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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!
Aaron Alpeter (00:02.57)
Looks like we're gone. Hey everybody, welcome back to e-commerce on tap. I'm your host, Aaron Alpeter. Whether you're mowing the lawn, cleaning your house, riding the subway, or you're staring intently at the YouTube channel, we're so glad that you decided to spend part of your day with us. If you're new here, each season we dive into a different industry. We explore the brands, the stories, the supply chains, the exit potentials, other useful lessons about a category of what about where it's been and where it's headed. this season we're focusing on footwear. And I thought that I knew the industry a couple of episodes ago.
But it's so much more complex and nuanced than I had expected. And so I recommend that if you haven't listened to the category kickoff that you pause this episode, go back and listen to that one so you can understand what we're talking about. but we're gonna talk about a really interesting brand today in Veja and one of the things that we're doing unique this episode or this season as well is we're bringing rotating co-hosts to help tell the stories. And so today's co-host is someone I've known for quite a while, actually. We we caught up and I was like, my gosh, we've known each other for a long time.
in fact, I remember seeing a presentation that you did with your husband about about your company when you're first starting out. And I said, Wow, I hope I can be like these guys one day. And so it's my pleasure to introduce Divya Demato from GoodOps. Divya comes from the supply chain background, so she's another kindred spirit, but she's really focused on sustainability. And over the last 10 years, you've she's really built out this this niche to become one of the foremost experts, at least in my opinion, in the sustainability space. So Divya, thank you so much for being on e commerce on tap. Why you just
Introduce yourself a little bit and and talk about how you got here.
Divya Demato (01:30.319)
Well, it again, it's so great to have so many years knowing each other and and be on this together. So thanks for inviting me to join you today. you know, as you mentioned, my background is in supply chain and operations. I started very much on the corporate side of things. I was a buyer, I was a an import manager at companies like Pricemart. I was also handling the imports of Walmart.com in its early days. and so just really understood the nuances of how to how products are made.
And how they move around the world. And so it's been a really exciting time, I think, the last yeah, 15, 20 years to sort of see the evolution of how companies, especially e-commerce, have changed the game. and then as you mentioned, in the last say, you know, since 2012, I really started to say, hey, there's a better way to do this and focus my business on finding more sustainable way to run supply chain and operations. so that started out in New York City and now here in the San Francisco Bay area.
and really exciting time to sort of again see companies look at sustainability sort of in the I wouldn't say one point probably not even two point but maybe the three point era. now we have AI. So figuring out how companies can really see sustainability as a business strategy and not just a compliance strategy.
Divya Demato (02:48.622)
you know, I also, you know, some of the industries that I work with is worked in the fashion and apparel industry, footwear, which we're gonna be talking about today, home goods, CPG and also the food sector, in terms of understanding, you know, what are some of the biggest challenges for companies? and how again the competitive advantage of sustainability is something that, you know, if the companies that are on a global level and operating with you know hundreds of different suppliers, maybe thousands, can really figure out their, you know, their angle.
but you know, again, please subscribe and like, you know, the the this particular podcast. I'm sure there's a lot of fantastic questions, I'm sure, from here and look forward to to learning more.
Aaron Alpeter (03:31.328)
Awesome. Well, we've got a bit of a tradition on e-commerce on Tap. Before we get into the meat of the episode, we always like to start off with a tidbit. And I've got one that we just gotta talk about, and it's the impact of GLP ones on retailers. And so much like Footwear, you know, returns have always been one of the most difficult things for any retailer to manage. And they've always kind of built returns into their plans. but a lot of e commerce companies right now are struggling.
because they they're used to seeing returns around like twenty percent and now it's over fifty percent, which is just really expensive. And and a lot of people are pointing to GLP ones and the medications and say, you know, if I'm a consumer and I've got a rapidly changing body due to dramatic weight loss, they're ordering multiple sizes because you know, maybe they were at eight, they're a four, but maybe they need a six or like whatever's going on. And and so they're they're trying to like kind of bracket and buy all the stuff, see which ones in return it.
And they're kind of mimicking what people would do in a retail store automatically. but the brands are absorbing all of these costs because a lot of times they deal with with free returns. And so I think it's just been really interesting to see kind of how one mega trend in consumer is impacting you know the operations of the back end. And a lot of the companies I talk to are thinking about, well, maybe we start charging for returns or we put a cap on returns. I know that there are some companies that give discounts for you to waive your right of a return.
And so just it's it's really just an interesting tension between being consumer centric, but then also making sure you can be profitable.
Divya Demato (05:01.036)
No, I think it's really interesting. And and I think that was sort of the thing about e-commerce, right? In the early days when I started, it was getting come customers to be comfortable. and then now we're on the other end of the spectrum where they're almost too comfortable. and there's sort of this this this kind of free-for-all, right? And and customers sort of not really thinking about the impact of that kind of, yeah, let me just see what what kind of size fits and I can just return it. But there are emissions, there are a lot of waste associated with that kind of shopping and consumer habit.
so think every time you have a package that you are receiving and every single one of those, and then they get opened and ripped apart and then returned and and kind of all that back and forth. And, you know, something that I think that ties into that is also that companies, even though sustainability right now, as far as like a term, is an interesting place, you know, with the United States, you know, how companies are thinking about sustainability. But one thing's for certain is that.
Companies are gonna start moving and being required to to act more than they have in the past. I mean, disclosures have been sort of something the CDP has sort of evangelized. And now what they're basically saying is that companies are gonna have to be from a regulatory perspective from Europe and also the states is actually to show then act an action sort of an activity around those goals. And so the SBTI targets, which is the science-based targets initiative, just rolled out some new.
sort of you know, guidelines in terms of sort of what the expectations are for companies. And it's becoming one of those things where things like we're just talking about, the kind of high return or high high consumption and then high return process is gonna is gonna hit. And in terms of whether it hits the the brand itself or the consumer or both, we're certainly going to find out. But I do think that that is going to have an impact on the consumer experience and probably e commerce in general.
Aaron Alpeter (06:52.77)
Fascinating.
Aaron Alpeter (07:01.238)
Did you want to did you wanna share your your factoid or did you wanna roll into setting things up?
Divya Demato (07:07.92)
yeah, that was sort of my factoid. Just more whiffing off of that and tie. Yeah, yeah.
Aaron Alpeter (07:09.544)
Yeah. Okay. Cool. I yeah, I it was yeah, it's there. So awesome. All right. I love it. well, cool. Well, so before we we dive into Veja. I I wanna start with a broader question, especially given your background and and your knowledge, because Veja is usually summarized very simply as a sustainable sneaker brand. And that's a hundred percent true. But I think it's also a little bit too narrow and too small. It it kind of flattens the company into this label instead of helping people understand its operating model.
And so I want to start with sustainability itself. And so, you know, you spent a lot of time thinking about supply chains, materials, how consumers talk about the impact that is that's there. And I think that the perception of sustainability has really changed a lot, certainly in the last 10 to 15 years when I've been paying attention. So it's almost as if like for a period of time, sustainability w functioned almost like a shortcut. You know, you could say that something was recycled or organic or carbon neutral or vegan, whatever. And it that was like the headline by itself. But
I guess like my my question is, what does sustainability even mean in footwear anymore? Is it still a differentiator? Is it is it table stakes? Is it still in vogue? Like or has the consumer gotten tired of hearing the word sustainability?
Divya Demato (08:22.22)
Yeah, I mean, you know, it's a really interesting question and something that I I spent a lot of my time thinking about. You know, it's really understanding how the work that companies are doing in sustainability actually translates to the consumer. And this is actually something a lot of our clients have asked us is, you know, how do we commercialize the work that we're doing? we're we're spending all this money and all this investment sort of behind the scenes, but what does that mean? And and I think, you know, sustainability kind of took a hit from the the marketing side of things because people started to say,
oh wait you know, when there was an expose or some kind of a boycott, and and it was kind of that greenwashing claim that, you know, companies started to figure out, well, how do we sort of communicate the work that we're doing, or what we're doing is actually truly not sustainability, it's just marketing. And so, you know, in the past it was sort of that brand halo, right? You could sort of have this implic imp sort of the implication of you being a sustainable sustainable brand and sort of
build your, you know, consumer base off of it and and allowed consumers to really feel like, okay, I'm I'm doing something good for the planet. I really like this product, but I'm also doing something good the planet. And now that just doesn't work anymore. You're you're gonna have to be able to, as a company, really make sure that that you can you can validate those claims. And and I think it's really good in in many ways. I think consumers are getting smarter. I think consumers don't want the wool, you know, to be pulled over their eyes and
they've seen all kinds of things around recycled claims and vegan claims, carbon claims, offset, et cetera, et cetera, charitable claims. And I think that, you know, a lot of that sort of became a little bit too vague. And it also sort of confused the consumer as to what even is sustainability, right? It was sort of this personal value connection, sure. But then what did it really mean that that one value I connected on sort of overshadowed everything else? And and how does it all fit in, right? So
You could love that you're buying a non-animal product as a vegan buyer, but at the same time, is that just made of pure plastic and releasing a ton of emissions and it's and super toxic? You know, so it's sort of figuring out how can we educate consumers? And I think a lot of companies that are really thinking about this right now are figuring out, you know, how do we make sure the consumer is on that journey with them? but in a way that they can feel
Divya Demato (10:33.834)
informed and educated way. And I and something I always say is in sustainability, it does not have to be perfection, right? Progress over perfection and transparency. And the more you can convey the work that you're doing and the authenticity of that work, I think that's where consumers are starting to get a little bit more, I think, the trust is building a little bit more with brands like that versus again just slapping on some kind of label.
Aaron Alpeter (10:57.647)
Yeah, I I always remember there's one company in particular I I used to do some work for that they were an unprofitable startup and they advertised very proudly that 10% of their profits were donated to some cause. but there are no profits, right? So it was the answer was actually zero, but they were able to kind of claim that and and lock in. I think what you're saying too about kind of
sustainability maturing, customers maturing is is really resonant with what I have. I mean I remember being in college and we had these sustainability cohorts, which were awesome. And so we would we would basically partner with a a large company that wanted free you know undergrad work, which I I don't know was very viable at time. But it was all about like how to do reporting and how to do things that way. And it feels like things have have shifted away from reporting into actual
I I guess proof points. i is that a general shift across sustainability in general, or is it is it even more or less pronounced in footware?
Divya Demato (11:57.859)
No, I think you make up you know make a great point, right? Is like what how do you even define what sustainable sustainable products are? especially when you have products that are that are, you know, quote unquote difficult to be sustainable, right? I mean, anything at any given day that doesn't biodegrade is gonna come up with some kind of a level or benchmark of okay, well, how good can we, you know, how could good can we make this product and what is the most responsible way to make it? and when you have footwear that is a multimaterial product.
You know, you have these uppers, you the soles, adhesives, rubber, leather, textiles, the packaging itself, returns, and and end of life waste, which is you know, also coming to the spotlight with sustainability around you know, end of life or producer responsibility around products, is how do you how do you really break down each component and also the manufacturing? And I think for brands, it's really understanding, you know, where maybe the biggest impact.
is right the negative impact of making that shoe. So is it in the sourcing of those raw materials, right? So thinking about how to potentially you know, what's a huge chunk of your product, how do you think of a more sustainable way to procure that product, right? So if you're using leather, you know, are there animal rights that you're thinking about? Is it in the tannery and the chemicals that you're using? Is it in reducing the amount of waste? you know, I was in Ethiopia at at a company that was
making you know, apparel and accessories and and shoes as well. And you could just see the tanneries and the amount of waste that was created when you had hides of of animals that were not as smooth or as consistent as you would need to run a large operation. And so all of a sudden you're on the cutting room floor of a factory and you realize, wow, this could be done better. And so helping companies really understand that you can go upstream even further than you might realize and try to fight figure out ways to sort of
Find efficiencies for the business itself to reduce waste, reduce costs and all of that, but also think about, hey, this actual more efficient business is actually a sustainable, more sustainable business. Even things like we met the Ministry of Agriculture and and animal life and animal and livestock and said, hey, you know, these animals, these cows that are being sourced for their leather downstream, is there something we can do upstream, you know, when they're actually being managed in the in the sort of the the cattle farming?
Divya Demato (14:17.184)
And be treated better, right? So again, sort of an animal rights benefit, but guess what? Their hide was actually much more usable downstream, right? So it's just a lot of different things. And so when you think about what a sustainable shoe is, and as we think about, you know, what it is, it's really in comparison to what else is out there, and really understanding, you know, how you can better assess and make a better, smarter choice as a consumer. I'd also say though, there are there are opportunities for companies to raise the bar for themselves.
Right. And there's opportunities for them to dig in and really again see that this is an upper this is a chance for again a more efficient business, a more responsible business. And the consumer bringing them along in that journey, I think will also make your story and the marketing kind of tell itself. And I think that's why Veja is a really interesting company to study, because it's not necessarily leading with sustainability all the time. It's not necessarily solving every single problem.
But they're actually asking us to think about, you know, what act what have they done well, especially in their supply chain. And they work very closely with their suppliers and they are sourcing from my understanding, that from the Amazonian cooperatives, and they're looking at organic suppliers and really thinking about how their whole operations of their business is rooted in sustainable practices versus downstream trying to fix and make changes that again don't usually you know hold up when you when you think about scaling.
Impact and sustainability.
Aaron Alpeter (15:45.389)
Awesome. I know you jumped around on a couple of things that we were gonna touch on. I'm gonna I'm gonna go back to that spot that we are. and worst case, we'll edit out the stuff that No, it was it was good stuff. I just want to make sure that we're kind of following the narrative that goes through there too. Okay. so that's super helpful. I guess how is sustainable showing up in the footwear industry specifically?
Divya Demato (15:58.519)
Okay, okay, okay, okay, yeah. I'll just roofing, but yeah, yeah, yeah, okay.
Divya Demato (16:13.09)
Well, so you know, the way that the footwear business has to think about their sustainability is this multimaterial products, right? They have these uppers, these soles, adhesives, foam, the le the leather, the textiles, packaging, I mean you name it, right? Returns, end of life. And you
Aaron Alpeter (16:26.252)
Sorry, sorry, I I jumped I jumped down to this section below that. No, you're good, you're good. The the five the five model part, yeah.
Divya Demato (16:29.95)
sorry. Are you on the sorry, sorry. Okay, got it, got it, got it. Okay. So they're basically five different models when it comes to sustainability and footwear. So cause model, which every everyone is very probably familiar with is Tom's. They're the ones that really launched that one buy one, give one, and and other brands had sort of followed that suit. the second would be materials models. So Albirds, as we know, is the obvious example and they use Yeah.
Aaron Alpeter (16:55.391)
R I P.
Divya Demato (16:58.222)
using more renewable raw materials. But as we know also, All Birds is now apparently an AI infrastructure company. number three, you know, we have the recyclability model. So think of companies like Rothys, which is a great example of they use you know, a waste stream and they they sorry, they use waste of other products and kind of turn that into a new product a new product. circularity. So that's something that's theoretical where you have an existing shoe, but then you're you're able to fix it, right? So repair, take back.
resale and we like Patagonian companies like that have done really well, not necessarily in the footwear space, but really evangelize that the long-term use of high quality shoes. And then of course transparency, right? Just the we you know, the radical openness about where the businesses source their products and then the impact that they're making and the importance of transparency is because it's again not progress over perfection, right? It's making sure consumers really understand that this is a journey and that there's a lot of, especially for an existing brand, a lot to
reconstruct if you want to move towards sustainability and so that transparency becomes really key. So, you know, as we get into talking about a brand like Veja. we're not just asking is this shoe sustainable? What we're really asking is which version of sustainability is this?
Aaron Alpeter (18:12.96)
Hm. So that that's interesting. So we've got these five models. Do companies typically just pursue all of these at once, or is it like they pick one? Or if you only do one of these, are you considered to be more or less sustainable?
Divya Demato (18:24.364)
Yeah, it's a good question. I mean, sustainability is never really done, right? It's an ongoing, moving target. you know, each model solves a a specific problem, but it doesn't necessarily solve all the problems, right? It has weaknesses as well. And so when we think about the cause model, sure, it's easy to understand. You have toms, it's so it built a cultural phenomenon. but you know, in and from a weakness perspective, it's not necessarily changing the shoe itself, right? There was a social impact side of things.
People got super excited, but they never actually, I would say, made an impact on the environmental side of things. And in fact, they moved some of their manufacturing to China at a very pivotal moment. And I think, you know, the brand suffered a little bit from that. the materials model, of course, goes deeper. You know, Allbirds helped to make that lower impact materials mainstream. they were calling themselves the lower the lowest carbon shoe, right? That was something that
you know, back to this whole idea of, you know, in comparison, how sustainable were you? And I don't think anyone had ever measured the carbon of that specifically of the shoe. So them, you know, Allbirds coming out with having the lowest carbon shoe is a really smart moment, I think, in the space because it really kind of called to attention, well, how much carbon does it make to make a shoe? so I think that the material story, you know, it has to be beyond just like design, sourcing, but also figuring out, you know, how do you have the right discipline?
when you're you're calculating your how to make that shoe and from a responsible environmental place. but you know, something that they did quite well. The recyclability model is a deeper, even deeper step. You know, recycled plastic becomes yarn, yarn becomes a knit upper, and the production system becomes part of the brand's identity. but even there, recycled material can become less differentiated over time.
you know, people always talk about recycled plastic, but you know, do you have a better system or or is it just a better claim? Because at the end of the day, it's still plastic. so we have to think about, you know, what is the long-term impact of that on the environment. circularity is probably the most intellectually appealing one and the hardest probably commercially. You know, everyone likes the idea of keeping products in use longer, but shoes are hard to disassemble. they're hard to recycle cleanly, and repair can be very labor-intensive and sometimes quite costly.
Divya Demato (20:34.606)
So circularity often becomes a strong trust signal before it becomes a real profit engine. And I think circularity and the repair side of things really only works when you have such a high quality product where that long-term use and repair really means something. And sometimes it's not just even the quality, but that the brand is so strong. so it's something that, you know, certain companies like a Nike or what have you, it makes sense. You know, if you if you invest in that pair of Nikes, you're gonna want to keep them for a long time. and Veja sits in this transparency model.
you know, the point that they not only, sorry, the point is not only that they that they use better materials, is that they invite consumers to look at the system, right? They have a lot of of information on kind of the cotton that they use, the rubber, their factories, the wages that they pay their workers, the producer relationships, you know, their their perspective on repairs and also the trade-offs. they're not just saying, trust us, right? This is better. They're saying, hey, look at how we built this. You know, we want you to be part of that journey.
and and and and connect to our brand based on that journey, which I think, you know, sets up sort of a a different relationship with the consumer. And if you show the supply chain you know, kind of under the hood, what does that do for that relationship? And can the supply chain itself actually become the brand?
Aaron Alpeter (21:48.129)
Hm. That's a that's a really interesting question and I think it it's a good intro for for Veja. I mean you know, their particular brand of sustainability is is all about transparency, like you said. And they could have become like a niche ethical shoe. They could have been like the earnest, crunchy, worthy, you know, granola small company that was out there.
Or but it it could have become a product that people respected more than they wanted to actually wear. But instead what they ended up doing was building a shoe that was aesthetically quiet enough to become fashionable and yet operationally complicated enough to feel really credible. And so you know, did they go about starting as a sustainability shoe or did it start as something else?
Divya Demato (22:27.426)
Yeah, no, and I would I would say based on because of their operations and their supply chain, there was sustainability first in operational logic, but you know, not necessarily sustainability only in consumer appeal, right? And and we know this in sustainability brands. You need to connect with a consumer based on the based on the design, the connection, the quality, and and that's what's gonna really make the connect what make the consumer really feel close to that brand. And so, you know, if the shoe had only been sustainable, it probably would have stayed small.
but consumers may care about impact, you know, but most people still buy shoes because they they like how they how it looks, how they feel. We also know that performance is a big part of shoes, even if there's a fashion component, but there's also recently a lot of interest in the performance as well. And you know, Veja's advantage was that it did not force the consumer to choose between taste and ethics. And I think that's those are the brands that get it right. the design language is restrained. It does not scream eco-product, it does not try to visually punish the consumer for caring.
not to say that all sustainable brands mean that the co the the design is bad. It's just something that they've definitely prioritize the design in connection to the consumer's needs first. it fits into this white sneaker trend, which is very popular popular right now, the minimalist wardrobe, which is that kind of quiet luxury trend that's happening right now. the premium casual uniform, so sustainability is the sort of foundation, but it's not the entire consumer proposition. And I think that's where they really have an edge.
Aaron Alpeter (23:52.385)
Yeah, you're right. I think for so long it was like sustainability was almost an excuse for not having a good product. You're like, yeah, but it's organic or we help the elves or something. You know, like there'd be all these claims that were there. And so I think, you know, not just about footwear, but but Veja is a really interesting case study for lots of different reasons. And I I think that kind of gets to the core of what we're gonna talk about in this episode. It's it's not that
They made a sustainable sneaker. Lots of people have done that. But what they did is they moved their marketing spend into their supply chain. And so like that that's the part that I'm really looking forward to getting into.
Divya Demato (24:26.69)
Yeah, I think it's fascinating. I think that they were super smart to find money and find dollars within their operations. And, you know, the fact like that in most sneaker brands, the factory is the backstage, right? most consumers are not asked to even think about or care about what it took to actually grow the cotton or, you know, who tapped the rubber or how workers were paid or whether the shoe can be repaired or not. most normal sneaker companies, the shoe was made and then the meaning kind of gets layered on top of it.
through ads and athletes and celebrity campaigns and and sort of performance mythology and the cultural sort of heat around it. but the fact that Veja tries to build the meaning before the shoe is assembled, sort of behind the scenes, but also at the forefront for the consumer to connect to, you know, the cotton, the Amazonian rubber, the factory standards, they've made it a big part of their story and it and it resonates pretty, pretty strongly with the people that they're going, the people that really believe in the Veja brand.
Aaron Alpeter (25:19.874)
Yeah. All right, we've had a lot of setup here on sustainability and all the things. Let's let's dive into the actual story of the company. and let's start with the founders because I think this is where they start to make a lot more sense with everything we just talked about. And so our two founders are Sebastien Kopp and Francois Ghislain Morillion. And the first thing you gotta know is that these guys were not sneaker people. they didn't come out of Nike, they weren't elite runners, they they weren't footwear designers, they weren't even sneakerheads from what I can find. they were childhood friends. And so
They met when they were about fourteen years old. They were both growing up in France. they both eventually studied economics and went to kind of the early career track that economics majors have. And so they looked very respectful. They did they're doing finance and baking, international work. and there was a period of time where they were both living in New York and and and and in D C kind of doing the finance stuff that would be there. And after a few months of kind of landing this career that they've they've been studying for, they realized that this was not the life that they wanted.
you know, I've got some friends in finance and so I can appreciate you know, how they how they particularly feel about that sometimes. one second, I get
Something making noise. you know, after deciding that finance was not what they wanted to do, they actually created an NGO, which I didn't know you could do, you know, as basically a recently graduated person. but they started an NGO called Fair Planet. And it was it was really interesting. I mean, what I was able to find about it was it was kind of like a research and consulting NGO about sustainable development, ecology, social development, and economic justice.
And this was this early, this was early 2000s that they were doing. So thinking about kind of the, you know, leading the wave, and this was just starting to come into fo into vogue of what people were looking at. And they started contacting major French brands to see if these companies were willing to discuss these topics. And because there were very few other people who were doing this, they began having very serious conversations with very serious companies. And in in the course of about a year, they studied roughly 70 projects across countries like.
Aaron Alpeter (27:22.86)
Brazil, China, India, Bolivia, Vietnam, Australia, and they were looking at things like pollution reduction, environmental practices, social conditions. I mean, it sounds like the dream for an undergrad who cares about sustainability.
Divya Demato (27:38.295)
Yeah, they that definitely sounds like they were living a dream. And you know, I think that they found sort of this up this opportunity, right? To sort of what we were saying about having a sustainability first operating logic. so the I guess the natural question is is like why did these two French environmentalists decide to get into sneakers? I mean, there's a lot of different products that they could have chosen, like coffee, chocolate, t shirts, bags, cosmetics. Why shoes?
Aaron Alpeter (28:05.046)
Yeah, it's a really interesting question. I think part of it is that their NGO was going through and studying all these different types of industries and approaches, and they were really getting a crash course in what the world economy looked like and how things were interrelated and just that that system and a mechanism. And so when you think about sneakers, they are ordinary enough that, you know, seven billion people on the on the planet know what a sneaker is. You don't have to teach them what it is. but they're also complicated to kind of show all of this globalization in your hands.
And you know, when you stop to think about it, you're you're wearing globalization on your feet. The the the canvas for the cotton came from a different place than the rubber. the upper might be leather or synthetics or recycled polyester or some other textile. you've got chemicals in the form of the glue, you've got factory labor, usually low cost and and kind of some social impact considerations there. You've got international logistics as you're moving these things around. And so all of that adding into end-of-life waste. And so
The the question that they kind of had at the beginning was if we could build a consumer product differently, what would we start with? And and if we wanted to make have the biggest impact on things, perhaps a sneaker is a good place to start.
Divya Demato (29:18.786)
Yeah, and and this is a very different founding story than you'll hear virtually anywhere else, right? I mean, Sebastien's talked about this directly, and he said that they looked at a sneaker and asked which part, which part was made from asked what each part was made of and where those materials came from. And so the canvas is what led them to cotton, the sole led them to Amazonian rubber. you know, you don't really see this that often. Most brands are thinking about or consumer brands are thinking about what the customer wants.
Then they kind of work backwards, right? What does the customer want to feel? What is the image that they want to project? You know, what's the price point that they will tolerate? What trend are they responding to? But Veja started further upstream. You know, where does the cotton come from and who grows it? And you know, what are the workers paid? And so I think when you have these questions, right? So, you know, where does the rubber come from? what does the rubber economy support? Where is the shoe assembled? what does the factory relationship look like? What happens when the shoe wears out?
this these are deeper questions for founders to really think about and think on. And I think when you starting to build a sneaker brand with these questions in mind and at the forefront, you'll see a very different brand emerge, right? And also again, you know, providing a different kind of outcome and connection to their consumer because they're starting at a very different point. that probably explains a lot of why Brazil became so central to the story as well.
Aaron Alpeter (30:35.2)
Yeah, th that's right. I mean, they are famously tied to Brazilian supply chains. I mean, the organic cotton comes from there. They have wild rubber from the Amazon, the factories in Brazil, I believe. And, you know, this really all started because they were visiting the country doing these research projects with their NGO, and they came up with the idea of of founding the sneaker brand that was rooted in sustainability and and fair pay. and they searched for materials that led them to small producers of of rubber and organic cotton in Brazil and in Peru.
And so they decided to establish this in 2004 And again, they're in their early twenties at this point. and according to an article years later from The Guardian, they said that they started with about five thousand Euros and an equal amount of idealism in naivete. And the goal was just to casually reinvent the sneaker from A to Z.
Divya Demato (31:24.258)
Yeah, and and I think that that's what's so fascinating, right? Is the part that people, you know, usually ask about is like, well, how did they learn how to make the shoe? but they actually didn't. It was sort of fascinating. But what the what Sebastien had said is that they actually approached it by deconstructing the sneaker or a sneaker, right? And they looked deeper and they saw, okay, well, there's this canvas and you know, well well, what it what is made up of this? Well, okay, if it's cotton, then where did that cotton come from? And they looked at the sole and then they asked, Well, okay, this is rubber, but where did the rubber come from?
And they kind of follow the components backward through the supply chain, which sort of led them, you know, to figure out ultimately how to to make that shoe.
Aaron Alpeter (32:01.324)
Yeah, and I just want to go back to like 2004 That was a long time ago. That's before the iPhone, right? Before Facebook, before Shopify. I mean, there was no Sourcify that could help you find a factory. And they effectively had to find three things at once. They had to find organic cotton producers. Again, I don't know how developed the internet was in Brazil, so you can imagine how they're just going out and trying to talk to people and, you know, let's define what organic is and let's find these people. They had to find a source for the wild rubber.
And then they actually had to find factories that could make the shoes. And, you know, they like luckily Brazil has a pretty robust, strong footwear manufacturing ecosystem, even though it's basically all focused on the domestic market. But still they had to find factories that were willing to make the product at a different quality level level and with different ethical standards than maybe would have been the norm. And so this is very clearly a radical departure from what other companies at the time were doing. how do you think their past experiences
doing the NGO and and kind of seeing all these different things shaped their definition of sustainability.
Divya Demato (33:06.242)
Yeah, and and I don't think it's far-fetched to say that, you know, they became frustrated by the gap between corporate language and operational reality. you know, understanding kind of, you know, they saw companies talking about social responsibility and sustainability, but they kind of realized that those claims were often just living in the marketing layer. We talked about greenwashing. and you know, I think they were looking to build something a little bit different. And and so where impact was not adjacent to the product, but it was in that day-to-day operations and basically inside the product itself.
And actually, that's where the name Veja becomes, you know, sort of interesting to look at. Veja in Portuguese means look. and that's kind of the premise, right? Like, look at how this is made, look at the cotton, look at the rubber, look at the factory, look at the people behind the product. we're talking about transparency, right? I mean, that's literally the definition of look. in other words, you know, the name is not just branding, it's actually an instruction. And I think that's you know, quite a beautiful way of sort of again bringing the consumer into the story.
But it also brings us back to the sustainability conversation we started with. You know, Veja did start as a sustainability company in the sense that the founders were trying to build a product that was much more responsible, thinking about ecological materials, of course, the supplier economics and making sure that there was responsibility in production and transparency. But it was sustainability as an investigation and supply chain as a sort of a design concept. But they recognized the shoes still had to be, you know, desirable to the end consumer.
So, you know, it had to look good enough to wear without explanation and and definitely competing with what was on the market. It had to fit in someone's actual wardrobe. It had to be thinking about the trends that were happening out in the marketplace. And it had to work as a sneaker before it could work in in any in any other way, you know, before it was sort of a statement. And the product is is quiet, but the company is loud. And only when you look underneath, right? When you think about what they've actually built and how they have said really stood apart from the rest.
When someone buys Veja, they're not necessarily walking around shouting, Okay, I care about Amazonian rubber and organic cotton, right? They're wearing a clean sneaker, but if they want the deeper story, you know, it's out there. And I think for other brand lovers of Veja, you know, it's sort of that acknowledgement, right? Like, I I see you and you see me or Veja look, right? So I think that that's that connection is definitely there.
Aaron Alpeter (35:17.802)
Yeah. I i if if you know, you know, right? So I think that that's super cool. I mean, that kind of reminds me of just the importance of names. I love this idea of of just look if we're gonna build a company around sustainability. It it kind of remembers reminds me of the first company that I worked with from a startup point of view was Hubble Contacts. And we knew that we were building a DTC contact lens company, but we weren't quite sure what the name was gonna be. I think at one point we had called it Iris. you know, I you know, but there was like trademarks all over the place. Somebody else had that.
but we ultimately decided to go with Hubble. And first off, like the domain was available, the trademark was available, so like that checked the big boxes. But there was this whole story that that we had uncovered about how when they built the Hubble telescope, they had mixed up like metric and imperial systems. And so, you know, centimeters and inches are different. And so basically they they launched this million dollar satellite and it didn't work. And you got very fuzzy, kind of very bad pictures again from from there. but what they ended up doing is they
retrofitted the telescope with a giant contact lens, which is how they help see a lot better. And so, you know, we never talked about that from our branding or marketing perspective. But it was it was definitely there when you had it. So I I think I I don't know, I just I think about names and the importance of names and stuff like that.
Divya Demato (36:32.018)
wow, that's fun. Yeah, no, I I had no idea, but that's fascinating. I mean, even good ops, right? Good operation. So sometimes you have the name sort of blended in there somewhere, but but yeah, that's that's really fun.
Aaron Alpeter (36:43.382)
Yeah. So it's it's pretty clear that they took a very early position that they of what they wanted their brand and their consumers to be seen as tru as transparent. And when you make that decision really early on, it becomes not just something you can undo. It's like a core part of your identity. It causes a lot of other implications that you have to think about. you have to fund that decision someplace. And so that meant that they were inherently locked into a higher margin structure because they were intentionally going to pay more.
For the raw materials. They wanted wanted to invest in supply relationships. And that was really kind of more important in order to deliver on the transparency of the brand than maybe having a great margins worth thing. And so I think the the question that naturally happens is how do you take this idealism and position it into a viable economic model? Because they didn't decide that they were going to charge luxury prices for these for these shoes. I mean, they're not cheap, but they're also not the most expensive thing that's out there. And so
I think the part that was really interesting about this, they intentionally chose to invert their P and L. Usually what people do is they say, We're gonna spend as little as we can on COGS and we'll spend a lot on marketing and and that's what's gonna drive things. But they said, We're gonna spend as much as we can on supply chain to get the product that we want and we're gonna spend almost nothing on marketing, which is just really shocking.
Divya Demato (38:01.238)
Yeah, no, and when I hear that, I mean, that sounds nice and everything, you know, if if you can actually make that happen, you know, but isn't that just like a different way of saying they had a low margin business? you know, he wouldn't be wrong, but you know, it seemed to work for them. And it's really interesting. Like Veja launched publicly in 2005, you know, not at a sporting event, but in Paris. You know, in 2005 at the Palais de Tokyo in Paris, where it first modeled the volley, which was inspired by Brazilian volleyball shoes from the 1970s.
Aaron Alpeter (38:10.348)
Yeah.
Divya Demato (38:27.51)
And despite their limited, you know, marketing budget, their limited scale, they sold 5,000 pairs at that launch. And so it's foreign to talk about someone launching in 2005 without all the bells and whistles and marketing tools that we have today. So whether that was Shopify funnels or Meta ads, these didn't exist. There was no influencer seeding machine, there was no TikTok, no big drop built around, you know, sort of a paid retargeting that we see with shoe brands today. But the playbook at that time was really about, you know, how do you build a product? How do you create a physical cultural movement, which is not an easy feat?
How do you get press? How do you get buyers interested? You know, and how do you move through sort of the retail, the selective retail cycles, right? So I think that the fact that they chose to launch in Paris at the Palais de Tokyo is interesting, right? Again, it wasn't necessarily what you would think for a sneaker brand, but it was an art or it is an art and cultural venue. And I think from day one, they did things differently, right? They were presenting not necessarily as sort of, again, this this sort of footwear brand.
they were actually talking about something closer to design, to culture, to ethics, and of course, Parisian taste. They are French after all.
Aaron Alpeter (39:32.567)
Yeah. It it's it's really interesting because they're they're being very intentional and saying, Look, we're gonna s launch with one SKU almost as a proof point. And it's like they were trying to prove that one simple sneaker could carry a very complex supply chain story. And I I'm not sure quite what the price was in 2005 but the volley today costs between a hundred and forty five and a hundred and seventy dollars, depending on like the canvas, the leather, the suede, or you know, the the option you're choosing. And so and so the goal here wasn't to have
Divya Demato (39:40.654)
Mm-hmm.
Aaron Alpeter (40:02.08)
like cheap ethical footwear, they really wanted to be in that premium accessible zone. So it's expensive enough to support higher upstream costs, but not priced like like a luxury brand. And the founders were we're not saying we're gonna make a radically expensive ethical shoe. we want to make something that can live near the mainstream you know clientele and and consumer. but we're gonna make sure that we can afford it by not spending on traditional advertising. And so one of the things that's really cool is is they kind of wear this badge of honor.
where they lean into this no ads moniker. And it's this explanation that that talks about how, you know, producing a pair of their shoes is is like five times more than what it would be elsewhere because of their raw material, their environmental, their worker right commitments, etc. And, you know, it's just like they lean into this fact like, yeah, we don't do ads. Why? you you got a question like here's all the stuff of of where we're spending that money on. So it's this really kind of s like slow burn piece that that starts to
resonate with people who care about this.
Divya Demato (41:03.884)
Yeah, no, definitely. And I and I think that that sort of that slow you know, kind of what's the what's the word? Like a slow burn, right? In terms of building that that brand loyalty and that brand interest. for several, you know, for several years they were in France, but by 2008, you know, they began expanding beyond Paris and France and and first to London, then eventually to Europe more broadly. And I think that that intentional strategy and really focusing on establishing credibility first.
thinking about the selective doors that they wanted to get into, second. And then third, really thinking about their the global awareness of their brand, that helped them to really build, I think, a very strong loyalty and understanding of kind of who they were, but also what the what the brand itself stood for. And they didn't even open up their own flagship stores until many years later. And of course, before direct to consumer infrastructure became sort of the default consumer brand playbook, which we see now, you know, Veja grew through.
Just very selective distribution. It was very smart play through through boutiques and department stores, concept stores, of course, ethical fashion shops, and then and then, you know, kind of the crown jewel with sort of the high status fashion retailers. And throughout all of this, their supply chain was really the differentiating factor. what was actually different though about what they did?
Aaron Alpeter (42:19.904)
man, I I love this. As like as as a fellow supply chain nerd, I dug into this so hard. because the key thing here is that they didn't just choose better inputs, they intentionally chose harder relationships. And so what I mean by that is like a brand can buy organic cotton on the open market. they can buy recycled polyester from a supplier, you know, you can use natural rubber and say that it's responsibly made. But what Veja did was was take the sourcing relationship itself and embed that into the product.
And so rather than just finding qualified suppliers who could meet their quality requirements at agreed upon cost, they went like so deep. And they wanted to know actually who was it, what was their name, who's producing the material. is this person fairly treated? Are they paid fairly? you know, can you explain the chain of custody about how the cotton or the rubber gets from the earth to my factory? And, you know, is this a sourcing model that's good for the community that supports it? And so just think about like the l like.
The the amount of detail that they went to is just is just mind blowing.
Divya Demato (43:22.994)
I mean, absolutely. Like let's take cotton, for example. You know, if you buy organic cotton through a generic broker, you might get a certification and some sort of details, but you don't necessarily get a clear relationship to the farmers or economics, you know, behind the farm. And I think from what I understand, you know, Veja want a cotton that can be traced back to producer associations, which really speaks to their desire to have that authenticity and transparency. And, you know, it's cotton is grown by farmer associations in Brazil and Peru.
And I think back in 2024, they purchased more than you know 280 tons from 1,350 families in these two countries. they also pre-financed up to 50% of the harvest in advance. And we know that the work in sustainability, sometimes that is the missing piece. It's not out of a desire of not wanting to do it, but it's the financing. So when you have brands really stepping up to make that happen, it's it's really makes the difference, you know, for those lives, but also for the company.
You know, they also set a price that was decorrelated from the market to protect these communities. So it wasn't just a one-time you know, relationship, right? So that these communities were protected from those wild swings and volatility of the market. I also think one of the most interesting things, too, is actually how they dictate you know, the how the cotton is grown. So, you know, organic cotton usually means, most people know, no synthetic pesticides or fertilizers. But Veja goes beyond this. You know, they're into agroecology as well as also the producer associations.
So that matters because it ties the cotton to the farming practices and the livelihoods, not just the label on the product. And this is something that again comes up in sustainability is oftentimes we're thinking about the environmental, our environmental impact, but not necessarily the social impact. So they're really kind of harnessing both of the true two pillars of sustainability here. they have, of course, taken steps to manage climate exposure, and they say that the northeast of Brazil has 60%.
chance of drought every season, which can really impact their supply chains. and in 2021 it used forty percent of cotton from Brazil and sixty percent from Peru because of that drought.
Aaron Alpeter (45:21.302)
That's fascinating. I think like the rubber sourcing is also something that stuck out to me. and it really shows how they put their values into practice here. So you know, natural rubber is very widely used in footwear. And other brands can and do make claims about natural rubber, responsibly sourced rubber, FSC certified rubber, or Amazonian materials. and and so the distinction isn't that that they just found rubber in the Amazon, it's that they source their rubber
with seringueiros I is how you say it, or rubber tappers. And these are people who harvest wild rubber from trees in the forest, and they describe them as like harvesting in a circuit. So they allow these trees to regenerate. The rubber season runs basically from April to November, and each of these seringueiros harvests about 400 kilograms per season on average. And so like they're they're paying three and a half X the market rate for this method.
but their logic is that if they can help people earn a meaningful income from a standing forest, then there's no reason to to cut down that Amazon rainforest and move the land toward cattle or logging or other deforestation like activities. Which is just like you think about it, you're like, my gosh, of course. Like if really cared about this element, if you wanted to keep the rainforest there, yes, you can give a bunch of money and pay people to not chop something down, but better for them to actually, you know, build their living off of having a healthy forest. And it's just it's such an important thing so much.
Divya Demato (46:45.344)
yeah, no, I I love that so much because when you take a step back and look at this from a total ecosystem perspective, it makes so much more sense. You know, the core logic behind the idea is that if I can save the rainforest by paying a little bit more for rubber, I'd a hundred percent do that. And I think that's a great example of what they've done. And and regenerative agriculture or regenerative farming is actually one of the ways to kind of have a win-win situation, right? You're you're taking the benefit of of that of that, you know, particular ingredient or material, but you're also ensuring that there's a longevity and a future,
for that particular forest or or farm.
Aaron Alpeter (47:18.796)
Yeah, I i i y we start telling these stories and it's very clear how they got to be where they are with this no ads policy.
Divya Demato (47:26.316)
Yeah, definitely. And I think that their stance on recycled materials is also really refreshing. you know, a lot of brands use recycled plastic as a marketing shortcut. But, you know, to be fair, recycled inputs can be better than virgin inputs, of course, but the word recycled doesn't necessarily tell you who collected the bottle, who sorted it, who got paid, or the chain of custody, you know, is even real. you know, Veja had a traceability gap in its recycled PET story. and instead of just living with the claim, it worked with Catadores in Brazil.
To make the bottle to textile chain more visible, again, speaking to their whole transparency ethos. And this is the difference between using recycled material as a claim and building recycled material as a system. And you know, trying to also get ahead of reducing the amount of virgin plastic that gets into sort of the, you know, into the into the landfills and into communities.
Aaron Alpeter (48:15.286)
Yeah, it it's really interesting because I think when you look at their particular brand of transparency, it's it's not only just disclosing the good parts, they are actively like disclosing things that create questions. And so whether it's saying, hey, there's there's drought risk in Brazil, or you know, there's traceability gaps in this PET, or you know, we're gonna quietly shift some of our production to Portugal, I mean, these are the things that that it's still not a perfect circular object, but real transparency is not just showing
you know, your halo and and shouting your virtues, it's also showing the place where you're still a work in progress. I think that's just is so interesting that they've embraced it to that core.
Divya Demato (48:53.57)
Yeah, and and just curious, I mean, when it comes to selecting Brazil as their manufacturing hub, you know, was it due to proximity to the raw materials or was there something else that pushed them in that direction?
Aaron Alpeter (49:03.754)
Yeah, so I I think, you know, most footwear brands go to big Asian manufacturing hubs because that's just where the capacity is, the cost structure, a lot of the component ecosystems are there. they started in Brazil not just to try to minimize unit cost, but because they wanted to build a coherent supply chain around the cotton, the rubber, the factories and labor standards. And so they've they've historically said that, you know, all their factories are in b are in Brazil because they're able to emphasize and measure strict labor laws and worker rights and things like that.
they think they said that like 75% of their production is fair trade certified. and the company contributes like one percent of the cost of each pair to a worker managed community development fund. although in in 2023 they did secretly, secretly, launch production in Europe and they moved about a hundred thousand pairs to Portugal before kind of communicating it. So they're they were testing into it to see what was there. but they said that they chose Portugal as their secondary site because it had fair and similar working conditions to what they were
Emphasizing in Brazil.
Divya Demato (50:04.578)
That's amazing, you know. I I think that what gets me is like all this work and effort that they put into the brand and the infrastructure. you know, it's it's really something that they've actually really built into this kind of you know, the quality of their products, you know, really living and breathing beyond and into the supply chain. And and I think that they've been said this for, you know, a long time at this point, you know, and and
Aaron Alpeter (50:27.916)
The thing that's crazy is like they did all of this stuff before they launched. It is isn't as this like they did this and then twenty years later got to this. It's like, no, no, we're gonna do all of this stuff and then we're gonna sell a shoe. And that's the part that just blows my mind a little bit.
Divya Demato (50:39.646)
Yeah. I agree. And I and I think the integrity of that of that work, you know, really shows up. and and that what's really interesting is that in, you know, in 2017 the Guardian just started describing the Veja got that credibility, right? As as a rare sustainable fashion brand, but that just doesn't look like one. and you know, in the sense that it was sitting actually and it could hold its own in Dover Street Market or Selfridges or, you know, matches fashion or net or porte. And and I think
You know, what was basically what that means is that it had effectively shifted from an ethical niche brand with one that had real fashion credibility, which is no small feat. you know, think about it, Veja was no longer being sold for just like good for planet context. it was sitting next to normal fashion products and and that product had to, you know, because that product was competing aesthetically. and I think that that's a great model for many other brands looking to go into the fashion space, but wear or apparel to to look to.
Aaron Alpeter (51:36.256)
Yeah, that that feels like it's really hard to break out of that that ethical or sustainable or or even like just the niche pigeonhole. Have you seen other brands since the past? I mean, I I feel like it's it's really easy to get typecast as a brand and always assume that, you know, this is what they are and this is what they're always gonna be.
Divya Demato (51:53.325)
Yeah, I mean certainly hard. And you the Veja was able to do it without compromising their stance in the supply chain. They made a great pro great product and were intentional about it. they did the hard work of building a brand that happened to be very ethical and sustainable and is a good model for other companies thinking about the space. I mean, we've obviously seen Patagonia you know, use this playbook for a long, long time. And it's it's the the proof is sort of in the pup in the pudding. North Face is, I would say, an another one that is certainly trying to tow that line as well. And
you know, all birds I think tried and we saw that they weren't able to necessarily to to do it. And so you know, I think that there's there's a lot of there's a lot of a lot of lessons to learn from Veja as sort of how they were able to to tow that line.
Aaron Alpeter (52:35.712)
Yeah. I I mean I I'm sure it was a bit of a transition, but is there is there a moment in time where they kind of crossed over in the public psyche from kind of a this niche ethical brand to more mainstream?
Divya Demato (52:47.308)
Yeah, of course. mean, we know pop culture, right? So that's in there's all these photos. So in 2018 Meghan Markle wore Veja during a royal royal tour in Australia. And you know, after you see something like that, you see a brand named among contemporary fashion labels with major publications. as we mentioned, Meghan Markle, but also Emma Watson, Marion Cotillard. they were just visible admirers and fans of the brand. And I think that gave a lot of credibility. but you know.
The celebrities didn't invent Veja's relevance. I mean, I think the love from the celebrities came is, you know, because of Veja's relevance and what they had built behind the scenes and then of course brought to the forefront and their ability to kind of cross from that ethical fashion to mainstream style is where they really connected.
Aaron Alpeter (53:29.322)
Yeah, and that kind of brings us to 2019 And the business is decently well established. They're doing about 65 million euros in revenue. They're still founder-led. They've got about 120 employees spread across France and Brazil. And they they're really focused on like this wholesale self-finance piece. It doesn't look like they they took on any sort of outside capital. And so organic growth from this crazy slip hard supply chain at the beginning all the way up to you know, called 80 million US dollars.
a couple of things that happened in 2019 though made this a really significant moment for them. like you said at the top of the episode, that like this white sneaker trend was really becoming on point and they were known for clean white sneakers, like literally clean and in multiple, you know. They were known for clean sneakers in multiple senses of the word. and so it was the right product, the right moment, but they had like this visible logo, they were easy to wear, and the values aligned with what people were looking for without being overly preachy at the same time.
And so I think the the most significant piece was actually a organizational change. And they brought in Laure Browne to join as a senior leader who basically had this mandate to help professionalize the organization. And the founders were still very much involved. but Lori joined to form like this leadership triumvirate. And she is a French executive with a very long background in retail and brand management. She's just like known as a really good brand operator, and she helped turn them from like this founder-led project into
you know, a structured company that was capable of handling all the demand that would come from international expansion. And so by 2023 they surpassed over two hundred million euros in sales. And by 2024 they were targeting two hundred and eighty million in sales. And that's like four million pairs sold globally with 500 employees across France, Brazil, and the United States.
Divya Demato (55:13.442)
Wow. And you know, she really did do a phenomenal job. you know, she did decide to leave in 2024, which and but it's interesting because at that moment the founders really did step in to handle the day-to-day, which is at that point in the scale of a company, is not as as common. And and so, but you know, when finders, when founders hire a full-time CEO, usually it indicates it's a step towards an exit, you know, or maybe towards the founders maybe stepping back a little bit from the business. And it is unclear, we don't really know why she left.
Or what she you know, what what they did to necessarily, you know, re why they did not replace her per se. but you know, we can't minimize the impact that she made on the brand and getting it to, you know, to more and more to more and more customers and and really building his reputation.
Aaron Alpeter (55:55.679)
Yeah, I mean fantastic job. And like we shouldn't speculate on the reason for the departure, but you know, perhaps it was just time for her. I mean, like five years is is a good run at at any place. but you know, maybe it was always agreed that she was gonna be there for five years. But I also wonder, like, if you look at the exit potential of this brand, it it is something that could be problematic, at least in in my estimation. You know, at the surface, it's a very attractive brand because it's it's very hard to replicate, but it's also very hard to buy for that very same reason.
I think the question of like who could buy Veja without destroying the reason that Veja is worth buying is a really interesting question. And you know, there's very clear private equity appeal. It's got the brand, it's got the growth, it's it's profitable, it's got international white space. but traditional PE typically looks at margin expansion as one of the levers that they want to pull. And that can be really hard because margin inefficiency is actually part of the brand. Like it they they want to pay three and a half times the amount for rubber because of of what it is. And so they've also talked about.
very clearly avoiding advertising and taking that spend and and putting it toward their supply chain. And I you just have to wonder, like, i even if somebody acquired them and and left them alone for a period of time, eventually someone's gonna ask a question of like, hey, why are we paying so much for these raw materials? Or you know, how do we normalize our s our sourcing or how can we improve our set our factor returns? Paying 50% for the harvest ahead of time is is really difficult. And so I think that like the hard part about Veja is that
From an operational perspective, the things that you normally would would look to quote unquote fix would be what you're inherently dismantling a key part of the brand at the same time.
Divya Demato (57:32.609)
No, yeah, and you're completely right. I mean, their constraint is part of the brand moat. I mean, if they were to lean into faster growth under PE or private equity ownership, they re risk ruining their authenticity. And we just saw that with like Everlane. We just saw that with, you know, when all birds try to get the outside funding. And, you know, let's let's be clear. It's like the business is really dependent on the founders, their story, their their sort of intentions, as you just mentioned. And, you know, the question really does become right, can the brand kind of withstand its sort of identity?
when they've transferred ownership. you know, will that mythology still be alive without the brands, the helm? I'm sorry, without the founders at the helm. And, you know, it's really comes down to sort of there's a values driven sort of brand behind all of this. And it's the founders, Sebastien and Francois, that kind of have instilled that. So, you know, it it it would help them grow, but right to your point, it could also be challenging for I think consumers to follow them along.
Aaron Alpeter (58:27.198)
Yeah, well and again keep in mind, like they have a lot of options because nobody's forcing a sale here. it's still self-funded, founder-owned business, and and there's no investment group that's saying, hey, it's been seven years, you know, I need my liquidity. And so I think that they're the most likely outcome here is that they're gonna hold on to this for the foreseeable future. Maybe they turn into a nonprofit, maybe they, you know, have a foundation that runs it and keeps it intact while it's there. that being said, I I do think that there are a few
companies or few buyers that might be interested under the right circumstances at the right time. And really at the top of my list is El Catterton and LVMH, which of course are associated with one another. They're really great at scaling consumer brands, especially in the luxury, luxury adjacent space. But the only way that this would work, I think, is if they stayed very autonomous and the founders were involved for a long time. And so, you know, the reality is that Veja is is one of these companies that private equity
would love to buy in theory, but may struggle to own. And it really comes down to like the values and the choices they made to be inefficient on a spreadsheet, which make them like essential to the brand. And so these higher input costs, the slower supplier development, the selective distribution, all of these things are are really important. And I think, you know, to sum it up, the the exit question is not whether they'd be attractive. It's whether the asset is actually transferable.
Divya Demato (59:48.557)
Yeah, absolutely. Well, I mean, this has been so much fun. Aaron, thank you so much for having me and letting me be part of e-commerce on tap. I hope our listeners will like and subscribe. It's been so amazing. you know, there's definitely a few things that that I've taken away from this episode. And and I think that, you know, as we've seen the industry for several years now, sustainability itself is not strong enough. You know, the product really does have to be desirable. I think the founders of Veja showed us that, you know, values can help divide.
drive demand, but they can't necessarily replace the desire for a product. And this is where a lot of purpose brands get stuck. You know, they consume consumers will buy because the brand is good and we know that that's just not how consumers actually shop. Intention is there, but you know, if you're not necessarily delivering on aesthetics, functionality, and the economics or sometimes even the motions, it's just not going to actually drive the kind of growth that I think brands want to make.
You know, and Veja made something that looked normal enough to wear, and they really were able to kind of build the business behind it and and get people to sort of see both those value propositions in equal measure. the second thing is that specific promises create specific obligations. You know, one can say that vague sustainabilities are easy to make, but you know, supply chain promises are hard to keep if you don't necessarily have the right infrastructure. So, you know, the more operational debt you create is when you've sort of
over indexed towards a specific thing. it's not necessarily bad, but it can become a moat. But you have to understand sort of the tradeoffs as a founder. And I think we've seen companies that have done that and not necessarily survived. And those and Veja's a great example that have and are continuing to grow within that promise. But you know, if you're gonna do if you're gonna make the commitment towards traceability, you need to have the right systems around it. If you promise fair pricing, you're gonna have to have the supplier economics that can survive that at scale.
and if you promise are fair, you need that infrastructure as well. And and ensure that customers can can access those those repair shops or what have you or systems in place. and so I think that, you know, even in transparency as well, you have to be able to disclose also what is uncomfortable. And and I actually think there's a lot of strength in that vulnerability. What stuck out to you, Aaron?
Aaron Alpeter (01:02:03.818)
You know, I think the the big thing was just that this idea that marketing spend can be a capital allocate allocation choice. I mean, the fact that they've stayed true to this no advertising stance is is really a testament to the values that they've created and and the core beliefs that they have. And they kind of ask their question of like are we are we spending money to create a perception or are we spending money to create a proof point and we'll just trust that people will rely on the proof? those those cogs that they have, the really high cogs,
if done correctly, can really be an element of brand equity, but only if the consumers understand it. So I think that one of the things that's interesting about what we've what we've dug into is that the customer cannot see the reason why you have a high cost structure, then it's just a margin pressure, right? It's just a low margin business. But if they can't understand it, it becomes this trust badge and things like that. And so I think that that's a a relevant lesson for any premium CPG.
or DTC brand, better ingredients, better factories, better labor standards, better packaging, you know, all of that can be valuable, but only if your customer understands the trade-off and signs up for that trade-off. and so I think that, you know, kind of what she said, the the lesson for me isn't that sustainability matters. It's that it only matters commercially when it's becomes real enough for the customer to trust. So this has been fun. Thank you so much for for coming on this episode. It's been a lot of
Divya Demato (01:03:23.052)
Yeah, we'll have to do it again sometime, but thank you so much for having me.
Aaron Alpeter (01:03:26.476)
course we'll we'll do it again. you know, we started this episode by talking about whether sustainability was still in vogue. And I think Veja gives us a really clean answer, but it's not a yes or no answer. And it's something where it still matters, but not in the way that it used to. And it's not enough just to say that you're recycled, you're organic, you're vegan, etc. you have to shift from this halo effect to to the overall proof. And so they didn't sell just a sustainable sneaker. They built a proof system that was underneath that sneaker. the cotton, the rubbers, the
factories, the no ads, all that stuff really built into it. And so I think the lesson that we should take away isn't to you know just be sustainable. It's that you have to know where the brand trust is actually created. And if the trust comes from operations, then your operations, you know, can't be backstage. It's gotta be front and center. And so this was an absolutely wonderful episode of e commerce on tap. And thank you guys for listening. We'll be back next time.
Divya Demato (01:04:17.784)
Thank you.