EP234 - Listener Questions Live
Episode 234 is a live show featuring live audience questions. Jason & Scot get to interact with listeners live.
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Episode 234 of the Jason & Scot show was recorded live on Thursday, August 27th, 2020.
oin 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.
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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.
EP233 - Q2 2020 Retail Earnings and News
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Episode 233 of the Jason & Scot show was recorded live on Wednesday, August 19th, 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.
[0:24] Welcome to the Jason and Scott show this is episode 233 being recorded on Wednesday August 20th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host
[0:40] Hey Jason and welcome back Jason Scott show listeners.
Today on the show we’re going to take a break from the summer of Blue Chip guest and we are going to catch you up on the news,
we did have our hot take on Amazon’s results so that was one of the big news items that we covered about three episodes ago now.
And today we had the US Census Bureau they put out their quarterly e-commerce data so that’s exciting and Jason I’m excited to learn from you because this data always is super confusing to me.
And in fact there’s been a lot of,
you know some people have said online that this data proves that we’re not seeing this 10-year acceleration and oh my God the economy is doing terrible or we’re in a V shape so everyone’s kind of.
Able to look at this data and draw wacky conclusions.
Well it’s start with a primer I know you kind of have a really good grasp of this data and I just kind of see it scroll by so.
Primer asan this or a segment I like to call Jason explains the US Census Data so that even Scott can understand it.
[1:48] Oh God I didn’t realize the bar was that high.
[1:51] It is US Census Data for dummies I’ll go ahead and put that out there and I’m the dumb.
[1:56] All right I accept the challenge.
If you can’t understand it for the record the US Census Bureau is probably doing something wrong which could be the case but yeah so to me.
This is a really exciting data set and ever it comes out monthly or much of it comes out monthly and I am always eagerly anticipating it.
But then right after it comes out I’m always disappointed because everyone on Earth quotes it.
And it’s so easy to misunderstand and misquote and people aren’t careful about how they attribute what the reporting that per your point every month you see you like.
[2:33] Two people alleging they’re using the same data and coming up with wildly different conclusions so,
in a nutshell the US Census Bureau does a monthly survey of retailers and they asked those retailers to report their sales and.
[2:52] Legal obligation to comply with a portion of the census and I may have this wrong but I want to say.
They’re legally obligated to report their sales on a quarterly basis to the US Census Bureau and then the US Census Bureau.
Asks them to report a subset of their sales on a monthly basis which is voluntary.
And so basically they use that voluntary data to come out with sort of a monthly hot take and so this is this has higher standard deviation it has a higher likelihood of error.
But this is the freshest data and so it comes out about 15 days after the close of a month you get the July data usually on like August 14th so that’s exactly when we got the monthly data this.
Month and so that product is called the advanced monthly retail trade report and it’s sometimes called Mart’s which is monthly Advanced retail trade report.
Then separately the parse out that quarterly data into monthly data and it’s more accurate but it’s slower so usually the same time they report the advance monthly retail report for say.
July they’ll report the monthly report which is more reliable but the freshest data in it is likely to be June so it’s usually like 45 days behind.
[4:17] People although if you really cared and if you were talking about like years worth of performance you should totally be looking at the monthly report not the advanced monthly report in our industry.
People almost exclusively look at the advanced monthly report because they like that freshness.
And then there’s a third product so both of these products the advanced monthly report in the monthly report,
break the data down into a bunch of segments so you can see just a parallel or just department stores or just Sporting Goods for example,
and one of the segments is called non store sales and the biggest piece of non store sales is e-commerce sales.
But there are other things that are in on store sales if there any catalogers with they would be in on store sales that’s what this category was originally for was for people that did mail catalogs auction houses are still in the non store sales.
And the way that e-commerce is counted in on store sales is kind kind of imperfect so there’s some definite wiggle room when an omni-channel retailer like like Walmart or even more.
[5:31] If Target was perfectly responding to the census survey the e-commerce sales that they collected and fulfilled from the Fulfillment center which is only about 25% of targets e-commerce sales.
Would be non store sales and the sales that they fulfilled from a store which would be a 75% of all of their e-commerce would actually look like retail sales and not e-commerce sales.
The non-star sales number is a very imperfect surrogate for True what you and I would think of as e-commerce like because we would probably Define it as anybody that paid their money online.
[6:08] So that those are those are these monthly data sets there’s the advanced one and there’s the monthly one,
and then that the data is broken out into a bunch of things there’s the categories,
and the categories are frankly imperfect so for example there’s a category for automotive and automotive parts for a variety of reasons you and I might want to take.
Car Sales out of an out of the number but we probably would prefer not to take car parts sales out of the number but we can’t break those two out in their category so people kind of imperfectly mess around with a categories.
They also have three versions of the data they have unadjusted data which is the raw monthly data they have what they call seasonally adjusted data where they try to normalize the data for the,
the traditional holiday spikes that we have in retailgeek.
And so when they with seasonally adjusted data the number that they give for March isn’t the actual number they got for Marge it’s adjusted by some normalization Factor so that it could be compared with December and that same year
and then there are some people than adjust the numbers for inflation,
so there’s inflation-adjusted numbers so when someone says Hey the US Census Bureau came out with data last month and retail sales were up.
[7:29] There’s a bunch of things you need to know you need to know is that a seasonally adjusted number that’s up six percent is that a adjusted for inflation number that’s up 6%.
Which retail number is it is it.
[7:42] The retail trade Class A lot of the retail definitions include restaurants for example or is it retail without restaurants is it retail without Automotive which is another category that they have
so you need to know when they say retail what they mean you need to know if it has one of these adjustment factors,
and you need to know whether it was the regular monthly data or the advanced monthly data and so for all of that those varieties.
Three people will all you know go to the US Census Bureau on Wednesday morning when the data comes out they’ll pull a different number and they’ll quoted and on Twitter you’ll go huh there’s three.
Different numbers for the same thing and it’s because none of those three people explained all the details behind which number they chose to.
[8:27] Is the monthly Advanced report does that mean Advanced as in more detail or advanced in years.
[8:33] Sooner it’s a pretty it’s a less accurate pre view of the data will have next month.
[8:40] Right and if they ever revealed what in is like how many businesses are they talking to is this like for and in Tuscaloosa or is this.
[8:48] Yes so for the actual census data that businesses are legally obligated to comply with they do disclose exactly how many,
businesses are in that number I don’t know what it is out of the top of my head,
the advanced one is more variable from month to month so they generally don’t do that but what they do if you’re a statistician is they have an uncertainty factor that they,
show you for each number so you can kind of like you can see when the uncertainty factors are high because they have a smaller sample set that month for example.
[9:23] Is it always the same stores or is it very.
[9:26] No it could like so you know a store again could just like the guy responsible for filling out the survey could just miss a month.
[9:35] Does Jeff Bezos fill out the survey for Amazon.
[9:38] Yeah and that’s a so you could imagine and the US Census people are trying really hard to get they worked really hard and this is a super valuable service that they provide say for free we all pay for it through a tax as,
the you can imagine that who feels responsible for filling out this survey.
While the impact how they interpret the questions and respond to them right and even though like some of these are like legal requirements.
You can imagine that people imperfectly respond and if you’re a small business and you imperfectly respond you can imagine that no one’s going to get around to enforcing that right and then so to make the data more accurate they sometimes.
Proactively fill in data when they don’t get data right so if Walmart doesn’t report they might go ask Walmart for the data but if you know Joe’s Star Wars memorabilia doesn’t report they’re obviously not gonna.
[10:35] Proactively go get that so they do their best to make it accurate they have very valid mathematical model that they’re pretty transparent about if you’re into that sort of thing but my big plea is.
Understand what you’re looking at the advanced look the monthly look there’s another called the quarterly that we’ll talk about in a second understand whether it’s seasonally adjusted for inflation sometimes the inflation adjustment they call the real.
Retail sales which is annoying,
and then if it’s you’re going to see it in one of two ways it’s either going to be a percent or it’s going to be dollars if it’s dollars it’s the sales they think that happened that month.
If it’s a percent it’s that’s the percent change and then the next thing you have to know is are they talking about month-over-month change or year-over-year change right so.
We just got the July data in the advanced report.
Is that percent from June to July or is that percent from July 2019 to July 20 20 and side note.
The month-over-month is almost never useful or relevant in retail.
[11:45] Yeah yeah I gotta look at your.
[11:46] So lots of people report month-over-month I could care lest its really hard to accurately seasonally adjust for a single month.
Like you can seasonally adjusted over the course of a year but you could make the numbers really say whatever you want if you start messing around with trying to compare month-over-month and Retail so way more valid number is that.
That year-over-year number and it also someone posted an awesome graphic that I’ll try to put in the show notes this is.
A version of this comes up in covid right now right and so you know people will publish like month-over-month testing to show or month-over-month negatives to show how well we’re doing.
And so someone took a baseball box score and posted it inning over inuk and.
[12:29] One team won the game 10 to nothing but in the inning over inning stats it looked like a tie right because they each had one good inning but the,
the one good ending for the one team was wildly different than for the other team I’m not explaining that very well but anyway all of this data is free it’s all available on the US Census website I’ll put a link to it in the show notes
so you can download it you can read a PDF where they try to analyze it for you and they do a pretty good job,
you can download an Excel file if you want all of these slices you’ll have to download a bunch of files they have an API you can exercise if you want to,
pull the data yourself and they do even have like a pretty good interactive charting tool so you can kind of.
Click the options you want pull a data set and then graph it visually all.
[13:17] On the free census.gov website so I’ll put a link to that.
There are other tools you can use to pull the data there is a the st. Louis fed has have this really good website that they call Fred and Fred is an acronym for something,
but they pull a bunch of public data sources one of which is this US Census Bureau
so they have like a free reporting tool that uses that API and it lets you slice and dice the data.
I use a commercial tool called ycharts which is you have to pay for it but it lets you slice and dice the data pretty quickly and easily and then Google has a really advanced,
data visualization tool and they will the data in the Google which is cool,
the one bomber is the Google tool is not real time so if you want to slice and dice it the morning the data comes out.
Like it’s probably going to be a week or two before the data makes it to Google and I don’t know why that is it seems like Google should be able to get real-time data from the API.
So lots of ways to slice and dice the data the data is super useful I promise I’m going to shut up in just a second and talk about what the data is telling us right now which is super fascinating but there’s one other US Census report that people should know about,
so I mentioned that that non-store sales in these monthly products is not a very good surrogate for e-commerce even though a lot of people.
We’ll wrongly just call it an e-commerce number and.
[14:41] It’s a separate category so they’re showing non-store sales is a different category than department stores is a different category from sporting goods and you may say but Jason,
there’s e-commerce sales in sporting goods and department stores and I would say gosh you’re right Scott it would be great if they if they pivoted the data and showed the e-commerce data for each category.
And so the good news is about a year ago the US Census Bureau started trying to do that they said in addition to these two monthly reports.
On a quarterly basis we’re going to try to more accurately report just e-commerce sales without the auctions and these other things in them and we’re going to try to report it on a.
[15:23] E-commerce on a category by category basis and we’re going to try to include,
the sales fulfilled from stores and the sales fulfilled from a fulfillment center so we have imperfect data the law doesn’t require people to report everything we need to report that but we’re going to do our best to
do this experimental quarterly e-commerce report and so we now have received four of those,
quarterly e-commerce reports the most recent one of which came out yesterday,
so it’ll be three months before the next one and so in addition to this monthly data we also get this quarterly e-commerce report and,
you know somewhat annoyingly you can’t compare the monthly non-store sales number to the quarterly e-commerce number because they’re both a different time period and a different measurement methodology of that make sense.
[16:15] So now you know about all the products and you know about some tools you could use to get them right so.
Here’s why I’ve been excited about the data it you know it’s one of our best real-time reads on how covid is affecting,
the retail economy you’ll recall we did a show a couple months ago,
and we had a spirited debate about what shape the recovery would take you were an optimist and said it would be v-shaped and I think I said it would be kind of check mark shaped or swoosh shape,
that would dip very bad and then it would take a more gradual time to recover.
[16:49] Five years I think you said 2030.
[16:50] Yeah yeah I’m not sure I put a Time Horizon on it but I said it would not be symmetric,
to be honest people have been misusing this monthly data to sort of make both cases and so it’s been so I the the monthly data for June the advanced monthly data for July came out late last week,
I pulled it off and tried to do some processing and so by processing what I mean is there are certain categories that we don’t think are.
normally associated with retail so I took automobiles out I took restaurants and bars out which are in a lot of the,
the US Census bureau’s definitions of retail they often call it retail and food service for example and it’s not going to shock you but like.
[17:38] Automobile sales were one of the most impacted by covid at least for a short period of time and restaurants and bars have been the most impacted by covid for a very long period of time so when you look at the numbers with those in.
It looks like covid had a very severe effect on on retail in fact it makes it look like we had the deepest dip we’ve ever had and that it’s lasting a fairly long time because.
We still have a big huge dip in restaurants and bars for example but so when I pull all of that out and I just look at what I’m going to call Core retail so us,
Commerce is definition of retail – Automotive gas,
and restaurants and bars but other but including other food like grocery the numbers are way better than your hearing from a lot of sources and they frankly like.
To me demonstrate pretty clearly that retail has had a very v-shaped recovery.
Which is annoying because it means that you were right but like most people I’m thrilled that you were right since you were the The Optimist.
[18:49] I’m grinning ear-to-ear I’ve got my Cheshire Cat grin on right now if you can’t see me.
[18:53] Yeah but so on this core number which again is adjacent calculated number it doesn’t the u.s. you can’t just download this,
there was only one month where year-over-year sales were negative in April year-over-year sales were down six points,
12% which is the deepest decline since they started recording this so that’s a very deep recession but the month before that,
sales were up,
6.75% and the month after that sales were up 3.1 7% and to put things in perspective the historical average over the last 30 years is that the sales tend to be up between three and a half and four percent every month.
The year-over-year data on average retail grows at about three and a half or 3.75 percent
the month before April the March number was abnormally large number and the main number was back to normal and then June and July have been way above normal they meant eight percent in June and,
eight point six percent in July so we had a historic low but it was only for one month,
and I said well gosh we talked a lot about the 2008 recession what did that look like.
Then Peak was almost exactly the same we were down 6.02 percent so we bear covid barely beat the 2008 recession but for all intensive purposes.
We’ll call them the same depth but in 2008 we were negative for 15 straight months.
[20:20] Covid unless we have a new a new industry emergence we were only down for one month so this is a wildly.
Fast recovery / v-shaped recovery for retail which is.
Generally great news we’re going to talk about that through another lens of all these earning reports in a minute like that being said there are clear winners and losers and there are categories that have been absolutely blitzed.
By this and and haven’t quickly quickly recovered right and so you know people still aren’t buying gas people you know still aren’t going to bars and restaurants department stores are still down 13% like people haven’t they peaked it down 50%
and they’re still at- 13 percent right so there are some clear losers in here but
you know when you roll it all up and you kind of create the synthesized core retail number it’s actually a much better story than what I think you’re generally Hearing in the mainstream sort of retail press.
Does that surprise you Scott or is that.
[21:25] It doesn’t I has got it predicted I’m excited that the data shows what what it kind of felt like from the the cheap seats.
[21:34] So one last thing then so then this quarterly e-commerce number it came out yesterday and the key thing to take away from that is in Q2 so.
April May June of 2020,
e-commerce sales as counted by the US Department of Commerce the US Census Bureau was up 44.4% year-over-year so cue to 2019 of Q2 2020.
A historically High increase in e-commerce which should shock no one a bunch of stores were closed and out of convenience a bunch of people.
People extra people wanted to flock to e-commerce so it’s not shocking that it’s a huge number.
[22:21] Prior to that we were kind of at a there at like a 12 to 15 kind of like comscore and all those other guys is that is that right.
[22:27] Yeah so close call yeah so generally call it like 15 percent so very healthy quarter for comparison using the same data set at the same time retail was down 3.4% for that quarter.
So that’s where the peak of that dip happened and so you know at a time when retail lost ground e-commerce tripled down.
And based on the u.s. departments definition of retail which does include things like Automobiles and gas.
That the e-commerce sales represented 15.1 percent of all retail so.
Dramatically like I think q1 might have been like 12 percent if memory serves so 15% e-commerce penetration is good but a lot of people quickly look at that 15% and say,
huh I feel like I’ve seen a McKinsey report that said 36 percent of all retail sales were e-commerce during covid-19.
What the heck like why is this number so much you love her and a bunch of contrarians like use this data to say like oh all the people saying that like e-commerce you know got jump-started by 10 years from covid are full of it.
You know fifteen percent is kind of a nothing Burger.
[23:48] And and so again the devil is in the details it’s it all depends on your definition of retail so we just talked about like gases in that number which there’s very little e-commerce sales for gas there’s a little bit,
if you go back to Jason spreadsheet for core retail then about 20 we peaked at about 26 percent of core retail was e-commerce during covid so.
[24:12] More healthy and if you use Foresters definition of retail and their data which is what this this popular Mackenzie chart used.
Forester has the most digitally friendly definition of retail so they include things like.
Pay-per-view video ticket and event sales which I know those are not very much right now but normally they’re you know meaningful number and all the apps purchased from the App Store and you know tickets,
video downloads and apps are a hundred percent e-commerce right so,
when you add three healthy size categories that are a hundred percent e-commerce it’s going to juice that number right so the,
so Jason’s core number of 25 to 26 percent,
using that Forester methodology starts to feel like 31 to 35 percent they’re actually all based on the same data it just matters what your including or excluding from your.
Your definition of retail and I would highly encourage everyone to remember that these are all wildly imperfect numbers with wildly imperfect methodologies for collecting them so they’re interesting from a directional standpoint but I.
I certainly wouldn’t take any of these numbers to the bank which is why in some cases I’m talking about ranges.
[25:28] Cool thanks for a I got in a Twitter battle with someone in that makes sense now.
[25:33] Awesome yeah so we’ll post some of this hopefully that clarifies it a little bit I know it’s kind of hard to follow on a podcast sometimes,
but when you understand that it’s super interesting and so my big takeaway
man retails doing better than we feared and there is like pretty valid evidence that not like not shocking but e-commerce was the huge star that that you know contributed meaningfully to that,
[26:00] Again it’s helpful to kind of so we’ve been talking about earnings and we’re going to cover a bunch here in a minute and it’s kind of.
It’s helpful to have this this Baseline so the you know the way I think about it is the.
The water level is 44.4% and you’re if you’re above that in your taking share of online and if you’re below that then you’re losing share right so,
so it may have felt good to have a 30% growth in your e-commerce business but actually that was not good enough to effectively lost share if you may be in Prior quarters you were losing share but if you were,
you know that felt good coming off maybe 15 but you actually if you weren’t north of 44 you actually lost share which is which is interesting.
[26:42] Yeah and even more nefarious there’s a bunch of small specialty retailers that normally grew their e-commerce by like 10% quarter,
and this quarter they grew it by 30% and so what they reported is we tripled our e-commerce growth we’re killing it.
We went from 10 to 30 percent but prettier point the whole Market went 44 percent so you actually like gate wash are and underperformed the market.
But it doesn’t sound like that when you say you tripled your e-commerce growth.
[27:16] Cool let’s jump into so that’s a good macro review let’s jump into some earnings the two big ones are Walmart and Target and I know those are near and dear to your heart so why don’t you walk us through what they reveal.
[27:28] Yeah I will spoiler alert it it was the greatest quarter in the history of Walmart and Target so it was pretty phenomenal so at what.
[27:39] Turns out when the government shuts down your competitors and keeps you open it’s good.
[27:44] Yeah and when they send a bunch of money at all your customers it’s,
it’s super helpful so sin all your customers a big check scare the bejesus out of everyone that they’re you know that everything’s going to shut down and they’re not going to be able to buy food next month and then close all your competitors,
life can be good and it was so so Revenue at Walmart for the quarter was up 7.6%.
Way more importantly so that’s like sort of comp sales was up 7.6% normally you know Walmart’s been performing really well and it’s like 4% or something so so 7.6 is a big number,
super interestingly and importantly gross profit was meaningfully up at both so sort of gross profit hit like about 25% for Walmart which was.
Like a 63 basis points so that’s like it’s hard to move the profitability number and we’ll talk more about that in a minute,
in the u.s. comp sales which is Walmart’s most robust Market come sales were up 9.3% and e-commerce was up 97% so per our test before,
the market was up 50 porpoise 4% Walmart’s e-commerce was up 97% and Walmart’s been outperforming the market for.
[29:02] I think now like 9 or 10 consecutive quarters and this is obviously by far the biggest number.
So so that’s a monster quarter across the board in that profitability is particularly important because.
[29:15] Historically and it was certainly too in q1 of this year a bunch of sales transition from the stores to e-commerce
and the story on e-commerce was that it was wildly less profitable than stores and so the gross profit goes down when the mix shifts to e-commerce,
and gross profit also goes down when the myth shifts to these essential food items that people tended to by the beginning of covid so in cute,
to for-profit to go up at the same time the e-commerce went up so much is really indicative of Walmart and others.
Being able to operationalize their e-commerce scale and get profitable thing in e-commerce which is something a lot of people speculated they would never be able to do and they kind of demonstrated it,
this quarter now part of that is.
[30:07] Fewer people bought stuff there were less transactions transactions at Walmart in-store and online were down 14 percent.
But basket size was up 27% and so what’s going on there is,
when every visit to the store feels like a health risk and could potentially get you sick you want to make as few visits as possible so you consolidate trips you go less often and you buy more stuff.
[30:32] And that behavior contributed to all these good results but it also significantly contributed to the profitability if that becomes a permanent Behavior,
that’s a very favorable trend for Walmart the,
Debbie Downer on Walmart stock after like just reporting and all these were way wildly above expectations the analyst totally missed how good a quarter retail was going to have by the way,
so so huge beat huge his numbers of all time at Walmart it’s all green lights except,
the Walmart get you know is giving no guidance for the future and they’re saying like we’re really concerned about the near future we don’t know what’s going to happen we’re particularly concerned about Q4,
and we feel like a lot of our results were the beneficiary of a lot of government subsidies that have now ended and it’s not clear whether they’re going.
To resume or not and so they’re the kind of story here is retail had a v-shaped recovery but Walmart and other retailers are very worried that the consumer has not had a v-shaped recovery,
and that could impact Walmart in the form of a very soft holiday and we’re already in the,
the very first throws of holiday in this back-to-school period in the early indications are that people are being conservative and not spending and and Walmart talked about the fact that.
[31:52] You know when parents aren’t sure if their kids are going back to school in person or not they were much more conservative with their spending so that’s the one Debbie Downer and all this is the sort of concern for the future.
[32:03] Did they opine on back to school or even start reading the tea leaves on holiday.
[32:07] They did so they like said that it’s been a very unusual back to school and that that spending has been slower for back-to-school and they explicitly said that they’re worried about holiday.
And they mostly like just joked that they don’t know and can’t predict like an analyst ask them a question,
and Doug mcmillon answered like we’re laughing because we’re looking at each other and we were hoping you could tell us what’s going to happen and Q4 because we have no idea.
So the you know they’re not giving guidance they don’t know but they are worried that they’d been the beneficiary of a bunch of you know consumers that were artificially bolstered by federal programs,
and that that gravy train is potentially not going to continue and so their word what that could mean in terms of tightening of belts of their core consumer and the story Target was pretty similar also,
their best quarter ever their Q2 comps were up 24.3% same-store sales were up 10.9%,
and their e-commerce crushed it even more e-commerce was up a hundred and ninety-five percent and one thing I always like to remind people about with targets e-commerce and this was more acutely true this time.
[33:21] The overwhelming majority of all Targets e-commerce orders get fulfilled from their stores so they do ship from stores they have a system to ship products from every store,
they do a lot of curbside pickup via they’re shipped acquisition and they do a lot of home delivery from the stores which is all e-commerce,
via ship and so this quarter they said hey 75% of all our e-commerce was fulfilled from the stores,
and so just a thing to think about this wildly different between Walmart and Target,
Walmart is trying to be an everything store in so you know 40 million items mostly ship from fulfillment centers and from their Marketplace Partners which is increasingly important part of their business,
Target is mostly trying to sell the stuff that they have on the shelves in the store and so they’re very different approaches.
[34:08] The target approach helps profitability a lot Target was a classic example of they had great sales in q1 but poor profitability and so in Q2
again their profitability was way up,
thirty percent for the quarter year over year and there what was particularly fast runner was same day services so ordering stuff online and either picking it up that day or having it delivered that day,
so same day services at Target were up two hundred and seventy three percent,
which debunks a lot of people that are like customers don’t really want stuff that fast and then one other Jewel that came out of targets earnings was that,
a new brand that we’ve talked about a store brand and I frequently talk about Target being one of the best product brand builders in all of retailgeek,
they wants a new food brand in September of 2019 called good and gather and they announced that the last quarter it that brand surpassed a billion dollars in sales.
[35:05] So that’s phenomenal to be able to launch a new brand and sell a billion dollars in the in the first nine months and I pointed out on Twitter and maybe even started a little Twitter feud.
That you know no cpg or D2 C has been able to duplicate that kind of success in that.
Spurred all kinds of good dialogue and a couple of sort of personal attacks but it is what it is.
[35:27] Yell at people get really hung up on definitions around these thinks it’s kind of funny.
[35:33] Yeah yeah I mean that like any of these models can be successful in their examples of success at all of them they can also fail like.
People look you know looked at my good and gather number and they’re like oh well yeah it’s easy for a retailer like they have all this traffic and all this audience built right in and I’m like yeah but you don’t say that when they’re that the store brand of shoes way underperforms Nike or when,
the Best Buy brand of cables doesn’t sell as well as Monster Cables or you know stuff like,
Brands beat store brands all the time so it’s not a given that a store can launch a brand,
and frankly there’s a bunch of stores out there that are desperately trying to launch Brands and not having any success so I feel like you got to give your props to Target that’s that has a very consistent track record of doing it really well.
[36:18] Yeah and then you know the thing I know you hit on this but I just want to put a kind of fine point on this is,
so these guys so so the brick-and-mortar guys that have online that had this weird thing whereas as e-commerce has increased its hurt their profitability.
We didn’t see that this time do you have a theory on why that is.
[36:39] Yeah it’s so it’s a combination the the I think there is proof in these numbers that they are able to leverage volume to be more efficient so when they get more orders as these numbers grow,
they are being able to be more efficient which improves profitability they also the the.
The shift the reduction in transition in the increase in basket size is very favorable to eat to profitability right so you put,
you know you ship fewer boxes and put more stuff in each box and e-commerce that’s cheaper like you you pick more items per order and and have fewer you know separate picking sessions.
That’s cheaper and then particularly in the case of Target when you’re mostly fulfilling this stuff same day.
[37:28] That’s actually cheaper a Target charges money for that so they make money on it,
but then be there they’re not paying shipping costs on all this stuff and they’re not paying separate Warehouse cost sent like these are all like items that are sitting on the target shelf and they’re selling the someone the e-commerce but they’re fulfilling it
you know much like they would in the store so a combination of all those things I think are helping profitability but my big takeaway from those two retailers is,
that there is a future where a very significant portion of their sales are digital and they are able to be profitable there and I actually think that’s bad news,
for a bunch of slightly smaller retailers that have not proven they can be able to be profitable because if these guys give a few big players get over the hump and get profitable in the rest of the industry doesn’t,
it’s just another differentiator that causes the the rich to get richer and sort of opens up a bigger gap on the competition.
[38:25] Yet it could also.
Yesterday you can see these guys going to investors and saying hey we’ve proven we can get this profitable now we’re going to go through a an investment phase
and really start to kind of shoot it Amazon they’re so far away they would never get there but you know you could see this emboldening kind of Target and Walmart specifically.
To really kind of double down on this and kind of know the model now and take a much bigger swing it catching up with Amazon it’ll be interesting to see if that’s kind of a 2021 theme that we see.
[38:57] For sure and one area where it’s totally clear that’s going to happen is grocery because that is a place where they can catch Amazon right like Amazon’s arguably already behind Walmart and grocery Target,
has aspirations and grocery but hasn’t been super strong but that’s an area where like for sure you’ll see them invest because that that is a white space that you know Amazon still struggling to win as well.
[39:19] Did you sew so previously you had kind of suggested that Walmart was kind of making a lot of their bombers numbers by rolling out grocery and more places specifically the curbside pickup,
is there any breakdown you’ve seen of was that.
[39:35] They did and it was unhelpful because it was all so awesome so so historically like a lot of e-commerce growth has come from grocery
it appears this quarter like the e-commerce gross growth was was distributed much broader across all categories so grocery was up and you know up significantly
but general merchandise was also up more significantly and so the the mix had shifted to a more
profitable broader basket of,
e-commerce sales and even apparel which is like the big dog and all of this like and by dog I mean the worst-performing category even apparel was up at Walmart and Target which was not the case in q1.
[40:20] It’s all of us that have gained our covid-19 pounds needing some sweatpants.
[40:24] Exactly you need sweatpants either way but yeah for sure like a few people are writing the Peloton everyday and need a smaller sweatpants and a bunch of people are enjoying more cheesecake and need bigger sweatpants.
[40:36] Yeah and curbside groceries boom put that cheesecake right in my trunk.
[40:41] Yeah so another category of retail that seems like they’re doing really well and covid is the Home Improvement guys.
[40:48] Yeah yeah let’s so Home Depot also announced their revenue total revenue was up 23% same store sales 25%.
And not to be outdone their e-commerce was up a hundred percent and they announced 60 percent buy online pick up in store,
so these guys have really gotten some religion around this and and you know you’re seeing really material but this numbers which is interesting.
All solos and another macro trend is one of the guests we’ve had on the show calls it hooning were since we’ve all been in our homes here for so long due to covid-19.
A lot of people are kind of looking around and saying you know it’s time for me to patch that hole in my wall that I had there for six months in my office and I wasn’t spending time in my office and I’m actually looking at a hole that needs to be patched.
So I think that’s part of this cyclical thing in addition to covid is for our because they’re spending so much time at home they’re investing in Home Improvement.
So not impaired loans also came out Lowe’s Home Improvement and their their sales were up 35 percent overall and their e-commerce was a hundred thirty five percent.
So just some amazing numbers coming out of those retailers as well.
[42:02] Yeah yeah good time to be in those categories and they tend to be both pissed because a lot of their products are harder to ship and so again like Target they tend to mostly sell the store inventory.
[42:11] Yeah that is a feast or famine so that was the feast and what was over on the famine side.
[42:18] So I mentioned apparel right so that’s been the tough category,
Cole’s this is interesting right Cole’s had a net sales decrease now they were there non-essential and they were forced to close for for portion of the quarter.
So their net sales were down almost 23% 22.9% which was actually better than the analysts estimated right so the analysts were expecting really gloomy Corridor and.
Cause cause we lost money but they was less than analysts were expecting
and then they came out and said but we’re not even going to tell you what our same-store sales are was because it’s so messed up from covid and all these store closings which that was a big red flag to analysts and their their stock
really took a dive and then next to them was TJ Maxx reporting and TJ Maxx is interesting because while all of apparel is struggling.
TJ Maxx is one of the retailers that you generally talked about as being better situated because they’re so value-oriented they,
you know in theory of consumers are more concerned about the economy and they’re spending less than you know more of their wallet should go to TJ Maxx and in the past they’ve been more resilient to dips in the apparel Market than other retailers.
They came in at 6.67 billion for the quarter versus like almost 10 billion last quarter so they they lost two hundred million dollars on the quarter and.
[43:46] A couple of interesting things there they said by the way same-store sales are going to drop 10 to 20% next quarter,
and one of the things we’ve seen is briefly when the store is reopened we had a big spike and people a bunch of pundits were talking about this that that you know
as soon as T.J.Maxx open they filled back up so you know all this is coming back quickly for example and you know I think you shared some viral pictures of it
full TJ Maxx they kind of said that like we’ve really seen our traffic Wayne after you know a sorts a short surge after they open and so.
I think if the strong apparel retailers are issuing warnings like that and having performance like that it really bodes poorly,
for the entire apparel category in the fact that,
Target and Walmart we’re kind of up and apparel people are consolidating trips like being a specialty apparel retailer just really sucks right now and the worst thing in the world is to be a specialty apparel retailer in a mall.
[44:45] Yeah the one exception that was Lululemon I don’t have their quarterly numbers handy but you know I think people are kind of like if I’m going to be stuck at home I might as well get me some yoga pants so I know you.
[44:54] They also just happen to have some weird gravity-defying magic juice.
Um which yeah more props to them I don’t I don’t remember their numbers off hand but they’re yeah they’re total outlier and you know I had to go to a mall last weekend and get my phone fixed my iPhone I unfortunately drop,
and yeah most of the stores are closed stores there were clothes had no one in them and then there’s a line of 20 people waiting to get into the Lululemon and the Apple Store.
[45:21] Are Apple stores aren’t even open set.
[45:22] Ah yeah that would have been a bummer with my broken phone.
[45:26] Yeah he would have had a week cook well this is a so now we’re kind of at this part in the quarterly reporting where we can put together a sort of a leaderboard,
so let me start at the bottom here so
eBay had a really good showing at 26% prior to that they were they were significantly below e-commerce so e-commerce was at 15% preak Ovid and eBay was kind of one or two points on their GMB growth.
I’m so here now again we have this this Watermark of 44 and a half percent so eBay didn’t quite get there but definitely you know surprised a lot of folks with how well they did.
And then if we take Amazon I would say Amazon was in line so Amazon grew 41 percent overall but chapter remember a good forty to fifty percent of their business is international if we just look at the u.s. it was 44 percent which.
[46:17] To me gives Credence to the US Census number if Amazon was way out of bounds with that because they are such a large part of prestige of e-commerce,
it would make you can’t scratch your head and go what was that and then inside of Amazon the third party which I care the most about group 53 percent so,
a little bit faster than e-commerce.
The walking up that that tree the next one is a big step up so now we have 44 and a half which is kind of the where the tide is.
And then effectively double their rate you have Shopify and Walmart tied at 97% e-commerce growth.
And then just above that Home Depot at a hundred percent and then we get into the rarefied air so we now have lows at a hundred and thirty-five percent.
[47:04] So we’re fat of if we’re at a base of 44 and they did 135 that’s a easily a 3X,
and then A step above that is Etsy at 147 and Etsy had this huge win because they have all these makers that make masks so,
when masks became mandatory everyone was tired of wearing the boring you know pale blue surgical mask and a lot of people want to statement on their masks or have a themed mask or a branded mask,
Star Wars yes or whatnot that really benefitted Etsy so they were up a hundred and forty seven percent,
and then at the very tippy top of this leaderboard we have Target at a hundred ninety-five percent overall e-commerce but then if we if we kind of peel out the same day at three hundred percent and I’m sure that’s from a small base but still,
it’s really interesting to see how all these things compare.
[47:56] Yeah it’s amazing I mean this you know I I think all of this
illustrates that yeah we have had a huge shift to e-commerce I think I think it’s kind of undeniable when you look at these numbers in totality.
It’ll be interesting to see how much of it sticks like what revert as people go back to their old habits if they ever do or or are they you know permanently more digital shoppers.
[48:20] One of the things and this my information on this is three or four years old one of the things I would always hear it retailers is that the store people would always say,
yeah e-commerce is strategic and important but it’s really only like three stores and we’ve got 3000 you know it’s always compared,
you know it’s always a small percent of their overall business do you think this will change that or has have people already kind of gotten over the hump on them.
[48:43] Oh no I think it totally has I’ve talked to a bunch of like,
head digital people at retails and they all tell the same funny story that like when they were recruited for their job they were told how important digital was to to the retailer and,
how Central and strategic it was and you’re going to be on the CEOs of leadership team and and like the joke was that was the last day you saw the CEO was in the recruiting trip right like you took the job you went there and then per your point you found out.
That everybody’s focused on their Core Business and they all looked at e-commerce as the redheaded stepchild and since covid has happened,
the CEO has been sitting in all of their offices right like they’re suddenly invited all the meetings like what investments do we need to be making what do we need to do to stay ahead of the competition like the
the conversations have gotten much more real at all of these retail stores and.
I guess that’s the positive the negative has been you know we talked about historically,
that business hasn’t been super profitable and retailers have also been pretty tolerant of that they’ve just been trying to capture growth and not worry about profitability,
but now it seems like retailers and Leadership teams are a lot more focused on the profitability of that those sales as well you got to take the good with the bad there.
[49:59] Cool so that’s that’s kind of our quarterly report and a really good look at what covid has done to e-commerce what other news do you want to talk about.
[50:09] Yeah there’s a few things that were interesting to me so,
Simon Malls concluded their acquisition of Brooks brother so Brooks Brothers is one of many.
Bankrupt retailers and this this entity called spark which is a partnership of authentic Brands and Simon Malls,
Bob them out of bankruptcy and they’ve done this a few times before they previously had Boston Aeropostale Forever 21 Lucky Brand earlier this year,
and you know it’s always interesting some people are like oh you know are they going to be a good retail operator there competing with other tenants you know which kind of is the the complaint people make against Amazon as well,
so ironic that is happening in brick-and-mortar if the independent team couldn’t make Brooks Brothers work how is how a spark going to make them work it’s you know they’re all these different.
Perspectives that to me.
[51:03] These these Acquisitions seem like they’ve been super safe spark is buying these on fire sale prices so they’re basically paying less for the retailer than the value of the inventory in the retailer stores.
if they are totally unsuccessful at running the brand or getting any value out of the brand they could just liquidate the inventory and be made whole and in Simon’s case they’re protecting a bunch of rent right like they you know wow as long as these retailers are growing concerns.
They pay rent assignment if they close,
they don’t pay rent and worse that triggers Co tenancy caught Clauses with other tenants that will then want to negotiate and get out of their leases so for a variety of reasons this seems like a pretty safe.
Strategy and I think they’ve said they have a bigger pool of money if there are other good Bargains to be had and that leads me to my second news item.
One of the big rumors is the next one that they’re they’re contemplating buying is a much larger one it’s JCPenney out of bankruptcy.
[52:02] In the the argument would be the same,
that would be a much bigger acquisition because there’s just more inventory more Book value but so their spark is rumored to be one of the bidders on JCPenney the other bidder that I’m curious if you have a position on Scott is,
there’s been a lot of rumors that Amazon is looking to buy JCPenney stores not to run them but to turn them into many fulfillment centers,
in the mall that in the theory is Amazon just needs more space,
this is going to be cheap space and there have been a bunch of pundits that have talked about oh this is super smart and Amazon’s for sure going to do this and,
turning them all into a mixed-use thing that’s both doing like fulfillment and you know they could have curbside pickup at the mall and all these things like there’s been a lot of talk about.
[52:49] That being a potential good fit and so at the moment the two big suitors that are rumored for JCPenney are the Simon spark entity and Amazon and I heard just today that the judge
called all the parties in the bankruptcy judge for JCPenney called all the parties in and kind of scolded them and said hey this is taking way too long,
you guys are to dug in like you need to come up with a solution here to resolve this quickly.
[53:15] Yeah it on the surface youth can say well that doesn’t make sense you know malls aren’t designed to be fulfillment centers,
but here’s what’s happened for the first time ever that’s really interesting is so you have you have three commercial real estate markets you have Office Space,
warehouse space and then retail and for forever retail was orders of magnitude above like 3 to 4X,
warehouse warehouse was the cheapest and just kind of put some numbers on it,
let’s just use ten dollars a square foot a year for warehouse and then 3244 retail then office park depending on the tier of it was class A B or C was kind of in the middle there so maybe like 15 dollars a square foot.
[53:59] So for the first time all that has inverted so warehouse space is now more like 20 square foot because supply and demand is kicked in if you remember your economics there is a huge demand for warehouse space now because,
you know Walmart and Target all these guys we just talked about growing a hundred percent they have a newfound desire and appetite for a lot of warehouse space,
all those merchants on Shopify etcetera,
office space obviously is in a huge decline right now and then so a small retail so for the first time those lines have crossed and it’s not inconceivable,
that now you could you know Amazon could be looking at you know 25 for existing warehouse and retail space at 15.
And that Delta’s enough where you could say you know I could take that JCPenney box and.
[54:52] Essentially do some up fit put in my loading docks on one side you know they like these kind of.
[54:59] Double sided cross docked kind of things product comes in one side and then goes out estimates on the other side.
It’s not inconceivable that the math actually makes sense from a building perspective.
Now there’s there’s some Logistics you know so a lot of these things are in heavy traffic centers so that’s going to be hard to have you know 18-wheelers coming in and out and some of that,
but those stores were supplied by 18 wheelers and they do have some loading docks they’re gonna need a lot more,
so I think it is a thing that Amazon would you know the economics actually make sense but literally six months ago it would make no sense.
[55:35] Yeah I think the economics potential can make sense but I still think it’s overhyped I don’t think it’s going to happen and I should say I’m sure Amazon will end up owning some,
former JCPenney’s locations Amazon already owns a couple of malls that’s converted in a fulfillment center so.
Could that happen again yes is Amazon buying a ton of space and are they going to go kick the tires on any.
Any potential space sure like they have 200 million square feet of space in the US and they’ve already announced building plans for another hundred million so they’re big leasers and for your point.
The the price for that retail space is way lower than it used to be but I think the logistics is a bigger problem I think whenever Amazon opens a fulfillment center there’s a huge.
Controversy around the negative impact on traffic patterns around at right like in the volume of trucks just like destroys the area and I just I just don’t think apple and Amazon want to be competing,
with you know Apple having customers trying to drive to a store and Amazon having,
trucks trying to get in and out it just doesn’t make that much sense so I I think Amazon’s really good at kicking the tires on any deal and I’m sure they have had some conversation but I think it’s gone people whipped up into a lather a little bit too much.
[56:48] Yeah and last topic I know we’re tight on time but we’re sitting here in August and we wouldn’t be in the retail world if we didn’t start thinking about holiday,
Halloween is right around the corner we got Prime day coming in October with and then the holiday what are you hearing from holidays you parse through all these comments from retailers.
[57:07] Yeah so I unfortunately would have to say that retailers are mostly,
pessimistic about this holiday the again desperately want to be wrong and there’s more uncertainty than there’s ever been before and so I think retailers are allowing for the fact that they could be pleasantly surprised.
But there is kind of a perfect storm of negative things I think retailers are really concerned that that.
We have not seen the bottom yet of the economic circumstance for consumers and so all those Federal programs kind of.
You know bolstered a bunch of people you know we still have like way more people unemployed than,
traditional like we have three times as many people unemployed as we did in February before this all started and you know a ton of the safety net is going away for all those people so retailers are concerned about their consumers health,
or their consumers Financial Health,
in some parts of the country there still are huge health concerns that varies wildly from state to state and that is keeping a lot of people away as all of these sales shift to e-commerce,
we are running into huge capacity problems with shipping for e-commerce right so we’re the all the e-commerce numbers you just talked about Scott that basically has all the logistics companies in the United States running at holiday levels now,
and so if there’s incremental spending for Holiday there just isn’t going to be capacity to deliver it right and so you know what.
[58:35] You know suppliers doing a when there’s a constrained Supply and greater demand they increase prices and so the United States Post Office FedEx and UPS have all announced,
like the largest surges for holiday they ever have in their making customers sign up for there,
allotments of shipping now and they’re not letting particularly smaller retailers that don’t have leverage their not what giving them all the capacity that they ask for so a bunch of retailers are going to be artificially constrained on how much they can ship.
And then you know,
God forbid something bad happens to the u.s. post office between now and then they’re the biggest facilitator of all that so that’s a big risk and then you know because of health concerns
a bunch of the occasions that consumers normally have around holiday.
Are not going to happen in the usual way so people are going to go to less parties they’re going to need to dress up for those parties less they’re going to give less gifts they’re not going to go trick-or-treating as much so people are going to buy less costumes,
they’re going to give away less candy there are all these ways in which you stack all that up and there’s the potential for a very soft holiday now,
there are things that could go well and change that but you know I think I think people are hoping for better but preparing for the worst.
[59:49] Awesome I I love your continued enthusiasm.
[59:53] Yeah I mean and again I want to be as wrong about that as I was the speed of the retail recovery so here’s hoping that I eat more Crow next week.
It’s got that’s going to be a great place to leave it because,
predictably we’ve used up all our a lot of time as always if we spurred some some topic that you want to explore further please hit us up on Twitter,
for sure this would be a good time to jump on iTunes and give us that five star review I know you’ve been you know waiting to do it and this is the perfect show to do it so we sure appreciate it.
[1:00:27] Thanks everybody and…
[1:00:29] Until next time happy commercing!
EP232 - rue21 CEO John Fleming
John Fleming is the the interim CEO of rue21. John was formerly the global e-commerce CEO for Uniqlo, Chief Merchant at Walmart, and CEO of Walmart.com. He has also served as a board member at Bed Bath & Beyond and Untuckit.
rue21 is an American specialty retailer of women’s casual apparel and accessories with 670 stores that primarily designs and fabricates its’ own products.
In this broad ranging interview, we discuss the challenges and opportunities presented by Covid, Amazon, the direct to consumer model, and the future of retail.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 232 of the Jason & Scot show was recorded live on Thursday, August 13th, 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.
[0:24] Welcome to the Jason and Scott show. This is episode 232 being recorded on Thursday August 13th 20 20.
I’m your host Jason retail get Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:40] Hey Jason. And welcome back. Jason Scott show listeners today on the show we are super excited to continue what I like to call our summer of blue chip guest.
We are welcoming John Fleming to the show. John is currently the interim CEO of Rue 21 and previously had stints at Unicode Wal-Mart and he’s on the boards of Bed Bath and Beyond visualcomfort and untucked. John welcome to the show.
[1:06] It’s great to be with you guys this afternoon.
[1:09] We are thrilled to have you. John Scott gave us a little bit of a teaser but you’ve you’ve actually had a storied retail career.
We always like to start by getting just a little bit of background. Can you tell us how you got started in retail and kind of just walk us through the the elevator version of your career.
[1:26] Yeah I I got into retail in 1981 when the economy was terrible and I needed a job and,
I had a liberal arts degree which didn’t really prepare me for anything and I stumbled across Dayton’s department store in Minneapolis and got into their training program thinking I do this for awhile and,
I liked it and I was pretty good at it.
And I’ve been added ever since and I’ve seen a lot of changes in retail during my almost 40 years of being in the retail business.
[1:59] And that makes you a super young man. When you started because you’re still very youthful and you and I.
[2:05] That’s right. I started that since I was 7 years old when I started.
[2:09] Yeah and do I have it right like you were the first e-commerce leader at Wal-Mart if I’m remembering right.
[2:16] I was the second. So I followed Jean Jackson who was you know a rock star CEO that was leading Banana Republic and she came over,
to put the dream team together and she hired me to be the chief merchant.
So I was the first chief merchant at Wal-Mart dot com.
I was then technically the second CEO.
[2:39] That’s right. And then about seven years ago I started I joined an agency which became part of publishers called the RAZR fish in my first week on the job they’re like hey we have this newclient,
called you Nicolo and you have to fly to Japan and meet the team.
And I feel like that was the greatest I’ve ever eaten at work. By the way.
[3:03] That was a pretty good gig except so I got into that because they were pretty far behind it.
E-commerce had an incredible store program building flagship stores all over the world and very dominant in Asia but weren’t really doing much with e-commerce.
So I got sort of lured out of retirement to come back in and get the game and,
we put a team together in San Francisco because that was part of what what I felt needed to happen to run a global e-commerce team and what I learned pretty quickly though was the only way Iwas going to give you done was to get on that plane and fly to Japan.
I think over three years I went to Tokyo thirty six times.
And that got to be a little difficult at my age. So we actually put a great team together and we jumpstarted the business and got him to a really good level and then I went into my second retirement.
[3:53] Oh my goodness. And that that will bring us to your second unread tyrant because you at the moment have the most trendy title in retail which is interim CEO.
[4:04] In interim right. You’re not fully committed but you can get you’re focused enough that you can make stuff happen.
Yeah. So I then as I got into my second retirement that I started looking at different boards that I wanted to get involved in and I and I got on to three or four boards and was really enjoying that andsort of a broad range of,
consumer and or retail companies.
And one of them was Rue 21. And they were coming out of bankruptcy in the fall of 17.
I think it was September of 17 and I was recruited to go on the board and I did and we worked very hard to.
[4:45] The interesting thing was you know in my background I’ve only worked for world class companies and so at the first board meeting they spent all the time talking about liquidity and I’m likeWhat is this you know in vendor terms and I’m like really,
because that those were things that I really ever focused on in my retail career.
But fast forward to having that exposure and training has served me very well during this Cobra Crisis because then I was on the board for a couple of years and then we made a change in Februaryand,
I was the board member that they kind of all pointed to and said we need you to step in and,
sort of take us to the next level while we look for a new CEO and I did and at the time I remember this so clearly it’s the only time I went to Pittsburgh in this role.
I flew in and we had a meeting and got together with the team and we chartered out that year and the next three years and we’d come off a pretty successful year and things were looking prettygood.
And I think the first week of March we were up 10 percent year to date.
And you know the world looked pretty bright and then all of a sudden three weeks later we closed six hundred and seventy three stores and furloughed 9000 people.
[5:55] So it’s been quite the ride. But we did then,
open our stores starting in May and had each week we opened the stores that we could,
and the time that we were close to gave us an opportunity to sort of rethink the business and to sort of reposition ourselves because there were a number of things that as I came in I saw we could dodifferently.
And starting with you know becoming more customer focused and digitally led,
and not just thinking about stores and we learned a number of things about our customers and the way we we we did our pricing and promotion and,
the inventory that we carried and we were able to make a number of changes and as we opened the stores again the customers came back quickly.
I think the fiscal stimulus helped a lot but we’ve been able to sustain that and we’re we’re in a very good position right now.
[6:48] Awesome. And we want to dive in the cove it a little bit more but before we do I just wanna to make sure we level set everyone in the audience a lot of our audience will be familiar with Rule21 but for folks that,
aren’t I think of you guys as a solid omni channel retailer.
So I think you’ve got three hundred and sixty some odd stores.
You have a strong digital and social presence. If I have it right you primarily sell your own apparel so you’re you’re the manufacturer and the retailer and your,
primarily targeted at sort of teen and would you call yourselves fast fashion or would you call yourself.
[7:31] Well it’s interesting. That’s a that’s an internal debate we aspire to be we aspire to be faster.
We definitely call ourselves fashion but we aspire to be faster.
And that is part of the learning. So what are the things that we learned during the,
shutdown when the stores were shut down and we had a really you know a skeleton crew that was guiding the business at that point as that was as we did a,
sort of an evaluation of all of our processes and you know and how we presented to customers and you know how we engage with customers.
We came up with a new mantra which is simple fast and new.
And so that everything we looked at. We wanted to simplify it.
We wanted to move more quickly and ultimately we want to deliver newness to our customer much faster.
And so we are what you described is true we have six hundred and seventy stores.
[8:22] I think your view of us as a successful omni channel retailer is a little overstated.
We’ve been a very successful store based retailer but we’re building omni channel capabilities and that’s a big part of our growth strategy in fact we are migrating to a new platform in September andit will be the latest technology.
So it’s a headless technology cloud based API driven and this will improve our site performance dramatically,
and then ultimately you know it will take some friction out in some of the the the the the customers path primarily around checkout and make it a little more mobile friendly.
But then the real features and functionality that I think will take us to the next level will happen after holiday,
and the code but things slow this down a little bit there because of the uncertainty in April as to what the outcome of this is going to be so we had to kind of,
slow down some of the projects but then as we open the stores and could see things were going well we accelerated again and we’re really excited about the holiday season.
But you know we serve a younger consumer our customers 16 to 28 would be the sweet spot.
[9:37] We actually compete quite well with other fashion young retail brands and one of the things that I learned when I got under the hood moving from a board member to the interim CEO,
is that our best format is actually in a mall.
And as a board member I was way more familiar with the strip centers that we had and those have been the stores that we had drawn more recently.
But we do really well where we have a full competitive set and the,
findings there are that you know that consumer is not super loyal to anybody goes to the mall wants to see what’s happening with their friends and in the end our prices are quite good.
And I know from my Wal-Mart days as you know price is a good lever,
but what we’re trying to get better at is is what’s the news and the fashion newness and telling the the story that really emotionally connects with the consumer based on what the product is and thenthe promotion is more an outcome of you know how much you own.
But we have the low price position and we have the potential to be a fast fashion retailer meaning you know new newness to our customer more frequently.
But there are some internal things that we’ve had to work through to sort of speed up the process.
[10:53] Very cool the father of two daughters. I’ve been in many a Rule 21 so it’s always interesting to see the.
Yeah the displays and you obviously have a young audience and it’s always kind of vibrant and a lot going on in the store.
How many of the stores are mall based versus non mall like half Yeah.
[11:10] About half the mall based in half or strip centers. Yep. 50 50.
[11:14] Yeah. Well since we’re here kind of hopefully in towards the end of the pandemic.
I’m the optimist on the show. Jason would say it’s only the beginning. Yes.
[11:21] This is the this is the end of the pandemic. You think this is the end of the pandemic.
[11:25] I do. I’m the optimist. I said I’m the optimist. Jason thinks we’re in a five year cycle.
[11:25] Oh I I hope it’s well I don’t know that. I mean I think I’m not a doctor I don’t know anything but it seems to me like we’ll be living this way into next spring.
[11:26] Scott does. I do not.
[11:39] Yeah hopefully not. Well given that you know you’ve talked a little bit about the impact on the business so maybe walk us through.
It seems like you guys have done a good job as good job as you can navigating this so kind of march came we did shelter in place your your stores were closed. What what are you tell some of theactions you guys have taken and what it’s looking like today.
Now that we’re kind of coming out of it a little bit.
[12:05] So so we’re really quite quite happy with how we came through this.
And I think that the the reason we were able to do as well as we’ve done is because we were very decisive.
So if you think back and it seems like so long ago.
But I can remember day by day and I remember even a friend of mine that’s a Wal-Mart supplier called me let’s say the end of February.
And I think I just assumed this role and was talking about hey so what are you thinking about this. This virus thing.
And the entire conversation was around supply. Well you know we’re worried you know because we’re going to be able to get the product that we have on order and for the next week or so,
every discussion that I had you know with every company I’m involved in was really around supply.
[12:54] And then all of a sudden somewhere early in March probably 5 6 something like that in March I remember the same guy called me and we had the same discussion and he said you know youkeep talking about supply.
What about demand and I’m like What do you mean.
He goes What if customers don’t go to stores and I’m like wow. Oh come on. It’s not going to be like that you know.
And he was definitely the canary in the coal mine. And I remember him saying And then you know at that point then my CFO and I started talking and you know we were in all the discussion wasstill about supply.
[13:26] And I said to her like we should model what happens if we drop 10 percent.
And I remember having this discussion I was like I was on the phone with her I was in California at the time and you know she was in Pittsburgh and you know she we were looking and she said Ithink we’ll be OK at 10 percent. I’m like What about 20.
She goes wow that gets a little dicier. And then I remember talking to my friend again and he said well if you close your stores and I’m like that’s never going to happen.
I remember this so clearly. And that was like March 6th.
Well on March 12th the world changed right. That’s when the NBA shut down.
And like just the dominoes just started falling.
And at that point we were doing everything we could to stay open.
So for the next week I would say you know it’s kind of like the change management thing.
Like at first we were in denial then we were in resistance. Right.
And so from March 12th to about March 18 around us there were municipalities and or states that were mandating closing.
And so every day I’m on call it be how many stores do we have to close and you know on the first day it was like 12:00.
[14:30] That was another 20. And I remember even doing a virtual town hall because I was in California and I was headed back to Pittsburgh like on that Monday which would have been like,
15th or 16th and talking to the team about you know we’re going to do everything we can to keep the associates and customers healthy and safe but we’re going to keep our stores open becauseclearly our customers you know they still are coming to the store.
Because at that point we were just running down let’s say 10 12 percent it had really dropped yet but then on the I think was the 18th or 19th of March.
And again I’m in California and Governor Newsome likes is going to shut down the State and San Francisco is going to shut down.
And I just was struck by the fact like Oh my God this is real this is happening.
And the next morning it was a Friday. I got on the phone with the team,
and I said I think I think everything’s getting shut down and we had a discussion about it and I said I think we should get ahead of this and we should plan to shut down.
[15:34] For two months because this isn’t going to play out quickly.
And on that Friday at eleven o’clock Eastern time we made the decision to shut down six hundred and seventy three stars and furlough 9000 people.
And we did it by end of business day the next day on a Saturday. We did it and we focused on being shut down for two months.
And I think that was a huge success factor for us because if you remember at that time everybody was having the same discussion but they were thinking I’m going to close till the end of March.
[16:04] You know I’m going to close to the first week of April and I think being in that middle space paralyzed a lot of retailers because we were able that we canceled inventory.
We shut down the stores. It gave us a chance to evaluate our processes to think about what we’d look like when we opened to do talent evaluations.
I mean we went through all these steps and we were I think we were a month ahead everybody.
So by the time we opened and magically it was about exactly two months we started open stores opening stores the second week of May and we opened 180 or something the first week and 100 thenext week and it just went through that and got,
a majority of them I think in California we still have some stores close because it’s mandated by law by law.
But we have we have over 650 stores open and we’re doing well and we have a you know a slimmer team than we had before.
And we streamlined a lot of processes and we started to take steps towards being digitally first because we’re using the digital channel to better understand you know our customers and demand andyou know using that information to better run the stores.
And so we’re getting there and we’re in a good place and I know I would say even outside of room the lesson that I’ve learned is that there’s three things that are gonna make companies successful init during copied and coming out of all of it.
[17:23] You’ve got to be relevant. So if there isn’t something that’s clear that you do and you can differentiate yourself and your brand stands out from the rest there’s no reason.
And that’s where I think department stores are going to have a problem because I just don’t think they’re relevant anymore.
[17:41] Second thing is you’ve got to be agile. You know there’s going to be things that change.
I still think you know I I’d like to think we’re almost it’s almost over but it’s not.
And we’re going to be thrown into a number of different situations over the next six or eight months we may have to close stores we’ll be opening stores we’ll have to pivot to more digitaldistribution.
There’s going to be things that are going to happen and the companies that are agile we’ll be able to handle it.
And thirdly you got to be very disciplined and that person primarily around financials and that’s where I go back to the first thing I told Joe is when I got involved through,
you know I’m not used to working in financially distressed companies and yet you know seeing a company come through bankruptcy and get back on its feet,
was very valuable experience to me because you know on that day we decided to close all the stores.
We immediately you know shut down all of our payables. We shut down all of our cap ex.
We focused on liquidity. You know we renegotiated terms with lenders.
I mean we were on it and I had a great financial partner to help me through that.
But you know that a little bit of experience that I had early on in being on the Rue board which is a company out of coming out of bankruptcy sort of prepared me for this.
[18:56] Very cool one. One kind of tactical question is so. So you’re you know it’s early March you’ve got your storage kind of.
I imagine loaded with summer inventory what what do you do with that stuff now that you’re opening do you do you have to flush some of that or do you have enough of a season that you can kindof get it working out of the store.
[19:11] Yes. So actually the stuff in the store was was good because it was just we had just been getting receipts for spring and they were you know the floor set was only a couple of weeks old.
By the time we shut the stores down so we basically just mothball the stores and locked it down.
The issue was more what was coming because we knew we were going to miss two months of sales and so thankfully we were eliminated all that and we were very and again I think you know onMarch 20th we were looking at that number.
You know we knew what the number was. We knew it had to go away. And we made it go away.
So by the time we opened in mid-May we were about where we wanted to be in terms of inventory and it was fresh enough.
[20:00] And I think the combination of the pent up demand from the consumer the fiscal stimulus and the lack of other alternatives for our customer to spend money on because think of it during thattimeframe there were bars and restaurants.
There weren’t movie theaters there were places to go spend your money.
So they actually were looking for places to spend some money and they in some cases they had more money than they had before.
So we got a good jumpstart I think in that it gave us a chance to sort of refine the presentations in the stores.
Know we did some training. We we we got our stores focused going back to the simple fast and new mantra.
We removed a whole bunch of tasks that we used to do in the store and just got the stores focused on serve customers.
We’re going to we’re going to flow the products better.
We’re going to be much clearer as to where you put it and we’re going to streamline the promotions because in the past we were always you know messed around with the promotions every daybased on you know what we thought was going to drive traffic and in the end it didn’t. It just created confusion in the store.
So this simple fast and new approach really was was adopted very well by the entire organization and even the store organizations has felt like we simplified their lives and let them focus oncustomers.
[21:17] The other thing that we were able to do is we launched the loyalty program and this was all in the works before I even took over but it was all store focused.
So our company was really a store focused company and that was one of the first things that I wanted to change when I.
[21:33] Took to gotten the chair was that you know my background is going back to 2000 is more you know the retail has changed,
and I grew up in an era when retail was you know product focused and store driven and I was a product merchant for the first 20 years of my career.
But then you know I was very fortunate that I got into the online space and the visibility to customer information in real time.
You know I don’t know that I would have articulated it this way in 2000 but you know if old retail was product focused and store driven new new retail is customer focused and data driven and sothat,
that gave us an opportunity to start to make that pivot at roo and really get focused on who our customer is.
We launched the loyalty program online. It’s been fantastic.
You know it’s driven engagement with our customers and now we’re now we’re rolling it out in the stores and we expect to have two thirds of our customers enrolled in this loyalty program by nextyear.
[22:34] That’s awesome and I want to drill into some of the digital stuff.
But I do want to poke on malls just a little bit because you’re a great opportunity to talk to someone that is living the mall experience right now.
I just read a scary quote from David Simon who’s the CEO at Simon malls,
and it was something to the effect of Yeah I was feeling pretty good about getting back to work in June and July feels less good and now I’m totally confused about what’s going to happen inAugust.
And he was kind of talking about the fact that like yeah we got most of the malls open but you know now various parts of the country are having challenges and it sounds like they’re having to reclose some malls and it’s really unclear,
what the future is are you guys just having to kind of,
like I assume in most mall situations you don’t even get to pick when you’re open or not.
That essentially the mall is going to make make that decision for you. So it’s just it feels like you just have to be really agile and be prepared for whatever comes.
[23:35] Right. So there’s a couple of things that went on. I think everybody was pretty happy with June and I do think there was a pent up demand in basically all retail channels.
I think June you know there may be some laggards I’m not sure that the department stores did that great.
But but most retailers I think had a nice June into July but then you have two things that created headwind mid-July into August and they’re actually all impacted by Colgate right.
So as the business started to soften a bit mid-July if you charted my business nationally and we have stores in 46 states it looked like a coded map.
So any place mid-July where the virus was starting to increase our bid business was running down and most states were red.
[24:23] And any place where it was under control primarily you know the north parts of the Midwest parts of the Northwest.
Business was very positive and that sort of played out as you know we’d had this surge of increases with the virus.
Now that combined with the uncertainty around back to school,
and I think this has been you know fairly well publicized is you know it’s not clear like when schools are starting it’s different by municipality.
Some schools have pushed it out. There’s some schools in the south that have started again.
Some are going to days on two days off.
And that uncertainty has basically killed the opportunity to hit the peaks of back to school.
So like sats are terrible for two reasons. One those are the biggest volume days and there’s there was urgency in the past from consumers because it was almost like holiday they knew I had twomore weekends before school started. Well there’s that urgency doesn’t exist.
[25:26] And the second thing is in most cases the hours are reduced which isn’t a bad thing.
And actually it paid off really well in June from a profitability standpoint.
I know in our case we used to be open 10 to 9 in almost every location.
We’re now open eleven to seven so.
So there’s three fewer hours and during the week it hasn’t mattered because the patterns to the customers have evolved and there isn’t the urgency.
And so we don’t need the extra hours and we just we just bank that and savings our operating costs.
But on Saturday it’s a problem when you get into these peak timeframes.
Now what I will say is it looks like we’re getting the other side of it because we’ve been charting our business based on you know school starts early mid late,
and the first stores that really had a difficult time with early starts both in terms of it’s not clear when they’re going to start.
So there wasn’t the urgency and they’re up against these big numbers including these tax free events that all moved out.
So the first wave of that was very difficult but now we’re seeing that that first wave of stores are running positive comps for us again because we’re past we’re past the hill from last year and we’remore into our base business.
So we still have to work through the mid and the late waves but I think what’s going to happen and what I’ve told my team is we’re going to evaluate our back to school business on more of an eightor nine week timeframe instead of a six week.
[26:52] Because I think it’s just going to extend a lot longer because there isn’t the same sense of urgency.
And so that could be what. Part of what he’s talking about because the traffic has been very very mixed and that consistent.
[27:06] Yeah. And that that’s a recurring theme I have heard is you know a lot of national retailers you you tend to be one size fits all.
You run the part of the advantage of your scale as you get to run the same campaign everywhere and you get good efficiencies from doing that back to school being a perfect example and in thePost-Cold world per your point.
You can’t go live with the same message in North Dakota that had 400 cases that you you are in Atlanta for example or something and so it’s like I feel like we’re all having to learn to be local andper your point. Did school open.
Is that hybrid like all of those things are are new skills I see retailers sort of acquiring very quickly.
[27:48] Well in and pricing too because you know if you run the same if you’re trying to drive some kind of promotion that you’re trying to get incremental unit sales out of where you have no trafficyou’re just going to deflate your sales.
And that was the one that was hard for the team because this is a team that you know is used to a highly promotional business.
And you know in even talking through you know pass back to schools I mean they were changing prices all the time because there was the six week window back to school which was the secondbiggest six week period in the year next to Christmas for this business. And you couldn’t miss a day.
So. So there was always these adjustments on price and you know that’s where I just had to convince them like look at this.
I mean sure you could you could we could drop the price on denim the BOGO free which is basically 50 off but you’re just going to deflate your sales because you need to get a 60 percent lift tooffset the markdown.
[28:41] And as we went through it and we really looked at like let’s price this stuff so we think we can sell at a regular price at a fair value and you know make adjustments along the way.
But if there’s if there’s if the traffic is off 50 percent in Florida Texas and it’s in it’s flat in Michigan you know you can’t run the same pricing everywhere.
So yeah it’s been but we’ve kind of erred on the side of let’s not be as promotional let’s let’s try and go out with fair prices and let’s try and manage the units or that margin on a unit basis.
And it’s worked and in some ways I think I always sort of had this theory that you know like you get into the holiday season you get into December like everybody goes 50 off everything.
For one thing I hate that because that means you’re selling your very best things at the same price you’re selling the very worst things. And as a merchant that’s a bad idea.
And so I’ve always been sort of averse to this like 50 off all or 40 off all.
And I believe that you know pricing and promotion is as much about merchandising and understanding what the customer wants and what your ownership is.
So that’s that’s like another process that we’ve been able to learn and discover.
And the team is now you know fully supportive of because they see the results.
[29:54] It’s a and unfortunately it’s shaping up to be a 50 percent off. Maybe the new 20 percent off this holiday we’ll have to see but it’s not looking good right now.
[30:03] Yeah the holiday though I see the holiday a little differently. I think the back to school thing is very uncertain and I’m sure that when when everything gets added up there will be much lessspent in total even in school supplies.
I gotta believe it will be less because you know people just you know if you’re homeschooled versus going to school I don’t know.
I mean it just seems to me like it’ll be less because it’s uncertain what’s for certain for holidays.
Christmas is on the 25th and they’re are going to be packages under the tree.
The challenge is how do you connect with the consumer and what’s your distribution strategy to take full advantage of it.
So like that’s one where at real you know we had one single warehouse and we’re very quickly trying to enable ship from store because that way even if the stores get shut down we have the abilityto broaden our distribution network.
And that’s what I think everybody saw that in April. I mean,
AECOM just bounced in April and went from you know I don’t know if it was running the market was running probably up 15 percent or something in February and then it went up to like 40 and50 percent in April and the same thing’s gonna happen for holiday.
[31:18] Quote I’m the e-commerce guy on the show so I like to hear those numbers.
Speaking of e-commerce it wouldn’t be a Jason Scott show if we didn’t introduce the topic of Amazon just a little bit and you’ve you know since you’ve got your career in the started in the 80syou’ve you’ve kind of had a really interesting view.
You saw Amazon come on the scenes as this ratchet online bookseller and then become the behemoth they are today.
What’s your overall view of Amazon are they this unstoppable you know 800 pound gorilla or they’re just kind of going to be 20 or 30 percent of of e-commerce and you know,
high single digits of retail. Where do you fall on the Amazon topic.
[31:57] Wow. Hey you know listen they they have built the 21st century retail infrastructure.
And honestly they’re almost less of a retailer and more of a platform because they’ve got so many lines of business now.
So you know as a business they’re huge. They’re going to continue to grow as a retailer though.
I still think I’ve been saying this for a few years and I have yet to be proved true because they’re still running up 20 percent or whatever on their retail business. Is that right.
I feel like up 20 25 percent or something and if you just look at the retail line of business something like that.
[32:31] Yaakov Kovac gave a bit of this but your.
[32:32] Yeah yeah. So yeah. So you run into them.
They’re still growing. But by the way you know we could have this discussion about Wal-Mart in the late 80s and 90s when they were running up 20 percent every year. Right.
You know and then at some point you get so big that it’s hard to put 20 percent on top of a really big number. So I think that happen Amazon.
I still think there are a number of things that are that could create headwind for Amazon at some point.
I think direct to consumer if I don’t know the direct consumer will ever get to be like 40 or 50 percent of total retail for two reasons.
It’s inefficient. The last mile costs a fortune. And second of all the infrastructure is not built for that.
Just you know U.P.S. and FedEx and Amazon trucks would jam every street in America if we were driven delivering 40 percent of all retail direct to the consumer.
So I still think that this idea of having these distribution points which is an advantage for Wal-Mart,
where the consumer can do all the things they love about online they can go online you know they could put things together they’ve got the information that they need they could do thecomparisons. It’s all done on their phone.
You know it’s easier making a choice online than it is like standing in a crowded grocery store looking for you know the tomato sauce you’re looking for.
So. So I think there’s some limitations in direct to consumer. I also think that.
[33:56] E-commerce grew because of search and I still think the primary driver to e-commerce is the consumer knows what they want and they go find it.
And Amazon gives them a lot of choice and clear comparisons and has taken tremendous friction out and that’s that 21st century retail infrastructure that I’m talking about.
[34:17] However if I go back to when I started in retail and especially in the glory days of department stores the majority of retail aside from my grocery and consumables was discovery based.
So you know a woman would go into a department store in nineteen eighty three she kind of if she wanted to buy a dress but wasn’t exactly sure.
And she came out with you know a handbag and a pair of shoes and you know.
And so this whole idea of discovery which is much more of an emotional shopping trip is something that isn’t great online still isn’t great online.
I keep thinking with all the tools with personalization and you know understanding the customer it’s going to evolve but I still think the best discovery is in a physical store that tactile experience of,
looking and feeling and seeing things and the art of presentation.
I still think there’s a role for that and I think that stores have to up their game in terms of what’s the experience what’s What’s the differentiator in the store.
Why do you go to a store like just to go to a purely merchandise store that’s dirty and that clear how to shop is not a great experience but going into a great store that gives you inspiration and,
gives you ideas and allows you to discover things that you didn’t before.
So I do think that omni channel retailing is is is a is a is a long term sustainable scalable retail model.
And I just don’t know how Amazon plays on that.
[35:46] You know they’ve tried a number of things because I’m sure they have a bunch of smart people you know in rooms with whiteboards saying we’re gonna to figure out how to do this digitaldistribution thing because if we can get a bunch of customers to come to a location and we had all their packages there it’s a lot cheaper for us.
[36:01] But nothing’s really taken hold yet. I mean I’ve I’ve always thought that you know if Amazon would buy like a target or a Kroger that could be a game changer because then they’d get broaddistribution.
[36:13] In one fell swoop and be able to sort of discover how do they take what they know and obviously they’ve got more data than anybody.
And how do they then integrate that into what customers still really want and need which is an an Army experience.
And I think the challenge has been for the physical stores and I saw this I learned this early on in my walmart context is the physical companies had a very difficult time going digital because theythought of everything by function,
and digital to them meant let’s just digitize the function you know even going back to the days of like the sun circular that used to drive the retail business in the 80s and 90s.
You know in magazines still do this. They digitize what they did before and they call that their customer experience the digitally native companies start with what’s the customer experience.
And I I’m still my wife and we’re talking about this today. It’s like I’m still kind of blown away by these magazine companies that still just want to digitize you know Vanity Fair Sports Illustrated.
You know they just want to digitize what they did before as opposed to using this new medium to be able to create a new experience for the Cup for the consumer to consume their content.
And they just haven’t gotten there and it’s because the physical companies can’t get their head around it.
And that’s where I do think the value in these digitally native companies in a lot of them when you really look at it. If you think of e-commerce.
[37:39] There’s only like three really big companies that were digitally native. Big grew into like real businesses and e-commerce.
The rest of them just kind of come and go. They get to 100 hundred million dollars and then they fail or they get maybe to a billion dollars but they don’t make any money.
I still am I still sort of question Wayfair. I mean they have no path to make money and yet you know you’ve got this crazy valuation and it’s the future and this is what the customer wants.
But they shipping all these big cube things that are heavy and expensive to ship.
So you know but there are these these these spaces in e-commerce like small cube high value.
Ding ding ding. It works and there’s value to the customer and you can ship it direct but I still think I mean going back to the original thing.
I just think five 10 years from now it’s the omni channel retailers there and grow be relevant,
and also they need to be agile and I think even the omni channel retailers need to figure out how do they shift their piano to be a little bit more towards variable costs and less around fixed costsbecause that gives you the agility required to sort of maneuver through any situation that’s thrown at you.
[38:48] Yep I know you burn up omni channel a number of times and I’m particularly interested in what you think,
omni channel might look like for this holiday because one of the things that has me worried is you know normal year like the whole e-commerce industry grows like 16 percent last quarter.
E-commerce was up 52 percent and so one thing I know for a fact is U.P.S. does not have enough trucks to have e-commerce grow 50 percent in Q4.
So how are we going to how are we going to fulfill all this digital demand.
that’s why that’s why U.P.S. and FedEx are putting all these surcharges on any anybody mean to do above what your normal volume is.
I think they’re throwing a bucket package on because they know it’s going to be a problem too.
[39:31] I’ve heard it could be as high as three. Yeah. Yeah.
[39:33] Yeah I’m sure I’m sure. Yeah Mike my team probably just doesn’t want to tell me that yet.
Yeah but I think when you see 52 percent that’s not all direct to consumer that’s e com initiated that could end up being picked up in a store so it could be like you know buy online pickup in thestore or it could be curbside.
And I think that that could take some of that.
And honestly there’s going to be a lot of it. I mean I I expect the economy to grow 40 or 50 percent this holiday.
So it’s it’s going to be either a traffic jam it’s going to be very expensive to distribute or you know the winners are going to figure out how do I use my stores get the customer to start online but thenuse my store as the place to,
fulfill that product and actually I mean this is,
it reminds me of you know in 2002 at Wal-Mart we launched what we called at the time Site to Store which is focus.
[40:28] And and I remember the stores were so opposed to it because this was back in the days when the stores thought that e-commerce their competitor was just taking their customer away fromthe store.
But we were able to show them and this is where we got like the Wal-Mart stores to really adapted quickly in 2002 as I recall was that when we showed them the basket,
that the customer was coming in and they were buying something online picking it up in the store and then they added to the basket and the basket back then was five times bigger than the averagebasket.
And so once we got the store managers to see that they’re like okay I’m in because it’s a it’s even if it’s not an incremental trip it’s a bigger basket sized.
So I think that’s going to be a big part of everybody’s playbook is how do you get them to start online and ultimately how do you use your your distribution network beyond your traditionaldistribution network to be able to fulfill for customers.
[41:22] Yeah. Is that so one of the things you have to do in order to be good at it. Digital pre shopping and Pickup In-Store is you have to have your in-store inventory featured prominently on yourwebsite. Is that part of your your website remodel is it.
[41:35] Yeah. Oh yeah. Yes. Yes. And that’s hard. That’s all that stuff is.
I mean the devil’s in the details on all this stuff and you know under understanding where the.
How do you set your your men’s and maxes and what’s the floor and what’s the watermark all that stuff you’ve got to go through and figure it out tested.
So yeah that’s that’s those are table stakes. Got to do it or it doesn’t work.
[42:00] Yeah. And I have seen some reports that some of the mall operators are trying to offer some like aggregated curbside pickup experiences for all of you.
[42:10] Oh I hadn’t seen that. That makes sense. No I haven’t. No I’ll look into that.
Haven’t seen that but that makes sense too because if you could just ship it to them all you know they could they could see they have capacity and you know they could.
I mean again they’d have to figure it out. There’s a whole process you’ve got to put in place.
I mean that’s what I think as everybody rapidly tried to get to know curbside.
Kind of the new buzzword as we got into the cogan situation and there was a lot of confusion around that because like as a customer what does that mean.
Does it mean I just pull up to the door and wait.
You know and some companies did it pretty well. You know they you you’d call a phone number and you talk to somebody and they bring it out and other ones you know you’d still have to likepark and go inside and find the person that was supposed to bring it out to your car.
That’s where I think Wal-Mart has an advantage. You know I remember back in 0 9 and 10 we were trying to do,
grocery delivery online and build that capability and this was still where it was a bit of a like an organ transplant that didn’t take because the costs were high.
But we just kept pushing and pushing and pushing and I think thankfully for Wal-Mart they stuck with it because I think their drive thru has been and ultimately that morphed into know drivethrough pickup.
But you still had to have that capability with them in the store to figure out how do you pick pack and and get it ready for the customer.
And I think that’s a huge advantage for Wal-Mart.
[43:36] Yet another trend I wanted to pick your brain on because you’ve been in the retail industry so long is you know we talk a lot about this on the show of these brands going direct.
So for she had kind of electronics like obviously Dell and then now it’s linked into apparel where we’re the CEO of Nike said they want to be majority direct to consumer.
My understanding is at Ru 21 you mostly carry other brands right. Do you worry as a retailer.
[44:02] NO NO WE CARE. NO NO WE CARE our own. Yeah. Yeah. So we’re we’re directly consumed with our own brands.
[44:04] Oh it’s all OK. Yeah,
OK. All right so here you’re almost like part of the trend in a way I guess with.
[44:11] YEAH. AS LONG AS YOU’RE PART. YEAH. YEAH. I just think though. But but we’re a retailer right. We’re a retail brand.
I think it’s a little different. I think with consumer brands with consumer products there will be winners and losers not it doesn’t work for everybody.
[44:26] And if you have a path look like the shape club thing you know and I don’t even get not close enough to it anymore to know which one’s winning and which ones not.
But you know when you can get a customer on a specific product and then you can broaden the offering into sort of adjacent products that are complementary and this idea was a Dollar Shave Clubor one of them they basically wanted to own the bathroom for the guy. Right.
And that’s an interesting idea especially if you can get the consumable thing going.
And you know especially younger people they’re out there they’re OK with this subscription thing.
You know I mean they grew up with Spotify and Netflix. This is not whereas like the older generation hates all that stuff because they think in terms of like what I’m going to sign up for a monthlyfee for this thing every. But that’s the way the old people thing.
They’re more about like subscriptions than they are like actually going to the mall buying clothes.
So I just think there’s winners and losers. I don’t think it works for every every brand.
And then the economics have to work. So again you know it’s like small cube high value. OK.
There’s there’s a. And then then especially with frequency of purchase. Ok that sounds good. Like now is the brand distinctive. Is it unique.
How is it positioned against competitors. And you kind of have to just work through all that. I don’t know that you know it’s one size fits all and this is a trend where all these companies are going togo directly to consumer and it’s going to completely disrupt any kind of you know physical distribution.
[45:51] 1. So I saw you’re on the board of untucked and they kind of went down this path.
I kind of put them in this digitally native vertical brand bucket like bonobos and all these guys,
and then you know it seems like there’s this trend where those companies all get up to a couple hundred million in revenue and then they start opening stores and I’ve noticed on tuck it has beenopening a fair number of stores or sometimes they’ll call guide shops and stuff.
Do you think that’s you think the mall is going to be full of just kind of brand stores in the future.
[46:18] Well I and it it did a really good job because what would bonobos did and I’m obviously much closer to talk of time but bonobos spend a little bit about it you know they got their business tolike an online business that was one hundred million dollars and I don’t think it was ever profitable.
But then the way to grow was ad stores untucked actually went out a little differently.
They did start as an online business but very quickly they saw the opportunity to have a physical location to be able to get customers to understand the quality of the product and the fit.
And so the stores I mean the stores are primarily around get him into the store and find what their fit is get them comfortable with the quality and then the repeat is online.
And so they did very surgical about you know where do the stores go and what’s the what’s the role of the store.
Because they didn’t come in and just do like you know full on apparel stores like a lot of the competitors would’ve done.
It’s it’s a different it’s a different experience in the store.
There’s a lot of service and and and the objective is really about you know quality fit experience which ultimately leads to more engagement and fulfillment online.
[47:28] So I think some and then they did that sort of like step by step.
And every time that we’ve got as stores you know we get more online business.
And it just kind of they work hand-in-hand. And then there was a very good strategy to understand the customer to understand the cost of acquiring a customer and then figuring out how tomonetize that by having this experience.
[47:50] I think a lot of the other digitally native companies sort of backed into a store because they ran out of growth.
And this is the one thing that’s just so clear when you’ve been on both sides just like once you build a store you have some marketing that’s built in.
It’s called traffic. It goes by your store every day online.
You have to buy the traffic every day. And I think part of the problem with these digitally native companies they get started and they’re marketing is pretty viral and doesn’t cost them a lot until theyget to a certain level.
And then they’ve got to play with the big boys they’ve got to get involved and they’ve got to start like bidding on keywords and they’ve got to start paying the price of what it takes to drive traffic.
When you get to a certain love volume and a lot of these then the the startups behind them are coming in loaded with cash and so they’re beating the prices up.
So all the digital advertising just keeps going up.
And then also there’s a correction a bunch of these companies go out of business they go away the prices come back down.
And so it’s just like been the self-fulfilling prophecy it’s like nothing I’ve ever seen in media before where you know the small guys are actually driving up the prices as they’re trying to scale and asthey’re funded by you know.
[48:59] By venture and then they drive the prices up and then they can’t get to a certain point they can’t afford it anymore.
I mean that’s what happened with Wal-Mart and Jack is that you know as they got into it and tried to scale jet like the return on ad spend was terrible and jet compared to Walmart like every dollarthey spend on Walmart would be much better return because they have a much bigger scale.
[49:21] For sure and I feel like that. I mean you’ve you’ve perfectly articulated it.
But you know all these companies have some natural plateau they hit and the only way they get over that plateau is irrational unsustainable spending. Yeah.
[49:34] Spend more. Right. And the spending just doesn’t work. And if they sell their investors on. But if I can get to a million people.
And there are these thresholds if I can get to a million people if I can get to two million people and I’m sure somebody started this whole thing is you know you start out and if you have a reallygood value prop it kind of happens virally through social media.
It doesn’t cost you much but you take it very big that way and then you know then you just keep making these steps up and every step up cost you more.
And so it’s the opposite of like how Wal-Mart built its business where you know the scale actually brought costs down.
[50:06] Yeah. And so for that reason I sort of I don’t see V.C.
As being the way that these things keep getting funded because the vehicles have to have a billion dollar exit to make sense.
[50:17] Right. Right.
[50:17] And you know only a couple of these are gonna get billion dollar exits and only because they’re gonna sell themselves to someone established that’s desperate like a Wal-Mart or Unilever orsomething.
But but so if that’s if this is a temporary thing I guess I’m kind of curious.
I’d love for you to kind of put your future hat on. We are coming up on time.
So there is a perfect sort of wrap up question as this all plays out and we we think about the retail landscape five years from now.
What what does it look like. Is it is it just Wal-Mart and Amazon selling general merchandise and everybody else is a specialty retailer that makes their own stuff or what.
How did you. What does the landscape look like five years from now.
[50:57] Yeah there’s more big players than that though. I mean there’s there’s Wal-Mart Amazon Target targets. Target’s got a reason for being because they’ve got a distinctive approach.
They’re their product and their experience is distinctively different than Wal-Mart’s.
And so you know there’s there’s at least three big players. The place with that that I think goes away is department stores.
They’re just in this long slow decline. And you know the advantage Macy’s has is they’ve got some really good locations.
[51:27] But you know and then people could argue like a Coles Well they’ve got like this really convenient format and yet you can actually cope with big plays to tactical strength because there wasthis migration away from the suburbs.
You know the soccer moms that they’ve got their business on wasn’t like a growth segment anymore but now all of a sudden people may be moving back to the suburbs so maybe there’s more trafficthere.
The problem I have with department stores is when you go in and look at their product offerings category by category they’re not great at anything like you know somebody does each thing thatthey do better than they do.
There’s still a few you know like cosmetics and some department stores Home Furnishings housewares.
There’s a few that are still quite good.
But I do think it will be a series of big players both Ford and GM with a lot of specialty players underneath it that will be you know it’ll it’ll just be social Darwinism with that with the specialtyplayers.
You know it’s interesting when when I was at Wal-Mart I was the CEO dot.com.
Then they finally got me a book about Bill and I took out the chief marketing officer role,
and I wasn’t really a marketer before but I think I understand retail marketing but the challenge that they gave me was you know go out recruit a team of classically trained marketers to really youknow take take our capability off dramatically. And I did.
I brought in this guy named Stephen Quinn who succeeded me and went out and had a nice career at Wal-Mart.
[52:55] I remember about three months into it four months into it.
We’re putting something together for presentation and he said Man this retail game is brutal. And I’m like What do you mean.
[53:05] And he pulled out a chart. So he’s a CPG marketer right.
And he pulled out a chart of like the top 10 CPG companies from 1980 to what they were in 2000 and they were exactly the same.
[53:19] And you could name them PMG Kraft Coca-Cola Pepsi you know Unilever and then there’d been some reconfiguration and maybe one was three and three.
They’re all the same. You do the same thing in retail.
There was only one company on the chart that went from being a top 10 to staying on the top 10 and that was target because they reinvented themselves.
They were Dayton Hudson as a department store chain and morphed into Target which kept him on on the chart,
everybody else had moved from because the old chart was all department stores and variety stores and the new chart was all like value players you know big box.
And increasingly Internet you know like Internet like eBay and Amazon were starting to crack the code.
So over a 20 year period the whole thing it just completely changed.
And and that’s going to just keep happening I believe.
[54:14] Yeah. You know it’s funny because Steve Quinn gave that graphic to Doug McMillan the CEO and so,
Doug still pulls that out on his phone and he’s and he’s like me and I remember when we were the upstart looking up the hill at these white guys at the top of the list and he’s I went to bed one nightand now we’re at the top of the list and there all these guys work you know looking to knock us off. And it’s you know.
He likes to remind everyone that that your position on that list is not guaranteed.
[54:40] Now I know that Charney has the before Wal-Mart wasn’t on it and Sears was at the top right and then and then and the one from 2005 whenever Steve Quinn put it together was like Wal-Mart was at the top.
[54:45] Yeah. Absolute.
[54:52] But yeah who knows. I mean listen Amazon is a force. There’s there’s no doubt about that.
[54:59] Yeah. As a witness of this show we’ll we’ll certainly know.
And John that’s actually going to be a great place to leave it because it’s happened again. We’ve used up our allotted time.
As always if there’s something we don’t cover on this show feel free to hit us up on Twitter or Facebook and we’ll be happy to continue the conversation as always if you appreciated the show.
We’d love to have you jump on iTunes and give us the five star review.
[55:21] Tom do you do you pontificate on liner.
[55:24] No not really. No no. I it’s funny No I don’t actually. The only reason I pay attention to it is because I need to understand how it all works.
You know I asked my kids questions and stuff like that. But now I don’t really I have no social media presence.
I think it’s just a stage of my career. You know I’m not really looking for something else and I’m not really looking to build my brand.
I’m sort of like to be behind the scenes and you know I enjoy the role I have right now because I think I’m able to help some people make a difference. But I don’t really need much attention.
[55:55] Then I see your work. They can stroll through the Rue 21 star.
[55:58] Sure. Absolutely. Thanks guys.
[56:00] And until next time happy commercing.
EP231 - The Forever Transaction author Robbie Kellman Baxter
Robbie Kellman Baxter (@robbiebax) is the best selling author of “The Forever Transaction” and “The Membership Economy.” She has become a well known subject mater expert on subscription and loyalty programs.
In this broad ranging interview, we discuss well known subscription based brands including Dollar Shave Club, Blue Apron, Stichfix, BirchBox, and Netflix. We also cover issues including subscription fatigue, cancelation friction, and Rundles.
You can find out more about Robbie’s consulting work and her podcast at her website.
Disclosure: links to Amazon are affiliate links.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 231 of the Jason & Scot show was recorded live on Thursday, July 30st, 2020.
[0:24] Welcome to the Jason and Scott show this is episode 231 being recorded on Thursday July 30th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners
We are continuing our I’m doing air quotes you can’t see me Summer of awesome guests and we’re really excited to welcome to the show Robbie Kellman Baxter.
Robbie has a ton of experience working in the trenches at subscription companies and is leverage those experiences to write
two great books that we strongly recommend the first was published in 2015 called the membership economy and then she has a new book that’s hot off the presses came out in March so good timing with covid I guess and that’s called the forever transaction
welcome to the Jason Scott show Robbie.
[1:16] Thanks so much for having me.
[1:18] Robbie we are thrilled to have you on the show
is you know it’s a little bit of a tradition on this show we like to get to know a little bit about the guest Scott obviously already mentioned your books but can you give us a little bit of background about how you sort of got in the world of marketing and subscriptions.
[1:36] Yeah well it I guess it’s you know I’ve been in marketing for most of my career but my Consulting in the subscription while and I was a product manager for about five years after business school and then I got laid off what I was on maternity leave with my second child
and I decided during that time that I need to be
independent and able to manage my own career and my own income as a consultant
and very soon after that I realized that if you want to thrive as a consultant you really need to have an area of expertise so I was trying to figure out what is big enough that it could
juicy enough that I could be interested in it for a long time and it would be valuable to people but also narrow enough that I could credibly.
Say I was an expert and then my I think it was my fifth client you know the first for clients I was really just trying to pay the mortgage and provide some value but the fifth client was Netflix.
And I just fell in love with the business model I’d already fallen in love as a consumer I loved three out at a time which it was back in the day but as a business person I love
the recurring revenue and the focus on the long-term
with the customer and that’s really where I got interested in you know what I’ve come to call the membership economy.
[2:57] Yeah I understand that investors have one of the recurring business model of Netflix as well.
[3:03] Yeah everybody loves the recurring Revenue you know that the valuations are you know whatever 5 to 7 x what their transactional episodic counterparts get which is pretty much making
every business interested in subscriptions it’s kind of crazy.
[3:22] Yeah yeah I feel like it was already hot pre-pandemic and then if anything the pandemic is only accelerated that conversation I know Scott’s eager to jump in to Netflix but I do want to just say that that seemed like
super morally dubious to lay you off while you’re on maternity leave and legally perilous I would imagine but I’m I’m glad it had a such a good outcome though.
[3:44] So interestingly are you know at the time very disappointingly it’s completely legal if there are other people who are being in a group lay off in a mass layoff if there are other people late being laid off who are not.
Pregnant or just coming back from maternity leave and there are also people who are pregnant or on maternity leave who are not laid off then they’re completely good,
it’s only if the only people being laid off are the ones with the big bellies.
[4:14] Yeah fair enough it’s crazy because I’ve done some studies and it turns out a hundred percent of people have a mom so it seems weird that we wouldn’t treat.
But Scott did you have a Netflix specific question.
[4:29] Yeah give us a time frame on Netflix was this kind of when they were moving from DVD to streaming or were they well into streaming when you’re there.
[4:37] It was before both of those things it was when the three DVDs out at a time and,
other parts I was in the working in the marketing organization under Leslie Kilgore and Jesse tights Becker.
But this you know it often other parts of the organization they were thinking about what was going to come next and how could they continue to be relevant and provide you know when I think about what Netflix does it’s you know.
Large selection of professionally created content delivered with cost certainty in the most efficient way possible so at that time it was three DVDs out of it
the time being the most efficient way possible but they were already looking at what is the next most efficient way possible going to be so streaming and downloading and
you know going through consoles versus going through your phone and all of that they were thinking about it but when I was.
First working with them this is 2002-2003 they were three DVD out at a time organization.
[5:37] Wow and for our gen Z listeners DVDs were these plastic circles that had a movie on them and you could actually put it in a machine and watch it they were amazing.
[5:47] And they came in the mail not not email but actual mail in a mailbox very exciting.
[5:53] Yes Samuel do you have any fun Reed Hastings stories you can share with us.
[5:58] Well you know I didn’t work with with him I mostly worked with Leslie and Jesse but the thing that I remember the most about that company was how.
Incredibly focused they
on what they did and how not interested they were in all the shiny objects going on around them so you know people would constantly be you know I was in that working with Acquisitions you know so how do we acquire new customers
and you know
all kinds of crazy stuff would come in over the transom you know hey we want to give away Netflix for free to you know when you buy a puppy or we want to you know like a you know it’s whatever you know anyway everybody wanted to kind of get in on it.
And they were so focused on is that the kind of customer that’s going to get value out of Netflix because if not we’re not interested
and that’s really what has you know one of the things that’s really stuck with me over time is how how focused they were so narrowly on you know they weren’t they weren’t three gain video games out at a time it wasn’t you know.
Getting the most new subscribers it was about finding those people that we’re going to get value and stay for a long time.
[7:05] Break oh yeah so we thought we would try to break this up into kind of two parts
the want to talk about a lot of the concepts in the books and then use the second half to really kind of dive into some examples so one of the things I just finished both books and I kind of read them together and
even though you wrote them kind of in a 5-year separation there they really kind of hang together really well feels I’m a Star Wars fan so it feels like maybe you’re working on a Trilogy I don’t want to.
Hold your feet to the fire on that but so let’s say there’s listeners out there that haven’t read the books how would you say you know that they should approach them and how do they kind of fit together.
[7:41] Yeah so I think of the membership economy as the Y and the forever transaction as the.
So when I wrote the membership economy a lot of people still didn’t think that subscription was relevant to their business and so
I wrote the membership economy to save this as a massive transformation
that is really powerful and positive for a lot of organizations of all shapes and sizes and you.
You know business leader Organization leader entrepreneur should consider it no matter where you are in your business cycle.
And here’s why and then five years later I don’t have to explain to anybody the power of recurring Revenue.
But what people are saying now is we tried it and it didn’t work or we’re trying it and we’re running into this problem or it used to work and now we’re running into this new challenge or we’re thinking about it but we’re not sure where to start and so
the forever transaction breaks down.
You know how to launch a new business with a subscription component or a membership mindset how to had a skill that business once you have product Market fit and then how to maintain a leadership position
in a kind of steady state mature business that uses subscription or membership.
so I’m struggling because I’m trying to go back in time to 2015 and think about what the climate was like then but in covid it feels like I’ve spent five years in the last three months so I’m my brain is a little muddled but if I have this right like,
in 2015 there were a lot of trendy new businesses that had a subscription model as a core component so I’m feeling like the meal kits were really taking off like that might have been.
[9:34] Meal kits were new Dollar Shave Club was the big one,
when I was launching the book and I’m trying to remember if it made it into the book or not but that was a bit you know billion dollar acquisition by Unilever and,
a real people were really starting to say wow look at that it can work in consumer products and in packaged goods and.
That was you know so it was sorting you know people were starting to think about it but.
Most large organizations weren’t use it you know wasn’t a core part of the strategy and there were a lot of businesses that you know weren’t really thinking about it at all yet.
[10:15] And then when you look back on it,
our organization still missing something or does pretty much everyone have religion because you know obviously Unilever had to buy Dollar Shave Club to get the sand P&G I think it’s taken several runs at this I don’t know if they’ve got a lot of traction with with things but.
[10:31] Yeah it’s I mean I think that the problems that are like so right now I think they’ve got religion to the extent that they’re like.
Most people would say subscription you know recurring revenue is something we want and we value
getting closer going direct to our to our customers is something that we value we want to do this but I think a lot of organizations still think that they can just slap subscription pricing on whatever products and services they already have
and call it a subscription and I feel like subscription is a pricing.
Tactic it’s not by itself a strategy and I think where organizations are still missing the boat is that they.
Don’t understand how it’s going to change not just marketing where you’re like on the pricing and packaging side but the product itself.
And the way you sell and support that product and then of course the way you recognize the revenue on the finance side.
[11:31] Yeah yeah it’s a lot it’s easy to say but then like you know how are you going to do if you haven’t had any direct relationship how are you going to do just the pricing just the hitting the credit card every 30 days and all those things that kind of come along with it.
[11:44] Yeah there’s a lot of tactical stuff you need new systems new processes you also need a different mindset because in product-centric businesses you know everything leads up and culminates in the moment of transaction
right you you know awareness trial transaction.
And then you go out and get another one or try to lure that person back and in a subscription model that moment of transaction is the starting line not the finish line and so
everybody’s role changes it’s easier in a lot of cases to sell a subscription to acquire a new subscriber because often the prices lower
and the commitment is lower but it’s easier for them to leave so you have to invest more in engagement and retention if I go buy a car
if I buy a Lamborghini and I roll it off the showroom floor after giving them a check for the full amount and I keep the car in first gear and I say this is a terrible car doesn’t go fast at all.
That’s my problem not the Lamborghini dealers problem if I’m subscribing to that car and keeping it in first gear.
Right and I say this is a terrible car I’m going to cancel my subscription so suddenly the responsibility for engagement and usage and realizing the value goes,
to the organization and away from the customer.
[13:04] Seems like most people the way they stopped from you in your subscription is just to hide from you so I don’t know if that’s right.
[13:12] Hiding the cancel button yes.
[13:14] Yeah call us in the near like six hours later you still are there trying to upsell you.
[13:20] Call us call us on Tuesday mail us a letter.
[13:25] X effects yeah.
[13:26] Yeah right send us a fax it’s very I mean I’m I’m very anti hiding the cancel button that’s actually a lot of subscription you know I of course,
involved a lot of you know subscription events and description shows and you know groups of CEOs of subscription businesses talking about best practices and often I hear them
bragging about how they’ve increased lifetime customer value which of course is the key metric for any subscription they say we’ve we increased it by X percent
in effect by hiding the cancel button by changing the user interface for cancellation so that it’s got more putting more friction into cancellation.
And to me first of all I feel like although that’s legal and allowed it’s unethical and
who wants to be in the business of making money because your customer couldn’t figure out how to get away from you and it also in the long-term I think it really has a negative impact on
the brand equity on the trust that that customer has in the way that they talk about that company to their to their Network.
[14:33] Yeah you know it it so it is I mean it’s a challenge because.
It’s such a horrible customer experience and there’s all these reasons not to do it and and long-term Equity customer trust is so valuable like there’s a there’s a bunch of rational reasons to argue not to do it.
When there is an evil argument to do it that the customers that want to cancel are the least likely to come back and and so you know do we really care about creating a horrible negative experience for that particular cohort because they’re the.
The least important for us to cater to.
I will say one thing though it actually is start the the laws are starting to become more dubious so there is now a California law that went into effect last year for digital subscriptions that say and it’s.
There’s a lot of nuance but essentially it says if you offer a digital way to subscribe to a service you must offer an equivalent Digital Way.
To unsubscribe so you know a common practice is one click subscribe and then you have to call in wait in an on a phone queue for half an hour to cancel and in California that’s now actually illegal.
[15:41] Yeah and you know I’ve had I’ve had several conversations with the woman who is responsible for suing unethical subscription companies for the FTC Leslie Fair what a good name for you know real house.
[15:55] A great name for a lawyer.
[15:56] And you know what she she said it’s you know we’re not you know all the questions you know I’ve spoken with her at some at some conferences and you know she gets a lot of questions like,
you know what is the minimum font size for the fine print and is it okay to go silver on Gray.
With you know the the font being in silver on a background of gray or what shade of grade is allowed or how many gradients of difference is the minimum and,
she always says she’s like we’re not going to tell you exactly how to do it.
But the goal is to be fair to the customer the customer needs to know what they’re getting into they know what they’re going to need to know what they’re going to be charged and they need to know how they can break off this contract.
If they decide they no longer want to be a part of it.
And yet organizations continue to be bad actors I think one one really interesting thing that I’ve noticed you know in working with a lot of different companies
is that companies that are focused on Legacy or that are focused on the long-term such as family-owned businesses or closely held businesses often take more of a long-term approach than businesses that have leadership being
evaluated on you know quarterly deliverables with a much shorter time Horizon the behavior towards their customers is very different.
[17:13] Yeah that makes total sense so,
I definitely mirror your experience I could totally see back in 2015 that there was an interesting conversation to be had about should you even have a membership program and what would that look like but but per your experience with that mental a lot of people is let’s just
find a way to recurring charge to the credit card and returning ship and not think about the customer experience of membership or
the value prop in a different way or all of these different things that people are doing wrong and that’s why it makes perfect sense to me that five years later you’d have to write the how book to sort of correct all those errors is that.
[17:52] Yeah exactly I mean everybody’s doing it now and they’re they’re bumping into these these problems in one example if you look at Dollar Shave Club which was of course a big deal in 2015.
And what Gillette did
it kind of in response and you see how if you’re a consumer product I don’t mean to pick on them but you know you look at a consumer product package goods company where there used to shipping things on pallets.
Write an optimizing for you know Distribution on trucks to warehouses and then suddenly they’re sending it to Consumers right you know even if they get the package to you
the package you know it’s it’s packaged like a delivery to a warehouse It’s not beautiful and fun and in frankly easy to open
and also in order to have simple pricing for a consumer which is what is really in my opinion is really critical to a successful subscription
you have to have some risk on the side of the company because you know your shipping costs are going to vary depending on where you’re sending it to and what the person actually needs and how frequently they need replenishment is going to change
and so they ended up having a very complex solution not being able to handle returns very well.
[19:12] Not being able to handle changes in the order very well because they just weren’t set up for it and those are all the elements it’s not just about you know
sending the razor’s directly to the person or having a clever ad about subscription it’s about the whole supply chain and the way that the product is supported as well.
[19:32] Yeah and you know what else I’ve found the you alluded to this earlier but the.
Your mindset you are a different company when you’re selling that membership than you are when you’re
selling the the one-time-use widget like it’s on the analogy I make sometimes is.
When you’re selling a big expensive thing you have to decide really whether you’re going to be in the leasing business or the selling business and do one or the other it’s kind of hard to do both and so I think of like
there are a lot of coffee companies that launched subscription services in the primary value prop was always will ship you the coffee this the same day we roast it in fact Walmart just rolled that out of all people
and I used to always chuckle because you’d go to the website and they both are trying to sell the coffee as a brand and tell you to go buy it from the store where it’s been sitting on the shelf for.
Weeks and then like you know 20 pixels lower on the screen there talking about how coffee sucks unless you get it the day it’s roasted and you should subscribe and it just it feels like,
need to make one of those value props or the other but like you can’t put those two things side by side because they’re at cross-purposes.
[20:41] Yeah exactly and it’s so hard for organizations because a lot of them are trying to well
either they’re trying to capture both values or they’re trying to transition and it’s a very scary thing when you have a successful business to move to subscription because you risk cannibalization you risk that
you know losing the revenue you have from your best customers.
Like let’s say that you have like let’s say that you’re a video game company and you have games that you sell for $60 a piece most of your customers by one game
you have their 60 bucks though if the only people who go to your hundred dollar a year subscription or the people that are buying two games a year already,
you’re going to lose money on that transition but if you keep the you know if you.
Keep the two in parallel then you have to make a case that the experience of buying the game outright is no better or worse and subscribing which of course it’s going to be different so one of them is probably going to be better.
Like with the coffee example so it is really tricky to make that transition especially if you already like a lot of big companies now if you already are really good
at the transactional side and generate real Revenue it’s very hard to kind of navigate that transformation.
[22:00] For sure I do want to get slightly back on track with a book so I did get to also read for every transaction and you
there’s three main sections of the book launch
scale and weed and I confess I did not read the membership economy when it came out but I’m imagining a lot of the topics in watch feel like they might be updated versions of the
the why a little bit versus scaling weed being the how is.
Is that true I like did some of the the wise change and did you feel like you needed to update those.
[22:36] You know.
[22:37] Am I you it’s totally fine to say I’m wrong too by the way.
[22:40] Yeah well I mean it’s in Chimes I’m sorry sort of thing is it’s an interesting thing I think you know not
when I was writing the book I was very worried that I was going to be regurgitating what I’d said in the first book and you know I really wanted it to be different I think that there is there is there’s a couple of chapters devoted to the Y at the beginning because I want the book to stand
on its own but pretty quickly you get into I did not get into the nitty-gritty of how do you launch.
Your subscription business which is actually for a lot of organizations that’s the hardest part like okay we have this Vision that we’re going to be this ecosystem for
for whatever it is you know this is going to be the place where all you know ad agencies gather and share best practices and people manage their careers here and they get training and education and access to products and services and blah blah blah
but today what are we going to offer because how do we get there and so
that launched section I really had to break it down into what do you do if you’re launching as an entrepreneur where this is your
the beginning of your business and what do you do if you actually have a going concern as we just talked about how do you
how do you start and not distract the rest of the organization but quickly
but also change the culture as that subscription begins to grow.
[24:01] How did one of the cultural things I imagine that’s just we see this in the world of omni-channel is just sales compensation right
no sales execs usually paid on the full value of a deal in an upfront and now you’ve got the subscription any best practices of how to get the sales word kind of aligned.
[24:19] Yeah it’s really hard because some in some cases I mean that especially like on let’s say the B2B side.
[24:27] You know it might take a different kind you know a lot of times salesperson is a little bit of a big game hunter right and they go out and they find the woolly mammoth and
you know it’s hard to kill and they bring it back to the to the cave and they tell the rest of the village like you guys deal with the carcass I’m going to go out and get another woolly mammoth.
And that’s not the subscription model the subscription model is much more of a farming method where the initial acquisition is not that hard.
But engaging and expanding the relationship over time is different so I think the first thing that an organization needs to do is to recognize that,
it’s a very different model you know and that success is you pointed out is not just based on that moment of transaction but it’s based on the longer term.
Result with that account and then to think about you know what does that mean for our existing sales team do we have the right people.
And how do we transition them if so to this different model and different metrics because I think salespeople are very driven they’re very
practical rational people if you know if you email them in a certain direction and say this is what we want and this is what we’re gonna pay you for that’s what they do but I think in some cases you might even need a different kind of person and you know inside sales especially right now in covid
you know a lot of businesses are realizing that they can actually do a lot of their sales without an outside sales team.
[25:53] Without everybody actually being you know remote and selling with a lighter touch.
[25:57] It’s a bad time to be a mammoth Hunter.
[26:01] Scot and I are actually old enough that we remember when people used to just bring Willie mammoths back to the cave so those were those were.
[26:08] Those were the days yep the lot of it reminds me of software-as-a-service we’ve had to do the same thing in the software World years,
so it’s kind of interesting that the cpg world now all the other things are coming that way so then the second part of the book is scale maybe you know obviously want to whet people’s appetite what are some of the interesting techniques for scaling these models.
[26:30] Yeah so there’s a bunch of things so there’s the infrastructure component where you have to actually you know in a lot of cases think of different technology to solve these problems you know you’re much more interested in engagement which you know a lot of companies don’t track it all like
most cpgs have no idea if I’m using the same toothbrush for a year or a month,
how hard I brush how long I brush what kind of brush I need so they have to
you often have the technology to do a better job of tracking things differently the Oral-B is a great example of that they have a a nap
that links to their their electric toothbrush which I enjoy using,
so so that’s kind of a one-party sort of thinking about what kind of technology and what kind of metrics do you need to track and I think the other big thing is changing the culture you’ve alluded to this but I think this is a really big.
Challenge in the scaling piece where you say Okay so
the way we sell is different the way we support is different it’s kind of a move in those in the SAS world if you know that move from technical support to customer success
is a very big change in the way the organization thinks about how they serve their existing customers,
and you know changing that culture to be focused on the customers long-term well-being and engagement is you know a pretty big process and something that I go into a lot of detail on in that second part of the book.
[27:56] That’s very clear
cool it makes a lot of sense and then the third section of the book lead you talk about a lot of things that feel like they’re very much in Vogue right now like how you keep that weed or ship position as a membership service and so you know how do you deal with things like churn and subscription fatigue can you talk a little bit about some of the key themes and Lead.
[28:17] Yeah so so the company’s when I when I was writing lead the company’s I was really thinking a lot about our,
the news organizations the gems the professional associations these organizations that have been membership oriented for a long time that are actually
quite familiar with subscription but they’re finding in many cases like what I hear them saying over and over again is
young people aren’t joiners young people aren’t readers young people don’t value loyalty
and what I was seeing was not that young people were any different than people have always been but young people
are making that decision for where they want to have a forever transaction to solve that long-term problem with fresh eyes
and when they looked at the opportunities that they had to solve that problem whether it’s where do I go for my professional development in my Professional Network
or where do I
get information of what’s going on in the outside world so I can better understand my own world and make better decisions which is kind of the forever promise of news or
what is the best way for me to get and stay fit which is kind of the world of gems.
[29:34] These young people are these new buyers were looking at you know
the gems and the association’s and the newspapers and they’re like well that’s not really the best way given what else is available for me to solve those problems you know I can look at Twitter for my news or and get you know user-generated content that’s much more current And Timely or
you know I can get it for free or I can go to CrossFit instead of a traditional gym and have much better community and engagement and so.
[30:03] I think at that at that lead phase I think it’s really important for organizations to balance the way they focus on existing members.
And the way that they focus on tomorrow’s members and looking at acquisition and usually these older organizations are really good at engagement and retention
and they’re not good at acquisition whereas I think in those first two phases
you know the risk is often that they’re really good at acquisition and then they have a leaky bucket so that the issues that I see there in that lead phase are around
staying relevant so iterating on their offering to stay relevant and to keep that forever promise true the way that Netflix has with you know once it was three DVDs at a time today it’s streaming but the promise is still the same.
And the other thing that happens is that we’ve talked about a little bit is that in this phase it’s very tempting to take advantage of the trusted relationships to hit a short turn number.
Writes all here organizations saying well we can just throw in a small fee or we can just not improve the product this year because our members are so loyal and they’re not looking at Alternatives so they’re not going to go anywhere even if we don’t give them Great Value this year.
And that’ll help us hit our number.
And so those are some of the issues that you know by focusing on today’s members and by taking them for granted you often.
No neglect tomorrow’s business.
[31:30] Yeah it’s got tricky.
Interesting so so that’s super helpful and then if listeners want more than they’ve got to go get the book which we strongly recommend let’s let’s talk about some company examples now that we’ve kind of got the framework in place it wouldn’t be a Jason and Scot show if we didn’t talk about Amazon
so you know as you’ve been talking about this I my mind always goes to Prime and I think Jeff Bezos said something like you’d have to be.
Almost like irresponsible not to subscribe to Prime they just want to pack so much value into the program how do you view Prime and is it is it kind of the Holy Grail of these things or can you point to something you think they’ve
they could have done better or where do you fall on the prime world.
[32:15] I think they’ve been really they’re a great example of this forever promise and I use them often as an example because
you know today the you know they packed so much value into it you know you go there for you know certainly for the free shipping but also for the video content the audio content,
the in all of the other services that they provide but if you remember you know the the forever promise I think of Amazon is to remove all friction from all purchases
right that’s kind of you know and I wonder sometimes in Jeff Bezos has world if it’s like you know I just think of a product I need and it a magically appears and I say no no that’s not what I meant and it disappears in a puff of smoke.
[32:58] They actually have a patent on that.
[33:03] The the Amazon Genie like Syria but you know the thing that that I think is,
is really interesting to remember is that when they started because this gets back to that you know that launched phase when they started all they did was deliver books they made it easier for you to get the book you wanted but you have to actually wait a long time for the book and the shipping was not free
so you know they’ve layered in more and more value.
Overtime to better deliver on that promise of removing all friction from all buying.
And so I think it’s actually a really good example and the other thing that’s interesting about it people often struggle with pricing of subscription and something that’s interesting about Amazon is that most people when I tested them they don’t even know how much they pay exactly.
Yeah I think it’s is it 99 or a hundred nine or 89 or a hundred and twenty-nine I don’t really remember and that’s because as you pointed out they’ve packed so much value in that it’s they’ve really made Amazon a habit.
For people that it’s the first place they go when they need to buy something.
[34:12] Yeah it’s interesting there so that you may not be familiar with them but there is a a prognosticator in our industry he’s actually an idol of Scots a professor at NYU Scott.
Exactly I’m teasing Scott I know you’re listening we’re just we’re just.
[34:32] Um the Scot is the bane of my existence for several reasons but one is because I have a lot of clients that are
um zealous followers of Scott and so one of the themes that Scott like Ruiz picked up on and started hitting hard a couple years ago was this idea that he coined of a Rundle which is a recurring
Revenue bundle and so I then have to go to all these retailers and sit in on the Rundle meeting where they’re talking about like what’s our Rundle what’s our
sort of recurring Revenue business that we could add on onto our thing like I’m kind of curious.
Like do you agree with him and it was that in exciting thing that brought attention to it or is it oversimplifying to sort of just just think of it in terms of the revenue and not really the product in the experience.
[35:27] Yeah I mean I think that the idea is a good one and it’s a very catchy term you know Rundle I like that but I think I mean a couple things.
I think that org a lot of organizations don’t there they over focus on the benefits to themselves.
In terms of you know if we do this we get bigger transaction size we get more power we disintermediate all these other third parties we get recurring Revenue.
And I don’t hear enough about why a customer would prefer Arundel
that’s sort of the first the first issue is you know I think a lot of organizations don’t think about that very hard at all.
Why would I rather subscribe to access a bundle of benefits or a bundle of products the other thing that happens a lot.
[36:18] Is that you know everybody loves this idea of a subscription box
that’s around Discovery versus replenishment and most people
I’m get subscription fatigue from Discovery boxes they’re overwhelmed like how many how many new snack bars can I try how many different lipsticks can I own it’s a very very small audience of people that.
He’s gonna want new products and exciting new things in a category every single month they often just want to you know kind of refresh and then go back to their habits and so.
It’s actually pretty hard to build Arundel that’s not necessarily around around replenishment of a habit that consumers are going to want for more than let’s say you know six or seven months.
[37:10] It’s funny because even my dog MacGyver is exhausted from his BarkBox.
[37:16] I know you would think of anything that like a dog would be happy to get a treat every month.
[37:20] Yeah but like and then you have what ends up happening right is and I don’t know if this is your case is that you have this pile of like doggy treats and doggy toys in your like but then the next one came and we haven’t even used up the last one.
It’s the same thing with those those meal kit ingredients it’s it’s funny because the all of those Services were hugely in Vogue and many of them are still around but the common denominator that they all have is they have a non-recurring.
Option right like just order the fix when you want it instead of getting a stitch fix every month or you know birch bark on demand or you know meal kits when you want it like it feels like per your point none of them could survive exclusively by by having the
the the periodic shipment I do want to make one thing clear I feel like there could be no argument Scott has Scott
Wingo are Scott has much better hair than Scott Galloway I’m just saying.
[38:15] It’s a low bar the I’m a
I’m curious to get your opinions in this is kind of in the free Consulting bucket so do with it what you will but I’m neck deep in kind of a digital Services startup
and we’ve tried some subscriptions it’s been a little bit of a challenge and I’m wondering have you seen any best practice at practices as it relates to services.
[38:38] Yeah I mean there’s there’s a few different things one of them is to balance well.
So you can have a subscription as a component of your business model or it can be the whole thing.
Right so that I think is the first thing that I’ve seen with a lot of businesses so.
You know you can say like for example vain the consulting firm has their net promoter is at the net promoter system loyalty Forum which is a subscription.
But then there’s also you know they’re big transactions they’re big they’re big events.
And a lot of organizations kind of give you a choice a hybrid If It’s All Digital Services
and there’s no human component and it’s your primary revenue generator I think things that I would be focused on one is
the onboarding of new members so that they adopt the habits that are going to make them stay and that are going to expand the relationship.
[39:41] So a lot of you know I feel like there’s a lot of businesses where there’s almost like a failure to launch after they buy the digital service.
You know it’s bought they don’t they don’t like they either.
Walk into the lobby of the party and they’re like this isn’t very fun and then they leave before they even get into the room where the actual party is happening
and you’re like wait you didn’t even see all the value I didn’t even see it because they couldn’t find their way to the value or they go into the room and they don’t feel welcome or they don’t understand how to enjoy it.
And so they leave before they’ve ever had the ability to make it into a habit and so I think organizations under.
Invest in onboarding both in the marketing around it but also in the product itself I think that’s probably the number one miss like kind of mistake or missed opportunity that I see.
[40:32] Yes so so a good example is I’ll pick one away from me is home cleaning so there’s
it’s companies like handy and all these folks and they’ll almost like force you into a subscription and then you can’t really sample and I’ve always felt like that feels weird right because now you’re forcing me into this just to get one house cleaning now and experience your service I have to.
I feel like I’m committed and cancel so that doesn’t feel right it almost seems like what you want to do is get people you know.
Trying the service and then identify a cohort that you think would be likely to subscribe to and then offer a subscription is that cam what you think would be the best practice.
[41:12] Yeah well so for the example of Handy you know I think about.
You know free trial versus freemium versus nothing for free so a free trial is great if they don’t understand what the value is or they don’t believe it’s as good as you say.
And so if you are trying hand in your uncle I don’t know if it’s as good as me cleaning the house myself or as good as a cleaning person or system we have now you want to be able to try it.
So that you know if they don’t have the kind of brand that’s trusted or you don’t
either you don’t believe it’s as good as they say it is or you don’t really understand what they’re going to do or what it’s going to feel like you need to have an opportunity to get a trial free or
or a paid trial but that you know kind of one-on-one opportunity or a money back guarantee or inability to try it once and then cancel.
I think that.
What is good though about organizations that have discipline as they say look we’re opt let’s just say for this you know I don’t know a lot about handy but that you know people who.
Only use this periodically like coming into our house that isn’t cleaned by us every week could be a disaster and much more expensive to clean but we know if we come every week,
that we can manage our costs and we also know that the kind of people who take care of their homes should be cleaning their house on a regular Cadence so we don’t really want to be in the business of one-time cleaning.
[42:34] So they might say you get one shot one chance to buy it outright and then you go to our subscription
and they’re going to be leaving money on the table for sure because there’s all kinds of scenarios where you need a cleaning occasionally but they might say that’s not what we do just like Netflix said,
you know we don’t do video game even though they’re exactly the same size as the other discs and we don’t let you buy the discs that’s just not what we do it’s too many different business models.
[43:03] Although in my mind that even the business model issues aside it just does feel like,
getting a customer to sign up for a subscription is a higher bar than getting customers to buy something once and so it feels like
your marketing has to be different and when you act like I mean the corny analogy I always use is dating like you know asking someone to buy your product as I gassing them to go on a date with you but asking him to subscribe to your product is like asking them to marry you.
[43:32] Yeah yeah absolutely but it but in other cases you know you want to make the problem go away.
Right you know I want my house to always be clean.
[43:43] Yeah no I get it yeah.
[43:45] So so yeah it is it’s a higher it’s a higher bar and one of the challenges you know when I when I work with an organization and they’re saying our subscription isn’t working,
kind of we do a diagnostic to look at where is the problem is the problem that the
the friction is too high to get someone to sign up like it’s too much risk to commit to this new way of doing things or is the problem that once they sign up
they stay for a little while and they say I’m exhausted from this like with the BarkBox or is the problem that they come in and they’re like the seems great but I don’t know why I’m not getting any value.
So all of those you know those are all kind of different different scenarios.
[44:23] Yeah so I’d love to get your opinion on one that’s kind of front and center in our industry right now so obviously we’ve talked a lot about Prime and it seems like an amazing example in retail there’s an even older example I think.
Price Club which became Costco started doing memberships in like 1976 and that’s been a phenomenally successful model so in last couple of months there have been a number of articles that say that Walmart is about to launch a.
Program and I think Jason Del Rey wrote an article that it was going to be called Walmart plus and it’s I’ve been really interested to follow it as far as I know Walmart hasn’t confirmed any of this and we don’t really know what’s
what Walmart is or isn’t going to do but there’s been a lot of media attention to.
[45:10] What they might do and whether that’s a good idea or not and it seems like it falls into camps there’s a bunch of people that are like this is ridiculous this is going to be a bad imitation of Prime with fewer products and slower shipping and it’s just going to be a bad look that it’s this this
inferior version of prime and then a lot of other,
like seemingly equally smart people have John have felt like oh my gosh super-smart for Walmart to engage
they’re their most valuable cohort and you know start generating this this recurring revenue and and you know getting becoming more sticky with customers in the same way that.
That a Costco are a prime is like do you I know we can’t know because we don’t know what Walmart’s off or really is or how they’re going to execute it yet but do you mean,
are both of those potential outcomes does it like are you are you happy to see them seemingly move in this direction.
[46:03] Yeah I mean what I’ve been waiting for to see front but sort of two things with Walmart one of them is they’ve tried lots of other things to compete against Amazon they’ve offered some different me to Features they’ve offered some some benefits for membership and engagement
but they haven’t really embraced first they haven’t really
braced it as as core and the other thing is they haven’t really tapped into what makes them different from Amazon their unique strengths which is you know of course they’re physical footprint of being I don’t know what they say like within 10 miles of ninety percent of Americans or.
[46:40] Yeah you have it exactly right.
[46:42] Yeah so I think I think that you know you know again all of this is kind of rumor and,
conjecture but it seems like some of the benefits that they’re offering you know combining the priority slots for curbside pickup to our delivery to your home.
And gas right with fuel for your car discounts on fuel
those are pretty impressive headliner benefits that by themselves you know a lot of times with these kinds of bundled benefits a lot of times what people do is they do the math in their head,
write like a lot of people did with Amazon prime rate like how many how many how much free ship how much should I spend on shipping before Amazon Prime pays for itself,
which you know back in the early days is kind of how I think a lot of people thought about it and then Amazon layered and so much value that you’re like well I would never leave now and it’s not just about the shipping I think Walmart.
Could be doing that with even just you know the discount on fuel so.
I think the you know and you’re starting to see that they’re able to do some things that would be much harder for Amazon to do just because of their their physical footprint.
So I’m optimistic this feels like a better a better offering than what they’ve done in the past.
[48:03] Prequel how to one of the things that’s kind of nursing is so you kind of have loyalty and then subscription kind of bundled together how how do you think about the those and how they fit into this this whole framework.
[48:16] So loyalty programs you know what I always thought of as kind of the gateway to membership and it was a way for very transactional businesses very episodic businesses to smooth out the relationship with their customers to make it easy
easier to get them to return and most of them did it I think in a pretty clunky way which was basically giving them,
you know paying them for the frequency and depth of their purchases so it almost is you know the traditional loyalty programs like
you know mileage or or you know the programs that hospitality industry has or even the old Punch Cards is basically you spend this much with us and we give you something with a real Financial value in return and.
That almost feels like a financial transaction rather than really being about
loyalty I don’t necessarily feel loyal to United but I’d be stupid not to get the free trips since I travel so much.
[49:14] It’s not it’s not really about loyalty or engagement or preference it’s about a real Financial Arrangement whereas I think like the Costco example the price Club example
which some people are calling premium loyalty programs now where you pay to be treated
better because the assumption is this is a preferred place where you’re going to do a lot of shopping and you want the best possible experience it seems like a lot of organizations are moving away from the points-based loyalty programs
and toward these premium loyalty programs where you pay Upfront for a bundle of benefits rather than
rather than accruing benefits based on your frequency and depth of purchase.
[49:54] Yeah it seems like give you can make the value proposition and make that sort of Premium loyalty work that it’s a lot more valuable I’m curious.
Like if you have a pinion on like for brands that may be our only in a position to make that sort of basic transactional loyalty program work I’m really torn right now because on the one hand.
I keep hearing about loyalty fatigue and everyone’s got got you know a hundred loyalty memberships in their in their household and therefore you know none of them affect behavior and and you know there are kind of a dime a dozen
but then I keep
I’ve been watching the space in like I think this this month Wendy’s rolled out a new points for purchase program and PepsiCo launched a points for
for purchase program so I despite the fact we’re all pooh-poohing these like basic frequency programs it seems like brands are still doing them with I’m curious like do you think those are working for those brands or do you think it’s just,
just in an experiment or ill-advised.
[50:58] I don’t I mean I think in many cases it’s
it’s a starting point for an organization to begin building a relationship with their customers it’s a way to start you know in a lot of cases it’s just a way to start tracking Behavior at the unit at the individual level
and so I understand why they would do it I don’t.
You know in terms of driving loyalty you know I’m not I’m not sure that it’s the best.
Kind of most sophisticated newest way to drive actual loyalty.
You know it in contrast to Wendy’s you know Burger King has a subscription where you get unlimited coffee for five dollars a month.
[51:39] Yeah that’s a new thing huh pant Panera is doing that as well yeah.
[51:41] Yeah there’s this nine dollars a month because it’s better coffee I guess.
[51:46] Side note they open at like 9:00 a.m. so I’m not subscribing Manny any coffee Solution that’s not delivering coffee like when I wake up.
[51:54] In the morning.
[51:55] Which I wish I woke up at 9 a.m. but that’s a
those days are long gone I’m afraid let me ask you the most personal question of also I have a 77 year old mother last month she bought herself an Apple TV in miraculously installed it and subscribe to Disney Plus
exclusively so she could watch Hamilton and I’m super fascinated to find out if she’s going to keep that subscription for years or if she’s canceling it in a month.
[52:22] Well so I’ve to thought so first of all I also have a 77 year old mom and she has dramatically changed all kinds of behaviors during this covid time and is subscribing to all kinds of new things as a result of this so This is actually a lot of organizations are having a moment right now where consumers are being forced to rethink their habits
and find you know new ways of entertainment new ways to interact with their friends new ways to stay fit so it’s very exciting in the world of subscriptions for me from from that perspective
in terms of Disney plus and Hamilton what’s really interesting I mean there’s a bunch of interesting things so first of all you know Disney versus Netflix
you know they have a much more you know complex ecosystem of offerings and so they don’t necessarily have to make money on
the Disney Plus in the same way that Netflix depends on their subscription Revenue the
the Hamilton thing you know he’s shutting down the free trial because you know what it tastes like it tastes like princesses and National Geographic you don’t need to you don’t need a free taste it taste like Hamilton.
you know I think they were hoping that you know they did see a huge spike in acquisition specifically to get Hamilton but I’ve also heard a lot of people saying well you know effectively it’s 699 to rent Hamilton for the month which is still a pretty good deal.
[53:49] I don’t know if Disney is fine with that but what has been surprising to me is.
You know if you watch him within the recommendation that they gave at the end of it then that you know if you like Hamilton maybe you’d enjoy The Sound of Music
which was sort of like if you’ve enjoyed watching 3 hours of you know Broadway musical maybe even join other three hours of Broadway musical right on its heels was really surprising to me I expected.
[54:15] Kind of an underwhelming a i personalization experience isn’t it.
[54:19] Totally I was so surprised and so is lin-manuel Miranda by the way cuz he wrote you know he was like does my dad have the control at Disney.
You know it’s sort of crazy and then the other thing is I haven’t gotten a lot of emails or in product
engagement from them encouraging me to onboard and explore their offerings in a more sophisticated way
which is which makes me think that probably a lot of people that plan to just come in you know the idea of having some kind of a teaser to get people in the door is you know you come for him Elton but you stay for National Geographic or you stay for the princesses
and I don’t know if they’ve gotten enough people to make that leap.
[55:01] Yeah yeah I know it’s going to be it’s going to be interesting to watch I’m with you though the it feels like lack of personalization is a huge miss here for example.
Is regular listeners will know Scott is the huge Star Wars fan of all time so he’s been a Disney plus member from day one and he has no idea that they have Hamilton right and yet.
[55:22] Not true not true.
[55:25] But I’m just saying like.
[55:26] Disney hasn’t told.
[55:27] Your lifetime spend on Disney properties I’m gonna guess greatly outweighs your lifetime spend on Broadway properties.
[55:35] Probably here but I like Hamilton absolutely I think it’s fun to go from Hamilton into mantle and I think I think your grandmother should go that path.
[55:43] Yeah I didn’t realize you were going to get all defensive on that you’re very cultural I wasn’t trying to imply you weren’t sorry but yeah but you could imagine I mean there are a lot of Star Wars fans that probably aren’t big Broadway musical fans and yet.
They’re getting the exact same marketing experience for Hamilton as anyone else.
[56:02] Yeah it’s tough when you have limited content I know we’re up against time and so part of your your gig is you do a lot of Consulting with companies on these topics maybe leave us with some parting thoughts on common
pitfalls you see folks fall into or even on the other side of the coin wins for folks that want to get involved in the subscription economy.
[56:24] Yeah so I think the one thing that we haven’t really
talked about a lot is this idea of I think the best subscription business is start with what I would call a forever promise what is the long-term
impact that you’re helping your customer achieve what is the long-term goal that you’re helping them achieve what is the problem you’re helping them to solve that is an ongoing problem and then to optimize the offering
around that problem so in your world of car washes for example right.
I don’t want a faster car wash I don’t I spoke at the International Car Wash Association last year and you know one of the things that sort of shocked me is
how often they talked about you know this brush takes nine minutes versus that brush which takes 10 minutes so you know we’re going to shave 37 seconds off of the experience,
when I think what a carwash customer really wants is a clean car,
and you know I don’t want to spend 10 minutes there or nine minutes there or 14 minutes there I want to not spend any time there and just have my car be clean.
[57:26] Did you mention spiffy atisha by chance someone told me someone was talking about Smith yet.
[57:31] This is like 2 years ago now now but I will in the future.
[57:33] Okay okay all right yeah no thanks yeah.
[57:36] Yeah but it’s a very different model because you’re looking at it you know more aligned with how the customer sees it which is like I would rather never go to the car wash and just have little elves and fairies come and wash my car while I sleep.
[57:50] I’m going to call it right here this the best guests we’ve ever had Jason.
[57:54] Yeah somehow I thought you’d be aligned with that comment.
No but I mean even if it is your idea it still makes total sense to me that you you sell the outcome not the service right.
[58:05] And the on yeah sorry yeah the ongoing outcome Beyond you know because if in a subscription it’s about you know
I don’t want have my car be clean and be dirty I want to clean and dirty I want to just
I just want to have a clean car like what what do I have to do to just have my car always be clean what do I have to do to always like in the world of you know you talked about Stitch fix or Le todor Rent the Runway what do I have to do to just always look good,
That’s that’s the promise I want and the closer those companies can get to you know making me always look and feel my best the more I’m going to be willing to trust them with my credit card.
[58:41] Yeah and one step up on maslov’s hierarchy of needs I just want my wife to be happy and she’s only going to be happy if he has a clean car she’s only going to have a clean car if Scott comes and cleans it every week.
[58:55] Yes with with an espresso.
[58:58] Exactly so basically gets Biffy is selling marital happiness if you really think about it.
[59:03] Yeah we we it’s I often say it’s better than a dozen roses.
[59:08] We’ll listen Robbie this has been fascinating we could talk about this all week and I suspect Scott’s going to want to do that with you after the show
but it is happen again we’ve used up all our allotted time as always if there any topics we didn’t get to the listeners are dying to bring up feel free to hit us up on Facebook or Twitter
if you enjoy the show we sure would appreciate it if you could jump on iTunes and give us that five star review we’re not even looking for a ongoing Financial subscription commitment
just a five star review.
[59:39] Robbie really enjoyed having you on if folks want to follow you online and do you prefer Twitter LinkedIn Snapchat and stuff where where’s your where’s your best spot.
[59:48] I’m on all those places but I’m probably most active on LinkedIn.
[59:55] Well we will put your your particulars in the show notes and until next time Happy Commercing!