Ryan Cohen Interview on the All-In Podcast

Thank you for having me.

Yes, definitely.

We wanted to build something online and we were about to launch an online jewelry website. Did not know anything about jewelry. Went to a bunch of trade shows, bought hundreds of thousands of dollars worth of inventory, built the website, had the distribution, and then I was shopping in a neighborhood pet store. I had a poodle and I was going every few weeks and it just hit me on one of my trips that I understood the product much better. It was a recurring revenue purchase. The market was still fragmented. The fact that there was still neighborhood pet stores at the time and they had not been disrupted by Petco and PetSmart was fascinating to me. And then you had you had Amazon, which was established and had pet products since the '9s, but they hadn't really achieved real scale in the category. So, the vision was to replicate the same experience that I had at the neighborhood pet store, but do it online and do it at scale. And I looked at Amazon's best practices when it came to supply chain. So, fast shipping, having a great selection, being competitively priced, and then the experience at the neighborhood pet store of knowing the products really well, and it was easy to be passionate about the pet category because I'm a pet owner and everyone we hired were pet owners. And it was all about market leadership as a low margin business. Hindsight, not necessarily the best idea to go head-to-head against Amazon, selling 30 pound bags of pet food, but we executed really well and we grew really quickly and we had negative working capital and so it was a business that was able to get uh billions of dollars in revenue and and not consume a lot of capital.

I understood from the beginning that the real competition was always Amazon and they were world class when it comes to supply chain. So negotiating very fiercely with suppliers to get the best product costs. And that meant getting to scale and going from buying pallets of dog food to truckloads of of dog food and moving from distribution to direct and buying, generally the more you buy the lower the prices are going to be. Operating efficiently in the warehouses and so labor optimization, warehouse management optimization, getting competitive prices with shipping carriers. It was a game of pennies and we you know we were the the goal was to grow quickly and establish market leadership and the difference between failure and success was, you know pennies in the red is failure and and and pennies in the black is success. So, we had to operate hyper-efficiently and there was a lot of competition in the space. It wasn't a novel idea. It was going head-to-head against Amazon and Pets.com was in the backdrop. So it made it very difficult to raise capital, but I'd say at a high level, the market underestimated not the size of of the addressable market, but our execution.

When we looked at the cohorts, you could see the customers were very sticky and the I looked at it the reason why I moved from jewelry to pet food was because it was a recurring item. So I love the fact that it was consumable and when we started Chewy for the first few years we just focused on food, treats, litter, all of the things that people are buying all the time. So the the vision and the idea was if we treat our customers well, they're going to continue shopping with us and and that's what we did. And so it was everything from the handwritten holiday cards to the pet portraits to 24/7 customer service. And if there was ever an issue, we took care of the customer and that's what happened. And the customers continued shopping with us, and the best referrals are word of mouth and pet owners love to tell their friends and fellow pet owners if they have a great experience. So the thesis ultimately played out.

Staying on top of everything. Just, it's 24/7 watching all of the numbers. I mean, I would stay in Google AdWords until 4 or 5 in the morning managing campaigns myself. I was negotiating directly with all of our major suppliers. I had a supplier that told me during one of our negotiations actually said it was like a one year contract and he's like, "I'm so happy this is over. I never have to talk to you for well it [laughter] was it was basically another year." He's like, I don't have to speak to you for the next year. I was like, that was a compliment. And anytime someone else was doing the negotiation, I mean, it's counterintuitive. They want to build relationships with suppliers. The reality is it's mostly transactional. And so, if our suppliers are sending us gifts in the mail, that's a really bad sign. It means we're overpaying. If our suppliers are telling us they never want to speak to us again, it means we're getting the right price, but getting people into that framework is not easy because the path of least resistance is basically to get along and to be nice, but unfortunately when you're building a business and you're losing money, you got to focus on sustainability. So just being on top of everything.

I look for will over skill. I had a woman that was running customer service as an example and she came from, she was working in like an old people's home and she applied for the job many times and we just we didn't think she was qualified and we looked over her resume and she kept on applying. She was relentless. So on paper, she didn't necessarily have the right experience, but she had drive, she was motivated, she wanted to work, and she ended up being incredible. So, I mean it was in general it was finding people that are diehards that are just willing to put everything in, go all in, no pun intended, and basically be as psychotic as me, and that was the team that we put together. It was just a bunch of fellow psychopaths.

Exactly. Exactly. Yeah.

Exactly.

I mean as soon as I sold it, it just took off.

Well, I mean you know typical if you talk to the investment bankers there we're like -- we're getting an amazing price and then all of a sudden it goes public and there's basically a lot more than what anyone had guessed. So, nobody has a crystal ball. Chewy was my baby. I put a lot of -- I love that business. And so everything everything works out for a reason in life one way or another.

And we wouldn't be having this conversation if I was still running Chewy. So, or at least maybe we would, but it would be about dog food.

Exactly.

I went activist for the first time. Yeah, that's an accurate statement.

Yeah.

I looked for established businesses that have a strong historical track record of making money and typically are out of favor when it comes to passive or activist kind of investments. And so, that's been my general framework.

Well, when it came to GameStop, originally it was a passive investment and I owned under 5% and the CEO actually reached out to me because they were fighting an activist, and they wanted me to join the board. They thought I was basically going to be their friend. They're like, "Oh, this guy owns a few percent of the company and let's give him a board seat and he'll help us basically fend off this activist, and so, they kind of put the idea in my head.

It was, yes, exactly. So I wasn't in a place -- my father had just died recently, and they offered me a single board seat, and I'm like if I'm going to do this you know I looked at the board and they had a really large board and they're offering me a single board seat and it just wasn't attractive. And then you know, covid, things got a lot worse. They were deemed a non-essential store, basically like kind of on the verge of bankruptcy. The stock traded down significantly, and then I continued accumulating. I ended up going above 5%. At that point, I needed to decide, am I going to file a G or a D? A 13G is basically if you want to be passive, which means you're not going to engage with the management team at all. And a D is where you are going to engage with them. So that was an easy decision once I crossed over 5%, and I remember actually getting a call from the CEO of GameStop at the time and we were discussing me going above 5% and filing the required SEC forms and he's like, "Did you file a D or a G?" And I'm like, "a D." And a D obviously is, you know, it's intended that you're going to be activist, even though it doesn't necessarily mean you need to be hostile. It just means you're going to engage with the management team. So, anyway, basically that was what happened.

I found it fascinating that everybody was like, for whatever reason, and still to this day, everybody hates -- like the the mainstream media, the general consensus has been that GameStop was going out of business like a long time ago, right? Like 15 years ago, this thing was basically shorted to oblivion, and everyone was betting against it, and everyone's basically just hated it. It's one of those things where when you even say GameStop, everyone's like, "ugh, like really, you're an investor in GameStop?." So, that's always for as long as I remember, that's basically been the reputation, is like the underdog. Everyone loves to take the other side of the trade or bet against it, and so, I like that. I like the idea of going into a situation where you're basically running into a burning house. And I originally did it as an investor because typically that's where you see opportunities is when there's a lot of pessimism and fear. And then I ended up basically, not necessarily intentionally, joining the board and then ultimately being the CEO. But that wasn't the original plan. The original plan was basically to be a passive investor and then I basically ended up just, it's like there was no one else to do the job, someone needs to do it and here we are today.

The original thesis was that there's an upcoming console cycle and that they're probably going to survive until the upcoming console cycle and the new PlayStation and Microsoft Xbox comes out. And it was a very cyclical business. And GameStop typically does very well in the beginning of the console cycle when the market is very very tight and people are basically running to GameStop to buy hardware and software. And so that was the original thesis and then as I got pulled in, obviously the business is completely different and the thesis has changed, but that's where I started, as a passive investor.

Yeah, they thought I was basically just going to join the board and be a patsy.

You probably picked the wrong guy to think that that was going to be the case.

Exactly.

Exactly.

The original plan -- I learned a lot at GameStop. I basically took-- I went in and I had this bias from Chewy, which is basically like everything that I learned at Chewy I was going to apply to GameStop. And it took me about I don't know maybe just over a year to realize that was really really stupid. But I ended up hiring a bunch of e-commerce people from Chewy and Amazon. And I wasn't the CEO. I hired a CEO. So, I didn't have day-to-day visibility on what was going on. But the strategy was to make GameStop more like Chewy. And that was the wrong strategy. And once I became the CEO, I quickly adjusted because, just frankly I looked at the financials and saw it didn't make any sense. And then it was, went into maniacal cost cutting mode, efficiency, basically focusing on what GameStop is really good at, which is the pre-owned side of things, and focused on running the retail business very very well. And then ultimately that led us to the category of collectibles which today the business is a leader in the collectibles category and software makes up a very small percent of the business, but there were a lot of learnings on the way and you look at basically Chewy and GameStop you say well they're both retailers you take the same playbook but that was not the case. Totally different animal and one is you've got repeat purchases and you've got these really sticky cohorts and we can never over-buy inventory for instance at Chewy because we would end up ultimately selling it. The revenues were growing and we turned the inventory very quickly, whereas we ended up buying all kinds of shit inventory at GameStop and ended up having a bunch of TVs and inventory that ends up getting stuck in the stores, and if you don't sell it you end up basically taking down, you know losing a lot of money and marking it down. So lot of learnings along the way for me to understand physical retail, which when I joined the board I when I became CEO I had zero physical retail experience.

We were already in the category. We weren't deep in the category and we did try a few different other things within consumer electronics that just really didn't end up taking off like collectibles did. And if you look at at TCG [trading card games] in particular but now we're growing in sports as well, has been very very very popular. So, we tried a few different things and the trade-in model especially, worked really well where like today you could basically bring in -- not basically -- you can bring in a graded PSA card eight and above and we will give you cash on the spot. We buy back the card and then we either sell it in the store or we bring it back to our warehouses and we sell it online. So that was very similar to the trade in model that we had on both hardware and software, and it was very extendable to the trading cards category as well.

It was identifying the talent at the company and basically having them -- working directly with them. Like the the people who know GameStop the best have been the people that have been there for a long time and me working closely with them ended up working really well.

Yeah, some, some, but I mean generally, working with uh the people that have been there that know the business really well.

I'm sure I do, but I'm not good at articulating it. So, I don't know if I'm the right person to be able to say what's going through my brain. Sometimes, like whatever I'm feeling, I can't even necessarily describe it. And if I describe it, it ends up being wrong. So, someone else could probably do a better job at answering that question than me.

You'd have to you'd have to ask them.

So, hopefully not good things. Hopefully not good things.

If you look at the size of the business that I can build organically with GameStop, it's nice. It's okay. But I like to do big things. And Chewy is a good example. It could have been a $500 million business. It could have been a hundred million dollar business. It could have been profitable if we would have spent a lot less money on marketing. But life is too short to do it small. So we have the -- if you look at how complimentary, and as we've gone into the collectible space -- I've come to appreciate eBay differently. And if you look at how complimentary these two businesses, in from a lot of different dimensions, the secondary market side of the business, the collectible side of the business, the ability to provide liquidity to consumers, what we're doing in stores, eBay is doing online. Authentication of secondhand items. There's so many aspects of the business that are similar except that eBay is global and has significant scale. And frankly, it's a business that I understand a lot better than physical retail. Because I know a thing or two about e-commerce and it's an area where frankly I'm much more comfortable operating, and so, when you look at how much the businesses together make sense and then you look at the fact that it's within my circle of competence, it's -- all -- I can't stop thinking about it. So I look at Chewy as like, Chewy in hindsight, we had a lot of competition in the pet space that were really well funded, and they were decent operators and they didn't end up making it because, it was a low margin business going head-to-head against Amazon. And it's similar to like the airline industry where people don't really care about the actual airline they're flying. They're just basically shopping by price. So that was selling pet food online. Not a great idea. And you know, GameStop, I don't think was such a good idea either. This is actually a really good idea whether it ends up working out or not, but this is actually a really good idea. We'll see what happens though.

Yes, I do.

I [laughter] I was on the toilet.

Pretty much.

Yeah. I mean, I've followed eBay for a very long time and I came to appreciate their experience, their moat in the collectibles space. But it's not just collectibles, too. I mean, it's the refurbished tech piece of the business where GameStop, it's a big portion of our business, and it's a big portion of of eBay's business, too. And the secondhand business as well. So, there were other things that I thought about where I could personally add value and might make sense for GameStop, but this one made sense for me personally and it makes sense for GameStop.

I look at basically the marketplace model where they had first mover advantage. So their ability to have first mover advantage and really be the like de facto marketplace online, including against Amazon, was significant. So that was really helpful. I wouldn't say that -- if you look in general at the growth in e-commerce and you look at Amazon as an example that basically took the marketplace model but also took taking possession of first party inventory, along with growing their marketplace and like they ultimately scaled it and they essentially did what Walmart was doing but they did it online and at scale. I mean, obviously you can't compare the two, but they their focus on building a marketplace gave them a moat and staying power, but I wouldn't say that their execution was great. In the early days, it was great when it was founder operated. But since then, if you look at how much e-commerce has grown and how much market share they've given up to the likes of basically everyone, new competitors in the space that are very category focused, live shopping competitors picked off significant share from them, Shopify, social commerce, Amazon -- eBay'sbeen able to maintain a revenue base and generate earnings, but they haven't grown along with the rest of e-commerce. And if you look at how they've done most recently, the business has stagnated up into the last few quarters and their operating expenses are up significantly. So it's not to say -- they are the de facto marketplace online especially in certain categories, but that business should be significantly larger.

eBay could, and I'm not advocating, I mean this is not something, I would not go head-to-head against Amazon today, but eBay could have been Amazon. So when you look at what Amazon has built, I mean, everything from taking inventory and their principles of they provide a great customer experience and so that's why we all love shopping on Amazon, and as a seller, seller central is a very powerful platform and sellers generally like it too. I don't know if they necessarily like the margins, but they can move a lot of inventory on Amazon. So, eBay by doing nothing has basically carved out a niche in certain categories where Amazon isn't strong because they're strong in other categories, and, you're buying a a phone charger or new products, it's not necessarily the place where you want to search for like a unique baseball card or a hard to find pen or a used auto part. I don't know if it was necessarily through strategy or just because they ended up, they ended up basically like defaulting into those categories because their largest competitor was focused on other things.

They charge a lot of money to their sellers. I agree with you. And sellers like it because they move a lot of inventory, but they don't like the margins.

I would not be interested in taking in firsthand inventory. I like the marketplace model and the categories where eBay is doing well are categories where GameStop is doing especially well also. But going head-to-head against Amazon is um -- it's not the most attractive business.

Well, if you look today at eBay, I mean, I like focus. So, them focusing on core eBay makes sense. I mean, my strategy at Chewy wasn't creating all these other sub-brands for different geographies. It was always focusing on on Chewy. So, the focus is helpful. I'd say in eBay's case, hasn't resulted in significant GMV [gross merchandise value] growth, if at all, or earnings growth. But, I do like being focused. Now, I mean, they've recently made acquisitions, which don't make sense, but generally speaking, I like focusing on a singular brand, and especially with a business that's global, there's a lot of upside, and, eBay plays in a ton of categories already. So, it's hard to do multiple things exceptionally well.

Yeah, building it organically through eBay and through focus is where I believe makes the most sense.

I mean if you just look at how they've done in the past since covid, every important metric is down. GMV [gross merchandise value] is down, active users is down by 30 million. Operating earnings is down. Revenue now is basically essentially break even, it's up a few points, and operating expenses is up significantly. Their operating expenses now are -- for a business that has no inventory, they're operating, their operating expenses are over half of their revenues. So that's a business that they're not growing. Everybody else in e-commerce is growing and they're making less money and they're spending a lot more. And their sellers frankly aren't happy. Like it's -- you talk to sellers and in order for them to do business on eBay, they have to use all kinds of thirdparty tools outside of eBay because eBay is not even providing those tools. I mean, Amazon seller central is like soup to nuts. You could pretty much do everything in seller central. Whereas with eBay, it's a pain and they alienate their sellers. I mean, they had concierge programs for their top sellers and now it's like they take their sellers for granted and they're taking advantage of them. So, the sellers in a marketplace model like eBay, the sellers are the customer. You make your sellers happy, you give them the tools, they bring more inventory online, and you end up ultimately doing more sales, and they're not working with their sellers to make them happy. So, it's not that complicated. You talk to the sellers on the phone, you talk to the top sellers, you ask them what are the pain points, and you get the engineering team on the phone with the sellers, and you start basically banging them out. But, you know, I guess existing management team doesn't roll up their -- like they're not going to roll up their sleeves. They're going to go to outside consulting firms to tell them how to run their business.

Well, I mean, they're never going to admit it, but I would bet everything that they're working with multiple outside consultants and for a lot of different reasons, and they're not making their sellers happy. So, their sellers are on the platform because they do a lot of business on the platform and they want to move product, but they don't feel like eBay wants to make them succeed and is working with them to do more business together. So that's what happens when you go from a business that founder operator run to business with a professional management team, is, you lose the one-on-one and just the rolling up your sleeves really getting into solving the root cause of problems.

So there are three areas.

Number one is on immediately improving earnings through cutting costs and pulling $2 billion of costs out of the business and on the operating base of close to $5.5 billion of expenses, and $2.4 billion spent on sales and marketing for essentially no user growth. There's a lot of money to pull out there. So you have the immediate increase in earnings through cost cutting. That's basically one.

And then there's two growth vectors that I'm very much interested in.

Number one is live commerce. And there's a large competitor that is completely crushing it and eBay has the users. eBay has the brand, they have a platform, but the platform sucks for a lot of different reasons. And they don't have the content creators on the platform and nobody even really knows eBay Live exists. There's like an application process. I talked to sellers and they're telling me like they've applied to be a seller and they are waiting to get approved. It's like they're basically stopping themselves from being successful and getting content creators onto the platform. And then the entire back end of eBay Live also sucks.

So, live commerce, the TAM [total addressable market] is like $400 billion. It's growing very quickly in the US. It's very popular in Asia. And eBay Live should be significantly larger. They should be the category leader in the space. And they have like at max a few hundred people basically watching watching their sales. So that's a huge huge growth opportunity for them to start doing really well in live commerce.

And the benefit also we have with the [GameStop] stores beyond basically fixing the platform the front end and the back end, using the stores, there's 1,600 essentially nodes, that can be used as studios for creators. They could be used as fulfillment and logistics and ultimately allowing sellers and content creators to do what they do best which is create content, and we can help them on photography, we can help them on fulfillment, we can help them on logistics. And we can also do the authentication, and that extends to the marketplace model as well. So I would focus a lot on growing the live commerce side of things beyond the cost cutting.

And then the third thing is, and this is something that I have not spoken about before publicly, but eBay today is the leader in physical items, physical collectibles as an example. And so I would extend that into digital collectibles. And essentially, if you look at all of these in-game items, AAA titles that people are accumulating: skins, weapons, all of these things, taking eBay and building a marketplace where you can provide liquidity for in-game digital items. Essentially, it's what NFTs could have, people thought they were, but ultimately they had no real utility. In-game items actually have real utility. And if you look at all of these collectibles, frankly, they're an ego play. You own art. Like, what is that? At the end of the day, it's an ego play.

If you look at trading cards, I mean, it's a piece of cardboard in a piece of plastic. And they're very very very popular, but there's no real utility to them other than being able to tell people you've got a really unique trading card. But if you look at in-game digital items, there's no marketplace that is providing liquidity for them. And so I would use eBay to provide liquidity for in-game digital items. And I believe that addressable market is significantly larger than -- could be much larger than eBay's marketplace on physical items, and no one's doing it. And this should already exist, and it's kind of crazy that it doesn't exist.

Well, they put out a rejection letter which said that our offer wasn't credible. And there was a lot of uncertainty and, frankly, and by the way this is expected. They don't want to hand over the reigns. They're making a lot of money and so I completely understand why they're taking the position that they're they're taking. But they spelled it out in the rejection letter. And number one was the financing uncertainty, which frankly, if we can't get the financing it means that eBay can't get the financing, because we're getting the financing off of eBay's balance sheet. But there has not been very much engagement from the management board level. Frankly there's been really no engagement. I mean, they're playing games. They pointed us to their high-priced advisors and then when we reach out to schedule a meeting they don't schedule the meeting.

Ultimately, the decision is who do you want to run the business? And who do you think is more competent to run the business? And who's going to maximize shareholder value? Because by giving existing shareholders GameStop shares, GameStop, the combined company, at least in the very near to medium future, the earnings are coming from eBay. So, they're going to continue owning eBay. We're offering them 50% cash, 50% stock at a premium to where we bought it. And essentially, they get to continue owning eBay, except you've got someone that is highly incentivized to maximize shareholder value, knows a thing or two about e-commerce and running the business efficiently.

I mean, that is not what we've presented today and that's a lot of cash to come up with. So, you know, we don't have $60 billion of cash just lying around.

Yeah, it was close, but that's right.

Yeah, I mean I don't want to get into individual shareholder discussions, but the consensus has generally been aligned, which is, they love the business and they they see a lot of opportunities. So, we'll see what ends up ultimately happening and maybe the composition could shift because, if you love the business, you might not want 50% cash. You might want to stay invested. So, that that's a possibility, too. Ultimately, the vote is on who's going to be a better fiduciary of capital and who can grow this business, me or or someone that's basically selling stock hand over fist, and by the way, has not bought a single share of stock in the open market with his own money, and has been selling tens of millions of dollars [of shares]. And you know the interesting thing in this, and maybe you can help me understand this, is that there's no question what we're doing what I'm doing, it's big, you know, it's not every single day that something like this occurs, but why does everybody want us to fail? Why does everyone want GameStop to fail? And why is everyone, like, the media as an example -- why is it that you've got a management team with no skin in the game, they're not builders. They haven't built anything themselves before. They've basically just been employees at major companies, that have been overpaid. I don't think they've ever broken out a sweat in their entire lives. Why does everyone want them to succeed? But when you have someone that -- and by the way, this is going to be coming out, it hasn't been filed yet. Maybe by the time that when this airs it will be, -- but I'm putting $500 million of my own money into this transaction. I haven't pulled a penny out of GameStop. I've invested a lot of money into GameStop. I've been doing it for a long time. GameStop's a much stronger business today. Everyone hates GameStop and it seems like everyone in the media basically wants us to fail and wants them to succeed. And you've got a board that's making hundreds of thousands of dollars a year. They don't buy stock with their own money. They end up showing up to a handful of board meetings and they're making a fortune. You've got a management team that is grossly overpaid with taking zero risk. And why is everyone basically want this entrenched management team and board to stay like protected and to continue running the business and doesn't want -- there's nothing more American than basically risking your own capital. So why does everyone want us to fail?

I don't know.

I would love to.

I would I will fly to California tomorrow. No.

A big payday. And a massive golden parachute.

It's over 100 million bucks.

Yeah.

No.

No.

Yeah.

Yeah. Yep.

I'm going to do whatever we need to do, whatever I need to do in order to succeed.

Yeah. Yeah.

Well, it's a lot of money. It's a big premium. And beauty is in the eye of the beholder, and it makes sense for me to pay this for the business because of what I could do with the business. Not just short term in terms of increasing the earnings, but long-term in terms of really taking significant market share in live commerce and building a digital marketplace for gaming. That's something an existing management team would never be able to build in their wildest dreams. And so it's worth it for me to do something like that. And then, obviously when it comes to their large competitors, there's antirust issues in terms of them being able to to do a deal of this size as well. But, I don't know why they won't speak to me. They should because I'm not going to stop. I'm not going to go away.

There's a lot of different escalation paths that we have in our toolkit.

Yeah, we're we're working with bankers and high-priced advisors.

I appreciate it. Great speaking to you, Dave.