This week we've got a blockbuster panel featuring three of the most experienced and insightful veterans of the luxury world: Karen Katz (former President & CEO of the Neiman Marcus Group, Steve Sadove (former Chairman and CEO of Saks) and Oliver Chen (Managing director and senior equity research analyst at Cowen and Company).
This week we've got a blockbuster panel featuring three of the most experienced and insightful veterans of the luxury world: Karen Katz (former President & CEO of the Neiman Marcus Group, Steve Sadove (former Chairman and CEO of Saks) and Oliver Chen (Managing director and senior equity research analyst at Cowen and Company).
We cover a lot of territory, first trying to align on a working definition of what "luxury" really means today and how luxury was evolving pre-COVID. Then we shift into what's next, including our dream team's quick takes on luxury re-commerce, the role of the in-store experience, the importance of multi-brand retail (online and off), sustainability, exclusivity, storytelling and more. We wrap up getting everyone's view on why it's so hard for legacy brands to innovate and whether .com spin-outs make any sense at all.
But first we open up with the top retail stories that caught our attention this past week, with a big focus on what we can take away from Black Friday and Cyber Monday performance as the threat of Omicron looms, more profitless prosperity from Allbirds as they report their first quarterly earnings as a public company, and Amazon's rise to parcel delivery supremacy.
About Karen Katz
Katz, who is a graduate of the University of Texas, is the former chief executive, president and director of the Neiman Marcus Group. She stepped down from the role in January 2019. Since 2014 she has also been on the board of directors at Under Armour.
Katz has worked in a number of key executive and leadership roles at Neiman Marcus since joining the group as a merchandise manager in 1985. Most recently she has leveraged Neiman Marcus’ brick and mortar assets to launch an omni-channel strategy that includes merging planning and buying teams for all departments and integrating customers’ online and in-store experiences with in-store apps and personalised web dashboards.
Under Katz, Neiman Marcus acquired luxury e-commerce site MyTheresa.com, the Munich-based luxury e-tailer. She also expanded MyTheresa’s e-commerce offerings to bolster the Neiman Marcus omni-channel strategy and oversaw the opening of the retailer’s first New York City flagship in 2018, a seven-story retail project situated in the Hudson Yards in Manhattan’s far West Side.
About Steve Sadove
Between 2002 and 2013, Mr. Sadove held positions of increasing responsibility with Saks Incorporated, serving as its Chairman and Chief Executive Officer from 2007 to 2013.
Prior to joining Saks, Mr. Sadove built a distinguished marketing and consumer products career spanning more than 25 years and held senior positions at companies including General Foods (now Kraft) and Bristol-Myers Squibb Company as President of Clairol. He led Clairol to become the number one hair care business in the United States, relaunched the Herbal Essences brand into a $700 million business and completed the sale of the beauty care business to Procter & Gamble. Mr. Sadove is also a founding partner of JW Levin Management Partners, a private equity firm.
Mr. Sadove is a former Chair of the National Retail Federation and serves as an advisor to Mastercard. He serves on numerous community and civic boards including Hamilton College as Chairman of the Board of Trustees and AmeriCares.
About Oliver Chen
Oliver Chen has joined Cowen and Company’s Equity Research department as a Managing Director and Senior Equity Research Analyst. He covers over 30 stocks in the Retail & Luxury Sectors.
Oliver is a graduate of Georgetown University, The Wharton School at the University of Pennsylvania and is a CFA Charterholder. He also serves on the PhD Retail Research Review committee at the Wharton School's Jay H. Baker Retailing Center. Mr. Chen was recognized in the Wharton School’s “40 Under 40” brightest stars alumni list in 2017.
Most recently, Mr. Chen was recognized on the 2018 and 2017 Institutional Investor All-America Research team as a top analyst in the retailing/department stores & specialty softlines sector. Mr. Chen was also selected as a preeminent retail influencer as he was named to the National Retail Federation (NRF) Foundation’s “2019 List of People Shaping Retail’s Future.” Considered an “industry expert,” Mr. Chen frequently appears as a speaker/panelist at key industry events.
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 00:05
Welcome to the Remarkable Retail podcast, season three, episode 19. I'm Michael LeBlanc.
Steve Dennis 00:10
And I'm Steve Dennis.
Michael LeBlanc 00:12
Well, Steve, our focus for this episode is the luxury department store category. And we've put together the dream team, in terms of sharing insights on past, present, more importantly, the future. We've got Karen Katz, Board Member, Advisor and former CEO of the Neiman Marcus Group, Steve Sadove, Principal of Stephen Sadove and Associates, former CEO Chairman of Saks, and Oliver Chen, Managing Director, Retail, New Platforms, Luxury Sector Head for, for Cowan & Company.
Michael LeBlanc 00:38
Wow. Thanks to you, you, you, you pulled these, you pulled these folks into a room. And I think you knew, I'm sure you knew Karen, did you know Steve, and tell me a bit of the backstory, how we got these people all in the same place at the same time?
Steve Dennis 00:51
Well, as I often say to people, sometimes it doesn't hurt to ask. Yeah, I asked all three of them if they would come on together, not knowing which combination of them might say yes, and took a few weeks, but miraculously, we got all three of them to say yes. And found a time so, so here we are.
Steve Dennis 01:10
But yeah, Karen I've known since 2004. She and I were on the leadership team at Neiman Marcus, both reported to the CEO at the time, Burt Tansky, and then very briefly, she was my boss as they were positioning for her to take over as CEO. So long time. We both live in Dallas. So, I run into her every once in a while, though I think the last time I ran into her we were in New York. Steve Sadove, I did not know during my Neiman Marcus time, we certainly played, paid a lot of attention to Saks Fifth Avenue because they were our evil competitor.
Michael LeBlanc 01:43
Yeah.
Steve Dennis 01:43
And I met Steve, actually at Shoptalk, I think, or no sorry, some other, some other conference after I had left Neiman Marcus. So, I've known him for at least a decade. And Oliver I've met through, through Shoptalk over the last few years, similar but also different perspectives, but they've all seen a lot over the last decades.
Michael LeBlanc 02:05
Yeah, and to be clear, past, present, and future we spend probably, not 10% on, not more than 10%, on the past. It's really future focused, like what, it's not just what's the state, but what's the future. So, let's turn our minds to what's in the news and the retail. And of course, this is that time of the year Black Friday, Cyber Monday, Super Saturday, Giving Tuesday. You know, it's a big retail event, what are you hearing?
Steve Dennis 02:29
My pretty standard rap on the whole, or riff I guess, on, on Black Friday, Cyber Monday, for years has been that we make way too much out of it. As it's been studied, that results on any of these days are not particularly predictive for how the whole holiday season is going to go, or how any particular retailer is going to do. So, I sometimes call them the hype-y holidays. Because I just think it's hard, hard to glean much. I do think this year is a little bit different for a couple reasons. One, we're in this somewhat post-COVID period, or at least we're comparing to when things were pretty bleak, from an in-store perspective.
Michael LeBlanc 03:08
Pre-vaccine, not pre-COVID, right.
Steve Dennis 03:10
Yes.
Michael LeBlanc 03:11
We were in COVID, but nobody, you know, nobody was really vaccinated.
Steve Dennis 03:14
Right. And then we've got all the supply pain, inflation, labor shortages. So, there's, there's a really different, kind of, backdrop or set of macroeconomic factors as we, as we look at it. So, perhaps a little bit more interesting to, kind of, dip into what happened. But my take on the results, at least for the US, is they were pretty blah. Online sales across the cyber week and across, you know, the particular days, Cyber Monday, Giving Tuesday, etc., were pretty much flat or down in terms of what was, what was reported.
Steve Dennis 03:49
I don't think this is terribly shocking, given how booming, you know, sales were last year, where traffic to stores was down a lot. So, I think this again, is this, kind of, rebalancing effect. There's also a sense well, if you look at brick-and-mortar, they were up, again not terribly surprising, but not great compared to two years ago. And a couple takes on this, I'd be curious, your take. I think one sense certainly is that people were shopping earlier because of the fear of out-of-stocks, and inflation, and all these kinds of things.
Steve Dennis 04:23
So, maybe a lot of the excitement happened earlier. And I think, just anecdotally, what we're hearing about September and October tends to support that. Consumer confidence, though, is low, presumably the effects of stimulus, at least in the US, starting to wear off a little bit. So, it's a little bit hard you know, really to say what does this lukewarm spending and, and lower traffic, or I guess below expectations traffic, really suggest. But what's your, what's your take, at least broadly, and maybe what you're hearing about Canada?
Michael LeBlanc 04:56
Yeah, thanks. It's, you know, this is my week actually to talk to many, many, dozens, and dozens, and dozens of C-level executives for a report I write for Retail Council of Canada. So, I'm getting a good pulse on what happened. And for context, Black Friday and Cyber Monday are fairly new events in Canada. Ten years ago, they didn't exist. We just had Boxing Day; it became something that retailers did.
Michael LeBlanc 05:15
So, it's still a little bit new. And of course, it's not a holiday. Our Thanksgiving was, was a while ago. So, it's, it's, there's a different context. Generally, what I'm hearing September, October were pretty good. November, thanks to confidence, went a bit down. Some ways, I've been trying to frame this narrative in my head, as I think about writing the report. It's more about what happened to you last year than what's happening to you this year. So, if you were an apparel and accessories, you know, probably some of your stores, if not all, were closed. There wasn't a lot of demand because—
Steve Dennis 05:45
Yeah.
Michael LeBlanc 05:45
We were pre-vaccine, so they had a good year, right. But, you know, the comps are, so to speak fairly easy, stores are closed. Online, kind of moderated for some, but was still strong for others.
Steve Dennis 05:47
Yeah.
Michael LeBlanc 05:57
And for those in the other categories, where they've seen strength all year long, it was a bit of a non-event. You know, in other words, electronics and these guys, people have been buying that, you know, how, house, housewares and home, they've been buying it all year. And that's where the whole supply chain thing really started to hit in the home, electronics, anything that has a chip in it.
Michael LeBlanc 06:18
So, there was some sand in the gears of performance. And in some ways, in an interesting way, my last comment is some retailers, they couldn't promote the way they would ordinarily because they weren't sure they were going to have the stuff, or it arrived late.
Steve Dennis 06:31
Right.
Michael LeBlanc 06:31
So, it didn't really get into the full bore of promotion. They had to, you know, digital, always a component, but they didn't have print flyers, because they're like, we don't know if we're going to get the stuff ten weeks ago. So—
Steve Dennis 06:43
Yes.
Michael LeBlanc 06:43
There's a lot of things going on. I'm actually, the general optimism is for an optimistic season. As you say, I've always described it as a marathon, not a race, right, couple of days don't make up the retail season.
Steve Dennis 06:53
Yeah.
Michael LeBlanc 06:54
I think we're going to have a blockbuster Boxing Day week, which it starts the day after here, and in the UK, because retailers are going to be like, I got too much of the wrong stuff, and this is my last chance to get this off the books before now, ‘22, so.
Steve Dennis 07:09
Yeah, I agree with you. We back, I don't know if other people called it, but we always called the, the time after Christmas, X13, like a 13th month. Because—
Michael LeBlanc 07:20
Right.
Steve Dennis 07:21
There was, there oftentimes was a lot of people, you know, buying for themselves or really great deals—
Michael LeBlanc 07:27
Yeah, gift cards.
Steve Dennis 07:27
Because you now know where you are. Right, and then gift cards becomes important, more returns, so people return stuff to the store, and then they buy a bunch of other things. So, I certainly, so yes, there's plenty, you know, a few more weeks here to look at Super Saturday, etc. But I don't think we really know how strong the holiday season is until we get past, past Christmas, past New Years.
Steve Dennis 07:49
So, so we'll see. The other factor, I think, is, you know, does seem generally that supply chain is getting a little bit better. Perhaps people will discover they can get things and December will be quite strong. Promotions, other thing I was going to mention briefly, is I did see one study that said that the average promotions were, or discounts, during this time period were usually about 20% off and they were more like 15% off. So, perhaps the deals weren't quite as good, and that tamped down demand a little bit. So, and then we've got Omicron—
Michael LeBlanc 08:22
Yeah.
Steve Dennis 08:22
Out there as, as a variable, certainly in terms of store traffic. So, I think I just want to talk about briefly, we're, we're recording this on Thursday, because I am getting on, which is earlier than we usually do, because I'm getting on a plane to Dubai. And we'll be in transit when we usually record this. So, we don't have quite the earnings news that we would normally have because lots of guys are reporting today and tomorrow.
Steve Dennis 08:46
I did want to just briefly call out Allbirds. Some, some of our audience may remember we've talked about Allbirds a couple of times. Recently went public and had quite a run up—
Michael LeBlanc 08:56
Yeah.
Steve Dennis 08:56
In their stock. They did their first report of quarterly earnings yesterday, and it was pretty disappointing. They, their sales were up nicely, I think 33% or something like that. Some of that is really comp e-commerce. But quite a lot of it is opening new stores. I think they opened several new stores in the quarter, but their loss got bigger. And some of that again, it's always hard when these companies just go public, we had this issue with Warby Parker, there are expenses related—
Michael LeBlanc 09:27
Yeah.
Steve Dennis 09:27
To the filing. But if you look at it more on an operating basis, their, their margins are still quite compressed. I think what's going to be hard to understand with a lot of these digitally native brands that are opening a lot of stores is, as most of us know, you know, most stores don't become amazingly profitable right from the beginning.
Michael LeBlanc 09:48
Right.
Steve Dennis 09:48
And so, you've got pre-opening costs and a lot of things that will tamp down your earnings before these stores start to mature. So, that's going to be the picture, I mean, Warby Parker is, as one example, is a lot further along on that then many others. But these folks that are early in their store opening, maturity curve, I guess, you could say, will have this effect for a while.
Steve Dennis 10:07
Hopefully, we'll start to get to see some sense of what the four-wall profitability for these stores are, and how these stores contribute to growing the online business. But in any event, right after a bunch of people made Warby Parker or Allbirds a buy, and I don't want to pat myself on the back, because I said you should short Allbirds. Had you listened to me, would have made money yesterday, so, and probably lose money today.
Michael LeBlanc 10:31
All right, well, let's wrap up this part of the show with a focus on Amazon. So, let's talk about some news. Where Amazon executives actually were talking about shipping more parcels, to, than UPS and FedEx. So, what do you, what do you make of that?
Steve Dennis 10:46
It's, it's just, there's so many dimensions to Amazon, you know, we've, we've gone down this path a lot, of how people misunderstand, and think of Amazon as a retailer. You know, our last, where we were talking about, you know, fulfilled by Amazon and just all these other dimensions to the, so called, Amazon flywheel. They've been building out their supply chain logistics capability like crazy, for many, many years.
Steve Dennis 11:08
Not only, as I'm sure most people know, all the distribution facilities they have, you know, just the fact that Amazon can do, to our delivery to, you know, huge percent of the US market, and I think it now in a lot of major overseas markets as well, is remarkable. But they're controlling of the parcel, transportation, freight part of it with their own planes and their own trucks.
Steve Dennis 11:37
So, to think of Amazon as a retailer, while really you know, if you look at it this way, they're, they're really a shipping company, because they're now going to be the biggest shipper in the world, I believe. So, it's just all part of, I mean, it's hard to not be blown away by some of the superlatives that relate to Amazon. So, watch this space.
Michael LeBlanc 11:57
Watch this space, listen to this podcast. And for those of you listening to the podcast, be sure and visit our YouTube channel, we've got some exclusive bonus content, gets you Steve and I chit chatting. And if you're watching this on YouTube, smash that subscribe button and then go over and smash the subscribe button. And now let's get to our, our, you know, our blockbuster panel, our dream team panel with Karen Katz, Steve Sadove and Oliver Chen.
Steve Dennis 12:21
Well, I'm very excited to have some old friends, the three wise people of luxury retail. We'll get a little more perspective on each in a bit. But thanks for joining us, and why don't we just jump in. And if we could ask everybody just to introduce themselves and give us a little bit of your background, though all three of you are legends in the industry, probably most people know you, but just in case they don't. Karen, would you mind starting?
Karen Katz 12:48
Steve, thanks for having me. I'm Karen Katz, I'm the former President and CEO of the Neiman Marcus Group. I was at Neiman Marcus for 33 years and led the company from early days through its digital transfer, transformation. And today spending time on public company boards, advising entrepreneurs in the consumer space with a focus on sustainability and doing a lot of philanthropic work.
Steve Sadove 13:20
Happy to be here, this is Steve Sadove. I'm the former Chairman and CEO of Saks, and was a friend of me, of Karen's. And we worked the industry during the same period of time, and my career was both consumer goods and retail. I chaired the National Retail Federation and I currently sit on a bunch of public boards, do philanthropy as well, and some private equity and venture investing.
Oliver Chen 13:45
Thanks so much, Steve. And I'm really thrilled to be here with Karen and Stephen. My name is Oliver Chen, I'm globally ranked as one of the top luxury stock analysts. I'm also an adjunct Professor at Columbia Business School. And I grew up in Natchitoches, Louisiana, in a retail family.
Steve Dennis 14:01
This is especially exciting for me because, as many of, many in our audience will know, I worked at Neiman Marcus a long time ago. I worked for Karen, briefly. And I do remember the days when Karen and Steve were, as you mentioned, frenemies, but it's nice that we can all get along here years, years later.
Steve Dennis 14:18
But anyway, let's, let's jump in. I thought maybe just, kind of, level set the discussion. Maybe a couple of broad questions I'd like each of your quick take on. There are a lot of definitions of luxury, I think. And just, I'm curious when we talk about the future of luxury retail. What, what do you include in luxury? How do you think about luxury as a category or a sector? Steve, you want to kick us off.
Steve Sadove 14:43
That's a much more complicated question than you, than you might think because everyone's definition of luxury is different. And, you know, to a lot of our audience we're thinking about very high-end luxury, the LOUIS VUITTON's and the GUCCI's etc. But more broadly, I think the accessible luxury, the COACH's, the Kors of the world, are luxury. And, you know, I would include experiences and products that people feel good about, that they're aspiring to, at both the higher and moderate end. So, it's not just about very high-end luxury.
Steve Dennis 15:17
All right, how about, how about you, Oliver? I guess you have to have a definition, at least in terms of what you cover.
Oliver Chen 15:22
Yes, Steve, as I think about luxury, I think one point is time, and time is the ultimate luxury in terms of retail, really enabling people to reinvest their time and think about how to spend meaningful time. Second, you know, echoing what Stephen said, is experiential and emotional.
Oliver Chen 15:41
There's, there's a very strong emotional component where luxury goods can transcend price. And they should, and they will, if they're executed really well. Those are features. And then I think we have a real evolving sense of luxury, with streetification and versatility in health and wellness, where these are important new chapters. And luxury is also constantly changing, in my opinion, and needs to be culturally relevant.
Steve Dennis 16:09
Karen, how about you? Disagree? Agree?
Karen Katz 16:12
Well, I think Oliver and Steve said it extremely well. I would only add that I think luxury is in the eye of the beholder. And we each, you know, we each hold what is luxurious to us differently, based on our, the life experiences we've had, and the way we want to live our life. And so, I think it can be, as Steve started out, a very challenging, and very broad answer to what is luxury.
Steve Dennis 16:42
All right, well, fair enough. Well, so the next, kind of, broad question, and then we'll dive into some more specifics. And really, I'm thinking here, pre-COVID, obviously. We've seen a lot of digital disruption across all of retail, I guess we can argue as to exactly when it started.
Steve Dennis 16:56
But certainly, way back when, when I was working at Neiman Marcus, we were in the early days of getting that started. Saks, I think was, was certainly investing in e-commerce and a lot of things digital. But what, what would you, what would you say has been the arc of disruption that's affected the industry? What's, what's most important, and what were you seeing as important before we really entered this, this more recent, recent period?
Karen Katz 17:20
Yeah. So, I mean, I do think that, as you said, this digital transformation in my mind in luxury has been going on for a long time. And although some people were not on board with this, pre-COVID, I, you know, Neiman Marcus, we launched our website in 1999. So, I mean, it's been a long time that, not just Neiman's, that many other people have been selling luxury goods online.
Karen Katz 17:49
I think that the big change, and this is certainly something that I personally felt passionate about was, I think, in luxury retail brick-and-mortar. What was unique about the experience of shopping in brick-and-mortar was the way luxury retailers put an emphasis on developing relationships with their customers and clients. And I think the big change in luxury retailing, during COVID, was how to take that idea of developing relationships from brick-and-mortar and developing relationships online.
Karen Katz 18:28
And that change of going from transactional luxury to, you know, relationship luxury in e-commerce. And I think that that takes the form of online personal shoppers, live streaming, you know, any of those kinds of things. I think that that was a big change that was starting to take place, pre-COVID. But I think really launched forward during COVID.
Steve Sadove 18:54
I guess I'd, I'd echo where, where Karen's go, went with it. That this is not that it's new during the pre- or post-COVID. It's an acceleration of what has been going on for quite a long time. My guess is that, you know, just take overall commerce, overall commerce went from 12% of commerce, to 18% of commerce was digital, during the pandemic.
Steve Sadove 19:16
And you saw probably a three-year acceleration of the rate of growth underlying and, I think, in the luxury sector that was even more so, because you had to make the change, because it was so dependent on that experience in the store and transforming the online experience for personalization, analytics, and creating that unique experience, really was accelerated.
Oliver Chen 19:39
Yeah, in addition, I would say, in addition, that the connected experience has heightened in importance. Meaning linking desktop to mobile, to in-store and making sure that that's seamless. I also think this idea of context and personalization, and how to personalize at scale is really important.
Oliver Chen 19:58
And then community building and storytelling. And the interesting thing is the evolution of storytelling, in-store, digitally, through apps, through gamification, and transforming what that means with technology. But stories, heritage, this emotional innovation connection to the, to the creative artists and artisans behind luxury, that's really important as well.
Michael LeBlanc 20:22
You know, Karen and Steve, you both, kind of, gave me a layup for the next question. And the next question was going to be around, you know, what I see often described as innovation in the sector has really been around a long time. Karen, you and I launched, I launched Hudson's Bay, e-commerce in '99, you launched Neiman Marcus in '99. Many of these things that are sometimes called innovation, they've been around a long time.
Michael LeBlanc 20:44
Tell me about, Karen, what you, you see your view as genuine innovation? Maybe it's because of the COVID-era, or maybe it's because of a crisis. But is there anything you could call out that you've seen as customer facing innovation from the sector? And then Oliver I'll go to you and say, well, if not, you know, what, what's holding everyone back? Why does it, and why does it take a crisis for luxury brands and legacy brands to innovate? Karen, you go first.
Karen Katz 21:08
Yeah. So, I think it's a really good question. I'm, you know, I'm not a believer that there's any silver bullets. And, and so, I don't think that there's any one thing that changed, you know, dramatically because of COVID. I think, you know, Oliver always expresses it well, all of these, you know, different, complex ideas that are finding their way to, kind of, you know, mainstream.
Karen Katz 21:33
But, but I will say, pre-COVID, I think a few things were becoming very, very evident. And I think that, you know, this was on the list of things you wanted to talk about. I think re-commerce, luxury re-commerce is here to stay. And I think that it's becoming a large part and will become even larger part of the luxury landscape. And I think how everybody thinks about that is going to be on, on people's mind and on their priority list moving forward.
Karen Katz 22:06
So, I think that that's one thing. I think that there was a lot of talk in the years leading up to COVID, about the kind of, the death of multi-brand. And in fact, I think one thing that has happened during COVID is that the strength of multi-brand has proved itself again, and again. And although I think department stores are, you know, in one place, in their very, very, very long lifecycle.
Karen Katz 22:32
I think what still matters is that they are multi-brand places. And I think, you know, the, the landscape, whether it's, you know, NET-A-PORTER, SSENSE, MATCHES, you know, Mytheresa, REVOLVE, any of those kinds of companies, they're all multi-brand. And I think the customer still wants that, if really good retailers know how to edit for their customers. So, I'll stop with that. But those are, kind of, two big things that I, I like to spend a lot of time thinking about.
Michael LeBlanc 23:07
Oliver, let me pick up on that thread a bit, so to speak, and literally and virtually. I was reading the EY Global Consumer Index last week, and it talked about a customer that is more thoughtful. And they described, I think something like thoughtful consumption, more thoughtful buying, more. And that, you know, that dovetails into what Karen was just saying about the resale. How do you view from your lens, the resale market and luxury’s role in that, as conscious consumption, I've heard it also?
Oliver Chen 23:37
We're, we're really enthusiastic and excited about that. And one of the themes we have is, less is more. You know, does it, does anybody really need any of this? And what about no-retail-retail, and retail as a service. The other issue, which we see, is like we're living in a world where everything's available to everybody at all times in places. So, what really is exclusivity?
Oliver Chen 23:59
So, we look at business models like Supreme, like Kith, like The RealReal, StockX and others, and this all embraces different forms of, both experiential, as well as the closed loop economy, and rethinking the afterlife of a good. So, there's many issues this opens up, but one of the big opportunities for all of retail is post-purchase, you know, what happens? What's the thread composition and, you know, it's better for society if you're not actually making a new object.
Oliver Chen 24:31
We're living in a generation, in a time, where Gen Z and Gen A cares most about mission and purpose. And that directly ties into storytelling as well. So, we're going to see increased and heightened significance of supply chains, and pollution, and fabric platforming and dyeing as being major issues.
Michael LeBlanc 24:53
Well, Steve, I'm going to ask you the hard question. Now taking this and your own thoughts on the future of the industry. Where, where are we going? I mean there's lots of online competition, you've got more conscious consumption, you've got, I don't know whether it is less or more, focus on discretionary goods, you've got younger customers that may or may not want to go to the sector.
Michael LeBlanc 25:13
Have we seen the last luxury department store built in North America and Western Europe? As you get your magic eight ball, or your, put your prognostication hat on, where do you see the luxury industry going? And are you optimistic for the future in the, in the short, medium, or long term?
Steve Sadove 25:28
I'm very optimistic about the future of luxury, I just think that it's going to be, continue to evolve and be different, that there is a lot of fragmentation, there's segmentation. When you say, is there going to be another department store, what are we defining as a department store?
Michael LeBlanc 25:43
Good question.
Steve Sadove 25:44
Because you've got marketplaces that are evolving, you have segmented marketplaces that focus on luxury. And those are going to continue to evolve, you have the role of concession, which has become increasingly important in the luxury space in the department store. But my guess is you'll see an evolution of the concession within the marketplaces.
Steve Sadove 26:04
Affiliates, in some ways, are evolving and becoming more important. So, I view all of these, whether it's resale, whether it's rental, whether it's the marketplace, the brands controlling their own destiny, so that they're presented in the way they want to be. All of this is a part of the ecosystem. And there is a role for the traditional, you know, luxury department store, it may evolve also and be different.
Steve Sadove 26:31
You already see the changes going on at Saks with the separation of the, the dot com and the full line of business. But you're going to continue to see changes, but I think the net of it is, the consumers love brands, they love luxury, they're aspirational, and Karen's right, it's whatever your own definition is. And I think that the luxury space is a very good place to be.
Michael LeBlanc 26:57
Well, it's a magic question, right? What is the department store? We did a whole episode on that.
Steve Dennis 27:01
So, I want to come back, in just a second, on this, this spin out separation question. But just going back a little bit to where Michael was going around, around innovation. We talk a lot about this on the podcast, you know, why, why does it take a crisis for retailers to innovate, but, but also, why do legacy companies seem to struggle with, with being more innovative. And Karen and Steve, since you, you've both run large, well-established retailers. You know, what's your perspective?
Steve Dennis 27:33
I guess, from a cultural standpoint, or from a process standpoint, what, what does it take in your mind, for these larger, older retailers to get out there in front of, front of these trends, rather than, as I think we see a lot of times, maybe you disagree, but my observation is, a lot of times these retailers often respond too late to some of the most interesting innovations, or they're afraid to compete with themselves, or they don't invest enough. But what's your perspective on whether you agree with that, and what some of the struggles are to making it happen in a, in a more established retailer?
Steve Sadove 28:05
Well, I guess I can jump in. You know, if you think about it, and Amazon started as digital first, a legacy company like Saks started as brick-and-mortar first. And it's very, and you have people who run these companies who have grown up in the, either the digital or in the brick-and-mortar world, to change and get people to think differently. To change a culture is not an easy thing to do. Everything's converging, right now.
Steve Sadove 28:36
The brick-and-mortar is moving to the middle. If you're a DTC company, or opening up stores, if you're a, if you're a brick-and-mortar company, you're moving more digital. And it's a focus, it's the people who are running the companies, how they were trained and developed. Culture change isn’t an easy thing to do. And, you know, clearly crisis creates the opportunity for disruption. But to get a big company, like a Macy's, or a Neiman's, or a Saks, to change overnight culturally, is one of the most difficult things to do. And it's a lot easier when you start, if you're trying to play in the digital space, if you started as a digital company.
Steve Dennis 29:15
Sure.
Karen Katz 29:15
You know, I would also just add that I think the choices of the way to innovate these days are bountiful. And I think that large retailers, as they're having hundreds of ideas coming their way, it's up to some group of people to try to prioritize which ones will have short-, near- and long-term impact on the business. And I think that that process in itself, in a large, complex company is just not easy.
Karen Katz 29:55
And you know, frankly, I'm on a very large healthcare board. And we have the same challenges. You know, it's very large, many, many opportunities in terms of how to innovate the business. And, I think, the real challenge is, is how do you prioritize which of those innovations coming your way, really are going to make the impact for the consumer?
Karen Katz 30:24
And I think that, you know, part of it is bureaucracy, part of that is, you know, you've got this large business that, you know, it's not quite as easy to take risk with. And I'm not here defending department stores by any means. But I think that the innovation is, like I said, it's just bountiful. There's so much interesting, exciting things going on. And I think it's, it's increasingly challenging to try to figure out which of these innovations should be prioritized within our company.
Steve Dennis 30:53
No, I think that makes sense. All right, so final question. And I almost hate to ask this, this question, because I've spent, I guess, a good chunk of my career working on channel integration issues, multi-channel, way back when, when I was at Sears, multi-channel when I was in Neiman Marcus, then it's omni-channel, I call it harmonized. But anyway, it seems like the one thing that, it seemed like retail learned over the last 20 years is that thinking about channels is not so helpful.
Steve Dennis 31:07
The customer is the channel, it's a blended blurred world, yet, we have this pressure that some companies are getting, to spin out their dot coms. Saks has already done it. Oliver, I'll start with you. Just in terms of the Wall Street perspective, is this just, kind of, a misunderstanding of, of how retail works? Is it a moment in time where we're seeing these very high valuations for digitally native, sort of, brands? What, what's your, your take on it? And then we'll, we'll talk about whether it makes sense or not (inaudible).
Oliver Chen 31:50
I mean, Steve, I think we're at a, we're at an interesting junction where you have a lot of heritage retail, Macy's, Kohl's, and others, which are rapidly transforming the high digital penetrations. You know, trading at fairly modest to lower multiples, relative to 100% digital models trading at, you know, double the P/E evaluation. So, there is a dichotomy there.
Oliver Chen 31:50
There's opportunity, each public company has to strictly look at what maximizes shareholder value. And what does that mean? It means, you know, how do you maximize the stock price to given different scenarios. And this can happen, separations may or may not be able to happen, depending on execution, which means setting up the appropriate rules and organizational structure across different divisions, anything's possible.
Oliver Chen 32:42
That being said, we believe in bricks plus clicks, can you still do bricks plus clicks? With or without two companies? Yes, you can.
Steve Dennis 32:50
Three, three hundred service agreements, or whatever.
Oliver Chen 32:53
Yeah, I mean, three to 500. And also, just understanding the economics of each channel, and the customer doesn't need to know or doesn't want to know that this is happening. So, those are all execution slash leadership, hardware, software, supply chain, infrastructure questions, as well.
Steve Dennis 33:09
Karen or Steve, you’re willing to take on the elephant in the room? I don't know, Steve, if you—
Steve Sadove 33:10
Karen, I can take it, I think that every circumstance is different. And you have to decide what's right for an individual company. I think what was interesting, and as Oliver said, you have to start with the consumer, and the consumer has to have and want a seamless experience. So, anything that you do to separate companies, in theory, moves you away from that, so you've got to find a way of executing so that it is seamless to the customer.
Steve Sadove 33:39
I think that the Saks example was an interesting way, where they were able to get a valuation, it was a two billion valuation, raise half a billion dollars that allowed them to make some investments in their dot com business, that they otherwise hadn't done.
Steve Dennis 33:56
Right.
Steve Sadove 33:56
Whether it was in technology or inventory. And so, if there was a reason for it that made sense for why they needed to do it, in order to be able to get the resources, maybe, you know, you can make an argument. It makes a lot of sense, if they're able to deliver on a seamless experience for the consumer. It doesn't make sense for somebody, and by the way, in the, you know, we talk about luxury marketplace, and you can make an argument that a Saks as a luxury marketplace, there's a reason for being, for that, and you can maybe, you can argue it for Neiman's as well.
Steve Sadove 34:29
But it doesn't make sense for everybody and some companies, you know, Macy's is being pushed to do it. I don't know that it makes sense for them or not because they're already a top ten internet e-commerce player, and they're putting the adequate resources that they believe, I think, into the business. So, if they, if there's something unique that it allows you to do, it may very well make sense for a specific situation.
Steve Sadove 34:54
All right, Karen, last word goes to you.
Karen Katz 34:56
Yeah, well, I'm a believer that you got to, you got the consumers at the center of it. And he can make it work and still service the consumer, I'm all for it. But, you know, you think about three to 500 service agreements, we were just talking about the complexity of these large businesses, you know, interrupts, kind of, how much innovation you can get done when you're making a business even that much more complex. But I live with the consumer and it's, if we can make her happy then we're doing our job.
Steve Dennis 35:25
Well, the one thing I think we can say for sure is, AlixPartners and the investment bankers will be successful pursuing this strategy, whether the customer, the retailers will like it ultimately, I guess, I guess time will tell. Well, we're going to have to leave it there. Thanks so much for joining us.
Steve Dennis 35:28
It sounds like we're, we're all pretty optimistic about the future of luxury and just, kind of, keep staying on top of the customer, staying on top of the innovation. We'll put some links to, so people can learn more about what Oliver, Karen and Steve are up to. And thanks for joining us. Hope you have a great holiday season.
Steve Dennis 35:56
Happy holidays.
Oliver Chen 35:59
Season's Greetings, everybody.
Michael LeBlanc 36:01
If you like what you heard, please follow us on Apple, Spotify, Amazon Music, or your favorite podcast platforms. So, you can catch up with all our great interviews, subscribe so that it just automatically shows up. Tell your friends, and also new insights and new episodes will show up every week.
Michael LeBlanc 36:15
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 to check us out on our new YouTube channel, not so new anymore. Get a couple episodes up there and just look for Remarkable Retail.
Steve Dennis 36:31
And I'm Steve Dennis, you can check out more of my work at my website stevenpdennis.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 36:52
And I'm Michael LeBlanc, Producer and Host of The Voice of Retail podcast and a bunch of other stuff. You can find me on LinkedIn, learn about me on meleblanc.co. All right Steve, great episode. Look forward to chatting again next week. Be safe and have a great rest of your day.
SUMMARY KEYWORDS
luxury, retail, steve, karen, saks, stores, people, innovation, retailers, oliver, department store, customer, bit, question, digital, amazon, neiman marcus, brick, brands, mortar