Salena Knight  0:02  

So hey there, and welcome to the bringing business to retail podcast. If you're looking to get more sales, more customers, master your marketing and ultimately take control of your retail or E commerce business, then you're in the right place. I'm Selena Knight, a retail growth strategist and multi award winning store owner whose superpower is uncovering exactly what your business requires to move to the next level. I'll provide you with the strategies, the tools and the insight you need to scale your store. All you need to do is take action ready to get started.

Salena Knight  0:52  

Hey there, and welcome to the bringing business to retail podcast. Imagine being able to increase your profitability and increase your cash flow because you knew the exact right products that you should be using to scale your business and even which channels you should be selling them on. Imagine being able to know when you should be discounting your products and what you should be discounting and getting rid of those slow moving products before they become a drag on your cash flow. And this one may be the best of all, imagine knowing the right amount of products that you should be buying in so all that other stuff doesn't happen. Well, those are the exact roadblocks that Carla pen Khan encountered during her retail e commerce journey, and then she went and built something that fixes all of that stuff for us. So welcome to the show, Carla. Thank you.

Unknown Speaker  1:41  

I appreciate you having me on you

Salena Knight  1:43  

have an amazing story about how you ended up in retail. So it would be remiss of me not to ask you to share it, and I'm going to preface with, I'm probably going to jump in and ask you a whole bunch of questions, because the story is, it just goes in so many tangents to end up where you are right now. Yeah, yeah, for sure, it

Carla Penn-Kahn  2:01  

definitely does. So I started off my first job while I was still at university. Wasn't really my first job. My first job was actually retail, but as most people but my first professional job, I could say, was working at Credit Suisse, in the private banking and investment arm, and at the time, we were working with the Maya family office, and that was the last deal I worked on, was seeing Maya listed on the ASX, and I formulated a bit of a strategy around commerce and online, and got really interested in in the space, and basically was told it wasn't a good idea. Oh,

Salena Knight  2:38  

oh, did a man tell you that? Yeah, maybe I feel like you've just jumped ahead to, how did you end up in investment banking? This is not like, you know, it's like, oh, I became an accountant. Like, investment banking is such a niche of a niche. How did you end up there?

Carla Penn-Kahn  3:00  

I suppose it all started with the fact that I went to university to do something I knew I was good at. I always went to university knowing that I wanted to work at the same time as I studied, because I felt like you learn very little on a book, and you learn so much more in application then. So I did very well in my studies, and I could have done anything. And I thought, You know what? I actually enjoy math. So why not? So I went and studied maths and finance, and then that led me into getting an internship. And an internship rolled into a Do you want to stay for six months? Do you want to stay for 12 months? Okay, do you just want to stay? Which is I just never left. Yeah, I was furniture. I felt like I was furnished as well, because the arm that I worked in had was like a startup within a much larger organization. I was their third employee, so the whole team built around me. So I felt like the furnisher and everyone else was coming after me, even though I was the youngest in the room by probably a decade, if not more.

Salena Knight  3:59  

It sounds like you were always in that forefront of innovation, like right from the beginning. I

Carla Penn-Kahn  4:07  

love that you say that. I think one was a bit of luck. You know you're applying for internships, and you never know you're going to get them, and then you never expect them to turn into something long term. But I also think I've always been very entrepreneurial and looking for something different, and so an opportunity to join a startup within a global organization was really interesting to me, even if it was just an internship, because I am an entrepreneur at heart. I don't know if I mentioned ever before to you, but I'm a fourth generation female founder.

Salena Knight  4:37  

So that is that like some kind of record, so that

Carla Penn-Kahn  4:41  

my great grandmother, in the 30s, had her own store, her own retail store. What was she selling? You have to tell us, she, she was in winter wear so she was in South Africa at the time, and she used to sell coats and suits and jackets. And, you know, that's where my, I guess, my. Passion for retail comes from but also entrepreneurial roots in the fact that that was my great grandmother. My grandmother's both had their own businesses. My mom's always had her own business, and even my mother in law's always had her own business. Wow, so very entrepreneurial in spirit. So I always knew a job was a way to get like, grounding, good grounding. Really understand operations, understand how business works, but it was just a stepping stone to do something on my own.

Salena Knight  5:24  

Okay, you have to tell us, when you built this strategy for Maya to go public, and you were told it was no good. What happened? Well, I'd love to claim

Carla Penn-Kahn  5:35  

that much, but it wasn't that much that I did the whole public strategy, but the team worked on the strategy and the road show and everything, but I was basically just told that it wasn't a good idea, Maya wouldn't sell online. And this was also the time that Jerry Harvey was also saying he would never sell online, right?

Salena Knight  5:51  

I want to slap that guy. Am I allowed to say that it's my

Carla Penn-Kahn  5:56  

show? I remember being told it wasn't a good idea, and thinking, well, sorry to be blunt, but if you white men don't think it's gonna work, I'm gonna have to do it myself.

Salena Knight  6:05  

I remember, sorry, I'm just gonna digress here. I remember when that became a big thing, and I had been online, I think, at that point, for five years. Because correct me, if I'm wrong, it was, was it around something like 2014,

Unknown Speaker  6:20  

like 20, even earlier, this is 2009

Salena Knight  6:23  

oh my gosh. So even in 2009 I've been online for two years.

Carla Penn-Kahn  6:28  

Well, the business I acquired, so the one the first businesses I acquired in the comment space, they actually started in 2004

Unknown Speaker  6:35  

Yeah. Oh gee, yeah.

Carla Penn-Kahn  6:36  

A real OG. And they were incredibly innovative. But let me tell you, when I acquired that business, because they built a business in commerce. Before commerce was even something you could execute on, there was nothing like Shopify. We would all learn a product. We laugh

Salena Knight  6:51  

about this because my first store was on OS commerce, open source commerce, and my first POS was actually the back end of the website. It was ridiculously difficult, of

Carla Penn-Kahn  7:03  

course, and so we used to upload a new product to our website, and it would freeze on the customer's front end for two minutes. So we would have to then shift operations to say, Hey team, let's upload product at midnight when traffic was low on the website. Because you couldn't, you couldn't even do something as simple as that. Yep,

Salena Knight  7:19  

I remember learning to use flash and code, and I also remember doing some analysis. You'd be so proud of me. I remember doing this analysis with my husband, because he's in the tech space, but he's in security, and we looked at how many visitors on Google Analytics were looking like for mobile. And our site was not mobile optimized at the time, and I remember paying it was, like $1,000 which was so much money to me back then, to make, essentially, an app. It was a mobile version of the website, but realistically, it was just some headers with the products and probably dot

Unknown Speaker  7:56  

mobile in the URL.

Salena Knight  7:59  

Oh, and maybe I don't that's, I feel like that's outside my technical zone of genius. But I remember just having this anxiety about spending this much money, and my husband going, but the data is here, and I was like, okay, and the amount of sales we got from mobile devices and this, this was back in, I'm gonna say, 2009 so very, very early on, when we were still using I think we forget my daughter was born in 2008 and I had to have a dongle on my computer to send the photos when she was born to England. So we weren't heavily invested in mobile technology back then. And so you can imagine, for somebody who this was a huge investment to a brand new business. But even then, people were using like it was that must have been 2009 2000 it was very early on that the data was there. So if don't message me and tell me we didn't have data on our phones and stuff like that, whatever it was, I was right there, right at the beginning. So I feel your

Carla Penn-Kahn  8:57  

pain. Yeah, no, it's crazy to think back at. You know where you start and then where you get to on a journey. It's, it's just so different. But you've also can't imagine what the start and the finish looks

Salena Knight  9:07  

like. Okay, you mentioned you acquired a business. You just gloss over all of this stuff. And I have all of the questions. I promise you guys, we're going to get into the good stuff about inventory and Black Friday and all that kind of stuff. But I want to know, I guess, what makes your brain tick. So how do you get to a position where you're like, I'm gonna go and buy a business. I'm gonna go and buy an E commerce business, even though e commerce is not really a thing just yet. Yeah, very good question.

Carla Penn-Kahn  9:32  

So initially I started my own e commerce business, which didn't work. We started what's called, what's called the E farmers market, and my goal was actually making farmers markets, not geographic in nature, but actually democratizing it, so anyone across Australia could buy from boutique purveyors. And you know, you could get food from COVID longer, delivered to you in Sydney, or you could get food from the Barossa delivered to you. You know, in Melbourne, you were so before your

Salena Knight  9:59  

time. Because that I'm working now, can I? I'm just going to digress. Sorry, I'm gonna I feel like I'm just over topping off a bit back in the day, about, probably about the same time you were talking about, I had this idea for a website, well, an app, even though apps didn't exist, then for a website called Feed me cheap. And it was going to be a place where you listed all of the deals at the pub, where you could get, like, $10 steak. That's a thing now. But I would just like to say I came up with that idea. I just didn't know how to make it a reality. So you were the same you were now that thing would just slay like, yeah. The problem

Carla Penn-Kahn  10:32  

was, Australia Post was still delivering envelopes and not boxes. Oh, so, yeah. So I set out to, you know, democratize an industry and really help a lot of struggling small business owners. But didn't quite realize that the freight system wasn't there to support that structure. Yeah. And then I thought, okay, so I'm passionate about food. We know that tick. What else can I do? And then I saw for sale on a broker's website, a kitchen ware business. I was like, love food. Love cooking.

Salena Knight  11:04  

Let's do it.

Carla Penn-Kahn  11:06  

So we had a we had a lot of great conversations. They were a lovely couple who owned it. They'd gotten to a point where they felt that they didn't know how to take it to the next level the business. You know, they were doing couple meal turnover, which was amazing back in 2011 and I was like, yeah, it makes sense. I can see that I can turn this into a much bigger business, which we did. We have zero on the end.

Salena Knight  11:28  

Was this the business that had e commerce? Yes, it was a pure play

Carla Penn-Kahn  11:33  

online kitchen. My store was called everton.com.au, wow. And so, yeah, so we acquired it had a small team of 12, and we saw a lot of opportunity, and they had great initial relationships to grow the business, but they didn't have the capital, also, probably not the appetite to turn it into a big business. They wanted to remain quite simple in terms of what work and lifestyle and everything like that.

Salena Knight  11:59  

I have so many questions. So having been in the industry for so long, I know what the I guess the limitations were for E commerce back in 2011 I have to ask you, what platform was it built on? X

Unknown Speaker  12:14  

cart. I don't even know if that exists anymore, because this either.

Salena Knight  12:17  

But again, this was not this was not just buy an app like this. Was not even WooCommerce, where you could pay to be a pay to put a plug in, in this was everything had to be coded and and so I can appreciate their stance, which was, you know, we've created this thing, but now it's like, you know, it's going to take a lot of brain with it's going to take a lot of bandwidth, it's going to take a lot of coding, a lot of money to make this, and we didn't, maybe they didn't even know what that looked like, but you were able to see that there was, yeah, there was definitely opportunity for that. So again, on the forefront of innovation over and this is a recurring message for you. And so what did you do with that business? Um, so

Carla Penn-Kahn  12:59  

first we had to replatform that business, because we realized that x cart, while it served a slight purpose, it could only be supported by its own developers in Russia, which did not work on our time zone either. And so I figured I didn't want to spend my life working 24 hours a day. You know, 16 to 18 hours was enough. And so we replatformed onto Magento. So we were an early user of Magento community. Back then, it was an amazing platform. Um, now, obviously some things have changed, and Shopify is leading the market. But if you asked me back then, I would have told you, Magento would have been the Shopify that it is today. I was willing to

Salena Knight  13:37  

and I think I don't know what the the IPO, the theory behind it. But they, they came out with Magento Amazon, 1.0 then they came out with Magento Go, which I'm gonna say was the forbearer to Shopify. And the only competition they pretty much had was a custom coded website, or WooCommerce. I don't know why they ever closed that down. They obviously had

Unknown Speaker  14:00  

a reason Adobe, Adobe acquired the Oh, so

Salena Knight  14:03  

you knew the answer to that. But I think that someone didn't do the analysis on that one, because Shopify went, they created something amazing. Let's just make something better than that. Well, I

Carla Penn-Kahn  14:16  

think what Shopify did was really smart as well, because what happened is, is Adobe acquired Magento, and Adobe went, Okay, we want to focus on enterprise customers. And so what Shopify did was say, well, while they focus on enterprise customers and build a highly complicated platform, we're going to think about simplicity and focus on SMB. So rather than So, rather than, you know, try and all compete for the same customer, Let's carve out a niche. And what Shopify did was really smart, because all these SMBs then went through this e commerce boom that we're all on the other side of now, of course, but that meant that SMBs actually became mid market brands, and then their solution had time to build to cater to mid market brands. And while the mid market brands are now growing into Enterprise. Is the software's matured enough that enterprises are coming across anyway. So the strategy that Toby put in place was super

Salena Knight  15:07  

smart, super smart. Okay, so you re platform to Magento. We re platform to

Carla Penn-Kahn  15:12  

Magento. The next big challenge was actually building out proper ranging. So back then, there was all this protectionism around department stores and department stores did not like these boutique we were called boutique, independent online retailers coming in and cramping their style, basically stealing customers away from them. And so a lot of brands wouldn't even talk to us. They were like, sorry, unless you have a physical store, you can't sell our products. And I was like, All right, one day the tide is going to turn, and by the time the tides did turn, they were all begging to be stocked in our warehouse, especially during COVID. But this was before COVID, the tides turned. So we really set out on a journey to properly represent the kitchenware category in a long tail way. I'd read Jeff Bezos book about being a long tail retailer, and how long tail retailing actually can carve out quite a nice niche for your business, and that certainly worked for us until Amazon came to Australia. Okay, for

Salena Knight  16:07  

those people who are listening, going, I don't know what long tailing is, she's saying it like, what does that mean?

Carla Penn-Kahn  16:12  

So what the theory around long tail retail is is that you have this assortment, which is 100% of your product, but really 80% of your revenue, or ideally 80% of your profits, you should be looking at, is driven by a small segment of 20% of physical products that you sell. So it's that 8020 year rule, totally and but you still carry 80% and we needed to do that because we were selling 25,000 products within the kitchen and homewares assortment. So we were competing with other retailers selling identical product, the same brand, the same product, and often what we found it was those 80% of long tail products that were added to the mix of the 20% core products that actually got us to win the customer over our competitors. So if you were buying a Global Link, a spoon knife block, which for a decade has been the number one best selling knife block in this country. You were buying a prawn peeler with it, or a very specific Garnet Crusher, or a nutmeg raid, or it was always a very niche item that went along with this global ecosu, which drove, like probably 5% of our total revenue, not profit revenue in our business. And so we would win the sale because of those niche products.

Salena Knight  17:23  

Okay, this is so important that I have to stop you here. Let's just break this down. The Pareto principle is generally something along the lines of 20% of your product, in this case, is going to generate 80% of your revenue. And so please jump in and tell me if I'm wrong here. So you had your 20% that was bringing the majority of revenue, but then it was all the rest of the things that you curated that was quite often the thing that got you across. Because what, what people will listen to me say over and over again, and not take this into account is, I'm always like, you've always got this bad, you know, bad inventory, dead inventory, this stuff that's costing you money, it's hanging around. But it sounds to me like you took that inventory and made that your point of difference. You made that the reason that people buy from you is that correct?

Carla Penn-Kahn  18:19  

That's right, especially as well with the whole principle of the, you know, online shopping, especially back then, everyone paid for freight. You know, in the beginning of this journey, there was no such thing as $100 and you get free shipping. That came much later on in in my E commerce journey, initially, you were paying, you know, $5 for shipping, which seemed like a lot of money at the time. So a customer think, what else do I need with that knife block? Do I need a new peeler? Do I need a spatula? Do I need a new fry pan? Do I need chopping boards? And then they would curate this range, which also meant a higher AOV for us, in order to bring down the cost per unit of the shipping that they were going to have to

Salena Knight  18:55  

pay in their heads. It was like, how much can I stuff into that bag? Totally, yeah,

Carla Penn-Kahn  19:00  

totally. And for us, it was great, because higher AOV is a higher chance of profitability on your

Salena Knight  19:05  

first order. Okay, that was very smart of you. I'm going to give you a very big gold star for that one. Did you know at the time that that's what you were doing?

Unknown Speaker  19:13  

Yes, okay, it was a deliberate strategy.

Salena Knight  19:16  

You just are very, very smart. Then it wasn't just luck. You're very, very smart. So how did you work out? Because product assortment, the range of inventory that you have is so the buyer has to be on so many things, on trends and remembering. We didn't have a lot of the keyword trends and all these apps and inventory apps. We didn't have that stuff back when you were talking or if we did, they were prohibitively expensive. So I have to ask you, how did you choose what to buy? And then moving on from that, because you have clearly had the strategy of this 80% still needs to be profitable. It can't be hanging around for a long time. How did you work out what to buy and how much to buy? Yeah,

Carla Penn-Kahn  20:06  

so I guess my mathematical background is where this all plays into I'm not gonna lie, I'm a big fan of spreadsheets, and I had a friend the other day laugh at me because I refuse to use Google Sheets and still use Excel spreadsheets, and apparently that makes me a dinosaur, but I'm absolutely obsessed with Excel and building models. And so we would build models, and we would class our inventory into a, b, c, d, which is your straight inventory analysis models. A, we always said were the 70 would drive 70% of revenue for our business. B was driving 20% of revenue for our business. C was driving, you know, the remaining whatever did I get to 10% and then you've got your D, which is a dead stock. So D represents dead so you're getting you money. D is costing you money because you're paying to store it. It's cash sitting idle. And there is a cost of capital having inventory tied up in cash. And I hate the fact that inventory sits on your balance sheet as an asset, because, in all honesty, anything that is d dead is not an asset. It's a liability at this point on your balance sheet,

Salena Knight  21:07  

and you're paying tax on that thing that is costing you money. Yeah,

Carla Penn-Kahn  21:11  

it doesn't make sense to not look at ABCD analysis within your product assortment. And if you don't look at ABCD analysis, it's because you're hiding. You don't want to know, and you can't run a business hiding from the truth. That's how you end up in administration. So even with mosaic brands recently, a big part of the problem, outside of debt, was their inventory holding. They were not looking after inventory, and inventory is actually the heart of retail. It's the heart of commerce. Whether you're an E commerce, an omni channel or a straight retail business, everything starts with inventory, because infantry is how you you know how you reach your customer. It's meeting your customers needs, it's how you make money, it's how you profit. It. Everything starts with product and inventory. For me, in this game, and you wonder

Salena Knight  21:58  

how a big brand with multiple different brands underneath their umbrella. How do you get this wrong? But that's another story. But you know, if you're sitting here listening to Carla thinking, oh my god, she sounds so smart, don't worry. She's got something that can help you. But what I want you to appreciate is you can't like you can't necessarily beat yourself up if you don't know these things, and the fact that you are here listening to this means at least you are educating yourself, and maybe you'll go away going, I have to think about that. I need to do some research. And that is the difference between hiding and not hiding. And that's the difference between going under and being a big brand and going under and being able to still be here this time next year and still being profitable. Back to you car

Carla Penn-Kahn  22:44  

no with pleasure. So once you get your product into your ABCD groupings, it's then about looking at things like seasonality, weeks of cover and stock on hand. And once you have a grip on what those elements look like, you need to be saying, okay, everything in my a class portfolio cannot go out of stock unless it's seasonal product, right? Because that's a lost revenue or profit opportunity. The minute it goes out of stock, it also has a massive impact on your digital advertising performance, because when products go out of stock in PPC campaigns, which is like Google AdWords, what Google's algorithm does is then looks for the next best seller. But while it's looking for the next best seller. It's spending our budget and not making you money. Yeah, and it does take time. It's really annoying

Salena Knight  23:26  

the heck out of your customers. This happened to me just this morning. I'm looking for a new bookshelf, and I was like, oh, it's back in stock because it appeared on Google Shopping. I've been, I've been stalking this thing for a while, and of course, I click on it, still not in stock. Very

Carla Penn-Kahn  23:41  

frustrating, very frustrating. And also a lot of customers that I'm working with, a lot of our clients, say to me, I don't really want to turn that ad off, because we're still getting revenue from it. We're still getting results, but I know we're upsetting our customers, and I'm like, Well, is this about hoping that the customer still spends money with you, or is this about losing customers? So you know, you really have to qualify what your goals are, especially when you're advertising. But getting back to where I was with ABCD analysis is keeping your a class in stock, getting more stock terms out of your B class. So those are your contenders. They're not your best sellers, but they are still doing well for your business. But you don't want to be overstocked there, because that's when the A Class starts to go out of stock. Your CA is your underperformance now in commerce, in online businesses, sometimes product that's listed in C class is not actually an underperformer. It's just under advertised. So I often say to customers is that if you give air time opportunity to your C Class products before you discount them, see if you can start moving them by just getting them airtime in Google, in meta, in Tiktok. Many of you creative, better placement on your EDMS, whatever it might be, you might find a winner better

Salena Knight  24:50  

product description. So many

Carla Penn-Kahn  24:53  

things right, and you could find a winner that you can sell through a full price and not mark down. D, okay, we've lost hope. Brian. Okay, you need to turn that into cash and actually Black Friday, when you know customers are looking for deals, when traffic is at its highest, you're paying the most to acquire your customers. Now is the time to start moving that dead stock, and doing that now will be more successful than Boxing Day, because Boxing Day, you're gonna have to discount it even more.

Salena Knight  25:21  

Okay? Are you okay with taking a loss on the days, on the dead stuff 100%

Carla Penn-Kahn  25:26  

you've already lost money storing it. You've already lost capital investment. So every every dollar that you invest in your business could be earning you interest, or could be invested in your a class, earning your profit. So you already technically losing money, even if you're not red

Salena Knight  25:41  

in the bank account. So you were doing all of this on a spreadsheet,

Carla Penn-Kahn  25:46  

yes, with a lot of macros and a lot of pivot tables. And yes, it was, it was mental, but we were building it. We built it on a spreadsheet, and then we would have workflows for markdowns, non markdowns, tracking all

Salena Knight  25:57  

sorts of things. So how would you know then? So you had all these, which you've now turned into a product that people can buy, a SaaS product, and an app, a plug in, whatever you guys want to call it. But while you were doing this, how did you work out when something needed to be discounted and how much it needed to be discounted by? Because it can be quite an arbitrary thing. Do we just put it down 10% and see if it does anything? Do we just, like, get rid of it? How do you make that call?

Carla Penn-Kahn  26:26  

Yes. Very good question. So the first thing we would do is say, has this product that's sitting in C Class previously been D class, or was it previously B class? Or Has it just been sitting stale in C class, or is it C class to move into D? So the movement, not the classing, would be a really strong indicator for us if any changes that we had made had any impact. If the check fastings didn't have any change over a 30 day period when we've tried to have impact, it was very clear to us that some of that C actually was dead. It just hadn't yet reflected that way. So anything that was dead, we would actually look back and look at correlation. So correlation in terms of discount. So every category within our product assortment, or every brand in our assortment revenue would correlate with a certain level of discount. So one brand may require a 20% discount, another brand may not require a 10% discount. And the same goes with our customer data we see now, you know, jeans may require a very different discount to quotes at the end of winter, because jeans still have sell through during, you know, the 365 days of the years where coats someone needs to be going to have a white Christmas in Australia this year to sell a pair of jeans a coat right Now, or

Salena Knight  27:39  

they're going overseas, or totally they're the total bargain hunters that are prepared to wrap it up and put it away Exactly.

Carla Penn-Kahn  27:47  

So the level of discount required for those bargain hunters is going to be much higher. So every product in your assortment has a known correlation to a discount that you run before that was effective. So why not apply the discounts you know are effective, right the first time when you have to discount rather than continuing to mark down. So I always look at seed and country road and you know, they go 20% off sale category. But I know I'm a smart shopper, and there's many smart shoppers out there. I know we just need to wait another 10 days and it'll be an extra 30% off. So unless you really want something, you're not going to buy it on that first discount because discount, because you know that that's not the true discount. But if you teach your customers that your first discounts, your true discount and it's going to sell

Salena Knight  28:28  

through, you're going to make more profit. You're going to make more profit, but also you're going to you're going to make more profit in many ways. You're going to make more profit because you aren't discounting as heavily, but you're also making more profit because people are buying quicker rather than waiting. Because again, every day that that sale is not coming through, maybe their size sells out, and so that sale never happens, they might be hanging off for the discount. The

Carla Penn-Kahn  28:51  

other one, even worse, is another ad click. So every day your customer hangs on is another ad click to come back to your site, or another SMS that you have to send or even other email that you have to set those all cost money. There is really very little free movement in the customer journey left today. And so one thing we didn't touch on, but the biggest difference between E commerce in 2011 and e Commerce today is that 80% of my revenue in 2011 was organic. Someone would search fry pan in Google, and we would come up first, and you would come and buy a fry pan from us. Now, if you search fry pan in Google today, the customer cannot find an organic listing until they scroll down past all the ads. Customers don't even know which ones are ads. We know which ads because we're in the industry, but they don't it all looks the same. It's designed to be that way. And then they get sent showing them a meta, you know, Instagram or Facebook ad from us, retarding them, then they get an email, then they get an SMS, and then they maybe come back through another ad. So the customer journey is super expensive now, so any delays in your customer converting is actually delays and an expense in your business. And I

Salena Knight  29:58  

think what you haven't mentioned there. Is, if you don't have all those things set up, and your competitor does, then your competitor is getting the sale, and you just become another, a lost thought totally.

Carla Penn-Kahn  30:11  

And to be honest, so much of the product in Australia and in the US, anywhere in the world now, you know, there's 1015, retailers selling the same product, but with their own brand on it. You know, if you look at active work, you look at shoes, if you look at any fashion, any kids wear these days, even Smiggle, for example, you can find the same smuggle product, but with a different brand on it. And so, you know, there's very little that you own in the commerce space that's truly yours to get your customer back.

Salena Knight  30:39  

Yeah, I love that. All right. So can we just, you talked about ABCD? Can we just use, if we're using Shopify, we've talked before about, like, ABC analysis, and that's going to be looking at, you know, how much revenue our products would be. Are getting in how is that different to the thing that you've developed? Yeah.

Carla Penn-Kahn  30:57  

So the big difference is, is that we look at ABCD classes on three levels. The first is on revenue. But we don't just look at it on how it's generated due revenue. It's about revenue velocity. So it's how quickly does that stock turn to get you that revenue? Because if you're just looking at straight revenue, you can have products that are high AOV, products that are sitting in your a class bucket, but they're not actually driving results in your business because they're low velocity. So that's the first difference between how we look at revenue, A, B, C, D, classing and Shopify as or a standard inventory model in NetSuite. Or maybe since seven dear have them these days, although last time I checked, they didn't.

Salena Knight  31:39  

If we're just dumbing this down, guys, if you are in any of our programs we have, we talk about margin and like volume. So high margin, high volume. By margin, low volume. So that's below the line. That's the stuff that's hanging around. And yes, it might make you some money when it sells, but it's taking forever to sell. Yeah, exactly.

Carla Penn-Kahn  31:57  

And then what you should be doing is actually ABCD casting based on gross profit, because every single profit that you product, you import, actually does have a different profit, even if you try and align them, cogs are actually different. The retail markups that you can charge on different products in your assortment are different. And so even a 5% variance in gross profit can make a difference when it comes to gross profit velocity on your ABCD tagging, and then you have net profit velocity. So this is where you've taken all the expenses out of your business and attributed it to this specific product. So you know, a five kilo fry pan is going to have a very different net profit to a 500 gram spatula that's coming out of your warehouse, right? And so even if you're in fashion, for example, the pair of shoes that you ship that is in the cubic, because it's in a shoe box, is going to be very different to the singlet that you ship in a satchel. Plus the marketing cost in Google and meta and everywhere else is different for different products and different customer journeys and different customer considerations also impact that profitability. So there's so many variables to take into account, which is why you need a sophisticated model to actually say, What is my net profit a class versus my net profit, C

Salena Knight  33:11  

class, right? Because the so what I'm hearing is that we could have this product that we think is a best seller, and maybe it does sell really well, but actually it's not making us an awful lot of money.

Carla Penn-Kahn  33:24  

Oh, I can tell you how many customers have that problem, and we did. As I started off the conversation, I mentioned the global liquor suit. It was our number one revenue velocity product. It was a product that harms the time. We sold at a loss because it was heavy to ship, expensive to advertise, because Google and men are know, what are the products that are in most demand? And they could charge the most to you on a CPA and CPM basis. And so that's how they make their money. And so that means that our best sellers actually weren't often our most profitable products. It was the add ons that drove profitability in the business. You are so smart,

Salena Knight  33:59  

I'm gonna say you're like, I loved people who listening like, Sal loves data, she loves math, she loves calculators. But you are just taking this beyond a level. And I'm, I'm like, bowing down to you and thinking you are amazing. All right, a little bit of a tangent here. You mentioned before that with that C Class inventory is Maybe you just haven't given it a fair go. Maybe it's been, it's been just hanging there waiting for some love. Can you give me some ideas of what we can do with C inventory and D inventory? Because as this one goes to air, we're going to be just before Black Friday, and it's okay, guys, you can mix. This is the good thing about being an independent business, is you had nimble so you could hear something from Carla and go, we're going to implement that tomorrow totally.

Carla Penn-Kahn  34:43  

So there's a lot of things you can do with C Class products. So the first thing I always recommend, if it wasn't Black Friday and Boxing Day, the first thing I would recommend, is getting the product, what I call air time. So getting a supplementary feed in your Google ads, getting a supplementary feed of products into your meadow advantage plus campaign. And actually getting these products in front of customers, whether it's new or returning customers. Because often, sometimes with the 8020 principle as well, which Google's algorithm optimizes for 80% of your ad spend will go to 20% of your best click through rate products, because that's where Google knows it can get results, and it doesn't have to leverage AI to keep learning through your entire assortment. If it can get you the results, great. That's what it will do. So then you get left with these C and D products that you can't move, but they're also hidden winners often in these under performers because they just haven't got air time. Get them in emails, do a pre blank Friday Sale, potentially to your existing customer base with all these C Class products. One thing that we did really smart with a customer of ours is they taught us they had all these size 12 women shoes, and they couldn't move them. So we segmented their customer base, which we could do within profit peak. Saying, here are your customers who have purchased size 12 women shoes before. Here are all the final remaining size 12 woman shoes in your assortment. Why don't we send them a Klaviyo Eva, send your size 12 women customers a size 12 woman shoe collection, and they will see and feel heard by your brand, because typically, they probably go to 15 stores to sign find the outlier size 12 shoe that they're after

Salena Knight  36:14  

that is never there. It is never there. But you're buying

Carla Penn-Kahn  36:17  

loyalty by clearing stock a full price, and you're not

Salena Knight  36:20  

annoying. You're not annoying the customer. Who's any other someone is totally it's

Carla Penn-Kahn  36:25  

hyper personalized. And so there's a lot you can do with what we call dynamic product tagging. So what we do is we tag all those size 12 products, so then you can pick them up in clayview and send them to your size 12 segment customer, or you can tag them or see under performance and upload that to Google Merchant Center or meta advantage plus, and get budget behind those products to turn them into cash. Now if that doesn't work, the next step is discounting. So you have opportunity just before Black Friday to try without discounting. And if that doesn't work, you need a discount, but you also need to then look at the correlation as to what you typically need to discount for that style of product to get it moving, because you can't be guessing. You still need to move the stock and try and make some money, or at least break even, because it's C It's not dead, right? It's slow. And then once you've done that, other options are out there too, like mystery boxes. So we have a brand that we work with called a live body. Amazing, amazing, amazing Australian brand, two sisters obsessed with the product. It's in my own home as well, hand lotions, soaps, washes, just beautiful in the kitchen and my bathroom. But what they do is mystery boxes, and it's one of the biggest sales that they do. And so what they do is they package together mystery boxes for their customers. They build these amazing social campaigns around them, with the founders in the content themselves, and it goes off. But what does that mean? They're going to sell a lot of their a product in the mystery boxes, so they need to have enough stock, but it helps them move the C Class product through in the mystery boxes. Now, putting dead stock in mystery boxes will upset your customers, because they know it's gonna It can't just be dead stock totally. So you're gonna have to have enough stock of your aids so that there's a winner in every box and it's curated correctly. But those sales go off for them, and they're some of their best trading days. Yeah,

Salena Knight  38:08  

mystery boxes have always been a success for everybody that we we use them for mystery but, um, Lucky dips, apparently Americans don't know what lucky dips are. Once I educate them on lucky dips, they're they're completely sold. If you don't know what it is, go and google it. And I know that you have had a very similar story. One of your clients is very similar to one of our clients with jeans. So can you tell us a story about the jeans? Because you told me this, and I'm like, is this the same person? And it was not.

Carla Penn-Kahn  38:38  

So it's really important when you do category roll ups or brand roll ups, depending on what type of business you are and what products you sell, is that you actually look at profitability on a category level. Because what you're going to do is you're going to order 12 months worth of stock for 12 months time. So when you are thinking about merchandising and what products you want to merchandise and bring in, look at what categories are driving profitability in your business. You know, revenue is not a signal of success. It's profit that's a signal of success. So for this business, we did a category roll up with them in our software, which it does automatically, and it showed that customers who purchased jeans were twice as profitable as customers who purchased T shirts. But they then told me that their January drop, before they were a customer of ours, was bulking up on T shirts because they get great revenue velocity from selling T shirts. And I said, that's fantastic, but T shirts are actually an add on product for you. You need to be buying more jeans, because at 249 a pair, and at a low CPA, you're achieving because we bring those two insights together, you are far more profitable selling jeans, and if they buy a t shirt with the jeans. Fantastic. Let's cross merchandise. But 80% of your range cannot be T shirts, just because that's where you get the velocity. They're $89 each. So you're actually not better off. So if your CPA is the same, if you're selling jeans and T shirts and 180's $9 and one's 249 what's happening?

Salena Knight  39:57  

It does the alphabetician to work out which one. Making the money on exactly

Carla Penn-Kahn  40:01  

but the other then another layer on top of that is that these T shirts are often 20% off site wide sales. So they're not factoring in the fact that they get the revenue velocity from their customers when they're 20% off. So there's even less profit coming in as a result. Whereas the jeans they keep selling out of their jeans, it keeps going in and out. So they're actually never discounting the jeans. So they got full profit margin on the jeans.

Salena Knight  40:25  

It's funny, because your client is different to my client, and this is the exact same story that they were telling me, that that we worked out, and I didn't have the data, but I just had, like, superficial data, and mine was the same. It's like, but every time you sell out of jeans, you lose money. Why do we don't just have more jeans? Why did you go and buy more T shirts? It's like, well, yeah, we sell a lot of T shirts. And I'm like, Yeah, but you sell out of jeans.

Carla Penn-Kahn  40:51  

It's they all make the same mistake. My biggest, my biggest pet peeve, though, is when people go and buy slow moving product again. Oh. So why you got discounted? You gone and discounted your product 70 80% yes, you got a class revenue velocity. Revenue velocity. You got a class revenue in Shopify. But at what margin Did you make any money on that stock that you've just reordered? And that disconnect between marketing and the digital team and the product buying team means that people don't realize what markdowns were needed to actually get that sell through rate. So whenever you're buying product, you need to be looking at what was the margin that we achieved and what was the level of discount we needed to move that because that impacts the margin. But also another step on top of that is what are products and new customers buying? So so many fashion brands and Australian commerce brands that I'm talking to, even us ones, are saying they're struggling to find new customers. They feel like they've tapped out in the market. They're struggling to get new customers. And I said, Well, there's still a 20% segment of your customer base that's buying new product. So What product are they buying? You need to know what is getting you new customers in the door. You also need to know what returning customers are buying, because you still got to retain your customers and not have a leaky bucket, but you still need to be topping up that bucket at the very top, because loyalty is very hard to achieve, especially outside of discounting in this world. And so if you're not buying new product for new customers, you're never going to be able to achieve this constantly filling up bucket, which is what you need to grow. Okay,

Salena Knight  42:22  

I think you just dropped another absolute mind blowing bomb that everybody should be listening to. What Carla just said is, if you take the time to look at what your new customers are buying, and you put your time, money and energy behind that, if you are in a customer acquisition phase. Let's just put that to the side. If you put your money and time and energy into the things that new people are buying, you're going to attract new people. But if you're putting your money into the things that your existing customers are buying, then you're probably going to be paying for your existing customers to come back and shop with you, and that is money down the drain. I feel like that is a mic drop moment. Thank you, Carla,

Carla Penn-Kahn  43:05  

but you need to know this information, and you can't find that unless you're using a software that actually tells you this information. That's the problem, right? So there's a lot of challenge with a lot of the strategies I talk about. They can't be unlocked without actually getting insight, and it's not needed

Salena Knight  43:19  

unless you're a mathematical genius like you,

Carla Penn-Kahn  43:23  

even still, you need to be running a lot of a lot of things in the background to do it, yeah, and that's

Salena Knight  43:27  

what profit peak does. It just plugs in to your Shopify site, and it does all this data analysis for you. It

Carla Penn-Kahn  43:34  

does, and it's a recommendation engine, so we actually tell you what you need to do as we're reading our data. Okay,

Salena Knight  43:39  

I love that. Um, I feel like I could talk to you forever. But before we go, before we finish, can you tell me? Because you are behind the scenes, you get to see what big brands are doing. We've talked a lot about what we're doing for Black Friday, Cyber Monday, but this year, Black Friday is very, very close to Christmas. We only have a few weeks in between the two, and I don't remember ever being like this. So I would love to know what are you seeing that brand, or what are you hearing brands are doing in that time between Cyber Monday and Christmas.

Carla Penn-Kahn  44:11  

So I think a lot of brands are going to only be able to make up their minds as to what they're doing in the in between period when we actually see how Black Friday performs. And the reason I say that is so many brands forget about the importance of customer experience during Black Friday, and they go berserk, and they acquire all these new customers, they get 1000s and 1000s of orders, and then they can't handle them. Fulfillment grinds to a halt. Customers are sending 1000s of emails, spewing abuse at them all over their socials because they're not delivering. And so I think a lot of brands need this year to get customer experience right, because they're paying absolute fortunes to acquire these customers for Black Friday. And so they need to find a way to retain them. And if they don't have the right customer experience, they're going to be one time shoppers acquired at the highest cost of the year. So I think a lot of brands are going okay. Are we able to cope with the volumes? And if we are able to cope with the volumes, then potentially, what I'm seeing is a lot of gift with purchase offers happening between, you know, the Black Friday, Cyber Monday and the Christmas period, because customers are still going to be shopping around, hunting for sales and discounts. But if you can avoid a site wide sale post Black Friday, it puts you in a much better position. So give with purchases make more sense. I think we'll see mystery boxes happening as well to try and clear aging inventory. But I can't stress enough how important it is to give your customers a good experience at Black Friday, because you've paid so much to acquire them. Don't make them a one time shopper, and don't make them a shopper that spews hatred about you to every person they know, because it's the 27th of December and they still don't have their Christmas shopping. Christmas

Salena Knight  45:45  

shopping, yep, yep, oh my gosh. So much we could continue to unpack there, but we are going to wrap this up, because I think that is a really great strategy, and I know for me, even just buying, like buying Christmas gifts, if something has a gift with purchase, I'm always like, well, even if they don't want it, I might like it. Tony,

Carla Penn-Kahn  46:05  

I think you know when that friend tells you don't bring anything at all. Instead of taking the Cadbury favorites, I'll take that beach towel that I got for free Exactly,

Salena Knight  46:11  

exactly, because it was gift with purchase. And so even there's no there's no cost to you, but it has a high intrinsic value. So Carl, pen Kang, thank you so much. You are brilliant. If no one's told you lately, I'm going to tell you You are brilliant. You have literally been an innovator. You've been an innovator right from the beginning. If people want to check out your software, what, where do they go? Do we have free demos? Of course, we'll pop a link into the comments, but where would be the best place to go and check

Carla Penn-Kahn  46:45  

it out? Our website's a great place to start, which is profit peak.io we run a 30 day free trial, so there's no commitments to stay on, and we charge our customers monthly a very affordable fee, so most customers have seen a 19 100% ROI on profit, not revenue profit from using our software in 30 days. So it's something that, you know, it's very straightforward. It's a 15 minute on board process. We help you unlock insights, and we get you off and running. And so yeah, just come check us out and be happy to support you.

Salena Knight  47:16  

I think, I think everybody should be using this software. Thank you so much. Carla, thank you. So that's a wrap. I'd love to hear what insight you've gotten from this episode and how you're going to put it into action. If you're a social kind of person, follow me at the Selena night and make sure to leave a comment and let me know. And if this episode made you think a little bit differently, or gave you some inspiration, or perhaps gave you the kick that you needed to take action, then please take a couple of minutes to leave me a review on your platform of choice, because the more reviews the show gets, the more independent retail and E commerce stores just like yours that we can help to scale. And when that happens, it's a win for you, a win for your community and a win for your customers. I'll see you on the next episode.

Carla Penn-Kahn is the Co-Founder and CEO of Profit Peak, a global operating platform for commerce brands and retailers. Profit Peak automates workflows and offers strategic recommendations to boost revenue and profitability. Before launching Profit Peak, Carla spent over a decade bootstrapping and scaling multiple e-commerce brands, successfully leading them to exit.