NM Live: Touchland’s Big Exit, Meta’s Future, and What Brands Can Learn from Aviator Nation

Drew Sanocki

Hey Mike, how are you doing?

Michael Epstein

I'm a little relieved this week, Drew, a little relieved.

Drew Sanocki

Why?

Michael Epstein

We got a little relief on the tariff situation and I don't think we need to go into a whole big thing on it because I'm sure everybody already is all over this and covering it ad nauseum, but man, it was nice to take a bit of a deep breath on Monday morning.

Drew Sanocki

Yeah, I think it's kind of what everybody thought would happen eventually. I talked to maybe it was denial, but I talked to so many DTC CEOs who were like, yeah, when this blows over, you know, when Trump changes his policy, we'll be fine. Just kind of assuming it would happen, I guess I was more skeptical that it would happen, but it technically didn't really permit anything to permanently change. They sort of kicked the can 90 days.

Michael Epstein

Yeah, but even if that expires, it doesn't go back to the 145 or whatever percent it, it would only go up to a maximum of like 34%. So there's some clarity, which I think is what every CEO like you're referring to was, was seeking most, right? Like just give me a clear understanding of what it's going to look like now and going forward so that I can start making decisions for my business. It was that lack of clarity and expectation that there's so much volatility where policy could change tomorrow that it's like, how do you operate? How do you make a long-term call on where you want to invest in your supply chain if it could just get reversed tomorrow?

Drew Sanocki

It's just everything’s arbitrary. It's like the guy is like, just for a business person, just seems so out of touch with small businesses, you know, and it's, he had some other remark about disparaging remark about the small businesses in the US like,  you know, someone asked him a question interview about small businesses, he dismisses, he's like, well, it's, you know, why are you asking me about the small businesses in the country? Let's talk about the auto companies or something. It's like, well, small businesses are half half of the economy. That's why you know, and whether you voted for him or not, it just seems like that arbitrary nature of like we're all the whim of whatever he decides on this policy or what he wants to what his advisors convinced him to do for that day made it really hard to run a business.

Michael Epstein

Yes, but at least we, I think everybody is a bit relieved. I shot Stephen Borelli a note earlier, actually late last week before the change had been made, CEO, founder of Cuts. Just a quick shout out to him because he did such a great job in bringing attention to the policy from the perspective of a brand owner and CEO who supports the policy of bringing more manufacturing back on shore, but in a responsible systematic way. So, man, he got, he got so much traction and such a great voice, I think for the community. So quick shout out to him.

Drew Sanocki

Yeah, if you haven't read his letter, Google him and look at the CEO of cuts his letter, open letter to the administration. I was wondering who was going to become sort of the voice of DTC during this, you know, and so he did a good job. don't know if Trump actually like saw the letter or what, but certainly some people in his administration did. But yeah, I think it helped. But you know who you know, the tariffs did not impact? Touchland, the hand sanitizer brand. And I know this because they just announced that they were acquired by Church and Dwight for a, what is it, $880 million sum. So had you heard of either of these brands?

Michael Epstein

Well, I'm familiar because I have a 12 and 14 year old daughter, 12 and 14 year old daughters. And I've actually become more aware of this category recently. And it sort of was brilliant that this sort of lower price body mist slash fragrance category is now starting to get really popular. Sol de Janeiro is the other really big brand that I know my daughters have raved about and a bunch of their friends have it. But you look at the prices of the luxury perfumes and it's like, you know, they're a hundred bucks, but then you've got these, this body mist category. And some of it, like I've smelled a bunch of the scents, my daughter spray them around the house or whatever. And it makes a ton of sense. Like, you know, $25 scent for a different market. So very cool.

Drew Sanocki

It's also sanitizer, which is a bit odd to me because you think of how the sanitizer category went absolutely nuts through COVID because no, you know, for safety reasons, everybody wanted sanitizers and then it came crashing down to earth. And so if you had told me like, let's start a sanitizer brand now, I'd be like, dude, you're, three years too late or whatever. And it looks like these guys started in 2018. Like that's kind of interesting right there, like the timing that they started like right before COVID started. So good timing for them. And, you know, if you check out the product. To Mike's point, it's nothing like, you know, the fly by night operations that we're trying to import as much sanitizer as possible and bottle it and sell it during COVID. It's a premium looking product, lots of cool smells. My daughter would be all over this if she knew it existed.  But yeah, and so Church Church and Dwight, you may never have heard of them. I never had. But they are just,  you know, a brand aggregator. They've got  many brands that I do know. Waterpik, Z cam, Trojan condoms, OxiClean,  Arm & Hammer. So they just have a ton of household brands and they're going to slot this right in there.

Drew Sanocki

And what I see when I see this, Mike, is like usually you get a big a big company like Church and Dwight, and they're just experts at operations and distribution, you know, because these are brands that are everywhere. They're probably on Amazon. They're in Wal-Mart. You know, they're just in retailers across the country. They've got a great distribution system. And so I think it's kind of another example of they see and they value this brand they picked up, which is probably in D2C. And I think they're in Sephora and maybe a couple other outlets, but they just think they can throw gas on the fire and distribute it through their current system. And I think there's no, I mean, we've seen a couple acquisitions this year that are very similar to that.

Michael Epstein

Yeah, definitely. And maybe it's a category that they just saw growing really fast and they wanted to be in that category, which actually reminds me of a great article that Sean Frank put out recently,  CEO of Ridge on companies are, bought, not sold. And, you know, this might've been a category that they just identified as like, this is something we want to be in. We are going to find a way to get into this category in a meaningful way. And nearly a billion dollar acquisition gets them into that category in a meaningful way.

Drew Sanocki

Man, just the amount of capital out there to throw at these deals is insane.

Michael Epstein

There's still a lot of capital out there, just fewer places to deploy it, guess, that fit the thesis.

Drew Sanocki

Right, so nothing else on the deal has been made public. We don't know how big Touchland is. All we've got to imagine is that it's kind of big for that price tag or what their margin structure is like or what their growth has been like. But congratulations to the Touchstone team, Touchland team. All right, Mike, you posted something to Slack today that I thought was interesting, and that was Zuck's vision for Metta as an ad platform. So he was interviewed recently and the guy sort of let loose on his vision. You had some insights on that, so I think that's something we could talk about.

Michael Epstein

Yeah, so my weekend activities are often spent watching podcasts or interviews of Mark Zuckerberg.  Crazy weekend for me watching his interview on Stripe Sessions, but it was actually really interesting and it just sort of solidified something in my mind that is a trend that we've been seeing. So I'm not gonna say that this is a new revelation, because it's a trend that has been happening for a while, but I think this is a big accelerant and it certainly plants the flag that this is where things are going. And what is that? Well, it's really Zuck's vision for how advertising on meta should work is essentially you plug your bank account in, you set a goal, a target sort of metric. And Facebook does everything for you. So builds the creative, figures out the audience. All it does is give you, all it does is try and deliver whatever metric you specified and you don't have to do anything. So, and we've been seeing this trend with,  you know, the taking more control over the bidding strategies and all of the cost caps, all these kinds of things. So it's just the continuation of that trend, but what sort of struck me as I was listening to this was it actually was  scary in the sense for a number for how the implications for DTC brands going forward. And for two main reasons, one, it further commoditizes media buying. So essentially a lot of the brands that are winning today are winning because they have a competitive advantage with their media buying strategy, better creative, better media buying. If you're essentially taking all of that out of the hands of brands and any brand can plug in to Meta's AI, then you've completely commoditized that. that creates just a further arbitrage opportunity for Meta to consume essentially all the margin, all the product margin that exists. Because they've created this perfect marketplace, right? Where you have the perfect balance of supply and demand where, and it's an auction dynamic. So every brand that plugs in, they're always just going to serve the ad that,  to the brand that is, sorry, they've created this perfect dynamic where you just plug in your bank account and Metta is always going to serve the ad that's willing to essentially pay the most for that impression and can afford to pay the most for that impression. So they're going to squeeze every cent out of the margin and it's going to naturally serve impressions to those folks that can pay the most for them. And you're competing with brands that might have completely different business dynamics, different supply chains, different cost structure, different LTV values. Again, this is nothing new, but it's just gonna further accelerate that trend. And I worry about how that impacts brands margins when there's no competitive advantage left in the media buying. And then the second thing is it really starts to cap your scale, which is another thing that we're already seeing with a number of brands where the next marginal dollar you invest in the channel is always going to typically going to return a lower ROI than your previous dollar because you're having to expand your audience further and further and get further and further up the funnel. If brands are all competing on a conversion metric, it's gonna naturally force everyone to be going after a very small subset of the addressable market, which is actively in market and likely very low in the funnel, because it's gonna be the only impression that they can serve that hits their target metric. Otherwise, they're gonna just serve it to another company that has where that person is more likely to buy from this other company. So I think it presents a lot of risk, both in terms of  margin erosion and your ability to scale on the platform. And it takes away the sort of everything that generates demand and helps increase demand because you're circling the drain with these very bottom of funnel prospects and a very small sliver of your target audience meets that criteria. It's going to get very expensive to do that. 

Drew Sanocki

It's a very pessimistic outlook for the future of advertising on meta.

Michael Epstein

Well, I think to some degree it's in their interest to figure out a solution to that because they need to keep businesses viable to a degree in order to keep making money. But we've heard this for years where it's the Google tax and it's the meta tax. They're really trying to squeeze every bit of margin out from these businesses. And that's the arbitrage play that they're making. We're going to maximize every dollar we can extract from this business until they can't afford it anymore.

Drew Sanocki

Which is rational behavior. mean, they're a business, right? You know, you know, who doesn't try to extract every dollar?

Michael Epstein

Totally. I have a clue, Drew, why don't you tell me?

Drew Sanocki

The United States Postal Service, they don't. So that I think it is like when MED is moving in this direction, it does leave the door open, you know, not like the USPS is. Seeing this as an opportunity at all, but it's just by nature of the product of a direct mail product like price of postage is capped, which means you still can play there  in the world of brand like creating brand you don't directly have to drive to a conversion to rank higher or to receive placements, right? So I think I don't know. I mean for us at PostPilot like I do think Direct mail is probably gonna become even more relevant in that world.

Michael Epstein

I think channels that don't have the auction dynamic are gonna become more and more compelling over time  because that's at the root of these two things. The auction dynamic is what drives all of this is that there's a fixed number of impressions and you're gonna try and serve that impression to the one person that's gonna pay the most for it. Whereas mail and certain other channels don't have that same dynamic. To be clear, I am not rooting for this to happen with Meta because I want our businesses to be successful and I want them to be profitable and I want to have multiple channels that they can use to grow their businesses. I don't think that direct mail is ever gonna be the thing that replaces all of Meta spend, but it's a concerning observation for me and something that, you know, they're the success of all of these thousands of brands that we have on post pilot is so rooted in their ability to have success on channels like Facebook as well. And it concerns me. So I want to see how we can help support these brands,  give them channel diversification, find incremental profitability. I think they're, it's going to become more and more critical to these brands going forward, finding new channels to drive demand versus circle the drain.

Drew Sanocki

Yeah. So, Mike, when Zuck says that Meta is going to move more and more towards this sort of AI driven system, you put dollars in, you get conversions out. It tells me they are squarely in the performance corner. And there's this whole world of brand advertising and brand investments  that may be left outside of the meta world. I don't know. But it brings up this sort of debate we have a lot about like spending on performance and spending on brand. And I know, you know, this is common at PostPilot where we do incrementality testing. We've got holdout groups and we can show a brand specifically like, you know, which households received the postcard or the catalog. We can show them, you know, what their ROI is on a certain campaign. And we will often get pushback from brands. You know, maybe a brand is spending $10,000 on a campaign and they disagree with the statistical technique we took on the holdout group or they want to argue this, that and the other. And then the brand will go. We have to laugh because we'll walk by, you know, a billboard or we'll see, you know, on the side of city bikes or something where it's just like the brand has spent, you know, a hundred thousand dollars, you know, on a hot air balloon that's going over New York City. And so like it's either two different, two different teams at the brand. Like, do you see that difference between the brand teams and the performance marketing teams? I think we squarely get put in the brand in the performance marketing side, probably like nine times out of 10.

Michael Epstein

I see it all the time at, you know, at billboards everywhere now, signs at the airport, logos on the outfield wall of a baseball stadium or something like that. Meanwhile, there's also this appetite to justify every dollar on an incremental basis. And I think those teams are really starting to converge. And I'm sure it hasn't happened yet, but you're starting to hear more conversation around like what is brand and what is performance? What does that mean? I think Cody Plofker was asking that question earlier. Even today, I think about potentially removing those as distinct titles. And I know Taylor Holiday created a big stir on Twitter a few weeks ago with Tacovas and their ad, which personally I loved. I thought it was awesome. It was certainly a brand advertisement. It elevated the brand and it conveyed like, could see yourself in that lifestyle was awesome, but it didn't have, you know, the strongest call to action. It wasn't like buy now for 20% off. Is that a failure because it doesn't get a great ROAS?  I would argue not. What do you think, Drew?

Drew Sanocki

No, I mean, we I think we talk about this a lot, like the brand advertising pays off over time, that you're investing in your brand now and you're doing brand enhancing initiatives now so that you have a lower CAC later. Right. And I think that Preston and Chubbies talk about this all the time. But it's you know, in our world, we see it with the J.Crew catalog, the brands that do catalogs and really like this top of the funnel branding with their new collection and how, you know, they tell the story of the brand, the J.Peterman catalog or the old sharper image catalogs. They're telling a brand story and there's not a lot of direct response stuff going on in that catalog. And they see, I J.Crew was the extreme example. Like when they cut the catalog, the business goes bankrupt like a few months later. And you don't see that direct tie between this expense item on the P &L and a drop in revenue later on. It's hard to draw that connection. It's more of like a dotted line. But you do know that the catalog brings in higher AOV customers, higher LTV customers that sort of bake over time. I think it's just this, you know, we see that's how we see this sort of manifest. Like the brands that invest in brand advertising, it's typically in a catalog. It typically pays off over time. They've got a good sense of customer lifetime value and sort of this whole life cycle. We have another group of brands that don't, know, and they're just bottom of the funnel,  or middle of the funnel. want to just drive people to purchase.  I do think like as a marketer, you got a new, you gotta know both, you know, you got, I don't even know if you measure them the same way, but you certainly, think to Cody's point, like I would think long and hard about sort of tearing those lines down. You know, you got to do a little bit of both. All right, Mike, you had a really interesting post the other day about Aviator Nation and just the story behind the brand.

Michael Epstein

Yeah, this one's like a bit near and dear to my heart because I've been following the brand for a long time. I've just always been sort of fascinated by the brand and the brand experience that they created. And then for better or worse, I introduced my kids to it a while ago who immediately loved it. And when I say for better or worse it's pretty expensive clothing and my kids loved it. So now I have to buy them that stuff but it's awesome. The story is really interesting. And for those of you who aren't familiar, it's worth taking a hard look at it. Cause I think it's just become such a successful brand and done on the founder's terms, which is, which is really awesome to see. So Paige Mycoskiei pretty sure I'm pronouncing it right. She's the founder and Blake Mykoski, if that name sounds familiar, Drew, does that name sound familiar?

Drew Sanocki

It does, yes.

Michael Epstein

Founder of TOMS shoes.  So the original buy one, give one,  they were on the amazing race together. And she got, she fell in love with California, moved to California and sort of embraced this, this California culture, like the surfing culture and vibe and realized that there was this, there was no place in the market for, or there was a hole in the market for this specific type of apparel, like this worn in feel, like luxury, embrace that vibe. And in 2006, she started Aviator Nation with like this secondhand sewing machine that she found for $200. And she worked on learning how to create clothing after work, when she was working at a surf shop by day. Then she finally put a few pieces together and went to a Venice Beach market and sold $8,000 or something in clothes in a single day. And you'd recognize the brand because they have the signature stripes. So you've probably seen it on people. It's just a really distinct look and it's just blown up. It's become like this juggernaut. I think they have something like 19 stores now. They do a ton of business, DTC as well. I know this brand, again, I know this brand really well because  every Black Friday, my daughter wants me standing in front of the door in the La Jolla store so that I can race in with her and all the other people frantically searching through the stacks of sweatpants. Yep. Very cool. The one in New York is very cool. They just opened this new concept called Dreamland, which is super cool. Their original one is in Malibu. We hosted an event there. It's this giant entertainment space attached to the store. So yeah, they have a store on one side, but the other side is like a restaurant slash concert venue. It's super on brand. I went to the one that they opened more recently in Nashville, which is the same thing, like a giant space with a store, but it can be converted. Into a bar and they host live music there, which makes a ton of sense for Nashville, super on trend and on vibe. You could rent the place out for your friends, like after hours and have a fashion party and try on a bunch of stuff and open a bar and all this stuff. It's just a really cool embodiment and vision for what a brand and retail could look like going forward. They pay, they're so particular about every aspect and Paige, from what I've read and what I hear like is still involved in every detail, like the design, how these stores should look, all the brand campaigns that are going out. And now she's  actually one of the richest, I think, richest self-made women on the Forbes list. She's like above Serena Williams and above a bunch of people. It's just become this juggernaut and she's retained a hundred percent of the business. 

Drew Sanocki

Like was she was she just watching her brother ball out on TOMS?

Michael Epstein

Well, I think there was an important lesson learned on TOMS because if you remember the story, I think he was forced out of TOMS because they did take on a bunch of investment and the PE funds sort of came in and just sort of changed some of the business, the culture and sort of the distribution strategy and the business ultimately did not do well. I think they still exist today, but I think a shell of what it was before where I think the lesson, I don't want to speak for Paige, but I presume that was a big learning experience for her. And she's retained a hundred percent of this company as it's just continued to scale.

Drew Sanocki

That's insane. We got to do a whole episode on retail spaces. And I think. Aviator Nation’s are awesome. You know, I always feel like California when I go into one Buck Mason, another brand that is doing some really interesting stuff. So, yeah, we'll do a whole episode on that, but I love that aviation brand. It's a great story. Really interesting family, you know, to produce two entrepreneurs like that. 

Michael Epstein

Great case study for you to look into if you're thinking about expanding into retail and just thinking about how to grow your business in a different way, like a more measured growth  way. It's a really interesting case study. So I encourage you to dig into the details, go down the rabbit hole like I did. It's very cool.

Drew Sanocki

Awesome. Thanks for sharing.

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