E-Commerce Trendspotter
At Kynetic, Michael Conn is helping Rue La La, Fanatics, and ShopRunner take advantage of e-commerce trends
While scores of online retailers have come and gone in the internet era—popped by a bursting dotcom bubble or squashed by Amazon—the companies guided by Michael Conn (BSBA’93) have charted a steady upward course. In 2011, the first online retailer he helped get off the ground was snapped up for billions. Today, he has his sights set on a host of new e-commerce trends, from mobile phone purchases to more powerful customer targeting technology. Conn is a partner and chief financial officer at Kynetic, the holding company for three of the hottest names in e-tailing: Rue La La, ShopRunner, and Fanatics. Conn tells Everett about the strategies driving the businesses forward and what turned him from a Wall Street analyst to a leading-edge e-tailer.
When the New England Patriots won the Super Bowl in February 2017, quarterback Tom Brady and his teammates donned Super Bowl Champions T-shirts that were exclusively manufactured by online sporting goods retailer Fanatics.
Within a minute of the Pats’ overtime victory, those T-shirts became available on Fanatics’ network of websites. Fans began ordering immediately, and many of those orders were surely placed from bars and neighborhood Super Bowl parties, as 67 percent of championship gear sales in the first hour after the game came from mobile devices.
“The mobile phone is the driving force in growth in e-commerce,” says Fanatics vice chair Michael Conn. In July 2016, Bloomberg reported that smartphones had become the number one driver of e-commerce traffic. The figures, from a study by Demandware (now part of SalesForce.com), suggested that by the end of 2017, 60 percent of online shoppers would be using a smartphone. And Fanatics, says Conn, is poised to take advantage of that industry shift.
“When a team wins the Super Bowl, when a team wins the World Series, there is an immediate surge of fans seeking out products to commemorate the championship, and those sales in particular are driven by the phone,” he says. “People often are watching those games with friends, they’re out of the home, and the phone is the easiest way for them to quickly access the merchandise.”
As Boston-area customers placed orders after the Patriots’ Super Bowl victory, he adds, Fanatics offered to have an Uber driver make the delivery: T-shirts ($28) and hats ($40) were available directly through the rideshare company’s app. Drivers were busy all night long, with an average delivery time of under 10 minutes.
An Eye on Trends
Conn has made a career of keeping a vigilant eye on changing retail trends. It helped him and his partners grow Global Sports, their first online business—which they eventually sold to eBay—and it continues to guide strategy at their current venture, Pennsylvania-based Kynetic, where Conn is a partner and chief financial officer. Kynetic is the holding company for three e-commerce businesses: Rue La La, a popular flash sale site; ShopRunner, a growing competitor to Amazon Prime; and Fanatics. At Fanatics, Conn focuses on financing and acquisitions, and he sits on the board of each of the three companies, helping them to recognize and pursue opportunities for growth.
Conn met his business partner, Kynetic CEO Michael Rubin, in 1998, when both men were in their mid-20s. Conn was a Wall Street analyst specializing in the retail and apparel industries. Rubin was the CEO of an athletic shoe company, Global Sports. After a downturn in the stock market, Global Sports’ stock wasn’t recovering, and Rubin asked Conn for advice.
“I explained to him that all of the investing momentum in the market was in the internet,” says Conn, “specifically in e-commerce.” He then encouraged Rubin to devise an e-commerce strategy for his business.
A month later, Rubin called him back with a radical idea. At the time, none of the country’s sporting goods retailers had any kind of e-commerce presence, and Rubin wanted to create online stores for them. Conn was skeptical, but Rubin assured him that the new idea was far bigger than his current business. “Then he finished the conversation by letting me know that I was coming to work for him,” says Conn.
After considerable persuasion, Conn agreed to leave Wall Street to join Rubin in Pennsylvania as senior vice president of strategy for Global Sports. He’s never regretted the move.
“We built that business from a start-up that did $10 million in revenue in 1999 to the company we sold in 2011 to eBay for $2.4 billion,” he says. “We were doing $1.4 billion in sales and had over 5,000 employees around the world.”
“We built that business from a start-up that did $10 million in revenue in 1999 to the company we sold in 2011 to eBay for $2.4 billion. We were doing $1.4 billion in sales and had over 5,000 employees around the world.”
Rubin and Conn’s original strategy was to offer retailers a complete e-commerce package. Global Sports bought the inventory, created the online stores, shipped orders, and provided customer service. The retailers simply supplied their brand names and their promotional power in exchange for a small percentage of the revenue.
While online-only retailers were failing (remember eToys and Pets.com?), Global Sports was thriving, eventually running e-commerce businesses for most of the country’s major sporting goods retailers. “We were buying servers to run our technology for pennies on the dollar,” says Conn, “because all of these dotcoms had failed and were liquidating.”
Within a few years, online shoppers began to expect a more integrated shopping experience (if they saw a pair of football cleats on Modell’s website, they expected to find those same cleats at their local Modell’s store), and Global Sports responded by altering its business model. Instead of buying its own inventory, the company turned the merchandising back over to its clients and focused on the remainder of its e-commerce services. “It was through the constant process of listening to clients and asking them questions about what they were seeing in their own businesses,” says Conn, “that we identified opportunities for our business.”
By 2010, Global Sports—rebranded as GSI Commerce—was providing payment processing, order fulfillment, customer service, marketing, and other e-tail services for a long list of well-established companies, from Ralph Lauren to Toys“R”Us. GSI cashed in on those client relationships in 2011. eBay chose not to keep three GSI subsidiaries that didn’t fit into its strategy, and those companies now make up Kynetic.
While the three companies vary significantly, the thread that holds them together, says Conn, is the same thread he and Rubin grabbed ahold of in 1999: e-commerce. “If you look at the overall retail industry today, there’s very low overall growth,” says Conn, “but e-commerce is growing significantly, and we really focus on that trend.” In 2016, online retail channels had a 10.1 percent growth rate, according to PwC’s Strategy&; the overall retail sector limped in with just a 1.4 percent growth rate in the same period.
Competing with Amazon Prime
Those online shoppers are becoming more demanding, especially when it comes to cost and speed of delivery. In 2016, consulting firm AlixPartners’ annual survey of online shoppers found that 75 percent said the availability of free shipping greatly impacted their purchase decisions. That’s where Kynetic's ShopRunner steps in.
“If you talk to e-commerce consumers,” says Conn, “the biggest barrier to them completing a purchase is paying for shipping. They think they’ve found a good deal, and then the shipping and handling charge shows up, and they lose their enthusiasm.”
This aversion to shipping charges helps to explain the phenomenal growth of Amazon Prime, a $99 service that entitles members to free two-day shipping on many items from Amazon.com: Prime membership numbers grew 38 percent year-over-year in Q1 2017, according to Business Insider; it now has 80 million members in the United States alone. ShopRunner aims to help smaller retailers compete with Amazon by offering Prime-like benefits to their combined pool of customers. For an annual fee of $79, ShopRunner members enjoy free two-day shipping and free returns from retailers within the ShopRunner network, including department stores Bloomingdale’s and Saks Fifth Avenue and popular brands such as Juicy Couture and Timberland.
While all customers appreciate fast, free shipping, retailers struggle to decide when it’s worthwhile to offer the benefit, says Conn. “They want to know this is a good, loyal consumer who’s going to keep coming back. With ShopRunner, we’re able to demonstrate to retailers that our consumers spend more at their sites, and they’re more loyal to their sites.”
Powerful Recommendations
Conn sees further growth opportunities for Kynetic in technology that allows better targeting of products to consumers. Rue La La, for example, now personalizes the daily emails it sends to its millions of members, highlighting items each customer is likely to buy. While recommendation technology isn’t new, says Conn, recent advances—such as those that allow e-tailers to recognize a particular customer regardless of the device the customer is using—have made recommendations more powerful.
Offering one-of-a-kind products is another growth area for Kynetic. Initially, Conn says, all of the products Fanatics sold were manufactured by third parties. “Last year, 15 percent of what we sold were products that we created ourselves. This year it will be over 25 percent.” Many of these products are championship T-shirts, replica jerseys, and other items that Fanatics is exclusively licensed to produce. Others are memorabilia that Fanatics can create on demand to help sports fans celebrate seminal moments, such as when the New York Yankees retired Derek Jeter’s number this spring.
Conn doesn’t predict much growth for brick-and-mortar stores, but that doesn’t mean Kynetic is staying away from them entirely. “Millennials are less interested in retail shopping than older generations,” says Conn, “and I think that ultimately means there will be fewer malls and fewer physical stores.” Millennials are, however, spending money on experiences, such as attending sporting events. Fanatics is capitalizing by taking over the retail operations inside of sports stadiums and enhancing them with e-commerce technology. Fans attending the 2017 college football championship game in Tampa, Florida, for example, could shop in the Fanatics-run stadium store or use a mobile app to order game merchandise and have it delivered right to their seats.
“Retail, it’s a very competitive industry,” Conn says. “It requires executing at the highest levels at all times. You always have to be innovating and offering something new.”
He advises upstarts hoping to replicate his success to look around their own industries. Where’s the energy? Where’s the growth? Focus your career there, he says.
“When I look back at what had an impact on my career, it was getting involved in e-commerce. I got involved in e-commerce in 1999, when it was a very small percentage of overall retail sales, but you could see then that it was where the industry was heading.”
