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PODCAST - Unpacking the digital shelf

Roundtable: The Halloween Episode - What's Scary In Manufacturing

On our weekly roundtable of what's happening in manufacturing, we're talking Halloween - or at least what's scary in manufacturing these days. Turns out it's trade wars and industry-killing millennials. Featuring host Peter Crosby, Rob Gonzalez, and Molly Schonthal.

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Transcript

Peter

Welcome to Unpacking the Digital Shelf, where we explore brand manufacturing in the digital age.

Hey everyone, Peter Crosby, coming to you from the Digital Shelf Institute studios in Boston with our weekly episode of quick takes on the industry news that you might just want to pay attention to this weekend. Around the DSI round table today, we have Rob Gonzalez here with me in the studio. Molly Schonthal from her swanky pad in Manhattan. Hey Molly, did you deck out in a Halloween costume yesterday?

Molly

Well, interesting story about that, Peter. We wore our costumes to pick up our son from school. I was Picachu obviously, in an adult onesie. And Trina was Bowser obviously, and our son was so embarrassed by his parents in costume that he decided not to go trick or treating.

Peter

No, you ruined Halloween for your son.

Molly

We ruined Halloween trying to make it better.

Peter

Were you the only parents in costume at the school? Oh my. And Manhattan's super judgey on that stuff.

Molly

I'm not the only parent in costume in Manhattan, but definitely the only parents in costume picking a kid up from the afterschool program at the moment that we picked our son out.

Peter

Oh my gosh, this is going to come up in therapy hahahaha.

Molly

For sure.

Peter

Well, speaking of scary therapy sessions and all things spooky, today's episode is sort of centered around scary things, things that go bump in the night in the commerce industry. So Rob what, what spooky item did you bring to the table?

Rob

The trade war!!! So there's just so much political news that's directly impacting manufacturing and trade due to people's engagement with the ongoing protests in Hong Kong. And we're talking about decisions and impacts on some of the world's largest companies. So the, I'm just going to do a really quick Roundup of some of them that, that we've seen in the last couple of weeks. First Nike store managers in China were reportedly sent a memo that told them to remove all Houston Rockets’s apparel and footwear from their stores in the wake of an antigovernment tweet from the general manager of the NBA team. Vans removed pro Hong Kong sneaker designed submissions made online as part of a custom sneaker art competition. I would just like to say I am currently wearing Nightmare before Christmas Vans, which are awesome.

Rob

The shoes are so cool. I mean, you know, they're awesome. Like Vans and Converse and a lot of a lot of these companies, like Nike, allow you to create custom shoes and basically what they're saying here is that if you create a custom shoe that references anything that's happening in Hong Kong, they're going to, if they're going to cut it. Fitbit is now looking to pull manufacturing out of China in January to avoid increased tariffs. But you got to think that there's also to decrease risk, not just, it's not just a short term financial move, but they've got to switch their manufacturing based somewhere else to, you know, for stability. Right. Then, you know, I, I know Apple's been talking about it, which, which would be a big move. And then going the other way. Chinese brands Anta and Li-Ning ended their sponsorship deals with the NBA. Blizzard, the U S global game company, World of Warcraft, removed a prize from Ng Blitzchung Waichung who tweeted controversial statements about Hong Kong. I mean they've since reinstated the prize, but like this is base, this is really interesting, right? This is basically the temperature is really hot, really hot, right? And it's, it's really hot because China has become such a big deal. You know, China is the second largest economy in the world now. They're growing very quickly and they're exerting global influence in a way that, I mean, very few countries are, are really capable of doing. And they're basically saying: “Our cultural values, you have to abide by them whether or not you agree with them, you have to abide by them if you want to do business in our large market.” Now on the global stage, this is something that the U S has been doing for a long, long time, right? I mean, in terms of scary stories, my favorite story in the last few months of U.S. exerting its cultural values and laws and foreign nations has to do with Toshiba, Toshiba, Japanese electronic manufacturing company had an accounting scandal, Toshiba. Oh really? Am I mispronouncing it? 

Peter

I had only heard To-sheeba.

Rob

I think I'm correct here. I think it's Toshiba. So you know what? You’re welcome

Peter

Rob is feisty on Halloween.

Rob

It's, well, you know, I'm scared. I'm rubbed up by this trade war. So you know, the U S a few months ago, Toshiba had an accounting scandal and Toshiba is not listed on the U S stock exchange. They don't, they don't like have business in the United States other than their products get sold and distributed here. And what happened was their stocks were basically boxed up and repackaged in a, in a mechanism called an ADR and then resold by companies in the United States to other companies and the shareholders of those ATRs sued within the United States using the exchange act saying that “We were fraud. You know, we were fraudulently sold these shares by Toshiba, they sued Toshiba. So these are shares that Toshiba didn't list in the U S didn't sell in the U S themselves. They were resold by somebody else. And Toshiba themselves are getting sued under the U S exchange act because of, you know, United States security law. And that can happen because the U S is a giant, right? So, so China is now doing that. China is now saying: “Look, we're also a giant and we have values and we have things that we care about. And if you want to do business with us, you better care about those things too. And I mean, that's, that's going to be friction causing for decades to come.

Peter

And let me ask you, because there's really the, and not being a trade policy expert there. There does seem like there's two parts of what we're talking about here. One is who gets to sell in China and who in China is willing to sell here? And then there's the supply chain thing, which is so important to so many brand manufacturers over here. And what do you do about that? And when that starts to get wobbly, that's incredibly meaningful for the, for the company. And how do you, how do you navigate that? And it takes years to be able to, to make that adjustment if you're going to shift it out.

Rob

Yeah. Yeah. And, and there's, there's not just the brand manufacturers. I think over 30% of Amazon marketplace gross revenue is Chinese merchants listing on Amazon marketplace. Right? So that's, that's a ton of revenue in the United States that, that Amazon's pulling in based on Chinese participation. So the, the intermingling of the supply chains and the inter using the Chinese manufacturing base and selling products into China as a growth market, all of those things are going to be challenged for any, anyone who's been making money off of them. I know that like a few large CPGs, if you look across global sales, they're flat or down and all of the growth in China's making up for the flat or down every everywhere else. And what does that mean for a CPG that wants to go out there and make a political statement that's anti-Chinese, right?

Like in the United States, Colin Kaepernick can make a statement on the field that's controversial and Nike can back Colin Kaepernick. And even though the president of the United States doesn't agree with everything that's going on now, he can still do that and they're not going to shut him down. And China, the same thing happens and Nike is shut down, right? And so the, a brand's ability to express itself and freedom of speech and things like that, that we sort of take for granted in the United States. If you're operating in China or you're using them as a manufacturing base, all of the sudden you've got a restriction on what you can do and say with regard to what they care about.

Peter

And, and don't, don't you think, I mean, I, I think I would imagine that in the, in the halls of, of risk management and PR at, at firms, they're looking at what happened to the NBA and thinking: “We didn't want to touch any of this.” But they have to align that some that have very strong sort of corporate ethos about how the world should, how people should be able to operate in the world. That's a real that's a real struggle I would imagine.

Rob

Yeah. I mean, on one hand you could say: “Look, this is just business where returning shareholder value, you know, we shouldn't have opinions about these things. This doesn't have to do with our primary line of work, right?”

Peter

But companies are people, Rob!

Rob

Look, I know. And then on the other hand, you've got, you know, Nike with Colin Kaepernick or you've got Patagonia basically saying we won't put someone's logo on a Patagonia vest unless it's a B Corp that's pro-environment, right? A nd so I think there, there is an identity aspect of this. There's a values aspect of this and I think a lot of brands haven't had to really confront it. Yeah. and now, now there's going to be hard trade offs.

Peter

Well, and especially so when, so much of brand now is built into digital experiences and, and social media driving a lot of these conversations and brands having to respond in real time as to what they're going to do with how they market themselves, where they market themselves, pressure from different constituencies among their, their consumers and buyers. It's a, it's a difficult line to walk.

Rob

Yeah. And it's, I don't think it's a new line, but the stakes are a lot higher. So I remember when I was in college in the late nineties, there was all this anti sweat shop stuff going on at that time and it's not really in the, in the limelight anymore. People are still talking about it, but you know, the Nike's of the world got cheap labor overseas and people would protest it. Right. And like it turned out fine for Nike and actually became an ambassador for better labor practices all over the world and stuff like that.  So, but you know, that was kind of small peas compared to what we're talking about in terms of the impact that this trade war and the political ramifications of voicing your opinion are going to have within the context of the trade war. So I dunno, I, I think it's scary. It's spooky. It's too totally spooky.

Peter

I agree. I agree. And Molly is, is yours as cataclysmically spooky?

Molly

I think so. Mine has to do with the categories that millennials are killing. Okay.

Molly

I’m going to take you through a list of 12 key consumer areas that millennials have been accused of killing. Okay.

Peter

Can I ask you where this list came from?

Molly

 Sure. CB insights. Who I, I love [inaudible]

Rob

CB Insights are great.

Molly

Said you know, these are areas that millennials have been accused of killing. I said, so part of this might be a little bit of a myth-busting.

Peter

Got it. Got it. Okay. Alright, we're ready. Are you going from the bottom up or are you going to start with like [inaudible]

Molly

'm going to go, I'm going to go from the top down and then we're going to get, get into these a little bit. Do you guys have any guesses on what they might be? Okay.

Peter

Oh gosh. No. Yeah, I really don't.

Rob

We're talking about whole categories of things. Not individual brands?

Molly

That's right.

Whole categories of things that they're killing.

Rob

Whole categories of things that they're killing.

Peter

It’s gotta be environmental killers, environment killers.,

Rob

Records. VHS tapes. No I think stick shift cars.

Molly

Number 1: Cereals

Peter

Oh, millennials are killing cereals.

Rob

Wh… Why?

Molly

Number 2…

Peter

Oh no, let's talk about that one.

Rob

Yeah, that makes me sad.

Peter

Yeah. What is it, what are they replacing it with? Just the, the like RX bars and things?

Molly

So the $9 billion cereal industry is in trouble. Sales have declined by 17% over the last decade. And some cereal industry executives tend to put the blame on millennials. Mintel found that 40% of millennials preferred not to eat cereal for breakfast because it takes too long.

Rob

It takes too long? That's the reason? That's the reason?

Peter

Then why are all of them… so many of them late to work?

Rob

I literally can’t. What's a faster thing to make than you open a box, you pour it into a bowl, you throw some milk on it and you start eating it. That can't take more than four or five seconds.

Molly

Research shows that instead of eating a bowl of cereal for breakfast, many millennials are opting for quick cooked hot grain breakfast sandwiches, fruit flavored smoothies and yogurt.

Peter

Okay. Alright. Alright, so cereal is dead. Go ahead.

Molly

However, there's you guys, there's a bright spot. There's just silver lining. And I think that you can actually see the silver lining around the Salsify office. Have you pay attention about 2:00 PM in the afternoon. Have you noticed what happened to the cereal then?

Peter

Oh, it's become a snack.

Molly

Yes. 82% of millennials say they are likely to think of cereal as a great snack.

Rob

When I was a kid, I mean we're, we're going, we're going to the eighties here. My snack was Captain Crunch. Oh yeah. And then when crunch berries came out, that was my jam. And mid-afternoon, a few handfuls of crunch berries

Peter

In the spirit of Halloween: Count Chocula was one of my favorites cause you ended up with chocolate milk afterwards and it was awesome. Yeah. Shaun Cronin, our production genius is nodding.

Molly

Number two. This is a little scarier. Okay. Casual dining.

Peter

Wait a second. Millennials don't, don't trust up isn't using all dining that they do

Molly

Casual dining. They just don't want to sit in booths.

Rob

Oh, all right, so casual dining. I'm looking this up now. It's chains like Ruby Tuesday, olive garden, Applebee's. That's specifically what, it's not that they're dressing down because that would be like all dining that millennials do, but it's, it's, it's those specific chains. OK. So they, so if you looked at like for example the consumption of awesome blossoms across the United States over the last decade, it would be is dropping. Yeah. Is dropping precipitously.

Molly

Yup. Okay. All right. Number three department stores.

Peter

Well everyone's killing department stores.

Molly

Yup. So we look at examples like Macy's I guess the new news that we might be able to blame millennials for it and they're fickle spending practices.

Molly

They are 6.4% less likely than other generations to shop in department stores according to her according to a Deloitte survey. With their spending power hampered by a student loan and debt and other obligations, they simply have less disposable income, which is interesting cause they're spending more on high end yoga gear cause that's enough.

Rob

Yeah, I was gonna say that doesn't, there's like a couple of leaps of logic there where you're saying, okay student debt plus millennials plus the departments. Still I'm with Peter. I think department stores are being being beaten on by about a hundred different versus in that.

Peter

And, and I would say one of the scary things about this segment is I think we're being really hard on millennials, but we're only following the list. We love you, millennial listeners, fabulous, innovative, creative people. So,

Molly

Well, you might not love them when I read the last,

Rob

We, we love you so far. Okay. 

Peter                                                  

Alright. Keep going. Keep going.

Molly

Okay. Luxury goods. Yeah. So the rationale here is they like luxury, but they want to rent it.

Peter

Oh, interesting. Yeah. Rent the runway.

Molly

Rent the runway. They don't, aren't as much interested in acquiring these things as they are at renting them or potentially getting them at more affordable prices. 17% of millennials have rented their clothing or accessories.

Peter

Wow. I'm going to have to start renting out what I'm not it in my wardrobe. This is…

Rob

I wonder if some of that though, if I look at luxury as a category. Yeah. Isn't, I mean, look at, and I don't know, but it, I would just assume that luxury is weighted towards people that are older for further along in their careers. Like if you're a 50 year old executive and your kids are in college or through college or close to college, you're probably throwing off more cash that you could, you know, buy nice things with. But if you're 30 years old and in your second or second job or something like that and you're just not making as much money, you're not buying the $5,000 handbag or whatever at that time. Right.

Molly

Well, I think I have a friend who's an expert in luxury and digital. And she would say that luxury companies like Tiffany or Chanel at some point in time were interested in acquiring millennials who wanted to sort of save up for something small. Right? So I'm going to put away $20 here, $20 there, and then ultimately I'm going to get sort of the intro Sterling silver Tiffany pendant, that's going to be like the amazing thing I bought for the year or one, two Chanel lipstick and this, you know, whatever red color that sort of gives me a chance to covet the brand and have a little piece of it so that later on when my spending powers increase that I can, you know, get that $5,000 bag. But maybe they're not even willing to do that at this point. I'm not sure.

Rob

You know, so little, a little personal story here. My wife's grandmother is the woman that wrote the book on 19th century Tiffany's flatwear, where like all of the old silverware sets that have beautiful designs of birds and fruit and wheat and stuff like that, edged in three dimensions onto the knives and the forks. And they come in like a sets of 128 things. And there's specific forks for like strawberries and every last little thing that you might possibly eat. She cataloged it. She's like the author on the definitive guide there and collected, you know, all her, all her life and a lot of her friends were into it and I mean that is at least one example where I just, there's nobody I know. I mean even in gen X that sits there and says, yeah, you know, Tiffany's flatware is, is these days what I want my house silverware like I feel like the, yeah, like my mom would Polish it all the time, but yeah, you know,

Peter 

It's not happening in my house.

Molly

Are you ready for the next one?

Rob

Are we getting cut off here?

Molly

I don’t mean to interrupt a conversation about silverwear.

Rob

Sorry. Sorry. Yeah, this is a serious podcast!

Molly

Cable TV. I feel like this conversation has been going on for awhile.

Peter

Yeah, yeah. That's just happened. Yeah. Okay.

Molly

Moving on, this is interesting because I had a personal experience with this one this past week. Gym! Single exercise is out and group classes are in for the lonely generation. Once a staple of the fitness landscape in America, gyms like Gold's 24 hour fitness and LA fitness are coming under industry threat industry. Insiders are pointing the finger at millennials. Millennials spend an average of $40 a month on fitness compared to $25 for gen X or the $15 for baby boomers. But instead of traditional gym membership, millennials tastes have driven a new trend towards fitness classes. They are willing to pay as much as $35 a class for a personalized high intensity workout experience like pure bar orange theory or CrossFit or some of these crease social fitness gathering.

Peter

Yeah, I do feel like there's, there's two components to their for, for, from my point of view, one is, and I think it goes back to kind of the rent the runway kind of thing that variety is just more interesting, committing a lot of money to a particular outfit that then you have to wear forever cause it costs you your weekly salary is so much less interesting than going: “Oh, I might, I might not want to wear that. You know, six months from now I'm just going to try and mix this up.” And I think that same philosophy exists in workouts that going to the gym, the same gym every day, trying to do the same workouts is so much less interesting than: “Oh, I'm going to go try that, I'm going to try that. You know, the passport kind of view.”

Rob

Can, can we get back to the, they call it the lonely generation. Is that a thing? The lonely generation?

Molly

Yeah. Well, so the antidote to the lonely generation is the idea of community. So we see social, social shopping, social sharing, you know, the digital mirrors where I can share a picture or something I've tried on with my friends Instagram, the idea of the antidote to the lonely generation is community based fitness format. Like classes and gatherings.

Rob

Yeah. I'm not questioning that a class is less lonely than going solo. But I mean I'm questioning it. It's like the lonely generation a thing? Is that what people are using? Yeah.

Peter

Using it. Well. So Huy is our production assistant from Northeastern university and he was nodding his head. Yes, we are lonely. So I think it's a thing.

Molly

Why?

Peter

I don't think we can dig in. That's a different podcast. So give me your last and, and ultimate scary, spooky thing.

Molly

Okay. I, I'm gonna I'm going to bucket these two things together cause they, they were the scariest for me. American cheese and raisins.

Peter

They're killing cheese and raisins?

Molly

American cheese.

Peter

Oh, just American cheese. Alright.

Rob

Millennials, I'm no longer with you.

Molly

See? We'll see what you feel at the end of this list. Wow. The end of the list is raisins.

Peter

And do they say why that is? Well, CB Insights. I want some, some understanding here.

Molly

One problem for sun made and raised in farmers, maybe that health conscious millennials are increasingly cutting sugar out of their diets. Raisins are high on sugar, up to 72% by weight, and they don't have as much vitamin C as fresh fruit.

Peter

Well don't eat 160 of them. Just have a few little handful.

Rob

I love those. Those little small tiny boxes. Remember those that you used to have in your lunch or whatever. Yeah, I love those guys. It was just a nice little snack.

Peter

Well, not to mention the mastery, pasteurized cheese food product of Velveeta is an American tradition or are we saying that's…

Rob

USA. USA.

Molly

I am a big fan of shelf stable cheese and I would hate to see it go away.

Rob

Well, American chesse…

Peter

Communist!

Rob

Well, you know, the thing is if I look at this, the cereal and cheese and I tried to find something in common with them, it's that there's, there's kind of more choice than there used to be. Right. So if you think about the type of the things that in broad strokes in the seventies or eighties you would have for breakfast, you'd have cereal and on the one hand, and then you had hot breakfasts on the other and the hot breakfast might be oatmeal, might be Grits, might be bacon and eggs might be toast. Right? And like those were your options. And now what Molly was listing the yogurts and the smoothies and like those are, those were not things 30 years ago. And so, I mean maybe they're just losing market share, not because people don't love cereal, but because when they're in, when you're competing with two things, it's different than competing with 10 things.

An you know the share of all 10 things, it's just out in cheap cheese, same sort of thing. Right now it's, you can have pepper Jack on your burger, you can have blue cheese on your burger, you can have, there's all kinds of cheese that you put on your burger now.

Peter

Well, I think ultimately it all is wrapped into this idea of, of eating more healthy and so making choices that are better for you or perceived to be better for you. And I could certainly put pasteurized cheese, food products, and, and perhaps raisins, although it breaks my heart into that category. So I think I get it. Millennials, you're trying to save the earth and our health at the same time.

Molly

Because you’re so lonely.

Peter

Well, maybe that'll bring us all together. Well, that's it for today's podcast. Come to the Digital Shelf Institutes LinkedIn page, or tweeted us @WinDigitalShelf. Thanks for being part of our community.