Remarkable Retail

What We Get Wrong About E-Commerce

Episode Summary

This week we dig into some of the myths, misleading clickbait headlines, and often unfortunate misunderstandings surrounding the growth of online shopping, both across the last two decades and accelerated more recently by the COVID-19 crisis.

Episode Notes

This week we dig into some of the myths, misleading clickbait headlines, and often unfortunate misunderstandings surrounding the growth of online shopping, both across the last two decades and accelerated more recently by the COVID-19 crisis. In particular, we dig into:

We also take on the nonsense around Saks (and others) splitting up and spinning out it's online business.

But first we open up the episode with the Top 3 retail stories that caught our attention this past week, including unpacking Amazon's very lackluster earnings report and online sales deceleration, yet another new CEO at JC Penney (possibly the worst job in retail), and what Rent the Runway's disappointing IPO might portend for the frothy valuations digitally native retail brands are commanding.  

We also have a quick chat with David Macadam, CEO of the Middle East Council of Shopping Centres and Retailers about the upcoming MENA Retail Congress in Dubai which will feature an opening keynote from Steve.

 

Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his       website.    The expanded and revised edition of his bestselling book  Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at  Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a      Forbes senior contributor and on       Twitter and       LinkedIn. You can also check out his speaker "sizzle" reel      here.


Michael LeBlanc  is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice.   He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career.  Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast,       The Voice of Retail, plus        Global E-Commerce Tech Talks  and       The Food Professor  with Dr. Sylvain Charlebois.  You can learn more about Michael       here  or on       LinkedIn. 

Episode Transcription

Michael LeBlanc  00:05

Remarkable Retail podcast, Season 3, Episode 14. I'm Michael Leblanc.

Steve Dennis  00:10

And I'm Steve Dennis.

Michael LeBlanc  00:12

Well, in this episode, Steve, you and I are talking about something that you and I have been involved in for a long time in ecommerce. Specifically, what we are analysts or everyone kind of gets wrong about e commerce from a strategic perspective.

Steve Dennis  00:25

Yeah, this is something I talk about a little bit in my book, but I've been really digging into and we've dug into in some past episodes, just that there's kind of this monolithic view of ecommerce as being one thing, which, if we go back a while, was largely true, but as various retailers have gotten into different sorts of products, and there have been different ways of fulfilling them, the definition is getting blurrier and blurrier. And one of the things I thought would be good to talk about today is just Okay, let's level set what we're talking about, but more importantly, what's the so-what because some of the takeaways from some of the high-level narratives I think, aren't particularly useful.

Michael LeBlanc  01:05

All right, we'll get to that in a bit. Let's now get to news of the week now, we have got a bit of a new format. For the listeners and viewers, we're going to focus on the top three things that we're looking at for the week. So, leading off again, we almost never talk about them. Amazon, however, they put out some results that were A, difficult to parse out what the heck's going on and B, if you start to parse it out, don't look at, don't look that great. What do you think?

Steve Dennis  01:33

Big, big disappointment on the overall earnings front, they missed on sales, they missed on profits, and they guided lower for the balance of the year, Amazon manages to get away with the widest range of earnings, I think they said, our profits in the final quarter will be between zero and $3 billion, or something like that, which is okay.

Michael LeBlanc  01:56

Somewhere in there, yeah.

Steve Dennis  01:58

It's nice to be that big, where you plus or minus a couple billion is enough to satisfy Wall Street, but it was quite interesting when you look at some of the numbers and I just want to say Andy Jassy, I'm sure you're listening, let's try to provide a little bit more detail because it is really hard to parse out the numbers because there's this big Amazon warehouse, or web services number, then a bunch of other segments stuff, which blends things together, but the headline was that sales slowed down a lot and if you look, I'm gonna have to use my cheat sheet here, but if you look at some of the overall sales, web services was great, but online, first party online from Amazon was up only 3%, which is well below the overall growth rate for e-commerce, their third party part was up, I guess, a little bit better than the industry up about 18%. 

Steve Dennis  02:49

Interestingly, physical retail, which is mostly Whole Foods, but the grocery store, Four Star, Four Star is starting to become a bigger piece, that was up 13% the first time in a while, but, you know, my conclusion, if you look at all the profitability in web services, and you look at the lack of profitability, and all other well, in all other is advertising, which is phenomenally profitable. Prime, 

Michael LeBlanc  03:14

Sure.

Steve Dennis  03:14

Presumably, is really profitable. third party services, Amazon takes a fee for that. So that would seem to be possible. So, I think all roads lead to their own retail, being very unprofitable, which, you know, the, the longtime, long term narrative had been that Amazon doesn't make any money in retail and that's really not so true, but I think we're seeing a lot of recent suggestions that not everything is great in the retail part of their business.

Steve Dennis  03:43

But two quick things on that they did talk a lot about how their costs are going through the roof. I think everybody's getting hit with all the shipping and fulfillment stuff, though. Amazon seems to be worse on that front. Labor costs, those, those sorts of things. So, it's a little unclear whether there's, kind of, this long term trend of this profit squeeze on fulfillment against retail, or whether this is you know, infrastructure building and whether this is things they need to do for the next few quarters to deal with the supply pain and labor shortages and COVID. 

Michael LeBlanc  04:15

Yeah.

Steve Dennis  04:16

And COVID overhang.

Michael LeBlanc  04:17

Yeah, you could really make a career as you know, our friend Brad stone has done writing about Amazon because it's, it's, it's so interesting to pick apart. Jason Goldberg, for example, does a great job when he looks at the results and we've had him on that we've had him on either, both on the show. All right, let's move on to our next thing. I think you've described it as potentially the worst job in retail, from my, from one of my former companies, Levi Strauss, JCP has a new President and CEO talk about that.

Steve Dennis  04:47

Yeah, well, Mark Rosen, Senior Executive at Levi Strauss formerly was in a senior role in Walmart, e-commerce so very experienced guy. I don't know him personally but people that do have said great things. him. So I am, I'm sure that he is a great guy. But yeah, the JCP, CEO job. Good luck and Godspeed. That's all I have to say I hate to be so negative on pennies, but it is such, such a damaged brand was so much competition and there are so many things that have to be radically changed in a very short period of time, they basically got a lifeline coming out of bankruptcy because this deal that some of the mall owners got involved with. So, that does give them some flexibility that they might not otherwise have, but, you know, good luck, I'm sending them a copy of my book.

Michael LeBlanc  05:43

Let's talk about Rent the, Rent the Runway. So, they did their IPO, they went public, the stock popped, the stock dropped observations out of the numbers coming out of there, and what's happening with our friend rent, Rent the Runway?

Steve Dennis  05:55

A couple interesting things here and I suspect we will be hitting on this just about every episode until the stock market crashes is it's just as run that's your central I mean, could have happened as we're talking just this run for these digitally native brands, new direct to consumer brands to go public, taking advantage of, kind of, where they are in the investment cycle, but they're really, really frothy valuations. So, Rent the Runway. 

Michael LeBlanc  06:23

Yeah.

Steve Dennis  06:23

Went, went public the other day, jumped at the outset, then I guess cooler heads prevailed are some of the other people that made a little bit of money on the IPO in took the exit ramp, and you know, who knows, by the time this episode comes out, or people listen to it, it could be a different story, but I think we're just going to continue to see until the music stops, the pets.com part two hits us that people are going to be trying to get into the public markets as fast as possible. 

Steve Dennis  06:55

The thing to me that's continues to be interesting about some of these brands, which have very high profiles, a lot of people following them over the last year being you know, the super sexy, disruptive brands, well, here's yet another one, that is not a very big business, they do under the $200 million a year, which is nothing really in the whole world of apparel and they managed to lose about $1.10 I think for every dollar they they took in so another one of these profitless prosperity companies. 

Steve Dennis  07:25

Now, to be fair, they are obviously investing in the business and COVID was not very friendly to anybody in the higher end part of the, the fashion business. So, I think it's pretty hard to, to really look at the profitability numbers right now, but I think just like we're gonna see with some of these other brands, 2023 is gonna be much more challenging for ecommerce companies, we've got this kind of rebalancing to some normal, we've got a lot of pressures in terms of digital marketing, and just a ton of competition. 

Steve Dennis  07:56

So, I think most of these companies that have gone public or been public for a little while, each of the quarters going into next year are really going to be the ones that will give us more guidance as to whether this is a real business or just kind of a, you know, a moment in time kind of business.

Michael LeBlanc  08:11

Yeah, I think for them, it becomes a bit crowded. I was interested to read Daniel McCarthy, our great guest and number one episode, by the way, congratulations, Daniel. He was talking about, you know, as he pulls apart the numbers, he was talking about their depreciation rate on their rental goods, which he tracks at about 20%. So, check out his comments on, on Rent the Runway and their business model, which, very insightful as you would, as you, of course, would imagine. Now, you did say ecommerce in 2023, not 2022 is going to be more difficult.

Michael LeBlanc  08:40

If you want to, if you want to resay?

Steve Dennis  08:40

Sorry. Yes, that was well, yes. 

Steve Dennis  08:45

Well, I know I did, I did mean.

Michael LeBlanc  08:46

It will be too, it probably will be too?

Steve Dennis  08:48

Well, I think it's gonna it's going to take a while, certainly for us to sort through all the noise, but the I did mean 2022 and the reason why I focused on 2022 is because we start to anniversary, a lot of the COVID specific effects and that will, for the for the businesses that aren't for real, that will have a significant dampening effect on their sales and we'll start to be able to see more clearly whether the return on advertising is working well as some of these retailers go further into opening stores, we'll start to really get a sense of well, you know, can they open five or six stores, can they open 50 or 60 stores or can they open 100 plus, as some of them have said that they want to do and that, that's going to be pretty challenging?

Michael LeBlanc  09:33

Well Steve, we've just finished up our news of the week and I feel like I'm back in my As Seen On TV days, but that's not all there is more. You and I have been doing quite a few virtual keynotes since COVID and as of lately and, and, but actually you're speaking now you've done your you know, speaking to a live audience, what's going on?

Steve Dennis  09:56

Yeah, I've just gotten back to a couple of in-person events, relative, really small ones, but the pace is picking up. And actually, I've got a pretty exciting event coming up in just about a month. 

Michael LeBlanc  10:09

Oh, tell, tell us all about it.

Steve Dennis  10:11

Well, I'm going to be going back to the UAE on December 6, I'll be doing the opening keynote for the Middle East Council on shopping centers and retailers annual retail Congress in Dubai, which is back to a live event this year.

Michael LeBlanc  10:25

Wow. You're, you're not just doing a live event in front of a lot of people. You're, you're traveling. That's exciting.

Steve Dennis  10:31

Well, the theme of my talk is omni channel is dead. Retail's future is hybrid and harmonized. So, try to be a little bit provocative and pick up on something from the book, other stuff. 

Michael LeBlanc  10:41

Well,

Steve Dennis  10:42

I've been writing about. 

Michael LeBlanc  10:43

Well, you know, it's fantastic. Well, you know, to learn more about that event, we happen to have David Macadam with us, David, welcome. Thanks for joining us.

David Macadam  10:52

My pleasure. Gentlemen, thank you very much for including me on this podcast.

Michael LeBlanc  10:57

Well, it's great. Listen, tell us a little bit about yourself, and what the Middle East Council and shopping centers and retailers is all about.

David Macadam  11:05

Well, thank you. I've been in the Middle East region for the last 20 years and, and the 20, 25 years before that I was in Vancouver and British Columbia, the west coast of North America. Since being in Dubai largely for this period of time. I've been involved in probably 45 to 50 shopping centers in the region, working with the likes of Jones Lang LaSalle, and other major developers in the region that have required the kind of expertise that I deliver, which is essentially a retail shopping center background for the last 40 years. So, that's, that's my background and about eight years ago, I, I took up running the Middle East Council of shopping centers and retailers and we now have 890 shopping centers under our umbrella, and we have about 3600, there about, people who are affiliated with us on a regular basis and we have over 1000 full time members that interact with our team of five full time employees that we have in Dubai.

Michael LeBlanc  12:18

That's neat. So, that's basically, you know, a group that brings like-minded people together to talk about the trends and stuff like that. Right and, and regular communications now you're doing a conference, obviously, Steve is, you invited Steve to speak at it. I was, I was watching the promotional video, I tell you, if the conference is half as exciting as the promotional video. It's going to be fantastic. But tell us all about the conference,

David Macadam  12:40

The conference, thanks a lot, first of all, because the conference in 2019 was our last live event. We had a virtual one last year and it was as successful as you can imagine. But in 2019, we had 3500 delegates over the three days. So it was a very successful event. We hold it every year in the Ritz Carlton, DIFC, which is the Dubai International Financial Center. We had the ballroom and the, all of the areas around it for our sponsors and exhibitors to, to open up to the public. So, we're doing that again this year. This is our 27th year of hosting these events in Dubai. 

David Macadam  13:22

And I think that this year is going to be very successful, I'll tell you why we have had so many people sign up already earlier than even in the past years, were completely sold out for our exhibition area and our sponsorship grid is full. I mean, we always have room for more sponsors, but we're, I would say, running at about 95% of where we were in 2019. So, we're thrilled with the take up of what we've seen and, and I know that people are really very much looking forward to getting back and building those relationships that they're built over the past number of years and sharing the information and listening to the experts like Steve, to talk about new trends, and maybe what we could be doing a little better here or learn from, you know, a different perspective, the same thing. So that's what we're after. And we're looking forward to it this year very much December 6th, and 7th in Dubai.

Michael LeBlanc  14:19

Well, it's exciting. And, you know, it's great to be back in person IRL in real life as it would say and, and Steve, that must be exciting for you. That's, that's a bit of travel. I want to tell the listeners, don't worry, we are not going to miss a single episode while you win your way to the other side of the world, but that's, that's exciting. David, it sounds like a just a great event and it's great to bring people back together again and listen, Steve will, Steve, I'm sure, will both entertain and, and inform. So thanks for joining us on Remarkable Retail to give us a snapshot about it.

David Macadam  14:54

Well, my pleasure and thanks very much for having me again and we really look forward to having Steve join us and we're really appreciative of him coming all this way, because I know it's not just a short flight. This is a fairly long event, and we look forward to hosting you while you're here, Steve, and making sure you're well, well taken care of.

Steve Dennis  15:15

Well, I'm very much looking forward to it. Thank you, and I guess I'll see in a few weeks. 

Michael LeBlanc  15:21

Alright, Steve, you and I both together have actually a pretty good background in E commerce. I started it with Levi Strauss back in the late 90s. In the, in the gogo, will the vendors win, will the retailers win and then Hudson's Bay and a bunch of other stuff and you as well, I have a great pedigree in e-commerce. So, this episode, we wanted to talk about ecommerce and frame it in such a way for the listeners where so much has gone on thanks to the COVID era, the great acceleration, you know, curbside so many moving pieces delivery. And we I guess you and I were just talking off-mic. We wanted to talk about and tell the listeners about what we think the right lessons to learn are from what we've just been through to help us think about what's coming next. Is that, is that the way you're thinking about it and ecommerce as well.

Steve Dennis  16:12

Some of it is definitely specific to COVID. Some of it is also kind of the arc of ecommerce and how it's developed over the past 20 or 25 years, but I think there are a lot of, kind of, false narratives, or just misinformation that's out there. So, some of it is about straightening that out if we can, but more to the point is what's the so what it because I think sometimes, we see whether it's reporters or investors or retailers taking perhaps the wrong or less than helpful message away from what's transpired for many years, and particularly what's transpired over the past 19, 20 months.

Michael LeBlanc  16:51

You know, what amazes me sometimes is, is that we're still talking about e-commerce, like, you know, we were talking about in the late '90s as the next coming of retail, and we're still talking about it all these years later. And as you say, often people are still getting some things wrong about e-commerce and, and as you've often said, and maybe we're, kind of, foreshadowing the, the, the end, it sometimes can be thought of as a distinction without a difference when we talk about e commerce of these, as you've often said, these blurring of the lines, which really kind of opens the mind to that right? 

Steve Dennis  17:25

Well, I think at a certain point, it's all just commerce, right, customers are most customers are active online, they're active in brick and mortar, there's often the symbiotic relationship between digital and physical. So maybe we're going to the store and then we choose to order online when we get home or we're researching online. Yeah, and then go into the store or ordering online picking up at the store. So, so over the arc of e-commerce we've, we've seen the blurring or blending, just become pretty much the core part of what we talk about when we talk about commerce. 

Steve Dennis  18:06

One of the things that just that kind of level set on some of the, the nomenclature. The other thing that I think has become interesting over I guess really over the last decade or so is we go back to when you and I first started working in ecommerce mid to late 90s. E-commerce was really kind of a better mail order catalog. It was

Michael LeBlanc  18:29

Right, right. 

Steve Dennis  18:29

You ordered online or you got marketed to online maybe still got some catalogs. But you know, the marketing guess was more digital, the ordering was more digital, but the way you got the product, for the most part, was it was picked, packed and shipped in what was previously a mail order catalog type of fulfillment. And it was sent to your home or office. So, there was ordering online and there was online fulfillment was a pretty specific set of things. That's what Amazon originally did. The legacy retailers that we worked for, for the most part that was how they got into, into online was, kind of, this advanced catalog market and the lines between brick-and-mortar shopping and online shopping were fairly distinct back in the day. 

Steve Dennis  19:17

What started to happen, and I guess, for the most part, Amazon probably led this, is Amazon started to offer up more and more product categories. Initially, most of those product categories, those still fit into this fulfillment model, ordered it online, fulfilled through a pick pack and ship sort of operation, but when they started to get into groceries, and they started to get into frozen, refrigerated fresh product, well most of that doesn't go through that or can't, as a practical matter, go through that system. So the fulfillment started to change to more local delivery and then a lot of retailers started to follow, so you started to get this is a blurring more on the fulfillment. Where, yes, I'm still ordering online, it's still largely digital in nature. But the supply chain part of it started to shift. 

Steve Dennis  20:10

And some people thought, well, why can't I order online, but actually pick it up in the store or why can't, if I bought something online, why can't I return it to a store. So suddenly, the role of the stores and fulfillment started to become more pronounced. So, the last few years pre COVID, what we call e-commerce, which used to be basically order online, and it's shipped to me in a certain way. And frankly, stores don't have much to do with it, other than maybe the marketing part of stores, you've seen this, this world, kind of, come together, have it get more complex. 

Steve Dennis  20:45

And then when we get into the COVID era, well, number one, we have this distortion of of online ordering, for sure, but we also had this distortion of stores being involved in what we call e-commerce because we had a lot more curbside pickup, we had a lot more buy online, pick up in store, we had a lot more buy online, return to store, ecommerce orders are being fulfilled at a store stock and sent through the mail, or through some sort of local home delivery, whether it's shipped or Instacart. So, so many time at the growth of ecommerce, it's not that that first few waves of ecommerce, which was probably you know, pretty much one way of doing things stores didn't matter. This last year, particularly during COVID has really caused a blurring in the blending and it turns out that actually stores in many cases are pretty central to it. So is it really ecommerce that I ordered online, but the store delivers it or it comes out of store stock, I don't know, I don't want to get into the semantics? It's really more of the so-what I think that we should talk about.

Michael LeBlanc  21:48

Well, many great points and it's, it's a valuable lesson that we should learn from history because back in the late '90s, mid '90s, early 2000s, it was like why do we even need stores. Let's just have ecommerce. If ecommerce is where all the growth is going to be why do we even need stores and I think you and I were probably, we didn't know each other back then we're probably thinking the same thing is if you want to turn a billion-dollar business into $100 million business, get rid of your stores, and you'll have, you know, a tiny ecommerce business. That's not the objective, that this, this syncopation, the synergy that started to come together and we're even seeing that now we can talk about, you know, as Saks and even Macy's, you were in the news last week talking about the pressure on Macy's to split the divisions. So, these issues still come back and forth, some are more structural than notional.

Steve Dennis  22:36

I was gonna say, well, there was and it gets a little bit back to the point I was trying to make about the definition and making more than semantics in the early days of Amazon, and you know, Amazon's still what 40% of, of all, ecommerce transactions in the early days of Amazon where they had no physical presence, there was more of a zero sum game, kind of, kind of notion, right then anything they got lost to Amazon, or Etsy or Wayfair, or, you know, these real pure play online, eBay, that was coming at the, you know, that business was coming from somewhere and it's coming out of the legacy players. 

Steve Dennis  23:12

So, there was this, kind of, zero sum game, as stuff moves online, physical retail loses, but as I was saying, as time has gone on, as legacy retailers have gotten very strong dot com presence, and, and as we've seen, somewhat ironically, not only Amazon, but a lot of these digitally native vertical brands open their own stores. It's not a zero-sum game anymore. It's a both-and, kind of, thing. So, so, the retail apocalypse narrative or the why should we invest in stores because they have no future, it's all moving online, well, you know, that's, that's, that's a little bit overly simplistic in many, many categories.

Michael LeBlanc  23:57

When we think about what, what the industry, what observers, what some of us sometimes get wrong about e-commerce, let's, let's tick off a few boxes here. You mentioned, you know, the, of course the incredible growth in e-commerce that happened because of COVID, how incredible was it really when I think of incredible growth, where I think it is true that it did actually move forward and yours is is in the grocery sector but in general, you know, we heard this it's gone for 10 years it's gone. What do you think, I think it advanced an already predetermined growth pattern? 

Steve Dennis  24:31

Yeah.

Michael LeBlanc  24:32

I wouldn't say a bit, a bit more, but what do you, what do you think and where do you think the difference is the last thing difference in the last 18 months is on, on eComm?

Steve Dennis  24:39

Well, the, the thing that was clearly wrong and I, and I got, I think we talked about this on another episode, I got into, kind of, some interesting Twitter wars and by interesting, I mean, useless was that when there was this narrative that that we've accelerated 10 years and eight weeks or whatever it was, and McKinsey wrote about and there's all sorts of stuff flying around the Internet, it was pretty obvious, just, you didn't have to know very much about math to realize that when the denominator crashes, it's pretty easy for the percentage to look higher, but there was going to be a point in time, save the world being wiped out entirely, there was going to be a point in time in which stores opened, and we were going to revert somewhat closer to the mean. 

Steve Dennis  25:23

So, this whole 10 year idea, just the data clearly doesn't bear that out. It's more like two or three, depending upon the category and I agree with you that grocery was the one which has been, is a huge category has historically had very low penetration as compared to apparel, which is like 30, and books and music and things like games, you know, 60, 70%. So, grocery was the one that can move the dial the most and certainly people's interest in curbside pickup, home delivery was greatly escalated, people reading more meals at home anyway, so we had kind of the double whammy effect. So, but, you know, we're still at this period where we have seen for the most part, settling into kind of that two- or three-year acceleration, but certain categories are still, still a bit distorted as people are slow to go back to restaurants slow to go back to vacation, travel, you know, those kinds of things.

Michael LeBlanc  26:24

Well, that, that's a good point, because in an upcoming episode, we're gonna have two grocery experts talk about the future of grocery because there's a whole bunch of things that went on in that. So, that's a bit of a tease for our next episode, Dr. Sylvain Charlebois and we've got David Marquette from Kantar to talk about the future of grocery, given what they've just been through. So, that's a good, a good lead to that. 

Michael LeBlanc  26:44

The other thing we should probably talk about is, is where it's, you know, the prognostications about suddenly where it's gonna wind up. So, depending on the way you categorize core retail or retail, what you put in, what you put out, you know, takeout automotive put in gas, you know, all these things, we're probably in probably 18, what in the US, 18 to 20% of core retail done online. E-marketers calling the ball basically 25% by 2025, which is not, that seems to be reasonable. Some highs, some lows. 

Steve Dennis  27:17

Yeah. 

Michael LeBlanc  27:17

I, you know, I hear this 50/50, you know, 50 by 2050, I don't know if it's 2050, but this 50% blend ecommerce, it seems, I don't know, it seems far-fetched to me. Maybe, maybe I'm thinking about it wrong. Maybe it's a definitional issue, as you say, you know,

Steve Dennis  27:33

Well, it's a bit of a definitional issue. If we're talking about transacting online, and more of the online fulfillment, you know, not involving a store, there's no way we get to 50%. 

Michael LeBlanc  27:50

Right 

Steve Dennis  27:50

You know, some of it is just I mean, I have generally used the in terms of the E commerce penetration, that at least in the US, ecommerce has been picking up share at just over about one point for the last 10 years or so, that got pushed up, as we just talked about a little bit by several points, but it looks like if you look at most of the forecasts, we're going to be back to more of, you know, the one to one and a half percent penetration, which is I think, if you play around with the numbers, it's, it's like a 10 to 15% overall growth. 

Steve Dennis  28:25

So to get to 50%, on a larger base, something dramatic would have to happen, that would allow ecommerce to, to grab share much more quickly than it did even during COVID and who knows, like, I can't think out to 2050, but we're certainly not on that trajectory. And it gets to one of the other points about what I think, as often thought of is that kind of, anything that can go online, will go online and there's a couple things that we have to think about there. One is, you know, can go online, I mean, pretty much every product you can imagine, short of getting a haircut, or even their like you can book an appointment online is that ecommerce, if you're going to get, you know, this is what we get into these sort of semantic issues. 

Michael LeBlanc  29:11

Yeah, right. Right.

Steve Dennis  29:12

I hear

Michael LeBlanc  29:13

I can buy gas online, 

Steve Dennis  29:14

Did booking online. 

Michael LeBlanc  29:16

Yeah, yeah, yeah.

Steve Dennis  29:16

The pri-, you know, the performance, but for some reason, you know, that's people think of that, well, that's clearly not ecommerce, but well, if I order online, I basically reserve a product online, and then I go to get it at a store and the product was already in that store. Somehow, that's ecommerce in a way that getting your haircut isn't, I don't know, again, you get into, kind of, these semantics issues, but.

Michael LeBlanc  29:39

Yeah.

Steve Dennis  29:39

But I think we you know, there are, there are practical limitations or shopper preference limitations to certain categories. Getting to that 30, 40, 50% share, I think, you know, a lot would have to change for people to not want to, you know, for the most part sit on that sofa, try on clothes, pick out the seafood at the counter, you know, there's, there's certain things where not to say it doesn't happen at all, but there's certain things where physical retail really adds a lot of value. If you look at what RH has accomplished with their gallery stores, thy actually haven't invested very heavily into e-commerce, even though home is a reasonably well penetrated category, but that's because the stores add value, you can see all the product he try it, you know, try it on, test it out, etc. 

Steve Dennis  30:32

So there's some inherent barriers, I think, to these very high ecommerce penetration shares. The other one, which we should probably talk about a little bit more, is there's just the underlying economics. Some of these categories are just terrible, ecommerce, businesses selling music, you know, selling an album, online that can be digitally downloaded lots of great, that's a great business, right, and no product costs, no distribution costs, essentially trying to get groceries to be profitable, or some other product categories. You know, there's a lot of demand there. So I think the, the profit headwinds, or the amount of investment, that would have to go into some of these to take that, that e-commerce penetration from 5 to 15, or from 15 to 30, 30 to 60, we shouldn't lose sight of that because it can be significant and has been, kind of, glossed over because of what people had to do during COVID, either to stay in business or just respond to, to the crisis.

Michael LeBlanc  31:34

Now, there is a school of thought, you know, the old saying in retail right volume solves some sins, that as the growth of e-commerce grows pragmatically, a courier can do 10 times more drops, as they would say, in a neighborhood. So there starts to become an inefficiency as e-commerce. Like, I wonder if there's a tipping point, in some categories, you know, for example, if you're if you're a big brochure, and you're running ecommerce at some point, and you know, it's very expensive to deliver 10 orders a day, but if you deliver and 500 orders a day, you know, the incremental expense. 

Michael LeBlanc  32:08

So, I think on the other side of the, of the economics discussion is, there's a lot of great retailers who are making good money. I mean, you, you're familiar with Land's End, you came out of the Sears organization, I can think of a lot of retailers are actually make good money doing e-commerce and one of the things that it leads us into a discussion on is how fast it actually needs to get to the doorstep. 

Steve Dennis  32:32

Right.

Michael LeBlanc  32:32

What do you think about this kind of race, literally a race to the doorstep, it feels to me, like it's a bit of a mug's game that's been set up by some big players, because they have experience or they have scale, but it's not always the case and it can be a huge cost driver that kind of eliminates your profitability? Where do you, where do you think it's going, this the speed to the doorstep? 

Steve Dennis  32:53

Well, I love to quote my friend, Seth Godin, quite a lot and one of my favorite quotes from Seth is the problem with a race to the bottom is you might win or worse finish second, and this is definitely a great quote, an issue. Well, to your earlier point, having worked in last mile delivery off and on for many, many years, it's not so much volume automatically solves all problems or cures all sins, but, but the root density with home delivery is critically important and it does start to change the game if you're talking about home delivered product and expensive to handle product refrigerated, fresh, that kind of, you know, things that are, you can't send, for the most part, through UPS or whatever. 

Steve Dennis  33:40

So, so, I think if you're Amazon, if you're Walmart, if your Target and, and that may be the end of the list, you are very focused on getting your supply chain last mile delivery configured in such a way to get those economics to work. Everybody else, it's really hard to play catch up and I think it looks like Walmart, Target a bunch of others are in this convenience war, where if two days was great a few years ago, then next day is better one days, next day is great, then

Michael LeBlanc  34:17

Yeah.

Steve Dennis  34:18

same day, and if same day, then it's within an hour and these are very expensive things to do and I think part of where you're going is, you know, does the customer really needed in many cases no, if you offer it will the cost, I mean, sample one here, but I was bordering some things from Amazon and they said well, you can get in two days, or you can get in one day. Also order something from Best Buy and get it in two days. You can get in one day, you get store pickup, same cost. I said why not tomorrow, do I need it tomorrow, no, but you offered it to me. You know, so, you've, you've, you've 

Michael LeBlanc  34:57

Why wouldn't you.

Steve Dennis  34:58

allowed me to pick the more expensive option and maybe I'm a jerk, you know, or maybe, I shouldn't be worried about their supply chain costs, but we've created a lot of things in the system, you know, free returns, drives a lot of cost. So, there's a lot of things that have become kind of table stakes, or retailers are making table stakes that everybody feels, or many people feel like they've got to compete with, but ultimately, it makes the economics worse. 

Steve Dennis  35:21

So, I have a, I have a theory that 

Michael LeBlanc  35:25

What's your theory? 

Steve Dennis  35:26

This is Amazon's, you know, part of Amazon evil genius. You know, they are the leaders here, they are investing massively they can and they're just like, come follow us down the rabbit hole or whatever is the right analogy, like, go ahead and make my day. Yeah, we'll, because we'll keep ratcheting it up and we can afford to do it, maybe not over the long term, but we're in position to do it and every time you try to keep up with us, you just make matters worse, and eventually, you're going to say, you know, no mas, I can't pick either your like, your, your board or your investors are going to go, what the hell are you doing, and you're going to back off, and then that's just going to allow Amazon to gain even more market share. So it is, it's a long way of saying I mean, it's, it is a bit of a race to the bottom, and you know, only a few people have a chance of, of surviving that much less winning it.

Michael LeBlanc  36:20

I want to wrap this part of the episode just talking about where we where it all began, structurally in some ways. I remember the days in the organization, you would say the executives say we're going to launch an E commerce business and we're going to compete; we're going to structure it differently to be a whole different department in a whole different building. And your job is to take share away from the brick-and-mortar guys. And I want some good old-fashioned competition. And from that, you know, from that intensity of that competition, great things will happen for the shareholders. Okay, fast forward 25 years, and we've still got some organizations who are saying, you know, we're better off spinning, maybe there's some financial shenanigans or financial benefit. But, you know, we again, we were talking off mic, and you were in the in on CNBC with Lauren, talking about well, you know, maybe there's an upside to that. And the consumer doesn't really experience anything different in a perfect world. And maybe the accountabilities change a bit. Talk about your, the pro and con, about doing this kind of spin and financial wizardry?

Steve Dennis  37:21

Yeah, I was thinking I remember when I was working on my book, and I talked about how, when I was at Sears, we very much built the.com operation with the idea that would always be integrated with the store that we were one brand, operating in different channels, even though we gave them some room to run where Walmart was opening up in Kohl's and Target a bunch of others where we're doing the spin out thing. So, when I've talked to reporters over the last couple of days, I'm like, I feel like you know, 2001 call that wants its press release back because this, this separation thing is such an old idea. And 

Michael LeBlanc  37:57

Yeah.

Steve Dennis  37:58

You know, have we learned nothing in 20, 25 years?

Michael LeBlanc  38:01

Right. 

Steve Dennis  38:01

So, it is, it is bizarre, the kind of, counter, I mean, clearly there, there are things going on in the financial markets, where these valuations are, I think, artificially high. So, I would hurry if I'm them to try to get you know, if you're going public as a medical brand, or you're spinning out, like go, go, go because 

Steve Dennis  38:23

You know, whether it's two weeks from now, two months from now, or two quarters from now, this will end badly. Having said that, one of the things that I think is interesting. So my experience and trying to pull things together, first at Sears than at Neiman Marcus and over the last few years with several clients, is it's hard enough to be customer centric, and get the different silos in the organizations to cooperate when you're under the same roof and you have the same CEO and executive structure, so the idea that you would have 

Michael LeBlanc  38:25

Now's the time. 

Michael LeBlanc  38:52

The same bonus structure.

Steve Dennis  38:53

deliberately bonuses and sound like you name it, right, same offices. So, the idea that you would intentionally separate them as Saks is doing, as Macy's and maybe Kohl's is rumored to be doing, just seems like insanity and seems like it's an impossibility. However, one thing that apparently Saks has done, which people may have read about as they've created all these agreements, about how dot com is going to serve stores and vice versa. It still seems incredibly cumbersome, it seems next to impossible to fully value, the advertising role of a store or if I see a digital ad, does that drive me, like, there's tons of attribution issues, which I don't know how you could ever completely get your head around it in a fair way, but to actually sit down and instead of negotiating among colleagues, how to get things done and having the CEO be Solomon-like the decisions, to actually go through and hire Bain or McKinsey or somebody to like dissect this and create agreements and reduce these processes. Maybe that actually addresses some 

Michael LeBlanc  39:56

Maybe.

Steve Dennis  40:00

in a more aggressive way because it's a transaction and a deadline. It's like, well, we’ve got to go figure this out. It's not like, oh, we'll figure out how, is it marketing departments someday.

Michael LeBlanc  40:11

And here's, here's the SLA. You said you do X, and now it's in Y, as opposed to the kind of, the casual inferences, right, it's black letter law and the SLA. 

Steve Dennis  40:20

Yeah.

Michael LeBlanc  40:20

I hadn't thought of it that way. That's a really, that's a really interesting way to, kind of, wrap this up that there's potentially a bit of upside to this. This stuff that's going on, take, as you say, takes, as back to the

Steve Dennis  40:31

I said, though, I think even if you do that perfectly, which what's perfect, but even if you do that extremely well, the thing that I have my hardest, the hardest time getting my head around is there are so many intense, intangible factors of brand, and so many issues of attribution. So, if you're Macy's, and you're spun out, what is the value of the equity that has been built by Macy's over all more than a century, what is the value of driving past that Macy's store that made, that makes you go oh, you know, maybe I'll buy something online?

Michael LeBlanc  41:09

With the Amazon ad on the top of it, yeah.

Steve Dennis  41:11

Right. So, so I think, you know, and similarly, from digital to physical, so even if you say, wow, you know, costs $8, for you to send somebody to go pick up the order, and take it to curb size, I'm gonna pay you $8 as a service. That's pretty straightforward. Sure, people could argue about what the right number is, but that activity is a lot easier to reduce the practice and come up with a cost for it. But the brand value experiential value, the acquiring customer, one channel, who then becomes a repetitive online customer or acquiring somebody online because it's 

Michael LeBlanc  41:45

A better customer, yeah.

Steve Dennis  41:45

That is, you know, people have been trying to do that, well, for ages. Nobody, as far as I know, has done, in a very comprehensive way and it's not going to get any better for a given brand if you split things out. So, that, that's the one that I think is, is the hardest to see how you, how you could surely address that. But we'll see. I think the next thing is going to happen. I think the Macy's, Kohl's and some others are probably either cooler heads will prevail or when we start to see the moderation in e-commerce numbers, people's ideas of what the job is worth, will be tempered a bit, I think.

Michael LeBlanc  42:13

Or the financial momentum will just take them over the top and they'll do it anyway because they, as you say, see an opportunity that doesn't come along every year to add that kind of enterprise value to a place like Macy’s, right. 

Michael LeBlanc  42:33

All right. Well, listen, that great episode talking about e-commerce I'm sure not the last time we'll be talking about it and next week, we'll be talking about it a bit more actually in the context of grocery and a whole lot more. So, until then, let's wrap this episode. 

Michael LeBlanc  42:48

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

Steve Dennis  43:18

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

Michael LeBlanc  43:38

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

SUMMARY KEYWORDS

ecommerce, retail, stores, Amazon, people, online, ecommerce, Steve, brand, bit, commerce, Macy’s, years, categories, retailers, talk, point, pick, fulfillment, numbers