John (00:08): Hello, and welcome to another episode of the Duct Tape Marketing Podcast. This is John Jantch. My guest today is Patton Gleason. He's been in the outdoor and run specialty industry for over 20 years with experience in physical retail, e-commerce, logistics and operations. He's the founder of Relay Goods and serves as CEO. Relay is an industry leading solution that helps brands and retailers maximize the value of excess surplus and returned inventory. He is an active advisor and investor to businesses in the commerce space. So Patton, welcome to the show,

Patton (00:48): John. It is awesome to be here.

John (00:50): So let's start with defining commerce as a term. I think, I guess that's a whole sub industry, isn't it?

Patton (00:56): It is an emerging and growing market that is depending on who you ask, on what day, it really depends on what it means. And commerce is essentially taking, once an item had been sold and it had gone off market, if it had gone back to a distribution center or a retailer or a brand, what was to happen to it next? And so the earliest versions were eBay and scratch and debt sales. And with the emergence of e-commerce in the last 10 years, things that were coming back to distribution centers in the form of returns ended up becoming a bigger and bigger percentage of inventory that warehouses were holding onto. And the trouble was if it wasn't in perfect condition, it was really hard to sell. And so we had been in that space for a long time. We've worked and consulted with a number of brands on whether it's D two C or on Amazon, and returned ended up being this giant loss inside of a profit and loss sheet. And so we've spent the last nearly decade trying to find the very best solution to turn those loss ultimately into a win.

John (02:02): And I bet your returns are way up from what they used to be. You used to go in a store, try 'em on. Yeah, they fit. Walk around a little bit. Yeah. Okay, I'll take 'em. Where now it's like, those look good, I'll order. And it's like, oh, they don't fit, or These Hogans are really funny feeling. So people send them back. Now

Patton (02:22): When the showroom moved from a retail location into people's living room, everything changed. And physical retail, we only exist as a business because people are so bad at fitting themselves and I'm like, oh, I want to try a new model. And occasionally you get to where you find that right model, and every year you're going to get the same version of the same thing and the same size. And then anytime you vary outside of that, then all bets are off. Or a color might look different online. And Amazon really set the standard of 10 years ago it wasn't super easy to return. Things they knew was a pain point for customers and they made returns and returning things. A huge important part of their business. And the prevalence of Amazon return centers inside of every Whole Foods now is really putting that consumer expectations have certainly changed.

John (03:15): Yeah, I bet you the employees at Whole Foods are really pissed about that. I know. I've taken stuff in there. It's like, here it is. See you later

Patton (03:23): Returns. They're uncomfortable for absolutely everybody. It's the consumer experience. It is one of the most painful parts. Not knowing if something is actually going to work is actually one of the biggest factors that leads to people not even making a purchase. And most distribution centers are really designed for egress. So inventory comes in from a manufacturer just on a labor hour basis. You can get so much new stuff that's in pallets out the door, but when you're getting onesie, twosies that come back the labor hours

John (03:53): And not in their original packaging, by the way, that

Patton (03:56): Is exactly right. That's exactly right.

John (03:59): So I think I mentioned in your bio, but you started especially retail running shoe store and kind of fell into the, remember when the minimalistic movement was all the rage. So how did that experience kind of shape where you're now,

Patton (04:17): Oh man, well, we might need a little bit more time because you could not have convinced me otherwise. I thought we were in the middle of this giant industry shift, and what I really thought was that minimalist shoe movement was going to be to the running industry as Whole Foods was to grocery. I thought it was just a matter of time until people start working on technique and this and that, and I could not have been more wrong. It was a catastrophic failure. And the things that the learning lessons from there was we tried to make the in-store experience, that really personal high touch experience. We really tried to digitize it and we did thank you notes and we had this video recommendation system. And the value proposition for when people were shopping online was just different than if I left my home, I went to a parking space, I went into a physical location.

(05:07): The needs and the consumer experience were just different. And so once the writing was on the wall, that was a business that was not going to win at all. We were like, well, we'll just start. What do we need to do to try to move through as much of this inventory as possible? And that strategy just to keep us afloat, ended up amazingly ended up working really well. And so we had other buddies in the industry, and as we were lamenting on all the challenges, they'd hear about what we were doing. They're like, oh, I've got a bunch of stuff in my back room. Could you try to help me? And so one store led to another store, led to another store, and then I think we're at 400 retail locations across the country where their excess and surplus inventory we had a solution to.

(05:51): And then that led into our getting a little bit better at e-Commerce and at management. And so for some of our bigger clients, when we were able to help them get really big sales wins, the unintended consequence was a ton of returns we never could have expected. And so we would contact the original manufacturing like, Hey, we've got pallets of this stuff, what he wants to do with it. They could say, you can do whatever you want. Just don't send it here. Because they had the same challenges. And what we thought was, man, wouldn't it be great if there was a market for not a hundred percent new stuff, but for 99% new because you were getting stuck. The only thing that was wrong with it, it didn't have the original packaging. There was some minor cosmetic defect, but these are utilitarian items by nature. And we knew that with returns being so big, if we could find a solution that could offset those losses, that was potentially a really big win for everybody.

John (06:51): Yeah, I imagine the manufacturers probably, they probably have to actually make deals with especially big retailers like Walmart to say, we'll take anything back. Doesn't matter why. If you don't sell at the end of the season, we promise to take it back. I mean, they end up with a lot of that stuff back from storage, don't they?

Patton (07:07): That's exactly right. And so part of our value proposition was as the business started to mature a little bit, was if Relay didn't exist, what are the alternatives? So you could donate it. There is unfortunately a lot of stuff that ends up incinerators and landfills just because easy or it might end up with a liquidator where it's literally pennies on the dollar via a container load, and there had to be a better solution to that.

John (07:37): So I guess, tell me how, I mean, I get conceptually what you're doing, but how does the process actually work? Do you resell it or you get paid to do whatever you can with it? Or how does the process actually work?

Patton (07:50): You bet. So we like to think of ourself as the first line of revenue defense. And in a profit and loss sheet, one of the biggest sources of losses is going to be your returns. But those returns are in all kinds of conditions. And so what we do is we take those and then we identify each model based on its condition and its age. We assign a unique identifier. And then once we've filtered through all that, the very best and newest stuff, we actually can send a lot of that back to traditional retail. It just had gotten off track. And so rather than writing it off as a loss or donating it or whatever that it is, these are things that retailers crave. They're high because if it was sold online once, they were really great items. But that kind of attention to detail, there are some that they've had enough use that there's no more utility left them, and they need to be recycled.

(08:41): That's a really small percentage. There's enough of 'em, about 20 to 25% of our returns. They're really good, but they're not appropriate for resale. But they make terrific shoes to be donated. And we have a network of vetted nonprofits across the country, but then we run into kind of the meat of it. About half of those returns, they're 99% new. They're not used, and they're not new. And so we thought, well, what if we built an entirely new category in a marketplace that was specific for this because consumers were already doing this on eBay, on Poshmark from unauthorized sellers on Amazon. But once it got to those places, the brands lost all control of the brand and the consumer experience. And so we thought, well, what if there was a marketplace that was specifically for these things that worked directly for the brands? And particularly as running shoes have gotten more expensive over the years, you're starting to price out a number of people who would actually be really great customers. And so we can make premium high selling super high quality items much more accessible to a wider range of people without beating the drum of, well, this is all liquidation and it's deals. And what we found was that consumers were not willing to make concessions on quality. They wanted the highest quality items, but they would make a concession on condition if it came with free shipping and all the benefits of buying new and went through a best in class quality assurance process.

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Patton (12:28): Oh, what a great question. So that was our initial concern. And so with our retail and our brand partners, we are doing really constant contact list monitoring. And what we found was in our most recent one, there was less than one 10th of 1% of consumer overlap. And the consumers that did overlap had not been in a physical retail location in over two years. And so those really high touch in-person retail store experiences over time, consumers tend to graduate from that experience where they don't need as much handholding. And they go, okay, every time I go in, I've gotten the same model in the same size. They will take that knowledge and experience and they'll leverage that to go find the best value. What we were doing as an industry was we were losing all of those sales to unauthorized sellers on eBay and on Poshmark.

(13:22): And so to have now a native solution ends up being a really big benefit to everybody. And so for the retailers that have a lot of that older inventory or excess or surplus things, you've got to do something with it because if it's not selling your top line, revenue is paying for it. And you can do a sidewalk sale and you can do expos. But if I learned anything from Duct Tape Marketing is stay hyper-focused on who your best customers are. And if you're advertising that we've got this, we have professional experts, we're going to fit you. You can try on a lot of things. And then a week later, you're having a blowout sidewalk sale, you're diluting your marketing message, and you're attracting two kinds of customers. And so actually by offloading some of this hard to sell inventory to us, our retail partners are actually able to stay more focused on their best customers.

John (14:16): So obviously there's a practical financial aspect to this. For the retailer, how much of this is a sustainability play?

Patton (14:23): So the sustainability piece, that was a big driver for me personally, because we saw until we came in, we just did the back of the napkin math of how much of this stuff was getting wasted. And sustainability is a really tricky term because what we are doing is we're preventing a lot of waste. Sustainable would be, Hey, I've got this shoe, and then when it reaches its end of life, I can send it to a facility. They recycle the materials and they can do it again. That's in the future. Where we could play a role is we could say, all right, in this supply chain there's a lot of unnecessary waste. There's the waste of advertising dollars, there's the waste of product. And so before we work on sustainability, the lowest hanging fruit is what would it take to have a zero waste supply chain? And so to date, we've processed, it's getting close to 700,000 units. We've never thrown away so much as a shoelace.

John (15:20): Yeah. So I mean, you're clearly keeping stuff out of landfills. That's the easy answer, I suppose, in some cases. Yeah. So is there a bigger market trend here? I mean, you've obviously tackled one little piece of it. Is this something that retail in general is really going to become a core part of retail?

Patton (15:39): Yes. So what I believe is brick and mortar retail is I believe that's always going to stay strong. And what we see is brick and mortar retail typically has really consistent year over year growth, but there's not quite the really big fluctuations. E-commerce is going to play a bigger role. And as it does, when you look at your profit and loss sheet, you've just got to say, all right, where are we having preventable losses and what unique strategies can we do? And I think a lot of that will be category and industry specific. What we do know is as there is less discretionary income, people just become a lot more mindful and intentional on where they spend their money. And if you can have a solution that can connect with a more price sensitive consumer without having to bring in cheaper product, and you can use these things that had gotten off track and you can find a really unique way, and this ends up being a great solution. The other thing that we found for retailers is we've had a number of them where we've done these co-branded revenue shares, and they'll take their dormant email lists and people who they suspect had graduated from the experience, and we'll do a co-branded email of, Hey, we hadn't seen you in a while. If you're looking for absolutely the best value in shoes on your favorite models, we've partnered with Relay, and this actually ends up being a really great win back opportunity for those customers that might not need that really high touch experience anymore.

John (17:04): So in a lot of ways then, does Relay operate like a traditional e-commerce store? You just get your product from a different place.

Patton (17:11): We operate as a traditional e-commerce seller. Our challenge is we never know what's coming in. So it's not like, oh, well, I'm going to place an order for 10,000 units and I go into a B2B system. We get what we get. We have on a weekly basis, we have no idea what's coming in. And so we have, initially that was a disadvantage, but as time has gone on, we've built in really great systems to identify the bestselling and most desirable, not only with industry data, but then also with our own e-commerce data. And that all kind of goes into that unique identifying system of this item based on its age condition, where can we help a brand or retailer find the highest value and best use out of it? And occasionally you get models that they were manufactured great marketing plans, but it just did not land with the customer for whatever reason. And those things, they may actually not have a lot of resale value, but they'll make a phenomenal shoe to be donated.

John (18:10): So it sounds like you've kind of got the shoe market figured out. So in true entrepreneurial spirit, what's next?

Patton (18:18): So this model, so athletic footwear is a giant category. And again, we took one more page out of the Duct Tape playbook of we've got really good consumer data and a wonderful group of customers, but your number of running shoe purchases is fairly limited. That's somewhere between two to three per year. And that was what we found with our customers. But what we got feedback on was if we could do this with running shoes, if we could do it with other categories, they would love that. And so while somebody in their closet might have two to three pairs of running shoes, they also might have a pair of biking shoes and a pair of golf shoes, and a pair of pickleball shoes and a pair of climbing shoes. And so we've slowly started expanding into some other categories where we think we can play not only a bigger role in people's that more value-driven consumer in their running shoe purchase, but in their overall athletic footwear.

John (19:13): Yeah. Yeah. Awesome. Well, Patton, it was awesome having you stop by the Duct Tape Marketing Podcast. Is there someplace you, I want to invite people to check out what you're doing and find out, maybe connect with you?

Patton (19:23): Yeah, so for people looking to get absolutely the best deals on 99% brand new premium, your favorite running shoes, I can guarantee you'll find your favorite ones@relaygoods.com. And then for people who are interested in this space or are actively looking for other ways to defend their revenue from some of the biggest losses, you can reach out to me on LinkedIn and just search Pat and Gleason and I'll pop right up.

John (19:49): Awesome. Well, again, it was great catching up with you, and hopefully we will run into you one of these days out there on the road.