In our final episode of our sixth season we briefly share our mid-year highlights before dipping into the week in retail news, which includes the prospect of a UPS strike wreaking havoc on the world of e-commerce. Then it's on to our main topic which centers on how economic headwinds seem to be turning 2023 into a year of efficiency. In that context we remind retailers that cost cutting and store closings don't address underlying issues of customer relevance ("bailing doesn't fix the hole") and that we need to careful not to confuse efficiency with effectiveness.
In our final episode of our sixth season we briefly share our mid-year highlights before dipping into the week in retail news, which includes the prospect of a UPS strike wreaking havoc on the world of e-commerce. Then we reflect on Overstock's fire sale scooping up of Bed, Bath & Beyond's intellectual property and how the Container Store and Dormify hope to vill the back-to-school void. We then try to make sense of the rumor that Neiman Marcus may sell of its Bergdorf Goodman division, tying the broader troubles among luxury department stores to shifting go-to-market requirements.
Then it's on to our main topic which centers on how economic headwinds seem to be turning 2023 into a year of efficiency. In that context we remind retailers that cost cutting and store closings don't address underlying issues of customer relevance ("bailing doesn't fix the hole") and that we need to careful not to confuse efficiency with effectiveness. Mostly, Steve shares some of his key "do's" and "don'ts" to be smart about addressing sales and margin pressures while remaining committed to an building an innovation pipeline and sustaining important transformation efforts.
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 eCommerce Leaders podcast, and The Food Professor with Dr. Sylvain Charlebois. 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!
As a reminder, we're taking next week off, followed by a couple of encore episodes, before returning with Season 7 July 25th.
Michael LeBlanc 00:06
Welcome to the Remarkable Retail podcast, our final episode of Season 6, presented by MarketDial. I'm Michael LeBlanc.
Steve Dennis 00:13
And I'm Steve Dennis.
Michael LeBlanc 00:14
In this episode, we took the opportunity to reflect on the season that was, talk about our personal highlights, jump into the news of the week of course, and then dive into our topic for this episode, the year of living efficiently.
Steve Dennis 00:27
I borrowed from the Zuck with the title, you know, he talks about Metas year of efficiency. So, this is similar, also, some of the older folks that listen to the podcast may remember the movie, The Year of Living Dangerously.
Michael LeBlanc 00:42
Yeah, fantastic movie.
Steve Dennis 00:43
Staring, yes, Sigourney Weaver, for, for those of you keeping score at home. So yeah, I think it's a great chance to look back a little bit on what we've learned so far, but also look ahead in terms of what we might expect for the balance of the year, and more importantly, what to actually do about it and maybe some things to not, or some traps not to fall into.
Michael LeBlanc 01:06
Yeah, well, let's start with the highlights. I mean, I, for me, the, the three great retail events, we went to NRF Shoptalk and the World Retail Congress, real highlights, and one of the reasons in my mind, they were highlights, we interviewed some amazing people, but you and I got to interview in person, which has just a different dynamic. I mean, it's just more fun. We play off each other, we, you know, we have the three of us, typically, and you know, I think it's super fun and thank God for the magic of the internet, because we do, can do so many, you know, interview people.
Steve Dennis 01:34
This internet thing's gonna be telling you.
Michael LeBlanc 01:36
I tell you, it could be chang-, it could change everything, you know, like we're, we're talking to Wim out in Amsterdam, and you think but you know, there's something special about being in person. So those interviews, you know, Carrie Baker from Canada Goose, and, of course, Judith McKenna from Walmart and, you know, I'm afraid to start singling out any interview, they were all so amazing. So, I didn't want to hang on anyone specific, but I really enjoyed that experience with you, that experience with you, and, and you and I being together. So that added a real topspin for me for this season.
Steve Dennis 02:05
It is really a different dynamic. I think we've, we've learned, certainly over the, however many episodes it is now 150 episodes how to do this thing remotely, but at the same time, yeah, it is a different dynamic between us and, and the guest plus we get to go to some cool places sometimes.
Michael LeBlanc 02:22
Yeah, yeah.
Steve Dennis 02:23
Us hanging out in Barcelona.
Michael LeBlanc 02:25
Barcelona is fantastic, just to hang out and be part of, be part of the mix and then and you know, Vegas not so fantastic, but we get to jello shots before we do the interview, so, there we go.
Michael LeBlanc 02:35
Great interview.
Steve Dennis 02:35
Maybe you did, but my, I think my highlights, I mean, that's definitely one, what I would add is we got some feedback, I guess, last fall, that we, that some of our audience wanted us to be a bit more global in perspective. We obviously take more of a North American slant, but we do have a big international audience. So, we were pretty successful in getting some more international brands. We had Ryan from the Chalhoub Group biggest retailer in the, in the Middle East. You mentioned Wim from Ikea, Martin from LEGO.
Steve Dennis 03:16
Sally Elliot from Global Practice for Spencer Stuart, et cetera. So that was great, but I think in general, we also really elevated the number of C suite executives that were on the podcast. We've been doing pretty well with that, but I think we took it to a whole new level this season, which is fantastic. You mentioned some of the folks that we've had on. The other thing is, and we've worked hard at this though, it's a continuing challenge, and I feel like we need to do better. It just more diversity. About half of our guests are either women, or people of color. So in particular, we had this one month where we had all female C suite leaders. So, Judith from Walmart, Carrie from Canada Goose, Anu from Anthropologie, and Tracy from Walgreens. So that was a great thing to highlight. We also did our first really DE and I focused episode with Jarvis Sam, who used to run diversity, equity inclusion at Nike. So again, more, more we can do but we're very committed to representing more diverse voices on the podcast.
Michael LeBlanc 04:25
Yeah, listen, it was a great, a great season of course we've been renewed for Season 7, we're back on July 27. Our first episode is going to be live from the stage, the Lead Innovation Summit with our good friend of the pod, Simeon Siegel. So, the three of us on the stage in New York, so really looking forward to that. In between then we're gonna have a few encore episodes. They're very popular. We pull from the, from the back catalog, we've got a back catalog now. Which is fun to say, we pulled from back-
Steve Dennis 04:54
Deep from the archives.
Michael LeBlanc 04:55
Deep from the archives. We, we pull out some of our favorite or maybe, maybe some of the, some, sometimes in the interviews that we think could, could have a second listen and then we roll into a full season, Season 7. So, we already got to speak, we already got guests lined up. So that's going to be super exciting, and our season will, Season 7 will wrap at the end of NRF. This year. So, we're changing the sequence a little bit for, again, more inside baseball than anything, but it'll wrap at the end of the NRF show this year and you know, while you're listening to this, hope you're enjoying it.
Michael LeBlanc 05:30
Certainly, our numbers would kind of look like a lot more people are enjoying it, but you know, if you can give us a five star review that helps our rankings and maybe get a little bit more exposure to even more people. So alright, enough of our admin stuff. Let's talk about news of the week. So, you know, supply chain challenges seem to be behind retailers, post COVID. They were certainly front of mind during COVID, but we see a couple of things happening. One is some talk of strikes on the West Coast port, but now we're hearing some pretty big rumblings about a UPS strike happening in August. Talk about that, what do you, what your impressions are, about how that's going to impact retail?
Steve Dennis 06:09
I don't think we talked about the West Coast thing on the podcast that looks like it's resolved, I believe, but I guess, you know, there's always challenges there, but yes, there is the potential for a UPS strike in August and that would be highly disruptive. Obviously, if it ends up happening UPS has got a very significant percentage of the e-commerce orders. So going, you know, if that happens, we'll be in the heart of the back-to-school season. Clearly, if it were to persist, it could really affect the holiday season. So, I'm not smart enough to be able to handicap the likelihood of that, but that's definitely on the horizon and if, if that does not get resolved, I think it could really add to some of the things we'll talk about later, just in terms of the challenges towards the back end of the year.
Michael LeBlanc 06:57
Let's talk about Bed Bath and Beyond. So last episode, we were talking about this intellectual property stalking horse stuff and sure enough, it looks like it's happened. So, talk about that.
Steve Dennis 07:08
Yeah, last week, we talked about Overstock made a bid, I think it's about 21 and a half million for the intellectual property assets of, of Bed, Bath and Beyond and they won. That bid was accepted, it's not clear whether there were any other bids that really were competitive. So, I think it's quite a bargain for Overstock, Wall Street seemed to agree the Overstock stock, that's hard to say, Overstock stock was, was up on the news and now really, the attention is being turned to buybuy BABY, which is an addition-
Michael LeBlanc 07:40
buybuy BABY.
Steve Dennis 07:41
Of Bed, Bath and Beyond. So, there's a separate auction process that has been initiated, and June 28. So just after this episode comes out, we'll know what happens there and there. I mean, I think with the intellectual property sale, to Overstock, I think we can assume that Bed Bath and Beyond stores are not staying open and not likely to come back, but who knows long term, but in the case of buybuy BABY, I think there's a better chance that many, if not all of those stores may stay open.
Steve Dennis 08:14
And then just quickly in a related story, in some respects, the Container Store and we had the Container Store, CEO on just about six months ago, I guess at this point, and Dormify, which is a direct-to-consumer brand that focuses on back to college, in essence, are teaming up and I think this will be part of a number of things. We'll see people going after that, that the jump balls, so to speak of volume, from Bed, Bath and Beyond going out and they're teaming up for some shops within a shop and carrying Dormify products in, I think it's 35 or 40 of the Container Store locations. So that's not huge and in terms of a national scope. It's not even all the Container Store locations, but I think it's a, it's an interesting move and like I said, I think we'll see more announcements about people they're going to really go after that.
Michael LeBlanc 09:05
Sure.
Steve Dennis 09:05
That business that's up for grabs.
Michael LeBlanc 09:07
So off Mike before we started recording, we were talking about the, the temperatures in Dallas and how hot it was in Dallas. It seems like the, the heat is on for Neiman Marcus. I like, like that segue there.
Steve Dennis 09:19
Wow. That's impressive.
Michael LeBlanc 09:21
So, either Neiman's or Bergdorf Goodman, up for sale. You have a unique perspective on this having been a senior executive at Neiman Marcus and what do you, what do you think about all this, what do you think about this potential and the severing of the two brands, it's fascinating stuff, but where does it leave, where does it leave us?
Steve Dennis 09:41
Yeah, so the New York Post broke, broke a story about a rumored possible sale of Bergdorf Goodman. So the Neiman Marcus group, which runs Neiman Marcus stores and neimanmarcus.com and a few other things, also owns Bergdorf Goodman, the legendary retailer in Manhattan and this, this rumors can be, kind of bumping around for a while, but seems to be picking up steam and so the story which I can't, you know, can't independently confirm, but the story was that Neiman Marcus group and their private equity firms are meeting with potential bidders for the Bergdorf Goodman store to spin it out, given some of the challenges that Neiman Marcus is having overall.
Steve Dennis 10:24
So that was going to happen one way or the other.
Steve Dennis 10:24
So we touched on this last week or the week before that they reported a pretty difficult quarter and certainly the immediate term outlook doesn't look fantastic. You know, I guess a couple of things. One is that well, Neiman Marcus group has had kind of a checkered history, I guess, over the last 15 years when I was there. So, I joined in 2004. In 2005, we got bought out by a private equity group. That deal was performing pretty well until the financial crisis hit global financial crisis, I was actually gone from Neiman Marcus just shortly before that, and what was probably the luckiest timing thing in my life, but, but that, that caused Neiman Marcus to really be back on its heels and they really pulled back on investment until things kind of improved, then they got sold to a different private equity group, I guess about 10 years ago now at a really stupid price, with a really ridiculous amount of debt that led to them filing for bankruptcy during the depths of COVID. A lot of people blame COVID on that, they were going to file for bankruptcy, or they needed to be recapitalized somehow rather because the deal was just-
Steve Dennis 11:03
That was gonna happen one way or another in my, in my opinion.
Michael LeBlanc 11:38
Yeah.
Steve Dennis 11:38
And I'm on the record, prior to COVID saying that that was going to happen.
Michael LeBlanc 11:42
And that was in, and that was in the same time that they opened up their big, a big New York or Manhattan flagship and in Hudson Yards, which was probably-
Steve Dennis 11:50
Yes, there are a lot of-
Michael LeBlanc 11:51
Early days for Hudson Yards, you know.
Steve Dennis 11:52
Yeah, there are a lot of unfortunate timing issues there. So, so it's been, you know, now Neiman Marcus got bought out of bankruptcy, there are three private equity firms or investment firms that own them. PIMCO is the majority owner and I think it's Davidson and Sixth Street Capital that were the minority shareholders, but they got rid of a ton of debt. So, their balance sheet is in much better position, but the underlying business is not performing incredibly well, and I guess I'd say a couple of things before I get specifically to the idea of the spin out. One is a luxury department store and by that I mean Neiman Marcus, Saks Fifth Avenue, are really very mature and this was one of the challenges when I was the head of strategy and try to figure this out.
Steve Dennis 11:53
It's a very immature business model, partially because of the reliance on older customers and neither Saks or Nie-, Neiman Marcus has done a particularly good job of attracting younger customers, which is probably a whole other episode, but there's also things like lots more competition, not only from the Net-a-Porter, and ASOS and Far Fetch’s of the world, but probably even more so. From many of the vendors that sell into Neiman Marcus.
Michael LeBlanc 13:08
Oh, that's an interesting story.
Steve Dennis 13:09
Saks, back when I was there, we were already starting to get very worried about this, because it was a fairly limited strategy. I mean, almost none of the big luxury brands vendors had big e-commerce positions, and we were very strong in e-commerce, but one had to assume at some point, they were going to figure out that they needed to do that, but probably even more impactful is just the expansion of their own stores. So, I don't know what the exact numbers are but if you compare the number of stores like Gucci, Louis Vuitton, Hermès, as you know, kind of go down below or have opened in the past decade.
Steve Dennis 13:14
And it's a big impression, like experienced flagship stores like we're not talking like shop and shops here. They take serious real estate, right, Fifth Avenue.
Steve Dennis 13:52
Exactly.
Michael LeBlanc 13:53
Yorkdale, you know, wherever, what.
Steve Dennis 13:55
Right and generally in the same mall or very close to where the Neimans and Saks stores are. So, you know, in terms of differentiation, you know, it's harder and harder for those wholesalers of these brands to really differentiate themselves. So, there's a lot of underlying issues. I think Neiman's has compounded some of their problems by going back to one of the things that I was, I thought it was a real risk of being overly focused on the top 1 or 2% of the customers. You know, for example, the Neiman Marcus store down the street, down the street from me, but like a mile and half away from me at Northpark, which is probably still one of the top stores in the chain. You know that store doesn't work. You know, it's a 150,000 square foot store. You know, you can't make that store work just counting on the top 2% of shoppers. Even in an incredible fashion market like Dallas, in the home of Neiman Marcus, you need to cast a wider net. So, if you wanted to be a 20-store chain with your stores being half the size, you could probably have an extremely profitable, you know, $2 billion business. Unfortunately, Neiman Marcus is scaled as a four to $5 billion business and so, so the addressable market as a practical matter, is just gotten way more competitive than Saks and Neiman's probably don't work. You know, there's a lot of overlap in their locations. And so in terms of what could happen, I think out of desperation, they might sell Bergdorf, I think that would be a mistake.
Michael LeBlanc 15:31
Who would buy them like private equity?
Steve Dennis 15:33
I think a sovereign, I know.
Michael LeBlanc 15:35
A sovereign wealth fund.
Steve Dennis 15:36
Yeah, probably. I mean, and this is something, I'm probably getting too, too far into details here, but Bergdorf Goodman has a very special brand. So really, particularly since the Hudson Yards store at Neiman Marcus, closed, Bergdorf Goodman is really basically the Neiman Marcus store on steroids in the New York City area and for tourists.
Steve Dennis 15:57
So, spinning it out. I think there's a lot of overlap in vendors, there's a lot of infrastructure to support it. So, I, I think it could happen, but I don't and, I the reason I think it's a sovereign wealth funds sort of investment is because they would be willing to throw a lot of money at it, which it would need to really expand and it's a crown jewel, so to speak. No pun intended there. So, we'll, so we'll see. I think it's just unfortunate that, that, you know, a brand like Neiman Marcus has gotten to this point. Another thing that could happen, I know there are a bunch of rumors that Neiman Marcus CEO is not loved by a couple of the investors. Again, I don't know that directly. So, we might see a management change as a way to kind of appease the party. So, it's, it's something to watch, but I think it does really speak to kind of the fundamental challenges in the luxury department store world and again, given what we see with the economy I don't, you know, you're not going to be, they're not gonna have the wind at their back at least for a little while.
Michael LeBlanc 15:57
Yeah.
Michael LeBlanc 16:59
Yeah, and we should probably tie it into one of our predictions as we've been doing. Not having a full check in on the prediction episode, that kind of as we go, you know, the hybridization of retail steals the crown, look at how many times the crown is coming up. From, from omni retail, like, you know, when we have this discussion with folks like IKEA, who says, well, there's only so many big blue boxes, we can, we can put in, let's have something different, you know, Ulta, Sephora, you know, the impact of local, so talk about just connect those dots for us as we kind of wrap up the news.
Steve Dennis 17:29
Well, it's a little bit of this kind of what I think is a real challenge, not for all, but for many brands of, of really protecting a model, particularly a physical store model because Neiman Marcus is very strong in e-commerce and has been for a long time. So, it's really more about the physical manifestation. This kind of one size fits all strategy, when you have very few stores, you're really counting on a large draw from great distances, that does work pretty well for the top one or 2%, because they, they have the money to spend, they love you. They don't have a lot of other options, you know, if you really look at on a market by market basis, and this is the way to make it less about Neiman Marcus, but I would say you know, if you really look at a trade area, and you think about the powerful categories, and you understand why you're not getting your fair share across the geography, in many cases, it has to do with convenience.
Steve Dennis 18:24
And I mean convenience, both in terms of proximity to where you are, or you know, forcing the customer to travel a great distance, deal with the parking lot, go up the escalators to get similar products. So, I think what we see with IKEA, what we see with Dick's Sporting Goods experimenting with different formats, Best Buy, et cetera, is more of this portfolio approach to formats. So you got kind of this hub store, which is a destination and then many maybe you have some sort of you know, satellite kind of stores which you do either focusing on a particular kind of customer or particular product category, but also probably being kind of an omni channel service center, right, because you know, you can take some real advantages a little bit like Nordstrom has done with Local, I'm amazed that Nordstrom Local hasn't been expanded. I think that's a huge mess on the part of Nordstrom.
Michael LeBlanc 19:16
All right, well, before we get to our, the rest of our episode, which is the, The Year of Living Efficiently, let's hear a few words from our presenting sponsor.
Michael LeBlanc 19:26
If you're a retailer hungry for a better way to gain useful insight on the impacts of your store layout, design and strategic initiatives, you need to know MarketDial. MarketDial is an easy-to-use testing platform that emboldens great decisions leading to reliable, scalable results. With MarketDial you can be confident in the outcome of your in-store pilot initiatives before rolling them out across your fleet. Validate your remarkable ideas with MarketDials in-store testing solution. The proof is in the testing. Learn more at marketdial.com. That's marketdial.com.
Michael LeBlanc 19:58
Let's talk about this, this Year of Living Efficiently, so it was, really, kind of, came out of, you know, the Zuckerberg looking at the year what they were spending, how they were spending money, you know, Metaverse, Shmetaverse kind of stuff. Now why did you choose this to close out our season, is it to you up kind of a full circle with the way we started, which was the, when the tide goes out, and we see who's swimming naked kind of framing, is that Is that what you were thinking?
Steve Dennis 20:27
That's definitely part of it. You know, we tried, I guess, to, to warn people that, that things were getting tougher and, you know, that may be playing out a little bit more slowly than we originally envisioned, but it's definitely happening. And I think, you know, the general tendency, not just in retail, is when business gets tougher, you get hyper focused on efficiency, cost reduction in store closing, right, those kinds of things and I think, you know, there's plenty of reasons to be concerned about the next six months, perhaps more. You know, we've got issues on the consumer side where disposable income is not keeping pace with inflation generally and you know, some other things. A lot of retailers are, you know, we've already seen if we look at just the most recent set of quarterly earnings, many retailers, either with negative sales, or even if they eked out a small gain, are basically signaling that they expect sales to be flat to down the bailout as the new owner.
Michael LeBlanc 21:37
Yeah, yeah.
Steve Dennis 21:38
And I think if we look at the retail tech, environment and service providers, we've seen, you know, a lot of layoffs, a lot of pullbacks, you know, everybody from Shopify, to Salesforce, etc., etc. So, there's definitely-
Michael LeBlanc 21:49
A long list.
Steve Dennis 21:53
This environment of, kind of, contraction, and then there's some, you know, particular, particular things that may have been good ideas all along, but I think are putting like a hyper focus on this idea of cost reduction efficiencies, you know, more retailers getting serious about returns reduction. You know, this is a problem we've seen coming for years, but now seems to be getting a lot more attention. You know, this whole issue of, of crime and loss prevention kinds of kinds of issues and trying to strike the balance between what I call a loss prevention versus sales prevention is people you know, start to lock your stuff up or have more security, I think a lot of dialing up of, of interest. This is a longer-term trend, but the, the reality is that the war for talent is probably not going to get any better. You know, there's different demographic factors. There's the work from home stuff.
Michael LeBlanc 22:43
What is it, what did I see some, an executive, and it reminded me whatIra Kalish, and we talked about it back in New York, this hoarding of employees, like at the one hand, you've got big layoffs, but on the other hand, you've got employers who are reluctant to lay people off, because they're afraid they won't get them back. So, it's a really interesting dynamic.
Steve Dennis 23:00
Yeah, yeah, but I think you have to go into this generally, not true for every retailer, but if you assume it's going to be difficult to acquire or retain talent, then, you know, how do you change your processes to deal with that. How do you, you know, do you invest more in automation, robotics, you know, those kinds of things, then you've got generative AI, which obviously, is getting a lot of attention. I think that easiest applications, in many cases are labor reduction, cost savings, and, and then this is driven, probably would happen anyway, but I think particularly given the pressures on margins, the interest in retail media has a way of saying, okay, well, if we can't-
Michael LeBlanc 23:38
Sure.
Steve Dennis 23:39
Drive the top line, drive gross margin dollars on products, well, maybe we invest in retail media networks to, to, in this direction, and I, you know, I think it all at one level makes sense. If the tide is going out, if you're very worried about your ability to pay the bills going forward, then having focus on cost efficiency, is generally sensible. I think it's really more about being careful in how you approach it, that you need a strategic layer that you have to be much more surgical, because you could actually, you know, risks and things happening that are unintended consequences.
Michael LeBlanc 24:20
I love that unintended consequences. Let's talk about the consequences of, of, in some ways COVID. I mean, we're in a post COVID rebalancing. So as we cast our minds forward, and think about some of these implications in the contemporary sense, i.e. in 2023, 2024, there's a bunch of things we've been talking about all season, you know, the great pull forward, e-commerce, reverting to the mean, talk about those and how you're how you're looking forward to the rest of the year and into next year and how we should be thinking strategically about the implications of these things.
Steve Dennis 24:56
Yeah, so I'll touch on a few kind of big picture factors, some of which we definitely talked about before. So, try to be pretty concise on this, but these are just things I think to keep in mind. Some of, some of these things are factors that will be with us longer, others perhaps will, will start to shift a bit as we get into next year. So specific to kind of, the COVID effects. A lot of the readjustment has to do with, with e-commerce, kind of getting back into the trend, people may be made some mistakes, maybe a bunch of companies made some mistakes and I'm thinking this hyper growth was going to continue, it is important to mention that while the growth rates are going back to what we expect, e-commerce is still a much greater piece of the pie than it was pre COVID, but like you said, there's the pull forward a big ticket demand. This, this period, which I think we talked about last week might be starting to come to an end of kind of revenge, spending, you know, more travel, that kind of stuff.
Steve Dennis 25:56
I think a big factor which is likely to persist is the casualization of wardrobes. That's one of the things actually going back to the Neiman Marcus story which I glossed over, but one of the problems for the high-end department store chains in general is that business environments become more, more casual. So, the ability to sell suits, ties, you know, very fancy dresses, etc., is greatly reduced. But we see this outside of luxury, if people aren't going into the office, whether it's a, you know, fancy white shoe law firm office, or whether it's just kind of a regular, you know, wardrobes have become more casual, which is why I mean, this is a long term trend, we started to see this way back when I was first in the apparel industry over 20 years ago.
Steve Dennis 26:39
With, you know, with business casual Fridays and these kinds of things, but, but the work from home is really taking this to a whole new level. So, apparel in particular, things got some very negative, negative trends, which will ripple throughout the industry. You know, the other couple things really quickly are, you know, we still, if you looked at what's been said by the US Fed and, and the European Central Bank, we're still looking at inflation probably coming down, but still relatively high. And one of the things I saw somebody come in on Twitter is, you know, bear in mind, if inflation does get back to 2 or 3%. That doesn't mean food is cheaper, right, it's growing less quickly. So even if you have 3% inflation, let's say that still means groceries are probably, you know, 20% higher than they were a couple years ago.
Michael LeBlanc 27:30
Well, there's some big exogenous forces driving food costs, the climate, climate changes is a big one, the war in Ukraine another and just a shortage of, of people we've talked about that also affects agriculture. So, food prices could remain high without, you know, without some imagination, and there's lots of imagination, the industry but for the foreseeable future, prices could come down and other places, but food prices could remain quite high for the next 12 to 18 months.
Steve Dennis 27:56
Yeah, and I think, you know, we're also still in an environment. I think everything we've seen in the last couple of weeks is that we're likely to see one or two more increases in interest rates, and that those interest rates are likely to remain high for an extended period of time. So certainly, as we think about the balance of the urine going into next year, I think we're going to be in a relatively speaking high interest rate environment and actually, as it relates to inflation, one of the kind of perverse things about high interest rates is that one of the reasons why housing costs are so high is that the supply is not where it needs to be. And when interest rates are high, that doesn't necessarily encourage commercial real estate to be built. So, so there are some things that even if food prices come down, energy prices come down, other things come down, the housing situation is not likely to improve and aggregate anytime soon.
Steve Dennis 28:49
So this this environment where money is no longer free, you know, we had a number of years where interest rates were so low, that that encouraged probably a fair amount of bad behavior that that some of the government agencies are trying to trying to correct, but so we'll see how that plays out, but to my point about real estate, you know, housing, not likely to be very aggressive in terms of the supply increasing at the same time, that puts pressure, as we've talked about in the past, on where retailers are going to spend their money in terms of distribution capacity in new stores. There's this whole other thing, which I don't even want to get into, but I think there is this, partially because I'm not an expert, and partially because it scares the hell out of me, but I think there is this ticking time bomb in commercial real estate in office space, a lot of a lot of vacancies, a lot of refinancings that are going to come up over the next few years, a lot of lease renewals.
Steve Dennis 29:43
So, you know, that's just out there as a I wouldn't say a black swan event, but it could get, it could get ugly. So, I think as we look at the second half of the year, inflation is going to remain moderately high, particularly in Europe, at least one more interest rate increase. One of the things particular to the US is unless something happens that's unexpected at this point is student loan repayments are going to resume in the US, that's 11 million people that are going to start spending, you know, 50, 100, 200 to 300, $100 a month to pay back their loans. That's not great for spending and then you know,
Michael LeBlanc 30:19
Digs into discretionary spending, right, it comes right out of discretionary spending tends to, to impact that pretty deeply, right?
Steve Dennis 30:25
Right. So, you have this potential squeeze of you know, we've seen savings come down with, you know, credit payments go up. Not wages, discretionary income, not keeping pace with inflation. So, I think the outlook is, is, is pretty shaky. The one real great thing, I guess, in this litany of bad news is the job market continues to remain strong and even though some of the things we're talking about might slow things down a bit there, I think there's every reason to believe that the job market is going to remain comparatively strong and that will definitely help the economy.
Michael LeBlanc 31:06
All right. So, one of the things that our listeners tell us in person and in other ways that they like about our discussion here is that we just are not just chronicling the state of things, but let's talk about how to think about them. Like what, what to do your retail is listening, or people in the retail industry, taking all this into, taking all this in context. What's your advice?
Steve Dennis 31:31
Well, one thing, this is just sort of my general advice, and it's something I've been I've been digging into with, with my new book is just really get, you know, don't, don't buy into the general narratives, the clickbait headlines, you know, really dig deep on what's really going on and you know, a few things there, like, this idea that a slightly better version of mediocre is going to be a winning strategy. You know, there's a lot of things that many retailers that are struggling are doing that are necessary, but not sufficient. So just be really honest about what it's going to take for you to grow relative market share in what might be a down market.
Michael LeBlanc 32:09
What did you say, 'necessary, but not sufficient'. I love that. I love that phrase.
Steve Dennis 32:13
Yeah, I mean, by that, I mean, you have to do them, like they're good ideas just to stay competitive, but in many cases, just kind of innovating to parody, it's not necessarily going to give you an edge. The second thing is just to be honest about what inflation is, as well as kind of what the COVID stimulus bump did for your business. I just saw a statistic last week that 84% of retail sales growth in the US last year, could be attributed to inflation. So that's not real growth and so just get rigorously honest about whether you are acquiring customers, growing customers retaining customers at the rate, you need to, I would say challenge yourself to look at those things that you maybe you've been doing for a while that really no longer serve you and they could those could be, you know, processes can be people, those could be business formats.
Steve Dennis 33:04
The other thing I think, in general, and kind of my big picture comments on this is really understand that all sales are not created equal and that seems really obvious, but this tendency for a lot of retailers to kind of do these one size fits all strategies, doesn't necessarily optimize. So as you think about cutting costs, or as you think about dialing up promotions, try to make them more targeted, because you can just chase the promiscuous shoppers, and get your top line going, but in fact, not really improve your, your profitability, not increase customer lifetime value, not drive up the net promoter scores that are going to really serve you over the long term.
Steve Dennis 33:48
Another thing I'd suggest is what I call a degradation or friction audit and by this I mean, well, so I can't remember if we've talked about this much on the on the podcast, but I think there's a, there's a pretty basic retail equation that leads to, you know, your ultimate performance, which is, you know, you got to get customers interested in your brand in the first place to consider you, then, you know, then the next part is you do that well enough that it drives traffic, whether that's to your website or to your store, you know, how well are you converting the traffic that you get, how productive is the traffic that you get in terms of you know, average ticket number of items bought, to what degree are you increasing frequency with the customers that you already have, to what degree are you retaining those customers, and to what degree are they remarking on your brand, whether you use net promoter score or some other thing like, you know, doing well across that kind of equation, really, ultimately determines a lot about your long term success.
Steve Dennis 34:56
So one of the things I suggest is take a look at how you're doing on all those different steps of that, that journey, and, and try to identify places, you know, things that are getting in the way of performing well on each of those dimensions. So it could be, you know, you're not getting considered because your SEO strategy is screwed up. It could be, you're not converting traffic because you don't have enough sales help or because you're not in stock or what have you, you know, it could be that you're not getting your net promoter scores, because you're not doing anything that's really a 'wow' experience, a memorable experience that would cause customers to be loyal to you, but
Michael LeBlanc 35:37
To remark upon.
Steve Dennis 35:38
To make them come back and remark upon you, yeah, so. So, I think, you know, you're looking for barriers or pain points, friction, whatever you want to call it, that keeps you from performing how you want to, but you're also looking for that 'wow' factor that literally causes you to be remarkable. So it's a very, in some cases, it's very basic, conceptually, but very few retailers actually do this in any kind of disciplined way and I think particularly in in a down environment, there may be some, I hate to say low hanging fruit, but in some cases, there really are some things that don't require a big technology investment, or a ton of money to do that could, you know, make your business perform better in the short term.
Michael LeBlanc 36:21
Last couple of questions, I want to do a rapid fire with you, because you've got over the course, as I was reflecting on our season, there's a lot of things you say, you shouldn't or don't do the following and we're very positive, we try to be very positive in our messaging, but there's a bunch of don'ts that, you know, I was ticking off, some boxes, go through quickly, the quick, hey, as a summary, don't do the following things and then I want to end on where there's opportunities from opportunities for leverage.
Steve Dennis 36:50
So when one thing is what I call, it's really a reminder, which is that bailing doesn't fix the hole, if you know that expression, but, and this is more of a strategic issue, then, you know, a next six months issue, perhaps, but a lot of the retailers that are struggling have a relevance problem, not a cost or too many store problem. So don't fix a relevance problem, or don't think you're going to be able to fix a relevance problem through cost cutting or store closings. I would say the other kind of, and this is a backdrop to, to a few other things is most downturns and we'll see. I mean, we've been in an unusual period, obviously, the last few years and it's much harder to predict what the next year or two is going to look like, but to the extent we have a downturn, and I think we're much more likely to have something closer to a softer landing than a true long term recession, but most significant downturns lasts less than a year. So you don't want to overcorrect.
Steve Dennis 37:48
You don't want to get so focused on this big program of cost reduction and, and layoffs and deferring important technology investments, so forth, and then just discover, you know, nine or 10 months from now you starting to fall behind you can't resurrect those efforts easily. The second thing I'd say that it's a or another don't is don't confuse efficiency with effectiveness and part of the reason why I like this year of living efficiently is a lot of that stuff is important, but again, you know, you need to make sure you're spending time on things that are really going to allow you to win, grow and keep customers and get that remark ability factor. I would also be careful, you know, when we get into tough times, there's a big tendency to cut long term stuff, you know, kind of, the, focus on the urgent and lose sight of the long term important and a lot of retailers. The reason they're not successful, is they're not transforming or innovating enough, and you don't want to destroy your innovation pipeline, you'll take so many short term actions, that again, you'll wake up a year from now and go, oh, we got nothing, nothing in the pipeline that's really going to be important to long term.
Steve Dennis 37:48
We're another year away from having something in the pipeline. So, your-
Steve Dennis 38:34
Exactly.
Michael LeBlanc 38:35
Two years from today having something interesting to turn your relevancy issue around.
Steve Dennis 39:03
Right. So, I think you want to kind of get this balance between, yes, you've got to be, you know, appropriately frugal at times, you've got to perhaps reduce risk in an uncertain environment, but you also want to position yourself to be able to step on the gas as conditions improve. I guess the last 'don't' I would say is, and I kind of touched on this earlier, is try to avoid the one size fits all approaches, you know, if you, you know, you don't have to smooth the peanut butter over everything and you can perhaps go, go deeper and say, you know, these are technology investments that are really important. We need to keep going on them or take a handful of stores and be piloting things, so you contain your investment and your focus, but you're learning so again, your regular you're ready to move ahead and scale as conditions improve
Michael LeBlanc 40:00
A longtime listeners would know we have, and have had a wobbly unicorn segment where we frequently talk about these alleged disruptors who are not doing so well, but you make the point that now is the time for retailers to press perhaps present advantage when these folks are not disrupting, and maybe but have raised some interesting ideas to go after that, that customer that market, is that, is that what you're thinking today and for the rest of the year?
Steve Dennis 40:32
Well, it's tricky. You know, I think this is a place and then there's actually a BEIN study recently, which fit with my intuitive sense, but, but actually provided some data is that strong companies tend to do better in a downturn and weaker companies tend to get even worse. So, you've got this divergence in outcomes and so I think if you've got a strong balance sheet, if you've got good operating momentum generally, and.
Michael LeBlanc 41:00
Good people.
Steve Dennis 41:01
You know, a real point of differentiation, there's a real opportunity to step on the gas, and, you know, kind of take advantage of the so called wounded gazelles, right, because they're gonna be, I mean, I think, you know, Overstock, that thing we talked about earlier, Overstock being able to buy out Bed Bath and Beyond assets at a ridiculously low price and so they're going to be opportunities like that. So, if you're a strong player, you have a good balance sheet, you can take a longer term perspective. So that can be you know, going after store openings, testing and learning more stuff, going after customers that are getting neglected, perhaps by the weaker players that are pulling back on marketing or pulling back on staffing or what have you.
Steve Dennis 41:42
So I do think we are likely to see the strong, get stronger, I think those retailers that are you know, have been stuck in the unremarkable middle, they're going to continue to tread water because they just or you know, worse contract, or even you know, go bankrupt because they don't have a compelling strategy and they're likely to get caught up in needing to pull back, which will likely make matters worse, and could actually start a downward spiral and then I think, you know, some of these disruptor brands that we've talked about a bunch, the issue with them is, you know, many of them are already losing a bunch of money. The economic outlook for the next six to 12 months is not probably going to help them. Some of them have relatively weak balance sheets. So, I think we are going to see some, some, I mean, hopefully not bankruptcies, but you know, maybe either some backing off on some of their strategies, or maybe they get acquired by, by a stronger player.
Michael LeBlanc 42:42
Well, we and of course, we were already starting to see that right. Casper in Canada was acquired by a great retailer, strong retailer. I mean, it's the epitome of what you've just been describing for the past five minutes, right, great retailer, well run, you know, the gazelle trips, and now Casper is run by, by Sleep Country. So, word my friend, word.
Steve Dennis 43:03
Yeah, I think I think what I would say just, which is maybe a bit of piling on, but I think what I would say is, and I don't know, you can maybe you, you can find an exception, but I would say just about every trend that's been important, in the past six months, is very likely to get amplified in the next 6 to 12 months. So, you know, maybe I think maybe the only exception is we might start to see some of the big-ticket sales. You know, maybe that starts to turn around a little bit just because of the passage of time here, but, but kind of fundamentally, I think the things that were good ideas in the fall are still good ideas.
Michael LeBlanc 43:42
They're gonna be great ideas, they're great ideas.
Steve Dennis 43:45
but if you are, if you're struggling, you know, most of your problems are likely to unfortunately become more pronounced. So don't sleep on doing what you know, you need to do.
Michael LeBlanc 43:57
Well, a great way to end our season and of course, for prospective we'll be back on the mic in the fall. So we're not just going to be predicting what happens we're going to be codifying it, the analyzing it and talking about it in Season 7, which once again, launches in July and until then, we're going to have to take a little bit of break but we're also going to have some encore episodes, some of our great interviews, but for now let's put a wrap on this episode this season. Appreciate you, my friend. It's been a great season looking forward to, like once again another season and we'll be seeing each other in person, which is wonderful, in New York City in July. So, until then, be safe and travel well and keep cool and that, that hot temperature down spice of yours.
Steve Dennis 44:47
I'll do my best and stay hydrated. Always good. Always good advice. That's actually my big takeaway this season is loss, stay hydrated. Don't be a jerk.
Michael LeBlanc 44:59
Alright, right, perfect. Let's leave it there. If you like what you heard, please follow us on Apple, Spotify, your favorite podcast platform so you can catch up with all our great interviews, including Judith McKenna, President International, Walmart and be sure to tell your friends and colleagues in the retail industry, all about us.
Steve Dennis 45:15
And I'm Steve Dennis, author of the bestselling book, ‘Remarkable Retail: How to Win & Keep Customers in the Age of Disruption’. You can learn more about me, my consulting and keynote speaking at stephenpdennis.com.
Michael LeBlanc 45:30
And I'm Michael LeBlanc, consumer retail growth consultant, keynote speaker and producer and host of a series of retail trade podcasts including this one. You can learn even more about me on LinkedIn, and you can see both of us at the lead innovation summit in July. Live on stage in New York with our friend of the pod, Simeon Siegel from BMO.
Until then, safe travels everyone.
SUMMARY KEYWORDS
neiman marcus, retailers, talk, big, retail, store, customers, great, season, stores, bergdorf goodman, episode, neiman, inflation, year, sales, starting, brand, net promoter scores, guess