February 24, 2020: Brandless shutters, Coronavirus has retailers on edge, 7-Eleven tests unmanned store concept.

No time for news? We’ve got you covered. Welcome to the Retail Rundown, your go-to weekly podcast where RETHINK Retail teams up with industry experts to deliver the top trending news stories in retail.

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Hosted by Julia Raymond

Researched, written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Hi everyone. Today we’re joined by Tony D’Onofrio. Tony is the CEO of TD Insights. He’s a respected industry futurist and he’s a recognized Global Top 100 retail influencer. He’s also our Rethink Retail Advisor. Tony, thanks for joining the show today.

Tony D’Onofrio:
Pleasure to be with you.

Julia Raymond:
So there are three topics we’re going over as usual. The first two are retailers. We’re going to talk a little bit about Brandless and their announcement, 7/11, and then we’re going to touch a little bit on the Coronavirus, which has everyone, especially retailers, very worried right now. So, the first company, Brandless, it’s no longer a brand. This direct-to-consumer kitchen and pantry retailer announced this month that it is halting operations. Brandless positioned itself as an affordable alternative to high price national brands, like dry goods and health products, primarily. They were offering their products at around a $3 price point, or at least trying to for some time. The announcement was on the company’s website, it stated that the fiercely competitive direct-to-consumer market has proven unsustainable for their business model.

Julia Raymond:
So, the company does seem hopeful to make a return in the future. They mentioned that there might be a new version of Brandless on the horizon, but for now it is halting operations. Tony, when you think about Brandless, what do you think went wrong? Do you think there’s a potential for a comeback, and is there a potential for Brandless in the market space?

Tony D’Onofrio:
Well, that’s a good question. To me, Brandless was a brand. And today, really, you need to have a strong brand and really have a strong value proposition. I think the challenges that Brandless was having is exactly how to position themselves. I’m reminded of the generic world that came up in the 70s and 80s when we were buying generic goods because we were worried about cost and typically those types of products try well in those types of economy. So some of this may have been market timing, some of it may have been approach. In other words, trying to focus on the digital and trying to focus on a brandless, but ultimately to be Brandless was a brand and they just were struggling in terms of how to position themselves in the market.

Julia Raymond:
Mm-hmm (affirmative). I would add, I read through a TechCrunch article and it sounded like there were a bit of maybe political issues that were going on. The SoftBank’s, they had an investment July 2018, an investment of $240 million into Brandless, which valued it at just over $500 million. And some speculated that that was maybe a bit too high. And the positioning from my opinion is just an oxymoron almost because they’re saying they’re generic, but they’re trying to position themselves as a bit more premium. So some difficulty there, like you said.

Tony D’Onofrio:
Yeah, well I would agree. I would also add that continuously losing money is not something the street is going to continuously tolerate. I do think at some point you got to be profitable. There was a study that came out from Deloitte about a year or so ago that talked about you did not want to be someone in the middle. What I saw with Brandless is really, they were trying to be in the middle, and by the middle, I mean, what the Deloitte study showed is that if you had a strong brand, a premier brand, well recognized, you had five years revenue growth already 1%, if you were a totally price-based focused, á la Walmart, á la TJ Max, you also had 37%. In my view, Brandless was in the middle of all that in the sense that, for example, many of the major retailers have house brands that will be on the under low price side of the house. And to me, they would struggle with a house brand versus being a premier brand. So being stuck in the middle is really the worst place to be in retail.

Julia Raymond:
Mm-hmm (affirmative). What’s the point for someone to make that switch when you’re so familiar with the brands you’ve been buying for years, right? But I know the direct-to-consumer play was a bit tricky and I know that the former COO of Walmart became CEO of Brandless for a short time and that ended this last December. But his goal was to get more of their products into the brick and mortar stores, which I agree would have made a lot of sense, but apparently that didn’t happen as well.

Tony D’Onofrio:
Yeah, it would have been challenging because how do you position it versus a store brand? If I’m a retailer, I’m going to push my store brand because it’s more profitable. That’s why to me, they’re stuck in the middle there. The generic and being no brand is a brand, but timing is in terms of economically, probably wasn’t the best timing because typically those brands do well when you’re in a deep [inaudible 00:05:09] recession. That’s when people started looking at a generic for lower cost. But they now have options because if you look at, retailers are spending a lot more money in terms of developing and building their own store brands and some of the brands, you look at Costco, the Kirkland brand is extremely successful. I buy a lot of Kirkland-branded products because they are high quality.

Julia Raymond:
Absolutely. Kirkland, Walmart’s private label, all of these different brands. We have the Good Value and then Walgreens also has theirs, so like you said, that might not have been the best route just because of the competition with the retailers in today’s economic environment.

Tony D’Onofrio:
So the question you’d also asked, could they come back? They could come back, but ultimately they got to decide if they want to be a brand and then they need to build a following like every other brand and then make consumers passionate about what they’re doing. But just focusing on being Brandless, I don’t think it’s a strategy for success in today where everybody is getting more nature-oriented in terms of following brands that they’re in love with.

Julia Raymond:
Sure. And you mentioned being in the middle and I know we’ve had some guests on the show, talked about the boring middle as it applies to retail and specifically even department stores and it’s just not a good place to be.

Tony D’Onofrio:
Right. Right.

Julia Raymond:
So the second topic we’re going to jump into is 7/11, so convenience stores. As Amazon is continuing to raise the bar for convenience expectations, 7/11 is looking to leap ahead as well. They announced earlier this month they’re piloting a cashierless concept at their headquarters in Irving, Texas. They’re currently operating four onsite employees, a 700 square foot store and an unmanned retail space, and it offers beverages, snacks, groceries, over the counter medications, everything you would expect. It’s powered by a proprietary mix of algorithms and predictive technology, so they say, and that’s enabling the store system to separate individual customers and their purchases from others in the store. And this innovation comes at the heels of others that they’re testing, including a mobile checkout feature where customers can scan and pay with your smartphone. So Tony, do you think that convenience stores will have cashierless formats as the standard in the future?

Tony D’Onofrio:
I do think that is the format that is actually best adapted. Really, all you need to do is look at what Amazon Go is trying to do with continuing to open their store. That is ultimately a convenience stores. You also need to look at China. China is actually ahead of Amazon Go. They actually have multi-hundreds of the Bingo Boxes open, which are mobile convenience stores that have a lot of technology inside that you use your smartphone to get in and do all your shopping and activity, and so I do think that format is ideal for this type of technology and evolution. There will be challenges that will need to be worked through in terms of how do you deal with a test and how do you increase the security, but all you need to do is walk into an Amazon Go and look into the ceiling as to the amount of sensors of cameras and computer vision that’s in there and you see that there’s a lot of technology now being applied where it makes it viable.

Tony D’Onofrio:
Ultimately, I think there’ll be a mix. I do think you’ll end up with retailers that will do mobile, allow consumers who shop themselves with a mobile device. Nike, for example, is in that space. You also will have much more intensive self-checkout application in stores. Walmart is a perfect example of that. They’re tripling down on the number of self-checkout stations in the stores, and you’re going to have the Amazon Go type stores such as the one that 7/11 is looking to open. I think they all have a fit in terms of really driving consumers too much more convenience and being able to check themselves out how they want to check themselves out.

Julia Raymond:
All good points and I do want to ask from your opinion, so 7/11 saying that this is a proprietary approach that they’re using to track the in-store checkout; do you think that a lot of other convenience chains might take a different approach and purchase the technology from an outside vendor?

Tony D’Onofrio:
So I think that’s possible. I have heard from other retailers that Amazon Go, for example, is shopping their technologies to other retailers and will actually like to adopt them. I do think all retailers are trying to find that strategic competitive advantage; how to get ahead of everybody else. So they believe that they have something unique versus someone else and their first [inaudible 00:10:17] is not developed. They’re going to hang onto that type of technology as long as possible. But I do think you’re going to have retailers doing their own thing, follow 7/11. You also are going to have retailers that will leverage somebody like an Amazon Go into smaller formats and that’d be just another way for consumers to engage with store brands.

Julia Raymond:
Mm-hmm (affirmative). And how big of a threat is theft? Because this is technology, 7/11, for the example we’re covering, is testing out their tech and it seems like the items in a convenience store are so small. I mean, think of a Snickers bar. How does that work from the minute someone would potentially try to steal the Snickers bar to the technology notifying the employees?

Tony D’Onofrio:
So a lot of that is really based on the amount of computer vision that’s applied or how our sensors are applied. Again, all you need to do is look up into the ceiling and go into an Amazon Go and look up, you’ll see it has a tremendous amount of technology. The other way to handle that is store layout and making sure that there’s clear visibility from the computer vision to where the actual product itself and it’s moving across. And then there’s a lot of our background analytics, big data that goes on just to have stats, what types of transactions. So for example, if you went into an Amazon Go, you wouldn’t get it immediately as you’re walking out the door. It would take a few minutes until it’s analyzed exactly what you’ve done, what you bought, what you put back.

Tony D’Onofrio:
There are challenges that are still being worked through. For example, I have heard that if you pick up product in one area and put it down in another area sometimes that’s a challenge. To me, it’s an emerging technology. The computers are getting much better at the edge to analyze what’s happening. I recently wrote a blog that talked about how the camera is becoming an extremely powerful sensor to analyze what’s happening inside of the store and that to me, that trend will continue and it will get applied into exactly these types of formats, because I think it’s ultimately a balance on how you leverage technology to get to a competitive advantage. And to me, for 7/11, this is actually a good strategy.

Julia Raymond:
Mm-hmm (affirmative). And would you say in the short term they’re losing money? Because in the future, they might save money by having less employees staffed perhaps, but the investment in the cameras and the computer vision and the analytics and the data just seems… And the potential theft that could happen until the technology reaches a more mature state.

Tony D’Onofrio:
Yeah. Ultimately, it’s a balance. I do think you’re going to look at cost and you’re going to balance it to cost, but you’re also going to look to deploy some of those resources and make them, for example, in a Walmart, make those more readily available inside the store itself. So Walmart is testing a concept called Check Out With Me where they’re roaming with iPads or iPhone-type self-checkout devices and helping that consumer checkout in the aisle. So there are ways to redeploy some of the associates with the consumer because ultimately, to me, the best redeployment of associates is to actually create brand ambassadors, and they’re technology-enabled and then to have a conversation with a consumer. So I do think there will be some cost-cutting, but there will also be some redeployment.

Julia Raymond:
Mm-hmm (affirmative). Re deployments, that makes a lot of sense. And we see that in some other stores like Sephora, I’ve talked about before, which I love. They do it well. Our last topic and we can’t escape this, we have to go over it, is the Coronavirus. The death toll just reached over 2000 at the time of this recording and it continues to wreak havoc across China, particularly for retail. They’re concerned because of the impact the virus will have on business. Last week the owner of Gucci, Kering S.A., closed half of its stores in mainland China, and the locations that are still open have reduced hours right now.

Julia Raymond:
Meanwhile, the shares at Apple went down 1.8% last week after the company announced it did not expect to meet its quarterly goals due to the impact the virus had on sales. The last one, Tapestry, also acknowledged it could be seeing a loss of up to $250 million for the fiscal year. Other brands like Canada Goose worry that a decrease in tourism from Chinese to North America will have a negative impact on sales, too. So there’s a lot of worry around this. Tony, how should retailers be preparing? Is there anything they can do to negate the impact of the potential losses that are being brought on by this outbreak?

Tony D’Onofrio:
So first of all, what is happening is terrible in terms of the cost, both to the human and then actually to the economies that are going on. And you really need to look at the answer on multiple layers. If you look in China where they’re more dramatically impacted, that is one of the world’s largest economies. In terms of retail, it was expected to surpass and become the world’s largest economy in 2019 but it was delayed into 2020 because of the tariffs and then now will probably get delayed even more because of coronavirus. So it’s an extremely important economy to a lot of global brands that is struggling.

Tony D’Onofrio:
So the answer is, depends on where you’re at in different parts of the world. If you’re in operations in China, the key right now is to over-communicate and to actually let everyone know exactly where you stand. Really create a lot of empty empathy messages to make sure that you express concern for the population quickly. For example, both Apple and Starbucks closed half of their stores in China and proactively focused on helping us. So jd.com, which is an online platform in Asia, shipped a million masks to help again, in terms of the country get through it.

Tony D’Onofrio:
So if you’re in China, it’s figuring out how to actually help, in terms of addressing the issue that is happening around them. If you’re in other parts of the world, you have issues with supply chains and how do you deal with supply chain? The data that I saw there is like 51,000 companies, 163 of which are in the top 1000 fortune 1000, they’re in the actual zone where the majority of the cases are going on. So how do you diversify? How do you change? How do you actually get your product to store? So NRF was already projecting that for February, imports will be down 13% so companies like the iPhone, for example, Apple, they’re already projecting that they’re going to struggle because the majority of their manufacturing for all devices are in China. Adjusting to the supply chain is very, very important for other parts of the world. And also being cautious in terms of monitoring the situation and being ready with a plan B should that virus spread a lot more aggressively outside of China as it has started to happen in other countries around the world.

Julia Raymond:
Mm-hmm (affirmative). And I think you said when we were chatting before we started this recording that 15 million people are in quarantine.

Tony D’Onofrio:
Actually 50 million people, 50 million people are in quarantine and that’s where you basically are shutting down entire cities and think about the impact of that to things like retail sales. Hong Kong, which was dealing with issues of protest now is dealing with issues of coronavirus. Their retail sales are, with the very important lunar year that just happened in February, were down 30%.

Julia Raymond:
30%. Wow.

Tony D’Onofrio:
30%. The other big challenge for the world is that the China consumer is a big buyer of specialty apparel and luxury brands. Roughly 40% of the luxury goods are bought by Chinese consumers as well as apparel being a very large market. Those consumers are not directly buying and that’s exactly why you said earlier in terms of what Gucci and others are doing, so there’s a dramatic impact to a lot of major retailers worldwide the longer this drags on.

Julia Raymond:
Mm-hmm (affirmative). Absolutely. Well, we hope it turns around. This is a somber topic. It’s not good. I think you’re right. I think retailers have a second responsibility if not the primary responsibility of helping. You gave the example of jd.com donating a lot of masks and you talked about one other… This is, trying to remember… Before, we started the show you talked about…

Tony D’Onofrio:
Well, the other ways that you see other innovation taking in. So for example, Alibaba has developed a software solution to using computer vision to identify what, do you actually have a fever. You also see now in China, a lot of robots being deployed that are basically disinfecting. They’re doing street patrols, they’re delivering food.

Tony D’Onofrio:
If you look at, actually, there’re some videos online in terms of how people are adjusting. For example, I saw one approach where they have the sanitary toothpicks board in an elevator. When you want to get into an elevator, you don’t want to touch the button and you basically take one of the toothpicks, you push the button, then you throw it away. That’s one example. Another example is when you do a home delivery, you don’t want to go meet the person delivering because he could be a carrier. So someone was popping the trunk from his window and the goods were being delivered at the car trunk and you will go pick it up later. There’re different ways people are adjusting to this issue and technology companies are actually helping. And that was interesting to me to what Alibaba and the whole robotics impact in terms of stepping up to address some of the issues.

Julia Raymond:
Mm-hmm (affirmative), stepping up in innovating to help this. It’s amazing examples that you provided and you have so much insight as always, Tony, I heard that you’ll be presenting soon at multiple conferences.

Tony D’Onofrio:
Actually one of them is at the 7/11 headquarters.

Julia Raymond:
Oh wow!

Tony D’Onofrio:
I’m actually looking forward to going to see that store.

Julia Raymond:
Excellent!

Tony D’Onofrio:
The one in March is at the 7/11 headquarters. So I’m actually looking forward to that.

Julia Raymond:
Yeah, a bit serendipitous. Cool. Well that will be exciting. I look forward to hearing your thoughts on it and how it compares to the Amazon Go store.

Tony D’Onofrio:
Excellent. Well as always, a pleasure talking to you.

Julia Raymond:
Yes, thanks for joining.

Tony D’Onofrio:
Thank you very much.