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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. Rob is here with me in studio with what's caught our eye on the industry news this week. Just for our audience, Rob is actually coming in while on paternity leave. Well, he does live around the corner so it makes it a little bit easier, but I still appreciate you being here amidst the new baby.
Rob: This is a welcome break.
Peter: I'm wondering it wasn't obligation or a blessed escape.
Rob: Probably the latter.
Peter: So besides the good news of a new addition to the Gonzalez family we do have some bad news to start the podcast off, but we'll get that out of the way and then put it into some perspective. So Rob, there was a core side research report that US retailers closed 9,300 stores in 2019, 35% higher than 2018. Expected? Unexpected? What are the, what are the takeaways for you from, from those numbers?
Rob: I don't think this is that surprising. I mean, if you go back to 2008 where there was a ton of store closings in 2008 actually not as many as 2019 it turns out 2019 even beat 2008, but if you go back to 2008, one of the stats that people would throw around is the retail square foot per capita in the United States being so dramatically higher than any other developed country. We just have a ton of retail space. And they were saying like, this is probably given, given e-commerce growth and in 2008 commerce was not the force that it is in 2019 has grown really, really substantially in the previous 11 years. But given e-commerce growth and given the really the, the large amount of retail square footage, people were saying that this is probably going to be the beginning of a overall shift.
Peter: A correction.
Rob: Yeah, a correction, right. And a lot of the retail square footage was put out in the 90s and early two thousands. So this isn't square footage that has existed for 80 years in the, in the United States, it's square footage that was relatively recently. There was a big boom in development and it hit hit a wall in 2008 and so I think we're just seeing a continuation of the overall structural shift that started back then.
Peter: Yeah, and it also seems to be a shift in and how and what people are buying. Even put e-commerce aside for a second, but just when you look at what led those numbers, it was Payless shoes closing 2100 of its remaining stores and a center retail group, which of its 781 closings had 650 dress barns. And it does seem like that is actually a digital, that is people are shifting their buying to online and just not being that much brick and mortar it just doesn't make sense.
Rob: Or look at like Jim burry was 749 of those, they went bankrupt. Clearly that's a business that's getting crushed by e-com. Yup. Then you have others that are, that are big in the lists, like family dollar closed, 359 stores, but dollar general open 975. So this is just a case of one within the, within the dollar, the discount segment, one of the retailers, it's just dominating and it's causing another one to shut down.
Peter: Well actually Family Dollar opened 202 new locations may also be, you know, they're shifting around where they have their stores dollar tree up 348. So apparently as long as you have dollar in your company name, marketing tip for today, just fit dollar into your company name and you're all set.
Rob: So that actually, I think the more interesting trend that I'm, I'm looking at are the change in format that retailers are experimenting with. Right? So Macy's for example you know, had had some rough earning statements this year, but there are stores that are there, 50 new experimental stores with new new footprints are performing well, right? You look at like a CVS or a trader Joe's, they're experimenting with new types of store formats that are performing a lot better than their traditional ones. So CVS closed over a hundred stores this last year, but they also are opening 115 this next year. So it's not that CVS is struggling and they're shutting stores that CVS is shifting away from underperforming locations and underperforming format and doubling down on new formats. So I think what we're going to see is we're going to see more, especially with the rise of the urbanization in the US we're going to see more smaller, smaller format stores. We're gonna see a lot more experimentation on neighborhood stores. We're going to see a lot of the really, really large stores maybe shift to smaller formats. And you're going to see a lot of, I think that type of thing happening over the next few years. So I would think that these, my guess is the gross number of store closings, that number stays high, but also the gross number of store openings. I think that number's going to stay high too.
Peter: Yeah, yeah. And I think if, if that's sort of the path of sort of the changing of store formats and what is the brick and mortar retail experience when we shift over to what is that opportunity for brands, like how can they get their margins back, their, their margin mojo back? And there was a really a compelling piece of research that was put out by IBM and the national retail foundation at NRF this week. And a great article by Charles Bret at the enterprise times. And it, the survey asked 19,000 consumers a bunch of questions about what compels them sorta to pay more and how are they shopping? And, and the, the really interesting thing,
Peter: And, and the, the really interesting, what jumped out at me and particularly through Charles Brett's article was the coverage about that there's a real trend towards purpose-driven shoppers, people that really care about the sustainability and impact of the products that they're buying. And the really, and you know, we've heard that for awhile, but this is research that actually shows they are willing to pay a premium for it consistently. So here's some of the numbers. IBM set in this study that 70% of shoppers pay an added premium of 35% or more per upfront cost for sustainable purchases. So they're, they're, they're, they're paying more, they're being charged more for sustainability and 57% are willing to change their purchasing habits to help reduce negative environmental impacts. 79% stated it’s important for brands to provide guaranteed authenticity, like certifications when they're purchasing goods. So what that's telling me is that there's a rising number of consumers that care and care strongly enough to pay more money for something. And you're not finding that a lot in our economy right now. Like people willing to pay premium for things there. I mean, the dollar general stores are a perfect example of the growth that's happening there. So Rob, what do you think about that trend and do you see it as a margin opportunity for brands that, particularly in CPG, but I think even in, in other sectors, could be thinking about?
Rob: Well, I mean, let me, let me first state that it seems, especially the, the younger people, the gen Z's and millennials care a lot about every little thing and it just seems exhausting to me. It just seems really, really hard to wake up in the morning and like really care about everything. But, but secondly,
Peter: (Laughing) They’ll run out of that energy soon.
Rob: I got a you know, I've got a newborn at home, I just care less. I'm just too tired. The, the second thing I'll say is I'm a little skeptical of these surveys because people want to, are going to answer survey questions based on the person that they wish that they were like the values that they wished that they had? So if I said, Hey, Peter, would you be willing to spend a little bit more money if it meant that the thing that you were going to buy is going to make the world a better place and, you know, remove, reduce climate change and all that sort of stuff?
Rob: You're going to say yes on the survey. There's no question. Right? But so that, that cynicism aside, you do see some brands that are all right using that for more and more as a marketing play as part of their identity. So Patagonia for example, I mean they really walk the walk there. They won't even stamp Patagonia fleeces like, you know, you can't buy a Patagonia fleece and put your venture capital firm’s logo on it anymore because it will only allow com companies that are B Corp's that are pro environment that do have environmentally friendly practices. To take the Patagonia fleeces and stamp their logos on it? Right. And so I think that there are companies like that that walk the walk in for whom they've got a loyal following, a tribe of people who care about those things and are willing to pay the Patagonia premium to, to stay consistent with those values.
Rob: There's a, there's other brands that are doing that a lot more that also I think walk the walk. One of, one of my favorites in terms of the direct to consumer brand, it's called peak design. They make bags, everyday carry, camera gear, things like that. They're part of the 1% for the planet climate, climate neutral, the conservation Alliance. They've got a bunch of these certifications for the manufacturing process and marketing process and shipping process for, for their, their products. And they, they contribute a bunch of their proceeds back to environmentally friendly causes. So they're, they're clearly walking the walk as a business. Some of these stamps are relatively new this year and I've been I've been a customer of theirs for years and years. And my being customer there is, is actually independent of, of their environmental causes. And I remember getting a customer surveys from them where they would ask, you know, are you aware of peak design’s membership and for example, the the one 1% for the planet club, right?
Rob: Yeah. And I would say, no, I don't even know what that is. And I think that's true for a lot of people, for a lot of products, right? So they're trying, I you, it's clear that they're trying to get the message out and they're trying to use the power of their brand along with the power of people caring about these issues in conjunction with each other to drive, I think change for the planet. Also more brand loyalty. I think the result can be higher margins but but, but getting people to actually put their money where, where their, where their survey results are I think is a little bit different. I think at the end of the day the product quality is still number one. And environmental and other social impacts are probably secondary in terms of, of the vast majority of purchases that people make.
Peter: The, the operative term there is vast majority. And so I think the question for me is what trend are we on? And I think certainly when you look at, at particularly in CPG, food and grocery, when you see the rise of, of organic as a share of, of basket and things like that, you are seeing a shift towards, towards that kind of healthy eating. The survey had very important and moderately important. 78% of people want to, to deal with companies that offer clean products, 72% that use organic ingredients, et cetera. So I think, I think we have signals that that's where it's going. And so a few years from now when we do a re look at this on the podcast, I'll prove to you that's happening.
Rob: Yeah, it's, I mean, at the end of the day, I mean the, the vast, I think most purchasers for, for most purchases are looking at product and price and, and these other issues are secondary, right? And there's a minority of people for whom it's a cohort. It's a cohort, right? So I think that if you take this specific issue aside. Building a product and marketing too, a specific group of people with an object that really meets their needs is a way to get higher margin, period. Right? And so there are people that care about climate change and you can create products, you know, food products, beverage products, bags that cater to their values or their particularly strong held beliefs. Though there are some people that'll be willing to pay more for that, I think the challenge with a lot of these approaches is how big a company can you be based on that. Right? So you've got mass market CPG products which have to appeal to millions and millions and millions and millions of people. Yeah. And millions of millions of millions of millions of people don't have the same heartfelt core beliefs…
Peter: or the resources to spend that premium.
Rob: Or the resources to spend that the premium. And then on the other hand you've got like more niche brands that can be better targeted and solve a, solve a specific problem with a specific value proposition more directly and can get higher margin for that. And so, you know, this is the, I think that's the overall picture here and your, what they're just calling out is that, you know, yeah. There are some people that care a lot about something that are willing to pay a little bit more for it. That's true. But you know, bridging that to, to a mass market, I think is difficult.
Peter: Yeah. Well, I think more and more it also does though to your, I think somewhat orthogonal to your point, I think it does mean that big brands being able to have a much higher test and learn of, of different assortments. Because if you can get a bigger margin, even out of a smaller niche, that's an interesting, could be an interesting part of the business and figuring out how to spin those up. You know, that's why there's a lot of the acquisition of, of smaller D2C brands that have done that kind of niche work. And then how do you fold that into a bigger CPG organization?
Rob: Yeah. I, I look at this and another way to look at this and, and the way that I do it in the back of my head is I think this is the end of the one size fits all product company. Yeah, yeah. Right. So, you know, you brought up food as just an example. People are buying more organic. One of the big trends the last 10 years has been a move to alt milks, right? Yeah. So you've got oat milk is on the rise right now, with the almond milks and you know, all that type of stuff and it's, it's really cut into dairy and people in their minds, and the marketing is that these alt milks are healthier and in dairy milk, right? No, I, I don't think that that's true, that the data's all over the place on this stuff, right?
Rob: It's just one of these people, they'd seem, there’s seems to be a trend where people tend to believe that open milk is better or at least a certain kind of people. And so there's been a bunch of bankruptcies in 2019 of milk distributors and milk manufacturers from dairy. Now, on the other hand, there are people who say, well, you know, I, I don't, I don't like dairy or I don't like the environmental impact of cows and therefore I'm doing oat milk. Califia farms just raised another 200 some million dollars and, you know, booming. Right? On the other hand, there are people who say, you know, I love milk, but skim milk is gross. Like, I want whole milk and I want raw milk and I want these other things, right? So more on the paleo side of things and, and that's also a different market and the 2% 1% mass market, one, one kind of milk for all of America has been.
Rob: And so they're there. It's not that there’s a trend that people are paying for more environmentally friendly oat milk. It's that people are fragmented from one or 2% to now 50 different options, some of which happen to be oatmeal because some of which happened to be more or, or heavy cream or raw or you know, and, and that, that's what we're seeing here. And I think that's true for almost every product category where there's just an explosion of choice and there's an explosion of, of consumer preference and the brands that are heavily targeted to a single consumer preference with good buyers, with deep pockets can get margin out of it.
Peter: (Laughing) The baffling thing to me is I've stared and stared at an almond and I cannot find the utter for the life of me. I still don't know how they do that. Yeah, I know. Moving on. So the, so just to close this out, I mean IBM obviously had a stake in this research so they had a stake in the outcome. And one of the things that they, that they discovered through which certainly Google has done similar research is that sort of the always on consumer that's shopping in micro moments that are, that are shopping when when they need, they need to get in and out of the store fast. They need the experience to simplify their lives. I mean, basically people are busy. And so IBM's point is you have to use big data and blockchain to get the content in all of the touch points that allows you to make your considered shopping decisions in the moment. So not a huge surprise there.
Rob: Yeah no surprise there. Yeah, I think this is, you know, IBM being IBM. I mean, I actually, my, my own thesis on the shopping experiences that are winning are not the ones that are, you know, going the extreme on big data and blockchain. They're the ones that are actually going more experiential. So there, there was a great article in long reads this last year called the man who's going to save the grocery store. And the shift is you look at the grocery store, the whole center aisle is replenishables that you can buy online relatively effectively and inexpensively. So what do you do with that square footage if it's not the, if it's not, the replenishable is anymore and people are experimenting in grocery with having more prepared foods, having wine tastings onsite and this type of stuff. And the grocery store, it doesn't become a place where you go in and get out and move as fast as possible.
Rob: It becomes a place where you go and it's like nice to be there, you know. In the Berkshire's where my wife's family are in Western Massachusetts, there's a grocery store called Guido's, which is exactly like this. And they've got prepared foods like different sauces that they make on site with chips and tasting. And they'll talk to you about what's in the salsa. And then you walk over and there's a wine tasting. It's Portuguese wine this week and they'll walk you through it. And so you go in there and I spend way more time in Guido's and I enjoy the time there and I spend a lot of money and the grocery stores that seem to be doing a really good job with margin are like that. You know, trader Joe's is another example. Trader Joe's because everything's private label, you don't recognize anything. So, and they, they're, their assortment has such a high turnover rate that you go in there and…
Peter: It’s always discovery.
Rob: It's always discovery. Or Costco. People love Costco ,and Costco is killing it by the numbers because people go in there and it's, it's always different stuff. And what am I going to find.
Peter: Discovery online is particularly, I mean except in the social channels, which I think is built for discovery, like website experiences, discoveries, just a horrible experience.
Rob: Well not all of it. I mean Amazon is, Amazon's built for spear fishing, not, not browsing, right. So Amazon is built for transacting, not discovery. Other websites like Wayfair or Home Depot are actually quite good at discovery. So it sorta depends on the category it is. It depends. It depends on the product. But, but even so, I just, I, you know, I look at IBM and they're saying, well, you know, you've got a big data, this stuff out. I think, well, you know, me, maybe not, you know, me.
Rob: Maybe the, maybe the example, the lessons to be learned here are not big data. It's not like going cashier lists. It's not removing the last little bit of friction that, that happens to be there. It's about instead taking a step back and thinking about, wait, how do I make this exist? I'll give you, I'll give you a basic example here. Like a bunch of years ago, TJ max, maybe 10 years ago or so, switched to the single line in the checkout, right? Where, you know how there's that long sneaking line and and then whatever the register is that's open, it's like go to register one, go to register to whatever that long snaking line, hugely profitable for TJ Maxx and it represents the opportunity for a lot of new categories to have impulse purchases within the TJ Maxx experience, right? Best buy does this. There's a, there's a grocery here in Boston called Roche brothers, which has like a really, really long single line checkout.
Peter: Yes, I've stood in it.
Rob: That's it's, but it's, but it's super curated and everything in that line is like, Ooh, what’s that it’s super interesting? I want to buy that. And yeah, I always, I always end up spending five or 10 bucks in that line just because I'm standing there for a bit and it's actually interesting stuff. And and, and that's just an element of like, well, you're going to be waiting in line anyway. Let's make the line experience interesting. And you look at like a whole foods as just an alternative. The whole foods checkout experience is terrible and, but it's, there's clearly room for them to innovate on experience and maybe maybe take some lessons from some of these other stores. So like my, I disagree, I think with IBM in this point I think there's still, there's a lot to be gained by bringing the human element back into the store versus simply just trying to run data and optimize things.
Peter: Yup. Yup. I agree with you. And in this vein of where does more money come from for brands and retailers, the second story that really stood out to me this week. We keep bringing up Megan McDowell and Vogue business, but she just keeps nailing some good trends. I know. So this week it was about customer service becoming a revenue driver and she talked a bit about some research and blogging that Harley Manning, who's a research director at Forrester has been doing about that revenue should become the number one focus of customer experience professionals in, you know, in 2020 and what they're, what she was talking about is really the rise of tech around being able to enable that experience in customer service across all of the touch points that now exist. I mean, the, the list of of ways in which customer service organizations now need to connect with their customers. There are so many touch points now across chat, across phone and email and in store when you're, you know, when you through online iPads or things like that.
Peter: So there's tons of places where this is happening. It's also happening on Instagram and Facebook. So being able to to use tech to power those interactions in some ways, in some cases, being able to allow AI to power some of those earlier interactions and saving your reps for those things which are higher value integrations. And then there are also capabilities which allow a rep that's, that's on the phone or having a conversation with an online customer to see what, to sort of visualize their online shopping journey with that retailer and see what they've bought before. Almost presenting it in kind of an aisle picture. Like over here they bought this $2,300 jacket and it's often in these cases that we see quoted for luxury retailers, but it's a very interesting thing that allows, you know, an experienced rep to be able to do some upsells, to be able to be coached by the app itself, to be able to give advice in the moment to try and get an upsell. And I was wondering, you know, I know the article caught your eye as well, and I was wondering what your takeaways were.
Rob: I, I generally, I mean this is, this is ironic because I'm a tech founder, but I generally have skepticism when people say, Oh, there is new technology for customer service and therefore it's going to solve the problem of customer service and get better experiences. And if only the customer service rep that picked up the phone knew about these other purchases and the Facebook response, right then they could have, They could've provided, provided better customer service and satisfaction. I, you know, I don't think that most of this problem is a tech problem. I think some of it is, I mean, I think from a, from an old company data optimization perspective, office of the CIO, the office of the CDO is spending a lot of time right now and brands and retailers, on next generation CRM software to get a 360 degree view of who's purchasing their stuff. And I think from a data analytics perspective, product strategy perspective, marketing perspective, that's great. From the individual experienced perspective on, on a touch point with a rep being on a phone or answering an email, I don't know, I don't know that it's a data problem, right? I mean, I just think about my experiences with Amazon and where I've got something to return. The person doesn't have to sit there and know everything about me, Amazon will just take your stuff back and they'll do that for anybody who shops there. It's, it's just like they have a blanket rule that says, look, somebody wants to return something. Yeah. Let them return it. You know, we'll give him the money back. It's no problem. Right. And so I think for a lot of a lot of these folks the answer is really to just to get back down to basics, you know, put the customer first, think about what investing in the customer for the long period needs and, and put some effort there. Like I, I think about like a great example of this Dorel Juvenile group maybe four or five years ago, shifted marketing spend from brand marketing down to post purchase marketing support. And so what you would do is every single car seat that you got from Dorel juvenile came with an accessory that you weren't expecting. And it came with free video help and it came with a, with a hotline that you could call to, to have a real human being in the United States, you know, native English speaker walk you through the car seat installation.
Rob: And as a parent, the first time you install a car seat is really confusing. So what they, what would happen is the first time parents would buy the Dorel Juvenile car seat, they'd call, they'd be confused, they'd call in [inaudible], they'd have a human being walk them through it. A person would be able to text photos, is this right? Is this right? Did I get it in right? And so they have that experience and then their repeat purchase for the, as they needed to upgrade their car seats, as they had more kids, they'd go back to Dorel because they had such a good experience installing that car seat and they felt supported by Dorel and they felt like Dorel really cared about them. Right. And that that's not a tech problem. It's not technology that's making the Dorel juvenile car seat purchase experience better, in that case, it's that they just decided, they looked at their customers and they said, what's the hardest thing about our product and what's the hardest thing about our product category and where's the experience lacking and let's invest in that.
Rob: And they did. And I think in most cases, whether for manufacturers, that type of attitude is going to yield better results. Dan, a magical tech button, you know, I mean the CRM data I think has its place, but it's not, you know, it's not necessarily going to yield better conversations or emails. Well better SISA.
Peter: Yeah. I mean, I think what's interesting, so when you talk about better conversations, you know, you look at a tool like Powerfront, which is an Australian startup, so they're the ones that are, are presenting, sort of that visualization to the agent of what customers have bought before. And sort of what, which I think is, I think is super interesting. I can imagine as an agent to look at a list of what people have bought versus being able to sort of see the relationships between the products are super interesting. But also Powerfront found that among its fashion jewelry and cosmetics clients that the online chat conversations just generally led to conversion rates of 16%. But when a customer service rep proactively reached out conversion rates climb to 26%. So I feel like in a sense that's allowing the online experience to more mimic the physical store where someone reaches out to see if you need help and by power, by tech, being able to direct in a very, busy online service environment to be able to direct a chat representative towards somebody rather than just being totally passive. This is coming from the vendor, so being a vendor I know what you mean, but, but that, that's, I can see the, the potential there in increasing sales. I mean, I even think of, you know, even even us that are wanting to deliver more values for our customers at Salsify. I think every company does some kind of upsell effort and I would imagine the technology would have power and being able to hone those and particularly across a wide base of customers and conversations could help direct that effort in a more efficient way.
Rob: I mean, I bet just to play devil's advocate here, let's say that you've got live chat. I bet that if you just randomly picked people and said, Oh well I've got so, so many customer service folks that can host so many chats simultaneously and if there's an opening, just pick somebody who happens to be live on the site at that moment and then you use that as like one test versus you know, an AI driven way, well this person is going to benefit more from chat than this other person. Like my guess is that the, the randomization does justice well, right? I have a little bit of skepticism when I, when I see the big data and AI and ML and, and like I studied AI in college. I helped host the international conference of machine learning at my university. Like I, I, I know that space.
Rob: I'm pretty skeptical on some of some of these claims that people are making. Sometimes just you know, randomization and just getting, getting like the proactive chat, just doing the proactive chat more often. That's going to, that's going to be enough. Right. And I look at the purchase history stuff too. I mean I look at Amazon, let me, let me tell you the last few things I purchased on Amazon and you tell me as a customer service rep what you would do with this. I bought trash bags. I bought a charger. I bought an alarm clock, I bought a fantasy book called dragons Autumn Twilight, which I read when I was 12 years old and it's totally awesome. I bought a DVD case, I bought earplugs. I, I'm just saying like if, if you had this information it, it's not going to change how you respond to me. You know, it's like, okay.
Peter: Yeah, no wait. So you have a flashlight, and a book. So you're reading a book in bed to hide from your new expanded, newly expanded family. And the fact that you're still using DVDs and wanting to store them makes me worry for you. So that would be my takeaway. And so I would, I would send you some sort of therapy or relaxation techniques to tie into all of what is clearly a scattered unclear way to buy all your things at Amazon. So that is our show for today. Please do follow us on the institutes LinkedIn page or tweeted us @windigitalshelf. If our content is useful, please leave a review wherever you get your podcast. And thanks for being part of our community.