Explore the evolution of the store, the “Retail as a Service” business model and what we can expect from the new Toys “R” Us relaunch.

Our guest is Phillip Raub, Co-Founder and President of b8ta. A merchandise and marketing expert with a focus on customer experience, Phillip shares his retail insights and reveals the story behind his entrepreneurial success.

We explore the evolution of the store, the “Retail as a Service” business model and what we can expect from the new Toys “R” Us relaunch.

Episode 32 of RETHINK Retail was recorded on September 5, 2019

TRANSCRIPTION

Julia Raymond:
Hi. Today we’re kicking off another episode of Rethink Retail with my guest Phillip Raub. He’s the Founder and President at b8ta and co-CEO of Toys”R”Us. Phillip, welcome to the show.

Phillip Raub:
Thank you. Thanks for having me. I really appreciate it.

Julia Raymond:
It’s pleasure to have you on today. And I want to just start off by asking, I noticed that obviously b8ta is huge right now. And I noticed that your background is a bit different. You went to law school, and then you went on to earn your MBA from Texas A&M. And after that, you went on to work for some really household name brands. So I was wondering, can you tell us a bit about your journey and how you founded the company, and share some of your experience before then?

Phillip Raub:
Yeah, absolutely. I think you mentioned obviously the law school and the business school piece of it. I think at the end of the day, there’s a lot of people that go out and look at education, and the things that they do, and go into professions. When you’re obviously young, not necessarily know what path that you’re going to go and take. And I think for me, it was obviously a stepping stool, I think to bigger things and really finding my calling and passion. It was definitely more around the marketing and the retail side, ultimately.

Phillip Raub:
But I think the cool thing about, I think, our company, in fact there’s actually quite a few reformed attorneys roaming the halls of b8ta. But the thing I think I love and is most unique is that we have a very balanced mix of people within the company. And in fact, not a lot of people with retail background. And I think that’s what makes us unique and allows us actually to have a different take on things. In fact, of my co-founders, the three of us, I’m the only one that actually has any retail experience.

Julia Raymond:
Oh wow.

Phillip Raub:
My two other co-founders don’t have retail experience. And I think that’s what allowed us to take a different look and perspective on things. And so Vibhu, who’s my co-founder and who’s the CEO of b8ta, in fact is a software engineer. And it was projects that he and I worked on together at Nest, which I think he got educated on retail, and understood I think how archaic at times some of the systems and the business model was that really, I think, got him to … He’s a builder and a tinkerer, and really started thinking, and really started I think, unwrapping retail and questioning a lot of why things were done in a particular way.

Phillip Raub:
And I think through that, that’s ultimately how we came with the idea of b8ta. And it was really him sitting back and saying, “I don’t understand why that’s done this way. What if it was done differently? What if you infuse technology? What if we really dissected the whole thing, and the current business model of retail, and thought about it completely differently?” And I think that’s ultimately, I think, the evolution of b8ta.

Julia Raymond:
Certainly. So you guys were co-workers at Nest Labs, so that’s how you met your co-founder. And was it just a natural progression? You guys were just chatting about starting a company and it just kind of happened over time, or how did that come about?

Phillip Raub:
No, so myself, Vibhu, and William, who’s my other co-founder, we all worked at Nest together. Vibhu and I worked on a couple of different retail projects, the first one really being trying to actually create a training and learning development tool for retail associates, because we thought it was really important. You’re selling a $250 thermostat, and we were trying to educate people on our brand. And I think that’s really … At the end of the day, we place such a strong emphasis on the brand and the learning. And we weren’t okay with I think just the systems that existed and our retail partners and to … This just isn’t adequate. Technology isn’t working hard enough, and there’s better ways for us to be communicating with these individuals and you’re telling them a much better story.

Phillip Raub:
And I think through that, that’s kind of where b8ta was I think initially born in the sense that me and Vibhu really started questioning these things. William, my other co-founder was running … He was the first operations hire at Nest. And so I think through that we really started to I think come together in realizing that there is a way that the three of us could form something I think unique and really build retail from the ground up. And we had that luxury and that’s kind of what we ended up doing.

Julia Raymond:
Definitely. So it sounds like you guys had a really good team, someone with the operations knowledge and then some more software engineer and global marketing. And it all comes together and it was sort of a situation it sounds like where necessity breeds innovation kind of deal.

Phillip Raub:
Yeah, absolutely. I mean, look, I think the great thing about us is that we all work together really well because neither one of us … We all had our own swimming lanes to some degree. And we were all knowledgeable of I think, of everything as a whole. But neither one of us was too dangerous enough that … We were able to question each other, but didn’t really … But everyone understood when we were launching the things that we were really good at and I think pushed one another. And I think that was ultimately what help us get off the ground.

Phillip Raub:
And so that was, I think, really exciting and that’s let us I think to where we’re at today. And I think it’s a really strong balance that we have. And like any startup, I mean, obviously not everything is easy, but I think we all trust one another enough and we’re in a really strong place because of it.

Julia Raymond:
Definitely. And that was a good recap and just building on that. So I would say you’re probably somewhat of an expert when it comes to the concept of experiential retailing, been a big buzzword over the past five years or so. And then we also have retail as a service, which is a fairly newer format over the past decade. So how would you describe experiential retailing or where stores are headed, what’s the future?

Phillip Raub:
Yeah, I mean if you look at it, I mean we, very often when we’re talking to prospective brands, investors and things we … We always look … If you go back historically, the eighties and nineties you saw this migration towards more big box retail. It was about a place of mass consumption. Where could you go and you could find everything in one place. Then all of a sudden the internet actually created the idea of this endless shelf where you could actually find the same thing that … A hundred thousand square feet of retail wasn’t big enough. Now all of a sudden you had at your fingertips this endless aisle and the ability to find anything you wanted.

Phillip Raub:
And while I think that’s not going anywhere anytime soon, the same time people were, what they were missing was the ability to touch and feel product, to experience things firsthand. And so now you’re starting to see this a little bit of this migration back to physical retail because people … But it’s different. And I think, one of our early takes on it was that retail was going to become more of a media and advertising model where people can learn about products, discover products, talk to people. But at the same time, we recognize that you couldn’t use the same business model. Because you had to figure out where and how you were attributing the sales.

Phillip Raub:
So somebody came in in the same way that you would track media impressions into a store. You want to be able to do that same type of thing in physical retail that you were doing online. And I think that’s the, I think, the important difference that we meld together this notion of retail as a service, is that it’s about having these great experiences, but at the same time being able to understand what’s happening from both a marketing as well as from a sales perspective.

Julia Raymond:
Certainly. So you’re basically saying historically speaking, we went from the mass consumption in the eighties, nineties to the nineties and the internet with endless aisle. And then to the 2010s and to today where it’s kind of reversing a bit to people want the tactile interactions. But that’s going to require new business models to measure the stores of the future, the stores of today even which are becoming, you said media channels.

Phillip Raub:
Yeah. I mean there was the buzzword omni-channel that was being used a few years back, which drives me nuts. Because at the end of the day it’s commerce. I mean people are buying things. Whether they buy them in store, whether they buy them online or what have you, people are transacting. I mean if you look obviously at economic data at a macro level, it’s not that people stopped transacting. And in certain categories they’re still doing a lot of that, in physical retail and other categories it’s a lot of what’s happening online.

Phillip Raub:
And so I think brands had started thinking about it differently of like, “What’s my commerce strategy?” Not what’s my E-commerce strategy or what’s my physical strategy, it’s that the two of them literally go hand-in-hand. And they have to be very symbiotic in that sense. And I think, as we recognize that it’s like, we said, “What’s the physical manifestation look like?” But then also, “What are we doing in the physical space that traditionally was only being done in the digital space?” And through technology now, if that’s possible to be able to understand and measure what’s happening. And I think that’s really where our business is focused on, in it’s creating great experiences for the consumer. But then ultimately at the end of the day, it’s really understanding what are our partners trying to get out of it? And how are they learning and growing their business at the end of the day.

Julia Raymond:
Of course. So it’s commerce, not E-commerce, drop the E. And it’s not omni-channel, it’s just commerce strategy. And obviously it’s so much easier … Well, I say easier, but it’s more straightforward to measure behavior online and more transactional data. But when you’re talking about these new stores where you’re changing the inventory based on the feedback and the data that you’re getting from the customers, what does this look like? I mean, what metrics are you guys using and what do you see as newer metrics that maybe might be the future of store optimization?

Phillip Raub:
Yeah, I mean it’s a great point. I think we’re at this crazy point in time where almost we have too much data. And you hear brands that complain, they’re like, “There’s so much data, I don’t know what to do with it. How do you interpret this? What does this mean?” I mean we hear that all the time. And I think what were some of the things we’re looking at, from an in store perspective, I think most brands can look at traffic. How many people are walking in their stores. But what we have the ability to do is look at impressions, to understand how many people are actually being exposed to a product. How many people stop and look at a product, how long are they spending with the product? Are they actually getting a hands-on, personalized demo of the product, and then ultimately is that converting into a sale? And we’re also, our teams are hard at work to understanding even where, if they don’t buy today in store, ultimately where are they potentially you’re buying that product if purchasing intent has been created.

Phillip Raub:
And I think one of the things also that we look at is beyond necessarily just the quantitative data. And one of the really key factors is looking at qualitative data. Online you can’t understand why one product is outselling another product. Like one skew potentially is outselling another product two to one.

Julia Raymond:
Right.

Phillip Raub:
Or what’s the size … How somebody is viewing … Maybe through reviews you can kind of get some of this information, but how is somebody thinking about the size and the fit of something, or the way that it looks on them, the sound of a headphone. Like all of these kinds of things we’re able to capture as well because we’ve created this direct dialogue, which we allow our beta testers and brand to be able to have this one-on-one connection in getting feedback sometimes you in real time or within at least a couple of days. And I think that’s something that’s very powerful that I think brands that utilize our platform properly really understand.

Julia Raymond:
Yeah. And that’s a good point because it is hard to tell why this skew is outperforming another skew. And to run text analytics on reviews that may or may not be paid reviews, things like that. It just complicates it. And you mentioned the importance of measuring interactions with sales associates, which made me think back to earlier in the conversation how you said at Nest Labs you’re like, “Hey, this is a $250 thermostat. We need to really train the sales associates on how to sell it and convey the value.”

Phillip Raub:
Yeah, I mean when I was at Nest, one of the things that I implemented with the team is we went in and we would do in store demos really to be able to get people to understand the value proposition. And we would see a very significant lift in sales when we did that. But at the same time we were also realized that, the number one reason people were purchasing the products, as they said, price. So you had to sit down and say like, “Okay, well if there’s a $30 thermostat versus $250 thermostat, what’s the value proposition?”

Phillip Raub:
And then all of a sudden it’s, you start to tell consumers that you could save, energy savings and you were saving roughly 20% on any given month on your utility bills. And then they’re like, “Oh wow, okay.” So then they start to do the math and like, “Oh wow, this kind of actually pays for itself within a short period of time.”

Julia Raymond:
Right.

Phillip Raub:
And so, it’s that type of education around it that you just don’t get online and really having that physical element. So we really try to drive home that behavior. So a lot of education that goes into your product training with our beta testers. And I think that’s really at the end of the day where you start to truly see the value prop. I think of a lot of times just physical retail is that consumers I think, they’re interested, they want to purchase products at times, but they think they just need that validation very often. And I think that’s where the physical component of it comes in.

Julia Raymond:
Definitely. Especially with tech items or items that are more expensive. For sure. And how do you feel about … I mean, are you guys integrating with mobile devices at all? Because there’s been tons of studies, there’s one Salesforce said it showed nearly 75% of people are using their phones in store, go figure. So is that something that is being integrated? Are there ways that you’re measuring interactions that way?

Phillip Raub:
Yeah, I mean we work very closely with a lot of our brands to understand, are they seeing an uptick in online traffic where we have stores or they see and uplift in sales. We’re also building into our digital displays the ability for customers to opt in and be able to give their email address or phone numbers if they want to be connected directly with the brands. So there’s ways to do that. There’s ways to cross pollinate data. If a brand has subscription services, which we do sell, as well as understanding if somebody subscribes to something and then their email’s in our database, and you can figure out that it actually … They learn about it probably at b8ta and then ultimately then made a purchase elsewhere.

Phillip Raub:
So there’s a lot of different tools that we’re working on from an attribution standpoint I think that a lot of other companies probably aren’t even really thinking about. And I think that’s one of the things that really differentiates us is because, at the end of the day, our sole focus is, for our partners, is their longterm success and you’re really continuing to build out tools to ensure that they have the things that they need to be successful in the long term.

Julia Raymond:
Sure, sure. And do you think it’s … When I picture beta stores and the brands you work with, I’m almost thinking back to Apple stores. It reminds me of everyone goes into the Apple store and they mess with the demo devices and then they place their orders online or wherever. Was that an inspiration for you or …

Phillip Raub:
Yeah, I mean. Yeah. I mean I don’t know if the Apple store per se was an inspiration. I think we just saw that the shopping patterns and behaviors that consumers were doing, is they were going into places and tinkering with products and playing with them and then going elsewhere. I mean, it was almost … It was a huge problem that Best Buy had had years ago, and there was this phenomenon of showrooming.

Phillip Raub:
But we see it. It’s not just in consumer electronics. I mean, if you really look at, our business has evolved to the point that we now carry health and beauty products and we have a large focus on health and wellness. We’re going to really start to expand on our product mix because it’s really around innovation that you really start to see in our stores is where they really flourished, because people are constantly looking for and discovering just new and unique things.

Julia Raymond:
Definitely. And obviously the Toys”R”Us relaunch must be super exciting for you guys and it’s all over the news. What are some things specific to that that you’re most excited about and where do you see that going? How’s it going to evolve?

Phillip Raub:
Yeah, I mean it’s beyond exciting. I mean, I think for myself and everyone involved, to be able to relaunch an iconic brand that I think has so much … The consumer base is so passionate and you can definitely see it was missed this past holiday season. And so for us I think, having the opportunity to be associated with a great brand like Toys”R”Us and this holiday season being able to relaunch that in a new and re-imagined way, is just awesome. And, I think, our whole team is excited about it and everyone that’s touching that. But what it does is also it lends itself is that, we always knew that b8ta was going to evolve beyond just consumer electronics and gadgets so speak. It was more about knowing that the business model itself would start to be I think very pervasive in other categories.

Julia Raymond:
Certainly.

Phillip Raub:
And you’ll see that with going into toys and kids’ space, which we always knew we wanted to do something there.

Julia Raymond:
Yeah. And that makes a lot of sense, for the toys aspect, right?

Phillip Raub:
Yeah.

Julia Raymond:
To have them be able to interact with the toys, to measure what products are doing well and what products or not, which is something that was maybe missing over the years.

Phillip Raub:
Yeah. And I think it’s also just engaging. I mean, I have two kids and literally, you go into an existing maybe big box retailer today and literally they want to rip open the boxes and play with the toys. They’re like poke poking the box. I mean it’s painful to watch a kid just be able to walk up to something and just poke it. I mean, because they just want to play, I mean that’s their natural instinct. And so I think that’s what we want to do. We just wanted a space where kids could just have fun. And not just kids, parents. And you could walk in and it’s not like, you’re like, “Ah,” this dreadful experience of going into a toy store. It’s more like, “Wow.”

Julia Raymond:
Right. Break it you buy it.

Phillip Raub:
Yeah, it’s like, “No, please.” Like we’re going to have demos out so that you, maybe not quite break it, but stress test it, it’s just possible.

Julia Raymond:
Right.

Phillip Raub:
And so I think that’s the element idea, it’s just bringing back that fun element. It’s what we do today in b8ta. I mean you can touch and play with all of the different products and demo them firsthand, and we want to do that, the same level of experience I think with toys. And also see that playing out in other verticals as well.

Julia Raymond:
Certainly. And because it is toys in this specific venture, then it probably is you have a lot of the inventory on hand even though there’s like demo products, right? Because they probably instant gratification.

Phillip Raub:
Yeah. I mean the space and I think the theory around what we’re doing there is it’ll definitely … It’ll ebb and flow depending on seasonality. I tell people like, “The best experience that one can have in the month of December is how quickly can I get in and out of the store?” I mean, people aren’t really sitting there like wanting to spend a lot of time in retail stores other than, “Get me in and out of this place as quickly as possible.” But-

Julia Raymond:
Well, if you don’t want to camp outside Best Buy for like three days.

Phillip Raub:
Well, my previous experiences in the video game industry where literally people used to camp outside of places like Best Buy and GameStop. But it is this idea of just having these just awesome experiences and I think that’s where we’re kind of going with it and what we really want to bring to the space.

Julia Raymond:
Absolutely. And I am so excited for the holiday season and to see where this goes. There’s a lot of opportunity and this could be the future of a lot of store formats. So really cool stuff you’re doing and I had a great conversation with you today, so thanks for coming on the show. And maybe we’ll see each other in person some day at a show or something.

Phillip Raub:
Yeah, absolutely. Love to connect again. Thank you for having me. It’s an amazing opportunity to continue to … Still very humbled by the opportunity to speak about what we’re building with b8ta, with Toys”R”Us and some of our future plans. We really think that the retail is … It’s the reshaping and reimagining of it. And happy to be able to have a voice and be on the forefront of that. So thank you for your time today.

Julia Raymond:
Absolutely, excited to watch your journey.

Phillip Raub:
Cool. Well, it was a pleasure chatting.