We recently had an opportunity to be a part of the last episode of CNBC’s “The Profit” which featured our customer Flex Watches and aired on September 13, 2013. We provided some background on what to expect from the episode in our blog which we published the day the show aired. If you missed it, you can read it here. Flex Watches is a charity-centric watch company based in California. The show features Camping World CEO and serial entrepreneur Marcus Lemonis who helps turn around struggling small businesses by providing his business expertise and investment capital in exchange for equity. Although we were not mentioned by name on the show, our role was to create the two final retail POP displays they used in their presentation to global retailer Flip Flop Shops. Having had the opportunity to watch the show, we wanted to share our take on the 3 most important lessons learned.
Lesson #1- Create a Compelling Story for Your Company
Flex Watches was created as a charity-centric for-profit company with a mission that was heavily focused on giving back. The founders launched the company around a business model based on donating 10% of sales to 10 charities which were represented by 10 colors. They developed a cool line of colorful watches, with each color representing a different charity. They offered customers the opportunity to support any of the ten charities of their choosing. They sold their watches for $35 and donated $3.50 to one of the charities for each watch they sold. They achieved over $1M in sales very quickly.
The company began receiving feedback from retailers indicating that they wanted a product at a higher price point. So the team at Flex Watches designed a line of higher-end watches. They began to try to develop a lifestyle brand. The result was that sales dropped in half, and the company floundered. Marcus Lemonis correctly pointed out to them that in an effort to give retailers what they wanted, they had departed from their mission and lost their true purpose as a company. He agreed to write them a check for $400K in exchange for a 40% equity stake in the company. He saw tremendous value in their story of giving back and steered the management team back to its roots. It’s the story that would sell the product, attract the buzz, and get sales back to the $1M+ level.
Lesson #2- Design and Packaging Are Essential to Creating Perceived Value of a Product
Marcus also zeroed in on the company’s packaging. The company offered their colorful watches in a cheap, generic, and uninspiring black box. The box did nothing to differentiate the company’s product from competition, nor did it create any perceived value or excitement. Marcus engaged a packaging firm to redesign the box. The new package was very attractive and helped the product stand out in retail stores.
In addition, he encouraged the team to spruce up the designs of their watch bands. He liked the bright colors and thought the watches were attractive, but he convinced the team to license some designs that they used on the watch bands. Licensing the designs did add some cost to the product, but his point was that it was well worth it since watches are a fashion accessory and style matters. The licensed watch band designs and the outside packaging together enabled the company to justify raising the price of the watches from $35 to $55, which added significantly to the gross profit per watch.
Lesson #3- Invest in an Effective Retail POP Display
Flex Watches was selling through smaller boutiques, surf shops, and specialty stores. Generally, those stores had an average of 2-3 store personnel to help customers. Since almost all of these stores were short of staff, Marcus told the team they need a “Silent Salesman” or a POP display that could sell the product for them without the assistance of a store clerk.
The company asked us to design the two displays shown below. They wanted a more affordable version which is the white cubby display shown below. They wanted the display to be colorful and display all ten colors to represent their ten charities. Furthermore, they wanted messaging to reinforce their charity-centric message. The display we designed which was featured on the episode is shown below.
We also designed a more upscale watch display which was not discussed on the show and only shown in the background. The idea behind this display was to include the key features of the display shown above, but to go the extra step of making it a locking case. Generally, the perceived value of a product increases in the consumer’s mind if it is in a locked case since it stands to reason that it must be valuable if someone bothers to lock it up. We really liked this design, but they opted for the more economical display.
Marcus illustrated the simple math of the POP display investment. Each store would provide Flex Watches with an opening order of $1000. The company would make $500 on the $1000 order. The display cost $300 so the profit on the opening order was $200. However, on the second order and subsequent orders, the profit increased from $200 to $500 since the cost of the display was paid for with the first order. Marcus’ math is directionally correct, but in most cases the product manufacturer has to cover the cost of shipping which would likely reduce the $200 profit on the first order. If the cost of the display can be fully covered by the first order, the economics tend to improve substantially thereafter. Many of our customers tell us that they have to give the displays away for free, and the smart ones generally tie the display to a certain size minimum opening order.
We thought the episode was instructive and that the lessons learned are fairly universal in their application to many types of businesses.