EP220 - Retail Earnings News
Episode 220 covers a variety of retail earnings reports and news.
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Episode 220 of the Jason & Scot show was recorded live on Wednesday, May 20th, 2020.
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Jason: [0:24] Welcome to the Jason and Scot show this is episode 220 being recorded on Wednesday May 20th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot: [0:41] A Jason and welcome back Jason Scott should listeners, well everyone there’s been a lot of news that we want to cover in this episode so this is going to be kind of a news topical one hopefully you’re doing something fun for Memorial Day and listening to this song maybe a commute or treadmill or whatever it is you’re doing before we jump into the news Jason what’s new with you house all the Sheltering in place going.
Jason: [1:04] It I have a new challenge this week Scott I’m having.
Scot: [1:10] Starbucks has reopened.
Jason: [1:12] No they have reopened so that’s a that’s just a blessing not a challenge the but my my Peloton finally got delivered after a five-week wait list.
Scot: [1:25] Oh and this is the baikonur the treadmill.
Jason: [1:28] The bike they’re not selling the treadmills right now because they’re too heavy they require like three people to deliver so they’re only doing bikes so I got my bike.
Scot: [1:34] I thought as the chief digital retail officer you may have had some inside track there.
Jason: [1:40] Not really as just a dude trying to keep his wife happy I just waited in line with everyone else and but now I’m having to do this this podcast tonight standing up because it’s too sore to sit down right now.
Scot: [1:53] Have you who’s your favorite trainer have you seen enough videos to find a your favorite.
Jason: [2:01] I have not I’m so far I’m striking out like the it’s great actually it like it so far it’s a met expectations which were high but all the trainers are a little too peppy and motivational for me.
Scot: [2:16] You need like the angry old Muppet trainer guys.
Jason: [2:19] Yes I’m hoping that I’ll eventually find some creamed onions that I can I can jam with but.
Scot: [2:26] If not you can quit our podcasts and become a curmudgeon Peloton trainer.
Jason: [2:31] That would be hysterical I would be the most awesome guest guest trainer ever and it’s no relation but the guy that invented the spinning bike is this guy Johnny Goldberg so like. Yeah I could be his nephew or something.
Scot: [2:47] Nice have you mounted on the pot on some cup holder so you can have your two vintage drinks your to Venti Starbucks says here.
Jason: [2:54] It does it comes with cup holder so it didn’t have to do that I did Mount the iPhone holder so that I could you know keep chatting with you while I’m well I’m working out at least for the two minute warm up until I can no longer talk.
Scot: [3:07] I have a bunch of funny Peloton stories I’ll tell you some other time.
Jason: [3:14] Next yeah maybe we won’t share those with all the listeners and then. I feel like the fun thing I mean not you know it’s mostly sad stuff but one of the fun things about the shelter in place is I feel like I’m doing as many events as I used to do but each event used to take like 3 days with travel and everything and now the events just take. A day so I in a way I feel like I’m doing a lot more events and yet I’m less busy.
Scot: [3:40] Yes let’s let’s pretend we’re normal and let’s give us a road trip report on these events you quote-unquote attended.
Jason: [3:46] Yeah so this week the fun event I did was the second iteration of an event called Commerce live. In this is put on by profiteer oh which is a. Vendor in the e-commerce space that do a lot of digital shelf monitoring on Amazon. And they partnered with Peck view which may be familiar to some listeners because that is Melissa’s company who’s been on the show. Three times I think if I have my counts right, and so they were very clever you know the pain right is the shelter in place holders kicked in we were all supposed to go to shop talk so shoptalk got canceled, they decided to host their own virtual event that was you know frankly kind of last minute and add hawkish but they put together really good content and they got several thousand people to log in for the first event. And they were desperate enough for moderators that they had me do one of the pant moderate one of their panels and then. They had their second event yesterday so I got moderate a panel about grocery. The keynote speaker right before me was Gary Vander check. So we got to chat a little bit about the Jets and what a good red wine is to drink early in the morning during a virtual event.
Scot: [5:13] How about where your pulse hunting did you what pairs well with the Peloton.
Jason: [5:17] Haven’t haven’t figured that out I feel like I would be spilling too much I think yeah.
Scot: [5:23] Bad for the carpet how long into his talk did he get before he dropped a an F-bomb.
Jason: [5:30] Yeah disappointingly he didn’t at all so he was he had apparently was on extra good behavior.
Scot: [5:36] Yeah they had to pay extra for that.
Jason: [5:37] Yeah side note you know he started a media company a while ago and this month he launched a Commerce practice within that Media company so Vander check Media or Vander check Commerce, which is focused on on helping you know challenge Our Brands and d2c Brands and all those guys, execute their Commerce strategies so he’s one of us now.
Scot: [6:03] Yeah he always has been is a wine thing was doing Commerce and clubs way before yeah and then didn’t he do something like some some obnoxiously large number of Super Bowl commercials went to him and he kind of helped either craft them or shape them or something isn’t that, I saw something where he had he had worked with a lot of really large brands on their Super Bowl commercials so he’s coming he’s coming after your parent company, he’s an enemy dude I don’t know why you’re.
Jason: [6:31] He there’s room for all of us we’re all friendlies I’m a fan I’ve been an early Wine Library consumer so. Yeah I’m cool with it but we’ll have to have him on the show now that he’s like totally focused on the Commerce space.
Scot: [6:47] Absolutely.
Jason: [6:48] But so my panel was on Grocery and I had really good panelist so I had these three women that each run Commerce for big consumer brand so I had Elizabeth Bennet whose the VP of global economy for Kraft Heinz I had Laura Hyland who’s the VP of e-commerce at Hinkle and then Kelly Olynyk who’s the head of global e-commerce at General Mills.
Scot: [7:13] Cool is it the single that’s the knife brand right in there always pooping on Amazon.
Jason: [7:17] No same name that would have also been interesting but Hinkle is a cpg brand that has like. Lot of fabric care products like laundry detergents things like that they have. I think a bunch of pet products. So I got a pair isil is one of their brands Purex Dial soap. Stuff like that so they are German like the knife manufacturer that yeah they’re not the knife guys that. SQ Amazon at all cost Hinkle infect cells cells to Amazon.
Scot: [7:59] It’s confusing this should fix that over in Germany they should set that straight so that.
Jason: [8:03] If you were paying more attention during the rehearsal you would have known that.
[8:20] Yes and no so economically no because they’re like they are all seeing a nice uptick in sales / Not necessarily very profitable uptick but what they are all doing cartwheels about which is kind of funny is. You know these are all experienced women that like you know I think two of them you know came from Amazon at one point and, basically they all replace the interns at the cpgs right like the cpgs like oh there’s this thing called e-commerce let’s put the intern in charge of that and then when it got too important for the intern they hired an outsider who in these two cases you know is these three women and their Ico e-commerce is going to be super important to our brand and like you know you’re going to be a part of the leadership team and it’s this big deal and then they arrived there and you know they probably had the office for this from the CEO and probably like, never got invited to the big meetings and so now of course the CEOs are sitting in their office all day long. So digital and e-commerce has suddenly become super important and relevant to all of these consumer packaged Goods Brands as will be apparent in a few minutes when we talk about retail earnings reports.
Scot: [9:38] Like Kelly’s title head of global e-commerce acceleration at General Mills with a title like that you know if you’re ever down your rear that’s going to be a to be a rough day.
Jason: [9:48] Well so I asked her on the panel if she had a counterpart that owns all the deceleration because that doesn’t sound like as good a job.
Scot: [9:56] Head of global brick-and-mortar deceleration classic.
Jason: [10:02] Exactly yeah but so it was a it was a really good event it was fun listening Gary talked about Commerce I had an hour-long conversation with with the three panelists and got good feedback that people besides me enjoyed it so. So within the covid dream for another week.
Scot: [10:19] Awesome well let’s jump into the news we got a lot to talk about and of course it wouldn’t be at Jason and Scot show without. Amazon news your margin is there opportunity.
[10:42] So Amazon in a continues to we had the Deep dive into their q1 earnings and since then the stock has been just bumping right up against new highs I think it hit a new high today I wasn’t sure if it close there or not, one thing I like to keep track of is the trillion dollar horse race here which were well into, pass the trillion dollar mark But Amazon’s actually third in this horse rate at one point two trillion dollar market cap, and then you have apple at one point three eight and then Microsoft has been the Dark Horse it always, you kind of frequently Falls to Third and then comes out and crushes it and there at one point four trillion, one of these companies is going to be the first one and a half trillion dollar company and that’s going to be really interesting to watch that play out, so that was interesting and then just a couple little things so Amazon has extended its work from home for its employees to October that’s one of the first ones I’ve seen with exception of Twitter that just basically said. You all just work from home forever and then Jack went to Africa or something the there’s a lot of rumors about Amazon so first one was that they were going to buy a MC and then the second one was that they would by JC Penney I’m curious your thoughts Jason let me hear your thoughts and then I’ll turn mine in there I don’t want to taint your.
Jason: [12:01] Yeah I don’t think they’re going to buy either I think Amazon has a very good track record and it’s very smart practice that like anytime, there there’s a company out there in the space that that is interested in potentially being acquired or liquidated Amazon’s going to talk to them and kick the tires because, they like to learn stuff and you can learn a lot talking to a potential acquiree so if you know JCPenney’s is filing bankruptcy and is is on the market, Amazon’s going to go talk to them I don’t think there’s a lot of value in JCPenney to Amazon so I actually don’t think. That that acquisition is very real but it won’t wouldn’t surprise me at all if they food some people out to Dallas to talk to them, in the end the same with AMC I feel like like. The the the movie The in movie theater industry was already struggling before covid and now you know we have all these movie studios that are having these positive experiences with direct, direct-to-consumer releases and bypassing the movie theaters and I just it just seems like, like the value of both of those businesses are permanently eroded and in like I don’t personally see some value to Amazon and picking either one up.
Scot: [13:28] Yeah I agree the only thing I can tell we’ve been doing this podcast together for two and 20 episodes because I would have said exactly you did but.
Jason: [13:36] You would have said it better.
Scot: [13:37] Of course the only thing I could see them buying in JCPenney is doesn’t JCPenney own some Brands like a bunch of apparel Brands like the own like. Something Tommy something they own some stuff.
Jason: [13:52] Some yeah.
Scot: [13:52] Yeah camera what there so you know there’s there’s probably you know there’s some value there but someone with a smiley face don’t they on that, it’s got like this yellow smiley face I don’t know I don’t know the apparel world as well as you do it was funny though to watch on Twitter all the speculation so some people were like they’re going to buy all the JC Penney’s and turned them into you know. You called them dark stores I called them Cloud fulfillment centers that doesn’t make any sense because you know if you’re gonna spend that money on that you would, these are in malls which have high super high rents you don’t you’ll put a warehouse in a super high Renteria that wouldn’t make any sense.
Jason: [14:33] Yeah nah until the mall goes out of business and it gets rezoned.
Scot: [14:36] Yeah yeah so so yeah I don’t think any of those things aren’t going to come to fruition what other news have you been watching.
Jason: [14:47] Well we’ve had a bunch of retail earnings in the last couple days so yesterday right before my panel kicked up Walmart did their earnings and these are all like I think all the earnings are going to be eye-popping numbers that we’re just not used to talking about so Walmart e-commerce was up 74 percent.
[15:08] I said put that in perspective like over the last two years Walmart has been one of the best performing fastest-growing e-commerce um practices like they’ve averaged about 40 percent growth of quarter last quarter I want to say they were 35% growth so jumping up to seventy four percent is Monster growth away more eye-popping number though is same-store sales were up 10% so like Walmart is that a great growth trajectory they had a bunch of consecutive quarters of growth but like usual same store sales growth for a retailer is like one or two percent is great and so 10% same-store sales growth on Walmart’s number which is the biggest number in the world is huge 74% e-commerce growth is huge.
[15:55] And if that was the end of the story like it would be a great story of course. Expenses were way up and profitability therefore was way down and so a lot of the retailers are going to talk about kind of missed their earnings governance because of that in Walmart’s case they said they had 900 million dollars in extraordinary expenses related to covid so for a retailer like Wal-Mart a lot of that is bonuses that they paid to employees to keep them at work and and you know extra safety procedures and things like that and then the news they slipped into that earnings thing which is kind of interesting to all of us is that they also announced that they are shutting down jet.com so I I know that’s a little sad for you that’s one less Marketplace in the world.
Scot: [16:41] It is sad I’ve really enjoyed watching Jet and I know Mark really well and his early pitch was kind of so, audacious it is kind of like almost insane and then dang if you didn’t pull it off so kudos to Mark it’s funny I saw a lot of the folks were saying you know Walmart back basically Aqua hired Mark for three billion dollars and then some other people on the other side of the debate were saying well okay yeah if you assume. They got this new digital DNA from from Mark and his team it’s added like a hundred and eighty billion to the Marcia caps was actually pretty good Roi.
Jason: [17:19] Yeah know exactly like it you know correlation and causation we don’t know but market cap has done quite well since the acquisition and I would just argue that like the basic fundamentals of e-commerce have done like they were about 12 billion dollars in Revenue they had like a million skus in their catalog and they were growing at ten percent which is slower than the industry average when they acquire Jet and since that acquisition they’ve averaged 40% I think they’re up to like 40 million skews so. 40 times growth of their catalog mostly thanks to Marketplace and you know they’re well north of 20 billion dollars in e-commerce Revenue so, You know despite the fact that they’re shutting that brand down which makes a lot of sense because Walmart is such a powerful brand there are not very many communities where jet is going to have more brand recognition than walmart.com, but I’d I personally feel like Walmart got their money’s worth out of the acquisition and certainly when Doug mcmillon the CEO of Walmart was asked about that after the earnings report he said we would absolutely do it again we’re happy with how it worked out, but you may tell me that you can’t be a CEO of a public company and and say it was a bad acquisition.
Scot: [18:38] No he’s such a straight shooter I think he would actually say that but I think he’s you know you can’t argue with the fact it’s injected a lot of energy into their e-commerce of the 74 percent how do you dug into, you’ve kind of had this running theory that a lot of this is coming from grocery was there any breakdown of that 74 percent.
Jason: [18:55] Yeah there was in grocery was a big contributor but it’s not exclusively so there are like Electronics did really well Home and Garden did really well and then there are categories that are just generally genomic ginormous losers in the whole covid era so I apparel being the poster child apparel was significantly down in e-commerce for for Walmart so. You know it’s mostly Essentials categories and stuff that you use when you’re locked in your house.
Scot: [19:33] Seems like a perils down everywhere you know we don’t we don’t have it in our show notes but I saw that Cole’s took a whooping. The other earnings we wanted to go through our Target I saw not to be out done with that amazing 74% climb their e-commerce was a hundred forty-one percent boom take that Walmart we’re almost going w i saw another thing on Twitter where it showed like these growth rates and then it showed like the absolute numbers and like Amazon is like you know such a big chunk that all these growth rates are to give you this impression that there’s there’s something, people are catching up the amazon but Amazon so far ahead and growing it you know its own twenty-five to thirty percent clip none of these amazing results are really going to change the inevitable outcome of Amazon’s dominance but, we’ll see the same store sales were up 10.8% it’s always you know it’s a little bit unfair that these guys got to be open and everyone else is closed but when that happens man people really come to their stores and they earnings were 500 million was that top liner.
Jason: [20:43] No no that was 500 million in covid expenses so.
Scot: [20:46] I didn’t reach the next one.
Jason: [20:47] Little more than half of what Walmart said they the yeah we have a sophisticated thing in the show notes called a wine wrap.
Scot: [20:56] Yeah I’m not familiar with that but think you got to tell me about this new technology then the other thing that I saw that was really interesting was same day curbside pickup was up like two hundred and seventy eight percent which is just nuts, it’s a great experience though so it’s essentially kind of. Valet to your car kind of thing so customers obviously liking that during the covid impact what else.
Jason: [21:23] So that.
Scot: [21:24] And Target did you find interesting.
Jason: [21:25] Yeah a few things so Target broke down their e-commerce growth by month and so the ramp up is pretty like eye-popping lie funny so you you said hey the top line for the three months was 141 will January was up 33 percent which is pretty covid that’s kind of there that would have been a good month for them right that’s above their average and above the industry average February was up a hundred percent so that’s eye-popping and then March was up to hundred and eighty-two percent. Or I just said all three of those wrong that’s February March and April not not January February March, so April was up to 82 so it’s going to be interesting to see if we can maintain that in May because there’s a lot of evidence that like there’s all this aggressive stock up and shopping that kind of declined a little bit, and there’s a lot of stimulus check spending in those numbers so it’s it’s definitely not a foregone conclusion that numbers are going to stay. That high but certainly e-commerce is going to continue to stay high, Target also disclosed that their basket size is up 12% which that kind of mirrors every retailer I’m talking to is Shoppers are shopping less they’re doing fewer trips but they’re getting more stuff in each trip.
[22:42] And then along with that 278 percent growth in curbside. In this is a number that tells you a target for a while 80% of all Targets e-commerce gets fulfilled from stores so they’ve really invested in being efficient at picking and shipping or picking and curbside pickup are picking and delivering. From stores and to me that’s a fundamental difference between a retailer like Target and retailers like Wal-Mart like Walmart trying to sell 40 million items. They only have a hundred thirty thousand items in the store Target is really trying to sell their in-store assortment online and so it’s you know two different philosophies. At the moment are both working.
Scot: [23:26] Very cool what else is going on in Big Box land.
Jason: [23:29] Yeah so then the two home improvement stores of Lowe’s and Home Depot both reported. Lowe’s had slightly better numbers but probably on a worse base per year, your comments earlier solos was up 11.2 percent in same store sales that’s globally in the u.s. that are up even a little bit more 12.3% Andy calm was up 80%. Is westerners might remember the CEO it was is Marvin Ellison who you know left JC Penney last year to join low so, increasingly seeming like a smart move and then Home Depot was up 7.1% in Stamps or sales and their e-commerce up 79% so both the home improvement stores also did quite well in the first month of covid.
Scot: [24:23] The did you want to talk about Best Buy.
Jason: [24:27] They haven’t reported yet we’re recording this about six or seven hours before they’re going to report so tomorrow morning.
Scot: [24:32] Oh okay teaser the other news that I found really interesting I wanted to kind of pick your brain on was Facebook it continues to get more and more serious about e-commerce so they announced Facebook Shop full disclosure company I’m on the board of and started Channel advisor is one of the partners in this I have no knowledge about any of the super secret stuff that goes on there that so this is pretty interesting to Market really love this Facebook hit an all time high today and they’ve been kind of you know.
[25:04] Depressed I think their quarterly report surprised everyone because there’s been all this news that that kind of display advertising is down Facebook seems have weathered that and then the market really liked their their increased move into the e-commerce kind of retail side of things so the seems like a consolidate so it’s they’re making it essentially free quote unquote free to put a shop on your your business page and then to have kind of a single way of advertising on both Facebook your Facebook page your your Instagram Etc it was a little confusing to me so I would definitely want to pick your brain on some of the stuff so so they had Mark Zuckerberg and Toby from Shopify had this big Love Fest so there’s a lot of people online that say Shopify is powering this thing and I think, I’m a little confused where how does all this fit how the payments work give us unpack this for us has the guts work on this thing.
Jason: [26:04] Yeah and so I’ll tell you my understanding and I’ll be honest like there is enough ambiguity that I’m not. Certain that my understanding is correct either so, you know we’ll continue to watch it and give westerners updates but basically they’ve added the ability to send product feeds, to Facebook that that at the moment can show up as a shopping experience and Facebook and later are going to be available in some other new ad units across Facebook.
[26:37] Instagram and we’ll talk about this in a minute but also on the chat platforms like Facebook messenger and WhatsApp so they’re getting feeds and I think that’s exactly where Channel advisor and Shopify play in they like if you’re a channel advisor customer your syndicating feeds to a bunch of marketplaces you can now send the Kate your feeds to Facebook if you’re selling on Shopify and you have your product catalog and Shopify you can now check a box and send the Kate your your Shopify catalog to Facebook the experience, if you want to buy there’s kind of two paths it can refer you to your own.com site so you can see the product information on Facebook click through your go to your own site and conduct a transaction on your own site or you can have a native checkout experience on Facebook.
[27:32] But the native checkout experience on Facebook is, it’s called Facebook check out and it’s basically powered by the technology that they built, for Instagram shopping last year that was called Instagram check out and so at the moment, um that’s not ubiquitously available I think they may have opened that up to more more Brands along with this announcement but so you kind of have the choice you can either do Native check out on Facebook in which case The Shopper never doesn’t have to leave the Facebook platform so it’s lower friction it’s likely going to be higher conversion but there’s a bunch of compromises you give up for that and the the payment is being passed through Facebook which has all kinds of ramifications or it can be a referral experience and then it’s higher friction you’re going to lose more traffic but the traffic you get are going to be you know your native customers paying through your payment platform, on your Ecommerce platform.
Scot: [28:33] And it seems like Shopify is really kind of flexing right now to use language the hipsters would use here so they’re they’re also a hitting 52 weeks high that got a huge valuation someone say that if you invested when they went public you’d have 45 times your money so that’s, pretty decent so they had their reunite show virtually it canceled the physical event they had it virtually and they rolled out a lot of really interesting things so they rolled out Shopify balance which is they’re effectively becoming a bank so there the kind of the kings of vertical integration very much like Amazon has done so they’re using some of those playbooks so that’s interesting and they also have an installment payment plan, as the as the checkout payments guy I wanted to come back to that one second, they rolled out a fulfillment program and that’s coming out of beta with five fulfillment centers it’s never clear to me if they actually own those are fits on top of the 3pl, do you know the answer to that.
Jason: [29:31] My understanding is they’re partnering with 3pls but I won’t I won’t be shocked if there also is some plans to open some of their own up sees.
Scot: [29:39] Yeah and then one that the super nerdy folks that listen will like is they’ve actually announced that they’re working on some robotics I think their first one’s name is Chuck and it looks like a, cart on wheels kind of a robot and it had some cool image technology so they announce that they’re working on Warehouse automation technology and investing a bunch of R&D into that and then they’re also rolling out a pilot for local delivery so so you know have you had a chance to look at this Shopify balance and what do you think about it is it a threat to I don’t know QuickBooks or any of the other payment, systems out there are is it kind of a replacing a firm on this installment plan what’s going on there.
Jason: [30:24] Yeah no I think it mine are saying is it’s much more directly like replacing a firm and these these alternative credit check out options like affirm our, hit we’re growing in popularity before covid pretty significantly so they were getting used on more sites they were more significant now like that we’re in the throes of the covid pandemic. We’re almost certainly going to be in a pretty deep recession there’s going to be a bunch of consumers that you know. We’re going to have constrain credit or they’re going to default on their credit and not have credit most e-commerce experiences require a credit card so, almost certainly these kind of alternative credit methods are going to become much more popular over the next year or two and so I think it’s super smart of Shopify to have their own that’s that’s. Potentially a high margin business so that that’s super interesting more retailers are going to use it like to put things in perspective and this is not economically sound in my mind but like. Sephora is now offering installment plans for makeup and like in general. Thinking about paying on an installment basis for a consumable does not seem like a fiscally prudent moved to me.
Scot: [31:44] Well they pay these influencers and then I come out with our pallets and they’re expensive I’ve actually taken a look at these things and we I may need some payment plans on the various pallets that are flowing into house of Wingo here.
Jason: [31:56] Yeah yeah for sure but so I just I think you know that being in that space makes a lot of sense the whole digital wallet and contactless payment space had been kind of. Slow to catch on in the US and now because of, fear of traditional payment means contact us payment as wildly up at every retailer PayPal just launched a QR code payment so you know that’s going to make it, a lot lower friction for brick-and-mortar retailers to accept Paypal as a contact list, payment system so I think those are all smart plays on Shopify stand part. You know as they as they’re getting a lot of traction they’re getting more sellers they’re getting more significant gmv. Smart smart to be taking a meaningful piece of the of the payment transactions for themselves.
Scot: [32:54] Absolutely now watch with entrance interest as Pepsi launched a couple of D to see things I’ve heard a lot of negative feedback about this from the digital era T and you know I I’d be remiss if I didn’t ask the chief digital retail direct-to-consumer instigator your what he thought about this.
Jason: [33:15] Yeah so the in my little corner of the world it’s getting a lot of Buzz Sofrito a which is a Pepsi brand launched or e-commerce site called snack.com, where you can buy Frito-Lay products so you can get your freedos in your Cheetos and all euros, um by the bag on snack.com they also launched a site called Pantry shop.com which is kind of bundles of snacks. Um
[33:43] And the reason this is interesting is because a big controversy is should all these big consumer packaged Goods companies be selling direct to Consumer like should they be competing with the the Challenger brands that sell direct to Consumer and the conventional wisdom was. No because the unit economics for selling a you know two dollar bag of chips via e-commerce suck and that you know consumers in general don’t want to buy, just their bag of chips you know disaggregated from all their other groceries and stuff from a different vendor so there you know there was a lot of, skepticism about whether the traditional cpgs could have a direct-to-consumer play and so seeing. Pepsi and Frito-Lay kind of jump into this is a super interesting we’re all watching it carefully I actually think there are a lot of good reasons, for a cpg to do that so I applaud them for doing it it’s not Pepsi’s first direct-to-consumer effort like the a lot of Gatorade products they sell direct to consumer, um the executions are kind of mediocre too bad.
[34:52] And so I guess I don’t know that this happened but I have a feeling that this might have been a project that was, in the funnel at Frito-Lay before covid and then you know the huge shift to digital in the huge spike in sales that’s happening online like prompted them to kind of, get a minimum viable product out to Market faster and cause them to launch these two so I definitely wouldn’t hold out the show The Shopper experience or the you know kind of e-commerce best practices, on either of these sites as a as a gold example but it’s just super interesting that that a company the size of free later PepsiCo is. Is doing this at all.
Scot: [35:38] So you don’t think it was some covid thing it was you think it was already in the works.
Jason: [35:42] Yeah I’m pretty sure the Pepsi hid used like a. Their own front end sitting on top of a symphony Commerce which is a. Microservices headless e-commerce platform for several Brands and I don’t know this to be the case but I suspect that both of these platforms are, based on that and you know by our standards they’re kind of rudimentary like theirs, you can’t use Apple pay or PayPal that check out there’s not product recommendations or up sells, like why do you have one URL for buying bundles of product and another URL for buying individual products. Make a heck of a lot of sense but one thing that is interesting is the offer the minimum order is $15 and then it’s free shipping. So that’s you know not a huge order of you think about you know some of the. The previous efforts in this space of like selling low-cost goods online like a brand less like they actually required a lot more products to in your cart to get free shipping then then free to weigh is expecting.
Scot: [36:57] Nursing so you think they’re going to iterate away at it or you think it was just kind of a one-time experiment.
Jason: [37:01] I hope they do we’ll see if they don’t iterate like I don’t think it’ll be a huge success because I think there’s, a lot of friction there right now but you know I’m certainly going to be watching it closely. And then I know you know your favorite topic is to talk about the retail apocalypse and like we’re you know we’re certainly seeing a new acceleration of that right so we’re starting to see. Some significant retail bankruptcies and announcement of closures for stores. There aren’t going bankrupt so pre covid pure one went bankrupt and they you know we’re hoping to enter a plan for restructuring. And one of the wrinkles of bankruptcy right now is. That it’s difficult to declare bankruptcy like the lawyers you know offices aren’t always open the courts aren’t always open and you know a lot of the plays that you normally run in a reorganization are things like liquidating all your inventory, and you know pure one wasn’t able to hold any liquidation sales so, they declared bankruptcy right before covid now 660 Days Later they’re saying yeah you know we don’t think there’s a path for us to continue operation so we’re probably. Just going to close down and liquidate all the stores so you know if you if you are a fan of wicker you know your choices are probably significantly diminished.
[38:31] Post covid JC Penney had been rumored to be close to bankruptcy for a long time and so they have now filed, I think it’s part of that they put out a plan to close like 250 more stores, you know they’re going to try to reorganize and there’s a bunch of value there they had a bunch of debt so reorganizing without some of that debt will probably put them in a. A better position but you really got to think about the Ripple.
[38:59] Closing those 200 stores is going to have on a bunch of malls like they were the anchor tenant in a bunch of malls they close that triggers a lot of co-tenant Clauses and other tenants in the mall that like, they now you know will pay reduced rent or not pay their rent for a certain period of time or all these things are going to happen that’s going to put a ton of stress on a ton of retailers.
[39:21] Neiman Marcus had been you know obviously has huge debt from a previous leveraged buyout they had been rumored to go. Bankruptcy bankrupt and they filed chapter 11 in the last couple weeks so so we’re starting to see, the the real bankruptcies reminder sometimes that means the restructuring re-emerge sometimes it means they won’t they won’t and all the stores will close but in any case there for sure going to close a bunch of stores as part of the process, and then we’re also hearing, retailers that have more healthy balance sheets like a Macy’s or for sure a Nordstrom are also announcing store closure so Macy’s announced like a hundred and twenty five stores would close, Nordstrom which is kind of the maybe we’ll call him the tallest dwarf like they’re the best performing of the distress department stores, they’re closing 16 Mainline Nordstrom store Flagship Nordstrom stores so that’s about 20 20 percent of their Fleet, and I think that’s just going to be a normal thing I think a bunch of these retailers that have you know are going to take a financial hit from covid are going to use this opportunity to right-size their store inventory and close a bunch of stores, I’m predicting that like literally 25% of all the retail stores in the US might never open again because of covid.
Scot: [40:43] The 16 Nordstrom’s that’s that’s actually pretty material percentage right.
Jason: [40:48] It’s about 20% of the mainline stores so that skews them more towards their off-price stores.
Scot: [40:55] Yet so so help me understand what these stores were not profitable like why I saw some of the places they were and it seemed like they were in like you know. California and Sacramento and areas where you think would be highly profitable do you how do you end up with 20% of your stores needing to be closed.
Jason: [41:14] Yeah well controversial so the first thing is there’s this this concept that I don’t super believe in called for wall profitability right and a lot of retailers will say when they’re justifying not closing the stores they’ll say these doors are all four while profitable meaning like that this store by itself is a profitable store. Um and so why would we close it why would Macy’s close these hundred twenty five stores that are all four while profitable why would Nordstrom’s close these 16 stores therefore while profitable well. It’s because it totally depends on how you do your math about profitable and how you amortize all these fixed costs against these stores but for sure it’s the case that if you have a hundred stores there are 10 that are doing.
[42:00] Exceeding your average you’ve got 80 in the middle that are doing about average and you’ve got 10 that are really poorly performing at the back end and depending on how you do your math those there’s 10 poor performers make quote-unquote still be profitable, but they’re there them the money tied into those stories is not working near as hard as the money tied up in the other stores is working, the inventory in those stores isn’t working as hard, and so closing those stores creates liquidity it creates Financial opportunity to invest in all of these better investment, and the problem is particularly in public companies there’s a disincentive for retailers to close those.
[42:47] Poor performing stores right because, they’re having a report comps every year they opened a bunch of stores last year so they don’t open a bunch of stores this year then then the cops don’t look as good, and at some point in that rat race you start opening stores in less optimal real estate and then the other thing that happens is. Ten years ago you opened a store in a great market and then a bunch of the consumers moved away from that market or migrated back to a city center and that suburb died and you still have that store open there, um and so like there’s a lot of the guarantees of being a public company that caused. These retailers to sometime open stores and not perfect locations and sometimes keep stores open longer than make sense, and now frankly every retailer in America has this financial Nest incentive and a get-out-of-jail-free card too. Fix this one-time opportunity and so that’s why I think we’re going to see a ton of retailers. Clothes stores even you know relatively healthy retailers do you buy that.
Scot: [43:59] For wall thing I don’t buy people moving away like people aren’t moving away from the cities they.
Jason: [44:09] Well no but they are like so affluent people are migrating or pre covid, we’re migrating from suburbs back to City centers it was more popular to live in downtown Manhattan than it used to be it’s more popular to live in downtown Chicago than it used to be and so wealth in those City Centre you know originally, all the retailers in the city centres and then all the rich people move to the suburbs and the retailer has chased him there and opened up stores in all these Regional malls, now the rich people are moving back to the city centers and so the affluence in the suburbs was declining. We may see another Trend covid may be pushing people back out to the suburbs by the way.
Scot: [44:52] Yeah I think we Nordstrom I think the real reason is they got to look at them all right so you know they probably have really good data on the mall traffic as well as the profitability in the trends and I think the mall probably. The mall they’re kind of like attached to probably is a bigger Factor than they would say.
Jason: [45:10] But I mean you do like so I QBs did a report last year there like there’s 1,200 Regional malls in the US and the market can probably justify about 300 of them.
Scot: [45:20] Yeah yeah if you know some of these malls Maybe.
Jason: [45:21] Ride so so again if you were Nordstrom’s and you wanted to keep growing at some point you had to open a store in a mall that wasn’t one of those.
Scot: [45:30] Yeah yeah and maybe now you look and it’s got a anchor of a JC Penney and Macy’s that’s closing and you’re like well there goes that mall there’s you know might as well cut our losses in this.
Jason: [45:42] Yeah and so again traffic was down anyway and then when you lose them all you know there’s a bunch of L Brands Victoria Secret is you know closing hundreds of stores. You know that the malls are increasingly just have less less draw so. It’s a big fundamental challenge now here’s the thing I always like to remind people we’re so over stored in the u.s. right like your remember my old story. 24 square feet of Mall retail space in the US for every person versus. 12 in Canada or four in Europe so we could close 25% of our square footage and we still have more retail space per person than anywhere else in the world.
Scot: [46:26] Yeah yep so so 16 is good start so you’re predicting all the Nordstrom’s are not closed.
Jason: [46:32] Not not exactly one wrinkle I will say that could make me wildly wrong at least in the short-term on some of these store closures, um so hey I’m not alone in predicting this right like or sides predicting 25,000 stores are closed this year UBS is predicting a hundred thousand stores closed over the next four years, one reason that might slow down store closures is the fact that due to health concerns. We may not be allowed to have as many customers in any given store as we’re used to write so every store maybe just less profitable for the next 18 months to two years, as we’re artificially constraining how many people are allowed in the store at any given time, and so in that climate one of the things you would do to have more revenue is you’d have more stores, and so you know one one fear of closing stores right now is if that if you want to close the 20% of your bed stores and keep the 80% you’re good stores. The traffic is likely to be way down in the good stores for the next one to two years as a result of. Regulations keeping people out of stores and fear keeping people at the store.
Scot: [47:45] Yeah or maybe what you do is you say to people hey because we can only let so many folks in here we really only want to let people in they’re going to really buy stuff so so.
Jason: [47:57] But that’s exactly what’s happening right in the old world, the way retail stores worked as you try to get as many people in there as you could and you tried to keep them in there as long as you could write because the longer they were in there the more likely they would be to discover something that they wanted to buy, um so now, I don’t want people in my stores the way to maximize profit is get as many people as possible to buy stuff from me online and do curbside pickup and not tie up one of those valuable slots in my store, and if I get you in my store I want to get you out as quickly as possible so the next customer can come in right and so. This whole thing like instead of, like traffic you now want better conversion you only want to let people in that are going to buy and so you know frankly a bunch of retailers are opening on appointment only basis right now like you you’re only going in the, the Best Buy store if you have an appointment in advance and and it’s going to be a lot more see assisted selling in that store and you know they’re going to try to maximize conversion and cart size for each customer because. You know it just it’s less profitable though the riffraff like just roam in your store when when those slots are constrained.
Scot: [49:11] Yeah you could say you know if you’re a forget the Nordstrom loyalty program but if you’re a Nordstrom card holder whatever maybe you get special shopping hours or if you plan to pay with your Macy’s card maybe we’ll let you.
Jason: [49:22] And yeah and so think of it as Disney fast pass right like you can go to a store and you can stand in line and wait your turn to go in the store or you can be an affinity member and get in the express line and get in sooner.
Scot: [49:34] Yeah very cool it’ll be interesting to watch this develop.
Jason: [49:38] Yeah it’s a bunch of Novel new Concepts that retailers are having to figure out and so if it wasn’t for the tragic impact it’s having on the people that you know we’re working in these stores it’s it’s intellectually really fascinating and it’s you know, we’re going to be running a lot of experiments over the next six months to see what works and what doesn’t. All right well then that is going to do it we have used up the time that we allocated for today as always if we got something wrong or we prompted a conversation feel free to hit us up on Twitter or Facebook. And please please please jump on iTunes and give us that five star review we’ve been begging for.
Scot: [50:17] Thanks for joining us everyone.
Jason: [50:18] And until next time happy commercing