The Future of Retail is V-Commerce: Doubling Our Costs but Not Our Prices

Fred Perrotta

When I got the email, I took a deep breath then opened the attachment. I braced myself to read the Outbreaker’s bill of materials, the document listing each component of the bag and, most importantly, the final price that we would pay our supplier to make it. I quickly scrolled to the bottom to get to the number.

Pop quiz, Hotshot:
How much more do you think the upgraded Outbreaker costs to make than the Tortuga V2? Take a guess before you scroll down.
The Outbreaker Backpack costs 113% more to manufacture than the Tortuga did. Our costs have more than doubled. The Outbreaker Daypack also costs twice as much to make.

Yet, we haven’t been forced to increase the prices that you pay by the same multiples. The Outbreaker’s price only increased 50% over the Tortuga Travel Backpack.

How is that possible?

Because we’re a v-commerce company.

In today’s post, I’ll discuss what that is and what it means for you, the discerning customer.

E-Commerce to V-Commerce

If you’re reading this, you probably do a lot of shopping online. Maybe you’re an Amazon Prime member. Maybe you have a favorite brand that you can only get online. Maybe you just hate malls.

Online shopping seems ubiquitous, but only 8.4% of retail sales were made online in Q3 2016.

Amazon may seem like a shopping behemoth, but we’ll still look back on today as the early days of e-commerce. While e-commerce is in its infancy, the market has grown enough for it to evolve and to specialize. Hence, the recent growth of v-commerce brands in the last five to ten years.

That one letter change makes a big difference. The jargon is new, but you likely already know a few v-commerce companies other than Tortuga. Have you heard of Bonobos, Warby Parker, Everlane, or Casper? They’re all v-commerce companies too.

V-commerce companies make and sell their own products. The store is the brand. Think The Gap, not Macy’s, but online.

That all sounds great but what’s in it for you?

Pay Less, Get More

Buying from a v-commerce brand means buying directly from the makers of that product. V-commerce is sometimes called “direct-to-consumer.”

In traditional retail, the manufacturer (brand) produces the product then adds their margin. This is the wholesale price at which they sell the product to retailers (stores). Those retailers then double the wholesale price to set the retail price that you pay.

By buying directly, you aren’t paying the retailer’s markup. Instead, that markup is split into savings for you and money for the company to invest in making better products and paying their people well. The direct-to-consumer model is a win-win situation for you and for the company. You pay less but get more.

For example, at Tortuga we use materials like waterproof sailcloth that big brands selling in retail stores would never use. That decision is dictated by their business model, not by what’s best for you, the consumer. Their legacy pricing models prevent them from switching from their current materials to significantly more expensive ones. They could never switch to a material that costs 10x more like we did with the new Outbreaker Daypack. Their pricing is dictated by their real customers: Retail stores.

V-commerce brands aren’t necessarily cheap, but the best ones offer incredible value for your money. For us, the direct-to-consumer model means that we can invest in expensive, technical fabrics to produce high-end gear that’s better than Tumi for half of the price.

In Antifragile, Nassim Nicholas Taleb says that most products on store shelves are the “cheapest to deliver for a given specification.” Retail pricing can lead to a race to the bottom where brands compete to offer the cheapest price, not the best products.

Customer Experience

When was the last time you were in a mall? Was it an enjoyable experience?

When the fates conspire against me, and I end up in a mall, it’s either an overstimulating, casino-like environment or a sad, abandoned ghost town. Neither is an enjoyable experience. Neither sells anything that I can’t get somewhere else.

The second aspect of being a v-commerce brand is being “digitally native.” V-commerce brands start online and mostly remain internet-first. This is what sets v-commerce brands apart from stores that sell their own brand like Zara or J.Crew. While some of these brands also sell online, they’re still selling at retail store prices because that’s the bulk of their business and their physical stores are already baked into their pricing.

Running an online store is far less expensive than opening a bunch of physical, brick and mortar stores. Again, you, the customer, reap the benefits of this savings.

Because v-commerce brands are the makers and are digital natives, you get a better customer experience and better customer service. You’re talking directly to the makers of the product who, without physical stores, rely on their websites and customer service teams to create a customer experience that you will love enough to tell your friends about.

Have you ever visited the website of a brand that you like, found the product that you wanted, then were told to go find a store or shop at some website that you’ve never heard of to actually buy it? I have a lot of respect for Osprey, but their legacy business model prevents them from selling directly to you. They are missing out on having a direct relationship with you, the customer. Instead, you have that relationship with whatever retail partner they pawn you off on. You’re punished with a shitty “buying” experience on their website just for being a web savvy consumer.

How Tortuga Became a V-Commerce Brand

The short answer is that we became a v-commerce brand by necessity before it was a category at all. Jeremy and I started working on Tortuga in 2009, before Warby Parker or Everlane were even founded. Only Bonobos was already in business.

After a backpacking trip to Eastern Europe, we started Tortuga by following the blueprint in The 4-Hour Workweek. In the book, Tim Ferriss gives advice on selling directly to customers online and on how to structure deals to get into retail stores.

We started with what we knew. Jeremy made a few early sales calls but, as a new brand, we got nowhere and shelved the idea. Once we started to figure out how to actually sell online, we never looked back.

Over time, we came to appreciate having a direct relationship with you, our customers, and the pricing and business model advantages inherent in v-commerce. So we kept pushing Tortuga towards being such a brand.

How Tortuga is Different

The hard part of joining the v-commerce elite is the inherent cost. Hiring great people and paying for all of those technical materials are expensive.

Most of the brands on the list linked above have raised millions of dollars, but Tortuga is bootstrapped. We’ve never taken any investment and still own 100% of the company ourselves.

With outside investors to answer to, you’ll see big name v-commerce brands pushing hard for growth by opening their own retail stores and trying to bludgeon you into submission with advertising. You’ve probably noticed this if you ride a subway or listen to podcasts. This is what happens when you spend other people’s money.

Bootstrapped v-commerce is tough, but we’re committed to building a company for travelers, not for venture capitalists.