NM Live: Navigating Uncertainty — What Tariffs & Consumer Trends Mean for DTC

Drew Sanocki

I suppose you guys are wondering why my face is the color of an apple.

Michael Epstein

I know you were in Florida for the last few days, so either you have been out in the sun for an inordinate amount of time, or there's something else that we need to know.

Drew Sanocki

There's something else going on. I will say that the Florida trip was great. I brought my daughter to Disney World for a week and that was just the two of us. My wife had my son, two kids, different schools, two different spring breaks. There's one piece of advice, never do that.

Michael Epstein

That's always convenient.

Drew Sanocki
And I largely stayed outside. It wiped me out. I lost my voice screaming on the rides. This, if you're watching, if you're watching me, you see what I'm talking about. If you're listening, my face is beet red. I just had a vampire facial. You guys ever heard of these things?

Michael Epstein

I'm picturing like leeches or some sort of old world. Yeah.

Drew Sanocki

Close, made popular by Kim Kardashian. We are at my brother-in-law's and my sister-in-law's house for the Hollet-Freester, right? And she is a physical therapy doctor and she does this thing called PRP micro-needling. She injects PRP in everything. Let me tell you guys, this is like the miracle drug. They pull out your blood, they centrifuge it, they separate the plasma from the rest of the blood. The plasma she injects in, you know, if I have arthritis in my leg or my knee or my shoulder, they inject it right in. And what it does is sort of inflame your joint and within 48 hours you feel better. It's, it's, yeah, it's amazing.

Michael Epstein

Really? I was, I think Brian Johnson.

Daan Harmsen

I've heard of it for hair loss.

Drew Sanocki

For hair loss too is another thing. Eject it into the scalp. It's called PRP. Platelet replacement. I don't know. Look up PRP. I think he does.

Michael Epstein

Didn't Brian Johnson do a lot of this stuff? Like all his blood out sort of did some stuff with it. Yeah. Yeah. We have Drew on life support over here.

Drew Sanocki

Yeah, I didn't take all my blood out. like a little amount out. But yeah, when we come here, we load up on PRP, we got all these things. And she offered, she was like, you know, you should try these things called facial PRP facials. They take the PRP out, they take the plasma out. She micro needles your face. She like literally drops your plasma onto your face and micro needles it and it bleeds, it opens up the pores, it bleeds a little bit, own plasma goes in, stimulates collagen production. In two days, not today. Today it just makes me look totally red.

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Michael Epstein

Wow. Interesting. So next time we get together in person, you're just going to look 20 years younger in your face.

Drew Sanocki

I'll use 20 years if yeah, 2030 years younger. I think I debated going to go ahead with the podcast. My wife was like, Yeah, of course, just do a segment on PRP and vampire facials. So that's this.

Michael Epstein

Amazing.

Daan

Next time we see you, everyone's going to be asking about your AI filter.

Drew Sanocki

Yeah, I did look to see if I could make it grayscale or something, you know, just so you wouldn't even have to deal with it, but I can't. So maybe we do that in post-production.

Michael Epstein

All good. Good to talk about something fun, something different than tariffs the whole time. Cause that's probably the only thing people are hearing or thinking about all week. Good. Yeah.

Drew Sanocki

That's a good segway. Even in Disney World, let me just give you my take. The recession hasn't hit Disney World yet. It was packed. I mean, most of the people bought tickets ahead of time. as I walked around, I'm like, such an interesting business model. Disney can increase or decrease the price dynamically to keep the park filled. That's recession proof, Or sort of. But there's so much crap you buy there. In all of it, I'm like, this all has to come from China, half of which my daughter has, know, the Mickey this, the ears, the whatever. So I think that's, it's gonna be interesting to see this Disney have like inventory of this stuff. And how long does that last?

Michael Epstein

Totally. And we were chatting about it before, you know, IP rights and how that's affecting the technology sector, but also, you know, what happens if they decide you can start printing a bunch of Disney merch or sending out Disney movies for, you know, two bucks and disregard Disney's rights to all of that stuff.

Daan
If you guys have been seeing the TikTok videos of the guys in China with the Louis Vuitton and their mask bags.

Drew Sanocki

Yes.

Michael Epstein

Yeah, just basically undermining the entire luxury sector. Although I still think you are buying it for the label. You know that, I mean, maybe you didn't know that your Birkin bag costs, you know, 800 bucks and you're paying 30 grand for it, but generally, you know, you're paying a massive premium. And the whole point of it is to, so that everybody else knows you paid a massive premium for it, not because you think that it's quality, you know, it's worth $30,000 of the bag or Prada's worth, you know, whatever it's worth. anyway, we could go down that rabbit hole forever, but actually that other voice that you heard Daan, Drew, I don't know if you know him. Daan, guest today who's, we're going to talk finance. So Daan, our finance guy wore his blue collared shirt. Got to look the part.

Drew Sanocki

We have a guest today, special guest.

Daan
It's the deal shirt.

Drew Sanocki

Yeah, we're not undergoing any raise or exits right now, even though he has the deal shirt on, but he runs finance here at Postpilot, Daan Harmsen.

Michael Epstein

Yeah, one thing that we do have is access to an aggregate data set with thousands and thousands of brands. So we know everybody right now is looking for some sort of guidance, some direction, some sort of baseline to understand the current state of affairs. So we brought Daan in to give a bit of an overview about what we're seeing, the latest data that we're seeing across sort of the D2C data set.

Drew Sanocki

Right. Daan, meet the internet. Daan, this your public unveiling?

Daan

How you doing?

Daan
I've used the internet before and if you Google me, you're probably gonna find a few pictures. But yeah, I don't think I've ever been on the internet with you guys. So that's fun.

Drew Sanocki

You ever done a podcast?

Daan

No, listened to a lot though. Probably had you in my ears for like 10 years.

Drew Sanocki

yeah, you're doing great, You can't make me laugh because my face is like it's like it's so painful. It's like fire is on my skin. So I will not.

Daan

Anyway, I love podcasts because it just makes you get to know someone. It makes you feel like you know the other person really well. And then when you finally talk to them, it's just a...

Michael Epstein

Yeah, being in someone's ear for sure. Scott Galloway talks a lot about that. Being in someone's ear is different... They know you differently..

Daan
I think if I were to ever meet Scott, would just feel so familiar.

Michael Epstein

Anyway, Daan, what do you got?

Drew Sanocki

So let's talk about some of these trends. We've got, yeah, we've got, as Mike said, some aggregated data from thousands of e-commerce brands that are plugged into our platform. Gives us a really good look at things like revenue and growth over time. So Daan, I don't know if you want to talk through some of these.

Daan
Yeah, I think the reason we started looking at this data. We kind of thought, hey, there's these tariffs that just came into place. How is this going to affect the stores that we work with? And I think the findings were a little surprising. We're seeing that consumer demand sort of across the stores that we work with is actually up quite a bit. Both year over year and month over month. So on the top left there, you see the month to date revenue compared to March. We're seeing it's up about 12%. And then when you look at the top right graph there, we're just looking at April in a little bit more detail and a year over year basis. How's April doing compared to that same day in April last year? And we're seeing sort of consistently that revenue's is accelerating there. So it's not just up year over year, but it's accelerating through the month. And we're seeing the same when we look at it on a weekly basis. at that bottom left graph. We're just seeing that Consumer demand is up, which we were a little surprised by. So we since checked that data. We're like, hey, are people just increasing their prices and that's why the revenue is up? So no. We looked at the number of orders as well and we're seeing that just order volume overall is up. So I think what we're seeing, We're not quite sure what's happening, but I think what we're seeing is some demands being pulled forward. 

Michael Epstein

Panic buying.

Daan

Panic buying. They're worried about prices increasing. They're not sure what's gonna happen. They want their stuff, so they're buying it now.

Drew Sanocki

That's really interesting and sort of counterintuitive. I know we were all surprised to see this kind of in April versus March and April versus last year when all we're hearing on Twitter is doom and gloom, right? And from big brands. Yeah.

Michael Epstein

And we know consumer sentiment.

Daan

I mean, in finance, we have this saying called a dead cat bounce. I'm not sure if this is exactly a dead cat bounce, but I think it remains to be seen whether this continues. But right now, we're seeing a lot of this sort of panic buying. And just anecdotally, I mean, you guys have been talking to people. When I talk to people, I hear the same thing. when we talked to someone the other day, it was moving. And they were just like, I could spread out my furniture purchases over the next few months, but I don't know what's going to happen. So I'm just going to buy everything right now so can make sure the price doesn't go up.

Michael Epstein

Yeah. So I think we know consumer sentiment is generally down. And we also know that brands are going to be running through their inventory that was purchased at a certain price and that's sitting in the warehouse at a current cog. So the big question obviously is, you know, when does this, when do we see this start to hit actual demand? When do we actually start to see price increases take effect? Because we've run through the inventory that we had at our previous price point. So we're monitoring that. We'll come back with some additional insights on how we're seeing prices change across our aggregate data set over time, as well as what we're seeing with demand, both on an order volume and revenue perspective, sort of week by week.

Drew Sanocki

Daan, any ideas whether this effect here is sort of category specific or just kind of blended across the whole data set?

Daan

I think we see it across the whole data set. Most of our categories show the same types of trends. So yeah, very surprising, interesting to see. We'll see how long it lasts.

Michael Epstein

All right. Thanks, Daan. Thanks for running through it.

Drew Sanocki

Mike, you and I ran a business through another tariff situation. And that was in 2018. You and I are running an automotive aftermarket business when the Chinese leveled tariffs on steel and aluminum. You remember this?

Michael Epstein

Yeah, I do remember this. remember it very well, Drew. This was the aftermarket automotive parts company with millions of SKUs, hundreds of suppliers. And Drew, you know what most aftermarket automotive parts are made from? Steel and aluminum. So we got nailed. And Drew, I'm sure you remember this. This was not long after we took over the company and this company was bleeding cash at the time. So, you know, we were like months into a turnaround plan for this brand. You know, we'd gotten the staff sort of aligned behind us, you know, hundreds of people in this company. And we were like, all right we got to dig ourselves out of this hole and then boom, nailed with tariffs. And we know that's going to affect the entire supply chain, prices, all of that. So, there was no silver, silver bullet here. and I wish, I wish either of us could say it was, you know, executive leadership came up with this incredible solution and we just fixed everything and everything went smooth, I mean, was, the reality was it was just putting one foot in front of the other. And I think obviously this situation with China tariffs being, you know, insane, is a bit different than what we were dealing with. So I'm not trying to necessarily compare it apples to apples, but I think there's some lessons that we generally learned as everyone is sort of just having to react and figure out what to do from a management perspective that are still pretty applicable here. I think a lot of it comes down to what our friend Mike Niche, one of the partners at Kingswood told us, which is like, Stay in the pocket. Like you start scrambling. This is advice that stuck with me ever since in every situation. was like, Stay in the pocket. Because once you start scrambling, it's easy to miss the man downfield that's open. And you stay poised, you stay in the pocket and you look for the open man. And I think at the core, that's sort of what guides us, but sort of more tactically it's putting one foot in front of the other. It's being transparent with the team. So, you know, don't try and hide, don't try and make it sound like everything's great, and there's nothing to be worried about. We always aspire to treat our teams like adults. And that means telling them the truth, even when things are hard. And I think you, you know, you're going to be rewarded by them understanding the situation and digging in and getting behind you if you're just honest and open with them. So I think that's one.

Drew Sanocki

Yeah. I think at all our companies, we tried to build that trust with the employees. And I think we did it in a number of ways. We shared financial data week over week. Everybody knew how the company was doing at any one time. They knew where in our turnaround journey we were. And I think in this case, we were pretty honest, with the challenges we faced and treating people like adults. And I think that comes from that book, Powerful, which really made an impact on me. And I know you, Patty McCourt, it's the Netflix culture book. Great read, treat your people like adults. And I would think that applies universally, especially now. If I were running a DTC brand, I'd want to take this head on, kind of explain the reality. I do see some of the best brands now from Cuts to Simple Modern doing that. More than just doing it to their own employees, they're doing it publicly on on X. So I think that's to be applauded.

Michael Epstein

Totally. I respect those guys a ton, both for the businesses they've built and for the transparency that they've provided. And I think it's certainly reassuring when you look to such great businesses like those and understand, you know, I know that everybody realizes everybody's in it, but to hear that directly from some of those great founders and know that you're sort of not alone is really, really helpful.

Drew Sanocki

Yeah. I think the second leadership tip sort of comes from stoicism and it's really accepting what you can control and what you can't. And I know you and I have run businesses through part of the benefit of being old as we've run businesses through three or four recessions at this point. mean, for me, it was 2000, wait, COVID this tariff situation you brought up, which was right at the beginning of COVID or a couple of years before. And it looks like now, but I think as soon as you accept your new reality, the better. You know, like yesterday's reality happened yesterday. Today's reality could be completely different. And yes, you didn't build the business for this point in time. Maybe your exit expectations got dashed. You know, maybe it's not going to be unfold like you thought it would. But maybe you have some new opportunities that come to you because of this. I think realizing that you can't control that, accepting your current situation will really, will really help you sort of take on the new reality.

Michael Epstein

I agree with you. I think you can, and look, it's tempting and I can't say that I've always, yeah, I've certainly had moments where I'm like, this is just unfair, this sucks. How did we, why are we in this situation? But the sooner that, the sooner you can move on and sort of to your point, accept the current reality, the easier it becomes to focus on what that next step forward is and figuring out your path out. You just only have so much mental sort of capacity. And when you take your time, when you take up that mental capacity, sort of just thinking about what's fair, what's unfair and being upset about something, it's time that you're not spending thinking about how to get yourself out of this situation. So totally agree with that. I think that sort of leads into the next tip that I guess we have, which is. You know, it's unlikely that you're going to find one silver bullet that's going to lead you out of this. It's just going to be putting one foot in front of the other and solving one problem at a time. And it's just getting the team moving in a direction. That momentum builds on itself. So you solve one problem, onto the next. Solve another problem, onto the next. And just getting into that mentality and that mode starts to increase momentum and all of a sudden things start improving at a more rapid pace.

Drew Sanocki

Yep. And our fourth sort of leadership lesson going into this, this new world today is, is don't, don't forget the opportunities that might come out of this, right? There may be a silver lining. Mike, The Chinese word for crisis is the same word as opportunity. You know this?

Michael Epstein

I did not know that. That's interesting.

Drew Sanocki

And so I'm thinking back to the AutoAnything days, like it was a chance to do some things that we always wanted to do, but couldn't justify. Because maybe the ROI wasn't clear or maybe there was some risk, But hey, if the world's going to hell in a hand basket, let's go ahead and do it. It's time. You know, if it's, I think Maybe there's some new hires we need to make. Or, you know, it's an opportunity to like top grade a couple of positions. or go into, yeah, Go into a new market that you've always wanted to go into, roll out a B2B element to your business. I'm thinking of some of the things we did, know, fast track some private label products. Like all these were things that we thought about and sort of put off, but in many ways the tariffs and the recession kind of gave us license to do it.

Michael Epstein

Change the text back.

Drew Sanocki

Another thing that comes to mind is migration. You know, you should really get this business over to Shopify, but we just can't take the risk right now. But you know, Hey, new reality, you gotta, you gotta operate at half the optics. It's Shopify or die right now, you know, so then you can come out of it stronger with a stronger team.

Michael Epstein

Exactly. it can be a forcing function. And there's a quote that I've, that I also love, which is don't waste a good crisis. So use to the, as, as hard as it might be, use this as an opportunity to, again, take license to, to take some actions that maybe you were afraid to do before. but use this to, to explore new opportunities, use it to harden your team, show the resilience, help demonstrate the resilience of your team come through this stronger in the end.

Drew Sanocki

I love it. And I hope people don't hear this and say, yeah, easier said than done for all these things. You don't know how hard it is because we understand how hard it is right now out there. We all depend on Chinese imports, you know, in one way or another. So we certainly hope the problem goes away, but these leadership tips served us well in past recessions and past downturns. So hopefully they can get you thinking.

Michael Epstein

Yeah, these are all our customers who are, I mean, our heart and everything we have is in how to support, how to think about the success and outcomes for our customers, our brands, our partners, our friends. So yeah, it's more about just how to mentally try and get through this because it's not going to be easy. We know that.

Drew Sanocki
‍Put one foot in front of the other. Do what you need to do. Live to fight another day.