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Segment 5: The Retail Equation at Tower Paddle Boards

Below is an excerpt from our 2019 interview with Stephan Aarstol, the Founder & CEO of Tower Paddle Boards, who continues his conversation with Brad Kauffman of NoMiddleman.com. If you’d like to read or listen to the full interview, visit the Tower Paddle Boards blog post.


Brad: Let’s talk about retail. What’s been your history, and your present, and your future on the retail side of things?

Stephan: With Tower Paddle Boards, the opportunity that I saw was … There were literally 80 (paddle board) brands when we started, and there’s probably 180 now… 160 of them are relatively unknown, but there’s still a lot of competition. When we started, 95% of them were targeting retail.

And when you talk about retail it tends to be, these days, dominated by a big seller. So you have some of these big box stores, you’ve got Costco. And you’ve got surf shops… these shops usually only carry three brands, something like that. So you’ve got, at the time, 75 brands were competing for that shelf space. They wanted to be one of those three brands in a store. That is really a bloodbath competition.

Brad: Right.

Stephan: That’s why retail is so difficult, right? Because it’s winner take all. So when I looked at that, I said, “Okay, we can’t win in that game. We don’t have super deep pockets.” We didn’t have a lot of money. Cuban only put in $150,000, we had no money before that. We can’t compete and go after that. The way we’re going to compete is, we’re going to go after the online market, there’s only a few people doing it, we’re going to do a better job than them, and if we can get 10 or 15 percent of the online market we’ve got a multi-million dollar business.

So it was very clear. We’re not going to do retail competitively. So when we started… we have an office here in San Diego, so we did a little retail out of our shop. We didn’t really consider it a showroom. If just somebody walked into the office we would pull open a box and show them our product, and they could walk out the door with it if they wanted. Since then, we’ve started to experiment a little more with doing our own retail. But we’ve sort of drawn a line in the sand… we didn’t want to do retail anywhere else, you know?

Now what we do is… we sort of experiment. Our founding principle was that we wanted to sell high-quality paddle boards at low cost. How do we achieve that? Well, we were going to go direct to consumer, we weren’t going to do retail, and we were going to sell online, and we weren’t going to advertise. That was our strategy. Pass all that along to customers. It was very effective. But the world sort of changes, and so every time there’s a window of opportunity to do something else that allows us to sell high-quality paddle boards at a low price, we’ll experiment with it and try it.

In about 2013 we started to sell on Amazon, and there weren’t a lot of … Paddleboarding was kind of a new thing, it was even a new category within Amazon, and we listed on there. And the first year we did $250,000 on Amazon. The next year we did a million, the next year two million, the next year three million, then four million on Amazon.

Pretty soon, half of our sales were going through Amazon, and we were able to offer consumers a high-quality paddle board at a low cost by leveraging Amazon. But Amazon was only taking a small commission at the time.

Brad: Wow.

Stephan: Since then, Amazon has … It went from when we first started selling, 15% of (all brands’) e-commerce transactions were going through Amazon. So one in six transactions, that’s still a huge market, right?

Today their (share of e-commerce transactions is) north of 50%. So now they’ve got this monopolistic power, and instead of taking 15% of transactions you’ve gotta advertise on Amazon to be seen anymore, and it’s a crowded marketplace. They’ve also jacked up their fees, now it’s 30% to 45% of the transaction! So there was this window of opportunity to sell on Amazon profitably, and offer consumers high-quality paddle boards at a low cost… but the opportunity to leverage Amazon to do that is disappearing.

So we’re almost out of Amazon right now, and I think most direct to consumer companies, if they’re not (already) out, they’re going to be out pretty soon. Because the window of opportunity on Amazon just really isn’t there. Leveraging online advertising.

There was a halo period for (Google’s search advertising program) Adwords… about 2002 to 2008, it was an incredible way to get cheap advertising, and then all of the sudden it became really expensive, and today it’s prohibited for a lot of products. Then social media came along, and it was really cheap advertising for a while and now it’s kind of expensive.

So everything has this window of opportunity. And, as a direct to consumer brand with … We want to sell high-quality paddle boards at a low cost, we use these things, these tactics when they present an opportunity. And then, as that opportunity changes, we have to change strategies.

And that’s how we look at retail too. We say we’ll never be retail because we’re a direct to consumer company, but we’re okay to experiment. We even looked at selling through Costco, because they’re sort of hybrid retailer… they only take a 14% margin or something like that.

Could we sell through them, and use them to get high-quality paddle boards at a low cost to consumers? We thought there was an opportunity to do that. We looked at that. We ended up not doing it, but it was something we would consider. We also licensed a couple brands. Our Chris Craft brand, which is a 150-year-old high-end wood boat brand in the US, we licensed the Chris Craft name for inflatable paddle boards, and we created a paddle board. And then we did the same thing with Kawasaki.

And the idea was that we would sell those direct to consumer, and then they would also be available, like on the Chris-Craft, through Chris-Craft boat dealers, so that would give us a retail presence, but a very selective retail presence, and just on those Chris-Craft boards. So that would get the Tower Paddle Board brand out there, people could either buy the Chris-Craft boards at the retailer, or they’d find out about the Tower brand, come to us, and get our direct to consumer boards for even cheaper.

So we’ve looked at ways to leverage retail, but we don’t want to become a retail brand, because then, essentially, that sets your pricing. So if we look at Nike, Nike sells direct to consumer. They sell shoes, but they also sell through stores, and so their prices are $150 for basketball shoes, because that’s what price they need to be at to give the retail store 50% margin, and to give them their wholesale margin, or whatever. And then, if you buy it direct from them for $150, then they make 80% margin, or 90% margin, whatever it is.

That’s selling direct to consumer, but that’s not a direct to consumer only model. So we never want to be that company that just pads our direct to consumer margins so we can accommodate these retail partners that are taking a 50% cut. We’re doing it the other way, and we may selectively use retail to build the rest of our business. But right now we’re not in any retail stores.

Next: Tower Paddle Boards on Amazon

For direct to consumer brands, Amazon is the elephant in the room. In this segment, Aarstol explains how Amazon has become expensive for consumers and crowded for brands—and why he believes Amazon is merely an online convenience store, carrying the high markups of offline retail middlemen. Read more >>


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Full Interview: Tower Paddle Boards

If you’d like to skip ahead or go back for previous content, no problem! See below for links and summaries for every segment of our amazing interview with Tower Paddle Boards founder Stephan Aarstol.

Segment 1: Introduction To Tower Paddle Boards And Founder Stephan Aarstol

In this segment, we dive into where it all began for Tower Paddle Boards. We cover Aarstol’s background in online marketing, and how he pivoted away from his poker chip company to pursue his hunch that paddle boards would soon be mainstream. Read more >>

Segment 2: The Shark Tank Effect At Tower Paddle Boards

When Shark Tank came calling, Aarstol answered, and Tower Paddle Boards took off like a rocket ship. But it almost didn’t happen—Aarstol froze on stage, delivering what he calls “the worst pitch in Shark Tank history.” Learn how he crashed, recovered, and landed a deal with Mark Cuban. Read more >>

Segment 3: How Tower Paddle Boards Cut Out The Middlemen And Delivered More Value To Consumers

How did Aarstol figure out how to cut out the middlemen and deliver Tower Paddle Boards direct to consumer, for half of the retail price? In this segment, Aarstol explains how he overcame the price-fixing of the industry’s dominant players to bring consumers lower prices, higher quality, and better service. Read more >>

Segment 4: How Tower Paddle Boards Sourced Factories

When building a direct to consumer business, finding a dependable factory is a competitive advantage, Aarstol says. In this segment he reveals his best tools and tips in sourcing factories: how to find the best ones, how to avoid the scams, and why anti-competitive behaviors are a sign of bigger problems. Read more >>

Segment 5: The Retail Equation At Tower Paddle Boards

“We never want to be that company that just pads our direct-to-consumer margins so we can accommodate retail partners that are taking a 50% cut,” Aarstol explains. In this segment, you’ll learn how Tower Paddle Boards uses their core principles to evaluate retail opportunities. Read more >>

Segment 6: Tower Paddle Boards on Amazon

For direct to consumer brands, Amazon is the elephant in the room. In this segment, Aarstol explains how Amazon has become expensive for consumers and crowded for brands—and why he believes Amazon is merely an online convenience store, carrying the high markups of offline retail middlemen. Read more >>

Segment 7: Disadvantages Of Amazon For DTC Brands Like Tower Paddle Boards

Amazon was good for direct to consumer businesses—until it wasn’t. In this segment, you’ll see the astronomical sales numbers Aarstol enjoyed in the early days, but also the growing challenges: disconnected customer service, increased return rates, and increased fees. Read more >>

Segment 8: Will Tower Paddle Boards Walk Away From Amazon?

Is it time for direct to consumer brands to leave Amazon? How will they survive if so? In this segment, Aarstol explains the two consumer behaviors that he believes will not change in the future, and why that’s good news for brands like Tower—helping them survive without Amazon. Read more >>

Segment 9: On The Horizon At Tower Paddle Boards

What’s next for Tower Paddle Boards? In this segment, Aarstol reveals his perspective on the ideal balance between pricing and quality, and how keeping expenses low (and advertising minimal) impacts Tower’s ability to expand into popular products with exceptional value for consumers. Read more >>

Segment 10: What Informs New Product Ideas At Tower Paddle Boards

By living the beach lifestyle themselves, Aarstol’s team has insights into new products and quality design. “If a company out of New York is creating beach lifestyle products, they really don’t understand the market as well as we do,” Aarstol says. “Our brand has this authenticity, because we’re making products that we know.” Read more >>

Segment 11: What Tower Paddle Boards Is About (From A Value Standpoint)

Tower Paddle Boards went in two unique directions, when it comes to delivering value. Product development is focused on what the consumer needs (not what it costs), and team productivity is fueled by Aarstol’s revolutionary idea to live more by working less—with a five-hour workday. Learn the secrets behind Tower’s popular products and productive culture. Read more >>

Segment 12: Tower Beach Club Offers New Experience With Tower Paddle Boards

In this segment, you’ll learn how Tower Paddle Boards is taking the beach lifestyle experience to an entirely new level with the launch of Tower Beach Club in San Diego. Whether you’re a fan of Tower, or a direct to consumer brand exec, you’ll want to read the innovative retail plans and fun experience ahead for Tower customers and visitors. Read more >>

Segment 13: Connecting with Tower Paddle Boards

As we wrap up the interview, we provide links and information on connecting with your favorite Tower brands—from paddle boards to sunglasses to electric bikes—as well as how to reach out to Tower Founder & CEO, Stephan Aarstol. Read more >>