The Evolution & Scalability of Retail Marketplaces with Cortina

Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Oliver Chen:
Welcome to another episode of the Retail Visionary Podcast series, a podcast about visionary ideas and people. My name is Oliver Chen. I'm TD Cowen's retail, luxury and new platform's analyst. In today's episode, we'll learn more about Cortina, which is a leader in marketplace software-as-a-service platform for celebrity brands such as Poosh by Kourtney Kardashian and Airmail. We'll also discuss the future of retail marketplaces and traditional direct-to-consumer models. I'm thrilled to host Keith George, co-founder and CEO of Cortina.
Before founding Cortina in 2021, Keith was the chief merchandising officer of Gilt.com. Keith also worked in a variety of senior roles in retail at companies like Coca-Cola, Ernst & Young, UPS and Gap Inc. Keith received his MBA from the University of Texas at Austin and his BA from the University of Virginia.
Keith, it's great to have you here.
Keith George:
Thank you for having me.
Oliver Chen:
Keith, what is Cortina and why are marketplaces so important?
Keith George:
Well, if you think about traditional retail, which has been going on for hundreds of years, everything was predicated on buying the right inventory, having the right inventory in place for a customer who come into a store and purchase that inventory and take it home. With technology, all of the requirements around inventory have completely changed. As we also know, inventory is one of the most difficult things for retailers to manage. What Cortina does is it enables retailers, e-commerce players to actually provide products on their site without actually buying that inventory first. They connect virtually to the supplier's e-commerce systems, bringing in all the product information, real-time inventory, real-time pricing, et cetera, on to their site, but they don't actually pay for the inventory until after the customer buys it themselves. It removes a lot of the risk in traditional retail.
Oliver Chen:
Keith, do retailers want marketplaces? What do consumers think about marketplaces, and what is a marketplace?
Keith George:
Well, there's two types of marketplaces. I think the first one that most people understand is the Amazon marketplace. I find it to be very difficult for actually everyone to just replicate that outside of Target, Walmart, Amazon. Endless aisle becomes quite confusing. Paradox of choice starts to exist. That type of marketplace is really challenging, and there are some people who are trying to replicate it. I'm not sure how much success there will be in that.
What I do believe though is, in this idea of what I call like a curated marketplace or curated direct fulfillment, there's a real opportunity because, again, we come back to inventory is the one thing that's really crushing retailers. If you can remove a lot of the inventory constraints in a business, you can create a winning formula. There's this place where I see, and where Cortina sits is right at this intersection where it says, okay, hey, let's help great retailers remove a lot of the inventory friction.
Let's say maybe they're offering 150 brands on their site. Well, maybe they want to continue to carry the top 25, 30 brands in stock because they want to be able to have that product and ship it quickly, but the long tail of brands that have been clogging up their warehouses and their fulfillment centers. Let's move that into more of a marketplace model so you can actually have the best of both worlds, and that's what I'm seeing people starting to move towards.
Oliver Chen:
Keith, Cortina is a leader and marketplace software. How are you different from other solutions? What do you offer relative to a retailer trying to do this by themselves?
Keith George:
Right. Okay. Well, at Gilt, we were definitely of the mindset of let's just build everything ourselves, and what I've learned is that, as we've continued in the evolution of technology, the idea of building everything just doesn't make any sense anymore. Focus on building the things where it's competitive for you, and then there are things that are non-competitive, meaning, in this back end of retail, let someone else do it.
We've been building out this technology for five years. What I see is basically a lot of retailers wanting to move to this marketplace model which we just talked about. They think that is the next big thing. Again, we move from the NFTs and Metaverse. Now marketplace is big buzzword, but in the end, people want to be able to maintain their point of view. Merchants want to be able to serve their audience well. What Cortina does is, if you take an old dropship type model, which really just was an operational model where it's like they would sync inventory and a little bit of product information and this other idea, this very advanced marketplace where the suppliers have complete control, and you shoot right down the middle where you're giving merchants and teams greater ability to actually have efficiency in getting products onto the site, but then also still maintaining control of what that point of view is. That is something where we're seeing people move towards.
Oliver Chen:
What is a curated dropship model as you call it, and what are major use cases or examples of marketplace models that you're running and created now?
Keith George:
Okay. Well, we do have two types of different marketplaces that we work with. You mentioned this celebrity influencer-creator economy, and then we also serve a lot of very traditional retailers. Qurate Retail Group, which is a new live shopping app, is a customer of ours. Typically, if you think about this, a great example, just because I think it's relevant for most people and people can grasp it, is Kourtney Kardashian's Poosh. She has a lifestyle site called Poosh where she has hundreds of millions of followers that want to basically have a piece of her life. She has 75-plus brands that she sells on her site.
All of those brands, instead of buying that inventory, storing it in a warehouse, taking all the risk and liability of the that, what she does is she connects to those brands virtually through Cortina, and we bring in all the product information, but no one knows who Cortina is from a consumer standpoint. They shop on her site as if she owns that inventory. The big difference is is that, when Kourtney gets paid today, she drops that order back through Cortina. The brands ship it to the end consumer. All the notifications come back from the brands to us to Kourtney's site. Again, the end consumer only hears from Kourtney's team, but Kourtney doesn't have any of the risk and she has a negative working capital model because, the money she gets paid today, she doesn't pay out to the suppliers until, on average, 30, 45 days later.
Oliver Chen:
Well, Keith, I want the Oliver Chen store. When are we going to do that?
Keith George:
Whenever you're ready. Whenever you're ready.
Oliver Chen:
This relationship with k Kourtney Kardashian and Poosh, how does she ensure trust and the experience for the customer? That's an important aspect, too.
Keith George:
Right. This goes back to the different types of marketplace model. Cortina does not enable a scenario where any supplier can just come on and throw up any product on anybody's website. Nobody wants that. People want to own their experience. In this case, Kourtney has identified the brands. We connect the brands, and Kourtney and her team manage what products on the site. They have standard vendor agreements. All the things that you do in typical retail, those are all in place to make sure things are shipped on time, pricing is competitive. All those pieces are in place. The only thing is, instead of buying the inventory and shipping it across the country to a warehouse in Los Angeles, for example, it stays in the supplier's warehouse and they ship directly.
I think this is something that we really do need to discuss. Kardashians aren't traditional retailers, but they've leapfrogged a lot of people in building out a model of the future.
Oliver Chen:
Great topic in terms of influencers. What's happening in that market in your opinion, Keith? What are the current models influencers use and what might be the future?
Keith George:
The traditional influencer that maybe just wants to get their picture taken and collect checks always don't go off just the affiliate model. It's just the simplest way to do it. Let me take this photo. I'm going to post it, connect off to Nordstrom Rack or wherever, and then I'll just collect small checks from there. That will always be there, and I think that is not going away, but there is a place where people are starting to say, "I have an audience, and it's a large audience. How can I monetize that audience in a much greater way?"
We operate a curated marketplace model. The commissions and rates almost become wholesale margins or even higher sometimes once you account for risk. People are starting to identify, "Where can I build this business and do it in a way that's low cost?" because again, the number one thing that matters is an audience. You take someone like Kourtney Kardashian and you take someone even like Kevin Durant, who's got his Boardroom site, you've got different people, having the audience is what matters and having that influence.
I always like to say Mr. Macy I believe was born 200 years ago. No one really cares what Mr. Macy has to say anymore. People care who the people that they follow on Instagram and TikTok have to say, and that is where the influence comes and that's where the consumer power comes.
Oliver Chen:
Keith, on Macy's topic, Macy's has a marketplace now and innovating here. Another company, Mirakl, is powering this. How is your product different from that, and what do you see happening there?
Keith George:
I do find it a little confusing how Macy's approached this. I can imagine that some of the internal conversations at Macy's were like, "Amazon is eating our lunch. How are we going to compete with Amazon?" I come back to there's only a few people that can be all things to everyone. Even if you try to do that, sometimes you end up being nothing to no one. I feel like Macy's is caught in a little bit of a trap, and some of the more traditional retailers are also, where it's like no one really knows exactly what to do, and so it's like, "Okay. Well, we know that some people who are beating us are doing this, so let's go do this as well."
Macy's marketplace, to me, I'm not really sure what the reason for being is because, again, coming back to you need an audience, you need a point of view, you need a position, you need to be able to actually serve that audience with something that's different than everyone else outside of a few players, meaning, again, Walmart, Amazon, Target, who can be all things to all people. For Macy's, I feel like having just an open marketplace where brands can just upload whatever product they want, no price consistency, all of that seems a little bit confusing to me, but I've been confused with a lot of Macy's moves in the past as well.
Oliver Chen:
Here's a great question, Keith. How do you balance curation relative to selection? Macy's has a lot of scale and most of America shops there and everybody knows what it is, of course, so what about that dynamic between long tail and product availability versus curation versus trust?
Keith George:
I think it goes back to discovery. Discovery is important as mentioned or as I believe. I don't go to Amazon to discover anything. I go to Amazon because I need more Windex, but I do go to other places to discover products. I feel like Macy's has lost a little bit of that, "How do we go for discovery?" Back in the day, if you can imagine 20 years ago, the idea of people going to Barney's on a Saturday and discovering what new brands and the merchants being able to actually introduce brands to people that were just have been craving them, that just doesn't really exist when you just put thousands of brands on a website and you're not able to actually curate and like tell stories about it.
I do believe in being able to tell stories and retail is really, really important, and so audience, content, storytelling, all that is very, very important. Having some level of curation, whether it be a no-inventory model or buying inventory, is absolutely critical.
Oliver Chen:
Keith, what sets Cortina apart from other providers such as Mirakl?
Keith George:
Well, Mirakl is focus exclusively on the enterprise customer. They are quite expensive and the implementations are quite long, in addition to the fact that it's really focused on, again, building almost like endless aisle-type marketplace versus a curated dropship marketplace. Traditionally, most of our customers are attracted to the fact that we're probably 75% cheaper and we move very, very quickly. In today's market, having a quick ROI is really important, and that is something that we're able to deliver versus a company like Mirakl.
Oliver Chen:
Speed and cost definitely matter.
Keith George:
Yep.
Oliver Chen:
Keith, Gilt is and was an iconic brand. What were some of the learnings you had from there? A related question, a bit different, how did you start Cortina?
Keith George:
Okay. Just to discuss Gilt first, Gilt was a rocket ship and, to clarify, I was not a co-founder at Gilt. I was one of the leading execs. At Gilt, I was chief merchandising officer. I joined in about 2011, and it was a rocket ship. The challenge that we had at Gilt was that consumers loved it, but it was a very difficult business model from a standpoint of the margins and off price combined with the creative cost that we had in order to actually get the products live and the sales live. If you remember, we were changing the site every day, so think about the operational costs, the creative costs, all that stuff to run that business. It was really difficult for us to become profitable and, of course, as we've seen with a lot of the high-flying e-commerce companies, that path to profitability becomes very elusive, and then you either get hammered either in the private markets or from the public markets, but at some point the chickens come home to roost.
I think what I learned a lot at Gilt was, again, having a good business model from the beginning really matters because you can just scale your way out oftentimes. Some people have done it, but it's very rare. The one thing that I always will remember at Gilt was we had hundreds of millions of dollars of working capital tied up in inventory. We had 28 photo studios operating almost seven days a week. We really had a lot of operational baggage. When we moved from an email driven marketing model, remember back in 2008, 2009, Gilt was one of the first people to do a lot of email marketing, which was effectively free, once it started moving towards a paid model, we just didn't have the cushion in our margin to be able to do that.
My co-founder, Brooke Haney, who was fashion director and head of brand acquisition at Gilt as well, she and I, and Kevin Ryan, who was actually the original founder of Gilt, when we started our next company after we left Gilt, which was a consumer marketplace, we said, "How do we do this with no inventory, no creative costs?" Cortina actually was born organically. We started this marketplace that was consumer-driven called CoEdition. We wanted to basically connect to any brand, and so the first brands were on Magento. We developed connectors from Magento. The next ones were on Shopify and WooCommerce. Ultimately, we built out really a headless technology platform, and people came and asked us to license it themselves, and then that's what ended up becoming Cortina.
Oliver Chen:
Keith, which retailers are on your radar now? Which ones are you more concerned about from an industry perspective?
Keith George:
The retailer that's on my radar right now? I've recently met the founders. I'm not sure if Cider, C-I-D-E-R. They have been growing really, really quickly. It's an interesting mix of founders. I think the reason why I'm interested in them also goes with the retailers that I'm concerned about. It's a young group of founders. They studied in the US, but they have roots in China, and so they have a lot of supply chain, operational advantages based in the network that they have in China, able to produce products quickly and sell it, and they're just growing like gangbusters, but it's a young team that's really hungry and really understands fashion and trends.
When I think about retailers that I am concerned about, I was at Gap for a long time, those middle-market players I really struggle with, because if you think about brands outside of Nike, which has lasted in part because I think they constantly are leveraging the new talent, again, my kids love Nike, but do they like Nike or do they like the athletes that Nike is promoting? If I look at Gap, if I look at some companies like that, I struggle because there are, frankly, people like me that have been in the industry for 20, 30 years who are trying to reinvent a brand that just doesn't resonate anymore.
The challenge is some of these brands become so big that, as a leader, in order to be able to actually really turn this thing on and change it, you'd have to take the risks that might turn it way down as well. If you want to do a 25 comp at a company like Gap, you need to be able to take a risk that ends up being a negative 25 comp. I just don't see a lot of leaders in these mono-brand mid-level retail players willing to take those risks right now. That is why I'm concerned about those brands.
Oliver Chen:
Keith, customer acquisition costs have been a major topic. They've been really inflating. What does Cortina do with respect to that? What's happening?
Keith George:
Well, I've always believed that D2C is a tough business model, just having one website driving everything there and building your entire business in that way. All brands need some form of distribution. I think, with rising acquisition costs, these types of models such as Kourtney Kardashians model really give people additional distribution, additional eyeballs at a much lower cost than trying to just pay your way to Facebook, Google and Amazon, which basically dominate over 60% of digital ad spend.
Oliver Chen:
Keith, on the topic of technology, I'm a big believer in AI and AI powering magic and logic and what AI can do generatively, as well as supply chain. What do you think about AI? What role will it play and what role might it not play in retail?
Keith George:
I love it. I love it. I was not a fan of all the chatter going around retail, around Metaverse last year and all that. I just thought it was a lot of noise on the AI side. I'm really excited. Look at planning, merchandising, assortment mix, all these things. Going back to the curation that we talked about, if you think about the old days of Mickey Drexler, the merchant king, and going in the rooms and picking this, and this is what the consumer wants and all those stuff, there's only a few Mickey Drexlers. The ability to actually take a lot of information across the industry and synthesize it into what trends are happening, understanding, again, inventory movement, all of those pieces really can affect planning, can affect obviously production, can I say help reduce waste? There's so much impact here outside of just the traditional things around customer service and all those pieces that I think it will absolutely fundamentally change immediately.
Oliver Chen:
Diversity and inclusion is also important to me as a topic for everybody. What does that mean to you?
Keith George:
Cortina was born out of CoEdtion, which was a plus-size marketplace, which was all about inclusivity. We built that company on the idea that, again, there's a hundred million women in this country that are sizes 10 and above, and yet there's very few retailers that are serving them. I think that there is a big opportunity here to be able to actually really serve markets. One thing that I do believe technology is enabling is being able to say, okay, let's actually provide companies and personalization that is specific for this consumer that actually makes that consumer feel best about themselves.
I don't think, if you go back 25 years, and even when I was at Old Navy at times, I remember we would do, for example, the size scales and we just didn't have enough information to know. What we would just do is send a bunch of mediums to a store, and so, of course, people that didn't just fit that exact fit model were always left out. I feel like that is where AI and technology can really improve.
Oliver Chen:
Keith, what have been the secrets to your success and also what are you most excited about?
Keith George:
I think the main thing for me, and again success is still something that I'm constantly searching for, but I think the main thing is always being open and thinking yes before no. I'd love the idea of what's possible. I understand that sometimes being able to actually say no at the right time is important, but really leading with yes and why not, those are overarching philosophies both in my personal life and my professional life, and they continue to bear fruit.
I think also with that is the relationships that I've been building across the years and just really focusing on that. In the end, yes, financial success is important in all these things, but a recent study on happiness came out and, no surprise, what did it say? The number one leading indicator is the depth and breadth of the relationships you've had. I think, for me, I've adopted that both in my professional life and in my personal life, and that's been something that has been really important.
Something that's exciting to me right now is I am really interested in what I'm almost calling not the post-pandemic bump, not the post-post-pandemic bump, but what is this new equilibrium that we all find again professionally, personally in every facet of our life that is coming out of COVID, because I think, I don't know about you, but definitely I came out, swung the pendulum very, very hard in many ways one way and then it came back, and now it's like, "What is this new world order?"
I'm an optimist, so I know that, when people start throwing around the word recession, it almost becomes self-fulfilling in a way, but I remain an optimist. I feel like we're all just trying to find this new normal and how we can actually achieve that and then have good mental health and stability. I feel it's something that I'm really excited about.
Oliver Chen:
Yeah. Keith, these topics around happiness, wellness, as well as community engagement are so important, and I think retail has a big role to play as this notion of what is experiential continues to evolve.
Keith, it was wonderful to be with you here and to be your friends. Thank you for briefing us on marketplaces, the evolution of retail, views of what you're doing with software and how influencers are transforming.
Keith George:
Thank you for having me. I really enjoyed it.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

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