A year ago a shopper posted a video of herself on TikTok buying clothes from Zara, then strolling into an H&M store next door to try them on because Zara’s fitting rooms were closed—before going back to H&M to return the items she didn’t like. It went viral, but more importantly it underscored the fact that a majority of people like to try merchandise on before purchasing.
Although ecommerce accelerated during the pandemic, conversion rates still hover around 3%, whereas in-store conversion is more than 20%, says Donny Ouyang, the founder and CEO of Toronto-based Blackcart.
To help online merchants boost that metric, Blackcart runs a risk score on buyers which makes them eligible–or not–for a “try before you buy” option.
Donny joins us on this episode of Rise of the Next to tell us how he stumbled on that idea, and some of the trends he sees shaping ecommerce.
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TRANSCRIPT
Shereen Abdulla
Donny, thank you for coming on Rise of the Next.
Donny Ouyang
Absolutely! Excited to be here.
DONNY’S BACKGROUND AND WHY HE FOUNDED BLACKCART
Shereen Abdulla
It’s wonderful to have you on. Donny, I’d like to start off by asking you to tell us about your background. Love to know how’d you come up with the idea for Blackcart and what does the company do?
Donny Ouyang
So, I am the Founder and CEO of Blackcart, where we make try-before-you-buy software for e-commerce brands. What that means is, [that] we’ll integrate into e-commerce stores and enable customers to, essentially, pick out items, get them shipped to try at home for free, and only pay for what they decide to keep. For me, I started way back in high school when I was maybe 11 or 12, when we first got access to the internet. This was back in the dial-up days with NetZero, and American Arrow, and America Online CDs that you get in the mail.
Shereen Abdulla
I remember the dial-up days.
Donny Ouyang
Very, very slow, but good times.
Shereen Abdulla
Were you working on Blackcart then or was that the start of your entrepreneurial journey?
Donny Ouyang
That’s the start of my entrepreneurial journey. This was way back, this was maybe 2005/2004 or so. This was me just messing around building random websites for fun, so whatever caught my interests — gaming forums, master tools, things of that sort, and just try to make money from Google AdSense and Banner Ads essentially. And as things started to get bigger and bigger, I started buying and selling websites and started making some serious cash, at least for a high school kid at that time, and then for me, when I went into university, that’s when I got my first taste at a proper startup life. I founded a startup called Raiku, which was this online on-demand tutoring company. We managed to raise a little bit of funding, was able to build out a team and build this live interactive whiteboard that people were able to use and connect online to get tutoring, that was the idea. So, I worked on that for about five years or so, four or five years, which brings me to Blackcart. This is now 2017, that’s when I came up with the idea for Blackcart and started working on that part-time at first, and then eventually full-time.
Shereen Abdulla
And how’d you come up with the idea?
Donny Ouyang
The goal for Blackcart, initially, was just to create the best possible online shopping experience. For me, I’m not an avid shopper. I had this crappy experience where I bought a pair of black shoes from this Canadian retailer that ended up looking nothing like it did online. It hurt my feet. I forgot to return it; so, it’s ultimately my fault, but I had an angry experience. Coming out of that, I was trying to create the best possible experience for online shopping.
So, the initial idea was to build this consumer-facing app, consumer-facing experience. We built a Chrome extension that we got people to install, and they’d be able to try-before-you-buy from 50 different brands. It was arbitrage. I would go out and buy a whole bunch of discounted gift cards in bulk from eBay or Raise.com, or any of these marketplaces, and essentially pay on behalf of the customers. So, if they kept something we’d made our 15% or 20%, whatever discount. That was the MVP.
THE EVOLUTION OF BLACKCART’S BUSINESS MODEL
Shereen Abdulla
And Donny, you mentioned got people to install. Who are you referring to when you say “people?”
Donny Ouyang
It was my friends at the beginning, and then it would be whoever shopped online. This was mostly apparel. So, anyone — and anyone that I can convince to give it a try and see if they can go through the whole try-before-you-buy experience.
Shereen Abdulla
So are we talking consumers or SMEs and merchants?
Donny Ouyang
At the beginning, this was consumers, purely consumers.
Shereen Abdulla
And then did you eventually transition to become a B2B company, or are you B2C as well as B2B?
Donny Ouyang
No, we’re now completely B2B. The Chrome extension did not work, a lot of stuff didn’t work. We tried many different things trying to find a product-market fit, but nothing ultimately came about. The reason was, customer acquisition cost was just too high to support margins. But, what we realized was: if we tied a specific product with a specific brand to our consumer ads and made the call-to-action try-before-you-buy, the customer acquisition costs dropped by half. So, at that point, it was pretty clear that maybe the B2B side had some legs, and that’s why we decided to pivot and applied to 500, and built it up – see if it works.
Shereen Abdulla
And when you pivoted, what were the specific challenges that you decided to address in retail?
THE PROBLEMS IN RETAIL THAT BLACKCART ADDRESSES
Donny Ouyang
For retail, in general, even today, as you’re looking at the e-commerce market, you see that for two years e-commerce growth has leapfrogged. Maybe two years. And now, growth is slowing down for e-commerce and it’s the reason why people still prefer to shop in-store versus online. Those reasons haven’t been addressed, until now.
It’s being able to touch, feel, and try products before you make a purchase decision. And that has been this experience gap that is highly correlated to why e-commerce conversion is 3% versus in-store conversions is 24%. There’s a lot of – even with the conveniences of online shopping, there’s a lot lacking. So, we want to solve that problem for merchants.
DONNY ON THE IMPACT OF COVID ON RETAIL AND E-COMMERCE
Shereen Abdulla
Online shopping has become more prevalent during the pandemic, but are there still holdouts and who are they?
Donny Ouyang
Absolutely, there are definitely holdouts. I don’t, actually, think that brick-and-mortar shopping is going to go anywhere. It’s not going to go away. Even a couple of months ago, you saw over the news that H&M had closed their fitting rooms, but people are buying stuff from H&M, taking it to Zara next door to try it on, and then coming back and returning it.
Shereen Abdulla
And, actually, as of this week, as of the time of recording the episode, Meta opened a brick-and-mortar store to promote the Metaverse, over in California.
Donny Ouyang
Yeah, It’s definitely all about the experience. You do need to try products before you make a purchase decision. That’s why Apple stores have their devices laid out for you to try, it’s not behind glass cases. You walk into a Nike store, you’re going to put on those shoes before you pull out your credit card and pay for them. It’s just part of the success formula of retail in general.
Shereen Abdulla
Is it a part of demographics or does the industry depend on them?
Donny Ouyang
I think, at least from our data, it’s across the board; it’s not just millennials. We definitely have a lot more millennials that go through the whole try-before-you-buy experience. They come back and they love it, and their NPS scores are very high. But we’re seeing this across the board. Whoever wants to shop, particularly if they shop online, they do want to verify, be intentional with how they spend the money, verify that this product fits with their lifestyle, fits with their body, or everything else that they’re going to purchase.
HOW BLACKCART WORKS
Shereen Abdulla
How do you convince merchants to ship goods to consumers without a credit card hold?
Donny Ouyang
We do this as part of our core technology. Our core technology is our fraud AI, which scores the risk of every single order that goes through. That’s one of the main value propositions of Blackcart — we’ll take on the risk. So, every time someone places a try-before-you-buy order, the customer doesn’t have to pay upfront. In the background, we’re running through thousands of data points to score the risk of that order, and if a customer ends up keeping something and not paying for it for whatever reason, then Blackcart guarantees that order and will pay on behalf of the customer.
Shereen Abdulla
But, if, let’s say a customer’s scoring is risky, would you still, then, as a company, process their order, knowing that?
Donny Ouyang
They will be asked to either go through additional verification steps or they will be asked to pay upfront, just like a normal order.
Shereen Abdulla
Have you been able to help merchants reduce returns because of your try-before-you-buy software?
Donny Ouyang
Typically, for customers, from what we see, once they make a keep decision, they don’t tend to change their minds. So, if they try something and they discover that this is something that they want to keep — even though that decision is within a five-day window, for example — they tend to keep it. For us, the main value proposition for merchants is, we will increase your average order value. So, people will try more items and they will ultimately return more items, but the net AOV of ones that they ultimately end up keeping, on a per-order level, is actually quite significantly higher than a typical e-commerce order.
Shereen Abdulla
You mentioned, specifically, orders that consumers decide to keep — what about orders that they decide to not keep, wouldn’t that classify as a return as well?
Donny Ouyang
It would go through the same exact process as a regular return. So, for example, if someone orders three shirts and they decide to keep two out of the three shirts, the third shirt that doesn’t get kept, it would get sent back to the warehouse of the retailer to get processed. One of the more recent merchants that we’ve launched [with], PAKA Apparel, they do something interesting; they want to make sure that [they’re] entirely carbon neutral. Everything that goes back and forth is covered. So, what they’ll do is partner with another 500 [Gobal] company, EcoCart, to be able to process that and make sure that every order is carbon neutral.
DONNY ON CHALLENGES OF FINDING PRODUCT-MARKET FIT
Shereen Abdulla
Donny, what are some of the main challenges you faced?
Donny Ouyang
I think, at the very beginning, just trying to find product-market fit — I made a lot of mistakes. My last startup, Raikou, where we made a decision — I thought I was the next Mark Zuckerberg, or the next Elon Musk, and just thought that the vision is going to come through. We’re just going to go, go, go until it doesn’t work. But, pre-product-market fit, it’s all about the macro experiments. We’ve had a lot of challenges going from this Chrome extension, to this web proxy, to style boxes. We tried everything under the sun to see what works until, ultimately, something did click that we can double down on. So, it has been a struggle up until that point.
BLACKCART’S TARGET CUSTOMERS
Shereen Abdulla
Now, Blackcart is based in Canada, but where are most of your customers located?
Donny Ouyang
Most of our customers today are in the US. There’s a little bit of a cluster in Australia, UK, and a couple in Canada; but, I’d say probably 70% are in the US.
Shereen Abdulla
And how’d you manage to acquire the non-US customers?
Donny Ouyang
For our business, a large portion of our new customers/ new merchants — how they discovered us is through the widget, essentially. So, when we integrate with an e-commerce site, there’s the try-before-you-buy button on their product pages and below that says, “Powered by Blackcart.” We’re not actively advertising in Australia. Once we launched with one Australia merchant, it has a little bit of a network effect there that tracked others.
DONNY ON E-COMMERCE TRENDS
Shereen Abdulla
Just taking a holistic view. What are some of the trends that you’re observing in e-commerce?
Donny Ouyang
I think one thing that’s particularly noticeable is that retailers and online e-commerce omni-channel merchants — they’re more and more receptive to innovation, today, a lot more, compared to before. It’s almost as if e-commerce has been behind banking, at least open to innovation for two decades, and then the pandemic hit and everyone is investing in e-commerce. So, when we’re talking to merchants today, there’s more and more openness to be able to consider new ideas, consider how this would fit within their stack for their future; and we continue to see that today. Merchants are investing in the next five years; whereas before, it was just trying to keep the lights on.
Shereen Abdulla
Donny, thank you very much for all the insights. I would say thank you for your time as well. It was a pleasure to have you on the show.
Donny Ouyang
Thank you. It’s great to speak to you.
Shereen Abdulla
Likewise.
