ShopRunner’s Scott Thompson: We’re Building So Much More Than an Amazon Prime Competitor
Earlier this week, ShopRunner, the online retail two-day-shipping service, said it had raised a giant $200 million-plus investment from Chinese e-commerce giant Alibaba and American Express. With the investment, Alibaba Executive Vice Chairman Joe Tsai joined ShopRunner’s board.
The investment size was surprising for many reasons, but mostly because of how large it was, and how seemingly cost-effective ShopRunner’s current model is. What in the world does ShopRunner need all that money for?
ShopRunner partners with retailers and brands such as Brooks Brothers and Calvin Klein to provide free two-day shipping to ShopRunner members who shop at the partners’ online stores. ShopRunner members pay $79 a year or $8.95 a month for that privilege. The brands and retail operations handle all the packing and shipping, with ShopRunner plugging into their back-end systems to make sure its members are getting their orders when promised.
ShopRunner takes two percent to five percent of each Shop Runner-eligible purchase a member makes on partnering e-commerce sites. In return, the company attempts to prove to its retail partners that it is bringing them new repeat customers who will spend more than nonmembers.
Here’s an edited version of our conversation:
That’s a huge investment. Why Alibaba, and why so much money?
Scott Thompson: Think of this as a growth-equity type infusion. We are at right at this point where we know the product is solid, know the experience is real good and getting better by the day, we’ve launched our mobile apps and are beginning to see some early traction on that. And this month we’ll cross a million members [including some nonpaying ones who’ve signed up through an American Express partnership].
With this infusion of cash, this is the perfect time for this business. I hate to say it, because every startup does, but we’re at this inflection point. And this is going to add the type of resources into the organization, so that, in my vernacular, we can really go for it in the next two to three years.
So are you just a two-day-shipping service, or are you building something bigger?
I actually prefer that the outside world not know where we are taking the business. We’re in the middle of 1.0 of the business.
If you had spent the day with me yesterday, you would have spent three hours with me and the exec team talking about the 2.0 , 3.0 and 4.0 versions. You’ll be surprised at where we intend to take this business, and what our plans are with adjacent opportunities.
We are assembling a very, very large group of consumers in the network who turn out, even today, to be the best digital shoppers … high lifetime-value customers. And then, as a result of being in the network, we’re getting those high-value consumers to concentrate spend among our retail partners.
You can begin to imagine, then, if Scott and team are able to grow the network to be 10 or 12 or 15 million of these consumers, and then what can he do with 15 million people actively engaged in this way. I wouldn’t want you to let your imagination run wild, but there are three or four or five things, when you thought about it, that are adjacent opportunities that we’re going to tackle over the next two to three years.
There are a number of adjacent opportunities; I’m not confirming we are doing the follow, but here’s an example.
We know the model works in the U.S. But there are a significant number of markets outside of the U.S. with the same dynamics.
Beyond that, you’re going to have to guess.
This is a very unique business. If you look around the Internet today, we’re all alone at this moment in time.
What about Amazon Prime? How much overlap do you have with their customers?
Our data would indicate it’s more than 50 percent, and I think that’ll continue to grow.
So, okay, that’s interesting, Why would a consumer have an Amazon Prime relationship and a ShopRunner membership? That’s where it gets to be a lot of fun. If you are a member of both of those, you have very specifically said to yourself and us and Amazon that you are a highly engaged digital shopper, and that the value we offer has real meaning to you.
If you’re paying for two memberships, what you’re really saying is, “I’m a super heavily engaged online shopper.”
The overlap here is very high, and our goal is to distinguish our catalog and our partners as being equal if not better than Amazon and Amazon Prime.
We have a lot of brands and a lot of luxury brands that are coming — Neiman Marcus is one — and what we have is a growing selection of a growing number of SKUs that you can’t find places other than the retailer shelves or the brand’s shelves.
But we’re not going to live only there. We’ll eventually play the game with the same type of catalogues others have, but we’ll have a very, very high number of SKUs from unique brands.
If you want toothpaste, okay, I understand why you go shop with the other guys. If you want to shop for things you’ll enjoy shopping for, you’re going to start with us.
But we’re not building a marketplace. Our really key part of the value proposition for our partners is, we get the customer to you.
There’s a lot going on with same-day delivery. You have Google Shopping Express and Amazon Fresh delivering groceries; eBay Now delivering some retail stuff, too, and a bunch of startups playing in the space. Will you go there?
You want to play in areas where there’s demand. We spent a fairly large amount of time thinking about same-day. Every data point we look at said that same-day will apply to a very small segment of orders for a very small segment of customers.
I personally believe that we’re in the winning category, which is “fast and free.” And what that will attract is a very, very large number of consumers. I don’t think the economics are going to ever play out in the next two, three, four years for it to make sense. Of course, that isn’t true in groceries, but, for the vast majority of things, if you have a choice to pay to get it the same day, most people would much prefer to get it two days later for free.