We’ll ‘make them better’: Retail Ecommerce Ventures CEO on recent acquisitions

Retail Ecommerce Ventures CEO Alex Mehr joined Yahoo Finance Live to break down REV’s recent acquisitions and what to expect from holiday e-commerce sales.

Video Transcript

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- Let's invite into the stream Alex Mehr, Retail Ecommerce Ventures CEO, because like Lazarus rising from the dead, what your business does is you take brands all of us know, and in some cases, all of us love, which have unfortunately died, but then you revive them. For instance you just acquired two brands, Stein Mart and RadioShack. Anybody over the age of 20 knows at least RadioShack. So what do you do with that? Because you're not doing brick and mortar, so what happens next?

ALEX MEHR: We make them better. We make them-- we modernize them, we bring them online, and we make them better. You know, sometimes these brands, they're stuck in their old ways and it's just a matter of shifting the business model and make them online and make them modern. That's all it takes.

- You make it sound so simple. You just make it better. But I know when you're looking at these businesses, identifying what you want to buy, you're not going in, you're not buying everything, every single retailer that files for bankruptcy. What are you looking for when you're determining what you think is going to make something successful?

ALEX MEHR: We have an internal formula, and we look at two factors, I mean, we look at a lot of factors, but two of them are the most important ones. One is brand awareness, and the second one is brand affinity, how many people, what percentage of the population, you know, if you show them the brand, they can identify it and tell you what category of products it sells.

And the second one is how do they feel about it? Is it positive or negative? Now sometimes brands, you know, during the final years of their operation, you know, they have missteps. But a lot of times, you know, these brands have been in people's lives for such a long time that if you refresh the brand, put new merchandise, things that people love, it kind of jolts back to life, if you will. Does that make sense?

- Well, absolutely makes sense. I mean, who doesn't know Linens and Things? I am still wearing a pair of running shoes that I got at Modell's before they went belly up, and you've acquired these brands, but when you acquire the brand, are you really just buying the image and the history, or the actual inventory that you get with it as well?

ALEX MEHR: So we don't need to buy the actual inventory. What we do is we sometimes go in the legacy company and hire their merchandisers. So we get basically a database of everything that they used to sell, the vendor relationships, and also we sometimes hire people from the previous company, you said in the case of Modell's, for example, we hired a couple of people from Modell's, who were buyers for Modell's, and that's going to bring that merchandising angle to the company with us now.

What we do is we look at the transaction history, what has worked and what hasn't worked, so you don't want to continue on the same path, but you want to know what has been done before, what are the lessons, what are the type of products that resonated with the customers of that particular brand, and then apply data and improve that selection process.

- How do you manage the risk involved in this? Because when you take a look right now, we're in the middle of an economic downturn. We saw the economic recovery pick up a little bit, now the recent data has shown that that is now starting to slow, so how long can you weather a downturn like the one that we're currently in?

ALEX MEHR: So the good news about our businesses compared to the previous model is that, you know, we have low fixed costs. So a lot of these companies go upside down because they have unproportional, like a huge part of their business model is fixed costs, and variable costs like cogs and marketing and things like that. And then when revenue shrinks due to a downturn, and also there's a macro trend of retail revenue dropping down in brick and mortar, when that happens, because the fixed cost is fixed, they just-- the business model goes upside down.

The way we build them is very thin fixed costs, and that actually allows us to be elastic. Like if sales goes up, we increase the cost. Variable cost goes up, we keep the fixed costs small. And if something happens, you know, another downturn, somehow an adverse effect event happens in one of these markets, we can shrink down to top line, but also the cost, because it's mostly variable drops. Does that make sense?

- It does make sense. Alex, I got to say thank you, and I'm putting in an order for size 13 Nike's. I just went to the Modell's online. I'm so happy it's still around. I had no clue till we were getting ready for this segment. All the best to you, Alex Mehr, Retail Ecommerce Ventures CEO.