Remarkable Retail

The Future of Physical Retail: Definitely Different, Far From Dead

Episode Summary

With brick & mortar continuing to grow--and retailers continuing to open thousands of stores--by now hopefully most have accepted that the "retail apocalypse" narrative is nonsense. But it's clear that what separates the remarkable from the also-rans is evolving quickly and that the role of physical stores are becoming much more hybrid in nature and intrinsically linked to digital efforts. In this episode we go deep on what's driving the change, the on-going collapse of the middle, the longer-term effects of the pandemic and what this all means for everyone in the retail eco-system.

Episode Notes

With brick & mortar continuing to grow--and retailers continuing to open thousands of stores--by now hopefully most have accepted that the "retail apocalypse" narrative is nonsense. But it's clear that what separates the remarkable from the also-rans is evolving quickly and that the role of physical stores are becoming much more hybrid in nature and intrinsically linked to digital efforts. In this episode we go deep on what's driving the change, the on-going collapse of the middle, the longer-term effects of the pandemic and what this all means for everyone in the retail eco-system. 

But first we open up the episode with our quick takes on recent retail news that caught out attention, including Amazon's upping the ante on last mile delivery, earnings from Wayfair and Canada Goose, and another set of, um, interesting moves from HBC as they create silos for their store and web businesses and launch a co-working partnership between their Saks department store division and WeWork. 

NOTE: We'll be releasing episodes every two weeks through September 7, when we'll move back to a weekly format. Next up, Camp CEO Ben Kaufman.

Also be sure to check out our new  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  and       The Food Professor  with Dr. Sylvain Charlebois.  You can learn more about Michael       here  or on       LinkedIn. 

Episode Transcription

Michael LeBlanc  00:05

Welcome to Remarkable Retail podcast, Season 3, Episode 4. I'm Michael LeBlanc.

Steve Dennis  00:11

And I'm Steve Dennis.

Michael LeBlanc  00:13

Well, Steve, in this episode, you and I are going to delve deeper into the future of stores in this hybrid retail reality that we now operate in, talk a little bit about that.

Steve Dennis  00:22

Well, I think we're going to keep coming back to this, it's really this idea that physical retail isn't dead. But it's certainly becoming very different and so, trying to delve into what that really means, from an overall business strategy standpoint, what that increasingly means,

Michael LeBlanc  00:40

Yeah.

Steve Dennis  00:40

in terms of what sort of stores are going to be needed, what they look like, where they're located, what technology and operations need to change because part of what we'll, we'll get into, you know, it's also interesting, I know, we'll touch on this little bit, but we keep getting a lot of news about store openings and store closings. And yeah, of course, I have friends. Of course, I reported that store closings were down for the first time, year over a year. And like, I think it's 10 or 12, 12 years. So, that's kind of interesting. And then IHL got a little bit different methodology. They're reporting that for every retailer that is closing stores that are four retailers that are opening stores. So, again, kind of, playing with his retail apocalypse narrative, but again, I think probably the more interesting thing is, what are those stores look like, what's the role of stores, and how is that evolving quickly.

Michael LeBlanc  01:40

Yeah, that's what I particularly enjoyed about our discussion because it gets into that, kind of, long term decisions and lasting implications, but, you know, back to, to the, better start thinking about it now because, A, there's some opportunity, and I think you're seeing that in the IHL numbers is that, you know, there's a lot of stores that have closed, people have just rationalized real estate, you know, Starbucks closed hundreds and hundreds of outlets, but not in a, in a we're in trouble way, but oh, let's rationalize and things are changing. 

Michael LeBlanc  01:39

So, now before we go in, and start talking about delving into this, let's what, what, what kind of things caught your eye in the media last couple of weeks, I saw, you know, we rarely don't talk about Amazon in this and yesterday was a bit of a milestone, right. So, we had Amazon open up their $1.5 billion transportation hub in Kentucky, what do you, what are you thinking, what are you, what are you thinking about Amazon these days and particularly pertaining to logistics?

Steve Dennis 02:34

Well, we continue to see these last mile delivery wars, whether it's a race to the bottom or not, I guess we'll, we'll ultimately see, but there's no question that Amazon, Walmart, Target, and a bunch of these third-party delivery, players are trying to get closer and closer to the customer, narrow that delivery window and so, Amazon's just put an amazing amount of money into infrastructure, 

Michael LeBlanc  03:01

Yeah.

Steve Dennis  03:01

Not only the big facility, they opened in Kentucky, but many other facilities, buying more aircrafts, so. So, the infrastructure piece of this for, for Amazon and for others, is huge. The other thing I thought was interesting that Amazon appears to be testing in a few markets is changing their delivery fee structure. So, as we've gotten into a bunch of times, consumers seem to really love this convenience more and getting things faster, but at the same time, the economics of it for retailers are often pretty terrible. So, Amazon and others, I think are going to keep playing around with how do we cut the delivery times, how do we narrow those delivery windows, but how do we not take such a bath, on providing that service.

Michael LeBlanc  03:49

Now, in your mind, is that kind of speed to the doorstep a sustainable competitive advantage for Amazon, they seem to be saying that's where we're gonna plant our flag in terms of, of where we're going to win, what do you think?

Steve Dennis 04:03

Well, one of the, one of the quotations I often include in my keynote, and I include in my book is Seth Godin's, the problem with a race to the bottom as you might win, or worse than your second, 

Michael LeBlanc  04:14

Right.

Steve Dennis  04:14

I think, 

Michael LeBlanc  04:16

Right.

Steve Dennis  04:16

probably, what Amazon is counting on is that they're going to be able to build this fortress, this incredible cost, structure and efficiency that everybody's going to have to chase and maybe with the exception of Walmart, maybe Target, there aren't many retailers that are going to be able to match Amazon and not have terrible economics. So, I think the trains left the station on this, I think Amazon believes they can win and clearly the infrastructure investments are a big part of that, I mean it's really, really hard, again, maybe with the exception of someone like Walmart, to imagine anybody coming in remotely close because it's just a cost of establishing it and then volume you need make it work or just can't, you know, 10x, 100x for most retailers.

Michael LeBlanc  05:04

Let's move on to talk about the earnings. Another week, another week of earnings. Canada Goose was in the news that their earnings, Wayfair, the real, real what any observations from the latest raft of earnings?

Steve Dennis  05:15

Well, I think a couple things are interesting. Wayfair, which I will fully admit to having been wrong. If you'd listened to me about the Wayfair stock a couple of years ago, you would have taken very bad advice because the Wayfair stock has generally done really, really well. Some of that is all the capabilities they build, some of that as being kind of the right place at the right time in terms of this big move to home furnishings and a big move to online and the biggest player there. 

Steve Dennis  05:44

But their earnings to me were pretty interesting because we've seen a big move back in terms of volume online, not terribly surprising. Some leverage for them on the expense side, but I think this is maybe pointing to some issues ahead. Another set of earnings I thought were, were interesting. Were Canada goose's earnings, very different kind of business model. They had major increases certainly year over year because of COVID. But way up compared to two years. Going that their stock got hammered seems to be that investors are worried about this shift to more of their owned direct-to-consumer stores and ecommerce and de-emphasizing their wholesale partners.

Steve Dennis  06:35

What's fascinating to me is seems like that's the strategy that is winning for players like Nike and a bunch of others, yet, somehow for Canada Goose that seemed to be a measure of concern, but I think it's a remarkable brand. Great results particularly in the face of,

Michael LeBlanc  06:53

Yeah.

Steve Dennis  06:53

you know, not great situation for apparel more broadly. So, I think that's one to watch.

Michael LeBlanc  06:59

Let's, let's finish on Saks, Hudson's Bay, lots of news. Hudson's Bay announced they're, they're following in the footsteps of Saks, of course, they own each other and splitting off the Hudson's Bay or Canadians would know it as the Bay business. Iain Nairn, who's the, who was the president, he has now become president of digital and, and someone, actually I know, Wayne Drummond he was a marketing, we were marketing folks together back in the, in the day at HBC, I guess, I should have stayed, it turned out really, he's a talented guy. So, what do you think, I mean, and you got this, this whole new SaksWorks which is, kind of, a WeWork meets Saks, I mean, there's lots of interesting stuff going on for sure.

Steve Dennis  07:33

To me this is either going to be genius or the dumbest move on the planet, I don't think there's much middle ground. I don't, I don't understand the, you know, as we've talked about previously and just following social media I think, you know, the real estate people seem to like the move everybody else seems to hate it because it's against this idea that brands are horizontal that, you know, as I always say silos belong on farms, digital drives physical, blah, blah blah, blah, right, and so they're going in the complete opposite direction of, I think probably, 99% of retailers have, have concluded is the right move and I think, I can't imagine customers are asking for this. So, I think it's curious I think it smacks of desperation. The Saks, WeWork thing, you know, 

Michael LeBlanc  08:22

SaksWorks. Yeah, SaksWorks.

Steve Dennis  08:24

On the one hand, you know, certainly working at Neiman Marcus, I'm pretty familiar with this sort of real estate, that a luxury department store has and generally speaking, those stores are way over spaced, and they were very much dead areas and parts of the store. So, thinking about what you should do in the face of some pretty negative trends more product being sold online with that third floor space, where it used to be the fur department or something I get it, 

Michael LeBlanc  08:56

Great.

Steve Dennis  08:56

like, fixed costs, you want to leverage it, the idea that what the Saks customer is dying to have is coworking space on the third floor of a mall. I don't get it, I get how they might have talked themselves into it being a, a match made in heaven, but I don't, I don't see this being (inaudible) to either companies successful forward.

Michael LeBlanc  09:20

Well, one commentary I can make is the gentleman who's running it, Kerry is a skilled retail executive who's, I, who I worked with, again another executive I worked with who's done quite well. So, if anybody can make it work, he can, so yeah, it'll be interesting to watch.

Michael LeBlanc  09:35

All right, well listen, before we get to our further discussion and your what just want to remind everybody, we now have a YouTube channel. So if you're listening to this on your podcast, or whatever podcast please check us out on YouTube. This section is on YouTube, kind of, an expanded version. And with that, let's, let's throw to the rest of our discussion, all about this next iteration, next discussion around hybridization.

Michael LeBlanc  10:00

All right, Steve, well, that was a great review of, of recent news. Now, let's get to the meat of the matter, the, the, what we're here to talk about and it's the, this next part of our of your thinking is, as you know picking up from Episode Two we talked about hybridization of retail and I wanted to start off, in some ways, where you and I began many years ago talking about this retail apocalypse and very, I mean, very quickly, I remember when the first time you and I met were in a restaurant in Toronto and Carl Boutet was there and some other folks and right away we aligned on this is all just a media narrative, it's nonsense. How is, has your thinking evolved in any way because of, of COVID, is it still fact or fiction, you know, retail apocalypse version 2.0, what do you think?

Steve Dennis 10:46

You know, I still, it's, I still think it's mostly fiction. It's kind of this narrative that won't die. Maybe it's gotten tempered a little bit. But I mean, it's certainly the case as it's been for years that eComm is growing much faster than physical stores, but when you actually look at the data, at least in the US, growth, or sales through physical stores have been up for 12 straight years and the projections are that it will be up this year, as well. So, it's kind of hard to say that retail is going away, physical retail is going away if it continues to grow. They are also, as we've touched on a bunch of times, 1000s of stores that continue to be open, including some pretty mature brands like Target and Costco and clearly, we've seen a lot of the off-price value, retail guys like TJ Maxx, Five Below, Dollar General, you know, they're all bidding, you know, literally hundreds of stores. 

Steve Dennis  11:53

So, you know, really tremendous growth, including some announcements of pretty aggressive store opening plans that came during the pandemic. I think we touched on this on another episode that Warby Parker announced more store openings quite a while ago now, and they're doing an IPO, to raise some money to do that. So, when you just look at the facts, it's just really hard to say that physical retail is going away. The other thing, and I guess the reason why maybe it matters, just in terms of what it means for strategy is, I always felt and you can tell me if you agree or not that part of the assumption was that as ecommerce grows, disproportionately and obviously spiked during the pandemic, it comes at the expense, right, physical stores, why would you want to invest in physical stores, if they're slowly going away. Some of that is clearly true, but it's also true that physical stores play a role in supporting ecommerce because of things like ship from store and curbside pickup. So, so I think there's just, kind of, a misunderstanding that, that is fairly pervasive.

Michael LeBlanc  13:09

Well, pulling on a couple of threads, you know, it does lead for some decision makers to think well, then I shouldn't do much ecommerce because it's going to, it's going to cannibalize a store and why would I do that, I mean, we've often talked about the most economically efficient way to do retail is, you know, have them come and do it themselves, them being the customers. So, can, can you see reticence amongst clients, amongst retailers. Say, well, why would I make this worse, in other words, if it's going to happen, it's going to happen or do you take a more strategic angle and say, let's get ahead of it and let's make sure you know, back to our second episode, that this hybridization that you're on the cusp of that rather than on the tail end, and the receiving end of the brunt force of these changes.

Steve Dennis  13:52

I think the guiding principle should be this idea that we've talked about before, the customer is the channel and so, you've got to figure out the best combination of digital and physical. You know, in some cases, digital is really good at certain things and not so good at one thing and other things and physical stores are really good at things that, that ecommerce, at least at this point, through technology can't do. So, I think it's a matter of really figuring out what you want to do as your, your store brand or retail brand, overall, clearly some things you can do around the edges in terms of encouraging customers to behave in certain ways, but I think you know, the customer is ultimately going to do what the customer wants to do and you have to adapt to that reality.

Michael LeBlanc  14:34

Is there an intersection point where there's enough movement of goods into the online space and ecommerce that there does become an apocalypse like closing? Now, we've seen that happen in the US, but that's mostly got an over, because they've overbuilt. We see the characteristics of the retail stores that are opening up change. You know, when we talk about dollar stores and Dollar General stores, that's a, 

Steve Dennis  14:57

Right.

Michael LeBlanc  14:57

That's a very specific format. That is thriving. I mean, you read and hear about this 50, 50 / 50 thing that could happen someday in retail, where 50% of ecommerce, as a number, happens, is that a tipping point, like, is there some point that you say, okay, you know, a lot of stores are going to close because you, you're not very optimistic about shopping malls, and is that the tipping point?

Steve Dennis  15:22

No, no. Well, I think that's a big contributor. So, if you take kind of the 20-year view, number one, as you alluded to, particularly in the US, I think Canada's a little bit better and some of the European markets are, are not as challenged. There was just so much building of retail space, a lot of it was regional malls, I think regional, I quote, The, the number of my book, I should have that in front of me, but, but I think like the square footage in regional malls increased like four times over a 20-year period, whereas the population only increased 1.4 times. So, if you just look at regional mall square footage, yeah, got vastly overbuilt, but you've also done, obviously, plenty of other kinds of stores that, that got open, so. 

Steve Dennis  16:06

So, there's been this general oversupply of retail space, that's just continued to get worse, then ecommerce comes along and generally, ecommerce does mean you need less square footage and it's not true, every, you know, every format, but generally speaking, you can get by with less retail square footage, and fewer stores if you've got a strong ecommerce presence, so, so I think we'll continue to see significant pruning of store counts, but I think it's really much more about what particular kinds of retail is disproportionately affected and for sure, the traditional mall is where, we'll continue to see, I think, a lot of consolidation, but to the point earlier, we're seeing a lot of investment in retail square footage among retailers that have a winning business formula, and, you know, for the most part, they're doing it in concert with ecommerce, so.

Michael LeBlanc  17:07

I guess, I guess a more, you know, more nuanced question is, when I when I think of macro forces, I think about the work from home movement, which inherently drives less demand for apparel, which is a big, big presence in, in shopping malls and, and, you know, the COVID era, notwithstanding, you know, where we're just getting out and socializing less, that too, will pass, if not this year, next year, hopefully. So, you know, that, that should resolve itself, so to speak, or it doesn't resolve itself, but vaccines have resolved it. But is there these confluence of things that really accelerate the demise of some formats, as you said, whether it's shopping mall or department stores, or apparel retailers, are you worried about that or thinking about that?

Steve Dennis  17:52

So, I think one of the big forces is something we've seen for a while, which I often refer to as the, the collapse of the middle, or this bifurcation of retail, now, some of the bifurcation of, you know, where you see success, that kind of either end of the spectrum, the value spectrum versus kind of the premium, more experiential spectrum. Some of that has been driven by just the weakness of these business models that are, kind of, neither fish nor fowl, that they're stuck in the middle with adequate positioning, but a lot of that has also been driven by what's going on from just, kind of, underlying economics of households, which is the rich are getting richer, and the poor are getting poorer.

Steve Dennis  18:34

And so yeah, the rich have the money to spend. And so they're sort of trading up or just spending more money in those higher end categories. And then the people that are much more economically challenged have an affordability issue, and that's driving more demand for dollar stores and, and those kinds of things. So, you know, at least in the States, there doesn't appear to be any reason to think that that is going to fundamentally change anytime soon. So, I think that will put even more pressure on middle of the road, kind of, kind of retailers. But you know, in terms of a tipping point, certainly some of the big retail centers that have been struggling for a while, as they continue to lose tenants, as they continue to lose maybe some of these apparel players, whether that's from work from home, or just in general, some of them trends. There, you know, there's a point where the economics just don't work and that center doesn't work and you could have kind of a domino effect, so. 

Steve Dennis  19:33

The, the other thing, I think, which is, maybe not huge in the scheme of things, and I think we've touched on this before, too, is that, if work from home persist at a reasonably high level, then you've got people an overly simplified but people that are spending more time in the suburbs versus the traditional inner city core and so if they're in the suburbs during the day, then that may be where they're going to go have lunch or where they're going to go run,

Michael LeBlanc  19:59

Right.

Steve Dennis  19:59

Errands, that might have otherwise run during lunchtime or right after work or something in a different location. So, I think you'll see some reallocation of real estate, I don't know if that will fundamentally affect store closings in aggregate very much.

Michael LeBlanc  20:13

Let's talk about this whole COVID thing, has this made anything better or worse, in terms of these trends, you know, we see, we see flagship stores opening up again, in New York City, it's 18 months of change, and it could be two years of have to even longer from a supply chain perspective. Let me, let me rephrase it, has COVID, the COVID era, really just expose the weakness and strengths in the industry?

Steve Dennis  20:38

I think that's largely true. I mean, certainly, if you had a weak value proposition to begin with, and you were struggling financially, we're in an essential retailer, like things got pretty ugly, pretty fast and that just made, you know, either forced you into bankruptcy or forced you to just take an axe to costs and, and stores and things like that, so. So, I think generally speaking, though, you know, the winners continue to be winners, and the losers continue to be losers, you 

Michael LeBlanc  21:05

Yeah. 

Steve Dennis  21:06

clearly had some very specific reallocation of spending, apparel and accessories got hit very hard, and people were buying pelotons and office furniture, you know, things like that, which are not likely to be phenomenons that are going to be so distorted as we go forward. So, some, some people sort of got lucky, I guess, so to speak, 

Michael LeBlanc  21:26

Yeah. 

Steve Dennis  21:26

Aspects of that. 

Michael LeBlanc  21:27

Yeah.

Steve Dennis  21:27

Aspects of that. I think the, you know, you may recall, there was this prediction that Coresight research made, that 25,000 stores were going to close during 2020 and several people were out there saying that, well, different estimates, but a significant number of malls. We're going to close in the next year to 18 months and I think about 8000 stores ended up closing in 2020. Store closings, at least according to Coresight, numbers are down this year, compared to last year.

Michael LeBlanc  22:03

Do you think it's a dead cat bounce, though, like, there's a lot of government subsidies that blended in?

Steve Dennis  22:08

Yeah, I think, I think the biggest thing is the current while it's combination, it's well, the biggest thing is that lots of consumers ended up with more money to spend

Michael LeBlanc  22:20

Right, right.

Steve Dennis  22:21

Then I think, myself included, would have thought, and some of that is absolutely the significant amount of government stimulus. Some of it is well, you know, I'm not going out to eat, I'm not going out to concerts, I'm not commuting and so, I've got, if you've kept your job, you've got a lot more discretionary income and now I think we are getting, you know, this revenge spending pent up demand sort of phenomenon.

Steve Dennis  22:44

And so, I think that, you know, that gave, that put more money into retail during 2020 than, I think, many of us would have expected and now we're continuing to see the effects of some stimulus, but we're starting to see some of these areas bounce back, but I think it is more of a dead cat bounce for, for some players and so, once we get through this period, where the stimulus is in such a big deal, and people go out and, you know, just get out there and replenish their wardrobes or just

Michael LeBlanc  23:12

There's a big stockpiling cash, right, there's a, there's like that scene in Canada, it's been estimated about $200 billion stockpile of cash, unspent money, now not all that's going to find its way into retail by any means, but a lot of it will, like there's a lot of dry powder that would use another metaphor that is out there that is ready now it needs some exogamous igniters. Jheez, look at me, I'm continuing on this metaphor. You need people, you need people to go back to their normal lives to go to parties again and to go back to, to some degree to perhaps go back to the office. 

Steve Dennis  23:46

Right.

Michael LeBlanc  23:46

Before apparel really gets going, right, I mean, there needs to be, you need to prime that pump. Just the fact that stores are open, doesn't mean you need more clothes, like, right you need,

Steve Dennis  23:55

Right.

Michael LeBlanc  23:55

you need purpose for that, right?

Steve Dennis  23:58

Yeah, I think in apparel in particular, you have kind of the, the wardrobe replenishment part, you know, stuff wears out, or if it's kids they grow out of it, or you know, you put on 15 pounds, or you got in shape or whatever, you know, there's a bunch of reasons why people will, will probably spend more on apparel than a lot more coming up than they did last year, but yeah, the big driver for many categories of apparel is his work or events or you know, things where you got to dress up then if it comes back significantly more slowly, though, I did see a report that Nordstrom put out that searches for work apparel or something like that. We're up like 125% over last year. So, yeah, there's some, there's some hope there.

Michael LeBlanc  24:41

You said in the past, and it's one of my favorite quotes. Retail isn't dead, but boring retail is, that, but is brick and mortar retail, boring retail, and how do you make it different, what do you do, and how does it evolve in your mind? I mean, this is beyond what we talked about hybridization, but really encompasses what, what's the role of retail stores and how should retailers be thinking about what they should do next with their stores?

Steve Dennis  25:07

Well, the high-level concept is really, at the crux of Remarkable Retail, which is those retailers that have a compelling value proposition where stores are important to the overall brand experience, continue to do well. And those retailers that don't have that relevance and aren't executing it, well continue to lose share. So, I do think fundamentally, it is boring retail that is, or even, you know, less than Remarkable Retail, that brand is dying. But clearly, we're seeing an ongoing shift for the role of stores. You know, as we touched on in the hybridization of retail episode, got this, you know, the old world of, of shopping was pretty much 98%, you go to a physical store, 2%, you go to a mail order catalog, and that has been shifting very dramatically. So instead of thinking about stores as basically warehouses, where consumers can go and get stuff, they're becoming more, more than that. 

Steve Dennis  26:13

So, I think that's going to continue to cause retailers to think differently about, you know, the their overall shopping experience, you know, the interaction between digital and physical, it's going to cause them to look at how physical stores are laid out and operated, maybe located and the size of them, because we've got this change where there's just much more involvement from most retailers not all but much more in our have a role of stores in fulfillment of e commerce orders, you know, whether that's buy online, pick up in store, curbside or ship from store, I think it's become more obvious, though this has been a trend for a while that stores play a role in advertising the brand. In some cases, it's very much the, as we talked about with Drew Green in our last episode, it's very specifically as a showroom where the product is there to be displayed, perhaps tried on fitted, but you're not walking out of the store with, with product typically. 

Steve Dennis  27:20

And then there's also this so-called halo effect, which people might be familiar with. The ICSC studied a couple of years ago and has updated it, that, and other retailers have talked about this, which is when an online brand. Typically, if you think about the digitally native vertical brands, when they open a store, they see their online sales go up in that, in that trade area. So clearly, the store plays a role in driving overall brand sales. And we've also heard people like Macy's talk about well, when they close the store, they typically not only don't make up that volume, but their online business gets worse. So, I think over the last few years, there's been more appreciation that, yeah, the store is a place to sell things. But you can't just evaluate it on sales per square foot, that are actually run up in the store because of this media advertising effect.

Michael LeBlanc  28:13

Well, that, that gets to the tricky question of, okay. all of that makes sense, I mean, whether you're Indochino, or as we discussed in last episode, Disney, who has an opportunity to make, you know, big experience stores, how do you measure this, like, what's, you know, the, there's a whole raft of sales per square foot productivity measures with employees, when the store takes on such a complex as set of roles, how and where do we start in terms of measurement?

Steve Dennis  28:44

Well, it gets, it gets certainly more complicated. And attribution is not always so easy, I would say at a high level, if you really believe and I think the evidence is pretty strong with this, it's true that digital drives physical, and vice versa, then I think you should be looking at total brand sales in a trade area as a more important metric than just talking about e commerce growth and comp store sales growth or, or sales productivity, because you can't tie those things together. So, I think that's, that's one measure. 

Steve Dennis  29:16

I think the other measure is to get into more, kind of, customer segment or customer persona type measurements, you know, are we growing? Are we acquiring? Are we growing? Are we retaining the numbers we need in the different customer segments we're trying to serve, and you know, some of those customer segments might be more physical or digital dominant? So, you kind of peel the onion there to understand what the, the drivers are. But, but you know, when you're, when you're doing things like you know, you always have to think about the fulfillment cost, right? You know, if I'm not ringing out there, just think about the case where I buy online, but I pick up in-store. Most retailers I believe are booking that sale as an online order, but the store is carrying the inventory. And the store employees are doing the work, so

Michael LeBlanc  30:07

It's a bit mixed, actually.

Steve Dennis  30:07

That’s that warehousing function. 

Michael LeBlanc  30:07

Yeah, warehousing and picking functions, which may or may not be efficient. Now the good news is volume solves the efficiency problem, and they get better at it. But they don't suddenly have a big backroom to do pick and pack and prep, that's becoming a challenge for sure.

Steve Dennis  30:23

And I, which is why I think the stores are going to if we're going to continue, which I think there are lots of questions about but what if we're going to continue with some of these really high percentages of ecommerce orders being fulfilled from store however, that looks, that suggests not only potential reconfiguration of the store space to get that to work better, but might also suggest that you don't want the store there, or you want to take that out of the store and create a micro fulfillment center or service center. So, so there's this hybrid deployment as well, that can go on but, but it does, you know, you do have to think really differently about the economics of a store, from the traditional way you thought about it, which is, you know, I can look at it for profit model, and, and really just assign all the sensors. 

Steve Dennis  31:11

Yes, I think there, there are different kinds of engagement metrics that can inform. So, you know, if your, as Dick's Sporting Goods is done, put a big climbing wall, you know, into a store and takes a big chunk of square footage, or you're doing yoga classes, or things like that in a store. Well, certainly you hope that maybe when they come to the store, that they leave that day, with a pair of shoes, or some yoga pants or something like that, but

Michael LeBlanc  31:41

Something, something, yeah. 

Steve Dennis  31:42

But you have to think also, though, you're building a connection to that brand and loyalty that will keep you coming back. So, so you, you somehow have to look at you know, am I creating deeper engagement with the customers I really care about and, and over time, see how their sales develop, but, again, the sale might develop that I'd go to the yoga class, but then when I get home, I buy online, right, it's not, it's not always going to be the case that, that might drive it to the store, result in a transaction in the store.

Michael LeBlanc  32:11

I mean, as I listened to this, I think back to my time as a retailer, boy, it's complicated. Like it was, you know, we thought it was hard back then. But it's actually simple in the context of, you know, are you selling in your trade area up down or sideways, weak, strong stores closed, some maybe were in the wrong place. Now, it's so complicated, and feels like it's going to get more complicated as COVID made this even more and more complicated to just kind of move the needle forward in terms of how retailers need to think about it and, you know, are we seeing, do you imagine we would see major retailers, whether it's, you know, targeted arch terms, Macy's, Bloomie's, this Bloomingdale, Bloomie's, lots of major renovation happening in the next couple of years.

Steve Dennis 32:53

I expect we'll see a lot of renovation to the existing store base. I also think we'll see quite a lot of relocation or reconfiguration going on now, that'll happen more slowly, just because of the way leases work, right, I mean, it's not another 10 years on the lease, it's a different, different thing than having a bunch of leases expiring in the next six months. So, I think that will take longer to manifest and I think retailers will have to think about, well, do I want to put a lot of money to renovate a store, I don't yet know what some of the long-lasting effects of COVID are going to be. So, you know, wouldn't the merchandise mix and the, the store, pickup and fulfillment. 

Steve Dennis  33:32

So, I think there's, there's going to be a lot of soul searching, so to speak on, on the part of retailers, as the dust settles a little bit as to how they want to invest their, their capital, but I think COVID has certainly shined a light on not only the acceleration of many, many trends, but particularly this interaction between stores and the digital world and the fulfillment piece alone and then we've also got a lot more retailers that are opening stores that are fundamentally more advertising in nature so that, that also causes a different set of attribution and economic questions.

Michael LeBlanc  34:10

Well as you know, as he said, it's getting more complicated than less, but I think it's really providing us lots to talk about in Season 3 because I talked a lot to retailers, I'm sure you have as well that are trying to figure this out. You know, what comes next, and the answers are not straightforward in some ways, in other ways, you know, the answers are there, it's kind of like, you know, The X Files, the answers there. If you think about it and you know, what I what I've always enjoyed about our discussions is how you think at a very strategic level and, and really encourage everyone to get past that day to day sales per square foot, as one example, and think really deeply about the role of stores and really deeply about how you measure customer success, right and, and where and when and how that happens.

Steve Dennis  34:57

Yeah, and it's, I mean, it's, it's a cliche to say that what gets measured gets done, but, you know, well look, I mean, and I absolutely agree it's gotten a lot more complicated and there's still a lot of volatility here in terms of what the future is going to look like so that just adds to to the whole complications, but, but I do you say with a fair amount of confidence that if you are largely anchored on comp store sales and sales per square foot and you're fundamentally thinking of the role of the store as just a place for customers to go and get stuff then that's too limited of you and,

Michael LeBlanc  35:38

You're probably going to make the wrong desci-, yeah, making the wrong decisions, yeah.

Steve Dennis  35:38

Making the wrong decisions, right. Right, you may be closing stores you don't need to close, you may be spending your marketing dollars wrong, you know, you don't want to be fundamentally in competition between your channels, you know, that's, that's not in the best interest of customers. So, there's a lot of things I think that are demonstrably poor things to do, exactly where you need to move to, is certainly up for, for discussion and, and continues to evolve.

Michael LeBlanc  36:03

And continues to evolve over the course of our episode, Season 3 and a reminder to the listeners that, after Labor Day in September, we go back to weekly and we have lots of great interesting guests and discussion coming up as we all work together to figure this thing out, this big thing called retail and what it looks like, very exciting days and lots more on the on the horizon for, for this and our podcast and all that other great stuff. 

Michael LeBlanc  36:29

But, for now, if you like what you heard, please follow us on Apple, Spotify, Amazon Music or your favorite podcast platforms. So, you can catch up with all our great interviews, subscribe so that it just automatically shows up, tell your friends and also new insights and new episodes will show up every week. So, tell your friends because that will help us share the word, the word, the wood, the good wisdom. Now, be sure and checkout, be sure and check us out on our new YouTube channel. Not so new anymore. We've got a couple episodes up there and just look for Remarkable Retail.

Steve Dennis  37:01

And I'm Steve Dennis. You can check out more of my work at my website, stephenpdennis.com or on Forbes or on Twitter and please check out my second edition of my book, Remarkable Retail: How to Win and Keep Customers in the Age of Disruption. Available just about everywhere books are sold.

SUMMARY KEYWORDS

stores, retail, retailers, continue, ecommerce, Amazon, Saks, store closings, customers, people, big, thinking, apparel, drives, physical, brand, close, terms, talked, sales

 

Michael LeBlanc  37:21

And I'm Michael LeBlanc producer and host of The Voice of Retail podcast and a bunch of other stuff. You can find me on LinkedIn, learn about me on meleblanc.co. All right, Steve, great episode. Look forward to chatting again next week, be safe and have a great rest of your day.

 

Steve Dennis  37:37

Same to you.