We're back with Season 6 and we kick-off with a two-part episode focused on Steve's annual retail predictions. In Part 1 we cover his first six, which center on the growing importance of physical store experiences in a digital world, a notable increase in C-suite changes, a profound reset among the digital disruptors, initial growing pains in the retail media space, looming big changes with Amazon's physical store dreams, and an acceleration of "the collapse of the unremarkable middle."
We're back with Season 6 and we kick-off with a two-part episode focused on Steve's annual retail predictions.
In Part 1 we cover his first six, which center on the growing importance of physical store experiences in a digital world, a notable increase in C-suite changes, a profound reset among the digital disruptors, initial growing pains in the retail media space, looming big changes with Amazon's physical store dreams, and an acceleration of "the collapse of the unremarkable middle."
But as is our custom, we kick off with our hot takes on the week in retail news, including what to make of some of the big macro-economic reports that emerged during out brief hiatus and what updated guidance from the likes of Macy's, Lululemon, and others portends for 4th quarter earnings. We then examine the sad story of Bed, Bath & Beyond's probable bankruptcy filing before turning to more upbeat news from Five Below.
We wrap things up with what China's grand re-opening might mean for the world of retail, before making a return visit to the Wobbly Unicorn Corner to discuss the tales of woe from the likes of Stitch Fix, Everlane, Morphe, and Boxed.
Presented by MarketDial.
About Us
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks , The Food Professor with Dr. Sylvain Charlebois and now in its second season, Conversations with CommerceNext! You can learn more about Michael here or on LinkedIn.
Be sure and check out Michael's latest venture for fun and influencer riches - Last Request Barbecue, his YouTube BBQ cooking channel!
Michael LeBlanc 00:06
Welcome to Remarkable Retail podcast, Season 6 our season debut episode presented by MarketDial. I'm Michael LeBlanc.
Steve Dennis 00:13
And I'm Steve Dennis.
Michael LeBlanc 00:15
Well, Steve, I'm very excited about 2023 and the year ahead, we've already started the year off well. We've been renamed, I guess you could say for 2023 to the Rethink Retail Top Retail Influencers list. So, that's very exciting for us.
Steve Dennis 00:29
Yeah, I was gonna say, not, not just us, but lots of our friends and colleagues. And I think I counted about, I don't know, 25 folks on the list that have been guests on the podcast. So, that's kind of fun.
Michael LeBlanc 00:40
And we're blessed to already have lined up a great roster of retail thought leaders ourselves for the podcast. And we're on the road together literally around the world to expand our reporting and insights. And our friends at MarketDial are back as our presenting sponsors for another season.
Michael LeBlanc 00:54
So, to kick off this season, we start where we must make 2023 predictions.
Steve Dennis 01:00
Yeah, it has become an annual habit of mine or practice, I guess I do predictions. And this year, I've got 12 main predictions, and then three, bonus more of a kind of long shot predictions. And because there are so many, and we want to give service to each of them and have a little bit of a conversation, we're going to break this into two parts. So, we'll do six this week, and six more next week plus the bonus.
Michael LeBlanc 01:29
Exciting, all right, something different. We'll get to that a little later. Let's start with, let's start with the news. We've been off for about a month and a half, a little bit of catching up to do so we're not going to dwell on too much history. But what's, what's top of mind for you in the recent news that you want to chat about?
Steve Dennis 01:45
Well to be a lot of things kind of are reading the tea leaves on where retail is headed. And I guess in the broader context of where the economy is headed. Things seem to be slowing down. The holiday, you know, in terms of sales reports seems to be about what people expected, maybe a little bit on the lower side. We'll talk about a couple of retailers in a second. You know, inflation is still a factor. Though starting to moderate. The thing that I think is just so interesting to try to figure out is here in the US anyway, the unemployment rate dropped to three and a half percent, which is the lowest it's been in 50 years.
Steve Dennis 02:02
There are a couple of others, you know, I'll get into maybe some technicalities. A couple of other things that folks that know more about this say are things to watch, which is that the hours and temporary jobs have gone down. And of course, I'm sure many people are familiar with some of these kinds of high-profile tech layoffs at Google, Salesforce and Amazon. But in the scheme of the whole market, they're actually quite small. So, I think that, at least here in the States, the Federal Reserve is really counting on, frankly, some weakness in the job market to help bring inflation down. So, we'll see where that goes.
Steve Dennis 02:55
Getting a little bit into a couple of specific retailers that shared some information over the last few weeks, probably the biggest one was Macy's, which was, they were spending a number of months, I think when we talked about this multiple times on the podcast talking about you know, we're managing our inventory so well and things are on track. And then they came out and warned that actually the holidays are looking a little bit softer than they were anticipating. And they also announced they're going to be closing four stores, which is not huge in the scheme of things. Lululemon and Chico's both warned more on the margin side, which is not too surprising, because we know about the excess inventory levels. And so they're gonna have to mark down to, to move some of that through even if the overall sales pace isn't exactly what they want. But then, you know, on the other hand, you had American Eagle and Abercrombie & Fitch guide up saying that things were better for them. So, it's, it's kind of a tale of two cities, maybe, I don't think we're really going to know, until we start to see the quarterly earnings reports. Like it's one thing to look at sales. It's another thing to understand the profit picture. And I don't think other than the Lululemon warning on margin, we've got much insight to that.
Michael LeBlanc 04:14
Yeah, it's interesting here on this side of the border, we were heading into a pretty good week prior to Christmas. And then we had either bad weather or the threat of bad weather. And it really grounded sales to a halt. And I haven't seen the numbers yet, for the Boxing Day week, you know, the week after where it was good weather. So, maybe there's some pent-up demand. But generally, we're seeing I think we're seeing the results of a beginning to, or a continued shift to experiences versus buying and I think it really aligns to I'm gonna buy something that's remarkable or something I really need or I'm gonna go stick my toes in the sand and travel. So, we'll see how that plays out for the, for the course of the year. All right, so let's, we've talked about a couple, let's I guess, I don't know, let's talk about Bed Bath and bankruptcy. You know, I think we're, they seem to be, you know, when they start saying bankruptcy is a strategic option. I think that's a one-way ticket to Palookaville. But what do you think?
Steve Dennis 05:13
Well, just a string of bad news that started I guess a few months ago, when Mark Tritton left. I guess some people may think that's good news, I suppose. But no, this, they reported their sales down, I can't even remember the number 30 something percent I mean it was a terrible, terrible number. Laid off some more people talking about more store closings, all signs seem to be leading to a bankruptcy filing. And I you know, I think most people think that, that you know this is a brand that's not going to be around. The bankruptcy is going to lead to liquidation, which is just, you know, it's pretty amazing how far some of these category killers have fallen, which is probably worth a whole separate episode. We've also got Party City, which is not you know, nearly as big a retailer, but kind of another Superstore, category killer type player, that also looks like they may be filing and I think also, the speculation is that they may not make it out of Chapter 11, either. So, we'll talk about this more in the predictions in terms of the collapse of the middle. But I think, you know, these are troubles that have been brewing for a number of years, arguably exacerbated by some management moves. And you know, it's hard to do a turnaround when the economy is a bit shaky as well. So, a difficult, difficult road ahead, I think for both these brands.
Michael LeBlanc 06:31
Now, on the other side of the coin, we see some growth, right, talk about Five Below.
Steve Dennis 06:37
As much as we do see lots of retailers getting into trouble, there are plenty of s-, cess, success stories, and I think maybe we don't lift them up quite as much as we should. But Five Below, which is a retailer that has been growing quite dramatically over the last several years and, and posting some pretty good results, they had some big news. First of all, they are going to convert more than 400 stores to this newer format they have which is called Five Beyond, which is kind of an upscale version of the Five Below stores, which are, you know, much more kind of in the Dollar Store-ish territory.
Michael LeBlanc 06:58
Yeah, yeah.
Steve Dennis 07:0-0
So, as well as just continuing to build new stores. So, a strong growth story there. They also had their sales up 11%. So, you know, we've been talking about the last several weeks, some retailers or just kind of the general holiday period being up, you know, maybe more six or 7%. And maybe a lot of that is inflation. Well, here's a retailer that's clearly performing quite a bit above that rate of inflation. So, I think it's a brand that's definitely gaining market share. So really, really a cool story. And they kind of, you know, came out of nowhere, they got on my radar screen a few years ago, and hadn't really heard much about them. And now here they are kind of moving up the ranks of best performing retailers.
Michael LeBlanc 07:51
So, big news out of China, I mean, really big news out of China, where they've abandoned it seems wholesale, the zero COVID. And now you've, you've got an entire nation with, you know, rampant COVID outbreak, but it does mean that they're opening up the borders, and, and the Chinese are going to start traveling again, I see a couple of impacts. What do you, what, what do you make of all this?
Steve Dennis 08:12
Well, first of all, it's just an extraordinary turnaround, right? I mean, yeah, they seem to be really doing this grand reopening. And so that I think both impacts you know, there are a lot of these issues that have been addressed, some of the supply chain stuff. It means yes, more Chinese tourists, which has been important. China's a huge market for many luxury fashion brands. And so,
Michael LeBlanc 08:29
Yeah.
Steve Dennis 08:30
That I think will have a significant impact on many well-known and not so well-known brands. I think one of the things that's going to be interesting from a (inaudible) macroeconomic perspective, is this as good or bad for inflation? And I think the answer is probably that it really depends on which kind of categories you're talking about. I mean, the demand for gas, the demand for construction materials, all of those kinds of things, could have an inflationary impact. But you know, the supply side of it could also be favorable for taking inflation down. So, maybe we should get an economist to talk about this. I don't know if it's just an idea I'll throw out there.
Michael LeBlanc 09:12
(Crossover talk) Just an idea, global leading economist from Deloitte.
Steve Dennis 09:16
We could, we could.
Michael LeBlanc 09:18
Yeah, we'll see, we'll see. All right, let's take a, let's take a walk over to the Wobbly Unicorn section. I think I might have to come up with a new soundtrack because I think you're getting a bit wobblier or maybe this one. (Eerie soundtrack) Maybe that one there.
Steve Dennis 09:36
Or maybe a thud of, of (soundtrack) no that's, that's too negative.
Michael LeBlanc 09:41
(Crossover talk) I don't think it should be that negative but, what's going on? There's lots of news coming out of some, some unicorns and not much of it's great.
Steve Dennis 09:49
Not to do a spoiler, but we'll talk a bit more about this in the predictions. But yeah, several high profile disruptor brands, we've called them Wobbly Unicorns because they, many of them were previously valued in the unicorn range or greater, have continued to have problems. So Stitch Fix, in which we talked about them maybe a month ago. They have even had more layoffs, they booted their CEO, who hadn't been there too long, and the founder, Katrina Lake has returned. And they look like they're really struggling to figure out how to move forward. Everlane, another brand, we talked about them, I think, also not too long ago, because they did some additional fundraising. But they are now also engaged in some cost cutting and layoffs, pretty significant, I think close to 20% of their staff. And then the Morphe makeup brand. And when I originally put this on my little list for the news, it was going to be talking about their decision to exit the physical stores in the US market. They had about 20 stores in the US, and they have been expanding, you know, another one of these digitally native brands that was moving into physical retail, and had a bunch of high profile locations well they announced they were closing all their US stores, which gives them still a few internationally. But then just I think this morning or yesterday, they announced that they are filing for Chapter 11. So, their future seems very much up in the air. Box, which is also a direct-to-consumer brand that sells household essentials. They've been struggling as well with profitability in their sales growth, I guess it is, find out so they've decided to pursue strategic alternatives essentially putting themselves up for sale.
Michael LeBlanc 11:26
You know love that code word, pursuing strategic alternatives that's the same code word as spending more time with the family, though to, (crossover talk) two, I would put the two in the same category.
Steve Dennis 11:34
Yes, exactly. Not a rosy picture for several of these brands, all of which I think we're, were valued north of in fact, Morphe was valued, I think in their last fundraising round at $2 billion. And so, I'd say they have fallen a bit from that lofty perch.
Michael LeBlanc 11:51
MarketDial is an easy-to-use testing platform that emboldens great decisions leading to reliable, scalable results. With MarketDial, you can be confident in the outcome of your in-store pilot initiatives before rolling them out across your fleet. In a challenging retail climate of supply chain disruption, labor shortages and dynamic customer behavior, the need for reliable insights has never been greater. Validate your remarkable ideas with MarketDial’s in-store testing solution. The proof is in the testing, learn more at marketdial.com. That's marketdial.com.
Michael LeBlanc 12:18
This is actually one of my favorite episodes of the year because I get to, you know, we get to chat about I get to hear how you're thinking about 2023. And then the year ahead, I'm sure both of us are asked many times, you know, what do you think, and what predictions and I wanted to start by asking you a bit about your tradecraft. Like when you sit down and say, Okay, what are my big picture assumptions from which I will draw, you know, some detailed 10 things that I think are gonna happen? Like, what's your tradecraft? How do you, how do you come up with predictions? And where do you and what's your starting point?
Steve Dennis 12:52
Well, I guess the two main things I do, I do keep a running list of ideas, not just for predictions, but I have some notes that I take to kind of remind myself of ideas that I want, I want to research more or explore more, or what have you. So, I will say that I read other people's predictions, sometimes it helps me think about a topic maybe that I hadn't thought about as much or just hear other people's perspectives. And you know sometimes I agree, sometimes I disagree or have a different take on it. Those are really the two major paths. And then I try to go through, and you know boil them down to about a dozen that I think cover a range, are hopefully not just what everybody already thinks. And then I'm also like, well, I don't want to include some things that might make me look like an idiot. But as we know, from our last year, that, that, that does happen, so not all of them are, are guaranteed to be true. So,
Michael LeBlanc 13:46
Yeah, yeah, yeah.
Steve Dennis 13:48
So, "buyer beware".
Michael LeBlanc 13:51
All right. Well, let's start with, with some of your assumptions. As you sit back and look at the different things that are happening. What, what are some of those initial assumptions that you're, you're starting to talk about? And you know, we alluded to, some of them are, some of them are certainly framed in our news. But give us a kind of a quick overview, and then we'll, we'll dive in.
Steve Dennis 14:08
Well, I feel, big picture and I saw somebody else actually write about this, kind of this idea that retail, the industry retailers are coming into 2023 with a bit of hangover. But things like excess inventory, still a lot of you know, we talked about the low unemployment, but you know, continuing labor challenges, the wage pressure, and just difficulty in many cases, finding qualified people. I think the other thing, which is maybe a weird thing to say in some respects, is, you know, a lot of retailers were able to report pretty good sales increases that were mostly driven by inflation. So, you know, if you had a 9% sales increase, well, how much of that was like really because you performed well?
Michael LeBlanc 14:37
Sure.
Steve Dennis 14:38
Or how much is that everybody's prices were going up and you kind of held serve. And I think that inflation smokescreen is starting to clear at the degree to which it will clear as we go throughout the year, you know, that's above my paygrade. But I think we are certainly in a place where we're going to have inflation, you know, more like five or 6%, perhaps as opposed to 8, 9, 10. And then I think just in general, and I know we've touched on this a bunch of times, and, frankly, it was kind of the centerpiece of our, of our trailer for the season is that the tide is going out, that it's going to be a tough operating environment for most retailers. Demand is generally slowing, you know, pockets where that isn't true. Certainly, as you alluded to earlier in the episode, this shift away to services from products, you know,
Michael LeBlanc 16:00
Yeah.
Steve Dennis 16:01
More experiences, tech travel, going out to eat that kind of stuff, entertainment. interest rates you know are up four to 5%, from where they were just a year ago and look like they're probably going to go up a little bit higher, at least. And, you know, that puts pressure on the housing market, people that are financing big ticket purchases, we are and was one of the things that also was reported as part of the holiday news was that there was quite a lot of consumer borrowing over the holidays more than we had seen in a while. And so, I think some continuing pressure on, on balance sheets as we go forward. And you know, with interest rates going up that tends to exacerbate that. We talked about China, and it was China, good or bad for the, for the outlook for, for
Michael LeBlanc 16:23
Yes.
Steve Dennis 16:24
Other markets?
Michael LeBlanc 16:26
Yes,
Steve Dennis 16:27
Yeah. I think overall, you probably yes. And (crossover talk) whether their opening will persist, right? I mean, right now it looks like they're on a wide-open trajectory but will something happen where you know, the back half of the year, they revert back. So, so you know, just a lot a lot of volatility and uncertainty,
Michael LeBlanc 16:40
China is one X Factor, the other side of the world has another big X Factor that could prove very destabilizing in some way, shape, or form. So anyway, strength to the people of the Ukraine. Here we go. Let's get into it. Number one, what's your first prediction?
Steve Dennis 16:55
And I will say my caveat is that actually, I'll say two things. One is (inaudible) these are in no particular order. And, but also, I did learn from my predictions from last year to try to be more specific. So, we can actually decide whether I got these mostly right or not. Anyway, that first one is that physical experiences matter even more, in an increasingly digital world. And I don't know if this is a prediction as much as a strong observation. But the, well, the reason for this is, you really have to demonstrate a reason to go to the store, which maybe seems obvious. But if we look at troubles at places like Bed, Bath & Beyond and Party City, part of what happened is, you know, what made them successful 20 or 30 years ago was that it was a great destination for all things home or all things party or whatever, right?
Michael LeBlanc 17:46
Right.
Steve Dennis 17:47
That started to become a disadvantage as you could buy online. But also, you could get many of those products at plenty of other places. So, if you're, if you're going to invest in and maintain physical stores, what is that powerful reason for them to exist? So, I think as much as we talk about stuff moving to digital, I think it does create this opportunity, though, for those brick-and-mortar retailers, or brick and mortar dominant retailers to really create something special. So, it's not about oh, stores don't matter anymore, we should be closing stores, we should not be investing in stores, it's actually perhaps the opposite, if you've really got a reason for being. If you don't have a reason for being with your stores, I think the lesson that we're seeing, and we'll talk about this a little bit more with another prediction is you're going to be in a lot of trouble.
Steve Dennis 18:37
But the other thing, too, I think as we've seen in the cost challenges, or the profitability challenges related to the cost to serve from eCommerce is that physical stores are often and we talked about this in our episode last week that we released on hybridization. Stores are often a way to get those returns down, to lower the cost of fulfillment to have advantages over Amazon and other pure plays and you know, create an experience that isn't easy to replicate in an online environment, even if the metaverse starts to become a thing.
Michael LeBlanc 19:12
Well, and it also I think, builds on the whole idea of one of our most popular episodes last year: the buying versus shopping right. In other words, you were making that point which is articulated here is, is listen if, if there's no value added, as you said, and if I can get it online and it's the kind of good that I don't really care who I buy it from or maybe even the brand and you know why go, right? Because (crossover talk) why should I go shopping? All right, speaking of stores and connected to that, number two C-suite changes to accelerate. Talk about that.
Steve Dennis 19:43
Well, we did at the end of the year, see a number of C-suite changes and I was asked when I got quoted in an article on this topic.
Michael LeBlanc 19:56
I saw that.
Steve Dennis 19:58
You know why that was occurring. And I expect the underlying reason is going to be what we see even more of this year. The reason I think that we will see quite a lot of changes. And also, the second part of this prediction is that the type of person that's going to get hired will start to be materially different, at least in a number of cases. So, I think, kind of the obvious reason is that there are lots of retailers that are struggling. I think the patience on the part of boards, or investor groups is starting to run thin. And because of the broader challenges in the economy, even more retailers are going to report weak results. So, I think just the kind of macro factors, will, will tend to push boards to look at, at making some changes, you know, that kind of always happens. But I think the sort of broader trend is, and maybe this is more hope, than prediction, is the realization that what it takes to transform a retailer today requires a different set of skills than was kind of the classic profile for running a retailer, you know, I think both of us have had the experience of the kind of classic profile for running a retailer as either a merchant, or a store operator, you know, those are still very important skills. But in this blended world, in this digitally led world, in this data driven world, you know, the impact of technologies is radically different from what was historically important. And so, I think, a lot of boards, the savvy boards, frankly, are going to be looking at more diverse experiences, kind of a more (crossover talk),
Michael LeBlanc 21:12
Diversity in general (crossover talk) probably.
Steve Dennis 21:16
And yeah, and more diversity in general, you know, hiring people that bring different life experiences, but you know, in many cases, look or understand the customer base better. So, whether that's more women, you know, LGBTQ, different ethnic backgrounds, etc., I think those will all be important. And I also think the last part of this is, and I would encourage plenty of retailers to take a look at this, maybe you bring somebody in from outside the retail industry, we just saw Under Armour hire the President of Marriott to come in to be their new CEO. And, you know, we'll see whether that turns out to be a wise move. But I think, you know, when you're in a world that is, with brands that operate more as platforms, which have this digital component, this guest experience component, you know, (crossover talk).
Michael LeBlanc 22:25
Yeah, you know, retailers would be a start.
Steve Dennis 22:26
Yeah, media, it's, you know, there's so many different parts to what makes a retail brand successful today, and even more so what will be true in the future, I think a very different set of skills and perspective will be important. So, like I said, this may be a little bit more hope than actuality. But I do think we'll see a lot of changes just by virtue of the economic pressures, whether it's more the ideal profile for a transformational executive changing a lot, you know, that one; I feel a little bit more out on the, on a limb.
Michael LeBlanc 22:58
Right? Number three, disruptor reset. Is this connected to, is it connected to our unicorns? What is this about?
Steve Dennis 23:06
Yeah, I mean, and maybe this isn't even too aggressive of a prediction, because we saw so much resetting going on in the retail disruptor space. So, largely, these new DTC or digitally native vertical brands, you know, on the whole though, you know, the Warby Parker's are the Allbirds, etc. I don't see a good trajectory for most of these brands, that many of the issues that they experienced during the past year will probably only be exacerbated. Many of their balance sheets are weakening. So, their ability to raise funds at an attractive rate, will not likely to be too great this year, at least for most of them. And, you know, with the economy slowing down, they're not going to get any favors from you know, sort of the rising tide. Many of the brands that find themselves in trouble, like Stitch Fix, and RealReal and you know I'll kind of go down through a list of them. Some of them we mentioned earlier in the episode, many of them have been at this for 10,12, 13 years, and they were good years for growth for retail too. And,
Michael LeBlanc 24:06
Notwithstanding (crossover talk) COVID era weirdness.
Steve Dennis 24:08
So, I think investors and boards here are going to be like, you know, maybe it is time to really make some big changes. So, I think several high profile, founders, CEO types will get the boot, I think we're absolutely going to see more cost cutting moves, a greater focus on getting the marginal economics and the customer lifetime value you know we've started to, I think to see more focus on that. Dan McCarthy who has been on our episode, and he just made the, The Rethink Retail List, deservedly so.
Michael LeBlanc 24:38
Welcome, Dan.
Steve Dennis 24:39
All over this. And I, and I also think that, you know, there's been so much of an emphasis over the last couple years and there's probably an ironic thing for me to say, but you know, these brands were opening all these physical stores. And you know, that was their growth strategy now, all the attention was being turned to that. My sense is many of these are not, I mean, we just had that story about Morphe closing all their stores. I think it's going to become clear by the end of the year that some of these expansion strategies, or at least the aspirations of these expansive strategies, not really working out and there will be a (crossover talk).
Michael LeBlanc 25:11
It’s not the silver bullet, (crossover talk).
Steve Dennis 25:13
Slowdown, yeah or a, or closings. But I do think a big thing will be consolidation that some of these brands which have established a good customer base, but not a path to profitability, will get acquired. I think some, unfortunately, will go the bankruptcy and maybe even liquidation route, others will have a big shift in their strategy. And, and, you know, I started to see the beginnings of this in terms of more wholesale or maybe, I don't know, you know, is Warby Parker going to open up, you know, stores within a store at Macy's or something like that, you know, specifically predicting that. But I think there may be different ways to get more rapid revenue growth with a lower investment, and an easier cost of operating. So, I think lots is going to happen in this space this year.
Michael LeBlanc 25:58
Number four, retail media networks grow fast, but start to experience growing pains. I'm with you on this one but expand what you're thinking there.
Steve Dennis 26:06
Well, it's not a very bold prediction to say retail media networks are going to be a bigger thing this year. I mean, there's so much momentum here and so much growth. (Crossover talk).
Michael LeBlanc 26:15
So much money, (crossover talk) there's a lot of money at stake too here. So,
Steve Dennis 26:17
A ton of money. Amazon now famously growing very, very rapidly, a huge business making lots of money. Plus, we've got, you know, some,
Michael LeBlanc 26:29
Walmart.
Steve Dennis 26:30
Traditional players, Microsoft getting into the game, you know, most big retailers have announced aggressive plans here, smaller retailers are starting to do it. So, I think there'll be plenty of activity in terms of new networks, and just the growth in some of the ones that are already in play. You know, there's still a lot that's got to be worked out in terms of the balance between selling ads, and selling your products, right. You know, if you go, for example, the Amazon web page, probably the easiest one for people to relate to, you know, there's a lot of clutter, I would argue, in terms of the things that are being promoted, that part of the business is very profitable, whereas selling stuff seems to not be so profitable at Amazon. But you don't have that same picture at every retailer. So,
Michael LeBlanc 27:13
Right.
Steve Dennis 27:14
The more you push interruption marketing, to use Seth Godin phrase to the forefront, because you like that margin, you potentially do that to the detriment of the overall customer experience. And the reason that they come to your store and your website, in the first place. So, I think this tension is going to become more obvious, the more growth we see. I Also think that what it takes to actually operate these networks is pretty complicated. You know, you don't have organizations for the most part that are used to this, you know, different departments that have to cooperate. It's a really different mindset, in terms of the merchant store operation machine. So, I think we'll see some growing pains, and perhaps this is not going to have the trajectory or the momentum that is as great as some folks think. But it's still a growth area for sure.
Michael LeBlanc 28:05
You know, on that last point, it's super interesting. Because on the one hand, they're selling pitch, I mean, the big pitch is listen, you don't have to start a whole division like a, you know, a behemoth like Walmart or Amazon you know, it's all it's all in the cloud, but it still doesn't eliminate the organizational challenges. And you know, listen, you've been on both sides of the table as well, when, when a vendor says, hey, guess what great news. I'm going to put, you know, 50 million of my Facebook buy into, into your media play. But then the next quarter says, well, no, I'm not going to do that anymore, then that's a very different conversation that's going to happen with the merchant. What do you mean, you're pulling that $50 million? I would have thought, You know what I mean? Like, like, there's a lot behind all this stuff. Co-op and all that stuff, right?
Steve Dennis 28:47
Yeah. Well, my example, which perhaps, is not you know the strongest one, but I said, you know, it's been, it's taken more than 20 years and retailers still haven't figured out this omni-channel stuff. Now you're introducing another, another thing into, into the mix where departments have to get along with, I mean you still have to figure out what's on the homepage and how the stuff works and people get paid and so it's not, it's not trivial as much as,
Michael LeBlanc 29:11
Yeah.
Steve Dennis 29:12
You know, there's lots of people working on this area and a lot of money behind it. So, I do think it's going to turn out to be more complicated at the scale that people are talking about.
Michael LeBlanc 29:22
So, number five, you're thinking big changes are coming at Amazon. That's a bit of a slam dunk for you on this one, because they're always changing but I'm gonna hold your feet to the fire on this one. It's like every day there's something going on in Amazon, but, (crossover talk).
Steve Dennis 29:35
Well, yeah, I mean, I almost labeled this you know, WTF Amazon, because I think it's so hard now, to figure out what is going on. Other than Mr. Jassy seems to be getting very serious about the profitability side of the business in reviewing quite a few things. I don't think we're going to see anything tremendously different within the advertising business or the cloud business. I think most of the action here are the things that touched the retail flywheel. eCommerce sales, which have really decelerated their distribution capacity you know, they've been trying to rationalize that, I guess is the nice way of saying it. We got a lot of news about Alexa, basically, incinerating cash of the voice commerce division, which includes Alexa, considering
Michael LeBlanc 30:22
Yeah.
Steve Dennis 30:23
Cash. And their physical retail por-, portfolio, which is mostly Whole Foods, has been performing poorly, even though we don't have a good breakout on that. And, you know, they closed some of their experimental stores, they've been slow rolling, Amazon Go. And, you know, I really thought to go against a prediction I made a couple of years ago that they were really going to go full bore into apparel, and grocery. They seemed to have put on hold the opening of additional grocery stores, and some of the ones that are already built, have been sitting there with their lights off for months. I don't know whether that means they might be backing out of the grocery. But I certainly think it suggests that they're going to go about their physical retail strategy in a different way, because it does appear that it is not working. I think we will see some bold moves on the retail side to improve focus and performance. What exactly those will be it's hard to say, mainly because, you know, there isn't good visibility into their performance, but we can kind of back into it and say, you know, it must not be good. And you know, they've been at Whole Foods and some other things for a while.
Michael LeBlanc 31:36
On a leadership perspective. Do you think they're going to Howard Schultz there? Do you think Bezos might come back into the picture? There's some chatter about that. (Crossover talk) You know, there's some chatter, I don't think it's gonna happen in a very different situation. But do you put any credence to that?
Steve Dennis 31:50
You know, not only outsiders have been speculating it, but there seems to be some movement, I guess, within, within the, the buildings to (crossover talk) bring them back.
Michael LeBlanc 31:57
Bring back the golden era. Get Jeff (crossover talk) back.
Steve Dennis 32:00
I would be surprised. I would be surprised for a bunch of reasons. But I don't, I don't know personally any of the players involved. So, it would be a pretty big speculation on my part.
Michael LeBlanc 32:11
From outside in, I mean, Bezos still, has this, he's still involved? I mean, you know, there's a lot of these big decisions. I can't, I can't imagine he's not informed over, you know, so I don't think he's on the outside looking in. I think he's part of, I think he's in agreement. I mean, but it's interesting, right, we saw new leadership at Disney and then got tossed out, you know, not long after taking over with the prior leader. So, it's not like it hasn't happened before. So anyway, that'll be one to watch.
Steve Dennis 32:37
Well, I do think, I mean, that's the one thing I'll speculate a little bit more on. I mean, I do think the investor pressure is, generally speaking, not for bringing Bezos back, I think that there is the, you know, split up the company pressure, you know (crossover talk) the spin out kind of thing. (Crossover talk) That I think could happen. The pressure to improve performance at the underperforming divisions is the thing that will drive the stock up at this point, I don't think it's going to be let's have a bunch more moonshots and lose another, you know, gazillion dollars for 20 years like that, that,
Michael LeBlanc 33:13
Literally and figuratively.
Steve Dennis 33:16
Not workable to me. So, I think, you know, this idea, that brings Bezos back, and that'll be some magic. I think that's fantasy.
Michael LeBlanc 32:37
Now, number six, the collapse of the unremarkable middle picks up steam. My recollection is this is a repeat type prediction. But you, you're confident that this could be the year and to be fair, you know, the COVID era disrupted a lot of things and in some ways slowed the role of department stores where they mattered a little bit more, but you think that,
Steve Dennis 33:43
Well, so yeah, this, this isn't just about department stores. This is really, you know, the, you know, any of these brands that are kind of stuck in the middle, you know, the so-called bifurcation where value retail, you know, dollar stores, off-price, hard discount, grocery, etc., is performing really well. And then luxury and you know the more affluent, specialty stores are performing well. But everybody in between, is losing relevance. And that has been a long-term trend. It's something I started writing and speaking about over 10 years ago and has a big part of my book. We've covered it on the podcast, for sure. But what happened? Not that there haven't been problems, because, you know, we just spoke about Bed Bath & Beyond and Party City. So, I'm going to be clear,
Michael LeBlanc 34:30
Sure, yeah.
Steve Dennis 34:32
There have been some issues in the past couple of years. But I would say in general, the distorted discretionary income because of stimulus payments and because people weren't spending money on commuting to work and going on vacations and all those kinds of things. I think it masked some of the pressures on some of these underperforming retailers that the ones that would have gotten into more trouble kind of got a little bit of a lifeline or, you know, their problems got kicked down the road in (inaudible) a very low interest rate environment. So, the cost of financing to keep these businesses going was better.
Steve Dennis 34:59
So, now we're moving, we are in a higher interest rate environment, though not sky-high interest rates. And it looks like we're going into slowing consumer demand. All this is still against the backdrop of at least in the US a lot of excess capacity. So, it's really the mix of retail that is what's interesting, but fundamentally, we still have too much supply chasing, too little demand. I think, you know, whether we're talking about retail chains that are stuck in the boring middle, unremarkable middle, or we're talking about shopping centers, which have the same kind of issues, I think we're gonna see a lot more pressure. You know, whether that's store closings or bankruptcies or, you know, repurposing, you know, particularly in the case of malls, it's just you know, that's a little bit harder because of the cost to repurpose a mall, it's not, it's not trivial. And when interest rates are going up, it might be more difficult to finance but, but yeah, I think, I think the little reprieve that we saw for the last couple of years in terms of more store openings than closing, I think by the end of the year that, that equation is going to start to reverse.
Michael LeBlanc 35:58
All right, well, that's your sixth prediction. And as we said, we're going to, we're going to take a stop there and we're going to continue in our next episode with the rest of the predictions plus your, your "baker's dozen", so to speak, special bonus prediction. So, for now, let's leave it there.
Michael LeBlanc 36:22
If you like what you heard, please follow us on Apple, Spotify or your favorite podcast platform to catch up with all our great interviews, including Organized for Growth, our interview with Satish Malhotra, CEO of The Container Store. New episodes of Season 6 presented for another season by our friends at MarketDial will show up each and every Tuesday. And be sure to tell all your friends and colleagues in the retail industry, all about us.
Steve Dennis 36:52
And I'm Steve Dennis, author of the bestselling book, ‘Remarkable Retail: How to Win & Keep Customers in the Age of Disruption’. You can learn more about me, my consulting and keynote speaking at stevenpdennis.com.
Michael LeBlanc 37:05
And I'm Michael LeBlanc, Consumer Retail Growth Consultant, keynote speaker and producer and host of a series of retail trade podcasts including this one. You can learn even more about me on LinkedIn, and you can catch up with Steve and I in person at Shoptalk in Vegas, March 26. And a month later in Barcelona at the World Retail Congress, April 25.
Until then, Safe travels everyone.
SUMMARY KEYWORDS
retail, retailers, stores, predictions, brands, big, bit, talk, year, Amazon, people, growth, pressure, sales, inflation, slowing, episode, moving, profitability