Understanding the critical difference between "buying", which is more about addressing a need quickly and efficiently, and "shopping" which is inherently more solutions based and involves more of an emotional connection, can go a long way to informing both our underlying business design and go-to-market strategy, as well as how we evolve the customer experience and targeted marketing programs.
This week we go sans guest to unpack an increasingly important strategic and executional distinction which Steve first dug into in a 2018 Forbes article and then subsequently developed in his best-selling book. Understanding the critical difference between "buying", which is more about addressing a need quickly and efficiently, and "shopping" which is inherently more solutions based and involves more of an emotional connection, can go a long way to informing both our underlying business design and go-to-market strategy, as well as how we evolve the customer experience and targeted marketing programs.
We start with a bit of a history lesson, discussing how convenience has evolved and how the growth of e-commerce and new, disruptive store formats have reshaped the competitive landscape and led to increasing bifurcation of outcomes. Then we discuss what it all means for our future strategic choices.
But first we open up with the retail news that caught our attention this week, including what to make of staggeringly high inflation rates, the potential implications of the just released US monthly sales report, and whether we should really care about Amazon Prime Day(s) anymore. We also hear a bit about Michael's trip to the Netherlands and his battles dealing with the big Canadian internet outage of 2022.
Photo by Karsten Winegeart on Unsplash
Special thanks to our presenting sponsor, MarketDial!
MarketDial helps brick-and-mortar retailers conduct in-store testing on their innovative initiatives – preventing poor decisions, empowering great decisions.
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks , The Food Professor with Dr. Sylvain Charlebois and now in its second season, Conversations with CommerceNext! You can learn more about Michael here or on LinkedIn.
Be sure and check out Michael's latest venture for fun and influencer riches - Last Request Barbecue, his YouTube BBQ cooking channel!
Michael LeBlanc 00:06
Welcome to Remarkable Retail podcast, Season 5, Episode 2, presented by MarketDial. I'm Michael LeBlanc.
Steve Dennis 00:12
And I'm Steve Dennis.
Michael LeBlanc 00:14
Well, Steve, I'm back, I'm back online and I'm back from a fun week to family in Amsterdam. Great to be back on the mic with you and reconnected to the internet. I'll talk a bit more about that. And it's our first solo episode of the season, we're talking about "buying" versus "shopping" and how understanding the difference can really help retailers think through their core business strategy.
Steve Dennis 00:33
Yeah, I guess it is, we'll talk about in a minute. This "buying" versus "shopping" distinction is something I delved into a bit in my book and it's something I've been following. And the more and more I think about it and look at different examples, the more important I think it is as something for retailers to be paying even greater attention to.
Michael LeBlanc 00:55
So, for the listeners, you might have detected some different sound tones over this last episode and a little bit of this one. It was actually recorded on a different mic. for me, Rogers communication in Canada, I worked for them at The Shopping Channel, my entire home communications collapsed last Friday, and it didn't just collapse the internet, but it collapsed mobility as well, it’s not supposed to happen, right? So, everyone about 10 million Canadians lost internet, mobile, everything. You were kind of chuckling I was scrambling to go to my mom's place she's got a different provider, you know, with a with a mobile mic kits, and, -
Steve Dennis 01:28
Are you living in her basement, Michael?
Michael LeBlanc 01:30
The secret is out. I'm actually living in my mom's basement, but she's got a good internet. So, you know, Hi, Mom, can I borrow a cup of Internet, and then I had to go to you know, do stuff in Amsterdam, and so whatever. But the key takeaway is, and I thought this was interesting, in some, I've talked to a bunch of retailers about this. For two days, almost two entire days, cash was King again, and again, this was never supposed to happen, right? You're never supposed to lose both Internet and mobile, you lost them both of the retailers who had no facility to take cash, basically had to close the doors or some handed out IOUs so, you know, just a, just a heads up to the retailers that wasn't supposed to happen can happen. Just I don't know. just a, just a thought around how and where you go to market and what technology you use. And you know, sometimes the un-, unbelievable happens.
Steve Dennis 02:18
Yeah, you know, I'm this I think came up through our through our first season when we were in the height of COVID Just you know, how much can you plan for the unimaginable or maybe not unimaginable but very hard to imagine and you, you can't build a ton of redundancies for every possible contingency or you'd be out of business just from the cost of putting that into place but at the same time not having those contingency plans, not building that agility into your business model obviously has caught you know, whether we're talking about supply chain or, or, you have the local fulfillment, whatever I mean, all these kinds of things I mean, shit does happen right and, and it just, just shows how dependent in particular we become on being constantly connected. We just sort of take that for granted.
Michael LeBlanc 03:06
Let's talk about Remarkable Retail in Amsterdam. I mean, I spent a week there with the family and traveled over all over the Netherlands to Rotterdam it's a great place for barrels of candy. Let me tell you that I've, I've never seen so many stores dedicated to open barrels of candy. There's pictures up, pictures up on LinkedIn and of course lots of cheese shops and, and in Rotterdam, I don't know if you know anything about what happened during the Second World War, where basically, the Nazis leveled Rotterdam, so the whole city practically it's a big port city, the biggest port city in, in Europe is new. And the architecture is stunning and there's just some great, there's a food hall there. That is just stunning. So, I'll be putting up some pictures of that. So it's, it's neat. There's a usual cast of characters, you know, your chain stores, not a lot of department stores, lots of specialty, but it was fun. And I'll be I'll be sharing some of that on LinkedIn. Let's talk about what's going on in, in retail news. I saw some numbers over my news feed about inflation in the US what's, what's going on?
Steve Dennis 04:05
Yeah, last week, inflation, monthly report, I guess came out and inflation was at 9.1%, which is the highest it has been in 40 years. So, I think that's, that's quite, quite interesting. And, you know, we've, we've touched on inflation, obviously, in multiple episodes, I think inflation is going to continue. I mean, hopefully, inflation will start to moderate towards the back end of the year. But I think inflation is just going to be part of the retail equation for, for a period of time.
Steve Dennis 04:36
The other thing to say about inflation is you know, that's the average inflation rate. So, if you kind of dive down beneath the surface and, and look at some of the component pieces, the so called core inflation, which takes out the volatility of, of food and gas, that was 5.9%, which is still probably historically quite, quite high, but not quite so bad. Grocery was at 15%, which I have never heard of numbers like that. You know, fuel is starting to move around, I think I think you know, you talked about in, in Canada, it's been coming down in the US, it's down about, (crossover talk), 50 cents a gallon in the last month. So, that's, you know, still high but improving. So, this is going to move around and you know, certainly it seems like the various banks, the Federal Reserve is about to raise interest rates in Canada to come up a 100 basis points. A bunch of the other countries around the world are taking them up. So, I mean, there's a lot of monetary policy trying to, -
Michael LeBlanc 05:33
Tap on the brakes, -
Steve Dennnis 05:40
Put, put the brakes on this without, without creating a lot of job losses. So, so, we'll see. But I was trying to tie this to what we see just in general, in some of the broader retail stats.
Steve Dennis 05:44
So, the other thing that came out last week was the June monthly sales numbers from the US Census Bureau and they were up 8.4%, year over year. So, if you think the average inflation is something like 9%, you know, that basically suggests that unit growth was, you know, flat-ish, it's, you know, it's hard to tell if you go a little bit deeper in some of the component pieces. What I thought was, was interesting is that online and other non-store sales, which is kind of the proxy for eCommerce it's not exactly right and that was actually up close to 10%. And that's, I think, the first time we've seen strong growth there in a little bit, but general merchandise stores, and clothing and accessory stores, while clothing and accessory stores were basically flat year over year, general merchandise stores. So, this is both department stores, Walmart, Target, those sorts of stores were up just 2.1%. So, if you factor in inflation there, it looks like there was quite a bit of loss of transaction volume. And then electronics and appliance stores, the last one I'll mention we're down, it was I think the only major category that was, was down, and it was down 8.7%.
Michael LeBlanc 06:57
And there was some of this a factor of so many people bought so much stuff. You've talked about it, you know, it brought forward sales. So, really, you know, those are big numbers last year, when people were getting up their home. I'm not sure how important I mean, it's a big number. But you know, does it is it a strategic shift? Or is it just people just bought so much stuff, they're just running out of stuff to buy?
Steve Dennis 07:17
Well, I think there's two things going on here. One is, is that. The other is I saw another report from (inaudible) marketer about the degree of promotional intensity in consumer electronics business. And it apparently is way up both year over year and month over month. And we know that Best Buy, Target, Walmart, others have talked about being really over inventory in consumer electronics. So, I think this is a combination of the prices being pushed down, as well as the deceleration in volume.
Steve Dennis 07:49
So, it's great that people are still opening their wallet, definitely some storm clouds on the horizon. But I think in terms of retail activity, we're definitely see a slowing down. And I also took a look at some of the our friends at Placer ai data on store traffic. And store traffic across pretty much every category has been down on a three year basis during the past four or five weeks. So, that's another, another thing to be concerned about.
Michael LeBlanc 08:14
You know, thinking back to our last episode with, with Seth Godin, I got his book, by the way, because I didn't have his book, it's a for those who hadn't picked it up yet. You know, it's a ni-, it's not just a small pocket book it's a big book. It's a, (crossover talk), it's a physically big, -
Steve Dennis 08:26
It's a very serious, (inaudible) a ton of info, -
Michael LeBlanc 08:29
And, and I have been going through it and, and you I think you had the benefit of having a publishers copy. But it's a great book like it's it is what he says it practically explains a lot of stuff. So, if you haven't picked that book up yet, you know, listen to the interview, if you haven't but pick that book up because it's a great, it's a great read. Where I was going with that is, you know, that we were talking off mic about how hot it was where you are, and, and in many places in the States. I wonder if that's eventually that starts to slow down shopping like it, it becomes in one hand, I guess you go to the mall to get chilled off. But on another hand, it does start to slow things down when it's, it's kind of the, the heat that you're experiencing, yeah.
Steve Dennis 08:43
Yeah, that’s interesting, I mean, I am glad you mentioned that. I, I do think that it’s certainly my experience here in, in, Texas, is that it does cause people to, to consolidate trips, or just go out, you know, less, less frequently. So, it wouldn’t surprise me that’s something we’re, we’re seeing in the numbers. I think the other thing in which you know, of course nobody wants to talk about anymore is COVID there’s, there’s (crossover talk), -
Michael LeBlanc 09:04
Steve Dennis 09:05
The numbers continue to increase. I know a ton of people that, that have had COVID in the past month or so, just anecdotally talking to some people in various industries. You know, there's a lot of people that are out sick and so, you know, this all has a ripple effect as well and you know, the reported numbers, which are up and the hospitalizations are up fortunately the deaths are not up very much. You know, the reported numbers because there's so much at home testing don't really reflect what's actually going on. So, I think its that's been ticking up, you know, particularly over the last month, that's probably got a bit of a dampening effect on, on store traffic, which may help explain a little bit why eCommerce was a bit better last month than it has been.
Michael LeBlanc 10:11
Let's talk about Prime Day a little bit. I mean, I think you and I share the same philosophy. It's, you know, it's one retailers sa-, sale, I mean, they've done a good job of hyping it up. But, you know, it happened last week and, you know, some big numbers came up here, there and elsewhere. But I think there's two Prime Days this year or four Prime Days this year. I mean, it's really (crossover talk), blending in. You know, it's really, (crossover talk), -
Michael LeBlanc 10:31
Prime Day, D-A-Z-E, I mean, it's really just blending in, does it does Prime Day still matter to to the industry and as much as you think to, to Amazon itself?
Steve Dennis 10:31
Prime Daze, yeah.
Steve Dennis 10:41
Well, it's, you know, I, I and I got into a little bit of a, of a social media battle on it, because I said that, you know, basically don't pay any attention to the Prime Day numbers without broader context. And I was deliberately being a little bit inflammatory, as I want to do sometimes, but, but my point is that, and I, and I have, and you probably do, as well, firsthand experience, studying promotional events. And I worked with a retailer a number of years ago, where we had a, a big event, somewhat similar to Prime Day, we kept finding that the results looked really good. And so, we kept enhancing it every time we ran it. And every time we enhanced the value, which was basically more discounts, our sales got even better. And so, we kept doing it and this went on for two or three years, until finally I said, you know, why don't we take a broader look at our sales performance and our margin performance. As it turns out, without getting into too, too much detail, basically, by offering better deals, all we did was post sales that we would have gotten anyway, from the period before or after the event at a lower margin. So, in fact, our conclusion that it was working better and better was 180 degrees different from what was actually the case,
Michael LeBlanc 11:54
Which is actually, it's funny, because on a broader context, the same could be said about Black Friday, it generates excitement, -
Steve Dennis 11:56
Michael LeBlanc 11:57
In the industry as it gets people shopping, but does it really actually, you know, lift the overall consumption up? Maybe, maybe, but, -
Steve Dennis 12:08
Well yeah, I mean, that has been studied and I think it's, it's, you know, somewhat inconclusive, and I think a lot of people feel that they have to participate in it to prevent, I mean to preserve market share. And to reduce margin exposure going into the hol-, you know, there's a lot of other factors there. But my point with Prime Day in particular is, you know, just focusing on the number and saying, oh, you know, they had a sales increase of I think it was around 8%, compared to last year, which was 6%, is almost meaningless. Because if they accomplish that by discounting more aggressively, and moving sales around, it could actually be worse than the (inaudible). So, there's so, anyway, I, I think that, yes, it's important, you know, a number of players like Walmart decided not to play to try to counteract it. And I think that's largely because both they and Target have been aggressively promoting pretty much for the last month or so, (crossover talk), -
Michael LeBlanc 13:02
I mean I advise my clients to stay away, because it also legitimizes it as an entire retail event versus an individual event. Like, I think it gives it a bigger, a bigger image, when everybody joins on, then suddenly, it's a retail event driven by Amazon versus it's one retailer doing an event. Anyway, that's, that's, (crossover talk), -
Steve Dennis 13:20
I totally agree. I think if you're if you're going to I mean, I think there's a certain amount that is just sensible to do tactically to preserve market share, you know, I wouldn't like totally run away from it. But to basically to copy another competitor, I think doesn't give you that branded experience and it's just really, you know, you are chasing the promiscuous shopper ultimately, which, which longer term is probably not what you want to do.
Michael LeBlanc 13:43
We'll be right back with our thoughts on the strategic implications of understanding the difference between "buying" versus "shopping", right after this important message.
Michael LeBlanc 13:52
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Michael LeBlanc 14:22
Well, Steve, we're here to talk about "buying" versus "shopping". Now, in one way, it's an intriguing concept that the two are often interchangeable in terms of terms, but in reality, as ,as you articulated, and as you articulated in your book, but we're here to kind of flush the idea out. They're actually different things, but they still connect at a very strategic level. So, talk about, you know, what does this all mean? And, and you know, we're going to get into the history a little bit, because it's very insightful. I was, you know, we were talking about this off mic. So, let's start with, you know, let's start with the big things like what are the big thin-, three things, you know, we, I like to bring things in three that you're that you're that are top of mind for you that you're thinking about as we explore this "buying" versus "shopping" concept.
Steve Dennis 15:09
I'll try to define it a little bit more precisely in a few minutes. And I will say that this distinction between "buying" versus "shopping" is not something that I came up with on my own. Other people have, have pointed to it. But I've become really fascinated by this, this definition and distinction, because I think if we start to understand it, and we think about how digital technology in particular, has driven disruption over the past, really, two decades, this distinction between buying and shopping and how convenience has evolved helps us understand why we've seen, you know, my favorite term bifurcation and the collapse of the middle, I think it also helps us explain, and I think we can get into a few specific examples in a few minutes, why certain retailers have been winning, not only, you know, in the last couple of years, but over the longer term, and why others are losing.
Steve Dennis 16:11
And I also think if we get a bit more tactical, if we think about whether the consumer is in buying mode, or shopping mode, because we all can be in one of those modes at different times, it can really help us design or figure out how to improve the customer experience, how to better target our marketing. So, there's a lot of tactical as well as strategic implications of, of understanding, "buying" versus "shopping". So, that's what I think is we're trying to dig into more and getting into some of the specifics.
Michael LeBlanc 16:40
When you say "buying", what do you mean, when you say "shopping", what do you mean?
Steve Dennis 16:44
"Buying", is really more of a need based activity and "shopping" is more of a want base. But if we want to kind of unpack that a little bit more, but I'd also then like to draw back and talk about how this has really changed over the last two decades, because I don't think this distinction was particularly useful 15 or 20 years ago, it's become much more useful in, in recent years.
Steve Dennis 17:07
But, but I think if you think about buying, you know, we're, we're completing a task, getting something off our to do list. Generally speaking, convenience, both in terms of easy access, and speed, and price, tend to be important drivers,. brand preference, not typically so much. And I think if you think about kind of the consumer end state, we're not very emotionally attached to the outcome. So, we are search driven, whether that's online or in a store. And we basically go where we can get that item off our to do list as quickly as possible.
Steve Dennis 17:47
To contrast that with shopping, you know, it's much more about effectiveness over efficiency, we're, we're needing a want or some sort of solution or more of an emotionally based need. It's much more discovery driven, as opposed to search. And, you know, one of the big characteristics is that we're generally speaking, willing to invest a lot more time or effort to get the right outcome, and probably not too surprisingly, brands tend to be more important. So, you know, left bra-, let you know, a lot of different we have been making these lists of sort of the comparisons, (crossover talk). But you know, left brain versus right brain, science versus art, head versus heart (inaudible), like there's a whole bunch of these, maybe we'll come back to in terms of how you sort of decide, but, -
Michael LeBlanc 18:34
Yeah, well, that's, that's a good segue, because let's take a step back, way back, so to speak, the way-back machine kind of way back. Because this drive for convenience and efficiency that always hasn't been the case, like many other things that retail has evolved over the decades. So, take us back a few, as we often say, this podcast isn't a history lesson. But I think in this in this context, it's very instructive to understand where we were and how we got here. Take us back to 19, you know, to 1975. And let's, let's see where we were and how we got here.
Steve Dennis 19:04
You know, convenience is one of these words that I think and you know, there's a danger of getting a little bit too much into semantics here. But, but convenience has really changed over the past several, several decades. And it's sometimes it's funny when I talk to people that are significantly younger than you and I are. And I say, well, you know, department stores and malls used to be very convenient. And they were, what do you, what do you mean? Well, the reason why they were convenient, and not in every aspect, but, but they were convenient because that was where you could go and see a lot of stuff in one place. So, it was worth you know, when you didn't have what (inaudible), you didn't have the internet at all, but you didn't have the plethora of competitive choices, which we'll talk about a bit more in a second.
Steve Dennis 19:49
So, in an era where you know 97 98% of everything you bought, required you to go to a physical location When it came to shop-, shopping for apparel gifts, you know, a lot of the sort of products that were the dominant tenant mix of a mall, the malls and those department stores that were, you know, the overwhelming majority of, of their locations were in these regional malls. You know, that was very convenient.
Steve Dennis 20:17
When you start to kind of move forward into the 80s. A lot of what you saw was the great expansion of the discount mass merchants, you know, this was the era where Walmart in particular was adding a lot of stores but, but also Kmart and Target. And so, you started to have these general merchandise locations, that became large in number that were not in the mall. And so, this the spending started to get, get affected. And you know, and mom and pop stores were, were affected by the growth of Walmart and others as well. But again, you still had a case where 97, 98% of all purchases involve you going someplace, it's just now you had other choices for, for apparel that were from these big retailers, when you get into, (crossover talk), -
Michael LeBlanc 21:06
And, and, and we should probably speak to those other couple a couple of three percentages, the catalog business, right. So, the catalog was convenient in one way, but not in the way we think of it today. I mean, it had an assortment, you know, think of the back to the Sears catalog or the big catalogers. But, you know, you remember I, I remember a time where you know, hey, six to eight weeks, it'll be at your door. Isn't that convenient? Like it was a different (inaudible), -
Steve Dennis 21:27
Yeah, no, that's a great point. Yeah, right, right. The, the other percentage was, was primarily mer-, mail order catalog. And, you know, most of the mail order catalogs that were successful outside of Sears and Montgomery Ward had kind of a niche, you know, they were, they were focused on a particular sort of product category. And so, you, you know, maybe you bought from the catalog, because you didn't have a great selection of stores near you, or you really liked that particular product. And but yeah, you're right, you oftentimes had to wait for weeks. And when I was first in the catalog business in the 90s. You know, we were pretty happy if we can get something to you in a week, you know, so, and we used to charge, (crossover talk). Yeah, right. Well, you and I talked about this on another episode, you know, we would make money, for charging for, for expedited delivery.
Steve Dennis 22:15
But then you know, as you get into the 90s, a couple things start to, to happen. We're still where you know, something like 97-98% of all retail involves people, you know, driving to a store and getting it, but we start to really see the acceleration of the categor-, category killers. So, you know, Best Buy, Circuit City and others in the home electronics, Bed, Bath & Beyond, Linens & Things, you know, The Pet Supply, Guy, Home Depot, Lowe's, I mean, these, these formats really started to accelerate. And so you had 1000s of these stores being built all over the US. And that started to definitely affect the mom and pop, you know, Main Street sort of stores. But this was like another big hit to the department stores in the malls, because you now had a number of other choices that were in many respects more convenient, because they were closer to you. But there were also convenient in that you had a wider assortment, you can go to one of these category killers, and have a lot more choice than you could from a standard retailer, whether it's in the mall or not.
Steve Dennis 23:20
And of course, then, you know, late 90s, early 2000s, in particular, convenience starts to really be redefined by, by eCommerce. And, you know, as I got you in the book, and I think we talked about it on another episode, and we don't you know, it get too, too much of a history lesson. But I think it's important to think about the rise of eCommerce in a few waves, because the first wave, particularly driven by Amazon, but also driven by some of the major retailers, like, like Sears and others that were first to get into, you know, the .com business pretty early on or the mail order catalog companies that took their business online. You know, for the most part that first wave was products that would were pretty simple to understand, like you already know, knew you want the Mr. Coffee Pot or you knew you wanted that book or CD back when there were CDs from Amazon. And almost all of that was shipped through the mail to your home or office. So, pretty simple product, you know, easy to understand products, very focused distribution system.
Steve Dennis 23:37
Over time, again, largely driven by Amazon but also bigger retailers getting more involved in eCommerce part, you know, the products you could buy online and started to expand. So, eCommerce penetration continued to increase. But again, most of these products were shipped to your home or office through the mail.
Steve Dennis 24:37
What really started to shift and this is really only the last five years or so. Not only you're getting more products, but you start to have products that are local home delivery, particularly groceries, you know, so are frozen foods, and these are things that you can't ship or it's prohibitively expensive to ship through FedEx or or US, PS and so on.
Steve Dennis 25:03
This whole eCommerce world started to be more complicated, it started to add buy online, pick up in store, started having a delivery restaurant delivery and all this, all thiskind of stuff. So, what we call eCommerce is now much more diverse. Not as simplistic is just shipping through home product. But, but again, this kind of accelerated convenience, a lot more products now could be shipped to your home or office, you didn't have to go get it. And now instead of going to a store to see this array of products that are on offer, you now have, you know, the so called endless aisle of the, (crossover talk), right.
Steve Dennis 25:38
So, convenience redefined both in terms of easy to find stuff, easy to understand the price, easy to get information about what products might fit for you, without having to go to a store, without having to talk to an associate. And you know, and also being able to get things delivered. I mean, we've gone from like you were talking about, you know, a week or two or longer to two days, next day, 30 minutes.
Michael LeBlanc 26:05
The history lesson kind of drives us through to where we are today. But take us to the current events where, you know, you've got to make some choices around who and what you are, but how do you what framework do you put around those choices? And, and how do you approach it?
Steve Dennis 26:20
Sure. Let me just make one other quick point, though, in the history lesson part of it. The other thing, which I think sometimes gets overlooked is one of the things that's really happened quite a bit in the last, say 10 years. Because you know, a lot of times so much of when we talk about the troubles in department stores or with certain kinds of retailers, it's all about online.
Steve Dennis 26:41
But actually, the other thing that happened kind of in the post category killer world was the opening of a lot of value oriented retailers. So, the explosion in Dollar Stores, the explosion in off -price retailers like TJ Maxx, even in the grocery business, all the (inaudible) Trader Joe's, you know, these are not in fact, they're, they're lower than average online penetration businesses, but they both have been to 1000s of stores in people's neighborhoods, basically, or in power centers that are much more accessible, much more convenient, than the mall than the moderate department stores, and e-, even Kohls growth, even though they're struggling. But, you know, if you go back 15 or 20 years, they were seen as somebody that really affected the predominance of the mall and, and moderate, you know, traditional moderate department stores.
Steve Dennis 27:35
So, so, convenience is also evolved, obviously, by virtue of the internet, but it's also evolved by, by just a lot more choices, five or 10 minutes from where you know, 90%, 95% of the population lives. So, to talk about the implications of this, you know, if you're a retailer, that was, you know, historically, brick and mortar oriented, with part of your competitive advantage being it was convenient to drive or get on a bus or whatever, to go to your store, to see all this stuff that wasn't super well differentiated.
Steve Dennis 28:16
Well, that competitive advantage has continued to be evaporated, you know, over, you know, really a 20-year period. And you know, the poster child for this is certainly the mall base department stores, you know, Macy's, Penney's, Sears, etc. But it also explains what's happened with Toys R Us, it also explains the trouble that Bed Bath & Beyond, has had, which is really accelerated, which is, you know, perhaps a whole other topic, it explains the trouble that Kohls, which was, you know, doing so well, 15 years ago, and is now you know, really in a significant amount of, of, of trouble, because going to their store to see a wide assortment of largely undifferentiated product, where is the advantage in that, you know, it it's not convenient to go someplace to see that stuff anymore, you know, whereas 15 or 20 years ago it was tremendously convenient.
Steve Dennis 29:14
So, so, I think this, this collapse of the middle, this bifurcation is really saying, well, you know, on the one hand, consumers are, you know, tending to, to when they're in buying mode, you know, that tends to be about easy access, low prices. You know, it varies obviously, depending upon the sort of products you're buying, but you know, that, that helps explain the tremendous growth in online because eCommerce is very good at the buying side of the equation. But it also explains why value retailers like The Dollar Stores, like TJ Maxx, have so outperformed other brick and mortar dominant retailers.
Steve Dennis 29:51
And at the other end of the spectrum, you know, luxury generally has, has tended to do well because those products are largely exclusive. So, and, and luxury has done well, in-store and online. You know, Neiman Marcus, my former employer, 40% of their business is online, Nordstrom, something like 40% of their businesses online. So, but it, but it's the value added of either the differentiated product, or the differentiated service, where the differentiated in-store experience. But if you're one of these retailers in the middle, that, you know, is trying to rely on this incredible assortment in a physical store, where, you know, you've got okay prices, but maybe not the best, or you don't have anything particular from a service standpoint, (crossover talk), you know,
Michael LeBlanc 30:36
it's not remarkable. Is there any question for you, is there any, any room in your framework, I mean, part of the rise of The Dollar Store, and what you're describing is also reflected of the macro-state, and not just in America, but around the world in some ways of the of the, the elimination almost of the middle class, right, because the middle class in the 50s, 60s, and 70s, was, was quite fulsome. And that's what drove that kind of middle, literally. Whereas now, we've not only get bifurcation shopping, but you tend to have some fairly severe bifurcation of income and household incomes, right. So, is there room for that in, in helping along this, this, these trends?
Steve Dennis 31:13
Well, the yeah, I make I make this point in the book, that there's really, to your point, there's two parts of the bifurcation, there's sort of the strategic business model bifurcation where the middle has collapsed, because of largely the impact of digital disruption. But the middle has of this collapse in the middle has also been accelerated by macro-economic factors. So, so, as the rich get richer, you know, their dollars are tending to go to the more shopping side of, of the equation, you know, they've got the money to spend on experiences, they've got the money to spend on more premium priced products.
Steve Dennis 31:48
As the middle-class gets hollowed out, you know, for the most part, those folks are needing to trade down because it's, you know, a (inaudible) affordability issue. So, you know, it's a little bit of a chicken or egg thing here, you know, we certainly had value oriented retailers growing prior to this, this bifurcation of macro-economic factors, but as those forces have accelerated over the last, you know, 10 years or so, you know, that tends to support this further widening.
Steve Dennis 32:13
Now, this is not to say, because I get this question, sometimes. This is not to say, from a product assortment standpoint, there are no moderate prices, like I think that good, better, best, which I'm sure some of our listeners will be familiar with, like there's, there's still relevance to the good, better, best assortment strategy. It's really more of a question from a fundamental value proposition, you know, are you really leaning into the buying side? Or are you leaning into the shopping side, fundamentally.
Steve Dennis 32:43
The other point I would make is, and, and this might be a good opportunity to talk about Target and what kind of way the way they're thinking about it is, it's not like, you know, I don't want to make this overly black and white, it's not like within a given store, you can't have a mix of buying and shopping. Target apparently, is even experimenting with this idea, that kind of one side of their store is going to be about ease. So, buying, and the other side is going to be about experience.
Steve Dennis 33:11
And, you know, if you think about it, just from a store layout standpoint, and you got two doors, you know, there may be some advantage to say, hey, you know, I'm just running into Target to get, you know, whatever, some, some aspirin or something for me, you know, for dinner tonight or whatever. But I'm going to the other side, because, you know, I'm working on a home decorating project or whatever, and I might want to put a, (crossover talk), -
Michael LeBlanc 33:33
Or I don't know what I'm looking for, right?
Steve Dennis 33:35
Right, I want to explore a little bit. And so you know, from a visual mer-, you know, not only from a product assortment, but from a visual merchandising side and maybe more about providing ideas, right, I don't need any ideas when I'm just running into pick up some bananas and Tylenol, right? I know what I want. So, so I think, you know, again, it's not that black and white, but I think when it comes to thinking about your overall business model, you know, are you more trying to be, you know, RH, Sephora, Apple, Saks Fifth Avenue? Or are you trying to be more, you know, Walmart, all the, you know, the sort of very buying, dominant, you know, so there's some fundamental choices in terms of your strategy that has implications over the long term, in terms of you know, how big your stores are, where they're located, the specific you know, role design operating model, and, and you know, you can kind of go from there.
Michael LeBlanc 34:34
On one hand, it feels counterintuitive, but comment on that, because I know we talk about it often that, you know, in many cases, in the context of experience, whether it's going up the elevator, eight floors in an RH, location, or whatever, that there is some, let's call it friction, but really, let's call it shopping, right? Is that what you're thinking?
Michael LeBlanc 34:34
And, and, and what happens in them you know, I, I want to last question I want to bring us home on this. I did this interview interesting interview with author, Soon Yu and he his book is all about friction. And it was an interesting idea and you and I were talking about it off mic, but I want, I want you to comment to, to it, you know, the, the his concept or idea is and you and I would know this, but he really flushed it out pretty well is that at some point at some time, it's not just about convenience, right? It's not about being able to do something super fast that, that there's a few speed bumps in the road, you're adding a bit of friction, which actually enhances the customer experience.
Steve Dennis 35:30
Yeah, I mean, I think I guess the way I think about it is, what is, you know, when you think about being remarkable, you know, the biggest part, not to go into too much of what the book is about. But the distinction I make in this idea of being remarkable is both that you are, you know, highly distinctive, unique, etc. But it's also and, you know, the real X-Factor, I think, is the powerful emotional connection that you make with your customer. And su, you know, such that they will be intensely loyal, but also that they will be literally willing to talk about it, to remark upon it.
Steve Dennis 36:09
And so, I think, you know, when you think about, does anybody have a powerful emotional connection with Amazon, you may have a lot of frequency bias towards it, because it's so efficient. And because you know, it's easy to get your needs met, or whatever. But there's not an emotional attachment to Amazon, because that brand is an engineering brand. It's a buying brand. It's about efficiency, right? The brands, though, so, so it's very powerful. But it's powerful, because it's so remarkable that the buying the buying side of it, when you think about the most powerful emotional brands, you know, Apple, Tesla, RH, you know, there's a bi-, a big list of them, I am sure that people, (crossover talk), -
Michael LeBlanc 36:47
Like IKEA, right, you got to drive 40 minutes to get there, (crossover talk),
Steve Dennis 36:51
Bur you have an emotional connection and, and I think that the way to think about it is, it's not about buying a product, it is about buying a story, like you are buying into the story of the brand, as, as our friend Seth likes to say, you know, people like us do things like this, it's about belonging, and all these kind of things. And so, if you're not, if you're not willing to go through a little bit of a hassle, in some cases, or you're not willing to feel like, you know, it's worth it for me to, to, you know, invest the time and money to learn about this, or to, you know, to travel a long way, or to sit online for four hours to get that Apple phone or whatever, like that there's part of that binding you to the brand, because you've made the investment and I think psychologically, which is maybe what he's talking about, there's a little bit of, of, you know, rationalizing, like, I must love this or otherwise, why would I go through all the effort, (crossover talk), right.
Steve Dennis 37:46
So, but I, but I think again, you know, I don't want to make it overly black and white. But I think if you think about the most powerful brands that have emerged in this newer era, they are, you know, either pretty strong on the shopping part of it and the evolvement in that real kind of heart emotional connection. And then there are those really like smart brands like it's smart to shop at Costco, it's smart to shop at TJ Maxx, it's smart to shop at Amazon, right. But it's not about I'm having this incredible emotional experience, it's about it's it's, um, a savvy shopper. And those are really different emotional states.
Steve Dennis 38:22
But it's death in the middle. That's the you know, that's my main point is you got to pick a lane, or, or move pretty strongly in the direction because the other side is, if you look at the brands that have gotten into trouble, you know, Sears now for a long time, but you know, JC Penney, Bed Bath & Beyond, Toys R Us, they didn't pick a lane. And I think that I think that's the lesson strategically, there's, there's plenty of other good reasons to get into the details around designing particular customer journeys, and how to better target your marketing and context and you know, all that kind of stuff that's useful as well. But I think the strategic takeaway is much more, you know, kind of fundamentally, we know which lane are you picking?
Michael LeBlanc 39:02
Yeah. Well, it's a great discussion, because we're five seasons in now. But it really helps to hone in on key points we've been making. We made a lot. And as we covered the book, and, you know, we take these ideas come back, and I think is, you know, our theme for this season, you know, buckle up buttercup, you better really start thinking about these more deeply. And so, I think this has been a really great, great discussion.
So, let's leave it there. And we got the rest of the season to continue to flush out this and many other points, but until next time, let's leave it there.
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