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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!
Barb (00:00)
They would show ads of people putting the shoe in the washing machine without losing its shape. And people just went bonkers for it.
Aaron Alpeter (00:14)
Hey everybody, welcome back to e-commerce on tap. I'm your host, Aaron Alpeter. If you're new here, thanks for joining. each season we do a deep dive into a different industry. We explore at least six brands whose stories, supply chains, or exit potential offer really useful lessons about where the category is and where it's headed. This season we're turning to a category that we all know really well, and that is footwear. But we're approaching it a little bit differently alongside the deep dives and into some of the most influential companies in the space.
We'll also be joined by a rotating lineup of co-hosts for each episode. And so so today's co-host, I'm really excited to introduce, is someone I've always admired and someone I've always wanted to work with. It will happen at some point, Barbara Almeida, is a brilliant marketer and operator who has spent her life kind of pulling herself up by her bootstraps and generally just making things happen for herself and people in her life.
And so, Barb, thank you for being here. Do you want to introduce yourself a little bit to the audience?
Barb (01:07)
Thanks, Aaron. It's really great to be here. I'm really excited about today's topic because shoes is actually in an interesting turn of events.
What brought me to the US was on a running scholarship. So I came to the US on a running scholarship. So footwear has been part of my life longer than most things in my life have been. I came on a running scholarship and ended up staying in New York for grad school.
Aaron Alpeter (01:19)
Really? Okay, that's right.
Barb (01:33)
And honestly, that's where my entire e-commerce and startup journey began. in a class with your wife, actually. She's the one that suggested I meet you. And that's where I had my first real stick taste of startup life. It was an internship at Hubble Contacts. I don't even think you guys were hiring for an intern. I just said, hire me, I just wanna learn. You don't even have to pay me.
And it was considered a graduate school credit at the time. And this was back when you were the chief supply chain officer at Hubble Contacts. what honestly hooked me, was the startup mentality of just figuring it out. there was no SOP, there's no handbook, and there's something about scaling fast and you having to be the one to just figure it out that really, just kind of hooked me.
you just roll up your sleeves and you own it. And that ownership mindset really shaped how I think about business now. And it's what eventually led me to where I am today, which is I own my own boutique consultancy called Superbloom Insights, where I work with brands today helping them grow and scale. and for those of you, if this is your first time here, we hope you stick around. Be sure to subscribe. ⁓ I've been having a really great time listening to previous seasons.
and if you want to continue catching the rest of the season, hit subscribe. Aaron, before we get into it, I heard you got a tidbit for us.
Aaron Alpeter (02:55)
Yeah, I I you know, I'm obviously very tied into what's going on with the tariffs and and all of that drama. It I was surprised to see that according to court filings, the Trump administration has already refunded over twenty billion dollars with the tariffs. And so like I had lots of questions on if this was actually gonna happen. I thought for sure they were gonna either drag their feet or just decide that they weren't gonna comply with this or or find some other way to keep the money. ⁓ but
They here they are. They're they're doing it. Now we still have a long way to go. There's about a hundred and twenty billion dollars that are eligible for refunds. but we should expect those to be paid out in next six to twelve
months.
Barb (03:30)
Interesting.
⁓ do you or do you have a hunch of which categories are going to be seeing the biggest refunds? Because I would imagine footwear is right on the top of that list.
Aaron Alpeter (03:42)
Well yeah, it's it's certainly ⁓ anything that's coming from China, I mean remember there was a hundred and eighty five percent tariff at one point. I would probably say, sourcing from China, something that's made out of steel, and then you start stacking all these sorts of things it gets pretty big.
Barb (03:55)
Yeah. my tidbit is a little bit closer to home here in e comm world. this month actually marks twenty years since Shopify launched. And the origin story is one of my favorites. these three guys who just wanted to sell snowboards online and they couldn't find a decent platform to do it on. So they built their own. And it turned out the tool that they built their store was worth a lot more.
Than to start self. And now two decades later, they're one of the most valuable companies in Canada and power a huge chunk of global commerce. and for those of us who've spent most of our careers in e-commerce, it's a good reminder that sometimes the biggest opportunities are hiding inside the problem you're trying to solve.
Aaron Alpeter (04:39)
Yeah. I mean, gosh, could you imagine a world without Shopify?
Barb (04:43)
I like it's one of the first things I do when speaking to clients is trying to understand what platform they're on. And nine times out of ten, it just it it makes obvious sense to transition. And so I can't even imagine what we would be doing without Shopify nowadays. okay, so Aaron, I have to ask you something. ⁓ I've known you and your wife now for a long time. and I know she's an amazing cook. I can speak from firsthand experience.
Aaron Alpeter (05:02)
Okay.
Barb (05:11)
⁓ but be honest with me, how much food actually makes it out of your kitchen versus in the trash?
Aaron Alpeter (05:19)
gosh. ⁓ way way too much. I mean ⁓ you know, some stuff so in in Canada we have like you have to compost in Montreal and so we have these these bags that get filled up.
every day. And some of the stuff is like things you'd expect. So it'd be like potato skins, the ends of carrots or like chicken bones, stuff that we were never ever going to eat too. ⁓ but my wife has also a very strict rule. if it's been in the fridge for more than a couple days, it's gotta go. And I'm I'm much more of like a smell test kind of guy. And there's definitely been things where were times where she's like set it out for me to throw it away and I've just heated up and eaten it.
Barb (05:52)
That's hilarious. That's exactly how it is in our household. my husband likes to test how long food can actually last in the fridge and I'm constantly trying to throw it away. that's what he says. No, that's not how it works.
Aaron Alpeter (06:02)
You could have them all, that's fine.
Barb (06:08)
I think the reality is that most of us when we buy things, you know, whether it's a finished good or the ingredients themselves, it usually we don't think about the waste that went into creating the product that we have today.
when you buy a pair of shoes, you often focused on the finished product. You're not thinking of everything that went into it. And so that's the reality of every manufacturing process in sort of the the process at large.
and unfortunately it creates waste. And so sometimes the waste is really obvious. things that show up in a dumpster somewhere, like scraps on a factory floor, the package is damaged, or you have broken inventory. Other times it's work that you can't see, it's waste that you can't see. It's excess labor, overproduction, time and idle, where you're just waiting.
Or even unsold inventory that you ultimately end up having to throw away, especially for goods that go bad, like the ones in our fridge, like we just talked about. And so the reality is that the product that you buy is only the surviving output ⁓ of a much, much larger system.
Aaron Alpeter (07:20)
Yeah, that that makes a lot of sense. And that's something that I have lived firsthand in my career. not a lot of people know this, but I worked in the Lipton tea factory in Suffolk V Virginia for about eighteen months.
Barb (07:29)
That's right.
Aaron Alpeter (07:31)
And I had a great job there. I was the factory supervisor for a day shift and night shift. So I had 24 hour responsibility. And we were responsible for making millions of tea bags every day. And so like when when people see a box of Lipton, they see the the hundred count, it's well organized. they just see it as a unit. But when I see it,
I think about all the dust that was on the machine, ⁓ the tea bags that got stuck in conveyors, the tea that was in my ears, my nose, all over my clothes at the end of a shift. And so all of that that waste, right, was something that was baked in the price that Lipton sold the tea for. And it it usually wasn't like a a super big thing, although ⁓ I do have some stories I can share after the record of like things going wildly wrong and and just ⁓ you know, massive amounts of waste that we had to deal with. ⁓ but in general it was it was a thousand
tiny losses that happened over millions of units. And these inefficiencies became very expensive. I mean, so waste was a major cost driver at the factory. And even though it was a relatively small when you look at it in a cost per ton basis, it was still something we were always focused on and we're always trying to to minimize.
Barb (08:34)
Yeah, that sounds pretty messy. ⁓ I've never worked at a factory, but and I'm not the best person in the kitchen, but I've carved a turkey a day of my life. And no matter how careful you're trying to be, there's always scraps left over. ⁓ there's the skin, the bones, ⁓ the tissues, just different parts of the turkey that you're never going to eat. ⁓ some people will make some soup out of it or stock.
but nobody really expects to get 100% of the turkey into a perfectly sliced meat. the more I think about it, that's really the key thing about manufacturing. Historically, companies have always accepted that there's a percentage of every raw material purchase going to become waste. and the question wasn't
Necessarily like how do we eliminate waste, which I find to be really interesting the more I think about it. It was like, how do we manage the waste? Just a fundamental mindset of like not how we eliminate it, but how do we manage it? and this framing has really become prevalent in almost all of manufacturing across every single industry. historically, most companies approach waste reactively, if you think about it. So we designed a product, you build a factory, you measure the waste.
You try to put in place things to mitigate that waste. But the company we're talking about today, Rothys, they really took an entire different philosophy to identify the source of waste and footwear design and then build a product accordingly. it's
Ultimately a very interesting worldview that we're gonna dig into and that the more I read and learned about it, the more interested I became.
Aaron Alpeter (10:12)
Yeah, I'm really excited to digging as well, especially as someone who's spent time and loves to go see factories. And what's interesting about this effort to rethink waste in general is been the effect that it's had on other industries. And so this isn't something that has made its way into footwear before. I recently read that Apple it has produced their own chips and they have like a six-core chip that they use for I I think it's like the iMac or something. ⁓ but when one of the cores fails, it can no longer be a six-core.
But instead of throwing away, they're now putting that ⁓ six core with one faulty core, so it's a five core, into another product. And so it's kind of an upgrade for these other products, but it's also a way to eliminate cost and waste on on that end.
when you think about waste, you've got to talk about Toyota as well. they're just one of these massive pioneers when it came to thinking about identifying and taking waste out of out of a process. the Toyota production system is something that any supply chain person has been taught about.
And it's not just about identifying the raw material waste, but also the the wait time, the production excess, the processing excess, the inventory, the buffer, all those sorts of things that go through there. And so this this doctrine in manufacturing around reducing waste is something that's been around for a very long time.
And in fact, most people probably think of waste as as something that's like landfill or recycling or garbage or things like that. But in manufacturing, it's it's much more encompassing than that. It is defects that ultimately don't pass inspection.
it could be products that need to be reworked before they're sent. And so even if you actually sell the product, the cost that you're spending reworking and identifying those issues is a form of waste. it's also product that nobody buys, right? We don't think of that as waste, but that is a huge factor in waste. and then idle time, labor, inventory, transportation, all of those things are are piling up to being something that ⁓ can be considered waste in the manufacturing process.
Barb (12:02)
Makes sense. what you're saying is every industry has waste in this broader definition. ⁓ what would you say makes footwear special or unique or even more difficult than other industries?
Aaron Alpeter (12:16)
Yeah, so footwear is one of the most waste intensive consumer categories, period.
And I think it's because when you look at it, it is touching on almost every difficult manufacturing characteristic. you're dealing with flexible materials, multiple suppliers for those materials, extensive manual labor, variability around fit, seasonal demand, fashion risk, inventory risk, returns, all those sorts things. And so each of those dynamics is difficult to manage on their own. But put together, it becomes a really, really hard
mountain to climb.
And so if we dig into the different types of waste specifically, you're cut and so raw material waste. you think about like when you're ever making cookies, you have some dough after you press things out that with cookie dough you can reuse and maybe make more, but when you're cutting out leather, you can't smush it together and make new leather. It's just that stuff is just not there. from a sampling point of view, you typically have a lot of sketches, prototypes, fits, wear tests, those sorts of things that are important steps in the design process.
But they never reach the end consumer. And so those can be considered a form of waste. you've got defects, so issues with adhesive, stitching, assembly, ⁓ those sorts of things. But but probably in footwear, the absolute biggest risk is inventory. And if you make too many sizes, too many colors, too many styles, or the wrong allocation of them, you end up with markdowns, liquidations, dead inventory, things like that. And then you know, just go back to Hubble contacts. If I have the wrong power of lenses,
It doesn't matter. Like I you know, I may have 10,000 units of negative eight, but if I need a negative two, it's not gonna help me. Like it's it's just it's wasted.
Barb (13:46)
That's exactly. I mean, most people seem to miss that waste isn't what gets thrown away. Waste is everything you've paid for that never created value for the consumer. I don't need negative eight. I need negative 1.25. What's light stigmatism nowadays? So once you start looking at manufacturing through that lens, funny.
⁓ the story of Rothys becomes very interesting.
It isn't really about recycled plastic bottles or sustainability. It's about what happens if we designed waste out before we ever designed a shoe.
So let's dig into Rothys now. Tell us who are founders and how did they go about building the company we're talking about today?
Aaron Alpeter (14:28)
So I think it's important to start by by really talking about who these founders are not. This is not a story about ⁓ a Nike or Adidas executive who was really motivated by sustainability. It's not a story about a footwear engineer, a factory owner, a shoe designer who want to do something different. Instead, this is really two outsiders to the footwear industry. I think it's really interesting because when you look at this.
A company that ends up being as radical as Rothy's is probably wouldn't have been successful with two insiders because insiders are trained to optimize the system that they know. Outsiders, on the other hand, keep questioning why the system works the way it does in general. And and that seems to be what happened here. They gave themselves permission to rethink absolutely everything about the product architecture and the manufacturing process when it comes to shoes.
And so our two founders who decide to question everything are Steven Hawthornthwaite and Roth Martin.
And so let's let's start with Steven. ⁓ he came from an investment banking background. So he's finance oriented and and just this consumer operator mindset. And he was largely seen as a systems thinker. he was really good at understanding how the footwear system business actually worked when he when he started to dig into it. And I don't think that he was really motivated to design a prettier shoe, but he was really influenced by ideas around sustainability, economics, process optimization.
And what's interesting is that when most finance people enter
the fashion focused business, their laser focused on like margins and distribution and retail and all those sorts of things. Instead, Rothys ended up focusing on manufacturing and materials and waste reduction. And that's pretty, pretty unusual.
And our other co-founder, ⁓ Roth, who is the Rothys in in Roth, ⁓ is is yeah, he's he's really this aesthetic and creative force behind the brand. before starting Rothys, he he operated an art gallery and he worked in creative environments.
Barb (16:05)
Makes sense.
Aaron Alpeter (16:13)
And so he had this really deep exposure into design culture.
And his philosophy ⁓ in design and also in Rothys was really heavily influenced by Japanese minimalism. And so there was a focus on simplicity, clean design, and and reduction rather than addition. so don't add more things, take them away and and see if you can still keep the core of it. And I think it's hard to overstate the impact that this Japanese minimalism had on their overall design process, because they intentionally looked at everything and said, Hey, how do we take things away?
And and that, you know.
Sounds very much like Toyota like we talked about because of the the Japanese connection.
Barb (16:50)
Wow, it really does sound like these guys just came from completely different worlds. how did they even meet or like how did they even get involved in trying to start a company?
Aaron Alpeter (17:03)
Yeah, it's it's really interesting because it almost feels like it was accidental. ⁓ they had known each other and were friends in San Francisco before Rothys was even a thing.
And so they had overlapping entrepreneurial and creative circles, and they just, had interesting backgrounds that on paper is like, this is a really natural founder pairing. And so I don't think they they sought out with that, but that's what they did. but it's also important to think about the time and the place that they were in. So they were in San Francisco and
In the early 2010s.
And you think about San Francisco at that time, this is the beginning of of the bubble, right?
Airbnb and Uber are massive companies then and then they were weren't even they were a fraction of the size of what they are today. Software was eating the world. You had venture capital that was exploding. Apple was dominating every consumer product conversation. And so this backdrop was was where people were looking at systems that could be reimagined and redesigned.
And Silicon Valley was very much a let's break everything kind of perspective. And I can't really find evidence that either Steven or Roth cared about shoes a whole lot. ⁓ it feels like they saw an opportunity in an overlooked consumer market and just decided to go after it.
Barb (18:10)
based on how you've described their backgrounds, what I just can't wrap my brain around is like why shoes? If neither of them came from this world and had no prior experience, like I would have been running for the hills. That is the last thing I personally would consider doing, even as a runner.
they could have built a t shirt company, they could have done anything else that was better aligned with something that they kind of associate themselves with or have a passion for or a deeper interest in. why were they so attracted to footwear specifically?
Aaron Alpeter (18:43)
You know, that that's a really important question because I I th you're right, there were a lot of other things that could have been easier. But I I think that they chose the most complicated consumer product imaginable because it was difficult and they they wanted to go out and solve that.
Barb (18:59)
respect that and I can see how ultimately it worked out for them. So let's talk a little bit about that. So their early days, ⁓ as I understand it, they started the business in formally in 2012. the interesting thing is that despite starting the business, they didn't launch right away. they quickly realized that they knew nothing about this product. Who would have thought ⁓
And they had no idea how to even manufacture it. So it really kicked off what was a four-year journey of just development that looked at very different sort of startups at the time. if you think about 2012 specifically, this is the vintage of Harry's, Warby Parker, Blue Apron.
Often their playbook was
To find a product to source a factory, design and brand it, and and ultimately launch everything in less than a year. Like it was all about speed and figuring out how to make everything more efficient and go to market. But Rothys something very different. They focused on developing the materials, then the manufacturing process, the knitting process, the architecture of the shoe as you've described in prior
episodes and and a comfort profile and only then they launched and this launch ultimately happened around 2016 so four years later which honestly begs the question like why did it take so long? and the more I dug into this the answer was really that they were completely obsessed with doing something better and doing something new ⁓ transforming recycled plastic bottles into yarn
at first glance it sounds simple, but it really wasn't.
⁓ I don't know if you know this. My my background, my undergrad is actually an environmental studies major. I wanted to save the world from climate change and I interned at the Department of Energy and Environmental Protection. So this is a topic that's very near and dear to my heart. so so much respect for how they were approaching it. and as a result of that, they had to solve a few things simultaneously.
So from a material perspective, could recycled PET become a premium textile? That was a question they were trying to answer. From a comfort perspective, would plastic bottle, yarn, feel comfortable enough for daily wear?
It's a fair question. Not something that you immediately think is going to be comfortable.
durability, would this actually survive?
real consumer usage. Just think about us women walking everywhere in the cities of New York City. You easily get ten thousand steps a day. and from a manufacturing perspective, how are they going to knit it consistently at scale over and over and over again? and aesthetically obviously it could look it could be ⁓ comfortable, it can last, but if it doesn't look good, we're not buying it. And so after they did all of this work.
would it even look good? And would people want to buy it? And usually most companies only solve for one, maybe two of those issues, but they were determined to tackle all of them before launching. And so really interesting way to go about it and so much respect for them and how they approached it.
Aaron Alpeter (22:18)
Yeah, I feel like instead of you know, the the old Staples easy button, they looked for the hard button and just said let's let's keep doing that. why were they so fixated on turning plastic water bottles into shoes?
Barb (22:29)
Yeah, I mean if you're going to make sustainability a core niche of your brand, when you actually think about it, plastic water bottles are an easy thing to explain. the consumers immediately understand that this is waste diverted from the landfill if you've ever been to the DR and you see all the plastic bottles coming in from the ocean,
you immediately resonate and it's visible sustainability. realistically, PET plastic could be transformed into strong fibers. there have been also instances where plastic derived yarn worked extremely well with knitting systems and digitally controlled environments.
That just meant this wasn't just a sustainability story, but also a potential manufacturing input story, which is really fascinating.
Aaron Alpeter (23:15)
Yeah, you mentioned a four-year development cycle and and I just I don't know, that feels like an eternity. I I know several companies that, you know, got funding, started, launched, and shut down within four years.
Barb (23:21)
Yeah.
Aaron Alpeter (23:26)
I also think like going back to that time period where you're seeing all of these other companies that start at the same time doing amazing things and having these really high valuations. how how do they do this?
Did they bootstrap the whole thing or do they just have like the world's most patient investors?
Barb (23:41)
I know, yeah. It's really interesting because it looks like they put roughly two million of their own money into the business.
Aaron Alpeter (23:49)
Two million?
Barb (23:50)
Yeah, in this time. ⁓ and so this is just a a substantial amount of money for anybody to self-fund, unless you're a billionaire, which if you're wondering, these guys were not. but think about this: like there's no proven market. There is
No guarantee that customers are even going to want this product that they're building. And they're trying to take on a very extremely difficult manufacturing problem with no prior experience.
Aaron Alpeter (24:18)
Yeah, I two million dollars. I mean, ⁓ talk about conviction. I I don't know if they like intended to spend two million dollars to bring the product to market or if it just kinda happened and they said, Well, we've already spent a million dollars, so let's keep spending. ⁓ but I mean th th it's really just kind of this question of what were they actually doing for four years? the reality when we dug into this is that they were trying to perfect the manufacturing system for the brand they envisioned. And so the real first indication this was never really about.
footwear, it was really about manufacturing first that happened to enter footwear. looking back on this these four years where they're writing checks, sizable checks from their own funds, ⁓ really figuring these out were was just so formative. And it's it's hard to understate ⁓ how important of a foundation this was. they began experimenting with materials, inventing new manufacturing capabilities in both knitting and fit refining, and eventually they started moving from producing prototypes to actual production.
In fact, there was there was a quote from Roth Martin that I found where he was talking about this this period and he says, ⁓ quote, with a computer program, we were able to write a pattern that basically used the PET fiber exclusively.
And I don't know, I it's I thought that that quote was interesting for a couple of reasons. because this is a founder, but it's not the language of a fashionista or a creative, even though like Roth was the creative person.
This sounds a tech person.
this is manufacturing, this is how you go about thinking about doing things so radically different than what other people have done.
Barb (25:43)
Couldn't agree more.
And I mean, they put two million at this point in time into the company. all the money had to be going into the company? Where were they working out of? Were they like your typical Silicon Valley startups at the time, or they were working out of a garage at this point?
Aaron Alpeter (25:58)
Well, it it wasn't out of their garage, but they did try to start manufacturing ⁓ closer to home, at least initially. but they found that the more that they pushed the envelope, the more they realized that US manufacturers, even the small custom built prototyping shops simply didn't have the capabilities that they needed. because what they realized they they needed was advanced knitting expertise, specialized machinery, textile and engineering, manufacturing flexibility, and all of these things eventually led them to China.
And so they didn't choose China because it was the cheapest. They chose China because it was where the capability was. think about where people are today, and like, man, we can't get around China, it's so strong. Like that ecosystem was so strong in the twenty tens. And it's just you know, the the rest of the public has woken up to that ⁓ with the tariffs.
Barb (26:43)
Yes, absolutely. And I mean, and today now, even in conversations with clients, they want the launch in the US. And it was like there's just literally you there isn't the capability to produce this product here. ⁓ and so it's just one of those conversations we often have to have and they discovered it early on.
so let's talk about the launch a little bit more. So at this point, we're in twenty sixteen. They've invented a lot of stuff along the way, ⁓ and they've decided to launch their company.
And once again, they did things very differently. So let's go through it. So rather than launching with a huge footwear line, they launched with an incredibly narrow product system in 2016, D2C only, with two core styles. And I'm very familiar with these two core styles. So they have the flat and then they have the point. So the flat is this round toe ballet flat, and they sell it for $125. and the point is a sharper pointed toe version for $145.
That's my favorite.
they were built around the full Rothys proposition, recycled plastic bottles, 3D printing, machine washable, which is I've been asking women and I s as I see them wearing it lately, like, how does it wash? They love it. They they say that like it brings back its form. ⁓ minimum waste and office appropriate styling and comfort. So they were able to get really good coverage from outlets like Vogue,
They were able to then describe their three printing manufacturing process as almost eliminating waste completely. And so the fact that they were washable and available in two designs with lots of color options actually didn't hurt them. One might think it would, but it didn't. and we can talk a little bit about that in a sec. So it's also worth noting that from a merchandising perspective, the launch looked really small, but ultimately it's all the color testing that went into it. So from a color testing perspective, it was broad
had 17 different colors and that gave the consumer a way to learn demand without exploding the construction complexity. their early reviews from press and from customers were extremely positive and right off the bat it looked like this was going to be a hit.
Aaron Alpeter (28:49)
Yeah, I and and again I I kinda try to put myself in their shoes. I I can't imagine the emotion that went into this moment. They've got two million dollars that they've set on fire, four years of their lives locked into into developing, and now it's out in the wild. So what did the first eighteen months of of the launch look like?
Barb (29:06)
well in twenty seventeen they raised a five million Series A from Lightspeed Venture Partners and
opened their own factory in Ganzhou just a few months after launching.
Aaron Alpeter (29:17)
Yeah, I think both of these are pretty interesting because at this point they had validated that the product existed and that the you know, of course, the manufacturing system behind it was working and that the consumer demand was was there as well. So they had de-risked it pretty well. where I don't know if this business would have been fundable four years earlier. And I think it's really interesting because most venture investors at the time were buying D2C multiples, Facebook acquisition economics, and digitally native brands in. And Rothys was really unusual.
Because the thesis for the investment was really more around manufacturing IP and process design and production capability. And it was almost as if like Lightspeed as well saw them not as a shoe brand, but as a manufacturing operating system that happened to sell shoes right now. And the the factory in Guangzhou was was also like a really aggressive move because most young consumer brands would outsource longer and and stay light on assets to preserve their flexibility.
They doubled down on vertical immigration just months after their public launch.
Barb (30:17)
Yeah, this vertical integration really just unlocked so many capabilities for them. ⁓ they continued to add more colors and eventually new silhouettes. And by September of twenty eighteen, they had the flat, the point, which they started with, the loafer at one sixty-five, a line of girls' flats for sixty-five dollars. I remember when this one came out, ⁓ a San Francisco store and their sneaker at a hundred and twenty-five dollars. And so they were also in this
amazing golden area as we all recall of D2C advertising when you could still rely on Facebook. Those were the days, as a core consumer acquisition channel. And so the point in particular became a cult favorite. They would show ads of people putting the shoe in the washing machine without losing its shape. And people just went bonkers for it. the early ads basically had three hooks for for the product. So it was
Made from recycled bottled, machine washable, comfort flats for professional women, and all three claims made them very, very shareable.
Aaron Alpeter (31:22)
Yeah, and I think the interesting piece here is despite all of the manufacturing processes that they invented and all the IP and the investment these and all that stuff, you you can't explain a knitting system to a consumer. You just had to say,
These cute flats are made from plastic bottles and you can throw them in the wash. And like all of that other stuff didn't matter to the consumer, these these benefits they got.
Barb (31:44)
Exactly. You know, supply chains the unsung hero once again. I'm curious to get your perspective. why do you think owning their factory was so vital in their
Aaron Alpeter (31:55)
Yeah, it's a it's a really interesting question because I think we can actually learn a lot about Rothys and their decision to do that from IKEA. And and what I mean by that is a lot of people think that IKEA's innovation was furniture, but it really wasn't. It was it was redesigning furniture around manufacturing, transportation, and storage processes. And so, with with IKEA, most traditional furniture companies asked, Well, what kind of furniture can I make? ⁓ and so they would spec it out, they'd build everything and
that would be that. And they'd probably look at what other people were doing and and ⁓ you know what consumers were buying and and that was the brief that they went to IKEA did something different. They said how should furniture be designed if manufacturing logistics mattered from the beginning. And that led to things like flat pack construction, standardized components, fewer SKUs, and which all that ultimately resulted in easier transportation, warehousing, and assembly. And in the case of Rothys, they started asking
what should exist if manufacturing efficiency was considered from day one. And so they started to knit their uppers. They used fewer components that generated less waste, there was more repeatable, more digital patterning. So you really have this idea that the shoe becomes software. It's the zeros and ones that create ⁓ and they just happen to be having a physical output instead of a software output at the end. And so when you think about like why they opened a factory so early in their history, the reality is is that the manufacturing system was a part of the product.
And the factory stopped being a vendor was more of an asset, a a core asset to what made the product the product.
Barb (33:24)
by the late 2018s, they already had over 160,000 followers on Instagram. And the market reaction was even stronger. they were framed as the
most San Francisco
shoes ever, and Vogue positioned them as environmentally friendly shoes that also look good. And if you compare this to Allbirds which is having their heyday as well right now, ⁓ these guys were actually doing something different.
Turns out people really like the shoes and not just a sustainability angle. women bought multiple pairs of a narrow product architecture in different colors and Rothys was able to make small tweaks to the process which allow them to provide novelty to the consumer without changing the underlying production.
Aaron Alpeter (34:09)
Yeah, and by twenty eighteen they had sold over a million pairs and then generated a hundred and forty million dollars in revenue. And they raised ⁓ thirty-five million dollars from Goldman Sachs Growth Equity. And on the surface, this you know just looks like a a big VC round, but the fact was that they were doing $140 million in in revenue two years after their public launch. And so it was it was growth stage equity. And this is not just a splashy round. Goldman was treating Rothys very different than other companies there.
you typically don't hear about Goldman investing in D2C companies or or brands for that matter, but they said that they were attracted to the production process and the product offering with with differentiated IP. And it's just really interesting how they talked about this because they didn't talk about the sustainability mission or the brand or the community, but it was the production process. That's really what stuck out to people when when they were thinking about this type of investment. And they had a a leadership change in twenty eighteen as well.
Jenny Ming steps in as the president and CEO of Rothys, while Steven transitioned to the role of executive chairman. And so Roth at this point was still involved in the creative direction of the business, but became more private and less visible. And Jenny was really fascinating because she's became first well known as the president of Old Navy during their explosive growth years. later she was the CEO of of Charlotte Russe and served on multiple retail boards and was just very invested in consumer businesses in general.
she's not a footwear innovator. she's a scaling operator. And so her job wasn't to invent something new. It was to take something that had already been done, all the hard work from Steven Roth, and instead make it bigger, to take it from being founder-led to something that's a little bit more institutional. And so by 2019, they had 1.4 million customers, 105% increase from the previous year. 2020 they started getting into handbags. And in 2021, Alpergadas the owner of
Javelinas acquired a 49.9% stake for roughly $475 million, which valued the company at a billion dollars.
Barb (36:09)
Wow. So what do you think they were really buying here? Like was it the brand, the consumer base? the more I think about it, it really is the manufacturing capability. Albergatus is not a marketing company as I understand. It's a footwear company and they understand production. So that seems to be the obvious answer.
Aaron Alpeter (36:30)
Yeah, and I I guess maybe we'll dig in this a little bit more, but it it felt like they were on this big trajectory, but they really weren't in a world unto themselves because there's a really interesting parallel to the story that we haven't touched on with a small shoe company in Oregon that you might have heard of.
Barb (36:46)
I'm excited to take it to this one.
⁓ yes, we absolutely have to talk about Nike. One of my best friends has been working there for a couple of years and I've got some inside scoop. and I'd love to talk about their fly knit program. if you go back to the mid-2000s, Nike had a problem. Traditional athletic shoes were becoming increasingly complex. They often needed multiple layers, stitch panels, and overlays, and all of this was adding more weight in and around.
mid 2000s, they began exploring what if the upper was knitted instead instead of assembled, ⁓ that upper section of the shoe. And that resulted in what they call the fly knit. they started working on this back in 2004 until 2011.
which took nearly a decade to develop the technology. So in twenty twelve, the same year Rothys was founded, they launched the Flynet Racer and the Flynet Trainer.
Aaron Alpeter (37:44)
The same year. That's that's really interesting. It makes me wonder. Well, actually I have even more questions now because on the one hand, they are proving that the the the the technology is there, but on the other hand, ⁓ I guess I'd have to spend two million dollars on my own money to try to do something similar. I mean, that's just a very difficult thing. And you know, how am I gonna justify to myself or to my family or to investors that you know let's spend two million dollars and we're gonna beat Nike? That's just it's just crazy.
Barb (38:10)
I mean, yeah, Flyknit was revolutionary for Nike and therefore for the whole industry. It gave their engineers so much more support, flexibility, and design options, and it also promoted another benefit, waste reduction. ⁓ Nike publicly claimed that Flyknit reduced upper waist by roughly sixty percent compared to traditional cut and sew methods, which is a huge number if you think about it.
Aaron Alpeter (38:35)
Yeah, this this is starting to sound a lot like Rothys. So did Rothys end up ripping off Nike or did Nike sue Rothys for basically doing the same thing?
Barb (38:44)
I know, right? Surprisingly, no. although Nike did sue Adidas over Prime Knit, which meant that Nike viewed FlyNet as IP. despite the technology between Rothys FlyNet being similar, their objectives were completely different. So Nike was trying to optimize for performance, speed, fit, and athletic repeatability, sustainability, comfort.
If you sum it up, Nike was using programmable knitting to build a better shoe and Rothys was using programmable knitting to build a better manufacturing system.
Aaron Alpeter (39:20)
Yeah, that that's interesting because I think when you compare Nike and Rothys, Rothys appears to have built the product, materials, and manufacturing process and the sustainability story around that knitting arch architecture, which is just very different from what Nike had done.
Barb (39:33)
let's fast forward to twenty twenty five. It's estimated that they were around two hundred and twenty five million in revenue with roughly twenty four million in net income. I have to feel the Alpergatus is pretty happy with this performance and I think it's only a matter of time until they complete the full acquisition.
Aaron Alpeter (39:52)
Yeah, I would agree. That's that's probably the most likely outcome for Rothys. I I think the question is probably more of like, why hasn't this happened yet? You know, why why buy 49.9%? And I think the reality is that Rothys still very North American centric. if they're going to be expanding successfully into Europe, Asia, Latin America, then I think the acquisition logic makes a lot more sense for Alpagadas. I think the real question is what kind of growth trajectory are they on?
what happens if their growth plateaus and if they're at 250 million for the next couple of years and it doesn't change a whole lot, is that just the market for the technology they have? is that what Aplargatas interested in? But ⁓ maybe they're trying to also look for proof that it can be a billion dollar brand or a multi billion dollar brand before you know ponying up and paying the rest of of the the purchase price. even that if that means that they end up paying more than if they bought it completely in twenty eighteen.
Barb (40:44)
Yeah. Seems like there is a lot more to pay attention to and learn from here.
Aaron Alpeter (40:48)
Yeah. Well, ⁓ I definitely have a bigger appreciation of Rothys and just I I hope I get a chance to tour their factory at some point because just the the videos I've seen online and kind of how it's been on it is unlike anything else that that I've seen before. And ⁓ Barb, you're you're naturalist. Thank you so much for being on the podcast. ⁓ what what are your big takeaways from from Rothys?
Barb (41:10)
Thank you for having me. I'd have to start with the radical focus on waste and looking at waste as a design problem in all of its aspects. most people will obsess over branding, marketing, and acquisition. ⁓ but customers never saw the knitting machines.
the product software or the factory architecture. Those are some of the most valuable assets there for Rothys.
Aaron Alpeter (41:34)
Yeah, you're you're absolutely right. supply chain is the unsung hero, like you said. And a as a supply chain guy, I'm I'm just really impressed with with how they design the manufacturing system before they designed the product. And that's just so upside down and backwards from what most people do. And it's probably something that people should do more of, honestly, ⁓ because most business problems happen upstream, right? used to always say that eighty percent of the problems or the headaches you're gonna have the business come down to
where you built your supply chain and how you built it and the partners you picked. ⁓ but the fact that they spent four years and two million dollars of their own money solving the production problem before even trying to identify demand was just really, really inspiring. ⁓ and and maybe reckless to some extent. I think it's just the opposite of what most founders do, especially in that vintage. And so just all all kudos to them in general.
thank you all for tuning into this episode of e commerce on tap. we hope you liked it. Please let us know what you think of Rothys. And you know, do you have a pair? How many times do you wash it? And ⁓ I'm curious to know how long they hold up. Thanks so much for listening and we'll see you back next time.