Are Political Ads Killing Sales?: State of the Industry

[00:00:00] Taylor Holiday: Welcome back to another episode of the Ecommerce Playbook Podcast. My voice is a little faded and rough from all the shouting I did at the Texas football game this weekend masquerading as a Texas fan, but I'll do my best to get through this. I'm also just in a bad mood. I'm warning you all as you listen right now, because I'm confused by the information and I don't like feeling that way.

So hopefully these three gentlemen can help me solve it. This is the brain trust of the DTCCI, the direct to consumer confidence index, and they are here to help us sort out what is going on in the macro e commerce environment. Gentlemen, pleasure to have you all back. I'll let you introduce yourselves starting with our positive force.

The person who's here to bring hope and optimism for the group. Jeremiah, how are you and who are you? Can you do a quick intro?

[00:00:49] Jeremiah Prummer: I'm doing well. Thank you. I'm sad. I didn't get to go to that game with you all because that would have been a blast. But yeah, I'm Jeremiah founder, CEO of KnoCommerce and we run surveys across getting close to 5000 brands and collect a lot of interesting data. The, the big thing we'll be focusing on today is just some of the information we have about gifting patterns heading into key for and talking a little bit about some of what we're seeing in political spending and some of that.

[00:01:15] Taylor Holiday: And then next I'll have our less optimistic, but more emotionless. He's just a man of the numbers. He just tells you how it is. Yarden, who are you and how are you doing?

[00:01:26] Yarden Shaked: That could have gone to me or Steve for what it's worth, so …

[00:01:31] Taylor Holiday: No way. Steve, Steve, Steve has more personality injected into the numbers. You're neutral. You're just numbers guy.

[00:01:36] Yarden Shaked: Yeah, I'm a co founder and CEO of Varos. We provide benchmarking and market trends for D2C ecommerce businesses. We track about 7, 000 companies that are sharing data on Veros. It's all first party, anonymized data. Data from revenue from Shopify, Meta, Google, Tik Tok, J4 and so forth. And that's where we're pulling this data to help you guys out.

[00:02:08] Taylor Holiday: All right. And last but not least the man whose job it is to weave the narrative into the data, like he could weave a braid into those luscious locks, Mr. Steve Rico. Who are you and what's up, man?

[00:02:19] Steve Rekuc: Thank you, Taylor. I'm Steve Rekuc, Director of Data at Common Thread Collective. I build a lot of the models, and I'm staring at a lot of the direct to consumer confidence index data that Jeremiah from KnowCommerce provides.

[00:02:33] Taylor Holiday: Awesome. Well, we're, we're, my intro was sort of off the back of our pre-production call here where we're trying to sort through, as we always do the glimpse into the data, so our process involves gathering all of the contextual data from the previous period. We get together on a call and we work through the interpretation of the information that we're seeing.

And in August, you may remember if you listened to the last episode, we talked about a beginning of a trend that was. Potentially a canary in the coal mine, which was the declining growth of 7 figure stores in particular, and a sequence of about 5 consecutive months where we had seen Seven figure stores declining in year over year growth percentage. Now, why that tends to be a little bit more concerning is that seven figure stores depend on new customer acquisition as their source of growth, where eight figure stores can often hide the fact that they may not be growing as fast because of how much existing customer revenue growth they benefit from from the previous year's investment. So they tend to be a slower indication, whereas the seven figure stores can be a little bit more of a pulse. On the present state of new customer acquisition which usually is the best predictor of future value. So that's, that's kind of when we see this, what we're sort of setting up. So Yarden with that, why don't you tell the people what we saw in September as it relates to those kinds of numbers.

[00:03:49] Yarden Shaked: Yeah. So, we saw in September what we were worried was going to keep happening. So as Taylor mentioned, I mean, we, we had a peak in May, but we're just talking right now for seven figure brands specifically. We had a peak in May of over 40 percent year over year revenue growth, and since then, it's been a different story.

The second half of 2024 has been riddled with, you know, slower revenue growth. And we're used to seeing in the first half all the way down to just turning a negative year over year in September minus 0. 4%. So basically flat, but in the red by a little bit it's interesting because the larger brands, you know, eight, nine figure brands who are usually seeing less year over year revenue growth.

Then the smaller brands have actually turned that trend and they're up 10 percent year over year which is still slower than also they were used to seeing in the first half. But yeah, soft month all around, unfortunately. And especially for the smaller brands that don't have the luxury of the big customer base you know, and the extra budget to make things happen.

[00:05:14] Taylor Holiday: So we're working through a few theories in our heads right now. And we're going to sort of let you know that the next set of conversations are going to be that they're going to be theories informed by some information and data. So the first theory we want to talk about is a continued topic. That is very popular, which is related to political spending and advertising. Jeremiah. I know you were just. Diving deep into some of the things that we have there, where theory one may be that attention as well as attention is being drawn into the cultural debate around a very highly contested presidential election, as well as a bunch of local elections. I'll tell you this, my kids know who Dave men and Scott are right now, more than they know who any advertising brand is.

And that's the two congressmen in our local jurisdiction that are running an embedding. Just pelting them with YouTube ads so they can recite their taglines by heart. It's a running joke in our house. So that is certainly at play in this environment. So Jeremiah, tell us a little bit about what we're seeing there and then how that may be contributing to some softer performance.

[00:06:11] Jeremiah Prummer: And so what we see for September and there, there's going to be a little bit more data too, that we'll share in the report, but for September, we're seeing 270 million in ad spend from the Harris campaign. And 78 million in ad spend from the Trump campaign. So that those are the reported numbers by the campaigns. It is a lot of money obviously that's 350 million, basically between those two campaigns. And even more than that is spent by packs. And so one of the things that we may be seeing is that there's some amount of impact from the ad spend on September's performance. One thing that's really important to note though, is that most of the political ad spend actually goes to TV.

And in this context, really what we're looking at we've got the revenue numbers obviously for seven and eight figure brands, but also when we're looking at ad spend data, we're looking at TikTok meta. And Google. And so those channels are not getting as high a percentage of that spend. So one of the things we're going to be diving into a little bit more is where do we see some of that spend coming?

There's a little bit of data to indicate that there's still a pretty massive amount of dollars having been spent throughout the cycle on those platforms. But most of this is going to be TV. So there's a real question there of how much impact does that have? And the secondary question there, as well as even if these dollars are not being spent in their entirety on Meta and Google specifically, is there still an attention component that's having an impact on revenue?

And I think that that's hard to quantify, but it is likely that there's some impact there, even if the dollars are not being spent. 

[00:07:50] Yarden Shaked: I could take a stab at quantifying it in the sense that in we saw big conversion rate drops in September. So just to, you know, put some numbers around it in August year of year conversion rate was down 1%. And in September it was down 9% which has huge, huge impact. So people are just buying buying less

[00:08:23] Taylor Holiday: So that, that brings us to Steve, let me set you up here for where I think we're going to go next, which is okay. So we know there's political spending competition, but we also see this declining conversion rate and we know that there's been this sort of year long growing trend around increasing discounts preference for value.

And we also have some data around customers saying they're planning to shop more later. So, so this theory, I'm kind of referring to as like. The saver and the value maximizer, which is just that maybe they're pending up with a little bit more conscious towards value and looking to maximize the maximum discount that they're going to get here in the coming future.

But what are you seeing around that idea in terms of what may be contributing to the present softness?

[00:09:04] Steve Rekuc: Yeah, I think that's absolutely true, and that might be why we're seeing kind of what Yarden's Expressing as like, window shopping, basically a lot of people go into your website, looking at your products, but not converting. And they're looking because the, there is an increase that we've seen same as last year in the DTCCI data of, I plan to spend more in the future.

That number started ticking up in August, just like it did in 2023. And we've kind of seen it follow the same trend where like, I plan to spend more in the future. And the. Political atmosphere might even contribute more to that, where people are just, I'm going to spend more when the time is right.

[00:09:49] Taylor Holiday: So that's the, that's a hopeful view, right? There is that we've got a couple of things. The other thing I just want to. Remind us back to is that we know that we're entering now, October 21st, the final stretch before the election here. And so. We know that this is really the period where this becomes acute.

So I wouldn't be surprised if we're sitting here in November, talking about a similar set of data, but the hope is, and what we've seen is that the transfer of the lack of attention in early November does get made up for in the back half of November. So 

I think 

[00:10:17] Yarden Shaked: yeah, but not to be the negative guy, but, but I'll still say that I am not convinced maybe this group is more convinced than I am that it's all political because again, Since May, we see consistent slowdown and significantly ramming up since July. And so, yeah, it's a few weeks before the election, and now it's the worst that it's been.

But I would bet that it's a variable, but not the whole story.

[00:10:50] Taylor Holiday: All right, Agent Provocateur, I accept the challenge, but now there's an obligation on you then to insert corresponding substitute theories. So then what, what would you attribute the consecutive decline to? This is an unedited blank pause. I just want, I want, we're gonna, we're just gonna sit in it together. Go ahead.

[00:11:13] Yarden Shaked: I think my best guess is Is that people have bought throughout the year. There's been a lot of you know, Ecom is constantly making every holiday a bigger deal than it usually is. There's, there's new there's new, you know, special days, like a prime day and a bunch of equivalents to that.

And people have bought what they need and now they're waiting for the holiday season. You're, we're a few weeks away and I do have hope for Black Friday, Cyber Monday this year. Because it could be that the slowness in the past few months is, ah, I'm gonna wait until the holidays. Last year, there was, while last year in this part was a good year over year period, like October was 30 percent year over year revenue growth of 23 versus 22 Black Friday, Cyber Monday was 60 percent year over year revenue growth.

Which means that more and more people are focusing on the holidays and, and, and putting more more spend more consumer spend towards that. So it's a hole, but I don't, I don't have the magic ball. You know, I don't have all the answers.

[00:12:35] Taylor Holiday: One thing I saw if we have the political theory, we have the spender saver theory. One thing I'll continue to insert is what I call the movement to profit theory, which is that my anecdotal experience of my subset of customers is that top line revenue growth is no longer the expectation or standard for a presently redesigned business strategy. And that's that brands have sort of let go of comping to an era when they were trying to drive non provenue and. They're having to almost reset the baseline of expectation of growth into the future with this year, this year is about not a, no longer a previous comp, but this is the new foundation, because the question of what does our business look like from a revenue standpoint when every dollar has to be profitable creates a new expectation of growth.

And the goal then is to go out next year and comp against this new thing that they've created. And I say that for some really big businesses, like we, as we've moved upstream as an, as an agency, we work with some of the largest stores on Shopify, and I can tell you that this is the reality for a lot of them, that there is a era where they came out of colossal growth. In the COVID era and now are resetting after coming off of many years. Or maybe the last year and a half down to a year over your comp and are now saying, okay, what does it look like to demand profitable new customer acquisition, to figure out how we can build this business towards the bottom line and to reset for a future growth into next year against that, because there's just. There's too been too many months in a row of not acquiring them up year over year, more new customers because the efficiency demands changed that they're in that. And I still think as an industry, that era is on us. So I, I, I wouldn't be surprised to see us comp flat at some point or comp negative more broadly, as we go through that sort of final last grasp of reset for a lot of really big stores.

[00:14:23] Yarden Shaked: Taylor, do you think it's a, it's a spiral? Like, do you think that Let's say July going from up 20 to August up 10 or up 12, whatever it was, like, do you think that that is, you know, less money in the bank in this new world to then put towards revenue growth and this sort of keeps going until someone infuses more cash or someone changes the way it's done?

[00:14:52] Taylor Holiday: At some point, you have to invert the decline in new customer acquisition. You have to, otherwise there's a lagging decline in returning customer revenue that just follows.

And that usually that influx is an increase in investment somewhere. Like, either you have to solve new customer acquisition in this really dynamic way, or you have to say, okay, we're going to take a short term. Hit to profitability to get to growth again. That has to occur. And I just, brands are struggling in that Valley and they, a lot of them have gotten lean. And so they're, they're like short term profit, they're making money, but they haven't inverted the curve yet to where, so it is a little bit of a spiraling effect until you get to a point where you create that inflection point and start growing again. And so I do, that is a little bit of my concern when I see the seven figures sort of, that's to me, my leading indicator of new customer acquisition, and I'm like, Ooh, if we don't see new customer revenue growth happen again, 

we're going to have a lagging returning customer revenue problem, that's going to show up in Q4 and that's what I get concerned about.

[00:15:53] Jeremiah Prummer: yeah. One of the things I wanted to touch on too we were talking before this a little bit about the year over year numbers and timing and some of the things that have happened in the market over the last couple of years. And I think that's something that's interesting here as well. So at the beginning of the year, 2024, we saw really good year over year numbers. But is that in part because of the fact that 2023 was so bad? Beginning of 2023 and so I think, like, that's another factor here. And so 1 of the things I just wanted to touch on is, is that piece? And if you look at, there's this, this Fred charts, the Federal Reserve. I think it's St. Louis Federal Reserve, but anyway, there's this chart that I'm sure everybody's seen that's been floating around for years.

That looks at. Ecommerce retail sales as a percentage of total sales. And so we peaked in Q2 of 2020 Of total sales being e commerce. And then that slowly dropped until Q2, 2022 was the bottom of that since, since 2020 at 14. 2%, and we're now back up as of Q2, 2024, we're back up to 16%. So almost back to that number from 2020. I think that's an interesting factor here. And then the other thing is. stock market hit its low in June of 2022 as well. And I, I know like every business is different, but in my business, mid 2022 started, like things started to get challenging. Right. And I think like we, we started to see, Challenges in our customer base, which I ultimately it ends up being challenges in our business as well. And, you know, growth and stuff has been fine, but at the end of the day, like, it's just harder. The back half was so bad and into early 2023 that I think that's probably also. Coloring what we see here a little bit.

And I think ya you had a little bit of data in terms of what the difference was between 2023 and 2022 for, was it September? Looking at the, the difference there, what, how much, what was the increase from 2022 to 2023 for September?

[00:17:56] Yarden Shaked: 43%.

[00:17:58] Jeremiah Prummer: 43%. Yeah. So there was like, like 43% increase year over year from 22 to 23 and then basically flat from 23 to 24. 

[00:18:08] Taylor Holiday: So that's not good. This is what this is guys. This is what I'm like. So what does that mean for November? December? Right. Like

[00:18:14] Jeremiah Prummer: Yeah, well, what I don't know, but like, it's an interesting thing, right? Like it's still up in theory, it's up 40 percent from 2022, but it's not up year over year. So I don't know, like what that is, what that means for this year versus last year, black Friday sales. 

[00:18:29] Taylor Holiday: of is that that, yeah, I don't, it just, how do we think about November and December as it relates to this? Well, there's so many, so many pieces of that that I think a lot of people depend on this moment. And unfortunately it's one of those things. And I think we have done some data on this previously, but the November and December. Realization is a byproduct of all the work done up to this moment. In many cases, like, it's really hard to, like, the hay is sort of in the barn as it relates to how many customers you've acquired, how much demand you've created, how much you've filled your funnel up until this moment, so to speak. And so it becomes really hard to suddenly go out and recall out against the previous month.

Like, I wonder if we looked at yard in, like, September, October, November, December as a percentage by year and see how much September and October predicted November and December. Like, and see

if if those things were related to each other in some way.

[00:19:26] Yarden Shaked: , a couple of things is like, I'll say again, because I think it's important, like last year while last year was up the holidays were up order of magnitude more. Year over year, then you know, September, October were like in the months that we're discussing.

So, the holidays did perform a lot better than the couple months before you know, devil's advocate is, is that the couple months before we're still positive. The other thing I'll say is that in the report that we wrote for this month we get really specific into the days. Of when revenue starts going up, when discount rates start going up, we split it by repeat revenue and new customer revenue and total revenue.

And there's really different trends in the sense of when do your existing customers buy throughout November, you know, for the discounting and the early discounting you do, and when do new customers buy. And you know, it should affect your strategy and now more than ever, you should be into that data as well.

And, and, and knowing when, when to go in. So I really suggest reading that.

[00:20:33] Jeremiah Prummer: yeah. Since I've been labeled the optimist on this call, I will say there's a couple of things I'm optimistic about. One is what Yarden just said. There was a bigger increase in November versus October last year. Two the, we're actually seeing when we survey people about their view of the economy, people are more positive this year than they were last year. And then third thing, political ad spend will be ending here in about two weeks. And then the last thing that I'm optimistic about is the fact that we're seeing the same. increase in rate of people saying that they expect to spend in the future compared to last year. That's almost exactly the same. That chart, if you look at it, looks exactly the same as it did last year. So those things I think, I'm not saying it's going to be a gangbuster year because I don't believe that, but I do think there's, there are signs for optimism that I'm going to be kind of holding on to here.

[00:21:26] Taylor Holiday: Yeah, it feels like to there's like, we haven't sort of contextually mentioned any of the war related items that are going on and it feels like the November could be such a dramatic thing where either we come out of an election. And there's like consensus around the outcome we've moved on. And there's sort of this like positive energy towards a different future, or there's like just ongoing contention.

There's escalation on the global front. Like it just does feel like a ton of variables. Staring into it. And so I was hoping to have this underlying like trend of like, well, think people are still buying lots of things. It's growing, you know, but now we're adding a third dynamic, which is tang uncertainty of consistent, repeated decline into that pot. And so I just, I go back to it. I just feel worried. Steve, you've been doing a lot of forecasting, a lot of modeling for a lot of people. Is anything jumping out in that process that leads you, that gives you any sense of how you're feeling about November and December?

[00:22:19] Steve Rekuc: Well, there's a certainly having Cyber Monday in December shifted some of the forecasts for that we've seen for brands. So I, I don't necessarily expect November to reflect all this kind of. Future anticipated spending by consumers. Some of that is actually going to occur in December in a more compressed holiday period. I mean, I'm certainly thinking that the spender versus saver data that we saw in the data is also positive. We've seen people kind of identifying a little bit more as spenders in August, September, and even the beginning of October now. So that's kind of positive relative to last year. And a better view of the economy is great as well as yep, same level of anticipated future spending.

So, those are all kind of positive. I think the thing that might suffer that you're really pointing toward in our, from our modeling is new customers that you acquire in September and October are your best returning customers in November. And those seven figure brands are going to be missing that returning customer revenue from those customers that weren't acquired.

[00:23:28] Taylor Holiday: Yeah, exactly. You get your highest cohort left, usually in that 30 to 60 day window subsequently after. So, because when that falls into a peak moment like that, you're, you're going to sort of reap additional benefit off those groups. So, something to definitely consider as we go through it. Well, all right. What else? Anything else? We won't get to meet again before most likely people experience Black Friday, Cyber Monday. I'm guessing we're gonna try and turn this around and tighten schedule up. So maybe we'll get I think we should try and do an immediate post election view. Maybe the 1st week or 2nd week of November to give you guys.

So I take that back. We're gonna try and turn that around. We've got some new team members here at the D. C. Index to help us with this so we could get it turned around. But anything else as we head into the last few weeks of October, y'all that you want to share? Yeah. As we look back on September, Google still sucks. If you guys want to know that. Nope. All right. Nothing. That's it. That's a wrap. It's a, it's a, it's a mixed world. We hope you all enjoy the next few weeks here. We hope we all get safe and Through this next couple of weeks, which are going to be a bit tumultuous. And then hopefully from there, we can open it up into an exciting last holiday season.

So appreciate you all listening as always go to DTC index. com to sign up for the newsletter, where we're going to go into depth on all the topics that we discovered today, as well as all the corresponding charts, graphs, and insight that you all want to use to help build those Q4 decks to help make a case to your board about why you are not crushing it relative to the world around you and everything that you need as a resource.

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