As retailers continue to struggle amid the coronavirus pandemic, Retail Ecommerce Ventures is helping defunct retailers return online. Retail Ecommerce Ventures Co-Founder Tai Lopez joins The Final Round to discuss.
- Let's talk a little bit more about the retail sector. The pandemic has put an unprecedented amount of pressure on the sector, forcing a number of companies, a number of well-known stores filed for bankruptcy this year. So for more on this, we want to bring in Tai Lopez. He's a co-founder of Retail Ecommerce Ventures. And Tai, your company goes in and buys some of these big distressed retailers. You recently acquired Modell's, Pier 1 Imports, Linens and Things. You turn them into e-commerce companies. So walk us through your strategy, how you're doing this. Because the result of past attempts, I think, by others has been a little bit mixed.
TAI LOPEZ: Yeah, thanks for having me on. Greetings from Denmark. I'm here.
But yeah, retail has certainly been through a big-- you could say got walloped pre-COVID. We started buying brands. We bought Dress Barn last year, 2019. We kind of saw the writing on the wall even before COVID hit. And obviously, post March, you know, the world just unfolded in a way that made it really interesting for us and appealing for us to buy brands.
So yeah, you bring up, you know, whether we can turn them around. That's the question that everybody wants to know and everybody's watching. I think there are examples where people bought distressed brands. It's kind of like Warren Buffett says, you know, when a good manager meets a bad business, the bad business usually wins.
So we're aware of the fact that we can't just buy garbage and think our management skills will turn them around. But on the flip side, a lot of these aren't garbage brands. Like Pier 1 has 95% brand awareness in the United States. These aren't brands that are necessarily even perceived as distressed to the customer, which is what we care about. These are places they've been shopping for 60 years. Or in the case of Modell's, been shopping since 1889.
And what really killed these businesses was two things, not betting enough on e-commerce, and then secondly, having, you know, way too big of a store footprint while less and less people walk into stores. Eventually that math doesn't work anymore. So we've got both of those.
- Sorry. I think a lot of the retailers, though, that we've been seeing filed for bankruptcy, they kind of fit that description, right, they haven't done enough on the e-commerce front. They also haven't done enough really just to progress their company overall here moving forward over the last couple of years. And I know from your strategy, you're clearly not going in and buying everything. So what exactly are some of those characteristics that you're looking for when you're determining what to buy and what you could potentially turn around and be successful?
TAI LOPEZ: Yeah, I mean, that's the magic question, right, what can be turned around? I think the first thing we look at is how well-known is this brand? So there's distressed brands we've passed on because they were very regional, for example, or they had their day, or we consider them somewhat overhyped.
When we looked at like Pier 1, one of the rules I live by, a billionaire mentor once told me, Tai, sell to the masses not to the classes. So I like stuff that's not necessarily super luxury. So Barneys was for sale, right? And for us, it's a brand that we didn't think that many people shopped at outside of New York City. And we also thought luxury was not the place to be, at least for us. Might be for the people who bought it.
But when we saw Pier 1, this is something that everyday Americans buy. It's got huge brand awareness. If you walk down the street and say, you ever heard of Pier 1, 9 out of 10 Americans will say yes. And so we look for things that failed not because the brand was weak or because they were selling to the wrong type of person, but just simply they had, you know, Pier 1 had 1,100 stores, and if you did the math on the four-wall EBITDA on these 1,100 stores, half the stores didn't make money. So they dragged down the profit of the other half.
So we try to keep it simple. A lot of business, I think, is simpler than people like to admit.
- Tai, taking a look at the turnaround plan and the strategy that you try to implement, does that go beyond just revamping these stores' e-commerce strategies and closing some of these brick and mortar locations? Because many of these stores were struggling before the pandemic, as you mentioned, and before their stores were forced to close sometimes because the products themselves just weren't resonating with customers.
TAI LOPEZ: Yeah. I mean, look, we'll see what comes out of COVID. How are people going to shop? What are people going to stop doing that they used to do? For example, Brooks Brothers was for sale. It's not something we bid on recently. It's in the suit business. We don't love the suit business because people aren't-- people are at home. You don't wear a suit when you're at home.
We like Dress Barn because we selling a lot of athleisure. Same with Modell's. Modell's Sporting Goods, believe it or not, was doing quite a bit in, you know, just casual clothing. So I think you have to look. It's kind of like in economics, it's like was there a shift in the demand curve itself or is it just a shift, you know, did it just move up and down? If it moves up and down, it's temporary. If it shifts, which is what we think happened, then whole categories of businesses are going to be threatened, things that are very much mall-based or things that are very formal.
I mean, suits will eventually come back. But I don't think ever, for the next 50 years, there'll be as many people in offices. Certainly not for the next three or four years. Because once people got a taste of working from home and doing Zoom, why would you want to commute in Los Angeles for two hours a day?
So there's a little bit of art to what we do and a little bit of science, and you have to try to be predictive. And you hope that you're not stretching, you know, and you're not just hoping that-- you're not just trying to confirm your own biases.
RICK NEWMAN: Hey, Tai? Rick Newman here. How do you tell when a troubled brand is just dead or moribund? What are the signs that, nope, you just can't revive it? And can you tell us about any businesses like that that you've looked at?
TAI LOPEZ: I mean, like I, going back to Brooks Brothers, I think you make a call on an entire behavioral pattern for an entire civilization. For example, are we going to wear, let's say Brooks Brothers used to be able to do $1 billion in revenue. That's not their exact revenue, but let me just say. And you go, OK, well, this thing, people are going to wear suits 60% less.
So all of a sudden, for sure you're calculating the revenue drops to, let's say, $400 million. Then you do the math. I think most brands that are for sale, I would buy at a certain price. But that price might be real low. I mean, I bought a brand in the UK called The Book People, and we just didn't want to risk a lot of money on it. So we paid-- some people would say it's a garbage brand. But at the right price, it's not a garbage brand. Because it's very well-known in London, very well known in UK.
So I think it's not so much a absolute black and white, this brand in and of itself is complete garbage. If it's a brand that Americans know, that's worth something. It's hard to build-- imagine a startup, how much money it costs. And how many years and trial and travail it takes the founder to make a brand that's even 40% brand awareness in the United States. So almost every brand that you see in the news that's for sale is pretty well known. Therefore it has a value. So I don't think it's an absolute, this brand's garbage. It's more, at this price.
So recently, a brand sold called New York & Co. It sold, I forget, with inventory I think the total purchase price was about $60 million. I think, I'm not sure how much of that was for the IP. But I don't see the math. I don't think that that brand just-- we paid $31 million for Pier 1. And that brand is, in my mind, at least, double as well known across the United States, and even outside the US, than New York & Co.
So I think the math. You guys are investor finance people. This is very much like buying a stock. It's not a matter of is this stock completely garbage? It's do I want Tesla at this price? That's the real questions. That's always. So New York & Co, would I have paid $2 million from New York & Co? Hell, yeah. Would I have paid $10 million? Eh. You know, would I have paid in the 20s? I would've left that-- you know, I did. We dropped out of being interested in that one. But somebody else, they thought it was worth, like I said, total cash outlay with inventory, I think, was 60. I don't know how that math works. But maybe they know some magic I don't know. Certainly possible.