apartment in SF, so it was very early, I was just moving in. I don’t even think I had a bed frame in my apartment at that time. 

Pauline
Exactly, exactly. Yeah, I was gonna say that I wouldn't count you as a real startup if you didn't start in some way, shape or form in your parents’ living room or something. Cool. So we've got the digs down for how you started. Tell us more about why you started. What were you looking to solve with Deliverr in the early days, and has that changed any?

Michael
Initially when I was at Northwestern my last summer, I interned at a company called Twilio, a cloud communications company. What they do is power SMS and video messaging APIs for any business that wants to send text messages to their user base. 

What was interesting about that space is I got to learn about the infrastructure as a service space. People at the time had software services [through] companies like Salesforce, HubSpot and stuff like that, which is becoming very popular. But this was this new space of infrastructures of service that I found really fascinating with them—because [they] went to a space like the telecom space which, if you tried to send messages to users beforehand, before Twilio, you had to deal with AT&T. You had to deal with Verizon and a bunch of other carriers, and each country [had] a different set of carriers. 

Carriers also have different performance in different regions, so certain carriers are really good in the West Coast. Certain carriers are good in the South—it depends on how they've set up their own physical infrastructure. That physical infrastructure is very hard to set up, and the performance is very different. 

So, for a user, when you’re scaling, you have to negotiate contracts with a bunch of them. You have to ensure really strong performance and then you have to rinse or repeat as you keep growing. So [Twilio] applied software to that world, or infrastructure to that world, and then a very simple, clean set of APIs where you could use as much or as little as you’d like. And it was pay-as-you-go pricing. So companies like Uber and Lyft were built off of that infrastructure using Twilio to send messages to drivers and riders. That was really, really interesting and [it] fascinated me. So I left, finished my internship and went back for my last quarter at Northwestern. Then, I went to a company called Simply Commerce, which was really interesting at the time because it [was] kind of the perfect primer for anyone in ecommerce. They built the full commerce guide for ecommerce brands like Pepsi, Gatorade and really big brands like those who were just starting to go online. So they built the website, they did the inventory management software and they built integrations into warehouses. I got to learn about how the website is built and hosted and how to build a strong checkout flow, how that integrates into the inventory order system and finally, how the warehouse piece operates. 

What I saw about the warehouse piece that reminded me a lot about the telecom space pre-Twilio was you had to go shake contracts with each warehouse. Each one had varying performance. Each one was strong in different regions. And every time you grew, you had to rinse and repeat the whole process. 

So these companies need to have entire operations teams literally just to do that—and that's where we had the idea. I met Harish at the time and he was very fascinated with the Stripe model. At the time, we had these two really fast-growing companies, Stripe and Twilio, at very similar stages right? 

So, I come from Twilio and he was very into the Stripe model, so we kind of bonded well over that and had the idea around Twilio fulfillment. The initial slide I put together...I literally went on the Wayback Machine at Twilio. I went from 2008 or 2009 when Jeff started the website, and just took their benefits. They just put the three benefits of Twilio, and then I just took it and then I took out Twilio and put in Deliverr, and then took out messages and put in orders. That was it. 

So that's how it started and then as we went into the journey and started Deliverr and all that stuff…after that, we started thinking about this other element around speed. That was more unique to the space because, if you look at Twilio or Stripe, speed is not too much of an issue because you know you're just sending a message to the PSTN, or you're collecting payments which is typically fairly quick.

Here in commerce, though, speed is a really big piece and it takes a while for physical stuff to move. So we made the bet fundamentally that the world was going towards two-day and next-day delivery. Even outside of Amazon—which at the time was not super popularly held. Even now,  you definitely have a lot of pushback in that area. So that's where this idea of asset light, not owning warehouses and positioning inventory very close to buyers came through. So, in that you got the three benefits: Clear pricing, easy onboarding and this element of speed. That's how it's evolved to what it is today.

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How the Deliverr Model Works (6:06)

Pauline
Okay, nice. Thanks for the thorough background. So you kind of mentioned a couple key pieces there, which is performance, contract negotiation and speed…like the concept of SLA and you know looking at the infrastructure as a service. So, how does Deliverr handle that? How do you handle SLAs with your channels and warehouses? How do you guys go about all the contract negotiations? What does that look like on your end?

Michael
Yeah, it's fairly complex and it also depends on the warehouse. So you're gonna negotiate contracts with different warehouses and they're gonna treat you somewhat like a Nordstrom or Macy's. So you come in as like a really big retailer with very clear requirements, very clear inbound guidelines, outbound rules and things like that. And it comes in two pieces: You have operational components that they need to do, and then, software requirements. On the operational piece—you need to be able to read these types of barcodes, you need to be able to receive these SLAs and need to be able to ship out items in these SLAs. Then on the software side, you need to have APIs for this, APIs for that and so on and so forth. 

They essentially have a minimum set of requirements they have to meet to be able to come into the network. Then [the warehouses] go through thorough testing and as they come in...we bring them in very slowly. So we turn them on, then we turn them off. We turn them on, then turn them off, and we gauge performance. As they start performing well, they start getting more and more volume into the network. 

One thing that you do though because you have a lot of optionality is that the warehouses that perform the best get the most volume. The warehouses that are the quickest, that are the cheapest—they're going to get a lot more volume. So, it is creating an ecosystem for warehouses to play in for them to get volume, purely based on performance. For a lot of these warehousing companies—because this is actually very distributed, and it's a little bit different from Twilio where you only have four major carriers (you, instead, have three thousands of these different independent warehousing companies)—it's very tough for them to get new business and to do sales and marketing and bring in new merchants. 

Sometimes it can also be because of regional issues. They could be very big in the southeast while most merchants are in California or New York, and so it's hard for them to really get their name out. So this is a way for them to not have to run any sales and marketing but get really strong business, which helps fill that excess space they have, whether it's 20% or 30% of their business. So, that's kind of how you do it, and how you ensure strong performance because, as they perform well, they get more business.

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The Difficulty of Warehouse Negotiation Normally (8:50)

Pauline
Exactly. Nice, so you mentioned that Deliverr’s kind of treated as a larger retailer. So, if I was a smaller brand just starting on Amazon—let's just say doing $2 million dollars a year—and I wanted to then have some warehouse space and go multichannel. What would that mean to me as an independent person trying to contact a warehouse?

Michael
So you mean if I'm just a seller, and I'm just going directly to a warehouse? 

Pauline
Right, so like pre-Deliverr, what does that look like?

Michael
It’s pretty brutal, and that's why you didn't see it [happening] a whole lot. The most common thing that you [encounter] with sellers is that they tried it and it didn't go well, or they just start shipping on their own out of their garage. Or they start using multi-channel fulfillment [by] Amazon to fulfill orders, until they get banned by the sales channel that they’re using it for. 

So typically if they were going to a warehouse, they would have to negotiate a contract beforehand. They have to talk through what their expected volumes are (and if it's outside of Amazon, a seller [usually] has no idea what their volumes are going to be, and that's the initial friction point). 

So, let's say half the sellers don't even make it past that, and half do make it past that. The half that does, they're just guessing [what their expected volume is going to be]. Typically when they guess, they say 10% of their Amazon volume, but we’ve seen that that's not accurate. 

In certain verticals, you get to 30% to 40%, in other verticals you're under 10%, maybe even three, four or five percent. But because that became some industry standard, [sellers] just just say that. So they're saying that volume, which oftentimes is inaccurate. Then they get pricing back from a warehouse, and the warehouse [commits to the amount the seller pitched]. So [the warehouses] are saying you have to send in this amount of inventory and you need to commit to this amount of orders, or else we're getting rid of your inventory.

The pricing comes in a lot of different buckets. You would have a receiving fee which is hourly. And if you've ever tried to dispute a receiving fee, it's insane. You have to go through the logs of every single person receiving your items and, let's say you think it should be 24 hours but it ended up being received in 48 hours. You have to see a log of every single person who was receiving to see when they took breaks, when they didn't take breaks, what else is still going on—and then challenge that. And let's say most [teams] are one, two and three people—you're not going to do that. These are the things that like Gatorade was doing with warehouses... which is really difficult. 

So you have a receiving fee and that’s hourly. You have a pick-pack fee. You have a box fee. You negotiate the boxes. So they would say, “We have these boxes.” We say, “No, no, no. I want to use these boxes.”  And they say, “Well I can't get these boxes”...“Well, what if you get a box machine?”... “No, no, we're going to import boxes.” So you get in this whole thing around boxing. 

You have a shipping fee on top of that, and so then you start arguing if it should be on my account [or] on their account. What service provider it is (for example, I want to go with UPS but [the warehouse says], “We only deal with FedEx”). 

Then you have the different zone it would go on, depending on where the [order’s] going to, so your shipping fee is very variable. Then you have storage fees, and storage is unique in that it's not per unit. They're basically charging per bin. So they're saying how many bins you're going to sell is what you should fill up, and you don't know how many bins you're going to fill up because you’re just per unit. So that's kind of the basic stuff, and then on top of that, you have to charge for if you want an account manager or any dedicated support charges.

Pauline
And then you're saying, do it again if you want to be in a different warehouse in a different state.

Michael
Also the warehouse doesn't want you to go to multiple warehouses, even if that one warehouse company has four warehouses in their network. They want to put you in one because that's easier for them to track. When you go to multiple, it's harder. So for them, they're trying to optimize the amount of revenue out of the fixed asset they're paying on, so they don't want to spread you out at all. But you as a business want to be spread out because you want to get faster delivery speeds. 

There was a fundamental misalignment in that space, which is why you saw so many merchants going out to 3PLs, not even getting started with them. They are either shipping out of their garage or relying on Amazon for these other channels where you have a lot of other issues because, you know, things related to Amazon boxes..and Amazon tracking. This was creating a lot of friction with a lot of these channels to a point where you have guys like Walmart say, you just can't use it.

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Other Perks of Working with Deliverr (13:10) 

Pauline
Exactly right. Okay, great. And so you mentioned the quickest and cheapest, right? Speed and price. What else is something that's important [for Deliverr] keep an eye on for your customers, so as the service provider, you make sure that you’re living up to SLAs….that people are having two-day delivery, they’re getting great rates. What else is something that is important for your customers when looking at Deliverr?

Michael
Yeah, I would say ease of getting started is a huge one and self-serve. That's something that was only [available through] FBA...it was something where you could self serve or you can learn how to use it and there’s a YouTube community [to help you] figure out, “Okay how do I get started on it?” With any other 3PL, it would take a minimum 4-8 weeks to get started. 

With Deliverr, you can sign up and we automate that entire process to get started. That's a lot of work to be able to do that, and to be able to set that up or be able to create that translation layer between a warehouse and a new seller...In a situation that we've seen in the past few months, where FBA is not taking non-essential items or...limiting the amount of quantities you can send in, you certainly see moments in time where urgency is there, and where [sellers] need to get started very fast. 

And sellers are able to get started on our platform within 72 hours [or] 48 hours, which is pretty much unheard of for a fulfillment service ‘cause you're moving physical stuff from one place to another, but they were able to do that and that's because it was self serve. [Sellers] didn't have to talk to anyone. They didn't have to fill out any contracts or questionnaires or anything. They literally just get the product, send it and go. 

That's really, really important and really critical. I think if you take that one step further...what you also started seeing in this pandemic was that each month was like a different quarter. Where in the first month, you have vitamins and supplements doing extraordinarily high in volume. Second month, you see home doing extraordinarily high in volume. Third month, you now have apparel and outdoor doing very high volume. And so, as each section went really high volume—these are items that are almost going 10x what they typically go to—imagine if you're doing that with your own warehouse. You have fixed labor, so you can't make that happen. And if you're trying to use multi-channel fulfillment, anyone who's trying to do that with Amazon over COVID...you're getting de-prioritized because they've got their Amazon orders that they have to deal with that are going through all sorts of scaling issues. 

If you look at that...what you can see is that the ability to just scale with those businesses [and to fulfill] an item that was doing 100 orders a day and is now doing 1,000 orders a day…[was made possible through the] Deliverr model. 

When we found out [that] items were moving very fast, we started transferring them out to more and more locations dynamically, and because you're asset light, you have a lot of nodes—you have 35 plus nodes in the network—and that's how you're able to take on what were extremely high and rapid influxes in volume. 

The last part is now layering that in and getting more predictive intelligence around what we think is going to hit, what we think are going to be the high volume categories [and being] more proactive instead of reactive. 

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Deliverr’s COVID-19 Response (16:30) 

Pauline
Wow, okay so there's a lot to unpack there. So, question around obviously all the fluctuations that happened really rapidly: How did you guys handle that? How did you work with your sellers? What did you communicate to them about inventory demand forecasting—and candidly, were there any hiccups in the road?

Michael
Oh, I mean there were huge hiccups in the road. I mean any logistics provider or any ecommerce provider who's gone through the past three months is going to be lying if they told you there weren't any hiccups. Amazon, Walmart, eBay, Deliverr, Shopify—everyone has been put through the challenge. If you look at the gains ecommerce has made in the past few months, it's just remarkable. 

Typically our systems are set up for Black Friday and Cyber Monday volumes and…[usually] everyone starts preparations [for those selling days] in Q3. All of a sudden, you start seeing that level of volume with no preparation out of nowhere, and that puts so much load on the system, you kind of saw the impact it has. 

For us specifically, number one is that you had this unpredictable category demand...and partly, we did get a little bit lucky because we were starting to build category intelligence within the Deliverr network, starting to understand what categories we think do well. So we were starting to already figure out that certain categories are prone to very high volumes at certain times of the year. So we didn't get as hit as others might have, but you certainly have unpredictable categories. For example...we had zinc in the network and we were fulfilling, not just the Walmart and eBay orders, we were also fulfilling the Amazon orders for this zinc item. An US Weekly article comes out a month ago or two months ago now, and it's saying, zinc helps prevent you from getting coronavirus... 

Pauline
And then boom.

Michael
Which comes out of nowhere! There's no scientific backing on it or anything. And you typically use the supplement for something completely different. The merchant has no idea about this coming out, and then all of a sudden, three hours later, you're seeing thousands of orders just pouring in for this item. And we’re fulfilling it across all channels, and it's the number one-bought zinc item online. It's the number one featured item on this article. 

That put a ton of load on the system. That happens on a weekend too, when warehouses typically aren't working. So from that point onward, most warehouses in the network had to be working on weekends, especially if they were handling these, what we call, surge capacity. These extraordinarily high-volume items. So, that was very unpredictable and that puts a lot of load on the system. 

Number two is on the warehousing side, one of the most difficult challenges is where you have employees getting sick or workers getting sick. Not Deliverr employees, but warehouse workers getting sick. 

That was extremely difficult and worrying, and I think you saw a labor shortage. The warehouses did not want to hire because they were concerned that people looking for work could be sick, and you also had employees not wanting to go to work because they thought, “Okay maybe other workers may be sick.”

And what would happen is, you had to put in all sorts of precautions that you had never done before. So we had to extend receiving by 24 hours because CDC came out with guidelines that the virus can sit on cardboard for 24 hours. So now everything has to sit by at least 24 hours. If you think about our receiving and how much info is coming into Deliverr, a 24-hour extension is a huge backlog. That adds a ton of additional time to receiving, even though to someone else, it might not seem like a big deal. When you have so much volume going through a network, any extension of a day really piles on. 

So that was not great. Then you had to take the temperatures of everyone. You had to get them PPE in the warehouses, and then when you did see a COVID case, you had to shut down the warehouse. You had to schedule deep cleaning...and then you had to figure out how to reopen it. Are we going to redistribute it to other nearby locations? Or do we think you can reopen quick enough, so you can keep inventory going? 

Now, in some cases we were lucky because we had so many different warehouses in the network that we could transfer stuff. And we mirror SKUs. So if a SKU is in one location, typically it is in a lot of different locations because we do two-day and next-day delivery. So, we weren't hit as hard by it, but it certainly came up with challenges where we had to basically repurpose this severe weather system that we had built. Like if a warehouse gets destroyed from a hurricane or shut down, we basically repurpose that overnight to handle this, which is really tough. 

Then the last piece was the carrier side. That was really difficult because you saw that carriers were getting a ton of load from all the ecommerce volume coming in and you had to start diversifying your carrier mix very rapidly. You saw that performance was very different than usual, especially in COVID-hit states. You had to be much more diverse with your selection of carriers because even they were seeing the same thing with low employee turnout. You're seeing more theft—there were a lot of things on the carrier side that were really difficult. 

So across those three elements—warehouse, carrier and on the sales channel demand side—it was extremely difficult and continues to be a challenge. Not as much as it was maybe a month ago. Things have settled a little bit, but certainly the most challenging time from a scaling standpoint.

Pauline
Sounds like you guys went through a lot...but sounds like you guys reacted as quickly as you could and had proactive procedures in place. Obviously there were challenges like you said, and bumps in the road but, sounds like you were prepared and that's really all folks can ask for.

Michael
So the other thing is with these events, they help you build very good systems and very resilient systems. So it did accelerate a lot of things that maybe we had overlooked before, like diversification of carriers. Or like some of these procedures of transferring inventory very rapidly to different locations and load balance in the network. I do think that really helped the fundamentals of our business, so yes, it was a really difficult period but it did really create urgency around things that are going to make it a lot better for the next few years. So I do think these types of events do help you improve and get better as a company.

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On the Horizon: Diversification (23:40)

Pauline
I love that it makes you stronger. So ‘diversification’ is definitely a buzzword to come out of the pandemic. I think folks on the Zentail side are seeing tremendous, tremendous interest in the diversification/multichannel effort, which is why we wanted to speak with you. Deliverr is I've seen expanding to a couple new channels. I would love to hear about that. What's going on with Shopify and Wish, in addition to obviously like your Walmart and eBay traditional partners?

Michael
Yeah, yeah. So, I’ll try to talk about as many as I can. Some stuff is coming out soon.

Pauline
Give us a sneak peek. Tell us.

Michael
I think for the recent ones, late last year we launched the two-day program for Shopify stores. What was very unique about that program is because we control the badge, we've been fairly quietly expanding our next-day coverage. So we made a pretty big investment in that and pretty big improvements in that. So this badge is actually both a blended two-day and next-day program, where sellers get two-day nationwide, and they get quite a bit of next-day coverage across the country...

I think I was on a podcast with Shopify Plus a few weeks ago, and we were talking about a few of the examples where merchants are seeing their acquisition costs really come down quite a bit. It definitely varies on the vertical. What's interesting, though, is that a lot of times if you look at a two-day badge in the marketplace, you're not entirely sure how exactly buyers react because the marketplace is kind of obfuscating some of that. They're doing their own testing, and they're doing their own category management, they're creating this sensitivity of a two-day badge on search.

When you're putting it on your own website, you're getting an exact read on how the buyers react to the fast shipping or not. You can form your own sensitivity analysis to a dime on how sensitive they are—and does this make sense for you or not? That's been really interesting, so for CPG sellers so far you're seeing half their Cost Per Acquisition (CPA), which is insane. Usually a 5% improvement in CPA is enough to really increase investment. Here you're seeing it decline by 50%...when they're putting two-day or next-day on a consumable item. Then even with apparel, you're seeing declines—not to that extent, but you're seeing reduction. So that program has been really extending which has been great. There's gonna be more improvements to that program that are coming out in the summer that we're really excited about. 

Then the other program is that we want to continue to invest on the marketplace side, and come out with new programs there. So, we formed a partnership with Wish earlier in the year. We talked about it in February—just the first announcement that we were integrating...There's a lot of different pieces to that partnership. We right now integrate into Express, which is their five to seven-day program. Then we announced on Tuesday, we're building a two-day program that you're going to start seeing on the Wish app, two-day enabled items. Over the next few weeks, we're going to be rolling that out. You'll see that more at scale for holiday across a lot more selection on Wish. So we're really excited there. 

With Wish, when we first met with them they gave us some of the usage of that app. It’s the number one most downloaded shopping app in the U.S. for three years now. I think it's pretty wild, and just the usage is incredible. I think the biggest challenge that they've had is really breaking into the U.S. merchant base, and that's something that they really wanted to expand. [They wanted to] get into some of these higher price items and faster shipping. That's really where we come in. We have a lot of that selection and some of the fastest-moving items outside of Amazon with fast shipping, that now hopefully are gonna resonate really well. 

So we had some initial results that we talked about earlier this week. We had California Home Goods get listed. We also listed BO Toys, which is a Zentail seller...We’ve seen this logarithmic growth with both of these sellers on the platform already, which is really good. It's a really good sign and really promising, kind of like the early days of our Walmart initiative. Giving me reminders of that, and I think there's even further you can go just with the growth of that ecosystem. 

Pauline
That's awesome, really exciting. Agreed, when you get to really kick something off and see immediate growth, you know that you're doing good things. So, that's awesome.

Michael
Yeah, it always starts with the first few items. First few items pick up, and you know you have something there. It's like with Walmart—the first item that I put on Walmart two-day ever, even in Walmart marketplace terms...it was Pureology shampoo. I could not have picked a worse item. It had not done a sale in the past 60 days. Then we put it online with two-day, and then in the next six hours, did six orders. Then you're like, “Okay, we need to find some more items. We need to get this going.” And now here we are. 

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Marketplaces and Fast Shipping: Is Competition Heating Up?(29:10)

Pauline
So, Michael candid question about Walmart and more of your established partnerships. Obviously, the opportunity for being there first was pretty huge. You guys have grown a ton now that there are more sellers with that two-day flag, and more sellers working with you. Are things getting more competitive on those marketplaces? What does that mean to them?

Michael
That's a really interesting question. If you look at the adoption curve, you're now getting further down the curve. I wouldn't say you're at the late adoption phase, but you're getting near your peak for certain verticals. I think other verticals are very under-penetrated on Walmart if you look on the two-day side, predominantly because we have not supported them. Batteries is a really good example, and electronics right now are very under-penetrated because we just don't have a lot in our catalog right now. 

But if you look at other categories like health, home, beauty—some of the core ones that you have a ton of saturation on the Deliverr side—you see a lot of the sellers have moved to two-day. You can go to a page on Walmart and that entire page is Deliverr sellers at this point. Or at least 75% to 80% because the initial sellers that came on Deliverr were capturing a lot more sales. So that pushed down the sellers who weren’t on Deliverr...it was very similar to the flywheel [effect] that you saw with FBA. 

I think though, what has happened is that you do see a little bit of reduction on the early movers. Initially, you're maybe seeing three, four times improvement of sales on two-day. That has come down. I think Walmart gave some established numbers on the webinar two weeks ago, and they came out saying it's around 38% now, lift in sales, two-day versus standard. 

I think there's two ways to go from here: Number one is because more items have two-day on Walmart than they did before we even launched this initiative together. What you have now with all this influx and volume coming into Walmart, is that overall the marketplace has grown. Because to a buyer, it's much more attractive. So, yes, it's not four [times growth], but you still have an increase in sales because overall the marketplace is much more attractive, and most importantly, those categories are a lot more attractive. [The free two-day shipping has made it] a much more attractive category to the buyer, and the buyer is then more likely to transact. 

Number two is that you have to get faster. And so that's where, obviously, things have been a little bit delayed with everything going on with COVID, but getting towards next-day and getting to these next speed levels...are going to help propel volume. Nothing I can talk about right now.

Pauline
I was gonna ask you if next-day was in your roadmap for the near future.

Michael
Obviously thing are being discussed, but we can't talk about specifics, unfortunately,

Pauline
Sure, wink, wink got it.

Michael
Trust me, you'll be the first to know and I’ll be happy to share those timelines when it becomes available.

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Walmart Fulfillment Services (WFS) and What It Means to Deliverr (32:30)

Pauline
Awesome. Thanks, Michael. So back on the Walmart note, I think there's questions about, obviously you guys have been really strong partners to this point, and they've made some announcements too with performance, things like that. What does it mean to Deliverr and the shared user base?

Michael
Yeah, absolutely. They came out with their own fulfillment service, WFS or Walmart Fulfillment Services. It's a fairly newer program they’re piloting with. And sales channels I think will always try...to pilot fulfillment services and there will probably be usage for that. I think even Wish had Fulfillment by Wish before we approached them. Even now, they're very open to this. 

I think it really depends on the seller whether you're going to use WFS or you're going to use Deliverr...Because when you look at something like what WFS brings to the table, it works really well if you're just going to sell on Walmart, and that's what it's there for. It's there to help you if you're just gonna sell on Walmart. 

But if you want to sell in a lot of different places, it's not going to help. It's not going to put a two-day badge on your Wish listing. It's not going to put a badge on your eBay listing. It's there for Walmart. 

...We think for the majority of Amazon sellers when you look at their volume outside of Amazon, it's very fragmented. It's very distributed across a lot of these channels. So you're getting a little bit from Walmart, getting a little bit from eBay, getting a little bit from Wish. 

And actually if we look at Zentail sellers, they're the most distributed across probably all of our sellers. They're very, very distributed. They have a little bit everywhere. And in that model, these sales channel fulfillment services don't make sense for them. Because then you're tying in inventory with a specific sales channel...when you have a very unknown idea around your volume. Like I mentioned at the beginning, that 10% is not really accurate. It really depends on the channel, what your selection is and what the existing saturation is on that vertical. 

So for example, grocery might do great on Amazon, but it's not going to do well on Walmart because the 1P selection is incredible for Walmart. 

Versus supplements or very mainstream products, like Pureology shampoo won't do well on Amazon. It will do great on Walmart, it’ll do okay on Wish. So you have these differences in sales trends, which make it very difficult for you to tie inventory to a single channel. 

So that's why I think even with Walmart, if you go to a Walmart account, you see WFS and you see a Deliverr account...If you think you're going to be doing a lot of different channels and you want to do Walmart, eBay and Wish and maybe even Amazon FBM, then I think Deliverr makes a lot of sense. If you've got one SKU on Walmart and that's it, and that's just a Walmart-specific SKU [that] does one hundred orders a day, then WFS makes a lot of sense. You can see that with the initial sellers that are coming into WFS. 

The other thing which is a little unique is you have sellers doing both, which I think is kind of interesting. I don't know why, I think they're just kind of trying it out.

Pauline
Are they trying it out with the same products or are they diversifying their inventory? For an example, my understanding is that Deliverr handles the smaller items really well. So if I'm a sporting apparel seller, I'm going to sell my golf ball through you guys and some t-shirts. But the clubs and the bags would go to WFS, let's just say.

Michael
So we've seen that, [and we’ve seen sellers try both out with the same product]. I'm not really sure why, but I think the important thing is that, in terms of the ability to sell through or the visibility, there's no difference between if it's in WFS or if it’s in Deliverr. It's the exact same; you get a two-day badge and that's really it... 

Also on the selection side you see price differences, like on the heavier goods, because you know Walmart retail is very strong on the heavier side...I think it's a lot of mix and matching and trying out different things for sellers. But we'll kind of see how this evolves over time. We see the world outside of Amazon getting more fragmented, not less. You also see Buy with Google coming out, and Facebook and Instagram launched this bombshell announcement two weeks ago about Facebook and Instagram shops, which is massive in the space. And I don't see it getting more consolidated. In a world where it gets more consolidated...putting your inventory with a certain sales channel makes more sense. In a world where it gets more distributed, it makes less sense. 

<div id="d2c"></div>

The Shift to D2C and Getting Ramped Up for the First Time (37:30)

Pauline
Great perspective, and I agree. So I have one last question for you and then I want to get into a little bit of fun here at the very end. So last question for you: Everything we've talked about has primarily been about current online sellers looking to expand beyond the normal B2C route. How does this change for truly going D2C? So I'm a manufacturer, and because my retail stores have no foot traffic [so I want to go D2C for the first time]. Does the conversation change at all for them?

Michael
Yeah, one that has been interesting.We've been approached by a few of these really large, kind of Fortune 500 brands that are in-store. I think for them, [COVID] has created a level of urgency, where they have to start looking at an online strategy and have to start looking at legitimately putting in some money into the online piece. 

I think initially they had viewed online as something to support stores. I do think that needs to change a little bit, where maybe the stores need to support online. There needs to kind of be a balance, and you need to have a level of diversification there. 

I think, unfortunately, you are going to see a section that just can't evolve. As with any big trends, any big movement, there's going to be a subsection of merchants that just cannot change their systems and they will go away. Or, they'll just be significantly stronger or smaller than what they were pre-COVID or pre-ecommerce boom. There will be a subsection that do find a way, that do find that urgency and they do evolve. And it's certainly going to be painful for those companies to do that. It's gonna be a lot of work and a lot of moving parts to be able to make it happen, but I do think you are seeing a fundamental shift there, where it is ‘evolve or die.’ You’re seeing that with all these brands...They're all looking at their balance sheets and seeing earnings coming out. And, yeah, I mean they have to evolve.

Pauline
So yeah, we've definitely seen some more interest on the D2C front as well. Fulfillment is always kind of the first question. I'm curious if you guys are keen on any of the what's next? So what it takes for teammates to adjust, to source potentially from the stores, etcetera. What else is going on in the minds of these D2C explorers? 

Michael
I mean they're looking at a lot of different things. They're also looking at online—does it make sense for someone to transact on their website, or do they put it on marketplaces? Do they do a combination?...That's a really big thing. 

They're also thinking, how do you use the store versus how do you use something like a Deliverr? Do you use it for different types of SKUs, different types of assortment? 

And so it's a fairly complex rollout for a lot of these brands. So I think we're gonna see some big moves ready for Q4. There’s certainly a lot of open items still to be covered over the summer as we get into this, and then I do think we are going to see some pretty big movers as we get into Q4. Because that's where you need to make up this revenue somehow. You are going to see them figuring out certain ways, and so each one's gonna be different. 

I think it depends on what their storefront footprint looks like. It depends on their vertical, if they have high returns or low returns. In terms of how they leverage Deliverr…[it depends,] because each one is kind of thinking about it a little bit differently. 

<div id="rapid"></div>

10 Rapid-Fire Questions (41:10) 

Pauline
Oh my god, you mentioned returns. That could be a whole other topic, but, as promised that was the last question before we get into the fun. Are you ready for a little rapid fire here?

Michael
Hit me, let's go.

Pauline
Okay, Michael, what is your morning routine?

Michael
I wake up, I cook two eggs and have Guava Juice every morning. Then I check my email, check Slack, check the news, check our daily metrics, growth metrics. Then I'm into my first meeting, which is sync with all account managers to understand where we're at from a client standpoint.

Pauline
Nice. Very cool. Conversely, what keeps you up at night?

Michael
I would say, issues on the execution. If we have fires, bugs, big issues going on that we haven't yet resolved, or we don't yet have a path forward that will definitely keep me up at night.

Pauline
Makes sense. All right. Hopefully there's not too many of them on your side. Tell me about who has been a great mentor for you in your life.

Michael
I have a few, and they're actually very, very kind of random. I would say in terms of people I've interacted with very well—my freshman English teacher. I was not an English major at all, not very strong with that. 

I would also say a high school tennis coach that was really helpful. Taught me about work ethic, working extraordinarily hard and pushing the boundaries of your physical body. 

And then I would say someone I've always been really inspired by in terms of their thinking is Peter Thiel. I've read Zero to One like a million times. I even met him once and he signed my book when I was in college. 

And then also, Jeff Lawson at Twilio. I think he's really inspiring. A lot of things he pioneered with Twilio are things that I have taken and learned with Deliverr.

Pauline
Very cool, very nice. I love it. Ah, yeah, especially I think in the startup space we all love a good Peter Thiel story. You know, Silicon Valley the whole thing. So, I love it.

Michael
Yeah, I think conversely our first investor was a VC and that was Joe Lonsdale, his cofounder from Palantir. That's a pretty small world.

Pauline
Nice. All right. So again, looking back a little bit, knowing what you know now and considering how far Deliverr has come...what advice would you give to yourself two years ago?

Michael
Pay attention to the details. And always be calm, even in the worst moments you'll always find a way through and always figure a way through it.

Pauline
Awesome. Okay. So you are the expert, Michael. What would you tell a small you know seller team, looking to operate at a larger scale, if they’re looking to grow quickly?

Michael
Absolutely start looking at other channels if you're hitting, probably a quarter million a year in revenue on Amazon. We're going to talk about this in a few blogs on our website, but figure out where people will discover your product, where they transact and how that item needs to be fulfilled. And if you can figure that out, the rest will kind of fall through.

Pauline
Yeah, make sense. Right, okay. What is your favorite food?

Michael
I have to go with a good medium steak.

Pauline
Very nice, very good. What is an item on your bucket list?

Michael
Swim with dolphins. 

Pauline
Excellent, can't argue that. We got into this a little bit, but can you tell us, what does the future hold for Deliverr?

Michael
Expect to see new sales channel programs coming in over the summer. We have one really big one that we're very excited about that should have been announced last month. But with COVID delaying things, it should come in sometime over the summer. And a move for us getting towards faster and faster shipping. So we've been quietly expanding our next-day coverage and expect that to grow considerably as we prepare for holiday this year. And those I'd say are the two, two big things

Pauline
Cool, fantastic. To the moon Alice! Do you have any COVID goals?

Michael
Do you mean like personally or as a company?

Pauline
Ah, surprise me.

Michael
So, personally, I've been doing rehab on my back for several months and so this is actually good because there's not a lot of crunched spaces, and I get to stand up and walk around. So my COVID goals are getting to a point where I can play tennis again and sports again. Personally, maybe get a tiny bit tan, though I’m challenged in that area. I would say for the company, we're hiring a lot of new people. We're almost approaching where we’ll be at 100 people very soon, making new employees feel welcome.

Pauline
Awesome. Yeah, that's definitely something I think everyone should address in these times where everything is virtual and where you just get like a random “hello” through the screen. But again, 100-person milestone that's really exciting, so congrats again. And last question Michael: COVID is a thing of the past. What is the first thing you're going to do?

Michael
First thing I'm going to do, definitely go get a drink with my friends. 

Pauline
Cheers. I love it. Awesome, Michael, this has been tremendous. We've learned a ton, and it's been a good conversation. We look forward to all the announcements in the future and can't wait to work with you on all of our shared goals here. 

Michael
Awesome, thanks for having me on. 

Pauline
Thanks so much. Take care, bye. 

written by:

Pauline Shiu

Director of Marketing

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