SCOTT SIMON, HOST:
All Alexis Madrigal wanted was a coat. He bought that coat through an ad he saw on Instagram. A sponsored post popped up in his photo feed. He hadn't heard of the retailer, but it billed itself as luxury for modern gentlemen. And what a deal - the price was less than a hundred dollars. The jacket Alexis Madrigal got delivered, however, turned out to be less an expression of luxury and more a lesson into how e-commerce has changed in the age of Instagram and Facebook. Alexis Madrigal wrote about this for The Atlantic, and he joins us now from Oakland, Calif.
Thanks so much for being with us.
ALEXIS MADRIGAL: Thank you.
SIMON: What'd the coat look like?
MADRIGAL: Well, it kind of looked like a carpet, I would say, formed into a roughly coat-like shape. (Laughter) It kind of had a velour sheen and kind of the texture of indoor-outdoor carpeting.
MADRIGAL: It was not the nicest coat that I'd ever seen.
SIMON: So what's your complaint?
MADRIGAL: Well, the complaint was I wanted to get something for nothing. You know what I mean? I wanted a nice, expensive-looking coat for less than a hundred dollars, which, as it turns out, even with all the magic of the Internet, is still impossible.
SIMON: Yeah. Well, explain some of that magic of the Internet because this is territory you know well. How are you - I'm not sure taking it is the word because it seems to me if you were, forgive me, naive enough to think you could get a good coat for under a hundred dollars - well, you can finish that sentence.
What was the magic that took you in?
MADRIGAL: Well, so what I got really interested in was that when the coat showed up, it showed up in a black plastic package from China Post. So I thought I was buying a coat from some brand that represented itself as kind of this modern gentleman. You know, I was expecting it to have its headquarters, you know, in New York or San Francisco or Los Angeles or something. And this thing is shipped direct from a technology park in China.
So I kind of started thinking like, well, what is this brand? And I started diving into this new class of online retailer that use a tool called Shopify, which allows anyone to kind of spin up a retail store in five minutes; sucks products in from a service called AliExpress, which is sort of like Amazon but in China, and it's dedicated to kind of the export market for Chinese and other Asian manufacturers; and allows - basically - consumers in the U.S. to take a different route into this manufacturing ecosystem, which makes so many clothes, which makes so many consumer goods, in Asia.
SIMON: When you ordered this coat, were you genuinely surprised to be able to trace this stuff back, or was that the whole idea?
MADRIGAL: Well, no. I was genuinely surprised. I was literally - I had been tagged in the Facebook advertising system, which Instagram also uses, as someone who likes to buy clothes. And what I came to find was that this is a pretty widespread phenomenon.
Shopify says that they have 500,000 merchants. The overwhelming majority of them are small- and medium-sized businesses. And some subset - although no one's totally sure exactly how large it is - are these people who do what's called drop shipping, which means that they never handle the goods that they sell. They essentially are a front end, just a way of accessing these items that are then directly shipped from their Chinese manufacturers.
So in some weird way, it sort of cuts out the middleman of sort of an H&M or a Zara or some other fast-fashion place. But it inserts this new middle person, which is a Shopify e-commerce site that took somebody five minutes to set up. And one of the people that I found doing that was this, you know, 17-year-old, or at least presumed, he calls himself a 17-year-old, living in, like, suburban Dublin.
SIMON: Well, he sounds like a very ambitious entrepreneur.
MADRIGAL: I think they are, you know. I think the appeal of it, obviously, for entrepreneurs - this drop shipping model - is that it takes almost nothing upfront. You don't need money to buy the stuff. The tools online are very inexpensive, and it's this possibility that these entrepreneurs can get something for nothing - right? - that they can generate money basically out of thin air.
SIMON: And not to make any comparisons, but I seem to recall that there was a time when J. Crew was a catalog retailer - didn't have any real stores. And now, of course, they've got plenty of them in addition to a very ambitious online retail site.
MADRIGAL: Absolutely. The way that I've thought about these Shopify stores is they're undoubtedly strange because they're new, but their model is fundamentally not that different from, like, a big corporate enterprise. It's just that the tools have democratized the ability for people to tap into the globalized economy. And so before, it took the idea of having a supply chain and having all these people who would know factory owners in China and all these other kinds of things - that took a lot of infrastructure.
What these tools have done is eliminate the need for all that infrastructure. And so now it's this alternative way into what is a real thing about our economy, which is that many, many of the goods that we all purchase are made in Asian factories and are sold to us at a very high markup from their production costs.
SIMON: So where's the coat now, may I ask?
MADRIGAL: It's hanging up in my closet, kind of towards the back - in there with the things that are too small for me to fit into now (laughter). But I'll bring it out at some point, I'm sure. Everyone needs a coat like that, you know, maybe for gardening or something.
SIMON: (Laughter) Alexis Madrigal, staff writer of The Atlantic speaking with us by Skype. Thanks so much. And you know, I can tell - even over Skype - you're looking great.
MADRIGAL: (Laughter) Thank you, Scott.
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