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Ecommerce on Tap is a world where Supply Chain meets storytelling. Join Aaron Alpeter each week as they offer insights into the backend of successful businesses. Brought to you by Sourcify and Izba Consulting!
Casey Armstrong (00:00)
the fact that, people down in Mexico were purchasing eyewear from the US more expensive than they could even get it domestically is
something to dig into. And so maybe there's a reason behind that, and it's a valid reason, and maybe there is no market opportunity. My guess is there often is.
Aaron Alpeter (00:22)
Hey everybody, welcome back to e-commerce on tap. I'm your host, Aaron Alpeter. Maybe you're folding laundry, maybe you're out walking the dog or at the gym telling yourself today that today is the day you're finally gonna use the leg machine. wherever you are, thanks for spending part of your day with us. This season we've been asking one question of every company we've been profiling. And is it working in Mexico? Is this something that is only a result of the trade agreements that exist, or is it something that is inherent about Mexico? And so
of the things that we're gonna dive into is is Mexico as a market.
We haven't talked about that yet. And I think a lot of people just think of Mexico as a place you can you can get things from. But my co-host today is somebody that I've known for a long time. So Casey Armstrong is the chief business officer at ShipBob. But first and foremost, Casey, thank you so much for doing this.
Casey Armstrong (01:07)
Yeah, appreciate you having me. It's been a long time coming.
we've known each other for for a while. I actually passed the eight year mark at Ship Bob, so so there we go. So heading heading into year nine, yes, it's been just amazing to see you know what how we've evolved, how the how the market's evolved. when I started at Ship Bob, we had maybe a handful of facilities. We've got over sixty facilities now around the world. So US, both coasts of Canada, UK, you
EU, Australia, we support thousands of brands. we've shipped well over a billion units in our time. And so it's been, just great to see the growth. And then I know what we're gonna dive into here and and throughout the episode is just how things have evolved so much on the on the e-commerce side and and just commerce in general as well. So there's I think the brands we're fortunate to work with, both you you and myself, like they've just become
so much stronger throughout the last few years. I think we've got a lot more durable businesses than we had, in the twenty tens. And, that's what we're gonna dive into today.
Aaron Alpeter (02:07)
Love it. Before we do that, we always like to start off with a tidbit on e-commerce on tap. And I've got one that was very interesting. it is AI is apparently coming for everything. but one of the most relevant pieces I think we're seeing is that the FAA is starting to roll out a new AI-powered air traffic control tool called SMART. That sounds like something the government would come up with is calling it SMART. But it stands for the strategic management of airspace routes and trajectories.
I wonder how long they they had to work on getting that naming right. but the software is intended to analyze airline schedules and factor in things such as weather, airport runway capacity, operational constraints that predict basic air traffic control flows and identify conflicts before they occur.
And when this is rolled out across the US, it's supposed to basically act as the Skynet. Sorry, I meant the brains of the nation's air traffic control system. but right now they're just doing a rollout in in DC in in that area. but I don't know how much you've looked at air traffic control system, but it's pretty archaic. I we we basically have the same technology from the 60s that we've been running with, you know, an enormous increase in the number of flights. And so I am happy to see AI coming in to to work on this part.
Casey Armstrong (03:25)
Yeah, we've both been in logistics for a long time and we both fly a lot for work. As I mentioned, I was in a handful of cities this week alone. I don't know how they manage air traffic control and especially once weather starts coming in or there's a delay in one flight, from a logistics situation. I mean, that's gotta be one of the hardest jobs out there. So I'm sure there's a lot of opportunity, but what yeah, it's it's mind blowing.
Aaron Alpeter (03:51)
Yeah, it's all manual and I think it was a couple weeks ago there was all of all of the Northeast was down because someone clipped a vibroptic cable, which is like, really?
Casey Armstrong (03:58)
Yes.
Yeah. I remember a couple of years ago there was like a freak storm in Dallas and it was I think in Q late Q one and basically the the city froze. And so, you know, when you're trying to ship stuff out, not just deliver there, but when you've got large facilities running there, it's like how do you how do you reroute that stuff so customers can still get what they ordered and you know that's where
think distributing your your inventory can be rather beneficial, but yeah, things can pop up all the time.
Aaron Alpeter (04:29)
Makes a ton of sense. Was there anything that stuck out to you in the last week or so?
Casey Armstrong (04:33)
I don't know if it's the last week, but something that I've been thinking about a lot is really like this this channel pro proliferation that we've been seeing. where I think, you know, really as I mentioned earlier, the the late 2010s, I think you could really put brands into three different buckets. It's they sold direct to consumer. This is like, when the concept of like a a digitally native vertical brand or digitally native brand was like all the rage. Brands sold on Amazon and brands sold,
in store, whether that's their own or that's a large retailer like Target or Ulta or somebody else. And sure, there was some crossover, but brands really I think associated with like a channel, and that's like how they ran their business. You fast forward to today, brands are selling across those three as well, but you know, you're seeing TikTok shop blow up, you're seeing whatnot blow up, you're seeing
the targets and the Sephores and the Ultas and the dicks of the world going down market. And so working with these hot, fast growing brands earlier in their journey, you can see that I I think Target continues to to lead the path there, where they were, I think, the first company that noticed that bringing in these hot online brands could drive foot traffic into their stores. and then, you know, they've split with some of their their larger beauty partners to then go
even more directly to the brands. And so that was a concern of mine for a while where I'm like, where where's where does e-commerce go? If it's it's really the old playbook was Shopify plus, meta ads. And that was like your entire business, that puts a lot of concentration risk out there. and now we're seeing these brands, really spread across so many different channels.
We know we're we're not even getting to get into geos right now, but I I think that just drives much healthier businesses. Sure that adds complexity on inventory management and supply chain and things like that. But, I think it's it's better for everybody that we're that these companies are building much stronger businesses today and and finding ways to diversify, where and how they sell.
Aaron Alpeter (06:31)
You bring up some really interesting points because I think that what you're seeing is is yes, there's a proliferation on the marketing side and where you sell. But I think how you sell is basically still just four elements. you're you're shipping something direct to consumer, you've got retail, you've got Amazon, and then you've got your own in in store or in-person experiences. So I think that maybe there's just a proliferation on the marketing side.
And it's like you're starting to see things decoupled from an op side and a marketing side. but yeah, there's a symmetry point because I think the way that we sell today is very different than where we sold ten years ago.
Casey Armstrong (07:07)
Yeah. And and the fact that there are more digital channels and those still might flow through Shopify as the middleware or your ERP, but that you know, can find these different avenues to to get out there. And then just the education in the space continues to blow up as well. So sometimes people be like, Okay, I'm really good at selling again, landing retail partnerships, or I'm good at marketplaces. But now that marketplace experience, for example.
That can translate to them doing well not just on Amazon, but also Target Plus and also possibly TikTok or Chewy.com, like some of these other marketplaces that are really starting to catch steam. And again, they can start to expand beyond just the same ad set because what a lot of brands are seeing as well was inflation has been like the, buzzword du jour for the last year or so, but you were seeing this.
this marketing inflation every year because there were more brands coming on. but there's still only so many eyeballs, let's say, on Facebook or Instagram or some of these other channels. But now you can actually diversify that, you know, across other markets.
Aaron Alpeter (08:09)
Yeah, for sure. Well, let's get into it because today we are talking about a brand that, to be honest, I had never heard of before. and it it's a big brand.
and I want to start by introducing a concept that we will talk about over the entire episode, and that is the concept of undercutting. Everybody knows roughly what undercutting is. but this is a company, Ben and Frank, that has more than a hundred stores in Mexico, Chile, Colombia. They've got over a thousand employees, and they're doing somewhere between 75 million and 130 million in annual revenue, and they're profitable. And unless you are heavily focused on Latin American retail.
Most people, at least in the US, probably have never heard of this. I think that's really the point of the episode and why we wanted to profile them, because so much of what we will be talking about in the in the season so far and what we'll be doing other seasons is American brands looking to Mexico as a place to make things. This one is about Mexico as a place to sell things.
And you know, there's some real reasons why a company of this size could be invisible in the US. And I think it it gets into how and and why some American operators may misjudge the Mexican consumer and really what it looks like. So before we get into the founding story, I want to spend a minute or so and just talking about the Mexican market itself because it's actually very different from the US market. so from a sales perspective,
Mexican e-commerce is mobile first in a way that is is beyond what we have in the US. So roughly 80% of all online purchases happen on a phone, where I think US is still about 50-50. it's also a cash economy. And so you think that that is incompatible with 80% e-commerce, but credit card penetration is is very low among adults. It's something like 10 to 15 percent. So partners like Recharge,
can't really operate in Mexico because there's no credit card infrastructure. And, you know, even when you purchase online, there is a significant amount of those transactions that are settled in cash. they basically have vouchers that are redeemable at convenience stores like OXO, which is really how e-commerce flows is, you know, you're not delivering to someone's house, you're delivering to the convenience store. They have about 22,000 locations around Mexico. And basically they they kind of deal with the transactions settled that way.
And so it's it's very interesting. And most of the e-commerce efforts in in Latin America are platform concentrated. So, of course, there's there's Amazon and Shein, which we're familiar with, but Mercado Libre is is also a huge partner. And together these platforms move about two-thirds of of all the e-commerce spending. So 80% of Mexican e-commerce happens on a phone, and a real share of it is still paid for in cash, which is which is just mind-blowing. And I I think that this is interesting because
We are going to be profiling Ben and Frank, which is a prescription glass company. And you think about glasses, they are fit dependent. it's a very considered purchase. And selling in a market that doesn't trust a credit card number and one that you know requires someone to go to a store and settle cash is is very difficult. And so I I guess I wanna start with you is is from your perspective, seeing all the different brands that ShipBob has seen over the years.
How do you think about a US brand testing Mexico as a market to sell into and not just a place that they source from?
Casey Armstrong (11:29)
Yeah. And I actually want to get into the cash component as well, because it's not just Mexico. but that is, especially for those of us used to selling in the US, s you know, transacting in cash is kind of a mind blowing concept.
Aaron Alpeter (11:42)
Yeah.
Casey Armstrong (11:43)
but you know, the the brands I see get this wrong just kind of assume Mexico's a slightly, you know, more I guess economically challenged version of the US market and and price and channel it that way. But it really isn't. it's a different market with different trust mechanics and
what I typically recommend is start on a marketplace like, Mercado Libre or Amazon Mexico before you build your own storefront to really understand it a bit more. It's it's more of a low risk way to learn, you know, whether your product clears the trust bar at all before you spend real money on your own site and and fulfillment because there are
pretty unique challenges on the fulfillment standpoint within Mexico as well. It's a it's a very large country and it's very mountainous and so it can be a little challenging to get to product of the end consumer as well. and then similar to what you mentioned, you know, build for cash and and OXO from day one, you know, it can't just be like an afterthought.
you really gotta understand that at the beginning because if your checkout only takes cards, you might have excluded a massive share of the market before you even start running ads. I actually saw this firsthand when I was helping run Watchmaster over in Germany. We sold at a higher price point. our AOV was actually a little over six thousand euros because we were selling luxury watches, but people would want to transact in cash, which
Can also be a bit interesting at times when some somebody shows up with, over six thousand dollars in Euros or sometimes twenty to thirty thousand and and they're handing that over to you to purchase the the product. But yeah, again, you just really have to understand how that market transact or else your business is just dead.
Aaron Alpeter (13:19)
Yeah. No, it's interesting. I think you mentioned something that I think people underestimate how big of a country Mexico is. And I think when you're used to looking at the weather map in the US, Mexico is just this little thing by Texas. And that is so different. And I remember my mind being blown when I was actually in in Mexico staying in a hotel I saw their weather map and Texas was just this little thing on the north. And and so it's just this interesting thing that we are used to thinking about things in a certain way, but so different. And what's interesting about
Ben and Frank is they started doing things that on on surface make a lot of sense. So in twenty fifteen, there were four people in their twenties who wanted to build a company to basically undercut Mexico's eyewear market. Mariana Castillo, Eduardo Paulson, Benigno Perez, and Maria José Madero. they were all like a
economists out Chicago booth, mathematician out of ITAM, a chemical engineer and a fashion designer. So some very smart people. Marina was was actually the one who saw the opportunity here. And when she was going to school in Chicago, she needed new glasses and she ordered from a US online retailer, paid roughly a quarter of the same prescription cost of what she would pay back in Mexico.
she ordered from Warby Parker and was like, This is a good idea. why don't we have this in Mexico? And so she decided that they were going to copy it directly. And so Ben and Frank was explicitly modeled on Warby Parker's Direct to Consumer Playbook. You sell the glasses online, you skip the traditional optician markup, and then you cut out the middleman early. they were attracted by the same promise that Warby Parker was in the US, which was a pair of glasses in Mexico cost roughly four times.
With the same prescription cost in the US. And that gap is the entire reason why the company existed. And I think, again, just pause for a moment because here we are, is there are people from Mexico who are who are ordering stuff from the US because it is cheaper in the US than in Mexico. Just I I think that's an interesting, ironic piece there, because most people think you go south, you go to Mexico, you get the cheaper stuff, and then bring it back. from their side, they were looking at this and saying, okay.
you have all these walls of frames in these retailers that people know and it was whatever the store felt like pricing them for that day. And you couldn't take your receipt and compare it across town. There's no way to understand if you were being treated fairly or if it was just something that's going on. it's interesting because
Ben and Frank had the opportunity because Warby Parker itself never actually entered Mexico. they never showed up to defend the market that they inspired someone else to build. one last thing I'll share is is when it comes to the branding and and the naming. they were really intentional about price and the name. And so
The nickname for anybody who wears glasses in Mexico is basically four eyes. It translates to four eyes. I'm not gonna try to speak in Spanish. but it's not a compliment. And Ben and Frank built their entire customer facing identity around reclaiming this idea of four eyes. Like that's their hashtag, all sorts things. And so the company was out to undercut an industry, but also undercut the shame around wearing glasses. And so that's the really interesting piece there. I mean,
From your perspective, was just this just an obvious, inevitable thing where if it wasn't these four folks, somebody else was gonna make the Warby Parker of Mexico, or did they just get lucky and were in the right place at the right time?
Casey Armstrong (16:23)
sure, there's luck, but I think it's especially with different markets or channels, it's a pretty fascinating concept. And people have had a lot of success with that over time. nobody was doing DTC eyewear in Mexico. You called out that
people in Mexico were ordering from the US to get it cheaper, which is you know, so counterintuitive.
Aaron Alpeter (16:43)
What kind of reality
are we existing in where the US is cheaper than Mexico?
Casey Armstrong (16:47)
Yes, that that doesn't make any sense. And so hats off to them for spotting that opportunity. and you know, th there there was a proven model. Again, you got to figure out how they transact. There will be nuances in every single market. but you know, that's something that they could beat on price on day one, especially if they could really land like the cogs and and get them to the level they could. And again, especially if they're manufacturing Mexico and ensure that the quality's high, which I'm sure they can. Like there's such a massive market opportunity.
copying is the easy thing. It's like, hey, I've got this idea. We can go copy X, but that's such a small fraction of the success. Obviously, the success is all in execution, whether that's marketing or whether that's supply chain or whatever it is that you bring to the market. so Rocket Internet, which is based over in in Germany and Austria, that was like their whole business. And so like their most famous example is they built the the Groupon of Europe.
Back when Groupon was all the rage, and they sold that to Groupon within less than two years for an extremely large amount of money. and they managed to replicate that over and over as they they were an extremely intelligent, hardworking team over in Europe, and they actually expanded over into Asia and elsewhere. And they'd say, okay, there's this proven software concept in the US. Let's go replicate that at the speed of light and get adoption in these markets where they are not yet.
And then we get acquired. and again, they did that over and over again. when I was at Watchmaster, our investors actually founded what was the open table of of Asia and the Open Table of Europe, and then sold that to a South Korean company and they made a ton of money. Then they started their VC firm and they basically just replicated that rocket model. And so at Watchmaster, we were based in Berlin, we were basically replicating what
our top competitor over in London was doing. And the goal was let's grow as fast as possible because we saw some inefficiencies in the market outside of the UK. And let's try to build this up to a large scale where we can start to attract acquires. and so whether that's the healthiest business model to say, okay, we're just gonna go full speed ahead to get to attract acquires to bail us out basically of where we were burning a lot of cash, but we had massive market share.
that's maybe not the best route versus, what I think these guys did really well is they go, okay, let's build a strong, durable business over a long period of time, but understand what Warby Parker's doing exceptionally well in the US and try to mimic that in Mexico.
Aaron Alpeter (19:12)
I I think you bring up some great points there. And I've I've got a friend who was part of Rocket and and stood up a company in Vietnam and was just like, Yeah, it was it was a lot of work for I think the two and a half years that they were there, but they were able to build and and kind of do something.
Casey Armstrong (19:25)
They will grind
you like no no other.
Aaron Alpeter (19:29)
Yeah. but you know, there's something to be said for it. Like it it works out well. And I think what's interesting about Ben and Frank is they didn't just survive as a copycat. They really excelled. And and there were some interesting things that went through that allowed them to get to this next part. And so, you know, if we kind of fast forward to November twenty seventeen, they opened their first physical store, which they called the Templo in the Polanco neighborhood of Mexico City. It was just eighty-four square meters.
And from there, it it's it's more about store count. So they had the online presence and that was working, but similar to Warby Parker, who was building stories about this time as well, they said, all right, we need to do this, we need to do this quickly. So by January of 21, they announced plans for roughly 50 new physical locations. obviously, beginning of 2021, you're still coming out of COVID and dealing with those sorts of things. but they were starting to finance this growth in store count.
with venture debt and and other unit economics of of a store. So they need to make sure that a single store was profitable first before they go into the next one and it kind of would help propel itself forward. If it didn't work out, then they would they would kind of close that down and then, you know, begin borrowing once they had something they could unwrite. And the account of the rollout really describes the company tracking same store sales growth and the payback period on every new location early on. And they had a specific four wall contribution margin metric that was tied to each store.
So something that shows how disciplined they were in this effort to expand to over a hundred plus stores across three different countries. I think that that's a really interesting lesson because a lot of times you'll hear about companies, say we need to have a retail presence, let's just go open a bunch of stuff and they will open them and they won't be profitable. They might be in the wrong locations, maybe they spent too much, but they're kind of looking at this and saying,
you know it's a marketing expense and like no these things need to pay for themselves and so you kinda have to look at that. but what was interesting is that in 2019, they decided they were going to take on some additional equity and they they got their first ever institutional check from somebody you wouldn't expect. And that was because the company would help triple their store count in Mexico was a soft drink bottler. And that was FEMSA who was the Coca-Cola bottling and retail conglomerate.
And so they're the ones that that invested in this eyeglass company. And and that really provided the dry powder for them to start to grow. they they ended up going on on the shark take version of Mexico and and you know, turn the sharks down and and all these sorts of things. And so it's it's just been really interesting as they've kind of pieced things together and had these these concrete unit economics and kind of grew in a different way.
Casey Armstrong (22:10)
Yeah. And and I've seen that shape out quite a few times. We actually have some brands that have done exceptionally well on Shark Tank and and use that to drive sales. And there's some that that have the traction and they go through they go through that as well and decide, Hey, you know what, we're we're good. Let's just keep pushing forward.
Aaron Alpeter (22:25)
Yeah. by the mid twenty twenties, they were running more than a hundred stores across Mexico, Chile, and Colombia. And they had anywhere from a thousand to thirteen hundred employees. Warby Parker invented this whole business model and didn't become profitable until twenty twenty-five. And the company that that copied them got there first. And so when Warby Parker went public in twenty twenty-one.
They had a net loss of 144 million a year. they didn't report their first full year net income until 2025. And that was 1.6 million after a $20 million loss the year before that. Ben and Frank, by contrast, was already described as being profitable for a long time as of a 2024 report on the company. I want to get your perspective on this because you've been around companies like Watchmaster, and obviously you've seen so many things through Ship Bob. What actually explains this gap?
in execution and profitability. Is it that the public US company answers to different pressures, different timelines, maybe there's more of an emphasis on growth than a private Mexican one? Or is it something that's unique to how each of them spent their their their money and the execution that was involved?
Casey Armstrong (23:27)
I I think it's less of public versus private, but it's really like what's the funding source and the goals of whoever owns majority control of the company. I think it's actually evolved quite a bit. And so in the early days, Warby Parker, they were one of the first venture back, let's just call it a direct-to-consumer brand. and they were probably learning a lot from other software companies and how they built their business.
which in software you can really hit these economies of scales quickly where, you know, operating a loss flips pretty quickly to operating at a profit and that can scale very, very fast. And so obviously when you're selling physical goods, it's different than software. And so I think, you know, some of these D2C darlings of the early days that were raising large venture money, a lot of them eventually righted the ship and built these very strong long-term businesses.
But that was really the model. More more of a growth at all costs. I I I bucket Watchmaster there because we were I in our first year alone we did over 30 million euros, which is a good number, but we were operating at a a a decent loss, and I think that would just accelerate as we looked you know to continue to double or triple every single year. And so when you're privately run or you get friends and family money, or you're trying to, cash flow at all from your customer base.
You have to run a very, very different bot model. And so you need to be very, thoughtful of every dollar spent, probably profitable on on the first order because you don't have a bunch of money in the bank, whether that's from VCs or yourself. I think that's where we have a lot of really, really strong businesses today where maybe they are raising venture money or they're raising debt. there's more education and knowledge out there of like what's needed and how to maybe start getting, you know, to
month six or year one or year two profitably that a lot of others are replicating.
Aaron Alpeter (25:14)
I think you bring up a good point because where you're getting money from actually points to how you have to run your business, like you were saying, because if you're taking on venture dollars, they're only gonna get paid when you either declare a dividend or you are acquired. So they're they're okay with losing money. Ben and Frank was more venture debt. And so debt doesn't really care about the growth story or where they are. They just care, can you pay it back? And and that just yeah.
Casey Armstrong (25:37)
Yeah, you have to pay that back.
Aaron Alpeter (25:40)
And so that that makes you run your business in such a way that you have the sufficient cash flows to to service the debt. your your lenders are looking at this and and paying attention and asking questions if if you can't. So I think that's a really important piece. And maybe we'd be better off if more companies would take on venture debt instead of equity dollars. I don't know.
but by 2021, Ben and Frank had already done the hard part. They had become the thing that the incumbent Devlyn used to be. They were profitable, they were scaled, they were dominating the middle of the market that they had spent six years disrupting. And that's when the founders decided to do something that was very interesting.
because they decided to build a second company that would threaten the company they just built. And so they launched a company called Bomba Vista, which was a second iWare brand that was about half the price of Ben and Frank. And it was marketed almost entirely on TikTok. It was aimed at younger, more price-sensitive customers, and they deliberately did not carry the Ben and Frank name anywhere on there. And and what's interesting is like in you here we are in 2021, the founders of the company that beat Devlyn on price built a second brand whose entire job was to beat their own prices.
And I think that it's really interesting to think about the actual customer experience for a second, because it's it's a little bit more odd when you start to break it down because somebody finds Bomba Vista on TikTok, they buy a pair for half of what Ben and Frank charges. They have no way of knowing that the companies are related unless they go looking for it. There's no crossover branding, there's no, you know, Bomba Vista from the makers of Ben and Frank or anything like that. they just built this second identity from scratch instead of a visible subline under their own brand.
And in October of 21, El Catterton made their first investment in Ben and Frank, and the second injection in in April of 2023. And the part that's interesting is that their own public language around the second round says that the money was explicitly meant to accelerate store rollout for both Ben and Frank and Bomba Vista. And and they wanted to kind of establish this category leadership across Latin America for both brands at once. And so this wasn't just a scrappy side project people working on.
This was something that was intentional. It was funded. from day one, they had the same institutional money that was says we're gonna roll out this competitor to our competitor, across these countries. And I think it's interesting because El Catterton is associated with LVMH, which is a luxury conglomerate. And so they don't really back these sorts of brands on purpose.
The idea of having a second company that does exactly what you're doing, but at a lower price, seems to be a bad idea. You're more of a marketer than I am. I'm just curious, why why would someone go about doing that? What where's the value in doing that, I think?
Casey Armstrong (28:19)
Yeah, so as a a marketer, it's or just somebody running a business, it's kind of scary, like, hey, we're gonna introduce like a cheaper version of the product. You know, you spend so many years building this brand that people trust, and then you build a cheaper version of yourself. I but that said, there's the best example in the world of somebody who did that is Rolex with Tudor.
And and so there's actually an amazing podcast with you know the group over at Acquired. it's long, so buckle up. listen to it
Aaron Alpeter (28:52)
They're great.
Casey Armstrong (28:52)
on two X. Yeah, they are great. But their podcast on Rolex is fascinating. And they do dive into the concept of Tutor, which is built by them and it looks very similar to you know Submariner and some of their other popular watches. but are they the exception to the rule? you know, I think that's the question because
For any brand to say, well, we'll just build the Rolex and then build the knockoff, okay, who who else has built a Rolex? Really L LVMH is really the only other company, maybe Air Mez, that's that's come close. does it, protect you or does it just like it look like the same company, with it's kind of lipstick on a pig and people are just gonna go, you know, directly to the cheaper version?
Aaron Alpeter (29:32)
Well yeah yeah, you're absolutely right because there's a world here where Bomba Vista is is just damaging Ben and Frank. and I I imagine there's gotta be some separation in terms of some styles available in one, not the other, maybe some materials available in one, not the other. But how would you think about doing this? And and is is the assumption here that you're gonna be servicing two different markets entirely versus just cannializing your existing market?
Casey Armstrong (29:58)
Yeah. I I think before even getting there, it's like going through the thought exercise of what's what's the version where Bomba Vista damages or maybe destroys Ben and Frank instead of, actually defending defending that part of the market.
Aaron Alpeter (30:12)
Yeah. And and it's interesting because I I do think that the thesis has to be that, Ben and Frank is more established and and can grow is probably gonna go more up market. And so there'll be people that, will no longer be willing to afford that or or want that. And so they're making another piece that can start to bifurcate. So I think the the thought here is that if they've got
a lot of the same back office. they're their holding company, which owns both these these companies. They have a lot of the sourcing, the back office operations that are all put together. So you're looking at real estate, logistics, infrastructure, things like that. in Bomba Vista runs about 35 of its own stores. and it hasn't gone international yet, it's just in Mexico. But Bend and Frank runs about $105 a pair and Bomba Vista is roughly less than half of that.
And so, Ben and Frank subsidizes the eye exams at about eight dollars to to lower the barrier for the first prescription-based purchase. And and that's never meant to be a profit center on its own, but it's just one of these things that helps pull people in and say, hey, try us. but it's it's just interesting because you've got two brands, one warehouse, one supply chain, but nobody is allowed to say like, hey, these are the same. And I I think that's it's just really interesting because as you're thinking about building out your your moats and competing with
big incumbents like Lexotica in in this case, it's it's very difficult. And if your moat depends on having a single factory or or spending time in a factory, nobody outside the company is gonna understand exactly how the lenses get made. It's really gonna be more about branding. And so I I guess I'm just trying to get your perspective of you know, when you've got a business that has over a thousand employees and, you know, over a hundred plus stores, maybe several hundred stores at this point, how can you actually have two separate
brands or companies, or is it is it all gonna be the same company with two different perspectives and people go back and forth?
Casey Armstrong (32:04)
Yeah. two brands and over a hundred stores and over a thousand employees and nobody's really sure exactly where the physical products come from. that's a big business that they're building and so yeah, I don't know, there's a there's there's a lot going on with them.
Aaron Alpeter (32:18)
Yeah, obviously the story that they're gonna tell investors is that their shared back office is driving efficiencies and it's helpful and and those sorts of things. Do you do you see there being actual operating leverage there? Or is it just maybe a a shared logo, but they could have been duplicating everything across the brands?
Casey Armstrong (32:36)
Definitely. I mean, if done right, and if they're actually funneling that into the same, back office. So if you think of the economies of scale in like buying power for some of the the raw materials, the lessons learned of like how to manufacture and build these things, the lessons learned of what's what's pr working well on the marketing side, getting the
the volume up from whether it's direct to consumer or whether you're shipping in bulk from a freight perspective, that's a lot of the value that we see at chip up as well is we're able to build so much volume and density that you you can really separate from anybody else out there. I think that's where the the Ben and Frank value can come in from when them also rolling out, a less expensive version is now you're you're shipping so much more volume.
And you're manufacturing so much more volume, you can really capitalize on both of those.
Aaron Alpeter (33:27)
Yeah, and pulling it back to Shipbob and and the discipline that you guys had from a marketing channel perspective, I definitely see some of this resonating with the Bomba Vista launch because they launched it on TikTok and they said this is our primary acquisition channel. from what I can tell, still the main engine that's driving it. And so do you think that this is similar to the discipline that you're seeing where they just said, Hey, we're gonna try this on TikTok and we're gonna lean into it?
Was that a conscious decision or is it something that Ben and Frank should be on on TikTok? Like I guess is it if you were advising them, if you were in in in their position, would you be looking at TikTok as something that's exclusive for Ben and Frank because that's where your customer is? Or is it one channel among many that Bombavisa is gonna need to focus on?
Casey Armstrong (34:12)
well, I mean, TikTok in general, talk about an evolving market. I think what has been so impressive there is early on TikTok was really only doing well for brands selling cheaper, less expensive goods. But because the channels matured so much and they've been able to attract other larger brands that also can use TikTok as a medium to tell a strong story, that, you know.
the businesses at at both price points are doing well. And so we have some customers that definitely sell less expensive items that do exceptionally well in TikTok, but we also have some that are selling, in the sixty to a hundred dollar plus average order value and are figuring out ways to include things like bundling and upsell. And so, it really can be a channel to help, b both parts of the both sides of the market.
Aaron Alpeter (34:58)
Yeah, it it makes a lot of sense. And I think from their perspective, they are still opening stores. So it's not as if they are saying it's only TikTok, they're gonna start doing some of these other things that are there. and I I think it's interesting because you know, Devlyn, which is the incumbent that they went after initially, they've been in business since nineteen thirty-six, they're family owned. They've got nine hundred stores in Mexico, Guatemala, El Salvador and and the US.
And so it it's interesting because they still haven't been able to find an answer to a company that's one eighth their size from store count perspective. Opticas Lux is the is the other big incumbent in the category. And you know, we I don't have numbers on how big their scale is, but they're they're still very big. And and like they are both behind the global competitor, which is Luxotica. And this is the same company that owns Ray-Bans and Oakley's and Lynn's crafters and Sunglass Hut and all those sorts of things.
And while Luxaga doesn't compete directly with Ben Frank today, you can't talk about eyewear without talking about them and just the stranglehold that they have on the supply chain and and on the market. I think there's something like 70 or 80 percent of all glasses come through or touched by Luxotica is is something that's that's crazy there. So I think it's interesting because each of these competitors are different. Luxotica is clearly international, global, kind of the big dog that they're everybody's trying to deal with. Devlyn
has grown north. So they've gone US and Central America and and and that's where their their focus is. and so they're they're kind of trying to get the broadest possible geography for the one brand. Ben and Frank went the other direction. They stay inside Latin America and are doubling down on the brand count inside its country and and they're kind of growing south instead of growing north. And so I think it's interesting like I I I'd like to get your perspective for a company like Devlyn. Do you think that
The incumbent with all these stories, could they launch a credible discount banner of their own at this point? or is that like the cannibalization that we'd be worried about that we talked about with Bamba Vista and and Ben and Frank that that they have been able to avoid for some extent? But do you think that like there's a world where they could introduce a brand and be as successful as Ben and Frank has been with the other brand, or do you think it's just them cannibalizing themselves?
Casey Armstrong (37:13)
I guess technically, sure, they could, but it really depends on I think them understanding why did that work for for Ben and Frank? Why did that work for Rolex with Tudor and and trying to look at different examples and understand what did they what did they do right? What did they maybe do wrong to to not, you know, eat their own lunch? because i again it's it's much easier said than done, like and and you gotta you gotta start
Capitalizing, we talked about a little bit earlier, on some of the economies of scale or or purchasing power that you have once you start attracting a larger market. And so, with with with Rolex, for example, when they launched Tudor, it was it was more of just getting, you know, these wrist watches into the masses faster for those that could not afford the higher price point items while still capitalizing on like
the reliability and the brand awareness. And so you gotta really think through it's not just, hey, let's go sell more at a cheaper price point, but what what is the differentiator? what what are you guys really bringing to the table? And and how does maybe going down market also boost the brand that you have that is selling up market?
Aaron Alpeter (38:28)
Yeah. Yeah, because they Ben and Frank has built this great flywheel where they bring people in, they get to know this customer maybe through the Bomba Vista entry point. Maybe they're a teenager, they're they're younger. but then as they start to mature, maybe get it more affluent, they can start to have them trade up to more expensive or premium styles are there. So I think the playbook is there and it makes sense. But you know, Devlin's got a hard, a hard task ahead of them because if they wanted to do this,
Because they're already in the US, they're gonna be competing with Warby Parker, directly, which is gonna be a difficult thing to do. And then if they try to expand in and do Mexico, they've got Ben and Frank and Bomba Vista right there. So they they almost it's to some extent miss their window and they're a little bit stuck, at least from my perspective. And so it might be why we haven't seen them roll out something.
Casey Armstrong (39:18)
Yeah. And I'll should give you our version at Shipbob. and so we run our, you know, a global fulfillment network. It's powered by our software. that is a majority of our customers outsourced to us, but we also sell the warehouse management system or the WMS software directly to brands. And they also get access to Shipbob Logistics, which is, you know, really our carrier and transportation network.
And so you'd think that we're cannibalizing ourselves because it's like, okay, brand X could outsource to ship bob or wait, you guys are actually giving the software you guys use in your facility to them and you're giving them access to, your to to ship bob logistics. Aren't you just cannibalizing your core business? And so at face value that that seems right. But our goal is if the brand's going to outsource it or run it on somebody else's software, we'd rather have them
run it on ship bobs. And because our goal at the end of the day, similar I guess to Rolex's or Ben and Frank's, which is get, high quality eyewear into the masses. we want to be able to support these brands and then consumers any way possible, regardless of how they want to fulfill. And so if they want to outsource, if they want to do it themselves, or maybe they want to do a hybrid model, they can still take advantage of, really the same solution.
Aaron Alpeter (40:31)
Yeah, it's broadening the market instead of having this narrow focus and saying, We're gonna lose the customer anyway. So I I love that. you know, we I always like to talk about valuations and and what a business could potentially be worth. And you know, in April twenty twenty four, which was the the last update that I could find, the business was doing about seventy five million dollars in revenue over the last twelve months. and they were growing about thirty five percent year over year.
And so if you extrapolate the 35%, they'd be doing about $125 to $140 million today. But if we just take the lower number of where they were in 2024 and take the $75 million base, from a valuation perspective, the best example we have is Lexotica's 2019 acquisition of Grand Vision, which was about 2.1 times revenue. And so that would put at 75 million bucks in revenue, put them about 155, 160. we don't what
Ben and Frank's EBIT is. but let's suppose it's 15 to 20 percent, that'd be 11 to 15 million dollars of profit. Grandvision went for 14.2 times of EBIT, which is again 160 to about 215. So I think that if we were to look at their valuation two years ago, they're probably somewhere between 160 and 215. you know, obviously if they are up by 50 percent in in revenue, then they're gonna move up proportionally as well.
they've got a profitable business that's growing at thirty-five percent year over year. the next question's gonna be where do they expand? How d what do they do? And I I think that other things that they could do to improve that valuation would be expanding into other markets, such as Brazil, which is something that they've active been looking at and are testing.
we've seen issues in the past. I'm thinking of like Blue Apron, for example, that was chasing a revenue number. And as as they got to a certain point, the customers became more and more difficult to acquire. And so their margins came down. When you are looking at brands today and you're working with them today, do you see as they're growing, is that margin increasing or collapsing if they're trying to hit that revenue number?
Casey Armstrong (42:28)
Well, you covered a lot there. And so, I mean, I think there's a couple questions for us to dive into. I don't know if we'll have time today, but you know, at 15 to 20% margin, you know, is that realistic for a company that's also subsidizing eye exams and spending 20 to 30 percent of revenue on marketing a few years ago? I I don't know what those numbers are today, but again, like we talked about earlier, there is channel inflation, which is a real thing. but I guess for you, like who do you think would buy them?
Aaron Alpeter (42:54)
Well, clearly anything in the eyeglass space, Luxotica's gotta be a natural buyer. I don't think that they're as tied to not selling to Luxotica as Warby Parker has been historically. So that could be a very interesting thing that can happen. El Catterton already has a stake in this. This is something that they could purchase themselves and run it as a PE brand or or things like that. So I I think it's interesting. But as we're wrapping up here on on this episode of e commerce, what are the main takeaways that you had.
as you dug into Ben and Frank.
Casey Armstrong (43:22)
I love the concept of like seeing just finding this massive market gap where it's like where are these just seemingly nonsensical or like super counterintuitive things happening in the real world? And so the fact that, you know, people down in Mexico were purchasing eyewear from the US more expensive than they could get it get it even get it domestically is
Just definitely something to dig into. And so maybe there's a reason behind that, and it's a valid reason, and maybe there is no market opportunity. My guess is there often is. And so that's the first and foremost, which is like they saw this, they capitalized it on it, they o obviously moved extremely quickly and and executed well. and then next, I think that they they realized, hey, there is a big market on the on the higher end, but there's just massive market on the lower end. And so
Depending on what those customer acquisition costs are, depending on what the cogs are at the end of the day, does it make sense to go down market? Can you play it the right way? Again, just like Rolex and Tudor did, so that you're not fully cannibalizing yourself, but you're maybe making the luxury product even more valuable while also selling to the masses. Rolex actually sells exponentially more watches than Tutor, even though it's much, much more expensive. And so again, they've just nailed branding it better than anybody. But
I think those are the two things that really stand out to me, which is again seizing that that massive opportunity and then how they've been able to attack two markets at the same time.
Aaron Alpeter (44:50)
Yeah, I I love that. And I think that, a big point of doing this this episode on this company is to open people's eyes that there are real consumers in Mexico and you can build meaningful businesses there. You have to do it differently. Again, the e-commerce is is a different animal than what you're used to in the US, but it's a a ripe market and a lot of these things that are working in the US will work in Mexico. Same thing you mentioned with the whole Rocket Internet playbook. And so it's just it's very interesting that way.
Casey, thank you so much for for coming on and just sharing a little bit about what you've learned with Ship Bob and and digging in and telling the story with me. I think that we've got some great episodes coming up in the next couple of weeks. And so thank you guys so much for tuning in to this episode of e commerce on tap and we'll see you soon.
Casey Armstrong (45:36)
Yeah, thank you, Aaron.