Ever since the pandemic began, the narrative of a great acceleration in online shopping has taken hold, with some even claiming that we experienced 10 years of e-commerce growth in a matter of months. While many markets did see a huge surge in e-commerce penetration during the height of physical store lockdowns, it turns out that facts are stubborn things. In reality we are almost exactly where we would have been had the Covid crisis not hit.
“The future is already here, it's just not very distributed.”
- William Gibson
Ever since the pandemic began, the narrative of a great acceleration in online shopping has taken hold, with some even claiming that we experienced 10 years of e-commerce growth in a matter of months. While many markets did see a huge surge in e-commerce penetration during the height of physical store lockdowns, it turns out that facts are stubborn things. In reality we are almost exactly where we would have been had the Covid crisis not hit.
In this episode, with Michael weighing in from the SIAL conference in Montreal, we challenge yet another overly simplistic narrative that, had you bought into it, might have caused you to do precisely the opposite of what you should have done. We also learn that, contrary to popular belief, Steve is not a hype man for physical retail, but rather devoutly anti bullsh*t.
What's really going on with online shopping growth, why your mileage may vary, and why we often get so much wrong about e-commerce are at the heart of this deep dive.
But first we open up with the retail news that caught our attention this week, including Lululemon's 5-year plan to double their revenue, Uniqlo's plans to open 400-500 new stores in the continuing rejection of all the retail apocalypse nonsense, and what to make of the departure of Old Navy's CEO (and Gap's overall lack of remarkability). We also unpack the interesting trend of the D getting taken out of DTC as more disruptor brands choose to explore wholesale distribution. Plus, in our very popular everything old is new again segment: the return of print catalogs!
The McKinsey Article
The WSJ Article
The Pandemic Was Supposed To Push All Shopping Online. It Didn't.
Steve Recent Forbes Articles
The Myth of the Great E-Commerce Acceleration
What We Often Get Wrong About E-Commerce And Why It Matters
Past Podcast Episodes We Reference
The Store As Brand Hub w/ Target's Nancy King
The Great DTC v. Wholesale Debate w/ Simeon Siegel
Understanding Warby Parker and Customer-Based Valuation w/ Dan McCarthy
What We Get Wrong About E-commerce
Custom Fit Solutions w/ Indochino's Drew Green
About Us
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks , The Food Professor with Dr. Sylvain Charlebois and now in its second season, Conversations with CommerceNext! You can learn more about Michael here or on LinkedIn.
Be sure and check out Michael's latest venture for fun and influencer riches - Last Request Barbecue, his YouTube BBQ cooking channel!
Michael LeBlanc 00:06
Welcome to the Remarkable Retail podcast, season four, episode fifteen; the Earth Day episode. I'm Michael LeBlanc.
Steve Dennis 00:12
And I'm Steve Dennis.
Michael LeBlanc 00:14
Well, Steve, you and the listeners might hear a bit of background buzzing going on, I'm live.
Steve Dennis 00:18
Yeah, what's going on, what's going on?
Michael LeBlanc 00:19
Yeah, I'm live in Montreal, at a trade show called SIAL, which is North America's biggest food innovation show. I'm here with Dr. Sylvain Charleboix, and we've got a podcasting studio for our great podcast, The Food Professor, and we're meeting lots of people. So, yeah, that's, that's a bit of the background noise. And it's great to be out and amongst the people.
Steve Dennis 00:39
Man, you sound fancy.
Michael LeBlanc 00:40
Yeah. Well, and, and let me tell you, you know, just a moment on the show, it's about 20,000 people, draws countries from around the world to come showcase their innovations. I'm looking at the Brazil booth and the Italy booth. USA has got a huge section here that they parceled out to different entrepreneurs.
Michael LeBlanc 00:57
So, you know, lots of food innovation happening. So, for all the listeners out there, you're going to see some pretty amazing things. It's been a quiet couple of years, the, a lot of these brands really got punished when food service declined, like they didn't pick it up in grocery, just by the nature of their business. So, a lot of these folks are telling us stories about bouncing back and lots of excitement.
Steve Dennis 01:16
Sounds like fun, you got some free samples you can shoot me or.
Michael LeBlanc 01:19
I, I, I got a boatload of free samples, actually, because that's what this show is all about. So, you know, everything from canola oil to barbecue sauce, all kinds of great stuff. So, you know, you, you, if you, if you're here at the show, you don't need to go buy lunch, that's for sure. You can snack your way across thousands of booths and everything you could imagine is here.
Michael LeBlanc 01:43
But, but anyway, we were talking about Earth Day. Let's, let's talk about bringing something else back down to earth. You've been on social media, talking about, or chitting and chatting, around stores. And I think some of the narrative, and this is not new-ish, has been that you're a store defender, or you're the store advocate. What's going on?
Steve Dennis 02:07
Yeah, you know, this, this has been going on for a while where somehow people think that I'm, I'm a big fan of stores, or I feel the need to defend stores. And I'm really not pro-stores, I'm really anti-bullshit. Because I don't care one way or another, I'm actually probably a much more, more likely to shop online than the average person.
Steve Dennis 02:31
So, I love e-commerce. I love stores sometimes as well. But the narrative that e-commerce is, is eating the world, and that brick-and-mortar is doomed, just, just isn't true. And so, this episode really, kind of, gets into that in a little bit more detail, particularly in light of some data that came out and a piece I wrote for Forbes.
Steve Dennis 02:54
And so, yeah, it's more about defying the nonsense that is out there, and hopefully helping people to see through some perhaps false snap narratives, or fallacies, to hopefully make the right kind of decisions.
Michael LeBlanc 03:08
So, as, as listeners probably figured out, it's, it's a solo episode. We'll be chitting and chatting about that a bit later. But let's jump into the news. So, I was seeing Canadian company based in Vancouver, Lululemon, in the news with a couple of big, couple of big announcements, right. So, talk about what your impression was. They talked about growing stores and, and I think something about a membership program.
Steve Dennis 03:28
Well, first of all, Lululemon, I think, is one of the more remarkable retailers that have been around for a while. They've grown enormously over the last few years, partially because they've got a great business model, they've executed it amazingly well. They also clearly benefited from some of the, the athleisure COVID trends.
Steve Dennis 03:47
But they just announced this, I guess earlier this week, that they've got a five year plan to double their revenue over the next five years. And they're going to do that through new stores, continuing to open new stores, particularly internationally, product expansion, talked about the footwear push, but they're also really going into more aggressively the men's business and some other product expansions.
Steve Dennis 04:12
But yeah, the interesting thing, I think, was this membership program, a two-tiered membership program that they shared a little bit about. And I think this is a great example of things we've talked about before about, kind of, thinking about, you know, like reconfiguring your business more as a platform. You know, thinking about all the different ways, all the different revenue streams that you can leverage to become more important to customers.
Steve Dennis 04:36
And I think this is, this is pretty interesting; continuing some trends we're seeing in other companies. My favorite thing that Calvin McDonald said in the news about, you know, kind of, finding more ways to engage with customers was, the more our customers sweat, the more they spend, so—
Michael LeBlanc 04:54
That's great.
Steve Dennis 04:56
You know, it's not share of wallet, I guess it’s share of sweat or something.
Michael LeBlanc 04:59
I'm not sure how that's going to build his resell business. But, well, sticking, I guess, with the store theme, which seems to be a, kind of, a broader theme for the episode, UNIQLO wants to open, what is it, 400 to 500 new stores worldwide each year. Am I reading that right, each year?
Steve Dennis 05:15
It's a, I guess this isn't so much about UNIQLO, other than that is an enormous number of stores. But, you know, we just keep seeing—
Michael LeBlanc 05:22
On top of an, an enormous number of stores, right. It's not like they're, they only have a few stores.
Steve Dennis 05:26
Right, they're already a huge player. They've been around for quite a while. So, this isn't, you know, Warby Parker starting a new store strategy. You know, I think it's just so interesting, and does tie to what we're going to talk about in the episode, that as much as e-commerce continues to grow, we still see just a tremendous amount of investment in brick-and-mortar.
Steve Dennis 05:46
Whether we're talking about UNIQLO, whether we're talking about Lululemon, whether we're talking about Ulta, you name it, there's just so many companies that have a powerful business model, that have, generally speaking, a really good digital presence, that are seeing the importance of stores. So, so not just UNIQLO, although, that's a pretty staggering number. But just, kind of, this continued march of, turns out, stores aren't dead.
Michael LeBlanc 06:10
Let's talk about, there was also some news on the other side of the positive equation from Gap. The, the Old Navy, CEO of Old Navy's leaving, so, what's going on with The Gap? Any, any thoughts on that? I mean, you would think that a value-based retailer with apparel bouncing back after not a lot of demand would be okay, but they seem to be struggling, yeah.
Steve Dennis 06:33
Yeah. I think that's a, that's a good take. I mean, right, on the one hand, with the push towards value, with apparel bouncing back, it seems like they've got some good tailwinds. I think though, this gets to the point that even if you've got a lot of factors working to your benefit, you still have to have a remarkable value proposition. And I think the challenge, I mean, Gap's, got some issues of perhaps being over distributed and, and not having the right product trend, and—
Michael LeBlanc 07:05
They've been a company, I remember, you know, when I was at Levi's, Gap was it man, everybody was, you know, Gap had momentum, and then, then they lost it, then they got it back. Like they've been ebbing and flowing for literally decades, yeah.
Steve Dennis 07:16
Yeah, there's definitely, there's definitely been this, you know, hitting the trend. I think what's been challenging for the Gap brands, more broadly, you know, whether we're talking about Old Navy, or Banana Republic, or, or the flagship brand is, there's just so much competition, you know.
Steve Dennis 07:29
I mean, back, back in the day, they had, kind of, defined, you know, first with The Gap, and then subsequently with, with, with Banana and Old Navy, they'd, kind of, defined a new sub-segment and moved very aggressively to open a lot of stores.
Michael LeBlanc 07:29
Yeah, yeah.
Steve Dennis 07:43
And, you know, maybe they both overshot the runway, with a number of stores, as well as didn't execute well. But I think, you know, what, where, where do some of these brands really live in a world where you've got so much choice both in physical stores, as well as, as online. So, I think—
Michael LeBlanc 08:01
Yeah.
Steve Dennis 08:01
You know, they're, they're just, kind of, a mediocre brand. And, you know, it's catching up to them, even if some of the trends are on their side.
Michael LeBlanc 08:09
Our friend Simeon Siegel was in the news with some clever thoughts around DNVBs. You want to touch on that, or DTC, want to touch on that for a second?
Steve Dennis 08:16
Yeah, just briefly, and I think we're going to continue to follow this story, maybe do another deep dive further down the road. But, you know, we're seeing a lot of evolution of the digitally native vertical brands as they are really struggling to, to be profitable. The particular thing that Simeon was talking about was what he called, and I think he coined this, the D, DTC-ing, of DTC. In other words, DTC is, first of all, like we know—
Michael LeBlanc 08:40
I love, I love Simeon, he’s great.
Steve Dennis 08:41
Simeon, Simeon's yeah, he's good at coining phrases. But, you know, the, the, obviously, the original idea of, of direct to consumer is to go direct to consumer, to skip the wholesale part of it. And the digitally native brands were a different form of traditional DTC like Lands' End, or Williams-Sonoma, or whatever. But what's been happening is more and more brands are starting to explore wholesale partnerships.
Steve Dennis 09:10
This isn't entirely new. A number of these brands have been at Nordstrom, have been at Target and, and some other places. And I think the benefits for the host department store or, or whoever, you know, discount store, having those brands, you know, gives them an element of, of differentiation, which can be important to their model and for the DNVBs. It gives them more distribution at potentially a lower, lower cost because they get to leverage the marketing of the, the host brand, so to speak.
Steve Dennis 09:42
I, I think what is accelerating it is this continuing narrative, which we've touched on a bunch of times, is that many of these brands are really struggling to get to profitability. And, you know, the possible advantages of wholesale are, are, are being explored more aggressively. So, watch this space. The other thing that I, was in the news in this regard was, and again, this is something we started to see a few years ago, but is really picking up pace.
Steve Dennis 10:09
But, kind of for the same reasons, is that many of these brands which had leaned so heavily on Facebook advertising in particular, but other targeted direct digital advertising, are moving away from that, because it's become so expensive. And as we got into in a prior episode with Dan McCarthy, the, the lifetime value dynamics of that have gotten really, really challenging. But what they're moving away to is, are you ready for this, printed catalogs sent through the mail. Everything old is new again—
Michael LeBlanc 10:38
That's awesome, that's awesome.
Steve Dennis 10:38
In retail it seems. So, yeah.
Michael LeBlanc 10:42
We'll be getting the yellow pages at my door soon, if this keeps up.
Steve Dennis 10:48
Well, I mean, nothing surprises me anymore.
Michael LeBlanc 10:50
I can never find a plumber, I can never find a good plumber on Google. If there was only something dropped on my doorstep each spring, where I could find a good plumber. All right, listen, good discussion, good introduction, and why don't we just get now into this, this broader discussion about stores and the role of stores and strategy.
Michael LeBlanc 11:10
And I think, as you said in the beginning, really as a guide to help the listeners and executives think through strategy, right. A really very strategic discussion about beyond the headlines, so to speak. So, let's get to that now.
Steve Dennis 11:23
As I shared a little bit on social media, I don't really care one way or another whether e-commerce grows more than stores, and I'm actually a very big online shopper. I think I probably buy more online than the average bear. But I am anti-bullshit. And there seems to be a lot of BS when it comes to stories, and narratives, and just general commentary about where e-commerce is going and how it's reshaping the retail industry. Not that it isn't, but it gets blown out of proportion, I believe.
Michael LeBlanc 11:57
Well, and it's this (inaudible) article that you published in Forbes, and that was, kind of, driven, or spurred, by an article in the Wall Street Journal, talked about shoppers, you know, returning to store. Stores are back. And just, you know, this, these, not competing, but complementary narratives of stores are back, as if they went anywhere, and the great acceleration. So, how do these two things come together?
Steve Dennis 11:58
Well, the particular thing that the Wall Street Journal article was, was anchored on was this US Commerce, or US Census Bureau data that came out that showed how online sales were dropping quite considerably. And then was it just a lot of commentary about, kind of, this new appreciation for physical retail. And I think there's a couple of things there.
Steve Dennis 12:43
One is, and we've talked about this a bunch of times on the show that, yes, there was a very pronounced surge, or spike, or whatever you want to call it, in e-commerce, in the early days of the pandemic, which led to, I think, was that was sort of the, the foundation for this idea of, of the great acceleration of e-commerce. I mean, there's—
Michael LeBlanc 13:10
Yeah.
Steve Dennis 13:10
Acceleration and other things as well, particularly in e-commerce, where McKinsey had this article that got a lot of coverage that we experienced three months of e-commerce growth, or excuse me, 10 years of e-commerce growth in only three months. So, if you go back two years, I think it was pretty obvious that, because that happened in the US anyway, when stores were pretty much closed.
Michael LeBlanc 13:33
Yeah.
Steve Dennis 13:33
And it's sort of ignored that, yes, the numerator went up, but the denominator was depressed. And that presumably was not going to last forever. And in fact, it lasted about three months. And we, we very quickly saw that physical retail started growing again. E-commerce was at an elevated level, but, but you didn't have nearly this, this massive acceleration. So, I think that pretty, that like first tranche of reset, it was pretty obvious that was going to happen.
Steve Dennis 14:07
But then as we got further into COVID, there still was this, this idea that e-commerce growth has been massively accelerated by the pandemic. And during the height of the pandemic, it certainly was an open question as to which pandemic specific behaviors were, were going to persist.
Michael LeBlanc 14:26
Right, were going to stick. What was going to stick, right.
Steve Dennis 14:28
Right. That, that was an, that was an open question. I think we have more insight to, not that we are completely beyond COVID, and it's still not that long a period of time, is if you look at the data that the Wall Street Journal shared, pretty much e-commerce penetration. So, the sales of online shopping to total retail in the US is pretty much about where you would have expected it to be had the pandemic not occurred.
Steve Dennis 14:58
In other words, e-commerce was growing at about a 15%, or so, annual growth rate. So, you could just fit a line to what that curve looked like, the slope of the curve, pre-pandemic and make a guess. And that's, kind of, where we are right now. On average, slightly ahead of that, but just looking at that data and some other data, it looks like in total, we have maybe a year of acceleration, which, in the scheme of things, is not that big a deal.
Michael LeBlanc 15:29
It's my perception that some categories grew more, and that the waterline did not recede. And when I speak of that, I think of online grocery, for example, which is kind of puttering along, really one, one and a half percent. Do you think there would be, kind of, sector by sector, some points of acceleration?
Steve Dennis 15:48
Well, it, it is the case. I mean, one of the things that I point to in the article, and actually talk about in my book quite a lot, is that this, this idea that the future is not evenly distributed. That in a big, diverse industry, like retail, there are very different situations depending upon the category.So, if you just look at, forget even the acceleration question for a second, if you just look at e-commerce penetration by category, you have categories like movies, books, video, which is like 60-70%, online.
Michael LeBlanc 16:22
Yeah.
Steve Dennis 16:22
And to your point, then you have grocery, which has been single digits for, for quite a while, and then everywhere in between. And you also have very different growth rates even before COVID, you know, movies, books, CDs, were relatively mature. Apparel was relatively immature. So, you see differential growth rates.
Steve Dennis 16:42
So, it's yeah, the, the averages by themselves are not that helpful, you have to really dig deep into the particular categories. If you look at the data, so far, grocery definitely was accelerated off of the trajectory it was on probably—
Michael LeBlanc 16:59
Yeah.
Steve Dennis 16:59
Two to three years. Food delivery also would be considerably higher than average. But that means if you look at all the other categories, you know—
Michael LeBlanc 17:07
They went down.
Steve Dennis 17:08
To get to that number in total.
Michael LeBlanc 17:09
Right.
Steve Dennis 17:10
Yeah, they, they were not, they actually slowed their trajectory. The 'so what' of all this is number one, you know, getting, sort of, cutting through the, the BS, part of it is, you know, what are really the facts. You know, what's really happening, as opposed to just kind of accepting, you know, just like the retail apocalypse, you know, people sort of accepted that. And there was a lot of it, that wasn't true.
Steve Dennis 17:32
But the more important thing was, okay, what does that mean for your business, and your category. Because if you were blockbuster, like the retail apocalypse happened to you, absolutely—
Michael LeBlanc 17:41
Yeah.
Steve Dennis 17:41
Or borders, right, like there are people that got decimated. On the other hand, there are lots of brick-and-mortar retailers, just like we had Nancy King from Target on the last episode, which certainly not a retail apocalypse there. I mean, they've actually thrived largely through physical stores.
Steve Dennis 17:58
So, you have to really pay attention to the 'so what' for your particular situation. But if you're not starting with accurate information to begin with, and you aren't really thinking more carefully, or in a more nuanced view, as to what it means for your industry, you could very well make a pretty significant mistake.
Michael LeBlanc 18:19
Yeah, you could over index your resources, or misalign resources because of, you know, where you perceive an overall industry that may or may not be applicable to your, your category. I mean, it, it, it sometimes I think I'm in the twilight zone with some of this stuff. Because, you know, going back to the beginning of my career in e-commerce when e-commerce was going to take over retail, everybody just give up, the shopping malls are all going to close.
Michael LeBlanc 18:42
We've been consistently, and I should, I, we as a, I even misspeak by saying we, because I never did, and I don't think you did either, just had been overestimating the importance of e-commerce, and perhaps underestimating the strategic, doesn't really matter where they buy, kind of, impact.
Michael LeBlanc 18:58
Is that your perception as well? I mean, we've been talking about e-commerce taking over everything since the late 90's. But it's pretty persistent that it's not. It's just all shopping. Is that, is that what's tripping people up, do you think?
Steve Dennis 19:10
Well, it's an interesting question. You know, you and I were talking off mic about a conversation I was having with a reporter earlier today. And we were, kind of, talking about this overall arc, not just specifically what happened during COVID. And so, yeah, if you go back to the late 90's, be it kind of the pets.com era, you know, there were a lot of business models that seemed like they were going to take over the world, raise a lot of venture capital, and, and pretty much all of them are gone. You had the whole Marc Andreessen software eats retail, all shopping will be done online in the future, kind of, narrative—
Michael LeBlanc 19:44
Yeah.
Steve Dennis 19:44
Which isn't remotely, and I keep saying that's probably going to turn out to be like the worst prediction in the history of business. You know, it's not remotely close to true. You had clearly a massive amount of venture capital investment in the digitally native vertical brands. That premise being that fundamentally, you could build a substantial, profitable business as a pure play e-commerce business. So, kind of, pets.com 2.0. You know, that is, that is looking not to be the case.
Steve Dennis 20:14
And then the whole storyline here about how COVID is going to take us to this whole new water level, maybe something will happen. You know, some people are arguing like, well, maybe, because it's this post COVID thing that people are just going to have this, kind of, short lived interest in going back to stores, and that won't persist. Or maybe the metaverse will completely change things. And maybe, maybe.
Michael LeBlanc 20:38
Maybe, maybe.
Steve Dennis 20:39
But, you know, if you look at the slope of that line, going back 10 or 15 years, it pretty much suggests that we'll be in the vicinity of 20% of all sales online, you know, in six or seven years, we'll be at 30%. And that's, kind of, the pattern we've seen. Again, you know, different by, by sector.
Steve Dennis 21:01
So, I, I think the reason why maybe people buy into it is there's, kind of, much more of this, this logical thinking, kind of, an engineering perspective to shopping, like there's a lack of appreciation. I mean, most of the people that seem to really forward this narrative either have a very strong technology orientation. And so, I would say they might be pretty strong on the IQ, but not so strong on the EQ. And so, they're not able to appreciate the more emotional, social, connected parts of shopping.
Michael LeBlanc 21:32
Yeah.
Steve Dennis 21:33
And so, that makes them underestimate—
Michael LeBlanc 21:35
Yeah, why would you shop, why wouldn't you just get it, wouldn't it be more efficient, just get it delivered to the door. Just like it would be more efficient drinking Soylent, than it would actually having a meal in a restaurant.
Steve Dennis 21:44
Exactly. You know, it's funny, as soon as you started saying that I was going to be like, yeah, just take a pill or, or—
Michael LeBlanc 21:48
Just take a pill.
Steve Dennis 21:49
You know, just because all you're trying to do is get calories, right.
Michael LeBlanc 21:49
Yeah.
Steve Dennis 21:52
So, I think there's a cognitive bias or something to, to that way of thinking. But also, and I don't mean to be so cynical about it, it's, there's a little bit of follow the money, right.
Michael LeBlanc 22:01
(Inaudible).
Steve Dennis 22:01
Like, the venture capital firms, they have interest in saying, hey, you know, Allbirds is going to be a $10 billion brand, not just a niche footwear brand, that's going to tap out at a few 100 million, right. So, or, you know, you're in the technology service business selling technology to power e-commerce.
Steve Dennis 22:20
So, I, I think there are a bunch of, of biases that, that probably contribute to it. But, but the learning to me is that, you know, dig, dig deeper into what's really going on. Don't make these broad statements that, you know, on average may be true, but, you know, nobody experiences the average result for the retail industry, you experience your, your particular view.
Steve Dennis 22:45
The other thing I think, which I, you know, we talked about on a prior episode, and I get into a little bit in a couple of my recent Forbes articles is there's also a definitional issue of what is e-commerce.
Michael LeBlanc 22:59
Yeah.
Steve Dennis 22:59
So, when you, when you see online shopping, growth or penetration or whatever, that is where the product is ordered. This, kind of, zero sum thinking that if, okay, well as e-commerce grows, that comes to the detriment of physical stores. And the implication of that is you, you need fewer stores, you shouldn't invest in stores. But that in many cases, isn't true.
Michael LeBlanc 23:28
And that's another long held thing. I fought in my career that cannibalization argument, aren't you just changing dollars, aren't you just cannibalizing the store. And there's a bunch of reactions, responses to that in any business discussion. One is, you know, if I don't, if we don't do it, someone else will. We have experienced that.
Steve Dennis 23:46
Sure.
Michael LeBlanc 23:46
And the other is, and you say this often, you know, when you start talking online shopping and in-store shopping it, it's increasingly becoming a distinct, a difference without a distinction, right. In these things, if you think more strategically, which is always what you've said about, okay, look, we call it an omni-channel strategy, but that's not very helpful. It's not really a strategy in and of itself, just like being data focused isn't a strategy, right.
Steve Dennis 24:09
I mean, there is this idea, I think that's been held for 20 plus years, both for newer businesses, but also, kind of, the way a lot of legacy retailers approached e-commerce, was that e-commerce was a business unto itself.
Michael LeBlanc 24:22
Right, right.
Steve Dennis 24:23
Or a separate and distinct channel. Now, if you're Amazon, for the most part, at least historically, or if you're Wayfair, or if you're eBay, or Etsy, like those are businesses that are essentially online only. And so, you can think of them more as a separate strategic business unit. But if you're Macy's, if things don't operate in isolation, that people use the store, in some cases to do research and then buy online later.
Steve Dennis 24:58
Or conversely, they research online and then go to the store, either to make the selection or maybe they do online. So, there's this, this, you know, symbiotic relationship between physical and digital, which is the case for, you know, really the vast majority, I shouldn't say, the vast majority because Amazon is so dominant. But, but, you know, when you, when you think about retail, overall, the vast majority of revenue is done by brands that have both physical and digital assets.
Michael LeBlanc 25:32
Yeah.
Steve Dennis 25:33
You know, Amazon is really the exception. And then it's a big drop down from Amazon's volume to Wayfair, you know, to eBay and those things, and you know, which are really, I mean, eBay and Etsy are, you know, they're platforms. They're not, they're not—
Michael LeBlanc 25:46
Yeah.
Steve Dennis 25:46
You know, kind of a core retail business. So, really, you know—
Michael LeBlanc 25:49
We've heard this over and over again from, from a variety of guests. I mean, most recently, as you said, Nancy King from Target, right, 95% of their 20% of e-commerce is done connected to the store. And the number one thing that customers wanted at curbside, in addition to great curbside delivery service, was a coffee, which is just mind boggling, right.
Michael LeBlanc 26:07
It's just that integration of experiences and, and retail. You know, the other thing that strikes me is on these, you know, when I look at the digitally native vertical brands, which seems to be having a moment, a bad moment, is it gets me back to who's running the business and what's their orientation, you talked about, you know, different technology orientations.
Michael LeBlanc 26:28
But you know, in my experience, you need a great operator to run stores. Running stores is not easy. I think about Ron Thurston for example, when you listen to Ron Thurston, it just oozes excitement for showing up on a Saturday morning and have a team meeting.
Steve Dennis 26:28
Well, I think it's a good point. And I think that, that'll be interesting. And maybe it's a, it's a topic for another episode to, kind of, get into that more deeply. But I think there was this view, this, kind of, channel-centric view. And this idea that, you know, going back to what we said earlier, that there was such a thing as sizable pure play online only brands. And I think, you know, the era of that, you know, again, once you sort of throw out Amazon.
Michael LeBlanc 27:10
A couple of outliers, sure, sure. Just a couple.
Steve Dennis 27:12
But for, but for everybody else, it doesn't look like there really is much of a pure play online-only businesses of any size. So, now as you get into physical retail, that does absolutely bring a whole new set of, set of skills. And, you know, it's still not obvious. And this was another part of the conversation I was having with this reporter.
Steve Dennis 27:35
You know, we're still really, for the most part, pretty early in on really understanding how successful the digitally native vertical brands can be, with their physical store strategy. You know, hardly any of them have more than a handful of stores. And the ones that do that we know about is pretty much Warby Parker and Allbirds.
Michael LeBlanc 27:56
Yeah.
Steve Dennis 27:56
And they continue to lose a lot of money. That could change but it's not as if, wow, it's, that was the thing that has massively accelerated their, their glide path to profitability. You know, the, the jury's out on that. But it's certainly the case that running, you know, particularly Warby's case, you know, and they're going to be at a couple hundred stores by the end of the year.
Michael LeBlanc 28:16
That's a big shift, that's a big fleet.
Steve Dennis 28:18
Yeah, that's a sizable, right, that's a very sizable, complex business, geographically diverse. It's one thing when you're like Glossier, and you open a store down the street from your office, right. It's another thing when you've got, you're in New York, and you've got stores in Kansas City, and Tulsa, and Portland, and—
Michael LeBlanc 28:32
And Toronto, and Toronto.
Steve Dennis 28:33
And Toronto, right.
Michael LeBlanc 28:34
You're operating in different countries and—
Steve Dennis 28:36
Right, you're going to London and going elsewhere. So, yeah, it's a whole thing.
Michael LeBlanc 28:41
And, you know, it also makes me think about, I don't know how this all fits in, but, you know, there's this, also this issue of fundamental economics and disintermediation. This gets back to our Simeon Siegel discussion where they said, well, if you're a brand, just go around the retailer. You'll make tons of money because you won't have to pay them anything, right.
Michael LeBlanc 28:57
The myth of that, as well, is somewhat connected to this, well if everybody's accelerating as a pure play, why don't I just do that? I'll just sell my, you know, I'll just sell my widget directly to customers, right. I think they're connected narratives in some way.
Steve Dennis 29:11
Yeah, I think it's just all turned out to be that there's, there's more to it than meets the eye at first blush. That, that there was this very, kind of, simplistic approach to how to build these brands. And I don't want to say that building a brand online only is, is simple, but it's—
Michael LeBlanc 29:27
Yeah.
Steve Dennis 29:27
It's straightforward. It just turns out that there's a lot more, more to it. And I think you're absolutely right, the, the next answer for these digitally native vertical brands isn't necessarily all about stores, their own stores, right, it, it probably, as we're seeing with quite a number of brands, may involve some degree of wholesale. But it's not, there's not just one playbook.
Steve Dennis 29:51
And I think there has been a little bit of this, you know, that's the cliche of, you know, when all you have is a hammer, everything looks like a nail. I do think that's probably contributed to some of these companies getting into a fair amount of, of trouble. Now, whether that was a matter of not, you know, kind of believing their own, their own press releases—
Michael LeBlanc 30:11
Yeah.
Steve Dennis 30:11
Or young, comparatively inexperienced founders not realizing the gaps in their knowledge base, or just thinking, you know, this can't be that hard, or whatever. I mean, I've heard, I've had some personal discussions with some of the founders where I'm like—
Michael LeBlanc 30:26
Economics are different. I get that one a lot. The economics of change, unit economics doesn't matter the way it used to. Really? I think it still does.
Steve Dennis 30:34
Oh, yes, yes and no. I mean, I hate to, there's, there's part of me where, I mean, aside from just being criticized for being a hype man for brick-and-mortar, you know, I sometimes get criticized from, from saying, well, let's, you know, just learn a little bit from history. You know, none of these brands invented DTC—
Michael LeBlanc 30:52
Right.
Steve Dennis 30:52
It's been around for a while. Digital, you know, native, you know, I call them now, sort of cheekily, analog native vertical brands, but, but you know, there have been companies like Williams-Sonoma, and Lands' End—
Michael LeBlanc 30:53
Yeah.
Steve Dennis 30:53
Blah, blah blah. Like, this is not a totally new model. And all of those guys have been digital for quite some time. It's not like they just—
Michael LeBlanc 31:10
Yeah.
Steve Dennis 31:11
I mean, Lands' End had a pretty successful website when I was working with them in 2002.
Michael LeBlanc 31:16
Yeah.
Steve Dennis 31:17
So, this is not new. So, you know, it's hard to say like, you know, on the one hand, go back to some things that we know about how shopping works, how retail works, what consumer behavior is like, that may still be relevant today. But a lot, a lot has changed. And I do think that the digitally native vertical brands, even if they have discovered, which I think for the most part they have, that the market is not nearly as big as they once thought.
Steve Dennis 31:44
That they clearly have to be more than just online only. They do have some advantages of being able to, you know, most of them are much more analytically driven, you know, leveraging customer data. They, generally speaking, don't operate in silos, you know, they never created the silos between online and, and physical, that legacy retailers have been working to undo.
Steve Dennis 32:07
They get to pick the best real estate, with a lot of fresh new capital. So, you know, a lot of cases they're located in better positions than the incumbents they're trying to unseat. They've got, you know, a right size store, they've got the latest technology, you know, everything is built in the cloud, from the beginning, as opposed to migrating to.
Steve Dennis 32:26
So, there's, there are a lot of things that are different, and important that you can't go back and say, well, you know, in my day, we didn't need, you know, snowflake and a bunch of this, this stuff that, that’s been pretty impactful.
Michael LeBlanc 32:41
All right, well, let's, let's bring it all home. I mean, how do we frame this? You know, what's your advice to the listeners in terms of if you're a business and you're trying to sort all this stuff out. You know, you're reading success and failure, acceleration, the waterline increase, the waterline decrease.
Michael LeBlanc 32:55
If you, if you thought about it, and you know, you got an elevator ride up to the top of a hotel in, in Vegas, where you're speaking at a conference, and somebody says, what should I do about all this?
Steve Dennis 33:05
Well, there are a few things that I think are pretty consistent across, across retailers. One is real cliche, of course, but, but start with the customer, you know, really understand which customer segments, which purchase occasions, you're going after.
Steve Dennis 33:21
You're going to need to do some customer journey mapping, because that unlocks like, like, you know, when you, part, I mean, I happen to know this about a couple of these digitally native vertical brands, part of the reason why they started opening stores, is they did a lot of customer insight work. And they had a lot of customers that looked like they were valuable prospects, say, you know, I'm kind of inclined to try out your brand, but I'm just not going to buy it online.
Steve Dennis 33:43
You know, I need to go see it, touch and feel it, whatever, immediate gratification, you know, there's a bunch of, bunch of things. So, they were led to some of those early decisions, by a deep dive on customer work in the, you know, the customers they were looking to acquire or grow their share of wallet. So, I would, I would start there, first of all.
Steve Dennis 34:02
I do, to your earlier point, you got to understand, whether you call it unit economics or marginal economics, or whatever, but as you're growing, you know, what is going to be the set of things you need to do to generate that, you know, that next 10 million, 25 million, whatever it might be, and what are the realistic economics of that. And, I mean, potentially related to that is the third thing, which is this culture of experimentation.
Steve Dennis 34:26
You know, can you test your way into it? I think one of the problems with many of these digitally native vertical brands, is they raised so much money against very lofty prospects, that they ended up doing a lot of, what I would call, moonshots, right. Like, you know, Casper had like four stores open where they said we're going to open 800 stores and—
Michael LeBlanc 34:48
Right.
Steve Dennis 34:49
Like, that's, that's, I mean, you may just, I don't know if you, like, really plan to do that, but that's just dumb. Like there's no way with four stores that have been open, you know, 13 months, you have any idea that you can get to 800 stores, that's just nutty.
Steve Dennis 35:03
But I think because of the way they were funded, and their market profile, they have to, I wouldn't say they have to, but they chose to, but there's an expectation that's been built around these valuations. And so, that tends to increase, or tends to drive this, just, sort of go for it and hope it works out, but now what we're seeing is it's not working out for a bunch of them and (inaudible).
Michael LeBlanc 35:25
Not working out, yeah. And it, it just, my last thought, is it takes me back to one of our prior guests, Drew from Indochino, who didn't do what you described, they're growing their stores, but they started with a few, and then experimented, and then grew a couple per year, like they, kind of, a measure twice, cut once.
Michael LeBlanc 35:41
So, they still have an aggressive growth strategy. But they didn't say, you know, we've got five stores. Well, next year, we might have 15, which is still aggressive growth, but not that, kind of, order of magnitude in the hundreds, and hundreds, and hundreds, right. So, they seem to have done that right.
Steve Dennis 35:54
Yeah, I think what's hard there is, you know, I do think the reality of, if you've taken money, like if you think about who your investors are, if you've taken money from venture capitalists that, that are looking for an exit within 5,6,7 years, that pushes you to do some things that perhaps aren't the smartest thing.
But, you know, the venture capital model is, you know, if one out of seven turn out to be a home run—
Michael LeBlanc 36:19
Yeah.
Steve Dennis 36:21
Yeah. So, that, that causes, I think, some, some less than optimal behavior, in, in aggregate.
Michael LeBlanc 36:29
A wide ranging episode, but I think we drove home the point. And I think we, kind of, explored it. I'm sure it won't be the only time we talk about this. But for now, why don't we leave it there.
Michael LeBlanc 36:38
If you like 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 36:53
And I'm Steve Dennis, author of the bestselling book, "Remarkable Retail: How to Win and Keep Customers in the Age of Disruption". You can learn more about me, my consulting, and keynote speaking at stevenpdennis.com.
Michael LeBlanc 37:07
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. And you can learn even more about me on LinkedIn or meleblanc.co.
Have a safe week everyone.
SUMMARY KEYWORDS
stores, brands, commerce, retail, business, talking, online, pretty, thinking, pandemic, customers, dtc, uniqlo, episode, people, simeon, physical, narrative, growing, category