Remarkable Retail

The Hybridization of Retail

Episode Summary

This week we go deep on a growing trend that Steve introduced in his book, and recently unpacked in a Forbes article: namely how so many aspects of retail--stores, supply chains, brand distribution strategies and more--are moving from roles that are largely singular in purpose to becoming (or needing to become) hybrid in nature. This shift is profound, requires potentially massive changes over time and, we argue, not yet getting the attention it deserves.

Episode Notes

Welcome to the Remarkable Retail podcast Season Three, Episode Two! I’m Michael LeBlanc, and I’m Steve Dennis.  

This week we go deep on a growing trend that Steve introduced in his book, and recently unpacked in a Forbes article: namely how so many aspects of retail--stores, supply chains, brand distribution strategies and more--are moving from roles that are largely singular in purpose to becoming (or needing to become) hybrid in nature. This shift is profound, requires potentially massive changes over time and, we argue, not yet getting the attention it deserves.

But first we open up the episode with our quick takes on recent retail news that caught out attention, including Nordstrom's partnership with ASOS, more investment into Flipkart, eMarketer's updated US e-commerce forecast.

NOTE: We'll be releasing episodes every two weeks through September 7, when we'll move back to a weekly format. Next up, Indocino's CEO Drew Green.

Also be sure to check out our newish YouTube channel.

 

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 the all new Conversations with CommerceNext.  You can learn more about Michael       here  or on       LinkedIn. 

Episode Transcription

Michael LeBlanc  0:05

Welcome to Remarkable Retail podcast, Season Three, Episode Two. I'm Michael LeBlanc.

Steve Dennis 0:11

And I'm Steve Dennis.

Michael LeBlanc  0:13

Well, in this episode, Steve, we wanted to focus on the thinking around post-COVID, the post COVID era as we turn our minds to that. You wrote a great article in, in Forbes actually kind of a lengthy article. It was a great read,

Steve Dennis 0:25

It was too long, is what you're saying?

Michael LeBlanc  0:27

Well, no, I, it's longer than your average Forbes article, which are kind of snack-sized.

Steve Dennis 0:28

Yeah.

Michael LeBlanc  0:31

But it really started, it looked like you're really starting to get that framework post-COVID framework, what did you call it? The hybridization of retail? So, 

Steve Dennis 0:38

Right,

Michael LeBlanc  0:40

Now we're gonna get into that in the episode, but when you, when you were putting fingers to keyboards, you know, give me a top line, what were you thinking, just to give a preview of what's to come in the episode?

Steve Dennis 0:50

Well, I've gotten really interested in this idea, in fact, I've got a new keynote based on it. I touch on it in the book, it's, first I thought about it mainly is this idea of physical and digital being more hybrid. But then as I started to think about it more, I saw this hybridization appearing in a number of places. Physical stores becoming more hybrid, supply chain, go-to-market strategies with different, different formats. 

Steve Dennis 01:15

So, I've just been kind of delving into that and seeing some of the trends and trying to organize it in a, in a little bit different way. So I got some of that out of the Forbes article. There are, believe it or not, a few things I left out that I would have liked to include because it was getting quite lengthy. So, in this episode, we get to, as we say, unpack that a little bit.

Michael LeBlanc  01:36

Well, before we, before we get to the episode, we should probably talk about anything that's struck your attention, or grabbed your attention, in the retail news. I have a question for you, are you 

Steve Dennis 01:43

Yeah.
 

Michael LeBlanc  01:45

A fan of the movie Scarface? By Al Pacino, Scarface, remember that movie are you a fan?

Steve Dennis 01:50

I, I do actually have a big pile of stuff in front of me that I cleared off before we shot the episode. But yes, yes, I am.

Michael LeBlanc  01:59

Well, there's a scene in it, which I love, which is how he says, “I'm making moves, I'm making”, you know, he's just, he's coming from nothing and he's making moves. It feels like that's the theme for what's happening in retail now, right? The COVID era is,

Steve Dennis 02:11

Yeah.

Michael LeBlanc  02:13

Largely behind us. And, and I see a bunch of moves happening some moves should have been done years ago, that kind of jumped out. But other moves are starting to get interesting. And you know, that's what grabbed my attention. What do you, what do you think, anything jumps out at you?

Steve Dennis 02:28

Yeah, there's a lot of activity. I mean, we're, we're, which we've, we've touched on a little bit. You know, a lot of store openings that are going on, on, on the part of traditional players and digitally native brands. We're seeing a lot of partnerships. So, Nordstrom, 

Michael LeBlanc  02:41

Yeah.

Steve Dennis 02:43

Announcing I guess, last week or this week, acquisition and partnerships with ASOS. And some of their brands, which I think is part of stuff we've gotten into before, which is just some of these originally online-only brands need that physical presence, whether it's their own stores or, or partnering up with people like Nordstrom, Target, etc. But it's also, I think, an interesting strategy on the part of retailers to go out and find these brands that are relatively new, innovative, maybe attract a younger customer. In Nordstrom's case, you know, that's a challenge, but also give retailers a point of differentiation,

Michael LeBlanc  03:20

Yeah.

Steve Dennis 03:22

Compared, you know, it's not, not products that can easily be shopped on Amazon, for example, or they're not brands that are carried at your most direct competitors.

Michael LeBlanc  03:30

Yeah.

Steve Dennis 03:32

So, I think makes a lot of sense since,

Michael LeBlanc  03:34

Well, I mean, that's a great point. It's like their captive brand, right? Because if you're not on Amazon, we know Amazon's now the biggest fashion retailer, but fashion is apparel, more like.

Steve Dennis 03:41

Right.

Michael LeBlanc  03:43

Apparel, right, basics, basically. They're a big, they're a big basics retailer. So, that's a nice place, I think it feels like for Nordstrom to play. One thing that grabbed my attention, we talked about it off mic, was this big global investment into Flipkart, which is in India.

Steve Dennis 03:57

Yeah.

Michael LeBlanc  03:59

And it caught my attention because my pension invested it in, the Canadian Pension Plan was a big investor in it. So, it caught the Canadian attention. And that, you know, making, making moves globally. It feels, to me it feels like that we're going to enter, look, and you got to partner with somebody you got to. It's not unusual for partnerships to be happening all year long, right. 

Steve Dennis 04:18

Sure.

Michael LeBlanc  04:20

I just feel, I just feel like there's going to be a lot happening. Some of it is, you know, should of happened, maybe, two years ago or longer. But the other thing I wanted to get your feedback on was eMarketer put out some results on eCommerce, very interesting,

Steve Dennis 04:33

Right, right.

Michael LeBlanc  04:35

Results or I thought, and you said you had a couple of takes, takeaways from it. So, what was your observation about their, their latest numbers?

Steve Dennis 04:42

Well, folks may be familiar with eMarketer, they do a lot of forecasts, statistics, research, in eCommerce in particular. So, they updated their forecast this week for the US eCommerce market. And there were a few things that jumped out and I guess we'll put the link in the show notes so people can, can see because my, my holding up the chart probably isn't going to work too well, or maybe we can insert a PowerPoint slider or something. 

Michael LeBlanc  05:08

Yeah, yeah.

Steve Dennis 05:10

But, to no one's surprise, big spike in eCommerce sales last year, starting to see it, or at least the forecast is that it will, it will moderate quite a bit this year. Not totally unexpected. But, but I'd say the big takeaway in terms of the overall numbers is that they predict we're largely going to get back to kind of the pace we have seen for really a decade, which is eCommerce growing in the vicinity of 15% year over year. Brick and mortar sales, despite the retail apocalypse narrative, still positive, though, barely. So, the share is, is changing. But we're really going to get into, you know, be at a higher level by virtue of the pandemic, but kind of settle back into a pretty similar pattern. 

The second thing, and I go into this quite a bit in chapter six of my book, shameless promotion, the chapters called, 'The Future Will Not be Evenly Distributed', quoting a great Canadian, William Gibson. But, but among the things I get into that chapter is, a lot of times when we talk about, well eCommerce is 15%, of total retail or 20%, or 22%, or whatever, that's the entire industry. And what this data shows, which, you know, I've known, but they, they really call it out or present it in more detail, are the wildly different market share penetration, depending upon the category. So, books, music, games, office supplies are 50, 60, 70%, online,

Michael LeBlanc  06:43

Yeah.

Steve Dennis 06:45

Share, and then you get into like auto parts and grocery. And you know, it's low to mid-single digits.

Michael LeBlanc  06:53

Right.

Steve Dennis 06:54

So, I think most people generally know this. But you know, nobody except Amazon, maybe and Walmart is in every category. So, it's much more important to look at what's going on in your particular category. 

Steve Dennis 07:04

The other piece, which we've talked about a million times is, you know, there's, there's the aspect that there is really pure eCommerce, where the store is not involved. And then there's the eCommerce where stores are very much involved. 

Steve Dennis 07:15

Which maybe brings me to number three, which is, and this has been pretty true, I think, for a number of years is that if you look at the top 10 companies in eCommerce, seven of the 10 are mostly brick and mortar retail. So, Amazon, 

Michael LeBlanc  07:29

Right, right.

Steve Dennis 07:31

eBay, Wayfair, in the top 10, as you know, more or less pure plays. But then you've got Walmart, Apple, Home Depot, Target, Best Buy, Costco, Kroger as the other big players.

Michael LeBlanc  07:43

And let me give you some Canadian context. So, Canada has typically been a bit behind the US for a whole bunch of reasons in, in adoption. But last year, we had 70, about 70 to 75% growth in eCommerce, which is number two in the world. Argentina had more growth than us, which was 100%. We had a pretty big base to start from. 

Steve Dennis 08:01

Right.

Michael LeBlanc  08:02

So, we, you know, Canada's just at, I think had a bigger acceleration. You know, I think if the US move forward two years, we've, we've moved forward five. 

Steve Dennis 08:09

Yeah.

Michael LeBlanc  08:11

All going in the same direction, all the same trends, you know,

Steve Dennis 08:14

Yeah.

Michael LeBlanc  08:15

More similarities than differences. 

Steve Dennis 08:16

And why do you think that is? 

Michael LeBlanc  08:17

When I, well, the reason, I think we're just farther behind and it gave Canadians a lot of impetus to go do it, try it and try it more often, particularly in grocery. And groceries,

Steve Dennis 08:26

Yeah.

Michael LeBlanc  08:27

4.2 million Canadians shopped online for grocery last year, according to my podcast partner, Sylvain Charlebois for the, for the Food Professor, 4.2 million Canadians. Don't forget there's only 18 million adult Canadians, huge. And that spins, grocery spins the flywheel. 

Steve Dennis 8:43

Right.

Michael LeBlanc  8:44

The other thing that is very different is Canada locked down, much, much harder. I mean, 

Steve Dennis 8:48

Right.

Michael LeBlanc  8:49

Retailer, non-essential retailers in Ontario, where I am, the biggest province, were shut down for 155 days, 

Steve Dennis 8:57

Yeah. Yeah.

Michael LeBlanc  8:58

Closed, for 155 Days, the malls just opened up last week. 

Steve Dennis 9:01

Right.

Michael LeBlanc  9:02

eCommerce had an unnatural lift. That water line is going to settle. 

Steve Dennis 9:06

Right.

Michael LeBlanc  9:07

It's not going to settle where it was. I think that's, 

Steve Dennis 9:08

Yeah.

Michael LeBlanc  9:09

That's big contributing factor.

Steve Dennis 9:11

Yeah, for sure. No, that's interesting.

Michael LeBlanc  9:13

And so, listen, I will, well alright, this is good. And you know, it's summertime, you wouldn't expect us to be, have any news to talk about. But you know, it's not a, not a usual summer. 

Steve Dennis 9:21

It’s retail. 

Michael LeBlanc  9:22

Now, before we get to the episode, and we, it's retail. Yeah, before we get to the episode, we talked about hybrid-, hybridization. I just want to remind all the folks that we've got a YouTube channel now, so make sure and check into the YouTube, YouTube channel these episodes, podcast episodes every two weeks until Labor Day, and then we go weekly. 

And coming up next week, we've got Drew Green, CEO of INDOCHINO, who's done his own deal with Nordstrom, which we're going to talk about, and it's great to have Drew back on the mic. So, we're looking forward to that. So, without further ado. 

So, Steve, let's take the opportunity to dive into this recent article that you published in Forbes, this hybridization of retail, I mean, when I start thinking about retail and its evolution over the past decades, like over the course of our career, it started with basic stores who, or a catalog, right, yeah, kind of new ways to order. And then along comes eCommerce, which in its early days, I remember it was just basically like a catalog on steroids. Plus, people could go and order themselves. But it's really evolved to be so much more, and I think COVID's had a role in the, if not the evolution itself, the pace of the evolution, the acceleration, as our friend, Carl Boutet would say, 

Steve Dennis 10:35

Right, right. Yeah, you know, this is an idea, I felt really compelled to write the article for a couple reasons. One is that I think there's some changes that are going on, which we can talk about in more detail in a second, I suppose. But, there's some changes that are going on in retail, that are really underappreciated. There's so much attention on the acceleration of eCommerce and all things digital, that I think we're losing some of the nuances and some of the things that really retailers have to spend more time on. So, I wanted to get that word out. 

But also, it was an idea that I explored in my book, but I don't know that I fully got to explore it as much as, in retrospect, I might have. So, but yeah, if you think about retail, really, through the 90s, for the most part, you had two basic ways to shop 97, 98% of it was: go to a store, pick out what you want, take it home, with you. 

Michael LeBlanc  11:34

Yeah, yeah.

Steve Dennis 11:35

And then had mail order catalog, which was you know, you get a catalog in the mail, and you look at it, and then you phone, fax, and eventually, order online. So, it was pretty binary. You know, there wasn't a lot of overlap. Yes, a few of the catalog players had some stores, but not a lot, 

Michael LeBlanc  11:54

Yeah.

Steve Dennis 11:55

And overall has represented a very tiny percentage.

Michael LeBlanc  11:59

Yeah.

Steve Dennis 12:00

Then eCommerce starts to come along, you know, more or less: late 90s. And it's a better catalog, for the most part in that it's certainly a different experience to be able to experience a brand on your computer, do all the things that the web allows you to do much more conveniently place an order directly, certainly from a marketing standpoint, I'd created a whole different way of communicating with the customer via email and so on. 

Michael LeBlanc  12:30

Yeah.

Steve Dennis 12:31

So, so

Michael LeBlanc  12:33

and it went beyond the limitations of the print media itself, right. I mean, I've run catalogs, 

Steve Dennis 12:38

Right

Michael LeBlanc  12:39

Before and,

Michael LeBlanc  12:40

Right.

Michael LeBlanc  12:41

They're a big, long process, of course, big shops like Sears or William Sonoma, they've got that process down. But you know, it’s weeks, not days in terms of I'd have a product, it's a lot of planning, it's a big machine. And then ultimately, you're limited to, you know, the ROI of print catalogs and mail distribution. So, that broke that wide open right, we can have a catalog of millions of items, probably was what kind of spurred, you know, guys like Bezos to start to create an eCommerce says wait a minute, I don't have to worry about print costs I can have an, I can have no end to the number of items that, that's probably one of the big as you said, you know, better catalog right?

Steve Dennis13:15

Yeah, I mean, the Endless Aisle, so-called Endless Aisle.

Michael LeBlanc  13:18

Yep.

Steve Dennis 13:18

Started to be, become much more of a thing. The immediacy, the changing and marketing dynamics of those are huge. I'm not trying to diminish it, because obviously, we went from a place where you know this form of direct to consumer previously mail-order catalog to eCommerce started to grow, quite dramatically. But the thing I think was interesting for probably the first, really 10, or 15 years of eCommerce is that the distribution side of it, really didn't change retail all that much. 

Steve Dennis 13:54

Stores themselves, I mean, they had competitive pressure from eCommerce. But stores themselves didn't change very much, by virtue of the growth of eCommerce. And the supply chain, for the most part, didn't change very much the typical way. I mean, if you take music and games or things that can be digitally downloaded out of the equation, but you know, more of a tangible product. Still, and certainly Amazon is the best example of this, we're largely talking about very large automated, eventually automated distribution centers, shipping a parcel through the mail, to your home or office, which is exactly what Lands' End, and Williams Sonoma and Sur La Table and all these guys were doing before, we're now just operating at a much greater scale because this direct-to-consumer piece is not 2 or 3%. Now it's 7, 8, 9%. 

Michael LeBlanc  14:44

Right.

Steve Dennis 14:45

But there really wasn't, it, it still was kind of a dualistic, or binary world, which is, here's this direct to consumer, which is mostly from a centralized distribution center, shipped to you at your home. And stores largely not changing very much, what started to happen, largely by virtue of Buy Online, Pick Up In-Store, and Buy Online, Return-to-Store and in some cases, being able to check store visibility or inventory visibility online, right, then you started to get stores and online or our direct-to-consumer merging a little bit. So, there, there certainly has been this growing blurring of the lines between digital and physical, both because of consumer shopping behavior of digitally influenced purchases in stores. But, But really, they a lot of that became or remained pretty separate. And what I think has been, what picked up steam pre-COVID, but it's been taken to a whole new level now, is the hybrid nature of the shopping experience and how that has really started to transform the stores themselves and the supply chain in particular, and pretty profound ways.

Michael LeBlanc  15:56

What, what in your mind, were the antecedents to that? I mean, as I think of the terms like omnichannel and cross-channel, those things were present in the before-time. I mean, in the years pre-COVID, you had curb. I mean, you had, you had the beginnings of many, many things, backup catalog area, places in the store where you could pick up your catalog order.

Steve Dennis 16:17

Sure.

Michael LeBlanc  16:18

And you had: curbside pickup and these felt like the antecedents. So, they were there. So, what's the what's changed now Is it, is it, you know, if you were doing store design, 20 years ago, you probably 30 years ago, 40 years ago, you may have been asked to Cooper together some kind of process, where people could pick stuff up and drop stuff off. But, what is so fundamentally different in your mind, then it's beyond omnichannel, it's this full hybridization. And I think you break this down in a couple of really interesting areas. So, we get to unpack this, like the store, let's start with the store. What, what's so fundamentally different that you need people, you want people now to sit up and pay attention and say something has meaningfully changed in the way you need to think about the store?

Steve Dennis 16:59

Well, I think some of these forces have been building for quite some time. I mean, the consumer shopping behavior. You know, I've been saying and others have been saying for a long time, consumers are really brand-centric like they don't make nearly the distinction between stores and online that a lot of retailers think, but, but as more produ-, or as more shopping behavior moves to being digitally lead, and more retailers started to build these functionalities, you know, whether that's existing legacy retailers or some of these newer brands that really built, built for an omnichannel world as much as I hate the term omnichannel but basically said,

Michael LeBlanc  17:42

Yeah, yeah. Yeah. 

Steve Dennis 17:44

The customer is the channel, we understand some customers are going to research online, go to a store, other people are going to go to a store and buy online later, right? So so there's just this constant building of this consumer behavior. I think the thing that really started to tip the scales, though, were smart devices. Because before smart devices, going online, so to speak, was a pretty deliberate activity. You know, you went to a computer that was in your home or in your office, you didn't have this mobility that broke sort of that, that behavior of, "Okay, now I'm going to shop online or now I'm going to go to a store", now you can be shopping anytime you want.

Steve Dennis 18:21

So, again, I mean, this has been a pretty steady progression. This didn't happen overnight. But I think these forces in terms of consumer behavior, mobile shopping, better websites, new business models that weren't so stuck in this siloed world that all kept building, and I think what COVID did was it certainly accelerated more of this digitally-lead shopping behavior, but it also made clear when stores were closed or largely closed, that customers do value the immediacy of a store.

Michael LeBlanc  18:53

We'll be right back with episode number two have Remarkable Retail: Season Three, right after this message. 

Michael LeBlanc  18:58

If you're enjoying this interview, you may want to join us for CommerceNext IRL on September 28th, 29th. At the New York Hilton Midtown. Some of the speakers you'll be seeing including Noam Paransky, Chief Digital Officer at Tapestry, Ekta Chopra, Chief Digital Officer at ELF Beauty, Matt Gehring, GM of eCommerce at Everlane, Alex Waldman, Co-Founder and Creative Director at Universal Standard, Jennifer Patrick, Global Branding and Packaging Director at Patagonia, and many more. CommerceNext IRL will cover themes such as the resurgence of brick-and-mortar retail and its impact on eCommerce, and how to prepare for a cookieless future. We can't wait to get the CommerceNext community together in person. And hope you'll join us learn more and register now at CommerceNext.com.

Steve Dennis 19:43

You know, we saw so much curbside pickup, Buy Online, Pick Up In-Store type activity just spiked like crazy. 

Michael LeBlanc  19:50

Yeah.

Steve Dennis 19:51

And stores had to respond to that. The other thing which has been building pre-COVID, but again, this is just kind of put it a whole new level is these, this battle for convenience. And even if you have two or three large distribution centers, and you know, great rates with FedEx, and all this, this kind of stuff, you know, there, there's just cost and time challenges from shipping all of your products from a centralized distribution facility. And so some retailers said, "Well, gee, you know, we don't have to think about us having two or three distribution centers in the country. We've got 900 distribution centers or 1000 distribution centers because we have all these stores.

Michael LeBlanc  20:29

Right, I mean, you've got this a I still feel or perceive this, this philosophical difference in, when I have these conversations with retailers, some feel like eCommerce pickup, curbside, BOPUS, are expensive ways to use their existing property can't people just come and shop, so we built the store? And then I think others are and this is what feels like you're talking about others are saying, well, this, this can be a very inexpensive way to handle the unit economics of shipping plus, give it a strategic advantage. 

Michael LeBlanc  21:03

What, why do you think it's taking retailers a long time to get sorted on that second way of thinking? I mean, you know, one thing that I, you know, as I continue to reflect on the COVID era, and what it's actually meant, and I don't think we know that yet, is, you know, demand for eCommerce when skyrocketed a couple of years in advance, it was always coming. So you know, as you know, in the old saying, in retail volume solves some sins. So, now you've got some volume that make the things make sense. Is that all that it took? Was it the volumes would go up or is there more work here?

Steve Dennis 21:36

Well, I think that's certainly kind of rubbed a lot of retailers faces in the challenge, so to speak, you know, when you didn't have your, when you had all this inventory, in essence, trapped in these stores. And when consumer behavior shifted so abruptly, and you've got all this new traffic to a website, it's pretty hard to ignore that it's really in reaction to some changes, you know, many of which we're already seeing kind of a regression to the mean, or at least some operation,

Michael LeBlanc  22:04

Sure, sure.

Steve Dennis 22:07

So, but I think the thing that's kept, and I'm, I'm a little bit like a broken record on this, but I think a lot of it is cultural and organizational. And in some cases, the way the systems are set up, because so many existing retailers have largely built these silos between brick-and-mortar, and digital. And despite all the discussion of omnichannel for nine or 10 years, there's still a lot of separation and a lot of metrics that are channel specific, and or, you know, organization and systems and, and so forth that have kept these separate. And some of the smartest retailers, the retailers that benefited from the COVID time were breaking down those silos and thinking about their stores more as a hybrid pre-COVID. 

Steve Dennis 22:55

But I think now as retailers look at the success that that Tractor Supply, Best Buy, Target, others have had, from things that they've been working on for years, that just causes them to go "Hmm, maybe there's a different way of doing it". But if you just look at the data, it's not so much that eCommerce is growing in, so much in the traditional way i.e. Order online, we ship it to your home. So, much of it has just been pushed to consumers wanting to go get it themselves, right or retailers just doing the math and to your point saying "Well, actually, maybe it's cheaper for me to fulfill from the store or I, it's cheaper for me to shave a day or two off of delivery time.", which is becoming more and more important as a decision criteria.

Michael LeBlanc  23:42

Yeah.

Steve Dennis 23:43

So, I think that data is just overwhelming. But the resistance, I think, aside from the organizational and cultural resistance, is, is the existing installed base, so to speak, right. If you build a store for a singular purpose, and suddenly you're going, oh, wow, you know, now I'm fulfilling 20, 30, 40% of my ecommerce orders from store, you know, whether that's shipping them or customers coming to get them and,

Michael LeBlanc  24:09

Yeah.

Steve Dennis 24:10

You know, getting a lot more Buy Online, Return-to-Store. And, you know, actually, I'm starting to realize the marketing benefits to the brand from my store, maybe I need to think about how I invest in my stores in a different way. So, all these forces have been accumulating, there's plenty of models, I guess, to look at now that are having some success that think about their stores in a different way. So, I think there's just waking up to a reality that's been brewing for a number of years.

Michael LeBlanc  24:40

Let's talk about shopping centers changing, not really changing gears, but because you talked about this in the article, would you agree that there's a future for A-class malls? What's your perspective around the future of malls? And then what do they need to do to be part of this future? 

Steve Dennis 24:56

So, I think there are two fundamental dynamics going on with malls. But to answer your question, I'm generally pretty positive, I guess, or at least optimistic towards the A malls. Not everyone, but the majority of them and generally charity pessimistic about all the other models. 

The first factor is just in general, what, what I talked about in the book, which is that there's been this collapse of the middle. Most regional malls, both in terms of their location, and the way they put together, their tenants are really built for a totally different era, that doesn't exist anymore, the change that they would have to undergo is very, very massive. So, their ability to reinvent themselves at anything remotely close to what they've been doing, I think is pretty much zero. So, most of them are going to get bulldozed or massively repurposed. 

Steve Dennis 25:49

I think the A malls, you know, they have a reason for being largely because they have unique tenant mix, they're in areas of great demographics. And so, they can carve out a place, they certainly have to evolve. But I don't think they need to have nearly the degree of change, you know, kind of by virtue of the collapse of the middle. But one of the things that I think mall operators are fundamentally missing is, again, it's the same kind of dynamic for an individual store, they built those, the real estate, sorry, to make it all about real estate, really, because it's not, it's just, it's easy to visualize, right, like, they built those stores, for the kind of consumer demand that existed a decade or more ago, generally. And again, their, their model was all about you go there to see stuff, pick it out, maybe get some sales help and take it home with you. And that's still going to be a very, very important thing going forward. 

Steve Dennis 26:46

But the entertainment value of malls, the marketing and brand enhancement value of malls, the fulfillment and service role of malls, just like it's changing at stores is changing for malls, and most malls have not even come close to dealing with this, in terms of, you know, having centralized pickup and for online orders, or, you know, some of them, move to that in the COVID times, but you know, again, it's in and you know, they're very built, the other thing that I think affects real estate, not just the malls, but the commercial real estate industry, is they're used to getting paid on a percentage of sales rung up in a store. But if your physical space has a significant role in driving your online business, that's just the flawed formula, you're gonna have to figure out how to, how to solve for that, and how to invest in those malls with the reality that they're, they're building brands in the trade area. And not all of that is going to be reflected by what gets run-up in that store,

Michael LeBlanc  27:49

Though, I guess, to their benefit, anything shopped online and picked up in-store. I mean, this is where you get into the nuances of 'who tracks what' and 'what accounts for what' but if I've, if I'm in my local, I mean, there's, you know, when we, when we go beyond A malls, there's a lot of communities across North America with, you know, very good malls that are B, yep, B and C smaller community malls. How can they survive? I mean, could they not earn the revenue from the many, many retailers that are in them, both local and Main Street, and some anchors that that generate online revenue shipped to those stores? In other words, can they turn it around, I mean? 

Steve Dennis 28:25

Well, this is where it gets down to, to some of the specifics. There are certainly some malls that are classified as, as B malls, that could redevelop part of the property, you know, add a hotel, add apartments and some other things that would take some of the space that's essentially dead. And, and not only earn some income from it, but perhaps generate some incremental, incremental traffic. 

Steve Dennis 28:49

But part of the problem for a lot of malls is there aren't tenants for that space, right, the, the a lot of the, sort of, usual suspects whether we're talking about anchors like Sears, JC Penney, and others are pulling back so much. And a lot of the apparel players that had big presence in malls are also greatly consolidating. And there aren't enough Pelotons and, and Warby Parkers' in the world, to take that much square footage. So, so it is, it is challenging, I certainly think if they've got great real estate and a lot of the good qualities of what makes for good real estate, there are some pretty aggressive re-tenanting things they, they can do, but it's not going to be going to the usual tenants that have paid the bills for the past decades, it's going to be new sort of tenants, whether that's restaurants or, you know, or entertainment or, or something like that.

Steve Dennis 29:46

But it's, but it's pretty, pretty significant. And, and certainly, even a fairly mediocre tenant can generate a fair amount of online business and if they can figure out a way to participate in that. But I think the challenge is for real-, a lot of the real estate is the amount of investment it's going to take to repurpose that, I mean, I'm not trying to be to flip about the bulldozing it, but when you, when you think about how much money it would take to repurpose a mall that's very mediocre, then the question has to be "Am I better off bulldozing it.

Michael LeBlanc  30:08

Sure.

Steve Dennis 30:09

And, and doing something else entirely different with the space, and we're seeing dozens of those right now in the US at least, I don't know so much in Canada or other markets.

Michael LeBlanc  30:26

Yeah. Yeah. I mean, certainly a little bit. I mean, what we see a lot of is food districts, fitness clubs, you know, more of these, large format, type things and, and you've got some really nice, B malls that, that have carved out a nice representation in the community. And it's really then about re-tenanting. 

Michael LeBlanc  30:44

Versus, you know, listen that, you know, maybe we're just organically we're gonna have a less a fashion retailer, particularly after COVID. But, you know, maybe they're different types, maybe they're different types of retailers.

Steve Dennis 30:55

Yeah, I think one of the challenges that perhaps is a little bit unique to the US is there was such a formula. And I, you know, having worked at Sears back in the day, Sears was a big, big driver and making a lot of things happen. There was such a formula of building these big regional centers with three or four, anchor, you know, department store anchors, and a huge parking field. And so, in many cases, 

Michael LeBlanc  31:17

Yeah.

Steve Dennis 31:18

The center itself is kind of isolated.

Michael LeBlanc  31:21

To move on from, from shopping centers, is I think we'll be coming back, and back, and back to many of these issues over the course of Season Three because they're so vitally important, right, we're at this, this juncture here where we've just experienced this thing. COVID many of the world by the way, still experiencing it. So, we're not done yet. But we're trying to understand it. 

Michael LeBlanc  31:39

Now, Let's talk about flagship stores, that, you talk about a hybrid brand distribution strategy, I started to think about a role for flagships, you know, that, that, is there a role for anything beyond just transacting. Like, is that now the primary role? Like, what, what do you mean by a hybrid brand distribution strategy in retail?

Steve Dennis 32:00

Well, I'll mention briefly before, answer that directly, you know, if you think about at any, any given store, becoming more of a hybrid, so performing the role as, as advertising, as a service center, you know, the traditional role of going to get stuff and taking it home with you, Buy Online, Pick Up In-Store, all those kinds of things. When you start to think about, if you're a brand owner, like Nike, you know, there's an aspect of your strategy, which is very much about building the brand, and not worrying so much, I'm not saying they don't pay attention to it, but you're building the brand, and you're going to get paid off somewhat by people transacting in that particular location. But they may learn about your brand and go transact at other locations that you have that you own. 

Steve Dennis 32:51

But also, you have wholesale partners. And so, if you develop a brand preference for Nike, you may then go and buy that at a wholesale partner. So, I think that this is not a terribly new idea of a flagship store, but I think, well, we'll, we'll see more than just kind of the reinvention of the traditional flagship, you know, on Madison Avenue or Fifth Avenue or the shopping guise, or whatever. I think you'll see this, this hybrid, hybrid distribution strategy where brands are saying, okay, we need to think much more carefully about our own distribution, both our eCommerce and the different formats that we control, but also trying to get the right balance of wholesale partners and this is a pretty big change.

Steve Dennis 33:38

And a lot of this goes back to the evolution of eCommerce where if you were a manufacturer, for the most part, you didn't have any real relationship with the end consumer, but the internet, you know, from a marketing standpoint, but ultimately from a transactional standpoint has allowed you to sell directly to those end consumers to get their names to be able to do your direct marketing stuff. 

Michael LeBlanc  34:01

Yeah.

Steve Dennis 34:02

And, you know, that not only gives you more strategic control of your brand but in many cases, it gives you better economics. So, Nike is the poster child for this. But but many more manufacturers are really developing their distribution strategy in a, in a much different way than they were just a few years ago, which is again,

Michael LeBlanc  34:22

It's still a tricky proposition, though. I mean, Nike, it's good to be king, Canada Goose, gonna be king. In other words, you know, there is some fear, at least there is some perspective from retailers that I helped make your brand. And now, now that you've become a brand, you're off on your own, and you're going to cut my cut me off, right?

Steve Dennis 34:41

Sure.

Michael LeBlanc  34:42

Because I battle between retailers and the brands. Some brands are just as a pure brand, they're very good wholesalers, but they're actually not very good retailer because that's a whole different organization to set up. And so, for some, it's an ambition for some I, I think it's still, you know, the vast majority for, for many is still done in stores, and how do you craft a strategy? And this is, maybe this is a whole topic for a whole other episode. 

Steve Dennis 35:06

Yeah.

Michael LeBlanc  35:07

But how do you get the brand strategy that that gets you both a winning strategy, direct to consumer and a winning strategy with your retail partners? Because you better be careful how far down that path you go, because you could find yourself out in the wilderness in a bit of trouble?

Steve Dennis 35:21

Yeah, I absolutely think it's worth a separate episode because I think the dynamics have changed a lot. To be careful, I mean, I have had a couple clients, in this arena, as the retailers that feel like they're getting cut out by the brand. And also working for a brand or a couple brands. I think if you were the brand, you have to really understand how you drive consumer demand, both in the short term and the long term. And you don't want to get too greedy, I guess that’s the way I would put it.

Michael LeBlanc  35:55

Oh, yeah, and you've got to be something different to right. So, I was, I was on this one site. I won't mention what it is. And they basically sell, Direct-to-consumer, what they're selling it the retailer down the street. And I was thinking okay, I but I don't see anything compelling about that, in and of itself, other than maybe a strip off a few, you know, our dedicated customers, it really takes more thought than just that I'm going to pull everything together and putting a DTC strat-. There's got to be a there there, I think, for everyone, right?

Steve Dennis 36:22

Yeah. I mean, if you're just like, hey, I want to cut out the middleman and make more money. That's kind of what I mean in the greedy standpoint.

Michael LeBlanc  36:27

Right. Yeah.

Steve Dennis 36:28

Like, you could convince yourself, "Hey, now that I can go direct, maybe I should go as direct as I can, because who needs these, these pesky middlemen.", right? 

Michael LeBlanc  36:36

Sure.

Steve Dennis 36:37

If that's your primary orientation, I think you're likely to get yourself into trouble, you really have to understand how you drive demand. And think, and think longer term, because clearly plenty of customers value going to a multi-brand retailer. You know, they're not just, oh, the only thing I'm ever willing to buy is Nike or Canada Goose or whatever, like so. So, if you narrow your distribution too much, you can really be under developing the brand.

Michael LeBlanc  37:05

Right.

Steve Dennis 37:06

The flip side is.

Michael LeBlanc  37:06

Or if a theme turns on you, right? So, you're, you're great now, but you know, brands ebb and flow, right?

Steve Dennis 37:11

Yeah.

Michael LeBlanc  37:12

It's very hard for every brand to have a run without a couple of soft years.

Steve Dennis 37:17

Right, and you don't want to be having to, you probably aren't going to be too welcome.

Michael LeBlanc  37:22

Right, right.

Steve Dennis 37:23

When you go running back to your distribution partners saying, "Oh, take me back. I love you. I promise I'll change". Right? 

Michael LeBlanc  37:27

Right.

Steve Dennis 37:28

Yeah, I think you absolutely have to look at this as a long-term strategy and understand the risk. 

But the flip side, which I've said to some of the retailers that are complaining, basically about some of their brands going direct is, look, the reality is, particularly if they're public companies, they have shareholders and they're going to do what's in their economic long term interest, and there's a lot, a lot of strategic advantage to controlling your destiny, as well as money to be made if you can appropriately expand your direct to consumer business. And certainly, if you look at Nikes results, for example, the results are amazing. So, now that doesn't mean they'll always be amazing. 

Michael LeBlanc  38:04

Right, yeah.

Steve Dennis 38:05

And Nike’s a very special kind of brand, so not everybody can try to do what Nikes doing. In fact, very few could. So, so you have to be very careful. But I think the again, you know, one of the fundamental changes by through by virtue of eCommerce, and by virtue of consumers having this world of choice at their fingertips, is that it just allows for a whole different way for consumers to kind of switch things up to blend what they want. And if retailers are really built for an age that doesn't exist anymore, or brands are built for an age that doesn't exist anymore, they're going to have to respond. And you know, part of what I argue in the article is, you know, this can require a lot of change, and most retailers are not very far along on the journey.

Michael LeBlanc  38:54

Well, let's, let's wrap up in terms of this, what this all means to the listeners, like, if you're a retail, or your brand listening, thinking about this hybridization of retail, how do you get your arms around it, it's a big task, you've just got your arms around surviving, hopefully, through COVID. Now, what are you going to do to make that business thrive? As we go forward? What do you recommend, a couple of things that they should do to get their arms around this new reality that is, that is modern retail?

Steve Dennis 39:27

Well, to a certain degree, I think the main piece of advice I would have at both the store level and at the trade area, or market level, is to really kind of start from scratch and look at consumer behavior, look at what's going on with fulfillment and say, Okay, if I had to do it all over again, and I was going to open a new store or let's say, I was going to open a new market, how would I ideally deploy in, you know, my given store in a given market. So, if I were going to build a, let's just say, it's a 30,000 square foot store today, where would it be; how would I configure it; what are the different services and roles that store would have to fulfill; with that, with that overall lens of the different roles that stores might be providing for you. And similarly, if I look at a given metro area, I would say, "Okay, well, maybe I've got five stores in the market. But, and they're probably all pretty much the same. But if I had to do it all over again, would I deploy in a different way", you know, would I have one flagship and six satellites locations.

Michael LeBlanc  40:37

Well, that's Interesting? 

Steve Dennis 40:38

Would I, you know, say like a Nordstrom does with their, some customers are probably familiar with a, they basically have the full version, Nordstrom, they have an off-price version, and they have these local, or they're starting to have these local stores, which are service only, we're seeing some retailers do fulfillment only stores versus you know, basically consumer-facing stores. So, I would say, you know, "strip it down, if I had to do it all over again, what would my store look like, or my stores look like, what would my deployment strategy look like in a given market?". Now, that's probably for many retailers going to be really different from what it looks like today. 

Steve Dennis 41:16

But I think starting with that blank sheet of paper, and thinking about that, for the future, can provide some really good, some really good guidance. And if it turns out that you have a bunch of leases that are coming up, or opportunities to perhaps redeploy your real estate in a more significant way, not only, you know, a given type of store format, but like I say, the whole market, at least you've got a sense of where you'd ideally like to get to, and then you can kind of work backward and start to say, "Okay, well, you know, in terms of investing capital in terms of reconfiguring", but then you know, that's going to lead you, you know, the crazy thing and the complicated thing, which is why I say "this is really big and hairy" in the article is, that's almost certainly going to lead you to thinking about your supply chain, your supply chain strategy, your technology strategy, your

Michael LeBlanc  42:04

Touches ever-, touches everything.

Steve Dennis 42:06

Yeah, I mean, the role of who you hire. 

Michael LeBlanc  42:08

Right, yeah. Yeah. 

Steve Dennis 42:09

So, so, you know, to try to get your arms around it, I think you kind of have to break down to, kind of, unbundle and then maybe re-bundle your strategy and just kind of lay out a sequence and you know, for some retailers is going to be much more urgent than, than others, right. So, everybody sits in a little bit different place.

Michael LeBlanc  42:31

Well, I think it's great advice because it reminds me of that moment in Al Gore's movie about the environment, where he said, "Listen to climate change is so massive, it almost feels too overwhelming. You can't do anything, but the reality is, you can chip away at it. 

Steve Dennis 42:47

Right.

Michael LeBlanc  42:48

And eventually, you reach this, this point of critical mass where you've not just chipped away at it, you've made a meaningful difference. So, start at the beginning, right, "How would you reconceptualize the store?", "What would it look like today?"

Steve Dennis 43:00

Right.

Michael LeBlanc  43:00

"Can we do that in our entire market?", "Maybe we try.", you know, that that kind of, you know, take it on one step at a time without getting too overwhelmed by the, as you say, the, the big hairiness the enormity of the change? 

Steve Dennis 43:13

Well, first of all, I think it can definitely inform some testing formats, or standing out maybe some different fulfillment or what have you. But the worst-case scenario and the thing, frankly, I'm most fearful love and you know, I've been saying this for a while, that I think as I've dug into this hybridization issue, it creates a different sense of urgency, which is the worst-case scenario as you keep trying to polish what you have, which is already decidedly mediocre. So, if retailers are re-upping leases and they're painting the walls and putting some new fixture, putting in a coffee shop, you know, a little store in a store or whatever, and thinking like, that's the investment that's going to get them to the next level, they're probably just delaying the inevitable. 

Steve Dennis 43:58

So, without this, kind of, stripping down to the studs or whatever expression. 

Michael LeBlanc  44:03

Oh, yeah.

Steve Dennis 44:04

You want to be thinking more creatively, you may not see some of the, the realities that you have to deal with. And, you know, like I said, I mean, it's this is not going to be an existential crisis, if they don't, you know, for every retailer, like, "Oh, if I don't start working on this very aggressively in the next few months, I'm out of business." I'm not, I'm not suggesting that though, for some it might. But, you know, you constantly have this decision about how to invest your time and energy.

Michael LeBlanc  44:28

Yeah.

Steve Dennis 44:28

What technologies you’re having to lean into, etc, etc, etc. So, if you don't have that clear view of where you think you might need to get to over the long term, you're likely to make some, some, perhaps irreversible mistakes, not to play out the climate change thing too much.

Michael LeBlanc  44:45

Yeah, I guess, I guess it harkens back to something you, you quoted in the first book. And the second is that, that "Best Time to Plant a Tree" philosophy, right. And you probably should have been working on this 20 years ago. But the next best time to start working on this is tomorrow, or Friday. Right?

Steve Dennis 45:01

Yeah.

Michael LeBlanc  45:02

All right. And that's a great, a great sentiment to leave our discussion with today and, of course, for the listeners, we'll be coming back to these issues, both in, with interviews, and with just you and me chitting, chatting and looking at common, or looking at what's new in the news and putting this framework on it. So, until then, let's, let's wrap it up here. 

Michael LeBlanc  45:25

All right, if you liked what you heard or saw today, please follow us on Apple, Spotify, Amazon Music, or your favorite podcast platform. So, you can catch up on all our great interviews and insights and episodes that'll show up every week. If you subscribe. Be sure and check out, as I said, our new YouTube channel Remarkable Retail.

Steve Dennis 45:42

Well, you know, I'm always shamelessly promoting my book Remarkable Retail: Having to Keep Customers in The Age of Disruption, which is available just about everywhere, that you'd like to find your books in eBook format and audio book as well. And I'm on social media, usually @StevenPDennis dot com. You can also find me on my website, which is www.StephenPDennis.com.

Michael LeBlanc  46:08

All right. And I'm Michael LeBlanc, the producer and host of The Voice of Retail podcast and a bunch of other stuff. You can find me on LinkedIn or MELeBlanc.co or should I say www.meleblance.co.

Steve Dennis 46:16

I know, I was going old school. 

Michael LeBlanc  46:21

You went old school on that.

Steve Dennis 46:23

Back slash, HTTP, ah you know, I don't know.

Michael LeBlanc  46:26

How do I get to a URL again? 

Steve Dennis 46:28

I can't remember.

Michael LeBlanc  46:29

Back to the future. Hey, great episode, great insights. I think they're going to for more than just an episode that kind of really far formed the backbone of, of Season Three, beyond the episode. So, looking forward to continue to explore and until then, stay safe, my friend.

SUMMARY KEYWORDS

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