NYKG Meets: Louisa Chen, CFO - SoleSociety

By Nikolai Lien

|

September 18, 2019

Thanks for joining us, Louisa. What attracted you to NY KnowGO?

Information sharing with other executives! I think you’ve gathered a diverse list of speakers from different backgrounds. And it’s not just marketing – you’ve got the data guys, there’s analytics specialists, too. There’s a lot of different points that aren’t just about acquisition or search marketing.Sharing pain points on our industry is important. Especially when it feels like eCommerce evolves on an hourly basis.  You’re not just pigeon-holed into being worried about brands specifically, or search marketing. And I think this conference encourages that.

Could you shed some light on SoleSociety and your role there? We understand that you’re not a typical CFO…

Of course! We’re a digitally native footwear brand for women between the ages of 35 – 45. Our customers want to look good, but at the same time, we’re not cutting-edge fashion: I’d say stylish but practical. From a marketing perspective, Facebook has been particularly effective for our demographic.

I am a CFO but operate like a “CFO plus” given the range of responsibilities I have, like running our entire digital marketing program. The way I run SoleSociety’s digital marketing program is akin to managing a portfolio – there is a risk return trade-off for each of our marketing channels based on where its its in the funnel. We’re trying to optimize return and that in the end is just a game of numbers. The higher the channel is in the funnel, the lower there turn.  To illustrate, we use Facebook mainly as a customer acquisition channel so we expect a lower return. Then we go all the way down to the funnel where Google Shopping sits, and given high intent there, a much higher return is needed. Since I created the monthly forecast and budgets, I know exactly how hard each marketing dollar needs to work to hit our top line and bottom-line numbers.  That’s the beauty (and horror) of managing the entire P&L. I think digital marketing (especially performance/acquisition) really fits into a CFO purview quite well.

"I think digital marketing (especially performance/acquisition) really fits into a CFO purview quite well."

The one thing that keeps me up at night is “how do I not pay for every click?” What I’ve learned is that brand marketing really does matter. There’s a long-tail effect. If we just grab consumers on conversion immediately, it increases sales but only in the short-term. Continue along that path and you end up paying for more clicks. I think that’s the way eCommerce is going. Even if you’re a huge brand – to grab someone’s attention, it’s increasingly difficult to stay on people’s radar unless you pay for it.

You’ve spoken about the value of brand building – what steps have you taken to market Sole Society?

We’re very direct-response oriented. That’s partly driven by our board and previous parent companies. Our previous investors were initially very focused on brand-building but unfortunately, that tact didn’t translate well in terms of return or generating cash flow.  When I joined in 2015, I was purely a CFO and my mandate was to generate a liquidity event or find new investors.  

In 2016, Sole Society was acquired by the Camuto Group, one of the world’s largest shoe manufacturers and our goal was to get to EBITDA [Earnings before interest, tax, depreciation and amortization] positive. It was then that I took over all of our digital marketing efforts. We aligned on how we spoke to and targeted consumers. I’ve had to manage our marketing through the expectations of our board, from a financial perspective.One year into it I realized our organic traffic and revenue was declining at a rapid pace. This wasn’t a bad thing. It meant we were reaching more people and hitting a higher ROAS through other channels. However, it sparked a realization: “We can’t get free traffic anymore.” So then, how much more can you squeeze out of all these channels? Since that point, I’ve shifted a lot of money from traditional channels toward influencer marketing as that channel does double duty in terms of direct response and brand building.

What’s your strategy towards working with wholesalers?

We have to be everywhere – I see it as a top funnel-type thing. We’re still working with Nordstrom as they were our parent company for a very long time. We’re quietly expanding into other channels but, due to our sharp price point, our margins don’t make a lot of sense in wholesale. It becomes gross-margin negative to be in wholesale given the economics of that business model. It’s not like they buy the inventory and keep it forever. If our product doesn’t sell, they send it back. It’s a constant negotiation with our wholesale partners. And it’s not just monetary either! It’s human bandwidth –there’s a ton of time needed to deal with all the wholesale buyers. It’s not so cut and dry. We continue to make in-roads, but our DNA is and will always be in Direct-to-Consumer.

Did you retain the wholesale side of the business when you went over to Camuto?

Camuto’s a wholesale powerhouse. Sole Society has definitely made some good progress with wholesale with Camuto’s wholesale infrastructure. But in 2016, it was a better strategy to grow our DTC channel – and only selectively grow our wholesale presence.

You mentioned ROAS earlier, which obviously has its limitations. How do you get past this fact? Do you have one metric in particular to live and die by?

We live and die by last click, as I’m held to a bottom-line number. If we start bringing in longer-tail marketing tactics like brand, EBITDA suffers. Unfortunately,that’s the world both Sole Society and many others in DTC retail live in. However,money makes a difference in how a DTC brand is run and built; some may have deep pockets or patient outside investors or whatever it may be. But in my experience, the bottom line governs a lot of business decisions. But that’s only my world – every situation is unique! When you live in and die by last-click ROAS, there is a lot of brand erosion. This is weird coming from a CFO but spending on brand is very important. I used to refer to brand spend as “dumpster fire” spend – but it is a necessity. Because these days, brands don’t have the luxury of incubating for ten plus years. The iconic brands of today (like a Nike or Chanel) have had a very long time to develop their brand on the back of wholesale. Today’s world is different, new brands have to capture lightning in a bottle and then capitalize on that by expanding categories straight away, so it’s not easy.

"I used to refer to brand spend as 'dumpster fire' spend – but it is a necessity. Because these days, brands don’t have the luxury of incubating for ten plus years."

Sole Society is a brand. Camuto, your owners, are a retail group. They in turn were bought by DSW– a marketplace. Is there friction between parties in terms of, e.g., marketing budgets?

There was a huge learning curve initially behind the “why” and “how” of our marketing budget. Ultimately, Sole Society is a singular brand – though our name and site might indicate that we’re a marketplace. Our initial strategy of selling brands outside of Sole Society on our site were for search purposes (i.e.someone types in X,Y or Z, and we show up on Shopping and Organic search).

Building a DTC eCommerce business is like building a storefront in the middle of the Sahara Desert. How are people going to know about us unless we spend money to drive traffic? In the online world, every body is on their own desert island and advertising is the only way to make yourselves known. So unfortunately, you have to pay to get people’s attention.The beauty of being part of a bigger entity is it helps us get into stores. But the flip side is “is this on brand? Is there any brand erosion if we’re stocked or featured in X, Y or Z?”

"Building a DTC eCommerce business is like building a storefront in the middle of the Sahara Desert. How are people going to know about us unless we spend money to drive traffic?"

In the end, we’re trying to thread the needle between brand and bottom-line and. It’s a fun journey but can be infuriating at times.

Where do you stand on the influence of tech’s biggest players?

I think that Google and Facebook represent the biggest existential threat. These platforms have made public overtures about wanting to disintermediate the checkout process from the brands. So how do you fight against checking out on Google Shopping? As a consumer I love that! It reduces all the friction. I can checkout immediately on Google instead of clicking on the ad and going to SoleSociety.com to check out.  However, Google owns the customer data if checkout is done on their platform. Are they going to pass the customer information over to us? At this point it’s unclear.

"[It's] pretty dangerous for any brand if customer information isn’t shared with them."

Facebook and Instagram are following the same path. If you see an influencer post and can purchase right then and there, that’s pretty dangerous for any brand if customer information isn’t shared with them. And for me, that’s a bigger threat than Amazon. I might buy my consumables on Amazon but if I’m looking for fashion inspiration, it’s social media. If consumers see something on social and have the ability to buy it immediately, that’s a dream come true for them.  At that point,it’s the beginning of the end for many of the younger DTC brands. Why? Because the majority of new DTC brands are built on social platforms today and if the social platforms own the customer data, then these brands become merely drop ship vendors.

 

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