This week we dig into Amazon's physical store strategy as it ups the ante with the expansion of its mainstream grocery store concept (Amazon Fresh), convenience stores (Amazon Go), and an initial foray into brick-and-mortar apparel (Amazon Style). We ponder why Whole Foods has gotten worse under their leadership and whether the company's tendency to see most everything as an engineering problem keeps them from delivering the emotional content and artistic side of retail they will need to succeed in the future. We get Steve's full report on his store visits and reprise how important it is to understand "buying" vs. "shopping."
This week we dig into Amazon's physical store strategy as it ups the ante with the expansion of its mainstream grocery store concept (Amazon Fresh), convenience stores (Amazon Go), and an initial foray into brick-and-mortar apparel (Amazon Style). We ponder why Whole Foods has gotten worse under their leadership and whether the company's tendency to see most everything as an engineering problem keeps them from delivering the emotional content and artistic side of retail they will need to succeed in the future. We get Steve's full report on his store visits and reprise how important it is to understand "buying" vs. "shopping."
But first we open up with the retail news that caught our attention this week, including lots of scary macro-economic news. We also discuss the dire surprise warnings from Walmart and Best Buy, as well as a dismal earnings report from Shopify. Then we try to unpack Amazon's earnings, which we found less than stellar, despite Wall Street's ebullience.
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We look forward to seeing everyone at Grocery Shop
Two of Steve's Forbes articles on this week's topic
Amazon's Future May Soon Be Tied to Brick-and-Mortar
Here's Why Amazon Should Buy Kohl's
John Oliver "This Week Tonight" Episode on Inflation
Inside The First Amazon Style Store
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 5, Episode 4, presented by MarketDial. I'm Michael LeBlanc.
Steve Dennis 00:12
And I'm Steve Dennis.
Michael LeBlanc 00:14
Well, Steve, we've got a solo episode coming up today. Did I ever tell you that the reason I got into my current career path, I guess you could say was at a company called Amazon. So, I bought a book in the mid 90s and I'm like, this could change everything, I think I'm going to go down this path. So, I have a lot to say and think about Amazon even personally, because it really, reconfigured my, my career trajectory.
Steve Dennis 00:43
Well, a few things have happened since then.
Michael LeBlanc 00:46
Yeah, it was a pretty good bet that this whole eCommerce thing could be something, we'll figure out what it is. -
Steve Dennis 00:52
Plastics, Michael, plastics, plastics. -
Michael LeBlanc 00:55
And well, that is the theme of our episode, we're going to talk about Amazon. Now, Amazon is a wildly complex, big business, you know, it's got many moving parts, many of which are not actually associated with retail, what we're going to focus on today is their physical store strategy.
Steve Dennis 01:16
And because they were so well penetrated, in a lot of categories, that for them to keep this growth going, you know, top line growth, but also improve their profitability, it was going to be important for them to start investing in brick-and-mortar stores. Now at that point, they already owned Whole Foods. But they were starting to play around with some other concepts. And now as we know, and we'll get into, they're making a b-, a big push into grocery and perhaps a big push into apparel and convenience stores. So, I've been following this for a while, talked about it in the book, given that they've closed some of their concepts, given some of their aspirations for other physical retail, given some leadership changes, etc., etc. I think it's a, it's a good time to talk about what they're up to.
Steve Dennis 01:16
But I guess about four years ago, I will probably put the link in the show notes, I wrote an article which I actually got a fair amount of pushback on, where I said that Amazon's future was increasingly going to be driven by brick-and-mortar. I figured at some point, which has turned out to be right, a little bit of a bumpy road because of COVID. But at some point, we're going to see a maturing of eCommerce growth.
Michael LeBlanc 02:25
Yeah, it's good time to revisit as it happens, they put out their results as well. So, we can kind of have a bit of color commentary around that. In our new section that we should tell the folks that were on the road again, together excited. We'll be seeing each other in Las Vegas in September.
Steve Dennis 02:40
Yeah, Viva Las Vegas. Do you have the, the musical cue tonight?
Michael LeBlanc 02:46
Yeah, I wonder if I still have that, I don’t know, (crossover talk),
Michael LeBlanc 02:50
We will, we will be headed back to Las Vegas for Groceryshop. So, that's the Shop Talk version for the grocery business. And that's, that's happening. I guess it's the, (Viva Las Vegas musical cue), Oh, there we go. This is a multimedia extravaganza, here, ladies and gentlemen, and all included at a very, very low price. But yes, we will be at Groceryshop, the third week of September, I think it is. So, if you are going to be there, be sure to say hi, we will be not only absorbing the great content, but yeah, recording some bonus episodes. So, stay tuned for that.
Michael LeBlanc 03:25
Yeah, lots of great folks to talk to and great to great to be back in Vegas and talking about grocery because it's such a big part of the business. And it's great to spend a little more time to it. All right, well, so we'll get to our part about our segment on Amazon.
Michael LeBlanc 03:40
Let's talk about the news. It's an action packed week, which is, you know, typically it's not a sleepy summer week, that's for sure. There's a lot going on, where do we where do we start? Let's talk about, I guess, let's talk about the big picture, the macro economic news. What are you hearing?
Steve Dennis 03:54
Well, this was I, I mean, I do think as a news week, this is perhaps the busiest we've had this week, a bunch of US data, the GDP data came out, the GDP was down second straight quarter. Some people say that means recession. Other people say not so much, but certainly signaling a continuing decline in economic activity. As expected, the Federal Reserve raised interest rates 75 basis points in a hope to really try to clamp down on inflation.
Steve Dennis 04:27
Things like consumer confidence down again, but you know, the overall picture and I guess there's kind of two things to tease out the certainly the consumer is continuing to spend, how much of that is price inflation built in? A bit difficult to tell. But, you know, the, the countervailing argument towards the recession, as I think we've touched on a couple of times, and there was more data this week, is that the labor markets continue to be strong. So, unemployment, very low., job creation can continuing. So, can you really have a recession, when the labor markets are, are so strong. So, that's going to be the thing to watch out going forward.
Steve Dennis 05:09
With one of things is more interesting and I would encourage people if they're interested to listen to the or watch the John Oliver show on HBO, because he did a deep dive into inflation this past Sunday night. And one of the things that came out of it not that I rely on British comedians for my macroeconomic perspectives, but you know, at least you get a laugh along the way. But, you know, typically inflation, you know, inflation is a function of supply and demand, and this imbalance and demand has been high, and is starting to slow. So, you would think that would probably push inflation down.
Steve Dennis 05:48
But I think the big challenge not only talked about on the show, but Jerome Powell talked about in some of his comments about the economic outlook is a lot of the inflation is really supply side related, you know, we've got the war in Ukraine, which is got a big impact on, on fuel costs and food costs, as we talked about the labor market is very challenged, and, and doesn't look like that picture is going to improve dramatically from a cost perspective.
Steve Dennis 06:15
So, you've got a lot of these, these supply side pieces that are contributing to the high rate of inflation. And it's kind of hard to work out how those supply side pieces are going to dramatically improve in the next few months, even if you can start to tamp down demand. So, it's a really, you know, I think last week, we talked about this, this is a very unusual time, it's pretty hard to make sense of, of the direction this is this is going other than obviously, the US Federal Reserve is, is going to keep jacking rates up until they can hopefully start to force some inflation down.
Michael LeBlanc 06:49
Well, that's certainly happening on the side of the border as well, the Bank of Canada tapping on the brakes with a fairly significant some of the most significant increases in the lending rate as well. And yeah, as you say, I mean, I've been talking to executives the past couple of weeks about, there's no real playbook for this, right. So, you know, it all gets down to what we talked about. You've got to stay agile, I got to stay humble, because, you know, there's, there's executives you can find who've lived through high inflationary periods, but high inflation with low unemployment, plus, you know, all these other contributing factors, there's not quite, you know, there is a new chapter in the playbook, whatever that is. Well, notwithstanding that the, the Chicken Little press releases are, are, are coming fast and furious, lots of retailers sounding the alarm bell, what do you what are you seeing from that and what's your interpretation?
Steve Dennis 07:39
Well, the week started out with Walmart doing a an earnings warning. So, people may remember, back in May, I guess last time, Walmart reported their earnings, they were quite cautious. And we learned that they had a glut of inventory. So, we'll hear from Walmart about their past quarter, I guess, two or three weeks from now. But they basically said, we are taking down our, our expectations, because we are not, we're seeing consumer spending decelerate. And we're having a hard time moving through all this inventory. So, we're not making the progress we want on our inventory levels, we're going to have to discount more aggressively. And that is going to affect earnings, they suggested for several quarters, I think that is, is what they said and so the stock got killed. Then I think two days later, maybe Best Buy basically said, the same kind of thing. You know, they did an earnings warning. And so, both Walmart and Best Buy stocks have gotten hit pretty hard.
Steve Dennis 08:37
The other one, this wasn't a, this was an earnings release, I guess not a warning, but Overstock I'm pretty amused by the whole January 6, the hearings here where we learned about the Overstock guy, so, I don't, I'll save my opinions about that guy in particular. But anyway, Overstock, -
Michael LeBlanc 08:56
Not a political podcast, but, you know, -
Steve Dennis 08:57
It's not a political podcast, but I think most people probably know my political leanings by now, but if not, I, you know, contact me off, off mic. But Overstock, I think their sales were down like year over year, like 34% or something. So, you know, we'll it'll be more interesting when we see Wayfair in a couple of weeks as to what's going on with the home furnishings business. But that was certainly not a very optimistic perspective. So, you know, with the, with the more price oriented shopper, we're definitely seeing a lot of concern about their spending patterns. But I think in particular with Walmart and Best Buy, they are way over inventoried and so that that's going to be you know, sort of an albatross around their neck for at least a couple quarters, I would suspect.
Michael LeBlanc 09:37
Well, I guess we should also talk about on the on the vendor side or whatever we want to call them. Shopify, you know, what do you want to make of all that? I mean, yeah, it's an interesting acknowledgement that they're not listening to our podcast, basically.
Steve Dennis 09:50
Right. Well, Toby, please pay attention, listen to our podcasts. But yeah, they I mean, they had a pretty good sales increase, but they signaled that basically eCommerce didn't accelerate in five years as they thought and as they planned for. And so yeah, they're laying off 10% of their staff. They lost I think, billion three or something for the quarter, which was a huge turnaround from, from last year. So, yeah, that was a train wreck. To me it's pretty surprising, like I thought of Shopify as a pretty well managed company and this was, this is not a good quarter. But you know, Mr. Lucky, is that how you say his, his last name. He's getting paid a lot and yes, his stock is worth, worth quite a bit. So, there's, he's been getting some pushback as to it's not a good look to be paying yourself so much and laying off 10% of your staff because you made the wrong call.
Michael LeBlanc 10:41
Yeah. Well, you know, I wish them the best of course because they are a Canadian company. And as you know, (crossover talk), so I wish them the best. Well, let's, let's finish off. I guess we're going start in a way, but Amazon also released their earnings last night. And now we're, you know, we're talking specifically in the rest of our episode about their store strategy. And, and Amazon is a multi-headed beast, like, it's very complex whenever they put out earnings, right, because the messaging goes up, down and sideways. But what, what did you make of what they had to say yesterday?
Michael LeBlanc 10:42
Well, I found it a bit interesting. And there's been some, if anybody follows me on social media, you see some comments that I put out there. So, the Wall Street received the results very positively, mainly because they appeared to be much better than expectations on an, (crossover talk), -
Michael LeBlanc 11:34
Wait doesn't Wall Street, doesn't Wall Street, (inaudible), -
Steve Dennis 11:35
Well, I mean, objectively, they look kind of terrible to me, in total. So, it was a little confusing. But if you kind of try to parse out some of the big pieces without going down too much of a rabbit hole, what we saw was AWS, the cloud, business had strong growth, good margins, the advertising business, which they don't break out on a profitability basis, which I'll get to in a second. But ads, which is now like, I think, close to $9 billion in revenue for the quarter. So, huge, -
Michael LeBlanc 12:05
Back to our last episode with Lauren, right? I mean, the, (crossover talk), retail media network, they're are the OG, (crossover talk), -
Steve Dennis 12:09
And they, and they continued. So, they were up about 18%, which is a little bit slower growth, but Meta a Facebook company, formerly known as Facebook had their first ever sales drop. So, Amazon advertising is clearly gaining share away from Facebook, Instagram, etc. But online sales,
Michael LeBlanc 12:12
(crossover talk), there's disruption in the metaverse.
Steve Dennis 12:32
Yes, yes, yeah, there's a whole bunch of stuff going on at Meta that maybe we'll be talking about at a different time. But, but if you look at retail, so online, their sales were down 4% year over year, so that's not so great. The third party business was up a little bit. Physical retail was actually up for the first time in a little while, which is mostly Whole Foods at this point. But what's interesting is if you actually look and then you know, the thing about Amazon and, and you and I were talking about maybe doing another like deep dive into Amazon, at, at some point, because there's just so much here.
Steve Dennis 13:07
But advertising is included within the North American in the international segments. So, you can't break out what retail is making relative to subscriptions relative to ads. But the amount of money they obviously are losing outside of AWS and ads is, is pretty staggering. I calculated just for the North American segment, the international segment loses money too. But the North amat-, - American segment, for the first six months of this year, compared to last year, they had almost a $9 billion swing in profitability, they made 6.6 billion last year. And this year, they lost 2.2. Now keep in mind, not to confuse people too much in that number is advertising, which probably contributed close to $10 billion in operating income for six months, I would guess.
Steve Dennis 14:09
So, you're left realizing that retail, both third party and physical and online and some of the other ancillary businesses which are baked in there like subscription, you there is Prime, etc., is losing a ton of money and it's gotten much worse. So, I don't you know, I, I think clearly Amazon's business is driven much more by AWS and the advertising business, but the anchor that retail appears to be it's pretty staggering, and nobody seems to be very, paying that much attention to it.
Steve Dennis 14:42
Now (inaudible), seems to be very focused on you know, they've, they've talked a lot about they build too much capacity and their labor costs, both because of COVID specific expenses, but just in general are too high. So, there is some indication they're making progress on some of those costs and they sounded a pretty optimistic tone about what that would look like going forward. But, I, I've just I kind of look at it and go, nobody's like, paying attention to the man behind the curtain here. So, I don't know, maybe I'm, maybe I'm getting it wrong. But it's sort of a weird, weird take when we look at Amazon as this consumer company, which is doing terribly on that side. Yet, you know, really, the action is on AWS and the B2B ad business.
Michael LeBlanc 15:30
Well, that's our news for the week, action packed, and provides a pretty good segue actually into what we're going to talk about. But first, let's hear from our sponsor MarketDial
Michael LeBlanc 15:42
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Michael LeBlanc 16:15
All right, we're back. So, let's talk about let's talk about Amazon. Again, you know, we're going to hone in on one particular element of Amazon, which is their, their physical stores.
Steve Dennis 16:23
You know like I said, at the top of the episode, part of why I'm interested in it as it appears that Amazon, you know, not only is going to potentially need a greater presence in physical stores to keep the top line growth going, but also to improve profitability. I think it's interesting. Now, it remains to be seen, I guess, we have to sort of step back and say, you know, particularly the context of Amazon earnings, like where are they really going with all this? How much are they going to continue to invest in physical stores going forward in light of some of the profitability challenges.
Steve Dennis 16:57
But I do think that, you know, they have been seemingly committed to the Amazon Fresh business. So, Amazon Fresh is there more, I guess, you know, moderate part of the market, grocery strategy to, to complement, (crossover talk), perhaps, what they're doing with, with Whole Foods, they've opened Amazon Style, which is people have described as a department store, it's not really a department store, but it's an apparel focused concept. At the same time, -
Michael LeBlanc 17:27
And you've been there, you've been to that store, right?
Steve Dennis 17:29
So, I want to come back and talk a little bit about, about what I learned. But I think, you know, strategically, they've certainly been signaling over the past year or so an intention to focus more on certain segments of physical retailers, a lot of people probably know, they several months back closed, several of their, I call, "the Land of misfit toys", but they had the Amazon bookstores, I think they're about 60 of those, their 4-star stores, which is we've dropped around should have been called 1-star stores. So, you know, those were, I mean, those were like, not even 1% of their physical store sales. So, they were very, very tiny and I think clearly not working. But they have been opening more Amazon Go convenience stores. And I think in the last quarter, they opened 17 or something of these Amazon Fresh stores. So, there seems to be interest in continuing to push on the physical store side, -
Michael LeBlanc 18:26
Don't forget about the hair salon and (crossover talk), -
Steve Dennis 18:29
And the hair salon, which I'm sure will be a game changer. But you know, I think the, the question, you know, like I said, I, I believe that for their long term growth, in retail swimming, that's what they want to invest in. And in their profitability, you know, they're we're starting to hit the limits of what can be done in some of their big categories online.
Steve Dennis 18:50
So, I think physical store as a possible growth strategy, whether it's organic, or maybe even making some acquisitions could be pretty important. I think the thing strategically to talk about and, and maybe this is a good chance to talk briefly about Whole Foods, and then to talk about my store visits is, I would say in general, they've demonstrated they're terrible at physical retail. I mean, the reason to call this the fault in their stores is they haven't done very well, I think Whole Foods has gotten demonstrably worse under Amazon's ownership.
Steve Dennis 19:22
As we talked about they had several concepts which you know, I think, you know, interesting experiments and to their credit, shutting them down, I think is, is a sign of good innovation process, but they certainly, (crossover talk), weren't lighting up the world. And then as I think you look at Amazon Go for the convenience segment, you know, I think they're still really experimenting with that they have opened more stores, they're doing some things with Starbucks, but it's not like they've stepped on the gas there.
Michael LeBlanc 19:45
They don't have 3000 stores yet as was, was, you know, when they came out, they're going to disrupt the convenience store sector and, and we hear that over and over again, they're going to disrupt and then they kind of go slower than faster in some of these things. Hey, you know, I was I was reflecting on you know, when we're going to talk about this episode, and it really, do you think, thinking about our buying versus shopping episode that, that they're, they're too much focused on, they think it's all about buying? I think this, by the way was Shopify's problem as well as is they think everybody just wants to buy and don't get the, the head to heart thing.
Steve Dennis 20:21
Exactly, I, I think that is that's my hypothesis as to what the single biggest problem is, you know, there's this old saying is if you know, if all you have is a hammer, everything looks like a nail. And I think Amazon is fundamentally an engineering type company. And they approach things from the buying or more efficiency kind of driven perspective, which, when it comes to Amazon Go, I mean, Amazon Go, even though it doesn't appear that it's lighting up the world. I mean, that is a convenience driven format. And I think that sort of mindset, in the application of technology makes a ton of sense. It makes no sense or almost no sense when you apply it to Whole Foods.
Steve Dennis 20:58
So, you know, what they've done with Whole Foods is they've tried to take cost out and you know, there's a lot of complaint I mean, Whole Foods, I think you pointed this out on a past episode, and you're absolutely right Whole Foods was not exactly lighting it up. I mean, it was a high profile brand, but it's their performance was not good prior to Amazon buying them.
Steve Dennis 21:16
So, but I, I think you know, Whole Foods is meant to be you know, the Nordstrom, Neiman Marcus, part of the grocery store business, or here in, in Dallas, or in Texas, we've got Central Market, which is a really great upscale, you know, there's Wegmans, there's a bunch of these other high end, Gelson's, selling high end sort of grocery concepts I think we can understand and Whole Foods, you know, needs to compete and win in that segment. And they've, they've been losing market share. Although we don't know what their profitability looks like. So, they tried to apply this more engineering efficiency buying modality to Whole Foods, and that has not served them very well.
Michael LeBlanc 21:54
It feels all, all science and not much art, if I think about merchandising, -
Steve Dennis 21:58
Or, I think even you know, it's unclear to me what they're trying to do with Amazon Fresh, because on the one hand, and I'm happy to share some thoughts on the stores that I visited. But those stores are quite a bit smaller than a typical grocery store. So, they sort of sit between a Kroger or Albertsons or those sorts of stores, and a Trader Joe's or ALDI in their size. The buying occasions that are trying to go after in the assortment strategy seems a little in Congress, to me, you know, it's sort of a value oriented store, and its look and feel, and it's more narrow assortment, yet, you know, what is really the value added other than the just walk out technology relative to a lot of other grocery stores? So, so, what their premise is, (crossover talk), -
Steve Dennis 21:58
Right, exactly, exactly. And so, I think the challenge will be you know, if they're going to focus overwhelmingly on kind of the buying sort of, of the equation, which like I said, I think can serve them well in the convenience store segment. And you know, it's not 100%, black and white, but you know, that's the leaning there. But if you're going to try to make a play in fashion apparel, which this Amazon Style stores about, which we'll talk about in a second.
Michael LeBlanc 23:11
You know, it strikes me when they go into grocery, grocery is a very low margin, high volume, business, and there's a lot of people who are very, very, very good at it. Like it's not like, -
Steve Dennis 23:23
Absolutely, -
Michael LeBlanc 23:24
You know, an industry like let's say, I don't know, healthcare, where there's, there's room for a lot of profit, right, your profit is my opportunity kind of talking. There's not a, you know, there's a really fantastic operators in the grocery space. So, it wasn't, you know, there's always room for improvement. And there's a bit of a tailwind behind them. But you know, we should also tell the listeners that, you know, you visited these places, right. So, it's not, you know, you're looking at a webpage, you've actually gone to these places and experienced what they are doing and what they, you know, what, what the actual execution looks like. Talk about that for a little bit.
Steve Dennis 23:56
Yeah, so I've been to Amazon Fresh stores in the DC area and in Southern California. And, you know, they were pretty disappointing, I have, I have to say, like I said, I mean, strategically, it's a little unclear to me what their differentiation is meant to be. So, I have that question. Now, I'm not, you know, grocery has not really, you know, the depth of my experience in retail. So, I'll p-, I'll put that caveat. But you know, to your point, you've got lots of different competitors, lots of different strategies, you know, what are they really adding to it beyond you know, the walkout technology is kind of cool, but I'm not sure like, that's enough to drive a major store expansion plus, (crossover talk), -
Steve Dennis 23:57
You want fresh vegetables, fresh fruit and a nice, -
Steve Dennis 24:06
Correct, right, -
Michael LeBlanc 24:11
Place to eat, right. I mean, (crossover talk), -
Michael LeBlanc 24:33
That's more important to me than, you know, just walk out technology and when I'm shopping for food, that's for sure.
Steve Dennis 24:47
So, the value proposition to me is a little unclear, but the execution was, was also pretty, pretty disappointing. There were a lot of out of stocks, you know, more so than I've seen another, in other companies now that you know, that might be a function of getting their systems right or whatever, something that they can certainly improve. There was certainly not a lot of customer traffic, you know, that might have been just coincidentally, the times a day that I was, (crossover talk) there.
Steve Dennis 25:12
The, the presentation to me, it's got this sort of, I don't know if we can find some pictures that perhaps to include, but it's sort of like this black and green, which is a (inaudible), kind of weird color scheme, like, it seems to be designed to not, like get scuffed up and dirty, rather than presenting the merchandise in the most attractive way.
Steve Dennis 25:34
They also have a little section of like, random Amazon products on. So, it's like leftovers from Amazon 4-star. So, I, I just, you know, wasn't terrible, but, -
Michael LeBlanc 25:46
Right, -
Steve Dennis 25:47
There was no wow there, it was definitely not remarkable to use the overused phrase, so, and, and even some of the locations were, you know, it seemed like they went after cheaper real estate, than might have made sense now, you know, relatively small sample for stores. But, you know, they're just getting started on this. So, obviously, they can they can learn and, and adapt, but I, I did not, you know, now that there are 30-40 stores in, it's kind of like, is this is this it. So, let's call me a skeptic on whether they've got that figured out yet. Now, Amazon's stocks, (crossover talk), -
Michael LeBlanc 26:22
Now, I'm assuming you haven't had your hair cut yet, though, right. So, that could be pretty brave, (crossover talk), -
Steve Dennis 26:26
I need to fly to London and get a robotic AI haircut or whatever they're doing over there.
Michael LeBlanc 26:31
And I guess we should add the caveat and, and you're going to talk about, I'm super interested to hear about your experience in, in their fashion apparel interpretation. But, you know, this is a big company, lots of super smart people. So, never count them out and, and boy, what an innovator, but, you know, so we should probably put that caveat of, they could always get it right, because I think, you know, they, they swing the bat a lot. So, kudos to them, (crossover talk), -
Steve Dennis 26:53
Right, and I often point to I mean, to be fair to Amazon, or try to be fair to Amazon, I mean, I, I often talk about them, you know, both in my book, my keynotes, etc, we've talked about on the podcast that, you know, they're absolutely one of the most innovative companies in the world, -
Michael LeBlanc 27:07
Right, -
Steve Dennis27:08
They try a lot of stuff. And you know, they should be applauded for getting out there and trying a lot of different things. And like we've talked about earlier, cutting their losses, when they don't work and, and you know, maybe (inaudible) certain lessons. So, that's true and still very early, like, you know, what, well, for, for sure, with Amazon Style, it's one store, you know, what's store 10? What's store 50, what store 100 looks like?
Michael LeBlanc 27:28
Right, -
Steve Dennis27:29
It's very TBD. But Amazon Style, is in a high end mall in a suburb of LA. It is, you know, people talked about it as a department store, I was always skeptical that they were going to do a department store in 30,000 square feet. And it turns out, it's not by any-, anybody's definition of a department store. It is not a department store, because it has like two departments men's and women's.
Steve Dennis 27:52
Now the, the innovation here is that the store is really driven through a fitting room experience. So, when you go to the floor, which I would say and I think we've got some pictures, we could probably include in the in the show notes or, or somewhere or link to. I think it's very attractively designed. So, this, this feels like they've got more of the art side to the visual merchandising and presentation, I would say much, much better than I've seen from them in other concepts. But what's very different about it is there's only one of every item that's on the floor. So, no size or color range, (crossover talk), -
Michael LeBlanc 28:33
That's like a specialty store. There's some specialty stores that do that, like OVO, Drake store does that you just pick a size and they go in the back and get it for you kind of thing, -
Steve Dennis 28:41
Right. But, but very different than sort of the mainstream apparel, -
Michael LeBlanc 28:44
Yeah, yeah, -
Steve Dennis28:45
Store kind of concept. So, you the store is driven off of an app, you scan the item that you're interested in. And you can either just buy it on the app, and it'll be ready for you up front in a few minutes. Or they will set it up for you in the fitting room. So, there's something like 30 fitting rooms in the store, the first floor, -
Michael LeBlanc 29:04
30, -
Steve Dennis 29:05
Has got, yeah, -
Michael LeBlanc 29:06
30, -
Steve Dennis29:07
The first floor has got like 12 of them. The second floor, which is only fitting rooms has another 18 or something like that. So, it sets up of a fitting room for you. And then you can just add items instead of like adding to your cart, you're basically adding them to the fitting room. And, (crossover talk), -
Michael LeBlanc 29:25
Yeah, -
Steve Dennis29:26
When you go to the app, you can see you know what, you know what size if there's a color difference and there's some suggested add-on items like you know, do you want, do want to see a belt, do you want to see some shoes, you know, that sort of thing. And then it says your, your fitting room will be available in so many minutes. Now, when I was there, the store was basically empty. And I was surprised that it told me my fitting room would be ready in 15 minutes. That seemed like a really long time given there were no other customers there or maybe one other, I wasn't clear whether they were going to the fitting room. And then when it assigned me the fitting room, it assigned it to me on the second floor, despite all the first floor fitting rooms right in front of me being empty,
Michael LeBlanc 30:12
It decided, -
Steve Dennis 30:13
That was sort of quirky, (crossover talk), -
Michael LeBlanc 30:14
They decided you needed a bit of exercise, perhaps?
Steve Dennis 30:16
Apparently, like I can make it up the stairs, I'm not in the greatest shape, but I can do it, it just was a weird customer experience to me. Now, again, that seemed to be some glitch in the software that they could that they could fix. But when you get in the fitting room, not only is there in this case, I just picked that one pair of sort of khaki type pants that were there. But they also had several other items that they placed there that are sort of recommended. So, they're doing kind of what a good salesperson would do, -
Michael LeBlanc 30:39
Yeah, that's good, (crossover talk), -
Steve Dennis 30:40
Bring you a pair jeans, etc. And then there's a very cool interface touchscreen, that you can, for example, if it's the wrong size, you can request a salesperson to bring a different size to you. But there's also are suggested wardrobe items, all of which you could get delivered to you or you know, you can ship or what have you. So, it's very cool technology interface. And when they bring you if you need a different item or an additional item or whatever, when they bring it to you, they don't actually knock on the door they put it it's kind of hard to explain but there's maybe we'll put a link. There's an article but did a really like deep dive on with pictures and, and how the whole process works. But they basically put it in a closet from behind, and then you're able to take it out. So, you can avoid like it for introverts, (inaudible) you can avoid, (crossover talk) seeing anybody. Although I did, I will say that when I walked into the store, I was greeted by a very friendly person who was super helpful and explained to me kind of how things work. So, that was a very good, good experience, -
Michael LeBlanc 31:39
You know, (crossover talk), some of which I, I just want to pause there, some of what you're describing, I saw five years ago in Rebecca Minkoff store in, -
Steve Dennis 31:46
Yes, -
Michael LeBlanc 31:47
In SoHo, and she had, you know, mirrors she had, you know, interactive mirrors in the change room, she had lights, you could change the lighting, apparently, you know, to see what (inaudible), you could request a different size. So, you know, that's who was that CGI, or some company built that for them, like five years ago? So, that yeah, you know, some of this isn't exactly, you know, net, net new. I mean, the approach is interesting. But, -
Steve Dennis 32:10
No, it's not. It's not totally new. I mean, there's synthesizing a number of things together. So, overall, I would say, you know, I'll give them a little bit of a pass on, you know, why it took 15 minutes for the dressing room and why I got assigned a dressing room on the second floor? I assume that's something that could, you know, could be shaken down. I mean, I would say that if that was generally the experience, I'd, I'd just like walk to the Nordstrom next door, like I can go in grab stuff be in and out of the dressing room in five minutes, (crossover talk), -
Michael LeBlanc 32:38
Be out of there in 14 minutes. Yeah, -
Steve Dennis 32:39
Right. So, so, I think it, you know, it's a, it's a really interesting model, the store from a merchandise assortment standpoint, definitely skews younger. So, I'm not necessarily the customer in terms of the product offering. There's very little, I mean, outside of apparel, there's some footwear, and you know, kind of accessory type items but is very limited. And it's merchandised really, from an outfit standpoint, there's no shoe department or cosmetics department, right? That's why I say it's not really a department store, from that perspective, not to be too much of a literalist about it.
Steve Dennis 33:14
But you know, whether people will want to shop this way fundamentally, you know, it's just hard for me, I mean, it's interesting. Like I say, for introverts, it's great. Like, you don't have to talk to a salesperson, and you can, you can leverage technology. But you know, if they're competing with the other specialty stores, in an upscale mall, like this one, retailers that have a similar if not even more extensive assortment of apparel, but also, you can get more shoes, you can get a handbag, you can you know, so from an assortment strategy standpoint, I'm not sure it's quite hitting the market right.
Steve Dennis 33:56
But anyway, they've announced they're going to open another store in Columbus in the fall. So, we'll see what that looks like. And, and like I said, you know, I don't think store one is necessarily indicative. Well, number one, you know whether this will actually ever be rolled out, but how it might iterate. But, but certainly, in terms of a technology, customer experience, perspective, quite different. Interesting, you know, remains to be seen whether will people will really gravitate this to this in the way that you know, people would hope
Michael LeBlanc 34:25
A couple, a couple of three comments. One is I get grocery more than I get anything else because it's such a high frequency buy. And if you're accumulating data, you see the customer a lot. So, I, I really get the, the attractiveness notwithstanding the low margins and the difficulty of the business, -
Steve Dennis 34:41
Yeah, -
Michael LeBlanc34:42
Of grocery, you've got super high frequency of shopper, right. So, I think that's attractive to a, a business like Amazon. The second thing would be, you know, a business of their scale, you would think they could hire folks who know, retail deeply, but maybe there's, -
Steve Dennis 34:58
Right, -
Michael LeBlanc 34:59
A bias there that they say we don't we, we don't want to hire anybody who's got deep retail experience because we think we've got it figured out and we want to take a different approach.
Steve Dennis 35:05
Right, yeah, -
Michael LeBlanc35:06
You know, what, what are we, A): comment on, on your idea about why they just can't get this right. I mean, they have no limit, ostensibly on resources. And then what do you think the outlook is for the future under potentially new leadership and, and a new, a new direction?
Michael LeBlanc 35:05
And then the third would be, you know what, and this is probably not a bad way, cumulatively to roll up your thoughts in the episode. You know, not everything is staying the same, Jeff Bezos has moved on. We've now got Mr. Jassy running it, we got new retail leadership, Doug Herrington, Dave Clark, -
Steve Dennis 35:38
Well, I think, you know, it's a bit of the, you know, the buying orientation, the hammer, you know, and applying to it. Dave Clark, the guy who ran consumer previously came up, you know, is really more of a logistics guy. So, you can understand, you know, that, that kind of orientation he would have. Doug Herrington is, is more of a consumer guy, but not really he's like (inaudible). And he's been running the grocery side, merchandising side for a number of years prior to getting elevated. So, he's got more of that retail DNA, but not, not for more of the art size side of it. So, it remains to be seen. But yeah, I mean, if they wanted to, and I don't know. I mean, they haven't hired me, I don't think they've hired you. So, I don't know, you know, what sort of consultants they're bringing, bringing to the party, -
Michael LeBlanc 36:20
Contact information by the way, contact information, (crossover talk), -
Steve Dennis36:23
But, yes, right, you can we're, we're very reachable, very reachable, (crossover talk), -
Michael LeBlanc 36:24
Very reasonable or very reachable.
Steve Dennis 36:27
But I you know, I, I think it's, it's difficult to say where the, the direction of retail, you know, more holistically, and particularly physical retail is likely to go, going forward. To your point, if you believe that Amazon is mostly motivated to spin the flywheel, and to drive the advertising business, it's helpful to reach different kinds of customers or get deeper, -
Michael LeBlanc 36:58
Yeah, -
Steve Dennis 36:59
With different types of customers, and different sort of purchase occasions. So, if they can grow more of the upscale apparel business, if they can get into grocery in a more profound way, that's a lot of data, -
Michael LeBlanc 37:14
Yeah, -
Steve Dennis 37:15
To translate into more advertising dollar, right. So, there's part of me, which says they have to do it to spin the flywheel, -
Michael LeBlanc 37:24
A lot of co-op dollars too, by the way, I mean, grocery has a lot of co-op dollars, a lot of vendors who understand that consumers make a lot of buying food buying decisions at the shelf.
Steve Dennis 37:35
Right. So, I think it's, you know, it's, it's a little bit hard to tell. I mean, I do think, you know, going back to something we talked about earlier, we've talked about in other episodes, I think we make a mistake, generally, when we try to evaluate Amazon as a conventional retailer, like those sorts of metrics. And that sort of, you know, why doesn't Amazon do this? Why doesn't Amazon do that? I think is, is often taking us to the wrong place, because they don't, -
Michael LeBlanc 38:02
Asking the wrong question, right?
Steve Dennis 38:03
Asking the wrong, wrong questions. The other question I would have is, I mean, it remains to be seen, you know, where, where Jassy and, and Herrington, are going or, you know, drive, drive the business. I think the other question is, if they really do want to get deeper into certain retail categories, you know, largely brick-and-mortar dominant retail categories, like grocery, like convenience stores, you know, there are there's home improvement, there's furniture, you know, there's a number of other categories where they do well, on the buying side, but they don't do well at all on the shopping side, -
Michael LeBlanc 38:36
Yeah, - vendors, and vendors, -
Steve Dennis38:37
And is there another acquisition that makes sense, you know, we will have to talk about borderline facetiously, but you know, buying Am-, buying Kohl's, for example, which would cost them, you know, seven or $8 billion, and instantly give them 1100 locations, and a lot of relationships with consumers and more upscale, -
Michael LeBlanc 38:40
Vendors, and vendors,
Steve Dennis 38:42
And vendors, you know, versus, you know, taking 10 years to build out Amazon Style, you know, so, but I think that ultimately gets back to where in the priorities of the enterprise in total, do they want to spend their time and their capital. I mean they certainly don't have any issues with being constrained on capital.
Michael LeBlanc 39:43
Yeah, yeah, -
Steve Dennis 39:45
But whether that's something that Jassy is interested in, whether, you know, Wall Street will sort of go for that ride certainly looks tougher in the immediate term, because of the challenges in, in eCommerce in retail. But, you know, there's a lot of stuff they could be experimenting with for the next year or two before they'd have to place, place bigger bets. So, it's, I think, it's, it's interesting, I just think, again, you know, it's important to understand what spins the flywheel at Amazon, you know, where they're very strong, which is overwhelmingly on the you know, the sciency, engineering, buying part of it, -
Michael LeBlanc 39:55
Yeah, -
Steve Dennis 39:56
Not so much. I mean, that is potentially fertile ground for them. But it's going to take a different, different orientation. And it's going to take them into some territory that you know that they're really not that experienced in.
Michael LeBlanc 40:08
Well, and a shout out to Mr. Jassy, Mr. Herrington and the Amazon public relations team who might be listening to this episode, we would welcome the opportunity to be told that we're getting something wrong or that we haven't seen something or that we'd love to learn more. So, maybe it's a new day at Amazon, we'd love to have, -
Steve Dennis 40:26
Always day one I hear, -
Michael LeBlanc 40:28
Yeah, always day one. So, maybe it's day one of coming on the Remarkable Retail podcast and explaining yourself about what exactly is going on? All right, well listen it's a great episode. We've, we've covered a lot of ground and we've had just, you know, we what I love about your insights, amongst other things is you actually have been to the stores and, and notwithstanding, you didn't get a haircut, at their store. But you've got that kind of real ground on here's the experience, here's what we think. And I've been to a lot of their stores, but I haven't been to the latest iteration. So, maybe that is in our future.
Michael LeBlanc 41:03
Speaking of in our future, a reminder we will be in a Las Vegas for Grocery Shops. So, shout out to Vegas, and that's a wrap on this episode of Remarkable Retail. Thanks, Steve.
Steve Dennis 41:16
Thank you.
Michael LeBlanc 41:17
If you like what you heard, please follow us on Apple, Spotify, your favorite podcast platform. So, you can catch up with all our great interviews, like our discussion with Seth Godin on what retailers can actually do to fight climate change. New episodes of Season 5, presented by MarketDial will show up each and every week. And be sure to tell your friends and colleagues in the retail industry, all about us.
Steve Dennis 41:37
And I'm Steve Dennis, author of the best selling 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 stephenpdennis.com.
Michael LeBlanc 41:51
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. Plus the host of the popular YouTube cooking show, Last Request Barbecue. You can learn even more about me on LinkedIn, or meleblanc.co.
Safe travels everyone.
SUMMARY KEYWORDS
Amazon, store, retail, talk, grocery, business, Steve, buying, whole foods, profitability, earnings, people, week, Overstock, convenience stores, inflation, bit, physical, episode