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PALLAB DEB: Hi.
I'm Pallab Deb, Managing Director of Application ISV
Partnerships at Google Cloud.
I'm super excited today to be moderating
this session with Mike Relich, co-CEO of lifestyle brand
PacSun; with Eddie Capel, the CEO of Manhattan Associates;
and Aaron Brown, CEO of Shopify Fulfillment Network,
on how each of these three fantastic companies
are innovating to deliver more visibility into supply chains
and creating the sustainable store of the future.
So let's get this going.
Sustainability is a broad topic, and I think all of us
can relate to it that it's got multiple imperatives.
Obviously, the environmental, but there's
also financial and technological imperatives.
So we're going to kick this off today with Mike.
And so, Mike, thanks for being here today.
I'd love to understand from you, Mike,
how is PacSun, a lifestyle apparel
company with 325 stores, I think, across the United
States, building sustainable practices
into how you run your business on a day-to-day basis?
MIKE RELICH: Yeah, thanks, Pallab.
Basically, our customer, the Gen-Z customer at PacSun,
basically, sustainability is very important to them.
So because of this, at PacSun, we
look at sustainability holistically.
Sustainability starts with the raw materials that are used,
the manufacturing process, transporting the goods
to the distribution center, getting those goods
to the customer, and extending the life of the garment.
So because of this, we use organic fabrics, fabrics
that minimizes the depletion of natural resources.
And just as a data point, it takes 1,800 gallons
to make one pair of jeans.
So to mitigate this, we use BCI cotton or Better Cotton
Initiative.
Basically, this is sustainably-farmed cotton
that lessens the environmental impact to the soil.
It uses less water, and it improves
the livelihoods of farmers.
We also source fabrics with recycled content,
and we use sustainable fabrics such as bamboo.
Now, let's talk about the manufacturing process.
It takes 200 liters to basically dye one kilogram of fabric.
So because of this, we look for manufacturing techniques
that are low wash to minimize use of water.
We also look at alternative technologies
such as digital printing and dyeing
because it's more environmentally friendly.
When it comes to denim, rather than doing extensive washes,
we use lasers which basically doesn't use water at all.
And we also select factories with water recycling
capability.
So now that brings us to reuse.
There's 36 billion clothing items
that are thrown away each year in the US, and 95% of those
could be reused or recycled.
In the US, there's 11.3 million tons of apparel
that are thrown into landfills, and that
represents 85% of all textiles that are produced in a year.
Now, that equates to 81.5 pounds per person per year.
So with our collaborative partnership with thredUP,
you can rewear, recirculate, and repeat PacSun goods.
So when you trade in a pair of old PacSun denim,
we'll give you a discount on a new pair.
But by giving this garment a second life,
this reduces the environmental impact by as much as 82%
and returns one item of clothing back into the circular economy
and extends its life by about 2.2 years.
So this basically helps fight fashion waste
and reduces, basically, the amount of goods
that are put into the landfill.
Now, this is the first step in creating a sustainable
circular economy in fashion which
involves designing and promoting products
that last, can be reused, repaired, and remanufactured.
Now let's talk about logistics.
So we try to get our products to our warehouses, stores,
or directly to our consumer via green supply chain.
We use ocean vessels that minimize
the use of airfreight which has a very heavy carbon footprint.
We draw on Cloud, machine learning, and the latest
technologies to create faster, smarter,
and more efficient logistics plans, therefore,
reducing the carbon footprint as much as possible.
So now let's talk about flexibility and adaptability
and agility.
These are key requirements in retail
if you want to be successful.
So to do this, we moved to Manhattan's Cloud native,
microservices based order management system two weeks
before the pandemic hit.
It enabled us to move from a DC-centric model
to a ship from anywhere model that included ship from store,
buy online, pick up in store, same day delivery,
and even ship with Amazon Prime.
Now, just to give you an example, during COVID,
we shipped 40,000 units a day out of our stores
which was amazing.
So we turned those 325 stores into fulfillment centers.
We leveraged store labor.
This enabled us to handle a huge spike in e-commerce orders
while delivering products faster and more efficiently
and therefore reduced not only our transportation
costs, but our carbon footprint and increased, basically,
our margins also.
So not only did we meet environmental goals,
but it was more profitable.
This is a huge competitive advantage,
and that bolsters our sustainability and our profit
goals.
And we also leveraged machine learning and analytics
to place product in proximity to the customer.
So we'd lower the transportation distance,
and we minimized split shipments, therefore,
lowering our expenses and our carbon footprint.
So lastly, let me tell you about a project we're working on now.
With the Amazon effect, most customers
expect to get their goods in one or two days,
but typically, that's the most carbon
unfriendly and most costly.
So if you tell customers, look, what is the alternative that's
the most carbon neutral?
Typically, even if it takes longer, they'll select those.
So this is a product we're working on now,
and we think, again, this will help our sustainability goals
and also help our profitability.
So anyway, thank you for letting me tell my story.
I appreciate it.
PALLAB DEB: Thank you, Michael.
That was fantastic.
You left me with so much statistics
out there, but the one that was most telling
was that 36 billion clothing--
pieces of clothing are thrown away every year.
That's just mind boggling.
But then you also made a great reference
to how you're moving to Cloud native technologies,
and here I'd love to bring up Eddie
to hear really about how Manhattan,
a leader in Cloud native supply chain technology,
is really helping retailers out there
get more efficient in the way they run their operations
but also in a very sustainable manner.
Eddie.
EDDIE CAPEL: Yeah, hey, Pallab.
Well, look, in general, we're focused
on the end-to-end supply chain.
We help our customers use technology
to take miles out of the supply chain,
air out of the supply chain, make
sure the right products are in the right place
at the right time, make sure that distribution centers are
just as efficient and as effective
as they can possibly be.
But today, I'd like to talk about how
we can help build a retail store that is sustainable
because by definition, retail stores tend to be rather energy
inefficient.
Buildings in general are energy inefficient.
They need to be heated.
They need to be cooled.
They need to be lighted, and this creates a challenge.
As the folklore goes, the most energy efficient retail store
on the planet is a bookstore in Paris.
If you buy into the fact that nuclear energy is green,
then, generally, France is powered by nuclear energy.
Books create a very dense SKU count in a store,
and most people in Paris are going
to walk to that store to pick up their product.
So we're focused on how can we begin
to try to emulate some of those characteristics?
How can we bring a bigger SKU count
to the physical retail experience that can actually
be stocked in the store?
So how can we make sure that inventory
across the entire network is saleable?
We know how we can get it to the consumer, when
we can get to the consumer in a very efficient way,
and we know that retail stores are multi-function facilities
today.
They've got to provide this beautiful consumer experience
as they've always done, but they're also
boutiques, they're galleries, they're customer service
centers where customers can buy products online,
return them at store.
As Mike says, they're miniature distribution centers.
They're multi-function facilities.
We need to introduce technology to the store associates that
enable them to be multi-function in a very efficient way.
So if it's a buy online pick up in store or a curbside pickup,
a ship from store, a cash and carry order,
all of those capabilities can be delivered to that retail store
associate in a very efficient and effective way while still
being able to deliver a wonderful consumer experience.
And maybe that includes multiple checkout options.
So we can make, again, those store associates even more
efficient-- some self checkouts, some mobile checkouts,
along with fixed station.
It's an interesting challenge.
It's one that we're up for to create this environment
where we can build a smaller footprint
store, more technologically enabled, more advanced
for the associate, a better experience for the consumer
and at the same time environmentally friendly.
PALLAB DEB: Thank you, Eddie.
As you were speaking, I was imagining the store
of the future, and just--
it's just amazing hearing you almost paint it for me
as regards to how that store would look like
and how it functions.
Thank you so much for that.
And that brings us to you, Aaron.
I mean, just think about Shopify Fulfillment Network.
You are everything.
You are everything from commerce to fulfillment to logistics.
So I'm really excited to hear about how do you run this
all in a sustainable manner?
AARON BROWN: Thank you very much,
Pallab, and it's great hearing the stories
from Mike and Eddie.
It's really interesting to see how every stage of the supply
chain can fit together to help drive sustainability today.
Shopify's mission is to make commerce better for everyone,
and our platform works behind the scenes
to power the success of millions of merchants around the world.
We do this in two ways.
Number 1, by creating technology that
simplifies life for our merchants and number 2,
by aggregating volume that gives merchants
capabilities and scale that they could never
achieve on their own.
But we also recognize that entrepreneurship
is a fabric of society that has been around
for as long as mankind.
And so we want to help humans improve global sustainability.
it's impossible to do that without commerce
playing a lead role.
Now, Shopify has been taking a zoomed
out view of this problem set for a long time,
and it's a hard, hard problem.
In 2019, we established our sustainability fund,
and we've spent over $30 million on carbon removal since then.
We currently have over 20 partnerships
with innovative companies spanning
all kinds of carbon removal verticals, whether it
be direct air capture or ocean, forest, soil, transportation,
or other areas.
But that's Shopify supporting sustainability, not
our merchants.
And for many merchants, there's a tension
between doing what is right for the environment
and what is best for their own operational efficiency
and profitability.
And that tension is hard to balance on the best of days,
and it must seem impossible when an entrepreneur is dealing
with inflation, rising interest rates, a tough labor
market, and other things.
And when merchant success and sustainability
aren't on the same side of the table,
sustainability quickly downgrades
from being a priority for today to an idea for tomorrow.
And truthfully, that's how we've all
gotten to this mess in the first place.
Although I believe that tension between success
and sustainability is visible in most areas of commerce,
I think it's by far loudest in logistics.
The past decades have seen an unstoppable acceleration
of buyer expectations for fast delivery.
When I grew up, there were Sears catalogs,
and they've been replaced by shopping malls which have
been replaced by smartphones.
And trains have been replaced, as Mike said, by air travel
with last mile delivery.
And most merchants keep their inventory
in a single warehouse, which means
if a buyer is in LA or New York, most orders travel
a really far distance to reach that buyer
and leave quite a contrail.
But what can a merchant do?
They can't decrease buyer expectations.
They can't afford multiple warehouses.
They can't build electric airplanes.
And this is where modern technology comes in.
I'm here today representing Shopify Fulfillment Network,
and we're building a merchant-first fulfillment
network that connects a merchant's entire supply
chain from port to porch.
And hidden in our boring cost accounting,
we've discovered an insight that actually we
believe can change everything.
Our dirty little secret is it is cheaper
to fulfill a one-day order than a three-day order.
Let me say that again.
For us, it is cheaper for us to fulfill a one-day order
than a three-day order.
How is that possible?
Why does it happen, and how can it help with sustainability?
The truth is, the only way we can possibly
fulfill a one-day order is if the inventory already
happens to be close to the location of the customer
before they click Buy.
And for us, that insight has changed everything.
Although it's impossible for one merchant
to have the capital to own multiple warehouses,
the inventory to spread it across an entire country,
the data to predict demand, the scale to build deals
with every local ground carrier, when they work together,
they can.
And so Shopify helps them.
We're building a national network.
We're using Cloud data to predict demand
for every merchant and every SKU and also
to predict the location of every order.
And we're building a platform that vertically integrates
a merchant's entire supply chain with Cloud Services that
dynamically routes every merchant's
inventory across our entire network in real time.
And when we do that well, we actually
disrupt that natural tension between faster fulfillment
and lower emissions.
But, Pallab, I don't think that's enough.
Whether customers in a physical store or an online store,
most have already decided to buy something well
before they get to the checkout.
And so if we want to make sure that customers
buy the products that best support sustainability,
we have to help merchants surface ambitious delivery
promises before the customer decides what to buy.
And for Shopify merchants that means
placing Shop Promise on every single place
on the internet where a buyer sees a product impression,
whether it's a Google Search ad or YouTube
video or the product page of a merchant's online store.
And the funny thing is, when we do all of that,
it dramatically increases the merchant's cart size
and conversion rate and repeat sales of only the products that
are most sustainable for the environment.
And when you add all that up, we get merchant success,
buyer expectations, and sustainability
all on the same side of the table.
PALLAB DEB: Phew.
Aaron, that was again fantastic.
Each of you brought such amazing nuggets of information here.
Predicting demand for every SKU for every merchant, that's
a Holy Grail of a challenge.
But if there's one company that can do it, it's probably y'all.
So I think this was a fantastic session.
I learned a lot, and I'd like to thank each one of you.
Mike, Eddie, Aaron, you-- all three of you
have brought amazing insights into our presentation today
and to our conversation today.
I'm sure our audience who's been with us,
I thank you for listening in, and I'm
pretty sure you will walk away a lot more enriched
from this conversation.
There's also some interesting takeaways
here in terms of additional material
that you can lean on to further your awareness and knowledge
of how sustainability is driving the logistics
and the retail store of the future.
Thank you, everybody.
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