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August 17, 2020: Walmart partners with Instacart, what to do with mall anchors, the global state of luxury.

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Hosted by Julia Raymond

Written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Hi everyone. Welcome to the show. Today we’re joined by guest Brian Shimmerlik and Miya Knights. Brian is the co-founder and CEO of Vengo Labs, a leading provider of digital kiosk technology. Miya Knights is head of industry insight at Eagle Eye, a digital marketing software company. Brian, Miya, thank you both for being here on the show today.

Miya Knights:
Thank you for having me.

Brian Shimmerlik:
Thanks Julia.

Julia Raymond:
Great to have you guys and the first bit of news is Amazon and Walmart yet again, but a lot of people are talking about this online. So last week Walmart announced a new pilot with Instacart marking the retailers next big move in the grocery tug of war with Amazon. Walmart will work with Instacart to offer same-day delivery starting in four retail markets in the US across California and Oklahoma. A spokesperson for Instacart told members of the press that the new partnership will bring thousands of items from groceries and alcohol to home decor and electronics to customers’ doors in as fast as an hour.

Julia Raymond:
Meanwhile, Amazon is making moves across the retail landscape, according to a public building and trademark record, Amazon is preparing to launch at least 15 new brick and mortar retail, grocery stores in four states under its Amazon fresh brand. While all of this is going on Walmart, as we know has its delivery unlimited program for $99, but it’s rumored to soon announce the rollout of Walmart Plus, which will completely go right up against Amazon Prime.

Julia Raymond:
It’s been delayed due to the pandemic, but once launched, it will cost only $98 per year and offer many of the same things as Amazon Prime, including, discounts and a bit more, so scan and go inside their stores, rumor has it, they’ll have media and streaming and of course, same-day grocery delivery. So Miya, I wanted to pass this to you first, the fee Walmart will offer is lower than Prime and there’ll be more products available for same-day delivery. So do you see Walmart Plus and the new partnership with Instacart impacting the war with Amazon, so to speak?

Miya Knights:
Yes, Julia, that’s a great question. I do believe this really aggressive move on the part of Walmart is going to impact Amazon’s grocery sales. Amazon obviously has the majority market share when it comes to online grocery sales, but Walmart’s online grocery sales are actually forecasted to triple this year, but to only 5.8% of the US, total US online grocery market. So while they have a huge amount of headroom to grow into that will nibble away at Amazon and with Walmart Plus they really have tried to leverage the best of their brick and their click capabilities to not only match Amazon from a range and selection perspective, but also in terms of this rapid delivery.

Miya Knights:
I think the Instacart deal perhaps reflects that Walmart’s potentially sort of stuck between a rock and a hard place. They really know that they need to get something out there rapidly in terms of same-day delivery and ramp up their delivery capabilities to meet the explosive demand from … to online during the pandemic. But I imagine they’ve already reached that headroom within their own infrastructure. So turning to a third party like Instacart allows them to stay on track with Walmart, the launch of Walmart Plus, capitalize on this huge online search and scale their fulfillment network with this … with the extra third party services to meet the extra demand Walmart Plus might create.

Julia Raymond:
So Miya, you mentioned Walmart’s online grocery share has tripled and they are making huge moves, but as you Amazon right now has the majority of online market share for grocery delivery. Brian, what’s your take?

Brian Shimmerlik:
So I love this move by Walmart. The Instacart partnership makes a lot of sense. In New York, I personally received my groceries from Amazon. At the peak of the pandemic, Instacart was out-executing Amazon and we started using Instacart. And so in a lot of ways, the pandemic has simply catalyzed trends that already existed. So, I’ve heard from the typical baby boomer would say, no, I like to go in store. I like to squeeze my avocados and feel it, right? And now this crazy thing has happened that has driven a larger portion of the population to try grocery delivery.

Brian Shimmerlik:
My business Vengo is big in the sampling world. And so to me, sampling is trial. And what happens when people try something is a portion of them are going to stick around for life. So I believe this pandemic is going to catalyze grocery delivery going from sort of fringe to mainstream and going up to the older generations. And I think grocery’s playing an elevated role in society right now. As fear rolls in people think about food and safety and develop serious bonds with the companies that come through for them. And so I love this partnership. I think it has legs. I think Walmart can compete with Amazon and this is a great step.

Julia Raymond:
The Instacart partnership makes a lot of sense, you said Brian and the pandemic is really catalyzing this need and demand for online grocery delivery. Are you guys surprised at all that they partnered with Instacart though, considering Instacart partners with a lot of their big competitors, but doesn’t Walmart have enough capital to build this capability in-house if they wanted to, or do you think they’re doing that in parallel perhaps?

Miya Knights:
I’ll jump in there and I’ll say I agreed with a lot of what Brian said in terms of groceries have really been put on the front line during this pandemic, but they’ve also as a result, they’ve been pushed to make decisions that they potentially might not have considered in the past. And I believe that Walmart’s only now decided to partner with someone like Instacart because the Instacarts and Deliveroos of this world can act as disintermediators, they own the customer relationship, they take the brand owner and the retailer one step away from the consumer and the last mile experience.

Miya Knights:
But, I think needs must, necessity is the mother of all invention in this case, particularly. And I think just in terms of answering your question about same-day delivery, yes, same-day delivery, Amazon’s done a huge amount for laying the groundwork in terms of setting, raising the bar on customer expectations for rapid delivery, same day is definitely the hottest battleground at the moment. But I do believe that consumers can be incentivized to accept different delivery terms and conditions, depending on the level of friction that they’re willing to put up with.

Miya Knights:
If they are cost-conscious consumers, they might be more willing to buy online and pick up in store, or click and collect. They might be more willing to wait a couple of days for the delivery. I noticed over the pandemic, for example, Amazon introduced a no rush, I think they’ve introduced it before that, but it really became quite prevalent during the pandemic, part of lockdown, because even there to Brian’s point about them partnering with Instacart, even their infrastructure was under strain.

Miya Knights:
So they were in trying to persuade customers to choose the no rush option and take some of the pressure off and some customers will go for that. I went for that when I ordered a book, but I needed some antihistamine cream and I need that the same day. There needs to be different tiers of delivery for different customer’s needs.

Julia Raymond:
Well, I want to circle back on just one thing you said that I found really interesting because I haven’t thought of it like this before, and I hope I’m getting what you’re saying correctly, but you said having Instacart puts Walmart one step away from the consumer in terms of Instacart owns that relationship. And are you saying that could actually be a positive for Walmart because if things go wrong with the picking and delivery, it’s more on Instacart versus Walmart?

Miya Knights:
No. I would say the positive is taking pressure off of Walmart’s fulfillment infrastructure. So they mitigate the benefits against the risk of actually devolving some of the responsibility, the customer relationship, that final, crucial point of delivery to Instacart. So if Instacart gets your delivery wrong, it’s still Walmart that you potentially blame and Walmart potentially sees less of your shopping activity and less of your total basket. So in that sense they’re being one step removed from the customer data, as well as the final customer point relationship.

Julia Raymond:
That’s a good point. Brian, do you have anything to add on this topic before we jump to our next segment?

Brian Shimmerlik:
Yeah. I think you’re right, Julia. Walmart has the resources to do this in house. So why would they do this with a partner? Unless we read the contract, we’ll never know definitively, but I think it’s pretty clear time is of the essence and launching this now versus in six months makes a massive difference in customer adoption. And so I would think they’re using this as a trial to move fast, get their products into the customer’s hands and probably learn a lot from Instacart to make that ultimate decision, whether they continue down this path or transition to a wholly-owned model. I think this can make them a lot smarter, a lot faster.

Julia Raymond:
I like what you said there. Time is of the essence, especially as we’ve seen in 2020, so this is a great avenue for them to move quickly. I loved your thoughts on that topic and we’re switching to something that’s actually quite similar because it does involve the behemoth, Amazon still. There are huge rumors going on right now. I’ve seen a lot of LinkedIn debate on this. There are more department stores positioned to close this year than in a long time. And America’s traditional mall owners will be left with the task of figuring out what to do with that empty real estate.

Julia Raymond:
So to fill up the spaces left by bankrupt anchors, Simon Property Group is reportedly considering allowing Amazon to turn the anchors into distribution and fulfillment centers. During an earnings call last week, Simon also hinted at the idea of opening more grocery stores in its vacant stores. And when asked specifically about opening grocery stores at Simon Property Malls, their CEO, David Simon said, “Yes, I am hopeful that we can certainly do more business with that category.” Brian, what are your thoughts on Simon’s potential use for vacant anchors, would you be for or against Amazon using anchors as fulfillment centers?

Brian Shimmerlik:
I would be for it and let’s keep it real, Simon needs to take what they can get. They need to figure out how to monetize that space. So if Amazon is willing to pay them fair rent, they should do it, but guess what? Amazon is also going to have other vacant real estate that they can choose from. So I think that would be a big positive for Simon to be able to lock in that kind of partnership and be able to effectively monetize unused space and move fast.

Julia Raymond:
So Brian’s for it. Simon needs to take what they can get. Miya, what do you think?

Miya Knights:
Yeah, I probably agree. I think it could be seen as a win-win situation for both companies. Amazon needs to build out its last mile physical capability, it needs stores to do that. Interestingly building on the discussion we had about Amazon Prime versus Walmart Plus, I think the irony and the longterm that even though Amazon is winner right now, Walmart is going to be the winner in the longer term because buying online and picking up in store plays to Walmart’s advantages, which is a hugely well distributed mature store estate.

Miya Knights:
So you’re going to see things like bulk your purchases moving online, but to Brian’s point, the baby boomer might still want to go to a store to squeeze the avocados. I think Amazon is keenly aware of that. And so they need space. They need more automated fulfillment centers for their sort of last mile hub and spoke model. And I think Brian’s already articulated why Simon needs to make more use of its property to monetize it. But I think the other thing is it will also get the chance to reclassify it for those spaces that it sells to Amazon that don’t become grocery stores, but instead become some kind of [inaudible 00:16:59] capability they can potentially reclassify that and make savings in that way as well.

Miya Knights:
So it’s a win-win situation. I think it sounds like an interesting move. It’ll certainly change the complexion and characteristic of our out of town malls going forward if it goes forward, if it goes to it.

Julia Raymond:
Well, so it sounds like both of you guys are in favor of potentially Amazon using anchors as fulfillment centers. And we all know that malls are a bit dead, so to speak. They aren’t what they used to be. At least the closed ones, the closed malls and with COVID that might pose additional challenges. But what about the fact that if it is a fulfillment center and they don’t decide to open an Amazon Four Star store, other things that would drive foot traffic, that traffic would fall even further and affect the other tenants who have leases that are not up yet?

Brian Shimmerlik:
It’s a good point, Julia. I think, certainly broadly malls need to reinvent around experience just as all brick and mortars do. But they also need to make it to the point where they can reinvent experience. So I think in this scenario, you have to take that short term win to ensure longterm viability.

Julia Raymond:
To ensure long-term viability. What do you think about some people were saying it might open up new avenues for retailers to use Amazon to provide marketplace capabilities and deliver more goods and more inventory to customers. What are your takes on that? Is that Amazon encroaching too much into other retail space? I mean, because they do own the data. So what are your takes?

Miya Knights:
I’ll jump in there on that. I think very interesting to what you said about effecting tenants. If they became a marketplace, surely that would mitigate any potential drop in footfall if they just turned these anchor stores into dark stores, dark boxes. So I can see that as potentially answering some of the criticisms around how this deal might affect footfall and then impact other retail tenants. But to Brian’s point, malls have to reinvent around experience.

Miya Knights:
I think was, have to start thinking more out of the box. Even before the pandemic really put a hole in footfall. I was hearing real estate mall owners saying that their food and beverage, leisure and hospitality facilities were outpacing their retail space in their malls, that the retail owners actually started to rely on the food and beverage, leisure and hospitality capability to kind of draw the customers in. So to your point, if they, if Amazon are able to draw the customers in by extending its online marketplace to physical malls, that would be great. But I think malls also have to look at other solutions such as coworking, gyms, anything that’s going to keep the mall as a destination for consumers to be able to provide whoever takes their space with footfall.

Julia Raymond:
And you were saying, this is a trend that was happening even before COVID with the retail owners relying on food and beverage and some other non-traditional just retail stores to keep that foot traffic coming in. Brian, do you have anything to add on this topic? I mean, it’s a weird one, right? Because some people are also saying, I’ll just throw this out there for you guys, they could become a fulfillment center where they take returns for not only Amazon, but many retailers and then put out a store that is essentially that treasure hunt type of experience, where you’re basically shopping for things that have been returned and that have packaging that’s been damaged and things like that.

Brian Shimmerlik:
I think the answer to most things in the space is whatever consumers want, right? So do consumers now want more delivery and more … the ability for Amazon to move faster and broader on product? Yes. And so I think ultimately all the marketing is about what does the consumer want? How do we meet that? The consumer’s leading the way. And I think, right now the consumer is speaking quite clearly around Amazon meeting their needs until Simon is not in the position to be making those longterm plays, at a short term sacrifice.

Julia Raymond:
Back to basic whatever the consumer wants. Even if that is driving out some of these other retailers that we know and love over the years. I want to jump into our next segment and our last one for the day, which is completely different than what we’ve been talking about. We’re going to go over luxury. So McKenzie just released a new study and it predicted global luxury goods will contract by 35% to 39% in 2020, year over year. And although the demand for luxury goods during Covid-19 may be temporarily lulled, some analysts are predicting a big demand for what they’re calling quiet luxury.

Julia Raymond:
The global chief learning and culture officer at Consultancy Inner Brand Group, Rebecca Robbins told CNBC reporters that brands with timeless aesthetics such as Hermès, Prada and Bottega Veneta are likely to see a resurgence over brands that are more ostentatious. Robbin’s also noted that some luxury brands have continued to attract consumer attention, even in the midst of the pandemic. For example, Nike and Dior launched the Air Jordan One OG sneaker last month, and more than five million people reportedly registered for the chance to purchase a pair. So, that’s a pretty big number. And Miya, I’ll pass this to you. Do you agree with Rebecca that timeless luxury brands will see a bigger recovery than others?

Miya Knights:
Yes, I would say that statement broadly strikes me as it rings ringing true simply because any brand that has had … that has majority equity and market share is going to fare better afterward. I mean, to build on what Brian has said already, it’s whatever the customer wants, wherever the customer wants it. And I think possibly what Rebecca’s kind of alluding to more is just the fact that the last six months worth of change, which has accelerated trends that have already been there of course, we agree, we’ve really seen an uptick in conscious consumption, we’ve really seen a huge focus on whether or not a brand has a purpose, whether or not that’s speaking out against social justice, whether or not sustainability is core to their brand’s image and their product capabilities and manufacturing.

Miya Knights:
And so those brands that already have the cachet, if they’re able to move in that direction, I believe particularly if they’re timeless, as Rebecca puts it, are likely to capitalize more quickly than those brands that perhaps were seen as brash and shouty and less concerned about their impact on the world around them. So those are the trends that I see is playing in there that makes Rebecca’s statement ring true for me.

Julia Raymond:
And you pointed out two huge things, two trends, conscious consumption, and a brand’s purpose. And with Nike and Dior launching the Air Jordan together, Nike is one of those brands that has never shied away from being vocal about public concerns really. So I am a little surprised. Are you guys surprised at all, Brian, about Nike partnering with a luxury brand like Dior?

Brian Shimmerlik:
I’m surprised because what Dior’s and Nike’s core audiences have in common feels like a different segment. So I don’t get it, but that’s what Nike does, right, they keep us guessing and they keep bringing fresh things to the table, right, that move culture forward. So I think Dior qualifies as that. I think there are a few questions, right? Does luxury come back? I think no question, right? I think that the pandemic is further separating the haves and the have nots. The markets are still sky-high, cash is out there. People have money out there, and I think luxury will bounce back.

Brian Shimmerlik:
Social media has driven a lot of growth in beauty, right? Because now where you are on display, you are on the air frequently. How does that boil down to quiet luxury versus loud luxury? I don’t know. I think time will tell, I think as a large portion of the population are struggling, I think that would generally lead to a bit quieter luxury.

Miya Knights:
I would agree. We’ve seen unprecedented levels of savings in the States, and I don’t know if luxury is going to be the first thing that people, heading into recession with as much uncertainty as … that comes with it are going to want to go out and spend anything on luxury. But to the point that Brian made about those with the disposable income, the other thought that I had was the other trend is around the circular economy or the re-economy. If I was going to buy a bag, I think I’d buy a Veto, or a bag that I knew had held its resell value, for example, from a very practical point. Then if I’m going to make Brian laugh here, I’d say that the Nike deal tie-up to me comes out of the fact that both of their target customer groups lost half the Balenciaga trainers, don’t they?

Miya Knights:
So, the tie-up really shows how they’re understanding, they know their customers, and they understand where those customers are going elsewhere for products that might not … that they might not already offer. And I think we’re going to see a lot of this, a lot more of these examples coming out where you’re seeing luxury brands partner to, when they’re timeless the other sort of association’s that they’re perhaps a bit stale, a bit old, or for the older generation.

Miya Knights:
So for a timeless brand, luxury brand to partner with a young, millennial-driven brand, it’s a really clever idea. I think we’re going to see a lot more of these brands working together to actually stand apart, to feed that conscious consumption capability and people will actually pay more for more sustainable goods with less depreciation.

Julia Raymond:
And I like your note about the circular economy because that has proven customers are definitely willing to buy luxury products online through the resale channel. And in the past, I think a lot of luxury retailers were worried about will the eCommerce experience match that luxury in store, very personalized experience that their target customer expects and wants. Now that clienteling with the pandemic is being offered by brands that are not in the luxury category, are there other ways you think they should be positioning themselves or should they be really investing more in eCommerce? What’s your take on that?

Brian Shimmerlik:
So the question is, should luxury brands be investing more in digital?

Julia Raymond:
Mm-hmm (affirmative).

Brian Shimmerlik:
Yeah. I think no question. Where are the customers right now? Digital. Go and reach them. I think people have become comfortable and accustom of all types of brands showing up digitally, even the brands that used to be seen in fancy department stores only. I think now it’s about how do you make digital a luxury experience and how do you reach the right target audience? So there’s no question if your brand is just sitting back waiting for this all to be over, you’re losing, you need to absolutely be reaching your target audience where they are right now.

Miya Knights:
I’d absolutely second that and say, sort of underline that by saying that their core brick and mortar sales space, which is the department stores, we’ve already kind of touched upon with our malls discussion, is shrinking rapidly. If they’ve got to go with their audiences and that’s increasingly migrating online, then yes. I do believe that this pandemic has exposed digital transformation strategies as not really being fit for purpose. And there’s been an opened up discussion and debate around a lot of room for improvement for all, across all categories in terms of operating the eCommerce experience.

Miya Knights:
And then better integrating back into the store experience for when you do want to go back into the stores. So luxury brands, particularly, you mentioned clienteling, Julia. So with that, I’m seeing clienteling being used via video talk, video chat to offer concierge services. I think the example set by chain stores with live streaming is something that they really need to think about. I also think that offering any fashion and apparel retailer could do well to offer virtual fitting service so that they can design a service that elicits the behavior that they seek from their customers rather than customers feeling they have to buy four of everything and return three items.

Miya Knights:
So there are huge amounts of things that they could be doing and exploiting there. I think the figures that you shared about the contraction in the sector this year can only serve as a rewarding sign that they need to really redouble their efforts.

Julia Raymond:
Great points about live streaming and clienteling with video chat, because we’ve definitely been discussing that in recent months. Brian, the CEO of Vengo Labs and Miya Knight’s, head of industry insight at Eagle Eye. Thank you both for joining the retail rundown today.

Brian Shimmerlik:
Thanks Julia.

Miya Knights:
Great, Julia. Thank you for having us.