Consolidation as Strategy: Razor Group's Path to Market Leadership - Razor Group Founder Tushar Ahluwalia

SPEAKER 2 - (00:00:00)
 Welcome to a new episode of the Unicorn Bakery. My name is Fabian Tausch and today we're going to take a look at Razer's recipe for success. The Razer group buys or started to buy Amazon FBA businesses. By now it feels a bit more like you're buying FBA aggregators like other companies that did the same that you did in the beginning and you consolidate them and build a group of e-commerce brands. As you as a listener might know these aggregator models were very hyped during 2020 and 2021. Then the cost of capital came up and now it feels like a bit of the anti-hype at the moment and therefore I'm very happy to discuss with Razer group founder Tusha Aluvalia the good and bad sides of building and scaling, rapidly scaling during a hype cycle and the future of Amazon aggregator businesses and a lot more. You started in 2020, funny enough in the backyard of my studio's address here in Berlin. That's also how we met. You raised more than a billion dollars in funding, recently acquired Perch to become the largest aggregator measured by revenue and you have approximately 450 people working at the Razer group. Tusha, welcome back to the origin of Razer and welcome to the Unicorn Bakery. 

SPEAKER 1 - (00:01:21)
Thank you Fabian for having me and it gives me a lot of old memories coming back into the building and as we just discussed remember the early days at Razer group which have been quite intense and everybody loves to think about those moments and so I hope you know this will give us some good luck and energy for this podcast. It's not even

SPEAKER 2 - (00:01:37)
 four years ago that you started so it's been a hell of a ride like from one of the most hyped companies in Berlin to one of the most like anti-hyped companies in Berlin I guess. It's a very nice word. Yeah so I'm not the person to make headlines here so how would you describe

SPEAKER 1 - (00:01:56)
 the last four years? Intense. I think yeah you know you're going through different cycles, going through the good moments, the tough moments and moving forward I think has been extremely helpful to I'd say also develop as a human being and with all of the team members you know it

SPEAKER 2 - (00:02:17)
 probably was as extreme as you think. So you said it's probably as extreme as I and all the listeners would think. What would you say are the good parts about scaling as fast as you did? I mean you as I said you raised a billion in capital. I'm not sure if all is equity or if that is

SPEAKER 1 - (00:02:34)
 combined equity and across equity dollars and debt dollars. You know I think you know as we discussed right now I don't know if it's really a dilemma whether you know you can say it was good or it was bad. It was just a choice that we took to build that business. We were excited about the business. We are still excited about the business and so that's a path we went down. We had access to that capital and so you know once we have chosen that path we embrace that path. So and that path comes with benefits. It comes with disadvantages for founders in terms of control but it comes with benefits of having very smart people that you build a business together with and it allows you to build defining companies in a much more rapid way. So I think you know comes with both advantages and disadvantages but again I think the team the founding team that has eventually went on to build Reza also over the last couple of quarters and years is the founding team that I'd say is more in the venture bucket right. So this is our DNA. We want to build large companies. We want to make a difference. We don't want to flip shit or you know we want to build an institution that's meaningful in size and something great and I think you can do that much better with I'd say the ecosystem supporting you to build such an institution a large business. So for us I think it was never a choice do we build Reza Group that way or this way and obviously it's a capital led model but we were always inclined to build something with the venture or capital ecosystem in Berlin together and that's what we did. Let's talk about

SPEAKER 2 - (00:04:10)
 the founding team. I mean I think it was easy to foresee that this will be a hell of a ride but I'm not sure if it's foreseeable like how crazy it will be like how quickly how like everything that happens but you decide for what you want to build who do you pick as the founding team what made the in quotation marks perfect Reza founding team. So for me you know and I chose a lot of the

SPEAKER 1 - (00:04:36)
 co-founders to you know be on this journey with. One of the most important things for me is that there is some sort of loyalty between founding team members because obviously I've been building businesses before that so I'm not a first-time founder. My last business that I built in India and you know I was in India for a long time although I was born and raised in Dusseldorf, Germany you know gave me some insight and some experience and one of those insights is that you know there are tough moments as you build a business whether you want it or not right. So building a business that scales fast and the business that that kind of business that we build it's clear that you know there will be extreme highs and there will be some lows that you'll need to tackle and having a team that can fully trust each other I think is a prerequisite I think and I think this is sort of the the DNA of the team so that you know sort of loyalty on one end loyalty trust big trust or near blind trust almost right within sort of you know not completely blind trust obviously you need to you need to see that you know you do everything but by the book but like very very heavy duty trust and loyalty on the one end and then on the other side what has really helped us is complementarity of skill set. So we are not sort of the same skill set at all so it's not like we have three people from McKinsey or everybody studied at V.A.U. or everybody studied at TUM and so now that's sort of the boxed founding team that is amazing and you can you know let's go and and we roll with that. In fact you know you have different personalities such as Shrestha who I know from my time in India. She's a Stanford computer science alumna so handles a lot of the technology in our business which has been a key competitive advantage of ours. We have Chris Garmon who I know through the rocket internet ecosystem so I worked within the rocket ecosystem obviously previously and so he is sort of more of a banker kind of personality type or of an Excel guy. Shrestha is more of a Python person and you have Ollie who I know from my high school in Dusseldorf who is a physicist and so everybody comes sort of with with different traits different personalities and sort of we are able to work well with each other and I think that has been defining for us as we maneuvered different episodes in our young history. We are I think three and a half years old now but obviously have seen quite the extremes with 2021 and then a complete flip in in market in macroeconomics and so maneuvering that period has been possible because of a strong team that is both very very trusting with each other and has a complementarity and skill set so you can handle different things simultaneously. So that has been I think that worked well for us and that's what I looked for as I put together the team. These are all people that I know for ages. Ollie I know from high school, Shrestha I know from my time in India and Chris I know through the rocket internet ecosystem so I think there is always some there's always been some history with the people that I've then chosen to work with and who have also chosen to work with me and I think that has been instrumental in forming the

SPEAKER 2 - (00:07:50)
 founding team that we have. Take me through some of the first days. I mean you had a founding team so you're not a solo founder you didn't have to do any everything on your own it's like you had a team you could split up the the tasks you needed capital and you wanted to buy companies that were running on Amazon FBA so how like did you start creating deal flow while you were fundraising were you fundraising first like how was the first how were the first steps going to create momentum to then also being able to like figuring out okay what businesses do we want to buy where do we get the money from how many businesses are we going to buy for phase one until we need to raise another

SPEAKER 1 - (00:08:36)
 round. The truth is I think a lot of the early stage investors and supporters and angels that we ended up partnering with were folks that I knew and I was in touch with so they were part of the ecosystem so it's not like I cold called them there was an existing relationship and so you had sort of the existing relationship with early stage capital also early stage capital that was excited to work with me and I was excited to to work with them on the one hand and then on the other hand you obviously had sort of you know the team you had sort of our interest in building something in consumer on the other hand so it was I'd say it was not sort of this romantic piece where you know I woke up and said hey I have a idea in the middle of the night and you know I think I'm going to build this big aggregator it was definitely not that case but I think there were a couple of components that came together one is and that I'm speaking mid-2020 I knew e-commerce I've had large e-commerce businesses before and ran large e-commerce businesses before I had an ecosystem that was keen to do something together with me both on the co-founder side and on the capital side and then you sort of obviously had market signals that at that point were validating the largest player of course today we are the largest player and that sort of putting putting that sort of mix together allowed us to then kick off and I'd say August 2020 and that's sort of how the coming about of razor group has happened that was sort of you know both existing relationships a little bit of idea a little bit of luck a little bit of you know let's do it and so that then propelled us to to start the business in August of 2020. How many businesses have you bought

SPEAKER 2 - (00:10:27)
 by now when we say when we talk about you as a razor group buying single brands like FBA businesses yeah and then also ending the single businesses that other aggregators that you acquired had on

SPEAKER 1 - (00:10:41)
 so I I would really you know and you know you wanted to speak a little bit about sort of the the backdrop of macroeconomic factors and so I'd really say they're you know there are two razor groups one is I'd say the pre-2022 razor group or pre-2021 razor group that was a product of the market environment then and then there is I'd say a post-2022 razor group and the strategy has I'd say has been quite different in those different phases which is a pure function of how markets have behaved and so in financial markets but also consumer markets right and so we were in we are in the intersection of of the two I'd say razor 1.0 was a lot about you know was a classic buy and build strategy but for the internet so it was sort of you know 50% internet 50% private equity kind of set up where you took on acquisition capital and use that acquisition capital to deploy in acquisitions of these FBA merchants and FBA merchants were particularly attractive because obviously they're very easy to sort of operate they're not as complex a lot of the operational complexities taken away by Amazon who handle your logistics who handle your e-commerce operations and so you can very easily you know acquire many of many of those FBA businesses unlock synergies and operate these businesses and so I'd say this together with I'd say a COVID-induced tailwind for these businesses together with I'd say a low interest rate regime a ZERP environment provided sort of a perfect breeding ground for sort of this aggressive buy and build strategy where you know you saw many players pop up and raise acquisition capital to buy these businesses and operationalize them I'd say that is sort of aggregator 1.0 and obviously sort of markets changed in 22 quite tremendously so and so which we obviously in hindsight regard as the perfect storm wherein on the capital side you know things flipped I think one of the reasons was probably the post-COVID period that came with sort of supply shocks and supply shocks together with sort of a lot of cash that was with consumers you know triggered you know massive sort of inflationary pressures and as a consequence central banks had to react and sort of increase interest rates so there was sort of a perfect storm many many things happened in 2022 interest rates increased consumer multiples got compressed you know there were supply chain shocks on the consumer side you're coming out of post-COVID and so you're comparing to a COVID period and so it was an interesting period and so all of these companies that sort of were operating under the assumption of a 2021 environment were faced with a crazy macroeconomic dramatic shift in macroeconomic in macros and macroeconomic elements and so as a consequence you know we realized that the path forward for us is not this traditional roll-up but really focusing on consolidating smaller players and other players who collectively are experiencing the same headwinds and so that is when we shifted our focus of what we want to acquire which was essentially other players and so what you see razor group acquire since the second half of 2022 are our peers starting with factory 14 then valoreo who was the the leader in in latin america the strice group which i think was the second or third largest player in in berlin and that's now culminating obviously in the acquisition of purge and so really you know when we speak about razor group we need to see sort of there is a 2021 razor group that has then emerged from a 2022 environment as sort of the consolidator of consolidators that's sort of what we you know how i think about it how the people at razor group think about it how did your role as a leader

SPEAKER 2 - (00:15:00)
 change before and after the market dynamic changed i think you know the role has always

SPEAKER 1 - (00:15:07)
 you know been has always been changing with the rapid scale so you know as a small business you know obviously i was much much more hands-on i'm still very hands-on but obviously as as things change and there's so much change in the organization driven by external factors you know i think the the people aspect becomes increasingly important and managing the the different stakeholders to to make sure that everybody's aligned on on the vision on where we are headed and so execution doesn't suffer and so you know my my sort of role was very different in different quarters i'd say so a lot of the time that i spent for example in the last three four quarters was making sure strategic deals such as the purge deal deal happened and you know there are stakeholders involved that i need to work with to make sure that you know that transaction was a successful one for razor group which is which it was and ended up being so a lot of the time i'd say in the last couple of quarters was really on on the strategic mna side it'll continue to to be more on i'd say strategic deals but obviously as i look over the next couple of quarters you know a lot of focus will also be on you know operations executions and also getting in the right talent to make sure the company continues to to raise a hand in progress

SPEAKER 2 - (00:16:33)
 and and grows fast i will ask you about the purge deal a bit later but um before i think we need to understand um the dynamic a bit better of why those other aggregators wanted or needed to sell like yeah because i think it's very clear that we're turning from a good cash environment to a not good cash environment for for cash heavy businesses and you things are improving now again uh again yeah but one is going up again that's a good talking talking 2022 that you already mentioned and described very well one of the underlying hypothesis of uh these aggregator models was okay we're buying uh cash efficient businesses that are profitable and we are able to build out more and more synergies that's that means we can run them with um or put them together have them even more margin and then run a business a business that's like worthwhile what happened to the aggregators that you bought for example before i answer that question

SPEAKER 1 - (00:17:38)
 there's one thing that i really need to say which is that i'm not a fan of the word aggregator obviously i understand we we are now bucketed in in that or all companies that have emerged from i'd say this credit led m&a cycle in 2021 are called aggregators but aggregation is not a business uh aggregation is a strategy it's an inorganic strategy wherein you acquire other businesses uh but you know it it's not the soul or the the purpose of your business it's not the consumer of your business you know your target company that you acquire is not your customer your customer is the end consumer it's the customer that is buying your product what the

SPEAKER 2 - (00:18:16)
 specific question that do we do we call it consolidator then or what's a better word

SPEAKER 1 - (00:18:20)
 for for razor group you know we're um i'd say you know the we're probably a product led e-commerce um powerhouse that's probably well how you know how i would call it because obviously our history has been a lot of roll-up um and our dna and our capabilities are obviously very good in the m&a and also now in the consolidation complex m&a structuring uh and on the deal side but our future and our present is creating amazing consumer products because this is sort of you know the the the the future of um our business obviously you know m&a will always be close as an engine um as an engine for for growth for inorganic growth but what's the real world delta that we generate beyond just m&a right what's the real world impact um and the real world impact is and has to be making consumers lives better by you know um by providing better consumer products

SPEAKER 2 - (00:19:21)
 the question was um what made it so hard for all the other companies yeah that bought amazon fba businesses to survive is it the cost of capital is it because it's harder to run and consolidate those businesses um what are the points that for example a purge and also others were selling to

SPEAKER 1 - (00:19:39)
 you you know i think there are two elements i think razor is incredibly uh good at the its technology infrastructure uh and and operationalizing our bet to very early on have somebody like trash and our team um who has worked with and i'd say top tier uh uh with top tier talent to to build out the automation use cases the automation stack as we say to be able to scale a business as a business such as ours because obviously it's incredibly complex to operate so many different products and so many different sk use that you have ingested through m&a and making sort of the trains run on time i think that has really helped us to position uh ourselves as sort of the the prime candidate for consolidation second i'd say the market environment obviously also pushed players to consider uh m&a and consolidation and specifically you know it's probably um you know all of the items that i explained uh right now all of the above so whether that's you know interest rates whether that's sort of um outlook on the operations of their own portfolios um and and the businesses that they have operated to consider consolidating and selling to raise a group um the reason you know that decision is falling with razor group i think over and over and over again i think is it's a overview of the future is slightly more nuanced uh and you know we can dive deeper into into this uh second i'd say it's the technology uh stack uh that has a lot you know that allows us to operate uh the businesses or i'd say the catalog of products of consumer products that we have in a highly automated fashion and the third is obviously you know in a phase like this uh where markets have shifted 180 degrees you know scale is an important factor because it has you know many repercussions in terms of you know your ability to maneuver uh the current market environment so i think these three reasons uh would you know then lead uh these businesses to to um you know join hands with with razor group um in obviously you know investors in these companies already also know um and you know i think everybody in the ecosystem knows each other and so you know these elements would have um ensured that uh you know those transactions then eventually happen as they did right knowing that those are all the reasons

SPEAKER 2 - (00:22:02)
 why i would decide for razor i think the main question still is why do i have to decide for another company because if i would be profitable and i'm running a profitable company no matter how many brands i bought what makes me sell this company because you're not profitable i mean what

SPEAKER 1 - (00:22:20)
 because you're profitable at EBITDA but you're not profitable at net income right so i think what goes missing in in in these discussions right now is obviously capital structure these companies have debt and uh obviously debt that is more probably that's better in the 2021 environment uh versus in a 2022 environment right so i think a lot of the the debt uh that was raised in in a 2021 environment from a 22 environment is very expensive and that leads these companies together with the you know headwinds on the consumer side to essentially embrace an opportunity like consolidation so in some scenarios you know it's a choice where uh sorry companies see it coming and they say look this is probably the strategically better option to go with and in some scenarios that that we also executed on was not really a choice right so for for the selling company so you know it's it's it's the market environment and so how does the market environment affect you know maybe that question is sort of remains unanswered how does the market environment affect these companies that you know marketed themselves as profitable companies to sell because they may be profitable on the on the pnl up until EBITDA level but obviously there is a big interest line item right what what probably burn rate is for traditional vc i say traditional vc vc backed companies for us would be sort of how much interest do we pay and that's sort of the uh the comparison and so they evaluate that option quite strongly and that is obviously driven by the massive shift in interest rates and that is essentially then because of the items that that i discussed technology size and scale and then also trust from i'd say the the key investor base that is also driving some of that consolidation benefits razor group also benefits the target company because you know sometimes in some in some cases you know they have to have to do a

SPEAKER 2 - (00:24:18)
 transaction such as this important dynamic to understand for everybody listening so i think because that's often misunderstood and even i have friends who are very deeply in this fna space and even i sometimes have issues wrapping my hand around this so therefore

SPEAKER 1 - (00:24:31)
 happy happy to uh so a lot of the a lot of the music post 2021 in in in our industry it's happening on the balance sheet not necessarily on the pnl right so i.e balance sheet i.e sort of you know what's your capital structure you know what is you know how exposed are you to leverage and that is driving a lot of the consolidation discussion what is emerging out of this obviously is a clearing of the market so i'd say this consolidation would have happened anyways right but probably if interest rates didn't change as dramatically as they have it would have taken another 10 years so what would have happened in 10 years is now essentially happening within a couple of quarters and and that will lead to i'd say a more consolidated space um i think you know there will be one or two big leaders uh like like razor group i'd say in uh quarters from now um razor group will definitely be one of them we are the largest today um and maybe there will be some players but in the long term and you know if we move there are always two tracks when i speak there's track one the capital track which you know sorry we we speak about mna we speak about raising debt we speak about 2021 we speak about the markets change we speak about consolidation we speak about you know balance sheet versus pnl that is sort of the capital track the other track that is obviously incredibly success defining uh for players in in in our industry is the consumer track right um so what's the real world difference that we make how do we make consumers lives better right um because just doing mna into infinity is not where this business is is headed again mna will be a capability but you know the real world delta will happen for consumers by building better consumer products and you know happy to dive deeper on what what you know what i mean when when i say that but that's sort of how you how you have to think about um the business and that's what will drive the consolidation right so when i when we speak about consolidation mna us now consolidating the market that's a consequence of how capital structures were formed in 2021 and how markets shifted in 2022 and our response and our foresight to be very early as a founding team um in communicating we need to consolidate to emerge as champions because before i'd say most of the players would say oh aggregators it's not winner takes all it's sort of you know you can build your profitable thing and you know uh you know it's not a race but i'd say the change in the market environment has made it into winner takes most because i'd say the you know having a scale and you know having all of the items that we discussed technology scale buy-in from the investor base um is i'd say defining in uh charting out a successful path ahead and so i'd say it's it's when it takes most now for sure and so i think for all of those reasons you know i think smaller players are compelled uh to um evaluate very strongly uh whether a consolidation makes sense um and if there is a win-win structure that these businesses can find with a player like razor group probably among the very few if not the only player to continue to execute on transactions such as these when you say leverage is one of the important

SPEAKER 2 - (00:28:00)
 things to observe at the moment how exposed is the razor group to leverage of course razor group is

SPEAKER 1 - (00:28:09)
 also exposed to leverage uh you know we raised a lot of debt so did you know many of the large players uh including you know um purge group that that that we acquired and so our sort of the kind the conclusion of this entire capital story is obviously the consolidation and part of the consolidation strategy is obviously to you know work with uh the the investors on the i'd say dead side of the business to um you know see how we can improve leverage and capital structure uh with these mnas so one um logic and one driver for these consolidation transactions so we also benefit from consolidation transition we are not doing you know everybody and anybody a favor and saying ah okay you know we're the white knight please come and and you know we'll acquire you obviously our benefit our advantage and and you know what's in it for us in these consolidation transaction is that with every consolidation transaction you know we bring our capital structure or we make our capital structure ready for a 2022 world uh coming out of a 2021 world and so that's the logic for capital structure for example in the purge deal uh a lot of the the entire debt that was in purge was flipped into razor's equity so that in turn improves our balance sheet our capital structure and so again that's the capital track

SPEAKER 2 - (00:29:32)
 of the business uh capital structure mna so that means the money that they raised in debt that was still left yeah that was flipped into your equity exactly that's exactly and so that improved our

SPEAKER 1 - (00:29:44)
 capital structure that improved our ratios our leverage ratios and uh essentially built a much more stable um platform that's that's ready for the future and so when we speak about consolidation you know it what is driving consolidation obviously us being the better operator i think the the tech piece we also speak about capital structure enhancements improvements to capital structure uh we are smart structuring of deals and also obviously revenue synergies and surges in total obviously you know one plus one equals three here so um you know these are all of the reasons why it makes a ton of sense uh in in um an environment like this you know to focus on consolidation we've successfully done that and you know that's been probably the reason we are now on on a very positive trajectory uh despite sort of uh you know what the sentiments that that you refer to uh to the aggregator space are right now one question for my understanding because i

SPEAKER 2 - (00:30:46)
 just never thought about this but so you have you generally have the cap table of purge so when you're emerging or you're buying um purge probably uh due to the circumstances with uh shares as well they the cap table merges into your cap table so they get shares at the under of the razor group if i then flip the debt into razor equity it's so that you don't have the to pay back the money to the people who who yeah landed it to to purge but they become also like part of the cap table

SPEAKER 1 - (00:31:20)
 they become partners in crime okay essentially so i just need to understand so i'd say the debt providers in purge are now part of the razor equity they think like equity they want to build a large business you know they obviously know the space very well um because they're deployed in many many different companies and um from their perspective i think it's very important to have a large outcome and a successful outcome um and so that's how they're thinking um and that's how they're supporting the business and you know i think that's one of the key advantages uh that razor group has uh which is to have sort of the lenders as partners kind of tagline i think that is that's one of the the key advantages uh that that we have post the purge transaction now um and um i think strategically that will open uh a couple of doors for us hopefully in the future

SPEAKER 2 - (00:32:11)
 what are other um comments that you can openly make about the purge acquisition

SPEAKER 1 - (00:32:16)
 so you know what i'm excited about is um you know purge as a business is easily digestible it is mostly focused on amazon us it's quite large in scale it's a bit you know they have the business is i'd say very well run professionally run and so our ability to integrate that business um has been is is pretty uh pretty great um so it's pretty easy to integrate i think that's point one point two you know there have been there's been some really good talent at purge um you know razor obviously also has great talent but you know we are excited to work with um some of the key talent at purge um some of whom are part of razor leadership now and uh you know they have i'd say from a cultural perspective sorry from a cultural perspective they have thought about the future and sort of our business in a similar way like razor group as as we have and so that has made the meeting of the minds uh i'd say between different stakeholders uh a purchase from a ceo uh myself um and and the wider leadership very smooth um so i'm excited about that the the thing that i'd say was possibly that we have to sort of um grapple with a little bit obviously is is the two location piece you have now uh many people in in uh berlin and and boston and so working across the pond um is something that we need to get adjusted to but you know we have experience with that because you know we've had a always a big team our technology part of our technology team has always said in india and so managing across these different time zones um i think is the is a piece that you know we we want to figure out but i think you know we

SPEAKER 2 - (00:34:05)
 we will would you say after um consolidating with purge the razor group is too big to fail

SPEAKER 1 - (00:34:13)
 nobody is too big to fail nobody is to be if you have a bad business you will fail so nobody is too uh big to fail we there are things we need to figure out there are things you know the problem sets we need to we need to solve still and you know we have an excellent team to to do so and look right now we are well capitalized um and we will seize that opportunity while others are not and and use that capital judiciously and wisely to emerge out of uh the last leg of the perfect storm as a world-class company so i think there are things that we can do we have time to do now that potentially other players don't and for us that will um revolve a lot around um you know the consumer you know what can we do on the consumer side we are very inspired by models like timu or you know as we look to the east these c2m models they're very close to suppliers in the supply chain that have very agile supply chains that respond to customer demands very very fast uh these are models that we are very excited by um so actually we we don't think about our future as procter and gamble off of the internet we think that's a very decentralized fragmented view of the future it's not like we have 200 brands that's not how we think about what our business is we think about our business more on the supply chain product innovation product development deep integration with the supply chain amazing assortment amazing price uh sort of amazing price value and value is very important in that equation not just price um differentiated product providing to western consumers that is sort of where where our head is at and that is sort of what we have executed on very early versus you know most of our peers in the last two years and the technology that has come uh around building um sort of a more centralized automated business uh versus a business that has 200 brands has then allowed us also that was part of the the equation as we thought about you know consolidation on the capital side you know what we were doing on the consumer the technology side how we thought about the business the nuances about how we thought about the future has been also very helpful and impactful as we had consolidation discussions because i think for many of the the founders that we spoke to light bulbs went on like yes of course you know this is a supply chain play and so our focus very early on you know to to learn from these chinese models that are really grabbing shares uh from from important western e-commerce players i think has you know will define our our our journey um and has defined our journey via consolidation and and people you know embracing razor group and players embracing razor group so what will be from a

SPEAKER 2 - (00:37:02)
 current point of view and knowing that throughout the years this might change but uh because you learn new things you you test things you build things what will be the division for the razor group in like five to seven years you know five to seven years is um you know it's it's a long

SPEAKER 1 - (00:37:20)
 time out you know we have i think there are a couple of mega trends within consumer that we are excited by and those guide us as we think about the future i think one is you know i think the west needs a response uh to players such as tim winchian which we call c2m vertically integration businesses so i think a lot of the innovation in commerce e-commerce online commerce i see in agile supply chains the ability to serve long-tail customer needs having the perfect product for each customer a consumer pulled based assortment versus a supplier pushed based assortment and so you know this is i think a key element as we think about the future another key element uh for us and you know i'll use the word aggregation again but you know it's important is that we fundamentally believe that it's more valuable to consumers to have more merchants that are 100 million dollars uh in size and less merchants that are two to five million dollars in size so i i'd say in a couple of years maybe amazon already has that realization if they don't they'll hopefully come to the realization you know it's probably better to have hundreds of thousands hundred million dollar merchant on their platform and you know walmart and and all these other players versus millions of two to five million dollar merchants because these larger businesses can be more institutional in what they want to do they're not about you know flipping stuff making a quick buck and so they will not just arbitrage catalog from alibaba to to amazon to to make a quick money but they will think about you know how can we innovate on product level how can we inject more capital into the supply chains value chains how can we great build esg compliant product right and so you know there is a ton of value to having these larger e-commerce players merchant uh merchants that produce better catalog produce better assortment i think that is sort of a another big uh mega trend that we are excited about the third big mega trend that we are excited about is a multi-marketplace so particularly as you think beyond the west for example in latin america where we are also operating but also in asia yeah shopee lazada coupang raccoon flipkart these are all marketplaces that will grow in size because the underlying economies are growing rapidly and so if you on a global scale while amazon will continue to be the behemoth that it is on a relative basis these marketplaces will become more and more and more important and so we do see our uh our future um you know in a multi-marketplace world today you know our share of amazon revenues um are uh you know have gone down rapidly because our non-amazon revenues have expanded so fast uh the current non-amazon revenues

SPEAKER 2 - (00:40:13)
 is it like online shops is it other marketplaces already like where is it so what has worked really

SPEAKER 1 - (00:40:19)
 well for us is obviously um you know with the acquisition of valoreo has been the entire emerging market mercado libre channel in the west what has surprisingly worked for us uh has has been walmart uh as a channel that has scaled rapidly yeah target uh in europe bull.com in the netherlands um you know it's the the biggest e-commerce channel in the netherlands and the dutch are very rich uh so they have a very high margin channel for us um so you know there are other opportunities in europe as well for example you have allegro you have smaller players in germany like otto or kaufland but essentially you know these top four players uh mercado walmart target bull um has been a source of a lot of growth for us uh in the last couple of quarters and then lastly you know going back to the mega trend so we spoke about rise of chinese vertical e-commerce c2m model supply chain we spoke about consolidation of merchant ecosystem yeah so i also call that the wrong darwinism of the marketplace right which is you know the idea that a super fragmented merchant ecosystem is more valuable than a more consolidated ecosystem i think there is you know a middle ground uh where you know you have if you have fragmentation uh but you have individually larger merchants that will produce more value than a super hyper fragmented merchant ecosystem through you know injection of capital in the supply chain all the things that we mentioned third was um multi-marketplace and i'd say the fourth mega trend that we see in asia it has not caught on in the west but it is now increasingly with tiktok shops is video and so these are the four mega trends that we are excited about within consumer and um i think each one of them you know it can be a big enough topic but i think the combination uh of the four and uh you know bringing them together thoughtfully is where i see our future more operationally you know and you can summarize this we like to summarize this as the western response to c2m models like timo and shian but you know i think it's it's more nuanced than that yeah from a marketplace dynamic

SPEAKER 2 - (00:42:28)
 i think or i would say that more competition even when it's super frequented challenges all players to an extent that it still increases a lot of value for the for the customer i think

SPEAKER 1 - (00:42:41)
 you know that logic obviously is the the simple logic that that would make sense right so in in the economics 101 class more fragmentation means better value to consumers but i think at certain scale uh which is you know sub five million dollars you can't do the same things as you can do as being a hundred million dollar business and so what we see actually in in in that segment uh of of merchant size is that the quality of product that is being sourced is more like stuff flipped from the vendor so you know you go onto alibaba you go for the first best product you contact the vendor probably sits in china you source the product and you arbitrage that product to to amazon or walmart whatever channel e-commerce channel that you end up using now that arbitraging opportunity which i call arbitrage alibaba to western e-commerce marketplaces that sort of alpha margin that intelligent entrepreneurs have used in the last 10 years i think that's that's gone um and so really what you need to focus on is product ip right today a lot of the product ip through that mechanism of fba entrepreneurs at scale you know getting goods from china and selling them on amazon lies with lies in china and so moving that product ip back to the west i.e the innovation and building an institution around creating great consumer products and injecting the required capital in product development in the required working capital into the supply chain is something that 100 million dollar businesses can do much better and therefore provide much better value to to end consumer and so that's why i refer to i'd say the the wrong conclusion of you know many is is better for end consumer as sort of the wrong darwinism where a false kind of darwinism where you say okay i have millions of merchants if that uh customer doesn't work i'll just have another customer uh sort of if this merchant doesn't work i'll just have another merchant killing that merchant providing that same product but what that results in is really products without innovation so what your suggestion results in in the future is just not great consumer products and we see from our data that actually there is precedent to generate a lot of margin on amazon so contrary to common belief um i think if if you find the right pmf product market fit at product level you know customers are willing to pay and you're you're able to build quite profitable you know consumer products that that you can sell to end consumer if they're thoughtful if they're differentiated if they have the right design element um and so you know that's a core focus for us uh adding that product ip adding that design element um to to consumer products just to understand the catalog better how many

SPEAKER 2 - (00:45:33)
 or approximately how many skus do you have in razor group uh so we are retailing globally probably you know 40 40 000 different uh products doesn't mean that you have to find the right level of product innovation and product market fit for like 40 000 individual products no you know i

SPEAKER 1 - (00:45:54)
 think you know within the catalog obviously you have uh products that are you know it's it's sort of similar to to retail uh where um you know obviously we're a tech business but you know you can draw learnings from retail wherein um there is a a fat head that is generating a lot of the you know the EBITDA um and and the revenues and then there is sort of a long tail of product that you know you could use to innovate to test some of them are at the end of the product life cycle so um you know managing this 40 000 skus you know that that happens through technology and automation um and so technology and automation is a key requirement to operating these businesses and keep on also consolidating our peers if we choose to um at this stage you know we we may not choose to i think we have now reached really a comfortable spot from where we may just focus on

SPEAKER 2 - (00:46:49)
 driving our c2m strategy yeah so yeah additionally i would say like nothing to do with your skus more on the because we talked about product quality when i look at timu and and sheen and then we can definitely question if their model provides the best uh quality for consumers at the moment so the question is how do you plan on adapting or or finding the answer to what those companies are doing by providing better quality so i think you know there are things that companies like

SPEAKER 1 - (00:47:26)
 timu and sheen are obviously not as good at but what is undeniable is that they're grabbing market share yeah it's undeniable and that is not just a consequence of higher marketing spend you know they're doing something fundamentally different that global capitalists finding their ways to cap tables of these companies including one of the you know most sophisticated or the most sophisticated investors globally such as sequoia china has probably invested in she and i'm not sure if they are but you know 80 guess they are so what are these companies doing different and where is opportunity to beat these companies so i definitely think sort of in you know in the last mile in the uh sort of product quality um sort of being perceived or being uh sort of more compliant you know and just being higher quality i think is a is an area where probably they have still not done such a such a great job and it's an area of uh opportunity to improve for somebody like razor group but where they are doing an amazing job and you know we just need to appreciate that is you know their core strength is is in supply chain uh and uh sort of response times product innovation cycles um understanding what customers want and then providing customers with what they want i always like to say internally think about a landing page where you can just serve the exact product that a customer wants in that point uh of time and that is sort of you know something that you know we take inspiration from obviously we're much smaller player than shian and temo today pinduoduo the holding company of temo is one of the largest e-commerce companies in the world probably a crazy case study that we meet need to learn from um i think it's good to learn also from the east not only from the west but you know overall that's something that we're excited by there are obviously things that they're doing not as great and there is a perception and probably found it in reality uh of of drawbacks of these chinese players um but there are great things that they do that we need to learn from and things that they're not as good at you know we need to see if we can improve them and then you know we have a we we have a shot in the west to you know build something similar or even different and and beat them quick addition to the she and cap table acquire

SPEAKER 2 - (00:49:39)
 capital china general atlantic tiger tiger global management idg capital javco asia and greenwoods asset management yeah so therefore i think they raise more than four billion um so here you have it one more question i think one of the last points that we will we will never but you have 40 000 skus you bought like a lot of different brands throughout the years um either you bought the brand directly or you bought other companies that bought many brands so you have like a lot of different brands you could do pretty much like in quotation marks the everything brand and call it like razor and sell everything on the razor or with different sub brands and or you let all of them be the single brands that they were how do you think about the brand strategy for the future

SPEAKER 1 - (00:50:25)
 so brand is very important because brand allows us to cater to consumers in a better way and pnl is just a consequence of that i don't like brand because it means better margin i like brands because it serves customer needs better it you know provides a signal however as we sort of connect the idea of rent to our roll-up 2021 roll-up strategy and also now consolidation i think what players around the space need to realize and are increasingly realizing is that the fba assets that we acquired um you know some of them are brands a large portion of those are not brands and so i would rather title the fba assets that we acquired as catalog of products of products with high pmf product market fit because they're selling at immense scale customers love them versus other products so there's immense customer love for those products and some of the fba assets that we acquired obviously are brands where actually you have customers searching on amazon for the brand name and then making the purchase versus searching for a non-branded keyword and then making the purchase based on sort of superiority of product other brand strategy um is you know as we develop the c2m retail machine which is more centralized versus a procter and gamble a procter and gamble is not as centralized uh as a procter and gamble and that's why i don't like the the comparison to procter and gamble because procter and gamble is like 10 brands uh that are each billions of dollars in scale their biggest uh sort of capability is top of funnel marketing um our biggest capability is supply chain value chain innovation product so you know i think the company that we orient ourselves that we get inspiration from are the are the chinese companies on the supply chain side maybe not on the consumer side you know in the perception of of quality etc that's something that i think we can do much better uh versus versus those players but certainly on the supply chain side so i would argue that uh

SPEAKER 2 - (00:52:34)
 that braun for example owned by procter and gamble is very good on the product side as well

SPEAKER 1 - (00:52:39)
 yeah they're obviously but they have a no question for sure they're no but when you know what i know but there's a difference because for brown it's just essentially one sku uh one product with different variations right um and so the supply chain capability required to um have brown on the supply chain side is very standardized you always need the same sort of components the supply chain capability that you need for a business like razor with 40 000 different skews with asps from 15 to 50 dollars yeah versus brown i don't know it's 100 or 200 maybe you know that kind of range and the width of the the catalog and the different kind of products is an entirely different supply chain capability asp means every sales every sales price it's an entirely different supply chain capability so while you could say yes they're a great product of course they're great product otherwise why you know they need to be rated product not just marketing but their key capability is the customer communication piece and then you know supply chain piece is their product piece sort of meets what they communicate but it's sort of like it's marketing top of funnel storytelling first right and for us you know it is automating a behemoth of a supply chain um and that is our key differentiator as we look towards the future notice how we're not speaking about m&a at all right now right and those are the conversations i'd love to have you know i hope increasingly in the next couple of quarters and years we can speak about consumer supply chain product uh more than the next consolidation i think aggregation again is a strategy consolidation strategy consolidation has been a response to um the the market environment which for every e-commerce company uh has been what it is but our future um and you know consumer consumer will be the happy child again i can guarantee you i don't know when it's going to be for capital markets is it a year two years uh half a year i don't know consumers is going to be the happy child again and when it does you know we'll we'll have a you know large scale business with uh amazing consumer products um we'll be the only response to timu and shian and who knows maybe we'll reach the end consumer via video commerce as well at some point right so this is the sort of uh the vision uh we we are executing towards certainly have the time to execute uh to towards that vision and i think we're making great progress i think that's a good point to

SPEAKER 2 - (00:55:04)
 enter conversation i am very thankful that you took the time for coming to the show and uh explaining all of your thoughts experiences and um great to see or or hear more than just headlines that are written by by some people assuming stuff so having somebody who explains a lot of thoughts um makes it easier to um have your own opinion and yeah i think um probably we'll find some time at some point to discuss how the products and supply chain innovations are going onward and how it's how it's developing so i wish you all the best for the future and thank you thank you for having me of course i'll link to to your linkedin uh in the show notes but happy to hand over the last words of the podcast that you can so i mean first of all thank you for having

SPEAKER 1 - (00:55:56)
 me thank you for having this podcast in english uh i'm sure that you know everybody at razor will appreciate if they can actually follow what we're discussing even you know a large part of our people in the berlin office uh are probably english first so thank you very much for that the third i'd say look you know we we discussed sort of uh the entrepreneurial journey uh with capital without capital there is no one size uh fits it all answer i think everybody has to figure out based on context of their own context uh what path they want to go on sometimes paths are open sometimes they're not i just if a door is open that you that you feel great about go through that door i think that's probably the advice that uh i can give there are not many doors in life and so how you make that decision with whether that's analysis or gut or whatever you know i think if there is a great door take that door whether that's with capital or without capital it doesn't really matter it's just take that door move forward progress and become a better person and build great businesses to show thank you so much great thank you