Is it possible that you are not changing as dramatically and profoundly as you should? Is it possible that many of the strategies that have brought you success may actually prevent future success? Is it possible that you aren't moving nearly fast enough? In this provocative episode we take on the question of whether retail brands need to embark on a radical rethinking of their operating model, eschewing one-size-fits-all models in favor a hybrid, platform approach to delivering customer value. Is it time for a blank-sheet approach to business strategy?
“If I had asked people what they wanted, they would have said a faster horse.”
- Henry Ford
Is it possible that you are not changing as dramatically and profoundly as you should? Is it possible that many of the strategies that have brought you success may actually prevent future success? Is it possible that you aren't moving nearly fast enough?
In this provocative episode we take on the question of whether retail brands need to embark on a radical rethinking of their operating model, eschewing one-size-fits-all models in favor a hybrid, platform approach to delivering customer value. Is it time for a blank-sheet approach to business strategy? How do we embrace creative destruction and an un-bundling and re-bundling of the component pieces of our strategy to create a remarkable growth strategy? Is Nike's reconceptualization of their strategy a great example of brands we might emulate? How should we respond to change that is more exponential than linear? We take on all this and more.
But first we open up with retail stories that caught our attention this week, most notably Amazon's earnings and the big reveal on their massive advertising business. We also dip into how retail looks to be rebalancing, the race for Peloton and press releases that might have been better left unsent.
Jason Goldberg's Forbes article: Amazon Reveals Its Most Profitable Business.
Photo by Matthew Lancaster on Unsplash
Steve's articles:
What We Get So Very Wrong About Amazon's Retail Profitability
The New Era of Hybridization Creates Unparalleled Opportunities.
Steve's 2022 Retail Predictions.
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 00:05
Welcome to the Remarkable Retail podcast, season 4, Episode 4. I'm Michael LeBlanc.
Steve Dennis 00:11
And I'm Steve Dennis.
Michael LeBlanc 00:13
And well, Steve, welcome back to this side of the world; you just returned from your visit overseas. And you're, you're talking about what we're going to talk about today, I think, the great reconfiguration.
Steve Dennis 00:25
Yeah, I just got back from speaking at the LEAP conference in Riyadh, Saudi Arabia, which is quite, is quite an extravaganza. But yeah, I did the opening keynote for the retail track there and the actual title of it was, ‘The Future of Retail is Hybrid and Harmonized’. But what I really kind of emphasized was this idea that a lot of retailers, in my view, really need to think about a much more massive reconfiguration of their operating model to succeed in the future. So, it's fun to talk about, I got great feedback and that's what we'll dip into in this episode.
Michael LeBlanc 01:03
Amazon comes out with their numbers last week, everybody's talking about it. You know, you've got everything from the price of Prime is going up, their CapEx spending, the first time they've ever talked and identified their ad biz. What did you think? It was a big, big news release and, and it's really created a buzz in the industry.
Steve Dennis 01:22
Yeah, there's a ton of information in, in that particular earnings announcement, I guess there always is with Amazon. They're hard to, to ignore.
But yeah, one thing that got a lot of, a lot of news was the increase in the Prime price and whether or not that was going to, going to cause a lot of customers to, to unsubscribe. My guess is hardly any will unsubscribe. I think it's you know, it's a so part of the whole Amazon value proposition. They talked about their spending $61 billion on capital expenditures, which I just can't even get, -
Michael LeBlanc 01:56
Billion, billion dollars on Cap Ex, -
Steve Dennis 01:58
That amount of money, like I can't remember now enough about all the different retailer, but I think like Target, Target's revenue in a year is like 90 billion or something. So, just they're you know, they're spending more money on CapEx than you know, just about re-, every retailer on the planet does in a year.
But the one I really got I found most interesting was they finally broke out their revenues for their advertising business. And I think it's even bigger than most people, we're guessing. It's $31 billion a year.
Michael LeBlanc 02:20
Wow.
Steve Dennis 02:25
And our friend Jason Goldberg, wrote a piece in Forbes, which I actually followed up on, where he's suspecting, and I think he's probably right, if not, right this second, certainly in the next year, that Amazon advertising is probably the most part, profitable part of Amazon now, -
Michael LeBlanc 02:52
Right.
Steve Dennis 02:52
Surpassing Amazon Web Services. And I, I wrote a piece for Forbes, which I assume we'll put a link to in the show notes about how this just really kind of recast the way we think about Amazon's retail profitability. You know, there's this idea that they don't make any money in retail. Number one, I don't think that's been true for a while, because they certainly have to make money in their third-party marketplace, which is now like 60 plus percent of their whole so-called retail sector.
Steve Dennis 03:21
But retail now is really like, you know, this foundational piece that enables them to have this incredibly profitable advertising business. So, it's very hard, just in general, with Amazon to kind of pick out all the pieces because so many things are, are interrelated. But I think we really have to start thinking about the so-called Amazon retail businesses, this combination of things, which is the traditional retail part, plus their marketplace, which is got to be profitable, plus advertising, which is just amazingly profitable, it's got to be like a 90 plus percent gross margin business.
Michael LeBlanc 03:56
Well, it's, it's almost like the ‘X’ season in a long running show where you finally, it's revealed the master plan, right. And the master plan where you spend billions and billions, untold billions of dollars, building a retail business that we don't really care about, other than it will drive the other businesses. So, this is, you know, this is the interesting perspective around profitability. AWS is a massive business, but of course, there's a lot of cost to building, you know, the, you know, whatever, I don't know, maybe the building servers in the sky, or under the ocean, or wherever they're building them. It's a lot of cost there.
Whereas you got this ad business, at one level, it's very profitable, because it just kind of creates money. Now, it wouldn't ‘A’ priori exist without the Amazon retail business. So, you know, this is, this is fascinating stuff.
Steve Dennis 04:38
The examples I try to make, or the analogies I try to make in the Forbes article is that you know, there's lots of businesses where you have to think about them holistically, right. You know, Polaroid sold cameras to sell the film. Gillette sells razors to sell the razor blades. Costco, you know, makes most of its money from memberships not selling products in the traditional way. And, and you know, there's plenty of examples freemium, premium kind of content models.
And so, so I, you know, I'm just trying to make the point that when you look at Amazon, the retail part of Amazon, and try to compare it to other retailers like those comparisons really don't make any sense. And it's just really been emphasized now as we understand the power and profitability, -
Michael LeBlanc 05:19
Yeah.
Steve Dennis 05:19
Of the ad business, which is going to continue to grow faster than all of retail for sure.
Michael LeBlanc 05:26
This is a great episode, we've talked about The Great Reconfiguration, but now let's spend some time talking about, ‘The Great Rebalancing’. What, what do you thinking there, when you talk about the great rebalancing, it's come up a bit, but it's probably a pretty good thing to bring up even in today's news.
Steve Dennis 05:39
Well, the past year or so we've been talking about this, this idea that the retail products have really done well, partially because of stimulus, you know federal government stimulus, partially because people have extra discretionary income, because we're not spending it on services. Certain product categories have done disproportionately well. But as, as we hoped COVID would subside, we really expected kind of a rebalancing. You know, more dollars going back to services, and the kind of disproportionate spending to balance out a little bit. We're just starting to see some conflicting reports about the degree to which this is happening.
Steve Dennis 06:20
And, I think it's just kind of watch this space, because some folks are saying that, you know, these pre-pandemic spending habits are going to really stay the same. And I think it was a Deloitte Report in particular that said, now they're starting to see evidence of, of spending going back towards services and going back to more kind of the mean kind of spending in some of the product categories. So, things just an interesting thing to watch. And you know, that will really determine largely the winners and losers, the balance of the year. The degree to which that rebalancing happens.
Michael LeBlanc 06:52
Speaking of watch this space, the race for Peloton seems to be on. You know, it's almost like an episode that you jump on their bike and you kind of watch the stock price go up and down, right as entertainment, you know, -
Steve Dennis 07:03
To give you a heart attack, right? (inaudible) like sorry, (crossover talk) too soon?
Michael LeBlanc 07:06
Too soon, too soon. I just watched that episode last night. You know, listen, I mean, everybody and their mother is being thrown out as a potential suitor. And I'm sure these big companies, you know, whether it's an Amazon, or Apple, or Nike, you know, when anybody comes on the market, they got teams of people who look at investments and go, you know, do we want in on this? They probably already have a perspective. So, it's probably not unusual that there's a little bit of buzz a buzz, but today seems to have reached, you know, the peak of the class so to speak in terms of energy. Wha-, what are you hearing and what do you think?
Steve Dennis 07:38
Well, first of all, yeah, Amazon is rumored to be in play, Amazon looks at everything it seems.
Michael LeBlanc 07:43
Right, right.
Steve Dennis 07:43
So, I wouldn't necessarily make much of that news. I don't know that I see Peloton as a great fit for Amazon. I think if they're going to spend, I think, I think Peloton's market cap today, as we record this on Monday, is like $9 billion, I think if Amazon, we're going to drop $9 or $10 billion to advance their strategy, they probably would be better buying Kohls or something like that. So, -
Michael LeBlanc 08:06
Yeah.
Steve Dennis 08:06
Anyway, I don't see that as a great fit. Of course, by the time, you know, maybe it will get announced, (inaudible) by the time, people listen to this episode. Nike, I think, is a more interesting, that you know much more relates to their core business, for sure.
Michael LeBlanc 08:19
Yeah, yeah.
Steve Dennis 08:20
They have as part of their Consumer Direct Offense, they're really leveraging customer data, they're doing much more of this kind of membership model. So, I certainly can see that as a better strategic fit. But you know, spending 9, 10, $11 billion on a business that looks to be maturing quite rapidly, and is losing money. You know, I, I think, -
Michael LeBlanc 08:42
You have got to wonder if these guys are worried that they're catching a falling knife, right? (crossover talk), -
Steve Dennis 08:46
Yeah, I mean to me that that's the bigger story is, -
Michael LeBlanc 08:49
Yeah.
Steve Dennis 08:49
You know, is there anybody who can really, you know, there is not that many players that can afford that size of an acquisition, but also, you know, how do you really demonstrate that value, when the business seems to really be, be struggling? And it's not like Nike is going to instantly be able to solve their several 100 million dollar earnings gap. So, I don't know, I don't know. I don't know, we'll see. (crossover talk), -
Michael LeBlanc 09:10
Anyway, listen stay tuned again for this channel, we'll see what happens if anything to that.
I guess, last but not least, we get, we got a like about a minute left. The better late than never department, right, you were sharing some reports, or news releases from a couple of people that you weren't like, wait, what, like, what year is this? Like, share a few of those just before we,-
Steve Dennis 09:31
Well.
Michael LeBlanc 09:32
Get on with the rest of it.
Steve Dennis 09:32
I mean, this is a little, this is a little bit, you know, whiny, cranky, which is kind of on brand for me. But yeah, I, I just sometimes when, when press releases come out, and I get quite a lot of them because I contribute to Forbes. I'm just, I'm just amused by kind of a hutzpah of people saying things in public. So, the first one was that Macy's said that they're going to focus on online and off the mall, -
Michael LeBlanc 09:54
Whaaa,-
Steve Dennis 09:54
It's part of their new strategy. (crossover talk), I'm like, wow, I, I feel like I'm back at Sears in 1999 talking about our, our strategy, you know that didn't workout so well.
Michael LeBlanc 10:03
It's like 1999 called they want their (crossover talk) back.
Steve Dennis 10:06
I mean, that was that was a great idea if they had maybe like, really started and worked hard on that 15 years ago, but I don't know, that's a little funny.
And then Lowe's announced that they're having a loyalty program for their contractor business, which also seemed like a really good idea 20 years ago.
Michael LeBlanc 10:22
Yeah, (crossover talk), And that's been and that's been a historical weakness in the Lowe's business, their contractor business. That's where, -
Steve Dennis 10:28
Yeah, it has been.
Michael LeBlanc 10:29
It's really made improvements, right?
Steve Dennis 10:31
Yeah. And then, and then there was some announcements about some of the auto dealers, I think GM in particular is going to announce a competitor, kind of like a marketplace competitor to Carvana. And also, I mean, I don't know, I just find it amusing that some of these companies, you know, they think they're going to get all this excitement from these announcements, where I think you look at and go. ‘Well, yeah, this would of been an exciting 10 years ago when, you could have actually used it to a competitive advantage. And now you're like, so massively behind, it just calls attention to how slow you've gone’. So, anyway, it's just, I, I just, I just find it amusing, kind of the lack of self awareness on the part of some of these big, these big companies.
Michael LeBlanc 11:15
Well, well there you go, the opinion of Steve Dennis after flying 45 or 50 hours back around the world, is still here on the podcast. Let's, (crossover talk), -
Steve Dennis 11:27
Everything, everything our listeners are paying for,-
Michael LeBlanc 11:29
Everything you paid for,-
Steve Dennis 11:30
And more, and more.
Michael LeBlanc 11:32
Right. Well, let's, let's move on to the rest of the podcast with some great discussion around, ‘The Great Reconfiguration’. All right, Steve, let's talk about on this solo episode the concept that you into, in,- in-, introduced in your predictions, ‘The Great Reconfiguration’. And, and today, we'll go into more depth. And in fact, this season, we'll kind of pick apart some of those elements that are, you know, predictions, almost, I would say, I don't put words in your mouth, but they're more predictions in some of these than they are, these are definitive strategic observations or strategies. But before we go deep, what's your basic premise around The Great Reconfiguration?
Steve Dennis 12:10
So, it's kind of the third element that I've added to two things I've been saying for a while. The first two things are that retailers need to change even more than they think they do. And the second thing is they need to change even more quickly. And that's really just rooted in the fundamental idea behind Remarkable Retail, which is, you know, if you're not remarkable, you're likely to become irrelevant. But also just that the pace of change keeps accelerating.
Steve Dennis 12:39
But the third element is, it's not just about changing it's about how you change. And, you know, we've, I think, talked about this before, this, this thing that Henry Ford said about, you know, "if I had asked people what they wanted, they want a faster horse", you know, wouldn't lead to a completely new mode of transportation. And I think there are a lot of elements that are coming together that suggests that many retailers should really fundamentally rethink, almost start with a blank sheet of paper. And some of this has to do with digital technology. But, a lot of it has to do with getting away from kind of this one size fits all strategy of going to market.
Michael LeBlanc 13:20
You know, like a couple of, more than a couple episodes last season, we were talking about this idea that, you know, obviously right from season one, we were talking about how change is hard. And the note you made, the i-, the idea that you put out last season was like if you're going to be doing change, and you put it on a whiteboard and said, listen, if we were now to start a department store today, what would it look like? Like that kind of and, and re-, as you say reconfiguration, but al-, almost a reconceptualization. And, and it seems like there's a lot of both tools out there to grab your head around that. But that is that what you're talking about (inaudible) that, that kind of incrementalism, but, boy, if we just had a blank slate, and we are all sitting around, what would a department store, for one example, look like right from the ground up, right?
Steve Dennis 14:12
Yeah, I, I would say if you think about the customer segments that you seek to grow, retrain, retain, acquire, and the set of products and services you offer. And you ask yourself, okay, given what has been going on, and what's likely to manifest over the next, you know, five years, what should our operating model look like, let's just say for a given city? You know, is, is the answer using the department store example, is the right thing to do to keep tweaking these large stores in regional malls, and adding, you know, some new products or whatever, (crossover talk), -
Michael LeBlanc 14:53
Shop in shops or whatever, right?
Steve Dennis 14:54
Yeah, (crossover talk), Well, maybe there's still a viable model long term for Macy's. But maybe instead of 10 Macy's that are all pretty much the same spread out through the metro area, maybe we have one or two fabulous destination stores that do carry a large assortment that are multi-story, but we add a bunch of things to make it really worth the consumer driving past all the competition. You know, frankly, when you look at department stores, a lot of their competition has many more outlets. I mean even forgetting eCommerce, but they just have more points of distribution.
Steve Dennis 15:30
So, for you to decide to drive past three Kohl's and two TJ Maxx's to go to Macy's is really asking a lot. But how could you create maybe a couple of destination locations that are worth that. But maybe then you have a bunch of satellite stores that are much more focused, or are mostly about online pickup and returns or something like that. So, I'm not saying that's the answer for department stores, but it is thinking about, okay, what are our goals for share of wallet with these customers? What are our market share goals? And if we had to do it all over again, starting,-
Michael LeBlanc 16:01
Right.
Steve Dennis 16:01
With a blank sheet, might we do it in a fundamentally different way? And I suspect for most struggling retailers, the answer is absolutely, yes. For some of the more successful retailers, perhaps the change isn't, isn't that great. Though I think they should be thinking about it, because I think the pace of change is, is accelerating and there's just a lot more competition, digital and physical.
Michael LeBlanc 16:22
And it's not like we don't have today, examples of what you're describing as a strategy or tactic. IKEA comes to mind, for example, that they have very few stores. RH, we've talked about RH many times, which is, you know, Scott Galloway talked about RH as a, you know, as a testament to the power of experience, these big experience stores or however they are defined.
It feels like though, you know, I want to come back to this, this need for change this, this thing that's, that's propelling change, which is sometimes results. I mean, I looked at the results from 2021 for US retail, and they were, you know, (inaudible) just amazed. I mean, these was it, 18% year over year growth. I mean, there doesn't seem to be a compelling reason to change today. Are, are you worried that people will take the wrong lessons from that year, from 2021 and go, ‘Everything seems to be going fine, look at the, look at the results’?
Steve Dennis 17:16
I, I am worried, I, I think that, you know, there were a lot of things that, that led to retail having such a good, I guess, you know, it's really more, more like an 18-month run at this point. And, you know, a lot of it has to do with how much discretionary income consumers had. And some of that was because of federal stimulus dollars that were pumped into the system. Some of that was because people weren't spending money on things they would normally spend on. You know, whether that's going out or their commute, or what have you.
Steve Dennis 17:47
So, you have this unusual point in time, where just a tremendous amount of, of capacity to spend exists. And you know, it of course, it also got distorted to certain categories. And I think,-
Michael LeBlanc 17:47
Yeah.
Steve Dennis 17:59
Some of the categories, like apparel that didn't benefit from that so much are thinking, ‘Okay, well, we get past COVID here, and things are just going to be amazing’. But I would argue that the underlying reasons that apparel, and department stores, and some other formats have struggled, you know, they, they haven't gone away. And so, it wouldn't be a mistake to just kind of gloss over and think everything's fine, just because we had a good year, or year and a half.
Michael LeBlanc 18:26
So, unpack for me reconfiguration. I mean, I, again, we don't want to just talk about department stores that because this, I think works on every spectrum of retail, but when you say reconfiguration, take me through what the components of that would be for our listeners and their own businesses.
Steve Dennis 18:43
So, if you think about a typical retailer, and let's just think about, you know, any of the big retailers we all would be familiar with, there are a few basic components to their, their business model. And before eCommerce, you know, most retail stores, they just had kind of the same playbook. You know, they figured out what their assortment, their service model was, they created a prototype format. And then they maybe refined it a little bit, but they just kept rolling out the same kind of cookie cutter version of their store. You know, maybe a little bit smaller for smaller markets, or what have you, maybe an urban version or whatever.
Steve Dennis 19:24
But for the most part, the component pieces of a successful retail in the physical world, were, were pretty straightforward and simple. And as we've talked about before, stores largely served one purpose, they were a place for people to go get products, check them out,-
Michael LeBlanc 19:38
Yeah.
Steve Dennis 19:39
Take the products home with them. When eCommerce came along, you know that largely developed is kind of a standalone thing as well. So, there was some basic component pieces of what made for a good eCommerce retailer. And now over the last few years that kind of hybrid role the mix between physical and digital has become pretty obvious, but still pretty, pretty simple. Still sort of a core physical brick mortar model and then it's kind of a core eCommerce model.
Steve Dennis 20:04
What's been interesting, and we've talked about that in the context of the hybridization of retail is how stores are changing to be more obviously advertising, and fulfillment, and service centers, and things like that. And the supply chain has been kind of blending more home delivery, and, and so forth. So, we've already seen kind of this mixing and matching of the component pieces, but most of it is really occurred in the current structure.
Steve Dennis 20:31
In other words, people are evolving their existing retail formats to a slightly different purpose. People are evolving their distribution centers, to slightly different purposes. What I'm talking about is, you know, what about blowing up those component pieces and re-mixing them in interesting ways, maybe creating a totally new format. And we're seeing some of this, you know, Panera Bread and others opening drive thru only stores, or stores serving as only fulfillment centers, or Nordstrom Local just being a format that basically does online pickup and returns. So, we're seeing some of these new component pieces being put out in the market. But it's still very limited and so, (crossover talk),-
Michael LeBlanc 21:16
I want to, I want to pick up on that, on that point, the still very limited piece, because we've and I we've often talked about, for example, Nordstrom Local stores, but there's still not many more Nordstrom Local stores. So, it feels like we're still in the, haven't got it quite right. Or else if I was them, I mean, I'd be opening up 100 of them. Do you think, you think that indicates kind of like maybe this isn't quite configured exactly the way we thought it might be?
Steve Dennis 21:42
Well, it may be that Nordstrom Local is not producing the results they want. And so, they're still trying to figure it out. You know, Nordstrom has been caught up in a lot of other things as well.
Michael LeBlanc 21:52
Yeah.
Steve Dennis 21:52
So from an investment standpoint, it might not be quite, quite,-
Michael LeBlanc 21:56
Yeah.
Steve Dennis 21:56
Right. And I'm not suggesting that the Nordstrom Local, you know, the model of sort of the big Nordstrom store and Nordstrom Local is the right reconfiguration for Nordstrom on a national basis. Maybe there are some other formats they should put into play.
You know, the other thing, and part of the reconfiguration too, is, there's this ability to offer, particularly in a digital world, services and other kinds of offerings that you couldn't before. So, I think we're, we're moving from a place where a retail brand, you know, tended to be very, or tends to be pretty product centric, channel centric, format centric, you know,-
Michael LeBlanc 22:39
Right, right, right.
Steve Dennis 22:40
They own a set of customer relationships, if they're good. You know, the remarkable brands have this really tight connection and engagement with their core customers. And that allows you to perhaps bring other products and services to those customers. But if you're going to do that successfully, at least in a physical world, I would argue your physical assets are likely going to have to evolve pretty dramatically in some cases. In other cases, you know, some, some people have gotten pretty well figured out.
Michael LeBlanc 23:11
It's, it's an interesting point, I remember being at Pandora Jewelry and the prevailing wisdom at the time was every new store, basically, you, you could put yourself in the middle of the new store anywhere in the world, open your eyes, and you, you'd be in the same store. Like it was basically,-
Steve Dennis 23:23
Right.
Michael LeBlanc 23:23
The, the epitome of cookie cutter. In other words, these all look identical. And that was that was what you were measured on, the every store looked identical because we got we think we have it figured out. But you're calling for a very, almost a very different radical assumption that is, you know, make your store fit the market. I think Starbucks is pretty good at that. I've seen some really neat Starbucks stores it fit in to their market. And then I've seen the cookie cutter Starbucks stores that, you know, you'd see on every corner, yeah?
Steve Dennis 23:48
Well, there's a lot I mean, for sure, there's a lot of merit to I mean, operationally, it is way more effective and efficient to operate just one model or a very small number of models. And when we were in a, a world, which was basically big box retailers, and you know, a bunch of mom and pops, you know, there wasn't, there wasn't this opportunity for someone to come along online and steal away some of your business just by picking on a particular product category or particular customer segment. You know, it's very hard for that sort of competitor to scale. You might face that with a local mom and pop but you wouldn't face it on, on a grand scale.
Steve Dennis 24:32
But the internet has absolutely changed that the investment behind a lot of these digitally native brands, a lot of the digital services, you know, which really break down boundaries between like, you know, you just think about I mean, this is not the best retail example, but, you know, when you think about something like Etsy, you know, the ability to marry millions of, of creators and producers all over the world to customers, digitally, you know, this, -
Michael LeBlanc 25:01
Yeah.
Steve Dennis 25:02
Stuff, a phenomenal thing. So, the basis of competition has obviously changed a lot over the last 10 or 15 years. And I think it's just going to continue to change. And so, the retailers that aren't thinking about not only bundling their offering together in a really different way, picking up maybe different component pieces, but also reconfiguring their physical assets, I think, you know, they, they could be, they could be at risk.
Michael LeBlanc 25:27
On the other side of that, do you think someone like a Nike is, is a good example of, of your forward thinking? I mean, they've got I've lost track of how many formats and iterations and different things they have all the way from, you know, the House of Innovation all the way out to outlet stores, they seem to be on that kind of track, where they have a singular br-, a singular brand, but multiple, very, very different executions.
Steve Dennis 25:27
Yeah, I think and, you know, I worked with Nike a number of years ago so, I'm not sure what their current thinking is, but they, they certainly thought about how to maximize the value of the Nike brand, and how that can be done, you know, largely through products, but also through, through services.
Steve Dennis 26:12
And then the question is, you know, how do you build the brand, with all the different levers or component pieces you can, you can pull on, and, you know, they had a very successful, mostly wholesale business. They certainly had some physical presence, but they've really been pushing on this direct-to-consumer side of it. So, that very much speaks to how much the world has changed for a manufacturer that have, you know, previously 20 years ago, and you know, this from, from your experience, you know, CPG companies or manufacturers, I mean, they essentially had no relationship with the end consumer.
Michael LeBlanc 26:50
Yeah.
Steve Dennis 26:51
And digital technology has allowed that to change. And so, Nike has understood that with this consumer direct offense, and they are, they have been building out their capabilities, to have that direct relationship with the customer. But they haven't done it in a one size fits all model to your point. They said, okay, well, here's the House of Innovation, which there are only a few of them, -
Michael LeBlanc 27:12
Yeah.
Steve Dennis 27:13
Things are going be you know, this this epic showcase for our brand. And, you know, really ‘Wow’ places to go visit when you're in New York, or Paris or wherever. They've got the like Nike Live and Rise concepts, which are much more tailored to a local market. And they've still got kind of the Nike town format that's been around for a while, which is a little bit more mid-market. And then they've been reconfiguring their distribution relationships with their wholesale partners to showcase their products and certain lines of products, in certain types of retailers. So, you know, who knows what's next for them. But I think, you know, and they've also layered on top of it, a strong membership model.
Michael LeBlanc 27:51
Yeah.
Steve Dennis 27:52
As well. Which I don't think they've even begun to monetize. So, I think Nike might be as far as a major brand, the best example of someone who, who very deliberately reconfigured their operating system starting 7 or 8 years ago. And, you know, I think they're, I don't know how far, I don't know where they're going to end up but, they’ver certainly executed a lot. But I suspect there's a lot, a lot more to go.
Michael LeBlanc 28:10
Yeah, yeah. In one way it's a very provocative example. Because off mic, we're talking about, you know, the role and the expanding role and the conflicts in the wholesale versus retail in the middle. And, of course, we've talked about on the podcast, but Nike, you know, is certainly making headlines from trimming down dramatically their distribution, and, like Canada Goose, and others have said, ‘Listen, I want to be, you know, 50/50, or whatever percentage’, so it is, is that a spanner in the works? Is that a, a, an accelerant to this change? In other words, listen, you're not the only game in town and if you want to be considered, that you're adding value, you better, you know you better rethink how you go to market, because if you're not your vendors are going to go around you?
Steve Dennis 28:54
Well, I think, you know, the, I think somebody said, you know, anything that can go digital will go digital. So, you, you've got the, just the fundamental abilities that are that are possible now, for a brand like Nike to go to market in ways that they just couldn't before. You've got, you know, pressures, all sorts of competitive pressures that basically say, you know, if you're, if you're not per-, you know, to whatever asset whether it's a vendor, -
Michael LeBlanc 29:23
Yeah.
Steve Dennis 29:24
Or retailer partnership, or some other kind of partnership, if that's not performing, it's not that hard to, to blow them up and, and start with a different partner. You know, that used to, you know, just think about how long it took for a given format to roll out. Some of these relationships, wholesale retail relationships lasted for, you know, for decades. And, -
Michael LeBlanc 29:45
Yeah.
Steve Dennis 29:46
It's hard to even think about, well, how are you going to replace that volume? Well, that's a lot easier to think about now in a consumer direct world. So, I think the pressures just keep escalating. New technology obviously keeps coming to the forefront. It's hard to predict, you know, I think we're in a world of more exponential change than linear change, which means, you know, things can happen much more quickly than, you know, human beings can typically get their head around. So, I just think there's so many, so many forces.
Steve Dennis 30:14
Now that countervailing force, a question you didn't ask, but I mean, certainly there's lots of retailers or brands of all kinds that are very heavily vested in their physical assets. And when you own something, even if it's a radically underperforming asset, or you're in a 10-year lease or something, it's you know, it's not so easy to change quickly, for sure. So, I don't want to make this sound like, ‘Oh, my God, you know, we can just decide to do this and 18 months from now, we can have a totally different business’. I mean, that's not likely to be the case. But I also think it's a psychological thing of, of people, you know, not realizing that some costs are sunk and tending to want to defend the status quo as, as opposed to kind of lean into an uncertain future.
Michael LeBlanc 31:02
Yeah, I wanted to leave our discussion today on this kind of idea that I've been thinking about. And, you know, this accelerating idea, this innovation, that I, I you know, I compare that against these blockbuster results. And I, I worry, and we talked about this a bit earlier, or there hasn't been a wildly great amount of innovation, but I think it's going to go geometric in terms of what's going to happen in this post, what a post COVID world looks like. And I guess that, that provides the fuel for some of your thinking, right? Is, is okay, the pace is ‘X’ today, you think it's fast, but really, we're just treading water, wait to see what happens. Because we've got three years of this COVID stuff. And, and I got to think it's going to leave a tremendous mark on both operating rules, but also consumers, right? Let's get back, let's finish the conversation on what the heck consumers are thinking these days?
Steve Dennis 31:51
Well, you know, consumers, I mean, it's, it's hard to keep pace with what consumers are thinking. But I mean, certainly, a lot of, a lot of as our friend Rishad Tobaccowala says, you know, it's been a great rewiring of, of, of habits and, and priorities, and, and so forth on the part of consumers. But consumers are also very fickle, and, you know, when they see something new, you know, a lot of people are inclined to try it, particularly if it's not a very high-risk trial. And, you know, we continue to, you know, even a pretty whatever, what would you call it? You know, traditional, I guess, sort of retail expansion, we still see business models that are expanding by opening new stores in kind of the traditional way that consumers are gravitating to, you know, concepts like,-
Michael LeBlanc 32:38
Yeah.
Steve Dennis 32:38
Five Below and, and others that have gotten a tremendous amount of attraction with a you know, not particularly, I mean, there's no inno-, great innovative technology or digital overlay on some of those formats. So, I mean, there's a lot of different ways to be successful in retail, and, you know, interesting niches pop up all the time, and consumers, you know, plenty of consumers seem willing to give them, give them a try.
Steve Dennis 33:04
So, I just think you have to be really willing to, you know, rather than think about, you know, here we are in 2022, with our set of assets and our core capabilities, or however you want to describe it, I, you know, the tendency is to sort of start where you are and move forward. And I just think in general, even though it's very hard to predict what technology and consumers are going to look like, in 5 or 10 years, I would try to imagine a, a different future, where you could reconfigure things, pieced together things in new ways.
Steve Dennis 33:38
Maybe imagine, you know, whether it's the meta-verse or whatever, but you know, there's some of these promising technologies or go to market strategies might become more a reality, and what might you do different. But the main thing I think, is, you know, you don't have to figure it all out at once. That, that, I think, is this, this idea of buying into a culture of experimentation.
Steve Dennis 34:00
It just what I'm suggesting is, in addition to having a culture of experimentation, you have to be much more radical in your thinking, you know, you have to embrace this kind of creative destruction process of thinking about, you know, what, what would you do to blow your business up if you were the competition? You know, what would you do if you didn't have some of the constraints you normally think of as constraints? What if you can get out of every lease? You know, I mean, just go through that thought process, because I think a lot of times had, had brands gone through that thought process, they would have moved much earlier and much more aggressively into a new world.
Michael LeBlanc 34:34
Well, I think let's leave the listeners with that thought, because we've got a lot of, a long season ahead of us, which I'm really excited about because I think a lot of this change is going to be happening this year. I think 2022, is a very interesting year. But all right, well, great episode, we covered a lot of stuff, let's leave it there.
Michael LeBlanc 34:51
If you liked what you heard, please follow us on Apple, Spotify, or your favorite podcast platform so you can catch up with all our great interviews, and insights, and new episodes will show up each and every week. Be sure to check out our YouTube channel. And last but not least, tell your friends and colleagues in the retail industry all about us.
Steve Dennis 35:06
And I'm Steve Dennis, author of the best-selling book, ‘Remarkable Retail: How to Win & Keep Customers in the Age of Digital Disruption’. You can learn more about me, my consulting and keynote speaking at stevenpdennis.com.
Michael LeBlanc 35:20
And I'm Michael LeBlanc, producer and co-host of the Conversations with CommerceNext podcast, The Voice of Retail podcast, keynote speaker and host of the all-new Last Request Barbecue cooking show on YouTube. You can learn even more about me on LinkedIn, or meleblanc.co.
Have a safe week everyone.
SUMMARY KEYWORDS
retail, inaudible, stores, Amazon, retailers, crossover, department stores, thinking, brand, people, Nordstrom, Nike, consumers, format, world, model, year, reconfiguration, customers, business