On today’s episode, Kunle is joined by Mike Abadi, Co-Founder & CEO of Sunday Citizen, a home textile brand that designs and manufactures luxury blankets, towels, robes, and other home goods. Mike shares his journey into entrepreneurship and how he grew Sunday Citizen from a small Amazon-based brand to a profitable business with a thriving community.
Mike talks about the importance of building relationships with factories, managing supply chain risks, and aligning short-term and long-term finances. He explains how Sunday Citizen diversified its supply chain by shifting a large chunk of its production to Mexico and Turkey, which helped the brand to de-risk its exposure to China. Mike also shares how Sunday Citizen collects customer data in its brick-and-mortar stores and online, and the importance of creating a seamless shopping experience for customers.
Listeners will learn about the challenges of scaling a business, building a team, and finding the right partners to work with. Mike shares his best mistake to date and how it helped him become a better entrepreneur. Finally, he offers advice to aspiring entrepreneurs and encourages them to focus on building a strong brand and community.
Here is a summary of some of the most important points made:
On today’s interview, Kunle and Mike discuss:
Q: Are you a morning person?
Q: What does your morning routine look like?
A: I try to run in the mornings, I have to take the kids to school, and then I try to be in the office by around 8:00 to 8:30.
Q: Are you into sports?
A: Yeah. Now, it’s less than I would’ve liked to but I do running and rock climbing.
Q: Do you have a favorite sports team you follow?
A: Not really.
Q: What two things can’t you live without?
A: The ocean and running.
Q: What book are you currently reading or listening to?
A: I’m currently reading Brave New World.
Q: What’s been your best mistake to date? By that, I mean a setback that’s given you the biggest feedback.
A: The experience with my Hive & Colony partner was a difficult experience to go through and it showed me that I can’t be as trusting as a person as I used to be.
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This episode is a masterclass on supply chain optimization, product development, finance, and performance marketing from the founder of a product-led omnichannel homeware brand called Sunday Citizen.
In this episode, I’m joined by Mike Abadi, the Co-founder, and CEO of Sunday Citizen, a homeware brand that manufactures and sells, in their words, the world’s softest blankets that are durable and can withstand multiple washes. Sunday Citizen started in 2018 as a direct-to-consumer brand but has rapidly accelerated to transforming into an omnichannel brand with a flagship store in SoHo, New York, and several retail distribution partnerships with retailers like Bloomingdale, Anthropologie, Nordstrom, and Amazon.
It’s worth noting that Sunday Citizen was founded by a team of experienced entrepreneurs and textile experts with the aim of delivering high-quality products at an affordable price point. Why should you read this episode? First, why focus on bringing to market a first-of-its-kind high-quality product? It has been the key driver of the success of Sunday Citizen.
Mike first explains how they crystallize the ideation of their flagship product, their ultra-soft blanket, and the iterative customer feedback system that they currently use in their agile product iterations. Mike speaks in depth about the importance of supply chain management and how the impact of COVID made Sunday Citizen diversify its supply chain by shifting a significant part of its production to Mexico. You’ll learn why Mexico makes an excellent option for reduced lead times and risk exposure if you’re based in North America.
Finally, Mike shares Sunday Citizen’s financial stack, which is my favorite, that enabled them to scale rapidly. He also emphasizes the need to align short-term and long-term finances and the value of collecting customer data and unifying it across brick-and-mortar and online. If you want a masterclass on supply chain optimization, product development, finance, and a bit of marketing, then pay attention. Mike and I dabble quite deeply into his backstory at the start of this interview. I implore you to focus on his super interesting personal story as it sets the foundation force foray into finding Sunday Citizen. Without further ado, let’s get started.
Mike, welcome to the 2X eCommerce Podcast.
Kunle, it’s great to be here. Thanks for having me.
It’s a pleasure. It’s been a long time coming. We were meant to speak a couple of times and it’s finally happened. I’m super excited about this one.
I’m looking forward to it.
Mike, you’re an entrepreneur, and you’re based out in Miami, Florida. I want to get to Mike as a child, Mike as a teenager, and what was growing up like for you, let’s jump into that piece and try and connect it to Sunday Citizen.
I’m originally born in Bogotá, Colombia, I was there for the first nine years of my life. That was the time when Colombia was dangerous and we, as a family, were forced to leave. We ended up going to Mexico so I moved to Mexico when I was around 10 years old and I grew up in Mexico, that’s where I grew up. I went there all the way through high school. I graduated from Mexico City. From there, I ended up moving to the United States for college.
In Colombia and Mexico, I come from a textile family. My father’s a textile engineer, one of the few that still exist. My grandfather was in textiles and my great-grandfather was in textiles. Since I’m a little boy, I’ve been surrounded by textiles. I remember as a young kid visiting my dad at work and playing in the big bags of cotton. I used to play there as a kid, climbing, jumping in the cotton, and it’s been part of my DNA since I was born, pretty much.
I’ve always been exposed to textiles but I was exposed to change. Growing up in Columbia, Mexico, and then the US, very young, I was used to the idea of changing and starting fresh. That built a level of risk tolerance that came through and materialized as an entrepreneur because you need that level of risk tolerance to become an entrepreneur. My environment growing up and the way that I saw my parents deal with change and starting from scratch time and time again drilled that in me.
There’s a story in the UK about Indian immigrants in the UK who came from Uganda. You have Indians who came to the UK from their homeland India and then you had Indians who came from Uganda. 80% of the time, the Indians who came from Uganda to the UK tended to set up their own businesses up here. They’re entrepreneurs and accomplished people. It turns out that they were entrepreneurs in Uganda. When they were expelled in the ‘70s by the Idi Amin regime, they had nothing, and they came here with just their clothes, a lot of them, and one suitcase.
They didn’t see any other way and they mustered up that courage to set up and they did well. They’re like, “There are many Indians here, why isn’t nobody bringing basmati rice?” They started to import rice and all of that stuff seeing an opportunity. In that sense, your parents are locating from Columbia to Mexico and then started business again and you have a bog. How long were you in Mexico and when did you eventually get to the States? Has it always been Miami or did you go elsewhere?
I stayed in Mexico until I finished high school. At that time, my parents decided to move to Miami. I was right in the process of applying to college. I knew I wanted to study in the US, that was a given. When I found out that my parents were moving to Miami and my whole family was going to be there, I decided to do college in Miami. We pretty much moved at the same time.
What was college like for you? What was the objective of going to college? What did you study? What was your objective? Was it to get a corporate job for initial experience? What were your expectations initially?
Since I’ve been young, I’ve always known that I wanted to be an entrepreneur and that I wanted to do my own thing. I always knew that the best place to learn was in the corporate world. When I got to college, I had a goal to work on Wall Street. I always saw having that financial training as being an important part of any type of entrepreneur. When I got to Miami, I decided to major in finance and then operations research.
I’ve always been very numbers focused. I’ve always liked math so I decided to study something that involved business but through the lens of numbers with a big focus on probability statistics and things that, to this day, are becoming more and more relevant. When I was in my sophomore year, I ended up getting my first internship at Lehman Brothers. That was a great experience and it was an experience that allowed me to do a rotation among different parts of the investment banking world.
I did some sales and trading, currency exchange, corporate finance, and investment banking on the natural resources side. I was in the natural resource group there. I got to see a little bit of everything. It was a great experience living in New York, I loved it. For my junior year, I got offered to do an internship with them again. I came back to Lehman Brothers as a junior intern. At that time, I decided that I preferred the corporate finance side of things versus the sales and trading so I did my internship there.
Eventually, I was offered a full-time job with Lehman Brothers and that was in 2008. I was there as the bank was collapsing and then the whole world was collapsing. It was interesting. We got exposed to top senior management. I got exposed to the CEO, Dick Fuld. It was great to be there. It was scary but looking back, it was an incredible experience to be able to be in the bank during those last months of Lehman Brothers to the point where all the salary that I got through my internship, I put it all into Lehman’s stock.
Everybody was optimistic that the bank was going to pull through. Lehman Brothers was the bank on Wall Street that had the biggest percentage of ownership among employees. The percent of owners that were actual employees at the company was the biggest bank on Wall Street. You felt the sense of like, “This is my bank. This is my company.” Through coworkers from the managing directors all the way down, you felt that sense of ownership and people were doubling down on their faith in the company.
I followed suits and that didn’t go too well. I lost all the money I invested. I left that summer with an offer to come back. A month later, we get the news that Lehman Brothers had gone Bankrupt. At the time, we were like, “I don’t know what’s going to happen. What’s going to happen?” Barclays comes in and does an asset purchase. A few weeks later we get the equivalent offer letter from Barclays. For me, it was stressful a couple of months but, at the end of the day, it all worked out. I went back to work in Barclays pretty much in the same group, in the same building. Everything was identical to what it was with Lehman Brothers, the same coworker, so it was great in the end.
It’s quite interesting that this bit of detail about the transition to Barclays Capital is never covered in the news, we just hear about the collapse, and that’s it. Thank you for the insights there. You’re now in Miami, in New York. First of all, from your experience because this is probably anecdotal, how does New York compare to Miami and how did that journey back home start from Wall Street?
Now that I have a wife and three kids, Miami is a great place to be. Being young, at that time of my life, New York was incomparable. We get a lot of New Yorkers moving into Miami and it’s such a slower pace of life compared to what it is in New York. Sometimes I wonder how many of those will last here and how many will end up going back because you can’t compare that level of energy that you get in New York. It’s something where it was great for that time of my life but now with kids, I can’t see myself living in New York.
When I was in my last year of college, I ended up starting a side business selling solar water heaters in Columbia. I did a six-month study abroad while I was in college. I used to travel a lot through China. In China, you see everywhere they use water in their houses. I saw that product and I thought, “That’s such a great product for Columbia because it wasn’t only the environmental aspect but it was also a saving solution for people.”
In Colombia, people with limited means still shower with cold water. For me, it was a great product to introduce to Colombia. I pitched the product to a big brand in Columbia that sold this type of product and they loved it so we started a partnership with them. The product started selling in Colombia when I was still in college. When I left for Barclays Capital, I ended up finding a partner that took over the business. He took care of everything and I left for New York. The idea was always for me to come back.
For me, Wall Street was a great place to learn. For me, it was like an MBA. The amount of stuff you learn is incredible and the amount of exposure is incredible. I knew I didn’t want to make a career out of it so eventually, I ended up leaving Barclays and coming back to Miami to continue working on this renewable energy startup that we had. At the time, it had grown a bit but it was struggling and it was trying to find out its fit. That was my first entrepreneurial project when I left banking. That business in itself didn’t end up working out. We kept selling the solar heaters in Columbia but that was about it, we weren’t able to expand it much more.
I tried other products, I tried selling electric motorcycles in Colombia. After coming to Miami, I ended up moving to Colombia for a bit to try to sell electric motorcycles. This was in 2010 so it was still an early product. We were one of the first to introduce the product to Columbia and we were a little bit too early. People were skeptical about the product, they were like, “What if it rains? Will I get electrocuted?” That business didn’t end up working out.
Going back to my study abroad in Hong Kong, I was starting abroad in Hong Kong, I knew I had my job at Lehman Brothers lined up, and I knew I had to wear a suit every single day once my job started. When I was in Hong Kong, I found these Hong Kong tailors that do amazing, high-quality, and tailor-made suits. You chose the fabric, they measured your body, and they fit perfectly. I always had a hard time finding suits that fit me well in the US.
When I went back to college, a lot of my friends, my roommates, and a lot of people were also trying to get jobs. I ended up learning how to take measurements. I would take measurements of my friends and other people in college. I had a fabric book with me and I started selling them tailor-made suits from my tailor back in Hong Kong. That was a nice little side business that I had in college. I realized the value that there was in tailor-made suits.
After the electric motorcycle business didn’t work out in Columbia, I decided to start this business of tailor-made suits for pretty much people in New York, investment bankers, or corporate people that needed tailor-made suits at a fraction of the price of what they normally cost. I ended up partnering with another friend of mine that was an investment banker and we launched Hive & Colony. In the beginning, what we did was we got an old FedEx truck and we retrofitted it with our brand on the outside.
On the inside, we did a nice living room area where we had a sofa, an espresso machine, and some whiskey bottles. We had fabric rolls that people could touch. In the back of the truck, we had a 3D scanner. We would drive around Manhattan and people would come down from their corporate offices, get scanned through this 3D scanner, they would choose their fabric, and then three weeks later, they would get their suit mailed to their house at a fraction of the price of what a Hugo Boss would cost. That was a great experience.
We started to do well, we got a lot of press coverage, we were in CNBC, and we were in the Wall Street Journal. It was an innovative idea and it got a lot of traction. The problem was that it was a truck so if it was a rainy day, you wouldn’t sell that day, if it was too hot, you didn’t sell, and if it was too cold, you didn’t sell. If you didn’t find a good parking spot, you didn’t sell. It was variable. We knew that we needed a permanent brick-and-mortar location.
For that, we needed capital. At that point, we got a financial partner that ended up buying out my other partner. He left the business, this financial partner came in, and he capitalized on the business so that we could open brick-and-mortar locations. We opened our first brick-and-mortar location in Boston, that location is still working and is still up and running. I ended up starting to have some problems with my partner and he ended up forcing me out of the business. He forced me out of the business around 2015. He ended up kicking me out of the business. That business is still on today, they have 10 or 11 stores.
That’s a long intro but important. Sunday Citizen, which is what we’re here to talk about, is your most recent venture. It’s been running for over three years. You are a co-founder along with your wife. What was the genesis of Sunday Citizen? What’s the why behind Sunday Citizen? How did you get started with Sunday Citizen?
When I was still doing the suit business, I was living in Shanghai because that’s where we were doing most of our productions. Being in Shanghai, I would get a lot of people that would reach out to me and say, “Mike, since you’re in Shanghai, can you help me find this product to make China? Can you help me find that product to make in China?” I found that it was valuable for me to be there and I ended up opening a little side business sourcing products in China for people of all types.
I ended up getting all types of sourcing requests. Anything you can imagine, we ended up having to source in China. One of those requests came from a hotel owner who was based here in Miami, he owned a lot of high-end boutique hotels, and he was looking for a blanket for his hotels. This is a guy who’s extremely fabric-centric. Everything in his life, his home, and his clothes has to be extremely soft. For his hotels, he was looking for a blanket that had to be very soft but also be able to stand the wear and tear of hotel rooms.
He came to me specifically to develop a blanket for his hotels and that’s where we developed a blanket that ended up being a huge success. The guests at the hotel would love it, they would ask if they could buy it when they checked out so he started selling them in the hotel lobbies. They started to perform very well. We had this product that was in this beta stage for 2 or 3 years. There’s a lot of potential but not doing anything with it.
After I left the suit business, I was looking for things to do and that’s when my wife and I reached out to the hotel owner and his brother, and said, “Why don’t we partner and take this product to market? We have a great product in our hands, let’s take it to market.” That’s when Sunday Citizen was born. Sunday Citizen started only with blankets at the beginning.
When we first launched, we only had blankets, which were pretty much the same blankets that we were selling in the hotel. When we started the business, we realized that we had to be in China. Once again, I moved to China and this time with my wife and two babies at the time, one of them was 2 years old and the other was 1. We moved to China as a family.
To Shanghai again or elsewhere?
In Shanghai. We started working on developing the product because the product that we developed is not a product that you can go to an existing factory and say, “Show us your catalog,” and you pick a couple of colors and you place the order. We were developing the product from the yarn up.
You talked about the fact that your dad was into textiles. Did you lean on him for any guidance? These are technical fabrics here because you’re talking about soft supple and, at the same time, it has to withstand daily washes and use. Did he lend a hand there?
Absolutely. He’s been involved since the beginning. He was helping me throughout the process of developing these products. He didn’t move to Shanghai with us but he was guiding us and advised us every step of the way. Being in China allowed us to expand the product line quickly so we went from blankets to the whole bed. We started doing bedsheets, comforters, pillows, and weighted blankets. We got into loungewear.
We got into all these categories quickly because being underground allowed us to build great relationships with the factories. We built a great team there. We grew the product categories quite rapidly but every single product that we added, every single product maintained that original value proposition of that original blanket of extreme softness and easy care washability. To this day, every single product has to meet those two criteria. We will not sell anything that doesn’t meet those two criteria. We kept that value for the product and the brand focused from the beginning.
With such a unique thing you’re building, seeking the right partners in China must have been super important. Particularly also from an IP standpoint, how are you protecting the IP for Sunday Citizen to ensure that there are no duplicates or that a competitor doesn’t take that secret sauce and run away with it?
What we try to do is we try to control the whole step of the process from the yarn all the way to the finished product. We’re buying our own yarn and we have one factory for the yarn, one that’s doing knitting, and one that’s doing the finished product. We’re controlling the whole process and coming up with our own fabric blends and everything.
At the end of the day, there’s no protection. Everything can be copied very quickly, especially in the textile world. It’s not like technology where you have more barriers to copying. In textiles, that’s easy to copy. Our only solution is to innovate faster than our competitors. They can copy our previous version but we’re innovating and we’re always making sure we’re one step ahead of whatever they’re doing.
Who’s in charge of innovation?
It’s myself, my father, my wife, and our partner. The original partner from the hotel gets involved in these ideas and at the product level, he’s come up with a lot of our best-sellers from an innovation perspective.We work as a team and constantly try to make it a little better. It’s listening to our clients, reading the reviews, understanding what went wrong, and what we did wrong, and quickly innovating. For most brands, it can takethemseveral months or half a year to make changes to a product. Since we have such a great team on the ground with the factories, we’re able to make changes almost immediately and have a fast turnaround and come up with a new version of that product quickly as soon as we have some feedback.
How do you prioritize?
It’s something where we have to make sure that we keep quality as the number one standard. At the end of the day, quality has to come first. It then has to make sure that anything that we do stays within those bounds of softness and machine washability. Sometimes we’ll get feedback for something that will not allow us to keep those value propositions. We have to make sure that everything stays aligned with our product value and our product north star. For us, that’s the first thing.
From there, you start going down the list and making sure that the price is something that we can work with and trying to make sure that we stay competitive in terms of cost. Also, we’ve started to shift a lot into a lot of ecological practices during production. We also make sure that everything that we do, we’re doing in the most ecologically friendly way. We started using recycled polyester for a lot of our products. We started using viscose from bamboo, which is a much more ecological fabric than others.
All these things come into the mix when it comes to product development. At the end of the day, it boils down to making sure we were having these conversations with the clients. I speak to clients directly. My father, since he’s involved in the product site, used to take customer service calls and he still does. Also, trying to understand what issues clients are having, “I washed it and I had this problem.” Different problems that they have during use and see how we can engineer a solution to that.
You’re a product-first business. The fact that you moved your family to China to be right there to produce a product before going to market shows you’re product-led. With that in view, you’ve got your product, you are constantly innovating, and you’re setting the right price. What was your go-to-market strategy for the first thousand customers?
When we first started, we knew we wanted to be a direct-to-consumer brand but we wanted to test the waters in different channels. When we first started, we launched on Shopify but we had a parallel presence on Amazon. When we first started, we also went to a wholesale trade show to get the product out there as well. With Amazon, for example, we realized that we were having to spend quite a lot of money on acquiring customers on Amazon. At the end of the day, they were not your customers.
We started to compare the performance of our Shopify store versus Amazon and what we realized is that the quality of the customers that we were able to get on our store was significantly superior to Amazon. The average order value was higher, the rate of repurchasing was a lot higher, and the lifetime value was a lot higher. Early on, we realized that we had to drop Amazon and focus all our efforts on direct-to-consumer. That allowed us to hone in on a single channel. We also tried a wholesale fair. We went to our first trade show in February of 2020, right before covid.
With everything that happened, wholesale was out of the question as well. We were all 100% focused on direct-to-consumer. In the beginning, it takes a while for your advertising to start working. Once we got to that LTV to CAC ratio that made sense to us, that’s when we started to just double down on the strategy and grow. In the beginning, we were growing month over month by 100% every single month because we were able to continue doubling down on those strategies that were working.
With the advertising, what channels did you tap into for those first thousand customers? Were you always looking at retention and LTV to CAC ratio initially? Was it to acquire customers and understand them and have that engagement and interaction with them?
In the beginning, our main channel was Facebook and Instagram. From the beginning, we were doing a lot of influencer marketing. In the beginning, we had those two as our main channels and we had Google also as a big channel but not as big at the time. When we first started, we had a relatively low average order value because the only product that we were selling were the blankets.
Something that was critical was the fact that we were able to expand so quickly into all these other categories because it allowed our AOV to double. We almost doubled our AOV from that original product set into what it is now. We started adding the comforter, the sheets, and the pillows. We saw the AOV doubled. That gave us that margin to make sure that we were profitable even at the first order based on our CAC. We had a profitable unit economics from the beginning. At that point, it became about how quickly we could scale.
There are good points you’ve made there. Some operators are reading this and they’re thinking, “How are we going to improve our LTV to CAC cock ratio?” You’d have all sorts of professionals or consultants saying, “We’ll automate your email campaigns.” A lot of the time, it’s an operational challenge. You’re like, “We have these customers. We’ve sold them this black pen. Can we make it green, red, or blue? Can we make a pencil? Can we make a ruler so we are one-stop? They trust us on this.”
That’s what you guys did with regards to expanding with more products so they buy more from you long term and you build a relationship with that portfolio of products and a trusted brand as a result. They don’t tell you that. On the outside, they say, “You need this Klaviyo email campaign here. You need these triggered campaigns.” That engineering of products is key, especially if you’ve built a good reputation up front.
It’s important that all of our products fell under the same umbrella of the value proposition. If somebody had our blanket and they said, “This is such a soft blanket,” they knew that they could expect that same level of coziness with all our other products whether it be our bed sheets, our pillows, or our comforter.
We became known for the brand of soft and cozy. Any product that we add, they already trusted us that it was going to meet that same standard. You’re right, nothing else works if you don’t have the right product. Let’s say we do a new product launch, we see quickly that about 80% of that initial wave of customers to buy a new product are existing customers. The product is what makes LTV grow.
A product-first business. It reminds me of Apple, you trust Apple with regard to what to expect. They don’t divulge from their design language and material language.
Whatever they make, it’s going to blow the competition out of the water and it’s going to change your life. Once a brand has that trust with the customers, it’s about maximizing. That’s the beauty of a Shopify business, a D2C business, versus wholesale or Amazon. You are able to lead this communication with clients. You’re able to control that relationship.
It makes a lot of sense. Where are you guys now as a business? You are back in Miami. You’re not in China, you relocated back. What was the impact of COVID? It was a wild two years, to say the least, particularly for eCommerce. Most retailers saw record sales. It was a blow-up, even the markets. There’s also a rally in the market. Do you want to speak about that and then how that now compares to this period of inflation and how you’ve navigated to date?
COVID was a huge wave that a lot of eCommerce brands benefited from. Especially in the home space, people were spending time at home more than ever. They had disposable income to spend. That’s what allowed us to grow at the pace that we did. People are not spending as much time at home as during COVID, of course.
I do think that the relationship that people had with their homes changed. Whether they’re still working from home, we get customers that send pictures of how they’re taking their Zoom calls on top of their bed, on top of our pillows, and on comforters. People that are still working from home are spending a lot more time interacting with our products. I feel that the relationship that people have with their homes changed in a permanent way.
We do think that home will continue to be this oasis from the craziness of the outside world and that’s where we come in and allow them to fill it up with products of softness, coziness, comfort, and pampering yourself. That’s the lasting effect that we will benefit from. CPMs aren’t what they used to be during COVID times. Acquisition costs used are not what they used to be during COVID times. That’s something where we’ve had to adjust and grow at a much more muted pace. Fortunately, we’ve still been able to grow.
In 2022, we were still able to grow. In terms of the way that we’ve shifted, as a company, we shifted away from having the acquisition of the center of our marketing strategy. Now, it’s this mix of acquisition with retention that is at the center of all our marketing strategies. We’ve built up the customer base and now we have to make sure that we can continue catering to this customer offering new products, making sure that they’re coming back, and having retention at the forefront of everything that we do. That has been the biggest change.
With inflation and everything, acquisition costs have been going up tremendously over the last couple of years. From an inflation perspective, of course, we were not immune to this. We saw our costs go up tremendously. It got to a point where we were paying $24,000 for a container that, before COVID, used to cost under $3,000. Imagine it’s an eight-times increase in freight cost, delays, etc. We felt it. It’s coming down.
Freight costs are back to where they were pre-COVID. China, in a way, they’ve stabilized and even come down in many ways. From a cost perspective, we are seeing inflationary relief. Of course, the customers are still feeling it, the customers are still paying more for food, they’re paying more at the pump, they’re paying more for rent, and they’re paying more for everything. Disposable income comes down. At the end of the day, that’s something that will affect the whole marketing funnel.
It’s funny how the cost of people’s essentials has gone up and imported products, for a large part, are stabilized or, in some cases, have calmed down. With the exchange I’ve had with your press team, there were two things that came to mind from the exchange. They mentioned the fact that you have tips on how to win your business off Facebook ads. I found that interesting. The second point was more around D2C, the impact of retention your business is seeing. Do you want to speak about the point of winning your business off Facebook first?
Facebook has been a wild rollercoaster. For a long time, we had a consistent strategy on Facebook that was consistently working. Even the same ads were consistently the top winners, we didn’t even have to change creatives much. We went from that period of stability into a period where almost every month, it was a new strategy that was working on Facebook. First of all, on privacy, after iOS 14, we see a deterioration in Facebook ads, especially anything that had to do with lookalike audiences.
All that deteriorated and we were forced into trying out all different types of campaigns. We went into interest-based campaigns and those worked for a while but then they stopped working. We then went into more broad and open targeting and that worked for a while and then it stopped. We were constantly changing strategies because we would see short-term successes but not too lasting. We had that period of deterioration and now we’re starting to see a comeback through Advantage Plus on Facebook.
Advantage Plus is this black box AI-driven structure where, in a way, we lose a lot of control. We don’t know exactly why things are working but we know that they’re working right. We’re starting to see a consistent improvement in ads. I wouldn’t say that they’re back to where we were pre-iOS 14 but we’re inching our way back. The success of our Facebook and our Meta strategy boiled down to creatives. It stopped being about choosing the right audiences and went more into creatives.
It’s not only making the right creatives but making a tremendous volume of creatives that, before, we weren’t doing. We went from maybe doing 5 to 10 creatives a month and now we do 50 or 100 creatives a month. We increased by tenfold, the amount of creative sales that our team is generating. That forced us into also having to be creative on how to get them. We started working more and more with influencers and content creators. We started working more with our existing customers. It all boiled down to creatives now in terms of success.
AdWords have a similar black box system. What’s your background? I’m curious because you seem to be going into detail on Facebook advertising. Are you actively involved in the marketing for Sunday Citizen?
We do have a media buyer that does the day-to-day but I like to get involved in that part. I’m a numbers guy so I like to get into that quite a bit. My wife, even though she’s the CMO, is focused more on the creative side, on the website, and on the more visual and brand side of things. I also keep my hand on the actual spend of the media buying.
Are you leveraging AI like ChatGPT in anything at the moment in your business?
We are. We had a whole call with the whole team on different ways that they could start using it. I started using it in my day-to-day. At least once or twice a day, I find myself using it. Our customer service team started using it already. They’ve been using it for over a month already. At this point, everybody’s experimenting with it and finding creative ways that they can start using it. Let’s say you had somebody that was writing an email and they had to wait for the copywriter to fill in a little short paragraph. Now, they can maybe be more efficient and self-sufficient through ChatGPT. It’s interesting the way it’s changing the dynamics of the team.
I find it fascinating. I have to say, it has helped me write some of the best ad copy for Facebook, whether it’s coming up with titles. You don’t use it 100% but it gives you a fantastic framework to take on and adjust at this point in time. Plus one to ChatGPT. It’s great timing, especially now with the economy doing what it is doing. The second point I wanted to make was your foray into a store. You are now trying to deliver this omnichannel or multichannel experience. How did you make that big decision of having a flagship store? Where is it located? How’s that going?
In my opinion, owned brick-and-mortar is still D2C. We are still going directly to the consumer, it’s just in a different capacity, and in a different way. It boils down to finding the way that’s more convenient for your customer to connect with you. We used to do a survey of people that didn’t buy from us, people that came into this website, and gave us their email but didn’t end up buying. We sent a survey and the biggest reason behind not buying from us was that they wanted to touch the product first.
Our whole value proposition is soft and all we can do is show you a picture and have some copy to describe it. At the end of the day, you want to feel it. We saw that people were asking to be able to touch the product and that’s when we realized that having a brick-and-mortar store allowed us to connect with our customers in ways that we weren’t able to before. It’s early so we’re still learning the ropes through this.
Remember that my background in the suit business was also in the brick-and-mortar store. From there, it was the opposite where we would acquire customers online and bring them to the stores. Now, what we’re seeing is that we’re being able to acquire customers through the store that eventually become online buyers for us as well. They’ll come into the store, they’ll discover the fabric, they’ll touch it, and they’ll connect with the brand. Sometimes they’ll buy right there and then but sometimes they’ll decide to buy from our website.
The logic is that somebody that comes into the store is more likely to convert with an ad that they see from you later on than somebody that hasn’t and vice versa. Let’s say somebody already bought from us online and we have a new collection that launched, “Might as well go into the store, check it all out, and make my purchase.” We decided to open in New York City, we’re in SoHo, right on the corner of Crosby and Broome. It’s like a little avenue of D2C home brands.
We have Parachute two blocks away, we have the Citizenry, and we have us. There are a lot of home brands and a lot of D2C brands in that area. New York is already our biggest market so it’s a great way for our existing customer base to come and see us but it’s also a great way to get exposure. At the end of the day, SoHo is for locals but it’s also for people that are traveling to New York as tourists from all over the world. It’s a great way to get that brand out as well.
It’s got high traffic. One of the questions I have at the back of my mind is how did you zoom down? In the most simplistic way, there are 50 states in the US. How do you whittle it down? It’s going with the data. Back in the day, I used to work with a tiling company here in the UK. It’s a big project trying to get tiles into your house so what we did is we sent them free samples. They would get free samples and then we’ll put them in an email flow, which is how your tiles speak to us directly.
We had a 60% conversion from sample to actual sale off the back of that. We brought it to them for free. That was quite interesting. The other point is looking at the financial statements of Crocs. As you alluded to, how they categorize D2C as brick-and-mortar in Croc stores and their website as well as Amazon. It’s a good point you made there. This is interesting. You come from a finance background, has finance given you an advantage in running a D2C business in running Sunday Citizen?
First of all, running any business requires a lot of cashflow management. It’s not only about profitability but cashflow management and being able to project that is a challenge, especially for growing businesses. We had an initial capital contribution when we started the business and we were able to grow to eight figures without any outside capital.
That required a lot of creative ways of making sure that the cashflow was working the right way. Even though we tried to stay profitable at the first order, the inventory ends up consuming such a big amount of capital that it’s always a challenge. That part is important. The biggest thing was this ability to understand the marketing numbers through a financial perspective, through a financial lens where you see it the way you would model out the cashflow of any asset. You see an initial customer acquisition, which would be the equivalent of let’s say a CapEx and finance. You then see how that initial acquisition gives you an expected cashflow over a projected period of time.
It’s a way of thinking that’s ingrained in the finance industry. When you bring it into the way you look at advertising, it allows you to appreciate what you’re doing on the advertising front, not only from the revenue that it’s bringing in today but the ability to get that customer and grow the LTV over time. There’s a financial way that you can look at that. We have a real ROI. That also led me to have that confidence to know that we were acquiring customers that sometimes would be more and more expensive but, at the same time, we knew we felt confident that we were able to profit from them.
I’ll touch back on finance again but what three tips would you give to any eCommerce operator looking to get their first brick-and-mortar store off the ground in 2023?
First of all, make a data-driven decision, and go to where your customers already are. The second thing is to make sure that you become profit centers as themselves but you have to also see them as acquisition channels. You have to almost see it in the same way that you would any other marketing channel, whether it be Facebook, TikTok, or whatever where you have an expense and you’re like, “How many customers am I being able to acquire through this channel?”
You end up coming with an equivalent CAC. Also, you have to look at the LTV of these customers. It’s still too early for us to draw a definite conclusion from it but what we expect is that the LTV of a customer that was acquired through the store is going to look different than the LTV of a customer that was acquired purely online.
That’s what you have to start to track and see how much these customers are costing you. The third thing is the operation. Running a store can be a huge drain on the business. I saw it when we first opened the first store for Hive & Colony. I ended up having to move to Boston to make sure that we were operating the store correctly during those first months. It’s a big drain. It’s time-consuming. The leases, the staffing, and the build-out are draining. For this store, what we ended up doing is we ended up partnering with Leap. They do like retail as a service so they’re like your partners in the operation of the store. For us, it’s been great because they took away that headache and burden of operating the store.
Going back to finance, I’m giving you a minimum shopping list, what is your capital stack like? What has enabled Sunday Citizen to grow so fast? You alluded to growing fast to eight figures. What’s been the bread and butter, the real essentials to making this growth happen?
The number one is to understand your unit economics. At the end of the day, it gives you the muscle power to invest in the marketing side. It’s almost like a $10 improvement on your gross profit. That means that you have $10 to acquire on your marketing. Every dollar saved at the gross profit level is an extra dollar that gives you more room to work on marketing. Understanding unit economics is super important, making sure it’s optimized as much as possible, and making sure that you’re shipping as optimized as possible.
As we were growing, we used a lot of tools like Clearco, Shopify Capital, and Wayflyer. Those tools are great and they serve an important function for any growing company but, at the same time, you have to be very careful with them. The way they’re structured is that they give you the money upfront, they take a percentage of your revenue, and that means that you have that cash now.
Later on, it’s up into your cashflow and it might strangle you to the point where you need more capital from them so they take a bigger share of your revenue and it can become a death trap for a lot of companies. This is a general rule of finance, short-term assets with short-term liabilities, and long-term assets with long-term liabilities. If you’re using these tools like Shopify Capital, for example, to finance your marketing where you’re seeing a very quick ROI, you’re spending it, you have a good ROAS, and you get the money back quickly, that’s okay.
The danger is when you’re trying to use that to finance let’s say your inventory because you’re using short-term debt. These debts are short-term, you have to pay them back within 4 to 6 months. You’re using that to pay for a long-term asset, which is the inventory that can take you several more months to cash in on. That’s when it gets very dangerous when you have that misalignment.
It makes a lot of sense, short-term to short-term and long-term to long-term. What about negotiating with the factories? You said you controlled the supply chain out in China. Were there any efficiencies to be made at the backend? Particularly if you are putting products on a ship that’s going to take three months to get to the States, how were you managing those time lags and finance?
It’s something that’s not easy to get, especially if you’re starting a relationship with a factory in China, most of them will not give you credit. With us, we’ve built a good enough relationship to the point where we do have some credit and that has helped a lot. We were able to negotiate credit on the balance payment and also make sure we minimize the amount of the deposit that we had to put in for every order. Negotiating those rates is helpful. It takes building up that relationship.
Another thing is that we’ve shifted a big chunk of our production outside of China. We’re doing a lot of products in Turkey now. A lot of our vetting, we started doing in Mexico. For example, for us, Mexico has been great because there you have a much shorter lead time. Let’s say the production takes the same amount of time but from the moment that it leaves the factory until it gets to your warehouse, it’s less than a week. That has also been an interesting shift that we’ve done.
Is there a free trade arrangement between US, Canada, and, and Mexico?
Yeah. You get benefits there as well. Now, the shipping is not as expensive as it was before but still, you get a lot with taxes, shipping, and lead times.
It’s super interesting that you’ve de-risked yourself from a far east supply chain. Was that off the back of COVID? Over the cause of COVID, there were big challenges with getting things off the back of China or even Asia and many operators were looking to diversify their supply chains. Is that when you made the decision or was it further back?
We started the relationship with the Mexican factory over a year and a half ago. When we were in the middle of these issues with the supply chain and everything and we realized that we had to de-risk our exposure to China and start working with Mexico. For us, Mexico was easy because I grew up there and we knew a lot of people, it’s an environment where we know how to work.
I have a final question, which has got to do with your brick-and-mortar operations. What are you doing to unify customer information, the customer data? Are you using a Shopify POS there?
We use Shopify POS, which integrates directly with our online store. it all integrates. Even for return exchanges, we’re trying to make sure that it’s as seamless as possible in both directions.
I’m based in England as you may have gathered and I was in the States at Christmas visiting family in Chicago to be precise. One thing I noticed that’s not done here and what’s done insanely in American stores is they ask, “What’s your email?” Whether it’s Target, Whole Foods, or Best Buy, they ask you for your email. Email data and customer data are seamlessly collected in stores in the States. Are you doing that? How does that work? What’s the in-store experience like?
We want to make sure we collect as much data as possible. In our store and website, there’s a discount under the first purchase. We extend that off the store and we say, “You’ll get a discount on your first purchase but you have to give us your email.” They automatically sign up for our loyalty program and everything and they get that first-time discount. It’s super important that we collect as much of that as possible.
Do you do anything for browsers? For people who are not quite going to buy, is there any email collection in store that you engineer?
We have QR codes that we say, “You can scan it and get a discount for a future purchase.” We have little flyers that they can take with them that also have a QR code in case they want to buy later on. We try to make sure that even if they don’t buy, they at least connect with a brand in one way or another.
Mike, I enjoyed this conversation. I’m going to be respectful of your time because I know we’ll go on and on. We always end every episode with a lightning round, it’s a set of rapid-fire questions where I ask a question and then you answer with a sentence. Some people overpush the sentence.
Let’s do it.
Ready when you are ready.
Are you a morning person?
What does your morning routine look like?
I try to run in the mornings, I have to take the kids to school, and then I try to be in the office by around 8:00 to 8:30.
Are you into sports?
Yeah. Now, it’s less than I would’ve liked to but I do running and rock climbing.
Do you have a favorite sports team you follow?
What two things can’t you live without?
The ocean and running.
Running in the ocean, that’s it. What book are you currently reading or listening to?
I’m currently reading Brave New World.
What’s been your best mistake to date? By that, I mean a setback that’s given you the biggest feedback.
The experience with my Hive & Colony partner was a difficult experience to go through and it showed me that I can’t be as trusting as a person as I used to be.
Mike Abadi, it’s been a pleasure having you on the 2X eCommerce Podcast. For those who want to find out more about Sunday Citizens, it’s SundayCitizen.co. You have a thriving community on Instagram, Facebook, and LinkedIn. Would you like to connect with guests on LinkedIn?
I’m happy to connect with your readers and answer any further questions that they may have.
Thank you for coming on the 2X eCommerce Podcast, Mike.
Perfect. Thanks for having me.